0001593538 us-gaap:ConsumerPortfolioSegmentMember us-gaap:OperatingSegmentsMember navi:FederalEducationLoansSegmentMember 2019-01-01 2019-09-30

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

For the quarterly period ended September 30, 20182019

or

 

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

For the transition period from                  to                 

Commission File Number: 001-36228

 

Navient Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-4054283

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

123 Justison Street, Wilmington, Delaware

19801

(Address of principal executive offices)

(Zip Code)

(302) 283-8000

(Registrant’s telephone number, including area code)

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

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:SecuritiesregisteredpursuanttoSection12(b)oftheAct.

 

ClassTitleofeachclass

Outstanding at September 30, 2018

 

Trading

Symbol(s)

Nameof eachexchangeon whichregistered

Common Stock, $0.01stock, par value $.01 per share

257,966,088 shares

NAVI

The NASDAQ Global Select Market

6% Senior Notes due December 15, 2043

JSM

The NASDAQ Global Select Market

 

As of September 30, 2019, there were 221,036,735 shares of common stock outstanding.


Table of Contents

 

NAVIENT CORPORATION

TABLE OF CONTENTS

 

Part I. Financial Information

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

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

4641

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

8980

 

 

 

Item 4.

Controls and Procedures

9484

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

9585

 

 

 

Item 1A.

Risk Factors

9787

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

9788

 

 

 

Item 3.

Defaults Upon Senior Securities

9888

 

 

 

Item 4.

Mine Safety Disclosures

9888

 

 

 

Item 5.

Other Information

9888

 

 

 

Item 6.

Exhibits

9889

 

 

 


Table of Contents

PART I. FINANCIALFINANCIAL INFORMATION

Item 1.   Financial Statements

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans (net of allowance for losses of $79 and $60, respectively)

 

$

74,257

 

 

$

81,703

 

Private Education Loans (net of allowance for losses of $1,226 and $1,297,

respectively)

 

 

22,447

 

 

 

23,419

 

FFELP Loans (net of allowance for losses of $65 and $76, respectively)

 

$

66,087

 

 

$

72,253

 

Private Education Loans (net of allowance for losses of $1,101 and $1,201,

respectively)

 

 

21,846

 

 

 

22,245

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

2

 

 

 

2

 

Held-to-maturity

 

 

21

 

 

 

 

Other

 

 

294

 

 

 

386

 

 

 

220

 

 

 

226

 

Total investments

 

 

296

 

 

 

388

 

 

 

241

 

 

 

226

 

Cash and cash equivalents

 

 

2,143

 

 

 

1,518

 

 

 

1,583

 

 

 

1,286

 

Restricted cash and cash equivalents

 

 

3,105

 

 

 

3,128

 

 

 

2,677

 

 

 

3,976

 

Goodwill and acquired intangible assets, net

 

 

792

 

 

 

810

 

 

 

763

 

 

 

786

 

Other assets

 

 

3,453

 

 

 

4,025

 

 

 

3,356

 

 

 

3,404

 

Total assets

 

$

106,493

 

 

$

114,991

 

 

$

96,553

 

 

$

104,176

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

5,007

 

 

$

4,771

 

 

$

7,004

 

 

$

5,422

 

Long-term borrowings

 

 

96,089

 

 

 

105,012

 

 

 

84,769

 

 

 

93,519

 

Other liabilities

 

 

1,642

 

 

 

1,723

 

 

 

1,528

 

 

 

1,688

 

Total liabilities

 

 

102,738

 

 

 

111,506

 

 

 

93,301

 

 

 

100,629

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share, 1.125 billion shares authorized: 445

million and 440 million shares issued, respectively

 

 

4

 

 

 

4

 

Common stock, par value $0.01 per share, 1.125 billion shares authorized:

450 million and 445 million shares issued, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

3,142

 

 

 

3,077

 

 

 

3,188

 

 

 

3,145

 

Accumulated other comprehensive income (net of tax expense of $72 and $36,

respectively)

 

 

227

 

 

 

61

 

Accumulated other comprehensive (loss) income (net of tax (benefit) expense

of $(41) and $35, respectively)

 

 

(124

)

 

 

113

 

Retained earnings

 

 

3,186

 

 

 

3,004

 

 

 

3,527

 

 

 

3,218

 

Total Navient Corporation stockholders’ equity before treasury stock

 

 

6,559

 

 

 

6,146

 

 

 

6,595

 

 

 

6,480

 

Less: Common stock held in treasury at cost: 187 million and 177 million shares,

respectively

 

 

(2,835

)

 

 

(2,692

)

Less: Common stock held in treasury at cost: 229 million and 198 million

shares, respectively

 

 

(3,355

)

 

 

(2,961

)

Total Navient Corporation stockholders’ equity

 

 

3,724

 

 

 

3,454

 

 

 

3,240

 

 

 

3,519

 

Noncontrolling interest

 

 

31

 

 

 

31

 

 

 

12

 

 

 

28

 

Total equity

 

 

3,755

 

 

 

3,485

 

 

 

3,252

 

 

 

3,547

 

Total liabilities and equity

 

$

106,493

 

 

$

114,991

 

 

$

96,553

 

 

$

104,176

 

 

Supplemental information — assets and liabilities of consolidated variable interest entities:

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

FFELP Loans

 

$

73,480

 

 

$

77,710

 

 

$

65,881

 

 

$

71,921

 

Private Education Loans

 

 

19,909

 

 

 

20,886

 

 

 

19,311

 

 

 

19,698

 

Restricted cash

 

 

3,054

 

 

 

3,091

 

 

 

2,631

 

 

 

3,928

 

Other assets, net

 

 

1,025

 

 

 

1,160

 

 

 

935

 

 

 

956

 

Short-term borrowings

 

 

2,648

 

 

 

2,906

 

 

 

5,163

 

 

 

4,341

 

Long-term borrowings

 

 

85,107

 

 

 

89,317

 

 

 

75,277

 

 

 

82,738

 

Net assets of consolidated variable interest entities

 

$

9,713

 

 

$

10,624

 

 

$

8,318

 

 

$

9,424

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.


1


Table of Contents

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

759

 

 

$

681

 

 

$

2,242

 

 

$

1,979

 

 

$

706

 

 

$

759

 

 

$

2,211

 

 

$

2,242

 

Private Education Loans

 

 

455

 

 

 

445

 

 

 

1,327

 

 

 

1,204

 

 

 

437

 

 

 

455

 

 

 

1,317

 

 

 

1,327

 

Other loans

 

 

1

 

 

 

2

 

 

 

4

 

 

 

12

 

 

 

 

 

 

1

 

 

 

2

 

 

 

4

 

Cash and investments

 

 

26

 

 

 

12

 

 

 

66

 

 

 

29

 

 

 

23

 

 

 

26

 

 

 

75

 

 

 

66

 

Total interest income

 

 

1,241

 

 

 

1,140

 

 

 

3,639

 

 

 

3,224

 

 

 

1,166

 

 

 

1,241

 

 

 

3,605

 

 

 

3,639

 

Total interest expense

 

 

935

 

 

 

785

 

 

 

2,707

 

 

 

2,178

 

 

 

854

 

 

 

935

 

 

 

2,714

 

 

 

2,707

 

Net interest income

 

 

306

 

 

 

355

 

 

 

932

 

 

 

1,046

 

 

 

312

 

 

 

306

 

 

 

891

 

 

 

932

 

Less: provisions for loan losses

 

 

85

 

 

 

105

 

 

 

284

 

 

 

317

 

 

 

64

 

 

 

85

 

 

 

208

 

 

 

284

 

Net interest income after provisions for loan losses

 

 

221

 

 

 

250

 

 

 

648

 

 

 

729

 

 

 

248

 

 

 

221

 

 

 

683

 

 

 

648

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

70

 

 

 

75

 

 

 

210

 

 

 

221

 

 

 

60

 

 

 

70

 

 

 

182

 

 

 

210

 

Asset recovery and business processing revenue

 

 

106

 

 

 

157

 

 

 

313

 

 

 

367

 

 

 

123

 

 

 

106

 

 

 

364

 

 

 

313

 

Other income (loss)

 

 

28

 

 

 

4

 

 

 

29

 

 

 

3

 

 

 

9

 

 

 

28

 

 

 

37

 

 

 

29

 

Gains on sales of loans and investments

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Losses on debt repurchases

 

 

(1

)

 

 

(1

)

 

 

(9

)

 

 

(1

)

Gains on sales of loans

 

 

 

 

 

 

 

 

16

 

 

 

 

Gains (losses) on debt repurchases

 

 

 

 

 

(1

)

 

 

59

 

 

 

(9

)

Gains (losses) on derivative and hedging activities, net

 

 

2

 

 

 

25

 

 

 

10

 

 

 

(16

)

 

 

4

 

 

 

2

 

 

 

(21

)

 

 

10

 

Total other income

 

 

205

 

 

 

263

 

 

 

553

 

 

 

577

 

 

 

196

 

 

 

205

 

 

 

637

 

 

 

553

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

121

 

 

 

128

 

 

 

380

 

 

 

381

 

 

 

120

 

 

 

121

 

 

 

372

 

 

 

380

 

Other operating expenses

 

 

134

 

 

 

110

 

 

 

351

 

 

 

326

 

 

 

131

 

 

 

134

 

 

 

377

 

 

 

351

 

Total operating expenses

 

 

255

 

 

 

238

 

 

 

731

 

 

 

707

 

 

 

251

 

 

 

255

 

 

 

749

 

 

 

731

 

Goodwill and acquired intangible asset impairment

and amortization expense

 

 

23

 

 

 

6

 

 

 

39

 

 

 

17

 

 

 

6

 

 

 

23

 

 

 

23

 

 

 

39

 

Restructuring/other reorganization expenses

 

 

1

 

 

 

 

 

 

10

 

 

 

 

 

 

2

 

 

 

1

 

 

 

4

 

 

 

10

 

Total expenses

 

 

279

 

 

 

244

 

 

 

780

 

 

 

724

 

 

 

259

 

 

 

279

 

 

 

776

 

 

 

780

 

Income before income tax expense

 

 

147

 

 

 

269

 

 

 

421

 

 

 

582

 

 

 

185

 

 

 

147

 

 

 

544

 

 

 

421

 

Income tax expense

 

 

33

 

 

 

93

 

 

 

98

 

 

 

206

 

 

 

40

 

 

 

33

 

 

 

119

 

 

 

98

 

Net income attributable to Navient Corporation

 

$

114

 

 

$

176

 

 

$

323

 

 

$

376

 

Basic earnings per common share attributable to Navient

Corporation

 

$

.44

 

 

$

.65

 

 

$

1.23

 

 

$

1.35

 

Net income

 

$

145

 

 

$

114

 

 

$

425

 

 

$

323

 

Basic earnings per common share

 

$

.64

 

 

$

.44

 

 

$

1.81

 

 

$

1.23

 

Average common shares outstanding

 

 

260

 

 

 

269

 

 

 

263

 

 

 

279

 

 

 

225

 

 

 

260

 

 

 

235

 

 

 

263

 

Diluted earnings per common share attributable to Navient

Corporation

 

$

.43

 

 

$

.64

 

 

$

1.21

 

 

$

1.32

 

Diluted earnings per common share

 

$

.63

 

 

$

.43

 

 

$

1.79

 

 

$

1.21

 

Average common and common equivalent shares outstanding

 

 

264

 

 

 

274

 

 

 

267

 

 

 

285

 

 

 

228

 

 

 

264

 

 

 

238

 

 

 

267

 

Dividends per common share attributable to Navient

Corporation

 

$

.16

 

 

$

.16

 

 

$

.48

 

 

$

.48

 

Dividends per common share

 

$

.16

 

 

$

.16

 

 

$

.48

 

 

$

.48

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.


2


Table of Contents

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

114

 

 

$

176

 

 

$

323

 

 

$

376

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains on derivatives

 

 

32

 

 

 

15

 

 

 

205

 

 

 

16

 

Reclassification adjustments for derivative (gains) losses

   included in net income (interest expense)

 

 

(1

)

 

 

 

 

 

(2

)

 

 

 

Total gains on derivatives

 

 

31

 

 

 

15

 

 

 

203

 

 

 

16

 

Income tax expense

 

 

(7

)

 

 

(6

)

 

 

(50

)

 

 

(6

)

Other comprehensive income, net of tax expense

 

 

24

 

 

 

9

 

 

 

153

 

 

 

10

 

Total comprehensive income attributable to Navient

   Corporation

 

$

138

 

 

$

185

 

 

$

476

 

 

$

386

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

145

 

 

$

114

 

 

$

425

 

 

$

323

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) on derivatives

 

 

(58

)

 

 

32

 

 

 

(311

)

 

 

205

 

Reclassification adjustments for derivative (gains) losses

   included in net income (interest expense)

 

 

(1

)

 

 

(1

)

 

 

(4

)

 

 

(2

)

Total gains (losses) on derivatives

 

 

(59

)

 

 

31

 

 

 

(315

)

 

 

203

 

   Income tax (expense) benefit

 

 

15

 

 

 

(7

)

 

 

78

 

 

 

(50

)

Other comprehensive income (loss), net of tax

 

 

(44

)

 

 

24

 

 

 

(237

)

 

 

153

 

Total comprehensive income

 

$

101

 

 

$

138

 

 

$

188

 

 

$

476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 


3


Table of Contents

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Issued

 

 

Treasury

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Stock

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at June 30, 2017

 

 

439,187,978

 

 

 

(165,083,710

)

 

 

274,104,268

 

 

$

4

 

 

$

3,056

 

 

$

7

 

 

$

2,997

 

 

$

(2,524

)

 

$

3,540

 

 

$

24

 

 

$

3,564

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

185

 

 

 

 

 

 

185

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.16 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

Issuance of common shares

 

 

385,676

 

 

 

 

 

 

385,676

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Common stock repurchased

 

 

 

 

 

(11,346,367

)

 

 

(11,346,367

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(165

)

 

 

(165

)

 

 

 

 

 

(165

)

Shares repurchased related to employee stock-based

   compensation plans

 

 

 

 

 

(131,374

)

 

 

(131,374

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

 

 

 

(2

)

Balance at September 30, 2017

 

 

439,573,654

 

 

 

(176,561,451

)

 

 

263,012,203

 

 

$

4

 

 

$

3,067

 

 

$

16

 

 

$

3,130

 

 

$

(2,691

)

 

$

3,526

 

 

$

24

 

 

$

3,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

 

444,852,383

 

 

 

(180,225,077

)

 

 

264,627,306

 

 

$

4

 

 

$

3,134

 

 

$

203

 

 

$

3,114

 

 

$

(2,741

)

 

$

3,714

 

 

$

31

 

 

$

3,745

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

114

 

 

 

 

 

 

114

 

 

 

 

 

 

114

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138

 

 

 

 

 

 

138

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.16 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Dividend equivalent units related to employee

   stock-based compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares

 

 

395,615

 

 

 

 

 

 

395,615

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Repurchase of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

(2,569,400

)

 

 

(2,569,400

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

 

 

 

(35

)

Derivative contract settlement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement cost, cash

 

 

 

 

 

(4,312,192

)

 

 

(4,312,192

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

(60

)

 

 

 

 

 

(60

)

(Gain)/loss on settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

Shares repurchased related to employee stock-based

   compensation plans

 

 

 

 

 

(175,241

)

 

 

(175,241

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

(3

)

Balance at September 30, 2018

 

 

445,247,998

 

 

 

(187,281,910

)

 

 

257,966,088

 

 

$

4

 

 

$

3,142

 

 

$

227

 

 

$

3,186

 

 

$

(2,835

)

 

$

3,724

 

 

$

31

 

 

$

3,755

 

See accompanying notes to consolidated financial statements.

4


Table of Contents

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

Issued

 

 

Treasury

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Stock

 

 

Equity

 

 

Interest

 

 

Equity

 

 

Issued

 

 

Treasury

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Stock

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at December 31, 2016

 

 

436,037,666

 

 

 

(145,173,548

)

 

 

290,864,118

 

 

$

4

 

 

$

3,022

 

 

$

6

 

 

$

2,890

 

 

$

(2,223

)

 

$

3,699

 

 

$

24

 

 

$

3,723

 

Balance at June 30, 2018

 

 

444,852,383

 

 

 

(180,225,077

)

 

 

264,627,306

 

 

$

4

 

 

$

3,134

 

 

$

203

 

 

$

3,114

 

 

$

(2,741

)

 

$

3,714

 

 

$

31

 

 

$

3,745

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

376

 

 

 

 

 

 

376

 

 

 

 

 

 

376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

114

 

 

 

 

 

 

114

 

 

 

 

 

 

114

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

386

 

 

 

 

 

 

386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138

 

 

 

 

 

 

138

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.48 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(133

)

 

 

 

 

 

(133

)

 

 

 

 

 

(133

)

Dividend equivalent units related to employee

stock-based compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Issuance of common shares

 

 

3,535,988

 

 

 

 

 

 

3,535,988

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

19

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

 

 

 

26

 

Common stock repurchased

 

 

 

 

 

(29,646,374

)

 

 

(29,646,374

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(440

)

 

 

(440

)

 

 

 

 

 

(440

)

Shares repurchased related to employee

stock-based compensation plans

 

 

 

 

 

(1,741,529

)

 

 

(1,741,529

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

(28

)

 

 

 

 

 

(28

)

Balance at September 30, 2017

 

 

439,573,654

 

 

 

(176,561,451

)

 

 

263,012,203

 

 

$

4

 

 

$

3,067

 

 

$

16

 

 

$

3,130

 

 

$

(2,691

)

 

$

3,526

 

 

$

24

 

 

$

3,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

439,718,145

 

 

 

(176,667,573

)

 

 

263,050,572

 

 

$

4

 

 

$

3,077

 

 

$

61

 

 

$

3,004

 

 

$

(2,692

)

 

$

3,454

 

 

$

31

 

 

$

3,485

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

323

 

 

 

 

 

 

323

 

 

 

 

 

 

323

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153

 

 

 

 

 

 

 

 

 

153

 

 

 

 

 

 

153

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

 

 

 

 

 

476

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.48 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(126

)

 

 

 

 

 

(126

)

 

 

 

 

 

(126

)

Common stock ($.16 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Dividend equivalent units related to employee

stock-based compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares

 

 

5,529,853

 

 

 

 

 

 

5,529,853

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

 

 

395,615

 

 

 

 

 

 

395,615

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Repurchase of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

(2,569,400

)

 

 

(2,569,400

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

 

 

 

(35

)

 

 

 

 

 

(2,569,400

)

 

 

(2,569,400

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

 

 

 

(35

)

Derivative contract settlement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement cost, cash

 

 

 

 

 

(4,312,192

)

 

 

(4,312,192

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

(60

)

 

 

 

 

 

(60

)

 

 

 

 

 

(4,312,192

)

 

 

(4,312,192

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

(60

)

 

 

 

 

 

(60

)

(Gain)/loss on settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

Shares repurchased related to employee

stock-based compensation plans

 

 

 

 

 

(3,732,745

)

 

 

(3,732,745

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

(52

)

 

 

 

 

 

(52

)

 

 

 

 

 

(175,241

)

 

 

(175,241

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

(3

)

Reclassification from adoption of ASU No. 2018-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

(13

)

 

 

 

 

 

-

 

 

 

 

 

 

-

 

Balance at September 30, 2018

 

 

445,247,998

 

 

 

(187,281,910

)

 

 

257,966,088

 

 

$

4

 

 

$

3,142

 

 

$

227

 

 

$

3,186

 

 

$

(2,835

)

 

$

3,724

 

 

$

31

 

 

$

3,755

 

 

 

445,247,998

 

 

 

(187,281,910

)

 

 

257,966,088

 

 

$

4

 

 

$

3,142

 

 

$

227

 

 

$

3,186

 

 

$

(2,835

)

 

$

3,724

 

 

$

31

 

 

$

3,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

450,003,173

 

 

 

(219,508,895

)

 

 

230,494,278

 

 

$

4

 

 

$

3,181

 

 

$

(80

)

 

$

3,418

 

 

$

(3,222

)

 

$

3,301

 

 

$

11

 

 

$

3,312

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

145

 

 

 

 

 

 

145

 

 

 

 

 

 

145

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(44

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

 

 

 

 

 

 

101

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.16 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

Dividend equivalent units related to employee

stock-based compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares

 

 

465,697

 

 

 

 

 

 

465,697

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Common stock repurchased

 

 

 

 

 

(9,703,912

)

 

 

(9,703,912

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(130

)

 

 

(130

)

 

 

 

 

 

(130

)

Shares repurchased related to employee

stock-based compensation plans

 

 

 

 

 

(219,328

)

 

 

(219,328

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

(3

)

Net activity in noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Balance at September 30, 2019

 

 

450,468,870

 

 

 

(229,432,135

)

 

 

221,036,735

 

 

$

4

 

 

$

3,188

 

 

$

(124

)

 

$

3,527

 

 

$

(3,355

)

 

$

3,240

 

 

$

12

 

 

$

3,252

 

 

See accompanying notes to consolidated financial statements.


NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Treasury

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Issued

 

 

Treasury

 

 

Outstanding

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Stock

 

 

Equity

 

 

Interest

 

 

Equity

 

Balance at December 31, 2017

 

 

439,718,145

 

 

 

(176,667,573

)

 

 

263,050,572

 

 

$

4

 

 

$

3,077

 

 

$

61

 

 

$

3,004

 

 

$

(2,692

)

 

$

3,454

 

 

$

31

 

 

$

3,485

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

323

 

 

 

 

 

 

323

 

 

 

 

 

 

323

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153

 

 

 

 

 

 

 

 

 

153

 

 

 

 

 

 

153

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

 

 

 

 

 

476

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.48 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(126

)

 

 

 

 

 

(126

)

 

 

 

 

 

(126

)

Dividend equivalent units related to employee

   stock-based compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Issuance of common shares

 

 

5,529,853

 

 

 

 

 

 

5,529,853

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Repurchase of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchased

 

 

 

 

 

(2,569,400

)

 

 

(2,569,400

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

 

 

 

(35

)

Derivative contract settlement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement cost, cash

 

 

 

 

 

(4,312,192

)

 

 

(4,312,192

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

(60

)

 

 

 

 

 

(60

)

(Gain)/loss on settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

4

 

Shares repurchased related to employee

   stock-based compensation plans

 

 

 

 

 

(3,732,745

)

 

 

(3,732,745

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

(52

)

 

 

 

 

 

(52

)

Reclassification from adoption of ASU

   No. 2018-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

 

 

445,247,998

 

 

 

(187,281,910

)

 

 

257,966,088

 

 

$

4

 

 

$

3,142

 

 

$

227

 

 

$

3,186

 

 

$

(2,835

)

 

$

3,724

 

 

$

31

 

 

$

3,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

445,377,826

 

 

 

(197,940,553

)

 

 

247,437,273

 

 

$

4

 

 

$

3,145

 

 

$

113

 

 

$

3,218

 

 

$

(2,961

)

 

$

3,519

 

 

$

28

 

 

$

3,547

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

425

 

 

 

 

 

 

425

 

 

 

 

 

 

425

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(237

)

 

 

 

 

 

 

 

 

(237

)

 

 

 

 

 

(237

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

188

 

 

 

 

 

 

188

 

Cash dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($.48 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(112

)

 

 

 

 

 

(112

)

 

 

 

 

 

(112

)

Dividend equivalent units related to employee

   stock-based compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Issuance of common shares

 

 

5,091,044

 

 

 

 

 

 

5,091,044

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Common stock repurchased

 

 

 

 

 

(28,738,164

)

 

 

(28,738,164

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(363

)

 

 

(363

)

 

 

 

 

 

(363

)

Shares repurchased related to employee

   stock-based compensation plans

 

 

 

 

 

(2,753,418

)

 

 

(2,753,418

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

(31

)

 

 

 

 

 

(31

)

Net activity in noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

(16

)

Balance at September 30, 2019

 

 

450,468,870

 

 

 

(229,432,135

)

 

 

221,036,735

 

 

$

4

 

 

$

3,188

 

 

$

(124

)

 

$

3,527

 

 

$

(3,355

)

 

$

3,240

 

 

$

12

 

 

$

3,252

 

 

See accompanying notes to consolidated financial statements.

 

 

5


Table of Contents

 

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

323

 

 

$

376

 

 

$

425

 

 

$

323

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gains) on sales of loans and investments

 

 

 

 

 

(3

)

Losses on debt repurchases

 

 

9

 

 

 

1

 

(Gains) on sales of loans

 

 

(16

)

 

 

 

(Gains) losses on debt repurchases

 

 

(59

)

 

 

9

 

Goodwill and acquired intangible asset impairment and amortization expense

 

 

39

 

 

 

17

 

 

 

23

 

 

 

39

 

Stock-based compensation expense

 

 

22

 

 

 

26

 

 

 

20

 

 

 

22

 

Mark-to-market (gains) on derivative and hedging activities, net

 

 

(104

)

 

 

(25

)

Mark-to-market losses (gains) on derivative and hedging activities, net

 

 

211

 

 

 

(104

)

Provisions for loan losses

 

 

284

 

 

 

317

 

 

 

208

 

 

 

284

 

(Increase) decrease in accrued interest receivable

 

 

(19

)

 

 

90

 

Increase (decrease) in accrued interest payable

 

 

4

 

 

 

(33

)

Decrease (increase) in accrued interest receivable

 

 

123

 

 

 

(19

)

(Decrease) increase in accrued interest payable

 

 

(117

)

 

 

4

 

Decrease in other assets

 

 

194

 

 

 

213

 

 

 

133

 

 

 

194

 

(Decrease) in other liabilities

 

 

(97

)

 

 

(65

)

Total net cash provided by operating activities

 

 

655

 

 

 

914

 

Decrease in other liabilities

 

 

(120

)

 

 

(97

)

Total adjustments

 

 

406

 

 

 

332

 

Net cash provided by operating activities

 

 

831

 

 

 

655

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans acquired

 

 

(2,625

)

 

 

(6,343

)

Reduction of education loans:

 

 

 

 

 

 

 

 

Installment payments

 

 

10,815

 

 

 

11,290

 

Education loans acquired and originated

 

 

(3,447

)

 

 

(2,625

)

Principal payments on education loans

 

 

9,438

 

 

 

10,815

 

Proceeds from sales of education loans

 

 

408

 

 

 

 

Other investing activities, net

 

 

(93

)

 

 

(70

)

 

 

7

 

 

 

9

 

Purchases of other securities

 

 

(1

)

 

 

(1

)

Proceeds from sales and maturities of other securities

 

 

103

 

 

 

19

 

Purchase of subsidiaries, net of cash and restricted cash acquired

 

 

 

 

 

(77

)

Total net cash provided by investing activities

 

 

8,199

 

 

 

4,818

 

Net cash provided by investing activities

 

 

6,406

 

 

 

8,199

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings collateralized by loans in trust - issued

 

 

7,144

 

 

 

7,024

 

 

 

6,149

 

 

 

7,144

 

Borrowings collateralized by loans in trust - repaid

 

 

(10,478

)

 

 

(10,929

)

 

 

(10,785

)

 

 

(10,478

)

Asset-backed commercial paper conduits, net

 

 

(3,585

)

 

 

(1,364

)

 

 

(1,941

)

 

 

(3,585

)

Long-term notes issued

 

 

495

 

 

 

1,353

 

 

 

 

 

 

495

 

Long-term notes repaid

 

 

(1,530

)

 

 

(1,367

)

 

 

(937

)

 

 

(1,530

)

Other financing activities, net

 

 

(77

)

 

 

(75

)

 

 

(250

)

 

 

(77

)

Common stock repurchased

 

 

(95

)

 

 

(440

)

 

 

(363

)

 

 

(95

)

Common dividends paid

 

 

(126

)

 

 

(133

)

 

 

(112

)

 

 

(126

)

Total net cash used in financing activities

 

 

(8,252

)

 

 

(5,931

)

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

602

 

 

 

(199

)

Net cash used in financing activities

 

 

(8,239

)

 

 

(8,252

)

Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

(1,002

)

 

 

602

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period

 

 

4,646

 

 

 

4,712

 

 

 

5,262

 

 

 

4,646

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

 

$

5,248

 

 

$

4,513

 

 

$

4,260

 

 

$

5,248

 

Cash disbursements made (refunds received) for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

2,515

 

 

$

2,121

 

 

$

2,711

 

 

$

2,515

 

Income taxes paid

 

$

55

 

 

$

107

 

 

$

61

 

 

$

55

 

Income taxes received

 

$

(3

)

 

$

 

 

$

(2

)

 

$

(3

)

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated

Balance Sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,143

 

 

$

1,248

 

 

$

1,583

 

 

$

2,143

 

Restricted cash and restricted cash equivalents

 

 

3,105

 

 

 

3,265

 

 

 

2,677

 

 

 

3,105

 

Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

 

$

5,248

 

 

$

4,513

 

 

$

4,260

 

 

$

5,248

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Noncash activity

 

 

 

 

 

 

 

 

Investing activity - Education loans

 

$

 

 

$

1,552

 

Operating activity - Other assets acquired and other liabilities assumed, net

 

$

 

 

$

14

 

Financing activity - Borrowings assumed in acquisition of education loans

 

$

 

 

$

1,566

 

Noncash activity:

 

 

 

 

 

 

 

 

Investing activity - Held-to-maturity asset backed securities retained related to sales of

education loans

 

$

22

 

 

$

 

Operating activity - Servicing assets recognized upon sales of education loans

 

$

3

 

 

$

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 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 nine months ended September 30, 20182019 are not necessarily indicative of the results for the year ending December 31, 20182019 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, 20172018 (the “2017“2018 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 20172018 Form 10-K.

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and nine months ended September 30, 20172018 to be consistent with classifications adopted for 2018,2019, and had no effect on net income, total assets or total liabilities.

Recently Issued Accounting Pronouncements

Effective in 2018

Revenue Recognition

As of January 1, 2018, we adopted Accounting Standard Codification (“ASC”) 606, “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 its customers. The contract transaction price is allocated to each distinct contractual performance obligation and recognized as revenue at a point in time or over time when or as the good or service is provided to the customer and the performance obligation is satisfied. Generally, our performance obligations are satisfied over time. In conjunction with our implementation plan, we identified revenue streams related to asset recovery and other business processing within our Federal Education Loans and Business Processing segments that are within the scope of the new standard and reviewed related contracts. We determined there was no material change in the timing of our recognition of our asset recovery and business processing revenue or expenses and we did not record a cumulative adjustment as of January 1, 2018 as a result of the adoption of ASC 606. In connection with adopting ASC 606, we recognized $8 million of revenue and $5 million of expenses in the nine months ended September 30, 2018 related to a contract in our Business Processing segment that would have not been recognized under the prior accounting standard until a later period.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

1.Significant Accounting Policies (Continued)

The new guidance does not apply to financial instruments and transfers and servicing that are accounted for under other U.S. GAAP. Accordingly, the new revenue recognition guidance does not have an impact on our recognition of revenue and costs associated with our loan portfolios, investments, derivatives and servicing contracts.  However, we considered the ASC 606 principal versus agent guidance with respect to certain asset recovery guarantor servicing contracts pursuant to which we serve in a portfolio management role and use third-party collection agencies.  We determined that we are required under the new accounting standard to reflect payments to third-party collection agencies as revenue and operating expense.  Under the prior accounting standards, we netted payments to third-party collection agencies against revenue.  We adopted the new accounting standard using the “cumulative effect transition adjustment” which results in prospectively making this change in 2018.  This change in accounting policy resulted in both asset recovery revenue and operating expense in the Federal Education Loan segment being $14 million and $33 million higher for the three and nine months ended September 30, 2018, respectively, with no impact on net income. See “Note 11 – Revenue from Contracts with Customers Accounted in Accordance with ASC 606” for the new required disclosures.

Classification and Measurement

On January 5, 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which reconsiders the classification and measurement of financial instruments. The new standard requires certain equity instruments be measured at fair value, with fair value changes recognized in earnings. In addition, the standard requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. It was effective for the Company as of January 1, 2018. The adoption of this new accounting standard is immaterial to our consolidated financial statements and footnote disclosures.

Intra-Entity Transfer of Assets

On October 24, 2016, the FASB issued ASU No. 2016-16, “Income Taxes — Intra-Entity Transfer of Assets Other and Inventory,” which requires recognition of the income tax consequences of an intra-entity transfer of non-inventory assets when the transfer occurs. The new standard was effective for the Company as of January 1, 2018. The adoption of this new accounting standard is immaterial to our consolidated financial statements and footnote disclosures.

Income Taxes

On February 14, 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows reclassification from Accumulated Other Comprehensive Income (Loss) (“AOCI”), as required by ASC No. 740, “Income Taxes,” to retained earnings for the residual tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017.  The new standard is effective for the Company as of January 1, 2019. However, early adoption is permitted and the Company adopted the standard on January 1, 2018, resulting in a decrease of $13 million to retained earnings due to the reclassification of AOCI to retained earnings.  



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

1.Significant Accounting Policies (Continued)

Effective in 2019

Leases

On February 25,In 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. Under previous GAAP, all operating leases were off-balance sheet, regardless of the term. A right-of-use asset and lease obligation will be recorded for all leases with a term exceeding twelve months, 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 recordedIt was effective for existing leases at the date of adoption must be calculated usingCompany on January 1, 2019 and resulted in recording a $28 million asset and liability with no change to the applicable incremental borrowing rate at the date of adoption.income statement. The standard allows the option to apply the new guidancewas adopted prospectively at the effective date, without adjustment to comparative periods presented with certain practical expedients available. It will be effective for the Company as of January 1, 2019. We continue to assess the impact that adopting this new accounting standard will have on our consolidated financial statements and footnote disclosures but expect it to be immaterial.periods.

Hedging Activities

OnIn August 28, 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging,” which is intended to better align risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and are intended to better align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The new standard will bewas effective for the Company as ofon January 1, 2019. We continue to assess2019 and requires the impact this new standard will have on our consolidated financial statementsmark-to-market gains and footnote disclosures but expect itlosses from qualifying fair value hedge relationships to be immaterial.recorded in the same line item on the income statement of the item being hedged. As a result, the mark-to-market gains and losses from fair value hedging activity are now recorded in interest expense whereas they were previously recorded in gains (losses) on derivative and hedging activities, net. This change in presentation is prospective only and resulted in $11 million and $20 million of gains being recorded in interest expense in the three and nine months ended September 30, 2019, respectively.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

1.Significant Accounting Policies (Continued)

Effective in 2020

Allowance for Loan Losses

On June 16,In 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. As a result, we expect the new guidance will result in an increase to our allowance for loan losses. 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 is effective for the Company as of 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. This standard represents a significant change from existing GAAP and maywill result in material changes to the Company’s accounting for the allowance for loan losses. We are currently evaluating the impact of adopting this accounting standard on our consolidated financial statements and footnote disclosures. We currently estimate that our total allowance for loan losses will increase by approximately $750 million to $850 million upon adoption on January 1, 2020. This would have a corresponding reduction to equity of approximately $580 million to $655 million. This estimated impact is not final and is dependent upon (1) estimated loan characteristics and balances as of January 1, 2020, (2) the current economic environment and forecasted economic environment and (3) continuing review and refinement of models, methodology and judgments. As a result these estimated impacts are subject to change.

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 segregate our Private Education Loan portfolio into two2 classes of loans in monitoring and assessing credit risk — Troubled Debt Restructurings (“TDRs”) and Non-TDRs. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

Allowance for Loan Losses Metrics

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2019

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

82

 

 

$

1,297

 

 

$

10

 

 

$

1,389

 

 

$

67

 

 

$

1,151

 

 

$

 

 

$

1,218

 

Total provision

 

 

10

 

 

 

75

 

 

 

 

 

 

85

 

 

 

8

 

 

 

56

 

 

 

 

 

 

64

 

Net adjustment resulting from the change in the charge-off rate(1)

 

 

 

 

 

(32

)

 

 

 

 

 

(32

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Net charge-offs remaining(2)

 

 

(13

)

 

 

(116

)

 

 

 

 

 

(129

)

 

 

(9

)

 

 

(87

)

 

 

 

 

 

(96

)

Total net charge-offs

 

 

(13

)

 

 

(148

)

 

 

 

 

 

(161

)

 

 

(9

)

 

 

(108

)

 

 

 

 

 

(117

)

Reclassification of interest reserve(3)

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Ending balance

 

$

79

 

 

$

1,226

 

 

$

10

 

 

$

1,315

 

 

$

65

 

 

$

1,101

 

 

$

 

 

$

1,166

 

Allowance Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment — TDR

 

$

 

 

$

1,134

 

 

$

9

 

 

$

1,143

 

 

$

 

 

$

998

 

 

$

 

 

$

998

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans

acquired at a discount and Purchased Credit Impaired

Loans

 

 

79

 

 

 

92

 

 

 

1

 

 

 

172

 

 

 

65

 

 

 

103

 

 

 

 

 

 

168

 

Purchased Non-Credit Impaired Loans acquired at a

discount(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending total allowance

 

$

79

 

 

$

1,226

 

 

$

10

 

 

$

1,315

 

 

$

65

 

 

$

1,101

 

 

$

 

 

$

1,166

 

Loans Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment — TDR

 

$

 

 

$

10,497

 

 

$

29

 

 

$

10,526

 

 

$

 

 

$

9,810

 

 

$

 

 

$

9,810

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans

acquired at a discount and Purchased Credit Impaired

Loans

 

 

70,778

 

 

 

11,459

 

 

 

49

 

 

 

82,286

 

 

 

63,003

 

 

 

11,683

 

 

 

6

 

 

 

74,692

 

Purchased Non-Credit Impaired Loans acquired at a

discount(4)

 

 

2,941

 

 

 

2,282

 

 

 

 

 

 

5,223

 

 

 

2,585

 

 

 

1,892

 

 

 

 

 

 

4,477

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

231

 

 

 

 

 

 

231

 

 

 

 

 

 

208

 

 

 

 

 

 

208

 

Ending total loans(5)

 

$

73,719

 

 

$

24,469

 

 

$

78

 

 

$

98,266

 

 

$

65,588

 

 

$

23,593

 

 

$

6

 

 

$

89,187

 

Net charge-offs as a percentage of average loans in repayment,

excluding the net adjustment resulting from the change in the

charge-off rate(1)

 

 

.09

%

 

 

2.08

%

 

 

%

 

 

 

 

 

 

.06

%

 

 

1.60

%

 

 

%

 

 

 

 

Net adjustment resulting from the change in charge-off rate as a

percentage of average loans in repayment(1)

 

 

%

 

 

.57

%

 

 

%

 

 

 

 

 

 

%

 

 

.39

%

 

 

%

 

 

 

 

Allowance coverage of charge-offs

 

 

1.5

 

 

 

2.1

 

 

 

 

 

 

 

 

 

 

1.9

 

 

 

2.6

 

 

 

 

 

 

 

 

Allowance as a percentage of the ending total loan balance

 

 

.11

%

 

 

5.01

%

 

 

12.71

%

 

 

 

 

 

 

.10

%

 

 

4.67

%

 

 

%

 

 

 

 

Allowance as a percentage of the ending loans in repayment

 

 

.13

%

 

 

5.57

%

 

 

12.71

%

 

 

 

 

 

 

.12

%

 

 

5.08

%

 

 

%

 

 

 

 

Ending total loans(5)

 

$

73,719

 

 

$

24,469

 

 

$

78

 

 

 

 

 

 

$

65,588

 

 

$

23,593

 

 

$

6

 

 

 

 

 

Average loans in repayment

 

$

61,956

 

 

$

22,158

 

 

$

77

 

 

 

 

 

 

$

54,973

 

 

$

21,549

 

 

$

5

 

 

 

 

 

Ending loans in repayment

 

$

60,959

 

 

$

21,997

 

 

$

78

 

 

 

 

 

 

$

54,395

 

 

$

21,655

 

 

$

6

 

 

 

 

 

 

(1)

In third-quarter 2018,2019, the portion of the loan amount charged off at default on Private Education Loans increased from 79 percent80.5% to 80.5 percent. This did not impact the provision for loan losses as previously this had been reserved through the allowance for loan losses.81%. This charge resulted in a $32$21 million reduction to the balance of the receivable for partially charged-off loan balance.

(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 loan’s principal balance.  

(4)

The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2019. The losses of the Purchased Non-Credit Impaired Loans acquired at a discount are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $34 million and $281 million, respectively, as of September 30, 2019 is greater than the incurred losses and as a result 0 allowance for loan losses has been established for these loans as of September 30, 2019.

(5)

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

2.   Allowance for Loan Losses (Continued)

 

 

Three Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

82

 

 

$

1,297

 

 

$

10

 

 

$

1,389

 

Total provision

 

 

10

 

 

 

75

 

 

 

 

 

 

85

 

Net adjustment resulting from the change in the charge-off rate(1)

 

 

 

 

 

(32

)

 

 

 

 

 

(32

)

Net charge-offs remaining(2)

 

 

(13

)

 

 

(116

)

 

 

 

 

 

(129

)

Total net charge-offs

 

 

(13

)

 

 

(148

)

 

 

 

 

 

(161

)

Reclassification of interest reserve(3)

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Ending balance

 

$

79

 

 

$

1,226

 

 

$

10

 

 

$

1,315

 

Allowance Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment — TDR

 

$

 

 

$

1,134

 

 

$

9

 

 

$

1,143

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans

   acquired at a discount and Purchased Credit Impaired

   Loans

 

 

79

 

 

 

92

 

 

 

1

 

 

 

172

 

Purchased Non-Credit Impaired Loans acquired at a

   discount(4)

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

 

 

 

 

 

 

 

Ending total allowance

 

$

79

 

 

$

1,226

 

 

$

10

 

 

$

1,315

 

Loans Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment — TDR

 

$

 

 

$

10,497

 

 

$

29

 

 

$

10,526

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans

   acquired at a discount and Purchased Credit Impaired

   Loans

 

 

70,778

 

 

 

11,459

 

 

 

49

 

 

 

82,286

 

Purchased Non-Credit Impaired Loans acquired at a

   discount(4)

 

 

2,941

 

 

 

2,282

 

 

 

 

 

 

5,223

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

231

 

 

 

 

 

 

231

 

Ending total loans(5)

 

$

73,719

 

 

$

24,469

 

 

$

78

 

 

$

98,266

 

Net charge-offs as a percentage of average loans in repayment,

   excluding the net adjustment resulting from the change in the

   charge-off rate(1)

 

 

.09

%

 

 

2.08

%

 

 

%

 

 

 

 

Net adjustment resulting from the change in charge-off rate as a

   percentage of average loans in repayment(1)

 

 

%

 

 

.57

%

 

 

%

 

 

 

 

Allowance coverage of charge-offs

 

 

1.5

 

 

 

2.1

 

 

 

 

 

 

 

 

Allowance as a percentage of the ending total loan balance

 

 

.11

%

 

 

5.01

%

 

 

12.71

%

 

 

 

 

Allowance as a percentage of the ending loans in repayment

 

 

.13

%

 

 

5.57

%

 

 

12.71

%

 

 

 

 

Ending total loans(5)

 

$

73,719

 

 

$

24,469

 

 

$

78

 

 

 

 

 

Average loans in repayment

 

$

61,956

 

 

$

22,158

 

 

$

77

 

 

 

 

 

Ending loans in repayment

 

$

60,959

 

 

$

21,997

 

 

$

78

 

 

 

 

 

(1)

In third-quarter 2018, the portion of the loan amount charged off at default on Private Education Loans increased from 79% to 80.5%. This charge resulted in a $32 million reduction to the balance of the receivable for partially charged-off loan balance.

(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 loan’s principal balance.

(4)

The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2018. The losses of the Purchased Non-Credit Impaired Loans acquired at a discount are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $38 million and $343 million, respectively, as of September 30, 2018 is greater than the incurred losses and as a result no0 allowance for loan losses has been established for these loans as of September 30, 2018.

(5)

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

 

 

Three Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2019

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

61

 

 

$

1,286

 

 

$

15

 

 

$

1,362

 

 

$

76

 

 

$

1,201

 

 

$

9

 

 

$

1,286

 

Total provision

 

 

10

 

 

 

95

 

 

 

 

 

 

105

 

 

 

23

 

 

 

185

 

 

 

1

 

 

 

208

 

Charge-offs(1)

 

 

(10

)

 

 

(96

)

 

 

(3

)

 

 

(109

)

Reclassification of interest reserve(2)

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net adjustment resulting from the change in the charge-off rate(1)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Net charge-offs remaining(2)

 

 

(33

)

 

 

(267

)

 

 

(2

)

 

 

(302

)

Total net charge-offs

 

 

(33

)

 

 

(288

)

 

 

(2

)

 

 

(323

)

Reclassification of interest reserve(3)

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Loan sales and other transactions

 

 

 

 

 

(1

)

 

 

(8

)

 

 

(9

)

Ending balance

 

$

61

 

 

$

1,287

 

 

$

12

 

 

$

1,360

 

 

$

65

 

 

$

1,101

 

 

$

 

 

$

1,166

 

Allowance Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment — TDR

 

$

 

 

$

1,169

 

 

$

10

 

 

$

1,179

 

Individually evaluated for impairment - TDR

 

$

 

 

$

998

 

 

$

 

 

$

998

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans acquired

at a discount and Purchased Credit Impaired Loans

 

 

61

 

 

 

118

 

 

 

2

 

 

 

181

 

 

 

65

 

 

 

103

 

 

 

 

 

 

168

 

Purchased Non-Credit Impaired Loans acquired at a

discount(3)

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired Loans(3)

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Non-Credit Impaired Loans acquired at a discount(4)

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

 

 

 

 

 

 

 

Ending total allowance

 

$

61

 

 

$

1,287

 

 

$

12

 

 

$

1,360

 

 

$

65

 

 

$

1,101

 

 

$

 

 

$

1,166

 

Loans Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment - TDR

 

$

 

 

 

10,961

 

 

 

30

 

 

$

10,991

 

 

$

 

 

$

9,810

 

 

$

 

 

$

9,810

 

Collectively evaluated for impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans acquired

at a discount and Purchased Credit Impaired Loans

 

 

79,923

 

 

 

11,790

 

 

 

34

 

 

 

91,747

 

 

 

63,003

 

 

 

11,683

 

 

 

6

 

 

 

74,692

 

Purchased Non-Credit Impaired Loans acquired at a

discount(3)

 

 

3,362

 

 

 

2,656

 

 

 

 

 

 

6,018

 

Purchased Credit Impaired Loans(3)

 

 

 

 

 

258

 

 

 

 

 

 

258

 

Ending total loans(4)

 

$

83,285

 

 

$

25,665

 

 

$

64

 

 

$

109,014

 

Charge-offs as a percentage of average loans in repayment

 

 

.05

%

 

 

1.63

%

 

 

16.22

%

 

 

 

 

Purchased Non-Credit Impaired Loans acquired at a discount(4)

 

 

2,585

 

 

 

1,892

 

 

 

 

 

 

4,477

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

208

 

 

 

 

 

 

208

 

Ending total loans(5)

 

$

65,588

 

 

$

23,593

 

 

$

6

 

 

$

89,187

 

Net charge-offs as a percentage of average loans in repayment,

excluding the net adjustment resulting from the change in the

charge-off rate(1)

 

 

.08

%

 

 

1.64

%

 

 

%

 

 

 

 

Net adjustment resulting from the change in charge-off rate as a

percentage of average loans in repayment(1)

 

 

%

 

 

.13

%

 

 

%

 

 

 

 

Allowance coverage of charge-offs

 

 

1.7

 

 

 

3.4

 

 

 

.9

 

 

 

 

 

 

 

1.5

 

 

 

2.9

 

 

 

 

 

 

 

 

Allowance as a percentage of the ending total loan balance

 

 

.07

%

 

 

5.02

%

 

 

18.59

%

 

 

 

 

 

 

.10

%

 

 

4.67

%

 

 

%

 

 

 

 

Allowance as a percentage of the ending loans in repayment

 

 

.09

%

 

 

5.73

%

 

 

18.59

%

 

 

 

 

 

 

.12

%

 

 

5.08

%

 

 

%

 

 

 

 

Ending total loans(4)

 

$

83,285

 

 

$

25,665

 

 

$

64

 

 

 

 

 

Ending total loans(5)

 

$

65,588

 

 

$

23,593

 

 

$

6

 

 

 

 

 

Average loans in repayment

 

$

68,168

 

 

$

23,112

 

 

$

85

 

 

 

 

 

 

$

56,605

 

 

$

21,819

 

 

$

36

 

 

 

 

 

Ending loans in repayment

 

$

66,220

 

 

$

22,448

 

 

$

64

 

 

 

 

 

 

$

54,395

 

 

$

21,655

 

 

$

6

 

 

 

 

 

 

(1)

In third-quarter 2019, the portion of the loan amount charged off at default on Private Education Loans increased from 80.5% to 81%. This charge resulted in a $21 million reduction to the balance of the receivable for partially charged-off loan balance.

(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.

(2)(3)

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

(3)(4)

The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2017.2019. The losses of the Purchased Non-Credit Impaired Loans acquired at a discount are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $45$34 million and $405$281 million, respectively, as of September 30, 20172019 is greater than the incurred losses and as a result no0 allowance for loan losses has been established for these loans as of September 30, 2017.2019.

(4)(5)

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

 

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

60

 

 

$

1,297

 

 

$

10

 

 

$

1,367

 

Total provision

 

 

60

 

 

 

224

 

 

 

 

 

 

284

 

Net adjustment resulting from the change in the charge-off rate(1)

 

 

 

 

 

(32

)

 

 

 

 

 

(32

)

Net charge-offs remaining(2)

 

 

(41

)

 

 

(269

)

 

 

 

 

 

(310

)

Total net charge-offs

 

 

(41

)

 

 

(301

)

 

 

 

 

 

(342

)

Reclassification of interest reserve(3)

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Ending balance

 

$

79

 

 

$

1,226

 

 

$

10

 

 

$

1,315

 

Allowance Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment - TDR

 

$

 

 

$

1,134

 

 

$

9

 

 

$

1,143

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans acquired at a

   discount and Purchased Credit Impaired Loans

 

 

79

 

 

 

92

 

 

 

1

 

 

 

172

 

Purchased Non-Credit Impaired Loans acquired at a discount(4)

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

 

 

 

 

 

 

 

Ending total allowance

 

$

79

 

 

$

1,226

 

 

$

10

 

 

$

1,315

 

Loans Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment - TDR

 

$

 

 

$

10,497

 

 

$

29

 

 

$

10,526

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans acquired at a

   discount and Purchased Credit Impaired Loans

 

 

70,778

 

 

 

11,459

 

 

 

49

 

 

 

82,286

 

Purchased Non-Credit Impaired Loans acquired at a discount(4)

 

 

2,941

 

 

 

2,282

 

 

 

 

 

 

5,223

 

Purchased Credit Impaired Loans(4)

 

 

 

 

 

231

 

 

 

 

 

 

231

 

Ending total loans(5)

 

$

73,719

 

 

$

24,469

 

 

$

78

 

 

$

98,266

 

Net charge-offs as a percentage of average loans in repayment,

   excluding the net adjustment resulting from the change in the

   charge-off rate(1)

 

 

.09

%

 

 

1.61

%

 

 

%

 

 

 

 

Net adjustment resulting from the change in charge-off rate as a

   percentage of average loans in repayment(1)

 

 

%

 

 

.19

%

 

 

%

 

 

 

 

Allowance coverage of charge-offs

 

 

1.4

 

 

 

3.0

 

 

 

 

 

 

 

 

Allowance as a percentage of the ending total loan balance

 

 

.11

%

 

 

5.01

%

 

 

13.02

%

 

 

 

 

Allowance as a percentage of the ending loans in repayment

 

 

.13

%

 

 

5.57

%

 

 

13.02

%

 

 

 

 

Ending total loans(5)

 

$

73,719

 

 

$

24,469

 

 

$

78

 

 

 

 

 

Average loans in repayment

 

$

63,934

 

 

$

22,367

 

 

$

74

 

 

 

 

 

Ending loans in repayment

 

$

60,959

 

 

$

21,997

 

 

$

78

 

 

 

 

 

 

(1)

In third-quarter 2018, the portion of the loan amount charged off at default on Private Education Loans increased from 79 percent79% to 80.5 percent.80.5%. This chargechange resulted in a $32 million reduction to the balance of the receivable for partially charged-off loan balance.

(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 loan’s principal balance.  

(4)

The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2018. The losses of the Purchased Non-Credit Impaired Loans acquired at a discount are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $38 million and $343 million, respectively, as of September 30, 2018 is greater than the incurred losses and as a result no0 allowance for loan losses has been established for these loans as of September 30, 2018.

(5)

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

 

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

 

 

Nine Months Ended September 30, 2017

 

(Dollars in millions)

 

FFELP Loans

 

 

Private Education

Loans

 

 

Other

Loans

 

 

Total

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

67

 

 

$

1,351

 

 

$

15

 

 

$

1,433

 

Total provision

 

 

30

 

 

 

285

 

 

 

2

 

 

 

317

 

Charge-offs(1)

 

 

(36

)

 

 

(355

)

 

 

(5

)

 

 

(396

)

Reclassification of interest reserve(2)

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Ending balance

 

$

61

 

 

$

1,287

 

 

$

12

 

 

$

1,360

 

Allowance Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment - TDR

 

$

 

 

$

1,169

 

 

$

10

 

 

$

1,179

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans acquired at a

   discount and Purchased Credit Impaired Loans

 

 

61

 

 

 

118

 

 

 

2

 

 

 

181

 

Purchased Non-Credit Impaired Loans acquired at a discount(3)

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Credit Impaired Loans(3)

 

 

 

 

 

 

 

 

 

 

 

 

Ending total allowance

 

$

61

 

 

$

1,287

 

 

$

12

 

 

$

1,360

 

Loans Ending Balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment - TDR

 

$

 

 

$

10,961

 

 

$

30

 

 

$

10,991

 

Collectively evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Excluding Purchased Non-Credit Impaired Loans acquired at a

   discount and Purchased Credit Impaired Loans

 

 

79,923

 

 

 

11,790

 

 

 

34

 

 

 

91,747

 

Purchased Non-Credit Impaired Loans acquired at a discount(3)

 

 

3,362

 

 

 

2,656

 

 

 

 

 

 

6,018

 

Purchased Credit Impaired Loans(3)

 

 

 

 

 

258

 

 

 

 

 

 

258

 

Ending total loans(4)

 

$

83,285

 

 

$

25,665

 

 

$

64

 

 

$

109,014

 

Charge-offs as a percentage of average loans in repayment

 

 

.07

%

 

 

2.14

%

 

 

3.92

%

 

 

 

 

Allowance coverage of charge-offs

 

 

1.3

 

 

 

2.7

 

 

 

1.7

 

 

 

 

 

Allowance as a percentage of the ending total loan balance

 

 

.07

%

 

 

5.02

%

 

 

18.59

%

 

 

 

 

Allowance as a percentage of the ending loans in repayment

 

 

.09

%

 

 

5.73

%

 

 

18.59

%

 

 

 

 

Ending total loans(4)

 

$

83,285

 

 

$

25,665

 

 

$

64

 

 

 

 

 

Average loans in repayment

 

$

68,791

 

 

$

22,180

 

 

$

186

 

 

 

 

 

Ending loans in repayment

 

$

66,220

 

 

$

22,448

 

 

$

64

 

 

 

 

 

(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 loan’s principal balance.

(3)

The Purchased Credit Impaired Loans’ losses are not provided for by the allowance for loan losses in the above table as these loans are separately reserved for, if needed. No allowance for loan losses has been established for these loans as of September 30, 2017. The losses of the Purchased Non-Credit Impaired Loans acquired at a discount are not provided for by the allowance for loan losses in the above table as the remaining purchased discount associated with the FFELP and Private Education Loans of $45 million and $405 million, respectively, as of September 30, 2017 is greater than the incurred losses and as a result no allowance for loan losses has been established for these loans as of September 30, 2017.

(4)

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 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. 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.

 

FFELP Loan Delinquencies

 

 

FFELP Loan Delinquencies

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

4,160

 

 

 

 

 

 

$

4,711

 

 

 

 

 

 

$

3,383

 

 

 

 

 

 

$

3,793

 

 

 

 

 

Loans in forbearance(2)

 

 

8,600

 

 

 

 

 

 

 

8,533

 

 

 

 

 

 

 

7,810

 

 

 

 

 

 

 

8,386

 

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

54,005

 

 

 

88.6

%

 

 

59,264

 

 

 

87.3

%

 

 

48,785

 

 

 

89.7

%

 

 

53,500

 

 

 

89.8

%

Loans delinquent 31-60 days(3)

 

 

1,978

 

 

 

3.2

 

 

 

2,638

 

 

 

3.9

 

 

 

1,656

 

 

 

3.0

 

 

 

1,964

 

 

 

3.4

 

Loans delinquent 61-90 days(3)

 

 

947

 

 

 

1.6

 

 

 

1,763

 

 

 

2.6

 

 

 

827

 

 

 

1.5

 

 

 

910

 

 

 

1.5

 

Loans delinquent greater than 90 days(3)

 

 

4,029

 

 

 

6.6

 

 

 

4,188

 

 

 

6.2

 

 

 

3,127

 

 

 

5.8

 

 

 

3,177

 

 

 

5.3

 

Total FFELP Loans in repayment

 

 

60,959

 

 

 

100

%

 

 

67,853

 

 

 

100

%

 

 

54,395

 

 

 

100

%

 

 

59,551

 

 

 

100

%

Total FFELP Loans, gross

 

 

73,719

 

 

 

 

 

 

 

81,097

 

 

 

 

 

 

 

65,588

 

 

 

 

 

 

 

71,730

 

 

 

 

 

FFELP Loan unamortized premium

 

 

617

 

 

 

 

 

 

 

666

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

599

 

 

 

 

 

Total FFELP Loans

 

 

74,336

 

 

 

 

 

 

 

81,763

 

 

 

 

 

 

 

66,152

 

 

 

 

 

 

 

72,329

 

 

 

 

 

FFELP Loan allowance for losses

 

 

(79

)

 

 

 

 

 

 

(60

)

 

 

 

 

 

 

(65

)

 

 

 

 

 

 

(76

)

 

 

 

 

FFELP Loans, net

 

$

74,257

 

 

 

 

 

 

$

81,703

 

 

 

 

 

 

$

66,087

 

 

 

 

 

 

$

72,253

 

 

 

 

 

Percentage of FFELP Loans in repayment

 

 

 

 

 

 

82.7

%

 

 

 

 

 

 

83.7

%

 

 

 

 

 

 

82.9

%

 

 

 

 

 

 

83.0

%

Delinquencies as a percentage of FFELP Loans in

repayment

 

 

 

 

 

 

11.4

%

 

 

 

 

 

 

12.7

%

 

 

 

 

 

 

10.3

%

 

 

 

 

 

 

10.2

%

FFELP Loans in forbearance as a percentage of

loans in repayment and forbearance

 

 

 

 

 

 

12.4

%

 

 

 

 

 

 

11.2

%

 

 

 

 

 

 

12.6

%

 

 

 

 

 

 

12.3

%

 

(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 such as disaster relief.

(3)

The period of delinquency is based on the number of days scheduled payments are contractually past due.

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

For Private Education Loans, the key credit quality indicators are FICO scores, school type, the existence of a cosigner, the loan status and loan seasoning. The FICO scores and school type are assessed at origination. 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 Loan Credit Quality Indicators

 

 

Private Education Loan Credit Quality Indicators

 

 

TDRs

 

 

TDRs

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Balance(2)

 

 

% of Balance

 

 

Balance(2)

 

 

% of Balance

 

 

Balance(3)

 

 

% of Balance

 

 

Balance(3)

 

 

% of Balance

 

Credit Quality Indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Original Winning FICO Scores:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FICO 640 and above

 

$

9,283

 

 

 

92

%

 

$

9,647

 

 

 

92

%

 

$

8,670

 

 

 

92

%

 

$

9,133

 

 

 

92

%

FICO below 640

 

 

848

 

 

 

8

 

 

 

889

 

 

 

8

 

 

 

792

 

 

 

8

 

 

 

836

 

 

 

8

 

Total

 

$

10,131

 

 

 

100

%

 

$

10,536

 

 

 

100

%

 

$

9,462

 

 

 

100

%

 

$

9,969

 

 

 

100

%

School Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not-for-profit

 

$

7,997

 

 

 

79

%

 

$

8,247

 

 

 

78

%

 

$

7,524

 

 

 

80

%

 

$

7,888

 

 

 

79

%

For-profit

 

 

2,134

 

 

 

21

 

 

 

2,289

 

 

 

22

 

 

 

1,938

 

 

 

20

 

 

 

2,081

 

 

 

21

 

Total

 

$

10,131

 

 

 

100

%

 

$

10,536

 

 

 

100

%

 

$

9,462

 

 

 

100

%

 

$

9,969

 

 

 

100

%

Cosigners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With cosigner(1)

 

$

6,258

 

 

 

62

%

 

$

6,441

 

 

 

61

%

 

$

5,904

 

 

 

62

%

 

$

6,172

 

 

 

62

%

Without cosigner

 

 

3,873

 

 

 

38

 

 

 

4,095

 

 

 

39

 

 

 

3,558

 

 

 

38

 

 

 

3,797

 

 

 

38

 

Total

 

$

10,131

 

 

 

100

%

 

$

10,536

 

 

 

100

%

 

$

9,462

 

 

 

100

%

 

$

9,969

 

 

 

100

%

Seasoning(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seasoning(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-12 payments

 

$

365

 

 

 

4

%

 

$

506

 

 

 

5

%

 

$

247

 

 

 

3

%

 

$

335

 

 

 

3

%

13-24 payments

 

 

491

 

 

 

5

 

 

 

644

 

 

 

6

 

 

 

332

 

 

 

3

 

 

 

436

 

 

 

4

 

25-36 payments

 

 

723

 

 

 

7

 

 

 

947

 

 

 

9

 

 

 

515

 

 

 

5

 

 

 

660

 

 

 

7

 

37-48 payments

 

 

1,026

 

 

 

10

 

 

 

1,271

 

 

 

12

 

 

 

718

 

 

 

8

 

 

 

934

 

 

 

10

 

More than 48 payments

 

 

7,071

 

 

 

70

 

 

 

6,691

 

 

 

63

 

 

 

7,280

 

 

 

77

 

 

 

7,178

 

 

 

72

 

Not yet in repayment

 

 

455

 

 

 

4

 

 

 

477

 

 

 

5

 

 

 

370

 

 

 

4

 

 

 

426

 

 

 

4

 

Total

 

$

10,131

 

 

 

100

%

 

$

10,536

 

 

 

100

%

 

$

9,462

 

 

 

100

%

 

$

9,969

 

 

 

100

%

 

(1)

Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 62% at September 30, 2019 and December 31, 2018.

(2)

Number of months in active repayment for which a scheduled payment was received.

(2)(3)

Balance equals the gross Private Education Loans.

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

 

 

Private Education Loan Credit Quality Indicators

 

 

Private Education Loan Credit Quality Indicators

 

 

Non-TDRs

 

 

Non-TDRs

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Balance(2)

 

 

% of Balance

 

 

Balance(2)

 

 

% of Balance

 

 

Balance(3)

 

 

% of Balance

 

 

Balance(3)

 

 

% of Balance

 

Credit Quality Indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Original Winning FICO Scores:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FICO 640 and above

 

$

13,142

 

 

 

96

%

 

$

13,752

 

 

 

96

%

 

$

13,138

 

 

 

97

%

 

$

13,087

 

 

 

96

%

FICO below 640

 

 

508

 

 

 

4

 

 

 

592

 

 

 

4

 

 

 

390

 

 

 

3

 

 

 

475

 

 

 

4

 

Total

 

$

13,650

 

 

 

100

%

 

$

14,344

 

 

 

100

%

 

$

13,528

 

 

 

100

%

 

$

13,562

 

 

 

100

%

School Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not-for-profit

 

$

11,499

 

 

 

84

%

 

$

12,431

 

 

 

87

%

 

$

12,073

 

 

 

89

%

 

$

11,953

 

 

 

88

%

For-profit

 

 

2,151

 

 

 

16

 

 

 

1,913

 

 

 

13

 

 

 

1,455

 

 

 

11

 

 

 

1,609

 

 

 

12

 

Total

 

$

13,650

 

 

 

100

%

 

$

14,344

 

 

 

100

%

 

$

13,528

 

 

 

100

%

 

$

13,562

 

 

 

100

%

Cosigners:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With cosigner(1)

 

$

7,453

 

 

 

55

%

 

$

9,193

 

 

 

64

%

 

$

5,558

 

 

 

41

%

 

$

6,961

 

 

 

51

%

Without cosigner

 

 

6,197

 

 

 

45

 

 

 

5,151

 

 

 

36

 

 

 

7,970

 

 

 

59

 

 

 

6,601

 

 

 

49

 

Total

 

$

13,650

 

 

 

100

%

 

$

14,344

 

 

 

100

%

 

$

13,528

 

 

 

100

%

 

$

13,562

 

 

 

100

%

Seasoning(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seasoning(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-12 payments

 

$

2,553

 

 

 

19

%

 

$

1,424

 

 

 

10

%

 

$

3,828

 

 

 

28

%

 

$

3,353

 

 

 

25

%

13-24 payments

 

 

758

 

 

 

6

 

 

 

437

 

 

 

3

 

 

 

1,508

 

 

 

11

 

 

 

486

 

 

 

3

 

25-36 payments

 

 

334

 

 

 

2

 

 

 

466

 

 

 

3

 

 

 

517

 

 

 

4

 

 

 

322

 

 

 

2

 

37-48 payments

 

 

450

 

 

 

3

 

 

 

867

 

 

 

6

 

 

 

258

 

 

 

2

 

 

 

383

 

 

 

3

 

More than 48 payments

 

 

9,118

 

 

 

67

 

 

 

10,566

 

 

 

74

 

 

 

7,112

 

 

 

53

 

 

 

8,626

 

 

 

64

 

Not yet in repayment

 

 

437

 

 

 

3

 

 

 

584

 

 

 

4

 

 

 

305

 

 

 

2

 

 

 

392

 

 

 

3

 

Total

 

$

13,650

 

 

 

100

%

 

$

14,344

 

 

 

100

%

 

$

13,528

 

 

 

100

%

 

$

13,562

 

 

 

100

%

 

(1)

Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 67% at September 30, 2019 and December 31, 2018.

(2)

Number of months in active repayment for which a scheduled payment was received.

(2)(3)

Balance equals the gross Private Education Loans.

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

 

 

Private Education Loan Delinquencies

 

 

Private Education Loan Delinquencies

 

 

TDRs

 

 

TDRs

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

455

 

 

 

 

 

 

$

477

 

 

 

 

 

 

$

370

 

 

 

 

 

 

$

426

 

 

 

 

 

Loans in forbearance(2)

 

 

707

 

 

 

 

 

 

 

681

 

 

 

 

 

 

 

513

 

 

 

 

 

 

 

518

 

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

7,767

 

 

 

86.6

%

 

 

8,333

 

 

 

88.9

%

 

 

7,668

 

 

 

89.4

%

 

 

7,890

 

 

 

87.4

%

Loans delinquent 31-60 days(3)

 

 

385

 

 

 

4.3

 

 

 

351

 

 

 

3.7

 

 

 

291

 

 

 

3.4

 

 

 

344

 

 

 

3.8

 

Loans delinquent 61-90 days(3)

 

 

250

 

 

 

2.8

 

 

 

207

 

 

 

2.2

 

 

 

179

 

 

 

2.1

 

 

 

235

 

 

 

2.6

 

Loans delinquent greater than 90 days(3)

 

 

567

 

 

 

6.3

 

 

 

487

 

 

 

5.2

 

 

 

441

 

 

 

5.1

 

 

 

556

 

 

 

6.2

 

Total TDR loans in repayment

 

 

8,969

 

 

 

100

%

 

 

9,378

 

 

 

100

%

 

 

8,579

 

 

 

100

%

 

 

9,025

 

 

 

100

%

Total TDR loans, gross

 

 

10,131

 

 

 

 

 

 

 

10,536

 

 

 

 

 

 

 

9,462

 

 

 

 

 

 

 

9,969

 

 

 

 

 

TDR loans unamortized discount

 

 

(213

)

 

 

 

 

 

 

(225

)

 

 

 

 

 

 

(209

)

 

 

 

 

 

 

(212

)

 

 

 

 

Total TDR loans

 

 

9,918

 

 

 

 

 

 

 

10,311

 

 

 

 

 

 

 

9,253

 

 

 

 

 

 

 

9,757

 

 

 

 

 

TDR loans receivable for partially charged-off

loans

 

 

366

 

 

 

 

 

 

 

385

 

 

 

 

 

 

 

348

 

 

 

 

 

 

 

367

 

 

 

 

 

TDR loans allowance for losses

 

 

(1,134

)

 

 

 

 

 

 

(1,171

)

 

 

 

 

 

 

(998

)

 

 

 

 

 

 

(1,100

)

 

 

 

 

TDR loans, net

 

$

9,150

 

 

 

 

 

 

$

9,525

 

 

 

 

 

 

$

8,603

 

 

 

 

 

 

$

9,024

 

 

 

 

 

Percentage of TDR loans in repayment

 

 

 

 

 

 

88.5

%

 

 

 

 

 

 

89.0

%

 

 

 

 

 

 

90.7

%

 

 

 

 

 

 

90.5

%

Delinquencies as a percentage of TDR loans in

repayment

 

 

 

 

 

 

13.4

%

 

 

 

 

 

 

11.1

%

 

 

 

 

 

 

10.6

%

 

 

 

 

 

 

12.6

%

Loans in forbearance as a percentage of TDR

loans in repayment and forbearance

 

 

 

 

 

 

7.3

%

 

 

 

 

 

 

6.8

%

 

 

 

 

 

 

5.6

%

 

 

 

 

 

 

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 such as disaster relief, 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.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

 

 

Private Education Loan Delinquencies

 

 

Private Education Loan Delinquencies

 

 

Non-TDRs

 

 

Non-TDRs

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

437

 

 

 

 

 

 

$

584

 

 

 

 

 

 

$

305

 

 

 

 

 

 

$

392

 

 

 

 

 

Loans in forbearance(2)

 

 

185

 

 

 

 

 

 

 

214

 

 

 

 

 

 

 

147

 

 

 

 

 

 

 

158

 

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

12,838

 

 

 

98.6

%

 

 

13,257

 

 

 

97.9

%

 

 

12,958

 

 

 

99.1

%

 

 

12,851

 

 

 

98.8

%

Loans delinquent 31-60 days(3)

 

 

82

 

 

 

.6

 

 

 

120

 

 

 

.9

 

 

 

48

 

 

 

.4

 

 

 

71

 

 

 

.5

 

Loans delinquent 61-90 days(3)

 

 

39

 

 

 

.3

 

 

 

59

 

 

 

.4

 

 

 

23

 

 

 

.2

 

 

 

32

 

 

 

.3

 

Loans delinquent greater than 90 days(3)

 

 

69

 

 

 

.5

 

 

 

110

 

 

 

.8

 

 

 

47

 

 

 

.3

 

 

 

58

 

 

 

.4

 

Total non-TDR loans in repayment

 

 

13,028

 

 

 

100

%

 

 

13,546

 

 

 

100

%

 

 

13,076

 

 

 

100

%

 

 

13,012

 

 

 

100

%

Total non-TDR loans, gross

 

 

13,650

 

 

 

 

 

 

 

14,344

 

 

 

 

 

 

 

13,528

 

 

 

 

 

 

 

13,562

 

 

 

 

 

Non-TDR loans unamortized discount

 

 

(583

)

 

 

 

 

 

 

(699

)

 

 

 

 

 

 

(437

)

 

 

 

 

 

 

(547

)

 

 

 

 

Total non-TDR loans

 

 

13,067

 

 

 

 

 

 

 

13,645

 

 

 

 

 

 

 

13,091

 

 

 

 

 

 

 

13,015

 

 

 

 

 

Non-TDR loans receivable for partially

charged-off loans

 

 

322

 

 

 

 

 

 

 

375

 

 

 

 

 

 

 

255

 

 

 

 

 

 

 

307

 

 

 

 

 

Non-TDR loans allowance for losses

 

 

(92

)

 

 

 

 

 

 

(126

)

 

 

 

 

 

 

(103

)

 

 

 

 

 

 

(101

)

 

 

 

 

Non-TDR loans, net

 

$

13,297

 

 

 

 

 

 

$

13,894

 

 

 

 

 

 

$

13,243

 

 

 

 

 

 

$

13,221

 

 

 

 

 

Percentage of non-TDR loans in repayment

 

 

 

 

 

 

95.4

%

 

 

 

 

 

 

94.4

%

 

 

 

 

 

 

96.7

%

 

 

 

 

 

 

95.9

%

Delinquencies as a percentage of non-TDR

loans in repayment

 

 

 

 

 

 

1.4

%

 

 

 

 

 

 

2.1

%

 

 

 

 

 

 

.9

%

 

 

 

 

 

 

1.2

%

Loans in forbearance as a percentage of non-

TDR loans in repayment and forbearance

 

 

 

 

 

 

1.4

%

 

 

 

 

 

 

1.6

%

 

 

 

 

 

 

1.1

%

 

 

 

 

 

 

1.2

%

 

(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 such as disaster relief, 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.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

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. We refer to the remaining loan balance as the “receivable for partially charged-off loans.” Actual recoveries are applied against this receivable balance. If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses.

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Receivable at beginning of period

 

$

724

 

 

$

784

 

 

$

760

 

 

$

815

 

 

$

640

 

 

$

724

 

 

$

674

 

 

$

760

 

Expected future recoveries of current period defaults(1)

 

 

29

 

 

 

24

 

 

 

68

 

 

 

88

 

 

 

18

 

 

 

29

 

 

 

56

 

 

 

68

 

Recoveries(2)

 

 

(33

)

 

 

(37

)

 

 

(107

)

 

 

(121

)

 

 

(31

)

 

 

(33

)

 

 

(98

)

 

 

(107

)

Charge-offs(3)

 

 

(32

)

 

 

 

 

 

(33

)

 

 

(11

)

 

 

(24

)

 

 

(32

)

 

 

(29

)

 

 

(33

)

Receivable at end of period

 

$

688

 

 

$

771

 

 

$

688

 

 

$

771

 

 

$

603

 

 

$

688

 

 

$

603

 

 

$

688

 

 

(1)

Represents our estimate of the amount to be collected in the future.

(2)

Current period cash collections.

(3)

Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. Additionally, in third-quarter 2018, the portion of the loan amount charged off at default increased from 79 percent79% to 80.5 percent. This change80.5%, and in third-quarter 2019, it increased from 80.5% to 81%. These changes resulted in a $21 and $32 million reduction to the balance of the receivable for partially charged-off loans.loans in the three months ended September 30, 2019 and 2018, respectively. 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 customers experiencing financial difficulty. Where we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan, these are classified as TDRs. Approximately 64 percent69% and 61 percent65% of the loans granted forbearance have qualified as a TDR loan at September 30, 20182019 and December 31, 2017,2018, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction program as of September 30, 20182019 and December 31, 20172018 was $2.0$1.9 billion and $2.7$1.8 billion, respectively.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

2.   Allowance for Loan Losses (Continued)

At September 30, 20182019 and December 31, 2017,2018, 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.

 

TDRs

 

 

TDRs

 

(Dollars in millions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Recorded investment(1)

 

$

10,482

 

 

$

10,890

 

 

$

9,789

 

 

$

10,326

 

Total ending loans(2)

 

$

10,497

 

 

$

10,921

 

 

$

9,810

 

 

$

10,336

 

Related allowance

 

$

1,134

 

 

$

1,171

 

 

$

998

 

 

$

1,100

 

 

 

(1)

Recorded investment is equal to the unpaid principal balance (which includes the receivable for partially charged-off loans), accrued interest and unamortized discount.

 

(2)

Total ending loans includes the receivable for partially charged-off loans.

The following tables provide the average recorded investment and interest income recognized for our TDR loans.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Average recorded investment

 

$

10,568

 

 

$

10,944

 

 

$

10,717

 

 

$

11,016

 

 

$

9,887

 

 

$

10,568

 

 

$

10,059

 

 

$

10,717

 

Interest income recognized

 

$

196

 

 

$

180

 

 

$

563

 

 

$

528

 

 

$

194

 

 

$

196

 

 

$

586

 

 

$

563

 

 

 

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.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Modified loans(1)

 

$

163

 

 

$

200

 

 

$

470

 

 

$

618

 

 

$

113

 

 

$

163

 

 

$

369

 

 

$

470

 

Charge-offs(2)

 

$

123

 

 

$

80

 

 

$

243

 

 

$

280

 

 

$

88

 

 

$

123

 

 

$

242

 

 

$

243

 

Payment default

 

$

35

 

 

$

43

 

 

$

105

 

 

$

144

 

 

$

25

 

 

$

35

 

 

$

83

 

 

$

105

 

 

(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.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 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)

 

Total

 

 

Greater Than

90 Days

Past Due

 

 

Allowance for

Uncollectible

Interest

 

 

Total

 

 

Greater Than

90 Days

Past Due

 

 

Allowance for

Uncollectible

Interest

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

TDR

 

$

198

 

 

$

28

 

 

$

19

 

 

$

189

 

 

$

26

 

 

$

22

 

Non-TDR

 

 

160

 

 

 

4

 

 

 

8

 

 

 

122

 

 

 

3

 

 

 

6

 

Total

 

$

358

 

 

$

32

 

 

$

27

 

 

$

311

 

 

$

29

 

 

$

28

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

TDR

 

$

196

 

 

$

20

 

 

$

20

 

 

$

205

 

 

$

26

 

 

$

23

 

Non-TDR

 

 

187

 

 

 

4

 

 

 

6

 

 

 

149

 

 

 

3

 

 

 

4

 

Total

 

$

383

 

 

$

24

 

 

$

26

 

 

$

354

 

 

$

29

 

 

$

27

 

 

3.   Borrowings

The following table summarizes our borrowings.

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt(1)

 

$

2,162

 

 

$

10,765

 

 

$

12,927

 

 

$

1,306

 

 

$

12,624

 

 

$

13,930

 

 

$

1,501

 

 

$

9,006

 

 

$

10,507

 

 

$

817

 

 

$

10,674

 

 

$

11,491

 

Total unsecured borrowings

 

 

2,162

 

 

 

10,765

 

 

 

12,927

 

 

 

1,306

 

 

 

12,624

 

 

 

13,930

 

 

 

1,501

 

 

 

9,006

 

 

 

10,507

 

 

 

817

 

 

 

10,674

 

 

 

11,491

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(2)

 

 

 

 

 

68,456

 

 

 

68,456

 

 

 

 

 

 

71,208

 

 

 

71,208

 

 

 

73

 

 

 

61,349

 

 

 

61,422

 

 

 

 

 

 

66,318

 

 

 

66,318

 

Private Education Loan securitizations(3)

 

 

1,257

 

 

 

11,579

 

 

 

12,836

 

 

 

686

 

 

 

12,646

 

 

 

13,332

 

 

 

1,578

 

 

 

12,049

 

 

 

13,627

 

 

 

300

 

 

 

12,985

 

 

 

13,285

 

FFELP Loan — other facilities

 

 

 

 

 

4,408

 

 

 

4,408

 

 

 

1,536

 

 

 

6,830

 

 

 

8,366

 

 

 

1,818

 

 

 

1,516

 

 

 

3,334

 

 

 

2,927

 

 

 

2,625

 

 

 

5,552

 

Private Education Loan — other facilities

 

 

1,391

 

 

 

1,379

 

 

 

2,770

 

 

 

684

 

 

 

1,710

 

 

 

2,394

 

 

 

1,694

 

 

 

965

 

 

 

2,659

 

 

 

1,114

 

 

 

1,266

 

 

 

2,380

 

Other(4)

 

 

204

 

 

 

 

 

 

204

 

 

 

538

 

 

 

 

 

 

538

 

 

 

324

 

 

 

 

 

 

324

 

 

 

267

 

 

 

 

 

 

267

 

Total secured borrowings

 

 

2,852

 

 

 

85,822

 

 

 

88,674

 

 

 

3,444

 

 

 

92,394

 

 

 

95,838

 

 

 

5,487

 

 

 

75,879

 

 

 

81,366

 

 

 

4,608

 

 

 

83,194

 

 

 

87,802

 

Total before hedge accounting adjustments

 

 

5,014

 

 

 

96,587

 

 

 

101,601

 

 

 

4,750

 

 

 

105,018

 

 

 

109,768

 

 

 

6,988

 

 

 

84,885

 

 

 

91,873

 

 

 

5,425

 

 

 

93,868

 

 

 

99,293

 

Hedge accounting adjustments

 

 

(7

)

 

 

(498

)

 

 

(505

)

 

 

21

 

 

 

(6

)

 

 

15

 

 

 

16

 

 

 

(116

)

 

 

(100

)

 

 

(3

)

 

 

(349

)

 

 

(352

)

Total

 

$

5,007

 

 

$

96,089

 

 

$

101,096

 

 

$

4,771

 

 

$

105,012

 

 

$

109,783

 

 

$

7,004

 

 

$

84,769

 

 

$

91,773

 

 

$

5,422

 

 

$

93,519

 

 

$

98,941

 

 

(1)

Includes principal amount of $2.2$1.5 billion and $1.3 billion$817 million of short-term debt as of September 30, 20182019 and December 31, 2017,2018, respectively. Includes principal amount of $10.9$9.1 billion and $12.7$10.8 billion of long-term debt as of September 30, 20182019 and December 31, 2017,2018, respectively.

(2)

Includes $81$73 million and $0 of short-term debt related to the FFELP asset-backed securitization repurchase facilities (“FFELP Loan Repurchase Facilities”) as of September 30, 2019 and December 31, 2018, respectively. Includes $214 million and $244 million of long-term debt related to the FFELP Loan asset-backed securitization repurchase facilities (“Repurchase Facilities”)Facilities as of September 30, 2018.2019 and December 31, 2018, respectively.

(3)

Includes $1.3$1.6 billion and $686$300 million of short-term debt related to the Private Education Loan asset-backed securitization repurchase facilities (“Private Education Loan Repurchase Facilities”) as of September 30, 20182019 and December 31, 2017,2018, respectively. Includes $1.1 billion$921 million and $1.3$2.0 billion of long-term debt related to the Private Education Loan Repurchase Facilities as of September 30, 2018,2019 and December 31, 2017,2018, respectively.

(4)

“Other” primarily includes the obligation to return cash collateral held related to derivative exposures.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

3.   Borrowings (Continued)

Variable Interest Entities

We consolidated the following financing VIEs as of September 30, 20182019 and December 31, 2017,2018, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.

 

 

September 30, 2018

 

 

September 30, 2019

 

 

Debt Outstanding

 

 

Carrying Amount of Assets Securing

Debt Outstanding

 

 

Debt Outstanding

 

 

Carrying Amount of Assets Securing

Debt Outstanding

 

(Dollars in millions)

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Loans

 

 

Cash

 

 

Other

Assets

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Loans

 

 

Cash

 

 

Other

Assets

 

 

Total

 

Secured Borrowings — VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(1)

 

$

 

 

$

68,456

 

 

$

68,456

 

 

$

69,280

 

 

$

2,366

 

 

$

1,237

 

 

$

72,883

 

 

$

73

 

 

$

61,349

 

 

$

61,422

 

 

$

62,425

 

 

$

1,923

 

 

$

1,388

 

 

$

65,736

 

Private Education Loan securitizations(2)

 

 

1,257

 

 

 

11,579

 

 

 

12,836

 

 

 

16,170

 

 

 

528

 

 

 

209

 

 

 

16,907

 

 

 

1,578

 

 

 

12,049

 

 

 

13,627

 

 

 

15,510

 

 

 

555

 

 

 

172

 

 

 

16,237

 

FFELP Loan — other facilities

 

 

 

 

 

4,097

 

 

 

4,097

 

 

 

4,200

 

 

 

71

 

 

 

103

 

 

 

4,374

 

 

 

1,818

 

 

 

1,516

 

 

 

3,334

 

 

 

3,456

 

 

 

66

 

 

 

98

 

 

 

3,620

 

Private Education Loan — other facilities

 

 

1,391

 

 

 

1,379

 

 

 

2,770

 

 

 

3,739

 

 

 

89

 

 

 

30

 

 

 

3,858

 

 

 

1,694

 

 

 

965

 

 

 

2,659

 

 

 

3,801

 

 

 

87

 

 

 

27

 

 

 

3,915

 

Total before hedge accounting

adjustments

 

 

2,648

 

 

 

85,511

 

 

 

88,159

 

 

 

93,389

 

 

 

3,054

 

 

 

1,579

 

 

 

98,022

 

 

 

5,163

 

 

 

75,879

 

 

 

81,042

 

 

 

85,192

 

 

 

2,631

 

 

 

1,685

 

 

 

89,508

 

Hedge accounting adjustments

 

 

 

 

 

(404

)

 

 

(404

)

 

 

 

 

 

 

 

 

(554

)

 

 

(554

)

 

 

 

 

 

(602

)

 

 

(602

)

 

 

 

 

 

 

 

 

(750

)

 

 

(750

)

Total

 

$

2,648

 

 

$

85,107

 

 

$

87,755

 

 

$

93,389

 

 

$

3,054

 

 

$

1,025

 

 

$

97,468

 

 

$

5,163

 

 

$

75,277

 

 

$

80,440

 

 

$

85,192

 

 

$

2,631

 

 

$

935

 

 

$

88,758

 

 

 

December 31, 2017

 

 

December 31, 2018

 

 

Debt Outstanding

 

 

Carrying Amount of Assets Securing

Debt Outstanding

 

 

Debt Outstanding

 

 

Carrying Amount of Assets Securing

Debt Outstanding

 

(Dollars in millions)

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Loans

 

 

Cash

 

 

Other

Assets

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Loans

 

 

Cash

 

 

Other

Assets

 

 

Total

 

Secured Borrowings — VIEs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(1)

 

$

 

 

$

71,208

 

 

$

71,208

 

 

$

72,145

 

 

$

2,335

 

 

$

1,078

 

 

$

75,558

 

 

$

 

 

$

66,318

 

 

$

66,318

 

 

$

66,266

 

 

$

3,181

 

 

$

1,211

 

 

$

70,658

 

Private Education Loan securitizations(2)

 

 

686

 

 

 

12,646

 

 

 

13,332

 

 

 

17,739

 

 

 

484

 

 

 

237

 

 

 

18,460

 

 

 

300

 

 

 

12,985

 

 

 

13,285

 

 

 

16,336

 

 

 

536

 

 

 

198

 

 

 

17,070

 

FFELP Loan — other facilities

 

 

1,536

 

 

 

3,999

 

 

 

5,535

 

 

 

5,565

 

 

 

204

 

 

 

156

 

 

 

5,925

 

 

 

2,927

 

 

 

2,625

 

 

 

5,552

 

 

 

5,656

 

 

 

132

 

 

 

162

 

 

 

5,950

 

Private Education Loan — other facilities

 

 

684

 

 

 

1,710

 

 

 

2,394

 

 

 

3,147

 

 

 

68

 

 

 

31

 

 

 

3,246

 

 

 

1,114

 

 

 

1,266

 

 

 

2,380

 

 

 

3,361

 

 

 

79

 

 

 

27

 

 

 

3,467

 

Total before hedge accounting

adjustments

 

 

2,906

 

 

 

89,563

 

 

 

92,469

 

 

 

98,596

 

 

 

3,091

 

 

 

1,502

 

 

 

103,189

 

 

 

4,341

 

 

 

83,194

 

 

 

87,535

 

 

 

91,619

 

 

 

3,928

 

 

 

1,598

 

 

 

97,145

 

Hedge accounting adjustments

 

 

 

 

 

(246

)

 

 

(246

)

 

 

 

 

 

 

 

 

(342

)

 

 

(342

)

 

 

 

 

 

(456

)

 

 

(456

)

 

 

 

 

 

 

 

 

(642

)

 

 

(642

)

Total

 

$

2,906

 

 

$

89,317

 

 

$

92,223

 

 

$

98,596

 

 

$

3,091

 

 

$

1,160

 

 

$

102,847

 

 

$

4,341

 

 

$

82,738

 

 

$

87,079

 

 

$

91,619

 

 

$

3,928

 

 

$

956

 

 

$

96,503

 

 

(1)

Includes $81$73 million of short-term debt, $214 million of long-term debt and $2$9 million of restricted cash related to the FFELP Loan Repurchase Facilities as of September 30, 2019. Includes $244 million of long-term debt and $9 million of restricted cash related to the FFELP Loan Repurchase Facilities as of December 31, 2018.

(2)

Includes $1.3$1.6 billion of short-term debt, $1.1 billion$921 million of long-term debt and $127$45 million of restricted cash related to the Private Education Loan Repurchase Facilities as of September 30, 2018.2019. Includes $686$300 million of short-term debt, $1.3$2.0 billion of long-term debt and $96$115 million of restricted cash related to the Private Education Loan Repurchase Facilities as of December 31, 2017.2018.

4.   Derivative Financial Instruments

Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 20172018 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 20172018 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 September 30, 20182019 and December 31, 2017,2018, and their impact on other comprehensive income and earnings for the three and nine months ended September 30, 20182019 and 2017.2018.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

4.   Derivative Financial Instruments (Continued)

Impact of Derivatives on Consolidated Balance Sheet

 

 

 

 

Cash Flow

 

 

Fair Value

 

 

Trading

 

 

Total

 

 

 

 

Cash Flow

 

 

Fair Value(4)

 

 

Trading

 

 

Total

 

(Dollars in millions)

 

Hedged Risk

Exposure

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Hedged Risk

Exposure

 

Sep 30, 2019

 

 

Dec 31, 2018

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

Fair Values(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Interest rate

 

$

 

 

$

95

 

 

$

143

 

 

$

290

 

 

$

4

 

 

$

7

 

 

$

147

 

 

$

392

 

 

Interest rate

 

$

 

 

$

 

 

$

277

 

 

$

170

 

 

$

4

 

 

$

3

 

 

$

281

 

 

$

173

 

Cross-currency interest rate

swaps

 

Foreign currency and

interest rate

 

 

 

 

 

 

 

 

18

 

 

 

88

 

 

 

 

 

 

 

 

 

18

 

 

 

88

 

 

Foreign currency and

interest rate

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Total derivative assets(2)

 

 

 

 

 

 

 

95

 

 

 

161

 

 

 

378

 

 

 

4

 

 

 

7

 

 

 

165

 

 

 

480

 

 

 

 

 

 

 

 

 

 

 

277

 

 

 

176

 

 

 

4

 

 

 

3

 

 

 

281

 

 

 

179

 

Derivative Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Interest rate

 

 

 

 

 

(16

)

 

 

(67

)

 

 

(102

)

 

 

(61

)

 

 

(71

)

 

 

(128

)

 

 

(189

)

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

(21

)

 

 

(45

)

 

 

(21

)

 

 

(79

)

Floor Income Contracts

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

(74

)

 

 

(31

)

 

 

(74

)

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(105

)

 

 

(53

)

 

 

(105

)

 

 

(53

)

Cross-currency interest rate

swaps

 

Foreign currency and

interest rate

 

 

 

 

 

 

 

 

(567

)

 

 

(410

)

 

 

(46

)

 

 

(44

)

 

 

(613

)

 

 

(454

)

 

Foreign currency and

interest rate

 

 

 

 

 

 

 

 

(734

)

 

 

(639

)

 

 

 

 

 

(26

)

 

 

(734

)

 

 

(665

)

Other(3)

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(18

)

 

 

(6

)

 

 

(18

)

 

Interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(4

)

 

 

(1

)

 

 

(4

)

Total derivative liabilities(2)

 

 

 

 

 

 

 

(16

)

 

 

(634

)

 

 

(512

)

 

 

(144

)

 

 

(207

)

 

 

(778

)

 

 

(735

)

 

 

 

 

 

 

 

 

 

 

(734

)

 

 

(673

)

 

 

(127

)

 

 

(128

)

 

 

(861

)

 

 

(801

)

Net total derivatives

 

 

 

$

 

 

$

79

 

 

$

(473

)

 

$

(134

)

 

$

(140

)

 

$

(200

)

 

$

(613

)

 

$

(255

)

 

 

 

$

 

 

$

 

 

$

(457

)

 

$

(497

)

 

$

(123

)

 

$

(125

)

 

$

(580

)

 

$

(622

)

 

(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)

The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:

 

 

Other Assets

 

 

Other Liabilities

 

 

Other Assets

 

 

Other Liabilities

 

(Dollar in millions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

 

September 30, 2019

 

 

December 31, 2018

 

Gross position

 

$

165

 

 

$

480

 

 

$

(778

)

 

$

(735

)

 

$

281

 

 

$

179

 

 

$

(861

)

 

$

(801

)

Impact of master netting agreements

 

 

(23

)

 

 

(42

)

 

 

23

 

 

 

42

 

 

 

(32

)

 

 

(22

)

 

 

32

 

 

 

22

 

Derivative values with impact of master netting

agreements (as carried on balance sheet)

 

 

142

 

 

 

438

 

 

 

(755

)

 

 

(693

)

 

 

249

 

 

 

157

 

 

 

(829

)

 

 

(779

)

Cash collateral (held) pledged

 

 

(203

)

 

 

(536

)

 

 

245

 

 

 

235

 

 

 

(324

)

 

 

(266

)

 

 

183

 

 

 

188

 

Net position

 

$

(61

)

 

$

(98

)

 

$

(510

)

 

$

(458

)

 

$

(75

)

 

$

(109

)

 

$

(646

)

 

$

(591

)

 

(3)    “Other” includes derivatives related to our Total Return Swap Facility.        

(3)

“Other” includes derivatives related to our Total Return Swap Facility.

(4)

The following table shows the carrying value of liabilities in fair value hedges and the related fair value hedging adjustments to these liabilities:

    

 

 

As of September 30, 2019

 

 

As of December 31, 2018

 

(Dollar in millions)

 

Carrying

Value

 

 

Hedge Basis Adjustments

 

 

Carrying

Value

 

 

Hedge Basis Adjustments

 

Short-term borrowings

 

$

1,513

 

 

$

16

 

 

$

664

 

 

$

(3

)

Long-term borrowings

 

$

12,025

 

 

$

(135

)

 

$

13,657

 

 

$

(368

)


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

4.   Derivative Financial Instruments (Continued)

The above fair values at September 30, 2018 reflect rule changes adopted by clearing organizations that require entities to treat derivative assets, liabilities and the related variation margin as a settlement of the derivative position for legal and accounting purposes, rather than recording these positions on a gross basis with a related collateral receivable or payable. As a result, the tables above reflect a reduction of $286 million of derivative assets and $233 million of derivative liabilities as of September 30, 2018, that previously were reported on a gross basis but are now settled and not subject to collateral.

The above fair values also include adjustments when necessary for counterparty credit risk for both 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 asset position at September 30, 20182019 and December 31, 20172018 by $16$12 million and $6$26 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 September 30, 20182019 and December 31, 20172018 by $21$13 million and $30$19 million, respectively.

 

 

Cash Flow

 

 

Fair Value

 

 

Trading

 

 

Total

 

 

Cash Flow

 

 

Fair Value

 

 

Trading

 

 

Total

 

(Dollars in billions)

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2018

 

 

Dec 31, 2017

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

 

Sep 30, 2019

 

 

Dec 31, 2018

 

Notional Values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

26.5

 

 

$

24.1

 

 

$

11.6

 

 

$

12.4

 

 

$

61.6

 

 

$

72.0

 

 

$

99.7

 

 

$

108.5

 

 

$

22.1

 

 

$

21.4

 

 

$

9.6

 

 

$

10.3

 

 

$

50.1

 

 

$

66.9

 

 

$

81.8

 

 

$

98.6

 

Floor Income Contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27.9

 

 

 

21.9

 

 

 

27.9

 

 

 

21.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.2

 

 

 

27.9

 

 

 

21.2

 

 

 

27.9

 

Cross-currency interest rate swaps

 

 

 

 

 

 

 

 

4.6

 

 

 

6.7

 

 

 

.3

 

 

 

.3

 

 

 

4.9

 

 

 

7.0

 

 

 

 

 

 

 

 

 

4.1

 

 

 

4.5

 

 

 

 

 

 

.2

 

 

 

4.1

 

 

 

4.7

 

Other(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

.3

 

 

 

.5

 

 

 

.3

 

 

 

.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

.1

 

 

 

.2

 

 

 

.1

 

 

 

.2

 

Total derivatives

 

$

26.5

 

 

$

24.1

 

 

$

16.2

 

 

$

19.1

 

 

$

90.1

 

 

$

94.7

 

 

$

132.8

 

 

$

137.9

 

 

$

22.1

 

 

$

21.4

 

 

$

13.7

 

 

$

14.8

 

 

$

71.4

 

 

$

95.2

 

 

$

107.2

 

 

$

131.4

 

 

(1)

“Other” includes derivatives related to our Total Return Swap Facility.

Mark-to-MarketImpact of Derivatives on Consolidated Statements of Income

 

 

Total Gains (Losses)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Fair Value Hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) recognized in net income on derivatives

 

$

84

 

 

$

(63

)

 

$

374

 

 

$

(321

)

Gains (losses) recognized in net income on hedged items

 

 

(81

)

 

 

66

 

 

 

(398

)

 

 

356

 

Net fair value hedge ineffectiveness gains (losses)

 

 

3

 

 

 

3

 

 

 

(24

)

 

 

35

 

Cross currency interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) recognized in net income on derivatives

 

 

(130

)

 

 

(19

)

 

 

(101

)

 

 

(227

)

Gains (losses) recognized in net income on hedged items

 

 

138

 

 

 

28

 

 

 

145

 

 

 

157

 

Net fair value hedge ineffectiveness gains (losses)

 

 

8

 

 

 

9

 

 

 

44

 

 

 

(70

)

Total fair value hedges(1)(2)

 

 

11

 

 

 

12

 

 

 

20

 

 

 

(35

)

Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash flow hedges(2)

 

 

 

 

 

 

 

 

 

 

 

 

Trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

12

 

 

 

(8

)

 

 

35

 

 

 

10

 

Floor income contracts

 

 

(8

)

 

 

6

 

 

 

(56

)

 

 

39

 

Cross currency interest rate swaps

 

 

 

 

 

(9

)

 

 

(2

)

 

 

(7

)

Other

 

 

 

 

 

1

 

 

 

2

 

 

 

3

 

Total trading derivatives(3)

 

 

4

 

 

 

(10

)

 

 

(21

)

 

 

45

 

Mark-to-market gains (losses) recognized

 

$

15

 

 

$

2

 

 

$

(1

)

 

$

10

 

(1)

Recorded in interest expense in the consolidated statements of income for 2019 with the adoption of ASU No, 2017-12. Recorded in “gains (losses) on derivatives and hedging activities, net” in the consolidated statements of income in 2018.  

(2)

The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in interest expense and is excluded from this table.

(3)

Recorded in “gains (losses) on derivatives and hedging activities, net” in the consolidated statements of income.

 



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

4.   Derivative Financial Instruments (Continued)

     Impact of Derivatives on Consolidated Statements of Income

 

 

Total Gains (Losses) (1)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Fair Value Hedges:(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) recognized in net income on derivatives

 

$

(63

)

 

$

(28

)

 

$

(321

)

 

$

(94

)

Gains (losses) recognized in net income on hedged items

 

 

66

 

 

 

39

 

 

 

356

 

 

 

62

 

Net fair value hedge ineffectiveness gains (losses)

 

 

3

 

 

 

11

 

 

 

35

 

 

 

(32

)

Cross currency interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) recognized in net income on derivatives

 

 

(19

)

 

 

261

 

 

 

(227

)

 

 

837

 

Gains (losses) recognized in net income on hedged items

 

 

28

 

 

 

(262

)

 

 

157

 

 

 

(866

)

Net fair value hedge ineffectiveness gains (losses)

 

 

9

 

 

 

(1

)

 

 

(70

)

 

 

(29

)

Total fair value hedges

 

 

12

 

 

 

10

 

 

 

(35

)

 

 

(61

)

Cash Flow Hedges(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps(3)

 

 

 

 

 

 

 

 

 

 

 

 

Total cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

Trading

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

(8

)

 

 

6

 

 

 

10

 

 

 

16

 

Floor income contracts

 

 

6

 

 

 

15

 

 

 

39

 

 

 

43

 

Cross currency interest rate swaps

 

 

(9

)

 

 

(1

)

 

 

(7

)

 

 

5

 

Other

 

 

1

 

 

 

(5

)

 

 

3

 

 

 

(19

)

Total trading derivatives

 

 

(10

)

 

 

15

 

 

 

45

 

 

 

45

 

Gains (losses) on derivative and hedging activities, net

 

$

2

 

 

$

25

 

 

$

10

 

 

$

(16

)

(1)

Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

(2)

The accrued interest income (expense) on fair value hedges and cash flow hedges is recorded in net interest income (expense) and is excluded from this table.

(3)

Represents ineffectiveness related to cash flow hedges.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 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)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Collateral held:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash (obligation to return cash collateral is recorded in short-term borrowings)

 

$

203

 

 

$

536

 

 

$

324

 

 

$

266

 

Securities at fair value — corporate derivatives (not recorded in financial

statements)(1)

 

 

 

 

 

 

 

 

 

 

 

 

Securities at fair value — on-balance sheet securitization derivatives (not

recorded in financial statements)(2)

 

 

116

 

 

 

297

 

 

 

73

 

 

 

90

 

Total collateral held

 

$

319

 

 

$

833

 

 

$

397

 

 

$

356

 

Derivative asset at fair value including accrued interest

 

$

143

 

 

$

618

 

 

$

270

 

 

$

210

 

Collateral pledged to others:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash (right to receive return of cash collateral is recorded in investments)

 

$

245

 

 

$

235

 

 

$

183

 

 

$

188

 

Total collateral pledged

 

$

245

 

 

$

235

 

 

$

183

 

 

$

188

 

Derivative liability at fair value including accrued interest and premium

receivable

 

$

745

 

 

$

659

 

 

$

843

 

 

$

752

 

 

(1)    The Company has the ability to sell or re-pledge securities it holds as collateral.

(1)

The Company has the ability to sell or re-pledge securities it holds as collateral.

(2)

The trusts do not have the ability to sell or re-pledge securities they hold as collateral.

 

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $156$79 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.requirements. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

5.   Other Assets

The following table provides the detail of our other assets.

 

(Dollars in millions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Accrued interest receivable, net

 

$

1,863

 

 

$

1,965

 

Accrued interest receivable

 

$

1,897

 

 

$

1,999

 

Benefit and insurance-related investments

 

 

488

 

 

 

481

 

 

 

457

 

 

 

470

 

Income tax asset, net current and deferred

 

 

269

 

 

 

380

 

Income tax asset, net (current and deferred)

 

 

288

 

 

 

271

 

Derivatives at fair value

 

 

142

 

 

 

438

 

 

 

249

 

 

 

157

 

Fixed assets, net

 

 

138

 

 

 

156

 

 

 

134

 

 

 

136

 

Accounts receivable

 

 

107

 

 

 

108

 

 

 

88

 

 

 

95

 

Other loans, net

 

 

68

 

 

 

59

 

 

 

6

 

 

 

69

 

Other

 

 

378

 

 

 

438

 

 

 

237

 

 

 

207

 

Total

 

$

3,453

 

 

$

4,025

 

 

$

3,356

 

 

$

3,404

 

 


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

 

6.   Business Combinations, Goodwill and Acquired Intangible Assets

Business Combinations

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.

Acquisition of Earnest

In November 2017, Navient acquired a 95 percent majority controlling interest in Earnest for approximately $149 million in cash. Earnest is a leading financial technology and education finance company that originates Private Education Refinance Loans. We have engaged an independent appraiser to assist in the valuation of the assets acquired and liabilities assumed including identifiable intangible assets, primarily the trade name and developed technology. The purchase price allocation will be completed in the fourth quarter 2018. The preliminary estimate of goodwill is $74 million. The results of operations of Earnest have been included in Navient’s consolidated financial statements since the acquisition date and are reflected in Navient’s Consumer Lending segment and its Private Education Refinance Loans reporting unit. Navient has not disclosed the pro forma impact of this acquisition to the results of operations for the three and nine months ended September 30, 2018 and 2017, as the pro forma impact was deemed immaterial.

Acquisition of Duncan Solutions

In July 2017, Navient acquired a 100 percent controlling interest in Duncan Solutions for approximately $86 million in cash. Duncan Solutions is a leading transportation revenue management company serving municipalities and toll authorities, offering a range of technology-enabled products and services to support its clients’ parking and tolling operations. We engaged an independent appraiser to assist in the valuation of the assets acquired and liabilities assumed including identifiable intangible assets, primarily customer relationships, the trade name and developed technology. In July 2018, the Company finalized its purchase price allocation for Duncan Solutions, which resulted in an excess purchase price over the fair value of net assets acquired, or goodwill, of $39 million. The results of operations of Duncan Solutions have been included in Navient’s consolidated financial statements since the acquisition date and are reflected in Navient’s Business Processing segment and its Government Services reporting unit. Navient has not disclosed the pro forma impact of this acquisition to the results of operations for the three and nine months ended September 30, 2018 and 2017, as the pro forma impact was deemed immaterial.

Goodwill

Goodwill resulting from our acquisitions is assigned to a reporting unit or units.  A reporting unit is the same or one level below an operating segment. As discussed in “Note 12 – Segment Reporting," we have the following new reportable operating segments effective first-quarter 2018: Federal Education Loans, Consumer Lending, Business Processing and Other. As a result of this change in our reporting structure, our reporting units with goodwill as of September 30, 2018 include (1) FFELP Loans and Federal Education Loan Servicing, both of which are included in our Federal Education Loans reportable operating segment, (2) Private Education Loans and Private Education Refinance Loans (inclusive of what formerly constituted our Earnest reporting unit), both of which are included in our Consumer Lending reportable operating segment, and (3) Government Services (inclusive of what formerly constituted our Gila reporting unit and other government services lines of business previously included in our Contingency reporting unit) and Healthcare Services, both of which are included in our Business Processing reportable operating segment. There was no change in our allocation of goodwill as a result of this change in reportable operating segments and reporting units.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

6.   Business Combinations, Goodwill and Acquired Intangible Assets (Continued)

Interim Goodwill and Acquired Intangible Asset Impairment Testing

          In third-quarter 2018, we wrote off a $16 million toll services relationship intangible asset as a result of receiving a notice of termination related to a toll services contract in our Government Services reporting unit. As a result of this termination, we also performed a valuation of the $136 million of goodwill within this reporting unit and concluded the goodwill was not impaired as the fair value of the reporting unit was 56 percent greater than the book basis. We estimated the fair value of the reporting unit utilizing a market approach which applies market-based revenue, EBITDA and net income multiples from comparable publicly-traded companies to the reporting unit’s revenue, EBITDA and net income indicators.

7.   Stockholders’ Equity

The following table summarizes common share repurchases and issuances.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Common stock repurchased(1)

 

 

6,881,592

 

 

 

11,346,367

 

 

 

6,881,592

 

 

 

29,646,374

 

 

 

9,703,912

 

 

 

6,881,592

 

 

 

28,738,164

 

 

 

6,881,592

 

Average purchase price per share

 

$

13.90

 

 

$

14.55

 

 

$

13.90

 

 

$

14.85

 

 

$

13.40

 

 

$

13.90

 

 

$

12.63

 

 

$

13.90

 

Shares repurchased related to employee stock-based

compensation plans(2)

 

 

175,241

 

 

 

131,374

 

 

 

3,732,745

 

 

 

1,741,529

 

Shares repurchased related to employee stock-

based compensation plans(2)

 

 

219,328

 

 

 

175,241

 

 

 

2,753,418

 

 

 

3,732,745

 

Average purchase price per share

 

$

13.90

 

 

$

15.34

 

 

$

13.77

 

 

$

15.56

 

 

$

14.28

 

 

$

13.90

 

 

$

11.21

 

 

$

13.77

 

Common shares issued(3)

 

 

395,615

 

 

 

385,676

 

 

 

5,529,853

 

 

 

3,535,988

 

 

 

465,697

 

 

 

395,615

 

 

 

5,091,044

 

 

 

5,529,853

 

 

(1)

Common shares purchased under our share repurchase program.

(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 September 28, 201830, 2019 was $13.48.$12.80.

Dividend and Share Repurchase Program

In the three and nine months ended September 30, 2019, we paid $36 million ($0.16 per share) and $112 million ($0.48 per share), respectively, of common stock dividends. In the three and nine months ended September 30, 2018, we paid a$42 million ($0.16 per share) and $126 million ($0.48 per share), respectively, of common stock dividenddividends.

In the three and nine months ended September 30, 2019, we repurchased 9.7 million and 28.7 million shares of $0.16 per share.

common stock for $130 million and $363 million, respectively. In the three and nine months ended September 30, 2018, we repurchased 6.9 million common shares for $95 million. Our board of directors authorized a new $500 million share repurchase program in September 2018. As of September 30, 2018,2019, the remaining common share repurchase authority under this program was $565$77 million.

In the nine months ended September 30, 2017, we repurchased 29.6 million sharesOctober 2019, our board of common stock for $440 million.directors approved an additional $1 billion multi-year share repurchase program.

 



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

8.7.   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 September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In millions, except per share data)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Navient Corporation

 

$

114

 

 

$

176

 

 

$

323

 

 

$

376

 

Net income

 

$

145

 

 

$

114

 

 

$

425

 

 

$

323

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to compute basic EPS

 

 

260

 

 

 

269

 

 

 

263

 

 

 

279

 

 

 

225

 

 

 

260

 

 

 

235

 

 

 

263

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of stock options, restricted stock,

restricted stock units, performance stock units,

derivative contracts and Employee Stock Purchase

Plan (“ESPP”)(1)

 

 

4

 

 

 

5

 

 

 

4

 

 

 

6

 

Dilutive effect of stock options, restricted stock,

restricted stock units, performance stock units,

and Employee Stock Purchase Plan (“ESPP”)(1)

 

 

3

 

 

 

4

 

 

 

3

 

 

 

4

 

Dilutive potential common shares(2)

 

 

4

 

 

 

5

 

 

 

4

 

 

 

6

 

 

 

3

 

 

 

4

 

 

 

3

 

 

 

4

 

Weighted average shares used to compute diluted EPS

 

 

264

 

 

 

274

 

 

 

267

 

 

 

285

 

 

 

228

 

 

 

264

 

 

 

238

 

 

 

267

 

Basic earnings per common share attributable to

Navient Corporation

 

$

.44

 

 

$

.65

 

 

$

1.23

 

 

$

1.35

 

Diluted earnings per common share attributable to

Navient Corporation

 

$

.43

 

 

$

.64

 

 

$

1.21

 

 

$

1.32

 

Basic earnings per common share

 

$

.64

 

 

$

.44

 

 

$

1.81

 

 

$

1.23

 

Diluted earnings per common share

 

$

.63

 

 

$

.43

 

 

$

1.79

 

 

$

1.21

 

 

(1)

Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock, restricted stock units, performance stock units and the outstanding commitment to issue shares under applicable ESPPs, determined by the treasury stock method, and derivative contracts determined by the reverse treasury stock method.

(2)

For the three months ended September 30, 20182019 and 2017,2018, securities covering approximately 64 million and 56 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. For the nine months ended September 30, 20182019 and 2017,2018, securities covering approximately 64 million and 56 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutiveanti-dilutive.

9.

8.   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 20172018 Form 10-K for a full discussion.

During the three and nine months ended September 30, 2018,2019, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 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.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

 

8.   Fair Value Measurements (Continued)

 

 

Fair Value Measurements on a Recurring Basis

 

 

Fair Value Measurements on a Recurring Basis

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential mortgage-

backed securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Other

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Total available-for-sale

investments

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Derivative instruments:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

144

 

 

 

3

 

 

 

147

 

 

 

 

 

 

388

 

 

 

4

 

 

 

392

 

 

$

 

 

$

279

 

 

$

2

 

 

$

281

 

 

$

 

 

$

171

 

 

$

2

 

 

$

173

 

Cross-currency interest

rate swaps

 

 

 

 

 

 

 

 

18

 

 

 

18

 

 

 

 

 

 

 

 

 

88

 

 

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

Total derivative assets(2)

 

 

 

 

 

144

 

 

 

21

 

 

 

165

 

 

 

 

 

 

388

 

 

 

92

 

 

 

480

 

 

 

 

 

 

279

 

 

 

2

 

 

 

281

 

 

 

 

 

 

171

 

 

 

8

 

 

 

179

 

Total

 

$

 

 

$

146

 

 

$

21

 

 

$

167

 

 

$

 

 

$

390

 

 

$

92

 

 

$

482

 

 

$

 

 

$

279

 

 

$

2

 

 

$

281

 

 

$

 

 

$

171

 

 

$

8

 

 

$

179

 

Liabilities(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

(96

)

 

$

(32

)

 

$

(128

)

 

$

 

 

$

(144

)

 

$

(45

)

 

$

(189

)

 

$

 

 

$

 

 

$

(21

)

 

$

(21

)

 

$

 

 

$

(50

)

 

$

(29

)

 

$

(79

)

Floor Income Contracts

 

 

 

 

 

(31

)

 

 

 

 

 

(31

)

 

 

 

 

 

(74

)

 

 

 

 

 

(74

)

 

 

 

 

 

(105

)

 

 

 

 

 

(105

)

 

 

 

 

 

(53

)

 

 

 

 

 

(53

)

Cross-currency interest

rate swaps

 

 

 

 

 

(46

)

 

 

(567

)

 

 

(613

)

 

 

 

 

 

(44

)

 

 

(410

)

 

 

(454

)

 

 

 

 

 

 

 

 

(734

)

 

 

(734

)

 

 

 

 

 

(26

)

 

 

(639

)

 

 

(665

)

Other

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

 

 

 

 

 

 

 

 

(18

)

 

 

(18

)

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Total derivative liabilities(2)

 

 

 

 

 

(173

)

 

 

(605

)

 

 

(778

)

 

 

 

 

 

(262

)

 

 

(473

)

 

 

(735

)

 

 

 

 

 

(105

)

 

 

(756

)

 

 

(861

)

 

 

 

 

 

(129

)

 

 

(672

)

 

 

(801

)

Total

 

$

 

 

$

(173

)

 

$

(605

)

 

$

(778

)

 

$

 

 

$

(262

)

 

$

(473

)

 

$

(735

)

 

$

 

 

$

(105

)

 

$

(756

)

 

$

(861

)

 

$

 

 

$

(129

)

 

$

(672

)

 

$

(801

)

 

(1)

Fair value of derivative instruments excludes accrued interest and the value of collateral.

(2)

See “Note 4—Derivative Financial Instruments” for a reconciliation of gross positions without the impact of master netting agreements to the balance sheet classification.

(3)

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.

 



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

9.8.   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 September 30,

 

 

Three Months Ended September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

Derivative instruments

 

 

Derivative instruments

 

 

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

 

 

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

 

$

(33

)

 

$

(529

)

 

$

(8

)

 

$

(570

)

 

$

(48

)

 

$

(666

)

 

$

(22

)

 

$

(736

)

 

$

(21

)

 

$

(603

)

 

$

(2

)

 

$

(626

)

 

$

(33

)

 

$

(529

)

 

$

(8

)

 

$

(570

)

Total gains/(losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

3

 

 

 

(52

)

 

 

1

 

 

 

(48

)

 

 

1

 

 

 

231

 

 

 

(5

)

 

 

227

 

 

 

2

 

 

 

(160

)

 

 

1

 

 

 

(157

)

 

 

3

 

 

 

(52

)

 

 

1

 

 

 

(48

)

Included in other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlements

 

 

1

 

 

 

32

 

 

 

1

 

 

 

34

 

 

 

1

 

 

 

30

 

 

 

3

 

 

 

34

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

 

 

1

 

 

 

32

 

 

 

1

 

 

 

34

 

Transfers in and/or out of level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

$

(29

)

 

$

(549

)

 

$

(6

)

 

$

(584

)

 

$

(46

)

 

$

(405

)

 

$

(24

)

 

$

(475

)

 

$

(19

)

 

$

(734

)

 

$

(1

)

 

$

(754

)

 

$

(29

)

 

$

(549

)

 

$

(6

)

 

$

(584

)

Change in mark-to-market gains/(losses)

relating to instruments still held at the

reporting date(2)

 

$

4

 

 

$

(20

)

 

$

2

 

 

$

(14

)

 

$

3

 

 

$

227

 

 

$

(2

)

 

$

228

 

 

$

2

 

 

$

(131

)

 

$

1

 

 

$

(128

)

 

$

4

 

 

$

(20

)

 

$

2

 

 

$

(14

)

 

 

Nine Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

Derivative instruments

 

 

Derivative instruments

 

 

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

 

 

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

 

$

(41

)

 

$

(322

)

 

$

(18

)

 

$

(381

)

 

$

(46

)

 

$

(1,243

)

 

$

(13

)

 

$

(1,302

)

 

$

(27

)

 

$

(633

)

 

$

(4

)

 

$

(664

)

 

$

(41

)

 

$

(322

)

 

$

(18

)

 

$

(381

)

Total gains/(losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings(1)

 

 

10

 

 

 

(317

)

 

 

7

 

 

 

(300

)

 

 

(4

)

 

 

750

 

 

 

(19

)

 

 

727

 

 

 

6

 

 

 

(194

)

 

 

2

 

 

 

(186

)

 

 

10

 

 

 

(317

)

 

 

7

 

 

 

(300

)

Included in other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlements

 

 

2

 

 

 

90

 

 

 

5

 

 

 

97

 

 

 

4

 

 

 

88

 

 

 

8

 

 

 

100

 

 

 

2

 

 

 

93

 

 

 

1

 

 

 

96

 

 

 

2

 

 

 

90

 

 

 

5

 

 

 

97

 

Transfers in and/or out of level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

$

(29

)

 

$

(549

)

 

$

(6

)

 

$

(584

)

 

$

(46

)

 

$

(405

)

 

$

(24

)

 

$

(475

)

 

$

(19

)

 

$

(734

)

 

$

(1

)

 

$

(754

)

 

$

(29

)

 

$

(549

)

 

$

(6

)

 

$

(584

)

Change in mark-to-market gains/(losses)

relating to instruments still held at the

reporting date(2)

 

$

11

 

 

$

(200

)

 

$

12

 

 

$

(177

)

 

$

 

 

$

712

 

 

$

(11

)

 

$

701

 

 

$

7

 

 

$

(101

)

 

$

3

 

 

$

(91

)

 

$

11

 

 

$

(200

)

 

$

12

 

 

$

(177

)

 

(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 September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Gains (losses) on derivative and hedging activities, net

 

$

(16

)

 

$

257

 

 

$

(210

)

 

$

815

 

 

$

3

 

 

$

(16

)

 

$

8

 

 

$

(210

)

Interest expense

 

 

(32

)

 

 

(30

)

 

 

(90

)

 

 

(88

)

 

 

(160

)

 

 

(32

)

 

 

(194

)

 

 

(90

)

Total

 

$

(48

)

 

$

227

 

 

$

(300

)

 

$

727

 

 

$

(157

)

 

$

(48

)

 

$

(186

)

 

$

(300

)

 

(2)

Recorded in “gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.income for interest rate swaps and other. Recorded in interest expense for cross currency interest rate swaps in fair value hedges for 2019 with the adoption of ASU No. 2017-12. Recorded in “gains (losses) on derivatives and hedging activities, net” for cross currency interest rate swaps in 2018.

 



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

9.8.   Fair Value Measurements (Continued)

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 September 30, 2018

 

 

Valuation

Technique

 

Input

 

Range

(Weighted

Average)

 

 

Fair Value at September 30, 2019

 

 

Valuation

Technique

 

Input

 

Range

(Weighted

Average)

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prime/LIBOR basis swaps

 

$

(29

)

 

Discounted cash flow

 

Constant Prepayment Rate

 

7%

 

 

$

(19

)

 

Discounted cash flow

 

Constant Prepayment Rate

 

8%

 

 

 

 

 

 

 

 

Bid/ask adjustment to

 

.08% — .08%

 

 

 

 

 

 

 

 

Bid/ask adjustment to

 

.08% — .08%

 

 

 

 

 

 

 

 

discount rate

 

(.08%)

 

 

 

 

 

 

 

 

discount rate

 

(.08%)

 

Cross-currency interest rate swaps

 

 

(549

)

 

Discounted cash flow

 

Constant Prepayment Rate

 

4%

 

 

 

(734

)

 

Discounted cash flow

 

Constant Prepayment Rate

 

4%

 

Other

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

Total

 

$

(584

)

 

 

 

 

 

 

 

 

 

$

(754

)

 

 

 

 

 

 

 

 

 

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:

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.

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.

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.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

9.   Fair Value Measurements (Continued)

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Fair

Value

 

 

Carrying

Value

 

 

Difference

 

 

Fair

Value

 

 

Carrying

Value

 

 

Difference

 

 

Fair

Value

 

 

Carrying

Value

 

 

Difference

 

 

Fair

Value

 

 

Carrying

Value

 

 

Difference

 

Earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

74,504

 

 

$

74,257

 

 

$

247

 

 

$

82,271

 

 

$

81,703

 

 

$

568

 

 

$

66,240

 

 

$

66,087

 

 

$

153

 

 

$

72,074

 

 

$

72,253

 

 

$

(179

)

Private Education Loans

 

 

23,420

 

 

 

22,447

 

 

 

973

 

 

 

24,421

 

 

 

23,419

 

 

 

1,002

 

 

 

22,727

 

 

 

21,846

 

 

 

881

 

 

 

22,958

 

 

 

22,245

 

 

 

713

 

Cash and investments(1)

 

 

5,544

 

 

 

5,544

 

 

 

 

 

 

5,034

 

 

 

5,034

 

 

 

 

 

 

4,501

 

 

 

4,501

 

 

 

 

 

 

5,488

 

 

 

5,488

 

 

 

 

Total earning assets

 

 

103,468

 

 

 

102,248

 

 

 

1,220

 

 

 

111,726

 

 

 

110,156

 

 

 

1,570

 

 

 

93,468

 

 

 

92,434

 

 

 

1,034

 

 

 

100,520

 

 

 

99,986

 

 

 

534

 

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

5,034

 

 

 

5,007

 

 

 

(27

)

 

 

4,783

 

 

 

4,771

 

 

 

(12

)

 

 

7,023

 

 

 

7,004

 

 

 

(19

)

 

 

5,418

 

 

 

5,422

 

 

 

4

 

Long-term borrowings

 

 

96,482

 

 

 

96,089

 

 

 

(393

)

 

 

104,921

 

 

 

105,012

 

 

 

91

 

 

 

84,396

 

 

 

84,769

 

 

 

373

 

 

 

92,173

 

 

 

93,519

 

 

 

1,346

 

Total interest-bearing liabilities

 

 

101,516

 

 

 

101,096

 

 

 

(420

)

 

 

109,704

 

 

 

109,783

 

 

 

79

 

 

 

91,419

 

 

 

91,773

 

 

 

354

 

 

 

97,591

 

 

 

98,941

 

 

 

1,350

 

Derivative financial instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor Income Contracts

 

 

(31

)

 

 

(31

)

 

 

 

 

 

(74

)

 

 

(74

)

 

 

 

 

 

(105

)

 

 

(105

)

 

 

 

 

 

(53

)

 

 

(53

)

 

 

 

Interest rate swaps

 

 

19

 

 

 

19

 

 

 

 

 

 

203

 

 

 

203

 

 

 

 

 

 

260

 

 

 

260

 

 

 

 

 

 

94

 

 

 

94

 

 

 

 

Cross-currency interest rate swaps

 

 

(595

)

 

 

(595

)

 

 

 

 

 

(366

)

 

 

(366

)

 

 

 

 

 

(734

)

 

 

(734

)

 

 

 

 

 

(659

)

 

 

(659

)

 

 

 

Other

 

 

(6

)

 

 

(6

)

 

 

 

 

 

(18

)

 

 

(18

)

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

(4

)

 

 

(4

)

 

 

 

Excess of net asset fair value over carrying value

 

 

 

 

 

 

 

 

 

$

800

 

 

 

 

 

 

 

 

 

 

$

1,649

 

 

 

 

 

 

 

 

 

 

$

1,388

 

 

 

 

 

 

 

 

 

 

$

1,884

 

 


(1)

“Cash and investments” includes available-for-sale investments that consist of investments that are primarily agency securities whose cost basis is $2 million and $2 million at September 30, 2018 and December 31, 2017, respectively, versus a fair value of $2 million and $2 million at September 30, 2018 and December 31, 2017, respectively.


10.NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

9.   Commitments and Contingencies

Legal Proceedings

The Company has been named as defendant in a number of putative class action cases alleging violations of various state and federal consumer protection laws including the Telephone Consumer Protection Act (“TCPA”), the Consumer Financial Protection Act of 2010 (“CFPA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and various other state consumer protection laws.

In January 2017, the Consumer Financial Protection Bureau (the “CFPB”) and Attorneys General for the State of Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA, the FCPA, FCRA, FDCPA and various state consumer protection laws. In October 2017, the Attorney General for the Commonwealth of Pennsylvania initiated a civil action against Navient Corporation and Navient Solutions, LLC (“Solutions”), containing similar alleged violations of the CFPA and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Additionally, in 2018 the Attorneys General for the States of California and Mississippi initiated similar actions against the Company and certain subsidiaries alleging violations of various state and federal consumer protection laws. We refer to the Illinois, Pennsylvania, Washington, California, and Mississippi Attorneys General collectively as the “State Attorneys General.” In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or, in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other remedies related to similar issues raised by the CFPB and the State Attorneys General. As the Company has previously stated, we believe the suits improperly seek to impose penalties on Navient based on new, unannounced servicing standards applied retroactively only against one servicer, and that the allegations are false. We therefore have denied these allegations and intend to vigorously defend against the allegations in each of these cases. For additional information on these civil actions, please refer to section entitled “Regulatory Matters” below.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

10.   Commitments and Contingencies (Continued)

At this point in time, the Company is unable to anticipate the timing of a resolution or the ultimate impact that these legal proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, 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. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

Regulatory Matters

In addition, Navient and its subsidiaries are subject to examination or regulation by the SEC, CFPB, FFIEC, 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. Generally, the Company endeavors to cooperate with each such inquiry or request.

As previously disclosed, the Company and various of its subsidiaries have been subject to the following investigations and inquiries:

In December 2013, Navient received Civil Investigative Demands (“CIDs”) issued by the Illinois Attorney General, the Washington 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. The Company subsequently received separate but similar CIDs or subpoenas from the Attorneys General of the District of Columbia, Kansas, Oregon, Colorado, New Jersey and New York. We may receive additional CIDs or subpoenas from these or other Attorneys General with respect to similar or different matters.

In December 2013, Navient received Civil Investigative Demands (“CIDs”) issued by the Illinois Attorney General, the Washington 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. The Company subsequently received separate but similar CIDs or subpoenas from the Attorneys General for the District of Columbia, Kansas, Oregon, Colorado, New Jersey and New York. We have and in the future may receive additional CIDs or subpoenas and other inquiries from these or other Attorneys General with respect to similar or different matters.

In April 2014, Solutions received a CID from the CFPB as part of the CFPB’s separate investigation regarding allegations relating to Navient’s disclosures and assessment of late fees and other matters. Navient has received a series of supplemental CIDs on these matters. In August 2015, Solutions received a letter from the CFPB notifying Solutions that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement was considering recommending that the CFPB take legal action against Solutions. The NORA letter related to a previously disclosed investigation into Solutions’ 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 Solutions. The Company responded to the NORA letter in September 2015.

In November 2014, Navient’s subsidiary, Pioneer Credit Recovery, Inc. (“Pioneer”), received a CID from the CFPB as part of an investigation regarding Pioneer’s activities relating to rehabilitation loans and collection of defaulted student debt.

In December 2014, Solutions received a subpoena from the New York Department of Financial Services (the “NY DFS”) as part of the NY DFS’s 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.

In April 2014, Solutions received a CID from the CFPB as part of the CFPB’s separate investigation regarding allegations relating to Navient’s disclosures and assessment of late fees and other matters. Navient has received a series of supplemental CIDs on these matters. In August 2015, Solutions received a letter from the CFPB notifying Solutions that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement was considering recommending that the CFPB take legal action against Solutions. The NORA letter related to a previously disclosed investigation into Solutions’ 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 Solutions. The Company responded to the NORA letter in September 2015.

The CFPB, Washington Attorney General and Illinois Attorney General lawsuits relate to matters which were covered under the CIDs or the NORA letter discussed above. In addition, various State Attorneys General have filed suits alleging violations of various state and federal consumer protection laws covering matters similar to those covered by the CIDs or the NORA letter.  For more information about these cases, see the section above entitled “Legal Proceedings.” As stated above, we have denied these allegations and intend to vigorously defend against the allegations in each of these cases.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

10.

9.   Commitments and Contingencies (Continued)

With respect to alleged civil violations of the Servicemembers Civil Relief Act (the “SCRA”), Solutions and Sallie Mae Bank entered into a consent order with the U.S. Department of Justice (“DOJ”) in May 2014. The DOJ consent order (the “DOJ Order”) covered all loans either owned by Sallie Mae Bank or serviced by Solutions from November 28, 2005 until the effective date of the settlement. The DOJ Order expired by its terms on September 29, 2018, and the related case was dismissed with prejudice on October 4, 2018.

 

In November 2014, Navient’s subsidiary, Pioneer Credit Recovery, Inc. (“Pioneer”), received a CID from the CFPB as part of an investigation regarding Pioneer’s activities relating to rehabilitation loans and collection of defaulted student debt. In May 2019, Pioneer received a similar CID from the New York Department of Financial Services (the “NY DFS”).

In December 2014, Solutions received a subpoena from the NY DFS as part of its 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.

Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient has agreed to 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, subject to the terms, conditions and limitations set forth in the Separation and Distribution Agreement, Navient has agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above, other than fines or penalties directly leviedabove. Navient has asserted various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising out of the CFPB and other matters specifically excluded.the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or in the future. Navient has no0 additional reserves related to indemnification matters with SLM BankCo as of September 30, 2018.2019.

OIG Audit

The Office of the Inspector General (the “OIG”) of ED commenced an audit regarding Special Allowance Payments (“SAP”) on September 10, 2007. In September 2013, we received the final audit determination of Federal Student Aid (the “Final Audit Determination”) on the final audit report issued by the OIG in August 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. In August 2016, we filed our notice of appeal to the Administrative Actions and Appeals Service Group of ED. AED, and a hearing was held in April 20172017. In March 2019, the administrative law judge hearing the appeal affirmed the audit’s findings, holding the then-existing Dear Colleague letter relied upon by the Company and a ruling hasother industry participants was inconsistent with the statutory framework creating the SAP rules applicable to loans funded by certain types of debt obligations at issue. We have appealed the administrative law judge’s decision to the Secretary of Education given Navient’s adherence to ED-issued guidance and the potential impact on participants in any ED program student loan servicers if such guidance is deemed unreliable and may not yet been issued.be relied upon. 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 and does not believe, at this time, that an adverse ruling would have a material effect on the Company as a whole.

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. We and our subsidiaries are also subject to potential unasserted claims by third parties.

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 requests, subpoenas and orders for documents, testimony and information in connection with various aspects of our regulated activities.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

9.   Commitments and Contingencies (Continued)

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.

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, if any, related to each pending matter may be.

Based on current knowledge, reserves have been established for certain litigation, regulatory matters, and unasserted contract claims 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, except as otherwise disclosed.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

10.   Commitments and Contingencies (Continued)

As of June 30, 2018, we concluded that a contingency loss was no longer probable of occurring. Accordingly, the related $40 million contingency reserve was released as a reduction of operating expenses in the second quarter of 2018.

11.   Revenue from Contracts with Customers Accounted for in Accordance with ASC 606

We account for certain contract revenue in accordance with ASC 606. Servicing contract revenue is not accounted for under ASC 606. Contract revenue earned by our Federal Education Loans segment is derived from asset recovery activities related to the collection of delinquent education loans on behalf of the United States Department of Education (“ED”),ED, Guarantor agencies and other institutions. Revenue earned by our Business Processing segment is derived from government services, which includes receivables management services and account processing solutions, and healthcare services, which includes revenue cycle management services.

Most of our revenue is derived from long-term contracts, the duration of which is expected to span more than one year. These contracts are billable monthly, as services are rendered, based on a percentage of the balance collected or the transaction processed, a flat fee per transaction or a stated rate per the service performed. In accordance with ASC 606, the unit of account is a contractual performance obligation, a promise to provide a distinct good or service to a customer. The transaction price is allocated to each distinct performance obligation when or as the good or service is transferred to the customer and the obligation is satisfied. Distinct performance obligations are identified based on the services specified in the contract that are capable of being distinct such that the customer can benefit from the service on its own or together with other resources that are available from the Company or a third party, and are also distinct in the context of the contract such that the transfer of the services is separately identifiable from other services promised in the contract. Most of our contracts include integrated service offerings that include obligations that are not separately identifiable and distinct in the context of our contracts.  Accordingly, our contracts generally have a single performance obligation. A limited number of full service offerings include multiple performance obligations.

Substantially all our revenue from contracts with customers is variable revenue which is recognized over time as our customers receive and consume the benefit of our services in an amount consistent with monthly billings.  Accordingly, we do not disclose variable consideration associated with the remaining performance obligation as we have recognized revenue in the amount we have the right to invoice for services performed. Our fees correspond to the value the customer has realized from our performance of each increment of the service (for example, an individual transaction processed or collection of a past due balance).



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

11.   Revenue from Contracts with Customers Accounted in Accordance with ASC 606 (Continued)

The following tables illustrate the disaggregation of revenue from contracts accounted for under ASC 606 with customers according to service type and client type by reportable operating segment.

Revenue by Service Type

 

Three Months Ended September 30,

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal Education Loan asset

recovery services

 

$

22

 

 

$

 

 

$

22

 

 

$

61

 

 

$

 

 

$

61

 

 

$

34

 

 

$

 

 

$

34

 

 

$

22

 

 

$

 

 

$

22

 

Government services

 

 

 

 

 

40

 

 

 

40

 

 

 

 

 

 

134

 

 

 

134

 

 

 

 

 

 

38

 

 

 

38

 

 

 

 

 

 

40

 

 

 

40

 

Healthcare services

 

 

 

 

 

24

 

 

 

24

 

 

 

 

 

 

68

 

 

 

68

 

 

 

 

 

 

27

 

 

 

27

 

 

 

 

 

 

24

 

 

 

24

 

Total

 

$

22

 

 

$

64

 

 

$

86

 

 

$

61

 

 

$

202

 

 

$

263

 

 

$

34

 

 

$

65

 

 

$

99

 

 

$

22

 

 

$

64

 

 

$

86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal Education Loan

asset recovery services

 

$

98

 

 

$

 

 

$

98

 

 

$

61

 

 

$

 

 

$

61

 

Government services

 

 

 

 

 

120

 

 

 

120

 

 

 

 

 

 

134

 

 

 

134

 

Healthcare services

 

 

 

 

 

79

 

 

 

79

 

 

 

 

 

 

68

 

 

 

68

 

Total

 

$

98

 

 

$

199

 

 

$

297

 

 

$

61

 

 

$

202

 

 

$

263

 

 



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

10.   Revenue from Contracts with Customers Accounted for in Accordance with ASC 606 (Continued)

Revenue by Client Type

 

Three Months Ended September 30,

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

Federal government

 

$

5

 

 

$

2

 

 

$

7

 

 

$

7

 

 

$

5

 

 

$

12

 

 

$

21

 

 

$

5

 

 

$

26

 

 

$

5

 

 

$

2

 

 

$

7

 

Guarantor agencies

 

 

14

 

 

 

 

 

 

14

 

 

 

44

 

 

 

 

 

 

44

 

 

 

12

 

 

 

 

 

 

12

 

 

 

14

 

 

 

 

 

 

14

 

Other institutions

 

 

3

 

 

 

 

 

 

3

 

 

 

10

 

 

 

 

 

 

10

 

 

 

1

 

 

 

 

 

 

1

 

 

 

3

 

 

 

 

 

 

3

 

State and local government

 

 

 

 

 

21

 

 

 

21

 

 

 

 

 

 

70

 

 

 

70

 

 

 

 

 

 

19

 

 

 

19

 

 

 

 

 

 

21

 

 

 

21

 

Tolling authorities

 

 

 

 

 

17

 

 

 

17

 

 

 

 

 

 

59

 

 

 

59

 

 

 

 

 

 

14

 

 

 

14

 

 

 

 

 

 

17

 

 

 

17

 

Hospitals and other healthcare

providers

 

 

 

 

 

24

 

 

 

24

 

 

 

 

 

 

68

 

 

 

68

 

 

 

 

 

 

27

 

 

 

27

 

 

 

 

 

 

24

 

 

 

24

 

Total

 

$

22

 

 

$

64

 

 

$

86

 

 

$

61

 

 

$

202

 

 

$

263

 

 

$

34

 

 

$

65

 

 

$

99

 

 

$

22

 

 

$

64

 

 

$

86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

Federal Education Loans

 

 

Business Processing

 

 

Total Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal government

 

$

51

 

 

$

11

 

 

$

62

 

 

$

7

 

 

$

5

 

 

$

12

 

Guarantor agencies

 

 

40

 

 

 

 

 

 

40

 

 

 

44

 

 

 

 

 

 

44

 

Other institutions

 

 

7

 

 

 

 

 

 

7

 

 

 

10

 

 

 

 

 

 

10

 

State and local government

 

 

 

 

 

67

 

 

 

67

 

 

 

 

 

 

70

 

 

 

70

 

Tolling authorities

 

 

 

 

 

42

 

 

 

42

 

 

 

 

 

 

59

 

 

 

59

 

Hospitals and other

healthcare providers

 

 

 

 

 

79

 

 

 

79

 

 

 

 

 

 

68

 

 

 

68

 

Total

 

$

98

 

 

$

199

 

 

$

297

 

 

$

61

 

 

$

202

 

 

$

263

 

 

As of January 1, 2018,September 30, 2019 and September 30, 2018, there was $63$67 million and $77 million, respectively, of net accounts receivable related to these contracts. Navient had no0 material contract assets or contract liabilities.

12.   Segment Reporting

  In the fourth quarter of 2017, Navient entered the Private Education Refinance Loan origination market. This new activity changed the way the Company manages the business, reviews operating performance and allocates resources.  This resulted in the following four new reportable operating segments, effective first-quarter 2018: (1) Federal Education Loans (2) Consumer Lending (3) Business Processing and (4) Other. In connection with this change in reportable operating segments, there was also a change in how unallocated overhead is defined.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

12.11.   Segment Reporting (Continued)

TheWe monitor and assess our ongoing operations and results based on the following table shows the realignment of our business lines (operating segments) from the prior reportable operating segments to the new4 reportable operating segments:

Business Lines

New Reportable Operating Segment

Prior Reportable Operating Segment

FFELP Loans

Federal Education Loans

FFELP Loans

Federal Education Loans Servicing

Federal Education Loans

Business Services

Federal Education Loans Asset Recovery

Federal Education Loans

Business Services

Private Education Refinance Loans

Consumer Lending

Private Education Loans

Private Education Loans – Other

Consumer Lending

Private Education Loans

Other Consumer Loans

Consumer Lending

Other

Non-Education Government Services

Federal Education Loans, Consumer Lending, Business Processing

Business Services

Non-Education Healthcare Services

Business Processing

Business Services

Unallocated Overhead Expenses

Other

Other

Corporate Liquidity Portfolio

Other

Other

These segments meet the quantitative thresholds for reportable operating segments.  Accordingly, the results of operations of these reportable operating segments are presented separately.  The underlying operating segments are used by the Company’s chief operating decision maker to manage the business, review operating performance and allocate resources, and qualify to be aggregated as part of the primary reportable operating segments.  As discussed further below, we measure the profitability of our operating segments based on Core Earnings net income.  Accordingly, information regarding our reportable operating segments is provided on a Core Earnings basis.  As a result of this change in segment reporting in the first quarter of 2018, prior periods have been recast for comparison purposes.Other.

Federal Education Loans Segment

In its Federal Education Loansthis segment, Navient holds and acquires FFELP Loans and performs servicing and asset recovery services on its own loan portfolio, federal education loans owned by ED and other institutions. Although FFELP Loans are no longer originated, we continue to pursue acquisitions of FFELP Loan portfolios as well as servicing and asset recovery services contracts. These acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through net interest income on the FFELP Loan portfolio (after provision for loan losses) as well as servicing and asset recovery services revenue. This segment is expected to generate significant amounts of earnings and cash flow over the remaining life of the portfolio.

The following table includes GAAP basis asset information for our Federal Education Loans segment.

 

(Dollars in millions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

FFELP Loans, net

 

$

74,257

 

 

$

81,703

 

 

$

66,087

 

 

$

72,253

 

Cash and investments(1)

 

 

2,510

 

 

 

2,821

 

 

 

2,149

 

 

 

3,368

 

Other

 

 

2,113

 

 

 

2,601

 

 

 

2,141

 

 

 

2,100

 

Total assets

 

$

78,880

 

 

$

87,125

 

 

$

70,377

 

 

$

77,721

 

 

 

(1)

Includes restricted cash and investments.

    



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

12.   Segment Reporting (Continued)

Consumer Lending Segment

In its Consumer Lendingthis segment, Navient holds, originates and acquires consumer loans and performs servicing activities on its own education loan portfolio. Originations and acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through 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 over the remaining life of the portfolio.

  

The following table includes GAAP basis asset information for our Consumer Lending segment.

 

(Dollars in millions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Private Education Loans, net

 

$

22,447

 

 

$

23,419

 

 

$

21,846

 

 

$

22,245

 

Cash and investments(1)

 

 

706

 

 

 

706

 

 

 

939

 

 

 

732

 

Other

 

 

1,115

 

 

 

1,143

 

 

 

1,011

 

 

 

1,076

 

Total assets

 

$

24,268

 

 

$

25,268

 

 

$

23,796

 

 

$

24,053

 

 

 

(1)

Includes restricted cash and investments.

Business Processing Segment

In its Business Processingthis segment, Navient performs revenue cycle management and business processing services for overapproximately 600 non-education related government and healthcare clients. Government services include receivables management services and account processing solutions. With over $13 billion of inventory, ourOur integrated solutions technology and superior data driven approach allows state governments, agencies, court systems, municipalities, and toll authorities (Government Services) to reduce their operating expenses while maximizing revenue opportunities. Healthcare services include revenue cycle outsourcing, accounts receivable management, extended business office support and consulting engagements. We offer customizable solutions for our clients that include non-profit/religious-affiliated hospital systems, teaching hospitals, urban medical centers, for-profit healthcare systems, critical access hospitals, children’s hospitals and large physician groups.

At September 30, 20182019 and December 31, 2017,2018, the Business Processing segment had total assets of $447$426 million and $466$448 million, respectively, on a GAAP basis.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

11.   Segment Reporting (Continued)

Other Segment

Our Other segment primarily consists of the following activities: our corporate liquidity portfolio and the repurchase of debt, unallocated overhead (corporate overheadexpenses of shared services, and certain information technology costs), restructuring/other reorganization expenses, and the deferred tax asset remeasurement loss recognized due to the enactment of the TCJA in the fourth quarter of 2017.  expenses.

Unallocated corporate overhead isexpenses of shared services are comprised of costs primarily related to certain executive management, the board of directors, accounting, finance, legal, human resources, compliance and risk management, regulatory-related costs, and stock-based compensation expense. Unallocatedexpense, and information technology costs are 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 September 30, 20182019 and December 31, 2017,2018, the Other segment had total assets of $2.9 $2.0billion and $2.1$2.0 billion, respectively, on a GAAP basis.



NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

12.   Segment Reporting (Continued)

Measure of Profitability

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also 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 our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that are 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 two items we remove fromto result in our Core Earnings presentations are:

 

1.

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

 

2.

The accounting for goodwill and acquired intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

12.11.   Segment Reporting (Continued)

Segment Results and Reconciliations to GAAP

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

774

 

 

$

455

 

 

$

 

 

$

 

 

$

1,229

 

 

$

3

 

 

$

(18

)

 

$

(15

)

 

$

1,214

 

 

$

721

 

 

$

437

 

 

$

 

 

$

 

 

$

1,158

 

 

$

2

 

 

$

(17

)

 

$

(15

)

 

$

1,143

 

Other loans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and investments

 

 

12

 

 

 

4

 

 

 

 

 

 

10

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

11

 

 

 

4

 

 

 

 

 

 

8

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Total interest income

 

 

787

 

 

 

459

 

 

 

 

 

 

10

 

 

 

1,256

 

 

 

3

 

 

 

(18

)

 

 

(15

)

 

 

1,241

 

 

 

732

 

 

 

441

 

 

 

 

 

 

8

 

 

 

1,181

 

 

 

2

 

 

 

(17

)

 

 

(15

)

 

 

1,166

 

Total interest expense

 

 

624

 

 

 

257

 

 

 

 

 

 

48

 

 

 

929

 

 

 

9

 

 

 

(3

)

 

 

6

 

 

 

935

 

 

 

588

 

 

 

242

 

 

 

 

 

 

42

 

 

 

872

 

 

 

(4

)

 

 

(14

)

 

 

(18

)

 

 

854

 

Net interest income (loss)

 

 

163

 

 

 

202

 

 

 

 

 

 

(38

)

 

 

327

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

306

 

 

 

144

 

 

 

199

 

 

 

 

 

 

(34

)

 

 

309

 

 

 

6

 

 

 

(3

)

 

 

3

 

 

 

312

 

Less: provisions for loan losses

 

 

10

 

 

 

75

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

85

 

 

 

8

 

 

 

56

 

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Net interest income (loss) after provisions

for loan losses

 

 

153

 

 

 

127

 

 

 

 

 

 

(38

)

 

 

242

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

221

 

 

 

136

 

 

 

143

 

 

 

 

 

 

(34

)

 

 

245

 

 

 

6

 

 

 

(3

)

 

 

3

 

 

 

248

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

67

 

 

 

3

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

57

 

 

 

3

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

60

 

Asset recovery and business processing

revenue

 

 

42

 

 

 

 

 

 

64

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

57

 

 

 

 

 

 

66

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

 

 

 

123

 

Other income (loss)

 

 

18

 

 

 

 

 

 

 

 

 

3

 

 

 

21

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

30

 

 

 

6

 

 

 

 

 

 

 

 

 

3

 

 

 

9

 

 

 

(6

)

 

 

10

 

 

 

4

 

 

 

13

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Total other income (loss)

 

 

127

 

 

 

3

 

 

 

64

 

 

 

2

 

 

 

196

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

205

 

 

 

120

 

 

 

3

 

 

 

66

 

 

 

3

 

 

 

192

 

 

 

(6

)

 

 

10

 

 

 

4

 

 

 

196

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

87

 

 

 

38

 

 

 

59

 

 

 

 

 

 

184

 

 

 

 

 

 

 

 

 

 

 

 

184

 

 

 

89

 

 

 

44

 

 

 

54

 

 

 

 

 

 

187

 

 

 

 

 

 

 

 

 

 

 

 

187

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

71

 

Unallocated shared services expenses

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Operating expenses

 

 

87

 

 

 

38

 

 

 

59

 

 

 

71

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

255

 

 

 

89

 

 

 

44

 

 

 

54

 

 

 

64

 

 

 

251

 

 

 

 

 

 

 

 

 

 

 

 

251

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

 

 

6

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Total expenses

 

 

87

 

 

 

38

 

 

 

59

 

 

 

72

 

 

 

256

 

 

 

 

 

 

23

 

 

 

23

 

 

 

279

 

 

 

89

 

 

 

44

 

 

 

54

 

 

 

66

 

 

 

253

 

 

 

 

 

 

6

 

 

 

6

 

 

 

259

 

Income (loss) before income tax expense

(benefit)

 

 

193

 

 

 

92

 

 

 

5

 

 

 

(108

)

 

 

182

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

147

 

 

 

167

 

 

 

102

 

 

 

12

 

 

 

(97

)

 

 

184

 

 

 

 

 

 

1

 

 

 

1

 

 

 

185

 

Income tax expense (benefit)(2)

 

 

45

 

 

 

20

 

 

 

1

 

 

 

(24

)

 

 

42

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

33

 

 

 

39

 

 

 

23

 

 

 

3

 

 

 

(23

)

 

 

42

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

40

 

Net income (loss)

 

$

148

 

 

$

72

 

 

$

4

 

 

$

(84

)

 

$

140

 

 

$

 

 

$

(26

)

 

$

(26

)

 

$

114

 

 

$

128

 

 

$

79

 

 

$

9

 

 

$

(74

)

 

$

142

 

 

$

 

 

$

3

 

 

$

3

 

 

$

145

 

 

(1)

Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2019

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Acquired

Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(21

)

 

$

 

 

$

(21

)

 

$

3

 

 

$

 

 

$

3

 

Total other income (loss)

 

 

9

 

 

 

 

 

 

9

 

 

 

4

 

 

 

 

 

 

4

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

23

 

 

 

23

 

 

 

 

 

 

6

 

 

 

6

 

Total Core Earnings adjustments to GAAP

 

$

(12

)

 

$

(23

)

 

 

(35

)

 

$

7

 

 

$

(6

)

 

 

1

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

(2

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(26

)

 

 

 

 

 

 

 

 

 

$

3

 

 

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2019 and for the three and nine months ended

September 30, 2019 and 2018 is unaudited) (Continued)

11.   Segment Reporting (Continued)

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

774

 

 

$

455

 

 

$

 

 

$

 

 

$

1,229

 

 

$

3

 

 

$

(18

)

 

$

(15

)

 

$

1,214

 

Other loans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Cash and investments

 

 

12

 

 

 

4

 

 

 

 

 

 

10

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

Total interest income

 

 

787

 

 

 

459

 

 

 

 

 

 

10

 

 

 

1,256

 

 

 

3

 

 

 

(18

)

 

 

(15

)

 

 

1,241

 

Total interest expense

 

 

624

 

 

 

257

 

 

 

 

 

 

48

 

 

 

929

 

 

 

9

 

 

 

(3

)

 

 

6

 

 

 

935

 

Net interest income (loss)

 

 

163

 

 

 

202

 

 

 

 

 

 

(38

)

 

 

327

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

306

 

Less: provisions for loan losses

 

 

10

 

 

 

75

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

85

 

Net interest income (loss) after

   provisions for loan losses

 

 

153

 

 

 

127

 

 

 

 

 

 

(38

)

 

 

242

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

221

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

67

 

 

 

3

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

70

 

Asset recovery and business

   processing revenue

 

 

42

 

 

 

 

 

 

64

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

106

 

Other income (loss)

 

 

18

 

 

 

 

 

 

 

 

 

3

 

 

 

21

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

30

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Total other income (loss)

 

 

127

 

 

 

3

 

 

 

64

 

 

 

2

 

 

 

196

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

205

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

94

 

 

 

38

 

 

 

59

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

 

 

 

191

 

Unallocated shared services expenses

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Operating expenses

 

 

94

 

 

 

38

 

 

 

59

 

 

 

64

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

255

 

Goodwill and acquired intangible asset

   impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

23

 

Restructuring/other reorganization

   expenses

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Total expenses

 

 

94

 

 

 

38

 

 

 

59

 

 

 

65

 

 

 

256

 

 

 

 

 

 

23

 

 

 

23

 

 

 

279

 

Income (loss) before income tax

   expense (benefit)

 

 

186

 

 

 

92

 

 

 

5

 

 

 

(101

)

 

 

182

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

147

 

Income tax expense (benefit)(2)

 

 

43

 

 

 

20

 

 

 

1

 

 

 

(22

)

 

 

42

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

33

 

Net income (loss)

 

$

143

 

 

$

72

 

 

$

4

 

 

$

(79

)

 

$

140

 

 

$

 

 

$

(26

)

 

$

(26

)

 

$

114

 

(1)

Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2018

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Acquired

Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(21

)

 

$

 

 

$

(21

)

Total other income (loss)

 

 

9

 

 

 

 

 

 

9

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

23

 

 

 

23

 

Total Core Earnings adjustments to GAAP

 

$

(12

)

 

$

(23

)

 

 

(35

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(9

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(26

)

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

12.11.   Segment Reporting (Continued)

 

 

Three Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

678

 

 

$

445

 

 

$

 

 

$

 

 

$

1,123

 

 

$

16

 

 

$

(13

)

 

$

3

 

 

$

1,126

 

 

$

2,258

 

 

$

1,317

 

 

$

 

 

$

 

 

$

3,575

 

 

$

4

 

 

$

(51

)

 

$

(47

)

 

$

3,528

 

Other loans

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Cash and investments

 

 

9

 

 

 

1

 

 

 

 

 

 

2

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

41

 

 

 

13

 

 

 

 

 

 

21

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

75

 

Total interest income

 

 

689

 

 

 

446

 

 

 

 

 

 

2

 

 

 

1,137

 

 

 

16

 

 

 

(13

)

 

 

3

 

 

 

1,140

 

 

 

2,300

 

 

 

1,331

 

 

 

 

 

 

21

 

 

 

3,652

 

 

 

4

 

 

 

(51

)

 

 

(47

)

 

 

3,605

 

Total interest expense

 

 

531

 

 

 

221

 

 

 

 

 

 

40

 

 

 

792

 

 

 

(5

)

 

 

(2

)

 

 

(7

)

 

 

785

 

 

 

1,866

 

 

 

758

 

 

 

 

 

 

122

 

 

 

2,746

 

 

 

(2

)

 

 

(30

)

 

 

(32

)

 

 

2,714

 

Net interest income (loss)

 

 

158

 

 

 

225

 

 

 

 

 

 

(38

)

 

 

345

 

 

 

21

 

 

 

(11

)

 

 

10

 

 

 

355

 

 

 

434

 

 

 

573

 

 

 

 

 

 

(101

)

 

 

906

 

 

 

6

 

 

 

(21

)

 

 

(15

)

 

 

891

 

Less: provisions for loan losses

 

 

10

 

 

 

95

 

 

 

 

 

 

 

 

 

105

 

 

 

 

 

 

 

 

 

 

 

 

105

 

 

 

23

 

 

 

185

 

 

 

 

 

 

 

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

208

 

Net interest income (loss) after provisions

for loan losses

 

 

148

 

 

 

130

 

 

 

 

 

 

(38

)

 

 

240

 

 

 

21

 

 

 

(11

)

 

 

10

 

 

 

250

 

 

 

411

 

 

 

388

 

 

 

 

 

 

(101

)

 

 

698

 

 

 

6

 

 

 

(21

)

 

 

(15

)

 

 

683

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

72

 

 

 

3

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

174

 

 

 

8

 

 

 

 

 

 

 

 

 

182

 

 

 

 

 

 

 

 

 

 

 

 

182

 

Asset recovery and business processing

revenue

 

 

102

 

 

 

 

 

 

55

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

 

 

 

157

 

 

 

165

 

 

 

 

 

 

199

 

 

 

 

 

 

364

 

 

 

 

 

 

 

 

 

 

 

 

364

 

Other income (loss)

 

 

1

 

 

 

 

 

 

 

 

 

2

 

 

 

3

 

 

 

(21

)

 

 

47

 

 

 

26

 

 

 

29

 

 

 

22

 

 

 

1

 

 

 

 

 

 

12

 

 

 

35

 

 

 

(45

)

 

 

26

 

 

 

(19

)

 

 

16

 

Gains on sales of loans and investments

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Gains on sales of loans

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

16

 

Gains on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

47

 

 

 

39

 

 

 

(27

)

 

 

12

 

 

 

59

 

Total other income (loss)

 

 

178

 

 

 

3

 

 

 

55

 

 

 

1

 

 

 

237

 

 

 

(21

)

 

 

47

 

 

 

26

 

 

 

263

 

 

 

361

 

 

 

25

 

 

 

199

 

 

 

59

 

 

 

644

 

 

 

(6

)

 

 

(1

)

 

 

(7

)

 

 

637

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

77

 

 

 

39

 

 

 

49

 

 

 

 

 

 

165

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

270

 

 

 

117

 

 

 

165

 

 

 

 

 

 

552

 

 

 

 

 

 

 

 

 

 

 

 

552

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

73

 

 

 

 

 

 

 

 

 

 

 

 

73

 

Unallocated shared services expenses

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

197

 

 

 

 

 

 

 

 

 

 

 

 

197

 

Operating expenses

 

 

77

 

 

 

39

 

 

 

49

 

 

 

73

 

 

 

238

 

 

 

 

 

 

 

 

 

 

 

 

238

 

 

 

270

 

 

 

117

 

 

 

165

 

 

 

197

 

 

 

749

 

 

 

 

 

 

 

 

 

 

 

 

749

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

23

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Total expenses

 

 

77

 

 

 

39

 

 

 

49

 

 

 

73

 

 

 

238

 

 

 

 

 

 

6

 

 

 

6

 

 

 

244

 

 

 

270

 

 

 

117

 

 

 

165

 

 

 

201

 

 

 

753

 

 

 

 

 

 

23

 

 

 

23

 

 

 

776

 

Income (loss) before income tax expense

(benefit)

 

 

249

 

 

 

94

 

 

 

6

 

 

 

(110

)

 

 

239

 

 

 

 

 

 

30

 

 

 

30

 

 

 

269

 

 

 

502

 

 

 

296

 

 

 

34

 

 

 

(243

)

 

 

589

 

 

 

 

 

 

(45

)

 

 

(45

)

 

 

544

 

Income tax expense (benefit)(2)

 

 

92

 

 

 

34

 

 

 

2

 

 

 

(41

)

 

 

87

 

 

 

 

 

 

6

 

 

 

6

 

 

 

93

 

 

 

115

 

 

 

68

 

 

 

8

 

 

 

(56

)

 

 

135

 

 

 

 

 

 

(16

)

 

 

(16

)

 

 

119

 

Net income (loss)

 

$

157

 

 

$

60

 

 

$

4

 

 

$

(69

)

 

$

152

 

 

$

 

 

$

24

 

 

$

24

 

 

$

176

 

 

$

387

 

 

$

228

 

 

$

26

 

 

$

(187

)

 

$

454

 

 

$

 

 

$

(29

)

 

$

(29

)

 

$

425

 

 

(1)

Core Earnings adjustments to GAAP:

 

 

Three Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2019

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

10

 

 

$

 

 

$

10

 

 

$

(15

)

 

$

 

 

$

(15

)

Total other income (loss)

 

 

26

 

 

 

 

 

 

26

 

 

 

(7

)

 

 

 

 

 

(7

)

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

6

 

 

 

6

 

 

 

 

 

 

23

 

 

 

23

 

Total Core Earnings adjustments to GAAP

 

$

36

 

 

$

(6

)

 

 

30

 

 

$

(22

)

 

$

(23

)

 

 

(45

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

(16

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

24

 

 

 

 

 

 

 

 

 

 

$

(29

)

 

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2018 and for the three and nine months ended

September 30, 2018 and 2017 is unaudited) (Continued)

12.   Segment Reporting (Continued)

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

2,281

 

 

$

1,327

 

 

$

 

 

$

 

 

$

3,608

 

 

$

14

 

 

$

(53

)

 

$

(39

)

 

$

3,569

 

Other loans

 

 

3

 

 

 

1

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Cash and investments

 

 

31

 

 

 

9

 

 

 

 

 

 

26

 

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

66

 

Total interest income

 

 

2,315

 

 

 

1,337

 

 

 

 

 

 

26

 

 

 

3,678

 

 

 

14

 

 

 

(53

)

 

 

(39

)

 

 

3,639

 

Total interest expense

 

 

1,817

 

 

 

746

 

 

 

 

 

 

139

 

 

 

2,702

 

 

 

13

 

 

 

(8

)

 

 

5

 

 

 

2,707

 

Net interest income (loss)

 

 

498

 

 

 

591

 

 

 

 

 

 

(113

)

 

 

976

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

932

 

Less: provisions for loan losses

 

 

60

 

 

 

224

 

 

 

 

 

 

 

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

284

 

Net interest income (loss) after provisions

   for loan losses

 

 

438

 

 

 

367

 

 

 

 

 

 

(113

)

 

 

692

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

648

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

201

 

 

 

9

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

210

 

Asset recovery and business processing

   revenue

 

 

112

 

 

 

 

 

 

201

 

 

 

 

 

 

313

 

 

 

 

 

 

 

 

 

 

 

 

313

 

Other income (loss)

 

 

20

 

 

 

 

 

 

 

 

 

6

 

 

 

26

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

39

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

Total other income (loss)

 

 

333

 

 

 

9

 

 

 

201

 

 

 

(3

)

 

 

540

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

553

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

202

 

 

 

133

 

 

 

172

 

 

 

 

 

 

507

 

 

 

 

 

 

 

 

 

 

 

 

507

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

224

 

 

 

224

 

 

 

 

 

 

 

 

 

 

 

 

224

 

Operating expenses

 

 

202

 

 

 

133

 

 

 

172

 

 

 

224

 

 

 

731

 

 

 

 

 

 

 

 

 

 

 

 

731

 

Goodwill and acquired intangible asset

   impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

 

 

39

 

Restructuring/other reorganization

   expenses

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Total expenses

 

 

202

 

 

 

133

 

 

 

172

 

 

 

234

 

 

 

741

 

 

 

 

 

 

39

 

 

 

39

 

 

 

780

 

Income (loss) before income tax expense

   (benefit)

 

 

569

 

 

 

243

 

 

 

29

 

 

 

(350

)

 

 

491

 

 

 

 

 

 

(70

)

 

 

(70

)

 

 

421

 

Income tax expense (benefit)(2)

 

 

130

 

 

 

56

 

 

 

7

 

 

 

(81

)

 

 

112

 

 

 

 

 

 

(14

)

 

 

(14

)

 

 

98

 

Net income (loss)

 

$

439

 

 

$

187

 

 

$

22

 

 

$

(269

)

 

$

379

 

 

$

 

 

$

(56

)

 

$

(56

)

 

$

323

 

(1)

Core Earnings adjustments to GAAP:

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(44

)

 

$

 

 

$

(44

)

Total other income (loss)

 

 

13

 

 

 

 

 

 

13

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

39

 

 

 

39

 

Total Core Earnings adjustments to GAAP

 

$

(31

)

 

$

(39

)

 

 

(70

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(14

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(56

)

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

12.11.   Segment Reporting (Continued)

 

 

Nine Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

1,966

 

 

$

1,204

 

 

$

 

 

$

 

 

$

3,170

 

 

$

54

 

 

$

(41

)

 

$

13

 

 

$

3,183

 

 

$

2,281

 

 

$

1,327

 

 

$

 

 

$

 

 

$

3,608

 

 

$

14

 

 

$

(53

)

 

$

(39

)

 

$

3,569

 

Other loans

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

3

 

 

 

1

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Cash and investments

 

 

20

 

 

 

3

 

 

 

 

 

 

6

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

31

 

 

 

9

 

 

 

 

 

 

26

 

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

66

 

Total interest income

 

 

1,998

 

 

 

1,207

 

 

 

 

 

 

6

 

 

 

3,211

 

 

 

54

 

 

 

(41

)

 

 

13

 

 

 

3,224

 

 

 

2,315

 

 

 

1,337

 

 

 

 

 

 

26

 

 

 

3,678

 

 

 

14

 

 

 

(53

)

 

 

(39

)

 

 

3,639

 

Total interest expense

 

 

1,486

 

 

 

601

 

 

 

 

 

 

102

 

 

 

2,189

 

 

 

(3

)

 

 

(8

)

 

 

(11

)

 

 

2,178

 

 

 

1,817

 

 

 

746

 

 

 

 

 

 

139

 

 

 

2,702

 

 

 

13

 

 

 

(8

)

 

 

5

 

 

 

2,707

 

Net interest income (loss)

 

 

512

 

 

 

606

 

 

 

 

 

 

(96

)

 

 

1,022

 

 

 

57

 

 

 

(33

)

 

 

24

 

 

 

1,046

 

 

 

498

 

 

 

591

 

 

 

 

 

 

(113

)

 

 

976

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

932

 

Less: provisions for loan losses

 

 

32

 

 

 

285

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

60

 

 

 

224

 

 

 

 

 

 

 

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

284

 

Net interest income (loss) after provisions

for loan losses

 

 

480

 

 

 

321

 

 

 

 

 

 

(96

)

 

 

705

 

 

 

57

 

 

 

(33

)

 

 

24

 

 

 

729

 

 

 

438

 

 

 

367

 

 

 

 

 

 

(113

)

 

 

692

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

648

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

215

 

 

 

6

 

 

 

 

 

 

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

221

 

 

 

201

 

 

 

9

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

210

 

Asset recovery and business processing

revenue

 

 

215

 

 

 

 

 

 

152

 

 

 

 

 

 

367

 

 

 

 

 

 

 

 

 

 

 

 

367

 

 

 

112

 

 

 

 

 

 

201

 

 

 

 

 

 

313

 

 

 

 

 

 

 

 

 

 

 

 

313

 

Other income (loss)

 

 

2

 

 

 

 

 

 

 

 

 

11

 

 

 

13

 

 

 

(57

)

 

 

31

 

 

 

(26

)

 

 

(13

)

 

 

20

 

 

 

 

 

 

 

 

 

6

 

 

 

26

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

39

 

Gains on sales of loans and investments

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

Total other income (loss)

 

 

435

 

 

 

6

 

 

 

152

 

 

 

10

 

 

 

603

 

 

 

(57

)

 

 

31

 

 

 

(26

)

 

 

577

 

 

 

333

 

 

 

9

 

 

 

201

 

 

 

(3

)

 

 

540

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

553

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

245

 

 

 

111

 

 

 

131

 

 

 

 

 

 

487

 

 

 

 

 

 

 

 

 

 

 

 

487

 

 

 

209

 

 

 

133

 

 

 

172

 

 

 

 

 

 

514

 

 

 

 

 

 

 

 

 

 

 

 

514

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

220

 

 

 

220

 

 

 

 

 

 

 

 

 

 

 

 

220

 

Unallocated shared services

expenses

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

217

 

 

 

 

 

 

 

 

 

 

 

 

217

 

Operating expenses

 

 

245

 

 

 

111

 

 

 

131

 

 

 

220

 

 

 

707

 

 

 

 

 

 

 

 

 

 

 

 

707

 

 

 

209

 

 

 

133

 

 

 

172

 

 

 

217

 

 

 

731

 

 

 

 

 

 

 

 

 

 

 

 

731

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

17

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

 

 

39

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Total expenses

 

 

245

 

 

 

111

 

 

 

131

 

 

 

220

 

 

 

707

 

 

 

 

 

 

17

 

 

 

17

 

 

 

724

 

 

 

209

 

 

 

133

 

 

 

172

 

 

 

227

 

 

 

741

 

 

 

 

 

 

39

 

 

 

39

 

 

 

780

 

Income (loss) before income tax expense

(benefit)

 

 

670

 

 

 

216

 

 

 

21

 

 

 

(306

)

 

 

601

 

 

 

 

 

 

(19

)

 

 

(19

)

 

 

582

 

 

 

562

 

 

 

243

 

 

 

29

 

 

 

(343

)

 

 

491

 

 

 

 

 

 

(70

)

 

 

(70

)

 

 

421

 

Income tax expense (benefit)(2)

 

 

244

 

 

 

79

 

 

 

8

 

 

 

(112

)

 

 

219

 

 

 

 

 

 

(13

)

 

 

(13

)

 

 

206

 

 

 

128

 

 

 

56

 

 

 

7

 

 

 

(79

)

 

 

112

 

 

 

 

 

 

(14

)

 

 

(14

)

 

 

98

 

Net income (loss)

 

$

426

 

 

$

137

 

 

$

13

 

 

$

(194

)

 

$

382

 

 

$

 

 

$

(6

)

 

$

(6

)

 

$

376

 

 

$

434

 

 

$

187

 

 

$

22

 

 

$

(264

)

 

$

379

 

 

$

 

 

$

(56

)

 

$

(56

)

 

$

323

 

 

(1)

Core Earnings adjustments to GAAP:

 

 

Nine Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

24

 

 

$

 

 

$

24

 

 

$

(44

)

 

$

 

 

$

(44

)

Total other income (loss)

 

 

(26

)

 

 

 

 

 

(26

)

 

 

13

 

 

 

 

 

 

13

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

17

 

 

 

17

 

 

 

 

 

 

39

 

 

 

39

 

Total Core Earnings adjustments to GAAP

 

$

(2

)

 

$

(17

)

 

 

(19

)

 

$

(31

)

 

$

(39

)

 

 

(70

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

(14

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(6

)

 

 

 

 

 

 

 

 

 

$

(56

)

 

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.


NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 20182019 and for the three and nine months ended

September 30, 20182019 and 20172018 is unaudited) (Continued)

 

12.11.   Segment Reporting (Continued)

Summary of Core Earnings Adjustments to GAAP

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Core Earnings net income

 

$

142

 

 

$

140

 

 

$

454

 

 

$

379

 

Core Earnings adjustments to GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net impact of derivative accounting(1)

 

$

(12

)

 

$

36

 

 

$

(31

)

 

$

(2

)

 

 

7

 

 

 

(12

)

 

 

(22

)

 

 

(31

)

Net impact of goodwill and acquired intangible assets(2)

 

 

(23

)

 

 

(6

)

 

 

(39

)

 

 

(17

)

 

 

(6

)

 

 

(23

)

 

 

(23

)

 

 

(39

)

Net tax effect(3)

 

 

9

 

 

 

(6

)

 

 

14

 

 

 

13

 

 

 

2

 

 

 

9

 

 

 

16

 

 

 

14

 

Total Core Earnings adjustments to GAAP

 

$

(26

)

 

$

24

 

 

$

(56

)

 

$

(6

)

 

 

3

 

 

 

(26

)

 

 

(29

)

 

 

(56

)

GAAP net income

 

$

145

 

 

$

114

 

 

$

425

 

 

$

323

 

 

(1)

Derivative accounting: Core Earnings exclude periodic 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 mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These gains and losses occur in our Federal Education Loans, Consumer Lending and Other reportable segments. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the mark-to-market gain will equal the amount for which we sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

(2)

Goodwill and acquired intangible assets: Our Core Earnings exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.

(3)

Net tax effect: Such tax effect is based upon our Core Earnings effective tax rate for the year.

 

 

 

4540


Table of Contents

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains “forward-looking”“forward-looking statements,” within the meaning of the federal securities law, about our business and prospects and other information that is based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about our beliefs, opinions, or expectations and statements that assume or are dependent upon future events, are forward-looking statements and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “may,” “could,” “should,” “goal,” or “target.” Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements.

For us, these factors include, among others, the risks and uncertainties associated with:

increases in financing costs;

increases in financing costs;

the availability of financing or limits on liquidity resulting from disruptions in the capital markets or other factors;

the availability of financing or limits on liquidity resulting from disruptions in the capital markets or other factors;

unanticipated increases in costs associated with compliance with federal, state or local laws and regulations;

unanticipated increases in costs associated with compliance with federal, state or local laws and regulations;

changes in the demand for asset management and business processing solutions or other changes in marketplaces in which we compete (including increased competition);

changes in the demand for asset management and business processing solutions or other changes in marketplaces in which we compete (including increased competition);

changes in accounting standards including but not limited to changes pertaining to loan loss reserves and estimates or other accounting standards that may impact our operations;

changes in accounting standards including but not limited to changes pertaining to loan loss reserves and estimates or other accounting standards that may impact our operations;

adverse outcomes in any significant litigation to which we are a party;

adverse outcomes in any significant litigation to which we are a party;

credit risk associated with the Company’s underwriting standards or exposure to third parties, including counterparties to hedging transactions; and

credit risk associated with the Company’s underwriting standards or exposure to third parties, including counterparties to hedging transactions; and

changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws).

changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws).

We could also be affected by, among other things:

unanticipated repayment trends on loans including prepayments or deferrals in our securitization trusts that could accelerate or delay repayment of the bonds;

reductions to our credit ratings, the credit ratings of asset-backed securitizations we sponsor or the credit ratings of the United States of America;

failures of our operating systems or infrastructure, or those of third-party vendors;

risks related to cybersecurity including the potential disruption of our systems or those of our third-party vendors or customers, or potential disclosure of confidential customer information;

damage to our reputation resulting from cyber-breaches, litigation, the politicization of student loan servicing or other actions or factors;

failure to successfully implement cost-cutting initiatives and adverse effects of such initiatives on our business;

failure to adequately integrate acquisitions or realize anticipated benefits from acquisitions including delays or errors in converting portfolio acquisitions to our servicing platform;

changes in law and regulations whether new laws or regulations, or new interpretations of existing laws and regulations applicable to any of our businesses or activities or those of our vendors, suppliers or customers;  

46


Table of Contents

 

unanticipated repayment trends on loans including prepayments or deferrals in our securitization trusts that could accelerate or delay repayment of the bonds;

 

reductions to our credit ratings, the credit ratings of asset-backed securitizations we sponsor or the credit ratings of the United States of America;

failures of our operating systems or infrastructure, or those of third-party vendors;

risks related to cybersecurity including the potential disruption of our systems or those of our third-party vendors or customers, or potential disclosure of confidential customer information;

damage to our reputation resulting from cyber-breaches, litigation, the politicization of student loan servicing or other actions or factors;

failure to successfully implement cost-cutting initiatives and adverse effects of such initiatives on our business;

failure to adequately integrate acquisitions or realize anticipated benefits from acquisitions including delays or errors in converting portfolio acquisitions to our servicing platform;

changes in law and regulations whether new laws or regulations, or new interpretations of existing laws and regulations applicable to any of our businesses or activities or those of our vendors, suppliers or customers;  

changes in the general interest rate environment, including the availability of any relevant money-market index rate, including LIBOR, or the relationship between the relevant money-market index rate and the rate at which our assets are priced;

our ability to successfully effectuate any acquisitions and other strategic initiatives;

our ability to successfully effectuate any acquisitions and other strategic initiatives;

changes in general economic conditions; and

activities by shareholder activists, including a proxy contest or any unsolicited takeover proposal;

changes in general economic conditions; and

the other factors that are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”) and in our other reports filed with the Securities and Exchange Commission (“SEC”).

41


Table of our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”) and in our other reports filed with the Securities and Exchange Commission (“SEC”).Contents

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

Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in the “Glossary” section of our 20172018 Form 10-K.

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

Navient’s Business

Navient is a leading provider of asseteducation loan management and business processing solutions for education, healthcare, and government clients at the federal, state, and local levels. We help our clients and millions of Americans achieve financial success through services and support. Headquartered in Wilmington, Delaware, Navient also employs team members in western New York, northeastern Pennsylvania, Indiana, Tennessee, Texas, Virginia, Wisconsin, California and other locations.

Navient is the largest private sector holder of education loans insured or federally guaranteed under the Federal Family Education Loan Program (“FFELP”). Navient holds the largest portfolio of Private Education LoansWith a focus on data-driven insights, service, compliance and originates Private Education Refinance Loans. Navient services and performs asset recovery activities on its own portfolio of education loans, as well as education loans owned by the United States Department of Education (“ED”) and other institutions. Navient services education loans for approximately 12 million ED, FFELP and Private Education Loan customers. Our data-driven insight, service and innovationinnovative support, customers on the path to successful education loan repayment.

The Company leverages its scale and expertise to provide business processing solutions such as receivables management services, account processing solutions and revenue cycle management solutions, to a variety of clients, including federal agencies, state and local governments, regional authorities, courts, hospitals, healthcare systems and other healthcare providers.  

For all our clients, we aim to improve their financial performance, optimize their operations, and maintain compassionate, compliant service for their customers and constituents.


47


Table of Contents

As of September 30, 2018, Navient’s principal assets consisted of:Navient:

$74.3 billion in FFELP Loans, with a Federal Education Loans segment net interest margin of 0.82 percent for the nine months ended September 30, 2018 on a Core Earnings basis and a FFELP Loan weighted average life of 7 years;

$22.4 billion in Private Education Loans, with a Consumer Lending segment net interest margin of 3.26 percent for the nine months ended September 30, 2018 on a Core Earnings basis and a Private Education Loan weighted average life of 6 years;

owns $87.9 billion of education loans;

 

originates Private Education Loans;

services and performs asset recovery activities on its own portfolio of education loans, as well as education loans owned by other institutions including the United States Department of Education (“ED”); and

provides revenue cycle management and business processing services to federal, state and municipal clients, public authorities and healthcare organizations.

As of September 30, 2019, Navient’s principal assets consisted of:

$66.1 billion in FFELP Loans, with a leading0.82% Core Earnings segment net interest margin and a weighted average life of 7 years;

$21.8 billion in Private Education Loans, with a 3.45% Core Earnings segment net interest margin and a weighted average life of 5 years;

a loan origination business that assists borrowers in refinancing their education loan debt and assists students and families in financing their higher education, which produced $1.4 billion of Private Education Loan originations in third-quarter 2019;

an education loan servicing business that services loans for approximately 12 million DSLP Loan,over $300 billion in ED, FFELP Loan and Private Education Loan customers (including cosigners), including 6.0 million customer accounts serviced under Navient’s contract with ED;Loans; and

a business solutions suite through which we provide services for approximately 600 clients in the non-education related government and healthcare sectors.

a leading loan origination


42


Table of Contents

We operate our business that assists borrowers in refinancing their education loan debt;three primary segments: Federal Education Loans, Consumer Lending and

a leading business processing offering through which we provide Business Processing. A fourth segment, Other, includes unallocated expenses of shared services for over 600 clients in the government and healthcare sectors.our corporate liquidity portfolio.

Strengths and Opportunities

Navient has a number ofNavient’s competitive advantages that distinguish it from its competitors, including:

Large, high quality asset base generating significantHigh Quality Asset Base Generating Significant and predictable cash flows.Predictable Cash Flows

At September 30, 2018,2019, Navient’s $96.7$87.9 billion education loan portfolio is 81 percentwas 83% funded to term and is expected to produce predictable cash flows over the remaining life of the portfolio. Navient’s $74.3Our $66.1 billion portfolio of FFELP Loans generallyportfolio bears a maximum 3 percent3% loss exposure under the terms of the federal guaranty. Navient’s $22.4Our $21.8 billion portfolio of Private Education Loans bearsLoan portfolio is 50% cosigned (65% excluding Private Education Refinance Loans), bearing the full credit risk of the borrower and any cosigner.

Navient expects thatto generate approximately $20 billion of cash flows from its FFELP Loan and Private Education Loan portfolios will significantly exceed future(net of secured financing obligations) over the next 20 years.

Strong Capital Return

As a result of our significant cash flow and capital generation, Navient expects to return excess capital to stockholders through dividends and share repurchases. We repurchased 9.7 million shares of common stock (4% of shares outstanding) for $130 million in the third quarter of 2019. At September 30, 2019, there was $77 million remaining in share repurchase authorization. In October 2019, the board of directors approved an additional $1 billion multi-year share repurchase program. Since April 2014, Navient has repurchased $3.1 billion in common shares, which has reduced common shares outstanding by over 50%.

Navient has paid a quarterly dividend of $0.16 per share of common stock since 2015. In the third quarters of 2019 and 2018, Navient paid $36 million and $42 million, respectively, in dividends.

The tangible net asset ratio was 1.27x(1) at September 30, 2019.

Growth in Consumer Lending Businesses  

In the Consumer Lending segment, we see meaningful value opportunities in originating Private Education Loans to financially responsible consumers. We are pursuing opportunities in the Private Education Loan market to generate attractive long-term risk adjusted returns. This includes a loan origination business that assists borrowers in refinancing their education loan debt service obligations. Our interest earning assets are funded by both secured and unsecured debt. assists students and families in financing their higher education. We originated $1.4 billion of Private Education Loans in third-quarter 2019, a 57% increase from $903 million in the year-ago quarter.

 

Efficient

(1)Tangible Net Asset Ratio is a non-GAAP financial measure. For an explanation and reconciliation of our non-GAAP financial measures, see “Non-GAAP Financial Measures.”

43


Table of Contents

Growth in Business Processing

Navient has leveraged our large-scale operating platforms.platforms, superior data-driven strategies, operating efficiency, and regulatory compliance and risk management infrastructure to expand to new areas such as government services and healthcare. Navient provides business processing services more than $300 billionto approximately 600 clients, generating total revenue of $66 million in education loans for approximately 12 million customers.the third quarter of 2019. Navient’s inventory of non-education related contingent asset recovery receivables is $40.4was $14.2 billion as of September 30, 2018. 2019.

Efficient and Large-Scale Operating Platforms

We provide services to more than 1,000service over $300 billion in education healthcareloans. These loans are owned by Navient and public sector clients. Navient hasthird parties, including ED. We have demonstrated scalable infrastructure with capacity to add volume at a low cost. On July 3, 2018, we closed on a strategic agreementmanage large volumes of complex transactions with First Data related to Navient’s student loan technology platform, creating a more effective long-term variable cost structure for the business. Our market share and tested infrastructure have enabled expansion to additional clients and asset types.continued efficiency improvements.

Superior performance.Performance

Navient has demonstrated superior default prevention performance and industry-leading services. For example, the combined portfolio of federalperformance. Federal loans serviced by Navient experiencedachieved a Cohort Default Rate (“CDR”) that is 35 percent lower37% better than our peers, as calculated from the most recent CDR released by ED in September 2018.2019. We are consistently a top performer in our asset recovery business and deliver superior service to our public and private sector clients. We continually leverage data-driven insights and customer service to identify new ways to add value to our clients.

Commitment to complianceCustomer Service and customer centricity.Compliance Commitment

Navient fosters a robust compliance culture driven by a “customer first” approach. We invest in rigorous training programs, quality assurance, reviews and audits, complaint tracking and analysis, and customer research to enhance our compliance and customer service.

Strong capital return. As a result of our significant cash flow and capital generation, Navient expects to return excess capital to stockholders through dividends and share repurchases. We repurchased 6.9 million common shares for $95 million in the third quarter of 2018. Our board of directors authorized a new $500 million share repurchase program in September 2018. As of September 30, 2018, $565 million of authorization remains outstanding. The tangible net asset ratio remained stable at 1.23x at September 30, 2018 (see “Non-GAAP Financial Measures – Tangible Net Asset Ratio” for an explanation and reconciliation of this ratio).

Navient has paid a quarterly dividend of $0.16 per share of common stock since the first quarter of 2015. For the nine months ended September 30, 2018, Navient paid $126 million in dividends.

48


Table of Contents

Meaningful growth opportunities. In the Consumer Lending segment, Navient offers Private Education Refinance Loans to financially responsible professionals which is meaningful growth opportunity for Navient. In November 2017, Navient acquired Earnest to accelerate its growth opportunity originating Private Education Refinance Loans. Earnest originated $900 million in Private Education Refinance Loans in 2017. In the nine months ended September 30, 2018, Navient originated $2.0 billion of Private Education Loans which included $903 million in third-quarter 2018, a 44 percent increase from the prior quarter. Navient will also continue to pursue opportunistic acquisitions of Private Education Loan portfolios.

In the Business Processing segment, Navient leverages its large-scale operating platforms, superior and data-driven default prevention and asset recovery performance, operating efficiency, and regulatory compliance and risk management infrastructure in growing these businesses and in pursuing other growth opportunities. Navient provides a variety of business processing solutions that help our clients improve financial performance. Business processing revenue increased 16 percent from the year-ago quarter, with a 13 percent increase from the prior quarter to $13 billion in contingent collections receivables inventory as a result of new placements.

Navient’s Approach to Helping Education Loan Borrowers Achieve Success

Navient services loans for approximately 12 million DSLP Loan, FFELP Loan and Private Education Loan customers, including 6.0 million customers whose accounts are serviced under Navient’s contract with ED. We help our customers navigate the path to financial success through proactive outreach and innovative, data-driven approaches.

Leveraging four decades of expertise:expertise: We define customer success as making steady progress toward repayment and avoiding falling behind on or putting off payments. With customer success and default prevention as our top priorities, we apply data-driven outreachstrategies that drawsdraw from our more than 4045 years of experience. Our strategists employ risk modeling to pinpointidentify struggling borrowers and deploy resources where needed. By tailoring our approach to each borrower’sborrowers’ unique situationsituations — e.g., recent graduates, students re-entering school, those experiencing hardships or those with student debt but no degree — we help ensure industry-leading outcomes, as evidenced by a default rate that is 35 percent lower than all other servicers.leading outcomes. Nine times out of 10, when we can reach federal loan customers who have missed payments, we are able to implementidentify a solution to help them avoid default.

Getting borrowers into the right payment plans: plans: We help customers understand the complex arraywide range of federal loan repayment options so they can make informed choices about the plans that are alignedalign with their financial circumstances and goals. We promote awareness of federal repayment plan options, including Income-Driven Repayment (“IDR”), through more than 161 million communications annually, including mail, email, phone calls, videos and, text messages. Asas a result, we continue to lead in enrolling customers in affordable income-driven repayment plans: nearly one in three federal student borrowers and more than half of the eligible student loan balances serviced by Navient for the government were enrolled in an IDR plan (excluding loan types ineligible for the plans).plan. We also help borrowers understand that options lengthening their repayment term may increase the total cost of their loans, while reminding them that they may pay extra or switch repayment plans at any time.

Leading the industry:Advocating for borrowers: Navient is a leader in recommendingan advocate for policy reforms that would enhance the student loan program. For example, we have recommended improving financial literacy before borrowing, for school and simplifying federal loan repayment options and encouraging college completion — reforms that we believe would make a meaningful difference for millions of Americans with student loans and encourage college completion.Americans.

In 2009, we pioneered the creation of a loan modification program to help Private Education Loan borrowers needing additional assistance. As of September 30, 2018, $2.02019, $1.9 billion of our Private Education Loans were enrolled in this interest rate reduction program, helping customers through more affordable monthly payments while making progress in repaying their principal loan balance.

We continually make enhancements designed to help our customers, drawing from a variety of inputs including customer surveys, research panels, analysis of customer inquiries and complaint data, and regulator commentary and website activity. We regularly use customer and employee research panels to gather real-time feedback to inform enhancements underway.commentary.

49


Table of Contents

Our Office of the Customer Advocate, established in 1997, offers escalated assistance to customers who request it.customers. We are committed to working with customers and appreciate customer comments, which, combined with our own customer communication channels, help us improve the ways we assist our customers.

We also continue to offer free resources to help customers and the general public build knowledge on personal finance topics. We offer Path to Success, a series

44


Table of interactive financial literacy videos, and Career Playbook, a career development video series. We also conduct a national research study, Money Under 35, that measures the financial health of Americans ages 22 to 35.Contents

We take seriously our commitment to serve military customers and have developed a best-in-class approach to assist them.

Navient was the first student loan servicer to launch a dedicated military benefits customer service team, website (Navient.com/military), and toll-free number. Navient’s military benefits team offers a single point of contact for all calls fromsupports service members and their families to help them learn about and access the benefits designed for them, including interest rate benefits, deferment and other options.

Selected Historical Financial Information and Ratios

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In millions, except per share data)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

GAAP Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Navient Corporation

 

$

114

 

 

$

176

 

 

$

323

 

 

$

376

 

Diluted earnings per common share attributable to Navient Corporation

 

$

.43

 

 

$

.64

 

 

$

1.21

 

 

$

1.32

 

Weighted average shares used to compute diluted earnings per common

share

 

 

264

 

 

 

274

 

 

 

267

 

 

 

285

 

Net interest margin, Federal Education Loan segment

 

 

.68

%

 

 

.73

%

 

 

.72

%

 

 

.79

%

Net income

 

$

145

 

 

$

114

 

 

$

425

 

 

$

323

 

Diluted earnings per common share

 

$

.63

 

 

$

.43

 

 

$

1.79

 

 

$

1.21

 

Weighted average shares used to compute diluted earnings per share

 

 

228

 

 

 

264

 

 

 

238

 

 

 

267

 

Net interest margin, Federal Education Loans segment

 

 

.79

%

 

 

.68

%

 

 

.79

%

 

 

.72

%

Net interest margin, Consumer Lending segment

 

 

3.40

%

 

 

3.64

%

 

 

3.33

%

 

 

3.38

%

 

 

3.52

%

 

 

3.40

%

 

 

3.37

%

 

 

3.33

%

Return on assets

 

 

.43

%

 

 

.61

%

 

 

.40

%

 

 

.44

%

 

 

.61

%

 

 

.43

%

 

 

.59

%

 

 

.40

%

Ending FFELP Loans, net

 

$

74,257

 

 

$

83,916

 

 

$

74,257

 

 

$

83,916

 

 

$

66,087

 

 

$

74,257

 

 

$

66,087

 

 

$

74,257

 

Ending Private Education Loans, net

 

 

22,447

 

 

 

23,424

 

 

 

22,447

 

 

 

23,424

 

 

 

21,846

 

 

 

22,447

 

 

 

21,846

 

 

 

22,447

 

Ending total education loans, net

 

$

96,704

 

 

$

107,340

 

 

$

96,704

 

 

$

107,340

 

 

$

87,933

 

 

$

96,704

 

 

$

87,933

 

 

$

96,704

 

Average FFELP Loans

 

$

75,582

 

 

$

85,019

 

 

$

78,165

 

 

$

85,691

 

 

$

67,206

 

 

$

75,582

 

 

$

69,157

 

 

$

78,165

 

Average Private Education Loans

 

 

23,107

 

 

 

24,348

 

 

 

23,392

 

 

 

23,657

 

 

 

22,205

 

 

 

23,107

 

 

 

22,474

 

 

 

23,392

 

Average total education loans

 

$

98,689

 

 

$

109,367

 

 

$

101,557

 

 

$

109,348

 

 

$

89,411

 

 

$

98,689

 

 

$

91,631

 

 

$

101,557

 

Core Earnings Basis(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Navient Corporation

 

$

140

 

 

$

152

 

 

$

379

 

 

$

382

 

Diluted earnings per common share attributable to Navient Corporation

 

$

.53

 

 

$

.55

 

 

$

1.42

 

 

$

1.34

 

Diluted earnings per common share attributable to Navient Corporation,

excluding restructuring and regulatory expenses(2)

 

$

.56

 

 

$

.56

 

 

$

1.51

 

 

$

1.36

 

Weighted average shares used to compute diluted earnings per

common share

 

 

264

 

 

 

274

 

 

 

267

 

 

 

285

 

Net interest margin, Federal Education Loan segment

 

 

.82

%

 

 

.71

%

 

 

.82

%

 

 

.77

%

Net income

 

$

142

 

 

$

140

 

 

$

454

 

 

$

379

 

Diluted earnings per common share

 

$

.62

 

 

$

.53

 

 

$

1.91

 

 

$

1.42

 

Adjusted diluted earnings per common share(2)

 

$

.65

 

 

$

.56

 

 

$

1.97

 

 

$

1.51

 

Weighted average shares used to compute diluted earnings per share

 

 

228

 

 

 

264

 

 

 

238

 

 

 

267

 

Net interest margin, Federal Education Loans segment

 

 

.82

%

 

 

.82

%

 

 

.81

%

 

 

.82

%

Net interest margin, Consumer Lending segment

 

 

3.35

%

 

 

3.57

%

 

 

3.26

%

 

 

3.34

%

 

 

3.45

%

 

 

3.35

%

 

 

3.29

%

 

 

3.26

%

Return on assets

 

 

.53

%

 

 

.53

%

 

 

.47

%

 

 

.45

%

 

 

.60

%

 

 

.53

%

 

 

.63

%

 

 

.47

%

Ending FFELP Loans, net

 

$

74,257

 

 

$

83,916

 

 

$

74,257

 

 

$

83,916

 

 

$

66,087

 

 

$

74,257

 

 

$

66,087

 

 

$

74,257

 

Ending Private Education Loans, net

 

 

22,447

 

 

 

23,424

 

 

 

22,447

 

 

 

23,424

 

 

 

21,846

 

 

 

22,447

 

 

 

21,846

 

 

 

22,447

 

Ending total education loans, net

 

$

96,704

 

 

$

107,340

 

 

$

96,704

 

 

$

107,340

 

 

$

87,933

 

 

$

96,704

 

 

$

87,933

 

 

$

96,704

 

Average FFELP Loans

 

$

75,582

 

 

$

85,019

 

 

$

78,165

 

 

$

85,691

 

 

$

67,206

 

 

$

75,582

 

 

$

69,157

 

 

$

78,165

 

Average Private Education Loans

 

 

23,107

 

 

 

24,348

 

 

 

23,392

 

 

 

23,657

 

 

 

22,205

 

 

 

23,107

 

 

 

22,474

 

 

 

23,392

 

Average total education loans

 

$

98,689

 

 

$

109,367

 

 

$

101,557

 

 

$

109,348

 

 

$

89,411

 

 

$

98,689

 

 

$

91,631

 

 

$

101,557

 

 

(1)

Core Earnings are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of Core Earnings, see the section titled “Non-GAAP Financial Measures – Core Earnings.”

(2)

ExcludesAdjusted diluted Core Earnings per share, a non-GAAP financial measure, excludes restructuring and regulatory expenses of $10$9 million and $3$10 million for the three months ended September 30, 20182019 and 2017,2018, respectively and $31$19 million and $11$31 million for the nine months ended September 30, 2019 and 2018, and 2017, respectively. Regulatory expenses for the nine months ended September 30, 2019 are net of a $10 million insurance policy reimbursement for costs related to such matters.


5045


Table of Contents

 

Overview

The following discussion and analysis presents a review of our business and operations as of and for the three and nine months ended September 30, 2018.2019. We monitor and assess our ongoing operations and results based on the following four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing and Other.

Federal Education Loans Segment

In its Federal Education Loansthis segment, Navient holds and acquires FFELP loansLoans and performs servicing and asset recovery services on its own loan portfolio, federal education loans owned by ED and other institutions. Although FFELP Loans are no longer originated, we continue to pursue acquisitions of FFELP Loan portfolios as well as servicing and asset recovery services contracts. These acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through net interest income on the FFELP Loan portfolio (after provision for loan losses) as well as servicing and asset recovery services revenue. This segmentsegment is expected to generate significant amounts of earnings and cash flow over the remaining life of the portfolio.

Consumer Lending Segment

In its Consumer Lendingthis segment, Navient holds, originates and acquires consumer loans and performs servicing activities on its own education loan portfolio. Originations and acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through 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 over the remaining life of the portfolio.

Business Processing Segment

In its Business Processingthis segment, Navient performs revenue cycle management and business processing services for overapproximately 600 non-education related government and healthcare clients. Government services include receivables management services and account processing solutions. With over $13 billion of inventory, ourOur integrated solutions technology and superior data driven approach allows state governments, agencies, court systems, municipalities, and toll authorities (Government Services) to reduce their operating expenses while maximizing revenue opportunities. Healthcare services include revenue cycle outsourcing, accounts receivable management, extended business office support and consulting engagements. We offer customizable solutions for our clients that include non-profit/religious-affiliated hospital systems, teaching hospitals, urban medical centers, for-profit healthcare systems, critical access hospitals, children’s hospitals and large physician groups.

Other

Our OtherThis segment primarily consists of the following activities: our corporate liquidity portfolio and the repurchase of debt, unallocated overhead (corporate overheadexpenses of shared services and certain information technology costs), restructuring/other reorganization expenses, and the deferred tax asset remeasurement loss recognized due to the enactment of the “Tax Cuts and Jobs Act” (“TCJA”) in the fourth quarter of 2017.expenses.

Unallocated corporate overhead isexpenses of shared services are comprised of costs primarily related to certain executive management, the board of directors, accounting, finance, legal, human resources, compliance and risk management, regulatory-related costs, and stock-based compensation expense. Unallocatedexpense, and information technology costs are related to infrastructure and operations. Regulatory-related costs include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters.

Key Financial Measures

Our operating results are primarily driven by:by net interest income, provisions for loan losses and expenses incurred in our education loan portfolios; the revenues and expenses generated by our servicing, asset recovery and business processing businesses; gains and losses on loan sales and debt repurchases; and income tax expense. We manage and assess the performance of each business segment separately as each is focused on different customers and each derives its revenue from different activities and services. A brief summary of our key financial measures (net interest income; provisions for loan losses; charge-offs and delinquencies; servicing, asset recovery and business processing revenues; other income (loss); operating expenses; and income tax expense) can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20172018 Form 10-K.


5146


Table of Contents

 

Third-Quarter 2018Third-quarter 2019 Summary of Results

We report financial results on a GAAP basis and also present certain Core Earnings performance measures. Our management, equity investors, credit rating agencies and debt capital providers use these Core Earnings measures to monitor our business performance. See “Non-GAAP Financial Measures – Core Earnings” for a further discussion and a complete reconciliation between GAAP net income and Core Earnings.

For the third-quarter 2018,Third-quarter 2019 GAAP net income was $114$145 million ($0.430.63 diluted earnings per share), compared with $176$114 million ($0.640.43 diluted earnings per share) for the year-ago quarter. The changesSee “Consolidated Earnings Summary – GAAP Basis” for a discussion of the primary contributors to the change in GAAP net income are impacted by the same Core Earnings items discussed below, as well as changes in net income attributable to (1) mark-to-market gains/losses on derivatives and (2) goodwill and acquired intangible asset amortization and impairment. These items are recognized in GAAP but are not included in Core Earnings results. Third-quarter 2018 and 2017 GAAP results included losses of $12 million and gains of $36 million from derivative accounting, as well as $23 million and $6 million of expense from acquired intangible assets in third-quarter 2018 and 2017, respectively, that are excluded from Core Earnings results. See “Non-GAAP Financial Measures – Core Earnings” for a complete reconciliationearnings between GAAP net income and Core Earnings.periods.

Core Earnings for the quarter were $140$142 million ($0.530.62 diluted Core Earnings per share), compared with $152$140 million ($0.550.53 diluted Core Earnings per share) for the year-ago quarter. The decrease in diluted core earnings per share was primarily the result of a decrease in fee revenue, a decrease in net interest incomeThird-quarter 2019 and higher expenses, partially offset by a reduction in income tax expense due to the new tax law, lower provision and fewer common shares outstanding.  Third-quarter 2018 and 2017adjusted diluted Core Earnings per share were $0.56$0.65 and $0.56, respectively, excluding restructuring and regulatory-related expenses of $9 million and $10 million, and $3 million, respectively. See “Reportable Segment Earnings Summary – Core Earnings Basis” for a discussion of the primary contributors to the change in Core Earnings between periods.

Highlights of third-quarter 20182019 include:

closed on a strategic agreement with First Data related to Navient’s student loan technology platform creating a more effective long-term variable cost structure for the business;

FFELP Loan delinquency rate decreased 10% from the year-ago quarter;

contingent collections receivables inventory in our Federal Education Loan segment increased $12 billion from the prior quarter as a result of new placements;

asset recovery revenue in our Federal Education Loans segment increased $15 million (36%) from the year-ago quarter;

originated $903 million of Private Education Refinance Loans, a 44 percent increase from second-quarter 2018;

originated $1.4 billion of Private Education Loans, a 57% increase from $903 million in the year-ago quarter;  

Private Education Loan provision declined $20 million;

Private Education Loan delinquency rate declined 24% from the year-ago quarter;  

business processing fee revenue increased 16 percent to $64 million from the year-ago quarter;

EBITDA(1) margin of 20% in our Business Processing segment;

contingent collections receivables inventory in our Business Processing segment increased 13 percent to $13 billion from the prior quarter as a result of new placements;

contingent collections receivables inventory in our Business Processing segment increased 8% to $14.2 billion from the year-ago quarter;

repurchased 6.9 million common shares for $95 million;

repurchased 9.7 million common shares for $130 million;

authorized $500 million to be utilized in a new share repurchase program, with $565 million repurchase program outstanding at quarter-end;

paid $36 million in common stock dividends;

paid $42 million in common dividends;

the tangible net asset ratio was 1.27x(1); and

the tangible net asset ratio was 1.23x;

issued $992 million of FFELP Loan asset-backed securities (“ABS”) and $632 million of Private Education Loan ABS; and

retired or repurchased $86 billion of senior unsecured debt.

issued $749 million of FFELP Loan asset-backed securities (“ABS”) and $535 billion of Private Education Loan ABS.

 

52

(1)Item is a non-GAAP financial measure. For an explanation and reconciliation of our non-GAAP financial measures, see “Non-GAAP Financial Measures.”

47


Table of Contents

 

Results of Operations

We present the results of operations below first on a consolidated basis in accordance with GAAP. Following our discussion of consolidated earnings results on a GAAP basis, we present our results on a segment basis. We have four reportable segments: Federal Education Loans, Consumer Lending, Business Processing and Other. These segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures we call Core Earnings (see “Non-GAAP Financial Measures – Core Earnings” for further discussion).

GAAP Statements of Income (Unaudited)

 

 

Three Months Ended September 30,

 

 

Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

Increase

(Decrease)

 

 

Three Months Ended September 30,

 

 

Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

Increase

(Decrease)

 

(In millions, except per share data)

 

2018

 

 

2017

 

 

$

 

 

%

 

 

2018

 

 

2017

 

 

$

 

 

%

 

 

2019

 

 

2018

 

 

$

 

 

%

 

 

2019

 

 

2018

 

 

$

 

 

%

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

759

 

 

$

681

 

 

$

78

 

 

 

11

%

 

$

2,242

 

 

$

1,979

 

 

$

263

 

 

 

13

%

 

$

706

 

 

$

759

 

 

$

(53

)

 

 

(7

)%

 

$

2,211

 

 

$

2,242

 

 

$

(31

)

 

 

(1

)%

Private Education Loans

 

 

455

 

 

 

445

 

 

 

10

 

 

 

2

 

 

 

1,327

 

 

 

1,204

 

 

 

123

 

 

 

10

 

 

 

437

 

 

 

455

 

 

 

(18

)

 

 

(4

)

 

 

1,317

 

 

 

1,327

 

 

 

(10

)

 

 

(1

)

Other loans

 

 

1

 

 

 

2

 

 

 

(1

)

 

 

(50

)

 

 

4

 

 

 

12

 

 

 

(8

)

 

 

(67

)

 

 

 

 

 

1

 

 

 

(1

)

 

 

(100

)

 

 

2

 

 

 

4

 

 

 

(2

)

 

 

(50

)

Cash and investments

 

 

26

 

 

 

12

 

 

 

14

 

 

 

117

 

 

 

66

 

 

 

29

 

 

 

37

 

 

 

128

 

 

 

23

 

 

 

26

 

 

 

(3

)

 

 

(12

)

 

 

75

 

 

 

66

 

 

 

9

 

 

 

14

 

Total interest income

 

 

1,241

 

 

 

1,140

 

 

 

101

 

 

 

9

 

 

 

3,639

 

 

 

3,224

 

 

 

415

 

 

 

13

 

 

 

1,166

 

 

 

1,241

 

 

 

(75

)

 

 

(6

)

 

 

3,605

 

 

 

3,639

 

 

 

(34

)

 

 

(1

)

Total interest expense

 

 

935

 

 

 

785

 

 

 

150

 

 

 

19

 

 

 

2,707

 

 

 

2,178

 

 

 

529

 

 

 

24

 

 

 

854

 

 

 

935

 

 

 

(81

)

 

 

(9

)

 

 

2,714

 

 

 

2,707

 

 

 

7

 

 

 

 

Net interest income

 

 

306

 

 

 

355

 

 

 

(49

)

 

 

(14

)

 

 

932

 

 

 

1,046

 

 

 

(114

)

 

 

(11

)

 

 

312

 

 

 

306

 

 

 

6

 

 

 

2

 

 

 

891

 

 

 

932

 

 

 

(41

)

 

 

(4

)

Less: provisions for loan losses

 

 

85

 

 

 

105

 

 

 

(20

)

 

 

(19

)

 

 

284

 

 

 

317

 

 

 

(33

)

 

 

(10

)

 

 

64

 

 

 

85

 

 

 

(21

)

 

 

(25

)

 

 

208

 

 

 

284

 

 

 

(76

)

 

 

(27

)

Net interest income after provisions for loan losses

 

 

221

 

 

 

250

 

 

 

(29

)

 

 

(12

)

 

 

648

 

 

 

729

 

 

 

(81

)

 

 

(11

)

 

 

248

 

 

 

221

 

 

 

27

 

 

 

12

 

 

 

683

 

 

 

648

 

 

 

35

 

 

 

5

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

70

 

 

 

75

 

 

 

(5

)

 

 

(7

)

 

 

210

 

 

 

221

 

 

 

(11

)

 

 

(5

)

 

 

60

 

 

 

70

 

 

 

(10

)

 

 

(14

)

 

 

182

 

 

 

210

 

 

 

(28

)

 

 

(13

)

Asset recovery and business processing revenue

 

 

106

 

 

 

157

 

 

 

(51

)

 

 

(32

)

 

 

313

 

 

 

367

 

 

 

(54

)

 

 

(15

)

 

 

123

 

 

 

106

 

 

 

17

 

 

 

16

 

 

 

364

 

 

 

313

 

 

 

51

 

 

 

16

 

Other income (loss)

 

 

28

 

 

 

4

 

 

 

24

 

 

 

600

 

 

 

29

 

 

 

3

 

 

 

26

 

 

 

867

 

 

 

9

 

 

 

28

 

 

 

(19

)

 

 

(68

)

 

 

37

 

 

 

29

 

 

 

8

 

 

 

28

 

Gains on sales of loans and investments

 

 

 

 

 

3

 

 

 

(3

)

 

 

(100

)

 

 

 

 

 

3

 

 

 

(3

)

 

 

(100

)

Losses on debt repurchases

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

(9

)

 

 

(1

)

 

 

(8

)

 

 

800

 

Gains on sales of loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

 

 

100

 

Gains (losses) on debt repurchases

 

 

 

 

 

(1

)

 

 

1

 

 

 

(100

)

 

 

59

 

 

 

(9

)

 

 

68

 

 

 

(756

)

Gains (losses) on derivative and hedging activities, net

 

 

2

 

 

 

25

 

 

 

(23

)

 

 

(92

)

 

 

10

 

 

 

(16

)

 

 

26

 

 

 

(163

)

 

 

4

 

 

 

2

 

 

 

2

 

 

 

100

 

 

 

(21

)

 

 

10

 

 

 

(31

)

 

 

(310

)

Total other income

 

 

205

 

 

 

263

 

 

 

(58

)

 

 

(22

)

 

 

553

 

 

 

577

 

 

 

(24

)

 

 

(4

)

 

 

196

 

 

 

205

 

 

 

(9

)

 

 

(4

)

 

 

637

 

 

 

553

 

 

 

84

 

 

 

15

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

255

 

 

 

238

 

 

 

17

 

 

 

7

 

 

 

731

 

 

 

707

 

 

 

24

 

 

 

3

 

 

 

251

 

 

 

255

 

 

 

(4

)

 

 

(2

)

 

 

749

 

 

 

731

 

 

 

18

 

 

 

2

 

Goodwill and acquired intangible asset impairment and

amortization expense

 

 

23

 

 

 

6

 

 

 

17

 

 

 

283

 

 

 

39

 

 

 

17

 

 

 

22

 

 

 

129

 

Goodwill and acquired intangible assets impairment and

amortization expense

 

 

6

 

 

 

23

 

 

 

(17

)

 

 

(74

)

 

 

23

 

 

 

39

 

 

 

(16

)

 

 

(41

)

Restructuring/other reorganization expenses

 

 

1

 

 

 

 

 

 

1

 

 

 

100

 

 

 

10

 

 

 

 

 

 

10

 

 

 

100

 

 

 

2

 

 

 

1

 

 

 

1

 

 

 

100

 

 

 

4

 

 

 

10

 

 

 

(6

)

 

 

(60

)

Total expenses

 

 

279

 

 

 

244

 

 

 

35

 

 

 

14

 

 

 

780

 

 

 

724

 

 

 

56

 

 

 

8

 

 

 

259

 

 

 

279

 

 

 

(20

)

 

 

(7

)

 

 

776

 

 

 

780

 

 

 

(4

)

 

 

(1

)

Income before income tax expense

 

 

147

 

 

 

269

 

 

 

(122

)

 

 

(45

)

 

 

421

 

 

 

582

 

 

 

(161

)

 

 

(28

)

 

 

185

 

 

 

147

 

 

 

38

 

 

 

26

 

 

 

544

 

 

 

421

 

 

 

123

 

 

 

29

 

Income tax expense

 

 

33

 

 

 

93

 

 

 

(60

)

 

 

(65

)

 

 

98

 

 

 

206

 

 

 

(108

)

 

 

(52

)

 

 

40

 

 

 

33

 

 

 

7

 

 

 

21

 

 

 

119

 

 

 

98

 

 

 

21

 

 

 

21

 

Net income attributable to Navient Corporation

 

$

114

 

 

$

176

 

 

$

(62

)

 

 

(35

)%

 

$

323

 

 

$

376

 

 

$

(53

)

 

 

(14

)%

Basic earnings per common share attributable to

Navient Corporation

 

$

.44

 

 

$

.65

 

 

$

(.21

)

 

 

(32

)%

 

$

1.23

 

 

$

1.35

 

 

$

(.12

)

 

 

(9

)%

Diluted earnings per common share attributable

to Navient Corporation

 

$

.43

 

 

$

.64

 

 

$

(.21

)

 

 

(33

)%

 

$

1.21

 

 

$

1.32

 

 

$

(.11

)

 

 

(8

)%

Dividends per common share attributable to Navient

Corporation

 

$

.16

 

 

$

.16

 

 

$

 

 

 

%

 

$

.48

 

 

$

.48

 

 

$

 

 

 

%

Net income

 

$

145

 

 

$

114

 

 

$

31

 

 

 

27

%

 

$

425

 

 

$

323

 

 

$

102

 

 

 

32

%

Basic earnings per common share

 

$

.64

 

 

$

.44

 

 

$

.20

 

 

 

45

%

 

$

1.81

 

 

$

1.23

 

 

$

.58

 

 

 

47

%

Diluted earnings per common share

 

$

.63

 

 

$

.43

 

 

$

.20

 

 

 

47

%

 

$

1.79

 

 

$

1.21

 

 

$

.58

 

 

 

48

%

Dividends per common share

 

$

.16

 

 

$

.16

 

 

$

 

 

 

%

 

$

.48

 

 

$

.48

 

 

$

 

 

 

%

 


48


Table of Contents

Consolidated Earnings Summary — GAAP basisBasis

Three Months Ended September 30, 20182019 Compared with Three Months Ended September 30, 20172018

For the three months ended September 30, 2018,2019, net income was $114$145 million, or $0.43$0.63 diluted earnings per common share, compared with net income of $176$114 million, or $0.64$0.43 diluted earnings per common share, for the three months ended September 30, 2017. The decrease in net income was primarily due to a $48 million decrease in net interest income, a $51 million decrease in asset recovery and business processing revenue, a $23 million decrease in net gains on derivative and hedging activities, a $17 million increase in operating expenses and a $17 million increase in acquired intangible asset impairment and amortization expense. This was partially offset by a $20 million decrease in the provisions for loan losses, a $24 million increase in other income and a $60 million decrease in income tax expense.

53


Table of Contents

The primary contributors to each of the identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as follows:

Net interest income decreased by $48 million, primarily as a result of the natural paydown of the education loan portfolio.

Provisions for loan losses decreased $20 million due to a $20 million decrease in the Private Education Loan provision for loan losses. As a result of the expiration of the temporary natural disaster forbearances granted at the end of 2017, loan delinquencies greater than 90-days increased by $49 million and forbearances decreased by $380 million compared with the year-ago quarter, all as expected. Charge-offs increased as expected by $20 million, excluding the $32 million related to a change in the portion of the loan amount charged off at default (see “Reportable Segment Earnings Summary – Core Earnings Basis – Consumer Lending Segment – Private Education Loan Provision for Loan Losses” for further discussion). This increase in charge-offs was expected and due to the disaster forbearances discussed above. These items had no impact on the provision for loan losses in the third quarter of 2018 as these items had been previously reserved for through the allowance for loan losses. Outstanding Private Education Loans decreased $977 million from the year-ago quarter. These factors along with the continued improvement in the portfolio’s performance resulted in the $20 million decrease in provision.

Asset recovery and business processing revenue decreased $51 million primarily due to the third-quarter 2017 recognition of $47 million of previously deferred asset recovery revenue, net of a reserve, related to loans for which the Company performed default aversion services. In connection with providing these services, a fee was received when a loan was initially placed with us and we provided the services for the remaining life of the loan for no additional fee. As a result, in accordance with GAAP, the fee was deferred net of estimated rebates, and recognized as revenue as it was earned over the expected lives of the related loans. In the third quarter of 2017, the Company was notified that it would no longer perform these services after 2017 due to the termination of the related contract as of December 31, 2017. In accordance with GAAP, we recognized this previously deferred revenue during the third quarter of 2017 to reflect a shortened period over which it was expected to be earned.

Other income increased $24 million primarily from the sale of technology and transition services revenue in connection with the strategic agreement we entered into with First Data in the third quarter of 2018.

Net gains on derivative and hedging activities decreased $23 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.

Third-quarter 2018 and 2017 operating expenses included regulatory-related costs of $9 million and $3 million, respectively. Excluding these regulatory-related costs, operating expenses were $246 million and $235 million in third-quarter 2018 and 2017, respectively. On an adjusted basis, expenses were $29 million lower primarily as a result of ongoing cost-saving initiatives across the Company. Adjusted expenses exclude $17 million of operating costs related to Duncan Solutions (acquired in July 2017) and to Earnest (acquired in November 2017), $14 million in connection with the adoption of a new revenue recognition accounting standard on January 1, 2018 (see below for further discussion) and $9 million of costs in 2018 in connection with the First Data transition services agreement.

Acquired intangible asset impairment and amortization expense increased $17 million primarily as a result of the notice of termination of a Toll Services Contract in third-quarter 2018 in our government services reporting unit which resulted in $16 million of impairment on the related intangible asset.

The effective income tax rates for the third quarters of 2018 and 2017 were 23 percent and 35 percent, respectively. The decrease in the effective income tax rate was primarily the result of the “Tax Cuts and Jobs Act” (“TCJA”). Income tax expense decreased $60 million of which $21 million was a result of the lower tax rate in connection with the passage of the TCJA.

We repurchased 6.9 million and 11.3 million shares of our common stock during the three months ended September 30, 2018 and 2017, respectively. As a result, our average outstanding diluted shares decreased by 10 million common shares (or 4 percent) from the year-ago period.

As of January 1, 2018, we adopted Accounting Standard Codification (“ASC”) 606, “Revenue from Contracts with Customers.” We determined there was no material change in the timing of our recognition of our asset recovery and business processing revenue or expenses and we did not record a cumulative adjustment as of January 1, 2018 as a result of the adoption of ASC 606.  

54


Table of Contents

The new guidance does not apply to financial instruments and transfers and servicing that are accounted for under other U.S. GAAP. Accordingly, the new revenue recognition guidance does not have an impact on our recognition of revenue and costs associated with our loan portfolios, investments, derivatives and servicing contracts. However, we considered the ASC 606 principal versus agent guidance with respect to certain asset recovery guarantor servicing contracts pursuant to which we serve in a portfolio management role and use third-party collection agencies. We determined that we are required under the new accounting standard to reflect payments to third-party collection agencies as revenue and operating expense. Under the prior accounting standards, we netted payments to third-party collection agencies against revenue. We adopted the new accounting standard using the “cumulative effect transition adjustment” which results in prospectively making this change in 2018. This change in accounting policy resulted in both asset recovery revenue and operating expense in the Federal Education Loan segment being $14 million higher in third-quarter 2018 with no impact on net income.

Nine Months Ended September 30, 2018 Compared with Nine Months Ended September 30, 2017

For the nine months ended September 30, 2018, net income was $323 million, or $1.21 diluted earnings per common share, compared with net income of $376 million, or $1.32 diluted earnings per common share, for the nine months ended September 30, 2017. The decrease in net income was primarily due to a $113 million decrease in net interest income, a $54 million decrease in asset recovery and business processing revenue, a $24 million increase in operating expenses, and a $22 million increase in acquired intangible asset impairment and amortization expense. This was partially offset by a $33 million decrease in the provisions for loan losses, a $26 million increase in other income, a $26 million increase in net gains on derivative and hedging activities and a $108 million decrease in income tax expense.

The primary contributors to each of the identified drivers of changeschange in net income for the current nine-month period compared with the year-ago nine-month period are as follows:

Net interest income decreased by $113 million, primarily as a result of the natural paydown of the education loan portfolio.

Provisions for loan losses decreased $33 million as a result of:

Net interest income increased by $6 million. Excluding the impact of a new accounting standard discussed below, net interest income would have decreased $5 million, primarily as a result of the natural paydown of the education loan portfolio. ASU No. 2017-12, “Derivatives and Hedging,” was adopted on January 1, 2019. This new accounting standard requires the mark-to-market gains and losses from qualifying fair value hedge relationships to be recorded in the same line item on the income statement of the item being hedged. As a result, the mark-to-market gains and losses from fair value hedging activity are now recorded in interest expense whereas they were previously recorded in gains (losses) on derivative and hedging activities, net. This change in presentation is prospective only and resulted in $11 million of gains being recorded in interest expense in third-quarter 2019.

 

Provisions for loan losses decreased $21 million:

The provision for FFELP loan losses was $8 million, down $2 million. Loan delinquencies greater than 90 days decreased $902 million from the year-ago quarter. Outstanding FFELP Loans decreased $8.2 billion from the year-ago quarter.

○ 

The provision for Private Education Loan losses was $224$56 million, down $61 million from 2017. As a result of$19 million. Excluding the expiration of the temporary natural disaster forbearances granted at the end of 2017, loan delinquencies greater than 90-days increased by $49$21 million and forbearances decreased by $380$32 million, compared with the year-ago period, all as expected. Charge-offs decreased by $86 million, excluding the $32 millionrespectively, related to a change in the portion of the loan amount charged off at default, (see “Reportable Segment Earnings Summary – Core Earnings Basis – Consumer Lending Segment – Private Educationcharge-offs decreased $29 million. Loan Provision for Loan Losses” for further discussion). The impacts fromdelinquencies greater than 90 days decreased by $148 million and forbearances decreased by $232 million compared with the natural disasters had no effect on the provision for loan losses in the current period as this had been previously reserved for through the allowance for loan losses.year-ago quarter. Outstanding non-refinance Private Education Loans decreased $977 million$3.4 billion from the year-ago period. These factors along with the continued improvement in the portfolio’s performance resulted in the $61 million decrease in provision.  quarter.

 

Servicing revenue decreased $10 million primarily due to a $5 million gain on the sale of third-party servicing contracts in the year-ago quarter. The remaining decrease is primarily the result of the natural paydown of the FFELP Loan portfolio serviced for third parties.

Asset recovery and business processing revenue increased by $17 million primarily due to higher account resolution.

Other income decreased $19 million primarily due to a $14 million decrease from the gain on the sale of technology and related transition services revenue in the year-ago quarter.

Excluding regulatory-related costs of $7 million and $9 million, respectively, operating expenses were $244 million and $246 million in third-quarter 2019 and 2018, respectively. On an adjusted basis, expenses were $1 million higher. Adjusted 2019 expenses exclude $2 million of costs associated with proxy contest matters and $4 million of transition services costs, and adjusted 2018 expenses exclude $9 million of transition services costs.

Acquired intangible asset impairment and amortization expense decreased $17 million primarily as the result of the notice of termination of a contract in our government services reporting unit in the year-ago quarter which resulted in $16 million of impairment on the related intangible asset.

During the third quarters of 2019 and 2018, the Company incurred $2 million and $1 million, respectively, of restructuring/other reorganization expenses in connection with an effort to reduce costs and improve operating efficiency. These charges were due primarily to severance-related costs.

We repurchased 9.7 million and 6.9 million shares of our common stock during the third-quarters of 2019 and 2018, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 36 million common shares (or 14%) from the year-ago period.


49


Table of Contents

Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018

For the nine months ended September 30, 2019, net income was $425 million, or $1.79 diluted earnings per common share, compared with net income of $323 million, or $1.21 diluted earnings per common share, for the nine months ended September 30, 2018.

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

Net interest income decreased by $41 million, primarily as a result of the natural paydown of the education loan portfolio.

Provisions for loan losses decreased $76 million:

The provision for FFELP Loanloan losses was $60$23 million, up $30down $37 million from 2017primarily due to a higher temporary charge-off estimate overin the next several quarters,year-ago period as a result of an elevated use of disaster forbearance at the end of 2017 and other factors. Loan delinquencies greater than 90 days decreased $902 million from the year-ago period. Outstanding FFELP Loans decreased $8.2 billion from the year-ago period.

Asset recovery and business processing revenue decreased $54 million primarily due to the third-quarter 2017 recognition of $47 million of previously deferred asset recovery revenue, as discussed above.

Other income increased $26 million primarily from the sale of technology and transition services revenue in connection with the strategic agreement we entered into with First Data in the third quarter of 2018.

Net gains on derivative and hedging activities increased $26 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.


55


Table of Contents

 

○ 

InThe provision for Private Education Loan losses was $185 million, down $39 million. Excluding the $21 million and $32 million, respectively, related to a change in the portion of the loan amount charged off at default, charge-offs decreased $2 million. Loan delinquencies greater than 90 days decreased by $148 million and forbearances decreased by $232 million compared with the year-ago period. Outstanding non-refinance Private Education Loans decreased $3.4 billion from the year-ago period.  

Servicing revenue decreased $28 million due to a $12 million gain on the sale of third-party servicing contracts in the year-ago period. The remaining decrease is primarily the result of the natural paydown of the FFELP Loan portfolio serviced for third parties.

Asset recovery and business processing revenue increased by $51 million due to higher account resolution.

Net gains on sales of loans increased by $16 million, due to the $16 million gain on sale of $412 million of Private Education Refinance Loans in second-quarter 2019.

Net gains on debt repurchases increased by $68 million. We repurchased $184 million of debt at a $59 million gain in the nine months ended September 30, 20182019 compared to $1.4 billion repurchased at a $9 million loss in the year-ago period. Debt repurchase activity fluctuates based on market fundamentals and 2017, we recordedour liability management strategy. As a result, gains or losses on our debt repurchase activity may vary in future periods.

Net gains on derivative and hedging activities decreased $31 million. The primary factors affecting the change were interest rate and foreign currency fluctuations, which impact the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during each period. Valuations of derivative instruments fluctuate based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivative and hedging activities may vary significantly in future periods.

Excluding regulatory-related costs of $15 million and $21 million, and $11 million, respectively. Excluding these regulatory-related costs,respectively, operating expenses were $710$734 million and $696$710 million in the nine months ended September 30, 20182019 and 2017,2018, respectively. On an adjusted basis, expenses were $72$25 million lower primarily as a result of ongoing cost-saving initiatives across the Company. Adjusted 2019 expenses exclude $70$11 million of operating costs associated with proxy contest matters and $16 million of transition services costs. Adjusted 2018 expenses exclude the release of a $40 million reserve related to Duncan Solutions (acquired in July 2017) and to Earnest (acquired in November 2017),the resolution of a contingency, a $9 million one-time fee paid in 2018 to convert $3 billion of Private Education Loans from a third-party servicer to Navient’s servicing platform $38and $9 million of transition services costs. Regulatory costs in the current period are net of a $10 million insurance policy reimbursement for costs related to such matters.

Acquired intangible asset impairment and amortization expense decreased $16 million primarily as the result of the notice of termination of a contract in our government services reporting unit in the year-ago quarter which resulted in $16 million of impairment on the related intangible asset.

During the nine months ended September 30, 2019 and 2018, the Company incurred $4 million and $10 million, respectively, of restructuring/other reorganization expenses in connection with the adoption of a new revenue recognition accounting standard on January 1, 2018 (see below for further discussion), $9 million ofan effort to reduce costs in 2018 in connection with the First Data transition services agreement and the release of a $40 million contingency reserve in 2018.improve operating efficiency. These charges were due primarily to severance-related costs.

During the nine months ended September 30, 2018, the Company incurred $10 million of restructuring/other reorganization expenses in connection with an effort that will reduce costs and improve operating efficiency. These charges were due primarily to severance-related costs.

Acquired intangible asset impairment and amortization expense increased $22 million primarily as a result of the notice of termination of a Toll Services Contract in third-quarter 2018 in our government services reporting unit, which resulted in $16 million of impairment on the related intangible asset.  

The effective income tax rates for the nine months ended September 30, 2018 and 2017 were 23 percent and 35 percent, respectively. The decrease in the effective income tax rate was primarily the result of the TCJA. Income tax expense decreased $108 million of which $59 million was a result of the lower tax rate in connection with the passage of the TCJA.

We repurchased 6.928.7 million and 29.66.9 million shares of our common stock during the nine months ended September 30, 20182019 and 2017,2018, respectively. As a result of repurchases, our average outstanding diluted shares decreased by 1829 million common shares (or 6 percent)11%) from the year-ago period.

In connection with ASC 606, we recognized $8 million of business processing revenue and $5 million of expenses in the nine months ended September 30, 2018 related to a contract in our Business Processing segment that would not have been recognized under the prior accounting standard until later in 2018. This change in accounting policy also resulted in both asset recovery revenue and operating expense in the Federal Education Loan segment being $33 million higher in the nine months ended September 30, 2018 with no impact on net income.


5650


Table of Contents

 

Non-GAAP Financial Measures

In addition to financial results reported on a GAAP basis, Navient also provides certain performance measures which are non-GAAP financial measures.  The following non-GAAP financial measures are presented within this Form 10-Q: (1) Core Earnings, (2) Tangible Net Asset Ratio and (3) EBITDA for the Business Processing segment.

1.   Core Earnings

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as Core Earnings. We provide this Core Earnings basis of presentation on a consolidated basis and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also 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 our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can 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 two items we remove fromto result in our Core Earnings presentations are:

 

(1)

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

 

(2)

The accounting for goodwill and acquired intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our Core Earnings basis of presentation does not. Core Earnings are subject to certain general and specific limitations that investors should carefully consider. For example, there is no comprehensive, authoritative guidance for management reporting. Our Core Earnings are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Accordingly, our Core Earnings presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our performance with that of other financial services companies based upon Core Earnings. Core Earnings results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, our board of directors, credit rating agencies, lenders and investors to assess performance. The following tables show Core Earnings for each business segment and our business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP and reported in “Note 12 — Segment Reporting.”


5751


Table of Contents

 

The following tables show Core Earnings for each reportable segment and our business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP and reported in “Note 12 — Segment Reporting.”

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

774

 

 

$

455

 

 

$

 

 

$

 

 

$

1,229

 

 

$

3

 

 

$

(18

)

 

$

(15

)

 

$

1,214

 

 

$

721

 

 

$

437

 

 

$

 

 

$

 

 

$

1,158

 

 

$

2

 

 

$

(17

)

 

$

(15

)

 

$

1,143

 

Other loans

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and investments

 

 

12

 

 

 

4

 

 

 

 

 

 

10

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

11

 

 

 

4

 

 

 

 

 

 

8

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Total interest income

 

 

787

 

 

 

459

 

 

 

 

 

 

10

 

 

 

1,256

 

 

 

3

 

 

 

(18

)

 

 

(15

)

 

 

1,241

 

 

 

732

 

 

 

441

 

 

 

 

 

 

8

 

 

 

1,181

 

 

 

2

 

 

 

(17

)

 

 

(15

)

 

 

1,166

 

Total interest expense

 

 

624

 

 

 

257

 

 

 

 

 

 

48

 

 

 

929

 

 

 

9

 

 

 

(3

)

 

 

6

 

 

 

935

 

 

 

588

 

 

 

242

 

 

 

 

 

 

42

 

 

 

872

 

 

 

(4

)

 

 

(14

)

 

 

(18

)

 

 

854

 

Net interest income (loss)

 

 

163

 

 

 

202

 

 

 

 

 

 

(38

)

 

 

327

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

306

 

 

 

144

 

 

 

199

 

 

 

 

 

 

(34

)

 

 

309

 

 

 

6

 

 

 

(3

)

 

 

3

 

 

 

312

 

Less: provisions for loan losses

 

 

10

 

 

 

75

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

85

 

 

 

8

 

 

 

56

 

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Net interest income (loss) after provisions

for loan losses

 

 

153

 

 

 

127

 

 

 

 

 

 

(38

)

 

 

242

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

221

 

 

 

136

 

 

 

143

 

 

 

 

 

 

(34

)

 

 

245

 

 

 

6

 

 

 

(3

)

 

 

3

 

 

 

248

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

67

 

 

 

3

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

70

 

 

 

57

 

 

 

3

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

 

 

 

60

 

Asset recovery and business processing

revenue

 

 

42

 

 

 

 

 

 

64

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

57

 

 

 

 

 

 

66

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

 

 

 

123

 

Other income (loss)

 

 

18

 

 

 

 

 

 

 

 

 

3

 

 

 

21

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

30

 

 

 

6

 

 

 

 

 

 

 

 

 

3

 

 

 

9

 

 

 

(6

)

 

 

10

 

 

 

4

 

 

 

13

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Total other income (loss)

 

 

127

 

 

 

3

 

 

 

64

 

 

 

2

 

 

 

196

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

205

��

 

 

120

 

 

 

3

 

 

 

66

 

 

 

3

 

 

 

192

 

 

 

(6

)

 

 

10

 

 

 

4

 

 

 

196

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

87

 

 

 

38

 

 

 

59

 

 

 

 

 

 

184

 

 

 

 

 

 

 

 

 

 

 

 

184

 

 

 

89

 

 

 

44

 

 

 

54

 

 

 

 

 

 

187

 

 

 

 

 

 

 

 

 

 

 

 

187

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

71

 

Unallocated shared services expenses

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Operating expenses

 

 

87

 

 

 

38

 

 

 

59

 

 

 

71

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

255

 

 

 

89

 

 

 

44

 

 

 

54

 

 

 

64

 

 

 

251

 

 

 

 

 

 

 

 

 

 

 

 

251

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

 

 

6

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Total expenses

 

 

87

 

 

 

38

 

 

 

59

 

 

 

72

 

 

 

256

 

 

 

 

 

 

23

 

 

 

23

 

 

 

279

 

 

 

89

 

 

 

44

 

 

 

54

 

 

 

66

 

 

 

253

 

 

 

 

 

 

6

 

 

 

6

 

 

 

259

 

Income (loss) before income tax expense

(benefit)

 

 

193

 

 

 

92

 

 

 

5

 

 

 

(108

)

 

 

182

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

147

 

 

 

167

 

 

 

102

 

 

 

12

 

 

 

(97

)

 

 

184

 

 

 

 

 

 

1

 

 

 

1

 

 

 

185

 

Income tax expense (benefit)(2)

 

 

45

 

 

 

20

 

 

 

1

 

 

 

(24

)

 

 

42

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

33

 

 

 

39

 

 

 

23

 

 

 

3

 

 

 

(23

)

 

 

42

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

40

 

Net income (loss)

 

$

148

 

 

$

72

 

 

$

4

 

 

$

(84

)

 

$

140

 

 

$

 

 

$

(26

)

 

$

(26

)

 

$

114

 

 

$

128

 

 

$

79

 

 

$

9

 

 

$

(74

)

 

$

142

 

 

$

 

 

$

3

 

 

$

3

 

 

$

145

 

 

(1)

Core Earnings adjustments to GAAP:  

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2019

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Acquired

Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(21

)

 

$

 

 

$

(21

)

 

$

3

 

 

$

 

 

$

3

 

Total other income (loss)

 

 

9

 

 

 

 

 

 

9

 

 

 

4

 

 

 

 

 

 

4

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

23

 

 

 

23

 

 

 

 

 

 

6

 

 

 

6

 

Total Core Earnings adjustments to GAAP

 

$

(12

)

 

$

(23

)

 

 

(35

)

 

$

7

 

 

$

(6

)

 

 

1

 

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

(2

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(26

)

 

 

 

 

 

 

 

 

 

$

3

 

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 

5852


Table of Contents

 

 

Three Months Ended September 30, 2017

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

678

 

 

$

445

 

 

$

 

 

$

 

 

$

1,123

 

 

$

16

 

 

$

(13

)

 

$

3

 

 

$

1,126

 

 

$

774

 

 

$

455

 

 

$

 

 

$

 

 

$

1,229

 

 

$

3

 

 

$

(18

)

 

$

(15

)

 

$

1,214

 

Other loans

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Cash and investments

 

 

9

 

 

 

1

 

 

 

 

 

 

2

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

12

 

 

 

4

 

 

 

 

 

 

10

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

26

 

Total interest income

 

 

689

 

 

 

446

 

 

 

 

 

 

2

 

 

 

1,137

 

 

 

16

 

 

 

(13

)

 

 

3

 

 

 

1,140

 

 

 

787

 

 

 

459

 

 

 

 

 

 

10

 

 

 

1,256

 

 

 

3

 

 

 

(18

)

 

 

(15

)

 

 

1,241

 

Total interest expense

 

 

531

 

 

 

221

 

 

 

 

 

 

40

 

 

 

792

 

 

 

(5

)

 

 

(2

)

 

 

(7

)

 

 

785

 

 

 

624

 

 

 

257

 

 

 

 

 

 

48

 

 

 

929

 

 

 

9

 

 

 

(3

)

 

 

6

 

 

 

935

 

Net interest income (loss)

 

 

158

 

 

 

225

 

 

 

 

 

 

(38

)

 

 

345

 

 

 

21

 

 

 

(11

)

 

 

10

 

 

 

355

 

 

 

163

 

 

 

202

 

 

 

 

 

 

(38

)

 

 

327

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

306

 

Less: provisions for loan losses

 

 

10

 

 

 

95

 

 

 

 

 

 

 

 

 

105

 

 

 

 

 

 

 

 

 

 

 

 

105

 

 

 

10

 

 

 

75

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

85

 

Net interest income (loss) after provisions

for loan losses

 

 

148

 

 

 

130

 

 

 

 

 

 

(38

)

 

 

240

 

 

 

21

 

 

 

(11

)

 

 

10

 

 

 

250

 

 

 

153

 

 

 

127

 

 

 

 

 

 

(38

)

 

 

242

 

 

 

(6

)

 

 

(15

)

 

 

(21

)

 

 

221

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

72

 

 

 

3

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

67

 

 

 

3

 

 

 

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

70

 

Asset recovery and business processing

revenue

 

 

102

 

 

 

 

 

 

55

 

 

 

 

 

 

157

 

 

 

 

 

 

 

 

 

 

 

 

157

 

 

 

42

 

 

 

 

 

 

64

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

106

 

Other income (loss)

 

 

1

 

 

 

 

 

 

 

 

 

2

 

 

 

3

 

 

 

(21

)

 

 

47

 

 

 

26

 

 

 

29

 

 

 

18

 

 

 

 

 

 

 

 

 

3

 

 

 

21

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

30

 

Gains on sales of loans and investments

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Total other income (loss)

 

 

178

 

 

 

3

 

 

 

55

 

 

 

1

 

 

 

237

 

 

 

(21

)

 

 

47

 

 

 

26

 

 

 

263

 

 

 

127

 

 

 

3

 

 

 

64

 

 

 

2

 

 

 

196

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

205

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

77

 

 

 

39

 

 

 

49

 

 

 

 

 

 

165

 

 

 

 

 

 

 

 

 

 

 

 

165

 

 

 

94

 

 

 

38

 

 

 

59

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

 

 

 

191

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

73

 

 

 

 

 

 

 

 

 

 

 

 

73

 

Unallocated shared services expenses

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Operating expenses

 

 

77

 

 

 

39

 

 

 

49

 

 

 

73

 

 

 

238

 

 

 

 

 

 

 

 

 

 

 

 

238

 

 

 

94

 

 

 

38

 

 

 

59

 

 

 

64

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

255

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

23

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Total expenses

 

 

77

 

 

 

39

 

 

 

49

 

 

 

73

 

 

 

238

 

 

 

 

 

 

6

 

 

 

6

 

 

 

244

 

 

 

94

 

 

 

38

 

 

 

59

 

 

 

65

 

 

 

256

 

 

 

 

 

 

23

 

 

 

23

 

 

 

279

 

Income (loss) before income tax expense

(benefit)

 

 

249

 

 

 

94

 

 

 

6

 

 

 

(110

)

 

 

239

 

 

 

 

 

 

30

 

 

 

30

 

 

 

269

 

 

 

186

 

 

 

92

 

 

 

5

 

 

 

(101

)

 

 

182

 

 

 

 

 

 

(35

)

 

 

(35

)

 

 

147

 

Income tax expense (benefit)(2)

 

 

92

 

 

 

34

 

 

 

2

 

 

 

(41

)

 

 

87

 

 

 

 

 

 

6

 

 

 

6

 

 

 

93

 

 

 

43

 

 

 

20

 

 

 

1

 

 

 

(22

)

 

 

42

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

33

 

Net income (loss)

 

$

157

 

 

$

60

 

 

$

4

 

 

$

(69

)

 

$

152

 

 

$

 

 

$

24

 

 

$

24

 

 

$

176

 

 

$

143

 

 

$

72

 

 

$

4

 

 

$

(79

)

 

$

140

 

 

$

 

 

$

(26

)

 

$

(26

)

 

$

114

 

 

(1)

Core Earnings adjustments to GAAP:  

 

Three Months Ended September 30, 2017

 

 

Three Months Ended September 30, 2018

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Acquired

Intangibles

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

10

 

 

$

 

 

$

10

 

 

$

(21

)

 

$

 

 

$

(21

)

Total other income (loss)

 

 

26

 

 

 

 

 

 

26

 

 

 

9

 

 

 

 

 

 

9

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

6

 

 

 

6

 

 

 

 

 

 

23

 

 

 

23

 

Total Core Earnings adjustments to GAAP

 

$

36

 

 

$

(6

)

 

 

30

 

 

$

(12

)

 

$

(23

)

 

 

(35

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

(9

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

24

 

 

 

 

 

 

 

 

 

 

$

(26

)

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.


5953


Table of Contents

 

 

Nine Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

2,281

 

 

$

1,327

 

 

$

 

 

$

 

 

$

3,608

 

 

$

14

 

 

$

(53

)

 

$

(39

)

 

$

3,569

 

 

$

2,258

 

 

$

1,317

 

 

$

 

 

$

 

 

$

3,575

 

 

$

4

 

 

$

(51

)

 

$

(47

)

 

$

3,528

 

Other loans

 

 

3

 

 

 

1

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Cash and investments

 

 

31

 

 

 

9

 

 

 

 

 

 

26

 

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

41

 

 

 

13

 

 

 

 

 

 

21

 

 

 

75

 

 

 

 

 

 

 

 

 

 

 

 

75

 

Total interest income

 

 

2,315

 

 

 

1,337

 

 

 

 

 

 

26

 

 

 

3,678

 

 

 

14

 

 

 

(53

)

 

 

(39

)

 

 

3,639

 

 

 

2,300

 

 

 

1,331

 

 

 

 

 

 

21

 

 

 

3,652

 

 

 

4

 

 

 

(51

)

 

 

(47

)

 

 

3,605

 

Total interest expense

 

 

1,817

 

 

 

746

 

 

 

 

 

 

139

 

 

 

2,702

 

 

 

13

 

 

 

(8

)

 

 

5

 

 

 

2,707

 

 

 

1,866

 

 

 

758

 

 

 

 

 

 

122

 

 

 

2,746

 

 

 

(2

)

 

 

(30

)

 

 

(32

)

 

 

2,714

 

Net interest income (loss)

 

 

498

 

 

 

591

 

 

 

 

 

 

(113

)

 

 

976

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

932

 

 

 

434

 

 

 

573

 

 

 

 

 

 

(101

)

 

 

906

 

 

 

6

 

 

 

(21

)

 

 

(15

)

 

 

891

 

Less: provisions for loan losses

 

 

60

 

 

 

224

 

 

 

 

 

 

 

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

284

 

 

 

23

 

 

 

185

 

 

 

 

 

 

 

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

208

 

Net interest income (loss) after provisions

for loan losses

 

 

438

 

 

 

367

 

 

 

 

 

 

(113

)

 

 

692

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

648

 

 

 

411

 

 

 

388

 

 

 

 

 

 

(101

)

 

 

698

 

 

 

6

 

 

 

(21

)

 

 

(15

)

 

 

683

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

201

 

 

 

9

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

210

 

 

 

174

 

 

 

8

 

 

 

 

 

 

 

 

 

182

 

 

 

 

 

 

 

 

 

 

 

 

182

 

Asset recovery and business processing

revenue

 

 

112

 

 

 

 

 

 

201

 

 

 

 

 

 

313

 

 

 

 

 

 

 

 

 

 

 

 

313

 

 

 

165

 

 

 

 

 

 

199

 

 

 

 

 

 

364

 

 

 

 

 

 

 

 

 

 

 

 

364

 

Other income (loss)

 

 

20

 

 

 

 

 

 

 

 

 

6

 

 

 

26

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

39

 

 

 

22

 

 

 

1

 

 

 

 

 

 

12

 

 

 

35

 

 

 

(45

)

 

 

26

 

 

 

(19

)

 

 

16

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

Gains on sales of loans

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

16

 

Gains on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

47

 

 

 

39

 

 

 

(27

)

 

 

12

 

 

 

59

 

Total other income (loss)

 

 

333

 

 

 

9

 

 

 

201

 

 

 

(3

)

 

 

540

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

553

 

 

 

361

 

 

 

25

 

 

 

199

 

 

 

59

 

 

 

644

 

 

 

(6

)

 

 

(1

)

 

 

(7

)

 

 

637

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

202

 

 

 

133

 

 

 

172

 

 

 

 

 

 

507

 

 

 

 

 

 

 

 

 

 

 

 

507

 

 

 

270

 

 

 

117

 

 

 

165

 

 

 

 

 

 

552

 

 

 

 

 

 

 

 

 

 

 

 

552

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

224

 

 

 

224

 

 

 

 

 

 

 

 

 

 

 

 

224

 

Unallocated shared services expenses

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

197

 

 

 

 

 

 

 

 

 

 

 

 

197

 

Operating expenses

 

 

202

 

 

 

133

 

 

 

172

 

 

 

224

 

 

 

731

 

 

 

 

 

 

 

 

 

 

 

 

731

 

 

 

270

 

 

 

117

 

 

 

165

 

 

 

197

 

 

 

749

 

 

 

 

 

 

 

 

 

 

 

 

749

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

23

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Total expenses

 

 

202

 

 

 

133

 

 

 

172

 

 

 

234

 

 

 

741

 

 

 

 

 

 

39

 

 

 

39

 

 

 

780

 

 

 

270

 

 

 

117

 

 

 

165

 

 

 

201

 

 

 

753

 

 

 

 

 

 

23

 

 

 

23

 

 

 

776

 

Income (loss) before income tax expense

(benefit)

 

 

569

 

 

 

243

 

 

 

29

 

 

 

(350

)

 

 

491

 

 

 

 

 

 

(70

)

 

 

(70

)

 

 

421

 

 

 

502

 

 

 

296

 

 

 

34

 

 

 

(243

)

 

 

589

 

 

 

 

 

 

(45

)

 

 

(45

)

 

 

544

 

Income tax expense (benefit)(2)

 

 

130

 

 

 

56

 

 

 

7

 

 

 

(81

)

 

 

112

 

 

 

 

 

 

(14

)

 

 

(14

)

 

 

98

 

 

 

115

 

 

 

68

 

 

 

8

 

 

 

(56

)

 

 

135

 

 

 

 

 

 

(16

)

 

 

(16

)

 

 

119

 

Net income (loss)

 

$

439

 

 

$

187

 

 

$

22

 

 

$

(269

)

 

$

379

 

 

$

 

 

$

(56

)

 

$

(56

)

 

$

323

 

 

$

387

 

 

$

228

 

 

$

26

 

 

$

(187

)

 

$

454

 

 

$

 

 

$

(29

)

 

$

(29

)

 

$

425

 

 

(1)

Core Earnings adjustments to GAAP:  

 

 

Nine Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2019

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

(44

)

 

$

 

 

$

(44

)

 

$

(15

)

 

$

 

 

$

(15

)

Total other income (loss)

 

 

13

 

 

 

 

 

 

13

 

 

 

(7

)

 

 

 

 

 

(7

)

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

39

 

 

 

39

 

 

 

 

 

 

23

 

 

 

23

 

Total Core Earnings adjustments to GAAP

 

$

(31

)

 

$

(39

)

 

 

(70

)

 

$

(22

)

 

$

(23

)

 

 

(45

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

(16

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(56

)

 

 

 

 

 

 

 

 

 

$

(29

)

 

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

60

54


Table of Contents

 

 

Nine Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

(Dollars in millions)

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

 

Federal Education Loans

 

 

Consumer Lending

 

 

Business Processing

 

 

Other

 

 

Total

Core

Earnings

 

 

Reclassi-

fications

 

 

Additions/

(Subtractions)

 

 

Total

Adjustments(1)

 

 

Total

GAAP

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education loans

 

$

1,966

 

 

$

1,204

 

 

$

 

 

$

 

 

$

3,170

 

 

$

54

 

 

$

(41

)

 

$

13

 

 

$

3,183

 

 

$

2,281

 

 

$

1,327

 

 

$

 

 

$

 

 

$

3,608

 

 

$

14

 

 

$

(53

)

 

$

(39

)

 

$

3,569

 

Other loans

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

3

 

 

 

1

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Cash and investments

 

 

20

 

 

 

3

 

 

 

 

 

 

6

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

31

 

 

 

9

 

 

 

 

 

 

26

 

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

66

 

Total interest income

 

 

1,998

 

 

 

1,207

 

 

 

 

 

 

6

 

 

 

3,211

 

 

 

54

 

 

 

(41

)

 

 

13

 

 

 

3,224

 

 

 

2,315

 

 

 

1,337

 

 

 

 

 

 

26

 

 

 

3,678

 

 

 

14

 

 

 

(53

)

 

 

(39

)

 

 

3,639

 

Total interest expense

 

 

1,486

 

 

 

601

 

 

 

 

 

 

102

 

 

 

2,189

 

 

 

(3

)

 

 

(8

)

 

 

(11

)

 

 

2,178

 

 

 

1,817

 

 

 

746

 

 

 

 

 

 

139

 

 

 

2,702

 

 

 

13

 

 

 

(8

)

 

 

5

 

 

 

2,707

 

Net interest income (loss)

 

 

512

 

 

 

606

 

 

 

 

 

 

(96

)

 

 

1,022

 

 

 

57

 

 

 

(33

)

 

 

24

 

 

 

1,046

 

 

 

498

 

 

 

591

 

 

 

 

 

 

(113

)

 

 

976

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

932

 

Less: provisions for loan losses

 

 

32

 

 

 

285

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

60

 

 

 

224

 

 

 

 

 

 

 

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

284

 

Net interest income (loss) after provisions

for loan losses

 

 

480

 

 

 

321

 

 

 

 

 

 

(96

)

 

 

705

 

 

 

57

 

 

 

(33

)

 

 

24

 

 

 

729

 

 

 

438

 

 

 

367

 

 

 

 

 

 

(113

)

 

 

692

 

 

 

1

 

 

 

(45

)

 

 

(44

)

 

 

648

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing revenue

 

 

215

 

 

 

6

 

 

 

 

 

 

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

221

 

 

 

201

 

 

 

9

 

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

210

 

Asset recovery and business processing

revenue

 

 

215

 

 

 

 

 

 

152

 

 

 

 

 

 

367

 

 

 

 

 

 

 

 

 

 

 

 

367

 

 

 

112

 

 

 

 

 

 

201

 

 

 

 

 

 

313

 

 

 

 

 

 

 

 

 

 

 

 

313

 

Other income (loss)

 

 

2

 

 

 

 

 

 

 

 

 

11

 

 

 

13

 

 

 

(57

)

 

 

31

 

 

 

(26

)

 

 

(13

)

 

 

20

 

 

 

 

 

 

 

 

 

6

 

 

 

26

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

39

 

Gains on sales of loans and investments

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Losses on debt repurchases

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

Total other income (loss)

 

 

435

 

 

 

6

 

 

 

152

 

 

 

10

 

 

 

603

 

 

 

(57

)

 

 

31

 

 

 

(26

)

 

 

577

 

 

 

333

 

 

 

9

 

 

 

201

 

 

 

(3

)

 

 

540

 

 

 

(1

)

 

 

14

 

 

 

13

 

 

 

553

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

245

 

 

 

111

 

 

 

131

 

 

 

 

 

 

487

 

 

 

 

 

 

 

 

 

 

 

 

487

 

 

 

209

 

 

 

133

 

 

 

172

 

 

 

 

 

 

514

 

 

 

 

 

 

 

 

 

 

 

 

514

 

Overhead expenses

 

 

 

 

 

 

 

 

 

 

 

220

 

 

 

220

 

 

 

 

 

 

 

 

 

 

 

 

220

 

Unallocated shared services

expenses

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

217

 

 

 

 

 

 

 

 

 

 

 

 

217

 

Operating expenses

 

 

245

 

 

 

111

 

 

 

131

 

 

 

220

 

 

 

707

 

 

 

 

 

 

 

 

 

 

 

 

707

 

 

 

209

 

 

 

133

 

 

 

172

 

 

 

217

 

 

 

731

 

 

 

 

 

 

 

 

 

 

 

 

731

 

Goodwill and acquired intangible asset

impairment and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

17

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

 

 

39

 

Restructuring/other reorganization

expenses

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Total expenses

 

 

245

 

 

 

111

 

 

 

131

 

 

 

220

 

 

 

707

 

 

 

 

 

 

17

 

 

 

17

 

 

 

724

 

 

 

209

 

 

 

133

 

 

 

172

 

 

 

227

 

 

 

741

 

 

 

 

 

 

39

 

 

 

39

 

 

 

780

 

Income (loss) before income tax expense

(benefit)

 

 

670

 

 

 

216

 

 

 

21

 

 

 

(306

)

 

 

601

 

 

 

 

 

 

(19

)

 

 

(19

)

 

 

582

 

 

 

562

 

 

 

243

 

 

 

29

 

 

 

(343

)

 

 

491

 

 

 

 

 

 

(70

)

 

 

(70

)

 

 

421

 

Income tax expense (benefit)(2)

 

 

244

 

 

 

79

 

 

 

8

 

 

 

(112

)

 

 

219

 

 

 

 

 

 

(13

)

 

 

(13

)

 

 

206

 

 

 

128

 

 

 

56

 

 

 

7

 

 

 

(79

)

 

 

112

 

 

 

 

 

 

(14

)

 

 

(14

)

 

 

98

 

Net income (loss)

 

$

426

 

 

$

137

 

 

$

13

 

 

$

(194

)

 

$

382

 

 

$

 

 

$

(6

)

 

$

(6

)

 

$

376

 

 

$

434

 

 

$

187

 

 

$

22

 

 

$

(264

)

 

$

379

 

 

$

 

 

$

(56

)

 

$

(56

)

 

$

323

 

 

(1)

Core Earnings adjustments to GAAP:  

 

Nine Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

 

Net Impact of

Derivative

Accounting

 

 

Net Impact of

Goodwill and

Acquired

Intangible

Assets

 

 

Total

 

Net interest income (loss) after provisions for loan losses

 

$

24

 

 

$

 

 

$

24

 

 

$

(44

)

 

$

 

 

$

(44

)

Total other income (loss)

 

 

(26

)

 

 

 

 

 

(26

)

 

 

13

 

 

 

 

 

 

13

 

Goodwill and acquired intangible asset impairment and amortization

 

 

 

 

 

17

 

 

 

17

 

 

 

 

 

 

39

 

 

 

39

 

Total Core Earnings adjustments to GAAP

 

$

(2

)

 

$

(17

)

 

 

(19

)

 

$

(31

)

 

$

(39

)

 

 

(70

)

Income tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

(14

)

Net income (loss)

 

 

 

 

 

 

 

 

 

$

(6

)

 

 

 

 

 

 

 

 

 

$

(56

)

 

(2)

Income taxes are based on a percentage of net income before tax for the individual reportable segment.

 


6155


Table of Contents

 

The following discussion summarizes the differences between Core Earnings and GAAP net income and details each specific adjustment required to reconcile our Core Earnings segment presentation to our GAAP earnings.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Core Earnings net income attributable to Navient

Corporation

 

$

140

 

 

$

152

 

 

$

379

 

 

$

382

 

Core Earnings net income

 

$

142

 

 

$

140

 

 

$

454

 

 

$

379

 

Core Earnings adjustments to GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net impact of derivative accounting

 

 

(12

)

 

 

36

 

 

 

(31

)

 

 

(2

)

 

 

7

 

 

 

(12

)

 

 

(22

)

 

 

(31

)

Net impact of goodwill and acquired intangible assets

 

 

(23

)

 

 

(6

)

 

 

(39

)

 

 

(17

)

 

 

(6

)

 

 

(23

)

 

 

(23

)

 

 

(39

)

Net tax effect

 

 

9

 

 

 

(6

)

 

 

14

 

 

 

13

 

Net income tax effect

 

 

2

 

 

 

9

 

 

 

16

 

 

 

14

 

Total Core Earnings adjustments to GAAP

 

 

(26

)

 

 

24

 

 

 

(56

)

 

 

(6

)

 

 

3

 

 

 

(26

)

 

 

(29

)

 

 

(56

)

GAAP net income attributable to Navient

Corporation

 

$

114

 

 

$

176

 

 

$

323

 

 

$

376

 

GAAP net income

 

$

145

 

 

$

114

 

 

$

425

 

 

$

323

 

(1) Derivative Accounting: Core Earnings exclude periodic 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 mark-to-market gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These gains and losses occur in our Federal Education Loans, Consumer Lending and Other reportable segments. Under GAAP, for our derivatives that are held to maturity, the mark-to-market gain or loss over the life of the contract will equal $0 except for Floor Income Contracts, where the mark-to-market gain will equal the amount for which we sold the contract. In our Core Earnings presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria are met. The gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” and interest expense (for qualifying fair value hedges) are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate and foreign currency risk management strategy. However, some of our derivatives, primarily Floor Income Contracts and certain basis swaps, do not qualify for hedge accounting treatment and the stand-alone derivative must be adjusted to fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses recorded in “Gains (losses) on derivative and hedging activities, net” are primarily caused by interest rate and foreign currency exchange rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment.

Our Floor Income Contracts are written options that must meet more stringent requirements than other hedging relationships to achieve hedge effectiveness. Specifically, our Floor Income Contracts do not qualify for hedge accounting treatment because the pay down of principal of the education loans underlying the Floor Income embedded in those education loans does not exactly match the change in the notional amount of our written Floor Income Contracts. Additionally, the term, the interest rate index, and the interest rate index reset frequency of the Floor Income Contract can be different than that of the education loans. Under derivative accounting treatment, the upfront contractual payment is deemed a liability and changes in fair value are recorded through income throughout the life of the contract. The change in the fair value of Floor Income Contracts is primarily caused by changing interest rates that cause the amount of Floor Income paid to the counterparties to vary. This is economically offset by the change in the amount of Floor Income earned on the underlying education loans but that offsetting change in fair value is not recognized. We believe the Floor Income Contracts are economic hedges because they effectively fix the amount of Floor Income earned over the contract period, thus eliminating the timing and uncertainty that changes in interest rates can have on Floor Income for that period. Therefore, for purposes of Core Earnings, we have removed the mark-to-market gains and losses related to these contracts and added back the amortization of the net contractual premiums received on the Floor Income Contracts. The amortization of the net contractual premiums received on the Floor Income Contracts for Core Earnings is reflected in education loan interest income. Under GAAP accounting, the premiums received on the Floor Income Contracts are recorded as revenue in the “gains (losses) on derivative and hedging activities, net” line item by the end of the contracts’ lives.


6256


Table of Contents

 

Basis swaps are used to convert floating rate debt from one floating interest rate index to another to better match the interest rate characteristics of the assets financed by that debt. We primarily use basis swaps to hedge our education loan assets that are primarily indexed to LIBOR or Prime. The accounting for derivatives requires that when using basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk; however, they generally do not meet this effectiveness test because the index of the swap does not exactly match the index of the hedged assets as required for hedge accounting treatment. Additionally, some of our FFELP Loans can earn at either a variable or a fixed interest rate depending on market interest rates and therefore swaps economically hedging these FFELP Loans do not meet the criteria for hedge accounting treatment. As a result, under GAAP, these swaps are recorded at fair value with changes in fair value reflected currently in the income statement.statement.

The table below quantifies the adjustments for derivative accounting between GAAP and Core Earnings net income.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Core Earnings derivative adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) on derivative and hedging activities, net,

included in other income

 

$

2

 

 

$

25

 

 

$

10

 

 

$

(16

)

 

$

4

 

 

$

2

 

 

$

(21

)

 

$

10

 

Plus: Settlements on derivative and hedging activities, net(1)

 

 

(6

)

 

 

21

 

 

 

1

 

 

 

57

 

Plus: Gains (losses) on fair value hedging activity included

in interest expense

 

 

11

 

 

 

 

 

 

20

 

 

 

 

Total gains(losses)

 

 

15

 

 

 

2

 

 

 

(1

)

 

 

10

 

Plus: Reclassification of settlement expense/(income) on

derivative and hedging activities, net(1)

 

 

6

 

 

 

(6

)

 

 

45

 

 

 

1

 

Mark-to-market gains (losses) on derivative and hedging

activities, net(2)

 

 

(4

)

 

 

46

 

 

 

11

 

 

 

41

 

 

 

21

 

 

 

(4

)

 

 

44

 

 

 

11

 

Amortization of net premiums on Floor Income Contracts in net

interest income for Core Earnings

 

 

(18

)

 

 

(13

)

 

 

(53

)

 

 

(41

)

 

 

(17

)

 

 

(18

)

 

 

(51

)

 

 

(53

)

Other derivative accounting adjustments(3)

 

 

10

 

 

 

3

 

 

 

11

 

 

 

(2

)

 

 

3

 

 

 

10

 

 

 

(15

)

 

 

11

 

Total net impact of derivative accounting

 

$

(12

)

 

$

36

 

 

$

(31

)

 

$

(2

)

 

$

7

 

 

$

(12

)

 

$

(22

)

 

$

(31

)

 

(1)

See “ReclassificationDerivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are reclassified to the income statement line item of Settlementsthe economically hedged item. For our Core Earnings net interest income, this would primarily include (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below summarizes these net settlements on Derivativederivative and Hedging Activities” below forhedging activities and the associated reclassification on a detailed breakdown of these components.Core Earnings basis.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Reclassification of settlements on derivative and

   hedging activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net settlement expense on Floor Income Contracts

   reclassified to net interest income

 

$

(2

)

 

$

(3

)

 

$

(4

)

 

$

(14

)

Net settlement income (expense) on interest rate

   swaps reclassified to net interest income

 

 

(4

)

 

 

9

 

 

 

(2

)

 

 

13

 

Net realized gains (losses) on terminated derivative

   contracts reclassified to other income

 

 

 

 

 

 

 

 

(39

)

 

 

 

Total reclassifications of settlements on derivative

   and hedging activities

 

$

(6

)

 

$

6

 

 

$

(45

)

 

$

(1

)

(2)

“Mark-to-market gains (losses) on derivative and hedging activities, net” is comprised of the following:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Floor Income Contracts

 

$

9

 

 

$

31

 

 

$

53

 

 

$

97

 

 

$

(6

)

 

$

9

 

 

$

(52

)

 

$

53

 

Basis swaps

 

 

(17

)

 

 

6

 

 

 

15

 

 

 

(9

)

 

 

12

 

 

 

(17

)

 

 

10

 

 

 

15

 

Foreign currency hedges

 

 

3

 

 

 

(1

)

 

 

(71

)

 

 

(20

)

 

 

8

 

 

 

3

 

 

 

69

 

 

 

(71

)

Other

 

 

1

 

 

 

10

 

 

 

14

 

 

 

(27

)

 

 

7

 

 

 

1

 

 

 

17

 

 

 

14

 

Total mark-to-market gains (losses) on derivative and

hedging activities, net

 

$

(4

)

 

$

46

 

 

$

11

 

 

$

41

 

 

$

21

 

 

$

(4

)

 

$

44

 

 

$

11

 

 

(3)

Other derivative accounting adjustments consist of adjustments related to: (1) foreign currency denominated debt that is adjusted to spot foreign exchange rates for GAAP where such adjustments are reversed for Core Earnings and (2) certain terminated derivatives that did not receive hedge accounting treatment under GAAP but were economic hedges under Core Earnings and, as a result, such gains or losses are amortized into Core Earnings over the life of the hedged item.

6357


Table of Contents

 

Reclassification of Settlements on Derivative and Hedging Activities

Derivative accounting requires net settlement income/expense on derivatives that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. Under our Core Earnings presentation, these settlements are reclassified to the income statement line item of the economically hedged item. For our Core Earnings net interest income, this would primarily include: (a) reclassifying the net settlement amounts related to our Floor Income Contracts to education loan interest income and (b) reclassifying the net settlement amounts related to certain of our interest rate swaps to debt interest expense. The table below summarizes these net settlements on derivative and hedging activities and the associated reclassification on a Core Earnings basis.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Reclassification of settlements on derivative and

   hedging activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net settlement expense on Floor Income Contracts

   reclassified to net interest income

 

$

(3

)

 

$

(16

)

 

$

(14

)

 

$

(54

)

Net settlement income on interest rate swaps

   reclassified to net interest income

 

 

9

 

 

 

(5

)

 

 

13

 

 

 

(3

)

Total reclassifications of settlements on derivative

   and hedging activities

 

$

6

 

 

$

(21

)

 

$

(1

)

 

$

(57

)

Cumulative Impact of Derivative Accounting under GAAP compared to Core Earnings

As of September 30, 2018,2019, derivative accounting has increaseddecreased GAAP equity by approximately $125$289 million as a result of cumulative net mark-to-market gainslosses (after tax) recognized under GAAP, but not in Core Earnings. The following table rolls forward the cumulative impact to GAAP equity due to these after-tax mark-to-market net gains and losses related to derivative accounting.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Beginning impact of derivative accounting on GAAP

equity

 

$

108

 

 

$

(115

)

 

$

5

 

 

$

(90

)

 

$

(249

)

 

$

108

 

 

$

(34

)

 

$

5

 

Net impact of net mark-to-market gains (losses) under

derivative accounting(1)

 

 

17

 

 

 

32

 

 

 

120

 

 

 

7

 

 

 

(40

)

 

 

17

 

 

 

(255

)

 

 

120

 

Ending impact of derivative accounting on GAAP

equity

 

$

125

 

 

$

(83

)

 

$

125

 

 

$

(83

)

 

$

(289

)

 

$

125

 

 

$

(289

)

 

$

125

 

 

 

(1)

Net impact of net mark-to-market gains (losses) under derivative accounting is composed of the following:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Total pre-tax net impact of derivative accounting

recognized in net income(2)

 

$

(12

)

 

$

36

 

 

$

(31

)

 

$

(2

)

 

$

7

 

 

$

(12

)

 

$

(22

)

 

$

(31

)

Tax and other impact of derivative accounting

adjustments

 

 

5

 

 

 

(13

)

 

 

(3

)

 

 

 

Tax and other impacts of derivative accounting

adjustments

 

 

(2

)

 

 

5

 

 

 

4

 

 

 

(3

)

Change in mark-to-market gains (losses) on

derivatives, net of tax recognized in other

comprehensive income

 

 

24

 

 

 

9

 

 

 

154

 

 

 

9

 

 

 

(45

)

 

 

24

 

 

 

(237

)

 

 

154

 

Net impact of net mark-to-market gains (losses) under

derivative accounting

 

$

17

 

 

$

32

 

 

$

120

 

 

$

7

 

 

$

(40

)

 

$

17

 

 

$

(255

)

 

$

120

 

 

 

(2)

See “Core Earnings derivative adjustments” table above.

 


64


Table of Contents

Hedging FFELP Loan Embedded Floor Income

Net Floor premiums received on Floor Income Contracts that have not been amortized into Core Earnings as of the respective year-ends are presented in the table below. These net premiums will be recognized in Core Earnings in future periods. As of September 30, 2018,2019, the remaining amortization term of the net floor premiums was approximately 54 years. Historically, we have sold Floor Income Contracts on a periodic basis and depending upon market conditions and pricing, we may enter into additional Floor Income Contracts in the future. The balance of unamortized Floor Income Contracts will increase as we sell new contracts and decline due to the amortization of existing contracts.

In addition to using Floor Income Contracts, we also use pay-fixed interest rate swaps to hedge the embedded Floor Income within FFELP Loans. These interest rate swaps qualify as GAAP hedges and are accounted for as cash flow hedges of variable rate debt. For GAAP, mark-to-market gains and losses on the effective portion of these hedges are recorded in accumulated other comprehensive income and gains and losses on the ineffective portion are recorded immediately to earnings.income. Hedged Floor Income from these cash flow hedges that has not been recognized into Core Earnings and GAAP as of the respective period-ends is presented in the table below. This hedged Floor Income will be recognized in Core Earnings and GAAP in future periods and is presented net of tax. As of September 30, 2018,2019, the remaining hedged period is approximately 5 years. Historically, we have used pay-fixed interest rate swaps on a periodic basis to hedge embedded Floor Income and depending upon market conditions and pricing, we may enter into swaps in the future. The balance of unrecognized hedged Floor Income will increase as we enter into new swaps and decline as revenue is recognized.

 

(Dollars in millions)

 

September 30, 2018(1)

 

 

September 30, 2017

 

 

September 30, 2019

 

 

September 30, 2018

 

Unamortized net Floor premiums (net of tax)

 

$

(137

)

 

$

(144

)

 

$

(88

)

 

$

(137

)

Unrecognized hedged Floor Income related to pay-fixed

interest rate swaps (net of tax)

 

 

(628

)

 

 

(588

)

 

 

(519

)

 

 

(628

)

Total(2)(3)

 

$

(765

)

 

$

(732

)

Total hedged Floor Income, net of tax(1)(2)

 

$

(607

)

 

$

(765

)

 

 

(1)

Third-quarter 2018 reflects a 23 percent effective tax rate as a result of the TCJA enacted on December 22, 2017. The year-ago period reflects a 37 percent effective tax rate.

(2)

$(994)(788) million and $(1.2) billion$(994) million on a pre-tax basis as of September 30, 20182019 and September 30, 2017,2018, respectively.

 

(3)(2)

Of the $765$607 million as of September 30, 2018,2019, approximately $57$54 million, $218$191 million and $189$164 million will be recognized as part of Core Earnings net income in 2018, 2019, 2020 and 2020,2021, respectively.

58


Table of Contents

(2) Goodwill and Acquired Intangible Assets: Our Core Earnings exclude goodwill and intangible asset impairment and the amortization of acquired intangible assets. The following table summarizes the goodwill and acquired intangible asset adjustments.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2017

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Core Earnings goodwill and acquired intangible

asset adjustments

 

$

(23

)

 

$

(6

)

 

$

(39

)

 

$

(17

)

 

$

(6

)

 

$

(23

)

 

$

(23

)

 

$

(39

)

 


65


Table of Contents

2.   Tangible Net Asset Ratio

This ratio measures the amount of assets available to retire the Company’s unsecured debt.  Management and Navient’s equity investors, credit rating agencies and debt capital investors use this ratio to monitor and make decisions about the appropriate level of unsecured funding required.funding. The tangible net asset ratio is calculated as:

 

(Dollars in billions)

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2019

 

 

September 30, 2018

 

GAAP assets

 

$

106.5

 

 

$

117.1

 

 

$

96.6

 

 

$

106.5

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill and acquired intangible assets

 

 

.8

 

 

 

.7

 

 

 

.8

 

 

 

.8

 

Secured debt

 

 

88.7

 

 

 

98.0

 

 

 

81.4

 

 

 

88.7

 

Other liabilities, adjustments for the impact of derivative

accounting under GAAP and unamortized net floor

premiums

 

 

1.0

 

 

 

1.4

 

 

 

1.0

 

 

 

1.0

 

Tangible net assets

 

$

16.0

 

 

$

17.0

 

 

$

13.4

 

 

$

16.0

 

Divided by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured debt (par)

 

$

13.0

 

 

$

13.9

 

 

$

10.6

 

 

$

13.0

 

Tangible net asset ratio

 

1.23x

 

 

1.22x

 

 

1.27x

 

 

1.23x

 

3.   Earnings before Interest, Taxes, Depreciation and Amortization Expense (“EBITDA”)

This metric measures the amountoperating performance of operating cash flow generated by the Business Processing segment and is used by management and equity investors to monitor operating performance and determine the value of those fee-based businesses.  EBITDA for the Business Processing segment is calculated as:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Pre-tax income

 

$

5

 

 

$

6

 

 

$

29

 

 

$

21

 

 

$

12

 

 

$

5

 

 

$

34

 

 

$

29

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

expense(1)

 

 

3

 

 

 

1

 

 

 

5

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

4

 

 

 

5

 

EBITDA

 

$

8

 

 

$

7

 

 

$

34

 

 

$

23

 

 

$

13

 

 

$

8

 

 

$

38

 

 

$

34

 

Divided by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

64

 

 

$

55

 

 

$

201

 

 

$

152

 

 

$

66

 

 

$

64

 

 

$

199

 

 

$

201

 

EBITDA margin

 

 

13

%

 

 

13

%

 

 

17

%

 

 

15

%

 

 

20

%

 

 

13

%

 

 

19

%

 

 

17

%

 

 

(1)

There is no interest expense in this segment.

 

6659


Table of Contents

 

Reportable Segment Earnings Summary — Core Earnings Basis

Federal Education Loans Segment

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

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

Core Earnings interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

774

 

 

$

678

 

 

 

14

%

 

$

2,281

 

 

$

1,966

 

 

 

16

%

 

$

721

 

 

$

774

 

 

 

(7

)%

 

$

2,258

 

 

$

2,281

 

 

 

(1

)%

Other loans

 

 

1

 

 

 

2

 

 

 

(50

)

 

 

3

 

 

 

12

 

 

 

(75

)

 

 

 

 

 

1

 

 

 

(100

)

 

 

1

 

 

 

3

 

 

 

(67

)

Cash and investments

 

 

12

 

 

 

9

 

 

 

33

 

 

 

31

 

 

 

20

 

 

 

55

 

 

 

11

 

 

 

12

 

 

 

(8

)

 

 

41

 

 

 

31

 

 

 

32

 

Total Core Earnings interest income

 

 

787

 

 

 

689

 

 

 

14

 

 

 

2,315

 

 

 

1,998

 

 

 

16

 

Total Core Earnings interest expense

 

 

624

 

 

 

531

 

 

 

18

 

 

 

1,817

 

 

 

1,486

 

 

 

22

 

Net Core Earnings interest income

 

 

163

 

 

 

158

 

 

 

3

 

 

 

498

 

 

 

512

 

 

 

(3

)

Total interest income

 

 

732

 

 

 

787

 

 

 

(7

)

 

 

2,300

 

 

 

2,315

 

 

 

(1

)

Total interest expense

 

 

588

 

 

 

624

 

 

 

(6

)

 

 

1,866

 

 

 

1,817

 

 

 

3

 

Net interest income

 

 

144

 

 

 

163

 

 

 

(12

)

 

 

434

 

 

 

498

 

 

 

(13

)

Less: provision for loan losses

 

 

10

 

 

 

10

 

 

 

 

 

 

60

 

 

 

32

 

 

 

88

 

 

 

8

 

 

 

10

 

 

 

(20

)

 

 

23

 

 

 

60

 

 

 

(62

)

Net Core Earnings interest income after

provision for loan losses

 

 

153

 

 

 

148

 

 

 

3

 

 

 

438

 

 

 

480

 

 

 

(9

)

Net interest income after provision for

loan losses

 

 

136

 

 

 

153

 

 

 

(11

)

 

 

411

 

 

 

438

 

 

 

(6

)

Servicing revenue

 

 

67

 

 

 

72

 

 

 

(7

)

 

 

201

 

 

 

215

 

 

 

(7

)

 

 

57

 

 

 

67

 

 

 

(15

)

 

 

174

 

 

 

201

 

 

 

(13

)

Asset recovery and business processing

revenue

 

 

42

 

 

 

102

 

 

 

(59

)

 

 

112

 

 

 

215

 

 

 

(48

)

 

 

57

 

 

 

42

 

 

 

36

 

 

 

165

 

 

 

112

 

 

 

47

 

Other income

 

 

18

 

 

 

1

 

 

 

1,700

 

 

 

20

 

 

 

2

 

 

 

900

 

 

 

6

 

 

 

18

 

 

 

(67

)

 

 

22

 

 

 

20

 

 

 

10

 

Gains on sales of loans and investments

 

 

 

 

 

3

 

 

 

(100

)

 

 

 

 

 

3

 

 

 

(100

)

Total other income

 

 

127

 

 

 

178

 

 

 

(29

)

 

 

333

 

 

 

435

 

 

 

(23

)

 

 

120

 

 

 

127

 

 

 

(6

)

 

 

361

 

 

 

333

 

 

 

8

 

Direct operating expenses

 

 

87

 

 

 

77

 

 

 

13

 

 

 

202

 

 

 

245

 

 

 

(18

)

 

 

89

 

 

 

94

 

 

 

(5

)

 

 

270

 

 

 

209

 

 

 

29

 

Income before income tax expense

 

 

193

 

 

 

249

 

 

 

(22

)

 

 

569

 

 

 

670

 

 

 

(15

)

 

 

167

 

 

 

186

 

 

 

(10

)

 

 

502

 

 

 

562

 

 

 

(11

)

Income tax expense

 

 

45

 

 

 

92

 

 

 

(51

)

 

 

130

 

 

 

244

 

 

 

(47

)

 

 

39

 

 

 

43

 

 

 

(9

)

 

 

115

 

 

 

128

 

 

 

(10

)

Core Earnings

 

$

148

 

 

$

157

 

 

 

(6

)%

 

$

439

 

 

$

426

 

 

 

3

%

 

$

128

 

 

$

143

 

 

 

(10

)%

 

$

387

 

 

$

434

 

 

 

(11

)%

Highlights

Core Earnings for the segment were $148 million in third-quarter 2018, compared with the year-ago quarter’s $157 million.

Core Earnings were $128 million compared to $143 million in the year-ago quarter.

Net interest income increased $5 million.

Net interest income decreased $19 million due to the natural paydown of the portfolio.

Provision for loan losses remained consistent.

Provision for loan losses decreased $2 million.

Other revenue decreased $51 million primarily due to the recognition of $47 million of previously deferred revenue in third-quarter 2017 due to the termination of a contract.  

o

Charge-offs declined 31% to $9 million from the year-ago quarter.

On an adjusted basis, expenses were $13 million lower primarily as a result of ongoing cost-saving initiatives. Adjusted expenses exclude $14 million due to a new revenue recognition accounting standard and $9 million of costs in 2018 in connection with the First Data transition services agreement.

o

FFELP Loans greater than 30-days delinquency rate decreased 10% from the year-ago quarter.

Income tax expense was $27 million lower as a result of the new tax law.

Total other income decreased $7 million primarily due to a $19 million decrease from the gains on the sale of technology and third-party servicing contracts, and related transition services revenue in the year-ago quarter, partially offset by a $15 million (36%) increase in asset recovery revenue, primarily as a result of higher account resolution.

The Company acquired $164 million of FFELP Loans in the third-quarter 2018.

Expenses decreased $5 million.

At September 30, 2018, Navient held $74.3 billion of FFELP Loans, compared with $83.9 billion of FFELP Loans at September 30, 2017.

Contingent collections receivables inventory increased $12 billion from the prior quarter as a result of new placements.

The Company acquired $39 million of FFELP Loans in the quarter.

 


6760


Table of Contents

 

Core Earnings key performance metrics are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Segment net interest margin

 

 

.82

%

 

 

.71

%

 

 

.82

%

 

 

.77

%

 

 

.82

%

 

 

.82

%

 

 

.81

%

 

 

.82

%

FFELP Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan spread

 

 

.89

%

 

 

.79

%

 

 

.89

%

 

 

.85

%

 

 

.88

%

 

 

.89

%

 

 

.88

%

 

 

.89

%

Provision for loan losses

 

$

10

 

 

$

10

 

 

$

60

 

 

$

30

 

 

$

8

 

 

$

10

 

 

$

23

 

 

$

60

 

Charge-offs

 

$

13

 

 

$

10

 

 

$

41

 

 

$

36

 

 

$

9

 

 

$

13

 

 

$

33

 

 

$

41

 

Charge-off rate

 

 

.09

%

 

 

.05

%

 

 

.09

%

 

 

.07

%

 

 

.06

%

 

 

.09

%

 

 

.08

%

 

 

.09

%

Total delinquency rate

 

 

11.4

%

 

 

12.2

%

 

 

11.4

%

 

 

12.2

%

Greater than 90-day delinquency rate

 

 

6.6

%

 

 

5.9

%

 

 

6.6

%

 

 

5.9

%

Greater than 30-days delinquency rate

 

 

10.3

%

 

 

11.4

%

 

 

10.3

%

 

 

11.4

%

Greater than 90-days delinquency rate

 

 

5.8

%

 

 

6.6

%

 

 

5.8

%

 

 

6.6

%

Forbearance rate

 

 

12.4

%

 

 

15.2

%

 

 

12.4

%

 

 

15.2

%

 

 

12.6

%

 

 

12.4

%

 

 

12.6

%

 

 

12.4

%

Average FFELP Loans

 

$

67,206

 

 

$

75,582

 

 

$

69,157

 

 

$

78,165

 

Ending FFELP Loans, net

 

$

66,087

 

 

$

74,257

 

 

$

66,087

 

 

$

74,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in billions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of accounts serviced for ED (in

millions)

 

 

6.0

 

 

 

6.1

 

 

 

6.0

 

 

 

6.1

 

 

 

5.7

 

 

 

6.0

 

 

 

5.7

 

 

 

6.0

 

Total federal loans serviced

 

$

294

 

 

$

296

 

 

$

294

 

 

$

296

 

 

$

289

 

 

$

294

 

 

$

289

 

 

$

294

 

Contingent collections receivables inventory

 

$

27.3

 

 

$

8.1

 

 

$

27.3

 

 

$

8.1

 

 

$

23.3

 

 

$

27.3

 

 

$

23.3

 

 

$

27.3

 

Segment Net Interest Margin

The following table includes the Core Earnings basis FFELP LoanFederal Education Loans segment net interest margin along with reconciliation to the GAAP basis FFELP Loansegment net interest margin.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Core Earnings basis FFELP Loan yield

 

 

4.53

%

 

 

3.72

%

 

 

4.36

%

 

 

3.53

%

FFELP Loan yield

 

 

4.61

%

 

 

4.53

%

 

 

4.80

%

 

 

4.36

%

Hedged Floor Income

 

 

.41

 

 

 

.41

 

 

 

.40

 

 

 

.37

 

 

 

.44

 

 

 

.41

 

 

 

.42

 

 

 

.40

 

Unhedged Floor Income

 

 

.04

 

 

 

.05

 

 

 

.03

 

 

 

.09

 

 

 

.04

 

 

 

.04

 

 

 

.03

 

 

 

.03

 

Consolidation Loan Rebate Fees

 

 

(.68

)

 

 

(.68

)

 

 

(.69

)

 

 

(.67

)

 

 

(.69

)

 

 

(.68

)

 

 

(.69

)

 

 

(.69

)

Repayment Borrower Benefits

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

 

 

(.11

)

Premium amortization

 

 

(.13

)

 

 

(.22

)

 

 

(.09

)

 

 

(.14

)

 

 

(.04

)

 

 

(.13

)

 

 

(.08

)

 

 

(.09

)

Core Earnings basis FFELP Loan net yield

 

 

4.06

 

 

 

3.17

 

 

 

3.90

 

 

 

3.07

 

Core Earnings basis FFELP Loan cost of funds

 

 

(3.17

)

 

 

(2.38

)

 

 

(3.01

)

 

 

(2.22

)

Core Earnings basis FFELP Loan spread

 

 

.89

 

 

 

.79

 

 

 

.89

 

 

 

.85

 

Core Earnings basis other interest-earning asset spread impact

 

 

(.07

)

 

 

(.08

)

 

 

(.07

)

 

 

(.08

)

FFELP Loan net yield

 

 

4.25

 

 

 

4.06

 

 

 

4.37

 

 

 

3.90

 

FFELP Loan cost of funds

 

 

(3.37

)

 

 

(3.17

)

 

 

(3.49

)

 

 

(3.01

)

FFELP Loan spread

 

 

.88

 

 

 

.89

 

 

 

.88

 

 

 

.89

 

Other interest-earning asset spread impact

 

 

(.06

)

 

 

(.07

)

 

 

(.07

)

 

 

(.07

)

Core Earnings basis segment net interest margin(1)

 

 

.82

%

 

 

.71

%

 

 

.82

%

 

 

.77

%

 

 

.82

%

 

 

.82

%

 

 

.81

%

 

 

.82

%

 

 

Core Earnings basis segment net interest margin(1)

 

 

.82

%

 

 

.71

%

 

 

.82

%

 

 

.77

%

 

 

.82

%

 

 

.82

%

 

 

.81

%

 

 

.82

%

Adjustment for GAAP accounting treatment(2)

 

 

(.14

)

 

 

.02

 

 

 

(.10

)

 

 

.02

 

 

 

(.03

)

 

 

(.14

)

 

 

(.02

)

 

 

(.10

)

GAAP basis segment net interest margin(1)

 

 

.68

%

 

 

.73

%

 

 

.72

%

 

 

.79

%

GAAP-basis segment net interest margin(1)

 

 

.79

%

 

 

.68

%

 

 

.79

%

 

 

.72

%

 

(1)

The average balances of our FFELP Loan Core Earnings basis interest-earning assets for the respective periods are:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

FFELP Loans

 

$

75,582

 

 

$

85,019

 

 

$

78,165

 

 

$

85,691

 

 

$

67,206

 

 

$

75,582

 

 

$

69,157

 

 

$

78,165

 

Other interest-earning assets

 

 

2,666

 

 

 

3,244

 

 

 

2,679

 

 

 

3,437

 

 

 

2,108

 

 

 

2,666

 

 

 

2,386

 

 

 

2,679

 

Total Core Earnings basis FFELP Loan interest-earning assets

 

$

78,248

 

 

$

88,263

 

 

$

80,844

 

 

$

89,128

 

Total FFELP Loan Core Earnings basis interest-

earning assets

 

$

69,314

 

 

$

78,248

 

 

$

71,543

 

 

$

80,844

 

 

(2)

Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income, the reversal of the amortization of premiums received on Floor Income Contracts, and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “Non-GAAP Financial Measures — Core Earnings” above.

The increaseCompany acquired $39 million of FFELP Loans in net interest margin from prior periods primarily is due to a cumulative adjustment which reduced net interest income by $34 million in third-quarter 2017 in connection with an increase in prepayment speed assumptions used to amortize loan premiums.

68


Tablethe third quarter of Contents

2019. As of September 30, 2018,2019, our FFELP Loan portfolio totaled $74.3$66.1 billion, comprised of $25.4$22.2 billion of FFELP Stafford Loans and $48.9$43.9 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios as of September 30, 20182019 was 5 years and 87 years, respectively, assuming a Constant Prepayment Rate (“CPR”) of 7 percent8% and 4 percent,4%, respectively.

61


Table of Contents

Floor Income

The following table analyzes on a Core Earnings basis the ability of the FFELP Loans in our portfolio to earn Floor Income after September 30, 20182019 and 2017,2018, based on interest rates as of those dates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in billions)

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2019

 

 

September 30, 2018

 

Education loans eligible to earn Floor Income

 

$

73.6

 

 

$

83.3

 

 

$

65.5

 

 

$

73.6

 

Less: post-March 31, 2006 disbursed loans required

to rebate Floor Income

 

 

(33.6

)

 

 

(38.2

)

 

 

(29.8

)

 

 

(33.6

)

Less: economically hedged Floor Income

 

 

(24.3

)

 

 

(21.2

)

 

 

(20.8

)

 

 

(24.3

)

Education loans eligible to earn Floor Income after

rebates and economically hedged

 

$

15.7

 

 

$

23.9

 

 

$

14.9

 

 

$

15.7

 

Education loans earning Floor Income

 

$

.3

 

 

$

2.7

 

 

$

6.9

 

 

$

.3

 

The following table presents a projection of the average balance of FFELP Consolidation Loans for which Fixed Rate Floor Income has been economically hedged with derivatives for the period JulyOctober 1, 20182019 to December 31, 2023.2024.

 

(Dollars in billions)

 

October 1, 2018

to

December 31,

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

October 1, 2019

to

December 31,

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

Average balance of FFELP Consolidation Loans

whose Floor Income is economically hedged

 

$

22.8

 

 

$

20.4

 

 

$

17.6

 

 

$

12.6

 

 

$

10.9

 

 

$

4.1

 

 

$

20.3

 

 

$

17.7

 

 

$

12.6

 

 

$

11.0

 

 

$

6.5

 

 

$

.9

 

FFELP Provision for Loan Losses

The provision for FFELP Loan Losses was $8 million in third-quarter 2019, down $2 million from the year-ago quarter. Loan delinquencies greater than 90 days decreased $902 million from the year-ago quarter. Outstanding FFELP Loans decreased $8.2 billion from the year-ago quarter.

Servicing Revenue

Servicing revenue decreased $10 million from the year-ago quarter primarily due to a $5 million gain on the sale of third-party servicing contracts in the year-ago quarter. The remaining decrease is primarily the result of the natural paydown of the FFELP Loan portfolio serviced for third parties.

The Company services education loans for approximately 6.05.7 million and 6.16.0 million customer accounts for third parties includingunder its ED servicing contract as of September 30, 20182019 and September 30, 2017,2018, respectively. Third-party loan servicing fees in the three months ended September 30, 2019 and 2018 and 2017 included $35$37 million and $37$35 million, respectively, of servicing revenue related to the ED Servicing Contract. The servicing contract.

ED servicing contract expiresis in 2019.

In April 2016, ED began the solicitation process for its new servicing platform and service providers. InWhile the latest step, ED issued on February 20, 2018, Phase 1 of a new RFP entitled the Solicitation for the Next Generation Financial Services Environment which is intended to centralize student loan servicing on a single platform. The Company and its partnershas submitted a comprehensive bid on April 18, 2018. ED has completed Phase Iproposal in response to one of the procurement and announcedcomponents of the vendors eligible to participate in Phase II andsolicitation, the Company’s partners were among the vendors named. The Company cannot predict the timing and nature of the next steps for this RFP.RFP nor its impact on the current ED servicing contract. The current contract with ED expires in December 2019.

Asset Recovery and Business Processing Revenue

Asset recovery and business processing revenue decreased $60increased $15 million from the year-ago quarter, primarily due to the third-quarter 2017 recognitionas a result of $47 million of previously deferred asset recovery revenue, net of a reserve, related to the termination of the related contract.higher account resolution.

Navient provides asset recovery services on defaulted education loans to ED. ED collections contracts have been subject to numerous bid protests and court orders. Presently, we are operating under a contract awarded to our subsidiary, Pioneer Credit Recovery, Inc. (“Pioneer”), in MayApril 2017. WeIn accordance with its terms, the contract expired in April 2019. ED has the right to recall any accounts placed with Pioneer under the contract which are currently receiving new placements under this contract.not in a payment plan or other satisfactory arrangement.

Other Income

Other income increased $17decreased $12 million primarily due to a $14 million decrease from the gain on the sale of technology and related transition services revenue in connection with the strategic agreement we entered into with First Data in the third quarter of 2018.year-ago quarter.

6962


Table of Contents

 

Operating Expenses

Operating expenses for the Federal Education Loans segment include costs incurred to acquire FFELP Loans and perform servicing and asset recovery activities on our FFELP Loan portfolio, federal education loans held by ED and other institutions. On an adjusted basis, expenses were $13 million lower primarily as a result of ongoing cost-saving initiatives. Adjusted expenses exclude a $14 million increase from a new revenue recognition accounting standard adopted (see “Note 1 – Significant Accounting Policies”) and $9 million of costs in 2018 in connection with the First Data transition services agreement.Expenses decreased $5 million.

Consumer Lending Segment

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

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

Core Earnings interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private Education Loans

 

$

455

 

 

$

445

 

 

 

2

%

 

$

1,327

 

 

$

1,204

 

 

 

10

%

 

$

437

 

 

$

455

 

 

 

(4

)%

 

$

1,317

 

 

$

1,327

 

 

 

(1

)%

Other loans

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

 

Cash and investments

 

 

4

 

 

 

1

 

 

 

300

 

 

 

9

 

 

 

3

 

 

 

200

 

 

 

4

 

 

 

4

 

 

 

 

 

 

13

 

 

 

9

 

 

 

44

 

Total Core Earnings interest income

 

 

459

 

 

 

446

 

 

 

3

 

 

 

1,337

 

 

 

1,207

 

 

 

11

 

Total Core Earnings interest expense

 

 

257

 

 

 

221

 

 

 

16

 

 

 

746

 

 

 

601

 

 

 

24

 

Net Core Earnings interest income

 

 

202

 

 

 

225

 

 

 

(10

)

 

 

591

 

 

 

606

 

 

 

(2

)

Interest income

 

 

441

 

 

 

459

 

 

 

(4

)

 

 

1,331

 

 

 

1,337

 

 

 

 

Interest expense

 

 

242

 

 

 

257

 

 

 

(6

)

 

 

758

 

 

 

746

 

 

 

2

 

Net interest income

 

 

199

 

 

 

202

 

 

 

(1

)

 

 

573

 

 

 

591

 

 

 

(3

)

Less: provision for loan losses

 

 

75

 

 

 

95

 

 

 

(21

)

 

 

224

 

 

 

285

 

 

 

(21

)

 

 

56

 

 

 

75

 

 

 

(25

)

 

 

185

 

 

 

224

 

 

 

(17

)

Net Core Earnings interest income after

provision for loan losses

 

 

127

 

 

 

130

 

 

 

(2

)

 

 

367

 

 

 

321

 

 

 

14

 

Net interest income after provision for

loan losses

 

 

143

 

 

 

127

 

 

 

13

 

 

 

388

 

 

 

367

 

 

 

6

 

Servicing revenue

 

 

3

 

 

 

3

 

 

 

 

 

 

9

 

 

 

6

 

 

 

50

 

 

 

3

 

 

 

3

 

 

 

 

 

 

8

 

 

 

9

 

 

 

(11

)

Other income

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

100

 

Gains on sales of loans

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

100

 

Total other income

 

 

3

 

 

 

3

 

 

 

 

 

 

25

 

 

 

9

 

 

 

178

 

Direct operating expenses

 

 

38

 

 

 

39

 

 

 

(3

)

 

 

133

 

 

 

111

 

 

 

20

 

 

 

44

 

 

 

38

 

 

 

16

 

 

 

117

 

 

 

133

 

 

 

(12

)

Income before income tax expense

 

 

92

 

 

 

94

 

 

 

(2

)

 

 

243

 

 

 

216

 

 

 

13

 

 

 

102

 

 

 

92

 

 

 

11

 

 

 

296

 

 

 

243

 

 

 

22

 

Income tax expense

 

 

20

 

 

 

34

 

 

 

(41

)

 

 

56

 

 

 

79

 

 

 

(29

)

 

 

23

 

 

 

20

 

 

 

15

 

 

 

68

 

 

 

56

 

 

 

21

 

Core Earnings

 

$

72

 

 

$

60

 

 

 

20

%

 

$

187

 

 

$

137

 

 

 

36

%

 

$

79

 

 

$

72

 

 

 

10

%

 

$

228

 

 

$

187

 

 

 

22

%

Highlights

Core Earnings for the segment were $72 million in third-quarter 2018, compared with the year-ago quarter’s $60 million.

Originated $1.4 billion of Private Education Loans compared to $903 million in the year-ago quarter.

Net interest income decreased $23 million primarily due to the natural paydown of the portfolio.

Core Earnings were $79 million compared to $72 million in the year-ago quarter.

Provision for loan losses decreased $20 million. Private Education Loan charge-offs, excluding the $32 million of charge-offs on the receivable for partially charged-off loans that occurred as a result of changing the charge-off rate on defaulted loans from 79 percent to 80.5 percent in third-quarter 2018, were $116 million, up $20 million from $96 million in third-quarter 2017. This increase was expected with the expiration of the temporary natural disaster forbearances granted at the end of 2017.

Net interest income decreased $3 million primarily due to the natural paydown of the portfolio.

On an adjusted basis, expenses were $11 million lower primarily as a result of ongoing cost-savings initiatives. Adjusted expenses exclude $10 million of operating costs in Earnest, which was acquired in November 2017.  

Provision for loan losses decreased $19 million. Private Education Loan performance results include:

Income tax expense was $13 million lower as a result of the new tax law.

o

Excluding the $21 million and $32 million, respectively, related to the change in the portion of the loan amount charged off at default, charge-offs were $87 million, down $29 million from $116 million in third-quarter 2018.  

Navient originated $903 million of Private Education Refinance Loans in third-quarter 2018.

o

Private Education Loan delinquencies greater than 90 days: $488 million, down $148 million from $636 million in third-quarter 2018.

o

Private Education Loan delinquencies greater than 30 days: $1.0 billion, down $363 million from $1.4 billion in third-quarter 2018.

At September 30, 2018, Navient held $22.4 billion of Private Education Loans (of which $2.6 billion were Refinance Loans), compared with $23.4 billion of Private Education Loans at September 30, 2017.

o

Private Education Loan forbearances: $660 million, down $232 million from $892 million in third-quarter 2018.

Expenses were $6 million higher primarily due to an increase in loan originations.

7063


Table of Contents

 

Core Earnings key performance metrics are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Segment net interest margin

 

 

3.35

%

 

 

3.57

%

 

 

3.26

%

 

 

3.34

%

 

 

3.45

%

 

 

3.35

%

 

 

3.29

%

 

 

3.26

%

Private Education Loans (including Refinance Loans):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private Education Loan spread

 

 

3.60

%

 

 

3.79

%

 

 

3.51

%

 

 

3.53

%

 

 

3.67

%

 

 

3.60

%

 

 

3.52

%

 

 

3.51

%

Provision for loan losses

 

$

75

 

 

$

95

 

 

$

224

 

 

$

285

 

 

$

56

 

 

$

75

 

 

$

185

 

 

$

224

 

Charge-offs(1)

 

$

116

 

 

$

96

 

 

$

269

 

 

$

355

 

 

$

87

 

 

$

116

 

 

$

267

 

 

$

269

 

Charge-off rate(1)

 

 

2.1

%

 

 

1.6

%

 

 

1.6

%

 

 

2.1

%

 

 

1.6

%

 

 

2.1

%

 

 

1.6

%

 

 

1.6

%

Total delinquency rate

 

 

6.3

%

 

 

5.7

%

 

 

6.3

%

 

 

5.7

%

Greater than 90-day delinquency rate

 

 

2.9

%

 

 

2.6

%

 

 

2.9

%

 

 

2.6

%

Greater than 30-days delinquency rate

 

 

4.8

%

 

 

6.3

%

 

 

4.8

%

 

 

6.3

%

Greater than 90-days delinquency rate

 

 

2.3

%

 

 

2.9

%

 

 

2.3

%

 

 

2.9

%

Forbearance rate

 

 

3.9

%

 

 

5.4

%

 

 

3.9

%

 

 

5.4

%

 

 

3.0

%

 

 

3.9

%

 

 

3.0

%

 

 

3.9

%

Average Private Education Loans

 

$

22,205

 

 

$

23,107

 

 

$

22,474

 

 

$

23,392

 

Ending Private Education Loans, net

 

$

21,846

 

 

$

22,447

 

 

$

21,846

 

 

$

22,447

 

Private Education Refinance Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

$

.1

 

 

$

 

 

$

.2

 

 

$

 

 

$

1

 

 

$

.1

 

 

$

2

 

 

$

.2

 

Greater than 90-day delinquency rate

 

 

%

 

 

%

 

 

%

 

 

%

Average balance of Private Education Refinance Loans

 

$

2,196

 

 

$

 

 

$

1,545

 

 

$

 

Ending balance of Private Education Refinance Loans

 

$

2,562

 

 

$

 

 

$

2,562

 

 

$

 

Greater than 90-days delinquency rate

 

 

%

 

 

%

 

 

%

 

 

%

Average Private Education Refinance Loans

 

$

4,778

 

 

$

2,196

 

 

$

4,229

 

 

$

1,545

 

Ending Private Education Refinance Loans

 

$

5,313

 

 

$

2,562

 

 

$

5,313

 

 

$

2,562

 

Private Education Refinance Loan originations

 

$

903

 

 

$

 

 

$

2,032

 

 

$

 

 

$

1,420

 

 

$

903

 

 

$

3,250

 

 

$

2,032

 

 

(1)    Excluding the $21 million and $32 million of charge-offs on the receivable for partially charged-off loans that occurred as a result of changing the charge-off rate from

       79 percent80.5% to 80.5 percent81% in third-quarter 2019 and 79% to 80.5% in third-quarter 2018.

 

Segment Net Interest Margin

The following table shows the Core Earnings basis Private Education LoanConsumer Lending segment net interest margin along with reconciliation to the GAAP basis Private Education Loansegment net interest margin before provision for loan losses.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Core Earnings basis Private Education Loan yield

 

 

7.80

%

 

 

7.25

%

 

 

7.58

%

 

 

6.80

%

Core Earnings basis Private Education Loan cost of funds

 

 

(4.20

)

 

 

(3.46

)

 

 

(4.07

)

 

 

(3.27

)

Core Earnings basis Private Education Loan spread

 

 

3.60

 

 

 

3.79

 

 

 

3.51

 

 

 

3.53

 

Core Earnings basis other interest-earning asset spread impact

 

 

(.25

)

 

 

(.22

)

 

 

(.25

)

 

 

(.19

)

Private Education Loan yield

 

 

7.81

%

 

 

7.80

%

 

 

7.83

%

 

 

7.58

%

Private Education Loan cost of funds

 

 

(4.14

)

 

 

(4.20

)

 

 

(4.31

)

 

 

(4.07

)

Private Education Loan spread

 

 

3.67

 

 

 

3.60

 

 

 

3.52

 

 

 

3.51

 

Other interest-earning asset spread impact

 

 

(.22

)

 

 

(.25

)

 

 

(.23

)

 

 

(.25

)

Core Earnings basis segment net interest margin(1)

 

 

3.35

%

 

 

3.57

%

 

 

3.26

%

 

 

3.34

%

 

 

3.45

%

 

 

3.35

%

 

 

3.29

%

 

 

3.26

%

 

 

Core Earnings basis segment net interest margin(1)

 

 

3.35

%

 

 

3.57

%

 

 

3.26

%

 

 

3.34

%

 

 

3.45

%

 

 

3.35

%

 

 

3.29

%

 

 

3.26

%

Adjustment for GAAP accounting treatment(2)

 

 

.05

 

 

 

.07

 

 

 

.07

 

 

 

.04

 

 

 

.07

 

 

 

.05

 

 

 

.08

 

 

 

.07

 

GAAP basis segment net interest margin(1)

 

 

3.40

%

 

 

3.64

%

 

 

3.33

%

 

 

3.38

%

 

 

3.52

%

 

 

3.40

%

 

 

3.37

%

 

 

3.33

%

 

(1)

The average balances of our Private Education Loan Core Earnings basis interest-earning assets for the respective periods are:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Private Education Loans

 

$

23,107

 

 

$

24,348

 

 

$

23,392

 

 

$

23,657

 

 

$

22,205

 

 

$

23,107

 

 

$

22,474

 

 

$

23,392

 

Other interest-earning assets

 

 

832

 

 

 

692

 

 

 

830

 

 

 

629

 

 

 

743

 

 

 

832

 

 

 

765

 

 

 

830

 

Total Core Earnings basis Private Education Loan

interest-earning assets

 

$

23,939

 

 

$

25,040

 

 

$

24,222

 

 

$

24,286

 

Total Private Education Loan Core Earnings basis

interest-earning assets

 

$

22,948

 

 

$

23,939

 

 

$

23,239

 

 

$

24,222

 

 

(2)

Represents the reclassification of periodic interest accruals on derivative contracts from net interest income to other income and other derivative accounting adjustments. For further discussion of these adjustments, see section titled “Non-GAAP Financial Measures — Core Earnings” above.

The decrease in net interest margin from prior periods is primarily the impact of the Private Education Refinance Loans that have been originated in the last year at a lower net interest margin than the legacy Private Education Loan portfolio as a result of their lower credit risk profile.

71


Table of Contents

As of September 30, 2018,2019, our Private Education Loan portfolio totaled $22.4$21.8 billion. The weighted-average life of this portfolio as of September 30, 20182019 was 65 years assuming a CPR of 8 percent.9%.

 


64


Table of Contents

Private Education Loan Provision for Loan Losses

Allowance for Private Education Loan Losses

Our allowance for Private Education Loan losses does not include Purchased Credit Impaired (“PCI”) loans as those loans are separately reserved for, as needed. No allowance for loan losses has been established for these loans as of September 30, 2018.2019. Related to the $2.8 billion of Purchased Non-Credit Impaired Loans acquired in 2017 at a discount, there is no allowance for loan losses established as of September 30, 2018,2019, as the remaining purchased discount associated with the Private Education Loans of $343$281 million as of September 30, 20182019 remains greater than the incurred losses. However, in accordance with our policy, there was $3 million and $2 million of both charge-offs and provision recorded for Purchased Non-Credit Impaired Loans in third-quarter 2018.the three months ended September 30, 2019 and 2018, respectively, and $10 million and $12 million in the nine months ended September 30, 2019 and 2018, respectively.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Allowance at beginning of period

 

$

1,297

 

 

$

1,286

 

 

$

1,297

 

 

$

1,351

 

 

$

1,151

 

 

$

1,297

 

 

$

1,201

 

 

$

1,297

 

Provision for Private Education Loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased Non-Credit Impaired Loans, acquired at a

discount

 

 

2

 

 

 

 

 

 

12

 

 

 

 

 

 

3

 

 

 

2

 

 

 

10

 

 

 

12

 

Remaining loans

 

 

73

 

 

 

95

 

 

 

212

 

 

 

285

 

 

 

53

 

 

 

73

 

 

 

174

 

 

 

212

 

Total provision

 

 

75

 

 

 

95

 

 

 

224

 

 

 

285

 

 

 

56

 

 

 

75

 

 

 

185

 

 

 

224

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net adjustment resulting from the change in the charge-

off rate(1)

 

 

(32

)

 

 

 

 

 

(32

)

 

 

 

 

 

(21

)

 

 

(32

)

 

 

(21

)

 

 

(32

)

Net charge-offs remaining(2)

 

 

(116

)

 

 

(96

)

 

 

(269

)

 

 

(355

)

 

 

(87

)

 

 

(116

)

 

 

(267

)

 

 

(269

)

Total charge-offs(2)

 

 

(148

)

 

 

(96

)

 

 

(301

)

 

 

(355

)

 

 

(108

)

 

 

(148

)

 

 

(288

)

 

 

(301

)

Reclassification of interest reserve(3)

 

 

2

 

 

 

2

 

 

 

6

 

 

 

6

 

 

 

2

 

 

 

2

 

 

 

5

 

 

 

6

 

Loan sales

 

 

 

 

 

 

 

 

(1

)

 

 

 

Allowance at end of period

 

$

1,226

 

 

$

1,287

 

 

$

1,226

 

 

$

1,287

 

 

$

1,101

 

 

$

1,226

 

 

$

1,101

 

 

$

1,226

 

Net charge-offs as a percentage of average loans in

repayment, excluding the net adjustment resulting

from the change in the charge-off rate (annualized)(1)

 

 

2.1

%

 

 

1.6

%

 

 

1.6

%

 

 

2.1

%

 

 

1.6

%

 

 

2.1

%

 

 

1.6

%

 

 

1.6

%

Net adjustment resulting from the change in the charge-off

rate as a percentage of average loans in repayment

(annualized)(1)

 

 

.6

%

 

 

%

 

 

.2

%

 

 

%

 

 

.4

%

 

 

.6

%

 

 

.1

%

 

 

.2

%

Allowance coverage of net charge-offs (annualized)

 

 

2.1

 

 

 

3.4

 

 

 

3.0

 

 

 

2.7

 

 

 

2.6

 

 

 

2.1

 

 

 

2.9

 

 

 

3.0

 

Allowance as a percentage of ending total loans

 

 

5.0

%

 

 

5.0

%

 

 

5.0

%

 

 

5.0

%

 

 

4.7

%

 

 

5.0

%

 

 

4.7

%

 

 

5.0

%

Allowance as a percentage of ending loans in repayment

 

 

5.6

%

 

 

5.7

%

 

 

5.6

%

 

 

5.7

%

 

 

5.1

%

 

 

5.6

%

 

 

5.1

%

 

 

5.6

%

Ending total loans(4)

 

$

24,469

 

 

$

25,665

 

 

$

24,469

 

 

$

25,665

 

 

$

23,593

 

 

$

24,469

 

 

$

23,593

 

 

$

24,469

 

Average loans in repayment

 

$

22,158

 

 

$

23,112

 

 

$

22,367

 

 

$

22,180

 

 

$

21,549

 

 

$

22,158

 

 

$

21,819

 

 

$

22,367

 

Ending loans in repayment

 

$

21,997

 

 

$

22,448

 

 

$

21,997

 

 

$

22,448

 

 

$

21,655

 

 

$

21,997

 

 

$

21,655

 

 

$

21,997

 

 

(1)

In third-quarter 2018, the portion of the loan amount charged off at default on our Private Education Loans increased from 79 percent79% to 80.5 percent. This did not impact the provision for loan losses80.5% and in the third quarter of 2018 as previously this had been reserved through the allowance for loan losses. This chargethird-quarter 2019, it increased from 80.5% to 81%. These changes resulted in a $21 million and $32 million reduction to the balance of the receivable for partially charged-off loans.loans in third-quarter 2019 and third-quarter 2018, respectively.

(2)

Charge-offs are reported net of expected recoveries. The expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.discussion

(3)

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

(4)

Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.loans


72


Table of Contents

In establishing the allowance for Private Education Loan losses as of September 30, 2018,2019, we considered several factors with respect to our Private Education Loan portfolio. As a result ofExcluding the expiration of the temporary natural disaster forbearances granted at the end of 2017, loan delinquencies greater than 90-days increased by $49$21 million and forbearances decreased by $380 million compared with the year-ago quarter, all as expected. Charge-offs increased by $20 million from the year-ago quarter, excluding the $32 million related to changing the charge-off rate on defaulted loans, from 79 percent to 80.5 percent. This increase in charge-offs was expecteddecreased $29 million. Loan delinquencies greater than 90 days decreased by $148 million and due toforbearances decreased by $232 million compared with the disaster forbearances discussed above. These items had no impact on the provision for loan losses in the third quarter of 2018 as these items had been previously reserved for through the allowance for loan losses.year-ago quarter. Outstanding non-Refinance Private Education Loans decreased $977 million$3.4 billion from the year-ago quarter. These factors along with the continued improvement in the portfolio’s performanceprimarily resulted in the $20$19 million decrease in provision.

65


Table of Contents

Operating Expenses

Operating expenses for our Consumer Lending segment include costs incurred to originate, acquire, service and collect on our consumer loan portfolio. Operating expenses were $38$44 million and $39$38 million for the quarters ended September 30, 2019 and 2018, and 2017, respectively. OnExpenses were $6 million higher primarily due to an adjusted basis, expenses were $11 million lower primarily as a result of ongoing cost-saving initiatives. Adjusted expenses exclude $10 million of operating costsincrease in Earnest, which was acquired in November 2017.

loan originations.

Business Processing Segment

The following table presents Core Earnings results for our Business Processing segment.

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

Net interest income

 

$

 

 

$

 

 

 

%

 

$

 

 

$

 

 

 

%

Business processing revenue

 

 

64

 

 

 

55

 

 

 

16

 

 

 

201

 

 

 

152

 

 

 

32

 

 

$

66

 

 

$

64

 

 

 

3

%

 

$

199

 

 

$

201

 

 

 

(1

)%

Direct operating expenses

 

 

59

 

 

 

49

 

 

 

20

 

 

 

172

 

 

 

131

 

 

 

31

 

 

 

54

 

 

 

59

 

 

 

(8

)

 

 

165

 

 

 

172

 

 

 

(4

)

Income before income tax expense

 

 

5

 

 

 

6

 

 

 

(17

)

 

 

29

 

 

 

21

 

 

 

38

 

 

 

12

 

 

 

5

 

 

 

140

 

 

 

34

 

 

 

29

 

 

 

17

 

Income tax expense

 

 

1

 

 

 

2

 

 

 

(50

)

 

 

7

 

 

 

8

 

 

 

(13

)

 

 

3

 

 

 

1

 

 

 

200

 

 

 

8

 

 

 

7

 

 

 

14

 

Core Earnings

 

$

4

 

 

$

4

 

 

 

%

 

$

22

 

 

$

13

 

 

 

69

%

 

$

9

 

 

$

4

 

 

 

125

%

 

$

26

 

 

$

22

 

 

 

18

%

 

Highlights

Core Earnings for the segment were $4 million in third-quarter 2018, consistent with the year-ago quarter.

Core Earnings were $9 million compared to $4 million in the year-ago quarter.

EBITDA was $8 million, up 14 percent from the year-ago quarter.

EBITDA was $13 million, up 63% from the year-ago quarter.

The increase in Core Earnings and EBITDA above is primarily from growth in healthcare services revenue as well as reduced expenses in connection with efficiency initiatives.

Contingent collections receivables inventory increased 13 percent to $13 billion from the prior quarter as a result of new placements.

Contingent collections receivables inventory increased 8% to $14.2 billion from the year-ago quarter as a result of new placements.

Key segment metrics are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

(Dollars in billions)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue from government services

 

$

40

 

 

$

34

 

 

$

133

 

 

$

96

 

 

$

39

 

 

$

40

 

 

$

120

 

 

$

133

 

Revenue from healthcare services

 

 

24

 

 

 

21

 

 

 

68

 

 

 

56

 

 

 

27

 

 

 

24

 

 

 

79

 

 

 

68

 

Total fee revenue

 

$

64

 

 

$

55

 

 

$

201

 

 

$

152

 

 

$

66

 

 

$

64

 

 

$

199

 

 

$

201

 

EBITDA(1)

 

$

8

 

 

$

7

 

 

$

34

 

 

$

23

 

 

$

13

 

 

$

8

 

 

$

38

 

 

$

34

 

EBITDA Margin(1)

 

 

13

%

 

 

13

%

 

 

17

%

 

 

15

%

 

 

20

%

 

 

13

%

 

 

19

%

 

 

17

%

Contingent collections receivables inventory (in

billions)

 

$

13.1

 

 

$

15.9

 

 

$

13.1

 

 

$

15.9

 

 

$

14.2

 

 

$

13.1

 

 

$

14.2

 

 

$

13.1

 

 

 

(1)

See “Non-GAAP Financial Measures – Earnings before Interest, Taxes, Depreciation and Amortization Expense

(‘EBITDA’)” for an explanation and reconciliation of these metrics.

7366


Table of Contents

 

Other Segment

The following table presents Core Earnings results of our Other segment.

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Three Months Ended September 30,

 

 

% Increase

(Decrease)

 

 

Nine Months Ended September 30,

 

 

% Increase

(Decrease)

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2018

 

 

2017

 

 

2018 vs. 2017

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

 

2019

 

 

2018

 

 

2019 vs. 2018

 

Net interest loss after provision for loan

losses

 

$

(38

)

 

$

(38

)

 

 

%

 

$

(113

)

 

$

(96

)

 

 

18

%

 

$

(34

)

 

$

(38

)

 

 

(11

)%

 

$

(101

)

 

$

(113

)

 

 

(11

)%

Other income

 

 

3

 

 

 

2

 

 

 

50

 

 

 

6

 

 

 

11

 

 

 

(45

)

 

 

3

 

 

 

3

 

 

 

 

 

 

12

 

 

 

6

 

 

 

100

 

Losses on debt repurchases

 

 

(1

)

 

 

(1

)

 

 

 

 

 

(9

)

 

 

(1

)

 

 

800

 

Gains (losses) on debt repurchases

 

 

 

 

 

(1

)

 

 

(100

)

 

 

47

 

 

 

(9

)

 

 

(622

)

Total other income

 

 

2

 

 

 

1

 

 

 

100

 

 

 

(3

)

 

 

10

 

 

 

(130

)

 

 

3

 

 

 

2

 

 

 

50

 

 

 

59

 

 

 

(3

)

 

 

(2,067

)

Overhead expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated shared services expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated information technology

costs

 

 

26

 

 

 

29

 

 

 

(10

)

 

 

84

 

 

 

85

 

 

 

(1

)

 

 

21

 

 

 

19

 

 

 

11

 

 

 

59

 

 

 

77

 

 

 

(23

)

Unallocated corporate costs

 

 

45

 

 

 

44

 

 

 

2

 

 

 

140

 

 

 

135

 

 

 

4

 

 

 

43

 

 

 

45

 

 

 

(4

)

 

 

138

 

 

 

140

 

 

 

(1

)

Total overhead expenses

 

 

71

 

 

 

73

 

 

 

(3

)

 

 

224

 

 

 

220

 

 

 

2

 

Total unallocated shared services

expenses

 

 

64

 

 

 

64

 

 

 

 

 

 

197

 

 

 

217

 

 

 

(9

)

Restructuring/other reorganization

expenses

 

 

1

 

 

 

 

 

 

100

 

 

 

10

 

 

 

 

 

 

100

 

 

 

2

 

 

 

1

 

 

 

100

 

 

 

4

 

 

 

10

 

 

 

(60

)

Total expenses

 

 

72

 

 

 

73

 

 

 

(1

)

 

 

234

 

 

 

220

 

 

 

6

 

 

 

66

 

 

 

65

 

 

 

2

 

 

 

201

 

 

 

227

 

 

 

(11

)

Loss before income tax benefit

 

 

(108

)

 

 

(110

)

 

 

(2

)

 

 

(350

)

 

 

(306

)

 

 

14

 

 

 

(97

)

 

 

(101

)

 

 

(4

)

 

 

(243

)

 

 

(343

)

 

 

(29

)

Income tax benefit

 

 

(24

)

 

 

(41

)

 

 

(41

)

 

 

(81

)

 

 

(112

)

 

 

(28

)

 

 

(23

)

 

 

(22

)

 

 

5

 

 

 

(56

)

 

 

(79

)

 

 

(29

)

Core Earnings (loss)

 

$

(84

)

 

$

(69

)

 

 

22

%

 

$

(269

)

 

$

(194

)

 

 

39

%

 

$

(74

)

 

$

(79

)

 

 

(6

)%

 

$

(187

)

 

$

(264

)

 

 

(29

)%

 

Net Interest Loss after Provision for Loan Losses

Net interest loss after provision for loan losses is due to the negative carrying cost of our corporate liquidity portfolio.

Losses on Debt Repurchases

We repurchased $86 billion of unsecured debt in the third quarter of 2018, resulting in $1 million of debt repurchase losses.

OverheadUnallocated Shared Services Expenses

Unallocated corporate overhead isshared services expenses are comprised of costs primarily related to certain executive management, the board of directors, accounting, finance, legal, human resources, compliance and risk management, regulatory-related costs, and stock-based compensation expense. Unallocatedexpense, and information technology costs are related to infrastructure and operations. Regulatory-related costs include actual settlement amounts as well as third-party professional fees we incur in connection with such regulatory matters. On an adjusted basis, expenses were $12unchanged at $55 million lower primarily as a result of ongoing cost-saving initiatives.for each period. Adjusted expenses exclude $6$7 million and $9 million of regulatory-related costs in the third quarters of 2019 and $42018, respectively, and $2 million of operating costs associated with proxy contest matters in businesses acquired in 2017 (Duncan Solutions in July 2017 and Earnest in November 2017).third-quarter 2019.

Restructuring/Other Reorganization Expenses

During the third quarterquarters of 2019 and 2018, the Company incurred $2 million and $1 million, respectively, of restructuring/other reorganization expense in connection with an effort that willto reduce costs and improve operating efficiency. The charges were due primarily to severance-related costs.


7467


Table of Contents

 

Financial Condition

This section provides additional information regarding the changes in our loan portfolio assets and related liabilities as well as credit quality and performance indicators related to our loan portfolio.

Average Balance Sheets — GAAP

The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

 

Balance

 

 

Rate

 

Average Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loans

 

$

75,582

 

 

 

3.99

%

 

$

85,019

 

 

 

3.17

%

 

$

78,165

 

 

 

3.84

%

 

$

85,691

 

 

 

3.09

%

 

$

67,206

 

 

 

4.16

%

 

$

75,582

 

 

 

3.99

%

 

$

69,157

 

 

 

4.27

%

 

$

78,165

 

 

 

3.84

%

Private Education Loans

 

 

23,107

 

 

 

7.80

 

 

 

24,348

 

 

 

7.25

 

 

 

23,392

 

 

 

7.58

 

 

 

23,657

 

 

 

6.80

 

 

 

22,205

 

 

 

7.81

 

 

 

23,107

 

 

 

7.80

 

 

 

22,474

 

 

 

7.83

 

 

 

23,392

 

 

 

7.58

 

Other loans

 

 

77

 

 

 

7.74

 

 

 

85

 

 

 

8.40

 

 

 

73

 

 

 

7.40

 

 

 

151

 

 

 

10.81

 

 

 

5

 

 

 

3.24

 

 

 

77

 

 

 

7.74

 

 

 

35

 

 

 

8.74

 

 

 

73

 

 

 

7.40

 

Cash and investments

 

 

5,353

 

 

 

1.91

 

 

 

5,039

 

 

 

.94

 

 

 

5,433

 

 

 

1.63

 

 

 

5,138

 

 

 

.75

 

 

 

4,499

 

 

 

2.02

 

 

 

5,353

 

 

 

1.91

 

 

 

4,556

 

 

 

2.19

 

 

 

5,433

 

 

 

1.63

 

Total interest-earning assets

 

 

104,119

 

 

 

4.73

%

 

 

114,491

 

 

 

3.95

%

 

 

107,063

 

 

 

4.55

%

 

 

114,637

 

 

 

3.76

%

 

 

93,915

 

 

 

4.92

%

 

 

104,119

 

 

 

4.73

%

 

 

96,222

 

 

 

5.01

%

 

 

107,063

 

 

 

4.55

%

Non-interest-earning assets

 

 

3,615

 

 

 

 

 

 

 

3,792

 

 

 

 

 

 

 

3,544

 

 

 

 

 

 

 

3,910

 

 

 

 

 

 

 

3,308

 

 

 

 

 

 

 

3,615

 

 

 

 

 

 

 

3,398

 

 

 

 

 

 

 

3,544

 

 

 

 

 

Total assets

 

$

107,734

 

 

 

 

 

 

$

118,283

 

 

 

 

 

 

$

110,607

 

 

 

 

 

 

$

118,547

 

 

 

 

 

 

$

97,223

 

 

 

 

 

 

$

107,734

 

 

 

 

 

 

$

99,620

 

 

 

 

 

 

$

110,607

 

 

 

 

 

Average Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

4,637

 

 

 

5.05

%

 

$

3,632

 

 

 

4.26

%

 

$

4,825

 

 

 

4.47

%

 

$

2,873

 

 

 

4.03

%

 

$

6,710

 

 

 

4.46

%

 

$

4,637

 

 

 

5.05

%

 

$

6,599

 

 

 

4.50

%

 

$

4,825

 

 

 

4.47

%

Long-term borrowings

 

 

97,667

 

 

 

3.56

 

 

 

109,351

 

 

 

2.70

 

 

 

100,466

 

 

 

3.39

 

 

 

109,918

 

 

 

2.54

 

 

 

85,756

 

 

 

3.60

 

 

 

97,667

 

 

 

3.56

 

 

 

88,127

 

 

 

3.78

 

 

 

100,466

 

 

 

3.39

 

Total interest-bearing liabilities

 

 

102,304

 

 

 

3.62

%

 

 

112,983

 

 

 

2.75

%

 

 

105,291

 

 

 

3.44

%

 

 

112,791

 

 

 

2.58

%

 

 

92,466

 

 

 

3.66

%

 

 

102,304

 

 

 

3.62

%

 

 

94,726

 

 

 

3.83

%

 

 

105,291

 

 

 

3.44

%

Non-interest-bearing liabilities

 

 

1,700

 

 

 

 

 

 

 

1,770

 

 

 

 

 

 

 

1,636

 

 

 

 

 

 

 

2,143

 

 

 

 

 

 

 

1,491

 

 

 

 

 

 

 

1,700

 

 

 

 

 

 

 

1,504

 

 

 

 

 

 

 

1,636

 

 

 

 

 

Equity

 

 

3,730

 

 

 

 

 

 

 

3,530

 

 

 

 

 

 

 

3,680

 

 

 

 

 

 

 

3,613

 

 

 

 

 

 

 

3,266

 

 

 

 

 

 

 

3,730

 

 

 

 

 

 

 

3,390

 

 

 

 

 

 

 

3,680

 

 

 

 

 

Total liabilities and equity

 

$

107,734

 

 

 

 

 

 

$

118,283

 

 

 

 

 

 

$

110,607

 

 

 

 

 

 

$

118,547

 

 

 

 

 

 

$

97,223

 

 

 

 

 

 

$

107,734

 

 

 

 

 

 

$

99,620

 

 

 

 

 

 

$

110,607

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

1.17

%

 

 

 

 

 

 

1.23

%

 

 

 

 

 

 

1.17

%

 

 

 

 

 

 

1.22

%

 

 

 

 

 

 

1.32

%

 

 

 

 

 

 

1.17

%

 

 

 

 

 

 

1.24

%

 

 

 

 

 

 

1.17

%

Rate/Volume Analysis — GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.  

 

Increase

 

 

Change Due To(1)

 

 

Increase

 

 

Change Due To

 

(Dollars in millions)

 

(Decrease)

 

 

Rate

 

 

Volume

 

 

(Decrease)

 

 

Rate

 

 

Volume

 

Three Months Ended September 30, 2018 vs. 2017

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019 vs. 2018

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

101

 

 

$

212

 

 

$

(111

)

 

$

(75

)

 

$

50

 

 

$

(125

)

Interest expense

 

 

150

 

 

 

231

 

 

 

(81

)

 

 

(81

)

 

 

10

 

 

 

(91

)

Net interest income

 

$

(49

)

 

$

(19

)

 

$

(30

)

 

$

6

 

 

$

40

 

 

$

(34

)

Nine Months Ended September 30, 2018 vs. 2017

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019 vs. 2018

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

415

 

 

$

640

 

 

$

(225

)

 

$

(34

)

 

$

352

 

 

$

(386

)

Interest expense

 

 

529

 

 

 

682

 

 

 

(153

)

 

 

7

 

 

 

292

 

 

 

(285

)

Net interest income

 

$

(114

)

 

$

(42

)

 

$

(72

)

 

$

(41

)

 

$

60

 

 

$

(101

)

 

(1)

Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each.

75

68


Table of Contents

 

Summary of our Education Loan Portfolio

Ending Education Loan Balances, net — GAAP and Core Earnings Basis

 

 

September 30, 2018

 

 

September 30, 2019

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total education loan portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school(1)

 

$

66

 

 

$

 

 

$

66

 

 

$

33

 

 

$

99

 

 

$

45

 

 

$

 

 

$

45

 

 

$

20

 

 

$

65

 

Grace, repayment and other(2)

 

 

24,984

 

 

 

48,669

 

 

 

73,653

 

 

 

23,748

 

 

 

97,401

 

 

 

21,861

 

 

 

43,682

 

 

 

65,543

 

 

 

22,970

 

 

 

88,513

 

Total, gross

 

 

25,050

 

 

 

48,669

 

 

 

73,719

 

 

 

23,781

 

 

 

97,500

 

 

 

21,906

 

 

 

43,682

 

 

 

65,588

 

 

 

22,990

 

 

 

88,578

 

Unamortized premium/(discount)

 

 

390

 

 

 

227

 

 

 

617

 

 

 

(796

)

 

 

(179

)

 

 

348

 

 

 

216

 

 

 

564

 

 

 

(646

)

 

 

(82

)

Receivable for partially charged-off loans

 

 

 

 

 

 

 

 

 

 

 

688

 

 

 

688

 

 

 

 

 

 

 

 

 

 

 

 

603

 

 

 

603

 

Allowance for loan losses

 

 

(45

)

 

 

(34

)

 

 

(79

)

 

 

(1,226

)

 

 

(1,305

)

 

 

(40

)

 

 

(25

)

 

 

(65

)

 

 

(1,101

)

 

 

(1,166

)

Total education loan portfolio

 

$

25,395

 

 

$

48,862

 

 

$

74,257

 

 

$

22,447

 

 

$

96,704

 

 

$

22,214

 

 

$

43,873

 

 

$

66,087

 

 

$

21,846

 

 

$

87,933

 

% of total FFELP

 

 

34

%

 

 

66

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

34

%

 

 

66

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

26

%

 

 

51

%

 

 

77

%

 

 

23

%

 

 

100

%

 

 

25

%

 

 

50

%

 

 

75

%

 

 

25

%

 

 

100

%

 

 

December 31, 2017

 

 

December 31, 2018

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total education loan portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-school(1)

 

$

88

 

 

$

 

 

$

88

 

 

$

54

 

 

$

142

 

 

$

59

 

 

$

 

 

$

59

 

 

$

31

 

 

$

90

 

Grace, repayment and other(2)

 

 

27,949

 

 

 

53,060

 

 

 

81,009

 

 

 

24,826

 

 

 

105,835

 

 

 

24,249

 

 

 

47,422

 

 

 

71,671

 

 

 

23,500

 

 

 

95,171

 

Total, gross

 

 

28,037

 

 

 

53,060

 

 

 

81,097

 

 

 

24,880

 

 

 

105,977

 

 

 

24,308

 

 

 

47,422

 

 

 

71,730

 

 

 

23,531

 

 

 

95,261

 

Unamortized premium/(discount)

 

 

407

 

 

 

259

 

 

 

666

 

 

 

(924

)

 

 

(258

)

 

 

377

 

 

 

222

 

 

 

599

 

 

 

(759

)

 

 

(160

)

Receivable for partially charged-off loans

 

 

 

 

 

 

 

 

 

 

 

760

 

 

 

760

 

 

 

 

 

 

 

 

 

 

 

 

674

 

 

 

674

 

Allowance for loan losses

 

 

(35

)

 

 

(25

)

 

 

(60

)

 

 

(1,297

)

 

 

(1,357

)

 

 

(44

)

 

 

(32

)

 

 

(76

)

 

 

(1,201

)

 

 

(1,277

)

Total education loan portfolio

 

$

28,409

 

 

$

53,294

 

 

$

81,703

 

 

$

23,419

 

 

$

105,122

 

 

$

24,641

 

 

$

47,612

 

 

$

72,253

 

 

$

22,245

 

 

$

94,498

 

% of total FFELP

 

 

35

%

 

 

65

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

34

%

 

 

66

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

27

%

 

 

51

%

 

 

78

%

 

 

22

%

 

 

100

%

 

 

26

%

 

 

50

%

 

 

76

%

 

 

24

%

 

 

100

%

 

(1)

Loans for customers still attending school and are not yet required to make payments on the loan.

(2)

Includes loans in deferment or forbearance.


7669


Table of Contents

 

Average Education Loan Balances (net of unamortized premium/discount) — GAAP and Core Earnings Basis

 

 

Three Months Ended September 30, 2019

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total

 

$

22,772

 

 

$

44,434

 

 

$

67,206

 

 

$

22,205

 

 

$

89,411

 

% of FFELP

 

 

34

%

 

 

66

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

25

%

 

 

50

%

 

 

75

%

 

 

25

%

 

 

100

%

 

 

 

Three Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total

 

$

26,030

 

 

$

49,552

 

 

$

75,582

 

 

$

23,107

 

 

$

98,689

 

% of FFELP

 

 

34

%

 

 

66

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

27

%

 

 

50

%

 

 

77

%

 

 

23

%

 

 

100

%

 

 

Three Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2019

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total

 

$

29,950

 

 

$

55,069

 

 

$

85,019

 

 

$

24,348

 

 

$

109,367

 

 

$

23,517

 

 

$

45,640

 

 

$

69,157

 

 

$

22,474

 

 

$

91,631

 

% of FFELP

 

 

35

%

 

 

65

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

34

%

 

 

66

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

28

%

 

 

50

%

 

 

78

%

 

 

22

%

 

 

100

%

 

 

25

%

 

 

50

%

 

 

75

%

 

 

25

%

 

 

100

%

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total

 

$

27,080

 

 

$

51,085

 

 

$

78,165

 

 

$

23,392

 

 

$

101,557

 

% of FFELP

 

 

35

%

 

 

65

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

27

%

 

 

50

%

 

 

77

%

 

 

23

%

 

 

100

%

 

 

 

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total

 

$

27,080

 

 

$

51,085

 

 

$

78,165

 

 

$

23,392

 

 

$

101,557

 

% of FFELP

 

 

35

%

 

 

65

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

27

%

 

 

50

%

 

 

77

%

 

 

23

%

 

 

100

%

 

 

Nine Months Ended September 30, 2017

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Total

 

$

30,928

 

 

$

54,763

 

 

$

85,691

 

 

$

23,657

 

 

$

109,348

 

% of FFELP

 

 

36

%

 

 

64

%

 

 

100

%

 

 

 

 

 

 

 

 

% of total

 

 

28

%

 

 

50

%

 

 

78

%

 

 

22

%

 

 

100

%

 


7770


Table of Contents

 

Education Loan Activity — GAAP and Core Earnings Basis

 

 

Three Months Ended September 30, 2018

 

 

Three Months Ended September 30, 2019

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

26,294

 

 

$

50,315

 

 

$

76,609

 

 

$

22,568

 

 

$

99,177

 

 

$

22,902

 

 

$

45,054

 

 

$

67,956

 

 

$

21,564

 

 

$

89,520

 

Acquisitions

 

 

84

 

 

 

78

 

 

 

162

 

 

 

907

 

 

 

1,069

 

Acquisitions (originations and purchases)

 

 

15

 

 

 

23

 

 

 

38

 

 

 

1,439

 

 

 

1,477

 

Capitalized interest and premium/discount

amortization

 

 

237

 

 

 

210

 

 

 

447

 

 

 

108

 

 

 

555

 

 

 

192

 

 

 

203

 

 

 

395

 

 

 

85

 

 

 

480

 

Consolidations to third parties

 

 

(454

)

 

 

(511

)

 

 

(965

)

 

 

(192

)

 

 

(1,157

)

 

 

(336

)

 

 

(408

)

 

 

(744

)

 

 

(150

)

 

 

(894

)

Repayments and other

 

 

(766

)

 

 

(1,230

)

 

 

(1,996

)

 

 

(944

)

 

 

(2,940

)

 

 

(559

)

 

 

(999

)

 

 

(1,558

)

 

 

(1,092

)

 

 

(2,650

)

Ending balance

 

$

25,395

 

 

$

48,862

 

 

$

74,257

 

 

$

22,447

 

 

$

96,704

 

 

$

22,214

 

 

$

43,873

 

 

$

66,087

 

 

$

21,846

 

 

$

87,933

 

 

 

Three Months Ended September 30, 2017

 

 

Three Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

30,215

 

 

$

55,925

 

 

$

86,140

 

 

$

24,223

 

 

$

110,363

 

 

$

26,294

 

 

$

50,315

 

 

$

76,609

 

 

$

22,568

 

 

$

99,177

 

Acquisitions

 

 

240

 

 

 

267

 

 

 

507

 

 

 

125

 

 

 

632

 

Acquisitions (originations and purchases)

 

 

84

 

 

 

78

 

 

 

162

 

 

 

907

 

 

 

1,069

 

Capitalized interest and premium/discount

amortization

 

 

238

 

 

 

259

 

 

 

497

 

 

 

100

 

 

 

597

 

 

 

237

 

 

 

210

 

 

 

447

 

 

 

108

 

 

 

555

 

Consolidations to third parties

 

 

(620

)

 

 

(692

)

 

 

(1,312

)

 

 

(185

)

 

 

(1,497

)

 

 

(454

)

 

 

(511

)

 

 

(965

)

 

 

(192

)

 

 

(1,157

)

Repayments and other

 

 

(782

)

 

 

(1,134

)

 

 

(1,916

)

 

 

(839

)

 

 

(2,755

)

 

 

(766

)

 

 

(1,230

)

 

 

(1,996

)

 

 

(944

)

 

 

(2,940

)

Ending balance

 

$

29,291

 

 

$

54,625

 

 

$

83,916

 

 

$

23,424

 

 

$

107,340

 

 

$

25,395

 

 

$

48,862

 

 

$

74,257

 

 

$

22,447

 

 

$

96,704

 

 

 

 

Nine Months Ended September 30, 2019

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

24,641

 

 

$

47,612

 

 

$

72,253

 

 

$

22,245

 

 

$

94,498

 

Acquisitions

 

 

68

 

 

 

94

 

 

 

162

 

 

 

3,285

 

 

 

3,447

 

Capitalized interest and premium/discount

   amortization

 

 

572

 

 

 

595

 

 

 

1,167

 

 

 

263

 

 

 

1,430

 

Consolidations to third parties

 

 

(1,149

)

 

 

(1,274

)

 

 

(2,423

)

 

 

(450

)

 

 

(2,873

)

Repayments and other

 

 

(1,918

)

 

 

(3,154

)

 

 

(5,072

)

 

 

(3,497

)

 

 

(8,569

)

Ending balance

 

$

22,214

 

 

$

43,873

 

 

$

66,087

 

 

$

21,846

 

 

$

87,933

 

 

 

 

Nine Months Ended September 30, 2018

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

28,409

 

 

$

53,294

 

 

$

81,703

 

 

$

23,419

 

 

$

105,122

 

Acquisitions

 

 

266

 

 

 

233

 

 

 

499

 

 

 

2,126

 

 

 

2,625

 

Capitalized interest and premium/discount

   amortization

 

 

664

 

 

 

644

 

 

 

1,308

 

 

 

300

 

 

 

1,608

 

Consolidations to third parties

 

 

(1,543

)

 

 

(1,619

)

 

 

(3,162

)

 

 

(633

)

 

 

(3,795

)

Repayments and other

 

 

(2,401

)

 

 

(3,690

)

 

 

(6,091

)

 

 

(2,765

)

 

 

(8,856

)

Ending balance

 

$

25,395

 

 

$

48,862

 

 

$

74,257

 

 

$

22,447

 

 

$

96,704

 

 

 

Nine Months Ended September 30, 2017

 

(Dollars in millions)

 

FFELP

Stafford and

Other

 

 

FFELP

Consolidation

Loans

 

 

Total

FFELP

Loans

 

 

Total Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

32,319

 

 

$

55,411

 

 

$

87,730

 

 

$

23,340

 

 

$

111,070

 

Acquisitions

 

 

965

 

 

 

4,139

 

 

 

5,104

 

 

 

2,791

 

 

 

7,895

 

Capitalized interest and premium/discount

   amortization

 

 

709

 

 

 

760

 

 

 

1,469

 

 

 

277

 

 

 

1,746

 

Consolidations to third parties

 

 

(2,112

)

 

 

(2,176

)

 

 

(4,288

)

 

 

(509

)

 

 

(4,797

)

Repayments and other

 

 

(2,590

)

 

 

(3,509

)

 

 

(6,099

)

 

 

(2,475

)

 

 

(8,574

)

Ending balance

 

$

29,291

 

 

$

54,625

 

 

$

83,916

 

 

$

23,424

 

 

$

107,340

 

7871


Table of Contents

 

Education Loan Allowance for Loan Losses Activity — GAAP and Core Earnings Basis

 

 

Three Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

(Dollars in millions)

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

82

 

 

$

1,297

 

 

$

1,379

 

 

$

61

 

 

$

1,286

 

 

$

1,347

 

 

$

67

 

 

$

1,151

 

 

$

1,218

 

 

$

82

 

 

$

1,297

 

 

$

1,379

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs(1)

 

 

(13

)

 

 

(148

)

 

 

(161

)

 

 

(10

)

 

 

(96

)

 

 

(106

)

 

 

(9

)

 

 

(108

)

 

 

(117

)

 

 

(13

)

 

 

(148

)

 

 

(161

)

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

10

 

 

 

75

 

 

 

85

 

 

 

10

 

 

 

95

 

 

 

105

 

 

 

8

 

 

 

56

 

 

 

64

 

 

 

10

 

 

 

75

 

 

 

85

 

Reclassification of interest reserve(2)

 

 

 

 

2

 

 

 

2

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

 

 

2

 

Ending balance

 

$

79

 

 

$

1,226

 

 

$

1,305

 

 

$

61

 

 

$

1,287

 

 

$

1,348

 

 

$

65

 

 

$

1,101

 

 

$

1,166

 

 

$

79

 

 

$

1,226

 

 

$

1,305

 

Percent of total

 

 

6

%

 

 

94

%

 

 

100

%

 

 

5

%

 

 

95

%

 

 

100

%

 

 

6

%

 

 

94

%

 

 

100

%

 

 

6

%

 

 

94

%

 

 

100

%

Troubled debt restructuring(3)

 

$

 

 

$

10,482

 

 

$

10,482

 

 

$

 

 

$

10,539

 

 

$

10,539

 

 

$

 

 

$

9,789

 

 

$

9,789

 

 

$

 

 

$

10,482

 

 

$

10,482

 

 

 

Nine Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

(Dollars in millions)

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

 

FFELP

Loans

 

 

Private

Education

Loans

 

 

Total

Portfolio

 

Beginning balance

 

$

60

 

 

$

1,297

 

 

$

1,357

 

 

$

67

 

 

$

1,351

 

 

$

1,418

 

 

$

76

 

 

$

1,201

 

 

$

1,277

 

 

$

60

 

 

$

1,297

 

 

$

1,357

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs(1)

 

 

(41

)

 

 

(301

)

 

 

(342

)

 

 

(36

)

 

 

(355

)

 

 

(391

)

 

 

(33

)

 

 

(288

)

 

 

(321

)

 

 

(41

)

 

 

(301

)

 

 

(342

)

Loan sales

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

60

 

 

 

224

 

 

 

284

 

 

 

30

 

 

 

285

 

 

 

315

 

 

 

23

 

 

 

185

 

 

 

208

 

 

 

60

 

 

 

224

 

 

 

284

 

Reclassification of interest reserve(2)

 

 

 

 

6

 

 

 

6

 

 

 

 

 

6

 

 

 

6

 

 

 

 

 

 

5

 

 

 

5

 

 

 

 

 

 

6

 

 

 

6

 

Ending balance

 

$

79

 

 

$

1,226

 

 

$

1,305

 

 

$

61

 

 

$

1,287

 

 

$

1,348

 

 

$

65

 

 

$

1,101

 

 

$

1,166

 

 

$

79

 

 

$

1,226

 

 

$

1,305

 

Percent of total

 

 

6

%

 

 

94

%

 

 

100

%

 

 

5

%

 

 

95

%

 

 

100

%

 

 

6

%

 

 

94

%

 

 

100

%

 

 

6

%

 

 

94

%

 

 

100

%

Troubled debt restructuring(3)

 

$ —

 

 

$

10,482

 

 

$

10,482

 

 

$

 

 

$

10,539

 

 

$

10,539

 

 

$

 

 

$

9,789

 

 

$

9,789

 

 

$

 

 

$

10,482

 

 

$

10,482

 

 

(1)

Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

(2)

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

(3)

Represents the recorded investment of loans classified as troubled debt restructuring.

 

 

7972


Table of Contents

 

FFELP Loan Portfolio Performance

FFELP Loan Delinquencies and Forbearance — GAAP and Core Earnings Basis

 

 

FFELP Loan Delinquencies

 

 

FFELP Loan Delinquencies

 

 

September 30,

 

 

September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

4,160

 

 

 

 

 

 

$

5,199

 

 

 

 

 

 

$

3,383

 

 

 

 

 

 

$

4,160

 

 

 

 

 

Loans in forbearance(2)

 

 

8,600

 

 

 

 

 

 

 

11,866

 

 

 

 

 

 

 

7,810

 

 

 

 

 

 

 

8,600

 

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

54,005

 

 

 

88.6

%

 

 

58,172

 

 

 

87.8

%

 

 

48,785

 

 

 

89.7

%

 

 

54,005

 

 

 

88.6

%

Loans delinquent 31-60 days(3)

 

 

1,978

 

 

 

3.2

 

 

 

2,565

 

 

 

3.9

 

 

 

1,656

 

 

 

3.0

 

 

 

1,978

 

 

 

3.2

 

Loans delinquent 61-90 days(3)

 

 

947

 

 

 

1.6

 

 

 

1,566

 

 

 

2.4

 

 

 

827

 

 

 

1.5

 

 

 

947

 

 

 

1.6

 

Loans delinquent greater than 90 days(3)

 

 

4,029

 

 

 

6.6

 

 

 

3,917

 

 

 

5.9

 

 

 

3,127

 

 

 

5.8

 

 

 

4,029

 

 

 

6.6

 

Total FFELP Loans in repayment

 

 

60,959

 

 

 

100

%

 

 

66,220

 

 

 

100

%

 

 

54,395

 

 

 

100

%

 

 

60,959

 

 

 

100

%

Total FFELP Loans, gross

 

 

73,719

 

 

 

 

 

 

 

83,285

 

 

 

 

 

 

 

65,588

 

 

 

 

 

 

 

73,719

 

 

 

 

 

FFELP Loan unamortized premium

 

 

617

 

 

 

 

 

 

 

692

 

 

 

 

 

 

 

564

 

 

 

 

 

 

 

617

 

 

 

 

 

Total FFELP Loans

 

 

74,336

 

 

 

 

 

 

 

83,977

 

 

 

 

 

 

 

66,152

 

 

 

 

 

 

 

74,336

 

 

 

 

 

FFELP Loan allowance for losses

 

 

(79

)

 

 

 

 

 

 

(61

)

 

 

 

 

 

 

(65

)

 

 

 

 

 

 

(79

)

 

 

 

 

FFELP Loans, net

 

$

74,257

 

 

 

 

 

 

$

83,916

 

 

 

 

 

 

$

66,087

 

 

 

 

 

 

$

74,257

 

 

 

 

 

Percentage of FFELP Loans in repayment

 

 

 

 

 

 

82.7

%

 

 

 

 

 

 

79.5

%

 

 

 

 

 

 

82.9

%

 

 

 

 

 

 

82.7

%

Delinquencies as a percentage of FFELP Loans in repayment

 

 

 

 

 

 

11.4

%

 

 

 

 

 

 

12.2

%

 

 

 

 

 

 

10.3

%

 

 

 

 

 

 

11.4

%

FFELP Loans in forbearance as a percentage of loans in

repayment and forbearance

 

 

 

 

 

 

12.4

%

 

 

 

 

 

 

15.2

%

 

 

 

 

 

 

12.6

%

 

 

 

 

 

 

12.4

%

 

(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 payments due to hardship or other factors such as disaster relief.

(3)

The period of delinquency is based on the number of days scheduled payments are contractually past due.

Allowance for FFELP Loan Losses — GAAP and Core Earnings Basis

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Allowance at beginning of period

 

$

82

 

 

$

61

 

 

$

60

 

 

$

67

 

 

$

67

 

 

$

82

 

 

$

76

 

 

$

60

 

Provision for FFELP Loan losses

 

 

10

 

 

 

10

 

 

 

60

 

 

 

30

 

 

 

8

 

 

 

10

 

 

 

23

 

 

 

60

 

Charge-offs

 

 

(13

)

 

 

(10

)

 

 

(41

)

 

 

(36

)

 

 

(9

)

 

 

(13

)

 

 

(33

)

 

 

(41

)

Allowance at end of period

 

$

79

 

 

$

61

 

 

$

79

 

 

$

61

 

 

$

65

 

 

$

79

 

 

$

65

 

 

$

79

 

Charge-offs as a percentage of average loans in repayment

(annualized)

 

 

.09

%

 

 

.05

%

 

 

.09

%

 

 

.07

%

Allowance coverage of charge-offs (annualized)

 

 

1.5

 

 

 

1.7

 

 

 

1.4

 

 

 

1.3

 

Charge-offs as a percentage of average loans in repayment

 

 

.06

%

 

 

.09

%

 

 

.08

%

 

 

.09

%

Allowance coverage of charge-offs

 

 

1.9

 

 

 

1.5

 

 

 

1.5

 

 

 

1.4

 

Allowance as a percentage of ending total loans, gross

 

 

.11

%

 

 

.07

%

 

 

.11

%

 

 

.07

%

 

 

.10

%

 

 

.11

%

 

 

.10

%

 

 

.11

%

Allowance as a percentage of ending loans in repayment

 

 

.13

%

 

 

.09

%

 

 

.13

%

 

 

.09

%

 

 

.12

%

 

 

.13

%

 

 

.12

%

 

 

.13

%

Ending total loans, gross

 

$

73,719

 

 

$

83,285

 

 

$

73,719

 

 

$

83,285

 

 

$

65,588

 

 

$

73,719

 

 

$

65,588

 

 

$

73,719

 

Average loans in repayment

 

$

61,956

 

 

$

68,168

 

 

$

63,934

 

 

$

68,791

 

 

$

54,973

 

 

$

61,956

 

 

$

56,605

 

 

$

63,934

 

Ending loans in repayment

 

$

60,959

 

 

$

66,220

 

 

$

60,959

 

 

$

66,220

 

 

$

54,395

 

 

$

60,959

 

 

$

54,395

 

 

$

60,959

 

 

8073


Table of Contents

 

Private Education Loan Portfolio Performance

Private Education Loan Delinquencies and Forbearance — GAAP and Core Earnings Basis

 

 

Private Education Loan Delinquencies

 

 

Private Education Loan Delinquencies

 

 

September 30,

 

 

September 30,

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

 

Balance

 

 

%

 

Loans in-school/grace/deferment(1)

 

$

892

 

 

 

 

 

 

$

1,174

 

 

 

 

 

 

$

675

 

 

 

 

 

 

$

892

 

 

 

 

 

Loans in forbearance(2)

 

 

892

 

 

 

 

 

 

 

1,272

 

 

 

 

 

 

 

660

 

 

 

 

 

 

 

892

 

 

 

 

 

Loans in repayment and percentage of each status:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans current

 

 

20,605

 

 

 

93.7

%

 

 

21,154

 

 

 

94.3

%

 

 

20,626

 

 

 

95.2

%

 

 

20,605

 

 

 

93.7

%

Loans delinquent 31-60 days(3)

 

 

467

 

 

 

2.1

 

 

 

430

 

 

 

1.9

 

 

 

339

 

 

 

1.6

 

 

 

467

 

 

 

2.1

 

Loans delinquent 61-90 days(3)

 

 

289

 

 

 

1.3

 

 

 

277

 

 

 

1.2

 

 

 

202

 

 

 

.9

 

 

 

289

 

 

 

1.3

 

Loans delinquent greater than 90 days(3)

 

 

636

 

 

 

2.9

 

 

 

587

 

 

 

2.6

 

 

 

488

 

 

 

2.3

 

 

 

636

 

 

 

2.9

 

Total Private Education Loans in repayment

 

 

21,997

 

 

 

100

%

 

 

22,448

 

 

 

100

%

 

 

21,655

 

 

 

100

%

 

 

21,997

 

 

 

100

%

Total Private Education Loans, gross

 

 

23,781

 

 

 

 

 

 

 

24,894

 

 

 

 

 

 

 

22,990

 

 

 

 

 

 

 

23,781

 

 

 

 

 

Private Education Loan unamortized discount

 

 

(796

)

 

 

 

 

 

 

(954

)

 

 

 

 

 

 

(646

)

 

 

 

 

 

 

(796

)

 

 

 

 

Total Private Education Loans

 

 

22,985

 

 

 

 

 

 

 

23,940

 

 

 

 

 

 

 

22,344

 

 

 

 

 

 

 

22,985

 

 

 

 

 

Private Education Loan receivable for partially charged-off

loans

 

 

688

 

 

 

 

 

 

 

771

 

 

 

 

 

 

 

603

 

 

 

 

 

 

 

688

 

 

 

 

 

Private Education Loan allowance for losses

 

 

(1,226

)

 

 

 

 

 

 

(1,287

)

 

 

 

 

 

 

(1,101

)

 

 

 

 

 

 

(1,226

)

 

 

 

 

Private Education Loans, net

 

$

22,447

 

 

 

 

 

 

$

23,424

 

 

 

 

 

 

$

21,846

 

 

 

 

 

 

$

22,447

 

 

 

 

 

Percentage of Private Education Loans in repayment

 

 

 

 

 

 

92.5

%

 

 

 

 

 

 

90.2

%

 

 

 

 

 

 

94.2

%

 

 

 

 

 

 

92.5

%

Delinquencies as a percentage of Private Education Loans in

repayment

 

 

 

 

 

 

6.3

%

 

 

 

 

 

 

5.7

%

 

 

 

 

 

 

4.8

%

 

 

 

 

 

 

6.3

%

Loans in forbearance as a percentage of loans in repayment

and forbearance

 

 

 

 

 

 

3.9

%

 

 

 

 

 

 

5.4

%

 

 

 

 

 

 

3.0

%

 

 

 

 

 

 

3.9

%

Loans in repayment with more than 12 payments made

 

 

 

 

 

 

87

%

 

 

 

 

 

 

95

%

Percentage of Private Education Loans with a cosigner

 

 

 

 

 

 

58

%

 

 

 

 

 

 

65

%

Percentage of Private Education Loans with a

cosigner(4)

 

 

 

 

 

 

50

%

 

 

 

 

 

 

58

%

 

(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 such as disaster relief, 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.

(4)

Excluding Private Education Refinance Loans, which do not have a cosigner, the cosigner rate was 65% for both the three months ended September 30, 2019 and 2018.

Allowance for Private Education Loan Losses — GAAP and Core Earnings Basis

See “Business Segment Earnings Summary — Core Earnings Basis — Consumer Lending Segment — Private Education Loan Provision for Loan Losses” for discussion.

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 thethis remaining loan balance as the “receivable for partially charged-off loans.” Actual recoveries are applied against this receivable balance. If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses.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.


8174


Table of Contents

 

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Receivable at beginning of period

 

$

724

 

 

$

784

 

 

$

760

 

 

$

815

 

 

$

640

 

 

$

724

 

 

$

674

 

 

$

760

 

Expected future recoveries of current period defaults(1)

 

 

29

 

 

 

24

 

 

 

68

 

 

 

88

 

 

 

18

 

 

 

29

 

 

 

56

 

 

 

68

 

Recoveries(2)

 

 

(33

)

 

 

(37

)

 

 

(107

)

 

 

(121

)

 

 

(31

)

 

 

(33

)

 

 

(98

)

 

 

(107

)

Charge-offs(3)

 

 

(32

)

 

 

 

 

 

(33

)

 

 

(11

)

 

 

(24

)

 

 

(32

)

 

 

(29

)

 

 

(33

)

Receivable at end of period

 

$

688

 

 

$

771

 

 

$

688

 

 

$

771

 

 

$

603

 

 

$

688

 

 

$

603

 

 

$

688

 

 

(1)

Represents our estimate of the amount to be collected in the future.

(2)

Current period cash collections.

(3)

Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. In addition, in third-quarter 2018 the portion of the loan amount charged off at default increased from 79 percent79% to 80.5 percent. This change80.5% and in third-quarter 2019 it increased from 80.5% to 81%. These changes resulted in a $21 million and $32 million reduction to the balance of the receivable for partially charged-off loans.loans in third-quarter 2019 and third-quarter 2018, respectively. These amounts are included in total charge-offs as reported in the “Allowance for Private Education Loan Losses” table.

Use of Forbearance as a Private Education Loan Collection Tool

Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan. In some instances, we require good-faith payments before granting forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of recovery of the loan. Forbearance as a recovery tool is used most effectively when applied based on a customer’s unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans.

Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain employment and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of their granted forbearance period, the customer will enter repayment status as current and is expected to begin making their scheduled monthly payments on a go-forward basis.

Forbearance may also be granted to customers who are delinquent in their payments. In these circumstances, the forbearance cures the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.

The tables below show the composition and status of the Private Education Loan portfolio aged by the number of months for which a scheduled monthly payment was received. As indicated in the tables, the percentage of loans that are in forbearance status, are delinquent greater than 90 days or that are charged off decreases the longer the loans have been making scheduled monthly payments.

At September 30, 2018, loans in forbearance status as a percentage of loans in repayment and forbearance were 5.2 percent for loans that have made less than 25 monthly payments. The percentage drops to 3.0 percent for loans that have made more than 48 monthly payments.

At September 30, 2018, loans in repayment that are delinquent greater than 90 days as a percentage of loans in repayment were 3.1 percent for loans that have made less than 25 monthly payments. The percentage drops to 2.2 percent for loans that have made more than 48 monthly payments.

In the third-quarter 2018, the portion of the loan amount charged off at default increased from 79 percent to 80.5 percent. This change resulted in a $32 million reduction to the balance of the receivable for partially charged-off loans. Excluding this amount, for the three months ended September 30, 2018, charge-offs as a percentage of loans in repayment were 3.5 percent for loans that have made less than 25 monthly payments. The percentage drops to 1.4 percent for loans that have made more than 48 monthly payments.

82


Table of Contents

GAAP and Core Earnings Basis:

(Dollars in millions)

 

Monthly Scheduled Payments Received

 

 

 

 

 

 

 

 

 

September 30, 2018

 

0 to 12

 

 

13 to 24

 

 

25 to 36

 

 

37 to 48

 

 

More than 48

 

 

Not Yet in Repayment

 

 

Total

 

Loans in-school/grace/deferment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

892

 

 

$

892

 

Loans in forbearance

 

 

142

 

 

 

76

 

 

 

85

 

 

 

97

 

 

 

492

 

 

 

 

 

 

892

 

Loans in repayment — current

 

 

2,662

 

 

 

1,057

 

 

 

819

 

 

 

1,203

 

 

 

14,864

 

 

 

 

 

 

20,605

 

Loans in repayment — delinquent 31-60 days

 

 

30

 

 

 

31

 

 

 

45

 

 

 

53

 

 

 

308

 

 

 

 

 

 

467

 

Loans in repayment — delinquent 61-90 days

 

 

23

 

 

 

24

 

 

 

30

 

 

 

35

 

 

 

177

 

 

 

 

 

 

289

 

Loans in repayment — delinquent greater than

   90 days

 

 

61

 

 

 

61

 

 

 

78

 

 

 

88

 

 

 

348

 

 

 

 

 

 

636

 

Total

 

$

2,918

 

 

$

1,249

 

 

$

1,057

 

 

$

1,476

 

 

$

16,189

 

 

$

892

 

 

 

23,781

 

Unamortized discount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(796

)

Receivable for partially charged-off loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

688

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,226

)

Total Private Education Loans, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

22,447

 

Loans in forbearance as a percentage of loans in

  repayment and forbearance

 

 

4.9

%

 

 

6.1

%

 

 

8.0

%

 

 

6.6

%

 

 

3.0

%

 

 

%

 

 

3.9

%

Loans in repayment — delinquent greater than 90

   days as a percentage of loans in repayment

 

 

2.2

%

 

 

5.2

%

 

 

8.0

%

 

 

6.4

%

 

 

2.2

%

 

 

%

 

 

2.9

%

Net charge-offs as a percentage of loans in

   repayment, excluding the net adjustment

   from the change in the charge-off rate(1)

 

 

3.0

%

 

 

4.6

%

 

 

5.5

%

 

 

4.0

%

 

 

1.4

%

 

 

%

 

 

2.1

%

(1)

In third-quarter 2018, the portion of the loan amount charged off at default increased from 79 percent to 80.5 percent. This change resulted in a $32 million reduction to the balance of the receivable for partially charged-off loans.

(Dollars in millions)

 

Monthly Scheduled Payments Received

 

 

 

 

 

 

 

 

 

September 30, 2017

 

0 to 12

 

 

13 to 24

 

 

25 to 36

 

 

37 to 48

 

 

More than 48

 

 

Not Yet in Repayment

 

 

Total

 

Loans in-school/grace/deferment

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,174

 

 

$

1,174

 

Loans in forbearance

 

 

265

 

 

 

129

 

 

 

141

 

 

 

153

 

 

 

584

 

 

 

 

 

1,272

 

Loans in repayment — current

 

 

925

 

 

 

815

 

 

 

1,241

 

 

 

2,041

 

 

 

16,132

 

 

 

 

 

21,154

 

Loans in repayment — delinquent 31-60 days

 

 

36

 

 

 

34

 

 

 

44

 

 

 

60

 

 

 

256

 

 

 

 

 

430

 

Loans in repayment — delinquent 61-90 days

 

 

32

 

 

 

28

 

 

 

32

 

 

 

42

 

 

 

143

 

 

 

 

 

277

 

Loans in repayment — delinquent greater than

   90 days

 

 

85

 

 

 

66

 

 

 

83

 

 

 

92

 

 

 

261

 

 

 

 

 

587

 

Total

 

$

1,343

 

 

$

1,072

 

 

$

1,541

 

 

$

2,388

 

 

$

17,376

 

 

$

1,174

 

 

 

24,894

 

Unamortized discount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(954

)

Receivable for partially charged-off loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

771

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,287

)

Total Private Education Loans, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

23,424

 

Loans in forbearance as a percentage of loans in

  repayment and forbearance

 

 

19.7

%

 

 

12.0

%

 

 

9.1

%

 

 

6.4

%

 

 

3.4

%

 

 

%

 

 

5.4

%

Loans in repayment — delinquent greater than 90

   days as a percentage of loans in repayment

 

 

7.9

%

 

 

7.0

%

 

 

5.9

%

 

 

4.1

%

 

 

1.6

%

 

 

%

 

 

2.6

%

Charge-offs as a percentage of loans in

   repayment

 

 

6.9

%

 

 

5.0

%

 

 

3.7

%

 

 

2.3

%

 

 

0.8

%

 

 

%

 

 

1.6

%


83


Table of Contents

Liquidity and Capital Resources

Funding and Liquidity Risk Management

The following “Liquidity and Capital Resources” discussion concentrates on our Federal Education Loans and Consumer Lending segments. Our Business Processing and Other segments require minimal capital and funding.

We define liquidity as cash and high-quality liquid assets that we can use to meet our cash requirements. Our two primary liquidity needs are: (1) servicing our debt and (2) our ongoing ability to meet our cash needs for running the operations of our businesses (including derivative collateral requirements) throughout market cycles, including during periods of financial stress. Secondary liquidity needs, which can be adjusted as needed, include the origination of Private Education Refinance Loans, acquisitions of Private Education Loan and FFELP Loan portfolios, acquisitions of companies, the payment of common stock dividends and the repurchase of common stock under common share repurchase programs. To achieve these objectives, we analyze and monitor our liquidity needs, maintain excess liquidity and access diverse funding sources including the issuance of unsecured debt and the issuance of secured debt primarily through asset-backed securitizations and/or other financing facilities.

We define our liquidity risk as the potential inability to meet our obligations when they become due without incurring unacceptable losses or to invest in future asset growth and business operations at reasonable market rates. Our primary liquidity risk relates to our ability to service our debt, meet our other business obligations and to continue to grow our business. The ability to access the capital markets is impacted by general market and economic conditions, our credit ratings, as well as the overall availability of funding sources in the marketplace. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including over-the-counter derivatives.

Credit ratings and outlooks are opinions subject to ongoing review by the ratings agencies and may change, from time to time, based on our financial performance, industry and market dynamics and other factors. Other factors that influence our credit ratings include the ratings agencies’ assessment of the general operating environment, our relative positions in the markets in which we compete, reputation, liquidity position, the level and volatility of earnings, corporate governance and risk management policies, capital position and capital management practices. A negative change in our credit rating could have a negative effect on our liquidity because it might raise the cost and availability of funding and potentially require additional cash collateral or restrict cash currently held as collateral on existing borrowings or derivative collateral arrangements. It is our objective to improve our credit ratings so that we can continue to efficiently access the capital markets even in difficult economic and market conditions. We have unsecured debt that totaled $12.9$10.5 billion at September 30, 2018.2019. Three credit rating agencies currently rate our long-term unsecured debt at below investment grade.

We expect to fund our ongoing liquidity needs, including the repayment of $2.2$1.5 billion of senior unsecured notes that mature in the next twelve months, primarily through our current cash, investments and unencumbered FFELP Loan portfolio, the predictable operating cash flows provided by operating activities ($655831 million in the nine months ended September 30, 2018)2019), the repayment of principal on unencumbered education loan assets, and the distribution of overcollateralization from our securitization trusts. We may also, depending on market conditions and availability, draw down on our secured FFELP Loan and Private Education Loan facilities, issue term ABS, enter into additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.

We originate Private Education Refinance Loans. We also have purchased and may purchase, in future periods, Private Education Loan and FFELP Loan portfolios from third parties. Those originations and purchases are a part of our ongoing liquidity needs. We repurchased 6.99.7 million common shares for $95$130 million in the third quarter of 2018. In September 2018, our board2019 and have $77 million of directors authorized a new $500 millionremaining share repurchase program.authority as of September 30, 2019.


8475


Table of Contents

 

Sources of Liquidity and Available Capacity

Ending Balances

 

(Dollars in millions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Sources of primary liquidity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total unrestricted cash and liquid investments

 

$

2,145

 

 

$

1,520

 

 

$

1,583

 

 

$

1,286

 

Unencumbered FFELP Loans

 

 

325

 

 

 

690

 

 

 

206

 

 

 

332

 

Total GAAP and Core Earnings basis

 

$

2,470

 

 

$

2,210

 

 

$

1,789

 

 

$

1,618

 

Average Balances

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in millions)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Sources of primary liquidity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total unrestricted cash and liquid investments

 

$

1,533

 

 

$

1,158

 

 

$

1,584

 

 

$

1,194

 

 

$

1,409

 

 

$

1,533

 

 

$

1,192

 

 

$

1,584

 

Unencumbered FFELP Loans

 

 

658

 

 

 

1,134

 

 

 

725

 

 

 

988

 

 

 

300

 

 

 

658

 

 

 

475

 

 

 

725

 

Total GAAP and Core Earnings basis

 

$

2,191

 

 

$

2,292

 

 

$

2,309

 

 

$

2,182

 

 

$

1,709

 

 

$

2,191

 

 

$

1,667

 

 

$

2,309

 

 

Liquidity may also be available under secured credit facilities to the extent we have eligible collateral and capacity available. Maximum borrowing capacity under the FFELP Loan-other facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered FFELP Loans. As of September 30, 20182019 and 2017,2018, the maximum additional capacity under these facilities was $2.6$1.4 billion and $3.0$2.6 billion, respectively. For the three months ended September 30, 20182019 and 2017,2018, the average maximum additional capacity under these facilities was $1.9$1.2 billion and $2.6$1.9 billion, respectively. For the nine months ended September 30, 20182019 and 2017,2018, the average maximum additional capacity under these facilities was $1.9$1.2 billion and $2.7$1.9 billion, respectively. As of September 30, 2018,2019, the maturity dates of the FFELP Loan-other facilities ranged from November 2019 to December 2020.April 2021.

Liquidity may also be available from our Private Education Loan asset-backed commercial paper (“ABCP”) facilities. Maximum borrowing capacity under the Private Education Loan-other facilities will vary and be subject to each agreement’s borrowing conditions, including, among others, facility size, current usage and availability of qualifying collateral from unencumbered Private Education Loans. As of September 30, 20182019 and 2017,2018, the maximum additional capacity under these facilities was $108$306 million and $282$108 million, respectively. For the three months ended September 30, 20182019 and 2017,2018, the average maximum additional capacity under these facilities was $608 million$1.2 billion and $255$608 million, respectively. For the nine months ended September 30, 20182019 and 2017,2018, the average maximum additional capacity under these facilities was $738 million$1.2 billion and $235$738 million, respectively. As of September 30, 2018,2019, the maturity dates of thesethe Private Education Loan facilities ranged from JuneOctober 2019 to June 2020.December 2021.

At September 30, 2018,2019, we had a total of $6.6$5.8 billion of unencumbered tangible assets inclusive of those listed in the table above as sources of primary liquidity. Total unencumbered education loans comprised $2.9$2.7 billion of our unencumbered tangible assets of which $2.5 billion and $325$206 million related to Private Education Loans and FFELP Loans, respectively. In addition, as of September 30, 2018,2019, we had $9.7$8.3 billion of encumbered net assets (i.e., overcollateralization) in our various financing facilities (consolidated variable interest entities). Since the fourth quarter of 2015, we have closed on $4.9$4.1 billion of Private Education Loan ABS Repurchase Facilities. These repurchase facilities are collateralized by Residual Interests in previously issued Private Education Loan ABS trusts. These are examples of how we can effectively finance previously encumbered assets to generate additional liquidity in addition to the unencumbered assets we traditionally have encumbered in the past. Additionally, these repurchase facilities had a cost of funds lower than that of a new unsecured debt issuance.

For further discussion of our various sources of liquidity, our access to the ABS market, our asset-backed financing facilities, and our issuance of unsecured debt, see “Note 6—6 — Borrowings” in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.

8576


Table of Contents

 

The following table reconciles encumbered and unencumbered assets and their net impact on GAAP total tangible equity.

 

(Dollars in billions)

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

Net assets of consolidated variable interest entities

(encumbered assets) — FFELP Loans

 

$

4.6

 

 

 

4.7

 

 

$

4.5

 

 

 

4.6

 

Net assets of consolidated variable interest entities

(encumbered assets) — Private Education Loans

 

 

5.1

 

 

 

5.9

 

 

 

3.8

 

 

 

4.8

 

Tangible unencumbered assets(1)

 

 

6.6

 

 

 

6.6

 

 

 

5.8

 

 

 

5.7

 

Senior unsecured debt

 

 

(12.9

)

 

 

(13.9

)

 

 

(10.5

)

 

 

(11.5

)

Mark-to-market on unsecured hedged debt(2)

 

 

.1

 

 

 

(.3

)

 

 

(.5

)

 

 

(.1

)

Other liabilities, net

 

 

(.5

)

 

 

(.3

)

 

 

(.6

)

 

 

(.7

)

Total tangible equity — GAAP Basis(1)

 

$

3.0

 

 

$

2.7

 

 

$

2.5

 

 

$

2.8

 

 

 

(1)

At September 30, 20182019 and December 31, 2017,2018, excludes goodwill and acquired intangible assets, net, of $792$763 million and $810$786 million, respectively.

 

(2)

At September 30, 20182019 and December 31, 2017,2018, there were $(133)$425 million and $189$51 million, respectively, of net gains (losses) on derivatives hedging this debt in unencumbered assets, which partially offset these gains (losses).

Third-Quarter 2018Third-quarter 2019 Financing Transactions

During the third-quarter 2018,2019, Navient issued $992$749 million in FFELP Loan ABS and $632$535 million in Private Education Loan ABS.

Shareholder Distributions

InDuring the nine months ended September 30, 2018,third-quarter 2019, we paid three quarterly$36 million in common stock dividends of $0.16($0.16 per share.share).

We repurchased 6.99.7 million common shares for $95$130 million in the third quarter of 2018.2019. There is $77 million of remaining share repurchase authority outstanding at September 30, 2019. In September 2018, ourOctober 2019, the board of directors authorized a new $500 millionapproved an additional $1 billion multi-year share repurchase program. Since the Spin-Off in April 2014, we have repurchased 174214 million shares for $2.6$3.1 billion.

Counterparty Exposure

Counterparty exposure related to financial instruments arises from the risk that a lending, investment or derivative counterparty will not be able to meet its obligations to us. Risks associated with our lending portfolio are discussed in the section titled “Financial Condition — FFELP Loan Portfolio Performance” and “— Private Education Loan Portfolio Performance.”

Our investment portfolio is comprised of very short-term securities issued by a diversified group of highly rated issuers, limiting our counterparty exposure. Additionally, our investing activity is governed by board of director approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.

Related to derivative transactions, protection against counterparty risk is generally provided by Master Agreements, Schedules, and Credit Support Annexes (“CSAs”) developed by the International Swaps and Derivatives Association, Inc. (“ISDA documentation”). In particular, Navient’s CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All corporate derivative contracts entered into by Navient that are not cleared through a derivatives clearing organization are covered under such agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Corporate derivative contracts entered into by Navient that are cleared through a derivatives clearing organization are settled daily by participants on a multilateral, net basis, which mitigates counterparty credit exposure. Our securitization trusts with swaps have ISDA documentation with protections against counterparty risk. The collateral calculations contemplated in the ISDA documentation of our securitization trusts require collateral based on the fair value of the derivative which may be adjusted for additional collateral based on rating agency criteria requirements considered within the collateral agreement. The trusts are not required to post collateral to the counterparties. In all cases, our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding. We consider counterparties’ credit risk when determining the fair value of derivative positions on our exposure net of collateral.

8677


Table of Contents

 

We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rate and foreign exchange rates, may require us to return cash collateral held or may require us to post collateral to counterparties. See “Note 7 — Derivative Financial Instruments” in our 20172018 Form 10-K for more information on the amount of cash that has been received and delivered to derivative counterparties. Effective June 30, 2018, our counterparty exposure reflects rule changes adopted by clearing organizations that require entities to treat daily variation margin payments as legal settlements of the outstanding exposure of the derivative, rather than recording these positions on a gross basis with a related collateral receivable or payable.

The table below highlights exposure related to our derivative counterparties at September 30, 2018.2019.

 

(Dollars in millions)

 

Corporate

Contracts

 

 

Securitization Trust

Contracts

 

 

Corporate

Contracts

 

 

Securitization Trust

Contracts

 

Exposure, net of collateral

 

$

17

 

 

$

19

 

 

$

12

 

 

$

 

Percent of exposure to counterparties with credit ratings

below S&P AA- or Moody’s Aa3

 

 

100

%

 

 

6

%

 

 

100

%

 

 

%

Percent of exposure to counterparties with credit ratings

below S&P A- or Moody’s A3

 

 

82

%

 

 

%

 

 

94

%

 

 

%

 

Core Earnings Basis Borrowings

The following tables present the ending balances, of our Core Earnings basis borrowings as of September 30, 2018 and December 31, 2017, and average balances and average interest rates of our Core Earnings basis borrowings for the three and nine months ended September 30, 2018 and 2017.borrowings. The average interest rates include derivatives that are economically hedging the underlying debt but do not qualify for hedge accounting treatment. (See “Non-GAAP Financial Measures — Core Earnings —Reclassification— Derivative Accounting — Reclassification of Settlements on Derivative and Hedging Activities” of this Item 2.)

Ending Balances

 

 

September 30, 2018

 

 

December 31, 2017

 

 

September 30, 2019

 

 

December 31, 2018

 

(Dollars in millions)

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

 

Short

Term

 

 

Long

Term

 

 

Total

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt(1)

 

$

2,162

 

 

$

10,765

 

 

$

12,927

 

 

$

1,306

 

 

$

12,624

 

 

$

13,930

 

 

$

1,501

 

 

$

9,006

 

 

$

10,507

 

 

$

817

 

 

$

10,674

 

 

$

11,491

 

Total unsecured borrowings

 

 

2,162

 

 

 

10,765

 

 

 

12,927

 

 

 

1,306

 

 

 

12,624

 

 

 

13,930

 

 

 

1,501

 

 

 

9,006

 

 

 

10,507

 

 

 

817

 

 

 

10,674

 

 

 

11,491

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(2)

 

 

 

 

 

68,456

 

 

 

68,456

 

 

 

 

 

 

71,208

 

 

 

71,208

 

 

 

73

 

 

 

61,349

 

 

 

61,422

 

 

 

 

 

 

66,318

 

 

 

66,318

 

Private Education Loan securitizations(3)

 

 

1,257

 

 

 

11,579

 

 

 

12,836

 

 

 

686

 

 

 

12,646

 

 

 

13,332

 

 

 

1,578

 

 

 

12,049

 

 

 

13,627

 

 

 

300

 

 

 

12,985

 

 

 

13,285

 

FFELP Loan — other facilities

 

 

 

 

 

4,408

 

 

 

4,408

 

 

 

1,536

 

 

 

6,830

 

 

 

8,366

 

 

 

1,818

 

 

 

1,516

 

 

 

3,334

 

 

 

2,927

 

 

 

2,625

 

 

 

5,552

 

Private Education Loan — other facilities

 

 

1,391

 

 

 

1,379

 

 

 

2,770

 

 

 

684

 

 

 

1,710

 

 

 

2,394

 

 

 

1,694

 

 

 

965

 

 

 

2,659

 

 

 

1,114

 

 

 

1,266

 

 

 

2,380

 

Other(4)

 

 

204

 

 

 

 

 

 

204

 

 

 

538

 

 

 

 

 

 

538

 

 

 

324

 

 

 

 

 

 

324

 

 

 

267

 

 

 

 

 

 

267

 

Total secured borrowings

 

 

2,852

 

 

 

85,822

 

 

 

88,674

 

 

 

3,444

 

 

 

92,394

 

 

 

95,838

 

 

 

5,487

 

 

 

75,879

 

 

 

81,366

 

 

 

4,608

 

 

 

83,194

 

 

 

87,802

 

Core Earnings basis borrowings

 

 

5,014

 

 

 

96,587

 

 

 

101,601

 

 

 

4,750

 

 

 

105,018

 

 

 

109,768

 

 

 

6,988

 

 

 

84,885

 

 

 

91,873

 

 

 

5,425

 

 

 

93,868

 

 

 

99,293

 

Adjustment for GAAP accounting treatment

 

 

(7

)

 

 

(498

)

 

 

(505

)

 

 

21

 

 

 

(6

)

 

 

15

 

 

 

16

 

 

 

(116

)

 

 

(100

)

 

 

(3

)

 

 

(349

)

 

 

(352

)

GAAP basis borrowings

 

$

5,007

 

 

$

96,089

 

 

$

101,096

 

 

$

4,771

 

 

$

105,012

 

 

$

109,783

 

 

$

7,004

 

 

$

84,769

 

 

$

91,773

 

 

$

5,422

 

 

$

93,519

 

 

$

98,941

 

 

(1)

Includes principal amount of $2.2$1.5 billion and $1.3 billion$817 million of short-term debt as of September 30, 20182019 and December 31, 2017,2018, respectively. Includes principal amount of $10.9$9.1 billion and $12.7$10.8 billion of long-term debt as of September 30, 20182019 and December 31, 2017,2018, respectively.

(2)

Includes $81$73 million and $0 of long-termshort-term debt related to the FFELP Loan asset-backed securitization repurchase facilities (“FFELP Loan Repurchase Facilities”) as of September 30, 2018.2019 and December 31, 2018, respectively. Includes $214 million and $244 million of long-term debt related to the FFELP Loan Repurchase Facilities as of September 30, 2019 and December 31, 2018, respectively.

(3)

Includes $1.3$1.6 billion and $686$300 million of short-term debt related to the Private Education Loan asset-backed securitization repurchase facilities (“Private Education Loan Repurchase Facilities”) as of September 30, 20182019 and December 31, 2017,2018, respectively. Includes $1.1 billion$921 million and $1.3$2.0 billion of long-term debt related to the Repurchase Facilities as of September 30, 2018 and December 31, 2017, respectively.

(4)

“Other” primarily includes the obligation to return cash collateral held related to derivative exposures.

Secured borrowings comprised 87 percent of our Core Earnings basis debt outstanding at September 30, 2018 and December 31, 2017.

87


Table of Contents

Average Balances

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

(Dollars in millions)

 

Average

Balance

 

 

Average

Rate

 

 

Average

Balance

 

 

Average

Rate

 

 

Average

Balance

 

 

Average

Rate

 

 

Average

Balance

 

 

Average

Rate

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt

 

$

12,969

 

 

 

6.37

%

 

$

14,249

 

 

 

5.49

%

 

$

13,253

 

 

 

6.14

%

 

$

14,081

 

 

 

5.24

%

Total unsecured borrowings

 

 

12,969

 

 

 

6.37

 

 

 

14,249

 

 

 

5.49

 

 

 

13,253

 

 

 

6.14

 

 

 

14,081

 

 

 

5.24

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(1)

 

 

68,731

 

 

 

3.00

 

 

 

72,721

 

 

 

2.21

 

 

 

69,834

 

 

 

2.85

 

 

 

72,858

 

 

 

2.07

 

Private Education Loan securitizations(2)

 

 

13,093

 

 

 

4.18

 

 

 

13,258

 

 

 

3.50

 

 

 

13,258

 

 

 

4.06

 

 

 

13,627

 

 

 

3.17

 

FFELP Loan — other facilities

 

 

4,925

 

 

 

3.02

 

 

 

9,846

 

 

 

2.15

 

 

 

6,270

 

 

 

2.84

 

 

 

10,483

 

 

 

1.92

 

Private Education Loan — other facilities

 

 

2,355

 

 

 

3.62

 

 

 

2,492

 

 

 

2.46

 

 

 

2,357

 

 

 

3.56

 

 

 

1,304

 

 

 

2.51

 

Other(3)

 

 

231

 

 

 

4.55

 

 

 

417

 

 

 

2.44

 

 

 

319

 

 

 

2.82

 

 

 

438

 

 

 

2.70

 

Total secured borrowings

 

 

89,335

 

 

 

3.20

 

 

 

98,734

 

 

 

2.39

 

 

 

92,038

 

 

 

3.04

 

 

 

98,710

 

 

 

2.22

 

Core Earnings basis borrowings

 

$

102,304

 

 

 

3.60

%

 

$

112,983

 

 

 

2.78

%

 

$

105,291

 

 

 

3.43

%

 

$

112,791

 

 

 

2.59

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Earnings basis borrowings

 

$

102,304

 

 

 

3.60

%

 

$

112,983

 

 

 

2.78

%

 

$

105,291

 

 

 

3.43

%

 

$

112,791

 

 

 

2.59

%

Adjustment for GAAP accounting treatment

 

 

 

 

 

.02

 

 

 

 

 

 

(.03

)

 

 

 

 

 

.01

 

 

 

 

 

 

(.01

)

GAAP basis borrowings

 

$

102,304

 

 

 

3.62

%

 

$

112,983

 

 

 

2.75

%

 

$

105,291

 

 

 

3.44

%

 

$

112,791

 

 

 

2.58

%

(1)

Includes $9 million and $3 million of debt related to the FFELP Loan Repurchase Facilities for the three and nine months ended September 30, 2018, respectively.

(2)

Includes $2.4 billion and $1.7 billion of debt related to the Private Education Loan Repurchase Facilities for the three months endedas of September 30, 20182019 and 2017, respectively, and $2.4 billion and $1.3 billion for the nine months ended September 30,December 31, 2018, and 2017, respectively.

(3)(4)

“Other” primarily includes the obligation to return cash collateral held related to derivative exposures.

 

Secured borrowings comprised 89% and 88% of our Core Earnings basis debt outstanding at September 30, 2019 and December 31, 2018.

78


Table of Contents

Average Balances

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(Dollars in millions)

 

Average

Balance

 

 

Average

Rate

 

��

Average

Balance

 

 

Average

Rate

 

 

Average

Balance

 

 

Average

Rate

 

 

Average

Balance

 

 

Average

Rate

 

Unsecured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt

 

$

10,504

 

 

 

6.62

%

 

$

12,969

 

 

 

6.37

%

 

$

11,046

 

 

 

6.76

%

 

$

13,253

 

 

 

6.14

%

Total unsecured borrowings

 

 

10,504

 

 

 

6.62

 

 

 

12,969

 

 

 

6.37

 

 

 

11,046

 

 

 

6.76

 

 

 

13,253

 

 

 

6.14

 

Secured borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFELP Loan securitizations(1)

 

 

61,638

 

 

 

3.22

 

 

 

68,731

 

 

 

3.00

 

 

 

63,306

 

 

 

3.33

 

 

 

69,834

 

 

 

2.85

 

Private Education Loan securitizations(2)

 

 

14,180

 

 

 

4.03

 

 

 

13,093

 

 

 

4.18

 

 

 

13,817

 

 

 

4.19

 

 

 

13,258

 

 

 

4.06

 

FFELP Loan — other facilities

 

 

4,011

 

 

 

3.29

 

 

 

4,925

 

 

 

3.02

 

 

 

4,370

 

 

 

3.48

 

 

 

6,270

 

 

 

2.84

 

Private Education Loan — other facilities

 

 

1,772

 

 

 

3.62

 

 

 

2,355

 

 

 

3.62

 

 

 

1,889

 

 

 

3.91

 

 

 

2,357

 

 

 

3.56

 

Other(3)

 

 

361

 

 

 

3.28

 

 

 

231

 

 

 

4.55

 

 

 

298

 

 

 

4.01

 

 

 

319

 

 

 

2.82

 

Total secured borrowings

 

 

81,962

 

 

 

3.37

 

 

 

89,335

 

 

 

3.20

 

 

 

83,680

 

 

 

3.50

 

 

 

92,038

 

 

 

3.04

 

Core Earnings basis borrowings

 

$

92,466

 

 

 

3.74

%

 

$

102,304

 

 

 

3.60

%

 

$

94,726

 

 

 

3.88

%

 

$

105,291

 

 

 

3.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Earnings basis borrowings

 

$

92,466

 

 

 

3.74

%

 

$

102,304

 

 

 

3.60

%

 

$

94,726

 

 

 

3.88

%

 

$

105,291

 

 

 

3.43

%

Adjustment for GAAP accounting treatment

 

 

 

 

 

(.08

)

 

 

 

 

 

.02

 

 

 

 

 

 

(.05

)

 

 

 

 

 

.01

 

GAAP basis borrowings

 

$

92,466

 

 

 

3.66

%

 

$

102,304

 

 

 

3.62

%

 

$

94,726

 

 

 

3.83

%

 

$

105,291

 

 

 

3.44

%

(1)

Includes $289 million and $9 million of debt related to the FFELP Loan Repurchase Facilities for the three months ended September 30, 2019 and 2018, respectively, and $283 million and $3 million for the nine months ended September 30, 2019 and 2018, respectively.

(2)

Includes $2.7 billion and $2.4 billion of debt related to the Private Education Loan Repurchase Facilities for the three months ended September 30, 2019 and 2018, respectively and $2.7 billion and $2.4 billion for the nine months ended September 30, 2019 and 2018, respectively

(3)

“Other” primarily includes the obligation to return cash collateral held related to derivative exposures.

 

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with GAAP. A discussion of our critical accounting policies, which include allowance for loan losses, premium and discount amortization related to our loan portfolio, goodwill and intangible assets, and fair value measurement transfers of financial assets and the VIE consolidation model, and derivative accounting can be found in our 20172018 Form 10-K. There were no significant changes to these critical accounting policies during the first halfnine months ended September 30, 2019. See “Note 1 – Significant Accounting Policies – Recently Issued Accounting Pronouncements – Effective in 2020 – Allowance for Loan Losses,” for a discussion of 2018.a new accounting standard that will be adopted on January 1, 2020 that will result in a material change to the Company’s accounting for the allowance for loan losses.

 

8879


Table of Contents

 

Item 3.   Quantitative and QualitativeQualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis

Our interest rate risk management seeks to limit the impact of short-term movements in interest rates on our results of operations and financial position. The following tables summarize the potential effect on earnings over the next 12 months and the potential effect on fair values of balance sheet assets and liabilities at September 30, 20182019 and December 31, 2017,2018, based upon a sensitivity analysis performed by management assuming a hypothetical increase in market interest rates of 100 basis points and 300 basis points while funding spreads remain constant. Additionally, as it relates to the effect on earnings before mark-to-market gains (losses) on derivative and hedging activities, a sensitivity analysis was performed assuming the funding index increases 10 basis points while holding the asset index constant, if the funding index and repricing frequency are different than the asset index. TheseThe earnings sensitivities  assume an immediate increase in market interest rates of 100 and 300 basis points and are applied only to financial assets and liabilities, including hedging instruments that existed at the balance sheet date and doesdo not take into account the potential paydown of any financial asset or liability or any new assets, liabilities or hedging instruments that may arise over the next 12 months.

 

 

As of September 30, 2018

Impact on Annual Earnings If:

 

 

As of September 30, 2017

Impact on Annual Earnings If:

 

 

As of September 30, 2019

Impact on Annual Earnings If:

 

 

As of September 30, 2018

Impact on Annual Earnings If:

 

 

Interest Rates

 

 

Funding

Indices

 

 

Interest Rates

 

 

Funding

Indices

 

 

Interest Rates

 

 

Funding

Indices

 

 

Interest Rates

 

 

Funding

Indices

 

(Dollars in millions, except per share amounts)

 

Increase

100 Basis

Points

 

 

Increase

300 Basis

Points

 

 

Increase

10 Basis

Points(1)

 

 

Increase

100 Basis

Points

 

 

Increase

300 Basis

Points

 

 

Increase

10 Basis

Points(1)

 

 

Increase

100 Basis

Points

 

 

Increase

300 Basis

Points

 

 

Increase

10 Basis

Points(1)

 

 

Increase

100 Basis

Points

 

 

Increase

300 Basis

Points

 

 

Increase

10 Basis

Points(1)

 

Effect on Earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in pre-tax net income before mark-to

-market gains (losses) on derivative and

hedging activities

 

$

(7

)

 

$

39

 

 

$

(84

)

 

$

(11

)

 

$

(5

)

 

$

(92

)

 

$

(53

)

 

$

(55

)

 

$

(74

)

 

$

(7

)

 

$

39

 

 

$

(84

)

Mark-to-market gains (losses) on derivative and

hedging activities

 

 

(42

)

 

 

(151

)

 

 

 

 

 

2

 

 

 

(135

)

 

 

 

 

 

67

 

 

 

63

 

 

 

 

 

 

(42

)

 

 

(151

)

 

 

 

Increase (decrease) in income before taxes

 

$

(49

)

 

$

(112

)

 

$

(84

)

 

$

(9

)

 

$

(140

)

 

$

(92

)

 

$

14

 

 

$

8

 

 

$

(74

)

 

$

(49

)

 

$

(112

)

 

$

(84

)

Increase (decrease) in net income after taxes

 

$

(38

)

 

$

(86

)

 

$

(65

)

 

$

(6

)

 

$

(89

)

 

$

(58

)

 

$

11

 

 

$

6

 

 

$

(57

)

 

$

(38

)

 

$

(86

)

 

$

(65

)

Increase (decrease) in diluted earnings per

common share

 

$

(.15

)

 

$

(.33

)

 

$

(.25

)

 

$

(.02

)

 

$

(.33

)

 

$

(.22

)

 

$

.05

 

 

$

.03

 

 

$

(.26

)

 

$

(.15

)

 

$

(.33

)

 

$

(.25

)

 

(1)

If an asset is not funded with the same index/frequency reset of the asset then it is assumed the funding index increases 10 basis points while holding the asset index constant. There is no sensitivity analysis related to the mark-to-market gains (losses) on derivative and hedging activities as part of this potential impact on earnings.

 

 


8980


Table of Contents

 

 

At September 30, 2018

 

 

At September 30, 2019

 

 

 

 

 

 

Interest Rates:

 

 

 

 

 

 

Interest Rates:

 

 

 

 

 

 

Change from

Increase of

100 Basis

Points

 

 

Change from

Increase of

300 Basis

Points

 

 

 

 

 

 

Change from

Increase of

100 Basis

Points

 

 

Change from

Increase of

300 Basis

Points

 

(Dollars in millions)

 

Fair Value

 

 

$

 

 

%

 

 

$

 

 

%

 

 

Fair Value

 

 

$

 

 

%

 

 

$

 

 

%

 

Effect on Fair Values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education Loans

 

$

97,924

 

 

$

(206

)

 

 

%

 

$

(425

)

 

 

%

 

$

88,967

 

 

$

(288

)

 

 

%

 

$

(597

)

 

 

(1

)

Other earning assets

 

 

5,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,501

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

4,245

 

 

 

181

 

 

 

4

 

 

 

648

 

 

 

15

 

 

 

4,119

 

 

 

(120

)

 

 

(3

)

 

 

213

 

 

 

5

 

Total assets gain/(loss)

 

$

107,713

 

 

$

(25

)

 

 

%

 

$

223

 

 

 

%

 

$

97,587

 

 

$

(408

)

 

 

%

 

$

(384

)

 

 

%

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

$

101,516

 

 

$

(495

)

 

 

%

 

$

(1,381

)

 

 

(1

)%

 

$

91,419

 

 

$

(435

)

 

 

%

 

$

(1,209

)

 

 

(1

)%

Other liabilities

 

 

1,642

 

 

 

335

 

 

 

20

 

 

 

1,103

 

 

 

67

 

 

 

1,528

 

 

 

(118

)

 

 

(8

)

 

 

335

 

 

 

22

 

Total liabilities (gain)/loss

 

$

103,158

 

 

$

(160

)

 

 

%

 

$

(278

)

 

 

%

 

$

92,947

 

 

$

(553

)

 

 

(1

)%

 

$

(874

)

 

 

(1

)%

 

 

At December 31, 2017

 

 

At December 31, 2018

 

 

 

 

 

 

Interest Rates:

 

 

 

 

 

 

Interest Rates:

 

 

 

 

 

 

Change from

Increase of

100 Basis

Points

 

 

Change from

Increase of

300 Basis

Points

 

 

 

 

 

 

Change from

Increase of

100 Basis

Points

 

 

Change from

Increase of

300 Basis

Points

 

(Dollars in millions)

 

Fair Value

 

 

$

 

 

%

 

 

$

 

 

%

 

 

Fair Value

 

 

$

 

 

%

 

 

$

 

 

%

 

Effect on Fair Values:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education Loans

 

$

106,692

 

 

$

(287

)

 

 

%

 

$

(611

)

 

 

(1

)%

 

$

95,032

 

 

$

(184

)

 

 

%

 

$

(353

)

 

 

 

Other earning assets

 

 

5,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,488

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

4,835

 

 

 

148

 

 

 

3

 

 

 

613

 

 

 

13

 

 

 

4,190

 

 

 

168

 

 

 

4

 

 

 

693

 

 

 

17

 

Total assets gain/(loss)

 

$

116,561

 

 

$

(139

)

 

 

%

 

$

2

 

 

 

%

 

$

104,710

 

 

$

(16

)

 

 

%

 

$

340

 

 

 

%

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities

 

$

109,704

 

 

$

(588

)

 

 

(1

)%

 

$

(1,643

)

 

 

(1

)%

 

$

97,591

 

 

$

(437

)

 

 

%

 

$

(1,216

)

 

 

(1

)%

Other liabilities

 

 

1,723

 

 

 

301

 

 

 

17

 

 

 

1,132

 

 

 

66

 

 

 

1,688

 

 

 

242

 

 

 

14

 

 

 

933

 

 

 

55

 

Total liabilities (gain)/loss

 

$

111,427

 

 

$

(287

)

 

 

%

 

$

(511

)

 

 

%

 

$

99,279

 

 

$

(195

)

 

 

%

 

$

(283

)

 

 

%

 

A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our floating rate education loan portfolio with floating rate debt and our fixed rate education loan portfolio with fixed rate debt. However, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets. In addition, due to the ability of some FFELP loansLoans to earn Floor Income, we can have a fixed versus floating mismatch in funding if the education loan earns at the fixed borrower rate and the funding remains floating. In addition, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets.

During the three and sixnine months ended September 30, 20182019 and 2017,2018, certain FFELP Loans were earning Floor Income and we locked in a portion of that Floor Income through the use of derivative contracts. The result of these hedging transactions was to fix the relative spread between the education loan asset rate and the variable rate liability.

In the preceding tables, under the scenario where interest rates increase by either 100 andor 300 basis points, the change in pre-tax net income before the mark-to-market gains (losses) on derivative and hedging activities is primarily due to the impact of (i) our unhedged loans being in a fixed-rate mode due to Floor Income, while being funded with variable rate debt in low interest rate environments; and (ii) a portion of our fixed rate assets being funded with variable rate liabilities. Both items will generally cause income to decrease when interest rates increase. In both 2018The decrease in 2019 when interest rates increase 100 basis points and 2017, the impact to income300 basis points is primarily due to both items (i) and (ii) above. The decreaseIn particular, the primary factor relates to FFELP Stafford loans containing an annual reset floor feature that began earning floor income in the lossthird quarter. If interest rates increase 100 basis point they will no longer earn floor income. In 2018 these FFELP Stafford loans were not earning floor income. The increase in income in 2018 as compared to 2017 was due to both the natural amortization of the FFELP Loan portfolio as well as higherwhen interest rates in third-quarter 2018 comparedincrease 300 basis points relates to third-quarter 2017, which resulted in a loss of unhedged Floor Income between the third quarter of 2017 and the third quarter of 2018. Item (ii) had a minor impact in both periods as the Company generally enters into derivative contracts as a part of its overallcertain FFELP fixed rate loans that become variable interest rate risk management strategy, match-funding its floating rate assets withloans when the variable rate debt and fixed rate assetsinterest rates rise above a certain level (Special Allowance Payment or “SAP”).  When the loans are funded with fixed rate debt.debt (as we do to hedge certain floor income), we earn additional interest income when earning the higher variable rate that is in effect.

90


Table of Contents

In the preceding tables, under the scenario where interest rates increase by either 100 andor 300 basis points, the change in mark-to-market gains (losses) on derivative and hedging activities in 2019 and 2018 and 2017 areis primarily due to (i) the notional amount and remaining term of our derivative portfolio and related hedged debt and (ii) the interest rate

81


Table of Contents

environment. In particular, as of September 30, 2018, the Company’s floor income derivative contracts have a shorter remaining term than the prior-year period due to the natural amortization of the FFELP education loan portfolios over the year and interest rates in third-quarter 2018 are higher compared to third-quarter 2017 which results in such contracts having less intrinsic value. Both factors contribute to these contracts increasing less in value in a rising interest rate environmentThe increase in the current periodmark-to-market income in 2019 as compared to the prior-year period.2018 is due to additional pay fix/receive variable trading swaps that are used to economically hedge originations of fixed rate refinance loans, as well as a smaller notional amount of receive fix/pay variable trading swaps. 

Under the scenario in the tables above labeled “Impact on Annual Earnings If: Funding Indices Increase 10 Basis Points,” the main driver of the decrease in pre-tax income before mark-to-market gains (losses) on derivative and hedging activities in both the September 30,2019 and 2018 and 2017 analyses is primarily the result of daily reset one-month LIBOR-indexed FFELP Loans being funded with monthly reset one-month LIBOR, three-month LIBOR and other non-discrete indexed liabilities, as well as, to a lesser extent, Prime-indexed Private Education Loans being funded with LIBOR and other non-discrete indexed liabilities. The decrease in the loss between 2018 and 2019 relates to the decrease in the size of the education loan portfolio. See “Asset and Liability Funding Gap” of this Item 3 for a further discussion.

In addition to interest rate risk addressed in the preceding tables, we are also exposed to risks related to foreign currency exchange rates. Foreign currency exchange risk is primarily the result of foreign currency denominated debt issued by us. When we issue foreign denominated corporate unsecured and securitization debt, our policy is to use cross currency interest rate swaps to swap all foreign currency denominated debt payments (fixed and floating) to U.S. dollar LIBOR using a fixed exchange rate. In the tables above, there would be an immaterial impact on earnings if exchange rates were to decrease or increase, due to the terms of the hedging instrument and hedged items matching. The balance sheet interest bearing liabilities would be affected by a change in exchange rates; however, the change would be materially offset by the cross-currency interest rate swaps in other assets or other liabilities. In the current economic environment, volatility in the spread between spot and forward foreign exchange rates has resulted in material mark- to-marketmark-to-market impacts to current-period earnings which have not been factored into the above analysis. The earnings impact is noncash, and at maturity of the instruments the cumulative mark-to-market impact will be zero. Navient has not issued foreign currency denominated debt since 2008.

Asset and Liability Funding Gap

The tables below present our assets and liabilities (funding) arranged by underlying indices as of September 30, 2018.2019. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives which are reflected in net interest margin, as opposed to those reflected in the “gains (losses) on derivatives and hedging activities, net” line on the consolidated statements of income). The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude.

Management analyzes interest rate risk and in doing so includes all derivatives that are economically hedging our debt whether they qualify as effective hedges or not (Core Earnings basis). Accordingly, we are also presenting the asset and liability funding gap on a Core Earnings basis in the table that follows the GAAP presentation.


91


Table of Contents

GAAP Basis:

 

Index

(Dollars in billions)

 

Frequency of

Variable

Resets

 

Assets

 

 

Funding(1)

 

 

Funding

Gap

 

 

Frequency of

Variable

Resets

 

Assets

 

 

Funding(1)

 

 

Funding

Gap

 

3-month Treasury bill

 

weekly

 

$

3.1

 

 

$

 

 

$

3.1

 

3-month Treasury bill

 

weekly

 

$

3.5

 

 

$

 

 

$

3.5

 

 

annual

 

 

.2

 

 

 

 

 

 

.2

 

Prime

 

annual

 

 

.3

 

 

 

 

 

 

.3

 

 

annual

 

 

.2

 

 

 

 

 

 

.2

 

Prime

 

quarterly

 

 

2.8

 

 

 

 

 

 

2.8

 

 

quarterly

 

 

2.3

 

 

 

 

 

 

2.3

 

Prime

 

monthly

 

 

9.3

 

 

 

 

 

 

9.3

 

 

monthly

 

 

7.8

 

 

 

 

 

 

7.8

 

Prime

 

daily

 

 

 

 

 

 

 

 

 

PLUS Index

 

annual

 

 

.2

 

 

 

 

 

 

.2

 

3-month LIBOR

 

quarterly

 

 

.6

 

 

 

35.5

 

 

 

(34.9

)

 

quarterly

 

 

.5

 

 

 

30.3

 

 

 

(29.8

)

3-month LIBOR

 

daily

 

 

 

 

 

2.5

 

 

 

(2.5

)

 

daily

 

 

 

 

 

2.8

 

 

 

(2.8

)

1-month LIBOR

 

monthly

 

 

5.6

 

 

 

40.2

 

 

 

(34.6

)

 

monthly

 

 

4.7

 

 

 

36.7

 

 

 

(32.0

)

1-month LIBOR daily

 

daily

 

 

70.1

 

 

 

 

 

 

70.1

 

CMT/CPI Index

 

monthly/quarterly

 

 

 

 

 

.1

 

 

 

(.1

)

1-month LIBOR

 

daily

 

 

62.3

 

 

 

 

 

 

62.3

 

Non-Discrete reset(2)

 

monthly

 

 

 

 

 

9.0

 

 

 

(9.0

)

 

monthly

 

 

 

 

 

7.4

 

 

 

(7.4

)

Non-Discrete reset(3)

 

daily/weekly

 

 

5.5

 

 

 

.2

 

 

 

5.3

 

 

daily/weekly

 

 

4.5

 

 

 

.3

 

 

 

4.2

 

Fixed Rate(4)

 

 

 

 

8.6

 

 

 

19.0

 

 

 

(10.4

)

 

 

 

 

11.0

 

 

 

19.1

 

 

 

(8.1

)

Total

 

 

 

$

106.5

 

 

$

106.5

 

 

$

 

 

 

 

$

96.6

 

 

$

96.6

 

 

$

 

 

 

(1)

Funding (by index) includes all derivatives that qualify as hedges.

 

(2)

Funding consists of auction rate ABS and ABCP facilities.

 

(3)

Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to return cash collateral held related to derivatives exposures.

 

(4)

Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity.

82


Table of Contents

The “Funding Gaps” in the above table are primarily interest rate mismatches in short-term indices between our assets and liabilities. We address this issue typically through the use of basis swaps that typically convert quarterly reset three-month LIBOR to other indices that are more correlated to our asset indices. These basis swaps do not qualify as effective hedges and, as a result, the effect on the funding index is not included in our interest margin and is therefore excluded from the GAAP presentation.


92


Table of Contents

 

Core Earnings Basis:

 

Index

(Dollars in billions)

 

Frequency of

Variable

Resets

 

Assets

 

 

Funding(1)

 

 

Funding

Gap

 

 

Frequency of

Variable

Resets

 

Assets

 

 

Funding(1)

 

 

Funding

Gap

 

3-month Treasury bill

 

weekly

 

$

3.1

 

 

$

 

 

$

3.1

 

3-month Treasury bill

 

weekly

 

$

3.5

 

 

$

 

 

$

3.5

 

 

annual

 

 

.2

 

 

 

 

 

 

.2

 

Prime

 

annual

 

 

.3

 

 

 

 

 

 

.3

 

 

annual

 

 

.2

 

 

 

 

 

 

.2

 

Prime

 

quarterly

 

 

2.8

 

 

 

 

 

 

2.8

 

 

quarterly

 

 

2.3

 

 

 

 

 

 

2.3

 

Prime

 

monthly

 

 

9.3

 

 

 

 

 

 

9.3

 

 

monthly

 

 

7.8

 

 

 

 

 

 

7.8

 

Prime

 

daily

 

 

 

 

 

 

 

 

 

PLUS Index

 

annual

 

 

.2

 

 

 

 

 

 

.2

 

3-month LIBOR

 

quarterly

 

 

.6

 

 

 

 

 

 

.6

 

 

quarterly

 

 

.5

 

 

 

 

 

 

.5

 

3-month LIBOR

 

daily

 

 

 

 

 

.8

 

 

 

(.8

)

 

daily

 

 

 

 

 

2.0

 

 

 

(2.0

)

1-month LIBOR

 

monthly

 

 

5.6

 

 

 

79.7

 

 

 

(74.1

)

 

monthly

 

 

4.7

 

 

 

69.0

 

 

 

(64.3

)

1-month LIBOR

 

daily

 

 

70.1

 

 

 

 

 

 

70.1

 

 

daily

 

 

62.3

 

 

 

 

 

 

62.3

 

Non-Discrete reset(2)

 

monthly

 

 

 

 

 

6.5

 

 

 

(6.5

)

Non-Discrete reset(2)(3)

 

monthly

 

 

 

 

 

9.0

 

 

 

(9.0

)

 

daily/weekly

 

 

4.5

 

 

 

.3

 

 

 

4.2

 

Non-Discrete reset(3)

 

daily/weekly

 

 

5.5

 

 

 

.2

 

 

 

5.3

 

Fixed Rate(4)

 

 

 

 

8.4

 

 

 

16.6

 

 

 

(8.2

)

 

 

 

 

10.6

 

 

 

18.4

 

 

 

(7.8

)

Total

 

 

 

$

106.3

 

 

$

106.3

 

 

$

 

 

 

 

$

96.2

 

 

$

96.2

 

 

$

 

 

 

(1)

Funding (by index) includes all derivatives that management considers economic hedges of interest rate risk and reflects how we internally manage our interest rate exposure.

 

(2)

Funding consists of auction rate ABS and ABCP facilities.

 

(3)

Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes the obligation to return cash collateral held related to derivatives exposures.

 

(4)

Assets include receivables and other assets (including goodwill and acquired intangibles). Funding includes other liabilities and stockholders’ equity.

We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or, when economical, have interest rate characteristics that we believe are highly correlated. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices are short-term with rate movements that are highly correlated over a long period of time, market disruptions (which have occurred in prior years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.

Weighted Average Life

The following table reflects the weighted average life of our earning assets and liabilities at September 30, 2018.2019.

 

(Averages in Years)

 

Weighted Average

Life

 

Earning assets

 

 

 

 

Education loans

 

 

6.46.3

 

Other loans

 

 

8.22.9

 

Cash and investments

 

 

.1

 

Total earning assets

 

 

6.16.0

 

Borrowings

 

 

 

 

Short-term borrowings

 

 

.5.3

 

Long-term borrowings

 

 

6.15.9

 

Total borrowings

 

 

5.85.5

 

9383


Table of Contents

 

Item 4.Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of September 30, 2018.2019. Based on this evaluation, our chief principal executive and principal financial officers concluded that, as of September 30, 2018,2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our chief principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

9484


Table of Contents

 

PART II. OTHER INFORMATION

We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the normal course of business. We believe that these claims, lawsuits and other actions will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations, except as otherwise disclosed. Most of these matters are claims including individual and class action lawsuits against our servicing or business processing subsidiaries alleging the violation of state or federal laws in connection with servicing or collection activities on their education loans and other debts.

In the ordinary course of our business, the Company and our subsidiaries and affiliates receive information and document requests and investigative demands from state attorneys general,State Attorneys General, U.S. Attorneys, legislative committees, individual members of Congress and administrative agencies. These requests may be informational or regulatory in nature and may relate to our business practices, the industries in which we operate, or other companies with whom we conduct business. Generally, our practice has been and continues to be to cooperate with these bodies and to be responsive to any such requests.

The number of these inquiries and the volume of related information demands continue to increase and therefore continue to increase the time, costs and resources we must dedicate to timely respond to these requests and may, depending on their outcome, result in payments of restitution, fines and penalties.

Certain Cases

During the first quarter of 2016, Navient Corporation, certain Navient officers and directors, and the underwriters of certain Navient securities offerings were sued in three putative securities class action lawsuits filed on behalf of certain investors in Navient stock or Navient unsecured debt. These three cases, which were filed in the U.S. District Court for the District of Delaware, were consolidated by the District Court, with Lord Abbett Funds appointed as Lead Plaintiff. The caption of the consolidated case is Lord Abbett Affiliated Fund, Inc., et al. v. Navient Corporation, et al. The plaintiffs filed their amended and consolidated complaint in September 2016. In September 2017, the Court granted the Navient defendants’ motion and dismissed the complaint in its entirety with leave to amend. The plaintiffs filed a second amended complaint with the court in November 2017.2017 and the Navient defendants filed a motion to dismiss the second amended complaint in January 2018. In January 2019, the Court granted-in-part and denied-in-part the Navient defendants’ motion to dismiss. The Navient defendants deny the allegations and intend to vigorously defend against the allegation in this lawsuit and filed a motion to dismiss in January 2018.lawsuit. Additionally, two putative class actions have been filed in the U.S. District Court for the District of New Jersey captioned Eli Pope v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian Lown, and Melvin Gross v. Navient Corporation, John F. Remondi, Somsak Chivavibul and Christian M. Lown, both of whichallege violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. These cases were consolidated by the Court in February 2018, the plaintiffs filed a consolidatedsecond amended complaint in March 2019 and the Company filed a motion to dismiss the second amended complaint in April 2018 and the Company filed its Motion to Dismiss in June 2018.2019. The Company has denied the allegations and intends to vigorously defend itself.

The Company has been named as defendant in a number of putative class action cases alleging violations of various state and federal consumer protection laws including the Telephone Consumer Protection Act (“TCPA”), the Consumer Financial Protection Act of 2010 (“CFPA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and various other state consumer protection laws. The Company has also been named as a defendant in putative class actions alleging violations of various state and federal consumer protection laws related to borrowers and the Public Service Loan Forgiveness program. The Company denies the allegations and intends to vigorously defend against the allegations.

In January 2017, the Consumer Financial Protection Bureau (the “CFPB”) and Attorneys General for the State of Illinois and the State of Washington initiated civil actions naming Navient Corporation and several of its subsidiaries as defendants alleging violations of certain Federal and State consumer protection statutes, including the CFPA, the FCPA, FCRA, FDCPA and various state consumer protection laws. In October 2017, the Attorney General for the Commonwealth of Pennsylvania initiated a civil action against Navient Corporation and Navient Solutions, LLC (“Solutions”), containing similar alleged violations of the CFPA and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Additionally, in 2018 the Attorneys General for the States of California and Mississippi recently initiated similar actions against the Company and certain subsidiaries alleging violations of various state and federal consumer protection laws. We refer to the Illinois, Pennsylvania, Washington, California and Mississippi Attorneys General collectively as the “State Attorneys General.” In addition to these matters, a number of lawsuits have been filed by nongovernmental parties or, in the future, may be filed by additional governmental or nongovernmental parties seeking damages or other remedies related to similar issues raised by the CFPB and the State Attorneys General. As the Company has previously stated, we believe the suits improperly seek

95


Table of Contents

to impose penalties on Navient based on new, unannounced servicing standards applied retroactively only against one servicer, and that the allegations are false. We therefore have denied these allegations and intend to vigorously defend against the allegations in each of these cases. For additional information on these civil actions, please refer to section entitled “Regulatory Matters” below.

At this point in time, the Company is unable to anticipate the timing of a resolution or the ultimate impact that these legal proceedings may have on the Company’s consolidated financial position, liquidity, results of operation or cash flows. As a result, it is not possible at this time to estimate a range of potential exposure, if any, for amounts that may be

85


Table of Contents

payable in connection with these matters and reserves have not been established. It is possible that an adverse ruling or rulings may have a material adverse impact on the Company.

Regulatory Matters

In addition, Navient and its subsidiaries are subject to examination or regulation by the SEC, CFPB, FFIEC, 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. Generally, the Company endeavors to cooperate with each such inquiry or request.

As previously disclosed, the Company and various of its subsidiaries have been subject to the following investigations and inquiries:

 

In December 2013, Navient received Civil Investigative Demands (“CIDs”) issued by the Illinois Attorney General, the Washington Attorney General and multiple other stateState 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. The Company subsequently received separate but similar CIDs or subpoenas from the Attorneys General for the District of Columbia, Kansas, Oregon, Colorado, New Jersey and New York. We have and in the future may receive additional CIDs or subpoenas and other inquiries from these or other Attorneys General with respect to similar or different matters.

In April 2014, Solutions received a CID from the CFPB as part of the CFPB’s separate investigation regarding allegations relating to Navient’s disclosures and assessment of late fees and other matters. Navient has received a series of supplemental CIDs on these matters. In August 2015, Solutions received a letter from the CFPB notifying Solutions that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement was considering recommending that the CFPB take legal action against Solutions. The NORA letter related to a previously disclosed investigation into Solutions’ 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 Solutions. The Company responded to the NORA letter in September 2015.

In November 2014, Navient’s subsidiary, Pioneer Credit Recovery, Inc. (“Pioneer”), received a CID from the CFPB as part of an investigation regarding Pioneer’s activities relating to rehabilitation loans and collection of defaulted student debt.

In December 2014, Solutions received a subpoena from the New York Department of Financial Services (the “NY DFS”) as part of the NY DFS’s 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.

 

In April 2014, Solutions received a CID from the CFPB as part of the CFPB’s separate investigation regarding allegations relating to Navient’s disclosures and assessment of late fees and other matters. Navient has received a series of supplemental CIDs on these matters. In August 2015, Solutions received a letter from the CFPB notifying Solutions that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement was considering recommending that the CFPB take legal action against Solutions. The NORA letter related to a previously disclosed investigation into Solutions’ 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 Solutions. The Company responded to the NORA letter in September 2015.

In November 2014, Pioneer received a CID from the CFPB as part of an investigation regarding Pioneer’s activities relating to rehabilitation loans and collection of defaulted student debt. In May 2019, Pioneer received a similar CID from the New York Department of Financial Services (the “NY DFS”).

In December 2014, Solutions received a subpoena from the NY DFS as part of its 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.

In January 2017, the CFPB initiated a civil action naming Navient Corporation and several of its subsidiaries as defendants alleging violations of Federal and State consumer protection statutes, including the DFPA, FCRA, FDCPA and various state consumer protection laws. The CFPB, Washington Attorney General and Illinois Attorney General lawsuits relate to matters which were covered under the CIDs or the NORA letter discussed above. In addition, various State Attorneys General have filed suits alleging violations of various state and federal consumer protection laws covering matters similar to those covered by the CIDs or the NORA letter.  As stated above, we have denied these allegations and intend to vigorously defend against the allegations in each of these cases.

With respect to alleged civil violations of the Servicemembers Civil Relief Act (the “SCRA”), Solutions and Sallie Mae Bank entered into a consent order with the DOJ in May 2014. The DOJ consent order (the “DOJ Order”) covered all loans either owned by Sallie Mae Bank or serviced by Solutions from November 28, 2005 until the effective date of the settlement. The DOJ Order expired by its terms on September 29, 2018, and the related case was dismissed with prejudice on October 4, 2018.  

96


Table of Contents

Under the terms of the Separation and Distribution Agreement between the Company and SLM BankCo, Navient has agreed to 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, subject to the terms, conditions and limitations set forth in the Separation and Distribution Agreement, Navient has agreed to indemnify and hold harmless Sallie Mae and its subsidiaries, including Sallie Mae Bank from liabilities arising out of the regulatory matters and CFPB and State Attorneys General lawsuits mentioned above, other than fines or penalties directly leviedabove. Navient has asserted various claims for indemnification against Sallie Mae and Sallie Mae Bank for such specifically excluded items arising out of the CFPB and other matters specifically excluded.the State Attorneys General lawsuits if and to the extent any indemnified liabilities exist now or in the future. Navient has no additional reserves related to indemnification matters with SLM BankCo as of September 30, 2018.2019.

OIG Audit

The Office of the Inspector General (the “OIG”) of ED commenced an audit regarding Special Allowance Payments (“SAP”) on September 10, 2007. In September 2013, we received the final audit determination of Federal Student Aid (the “Final Audit Determination”) on the final audit report issued by the OIG in August 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. In August 2016, we filed our notice of appeal to the Administrative Actions and Appeals Service Group of ED. AED, and a hearing was held in April 20172017. In March 2019, the administrative law judge hearing the appeal affirmed the audit’s findings, holding the then-existing Dear Colleague

86


Table of Contents

letter relied upon by the Company and a ruling hasother industry participants was inconsistent with the statutory framework creating the SAP rules applicable to loans funded by certain types of debt obligations at issue. We have appealed the administrative law judge’s decision to the Secretary of Education given Navient’s adherence to ED-issued guidance and the potential impact on participants in any ED program student loan servicers if such guidance is deemed unreliable and may not yet been issued.be relied upon. 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 and does not believe, at this time, that an adverse ruling would have a material effect on the Company as a whole.

Item 1A.   Risk Factors

There have been no material changes

See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a detailed discussion of risk factors affecting the Company. The following new risk factor replaces in its entirety the risk factor in our Form 10-K for the year-ended December 31, 2018, titled, The FASB has recently issued an accounting standard update that will result in a significant change in how we recognize credit losses.”

The FASB has recently issued an accounting standard update that will result in a significant change in how

we recognize credit losses.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

(“ASU”) No. 2016-13, “Financial Instruments — Credit Losses,” which replaces the current “incurred loss” model for

recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”)

model. Under the CECL model, we will be required to measure and recognize an allowance for loan losses that

estimates remaining expected credit losses for financial assets held at the reporting date. This will result in us

presenting certain financial assets carried at amortized cost, such as our loans held for investment, at the net amount

expected to be collected. The measurement of expected credit losses is to be based on information about past

events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the

collectability of the reported amount. This measurement will take place at the time the financial asset is first added to

the balance sheet and periodically thereafter. This differs significantly from the risk factors previously“incurred loss” model required under

current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the

adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require

us to significantly increase our allowance, which would reduce shareholders’ equity and capital. Moreover, the CECL

model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase

our level of allowance for loan losses, such increase could adversely affect our business, financial condition and

results of operations.

The new CECL standard will become effective for us on January 1, 2020.  We will recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of January 1, 2020 through shareholders’ equity, net of tax. On October 23, 2019, in conjunction with our earnings release for the quarter ended September 30, 2019, we disclosed that, based upon our current projections, the cumulative one-time adjustment to our allowance for loan losses relating to the adoption of CECL is estimated to be in a range of between $750 million and $850 million.  Between now and January 1, 2020, we will continue to evaluate the impact CECL will have on our 2017 Form 10-K.allowance for loan losses. This estimated impact is not final and is dependent upon (1) estimated loan characteristics and balances as of January 1, 2020, (2) the current economic environment and forecasted economic environment and (3) continuing review and refinement of models, methodology and judgments. As a result, these estimated impacts are subject to change.


87


Table of Contents

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

The following table provides information relating to our purchase of shares of our common stock in the three months ended September 30, 2018.

2019.  

(In millions, except per share data)

 

Total Number

of Shares

Purchased(1)

 

 

Average Price

Paid per

Share

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs(2)

 

 

Approximate Dollar

Value of Shares

That May Yet Be

Purchased Under

Publicly Announced

Plans or

Programs(2)

 

Period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 1 — July 31, 2018

 

 

4.4

 

 

$

14.04

 

 

 

4.3

 

 

$

100

 

August 1 — August 31, 2018

 

 

.9

 

 

 

13.36

 

 

 

.8

 

 

$

87

 

September 1 — September 30, 2018

 

 

1.8

 

 

 

13.81

 

 

 

1.8

 

 

$

565

 

Total third-quarter 2018

 

 

7.1

 

 

$

13.90

 

 

 

6.9

 

 

 

 

 

(In millions, except per share data)

 

Total Number

of Shares

Purchased(1)

 

 

Average Price

Paid per

Share

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs(2)

 

 

Approximate Dollar

Value of Shares

That May Yet Be

Purchased Under

Publicly Announced

Plans or

Programs(2)

 

Period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 1 — July 31, 2019

 

 

4.0

 

 

$

13.84

 

 

 

3.8

 

 

$

155

 

August 1 — August 31, 2019

 

 

3.1

 

 

 

13.13

 

 

 

3.1

 

 

$

114

 

September 1 — September 30, 2019

 

 

2.8

 

 

 

13.13

 

 

 

2.8

 

 

$

77

 

Total third-quarter 2019

 

 

9.9

 

 

$

13.42

 

 

 

9.7

 

 

 

 

 

 

(1)

The total number of shares purchased includes: (i) shares purchased under the stock repurchase program discussed below, and (ii) shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercise of stock options, and tax withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units.

(2)

In December 2016, our board of directors authorized us to purchase up to $600 million of shares of our common stock and in September 2018, the board authorized a new $500 million share repurchase program.

The closing price of our common stock on the NASDAQ Global Select Market on September 28, 201830, 2019 was $13.48.


97


Table of Contents$12.80.

 

Item 3.   Defaults uponupon Senior Securities

Nothing to report.

Item 4.   Mine Safety Disclosures

Nothing to report.

Item 5.   Other Information

Nothing to report.


88


Table of Contents

Item 6.   Exhibits

The following exhibits are furnished or filed, as applicable:

12.1*

 

Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.

 

 

 

31.1*

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

Inline XBRL Instance Document.Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

Management Contract or Compensatory Plan or Arrangement

*

Filed herewith

**

Furnished herewith

 

9889


Table of Contents

 

SIGNATURESSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

NAVIENT CORPORATION

(Registrant)

 

 

By:

 

/s/ CHRISTIAN M. LOWN

 

 

Christian M. Lown

Chief Financial Officer

(Principal Financial Officer)

Date: November 2, 20181, 2019

 

9990