10-Q 1 d71801d10q.htm FORM 10-Q FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

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  þ    No  ¨

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

 

Large accelerated filer  þ       Accelerated filer  ¨
Non-accelerated filer  ¨       Smaller reporting company  ¨
(Do not check if a smaller reporting company)    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class   Outstanding at September 30, 2015
Common Stock, $0.01 par value   362,308,654 shares

 

 

 


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    43

Item 3.

     Quantitative and Qualitative Disclosures about Market Risk    97

Item 4.

     Controls and Procedures    101

Part II. Other Information

  

Item 1.

     Legal Proceedings    102

Item 1A.

     Risk Factors    105

Item 2.

     Unregistered Sales of Equity Securities and Use of Proceeds    106

Item 3.

     Defaults Upon Senior Securities    106

Item 4.

     Mine Safety Disclosures    106

Item 5.

     Other Information    106

Item 6.

     Exhibits    107


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

NAVIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)

 

     September 30,
2015
    December 31,
2014
 

Assets

    

FFELP Loans (net of allowance for losses of $84 and $93, respectively)

   $ 98,468      $ 104,521   

Private Education Loans (net of allowance for losses of $1,505 and $1,916 respectively)

     27,323        29,796   

Investments

    

Available-for-sale

     6        6   

Other

     679        627   
  

 

 

   

 

 

 

Total investments

     685        633   

Cash and cash equivalents

     1,305        1,443   

Restricted cash and investments

     4,296        3,926   

Goodwill and acquired intangible assets, net

     544        369   

Other assets

     5,045        5,664   
  

 

 

   

 

 

 

Total assets

   $ 137,666      $ 146,352   
  

 

 

   

 

 

 

Liabilities

    

Short-term borrowings

   $ 2,816      $ 2,663   

Long-term borrowings

     128,293        136,866   

Other liabilities

     2,670        2,625   
  

 

 

   

 

 

 

Total liabilities

     133,779        142,154   
  

 

 

   

 

 

 

Commitments and contingencies

    

Equity

    

Common stock, par value $0.01 per share, 1.125 billion shares authorized: 430 million and 426 million shares issued, respectively

     4        4   

Additional paid-in capital

     2,964        2,893   

Accumulated other comprehensive (loss) income (net of tax benefit (expense) of $48 and $(5), respectively)

     (82     9   

Retained earnings

     2,251        1,724   
  

 

 

   

 

 

 

Total Navient Corporation stockholders’ equity before treasury stock

     5,137        4,630   

Less: Common stock held in treasury at cost: 68 million and 24 million shares, respectively

     (1,254     (432
  

 

 

   

 

 

 

Total Navient Corporation stockholders’ equity

     3,883        4,198   

Noncontrolling interest

     4          
  

 

 

   

 

 

 

Total equity

     3,887        4,198   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 137,666      $ 146,352   
  

 

 

   

 

 

 

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

 

     September 30,
2015
     December 31,
2014
 

FFELP Loans

   $ 94,213       $ 100,367   

Private Education Loans

     23,278         24,418   

Restricted cash and investments

     4,129         3,733   

Other assets

     581         1,230   

Short-term borrowings

     758         653   

Long-term borrowings

     109,899         117,678   
  

 

 

    

 

 

 

Net assets of consolidated variable interest entities

   $ 11,544       $ 11,417   
  

 

 

    

 

 

 

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,
 
     2015      2014     2015      2014  

Interest income:

          

FFELP Loans

   $ 630       $ 638      $ 1,892       $ 1,916   

Private Education Loans

     444         490        1,335         1,673   

Other loans

     1         2        5         7   

Cash and investments

     2         2        6         7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     1,077         1,132        3,238         3,603   

Total interest expense

     524         508        1,553         1,550   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income

     553         624        1,685         2,053   

Less: provisions for loan losses

     123         140        446         490   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provisions for loan losses

     430         484        1,239         1,563   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other income (loss):

          

Gains on sales of loans and investments

                    12           

Gains (losses) on derivative and hedging activities, net

     20         108        73         161   

Servicing revenue

     76         81        258         217   

Asset recovery revenue

     85         65        273         308   

Gains on debt repurchases

                              

Other

             34        15         49   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other income

     181         288        631         735   
  

 

 

    

 

 

   

 

 

    

 

 

 

Expenses:

          

Salaries and benefits

     106         109        344         367   

Other operating expenses

     122         86        339         406   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

     228         195        683         773   

Goodwill and acquired intangible asset impairment and amortization expense

     3         2        7         7   

Restructuring and other reorganization expenses

             14        32         102   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses

     231         211        722         882   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from continuing operations, before income tax expense

     380         561        1,148         1,416   

Income tax expense

     144         200        438         530   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income from continuing operations

     236         361        710         886   

Income (loss) from discontinued operations, net of tax expense (benefit)

     1         (2     1         (1
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     237         359        711         885   

Less: net income (loss) attributable to noncontrolling interest

                              
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to Navient Corporation

     237         359        711         885   

Preferred stock dividends

                            6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to Navient Corporation common stock

   $ 237       $ 359      $ 711       $ 879   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per common share attributable to Navient Corporation:

          

Continuing operations

   $ .64       $ .87      $ 1.86       $ 2.09   

Discontinued operations

                              
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ .64       $ .87      $ 1.86       $ 2.09   
  

 

 

    

 

 

   

 

 

    

 

 

 

Average common shares outstanding

     369         415        382         421   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted earnings per common share attributable to Navient Corporation:

          

Continuing operations

   $ .63       $ .85      $ 1.83       $ 2.05   

Discontinued operations

                              
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ .63       $ .85      $ 1.83       $ 2.05   
  

 

 

    

 

 

   

 

 

    

 

 

 

Average common and common equivalent shares outstanding

     375         423        389         429   
  

 

 

    

 

 

   

 

 

    

 

 

 

Dividends per common share attributable to Navient Corporation

   $ .16       $ .15      $ .48       $ .45   
  

 

 

    

 

 

   

 

 

    

 

 

 

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,
 
     2015     2014      2015     2014  

Net income

   $ 237      $ 359       $ 711      $ 885   

Other comprehensive income (loss):

         

Unrealized gains (losses) on derivatives:

         

Unrealized hedging losses on derivatives

     (88             (143     (15

Reclassification adjustments for derivative (gains) losses included in net income (interest expense)

                    (1     3   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total unrealized losses on derivatives

     (88             (144     (12

Unrealized gain on investments

            1                3   

Income tax benefit

     32                53        4   
  

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (56     1         (91     (5
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

     181        360         620        880   

Less: comprehensive income attributable to noncontrolling interest

                             
  

 

 

   

 

 

    

 

 

   

 

 

 

Total comprehensive income attributable to Navient Corporation

   $ 181      $ 360       $ 620      $ 880   
  

 

 

   

 

 

    

 

 

   

 

 

 

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)

 

     Preferred
Stock
Shares
     Common Stock Shares     Preferred
Stock
     Common
Stock
     Additional
Paid-In
Capital
     Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Treasury
Stock
    Total
Stockholders’
Equity
    Noncontrolling
Interest
     Total
Equity
 
        Issued      Treasury     Outstanding                        

Balance at June 30, 2014

             424,353,699         (4,915,240     419,438,459      $       $ 4       $ 2,868       $ 7      $ 1,224      $ (82   $ 4,021      $       $ 4,021   

Comprehensive income:

                                

Net income

                                                                  359               359                359   

Other comprehensive income, net of tax

                                                           1                      1                1   
                           

 

 

   

 

 

    

 

 

 

Total comprehensive income

                                                                                360                360   

Cash dividends:

                                

Common stock ($.15 per share)

                                                                  (62            (62             (62

Issuance of common shares

             712,711                712,711                        5                              5                5   

Tax benefit related to employee stock-based compensation plans

                                                   2                              2                2   

Stock-based compensation expense

                                                   5                              5                5   

Common stock repurchased

                     (9,513,514     (9,513,514                                           (167     (167             (167

Shares repurchased related to employee stock-based compensation plans

                     (418,431     (418,431                                           (8     (8             (8
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2014

             425,066,410         (14,847,185     410,219,225      $       $ 4       $ 2,880       $ 8      $ 1,521      $ (257   $ 4,156      $       $ 4,156   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at June 30, 2015

             429,856,043         (55,823,281     374,032,762      $       $ 4       $ 2,954       $ (26   $ 2,072      $ (1,075   $ 3,929      $ 4       $ 3,933   

Comprehensive income:

                                

Net income

                                                                  237               237                237   

Other comprehensive loss, net of tax

                                                           (56                   (56             (56
                           

 

 

   

 

 

    

 

 

 

Total comprehensive income

                                                                                181                181   

Cash dividends:

                                

Common stock ($.16 per share)

                                                                  (58            (58             (58

Issuance of common shares

             563,109                563,109                        6                              6                6   

Tax benefit related to employee stock-based compensation plans

                                                                                                 

Stock-based compensation expense

                                                   4                              4                4   

Common stock repurchased

                     (12,075,388     (12,075,388                                           (175     (175             (175

Shares repurchased related to employee stock-based compensation plans

                     (211,829     (211,829                                           (4     (4             (4
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance at September 30, 2015

             430,419,152         (68,110,498     362,308,654      $       $ 4       $ 2,964       $ (82   $ 2,251      $ (1,254   $ 3,883      $ 4       $ 3,887   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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)

 

    Preferred
Stock
Shares
    Common Stock Shares     Preferred
Stock
    Common
Stock
    Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Treasury
Stock
    Total
Stockholders’
Equity
    Noncontrolling
Interest
    Total
Equity
 
    Issued     Treasury     Outstanding                    

Balance at December 31, 2013

    7,300,000        545,210,941        (116,262,066     428,948,875      $ 565      $ 109      $ 4,399      $ 13      $ 2,584      $ (2,033   $ 5,637      $ 5      $ 5,642   

Comprehensive income:

                         

Net income

                                                            885               885               885   

Other comprehensive loss, net of tax

                                                     (5                   (5            (5
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          880               880   

Cash dividends:

                         

Common stock ($.45 per share)

                                                            (189            (189            (189

Preferred stock, series A ($1.74 per share)

                                                            (4            (4            (4

Preferred stock, series B ($.98 per share)

                                                            (2            (2            (2

Dividend equivalent units related to employee stock-based compensation plans

                                                            (2            (2            (2

Issuance of common shares

           6,818,737               6,818,737               (80     132                             52               52   

Retirement of common stock in treasury

           (126,963,268     126,963,268                      (25     (2,263                   2,288                        

Tax benefit related to employee stock-based compensation plans

                                              14                             14               14   

Stock-based compensation expense

                                              33                             33               33   

Common stock repurchased

                  (21,744,028     (21,744,028                                        (432     (432            (432

Shares repurchased related to employee stock-based compensation plans

                  (3,804,359     (3,804,359                                        (80     (80            (80

Deconsolidation of subsidiary

                                                                                 (5     (5

Distribution of consumer banking business

    (7,300,000                          (565            565               (1,751            (1,751            (1,751
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

           425,066,410        (14,847,185     410,219,225      $      $ 4      $ 2,880      $ 8      $ 1,521      $ (257   $ 4,156      $      $ 4,156   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

           425,637,635        (23,902,829     401,734,806      $      $ 4      $ 2,893      $ 9      $ 1,724      $ (432   $ 4,198      $      $ 4,198   

Comprehensive income:

                         

Net income

                                                            711               711               711   

Other comprehensive loss, net of tax

                                                     (91                   (91            (91
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          620               620   

Cash dividends:

                         

Common stock ($.48 per share)

                                                            (182            (182            (182

Dividend equivalent units related to employee stock-based compensation plans

                                                            (2            (2            (2

Issuance of common shares

           4,781,517               4,781,517                      33                             33               33   

Tax benefit related to employee stock-based compensation plans

                                              11                             11               11   

Stock-based compensation expense

                                              27                             27               27   

Common stock repurchased

                  (41,919,908     (41,919,908                                        (775     (775            (775

Shares repurchased related to employee stock-based compensation plans

                  (2,287,761     (2,287,761                                        (47     (47            (47

Noncontrolling interest in asset recovery business

                                                                                 4        4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015

           430,419,152        (68,110,498     362,308,654      $      $ 4      $ 2,964      $ (82   $ 2,251      $ (1,254   $ 3,883      $ 4      $ 3,887   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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,  
     2015     2014  

Operating activities

    

Net income

   $ 711      $ 885   

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

    

(Income) loss from discontinued operations, net of tax

     (1     1   

Gains on loans and investments, net

     (12       

Goodwill and acquired intangible asset impairment and amortization expense

     7        7   

Stock-based compensation expense

     27        33   

Unrealized gains on derivative and hedging activities

     (537     (661

Provisions for loan losses

     446        490   

Decrease (increase) in restricted cash — other

     50        (3

Decrease in accrued interest receivable

     196        136   

Decrease in accrued interest payable

     (93     (108

Decrease in other assets

     799        811   

(Decrease) increase in other liabilities

     (134     25   
  

 

 

   

 

 

 

Cash provided by operating activities — continuing operations

     1,459        1,616   

Cash used in operating activities — discontinued operations

            (1
  

 

 

   

 

 

 

Total net cash provided by operating activities

     1,459        1,615   
  

 

 

   

 

 

 

Investing activities

    

Student loans acquired and originated

     (2,940     (4,286

Reduction of student loans:

    

Installment payments, claims and other

     10,583        9,092   

Proceeds from sales of student loans

     386          

Other investing activities, net

     (46     148   

Purchases of available-for-sale securities

            (28

Proceeds from maturities of available-for-sale securities

     1        3   

Purchases of other securities

     (82     (313

Proceeds from maturities of other securities

     24        319   

Increase in restricted cash — variable interest entities

     (396     (52

Purchase of subsidiary, net of cash acquired

     (181       
  

 

 

   

 

 

 

Total net cash provided by investing activities

     7,349        4,883   
  

 

 

   

 

 

 

Financing activities

    

Distribution of consumer banking business

            (2,217

Borrowings collateralized by loans in trust — issued

     4,110        5,109   

Borrowings collateralized by loans in trust — repaid

     (10,949     (9,409

Asset-backed commercial paper conduits, net

     543        (1,898

Other long-term borrowings issued

     493        834   

Other long-term borrowings repaid

     (2,075     (2,192

Other financing activities, net

     (111     (72

Retail and other deposits, net

            726   

Common stock repurchased

     (775     (432

Common stock dividends paid

     (182     (189

Preferred stock dividends paid

            (6
  

 

 

   

 

 

 

Net cash used in financing activities

     (8,946     (9,746
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (138     (3,248

Cash and cash equivalents at beginning of period

     1,443        5,190   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,305      $ 1,942   
  

 

 

   

 

 

 

Cash disbursements made (refunds received) for:

    

Interest

   $ 1,489      $ 1,489   
  

 

 

   

 

 

 

Income taxes paid

   $ 67      $ 339   
  

 

 

   

 

 

 

Income taxes received

   $      $ (107
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2015 and for the three and nine months ended

September 30, 2015 and 2014 is unaudited)

 

1. The Separation

On April 30, 2014, the spin-off of Navient from SLM Corporation (the “Spin-Off”) was completed and Navient became an independent, publicly traded company focused on loan management, servicing and asset recovery. The separation was completed through the distribution of 100 percent of the outstanding shares of Navient common stock, on the basis of one share of Navient common stock for each share of SLM Corporation common stock. SLM Corporation continues operation as a separate publicly traded company and includes Sallie Mae Bank.

Due to the relative significance of Navient to SLM Corporation prior to the Spin-Off, for financial reporting purposes, Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to SLM Corporation as constituted prior to the Spin-Off, notwithstanding the legal form of the Spin-Off. Since Navient is the accounting successor, the historical financial statements of SLM Corporation prior to the Spin-Off are the historical financial statements of Navient. As a result, the GAAP financial results reported in this Quarterly Report on Form 10-Q include the historical financial results of SLM Corporation prior to the Spin-Off on April 30, 2014 (i.e., such consolidated results include our loan management, servicing and asset recovery business and the consumer banking business associated with Sallie Mae Bank (“SLM BankCo”)) and reflect the deemed distribution of SLM BankCo to SLM Corporation’s stockholders on April 30, 2014.

 

2. 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 month periods ended September 30, 2015 are not necessarily indicative of the results for the year ending December 31, 2015 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, 2014 (the “2014 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 2014 Form 10-K.

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and nine months ended September 30, 2014 to be consistent with classifications adopted for 2015, and had no effect on net income, total assets or total liabilities.

 

7


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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Significant Accounting Policies (Continued)

 

Recently Issued Accounting Pronouncements

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB agreed to defer the mandatory effective date by one year. Accordingly, the new standard is effective for the Company as of January 1, 2018. Early application is permitted as of January 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet determined the effect of the standard on our ongoing financial reporting but do not expect it to be material.

 

3. Allowance for Loan Losses

The financial statements of Navient reflect the deemed distribution of SLM BankCo on April 30, 2014. As a result of the deemed distribution, all disclosures in this footnote as of a date prior to April 30, 2014 include SLM BankCo’s FFELP and Private Education Loans, whereas the disclosures as of September 30, 2014, December 31, 2014 and September 30, 2015 do not contain SLM BankCo’s FFELP and Private Education Loans.

Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios.

We segregate our Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loans to (i) customers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.

 

8


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

Allowance for Loan Losses Metrics

 

     Three Months Ended September 30, 2015  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 89      $ 1,533      $ 21      $ 1,643   

Total provision

     7        117        (1     123   

Total net charge-offs(1)

     (12     (148     (1     (161

Reclassification of interest reserve(2)

            3               3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 84      $ 1,505      $ 19      $ 1,608   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,247      $ 16      $ 1,263   

Ending balance: collectively evaluated for impairment

   $ 84      $ 258      $ 3      $ 345   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 10,870      $ 41      $ 10,911   

Ending balance: collectively evaluated for impairment(3)

   $ 97,425      $ 18,507      $ 50      $ 115,982   

Net charge-offs as a percentage of average loans in repayment (annualized)

     .06     2.31     5.10  

Allowance coverage of net charge-offs (annualized)

     1.7        2.6        3.9     

Allowance as a percentage of the ending total loan balance

     .09     5.12     20.31  

Allowance as a percentage of the ending loans in repayment

     .11     5.99     20.31  

Ending total loans(3)

   $ 97,425      $ 29,377      $ 91     

Average loans in repayment

   $ 75,460      $ 25,546      $ 93     

Ending loans in repayment

   $ 75,294      $ 25,104      $ 91     

 

  (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) 

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

 

9


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Three Months Ended September 30, 2014  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 96      $ 1,983      $ 26      $ 2,105   

Total provision

     10        130               140   

Total net charge-offs(1)

     (14     (158     (1     (173

Reclassification of interest reserve(2)

            4               4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 92      $ 1,959      $ 25      $ 2,076   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,121      $ 19      $ 1,140   

Ending balance: collectively evaluated for impairment

   $ 92      $ 838      $ 6      $ 936   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 10,329      $ 45      $ 10,374   

Ending balance: collectively evaluated for impairment(3)

   $ 96,828      $ 22,710      $ 67      $ 119,605   

Net charge-offs as a percentage of average loans in repayment (annualized)

     .08     2.30     3.08  

Allowance coverage of net charge-offs (annualized)

     1.6        3.1        7.0     

Allowance as a percentage of the ending total loan balance

     .09     5.93     22.08  

Allowance as a percentage of the ending loans in repayment

     .13     7.23     22.08  

Ending total loans(3)

   $ 96,828      $ 33,039      $ 112     

Average loans in repayment

   $ 71,807      $ 27,228      $ 114     

Ending loans in repayment

   $ 71,508      $ 27,092      $ 112     

 

  (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) 

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

 

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Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Nine Months Ended September 30, 2015  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 93      $ 1,916      $ 24      $ 2,033   

Total provision

     19        428        (1     446   

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

            (330            (330

Net charge-offs remaining(2)

     (28     (517     (4     (549
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net charge-offs

     (28     (847     (4     (879

Reclassification of interest reserve(3)

            8               8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 84      $ 1,505      $ 19      $ 1,608   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,247      $ 16      $ 1,263   

Ending balance: collectively evaluated for impairment

   $ 84      $ 258      $ 3      $ 345   

Loans:

        

Ending balance: individually evaluated for impairment(4)

   $      $ 10,870      $ 41      $ 10,911   

Ending balance: collectively evaluated for impairment(4)

   $ 97,425      $ 18,507      $ 50      $ 115,982   

Net charge-offs as a percentage of average loans in repayment, excluding the net adjustment resulting from the change in the charge-off rate (annualized)(1)

     .05     2.65     5.72  

Net adjustment resulting from the change in the charge-off rate as a percentage of average loans in repayment (annualized)(1)

         1.69      

Allowance coverage of net charge-offs, excluding the net adjustment resulting from the change in the charge-off rate (annualized)(1)

     2.2        2.2        3.3     

Allowance as a percentage of the ending total loan balance

     .09     5.12     20.31  

Allowance as a percentage of the ending loans in repayment

     .11     5.99     20.31  

Ending total loans(4)

   $ 97,425      $ 29,377      $ 91     

Average loans in repayment

   $ 76,412      $ 26,100      $ 99     

Ending loans in repayment

   $ 75,294      $ 25,104      $ 91     

 

  (1) 

In the second quarter of 2015, the portion of the loan amount charged off at default on Private Education Loans increased from 73 percent to 79 percent. This did not impact the provision for loan losses as previously this had been reserved through the allowance for loan losses. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans.

 

  (2) 

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

 

  (3) 

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

 

  (4) 

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

 

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Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Nine Months Ended September 30, 2014  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 119      $ 2,097      $ 28      $ 2,244   

Total provision

     30        460               490   

Total net charge-offs(1)

     (51     (543     (3     (597

Reclassification of interest reserve(2)

            14               14   

Distribution of SLM BankCo

     (6     (69            (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 92      $ 1,959      $ 25      $ 2,076   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,121      $ 19      $ 1,140   

Ending balance: collectively evaluated for impairment

   $ 92      $ 838      $ 6      $ 936   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 10,329      $ 45      $ 10,374   

Ending balance: collectively evaluated for impairment(3)

   $ 96,828      $ 22,710      $ 67      $ 119,605   

Net charge-offs as a percentage of average loans in repayment (annualized)

     .10     2.50     3.48  

Allowance coverage of net charge-offs (annualized)

     1.3        2.7        5.9     

Allowance as a percentage of the ending total loan balance

     .09     5.93     22.08  

Allowance as a percentage of the ending loans in repayment

     .13     7.23     22.08  

Ending total loans(3)

   $ 96,828      $ 33,039      $ 112     

Average loans in repayment

   $ 72,635      $ 29,065      $ 120     

Ending loans in repayment

   $ 71,508      $ 27,092      $ 112     

 

  (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) 

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

 

12


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

Key Credit Quality Indicators

FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into our allowance for loan losses calculation.

For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into our allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators.

 

     Private Education Loans
Credit Quality Indicators
 
     September 30, 2015     December 31, 2014  

(Dollars in millions)

   Balance(3)      % of Balance     Balance(3)      % of Balance  

Credit Quality Indicators

          

School Type/FICO Scores:

          

Traditional

   $ 26,182         92   $ 28,527         92

Non-Traditional(1)

     2,303         8        2,534         8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 28,485         100   $ 31,061         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Cosigners:

          

With cosigner

   $ 18,380         65   $ 20,001         64

Without cosigner

     10,105         35        11,060         36   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 28,485         100   $ 31,061         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Seasoning(2):

          

1-12 payments

   $ 1,926         7   $ 2,734         9

13-24 payments

     2,336         8        3,161         10   

25-36 payments

     3,545         12        4,259         14   

37-48 payments

     3,972         14        4,404         14   

More than 48 payments

     14,371         51        13,450         43   

Not yet in repayment

     2,335         8        3,053         10   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 28,485         100   $ 31,061         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers attending not-for-profit schools (with a FICO score of less than 640 at origination).

 

(2) 

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

 

(3) 

Balance represents gross Private Education Loans.

 

13


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

The following tables provide information regarding the loan status and aging of past due loans.

 

     FFELP Loan Delinquencies  
     September 30,
2015
    December 31,
2014
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 9,184        $ 10,861     

Loans in forbearance(2)

     12,947          14,366     

Loans in repayment and percentage of each status:

        

Loans current

     63,320        84.1     65,221        83.4

Loans delinquent 31-60 days(3)

     3,654        4.9        3,942        5.0   

Loans delinquent 61-90 days(3)

     1,886        2.5        2,451        3.1   

Loans delinquent greater than 90 days(3)

     6,434        8.5        6,597        8.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans in repayment

     75,294        100     78,211        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans, gross

     97,425          103,438     

FFELP Loan unamortized premium

     1,127          1,176     
  

 

 

     

 

 

   

Total FFELP Loans

     98,552          104,614     

FFELP Loan allowance for losses

     (84       (93  
  

 

 

     

 

 

   

FFELP Loans, net

   $ 98,468        $ 104,521     
  

 

 

     

 

 

   

Percentage of FFELP Loans in repayment

       77.3       75.6
    

 

 

     

 

 

 

Delinquencies as a percentage of FFELP Loans in repayment

       15.9       16.6
    

 

 

     

 

 

 

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance

       14.7       15.5
    

 

 

     

 

 

 

 

(1) 

Loans for customers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.

 

(2) 

Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors.

 

(3) 

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

 

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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Private Education Traditional Loan
Delinquencies
 
     September 30,
2015
    December 31,
2014
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 2,128        $ 2,777     

Loans in forbearance(2)

     924          935     

Loans in repayment and percentage of each status:

        

Loans current

     21,596        93.4     23,012        92.7

Loans delinquent 31-60 days(3)

     504        2.2        624        2.5   

Loans delinquent 61-90 days(3)

     338        1.4        363        1.5   

Loans delinquent greater than 90 days(3)

     692        3.0        816        3.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans in repayment

     23,130        100     24,815        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans, gross

     26,182          28,527     

Traditional loans unamortized discount

     (487       (526  
  

 

 

     

 

 

   

Total traditional loans

     25,695          28,001     

Traditional loans receivable for partially charged-off loans

     564          775     

Traditional loans allowance for losses

     (1,251       (1,515  
  

 

 

     

 

 

   

Traditional loans, net

   $ 25,008        $ 27,261     
  

 

 

     

 

 

   

Percentage of traditional loans in repayment

       88.3       87.0
    

 

 

     

 

 

 

Delinquencies as a percentage of traditional loans in repayment

       6.6       7.3
    

 

 

     

 

 

 

Loans in forbearance as a percentage of loans in repayment and forbearance

       3.8       3.6
    

 

 

     

 

 

 

 

(1) 

Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

 

(2) 

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

 

(3) 

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

 

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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Private Education Non-Traditional
Loan Delinquencies
 
     September 30,
2015
    December 31,
2014
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 207        $ 276     

Loans in forbearance(2)

     122          124     

Loans in repayment and percentage of each status:

        

Loans current

     1,662        84.2     1,749        81.9

Loans delinquent 31-60 days(3)

     85        4.3        110        5.2   

Loans delinquent 61-90 days(3)

     65        3.3        73        3.4   

Loans delinquent greater than 90 days(3)

     162        8.2        202        9.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans in repayment

     1,974        100     2,134        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans, gross

     2,303          2,534     

Non-traditional loans unamortized discount

     (62       (68  
  

 

 

     

 

 

   

Total non-traditional loans

     2,241          2,466     

Non-traditional loans receivable for partially charged-off loans

     328          470     

Non-traditional loans allowance for losses

     (254       (401  
  

 

 

     

 

 

   

Non-traditional loans, net

   $ 2,315        $ 2,535     
  

 

 

     

 

 

   

Percentage of non-traditional loans in repayment

       85.7       84.2
    

 

 

     

 

 

 

Delinquencies as a percentage of non-traditional loans in repayment

       15.8       18.1
    

 

 

     

 

 

 

Loans in forbearance as a percentage of loans in repayment and forbearance

       5.8       5.5
    

 

 

     

 

 

 

 

(1) 

Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

 

(2) 

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

 

(3) 

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

Receivable for Partially Charged-Off Private Education Loans

At the end of each month, for loans that are 212 or more days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for Private Education Loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. The financial crisis, which began in 2007, impacted our collections on defaulted loans and as a result, Private Education Loans which defaulted from 2007 through March 31, 2015, experienced collection performance below our pre-financial crisis experience. For that reason, until we gained enough data and experience to determine the long-term, post-default recovery rate of 21 percent in second-quarter 2015, we established a reserve for potential shortfalls in recoveries. In the second quarter of 2015, the portion of the loan amount charged off at default increased from 73 percent to 79 percent. This did not impact the provision for loan losses as previously this had been reserved through the allowance for loan losses. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans. We no longer

 

16


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

expect to have significant periodic recovery shortfalls as a result of this change; however, it is possible we may continue to experience such shortfalls.

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 

(Dollars in millions)

   2015      2014      2015      2014  

Receivable at beginning of period

   $ 902       $ 1,269       $ 1,245       $ 1,313   

Expected future recoveries of current period defaults(1)

     38         51         147         175   

Recoveries(2)

     (48      (48      (151      (167

Net adjustment resulting from the change in the charge-off rate(3)

                     (330        

Net charge-offs remaining

             (19      (19      (68
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net charge-offs

             (19      (349      (68
  

 

 

    

 

 

    

 

 

    

 

 

 

Receivable at end of period

     892         1,253         892         1,253   

Allowance for estimated recovery shortfalls(4)

             (392              (392
  

 

 

    

 

 

    

 

 

    

 

 

 

Net receivable at end of period

   $ 892       $ 861       $ 892       $ 861   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

  (1) 

Represents the difference between the defaulted loan balance and our estimate of the amount to be collected in the future.

 

  (2) 

Current period cash collections.

 

  (3) 

Prior to second-quarter 2015, charge-offs represent the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. In the second quarter of 2015, the portion of the loan amount charged off at default increased from 73 percent to 79 percent. This change resulted in a $330 million reduction to the balance of the receivable for partially charged-off loans. These amounts are included in total charge-offs as reported in the “Allowance for Private Education Loan Losses” table.

 

  (4) 

The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the overall allowance for Private Education Loan losses.

Troubled Debt Restructurings (“TDRs”)

We sometimes modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 54 percent and 51 percent of the loans granted forbearance have qualified as a TDR loan at September 30, 2015 and December 31, 2014, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan was $2.2 billion as of both September 30, 2015 and December 31, 2014.

 

17


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

At September 30, 2015 and December 31, 2014, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.

 

     TDR Loans  

(Dollars in millions)

   Recorded
Investment(1)
     Unpaid
Principal
Balance
     Related
Allowance
 

September 30, 2015

        

Private Education Loans — Traditional

   $ 9,041       $ 9,107       $ 1,014   

Private Education Loans — Non-Traditional

     1,452         1,452         233   
  

 

 

    

 

 

    

 

 

 

Total

   $ 10,493       $ 10,559       $ 1,247   
  

 

 

    

 

 

    

 

 

 

December 31, 2014

        

Private Education Loans — Traditional

   $ 8,728       $ 8,790       $ 917   

Private Education Loans — Non-Traditional

     1,477         1,476         215   
  

 

 

    

 

 

    

 

 

 

Total

   $ 10,205       $ 10,266       $ 1,132   
  

 

 

    

 

 

    

 

 

 

 

  (1) 

The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs.

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

 

     Three Months Ended September 30,  
     2015      2014  

(Dollars in millions)

   Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Private Education Loans — Traditional

   $ 8,988       $ 134       $ 8,306       $ 126   

Private Education Loans — Non-Traditional

     1,456         29         1,466         29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,444       $ 163       $ 9,772       $ 155   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30,  
     2015      2014  

(Dollars in millions)

   Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Private Education Loans — Traditional

   $ 8,930       $ 402       $ 7,983       $ 366   

Private Education Loans — Non-Traditional

     1,466         86         1,450         87   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,396       $ 488       $ 9,433       $ 453   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

The following table provides information regarding the loan status and aging of TDR loans that are past due.

 

     TDR Loan Delinquencies  
     September 30, 2015     December 31, 2014  

(Dollars in millions)

     Balance          %       Balance      %  

Loans in deferment(1)

   $ 767         $ 825      

Loans in forbearance(2)

     746           745      

Loans in repayment and percentage of each status:

          

Loans current

     7,657         84.7     7,186         82.7

Loans delinquent 31-60 days(3)

     410         4.5        464         5.3   

Loans delinquent 61-90 days(3)

     301         3.3        299         3.4   

Loans delinquent greater than 90 days(3)

     678         7.5        747         8.6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans in repayment

     9,046         100     8,696         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans, gross

   $ 10,559         $ 10,266      
  

 

 

      

 

 

    

 

  (1) 

Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

 

  (2) 

Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

 

  (3) 

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

The following tables provide the amount of loans modified in the periods presented that resulted in a TDR. Additionally, the tables summarize charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan or do not involve an extended repayment plan.

 

     Three Months Ended September 30,  
     2015      2014  

(Dollars in millions)

   Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
     Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
 

Private Education Loans — Traditional

   $ 339       $ 81       $ 83       $ 415       $ 72       $ 110   

Private Education Loans — Non-Traditional

     32         26         15         43         23         24   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 371       $ 107       $ 98       $ 458       $ 95       $ 134   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30,  
     2015      2014  

(Dollars in millions)

   Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
     Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
 

Private Education Loans — Traditional

   $ 1,107       $ 273       $ 266       $ 1,414       $ 245       $ 331   

Private Education Loans — Non-Traditional

     111         84         47         159         80         76   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,218       $ 357       $ 313       $ 1,573       $ 325       $ 407   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

19


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans and our allowance for uncollectible interest.

 

(Dollars in millions)

   Accrued
Interest
Receivable
     Allowance for
Uncollectible
Interest
 

September 30, 2015

     

Private Education Loans — Traditional

   $ 486       $ 26   

Private Education Loans — Non-Traditional

     60         8   
  

 

 

    

 

 

 

Total

   $ 546       $ 34   
  

 

 

    

 

 

 

December 31, 2014

     

Private Education Loans — Traditional

   $ 542       $ 29   

Private Education Loans — Non-Traditional

     70         11   
  

 

 

    

 

 

 

Total

   $ 612       $ 40   
  

 

 

    

 

 

 

 

4. Borrowings

The following table summarizes our borrowings.

 

     September 30, 2015      December 31, 2014  

(Dollars in millions)

   Short
Term
    Long
Term
     Total      Short
Term
     Long
Term
     Total  

Unsecured borrowings:

                

Senior unsecured debt

   $ 1,222      $ 14,597       $ 15,819       $ 1,066       $ 16,311       $ 17,377   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured borrowings

     1,222        14,597         15,819         1,066         16,311         17,377   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured borrowings:

                

FFELP Loan securitizations

            80,751         80,751                 86,241         86,241   

Private Education Loan securitizations

            16,744         16,744                 17,997         17,997   

FFELP Loan — other facilities

            15,796         15,796                 15,358         15,358   

Private Education Loan — other facilities

     758                758         653                 653   

Other(1)

     851                851         937                 937   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured borrowings

     1,609        113,291         114,900         1,590         119,596         121,186   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total before hedge accounting adjustments

     2,831        127,888         130,719         2,656         135,907         138,563   

Hedge accounting adjustments

     (15     405         390         7         959         966   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,816      $ 128,293       $ 131,109       $ 2,663       $ 136,866       $ 139,529   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

“Other” primarily consists of the obligation to return cash collateral held related to derivative exposure.

 

20


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

4. Borrowings (Continued)

 

Variable Interest Entities

We consolidated the following financing VIEs as of September 30, 2015 and December 31, 2014, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.

 

    September 30, 2015  
    Debt Outstanding     Carrying Amount of Assets Securing Debt
Outstanding
 

(Dollars in millions)

  Short
Term
    Long
Term
    Total     Loans     Cash     Other Assets     Total  

Secured Borrowings — VIEs:

             

FFELP Loan securitizations

  $      $ 80,751      $ 80,751      $ 80,748      $ 3,462      $ 679      $ 84,889   

Private Education Loan securitizations

           16,744        16,744        22,130        378        356        22,864   

FFELP Loan — other facilities

           12,996        12,996        13,465        272        184        13,921   

Private Education Loan — other facilities

    758               758        1,148        17        37        1,202   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total before hedge accounting adjustments

    758        110,491        111,249        117,491        4,129        1,256        122,876   

Hedge accounting adjustments

           (592     (592                   (675     (675
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 758      $ 109,899      $ 110,657      $ 117,491      $ 4,129      $ 581      $ 122,201   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2014  
    Debt Outstanding     Carrying Amount of Assets Securing Debt
Outstanding
 

(Dollars in millions)

  Short
Term
    Long
Term
    Total     Loans     Cash     Other Assets     Total  

Secured Borrowings — VIEs:

             

FFELP Loan securitizations

  $      $ 86,241      $ 86,241      $ 86,715      $ 3,069      $ 722      $ 90,506   

Private Education Loan securitizations

           17,997        17,997        23,184        378        389        23,951   

FFELP Loan — other facilities

           13,358        13,358        13,653        269        260        14,182   

Private Education Loan — other facilities

    653               653        1,233        17        36        1,286