10-Q 1 d743153d10q.htm 10-Q 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 June 30, 2014

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.)

300 Continental Drive, Newark, Delaware   19713
(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

Common Stock, $0.01 par value

 

Outstanding at June 30, 2014

419,438,459 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      101   

Item 4.

   Controls and Procedures      105   

PART II. Other Information

  

Item 1.

   Legal Proceedings      106   

Item 1A.

   Risk Factors      107   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      108   

Item 3.

   Defaults Upon Senior Securities      108   

Item 4.

   Mine Safety Disclosures      108   

Item 5.

   Other Information      108   

Item 6.

   Exhibits      109   


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)

 

     June 30,
2014
    December 31,
2013
 

Assets

    

FFELP Loans (net of allowance for losses of $96 and $119, respectively)

   $ 99,730      $ 104,588   

Private Education Loans (net of allowance for losses of $1,983 and $2,097 respectively)

     30,324        37,512   

Investments

    

Available-for-sale

     7        109   

Other

     651        783   
  

 

 

   

 

 

 

Total investments

     658        892   

Cash and cash equivalents

     1,636        5,190   

Restricted cash and investments

     3,613        3,650   

Goodwill and acquired intangible assets, net

     373        424   

Other assets

     6,642        7,287   
  

 

 

   

 

 

 

Total assets

   $ 142,976      $ 159,543   
  

 

 

   

 

 

 

Liabilities

    

Short-term borrowings

   $ 4,316      $ 13,795   

Long-term borrowings

     131,919        136,648   

Other liabilities

     2,720        3,458   
  

 

 

   

 

 

 

Total liabilities

     138,955        153,901   
  

 

 

   

 

 

 

Commitments and contingencies

    

Equity

    

Preferred stock, par value $0.20 per share, 20 million shares authorized

    

Series A: 0 million and 3.3 million shares issued, respectively, at stated value of $50 per share

            165   

Series B: 0 million and 4 million shares issued, respectively, at stated value of $100 per share

            400   

Common stock, par value $0.01 and $0.20 per share, respectively, 1.125 billion shares authorized: 424 million and 545 million shares issued, respectively

     4        109   

Additional paid-in capital

     2,868        4,399   

Accumulated other comprehensive income (net of tax expense of $4 and $7, respectively)

     7        13   

Retained earnings

     1,224        2,584   
  

 

 

   

 

 

 

Total Navient Corporation stockholders’ equity before treasury stock

     4,103        7,670   

Less: Common stock held in treasury at cost: 5 million and 116 million shares, respectively

     (82     (2,033
  

 

 

   

 

 

 

Total Navient Corporation stockholders’ equity

     4,021        5,637   

Noncontrolling interest

            5   
  

 

 

   

 

 

 

Total equity

     4,021        5,642   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 142,976      $ 159,543   
  

 

 

   

 

 

 

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

 

     June 30,
2014
     December 31,
2013
 

FFELP Loans

   $ 95,604       $ 99,254   

Private Education Loans

     24,198         25,530   

Restricted cash and investments

     3,394         3,395   

Other assets

     2,184         2,322   

Short-term borrowings

             3,655   

Long-term borrowings

     114,711         115,538   
  

 

 

    

 

 

 

Net assets of consolidated variable interest entities

   $ 10,669       $ 11,308   
  

 

 

    

 

 

 

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
June 30,
    Six Months Ended
June 30,
 
         2014              2013             2014              2013      

Interest income:

          

FFELP Loans

   $ 631       $ 703      $ 1,278       $ 1,439   

Private Education Loans

     539         627        1,183         1,249   

Other loans

     2         3        4         6   

Cash and investments

     3         4        6         8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     1,175         1,337        2,471         2,702   

Total interest expense

     513         553        1,042         1,123   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income

     662         784        1,429         1,579   

Less: provisions for loan losses

     165         201        350         442   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provisions for loan losses

     497         583        1,079         1,137   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other income (loss):

          

Gains on sales of loans and investments

             251                307   

Gains (losses) on derivative and hedging activities, net

     61         18        53         (13

Servicing revenue

     73         69        136         139   

Asset recovery revenue

     132         109        243         208   

Gains on debt repurchases

             19                42   

Other

     9         24        13         59   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other income

     275         490        445         742   
  

 

 

    

 

 

   

 

 

    

 

 

 

Expenses:

          

Salaries and benefits

     116         128        257         253   

Other operating expenses

     95         116        321         228   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

     211         244        578         481   

Goodwill and acquired intangible asset impairment and amortization expense

     2         3        6         6   

Restructuring and other reorganization expenses

     61         23        87         34   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total expenses

     274         270        671         521   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from continuing operations, before income tax expense

     498         803        853         1,358   

Income tax expense

     191         299        328         509   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income from continuing operations

     307         504        525         849   

Income from discontinued operations, net of tax expense

             38        1         39   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     307         542        526         888   

Less: net loss attributable to noncontrolling interest

             (1             (1
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to Navient Corporation

     307         543        526         889   

Preferred stock dividends

     2         5        6         10   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to Navient Corporation common stock

   $ 305       $ 538      $ 520       $ 879   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per common share attributable to Navient Corporation:

          

Continuing operations

   $ .72       $ 1.14      $ 1.22       $ 1.88   

Discontinued operations

             .08                .09   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ .72       $ 1.22      $ 1.22       $ 1.97   
  

 

 

    

 

 

   

 

 

    

 

 

 

Average common shares outstanding

     422         440        424         445   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted earnings per common share attributable to Navient Corporation:

          

Continuing operations

   $ .71       $ 1.12      $ 1.20       $ 1.85   

Discontinued operations

             .08                .09   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ .71       $ 1.20      $ 1.20       $ 1.94   
  

 

 

    

 

 

   

 

 

    

 

 

 

Average common and common equivalent shares outstanding

     430         448        432         453   
  

 

 

    

 

 

   

 

 

    

 

 

 

Dividends per common share attributable to Navient Corporation

   $ .15       $ .15      $ .30       $ .30   
  

 

 

    

 

 

   

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

2


Table of Contents

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2014             2013             2014             2013      

Net income

   $ 307      $ 542      $ 526      $ 888   

Other comprehensive income (loss):

        

Unrealized gains (losses) on derivatives:

        

Unrealized hedging gains (losses) on derivatives

     (4     22        (15     23   

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

     1        2        4        5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total unrealized gains (losses) on derivatives

     (3     24        (11     28   

Unrealized gain (losses) on investments

     3        (3     3        (4

Income tax (expense) benefit

            (8     2        (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

            13        (6     15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     307        555        520        903   

Less: comprehensive loss attributable to noncontrolling interest

            (1            (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Navient Corporation

   $ 307      $ 556      $ 520      $ 904   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 March 31, 2013

    7,300,000        539,665,760        (95,455,400     444,210,360      $ 565      $ 108      $ 4,291      $ (4   $ 1,723      $ (1,535   $ 5,148      $ 6      $ 5,154   

Comprehensive income:

                         

Net income (loss)

                                                            543               543        (1     542   

Other comprehensive income, net of tax

                                                     13                      13               13   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          556        (1     555   

Cash dividends:

                         

Common stock ($.15 per share)

                                                            (66            (66            (66

Preferred stock, series A ($.87 per share)

                                                            (3            (3            (3

Preferred stock, series B ($.52 per share)

                                                            (2            (2            (2

Issuance of common shares

           4,115,424               4,115,424               1        50                             51               51   

Tax benefit related to employee stock-based compensation plans

                                              4                             4               4   

Stock-based compensation expense

                                              10                             10               10   

Common stock repurchased

                  (9,096,144     (9,096,144                                        (201     (201            (201

Shares repurchased related to employee stock-based compensation plans

                  (3,040,788     (3,040,788                                        (68     (68            (68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

    7,300,000        543,781,184        (107,592,332     436,188,852      $ 565      $ 109      $ 4,355      $ 9      $ 2,195      $ (1,804   $ 5,429      $ 5      $ 5,434   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

    7,300,000        549,449,123        (126,745,836     422,703,287      $ 565      $ 110      $ 4,461      $ 7      $ 2,733      $ (2,283   $ 5,593      $ 5      $ 5,598   

Comprehensive income:

                         

Net income (loss)

                                                            307               307               307   

Other comprehensive income, net of tax

                                                                                          
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          307               307   

Cash dividends:

                         

Common stock ($.15 per share)

                                                            (63            (63            (63

Preferred stock, series A ($.87 per share)

                                                            (1            (1            (1

Preferred stock, series B ($.49 per share)

                                                            (1            (1            (1

Issuance of common shares

           1,867,844               1,867,844               (81     94                             13               13   

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

                                              1                             1               1   

Stock-based compensation expense

                                              10                             10               10   

Common stock repurchased

                  (3,862,214     (3,862,214                                        (65     (65            (65

Shares repurchased related to employee stock-based compensation plans

                  (1,270,458     (1,270,458                                        (22     (22            (22

Deconsolidation of subsidiary

                                                                                 (5     (5

Distribution of consumer banking business

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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, 2012

    7,300,000        535,507,965        (82,910,021     452,597,944      $ 565      $ 107      $ 4,237      $ (6   $ 1,451      $ (1,294   $ 5,060      $ 6      $ 5,066   

Comprehensive income:

                         

Net income (loss)

                                                            889               889        (1     888   

Other comprehensive income, net of tax

                                                     15                      15               15   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          904        (1     903   

Cash dividends:

                         

Common stock ($.30 per share)

                                                            (134            (134            (134

Preferred stock, series A ($1.74 per share)

                                                            (6            (6            (6

Preferred stock, series B ($1.01 per share)

                                                            (4            (4            (4

Dividend equivalent units related to employee stock-based compensation plans

                                                            (1            (1            (1

Issuance of common shares

           8,273,219               8,273,219               2        84                             86               86   

Tax benefit related to employee stock-based compensation plans

                                              5                             5               5   

Stock-based compensation expense

                                              29                             29               29   

Common stock repurchased

                  (19,316,948     (19,316,948                                        (400     (400            (400

Shares repurchased related to employee stock-based compensation plans

                  (5,365,363     (5,365,363                                        (110     (110            (110
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

    7,300,000        543,781,184        (107,592,332     436,188,852      $ 565      $ 109      $ 4,355      $ 9      $ 2,195      $ (1,804   $ 5,429      $ 5      $ 5,434   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 (loss)

                                                            526               526               526   

Other comprehensive income, net of tax

                                                     (6                   (6            (6
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          520               520   

Cash dividends:

                         

Common stock ($.30 per share)

                                                            (127            (127            (127

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

           6,106,026               6,106,026               (80     127                             47               47   

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

                                              12                             12               12   

Stock-based compensation expense

                                              28                             28               28   

Common stock repurchased

                  (12,230,514     (12,230,514                                        (265     (265            (265

Shares repurchased related to employee stock-based compensation plans

                  (3,385,928     (3,385,928                                        (72     (72            (72

Deconsolidation of subsidiary

                                                                                 (5     (5

Distribution of consumer banking business

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

NAVIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

     Six Months Ended June 30,  
             2014                     2013          

Operating activities

    

Net income

   $ 526      $ 888   

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

    

Income from discontinued operations, net of tax

     (1     (39

Gains on loans and investments, net

            (307

Gains on debt repurchases

            (42

Goodwill and acquired intangible asset impairment and amortization expense

     6        6   

Stock-based compensation expense

     28        29   

Unrealized (gains) losses on derivative and hedging activities

     (397     (330

Provisions for loan losses

     350        442   

Increase in restricted cash — other

     (45     (3

Decrease (increase) in accrued interest receivable

     63        (42

(Decrease) increase in accrued interest payable

     (32     6   

Decrease in other assets

     177        504   

Increase (decrease) in other liabilities

     437        (198
  

 

 

   

 

 

 

Cash provided by operating activities — continuing operations

     1,112        914   
  

 

 

   

 

 

 

Cash provided by operating activities — discontinued operations

     1        40   
  

 

 

   

 

 

 

Total net cash provided by operating activities

     1,113        954   
  

 

 

   

 

 

 

Investing activities

    

Student loans acquired and originated

     (2,917     (2,078

Reduction of student loans:

    

Installment payments, claims and other

     6,005        6,265   

Proceeds from sales of student loans

            707   

Other investing activities, net

     108        115   

Purchases of available-for-sale securities

     (28     (24

Proceeds from maturities of available-for-sale securities

     3        20   

Purchases of other securities

     (104     (144

Proceeds from maturities of other securities

     107        133   

Decrease in restricted cash — variable interest entities

     54        611   
  

 

 

   

 

 

 

Total net cash provided by investing activities

     3,228        5,605   
  

 

 

   

 

 

 

Financing activities

    

Distribution of consumer banking business

     (2,217       

Borrowings collateralized by loans in trust — issued

     3,393        6,187   

Borrowings collateralized by loans in trust — repaid

     (6,108     (6,439

Asset-backed commercial paper conduits, net

     (2,243     4,349   

ED Conduit Program facility, net

            (9,551

Other long-term borrowings issued

     834        1,489   

Other long-term borrowings repaid

     (2,040     (2,296

Other financing activities, net

     158        (766

Retail and other deposits, net

     726        439   

Common stock repurchased

     (265     (400

Common stock dividends paid

     (127     (134

Preferred stock dividends paid

     (6     (10
  

 

 

   

 

 

 

Net cash used in financing activities

     (7,895     (7,132
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (3,554     (573

Cash and cash equivalents at beginning of period

     5,190        3,900   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,636      $ 3,327   
  

 

 

   

 

 

 

Cash disbursements made (refunds received) for:

    

Interest

   $ 1,005      $ 1,121   
  

 

 

   

 

 

 

Income taxes paid

   $ 192      $ 282   
  

 

 

   

 

 

 

Income taxes received

   $ (70   $ (18
  

 

 

   

 

 

 

Noncash activity:

    

Investing activity — Student loans and other assets removed related to sale of Residual Interest in securitization

   $      $ (11,802
  

 

 

   

 

 

 

Financing activity — Borrowings removed related to sale of Residual Interest in securitization

   $      $ (12,084
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2014 and for the three and six months ended

June 30, 2014 and 2013 is unaudited)

 

1. The Separation

Presentation of Information

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to:

 

   

“We,” “our,” “us,” or the “Company” with respect to any period on or prior to the date of the Spin-Off refers to Old SLM and its consolidated subsidiaries as constituted prior to the Spin-Off, and any references to “Navient,” “we,” “our,” “us,” or the “Company” with respect to any period after the date of the Spin-Off refers to Navient and its consolidated subsidiaries.

 

   

“Old SLM” refers to SLM Corporation, as it existed prior to the Spin-Off, and its consolidated subsidiaries. As part of an internal corporate reorganization of Old SLM, Old SLM was merged into a limited liability company and became a subsidiary of Navient, changing its name to “Navient, LLC.”

 

   

Navient’s historical business and operations refer to Old SLM’s portfolio of FFELP and Private Education Loans not held by Sallie Mae Bank, together with the servicing and asset recovery businesses that were retained by or transferred to Navient in connection with the internal corporate reorganization.

 

   

“SLM BankCo” refers to New BLC Corporation, which became the publicly traded successor to Old SLM on April 29, 2014 by virtue of a merger pursuant to Section 251(g) of the Delaware General Corporation Law (“DGCL”), and its consolidated subsidiaries. Following consummation of the merger, New BLC Corporation changed its name to SLM Corporation. After the Spin-Off, SLM BankCo’s business consists primarily of the consumer banking business previously operated by Old SLM, which includes Sallie Mae Bank and its portfolio of Private Education Loans, a new Private Education Loan servicing business and the Upromise Rewards business.

 

   

“Spin-Off” collectively refers to the internal reorganization of Old SLM on April 29, 2014 and the distribution on April 30, 2014 of all of the shares of common stock of Navient to the holders of shares of SLM BankCo.

Spin-Off of Navient

On April 30, 2014, the previously announced separation of Navient from SLM BankCo was completed. The separation was effected through the distribution by SLM BankCo of all the shares of common stock of Navient, on a one-to-one basis, to the holders of shares of SLM BankCo common stock as of the close of business on April 22, 2014, the record date for the distribution. As a result of the distribution, Navient is an independent, publicly traded company that operates the education loan management, servicing and asset recovery business previously operated by Old SLM. Navient is comprised primarily of Old SLM’s portfolios of education loans that were not held in Sallie Mae Bank at the time of the separation, as well as servicing and asset recovery activities on those loans and loans held by third parties. The consumer banking business, SLM BankCo, is comprised primarily of Sallie Mae Bank and its Private Education Loan origination business, the Private Education Loans it holds and a related servicing business.

To implement the separation and distribution of Navient, an internal corporate reorganization of Old SLM was effected, pursuant to which, on April 29, 2014, SLM BankCo replaced Old SLM as the parent holding company pursuant to a holding company merger. In accordance with Section 251(g) of the DGCL, by action of the Old SLM board of directors and without a shareholder vote, Old SLM was merged into Navient, LLC, a wholly owned subsidiary of Old SLM, with Navient, LLC surviving. Immediately following the effective time of the merger, SLM BankCo changed its name to “SLM Corporation.” As part of the internal corporate reorganization and pursuant to the merger, all of the outstanding shares of Old SLM Series A preferred stock and

 

7


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

1. The Separation (Continued)

 

Series B preferred stock were converted, on a one-to-one basis, into substantially identical shares of SLM BankCo preferred stock. Following the merger, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking were transferred to SLM BankCo. The Spin-Off is intended to be tax-free and on July 9, 2014, Navient received a private letter ruling from the Internal Revenue Service confirming the tax-free status of the Spin-Off and the related internal reorganization transactions. For further information on the Spin-Off and all related matters, please refer to our Registration Statement on Form 10, as amended (our “Form 10”), filed with the Securities and Exchange Commission (the “SEC”) on April 10, 2014, and declared effective on April 14, 2014.

Due to the relative significance of Navient to Old SLM, among other factors, for financial reporting purposes Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to Old SLM, notwithstanding the legal form of the Spin-Off. As a result, the historical financial statements of Old SLM prior to the distribution on April 30, 2014 are the historical financial statements of Navient. For that reason the historical financial information related to periods on or prior to April 30, 2014 contained in this Quarterly Report on Form 10-Q is that of Old SLM, which includes the consolidated results of both the loan management, servicing and asset recovery business (Navient) and the consumer banking business (SLM BankCo).

Since Navient is the “accounting spinnor,” the financial statements of Navient reflect the deemed distribution of SLM BankCo to SLM BankCo’s stockholders on April 30, 2014, notwithstanding the legal form of the Spin-Off in which Navient common stock was distributed to the stockholders of SLM BankCo.

The following table shows the condensed balance sheet of SLM BankCo that the financial statements of Navient reflect as a shareholder distribution on April 30, 2014:

 

(Dollars in millions)

   April 30, 2014  

Assets

  

FFELP Loans, net

   $ 1,380   

Private Education Loans, net

     7,204   

Investments

     139   

Cash and cash equivalents

     2,170   

Other assets

     883   
  

 

 

 

Total assets

   $ 11,776   
  

 

 

 

Liabilities

  

Short-term borrowings

   $ 6,491   

Long-term borrowings

     2,750   

Other liabilities

     825   
  

 

 

 

Total liabilities

     10,066   
  

 

 

 

Equity

  

Preferred stock

  

Series A

     165   

Series B

     400   

Common equity

     1,145   
  

 

 

 

Total equity(1)

     1,710   
  

 

 

 

Total liabilities and equity

   $ 11,776   
  

 

 

 

 

  (1) 

In addition to the $1,710 million of consumer banking business net assets distributed, we also removed $41 million of goodwill from our balance sheet as required under Accounting Standards Codification (“ASC”) 350, “Intangibles—Goodwill and Other,” in connection with the distribution. This goodwill was allocated to the consumer banking business based on relative fair value. This total of $1,751 million is the amount that appears on our consolidated statement of changes in stockholders’ equity in connection with the deemed distribution of the consumer banking business.

 

8


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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 six month periods ended June 30, 2014 are not necessarily indicative of the results for the year ending December 31, 2014 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 Form 10. Definitions for certain capitalized terms used but not otherwise defined in this Quarterly Report on Form 10-Q can be found in our Form 10.

Consolidation

In the first six months of 2013, we sold Residual Interests in FFELP Loan securitization trusts to third parties. We continue to service the student loans in the trust under existing agreements. Prior to the sale of the Residual Interests, we had consolidated the trusts as VIEs because we had met the two criteria for consolidation. We had determined we were the primary beneficiary because (1) as servicer to the trust we had the power to direct the activities of the VIE that most significantly affected its economic performance and (2) as the residual holder of the trust, we had an obligation to absorb losses or receive benefits of the trust that could potentially be significant. Upon the sale of the Residual Interests, we are no longer the residual holder, thus we determined we no longer met criterion (2) above and deconsolidated the trusts. As a result of these transactions, we removed securitization trust assets of $12.5 billion and the related liabilities of $12.1 billion from the balance sheet and recorded a $312 million gain as part of “gains on sales of loans and investments” for the six months ended June 30, 2013.

Goodwill

We account for goodwill in accordance with the applicable accounting guidance. Under this guidance, goodwill is not amortized but is tested periodically for impairment. We test goodwill for impairment annually as of October 1 at the reporting unit level, which is the same as or one level below a business segment. Goodwill is also tested at interim periods if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

As a result of the separation of Navient from SLM BankCo, we assessed relevant qualitative factors impacting the reporting units that have goodwill, including the FFELP Loans, Private Education Loans, Servicing and Asset Recovery reporting units, to determine whether it is “more-likely-than-not” that the fair values of the individual reporting units, after taking into account the distribution of the consumer banking business, are less than their individual carrying values. The “more-likely-than-not” threshold is defined in the guidance as having a likelihood of more than 50 percent. Based on this qualitative assessment, we determined that it is “more-likely-than-not” that the fair values of the FFELP Loans, Private Education Loans, Servicing and Asset Recovery reporting units exceed their carrying values. Accordingly, no further impairment assessment is warranted in accordance with the applicable guidance.

 

9


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Significant Accounting Policies (Continued)

 

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and six months ended June 30, 2013 to be consistent with classifications adopted for 2014, and had no effect on net income, total assets, or total liabilities.

Recently Issued Accounting Pronouncements

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board 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. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. 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. See the table in “Note 1 — The Separation” which shows the related asset and liabilities that were deemed to be distributed. 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 June 30, 2014 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.

 

10


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 June 30, 2014  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 107      $ 2,059      $ 27      $ 2,193   

Total provision

     10        155               165   

Charge-offs(1)

     (15     (166     (1     (182

Reclassification of interest reserve(2)

            4               4   

Distribution of SLM BankCo

     (6     (69            (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,063      $ 20      $ 1,083   

Ending balance: collectively evaluated for impairment

   $ 96      $ 920      $ 6      $ 1,022   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 10,015      $ 43      $ 10,058   

Ending balance: collectively evaluated for impairment(3)

   $ 98,837      $ 22,966      $ 74      $ 121,877   

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

     .08     2.33     3.73  

Allowance as a percentage of the ending total loan balance

     .10     6.01     21.91  

Allowance as a percentage of the ending loans in repayment

     .13     7.31     21.91  

Allowance coverage of charge-offs (annualized)

     1.6        3.0        5.7     

Ending total loans(3)

   $ 98,837      $ 32,981      $ 117     

Average loans in repayment

   $ 72,621      $ 28,599      $ 119     

Ending loans in repayment

   $ 72,114      $ 27,136      $ 117     

 

  (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.

 

11


Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Three Months Ended June 30, 2013  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 147      $ 2,170      $ 42      $ 2,359   

Total provision

     14        187               201   

Charge-offs(1)

     (20     (212     (7     (239

Student loan sales

     (8                   (8

Reclassification of interest reserve(2)

            4               4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 133      $ 2,149      $ 35      $ 2,317   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,181      $ 26      $ 1,207   

Ending balance: collectively evaluated for impairment

   $ 133      $ 968      $ 9      $ 1,110   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 8,416      $ 57      $ 8,473   

Ending balance: collectively evaluated for impairment(3)

   $ 107,538      $ 31,601      $ 96      $ 139,235   

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

     .10     2.69     17.57  

Allowance as a percentage of the ending total loan balance

     .12     5.37     22.93  

Allowance as a percentage of the ending loans in repayment

     .17     6.80     22.93  

Allowance coverage of charge-offs (annualized)

     1.7        2.5        1.2     

Ending total loans(3)

   $ 107,538      $ 40,017      $ 153     

Average loans in repayment

   $ 81,423      $ 31,618      $ 161     

Ending loans in repayment

   $ 77,063      $ 31,627      $ 153     

 

  (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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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Six Months Ended June 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

     20        330               350   

Charge-offs(1)

     (37     (385     (2     (424

Reclassification of interest reserve(2)

            10               10   

Distribution of SLM BankCo

     (6     (69            (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,063      $ 20      $ 1,083   

Ending balance: collectively evaluated for impairment

   $ 96      $ 920      $ 6      $ 1,022   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 10,015      $ 43      $ 10,058   

Ending balance: collectively evaluated for impairment(3)

   $ 98,837      $ 22,966      $ 74      $ 121,877   

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

     .10     2.59     3.67  

Allowance as a percentage of the ending total loan balance

     .10     6.01     21.91  

Allowance as a percentage of the ending loans in repayment

     .13     7.31     21.91  

Allowance coverage of charge-offs (annualized)

     1.3        2.6        5.7     

Ending total loans(3)

   $ 98,837      $ 32,981      $ 117     

Average loans in repayment

   $ 73,056      $ 29,999      $ 123     

Ending loans in repayment

   $ 72,114      $ 27,136      $ 117     

 

  (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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NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

     Six Months Ended June 30, 2013  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 159      $ 2,171      $ 47      $ 2,377   

Total provision

     30        412               442   

Charge-offs(1)

     (42     (444     (12     (498

Student loan sales

     (14                   (14

Reclassification of interest reserve(2)

            10               10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 133      $ 2,149      $ 35      $ 2,317   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,181      $ 26      $ 1,207   

Ending balance: collectively evaluated for impairment

   $ 133      $ 968      $ 9      $ 1,110   

Loans:

        

Ending balance: individually evaluated for impairment(3)

   $      $ 8,416      $ 57      $ 8,473   

Ending balance: collectively evaluated for impairment(3)

   $ 107,538      $ 31,601      $ 96      $ 139,235   

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

     .10     2.83     14.11  

Allowance as a percentage of the ending total loan balance

     .12     5.37     22.93  

Allowance as a percentage of the ending loans in repayment

     .17     6.80     22.93  

Allowance coverage of charge-offs (annualized)

     1.6        2.4        1.5     

Ending total loans(3)

   $ 107,538      $ 40,017      $ 153     

Average loans in repayment

   $ 84,323      $ 31,631      $ 170     

Ending loans in repayment

   $ 77,063      $ 31,627      $ 153     

 

  (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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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 the allowance for loan losses calculation.

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

 

     Private Education Loans
Credit Quality Indicators
 
     June 30, 2014     December 31, 2013  

(Dollars in millions)

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

Credit Quality Indicators

          

School Type/FICO Scores:

          

Traditional

   $ 29,042         92   $ 36,140         93

Non-Traditional(1)

     2,670         8        2,860         7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 31,712         100   $ 39,000         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Cosigners:

          

With cosigner

   $ 20,133         64   $ 26,321         67

Without cosigner

     11,579         36        12,679         33   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 31,712         100   $ 39,000         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Seasoning(2):

          

1-12 payments

   $ 3,012         9   $ 5,171         14

13-24 payments

     4,082         13        5,511         14   

25-36 payments

     4,576         14        5,506         14   

37-48 payments

     4,640         15        5,103         13   

More than 48 payments

     12,027         38        11,181         29   

Not yet in repayment

     3,375         11        6,528         16   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 31,712         100   $ 39,000         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 due.

 

(3) 

Balance represents gross Private Education Loans.

 

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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  
      June 30,
2014
    December 31,
2013
 

(Dollars in millions)

       Balance             %             Balance             %      

Loans in-school/grace/deferment(1)

   $ 11,794        $ 13,678     

Loans in forbearance(2)

     14,929          13,490     

Loans in repayment and percentage of each status:

        

Loans current

     61,438        85.2     63,330        82.8

Loans delinquent 31-60 days(3)

     3,531        4.9        3,746        4.9   

Loans delinquent 61-90 days(3)

     2,112        2.9        2,207        2.9   

Loans delinquent greater than 90 days(3)

     5,033        7.0        7,221        9.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans in repayment

     72,114        100     76,504        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans, gross

     98,837          103,672     

FFELP Loan unamortized premium

     989          1,035     
  

 

 

     

 

 

   

Total FFELP Loans

     99,826          104,707     

FFELP Loan allowance for losses

     (96       (119  
  

 

 

     

 

 

   

FFELP Loans, net

   $ 99,730        $ 104,588     
  

 

 

     

 

 

   

Percentage of FFELP Loans in repayment

       73.0       73.8
    

 

 

     

 

 

 

Delinquencies as a percentage of FFELP Loans in repayment

       14.8       17.2
    

 

 

     

 

 

 

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

       17.2       15.0
    

 

 

     

 

 

 

 

(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
 
      June 30,
2014
    December 31,
2013
 

(Dollars in millions)

       Balance             %             Balance             %      

Loans in-school/grace/deferment(1)

   $ 3,036        $ 6,088     

Loans in forbearance(2)

     1,059          969     

Loans in repayment and percentage of each status:

        

Loans current

     23,367        93.7     26,977        92.8

Loans delinquent 31-60 days(3)

     561        2.2        674        2.3   

Loans delinquent 61-90 days(3)

     322        1.3        420        1.4   

Loans delinquent greater than 90 days(3)

     697        2.8        1,012        3.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans in repayment

     24,947        100     29,083        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans, gross

     29,042          36,140     

Traditional loans unamortized discount

     (605       (629  
  

 

 

     

 

 

   

Total traditional loans

     28,437          35,511     

Traditional loans receivable for partially charged-off loans

     782          799     

Traditional loans allowance for losses

     (1,546       (1,592  
  

 

 

     

 

 

   

Traditional loans, net

   $ 27,673        $ 34,718     
  

 

 

     

 

 

   

Percentage of traditional loans in repayment

       85.9       80.5
    

 

 

     

 

 

 

Delinquencies as a percentage of traditional loans in repayment

       6.3       7.2
    

 

 

     

 

 

 

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

       4.1       3.2
    

 

 

     

 

 

 

 

(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, 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
 
      June 30,
2014
    December 31,
2013
 

(Dollars in millions)

       Balance             %             Balance             %      

Loans in-school/grace/deferment(1)

   $ 339        $ 440     

Loans in forbearance(2)

     142          133     

Loans in repayment and percentage of each status:

        

Loans current

     1,835        83.8     1,791        78.3

Loans delinquent 31-60 days(3)

     109        5.0        128        5.6   

Loans delinquent 61-90 days(3)

     69        3.2        93        4.1   

Loans delinquent greater than 90 days(3)

     176        8.0        275        12.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans in repayment

     2,189        100     2,287        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans, gross

     2,670          2,860     

Non-traditional loans unamortized discount

     (69       (75  
  

 

 

     

 

 

   

Total non-traditional loans

     2,601          2,785     

Non-traditional loans receivable for partially charged-off loans

     487          514     

Non-traditional loans allowance for losses

     (437       (505  
  

 

 

     

 

 

   

Non-traditional loans, net

   $ 2,651        $ 2,794     
  

 

 

     

 

 

   

Percentage of non-traditional loans in repayment

       82.0       80.0
    

 

 

     

 

 

 

Delinquencies as a percentage of non-traditional loans in repayment

       16.2       21.7
    

 

 

     

 

 

 

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

       6.1       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 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 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. Private Education Loans which defaulted between 2007 and 2014 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $402 million and

 

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Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

$217 million in the allowance for Private Education Loan losses at June 30, 2014 and 2013, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans (see “Private Education Loans Segment — Private Education Loan Provision for Loan Losses” for a further discussion).

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Dollars in millions)

   2014     2013     2014     2013  

Receivable at beginning of period

   $ 1,297      $ 1,339      $ 1,313      $ 1,347   

Expected future recoveries of current period defaults(1)

     53        70        124        148   

Recoveries(2)

     (58     (54     (119     (122

Charge-offs(3)

     (23     (21     (49     (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Receivable at end of period

     1,269        1,334        1,269        1,334   

Allowance for estimated recovery shortfalls(4)

     (402     (217     (402     (217
  

 

 

   

 

 

   

 

 

   

 

 

 

Net receivable at end of period

   $ 867      $ 1,117      $ 867      $ 1,117   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) 

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

 

  (2) 

Current period cash collections.

 

  (3) 

Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. These amounts are included in the Private Education Loan total charge-offs as reported in the “Allowance for Loan Losses Metrics” tables.

 

  (4) 

The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.0 billion and $2.1 billion overall allowance for Private Education Loan losses as of June 30, 2014 and 2013, respectively.

Troubled Debt Restructurings (“TDRs”)

We 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 48 percent and 45 percent of the loans granted forbearance have qualified as a TDR loan at June 30, 2014 and December 31, 2013, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of June 30, 2014 and December 31, 2013 was $2.0 billion and $1.5 billion, respectively.

 

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Table of Contents

NAVIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Allowance for Loan Losses (Continued)

 

At June 30, 2014 and December 31, 2013, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.

 

     TDR Loans  

(Dollars in millions)

   Recorded
Investment(1)
     Unpaid
Principal
Balance
     Related
Allowance
 

June 30, 2014

        

Private Education Loans — Traditional

   $ 8,187       $ 8,249       $ 841   

Private Education Loans — Non-Traditional

     1,463         1,463         222   
  

 

 

    

 

 

    

 

 

 

Total

   $ 9,650       $ 9,712       $ 1,063   
  

 

 

    

 

 

    

 

 

 

December 31, 2013

        

Private Education Loans — Traditional

   $ 7,515       $ 7,559       $ 812   

Private Education Loans — Non-Traditional

     1,434         1,427         236   
  

 

 

    

 

 

    

 

 

 

Total

   $ 8,949       $ 8,986       $ 1,048   
  

 

 

    

 

 

    

 

 

 

 

  (1) 

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

The following table provides the average recorded investment and interest income recognized for our TDR loans.

 

     Three Months Ended June 30,  
     2014      2013  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 8,002       $ 122       $ 6,556       $ 100   

Private Education Loans — Non-Traditional

     1,451         29         1,351         27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,453       $ 151       $ 7,907       $ 127   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended June 30,  
     2014      2013  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 7,818       $ 240       $ 6,371       $ 196   

Private Education Loans — Non-Traditional

     1,442         58         1,333         54   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,260       $ 298       $ 7,704       $ 250   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

20


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  
     June 30, 2014     December 31, 2013  

(Dollars in millions)

   Balance      %       Balance            %      

Loans in deferment(1)

   $ 851         $ 913      

Loans in forbearance(2)

     846           740      

Loans in repayment and percentage of each status:

          

Loans current

     6,682         83.3     5,613         76.5

Loans delinquent 31-60 days(3)

     432         5.4        469         6.4   

Loans delinquent 61-90 days(3)

     270         3.4        330         4.5   

Loans delinquent greater than 90 days(3)

     631         7.9        921         12.6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans in repayment

     8,015         100     7,333         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans, gross

   $ 9,712         $ 8,986      
  

 

 

      

 

 

    

 

(1) 

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

 

(2) 

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

 

(3) 

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

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

 

     Three Months Ended June 30,  
     2014      2013  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 533       $ 74       $ 102       $ 491       $ 84       $ 159   

Private Education Loans — Non-Traditional

     59         23         23         75         31         45   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 592       $ 97       $ 125       $ 566       $ 115       $ 204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended June 30,  
     2014      2013  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 999       $ 174       $ 221       $ 1,036       $ 181       $ 375   

Private Education Loans — Non-Traditional

     116         57         52         165         65         101   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,115       $ 231       $ 273       $ 1,201       $ 246       $ 476   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Represents period ending balance of loans that have been modified during the period and resulted in a TDR.

 

(2) 

Represents loans that charged off that were classified as TDRs.

 

21


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. The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.

 

     Accrued Interest Receivable  

(Dollars in millions)

   Total      Greater Than
90 Days
Past Due
     Allowance for
Uncollectible
Interest
 

June 30, 2014

        

Private Education Loans — Traditional

   $ 558       $ 25       $ 36   

Private Education Loans — Non-Traditional

     75         9         13   
  

 

 

    

 

 

    

 

 

 

Total

   $ 633       $ 34       $ 49   
  

 

 

    

 

 

    

 

 

 

December 31, 2013

        

Private Education Loans — Traditional

   $ 926       $ 35       $ 46   

Private Education Loans — Non-Traditional

     97         13         20   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,023       $ 48       $ 66   
  

 

 

    

 

 

    

 

 

 

 

4. Borrowings

The following table summarizes our borrowings.

 

     June 30, 2014      December 31, 2013  

(Dollars in millions)

   Short
Term
     Long
Term
     Total      Short
Term
     Long
Term
     Total  

Unsecured borrowings:

                 

Senior unsecured debt

   $ 1,189       $ 16,311       $ 17,500       $ 2,213       $ 16,056       $ 18,269   

Bank deposits

                             6,133         2,807         8,940   

Other(1)