10.

Segment Reporting

FFELP Loans Segment

In the FFELP Loans segment, we acquire and finance FFELP Loans. Although FFELP Loans are no longer originated, we continue to pursue acquisitions of FFELP Loan portfolios. These acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through net interest income on the FFELP Loan portfolio (after provision for loan losses). This segment is expected to generate significant amounts of earnings and cash flow as the portfolio amortizes.

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


(Dollars in millions)	March 31, 2017		December 31, 2016
FFELP Loans, net	$	85,284	$	87,730
Cash and investments⁽¹⁾		3,265		3,212
Other		1,852		1,907

Total assets	$	90,401	$	92,849

⁽¹⁾	Includes restricted cash and investments.

Private Education Loans Segment

In this segment, we acquire, finance, and service our Private Education Loans. Private Education Loans primarily bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or students’ and families’ resources. They also allow borrowers to refinance existing education loans at a lower rate. We pursue acquisitions of Private Education Loan portfolios. These acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through net interest income on the Private Education Loan portfolio (after provision for loan losses). This segment is expected to generate significant amounts of earnings and cash flow as the portfolio amortizes.

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


(Dollars in millions)	March 31, 2017		December 31, 2016
Private Education Loans, net	$	22,552	$	23,340
Cash and investments⁽¹⁾		697		667
Other		1,428		1,567

Total assets	$	24,677	$	25,574

⁽¹⁾	Includes restricted cash and investments.

Business Services Segment

Our Business Services segment generates revenue from business processing solutions related to servicing, asset recovery and other business processing activities. Within this segment, we generate revenue primarily through servicing our FFELP Loan portfolio as well as servicing education loans for Guarantors of FFELP Loans and other institutions, including ED. We provide asset recovery services for loans and receivables on behalf of Guarantors of FFELP Loans and higher education institutions. In addition, we provide asset recovery and other business processing solutions for federal, state, court, and municipal clients, public authorities, and health care organizations.

At March 31, 2017 and December 31, 2016, the Business Services segment had total assets of $587 million in each period on a GAAP basis.

Other Segment

Our Other segment primarily consists of activities of our holding company, including the repurchase of debt, our corporate liquidity portfolio, unallocated overhead and regulatory-related costs. We also include results from certain smaller wind-down operations within this segment.

At March 31, 2017 and December 31, 2016, the Other segment had total assets of $2.2 billion and $2.1 billion, respectively, on a GAAP basis.

Measure of Profitability

We prepare financial statements and present financial results in accordance with GAAP. However, we also evaluate our business segments and present financial results on a basis that differs from GAAP. We refer to this different basis of presentation as “Core Earnings.” We provide this “Core Earnings” basis of presentation on a consolidated basis for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our “Core Earnings” basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide “Core Earnings” disclosure in the notes to our consolidated financial statements for our business segments.

“Core Earnings” are not a substitute for reported results under GAAP. We use “Core Earnings” to manage our business segments because “Core Earnings” reflect adjustments to GAAP financial results for three items, discussed below, that are either related to the Spin-Off or create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that “Core Earnings” provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the three items we remove to result in our “Core Earnings” presentations are:

Unrealized mark-to-market gains/losses resulting from our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness;

The accounting for goodwill and acquired intangible assets; and

The financial results attributable to the operations of SLM BankCo prior to the Spin-Off and related restructuring and reorganization expense incurred in connection with the Spin-Off, including the restructuring expenses related to the restructuring initiative launched in second-quarter 2015 to simplify and streamline the Company’s management structure post-Spin-Off. For GAAP purposes, Navient reflected the deemed distribution of SLM BankCo on April 30, 2014. For “Core Earnings,” we exclude the consumer banking business (SLM BankCo) as if it had never been a part of Navient’s historical results prior to the deemed distribution of SLM BankCo on April 30, 2014. There are no adjustments related to this for the periods presented in this Form 10-Q (see 2016 Form 10-K for description of how earlier periods were impacted by this adjustment).

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

Segment Results and Reconciliations to GAAP


	Three Months Ended March 31, 2017
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Adjustments									Total GAAP
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Reclassifications			Additions/ (Subtractions)			Total Adjustments⁽²⁾			Total GAAP
Interest income:
Education loans	$	623	$	374	$	—	$	—		$	—		$	997	$	20		$	(14	)	$	6		$	1,003
Other loans		—		—		—		5			—			5		—			—			—			5
Cash and investments		5		—		—		2			—			7		—			—			—			7

Total interest income		628		374		—		7			—			1,009		20			(14	)		6			1,015
Total interest expense		457		187		—		31			—			675		3			(3	)		—			675

Net interest income (loss)		171		187		—		(24	)		—			334		17			(11	)		6			340
Less: provisions for loan losses		10		95		—		2			—			107		—			—			—			107

Net interest income (loss) after provisions for loan losses		161		92		—		(26	)		—			227		17			(11	)		6			233
Other income (loss):
Servicing revenue		13		4		149		—			(90	)		76		—			—			—			76
Asset recovery and business processing revenue		—		—		100		—			—			100		—			—			—			100
Other income (loss)		—		—		—		5			—			5		(17	)		(12	)		(29	)		(24	)

Total other income (loss)		13		4		249		5			(90	)		181		(17	)		(12	)		(29	)		152
Expenses:
Direct operating expenses		93		40		126		7			(90	)		176		—			—			—			176
Overhead expenses		—		—		—		62			—			62		—			—			—			62

Operating expenses		93		40		126		69			(90	)		238		—			—			—			238
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—		—			6			6			6

Total expenses		93		40		126		69			(90	)		238		—			6			6			244

Income (loss) before income tax expense (benefit)		81		56		123		(90	)		—			170		—			(29	)		(29	)		141
Income tax expense (benefit)⁽³⁾		30		21		46		(34	)		—			63		—			(10	)		(10	)		53

Net income (loss)	$	51	$	35	$	77	$	(56	)	$	—		$	107	$	—		$	(19	)	$	(19	)	$	88

⁽¹⁾	The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.

⁽²⁾	“Core Earnings” adjustments to GAAP:


	Three Months Ended March 31, 2017
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangible Assets			Total
Net interest income (loss) after provisions for loan losses	$	6		$	—		$	6
Total other income (loss)		(29	)		—			(29	)
Goodwill and acquired intangible asset impairment and amortization		—			6			6

Total “Core Earnings” adjustments to GAAP	$	(23	)	$	(6	)	$	(29	)

Income tax expense (benefit)								(10	)

Net income (loss)							$	(19	)

⁽³⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.


	Three Months Ended March 31, 2016
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Adjustments									Total GAAP
(Dollars in millions)	FFELP Loans		Private Education Loans		Business Services		Other			Eliminations⁽¹⁾			Total “Core Earnings”		Reclassifications			Additions/ (Subtractions)			Total Adjustments⁽²⁾			Total GAAP
Interest income:
Education loans	$	555	$	411	$	—	$	—		$	—		$	966	$	138		$	(59	)	$	79		$	1,045
Other loans		—		—		—		1			—			1		—			—			—			1
Cash and investments		3		1		—		1			—			5		—			—			—			5

Total interest income		558		412		—		2			—			972		138			(59	)		79			1,051
Total interest expense		358		172		—		26			—			556		9			—			9			565

Net interest income (loss)		200		240		—		(24	)		—			416		129			(59	)		70			486
Less: provisions for loan losses		7		104		—		—			—			111		—			—			—			111

Net interest income (loss) after provisions for loan losses		193		136		—		(24	)		—			305		129			(59	)		70			375
Other income (loss):
Servicing revenue		16		4		163		—			(101	)		82		—			—			—			82
Asset recovery and business processing revenue		—		—		90		—			—			90		—			—			—			90
Other income (loss)		—		—		1		3			—			4		(129	)		113			(16	)		(12	)

Total other income (loss)		16		4		254		3			(101	)		176		(129	)		113			(16	)		160
Expenses:
Direct operating expenses		104		43		134		6			(101	)		186		—			—			—			186
Overhead expenses		—		—		—		61			—			61		—			—			—			61

Operating expenses		104		43		134		67			(101	)		247		—			—			—			247
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—		—			4			4			4

Total expenses		104		43		134		67			(101	)		247		—			4			4			251

Income (loss) before income tax expense (benefit)		105		97		120		(88	)		—			234		—			50			50			284
Income tax expense (benefit)(3)		39		36		45		(33	)		—			87		—			16			16			103

Net income (loss)	$	66	$	61	$	75	$	(55	)	$	—		$	147	$	—		$	34		$	34		$	181

⁽¹⁾	The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.

⁽²⁾	“Core Earnings” adjustments to GAAP:


	Three Months Ended March 31, 2016
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangible Assets			Total
Net interest income (loss) after provisions for loan losses	$	70		$	—		$	70
Total other income (loss)		(16	)		—			(16	)
Goodwill and acquired intangible asset impairment and amortization		—			4			4

Total “Core Earnings” adjustments to GAAP	$	54		$	(4	)		50

Income tax expense (benefit)								16

Net income (loss)							$	34

⁽³⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

Summary of “Core Earnings” Adjustments to GAAP


	Three Months Ended March 31,
(Dollars in millions)	2017			2016
“Core Earnings” adjustments to GAAP:
Net impact of derivative accounting⁽¹⁾	$	(23	)	$	54
Net impact of goodwill and acquired intangibles assets⁽²⁾		(6	)		(4	)
Net tax effect⁽³⁾		10			(16	)

Total “Core Earnings” adjustments to GAAP	$	(19	)	$	34

⁽¹⁾

Derivative accounting: “Core Earnings” exclude periodic unrealized gains and losses that are caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. These unrealized gains and losses occur in our FFELP Loans, Private Education Loans and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.

⁽²⁾	Goodwill and acquired intangible assets: Our “Core Earnings” exclude goodwill and intangible asset impairment and amortization of acquired intangible assets.

⁽³⁾	Net tax effect: Such tax effect is based upon our “Core Earnings” effective tax rate for the year.