XML 32 R19.htm IDEA: XBRL DOCUMENT

Segment Reporting

6 Months Ended

Jun. 30, 2019

11. Segment Reporting

We monitor and assess our ongoing operations and results based on the following four reportable operating segments: Federal Education Loans, Consumer Lending, Business Processing and Other.

Federal Education Loans Segment

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

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

(Dollars in millions)	June 30, 2019		December 31, 2018
FFELP Loans, net	$	67,956	$	72,253
Cash and investments⁽¹⁾		2,219		3,368
Other		2,174		2,100
Total assets	$	72,349	$	77,721

⁽¹⁾

Includes restricted cash and investments.

Consumer Lending Segment

In this segment, Navient holds, originates and acquires consumer loans and performs servicing activities on its own education loan portfolio. Originations and acquisitions leverage our servicing scale and generate incremental earnings and cash flow. In this segment, we generate revenue primarily through net interest income on the Private Education Loan portfolio (after provision for loan losses). This segment is expected to generate significant amounts of earnings and cash flow over the remaining life of the portfolio.

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

(Dollars in millions)	June 30, 2019		December 31, 2018
Private Education Loans, net	$	21,564	$	22,245
Cash and investments⁽¹⁾		931		732
Other		1,012		1,076
Total assets	$	23,507	$	24,053

⁽¹⁾

Includes restricted cash and investments.

Business Processing Segment

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

At June 30, 2019 and December 31, 2018, the Business Processing segment had total assets of $425 million and $448 million, respectively, on a GAAP basis.

11. Segment Reporting (Continued)

Other Segment

Our Other segment primarily consists of our corporate liquidity portfolio and the repurchase of debt, unallocated expenses of shared services, restructuring/other reorganization expenses, and the deferred tax asset remeasurement loss recognized due to the enactment of the TCJA in the fourth quarter of 2017.

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

At June 30, 2019 and December 31, 2018, the Other segment had total assets of $2.0 billion and $2.0 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 and for each business segment because this is what we review internally when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our Core Earnings basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide Core Earnings disclosure in the notes to our consolidated financial statements for our business segments.

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

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

The accounting for goodwill and acquired intangible assets.

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

11. Segment Reporting (Continued)

Segment Results and Reconciliations to GAAP

	Three Months Ended June 30, 2019
												Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings		Reclassi- fications			Additions/ (Subtractions)			Total Adjustments⁽¹⁾			Total GAAP
Interest income:
Education loans	$	758	$	436	$	—	$	—		$	1,194	$	1		$	(17	)	$	(16	)	$	1,178
Other loans		—		1		—		—			1		—			—			—			1
Cash and investments		14		4		—		7			25		—			—			—			25
Total interest income		772		441		—		7			1,220		1			(17	)		(16	)		1,204
Total interest expense		627		255		—		42			924		(2	)		(11	)		(13	)		911
Net interest income (loss)		145		186		—		(35	)		296		3			(6	)		(3	)		293
Less: provisions for loan losses		8		60		—		—			68		—			—			—			68
Net interest income (loss) after provisions for loan losses		137		126		—		(35	)		228		3			(6	)		(3	)		225
Other income (loss):
Servicing revenue		57		3		—		—			60		—			—			—			60
Asset recovery and business processing revenue		58		—		65		—			123		—			—			—			123
Other income (loss)		7		—		—		4			11		(38	)		6			(32	)		(21	)
Gains on sales of loans		—		16		—		—			16		—			—			—			16
Gains on debt repurchases		—		—		—		32			32		35			(23	)		12			44
Total other income (loss)		122		19		65		36			242		(3	)		(17	)		(20	)		222
Expenses:
Direct operating expenses		89		34		56		—			179		—			—			—			179
Unallocated shared services expenses		—		—		—		62			62		—			—			—			62
Operating expenses		89		34		56		62			241		—			—			—			241
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—		—			11			11			11
Restructuring/other reorganization expenses		—		—		—		1			1		—			—			—			1
Total expenses		89		34		56		63			242		—			11			11			253
Income (loss) before income tax expense (benefit)		170		111		9		(62	)		228		—			(34	)		(34	)		194
Income tax expense (benefit)⁽²⁾		39		26		2		(14	)		53		—			(12	)		(12	)		41
Net income (loss)	$	131	$	85	$	7	$	(48	)	$	175	$	—		$	(22	)	$	(22	)	$	153

⁽¹⁾	Core Earnings adjustments to GAAP:

	Three Months Ended June 30, 2019
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(3	)	$	—		$	(3	)
Total other income (loss)		(20	)		—			(20	)
Goodwill and acquired intangible asset impairment and amortization		—			11			11
Total Core Earnings adjustments to GAAP	$	(23	)	$	(11	)		(34	)
Income tax expense (benefit)								(12	)
Net income (loss)							$	(22	)

⁽²⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

11. Segment Reporting (Continued)

	Three Months Ended June 30, 2018
													Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings			Reclassi- fications			Additions/ (Subtractions)			Total Adjustments⁽¹⁾			Total GAAP
Interest income:
Education loans	$	775	$	442	$	—	$	—		$	1,217		$	3		$	(18	)	$	(15	)	$	1,202
Other loans		1		—		—		—			1			—			—			—			1
Cash and investments		12		3		—		9			24			—			—			—			24
Total interest income		788		445		—		9			1,242			3			(18	)		(15	)		1,227
Total interest expense		622		252		—		49			923			10			(4	)		6			929
Net interest income (loss)		166		193		—		(40	)		319			(7	)		(14	)		(21	)		298
Less: provisions for loan losses		40		72		—		—			112			—			—			—			112
Net interest income (loss) after provisions for loan losses		126		121		—		(40	)		207			(7	)		(14	)		(21	)		186
Other income (loss):
Servicing revenue		68		3		—		—			71			—			—			—			71
Asset recovery and business processing revenue		34		—		65		—			99			—			—			—			99
Other income (loss)		—		—		—		3			3			7			(37	)		(30	)		(27	)
Losses on debt repurchases		—		—		—		(7	)		(7	)		—			—			—			(7	)
Total other income (loss)		102		3		65		(4	)		166			7			(37	)		(30	)		136
Expenses:
Direct operating expenses		36		39		54		—			129			—			—			—			129
Unallocated shared services expenses		—		—		—		72			72			—			—			—			72
Operating expenses		36		39		54		72			201			—			—			—			201
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—			6			6			6
Restructuring/other reorganization expenses		—		—		—		2			2			—			—			—			2
Total expenses		36		39		54		74			203			—			6			6			209
Income (loss) before income tax expense (benefit)		192		85		11		(118	)		170			—			(57	)		(57	)		113
Income tax expense (benefit)⁽²⁾		44		19		3		(27	)		39			—			(9	)		(9	)		30
Net income (loss)	$	148	$	66	$	8	$	(91	)	$	131		$	—		$	(48	)	$	(48	)	$	83

⁽¹⁾	Core Earnings adjustments to GAAP:

	Three Months Ended June 30, 2018
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(21	)	$	—		$	(21	)
Total other income (loss)		(30	)		—			(30	)
Goodwill and acquired intangible asset impairment and amortization		—			6			6
Total Core Earnings adjustments to GAAP	$	(51	)	$	(6	)		(57	)
Income tax expense (benefit)								(9	)
Net income (loss)							$	(48	)

⁽²⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

11. Segment Reporting (Continued)

	Six Months Ended June 30, 2019
												Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings		Reclassi- fications			Additions/ (Subtractions)			Total Adjustments⁽¹⁾			Total GAAP
Interest income:
Education loans	$	1,537	$	879	$	—	$	—		$	2,416	$	2		$	(33	)	$	(31	)	$	2,385
Other loans		1		1		—		—			2		—			—			—			2
Cash and investments		30		9		—		13			52		—			—			—			52
Total interest income		1,568		889		—		13			2,470		2			(33	)		(31	)		2,439
Total interest expense		1,278		516		—		80			1,874		2			(16	)		(14	)		1,860
Net interest income (loss)		290		373		—		(67	)		596		—			(17	)		(17	)		579
Less: provisions for loan losses		15		129		—		—			144		—			—			—			144
Net interest income (loss) after provisions for loan losses		275		244		—		(67	)		452		—			(17	)		(17	)		435
Other income (loss):
Servicing revenue		117		5		—		—			122		—			—			—			122
Asset recovery and business processing revenue		108		—		134		—			242		—			—			—			242
Other income (loss)		15		1		—		9			25		(39	)		16			(23	)		2
Gains on sales of loans		—		16		—		—			16		—			—			—			16
Gains on debt repurchases		—		—		—		47			47		39			(27	)		12			59
Total other income (loss)		240		22		134		56			452		—			(11	)		(11	)		441
Expenses:
Direct operating expenses		180		72		111		—			363		—			—			—			363
Unallocated shared services expenses		—		—		—		134			134		—			—			—			134
Operating expenses		180		72		111		134			497		—			—			—			497
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—		—			18			18			18
Restructuring/other reorganization expenses		—		—		—		2			2		—			—			—			2
Total expenses		180		72		111		136			499		—			18			18			517
Income (loss) before income tax expense (benefit)		335		194		23		(147	)		405		—			(46	)		(46	)		359
Income tax expense (benefit)⁽²⁾		77		44		6		(34	)		93		—			(15	)		(15	)		78
Net income (loss)	$	258	$	150	$	17	$	(113	)	$	312	$	—		$	(31	)	$	(31	)	$	281

⁽¹⁾	Core Earnings adjustments to GAAP:

	Six Months Ended June 30, 2019
(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	$	(17	)	$	—		$	(17	)
Total other income (loss)		(11	)		—			(11	)
Goodwill and acquired intangible asset impairment and amortization		—			18			18
Total Core Earnings adjustments to GAAP	$	(28	)	$	(18	)		(46	)
Income tax expense (benefit)								(15	)
Net income (loss)							$	(31	)

⁽²⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

11. Segment Reporting (Continued)

	Six Months Ended June 30, 2018
													Adjustments
(Dollars in millions)	Federal Education Loans		Consumer Lending		Business Processing		Other			Total Core Earnings			Reclassi- fications			Additions/ (Subtractions)			Total Adjustments⁽¹⁾			Total GAAP
Interest income:
Education loans	$	1,507	$	873	$	—	$	—		$	2,380		$	11		$	(35	)	$	(24	)	$	2,356
Other loans		2		—		—		—			2			—			—			—			2
Cash and investments		19		6		—		16			41			—			—			—			41
Total interest income		1,528		879		—		16			2,423			11			(35	)		(24	)		2,399
Total interest expense		1,193		490		—		91			1,774			4			(5	)		(1	)		1,773
Net interest income (loss)		335		389		—		(75	)		649			7			(30	)		(23	)		626
Less: provisions for loan losses		50		149		—		—			199			—			—			—			199
Net interest income (loss) after provisions for loan losses		285		240		—		(75	)		450			7			(30	)		(23	)		427
Other income (loss):
Servicing revenue		134		6		—		—			140			—			—			—			140
Asset recovery and business processing revenue		70		—		137		—			207			—			—			—			207
Other income (loss)		1		—		—		5			6			(7	)		10			3			9
Losses on debt repurchases		—		—		—		(8	)		(8	)		—			—			—			(8	)
Total other income (loss)		205		6		137		(3	)		345			(7	)		10			3			348
Expenses:
Direct operating expenses		115		95		113		—			323			—			—			—			323
Unallocated shared services expenses		—		—		—		153			153			—			—			—			153
Operating expenses		115		95		113		153			476			—			—			—			476
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—			—			16			16			16
Restructuring/other reorganization expenses		—		—		—		9			9			—			—			—			9
Total expenses		115		95		113		162			485			—			16			16			501
Income (loss) before income tax expense (benefit)		375		151		24		(240	)		310			—			(36	)		(36	)		274
Income tax expense (benefit)⁽²⁾		86		35		6		(55	)		72			—			(8	)		(8	)		64
Net income (loss)	$	289	$	116	$	18	$	(185	)	$	238		$	—		$	(28	)	$	(28	)	$	210

⁽¹⁾	Core Earnings adjustments to GAAP:

	Six Months Ended June 30, 2018
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangible Assets			Total
Net interest income (loss) after provisions for loan losses	$	(23	)	$	—		$	(23	)
Total other income (loss)		3			—			3
Goodwill and acquired intangible asset impairment and amortization		—			16			16
Total Core Earnings adjustments to GAAP	$	(20	)	$	(16	)		(36	)
Income tax expense (benefit)								(8	)
Net income (loss)							$	(28	)

⁽²⁾	Income taxes are based on a percentage of net income before tax for the individual reportable segment.

11. Segment Reporting (Continued)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2019			2018			2019			2018
Core Earnings net income	$	175		$	131		$	312		$	238
Core Earnings adjustments to GAAP:
Net impact of derivative accounting⁽¹⁾		(23	)		(51	)		(28	)		(20	)
Net impact of goodwill and acquired intangible assets⁽²⁾		(11	)		(6	)		(18	)		(16	)
Net tax effect⁽³⁾		12			9			15			8
Total Core Earnings adjustments to GAAP		(22	)		(48	)		(31	)		(28	)
GAAP net income	$	153		$	83		$	281		$	210

⁽¹⁾

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

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

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