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Segment Reporting

6 Months Ended

Jun. 30, 2021

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.

These segments meet the quantitative thresholds for reportable operating segments. Accordingly, the results of operations of these reportable operating segments are presented separately. The underlying operating segments are used by the Company’s chief operating decision maker to manage the business, review operating performance and allocate resources, and qualify to be aggregated as part of the primary reportable operating segments. As discussed further below, we measure the profitability of our operating segments based on Core Earnings net income. Accordingly, information regarding our reportable operating segments net income is provided on a Core Earnings basis.

Federal Education Loans Segment

In this segment, Navient owns FFELP Loans and performs servicing and asset recovery services on this portfolio. We also service and perform asset recovery services on federal education loans owned by ED and other institutions. Our servicing quality, data-driven strategies, and multichannel education about federal repayment options translates into positive results for the millions of borrowers we serve.

We generate revenue primarily through net interest income on the FFELP Loan portfolio as well as servicing and asset recovery services revenue. This segment is expected to generate significant earnings and cash flow over the remaining life of the portfolio.

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

(Dollars in millions)	June 30, 2021		December 31, 2020
FFELP Loans, net	$	55,550	$	58,284
Cash and investments⁽¹⁾		1,694		1,685
Other		2,138		2,241
Total assets	$	59,382	$	62,210

⁽¹⁾

Includes restricted cash and investments.

Consumer Lending Segment

In this segment, Navient owns, originates, acquires and services high-quality private education loans. We believe our more than 45 years of experience, product design, digital marketing strategies, and origination and servicing platform provide a unique competitive advantage. We see meaningful opportunities in originating Private Education Loans to financially responsible consumers, generating attractive long-term risk adjusted returns. We generate revenue primarily through net interest income on our Private Education Loan portfolio.

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

(Dollars in millions)	June 30, 2021		December 31, 2020
Private Education Loans, net	$	19,725	$	21,079
Cash and investments⁽¹⁾		878		828
Other		883		964
Total assets	$	21,486	$	22,871

⁽¹⁾

Includes restricted cash and investments.

11. Segment Reporting (Continued)

Business Processing Segment

In this segment, Navient performs business processing services for over 500 government and healthcare clients.

•

Government services: We provide state governments, agencies, court systems, municipalities, and parking and tolling authorities with expert service, leveraging our scale, integrated technology solutions and data-driven approach. Our support enables our clients to better serve their constituents, meet rapidly changing needs, reduce their operating expenses, manage risk and maximize revenue opportunities.

•

Healthcare services: We perform revenue cycle outsourcing, accounts receivable management, extended business office support, consulting engagements and public health programs. We offer customizable solutions for our clients that include hospitals, hospital systems, medical centers, large physician groups, other healthcare providers and departments of public health.

At June 30, 2021 and December 31, 2020, the Business Processing segment had total assets of $416 million and $425 million, respectively.

Other Segment

This segment primarily consists of our corporate liquidity portfolio, gains and losses incurred on the repurchase of debt, unallocated expenses of shared services and restructuring/other reorganization expenses.

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

At June 30, 2021 and December 31, 2020, the Other segment had total assets of $2.1 billion and $1.9 billion, respectively.

11. Segment Reporting (Continued)

Measure of Profitability

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

Core Earnings are not a substitute for reported results under GAAP. We use Core Earnings to manage our business segments because Core Earnings reflect adjustments to GAAP financial results for two items, discussed below, that can create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that Core Earnings provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information because we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. When compared to GAAP results, the two items we remove 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, 2021
														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	$	351	$	295		$	—	$	—		$	646		$	24		$	(10	)	$	14		$	660
Cash and investments		—		—			—		1			1			—			—			—			1
Total interest income		351		295			—		1			647			24			(10	)		14			661
Total interest expense		210		137			—		18			365			(2	)		(24	)		(26	)		339
Net interest income (loss)		141		158			—		(17	)		282			26			14			40			322
Less: provisions for loan losses		—		(1	)		—		—			(1	)		—			—			—			(1	)
Net interest income (loss) after provisions for loan losses		141		159			—		(17	)		283			26			14			40			323
Other income (loss):
Servicing revenue		47		3			—		—			50			—			—			—			50
Asset recovery and business processing revenue		12		—			130		—			142			—			—			—			142
Other income (loss)		2		—			—		2			4			(26	)		16			(10	)		(6	)
Gains on sales of loans		—		2			—		—			2			—			—			—			2
Losses on debt repurchases		—		—			—		(12	)		(12	)		—			—			—			(12	)
Total other income (loss)		61		5			130		(10	)		186			(26	)		16			(10	)		176
Expenses:
Direct operating expenses		55		39			92		—			186			—			—			—			186
Unallocated shared services expenses		—		—			—		66			66			—			—			—			66
Operating expenses		55		39			92		66			252			—			—			—			252
Goodwill and acquired intangible asset impairment and amortization		—		—			—		—			—			—			5			5			5
Restructuring/other reorganization expenses		—		—			—		2			2			—			—			—			2
Total expenses		55		39			92		68			254			—			5			5			259
Income (loss) before income tax expense (benefit)		147		125			38		(95	)		215			—			25			25			240
Income tax expense (benefit)⁽²⁾		34		29			9		(22	)		50			—			5			5			55
Net income (loss)	$	113	$	96		$	29	$	(73	)	$	165		$	—		$	20		$	20		$	185

⁽¹⁾	Core Earnings adjustments to GAAP:

	Three Months Ended June 30, 2021
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	40		$	—		$	40
Total other income (loss)		(10	)		—			(10	)
Goodwill and acquired intangible asset impairment and amortization		—			5			5
Total Core Earnings adjustments to GAAP	$	30		$	(5	)		25
Income tax expense (benefit)								5
Net income (loss)							$	20

⁽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, 2020
												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	$	456	$	362	$	—	$	—		$	818	$	13		$	(14	)	$	(1	)	$	817
Cash and investments		1		—		—		1			2		—			—			—			2
Total interest income		457		362		—		1			820		13			(14	)		(1	)		819
Total interest expense		286		174		—		31			491		25			3			28			519
Net interest income (loss)		171		188		—		(30	)		329		(12	)		(17	)		(29	)		300
Less: provisions for loan losses		3		41		—		—			44		—			—			—			44
Net interest income (loss) after provisions for loan losses		168		147		—		(30	)		285		(12	)		(17	)		(29	)		256
Other income (loss):
Servicing revenue		51		1		—		—			52		—			—			—			52
Asset recovery and business processing revenue		38		—		64		—			102		—			—			—			102
Other income (loss)		5		—		—		4			9		12			(42	)		(30	)		(21	)
Total other income (loss)		94		1		64		4			163		12			(42	)		(30	)		133
Expenses:
Direct operating expenses		70		34		57		—			161		—			—			—			161
Unallocated shared services expenses		—		—		—		52			52		—			—			—			52
Operating expenses		70		34		57		52			213		—			—			—			213
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—		—			5			5			5
Restructuring/other reorganization expenses		—		—		—		1			1		—			—			—			1
Total expenses		70		34		57		53			214		—			5			5			219
Income (loss) before income tax expense (benefit)		192		114		7		(79	)		234		—			(64	)		(64	)		170
Income tax expense (benefit)⁽²⁾		46		27		1		(19	)		55		—			(10	)		(10	)		45
Net income (loss)	$	146	$	87	$	6	$	(60	)	$	179	$	—		$	(54	)	$	(54	)	$	125

⁽¹⁾	Core Earnings adjustments to GAAP:

	Three Months Ended June 30, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(29	)	$	—		$	(29	)
Total other income (loss)		(30	)		—			(30	)
Goodwill and acquired intangible asset impairment and amortization		—			5			5
Total Core Earnings adjustments to GAAP	$	(59	)	$	(5	)		(64	)
Income tax expense (benefit)								(10	)
Net income (loss)							$	(54	)

⁽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, 2021
														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	$	709	$	614		$	—	$	—		$	1,323		$	48		$	(20	)	$	28		$	1,351
Cash and investments		—		—			—		1			1			—			—			—			1
Total interest income		709		614			—		1			1,324			48			(20	)		28			1,352
Total interest expense		424		287			—		36			747			(3	)		(77	)		(80	)		667
Net interest income (loss)		285		327			—		(35	)		577			51			57			108			685
Less: provisions for loan losses		—		(88	)		—		—			(88	)		—			—			—			(88	)
Net interest income (loss) after provisions for loan losses		285		415			—		(35	)		665			51			57			108			773
Other income (loss):
Servicing revenue		99		3			—		—			102			—			—			—			102
Asset recovery and business processing revenue		26		—			255		—			281			—			—			—			281
Other income (loss)		2		1			—		2			5			(38	)		64			26			31
Gains on sales of loans		—		91			—		—			91			(13	)		—			(13	)		78
Losses on debt repurchases		—		—			—		(12	)		(12	)		—			—			—			(12	)
Total other income (loss)		127		95			255		(10	)		467			(51	)		64			13			480
Expenses:
Direct operating expenses		117		79			183		—			379			—			—			—			379
Unallocated shared services expenses		—		—			—		131			131			—			—			—			131
Operating expenses		117		79			183		131			510			—			—			—			510
Goodwill and acquired intangible asset impairment and amortization		—		—			—		—			—			—			10			10			10
Restructuring/other reorganization expenses		—		—			—		8			8			—			—			—			8
Total expenses		117		79			183		139			518			—			10			10			528
Income (loss) before income tax expense (benefit)		295		431			72		(184	)		614			—			111			111			725
Income tax expense (benefit)⁽²⁾		70		101			17		(43	)		145			—			25			25			170
Net income (loss)	$	225	$	330		$	55	$	(141	)	$	469		$	—		$	86		$	86		$	555

⁽¹⁾	Core Earnings adjustments to GAAP:

	Six Months Ended June 30, 2021
(Dollars in millions)	Net Impact of Derivative Accounting		Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	108	$	—		$	108
Total other income (loss)		13		—			13
Goodwill and acquired intangible asset impairment and amortization		—		10			10
Total Core Earnings adjustments to GAAP	$	121	$	(10	)		111
Income tax expense (benefit)							25
Net income (loss)						$	86

⁽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, 2020
												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	$	1,037	$	767	$	—	$	—		$	1,804	$	16		$	(28	)	$	(12	)	$	1,792
Cash and investments		7		3		—		5			15		—			—			—			15
Total interest income		1,044		770		—		5			1,819		16			(28	)		(12	)		1,807
Total interest expense		742		385		—		66			1,193		32			9			41			1,234
Net interest income (loss)		302		385		—		(61	)		626		(16	)		(37	)		(53	)		573
Less: provisions for loan losses		9		130		—		—			139		—			—			—			139
Net interest income (loss) after provisions for loan losses		293		255		—		(61	)		487		(16	)		(37	)		(53	)		434
Other income (loss):
Servicing revenue		106		3		—		—			109		—			—			—			109
Asset recovery and business processing revenue		90		—		122		—			212		—			—			—			212
Other income (loss)		9		—		—		8			17		16			(269	)		(253	)		(236	)
Total other income (loss)		205		3		122		8			338		16			(269	)		(253	)		85
Expenses:
Direct operating expenses		153		72		111		—			336		—			—			—			336
Unallocated shared services expenses		—		—		—		127			127		—			—			—			127
Operating expenses		153		72		111		127			463		—			—			—			463
Goodwill and acquired intangible asset impairment and amortization		—		—		—		—			—		—			11			11			11
Restructuring/other reorganization expenses		—		—		—		6			6		—			—			—			6
Total expenses		153		72		111		133			469		—			11			11			480
Income (loss) before income tax expense (benefit)		345		186		11		(186	)		356		—			(317	)		(317	)		39
Income tax expense (benefit)⁽²⁾		82		43		3		(44	)		84		—			(64	)		(64	)		20
Net income (loss)	$	263	$	143	$	8	$	(142	)	$	272	$	—		$	(253	)	$	(253	)	$	19

⁽¹⁾	Core Earnings adjustments to GAAP:

	Six Months Ended June 30, 2020
(Dollars in millions)	Net Impact of Derivative Accounting			Net Impact of Goodwill and Acquired Intangibles			Total
Net interest income (loss) after provisions for loan losses	$	(53	)	$	—		$	(53	)
Total other income (loss)		(253	)		—			(253	)
Goodwill and acquired intangible asset impairment and amortization		—			11			11
Total Core Earnings adjustments to GAAP	$	(306	)	$	(11	)		(317	)
Income tax expense (benefit)								(64	)
Net income (loss)							$	(253	)

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

11. Segment Reporting (Continued)

Summary of Core Earnings Adjustments to GAAP

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in millions)	2021			2020			2021			2020
Core Earnings net income	$	165		$	179		$	469		$	272
Core Earnings adjustments to GAAP:
Net impact of derivative accounting⁽¹⁾		30			(59	)		121			(306	)
Net impact of goodwill and acquired intangible assets⁽²⁾		(5	)		(5	)		(10	)		(11	)
Net tax effect⁽³⁾		(5	)		10			(25	)		64
Total Core Earnings adjustments to GAAP		20			(54	)		86			(253	)
GAAP net income	$	185		$	125		$	555		$	19

⁽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. 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.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 31
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8924-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 34
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8981-108599

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 40
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9031-108599

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
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-Subparagraph (e)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8844-108599

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9038-108599

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8933-108599

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 22
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8736-108599

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 42
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e9054-108599

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
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-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8657-108599

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 21
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=120311839&loc=d3e8721-108599

Reference 14: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-URI http://asc.fasb.org/topic&trid=2134510

+ Details