Q1 2024 Navient Corp Earnings Call
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Operator: Good day and welcome to the Navient First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 1. As a reminder, this call may be recorded. I would like to turn the call over to Jen Earyes, Vice President of Investor Relations. Please go ahead.
Speaker Change: Good day and welcome to the Navient first quarter 2024 earnings call. At this time, all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation there'll be a question and answer session to ask a question. During this session. Please press star one one.
Speaker Change: As a reminder, this call maybe recorded I would like to turn the call over to Jenny <unk> Vice President Investor Relations. Please go ahead.
Jen Earyes: Hello, good morning, and welcome to Navient's earnings call for the first quarter of 2024. With me today are David Yowan, Navient CEO, and Joe Fisher, Navient CFO.
Jenny: Hello, Good morning, and welcome to Navient earnings call for the first quarter of 2024.
Jenny: With me today are David yelling, Navient E L and Joe Fisher.
Jen Earyes: After their prepared remarks, we will open up the call for questions. A presentation accompanies today's discussion, which you can find on Navient.com slash invest. Before we begin, keep in mind our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of the date of this presentation. However, actual results in the future may be materially different from those discussed here. This could be due to a variety of factors.
Jenny: CFO after their prepared remarks, we will open up the call for questions.
Speaker Change: Presentation accompanying today's discussion, which you can find on Navient Dotcom, Washington Busters.
Speaker Change: Before we begin keep in mind, our discussion will contain predictions expectations forward looking statements and other information about our business that is based on management's current expectation as of the date of this presentation.
Speaker Change: Actual results in the future may be materially different from those discussed here this could be due to a variety of factors.
Jen Earyes: Listeners should refer to the discussion of those factors in the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, the adjusted tangible equity ratio, and various other non-GAAP financial measures that are derived from core earnings. Our GAAP results, a description of our non-GAAP financial measures, and the reconciliation of core earnings to GAAP results can be found beginning on page 15 of Navient's first quarter 2024 earnings release, which is posted on our website. Thank you, and I will now turn the call over to Dave.
Speaker Change: Listeners should refer to the discussion of those factors on the Companys Form 10-K, and other filings with the SEC.
Speaker Change: During this conference call, we will refer to non-GAAP financial measures, including core earnings adjusted tangible equity ratio and various other non-GAAP financial measures that are derived from corn flakes. Our GAAP results descriptions of our non-GAAP financial measures and a reconciliation of core earnings to GAAP results can be found beginning on page 15 of Navient.
Speaker Change: First quarter 2024 earnings release, which is posted on our website.
Speaker Change: Thank you and I now will turn the call over to Dave.
Dave: Thanks, Jen. Good morning, everyone.
Dave: Thank you Sharon good morning, everyone.
Dave: Thank you for joining the call and for your interest in Navient. Let me begin by providing an update on our progress against the three strategic actions we announced in January. We've begun to implement these actions and have made significant progress in a short period of time to deliver on the overall expense reductions within the timelines we described during our Q4 earnings call. As a reminder, the three strategic actions we're pursuing are one, adopting a variable cost outsourced servicing model, exploring strategic options for the Business Processing Division, including that, and three, streamlining shared services infrastructure and corporate footprint. These actions are intended to significantly reduce the expense base and simplify the company.
Dave: Thank you for joining the call and for your interest in Navient.
Dave: Let me begin by providing an update on our progress against the three strategic actions, we announced in June right.
Dave: Began to implement these actions and have made significant progress in a short period of time to deliver on the overall expense reductions within the timelines. We described during our Q4 earnings call.
Dave: As a reminder, the three strategic actions. We are pursuing are one adopting a variable cost outsourced servicing model.
Dave: To exploring strategic options for the business process integration, including divestiture.
Dave: And three streamlining shared services infrastructure and corporate footprint.
Dave: These actions are intended to significantly reduce the expense base and simplify the company.
Dave: They should increase the amount of net cash flows from our loan portfolio and increase the visibility and returns around growth initiatives. First, we've begun to implement a variable costs servicing model in an outsourcing relationship with Moela. We have identified and notified nearly 900 colleagues who will be transferred to MoHELA. These include frontline servicing colleagues, as well as colleagues in shared service and corporate functions.
Dave: They should increase the amount of net cash flows from our loan portfolio and increase the visibility and returns around growth initiatives.
Dave: First we have begun to implement a variable costs servicing model to an outsourcing relationship with no EBITDA.
Dave: We have identified and notified nearly 900 colleagues who will be transferred to Mohit.
Dave: These included frontline servicing colleagues as well as colleagues and shared service and corporate functions.
Dave: We expect these employee transitions to begin during the current quarter and to finish up in July. We're also well underway on plans to transfer several proprietary and customized technology tools and solutions to Mojito. These add-on systems will maintain automations and other efficiencies. Additionally, since Mojito uses the same third-party loan servicing platform as Navient, there's no need for a loan system conversion, which helps ensure borrowers will have a seamless servicing experience during the transition.
Dave: We expect these employee transitions to begin during the current quarter and to finish up in July.
Dave: We're also well underway on plans to transfer several proprietary and customized technology tools and solutions to Mahela.
Dave: These add on systems will maintain automation and other efficiencies.
Dave: Fortunately since Mahela uses the same third party loan servicing platform as Navient.
Dave: No need for a loan system conversion.
Which helps to ensure borrowers will have a seamless servicing experience during the transition.
Dave: We've prepared a multi-stage communication strategy designed to educate borrowers in advance of the transition and to help them know what to expect when the shift occurs this fall. We're on track to reach a final agreement with MoIRA during Q2. We expect there'll be several transition services agreements between Mohila and Navient that will continue through and beyond year-end. Second Alternative Business Processing Solution
Dave: We've prepared a multi staged communication strategy designed to educate borrowers in advance of the transition.
Dave: To help them better what to expect when the shift occurs this fall.
Dave: We're on track to reach a final agreement with <unk> during Q2.
Dave: We expect there'll be several transition services agreements between <unk> and Navient that will continue through and beyond year end.
Second I will turn to business processing solutions, we have initiated a divestment process and are in active discussions with potential buyers.
Dave: We have initiated a divestment process and are in active discussions with potential buyers. We've received broad interest in these businesses and are encouraged by the initial conversations and activity thus far. Our third strategic action is to reshape our shared services functions and corporate footprint to align with the needs of a more focused, flexible, and streamlined company. He said in January that the full scope and timing of these opportunities will depend on the progress of the outsourcing and potential divestiture transactions.
Dave: We have received broad interest in these businesses and are encouraged by the initial conversations and activity thus far.
Dave: Our third strategic action is to reshape our shared services functions and corporate footprint to align with the needs of our more focused flexible and streamlined company.
Dave: We said in January that the full scope and timing of these opportunities will depend on the progress of the outsourcing.
Dave: Potential divestiture transactions.
Dave: As outsourcing has come into sharper focus, we've taken steps that will reduce the shared service expenses in the company as a consequence of outsourcing. For example, of the approximately 900 employees we expect to transfer to Mojila, roughly 100 are shared service employees.
Dave: Outsourcing has come into sharper focus we've taken steps that will reduce the shared service expenses and the company as a consequence of outsourcing.
Dave: For example of the approximately 900 employees, we expect to transfer to more Hela platform.
Dave: 100 or shared services delays.
Dave: Our plans for a leaner company post-outsourcing and post-investment were further developed during Q1 through an intensive and focused analysis. This included a bottoms-up, process-by-process, person-by-person assessment of our current costs for certain shared service and corporate activities. We have plans for a simple operational footprint for areas like IT and identified opportunities to consolidate light functions. We recently took steps to create a streamlined organizational structure that aligns to our future outsourced environment. In January, we stated that approximately $400 million of our full-year 2023 operating expenses would have been eliminated under a scenario in which we had completed these three actions. As a reminder, a BPS divestment scenario would also not include corresponding BPS revenue.
Dave: Our plans for a leaner company post outsourcing and post divestment or further develop during Q1 for an intensive and focused analysis.
Dave: Included a bottoms up process by process person by person assessment of our current cost of certain shared services and corporate activities.
Dave: We have plans for a simple operational footprint for areas like Iot.
Dave: And identified opportunities to consolidate like functions.
Dave: We recently took steps to create a streamlined organizational structure.
Dave: It aligns to our future outsourced environment.
Dave: In January we stated that approximately $400 million of our full year 2023 operating expenses would have been eliminated under a scenario in which we had completed these reactions.
Dave: As a reminder, a bps divestments scenario would also not include corresponding bps revenue.
Dave: The progress we've made during the first quarter has increased the clarity of our plans and our confidence in our ability to execute the necessary steps to achieve these reductions within the timelines we laid out in January. However, the full scope and timing of these opportunities continues to depend on the execution of the outsourcing and potential divestiture transactions. To summarize, we expect to finalize our plans and continue implementation of all three strategic actions this year. We believe substantial parts will be delivered this year, with the final steps to be completed by the end of 2025. Now turning to our Ernest business, Ernest continues to efficiently generate high-quality lounges.
The progress we've made during the first quarter as increased the clarity of our plans and our confidence in our ability to execute the necessary steps to achieve these reductions within the timelines we laid out in January.
Dave: This full scope and timing of these opportunities continues to depend on execution of the outsourcing and potential divestiture transactions.
Dave: To summarize we expect to finalize our plans and continued implementation on all three strategic actions this year.
Dave: We believe substantial parts will be delivered this year with the final steps to be completed by the end of 2025.
Dave: Now turning to our <unk> business <unk> continues to efficiently generate high quality loans.
Dave: Originations are off to a strong start in Q1. Joe will provide an update on our results thus far shortly. At the same time, we continue to pursue customer-centric relationships with students and college grads and explore opportunities through product extensions to deepen those relationships and deliver attractive lifetime activities.
Dave: Originations are off to a strong start in Q1.
Dave: Joe will provide an update on our results thus far shortly.
Dave: At the same time, we continue to pursue customer centric relationships with students in college grads and.
Dave: And explore opportunities through product extensions to deepen those relationships and deliver attractive lifetime economics.
Dave: As a reminder, we're undertaking the strategic actions discussed earlier to realize increased net cash flows from our loan portfolios, increase our capacity and flexibility to invest and distribute cash to shareholders, and improve the returns we can achieve from investing. We remain confident that the combination of the cash we have on hand... The accelerated cash flows from our loan portfolios and proceeds from the divestment of EPS, together, should generate significant cash flows over the next few years.
Dave: As a reminder, we're undertaking the strategic actions discussed earlier to realize increased net cash flows from our loan portfolios.
Dave: Kris our capacity and flexibility to invest and distribute cash to shareholders and.
Dave: And improve the returns we can achieve from investments.
Dave: We remain confident that the combination of the cash we have on hand.
Dave: Celebrated cash flows from our loan portfolios.
Dave: Proceeds from the divestment of bps combined.
Dave: Should generate significant cash flows over the next few years.
Dave: The FFELP loan prepayment activity that Joe will discuss within our quarterly results accelerates the return of loan principal within those cash flows. This cast will be available to distributed shareholders. We will invest that cash only if we have clear visibility and opportunities to earn returns in excess of our cost of capital. This is the first update on our progress in implementing our strategic actions. We will provide additional updates and call out their impacts on our 2024 reported results as we progress throughout the year.
Dave: The <unk> loan prepayment activity that Joe will discuss within our quarterly results accelerates the return of loan principal within those cash flows.
This cash will be available to distribute to shareholders.
We will invest that cash only if we have clear visibility and opportunities to earn returns in excess of our cost of capital.
Dave: This is the first update on our progress in implementing our strategic actions.
Dave: We will provide additional updates and call out their impacts on our 2024 reported results as we progress throughout the year.
Dave: As our visibility into these actions becomes more certain, we expect to provide a revised outlook and plans during the second half of the year. In closing, I'd like to thank my colleagues company-wide. Through their tireless commitment, we made substantial progress in a short period of time against three complex and large undertakings, our strategic actions. At the same time, our results for the quarter reflect strong performance against items within our control, such as expense disbursements. I'm pleased with how the company is delivering significant change while simultaneously serving our customers and clients. With that, let me turn it over to Joe, and I look forward to your questions later in the call.
Dave: As our visibility into these actions becomes more certain we expect to provide our revised outlook and plans during the second half of the year.
Speaker Change: In closing I'd like to thank my colleagues companywide.
Speaker Change: Through their tireless commitment we made substantial progress in a short period of time against three complex and large undertakings, our strategic actions at.
Speaker Change: At the same time, our results for the quarter reflect strong performance against items within our control such as expense discipline.
Speaker Change: I am pleased with how the company is delivering significant change while simultaneously serving our customers and clients.
With that let me turn it over to Joe and I look forward to your questions later in the call.
Joe Fisher: Thank you, Dave, and everyone on today's call for your interest in Navient. During my prepared remarks, I will review the first quarter results for 2024 and provide updated guidance underlying our outlook for the remainder of the year. In the first quarter, we reported GAAP EPS of 64 cents. On a core basis, we delivered first quarter EPS of 47. The $0.47 includes a $0.16 reduction in EPS related to significant items in the quarter.
Joe Fisher: Thank you, Dave and everyone on today's call for your interest in Albion.
During my prepared remarks, I will review the first quarter results for 2024 and provide updated guidance underlying our outlook for the remainder of the year.
Joe Fisher: In the first quarter, we reported GAAP EPS of <unk> 64.
Joe Fisher: On a core basis, we delivered first quarter EPS of <unk> 47.
Joe Fisher: The 47 includes <unk> <unk> reduction to EPS related to significant items in the quarter.
Joe Fisher: The first of these items relates to an increase in our accrual by $12 million in connection with the CFPB litigation as we continue to explore a solution that is acceptable to all stakeholders. The second of these items is associated with changes in federal student loan policy that were effective in the second half of last year, which continue to drive elevated prepayments within our FFEL portfolio. I will provide additional detail on the federal education loan segment on slides 5 and 6.
Joe Fisher: The first of these items relates to an increase in our accrual by $12 million in connection with the CFPB litigation as we continue to explore a solution that is acceptable to all stakeholders.
Joe Fisher: The second of these items was associated with changes in federal student loan policy.
That were effective in the second half of last year, which continue to drive elevated prepayments within our <unk> portfolio.
Joe Fisher: I will provide additional detail on the federal education loans segment on slides five and six.
Joe Fisher: Our original guidance for net interest margin of the low 70s included the higher rate environment that we experienced and corresponding decline in floor income and assumed a return to a more normalized prepayment rate. As expected, the decline in floor hedges reduced Felton Inn by 17 basis points compared to the fourth quarter. We do not anticipate earning a significant amount of poor income in the current rate environment.
Our original guidance for net interest margin of low seventies included the higher rate environment that we experienced and corresponding decline in foreign income and assumed a return to more normalized prepayment rates.
Joe Fisher: As expected the decline in for hedges reduced felt NIM by 17 basis points compared to the fourth quarter.
Joe Fisher: We do not anticipate earning a significant amount of floor income in the current rate environment.
Joe Fisher: From a credit perspective, compared to the prior year, our greater than 90-day delinquency rates improved to 6.6% from 7.9%, the charge-off rate improved to 13 basis points from 22 basis points, and forbearances improved to 16% from 16.9%. We encourage borrowers who are experiencing or have historically experienced difficulty repaying their loans to take advantage of recent programs and policy actions. However, in order to take advantage of the majority of these programs, a borrower generally needs to consolidate into the Department of Education Direct Loan Program.
Joe Fisher: From a credit perspective compared to the prior year.
Joe Fisher: Greater than 90 day delinquency rates improved to six 6% from seven 9%.
Joe Fisher: The charge off rate improved to 13 basis points from 22 basis points and for balances improved to 16% from 16, 9%.
Joe Fisher: We encourage borrowers who are experiencing.
Joe Fisher: Or have historically experienced difficulty repaying their loans to take advantage of the recent programs and policy actions.
Joe Fisher: In order to take advantage of the majority of these programs borrower generally needs to consolidate to the department of education direct loan program.
Joe Fisher: The quarter's NIM of 55 basis points reflects the elevated prepayment levels we experienced during the quarter, and slide six shows the dollar amounts of monthly felt prepayment activity since January 2022. The sharp increase in prepayment activity during the second half of 2022 was related to consolidation activity driven by the administration's proposals at that time to provide broad debt forgiveness to borrowers. In that instance, prepayments quickly return to normalized levels.
Joe Fisher: The quarter's NIM, a 55 basis points reflects the elevated prepayment levels, we experienced during the quarter and slide six shows the dollar amount of monthly cell prepayment activity since January 2022.
Joe Fisher: The sharp increase in prepayment activity during the second half of 2022 was related to consolidation activity driven by the administration's proposals at that time.
Joe Fisher: <unk> broad debt forgiveness to borrowers.
Joe Fisher: In that instance, prepayments quickly returned to normalized levels.
Joe Fisher: We believe the primary drivers of this quarter's elevated prepayment activity are a new and different set of policy actions taken by the Department of Education. These provide a broader array of payment and loan forgiveness programs and therefore encourage borrowers to consolidate their FELP loans into the direct loan program. In the quarter, we experienced felt prepayments of $1.6 billion compared to $700 million a year ago. Loan prepayments reduce future net interest income but accelerate loan principal payments within our life-of-loan cash flow projection. It is important to point out that the write-off of the unamortized loan premium that accompanies prepayments is a non-cash expense and does not impact our life-of-loan cash flow projection.
Joe Fisher: We believe the primary drivers of this quarter's elevated prepayment activity or a new and different set of policy actions taken by the department of education.
Joe Fisher: These provide a broader array of payment and loan forgiveness programs and therefore encourage borrowers to consolidate their felt loans into the direct loan program.
Joe Fisher: In the quarter, we experienced felt prepayments of one 6 billion compared.
Joe Fisher: Compared to $700 million a year ago.
Joe Fisher: Loan prepayments reduce future net interest income, but accelerate loan principal payments within our life of loan cash flow projections.
Joe Fisher: It is important to point out that the write off of unamortized loan premium that accompanies prepayments is a noncash expense and does not impact our life of loan cash flow projections.
Joe Fisher: Looking forward, some of the policy actions that encourage consolidation provide incentives that are set to expire. The administration continues to propose and implement additional loan forgiveness and debt reduction programs. We cannot predict whether some or all of the expiring policies will be extended, nor the impact and timing of proposed or future debt forgiveness initiatives. In addition, the legality of several of these initiatives is being litigated in the courts, and we cannot predict the outcomes of those cases.
Joe Fisher: Looking forward some of the policy actions that encourage consolidation provide incentives that are set to expire.
Joe Fisher: The administration continues to propose and implement additional loan forgiveness and debt reduction programs.
Joe Fisher: We cannot predict whether some or all of the expiring policies will be extended nor the impact and timing of proposed our future debt forgiveness initiatives.
Joe Fisher: In addition, the legality of several of these initiatives is being litigated in the courts and we cannot predict the outcomes of those cases.
Joe Fisher: If prepayments were to remain at the elevated levels in C1 for all of 2024, we would anticipate MIM would remain in the mid-50s, and approximately $100 million of loan principal cash flows would be accelerated. Let's turn to our consumer lending segment on slide seven. The net interest margin in this segment was 299 basis points in the quarter compared to 291 in the fourth quarter. Originations grew over 50% to $259 million compared to $168 million a year ago, as we remain focused on generating growth from high-quality borrowers. We anticipate that the consumer lending NIMS will be in the low 300s for 2024.
Joe Fisher: If prepayments, which remain at the elevated levels in Q1 for all of 2024, we would anticipate NIM will remain in the mid fifties and approximately $100 million of loan principal cash flows would be accelerated.
Joe Fisher: Now, let's turn to our consumer lending segment on slide seven.
Joe Fisher: Net interest margin in this segment was 299 basis points in the quarter compared to 291 in the fourth quarter.
Joe Fisher: Originations grew over 50% to $259 million compared to $168 million a year ago. As we remained focused on generating growth from high quality borrowers.
Joe Fisher: We anticipate that the consumer lending NIM will be in the low three hundreds for 2024.
Joe Fisher: This includes projected total education loan originations of $1.4 billion compared to $1 billion for all of 2023. Credit metrics in our consumer lending portfolio performed as expected, with late-stage delinquency and forbearance rates relatively flat year-over-year at 2.1% and 1.8%, respectively. The $24 million increase in charge-offs compared to a year ago was primarily related to the resolution of certain legacy loans and bankruptcy that were previously reserved for in the first quarter of 2023.
Joe Fisher: This includes projected total education loan originations of $1 4 billion compared to 1 billion for all of 2023.
Joe Fisher: Credit metrics and our consumer lending portfolio performed as expected with late stage delinquency and forbearance rates relatively flat year over year at two 1% and one 8% respectively.
$24 million increase in charge offs compared to a year ago was primarily related to the resolution of certain legacy loans and bankruptcy.
Previously reserved for in the first quarter of 2023.
Joe Fisher: This impact is reflected in our change in allowance on slide 8. At the end of the first quarter, our allowance for loan loss for our entire education loan portfolio was $961 million. We reserved $1 million for felt loans during the quarter, and new origination volume contributed $5 million to the allowance.
Joe Fisher: This impact is reflected in our change in allowance on slide eight.
Joe Fisher: At the end of the first quarter, our allowance for loan loss for our entire education loan portfolio was $961 million.
Joe Fisher: <unk> 1 million for felt loans during the quarter and new origination volume contributed $5 million to the allowance.
Joe Fisher: Continue to slide 9 to review our business processing segment. Total revenue increased $5 million to $77 million with an EBITDA margin of 11% compared to 7% a year ago. As we explore strategic options for this segment, I want to acknowledge the BPS team for remaining focused on growing revenues at attractive margins. Although it is early in the process, we are encouraged by the interest we have seen so far from prospective buyers, as shown by our capital allocation and financing activity that is highlighted on slide 10.
Joe Fisher: Continuing to slide nine to review our business processing segment.
Total revenues increased $5 million to $77 million with an EBITDA margin of 11% compared to 7% a year ago.
Joe Fisher: As we explore strategic options for this segment I want to acknowledge the bps team for remaining focused on growing revenues at attractive margins.
Joe Fisher: Although it is early in the process. We are encouraged by the interest we have seen so far from prospective buyers.
Joe Fisher: Send to our capital allocation and financing activity that is highlighted on slide 10.
Joe Fisher: We continue to maintain disciplined asset liability and capital management strategies with 83% of our education loan portfolio funded to term and an adjusted tangible equity ratio of 8.4%. In the quarter, we reduced our share count by 2% through the purchase of 2.6 million shares. In total, we returned $61 million to shareholders through share repurchases and dividends.
Joe Fisher: We continue to maintain disciplined asset liability and capital management strategies with 83% of our education loan portfolio funded to term and then adjusted tangible equity ratio of eight 4%.
Joe Fisher: In the quarter, we reduced our share count by 2% through the repurchase of two 6 million shares.
Joe Fisher: In total we returned $61 million to shareholders through share repurchases and dividends.
Joe Fisher: Let's turn to expenses on slide 11. Total expenses for the quarter were down to $184 million, this including $14 million of regulatory and restructuring expense, 12 million of which relates to an accrual in connection with the CFPB matter. Operating expenses declined 15% in the federal education segment and 12% in the corporate other segment when adjusting for regulatory expenses.
Let's turn to expenses on slide 11.
Joe Fisher: Total expenses for the quarter were down to $184 million. This includes $14 million of regulatory and restructuring expense $12 million of which relates to an accrual in connection with the CFPB matter.
Joe Fisher: Operating expenses declined, 15% and federal education segment, and 12% in the corporate other segment when adjusting for regulatory expenses.
Joe Fisher: The strategic actions we have undertaken have allowed us to identify meaningful opportunities to reduce expenses in future periods. As you can see on slide 12, the elevated felt prepayments lowered our overall Q1 EPS by 15 cents versus our internal expectation. This is partially offset by $0.08 from other operating improvements. The impact of the increased reserve for the CFPB matter is shown separately and was not included in our expectation.
Joe Fisher: The strategic actions, we have undertaken have allowed us to identify meaningful opportunities to reduce expenses in future periods.
Joe Fisher: As you can see on slide 12, the elevated felt prepayments lowered our overall Q1 EPS by 15 cents.
Joe Fisher: Versus our internal expectations.
Joe Fisher: This was partially offset by <unk> from other operating improvements.
The impact of the increased reserve for the CFPB matter is shown separately and was not included in our expectations.
Joe Fisher: Based on T1 experience, we updated our full year 2024 core earnings per share outlook of $1.55 to $1.75. It reflects the $0.47 reported EPS from the first quarter. This updated guidance contains several significant assumptions that are different than those embedded in our original guidance. The most impactful of these is our assumption for continued elevated prepayments on the Felt Portfolio for the remainder of the year, which was the primary contributor to a 15 cent EPS drag in the quarter.
Joe Fisher: Based on Q1 experience, we updated our full year 2020 for core earnings per share outlook of $1 55 to $1 75.
Joe Fisher: Flex the <unk> 47 reported EPS from the first quarter.
Joe Fisher: This updated guidance contained several significant assumptions that are different than those embedded in our original guidance.
Joe Fisher: The most impactful of these is our assumption for continued elevated prepayments on the <unk> portfolio for the remainder of the year, which was the primary contributor to a 15 cents EPS drag in the quarter.
Joe Fisher: It also includes our current expectations for the transition to MoGILA in the second half of the year and assumes three straight cuts through year-end. The updated guidance continues to exclude future regulatory costs and any future restructuring costs associated with rightsizing our shared service and corporate footprint. While we are encouraged by the interest shown so far in the potential divestment of BPS, we are excluding any impact from that transaction in the 2024 guidance.
Joe Fisher: It also includes our current expectations for the transition to <unk> in the second half of the year and assumes three rate cuts through year end.
Joe Fisher: The updated guidance continues to exclude future regulatory costs and any future restructuring costs associated with right sizing our shared service and corporate footprint.
Joe Fisher: While we are encouraged by the interest shown so far and the potential divestment of Etfs.
Joe Fisher: We are excluding any impact from that transaction and the 2020 for guidance.
Joe Fisher: The amount and timing of certain shared service and corporate footprint reductions depends on the nature and timing of a BPS transaction. In summary, we made significant progress during the quarter against the strategic actions we announced in January. We continue to believe our objective of a simpler, leaner, and more focused company within the next 15 to 21 months is achievable. We are off to a good start and efficiently growing our origination volume at EARNIT.
Joe Fisher: The amount and timing of certain shared service and corporate footprint reduction depends on the nature and timing of a bps transaction.
Joe Fisher: In summary, we made significant progress during the quarter against the strategic actions, we announced in January.
Joe Fisher: We continue to believe our objective of a simpler.
Joe Fisher: Leaner and more focused company within the next 15 to 21 months is achievable.
Joe Fisher: We are off to a good start in efficiently growing our origination volume at <unk>.
Joe Fisher: The strategic actions position us to better manage the uncertainties we face around legacy loan prepayments in the future interest rate environment. Before I open the call for questions, I want to thank Team Navient for their significant efforts throughout the quarter as they work to execute the strategic actions while running the business and delivering value for clients and shareholders. Thank you for your time, and I will now open the call to any questions.
Joe Fisher: The strategic actions position us to better manage the uncertainties, we face around legacy loan prepayments and the future interest rate environment.
Speaker Change: Before I open the call for questions I want to thank team navient for their significant efforts throughout the quarter as they work to execute the strategic actions, while running the business and delivering value for clients and shareholders.
Speaker Change: Thank you for your time and I'll now open the call for any questions.
Operator: Thank you. If you'd like to ask a question, please press star 11. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Sanjay Sakhrani with KBW. Your line is open.
Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: Our first question comes from Sanjay <unk> with <unk>. Your line is open.
Stephen Kwok: Hi, this is actually Stephen Kwok filling in for Sanjay. Thanks for taking my questions. The first question I just had was around the updated guidance. You mentioned that the FELP NIM was the primary driver. Can you just walk us through what the updated NIM expectations are and how we should think about the trajectory for the remainder of the year?
Speaker Change: Hi, This is actually Steven Kwok filling in for Sanjay. Thanks for taking my questions. The first question I had was around the guide updated guidance you mentioned that the.
Steven Kwok: NIM was the primary driver can you just walk us through what the updated NIM expectations are and how we should think about the trajectory for the remainder of the year.
Joe Fisher: I think, Stephen, the way I think about it is we provided updated guidance at the beginning of the year for the low 70s. The primary driver of this quarter's miss is just prepaid, the extended programs that we've seen and policy changes that have occurred that have led to elevated prepayments. We are expecting that to continue throughout the remainder of the year, and that'll create what I would call a 15 basis point drag.
Speaker Change: Thanks Steven.
Speaker Change: The way I think about it is we.
Speaker Change: Provided.
Speaker Change: Updated guidance at the beginning of the year of low Seventy's. The primary driver of this quarter's Miss is the just pre paint the extended.
Speaker Change: Programs that we've seen and policy changes.
Speaker Change: That have occurred that have led to elevated prepayments we are expecting that to continue throughout the remainder of the year that will create what I would do is a 15 basis point drag and thats, where that low or that mid to low <unk> comes in and that is primarily driven from noncash items, such as deferred financing fees as well as the <unk>.
Joe Fisher: And that's where the low or that mid to low 50s comes in. And that is primarily driven by non-cash items such as deferred financing fees as well as accelerated premiums. So I would just assume that that is fairly stable throughout the remainder of the year, and if there are changes in that policy, that could certainly impact different quarters, but we're assuming a straight line from this first quarter all the way to the end of the year.
Speaker Change: Accelerating premiums so I would I would just assume that that is fairly stable throughout the remainder of the year and if theres changes in that policy that could certainly impact different quarters, but were assuming a straight line from this first quarter all the way to the end of the year.
David L. Yowan: Got it. That's definitely very helpful. And then just an update on recent developments related to the CFPB matters, if you could provide some additional color, given that, you know, the last couple of quarters you've been taking in an accrual for it.
Speaker Change: Got it that's definitely very helpful.
Speaker Change: And then just an update around the recent developments related to the CFPB matters. If you could provide some additional color given that the last couple of quarters, you've been taking an accrual for it.
David L. Yowan: Yeah, Steven, Steve Yowan, thanks for the call. Those that accrual this quarter, the $12 million, which approximates $0.08, just reflects the developments in the discussions that we're having with the CFPB. We've not gone any farther than that, and I'm not going to go any farther than that.
Speaker Change: Yes, Stephen studio and thanks for the call those that accrual this quarter.
Speaker Change: $12 million, which approximates eight.
Speaker Change: Just reflects the developments in the.
Speaker Change: Discussions that we're having with the CFPB.
Speaker Change: Not gone any farther than that I'm not going to go any farther than that at this time.
David L. Yowan: Got it. Got it. Great. Thanks. Thank you for my question.
Speaker Change: Got it got it great. Thanks for taking my question.
Operator: You bet. Thank you. As a reminder, to ask a question, please press star 111. Our next question comes from Melissa Weddle with J.P. Morgan. Your line is open.
Speaker Change: You bet.
Speaker Change: Thank you as a reminder to ask a question. Please press star one.
Speaker Change: Our next question comes from Melissa Wedel with Jpmorgan. Your line is open.
Melissa Weddle: Good morning, Melissa and Farouk. Today. Thanks for taking my questions.
Melissa Wedel: Good morning, Ann Melissa correct today, Thanks for taking my question.
Melissa Weddle: I wanted to better understand any potential impact on NIM. I think you covered it well on the FELT side, the impact of the prepayment activity. Should we be thinking about the consumer lending NIM as being relatively unaffected? Because that is sort of focused on the FELT program in particular? So should the low $300 sip NIM on consumer lending kind of hold in place versus what we talked about last quarter?
Melissa Wedel: I wanted to better understand.
Melissa Wedel: Any potential impact on NIM.
Melissa Wedel: Well on the sell side.
Melissa Wedel: Paso prepayment activity should we be thinking about the consumer lending NIM has been relatively unaffected because that is.
Melissa Wedel: Sort of focused on that the salt program in particular, so just.
Melissa Wedel: The low 300.
That man on consumer lending.
Melissa Wedel: Kind of hold in place versus what we talked about last quarter.
Joe Fisher: That's correct. We did not change our guidance as it related to consumer lending, and we would assume that that remains in the low 300s throughout the remainder of the year.
Speaker Change: That's correct, we did not change our guidance as it related to the consumer lending NIM and we would assume that that remains in the low three hundreds throughout the remainder of the year.
Melissa Weddle: Okay, thanks for confirming that. And then on the business processing side, guidance was for high teens EBITDA margin at 11% in the first quarter. That assumes a pretty steady ramp through the remainder of the year. How are you thinking about that? Is there any seasonality we should be factoring in?
Speaker Change: Okay.
Speaker Change: Thanks for confirming that and then on the business processing side.
Speaker Change: Guidance for high teens EBITDA margin at.
Speaker Change: At 11% in the first quarter that assumes a pretty steady ramp.
Speaker Change: Through the remainder of the year.
Speaker Change: How are you thinking about that.
Speaker Change: Is there any seasonality we should.
Speaker Change: The factoring in.
Joe Fisher: There is some seasonality in the first quarter, as we saw. If you look at a year ago, we were at 7%. This quarter, we are at 11% EBITDA margins. That typically kicks up in the remainder of the year, and we would assume that occurs here as well. That's primarily driven just by compensation timing. We also saw a little bit of lagged billing revenue on the healthcare side, so we would anticipate that those EBITDA margins would increase throughout the year versus the first quarter.
Speaker Change: There is some seasonality in the first quarter as we saw if you look at a year ago. We were at 7%. This quarter. We're at 11% EBIT margin that typically ticks up in the remainder of the year and we would assume that occurs here as well that's primarily driven just by compensation timing. We also saw a little bit of.
Speaker Change: Billing revenue on the healthcare side, and so we would anticipate that those EBITDA margins would increase throughout the year versus the first quarter.
Melissa Weddle: Okay, but my high teens for the full year still stand.
Speaker Change: Okay, but high teens for the full year or so.
Joe Fisher: That is still our target, yes.
Speaker Change: That is still our target yes.
Melissa Weddle: Okay, thank you very much.
Speaker Change: Okay. Thank you very much.
Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Jen Earyes for closing remarks.
Speaker Change: Thank you there are no further questions at this time I'd like to turn the call back over to Jim <unk> for closing remarks.
Jen Earyes: Thanks, Michelle. For everybody on the call, if you have any follow-up questions, please just contact me. We'd like to thank everyone for joining us on today's call. This concludes today's call.
Jim: Thanks, Michelle for everybody on the call. If you have any follow up questions. Please contact me.
Jim: Like to thank everyone for joining on todays call. This concludes today's call.
Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Speaker Change: Thank you for your participation you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.