Wilmington-based Navient reported higher earnings in the first quarter as the company expanded its segment reporting to reflect a broader array of businesses.
Results that included the origination of $500 million of private education refinance loans, a 43 percent decrease in private education loan charge-offs and a 32 percent increase in business processing fee revenue from the year-ago quarter.
“2018 is off to a very good start, with adjusted core earnings of $0.43 per share,” said Jack Remondi, CEO of Navient. “We delivered strong growth rates in business processing revenue and in private education refi loan originations. Credit continued to improve, with the private education charge-off rate falling to 1.4 percent, as the economy continues to grow. In addition, profitability this quarter was aided by our focus on operating efficiency and the new lower tax rates. This quarter’s results lay a strong foundation for the balance of the year for our business and the customers who depend on us to serve them. As our business model has evolved, we changed our reporting segments to provide greater insight on performance and direction for investors.”
For the first-quarter 2018, GAAP (Generally Accepted Accounting Principles) net income was $126 million compared with $88 million ($0.30 diluted earnings per share) for the year-ago quarter.
An increase in diluted core earnings per share was primarily the result of a $20 million reduction in provisions for loan losses, a $20 million reduction in income tax expense as a result of a lower tax rate in connection with the passage of the “Tax Cuts and Jobs Act” and fewer common shares outstanding.
Navient changed its reportable operating segments this quarter to align with changes in how the company manages the business, reviews operating performance and allocates resources.
The segments are Federal Education Loans, Consumer Lending, Business Processing and Other. As a result of this change, prior periods have been recast for comparison purposes.
In its Federal Education Loans segment, core earnings were $141 million in first-quarter 2018, compared with the year-ago quarter’s $129 million. This increase was primarily the result of a $6 million decrease in operating expenses and a $26 million decrease in income tax expense as a result of the tax law. These items were partially offset by a
$3 million decreases in net interest income and a $26 million decrease in fee income. The decrease in fee income was primarily the result of the new terms contained in a previously disclosed modified asset recovery and portfolio management contract.
The Consumer Lending segment saw core earnings for the segment were $50 million in first-quarter 2018, compared with the year-ago quarter’s $38 million. This increase was primarily the result of a $7 million increase in net interest income, an $18 million decrease in provision for loan losses and a $9 million decrease in income tax expense. These items were partially offset by a $21 million increase in operating expenses primarily related to operating costs for online lender Earnest, acquired in November 2017, and a $9 million one-time fee paid to convert $3 billion of private education loans from a third-party servicer to Navient’s servicing platform.
In its Business Processing segment, Core earnings were $10 million in first-quarter 2018, compared with $3 million in the year-ago quarter. This increase was primarily the result of a $29 million increase in fee income partially offset by a $20 million increase in operating expenses. The increases in fee income and operating expenses were primarily related to internal growth of business processing contracts as well as for Duncan Solutions, a parking services servicer acquired in July 2017.
On January 24, 2018, Navient announced that it expects to restart its share repurchases in the second half of 2018. No shares were repurchased in first-quarter 2018.
Shares of Navient are off their one-year high. The company has continued to take heat for its collection practices, despite signs that the Trump administration will back off of the more aggressive stance on student loans of the Obama administration. The company has firmly denied that its practices are out of line.
An activist investor has bought into Navient and plans to seek a board set and input on the company’s strategy.