Navient Corp. (NASDAQ: NAVI) Q1 2020 Earnings Call Transcript

Navient Corp. (NAVI) Q1 2020 earnings call dated Apr. 03, 2020

Corporate Participants:

Joe Fisher — Vice President, Investor Relations and Corporate Development

Jack Remondi — President and Chief Executive Officer

Christian Lown — Executive Vice President and Chief Financial Officer

Analysts:

Mark DeVries — Barclays — Analyst

Vincent Ciantic — Stephens Inc. — Analyst

Moshe Orenbuch — Credit Suisse — Analyst

Leon Cooperman — Omega Advisors — Analyst

Richard Shane — JP Morgan — Analyst

Mark Hammond — Bank of America Merrill Lynch — Analyst

Sanjay Sakhrani — KBW — Analyst

John Hecht — Jefferies — Analyst

Henry Coffey — Wedbush — Analyst

Arren Cyganovich — Citigroup — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Navient First Quarter 2020 Earnings Conference Call. [Operator Instructions].

I would now like to hand the conference over to your speaker for today, Mr Joe Fisher. Thank you. Please go ahead.

Joe Fisher — Vice President, Investor Relations and Corporate Development

Thank you, Lashana. Good morning and welcome to Navient’s 2020 First Quarter Earnings Call. With me today are Jack Remondi, our CEO; and Chris Lown, our CFO. After their prepared remarks we will open up the call for questions.

Before we begin, keep in mind our discussion will contain predictions, expectations and forward-looking statements. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the company’s Form 10-K and other filings with the SEC. For Navient, these factors include, among others, the risks and uncertainties associated with the severity, magnitude and duration of the COVID-19 pandemic. The work from home policies and travel restrictions that have been put in place, did not negatively affect our ability to close our books and maintain our financial reporting systems, internal controls over financial reporting or disclosure controls and procedures.

During this conference call, we will refer to non-GAAP measures we call our core earnings. A description of core earnings, a full reconciliation to GAAP measures and our GAAP results can be found in the first quarter 2020 supplemental earnings disclosure. This is posted on the Investors page at navient.com.

Thank you. And I’ll turn the call over to Jack.

Jack Remondi — President and Chief Executive Officer

Thanks Joe. Good morning everyone and thank you for joining us today. I hope you and your families are healthy and staying safe. These are challenging times. This morning, we will share the steps we have taken in response to the crisis, review our quarterly results and discuss the estimates we have made about future financial impacts.

Let me start with our response to the COVID-19 crisis. As this crisis evolved, we took early and decisive action to protect the health and safety of our teammates. We expanded our work from home capabilities, and implemented best practices and safety and hygiene to protect those who needed to come to the office. We were able to quickly and successfully move 90% of our team to a work-from-home status. As a result, we have thankfully had less than a handful of positive cases among our employees.

We’ve also focused on meeting the needs of our customers and clients. Our team rose to this challenge. Not only meeting the normal workflow, but rapidly implementing and deploying COVID relief information and options across our businesses. In my call listening, it is clear that the programs we have implemented are providing important relief to our customers, some of whom are on the frontlines.

We’ve also responded to those impacted by the ongoing COVID-19 crisis, by deploying hundreds of teammates to assist states in processing the surge of unemployment claims they are receiving. With just a few days to prepare, we were able to respond to incoming calls and provide support. This is a great example of how team Navient is repurposing our skills to help during the crisis.

As we’ve prepared our team and our business for the rapidly changing environment, we also thought about how we could help support our communities. Our prior business continuity planning process had included stockpiling a supply of N-95 masks. Clearly, these masks met a higher need with the frontline responders in our communities. So we donated our stockpile of nearly 10,000 masks to local hospitals and others to help protect those who are treating the sick. To me, the best news of this quarter, is that we kept our team healthy, met the needs of our customers and clients, and kept everyone on our team gainfully employed.

Turning to our financial results; core earnings this quarter were $0.51 per share compared to $0.67 in the fourth quarter and $0.58 in the year ago quarter. Earnings this quarter included a $95 million provision for loan losses or $0.36 a share. On the financial side, our company remains strong. We are carefully managing our expenses, capital expenditures and balance sheet. We believe we have ample liquidity, and we are seeing steady performance in cash flow from our student loan portfolio, and processing businesses.

Early in the first quarter, we completed our planned unsecured financing activity for the year, raising new proceeds and extending the maturities of short-term bonds. We also completed $1.9 billion in term ABS issuance, and most recently expanded the size and extended the maturity of some of our warehouse funding facilities.

Looking forward, cash flow from our loan portfolio and services contracts remain a strong source of liquidity, as our very seasoned loan portfolio has experienced lower levels of stress. To be clear, we are here to assist our customers and clients, who are impacted by the virus and its economic consequences. We offer numerous relief options, including immediate payment relief to those in need and will continue to do so. We have also seen most borrowers continue to make payments according to their payment plans. And while forbearance rates have risen, the balance of loans delinquent has not. This trend has continued into April. As a result, we expect that defaults in both our private and FFELP portfolios will be significantly lower in 2020, than expected at the start of the year.

While we are paying close attention to our customers, it is too early to know the full impact of this crisis, or the path and timing of the recovery. How long does this crisis last? How many more will lose work? And what the recovery will look like, are all questions we can only guess at. Nonetheless, we have look toward other significant economic crises, including the great recession, and the more recent regional natural disasters to guide us. As a result, our provision for loan losses this quarter totaled $95 million, bringing our total reserves to $2 billion at quarter end, which represents reserves equal to 7.1% of our private loan portfolio and 25% of the risk-sharing component of our FFELP portfolio.

While our portfolio’s strong credit characteristics and the historic resilience of the U.S. economy provide hope for the best, we are prepared for things to get worse. Our student loan portfolio is very seasoned and conservatively funded. Despite the volatility in rates and basis spreads over the last few weeks, net interest income was in line with expectations. Volatility in the basis spreads of our assets and liabilities was a negative this quarter for our FFELP net interest margin, which was offset by higher levels of floor income. We expect this basis spread to improve in the second quarter.

Other notable items for the quarter include, new refi originations of $1.9 billion, up 92% over the year ago quarter. Demand was very strong for our products through March. Given the uncertainty with both funding costs and the economic outlook, we’ve materially reduced our marketing efforts and tightened credit to reduce future originations, until we have a greater visibility in funding costs and the economic outlook.

Private loan charge-offs in the first quarter declined 30% to $68 million compared to $97 million in the fourth quarter. This decline was driven by the strength of the economy into March. We expect charge-offs during the balance of 2020 to be lower than 2019, and our original forecast for 2020, given the increased use of payment relief options. Private loans in forbearance increased to $1.6 billion or 6.9% of the portfolio at March 31st. This increase is entirely driven by our COVID-19 relief options. Loans in forbearance continued to increase in April to $2.8 billion as of April 15. This quarter also saw continued improvements in operating efficiency, and while total opex was unchanged from the fourth quarter, this quarter includes $9 million in seasonal payroll-related expenses.

At quarter end, our adjusted tangible net equity ratio declined to 3.2%. While Chris will provide greater detail later in the call, I would like to remind folks that the portion of our derivative book, hedging floor income, is mark-to-market each period and reduces equity in falling rate environments. The offsetting value we receive in floor Income however, is not mark-to-market and therefore, it’s value, which increases in falling rate environments, is not reflected in our equity.

The significant decline in rates delivered a larger than normal negative mark this quarter. As a result, at March 31st, our GAAP equity position is reduced by a cumulative $629 million for derivative valuations. That will reverse to zero, as hedge contracts mature. As a result, while our equity ratio is below our target range, we are comfortable with our position and our outlook. While our response to the crisis has taken center stage, we’ve also continued to work on other important initiatives. For example, we continue our efforts to move our remaining systems off our mainframe and we remain focused on delivering our in-school loan products for the upcoming academic year.

The COVID-19 crisis has created unprecedented challenges across all aspects of our lives. Your company entered this crisis from a position of substantial financial and operational strength to see this crisis through. Our team has responded with flexibility, resilience and innovation to meet the needs of our clients and customers. I’m inspired by that commitment and I’m thankful for their health and safety.

I’ll now turn the call over to Chris for a deeper review of this quarter’s results. Chris?

Christian Lown — Executive Vice President and Chief Financial Officer

Thank you, Jack, and thank you to everyone on today’s call for your interest in Navient during these unprecedented times. I’d like to add my thanks to team Navient their incredible resilience and support, helping our customers navigate this challenging environment. During my prepared remarks, I will review the first quarter results for 2020 and provide additional insights on the portfolio and the impact of COVID-19 pandemic on our business through April 15. I’ll be referencing the earnings call presentation, which can be found on the company’s website in the Investor’s section.

Starting on slide 4; key highlights from the quarter include, delivered adjusted core EPS of $0.51, provided immediate payment relief to over 200,000 Navient borrowers impacted by COVID-19 as of April 15; originated $1.9 billion in student refi loans, compared to $984 million from a year ago; and returned $266 million to shareholders through dividends and the repurchase of 23 million shares.

Let’s move to segment reporting, beginning with the Federal Education Loans on slide 5. Since quarter-end, we have seen our forbearance rate increase to 19% and our delinquency rate fall slightly to 10.3%, as we provide additional payment release to those impacted by COVID-19. To add some additional context, over 50% of the FFELP borrowers who have requested repayment relief, were previously in a delinquent or forbearance status.

The increase in charge-offs in the quarter was primarily a result of the implementation of CECL, which requires the company to include the premium or discount related to defaulted loans in the charge-off number. Going forward, we anticipate charge-offs and delinquencies to decline through the rest of 2020, as a greater percentage of borrowers seek payment release. The net interest margin was 81 basis points for the first quarter, within our guidance.

In the quarter, we earned $35 million of unhedged Floor Income on $16.2 billion of loans, as a result of the lower interest rate environment. The rate on $6.8 billion of these loans, resets annually on July 1, and so therefore, we do not anticipate earning Floor Income on this portion of loans for the second half of the year. The benefit in the quarter from the unhedged floors was offset by the differences in timing between our assets that are on an average daily reset basis, and are funded primarily with monthly resets. While we remain cautious, the current outlook for interest rates should positively impact the net interest margin on our FFELP portfolio, during the rest of 2020.

Now let’s turn to slide 6 in our Consumer Lending segment; much like the FFELP portfolio, we have seen an increase in forbearance and a decrease in delinquencies from the prior quarter. Since quarter-end, we have seen our forbearance rate increase to 12% and our delinquency rate rise slightly from 3.6% to 3.9%, as we provide additional payment relief to those impacted by COVID-19. During the quarter, we saw a 24% decline in the charge-off rate and expect further reductions this year, as impacted borrowers seek immediate repayment relief.

The year-over-year increase in net interest margin to 331 basis points, was primarily driven by an improvement in the cost of funds. The increased volatility in rates that occurred in March, is anticipated to negatively impact the spread on $10 billion of our prime-rate loans that are funded with LIBOR. We anticipate this dislocation will continue, and lead to a net interest margin that is at the low end of our original full year guidance of 300 to 310 basis points.

Total private education portfolio grew 1% to $22.3 billion, primarily driven by the growth in refi originations. During the quarter. we originated $1.9 billion of high quality education refinance loans. Through the first 15 days of April, we have originated $80 million. We have updated pricing on new originations to reflect the increase in cost of funds in the ABS market, and anticipate managing to lower volumes, until we see increased activity in the ABS market. l

Let’s continue to slide 7, to review our Business Processing segment. Through the first 15 days of April, we are seeing significantly lower transaction related placements in both government services and healthcare revenue cycle management, compared to the first 15 days of the previous month. However, we have been able to transition hundreds of our experienced BPS colleagues to support state clients, working to help their newly unemployed residents, access benefits implemented in the cares act. These new opportunities are expected to reduce the negative impact BPS is seeing, as a result of COVID-19. In the quarter, total BPS EBITDA margin fell to 7% from 21% a year ago. The decline in margin was primarily driven by contract terminations and expirations that occurred in the second half of 2019, combined with planned investments to improve long-term operating efficiencies, and the impact of COVID-19.

Let’s turn to slide 8, which highlights our financing activity; we successfully accessed the funding markets during the first quarter, beginning with the issuance of $700 million of unsecured debt that matures in March 2027. $190 million of this issuance was used to reduce 2021 maturities. In the quarter, we issued $1.9 billion of term private education ABS, and refinanced $472 million of private education repurchase facilities, that both extended term, and reduced overall costs.

On April 1st, we extended a FFELP facility to 2022 and expanded the total capacity in our private education refinance facility to $2.6 billion. We ended the quarter with an adjusted tangible equity ratio of 3.2% and $1.7 billion of primary sources of liquidity, of which $1.1 billion is cash.

Let’s move to slide 9, to provide greater detail on the movement that occurred in our equity and allowance during the quarter. As expected, the implementation of CECL reduced our capital ratios, which we plan to rebuild over the course of 2020. The adoption of CECL reduced equity by $620 million, which was within our previously disclosed range. In addition, GAAP equity was reduced as a result of the accelerated repurchase of shares that occurred in January, and as a result of the change in derivative marks that occurred on derivatives that hedge interest rates. The mark-to-market on the derivatives reduced shareholders’ equity in the first quarter by $394 million, bringing the cumulative negative mark to $629 million. Importantly, these negative marks will reverse to zero, as the hedge contracts mature over the next several years.

Finally let’s turn to GAAP results on slide 10. We recorded a first quarter GAAP net loss of $106 million or a negative $0.53 per share compared with net income of $128 million or $0.52 per share in the first quarter of 2019. The net loss in the first quarter was the result of $236 million of pre-tax mark-to-market loss on derivative and hedging activities, as a result of the significant reduction in interest rates.

In summary, we began 2020 with a strong start to the year. Executed on a variety of financings that positioned us well for the current environment. Successfully transitioned our workforce to a work-from-home model, and are providing solutions to our borrowers and customers to help them successfully navigate this pandemic.

While we are uniquely positioned with robust liquidity and a well seasoned and partially guaranteed loan portfolio, the difficulty of providing guidance at this time, as a result of the pandemic, has led us to temporarily suspend our full year guidance.

I will now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Mark DeVries with Barclays.

Mark DeVries — Barclays — Analyst

Yeah. Thank you. Good morning. Could you give us a sense of how much more forbearance activity you might anticipate? And also, a little more color on kind of the trajectory of credit, from here it sounds like near term, the forbearance is going to push charge offs and delinquencies lower. But how should we think about it going into 2021 and beyond?

Jack Remondi — President and Chief Executive Officer

Thanks Mark. So the forbearance rates certainly accelerated — the demand for forbearance was accelerating, as we exited March and into April, and this is why we gave the April 15th data point. Since then, the pace of demand has been declining, although it’s still increasing by — in the tens of millions of dollars each day over the last week. Still at this point in time, we still have — about 78% of our private loan portfolio is current, meaning they’re not even one day past due in their payments, and over 80% of the portfolio is either current or less than 30 days past due. And so we’re — that’s obviously a very optimistic outcome here, which means that our current borrower base with a mixture of very seasoned private student loans and our more recently originated refi loans are kind of weathering this crisis better than most consumers.

The things that we’re looking at here as we point to is other forms of disaster forbearances that have happened in the past, and what type of of payment recovery happens, as those crises move away, and that’s going to be that big challenge here, right, is how long does this crisis last? How much deeper does it go in terms of job loss? Those are the things we’re monitoring, but as we sit here today, our customer base appears to be managing this, as well as can be hoped for.

Mark DeVries — Barclays — Analyst

Okay, great. And can you give us a sense for — what we should expect from credit performance on kind of your seasoned loans versus your newer consolidation loans? And and how you reserved against those two different groups of loans?

Jack Remondi — President and Chief Executive Officer

Yeah. So we definitely modeled the outcomes differently and have expected — cumulative future losses are very different for each of those. We use the Moody’s analytics models too, as part of our CECL modeling expectations, and included higher weights to their severe stress scenarios for this quarter’s estimate. But if you look at our portfolio, overall, as I said, we have 7.1% reserves now against our total private loan portfolio. I mean, if you look at what others have been publishing in terms of expectations on student debt and consumer debt, our coverage ratios are well within the ranges that people are publishing there. If you think about it a little bit differently, and said — the weighting differences of our mix, you assume that credit losses on the refi portfolio might move from, say 1.5% to over the remaining life to 3%, that would imply a coverage ratio of over 9% for the legacy private loan portfolio. So certainly, economic conditions can change, and the duration of this could have a different impact. But from where we sit right now, we think we’re in a very conservative position.

Mark DeVries — Barclays — Analyst

Okay, great. Thank you.

Operator

Your next question comes from the line of Vincent Ciantic with Stephens.

Vincent Ciantic — Stephens Inc. — Analyst

Hey, thanks, good morning. Could you remind us how you’re thinking about your capital ratios in this time, and also, how you’re thinking about capital return?

Christian Lown — Executive Vice President and Chief Financial Officer

Great. So, as you remember, in the last call, we had put out guidance that we would get to adjusted tangible equity ratio of 6% or better by year-end. As we mentioned in our remarks, we’re at 3.2%. There will be a lot of capital build that will happen naturally throughout the year. Obviously, we have profitability of — somewhere around 25%, if interest rates stay the same if our marks on our derivative portfolio will reverse out, and so there are a number of positives that will help us build capital throughout the year, trying to get back to that 6%, ATE ratio. We have already completed a pretty significant portion of our buyback program for 2020, and so we will be very flexible and opportunistic throughout the rest of the year. So that is how we’re thinking, looking about capital, but we feel very good about our capital build. We feel great about our liquidity position. So it really is just managing that build and getting us back to the right place over the next 12 to 18 months.

Vincent Ciantic — Stephens Inc. — Analyst

Okay, great. Thank you. And next. So I appreciate the guidance you gave on the segment NIM, maybe if you could break that out a little bit. So funding, nice to see that you’re able to get different funding sources, if you could describe say, ability of of funding and the price you’re getting there. And then how should we think about sort of asset yields, and then also the Floor Income we should expect going forward.

Christian Lown — Executive Vice President and Chief Financial Officer

So obviously, in the interest rate environment we have, Floor Income will continue to accrue. Although I mentioned that, there are annual resets that are part of our Floor Income portfolio, that after July 1, we expect to stop receiving Floor Income on. So that inevitably is an important component. But on the financing side, we obviously got a significant amount done in the first quarter, more than we were expecting, more than our plan. We accelerated some of our financing activities. So we got these $700 million high-yield done at the lowest rate this company has ever posted a high yield coupon, and so we actually, for the rest of the year, have no real financing needs. We obviously would like the ABS markets to recover and to improve and we will watch there and we will look to execute on those, when the market gets back. But we have really no real pressure here for the rest of the year from a financing capacity.

Vincent Ciantic — Stephens Inc. — Analyst

Perfect. Thanks very much. Your next question comes from the line of Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch — Credit Suisse — Analyst

Great, thanks. Could you talk to Chris or Jack, a little bit about the cash flows that you’re likely to see from the portfolio, the rate of change, given all of these changes? Obviously you’ve got the forbearance, and you’ve got a general probably slowdown in prepayments. I mean, how do we think about that and anything that that means in terms of both the amount of cash you’re likely to collect over the balance of this year and next, to the life of your loans?

Christian Lown — Executive Vice President and Chief Financial Officer

Moshe, great question. Thanks for asking. So as you all saw, obviously we removed the cash flow forecast from our materials, only because there is a forward-looking guidance number and so we want to pull them out. What I could tell you is, we’ve done a significant amount of stress testing on our cash flows over the last three to four weeks. Even with our own revised internal estimates, we don’t expect our cash flows to be that meaningfully impaired. Obviously, there will be a slight decline in residual cash flows, but service and cash flows are top of the waterfall and our expectation is, we are in a still pretty strong cash flow position versus what we were expecting before this crisis. I think inevitably, we made some moves that are helpful. But there really wasn’t that significant a move in our stress testing as a result of this, and obviously that’s as of today, if the economic environment gets significantly worse, there will be some deterioration. But I would just tell you, that there is a significant out of resiliency around our cash flows, given the servicing component, given the return component of principle versus interest that really benefit the company.

Jack Remondi — President and Chief Executive Officer

I would just add in that study. So way our financing structures work. Its principal payments are coming down, as borrowers are using forbearance, the duration of our liabilities that are funding those assets through the ABS markets are extending. And so it’s a match-off in terms of those cash flows, which is why our stress test scenarios hold up so strongly during a crisis like this.

Moshe Orenbuch — Credit Suisse — Analyst

Got it. And I would assume that life extension though, does mean that there is cash flows into future periods, that — I mean, if we had those tables in front of us, you’d be adding more just in later periods? Is that correct?

Jack Remondi — President and Chief Executive Officer

That’s right. And the absolute value of them would be higher as well, because your asset has a longer average life.

Moshe Orenbuch — Credit Suisse — Analyst

All right. Okay. I guess could you maybe just give a little more detail about one of the previous answers about these annual resets in the Floor Incomes? Like how significant is that and how much of an impact is that going to have in the back half?

Christian Lown — Executive Vice President and Chief Financial Officer

Probably $6.8 billion of our $16 billion-ish dollar portfolio. But I’d also say, given the low interest rates, there is a huge benefit anyway on the FFELP portfolio. So and that would leave — it’s not a wash, but it clearly, isn’t as impactful as that $6.8 billion versus the 16 billion sounds.

Jack Remondi — President and Chief Executive Officer

Yeah, I would just add on this. Obviously, our original guidance for the year did not have any annual reset Floor Income in the second half of the year anyways, and very rarely do we ever earn floor income on annual reset loans, just because of the way the formula works. So each May, when the rate is set for the July 1 through June 30 timeframe, it’s set out of the money, and so rates have to fall fairly significant amount before they come into any value, which happened obviously beginning late in the fourth quarter and into the first quarter of this year.

Christian Lown — Executive Vice President and Chief Financial Officer

Yeah. So it was a very unique year for that portfolio compared to years where we did not have them.

Moshe Orenbuch — Credit Suisse — Analyst

So effectively a step up in Q2, a step down in Q3, but still higher than was expected as at the beginning of the year?

Christian Lown — Executive Vice President and Chief Financial Officer

Because of where rates are, yes.

Moshe Orenbuch — Credit Suisse — Analyst

Right. Okay, great, thanks a lot.

Christian Lown — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Lee Cooperman with the Omega Family Office.

Leon Cooperman — Omega Advisors — Analyst

Thank you. Good morning. I am glad to hear that the majority of the staff is in good shape and that you are functioning fine. I am a little bit confused and I’d like you to help me out. You used words like unprecedented items, but we’re flexible and opportunistic. And the $335 million you spent on stock repurchase to buy 23 million shares, that means you paid $14.56 for stock you bought back in the first quarter. The stock currently is around $6.65, $6.60. I assume the stock is different at different prices. But if you thought we were $14.56 in the first quarter, have things changed enough that you are sorry you bought back the stock. Obviously you are sorry, because you basically paid too much. But does that motivate you to be more aggressive at these lower prices or has the environment deteriorated more rapidly than the price of the stock has deteriorated? So what I’m really asking one is, what is the status and intention of the buyback? And I’d like you to be as explicit is possible, what is the status and intention to buyback, question number one? Question number two, do you envision any scenario, where you would need government assistance? And the reason I’m asking that question is, these left-wingers who are recommending that you eliminate your dividend and stop buying back stock who don’t understand capitalism, they have no case, if you’re not looking for government assistance. So I’d like to address those two things.

The first one is quite important to my thinking, I asked you five years ago, why you were buying back stock in the $20s, and your response was you thought it was worth $30. Well, if you bought back as much stock as you bought back at an average price of maybe $14 or $15, that $30 you thought were worth, is a lot more than $30, which clearly is academic. But I think it’s important you come clean and just explain to people, what your expectations are and when do you think this buyback philosophy of yours is going to be vindicated by the market?

Jack Remondi — President and Chief Executive Officer

Thanks for your question, Lee. So this has been — our story has been a capital return story and principally because of the fact that we have an amortizing portfolio of legacy FFELP and private credit loans, and as those portfolios generated earnings and released capital through their amortization, our policy and practice was to return that back to shareholders through dividends and share repurchases.

Typically, we repurchase shares through a normal kind of price averaging, kind of concept where we’re buying back shares on a regular basis through the course of the year. And that amount is set, based on our financial forecast of how much capital, excess capital, we would have available to return. This year we expected that number to be approximately $400 million of share repurchase capital return, and unusual in this year is that, we had an opportunity back in January to buy back a large share block at a single point in time. And normally, that’s a difficult — we don’t get those opportunities, on a daily basis, we’ve been typically buying back about — a little around the 10% amount of daily activity, trading activity.

So that was a unique opportunity. Obviously if I had to play that hand again, you’d love it to have been different. I’d rather be buying back the shares today, than I did at the January price. But I can’t — we obviously can’t reverse that. So our plan was to do $400 million this year. We’ve done, as you point out, $336 million through the first quarter. Right now, that doesn’t leave a whole lot left for the balance of this year. We also have the capital ratio targets that we’re trying to hit. So I wouldn’t expect anyone to see that number rise above what we had originally forecasted for the year.

In terms of government assistance, as we’ve laid out this morning, we think we’re in a very strong financial position, from both the balance sheet and cash flow perspective. And while government assistance programs may be available to our customers in the form of some payment relief on federally owned student loans, it’s possible that they may extend some of those benefits to FFELP portfolios. Those are benefits that are received by the borrowers, not by the company, and we would expect to not need any government assistance through this process. Similarly, we didn’t get or use any government assistance during the last financial crisis.

Leon Cooperman — Omega Advisors — Analyst

I anticipated the answers you gave. The questions and I’d just ask out loud I ask myself, you’ve spent billions of dollars of capital, buying back stock at 2.5 times the current price. We are selling at $4 a share or so below book value. Does this seem intelligent to you to say that we got $65 million left to buy back stock? Should we not look to accelerate some asset sales to buy something back at a fraction of what you think it’s worth? Or have you changed your view about the value of the business? In other words, people want fixed income now. Okay. So we have historically low valuations of your stock, historically high valuations of your assets in terms of the government backed fixed income, why not sell off more of those assets, release capital, and buyback a dollar bill for $0.30 or $0.40? Why not be more creative in the thought process?

Jack Remondi — President and Chief Executive Officer

I mean, we certainly evaluate and look at opportunities — effectively what we own, when we securitize a — whether it’s a federal or a private student loan, is the equity component in that securitization transaction.

Leon Cooperman — Omega Advisors — Analyst

It’s at 3% of the loan or something like that, right?

Jack Remondi — President and Chief Executive Officer

Right, well — yeah, it’s the residual whatever that residual interest is. It’s wider on private and smaller on FFELP. We have sold some of those transactions in the past. We view that market as not a particularly efficient market, and unfortunately in today’s market conditions, even though the student loan portfolios on the FFELP side are government guaranteed, market pricing would indicate that those spreads have widened in the crisis, not tightened. So we still would — there is limited opportunity I think in terms of buyers there. That doesn’t mean we wouldn’t look at things, if the situations presented themselves. But at this stage in the game, I wouldn’t expect that those would be realistic opportunities.

Leon Cooperman — Omega Advisors — Analyst

Well, the sad thing is, you have $64 million left to buy something, at less than half what you paid for recently. This seems to be, I would be more creative, but what do I know. Thank you. Good luck.

Jack Remondi — President and Chief Executive Officer

Thanks Lee. Thank you for your support.

Operator

Your next question comes from the line of Rick Shane with JP Morgan.

Richard Shane — JP Morgan — Analyst

Hey guys, thanks for taking my questions. You cited your Moody’s models, I’m curious if you could help us understand the timing of the economic assumptions that were embedded in those models, and what the key assumptions were, in terms of unemployment at that time, versus where they are today?

Christian Lown — Executive Vice President and Chief Financial Officer

Thanks Rick. So if you look at our CECL process, when we were updating our CECL number for quarter end, what we ran is the March 27 pandemic Moody’s model, and then their scenarios for March 31. So those scenarios are all public, and you can see the inputs generally. What I would highlight, I think what you’re seeing is, we’ve looked across the financial universe, is that is very much in line with what most of the banks have reported using, and we relied on heavily as well. And so I think your question is, post March 31st and post those those Moody’s numbers, what will be updated Moody’s model show, and the impact, there obviously has been some continued deterioration since quarter-end. But it’s still very much up in the air, where we’re going to end up at quarter end, second quarter, but we did rely on what were the most up-to-date Moody’s models, and our primary foundation was the pandemic model.

Richard Shane — JP Morgan — Analyst

Got it. Great. That’s helpful. Second question. And look — I think there’s some confusion when we think about life of loss reserves, and historically, things like forbearance and TDRs historically have had life of loss reserves, and current loans and delinquent loans, do not, and so there has been this perception of a convergence between the two. But the reality is that, the performance of loan under forbearance is different than a current loan, despite the fact it might be reserving for them now using the same methodology. Should we think about as forbearance increases and you’re experiencing in the portfolio, that that will continue to have an impact on your seasonal reserve policies?

Jack Remondi — President and Chief Executive Officer

So CECL obviously moves everything to effectively the same kind of reserve methodology, as what was a TDR, or life of loan loss reserve expectations. Certainly, forbearance — loans in a forbearance that is versus loans that are current, have very different loss expectations. But I would argue, and our experience over 40 years has shown that, loan that’s in forbearance in a positive economic environment, is different than a loan that’s in forbearance in a crisis, like we have today. And so what we look at, as we look at who our borrower types are, where they are in their repayment cycle, as an example of that, a borrower, who is recently — is just graduating or just recently out of school, is going to be at different risk than someone who has been in — successfully been in repayment for five plus years, which is the majority of our private loan portfolio.

We have seen over the last several years, that our charge-off rates on our private book have been coming down materially, they came down again in the first quarter; because we do have more flexibility as a non-bank entity, we do offer more flexible repayment options during periods, and relief during periods like we’re in right now, and as a result of that, even though we expect unemployment rates to rise and forbearance usage to increase, we expect defaults in 2020 to decline and so we look forward in terms of what is the economy forecasted to look like in 2021, as borrowers might be exiting forbearance, and what the delinquency in default rates would likely be.

For many of our customers, particularly some of our — with professional degrees and such, we expect their jobs to recover and their income to recover and their ability to continue to make payments going forward, to return. But that’s obviously — the big question mark here is, how deep is this impact and when does the recovery look like and what shape does it take, those are obviously difficult to predict right now.

Christian Lown — Executive Vice President and Chief Financial Officer

And Rick. I would just add that, forbearance is a component of our CECL modeling exercise, and we have a pretty long history and understanding of how forbearance plays out, given all the natural disasters we’ve seen and the economic declines we’ve seen over the last 40 years. And so forbearance isn’t a new thing, it’s part of the CECL model and process, and so it is contemplated in our life of loan reserve and something we’ll continue to watch and model out.

Richard Shane — JP Morgan — Analyst

Terrific. That’s very helpful, guys and thank you for all the hard work you have done to manage through this, and it sounds like you’ve been able to do some good things for your employees and your customer. So thank you.

Jack Remondi — President and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from the line of Mark Hammond with Bank of America High Yield.

Mark Hammond — Bank of America Merrill Lynch — Analyst

Thank you and good morning. So on the earlier comment about not thinking cash flows would be meaningfully impaired, could you just give a sense for the near-term like 2020 cash flows on the private ed and the FFELP side as well? In terms of what meaningfully impaired might mean? Is it a 10% hit. So for example, private ed loans at the end of the year, you thought 2020 would be about $1.4 billion of cash flows from your slide deck then. What’s not meaningfully impaired? I mean, just as I was thinking about cash flow in the near term?

Christian Lown — Executive Vice President and Chief Financial Officer

That’s in broad strokes, I think something inside of 10% and what we saw at quarter-end is broadly in line with what we’re expecting. Like I said, our cash position is not expected to be materially different by year-end. Our liquidity position is relatively similar as quarter-end and so, inevitably, we will see some of the forbearance come into play over the next three quarter. But you’re sort of 10% inside a 10% number is not far off.

Mark Hammond — Bank of America Merrill Lynch — Analyst

Chris, that’s really helpful. And same for FFELP too, I suppose?

Christian Lown — Executive Vice President and Chief Financial Officer

Yes, actually may be probably even less impacted.

Mark Hammond — Bank of America Merrill Lynch — Analyst

Got it. And then last one on that…

Christian Lown — Executive Vice President and Chief Financial Officer

Year-to-date because of the servicing flows, there was already a pretty high component of ‘forbearance, where people having [Phonetic] repayments’ so, a slightly different animal.

Mark Hammond — Bank of America Merrill Lynch — Analyst

Got it. Yeah, I was just, going to ask you think you answered it. Oh and just any nuances or differences between the two in terms of securitization cash flows, between private and then the FFELP?

Christian Lown — Executive Vice President and Chief Financial Officer

It really goes back to how much of the servicing component is of the cash flows, as sort of the interest income and all, and the amount of forbearance or non-paying that was already a part of the portfolio and that the relative change or impact — I think one of the important things to highlight too, is these trusts are incredibly resilient. There is a lot of built in resilience to these trusts. So like I said, we did a significant amount of stress testing over the last three or four weeks, and I just highlight that we feel very comfortable with where we are today and our position over the next year.

Mark Hammond — Bank of America Merrill Lynch — Analyst

All right. Thanks for answering my questions. Much appreciated.

Jack Remondi — President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sanjay Sakhrani with KBW.

Sanjay Sakhrani — KBW — Analyst

Thanks. Hope you guys are well. Couple of questions, one, you guys talked about the seasoned portfolio and how some of your customers might come out of this better than others. I was just wondering, if there is any breakdown of the portfolio across some of the more professional occupations that you feel better about going through cycle versus others. Do we have any clarity, in terms of those exposures?

Jack Remondi — President and Chief Executive Officer

So it obviously — we don’t have high concentrations across the entire portfolio. But in our refi space, one of our more impacted segments of the population would be medical professionals, particularly in the dental area. Dentists obviously are not working right now. But that’s a group that we would expect to be — once the recovery starts to happen, that those practices will be back up and running, and those borrowers will recover better than areas where jobs might disappear for a longer period of time.

Sanjay Sakhrani — KBW — Analyst

We don’t have a breakdown of how much is dental, medical right now?

Jack Remondi — President and Chief Executive Officer

We don’t disclose that kind of detail. But I would look back and look at the portfolio statistics that I mentioned earlier, that 80% of our private loan portfolio — of the total private loan portfolio is either current — the vast majority is current, meaning no days past due or 30 — less than 30 days past due. That portion of the portfolio is holding up extremely well, and I think is a statement about the seasoning and strength of the customer base as a whole. Obviously, we continue to be there to help customers who need relief, by offering them immediate payment relief options like forbearance or changes in their payment rates. So that they can manage to their adjusted cash flows of their households. But again, it all depends on where you think the — this — where you think the impacts of this economy are going to be, and how long are they going to be felt, will ultimately drive the outcomes here.

Christian Lown — Executive Vice President and Chief Financial Officer

And Sanjay, just to provide a little more detail on the medical, what we’re seeing — a lot are proprietorships. So what you’ve had is, them having to shut their offices down for two, four, six, eight weeks. But inevitably to us, it’s a delay in cash flow. As Jack said, it’s not elimination of jobs in corporation, it’s people who’ve had to shut down practices, either medical or dental, and which will ramp back up. And so what you saw is some forbearance usage. But our expectation is that these businesses will get up and running, and people go back to using dental and medical services, the way they did before. So for us, it’s really a delay on their part, not a job elimination or an unemployment scenario.

Sanjay Sakhrani — KBW — Analyst

Got it. I guess my follow-up question is on the competitive environment and opportunities that could arise, as a result of this period of weakness. You’ve obviously categorized in these FinTech companies that have sort of been biting at the ankles of some of the incumbents. I’m just curious, how you guys are thinking through any opportunities that might present themselves or whether or not there would be opportunities presented, given there being an extended period of a downturn?

Jack Remondi — President and Chief Executive Officer

Yeah, I think the real challenge with that Sanjay is, what is the economic outlook that you are using in your estimates here. And because of the lack of visibility, its a little hard to execute on some of those opportunities right now. As I mentioned in my comments at the beginning, we’ve cut back on our marketing of our refi loan products, really because there’s not a lot of clarity in terms of long-term funding costs through ABS issuance or the economic outlooks here. When those become a little bit more visible or we’re more confident about them, I think there’s an opportunity for us to execute and take market share where we can.

I think one of the things where we’ve been very responsive and have been able to be reactive, less on the fintech side, is on our operational side of the equation, and that we’ve been able to reposition our team to respond to things like unemployment claim processing, and those have been — that tells you a little bit about the flexibility we have within our operational infrastructure, how we can reposition call center activity, including folks who are working from home to do this, to be responsive and help states who need the assistance, but also create opportunities for our team. So as I said, we’ve been able to keep our 100% of our team gainfully employed through this crisis, which I’m very proud of that ability.

Christian Lown — Executive Vice President and Chief Financial Officer

Sanjay, I’d also highlight the in-school opportunity and that we have — we are now signed up with a bank partner. We have the technology in place to be able to originate loans for the next academic quarter. It’s an early read, but I think you’re going to see further bank withdraw from that market, which should increase some opportunity there as well. And so I think as Jack said it’s tough to navigate, given the uncertainty around what’s going to happen. But we do see that as a real opportunity and I believe there may be more space in that market, not less, in the next academic year, regardless of what happens, and we are prepared and ready to roll it out in a more robust way.

Sanjay Sakhrani — KBW — Analyst

Okay. And can you remind me who that bank partner was?

Christian Lown — Executive Vice President and Chief Financial Officer

One American bank.

Sanjay Sakhrani — KBW — Analyst

Okay, cool. One final clarification these COVID, and I know you guys talked about this earlier, but the COVID-19 relief options, you guys will provision for them after the period is done, the deferral period is done, or are you guys making some kind of assumption inside the reserve today?

Christian Lown — Executive Vice President and Chief Financial Officer

It’s not just where they are today. It’s where we expect the loans to be over the next several months. So we — if our forecast model says, unemployment is going to increase by X, and another Y percent is going to need forbearance, that would be incorporated in the model.

Sanjay Sakhrani — KBW — Analyst

Okay. All right, great. Thanks.

Operator

[Operator Instructions]. Your next question comes from the line of John Hecht with Jefferies.

John Hecht — Jefferies — Analyst

Morning guys and thanks very much for the call this morning. Most of my questions have been answered and asked. I’m just wondering though, with the change in kind of forbearance patterns, do your — you’re servicing fees with the DOE, did they change at all, when you have a kind of higher forbearance rate?

Jack Remondi — President and Chief Executive Officer

So on our Department of Education servicing contract, we are paid based on the status of the account, and we do expect to see some slight decrease in monthly revenue, as a result of the status changes for those loans granted under the Cares Act. But during that interim — during that forbearance period, some of our operating expense has changed as well. Frankly our biggest operational concern right now is planning for the exit of those borrowers back into repayment, and that is something — it’s much easier to put — to move customers in. We’re going to have to manage that flow out through both communications and phone calls and things and that’s something we’ve been working on.

I mentioned this only because I think one of the things we’ve done extremely well, I think the team across the company has done extremely well, is plan and prepare. Our preparation for COVID began back in February, when we started to see some of these issues. We bought the equipment, the licenses and the bandwidth necessary, so that we could get 90% of our team to a work-from-home status. We were able to implement the Cares Act provisions extremely quickly and as quick or faster than anyone else in the space, and we are preparing today for what it’s going to take to return those customers back into repayment statuses and our teammates back to ’08 in the office type of arrangement, as conditions warrant and allow.

John Hecht — Jefferies — Analyst

Okay. That’s helpful color. And then within the Business Processing segment, obviously some of the municipalities have been disrupted. Obviously things like fee or toll income obviously gets impacted. How do you guys think about the recovery of that, and are there any other kind of opportunities that present themselves in this kind of environment for special servicing for different elements of state governments?

Jack Remondi — President and Chief Executive Officer

So there’s no question in our BPS business, transactions drive our opportunity, right, and so if we’re managing parking or tolls for an authority and those volumes are down as they are, that impacts our workflow. In our healthcare side of the equation, medical billings are down across — as all types of optional services have been delayed. So what we have been able to do, is reposition a good chunk of our efforts to assisting states in new issues that are arising for them and helping their residents. So we mentioned the unemployment processing for example, we’ve done work now for a number of states, where they called and said we need help and we need it now. And within a day or two, where our phone — our representatives are on the phone, answering questions and providing the services that the residents of those states need, to take advantage of those programs.

So those are the things that we’re doing and we’ll continue to look for as the market conditions change the opportunities here.

John Hecht — Jefferies — Analyst

Thank you guys very much.

Jack Remondi — President and Chief Executive Officer

Welcome.

Operator

Your next question comes from the line of Henry Coffey with Wedbush.

Henry Coffey — Wedbush — Analyst

Yes, good morning and thank you for taking my question. In the idiots guide to CECL, is it fair to assume given your outlook in terms of delinquencies and charge-offs, that if Moody’s keeps their COVID forecast where it was in March, that your provision levels stay fairly light? Or is that going to also be impacted by, for example, rises in forbearance or other issues?

Christian Lown — Executive Vice President and Chief Financial Officer

Well, clearly, we’ll be monitoring the portfolio, but the Moody’s models, if you think about it, the life of loan reserve in the CECL model is to encompass the entire future of a loan, and so those models weigh heavily on what we think the future will be and what the impact will be. Obviously there is some overlay components into our own portfolio and what we see as performance, etc, but a lot of that is really driven by the Moody’s inputs and the other inputs we have. So I would say, it’s kind of an 80%-20% rule, that you’re 80%, 90% right that if Moody’s did the same, that development should relatively be what we see. But if we do see there better or more adverse reactions in our portfolio, there would be true-ups or overlays that we would apply to our number.

Henry Coffey — Wedbush — Analyst

I know, there was extensive discussion around the buyback. But the other side, the return of capital is the dividend. You obviously have the earnings to cover it, what is the thought process in terms of — when you look at stress testing and the cash flow issues, etc, what is your thought process on the dividend as well in here?

Christian Lown — Executive Vice President and Chief Financial Officer

So we think a capital return — as Jack mentioned, we put a capital plan in place every year, which looks at our capital cash flows or capital build or release. And then we inevitably divide that capital return between dividends and buybacks. Today our stock is sort of a 8% to 9% yield, which is a pretty high attractive yield. We bought back $336 million of stock. We’re going to maintain that plan and try to stay in line of that plan, given what happens over the next three quarters. So we don’t see any alter to our dividend payout ratio, especially given how high the dividend yield is today. But it’s something we think about, we talk about, we analyze, but we feel confident in the position we’re in today.

Henry Coffey — Wedbush — Analyst

Great, thank you very much.

Christian Lown — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Your final question comes from the line of Arren Cyganovich with Citi.

Arren Cyganovich — Citigroup — Analyst

Thanks. Just on the Floor Income issue, the one month LIBOR has been kind of out of whack. It’s getting a little bit better, but it’s still pretty far off of where we would expect it to be, relative to the treasuries. As that kind of continues to normalize, will that further improve your Floor Income that you’d be earning on the portfolio?

Christian Lown — Executive Vice President and Chief Financial Officer

Yeah. So that’s a great question, because there is actually two parts to it. One yes, it obviously will help that, as you said — one month LIBOR is about — it was yesterday 62 basis points right, the curves do show getting back to like the low 20s to where it should be. There has been a lot of dislocation because of the money market funds and the intervention by the U.S. government. So A, yes, it should should improve Floor Income, but B, it also has an impact on our prime portfolio. Our prime portfolio is — obviously the assets are benchmarked against prime and funded primarily with LIBOR, one month LIBOR, and therefore what you see, is as that — historically that relationship has been about a 300 basis point margin and inevitably in dislocation, that can change meaningfully, and we’ve seen that dislocated over the last three weeks. It’s actually, as you mentioned been improving — one month LIBOR was sort of 99, 100 basis points three weeks ago. Its now in the low 60, as we expect to get back. So I talked about the dislocation in our consumer portfolio, which has primarily been impacted by our prime portfolio. But we do expect that to improve as well over the next couple of months, and that’s what the curves are suggesting, but it’s something we’re watching closely.

Arren Cyganovich — Citigroup — Analyst

So you will actually get a benefit on both sides of your book then from that?

Christian Lown — Executive Vice President and Chief Financial Officer

Well the hope is — yes, it depends on how fast it improves. Obviously, we don’t have guidance out right now. But what we’ve seen is that one month LIBOR is — the curves are moving faster even over the last couple of weeks to getting back to that lower number. So every kind of week, that curve seems to be — has been moving lower faster than the previous week’s curve suggested.

Arren Cyganovich — Citigroup — Analyst

And do the resets — I guess that portion of the book that as the July 1st reset, do they have to be — I guess, fixed by that period, for that portion of the book?

Christian Lown — Executive Vice President and Chief Financial Officer

Yeah, we would not expect that annual reset book — earns Floor Income after July 1st.

Jack Remondi — President and Chief Executive Officer

When they reset on July 1st, they sit out of the money. So 50 basis points typically out of the money, so…

Christian Lown — Executive Vice President and Chief Financial Officer

So rates would have to be 50 basis…

Jack Remondi — President and Chief Executive Officer

Negative.

Arren Cyganovich — Citigroup — Analyst

Okay, all right.

Jack Remondi — President and Chief Executive Officer

Like I said — sorry, that portfolio. I mean that happening was not usual and so it’s just — it was a benefit in the last year, but it’s not something we’ve had consistently for a very long period of time.

Arren Cyganovich — Citigroup — Analyst

And then just lastly, is there any room to cut expenses in your business services area, now that we had a bit of a slowdown there?

Christian Lown — Executive Vice President and Chief Financial Officer

So we are looking pretty aggressively at all our expenses. I mean, the positive thing on the BPS side, is we were actually not only able to reallocate BPS people who may have been furloughed potentially, given what happens. But put them into other opportunities on the state side. And in fact we’re actually looking too for additional capacity or additional people, given the opportunity that we’d see over the next few quarters. And so from an expense perspective, on the people side, which is the majority of the expense, we’ve actually probably short staffed given the opportunity we have in the short to medium term, which is a great place to be in the current environment. But there may be opportunities around office space. There may be opportunities around technology, and as you know, I mean expenses is a — we put out an efficiency ratio target, we still want to try to hit that target, even in light of lower profitability. And so we are continually focused on how we can get expenses down, not only in BPS, but in corporate in our Consumer Lending business, it is a — it is a primary focus that we’ve been digging into, over the last, call it four to six weeks.

Arren Cyganovich — Citigroup — Analyst

Okay, all right, thank you very much.

Operator

There are no additional questions. I would now like to turn the conference back over to Mr. Joe Fisher for closing remarks.

Joe Fisher — Vice President, Investor Relations and Corporate Development

Thank you, Lashana. I’d like to thank everyone for joining us on today’s call. Please contact me or my colleague Nathan Rutledge, if you have any other follow-up questions. This concludes today’s call.

Operator

[Operator Closing Remarks]