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Navient Corp  (NASDAQ:NAVI)
Q1 2019 Earnings Call
April 24, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to Navient's First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Joe Fisher, Head of Investor Relations. Mr. Fisher, you may begin.

Joe Fisher -- Vice President, Investor Relations

Thank you, Nova. Good morning, and welcome to Navient's 2019 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 that 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.

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 2019 supplemental earnings disclosure. This is posted on the Investors page at navient.com.

With respect to the proxy contest with Canyon Capital, we filed our preliminary proxy with the SEC on April 5, 2019 and would refer you to that if you have any questions on this matter. We would ask that all questions following our prepared remarks focus entirely on the company's earnings.

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

John F. Remondi -- President and Chief Executive Officer

Thanks, Joe. Good morning, everyone, and welcome to our First Quarter Earnings Call.

Our results this quarter were particularly strong. They include contributions from our legacy student loan portfolios and growing momentum in our lending and processing businesses.

Importantly, we're on track to meet or exceed the financial metrics we established for the year, and we're raising full year EPS guidance from the original range of $1.93 to $2.03 per share to a range of $2.08 to $2.15 per share.

This quarter's results also demonstrate our ongoing ability to increase operating efficiency, maximize cash flows and execute on our capital management plans. They also show we are delivering on the value creation opportunities in student loan originations, in business process services.

Let me share some highlights of the quarter. In the first quarter, our student loan portfolio is on track to generate over $3 billion of cash flow in 2019, approximately $100 million more than initially forecasted earlier this year.

In addition, we raised over $700 million through financing activity in the quarter. Our ongoing successes in leveraging the overcollateralization in our securitization trust are reducing our unsecured borrowing requirements and lowering our interest expense.

Credit performance continues to be a positive in both our FFELP and private portfolios. We saw significant reductions in delinquencies with the principal balance of loans more than 30 days past due at quarter end, declining 25% in FFELP and 11% in Private Education Loans compared to a year ago.

Portfolio performance here is benefiting from the strong economy and the success of our data-driven efforts to assist borrowers.

We originated over $980 million in refi loans in the first quarter. Our product helps borrowers with strong credit and free cash flow, lower the cost of their student loans and pay off their loans faster.

Our mobile digital-first solution provides a simple application in quick decisioning. It also allows our customers design a repayment solution customized for their budget and their financial objectives. This nearly doubling the volume from the year ago quarter was combined with higher margins.

Our Business Processing segment generated strong EBITDA margins and 5% growth in revenue. We also added several new clients in the municipal services and healthcare areas, demonstrating our strong value proposition. This segment represents an opportunity to leverage our core workflow processing and performance solutions to create value without consuming incremental capital.

Earnings, cash flows and our strong capital ratios allowed us to return $146 million to investors in the quarter, a $107 million via 9.4 million shares purchased and $39 million in dividends paid. We expect to utilize our remaining $333 million in share repurchase authority in 2019.

A consistent goal for us each year is improving our operating efficiency. Last year, comparable operating expenses fell 11%. For the first quarter, comparable operating expenses declined another 9% to $239 million. In achieving these results, we delivered improved operating efficiency in all segments, and we expect our ongoing operating efficiency efforts to produce continued companywide improvements in this important financial measure.

Earlier this month, we launched a new education finance loan for undergraduate and graduate students. This product helps students and families finance the cost of going to college. We leveraged our historical student loan experience along with the innovative technology and user experience developed for our refinance product to create a more modern, user-friendly and informative solution for students and families.

I'm excited about the opportunities in this space and continue to believe we can generate high-teens return on equity as we ramp up production here.

We are very focused on, and you can see the very positive momentum we have toward creating value for stakeholders. Our focus continues to be to maximize the amount and accelerate the timing of cash flows from our legacy portfolios. Our track record here speaks for itself. Through December 2018, we delivered $21 billion in cash flow, $6 billion more than our model projected at the separation.

We continue to improve our operating efficiency evidenced by our 9% reduction in operating expense this quarter. We're leveraging our skills and infrastructure to create value in lending and business processing with $984 million in loans generated this quarter at the best margins to date and delivering EBITDA margins in our BPS business of 21%. And finally, we're still returning capital to investors with $146 million returned this quarter representing a 107% payout ratio.

We've developed and shared with you a clear plan to create and deliver value. As this quarter's results demonstrate, we are successfully executing this plan.

Thank you for listening today, and I'll now turn the call over to Chris for a deeper review of the quarter.

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Thank you, Jack, and thank you to everyone on today's call for your interest in Navient.

During my prepared remarks, I'll review the first quarter results for 2019. I'll be referencing the earnings call presentation, which can be found on the company's website in the Investors section.

Starting on Slide 3. Adjusted core EPS was $0.58 in the first quarter versus $0.43 from the year ago quarter. Key highlights from the quarter include the launch of our digital and school product, nearly $1 billion of refinance loan originations with improved profitability and strong credit metrics, further credit improvement in our FFELP and legacy loan portfolios and the return of $146 million of capital to shareholders representing a 107% payout ratio. In addition, we benefited from an attractive opportunity to repurchase $46 million of unsecured debt, which resulted in a $15 million pre-tax gain.

Let's move to segment reporting, beginning with the Federal Education Loans on Slide 4. Core earnings were $127 million for the first quarter. The net interest margin was 80 basis points, in line with our guidance. Total delinquencies for FFELP loans declined $2.1 billion from the year ago quarter. This performance is consistent with our expectations as the delinquency rates have significantly declined from year ago and charge-offs have performed as expected.

Contingency collections inventory increased by over $10 billion from the prior year. This increase in volume resulted in 42% year-over-year growth in asset recovery revenue.

Now let's turn to Slide 5 in our Consumer Lending segment. Core earnings in this segment were $65 million for the quarter compared to $50 million a year ago. During the quarter, we originated $984 million of education refinance loans. Importantly, this meaningful increase in our origination volume was executed at consistent average winning FICO Scores, higher average coupons and improved profitability. The first quarter Consumer Lending net interest margin was in line with expectations at 322 basis points compared to 323 basis points a year ago.

Our financing and operational initiatives have resulted in stable net interest margins as our portfolio continues to shift to higher-quality refinance loans. At quarter end, education refinance loans represented 18% or $4 billion of our Consumer Lending portfolio compared to 5% or $1.2 billion a year ago.

Let's continue to Slide 6 to review our Business Processing segment. Total revenue in the quarter were $68 million with a 30% increase in healthcare revenue year-over-year. We achieved EBITDA margins of 21% in the quarter driven by disciplined cost management and continued focus on efficiency and automation.

Let's turn to Slide 7 to provide additional color on shared services expenses. Nearly 75% of our total expenses are allocated directly to the business segments. The unallocated portion is comprised primarily of costs that are related to the management of the entire corporation and benefit shareholders through increased efficiencies. A few examples of these costs include insurance expenses and services provided by our treasury, audit, accounting, FP&A and human resources teams.

Our IT expenses are the most significant cost within this segment and include infrastructure and operations and IT security that are primarily shared across our Federal Education and Consumer Lending business segments. We remain laser-focused on improving efficiencies across the company and reduced our shared services expenses by 10% year-over-year.

Let's turn to Slide 8, which highlights our financing activity. During the quarter, the company repurchased 9.4 million shares for $107 million, and we have $333 million of remaining authority under our share repurchase program. In the quarter, we issued 2 private education loan ABS transactions totaling $1.2 billion and raised over $500 million through additional repurchase facilities involving 5 previously issued securitizations. Importantly, we did this while maintaining a tangible net asset ratio of 1.25x, which is at the high end of our targeted range.

Before turning to GAAP results, I'd like to quickly remind investors of our established targets on Slide 9. During the fourth quarter, we established these metrics to provide greater clarity on our view of the business. The performance year-to-date puts us on the path to achieve or exceed these metrics for the full year.

Let's turn to GAAP results on Slide 10. We reported first quarter GAAP net income of $128 million or $0.52 per share compared with net income of $126 million or $0.47 per share in the first quarter of 2018. The differences between core earnings and GAAP results are the marks related to our derivative positions and the accounting for goodwill and intangible assets.

In summary, as a result of our strong performance in the first quarter across all our segments and our confidence in the remainder of the year, we are increasing our full year core earnings per share guidance by 7% from a range of $1.93 to $2.03 to a range of $2.08 to $2.15, which excludes regulatory and restructuring expenses.

I'll now open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Mark DeVries of Barclays.

Mark DeVries -- Barclays -- Analyst

Yeah, thanks. Sorry if I missed this, but what exactly changed in the outlook that made you comfortable raising the EPS guidance for the year?

John F. Remondi -- President and Chief Executive Officer

There's a combination of factors here. Certainly, our outlook in terms of interest rates and net interest margin and the profitability of our student loan portfolio is a contributing factor, continued improvement in credit performance, increases in fee income and ongoing cost efficiency. So it's really a combination of those factors that combine to drive the forecast up here.

Mark DeVries -- Barclays -- Analyst

Okay. And my next question, I guess, ties into your comment about the profitability of the student loan portfolio. Jack, what're you seeing on the competitive environment? How intense is this competition? And what, if any, benefit did you get on the origination front this quarter from the expiration of the noncompete?

John F. Remondi -- President and Chief Executive Officer

So we -- this product is designed to help borrowers those with student loan debt who've been in the workforce for a number of years, demonstrated a successful pattern of payments and have an income and cash or free cash flow that really make them excellent credits. And I think what's a little bit of unique about this customer base is they're also very focused on kind of managing their student loan liabilities to fit their particular budget.

And what we do in this space is really have designed an origination and application flow that is simpler than the competition and really is designed to allow the borrower to pick their payment term that fits their cash flow. So the majority of our customers are picking the payment amount that they want to -- they want to make each month rather than the term. And that gives them that flexibility to kind of set their loan payment to fit their budget and their financial objectives best.

So the competition in this space is really more about how you are working with the customer and acquiring that customer in the front end. And I think where we stand out compared to the others is our cost to acquire a loan where our borrower relationship is significantly lower than what we think the competition is spending, and our ability to customize the loan product allows us to meet those customers' needs without a direct kind of a dollar-for-dollar price comparison concept.

Mark DeVries -- Barclays -- Analyst

Okay. Got it. And was there any benefit that you saw in the originations from the expiration of the noncompete?

John F. Remondi -- President and Chief Executive Officer

We certainly saw some volume pickup in that area, but this is an area where we have been competing to get for customers who are into the repayment mode. And so some of the private student loans, the newly originated private student loans wouldn't necessarily be eligible for refinance yet.

Mark DeVries -- Barclays -- Analyst

Okay, got it. Thank you.

Operator

And our next question comes from the line of Arren Cyganovich of Citi.

Arren Cyganovich -- Citi -- Analyst

Thanks. Just on the Consumer Lending net interest margin that popped up a little bit quarter-over-quarter. I was just curious as to what was driving that. I would think that the adding of the additional refinance seems to have a downward pressure on them on a sequential basis.

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Well, I think if on a quarter-on-quarter, you also have to look on a year-on-year basis. And so inevitably obviously on a risk-adjusted basis, while the refi loans are very attractive, they do have a lower NIM, and so that flowing through into the portfolio over time will reduce the NIM, but again at an attractive risk-adjusted return. We gave guidance at the beginning of the year of 3.10% to 3.20% for NIM for that portfolio, and I'd say we're on track to still be within that range.

Arren Cyganovich -- Citi -- Analyst

Okay. And on the net charge-off rate for the Consumer Lending, it was commented that was also impacted by the disaster recovery relief efforts, but the guidance for the year is still kind of 1.6% to 1.8%. What's -- why isn't that coming down further given kind of same aspect of adding those new refinance loans into the book?

John F. Remondi -- President and Chief Executive Officer

You're correct. If you just look at the delinquencies of our portfolio, they've been improving significantly year-over-year and what you're seeing in terms of defaults is really a reset for some borrowers who are residing in the disaster forbearance areas. We see that same phenomenon on both the FFELP portfolio as well as the private loan book. And it will -- the impact is going to be felt in the first and the second quarter, and so that creates the charge-off rate to be a little bit elevated during those periods before it returns to normal in the second half of the year.

Arren Cyganovich -- Citi -- Analyst

Okay, thank you.

Operator

And our next question comes from the line of Sanjay Sakhrani from Keefe, Bruyette, & Woods.

Sanjay Sakhrani -- Keefe, Bruyette & Woods -- Analyst

Thanks, good morning, Jack, I guess, following your comments on the in-school product, I was wondering if you could just expand a little bit more on the strategy there. Perhaps, you could just talk about how much more of the strategy you're going to execute on in the future. For example, are you thinking of indirect channel such as banks to also work through? And then as far as the product goes, how will it skew? Will it skew more undergrad versus grad?

John F. Remondi -- President and Chief Executive Officer

So our goal right now is to take advantage of the student loan experience that we have over 40 years of participating in this marketplace along with some of the innovation that has been brought to the marketplace through our refi products and combine those together to offer something that we think is pretty unique in the in-school origination front. Our target audience is through the -- is working with consumers directly versus through partners at this point.

Some of the innovative features that we think we have brought to bear here are quick kind of approval checks for the consumers, so that they can quickly understand and address the anxiety they have about whether or not they'll be able to finance their college education. The way a co-borrower is invited to participate in the application process is something that we think is also unique. And then, part of what we've been talking about for the last couple of years here is helping students and families better understand the cost of not just how they finance their college education, what that would be, but ways to reduce the cost over the life of the loan.

And we think those are components that will give us a competitive advantage here. We've pretty modest expectations for what we'll originate this year at $150 million of disbursements that equates to about $300 million worth of loans, but we think we can capitalize on our experience, our product innovation and design and really ramp this product up pretty quickly over the next several years.

Sanjay Sakhrani -- Keefe, Bruyette & Woods -- Analyst

And so is the plan to just be direct or work through other parties as well?

John F. Remondi -- President and Chief Executive Officer

At this stage in the game, it is to be as a direct originator. I'll say, I mean, our expectations are to generate -- that we can generate mid-teens ROEs in this product, which we think is very attractive in the consumer lending space.

Sanjay Sakhrani -- Keefe, Bruyette & Woods -- Analyst

Okay. And then maybe a follow-up question just on all of the political headlines. Obviously, there is a lot of noise in the background. Maybe you could just talk through how you see that affecting you in anyway and maybe your views on the polity?

John F. Remondi -- President and Chief Executive Officer

Well, I think as we've talked in the past, student debt has become a large political and media topic. And I think there is -- any time when you have programs with large numbers like that you have in the federal loan programs in terms of debt outstanding and the number of borrowers or the number of students who were borrowing, it drives a lot of coverage. We think we still see from our front row seat here a very different set of circumstances than often gets portrayed and that doesn't mean the stories that are told of individuals are wrong, but it's just not the norm. And it's really this kind of almost like a barbelling type of situation. And for those who go to school and graduate, the delinquency and default rates of borrowers have been improving dramatically since the end of the last recession, and we see that each and every year continued improvement in the performance of those loans. And again, this is not for credit underwritten products.

On the other side of the barbell, you have a number -- a significant increase in both the number and the dollar amount of being borrowed in terms of number of needing students who are borrowing and the dollar amount that is being borrowed where kids are not graduating, so they start their education process and don't complete and to a lesser extent -- or take significantly longer than the 4 to 6 years to graduate that you see in kind of more traditional such circumstances.

That's where the struggling typically occurs. And as we have shared before, 2/3 of all the defaults in the federal program come from students who borrow less than $10,000. It's -- the solutions that really need to be addressed here are, in our view, more about the front-end educational side of the equation, helping students and families understand what it's going to cost to earn the degree and how they're planning on financing that and whether or not that financing package makes sense given the income potential of the career they're pursing. Forgiving it on the back end of the equation doesn't solve the problem. It cures the symptoms, but it doesn't solve the problem with helping students and families make better decisions at the front end.

Operator

Our next question comes from the line of Lee Cooperman of Omega Advisors.

Lee Cooperman -- Omega Advisor -- Analyst

Thank you. I would like to focus, if we could, on the rationale and your thought process behind the stock repurchase program. Several years ago, I remember I asked you the same question on a conference call and you were very forthright in your response. And I think at that time, we had stopped buying back stock in the 20s and you said very forcefully we're buying it back because we think it's very undervalued. We think the business is worth in the low 30s.

I think in the last decade or so, we have bought back almost half the stock, average price under $15. The average analyst expectation is $15.22, the highest is $22. Obviously, if 3 years ago you thought your business was worth in the 30s and you bought back a bunch of stock at materially lower price that would accrete to the value, those prices seem to be unrealistic relative to what the market is suggesting. I'm just curious if you could discuss the rationale behind the program, what values you think you're buying when retiring stock, et cetera? And I'm not being critical, I just really want to learn.

John F. Remondi -- President and Chief Executive Officer

Sure. Thanks, Lee. So our share repurchase program has really been designed to return the capital that had previously been invested in our FFELP and private student loan portfolios back to investors as it is as those loans pay off and then earnings accrete from that. We have been returning it through dividends and share repurchases. We do believe, and still believe today, that our stock price trades below the intrinsic value of the company.

And that is a reflection of what we would say is the discounted cash flows associated with the portfolio, plus the components of the company that are ongoing businesses. And so that number has changed. The stock price obviously has reflected different expectations here. I think today's stock price is very much -- some of our regulatory issues and the lawsuits weigh heavily on that, but we see today the ability to buy back stock at today's prices as a significant value creator for our investors, for buying it back less than the intrinsic value that we see.

Lee Cooperman -- Omega Advisor -- Analyst

Do you think you're buying a dollar bill for $0.50? Was that too extreme?

John F. Remondi -- President and Chief Executive Officer

Well, I think at this stage, we are certainly buying it back for less than $1 and significantly less than $1. I think the range of people's expectations has been in the -- has a wide range. As you point out, we would say that the stock -- the intrinsic value of the company is in the 20s.

Lee Cooperman -- Omega Advisor -- Analyst

Thank you very much. Good luck. Thank you.

John F. Remondi -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Scott Valentin of Compass Point.

Scott Valentin -- Compass Point -- Analyst

Good morning Ron. Thanks for taking my question. Jack or Chris, I think when you refer to as -- asked about the guidance increase, it was a number of factors. On the interest rate side and the margin, I guess, they go together, but just wondering given the competitive environment, I assume it's still very competitive, is there something that's changing your outlook for interest rates either short term or long term that kind of have increased your confidence in the margin going forward?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Yes, so I think, as Jack mentioned, one of the benefits of this price increase -- or the guidance increase is that it was very broad-based. It is across our entire business, which gives us a lot of confidence, but there are a couple of other things taken into account too. Obviously, the N repurchase gain is in that guidance as well, that's $0.05. You all have to remember also, I mean, there has been a dramatic shift in where people thought interest rates were going and what the curve would look like. Take yourself back to October, November and there was the Fed was still talking about tightening meaningfully.

There were estimates of 2 rate increases in 2019. The curve is now flat and inverted and so we're just in a significantly different environment than where we were to our benefit. And so that inevitably is helpful. The other thing that's happened toward the end of the year and into 2019 is amortization slowed. So our portfolio size was a little bigger than expectations, which obviously accrues to our benefit. So there are a number of points which is a positive because it wasn't one single thing and it's very broad-based and what gives us a lot of comfort around raising our guidance for 2019.

Scott Valentin -- Compass Point -- Analyst

Okay. That's helpful. And just to dig a little bit further on that, I mean -- I assume it's the -- outlook for, say, LIBOR from the short rates is not going up as much has really provided maybe a little bit more confidence in the outlook. I know you have a hedging strategy.

Christian M. Lown -- Chief Financial Officer and Executive Vice President

That's right.

Scott Valentin -- Compass Point -- Analyst

Okay, all right, thanks very much.

Operator

Our next question comes from the line of John Hecht of Jefferies.

John Hecht -- Jefferies -- Analyst

Yeah, Thanks very much for taking my questions. The first one is just with respect to expenses. You guys had the FDC pass-through, and I think that expires middle of this year. How do we think of that with respect to the efficiency guide and any adjustments we should be thinking about there?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

So that revenue and expenses was roughly $7 million in the quarter. That will continue until we are off their system. That is a TBD, but you can use that as a guidepost, and inevitably, it is a 0 margin element, right? It washes -- the expenses and revenues wash each other. So I think that can give you a guidance, we'll obviously give you updates, and it depends on when everything moves off the systems, but that is still TBD.

John Hecht -- Jefferies -- Analyst

I guess when we're making the modeling for efficiency ratio, should we make that adjustment in expenses?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Yes.

John Hecht -- Jefferies -- Analyst

Okay. And second question is a little bit more strategic. You've done a nice job building up the originations and acquisitions in the Private Education Loan segment over the past several quarters, about $1 billion quarterly now. But that seems to be just replenishing a lot of the runoff of that portfolio. How do we think about your intermediate and long-term origination goals and growth rates in that category?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

So that wouldn't be replenishing. Obviously, these assets run off call it high-teens, low 20s, and so obviously, we will continue to build the portfolio, but obviously that runoff in a few years will come to a steadier state from a portfolio size, but the portfolio will still be growing.

John Hecht -- Jefferies -- Analyst

So what do you -- maybe in a year or 2 where would we want to see you guys in terms of origination, kind of an origination pattern?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Yes, we put out guidance this year of at least $3 billion. I think we feel comfortable with that guidance, if not exceeding it. Obviously, after having ramped the portfolio and gotten it to a more of scale, the percentage increases year-over-year and quarter-on-quarter will come down, but we still think there is room to grow this business even in the longer term in the teens.

John Hecht -- Jefferies -- Analyst

Okay, thanks very much.

Operator

Our next question comes from the line of Mark Hammond of Bank of America.

Mark Hammond -- Bank of America -- Analyst

Hi, thanks. Hi, Jack, Chris and Joe, I have a couple of questions on the cap structure. One, on the bonds that we purchased during the first quarter, were they another slug of N bonds?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

That's right, the 34s?

Mark Hammond -- Bank of America -- Analyst

Yes. So is there more to do there? I guess there's one more remaining?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

So a few things to say. There is a little more to do. What I'd tell you is, whether they come to us or not is uncertain. Obviously, we have dialogue with bond investors all the time. This is investors being in contact with us, talking to us and it finally got to a point when we felt from a capital allocation perspective, it made sense to use capital for that purpose given inevitable return that we receive from it, but they're still a little left in the 34s, but not a meaningful amount and -- but I wouldn't expect to see this come again anytime soon.

Mark Hammond -- Bank of America -- Analyst

Okay. And moving to cash flow on Slide 14, the private credit residual cash flow that's forecasted cumulatively went down by $1.1 billion from last quarter's report. Just what's going on there?

John F. Remondi -- President and Chief Executive Officer

That represents the structured financings that we do against the overcollateralization in the securitization trust. So those cash flows are net of structured debt and before unsecured debt. So when we borrow money against the overcollateralization, it reduces those cash flows because there is an introduction of a liability and that proceeds are used to reduce our unsecured debt balances or do other things.

Mark Hammond -- Bank of America -- Analyst

And then, is there any quantity or way you can frame the capacity to do more of the repurchase facilities on the private side?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

While there is more capacity, I think what we're always looking at is our optimization of financing structures, what we saw is an ability to tap those cash flowing repo facilities at a cost and benefit to us that was greater than our other alternatives. There is still some capacity. I mean, you should be looking at us to optimize our financing structure at all times. But if that is the best price of financing, it will be the opportunity to utilize.

Mark Hammond -- Bank of America -- Analyst

Got it. And Chris, could you quantify that capacity?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

It obviously changes over time, but sub-$1 billion.

Mark Hammond -- Bank of America -- Analyst

Okay, that's -- good enough for me. Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Rick Shane from JPMorgan.

Rick Shane -- JPMorgan -- Analyst

Good morning guys, thanks for taking my questions. When we look at the changed guidance and this was pointed out roughly 30% to 40% of that was from the benefit from the debt repurchase. When we look at the delinquency trends and they are favorable on a year-over-year basis, is the next biggest component driving that guidance revision a function of better credit outlook and lower reserve levels as you move through the year?

John F. Remondi -- President and Chief Executive Officer

I think as we said, the contribution -- I mean the confidence in our ability to raise guidance at the end of the quarter here is really driven by contributions across the board. So there are contributions, as you just mentioned, from the net interest margin side of the equation, better portfolio amortization trends for us, improved profitability on the refi. But also in terms of fee revenue that we are generating, we saw a significant uptake, for example, in our FFELP-related fee revenue in the first quarter and expect that to continue through the balance of the year.

Similarly, we're seeing better performance in our BPS origination -- our BPS businesses in both revenue and margin and then OpEx is a contributing factor as well. And then, of course, you have to add in the value of our share repurchase programs to that component. So I would really look at this as an across-the-board contribution versus a single area or 1 or 2 areas.

Rick Shane -- JPMorgan -- Analyst

Got it. Okay. That's helpful. Second question, you guys talked a lot about your opportunity in private student lending and the emphasis in many ways has been on consolidation in refinance. The other part of that is the opportunity to reenter the new loan market. I'm curious as you approach that market, if you think there is a chance to do that in a different way. Historically, it's been about getting out preferred lending lists, but as we've seen in originations in different classes -- asset classes, there is an increasing opportunity electronically to go direct-to-consumer. Is that going to be part of the strategy?

John F. Remondi -- President and Chief Executive Officer

Well, certainly, our marketing approach here is a digital-first approach. So some of the -- a big chunk of this in the refi-related business. Marketplace, for example, is a direct mail-related function. And we are focused instead on generating customer leads in acquisitions on a digital side of the equation. In terms of how private student loans at the campus level for in-school are originated today, the students still are working very closely with the Financial Aid Office to understand what their family -- expected family contribution will be. And oftentimes, we'll get information about how to finance it.

The Financial Aid Office and the preferred lender lists are a different vehicle today and serve a different process than what they did 5, 10 years ago, where customers were very much encouraged to move through those channels because it simplified the back-office operations of the school. Today, students and families source their financing needs through a variety of channels, including digital, direct and through the Financial Aid Office. All of our products, though, will be underwritten, certified by the school and disbursed, with proceeds disbursed directly to the school.

Rick Shane -- JPMorgan -- Analyst

Great. Very helpful, thank you very much guys.

Operator

Our next question comes from the line of Dominick Gabriele of Oppenheimer.

Dominick Gabriele -- Oppenheimer -- Analyst

Hi, thanks for taking my questions. Can you just remind us how many rate hikes that you guys had in your original guidance? And then obviously you had a nice strong start to the year. If you saw a continued acceleration in your various businesses and you said it was pretty broad-based where some of the beat came from this quarter, could you see yourself maybe adding to your remaining $330 million repurchase plan for 2019.

Christian M. Lown -- Chief Financial Officer and Executive Vice President

So on the rate increase, in original guidance, we had 1 hike, but also remember that the market was expecting future hikes and not a decline in the rate, we're flat in the curve. So one rate hike, but the curve was still pretty steep and up to the right. And then on the return of capital, what we are committed is returning excess capital to shareholders, we put out a guidance of 1.23 to 1.25x on the TNA ratio. We clearly feel that is a great place to be going into CECL, and we like where we are. But if we do feel like we are in excess capital position, we will return that capital to shareholders through increased buybacks, et cetera. So I think you can continue to look at sort of that leverage ratio and our capital generation and think about what could be in store for the rest of the year.

Dominick Gabriele -- Oppenheimer -- Analyst

Great. And then if you could talk about, was it the better amortization across both the FFELP and private portfolios? Or was it just one?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

It was both, where it presses our internal thoughts.

Dominick Gabriele -- Oppenheimer -- Analyst

Okay. Great. And then there seems to be some additional disclosure on Slide 7 for the other segment on the core via some of the expense breakdown, which I really appreciate. Can you just talk about the gives and takes there where you can see the leverage given that you're looking to obviously ramp some of the originations, yet continue your nice efficiency there too?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

So I think -- it's a great question, and we're are very focused on this segment because these are the shared services that help us operate our business and trying to scale them as the portfolio amortization is very important to us. So as you know, last year, we entered a transaction with First Data to variabilize some of our IT expense and that was a big move to help us control and reduce expenses in shared services. And so we think IT is still a place that we can leverage changes in our business model, changes to the technology world and platforms and infrastructure, using things like the cloud, et cetera to reduce fixed cost.

On the IT side, we think there are clearly expenses that could be saved, clearly, in corporate facilities as we continue to manage our business and our footprint. That clearly is something we'll be focused on. Regulatory related, that's something we obviously clearly hope goes down and our expectation is that will over time. And then finance, vendor management, legal risk and audit, all these things should scale down and all of them can be used to our benefit to drive reduction.

So I think it's across the board, but there are fixed costs we can now convert it to variable. That won't immediately change as far as that scaling down, but actually as we break them down over the next year or 2, you will see them could go down after they plateau for a year. So there is inherent benefit in that variabilization that will take about 1 year, 1.5 years to work through the system.

Dominick Gabriele -- Oppenheimer -- Analyst

Great, thanks so much.

Operator

Our next question comes from the line of Moshe Orenbuch from Credit Suisse.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great, thanks. I saw on kind of a legal blog that you guys had -- that Navient got the ability to depose the former student loan ombudsman in the CFPB lawsuit. I'm not sure that in and of itself is all that meaningful, but any kind of updates on the process with respect to that lawsuit?

John F. Remondi -- President and Chief Executive Officer

So it continues to move at the pace that takes place in the civil federal court systems, which is slow unfortunately. I think at this stage in the game, the facts that we have discussed in the past are still the most important ones, that after more than 2 years of discovery process, the CFPB is yet to present a single example of a customer who is harmed in a way that matches up against their initial allegations. And it's not surprising considering that they filed their lawsuit before they had listened to a single customer phone call, but -- and have been searching for customers to support their claims from the beginning.

We're hopeful that the legal process will accelerate here. There was a special master appointed that is moving through some of the open items, helping that process move on a little bit faster and we do expect the deposition process to continue to support what we said all along that these claims are unfounded.

Moshe Orenbuch -- Credit Suisse -- Analyst

Okay. And just kind of following up on Lee's question earlier. If you go back to before you did buy Earnest and that kind of shift in strategy, stock's probably down in the upper-teens percent and the market is up almost a comparable amount. So I guess, I struggle with even how to ask the question, but what do you think Navient has to do to get investors to recognize that, that strategy has value?

John F. Remondi -- President and Chief Executive Officer

Well, I think what we have to do is what we did this quarter, which is demonstrate that we can generate very attractive returns from each component of our business. And so if you look at the results this quarter, you see very strong returns on the legacy portfolio side of the equation. You see strong origination growth with, we said, higher margins. You see fee revenue increasing. You see operating expense declining.

I think that's what we need to do. That's what we control here within the company to delivering and creating value for our stakeholders. The stock price unfortunately doesn't reflect the value that we see in it. I do think a piece of this is the regulatory side of the equation and certainly even some of the noise associated with the recent proposal and retraction from Canyon in now the proxy process. We prefer to be focused on growing the business and executing our business plan and delivering value for shareholders and that's hopefully where we will be very soon.

Operator

Our next question comes from the line of Henry Coffey from Wedbush.

Henry Coffey -- Wedbush Securities -- Analyst

Yes, good morning. Just Two questions. One on the refinance business. My impression, and obviously correct me if I'm wrong, is that it's mainly sort of a high-dollar business focusing on super-prime borrowers with classical professional degrees, doctor, lawyer, investment banker, engineer. Is there any thought process of going further down the -- not down the FICO food chain, but further down the economic chain to other successful professionals, teachers, whatever to see if there's a refinance product that would work there, or is it still pretty much focused on that kind of traditional high-end market?

John F. Remondi -- President and Chief Executive Officer

So you're correct in saying that this is -- we're very much focused on consumers who have a demonstrated track record and free cash flow to support their student loan debt. And part of this is designed to be -- we -- you want to be able to offer a product to the consumer that is significantly better than the loans that they're exiting and that includes both the interest rate and to some extent, some of the payment flexibility options that exist in the federal program if those might be needed.

But to your second point is, I think this is one of the significant advantages that we bring to the marketplace here having been in the student loan origination and servicing space for private and federal loans for almost 40 years now that we have tremendous insight as to how customers move through the repayment cycles and the ability to identify customers who might look like that super-prime customer several years before they get there and be able to offer our products to those consumers earlier in the repayment mode, saving them interest expense at a larger level and at an earlier time.

Certainly, there are other professions and the ones that you mentioned teachers and nurses are great examples of customers with very stable incomes and very stable and predictive payment streams that are attractive customers for us here as well.

Henry Coffey -- Wedbush Securities -- Analyst

And then earnings are moving higher, you're buying back stock, which is wonderful, but a lot of the people we talk to that are involved in your stock are there for the income. Why not put some of that increased return of capital into dividends now that earnings per share seemed to be moving higher?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

I think it's the capital allocation decision and discussion. Inevitably, to be honest, corporate theory around capital return would suggest that dividends and buybacks produce the same results from the perspective of the shareholder, from a return perspective to share price. Clearly, we're paying a pretty high dividend today compared to the market and compared to the averages. It is something we do think about and talk about internally. And so if we were to change that, obviously we would signal that. Today, I do feel like we're in a good place, but it's something we do consider and think about.

Henry Coffey -- Wedbush Securities -- Analyst

I mean is there a view that a 5% dividend yield is pretty much as high as it's going to go and if you add it to the dividend, the stock would go up? Or is the fear that if you add to the dividend, the stock won't react?

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Again, the capital is being returned to shareholders in one way or the other, right, either it's coming from a dividend or the buyback. To some degree, there is fungibility to that. But if you look at where we rest from a yield perspective versus almost any other stock, we are in the top probably decile. And so the incremental benefit there versus buying back stock, we think it leans toward the buyback program.

Henry Coffey -- Wedbush Securities -- Analyst

Thank you very much and congratulations on a great quarter.

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Thank you.

John F. Remondi -- President and Chief Executive Officer

Thank you.

Operator

And I'm showing no further questions in the queue at this time. I'd like to turn the call back to you, Joe Fisher, for closing remarks.

Joe Fisher -- Vice President, Investor Relations

Thank you, Nova. We'd like to thank everyone for joining us on today's call. If you have any other follow-up questions, feel free to contact me. This concludes today's call.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the conference, and you may now disconnect. Everyone, have a wonderful day.

Duration: 52 minutes

Call participants:

Joe Fisher -- Vice President, Investor Relations

John F. Remondi -- President and Chief Executive Officer

Christian M. Lown -- Chief Financial Officer and Executive Vice President

Mark DeVries -- Barclays -- Analyst

Arren Cyganovich -- Citi -- Analyst

Sanjay Sakhrani -- Keefe, Bruyette & Woods -- Analyst

Lee Cooperman -- Omega Advisor -- Analyst

Scott Valentin -- Compass Point -- Analyst

John Hecht -- Jefferies -- Analyst

Mark Hammond -- Bank of America -- Analyst

Rick Shane -- JPMorgan -- Analyst

Dominick Gabriele -- Oppenheimer -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Henry Coffey -- Wedbush Securities -- Analyst

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