Navient announced that it expects second-quarter 2015 core earnings of approximately $0.40 diluted earnings per share, or GAAP earnings of approximately $0.47 diluted earnings per share.
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In addition, the company revised its guidance for full-year 2015 core earnings to approximately $1.85 diluted earnings per share.
As a result of aggressive market pricing for private education loan portfolios, the company has removed from 2015 guidance additional private loan acquisitions. The company also has reduced its forecast for net interest income as a result of increased cost of funds.
As a result, for the second half of 2015, the net interest margin is projected to range between 3.83 percent and 3.85 percent for private education loans and between 0.81 percent and 0.85 percent for FFELP loans.
The company expects second quarter net interest margin to be 3.55 percent for private education loans and 0.81 percent for FFELP loans. The private education loan net interest margin in the second quarter was also impacted by reduced interest income related to the factor immediately below.
While the majority of the private education loan portfolio continues to perform as expected and is experiencing positive credit trends, a segment of higher risk private education loan borrowers who returned to school during the recession deferred repayment on their existing loans and exited deferment status in 2014.
These loans are experiencing unfavorable credit trends compared to loans that exited deferment in prior years.
In addition, loan balances exiting deferment increased to $2.5 billion in 2014, as compared to $1.8 billion in 2013 and $2.1 billion in 2012. For 2015, these figures are projected to decline to $1.7 billion.
As a result, the company increased its provision for these loans and now projects a private education loan loss provision of $191 million for the quarter and $575 to $600 million for the year. As of June 30, 2015, the company's private education loan portfolio totaled $28.1 billion.
As a result of the recent performance in its long-term recovery rate on defaulted loans, the company changed its recovery rate assumption on charged-off loans to 21 percent. The company reduced the balance of the receivable for partially charged-off loans by $330 million to reflect this update. Because this item was previously reserved for, this change did not impact the loan loss provision.
During the quarter, the company launched a restructuring initiative to simplify and streamline its management structure. Approximately $29 million of restructuring expenses in the second quarter are included in GAAP results but excluded from core earnings.
The company will release its 2015 second-quarter results after market close on Tuesday, July 21, 2015. ■