Navient Corporation’s NAVI fourth-quarter 2017 adjusted core earnings per share (EPS) of 43 cents surpassed the Zacks Consensus Estimate by a penny. The reported figure matches the year-ago quarter tally.
Core earnings excluded the impact of losses from the derivative accounting treatment. It also excluded the impact of certain other one-time items, including unrealized, mark-to-market gains /losses on derivatives, and goodwill and acquired intangible asset amortization and impairment.
Fourth-quarter results of Navient reflect higher non-interest income. However, on the downside, the company recorded lower net interest income and higher expenses.
After considering the impact of tax reform along with restructuring and regulatory-related expenses, the company reported core net loss of $131 million in the quarter against core net income of $129 million in year ago quarter.
GAAP net loss for the quarter was $84 million or 32 cents per share against income of $145 million or 48 cents per share in the year-ago quarter.
For full-year 2017, Navient reported core earnings of $251 million or 89 cents per share compared with $587 million or $1.82 per share as of Dec 31, 2016.
Rise in Fee Income More Than Offsets Decline in NII (on core earnings basis)
Net interest income (NII) declined 4.3% year over year to $357 million.
However, non-interest income increased 1.1% year over year to $181 million. Asset recovery and other revenues rose while servicing revenues declined slightly.
Provision for credit losses increased nearly 7% year over year to $109 million.
Total expenses climbed 17.5% year over year to $289 million.
Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $65 million, down 4.4% year over year. The underperformance was mainly due to lower NII owing to amortization of portfolio and decrease in net interest margin, partially offset by a decline in operating expenses.
FFELP loan spread contracted 2 basis points (bps) year over year to 0.96%.
During the quarter, Navient acquired FFELP loans of $463 million. As of Dec 31, 2017, the company’s FFELP loans were $81.7 billion, down 6.8% year over year.
Private Education Loans: The segment reported core earnings of $43 million, up 4.9% year over year.
Total delinquency rate came in at 5.8% compared with 7.4% in the year ago quarter. Charge-off rate of 1.5% of average loans in repayment was 8 bps down on a year-over-year basis. Private Education loan spread expanded 34 bps year over year to 3.57%.
As of Dec 31, 2017, the company’s private education loans totaled $23.4 billion, up slightly year over year.
Business Services: The segment reported core earnings of $74 million, up 4.2% from the prior-year quarter.
Currently, Navient services student loans for more than 12 million customers. This includes 6.1 million customers on behalf of the U.S. Department of Education.
Source of Funding and Liquidity
In order to meet liquidity needs, Navient expects to utilize various sources, including cash and investment portfolio, issuance of additional unsecured debt, repayment of principal on unencumbered student loan assets and distributions from securitization trusts (including servicing fees). It may also issue term asset-backed securities (ABS).
During the reported quarter, Navient issued $751 million in FFELP Loan ABS, $662 million in private education loan ABS and $250 million in unsecured debt. Also, the company retired or repurchased $95 million of senior unsecured debt during the quarter.
Also, a new $750 million revolving credit facility was closed during the quarter to warehouse private education refinance loan originations. This facility is scheduled to mature in October 2018.
During 2017, Navient repurchased 29.6 million shares of common stock for $440 million. However, the company has currently suspended its share repurchase program through 2018 in order to use available capital toward growing education lending business and build book value.
Navient’s strong fee income base helps to keep revenues afloat. Also, its efforts to enforce digitization are encouraging. However, its top-line continues to remain under pressure. Also, the company’s involvement in improper lending practices, is likely to hurt its reputation and keep legal expenses elevated.
Navient carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Navient Corporation Price, Consensus and EPS Surprise
Navient Corporation Price, Consensus and EPS Surprise | Navient Corporation Quote
Performance of Other Banks
First Horizon National Corporation FHN reported fourth-quarter 2017 adjusted earnings per share of 30 cents, surpassing the Zacks Consensus Estimate of 29 cents by 3.4%. Results exclude tax reform-related adjustments and other one-time items.
Huntington Bancshares Incorporated HBAN reported fourth-quarter 2017 adjusted earnings per share of 26 cents, in line with the Zacks Consensus Estimate. However, the figure came in higher than the prior-year quarter adjusted earnings of 24 cents. The reported earnings figure excludes Federal tax reform-related estimated tax benefit of 11 cents per share.
State Street's STT fourth-quarter 2017 operating earnings of $1.83 per share handily outpaced the Zacks Consensus Estimate of $1.71. Also, it was 23.6% above the prior-year quarter. The figure excluded one-time net costs of $270 million or 72 cents per share related to the tax reform and other significant non-recurring items.
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