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Navient (NAVI) Q3 Earnings Beat Estimates, Provisions Fall

Navient Corporation’s NAVI third-quarter 2018 adjusted core earnings per share (EPS) of 53 cents surpassed the Zacks Consensus Estimate of 50 cents. However, the reported figure came in below the year-ago quarter tally of 55 cents.

Core earnings excluded the impact of derivative accounting treatment. It also excluded the impact of certain other one-time items, including goodwill and acquired intangible asset amortization.

Third-quarter results of Navient benefited from a decline in provisions. However, lower revenues along with escalated expenses were the key headwinds. Moreover, year-over-year decline in loans was another offsetting factor.

The company reported core net income of $140 million in the quarter, down 7.9% from $152 million a year ago.

GAAP net income for the quarter was $114 million or 43 cents per share compared with $176 million or 64 cents per share in the year-ago quarter.

NII and Fee Income Fall, Expenses Escalate (on core earnings basis)

Net interest income (NII) dipped 5.2% year over year to $327 million.

Non-interest income fell 17.3% to $196 million. Asset recovery and business processing revenues along with servicing revenues declined.

Provision for loan losses decreased nearly 19% year over year to $85 million.

Total expenses rose 7.6% to $256 million from the year-ago quarter.

Segment Performance

Federal Education Loans: The segment generated core earnings of $148 million, down 5.7% year over year. Higher NII was partially offset by higher operating expenses and lower fee income.

During the reported quarter, Navient acquired FFELP loans of $164 million. As of Sep 30, 2018, the company’s FFELP loans were $74.3 billion, down 11.4% year over year.

Consumer Lending: The segment reported core earnings of $72 million, up 20% year over year. Lower provisions and expenses were the positives. Net interest margin was 3.35%, down 22 basis points.

Private education loan delinquencies of 30 days or more of $1.4 billion were up $98 million from the prior-year quarter.

As of Sep 30, 2018, the company’s private education loans totaled $22.4 billion, down 4.3%.

Business Processing: The segment reported core earnings of $4 million, stable year over year. Increase in fee income was offset by higher expenses.

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 might also issue term asset-backed securities (ABS).

During the reported quarter, Navient issued $992 million in FFELP Loan ABS and $632 million in private education loan ABS. Also, the company repurchased $86 million of senior unsecured debt during the quarter.

Our Take

Navient reported a quite disappointing quarter since revenues declined and costs escalated. Further, the lender’s loan portfolios have witnessed an annual fall as well. Despite taking several steps lately to build fee income base, Navient’s declining revenues remain a major concern. Also, its involvement in improper lending practices is likely to keep legal expenses elevated. Nevertheless, its efforts to enforce digitization are encouraging.

Navient Corporation Price, Consensus and EPS Surprise

Navient Corporation Price, Consensus and EPS Surprise | Navient Corporation Quote

Currently, Navient carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Companies

Regions Financial Corporation RF reported third-quarter 2018 earnings of 32 cents per share, up 28% year over year. The Zacks Consensus Estimate was pegged at 36 cents. Results included certain non-recurring items.

Sallie Mae SLM reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Moreover, the figure surged 35% from the prior-year quarter.

TCF Financial Corporation TCF reported positive earnings surprise of 4.1% in third-quarter 2018. Earnings per share of 51 cents surpassed the Zacks Consensus Estimate of 49 cents. Further, the bottom line compares favorably with the prior-year quarter figure of 29 cents.

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