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Navient (NAVI) Q4 Earnings Beat Estimates as Provisions Fall

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Zacks Equity Research
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Navient Corporation NAVI reported fourth-quarter 2020 core earnings per share of 88 cents that surpassed the Zacks Consensus Estimate of 81 cents. Also, the bottom line was above the year-ago quarter figure of 69 cents.

Core earnings excluded the impacts of certain other one-time items, including mark-to-market gains/losses on derivatives along with goodwill and acquired intangible asset amortization, and impairment.

Fourth-quarter results of Navient were supported by a rise in net interest income (NII). Also, a fall in provisions was a tailwind. However, private education loans declined. Moreover, a year-over-year fall in fee income was an undermining factor.

GAAP net income in the quarter was $186 million or 99 cents per share compared with $171 million or 78 cents a year ago.

In full-year 2020, Navient reported GAAP net income of $412 million or $2.12 per share compared with $597 million or $2.56 in 2019.

NII Increases, Provisions Fall (on Core Earnings Basis)

NII in the quarter increased 1.3% year over year to $314 million.

Non-interest income declined 4% to $169 million. The fall was mainly attributed to lower servicing along with asset recovery and business processing income.

Provision for loan losses fell substantially to $2 million from $50 million reported in year-ago quarter.

Total expenses climbed 13.5% to $269 million. Higher operating expenses mainly led to the rise.

Segment Performance

Federal Education Loans: The segment generated core earnings of $134 million, down 1.5% year over year. Lower revenues were partly offset by a fall in expenses.

As of Dec 31, 2020, the company’s FFELP loans were $58.3 billion, down 2.1% sequentially.

Consumer Lending: The segment reported core earnings of $108 million, up 21.3% year over year. Lower provisions and rise in revenues were positives. Net interest margin was 3.02%, down 29 basis points.

Private education loan delinquencies of 30 days or more of $554 million were down from $1 billion in the prior-year quarter.

As of Dec 31, 2020, the company’s private education loans totaled $21.1 billion, down nearly 1% from the prior quarter. Also, Navient originated $1.1 billion of private education refinance loans in the quarter.

Business Processing: The segment reported core earnings of $15 million compared with $8 million in the year-ago quarter. Higher fee revenues led to the upside.

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 $2.3 billion in term ABS. Notably, it had $1.2 billion of cash as of Dec 31, 2020.

Capital-Deployment Activities

In the fourth quarter, the company paid out $30 million in common stock dividends. As of Dec 31, 2020, it had $600 million of remaining share-repurchase authority.

Our Take

Navient’s performance during the fourth quarter was decent. Higher interest income and lower provisions came as tailwinds. However, its involvement in improper lending practices is likely to keep legal expenses elevated. Nevertheless, Navient’s investments in technology platform and digital marketing tools to attract originations bode well for long-term growth.

Navient Corporation Price, Consensus and EPS Surprise

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

Navient Corporation price-consensus-eps-surprise-chart | Navient Corporation Quote

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

Performance of Other Companies

Bank of Hawaii Corporation BOH reported fourth-quarter 2020 earnings per share of $1.06, which lagged the Zacks Consensus Estimate of $1.11. Also, the bottom line compares unfavorably with $1.45 reported in the prior-year quarter.

BancorpSouth Bank BXS delivered a fourth-quarter 2020 positive earnings surprise of 6.2% on higher interest income. Net operating earnings of 69 cents per share beat the Zacks Consensus Estimate of 64 cents. Also, the bottom line compares favorably with 65 cents reported in year-ago quarter.

People's United Financial PBCT delivered fourth-quarter 2020 operating earnings of 35 cents per share, beating the Zacks Consensus Estimate of 32 cents. The reported figure, however, comes in below the prior-year quarter figure of 37 cents.

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