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Navient (NAVI) Beats on Q3 Earnings as Provisions Fall


Navient Corporation’s NAVI third-quarter 2016 core earnings of 50 cents per share beat the Zacks Consensus Estimate of 47 cents. Also, the figure improved 6.4% year over year.

The third-quarter results of Navient were aided by lower provision for credit losses as well as higher non-interest income. However, net interest income decreased while expenses remained stable in the quarter.

Notably, core earnings excludes the impact of the financial results of the consumer banking business for period prior to the spin-off of Navient from Sallie Mae in Apr 2014 as well as the related restructuring and reorganization expenses. It also excluded the impact of certain other one-time items including unrealized, mark-to-market gains/losses on derivatives.

GAAP net income for the quarter was $230 million, or 73 cents per share, compared with $237 million, or 63 cents per share, in the prior-year quarter.

Improved Non-Interest Income; Provisions Down

The following figures are calculated on a core earnings basis:

Net interest income declined 12% year over year to $405 million.

However, non-interest income reported a growth of 7.8% year over year to $179 million. Servicing revenues remained stable while asset recovery revenues improved.

Also, total expenses remained unchanged at $228 million. Encouragingly, provision for credit losses decreased 13.8% year over year to $106 million.

Segmental Performance

Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $69 million, down 1.4% year over year. The underperformance was mainly attributable to a decrease in servicing revenue.

During the quarter, Navient acquired FFELP loans of $596 million. As of Sep 30, 2016, the company’s FFELP loans came in at $90.1 billion, down from $98.5 billion as of Sep 30, 2015.
FFELP loan spread edged up 6 basis points (bps) year over year to 0.96%.

Private Education Loans: For the quarter, the segment reported core earnings of $60 million, a 22.1% decline year over year. The fall was due to reduced net interest income, partially offset by lower provision for loan losses.

Total delinquencies came in at 6.9% of loans in repayment, down 50 bps year over year. Charge-off rate of 1.9% of average loans decreased from 2.3% in the prior-year quarter.

During the quarter, Navient acquired private education loans of $66 million. As of Sep 30, the company’s private education loans totaled $24.0 billion, compared with $27.3 billion a year ago.

Student loan spread decreased 24 bps year over year to 3.64%.

Business Services: The segment reported core earnings of $81 million, up 2.5% year over year. Increase in education loan-related asset recovery revenue on a year-over-year basis led to the upside.

Currently, Navient services student loans for over 12 million customers. This includes 6.2 million customers on behalf of the U.S. Department of Education.

Other: The segment reported a net loss of $53 million, compared with a loss of $52 million in the prior-year quarter.

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 completed one FFELP ABS of $1 billion and issued unsecured debt of the value of $1.3 billion. Also, it retired or repurchased senior unsecured debt of $625 million.

Share Repurchase

During the quarter, Navient repurchased 14.3 million shares of common stock for $200 million. As of Sep 30, the company had $180 million worth of remaining authorization under its share repurchase program.

Our Take

Results of Navient reflect a decent performance. We believe that the company will continue to maintain its leadership position in the student-lending market through various growth avenues, including its continued acquisition of federal and private student loans. Also, the economic recovery and declining unemployment rate should boost its business prospects as well as help borrowers in repaying their loans. Further, we remain encouraged by the company’s steady capital deployment activities that boost shareholder value.

However, the company’s top line faces pressure due to lack of access to new loans and alternate sources of revenue. Also, increasing operating costs and legal and regulatory issues remain key concerns for Navient.

NAVIENT CORP Price, Consensus and EPS Surprise

NAVIENT CORP Price, Consensus and EPS Surprise | NAVIENT CORP Quote

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

Among other firms in the finance space, People's United Financial Inc. PBCT is expected to release results on Oct 20 while Ally Financial Inc. ALLY and Regional Management Corp. RM are expected to release their numbers on Oct 26 and Oct 27, respectively.

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