Navient (NAVI) Q1 Earnings Beat Estimates, Expenses Fall

Navient Corporation (NASDAQ:NAVI) pulled off a positive earnings surprise of 19.6% in first-quarter 2019. Core earnings per share of 55 cents surpassed the Zacks Consensus Estimate of 46 cents. Also, the bottom line came in above the year-ago quarter figure of 40 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.

First-quarter results of Navient benefited from a decline in provisions and expenses. Also, higher fee income offered support. However, lower net interest income was a key headwind. Year-over-year decline in loans was another offsetting factor.

GAAP net income for the quarter was $128 million or 52 cents per share compared with $126 million or 47 cents per share in the year-ago quarter.

Fall in NII Offset by Lower Expenses and Provisions (on core earnings basis)

Net interest income (NII) dipped 9% year over year to $300 million.

Non-interest income rose 17.3% to $210 million. Asset recovery and business processing revenues, other income and gain on debt repurchases increased.

Provision for loan losses decreased nearly 12.6% to $76 million.

Total expenses declined 8.9% to $257 million from the year-ago quarter.

Segment Performance

Federal Education Loans: The segment generated core earnings of $127 million, down 9.9% year over year. Lower revenues and higher adjusted expenses posed headwinds.

During the reported quarter, Navient acquired FFELP loans of $84 million. As of Mar 31, 2019, the company’s FFELP loans were $69.9 billion, down 12%.

Consumer Lending: The segment reported core earnings of $65 million, up 30% year over year. Lower provisions and expenses were the positives. Net interest margin was 3.22%, down 1 basis point.

Private education loan delinquencies of 30 days or more of $1.1 billion were down $135 million from the prior-year quarter.

As of Mar 31, 2019, the company’s private education loans totaled $22.1 billion, down 3.5%.

Business Processing: The segment reported core earnings of $10 million, stable year over year. Decline in fee income was offset by lower 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 $1.9 billion in term ABS. Also, the company repurchased $46 million of senior unsecured debt.

Our Take

Navient reported a decent quarter as costs declined and segments reported improved performance. Also, other income increased on account of several steps taken lately to build fee income base. However, the lender’s loan portfolios have witnessed an annual fall as well. Also, its involvement in improper lending practices are likely to keep legal expenses elevated. Nevertheless, its digitization efforts are encouraging.

Navient Corporation Price, Consensus and EPS Surprise

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

TCF Financial Corporation (NYSE:TCF) delivered a positive earnings surprise of 2.2% in first-quarter 2019. Adjusted earnings per share of 46 cents surpassed the Zacks Consensus Estimate by a penny. Further, the reported figure compares favorably with the prior-year tally of 39 cents.

Webster Financial (NYSE:WBS) pulled off a positive earnings surprise of 5% in first-quarter 2019. Adjusted earnings per share of $1.06 surpassed the Zacks Consensus Estimate of $1.01. Also, the bottom line increased 24.7% from the prior-year quarter.

Bank of Hawaii Corporation (NYSE:BOH) delivered a positive earnings surprise of 5.1% in first-quarter 2019. Earnings per share of $1.43 surpassed the Zacks Consensus Estimate of $1.36. Further, the reported figure compares favorably with $1.28 earned in the prior-year quarter.

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