Navient (NAVI) Q3 Earnings Beat Estimates, Expenses Decline

Navient Corporation (NASDAQ:NAVI) pulled off a positive earnings surprise of 10.7% in third-quarter 2019. Core earnings per share of 62 cents surpassed the Zacks Consensus Estimate of 56 cents. Also, the bottom line came in higher than the year-ago quarter figure of 53 cents.

Core earnings excluded the impact of certain other one-time items, including restructuring and regulatory-related expenses.

Third-quarter results of Navient benefited from a fall in expenses and provisions. Further, loans climbed up. However, lower net interest income was a key headwind. Moreover, year-over-year decline in deposits was a drag.

GAAP net income for the quarter was $145 million or 63 cents per share compared with $114 million or 43 cents per share in the year-ago quarter.

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

Net interest income (NII) dipped 5.5% year over year to $309 million.

Non-interest income declined 2% to $192 million. Rise in asset recovery and business processing revenues was more than offset by lower servicing revenues and other income.

Provision for loan losses plunged nearly 24.7% to $64 million.

Total expenses declined 1.2% to $242 million from the year-ago quarter.

Segment Performance

Federal Education Loans: The segment generated core earnings of $128 million, down 10.5% year over year. Lower revenues, partly muted by decline in expenses, posed as a headwind.

During the reported quarter, Navient acquired FFELP loans of $39 million. As of Sep 30, 2019, the company’s FFELP loans were $66.1 billion, down 2.8% sequentially.

Consumer Lending: The segment reported core earnings of $79 million, up 9.7% year over year. Lower provisions and higher revenues were the positives. Net interest margin was 3.45%, up 10 basis points.

Private education loan delinquencies of 30 days or more of $1 billion were down $363 million from the prior-year quarter.

As of Sep 30, 2019, the company’s private education loans totaled $21.8 billion, up 1.3% from prior quarter.

Business Processing: The segment reported core earnings of $9 million compared with $4 million in the year-ago quarter. Higher revenues and lower expenses led to this 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 $1.3 billion in term ABS.

Our Take

Navient reported a decent quarter as costs declined and segments reported improved performance. Also, the lender’s loan portfolios have witnessed rise. However, other income declined despite several measures taken to build fee income base. Additionally, its involvement in improper lending practices is 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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

M&T Bank Corporation (NYSE:MTB) reported a negative earnings surprise of 3.9% in third-quarter 2019, on account of higher expenses and provisions. Net earnings of $3.47 per share lagged the Zacks Consensus Estimate of $3.61. The bottom line also declined 2% year over year.

First Horizon National Corporation (NYSE:FHN) reported third-quarter 2019 adjusted earnings per share of 43 cents, which surpassed the Zacks Consensus Estimate by a penny. Further, the bottom line was 19% higher than the year-ago figure.

PNC Financial (NYSE:PNC) delivered positive earnings surprise of 5% in third-quarter 2019. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line reflects a 4.3% jump from the prior-year quarter’s reported figure.

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