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Navient (NAVI) Q3 Earnings Beat Estimates, Expenses Flare Up

Navient Corporation NAVI reported third-quarter 2021 core earnings per share of 89 cents, surpassing the Zacks Consensus Estimate of 83 cents. Nonetheless, the bottom line came in lower than the year-ago quarter figure of 99 cents.

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

The company’s performance was supported by strong loan originations and business processing operations. However, fall in net interest income (NII) and non-interest income, as well as higher expenses are concerns. Also, rise in provisions was a headwind.

The company also received all necessary approvals and closed on the novation and transfer of its Department of Education (ED) servicing contract to a third party, Maximus, in October 2021. This will likely help Navient amplify focus on domains outside government student loan servicing.

Navient’s GAAP net income came in at $173 million or $1.04 per share compared with the net income of $207 million or $1.07 per share seen in the prior year.

NII Decreases, Provisions and Expenses Flare Up (on Core Earnings Basis)

The NII edged down 1% year over year to $334 million.

Non-interest income fell 10% to $160 million. This downside mainly stemmed from the losses on debt repurchases, losses on derivative and hedging activities and lower servicing revenue.

Provision for loan losses was a provision of $22 million, marking a year-over -year rise of 57% from the $14 million witnessed in the prior-year quarter.

Total expenses flared up 5% to $252 million. Higher operating expenses and rise in Goodwill and acquired intangible asset impairment and amortization expenses primarily resulted in this upswing.

Segment Performance

Federal Education Loans: The segment generated core earnings of $122 million, down 11% year over year. Lower revenues were partly offset by a fall in expenses.

As of Sep 30, 2021, the company’s Federal Family Education Loan Program (FFELP) loans were $54.4 billion, down 2.2% sequentially.

Consumer Lending: The segment reported core earnings of $73 million, which decreased 34% from the year-ago quarter’s $110 million. Provision for loan losses and rise in expenses led to a dip in the segment’s performance. Net interest margin was 2.98%, shrinking 26 basis points.

Private education loan delinquencies of 30 days or more of $599 million were up 20% from the prior-year quarter.

As of Sep 30, 2021, the company’s private education loans totaled $20 billion, up 1.5% from the prior quarter. In addition, Navient originated $1.49 billion of private education refinance loans during the reported quarter.

Business Processing: The segment reported core earnings of $27 million, up 69% from the $16 million recorded in the year-ago quarter. Higher fee revenues 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, the predictable operating cash flows provided by operating activities, repayment of principal on unencumbered student-loan assets, and distributions from securitization trusts. It might also draw down on the secured FFELP Loan and Private Education Loan facilities, issue term asset-backed securities (ABS), enter into additional Private Education Loan ABS repurchase facilities, or issue additional unsecured debt.

During the reported quarter, Navient issued $2 billion in term ABS and retired $757 million in unsecured debt. Notably, it had $1.05 billion of cash as of Sep 30, 2021.

Capital Deployment Activities

In the third quarter, the company paid out $26 million in common stock dividends.

During the reported quarter, Navient repurchased shares of common stock for $150 million. As of Sep 30, 2021, there was $150 million of the remaining share-repurchase authority.

Our Take

Navient’s performance during the third quarter was decent. The Business Processing segment’s performance was a tailwind. However, the non-interest income and NII witnessed a fall.

Also, the company’s involvement in improper lending practices might keep its legal expenses elevated.

Navient Corporation Price, Consensus and EPS Surprise

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

Currently, Navient currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Banks

Bank of America’s BAC third-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with the 37 cents earned in the prior-year quarter.

PNC Financial PNC pulled off a third-quarter earnings surprise of 42.4% on substantial reserve release. The adjusted earnings per share of $4.50 exceeded the Zacks Consensus Estimate of $3.16.

Large reserve releases, solid investment banking performance and a modest rise in loan demand drove JPMorgan’s JPM third-quarter 2021 earnings of $3.78 per share. The bottom line comfortably outpaced the Zacks Consensus Estimate of $3.05.

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