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Navient (NAVI) Q2 Earnings Beat Estimates on Lower Provisions

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Navient Corporation (NAVI - Free Report) reported second-quarter 2021 core earnings per share of 94 cents, surpassing the Zacks Consensus Estimate of 85 cents. Also, the bottom line came in higher than the year-ago quarter figure of 92 cents.

Core earnings exclude 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.

The company’s performance was supported by increases in non-interest income and provision benefit. However, fall in net interest income (NII) and higher expenses are concerns. Further, private education loans declined during the quarter.

Navient’s GAAP net income came in at $185 million or $1.05 per share as against the net income of $125 million or 64 cents per share seen in the prior year.

NII Decreases, Provisions Fall (on Core Earnings Basis)

NII decreased 17.5% year over year to $141 million.

Non-interest income climbed 14.11% to $186 million. This upswing is mainly attributable to higher asset recovery and gains on sales of loans.

Provision for loan losses was a benefit of $1 million as against the provision of $44million witnessed in the prior-year quarter.

Total expenses flared up 18.7% to $254 million. Higher operating expenses and rise in restructuring/other reorganization expenses primarily resulted in this upswing.

Segment Performance

Federal Education Loans: The segment generated core earnings of $113 million, down 22.6% year over year. Lower revenues were partly offset by a fall in expenses.

As of Jun 30, 2021, the company’s FFELP loans were $55.6 billion, down 2.3% sequentially.

Consumer Lending: The segment reported core earnings of $96 million, which increased 10% from the year-ago quarter’s $87 million. Provision benefits and growth in revenues supported the segment’s performance. Net interest margin was 2.95%, shrinking 25 basis points.

Private education loan delinquencies of 30 days or more of $505 million were up 18.5% from the prior-year quarter.

As of Jun 30, 2021, the company’s private education loans totaled $19.7 billion, down marginally from the prior quarter. In addition, Navient originated $1.29 billion of private education refinance loans during the reported quarter.

Business Processing: The segment reported core earnings of $29 million, up significantly from the $6 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, 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 $2.1 billion in term ABS and retired $692 million in unsecured debt. Notably, it had $1.45 billion of cash as of Jun 30, 2021.

Capital Deployment Activities

In the second quarter, the company paid out $27 million in common stock dividends.

During the reported quarter, Navient repurchased shares of common stock for $200 million. As of Jun 30, 2021, there was $300 million of share-repurchase authority.

Our Take

Navient’s performance during the second quarter was decent. Reserve releases were a  tailwind. Also, non-interest income increased on the back of several measures taken to build its base.

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

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

Performance of Other Banks

Bank of America’s (BAC - Free Report) second-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 - Free Report) delivered second-quarter 2021 earnings surprise of 42.4% on substantial reserve release. Adjusted earnings per share of $4.50 surpassed the Zacks Consensus Estimate of $3.16.

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