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Navient (NAVI) Q4 Earnings Top Estimates as Expenses Decline

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Navient Corporation NAVI pulled off a positive earnings surprise of 17.5% in fourth-quarter 2019. Adjusted core earnings per share of 67 cents surpassed the Zacks Consensus Estimate of 57 cents. Also, the bottom line came in higher than the year-ago quarter figure of 58 cents.

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

Fourth-quarter results of Navient benefited from a fall in expenses and provisions. Further, private education loans jumped. However, lower net interest income was a key headwind. Moreover, year-over-year decline in other income was a drag.

GAAP net income for the quarter was $171 million or 78 cents per share compared with $72 million or 28 cents per share in the year-ago quarter.

For full-year 2019, the company reported GAAP net income of $597 million or $2.56 per share compared with $395 million or $1.49 a year ago.

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

Net interest income (NII) dipped nearly 1% year over year to $310 million.

Non-interest income declined 12.9% to $176 million. The fall was chiefly attributed to lower servicing revenues.

Provision for loan losses plunged nearly 42% to $50 million.

Total expenses declined 7.4% to $237 million from the year-ago quarter. Lower operating expenses supported this decline.

Segment Performance

Federal Education Loans: The segment generated core earnings of $136 million, down 7.5% year over year. Lower revenues, partly muted by stable expenses, posed as a headwind.

During the reported quarter, Navient acquired FFELP loans of $280 million. As of Dec 31 2019, the company’s FFELP loans were $64.6 billion, down 2.3% sequentially.

Consumer Lending: The segment reported core earnings of $89 million, up 34.8% year over year. Lower provisions and higher revenues were the positives. Net interest margin was 3.32%, up 3 basis points.

Private education loan delinquencies of 30 days or more of $1 billion were down $290 million from the prior-year quarter.

As of Dec 31, 2019, the company’s private education loans totaled $22.2 billion, up 1.8% from prior quarter.

Business Processing: The segment reported core earnings of $8 million compared with $7 million in the year-ago quarter. Lower expenses were partially offset by fall in revenues.

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 $1.7 billion in term ABS.

Capital Deployment Activities

In the fourth quarter, Navient repurchased 5.8 million common shares. In full-year 2019, the company repurchased 34.5 million shares.

Our Take

Navient’s private education loans portfolio performance continues to encourage us. Also, the company’s prudent cost management efforts support bottom-line expansion. However, non-interest income declined despite several measures taken to build its 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 Companies

Comerica (CMA - Free Report) delivered positive earnings surprise of 6.3% in fourth-quarter 2019 on high interest income. Earnings per share of $1.85 surpassed the Zacks Consensus Estimate of $1.74. Earnings, however, came in lower than the prior-year quarter figure of $1.95.

State Street’s STT fourth-quarter 2019 adjusted earnings of $1.98 per share outpaced the Zacks Consensus Estimate of $1.70. Also, the figure was 18.6% above the prior-year quarter level.

Riding on higher mortgage banking fees, Citizens Financial Group CFG delivered a positive earnings surprise of 3.1% in fourth-quarter 2019. Adjusted earnings per share came in at 99 cents, beating the Zacks Consensus Estimate of 96 cents. Also, the bottom line rose 1% year over year.

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