Navient Corporation (NASDAQ:NAVI) released its first-quarter 2016 financial results that include $1.5 billion of education loan purchases, two asset-backed securities (ABS) transactions and an extension of its $7.5 billion FFELP asset-backed commercial paper (ABCP) facility to 2018. Private education loan charge-offs were down 24 percent from the year-ago quarter.
“This quarter’s results benefited from the continued improvement in credit. Our private education loans continue to demonstrate positive trends with lower delinquency rates and defaults. We have also seen an improving delinquency rate for the federal loans we service,” said Jack Remondi, Navient president and CEO. “This quarter we returned to the FFELP asset-backed market even as the rating agency reviews remain open. This demonstrates the strength of the collateral and structure of our deals as well as the attractiveness of the bonds to investors. We continue on track to meet our plan targets across our business lines.”
For the first-quarter 2016, GAAP net income was $181 million ($0.53 diluted earnings per share), compared with $292 million ($0.72 diluted earnings per share) for the year-ago quarter.
Core earnings for the quarter were $147 million ($0.43 diluted earnings per share), compared with $194 million ($0.48 diluted earnings per share) for the year-ago quarter. The decrease is primarily the result of a $73 million reduction in net interest income. Excluding expenses associated with regulatory-related costs, first-quarter 2016 and 2015 diluted core earnings per share were $0.44 and $0.48, respectively. First-quarter 2016 operating expenses included $4 million ($0.01 diluted earnings per share) of regulatory-related costs. There were no regulatory-related costs in the first quarter of 2015.
Navient reports core earnings because management makes its financial decisions based on such measures. The changes in GAAP net income are impacted by the same core earnings items discussed below, as well as changes in net income attributable to (1) restructuring and reorganization expense incurred in connection with the spin-off of Navient from SLM Corporation on April 30, 2014, (2) unrealized, mark-to-market gains/losses on derivatives and (3) goodwill and acquired intangible asset amortization and impairment. These items are recognized in GAAP results but have not been included in core earnings results. First-quarter 2016 GAAP results included gains of $54 million from derivative accounting treatment that are excluded from core earnings results, compared with gains of $166 million in the year-ago period. See “Differences between Core Earnings and GAAP” on page 14 for a complete reconciliation between GAAP net income and core earnings.
Federally Guaranteed Student Loans (FFELP)
In its FFELP loans segment, Navient acquires and finances FFELP loans.
Core earnings for the segment were $66 million in first-quarter 2016, compared with the year-ago quarter’s $85 million. This decrease was primarily the result of a $33 million decrease in net interest income due to declines in the balance of the portfolio and the net interest margin. This was partially offset by a decline in expenses.
The company acquired $1.5 billion of FFELP loans in the first-quarter 2016. At March 31, 2016, Navient held $95.0 billion of FFELP loans, compared with $102.4 billion of FFELP loans held at March 31, 2015.
Private Education Loans
In its private education loans segment, Navient acquires, finances and services private education loans.
Core earnings for the segment were $61 million in first-quarter 2016, compared with the year-ago quarter’s $77 million. This decrease is primarily the result of a $43 million decrease in net interest income due to declines in the balance of the portfolio and the net interest margin, partially offset by a $16 million decline in the provision for loan losses.
Core earnings first-quarter 2016 private education loan portfolio results vs. first-quarter 2015 are as follows:
- Delinquencies of 90 days or more of 3.2 percent of loans in repayment, down from 3.6 percent.
- Total delinquencies of 6.2 percent of loans in repayment, down from 6.9 percent.
- Annualized charge-off rate of 2.4 percent of average loans in repayment, down from 2.9 percent.
- Net interest margin of 3.56 percent, down from 3.74 percent.
- Provision for private education loan losses of $104 million, down from $120 million.
At March 31, 2016, Navient held $25.5 billion of private education loans, compared with $29.0 billion of private education loans held at March 31, 2015.
Navient Corporation earnings per share showed a decreasing trend of -3.1% for the current fiscal year. The company’s expected EPS growth rate for next fiscal year is 199%.Analysts project EPS growth over the next 5 years at 2.7%. It has EPS annual decline over the past 5 fiscal years of 0% when sales declined 0. It reported -4.2% sales drop, and -26.5% EPS decline in the last quarter.
The stock is trading at $13.71, up 69.68% from 52-week low of $8.2. The stock trades down -27.11% from its peak of $19.6 and 20.35% above the consensus price target of $16.5. Its volume clocked up at 5.07 million shares which is higher than the average volume of 3.55 million shares. Its market capitalization currently stands at $4.46B.
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