Navient Sees Q2 Earnings Below Street

(RTTNews) - Navient Corp (NAVI), a provider of financial products and services, on Monday said it expects it second-quarter core earnings of about $0.40 per share, and net earnings of about $0.47 per share.

Analysts polled by Thomson Reuters currently expect the company to report earnings of $0.55 per share for the second quarter. Analysts' estimates typically exclude one-time items.

Also, the company said it has revised its guidance for full-year 2015 core earnings to about $1.85 per share, while analysts currently expect $2.20 per share for 2015.

"The changes to our guidance reflect marketplace conditions for private loan portfolio purchases and cost of funds, as well as a conservative assessment of default trends for a small and declining segment of our private education loan portfolio," said CEO Jack Remondi.

"While we have removed private education loan acquisitions from our guidance, we continue to believe that there will be opportunities for Navient to acquire loans in 2015 and beyond," Remondi added.

Navient said key factors affecting its guidance include:

- The company removing from its 2015 guidance, additional private loan acquisitions, citing aggressive market pricing for private education loan portfolios. The company also has reduced its forecast for net interest income as a result of increased cost of funds.

Consequently, for the second half of 2015, the net interest margin is projected to range between 3.83 percent and 3.85 percent for private education loans and between 0.81 percent and 0.85 percent for FFELP loans.

The company expects second quarter net interest margin to be 3.55 percent for private education loans and 0.81 percent for FFELP loans. The private education loan net interest margin in the second quarter was also impacted by reduced interest income. - Also, a segment of higher risk private education loan borrowers who returned to school during the recession deferred repayment on their existing loans and exited deferment status in 2014. These loans are experiencing unfavorable credit trends compared to loans that exited deferment in prior years.

According to the company, loan balances exiting deferment increased to $2.5 billion in 2014, as compared to $1.8 billion in 2013 and $2.1 billion in 2012. For 2015, these figures are projected to decline to $1.7 billion.

As a result, the company increased its provision for these loans and now projects a private education loan loss provision of $191 million for the quarter and $575 to $600 million for the year. - The company also said that due to the recent performance in its long-term recovery rate on defaulted loans, it changed its recovery rate assumption on charged-off loans to 21 percent. The company reduced the balance of the receivable for partially charged-off loans by $330 million to reflect this update. Because this item was previously reserved for, this change did not impact the loan loss provision.

During the quarter, the company launched a restructuring initiative to simplify and streamline its management structure. About $29 million of restructuring expenses in the second quarter are included in GAAP results but excluded from core earnings.

Navient will release its second-quarter results after market close on July 21.