8-8-13 4:30 PM EDT | Email Article

- GAAP net income $2.17 per share

- Net income $1.53 per share, excluding derivative market value and foreign currency adjustments, up 35 percent from prior year

- 59 percent increase in government loan servicing volume

LINCOLN, Neb., Aug. 8, 2013 /PRNewswire/ --Nelnet (NYSE: NNI) today reported GAAP net income of $101.2 million, or $2.17 per share, for the second quarter of 2013, compared with GAAP net income of $41.4 million, or $0.87 per share, for the same period a year ago.

Excluding the derivative market value and foreign currency adjustments, net income was $71.1 million, or $1.53 per share, for the second quarter of 2013, compared with $53.5 million, or $1.13 per share, for the same period in 2012.  The company reported income from derivative market value and foreign currency adjustments of $30.1 million after tax, or $0.64 per share, for the second quarter of 2013, compared with an expense of $12.1 million after tax, or $0.26 per share, for the second quarter of 2012. 

Included in the second quarter of 2013 operating results is a gain of $7.4 million ($0.10 per share after tax) from the repurchase of $56.4 million of the company's own asset-backed debt securities.  During the second quarter of 2012, the company repurchased $17.6 million of its debt and recognized a gain of $0.9 million ($0.01 per share after tax). 

"We are pleased to be consistently delivering strong results over several quarters," said Mike Dunlap, Nelnet chairman and chief executive officer. "In this most recent quarter, our strong earnings were driven by an increase in net interest income earned on the company's loan portfolio, an increase in revenue from the company's fee-based businesses, and a decrease in operating expenses."

Nelnet operates four primary business segments, earning interest income on student loans in its Asset Generation and Management operating segment, and fee-based revenue in its Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, and Enrollment Services operating segments.

Asset Generation and Management

During the second quarter of 2013, the company purchased $403.0 million of student loans. As of June 30, 2013, net student loan assets were $24.6 billion. A substantial portion of Nelnet's federally insured student loans are financed for the life of the loan at terms the company currently believes will generate significant future cash flow of approximately $2.10 billion.

On July 1, 2010, the company stopped originating federally insured student loans after legislation eliminated the origination of FFEL Program loans. As a result, the company's student loan portfolio will run off over a period of approximately 20 years.

Historically low interest rates are continuing to provide an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the second quarter of 2013, Nelnet reported net interest income of $101.4 million, compared with $84.6 million for the same period a year ago. Net interest income included $36.1 million and $37.0 million of fixed rate floor income in the second quarters of 2013 and 2012, respectively.   

Fee-Based Operating Segments

The company reported total revenue from its fee-based operating segments in the second quarters of 2013 and 2012 of $103.3 million and $98.9 million, respectively. Net income from fee-based operating segments was $16.5 million for the second quarter of 2013, up from $10.0 million for the same period in 2012.  Certain intangible assets within the company's fee-based operating segments became fully amortized in 2012, which improved net income by $2.4 million during the second quarter of 2013, compared with the same period in 2012. 

Revenue from the company's Student Loan and Guaranty Servicing segment increased 15 percent, or $7.7 million, to $60.1 million for the second quarter of 2013, up from $52.4 million for the second quarter of 2012. The increase in revenue was the result of growth in servicing volume under the company's contract with the U.S. Department of Education (Department) and collection revenue from guaranty agencies.

As of June 30, 2013, the company was servicing $89.2 billion of loans for 4.4 million borrowers on behalf of the Department, compared with $56.0 billion of loans for 3.1 million borrowers as of June 30, 2012. Revenue from this contract increased to $22.1 million for the second quarter of 2013, up from $16.1 million for the same period a year ago.

In total, the company was servicing $116.8 billion of Federal Direct, FFELP, and private student loans as of June 30, 2013, up from $85.5 billion as of June 30, 2012.

For the second quarter of 2013, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $18.4 million, an increase of $1.5 million, or 9 percent, from the same period in 2012. The company reported second quarter of 2013 revenue from its Enrollment Services segment of $24.8 million, compared with $29.7 million for the same period in 2012.

Operating Expenses

The company reported consolidated operating expenses of $102.9 million for the second quarter of 2013, compared with $108.2 million for the same period in 2012.  Operating expenses include the amortization of intangible assets within the company's fee-based operating segments, which decreased $3.9 million ($2.4 million after tax) in the second quarter of 2013, compared with the same period in 2012. 

Board of Directors Approves Dividend

The Nelnet Board of Directors declared a third quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.10 per share. The dividend will be paid on Friday, September 13, 2013, to shareholders of record at the close of business on Friday, August 30, 2013.

The company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.

Non-GAAP Performance Measures

The company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results, including specifically, but not limited to, the impact of unrealized gains and losses resulting from changes in fair values of derivative instruments which do not qualify for "hedge treatment" under GAAP and foreign currency transaction gains or losses resulting from the re-measurement of the company's Euro-denominated bonds to U.S. dollars.  The company believes these point in time estimates of asset and liability values related to financial instruments that are subject to interest and currency rate fluctuations, and items whose timing and/or amount cannot be reasonably estimated in advance, affect the period to period comparability of the results of the company's fundamental business operations on a recurring basis.

Forward-looking and Cautionary Statements  

This press release contains forward-looking statements within the meaning of federal securities laws.  These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, among others, risks related to the company's student loan portfolios such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions. For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the second quarter ended June 30, 2013.  All information in this release is as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

 

 

Condensed Consolidated Statements of Income (unaudited)

(Dollars in thousands, except share data)






Three months ended


Six months ended


June 30,
2013


March 31,
2013


June 30,
2012


June 30, 2013


June 30, 2012

Interest income:










Loan interest

$

158,063


155,539


150,988


313,602


304,046

Investment interest

1,483


1,617


1,055


3,100


2,150

   Total interest income

159,546


157,156


152,043


316,702


306,196

Interest expense:










Interest on bonds and notes payable

58,127


58,358


67,476


116,485


136,773

   Net interest income

101,419


98,798


84,567


200,217


169,423

Less provision for loan losses

5,000


5,000


7,000


10,000


13,000

    Net interest income after provision for loan losses

96,419


93,798


77,567


190,217


156,423

Other income (expense):










Loan and guaranty servicing revenue

60,078


55,601


52,391


115,679


101,879

Tuition payment processing and campus commerce revenue

18,356


23,411


16,834


41,767


38,747

Enrollment services revenue

24,823


28,957


29,710


53,780


61,374

Other income

12,288


9,416


8,800


21,704


19,754

Gain on sale of loans and debt repurchases

7,355


1,407


935


8,762


935

Derivative settlements, net

(8,357)


(8,184)


(2,086)


(16,541)


(1,859)

Derivative market value and foreign currency adjustments, net

48,545


9,256


(19,532)


57,801


(34,939)

   Total other income

163,088


119,864


87,052


282,952


185,891

Operating expenses:










Salaries and benefits

47,432


47,905


48,703


95,337


97,798

Cost to provide enrollment services

16,787


19,642


20,374


36,429


42,052

Depreciation and amortization

4,320


4,377


8,226


8,697


16,362

Other

34,365


34,941


30,908


69,306


63,171

   Total operating expenses

102,904


106,865


108,211


209,769


219,383

    Income before income taxes

156,603


106,797


56,408


263,400


122,931

Income tax expense

54,746


38,447


14,878


93,193


38,108

Net income

101,857


68,350


41,530


170,207


84,823

   Net income attributable to noncontrolling interest

614


271


136


885


288

Net income attributable to Nelnet, Inc.

$

101,243


68,079


41,394


169,322


84,535

Earnings per common share:










Net income attributable to Nelnet, Inc. shareholders - basic and diluted

$

2.17


1.46


0.87


3.63


1.78

Weighted average common shares outstanding -    basic and diluted

46,626,853


46,658,031


47,434,915


46,642,356


47,369,776

 

 

Condensed Consolidated Balance Sheets

(Dollars in thousands)








As of


As of


As of


June 30, 2013


December 31, 2012


June 30, 2012


(unaudited)




(unaudited)

Assets:






Student loans receivable, net

$

24,575,636


24,830,621


23,501,382

Cash, cash equivalents, and investments

245,825


149,343


130,310

Restricted cash and investments

763,909


911,978


976,708

Goodwill and intangible assets, net

124,849


126,511


136,124

Other assets

592,958


589,442


524,618

      Total assets

$

26,303,177


26,607,895


25,269,142

Liabilities:






Bonds and notes payable

$

24,690,952


25,098,835


23,836,250

Other liabilities

292,630


343,847


287,994

      Total liabilities

24,983,582


25,442,682


24,124,244

Equity:






Total Nelnet, Inc. shareholders' equity

1,319,482


1,165,208


1,144,605

Noncontrolling interest

113


5


293

      Total equity

1,319,595


1,165,213


1,144,898

         Total liabilities and equity

$

26,303,177


26,607,895


25,269,142

(code #: nnif)

SOURCE Nelnet

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