11-7-13 4:49 PM EST | Email Article

- GAAP net income $1.35 per share; $1.48 per share excluding adjustments

- Received notice of government's intent to extend servicing contract

- Purchased $2.7 billion of FFELP student loans through October 31

LINCOLN, Neb., Nov. 7, 2013 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $62.8 million, or $1.35 per share, for the third quarter of 2013, compared with GAAP net income of $36.8 million, or $0.78 per share, for the same period a year ago.

Excluding the derivative market value and foreign currency adjustments, net income was $69.0 million, or $1.48 per share, for the third quarter of 2013, compared with $53.1 million, or $1.12 per share, for the same period in 2012.  The company reported an expense from derivative market value and foreign currency adjustments of $6.2 million after tax, or $0.13 per share, for the third quarter of 2013, compared with an expense of $16.3 million after tax, or $0.34 per share, for the third quarter of 2012. 

The increase in net income in 2013 compared with 2012 was due to an increase in net interest income earned on the company's student loan portfolio and an increase in revenue and operating margins from fee-based businesses.

"We are consistently delivering strong results and making progress toward key objectives: Growing and driving diversification around our core businesses, operating with financial discipline, and improving the customer's experiences," said Mike Dunlap, Nelnet chairman and chief executive officer. "More specifically, we are excited the U.S. Department of Education has indicated it intends to exercise its option to extend our servicing agreement for another five years.  We look forward to our continued opportunity to serve millions of borrowers on behalf of the Department."

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

A substantial portion of Nelnet's student loans are financed for the life of the loan at terms the company has estimated (as of September 30, 2013) will generate significant future cash flow of approximately $2.10 billion.  During the third quarter of 2013, the company purchased $1.1 billion of student loans. As of September 30, 2013, net student loan assets were $24.7 billion.  On October 31, 2013, the company purchased rights to the residual interest in $1.6 billion of securitized student loans. 

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 third quarter of 2013, Nelnet reported net interest income of $104.9 million, compared with $85.3 million for the same period a year ago. Net interest income included $37.8 million and $34.7 million of fixed rate floor income in the third quarters of 2013 and 2012, respectively.   Core student loan spread increased to 1.57 percent for the third quarter of 2013, compared with 1.44 percent for the same period in 2012.  

Fee-Based Operating Segments

The company reported total revenue from its fee-based operating segments in the third quarters of 2013 and 2012 of $107.1 million and $101.9 million, respectively. Net income from fee-based operating segments was $17.6 million for the third quarter of 2013, up from $13.3 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 third quarter of 2013, compared with the same period in 2012.  

Revenue from the company's Student Loan and Guaranty Servicing segment increased 21 percent, or $11.3 million, to $64.6 million for the third quarter of 2013, up from $53.3 million for the third 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 September 30, 2013, the company was servicing $106.9 billion of loans for 5.1 million borrowers on behalf of the Department, compared with $63.6 billion of loans for 3.6 million borrowers as of September 30, 2012. Revenue from this contract increased to $26.0 million for the third quarter of 2013, up from $19.1 million for the same period a year ago.

The Department ranks the performance of its servicers quarterly based on five performance metrics to determine the loan servicing volume allocation each servicer will receive in the following contract year.  Based on these performance metrics, the company achieved the first place ranking for the second consecutive contract year and will continue to be allocated 30 percent of new loan volume originated by the Department during the fifth year of the contract. 

The servicing contract with the Department expires in June 2014, with a five-year renewal at the option of the Department.  On October 25, 2013, the company received a letter from the Department notifying the company of the Department's intent to exercise its optional ordering period to extend the contract for an additional five years through June 16, 2019, with actual extension subject to the availability of government funds.

For the third quarter of 2013, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $19.9 million, an increase of $2.0 million, or 11 percent, from the same period in 2012. The company reported third quarter of 2013 revenue from its Enrollment Services segment of $22.6 million, compared with $30.7 million for the same period in 2012.

Operating Expenses

The company reported consolidated operating expenses of $107.6 million for the third quarter of 2013, compared with $104.9 million for the same period in 2012.  

Board of Directors Approves Dividend

The Nelnet Board of Directors declared a fourth 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 Monday, December 16, 2013, to shareholders of record at the close of business on Monday, December 2, 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.  Accordingly, the company provides operating results excluding these items for comparability purposes. 

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; risks related to the availability of government funds and actual extension of the company's loan servicing contract with the Department for an additional five years and the company's ability to maintain and increase volumes under that contract 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 third quarter ended September 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.

 

 

Consolidated Statements of Income (unaudited)

(Dollars in thousands, except share data)








Three months ended



Nine months ended



September 30,

2013


June 30,

2013


September 30,

2012


September 30, 2013


September 30, 2012

Interest income:










Loan interest

$

158,675



158,063



150,528



472,277



454,574


Investment interest

1,562



1,483



1,140



4,662



3,290


Total interest income

160,237



159,546



151,668



476,939



457,864


Interest expense:










Interest on bonds and notes payable

55,315



58,127



66,402



171,800



203,175


Net interest income

104,922



101,419



85,266



305,139



254,689


Less provision for loan losses

5,000



5,000



5,000



15,000



18,000


Net interest income after provision for loan losses

99,922



96,419



80,266



290,139



236,689


Other income (expense):










Loan and guaranty servicing revenue

64,582



60,078



53,285



180,261



155,164


Tuition payment processing and campus commerce revenue

19,927



18,356



17,928



61,694



56,675


Enrollment services revenue

22,563



24,823



30,661



76,343



92,035


Other income

8,613



12,288



12,699



30,317



32,453


Gain on sale of loans and debt repurchases

2,138



7,355



195



10,900



1,130


Derivative settlements, net

(6,688)



(8,357)



(5,051)



(23,229)



(6,910)


Derivative market value and foreign currency adjustments, net

(9,960)



48,545



(26,224)



47,841



(61,163)


Total other income

101,175



163,088



83,493



384,127



269,384


Operating expenses:










Salaries and benefits

48,712



47,432



46,395



144,049



144,193


Cost to provide enrollment services

14,668



16,787



20,151



51,097



62,203


Depreciation and amortization

4,340



4,320



8,402



13,037



24,764


Other

39,887



34,365



29,989



109,193



93,160


Total operating expenses

107,607



102,904



104,937



317,376



324,320


Income before income taxes

93,490



156,603



58,822



356,890



181,753


Income tax expense

30,444



54,746



21,870



123,637



59,978


Net income

63,046



101,857



36,952



233,253



121,775


  Net income attributable to noncontrolling interest

216



614



124



1,101



412


Net income attributable to Nelnet, Inc.

$

62,830



101,243



36,828



232,152



121,363


Earnings per common share:










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

$

1.35



2.17



0.78



4.98



2.56


Weighted average common shares outstanding -    basic and diluted

46,496,612



46,626,853



47,460,308



46,593,241



47,399,207


 

 

Condensed Consolidated Balance Sheets

(Dollars in thousands)








As of


As of


As of


September 30, 2013


December 31, 2012


September 30, 2012


(unaudited)




(unaudited)

Assets:






Student loans receivable, net

$

24,701,112



24,830,621



22,559,341


Non-federally insured student loans receivable - held for sale

28,480






Cash, cash equivalents, and investments

284,054



149,343



186,534


Restricted cash and investments

768,621



911,978



1,003,888


Goodwill and intangible assets, net

124,050



126,511



131,478


Other assets

630,611



589,442



527,603


Total assets

$

26,536,928



26,607,895



24,408,844


Liabilities:






Bonds and notes payable

$

24,858,455



25,098,835



22,884,096


Other liabilities

300,560



343,847



348,510


Total liabilities

25,159,015



25,442,682



23,232,606


Equity:






Total Nelnet, Inc. shareholders' equity

1,377,863



1,165,208



1,175,821


Noncontrolling interest

50



5



417


Total equity

1,377,913



1,165,213



1,176,238


  Total liabilities and equity

$

26,536,928



26,607,895



24,408,844


(code #:  nnif)

 

SOURCE Nelnet

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