February 28, 2012

Nelnet Reports Fourth Quarter 2011 Results

- Base net income of $1.29 per share for the quarter
- Ranked first through 2 quarters of Department servicing metrics
- Tuition Payment Processing and Campus Commerce net income increased 35 percent, revenue increased 12 percent
- Repurchased 1.4 million shares of common stock in the year

LINCOLN, Neb., Feb. 28, 2012 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported base net income of $60.5 million, or $1.29 per share, for the fourth quarter of 2011, compared with $80.0 million, or $1.66 per share, for the same quarter a year ago. Base net income excludes a $26.6 million impairment charge recognized in the fourth quarter of 2010.

Base net income includes pre-tax gains of $49.8 million, or $0.64 per share after tax, on the sale of loans and debt repurchases for the fourth quarter of 2010, compared with minimal gains from these items recorded for the fourth quarter of 2011. Excluding these items, the company reported base net income of $60.5 million, or $1.29 per share, for the fourth quarter of 2011, compared with $49.1 million, or $1.02 per share, for the same period in 2010.

"We are excited by our financial performance in 2011 and the opportunities we have in front of us in 2012 to add value to our customers," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "Our strong results were driven by continued low interest rates, sound portfolio management, and the growth of our loan servicing and payment processing businesses. In 2012, we will continue to focus on improving our customers' experiences, growing and extending our core businesses, and operating with financial discipline."

Growing our core and driving diversification

Revenue from the company's Student Loan and Guaranty Servicing segment increased 36 percent, or $13.4 million, from $37.6 million for the fourth quarter of 2010 to $51.0 million for the fourth quarter of 2011. The increase in revenue is primarily the result of new remote hosting fees and growth in servicing volume for the Department of Education (Department).  

The Student Loan and Guaranty Servicing segment includes revenue from monthly fees earned from third parties using Nelnet's new hosted servicing software solution to service Federal Direct Loan Program and Federal Family Education Loan Program loans. As of December 31, 2011, 9.6 million borrowers were hosted on the company's solution.

At December 31, 2011, the company was servicing $46.1 billion of loans for 3 million borrowers on behalf of the Department, compared with $30.3 billion of loans for 2.8 million borrowers at December 31, 2010. Revenue from this contract increased to $14.0 million for the fourth quarter of 2011, up from $11.6 million for the same period a year ago.

The Department allocates new loan volume among its four servicers based on performance metrics, including customer satisfaction surveys and loan default metrics. Based on last year's performance rankings, the company is allocated 16 percent of the new loan volume originated by the Department from August 15, 2011, through August 14, 2012. Because of improvement in its performance rankings, in particular loan default metrics, Nelnet ranks first overall through the first two of four quarterly rankings for the year. If the company maintains these improved rankings, it would expect to receive significantly more servicing volume for the next academic year.

For the fourth quarter of 2011, net income from the company's Tuition Payment Processing and Campus Commerce segment was $2.5 million on $16.9 million of revenue. Compared with the fourth quarter of 2010, net income for this segment increased 35 percent and revenue increased 12 percent.  

Maximizing the value of existing portfolio

At December 31, 2011, net student loan assets were $24.3 billion. The majority of Nelnet's federal student loans are financed for the life of the loan at rates the company believes will generate significant future cash flow in excess of $1.8 billion.

Historically low interest rates are continuing to provide the company opportunities to generate substantial near-term value and cash flow from its student loan portfolio. For the fourth quarter of 2011, Nelnet reported net interest income of $93.3 million, compared with $96.3 million for the same period a year ago.

Operating with financial discipline

Nelnet reported operating expenses of $102.7 million in the fourth quarter of 2011, compared with $104.7 million (excluding impairment charges of $26.6 million) in the same period in 2010. Over time, the company anticipates increasing operating expenses with discipline to support revenue growth in its fee-based businesses.

Repurchasing common stock

During the three-month period ended December 31, 2011, Nelnet repurchased and retired 314,538 shares of Class A common stock, under the company's stock repurchase program, for $6.0 million, or an average price of $19.09 per share. In 2011, the company repurchased 1,436,423 shares of Class A common stock for $27.1 million, or an average price of $18.89 per share.

GAAP net income and year-end results

Nelnet reported GAAP net income for the fourth quarter of 2011 of $64.9 million, or $1.37 per diluted share, compared with $85.1 million, or $1.75 per diluted share, for the fourth quarter of 2010. For the year ended December 31, 2011, the company reported GAAP net income of $204.3 million, or $4.23 per diluted share, compared with $189.0 million, or $3.81 per diluted share for 2010.  

For the year ended December 31, 2011, the company reported base net income of $226.0 million, or $4.72 per share, compared with $255.2 million, or $5.20 per share, for 2010. Base net income excludes restructure, impairment, and litigation charges recognized in 2010.

Base net income includes pre-tax gains of $8.3 million, or $0.11 per share after tax, and $78.6 million, or $0.99 per share after tax, on the sale of loans and debt repurchases for the years ended December 31, 2011 and 2010, respectively. Excluding these items, the company reported base net income of $220.8 million, or $4.61 per share, for 2011, compared with $206.5 million, or $4.21 per share, for 2010.

While base net income is not a substitute for reported results under GAAP, base net income is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. The company utilizes base net income in operating its business because base net income permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the company's performance that arises from certain items that are primarily affected by factors beyond the control of management.

A description of base net income and a reconciliation of GAAP net income to base net income can be found in financial information supplemental to this earnings release online at www.nelnetinvestors.com/results.cfm.

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 portfolio 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 student loan and educational credit and services marketplace resulting from the implementation of or changes in applicable laws, regulations, and government programs; changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families; 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 fourth quarter and year ended December 31, 2011 .  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

(Dollars in thousands, except share data)






Three months ended


Year ended






December 31,


September 30,


December 31,


December 31,


December 31,






2011


2011


2010


2011


2010






(unaudited)


(unaudited)


(unaudited)



















Interest income:













Loan interest

$

157,798


158,809


159,248


610,781


649,406


Amortization/accretion of loan premiums/discounts













and deferred origination costs


(1,359)


(1,854)


(10,180)


(21,095)


(50,731)


Investment interest


914


672


1,782


3,168


5,256



Total interest income


157,353


157,627


150,850


592,854


603,931















Interest expense:












Interest on bonds and notes payable


64,062


60,866


54,515


228,289


232,860

















Net interest income


93,291


96,761


96,335


364,565


371,071

Less provision for loan losses


7,000


5,250


6,000


21,250


22,700

















Net interest income after provision for loan losses


86,291


91,511


90,335


343,315


348,371















Other income (expense):












Loan and guaranty servicing revenue


50,960


42,549


37,607


175,657


158,584


Tuition payment processing and campus commerce revenue

16,893


16,774


15,120


67,797


59,824


Enrollment services revenue


28,782


35,505


34,784


130,470


139,897


Other income


12,264


3,931


6,122


29,513


31,310


Gain on sale of loans and debt repurchases


33



49,810


8,340


78,631


Derivative market value and foreign currency adjustments


11,778


(13,888)


39,518


(17,807)


3,587


Derivative settlements, net


(423)


257


(5,878)


(7,840)


(14,264)



Total other income


120,287


85,128


177,083


386,130


457,569















Operating expenses:












Salaries and benefits


47,026


44,132


43,320


177,951


166,011


Cost to provide enrollment services


17,744


23,825


21,802


86,548


91,647


Depreciation and amortization


8,282


7,917


8,908


29,744


38,444


Impairment expense




26,599



26,599


Restructure expense






6,020


Litigation settlement






55,000


Other expenses


29,639


28,904


30,645


113,415


119,765



Total operating expenses


102,691


104,778


131,274


407,658


503,486


















Income before income taxes


103,887


71,861


136,144


321,787


302,454















Income tax expense


39,008


24,410


51,057


117,452


113,420


















Net income

$

64,879


47,451


85,087


204,335


189,034















Earnings per common share:


























Net earnings - basic

$

1.37


0.98


1.76


4.24


3.82
















Net earnings - diluted

$

1.37


0.98


1.75


4.23


3.81















Weighted average common shares outstanding:


























Basic



46,996,193


48,059,747


48,118,000


47,860,824


49,127,934
















Diluted



47,173,374


48,253,888


48,318,807


48,047,669


49,326,686



Condensed Consolidated Balance Sheets

(Dollars in thousands)





As of


As of


As of





December 31,


September 30,


December 31,





2011


2011


2010







(unaudited)












Assets:








Student loans receivable, net

$

24,297,876


24,641,614


23,948,014


Student loans receivable - held for sale




84,987


Cash, cash equivalents, and investments


93,350


141,928


327,037


Restricted cash and investments


724,131


653,518


757,285


Goodwill


117,118


117,118


117,118


Intangible assets, net


28,374


33,074


38,712


Other assets


591,368


648,975


620,739



Total assets

$

25,852,217


26,236,227


25,893,892










Liabilities:








Bonds and notes payable

$

24,434,540


24,926,512


24,672,472


Other liabilities


351,472


298,232


314,787



Total liabilities


24,786,012


25,224,744


24,987,259










Shareholders' equity


1,066,205


1,011,483


906,633












Total liabilities and shareholders' equity

$

25,852,217


26,236,227


25,893,892



(Code #: nnif)

SOURCE Nelnet

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