November 6, 2014

Nelnet Reports Third Quarter 2014 Results

- GAAP net income $1.84 per share, $1.45 per share excluding adjustments
- Servicing $130.8 billion student loans for 5.8 million borrowers under government contract
- 32 percent increase in payment processing revenue driven by RenWeb acquisition

LINCOLN, Neb., Nov. 6, 2014 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $85.2 million, or $1.84 per share, for the third quarter of 2014, compared with GAAP net income of $62.8 million, or $1.35 per share, for the same period a year ago.

Excluding derivative market value and foreign currency adjustments, net income was $67.2 million, or $1.45 per share, for the third quarter of 2014, compared with $69.0 million, or $1.48 per share, for the same period in 2013.  The company reported income from derivative market value and foreign currency adjustments of $18.0 million after tax, or $0.39 per share, for the third quarter of 2014, compared with an expense of $6.2 million after tax, or $0.13 per share, for the third quarter of 2013.

"We are pleased to be delivering strong financial results consistently over many quarters," said Jeff Noordhoek, Nelnet Chief Executive Officer. "In the third quarter, we continued the trend by reporting solid earnings, growing our servicing volume, and maximizing the value of our loan portfolio. As a result, we are strategically positioned to provide excellent customer experiences and to deploy capital in existing and new businesses."

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.

For the quarter ended September 30, 2014, the company experienced strong performance from its student loan portfolio, which offset the expected decrease in net income from the servicing segment.

Asset Generation and Management

Historically low interest rates continue to provide the opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio.  For the third quarter of 2014, Nelnet reported net interest income of $117.5 million, compared with $104.9 million for the same period a year ago.  Net interest income included $49.2 million and $37.8 million of fixed rate floor income in the third quarters of 2014 and 2013, respectively.

Year to date, the company has purchased $5.6 billion of student loans, bringing its total student loan portfolio to $28.7 billion as of September 30, 2014.

Student Loan and Guaranty Servicing

Under the company's servicing contract with the U.S. Department of Education (Department), the number of borrowers serviced increased 13 percent as of September 30, 2014 and the revenue increased 20 percent for the third quarter of 2014, when compared with September 30, 2013 and the third quarter of 2013, respectively. The company was servicing $130.8 billion of loans for 5.8 million borrowers on behalf of the Department as of September 30, 2014, compared with $106.9 billion of loans for 5.1 million borrowers as of September 30, 2013. Revenue from this contract increased to $31.2 million for the third quarter of 2014, up from $26.0 million for the same period a year ago. The growth in government servicing revenue partially offset the continued expected run off of the company's commercial servicing portfolio and anticipated impact of legislative changes that reduced the revenue earned by guaranty agencies for collections. As a result, total revenue from the company's Student Loan and Guaranty Servicing segment decreased 18 percent, or $11.9 million, to $52.7 million for the third quarter of 2014, down from $64.6 million for the third quarter of 2013. As the volume of loans serviced under the Department servicing contract continues to grow and loans serviced under the legacy commercial programs continue to run off, the company expects the operating margins to tighten accordingly.

Tuition Payment Processing and Campus Commerce

For the third quarter of 2014, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $26.4 million, an increase of $6.5 million, or 32 percent, from the same period in 2013.  The increase in revenue was the result of the acquisition of RenWeb in June 2014, in addition to increases in managed tuition payment plans, campus commerce transaction volume, and new school customers.  Operating margin for this segment decreased in the third quarter of 2014 as compared to the same period in 2013 due to lower margins on new services and the amortization of intangible assets from recent acquisitions.   Amortization of intangible assets in this segment was $2.0 million and $0.8 million for the third quarters of 2014 and 2013, respectively.

Operating Expenses

The company reported consolidated operating expenses of $117.4 million for the third quarter of 2014, compared with $107.6 million for the same period in 2013.

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 15, 2014, to shareholders of record at the close of business on Monday, December 1, 2014.

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, 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 portfolio such as interest rate basis and repricing risk, the use of derivatives to manage exposure to interest rate fluctuations, and the uncertain nature of expected benefits from recent FFELP loan purchases; the company's funding requirements to satisfy asset financing needs; risks related to the company's ability to maintain and increase volumes under the company's 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 and budgets; risks related to the recent reduction in government payments to guaranty agencies to rehabilitate defaulted FFELP loans and services in support of those activities; 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, 2014.  All forward-looking statements in this release are 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

(Dollars in thousands, except share data)

(unaudited)










Three months ended


Nine months ended


September 30,
 2014


June 30,
 2014


September 30,
 2013


September 30, 2014


September 30, 2013

Interest income:










Loan interest

$

187,862


175,466


158,675


520,224


472,277

Investment interest

1,562


1,482


1,562


5,023


4,662

    Total interest income

189,424


176,948


160,237


525,247


476,939

Interest expense:










Interest on bonds and notes payable

71,937


69,235


55,315


201,176


171,800

    Net interest income

117,487


107,713


104,922


324,071


305,139

Less provision for loan losses

2,000


1,500


5,000


6,000


15,000

Net interest income after provision for loan losses

115,487


106,213


99,922


318,071


290,139

Other income (expense):










Loan and guaranty servicing revenue

52,659


66,460


64,582


183,876


180,261

Tuition payment processing and campus commerce revenue

26,399


21,834


19,927


73,468


61,694

Enrollment services revenue

22,936


20,145


22,563


65,092


76,343

Other income

7,650


15,315


8,613


41,096


30,317

Gain on sale of loans and debt repurchases


18


2,138


57


10,900

Derivative settlements, net

(4,834)


(6,214)


(6,688)


(17,277)


(23,229)

Derivative market value and foreign currency adjustments, net

29,037


7,784


(9,960)


38,785


47,841

    Total other income

133,847


125,342


101,175


385,097


384,127

Operating expenses:










Salaries and benefits

61,098


53,888


48,712


167,470


144,049

Cost to provide enrollment services

14,178


13,311


14,668


41,964


51,097

Depreciation and amortization

5,493


5,214


4,340


15,490


13,037

Other

36,676


40,377


39,887


112,680


109,193

    Total operating expenses

117,445


112,790


107,607


337,604


317,376

    Income before income taxes

131,889


118,765


93,490


365,564


356,890

Income tax expense

46,513


43,078


30,444


130,202


123,637

Net income

85,376


75,687


63,046


235,362


233,253

Net income attributable to noncontrolling interest

157


693


216


1,363


1,101

Net income attributable to Nelnet, Inc.

$

85,219


74,994


62,830


233,999


232,152











Earnings per common share:










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

$

1.84


1.61


1.35


5.03


4.98

Weighted average common shares outstanding -    basic and diluted

46,432,680


46,529,377


46,496,612


46,496,309


46,593,241

 

 

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)














As of


As of


As of


September 30, 2014


December 31, 2013


September 30, 2013

Assets:






Student loans receivable, net

$

28,701,344


25,907,589


24,729,592

Cash, cash equivalents, and investments

222,359


255,307


284,054

Restricted cash and investments

940,343


902,699


768,621

Goodwill and intangible assets, net

169,076


123,250


124,050

Other assets

665,527


582,004


630,611

    Total assets

$

30,698,649


27,770,849


26,536,928

Liabilities:






Bonds and notes payable

$

28,737,456


25,955,289


24,858,455

Other liabilities

303,636


371,570


300,560

    Total liabilities

29,041,092


26,326,859


25,159,015

Equity:






Total Nelnet, Inc. shareholders' equity

1,657,289


1,443,662


1,377,863

Noncontrolling interest

268


328


50

  Total equity

1,657,557


1,443,990


1,377,913

    Total liabilities and equity

$

30,698,649


27,770,849


26,536,928








(code #: nnif)

SOURCE Nelnet

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