February 26, 2015

Nelnet Reports Fourth Quarter 2014 Results

- GAAP net income $1.59 per share, $1.60 per share excluding adjustments
- Servicing $133.6 billion student loans for 5.9 million borrowers under government contract
- 30 percent increase in payment processing revenue driven by RenWeb acquisition
- Purchased $6.1 billion of loans during 2014

LINCOLN, Neb., Feb. 26, 2015 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $73.6 million, or $1.59 per share, for the fourth quarter of 2014, compared with GAAP net income of $70.5 million, or $1.52 per share, for the same period a year ago.

Excluding derivative market value and foreign currency adjustments, net income was $74.3 million, or $1.60 per share, for the fourth quarter of 2014, compared with $70.1 million, or $1.51 per share, for the same period in 2013.  The company reported an expense from derivative market value and foreign currency adjustments of $0.7 million after tax, or $0.01 per share, for the fourth quarter of 2014, compared with income of $0.5 million after tax, or $0.01 per share, for the fourth quarter of 2013.

"We achieved record earnings in 2014 and are positioned well for success this year," said Jeff Noordhoek, chief executive officer of Nelnet.  "Our focus continues to be on enhancing our customer experiences, growing in and around our servicing and payment processing businesses, and deploying capital effectively. In 2015, we expect to be able to make investments in diversification and private education loan partnerships, as well as continuing to find federal student loan portfolios to acquire."

Nelnet operates three 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 and Tuition Payment Processing and Campus Commerce operating segments.

The increase in earnings for the fourth quarter of 2014 compared with the same period in 2013 was due to an increase in net interest income earned from the company's student loan portfolio and an increase in income from repurchases of the company's debt.  This increase was partially offset by the expected decrease in net income from the company's Student Loan and Guaranty Servicing operating segment and a decrease in income from gains on investments and investment advisory fees.

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 fourth quarter of 2014, Nelnet reported net interest income of $112.5 million, compared with $108.7 million for the same period a year ago.  Net interest income included $49.2 million and $38.8 million of fixed rate floor income, net of settlements on derivatives, in the fourth quarters of 2014 and 2013, respectively.

In 2014, Nelnet purchased $6.1 billion of student loans, bringing its total student loan portfolio to $28.0 billion as of December 31, 2014.

The company intends to use its strong liquidity position to capitalize on market opportunities to acquire additional legacy Federal Family Education Loan Program (FFELP) and private education loans.

On January 29, 2015, the company acquired a $582.8 million portfolio of FFELP loans.  In addition, Nelnet has entered into agreements to purchase private education loans originated from certain forward-flow loan partners.

Student Loan and Guaranty Servicing

Under the company's servicing contract with the U.S. Department of Education (Department), the volume of student loans serviced and the number of borrowers serviced increased 21 percent and 11 percent, respectively, as of December 31, 2014, when compared with the end of 2013. The company was servicing $133.6 billion of loans for 5.9 million borrowers on behalf of the Department as of December 31, 2014, compared with $110.5 billion of loans for 5.3 million borrowers as of December 31, 2013. Revenue from this contract increased 12 percent to $32.3 million for the fourth quarter of 2014, up from $28.9 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 the impact of federal legislative changes that reduced the revenue earned by guaranty agencies for collections. As a result of these changes and run-off, total revenue from the company's Student Loan and Guaranty Servicing segment decreased 10 percent, or $6.6 million, to $56.5 million for the fourth quarter of 2014, from $63.2 million for the fourth 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.

Tuition Payment Processing and Campus Commerce

For the fourth quarter of 2014, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $24.7 million, an increase of $5.7 million, or 30 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 growth in managed tuition payment plans, campus commerce transaction volume, and new school customers.  Operating margin for this segment decreased in the fourth quarter of 2014, compared with the same period in 2013, due to lower margins on new services and the amortization of intangible assets from the acquisition of RenWeb.  Amortization of intangible assets in this segment was $2.1 million and $0.8 million for the fourth quarters of 2014 and 2013, respectively.

Operating Expenses

The company reported consolidated operating expenses of $114.9 million for the fourth quarter of 2014, compared with $111.6 million for the same period in 2013.

Year End Results

GAAP net income for the year ended December 31, 2014 was $307.6 million, or $6.62 per share, compared with GAAP net income of $302.7 million or $6.50 per share, for 2013.  Excluding derivative market value and foreign currency adjustments, net income in 2014 was $284.2 million, or $6.12 per share, compared with $272.5 million, or $5.85 per share, for 2013.  The derivative market value and foreign currency adjustments were income of $23.4 million, or $0.50 per share, during 2014, compared with income of $30.1 million, or $0.65 per share, for 2013.

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 and initiatives to purchase additional FFELP and private education loans; 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 fourth quarter ended December 31, 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


Year ended


December 31,
 2014


September 30,
 2014


December 31,
 2013


December 31,
2014


December 31,
2013

Interest income:















Loan interest

$

182,783



187,862



165,865



703,007



638,142


Investment interest

1,770



1,562



2,006



6,793



6,668


Total interest income

184,553



189,424



167,871



709,800



644,810


Interest expense:















Interest on bonds and notes payable

72,061



71,937



59,135



273,237



230,935


Net interest income

112,492



117,487



108,736



436,563



413,875


Less provision for loan losses

3,500



2,000



3,500



9,500



18,500


Net interest income after provision for loan losses

108,992



115,487



105,236



427,063



395,375


Other income (expense):















Loan and guaranty servicing revenue

56,538



52,659



63,167



240,414



243,428


Tuition payment processing, school information, and campus commerce revenue

24,688



26,399



18,988



98,156



80,682


Enrollment services revenue

17,791



22,936



21,735



82,883



98,078


Other income

12,906



7,650



15,981



54,002



46,298


Gain on sale of loans and debt repurchases, net

3,594





799



3,651



11,699


Derivative settlements, net

(4,566)



(4,834)



(6,407)



(21,843)



(29,636)


Derivative market value and foreign currency adjustments, net

(1,082)



29,037



752



37,703



48,593


Total other income

109,869



133,847



115,015



494,966



499,142


Operating expenses:















Salaries and benefits

60,609



61,098



52,120



228,079



196,169


Cost to provide enrollment services

11,343



14,178



13,864



53,307



64,961


Depreciation and amortization

5,644



5,493



5,274



21,134



18,311


Other

37,310



36,676



40,349



149,990



149,542


Total operating expenses

114,906



117,445



111,607



452,510



428,983


Income before income taxes

103,955



131,889



108,644



469,519



465,534


Income tax expense

30,036



46,513



37,556



160,238



161,193


Net income

73,919



85,376



71,088



309,281



304,341


Net income attributable to noncontrolling interest

308



157



568



1,671



1,669


Net income attributable to Nelnet, Inc.

$

73,611



85,219



70,520



307,610



302,672


Earnings per common share:















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

$

1.59



1.84



1.52



6.62



6.50


Weighted average common shares outstanding -    basic and diluted

46,390,402



46,432,680



46,502,028



46,469,615



46,570,314


 

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)








As of


As of


As of


December 31, 2014


September 30, 2014


December 31, 2013

Assets:








Student loans receivable, net

$

28,005,195



28,701,344



25,907,589


Cash, cash equivalents, and investments

279,604



222,359



255,307


Restricted cash and investments

968,928



940,343



902,699


Goodwill and intangible assets, net

168,782



169,076



123,250


Other assets

675,634



665,527



582,004


Total assets

$

30,098,143



30,698,649



27,770,849


Liabilities:









Bonds and notes payable

$

28,027,350



28,737,456



25,955,289


Other liabilities

345,115



303,636



371,570


Total liabilities

28,372,465



29,041,092



26,326,859


Equity:









Total Nelnet, Inc. shareholders' equity

1,725,448



1,657,289



1,443,662


Noncontrolling interest

230



268



328


Total equity

1,725,678



1,657,557



1,443,990


Total liabilities and equity

$

30,098,143



30,698,649



27,770,849


 

(code #: nnif)

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/nelnet-reports-fourth-quarter-2014-results-300042527.html

SOURCE Nelnet

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