August 6, 2015

Nelnet Reports Second Quarter 2015 Results

- GAAP net income $1.54 per share, $1.38 per share excluding adjustments
- 27 percent increase in Tuition Payment Processing and Campus Commerce revenue
- Repurchased nearly one million shares of Class A common stock
- Purchased $1.5 billion of FFELP student loans on August 3

LINCOLN, Neb., Aug. 6, 2015 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $70.9 million, or $1.54 per share, for the second quarter of 2015, compared with GAAP net income of $75.0 million, or $1.61 per share, for the same period a year ago.

Excluding derivative market value and foreign currency adjustments, net income was $63.5 million, or $1.38 per share, for the second quarter of 2015, compared with $70.2 million, or $1.51 per share, for the same period in 2014.  The company reported income from derivative market value and foreign currency adjustments of $7.4 million after tax, or $0.16 per share, for the second quarter of 2015, compared with income of $4.8 million after tax, or $0.10 per share, for the second quarter of 2014.

"As a result of our ongoing success, we are in a strong position financially and continue to generate significant cash flow from our portfolio and operations," said Jeff Noordhoek, chief executive officer of Nelnet.  "With our focus on delivering long-term value, we deployed capital in the second quarter to repurchase shares and acquire student loan portfolios. We continue to look for additional strategic investments in our core businesses and other opportunities."

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

As expected, net income decreased for the second quarter of 2015, compared with the same period a year ago, due to decreases in earnings from the company's Student Loan and Guaranty Servicing segment and investment advisory fees.

Asset Generation and Management

Historically low interest rates continue to provide the opportunity for the company to generate substantial cash flow from its student loan portfolio.  For the second quarter of 2015, Nelnet reported net interest income of $105.1 million, compared with $107.7 million for the same period a year ago.  Net interest income included $45.1 million and $43.6 million of fixed rate floor income in the second quarters of 2015 and 2014, respectively.  As a result of recent acquisitions of lower margin but longer term consolidation loans, core student loan spread decreased to 1.41 percent for the three months ended June 30, 2015, compared with 1.46 percent for the same period in 2014.

The company intends to use its strong liquidity position to acquire legacy Federal Family Education Loan Program (FFELP) loans and private education loans.  The company acquired $1.2 billion of student loans during the second quarter of 2015.  As of June 30, 2015, Nelnet's student loan portfolio was $28.1 billion.  On August 3, 2015, Nelnet acquired the residual interests in two securitized student loan trusts, which collectively hold $1.5 billion of FFELP student loans.

Student Loan and Guaranty Servicing

The company was servicing $141.5 billion of loans for 5.8 million borrowers on behalf of the U.S. Department of Education as of June 30, 2015, compared with $123.2 billion of loans for 5.5 million borrowers as of June 30, 2014. Revenue from this contract increased 8 percent to $33.6 million for the second quarter of 2015, up from $31.0 million for the same period a year ago.

The growth in government servicing revenue partially offset the impact of federal legislative changes that reduced the collections revenue earned for guaranty servicing. As a result, total revenue from the Student Loan and Guaranty Servicing segment decreased 4 percent, or $2.6 million, to $63.8 million for the second quarter of 2015, compared with the same period in 2014.

A significant amount of the company's guaranty servicing revenue comes from a single guaranty servicing client.  The current term of the contract with this client expires on October 31, 2015.  During the second quarter of 2015, the client notified the company of their intent to not renew this contract.

Tuition Payment Processing and Campus Commerce

For the second quarter of 2015, revenue from the Tuition Payment Processing and Campus Commerce segment was $27.7 million, an increase of $5.9 million, or 27 percent, from the same period in 2014.  The increase in revenue was primarily driven by the acquisition of RenWeb in June 2014, along with growth in managed tuition payment plans, campus commerce transaction volume, and new school customers.

Other Income

Other income decreased $7.8 million to $7.5 million for the second quarter of 2015, compared with $15.3 million for the same period in 2014.  During the three months ended June 30, 2015, investment advisory fees were $0.8 million, compared with $7.0 million for the same period a year ago.  Due to improvements in the capital markets, the opportunities to earn performance fees on the sale of student loan asset-backed securities are becoming increasingly limited.

Stock Repurchases

During the six months ended June 30, 2015, the company repurchased a total of 1,174,008 shares of Class A common stock for $51.0 million, including 998,210 shares for $43.1 million during the second quarter.

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 Tuesday, September 15, 2015, to shareholders of record at the close of business on Tuesday, September 1, 2015.

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 and private education loan purchases and initiatives to purchase additional FFELP and private education loans; financing and liquidity risks, including risks of changes in the securitization and other financing markets for student loans; risks related to the company's ability to maintain and increase volumes under the company's loan servicing contract with the Department of Education 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, including potential adverse effects on the Company's guaranty servicing contracts; 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, 2015.  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


Six months ended


June 30, 2015


March 31, 2015


June 30, 2014


June 30, 2015


June 30, 2014

Interest income:










Loan interest

$

175,835



171,944



175,466



347,779



332,362


Investment interest

1,887



2,205



1,482



4,092



3,461


   Total interest income

177,722



174,149



176,948



351,871



335,823


Interest expense:










Interest on bonds and notes payable

72,626



71,554



69,235



144,180



129,239


   Net interest income

105,096



102,595



107,713



207,691



206,584


Less provision for loan losses

2,150



2,000



1,500



4,150



4,000


Net interest income after provision for loan losses

102,946



100,595



106,213



203,541



202,584


Other income (expense):










Loan and guaranty servicing revenue

63,833



57,811



66,460



121,644



131,217


Tuition payment processing, school information, and campus commerce revenue

27,686



34,680



21,834



62,366



47,069


Enrollment services revenue

17,161



17,863



20,145



35,024



42,156


Other income

7,504



6,918



15,315



14,422



33,446


Gain on sale of loans and debt repurchases, net

1,515



2,875



18



4,390



57


Derivative settlements, net

(5,442)



(5,215)



(6,214)



(10,657)



(12,443)


Derivative market value and foreign currency adjustments, net

11,944



2,137



7,784



14,081



9,748


   Total other income

124,201



117,069



125,342



241,270



251,250


Operating expenses:










Salaries and benefits

58,787



61,050



53,888



119,837



106,372


Cost to provide enrollment services

11,162



11,702



13,311



22,864



27,786


Loan servicing fees

7,420



7,616



7,317



15,036



12,720


Depreciation and amortization

6,501



5,662



5,214



12,163



9,997


Other

31,958



29,198



33,060



61,156



63,284


   Total operating expenses

115,828



115,228



112,790



231,056



220,159


   Income before income taxes

111,319



102,436



118,765



213,755



233,675


Income tax expense

40,356



37,630



43,078



77,986



83,689


Net income

70,963



64,806



75,687



135,769



149,986


   Net income attributable to noncontrolling interest

54



41



693



95



1,206


Net income attributable to Nelnet, Inc.

$

70,909



64,765



74,994



135,674



148,780


Earnings per common share:










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

$

1.54



1.40



1.61



2.94



3.20


Weighted average common shares outstanding - basic and diluted

45,946,415



46,290,590



46,529,377



46,127,207



46,528,651


 

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)



As of


As of


As of


June 30, 2015


December 31, 2014


June 30, 2014

Assets:






Student loans receivable, net

$

28,095,775



28,005,195



29,342,430


Cash, cash equivalents, investments, and notes receivable

428,028



366,190



289,893


Restricted cash and investments

975,673



968,928



960,039


Goodwill and intangible assets, net

163,984



168,782



171,049


Other assets

583,363



589,048



607,611


   Total assets

$

30,246,823



30,098,143



31,371,022


Liabilities:






Bonds and notes payable

$

28,070,423



28,027,350



29,492,560


Other liabilities

370,908



345,115



298,334


   Total liabilities

28,441,331



28,372,465



29,790,894


Equity:






Total Nelnet, Inc. shareholders' equity

1,805,192



1,725,448



1,579,742


Noncontrolling interest

300



230



386


   Total equity

1,805,492



1,725,678



1,580,128


   Total liabilities and equity

$

30,246,823



30,098,143



31,371,022


 

(code #: nnif)

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/nelnet-reports-second-quarter-2015-results-300125187.html

SOURCE Nelnet

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