Nelnet Reports First Quarter 2013 Results - GAAP net income $1.46 per share

- Net income $1.34 per share, excluding derivative market value and foreign currency adjustments, up 21 percent from first quarter 2012

- Total student loan servicing volume now exceeds $112 billion

LINCOLN, Neb., May 9, 2013 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $68.1 million, or $1.46 per share, for the first quarter of 2013, compared with GAAP net income of $43.1 million, or $0.91 per share, for the same period a year ago.

The company reported income from derivative market value and foreign currency adjustments of $5.8 million after tax, or $0.12 per share, for the first quarter of 2013, compared with an expense of $9.6 million after tax, or $0.20 per share, for the first quarter of 2012. 

Excluding the derivative market value and foreign currency adjustments, net income was $62.3 million, or $1.34 per share, for the first quarter of 2013, compared with $52.7 million, or $1.11 per share, for the same period in 2012.

Strong first-quarter 2013 earnings were driven by an increase in net interest income earned on the company's loan portfolio, an increase in revenue from the company's fee-based businesses, and a decrease in operating expenses. 

"We continue to execute at a high level and deliver strong results," said Mike Dunlap, Nelnet chairman and chief executive officer. "In the first quarter, we made progress toward key objectives: growing and diversifying around our core businesses, purchasing student loans, and improving our customer experiences."

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

During the first quarter of 2013, the company purchased $743.8 million of student loans. As of March 31, 2013, net student loan assets were $24.9 billion. A substantial portion of Nelnet's federally insured student loans are financed for the life of the loan at terms the company currently believes will generate significant future cash flow of approximately $2.11 billion, up from approximately $1.97 billion at year-end 2012.

On July 1, 2010, the company stopped originating federally insured student loans after legislation eliminated the origination of FFEL Program loans. As a result, the company's student loan portfolio will run off over a period of approximately 20 years.

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 first quarter of 2013, Nelnet reported net interest income of $98.8 million, compared with $84.9 million for the same period a year ago. Net interest income included $35.7 million and $38.1 million of fixed rate floor income in the first quarters of 2013 and 2012, respectively.   

Fee-Based Operating Segments

The company reported total revenue from its fee-based operating segments in the first quarters of 2013 and 2012 of $108.0 million and $103.1 million, respectively. Net income from fee-based operating segments increased 65 percent, or $6.9 million, to $17.5 million for the first quarter of 2013, up from $10.6 million for the same period in 2012.

Revenue from the company's Student Loan and Guaranty Servicing segment increased 12 percent, or $6.1 million, to $55.6 million for the first quarter of 2013, up from $49.5 million for the first quarter of 2012. The increase in revenue was primarily 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 March 31, 2013, the company was servicing $84.6 billion of loans for 4.3 million borrowers on behalf of the Department, compared with $51.8 billion of loans for 3.1 million borrowers as of March 31, 2012. Revenue from this contract increased to $20.3 million for the first quarter of 2013, up from $14.8 million for the same period a year ago.

The company is allocated 30 percent of new loan volume originated by the Department during the period of August 15, 2012 through August 14, 2013, up from 16 percent the prior two contract years.

In total, the company was servicing $112.8 billion of Federal Direct, FFELP, and private student loans as of March 31, 2013, up $30.7 billion from $82.1 billion as of March 31, 2012.

For the first quarter of 2013, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $23.4 million, an increase of $1.5 million, or 7 percent, from the same period in 2012. The company reported first quarter of 2013 revenue from its Enrollment Services segment of $29.0 million, compared with $31.7 million for the same period in 2012.

Operating Expenses

The company reported consolidated operating expenses of $106.9 million for the first quarter of 2013, compared with $111.2 million for the same period in 2012.  Operating expenses include the amortization of intangible assets within the company's fee-based operating segments, which decreased $3.9 million in the first quarter of 2013, compared with the same period in 2012. 

Stock Repurchases

During the first quarter of 2013, the company repurchased 213,535 shares of Class A common stock, under the company's stock repurchase program, for $6.7 million, or an average price of $31.40 per share. As of March 31, 2013, 4,047,958 shares remained authorized for purchase under the company's repurchase program. 

Board of Directors Approves Dividend

The Nelnet Board of Directors declared a second 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 Friday, June 14, 2013, to shareholders of record at the close of business on Friday, May 31, 2013.

The company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors. 

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; 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 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 first quarter ended March 31, 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.

 

Condensed Consolidated Statements of Income (unaudited)

(Dollars in thousands, except share data)



Three months ended


March 31,
2013


December 31,
2012


March 31,
2012

Interest income:






Loan interest

$

155,539



154,663



153,058


Investment interest

1,617



1,326



1,095


Total interest income

157,156



155,989



154,153


Interest expense:






Interest on bonds and notes payable

58,358



65,391



69,297


Net interest income

98,798



90,598



84,856


Less provision for loan losses

5,000



3,500



6,000


Net interest income after provision for loan losses

93,798



87,098



78,856


Other income (expense):






Loan and guaranty servicing revenue

55,601



54,584



49,488


Tuition payment processing and campus commerce

   revenue

23,411



17,735



21,913


Enrollment services revenue

28,957



25,890



31,664


Other income

9,416



7,023



10,954


Gain on sale of loans and debt repurchases

1,407



3,009




Derivative market value and foreign currency

   adjustments, net

9,256



13,769



(15,407)


Derivative settlements, net

(8,184)



(7,112)



227


Total other income

119,864



114,898



98,839


Operating expenses:






Salaries and benefits

47,905



48,633



49,095


Cost to provide enrollment services

19,642



16,172



21,678


Depreciation and amortization

4,377



8,861



8,136


Impairment expense



2,767




Other

34,941



32,811



32,263


Total operating expenses

106,865



109,244



111,172


Income before income taxes

106,797



92,752



66,523


Income tax expense

38,447



36,099



23,230


Net income

68,350



56,653



43,293


Net income attributable to noncontrolling interest

271



19



152


Net income attributable to Nelnet, Inc.

$

68,079



56,634



43,141


Earnings per common share:






Net income attributable to Nelnet, Inc. shareholders -

   basic and diluted

$

1.46



1.20



0.91


Weighted average common shares outstanding -   

   basic and diluted

46,658,031



47,277,427



47,298,195


 

Condensed Consolidated Balance Sheets

(Dollars in thousands)



As of


As of


As of


March 31, 2013


December 31, 2012


March 31, 2012


(unaudited)




(unaudited)

Assets:






Student loans receivable, net

$

24,885,316



24,830,621



23,836,832


Cash, cash equivalents, and investments

209,564



149,343



131,252


Restricted cash and investments

862,212



911,978



744,595


Goodwill

117,118



117,118



117,118


Intangible assets, net

8,556



9,393



23,682


Other assets

562,458



589,442



592,833


Total assets

$

26,645,224



26,607,895



25,446,312


Liabilities:






Bonds and notes payable

$

25,125,177



25,098,835



24,060,609


Other liabilities

293,643



343,847



277,830


Total liabilities

25,418,820



25,442,682



24,338,439


Equity:






Total Nelnet, Inc. shareholders' equity

1,226,123



1,165,208



1,107,716


Noncontrolling interest

281



5



157


Total equity

1,226,404



1,165,213



1,107,873


Total liabilities and equity

$

26,645,224



26,607,895



25,446,312


 

(code #: nnif)

 

SOURCE Nelnet



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