Nelnet Reports Fourth Quarter 2012 Results - GAAP net income $1.20 per share

- Net income $1.05 per share, excluding impairment, derivative market value, and foreign currency adjustments

- Purchased $3.0 billion of student loans in the quarter

- Repurchased 746,459 shares in the quarter; 153,908 shares in 2013

LINCOLN, Neb., Feb. 28, 2013 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $56.6 million, or $1.20 per basic share, for the fourth quarter of 2012, compared with GAAP net income of $64.9 million, or $1.37 per basic share, for the same period a year ago.

Included in the company's fourth quarter results is a $2.8 million, or $0.03 per share after tax, non-cash impairment charge in the company's enrollment services segment. In addition, the derivative market value and foreign currency adjustments were income of $8.5 million after tax, or $0.18 per share, for the fourth quarter of 2012, compared with income of $7.3 million after tax, or $0.15 per share, for the fourth quarter of 2011. 

Excluding the impairment charge and the derivative market value and foreign currency adjustments, net income was $1.05 per share for the fourth quarter of 2012, compared with $1.22 per share, for the same period in 2011.

The decrease in year-over-year net income was expected as the company's student loan portfolio runs off due to the legislative elimination of new Federal Family Education Loan (FFEL) Program loan originations in 2010. However, the decrease in revenue from the company's student loan portfolio is being partially offset by its growing fee-based businesses.

"2012 was another outstanding year at Nelnet," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We invested and worked hard to improve our customer experiences, create efficiencies, grow our core businesses, and diversify around our strengths. In addition, we purchased $3 billion of student loans in the quarter and continue to pursue opportunities to purchase additional portfolios."

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

As of December 31, 2012, net student loan assets were $24.8 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 $1.97 billion, up from approximately $1.81 billion last year, as a result of the 2012 asset purchases.

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 fourth quarter of 2012, Nelnet reported net interest income of $90.6 million, compared with $93.3 million for the same period a year ago.  Net interest income includes $35.5 million and $39.4 million of fixed rate floor income in the fourth quarters of 2012 and 2011, respectively.   

Fee-Based Revenue

The company reported total revenue from its fee-based segments in the fourth quarters of 2012 and 2011 of $98.2 million and $96.6 million, respectively.

Revenue from the company's Student Loan and Guaranty Servicing segment increased 7 percent, or $3.6 million, to $54.6 million for the fourth quarter of 2012, up from $51.0 million for the fourth quarter of 2011. The increase in revenue is 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 rehabilitated loans.

As of December 31, 2012, the company was servicing $68.8 billion of loans for 3.9 million borrowers on behalf of the Department, compared with $46.1 billion of loans for 3.0 million borrowers as of December 31, 2011. Revenue from this contract increased to $19.4 million for the fourth quarter of 2012, up from $14.0 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.

For the fourth quarter of 2012, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $17.7 million, an increase of $0.8 million, or 5 percent, from the same period in 2011. The company's fourth quarter of 2012 revenue from its Enrollment Services segment was $25.9 million, compared with $28.8 million for the same period in 2011.

Other Income

Included in other income are gains from the company's repurchase of debt, fee revenue from  investment advisory services, and net investment gains of $4.6 million for the fourth quarter of 2012, compared with $7.9 million for the same quarter a year ago.

Operating Expenses

Excluding the impairment charge, the company reported consolidated operating expenses of $106.5 million for the fourth quarter of 2012, compared with $102.7 million for the same period in 2011.

Common Stock Repurchases

During the fourth quarter of 2012, the company repurchased and retired 746,459 shares of Class A common stock, under the company's stock repurchase program, for $21.3 million, or an average price of $28.53 per share. In 2012, the company repurchased 806,023 shares of Class A common stock for $22.8 million, or an average price of $28.30 per share.

From January 1, 2013 through February 26, 2013, Nelnet repurchased and retired 153,908 shares of Class A common stock for $4.7 million, or an average price of $30.50 per share.  As of February 26, 2013, approximately 4,093,000 shares remain authorized for purchase under the company's repurchase program. 

Cash Dividend

As previously announced, Nelnet will pay a first quarter 2013 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, March 15, 2013, to shareholders of record at the close of business on Friday, March 1, 2013.  The company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors. 

Year End Results

GAAP net income for the year ended December 31, 2012 was $178.0 million, or $3.76 per basic share, compared with GAAP net income of $204.3 million, or $4.24 per basic share, for 2011. Excluding the derivative market value and foreign currency adjustments, net income in 2012 was $207.4 million, or $4.38 per share, compared with $215.4 million, or $4.47 per share, for 2011. The derivative market value and foreign currency adjustments were an expense of $29.4 million after tax, or $0.62 per share, during 2012, compared with an expense of $11.1 million after tax, or $0.23 per share, for 2011. 

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 financial position and performance, including specifically, but not limited to, 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, foreign currency transaction gains or losses resulting from the re-measurement of the company's Euro-denominated bonds to U.S. dollars, and non-cash impairments of intangible assets.  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.

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 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 ended December 31, 2012.  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.

 

Consolidated Statements of Income

(Dollars in thousands, except share data)



Three months ended



Year ended



December 31, 2012


September 30,

2012


December 31, 2011


December 31, 2012


December 31, 2011


(unaudited)


(unaudited)


(unaudited)





Interest Income:










Loan interest

$

154,663



150,528



156,439



609,237



589,686


Investment interest

1,326



1,140



914



4,616



3,168


Total interest income

155,989



151,668



157,353



613,853



592,854


Interest expense:










Interest on bonds and notes payable

65,391



66,402



64,062



268,566



228,289


Net interest income

90,598



85,266



93,291



345,287



364,565


Less provision for loan losses

3,500



5,000



7,000



21,500



21,250


Net interest income after provision for loan

losses

87,098



80,266



86,291



323,787



343,315


Other income (expense):










Loan and guaranty servicing revenue

54,584



53,285



50,960



209,748



175,657


Tuition payment processing and campus

   commerce revenue

17,735



17,928



16,893



74,410



67,797


Enrollment services revenue

25,890



30,661



28,782



117,925



130,470


Other income

7,023



12,699



12,264



39,476



29,513


Gain on sale of loans and debt repurchases

3,009



195



33



4,139



8,340


Derivative market value and foreign currency

   adjustments, net

13,769



(26,224)



11,778



(47,394)



(17,807)


Derivative settlements, net

(7,112)



(5,051)



(423)



(14,022)



(7,840)


Total other income

114,898



83,493



120,287



384,282



386,130


Operating expenses:










Salaries and benefits

48,633



46,395



47,026



192,826



177,951


Cost to provide enrollment services

16,172



20,151



17,744



78,375



86,548


Depreciation and amortization

8,861



8,402



8,282



33,625



29,744


Impairment expense

2,767







2,767




Other

32,811



29,989



29,639



125,971



113,415


Total operating expenses

109,244



104,937



102,691



433,564



407,658


Income before income taxes

92,752



58,822



103,887



274,505



321,787


Income tax expense

36,099



21,870



39,008



96,077



117,452


Net income

56,653



36,952



64,879



178,428



204,335


Net income attributable to noncontrolling

   interest

19



124





431




Net income attributable to Nelnet, Inc.

$

56,634



36,828



64,879



177,997



204,335


Earnings per common share:










Net income attributable to Nelnet, Inc.        

   shareholders - basic

$

1.20



0.78



1.37



3.76



4.24


Net income attributable to Nelnet, Inc.         

   shareholders - diluted

$

1.19



0.77



1.37



3.74



4.23


Weighted average common shares outstanding:










Basic

46,911,511



47,086,098



46,996,193



47,010,034



47,860,824


Diluted

47,142,038



47,321,797



47,173,374



47,236,391



48,047,669


 

Condensed Consolidated Balance Sheets

(Dollars in thousands)



As of


As of


As of


December 31, 2012


September 30,
2012


December 31, 2011




(unaudited)



Assets:






Student loans receivable, net

$

24,830,621



22,559,341



24,297,876


Cash, cash equivalents, and investments

149,343



186,534



93,350


Restricted cash and investments

911,978



1,003,888



724,131


Goodwill

117,118



117,118



117,118


Intangible assets, net

9,393



14,360



28,374


Other assets

589,442



527,603



591,368


Total assets

$

26,607,895



24,408,844



25,852,217


Liabilities:






Bonds and notes payable

$

25,098,835



22,884,096



24,434,540


Other liabilities

343,847



348,510



351,472


Total liabilities

25,442,682



23,232,606



24,786,012


Equity:






Total Nelnet, Inc. shareholders' equity

1,165,208



1,175,821



1,066,205


Noncontrolling interest

5



417




Total equity

1,165,213



1,176,238



1,066,205


Total liabilities and equity

$

26,607,895



24,408,844



25,852,217


 

(code #: nnif)

 

SOURCE Nelnet



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