Nelnet Reports Second Quarter 2014 Results

LINCOLN, Neb., Aug. 7, 2014 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $75.0 million, or $1.61 per share, for the second quarter of 2014, compared with GAAP net income of $101.2 million, or $2.17 per share, for the same period a year ago.

Excluding derivative market value and foreign currency adjustments, net income was $70.2 million, or $1.51 per share, for the second quarter of 2014, compared with $71.1 million, or $1.53 per share, for the same period in 2013.  The company reported income from derivative market value and foreign currency adjustments of $4.8 million after tax, or $0.10 per share, for the second quarter of 2014, compared with income of $30.1 million after tax, or $0.64 per share, for the second quarter of 2013.  Also, the second quarter of 2013 operating results include a gain of $7.4 million ($0.10 per share after tax) from the repurchase of the company's own asset-backed securities. 

Excluding the gain from the repurchase of debt and derivative market value and foreign currency adjustments, net income in the second quarter of 2014 increased $0.08 per share compared with the same period in 2013 due to increases in income from the company's student loan portfolio, from providing investment advisory services, and from investment activities.

"We accomplished a tremendous amount during our second quarter, the positive benefits of which will have a significant impact for years to come," said Jeff Noordhoek, Nelnet chief executive officer.  "In addition to delivering strong earnings, our largest contract was extended by the Department of Education, we purchased nearly $5 billion of student loans, and we completed the strategic acquisition of RenWeb.  Going forward, we will continue to provide a great customer experience and to effectively 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.

Asset Generation and Management

For the second quarter of 2014, Nelnet reported net interest income of $107.7 million, compared with $101.4 million for the same period a year ago.  Core student loan spread decreased to 1.46 percent for the second quarter of 2014, compared with 1.52 percent for the same period in 2013.  Student loan spread tightened as a result  of recent acquisitions of consolidation loans, which have lower margins but longer terms. An increase in the company's student loan portfolio more than offset the decline in core student loan spread.

During the second quarter of 2014, the company purchased $4.8 billion of legacy FFELP student loans. Year to date, the company has purchased $5.2 billion of student loans, bringing its total student loan portfolio to $29.3 billion as of June 30, 2014.

Fee-Based Operating Segments

The company reported total revenue from its fee-based operating segments in the second quarters of 2014 and 2013 of $108.4 million and $103.3 million, respectively. Net income from fee-based operating segments was $15.1 million for the second quarter of 2014, compared to $16.5 million for the same period in 2013.    

Revenue from the company's Student Loan and Guaranty Servicing segment increased 11 percent, or $6.4 million, to $66.5 million for the second quarter of 2014, up from $60.1 million for the second quarter of 2013. The increase in revenue was the result of growth in servicing volume under the company's servicing contract with the U.S. Department of Education (Department).  On June 17, 2014, the Department extended the contact for an additional five years through June 16, 2019.

As of June 30, 2014, the company was servicing $123.2 billion of loans for 5.5 million borrowers on behalf of the Department, compared with $89.2 billion of loans for 4.4 million borrowers as of June 30, 2013. Revenue from this contract increased to $31.0 million for the second quarter of 2014, up from $22.1 million for the same period a year ago.

For the second quarter of 2014, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $21.8 million, an increase of $3.5 million, or 19 percent, from the same period in 2013. In June 2014, the company acquired RenWeb, one of the leading providers of school information systems for private and faith-based schools.  The combination of RenWeb's school administration software and the company's existing tuition management and financial needs assessment services increases the value of the company's offerings, allowing the company to deliver a comprehensive suite of solutions.

The company reported second quarter of 2014 revenue from its Enrollment Services segment of $20.1 million, compared with $24.8 million for the same period in 2013.  Enrollment services revenue has been affected by for-profit career colleges spending less to recruit students.

Other Income

Other income increased $3.0 million to $15.3 million for the second quarter of 2014, compared with $12.3 million for the same period in 2013.  The increase was due to gains on investments, which totaled $2.1 million for the second quarter of 2014, compared with a loss of $0.2 million for the same period in 2013, and increased investment advisory fee revenue, which totaled $7.0 million for the second quarter of 2014, compared with $6.3 million for the same period in 2013.

Operating Expenses

The company reported consolidated operating expenses of $112.8 million for the second quarter of 2014, compared with $102.9 million for the same period in 2013.  

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 Monday, September 15, 2014, to shareholders of record at the close of business on Monday, September 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 second quarter ended June 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.

(code #: nnif)

SOURCE Nelnet

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