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

Aug 06, 2015, 16:15 ET from Nelnet

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)

 

SOURCE Nelnet



RELATED LINKS

http://www.nelnet.com