Another great quarter! NNI shares remain considerably undervalued.
- Net income $1.13 per share for the quarter, excluding derivative market value adjustments
- Loan and Guaranty Servicing revenue increased 26 percent
- Tuition Payment Processing and Campus Commerce revenue increased 14 percent
LINCOLN, Neb., Aug. 8, 2012 /PRNewswire/ -- Nelnet NNI today reported $53.5 million, or $1.13 per share, of net income, excluding derivative market value adjustments, for the second quarter of 2012, compared with $47.5 million, or $0.98 per share, for the same period a year ago.
GAAP net income for the second quarter of 2012 and 2011 was $41.4 million, or $0.87 per share, and $37.1 million, or $0.76 per share, respectively. Derivative market value adjustments were $12.1 million, or $0.26 per share after tax, for the second quarter of 2012, compared with $10.4 million, or $0.22 per share after tax, for the second quarter of 2011.
"In the second quarter of 2012, we reported strong results and showed progress toward achieving our core objectives," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We continue to focus on growing our fee-based and asset management businesses, driving diversification around our core businesses, and improving our customers' 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. In the second quarter of 2012, the company increased its total revenue to $184.2 million, compared with $175.6 million in the second quarter of 2011. Operating expenses for the second quarter of 2012 and 2011 were $108.2 million and $100.6 million, respectively.
Student Loan and Guaranty Servicing
Revenue from the company's Student Loan and Guaranty Servicing segment increased 26 percent, or $10.7 million, to $52.4 million for the second quarter of 2012 from $41.7 million for the second quarter of 2011. The increase in revenue is primarily the result of growth in servicing volume for the Department of Education (Department), remote hosting fees, and fee revenue from rehabilitated loans.
As of June 30, 2012, the company was servicing $56.0 billion of loans for 3.1 million borrowers on behalf of the Department, compared with $38.8 billion of loans for 2.7 million borrowers as of June 30, 2011. Revenue from this contract increased to $16.1 million for the second quarter of 2012, up from $11.9 million for the same period a year ago.
The Student Loan and Guaranty Servicing segment also includes revenue from monthly fees earned from third parties using Nelnet's new hosted servicing software solution to service Federal Direct Loan Program and Federal Family Education Loan Program loans. As of June 30, 2012, 7.9 million borrowers were hosted on the company's solution.
Tuition Payment Processing and Campus Commerce
For the second quarter of 2012, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $16.8 million, an increase of $2.0 million, or 14 percent, from the same period in 2011.
Asset Management
As of June 30, 2012, net student loan assets were $23.5 billion. Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate significant future cash flow of $1.87 billion. On July 1, 2010, the company stopped originating federal student loans because legislation eliminated the Federal Family Education Loan Program. As a result, the company's student loan portfolio will run off over a period of several 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 second quarter of 2012, Nelnet reported net interest income of $84.6 million, compared with $88.7 million for the same period a year ago. Net interest income includes $37.0 million and $32.8 million of fixed rate floor income in the second quarters of 2012 and 2011, respectively.
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 September 15, 2012, to shareholders of record at the close of business on September 1, 2012. Nelnet currently has 35.8 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.
Non-GAAP Performance Measures
Information regarding the company's operating results has historically been provided using "base net income," which consisted of GAAP net income excluding the derivative market value and foreign currency adjustments, amortization of intangible assets, compensation related to business combinations, and variable rate floor income, net of settlements on derivatives. Due to the decrease in the number and dollar amount of differences between "base net income" and GAAP net income, the company has discontinued utilizing "base net income" when evaluating the performance and profitability of the company and reporting its operating results.
The company will continue to provide additional 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 the unrealized gains and losses resulting from the change in fair value of derivative instruments in which the company does not qualify for "hedge treatment" under GAAP, and the 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 these financial instruments that are subject to interest and currency rate fluctuations affect the period-to-period comparability of the results of operations.
