Nelnet Inc. (NNI) reported second quarter 2010 earnings of $1.17 per share compared with 60 cents in the year-ago quarter. Excluding gains on debt repurchases, the company reported earnings of $1.06 per share, compared with 53 cents in the prior-year period. Results were also ahead of the Zacks Consensus Estimate of 96 cents.
Quarterly results reflect a decrease in interest expenses (payable on bonds and notes) and benefits of diversification of revenue through fee-based businesses. The company expects its earnings to benefit in the future quarters as well, if interest rates remain low.
Including discontinued operations, restructuring charges, impairment expenses and certain liquidity-related charges, the company reported a GAAP net income of $50.0 million or 99 cents per share compared with $8.2 million or 16 cents in the year-ago period.
Nelnet reported a net interest income of $97.4 million, up from $57.1 million reported in the year-ago period. Interest payable on bonds and notes nearly halved to $59.2 million from $106.1 million in the year ago quarter.
Nelnet’s core student loan spread increased 9 basis points sequentially and 45 basis points year over year to 1.54%, primarily driven by narrower spreads and a low interest rate environment. Most of its federal student loans are indexed to commercial paper rate and the company's debt is indexed to LIBOR. Provisions for loan losses were down to $6.2 million from $8.0 million reported in the year-ago quarter.
Nelnet is also focused on increasing its earnings through diversification. Fee-based revenue from its payment processing and enrollment services businesses increased 19% from the prior-year period to $48.2 million. However, the company reported an increase in comparable operating expenses in the quarter, which were up 3% year over year or $2.4 million.
Nelnet commenced servicing federally owned student loans for the Department of Education (DOE) in September 2009. The company has experienced an increase in loans servicing and reported a growth in revenues from the servicing contract.
As of June 30, 2010, Nelnet was servicing $12.9 billion of loans for 1.5 million borrowers on behalf of the DOE compared with about $8.2 billion of loans for more than 1 million borrowers being catered as of March 31, 2010. Revenue from the servicing contract increased to $6.1 million compared with $3.5 million reported in the prior quarter.
Nelnet’s net student loan assets were $26.7 billion as of June 30, 2010, up from $24.8 billion as of March 31, 2010. The company has purchased about $1.9 billion of federal student loans from third parties during the quarter and $2.0 billion of federal student loans classified as held for sale. The company expects its results to benefit from a pre-tax gain of $30 million to $33 million following the sale of loans to the DOE in the fourth quarter of 2010 under the Loan Purchase Program.
Last month, another student lender, SLM Corp. (SLM), commonly known as Sallie Mae, reported second quarter core earnings of $209 million or 39 cents per share, ahead of the Zacks Consensus Estimate of 30 cents. The better-than-expected results were driven by higher interest income on its student loans.
Nelnet is experiencing an increase in profitability from its student lending business and is reaping the positives of the efforts to diversify in recent years. The company continues to shift to a more fee-based business model and is currently servicing the DOE's Direct Lending Program.
However, effective July 1, as a result of the signing of the student loan reform act by President Obama in March, which forbids private sector companies from making new federal student loans after June 30, 2010, private lenders such as Nelnet and Sallie Mae stopped originating federal student loans under the Federal Family Education Loan Program.
While Nelnet is expected to strategically expand its fee-based business, the transition from its traditional role of a lender to a provider of fee-based services will take some time.
NELNET INC CL-A (NNI): Free Stock Analysis Report
SLM CORP (SLM): Free Stock Analysis Report
Zacks Investment Research
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Including discontinued operations, restructuring charges, impairment expenses and certain liquidity-related charges, the company reported a GAAP net income of $50.0 million or 99 cents per share compared with $8.2 million or 16 cents in the year-ago period.
Nelnet reported a net interest income of $97.4 million, up from $57.1 million reported in the year-ago period. Interest payable on bonds and notes nearly halved to $59.2 million from $106.1 million in the year ago quarter.
Nelnet’s core student loan spread increased 9 basis points sequentially and 45 basis points year over year to 1.54%, primarily driven by narrower spreads and a low interest rate environment. Most of its federal student loans are indexed to commercial paper rate and the company's debt is indexed to LIBOR. Provisions for loan losses were down to $6.2 million from $8.0 million reported in the year-ago quarter.
Nelnet is also focused on increasing its earnings through diversification. Fee-based revenue from its payment processing and enrollment services businesses increased 19% from the prior-year period to $48.2 million. However, the company reported an increase in comparable operating expenses in the quarter, which were up 3% year over year or $2.4 million.
Nelnet commenced servicing federally owned student loans for the Department of Education (DOE) in September 2009. The company has experienced an increase in loans servicing and reported a growth in revenues from the servicing contract.
As of June 30, 2010, Nelnet was servicing $12.9 billion of loans for 1.5 million borrowers on behalf of the DOE compared with about $8.2 billion of loans for more than 1 million borrowers being catered as of March 31, 2010. Revenue from the servicing contract increased to $6.1 million compared with $3.5 million reported in the prior quarter.
Nelnet’s net student loan assets were $26.7 billion as of June 30, 2010, up from $24.8 billion as of March 31, 2010. The company has purchased about $1.9 billion of federal student loans from third parties during the quarter and $2.0 billion of federal student loans classified as held for sale. The company expects its results to benefit from a pre-tax gain of $30 million to $33 million following the sale of loans to the DOE in the fourth quarter of 2010 under the Loan Purchase Program.
Last month, another student lender, SLM Corp. (SLM), commonly known as Sallie Mae, reported second quarter core earnings of $209 million or 39 cents per share, ahead of the Zacks Consensus Estimate of 30 cents. The better-than-expected results were driven by higher interest income on its student loans.
Nelnet is experiencing an increase in profitability from its student lending business and is reaping the positives of the efforts to diversify in recent years. The company continues to shift to a more fee-based business model and is currently servicing the DOE's Direct Lending Program.
However, effective July 1, as a result of the signing of the student loan reform act by President Obama in March, which forbids private sector companies from making new federal student loans after June 30, 2010, private lenders such as Nelnet and Sallie Mae stopped originating federal student loans under the Federal Family Education Loan Program.
While Nelnet is expected to strategically expand its fee-based business, the transition from its traditional role of a lender to a provider of fee-based services will take some time.
NELNET INC CL-A (NNI): Free Stock Analysis Report
SLM CORP (SLM): Free Stock Analysis Report
Zacks Investment Research
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