Nelnet Reports Record Net Income Net Student Loan Assets Increase 29%

Jul 29, 2004

LINCOLN, Neb., Jul 29, 2004 /PRNewswire-FirstCall via COMTEX/ -- Nelnet, Inc. (NYSE: NNI) today reported year to date 2004 net income of $94.4 million or $1.76 per share compared to $17.9 million or $0.40 per share for the first six months of 2003. For the second quarter of 2004, net income of $85.3 million or $1.59 per share was recorded compared to $8.3 million or $0.19 per share a year ago. Nelnet's 2004 earnings per share increased more than 22% year to date and 68% for the second quarter as compared to 2003, exclusive of a special allowance yield adjustment and related expenses.

Net student loan assets have grown to $12.2 billion at June 30, 2004, an increase of $2.7 billion or 29% from a year ago. This represents a 17% increase from Nelnet's position at December 31, 2003.

"We had a great six months, and are particularly excited about our student loan growth," said Stephen Butterfield, Nelnet Vice Chairman and Co-CEO.

Two already announced items had a significant financial impact on Nelnet. Net interest income increased $130 million in the second quarter of 2004 as compared to last year. Included in net interest income for the second quarter of 2004 is $124 million related to an increase in yield of which $79 million was previously deferred at March 31, 2004.

Second, the U.S. Department of Education designated Nelnet with Exceptional Performance status. This designation eliminates the 2% risk share on student loans serviced by Nelnet and reduces required allowances for loan losses related to the company's federally insured loan portfolio.

"Our continued strong asset growth and operational excellence as highlighted by our Exceptional Performance designation are examples of our commitment to operate this business with focus on long term fundamental value," Butterfield continued.

Net interest income includes variable-rate floor income, or floor income generated by the annual reset of borrower rates on July 1, of $348,000 for the six months ended June 30, 2004. No variable-rate floor income was earned in the second quarter. For 2003, amounts include $12.7 million and $6.9 million of variable-rate floor income for the corresponding periods.

Amortization expense related to identifiable intangible assets amounted to $4.2 million and $2.1 million for the six months and quarter ended June 30, 2004, respectively. In 2003, amortization expense for the corresponding periods were $7.2 million and $3.5 million.

Included in the derivative market value adjustment and net settlements on the company's consolidated statement of income are gains in the fair value of derivative instruments of $548,000 year to date 2004 and $3.1 million for the second quarter 2004 and net settlement expense of $2.9 million year to date 2004 and $1.7 million for the second quarter 2004.

Nelnet will host a conference call to discuss this earnings release at 2:00 p.m. (Eastern) today. To access the call live, participants in the U.S. and Canada should dial 800.289.0544 and international callers should dial 913.981.5533 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at www.nelnetinvestors.net under the conference calls and Web casts menu. A replay of the conference call will be available between 5:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) August 5. To access the replay via telephone within the U.S. and Canada, callers should dial 888.203.1112. International callers should dial 719.457.0820. All callers accessing the replay will need to use the confirmation code 656727. A replay of the audio Web cast will also be available at www.nelnetinvestors.net.

Supplemental financial information to this earnings release is available online at http://www.nelnetinvestors.net/releases.cfm?reltype=Financial.

Nelnet is one of the leading education finance companies in the United States and is focused on providing quality student loan products and services to students and schools nationwide. With over $13 billion in total assets, Nelnet originates in excess of $3 billion for itself and its service partners annually, and its servicing software is used by approximately 35 clients, including Nelnet, to service nearly $50 billion in student loans. Nelnet ranks among the nation's leaders in terms of total student loan assets.

Nelnet offers a broad range of student loan and financial services and technology-based products, including student loan origination and lending, guarantee servicing, and a suite of software solutions. Our products are designed to simplify the student loan process by automating financial aid delivery, loan processing, and funds disbursement. Our services help to facilitate and streamline education finance for all involved in the industry, including student and parent borrowers, lenders, financial aid officers, guaranty agencies, governmental agencies, servicers, and the capital markets.

    Additional information is available at www.nelnet.net.

Information contained in this press release, other than historical information, may be considered forward-looking in nature and is subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or expected. Among the key factors that may have a direct bearing on Nelnet's operating results, performance, or financial condition are changes in terms of student loans and the educational credit marketplace, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, or changes in the general interest rate environment and in the securitization markets for education loans.

(code #: nnif)

     Condensed Statements of Income and Financial Data

                                  Three months ended       Six months ended
                                       June 30,                June 30,
                                   2004        2003        2004        2003
                                                 (unaudited)
                                  (dollars in thousands, except share data)

     Interest income:
      Loan interest, excluding
       variable rate floor
       income                    $239,436     $99,982    $347,632    $199,991
      Variable rate floor
       income                          --       6,900         348      12,700
      Amortization of loan
       premiums                   (15,037)    (14,209)    (34,854)    (30,336)
      Investment interest           3,181       5,343       6,832       9,268
       Total interest income      227,580      98,016     319,958     191,623

     Interest expense:
      Interest on bonds and
       notes payable               52,352      52,826     101,395     104,175

       Net interest income        175,228      45,190     218,563      87,448

     Less provision (recovery)
      for loan losses              (6,421)      2,450      (3,306)      4,860

       Net interest income
        after provision
        (recovery)
       for loan losses            181,649      42,740     221,869      82,588

     Other income:
      Loan servicing and other
       fee income                  22,512      24,400      48,221      50,237
      Software services and
       other income                 5,029       4,471      10,607       9,111
      Derivative market value
       adjustment and net
       settlements                  1,357          --     (2,384)          --
       Total other income          28,898      28,871      56,444      59,348

     Operating expenses:
      Salaries and benefits        49,036      30,343      76,805      56,848
      Other expenses               25,081      23,602      48,446      48,526
      Amortization of
       intangible assets            2,079       3,500       4,157       7,196
        Total operating
         expenses                  76,196      57,445     129,408     112,570

       Income before income
        taxes                     134,351      14,166     148,905      29,366

     Income tax expense            49,098       5,840      54,531      11,462

       Net income                 $85,253      $8,326     $94,374     $17,904

       Earnings per share,
        basic and diluted           $1.59       $0.19       $1.76       $0.40

     Weighted average shares
      outstanding              53,647,697  45,038,488  53,641,664  45,011,757


    Condensed Balance Sheets and Financial Data

                                           As of         As of         As of
                                          June 30,    December 31,    June 30,
                                            2004         2003          2003
                                         (unaudited)               (unaudited)
                                                (dollars in thousands)
                  Assets
     Student loans receivable, net      $12,194,097  $10,455,442   $9,466,523
     Cash, cash equivalents and
      investments                           908,087    1,155,215      659,874
     Other assets                           357,395      320,852      286,717
        Total assets                    $13,459,579  $11,931,509  $10,413,114


       Liabilities and shareholders'
                  equity
     Liabilities:
        Bonds and notes payable         $12,844,539  $11,366,458  $10,179,726
        Other liabilities                   214,058      259,562      106,199
           Total liabilities             13,058,597   11,626,020   10,285,925

     Shareholders' equity                   400,982      305,489      127,189

           Total liabilities and
            shareholders' equity        $13,459,579  $11,931,509  $10,413,114


     Average student loans              $10,869,351   $9,451,035   $8,648,786
     Return on average total assets            1.50%        0.25%        0.35%
     Return on average equity                  57.1%        19.4%        30.3%

SOURCE Nelnet, Inc.

media, Sheila Odom, +1-402-458-2329,
nelnetcommunications@nelnet.net, or investors, Cheryl Watson, +1-317-469-2064,
investorrelations@nelnet.net, both of Nelnet, Inc.
http://www.nelnetinvestors.net/releases.cfm?reltype=Financial

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