- Base net income of $0.47 per share
- Other fee-based income increased to $45.9 million
- Core student loan spread of 1.02
- Operating expenses decreased by $56.4 million
LINCOLN, Neb., Oct 29, 2008 /PRNewswire-FirstCall via COMTEX News Network/ --
Nelnet, Inc. (NYSE: NNI) today reported GAAP net income for the third quarter of 2008 of $23.8 million, or $0.48 per share, compared with a GAAP net loss of $15.7 million, or $0.32 per share, for the third quarter of 2007. Base net income excluding discontinued operations and legislative and restructuring related charges for the third quarter of 2008 was $23.4 million, or $0.47 per share, compared with $22.2 million, or $0.45 per share, for the same period a year ago.
The company also reported that it has provided additional equity support for its $2.5 billion federal student loan warehouse facility. All of the student loans held in this facility are guaranteed by the federal government. According to the terms of the facility and the valuation formula contained therein, the company has increased the equity support to a total of $374.6 million by drawing on its unsecured line of
credit. Currently the company has $691.5 million outstanding on its $750 million unsecured line of credit. The company continues to generate positive cash flow from operations and currently maintains cash and cash equivalents of approximately $80 million. In addition, the company has approximately $90 million of unencumbered private loan assets.
"Due to this unprecedented period of market disruption, the mark-to-market formula specified under the terms of the facility produces an unreasonably low value for these federally guaranteed student loans," said Mike Dunlap, Chairman and Chief Executive Officer. "These loans are guaranteed by the federal government and have almost no default risk. However, we appreciate that we are truly in unprecedented times, and we are engaged in discussions with our lenders to reach amicable terms on these financings.
"Importantly, the
fundamentals of our core businesses are strong and we have additional sources of liquidity. The company has diversified its revenue with fee-based businesses that have significant growth opportunities and operating margins. We are pleased with our strong performance and earnings in the third quarter."
GAAP net loss for the first nine months of 2008 was $2.3 million, or $0.05 per share, compared with GAAP net income of $13.8 million, or $0.28 per share, for the first nine months of 2007. Base net income excluding discontinued operations, legislative and restructuring related charges, and the loss on the sale of certain loans for the first nine months of 2008 was $65.2 million, or $1.33 per share, compared with $68.6 million, or $1.38 per share, for the first nine months of 2007.
Fee-based Revenue
In the third quarter of 2008, other fee-based income increased to $45.9
million, up from $38.0 million in the same period a year ago. Other fee-based income increased to $132.6 million for the first nine months of 2008 compared with $116.3 million for the first nine months of 2007. Other fee-based income includes Nelnet's list management, direct marketing, tuition payment plan, and enrollment services businesses.
In the third quarter of 2008, loan and guaranty servicing income was $30.6 million compared with $33.0 million in the third quarter of 2007. Income from loan and guaranty servicing was $81.7 million for the first nine months of 2008 compared with $95.1 million in the first nine months of 2007.
Operating Expenses
Operating expenses were $103.7 million in the third quarter of 2008 compared with $173.4 million for the same period a year ago. For the first nine months of 2008, the company reported operating expenses of $330.4
million compared with $415.3 million for the first nine months of 2007. Excluding restructuring and impairment charges, operating expenses decreased by $15.3 million and $56.4 million for the three and nine months ended September 30, 2008, compared with the same periods in 2007, respectively.
Net Interest Margin
For the third quarter of 2008, Nelnet reported net interest income of $59.6 million compared with $64.4 million for the third quarter of 2007. Net interest income for the first nine months of 2008 was $149.4 million compared with $200.4 million for the first nine months of 2007. Net interest income includes variable-rate floor income and excludes settlements on the company's derivative portfolio.
For the third quarter of 2008, Nelnet reported core student loan spread of 1.02 percent compared with 1.05 percent in the same period of 2007 and 1.07 percent for
the second quarter of 2008.
Student Loan Assets and Liquidity
Nelnet reported net student loan assets of $26.4 billion at September 30, 2008. Approximately 90 percent of these student loans are life-of-loan financed at rates that the company believes will generate cash flow in excess of $1.4 billion.
The company has liquidity for new loan originations through the Department of Education's loan participation and put programs. This will allow Nelnet to make loans to all eligible students for the 2008-2009 and 2009-2010 academic years.
In addition, the company believes it has met the annual requirement to remove 75% of loans from its federal student loan warehouse facility for the annual period ending in May 2009. Under the current terms of the facility, the remaining collateral will need to be removed or refinanced by May 2010.
Non-GAAP Performance
Measures
A description of base net income and a reconciliation of GAAP net income to base net income can be found in supplemental financial information to this earnings release that is available online at http://www.nelnetinvestors.com/releases.cfm?reltype=Financial.
Conference Call
Nelnet will host a conference call to discuss earnings at 3:00 p.m. (Eastern) Wednesday, November 12, 2008. To access the call live, participants in the United States and Canada should dial 877.723.9521, and international callers should dial 719.325.4804 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at http://www.nelnetinvestors.com under the conference calls and Web casts menu. A
replay of the conference call will be available between 6:00 p.m. (Eastern) November 12, 2008, and 11:59 p.m. (Eastern) November 22, 2008. To access the replay
via telephone within the United States 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 7046007. A replay of the audio Web cast will also be available at http://www.nelnetinvestors.com.
Condensed Consolidated Statements of Operations
Three months ended Nine months ended
September June September September September
30, 30, 30, 30, 30,
2008 2008 2007 2008 2007
(unaudited)(unaudited)(unaudited) (unaudited) (unaudited)
(dollars in thousands, except share data)
Interest income:
Loan interest $304,226 297,601 460,103 938,399 1,317,936
Variable-rate
floor income 1,580 21,927 597 42,325 597
Amortization of
loan premiums
and deferred
origination
costs (21,338) (22,842) (23,449) (69,584) (67,142)
Investment
interest 9,118 9,116 21,023 29,914 61,231
Total interest
income 293,586 305,802 458,274 941,054 1,312,622
Interest expense:
Interest on bonds
and notes
payable 234,016 232,464 393,875 791,621 1,112,263
Net interest
income 59,570 73,338 64,399 149,433 200,359
Less provision for
loan losses 7,000 6,000 18,340 18,000 23,628
Net interest
income after
provision for
loan losses 52,570 67,338 46,059 131,433 176,731
Other income:
Loan and guaranty
servicing income 30,633 24,904 33,040 81,650 95,116
Other fee-based
income 45,887 40,817 38,025 132,617 116,316
Software services
income 4,217 4,896 5,426 15,865 17,022
Other income 1,242 1,646 7,028 4,298 14,048
Gain (loss) on
sale of loans - 48 492 (47,426) 3,288
Derivative market
value, foreign
currency, and
put option
adjustments 6,085 15,755 18,449 (35,521) 11,866
Derivative
settlements, net 789 4,437 (2,336) 45,989 7,100
Total other
income 88,853 92,503 100,124 197,472 264,756
Operating expenses:
Salaries and
benefits 44,739 43,549 60,545 142,131 182,010
Other expenses 52,332 47,812 52,511 149,744 159,792
Amortization of
intangible
assets 6,598 6,561 10,885 19,719 24,014
Impairment
expense - - 49,504 18,834 49,504
Total
operating
expenses 103,669 97,922 173,445 330,428 415,320
Income (loss)
before income
taxes 37,754 61,919 (27,262) (1,523) 26,167
Income tax expense
(benefit) 13,969 19,195 (10,664) 1,793 9,906
Income (loss)
from
continuing
operations 23,785 42,724 (16,598) (3,316) 16,261
Income (loss) from
discontinued
operations, net
of tax - 981 909 981 (2,416)
Net income
(loss) $23,785 43,705 (15,689) (2,335) 13,845
Earnings (loss)
per share, basic
and diluted:
Income (loss)
from
continuing
operations $0.48 0.87 (0.34) (0.07) 0.32
Income (loss)
from
discontinued
operations,
net of tax - 0.02 0.02 0.02 (0.04)
Net income
(loss) $0.48 0.89 (0.32) (0.05) 0.28
Weighted average
shares
outstanding 49,176,436 49,095,153 49,018,091 49,109,340 49,810,552
Condensed Consolidated Balance Sheets
As of As of As of
September 30, December 31, September 30,
2008 2007 2007
(unaudited) (unaudited)
(dollars in thousands)
Assets:
Student loans receivable, net $26,376,269 26,736,122 26,596,123
Cash, cash equivalents, and
investments 1,454,881 1,120,838 1,451,772
Goodwill 175,178 164,695 164,695
Intangible assets, net 83,565 112,830 119,242
Other assets 880,122 1,028,298 1,010,632
Total assets $28,970,015 29,162,783 29,342,464
Liabilities:
Bonds and notes payable $28,004,835 28,115,829 28,234,147
Other liabilities 355,450 438,075 516,424
Total liabilities 28,360,285 28,553,904 28,750,571
Shareholders' equity 609,730 608,879 591,893
Total liabilities and
shareholders' equity $28,970,015 29,162,783 29,342,464
This press release contains forward-looking statements and information based on management's current expectations as of the date of this document. When used in this press release, the words "anticipate," "believe," "estimate," "expect," "intend," and "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in the "Risk Factors" section of the company's Annual Report on Form 10-K for the year ended December 31, 2007 and subsequent Quarterly Reports on Form 10-Q, changes in the terms of student loans and the educational credit marketplace arising from the
implementation of, or changes in, applicable laws and regulations, which may reduce the volume, average term, special allowance payments, and costs of yields on student loans under the FFEL Program or result in loans being originated or refinanced under non-FFEL programs or may affect the terms upon which banks and others agree to sell FFELP loans to the company. In addition, a larger than expected increase in third party consolidations of the company's FFELP loans could materially adversely affect the company's results of operations. The company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students, and their families; the company's ability to maintain its credit facilities or obtain new facilities; the ability of lenders under the company's credit facilities to fulfill their lending
commitments under those facilities; changes to the terms and conditions of the liquidity programs offered by the Department of Education; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase, or carry education loans; losses from loan defaults; changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads; the uncertain nature of the expected benefits from acquisitions and the ability to successfully integrate operations; and the uncertain nature of estimated expenses that may be incurred and cost savings that may result from the company's strategic restructuring initiatives. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this press release. Additionally,
financial projections may not prove to be accurate and may vary materially. Although the company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.
(code #: nnif)
SOURCE Nelnet, Inc.
http://www.nelnet.com
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