May 10, 2010

Nelnet Reports First Quarter 2010 Results

- Base net income of $1.14 per share for the first quarter of 2010 - Payment processing and enrollment services revenue increased 14 percent - Servicing over 1.2 million borrowers for the Department of Education - Purchased approximately $2 billion of loans since April 1, 2010

LINCOLN, Neb., May 10, 2010 /PRNewswire via COMTEX News Network/ -- Nelnet (NYSE: NNI) today reported base net income of $56.6 million, or $1.14 per share, for the first quarter of 2010, compared with $31.5 million, or $0.64 per share, for the same quarter a year ago. Base net income excludes restructuring charges.

Base net income in the first quarter of 2010 includes pre-tax gains of $10.2 million, or $0.13 per share after tax, from the company's repurchase of $274 million of asset-backed debt and is compared with pre-tax gains of $8.1 million, or $0.10 per share after tax, from the repurchase of debt in the first quarter of 2009.

"Our results for the first quarter have started the year off well for Nelnet," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We are focused on growing and diversifying our fee-based revenue; maximizing the value of our loan portfolio; managing our expense structure as we grow; and using our financial strength, liquidity, and efficiencies to help us make the most of opportunities in the student loan market."

Diversifying and increasing fee-based revenue

In the first quarter of 2010, Nelnet's fee-based revenue from the company's payment processing and enrollment services businesses increased $6.3 million, or 14 percent, to $50.7 million, compared with the same period in 2009.

In September 2009, Nelnet began servicing student loans for the Department under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of March 31, 2010, the company was servicing $8.2 billion of loans for over 1 million borrowers on behalf of the Department, of which $6.2 billion was incremental volume previously serviced by other companies. As of April 30, 2010, servicing volume for the Department had increased to $9.5 billion for over 1.2 million borrowers.

Maximizing the value of existing portfolio

At March 31, 2010, net student loan assets were $24.8 billion. Since the end of the first quarter of 2010, the company has purchased approximately $2 billion of federal student loans from third parties, which will be accretive to earnings immediately.

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. Narrower spreads and 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 first quarter of 2010, Nelnet reported net interest income of $85.1 million, compared with $28.5 million for the same period a year ago.

The company reported core student loan spread of 1.45 percent for the first quarter of 2010, compared with 0.94 percent for the same period of 2009 and 1.44 percent for the fourth quarter of 2009. Core student loan spread is benefiting from two factors: 1) lower interest rates increased fixed rate floor income to $35.3 million in the first quarter of 2010, compared with $30.3 million for the same period a year ago and $38.9 million in the fourth quarter of 2009, and 2) the disparity between three-month financial commercial paper rate (CP) and three-month LIBOR has tightened significantly.

Managing operating expenses

From the same period in 2009, comparable operating expenses increased $0.9 million, or 1 percent, to $75.3 million for the three months ended March 31, 2010.

GAAP net income

Nelnet reported GAAP net income for the first quarter of 2010 of $54.3 million, or $1.08 per dilutive share, compared with $25.5 million, or $0.51 per dilutive share, for the first quarter of 2009.

While base net income is not a substitute for reported results under GAAP, base net income is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. The company utilizes base net income in operating its business because base net income permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the company's performance that arises from certain items that are primarily affected by factors beyond the control of management.

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 online at

Board of Directors declares dividend

The Nelnet Board of Directors declared a second quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.07 per share. The dividend will be paid on June 15, 2010, to shareholders of record at the close of business on June 1, 2010. Nelnet currently has 38.6 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.

Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) Tuesday, May 11, 2010. To access the call live, participants in the United States and Canada should dial 877.303.9101, and international callers should dial 760.666.4786 at least 15 minutes prior to the call. A live audio webcast of the call will also be available at under the Events & Webcasts menu. A replay of the conference call will be available through May 21, 2010. To access the replay via telephone within the United States and Canada, callers should dial 800.642.1687. International callers should dial 706.645.9291. All callers accessing the replay will need to use the confirmation code 70580404. A replay of the audio webcast will also be available at

This press release contains forward-looking statements based on management's current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations; adverse results in legal disputes; changes in the demand for educational financing or in financing preferences of educational institutions, students, and their families; increased financing costs; and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company's supplemental financial information for the first quarter of 2010. All information in this release is as of May 10, 2010. The company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the company's expectations.

    Condensed Consolidated Statements of Income

                                               Three months ended
                                   March 31,             31,      March 31,
                                          2010              2009         2009
                                          ----              ----         ----
                                   (unaudited)       (unaudited)  (unaudited)

    Interest income:
      Loan interest                   $151,048           153,891      189,570
      Amortization of loan
       premiums and deferred
       origination                     (16,081)          (18,558)     (18,651)
      Investment interest                1,001             1,477        4,091
                                         -----             -----        -----
        Total interest income          135,968           136,810      175,010

    Interest expense:
      Interest on bonds and notes
       payable                          50,859            56,262      146,502
                                        ------            ------      -------

        Net interest income             85,109            80,548       28,508
    Less provision for loan
     losses                              5,000             6,000        7,500
                                         -----             -----        -----

        Net interest income after
         provision for loan losses      80,109            74,548       21,008
                                        ------            ------       ------

    Other income (expense):
      Loan and guaranty servicing
       revenue                          36,394            27,467       26,471
      Tuition payment processing
       and campus commerce              17,382            13,521       15,538
      Enrollment services revenue       33,271            31,209       28,771
      Software services revenue          4,344             4,740        5,705
      Other income                       7,260             6,171        8,787
      Gain on sale of loans and
       debt repurchases, net            10,177            49,260        7,869
      Derivative market value and
       foreign currency                  4,105             5,265       (4,880)
      Derivative settlements, net       (2,423)              479       24,358
                                        ------               ---       ------
        Total other income             110,510           138,112      112,619
                                       -------           -------      -------

    Operating expenses:
      Salaries and benefits             41,641            39,316       38,226
      Other expenses                    33,522            27,284       17,793
      Cost to provide enrollment
       services                         22,025            18,718       30,398
      Impairment expense                     -            32,728            -
      Amortization of intangible
       assets                            6,516             4,998        6,154
                                         -----             -----        -----
        Total operating expenses       103,704           123,044       92,571
                                       -------           -------       ------

        Income before income taxes      86,915            89,616       41,056

    Income tax expense                 (32,593)          (30,553)     (15,601)
                                       -------           -------      -------

        Net income                     $54,322            59,063       25,455

    Earnings per common share:

      Net earnings - basic               $1.09              1.18         0.51

      Net earnings - diluted             $1.08              1.18         0.51

    Dividends per common
     share                               $0.07              0.07            -

    Weighted average shares

      Basic                         49,716,696        49,639,329   49,142,324

      Diluted                       49,912,589        49,838,374   49,334,981

    Condensed Consolidated Balance Sheets

                                        As of        As of       As of
                                      March 31,  December 31,  March 31,
                                            2010         2009         2009
                                            ----         ----         ----
                                    (unaudited)               (unaudited)

      Student loans receivable, net  $24,835,493   23,926,957   25,624,337
      Cash and cash equivalents          330,079      338,181      243,705
      Restricted cash and
       investments                       767,057      717,233    1,274,122
      Goodwill                           143,717      143,717      175,178
      Intangible assets, net              54,940       53,538       70,900
      Other assets                       710,659      696,801      704,895
                                         -------      -------      -------
        Total assets                 $26,841,945   25,876,427   28,093,137
                                     ===========   ==========   ==========

      Bonds and notes payable        $25,756,182   24,805,289   27,130,406
      Other liabilities                  246,550      286,575      291,129
                                         -------      -------      -------
        Total liabilities             26,002,732   25,091,864   27,421,535
                                      ----------   ----------   ----------

    Shareholders' equity                 839,213      784,563      671,602
                                         -------      -------      -------

        Total liabilities and
         shareholders' equity        $26,841,945   25,876,427   28,093,137
                                     ===========   ==========   ==========

(code #: nnif)


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