Aug 09, 2010

Nelnet Reports Second Quarter 2010 Results

- Base net income of $1.17 per share for the second quarter of 2010 - Payment processing and enrollment services revenue increased 19 percent - Servicing 1.5 million borrowers for the Department of Education - Repurchased 663,443 shares of common stock

LINCOLN, Neb., Aug 09, 2010 /PRNewswire via COMTEX News Network/ -- Nelnet (NYSE: NNI) today reported base net income of $58.4 million, or $1.17 per share, for the second quarter of 2010, compared with $29.7 million, or $0.60 per share, for the same quarter a year ago. For the six months ended June 30, 2010, the company reported base net income of $114.9 million, or $2.31 per share, compared with $62.2 million, or $1.26 per share, for the same period in 2009. Base net income excludes restructuring charges.

Base net income in the second quarter of 2010 includes pre-tax gains of $8.8 million, or $0.11 per share after tax, from the company's repurchase of $118 million of asset-backed debt and is compared with pre-tax gains of $5.9 million, or $0.07 per share after tax, from the repurchase of debt in the second quarter of 2009.

"Through the first two quarters of 2010, we are excited with our operating results and the progress we are making toward key objectives," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "Nelnet is a strong, diverse, and dynamic company with a bright future. 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 and liquidity to make the most of opportunities will continue to be priorities."

Diversifying and increasing fee-based revenue

In the second quarter of 2010, Nelnet's fee-based revenue from the company's payment processing and enrollment services businesses increased $7.6 million, or 19 percent, to $48.2 million, compared with the same period in 2009.

In September 2009, Nelnet began servicing student loans for the Department of Education under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of June 30, 2010, the company was servicing $12.9 billion of loans for 1.5 million borrowers on behalf of the Department. In the second quarter of 2010, Nelnet reported revenue from this servicing contract of $6.1 million, compared with $3.5 million for the first quarter of 2010.

Maximizing the value of existing portfolio

At June 30, 2010, net student loan assets were $26.7 billion, including $1.9 billion of federal student loans purchased from third parties during the second quarter and $2.0 billion of federal student loans classified as held for sale. The loans held for sale are expected to generate a pre-tax gain of $30 million to $33 million when the loans are sold to the Department under its Loan Purchase Program during the fourth quarter of 2010.

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 second quarter of 2010, Nelnet reported net interest income of $97.4 million, compared with $57.1 million for the same period a year ago. Net interest income includes $31.1 million and $37.1 million of fixed rate floor income for the second quarters of 2010 and 2009, respectively. If interest rates remain low, the company anticipates earning significant fixed rate floor income in future quarters as well.

The company reported core student loan spread of 1.54 percent for the second quarter of 2010, compared with 1.09 percent for the same period of 2009 and 1.45 percent for the first quarter of 2010. Core student loan spread is benefiting from the significant tightening between the three-month financial commercial paper rate (CP) and three-month LIBOR indices. Most of the company's federal student loans are indexed to CP and the company's debt is indexed to LIBOR, therefore, disparity between these indices has a negative impact on the company's interest income.

Managing operating expenses

From the same period a year ago, comparable operating expenses increased $2.4 million, or 3 percent, for the three months ended June 30, 2010.

Repurchasing common stock

During the three-month period ended June 30, 2010, Nelnet repurchased and retired 663,443 shares of Class A common stock, under the company's stock repurchase program, for $12.8 million, or an average price of $19.33 per share.

GAAP net income

Nelnet reported GAAP net income for the second quarter of 2010 of $50.0 million, or $0.99 per dilutive share, compared with $8.2 million, or $0.16 per dilutive share, for the second quarter of 2009. For the six months ended June 30, 2010, the company reported GAAP net income of $104.3 million, or $2.08 per dilutive share, compared with $33.7 million, or $0.68 per dilutive share, for the same period in 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 www.nelnetinvestors.com/results.cfm.

Board of Directors declares 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 $0.07 per share. The dividend will be paid on September 15, 2010, to shareholders of record at the close of business on September 1, 2010. Nelnet currently has 38.0 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, August 10, 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 www.nelnetinvestors.com under the Events & Webcasts menu. A replay of the conference call will be available through August 20, 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 82397628. A replay of the audio webcast will also be available at www.nelnetinvestors.com.

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 second quarter of 2010. All information in this release is as of August 9, 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
                                    June 30,             31,       June 30,
                                          2010              2010         2009
                                          ----              ----         ----
                                   (unaudited)       (unaudited)  (unaudited)

    Interest income:
      Loan interest                   $167,902           151,048      177,202
      Amortization of loan
       premiums and deferred
       origination costs               (12,549)          (16,081)     (16,789)
      Investment interest                1,304             1,001        2,776
                                         -----             -----        -----
        Total interest income          156,657           135,968      163,189

    Interest expense:
      Interest on bonds and notes
       payable                          59,243            50,859      106,082
                                        ------            ------      -------

        Net interest income             97,414            85,109       57,107
    Less provision for loan
     losses                              6,200             5,000        8,000
                                         -----             -----        -----

        Net interest income after
         provision for loan losses      91,214            80,109       49,107
                                        ------            ------       ------

    Other income (expense):
      Loan and guaranty servicing
       revenue                          36,652            36,394       28,803
      Tuition payment processing
       and campus commerce revenue      12,795            17,382       11,848
      Enrollment services revenue       35,403            33,271       28,747
      Software services revenue          5,499             4,344        6,119
      Other income                       8,496             7,260        5,665
      Gain on sale of loans and
       debt repurchases, net             8,759            10,177        5,666
      Derivative market value and
       foreign currency
       adjustments                      (7,231)            4,105      (34,013)

      Derivative settlements, net       (3,377)           (2,423)       9,535
                                        ------            ------        -----
        Total other income              96,996           110,510       62,370
                                        ------           -------       ------

    Operating expenses:
      Salaries and benefits             41,034            41,641       40,180
      Other expenses                    36,844            33,522       33,299
      Cost to provide enrollment
       services                         24,111            22,025       18,092
      Amortization of intangible
       assets                            6,232             6,516        5,785
                                         -----             -----        -----
        Total operating expenses       108,221           103,704       97,356
                                       -------           -------       ------

        Income before income taxes      79,989            86,915       14,121


    Income tax expense                 (29,996)          (32,593)      (5,918)
                                       -------           -------       ------

        Net income                     $49,993            54,322        8,203
                                       =======            ======        =====

    Earnings per common share:

      Net earnings - basic               $1.00              1.09         0.16
                                         =====              ====         ====

      Net earnings - diluted             $0.99              1.08         0.16
                                         =====              ====         ====

    Dividends per common share           $0.07              0.07            -
                                         =====              ====          ===

    Weighted average shares
     outstanding:

      Basic                         49,735,398        49,716,696   49,534,413

      Diluted                       49,934,648        49,912,589   49,733,561



                                                   Six months ended
                                                   ----------------
                                               June 30,          June 30,
                                                     2010              2009
                                                     ----              ----
                                              (unaudited)       (unaudited)

    Interest income:
      Loan interest                               318,950           366,772
      Amortization of loan premiums and
       deferred origination costs                 (28,630)          (35,440)
      Investment interest                           2,305             6,867
                                                    -----             -----
        Total interest income                     292,625           338,199

    Interest expense:
      Interest on bonds and notes payable         110,102           252,584
                                                  -------           -------

        Net interest income                       182,523            85,615
    Less provision for loan losses                 11,200            15,500
                                                   ------            ------

        Net interest income after provision
         for loan losses                          171,323            70,115
                                                  -------            ------

    Other income (expense):
      Loan and guaranty servicing revenue          73,046            55,274
      Tuition payment processing and campus
       commerce revenue                            30,177            27,386
      Enrollment services revenue                  68,674            57,518
      Software services revenue                     9,843            11,824
      Other income                                 15,756            14,452
      Gain on sale of loans and debt
       repurchases, net                            18,936            13,535
      Derivative market value and foreign
       currency adjustments                        (3,126)          (38,893)

      Derivative settlements, net                  (5,800)           33,893
                                                   ------            ------
        Total other income                        207,506           174,989
                                                  -------           -------

    Operating expenses:
      Salaries and benefits                        82,675            78,406
      Other expenses                               70,366            63,697
      Cost to provide enrollment services          46,136            35,885
      Amortization of intangible assets            12,748            11,939
                                                   ------            ------
        Total operating expenses                  211,925           189,927
                                                  -------           -------

        Income before income taxes                166,904            55,177


    Income tax expense                            (62,589)          (21,519)
                                                  -------           -------

        Net income                                104,315            33,658
                                                  =======            ======

    Earnings per common share:

      Net earnings - basic                           2.08              0.68
                                                     ====              ====

      Net earnings - diluted                         2.08              0.68
                                                     ====              ====

    Dividends per common share                       0.14                 -
                                                     ====               ===

    Weighted average shares outstanding:

      Basic                                    49,726,099        49,339,451

      Diluted                                  49,923,680        49,543,461



    Condensed Consolidated Balance Sheets


                                            As of        As of       As of
                                          June 30,   December 31,   June 30,
                                                2010         2009         2009
                                                ----         ----         ----
                                        (unaudited)               (unaudited)

    Assets:
      Student loans receivable, net      $24,746,932   23,926,957   23,889,571
      Student loans receivable -held
       for sale                            1,995,869            -    1,749,290
      Cash, cash equivalents, and
       investments (trading securities)      305,778      338,181      371,380
      Restricted cash and investments        706,965      717,233    1,123,607
      Goodwill                               143,717      143,717      175,178
      Intangible assets, net                  48,708       53,538       65,115
      Other assets                           620,054      696,801      736,401
                                             -------      -------      -------
        Total assets                     $28,568,023   25,876,427   28,110,542
                                         ===========   ==========   ==========

    Liabilities:
      Bonds and notes payable            $27,428,772   24,805,289   27,169,573
      Other liabilities                      265,306      286,575      259,782
                                             -------      -------      -------
        Total liabilities                 27,694,078   25,091,864   27,429,355
                                          ----------   ----------   ----------

    Shareholders' equity                     873,945      784,563      681,187
                                             -------      -------      -------

        Total liabilities and
         shareholders' equity            $28,568,023   25,876,427   28,110,542
                                         ===========   ==========   ==========




(code #: nnif)

SOURCE Nelnet, Inc.

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