Nelnet Reports First Quarter 2011 Results

May 10, 2011

- Base net income of $1.18 per share for the quarter
- Increases second quarter dividend to $0.10 per share

LINCOLN, Neb., May 10, 2011 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported base net income of $56.7 million, or $1.18 per share, for the first quarter of 2011, compared with $56.6 million, or $1.14 per share, for the same quarter a year ago. Excluding the gains from the repurchase of debt, base net income was $1.09 per share for the first quarter of 2011 compared with $1.01 per share for the same quarter a year ago. Base net income in 2010 excludes restructuring charges.

Included in base net income are pre-tax gains of $7.0 million, or $0.09 per share after tax, and $10.2 million, or $0.13 per share after tax, from the repurchase of debt in the first quarters of 2011 and 2010, respectively.

"We continued to report strong results in the first quarter of 2011," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We are focused on growing our core businesses of loan servicing, payment processing, education planning, and loan financing; driving diversification; enhancing the customer experience; and operating with financial discipline as we grow."  

Growing our core and driving diversification

In the first quarter of 2011, revenue from Nelnet's tuition payment processing and campus commerce business increased $2.0 million, or 11 percent, from the first quarter of 2010, to $19.4 million for the first quarter of 2011. The company's enrollment services revenue increased to $33.9 million in the first quarter of 2011 from $33.3 million in the first quarter of 2010.

In September 2009, Nelnet began servicing student loans for the Department of Education (Department) under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of March 31, 2011, the company was servicing $37.3 billion of loans for 2.8 million borrowers on behalf of the Department, compared with $8.2 billion of loans for 1.1 million borrowers on March 31, 2010.

Maximizing the value of existing portfolio

At March 31, 2011, net student loan assets were $23.5 billion. 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 in excess of $1.7 billion.

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 2011, Nelnet reported net interest income of $85.8 million, compared with $85.1 million for the same period a year ago.

Operating with financial discipline

Operating expenses decreased $4.1 million, or 3.9 percent, to $99.6 million in the first quarter of 2011, from $103.7 million in the first quarter of 2010.  Over time the company anticipates increasing operating expenses with discipline to support revenue growth in our fee-based businesses.

GAAP net income

Nelnet reported GAAP net income for the first quarter of 2011 of $54.9 million, or $1.13 per dilutive share, compared with $54.3 million, or $1.08 per dilutive share, for the first quarter of 2010.

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 increases 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 $0.10 per share, an increase of $0.03 per share from the first quarter cash dividend. The dividend will be paid on June 15, 2011, to shareholders of record at the close of business on June 1, 2011. Nelnet currently has 37.0 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.

This press release contains forward-looking statements within the meaning of federal securities laws.  These statements are based on management's current expectations as of the date of this release, and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements.  Such risks include, among others, risks related to the company's student loan portfolio such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding and liquidity requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the student loan and educational credit and services marketplace resulting from the implementation of or changes in applicable laws and regulations; changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions.  For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the first quarter of 2011.  All information in this release is as of the date of this release.  Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

Condensed Consolidated Statements of Income







Three months ended







March 31,


December 31,


March 31,







2011


2010


2010







(unaudited)


(unaudited)


(unaudited)













Interest income:










Loan interest

$

147,347


159,248


151,048



Amortization of loan premiums and deferred origination costs

(9,989)


(10,180)


(16,081)



Investment interest


726


1,782


1,001




Total interest income


138,084


150,850


135,968













Interest expense:









Interest on bonds and notes payable


52,307


54,515


50,859















Net interest income


85,777


96,335


85,109


Less provision for loan losses


3,750


6,000


5,000















Net interest income after provision for loan losses


82,027


90,335


80,109













Other income (expense):









Loan and guaranty servicing revenue


35,636


33,126


36,394



Tuition payment processing and campus commerce revenue


19,369


15,120


17,382



Enrollment services revenue


33,868


34,784


33,271



Software services revenue


4,777


4,481


4,344



Other income


6,492


6,122


7,260



Gain on sale of loans and debt repurchases


8,307


49,810


10,177



Derivative market value and foreign currency adjustments


1,116


39,518


4,105



Derivative settlements, net


(4,152)


(5,878)


(2,423)




Total other income


105,413


177,083


110,510













Operating expenses:









Salaries and benefits


43,912


43,320


40,644



Cost to provide enrollment services


22,839


21,802


22,025



Depreciation and amortization


6,776


8,908


10,783



Restructure and impairment expense



26,599


1,197



Other expenses


26,105


30,645


29,055




Total operating expenses


99,632


131,274


103,704















Income before income taxes


87,808


136,144


86,915













Income tax expense


(32,928)


(51,057)


(32,593)















Net income

$

54,880


85,087


54,322













Earnings per common share:




















Net earnings - basic

$

1.13


1.76


1.09














Net earnings - diluted

$

1.13


1.75


1.08













Dividends per common share

$

0.07


0.49


0.07













Weighted average shares outstanding:




















Basic



48,171,317


48,118,000


49,716,696














Diluted



48,363,035


48,318,807


49,912,589















Condensed Consolidated Balance Sheets








As of


As of


As of







March 31,


December 31,


March 31,







2011


2010


2010







(unaudited)




(unaudited)












Assets:










Student loans receivable, net



$

23,536,415


23,948,014


24,835,493


Student loans receivable - held for sale





84,987



Cash, cash equivalents, and investments (trading securities)


85,856


327,037


382,978


Restricted cash and investments




859,521


757,285


767,057


Goodwill




117,118


117,118


143,717


Intangible assets, net




34,736


38,712


54,940


Other assets




661,053


620,739


657,760



Total assets



$

25,294,699


25,893,892


26,841,945












Liabilities:










Bonds and notes payable



$

24,066,092


24,672,472


25,756,182


Other liabilities




273,240


314,787


246,550



Total liabilities




24,339,332


24,987,259


26,002,732












Shareholders' equity




955,367


906,633


839,213














Total liabilities and shareholders' equity



$

25,294,699


25,893,892


26,841,945














(Code #: nnif)

SOURCE Nelnet

News Provided by Acquire Media