August 11, 2008

Nelnet Reports Strong Second Quarter of 2008 Results

LINCOLN, Neb., Aug 11, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Nelnet, Inc. (NYSE: NNI) today reported GAAP net income for the second quarter of 2008 of $43.7 million, or $0.89 per share, compared with $14.8 million, or $0.30 per share, for the second quarter of 2007. Base net income excluding discontinued operations and restructuring related charges for the second quarter of 2008 was $26.5 million, or $0.54 per share, compared with $21.7 million, or $0.44 per share, for the same period a year ago.

"We are very pleased with our results for the second quarter in what continues to be a challenging capital markets environment," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We continue to be proactive with our decisions to create operating efficiencies and remain competitive for the long term with our student loan business. More importantly, our diversification strategy has reduced our reliance on net interest income and has provided us many more opportunities to be successful in the execution of our business plan."

"While the capital markets remain severely disrupted, the Department of Education's funding facilities will provide an important source of liquidity, allowing us to make loans to all eligible students for the 2008-2009 academic year," added Jeff Noordhoek, Nelnet President.

GAAP net loss for the first six months of 2008 was $26.1 million, or $0.53 per share, compared with GAAP net income of $29.5 million, or $0.59 per share, for the first six months of 2007. Base net income excluding discontinued operations, restructuring related charges, and the loss on the sale of loans for the first six months of 2008 was $41.8 million, or $0.85 per share, compared with $46.4 million, or $0.92 per share, for the first six months of 2007.

Fee-based Revenue

In the second quarter of 2008, other fee-based income increased to $40.8 million, up from $38.3 million in the same period a year ago. Other fee-based income increased to $86.7 million for the first six months of 2008 compared with $78.3 million for the first six months of 2007. Other fee-based income includes Nelnet's list management, direct marketing, tuition payment plan, and enrollment services businesses.

In the second quarter of 2008, loan and guaranty servicing income was $24.9 million compared with $31.6 million in the second quarter of 2007. Income from loan and guaranty servicing was $51.0 million for the first six months of 2008 compared with $62.1 million in the first six months of 2007.

Operating Expenses

Operating expenses were $97.9 million in the second quarter of 2008 compared with $120.6 million for the same period a year ago. For the first six months of 2008, the company reported operating expenses of $226.8 million compared with $241.9 million for the first six months of 2007. Excluding restructuring and impairment charges, operating expenses decreased by $22.4 million and $41.1 million for the three and six months ended June 30, 2008 compared with the same periods in 2007, respectively.

Net Interest Margin

For the second quarter of 2008, Nelnet reported net interest income of $73.3 million compared with $68.0 million for the second quarter of 2007. Net interest income for the first six months of 2008 was $89.9 million compared with $136.0 million for the first six months of 2007. Net interest income includes variable-rate floor income and excludes settlements on the company's derivative portfolio. In addition, net interest income in the second quarter of 2008 includes $4.6 million from a change in estimate on certain liabilities related to a prior business acquisition.

For the second quarter of 2008, Nelnet reported core student loan spread of 1.07 percent compared with 1.28 percent in the same period of 2007 and 0.73 percent for the first quarter of 2008. The increase in core student loan spread from the first quarter of 2008 was primarily driven by the change in the relationship between short-term interest rate indices and a non-recurring reduction in rates paid on certain of its auction rate securities. The company believes 15 basis points of the improvement in core student loan spread during the second quarter of 2008 is not sustainable and may not benefit future periods.

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.

Nelnet will host a conference call to discuss this earnings release at 3:00 p.m. (Eastern) tomorrow August 12, 2008. To access the call live, participants in the United States and Canada should dial 877.627.6585 and international callers should dial 719.325.4934 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) August 12, 2008 and 11:59 p.m. (Eastern) August 20, 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 4201680. A replay of the audio Web cast will also be available at http://www.nelnetinvestors.com.

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," "intend," and "expect" 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 "Risk Factors" and elsewhere in the company's Quarterly Report on Form 10-Q, prior quarterly reports filed by the company, and the company's Annual Report on Form 10-K for the year ended December 31, 2007, 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; 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. The company is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this press release or unforeseen events. 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.



    Condensed Consolidated Statements of Operations

                               Three months ended          Six months ended
                         June 30,    March 31,  June 30,  June 30,  June 30,
                           2008       2008       2007       2008      2007
                       (unaudited)(unaudited)(unaudited)(unaudited)(unaudited)
                              (dollars in thousands, except share data)

    Interest income:
      Loan interest      $297,601    336,572    439,720    634,173    857,833
      Variable-rate
       floor income        21,927     18,818          -     40,745          -
      Amortization of
       loan premiums
       and deferred
       origination costs  (22,842)   (25,404)   (22,634)   (48,246)   (43,693)
      Investment interest   9,116     11,680     18,783     20,796     40,208
        Total interest
         income           305,802    341,666    435,869    647,468    854,348

    Interest expense:
      Interest on bonds
       and notes payable  232,464    325,141    367,893    557,605    718,388

        Net interest
         income            73,338     16,525     67,976     89,863    135,960
    Less provision for
     loan losses            6,000      5,000      2,535     11,000      5,288

        Net interest
         income after
         provision for
         loan losses       67,338     11,525     65,441     78,863    130,672

    Other income:
      Loan and guaranty
       servicing income    24,904     26,113     31,610     51,017     62,076
      Other fee-based
       income              40,817     45,913     38,262     86,730     78,291
      Software services
       income               4,896      6,752      5,848     11,648     11,596
      Other income          1,646      1,429      1,927      3,056      7,020
      Gain (loss) on
       sale of loans           48    (47,493)     1,010    (47,426)     2,796
      Derivative market
       value, foreign
       currency, and put
       option adjustments  15,755    (57,361)     5,547    (41,606)    (6,583)
      Derivative
       settlements, net     4,437     40,763      5,196     45,200      9,436
        Total other
         income            92,503     16,116     89,400    108,619    164,632

    Operating expenses:
      Salaries and
       benefits            43,549     53,843     59,761     97,392    121,465
      Other expenses       47,812     49,600     54,394     97,412    107,281
      Amortization of
       intangible assets    6,561      6,560      6,491     13,121     13,129
      Impairment expense        -     18,834          -     18,834          -
        Total operating
         expenses          97,922    128,837    120,646    226,759    241,875

        Income (loss)
         before income
         taxes             61,919   (101,196)    34,195    (39,277)    53,429

    Income tax expense
     (benefit)             19,195    (31,371)    13,306    (12,176)    20,570

        Income (loss)
         from continuing
         operations        42,724    (69,825)    20,889    (27,101)    32,859

    Income (loss) from
     discontinued
     operations,
     net of tax               981          -     (6,135)       981     (3,325)

        Net income (loss) $43,705    (69,825)    14,754    (26,120)    29,534

    Earnings (loss) per
     share, basic and
     diluted:
        Income (loss)
         from continuing
         operations         $0.87      (1.42)      0.42      (0.55)      0.66
        Income (loss)
         from discontinued
         operations,
         net of tax          0.02          -      (0.12)      0.02      (0.07)

        Net income (loss)   $0.89      (1.42)      0.30      (0.53)      0.59

    Weighted
     average shares
     outstanding       49,095,153 49,051,745 49,452,960 49,073,580 50,213,349



    Condensed Consolidated Balance Sheets and Financial Data

                                         As of          As of         As of
                                        June 30,     December 31,    June 30,
                                          2008          2007           2007
                                      (unaudited)                  (unaudited)
                                               (dollars in thousands)
    Assets:
      Student loans receivable, net   $25,993,307    26,736,122    26,174,958
      Cash, cash equivalents, and
       investments                      1,175,310     1,120,838     1,367,257
      Goodwill                            175,178       164,695       191,256
      Intangible assets, net               90,163       112,830       146,542
      Other assets                        997,967     1,028,298       993,361
        Total assets                  $28,431,925    29,162,783    28,873,374

    Liabilities:
      Bonds and notes payable         $27,530,237    28,115,829    27,791,146
      Other liabilities                   317,646       438,075       471,050
        Total liabilities              27,847,883    28,553,904    28,262,196

    Shareholders' equity                  584,042       608,879       611,178

        Total liabilities and
         shareholders' equity         $28,431,925    29,162,783    28,873,374

    Shareholders' equity to total
     assets                                  2.05%         2.09%         2.12%
    Tangible equity to total assets (a)      1.65%         1.65%         1.47%

    (a) Includes 75% ($150 million) equity credit for $200 million hybrid
        securities debt per credit agency ratings.

    (code #: nnif)

SOURCE Nelnet, Inc.

http://www.nelnet.com

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