Nelnet Reports Student Loan Assets Grow 30 Percent; First-Quarter 2005 Earnings Strong

Apr 29, 2005

LINCOLN, Neb., April 29, 2005 /PRNewswire-FirstCall via COMTEX/ -- Nelnet, Inc. (NYSE: NNI) today reported base net income for the first-quarter 2005 of $31.4 million, or $0.59 per share, compared with $11.8 million, or $0.22 per share, in 2004. GAAP net income for the first-quarter 2005 was $68.1 million, or $1.27 per share, compared to $9.1 million, or $0.17 per share, in the prior year.

Base net income as defined by Nelnet is GAAP net income excluding derivative market value adjustments, amortization of intangible assets, and variable-rate floor income. A description of base net income and reconciliation of GAAP net income to base net income are included in this release.

Net student loan assets at March 31, 2005 were $14.5 billion, up approximately 30 percent, or $3.3 billion, from $11.2 billion at March 31, 2004. Since the beginning of 2005, student loan assets were up 8 percent, or $1.1 billion, from $13.5 billion at December 31, 2004.

"Nelnet's strong first-quarter earnings demonstrate our focus on long-term growth through asset generation, revenue diversification, and economies of scale," said Steve Butterfield, Nelnet Vice Chairman and Co-Chief Executive Officer. "In particular, our growth in student loan assets drives earnings and reflects our success in the campus-based and direct-to-consumer markets."

Nelnet prepares financial statements in accordance with generally accepted accounting principles (GAAP). In addition to evaluating the company's GAAP-based financial information, management and analysts also evaluate the company on certain non-GAAP performance measures that are referred to as base income adjustments. While base net income is not a substitute for reported results under GAAP, Nelnet provides base net income as additional information regarding the company's financial results.

Nelnet's base net income is a non-GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The company's base net income presentation does not represent another comprehensive basis of accounting.

The following table provides a reconciliation of GAAP net income to base
net income.

                                                        Three months ended
                                                            March 31,
                                                      2005              2004
                                                      (dollars in thousands,
                                                        except share data)
     GAAP net income                                $68,087            $9,121
     Base adjustments:
        Derivative market value
         adjustments                                (60,290)            2,527
        Amortization of intangible assets             1,173             2,078
        Variable-rate floor income                       --              (348)
     Total base adjustments before income
      taxes                                         (59,117)            4,257
     Net tax effect (a)                              22,464            (1,618)
     Total base adjustments                         (36,653)            2,639
        Base net income                             $31,434           $11,760

        Base earnings per share, basic and
         diluted                                      $0.59             $0.22

     (a)  Tax effect computed at 38%.

Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) today. To access the call live, participants in the United States and Canada should dial 877.502.9276 and international callers should dial 913.981.5591 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at under the conference calls and Web casts menu. A replay of the conference call will be available between 2:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) May 6. 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 8007478. A replay of the audio Web cast will also be available at Supplemental financial information to this earnings release is available online at

Condensed Consolidated Statements of Income

                                                         Three months ended
                                                             March 31,
                                                      2005             2004
                                                  (unaudited)      (unaudited)
                                                     (dollars in thousands,
                                                       except share data)
     Interest income:
       Loan interest, excluding variable-
        rate floor income                           $200,107        $108,196
       Variable-rate floor income                         --             348
       Amortization of loan premiums and
        deferred origination costs                   (15,782)        (19,817)
       Investment interest                             7,002           3,651
         Total interest income                       191,327          92,378

     Interest expense:
       Interest on bonds and notes payable           104,525          49,043

         Net interest income                          86,802          43,335

     Less provision for loan losses                    2,031           3,115

         Net interest income after
          provision for loan losses                   84,771          40,220

     Other income:
       Loan and guarantee servicing income            37,176          26,063
       Other fee-based income                          3,356           1,889
       Software services income                        2,206           1,892
       Other income                                    1,400           1,443
       Derivative market value adjustments            60,290          (2,527)
       Derivative settlements, net                   (10,086)         (1,214)
         Total other income                           94,342          27,546

     Operating expenses:
       Salaries and benefits                          39,327          27,769
       Other expenses                                 30,888          23,365
       Amortization of intangible assets               1,173           2,078
         Total operating expenses                     71,388          53,212

         Income before income taxes                  107,725          14,554
     Income tax expense                               39,638           5,433

         Net income                                  $68,087          $9,121

         Earnings per share, basic and
          diluted                                      $1.27           $0.17

     Weighted average shares outstanding          53,682,569      53,635,631

     Condensed Consolidated Balance Sheets and Financial Data

                                            As of        As of        As of
                                          March 31,  December 31,   March 31,
                                            2005         2004         2004
                                         (unaudited)               (unaudited)
                                                (dollars in thousands)
       Student loans receivable, net     $14,540,316  $13,461,814  $11,206,609
       Cash, cash equivalents, and
        investments                          993,894    1,302,954    1,099,678
       Other assets                          497,341      395,237      326,307
         Total assets                    $16,031,551  $15,160,005  $12,632,594

       Bonds and notes payable           $15,318,517  $14,300,606  $12,140,725
       Other liabilities                     187,723      403,224      177,232
         Total liabilities                15,506,240   14,703,830   12,317,957

     Shareholders' equity                    525,311      456,175      314,637

         Total liabilities and
          shareholders' equity           $16,031,551  $15,160,005  $12,632,594

     Return on average total assets            1.73%        1.11%        0.30%
     Return on average equity                  54.4%        39.7%        11.7%

Nelnet is one of the leading education finance companies in the United States and is focused on providing quality student loan products and services to students and schools nationwide. With more than $14.5 billion in student loan assets, Nelnet originates in excess of $3 billion for itself and its service partners annually, and its servicing software is used by approximately 35 clients, including Nelnet, to service more than $50 billion in student loans. Nelnet ranks among the nation's leaders in terms of total student loan assets.

Nelnet offers a broad range of student loan and financial services and technology-based products, including student loan origination and lending, guarantee servicing, and a suite of software solutions. Our products are designed to simplify the student loan process by automating financial aid delivery, loan processing, and funds disbursement. Our services help to facilitate and streamline education finance for all involved in the industry, including student and parent borrowers, lenders, financial aid officers, guaranty agencies, governmental agencies, servicers, and the capital markets.

Additional information is available at

Information contained in this press release, other than historical information, may be considered forward-looking in nature and is subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or expected. Among the key factors that may have a direct bearing on Nelnet's operating results, performance, or financial condition are changes in terms of student loans and the educational credit marketplace, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, or changes in the general interest rate environment and in the securitization markets for education loans.

(code #: nnif)

SOURCE Nelnet, Inc.

media, Sheila Odom, +1-402-458-2329, or investors, Cheryl Watson, +1-317-469-2064,
both of Nelnet, Inc.

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