- Base net income for the first quarter, excluding the legislative-driven provision for loan losses, $0.65 per share - Adjusted base net income for the first quarter, excluding the legislative-driven provision for loan losses, $0.44 per share - Fee-based revenue represents 44 percent of total revenue
LINCOLN, Neb., April 28, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Nelnet, Inc. (NYSE: NNI) today reported GAAP net income for the first quarter of 2006 of $52.1 million, or $0.96 per share, compared with $68.1 million, or $1.27 per share, for the first quarter of 2005. Base net income for the first quarter of 2006 was $30.9 million, or $0.57 per share, compared with $31.4 million, or $0.59 per share, in the first quarter of 2005.
Base net income excluding certain special allowance yield adjustments and related derivative settlements (adjusted base net income) was $0.36 per share for the first quarter of 2006, up from $0.35 per share for the first quarter of 2005. Base net income as defined by Nelnet is GAAP net income excluding derivative market value and foreign currency adjustments, the 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 is included in this release.
GAAP net income, base net income, and adjusted base net income in 2006 include a legislative-driven expense of $6.9 million, or $4.3 million after tax, for loan loss reserves due to a provision in the Deficit Reduction Act of 2005 that increased risk sharing for student loan holders by one percent on Federal Family Education Loan Program loans. Excluding this expense, GAAP net income, base net income, and adjusted base net income in the first quarter would have been $1.04 per share, $0.65 per share, and $0.44 per share, respectively.
For the first-quarter 2006, GAAP net income includes an unrealized gain in the fair-market value of derivative instruments and foreign currency adjustments of $39.8 million. Nelnet's derivatives do not qualify for hedge accounting under FASB 133. As such, the mark-to-market gains or losses of derivatives in each reporting period are included in the statement of operations, but removed from GAAP net income in the calculation of base net income. In addition, base net income excludes the foreign currency transaction gain caused by the re-measurement of the company's Euro-denominated bonds to U.S. dollars.
Since December 31, 2005, net student loan assets have increased 5 percent, or $1.1 billion, from $20.3 billion to $21.3 billion at March 31, 2006.
"We are off to a great start in 2006 with strong loan growth in our internal brands for both our direct-to-consumer and school-based channels," said Steve Butterfield, Nelnet Vice Chairman and co-Chief Executive Officer. "In addition, we continue to diversify our revenue streams, increasing the percentage of our total revenue generated from fee-based businesses. In particular, our list management and direct marketing businesses had a tremendous quarter, exceeding our expectations."
Margin analysis
For the first quarter of 2006, Nelnet reported net interest income of $86.3 million compared to $86.8 million for the first quarter of 2005. The first-quarter 2006 net interest income includes a special allowance yield adjustment of $13.9 million, down from $29.7 million in the same period a year ago. Excluding the impact of the special allowance yield adjustment, net interest income for the first-quarter 2006 increased $15.3 million, or 27 percent, compared to the same period a year ago.
The company reported core student loan spread of 1.54 percent for the first quarter of 2006. The core student loan spread increased from 1.44 percent for the fourth quarter of 2005 and 1.51 percent for the year ended December 31, 2005 due to stabilization in the growth of consolidation loans as a percentage of the company's total student loan portfolio, loans acquired in recent portfolio and business acquisitions, and tighter credit spreads in the debt market. At March 31, 2006, consolidation loans comprised 65 percent of Nelnet's student loan portfolio.
Other revenue
Fee-based revenue in the first quarter of 2006 represented 44 percent of Nelnet's total revenue for the quarter. This is an increase from the first quarter of 2005 when fee-based revenue represented 33 percent of total revenue and an increase from the fourth quarter of 2005 when fee-based revenue represented 42 percent of total revenue.
In the first quarter of 2006, income from loan and guarantee servicing grew to $47.1 million from $37.2 million in the first quarter of 2005. This increase is attributable to the fourth quarter of 2005 acquisition of Firstmark Services and the expansion of an outsourcing agreement with College Access Network.
For the first quarter of 2006 other fee-based income increased to $18.2 million, up from $3.4 million in the same period a year ago. Other fee-based income includes Nelnet's list management, direct marketing, and tuition payment plan businesses.
Operating expenses
Operating expenses increased to $108.2 million in the first quarter of 2006 from $71.4 million for the same period a year ago and $98.1 million in the fourth quarter of 2005. Adjusting for acquisitions, operating expenses increased less than 2 percent from the fourth quarter of 2005.
Non-GAAP performance measures
Nelnet prepares financial statements in accordance with generally accepted accounting principles (GAAP). In addition to evaluating the company's GAAP-based financial information, management also evaluates the company on certain non-GAAP performance measures that we refer to as base net income. While base net income is not a substitute for reported results under GAAP, Nelnet provides base net income as additional information regarding financial results.
Adjusted base net income, which excludes certain special allowance yield adjustments and related hedging activity related to the company's portfolio of student loans earning a minimum special allowance payment of 9.5 percent, is used by management to develop the company's financial plans, track results, and establish corporate performance targets.
The following table provides a reconciliation of GAAP net income to base and adjusted base net income.
Three months ended
March 31, December 31, March 31,
2006 2005 2005
(dollars in thousands, except share data)
GAAP net income (a) $ 52,066 $ 42,676 $ 68,087
Base adjustments:
Derivative market value and
foreign currency adjustments (39,795) (21,554) (60,290)
Amortization of intangible assets 5,633 4,828 1,173
Variable-rate floor income -- -- --
Total base adjustments before
income taxes (34,162) (16,726) (59,117)
Net tax effect (b) 12,981 6,356 22,464
Total base adjustments (21,181) (10,370) (36,653)
Base net income (a) 30,885 32,306 31,434
Adjustments to base net income:
Special allowance yield
adjustment (13,910) (17,228) (29,742)
Derivative settlements, net (4,164) (1,082) 8,863
Total adjustments to base net
income before income taxes (18,074) (18,310) (20,879)
Net tax effect (b) 6,868 6,958 7,935
Total adjustments to base
net income (11,206) (11,352) (12,944)
Adjusted base net income (a) $19,679 $20,954 $18,490
Earnings per share, basic
and diluted:
GAAP net income (a) $0.96 $0.79 $1.27
Total base adjustments (0.39) (0.19) (0.68)
Base net income (a) 0.57 0.60 0.59
Total adjustments to base net
income (0.21) (0.21) (0.24)
Adjusted base net income (a) $0.36 $0.39 $0.35
(a) Includes expense of $6.9 million ($4.3 million after tax) for the
three months ended March 31, 2006 to increase the Company's
allowance for loan losses due to a provision in the Deficit
Reduction Act that increased risk sharing for student loan holders
by one percent on FFELP loans. Excluding this one-time expense,
GAAP net income, base net income, and adjusted base net income would
have been $1.04 per share, $0.65 per share, and $0.44 per share,
respectively.
(b) 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 800.289.0494 and international callers should dial 913.981.5520 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at www.nelnetinvestors.net 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 5. 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 5012483. A replay of the audio Web cast will also be available at www.nelnetinvestors.net.
Supplemental financial information to this earnings release is available online at www.nelnetinvestors.net/releases.cfm?reltype=Financial.
Condensed Consolidated Statements of Income
Three months ended
March 31, December 31, March 31,
2006 2005 2005
(unaudited) (unaudited) (unaudited)
(dollars in thousands, except share data)
Interest income:
Loan interest, excluding
variable-rate floor income $347,522 $309,890 $200,107
Amortization of loan premiums
and deferred origination costs (21,862) (24,160) (15,782)
Investment interest 19,541 17,616 7,002
Total interest income 345,201 303,346 191,327
Interest expense:
Interest on bonds and notes
payable 258,949 222,066 104,525
Net interest income 86,252 81,280 86,802
Less provision for loan losses 9,618 1,473 2,031
Net interest income after
provision for loan losses 76,634 79,807 84,771
Other income:
Loan and guarantee servicing
income 47,074 43,180 37,176
Other fee-based income 18,155 12,755 3,356
Software services income 3,409 2,410 2,206
Other income 1,455 2,650 1,400
Derivative market value and
foreign currency adjustments 39,795 21,554 60,290
Derivative settlements, net 4,744 2,041 (10,086)
Total other income 114,632 84,590 94,342
Operating expenses:
Salaries and benefits 57,684 49,117 39,327
Other expenses 44,930 44,156 30,888
Amortization of intangible assets 5,633 4,828 1,173
Total operating expenses 108,247 98,101 71,388
Income before income taxes 83,019 66,296 107,725
Income tax expense 30,711 23,246 39,638
Net income before minority
interest 52,308 43,050 68,087
Minority interest in net earnings
of subsidiaries (242) (374) --
Net income $52,066 $42,676 $68,087
Earnings per share, basic
and diluted $0.96 $0.79 $1.27
Weighted average shares
outstanding 54,241,341 53,915,812 53,682,569
Condensed Consolidated Balance Sheets and Financial Data
As of As of As of
March 31, December 31, March 31,
2006 2005 2005
(unaudited) (unaudited)
(dollars in thousands)
Assets:
Student loans receivable,
net $21,320,374 $20,260,807 $14,540,316
Cash, cash equivalents,
and investments 1,456,181 1,645,797 993,894
Goodwill 132,389 99,535 18,632
Intangible assets, net 162,396 153,117 24,165
Other assets 732,416 639,366 454,544
Total assets $23,803,756 $22,798,622 $16,031,551
Liabilities:
Bonds and notes payable $22,670,772 $21,673,620 $15,318,517
Other liabilities 415,778 474,884 187,723
Total liabilities 23,086,550 22,148,504 15,506,240
Minority interest in
subsidiaries -- 626 --
Shareholders' equity 717,206 649,492 525,311
Total liabilities and
shareholders' equity $23,803,756 $22,798,622 $16,031,551
Return on average total
assets 0.90% 1.00% 1.73%
Return on average equity 30.4% 32.4% 54.4%
Nelnet is one of the leading education finance companies in the United States and is focused on providing quality products and services to students and schools nationwide. Nelnet ranks among the nation's leaders in terms of total net student loan assets with $21.3 billion as of March 31, 2006. Headquartered in Lincoln, Nebraska, Nelnet originates, consolidates, securitizes, holds, and services student loans, principally loans originated under the Federal Family Education Loan Program of the U.S. Department of Education.
Additional information is available at www.nelnet.net.
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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