Nelnet Reports Third Quarter 2009 Results; Declares Dividend

Nov 09, 2009

LINCOLN, Neb., Nov 09, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- Nelnet (NYSE: NNI) today reported base net income of $50.2 million, or $1.01 per share, for the third quarter of 2009, compared with $23.4 million, or $0.47 per share, for the same quarter a year ago. For the first nine months of 2009, the company reported base net income of $113.5 million, or $2.30 per share, compared with $65.2 million, or $1.33 per share, for the first nine months of 2008. Base net income excludes discontinued operations, restructuring charges, and certain liquidity-related charges.

Base net income in the third quarter of 2009 includes pre-tax gains of $9.7 million, or $0.13 per share after tax, on the sale of federal student loans to the Department of Education (Department) and $5.2 million, or $0.07 per share after tax, from the company's repurchase of debt.

"We are pleased with our increasing fee-based revenues, servicing of student loans for the Department, and decreasing operating expenses," said Mike Dunlap, Chairman and Chief Executive Officer of Nelnet. "Continuing to focus on these areas will drive future growth. The low interest rate environment and improving capital markets have allowed us to reduce our debt and improve the spread we earn on our student loan portfolio."

Board of Directors Declares Dividend

The Nelnet Board of Directors declared a fourth-quarter cash dividend on its outstanding shares of Class A common stock and Class B common stock of $0.07 per share. The dividend will be paid on December 15, 2009, to shareholders of record at the close of business on December 1, 2009. Nelnet currently has 38.3 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.

Diversifying and increasing fee-based revenue

In the third quarter of 2009, Nelnet's fee-based revenue from the company's tuition payment plan, campus commerce, and certain enrollment services businesses increased $5.4 million, or 17 percent, to $36.6 million, compared with the same period in 2008.

In September 2009, Nelnet began servicing federally owned student loans for the Department under a contract that the company was awarded in June 2009. As of October 31, 2009, the company was servicing approximately $2.5 billion of loans on behalf of the Department, of which approximately $740 million, or approximately 87,000 borrowers, is incremental volume previously serviced by other companies. The initial servicing volume includes loans purchased by the Department from Nelnet and other lenders through the Department's Loan Purchase Commitment Program. Servicing loans for the Department will increase Nelnet's fee-based revenue as servicing volume increases.

Total revenue from fee-based businesses for the third quarter of 2009 was $74.6 million, or 47 percent of total revenue, and is compared with $76.7 million for the same period a year ago.

Maximizing the value of existing portfolio

Excluding loans added to government-related participation and conduit programs, more than 99 percent of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate future cash flow in excess of $1.3 billion. Narrower spreads and historically low interest rates are providing an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the third quarter of 2009, Nelnet reported net interest income including derivative settlements of $74.1 million, compared with $60.4 million for the same period a year ago.

The company reported core student loan spread of 1.27 percent for the third quarter of 2009 compared with 1.04 percent for the same period of 2008 and 1.09 percent for the second quarter of 2009. Two factors in the third quarter improved core student loan spread: 1) Lower interest rates increased fixed rate floor income, net of settlements on derivatives, to $38.8 million for the third quarter of 2009, compared with $6.8 million for the same period a year ago and $37.1 million in the second quarter of 2009 and 2) The relationship between three-month financial commercial paper rate (CP) and three-month LIBOR has tightened significantly from as high as 54 basis points in the first quarter of 2009 to as low as 13 basis points in the third quarter of 2009. Most of the company's federal student loans are indexed to CP, and its debt is indexed to LIBOR; therefore, disparity between these indexes can impact the company's interest income. Core student loan spread may continue to increase in the fourth quarter of 2009 if interest rates remain low and the capital markets continue to improve.

At September 30, 2009, net student loan assets were $25.4 billion, of which $1.6 billion were classified as held for sale to the Department. In the third quarter of 2009, Nelnet reported a gain of $9.7 million on the sale of $428 million of federal student loans to the Department. Loans held for sale at quarter end are funded primarily using the Department's Loan Participation Program and were sold to the Department in October 2009. Nelnet recognized a gain on the sale of these loans of $26.9 million, which will be reflected in the company's fourth quarter results.

In addition to loans held to term, Nelnet has liquidity for new loan originations through the Department's Loan Participation and Loan Purchase Programs, which will allow Nelnet to make loans to all eligible students for the 2009-2010 academic year.

Managing operating expenses

Management continues to focus on managing operating expenses. As a result, operating expenses, excluding restructuring charges, decreased $16.8 million, or 20 percent, for the three months ended September 30, 2009, compared with the same period in 2008. Total operating expenses for the third quarter of 2009 were $92.7 million.

GAAP net income

Nelnet reported GAAP net income for the third quarter of 2009 of $46.4 million, or $0.93 per share, compared with $23.8 million, or $0.48 per share, for the third quarter of 2008. For the first nine months of 2009, the company reported GAAP net income of $80.1 million, or $1.60 per share, compared with a loss of $2.3 million, or $0.05 per share, for the first nine months of 2008.

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

Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) Tuesday, November 10, 2009. To access the call live, participants in the United States and Canada should dial 888.427.9412, and international callers should dial 719.325.2321 at least 15 minutes prior to the call. A live audio webcast of the call will also be available at under the Events & Webcasts menu. A replay of the conference call will be available through November 21, 2009. 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 7074698. A replay of the audio webcast will also be available at

This press release contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the company's expectations and statements that assume or are dependent upon future events, are 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, changes in the terms of student loans and the educational credit marketplace arising from the implementation of, or changes in, applicable laws and regulations, including changes resulting from new laws such as any new laws enacted to implement the Administration's 2010 budget proposals as they relate to the Federal Family Education Loan Program (FFEL Program or FFELP), which may reduce the volume, average term, special allowance payments, and yields on student loans under the FFEL Program of the Department 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. 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; the ability of lenders under the company's credit facilities to fulfill their lending commitments under these facilities; changes to the terms and conditions of the liquidity programs offered by the Department; 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 estimated expenses that may be incurred and cost savings that may result from restructuring plans; incorrect estimates or assumptions by management in connection with the preparation of the consolidated financial statements; and changes in general economic conditions. Additionally, financial projections may not prove to be accurate and may vary materially. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this press release.

For more information see the company's filings with the Securities and Exchange Commission. 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           Nine months ended
                           ------------------           -----------------
                     September     June    September  September  September
                         30,        30,        30,        30,        30,
                        2009       2009       2008       2009       2008
                     ---------  ---------  ---------  ---------  ---------

    Interest income:
       Loan interest  $162,786    177,202    305,806    529,558    980,724
        of loan
        premiums and
        costs          (19,531)   (16,789)   (21,338)   (54,971)   (69,584)
        interest         1,943      2,776      9,118      8,810     29,914
                         -----      -----      -----      -----     ------
           income      145,198    163,189    293,586    483,397    941,054

    Interest expense:
       Interest on bonds
        and notes
        payable         76,016    106,082    234,016    328,600    791,621
                        ------    -------    -------    -------    -------

          Net interest
           income       69,182     57,107     59,570    154,797    149,433
    Less provision for
     loan losses         7,500      8,000      7,000     23,000     18,000
                         -----      -----      -----     ------     ------

          Net interest
          income after
          provision for
          loan losses   61,682     49,107     52,570    131,797    131,433
                        ------     ------     ------    -------    -------

    Other income (expense):
       Loan and guaranty
        revenue         26,006     28,803     29,691     81,280     78,173
       Tuition payment
        processing and
        campus commerce
        revenue         12,987     11,848     11,863     40,373     35,980
        revenue         30,670     28,747     29,858     88,188     83,148
       Software services
        revenue          4,600      6,119      5,159     16,424     19,342
       Other income     11,094     11,527      5,408     39,483     17,787
       Gain (loss) on
        sale of loans,
        net              8,788       (196)         -      8,386    (47,426)
       Derivative market
        value, foreign
        currency, and
        put option
        adjustments      2,826    (34,013)     6,085    (36,067)   (35,521)
        net              4,914      9,535        789     38,807     45,989
                         -----      -----        ---     ------     ------
          Total other
           income      101,885     62,370     88,853    276,874    197,472
                       -------     ------     ------    -------    -------

    Operating expenses:
       Salaries and
        benefits        37,810     40,180     44,739    116,216    142,131
       Cost to provide
        services        20,323     18,092     17,904     56,208     48,062
       Other expenses   29,217     33,299     34,428     92,914    101,682
       Amortization of
        assets           5,312      5,785      6,598     17,251     19,719
        expense              -          -          -          -     18,834
                           ---        ---        ---        ---     ------
           expenses     92,662     97,356    103,669    282,589    330,428
                        ------     ------    -------    -------    -------

          Income (loss)
           before income
           taxes        70,905     14,121     37,754    126,082     (1,523)

    Income tax
     expense           (24,501)    (5,918)   (13,969)   (46,020)    (1,793)
                       -------     ------    -------    -------     ------

          Income (loss)
           operations   46,404      8,203     23,785     80,062     (3,316)

    Income from
     net of tax              -          -          -          -        981
                           ---        ---        ---        ---        ---

       Net income
       (loss)          $46,404      8,203     23,785     80,062     (2,335)
                       =======      =====     ======     ======     ======

    Earnings (loss)
     per share, basic
     and diluted:
          Income (loss)
           operations    $0.93       0.16       0.48       1.60      (0.07)
          Income from
           net of tax        -          -          -          -       0.02
                           ---        ---        ---        ---       ----
          Net income
           (loss)        $0.93       0.16       0.48       1.60      (0.05)
                         =====       ====       ====       ====      =====

    Weighted average
     outstanding    49,611,423 49,534,413 49,176,436 49,432,165 49,109,340

    Condensed Consolidated Balance Sheets and Financial Data

                                           As of         As of        As of
                                          September     December     September
                                             30,           31,          30,
                                            2009          2008         2008
                                            ----          ----         ----
                                        (unaudited)                (unaudited)

       Student loans receivable, net    $23,764,263    25,413,008  26,376,269
       Student loans receivable - held
        for sale                          1,627,794             -           -
       Cash and cash equivalents            334,293       189,847     325,007
       Restricted cash and investments      849,419     1,158,257   1,129,874
       Goodwill                             175,178       175,178     175,178
       Intangible assets, net                59,803        77,054      83,565
       Other assets                         781,112       841,553     880,122
                                            -------       -------     -------
         Total assets                   $27,591,862    27,854,897  28,970,015
                                        ===========    ==========  ==========

       Bonds and notes payable          $26,586,093    26,787,959  28,004,835
       Other liabilities                    277,695       423,712     355,450
                                            -------       -------     -------
         Total liabilities               26,863,788    27,211,671  28,360,285
                                         ----------    ----------  ----------

     Shareholders' equity                   728,074       643,226     609,730
                                            -------       -------     -------

         Total liabilities and
          shareholders' equity          $27,591,862    27,854,897  28,970,015
                                        ===========    ==========  ==========

(code #: nnif)

SOURCE Nelnet, Inc.

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