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 www.nelnetinvestors.com/results.cfm.
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 www.nelnetinvestors.com 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
www.nelnetinvestors.com.
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
(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)
--------- --------- --------- --------- ---------
Interest income:
Loan interest $162,786 177,202 305,806 529,558 980,724
Amortization
of loan
premiums and
deferred
origination
costs (19,531) (16,789) (21,338) (54,971) (69,584)
Investment
interest 1,943 2,776 9,118 8,810 29,914
----- ----- ----- ----- ------
Total
interest
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
servicing
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
Enrollment
services
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)
Derivative
settlements,
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
enrollment
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
intangible
assets 5,312 5,785 6,598 17,251 19,719
Impairment
expense - - - - 18,834
--- --- --- --- ------
Total
operating
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)
from
continuing
operations 46,404 8,203 23,785 80,062 (3,316)
Income from
discontinued
operations,
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)
from
continuing
operations $0.93 0.16 0.48 1.60 (0.07)
Income from
discontinued
operations,
net of tax - - - - 0.02
--- --- --- --- ----
Net income
(loss) $0.93 0.16 0.48 1.60 (0.05)
===== ==== ==== ==== =====
Weighted average
shares
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)
Assets:
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
=========== ========== ==========
Liabilities:
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.
http://www.nelnet.com
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