LINCOLN, Neb., March 3, 2011 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported base net income of $80.0 million, or $1.66 per share, for the fourth quarter of 2010, compared with $81.3 million, or $1.64 per share, for the same quarter a year ago. For the year-ended December 31, 2010, the company reported base net income of $255.2 million, or $5.20 per share, compared with $194.9 million, or $3.94 per share, for 2009. Base net income excludes litigation settlement, restructuring, and impairment charges.
Base net income in the fourth quarter of 2010 includes pre-tax gains of $33.8 million, or $0.44 per share after tax, on the sale of $2.1 billion of federal student loans to the Department of Education (Department) and $16.1 million, or $0.21 per share after tax, from the company's repurchase of $213.1 million of asset-backed securities debt.
Excluded from base net income in the fourth quarter of 2010 is a $26.6 million non-cash impairment charge related to goodwill of the company's interactive marketing and list management businesses. These businesses have been negatively affected by decreasing enrollments in for-profit colleges and the economic recession.
"In many ways, 2010 was the best year in Nelnet's history," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We are excited that we are increasing fee-based revenue; increasing the volume we service for the Department; and making ongoing investments in new products, services, and opportunities to add value to our customers. Our focus in 2011 will be providing the highest level of customer service and continuing to diversify our company."
Diversifying and increasing fee-based revenue
Total revenue from fee-based businesses for the fourth quarter of 2010 increased 13 percent to $87.5 million, or 48 percent of total revenue, when compared with $77.5 million for the same period a year ago.
Revenue from the company's Student Loan and Guaranty Servicing segment increased 14.9 percent, or $4.9 million, from $32.7 million for the fourth quarter of 2009 to $37.6 million for the fourth quarter of 2010.
In September 2009, Nelnet began servicing student loans for the Department under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of December 31, 2010, the company was servicing $30.3 billion of loans for 2.8 million borrowers on behalf of the Department, or a 71 percent increase in the total number of Federal Family Education Loan (FFEL) Program and Department borrowers since December 31, 2009. In the fourth quarter of 2010, Nelnet reported revenue from this servicing contract of $11.6 million, compared with $8.7 million for the third quarter of 2010.
In addition, the company is offering a hosted servicing software solution to third parties that can be used by third parties to service various types of student loans including Federal Direct Program and FFEL Program loans. Currently, Nelnet has agreements with third parties to add more than 12 million borrowers to its hosted servicing software solution by the end of 2011.
In the fourth quarter of 2010, Nelnet's fee-based revenue from the company's payment processing and enrollment services businesses increased $5.2 million, or 12 percent, to $49.9 million, compared with the same period in 2009.
Maximizing the value of existing portfolio
At December 31, 2010, net student loan assets were $24.0 billion. Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate significant future cash flow in excess of $1.6 billion.
Narrower spreads and historically low interest rates are continuing to provide an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the fourth quarter of 2010, Nelnet reported net interest income of $96.3 million, compared with $80.5 million for the same period a year ago.
The company reported core student loan spread of 1.53 percent for the fourth quarter of 2010 compared with 1.44 percent for the same period of 2009 and 1.41 percent for the third quarter of 2010. Core student loan spread in the fourth quarter of 2010 benefited from the tightening between the three-month financial commercial paper rate (CP) and three-month LIBOR indices. Most of the company's federal student loans are indexed to CP, and the company's debt is indexed to LIBOR; therefore, disparity between these indices has a negative impact on the company's interest income.
In February 2011, the company used operating cash to repurchase $62.6 million (par value) of Junior Subordinated Hybrid Securities for $55.7 million. Nelnet recognized a pre-tax gain of $6.9 million as a result of this debt repurchase, which will be included in the company's operating results for the quarter ending March 31, 2011.
In addition, the company paid $325.0 million on its unsecured line of credit. After making these payments, the current outstanding balance on the company's unsecured line of credit is $125.0 million.
GAAP net income
Nelnet reported GAAP net income for the year-ended December 31, 2010, and the fourth quarter of 2010 of $189.0 million, or $3.81 per dilutive share, and $85.1 million, or $1.75 per dilutive share, respectively, and is compared with $139.1 million, or $2.78 per dilutive share, and $59.1 million, or $1.18 per dilutive share, for the same periods in 2009.
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.
Annual meeting of shareholders
The company has scheduled its 2011 Annual Meeting of Shareholders for May 26, 2011. The meeting will be held at 8:30 a.m. (Central) at the Embassy Suites Hotel in Lincoln, Nebraska.
The record date to determine shareholders entitled to vote at the meeting is March 30, 2011.
In conjunction with the annual meeting, Nelnet's Chairman and Chief Executive Officer has posted a letter to shareholders at www.nelnetinvestors.com.
This press release contains forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations as of the date of this release, and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, among others, risks related to the company's student loan portfolio such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding and liquidity requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the student loan and educational credit marketplace resulting from the implementation of or changes in applicable laws and regulations; changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions. For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the fourth quarter of 2010. All information in this release is as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.
Condensed Consolidated Statements of Operations
(dollars in thousands, except share data)
Three months ended
Amortization of loan premiums and deferred
Total interest income
Interest on bonds and notes payable
Net interest income
Less provision for loan losses
Net interest income after provision
for loan losses
Other income (expense):
Loan and guaranty servicing revenue
Tuition payment processing and campus commerce revenue
Enrollment services revenue
Software services revenue
Gain on sale of loans and debt repurchases, net
Derivative market value and foreign currency adjustments
Derivative settlements, net
Total other income
Salaries and benefits
Cost to provide enrollment services
Total operating expenses
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Earnings (loss) per common share:
Net earnings (loss) - basic
Net earnings (loss) - diluted
Dividends per common share
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Condensed Consolidated Balance Sheets
(dollars in thousands)
Student loans receivable, net
Student loans receivable - held for sale
Cash, cash equivalents, and
investments (trading securities)
Restricted cash and investments
Intangible assets, net
Bonds and notes payable
Total liabilities and shareholders' equity
(code #: nnif)