Nelnet Reports Second Quarter 2010 Results

LINCOLN, Neb., Aug. 9 /PRNewswire-FirstCall/ -- Nelnet (NYSE: NNI) today reported base net income of $58.4 million, or $1.17 per share, for the second quarter of 2010, compared with $29.7 million, or $0.60 per share, for the same quarter a year ago. For the six months ended June 30, 2010, the company reported base net income of $114.9 million, or $2.31 per share, compared with $62.2 million, or $1.26 per share, for the same period in 2009. Base net income excludes restructuring charges.

Base net income in the second quarter of 2010 includes pre-tax gains of $8.8 million, or $0.11 per share after tax, from the company's repurchase of $118 million of asset-backed debt and is compared with pre-tax gains of $5.9 million, or $0.07 per share after tax, from the repurchase of debt in the second quarter of 2009.

"Through the first two quarters of 2010, we are excited with our operating results and the progress we are making toward key objectives," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "Nelnet is a strong, diverse, and dynamic company with a bright future. Growing and diversifying our fee-based revenue, maximizing the value of our loan portfolio, managing our expense structure as we grow, and using our financial strength and liquidity to make the most of opportunities will continue to be priorities."

Diversifying and increasing fee-based revenue

In the second quarter of 2010, Nelnet's fee-based revenue from the company's payment processing and enrollment services businesses increased $7.6 million, or 19 percent, to $48.2 million, compared with the same period in 2009.

In September 2009, Nelnet began servicing student loans for the Department of Education under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of June 30, 2010, the company was servicing $12.9 billion of loans for 1.5 million borrowers on behalf of the Department. In the second quarter of 2010, Nelnet reported revenue from this servicing contract of $6.1 million, compared with $3.5 million for the first quarter of 2010.

Maximizing the value of existing portfolio

At June 30, 2010, net student loan assets were $26.7 billion, including $1.9 billion of federal student loans purchased from third parties during the second quarter and $2.0 billion of federal student loans classified as held for sale. The loans held for sale are expected to generate a pre-tax gain of $30 million to $33 million when the loans are sold to the Department under its Loan Purchase Program during the fourth quarter of 2010.

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. 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 second quarter of 2010, Nelnet reported net interest income of $97.4 million, compared with $57.1 million for the same period a year ago. Net interest income includes $31.1 million and $37.1 million of fixed rate floor income for the second quarters of 2010 and 2009, respectively. If interest rates remain low, the company anticipates earning significant fixed rate floor income in future quarters as well.

The company reported core student loan spread of 1.54 percent for the second quarter of 2010, compared with 1.09 percent for the same period of 2009 and 1.45 percent for the first quarter of 2010. Core student loan spread is benefiting from the significant 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.  

Managing operating expenses

From the same period a year ago, comparable operating expenses increased $2.4 million, or 3 percent, for the three months ended June 30, 2010.

Repurchasing common stock

During the three-month period ended June 30, 2010, Nelnet repurchased and retired 663,443 shares of Class A common stock, under the company's stock repurchase program, for $12.8 million, or an average price of $19.33 per share.

GAAP net income

Nelnet reported GAAP net income for the second quarter of 2010 of $50.0 million, or $0.99 per dilutive share, compared with $8.2 million, or $0.16 per dilutive share, for the second quarter of 2009. For the six months ended June 30, 2010, the company reported GAAP net income of $104.3 million, or $2.08 per dilutive share, compared with $33.7 million, or $0.68 per dilutive share, for the same period 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.

Board of Directors declares dividend

The Nelnet Board of Directors declared a third quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.07 per share. The dividend will be paid on September 15, 2010, to shareholders of record at the close of business on September 1, 2010. Nelnet currently has 38.0 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.

Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) Tuesday, August 10, 2010. To access the call live, participants in the United States and Canada should dial 877.303.9101, and international callers should dial 760.666.4786 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 August 20, 2010. To access the replay via telephone within the United States and Canada, callers should dial 800.642.1687. International callers should dial 706.645.9291. All callers accessing the replay will need to use the confirmation code 82397628. A replay of the audio webcast will also be available at www.nelnetinvestors.com.

This press release contains forward-looking statements based on management's current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations; adverse results in legal disputes; changes in the demand for educational financing or in financing preferences of educational institutions, students, and their families; increased financing costs; and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company's supplemental financial information for the second quarter of 2010. All information in this release is as of August 9, 2010. The company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the company's expectations.

(code #: nnif)

SOURCE Nelnet, Inc.