Published: March 03, 2011
Nelnet Reports Fourth Quarter 2010 Results
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.
Improving liquidity
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
------------------
December September December
31, 30, 31,
2010 2010 2009
---- ---- ----
(unaudited) (unaudited) (unaudited)
Interest income:
Loan interest $159,248 171,208 153,891
Amortization of loan premiums
and deferred
origination costs (10,180) (11,921) (18,558)
Investment interest 1,782 1,169 1,477
----- ----- -----
Total interest income 150,850 160,456 136,810
Interest expense:
Interest on bonds and notes
payable 54,515 68,243 56,262
------ ------ ------
Net interest income 96,335 92,213 80,548
Less provision for loan losses 6,000 5,500 6,000
----- ----- -----
Net interest income after
provision
for loan losses 90,335 86,713 74,548
------ ------ ------
Other income (expense):
Loan and guaranty servicing
revenue 33,126 33,464 27,467
Tuition payment processing and
campus commerce revenue 15,120 14,527 13,521
Enrollment services revenue 34,784 36,439 31,209
Software services revenue 4,481 4,624 4,740
Other income 6,122 9,432 6,171
Gain on sale of loans and debt
repurchases, net 49,810 9,885 49,260
Derivative market value and
foreign currency adjustments 39,518 (32,805) 5,265
Derivative settlements, net (5,878) (2,586) 479
------ ------ ---
Total other income 177,083 72,980 138,112
------- ------ -------
Operating expenses:
Salaries and benefits 43,320 41,085 37,963
Litigation settlement - 55,000 -
Cost to provide enrollment
services 21,802 23,709 18,718
Impairment expense 26,599 - 32,728
Restructure expense - 4,751 1,354
Other expenses 39,553 35,742 32,281
------ ------ ------
Total operating expenses 131,274 160,287 123,044
------- ------- -------
Income (loss) before income
taxes 136,144 (594) 89,616
Income tax (expense) benefit (51,057) 226 (30,553)
------- --- -------
Net income (loss) $85,087 (368) 59,063
======= ==== ======
Earnings (loss) per common
share:
Net earnings (loss) - basic $1.76 (0.01) 1.18
===== ===== ====
Net earnings (loss) -diluted $1.75 (0.01) 1.18
===== ===== ====
Dividends per common share $0.49 0.07 0.07
===== ==== ====
Weighted average shares
outstanding -basic 48,118,000 48,938,333 49,639,329
Weighted average shares
outstanding -diluted 48,318,807 48,938,333 49,838,374
Year ended
----------
December December
31, 31,
2010 2009
---- ----
Interest income:
Loan interest 649,406 683,449
Amortization of loan premiums and
deferred
origination costs (50,731) (73,529)
Investment interest 5,256 10,287
----- ------
Total interest income 603,931 620,207
Interest expense:
Interest on bonds and notes payable 232,860 384,862
------- -------
Net interest income 371,071 235,345
Less provision for loan losses 22,700 29,000
------ ------
Net interest income after provision
for loan losses 348,371 206,345
------- -------
Other income (expense):
Loan and guaranty servicing revenue 139,636 108,747
Tuition payment processing and campus
commerce revenue 59,824 53,894
Enrollment services revenue 139,897 119,397
Software services revenue 18,948 21,164
Other income 31,310 26,469
Gain on sale of loans and debt
repurchases, net 78,631 76,831
Derivative market value and foreign
currency adjustments 3,587 (30,802)
Derivative settlements, net (14,264) 39,286
------- ------
Total other income 457,569 414,986
------- -------
Operating expenses:
Salaries and benefits 166,011 151,285
Litigation settlement 55,000 -
Cost to provide enrollment services 91,647 74,926
Impairment expense 26,599 32,728
Restructure expense 6,020 7,982
Other expenses 158,209 138,712
------- -------
Total operating expenses 503,486 405,633
------- -------
Income (loss) before income taxes 302,454 215,698
Income tax (expense) benefit (113,420) (76,573)
-------- -------
Net income (loss) 189,034 139,125
======= =======
Earnings (loss) per common share:
Net earnings (loss) - basic 3.82 2.79
==== ====
Net earnings (loss) - diluted 3.81 2.78
==== ====
Dividends per common share 0.70 0.07
==== ====
Weighted average shares outstanding -
basic 49,127,934 49,484,816
Weighted average shares outstanding -
diluted 49,326,686 49,685,143
Condensed Consolidated Balance Sheets
(dollars in thousands)
As of As of As of
September
December 31, 30, December 31,
2010 2010 2009
---- ---- ----
(unaudited)
Assets:
Student loans receivable, net $23,948,014 24,436,162 23,926,957
Student loans receivable -held
for sale 84,987 2,109,440 -
Cash, cash equivalents, and
investments (trading securities) 327,037 349,443 338,181
Restricted cash and investments 757,285 747,234 717,233
Goodwill 117,118 143,717 143,717
Intangible assets, net 38,712 43,352 53,538
Other assets 620,739 757,231 696,801
------- ------- -------
Total assets $25,893,892 28,586,579 25,876,427
=========== ========== ==========
Liabilities:
Bonds and notes payable $24,672,472 27,391,188 24,805,289
Other liabilities 314,787 350,777 286,575
------- ------- -------
Total liabilities 24,987,259 27,741,965 25,091,864
---------- ---------- ----------
Shareholders' equity 906,633 844,614 784,563
------- ------- -------
Total liabilities and
shareholders' equity $25,893,892 28,586,579 25,876,427
=========== ========== ==========
(code #: nnif)
SOURCE Nelnet
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