LINCOLN, Neb., Aug. 11 /PRNewswire-FirstCall/ -- Nelnet, Inc. today reported GAAP net income for the second quarter of 2008 of $43.7 million, or $0.89 per share, compared with $14.8 million, or $0.30 per share, for the second quarter of 2007. Base net income excluding discontinued operations and restructuring related charges for the second quarter of 2008 was $26.5 million, or $0.54 per share, compared with $21.7 million, or $0.44 per share, for the same period a year ago.
"We are very pleased with our results for the second quarter in what continues to be a challenging capital markets environment," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We continue to be proactive with our decisions to create operating efficiencies and remain competitive for the long term with our student loan business. More importantly, our diversification strategy has reduced our reliance on net interest income and has provided us many more opportunities to be successful in the execution of our business plan."
"While the capital markets remain severely disrupted, the Department of Education's funding facilities will provide an important source of liquidity, allowing us to make loans to all eligible students for the 2008-2009 academic year," added Jeff Noordhoek, Nelnet President.
GAAP net loss for the first six months of 2008 was $26.1 million, or $0.53 per share, compared with GAAP net income of $29.5 million, or $0.59 per share, for the first six months of 2007. Base net income excluding discontinued operations, restructuring related charges, and the loss on the sale of loans for the first six months of 2008 was $41.8 million, or $0.85 per share, compared with $46.4 million, or $0.92 per share, for the first six months of 2007.
Fee-based Revenue
In the second quarter of 2008, other fee-based income increased to $40.8 million, up from $38.3 million in the same period a year ago. Other fee-based income increased to $86.7 million for the first six months of 2008 compared with $78.3 million for the first six months of 2007. Other fee-based income includes Nelnet's list management, direct marketing, tuition payment plan, and enrollment services businesses.
In the second quarter of 2008, loan and guaranty servicing income was $24.9 million compared with $31.6 million in the second quarter of 2007. Income from loan and guaranty servicing was $51.0 million for the first six months of 2008 compared with $62.1 million in the first six months of 2007.
Operating Expenses
Operating expenses were $97.9 million in the second quarter of 2008 compared with $120.6 million for the same period a year ago. For the first six months of 2008, the company reported operating expenses of $226.8 million compared with $241.9 million for the first six months of 2007. Excluding restructuring and impairment charges, operating expenses decreased by $22.4 million and $41.1 million for the three and six months ended June 30, 2008 compared with the same periods in 2007, respectively.
Net Interest Margin
For the second quarter of 2008, Nelnet reported net interest income of $73.3 million compared with $68.0 million for the second quarter of 2007. Net interest income for the first six months of 2008 was $89.9 million compared with $136.0 million for the first six months of 2007. Net interest income includes variable-rate floor income and excludes settlements on the company's derivative portfolio. In addition, net interest income in the second quarter of 2008 includes $4.6 million from a change in estimate on certain liabilities related to a prior business acquisition.
For the second quarter of 2008, Nelnet reported core student loan spread of 1.07 percent compared with 1.28 percent in the same period of 2007 and 0.73 percent for the first quarter of 2008. The increase in core student loan spread from the first quarter of 2008 was primarily driven by the change in the relationship between short-term interest rate indices and a non-recurring reduction in rates paid on certain of its auction rate securities. The company believes 15 basis points of the improvement in core student loan spread during the second quarter of 2008 is not sustainable and may not benefit future periods.
Non-GAAP Performance Measures
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 that is available online at http://www.nelnetinvestors.com/releases.cfm?reltype=Financial.
Nelnet will host a conference call to discuss this earnings release at 3:00 p.m. (Eastern) tomorrow August 12, 2008. To access the call live, participants in the United States and Canada should dial 877.627.6585 and international callers should dial 719.325.4934 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at http://www.nelnetinvestors.com/ under the conference calls and Web casts menu. A replay of the conference call will be available between 6:00 p.m. (Eastern) August 12, 2008 and 11:59 p.m. (Eastern) August 20, 2008. 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 4201680. A replay of the audio Web cast will also be available at http://www.nelnetinvestors.com/.
This press release contains forward-looking statements and information based on management's current expectations as of the date of this document. When used in this press release, the words "anticipate," "believe," "estimate," "intend," and "expect" and similar expressions are intended to identify 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, the risks and uncertainties set forth in "Risk Factors" and elsewhere in the company's Quarterly Report on Form 10-Q, prior quarterly reports filed by the company, and the company's Annual Report on Form 10-K for the year ended December 31, 2007, changes in the terms of student loans and the educational credit marketplace arising from the implementation of, or changes in, applicable laws and regulations, which may reduce the volume, average term, special allowance payments, and costs of yields on student loans under the FFEL Program 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. In addition, a larger than expected increase in third party consolidations of the company's FFELP loans could materially adversely affect the company's results of operations. 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; changes to the terms and conditions of the liquidity programs offered by the Department of Education; 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 the expected benefits from acquisitions and the ability to successfully integrate operations; and the uncertain nature of estimated expenses that may be incurred and cost savings that may result from the company's strategic restructuring initiatives. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this press release. Additionally, financial projections may not prove to be accurate and may vary materially. 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 Six months ended June 30, March 31, June 30, June 30, June 30, 2008 2008 2007 2008 2007 (unaudited)(unaudited)(unaudited)(unaudited)(unaudited) (dollars in thousands, except share data) Interest income: Loan interest $297,601 336,572 439,720 634,173 857,833 Variable-rate floor income 21,927 18,818 - 40,745 - Amortization of loan premiums and deferred origination costs (22,842) (25,404) (22,634) (48,246) (43,693) Investment interest 9,116 11,680 18,783 20,796 40,208 Total interest income 305,802 341,666 435,869 647,468 854,348 Interest expense: Interest on bonds and notes payable 232,464 325,141 367,893 557,605 718,388 Net interest income 73,338 16,525 67,976 89,863 135,960 Less provision for loan losses 6,000 5,000 2,535 11,000 5,288 Net interest income after provision for loan losses 67,338 11,525 65,441 78,863 130,672 Other income: Loan and guaranty servicing income 24,904 26,113 31,610 51,017 62,076 Other fee-based income 40,817 45,913 38,262 86,730 78,291 Software services income 4,896 6,752 5,848 11,648 11,596 Other income 1,646 1,429 1,927 3,056 7,020 Gain (loss) on sale of loans 48 (47,493) 1,010 (47,426) 2,796 Derivative market value, foreign currency, and put option adjustments 15,755 (57,361) 5,547 (41,606) (6,583) Derivative settlements, net 4,437 40,763 5,196 45,200 9,436 Total other income 92,503 16,116 89,400 108,619 164,632 Operating expenses: Salaries and benefits 43,549 53,843 59,761 97,392 121,465 Other expenses 47,812 49,600 54,394 97,412 107,281 Amortization of intangible assets 6,561 6,560 6,491 13,121 13,129 Impairment expense - 18,834 - 18,834 - Total operating expenses 97,922 128,837 120,646 226,759 241,875 Income (loss) before income taxes 61,919 (101,196) 34,195 (39,277) 53,429 Income tax expense (benefit) 19,195 (31,371) 13,306 (12,176) 20,570 Income (loss) from continuing operations 42,724 (69,825) 20,889 (27,101) 32,859 Income (loss) from discontinued operations, net of tax 981 - (6,135) 981 (3,325) Net income (loss) $43,705 (69,825) 14,754 (26,120) 29,534 Earnings (loss) per share, basic and diluted: Income (loss) from continuing operations $0.87 (1.42) 0.42 (0.55) 0.66 Income (loss) from discontinued operations, net of tax 0.02 - (0.12) 0.02 (0.07) Net income (loss) $0.89 (1.42) 0.30 (0.53) 0.59 Weighted average shares outstanding 49,095,153 49,051,745 49,452,960 49,073,580 50,213,349 Condensed Consolidated Balance Sheets and Financial Data As of As of As of June 30, December 31, June 30, 2008 2007 2007 (unaudited) (unaudited) (dollars in thousands) Assets: Student loans receivable, net $25,993,307 26,736,122 26,174,958 Cash, cash equivalents, and investments 1,175,310 1,120,838 1,367,257 Goodwill 175,178 164,695 191,256 Intangible assets, net 90,163 112,830 146,542 Other assets 997,967 1,028,298 993,361 Total assets $28,431,925 29,162,783 28,873,374 Liabilities: Bonds and notes payable $27,530,237 28,115,829 27,791,146 Other liabilities 317,646 438,075 471,050 Total liabilities 27,847,883 28,553,904 28,262,196 Shareholders' equity 584,042 608,879 611,178 Total liabilities and shareholders' equity $28,431,925 29,162,783 28,873,374 Shareholders' equity to total assets 2.05% 2.09% 2.12% Tangible equity to total assets (a) 1.65% 1.65% 1.47% (a) Includes 75% ($150 million) equity credit for $200 million hybrid securities debt per credit agency ratings. (code #: nnif)
