Nelnet (NNI) 8-K Nelnet Reports Strong Second Quarter of 2008 Results

Media contact: Ben Kiser, 402.458.3024

Investor contact: Phil Morgan, 402.458.3038

Nelnet Reports Strong Second Quarter of 2008 Results

LINCOLN, Neb., August 11, 2008—Nelnet, Inc. (NYSE: NNI) 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.