Exhibit 99.1
Media Contact: Sheila Odom, 402.458.2329
Investor Contact: Cheryl Watson, 317.469.2064
For immediate release
NELNET REPORTS $3.5 BILLION, OR 28%, STUDENT LOAN ASSET GROWTH; RECORD
CONSOLIDATION LOAN ACTIVITY
o Student loan assets up $3.5 billion, or 28%, year over year
o Consolidation loan applications received in June greater than the
combined applications received for the first five months of the year
o Base net income for the second quarter was $0.58 per share
Lincoln, Neb., July 28, 2005 - Nelnet, Inc. (NYSE: NNI) today reported base net
income for the first six months of 2005 of $62.5 million, or $1.16 per share,
compared with $96.4 million, or $1.80 per share, in the first six months of
2004. For the first six months of 2005, GAAP net income was $66.3 million, or
$1.23 per share, compared to $94.4 million, or $1.76 per share, for the same
period a year ago.
Base net income for the second quarter of 2005 was $31.0 million, or $0.58 per
share, compared with $84.6 million, or $1.58 per share, in the second quarter of
2004. The company reported a second-quarter GAAP net loss of $1.8 million, or
$0.03 per share, compared with GAAP net income of $85.3 million, or $1.59 per
share, the year before.
The GAAP net loss for the quarter ended June 30, 2005, includes an unrealized
loss in the fair-market value of derivative instruments of $51.4 million. The
majority of derivatives held by Nelnet do not qualify for hedge accounting under
FASB 133. As such, the mark-to-market gains or losses of derivatives each
reporting period are included in the statement of operations, but removed from
GAAP net income during the calculation of base net income.
Base net income as defined by Nelnet is GAAP net income excluding derivative
market value adjustments, amortization of intangible assets, and variable-rate
floor income. A description of base net income and reconciliation of GAAP net
income to base net income is included in this release.
Net student loan assets at June 30, 2005 were $15.7 billion, up more than 28
percent, or $3.5 billion, from $12.2 billion at June 30, 2004. Since December
31, 2004, student loan assets have increased more than 16 percent, or $2.2
billion, from $13.5 billion.
Nelnet's direct-to-consumer channel experienced a record level of activity in
the second quarter of 2005 as borrowers completed student loan consolidation
applications before the interest rate increase on July 1. The company reported
net new consolidation loan originations, meaning those acquired from other
holders, of $404.3 million for the second quarter of 2005 and received a record
number of consolidation loan applications in June, the majority of which will
fund in the third quarter. The number of applications received in the single
month of June was greater than the total number of applications received in the
first five months of the year.
"The results from the first half of 2005 reflect the momentum of our business,"
said Steve Butterfield, Nelnet Vice Chairman and Co-Chief Executive Officer.
"Student loan asset growth is the primary driver of our earnings and continues
to be robust, while the integration of acquisitions diversifies our revenue
streams and enhances our product offerings to schools and students."
MARGIN ANALYSIS
Net interest income for the first six months of 2005 was $168.8 million compared
to $218.6 million for the first six months of 2004. For the second quarter of
2005, Nelnet reported net interest income of $82.0 million compared to $175.2
million for the second quarter of 2004. The second quarter 2005 net interest
income includes a special allowance yield adjustment of $25.9 million, down from
$124.3 million in the same period a year ago, of which a portion had been
previously deferred.
The company reported core student loan spread of 1.58 percent for the first six
months of 2005 compared with 1.72 percent in the same period in 2004 and 1.50
percent for the second quarter of 2005 compared with 1.79 percent in the same
period of 2004. The margin compression was attributable to higher short-term
variable interest rates and an increase in lower-yield consolidation loans in
the company's student loan portfolio. The impact of the margin compression was
partially offset by the use of derivative products to hedge the majority of
Nelnet's student loan portfolio earning at fixed rates.
OTHER REVENUE
Income from loan and guarantee servicing fees reached $71.9 million for the
first six months of 2005, up from $48.9 million in the first six months of 2004.
In the second quarter of 2005, loan and guarantee servicing income grew to $34.7
million from $22.8 million in the second quarter of 2004. The increase is
attributable to the acquisition of EDULINX.
Other fee-based income increased to $12.4 million for the first six months of
2005 compared to $3.5 million for the first six months of 2004. For the second
quarter of 2005 other fee-based income increased to $9.0 million, up from $1.6
million in the same period a year ago. Recent acquisitions contributed to the
increase.
OPERATING EXPENSES
For the first six months of 2005, the company reported operating expenses of
$145.3 million compared to $129.4 million for the first six months of 2004.
Operating expenses decreased to $73.9 million in the second quarter of 2005 from
$76.2 million for the same period a year ago.
RECONCILIATION OF GAAP NET INCOME TO BASE NET INCOME
Nelnet prepares financial statements in accordance with generally accepted
accounting principles (GAAP). In addition to evaluating the company's GAAP-based
financial information, management also evaluates the company on certain non-GAAP
performance measures that are referred to as base income adjustments. While base
net income is not a substitute for reported results under GAAP, Nelnet provides
base net income as additional information regarding the company's financial
results.
Nelnet's base net income is a non-GAAP financial measure and may not be
comparable to similarly titled measures reported by other companies. The
company's base net income presentation does not represent another comprehensive
basis of accounting.
The following table provides a reconciliation of GAAP net income to base net
income.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
GAAP net income (loss) $ (1,773) $ 85,253 $ 66,314 $ 94,374
Base adjustments:
Derivative market value adjustments 51,372 (3,075) (8,918) (548)
Amortization of intangible assets 1,559 2,079 2,732 4,157
Variable-rate floor income - - - (348)
---------- ---------- ---------- ----------
Total base adjustments before income taxes 52,931 (996) (6,186) 3,261
Net tax effect (a) (20,114) 379 2,351 (1,239)
---------- ---------- ---------- ----------
Total base adjustments 32,817 (617) (3,835) 2,022
---------- ---------- ---------- ----------
Base net income $ 31,044 $ 84,636 $ 62,479 $ 96,396
========== ========== ========== ==========
Base earnings per share, basic and
diluted $ 0.58 $ 1.58 $ 1.16 $ 1.80
========== ========== ========== ==========
- --------------------------------------------
(a) Tax effect computed at 38%.
Nelnet will host a conference call to discuss this earnings release at 1:00 p.m.
(Eastern) today. To access the call live, participants in the United States and
Canada should dial 800.310.7032 and international callers should dial
719.457.2694 at least 15 minutes prior to the call. A live audio Web cast of the
call will also be available at www.nelnetinvestors.net under the conference
calls and Web casts menu. A replay of the conference call will be available
between 4:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) August 5. 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 4818791. A replay of
the audio Web cast will also be available at www.nelnetinvestors.net.
Supplemental financial information to this earnings release is available online
at http://www.nelnetinvestors.net/releases.cfm?reltype=Financial.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
2005 2004 2005 2004
------------ ------------- ------------ ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest income:
Loan interest, excluding variable-rate
floor income $ 223,691 $ 239,436 $ 423,798 $ 347,632
Variable-rate floor income - - - 348
Amortization of loan premiums and deferred
origination costs (16,547) (15,037) (32,329) (34,854)
Investment interest 8,150 3,181 15,152 6,832
------------ ------------- ------------ ------------
Total interest income 215,294 227,580 406,621 319,958
Interest expense:
Interest on bonds and notes payable 133,277 52,352 237,802 101,395
------------ ------------- ------------ ------------
Net interest income 82,017 175,228 168,819 218,563
Less provision (recovery) for loan losses 2,124 (6,421) 4,155 (3,306)
------------ ------------- ------------ ------------
Net interest income after provision (recovery)
for loan losses 79,893 181,649 164,664 221,869
------------ ------------- ------------ ------------
Other income:
Loan and guarantee servicing income 34,678 22,846 71,854 48,909
Other fee-based income 9,027 1,630 12,383 3,519
Software services income 2,602 1,780 4,808 3,672
Other income 1,524 1,285 2,924 2,728
Derivative market value adjustments (51,372) 3,075 8,918 548
Derivative settlements, net (6,001) (1,718) (16,087) (2,932)
------------ ------------- ------------ ------------
Total other income (loss) (9,542) 28,898 84,800 56,444
------------ ------------- ------------ ------------
Operating expenses:
Salaries and benefits 39,977 49,036 79,304 76,805
Other expenses 32,343 25,081 63,231 48,446
Amortization of intangible assets 1,559 2,079 2,732 4,157
------------ ------------- ------------ ------------
Total operating expenses 73,879 76,196 145,267 129,408
------------ ------------- ------------ ------------
Income (loss) before income taxes (3,528) 134,351 104,197 148,905
Income tax expense (benefit) (1,755) 49,098 37,883 54,531
------------ ------------- ------------ ------------
Net income (loss) $ (1,773) $ 85,253 $ 66,314 $ 94,374
============ ============= ============ ============
Earnings (loss) per share, basic and diluted $ (0.03) $ 1.59 $ 1.23 $ 1.76
============ ============= ============ ============
Weighted average shares outstanding 53,712,048 53,647,697 53,697,390 53,641,664
CONDENSED CONSOLIDATED BALANCE SHEETS AND FINANCIAL DATA
AS OF AS OF AS OF
JUNE 30, DECEMBER 31, JUNE 30,
2005 2004 2004
-------------- -------------- -------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Assets:
Student loans receivable, net $ 15,661,315 $ 13,461,814 $ 12,194,097
Cash, cash equivalents, and investments 1,110,109 1,302,954 899,987
Other assets 537,479 395,237 365,495
-------------- -------------- -------------
Total assets $ 17,308,903 $ 15,160,005 $ 13,459,579
============== ============== =============
Liabilities:
Bonds and notes payable $ 16,580,078 $ 14,300,606 $ 12,844,539
Other liabilities 205,155 403,224 214,058
-------------- -------------- -------------
Total liabilities 16,785,233 14,703,830 13,058,597
-------------- -------------- -------------
Shareholders' equity 523,670 456,175 400,982
-------------- -------------- -------------
Total liabilities and shareholders' equity $ 17,308,903 $ 15,160,005 $ 13,459,579
============== ============== =============
Return on average total assets 0.82% 1.11% 1.50%
Return on average equity 26.0% 39.7% 57.1%
###
Nelnet is one of the leading education finance companies in the United States
and is focused on providing quality products and services to students and
schools nationwide. Nelnet ranks among the nation's leaders in terms of total
net student loan assets with $15.7 billion as of June 30, 2005. Headquartered in
Lincoln, Nebraska, Nelnet originates, consolidates, securitizes, holds, and
services student loans, principally loans originated under the Federal Family
Education Loan Program of the U.S. Department of Education.
Additional information is available at www.nelnet.net.
Information contained in this press release, other than historical information,
may be considered forward-looking in nature and is subject to various risks,
uncertainties, and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
expected. Among the key factors that may have a direct bearing on Nelnet's
operating results, performance, or financial condition are changes in terms of
student loans and the educational credit marketplace, changes in the demand for
educational financing or in financing preferences of educational institutions,
students and their families, or changes in the general interest rate environment
and in the securitization markets for education loans.