Exhibit 99.1
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NELNET 121 South 13th Street, Suite 400 P 402 458 2370 www.nelnet.net
Lincoln, NE 68506 F 402 458 2344 NELNET CORPORATE
SERVICES, INC.
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Media Contact: Sheila Odom, 402.458.2329
Investor Contact: Cheryl Watson, 317.469.2064
For immediate release
Nelnet reports net student loan assets up 28 percent year-over-year
o Student loan assets up more than $2.9 billion, or 22 percent, from year-end
o Net consolidation originations for the third quarter $537.7 million
o Base net income $95.3 million for the first nine months of 2005
LINCOLN, Neb., October 26, 2005 - Nelnet, Inc. (NYSE: NNI) today reported GAAP
net income for the first nine months of 2005 of $138.4 million, or $2.58 per
share, compared with $102.0 million, or $1.90 per share, for the first nine
months of 2004. GAAP net income for the third quarter of 2005 was $72.1 million,
or $1.34 per share, compared with $7.6 million, or $0.14 per share, for the
third quarter of 2004.
Base net income for the first nine months of 2005 was $95.3 million, or $1.77
per share, compared with $130.1 million, or $2.43 per share, in the first nine
months of 2004. Base net income for the third quarter of 2005 was $32.8 million,
or $0.61 per share, compared with $33.7 million, or $0.63 per share, in the
third quarter of 2004.
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.
Base net income excluding certain special allowance yield adjustments and
related derivative settlements for the first nine months of 2005 was $1.07 per
share, up from $0.69 per share for the first nine months of 2004. Base net
income excluding certain special allowance yield adjustments and related
derivative settlements was $0.39 per share for the third quarter of 2005, up 22
percent from $0.32 per share for the third quarter of 2004.
For the third-quarter 2005, GAAP net income includes an unrealized gain in the
fair-market value of derivative instruments of $65.4 million. Nelnet's
derivatives 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.
Net student loan assets at September 30, 2005 were $16.4 billion, up 28 percent,
or $3.6 billion, from $12.8 billion at September 30, 2004. Since December 31,
2004, net student loan assets have increased 22 percent, or $2.9 billion, from
$13.5 billion.
The company reported net consolidation loan originations of $537.7 million for
the third quarter of 2005 after receiving a record level of consolidation
applications in the second quarter of 2005 before the interest rate increase on
July 1. The majority of these applications funded in the third quarter. For the
third quarter, Nelnet reported a loss of $240.4 million of student loans through
the consolidation of the company's portfolio by third parties.
"We are excited by the results of the third quarter that provided strong student
loan asset growth driven by record consolidation volume," said Steve
Butterfield, Nelnet Vice Chairman and Co-Chief Executive Officer. "In addition,
Nelnet announced two acquisitions that will enhance our presence in key markets
in the Sun Belt and on the West Coast."
Nelnet completed the acquisitions of LoanSTAR Funding Group, Inc. and the assets
of Chela Education Finance, Inc. on October 24, 2005 and October 25, 2005,
respectively. These acquisitions were originally announced in the third quarter.
MARGIN ANALYSIS
Net interest income for the first nine months of 2005 was $247.8 million
compared to $308.0 million for the first nine months of 2004. For the third
quarter of 2005, Nelnet reported net interest income of $79.0 million compared
to $89.4 million for the third quarter of 2004. Net interest income for the
first nine months of 2005 includes a special allowance yield adjustment of $77.4
million, down from $167.9 million in the same period a year ago. The
third-quarter 2005 net interest income includes a special allowance yield
adjustment of $21.8 million, down from $43.6 million in the same period a year
ago. Excluding the impact of the special allowance yield adjustments, net
interest income for the third-quarter 2005 increased $11.4 million, or 25
percent, compared to the same period a year ago.
The company reported core student loan spread of 1.54 percent for the first nine
months of 2005 compared with 1.71 percent in the same period in 2004 and 1.46
percent for the third quarter of 2005 compared with 1.65 percent in the same
period of 2004. The tightening was primarily attributable to an increase in
lower-yield consolidation loans in the company's student loan portfolio. At
September 30, 2005, consolidation loans comprised more than 62 percent of
Nelnet's student loan portfolio.
OTHER REVENUE
Income from loan and guarantee servicing fees reached $109.3 million for the
first nine months of 2005, up from $73.4 million in the first nine months of
2004. In the third quarter of 2005 income from loan and guarantee servicing grew
to $37.5 million from $24.5 million in the third quarter of 2004. The increase
is attributable to the acquisition of EDULINX in December 2004 and is partially
offset by reductions in other third-party servicing-related revenue.
Other fee-based income increased to $22.9 million for the first nine months of
2005 compared to $5.4 million for the first nine months of 2004. For the third
quarter of 2005 other fee-based income increased to $10.5 million, up from $1.8
million in the same period a year ago. The integration of recent acquisitions
contributed to the increase.
OPERATING EXPENSES
For the first nine months of 2005 the company reported operating expenses of
$224.2 million compared to $180.9 million for the first nine months of 2004.
Operating expenses increased to $78.9 million in the third quarter of 2005 from
$51.5 million for the same period a year ago. The increase in operating expenses
is primarily attributable to the integration of recent acquisitions.
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 we refer to as base net income. While base net income
is not a substitute for reported results under GAAP, Nelnet provides base net
income as additional information regarding financial results.
Base net income, excluding certain special allowance yield adjustments and
related hedging activity related to the company's portfolio of student loans
earning a minimum special allowance payment of 9.5%, is used by management to
develop the company's financial plans, track results, and establish corporate
performance targets.
The following table provides a reconciliation of GAAP net income to base net
income and also reflects the earnings per share impact of the special allowance
yield adjustments and related hedging activity related to the 9.5% portfolio.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
2005 2004 2005 2004
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(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
GAAP net income $ 72,132 $ 7,637 $ 138,446 $ 102,011
Base adjustments:
Derivative market value adjustments (65,382) 39,757 (74,300) 39,209
Amortization of intangible assets 1,919 2,275 4,651 6,432
Variable-rate floor income - - - (348)
--------- --------- --------- ----------
Total base adjustments before income taxes (63,463) 42,032 (69,649) 45,293
Net tax effect (a) 24,116 (15,972) 26,467 (17,211)
--------- --------- --------- ----------
Total base adjustments (39,347) 26,060 (43,182) 28,082
--------- --------- --------- ----------
Base net income $ 32,785 $ 33,697 $ 95,264 $ 130,093
========= ========= ========= ==========
Earnings per share, basic and diluted:
GAAP net income $ 1.34 $ 0.14 $ 2.58 $ 1.90
========= ========= ========= ==========
Base net income $ 0.61 $ 0.63 $ 1.77 $ 2.43
Special allowance yield adjustments (b) (0.22) (0.31) (0.70) (1.74)
--------- --------- --------- ----------
Base net income, excluding the special
allowance yield adjustments (b) $ 0.39 $ 0.32 $ 1.07 $ 0.69
========= ========= ========= ==========
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(a) Tax effect computed at 38%.
(b) The special allowance yield adjustments are net of derivative settlements
and taxes.
Nelnet will host a conference call to discuss this earnings release at 11:00
a.m. (Eastern) today. To access the call live, participants in the United States
and Canada should dial 800.309.1331 and international callers should dial
719.785.9442 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 2:00 p.m. (Eastern) today and 11:59 p.m. (Eastern) November 2. 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 3047267. 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 INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2005 2004 2005 2004
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(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest income:
Loan interest, excluding variable-rate
floor income $ 247,791 $ 171,427 $ 671,589 $ 519,059
Variable-rate floor income - - - 348
Amortization of loan premiums and deferred
origination costs (20,041) (18,395) (52,370) (53,249)
Investment interest 11,491 4,918 26,643 11,750
----------- ----------- ----------- -----------
Total interest income 239,241 157,950 645,862 477,908
Interest expense:
Interest on bonds and notes payable 160,243 68,545 398,045 169,940
----------- ----------- ----------- -----------
Net interest income 78,998 89,405 247,817 307,968
Less provision (recovery) for loan losses 1,402 2,300 5,557 (1,006)
----------- ----------- ----------- -----------
Net interest income after provision
(recovery) for loan losses 77,596 87,105 242,260 308,974
----------- ----------- ----------- -----------
Other income (loss):
Loan and guarantee servicing income 37,459 24,513 109,313 73,422
Other fee-based income 10,503 1,840 22,886 5,359
Software services income 1,951 1,849 6,759 5,521
Other income 2,458 4,356 5,382 7,084
Derivative market value adjustments 65,382 (39,757) 74,300 (39,209)
Derivative settlements, net (2,962) (16,457) (19,049) (19,389)
----------- ----------- ----------- -----------
Total other income (loss) 114,791 (23,656) 199,591 32,788
----------- ----------- ----------- -----------
Operating expenses:
Salaries and benefits 44,311 25,060 123,615 101,865
Other expenses 32,705 24,167 95,936 72,613
Amortization of intangible assets 1,919 2,275 4,651 6,432
----------- ----------- ----------- -----------
Total operating expenses 78,935 51,502 224,202 180,910
----------- ----------- ----------- -----------
Income before income taxes 113,452 11,947 217,649 160,852
Income tax expense 41,091 4,310 78,974 58,841
----------- ----------- ----------- -----------
Net income before minority interest 72,361 7,637 138,675 102,011
Minority interest in net earnings of subsidiaries (229) - (229) -
----------- ----------- ----------- -----------
Net income $ 72,132 $ 7,637 $ 138,446 $ 102,011
=========== =========== =========== ===========
Earnings per share, basic and diluted $ 1.34 $ 0.14 $ 2.58 $ 1.90
=========== =========== =========== ===========
Weighted average shares outstanding 53,734,218 53,648,788 53,709,801 53,644,056
CONDENSED CONSOLIDATED BALANCE SHEETS AND FINANCIAL DATA
AS OF AS OF AS OF
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2005 2004 2004
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(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Assets:
Student loans receivable, net $16,379,293 $13,461,814 $12,793,704
Cash, cash equivalents, and investments 1,304,261 1,302,954 933,271
Goodwill 67,942 8,522 8,522
Intangible assets, net 34,644 11,987 10,546
Other assets 525,185 374,728 368,753
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Total assets $18,311,325 $15,160,005 $14,114,796
============ ============ ============
Liabilities:
Bonds and notes payable $17,418,652 $14,300,606 $13,526,343
Other liabilities 295,582 403,224 179,838
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Total liabilities 17,714,234 14,703,830 13,706,181
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Minority interest in subsidiaries 274 - -
Shareholders' equity 596,817 456,175 408,615
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Total liabilities and shareholders' equity $18,311,325 $15,160,005 $14,114,796
============ ============ ============
Return on average total assets 1.10% 1.11% 1.04%
Return on average equity 34.9% 39.7% 38.3%
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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 $16.4 billion as of September 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.