Nov. 9, 2009 (PR Newswire) --
LINCOLN, Neb., Nov. 9 /PRNewswire-FirstCall/ -- Nelnet (NYSE: NNI) today reported base net income of $50.2 million, or $1.01 per share, for the third quarter of 2009, compared with $23.4 million, or $0.47 per share, for the same quarter a year ago. For the first nine months of 2009, the company reported base net income of $113.5 million, or $2.30 per share, compared with $65.2 million, or $1.33 per share, for the first nine months of 2008. Base net income excludes discontinued operations, restructuring charges, and certain liquidity-related charges.
Base net income in the third quarter of 2009 includes pre-tax gains of $9.7 million, or $0.13 per share after tax, on the sale of federal student loans to the Department of Education (Department) and $5.2 million, or $0.07 per share after tax, from the company's repurchase of debt.
"We are pleased with our increasing fee-based revenues, servicing of student loans for the Department, and decreasing operating expenses," said Mike Dunlap, Chairman and Chief Executive Officer of Nelnet. "Continuing to focus on these areas will drive future growth. The low interest rate environment and improving capital markets have allowed us to reduce our debt and improve the spread we earn on our student loan portfolio."
Board of Directors Declares Dividend
The Nelnet Board of Directors declared a fourth-quarter cash dividend on its outstanding shares of Class A common stock and Class B common stock of $0.07 per share. The dividend will be paid on December 15, 2009, to shareholders of record at the close of business on December 1, 2009. Nelnet currently has 38.3 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.
Diversifying and increasing fee-based revenue
In the third quarter of 2009, Nelnet's fee-based revenue from the company's tuition payment plan, campus commerce, and certain enrollment services businesses increased $5.4 million, or 17 percent, to $36.6 million, compared with the same period in 2008.
In September 2009, Nelnet began servicing federally owned student loans for the Department under a contract that the company was awarded in June 2009. As of October 31, 2009, the company was servicing approximately $2.5 billion of loans on behalf of the Department, of which approximately $740 million, or approximately 87,000 borrowers, is incremental volume previously serviced by other companies. The initial servicing volume includes loans purchased by the Department from Nelnet and other lenders through the Department's Loan Purchase Commitment Program. Servicing loans for the Department will increase Nelnet's fee-based revenue as servicing volume increases.
Total revenue from fee-based businesses for the third quarter of 2009 was $74.6 million, or 47 percent of total revenue, and is compared with $76.7 million for the same period a year ago.
Maximizing the value of existing portfolio
Excluding loans added to government-related participation and conduit programs, more than 99 percent of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate future cash flow in excess of $1.3 billion. Narrower spreads and historically low interest rates are providing an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the third quarter of 2009, Nelnet reported net interest income including derivative settlements of $74.1 million, compared with $60.4 million for the same period a year ago.
The company reported core student loan spread of 1.27 percent for the third quarter of 2009 compared with 1.04 percent for the same period of 2008 and 1.09 percent for the second quarter of 2009. Two factors in the third quarter improved core student loan spread: 1) Lower interest rates increased fixed rate floor income, net of settlements on derivatives, to $38.8 million for the third quarter of 2009, compared with $6.8 million for the same period a year ago and $37.1 million in the second quarter of 2009 and 2) The relationship between three-month financial commercial paper rate (CP) and three-month LIBOR has tightened significantly from as high as 54 basis points in the first quarter of 2009 to as low as 13 basis points in the third quarter of 2009. Most of the company's federal student loans are indexed to CP, and its debt is indexed to LIBOR; therefore, disparity between these indexes can impact the company's interest income. Core student loan spread may continue to increase in the fourth quarter of 2009 if interest rates remain low and the capital markets continue to improve.
At September 30, 2009, net student loan assets were $25.4 billion, of which $1.6 billion were classified as held for sale to the Department. In the third quarter of 2009, Nelnet reported a gain of $9.7 million on the sale of $428 million of federal student loans to the Department. Loans held for sale at quarter end are funded primarily using the Department's Loan Participation Program and were sold to the Department in October 2009. Nelnet recognized a gain on the sale of these loans of $26.9 million, which will be reflected in the company's fourth quarter results.
In addition to loans held to term, Nelnet has liquidity for new loan originations through the Department's Loan Participation and Loan Purchase Programs, which will allow Nelnet to make loans to all eligible students for the 2009-2010 academic year.
Managing operating expenses
Management continues to focus on managing operating expenses.
