Nelnet Reports Strong First-Quarter 2007 Results; Student Loan Assets Top $25 Billion

LINCOLN, Neb., April 27 /PRNewswire-FirstCall/ -- Nelnet, Inc. today reported GAAP net income for the first-quarter 2007 of $14.8 million, or $0.29 per share, compared with $52.1 million, or $0.96 per share, for the first-quarter 2006. Base net income for the first-quarter 2007 was $27.7 million, or $0.54 per share, compared with $31.6 million, or $0.59 per share, for the same period a year ago. For the first quarter of 2006, base net income excluding the special allowance yield adjustment and net derivative settlements was $20.4 million, or $0.38 per share.

"We continued our focus on the key elements important to delivering sustainable, long-term value," said Mike Dunlap, Nelnet Chairman and Co-Chief Executive Officer. "In the first quarter, we reported strong results in which we delivered on each of these key elements by increasing our student loan assets and diversifying and increasing our fee-based revenue. We will maintain our center of attention on these elements and providing exceptional service to students, families, and schools throughout the education life cycle."

Student Loan Assets

Net student loan assets increased by $3.7 billion, or 17 percent, year over year to $25.0 billion. The company reported net consolidation loan originations of $590.4 million and net new consolidation loan originations of $351.0 million for the first quarter of 2007.

Fee-based Revenue

Fee-based revenue for the first quarter of 2007 represented 58 percent of Nelnet's total revenue. This is an increase from the first quarter of 2006 when fee-based revenue represented 44 percent of total revenue.

Income from loan and guarantee servicing fees was $49.4 million for the first-quarter 2007, up from $47.1 million for the first-quarter 2006. Loan and guarantee servicing income includes $2.4 million before taxes or $1.5 million after taxes of incentive revenue earned by EDULINX through its existing contract with the Government of Canada.

Other fee-based income, generated primarily by Nelnet Business Solutions and Enrollment Services, increased to $40.0 million for the first quarter of 2007 compared with $18.2 million for the same period a year ago.

Capital Deployment

In the first-quarter of 2006, Nelnet repurchased 3.1 million shares, including 2.7 million shares from certain members of management, for an average price of $24.65 per share. The company has the authority to repurchase an additional 5 million shares under its existing stock repurchase program.

Margin Analysis

For the first quarter of 2007, Nelnet reported net interest income of $68.3 million compared with $86.3 million for the first quarter of 2006, which included 9.5 percent special allowance payments of $18.4 million.

The company reported core student loan spread of 1.29 percent for the first quarter of 2007 compared with 1.54 percent for the same period a year ago. For the fourth quarter of 2006, Nelnet reported core student loan spread of 1.31 percent.

Operating Expenses

Operating expenses were $136.2 million in the first quarter of 2007 compared with $108.2 million for the same period a year ago. The increase is primarily attributable to acquisitions.

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.net/releases.cfm?reltype=Financial.

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 866.293.8972 and international callers should dial 913.312.1232 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at http://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) May 11, 2007. 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 2050846. A replay of the audio Web cast will also be available at http://www.nelnetinvestors.net/.

Condensed Consolidated Statements of Operations Three months ended March 31, December 31, March 31, 2007 2006 2006 (unaudited) (unaudited) (unaudited) (dollars in thousands, except share data) Interest income: Loan interest $418,113 $410,015 $347,522 Amortization of loan premiums and deferred origination costs (21,059) (22,838) (21,862) Investment interest 21,496 24,310 19,541 Total interest income 418,550 411,487 345,201 Interest expense: Interest on bonds and notes payable 350,226 347,615 258,949 Net interest income 68,324 63,872 86,252 Less provision for loan losses 2,753 1,800 9,618 Net interest income after provision for loan losses 65,571 62,072 76,634 Other income (expense): Loan and guarantee servicing income 49,445 50,985 47,074 Other fee-based income 40,029 36,868 18,155 Software services income 5,748 4,064 3,409 Other income 6,931 4,850 1,987 Derivative market value, foreign currency, and put option adjustments (12,130) (19,510) 39,263 Derivative settlements, net 4,240 7,013 4,744 Total other income (expense) 94,263 84,270 114,632 Operating expenses: Salaries and benefits 70,009 60,842 57,684 Other expenses 59,259 60,916 44,930 Amortization of intangible assets 6,918 6,794 5,633 Impairment expense -- 31,090 -- Total operating expenses 136,186 159,642 108,247 Income (loss) before income taxes 23,648 (13,300) 83,019 Income tax expense (benefit) 8,868 (5,990) 30,711 Net income (loss) before minority interest 14,780 (7,310) 52,308 Minority interest in net earnings of subsidiaries -- -- (242) Net income (loss) $14,780 $(7,310) $52,066 Earnings (loss) per share, basic and diluted $0.29 $(0.14) $0.96 Weighted average shares outstanding 50,982,187 52,506,936 54,241,341 Condensed Consolidated Balance Sheets and Financial Data As of As of As of March 31, December 31, March 31, 2007 2006 2006 (unaudited) (unaudited) (dollars in thousands) Assets: Student loans receivable, net $25,013,045 $23,789,552 $21,320,374 Cash, cash equivalents, and investments 1,417,304 1,777,494 1,456,181 Goodwill 191,214 191,420 132,389 Intangible assets, net 154,176 162,994 162,396 Other assets 906,264 875,413 732,811 Total assets $27,682,003 $26,796,873 $23,804,151 Liabilities: Bonds and notes payable $26,537,482 $25,562,119 $22,670,772 Other liabilities 533,403 562,904 416,173 Total liabilities 27,070,885 26,125,023 23,086,945 Shareholders' equity 611,118 671,850 717,206 Total liabilities and shareholders' equity $27,682,003 $26,796,873 $23,804,151 Return on average total assets 0.22% 0.27% 0.90% Return on average equity 9.4% 9.6% 30.4% Shareholders' equity to total assets 2.21% 2.51% 3.01%

For 28 years, Nelnet has been helping the education-seeking family plan for their education, pay for their education, and prepare for their careers. The company has invested hundreds of millions of dollars in products, services, and technology improvements for students and the educational institutions they attend. These services include live counseling to help families through all aspects of the financial aid process, benefits for borrowers, including tens of millions of dollars in fee reductions, and Nelnet sponsored scholarships. Nelnet serves students in 50 states, employs approximately 4,000 associates, and has $25.0 billion in net student loan assets.

Additional information is available at http://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. For more information see our filings with the Securities and Exchange Commission.

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