LINCOLN,
Neb., Nov. 7, 2023 /PRNewswire/ -- Nelnet
(NYSE: NNI) today reported GAAP net income of $45.3 million, or $1.21 per share, for the third quarter of 2023,
compared with GAAP net income of $104.8
million, or $2.80 per share,
for the same period a year ago.
Net income, excluding derivative market value
adjustments1, was $42.9
million, or $1.15 per share,
for the third quarter of 2023, compared with $64.5 million, or $1.73 per share, for the same period in 2022.
"While Nelnet's earnings are affected by the anticipated runoff
of our legacy student loan portfolio, we continue to be pleased
with the growth opportunities in our core fee-based businesses,"
said Jeff Noordhoek, chief executive
officer of Nelnet. "During the quarter, all federal student loan
borrowers were asked to begin making payments for the first time
since the pandemic began in March
2020. This unprecedented event, along with frequent program
changes, has generated extraordinary call volume and web traffic.
After supporting borrowers for more than 45 years, we remain
committed and are working hard to be part of the solution with the
help of our federal partners."
Nelnet operates four primary business segments, earning interest
income on loans in its Asset Generation and Management (AGM) and
Nelnet Bank segments, and fee-based revenue in its Loan Servicing
and Systems and Education Technology, Services, and Payment
Processing segments. Other business activities and operating
segments that are not reportable are combined and included in
corporate activities. Corporate activities also includes income
earned on the majority of the company's investments.
Asset Generation and Management
The AGM operating segment reported net interest income of
$51.5 million during the third
quarter of 2023, compared with $62.9
million for the same period a year ago. The decrease in 2023
was due to the expected runoff of the loan portfolio and a decrease
in loan spread2. The average balance of loans
outstanding decreased from $15.5
billion for the third quarter of 2022 to $13.2 billion for the same period in 2023.
AGM recognized net income after tax of $30.8 million for the three months ended
September 30, 2023, compared with
$85.0 million for the same period in
2022.
AGM recognized income of $1.2
million ($0.9 million after
tax) related to changes in the fair value of derivative instruments
that do not qualify for hedge accounting, compared with income of
$53.0 million ($40.3 million after tax) for the same period in
2022.
Nelnet Bank
As of September 30, 2023, Nelnet
Bank had a $468.8 million loan
portfolio and total deposits, including intercompany deposits, of
$947.4 million. Nelnet Bank
recognized net income after tax for the quarter ended September 30, 2023 of $1.7
million, compared with $0.8
million for the same period in 2022.
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment was
$127.9 million for the third quarter
of 2023, compared with $134.2 million
for the same period in 2022.
As of September 30, 2023, the
company was servicing $539.3 billion
in government-owned, FFEL Program, private education, and consumer
loans for 16.2 million borrowers, compared with $590.4 billion in servicing volume for 17.5
million borrowers as of September 30,
2022.
The Loan Servicing and Systems segment reported net income after
tax of $18.6 million for the three
months ended September 30, 2023,
compared with $16.7 million for the
same period in 2022. Operating margin improved in 2023 compared
with 2022 due to a decrease in operating expenses, primarily
salaries and benefits. The company reduced staff in the first and
second quarters of 2023 to manage expenses due to the postponement
of the return to repayment for federal student loan borrowers and
lower pricing and reduced servicing volume for the company's
federal servicing contracts. In August
2023, the company began to hire additional associates to
support borrowers returning to repayment.
Education Technology, Services, and Payment
Processing
For the third quarter of 2023, revenue from the Education
Technology, Services, and Payment Processing operating segment was
$113.8 million, an increase from
$106.9 million for the same period in
2022. Revenue less direct costs to provide services for the third
quarter of 2023 was $70.1 million,
compared with $64.2 million for the
same period in 2022.
Net income after tax for the Education Technology, Services, and
Payment Processing segment was $16.8
million for the three months ended September 30, 2023, compared with $14.1 million for the same period in 2022. Net
income for the three months ended September
30, 2023 and 2022 included $8.9
million ($6.8 million after
tax) and $3.7 million ($2.8 million after tax) of interest income,
respectively. The increase in interest income was due to an
increase in interest rates in 2023 compared with 2022.
Corporate Activities
During the third quarter of 2023, the company recognized a loss
of $17.3 million ($13.1 million after tax) on its 45 percent voting
membership interests in ALLO Holdings LLC, a holding company for
ALLO Communications LLC (ALLO), compared with a loss of
$17.6 million ($13.4 million after tax) for the same period in
2022.
Also included in corporate activities is the operating results
of GRNE Solar (GRNE) that was
acquired by the company on July 1,
2022. GRNE is a solar contracting company that provides
full-service engineering, procurement, and construction (EPC)
services to residential homes and commercial entities. GRNE
incurred a net loss after tax of $3.0
million during the third quarter of 2023.
The company recognized net investment and interest income of
$8.6 million ($6.5 million after tax) for the three months
ended September 30, 2023, compared
with $14.5 million ($11.0 million after tax) for the same period in
2022.
During the third quarter of 2023, the company recognized an
impairment charge of $5.0 million
($3.8 million after tax) related to
real estate leases as the company continues to downsize its
facility footprint as a result of associates continuing to work
from home.
Board of Directors Declares Fourth Quarter Dividend
The Nelnet Board of Directors declared a fourth-quarter cash
dividend on the company's outstanding shares of Class A common
stock and Class B common stock of $0.28 per share. The dividend will be paid on
December 15, 2023, to shareholders of record at the close of
business on December 1, 2023.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within
the meaning of federal securities laws. The words "anticipate,"
"assume," "believe," "continue," "could," "ensure," "estimate,"
"expect," "forecast," "future," "intend," "may," "plan,"
"potential," "predict," "scheduled," "should," "will," "would," and
similar expressions, as well as statements in future tense, are
intended to identify forward-looking statements. These statements
are based on management's current expectations as of the date of
this release and are subject to known and unknown risks,
uncertainties, assumptions, and other factors that may cause the
actual results and performance to be materially different from any
future results or performance expressed or implied by such
forward-looking statements. Such risks and uncertainties include,
but are not limited to: risks related to the ability to
successfully maintain and increase allocated volumes of student
loans serviced by the company under existing and future servicing
contracts with the Department and risks related to the company's
ability to comply with agreements with third-party customers for
the servicing of Federal Direct Loan Program, FFEL Program, private
education, and consumer loans; loan portfolio risks such as credit
risk, interest rate basis and repricing risk, risks related to the
use of derivatives to manage exposure to interest rate
fluctuations, uncertainties regarding the expected benefits from
purchased securitized and unsecuritized FFEL Program, private
education, consumer, and other loans, or investment interests
therein, and initiatives to purchase additional FFEL Program,
private education, consumer, and other loans, and risks from
changes in levels of loan prepayment or default rates; financing
and liquidity risks, including risks of changes in the interest
rate environment; risks from changes in the terms of education
loans and in the educational credit and services markets resulting
from changes in applicable laws, regulations, and government
programs and budgets; risks related to a breach of or failure in
the company's operational or information systems or infrastructure,
or those of third-party vendors, including disclosure of
confidential or personal information and/or damage to reputation
resulting from cyber-breaches; uncertainties inherent in
forecasting future cash flows from student loan assets and related
asset-backed securitizations; risks and uncertainties of the
expected benefits from the November
2020 launch of Nelnet Bank operations, including the ability
to successfully conduct banking operations and achieve expected
market penetration; risks related to the expected benefits to the
company from its continuing investment in ALLO, and risks related
to investments in solar projects, including risks of not being able
to realize tax credits which remain subject to recapture by taxing
authorities; risks and uncertainties related to other initiatives
to pursue additional strategic investments (and anticipated income
therefrom), acquisitions, and other activities, including
activities that are intended to diversify the company both within
and outside of its historical core education-related businesses;
risks and uncertainties associated with climate change; risks from
changes in economic conditions and consumer behavior; risks related
to the company's ability to adapt to technological change; risks
related to the exclusive forum provisions in the company's articles
of incorporation; risks related to the company's executive
chairman's ability to control matters related to the company
through voting rights; risks related to related party transactions;
concerns about the downgrade of the U.S. credit rating; risks
related to natural disasters, terrorist activities, or
international hostilities; and risks and uncertainties associated
with litigation matters and with maintaining compliance with the
extensive regulatory requirements applicable to the company's
businesses.
For more information, see the "Risk Factors" sections and other
cautionary discussions of risks and uncertainties included in
documents filed or furnished by the company with the Securities and
Exchange Commission. All forward-looking statements in this release
are as of the date of this release. Although the company may
voluntarily update or revise its forward-looking statements from
time to time to reflect actual results or changes in the company's
expectations, the company disclaims any commitment to do so except
as required by law.
Non-GAAP Performance Measures
The company prepares its financial statements and presents its
financial results in accordance with U.S. GAAP. However, it also
provides additional non-GAAP financial information related to
specific items management believes to be important in the
evaluation of its operating results and performance.
Reconciliations of GAAP to non-GAAP financial information, and a
discussion of why the company believes providing this additional
information is useful to investors, is provided in the "Non-GAAP
Disclosures" section below.
_______________________________________
|
1
|
Net income, excluding
derivative market value adjustments, is a non-GAAP measure. See
"Non-GAAP Performance Measures" at the end of this press release
and the "Non-GAAP Disclosures" section below for explanatory
information and reconciliations of GAAP to non-GAAP financial
information.
|
2
|
Loan spread represents
the spread between the yield earned on loan assets and the costs of
the liabilities and derivative instruments used to fund the
assets.
|
Consolidated
Statements of Income
|
(Dollars in thousands,
except share data)
|
(unaudited)
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September 30,
2022
|
|
September 30,
2023
|
|
September 30,
2022
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Loan
interest
|
$
236,423
|
|
243,045
|
|
176,244
|
|
704,712
|
|
422,327
|
Investment
interest
|
48,128
|
|
40,982
|
|
26,889
|
|
129,835
|
|
57,589
|
Total interest
income
|
284,551
|
|
284,027
|
|
203,133
|
|
834,547
|
|
479,916
|
Interest expense on
bonds and notes payable and bank deposits
|
207,159
|
|
233,148
|
|
126,625
|
|
639,756
|
|
248,347
|
Net interest
income
|
77,392
|
|
50,879
|
|
76,508
|
|
194,791
|
|
231,569
|
Less provision for loan
losses
|
10,659
|
|
9,592
|
|
9,665
|
|
54,526
|
|
18,640
|
Net interest income
after provision for loan losses
|
66,733
|
|
41,287
|
|
66,843
|
|
140,265
|
|
212,929
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Loan servicing and
systems revenue
|
127,892
|
|
122,020
|
|
134,197
|
|
389,138
|
|
395,438
|
Education technology,
services, and payment processing revenue
|
113,796
|
|
109,858
|
|
106,894
|
|
357,258
|
|
310,211
|
Solar construction
revenue
|
6,301
|
|
4,735
|
|
9,358
|
|
19,687
|
|
9,358
|
Other, net
|
(211)
|
|
(7,011)
|
|
2,225
|
|
(21,293)
|
|
24,750
|
Gain on sale of loans,
net
|
5,362
|
|
15,511
|
|
2,627
|
|
32,685
|
|
5,616
|
Impairment and other
expense, net
|
(4,974)
|
|
—
|
|
121
|
|
(4,974)
|
|
(6,163)
|
Derivative market value
adjustments and derivative settlements, net
|
3,957
|
|
2,070
|
|
63,262
|
|
(8,047)
|
|
251,210
|
Total other income
(expense), net
|
252,123
|
|
247,183
|
|
318,684
|
|
764,454
|
|
990,420
|
Cost of
services:
|
|
|
|
|
|
|
|
|
|
Cost to provide
education technology, services, and payment processing
services
|
43,694
|
|
40,407
|
|
42,676
|
|
131,804
|
|
109,073
|
Cost to provide solar
construction services
|
7,783
|
|
9,122
|
|
5,968
|
|
25,204
|
|
5,968
|
Total cost of
services
|
51,477
|
|
49,529
|
|
48,644
|
|
157,008
|
|
115,041
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
141,204
|
|
144,706
|
|
147,198
|
|
438,620
|
|
438,010
|
Depreciation and
amortization
|
21,835
|
|
18,652
|
|
18,772
|
|
57,114
|
|
53,978
|
Other
expenses
|
51,370
|
|
45,997
|
|
43,858
|
|
138,154
|
|
120,297
|
Total operating
expenses
|
214,409
|
|
209,355
|
|
209,828
|
|
633,888
|
|
612,285
|
Income before income
taxes
|
52,970
|
|
29,586
|
|
127,055
|
|
113,823
|
|
476,023
|
Income tax
expense
|
(10,734)
|
|
(10,491)
|
|
(26,586)
|
|
(29,475)
|
|
(107,765)
|
Net income
|
42,236
|
|
19,095
|
|
100,469
|
|
84,348
|
|
368,258
|
Net loss attributable
to noncontrolling interests
|
3,096
|
|
9,172
|
|
4,329
|
|
15,738
|
|
8,315
|
Net income
attributable to Nelnet, Inc.
|
$
45,332
|
|
28,267
|
|
104,798
|
|
100,086
|
|
376,573
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Nelnet, Inc. shareholders - basic and
diluted
|
$
1.21
|
|
0.75
|
|
2.80
|
|
2.67
|
|
9.99
|
Weighted average
common shares outstanding - basic and diluted
|
37,498,073
|
|
37,468,397
|
|
37,380,493
|
|
37,437,587
|
|
37,708,425
|
Condensed
Consolidated Balance Sheets
|
(Dollars in
thousands)
|
(unaudited)
|
|
|
As of
|
|
As of
|
|
As of
|
|
September 30,
2023
|
|
December 31,
2022
|
|
September 30,
2022
|
Assets:
|
|
|
|
|
|
Loans and accrued
interest receivable, net
|
$
13,867,557
|
|
15,243,889
|
|
15,876,251
|
Cash, cash equivalents,
and investments
|
2,133,378
|
|
2,230,063
|
|
2,126,712
|
Restricted
cash
|
604,855
|
|
1,239,470
|
|
980,131
|
Goodwill and intangible
assets, net
|
228,812
|
|
240,403
|
|
242,401
|
Other assets
|
388,080
|
|
420,219
|
|
338,038
|
Total
assets
|
$
17,222,682
|
|
19,374,044
|
|
19,563,533
|
Liabilities:
|
|
|
|
|
|
Bonds and notes
payable
|
$
12,448,109
|
|
14,637,195
|
|
15,042,595
|
Bank
deposits
|
718,053
|
|
691,322
|
|
580,825
|
Other
liabilities
|
797,365
|
|
845,625
|
|
773,754
|
Total
liabilities
|
13,963,527
|
|
16,174,142
|
|
16,397,174
|
Equity:
|
|
|
|
|
|
Total Nelnet, Inc.
shareholders' equity
|
3,294,981
|
|
3,198,959
|
|
3,180,614
|
Noncontrolling
interests
|
(35,826)
|
|
943
|
|
(14,255)
|
Total
equity
|
3,259,155
|
|
3,199,902
|
|
3,166,359
|
Total liabilities and
equity
|
$
17,222,682
|
|
19,374,044
|
|
19,563,533
|
Non-GAAP Disclosures
(Dollars in thousands, except
share data)
(unaudited)
Non-GAAP financial measures disclosed by management are meant to
provide additional information and insight relative to business
trends to investors and, in certain cases, to present financial
information as measured by rating agencies and other users of
financial information. These measures are not in accordance with,
or a substitute for, GAAP and may be different from, or
inconsistent with, non-GAAP financial measures used by other
companies. The company reports this non-GAAP information because
the company believes that it provides additional information
regarding operational and performance indicators that are closely
assessed by management. There is no comprehensive, authoritative
guidance for the presentation of such non-GAAP information, which
is only meant to supplement GAAP results by providing additional
information that management utilizes to assess performance.
Net income,
excluding derivative market value adjustments
|
|
|
Three months ended
September 30,
|
|
2023
|
|
2022
|
GAAP net income
attributable to Nelnet, Inc.
|
$
45,332
|
|
104,798
|
Realized and unrealized
derivative market value adjustments (a)
|
(3,140)
|
|
(52,991)
|
Tax effect
(b)
|
754
|
|
12,718
|
Non-GAAP net income
attributable to Nelnet, Inc., excluding derivative market value
adjustments
|
$
42,946
|
|
64,525
|
|
|
|
|
Earnings per
share:
|
|
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
1.21
|
|
2.80
|
Realized and unrealized
derivative market value adjustments (a)
|
(0.08)
|
|
(1.42)
|
Tax effect
(b)
|
0.02
|
|
0.35
|
Non-GAAP net income
attributable to Nelnet, Inc., excluding derivative market value
adjustments
|
$
1.15
|
|
1.73
|
|
|
(a)
|
"Derivative market
value adjustments" includes both the realized portion of gains and
losses (corresponding to variation margin received or paid on
derivative instruments that are settled daily at a central
clearinghouse) and the unrealized portion of gains and losses that
are caused by changes in fair values of derivatives which do not
qualify for "hedge treatment" under GAAP. "Derivative market value
adjustments" does not include "derivative settlements" that
represent the cash paid or received during the current period to
settle with derivative instrument counterparties the economic
effect of the company's derivative instruments based on their
contractual terms.
|
|
|
|
The accounting for
derivatives requires that changes in the fair value of derivative
instruments be recognized currently in earnings, with no fair value
adjustment of the hedged item, unless specific hedge accounting
criteria is met. Management has structured all of the company's
derivative transactions with the intent that each is economically
effective; however, the company's derivative instruments do not
qualify for hedge accounting. As a result, the change in fair value
of derivative instruments is reported in current period earnings
with no consideration for the corresponding change in fair value of
the hedged item. Under GAAP, the cumulative net realized and
unrealized gain or loss caused by changes in fair values of
derivatives in which the company plans to hold to maturity will
equal zero over the life of the contract. However, the net realized
and unrealized gain or loss during any given reporting period
fluctuates significantly from period to period.
|
|
|
|
The company believes
these point-in-time estimates of asset and liability values related
to its derivative instruments that are subject to interest rate
fluctuations are subject to volatility mostly due to timing and
market factors beyond the control of management, and affect the
period-to-period comparability of the results of operations.
Accordingly, the company's management utilizes operating results
excluding these items for comparability purposes when making
decisions regarding the company's performance and in presentations
with credit rating agencies, lenders, and investors.
|
|
|
(b)
|
The tax effects are
calculated by multiplying the realized and unrealized derivative
market value adjustments by the applicable statutory income tax
rate.
|
View original
content:https://www.prnewswire.com/news-releases/nelnet-reports-third-quarter-2023-results-301980623.html
SOURCE Nelnet, Inc.