LINCOLN,
Neb., Aug. 8, 2022 /PRNewswire/ -- Nelnet
(NYSE: NNI) today reported GAAP net income of $85.1 million, or $2.26 per share, for the second quarter of 2022,
compared with GAAP net income of $83.9
million, or $2.16 per share,
for the same period a year ago.
Net income, excluding derivative market value
adjustments1, was $54.4
million, or $1.44 per share,
for the second quarter of 2022, compared with $85.1 million, or $2.20 per share, for the same period in 2021.
"Our strong second quarter results reflect our long-term focus,"
said Jeff Noordhoek, chief executive
officer of Nelnet. "In the quarter, we made several investments for
long-term growth and value creation, including product and
technology investments to serve our customers well into the future.
Our core loan servicing and payment processing businesses increased
revenue, added customers, and made investments in product
development, which also compressed near-term margins. We will
continue to deploy capital to create long-term value in our
existing businesses, including investments to support ALLO's
expansion, Nelnet Bank, and our solar capabilities with the recent
acquisition of GRNE Solar."
Nelnet currently 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.
Asset Generation and Management
The AGM operating segment reported net interest income of
$70.7 million during the second
quarter of 2022, compared with $81.3
million for the same period a year ago. The company
maintains an overall risk management strategy that incorporates the
use of derivative instruments to reduce the economic effect of
interest rate volatility. The company recognized income from
derivative settlements of $4.6
million during the second quarter of 2022, compared with an
expense of $5.4 million for the same
period in 2021. Derivative settlements for each applicable period
should be evaluated with the company's net interest income. Net
interest income and derivative settlements decreased to
$75.3 million in the second quarter
of 2022, compared with $75.9 million
for the same period in 2021, due to the expected decrease in the
average balance of loans outstanding from $19.0 billion to $16.4 billion, respectively. This decrease was
partially offset by an increase in core loan spread.
Core loan spread2, which includes the impact of
derivative settlements, increased to 1.61 percent for the quarter
ended June 30, 2022, compared with
1.41 percent for the same period in 2021. Core loan spread was
positively impacted for the three months ended June 30, 2022 by an increase in interest rates
during the quarter. In an increasing interest rate environment,
student loan spread increases in the short term because of the
timing of interest rate resets on the company's assets occurring
daily in contrast to the timing of the interest rate resets on the
company's debt that occurs either monthly or quarterly.
AGM recognized a provision for loan losses in the second quarter
of 2022 of $8.8 million ($6.7 million after tax), compared with
$0.3 million ($0.2 million after tax) in the second quarter of
2021. In addition, in the second quarter of 2022, AGM recognized
$40.4 million ($30.7 million after tax) in income related to
changes in the fair value of derivative instruments that do not
qualify for hedge accounting, and in the second quarter of 2021
recognized a gain of $15.3 million
(or $11.6 million after tax, or
$0.30 per share) from the sale of a
portfolio of consumer loans.
Net income after tax for the AGM segment was $75.5 million for the three months ended
June 30, 2022, compared with
$60.0 million for the same period in
2021.
Nelnet Bank
As of June 30, 2022, Nelnet Bank
had a $423.6 million loan portfolio,
consisting of $346.1 million of
private education loans and $77.4
million of Federal Family Education Loan (FFEL) Program
loans, and had $751.3 million of
deposits. Nelnet Bank's net income after tax for the quarter ended
June 30, 2022 was $0.4 million, as compared to a net loss of
$0.2 million for the same period in
2021.
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment increased to
$124.9 million for the second quarter
of 2022, compared with $112.1 million
for the same period in 2021, due primarily to an increase in the
number of borrowers serviced under the company's contracts with the
Department of Education (Department).
As of June 30, 2022, the company
was servicing $589.5 billion in
government-owned, FFEL Program, private education, and consumer
loans for 17.4 million borrowers, as compared to $506.6 billion in servicing volume for 15.5
million borrowers as of June 30,
2021.
The Loan Servicing and Systems segment reported net income after
tax of $10.3 million for the three
months ended June 30, 2022, compared
with $11.8 million for the same
period in 2021. Operating margin decreased in the second quarter of
2022 as compared to the same period in 2021 due to costs incurred
to prepare for the expected May 1,
2022 expiration of the CARES Act benefits on
government-owned student loans, which was extended to August 31, 2022.
Education Technology, Services, and Payment
Processing
For the second quarter of 2022, revenue from the Education
Technology, Services, and Payment Processing operating segment was
$91.0 million, an increase from
$76.7 million for the same period in
2021. Revenue less direct costs to provide services for the second
quarter of 2022 was $60.2 million, as
compared to $55.0 million for the
same period in 2021.
Net income after tax for the Education Technology, Services, and
Payment Processing segment was $11.2
million for the three months ended June 30, 2022, compared with $13.1 million for the same period in 2021.
Operating margin decreased for the second quarter of 2022 as
compared to the same period in 2021 due to increased expenses to
support customer growth and investments in the development of new
technologies.
Share Repurchases
During the six months ended June 30,
2022, the company repurchased a total of 938,310 Class A
common shares for $78.9 million
($84.12 per share), including 558,257
shares repurchased during the second quarter of 2022 for
$46.0 million ($82.46 per share).
Board of Directors Declares Third Quarter Dividend
The Nelnet Board of Directors declared a third quarter cash
dividend on the company's outstanding shares of Class A common
stock and Class B common stock of $0.24 per share. The dividend will be paid on
September 15, 2022, to shareholders of record at the close of
business on September 1, 2022.
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," "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 and uncertainties related to the severity,
magnitude, and duration of the COVID-19 pandemic, including changes
in the macroeconomic environment and consumer behavior,
restrictions on various activities intended to combat the pandemic,
and volatility in market conditions resulting from the pandemic;
risks related to the ability to successfully maintain and increase
allocated volumes of student loans serviced by the company under
existing and any future servicing contracts with the Department,
which current contracts accounted for 29 percent of the company's
revenue in 2021; risks to the company related to the Department's
initiatives to procure new contracts for federal student loan
servicing, including the pending and uncertain nature of the
Department's procurement process, risks that the company may not be
successful in obtaining any of such potential new contracts, and
risks related to the company's ability to comply with agreements
with third-party customers for the servicing of loans; risks
related to the company's loan portfolio, such as interest rate
basis and repricing risk and changes in levels of loan repayment or
default rates; the use of derivatives to manage exposure to
interest rate fluctuations; uncertainties regarding the expected
benefits from purchased FFEL Program, private education, and
consumer loans, or investment interests therein, and initiatives to
purchase additional FFEL Program, private education, and consumer
loans; financing and liquidity risks, including risks of changes in
the interest rate environment, such as risks from the recent
increases in interest rates resulting from inflationary pressures
and the transition from LIBOR to an alternative reference rate, and
changes in the securitization and other financing markets for
loans; 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, such as changes resulting from the CARES Act and the
expected decline over time in FFEL Program loan interest income due
to the discontinuation of new FFEL Program loan originations in
2010, and government initiatives or proposals to consolidate FFEL
Program loans to Federal Direct Loan Program loans, otherwise
encourage or allow FFEL Program loans to be refinanced with Federal
Direct Loan Program loans, and/or create additional loan
forgiveness or broad debt cancellation programs; 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 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 from changes in economic
conditions and consumer behavior; and cybersecurity risks,
including disruptions to systems, disclosure of confidential
information, and/or damage to reputation resulting from
cyber-breaches.
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, including the cautionary information about
forward-looking statements contained in the company's supplemental
financial information for the second quarter ended June 30, 2022. 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.
Consolidated
Statements of Income
(Dollars in thousands,
except share data)
(unaudited)
|
|
|
Three months
ended
|
|
Six months
ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
June 30,
2022
|
|
June 30,
2021
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Loan
interest
|
$
134,706
|
|
111,377
|
|
122,005
|
|
246,083
|
|
246,123
|
Investment
interest
|
16,881
|
|
13,819
|
|
11,578
|
|
30,700
|
|
16,563
|
Total interest
income
|
151,587
|
|
125,196
|
|
133,583
|
|
276,783
|
|
262,686
|
Interest expense on
bonds and notes payable and bank
deposits
|
73,642
|
|
48,079
|
|
49,991
|
|
121,721
|
|
77,764
|
Net interest
income
|
77,945
|
|
77,117
|
|
83,592
|
|
155,062
|
|
184,922
|
Less provision
(negative provision) for loan losses
|
9,409
|
|
(435)
|
|
374
|
|
8,974
|
|
(16,674)
|
Net interest income
after provision for loan losses
|
68,536
|
|
77,552
|
|
83,218
|
|
146,088
|
|
201,596
|
Other
income/expense:
|
|
|
|
|
|
|
|
|
|
Loan servicing and
systems revenue
|
124,873
|
|
136,368
|
|
112,094
|
|
261,241
|
|
223,611
|
Education technology,
services, and payment processing
revenue
|
91,031
|
|
112,286
|
|
76,702
|
|
203,317
|
|
171,960
|
Other
|
12,647
|
|
9,877
|
|
22,921
|
|
22,524
|
|
18,317
|
Gain on sale of
loans
|
—
|
|
2,989
|
|
15,271
|
|
2,989
|
|
15,271
|
Impairment expense and
provision for beneficial interests,
net
|
(6,284)
|
|
—
|
|
(500)
|
|
(6,284)
|
|
1,936
|
Derivative market value
adjustments and derivative
settlements, net
|
45,024
|
|
142,925
|
|
(6,989)
|
|
187,949
|
|
27,516
|
Total other
income/expense
|
267,291
|
|
404,445
|
|
219,499
|
|
671,736
|
|
458,611
|
Cost to provide
education technology, services, and payment
processing services
|
30,852
|
|
35,545
|
|
21,676
|
|
66,397
|
|
48,728
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
141,398
|
|
149,414
|
|
118,968
|
|
290,813
|
|
234,759
|
Depreciation and
amortization
|
18,250
|
|
16,956
|
|
20,236
|
|
35,206
|
|
40,419
|
Other
expenses
|
36,940
|
|
39,499
|
|
32,587
|
|
76,439
|
|
69,286
|
Total operating
expenses
|
196,588
|
|
205,869
|
|
171,791
|
|
402,458
|
|
344,464
|
Income before income
taxes
|
108,387
|
|
240,583
|
|
109,250
|
|
348,969
|
|
267,015
|
Income tax
expense
|
(25,483)
|
|
(55,697)
|
|
(26,237)
|
|
(81,180)
|
|
(61,098)
|
Net income
|
82,904
|
|
184,886
|
|
83,013
|
|
267,789
|
|
205,917
|
Net loss attributable
to noncontrolling interests
|
2,225
|
|
1,761
|
|
854
|
|
3,987
|
|
1,548
|
Net income
attributable to Nelnet, Inc.
|
$
85,129
|
|
186,647
|
|
83,867
|
|
271,776
|
|
207,465
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Nelnet, Inc. shareholders -
basic and diluted
|
$
2.26
|
|
4.91
|
|
2.16
|
|
7.18
|
|
5.36
|
Weighted average
common shares outstanding - basic
and diluted
|
37,710,214
|
|
38,041,834
|
|
38,741,486
|
|
37,875,108
|
|
38,672,902
|
Condensed
Consolidated Balance Sheets
(Dollars in
thousands)
(unaudited)
|
|
|
As of
|
|
As of
|
|
As of
|
|
June 30,
2022
|
|
December 31,
2021
|
|
June 30,
2021
|
Assets:
|
|
|
|
|
|
Loans and accrued
interest receivable, net
|
$
16,916,344
|
|
18,335,197
|
|
20,187,670
|
Cash, cash equivalents,
and investments
|
2,116,949
|
|
1,714,482
|
|
1,480,946
|
Restricted
cash
|
1,045,543
|
|
1,068,626
|
|
864,384
|
Goodwill and intangible
assets, net
|
219,203
|
|
194,121
|
|
200,556
|
Other assets
|
325,974
|
|
365,615
|
|
295,307
|
Total
assets
|
$
20,624,013
|
|
21,678,041
|
|
23,028,863
|
Liabilities:
|
|
|
|
|
|
Bonds and notes
payable
|
$
16,115,269
|
|
17,631,089
|
|
19,381,835
|
Bank
deposits
|
588,474
|
|
344,315
|
|
202,841
|
Other
liabilities
|
829,125
|
|
749,799
|
|
615,569
|
Total
liabilities
|
17,532,868
|
|
18,725,203
|
|
20,200,245
|
Equity:
|
|
|
|
|
|
Total Nelnet, Inc.
shareholders' equity
|
3,097,382
|
|
2,951,206
|
|
2,833,800
|
Noncontrolling
interests
|
(6,237)
|
|
1,632
|
|
(5,182)
|
Total
equity
|
3,091,145
|
|
2,952,838
|
|
2,828,618
|
Total liabilities and
equity
|
$
20,624,013
|
|
21,678,041
|
|
23,028,863
|
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
June 30,
|
|
2022
|
|
2021
|
GAAP net income
attributable to Nelnet, Inc.
|
$
85,129
|
|
83,867
|
Realized and unrealized
derivative market value adjustments (a)
|
(40,401)
|
|
1,615
|
Tax effect
(b)
|
9,696
|
|
(388)
|
Net income attributable
to Nelnet, Inc., excluding derivative market value
adjustments
|
$
54,424
|
|
85,094
|
|
|
|
|
Earnings per
share:
|
|
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
2.26
|
|
2.16
|
Realized and unrealized
derivative market value adjustments (a)
|
(1.07)
|
|
0.04
|
Tax effect
(b)
|
0.25
|
|
—
|
Net income attributable
to Nelnet, Inc., excluding derivative market value
adjustments
|
$
1.44
|
|
2.20
|
(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.
|
Core loan spread
The following table analyzes the loan spread on AGM's portfolio
of loans, which represents the spread between the yield earned on
loan assets and the costs of the liabilities and derivative
instruments used to fund the assets. The spread amounts included in
the following table are calculated by using the notional dollar
values found in the "Net interest income, net of settlements on
derivatives" table on the following page, divided by the average
balance of loans or debt outstanding.
|
Three months ended
June 30,
|
|
2022
|
|
2021
|
Variable loan yield,
gross
|
3.59 %
|
|
2.63 %
|
Consolidation rebate
fees
|
(0.85)
|
|
(0.84)
|
Discount accretion, net
of premium and deferred origination costs amortization
|
0.03
|
|
0.01
|
Variable loan yield,
net
|
2.77
|
|
1.80
|
Loan cost of funds -
interest expense
|
(1.73)
|
|
(1.04)
|
Loan cost of funds -
derivative settlements (a) (b)
|
0.02
|
|
(0.01)
|
Variable loan
spread
|
1.06
|
|
0.75
|
Fixed rate floor
income, gross
|
0.46
|
|
0.78
|
Fixed rate floor income
- derivative settlements (a) (c)
|
0.09
|
|
(0.12)
|
Fixed rate floor
income, net of settlements on derivatives
|
0.55
|
|
0.66
|
Core loan
spread
|
1.61 %
|
|
1.41 %
|
|
|
|
|
Average balance of
AGM's loans
|
$ 16,437,861
|
|
18,958,042
|
Average balance of
AGM's debt outstanding
|
15,923,648
|
|
18,656,465
|
|
(a)
|
Derivative settlements
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. Derivative accounting requires that net
settlements with respect to derivatives that do not qualify for
"hedge treatment" under GAAP be recorded in a separate income
statement line item below net interest income. The company
maintains an overall risk management strategy that incorporates the
use of derivative instruments to reduce the economic effect of
interest rate volatility. As such, management believes derivative
settlements for each applicable period should be evaluated with the
company's net interest income (loan spread) as presented in this
table.
|
|
|
|
A reconciliation of
core loan spread, which includes the impact of derivative
settlements on loan spread, to loan spread without
derivative settlements
follows.
|
|
Three months ended
June 30,
|
|
2022
|
|
2021
|
Core loan
spread
|
1.61 %
|
|
1.41 %
|
Derivative settlements
(1:3 basis swaps)
|
(0.02)
|
|
0.01
|
Derivative settlements
(fixed rate floor income)
|
(0.09)
|
|
0.12
|
Loan spread
|
1.50 %
|
|
1.54 %
|
|
(b)
|
Derivative settlements
consist of net settlements received (paid) related to the company's
1:3 basis swaps.
|
|
(c)
|
Derivative settlements
consist of net settlements received (paid) related to the company's
floor income interest rate swaps.
|
Net interest income, net of settlements on
derivatives
The following table summarizes the components of "net interest
income" and "derivative settlements, net" from the AGM segment
statements of income.
|
Three months ended
June 30,
|
|
2022
|
|
2021
|
Variable interest
income, gross
|
$
146,911
|
|
124,267
|
Consolidation rebate
fees
|
(34,952)
|
|
(40,250)
|
Discount accretion, net
of premium and deferred origination costs amortization
|
1,474
|
|
427
|
Variable interest
income, net
|
113,433
|
|
84,444
|
Interest on bonds and
notes payable
|
(68,616)
|
|
(48,542)
|
Derivative settlements
(basis swaps), net (a)
|
931
|
|
(221)
|
Variable loan interest
margin, net of settlements on derivatives (a)
|
45,748
|
|
35,681
|
Fixed rate floor
income, gross
|
18,292
|
|
36,639
|
Derivative settlements
(interest rate swaps), net (a)
|
3,692
|
|
(5,153)
|
Fixed rate floor
income, net of settlements on derivatives (a)
|
21,984
|
|
31,486
|
Core loan interest
income (a)
|
67,732
|
|
67,167
|
Investment
interest
|
8,671
|
|
8,882
|
Intercompany
interest
|
(1,092)
|
|
(128)
|
Net interest income
(net of settlements on derivatives) (a)
|
$
75,311
|
|
75,921
|
|
(a)
|
Core loan interest
income and net interest income (net of settlements on derivatives)
are non-GAAP financial measures. For an explanation of GAAP
accounting for derivative settlements and the reasons why the
company reports these non-GAAP measures, see footnote (a) to the
table immediately under the caption "Core loan spread"
above.
|
|
|
|
A reconciliation of net
interest income (net of settlements on derivatives) to net interest
income for the company's AGM segment
follows.
|
|
Three months ended
June 30,
|
|
2022
|
|
2021
|
Net interest income
(net of settlements on derivatives)
|
$
75,311
|
|
75,921
|
Derivative settlements
(1:3 basis swaps)
|
(931)
|
|
221
|
Derivative settlements
(fixed rate floor income)
|
(3,692)
|
|
5,153
|
Net interest
income
|
$
70,688
|
|
81,295
|
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
|
Core loan spread
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.
|
View original
content:https://www.prnewswire.com/news-releases/nelnet-reports-second-quarter-2022-results-301601749.html
SOURCE Nelnet, Inc.