LINCOLN,
Neb., Nov. 7, 2024 /PRNewswire/ -- Nelnet
(NYSE: NNI) today reported GAAP net income of $2.4 million, or $0.07 per share, for the third quarter of 2024,
compared with GAAP net income of $44.4
million, or $1.18 per share,
for the same period a year ago.
Net income, excluding derivative market value
adjustments1, was $12.4
million, or $0.34 per share,
for the third quarter of 2024, compared with $42.0 million, or $1.12 per share, for the same period in 2023.
The third quarter 2024 operating results included the following
items.
- A non-cash provision expense of $29.0
million ($22.0 million after
tax, or $0.60 per share) related to
the company's ownership of beneficial interest in loan
securitizations. A credit allowance was recorded on certain of
these investments due to a change in estimate of future cash flows
caused primarily by an increase in cumulative net loss rates for
certain transactions and loan vintages. Over the life of these
securitizations, the company still anticipates attractive returns
on the overall pool of these investments.
- A non-cash expense of $5.6
million ($4.3 million after
tax, or $0.12 per share) as a result
of writing off the remaining unamortized debt discount costs
related to the early redemption of certain higher-cost debt
securities.
- Losses of $11.2 million
($5.5 million after tax and
noncontrolling interest, or $0.15 per
share) related to tax equity investments in solar. The accounting
for these investments under the Hypothetical Liquidation at Book
Value method of accounting accelerates losses in the initial years
of these transactions, but has no impact on the expectations of
overall attractive returns on these investments.
- An expense of $8.8 million
($6.7 million after tax, or
$0.18 per share) related to estimated
losses on legacy solar construction projects. As previously
disclosed, the company believes its solar engineering, procurement,
and construction (EPC) business is making progress in repositioning
the business for long-term profitable success.
Nelnet has four reportable operating segments, earning interest
income on loans in its Asset Generation and Management (AGM) and
Nelnet Bank segments, both part of the company's Nelnet Financial
Services (NFS) division, and fee-based revenue in its Loan
Servicing and Systems (referred to as Nelnet Diversified Services
(NDS)) and Education Technology Services and Payments
(referred to as Nelnet Business Services (NBS)) segments. Other
business activities and operating segments that are not reportable
and not part of the NFS division are combined and included in
Corporate Activities.
"Despite the third quarter's noise, Nelnet remains a strong,
diversified company," said Jeff
Noordhoek, chief executive officer of Nelnet. "Nelnet's
primary businesses include consumer lending, loan servicing,
payments, and technology all with a large customer emphasis in
education. All these areas are well positioned for long-term
growth. As we enter the fourth quarter, NBS is having a great year,
NFS is advancing our asset investment strategy as legacy guaranteed
student loan assets runoff, and while NDS is transitioning to the
USDS contract, we are optimistic about the future with our existing
and new loan servicing opportunities."
Asset Generation and Management
The AGM operating segment reported loan and investment net
interest income of $38.4 million
during the third quarter of 2024, compared with $51.5 million for the same period a year ago. As
discussed above, net interest income for the third quarter of 2024
included a $5.6 million expense
recognized by the company as a result of redeeming bonds prior to
their maturity. Although an increase in loan spread2
partially offset the decrease, the remaining decrease in net
interest income in 2024 compared to 2023 resulted from the
anticipated runoff of the Federal Family Education Loan Program
(FFELP) loan portfolio. The average balance of loans outstanding
decreased from $13.2 billion for the
third quarter of 2023 to $9.8 billion
for the same period in 2024.
Included in AGM's operating results for the third quarter of
2024 was a provision expense of $29.0
million ($22.0 million after
tax) related to certain of the company's residual ownership
investments in loan securitizations, as discussed above, and a
provision for loan losses of $12.0
million ($9.1 million after
tax) related to the company's loan portfolio.
In addition, AGM recognized a loss of $9.5 million ($7.2
million after tax) related to changes in the fair value of
derivative instruments that do not qualify for hedge accounting,
compared with income of $1.2 million
($0.9 million after tax) for the same
period in 2023.
AGM recognized a net loss after tax of $12.4 million for the three months ended
September 30, 2024, compared with net
income of $30.8 million for the same
period in 2023.
|
__________________________________________
|
|
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.
|
Nelnet Bank
As of September 30, 2024, Nelnet
Bank had a $559.9 million and
$680.3 million loan and investment
portfolio, respectively, and total deposits, including intercompany
deposits, of $1.15 billion. Nelnet
Bank reported a net loss after tax for the three months ended
September 30, 2024 of $3.6 million, compared with net income of
$1.7 million for the same period in
2023. Nelnet Bank recognized provision for loan losses in the third
quarter of 2024 of $6.1 million
($4.6 million after tax), due
primarily from the establishment of an initial allowance for loans
originated and acquired during the period.
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment was
$108.2 million for the third quarter
of 2024, compared with $127.9 million
for the same period in 2023. On April 1,
2024, the company began to earn revenue under its new
Unified Servicing and Data Solution (USDS) contract which replaced
its legacy student loan servicing contract with the Department of
Education (Department). Revenue earned under the USDS contract on a
per borrower blended basis is lower than the legacy contract.
As of September 30, 2024, the
company was servicing $526.6 billion
in government-owned, FFELP, private education, and consumer loans
for 15.5 million borrowers, compared with $539.3 billion in servicing volume for 16.2
million borrowers as of September 30,
2023.
In June 2024, following the
completion of significant technology initiatives due to the
transition from the legacy servicing contract to the new USDS
contract, the company incurred a restructuring charge of which
$4.1 million ($3.1 million after tax, or $0.09 per share) was recognized in the third
quarter of 2024.
The Loan Servicing and Systems segment reported a net loss after
tax of $3.5 million for the three
months ended September 30, 2024,
compared with net income of $18.6
million for the same period in 2023. The company expects
this segment's operating results will improve in future periods as
the full impact of its cost-saving measures take effect and new
third-party servicing opportunities convert to the company's
platform.
Education Technology Services and Payments
For the third quarter of 2024, revenue from the Education
Technology Services and Payments operating segment was $118.2 million, an increase from $113.8 million for the same period in 2023.
Revenue less direct costs to provide services for the third quarter
of 2024 was $72.9 million, compared
with $70.1 million for the same
period in 2023.
Net income after tax for the Education Technology Services and
Payments segment was $20.4 million
for the three months ended September 30,
2024, compared with $16.8
million for the same period in 2023.
Corporate Activities
Included in Corporate Activities are the operating results of
the company's 45 percent voting membership interest in ALLO
Holdings LLC, a holding company for ALLO Communications LLC (ALLO).
During the third quarter of 2023, the company recognized a loss on
its ALLO voting membership interest investment of $17.3 million ($13.1
million after tax). The company has no remaining carrying
value related to this investment in ALLO. Accordingly, no losses
were recognized on this investment in the third quarter of 2024,
and absent additional voting membership equity contributions, the
company will not recognize future losses on this investment.
For the third quarter of 2024, the company reported a loss of
$10.1 million ($7.7 million after tax) in its solar EPC
business, compared with a loss of $4.9
million ($3.0 million after
tax and noncontrolling interest) for the same period in 2023. The
2024 loss includes the estimated losses on legacy construction
projects as discussed above. The company has a handful of remaining
legacy construction contracts to complete, down from over 30 at the
beginning of 2024.
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 16, 2024, to shareholders of record at the close of
business on December 2, 2024.
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 of Education, risks related to
unfavorable contract modifications or interpretations, 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 prepayments, 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; 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; risks related to use of
artificial intelligence; uncertainties inherent in forecasting
future cash flows from student loan assets and related asset-backed
securitizations; risks related to the ability of Nelnet Bank to
achieve its business objectives and effectively deploy loan and
deposit strategies and achieve expected market penetration; risks
related to the expected benefits to the company from its continuing
investment in ALLO and Hudl, 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 and
rising construction costs; risks and uncertainties related to other
initiatives to pursue additional strategic investments (and
anticipated income therefrom) including venture capital and real
estate investments, reinsurance, acquisitions, and other activities
(including risks associated with errors that occasionally occur in
converting loan servicing portfolios to a new servicing platform),
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; 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; risks and uncertainties associated
with climate change; risks related to natural disasters, terrorist
activities, or international hostilities; and risks and
uncertainties associated with litigation matters and maintaining
compliance with the extensive regulatory requirements applicable to
the company's businesses, and uncertainties inherent in the
estimates and assumptions about future events that management is
required to make in the preparation of the company's consolidated
financial statements.
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.
|
Consolidated
Statements of Income
(Dollars in thousands, except share
data)
(unaudited)
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
September 30,
2024
|
|
June 30,
2024
|
|
September 30,
2023
|
(1)
|
|
September 30,
2024
|
|
|
September 30,
2023
|
(1)
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
interest
|
$
190,211
|
|
202,129
|
|
236,423
|
|
|
609,064
|
|
|
704,712
|
|
|
Investment
interest
|
50,272
|
|
40,737
|
|
48,128
|
|
|
143,086
|
|
|
129,835
|
|
|
Total interest
income
|
240,483
|
|
242,866
|
|
284,551
|
|
|
752,150
|
|
|
834,547
|
|
|
Interest expense on
bonds and notes payable
and bank deposits
|
168,328
|
|
176,459
|
|
207,159
|
|
|
539,367
|
|
|
639,756
|
|
|
Net interest
income
|
72,155
|
|
66,407
|
|
77,392
|
|
|
212,783
|
|
|
194,791
|
|
|
Less provision
for loan losses
|
18,111
|
|
3,611
|
|
4,275
|
|
|
32,551
|
|
|
5,065
|
|
|
Net interest
income after provision for loan
losses
|
54,044
|
|
62,796
|
|
73,117
|
|
|
180,232
|
|
|
189,726
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing
and systems revenue
|
108,175
|
|
109,052
|
|
127,892
|
|
|
344,428
|
|
|
389,138
|
|
|
Education
technology services and payments
revenue
|
118,179
|
|
116,909
|
|
113,796
|
|
|
378,627
|
|
|
357,258
|
|
|
Solar
construction revenue
|
19,321
|
|
9,694
|
|
6,301
|
|
|
42,741
|
|
|
19,687
|
|
|
Other,
net
|
32,325
|
|
28,871
|
|
(3,062)
|
|
|
78,057
|
|
|
(27,297)
|
|
|
Loss on sale of
loans
|
(107)
|
|
(1,438)
|
|
(1,022)
|
|
|
(1,685)
|
|
|
(16,776)
|
|
|
Impairment
expense and provision for
beneficial interests
|
(29,052)
|
|
(7,776)
|
|
(4,974)
|
|
|
(36,865)
|
|
|
(4,974)
|
|
|
Derivative market
value adjustments and
derivative settlements, net
|
(11,525)
|
|
3,182
|
|
3,957
|
|
|
1,378
|
|
|
(8,047)
|
|
|
Total other
income (expense), net
|
237,316
|
|
258,494
|
|
242,888
|
|
|
806,681
|
|
|
708,989
|
|
|
Cost of
services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost to provide
education technology
services and payments
|
45,273
|
|
40,222
|
|
43,694
|
|
|
134,106
|
|
|
131,804
|
|
|
Cost to provide
solar construction services
|
26,815
|
|
8,072
|
|
7,783
|
|
|
49,115
|
|
|
25,204
|
|
|
Total cost of
services
|
72,088
|
|
48,294
|
|
51,477
|
|
|
183,221
|
|
|
157,008
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
146,192
|
|
139,634
|
|
141,204
|
|
|
429,701
|
|
|
438,620
|
|
|
Depreciation and
amortization
|
13,661
|
|
15,142
|
|
21,835
|
|
|
45,572
|
|
|
57,114
|
|
|
Other
expenses
|
61,642
|
|
59,792
|
|
51,370
|
|
|
178,278
|
|
|
138,154
|
|
|
Total operating
expenses
|
221,495
|
|
214,568
|
|
214,409
|
|
|
653,551
|
|
|
633,888
|
|
|
(Loss) income
before income taxes
|
(2,223)
|
|
58,428
|
|
50,119
|
|
|
150,141
|
|
|
107,819
|
|
|
Income tax benefit
(expense)
|
282
|
|
(14,753)
|
|
(10,512)
|
|
|
(37,653)
|
|
|
(28,785)
|
|
|
Net (loss)
income
|
(1,941)
|
|
43,675
|
|
39,607
|
|
|
112,488
|
|
|
79,034
|
|
|
Net loss
attributable to noncontrolling
interests
|
4,329
|
|
1,416
|
|
4,747
|
|
|
8,398
|
|
|
18,705
|
|
|
Net income
attributable to Nelnet, Inc.
|
$
2,388
|
|
45,091
|
|
44,354
|
|
|
120,886
|
|
|
97,739
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Nelnet, Inc.
shareholders - basic and diluted
|
$
0.07
|
|
1.23
|
|
1.18
|
|
|
3.29
|
|
|
2.61
|
|
|
Weighted average
common shares
outstanding - basic and diluted
|
36,430,485
|
|
36,525,482
|
|
37,498,073
|
|
|
36,703,314
|
|
|
37,437,587
|
|
|
|
|
(1)
|
During the second
quarter of 2024, the company identified certain immaterial errors
in the previously issued consolidated financial statements that
have been corrected to conform to the September 30, 2024
presentation. Refer to the company's quarterly report on Form 10-Q
for the three months ended September 30, 2024 that was filed with
the Securities and Exchange Commission on November 7, 2024 for
additional information.
|
|
Condensed
Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
|
|
|
As of
|
|
As of
|
|
|
As of
|
|
|
September 30,
2024
|
|
December 31,
2023
|
(1)
|
|
September 30,
2023
|
(1)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Loans and accrued
interest receivable, net
|
$
10,572,881
|
|
13,108,204
|
|
|
13,867,557
|
|
|
Cash, cash equivalents,
and investments
|
2,123,245
|
|
2,014,819
|
|
|
2,108,585
|
|
|
Restricted cash and
investments
|
729,089
|
|
875,348
|
|
|
604,855
|
|
|
Goodwill and intangible
assets, net
|
196,400
|
|
202,848
|
|
|
228,812
|
|
|
Other assets
|
462,513
|
|
511,165
|
|
|
388,080
|
|
|
Total
assets
|
$
14,084,128
|
|
16,712,384
|
|
|
17,197,889
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Bonds and notes
payable
|
$
8,938,446
|
|
11,828,393
|
|
|
12,448,109
|
|
|
Bank
deposits
|
1,070,758
|
|
743,599
|
|
|
718,053
|
|
|
Other
liabilities
|
864,786
|
|
940,285
|
|
|
794,589
|
|
|
Total
liabilities
|
10,873,990
|
|
13,512,277
|
|
|
13,960,751
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Total Nelnet, Inc.
shareholders' equity
|
3,290,652
|
|
3,253,751
|
|
|
3,285,470
|
|
|
Noncontrolling
interests
|
(80,514)
|
|
(53,644)
|
|
|
(48,332)
|
|
|
Total
equity
|
3,210,138
|
|
3,200,107
|
|
|
3,237,138
|
|
|
Total liabilities and
equity
|
$
14,084,128
|
|
16,712,384
|
|
|
17,197,889
|
|
|
|
|
(1)
|
During the second
quarter of 2024, the company identified certain immaterial errors
in the previously issued consolidated financial statements that
have been corrected to conform to the September 30, 2024
presentation. Refer to the company's quarterly report on Form 10-Q
for the three months ended September 30, 2024 that was filed with
the Securities and Exchange Commission on November 7, 2024 for
additional information.
|
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,
|
|
2024
|
|
2023
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
2,388
|
|
44,354
|
|
Realized and
unrealized derivative market value adjustments (a)
|
13,165
|
|
(3,140)
|
|
Tax effect
(b)
|
(3,160)
|
|
754
|
|
Non-GAAP net income
attributable to Nelnet, Inc., excluding derivative market
value adjustments
|
$
12,393
|
|
41,968
|
|
Earnings per
share:
|
|
|
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
0.07
|
|
1.18
|
|
Realized and
unrealized derivative market value adjustments (a)
|
0.36
|
|
(0.08)
|
|
Tax effect
(b)
|
(0.09)
|
|
0.02
|
|
Non-GAAP net income
attributable to Nelnet, Inc., excluding derivative market
value adjustments
|
$
0.34
|
|
1.12
|
|
|
|
(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 in the consolidated financial
statements. 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-2024-results-302299298.html
SOURCE Nelnet, Inc.
