EX-99.1 2 aex991-8822xearningsrelease.htm EX-99.1 Document

Nelnet Reports Second Quarter 2022 Results
LINCOLN, Neb., August 8, 2022 - 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.
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.


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 endedSix months ended
June 30, 2022March 31, 2022June 30, 2021June 30, 2022June 30, 2021
Interest income:
Loan interest$134,706 111,377 122,005 246,083 246,123 
Investment interest16,881 13,819 11,578 30,700 16,563 
Total interest income151,587 125,196 133,583 276,783 262,686 
Interest expense on bonds and notes payable and bank deposits73,642 48,079 49,991 121,721 77,764 
Net interest income77,945 77,117 83,592 155,062 184,922 
Less provision (negative provision) for loan losses9,409 (435)374 8,974 (16,674)
Net interest income after provision for loan losses68,536 77,552 83,218 146,088 201,596 
Other income/expense:
Loan servicing and systems revenue124,873 136,368 112,094 261,241 223,611 
Education technology, services, and payment processing revenue91,031 112,286 76,702 203,317 171,960 
Other12,647 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, net45,024 142,925 (6,989)187,949 27,516 
Total other income/expense267,291 404,445 219,499 671,736 458,611 
Cost to provide education technology, services, and payment processing services30,852 35,545 21,676 66,397 48,728 
Operating expenses:
Salaries and benefits141,398 149,414 118,968 290,813 234,759 
Depreciation and amortization18,250 16,956 20,236 35,206 40,419 
Other expenses36,940 39,499 32,587 76,439 69,286 
Total operating expenses196,588 205,869 171,791 402,458 344,464 
Income before income taxes108,387 240,583 109,250 348,969 267,015 
Income tax expense(25,483)(55,697)(26,237)(81,180)(61,098)
Net income82,904 184,886 83,013 267,789 205,917 
Net loss attributable to noncontrolling interests2,225 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 diluted37,710,214 38,041,834 38,741,486 37,875,108 38,672,902 



Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
As ofAs ofAs of
June 30, 2022December 31, 2021June 30, 2021
Assets:
Loans and accrued interest receivable, net$16,916,344 18,335,197 20,187,670 
Cash, cash equivalents, and investments2,116,949 1,714,482 1,480,946 
Restricted cash1,045,543 1,068,626 864,384 
Goodwill and intangible assets, net219,203 194,121 200,556 
Other assets325,974 365,615 295,307 
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 deposits588,474 344,315 202,841 
Other liabilities829,125 749,799 615,569 
Total liabilities17,532,868 18,725,203 20,200,245 
Equity:
Total Nelnet, Inc. shareholders' equity3,097,382 2,951,206 2,833,800 
Noncontrolling interests(6,237)1,632 (5,182)
Total equity3,091,145 2,952,838 2,828,618 
Total liabilities and equity$20,624,013 21,678,041 23,028,863 
Contacts:
Media, Ben Kiser, 402.458.3024, or Investors, Phil Morgan, 402.458.3038, both of Nelnet, Inc.



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,
20222021
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,
20222021
Variable loan yield, gross3.59 %2.63 %
Consolidation rebate fees(0.85)(0.84)
Discount accretion, net of premium and deferred origination costs amortization0.03 0.01 
Variable loan yield, net2.77 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 spread1.06 0.75 
Fixed rate floor income, gross0.46 0.78 
Fixed rate floor income - derivative settlements (a) (c)0.09 (0.12)
Fixed rate floor income, net of settlements on derivatives0.55 0.66 
Core loan spread1.61 %1.41 %
Average balance of AGM's loans$16,437,861 18,958,042 
Average balance of AGM's debt outstanding15,923,648 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,
20222021
Core loan spread1.61 %1.41 %
Derivative settlements (1:3 basis swaps)(0.02)0.01 
Derivative settlements (fixed rate floor income)(0.09)0.12 
Loan spread1.50 %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,
 20222021
Variable interest income, gross$146,911 124,267 
Consolidation rebate fees(34,952)(40,250)
Discount accretion, net of premium and deferred origination costs amortization1,474 427 
Variable interest income, net113,433 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, gross18,292 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 interest8,671 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,
20222021
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