8-K
NELNET INC (NNI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
November 7, 2024
NELNET, INC.
(Exact name of registrant as specified in its charter)
| Nebraska | 001-31924 | 84-0748903 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 121 South 13th Street, Suite 100 | ||
| --- | --- | --- |
| Lincoln, | Nebraska | 68508 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (402) 458-2370
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| Class A Common Stock, Par Value $0.01 per Share | NNI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On November 7, 2024, Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended September 30, 2024. A copy of the press release is furnished as Exhibit 99.1 to this report. In addition, a copy of the supplemental financial information for the quarter ended September 30, 2024, which was made available on the Company's website at www.nelnetinvestors.com on November 7, 2024 in connection with the press release, is furnished as Exhibit 99.2 to this report.
The above information and Exhibits 99.1 and 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall such information and Exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. In addition, information on the Company's website is not incorporated by reference into this report and should not be considered part of this report.
Certain statements contained in the exhibits furnished with this report may be considered forward looking in nature and are subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated, estimated, or expected. Among the key risks and uncertainties that may have a direct bearing on the Company's future operating results, performance, or financial condition expressed or implied by the forward-looking statements are the matters discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 27, 2024. Although the Company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are furnished as part of this report:
| Exhibit<br><br>No. | Description |
|---|---|
| 99.1 | Press Release dated November 7, 2024 - "Nelnet Reports Third Quarter 2024 Results" |
| 99.2 | Supplemental Financial Information for the Quarter Ended September 30, 2024 |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and included as Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: November 7, 2024
NELNET, INC.
By: /s/ JAMES D. KRUGER
Name: James D. Kruger
Title: Chief Financial Officer
Document
Nelnet Reports Third Quarter 2024 Results
LINCOLN, Neb., November 7, 2024 - 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.
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.
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.
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.
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 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.
Document
For Release: November 7, 2024
Investor Contact: Phil Morgan, 402.458.3038
Nelnet, Inc. supplemental financial information for the third quarter 2024
(All dollars are in thousands, except per share amounts, unless otherwise noted)
The following information should be read in connection with Nelnet, Inc.'s (the “Company's”) press release for third quarter 2024 earnings, dated November 7, 2024, and the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the "Q3 2024 10-Q Quarterly Report").
Forward-looking and cautionary statements
This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. 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.
The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements 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. These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report"), and include such risks and uncertainties as:
•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, 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, Federal Family Education Loan Program (the "FFEL Program" or FFELP), private education, and consumer loans;
•loan portfolio risks such as prepayment risk, 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 FFELP, private education, consumer, and other loans, or investment interests therein, and initiatives to purchase additional FFELP, 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 Holdings, LLC (referred to collectively with its subsidiary ALLO Communications LLC as "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 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 and uncertainties associated with climate change; 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.
All forward-looking statements contained in this supplement are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by law.
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 settlements, net | 1,640 | 1,649 | 817 | 5,046 | 24,219 | |||
| Derivative market value adjustments, net | (13,165) | 1,533 | 3,140 | (3,668) | (32,266) | |||
| 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 Q3 2024 10-Q Quarterly Report 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 Q3 2024 10-Q Quarterly Report that was filed with the Securities and Exchange Commission on November 7, 2024 for additional information.
Overview
The Company is a diversified hybrid holding company with primary businesses being consumer lending, loan servicing, payments, and technology - all with a large customer emphasis in the education space. The largest operating businesses engage in loan servicing and education technology services and payments. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in a fiber communications company (ALLO), early-stage and emerging growth companies (venture capital investments), real estate, reinsurance, and renewable energy (solar). The Company is also actively expanding its private education, consumer, and other loan portfolios, and in November 2020 launched Nelnet Bank.
Reclassifications and Immaterial Error Corrections
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 Q3 2024 10-Q Quarterly Report that was filed with the Securities and Exchange Commission on November 7, 2024 for additional information.
GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments
The Company prepares its financial statements and presents its financial results in accordance with 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. A reconciliation of the Company's GAAP net income to Non-GAAP net income, excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| GAAP net income attributable to Nelnet, Inc. | $ | 2,388 | 45,091 | 44,354 | 120,886 | 97,739 |
| Realized and unrealized derivative market value adjustments (a) | 13,165 | (1,533) | (3,140) | 3,668 | 32,266 | |
| Tax effect (b) | (3,160) | 368 | 754 | (880) | (7,744) | |
| Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments | $ | 12,393 | 43,926 | 41,968 | 123,674 | 122,261 |
| Earnings per share: | ||||||
| GAAP net income attributable to Nelnet, Inc. | $ | 0.07 | 1.23 | 1.18 | 3.29 | 2.61 |
| Realized and unrealized derivative market value adjustments (a) | 0.36 | (0.04) | (0.08) | 0.10 | 0.86 | |
| Tax effect (b) | (0.09) | 0.01 | 0.02 | (0.02) | (0.20) | |
| Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments | $ | 0.34 | 1.20 | 1.12 | 3.37 | 3.27 |
(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 respective 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. Consequently, 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.
(b) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.
Operating Segments
The Company's reportable operating segments are described in note 1 of the notes to consolidated financial statements included in the 2023 Annual Report. They include:
•Loan Servicing and Systems (LSS) - referred to as Nelnet Diversified Services (NDS)
•Education Technology Services and Payments (ETSP) - referred to as Nelnet Business Services (NBS)
•Asset Generation and Management (AGM), part of the Nelnet Financial Services (NFS) division
•Nelnet Bank, part of the NFS division
The Company earns fee-based revenue through its NDS and NBS reportable operating segments. The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, through its AGM reportable operating segment. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes. The Company actively works to maximize the amount and timing of cash flows generated from its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow. Nelnet Bank operates as an internet industrial bank franchise focused on the private education and unsecured consumer loan markets, with a home office in Salt Lake City, Utah. Other operating segments included in the NFS division include the Company's U.S. Securities and Exchange Commission (SEC)-registered investment advisor subsidiary, property and casualty reinsurance activities, investment activities in real estate, and investment debt securities (primarily student loan and other asset-backed securities) and interest expense incurred on debt used to finance such investments.
Other business activities and operating segments that are not reportable and not part of the NFS division are combined and included in Corporate and Other Activities ("Corporate"). Corporate also includes interest income earned on cash balances held at the corporate level and interest expense incurred on unsecured and secured corporate related debt transactions, certain investment activities including its investment in ALLO and early-stage and emerging growth companies (venture capital investments), and certain shared service activities that are allocated to each operating segment based on estimated use of such activities and services. In addition, Corporate includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs.
The information below presents the operating results (net income (loss) before taxes) for each of the Company's reportable and certain other operating segments reconciled to the consolidated financial statements for the three and nine months ended September 30, 2024 and 2023.
| Three months ended September 30, | Nine months ended September 30, | Certain Items Impacting Comparability<br>(All dollar amounts below are pre-tax) | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |||
| NDS | $ | (4,549) | 24,469 | 13,686 | 66,713 | •2024 results have been negatively impacted by a decrease in revenue and increase in expenses. Revenue has been adversely impacted based on the Company earning less revenue under the new government servicing contract that began on April 1, 2024, in addition to servicing fewer borrowers. Operating expenses have been elevated due to costs incurred for the completion of the transfer of direct loan servicing volume to one platform, making platform enhancements for the new student loan servicing contract, preparation of the conversion of the Discover private education student loan servicing portfolio, which is expected to be completed during the fourth quarter of 2024, and increase in postage and communication costs due to borrowers returning to repayment on September 1, 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. |
| NBS | 26,813 | 22,123 | 100,046 | 77,803 | •An increase in before tax operating margin due to increased revenue while maintaining a consistent cost structure. | |
| Nelnet Financial Services division: | ||||||
| AGM | (16,346) | 40,562 | 41,710 | 58,041 | •The recognition of $29.0 million and $5.9 million in provision for beneficial interest related to certain loan securitization investments in the three months ended September 30, 2024 and June 30, 2024, respectively. Over the life of these securitizations, the Company still anticipates attractive returns on the overall pool of these investments.<br><br>•The recognition of a non-cash expense of $5.6 million and $25.9 million in the three months ended September 30, 2024 and June 30, 2023, respectively, as the result of writing off the remaining unamortized debt discount in connection with the redemption of certain asset-backed debt securities prior to their maturity.<br><br>•The recognition of $12.0 million and $2.3 million in provision for loan losses for the three months ended September 30, 2024 and 2023, respectively, and provision of $14.2 million and negative provision of $1.0 million for the nine months ended September 30, 2024 and 2023, respectively.<br><br>•A decrease of $5.9 million in net loan interest income, including derivative settlements (core loan interest income), for the three months ended September 30, 2024 compared with the same period in 2023 due to a decrease in the average balance of loans partially offset by an increase in core loan spread, and a decrease of $55.4 million for the nine months ended September 30, 2024 compared with the same period in 2023 due to a decrease in the average balance of loans and core loan spread.<br><br>•A net loss of $9.5 million and net income of $1.2 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three months ended September 30, 2024 and 2023, respectively, and a net loss of $2.9 million and $35.3 million for the nine months ended September 30, 2024 and 2023, respectively.<br><br>•The recognition of $1.7 million in losses from the sale of loans for the nine months ended September 30, 2024 compared with $16.8 million in the same period of 2023. | |
| Nelnet Bank | (4,758) | 2,299 | (7,330) | 3,951 | •The recognition of provision for loan losses of $6.1 million for the three months ended September 30, 2024 compared with $1.9 million for the same period in 2023, and $18.4 million for the nine months ended September 30, 2024 compared with $5.8 million for the same period in 2023.<br><br>•A net loss of $3.6 million and net income of $1.9 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three months ended September 30, 2024 and 2023, respectively, and a net loss of $0.8 million and net income of $3.1 million for the nine months ended September 30, 2024 and 2023, respectively. | |
| NFS other operating segments | 14,038 | 9,220 | 44,325 | 31,321 | •An increase in net interest income and net gains related to the Company's investment securities. | |
| Corporate: | ||||||
| Unallocated corporate costs | (10,287) | (20,915) | (29,389) | (47,986) | •Decrease due to the Company's focus on reducing its cost structure and continued focus on allocating costs to operating segments based on use of such services. | |
| ALLO investment | 6,606 | (15,559) | 1,953 | (44,528) | •The recognition of no loss in the three months ended September 30, 2024 compared with a loss of $17.3 million for the same period in 2023 and a loss of $10.7 million in the nine months ended September 30, 2024 compared with $49.7 million for the same period in 2023 from the ALLO voting membership interest investment. Absent additional equity contributions with respect to ALLO's voting membership interests, the Company will not recognize additional losses for its voting membership interests in ALLO.<br><br>•The recognition of income of $4.8 million on the Company's preferred membership interests in ALLO for the three months ended September 30, 2024 compared with $2.3 million for the same period in 2023 and $11.4 million for the nine months ended September 30, 2024 compared with $6.8 million for the same period in 2023. | |
| --- | --- | --- | --- | --- | --- | --- |
| Nelnet Renewable Energy - GRNE | (10,125) | (4,864) | (18,913) | (16,169) | •Since the acquisition of GRNE Solar in 2022, it has incurred low and, in some cases, negative margins on certain solar construction projects. During the third quarter of 2024, the Company recorded an expense of $8.8 million related to estimated losses on legacy construction projects. The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024. Due to the complexity and long-term nature of existing construction contracts, the Company may continue to incur low and/or negative margins to complete these projects.<br><br>•In April 2024, the Company announced a change in its solar construction operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. During the second quarter of 2024, the Company recognized non-cash impairment charges of $1.9 million on certain assets related to the residential operations and $1.6 million in severance costs and commissions paid for cancelled contracts.<br><br>•The Company believes its solar construction business is making progress in repositioning the business for long-term profitable success. | |
| Nelnet Renewable Energy - Tax equity investments/ syndication/ administration | (8,509) | (8,736) | (8,775) | (24,237) | •The recognition of net losses from tax solar investments of $11.3 million in the three months ended September 30, 2024 compared with $6.5 million for the same period in 2023 and $11.1 million in the nine months ended September 30, 2024 compared with $19.5 million for the same period in 2023. These losses include losses attributable to third-party non-controlling interest investors. These losses are partially offset by revenue earned by the Company related to management, consulting, and performance fees provided on tax equity investments made by third parties. | |
| Other corporate activities | 4,892 | 1,520 | 12,829 | 2,909 | •Includes operating results of the Company's venture capital investments and other corporate activities. Increase in 2024 compared with 2023 was due to venture capital activities. | |
| Net (loss) income before taxes | (2,223) | 50,119 | 150,141 | 107,819 | ||
| Income tax benefit (expense) | 282 | (10,512) | (37,653) | (28,785) | ||
| Net loss attributable to noncontrolling interests | 4,329 | 4,747 | 8,398 | 18,705 | •The majority of noncontrolling interests represents losses attributed to noncontrolling membership interests in the Company’s Nelnet Renewable Energy operating segment. | |
| Net income | $ | 2,388 | 44,354 | 120,886 | 97,739 |
Segment Reporting
The following tables present the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.
| Three months ended September 30, 2024 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Nelnet Financial Services | |||||||||
| Loan Servicing and Systems | Education Technology Services and Payments | Asset<br>Generation and<br>Management | Nelnet Bank | NFS Other Operating Segments | Corporate and Other Activities | Eliminations | Total | ||
| Interest income: | |||||||||
| Loan interest | $ | — | — | 180,571 | 9,639 | — | — | — | 190,211 |
| Investment interest | 894 | 9,734 | 18,970 | 12,522 | 12,415 | 3,105 | (7,368) | 50,272 | |
| Total interest income | 894 | 9,734 | 199,541 | 22,161 | 12,415 | 3,105 | (7,368) | 240,483 | |
| Interest expense | — | — | 161,142 | 11,606 | 2,245 | 704 | (7,368) | 168,328 | |
| Net interest income | 894 | 9,734 | 38,399 | 10,555 | 10,170 | 2,401 | — | 72,155 | |
| Less provision (negative provision) for loan losses | — | — | 11,968 | 6,143 | — | — | — | 18,111 | |
| Net interest income after provision for loan losses | 894 | 9,734 | 26,431 | 4,412 | 10,170 | 2,401 | — | 54,044 | |
| Other income (expense): | |||||||||
| Loan servicing and systems revenue | 108,175 | — | — | — | — | — | — | 108,175 | |
| Intersegment revenue | 5,428 | 60 | — | — | — | — | (5,488) | — | |
| Education technology services and payments revenue | — | 118,179 | — | — | — | — | — | 118,179 | |
| Solar construction revenue | — | — | — | — | — | 19,321 | — | 19,321 | |
| Other, net | 690 | — | 4,918 | 841 | 22,370 | 3,506 | — | 32,325 | |
| Loss on sale of loans | — | — | (107) | — | — | — | — | (107) | |
| Impairment expense and provision for beneficial interests | — | — | (28,952) | — | — | (100) | — | (29,052) | |
| Derivative settlements, net | — | — | 1,359 | 281 | — | — | — | 1,640 | |
| Derivative market value adjustments, net | — | — | (9,518) | (3,647) | — | — | — | (13,165) | |
| Total other income (expense), net | 114,293 | 118,239 | (32,300) | (2,525) | 22,370 | 22,727 | (5,488) | 237,316 | |
| Cost of services: | |||||||||
| Cost to provide education technology services and payments | — | 45,273 | — | — | — | — | — | 45,273 | |
| Cost to provide solar construction services | — | — | — | — | — | 26,815 | — | 26,815 | |
| Total cost of services | — | 45,273 | — | — | — | 26,815 | — | 72,088 | |
| Operating expenses: | |||||||||
| Salaries and benefits | 76,820 | 41,053 | 1,220 | 2,973 | 398 | 23,852 | (124) | 146,192 | |
| Depreciation and amortization | 4,854 | 2,616 | — | 343 | — | 5,848 | — | 13,661 | |
| Other expenses | 19,663 | 7,614 | 2,775 | 2,570 | 17,904 | 11,116 | — | 61,642 | |
| Intersegment expenses, net | 18,399 | 4,604 | 6,482 | 759 | 200 | (25,080) | (5,364) | — | |
| Total operating expenses | 119,736 | 55,887 | 10,477 | 6,645 | 18,502 | 15,736 | (5,488) | 221,495 | |
| Income (loss) before income taxes | (4,549) | 26,813 | (16,346) | (4,758) | 14,038 | (17,423) | — | (2,223) | |
| Income tax (expense) benefit | 1,092 | (6,450) | 3,923 | 1,143 | (3,341) | 3,915 | — | 282 | |
| Net income (loss) | (3,457) | 20,363 | (12,423) | (3,615) | 10,697 | (13,508) | — | (1,941) | |
| Net loss (income) attributable to noncontrolling interests | — | 54 | — | — | (117) | 4,392 | — | 4,329 | |
| Net income (loss) attributable to Nelnet, Inc. | $ | (3,457) | 20,417 | (12,423) | (3,615) | 10,580 | (9,116) | — | 2,388 |
| Three months ended June 30, 2024 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Nelnet Financial Services | |||||||||
| Loan Servicing and Systems | Education Technology Services and Payments | Asset<br>Generation and<br>Management | Nelnet Bank | NFS Other Operating Segments | Corporate and Other Activities | Eliminations | Total | ||
| Interest income: | |||||||||
| Loan interest | $ | — | — | 193,707 | 8,422 | — | — | — | 202,129 |
| Investment interest | 1,258 | 5,715 | 13,709 | 10,811 | 15,880 | 2,646 | (9,282) | 40,737 | |
| Total interest income | 1,258 | 5,715 | 207,416 | 19,233 | 15,880 | 2,646 | (9,282) | 242,866 | |
| Interest expense | — | — | 171,632 | 10,769 | 2,606 | 733 | (9,282) | 176,459 | |
| Net interest income | 1,258 | 5,715 | 35,784 | 8,464 | 13,274 | 1,913 | — | 66,407 | |
| Less provision (negative provision) for loan losses | — | — | (4,225) | 7,836 | — | — | — | 3,611 | |
| Net interest income after provision for loan losses | 1,258 | 5,715 | 40,009 | 628 | 13,274 | 1,913 | — | 62,796 | |
| Other income (expense): | |||||||||
| Loan servicing and systems revenue | 109,052 | — | — | — | — | — | — | 109,052 | |
| Intersegment revenue | 6,106 | 56 | — | — | — | — | (6,162) | — | |
| Education technology services and payments revenue | — | 116,909 | — | — | — | — | — | 116,909 | |
| Solar construction revenue | — | — | — | — | — | 9,694 | — | 9,694 | |
| Other, net | 685 | — | 1,337 | 775 | 15,702 | 10,372 | — | 28,871 | |
| Loss on sale of loans | — | — | (1,438) | — | — | — | — | (1,438) | |
| Impairment expense and provision for beneficial interests | — | — | (5,911) | — | — | (1,865) | — | (7,776) | |
| Derivative settlements, net | — | — | 1,442 | 207 | — | — | — | 1,649 | |
| Derivative market value adjustments, net | — | — | 936 | 597 | — | — | — | 1,533 | |
| Total other income (expense), net | 115,843 | 116,965 | (3,634) | 1,579 | 15,702 | 18,201 | (6,162) | 258,494 | |
| Cost of services: | |||||||||
| Cost to provide education technology services and payments | — | 40,222 | — | — | — | — | — | 40,222 | |
| Cost to provide solar construction services | — | — | — | — | — | 8,072 | — | 8,072 | |
| Total cost of services | — | 40,222 | — | — | — | 8,072 | — | 48,294 | |
| Operating expenses: | |||||||||
| Salaries and benefits | 70,631 | 40,736 | 1,113 | 2,798 | 374 | 24,786 | (804) | 139,634 | |
| Depreciation and amortization | 5,342 | 2,712 | — | 341 | — | 6,748 | — | 15,142 | |
| Other expenses | 20,661 | 8,600 | 3,793 | 2,067 | 11,829 | 12,842 | — | 59,792 | |
| Intersegment expenses, net | 18,224 | 4,811 | 7,159 | 719 | 248 | (25,803) | (5,358) | — | |
| Total operating expenses | 114,858 | 56,859 | 12,065 | 5,925 | 12,451 | 18,573 | (6,162) | 214,568 | |
| Income (loss) before income taxes | 2,243 | 25,599 | 24,310 | (3,718) | 16,525 | (6,531) | — | 58,428 | |
| Income tax (expense) benefit | (538) | (6,150) | (5,835) | 916 | (3,935) | 788 | — | (14,753) | |
| Net income (loss) | 1,705 | 19,449 | 18,475 | (2,802) | 12,590 | (5,743) | — | 43,675 | |
| Net loss (income) attributable to noncontrolling interests | — | 29 | — | — | (129) | 1,516 | — | 1,416 | |
| Net income (loss) attributable to Nelnet, Inc. | $ | 1,705 | 19,478 | 18,475 | (2,802) | 12,461 | (4,227) | — | 45,091 |
| Three months ended September 30, 2023 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Nelnet Financial Services | |||||||||
| Loan Servicing and Systems | Education Technology Services and Payments | Asset<br>Generation and<br>Management | Nelnet Bank | NFS Other Operating Segments | Corporate and Other Activities | Eliminations | Total | ||
| Interest income: | |||||||||
| Loan interest | $ | — | — | 230,816 | 5,608 | — | — | — | 236,423 |
| Investment interest | 1,098 | 8,934 | 18,062 | 9,563 | 13,021 | 3,232 | (5,783) | 48,128 | |
| Total interest income | 1,098 | 8,934 | 248,878 | 15,171 | 13,021 | 3,232 | (5,783) | 284,551 | |
| Interest expense | — | — | 197,393 | 9,456 | 5,661 | 432 | (5,783) | 207,159 | |
| Net interest income | 1,098 | 8,934 | 51,485 | 5,715 | 7,360 | 2,800 | — | 77,392 | |
| Less provision (negative provision) for loan losses | — | — | 2,348 | 1,927 | — | — | — | 4,275 | |
| Net interest income after provision for loan losses | 1,098 | 8,934 | 49,137 | 3,788 | 7,360 | 2,800 | — | 73,117 | |
| Other income (expense): | |||||||||
| Loan servicing and systems revenue | 127,892 | — | — | — | — | — | — | 127,892 | |
| Intersegment revenue | 6,944 | 77 | — | — | — | — | (7,021) | — | |
| Education technology services and payments revenue | — | 113,796 | — | — | — | — | — | 113,796 | |
| Solar construction revenue | — | — | — | — | — | 6,301 | — | 6,301 | |
| Other, net | 687 | — | 2,776 | 565 | 9,861 | (16,950) | — | (3,062) | |
| Loss on sale of loans | — | — | (1,022) | — | — | — | — | (1,022) | |
| Impairment expense and provision for beneficial interests | (296) | — | — | — | — | (4,678) | — | (4,974) | |
| Derivative settlements, net | — | — | 621 | 196 | — | — | — | 817 | |
| Derivative market value adjustments, net | — | — | 1,192 | 1,948 | — | — | — | 3,140 | |
| Total other income (expense), net | 135,227 | 113,873 | 3,567 | 2,709 | 9,861 | (15,327) | (7,021) | 242,888 | |
| Cost of services: | |||||||||
| Cost to provide education technology services and payments | — | 43,694 | — | — | — | — | — | 43,694 | |
| Cost to provide solar construction services | — | — | — | — | — | 7,783 | — | 7,783 | |
| Total cost of services | — | 43,694 | — | — | — | 7,783 | — | 51,477 | |
| Operating expenses: | |||||||||
| Salaries and benefits | 73,310 | 39,776 | 1,242 | 2,520 | 288 | 24,731 | (663) | 141,204 | |
| Depreciation and amortization | 5,023 | 3,030 | — | 259 | — | 13,522 | — | 21,835 | |
| Other expenses | 15,629 | 8,309 | 2,952 | 1,290 | 7,522 | 15,670 | — | 51,370 | |
| Intersegment expenses, net | 17,894 | 5,875 | 7,948 | 129 | 191 | (25,679) | (6,358) | — | |
| Total operating expenses | 111,856 | 56,990 | 12,142 | 4,198 | 8,001 | 28,244 | (7,021) | 214,409 | |
| Income (loss) before income taxes | 24,469 | 22,123 | 40,562 | 2,299 | 9,220 | (48,554) | — | 50,119 | |
| Income tax (expense) benefit | (5,872) | (5,307) | (9,735) | (552) | (2,177) | 13,131 | — | (10,512) | |
| Net income (loss) | 18,597 | 16,816 | 30,827 | 1,747 | 7,043 | (35,423) | — | 39,607 | |
| Net loss (income) attributable to noncontrolling interests | — | (6) | — | — | (149) | 4,902 | — | 4,747 | |
| Net income (loss) attributable to Nelnet, Inc. | $ | 18,597 | 16,810 | 30,827 | 1,747 | 6,894 | (30,521) | — | 44,354 |
| Nine months ended September 30, 2024 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Nelnet Financial Services | |||||||||
| Loan Servicing and Systems | Education Technology Services and Payments | Asset<br>Generation and<br>Management | Nelnet Bank | NFS Other Operating Segments | Corporate and Other Activities | Eliminations | Total | ||
| Interest income: | |||||||||
| Loan interest | $ | — | — | 583,907 | 25,157 | — | — | — | 609,064 |
| Investment interest | 4,046 | 23,315 | 54,513 | 33,301 | 43,910 | 9,566 | (25,565) | 143,086 | |
| Total interest income | 4,046 | 23,315 | 638,420 | 58,458 | 43,910 | 9,566 | (25,565) | 752,150 | |
| Interest expense | — | — | 523,678 | 31,872 | 7,268 | 2,114 | (25,565) | 539,367 | |
| Net interest income | 4,046 | 23,315 | 114,742 | 26,586 | 36,642 | 7,452 | — | 212,783 | |
| Less provision (negative provision) for loan losses | — | — | 14,199 | 18,352 | — | — | — | 32,551 | |
| Net interest income after provision for loan losses | 4,046 | 23,315 | 100,543 | 8,234 | 36,642 | 7,452 | — | 180,232 | |
| Other income (expense): | |||||||||
| Loan servicing and systems revenue | 344,428 | — | — | — | — | — | — | 344,428 | |
| Intersegment revenue | 18,419 | 166 | — | — | — | — | (18,585) | — | |
| Education technology services and payments revenue | — | 378,627 | — | — | — | — | — | 378,627 | |
| Solar construction revenue | — | — | — | — | — | 42,741 | — | 42,741 | |
| Other, net | 2,085 | — | 11,239 | 1,991 | 51,013 | 11,730 | — | 78,057 | |
| Loss on sale of loans | — | — | (1,685) | — | — | — | — | (1,685) | |
| Impairment expense and provision for beneficial interests | — | — | (34,863) | — | — | (2,002) | — | (36,865) | |
| Derivative settlements, net | — | — | 4,356 | 690 | — | — | — | 5,046 | |
| Derivative market value adjustments, net | — | — | (2,875) | (793) | — | — | — | (3,668) | |
| Total other income (expense), net | 364,932 | 378,793 | (23,828) | 1,888 | 51,013 | 52,469 | (18,585) | 806,681 | |
| Cost of services: | |||||||||
| Cost to provide education technology services and payments | — | 134,106 | — | — | — | — | — | 134,106 | |
| Cost to provide solar construction services | — | — | — | — | — | 49,115 | — | 49,115 | |
| Total cost of services | — | 134,106 | — | — | — | 49,115 | — | 183,221 | |
| Operating expenses: | |||||||||
| Salaries and benefits | 224,172 | 121,956 | 3,529 | 8,491 | 1,129 | 72,159 | (1,735) | 429,701 | |
| Depreciation and amortization | 15,304 | 8,012 | — | 944 | — | 21,312 | — | 45,572 | |
| Other expenses | 59,861 | 23,772 | 9,985 | 5,765 | 41,536 | 37,359 | — | 178,278 | |
| Intersegment expenses, net | 55,955 | 14,216 | 21,491 | 2,252 | 665 | (77,729) | (16,850) | — | |
| Total operating expenses | 355,292 | 167,956 | 35,005 | 17,452 | 43,330 | 53,101 | (18,585) | 653,551 | |
| Income (loss) before income taxes | 13,686 | 100,046 | 41,710 | (7,330) | 44,325 | (42,295) | — | 150,141 | |
| Income tax (expense) benefit | (3,284) | (24,035) | (10,010) | 1,800 | (10,550) | 8,426 | — | (37,653) | |
| Net income (loss) | 10,402 | 76,011 | 31,700 | (5,530) | 33,775 | (33,869) | — | 112,488 | |
| Net loss (income) attributable to noncontrolling interests | — | 101 | — | — | (366) | 8,663 | — | 8,398 | |
| Net income (loss) attributable to Nelnet, Inc. | $ | 10,402 | 76,112 | 31,700 | (5,530) | 33,409 | (25,206) | — | 120,886 |
| Nine months ended September 30, 2023 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Nelnet Financial Services | |||||||||
| Loan Servicing and Systems | Education Technology Services and Payments | Asset<br>Generation and<br>Management | Nelnet Bank | NFS Other Operating Segments | Corporate and Other Activities | Eliminations | Total | ||
| Interest income: | |||||||||
| Loan interest | $ | — | — | 689,633 | 15,079 | — | — | — | 704,712 |
| Investment interest | 3,193 | 20,237 | 47,726 | 26,013 | 54,481 | 8,826 | (30,643) | 129,835 | |
| Total interest income | 3,193 | 20,237 | 737,359 | 41,092 | 54,481 | 8,826 | (30,643) | 834,547 | |
| Interest expense | — | — | 618,905 | 24,841 | 24,860 | 1,793 | (30,643) | 639,756 | |
| Net interest income | 3,193 | 20,237 | 118,454 | 16,251 | 29,621 | 7,033 | — | 194,791 | |
| Less provision (negative provision) for loan losses | — | — | (772) | 5,837 | — | — | — | 5,065 | |
| Net interest income after provision for loan losses | 3,193 | 20,237 | 119,226 | 10,414 | 29,621 | 7,033 | — | 189,726 | |
| Other income (expense): | |||||||||
| Loan servicing and systems revenue | 389,138 | — | — | — | — | — | — | 389,138 | |
| Intersegment revenue | 21,980 | 198 | — | — | — | — | (22,178) | — | |
| Education technology services and payments revenue | — | 357,258 | — | — | — | — | — | 357,258 | |
| Solar construction revenue | — | — | — | — | — | 19,687 | — | 19,687 | |
| Other, net | 1,900 | — | 6,939 | 1,395 | 15,087 | (52,617) | — | (27,297) | |
| Loss on sale of loans | — | — | (16,776) | — | — | — | — | (16,776) | |
| Impairment expense and provision for beneficial interests | (296) | — | — | — | — | (4,678) | — | (4,974) | |
| Derivative settlements, net | — | — | 23,940 | 279 | — | — | — | 24,219 | |
| Derivative market value adjustments, net | — | — | (35,323) | 3,057 | — | — | — | (32,266) | |
| Total other income (expense), net | 412,722 | 357,456 | (21,220) | 4,731 | 15,087 | (37,608) | (22,178) | 708,989 | |
| Cost of services: | |||||||||
| Cost to provide education technology services and payments | — | 131,804 | — | — | — | — | — | 131,804 | |
| Cost to provide solar construction services | — | — | — | — | — | 25,204 | — | 25,204 | |
| Total cost of services | — | 131,804 | — | — | — | 25,204 | — | 157,008 | |
| Operating expenses: | |||||||||
| Salaries and benefits | 234,012 | 116,040 | 3,093 | 6,881 | 717 | 78,686 | (808) | 438,620 | |
| Depreciation and amortization | 14,400 | 8,424 | — | 315 | — | 33,976 | — | 57,114 | |
| Other expenses | 42,760 | 26,063 | 12,083 | 3,696 | 12,223 | 41,327 | — | 138,154 | |
| Intersegment expenses, net | 58,030 | 17,559 | 24,789 | 302 | 447 | (79,757) | (21,370) | — | |
| Total operating expenses | 349,202 | 168,086 | 39,965 | 11,194 | 13,387 | 74,232 | (22,178) | 633,888 | |
| Income (loss) before income taxes | 66,713 | 77,803 | 58,041 | 3,951 | 31,321 | (130,011) | — | 107,819 | |
| Income tax (expense) benefit | (16,011) | (18,700) | (13,930) | (913) | (7,417) | 28,188 | — | (28,785) | |
| Net income (loss) | 50,702 | 59,103 | 44,111 | 3,038 | 23,904 | (101,823) | — | 79,034 | |
| Net loss (income) attributable to noncontrolling interests | — | 113 | — | — | (418) | 19,010 | — | 18,705 | |
| Net income (loss) attributable to Nelnet, Inc. | $ | 50,702 | 59,216 | 44,111 | 3,038 | 23,486 | (82,813) | — | 97,739 |
Loan Servicing and Systems Revenue
The following table presents disaggregated revenue by service offering for the Loan Servicing and Systems operating segment.
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| Government loan servicing | $ | 85,215 | 87,014 | 100,154 | 277,705 | 304,769 |
| Private education and consumer loan servicing | 13,057 | 12,959 | 12,330 | 38,634 | 36,556 | |
| FFELP loan servicing | 2,945 | 3,245 | 3,304 | 9,570 | 10,226 | |
| Software services | 5,197 | 4,879 | 9,416 | 14,617 | 25,076 | |
| Outsourced services | 1,761 | 955 | 2,688 | 3,902 | 12,511 | |
| Loan servicing and systems revenue | $ | 108,175 | 109,052 | 127,892 | 344,428 | 389,138 |
Loan Servicing Volumes
| As of | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30,<br>2024 | June 30,<br>2024 | March 31,<br>2024 | December 31,<br>2023 | September 30,<br>2023 | June 30,<br>2023 | March 31,<br>2023 | December 31,<br>2022 | |||
| Servicing volume<br>(dollars in millions): | ||||||||||
| Government | $ | 492,142 | $ | 489,298 | 495,409 | 494,691 | 500,554 | 519,308 | 537,291 | 545,373 |
| FFELP | 13,745 | 14,576 | 15,783 | 17,462 | 18,400 | 19,021 | 19,815 | 20,226 | ||
| Private and consumer | 20,666 | 19,876 | 21,015 | 20,493 | 20,394 | 20,805 | 21,484 | 21,866 | ||
| Total | $ | 526,553 | $ | 523,750 | 532,207 | 532,646 | 539,348 | 559,134 | 578,590 | 587,465 |
| Number of servicing borrowers: | ||||||||||
| Government | 14,114,468 | 14,096,152 | 14,328,013 | 14,503,057 | 14,543,382 | 14,898,901 | 15,518,751 | 15,777,328 | ||
| FFELP | 574,979 | 610,745 | 656,814 | 725,866 | 764,660 | 788,686 | 819,791 | 829,939 | ||
| Private and consumer | 851,747 | 829,072 | 882,256 | 894,703 | 896,613 | 899,095 | 925,861 | 951,866 | ||
| Total | 15,541,194 | 15,535,969 | 15,867,083 | 16,123,626 | 16,204,655 | 16,586,682 | 17,264,403 | 17,559,133 | ||
| Number of remote hosted borrowers: | 662,075 | 133,681 | 65,295 | 70,580 | 103,396 | 716,908 | 5,048,324 | 6,135,760 |
Education Technology Services and Payments Revenue
The following table presents disaggregated revenue by servicing offering for the Education Technology Services and Payments operating segment.
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| Tuition payment plan services | $ | 31,659 | 34,164 | 30,223 | 104,702 | 95,235 |
| Payment processing | 55,813 | 34,326 | 50,848 | 137,926 | 126,716 | |
| Education technology services | 30,080 | 47,205 | 31,793 | 133,306 | 132,796 | |
| Other | 627 | 1,214 | 932 | 2,693 | 2,511 | |
| Education technology services and payments revenue | $ | 118,179 | 116,909 | 113,796 | 378,627 | 357,258 |
This segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and before tax operating margin are higher in the first quarter compared with the remainder of the year.
Solar Construction Revenue
The following table presents disaggregated revenue by service offering related to solar construction revenue.
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| Commercial revenue | $ | 18,764 | 8,793 | 4,221 | 39,477 | 12,426 |
| Residential revenue (a) | 557 | 901 | 2,080 | 3,264 | 7,261 | |
| Solar construction revenue | $ | 19,321 | 9,694 | 6,301 | 42,741 | 19,687 |
(a) On April 2024, the Company announced a change in its solar engineering, procurement, and construction operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, residential revenue will continue to decline from historical amounts as existing customer contracts are completed.
Other Income (Expense)
The following table presents the components of "other, net" in "other income (expense)" on the consolidated statements of income:
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| Reinsurance premiums | $ | 16,619 | 14,851 | 6,287 | 44,250 | 10,638 |
| Investment activity, net | 8,529 | 217 | (1,003) | 7,447 | (8,155) | |
| ALLO preferred return | 4,783 | 4,160 | 2,299 | 11,353 | 6,822 | |
| Borrower late fee income | 1,741 | 2,584 | 2,220 | 7,460 | 6,635 | |
| Administration/sponsor fee income | 1,420 | 1,482 | 1,712 | 4,448 | 5,180 | |
| Investment advisory services (WRCM) | 1,394 | 1,524 | 1,633 | 4,427 | 4,884 | |
| Loss from ALLO voting membership interest investment | — | — | (17,293) | (10,693) | (49,676) | |
| Loss from solar investments, net (a) | (11,238) | (2,610) | (6,456) | (11,068) | (19,485) | |
| Other | 9,077 | 6,663 | 7,539 | 20,433 | 15,860 | |
| Other, net | $ | 32,325 | 28,871 | (3,062) | 78,057 | (27,297) |
(a) The Company accounts for its solar investments using the Hypothetical Liquidation at Book Value (HLBV) method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The following table presents (i) the Company's recognized net losses, which include net losses attributable to third-party noncontrolling interest investors (syndication partners), included in “other, net” in "other income (expense)" on the consolidated statements of income, (ii) solar net losses attributed to noncontrolling interest investors included in “net loss attributable to noncontrolling interests” on the consolidated statements of income, and (iii) the Company's recognized net losses excluding net losses attributed to noncontrolling interest investors (such amount reflecting the before tax net income impact of such solar tax equity investments to the Company).
| Three months ended | Nine months ended | ||||||
|---|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||
| Net losses | $ | (11,238) | $ | (2,610) | (6,456) | (11,068) | (19,485) |
| Less: net losses attributed to noncontrolling interest investors (syndication partners) | 3,936 | (8) | 3,278 | 5,568 | 14,706 | ||
| Net losses, excluding activity attributed to noncontrolling interest investors | $ | (7,302) | $ | (2,618) | (3,178) | (5,500) | (4,779) |
Impairment Expense and Provision for Beneficial Interests
The following table presents the impairment charges and provision for beneficial interests by asset and reportable operating segment recognized by the Company. These expense items are included in “impairment expense and provision for beneficial interests” in the consolidated statements of income.
| Nelnet Financial Services | ||||||||
|---|---|---|---|---|---|---|---|---|
| Loan Servicing and Systems | Education Technology Services and Payments | Asset<br>Generation and<br>Management | Nelnet Bank | NFS Other Operating Segments | Corporate and Other Activities | Total | ||
| Three months ended September 30, 2024 | ||||||||
| Investments - beneficial interest in loan securitizations (a) | $ | — | — | 28,952 | — | — | — | 28,952 |
| Investments - venture capital | — | — | — | — | — | 100 | 100 | |
| $ | — | — | 28,952 | — | — | 100 | 29,052 | |
| Three months ended June 30, 2024 | ||||||||
| Investments - beneficial interest in loan securitizations (a) | $ | — | — | 5,911 | — | — | — | 5,911 |
| Property and equipment - solar facilities (b) | — | — | — | — | — | 1,170 | 1,170 | |
| Other assets - solar inventory (b) | — | — | — | — | — | 695 | 695 | |
| $ | — | — | 5,911 | — | — | 1,865 | 7,776 | |
| Three months ended September 30, 2023 | ||||||||
| Leases, buildings, and associated improvements (c) | $ | 296 | — | — | — | — | 4,678 | 4,974 |
| Nine months ended September 30, 2024 | ||||||||
| Investments - beneficial interest in loan securitizations (a) | $ | — | — | 34,863 | — | — | — | 34,863 |
| Investments - venture capital | — | — | — | — | — | 137 | 137 | |
| Property and equipment - solar facilities (b) | — | — | — | — | — | 1,170 | 1,170 | |
| Other assets - solar inventory (b) | — | — | — | — | — | 695 | 695 | |
| $ | — | — | 34,863 | — | — | 2,002 | 36,865 | |
| Nine months ended September 30, 2023 | ||||||||
| Leases, buildings, and associated improvements (c) | $ | 296 | — | — | — | — | 4,678 | 4,974 |
(a) The Company recorded a non-cash allowance for credit losses (and related provision expense) related to the Company's beneficial interest in certain loan securitizations.
(b) In April 2024, the Company announced a change in its solar engineering, procurement, and construction (EPC) operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, the Company recognized non-cash impairment charges on certain solar facilities and inventory related to the residential solar operations.
(c) In 2023, the Company recorded impairment charges related to operating lease assets and associated leasehold improvements, which included a $2.4 million lease termination fee paid to Union Bank, a related party. The Company recorded this impairment as a result of its on-going evaluation of the use of office space when a large number of associates continued to work from home.
Derivative Settlements
The following table summarizes the components of "derivative settlements, net" included in the consolidated statements of income.
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| 1:3 basis swaps | $ | 159 | 249 | 386 | 773 | 1,180 |
| Interest rate swaps - floor income hedges | 1,200 | 1,193 | 235 | 3,583 | 22,760 | |
| Interest rate swaps - Nelnet Bank | 281 | 207 | 196 | 690 | 279 | |
| Total derivative settlements - income | $ | 1,640 | 1,649 | 817 | 5,046 | 24,219 |
Loans and Accrued Interest Receivable and Allowance for Loan Losses
Loans and accrued interest receivable and allowance for loan losses consisted of the following:
| As of | As of | As of | ||
|---|---|---|---|---|
| September 30, 2024 | December 31, 2023 | September 30, 2023 | ||
| Non-Nelnet Bank: | ||||
| Federally insured loans: | ||||
| Stafford and other | $ | 2,202,590 | 2,936,174 | 3,104,569 |
| Consolidation | 6,868,152 | 8,750,033 | 9,194,415 | |
| Total | 9,070,742 | 11,686,207 | 12,298,984 | |
| Private education loans | 234,295 | 277,320 | 293,004 | |
| Consumer and other loans | 244,552 | 85,935 | 143,633 | |
| Non-Nelnet Bank loans | 9,549,589 | 12,049,462 | 12,735,621 | |
| Nelnet Bank: | ||||
| Federally insured loans | — | — | 59,261 | |
| Private education loans | 352,654 | 360,520 | 359,941 | |
| Consumer and other loans | 207,218 | 72,352 | 49,611 | |
| Nelnet Bank loans | 559,872 | 432,872 | 468,813 | |
| Accrued interest receivable | 600,097 | 764,385 | 806,854 | |
| Loan discount and deferred lender fees, net of unamortized loan premiums and deferred origination costs | (34,535) | (33,872) | (33,638) | |
| Allowance for loan losses: | ||||
| Non-Nelnet Bank: | ||||
| Federally insured loans | (50,834) | (68,453) | (72,043) | |
| Private education loans | (11,744) | (15,750) | (16,944) | |
| Consumer and other loans | (22,380) | (11,742) | (14,022) | |
| Non-Nelnet Bank allowance for loan losses | (84,958) | (95,945) | (103,009) | |
| Nelnet Bank: | ||||
| Federally insured loans | — | — | (148) | |
| Private education loans | (3,670) | (3,347) | (3,083) | |
| Consumer and other loans | (13,514) | (5,351) | (3,853) | |
| Nelnet Bank allowance for loan losses | (17,184) | (8,698) | (7,084) | |
| $ | 10,572,881 | 13,108,204 | 13,867,557 |
The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios.
| As of | As of | As of | ||||
|---|---|---|---|---|---|---|
| September 30, 2024 | December 31, 2023 | September 30, 2023 | ||||
| Non-Nelnet Bank: | ||||||
| Federally insured loans (a) | 0.56 | % | 0.59 | % | 0.59 | % |
| Private education loans | 5.01 | % | 5.68 | % | 5.78 | % |
| Consumer and other loans | 9.15 | % | 13.66 | % | 9.76 | % |
| Nelnet Bank: | ||||||
| Federally insured loans (a) | — | — | 0.25 | % | ||
| Private education loans | 1.04 | % | 0.93 | % | 0.86 | % |
| Consumer and other loans | 6.52 | % | 7.40 | % | 7.77 | % |
(a) As of September 30, 2024, December 31, 2023, and September 30, 2023, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty for non-Nelnet Bank was 20.7%, 21.8%, and 21.9%, respectively, and for Nelnet Bank was 10.0% as of September 30, 2023.
Loan Activity
The following table sets forth the activity of the Company's loan portfolios:
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||
| Non-Nelnet Bank: | ||||||
| Beginning balance | $ | 9,910,617 | 10,799,942 | 13,239,125 | 12,049,462 | 14,169,771 |
| Loan acquisitions: | ||||||
| Federally insured student loans | 104,914 | — | 2,880 | 104,914 | 518,471 | |
| Private education loans | — | — | 77,365 | — | 77,365 | |
| Consumer and other loans | 129,202 | 195,279 | 29,413 | 405,211 | 340,091 | |
| Total loan acquisitions | 234,116 | 195,279 | 109,658 | 510,125 | 935,927 | |
| Repayments, claims, capitalized interest, participations, and other, net | (386,204) | (375,982) | (322,013) | (1,112,682) | (1,175,320) | |
| Loans lost to external parties | (207,794) | (574,834) | (229,342) | (1,562,283) | (712,772) | |
| Loans sold | (1,146) | (133,788) | (61,807) | (335,033) | (481,985) | |
| Ending balance | $ | 9,549,589 | 9,910,617 | 12,735,621 | 9,549,589 | 12,735,621 |
| Nelnet Bank: | ||||||
| Beginning balance | $ | 542,351 | 483,723 | 444,488 | 432,872 | 419,795 |
| Loan acquisitions and originations: | ||||||
| Private education loans | 10,843 | 1,390 | 19,756 | 28,948 | 41,341 | |
| Consumer and other loans | 36,409 | 82,998 | 22,966 | 176,257 | 55,766 | |
| Total loan acquisitions and originations | 47,252 | 84,388 | 42,722 | 205,205 | 97,107 | |
| Repayments | (29,731) | (25,760) | (18,382) | (78,205) | (47,957) | |
| Loans sold to AGM | — | — | (15) | — | (132) | |
| Ending balance | $ | 559,872 | 542,351 | 468,813 | 559,872 | 468,813 |
The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments and notes receivable" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2024, the Company’s ownership correlates to approximately $1.99 billion of loans included in these securitizations. The loans held in these securitizations are not included in the above table. Investment interest income earned by the Company from the beneficial interest in loan securitizations is included in "investment interest" on the Company's consolidated statements of income and is not a component of the Company's loan interest income.
Loan Spread Analysis
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.
| Three months ended | Nine months ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||
| Variable loan yield, gross | 8.16 | % | 8.16 | % | 7.70 | % | 8.10 | % | 7.51 | % | |
| Consolidation rebate fees | (0.80) | (0.81) | (0.80) | (0.80) | (0.80) | ||||||
| Premium and deferred origination costs amortization, net of discount accretion | (0.02) | 0.07 | 0.06 | 0.04 | 0.05 | ||||||
| Variable loan yield, net | 7.34 | 7.42 | 6.96 | 7.34 | 6.76 | ||||||
| Loan cost of funds - interest expense (a) | (6.44) | (6.50) | (6.14) | (6.48) | (5.86) | ||||||
| Loan cost of funds - derivative settlements (b) (c) | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | ||||||
| Variable loan spread | 0.91 | 0.93 | 0.83 | 0.87 | 0.91 | ||||||
| Fixed rate floor income, gross | 0.01 | 0.01 | 0.01 | 0.01 | 0.02 | ||||||
| Fixed rate floor income - derivative settlements (b) (d) | 0.05 | 0.04 | 0.01 | 0.04 | 0.23 | ||||||
| Fixed rate floor income, net of settlements on derivatives | 0.06 | 0.05 | 0.02 | 0.05 | 0.25 | ||||||
| Core loan spread | 0.97 | % | 0.98 | % | 0.85 | % | 0.92 | % | 1.16 | % | |
| Average balance of AGM's loans | $ | 9,792,095 | 10,484,458 | 13,157,152 | 10,612,686 | 13,588,427 | |||||
| Average balance of AGM's debt outstanding | 9,296,236 | 10,168,761 | 12,527,771 | 10,280,527 | 12,964,890 |
(a) The Company recognized $5.6 million and $25.9 million in non-cash interest expense during the third quarter of 2024 and the second quarter of 2023, respectively, as a result of writing off the remaining unamortized debt discount related to the redemption of certain asset-backed debt securities prior to their maturity. This non-cash expense was excluded from the respective periods in the table above.
(b) Derivative settlements represent the cash paid or received during the respective 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. 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. See "Derivative Settlements" included in this supplement for the net settlement activity recognized by the Company for each type of derivative for the periods presented in the 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 | Nine months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2024 | June 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||||||
| Core loan spread | 0.97 | % | 0.98 | % | 0.85 | % | 0.92 | % | 1.16 | % |
| Derivative settlements (1:3 basis swaps) | (0.01) | (0.01) | (0.01) | (0.01) | (0.01) | |||||
| Derivative settlements (fixed rate floor income) | (0.05) | (0.04) | (0.01) | (0.04) | (0.23) | |||||
| Loan spread | 0.91 | % | 0.93 | % | 0.83 | % | 0.87 | % | 0.92 | % |
(c) Derivative settlements consist of net settlements received related to the Company’s 1:3 basis swaps.
(d) Derivative settlements consist of net settlements received related to the Company’s floor income interest rate swaps.
18