EX-99.1 2 aex991-22823xearningsrelea.htm EX-99.1 Document

Nelnet Reports Fourth Quarter 2022 Results
LINCOLN, Neb., February 28, 2023 - Nelnet (NYSE: NNI) today reported GAAP net income of $30.8 million, or $0.83 per share, for the fourth quarter of 2022, compared with GAAP net income of $132.7 million, or $3.46 per share, for the same period a year ago.
Net income, excluding derivative market value adjustments1, was $36.4 million, or $0.98 per share, for the fourth quarter of 2022, compared with $95.9 million, or $2.50 per share, for the same period in 2021.
"Our core businesses, including servicing, payments and education technology, and financial services performed very well in 2022,” said Jeff Noordhoek, chief executive officer of Nelnet. "While we believe the future is bright for our fee-based businesses and investments, we expect our quarterly earnings to be choppy as our FFEL Program loans run off and our other investments increase. Consistent with our long-term focus, we laid a tremendous foundation for long-term value creation in 2022 that we believe will be evident in future years.”
Operating Segments
Nelnet operates four primary business segments, earning interest income on loans in its Asset Generation and Management (AGM) and Nelnet Bank segments, and fee-based revenue in its Loan Servicing and Systems and Education Technology, Services, and Payment Processing segments.
Asset Generation and Management
The AGM operating segment reported net interest income of $58.5 million during the fourth quarter of 2022, compared with $70.1 million for the same period a year ago. The company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. The company recognized income from derivative settlements of $20.8 million during the fourth quarter of 2022, compared with an expense of $5.8 million for the same period in 2021. Derivative settlements for each applicable period should be evaluated with the company's net interest income. Net interest income net of derivative settlements increased to $79.3 million in the fourth quarter of 2022, compared with $64.3 million for the same period in 2021. The increase in 2022 was due to an increase in core loan spread and was partially offset by the expected runoff of the loan portfolio. The average balance of loans outstanding decreased from $18.1 billion for the fourth quarter of 2021 to $14.8 billion for the same period in 2022.
Core loan spread2, which includes the impact of derivative settlements, increased to 1.77 percent for the quarter ended December 31, 2022, compared with 1.36 percent for the same period in 2021. In an increasing interest rate environment, student loan spread increases in the short term because of the timing of interest rate resets on the company's assets occurring daily in contrast to the timing of the interest rate resets on the company's debt that occurs either monthly or quarterly.
Net income after tax for the AGM segment was $22.9 million for the three months ended December 31, 2022, compared with $108.7 million for the same period in 2021.
AGM recognized a provision for loan losses in the fourth quarter of 2022 of $27.4 million ($20.8 million after tax), compared with a negative provision of $2.0 million ($1.5 million after tax) in the fourth quarter of 2021. Provision for loan losses in the fourth quarter of 2022 was impacted by loans acquired during the quarter. In addition, in the fourth quarter of 2022, AGM recognized $7.4 million ($5.6 million after tax) in expense related to changes in the fair value of derivative instruments that do not qualify for hedge accounting, compared with income of $48.4 million ($36.8 million after tax) for the same period in 2021.
Nelnet Bank
As of December 31, 2022, Nelnet Bank had a $419.8 million loan portfolio and had $789.6 million of deposits. Nelnet Bank's net income after tax for the quarter ended December 31, 2022 was $1.4 million, as compared to a net loss of $0.1 million for the same period in 2021.
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment was $140.0 million for the fourth quarter of 2022, compared with $150.4 million for the same period in 2021. During the fourth quarter of 2021, the company earned additional revenue from the
1 Net income, excluding derivative market value adjustments, is a non-GAAP measure. See "Non-GAAP Performance Measures" at the end of this press release and the "Non-GAAP Disclosures" section below for explanatory information and reconciliations of GAAP to non-GAAP financial information.

2 Core loan spread is a non-GAAP measure. See "Non-GAAP Performance Measures" at the end of this press release and the "Non-GAAP Disclosures" section below for explanatory information and reconciliations of GAAP to non-GAAP financial information.


Department of Education (Department) based on incremental work performed to support the Department's borrowers coming out of the CARES Act forbearance. The Department subsequently extended the forbearance period.
As of December 31, 2022, the company was servicing $587.5 billion in government-owned, FFEL Program, private education, and consumer loans for 17.6 million borrowers, as compared to $529.0 billion in servicing volume for 16.4 million borrowers as of December 31, 2021.
The Loan Servicing and Systems segment reported net income after tax of $12.9 million for the three months ended December 31, 2022, compared with $25.8 million for the same period in 2021. During the fourth quarter of 2022, the Loan Servicing and Systems segment recognized $5.5 million ($4.2 million after tax) of non-cash impairment charges on certain facility and other assets.
Education Technology, Services, and Payment Processing
For the fourth quarter of 2022, revenue from the Education Technology, Services, and Payment Processing operating segment was $98.3 million, an increase from $81.0 million for the same period in 2021. Revenue less direct costs to provide services for the fourth quarter of 2022 was $59.0 million, compared with $52.4 million for the same period in 2021.
Net income after tax for the Education Technology, Services, and Payment Processing segment was $5.8 million for the three months ended December 31, 2022, compared with $8.0 million for the same period in 2021. During the fourth quarter of 2022, the Education Technology, Services, and Payment Processing segment recognized $2.2 million ($1.7 million after tax) of non-cash impairment charges on previously acquired software assets.
Included in net income for the three months ended December 31, 2022 and 2021 was $4.5 million ($3.4 million after tax) and $0.3 million ($0.2 million after tax) of interest income, respectively. The company earns interest income on tuition funds held in custody for schools. The increase in interest income was due to an increase in interest rates in 2022 as compared to 2021.
Year-End Results
GAAP net income for the year ended December 31, 2022 was $407.3 million, or $10.83 per share, compared with GAAP net income of $393.3 million, or $10.20 per share, for 2021. Net income in 2022, excluding derivative market value adjustments1, was $231.3 million, or $6.15 per share, compared with $322.7 million, or $8.37 per share, for 2021.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of federal securities laws. The words “anticipate,” “assume," "believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” "scheduled," “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: risks and uncertainties related to the duration, ultimate severity, and continuing impacts of the COVID-19 pandemic; risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the company under existing and any future servicing contracts with the Department and risks related to the company's ability to comply with agreements with third-party customers for the servicing of loans; risks related to the company's loan portfolio, such as interest rate basis and repricing risk and changes in levels of loan prepayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; uncertainties regarding the expected benefits from purchased FFEL Program, private education, and consumer loans, or investment interests therein, and initiatives to purchase additional FFEL Program, private education, and consumer loans; financing and liquidity risks, including risks of changes in the interest rate environment; 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 and uncertainties of the expected benefits from Nelnet Bank's operations; risks related to our renewable energy business, including availability of federal incentives, regulatory uncertainty, climate change risk, supply change risk, and rising debt and construction costs; our reliance on third parties to provide certain services; risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, including activities that are intended to diversify the company both within and outside of its historical core education-related businesses; risks from changes in economic conditions and consumer behavior; our ability to adapt to technological change; risks related to the exclusive forum provisions in our articles of incorporation; risks related to our executive chairman’s ability to control matters related to the company through voting rights; risks related to related party transactions; risks related to climate change; concerns about the downgrade of the U.S. credit rating; risks related to natural disasters, terrorist activities, or international


hostilities; and cybersecurity risks, including disruptions to systems, disclosure of confidential or personal information, and/or damage to reputation resulting from cyber-breaches.
For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission. 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 endedYear ended
December 31, 2022September 30, 2022December 31, 2021December 31, 2022December 31, 2021
Interest income:
Loan interest$228,878 176,244 112,118 651,205 482,337 
Investment interest34,012 26,889 12,376 91,601 41,498 
Total interest income262,890 203,133 124,494 742,806 523,835 
Interest expense on bonds and notes payable and bank deposits181,790 126,625 48,294 430,137 176,233 
Net interest income81,100 76,508 76,200 312,669 347,602 
Less provision (negative provision) for loan losses27,801 9,665 (1,578)46,441 (12,426)
Net interest income after provision for loan losses53,299 66,843 77,778 266,228 360,028 
Other income (expense):
Loan servicing and systems revenue140,021 134,197 150,402 535,459 486,363 
Education technology, services, and payment processing revenue98,332 106,894 80,950 408,543 338,234 
Solar construction revenue15,186 9,358 — 24,543 — 
Other, net735 2,225 48,497 25,486 78,681 
(Loss) gain on sale of loans, net(2,713)2,627 — 2,903 18,715 
Impairment expense and provision for beneficial interests, net(9,361)121 (4,137)(15,523)(16,360)
Derivative market value adjustments and derivative settlements, net13,424 63,262 42,579 264,634 71,446 
Total other income (expense)255,624 318,684 318,291 1,246,045 977,079 
Cost of services:
Cost to provide education technology, services, and payment processing services39,330 42,676 28,597 148,403 108,660 
Cost to provide solar construction services14,004 5,968 — 19,971 — 
Total cost of services53,334 48,644 28,597 168,374 108,660 
Operating expenses:
Salaries and benefits151,568 147,198 143,781 589,579 507,132 
Depreciation and amortization20,099 18,772 17,612 74,077 73,741 
Other expenses50,481 43,858 37,857 170,778 145,469 
Total operating expenses222,148 209,828 199,250 834,434 726,342 
Income before income taxes33,441 127,055 168,222 509,465 502,105 
Income tax expense(5,459)(26,586)(39,075)(113,224)(115,822)
Net income27,982 100,469 129,147 396,241 386,283 
Net loss attributable to noncontrolling interests2,791 4,329 3,536 11,106 7,003 
Net income attributable to Nelnet, Inc.$30,773 104,798 132,683 407,347 393,286 
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted$0.83 2.80 3.46 10.83 10.20 
Weighted average common shares outstanding -
 basic and diluted		37,290,293 37,380,493 38,352,942 37,603,033 38,572,801 



Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
As ofAs ofAs of
December 31, 2022September 30, 2022December 31, 2021
Assets:
Loans and accrued interest receivable, net$15,243,889 15,876,251 18,335,197 
Cash, cash equivalents, and investments2,230,063 2,126,712 1,714,482 
Restricted cash1,239,470 980,131 1,068,626 
Goodwill and intangible assets, net240,403 242,401 194,121 
Other assets420,219 338,038 365,615 
Total assets$19,374,044 19,563,533 21,678,041 
Liabilities:
Bonds and notes payable$14,637,195 15,042,595 17,631,089 
Bank deposits691,322 580,825 344,315 
Other liabilities845,625 773,754 749,799 
Total liabilities16,174,142 16,397,174 18,725,203 
Equity:
Total Nelnet, Inc. shareholders' equity3,198,959 3,180,614 2,951,206 
Noncontrolling interests943 (14,255)1,632 
Total equity3,199,902 3,166,359 2,952,838 
Total liabilities and equity$19,374,044 19,563,533 21,678,041 
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 December 31,Year ended December 31,
2022202120222021
GAAP net income attributable to Nelnet, Inc.$30,773 132,683 407,347 393,286 
Realized and unrealized derivative market value adjustments (a)7,434 (48,359)(231,691)(92,813)
Tax effect (b)(1,784)11,606 55,606 22,275 
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $36,423 95,930 231,262 322,748 
Earnings per share:
GAAP net income attributable to Nelnet, Inc.$0.83 3.46 10.83 10.20 
Realized and unrealized derivative market value adjustments (a)0.20 (1.26)(6.16)(2.41)
Tax effect (b)(0.05)0.30 1.48 0.58 
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $0.98 2.50 6.15 8.37 

(a)    "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the company’s derivative transactions with the intent that each is economically effective; however, the company’s derivative instruments do not qualify for hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.
The company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the company’s performance and in presentations with credit rating agencies, lenders, and investors.
(b)    The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.



Core loan spread
The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the "Net interest income, net of settlements on derivatives" table on the following page, divided by the average balance of loans or debt outstanding.
Three months ended December 31,
20222021
Variable loan yield, gross6.52 %2.62 %
Consolidation rebate fees(0.82)(0.85)
Discount accretion, net of premium and deferred origination costs amortization (a)0.06 0.02 
Variable loan yield, net5.76 1.79 
Loan cost of funds - interest expense(4.64)(1.06)
Loan cost of funds - derivative settlements (b) (c)(0.01)(0.02)
Variable loan spread1.11 0.71 
Fixed rate floor income, gross0.07 0.76 
Fixed rate floor income - derivative settlements (b) (d)0.59 (0.11)
Fixed rate floor income, net of settlements on derivatives0.66 0.65 
Core loan spread1.77 %1.36 %
Average balance of AGM's loans$14,764,466 18,063,787 
Average balance of AGM's debt outstanding14,352,548 17,777,230 

(a)    During each of the fourth quarters of 2022 and 2021, the company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its loans which resulted in a $8.4 million increase and a $6.2 million decrease, respectively, to interest income. The impact of these adjustments was excluded from the table above.
(b)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the company’s net interest income (loan spread) as presented in this table.
A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without derivative settlements follows.
Three months ended December 31,
20222021
Core loan spread1.77 %1.36 %
Derivative settlements (1:3 basis swaps)0.01 0.02 
Derivative settlements (fixed rate floor income)(0.59)0.11 
Loan spread1.19 %1.49 %
(c)    Derivative settlements consist of net settlements paid related to the company’s 1:3 basis swaps.
(d)    Derivative settlements consist of net settlements received (paid) related to the company’s floor income interest rate swaps.



Net interest income, net of settlements on derivatives
The following table summarizes the components of "net interest income" and "derivative settlements, net" from the AGM segment statements of income.
Three months ended December 31,
20222021
Variable interest income, gross$242,241 119,994 
Consolidation rebate fees(30,243)(38,566)
Discount accretion, net of premium and deferred origination costs amortization10,341 (5,123)
Variable interest income, net222,339 76,305 
Interest on bonds and notes payable(167,846)(47,459)
Derivative settlements (basis swaps), net (a)(448)(699)
Variable loan interest margin, net of settlements on derivatives (a)54,045 28,147 
Fixed rate floor income, gross2,510 34,577 
Derivative settlements (interest rate swaps), net (a)21,306 (5,081)
Fixed rate floor income, net of settlements on derivatives (a)23,816 29,496 
Core loan interest income (a)77,861 57,643 
Investment interest9,782 7,871 
Intercompany interest(8,334)(1,177)
Net interest income (net of settlements on derivatives) (a)$79,309 64,337 

(a)    Core loan interest income and net interest income (net of settlements on derivatives) are non-GAAP financial measures. For an explanation of GAAP accounting for derivative settlements and the reasons why the company reports these non-GAAP measures, see footnote (b) to the table immediately under the caption "Core loan spread" above.
A reconciliation of net interest income (net of settlements on derivatives) to net interest income for the company's AGM segment follows.
Three months ended December 31,
20222021
Net interest income (net of settlements on derivatives)$79,309 64,337 
Derivative settlements (1:3 basis swaps)448 699 
Derivative settlements (fixed rate floor income)(21,306)5,081 
Net interest income$58,451 70,117