Nelnet Reports Fourth Quarter 2021 Results
Nelnet reported GAAP net income of $132.7 million or $3.46 per share for Q4 2021, down from $235.0 million or $6.10 per share in Q4 2020. Excluding market adjustments, net income was $95.9 million or $2.50 per share, compared to $240.4 million or $6.23 per share a year prior. Despite challenges, the company is optimistic about its operations and investments. The AGM segment saw net income increase to $108.7 million, while Loan Servicing revenue rose to $150.4 million. GAAP net income for 2021 was $393.3 million, up from $352.4 million in 2020.
- Net income for the AGM segment increased to $108.7 million from $62.6 million in 2020.
- Loan Servicing and Systems revenue rose to $150.4 million from $114.0 million in the prior year.
- GAAP net income for the year was $393.3 million, an increase from $352.4 million in 2020.
- GAAP net income for Q4 2021 decreased to $132.7 million from $235.0 million in Q4 2020.
- Net income, excluding derivative adjustments, declined to $95.9 million from $240.4 million year-over-year.
- AGM's net interest income dropped to $70.1 million from $84.3 million in the same quarter last year.
LINCOLN, Neb., Feb. 28, 2022 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of
Net income, excluding derivative market value adjustments1, was
"2021 was a tremendous year for Nelnet," said Jeff Noordhoek, chief executive officer of Nelnet. "We advanced our purpose to serve others and make dreams possible for our customers. Even with the complexity of the ongoing pandemic, our core operating businesses excelled, delivering better than expected results and increasing our team to almost 8,000 associates. Looking ahead, we are optimistic about our operations and investments in existing and new opportunities, but we also anticipate choppy earnings over the quarters as our investment portfolio grows."
Certain Items Impacting Comparability
In October 2021, the joint venture that purchased the former Wells Fargo private education loan portfolio and in which the company has an approximate 8 percent interest, completed a final securitization that permanently financed all remaining eligible private education loans purchased by the joint venture. Upon completing the securitization, the company's financial commitment to the joint venture was terminated and the company recognized
Also in October 2021, an entity in which the company has an equity investment completed an additional equity raise. As a result, the company recognized income of
During the fourth quarter of 2020, the company recognized a gain of
Operating Segments
Nelnet currently operates four primary business segments, earning interest income on loans in its Asset Generation and Management (AGM) segment and fee-based revenue in its Loan Servicing and Systems segment and Education Technology, Services, and Payment Processing segment. On November 2, 2020, Nelnet Bank launched operations and its financial results are presented by the company as a reportable segment.
Asset Generation and Management
The AGM operating segment reported net interest income of
AGM recognized a negative provision for loan losses in the fourth quarter of 2021 of
Net income for the AGM segment was
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment was
As of December 31, 2021, the company was servicing
Net income for the Loan Servicing and Systems segment was
Education Technology, Services, and Payment Processing
For the fourth quarter of 2021, revenue from the Education Technology, Services, and Payment Processing operating segment was
Operating expenses increased for the fourth quarter of 2021 compared with the same period in 2020 to support customer growth, technology investments, and the acquisitions of HigherSchool and CD2.
Net income for the Education Technology, Services, and Payment Processing segment was
Nelnet Bank
As of December 31, 2021, Nelnet Bank had a
Year-End Results
GAAP net income for the year ended December 31, 2021 was
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of federal securities laws. The words "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "forecast," "future," "intend," "may," "plan," "potential," "predict," "scheduled," "should," "will," "would," and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: risks and uncertainties related to the severity, magnitude, and duration of the COVID-19 pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions resulting from the pandemic; risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the company under existing and any future servicing contracts with the Department, which current contracts accounted for 29 percent of the company's revenue in 2021; risks to the company related to the Department's initiatives to procure new contracts for federal student loan servicing and awards of contracts to other parties, including the pending and uncertain nature of the Department's procurement process, risks that the company may not be successful in obtaining any of such potential new contracts, and risks related to the company's ability to comply with agreements with third-party customers for the servicing of loans; risks related to the company's loan portfolio, such as interest rate basis and repricing risk and changes in levels of loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; the uncertain nature of expected benefits from FFEL Program, private education, and consumer loan purchases and initiatives to purchase additional FFEL Program, private education, and consumer loans or interests therein; financing and liquidity risks, including risks of changes in the securitization and other financing markets for loans; risks and uncertainties from changes in terms of education loans and in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the CARES Act and the expected decline over time in FFEL Program loan interest income due to the discontinuation of new FFEL Program loan originations in 2010 and the resulting initiatives by the company to adjust to a post-FFEL Program environment, as well as the possibility of new student loan forgiveness or broad debt cancellation programs by the government or other incentives to consolidate away from existing FFEL Program loans; risks and uncertainties of the expected benefits from the November 2020 launch of Nelnet Bank operations, including the ability to successfully conduct banking operations and achieve expected market penetration; risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, including activities that are intended to diversify the company both within and outside of its historical core education-related businesses; risks from changes in economic conditions and consumer behavior; cybersecurity risks, including disruptions to systems, disclosure of confidential information, and/or damage to reputation resulting from cyber-breaches; and changes in the general interest rate environment, including the availability of any relevant money-market index rate such as LIBOR or the relationship between the relevant money-market index rate and the rate at which the company's assets and liabilities are priced.
For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the fourth quarter ended December 31, 2021. 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 | Year ended | ||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | |||||
Interest income: | |||||||||
Loan interest | $ 112,118 | 124,096 | 132,673 | 482,337 | 595,113 | ||||
Investment interest | 12,376 | 12,558 | 6,165 | 41,498 | 24,543 | ||||
Total interest income | 124,494 | 136,654 | 138,838 | 523,835 | 619,656 | ||||
Interest expense: | |||||||||
Interest on bonds and notes payable and bank deposits | 48,294 | 50,176 | 52,282 | 176,233 | 330,071 | ||||
Net interest income | 76,200 | 86,478 | 86,556 | 347,602 | 289,585 | ||||
Less (negative provision) provision for loan losses | (1,578) | 5,827 | (10,116) | (12,426) | 63,360 | ||||
Net interest income after provision for loan losses | 77,778 | 80,651 | 96,672 | 360,028 | 226,225 | ||||
Other income/expense: | |||||||||
Loan servicing and systems revenue | 150,402 | 112,351 | 113,990 | 486,363 | 451,561 | ||||
Education technology, services, and payment processing revenue | 80,950 | 85,324 | 65,097 | 338,234 | 282,196 | ||||
Communications revenue | — | — | 19,253 | — | 76,643 | ||||
Other | 48,497 | 11,867 | (12,350) | 78,681 | 57,561 | ||||
Gain on sale of loans | — | 3,444 | — | 18,715 | 33,023 | ||||
Gain from deconsolidation of ALLO | — | — | 258,588 | — | 258,588 | ||||
Impairment expense and provision for beneficial interests, net | (4,137) | (14,159) | 9,696 | (16,360) | (24,723) | ||||
Derivative market value adjustments and derivative settlements, net | 42,579 | 1,351 | (11,059) | 71,446 | (24,465) | ||||
Total other income/expense | 318,291 | 200,178 | 443,215 | 977,079 | 1,110,384 | ||||
Cost of services: | |||||||||
Cost to provide education technology, services, and payment processing services | 28,597 | 31,335 | 18,782 | 108,660 | 82,206 | ||||
Cost to provide communications services | — | — | 5,573 | — | 22,812 | ||||
Total cost of services | 28,597 | 31,335 | 24,355 | 108,660 | 105,018 | ||||
Operating expenses: | |||||||||
Salaries and benefits | 143,781 | 128,592 | 136,612 | 507,132 | 501,832 | ||||
Depreciation and amortization | 17,612 | 15,710 | 31,350 | 73,741 | 118,699 | ||||
Other expenses | 37,857 | 38,324 | 45,391 | 145,469 | 160,574 | ||||
Total operating expenses | 199,250 | 182,626 | 213,353 | 726,342 | 781,105 | ||||
Income before income taxes | 168,222 | 66,868 | 302,179 | 502,105 | 450,486 | ||||
Income tax expense | (39,075) | (15,649) | (70,573) | (115,822) | (100,860) | ||||
Net income | 129,147 | 51,219 | 231,606 | 386,283 | 349,626 | ||||
Net loss attributable to noncontrolling interests | 3,536 | 1,919 | 3,385 | 7,003 | 2,817 | ||||
Net income attributable to Nelnet, Inc. | $ 132,683 | 53,138 | 234,991 | 393,286 | 352,443 | ||||
Earnings per common share: | |||||||||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted | $ 3.46 | 1.38 | 6.10 | 10.20 | 9.02 | ||||
Weighted average common shares outstanding - basic and diluted | 38,352,942 | 38,595,721 | 38,552,261 | 38,572,801 | 39,059,588 | ||||
Condensed Consolidated Balance Sheets | |||||
(Dollars in thousands) | |||||
(unaudited) | |||||
As of | As of | As of | |||
December 31, 2021 | September 30, 2021 | December 31, 2020 | |||
Assets: | |||||
Loans and accrued interest receivable, net | $ 18,335,197 | 19,304,203 | 20,185,656 | ||
Cash, cash equivalents, and investments | 1,714,482 | 1,566,849 | 1,114,189 | ||
Restricted cash | 1,068,626 | 1,059,142 | 837,146 | ||
Goodwill and intangible assets, net | 194,121 | 197,268 | 217,162 | ||
Other assets | 365,615 | 275,277 | 292,007 | ||
Total assets | $ 21,678,041 | 22,402,739 | 22,646,160 | ||
Liabilities: | |||||
Bonds and notes payable | $ 17,631,089 | 18,610,748 | 19,320,726 | ||
Bank deposits | 344,315 | 200,651 | 54,633 | ||
Other liabilities | 749,799 | 734,377 | 642,452 | ||
Total liabilities | 18,725,203 | 19,545,776 | 20,017,811 | ||
Equity: | |||||
Total Nelnet, Inc. shareholders' equity | 2,951,206 | 2,859,254 | 2,632,042 | ||
Noncontrolling interests | 1,632 | (2,291) | (3,693) | ||
Total equity | 2,952,838 | 2,856,963 | 2,628,349 | ||
Total liabilities and equity | $ 21,678,041 | 22,402,739 | 22,646,160 | ||
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, | ||||||
2021 | 2020 | 2021 | 2020 | ||||
GAAP net income attributable to Nelnet, Inc. | $ 132,683 | 234,991 | 393,286 | 352,443 | |||
Realized and unrealized derivative market value adjustments (a) | (48,359) | 7,071 | (92,813) | 28,144 | |||
Tax effect (b) | 11,606 | (1,697) | 22,275 | (6,755) | |||
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments | $ 95,930 | 240,365 | 322,748 | 373,832 | |||
Earnings per share: | |||||||
GAAP net income attributable to Nelnet, Inc. | $ 3.46 | 6.10 | 10.20 | 9.02 | |||
Realized and unrealized derivative market value adjustments (a) | (1.26) | 0.18 | (2.41) | 0.72 | |||
Tax effect (b) | 0.30 | (0.05) | 0.58 | (0.17) | |||
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments | $ 2.50 | 6.23 | 8.37 | 9.57 | |||
(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, | |||
2021 | 2020 | ||
Variable loan yield, gross | 2.62 % | 2.76 % | |
Consolidation rebate fees | (0.85) | (0.84) | |
Discount accretion, net of premium and deferred origination costs amortization (a) | 0.02 | 0.01 | |
Variable loan yield, net | 1.79 | 1.93 | |
Loan cost of funds - interest expense | (1.06) | (1.08) | |
Loan cost of funds - derivative settlements (b) (c) | (0.02) | (0.00) | |
Variable loan spread | 0.71 | 0.85 | |
Fixed rate floor income, gross | 0.76 | 0.73 | |
Fixed rate floor income - derivative settlements (b) (d) | (0.11) | (0.08) | |
Fixed rate floor income, net of settlements on derivatives | 0.65 | 0.65 | |
Core loan spread | 1.36 % | 1.50 % | |
Average balance of AGM's loans | $ 18,063,787 | 19,753,650 | |
Average balance of AGM's debt outstanding | 17,777,230 | 19,402,942 | |
(a) | During the fourth quarter of 2021, the company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its consolidation loans from 3 percent to 4 percent that resulted in a |
(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, | |||
2021 | 2020 | ||
Core loan spread | 1.36 % | 1.50 % | |
Derivative settlements (1:3 basis swaps) | 0.02 | 0.00 | |
Derivative settlements (fixed rate floor income) | 0.11 | 0.08 | |
Loan spread | 1.49 % | 1.58 % | |
(c) | Derivative settlements consist of net settlements paid related to the company's 1:3 basis swaps. |
(d) | Derivative settlements consist of net settlements 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, | |||
2021 | 2020 | ||
Variable interest income, gross | $ 119,994 | 137,838 | |
Consolidation rebate fees | (38,566) | (41,641) | |
Discount accretion, net of premium and deferred origination costs amortization | (5,123) | 246 | |
Variable interest income, net | 76,305 | 96,443 | |
Interest on bonds and notes payable | (47,459) | (52,435) | |
Derivative settlements (basis swaps), net (a) | (699) | (60) | |
Variable loan interest margin, net of settlements on derivatives (a) | 28,147 | 43,948 | |
Fixed rate floor income, gross | 34,577 | 36,202 | |
Derivative settlements (interest rate swaps), net (a) | (5,081) | (3,928) | |
Fixed rate floor income, net of settlements on derivatives (a) | 29,496 | 32,274 | |
Core loan interest income (a) | 57,643 | 76,222 | |
Investment interest | 7,871 | 4,361 | |
Intercompany interest | (1,177) | (230) | |
Net interest income (net of settlements on derivatives) (a) | $ 64,337 | 80,353 | |
(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, | ||||
2021 | 2020 | |||
Net interest income (net of settlements on derivatives) | $ 64,337 | 80,353 | ||
Derivative settlements (1:3 basis swaps) | 699 | 60 | ||
Derivative settlements (fixed rate floor income) | 5,081 | 3,928 | ||
Net interest income | $ 70,117 | 84,341 | ||
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. | |||||||||
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SOURCE Nelnet, Inc.
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