Nelnet Reports Fourth Quarter 2022 Results
Nelnet reported a GAAP net income of $30.8 million ($0.83 per share) for Q4 2022, a significant decline from $132.7 million ($3.46 per share) year-over-year. Excluding derivative market adjustments, net income was $36.4 million ($0.98 per share), down from $95.9 million ($2.50 per share) in 2021. Despite strong performance in core businesses, the company anticipates earnings volatility due to loan runoff. The Asset Generation and Management segment experienced a $58.5 million net interest income, down from $70.1 million, and a provision for loan losses of $27.4 million. Total 2022 GAAP net income rose to $407.3 million, or $10.83 per share.
- GAAP net income for 2022 increased to $407.3 million, or $10.83 per share.
- Revenue from the Education Technology and Services segment increased from $81.0 million in Q4 2021 to $98.3 million in Q4 2022.
- Core loan spread increased to 1.77% for Q4 2022, compared to 1.36% for Q4 2021.
- Nelnet Bank reported net income of $1.4 million for Q4 2022, reversing a loss from Q4 2021.
- GAAP net income for Q4 2022 dropped to $30.8 million from $132.7 million in Q4 2021.
- Net interest income in the AGM segment decreased to $58.5 million from $70.1 million year-over-year.
- Provision for loan losses increased significantly to $27.4 million in Q4 2022 from a negative provision of $2.0 million in Q4 2021.
- Loan Servicing and Systems segment revenue declined from $150.4 million in Q4 2021 to $140.0 million in Q4 2022.
Net income, excluding derivative market value adjustments1, was
"Our core businesses, including servicing, payments and education technology, and financial services performed very well in 2022," said
Operating Segments
Asset Generation and Management
The AGM operating segment reported net interest income of
Core loan spread2, which includes the impact of derivative settlements, increased to 1.77 percent for the quarter ended
Net income after tax for the AGM segment was
AGM recognized a provision for loan losses in the fourth quarter of 2022 of
As of
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment was
As of
The Loan Servicing and Systems segment reported net income after tax of
Education Technology, Services, and Payment Processing
For the fourth quarter of 2022, revenue from the Education Technology, Services, and Payment Processing operating segment was
Net income after tax for the Education Technology, Services, and Payment Processing segment was
Included in net income for the three months ended
Year-End Results
GAAP net income for the year ended
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
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
Non-GAAP Performance Measures
The company prepares its financial statements and presents its financial results in accordance with
Consolidated Statements of Income | |||||||||
(Dollars in thousands, except share data) | |||||||||
(unaudited) | |||||||||
Three months ended | Year ended | ||||||||
December | September | December | December | December | |||||
Interest income: | |||||||||
Loan interest | $ 228,878 | 176,244 | 112,118 | 651,205 | 482,337 | ||||
Investment interest | 34,012 | 26,889 | 12,376 | 91,601 | 41,498 | ||||
Total interest income | 262,890 | 203,133 | 124,494 | 742,806 | 523,835 | ||||
Interest expense on bonds and notes payable and | 181,790 | 126,625 | 48,294 | 430,137 | 176,233 | ||||
Net interest income | 81,100 | 76,508 | 76,200 | 312,669 | 347,602 | ||||
Less provision (negative provision) for loan losses | 27,801 | 9,665 | (1,578) | 46,441 | (12,426) | ||||
Net interest income after provision for loan losses | 53,299 | 66,843 | 77,778 | 266,228 | 360,028 | ||||
Other income (expense): | |||||||||
Loan servicing and systems revenue | 140,021 | 134,197 | 150,402 | 535,459 | 486,363 | ||||
Education technology, services, and payment | 98,332 | 106,894 | 80,950 | 408,543 | 338,234 | ||||
Solar construction revenue | 15,186 | 9,358 | — | 24,543 | — | ||||
Other, net | 735 | 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 | (9,361) | 121 | (4,137) | (15,523) | (16,360) | ||||
Derivative market value adjustments and derivative | 13,424 | 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 | 39,330 | 42,676 | 28,597 | 148,403 | 108,660 | ||||
Cost to provide solar construction services | 14,004 | 5,968 | — | 19,971 | — | ||||
Total cost of services | 53,334 | 48,644 | 28,597 | 168,374 | 108,660 | ||||
Operating expenses: | |||||||||
Salaries and benefits | 151,568 | 147,198 | 143,781 | 589,579 | 507,132 | ||||
Depreciation and amortization | 20,099 | 18,772 | 17,612 | 74,077 | 73,741 | ||||
Other expenses | 50,481 | 43,858 | 37,857 | 170,778 | 145,469 | ||||
Total operating expenses | 222,148 | 209,828 | 199,250 | 834,434 | 726,342 | ||||
Income before income taxes | 33,441 | 127,055 | 168,222 | 509,465 | 502,105 | ||||
Income tax expense | (5,459) | (26,586) | (39,075) | (113,224) | (115,822) | ||||
Net income | 27,982 | 100,469 | 129,147 | 396,241 | 386,283 | ||||
Net loss attributable to noncontrolling interests | 2,791 | 4,329 | 3,536 | 11,106 | 7,003 | ||||
Net income attributable to | $ 30,773 | 104,798 | 132,683 | 407,347 | 393,286 | ||||
Earnings per common share: | |||||||||
Net income attributable to | $ 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 of | As of | As of | |||
Assets: | |||||
Loans and accrued interest receivable, net | $ 15,243,889 | 15,876,251 | 18,335,197 | ||
Cash, cash equivalents, and investments | 2,230,063 | 2,126,712 | 1,714,482 | ||
Restricted cash | 1,239,470 | 980,131 | 1,068,626 | ||
240,403 | 242,401 | 194,121 | |||
Other assets | 420,219 | 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 deposits | 691,322 | 580,825 | 344,315 | ||
Other liabilities | 845,625 | 773,754 | 749,799 | ||
Total liabilities | 16,174,142 | 16,397,174 | 18,725,203 | ||
Equity: | |||||
3,198,959 | 3,180,614 | 2,951,206 | |||
Noncontrolling interests | 943 | (14,255) | 1,632 | ||
Total equity | 3,199,902 | 3,166,359 | 2,952,838 | ||
Total liabilities and equity | $ 19,374,044 | 19,563,533 | 21,678,041 | ||
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 | Year ended | ||||||
2022 | 2021 | 2022 | 2021 | ||||
GAAP net income attributable to | $ 30,773 | 132,683 | 407,347 | 393,286 | |||
Realized and unrealized derivative market value | 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 | $ 36,423 | 95,930 | 231,262 | 322,748 | |||
Earnings per share: | |||||||
GAAP net income attributable to | $ 0.83 | 3.46 | 10.83 | 10.20 | |||
Realized and unrealized derivative market value | 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 | $ 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 | |||
Three months ended | |||
2022 | 2021 | ||
Variable loan yield, gross | 6.52 % | 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, net | 5.76 | 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 spread | 1.11 | 0.71 | |
Fixed rate floor income, gross | 0.07 | 0.76 | |
Fixed rate floor income - derivative settlements (b) (d) | 0.59 | (0.11) | |
Fixed rate floor income, net of settlements on derivatives | 0.66 | 0.65 | |
Core loan spread | 1.77 % | 1.36 % | |
Average balance of AGM's loans | $ 14,764,466 | 18,063,787 | |
Average balance of AGM's debt outstanding | 14,352,548 | 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 |
(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 | |||
Three months ended | |||
2022 | 2021 | ||
Core loan spread | 1.77 % | 1.36 % | |
Derivative settlements (1:3 basis swaps) | 0.01 | 0.02 | |
Derivative settlements (fixed rate floor income) | (0.59) | 0.11 | |
Loan spread | 1.19 % | 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 | |||
Three months ended | |||
2022 | 2021 | ||
Variable interest income, gross | $ 242,241 | 119,994 | |
Consolidation rebate fees | (30,243) | (38,566) | |
Discount accretion, net of premium and deferred origination costs amortization | 10,341 | (5,123) | |
Variable interest income, net | 222,339 | 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, gross | 2,510 | 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 interest | 9,782 | 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 | ||||
Three months ended | ||||
2022 | 2021 | |||
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 | ||
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. |
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FAQ
What was Nelnet's net income for Q4 2022?
How did Nelnet's revenue in the Education Technology segment change in Q4 2022?
What impact did loan loss provisions have on Nelnet's Q4 2022 results?
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How did Nelnet's overall GAAP net income for 2022 compare to 2021?
