NELNET INC [NNI] Filings

10-Q 1 nni-20220331.htm 10-Q nni-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-31924

NELNET, INC.

(Exact name of registrant as specified in its charter)


Nebraska		84-0748903
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

121 South 13th Street, Suite 100
Lincoln,	Nebraska	68508
(Address of principal executive offices)		(Zip Code)

(402) 458-2370

(Registrant’s telephone number, including area code)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2022, there were 26,994,698 and 10,674,892 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding a total of 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).

NELNET, INC.

FORM 10-Q

INDEX

March 31, 2022


PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	2
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
	Item 4.	Controls and Procedures	58

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	58
	Item 1A.	Risk Factors	58
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
	Item 6.	Exhibits	60

Signatures			61

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
	As of		As of
	March 31, 2022		December 31, 2021
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $117,825 and $127,113, respectively)	$	17,621,576	18,335,197
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party	36,111		30,128
Cash and cash equivalents - held at a related party	126,674		95,435
Total cash and cash equivalents	162,785		125,563
Investments	1,649,578		1,588,919
Restricted cash	757,954		741,981
Restricted cash - due to customers	256,927		326,645
Accounts receivable (net of allowance for doubtful accounts of $1,098 and $1,160, respectively)	144,902		163,315
Goodwill	142,092		142,092
Intangible assets, net	49,544		52,029
Property and equipment, net	120,779		119,413
Other assets	83,604		82,887

Total assets	$	20,989,741	21,678,041
Liabilities:
Bonds and notes payable	$	16,736,701	17,631,089
Accrued interest payable	7,216		4,566
Bank deposits	484,047		344,315
Other liabilities	400,523		379,231
Due to customers	276,191		366,002

Total liabilities	17,904,678		18,725,203
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	—		—
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,151,270 shares and 27,239,654 shares, respectively	272		272
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,674,892 shares and 10,676,642 shares, respectively	107		107
Additional paid-in capital	1,208		1,000
Retained earnings	3,092,226		2,940,523
Accumulated other comprehensive (loss) earnings, net	(5,500)		9,304
Total Nelnet, Inc. shareholders' equity	3,088,313		2,951,206
Noncontrolling interests	(3,250)		1,632
Total equity	3,085,063		2,952,838
Total liabilities and equity	$	20,989,741	21,678,041

Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:
Loans and accrued interest receivable	$	17,162,119	17,981,414
Restricted cash	666,369		674,073

Bonds and notes payable	(16,660,541)		(17,462,456)
Accrued interest payable and other liabilities	(48,267)		(36,276)

Net assets of consolidated education and other lending variable interest entities	$	1,119,680	1,156,755

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
	Three months ended
	March 31,
	2022		2021
Interest income:
Loan interest	$	111,377	124,117
Investment interest	13,819		4,986
Total interest income	125,196		129,103
Interest expense on bonds and notes payable and bank deposits	48,079		27,773
Net interest income	77,117		101,330
Less negative provision for loan losses	(435)		(17,048)
Net interest income after provision for loan losses	77,552		118,378
Other income/expense:
Loan servicing and systems revenue	136,368		111,517
Education technology, services, and payment processing revenue	112,286		95,258

Other	9,877		(2,168)
Gain on sale of loans	2,989		—


Derivative market value adjustments and derivative settlements, net	142,925		34,505
Total other income/expense	404,445		239,112
Cost to provide education technology, services, and payment processing services	35,545		27,052


Operating expenses:
Salaries and benefits	149,414		115,791
Depreciation and amortization	16,956		20,184


Other expenses	39,499		36,698
Total operating expenses	205,869		172,673
Income before income taxes	240,583		157,765
Income tax expense	55,697		34,861
Net income	184,886		122,904
Net loss attributable to noncontrolling interests	1,761		694
Net income attributable to Nelnet, Inc.	$	186,647	123,598
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	4.91	3.20
Weighted average common shares outstanding - basic and diluted	38,041,834		38,603,555

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
	Three months ended March 31,
	2022			2021
Net income		$	184,886		122,904
Other comprehensive (loss) income:
Net changes related to foreign currency translation adjustments	$	9			1
Net changes related to available-for-sale debt securities:
Unrealized holding (losses) gains arising during period, net	(16,698)			4,349
Reclassification of gains recognized in net income, net of losses	(2,793)			(508)
Income tax effect	4,678	(14,813)		(922)	2,919
Other comprehensive (loss) income		(14,804)			2,920
Comprehensive income		170,082			125,824
Comprehensive loss attributable to noncontrolling interests		1,761			694
Comprehensive income attributable to Nelnet, Inc.		$	171,843		126,518

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
	Nelnet, Inc. Shareholders
	Preferred stock shares	Common stock shares		Preferred stock		Class A common stock	Class B common stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive (loss) earnings	Noncontrolling interests	Total equity
		Class A	Class B
Balance as of December 31, 2020	—	27,193,154	11,155,571	$	—	272	112	3,794	2,621,762	6,102	(3,693)	2,628,349
Issuance of noncontrolling interests	—	—	—	—		—	—	—	—	—	1,400	1,400
Net income (loss)	—	—	—	—		—	—	—	123,598	—	(694)	122,904
Other comprehensive income	—	—	—	—		—	—	—	—	2,920	—	2,920
Distribution to noncontrolling interests	—	—	—	—		—	—	—	—	—	(102)	(102)
Cash dividends on Class A and Class B common stock - $0.22 per share	—	—	—	—		—	—	—	(8,437)	—	—	(8,437)
Issuance of common stock, net of forfeitures	—	199,442	—	—		2	—	2,089	—	—	—	2,091
Compensation expense for stock based awards	—	—	—	—		—	—	1,985	—	—	—	1,985
Repurchase of common stock	—	(26,199)	—	—		—	—	(2,009)	—	—	—	(2,009)

Conversion of common stock	—	1,400	(1,400)	—		—	—	—	—	—	—	—



Balance as of March 31, 2021	—	27,367,797	11,154,171	$	—	274	112	5,859	2,736,923	9,022	(3,089)	2,749,101

Balance as of December 31, 2021	—	27,239,654	10,676,642	$	—	272	107	1,000	2,940,523	9,304	1,632	2,952,838
Issuance of noncontrolling interests	—	—	—	—		—	—	—	—	—	2,004	2,004
Net income (loss)	—	—	—	—		—	—	—	186,647	—	(1,761)	184,886
Other comprehensive loss	—	—	—	—		—	—	—	—	(14,804)	—	(14,804)
Distribution to noncontrolling interests	—	—	—	—		—	—	—	—	—	(5,125)	(5,125)
Cash dividends on Class A and Class B common stock - $0.24 per share	—	—	—	—		—	—	—	(9,063)	—	—	(9,063)
Issuance of common stock, net of forfeitures	—	289,919	—	—		3	—	4,382	—	—	—	4,385
Compensation expense for stock based awards	—	—	—	—		—	—	2,841	—	—	—	2,841
Repurchase of common stock	—	(380,053)	—	—		(3)	—	(7,015)	(25,881)	—	—	(32,899)

Conversion of common stock	—	1,750	(1,750)	—		—	—	—	—	—	—	—



Balance as of March 31, 2022	—	27,151,270	10,674,892	$	—	272	107	1,208	3,092,226	(5,500)	(3,250)	3,085,063

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
	Three months ended
	March 31,
	2022		2021
Net income attributable to Nelnet, Inc.	$	186,647	123,598
Net loss attributable to noncontrolling interests	(1,761)		(694)
Net income	184,886		122,904
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs	36,335		38,415
Loan discount accretion	(9,927)		(7,218)
Negative provision for loan losses	(435)		(17,048)
Derivative market value adjustments	(145,734)		(38,809)



Proceeds from clearinghouse - initial and variation margin, net of payments	149,649		38,081

Gain on sale of loans	(2,989)		—


Loss on investments, net	2,801		13,849

Proceeds from sale (purchases) of equity securities, net	572		(13,512)
Deferred income tax expense	39,443		15,405
Non-cash compensation expense	2,920		2,052
Negative provision for beneficial interests	—		(2,436)
Decrease (increase) in loan and investment accrued interest receivable	10,694		(114)
Decrease (increase) in accounts receivable	18,442		(3,831)
(Increase) decrease in other assets, net	(1,963)		5,147
Decrease in the carrying amount of ROU asset, net	1,439		1,418
Increase (decrease) in accrued interest payable	2,650		(23,174)
Decrease in other liabilities, net	(11,824)		(10,375)
Decrease in the carrying amount of lease liability	(1,500)		(1,247)
Decrease in due to customers	(89,884)		(70,849)
Other	(110)		—
Net cash provided by operating activities	185,465		48,658
Cash flows from investing activities:
Purchases and originations of loans	(161,334)		(152,329)
Purchases of loans from a related party	(1,049)		(19,731)
Net proceeds from loan repayments, claims, and capitalized interest	848,188		637,275
Proceeds from sale of loans	15,170		—
Purchases of available-for-sale securities	(139,195)		(44,335)
Proceeds from sales of available-for-sale securities	113,980		18,077
Proceeds from beneficial interest in loan securitizations	7,271		8,603
Purchases of other investments	(73,944)		(71,590)
Proceeds from other investments	9,776		110,290
Purchases of property and equipment	(15,794)		(17,898)



Net cash provided by investing activities	603,069		468,362


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
	Three months ended
	March 31,
	2022		2021
Cash flows from financing activities:
Payments on bonds and notes payable	$	(918,270)	(584,303)
Proceeds from issuance of bonds and notes payable	13,512		7,800
Payments of debt issuance costs	(312)		(614)


Increase in bank deposits, net	139,732		57,197
Dividends paid	(9,063)		(8,437)
Repurchases of common stock	(32,899)		(2,009)
Proceeds from issuance of common stock	435		381

Issuance of noncontrolling interests	2,004		1,940
Distribution to noncontrolling interests	(365)		(102)
Net cash used in financing activities	(805,226)		(528,147)
Effect of exchange rate changes on cash	169		(77)
Net decrease in cash, cash equivalents, and restricted cash	(16,523)		(11,204)
Cash, cash equivalents, and restricted cash, beginning of period	1,194,189		958,395
Cash, cash equivalents, and restricted cash, end of period	$	1,177,666	947,191


Supplemental disclosures of cash flow information:
Cash disbursements made for interest	$	33,895	39,686
Cash disbursements made for income taxes, net of refunds and credits received (a)	$	466	199
Cash disbursements made for operating leases	$	1,887	2,098
Non-cash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations	$	746	740
Receipt of beneficial interest in consumer loan securitization	$	3,660	—
Distribution to noncontrolling interests	$	4,760	—
Issuance of noncontrolling interests	$	—	540

(a) The Company utilized $1.1 million and $2.0 million of federal and state tax credits related primarily to renewable energy during the three months ended March 31, 2022 and 2021, respectively.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.


	As of		As of	As of	As of
	March 31, 2022		December 31, 2021	March 31, 2021	December 31, 2020
Total cash and cash equivalents	$	162,785	125,563	144,229	121,249
Restricted cash	757,954		741,981	609,881	553,175
Restricted cash - due to customers	256,927		326,645	193,081	283,971
Cash, cash equivalents, and restricted cash	$	1,177,666	1,194,189	947,191	958,395

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts, unless otherwise noted)

(unaudited)

1. Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2021 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 2022. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report").

2. Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:


	As of		As of
	March 31, 2022		December 31, 2021
Non-Nelnet Bank:
Federally insured student loans:
Stafford and other	$	3,741,495	3,904,000
Consolidation	12,553,882		13,187,047
Total	16,295,377		17,091,047
Private education loans	278,537		299,442
Consumer loans	44,713		51,301
Non-Nelnet Bank loans	16,618,627		17,441,790
Nelnet Bank:
Federally insured student loans	82,789		88,011



Private education loans	285,468		169,890

Nelnet Bank loans	368,257		257,901

Accrued interest receivable	774,774		788,552
Loan discount, net of unamortized loan premiums and deferred origination costs	(22,257)		(25,933)

Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans	(95,995)		(103,381)
Private education loans	(14,622)		(16,143)
Consumer loans	(5,710)		(6,481)
Non-Nelnet Bank allowance for loan losses	(116,327)		(126,005)
Nelnet Bank:
Federally insured loans	(247)		(268)
Private education loans	(1,251)		(840)

Nelnet Bank allowance for loan losses	(1,498)		(1,108)
	$	17,621,576	18,335,197

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
	March 31, 2022		December 31, 2021
Non-Nelnet Bank:
Federally insured student loans (a)	0.59	%	0.60	%
Private education loans	5.25	%	5.39	%
Consumer loans	12.77	%	12.63	%
Nelnet Bank:
Federally insured student loans (a)	0.30	%	0.30	%
Private education loans	0.44	%	0.49	%

(a) As of March 31, 2022 and December 31, 2021, 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 21.6% and 22.2%, respectively, and for Nelnet Bank was 11.8% and 12.1%, respectively.

Gain on Sale of Loans

On January 26, 2022, the Company sold $18.1 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a gain of $3.0 million (pre-tax) as part of this transaction. As partial consideration received for the consumer loans sold, the Company received a 6.6 percent residual interest in the consumer loan securitization, which is included in "investments" on the Company's consolidated balance sheet.

Activity in the Allowance for Loan Losses

The following table presents the activity in the allowance for loan losses by portfolio segment.


	Balance at beginning of period		Provision (negative provision) for loan losses	Charge-offs	Recoveries	Initial allowance on loans purchased with credit deterioration (a)	Loan sales	Balance at end of period
	Three months ended March 31, 2022
Non-Nelnet Bank:
Federally insured loans	$	103,381	(2,748)	(4,761)	—	123	—	95,995
Private education loans	16,143		(400)	(1,299)	176	—	2	14,622
Consumer loans	6,481		2,284	(937)	166	—	(2,284)	5,710
Nelnet Bank:
Federally insured loans	268		(21)	—	—	—	—	247
Private education loans	840		426	(13)	—	—	(2)	1,251

	$	127,113	(459)	(7,010)	342	123	(2,284)	117,825

	Three months ended March 31, 2021
Non-Nelnet Bank:
Federally insured loans	$	128,590	(7,483)