Based on the provided financial report, the title of the article is: "NELNET, INC. FORM 10-K

Press release·02/28/2025 01:39:22

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NELNET, INC. filed its annual report for the fiscal year ended December 31, 2024, reporting a market value of its voting common stock held by non-affiliates of $1,643,141,426. The company’s Class A Common Stock is listed on the New York Stock Exchange under the ticker symbol NNI. As of January 31, 2025, there were 25,634,449 and 10,658,604 shares of Class A and Class B Common Stock outstanding, respectively. The company’s financial statements reflect the correction of an error to previously issued financial statements and include an auditor’s report from KPMG LLP. The report also includes information on the company’s executive officers, directors, and corporate governance, as well as a discussion of the company’s business, financial condition, and results of operations.

Overview

Nelnet is a diversified hybrid holding company with primary businesses in consumer lending, loan servicing, payments, and technology - with many of these businesses serving customers in the education space. The company was formed in 1978 to service federal student loans and has since expanded its services and products through internal growth and acquisitions.

A significant portion of Nelnet’s revenue comes from net interest income earned on its portfolio of federally insured student loans. However, the company has been actively expanding its private education, consumer, and other loan portfolios to reduce its reliance on FFELP loans as that portfolio continues to amortize.

Nelnet operates through several reportable segments, including Loan Servicing and Systems (LSS), Education Technology Services and Payments (ETSP), Asset Generation and Management (AGM), and Nelnet Bank. The company also has other non-reportable business activities, including investments in ALLO, solar projects, and venture capital.

2024 Operating and Liquidity Highlights

LSS revenue decreased in 2024 due to a decline in the number of borrowers serviced and lower revenue per borrower under the new Unified Servicing and Data Solutions (USDS) contract with the Department of Education.
ETSP revenue grew to $487.0 million in 2024, driven by increases in tuition payment plan services and payment processing. Operating margin also improved.
AGM’s net interest income declined in 2024 due to the continued amortization of the FFELP loan portfolio and a decrease in core loan spread. The company also recorded a $39.5 million allowance for credit losses related to its beneficial interest investments.
Nelnet Renewable Energy (NRE), the company’s solar construction business, incurred losses in 2023 and 2024 due to low margins on legacy projects. The company has shifted its focus to the commercial solar market.
The company’s solar tax equity investments generated accelerated losses in the initial years, but are expected to produce significant cash flows over the life of the investments.
Nelnet Bank grew its loan portfolio to $644.6 million as of December 31, 2024, funded primarily through deposits. The bank maintained a leverage ratio above the 12% requirement set by the FDIC.
As of December 31, 2024, Nelnet had $717.1 million in unencumbered cash and investments, a $495.0 million unsecured line of credit, and expects to generate $1.07 billion in undiscounted cash flows from its AGM loan portfolio and $323.4 million from its beneficial interest investments over time.

Consolidated Results of Operations

Nelnet’s total interest income decreased from $1.11 billion in 2023 to $973.4 million in 2024, primarily due to a decline in the average balance of loans in the AGM segment. Interest expense also decreased from $845.1 million to $680.5 million, partially offset by a $6.3 million non-cash expense from redeeming certain asset-backed debt securities early.

Net interest income increased from $264.7 million in 2023 to $292.9 million in 2024. However, the provision for loan losses increased from $8.1 million to $54.6 million, primarily due to an allowance recorded for the company’s beneficial interest investments.

Total other income increased from $924.3 million in 2023 to $1.17 billion in 2024, driven by higher revenue in the LSS and ETSP segments, as well as a $51.9 million swing in derivative market value adjustments.

Total operating expenses increased from $860.5 million in 2023 to $879.8 million in 2024, with increases in salaries and benefits, reinsurance losses, and other expenses partially offset by lower depreciation and amortization.

Impairment expense and provision for beneficial interests increased from $31.9 million in 2023 to $42.6 million in 2024, primarily related to the company’s beneficial interest investments.

Overall, Nelnet’s net income attributable to the company increased from $89.8 million in 2023 to $184.0 million in 2024. Excluding the impact of derivative market value adjustments, non-GAAP net income decreased from $121.6 million to $176.4 million.

Segment Results

Loan Servicing and Systems (LSS) LSS revenue decreased from $518.0 million in 2023 to $482.4 million in 2024, primarily due to a decline in revenue from the Department of Education contract. Before-tax operating margin decreased from 14.1% to 8.0% due to the lower revenue and relatively consistent expenses.

Education Technology Services and Payments (ETSP) ETSP revenue grew from $463.3 million in 2023 to $487.0 million in 2024, driven by increases in tuition payment plan services and payment processing. Before-tax operating margin, excluding net interest income, improved from 22.0% to 28.0%.

Asset Generation and Management (AGM) AGM’s net interest income decreased from $154.1 million in 2023 to $163.1 million in 2024 after removing the impact of early debt redemptions. This was due to the continued amortization of the FFELP loan portfolio and a decrease in core loan spread.

The company recorded a $39.5 million allowance for credit losses related to its beneficial interest investments in 2024 due to an increase in cumulative loss expectations.

Nelnet Bank Nelnet Bank grew its loan portfolio from $432.9 million at the end of 2023 to $644.6 million at the end of 2024, funded primarily through deposits. The bank maintained a leverage ratio above the 12% requirement set by the FDIC.

Nelnet Bank reported a net loss of $1.4 million in 2024, compared to a net loss of $0.2 million in 2023, as the provision for loan losses increased due to the growth in the loan portfolio.

Liquidity and Capital Resources

Nelnet’s primary sources of liquidity include cash, available-for-sale securities, unencumbered loans, and an unsecured line of credit. As of December 31, 2024, the company had $1.21 billion in total sources of liquidity.

The company’s AGM segment is the primary user of liquidity, with $8.36 billion in debt outstanding that is secured by its loan assets. Nelnet expects to generate $1.07 billion in undiscounted cash flows from this portfolio over time, based on assumptions around prepayment rates and interest rates.

Nelnet Bank is primarily funded through deposits, which totaled $1.25 billion as of December 31, 2024. The bank maintains regulatory capital levels that exceed the FDIC’s “well capitalized” requirements, with a leverage ratio of 12.4% at the end of 2024.

The company plans to use its liquidity to pursue additional loan acquisitions, strategic investments, and capital management initiatives such as stock repurchases and debt repurchases. The timing and size of these opportunities will impact the company’s cash and investment balances.

Analysis

Nelnet’s 2024 results demonstrate the company’s ability to generate strong cash flows and liquidity, even as its core FFELP loan portfolio continues to amortize. The growth in the ETSP and Nelnet Bank segments helped offset the decline in the AGM segment, showing the benefits of Nelnet’s diversified business model.

The company’s investment in solar tax equity projects has been a drag on earnings in the short-term due to the accounting treatment, but Nelnet believes these investments will be accretive over the long-term. The challenges faced by the NRE solar construction business highlight the risks of expanding into new, capital-intensive ventures. However, Nelnet’s decision to focus NRE solely on the commercial market should improve the segment’s profitability going forward.

Nelnet Bank’s steady growth and strong capital position provide the company with additional avenues for deploying its liquidity, whether through organic loan originations, acquisitions, or other investments. The bank’s reliance on deposits, including brokered and institutional sources, introduces some funding risk, but Nelnet’s commitment to maintaining the bank’s “well capitalized” status helps mitigate this.

Overall, Nelnet appears well-positioned to navigate the continued decline of its FFELP portfolio and capitalize on opportunities in private education, consumer lending, and other areas. The company’s substantial liquidity, diversified revenue streams, and disciplined approach to capital allocation should allow it to weather any near-term headwinds and continue creating value for shareholders.