Nelnet is Evolving With Student Loans (Issue #83)
Nelnet (NYSE: NNI — $3.20b) recently reported earnings so let’s dive in. Some of the largest revenue growth areas were the loan, investment, and bond interest.
“While Nelnet’s earnings are affected by the anticipated runoff of our legacy student loan portfolio, we continue to be pleased with the growth opportunities in our core fee-based businesses”
Jeff Noordhoek, CEO Nelnet
The four main segments of Nelnet are Asset Generation & Management, Nelnet Bank, Loan Servicing & Systems, and Education Technology, Services, and Payment Processing. Asset Generation and Management suffered from an expected loan portfolio runoff and a diminished loan spread. The Loan Servicing & Systems branch was slightly down because of government-owned loans being serviced shrinking from $590.4b to $539.3b year/year and the number of borrowers falling from 17.5m to 16.2m people. Although revenue fell from $134.2m to $127.9m for the branch net income after tax increased from $16.7m to $18.6m this quarter.
Revenue from Nelnet Bank grew significantly from $0.8m to $1.7m year/year. This is still a very small part of the company, but could be an important business unit in the future.
Finally, Education Technology, Services, and Payment saw a small increase in revenue to $113.8m from $106.9m. At the same time, net income after tax grew to $16.8m from $14.1m.
In addition to the four business segments Nelnet also lists Corporate Activities. This area mainly consists of a 45 percent holding in ALLO Holdings (HoldCo of ALLO Communications) and GRNE Solar which was acquired in July 2022. The companies incurred a $17.3m and $3m in losses (respectively). In addition, the company realized net investment and interest income of $8.6m for the quarter down from $14.5m in Q3 2022.
Source: Nelnet Investor Relations
Nelnet will be crucially affected as there are on going investigations and negotiations on federal student loans and other forms of student debt. Nelnet is a key player in the space acting as a servicer, creditor, and tuition payment processor. I will try to follow the situation as developments become public, but Nelnet overall had a “set up quarter” a lot of foreseen losses and adjustments, but mainly financially focused movements nothing core to any of the business units has changes significantly.
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Until Sunday,
Soren