Nelnet Profit Falls as Prior-Year Investment Gain Rolls Off
The company acquired $3.07 billion of consumer loans during the quarter, largely Pay Later receivables.
Nelnet, Inc. (NNI), a diversified financial-services and technology company, reported that second-quarter net income fell 63.3% to $66.7 million, or $1.85 a share, as a prior-year investment gain rolled out of the comparison.
The year-earlier quarter included a $175.0 million gain tied to Nelnet’s ALLO investment. Excluding that gain, earnings increased 37.5% from the adjusted year-earlier level of $48.5 million. Sequentially, net income declined 6.3% from the first quarter, while earnings excluding derivative adjustments fell 8.6% to $63.9 million.
Consolidated net interest income rose 20.9% from a year earlier to $96.0 million, though it declined 5.5% from the first quarter. Interest expense fell 18.0% to $108.9 million even as total interest income decreased 3.5% to $204.9 million.
Asset Generation and Management remained the main lending driver. The segment acquired $3.07 billion of consumer loans, more than 21 times the year-earlier volume and about 8% below the first quarter, with short-duration Pay Later receivables accounting for $2.86 billion. Its consumer-loan portfolio nearly tripled to $1.21 billion, while the average legacy FFELP balance contracted 23.0% to $6.7 billion.
That expansion pushed AGM’s provision for loan losses to $41.3 million from $11.1 million a year earlier, reflecting initial credit allowances on acquired loans. The provision eased from $48.5 million in the first quarter, and the year-over-year increase was due to portfolio growth rather than weaker credit performance.
Nelnet Bank’s net interest income increased 36.9% to $19.3 million as its loan portfolio nearly doubled from a year earlier to $1.64 billion. The bank recorded a $0.2 million negative loan-loss provision, compared with a $6.8 million provision a year earlier, helping after-tax net income improve to $10.5 million from a $0.4 million loss.
Elsewhere, Loan Servicing and Systems revenue rose 9.5% to $132.2 million, supported by the first full quarter of NDS Canada and growth in consumer servicing, though lower Education Department revenue and acquisition-related amortization weighed on profit. Education Technology Services and Payments revenue was nearly flat at $118.9 million as higher growth and technology spending reduced after-tax net income 17.9%.
Total operating expenses rose 15.7% to $259.8 million, led by higher salaries and benefits. Nelnet repurchased 190,281 shares for $24.4 million during the quarter, bringing first-half repurchases to $40.6 million as expanding consumer lending continued to reshape its earnings base.