0001258602-26-000033
SEC filingMixed quarter: net income fell 13.8% YoY as Pay Later growth drove a sharp increase in loan loss provisions, but fee-based segments showed solid revenue gains.
Net income for the first quarter of 2026 was $71.1 million, down 13.8% from $82.6 million in the same period last year. The decline was primarily driven by a significant increase in the provision for loan losses, which rose due to the substantial growth in Pay Later receivables acquired since the third quarter of 2025. This increase in allowance for loan losses as a percentage of the ending loan balance reflects the higher volume of consumer loans and other financing receivables. Diluted earnings per share decreased to $1.97 from $2.26, consistent with the net income decline.
Payment processing volumes increased in both the K-12 and higher education markets, driven by new customers and higher volumes from existing customers. The ETSP segment's before-tax operating margin decreased, however, as operating expenses rose to support customer growth and investments in new technologies. In the LSS segment, cost-efficiency initiatives, including headcount reductions, helped improve before-tax operating margin excluding amortization expense, despite the addition of employees from the NDS Canada acquisition.
Nelnet Bank continued its growth strategy, supported by parent company capital, diversified deposit funding, and supplemental liquidity sources. Management expects continued deposit growth to be the primary funding source for future loan growth. The bank's performance contributed positively to overall results, though specific net income figures are not separately disclosed in the authoritative packet.
Net cash provided by operating activities was $73.1 million, down from $91.2 million in the prior year, primarily due to lower net income and changes in working capital. Capital expenditures increased to $11.6 million from $3.4 million, reflecting investments in technology and infrastructure. Free cash flow, defined as operating cash flow minus capital expenditures, was $61.6 million. The company plans to continue regular quarterly dividend payments, subject to future earnings, capital requirements, and other factors.
Corporate results were impacted by solar tax equity losses, which weighed on overall profitability. The company continues to manage its investment portfolio and other corporate items in line with its strategic objectives.