Morning, everybody.
We go ahead, get the shareholder meeting going here. Let everybody sit down for a second. I'd like to call the 2026 Nelnet Annual Meeting of Shareholders in order. Welcome everyone who's participating both in person and virtually this morning. I'm Michael Dunlap, Executive Chairman. I'd also like to introduce several people with us here today. Jeff Noordhoek, CEO. Where are you, Jeff? All right. Matthew Dunlap, President of Nelnet Financial Services. Terry Heimes, Chief Operating Officer. Jim Kruger, CFO and Treasurer. Bill Munn, Corporate Secretary and General Counsel. Emily Olinger, Chief People Officer. DeeAnn Wenger, President. The last but not the least is Tim Tewes. He's been with us for 25 years and had a remarkable career, and I want everybody to give him a standing ovation for what he's done. Thank you.
He's made millions of dreams, educational dreams come true and lived out the mission at FACTS and he's been an amazing associate and president, and it's been a pleasure to work with you, and I'm lucky, and we're all better because you were here. Thank you. Board of directors, Preeta Bansal. Kathleen Farrell. David Graff. Tom Henning. Kimberly Rath. Jona Van Deun. Others in attendance this morning, Carrie Weber, Executive Director of Internal Audit, serving as our inspector of elections for today's meeting. Robert Rutherford, our KPMG Audit Partner. Robert's available to respond to any questions that shareholders may have this morning. Bill Munn, Nelnet Secretary, will now report on the mailing of the notice of this meeting and the presence of a quorum.
The company posted a notice of annual meeting of shareholders on the company website on April 2, 2026. On the same date, we mailed a notice of internet availability of proxy materials to each shareholder of record as of March 23, 2026, who was entitled to vote. Immediately prior to the meeting, our inspector of election counted 31,398,382 shares of the company's Class A and Class B common stock, representing 125,367,038 total votes, which were present in person or by proxy. This represents 95.3% of the combined voting power of all classes of the company's stock, and accordingly, we have a quorum present at this meeting. I'd like to thank everyone that voted in advance of today's meeting.
Based on the votes cast in advance, the shareholders have approved all four items of business. Polls will remain open throughout the meeting for any shareholders who want to vote in person today. The final results of voting for each proposal will be reported on a Form 8-K that we file with the Securities and Exchange Commission within the next four business days. As a reminder, if you've already voted in advance of the meeting, you do not have to vote today unless you want to change your vote.
Thanks, Bill. Based on the votes cast in advance, the shareholders have approved all four items of business. Proposal one related to the election of our board of directors. Jona Van Deun, will you be a member of the Nominating and Corporate Governance Committee will report on this item.
Mr. Chairman, the company's articles of incorporation classify the board of directors into three classes, with directors in each class serving staggered three year terms. For this year's annual meeting, the company's Nominating and Corporate Governance Committee nominated and the shareholders approved three Class III directors to serve for three year terms until 2029 annual meeting. The individuals named in the company's proxy statement who have been reelected to the board are Kathy Farrell, Dean and Professor of finance, College of Business for the University of Nebraska–Lincoln; David Graff, Chief Executive Officer of Hudl; and Tom Henning.
Thank you. For those voting this morning or those that wish to change their vote on the election of directors, please do so now. The next item of business was to ratify the board's appointment of KPMG as the company's independent registered public accounting firm. To report on this item, I recognize Tom Henning, Chairman of the Audit Committee.
Thank you, Mr. Chairman. The audit committee was assigned the responsibility of recommending the independent registered public accounting firm to be appointed by the board of directors. The committee was established in 2003, and since its inception, has consisted entirely of directors who are independent of corporate management. It has had direct access to both the external and internal auditors. Since inception, the committee has worked closely with KPMG, has had a substantial opportunity to evaluate their work, and has found it to be of consistent high quality. The committee recommended KPMG, and the shareholders have ratified the board's appointment of KPMG to audit the consolidated financial statements of Nelnet and its subsidiaries as of and for the year ending 2026.
Thanks, Tom. For those voting this morning or those that wish to change their vote on this appointment of KPMG as our independent auditor, please do so now. The last item of business relates to our approval of amendments to the director's stock compensation plan and an advisory vote on the compensation of the company's named executive officers. I'd like to call upon Kimberly Rath, Chair of the People Development and Compensation Committee, to report on these proposals.
Mr. Chairman, as outlined in Proposal Three in the proxy statement, shareholders have approved amendments to the company's director stock compensation plan to permit directors of Nelnet Bank to participate in the plan. The plan allows the members of the Nelnet board to elect to receive their annual retainer fees in shares of company stock in lieu of cash. It is designed to align the interest of the directors with those of shareholders and to support the company's ability to attract, retain, and motivate qualified directors. The board believes that extending participation to Nelnet Bank directors further advances these objectives. A complete copy of the amended plan is included in the proxy statement. As to proposal four in the proxy statement, the company's required to provide shareholders with the opportunity to cast an advisory vote on the compensation of the company's named executive officers.
The People Development and Compensation Committee is responsible for overseeing the design and the administration of the executive compensation program and values the perspectives expressed through this vote. The committee considers shareholders' feedback as part of its ongoing evaluation of the executive compensation. We believe the company's executive compensation program is competitive, aligned with performance, and structured to support the company's long-term objectives. Shareholders have expressed their support through their approval of the compensation of the named executive officers as disclosed in the proxy statement.
Thanks, Kimberly. For those voting this morning or those that wish to change their vote related to proposal three, the amendments to the director stock compensation plan or proposal four, the compensation of the named executive officers, please do so now. I'm supposed to give everybody a pause so that the online people can get their voting in right now. I'm also disappointed in myself. I think this is the longest shareholder meeting we've ever had. It appears, all votes have been submitted for those voting in person or online this morning. I hereby declare the polls closed. Thank you to our shareholders for your votes in favor of all the items on the agenda. Since no other agenda items have been introduced, I will adjourn the meeting and call on Jim Kruger and Jeff Noordhoek to provide a financial and business update.
After their prepared remarks, we will answer any questions that shareholders may have.
All right. Well, good morning, everyone. Great to have so many shareholders in person or online. Got a full house here in Lincoln. Great. Jeff and I are gonna give a little update. I'll give the financials. Jeff will hit a state of the union of the business. We'll hit the numbers. As many of you know, 2025 was an awesome year for Nelnet, the best year in the history of the company. We had earnings of $435 million or $11, just under $12 a share. The record year was due to many factors. There was many reasons for that. I wanna highlight two reasons.
First, we had outstanding results from each of our three operating divisions, NDS, NBS, and NFS, and I'll hit a little bit deeper on those in a minute. Second, we did have some sort of one-time items in the year, some gains and one-time revenue items, including we had a $175 million gain on our redemption of a portion of our ALLO investment. We had a $33 million government contract modification within NDS. Finally, we had a $32 million gain from a venture capital investment that we had. Those certainly enhanced the results for the year. I'll dive deeper by segment here. We got a chart here with a lot of numbers on it. I'm gonna hit each of the three main business units here.
2025 was a very strong year for NBS, our technology and services and payments business. They are now over $500 million in revenue, gross revenue. More than $330 million in net revenue. Operating margins in this business remain very resilient, even though we are continuing to reinvest in our systems and our processes. DeeAnn Wenger and her team continue to deliver solutions for their customers and drive value to the business. 2025 was also an exceptional year for the Nelnet Diversified Services, our loan servicing business. Revenue had modest increase during the year, but operating efficiencies were improved pretty significantly. The use of AI and other tools, we did see a significant reduction in our expense structure.
The results were also juiced by the $33 million contract modification I mentioned earlier. More recently, the future of our NDS business was enhanced by the acquisition of the Canadian servicing operation here in Q1. I don't think Joe is here today, but Joe Popevis and his team continue to be very resilient and innovative as they respond to the ever-changing business landscape within the servicing division. NFS, again, it was a very strong year for Nelnet Financial Services. Portfolio earnings increased during the year due to strong loan performance. Nelnet Bank benefited from the growth in loan and investment assets. They're north of $2 billion in loan assets, and they moved to profitability in 2025.
Matthew Dunlap, Rohit, and the Nelnet Financial Services team are constantly evaluating opportunities to invest capital into loan assets to drive the returns that we're looking for. I talked a little bit earlier about ALLO. The ALLO investment contributed earnings during the year. We had a $175 million gain on the partial redemption of the ALLO position that we have. That obviously contributed. We also had some preferred return or return on our preferred securities that we held through the second quarter of 2025. Venture capital. I mentioned CompanyCam, our venture capital investment. We had a $32 million gain in terms of our venture capital investment in CompanyCam. Lastly, hitting solar construction.
I guess after many lessons learned, I would say that we exited that business through a sale in late 2025. We do have many lessons learned for the future. Moving to the balance sheet. A few comments on the balance sheet. For the first time in many years, our total assets actually stayed flat or increased slightly. That's due to the loan portfolio not seeing the type of runoff we had seen previously. You know, the last half of 2024 and then all into 2025, we saw prepayments slow down significantly on our FFELP loan portfolio, and that really contributed to the portfolio and the assets staying fairly flat.
In addition, our growth in new loan assets, due to our Klarna, in particular our Klarna relationship, also contributed loan assets to the balance sheet. Total capital and our book value per share, to continue to grow, we're sitting at about $103 of book value, at the end of 2025. In terms of performance, this is an eye chart, sorry. Performance against the S&P 500. We put this in our shareholder letter in a report. Essentially over the last 20+ years as a public company, we've achieved about a 15, just north of a 15% return. That really hits kind of the targets that we set out way back when to try to drive mid-teens or higher returns.
That's been achieved for a long period of time. As far as Q1 results, just want to touch on Q1 results. We released these in the last week or so. You know, our core operating businesses, basically performance was in line with prior year and our expectations. There's really two unfavorable things to call out here. First, in our NFS other area, we have about an $11 million unrealized loss on our equity securities. They get marked to fair value each period, so that really was the variation in our NFS other. Our corporate activities are unfavorable as well due to the prior year, primarily due to our solar tax investments that we make. We made significant investments in 2025.
With those investments comes upfront losses, and we didn't have exits of older investments to offset those losses. You do see a bit of a variance compared to prior year. Despite all that, you know, we'd still like the return on these investments. The investments are still good use of our capital, but it does create some short-term volatility in the numbers. In summary, we're off to a really strong start in 2026. Each business segment's got really strong fundamentals, performing at a high level. With that, I'll turn it over to Jeff. Jeff's going to give a business update.
Lots of stuff up here. Crazy. All right. Thanks, Jim. Earlier today, I got here a little bit early, earlier than normal, and I was upstairs in the kitchen and an associate came up to me and said, "Good luck today." You know, she asked, "Do you like public speaking?" I said, "Well, it depends on the audience." Which is true. To go a little further, this is not my hardest audience this week. I'm officiating a wedding on Saturday, friend of the Dunlap family, and it's on a working farm. In this audience, there's going to be over 300 people. There's going to be 50 cow calves at the wedding, 30 chickens, 10 kittens, a dog, and a donkey that's going to be delivering beers around to people during the thing.
This audience is way easier than that's going to be. Jim talked about the numbers, and I'm going to talk about the business at a very high level. Nelnet's goal is to make our stakeholders' dreams come true over a long-term horizon. Let me repeat that. Nelnet's goal is to make our stakeholders' dreams come true over a long-term horizon. That was the opening line we came up for our shareholder letter this year. That one sentence summarized everything we are doing. We define our stakeholders as our customers, our associates, our communities, and of course, our shareholders. If I were to start off with an overall State of the Union of Nelnet, the short version is the State of the Union is very strong. All three primary divisions of Nelnet are firing on all cylinders.
NFS, our financial services division; NBS, our education technology services and payments division; and NDS, our loan servicing division. Every division is profitable, generating significant amounts of positive cash flow, have significant moats around them, have great leaders running them, are heavily investing in automation through artificial intelligence, and have a long-term plan of action to continue winning. This is all evidenced, as Jim's pointed out, by our record-adjusted net earnings in 2025 of $11.98 per share. In addition to solid core earnings, obviously though, as Jim mentioned, there were a handful of positive one-time events in the year since, such as the ALLO partial redemption and the CompanyCam gain. It is important to note, Nelnet always seems to have a few one-time items. That's the way we structure the company. We structure it to be strategically opportunistic.
It's hard for me to consider these items as one-time or opportunistic, as in my mind, we were strategic in how the deals were structured, how the value was created. It's like saying you were lucky at poker after you repeatedly win. Well, maybe you repeatedly win because you're actually really good at playing poker. In February this year, we completed the acquisition of the Canadian servicing business from Finastra. We are super excited about this acquisition. As we once owned the company all the way back to 2005, we know the company and the products and services they offer and the value they deliver extremely well. It's a business we clearly understand and a new market for NDS, which makes a perfect match.
The company has 95% market share of the Canadian student loan servicing market, everything but the province of Quebec. 95%, Brad, is a good number. 95% market share, I like that number. The company has multiple long-term contracts with multi-year renewal options, an excellent leadership team, and they're a seamless cultural match to Nelnet's core values as they complement our leadership style. The company maintains a technology stack that is a ripe opportunity to be improved with AI to equal upgrades and efficiencies similar to Nelnet's. I generally believe this business combination is a perfect example of whereby 1 plus 1 will be greater than two for a long period of time. Speaking of AI, artificial intelligence has clearly moved from promising frontier to a foundational layer of the global economy in virtually every company.
Over the past few years, advances in machine learning, particularly in generative AI, have accelerated across the divisions of Nelnet, particularly in code deployment, processing activities, and customer service. What was once experimental is now operational. AI systems are actively shaping our decision-making, automating our very complex workflows and unlocking productivity. The efficiencies we are seeing in processing times, contact center support, and quality control are significant. I think it shows up in all those numbers in NDS specifically. You can really see it from the last year. Nelnet, like all companies, is not asking whether to adopt AI, but how quickly and effectively can we integrate it into all of our core strategies, all of our shared services, and every single associate's daily work life to make them more efficient, more accurate, and more productive. This transformation also brings important challenges, as we are seeing worldwide.
I'm sure like all companies, internally, we are having an ongoing debate. In this case, between Mike, our Executive Chairman, his lines are go and go fast, and now go even faster. Terry, our Chief Operating Officer in charge of corporate security, saying, "We need real guardrails." The debate centers around data privacy, security, workforce retraining, of course, ethical use of AI, as is always front and center. We are always fine-tuning to strike a balance between fostering innovation and speed and ensuring responsible deployment. Stay tuned on the outcome, but rest assured, Jim, Tim, DeeAnn, M, and I are happy with Terry who stepped in to take on this particular fight. We're like sitting back with a bucket of popcorn and watching the fun like a MMA fight on the front lawn of the White House.
That was my one political joke. Looking forward to Fourth July. All right. Looking ahead, AI's trajectory is clearly a rocket ship pointed upward. We are still in the early stages of launch to its full impact, with significant opportunities to enhance efficiency, create new markets, take on competitors, and solve complex problems. The imperative is clear. Embrace AI thoughtfully, go fast, invest in capabilities, and align its use with long-term strategic goals. Assuming we are successful, and I know we will be, we will be well-positioned to lead in an increasingly competitive world. Jim did not spend a lot of time talking about our cash position, but it is obvious that it is significant.
Between our unused line of credit of $435 million, combined with $850 million of cash and cash equivalents, it gives us roughly $1.3 billion of liquidity to capitalize on new innovation, growth in financial assets on the balance sheet and in the bank, new investments, new acquisitions, and new fun. Our dry powder is not as much as Berkshire's nearly $400 billion, the thought process is similar. It is wise to be fearful when others are greedy and greedy when others are fearful. When overall equity valuations climb into the upper ranges, as we are seeing today with the S&P 500, it often reflects not just strong fundamentals, but strong sentiment. Markets tend to reward optimism, at times they can over-reward it.
High multiples are usually driven by confidence, momentum, and the belief that the growth will continue uninterrupted. We all know that's never the case. The challenge for investors is that sentiment can shift faster than fundamentals, like sand under a house foundation. When expectations are high, even good results can sometimes disappoint. That doesn't mean the market is wrong. It just means the margin for error becomes increasingly thinner. We prefer at Nelnet a wide margin of error when making investments, especially investments of size. We also like strong fundamentals rooted in mathematics over fanciful hope or wishful thinking. This is also true on negative sentiment and the fundamentals on the downside.
Markets oftentimes led by algorithmic computer trading tend to overreact negatively when the sentiment momentarily shifts downward, even though the fundamentals of a company are solid. Historically, when this happens at Nelnet, we typically deem it a great time to repurchase our stock. A disciplined approach in this environment is not to predict when sentiment will turn a good direction, but to remain grounded in value. As Buffett and Munger have long suggested, periods of elevated optimism are a time for selectivity and caution, while periods of market disruption often present the greatest opportunities. Just look at the mountain of cash Berkshire is sitting on in relation to their market value. Mike pointed out this week the last two times it was this high was just before the dot-com crash in 2000 and the 2008 credit crisis. I think they know what they're doing.
To be clear though, our goal is not to follow the crowd, but to acknowledge when the crowd is driving prices beyond what underlying value can reasonably justify. We have no crystal ball into how long this current period of overall elevated equity market optimism will last. In the meantime, we will continue growing cash until it's prudent to spend it, or we can always buy back our stock when we believe it is at a discounted price. We have spoken many times in the past about hidden value in Nelnet. I firmly believe the same holds true today.
If one were to attach value ranges on each of our divisions individually and then add them up, what's called the sum-of-the-parts valuation method, and then add in our investments we usually carry at cost or sometimes even zero, one can reasonably assume there remains a significant amount of potentially underappreciated value in our company. In the meantime, we are content doing what we do best: focusing on our customers, making it a great place to work for our associates, supporting our communities, and to continue building even greater long-term value for all of our stakeholders to make your dreams come true. Thank you for your trust in our management team and your investment in our company. Now, we'll have Mike come up and join us for questions. Thanks, Mike.
Mike asked me on Monday if he could see my speech, and I ran around, and Angie will appreciate this, all week hiding so I wouldn't have to give it to him, and I never gave it to him.
He likes public speaking, by the way.
Any questions? Are there any online questions that we're looking?
We do not have any online questions at this time.
Anybody? Angie?
What keeps you up at night, Blake? Donald Trump.
The question was, what's keeping us up at night?
No, nothing really. I mean, you can go too. From my perspective, I mean, everything's firing on all four cylinders. You know, we have great businesses creating great cash. There's always the threat of the unknown. You know, I think we're a bit ahead of the curve as relates to most companies on AI. You always worry that, you know, fundamentally that some technology will come along super fast that you weren't anticipating. Something just hits the shit out of the blue. What keeps you up, anything?
I would say what's going on with private credit right now. I think there's some concern there. How that's gonna turn out. Could turn out badly, and I think that'll potentially create opportunity. I might wake up in the middle of the night and think, "How can we take advantage of that opportunity?
Yeah. Tom?
Would you share your philosophy around lumpy results?
We like them. When you, when you look at anything, it's never going to go in a straight line. It's going to go more like this. We're perfectly comfortable with that. Volatility is not a bad thing. Volatility is a good thing, we can maximize our opportunities. When there's opportunities, we're going to do that. Just a couple examples would be in our Nelnet Business Services Division, Title I and Title II dollars got increased significantly during COVID to help teach third and fourth graders reading and math and help teach teachers how to teach.
Tim and Pat in that division, Scott Strathman, took advantage of that, and we maximized our ability to go out and help kids and help teachers learn how to teach, and that led to higher net income in that division a few years ago. You look at their net income, it looks kind of flat. That's because we took advantage of that lumpy opportunity. We also over the years have continued to conserve cash flow in that division, and that leads to a lot of flow. When interest rates went from 0% to 5%, they were a beneficiary. When it went from 5% back to, you know, 3.5%, 4%, it went down a little bit. That's okay. We're maximizing the opportunity.
We absolutely love the opportunity when there's volatility to maximize our opportunities and maximize our earnings. It's not gonna be a straight line. You're not gonna see us put on hedges so that we can smooth earnings. We don't believe in smoothing earnings. We like them lumpy.
One thing to add.
Good question, Tom.
Yes. One thing I'd add to it is we don't manage the company quarter to quarter. I mean, if you do, you're a fool. Of course you're gonna have lumpy returns on different quarter. We don't, 'cause that's not the way we run the company. We just, it just is. You know, we manage it for long-term cash creation.
You know, one other example I'd provide is, you know, We have a significant investment portfolio now, and a good share of those investments are marked to fair value. When you mark things to fair value, they can go up and they can go down quarter-over-quarter. That's gonna create volatility and lumpiness in earnings, and we saw that in Q1, and it is what it is.
We think our core shareholders understand that about us and appreciate it. Brad?
How do you see the Nelnet Bank evolving?
Our long-term goal is to compete directly against Union Bank.
Brad is the CFO of Union Bank, just so you know.
For those of you who don't know, Brad's the CFO of Union Bank.
I was waiting to see how he answered that.
Matthew, do you want to answer that one?
You know, Nelnet Bank is Utah Chartered ILC focused in student and consumer lending. We expect to continue to drive organic growth in our student vertical as well as our consumer and home improvement vertical. We'll also look for opportunities to bring on third-party originated assets that make sense for the bank, largely in the consumer space, as well as partner with affiliate banks that we know well to drive strong asset growth. Nelnet Bank's a core strategy across the organization and plan on growing it materially over the next several years.
That answer your question, Brad? All right. Good question.
Anybody else or any online?
Other questions? Anything online, Ben?
We don't have any questions online.
All right. All right. Let's close the call to the meeting. Thanks for everybody for coming.
Thanks for coming.