ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
NEBRASKA
(State or other jurisdiction of incorporation or organization)
|
84-0748903
(I.R.S. Employer Identification No.)
|
121 SOUTH 13TH STREET, SUITE 201
LINCOLN, NEBRASKA
(Address of principal executive offices)
|
68508
(Zip Code)
|
|
|||
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Item 1.
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||
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Item 2.
|
||
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Item 3.
|
||
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Item 4.
|
||
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|
|||
|
Item 1.
|
||
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Item 1A.
|
||
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Item 2.
|
||
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Item 6.
|
||
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NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED BALANCE SHEETS
|
||||||
(Dollars in thousands, except share data)
|
||||||
|
As of
|
|
As of
|
|||
|
March 31, 2012
|
|
December 31, 2011
|
|||
|
(unaudited)
|
|
|
|||
Assets:
|
|
|
|
|||
Student loans receivable (net of allowance for loan losses of $48,435 and $48,482, respectively)
|
$
|
23,836,832
|
|
|
24,297,876
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
Cash and cash equivalents - not held at a related party
|
6,693
|
|
|
7,299
|
|
|
Cash and cash equivalents - held at a related party
|
54,007
|
|
|
35,271
|
|
|
Total cash and cash equivalents
|
60,700
|
|
|
42,570
|
|
|
Investments
|
70,552
|
|
|
50,780
|
|
|
Restricted cash and investments
|
705,953
|
|
|
614,322
|
|
|
Restricted cash - due to customers
|
38,642
|
|
|
109,809
|
|
|
Accrued interest receivable
|
296,378
|
|
|
308,401
|
|
|
Accounts receivable (net of allowance for doubtful accounts of $1,359 and $1,284, respectively)
|
64,215
|
|
|
63,654
|
|
|
Goodwill
|
117,118
|
|
|
117,118
|
|
|
Intangible assets, net
|
23,682
|
|
|
28,374
|
|
|
Property and equipment, net
|
34,119
|
|
|
34,819
|
|
|
Other assets
|
90,587
|
|
|
92,275
|
|
|
Fair value of derivative instruments
|
107,534
|
|
|
92,219
|
|
|
Total assets
|
$
|
25,446,312
|
|
|
25,852,217
|
|
Liabilities:
|
|
|
|
|
|
|
Bonds and notes payable
|
$
|
24,060,609
|
|
|
24,434,540
|
|
Accrued interest payable
|
19,281
|
|
|
19,634
|
|
|
Other liabilities
|
177,586
|
|
|
178,189
|
|
|
Due to customers
|
38,642
|
|
|
109,809
|
|
|
Fair value of derivative instruments
|
42,321
|
|
|
43,840
|
|
|
Total liabilities
|
24,338,439
|
|
|
24,786,012
|
|
|
Equity:
|
|
|
|
|||
Nelnet, Inc. shareholders' equity:
|
|
|
|
|
|
|
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding
|
—
|
|
|
—
|
|
|
Common stock:
|
|
|
|
|||
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 35,821,057 shares and 35,643,102 shares, respectively
|
358
|
|
|
356
|
|
|
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,495,377 shares
|
115
|
|
|
115
|
|
|
Additional paid-in capital
|
50,948
|
|
|
49,245
|
|
|
Retained earnings
|
1,056,058
|
|
|
1,017,629
|
|
|
Accumulated other comprehensive income, net
|
605
|
|
|
—
|
|
|
Employee notes receivable
|
(368
|
)
|
|
(1,140
|
)
|
|
Total Nelnet, Inc. shareholders' equity
|
1,107,716
|
|
|
1,066,205
|
|
|
Noncontrolling interest
|
157
|
|
|
—
|
|
|
Total equity
|
1,107,873
|
|
|
1,066,205
|
|
|
Commitments and contingencies
|
|
|
|
|||
Total liabilities and equity
|
$
|
25,446,312
|
|
|
25,852,217
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED STATEMENTS OF INCOME
|
||||||
(Dollars in thousands, except share data)
|
||||||
(unaudited)
|
||||||
|
Three months
|
|||||
|
ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Interest income:
|
|
|
|
|||
Loan interest
|
$
|
153,058
|
|
|
137,358
|
|
Investment interest
|
1,095
|
|
|
726
|
|
|
Total interest income
|
154,153
|
|
|
138,084
|
|
|
Interest expense:
|
|
|
|
|
|
|
Interest on bonds and notes payable
|
69,297
|
|
|
52,307
|
|
|
Net interest income
|
84,856
|
|
|
85,777
|
|
|
Less provision for loan losses
|
6,000
|
|
|
3,750
|
|
|
Net interest income after provision for loan losses
|
78,856
|
|
|
82,027
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Loan and guaranty servicing revenue
|
49,488
|
|
|
40,413
|
|
|
Tuition payment processing and campus commerce revenue
|
21,913
|
|
|
19,369
|
|
|
Enrollment services revenue
|
31,664
|
|
|
33,868
|
|
|
Other income
|
10,954
|
|
|
6,492
|
|
|
Gain on sale of loans and debt repurchases
|
—
|
|
|
8,307
|
|
|
Derivative market value and foreign currency adjustments and derivative settlements, net
|
(15,180
|
)
|
|
(3,036
|
)
|
|
Total other income
|
98,839
|
|
|
105,413
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Salaries and benefits
|
49,095
|
|
|
43,912
|
|
|
Cost to provide enrollment services
|
21,678
|
|
|
22,839
|
|
|
Depreciation and amortization
|
8,136
|
|
|
6,776
|
|
|
Other
|
32,263
|
|
|
26,105
|
|
|
Total operating expenses
|
111,172
|
|
|
99,632
|
|
|
Income before income taxes
|
66,523
|
|
|
87,808
|
|
|
Income tax expense
|
(23,230
|
)
|
|
(32,928
|
)
|
|
Net income
|
43,293
|
|
|
54,880
|
|
|
Net income attributable to noncontrolling interest
|
152
|
|
|
—
|
|
|
Net income attributable to Nelnet, Inc.
|
$
|
43,141
|
|
|
54,880
|
|
Earnings per common share:
|
|
|
|
|||
Net income attributable to Nelnet, Inc. shareholders - basic
|
$
|
0.91
|
|
|
1.13
|
|
Net income attributable to Nelnet, Inc. shareholders - diluted
|
$
|
0.91
|
|
|
1.13
|
|
Weighted average common shares outstanding:
|
|
|
|
|||
Basic
|
46,989,773
|
|
|
48,171,317
|
|
|
Diluted
|
47,184,079
|
|
|
48,363,035
|
|
|
Dividends paid per common share
|
$
|
0.10
|
|
|
0.07
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
||||||
(Dollars in thousands)
|
||||||
(unaudited)
|
||||||
|
Three months
|
|||||
|
ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Net income
|
$
|
43,293
|
|
|
54,880
|
|
Other comprehensive income:
|
|
|
|
|||
Unrealized gains (losses) on securities:
|
|
|
|
|||
Unrealized holding gains (losses) arising during period, net
|
934
|
|
|
—
|
|
|
Income tax effect
|
(329
|
)
|
|
—
|
|
|
Total other comprehensive income
|
605
|
|
|
—
|
|
|
Comprehensive income
|
43,898
|
|
|
54,880
|
|
|
Comprehensive income attributable to noncontrolling interest
|
152
|
|
|
—
|
|
|
Comprehensive income attributable to Nelnet, Inc.
|
$
|
43,746
|
|
|
54,880
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||||
(Dollars in thousands, except share data)
|
||||||||||||||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||||||||||||||
|
Nelnet, Inc. Shareholders
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
Preferred stock shares
|
|
Common stock shares
|
|
Preferred stock
|
|
Class A common stock
|
|
Class B common stock
|
|
Additional paid-in capital
|
|
Retained earnings
|
|
Accumulated other comprehensive income, net
|
|
Employee notes receivable
|
|
Noncontrolling interest
|
|
Total equity
|
|||||||||||||||
|
|
Class A
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Balance as of December 31, 2010
|
—
|
|
|
36,846,353
|
|
|
11,495,377
|
|
|
$
|
—
|
|
|
368
|
|
|
115
|
|
|
76,263
|
|
|
831,057
|
|
|
—
|
|
|
(1,170
|
)
|
|
—
|
|
|
906,633
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54,880
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54,880
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash dividend on Class A and Class B common stock - $0.07 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,387
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,387
|
)
|
|
Contingency payment related to business combination
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,893
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,893
|
)
|
|
Issuance of common stock, net of forfeitures
|
—
|
|
|
151,669
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
3,087
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,089
|
|
|
Compensation expense for stock based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
355
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
355
|
|
|
Repurchase of common stock
|
—
|
|
|
(14,465
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(310
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(310
|
)
|
|
Balance as of March 31, 2011
|
—
|
|
|
36,983,557
|
|
|
11,495,377
|
|
|
$
|
—
|
|
|
370
|
|
|
115
|
|
|
73,502
|
|
|
882,550
|
|
|
—
|
|
|
(1,170
|
)
|
|
—
|
|
|
955,367
|
|
Balance as of December 31, 2011
|
—
|
|
|
35,643,102
|
|
|
11,495,377
|
|
|
$
|
—
|
|
|
356
|
|
|
115
|
|
|
49,245
|
|
|
1,017,629
|
|
|
—
|
|
|
(1,140
|
)
|
|
—
|
|
|
1,066,205
|
|
Issuance of minority membership interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,141
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
43,293
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
605
|
|
|
—
|
|
|
—
|
|
|
605
|
|
|
Cash dividend on Class A and Class B common stock - $0.10 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,712
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,712
|
)
|
|
Issuance of common stock, net of forfeitures
|
—
|
|
|
220,584
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2,424
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,426
|
|
|
Compensation expense for stock based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
395
|
|
|
Repurchase of common stock
|
—
|
|
|
(42,629
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,116
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,116
|
)
|
|
Reduction of employee stock notes receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
772
|
|
|
—
|
|
|
772
|
|
|
Balance as of March 31, 2012
|
—
|
|
|
35,821,057
|
|
|
11,495,377
|
|
|
$
|
—
|
|
|
358
|
|
|
115
|
|
|
50,948
|
|
|
1,056,058
|
|
|
605
|
|
|
(368
|
)
|
|
157
|
|
|
1,107,873
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||
(Dollars in thousands)
|
||||||
(unaudited)
|
||||||
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Net income attributable to Nelnet, Inc.
|
$
|
43,141
|
|
|
54,880
|
|
Net income attributable to noncontrolling interest
|
152
|
|
|
—
|
|
|
Net income
|
43,293
|
|
|
54,880
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization, including loan and debt premiums/discounts and deferred origination costs
|
17,521
|
|
|
18,964
|
|
|
Provision for loan losses
|
6,000
|
|
|
3,750
|
|
|
Derivative market value adjustment
|
(16,835
|
)
|
|
(66,450
|
)
|
|
Foreign currency transaction adjustment
|
32,242
|
|
|
65,334
|
|
|
Proceeds to terminate and/or amend derivative instruments
|
—
|
|
|
12,369
|
|
|
Payments to terminate and/or amend derivative instruments
|
—
|
|
|
(141
|
)
|
|
Gain on sale of loans
|
—
|
|
|
(1,345
|
)
|
|
Gain from debt repurchases
|
—
|
|
|
(6,962
|
)
|
|
Change in investments - trading securities, net
|
(752
|
)
|
|
5,517
|
|
|
Deferred income tax (benefit) expense
|
(7,190
|
)
|
|
100
|
|
|
Non-cash compensation expense
|
700
|
|
|
557
|
|
|
Other non-cash items
|
(697
|
)
|
|
(189
|
)
|
|
Decrease in accrued interest receivable
|
12,023
|
|
|
9,668
|
|
|
Increase in accounts receivable
|
(561
|
)
|
|
(198
|
)
|
|
Decrease in other assets
|
1,140
|
|
|
1,016
|
|
|
Decrease in accrued interest payable
|
(353
|
)
|
|
(3,566
|
)
|
|
Increase (decrease) in other liabilities
|
14,040
|
|
|
(11,637
|
)
|
|
Net cash provided by operating activities
|
100,571
|
|
|
81,667
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Originations and purchases of student loans
|
(176,212
|
)
|
|
(235,599
|
)
|
|
Purchases of student loans from a related party
|
(221
|
)
|
|
(29
|
)
|
|
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
|
597,034
|
|
|
630,606
|
|
|
Proceeds from sale of student loans
|
32,592
|
|
|
95,131
|
|
|
Purchases of available-for-sale securities
|
(27,719
|
)
|
|
—
|
|
|
Proceeds from sales of available-for-sale securities
|
6,843
|
|
|
—
|
|
|
Purchases of property and equipment, net
|
(2,306
|
)
|
|
(2,992
|
)
|
|
Increase in restricted cash and investments, net
|
(91,631
|
)
|
|
(127,472
|
)
|
|
Business and asset acquisition contingency payments
|
(1,550
|
)
|
|
(7,193
|
)
|
|
Issuance of minority membership interest
|
5
|
|
|
—
|
|
|
Net cash provided by investing activities
|
336,835
|
|
|
352,452
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Payments on bonds and notes payable
|
(692,408
|
)
|
|
(1,090,797
|
)
|
|
Proceeds from issuance of bonds and notes payable
|
279,667
|
|
|
533,097
|
|
|
Payments on bonds payable due to a related party
|
—
|
|
|
(107,050
|
)
|
|
Payments of debt issuance costs
|
(1,595
|
)
|
|
(1,460
|
)
|
|
Dividends paid
|
(4,712
|
)
|
|
(3,387
|
)
|
|
Repurchases of common stock
|
(1,116
|
)
|
|
(310
|
)
|
|
Proceeds from issuance of common stock
|
116
|
|
|
124
|
|
|
Payments received on employee stock notes receivable
|
772
|
|
|
—
|
|
|
Net cash used in financing activities
|
(419,276
|
)
|
|
(669,783
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
18,130
|
|
|
(235,664
|
)
|
|
Cash and cash equivalents, beginning of period
|
42,570
|
|
|
283,801
|
|
|
Cash and cash equivalents, end of period
|
$
|
60,700
|
|
|
48,137
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
Interest paid
|
$
|
61,338
|
|
|
53,674
|
|
Income taxes paid, net of refunds
|
$
|
2,920
|
|
|
32,293
|
|
|
As of
|
|
As of
|
|||
|
March 31, 2012
|
|
December 31, 2011
|
|||
Federally insured loans
|
$
|
23,881,483
|
|
|
24,332,709
|
|
Non-federally insured loans
|
24,825
|
|
|
26,916
|
|
|
|
23,906,308
|
|
|
24,359,625
|
|
|
Unamortized loan premiums (discounts) and deferred origination costs, net
|
(21,041
|
)
|
|
(13,267
|
)
|
|
Allowance for loan losses – federally insured loans
|
(36,783
|
)
|
|
(37,205
|
)
|
|
Allowance for loan losses – non-federally insured loans
|
(11,652
|
)
|
|
(11,277
|
)
|
|
|
$
|
23,836,832
|
|
|
24,297,876
|
|
Allowance for federally insured loans as a percentage of such loans
|
0.15
|
%
|
|
0.15
|
%
|
|
Allowance for non-federally insured loans as a percentage of such loans
|
46.94
|
%
|
|
41.90
|
%
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Balance at beginning of period
|
$
|
48,482
|
|
|
43,626
|
|
Provision for loan losses:
|
|
|
|
|
|
|
Federally insured loans
|
6,000
|
|
|
3,500
|
|
|
Non-federally insured loans
|
—
|
|
|
250
|
|
|
Total provision for loan losses
|
6,000
|
|
|
3,750
|
|
|
Charge-offs:
|
|
|
|
|
|
|
Federally insured loans
|
(5,495
|
)
|
|
(4,855
|
)
|
|
Non-federally insured loans
|
(769
|
)
|
|
(994
|
)
|
|
Total charge-offs
|
(6,264
|
)
|
|
(5,849
|
)
|
|
Recoveries - non-federally insured loans
|
351
|
|
|
370
|
|
|
Purchase (sale) of loans, net:
|
|
|
|
|||
Federally insured loans
|
(927
|
)
|
|
—
|
|
|
Non-federally insured loans
|
—
|
|
|
—
|
|
|
Transfer to/from repurchase obligation related to loans sold/purchased, net
|
793
|
|
|
(800
|
)
|
|
Balance at end of period
|
$
|
48,435
|
|
|
41,097
|
|
Allocation of the allowance for loan losses:
|
|
|
|
|
|
|
Federally insured loans
|
$
|
36,783
|
|
|
31,553
|
|
Non-federally insured loans
|
11,652
|
|
|
9,544
|
|
|
Total allowance for loan losses
|
$
|
48,435
|
|
|
41,097
|
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Beginning balance
|
$
|
19,223
|
|
|
12,600
|
|
Transfer to/from the allowance for loan losses related to loans purchased/sold, net
|
(793
|
)
|
|
800
|
|
|
Repurchase obligation associated with loans sold on January 13, 2011
|
—
|
|
|
6,269
|
|
|
Ending balance
|
$
|
18,430
|
|
|
19,669
|
|
|
As of March 31, 2012
|
|
As of December 31, 2011
|
|
As of March 31, 2011
|
|||||||||||||||
Federally Insured Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans in-school/grace/deferment (a)
|
$
|
3,625,631
|
|
|
|
|
$
|
3,664,899
|
|
|
|
|
$
|
4,332,130
|
|
|
|
|||
Loans in forbearance (b)
|
3,363,627
|
|
|
|
|
3,330,452
|
|
|
|
|
3,086,292
|
|
|
|
||||||
Loans in repayment status:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans current
|
14,696,906
|
|
|
87.0
|
%
|
|
14,600,372
|
|
|
84.2
|
%
|
|
13,933,107
|
|
|
87.3
|
%
|
|||
Loans delinquent 31-60 days (c)
|
557,476
|
|
|
3.3
|
|
|
844,204
|
|
|
4.9
|
|
|
595,386
|
|
|
3.7
|
|
|||
Loans delinquent 61-90 days (c)
|
337,791
|
|
|
2.0
|
|
|
407,094
|
|
|
2.3
|
|
|
392,008
|
|
|
2.5
|
|
|||
Loans delinquent 91-270 days (c)
|
973,406
|
|
|
5.8
|
|
|
1,163,437
|
|
|
6.7
|
|
|
838,404
|
|
|
5.3
|
|
|||
Loans delinquent 271 days or greater (c)(d)
|
326,646
|
|
|
1.9
|
|
|
322,251
|
|
|
1.9
|
|
|
190,380
|
|
|
1.2
|
|
|||
Total loans in repayment
|
16,892,225
|
|
|
100.0
|
%
|
|
17,337,358
|
|
|
100.0
|
%
|
|
15,949,285
|
|
|
100.0
|
%
|
|||
Total federally insured loans
|
$
|
23,881,483
|
|
|
|
|
|
$
|
24,332,709
|
|
|
|
|
|
$
|
23,367,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Non-Federally Insured Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans in-school/grace/deferment (a)
|
$
|
2,046
|
|
|
|
|
|
$
|
2,058
|
|
|
|
|
|
$
|
3,069
|
|
|
|
|
Loans in forbearance (b)
|
316
|
|
|
|
|
|
371
|
|
|
|
|
|
239
|
|
|
|
||||
Loans in repayment status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans current
|
15,144
|
|
|
67.4
|
%
|
|
16,776
|
|
|
68.5
|
%
|
|
16,564
|
|
|
82.1
|
%
|
|||
Loans delinquent 31-60 days (c)
|
534
|
|
|
2.4
|
|
|
706
|
|
|
2.9
|
|
|
363
|
|
|
1.8
|
|
|||
Loans delinquent 61-90 days (c)
|
1,820
|
|
|
8.1
|
|
|
1,987
|
|
|
8.1
|
|
|
692
|
|
|
3.4
|
|
|||
Loans delinquent 91 days or greater (c)
|
4,965
|
|
|
22.1
|
|
|
5,018
|
|
|
20.5
|
|
|
2,562
|
|
|
12.7
|
|
|||
Total loans in repayment
|
22,463
|
|
|
100.0
|
%
|
|
24,487
|
|
|
100.0
|
%
|
|
20,181
|
|
|
100.0
|
%
|
|||
Total non-federally insured loans
|
$
|
24,825
|
|
|
|
|
|
$
|
26,916
|
|
|
|
|
|
$
|
23,489
|
|
|
|
(a)
|
Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans,
e.g.
, residency periods for medical students or a grace period for bar exam preparation for law students.
|
(b)
|
Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.
|
(c)
|
The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.
|
(d)
|
A portion of loans included in loans delinquent 271 days or greater includes federally insured loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.
|
|
As of March 31, 2012
|
||||||
|
Carrying
amount
|
|
Interest rate
range
|
|
Final maturity
|
||
Variable-rate bonds and notes (a):
|
|
|
|
|
|
||
Bonds and notes based on indices
|
$
|
19,832,162
|
|
|
0.50% - 6.90%
|
|
11/25/15 - 7/27/48
|
Bonds and notes based on auction or remarketing
|
970,575
|
|
|
0.18% - 2.27%
|
|
5/1/28 - 5/25/42
|
|
Total variable-rate bonds and notes
|
20,802,737
|
|
|
|
|
|
|
FFELP warehouse facilities
|
959,978
|
|
|
0.18% - 0.35%
|
|
7/1/14 - 4/2/15
|
|
Department of Education Conduit
|
2,261,104
|
|
|
0.24%
|
|
5/8/14
|
|
Unsecured line of credit
|
50,000
|
|
|
1.74%
|
|
2/17/16
|
|
Unsecured debt - Junior Subordinated Hybrid Securities
|
100,697
|
|
|
3.86%
|
|
9/15/61
|
|
Other borrowings
|
40,154
|
|
|
3.73% - 5.72%
|
|
11/14/12 - 3/1/22
|
|
|
24,214,670
|
|
|
|
|
|
|
Discount on bonds and notes payable
|
(154,061
|
)
|
|
|
|
|
|
Total
|
$
|
24,060,609
|
|
|
|
|
|
|
As of December 31, 2011
|
||||||
|
Carrying
amount
|
|
Interest rate
range
|
|
Final maturity
|
||
Variable-rate bonds and notes (a):
|
|
|
|
|
|
||
Bonds and notes based on indices
|
$
|
20,252,403
|
|
|
0.42% - 6.90%
|
|
11/25/15 - 7/27/48
|
Bonds and notes based on auction or remarketing
|
970,575
|
|
|
0.11% - 2.19%
|
|
5/1/28 - 5/25/42
|
|
Total variable-rate bonds and notes
|
21,222,978
|
|
|
|
|
|
|
FFELP warehouse facilities
|
824,410
|
|
|
0.26% - 0.70%
|
|
7/1/14
|
|
Department of Education Conduit
|
2,339,575
|
|
|
0.24%
|
|
5/8/14
|
|
Unsecured line of credit
|
64,390
|
|
|
0.69%
|
|
5/8/12
|
|
Unsecured debt - Junior Subordinated Hybrid Securities
|
100,697
|
|
|
3.95%
|
|
9/15/61
|
|
Other borrowings
|
43,119
|
|
|
3.78% - 5.72%
|
|
11/14/12 - 3/1/22
|
|
|
24,595,169
|
|
|
|
|
|
|
Discount on bonds and notes payable
|
(160,629
|
)
|
|
|
|
|
|
Total
|
$
|
24,434,540
|
|
|
|
|
|
(a)
|
Issued in asset-backed securitizations
|
|
NFSLW-I (a)
|
|
NHELP-II (b)
|
|
NHELP-I (c)
|
|
Total
|
|||||
Maximum financing amount
|
$
|
500,000
|
|
|
250,000
|
|
|
500,000
|
|
|
1,250,000
|
|
Amount outstanding
|
(484,856
|
)
|
|
(229,667
|
)
|
|
(245,455
|
)
|
|
(959,978
|
)
|
|
Amount available
|
$
|
15,144
|
|
|
20,333
|
|
|
254,545
|
|
|
290,022
|
|
Expiration of liquidity provisions
|
July 1, 2012
|
|
|
January 31, 2013
|
|
|
October 2, 2013
|
|
|
|
||
Final maturity date
|
July 1, 2014
|
|
|
January 31, 2015
|
|
|
April 2, 2015
|
|
|
|
||
Maximum advance rates
|
85 - 95%
|
|
|
93.5%
|
|
|
93 - 95%
|
|
|
|
||
Minimum advance rates
|
84.5 - 90%
|
|
|
90.5%
|
|
|
80 - 95%
|
|
|
|
||
Advanced as equity support
|
$
|
37,138
|
|
|
21,125
|
|
|
14,922
|
|
|
73,185
|
|
(a)
|
The terms of this facility were amended on February 22, 2012. The table above reflects all amended terms.
|
(b)
|
The Company entered into this facility on February 1, 2012.
|
(c)
|
The terms of this facility were amended on April 2, 2012. The table above reflects all amended terms.
|
•
|
A minimum consolidated net worth
|
•
|
A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)
|
•
|
A limitation on subsidiary indebtedness
|
•
|
A limitation on the percentage of non-federally insured loans in the Company’s portfolio
|
|
Maturity
|
|
Notional amount
|
|||
|
2021
|
|
|
$
|
250,000
|
|
|
2023
|
|
|
1,250,000
|
|
|
|
2024
|
|
|
250,000
|
|
|
|
2026
|
|
|
800,000
|
|
|
|
2028
|
|
|
100,000
|
|
|
|
2036
|
|
|
700,000
|
|
|
|
2039
|
(a)
|
|
150,000
|
|
|
|
2040
|
(b)
|
|
200,000
|
|
|
|
|
|
|
$
|
3,700,000
|
|
Notional amount (a)
|
|
Weighted average fixed rate paid by the Company (b)
|
|||
|
|||||
$
|
75,000
|
|
|
4.28
|
%
|
(a)
|
The maturity date of these derivatives is September 29, 2036.
|
(b)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Re-measurement of Euro Notes
|
$
|
(32,242
|
)
|
|
(65,334
|
)
|
Change in fair value of cross currency interest rate swaps
|
13,026
|
|
|
62,532
|
|
|
Total impact to statements of income - income (expense)
|
$
|
(19,216
|
)
|
|
(2,802
|
)
|
|
Fair value of asset derivatives
|
|
Fair value of liability derivatives
|
|||||||||
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|||||
|
March 31, 2012
|
|
December 31, 2011
|
|
March 31, 2012
|
|
December 31, 2011
|
|||||
1:3 basis swaps
|
$
|
13,626
|
|
|
10,988
|
|
|
277
|
|
|
641
|
|
Interest rate swaps - floor income hedges
|
—
|
|
|
592
|
|
|
23,427
|
|
|
18,384
|
|
|
Interest rate swaps - hybrid debt hedges
|
—
|
|
|
—
|
|
|
18,617
|
|
|
24,814
|
|
|
Cross-currency interest rate swaps
|
93,657
|
|
|
80,631
|
|
|
—
|
|
|
—
|
|
|
Other
|
251
|
|
|
8
|
|
|
—
|
|
|
1
|
|
|
Total
|
$
|
107,534
|
|
|
92,219
|
|
|
42,321
|
|
|
43,840
|
|
|
|
Three months ended March 31,
|
|||||
|
|
2012
|
|
2011
|
|||
Settlements:
|
|
|
|
|
|
|
|
1:3 basis swaps
|
|
$
|
1,381
|
|
|
208
|
|
Interest rate swaps - floor income hedges
|
|
(3,137
|
)
|
|
(6,218
|
)
|
|
Interest rate swaps - hybrid debt hedges
|
|
—
|
|
|
(246
|
)
|
|
Cross-currency interest rate swaps
|
|
2,109
|
|
|
2,109
|
|
|
Other
|
|
(126
|
)
|
|
(5
|
)
|
|
Total settlements - income (expense)
|
|
227
|
|
|
(4,152
|
)
|
|
Change in fair value:
|
|
|
|
|
|
|
|
1:3 basis swaps
|
|
3,002
|
|
|
(4,210
|
)
|
|
Interest rate swaps - floor income hedges
|
|
(5,634
|
)
|
|
6,395
|
|
|
Interest rate swaps - hybrid debt hedges
|
|
6,197
|
|
|
1,448
|
|
|
Cross-currency interest rate swaps
|
|
13,026
|
|
|
62,532
|
|
|
Other
|
|
244
|
|
|
285
|
|
|
Total change in fair value - income (expense)
|
|
16,835
|
|
|
66,450
|
|
|
Re-measurement of Euro Notes (foreign currency transaction adjustment) - income (expense)
|
|
(32,242
|
)
|
|
(65,334
|
)
|
|
Derivative market value and foreign currency adjustments and derivative settlements - income (expense)
|
|
$
|
(15,180
|
)
|
|
(3,036
|
)
|
|
As of March 31, 2012
|
|
|
|||||||||||||
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Fair value
|
|
As of
|
|||||||
|
|
|
|
|
December 31, 2011
|
|||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|||||||
Available-for-sale investments (a):
|
|
|
|
|
|
|
|
|
|
|||||||
Student loan asset-backed securities
|
$
|
54,595
|
|
|
618
|
|
|
(942
|
)
|
|
54,271
|
|
|
—
|
|
|
Equity securities
|
4,250
|
|
|
1,365
|
|
|
(107
|
)
|
|
5,508
|
|
|
—
|
|
||
Debt securities (b)
|
1,308
|
|
|
—
|
|
|
—
|
|
|
1,308
|
|
|
—
|
|
||
Total available-for-sale investments
|
$
|
60,153
|
|
|
1,983
|
|
|
(1,049
|
)
|
|
61,087
|
|
|
—
|
|
|
Trading investments (a):
|
|
|
|
|
|
|
|
|
|
|||||||
Student loan asset-backed securities
|
|
|
|
|
|
|
$
|
9,465
|
|
|
42,412
|
|
||||
Equity securities
|
|
|
|
|
|
|
—
|
|
|
6,847
|
|
|||||
Debt securities (b)
|
|
|
|
|
|
|
—
|
|
|
1,521
|
|
|||||
Total trading investments
|
|
|
|
|
|
|
$
|
9,465
|
|
|
50,780
|
|
||||
Total available-for-sale and trading investments
|
|
|
|
|
|
|
$
|
70,552
|
|
|
50,780
|
|
||||
Restricted Investments (c):
|
|
|
|
|
|
|
|
|
|
|||||||
Guaranteed investment contracts - held-to-maturity
|
|
|
|
|
|
|
$
|
284,639
|
|
|
236,899
|
|
(a)
|
The Company transferred the majority of its investments from trading to available-for-sale on January 1, 2012 to reflect management's intention regarding such securities.
|
(b)
|
Debt securities include corporate bonds, mortgage-backed securities, U.S. government bonds, and U.S. Treasury securities.
|
(c)
|
Restricted investments are included in “Restricted cash and investments” on the Company's consolidated balance sheets. The Company's restricted investments include cash balances that the Company's indentured trusts deposit in guaranteed investment contracts that are held for the related note holders. These investments are classified as held-to-maturity and the Company accounts for them at amortized cost.
|
(a)
|
On May 1, 2012, the majority of the Company's remaining guaranteed investment contracts were terminated due to a downgrade in the credit rating of a guaranteed investment contract counterparty. The sales of these investments were at par and had no income statement impact. The proceeds from the sale of these investments were used to purchase permitted investments as specified by each underlying student loan asset-backed securitization trust indenture. The new investments will continue to be classified as “restricted cash and investments” included on the consolidated balance sheet while otherwise remaining as assets within their respective trust estates. As of May, 7, 2012, the Company has $28.1 million of guaranteed investment contracts outstanding.
|
|
Weighted average remaining useful life as of March 31, 2012 (months)
|
|
As of March 31, 2012
|
|
As of December 31, 2011
|
||||
Customer relationships (net of accumulated amortization of $63,302 and $59,893, respectively)
|
66
|
|
|
$
|
19,831
|
|
|
23,240
|
|
Computer software (net of accumulated amortization of $5,806 and $5,103, respectively)
|
9
|
|
|
2,112
|
|
|
2,815
|
|
|
Trade names (net of accumulated amortization of $9,854 and $9,274, respectively)
|
9
|
|
|
1,739
|
|
|
2,319
|
|
|
|
57
|
|
|
$
|
23,682
|
|
|
28,374
|
|
2012 (April 1 - December 31)
|
$
|
13,941
|
|
2013
|
3,399
|
|
|
2014
|
2,102
|
|
|
2015
|
829
|
|
|
2016
|
639
|
|
|
2017 and thereafter
|
2,772
|
|
|
|
$
|
23,682
|
|
Student Loan and Guaranty Servicing
|
$
|
8,596
|
|
Tuition Payment Processing and Campus Commerce
|
58,086
|
|
|
Enrollment Services
|
8,553
|
|
|
Asset Generation and Management
|
41,883
|
|
|
|
$
|
117,118
|
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Net income attributable to Nelnet, Inc.
|
$
|
43,141
|
|
|
54,880
|
|
Less earnings allocated to holders of unvested restricted stock
|
279
|
|
|
346
|
|
|
Net income available to Nelnet, Inc. common shareholders
|
$
|
42,862
|
|
|
54,534
|
|
Weighted average common shares outstanding - basic
|
46,989,773
|
|
|
48,171,317
|
|
|
Dilutive effect of the assumed vesting of restricted stock awards
|
194,306
|
|
|
191,718
|
|
|
Weighted average common shares outstanding - diluted
|
47,184,079
|
|
|
48,363,035
|
|
|
Earnings per common share:
|
|
|
|
|||
Net income attributable to Nelnet, Inc. shareholders - basic
|
$
|
0.91
|
|
|
1.13
|
|
Net income attributable to Nelnet, Inc. shareholders - diluted
|
$
|
0.91
|
|
|
1.13
|
|
•
|
Servicing FFELP loans
|
•
|
Origination and servicing of non-federally insured student loans
|
•
|
Servicing federally-owned student loans for the Department of Education
|
•
|
Servicing and support outsourcing for guaranty agencies
|
•
|
Student loan servicing software and other information technology products and services
|
•
|
Inquiry Generation - Inquiry generation services include delivering qualified inquiries or clicks to third-party customers, primarily for-profit schools.
|
•
|
Inquiry Management (Agency) - Agency services include managing the marketing activities for third-party customers, primarily for-profit schools, in order to provide qualified inquiries or clicks.
|
•
|
Inquiry Management (Software) - Inquiry management services include the licensing of software to third-party customers, primarily for-profit schools. This software is also used internally by the Company. The inquiry management software has been adapted so that it can be offered as a hosted software solution that can be used by third-parties to manage and obtain qualified inquiries or clicks.
|
•
|
Digital Marketing (Peterson's Interactive) - Digital marketing services include on-line information about colleges and universities and are sold primarily based on subscriptions. Digital marketing services also include online editing services for admission essays.
|
•
|
Content Solutions - Content solutions includes test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning, and on-line information about colleges and universities. Content solutions also includes providing list marketing services to help higher education institutions and businesses reach the middle school, high school, college bound high school, college, and young adult market places.
|
•
|
The operating results of WRCM, the Company's SEC-registered investment advisory subsidiary
|
•
|
Income earned on certain investment activities
|
•
|
Interest expense incurred on unsecured debt transactions
|
•
|
Other products and service offerings that are not considered operating segments
|
|
Three months ended March 31, 2012
|
|||||||||||||||||||||||
|
Fee-Based
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Student Loan and Guaranty Servicing
|
|
Tuition Payment Processing and Campus Commerce
|
|
Enrollment
Services
|
|
Total Fee-
Based
|
|
Asset
Generation and
Management
|
|
Corporate
Activity
and
Overhead
|
|
Eliminations
|
|
Total
|
|||||||||
Total interest income
|
$
|
20
|
|
|
4
|
|
|
—
|
|
|
24
|
|
|
153,512
|
|
|
1,588
|
|
|
(971
|
)
|
|
154,153
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
68,829
|
|
|
1,439
|
|
|
(971
|
)
|
|
69,297
|
|
|
Net interest income
|
20
|
|
|
4
|
|
|
—
|
|
|
24
|
|
|
84,683
|
|
|
149
|
|
|
—
|
|
|
84,856
|
|
|
Less provision for loan losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,000
|
|
|
—
|
|
|
—
|
|
|
6,000
|
|
|
Net interest income after provision for loan losses
|
20
|
|
|
4
|
|
|
—
|
|
|
24
|
|
|
78,683
|
|
|
149
|
|
|
—
|
|
|
78,856
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan and guaranty servicing revenue
|
49,488
|
|
|
—
|
|
|
—
|
|
|
49,488
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,488
|
|
|
Intersegment servicing revenue
|
16,954
|
|
|
—
|
|
|
—
|
|
|
16,954
|
|
|
—
|
|
|
—
|
|
|
(16,954
|
)
|
|
—
|
|
|
Tuition payment processing and campus commerce revenue
|
—
|
|
|
21,913
|
|
|
—
|
|
|
21,913
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,913
|
|
|
Enrollment services revenue
|
—
|
|
|
—
|
|
|
31,664
|
|
|
31,664
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,664
|
|
|
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,000
|
|
|
5,954
|
|
|
—
|
|
|
10,954
|
|
|
Gain on sale of loans and debt repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Derivative market value and foreign currency adjustments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,604
|
)
|
|
6,197
|
|
|
—
|
|
|
(15,407
|
)
|
|
Derivative settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
227
|
|
|
—
|
|
|
—
|
|
|
227
|
|
|
Total other income (expense)
|
66,442
|
|
|
21,913
|
|
|
31,664
|
|
|
120,019
|
|
|
(16,377
|
)
|
|
12,151
|
|
|
(16,954
|
)
|
|
98,839
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
29,042
|
|
|
8,618
|
|
|
6,279
|
|
|
43,939
|
|
|
719
|
|
|
4,437
|
|
|
—
|
|
|
49,095
|
|
|
Cost to provide enrollment services
|
—
|
|
|
—
|
|
|
21,678
|
|
|
21,678
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,678
|
|
|
Depreciation and amortization
|
4,413
|
|
|
1,740
|
|
|
1,617
|
|
|
7,770
|
|
|
—
|
|
|
366
|
|
|
—
|
|
|
8,136
|
|
|
Other
|
18,666
|
|
|
2,816
|
|
|
1,956
|
|
|
23,438
|
|
|
3,632
|
|
|
5,193
|
|
|
—
|
|
|
32,263
|
|
|
Intersegment expenses, net
|
1,385
|
|
|
1,333
|
|
|
848
|
|
|
3,566
|
|
|
17,143
|
|
|
(3,755
|
)
|
|
(16,954
|
)
|
|
—
|
|
|
Total operating expenses
|
53,506
|
|
|
14,507
|
|
|
32,378
|
|
|
100,391
|
|
|
21,494
|
|
|
6,241
|
|
|
(16,954
|
)
|
|
111,172
|
|
|
Income (loss) before income taxes and corporate overhead allocation
|
12,956
|
|
|
7,410
|
|
|
(714
|
)
|
|
19,652
|
|
|
40,812
|
|
|
6,059
|
|
|
—
|
|
|
66,523
|
|
|
Corporate overhead allocation
|
(1,503
|
)
|
|
(501
|
)
|
|
(501
|
)
|
|
(2,505
|
)
|
|
(1,392
|
)
|
|
3,897
|
|
|
—
|
|
|
—
|
|
|
Income (loss) before income taxes
|
11,453
|
|
|
6,909
|
|
|
(1,215
|
)
|
|
17,147
|
|
|
39,420
|
|
|
9,956
|
|
|
—
|
|
|
66,523
|
|
|
Income tax (expense) benefit
|
(4,352
|
)
|
|
(2,625
|
)
|
|
462
|
|
|
(6,515
|
)
|
|
(14,979
|
)
|
|
(1,736
|
)
|
|
—
|
|
|
(23,230
|
)
|
|
Net income (loss)
|
7,101
|
|
|
4,284
|
|
|
(753
|
)
|
|
10,632
|
|
|
24,441
|
|
|
8,220
|
|
|
—
|
|
|
43,293
|
|
|
Net income attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
152
|
|
|
Net income (loss) attributable to Nelnet, Inc.
|
$
|
7,101
|
|
|
4,284
|
|
|
(753
|
)
|
|
10,632
|
|
|
24,441
|
|
|
8,068
|
|
|
—
|
|
|
43,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Three months ended March 31, 2011
|
|||||||||||||||||||||||
|
Fee-Based
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Student Loan and Guaranty Servicing
|
|
Tuition Payment Processing and Campus Commerce
|
|
Enrollment
Services
|
|
Total Fee-
Based
|
|
Asset
Generation and
Management
|
|
Corporate
Activity
and
Overhead
|
|
Eliminations
|
|
Total
|
|||||||||
Total interest income
|
$
|
15
|
|
|
6
|
|
|
—
|
|
|
21
|
|
|
137,639
|
|
|
1,146
|
|
|
(722
|
)
|
|
138,084
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49,716
|
|
|
3,313
|
|
|
(722
|
)
|
|
52,307
|
|
|
Net interest income (loss)
|
15
|
|
|
6
|
|
|
—
|
|
|
21
|
|
|
87,923
|
|
|
(2,167
|
)
|
|
—
|
|
|
85,777
|
|
Less provision for loan losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,750
|
|
|
—
|
|
|
—
|
|
|
3,750
|
|
|
Net interest income (loss) after provision for loan losses
|
15
|
|
|
6
|
|
|
—
|
|
|
21
|
|
|
84,173
|
|
|
(2,167
|
)
|
|
—
|
|
|
82,027
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Loan and guaranty servicing revenue
|
40,413
|
|
|
—
|
|
|
—
|
|
|
40,413
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,413
|
|
|
Intersegment servicing revenue
|
17,857
|
|
|
—
|
|
|
—
|
|
|
17,857
|
|
|
—
|
|
|
—
|
|
|
(17,857
|
)
|
|
—
|
|
|
Tuition payment processing and campus commerce revenue
|
—
|
|
|
19,369
|
|
|
—
|
|
|
19,369
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,369
|
|
|
Enrollment services revenue
|
—
|
|
|
—
|
|
|
33,868
|
|
|
33,868
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,868
|
|
|
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,136
|
|
|
2,356
|
|
|
—
|
|
|
6,492
|
|
|
Gain on sale of loans and debt repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,400
|
|
|
6,907
|
|
|
—
|
|
|
8,307
|
|
|
Derivative market value and foreign currency adjustments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(589
|
)
|
|
1,705
|
|
|
—
|
|
|
1,116
|
|
|
Derivative settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,038
|
)
|
|
(114
|
)
|
|
—
|
|
|
(4,152
|
)
|
|
Total other income (expense)
|
58,270
|
|
|
19,369
|
|
|
33,868
|
|
|
111,507
|
|
|
909
|
|
|
10,854
|
|
|
(17,857
|
)
|
|
105,413
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
25,388
|
|
|
7,152
|
|
|
6,257
|
|
|
38,797
|
|
|
778
|
|
|
4,337
|
|
|
—
|
|
|
43,912
|
|
|
Cost to provide enrollment services
|
—
|
|
|
—
|
|
|
22,839
|
|
|
22,839
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,839
|
|
|
Depreciation and amortization
|
3,406
|
|
|
1,334
|
|
|
1,691
|
|
|
6,431
|
|
|
—
|
|
|
345
|
|
|
—
|
|
|
6,776
|
|
|
Other
|
14,579
|
|
|
2,634
|
|
|
2,318
|
|
|
19,531
|
|
|
1,538
|
|
|
5,036
|
|
|
—
|
|
|
26,105
|
|
|
Intersegment expenses, net
|
1,369
|
|
|
1,093
|
|
|
818
|
|
|
3,280
|
|
|
18,147
|
|
|
(3,570
|
)
|
|
(17,857
|
)
|
|
—
|
|
|
Total operating expenses
|
44,742
|
|
|
12,213
|
|
|
33,923
|
|
|
90,878
|
|
|
20,463
|
|
|
6,148
|
|
|
(17,857
|
)
|
|
99,632
|
|
|
Income (loss) before income taxes and corporate overhead allocation
|
13,543
|
|
|
7,162
|
|
|
(55
|
)
|
|
20,650
|
|
|
64,619
|
|
|
2,539
|
|
|
—
|
|
|
87,808
|
|
|
Corporate overhead allocation
|
(753
|
)
|
|
(251
|
)
|
|
(251
|
)
|
|
(1,255
|
)
|
|
(1,255
|
)
|
|
2,510
|
|
|
—
|
|
|
—
|
|
|
Income (loss) before income taxes
|
12,790
|
|
|
6,911
|
|
|
(306
|
)
|
|
19,395
|
|
|
63,364
|
|
|
5,049
|
|
|
—
|
|
|
87,808
|
|
|
Income tax (expense) benefit
|
(4,860
|
)
|
|
(2,626
|
)
|
|
117
|
|
|
(7,369
|
)
|
|
(24,078
|
)
|
|
(1,481
|
)
|
|
—
|
|
|
(32,928
|
)
|
|
Net income (loss)
|
7,930
|
|
|
4,285
|
|
|
(189
|
)
|
|
12,026
|
|
|
39,286
|
|
|
3,568
|
|
|
—
|
|
|
54,880
|
|
|
Net income attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to Nelnet, Inc.
|
$
|
7,930
|
|
|
4,285
|
|
|
(189
|
)
|
|
12,026
|
|
|
39,286
|
|
|
3,568
|
|
|
—
|
|
|
54,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2012
|
||||||||
|
Level 1
|
|
Level 2
|
|
Total
|
||||
Assets:
|
|
|
|
|
|
||||
Investments: (a)
|
|
|
|
|
|
|
|||
Student loan asset-backed securities
|
$
|
—
|
|
|
63,736
|
|
|
63,736
|
|
Equity securities
|
5,508
|
|
|
—
|
|
|
5,508
|
|
|
Debt securities
|
1,308
|
|
|
—
|
|
|
1,308
|
|
|
Total investments
|
6,816
|
|
|
63,736
|
|
|
70,552
|
|
|
Fair value of derivative instruments (b)
|
—
|
|
|
107,534
|
|
|
107,534
|
|
|
Total assets
|
$
|
6,816
|
|
|
171,270
|
|
|
178,086
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Fair value of derivative instruments (b)
|
$
|
—
|
|
|
42,321
|
|
|
42,321
|
|
Total liabilities
|
$
|
—
|
|
|
42,321
|
|
|
42,321
|
|
|
As of December 31, 2011
|
||||||||
|
Level 1
|
|
Level 2
|
|
Total
|
||||
Assets:
|
|
|
|
|
|
||||
Investments: (a)
|
|
|
|
|
|
||||
Student loan asset-backed securities
|
$
|
—
|
|
|
42,412
|
|
|
42,412
|
|
Equity securities
|
6,847
|
|
|
—
|
|
|
6,847
|
|
|
Debt securities
|
1,521
|
|
|
—
|
|
|
1,521
|
|
|
Total investments
|
8,368
|
|
|
42,412
|
|
|
50,780
|
|
|
Fair value of derivative instruments (b)
|
—
|
|
|
92,219
|
|
|
92,219
|
|
|
Total assets
|
$
|
8,368
|
|
|
134,631
|
|
|
142,999
|
|
Liabilities:
|
|
|
|
|
|
||||
Fair value of derivative instruments (b)
|
$
|
—
|
|
|
43,840
|
|
|
43,840
|
|
Total liabilities
|
$
|
—
|
|
|
43,840
|
|
|
43,840
|
|
(a)
|
Investments represent investments recorded at fair value on a recurring basis. Level 1 investments are measured based upon quoted prices and include investments traded on an active exchange, such as the New York Stock Exchange, and corporate bonds, mortgage-backed securities, U.S. government bonds, and U.S. Treasury securities that trade in active markets. Level 2 investments include student loan asset-backed securities. The fair value for the student loan asset-backed securities is determined using indicative quotes from broker dealers or an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk.
|
(b)
|
All derivatives are accounted for at fair value on a recurring basis. The fair value of derivative financial instruments is determined by derivative pricing models using the stated terms of the contracts and observable yield curves, forward foreign currency exchange rates, and volatilities from active markets.
|
|
As of March 31, 2012
|
||||||||||||||
|
Fair value
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
||||||
Student loans receivable
|
$
|
23,759,545
|
|
|
23,836,832
|
|
|
—
|
|
|
—
|
|
|
23,759,545
|
|
Cash and cash equivalents
|
60,700
|
|
|
60,700
|
|
|
60,700
|
|
|
—
|
|
|
—
|
|
|
Investments
|
70,552
|
|
|
70,552
|
|
|
6,816
|
|
|
63,736
|
|
|
—
|
|
|
Restricted cash
|
421,314
|
|
|
421,314
|
|
|
421,314
|
|
|
—
|
|
|
—
|
|
|
Restricted cash – due to customers
|
38,642
|
|
|
38,642
|
|
|
38,642
|
|
|
—
|
|
|
—
|
|
|
Restricted investments
|
284,639
|
|
|
284,639
|
|
|
284,639
|
|
|
—
|
|
|
—
|
|
|
Accrued interest receivable
|
296,378
|
|
|
296,378
|
|
|
296,378
|
|
|
—
|
|
|
—
|
|
|
Derivative instruments
|
107,534
|
|
|
107,534
|
|
|
—
|
|
|
107,534
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bonds and notes payable
|
23,010,542
|
|
|
24,060,609
|
|
|
—
|
|
|
23,010,542
|
|
|
—
|
|
|
Accrued interest payable
|
19,281
|
|
|
19,281
|
|
|
19,281
|
|
|
—
|
|
|
—
|
|
|
Due to customers
|
38,642
|
|
|
38,642
|
|
|
38,642
|
|
|
—
|
|
|
—
|
|
|
Derivative instruments
|
42,321
|
|
|
42,321
|
|
|
—
|
|
|
42,321
|
|
|
—
|
|
|
As of December 31, 2011
|
||||||||||||||
|
Fair value
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
||||||
Student loans receivable
|
$
|
23,894,005
|
|
|
24,297,876
|
|
|
—
|
|
|
—
|
|
|
23,894,005
|
|
Cash and cash equivalents
|
42,570
|
|
|
42,570
|
|
|
42,570
|
|
|
—
|
|
|
—
|
|
|
Investments
|
50,780
|
|
|
50,780
|
|
|
8,368
|
|
|
42,412
|
|
|
—
|
|
|
Restricted cash
|
377,423
|
|
|
377,423
|
|
|
377,423
|
|
|
—
|
|
|
—
|
|
|
Restricted cash – due to customers
|
109,809
|
|
|
109,809
|
|
|
109,809
|
|
|
—
|
|
|
—
|
|
|
Restricted investments
|
236,899
|
|
|
236,899
|
|
|
236,899
|
|
|
—
|
|
|
—
|
|
|
Accrued interest receivable
|
308,401
|
|
|
308,401
|
|
|
308,401
|
|
|
—
|
|
|
—
|
|
|
Derivative instruments
|
92,219
|
|
|
92,219
|
|
|
—
|
|
|
92,219
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bonds and notes payable
|
23,003,453
|
|
|
24,434,540
|
|
|
—
|
|
|
23,003,453
|
|
|
—
|
|
|
Accrued interest payable
|
19,634
|
|
|
19,634
|
|
|
19,634
|
|
|
—
|
|
|
—
|
|
|
Due to customers
|
109,809
|
|
|
109,809
|
|
|
109,809
|
|
|
—
|
|
|
—
|
|
|
Derivative instruments
|
43,840
|
|
|
43,840
|
|
|
—
|
|
|
43,840
|
|
|
—
|
|
•
|
risks related to the Company's student loan portfolio, such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the Company's student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the “FFEL Program” or “FFELP”) of the U.S. Department of Education (the “Department”), risks related to the use of derivatives to manage exposure to interest rate fluctuations, and potential losses from loan defaults, changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads;
|
•
|
risks related to the Company's funding requirements, including the Company's ability to maintain credit facilities or obtain new facilities, the ability of lenders under the Company's credit facilities to fulfill their lending commitments under these facilities, the Company's ability to satisfy debt obligations secured by student loan assets and related collateral, and changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to carry education loans;
|
•
|
risks from changes in the student loan and educational credit and services marketplace resulting from the implementation of, or changes in, applicable laws, regulations, and government programs, including the discontinuance of private sector student loan originations under the FFEL Program effective July 1, 2010, and new regulations effective July 1, 2011 that could affect enrollment at for-profit schools, the uncertain nature of the potential impact of the Department's new loan consolidation initiative or similar consolidation programs, and the Company’s ability to maintain or increase volumes under its loan servicing contract with the Department to service federally-owned student loans and to comply with servicing agreements with third-party customers for the service of loans under the Federal Direct Loan and FFEL Programs;
|
•
|
risks from changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families;
|
•
|
uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
|
•
|
risks associated with litigation, complex government regulations, changes in general economic conditions (which have recently led to higher rates of student loan defaults), changes in credit market conditions, and related party transactions; and
|
•
|
uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.
|
•
|
Continued strong earnings (net income of $52.7 million, or $1.11 per share, excluding derivative market value and foreign currency adjustments)(a)
|
•
|
An increase in book value per share to $23.41, or 18.8%, from March 31, 2011
|
•
|
An increase in revenue from fee-based businesses to $120.1 million, or 7.6%, as compared to the first quarter of 2011
|
•
|
Strong liquidity represented by $100.6 million of net cash provided by operating activities during the first quarter of 2012 and $495.1 million of liquidity available for use as of March 31, 2012 (b)
|
|
Three months ended
|
||||||||
|
March 31, 2012
|
|
December 31, 2011
|
|
March 31, 2011
|
||||
Operating Data:
|
|
|
|
|
|
||||
Core student loan spread
|
1.43
|
%
|
|
1.51
|
%
|
|
1.46
|
%
|
|
Net interest income, net of settlements on derivatives
|
$
|
79,083
|
|
|
85,868
|
|
|
77,875
|
|
Fixed rate floor income, net of settlements on derivatives
|
38,092
|
|
|
39,373
|
|
|
31,682
|
|
|
Total revenue (c)
|
193,102
|
|
|
194,800
|
|
|
186,324
|
|
|
Operating expenses
|
111,172
|
|
|
102,691
|
|
|
99,632
|
|
|
Net income
|
43,141
|
|
|
64,879
|
|
|
54,880
|
|
|
Net income, excluding derivative market value and foreign currency adjustments (a)
|
52,693
|
|
|
57,577
|
|
|
54,188
|
|
|
Net income - per share
|
0.91
|
|
|
1.37
|
|
|
1.13
|
|
|
Net income, excluding derivative market value and foreign currency adjustments - per share (a)
|
1.11
|
|
|
1.22
|
|
|
1.12
|
|
|
As of
|
|
As of
|
|
As of
|
||||
|
March 31, 2012
|
|
December 31, 2011
|
|
March 31, 2011
|
||||
Balance Sheet Data:
|
|
|
|
|
|
||||
Total assets
|
$
|
25,446,312
|
|
|
25,852,217
|
|
|
25,294,699
|
|
Nelnet, Inc. shareholders' equity
|
1,107,716
|
|
|
1,066,205
|
|
|
955,367
|
|
|
Nelnet, Inc. tangible shareholders' equity
|
966,916
|
|
|
920,713
|
|
|
803,513
|
|
|
Book value per common share
|
23.41
|
|
|
22.62
|
|
|
19.71
|
|
|
Tangible book value per common share
|
20.43
|
|
|
19.53
|
|
|
16.57
|
|
|
|
|
|
|
|
|
||||
Ratios:
|
|
|
|
|
|
||||
Nelnet, Inc. shareholders' equity to total assets
|
4.35
|
%
|
|
4.12
|
%
|
|
3.78
|
%
|
(a)
|
"Derivative market value and foreign currency adjustments" include (i) the unrealized gains and losses that are caused by the change in fair value on derivatives in which the Company does not qualify for "hedge treatment" under GAAP; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. The derivative market value and foreign currency adjustments, net of tax, was an expense of $9.6 million ($0.20 per share) and income of $7.3 million ($0.15 per share) and $0.7 million ($0.01 per share) for the three months ended March 31, 2012, December 31, 2011, and March 31, 2011, respectively.
|
(b)
|
See "Liquidity and Capital Resources - Sources of liquidity currently available" in this Item 2.
|
(c)
|
Total revenue includes "net interest income after provision for loan losses" and "total other income" from the Company's statements of income, excluding the impact from the change in fair value on derivatives and the foreign currency transaction adjustments of $15.4 million, $11.8 million, and $1.1 million for the three months ended March 31, 2012, December 31, 2011, and March 31, 2011, respectively.
|
•
|
Student Loan and Guaranty Servicing ("LGS") - referred to as Nelnet Diversified Solutions ("NDS")
|
•
|
Tuition Payment Processing and Campus Commerce ("TPP&CC") - referred to as Nelnet Business Solutions ("NBS")
|
•
|
Enrollment Services ("NES") - commonly called Nelnet Enrollment Solutions ("NES")
|
(a)
|
Total revenue includes "net interest income after provision for loan losses" and "total other income" from the Company's segment statements of income, excluding the impact from the change in fair value on derivatives and the foreign currency transaction adjustment, which were expenses of $21.6 million and $0.6 million for the three months ended March 31, 2012 and 2011, respectively. Net income excludes the change in fair value on derivatives and the foreign currency transaction adjustment which was $13.4 million and $0.4 million for the three months ended March 31, 2012 and 2011, respectively.
|
•
|
An increase in government servicing revenue due to increased volume from the Department.
|
•
|
An increase in guaranty servicing revenue due to an increase in rehabilitation collection revenue.
|
•
|
An increase in software services revenue as a result of the Company beginning to provide hosted student loan servicing to a significant customer in October 2011.
|
•
|
A decrease in operating margin due to the government servicing portfolio growing as a percentage of the Company's total servicing portfolio.
|
•
|
An increase in operating expenses due to incurring additional costs related to the government servicing contract and the hosted servicing software product.
|
•
|
An increase in revenue as a result of an increase in the number of managed tuition payment plans and campus commerce customers.
|
•
|
A slight compression in margin due to an increase in amortization of intangible assets and continued investment in new products and services to meet customer needs and expand product and service offerings.
|
•
|
Continued decrease in revenue and operating margin due to the effects from regulatory uncertainty in the for-profit college industry, which has caused schools to decrease spending on marketing efforts.
|
•
|
A decrease in variable student loan spread as a result of the widening student loan yield and debt indices (CP/LIBOR spread).
|
•
|
Continued recognition of significant fixed rate floor income due to historically low interest rates.
|
•
|
As of March 31, 2012, the Company had $495.1 million of liquidity available for use.
|
•
|
For the three months ended March 31, 2012, the Company generated $100.6 million in net cash provided by operating activities.
|
•
|
Forecasted future cash flows from the Company's FFELP student loan portfolio remain strong and are estimated to be $1.81 billion as of March 31, 2012.
|
•
|
On February 17, 2012, the Company entered into a new $250.0 million unsecured line of credit that has a maturity date of February 17, 2016. In conjunction with entering into this new agreement, the outstanding balance on the previous $750.0 million unsecured line of credit of $64.4 million was paid off in full and that agreement was terminated.
|
•
|
The Company will continue to use its strong liquidity position to capitalize on market opportunities, including FFELP student loan acquisitions; strategic acquisitions and investments in its core business areas of loan financing, loan servicing, payment processing, and enrollment services (education planning); and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions.
|
•
|
Loan and guaranty servicing fees
- Loan servicing fees are determined according to individual agreements with customers and are calculated based on the dollar value of loans, number of loans, or number of borrowers serviced for each customer. Guaranty servicing fees, generally, are calculated based on the number of loans serviced, volume of loans serviced, or amounts collected. Revenue is recognized when earned pursuant to applicable agreements, and when ultimate collection is assured.
|
•
|
Software services revenue
- Software services revenue is determined from individual agreements with customers and includes license and maintenance fees associated with student loan software products. Computer and software consulting and remote hosting revenues are recognized over the period in which services are provided to customers.
|
•
|
Inquiry Generation
- Inquiry generation services include delivering qualified inquiries or clicks to third-party customers, primarily for-profit schools.
|
•
|
Inquiry Management (Agency)
- Agency services include managing the marketing activities for third-party customers, primarily for-profit schools, in order to provide qualified inquiries or clicks.
|
•
|
Inquiry Management (Software)
- Inquiry management services include the licensing of software to third-party customers, primarily for-profit schools. This software is also used internally by the Company. The inquiry management software has been adapted so that it can be offered as a hosted software solution that can be used by third-parties to manage and obtain qualified inquiries or clicks.
|
•
|
Digital Marketing (Peterson's Interactive)
- Digital marketing services include on-line information about colleges and universities and are sold primarily based on subscriptions. Revenues from sales of subscription services are recognized ratably over the term of the contract as earned. Subscription revenues received or receivable in advance of the delivery of services is included in deferred revenue. Digital marketing services also include on-line editing services for admission essays. Fees for these services are recognized over the period in which services are provided to customers.
|
•
|
Content Solutions
- Content solutions includes test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning, and on-line information about colleges and universities. Several of these services are sold based on subscriptions. Revenues from sales of subscription services are recognized ratably over the term of the contract as earned. Subscription revenues received or receivable in advance of the delivery of services is included in deferred revenue. Revenue from the sale of print products is generally
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Interest income:
|
|
|
|
|
|
|
|
|
||||
Loan interest
|
$
|
153,058
|
|
|
137,358
|
|
|
15,700
|
|
|
11.4
|
%
|
Investment interest
|
1,095
|
|
|
726
|
|
|
369
|
|
|
50.8
|
|
|
Total interest income
|
154,153
|
|
|
138,084
|
|
|
16,069
|
|
|
11.6
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|||
Interest on bonds and notes payable
|
69,297
|
|
|
52,307
|
|
|
16,990
|
|
|
32.5
|
|
|
Net interest income
|
84,856
|
|
|
85,777
|
|
|
(921
|
)
|
|
(1.1
|
)
|
|
Provision for loan losses
|
6,000
|
|
|
3,750
|
|
|
2,250
|
|
|
60.0
|
|
|
Net interest income after provision for loan losses
|
78,856
|
|
|
82,027
|
|
|
(3,171
|
)
|
|
(3.9
|
)
|
|
Derivative settlements, net (a)
|
227
|
|
|
(4,152
|
)
|
|
4,379
|
|
|
(105.5
|
)
|
|
Net interest income after provision for loan losses (net of settlements on derivatives)
|
$
|
79,083
|
|
|
77,875
|
|
|
1,208
|
|
|
1.6
|
%
|
(a)
|
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Variable student loan interest margin, net of settlements on derivatives (a)
|
$
|
47,335
|
|
|
52,644
|
|
|
(5,309
|
)
|
|
(10.1
|
)%
|
Fixed rate floor income, net of settlements on derivatives (b)
|
38,092
|
|
|
31,682
|
|
|
6,410
|
|
|
20.2
|
|
|
Investment interest
|
1,095
|
|
|
726
|
|
|
369
|
|
|
50.8
|
|
|
Non-portfolio related derivative settlements
|
—
|
|
|
(114
|
)
|
|
114
|
|
|
(100.0
|
)
|
|
Corporate debt interest expense (c)
|
(1,439
|
)
|
|
(3,313
|
)
|
|
1,874
|
|
|
(56.6
|
)
|
|
Provision for loan losses (d)
|
(6,000
|
)
|
|
(3,750
|
)
|
|
(2,250
|
)
|
|
60.0
|
|
|
Net interest income after provision for loan losses (net of settlements on derivatives)
|
$
|
79,083
|
|
|
77,875
|
|
|
1,208
|
|
|
1.6
|
%
|
(a)
|
Variable student loan spread is impacted by variable rate student loan interest, consolidation rebate fees, amortization/accretion of loan premiums and discounts, and interest expense on bonds and notes. See "Asset Generation and Management Operating Segment – Results of Operations" in this Item 2 for additional information.
|
(b)
|
The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rates generating fixed rate floor income. See Item 3, “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk” for additional information.
|
(c)
|
Corporate debt interest expense includes interest expense incurred by the Company on its Junior Subordinated Hybrid Securities and its unsecured line of credit. Corporate debt interest expense decreased for the
three
months ended
March 31, 2012
compared with the same
period
in
2011
due to a reduction in debt outstanding. The Company repurchased $62.6 million of Junior Subordinated Hybrid Securities in February 2011. The average balance outstanding on the Company's unsecured line of credit was $33.3 million during the first quarter of 2012 compared to $202.1 million in 2011.
|
(d)
|
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses inherent in the Company's portfolio of loans. The provision for loan losses recognized by the Company increased during the
three
months ended
March 31, 2012
compared to the same
period
in
2011
, primarily due to an increase in delinquent loans.
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Loan and guaranty servicing revenue (a)
|
$
|
49,488
|
|
|
40,413
|
|
|
9,075
|
|
|
22.5
|
%
|
Tuition payment processing and campus commerce revenue (b)
|
21,913
|
|
|
19,369
|
|
|
2,544
|
|
|
13.1
|
|
|
Enrollment services revenue (c)
|
31,664
|
|
|
33,868
|
|
|
(2,204
|
)
|
|
(6.5
|
)
|
|
Other income (d)
|
10,954
|
|
|
6,492
|
|
|
4,462
|
|
|
68.7
|
|
|
Gain on sale of loans and debt repurchases (e)
|
—
|
|
|
8,307
|
|
|
(8,307
|
)
|
|
(100.0
|
)
|
|
Derivative market value and foreign currency adjustments (f)
|
(15,407
|
)
|
|
1,116
|
|
|
(16,523
|
)
|
|
(1,480.6
|
)
|
|
Derivative settlements, net (g)
|
227
|
|
|
(4,152
|
)
|
|
4,379
|
|
|
(105.5
|
)
|
|
Total other income
|
$
|
98,839
|
|
|
105,413
|
|
|
(6,574
|
)
|
|
(6.2
|
)%
|
(a)
|
"Loan and guaranty servicing revenue" increased for the three months ended
March 31, 2012
compared to the same period in
2011
due to an increase in servicing revenue from the Department of Education, an increase in guaranty servicing revenue, and an increase in software services revenue. See Item 2 under "Student Loan and Guaranty Servicing Operating Segment – Results of Operations" for additional information.
|
(b)
|
"Tuition payment processing and campus commerce revenue" increased due to an increase in the number of managed tuition payment plans and campus commerce customers as discussed in this Item 2 under "Tuition Payment Processing and Campus Commerce Operating Segment – Results of Operations."
|
(c)
|
"Enrollment services revenue" decreased due to decreases in inquiry generation and inquiry management volume, as further discussed in this Item 2 under "Enrollment Services Operating Segment – Results of Operations." Enrollment services revenue has been negatively affected by the ongoing regulatory uncertainty in the for-profit college industry, which has caused schools to decrease spending on marketing efforts.
|
(d)
|
The following table summarizes the components of "other income."
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Borrower late fee income
|
$
|
3,703
|
|
|
3,590
|
|
Investment advisory fees (1)
|
2,989
|
|
|
—
|
|
|
Investments - realized gains/(losses), net
|
1,610
|
|
|
(1,760
|
)
|
|
529 Plan administration fees
|
420
|
|
|
1,133
|
|
|
Trading investments - unrealized gains/(losses), net
|
(192
|
)
|
|
1,922
|
|
|
Other
|
2,424
|
|
|
1,607
|
|
|
Other income
|
$
|
10,954
|
|
|
6,492
|
|
(e)
|
During the first quarter of 2011, the Company sold a portfolio of non-federally insured student loans and recognized a gain of $1.4 million. In addition, during the first quarter of 2011, the Company purchased $62.6 million (notional amount) of its Junior Subordinated Hybrid Securities (unsecured debt) for $55.7 million and recognized a gain of $6.9 million. Due to improvements in the capital markets, the opportunities for the Company to repurchase debt at less than par are becoming more limited.
|
(f)
|
The change in “derivative market value and foreign currency adjustments” is the result of the change in the fair value of the Company’s derivative portfolio and translation gains/losses resulting from the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars. These changes are summarized below.
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Change in fair value of derivatives - income (expense)
|
$
|
16,835
|
|
|
66,450
|
|
Foreign currency transaction adjustment - income (expense)
|
(32,242
|
)
|
|
(65,334
|
)
|
|
Derivative market value and foreign currency adjustments - income (expense)
|
$
|
(15,407
|
)
|
|
1,116
|
|
(g)
|
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
|
|
Three months ended March 31,
|
|
Change
|
||||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
||||||
Salaries and benefits
|
$
|
49,095
|
|
|
43,912
|
|
|
5,183
|
|
|
11.8
|
%
|
|
Depreciation and amortization
|
8,136
|
|
|
6,776
|
|
|
1,360
|
|
|
20.1
|
|
||
Other expenses
|
27,465
|
|
|
22,804
|
|
|
4,661
|
|
|
20.4
|
|
||
Operating expenses, excluding cost to provide enrollment services and collection costs related to loan rehabilitation revenue
|
84,696
|
|
|
73,492
|
|
|
$
|
11,204
|
|
|
15.2
|
%
|
|
Cost to provide enrollment services
|
21,678
|
|
|
22,839
|
|
|
|
|
|
||||
Collection costs related to loan rehabilitation revenue (a)
|
4,798
|
|
|
3,301
|
|
|
|
|
|
||||
Total operating expenses
|
$
|
111,172
|
|
|
99,632
|
|
|
|
|
|
(a)
|
The Company incurred collection costs directly related to revenue earned from rehabilitation loans. These costs are included in "other" under the operating expense section of the consolidated statements of income and are shown separately in the above table for comparability purposes for the periods shown.
|
|
As of
|
|
As of
|
|
Change
|
|||||||
|
March 31, 2012
|
|
December 31, 2011
|
|
||||||||
|
|
|
$
|
|
%
|
|||||||
Assets:
|
|
|
|
|
|
|
|
|||||
Student loans receivable, net
|
$
|
23,836,832
|
|
|
24,297,876
|
|
|
(461,044
|
)
|
|
(1.9
|
)%
|
Cash, cash equivalents, and investments
|
875,847
|
|
|
817,481
|
|
|
58,366
|
|
|
7.1
|
|
|
Goodwill
|
117,118
|
|
|
117,118
|
|
|
—
|
|
|
—
|
|
|
Intangible assets, net
|
23,682
|
|
|
28,374
|
|
|
(4,692
|
)
|
|
(16.5
|
)
|
|
Fair value of derivative instruments
|
107,534
|
|
|
92,219
|
|
|
15,315
|
|
|
16.6
|
|
|
Other assets
|
485,299
|
|
|
499,149
|
|
|
(13,850
|
)
|
|
(2.8
|
)
|
|
Total assets
|
$
|
25,446,312
|
|
|
25,852,217
|
|
|
(405,905
|
)
|
|
(1.6
|
)%
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds and notes payable
|
$
|
24,060,609
|
|
|
24,434,540
|
|
|
(373,931
|
)
|
|
(1.5
|
)%
|
Fair value of derivative instruments
|
42,321
|
|
|
43,840
|
|
|
(1,519
|
)
|
|
(3.5
|
)
|
|
Other liabilities
|
235,509
|
|
|
307,632
|
|
|
(72,123
|
)
|
|
(23.4
|
)
|
|
Total liabilities
|
24,338,439
|
|
|
24,786,012
|
|
|
(447,573
|
)
|
|
(1.8
|
)
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|||||
Nelnet, Inc. shareholders' equity
|
1,107,716
|
|
|
1,066,205
|
|
|
41,511
|
|
|
3.9
|
|
|
Noncontrolling interest
|
157
|
|
|
—
|
|
|
157
|
|
|
100.0
|
|
|
Total liabilities and shareholders' equity
|
$
|
25,446,312
|
|
|
25,852,217
|
|
|
(405,905
|
)
|
|
(1.6
|
)%
|
•
|
Servicing FFELP loans
|
•
|
Originating and servicing non-federally insured student loans
|
•
|
Servicing federally-owned student loans for the Department of Education
|
•
|
Servicing and outsourcing services for guaranty agencies
|
•
|
Providing student loan servicing software and other information technology products and services
|
•
|
Three metrics measure the satisfaction among separate customer groups, including borrowers, financial aid personnel at postsecondary schools participating in the federal student loan programs, and Federal Student Aid and other federal agency personnel or contractors who work with the servicers.
|
•
|
Two performance metrics measure the success of default prevention efforts as reflected by the percentage of borrowers and percentage of dollars in each servicer’s portfolio that go into default.
|
Company owned
|
$23,139
|
$23,727
|
$23,249
|
$22,757
|
$22,503
|
$22,650
|
$22,277
|
% of Total
|
61.6%
|
38.6%
|
34.2%
|
33.0%
|
30.2%
|
29.8%
|
27.1%
|
Number of servicing borrowers:
|
|
|
|
|
|
|
|
Government servicing:
|
441,913
|
2,804,502
|
2,814,142
|
2,666,183
|
2,966,706
|
3,036,534
|
3,096,026
|
FFELP servicing:
|
2,311,558
|
1,912,748
|
1,870,538
|
1,837,272
|
1,812,582
|
1,799,484
|
1,779,245
|
Total:
|
2,753,471
|
4,717,250
|
4,684,680
|
4,503,455
|
4,779,288
|
4,836,018
|
4,875,271
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Net interest income
|
$
|
20
|
|
|
15
|
|
|
5
|
|
|
33.3
|
%
|
Loan and guaranty servicing revenue
|
49,488
|
|
|
40,413
|
|
|
9,075
|
|
|
22.5
|
|
|
Intersegment servicing revenue
|
16,954
|
|
|
17,857
|
|
|
(903
|
)
|
|
(5.1
|
)
|
|
Total other income
|
66,442
|
|
|
58,270
|
|
|
8,172
|
|
|
14.0
|
|
|
Salaries and benefits
|
29,042
|
|
|
25,388
|
|
|
3,654
|
|
|
14.4
|
|
|
Depreciation and amortization
|
4,413
|
|
|
3,406
|
|
|
1,007
|
|
|
29.6
|
|
|
Other expenses
|
18,666
|
|
|
14,579
|
|
|
4,087
|
|
|
28.0
|
|
|
Intersegment expenses, net
|
1,385
|
|
|
1,369
|
|
|
16
|
|
|
1.2
|
|
|
Total operating expenses
|
53,506
|
|
|
44,742
|
|
|
8,764
|
|
|
19.6
|
|
|
Income before income taxes and corporate overhead allocation
|
12,956
|
|
|
13,543
|
|
|
(587
|
)
|
|
(4.3
|
)
|
|
Corporate overhead allocation
|
(1,503
|
)
|
|
(753
|
)
|
|
(750
|
)
|
|
99.6
|
|
|
Income before income taxes
|
11,453
|
|
|
12,790
|
|
|
(1,337
|
)
|
|
(10.5
|
)
|
|
Income tax expense
|
(4,352
|
)
|
|
(4,860
|
)
|
|
508
|
|
|
(10.5
|
)
|
|
Net income
|
$
|
7,101
|
|
|
7,930
|
|
|
(829
|
)
|
|
(10.5
|
)%
|
Before Tax Operating Margin
|
17.2
|
%
|
|
21.9
|
%
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|||||||||||||||||
|
2012
|
|
2011
|
|||||||||||||||
|
Origination
revenue
|
|
Servicing
revenue
|
|
Total
revenue
|
|
Origination
revenue
|
|
Servicing
revenue
|
|
Total
revenue
|
|||||||
FFELP servicing (a)
|
$
|
—
|
|
|
6,714
|
|
|
6,714
|
|
|
—
|
|
|
6,997
|
|
|
6,997
|
|
Private servicing
|
195
|
|
|
2,073
|
|
|
2,268
|
|
|
274
|
|
|
2,143
|
|
|
2,417
|
|
|
Government servicing (b)
|
—
|
|
|
14,810
|
|
|
14,810
|
|
|
—
|
|
|
12,285
|
|
|
12,285
|
|
|
Guaranty servicing (c)
|
—
|
|
|
18,029
|
|
|
18,029
|
|
|
—
|
|
|
13,937
|
|
|
13,937
|
|
|
Software services (d)
|
—
|
|
|
7,667
|
|
|
7,667
|
|
|
—
|
|
|
4,777
|
|
|
4,777
|
|
|
Loan and guaranty servicing revenue
|
$
|
195
|
|
|
49,293
|
|
|
49,488
|
|
|
274
|
|
|
40,139
|
|
|
40,413
|
|
(a)
|
FFELP servicing revenue
decreased
in
2012
compared to
2011
due to the loss of servicing volume from third-party customers as a result of these customers selling their portfolios to the Company and/or the Department under the Purchase Program. The decrease is also due to third-party customers' FFELP portfolios decreasing in size due to runoff.
|
(b)
|
Government servicing revenue
increased
during
2012
compared to
2011
due to an increase in volume from the Department.
|
(c)
|
Guaranty servicing revenue
increased
in
2012
compared to
2011
due to an increase in revenue earned from rehabilitation collections on defaulted loan assets. For the three months ended
March 31, 2012
, the Company earned
$10.1 million
in revenue from rehabilitation collections compared to
$6.5 million
for the same period in
2011
. Excluding the rehabilitation collection revenue, guaranty servicing revenue
increased
$0.4 million
.
|
(d)
|
In October 2011, the Company began providing hosted student loan servicing to a significant customer, which resulted in an increase in software services revenue compared to the prior year. This increase was offset by a reduction in revenue due to a decrease in the number of other products and services provided to external customers as a result of legislative changes in the student loan industry.
|
•
|
Supporting the increase in government servicing volume
|
•
|
Supporting initiatives to improve performance metrics under the government servicing contract
|
•
|
Supporting the additional volume that was added to the Company's servicing platforms in October 2011 related to the hosted servicing software solution
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Net interest income
|
$
|
4
|
|
|
6
|
|
|
(2
|
)
|
|
(33.3
|
)%
|
Tuition payment processing and campus commerce revenue
|
21,913
|
|
|
19,369
|
|
|
2,544
|
|
|
13.1
|
|
|
Salaries and benefits
|
8,618
|
|
|
7,152
|
|
|
1,466
|
|
|
20.5
|
|
|
Depreciation and amortization
|
1,740
|
|
|
1,334
|
|
|
406
|
|
|
30.4
|
|
|
Other expenses
|
2,816
|
|
|
2,634
|
|
|
182
|
|
|
6.9
|
|
|
Intersegment expenses, net
|
1,333
|
|
|
1,093
|
|
|
240
|
|
|
22.0
|
|
|
Total operating expenses
|
14,507
|
|
|
12,213
|
|
|
2,294
|
|
|
18.8
|
|
|
Income before income taxes and corporate overhead allocation
|
7,410
|
|
|
7,162
|
|
|
248
|
|
|
3.5
|
|
|
Corporate overhead allocation
|
(501
|
)
|
|
(251
|
)
|
|
(250
|
)
|
|
99.6
|
|
|
Income before income taxes
|
6,909
|
|
|
6,911
|
|
|
(2
|
)
|
|
—
|
|
|
Income tax expense
|
(2,625
|
)
|
|
(2,626
|
)
|
|
1
|
|
|
—
|
|
|
Net income
|
$
|
4,284
|
|
|
4,285
|
|
|
(1
|
)
|
|
—
|
%
|
Before Tax Operating Margin
|
31.5
|
%
|
|
35.7
|
%
|
|
|
|
|
|
|
•
|
Inquiry Generation - Inquiry generation services include delivering qualified inquiries or clicks to third-party customers, primarily for-profit schools.
|
•
|
Inquiry Management (Agency) - Agency services include managing the marketing activities for third-party customers, primarily for-profit schools, in order to provide qualified inquiries or clicks.
|
•
|
Inquiry Management (Software) - Inquiry management services includes the licensing of software to third-party customers, primarily for-profit schools. This software is also used internally by the Company. The inquiry management software has been adapted so that it can be offered as a hosted software solution that can be used by third-parties to manage and obtain qualified inquiries or clicks.
|
•
|
Digital Marketing (Peterson's Interactive) - Digital marketing services include on-line information about colleges and universities and are sold primarily based on subscriptions. Digital marketing services also includes online editing services for admission essays.
|
•
|
Content Solutions - Content solutions includes test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning, and on-line information about colleges and universities. Content solutions also includes providing list marketing services to help higher education institutions and businesses reach the middle school, high school, college bound high school, college, and young adult market places.
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Enrollment services revenue
|
$
|
31,664
|
|
|
33,868
|
|
|
(2,204
|
)
|
|
(6.5
|
)%
|
Salaries and benefits
|
6,279
|
|
|
6,257
|
|
|
22
|
|
|
0.4
|
|
|
Cost to provide enrollment services
|
21,678
|
|
|
22,839
|
|
|
(1,161
|
)
|
|
(5.1
|
)
|
|
Depreciation and amortization
|
1,617
|
|
|
1,691
|
|
|
(74
|
)
|
|
(4.4
|
)
|
|
Other expenses
|
1,956
|
|
|
2,318
|
|
|
(362
|
)
|
|
(15.6
|
)
|
|
Intersegment expenses, net
|
848
|
|
|
818
|
|
|
30
|
|
|
3.7
|
|
|
Total operating expenses
|
32,378
|
|
|
33,923
|
|
|
(1,545
|
)
|
|
(4.6
|
)
|
|
Loss before income taxes and corporate overhead allocation
|
(714
|
)
|
|
(55
|
)
|
|
(659
|
)
|
|
1,198.2
|
|
|
Corporate overhead allocation
|
(501
|
)
|
|
(251
|
)
|
|
(250
|
)
|
|
99.6
|
|
|
Loss before income taxes
|
(1,215
|
)
|
|
(306
|
)
|
|
(909
|
)
|
|
297.1
|
|
|
Income tax benefit
|
462
|
|
|
117
|
|
|
345
|
|
|
294.9
|
|
|
Net loss
|
$
|
(753
|
)
|
|
(189
|
)
|
|
(564
|
)
|
|
298.4
|
%
|
Before Tax Operating Margin
|
(3.8
|
)%
|
|
(0.9
|
)%
|
|
|
|
|
|
Three months ended March 31, 2012
|
|||||||||||||||||
|
Inquiry Generation (a)
|
|
Inquiry Management (Agency) (b)
|
|
Inquiry Management (Software)
|
|
Digital Marketing (Peterson's Interactive)
|
|
Content Solutions
|
|
Total
|
|||||||
Enrollment services revenue
|
$
|
4,552
|
|
|
20,365
|
|
|
894
|
|
|
1,197
|
|
|
4,656
|
|
|
31,664
|
|
Cost to provide enrollment services
|
2,700
|
|
|
18,214
|
|
|
—
|
|
|
58
|
|
|
706
|
|
|
21,678
|
|
|
Gross profit
|
$
|
1,852
|
|
|
2,151
|
|
|
894
|
|
|
1,139
|
|
|
3,950
|
|
|
9,986
|
|
Gross profit %
|
40.7%
|
|
10.6%
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Three months ended March 31, 2011
|
|||||||||||||||||
|
Inquiry Generation (a)
|
|
Inquiry Management (Agency) (b)
|
|
Inquiry Management (Software)
|
|
Digital Marketing (Peterson's Interactive)
|
|
Content Solutions
|
|
Total
|
|||||||
Enrollment services revenue
|
$
|
6,258
|
|
|
21,339
|
|
|
586
|
|
|
1,157
|
|
|
4,528
|
|
|
33,868
|
|
Cost to provide enrollment services
|
3,674
|
|
|
18,651
|
|
|
—
|
|
|
76
|
|
|
438
|
|
|
22,839
|
|
|
Gross profit
|
$
|
2,584
|
|
|
2,688
|
|
|
586
|
|
|
1,081
|
|
|
4,090
|
|
|
11,029
|
|
Gross profit %
|
41.3%
|
|
12.6%
|
|
|
|
|
|
|
|
|
(a)
|
Inquiry generation revenue decreased $1.7 million (27.3%) for the
three
months ended
March 31, 2012
compared to the same
period
in
2011
as a result of a decrease in services volume. The gross profit margin for the
three
months ended
March 31, 2012
compared to the same
period
in
2011
decreased as a result of more competitive pricing. Revenue and
|
(b)
|
Inquiry management revenue decreased $1.0 million (4.6%) for the
three
months ended
March 31, 2012
compared to the same
period
in
2011
as a result of a decrease in volume. The gross margin decreased as a result of more competitive pricing. Revenue and profit margin have been affected by the ongoing regulatory uncertainty in the for-profit college industry, which has caused schools to decrease spending on marketing efforts.
|
|
As of
|
|
As of
|
|||
|
March 31, 2012
|
|
December 31, 2011
|
|||
Federally insured loans:
|
|
|
|
|||
Stafford and other
|
$
|
7,257,986
|
|
|
7,480,182
|
|
Consolidation
|
16,623,497
|
|
|
16,852,527
|
|
|
Total
|
23,881,483
|
|
|
24,332,709
|
|
|
Non-federally insured loans
|
24,825
|
|
|
26,916
|
|
|
|
23,906,308
|
|
|
24,359,625
|
|
|
Unamortized loan (discount) premium and deferred origination costs, net
|
(21,041
|
)
|
|
(13,267
|
)
|
|
Allowance for loan losses – federally insured loans
|
(36,783
|
)
|
|
(37,205
|
)
|
|
Allowance for loan losses – non-federally insured loans
|
(11,652
|
)
|
|
(11,277
|
)
|
|
|
$
|
23,836,832
|
|
|
24,297,876
|
|
Allowance for federally insured loans as a percentage of such loans
|
0.15
|
%
|
|
0.15
|
%
|
|
Allowance for non-federally insured loans as a percentage of such loans
|
46.94
|
%
|
|
41.90
|
%
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Beginning balance
|
$
|
24,359,625
|
|
|
23,784,069
|
|
Loan acquisitions (a)
|
183,293
|
|
|
240,733
|
|
|
Repayments, claims, capitalized interest, participations, and other
|
(437,039
|
)
|
|
(424,896
|
)
|
|
Consolidation loans lost to external parties
|
(165,908
|
)
|
|
(205,710
|
)
|
|
Loans sold
|
(33,663
|
)
|
|
(3,000
|
)
|
|
Ending balance
|
$
|
23,906,308
|
|
|
23,391,196
|
|
(a)
|
As a result of legislation effective July 1, 2010, all new federal loan originations are made by the Department of Education through the Direct Loan Program and the Company no longer originates FFELP loans. However, the Company believes there will be opportunities to continue to purchase FFELP loan portfolios from current FFELP participants looking to adjust their businesses.
|
|
Three months ended
|
||||||||
|
March 31,
2012 |
|
December 31,
2011 |
|
March 31,
2011 |
||||
Variable student loan yield, gross
|
2.63
|
%
|
|
2.59
|
%
|
|
2.60
|
%
|
|
Consolidation rebate fees
|
(0.75
|
)
|
|
(0.74
|
)
|
|
(0.72
|
)
|
|
Premium/discount and deferred origination costs amortization/accretion, net (a)
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.17
|
)
|
|
Variable student loan yield, net
|
1.86
|
|
|
1.83
|
|
|
1.71
|
|
|
Student loan cost of funds - interest expense
|
(1.02
|
)
|
|
(0.91
|
)
|
|
(0.83
|
)
|
|
Student loan cost of funds - bonds and notes payable discount accretion (a)
|
(0.11
|
)
|
|
(0.11
|
)
|
|
—
|
|
|
Student loan cost of funds - derivative settlements
|
0.06
|
|
|
0.06
|
|
|
0.03
|
|
|
Variable student loan spread
|
0.79
|
|
|
0.87
|
|
|
0.91
|
|
|
Fixed rate floor income, net of settlements on derivatives
|
0.64
|
|
|
0.64
|
|
|
0.55
|
|
|
Core student loan spread
|
1.43
|
%
|
|
1.51
|
%
|
|
1.46
|
%
|
|
Average balance of student loans
|
$
|
24,118,892
|
|
|
24,505,476
|
|
|
23,586,250
|
|
Average balance of debt outstanding
|
24,236,068
|
|
|
24,590,560
|
|
|
23,853,620
|
|
(a)
|
On July 8, 2011, the Company purchased the residual interest in $1.9 billion of consolidation loans and recorded the loans and related debt at fair value resulting in the recognition of a significant student loan discount and bonds and notes payable discount. These discounts are being accreted using the effective interest method over the lives of the underlying assets/liabilities.
|
(a)
|
The interest earned on the majority of the Company's FFELP student loan assets is indexed to the three-month commercial paper indice. The Company funds the majority of its assets with the three-month LIBOR indexed floating rate securities. The relationship between these two indices has a significant impact on student loan spread. This table (the right axis) shows the difference between the average three-month LIBOR and commercial paper indices by quarter.
|
|
Three months ended
|
||||||||
|
March 31, 2012
|
|
December 31, 2011
|
|
March 31, 2011
|
||||
Fixed rate floor income, gross
|
$
|
41,229
|
|
|
43,574
|
|
|
37,900
|
|
Derivative settlements (a)
|
(3,137
|
)
|
|
(4,201
|
)
|
|
(6,218
|
)
|
|
Fixed rate floor income, net
|
$
|
38,092
|
|
|
39,373
|
|
|
31,682
|
|
Fixed rate floor income contribution to spread, net
|
0.64
|
%
|
|
0.64
|
%
|
|
0.55
|
%
|
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Net interest income after provision for loan losses
|
$
|
78,683
|
|
|
84,173
|
|
|
(5,490
|
)
|
|
(6.5
|
)%
|
Other income
|
5,000
|
|
|
4,136
|
|
|
864
|
|
|
20.9
|
|
|
Gain on sale of loans and debt repurchases
|
—
|
|
|
1,400
|
|
|
(1,400
|
)
|
|
(100.0
|
)
|
|
Derivative market value and foreign currency adjustments, net
|
(21,604
|
)
|
|
(589
|
)
|
|
(21,015
|
)
|
|
(3,567.9
|
)
|
|
Derivative settlements, net
|
227
|
|
|
(4,038
|
)
|
|
4,265
|
|
|
(105.6
|
)
|
|
Total other income
|
(16,377
|
)
|
|
909
|
|
|
(17,286
|
)
|
|
(1,901.7
|
)
|
|
Salaries and benefits
|
719
|
|
|
778
|
|
|
(59
|
)
|
|
(7.6
|
)
|
|
Other expenses
|
3,632
|
|
|
1,538
|
|
|
2,094
|
|
|
136.2
|
|
|
Intersegment expenses, net
|
17,143
|
|
|
18,147
|
|
|
(1,004
|
)
|
|
(5.5
|
)
|
|
Total operating expenses
|
21,494
|
|
|
20,463
|
|
|
1,031
|
|
|
5.0
|
|
|
Income before income taxes and corporate overhead allocation
|
40,812
|
|
|
64,619
|
|
|
(23,807
|
)
|
|
(36.8
|
)
|
|
Corporate overhead allocation
|
(1,392
|
)
|
|
(1,255
|
)
|
|
(137
|
)
|
|
10.9
|
|
|
Income before income taxes
|
39,420
|
|
|
63,364
|
|
|
(23,944
|
)
|
|
(37.8
|
)
|
|
Income tax expense
|
(14,979
|
)
|
|
(24,078
|
)
|
|
9,099
|
|
|
(37.8
|
)
|
|
Net income
|
$
|
24,441
|
|
|
39,286
|
|
|
(14,845
|
)
|
|
(37.8
|
)%
|
|
|
|
|
|
|
|
|
|||||
Additional information:
|
|
|
|
|
|
|
|
|||||
Net income
|
$
|
24,441
|
|
|
39,286
|
|
|
(14,845
|
)
|
|
(37.8
|
)%
|
Derivative market value and foreign currency adjustments, net
|
21,604
|
|
|
589
|
|
|
21,015
|
|
|
3,567.9
|
|
|
Tax effect
|
(8,210
|
)
|
|
(224
|
)
|
|
(7,986
|
)
|
|
(3,565.2
|
)
|
|
Net income, excluding market value and foreign currency adjustments
|
$
|
37,835
|
|
|
39,651
|
|
|
(1,816
|
)
|
|
(4.6
|
)%
|
|
Three months ended March 31,
|
|
Change
|
|||||||||
|
2012
|
|
2011
|
|
$
|
|
%
|
|||||
Variable interest income, net of settlements on derivatives (a)
|
$
|
161,142
|
|
|
153,411
|
|
|
7,731
|
|
|
5.0
|
%
|
Consolidation rebate fees (b)
|
(44,889
|
)
|
|
(41,784
|
)
|
|
(3,105
|
)
|
|
7.4
|
|
|
Amortization/accretion of loan premiums/discounts and deferred origination costs, net (c)
|
(1,060
|
)
|
|
(9,989
|
)
|
|
8,929
|
|
|
(89.4
|
)
|
|
Interest on bonds and notes payable (d)
|
(61,290
|
)
|
|
(48,994
|
)
|
|
(12,296
|
)
|
|
25.1
|
|
|
Bonds and notes payable discount accretion (e)
|
(6,568
|
)
|
|
—
|
|
|
(6,568
|
)
|
|
100.0
|
|
|
Variable student loan interest margin, net of settlements on derivatives
|
47,335
|
|
|
52,644
|
|
|
(5,309
|
)
|
|
(10.1
|
)
|
|
Fixed rate floor income, net of settlements on derivatives (f)
|
38,092
|
|
|
31,682
|
|
|
6,410
|
|
|
20.2
|
|
|
Investment interest
|
454
|
|
|
281
|
|
|
173
|
|
|
61.6
|
|
|
Intercompany interest
|
(971
|
)
|
|
(722
|
)
|
|
(249
|
)
|
|
34.5
|
|
|
Provision for loan losses (g)
|
(6,000
|
)
|
|
(3,750
|
)
|
|
(2,250
|
)
|
|
60.0
|
|
|
Net interest income after provision for loan losses (net of settlements on derivatives (h))
|
$
|
78,910
|
|
|
80,135
|
|
|
(1,225
|
)
|
|
(1.5
|
)%
|
(a)
|
Variable interest income, net of settlements on derivatives, increased as a result of an increase in the average student loan portfolio of $0.5 billion (2.3%) for the
three
months ended
March 31, 2012
compared to the same
period
in
2011
. In addition, the yield earned on student loans, net of settlements on derivatives, increased to 2.69% for the
three
months ended
March 31, 2012
from 2.63% during the same
period
in
2011
.
|
(b)
|
Consolidation rebate fees increased for the
three
months ended
March 31, 2012
compared to the same
period
in
2011
due to the purchase of the residual interest in $1.9 billion of consolidation loans in July 2011.
|
(c)
|
The amortization/accretion of loan premiums/discounts and deferred origination costs decreased as a result of the ongoing purchase of loans at a discount, which has reduced the net costs being amortized/accreted.
|
(d)
|
Interest on bonds and notes payable increased as a result of an increase in average debt outstanding of $0.4 billion (1.6%) for the
three
months ended
March 31, 2012
,
compared to the same
period
in
2011
. In addition, the Company’s cost of funds increased to 1.02% for the
three
months ended
March 31, 2012
from 0.83% during the same
period
in
2011
.
|
(e)
|
During July 2011, the Company recorded a discount on bonds and notes payable assumed as a result of the purchase of the residual interest on $1.9 billion of student loans and related debt. The bonds and notes payable discount is being accreted using the effective interest method over the lives of the bonds and notes payable.
|
(f)
|
Depending on the type of loan and when it was originated, the borrower rate on student loans is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income.
|
(g)
|
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb probable losses inherent in the Company's portfolio of loans. The federally insured loan provision increased $2.5 million during the
three
months ended
March 31, 2012
compared to the same
period
in
2011
primarily due to a increase in delinquent loans.
|
(h)
|
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured the majority of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Borrower late fee income
|
$
|
3,703
|
|
|
3,590
|
|
Other
|
1,297
|
|
|
546
|
|
|
Other income
|
$
|
5,000
|
|
|
4,136
|
|
|
As of March 31, 2012
|
||
Sources of primary liquidity:
|
|
||
Cash and cash equivalents
|
$
|
60,700
|
|
Investments
|
70,552
|
|
|
Unencumbered private student loan assets
|
15,925
|
|
|
Asset-backed security investments - Class B subordinated notes (a)
|
76,513
|
|
|
Asset-backed security investments (b)
|
71,453
|
|
|
Available balance on unsecured line of credit
|
200,000
|
|
|
Total sources of primary liquidity
|
$
|
495,143
|
|
(a)
|
As part of the Company’s issuance of asset-backed securitizations in 2008, due to credit market conditions when these notes were issued, the Company purchased the Class B subordinated notes of
$76.5 million
(par value). These notes are not included on the Company’s consolidated balance sheet. If the credit market conditions continue to improve, the Company anticipates selling these notes to third parties. Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The amount included in the table above is the par value of these subordinated notes and may not represent market value upon sale of the notes.
|
(b)
|
The Company has repurchased its own asset-backed securities (bonds and notes payable). For accounting purposes, these notes are effectively retired and are not included on the Company’s consolidated balance sheet. However, as of
March 31, 2012
,
$71.5 million
of these securities are legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The amount included in the table above is the par value of these notes and may not represent market value upon sale of the notes.
|
|
As of March 31, 2012
|
||||
|
Carrying
amount
|
|
Final maturity
|
||
Asset Generation and Management:
|
|
|
|
||
Bonds and notes issued in asset-backed securitizations
|
$
|
20,802,737
|
|
|
11/25/15 - 7/27/48
|
FFELP warehouse facilities
|
959,978
|
|
|
7/1/14 - 4/2/15
|
|
Department of Education Conduit
|
2,261,104
|
|
|
5/8/14
|
|
Other borrowings
|
40,154
|
|
|
11/14/12 - 3/1/22
|
|
|
$
|
24,063,973
|
|
|
|
(a)
|
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.
|
|
NFSLW-I (a)
|
|
NHELP-II (b)
|
|
NHELP-I (c)
|
|
Total
|
|||||
Maximum financing amount
|
$
|
500,000
|
|
|
250,000
|
|
|
500,000
|
|
|
1,250,000
|
|
Amount outstanding
|
(484,856
|
)
|
|
(229,667
|
)
|
|
(245,455
|
)
|
|
(959,978
|
)
|
|
Amount available
|
$
|
15,144
|
|
|
20,333
|
|
|
254,545
|
|
|
290,022
|
|
Expiration of liquidity provisions
|
July 1, 2012
|
|
|
January 31, 2013
|
|
|
October 2, 2013
|
|
|
|
||
Final maturity date
|
July 1, 2014
|
|
|
January 31, 2015
|
|
|
April 2, 2015
|
|
|
|
||
Maximum advance rates
|
85 - 95%
|
|
|
93.5%
|
|
|
93 - 95%
|
|
|
|
||
Minimum advance rates
|
84.5 - 90%
|
|
|
90.5%
|
|
|
80 - 95%
|
|
|
|
||
Advanced as equity support
|
$
|
37,138
|
|
|
21,125
|
|
|
14,922
|
|
|
73,185
|
|
(a)
|
The terms of this facility were amended on February 22, 2012. The table above reflects all amended terms.
|
(b)
|
The Company entered into this facility on February 1, 2012.
|
(c)
|
The terms of this facility were amended on April 2, 2012. The table above reflects all amended terms.
|
•
|
A minimum consolidated net worth
|
•
|
A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)
|
•
|
A limitation on subsidiary indebtedness
|
•
|
A limitation on the percentage of non-federally insured loans in the Company’s portfolio
|
|
As of March 31, 2012
|
|
As of December 31, 2011
|
||||||||||
|
Dollars
|
|
Percent
|
|
Dollars
|
|
Percent
|
||||||
Fixed-rate loan assets
|
$
|
9,018,523
|
|
|
37.7
|
%
|
|
$
|
10,899,733
|
|
|
44.7
|
%
|
Variable-rate loan assets
|
14,887,785
|
|
|
62.3
|
|
|
13,459,892
|
|
|
55.3
|
|
||
Total
|
$
|
23,906,308
|
|
|
100.0
|
%
|
|
$
|
24,359,625
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
||||||
Fixed-rate debt instruments
|
$
|
26,576
|
|
|
0.1
|
%
|
|
$
|
29,517
|
|
|
0.1
|
%
|
Variable-rate debt instruments
|
24,188,094
|
|
|
99.9
|
|
|
24,565,652
|
|
|
99.9
|
|
||
Total
|
$
|
24,214,670
|
|
|
100.0
|
%
|
|
$
|
24,595,169
|
|
|
100.0
|
%
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Fixed rate floor income, gross
|
$
|
41,229
|
|
|
37,900
|
|
Derivative settlements (a)
|
(3,137
|
)
|
|
(6,218
|
)
|
|
Fixed rate floor income, net
|
$
|
38,092
|
|
|
31,682
|
|
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
|
|
Borrower/
|
|
Estimated
|
|
|
|||
Fixed
|
|
lender
|
|
variable
|
|
|
|||
interest
|
|
weighted
|
|
conversion
|
|
Loan
|
|||
rate range
|
|
average yield
|
|
rate (a)
|
|
balance
|
|||
3.0 - 3.49%
|
|
3.20%
|
|
0.56%
|
|
$
|
1,971,878
|
|
|
3.5 - 3.99%
|
|
3.65%
|
|
1.01%
|
|
1,930,698
|
|
|
|
4.0 - 4.49%
|
|
4.20%
|
|
1.56%
|
|
1,471,582
|
|
|
|
4.5 - 4.99%
|
|
4.72%
|
|
2.08%
|
|
838,166
|
|
|
|
5.0 - 5.49%
|
|
5.24%
|
|
2.60%
|
|
561,631
|
|
|
|
5.5 - 5.99%
|
|
5.67%
|
|
3.03%
|
|
341,241
|
|
|
|
6.0 - 6.49%
|
|
6.18%
|
|
3.54%
|
|
398,963
|
|
|
|
6.5 - 6.99%
|
|
6.70%
|
|
4.06%
|
|
355,614
|
|
|
|
7.0 - 7.49%
|
|
7.17%
|
|
4.53%
|
|
140,474
|
|
|
|
7.5 - 7.99%
|
|
7.70%
|
|
5.06%
|
|
235,674
|
|
|
|
8.0 - 8.99%
|
|
8.17%
|
|
5.53%
|
|
526,017
|
|
|
|
> 9.0%
|
|
9.04%
|
|
6.40%
|
|
246,585
|
|
|
|
|
|
|
|
|
|
$
|
9,018,523
|
|
|
(a)
|
The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of
March 31, 2012
, the short-term interest rate was
28
basis points.
|
(a)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
Index
|
|
Frequency of variable resets
|
|
Assets
|
|
Debt outstanding that funded student loan assets (a)
|
|||
3 month H15 financial commercial paper (b)
|
|
Daily
|
|
$
|
22,965,881
|
|
|
—
|
|
3 month Treasury bill
|
|
Varies
|
|
915,602
|
|
|
—
|
|
|
3 month LIBOR (c)
|
|
Quarterly
|
|
—
|
|
|
19,203,746
|
|
|
1 month LIBOR
|
|
Monthly
|
|
—
|
|
|
873,871
|
|
|
Auction-rate or remarketing (d)
|
|
Varies
|
|
—
|
|
|
970,575
|
|
|
Asset-backed commercial paper (e)
|
|
Varies
|
|
—
|
|
|
2,975,627
|
|
|
Other (f)
|
|
|
|
182,490
|
|
|
40,154
|
|
|
|
|
|
|
$
|
24,063,973
|
|
|
24,063,973
|
|
(a)
|
The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes these derivatives as of
March 31, 2012
:
|
Maturity
|
|
Notional amount
|
||
2021
|
|
$
|
250,000
|
|
2023
|
|
1,250,000
|
|
|
2024
|
|
250,000
|
|
|
2026
|
|
800,000
|
|
|
2028
|
|
100,000
|
|
|
2036
|
|
700,000
|
|
|
2039
|
|
150,000
|
|
|
2040
|
|
200,000
|
|
|
|
|
$
|
3,700,000
|
|
(b)
|
The Company’s FFELP student loans earn interest based on the daily average 90-day H15 financial commercial paper index calculated on a fiscal quarter.
|
(c)
|
The Company has Euro-denominated notes that reprice on the EURIBOR index. The Company has entered into derivative instruments (cross-currency interest rate swaps) that convert the EURIBOR index to three-month LIBOR. As a result, these notes are reflected in the three-month LIBOR category in the above table. See “Foreign Currency Exchange Risk.”
|
(d)
|
The interest rates on certain of the Company's asset-backed securities are set and periodically reset via a "dutch auction" (“Auction Rate Securities”) or through a remarketing utilizing remarketing agents (“Variable Rate Demand Notes”). As of
March 31, 2012
, the Company is sponsor on
$751.4 million
of Auction Rate Securities and
$219.2 million
of Variable Rate Demand Notes.
|
(e)
|
Asset-backed commercial paper consists of
$714.5 million
funded in the Company’s NFSLW-I and NHELP-II FFELP warehouse facilities and
$2.3 billion
funded through the Department’s Conduit Program. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates.
|
(f)
|
Assets include restricted cash and investments and other assets. Debt outstanding includes other debt obligations secured by student loan assets and related collateral.
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Settlements:
|
|
|
|
|||
1:3 basis swaps
|
$
|
1,381
|
|
|
208
|
|
Interest rate swaps - floor income hedges
|
(3,137
|
)
|
|
(6,218
|
)
|
|
Interest rate swaps - hybrid debt hedges
|
—
|
|
|
(246
|
)
|
|
Cross-currency interest rate swaps
|
2,109
|
|
|
2,109
|
|
|
Other
|
(126
|
)
|
|
(5
|
)
|
|
Total settlements - income (expense)
|
227
|
|
|
(4,152
|
)
|
|
Change in fair value - income (expense)
|
16,835
|
|
|
66,450
|
|
|
Derivative impact included in the consolidated statements of income - income (expense)
|
$
|
17,062
|
|
|
62,298
|
|
|
Three months ended March 31, 2012
|
||||||||||||||||||||||||||
|
Interest rates
|
|
Asset and funding indice mismatches
|
||||||||||||||||||||||||
|
Change from increase of 100 basis points
|
|
Change from increase of 300 basis points
|
|
|||||||||||||||||||||||
|
|
Increase of 10 basis points
|
|
Increase of 30 basis points
|
|||||||||||||||||||||||
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
||||||||||||
Effect on earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Decrease in pre-tax net income before impact of derivative settlements
|
$
|
(16,554
|
)
|
|
(24.9
|
)%
|
|
$
|
(29,080
|
)
|
|
(43.8
|
)%
|
|
$
|
(6,026
|
)
|
|
(9.1
|
)%
|
|
$
|
(18,078
|
)
|
|
(27.2
|
)%
|
Impact of derivative settlements
|
7,604
|
|
|
11.5
|
|
|
22,812
|
|
|
34.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Increase (decrease) in net income before taxes
|
$
|
(8,950
|
)
|
|
(13.4
|
)%
|
|
$
|
(6,268
|
)
|
|
(9.4
|
)%
|
|
$
|
(6,026
|
)
|
|
(9.1
|
)%
|
|
$
|
(18,078
|
)
|
|
(27.2
|
)%
|
Increase (decrease) in basic and diluted earnings per share
|
$
|
(0.12
|
)
|
|
|
|
$
|
(0.08
|
)
|
|
|
|
$
|
(0.08
|
)
|
|
|
|
$
|
(0.24
|
)
|
|
|
||||
|
Three months ended March 31, 2011
|
||||||||||||||||||||||||||
|
Interest rates
|
|
Asset and funding indice mismatches
|
||||||||||||||||||||||||
|
Change from increase of 100 basis points
|
|
Change from increase of 300 basis points
|
|
|||||||||||||||||||||||
|
|
Increase of 10 basis points
|
|
Increase of 30 basis points
|
|||||||||||||||||||||||
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
||||||||||||
Effect on earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Decrease in pre-tax net income before impact of derivative settlements
|
$
|
(15,384
|
)
|
|
(17.5
|
)%
|
|
$
|
(26,752
|
)
|
|
(30.5
|
)%
|
|
$
|
(5,882
|
)
|
|
(6.7
|
)%
|
|
$
|
(17,645
|
)
|
|
(20.1
|
)%
|
Impact of derivative settlements
|
18,897
|
|
|
21.5
|
|
|
56,692
|
|
|
64.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Increase (decrease) in net income before taxes
|
$
|
3,513
|
|
|
4.0
|
%
|
|
$
|
29,940
|
|
|
34.1
|
%
|
|
$
|
(5,882
|
)
|
|
(6.7
|
)%
|
|
$
|
(17,645
|
)
|
|
(20.1
|
)%
|
Increase (decrease) in basic and diluted earnings per share
|
$
|
0.05
|
|
|
|
|
$
|
0.39
|
|
|
|
|
$
|
(0.08
|
)
|
|
|
|
$
|
(0.23
|
)
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Re-measurement of Euro Notes
|
$
|
(32,242
|
)
|
|
(65,334
|
)
|
Change in fair value of cross currency interest rate swaps
|
13,026
|
|
|
62,532
|
|
|
Total impact to statements of income - income (expense)
|
$
|
(19,216
|
)
|
|
(2,802
|
)
|
|
Three months ended March 31,
|
|||||
|
2012
|
|
2011
|
|||
Change in fair value of derivatives
|
$
|
16,835
|
|
|
66,450
|
|
Foreign currency transaction adjustment (Euro Notes)
|
(32,242
|
)
|
|
(65,334
|
)
|
|
Derivative settlements, net
|
227
|
|
|
(4,152
|
)
|
|
Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense)
|
$
|
(15,180
|
)
|
|
(3,036
|
)
|
Period
|
|
Total number of shares purchased (a)
|
|
Average price paid per share
|
|
Total number of shares purchased as part of publicly announced plans or programs (b)
|
|
Maximum number of shares that may yet be purchased under the plans or programs (b)
|
|||||
January 1 - January 31, 2012
|
|
2,413
|
|
|
$
|
24.38
|
|
|
2,413
|
|
|
1,564,151
|
|
February 1 - February 29, 2012
|
|
7,994
|
|
|
25.76
|
|
|
7,055
|
|
|
1,557,096
|
|
|
March 1 - March 31, 2012
|
|
32,222
|
|
|
26.43
|
|
|
25,177
|
|
|
1,531,919
|
|
|
Total
|
|
42,629
|
|
|
$
|
26.18
|
|
|
34,645
|
|
|
|
|
(a)
|
The total number of shares includes: (i) shares purchased pursuant to the stock repurchase program discussed in footnote (2) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares of Class A common stock purchased pursuant to the stock repurchase program included
2,413
shares,
1,205
shares, and
799
shares in
January
,
February
, and
March
2012
, respectively, that had been issued to the Company’s 401(k) plan and allocated to employee participant accounts pursuant to the plan’s provisions for Company matching contributions in shares of Company stock, and were purchased by the Company from the plan pursuant to employee participant instructions to dispose of such shares. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included
0
shares,
939
shares, and
7,045
shares in
January
,
February
, and
March
2012
, respectively. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company’s shares on the date of vesting.
|
(b)
|
On May 25, 2006, the Company announced that its Board of Directors authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock. On February 9, 2007, the Company announced that its Board of Directors increased to ten million the total number of shares of Class A common stock authorized for repurchase under that program. That program is set to expire on May 24, 2012. On May 9, 2012, the Company announced that its Board of Directors had authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 24, 2015. The five million shares authorized under the new program include the remaining un-repurchased shares from the previous program, which the new program will replace. Certain share repurchases included in the table above were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.
|
•
|
declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any of the Company’s capital stock.
|
•
|
except as required in connection with the repayment of principal, and except for any partial payments of deferred interest that may be made through the alternative payment mechanism described in the Hybrid Securities indenture, make any payment of principal of, or interest or premium, if any, on, or repay, repurchase, or redeem any of the Company’s debt securities that rank
pari passu
with or junior to the Hybrid Securities.
|
•
|
make any guarantee payments regarding any guarantee by the Company of the subordinated debt securities of any of the Company’s subsidiaries if the guarantee ranks
pari passu
with or junior in interest to the Hybrid Securities.
|
•
|
pay dividends or distributions in additional shares of the Company’s capital stock.
|
•
|
declare or pay a dividend in connection with the implementation of a shareholders’ rights plan, or issue stock under such a plan, or redeem or repurchase any rights distributed pursuant to such a plan.
|
•
|
purchase common stock for issuance pursuant to any employee benefit plans.
|
|
|
NELNET, INC.
|
|
|
|
|
|
|
|
Date:
|
May 9, 2012
|
By:
|
/s/ MICHAEL S. DUNLAP
|
|
|
|
Name:
|
Michael S. Dunlap
|
|
|
|
Title:
|
Chairman and Chief Executive Officer
Principal Executive Officer
|
|
|
|
|
|
|
|
|
By:
|
/s/ TERRY J. HEIMES
|
|
|
|
Name:
|
Terry J. Heimes
|
|
|
|
Title:
|
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. and subsidiaries (the “Company”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
May 9, 2012
|
/s/ MICHAEL S. DUNLAP
|
|
|
Michael S. Dunlap
Chairman and Chief Executive Officer Principal Executive Officer |
1.
|
I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. and subsidiaries (the “Company”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
May 9, 2012
|
/s/ TERRY J. HEIMES
|
|
|
Terry J. Heimes
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
May 9, 2012
|
By:
/s/ MICHAEL S. DUNLAP
|
|
|
Name: Michael S. Dunlap
Title: Chairman and Chief Executive Officer
Principal Executive Officer
|
|
|
|
|
|
By:
/s/ TERRY J. HEIMES
|
|
|
Name: Terry J. Heimes
Title: Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
|