ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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NEBRASKA
(State or other jurisdiction of incorporation or organization)
|
84-0748903
(I.R.S. Employer Identification No.)
|
|
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121 SOUTH 13TH STREET
SUITE 100
LINCOLN, NEBRASKA
(Address of principal executive offices)
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68508
(Zip Code)
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Item 1.
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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)
|
|||||||
(unaudited)
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|||||||
|
|
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|
|||
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As of
|
|
As of
|
|||
|
|
March 31, 2017
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December 31, 2016
|
|||
Assets:
|
|
|
|
|
|||
Student loans receivable (net of allowance for loan losses of $50,526 and $51,842, respectively)
|
|
$
|
24,003,386
|
|
|
24,903,724
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
Cash and cash equivalents - not held at a related party
|
|
9,616
|
|
|
7,841
|
|
|
Cash and cash equivalents - held at a related party
|
|
98,544
|
|
|
61,813
|
|
|
Total cash and cash equivalents
|
|
108,160
|
|
|
69,654
|
|
|
Investments and notes receivable
|
|
273,818
|
|
|
254,144
|
|
|
Restricted cash
|
|
787,635
|
|
|
980,961
|
|
|
Restricted cash - due to customers
|
|
93,699
|
|
|
119,702
|
|
|
Accrued interest receivable
|
|
392,754
|
|
|
391,264
|
|
|
Accounts receivable (net of allowance for doubtful accounts of $1,643 and $1,549, respectively)
|
|
45,944
|
|
|
43,972
|
|
|
Goodwill
|
|
147,312
|
|
|
147,312
|
|
|
Intangible assets, net
|
|
45,434
|
|
|
47,813
|
|
|
Property and equipment, net
|
|
143,062
|
|
|
123,786
|
|
|
Other assets
|
|
60,364
|
|
|
10,245
|
|
|
Fair value of derivative instruments
|
|
39,652
|
|
|
87,531
|
|
|
Total assets
|
|
$
|
26,141,220
|
|
|
27,180,108
|
|
Liabilities:
|
|
|
|
|
|
|
|
Bonds and notes payable
|
|
$
|
23,594,516
|
|
|
24,668,490
|
|
Accrued interest payable
|
|
46,427
|
|
|
45,677
|
|
|
Other liabilities
|
|
199,816
|
|
|
197,488
|
|
|
Due to customers
|
|
93,699
|
|
|
119,702
|
|
|
Fair value of derivative instruments
|
|
79,095
|
|
|
77,826
|
|
|
Total liabilities
|
|
24,013,553
|
|
|
25,109,183
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|
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Commitments and contingencies
|
|
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|
|||
Equity:
|
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|
|||
Nelnet, Inc. shareholders' equity:
|
|
|
|
|
|
|
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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 30,740,185 shares and 30,628,112 shares, respectively
|
|
307
|
|
|
306
|
|
|
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,476,932 shares
|
|
115
|
|
|
115
|
|
|
Additional paid-in capital
|
|
2,236
|
|
|
420
|
|
|
Retained earnings
|
|
2,100,214
|
|
|
2,056,084
|
|
|
Accumulated other comprehensive earnings
|
|
5,315
|
|
|
4,730
|
|
|
Total Nelnet, Inc. shareholders' equity
|
|
2,108,187
|
|
|
2,061,655
|
|
|
Noncontrolling interests
|
|
19,480
|
|
|
9,270
|
|
|
Total equity
|
|
2,127,667
|
|
|
2,070,925
|
|
|
Total liabilities and equity
|
|
$
|
26,141,220
|
|
|
27,180,108
|
|
|
|
|
|
|
|||
Supplemental information - assets and liabilities of consolidated education lending variable interest entities:
|
|
|
|
|
|||
Student loans receivable
|
|
$
|
24,186,008
|
|
|
25,090,530
|
|
Restricted cash
|
|
778,123
|
|
|
970,306
|
|
|
Accrued interest receivable and other assets
|
|
391,555
|
|
|
390,504
|
|
|
Bonds and notes payable
|
|
(24,002,228
|
)
|
|
(25,105,704
|
)
|
|
Other liabilities
|
|
(298,104
|
)
|
|
(290,996
|
)
|
|
Fair value of derivative instruments, net
|
|
(66,670
|
)
|
|
(66,453
|
)
|
|
Net assets of consolidated education lending variable interest entities
|
|
$
|
988,684
|
|
|
988,187
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED STATEMENTS OF INCOME
|
||||||
(Dollars in thousands, except share data)
|
||||||
(unaudited)
|
||||||
|
Three months
|
|||||
|
ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Interest income:
|
|
|
|
|||
Loan interest
|
$
|
181,207
|
|
|
189,988
|
|
Investment interest
|
2,617
|
|
|
2,029
|
|
|
Total interest income
|
183,824
|
|
|
192,017
|
|
|
Interest expense:
|
|
|
|
|
||
Interest on bonds and notes payable
|
106,899
|
|
|
90,408
|
|
|
Net interest income
|
76,925
|
|
|
101,609
|
|
|
Less provision for loan losses
|
1,000
|
|
|
2,500
|
|
|
Net interest income after provision for loan losses
|
75,925
|
|
|
99,109
|
|
|
Other income:
|
|
|
|
|
||
Loan systems and servicing revenue
|
54,229
|
|
|
52,330
|
|
|
Tuition payment processing, school information, and campus commerce revenue
|
43,620
|
|
|
38,657
|
|
|
Communications revenue
|
5,106
|
|
|
4,346
|
|
|
Enrollment services revenue
|
—
|
|
|
4,326
|
|
|
Other income
|
12,632
|
|
|
13,796
|
|
|
Gain from debt repurchases
|
4,980
|
|
|
101
|
|
|
Derivative market value and foreign currency transaction adjustments and derivative settlements, net
|
(4,830
|
)
|
|
(28,691
|
)
|
|
Total other income
|
115,737
|
|
|
84,865
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Salaries and benefits
|
71,863
|
|
|
63,242
|
|
|
Depreciation and amortization
|
8,598
|
|
|
7,640
|
|
|
Loan servicing fees
|
6,025
|
|
|
6,928
|
|
|
Cost to provide communications services
|
1,954
|
|
|
1,703
|
|
|
Cost to provide enrollment services
|
—
|
|
|
3,623
|
|
|
Other expenses
|
26,547
|
|
|
28,376
|
|
|
Total operating expenses
|
114,987
|
|
|
111,512
|
|
|
Income before income taxes
|
76,675
|
|
|
72,462
|
|
|
Income tax expense
|
28,755
|
|
|
24,433
|
|
|
Net income
|
47,920
|
|
|
48,029
|
|
|
Net loss (income) attributable to noncontrolling interests
|
2,106
|
|
|
(68
|
)
|
|
Net income attributable to Nelnet, Inc.
|
$
|
50,026
|
|
|
47,961
|
|
Earnings per common share:
|
|
|
|
|||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
|
$
|
1.18
|
|
|
1.11
|
|
Weighted average common shares outstanding - basic and diluted
|
42,291,857
|
|
|
43,088,092
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
||||||
(Dollars in thousands)
|
||||||
(unaudited)
|
||||||
|
Three months
|
|||||
|
ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Net income
|
$
|
47,920
|
|
|
48,029
|
|
Other comprehensive income (loss):
|
|
|
|
|||
Available-for-sale securities:
|
|
|
|
|||
Unrealized holding gains (losses) arising during period, net
|
1,259
|
|
|
(1,510
|
)
|
|
Reclassification adjustment for (gains) losses recognized in net income, net
|
(331
|
)
|
|
132
|
|
|
Income tax effect
|
(343
|
)
|
|
510
|
|
|
Total other comprehensive income (loss)
|
585
|
|
|
(868
|
)
|
|
Comprehensive income
|
48,505
|
|
|
47,161
|
|
|
Comprehensive loss (income) attributable to noncontrolling interests
|
2,106
|
|
|
(68
|
)
|
|
Comprehensive income attributable to Nelnet, Inc.
|
$
|
50,611
|
|
|
47,093
|
|
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 earnings
|
|
Noncontrolling interests
|
|
Total equity
|
||||||||||||||
|
|
Class A
|
|
Class B
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance as of December 31, 2015
|
—
|
|
|
32,476,528
|
|
|
11,476,932
|
|
|
$
|
—
|
|
|
325
|
|
|
115
|
|
|
—
|
|
|
1,881,708
|
|
|
2,284
|
|
|
7,726
|
|
|
1,892,158
|
|
Issuance of noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
975
|
|
|
975
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,961
|
|
|
—
|
|
|
68
|
|
|
48,029
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(868
|
)
|
|
—
|
|
|
(868
|
)
|
|
Distribution to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
|
(97
|
)
|
|
Cash dividend on Class A and Class B common stock - $0.12 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,093
|
)
|
|
—
|
|
|
—
|
|
|
(5,093
|
)
|
|
Issuance of common stock, net of forfeitures
|
—
|
|
|
130,797
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
2,707
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,708
|
|
|
Compensation expense for stock based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,183
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,183
|
|
|
Repurchase of common stock
|
—
|
|
|
(1,599,099
|
)
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(977
|
)
|
|
(51,076
|
)
|
|
—
|
|
|
—
|
|
|
(52,069
|
)
|
|
Balance as of March 31, 2016
|
—
|
|
|
31,008,226
|
|
|
11,476,932
|
|
|
$
|
—
|
|
|
310
|
|
|
115
|
|
|
2,913
|
|
|
1,873,500
|
|
|
1,416
|
|
|
8,672
|
|
|
1,886,926
|
|
Balance as of December 31, 2016
|
—
|
|
|
30,628,112
|
|
|
11,476,932
|
|
|
$
|
—
|
|
|
306
|
|
|
115
|
|
|
420
|
|
|
2,056,084
|
|
|
4,730
|
|
|
9,270
|
|
|
2,070,925
|
|
Issuance of noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,626
|
|
|
12,626
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,026
|
|
|
—
|
|
|
(2,106
|
)
|
|
47,920
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
585
|
|
|
—
|
|
|
585
|
|
|
Distribution to noncontrolling
interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(310
|
)
|
|
(310
|
)
|
|
Cash dividend on Class A and Class B common stock - $0.14 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,896
|
)
|
|
—
|
|
|
—
|
|
|
(5,896
|
)
|
|
Issuance of common stock, net of forfeitures
|
—
|
|
|
143,789
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
2,089
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,090
|
|
|
Compensation expense for stock based awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,096
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,096
|
|
|
Repurchase of common stock
|
—
|
|
|
(31,716
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,369
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,369
|
)
|
|
Balance as of March 31, 2017
|
—
|
|
|
30,740,185
|
|
|
11,476,932
|
|
|
$
|
—
|
|
|
307
|
|
|
115
|
|
|
2,236
|
|
|
2,100,214
|
|
|
5,315
|
|
|
19,480
|
|
|
2,127,667
|
|
NELNET, INC. AND SUBSIDIARIES
|
||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||
(Dollars in thousands)
|
||||||
(unaudited)
|
||||||
|
Three months
|
|||||
|
ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Net income attributable to Nelnet, Inc.
|
$
|
50,026
|
|
|
47,961
|
|
Net (loss) income attributable to noncontrolling interests
|
(2,106
|
)
|
|
68
|
|
|
Net income
|
47,920
|
|
|
48,029
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs
|
34,310
|
|
|
31,078
|
|
|
Student loan discount accretion
|
(12,014
|
)
|
|
(10,917
|
)
|
|
Provision for loan losses
|
1,000
|
|
|
2,500
|
|
|
Derivative market value adjustment
|
(1,238
|
)
|
|
3,674
|
|
|
Foreign currency transaction adjustment
|
4,690
|
|
|
18,480
|
|
|
Proceeds from termination of derivative instruments
|
913
|
|
|
3,522
|
|
|
Payments to enter into derivative instruments
|
(929
|
)
|
|
—
|
|
|
Gain from debt repurchases
|
(4,980
|
)
|
|
(101
|
)
|
|
(Gain) loss from sales of available-for-sale securities, net
|
(331
|
)
|
|
132
|
|
|
Proceeds (purchases) related to trading securities, net
|
7
|
|
|
(3,436
|
)
|
|
Deferred income tax benefit
|
(1,753
|
)
|
|
(4,260
|
)
|
|
Non-cash compensation expense
|
1,121
|
|
|
1,242
|
|
|
Other
|
581
|
|
|
1,990
|
|
|
Increase in accrued interest receivable
|
(1,490
|
)
|
|
(452
|
)
|
|
(Increase) decrease in accounts receivable
|
(1,972
|
)
|
|
5,961
|
|
|
Decrease (increase) in other assets
|
294
|
|
|
(2,922
|
)
|
|
Increase in accrued interest payable
|
750
|
|
|
7,443
|
|
|
Increase in other liabilities
|
6,954
|
|
|
2,551
|
|
|
Net cash provided by operating activities
|
73,833
|
|
|
104,514
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchases of student loans
|
(50,126
|
)
|
|
(108,543
|
)
|
|
Net proceeds from student loan repayments, claims, capitalized interest, and other
|
953,698
|
|
|
870,898
|
|
|
Proceeds from sale of student loans
|
—
|
|
|
44,738
|
|
|
Purchases of available-for-sale securities
|
(53,530
|
)
|
|
(14,595
|
)
|
|
Proceeds from sales of available-for-sale securities
|
37,809
|
|
|
44,675
|
|
|
Purchases of investments and issuance of notes receivable
|
(4,898
|
)
|
|
(3,021
|
)
|
|
Proceeds from investments and notes receivable
|
1,605
|
|
|
3,087
|
|
|
Purchases of property and equipment
|
(26,469
|
)
|
|
(15,258
|
)
|
|
Decrease (increase) in restricted cash, net
|
193,326
|
|
|
(92,301
|
)
|
|
Net cash provided by investing activities
|
1,051,415
|
|
|
729,680
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Payments on bonds and notes payable
|
(1,128,899
|
)
|
|
(858,147
|
)
|
|
Proceeds from issuance of bonds and notes payable
|
37,496
|
|
|
67,698
|
|
|
Payments of debt issuance costs
|
(364
|
)
|
|
(164
|
)
|
|
Dividends paid
|
(5,896
|
)
|
|
(5,093
|
)
|
|
Repurchases of common stock
|
(1,369
|
)
|
|
(52,069
|
)
|
|
Proceeds from issuance of common stock
|
—
|
|
|
228
|
|
|
Issuance of noncontrolling interests
|
12,600
|
|
|
955
|
|
|
Distribution to noncontrolling interests
|
(310
|
)
|
|
(97
|
)
|
|
Net cash used in financing activities
|
(1,086,742
|
)
|
|
(846,689
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
38,506
|
|
|
(12,495
|
)
|
|
Cash and cash equivalents, beginning of period
|
69,654
|
|
|
63,529
|
|
|
Cash and cash equivalents, end of period
|
$
|
108,160
|
|
|
51,034
|
|
|
|
|
|
|||
Cash disbursements made for:
|
|
|
|
|
|
|
Interest
|
$
|
88,066
|
|
|
66,091
|
|
Income taxes, net of refunds
|
$
|
1,180
|
|
|
1,323
|
|
Supplemental noncash operating activities:
|
|
|
|
|||
Increase in other assets related to centrally cleared variation margin settlements on derivative instruments
|
$
|
50,401
|
|
|
—
|
|
|
As of
|
|
As of
|
|||
|
March 31, 2017
|
|
December 31, 2016
|
|||
Federally insured loans:
|
|
|
|
|||
Stafford and other
|
$
|
4,927,541
|
|
|
5,186,047
|
|
Consolidation
|
19,012,552
|
|
|
19,643,937
|
|
|
Total
|
23,940,093
|
|
|
24,829,984
|
|
|
Private education loans
|
256,816
|
|
|
273,659
|
|
|
|
24,196,909
|
|
|
25,103,643
|
|
|
Loan discount, net of unamortized loan premiums and deferred origination costs (a)
|
(142,997
|
)
|
|
(148,077
|
)
|
|
Allowance for loan losses – federally insured loans
|
(36,687
|
)
|
|
(37,268
|
)
|
|
Allowance for loan losses – private education loans
|
(13,839
|
)
|
|
(14,574
|
)
|
|
|
$
|
24,003,386
|
|
|
24,903,724
|
|
(a)
|
As of
March 31, 2017
and
December 31, 2016
, "loan discount, net of unamortized loan premiums and deferred origination costs" included
$16.6 million
and
$18.6 million
, respectively, of non-accretable discount associated with purchased loans of
$8.0 billion
and
$8.3 billion
, respectively.
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Balance at beginning of period
|
$
|
51,842
|
|
|
50,498
|
|
Provision for loan losses:
|
|
|
|
|||
Federally insured loans
|
2,000
|
|
|
2,000
|
|
|
Private education loans
|
(1,000
|
)
|
|
500
|
|
|
Total provision for loan losses
|
1,000
|
|
|
2,500
|
|
|
Charge-offs:
|
|
|
|
|
|
|
Federally insured loans
|
(2,581
|
)
|
|
(3,049
|
)
|
|
Private education loans
|
(82
|
)
|
|
(401
|
)
|
|
Total charge-offs
|
(2,663
|
)
|
|
(3,450
|
)
|
|
Recoveries - private education loans
|
197
|
|
|
276
|
|
|
Purchase of private education loans
|
—
|
|
|
160
|
|
|
Transfer from repurchase obligation related to private education loans repurchased
|
150
|
|
|
100
|
|
|
Balance at end of period
|
$
|
50,526
|
|
|
50,084
|
|
|
|
|
|
|||
Allocation of the allowance for loan losses:
|
|
|
|
|
||
Federally insured loans
|
$
|
36,687
|
|
|
34,441
|
|
Private education loans
|
13,839
|
|
|
15,643
|
|
|
Total allowance for loan losses
|
$
|
50,526
|
|
|
50,084
|
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
|
As of March 31, 2016
|
|||||||||||||||
Federally insured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans in-school/grace/deferment
|
$
|
1,604,494
|
|
|
|
|
$
|
1,606,468
|
|
|
|
|
$
|
2,198,559
|
|
|
|
|||
Loans in forbearance
|
2,125,344
|
|
|
|
|
2,295,367
|
|
|
|
|
2,736,472
|
|
|
|
||||||
Loans in repayment status:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans current
|
17,690,083
|
|
|
87.5
|
%
|
|
18,125,768
|
|
|
86.6
|
%
|
|
19,375,813
|
|
|
86.0
|
%
|
|||
Loans delinquent 31-60 days
|
732,433
|
|
|
3.6
|
|
|
818,976
|
|
|
3.9
|
|
|
866,207
|
|
|
3.8
|
|
|||
Loans delinquent 61-90 days
|
493,876
|
|
|
2.4
|
|
|
487,647
|
|
|
2.3
|
|
|
538,284
|
|
|
2.4
|
|
|||
Loans delinquent 91-120 days
|
275,711
|
|
|
1.4
|
|
|
335,291
|
|
|
1.6
|
|
|
329,425
|
|
|
1.5
|
|
|||
Loans delinquent 121-270 days
|
763,030
|
|
|
3.8
|
|
|
854,432
|
|
|
4.1
|
|
|
1,008,157
|
|
|
4.5
|
|
|||
Loans delinquent 271 days or greater
|
255,122
|
|
|
1.3
|
|
|
306,035
|
|
|
1.5
|
|
|
396,280
|
|
|
1.8
|
|
|||
Total loans in repayment
|
20,210,255
|
|
|
100.0
|
%
|
|
20,928,149
|
|
|
100.0
|
%
|
|
22,514,166
|
|
|
100.0
|
%
|
|||
Total federally insured loans
|
$
|
23,940,093
|
|
|
|
|
|
$
|
24,829,984
|
|
|
|
|
|
$
|
27,449,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Private education loans:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Loans in-school/grace/deferment
|
$
|
34,138
|
|
|
|
|
$
|
35,146
|
|
|
|
|
$
|
55,668
|
|
|
|
|||
Loans in forbearance
|
3,811
|
|
|
|
|
3,448
|
|
|
|
|
722
|
|
|
|
||||||
Loans in repayment status:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans current
|
213,081
|
|
|
97.4
|
%
|
|
228,612
|
|
|
97.2
|
%
|
|
231,556
|
|
|
97.2
|
%
|
|||
Loans delinquent 31-60 days
|
1,355
|
|
|
0.6
|
|
|
1,677
|
|
|
0.7
|
|
|
968
|
|
|
0.4
|
|
|||
Loans delinquent 61-90 days
|
1,402
|
|
|
0.6
|
|
|
1,110
|
|
|
0.5
|
|
|
1,144
|
|
|
0.5
|
|
|||
Loans delinquent 91 days or greater
|
3,029
|
|
|
1.4
|
|
|
3,666
|
|
|
1.6
|
|
|
4,563
|
|
|
1.9
|
|
|||
Total loans in repayment
|
218,867
|
|
|
100.0
|
%
|
|
235,065
|
|
|
100.0
|
%
|
|
238,231
|
|
|
100.0
|
%
|
|||
Total private education loans
|
$
|
256,816
|
|
|
|
|
|
$
|
273,659
|
|
|
|
|
|
$
|
294,621
|
|
|
|
|
As of March 31, 2017
|
||||||
|
Carrying
amount
|
|
Interest rate
range
|
|
Final maturity
|
||
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
|
|
|
|
|
|
||
Bonds and notes based on indices
|
$
|
21,316,429
|
|
|
0.22% - 6.90%
|
|
6/25/21 - 9/25/65
|
Bonds and notes based on auction
|
800,065
|
|
|
1.69% - 2.32%
|
|
3/22/32 - 11/26/46
|
|
Total FFELP variable-rate bonds and notes
|
22,116,494
|
|
|
|
|
|
|
FFELP warehouse facilities
|
1,608,569
|
|
|
0.83% - 1.17%
|
|
9/7/18 - 12/13/19
|
|
Variable-rate bonds and notes issued in private education loan asset-backed securitization
|
102,585
|
|
|
2.73%
|
|
12/26/40
|
|
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
|
105,264
|
|
|
3.60% / 5.35%
|
|
12/26/40 / 12/28/43
|
|
Unsecured line of credit
|
35,000
|
|
|
2.29%
|
|
12/12/21
|
|
Unsecured debt - Junior Subordinated Hybrid Securities
|
20,526
|
|
|
4.52%
|
|
9/15/61
|
|
Other borrowings
|
20,871
|
|
|
1.78% - 3.38%
|
|
4/27/17 - 12/15/45
|
|
|
24,009,309
|
|
|
|
|
|
|
Discount on bonds and notes payable and debt issuance costs
|
(414,793
|
)
|
|
|
|
|
|
Total
|
$
|
23,594,516
|
|
|
|
|
|
|
As of December 31, 2016
|
||||||
|
Carrying
amount
|
|
Interest rate
range
|
|
Final maturity
|
||
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
|
|
|
|
|
|
||
Bonds and notes based on indices
|
$
|
22,130,063
|
|
|
0.24% - 6.90%
|
|
6/25/21 - 9/25/65
|
Bonds and notes based on auction
|
998,415
|
|
|
1.61% - 2.28%
|
|
3/22/32 - 11/26/46
|
|
Total FFELP variable-rate bonds and notes
|
23,128,478
|
|
|
|
|
|
|
FFELP warehouse facilities
|
1,677,443
|
|
|
0.63% - 1.09%
|
|
9/7/18 - 12/13/19
|
|
Variable-rate bonds and notes issued in private education loan asset-backed securitization
|
112,582
|
|
|
2.60%
|
|
12/26/40
|
|
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
|
113,378
|
|
|
3.60% / 5.35%
|
|
12/26/40 / 12/28/43
|
|
Unsecured line of credit
|
—
|
|
|
—
|
|
12/12/21
|
|
Unsecured debt - Junior Subordinated Hybrid Securities
|
50,184
|
|
|
4.37%
|
|
9/15/61
|
|
Other borrowings
|
18,355
|
|
|
3.38%
|
|
3/31/23 / 12/15/45
|
|
|
25,100,420
|
|
|
|
|
|
|
Discount on bonds and notes payable and debt issuance costs
|
(431,930
|
)
|
|
|
|
|
|
Total
|
$
|
24,668,490
|
|
|
|
|
|
|
|
NFSLW-I
|
|
NHELP-III (a)
|
|
NHELP-II
|
|
|
Total
|
|||||
Maximum financing amount
|
|
$
|
875,000
|
|
|
750,000
|
|
|
500,000
|
|
|
|
2,125,000
|
|
Amount outstanding
|
|
619,249
|
|
|
587,741
|
|
|
401,579
|
|
|
|
1,608,569
|
|
|
Amount available
|
|
$
|
255,751
|
|
|
162,259
|
|
|
98,421
|
|
|
|
516,431
|
|
Expiration of liquidity provisions
|
|
July 10, 2018
|
|
|
April 28, 2017
|
|
|
December 15, 2017
|
|
|
|
|
||
Final maturity date
|
|
September 7, 2018
|
|
|
April 26, 2019
|
|
|
December 13, 2019
|
|
|
|
|
||
Maximum advance rates
|
|
92.0 - 98.0%
|
|
|
92.2 - 95.0%
|
|
|
85.0 - 95.0%
|
|
|
|
|
||
Minimum advance rates
|
|
84.0 - 90.0%
|
|
|
92.2 - 95.0%
|
|
|
85.0 - 95.0%
|
|
|
|
|
||
Advanced as equity support
|
|
$
|
18,177
|
|
|
30,052
|
|
|
29,689
|
|
|
|
77,918
|
|
(a)
|
On April 3, 2017, the Company entered into a letter agreement for this warehouse facility to decrease the maximum financing amount to
$600.0 million
. On April 28, 2017, the Company amended the agreement for this warehouse facility which changed the expiration date for the liquidity provisions to
April 27, 2018
and changed the final maturity date to
April 27, 2020
. On May 5, 2017, the Company decreased the maximum financing amount on this warehouse facility to
$400.0 million
.
|
|
|
As of March 31,
|
|
As of December 31,
|
|||
|
|
2017
|
|
2016
|
|||
Maturity
|
|
Notional amount
|
|
Notional amount
|
|||
2018
|
|
$
|
4,000,000
|
|
|
—
|
|
2024
|
|
250,000
|
|
|
—
|
|
|
2026
|
|
1,150,000
|
|
|
1,150,000
|
|
|
2027
|
|
375,000
|
|
|
—
|
|
|
2028
|
|
325,000
|
|
|
325,000
|
|
|
2029
|
|
100,000
|
|
|
—
|
|
|
2031
|
|
300,000
|
|
|
300,000
|
|
|
|
|
$
|
6,500,000
|
|
|
1,775,000
|
|
Maturity
|
|
Notional amount
|
|
Weighted average fixed rate paid by the Company (a)
|
|||
|
|
||||||
2017
|
|
$
|
750,000
|
|
|
0.99
|
%
|
2018
|
|
1,350,000
|
|
|
1.07
|
|
|
2019
|
|
3,250,000
|
|
|
0.97
|
|
|
2020
|
|
1,500,000
|
|
|
1.01
|
|
|
2025
|
|
100,000
|
|
|
2.32
|
|
|
|
|
$
|
6,950,000
|
|
|
1.02
|
%
|
(a)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
Maturity
|
|
Notional amount
|
|
Weighted average fixed rate paid by the Company (a)
|
|||
2036
|
|
$
|
25,000
|
|
|
4.28
|
%
|
(a)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Re-measurement of Euro Notes
|
$
|
(4,690
|
)
|
|
(18,480
|
)
|
Change in fair value of cross-currency interest rate swap
|
935
|
|
|
32,701
|
|
|
Total impact to consolidated statements of income - (expense) income (a)
|
$
|
(3,755
|
)
|
|
14,221
|
|
(a)
|
The financial statement impact of the above items is included in "Derivative market value and foreign currency transaction adjustments and derivative settlements, net" in the Company's consolidated statements of income.
|
|
Fair value of asset derivatives
|
|
Fair value of liability derivatives
|
|||||||||
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|||||
|
March 31,
2017 |
|
December 31,
2016 |
|
March 31,
2017 |
|
December 31,
2016 |
|||||
1:3 basis swaps
|
$
|
—
|
|
|
—
|
|
|
5,198
|
|
|
2,624
|
|
Interest rate swaps - floor income hedges
|
85,533
|
|
|
81,159
|
|
|
304
|
|
|
256
|
|
|
Interest rate swap option - floor income hedge
|
2,092
|
|
|
2,977
|
|
|
—
|
|
|
—
|
|
|
Interest rate swaps - hybrid debt hedges
|
—
|
|
|
—
|
|
|
6,923
|
|
|
7,341
|
|
|
Interest rate caps
|
646
|
|
|
1,152
|
|
|
—
|
|
|
—
|
|
|
Cross-currency interest rate swap
|
—
|
|
|
—
|
|
|
66,670
|
|
|
67,605
|
|
|
Other
|
1,782
|
|
|
2,243
|
|
|
—
|
|
|
—
|
|
|
Centrally cleared variation margin (a)
|
(50,401
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
39,652
|
|
|
87,531
|
|
|
79,095
|
|
|
77,826
|
|
(a)
|
As of
March 31, 2017
, the
$50.4 million
in variation margin due from the CME is included in "other assets" in the Company's consolidated balance sheet.
|
|
|
|
|
Gross amounts not offset in the consolidated balance sheets
|
|
|
|||||||
|
|
Gross amounts of recognized assets/liabilities presented in the consolidated balance sheets
|
|
Derivatives subject to enforceable master netting arrangement
|
|
Cash collateral pledged
|
|
Net asset (liability)
|
|||||
|
|
As of March 31, 2017
|
|||||||||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|||||
Non-centrally cleared derivative assets
|
|
$
|
3,058
|
|
|
—
|
|
|
—
|
|
|
3,058
|
|
Centrally cleared derivative assets
|
|
36,594
|
|
|
—
|
|
|
—
|
|
|
36,594
|
|
|
|
|
$
|
39,652
|
|
|
—
|
|
|
—
|
|
|
39,652
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|||||
Non-centrally cleared derivative liabilities
|
|
$
|
(73,593
|
)
|
|
—
|
|
|
7,892
|
|
|
(65,701
|
)
|
Centrally cleared derivative liabilities
|
|
(5,502
|
)
|
|
—
|
|
|
—
|
|
|
(5,502
|
)
|
|
|
|
$
|
(79,095
|
)
|
|
—
|
|
|
7,892
|
|
|
(71,203
|
)
|
|
|
As of December 31, 2016
|
|||||||||||
Derivative assets
|
|
$
|
87,531
|
|
|
(2,880
|
)
|
|
475
|
|
|
85,126
|
|
Derivative liabilities
|
|
$
|
(77,826
|
)
|
|
2,880
|
|
|
7,292
|
|
|
(67,654
|
)
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Settlements:
|
|
|
|
|
|
|
1:3 basis swaps
|
$
|
698
|
|
|
(329
|
)
|
Interest rate swaps - floor income hedges
|
(120
|
)
|
|
(5,243
|
)
|
|
Interest rate swaps - hybrid debt hedges
|
(205
|
)
|
|
(232
|
)
|
|
Cross-currency interest rate swap
|
(1,751
|
)
|
|
(733
|
)
|
|
Centrally cleared variation margin settlements
|
50,401
|
|
|
—
|
|
|
Total settlements - income (expense)
|
49,023
|
|
|
(6,537
|
)
|
|
Change in fair value:
|
|
|
|
|
|
|
1:3 basis swaps
|
(2,574
|
)
|
|
768
|
|
|
Interest rate swaps - floor income hedges
|
4,324
|
|
|
(32,709
|
)
|
|
Interest rate swap option - floor income hedge
|
(884
|
)
|
|
(1,415
|
)
|
|
Interest rate swaps - hybrid debt hedges
|
419
|
|
|
(2,549
|
)
|
|
Interest rate caps
|
(522
|
)
|
|
(763
|
)
|
|
Cross-currency interest rate swap
|
935
|
|
|
32,701
|
|
|
Centrally cleared variation margin
|
(50,401
|
)
|
|
—
|
|
|
Other
|
(460
|
)
|
|
293
|
|
|
Total change in fair value - income (expense)
|
(49,163
|
)
|
|
(3,674
|
)
|
|
Re-measurement of Euro Notes (foreign currency transaction adjustment) - (expense) income
|
(4,690
|
)
|
|
(18,480
|
)
|
|
Derivative market value and foreign currency transaction adjustments and derivative settlements, net - (expense) income
|
$
|
(4,830
|
)
|
|
(28,691
|
)
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||||
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses (a)
|
|
Fair value
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Fair value
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Investments (at fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Student loan asset-backed and other debt securities (b)
|
$
|
114,315
|
|
|
7,028
|
|
|
(622
|
)
|
|
120,721
|
|
|
98,260
|
|
|
6,280
|
|
|
(641
|
)
|
|
103,899
|
|
|
Equity securities
|
720
|
|
|
2,081
|
|
|
(54
|
)
|
|
2,747
|
|
|
720
|
|
|
1,930
|
|
|
(61
|
)
|
|
2,589
|
|
||
Total available-for-sale investments
|
$
|
115,035
|
|
|
9,109
|
|
|
(676
|
)
|
|
123,468
|
|
|
98,980
|
|
|
8,210
|
|
|
(702
|
)
|
|
106,488
|
|
|
Trading investments - equity securities
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
105
|
|
||||||||
Total available-for-sale and trading investments
|
|
|
|
|
|
|
123,566
|
|
|
|
|
|
|
|
|
106,593
|
|
||||||||
Other Investments and Notes Receivable (not measured at fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Venture capital and funds
|
|
|
|
|
|
|
73,800
|
|
|
|
|
|
|
|
|
69,789
|
|
||||||||
Real estate
|
|
|
|
|
|
|
48,480
|
|
|
|
|
|
|
|
|
48,379
|
|
||||||||
Notes receivable
|
|
|
|
|
|
|
16,563
|
|
|
|
|
|
|
|
|
17,031
|
|
||||||||
Tax liens and affordable housing
|
|
|
|
|
|
|
11,409
|
|
|
|
|
|
|
|
|
12,352
|
|
||||||||
Total investments and notes receivable
|
|
|
|
|
|
|
$
|
273,818
|
|
|
|
|
|
|
|
|
254,144
|
|
(a)
|
As of
March 31, 2017
, the aggregate fair value of available-for-sale investments with unrealized losses was
$34.8 million
, of which
$11.0 million
had been in a continuous unrealized loss position for greater than 12 months. Because the Company currently has the intent and ability to retain these investments for an anticipated recovery in fair value, as of
March 31, 2017
, the Company considered the decline in market value of its available-for-sale investments to be temporary in nature and did not consider any of its investments other-than-temporarily impaired.
|
(b)
|
As of
March 31, 2017
, the stated maturities of substantially all of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years.
|
|
Weighted average remaining useful life as of March 31, 2017 (months)
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
||||
Amortizable intangible assets:
|
|
|
|
||||||
Customer relationships (net of accumulated amortization of $9,623 and $8,548, respectively)
|
166
|
|
$
|
27,261
|
|
|
28,335
|
|
|
Trade names (net of accumulated amortization of $1,864 and $1,653, respectively)
|
186
|
|
9,708
|
|
|
9,919
|
|
||
Computer software (net of accumulated amortization of $6,760 and $5,675, respectively)
|
23
|
|
8,211
|
|
|
9,296
|
|
||
Covenants not to compete (net of accumulated amortization of $100 and $91, respectively)
|
86
|
|
254
|
|
|
263
|
|
||
Total - amortizable intangible assets
|
144
|
|
$
|
45,434
|
|
|
47,813
|
|
2017 (April 1 - December 31)
|
$
|
7,007
|
|
2018
|
8,605
|
|
|
2019
|
5,147
|
|
|
2020
|
4,231
|
|
|
2021
|
3,480
|
|
|
2022 and thereafter
|
16,964
|
|
|
|
$
|
45,434
|
|
|
Loan Systems and Servicing
|
|
Tuition Payment Processing and Campus Commerce
|
|
Communications
|
|
Asset Generation and Management
|
|
Corporate and Other Activities
|
|
Total
|
|||||||
Goodwill balance
|
$
|
8,596
|
|
|
67,168
|
|
|
21,112
|
|
|
41,883
|
|
|
8,553
|
|
|
147,312
|
|
|
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
|||
|
Useful life
|
|
|
|||||
Non-communications:
|
|
|
|
|
|
|||
Computer equipment and software
|
1-5 years
|
|
$
|
103,109
|
|
|
97,317
|
|
Office furniture and equipment
|
3-7 years
|
|
12,376
|
|
|
12,344
|
|
|
Building and building improvements
|
5-39 years
|
|
13,383
|
|
|
13,363
|
|
|
Transportation equipment
|
4-10 years
|
|
3,813
|
|
|
3,809
|
|
|
Leasehold improvements
|
5-20 years
|
|
3,605
|
|
|
3,579
|
|
|
Land
|
—
|
|
1,682
|
|
|
1,682
|
|
|
Construction in progress
|
—
|
|
19,284
|
|
|
16,346
|
|
|
|
|
|
157,252
|
|
|
148,440
|
|
|
Accumulated depreciation - non-communications
|
|
|
95,575
|
|
|
91,285
|
|
|
Non-communications, net property and equipment
|
|
|
61,677
|
|
|
57,155
|
|
|
|
|
|
|
|
|
|||
Communications:
|
|
|
|
|
|
|||
Network plant and fiber
|
5-15 years
|
|
51,868
|
|
|
40,844
|
|
|
Central office
|
5-15 years
|
|
7,388
|
|
|
6,448
|
|
|
Customer located property
|
5-10 years
|
|
7,385
|
|
|
5,138
|
|
|
Transportation equipment
|
4-10 years
|
|
3,805
|
|
|
2,966
|
|
|
Computer equipment and software
|
1-5 years
|
|
2,344
|
|
|
2,026
|
|
|
Other
|
1-39 years
|
|
1,411
|
|
|
1,268
|
|
|
Land
|
—
|
|
70
|
|
|
70
|
|
|
Construction in progress
|
—
|
|
13,695
|
|
|
12,537
|
|
|
|
|
|
87,966
|
|
|
71,297
|
|
|
Accumulated depreciation - communications
|
|
|
6,581
|
|
|
4,666
|
|
|
Communications, net property and equipment
|
|
|
81,385
|
|
|
66,631
|
|
|
Total property and equipment, net
|
|
|
$
|
143,062
|
|
|
123,786
|
|
|
Three months ended March 31,
|
|||||||||||||||||
|
2017
|
|
2016
|
|||||||||||||||
|
Common shareholders
|
|
Unvested restricted stock shareholders
|
|
Total
|
|
Common shareholders
|
|
Unvested restricted stock shareholders
|
|
Total
|
|||||||
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income attributable to Nelnet, Inc.
|
$
|
49,505
|
|
|
521
|
|
|
50,026
|
|
|
47,452
|
|
|
509
|
|
|
47,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding - basic and diluted
|
41,851,064
|
|
|
440,793
|
|
|
42,291,857
|
|
|
42,630,806
|
|
|
457,286
|
|
|
43,088,092
|
|
|
Earnings per share - basic and diluted
|
$
|
1.18
|
|
|
1.18
|
|
|
1.18
|
|
|
1.11
|
|
|
1.11
|
|
|
1.11
|
|
|
Three months ended March 31, 2017
|
||||||||||||||||||||
|
Loan Systems and Servicing
|
|
Tuition Payment Processing and Campus Commerce
|
|
Communications
|
|
Asset
Generation and Management |
|
Corporate and Other Activities
|
|
Eliminations
|
|
Total
|
||||||||
Total interest income
|
$
|
94
|
|
|
2
|
|
|
1
|
|
|
182,326
|
|
|
2,761
|
|
|
(1,359
|
)
|
|
183,824
|
|
Interest expense
|
—
|
|
|
—
|
|
|
712
|
|
|
106,751
|
|
|
795
|
|
|
(1,359
|
)
|
|
106,899
|
|
|
Net interest income
|
94
|
|
|
2
|
|
|
(711
|
)
|
|
75,575
|
|
|
1,966
|
|
|
—
|
|
|
76,925
|
|
|
Less provision for loan losses
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
Net interest income (loss) after provision for loan losses
|
94
|
|
|
2
|
|
|
(711
|
)
|
|
74,575
|
|
|
1,966
|
|
|
—
|
|
|
75,925
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Loan systems and servicing revenue
|
54,229
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54,229
|
|
|
Intersegment servicing revenue
|
10,323
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,323
|
)
|
|
—
|
|
|
Tuition payment processing, school information, and campus commerce revenue
|
—
|
|
|
43,620
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43,620
|
|
|
Communications revenue
|
—
|
|
|
—
|
|
|
5,106
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,106
|
|
|
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
3,342
|
|
|
9,290
|
|
|
—
|
|
|
12,632
|
|
|
Gain from debt repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
540
|
|
|
4,440
|
|
|
—
|
|
|
4,980
|
|
|
Derivative settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,173
|
)
|
|
(205
|
)
|
|
—
|
|
|
(1,378
|
)
|
|
Derivative market value and foreign currency transaction adjustments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(53,811
|
)
|
|
(42
|
)
|
|
—
|
|
|
(53,853
|
)
|
|
Centrally cleared variation margin settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
50,401
|
|
|
—
|
|
|
—
|
|
|
50,401
|
|
|
Total other income
|
64,552
|
|
|
43,620
|
|
|
5,106
|
|
|
(701
|
)
|
|
13,483
|
|
|
(10,323
|
)
|
|
115,737
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Salaries and benefits
|
37,992
|
|
|
16,652
|
|
|
2,979
|
|
|
400
|
|
|
13,839
|
|
|
—
|
|
|
71,863
|
|
|
Depreciation and amortization
|
549
|
|
|
2,391
|
|
|
2,135
|
|
|
—
|
|
|
3,523
|
|
|
—
|
|
|
8,598
|
|
|
Loan servicing fees
|
—
|
|
|
—
|
|
|
—
|
|
|
6,025
|
|
|
—
|
|
|
—
|
|
|
6,025
|
|
|
Cost to provide communications services
|
—
|
|
|
—
|
|
|
1,954
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,954
|
|
|
Other expenses
|
9,136
|
|
|
4,995
|
|
|
1,372
|
|
|
991
|
|
|
10,054
|
|
|
—
|
|
|
26,547
|
|
|
Intersegment expenses, net
|
7,398
|
|
|
2,075
|
|
|
506
|
|
|
10,412
|
|
|
(10,068
|
)
|
|
(10,323
|
)
|
|
—
|
|
|
Total operating expenses
|
55,075
|
|
|
26,113
|
|
|
8,946
|
|
|
17,828
|
|
|
17,348
|
|
|
(10,323
|
)
|
|
114,987
|
|
|
Income (loss) before income taxes
|
9,571
|
|
|
17,509
|
|
|
(4,551
|
)
|
|
56,046
|
|
|
(1,899
|
)
|
|
—
|
|
|
76,675
|
|
|
Income tax (expense) benefit
|
(4,555
|
)
|
|
(6,653
|
)
|
|
1,730
|
|
|
(21,297
|
)
|
|
2,021
|
|
|
—
|
|
|
(28,755
|
)
|
|
Net income (loss)
|
5,016
|
|
|
10,856
|
|
|
(2,821
|
)
|
|
34,749
|
|
|
122
|
|
|
—
|
|
|
47,920
|
|
|
Net loss (income) attributable to noncontrolling interests
|
2,415
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(309
|
)
|
|
—
|
|
|
2,106
|
|
|
Net income (loss) attributable to Nelnet, Inc.
|
$
|
7,431
|
|
|
10,856
|
|
|
(2,821
|
)
|
|
34,749
|
|
|
(187
|
)
|
|
—
|
|
|
50,026
|
|
|
Three months ended March 31, 2016
|
||||||||||||||||||||
|
Loan Systems and Servicing
|
|
Tuition Payment Processing and Campus Commerce
|
|
Communications
|
|
Asset
Generation and
Management
|
|
Corporate and Other
Activities |
|
Eliminations
|
|
Total
|
||||||||
Total interest income
|
$
|
21
|
|
|
3
|
|
|
—
|
|
|
190,723
|
|
|
2,093
|
|
|
(823
|
)
|
|
192,017
|
|
Interest expense
|
—
|
|
|
—
|
|
|
147
|
|
|
89,877
|
|
|
1,206
|
|
|
(823
|
)
|
|
90,408
|
|
|
Net interest income
|
21
|
|
|
3
|
|
|
(147
|
)
|
|
100,846
|
|
|
887
|
|
|
—
|
|
|
101,609
|
|
|
Less provision for loan losses
|
—
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
—
|
|
|
—
|
|
|
2,500
|
|
|
Net interest income (loss) after provision for loan losses
|
21
|
|
|
3
|
|
|
(147
|
)
|
|
98,346
|
|
|
887
|
|
|
—
|
|
|
99,109
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Loan systems and servicing revenue
|
52,330
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,330
|
|
|
Intersegment servicing revenue
|
12,007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,007
|
)
|
|
—
|
|
|
Tuition payment processing, school information, and campus commerce revenue
|
—
|
|
|
38,657
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,657
|
|
|
Communications revenue
|
—
|
|
|
—
|
|
|
4,346
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,346
|
|
|
Enrollment services revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,326
|
|
|
—
|
|
|
4,326
|
|
|
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
4,263
|
|
|
9,532
|
|
|
—
|
|
|
13,796
|
|
|
Gain from debt repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
101
|
|
|
Derivative settlements, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,304
|
)
|
|
(232
|
)
|
|
—
|
|
|
(6,537
|
)
|
|
Derivative market value and foreign currency transaction adjustments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,897
|
)
|
|
(2,256
|
)
|
|
—
|
|
|
(22,154
|
)
|
|
Total other income
|
64,337
|
|
|
38,657
|
|
|
4,346
|
|
|
(21,837
|
)
|
|
11,370
|
|
|
(12,007
|
)
|
|
84,865
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
||
Salaries and benefits
|
32,967
|
|
|
14,435
|
|
|
1,089
|
|
|
519
|
|
|
14,231
|
|
|
—
|
|
|
63,242
|
|
|
Depreciation and amortization
|
438
|
|
|
2,271
|
|
|
1,129
|
|
|
—
|
|
|
3,802
|
|
|
—
|
|
|
7,640
|
|
|
Loan servicing fees
|
—
|
|
|
—
|
|
|
—
|
|
|
6,928
|
|
|
—
|
|
|
—
|
|
|
6,928
|
|
|
Cost to provide communications services
|
—
|
|
|
—
|
|
|
1,703
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,703
|
|
|
Cost to provide enrollment services
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,623
|
|
|
—
|
|
|
3,623
|
|
|
Other expenses
|
11,470
|
|
|
4,159
|
|
|
753
|
|
|
1,516
|
|
|
10,477
|
|
|
—
|
|
|
28,376
|
|
|
Intersegment expenses, net
|
6,241
|
|
|
1,512
|
|
|
144
|
|
|
12,107
|
|
|
(7,997
|
)
|
|
(12,007
|
)
|
|
—
|
|
|
Total operating expenses
|
51,116
|
|
|
22,377
|
|
|
4,818
|
|
|
21,070
|
|
|
24,136
|
|
|
(12,007
|
)
|
|
111,512
|
|
|
Income (loss) before income taxes
|
13,242
|
|
|
16,283
|
|
|
(619
|
)
|
|
55,439
|
|
|
(11,879
|
)
|
|
—
|
|
|
72,462
|
|
|
Income tax (expense) benefit
|
(5,032
|
)
|
|
(6,188
|
)
|
|
235
|
|
|
(21,066
|
)
|
|
7,617
|
|
|
—
|
|
|
(24,433
|
)
|
|
Net income (loss)
|
8,210
|
|
|
10,095
|
|
|
(384
|
)
|
|
34,373
|
|
|
(4,262
|
)
|
|
—
|
|
|
48,029
|
|
|
Net loss (income) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(68
|
)
|
|
—
|
|
|
(68
|
)
|
|
Net income (loss) attributable to Nelnet, Inc.
|
$
|
8,210
|
|
|
10,095
|
|
|
(384
|
)
|
|
34,373
|
|
|
(4,330
|
)
|
|
—
|
|
|
47,961
|
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
|||||||||||||||
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Investments (available-for-sale and trading):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Student loan asset-backed securities
|
$
|
—
|
|
|
120,506
|
|
|
120,506
|
|
|
—
|
|
|
103,780
|
|
|
103,780
|
|
Equity securities
|
2,845
|
|
|
—
|
|
|
2,845
|
|
|
2,694
|
|
|
—
|
|
|
2,694
|
|
|
Debt securities
|
215
|
|
|
—
|
|
|
215
|
|
|
119
|
|
|
—
|
|
|
119
|
|
|
Total investments (available-for-sale and trading)
|
3,060
|
|
|
120,506
|
|
|
123,566
|
|
|
2,813
|
|
|
103,780
|
|
|
106,593
|
|
|
Derivative instruments
|
—
|
|
|
39,652
|
|
|
39,652
|
|
|
—
|
|
|
87,531
|
|
|
87,531
|
|
|
Total assets
|
$
|
3,060
|
|
|
160,158
|
|
|
163,218
|
|
|
2,813
|
|
|
191,311
|
|
|
194,124
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments
|
$
|
—
|
|
|
79,095
|
|
|
79,095
|
|
|
—
|
|
|
77,826
|
|
|
77,826
|
|
Total liabilities
|
$
|
—
|
|
|
79,095
|
|
|
79,095
|
|
|
—
|
|
|
77,826
|
|
|
77,826
|
|
|
As of March 31, 2017
|
||||||||||||||
|
Fair value
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
||||||
Student loans receivable
|
$
|
25,036,613
|
|
|
24,003,386
|
|
|
—
|
|
|
—
|
|
|
25,036,613
|
|
Cash and cash equivalents
|
108,160
|
|
|
108,160
|
|
|
108,160
|
|
|
—
|
|
|
—
|
|
|
Investments (available-for-sale and trading)
|
123,566
|
|
|
123,566
|
|
|
3,060
|
|
|
120,506
|
|
|
—
|
|
|
Notes receivable
|
16,563
|
|
|
16,563
|
|
|
—
|
|
|
16,563
|
|
|
—
|
|
|
Restricted cash
|
787,635
|
|
|
787,635
|
|
|
787,635
|
|
|
—
|
|
|
—
|
|
|
Restricted cash – due to customers
|
93,699
|
|
|
93,699
|
|
|
93,699
|
|
|
—
|
|
|
—
|
|
|
Accrued interest receivable
|
392,754
|
|
|
392,754
|
|
|
—
|
|
|
392,754
|
|
|
—
|
|
|
Derivative instruments
|
39,652
|
|
|
39,652
|
|
|
—
|
|
|
39,652
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bonds and notes payable
|
23,526,104
|
|
|
23,594,516
|
|
|
—
|
|
|
23,526,104
|
|
|
—
|
|
|
Accrued interest payable
|
46,427
|
|
|
46,427
|
|
|
—
|
|
|
46,427
|
|
|
—
|
|
|
Due to customers
|
93,699
|
|
|
93,699
|
|
|
93,699
|
|
|
—
|
|
|
—
|
|
|
Derivative instruments
|
79,095
|
|
|
79,095
|
|
|
—
|
|
|
79,095
|
|
|
—
|
|
|
As of December 31, 2016
|
||||||||||||||
|
Fair value
|
|
Carrying value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
||||||
Student loans receivable
|
$
|
25,653,581
|
|
|
24,903,724
|
|
|
—
|
|
|
—
|
|
|
25,653,581
|
|
Cash and cash equivalents
|
69,654
|
|
|
69,654
|
|
|
69,654
|
|
|
—
|
|
|
—
|
|
|
Investments (available-for-sale and trading)
|
106,593
|
|
|
106,593
|
|
|
2,813
|
|
|
103,780
|
|
|
—
|
|
|
Notes receivable
|
17,031
|
|
|
17,031
|
|
|
—
|
|
|
17,031
|
|
|
—
|
|
|
Restricted cash
|
980,961
|
|
|
980,961
|
|
|
980,961
|
|
|
—
|
|
|
—
|
|
|
Restricted cash – due to customers
|
119,702
|
|
|
119,702
|
|
|
119,702
|
|
|
—
|
|
|
—
|
|
|
Accrued interest receivable
|
391,264
|
|
|
391,264
|
|
|
—
|
|
|
391,264
|
|
|
—
|
|
|
Derivative instruments
|
87,531
|
|
|
87,531
|
|
|
—
|
|
|
87,531
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bonds and notes payable
|
24,220,996
|
|
|
24,668,490
|
|
|
—
|
|
|
24,220,996
|
|
|
—
|
|
|
Accrued interest payable
|
45,677
|
|
|
45,677
|
|
|
—
|
|
|
45,677
|
|
|
—
|
|
|
Due to customers
|
119,702
|
|
|
119,702
|
|
|
119,702
|
|
|
—
|
|
|
—
|
|
|
Derivative instruments
|
77,826
|
|
|
77,826
|
|
|
—
|
|
|
77,826
|
|
|
—
|
|
•
|
student loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the 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"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP student loans and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of student loan prepayment or default rates;
|
•
|
financing and liquidity risks, including risks of changes in the general interest rate environment and in the securitization and other financing markets for student loans, including adverse changes resulting from slower than expected payments on student loans in FFELP securitization trusts, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;
|
•
|
risks from changes in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans, risks related to adverse changes in the Company's volumes allocated under the Company's loan servicing contract with the U.S. Department of Education (the "Department"), which accounted for approximately 20 percent of the Company's revenue in 2016, risks related to the Department's initiative to procure a new contract for federal student loan servicing to acquire a single servicing platform to service all loans owned by the Department, including the risk that the Company's joint venture with Great Lakes Educational Loan Services, Inc. ("Great Lakes") may not be awarded the contract, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of FFELP, Federal Direct Loan Program, and private education and consumer loans;
|
•
|
risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information;
|
•
|
uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
|
•
|
the uncertain nature of the expected benefits from the acquisition of Allo Communications LLC on December 31, 2015 and the ability to integrate its communications operations and successfully expand its fiber network in existing service areas and additional communities and manage related construction risks;
|
•
|
risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the Company both within and outside of its historical core education-related businesses; and
|
•
|
risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the recent politicization of student loan servicing, 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.
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
GAAP net income attributable to Nelnet, Inc.
|
$
|
50,026
|
|
|
47,961
|
|
Derivative market value adjustments
|
49,163
|
|
|
3,674
|
|
|
Foreign currency transaction adjustments
|
4,690
|
|
|
18,480
|
|
|
Centrally cleared variation margin settlements
|
(50,401
|
)
|
|
—
|
|
|
Net tax effect (a)
|
(1,312
|
)
|
|
(8,418
|
)
|
|
Net income, excluding derivative market value and foreign currency transaction adjustments and variation margin settlements (b)
|
$
|
52,166
|
|
|
61,697
|
|
|
|
|
|
|||
Earnings per share:
|
|
|
|
|||
GAAP net income attributable to Nelnet, Inc.
|
$
|
1.18
|
|
|
1.11
|
|
Derivative market value adjustments
|
1.16
|
|
|
0.09
|
|
|
Foreign currency transaction adjustments
|
0.11
|
|
|
0.43
|
|
|
Centrally cleared variation margin settlements
|
(1.19
|
)
|
|
—
|
|
|
Net tax effect (a)
|
(0.03
|
)
|
|
(0.20
|
)
|
|
Net income, excluding derivative market value and foreign currency transaction adjustments and variation margin settlements (b)
|
$
|
1.23
|
|
|
1.43
|
|
(a)
|
The tax effects are calculated by multiplying the derivative market value adjustments, foreign currency transaction adjustments, and centrally cleared variation margin settlements by the applicable statutory income tax rate.
|
(b)
|
The Company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. "Derivative market value and foreign currency transaction adjustments and variation margin settlements" include (i) the unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars, and (iii) the variation margin settlements on derivative instruments that are settled daily at a central clearinghouse, which based on new derivative clearing rules effective January 3, 2017 are accounted for as derivative settlements and represent the changes in fair values of the underlying derivative instruments. (For additional information regarding the GAAP accounting based on the new derivative clearing rules, see the discussion under “Consolidated Financial Statement Impact Related to Derivatives” in note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report). The Company believes these point-in-time estimates of asset and liability values related to these financial instruments that are subject to interest and currency rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.
|
•
|
Loan Systems and Servicing ("LSS") - referred to as Nelnet Diversified Solutions ("NDS")
|
•
|
Tuition Payment Processing and Campus Commerce ("TPP&CC") - referred to as Nelnet Business Solutions ("NBS")
|
•
|
Communications - referred to as Allo Communications ("Allo")
|
(b)
|
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 changes in fair values of derivatives and foreign currency transaction adjustments and centrally cleared variation margin settlements under new derivative clearing rules effective January 3, 2017. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments and variation margin settlements from centrally cleared derivative instruments, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments and variation margin settlements, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.
|
•
|
As of
March 31, 2017
, the Company was servicing
$200.3 billion
in FFELP, government owned, and private education and consumer loans, as compared with
$182.2 billion
of loans as of
March 31, 2016
.
|
•
|
Revenue increased in the three months ended
March 31, 2017
compared to the same period in 2016 due to an increase in revenue on the government servicing contract and from growth in private education and consumer loan servicing volume from existing and new clients. The increase was partially offset by the loss of guaranty servicing and collection revenue.
|
•
|
Revenue from the government servicing contract increased to
$39.0 million
for the three months ended
March 31, 2017
compared to
$35.2 million
for the same period in 2016. This increase was due to an increase in application volume for the Company's administration of the Total and Permanent Disability and Direct Loan Consolidation programs, the transfer of borrowers to the Company from a not-for-profit servicer who exited the loan servicing business in August 2016, and the shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses. As of March 31, 2017, the Company was servicing $167.6 billion of student loans for 5.9 million borrowers under this contract.
|
•
|
Revenue from private education and consumer loan servicing increased to $5.8 million for the three months ended March 31, 2017 compared to $3.1 million for the same period in 2016. As of March 31, 2017, the Company was servicing $9.0 billion of private education and consumer loans for approximately 389,000 borrowers as compared to $5.2 billion of private education and consumer loans for approximately 251,000 borrowers as of March 31, 2016.
|
•
|
The Company's remaining guaranty servicing and collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. After this customer's exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty servicing and collection revenue. Guaranty servicing and collection revenue earned from this customer in the three months ended March 31, 2016 was $5.0 million.
|
•
|
In April 2016, the Department's Office of Federal Student Aid released information regarding a new contract procurement process for the Department to acquire a single servicing system platform with multiple customer service providers to manage all student loans owned by the Department. The contract solicitation process was divided into two phases.
|
•
|
Revenue increased in the
three
months ended
March 31, 2017
compared to the same period in
2016
due to increases in the number of managed tuition payment plans, campus commerce customer transactions and payments volume, and new school customers.
|
•
|
Before tax operating margin for the three months ended March 31, 2017 was 40.1 percent compared to 42.1 percent for the same period in 2016. This decrease was due to the Company's continued investment in and enhancements of payment plan and campus commerce systems and products.
|
•
|
This segment is subject to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year.
|
•
|
For the
three
months ended
March 31, 2017
and 2016, Allo recorded a net loss of
$2.8 million
and
$0.4 million
, respectively. The Company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.
|
•
|
Revenue from Allo for the three months ended March 31, 2017 was $5.1 million as compared to $4.3 million for the same period in 2016. The number of residential households served increased to 10,524 as of March 31, 2017 from 7,909 as of March 31, 2016.
|
•
|
The Company anticipates total network capital expenditures of approximately $80 million in 2017; however, such amount could change based on customer demand for Allo's services. For the
three
months ended
March 31, 2017
, Allo's capital expenditures were
$16.7 million
. The number of residential households passed, which represents the estimated number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines (but have not been connected) increased to 34,925 as of March 31, 2017 as compared to 21,274 as of March 31, 2016.
|
•
|
During the three months ended March 31, 2017 compared to the same period in 2016, the average balance of student loans decreased $3.5 billion, to $24.8 billion, due primarily to the amortization of the student loan portfolio, and limited portfolio acquisitions from third parties. The Company acquired $52.2 million of student loans during the three months ended March 31, 2017.
|
•
|
Core student loan spread was
1.23%
for the three months ended
March 31, 2017
, compared to
1.34%
for the same period in 2016. The decrease in core student loan spread was due to a decrease in fixed rate floor income and a widening in the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans.
|
•
|
Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During the three months ended
March 31, 2017
and
2016
, the Company earned
$32.0 million
and
$40.6 million
, respectively, of fixed rate floor income (net of
$0.1 million
and
$5.2 million
of derivative settlements, respectively, used to hedge such loans).
|
•
|
As of
March 31, 2017
, the Company had cash and cash equivalents of
$108.2 million
. In addition, the Company had a portfolio of available-for-sale and trading investments, consisting primarily of student loan asset-backed securities, with a fair value of $
123.6 million
as of
March 31, 2017
.
|
•
|
For the
three
months ended
March 31, 2017
, the Company generated
$73.8 million
in net cash from operating activities.
|
•
|
Forecasted undiscounted future cash flows from the Company's student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately
$2.02 billion
as of
March 31, 2017
.
|
•
|
As of March 31, 2017, the Company had $35.0 million outstanding on its unsecured line of credit and $315.0 million was available for future use. The unsecured line of credit has a maturity date of December 12, 2021.
|
•
|
During the three months ended March 31, 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding Hybrid Securities. The aggregate principal amount of notes tendered to the Company was $29.7 million. The Company paid $25.3 million to redeem these notes and recognized a pre-tax gain of $4.4 million.
|
•
|
During the
three
months ended
March 31, 2017
, the Company paid cash dividends of $5.9 million ($0.14 per share).
|
•
|
The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP and private education and consumer loan acquisitions; strategic acquisitions and investments; expansion of Allo's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.
|
Additional information:
|
|
|
|
|
|
|||
Net income attributable to Nelnet, Inc.
|
$
|
50,026
|
|
|
47,961
|
|
|
See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value and foreign currency transaction adjustments and variation margin settlements.
|
Derivative market value adjustments
|
49,163
|
|
|
3,674
|
|
|
||
Foreign currency transaction adjustments
|
4,690
|
|
|
18,480
|
|
|
||
Centrally cleared variation margin settlements
|
(50,401
|
)
|
|
—
|
|
|
||
Net tax effect
|
(1,312
|
)
|
|
(8,418
|
)
|
|
||
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency transaction adjustments and variation margin settlements
|
$
|
52,166
|
|
|
61,697
|
|
|
|
Three months ended March 31,
|
|
|
|||||
|
2017
|
|
2016
|
|
Additional information
|
|||
Variable student loan interest margin, net of settlements on derivatives
|
$
|
41,922
|
|
|
53,856
|
|
|
Represents the yield the Company receives on its student loan portfolio less the cost of funding these loans. Variable student loan spread is also impacted by the amortization/accretion of loan premiums and discounts, the 1.05% per year consolidation loan rebate fee paid to the Department, and yield adjustments from borrower benefit programs. See AGM operating segment - results of operations.
|
Fixed rate floor income, net of settlements on derivatives
|
32,012
|
|
|
40,639
|
|
|
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.
|
|
Investment interest
|
2,617
|
|
|
2,029
|
|
|
|
|
Non-portfolio related derivative settlements
|
(205
|
)
|
|
(232
|
)
|
|
|
|
Corporate debt interest expense
|
(799
|
)
|
|
(1,220
|
)
|
|
Includes interest expense on the Junior Subordinated Hybrid Securities and unsecured line of credit.
|
|
Net interest income (net of settlements on derivatives)
|
$
|
75,547
|
|
|
95,072
|
|
|
|
|
Three months ended March 31,
|
|
|
|||||
|
2017
|
|
2016
|
|
|
|||
Investment advisory fees
|
$
|
3,516
|
|
|
818
|
|
|
|
Borrower late fee income
|
3,319
|
|
|
3,646
|
|
|
|
|
Peterson's revenue
|
2,836
|
|
|
3,282
|
|
|
|
|
Realized and unrealized gains on investments classified as
available-for-sale and trading, net |
324
|
|
|
1,050
|
|
|
|
|
Other (a)
|
2,637
|
|
|
5,000
|
|
|
|
|
Other income
|
$
|
12,632
|
|
|
13,796
|
|
|
|
Company owned
|
|
$19,742
|
|
$18,886
|
|
$18,433
|
|
$18,079
|
|
$17,429
|
|
$16,962
|
|
$16,352
|
|||||||
% of total
|
|
12.2%
|
|
10.7%
|
|
10.1%
|
|
9.8%
|
|
9.0%
|
|
8.7%
|
|
8.2%
|
|||||||
Number of servicing borrowers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Government servicing:
|
|
5,915,449
|
|
|
5,842,163
|
|
|
5,786,545
|
|
|
5,726,828
|
|
|
6,009,433
|
|
|
5,972,619
|
|
|
5,924,099
|
|
FFELP servicing:
|
|
1,397,295
|
|
|
1,335,538
|
|
|
1,298,407
|
|
|
1,296,198
|
|
|
1,357,412
|
|
|
1,312,192
|
|
|
1,263,785
|
|
Private education and consumer loan servicing:
|
|
202,529
|
|
|
245,737
|
|
|
250,666
|
|
|
267,073
|
|
|
292,989
|
|
|
355,096
|
|
|
389,010
|
|
Total:
|
|
7,515,273
|
|
|
7,423,438
|
|
|
7,335,618
|
|
|
7,290,099
|
|
|
7,659,834
|
|
|
7,639,907
|
|
|
7,576,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Number of remote hosted borrowers:
|
|
1,611,654
|
|
|
1,755,341
|
|
|
1,796,783
|
|
|
1,842,961
|
|
|
2,103,989
|
|
|
2,230,019
|
|
|
2,068,781
|
|
|
Three months ended March 31,
|
|
Additional information
|
|||||
|
2017
|
|
2016
|
|
|
|||
Net interest income
|
$
|
94
|
|
|
21
|
|
|
|
Loan systems and servicing revenue
|
54,229
|
|
|
52,330
|
|
|
See table below for additional analysis.
|
|
Intersegment servicing revenue
|
10,323
|
|
|
12,007
|
|
|
Represents revenue earned by the LSS operating segment as a result of servicing loans for the AGM operating segment. Decrease was due to portfolio run-off.
|
|
Total other income
|
64,552
|
|
|
64,337
|
|
|
|
|
Salaries and benefits
|
37,992
|
|
|
32,967
|
|
|
Increase due to contract programming related to GreatNet and an increase in personnel to support the increase in volume of loans serviced for the government entering repayment status and the increase in private education and consumer loan servicing volume.
|
|
Depreciation and amortization
|
549
|
|
|
438
|
|
|
|
|
Other expenses
|
9,136
|
|
|
11,470
|
|
|
Decrease due primarily to the elimination of FFELP guaranty collection costs directly related to the loss of FFELP guaranty collection revenue. There were no collection costs for the three months ended March 31, 2017 and $1.9 million for the three months ended March 31, 2016. Excluding collection costs, other expenses were $9.1 million and $9.6 million for the three months ended March 31, 2017 and 2016, respectively. The decrease in expenses when excluding collection costs was due to improved operational efficiencies. See additional information below regarding the loss of FFELP guaranty collection revenue.
|
|
Intersegment expenses, net
|
7,398
|
|
|
6,241
|
|
|
Intersegment expenses represent costs for certain corporate activities that are allocated to each operating segment based on estimated use of such activities and services.
|
|
Total operating expenses
|
55,075
|
|
|
51,116
|
|
|
|
|
Income before income taxes
|
9,571
|
|
|
13,242
|
|
|
|
|
Income tax expense
|
(4,555
|
)
|
|
(5,032
|
)
|
|
Reflects income tax expense based on 38% of income before taxes and the net loss attributable to noncontrolling interest.
|
|
Net income
|
5,016
|
|
|
8,210
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
2,415
|
|
|
—
|
|
|
Represents the net loss of GreatNet attributable to Great Lakes. See note 1, "Noncontrolling Interest," of the notes to consolidated financial statements included under Part I, Item 1 of this report.
|
|
Net income attributable to Nelnet, Inc.
|
$
|
7,431
|
|
|
8,210
|
|
|
|
Before tax operating margin
|
14.8
|
%
|
|
20.6
|
%
|
|
Decrease in margin was due to expenses related to GreatNet. Before tax operating margin excluding the net loss attributable to Great Lakes was 18.6%.
|
|
Three months ended March 31,
|
|
Additional information
|
|||||
|
2017
|
|
2016
|
|
|
|||
Government servicing
|
$
|
39,007
|
|
|
35,231
|
|
|
Increase due to an increase in application volume for the Company's administration of the Total and Permanent Disability and Direct Loan Consolidation programs, the transfer of borrowers from a not-for-profit servicer who exited the loan servicing business in August 2016, and the shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses.
|
FFELP servicing
|
4,077
|
|
|
3,639
|
|
|
Increase due to an increase in third-party servicing volume as a result of conversions to the Company's servicing platform. Over time, FFELP servicing revenue will decrease as third-party customers' FFELP portfolios run off.
|
|
Private education and consumer loan servicing
|
5,817
|
|
|
3,146
|
|
|
Increase due to growth in loan servicing volume from existing and new clients.
|
|
FFELP guaranty servicing
|
—
|
|
|
1,184
|
|
|
The Company’s remaining guaranty servicing client exited the FFELP guaranty business at the end of their contract term on June 30, 2016, and after this date the Company has no remaining guaranty servicing revenue.
|
|
FFELP guaranty collection
|
—
|
|
|
3,787
|
|
|
The Company’s remaining guaranty collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016, and after this date the Company has no remaining guaranty collection revenue. The Company incurred collection costs that were directly related to guaranty collection revenue.
|
|
Software services
|
4,337
|
|
|
4,608
|
|
|
The majority of software services revenue relates to providing hosted student loan servicing. The decrease in 2017 as compared to 2016 was due to a not-for-profit servicer exiting the loan servicing business in August 2016, resulting in a transfer of its servicing volume to the Company that is included in the Company's government servicing volume.
|
|
Other
|
991
|
|
|
735
|
|
|
The majority of this revenue relates to providing contact center outsourcing activities.
|
|
Loan systems and servicing revenue
|
$
|
54,229
|
|
|
52,330
|
|
|
|
|
Three months ended March 31,
|
|
Additional information
|
|||||
|
2017
|
|
2016
|
|
|
|||
Net interest income
|
$
|
2
|
|
|
3
|
|
|
|
Tuition payment processing, school information, and campus commerce revenue
|
43,620
|
|
|
38,657
|
|
|
Increase was due to an increase in the number of managed tuition payment plans, campus commerce customer transactions and payments volume, and new school customers.
|
|
Salaries and benefits
|
16,652
|
|
|
14,435
|
|
|
Increase due to additional personnel and costs to support the increase in payment plans and campus commerce activity and continued investments in and enhancements of payment plan and campus commerce systems and products.
|
|
Depreciation and amortization
|
2,391
|
|
|
2,271
|
|
|
||
Other expenses
|
4,995
|
|
|
4,159
|
|
|
||
Intersegment expenses, net
|
2,075
|
|
|
1,512
|
|
|
Intersegment expenses represent costs for certain corporate activities that are allocated to each operating segment based on estimated use of such activities and services.
|
|
Total operating expenses
|
26,113
|
|
|
22,377
|
|
|
|
|
Income before income taxes
|
17,509
|
|
|
16,283
|
|
|
|
|
Income tax expense
|
(6,653
|
)
|
|
(6,188
|
)
|
|
|
|
Net income
|
$
|
10,856
|
|
|
10,095
|
|
|
|
Before tax operating margin
|
40.1
|
%
|
|
42.1
|
%
|
|
The decrease in margin was due to the Company's continued investments in and enhancements of payment plan and campus commerce systems and products.
|
|
Three months ended March 31,
|
|
|
|||||
|
2017
|
|
2016
|
|
Additional information
|
|||
Net interest expense
|
$
|
(711
|
)
|
|
(147
|
)
|
|
Allo has a line of credit with Nelnet, Inc. (parent company). The interest expense incurred by Allo and related interest income earned by Nelnet, Inc. is eliminated for the Company's consolidated financial statements. The average outstanding balance on this line of credit for the three months ended March 31, 2017 and 2016 was $67.0 million and $14.7 million, respectively. The proceeds from debt was used by Allo for network capital expenditures and related expenses.
|
Communications revenue
|
5,106
|
|
|
4,346
|
|
|
Communications revenue is derived primarily from the sale of pure fiber optic services to residential and business customers in Nebraska, including internet, television, and telephone services. Increase was primarily due to additional residential households served. See additional financial and operating data for Allo in the tables below.
|
|
Salaries and benefits
|
2,979
|
|
|
1,089
|
|
|
Since the acquisition of Allo on December 31, 2015, there has been a significant increase in personnel to support the Lincoln, Nebraska network expansion. As of December 31, 2015, March 31, 2016, December 31, 2016, and March 31, 2017 Allo had 97, 104, 318, and 354 employees, respectively, including part-time employees. Allo also uses temporary employees in the normal course of business. Certain costs qualify for capitalization as Allo builds its network.
|
|
Depreciation and amortization
|
2,135
|
|
|
1,129
|
|
|
Depreciation reflects the allocation of the costs of Allo's property and equipment over the period in which such assets are used. Since the acquisition of Allo on December 31, 2015, there has been a significant amount of property and equipment purchases to support the Lincoln, Nebraska network expansion. Amortization reflects the allocation of costs related to intangible assets recorded at fair value as of the date the Company acquired Allo over their estimated useful lives.
|
|
Cost to provide communications services
|
1,954
|
|
|
1,703
|
|
|
Cost of services is primarily composed of television programming costs.
|
|
Other expenses
|
1,372
|
|
|
753
|
|
|
Other operating expenses includes selling, general, and administrative expenses necessary for operations, such as advertising, occupancy, professional services, construction materials, personal property taxes, and provision for losses on accounts receivable. Increase was due to expansion of the Lincoln, Nebraska network and number of households served.
|
|
Intersegment expenses, net
|
506
|
|
|
144
|
|
|
Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
|
|
Total operating expenses
|
8,946
|
|
|
4,818
|
|
|
|
|
Loss before income taxes
|
(4,551
|
)
|
|
(619
|
)
|
|
|
|
Income tax benefit
|
1,730
|
|
|
235
|
|
|
|
|
Net loss
|
$
|
(2,821
|
)
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|||
Additional Information:
|
|
|
|
|
|
|||
Net loss
|
$
|
(2,821
|
)
|
|
(384
|
)
|
|
|
Net interest expense
|
711
|
|
|
147
|
|
|
|
|
Income tax benefit
|
(1,730
|
)
|
|
(235
|
)
|
|
|
|
Depreciation and amortization
|
2,135
|
|
|
1,129
|
|
|
|
|
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)
|
$
|
(1,705
|
)
|
|
657
|
|
|
For additional information regarding this non-GAAP measure, see the table below.
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Residential revenue
|
$
|
3,272
|
|
|
2,523
|
|
Business revenue
|
1,780
|
|
|
1,628
|
|
|
Other revenue
|
54
|
|
|
195
|
|
|
Total revenue
|
$
|
5,106
|
|
|
4,346
|
|
|
|
|
|
|||
Net loss
|
$
|
(2,821
|
)
|
|
(384
|
)
|
EBITDA (a)
|
(1,705
|
)
|
|
657
|
|
|
|
|
|
|
|||
Capital expenditures
|
16,669
|
|
|
2,877
|
|
|
|
|
|
|
|||
Revenue contribution:
|
|
|
|
|||
Internet
|
43.6
|
%
|
|
36.6
|
%
|
|
Telephone
|
24.3
|
|
|
27.3
|
|
|
Television
|
31.8
|
|
|
32.8
|
|
|
Other
|
0.3
|
|
|
3.3
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
As of March 31, 2017
|
|
As of
December 31, 2016 |
|
As of March 31, 2016
|
|
As of December 31, 2015
|
||||
Residential customer information:
|
|
|
|
|
|
|
|
||||
Households served
|
10,524
|
|
|
9,814
|
|
|
7,909
|
|
|
7,600
|
|
Households passed (b)
|
34,925
|
|
|
30,962
|
|
|
21,274
|
|
|
21,274
|
|
Total households in current markets (c)
|
137,500
|
|
|
137,500
|
|
|
137,500
|
|
|
28,874
|
|
(a)
|
Earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. Allo's management uses EBITDA to compare Allo's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for Allo because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess Allo's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from Allo's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from net income (loss) under GAAP is presented under "Summary and Comparison of Operating Results" in the table above.
|
(b)
|
Represents the number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.
|
(c)
|
During the first quarter of 2016, Allo announced plans to expand its network to make services available to substantially all commercial and residential premises in Lincoln, Nebraska, and currently plans to expand to additional communities in Nebraska and surrounding states over the next several years.
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Beginning balance
|
$
|
25,103,643
|
|
|
28,555,749
|
|
Loan acquisitions
|
52,174
|
|
|
110,959
|
|
|
Repayments, claims, capitalized interest, and other
|
(647,915
|
)
|
|
(592,020
|
)
|
|
Consolidation loans lost to external parties
|
(310,993
|
)
|
|
(286,132
|
)
|
|
Loans sold
|
—
|
|
|
(44,738
|
)
|
|
Ending balance
|
$
|
24,196,909
|
|
|
27,743,818
|
|
|
Three months ended
|
||||||||
|
March 31,
2017 |
|
December 31,
2016 |
|
March 31,
2016 |
||||
Variable student loan yield, gross
|
3.24
|
%
|
|
3.03
|
%
|
|
2.82
|
%
|
|
Consolidation rebate fees
|
(0.84
|
)
|
|
(0.84
|
)
|
|
(0.83
|
)
|
|
Discount accretion, net of premium and deferred origination costs amortization
|
0.07
|
|
|
0.06
|
|
|
0.06
|
|
|
Variable student loan yield, net
|
2.47
|
|
|
2.25
|
|
|
2.05
|
|
|
Student loan cost of funds - interest expense (a)
|
(1.74
|
)
|
|
(1.55
|
)
|
|
(1.27
|
)
|
|
Student loan cost of funds - derivative settlements
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
Variable student loan spread
|
0.71
|
|
|
0.68
|
|
|
0.76
|
|
|
Fixed rate floor income, net of settlements on derivatives
|
0.52
|
|
|
0.56
|
|
|
0.58
|
|
|
Core student loan spread
|
1.23
|
%
|
|
1.24
|
%
|
|
1.34
|
%
|
|
|
|
|
|
|
|
||||
Average balance of student loans
|
$
|
24,755,452
|
|
|
25,538,721
|
|
|
28,232,489
|
|
Average balance of debt outstanding
|
24,541,736
|
|
|
25,362,201
|
|
|
28,099,821
|
|
(a)
|
In the fourth quarter of 2016, the Company redeemed certain debt securities prior to their legal maturity and recognized $7.4 million in interest expense to write off the remaining debt discount associated with these bonds. The impact of this expense was excluded from the above table.
|
(a)
|
The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on student loan spread. This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s FFELP student loan assets and related funding for those assets.
|
|
Three months ended
|
||||||||
|
March 31, 2017
|
|
December 31, 2016
|
|
March 31, 2016
|
||||
Fixed rate floor income, gross
|
$
|
32,132
|
|
|
38,250
|
|
|
45,882
|
|
Derivative settlements (a)
|
(120
|
)
|
|
(2,402
|
)
|
|
(5,243
|
)
|
|
Fixed rate floor income, net
|
$
|
32,012
|
|
|
35,848
|
|
|
40,639
|
|
Fixed rate floor income contribution to spread, net
|
0.52
|
%
|
|
0.56
|
%
|
|
0.58
|
%
|
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
|
Three months ended March 31,
|
|
Additional information
|
|||||
|
2017
|
|
2016
|
|
|
|||
Net interest income after provision for loan losses
|
$
|
74,575
|
|
|
98,346
|
|
|
See table below for additional analysis.
|
Other income
|
3,342
|
|
|
4,263
|
|
|
The primary component of other income is borrower late fees, which were $3.3 million and $3.6 million for the three months ended March 31, 2017 and 2016, respectively.
|
|
Gain from debt repurchases
|
540
|
|
|
101
|
|
|
Gains were from the Company repurchasing its own asset-backed debt securities.
|
|
Derivative settlements, net
|
(1,173
|
)
|
|
(6,304
|
)
|
|
The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
|
|
Derivative market value and foreign currency transaction adjustments, net
|
(53,811
|
)
|
|
(19,897
|
)
|
|
Includes (i) the unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars, and (iii) the variation margin paid or received and considered in determining the fair value of the centrally cleared derivative portfolio based on new derivative clearing rules effective January 3, 2017.
|
|
Centrally cleared variation margin settlements, net
|
50,401
|
|
|
—
|
|
|
Represents settlements on derivative instruments that are settled daily at a central clearinghouse, which are accounted for as derivative settlements and represent changes in fair values of the underlying derivative instruments based on new derivative clearing rules effective January 3, 2017.
|
|
Total other income (expense)
|
(701
|
)
|
|
(21,837
|
)
|
|
|
|
Salaries and benefits
|
400
|
|
|
519
|
|
|
|
|
Loan servicing fees
|
6,025
|
|
|
6,928
|
|
|
Decrease due to runoff of the Company's student loan portfolio and a transfer of loans from a third-party servicer to the Company's LSS operating segment's servicing platform. In addition, the Company pays higher third-party servicing fees on delinquent loans. The Company's third-party serviced loan portfolio had fewer delinquent loans in 2017 compared to 2016; therefore, third-party servicing fees decreased.
|
|
Other expenses
|
991
|
|
|
1,516
|
|
|
|
|
Intersegment expenses, net
|
10,412
|
|
|
12,107
|
|
|
Amounts include fees paid to the LSS operating segment for the servicing of the Company’s student loan portfolio. Decrease due to runoff of the portfolio serviced by LSS. In addition, intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
|
|
Total operating expenses
|
17,828
|
|
|
21,070
|
|
|
|
|
Income before income taxes
|
56,046
|
|
|
55,439
|
|
|
|
|
Income tax expense
|
(21,297
|
)
|
|
(21,066
|
)
|
|
|
|
Net income
|
$
|
34,749
|
|
|
34,373
|
|
|
|
|
|
|
|
|
|
|||
Additional information:
|
|
|
|
|
|
|||
Net income
|
$
|
34,749
|
|
|
34,373
|
|
|
|
Derivative market value and foreign currency transaction adjustments, net
|
53,811
|
|
|
19,897
|
|
|
See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value and foreign currency transaction adjustments and variation margin settlements under new derivative clearing rules effective January 3, 2017. Net income, excluding derivative market value and foreign currency transaction adjustments and variation margin settlements, decreased in 2017 as compared to 2016 due to a decrease in the Company's student loan portfolio and a decrease in variable student loan spread and fixed rate floor income.
|
|
Centrally cleared variation margin settlements, net
|
(50,401
|
)
|
|
—
|
|
|
||
Net tax effect
|
(1,296
|
)
|
|
(7,561
|
)
|
|
||
Net income, excluding derivative market value and foreign currency transaction adjustments and variation margin settlements
|
$
|
36,863
|
|
|
46,709
|
|
|
|
Three months ended March 31,
|
|
Additional information
|
|||||
|
2017
|
|
2016
|
|
|
|||
Variable interest income, net of settlements on derivatives
|
$
|
195,656
|
|
|
197,127
|
|
|
Decrease due to a decrease in the average balance of student loans, partially offset by an increase in the gross yield earned on student loans, net of settlements on derivatives.
|
Consolidation rebate fees
|
(52,017
|
)
|
|
(58,435
|
)
|
|
Decrease due to a decrease in the average consolidation loan balance.
|
|
Discount accretion, net of premium and deferred origination costs amortization
|
4,384
|
|
|
4,353
|
|
|
Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.
|
|
Interest on bonds and notes payable
|
(106,101
|
)
|
|
(89,189
|
)
|
|
Increase due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.
|
|
Variable student loan interest margin, net of settlements on derivatives
|
41,922
|
|
|
53,856
|
|
|
|
|
Fixed rate floor income, net of settlements on derivatives
|
32,012
|
|
|
40,639
|
|
|
The high levels of fixed rate floor income earned are due to historically low interest rates. Fixed rate floor income has decreased due to the rising interest rate environment.
|
|
Investment interest
|
1,118
|
|
|
735
|
|
|
|
|
Intercompany interest
|
(650
|
)
|
|
(688
|
)
|
|
|
|
Provision for loan losses - federally insured
|
(2,000
|
)
|
|
(2,000
|
)
|
|
See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
|
|
Negative provision (provision expense) for loan losses - private education loans
|
1,000
|
|
|
(500
|
)
|
|
||
Net interest income after provision for loan losses (net of settlements on derivatives)
|
$
|
73,402
|
|
|
92,042
|
|
|
|
|
As of March 31, 2017
|
||||
|
Carrying
amount
|
|
Final maturity
|
||
Bonds and notes issued in asset-backed securitizations
|
$
|
22,324,343
|
|
|
6/25/21 - 9/25/65
|
FFELP warehouse facilities
|
1,608,569
|
|
|
9/7/18 - 12/13/19
|
|
|
$
|
23,932,912
|
|
|
|
|
Total shares repurchased
|
|
Purchase price (in thousands)
|
|
Average price of shares repurchased (per share)
|
||||
|
|
|
|||||||
Quarter ended March 31, 2017
|
31,716
|
|
|
$
|
1,369
|
|
|
43.18
|
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
||||||||||
|
Dollars
|
|
Percent
|
|
Dollars
|
|
Percent
|
||||||
Fixed-rate loan assets
|
$
|
7,609,460
|
|
|
31.4
|
%
|
|
$
|
8,585,283
|
|
|
34.2
|
%
|
Variable-rate loan assets
|
16,587,449
|
|
|
68.6
|
|
|
16,518,360
|
|
|
65.8
|
|
||
Total
|
$
|
24,196,909
|
|
|
100.0
|
%
|
|
$
|
25,103,643
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
||||||
Fixed-rate debt instruments
|
$
|
126,135
|
|
|
0.5
|
%
|
|
$
|
131,733
|
|
|
0.5
|
%
|
Variable-rate debt instruments
|
23,883,174
|
|
|
99.5
|
|
|
24,968,687
|
|
|
99.5
|
|
||
Total
|
$
|
24,009,309
|
|
|
100.0
|
%
|
|
$
|
25,100,420
|
|
|
100.0
|
%
|
|
Three months ended March 31,
|
|||||
|
2017
|
|
2016
|
|||
Fixed rate floor income, gross
|
$
|
32,132
|
|
|
45,882
|
|
Derivative settlements (a)
|
(120
|
)
|
|
(5,243
|
)
|
|
Fixed rate floor income, net
|
$
|
32,012
|
|
|
40,639
|
|
(a)
|
Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.
|
Fixed interest rate range
|
|
Borrower/lender weighted average yield
|
|
Estimated variable conversion rate (a)
|
|
Loan balance
|
||
3.5 - 3.99%
|
|
3.65%
|
|
1.01%
|
|
$
|
1,921,157
|
|
4.0 - 4.49%
|
|
4.20%
|
|
1.56%
|
|
1,501,576
|
|
|
4.5 - 4.99%
|
|
4.72%
|
|
2.08%
|
|
903,410
|
|
|
5.0 - 5.49%
|
|
5.22%
|
|
2.58%
|
|
571,539
|
|
|
5.5 - 5.99%
|
|
5.67%
|
|
3.03%
|
|
402,961
|
|
|
6.0 - 6.49%
|
|
6.19%
|
|
3.55%
|
|
462,543
|
|
|
6.5 - 6.99%
|
|
6.70%
|
|
4.06%
|
|
451,216
|
|
|
7.0 - 7.49%
|
|
7.17%
|
|
4.53%
|
|
159,390
|
|
|
7.5 - 7.99%
|
|
7.71%
|
|
5.07%
|
|
270,683
|
|
|
8.0 - 8.99%
|
|
8.18%
|
|
5.54%
|
|
624,469
|
|
|
> 9.0%
|
|
9.05%
|
|
6.41%
|
|
216,527
|
|
|
|
|
|
|
|
|
$
|
7,485,471
|
|
(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, 2017
, the weighted average estimated variable conversion rate was
2.57%
and the short-term interest rate was
84
basis points.
|
Maturity
|
|
Notional amount
|
|
Weighted average fixed rate paid by the Company (a)
|
|||
|
|
||||||
2017
|
|
$
|
750,000
|
|
|
0.99
|
%
|
2018
|
|
1,350,000
|
|
|
1.07
|
|
|
2019
|
|
3,250,000
|
|
|
0.97
|
|
|
2020
|
|
1,500,000
|
|
|
1.01
|
|
|
2025
|
|
100,000
|
|
|
2.32
|
|
|
|
|
$
|
6,950,000
|
|
|
1.02
|
%
|
(a)
|
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
|
Index
|
|
Frequency of variable resets
|
|
Assets
|
|
Funding of student loan assets
|
|||
1 month LIBOR (a)
|
|
Daily
|
|
$
|
22,020,765
|
|
|
—
|
|
3 month H15 financial commercial paper
|
|
Daily
|
|
1,221,301
|
|
|
—
|
|
|
3 month Treasury bill
|
|
Daily
|
|
698,027
|
|
|
—
|
|
|
3 month LIBOR (a) (b)
|
|
Quarterly
|
|
—
|
|
|
13,194,947
|
|
|
1 month LIBOR
|
|
Monthly
|
|
—
|
|
|
8,709,223
|
|
|
Auction-rate (c)
|
|
Varies
|
|
—
|
|
|
800,065
|
|
|
Asset-backed commercial paper (d)
|
|
Varies
|
|
—
|
|
|
1,020,828
|
|
|
Other (e)
|
|
|
|
1,159,363
|
|
|
1,374,393
|
|
|
|
|
|
|
$
|
25,099,456
|
|
|
25,099,456
|
|
(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 the 1:3 Basis Swaps outstanding as of
March 31, 2017
.
|
Maturity
|
|
Notional amount
|
||
2018
|
|
$
|
4,000,000
|
|
2024
|
|
250,000
|
|
|
2026
|
|
1,150,000
|
|
|
2027
|
|
375,000
|
|
|
2028
|
|
325,000
|
|
|
2029
|
|
100,000
|
|
|
2031
|
|
300,000
|
|
|
|
|
$
|
6,500,000
|
|
(b)
|
The Company has Euro-denominated notes that reprice on the EURIBOR index. The Company has entered into a cross-currency interest rate swap that converts 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” below.
|
(c)
|
The interest rates on certain of the Company's asset-backed securities are set and periodically reset via a "dutch auction" (“Auction Rate Securities”). As of
March 31, 2017
, the Company was sponsor for
$800.1 million
of Auction Rate Securities. Since February 2008, problems in the auction rate securities market as a whole have led to failures of the auctions pursuant to which the Company's Auction Rate Securities' interest rates are set. As a result, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.
|
(d)
|
The interest rates on certain of the Company's warehouse facilities are indexed to asset-backed commercial paper rates.
|
(e)
|
Assets include accrued interest receivable and restricted cash. Funding represents overcollateralization (equity) included in FFELP asset-backed securitizations and warehouse facilities.
|
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, 2017
|
|
350
|
|
|
$
|
51.01
|
|
|
—
|
|
|
4,571,094
|
|
February 1 - February 28, 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,571,094
|
|
|
March 1 - March 31, 2017
|
|
31,366
|
|
|
43.09
|
|
|
—
|
|
|
4,571,094
|
|
|
Total
|
|
31,716
|
|
|
$
|
43.18
|
|
|
—
|
|
|
|
|
(a)
|
The total number of shares consists of shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. 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 August 4, 2016, the Company announced that its Board of Directors authorized a new stock repurchase program in May 2016 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 25, 2019.
|
•
|
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 8, 2017
|
By:
|
/s/ JEFFREY R. NOORDHOEK
|
|
|
|
Name:
|
Jeffrey R. Noordhoek
|
|
|
|
Title:
|
Chief Executive Officer
Principal Executive Officer
|
|
|
|
|
|
|
|
|
By:
|
/s/ JAMES D. KRUGER
|
|
Date:
|
May 8, 2017
|
Name:
|
James D. Kruger
|
|
|
|
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. (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 officer 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)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(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 officer 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 8, 2017
|
/s/ JEFFREY R. NOORDHOEK
|
|
|
Jeffrey R. Noordhoek Chief Executive Officer
Principal Executive Officer |
1.
|
I have reviewed this
quarterly
report on Form
10-Q
of Nelnet, Inc. (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 officer 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)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(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 officer 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 8, 2017
|
/s/ JAMES D. KRUGER
|
|
|
James D. Kruger
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 8, 2017
|
By:
/s/ JEFFREY R. NOORDHOEK
|
|
|
Name: Jeffrey R. Noordhoek
Title: Chief Executive Officer
Principal Executive Officer
|
|
|
|
|
|
By:
/s/ JAMES D. KRUGER
|
|
|
Name: James D. Kruger
Title: Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
|