ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
NEBRASKA (State or other jurisdiction of incorporation or organization) | 84-0748903 (I.R.S. Employer Identification No.) |
121 SOUTH 13TH STREET, SUITE 201 LINCOLN, NEBRASKA (Address of principal executive offices) | 68508 (Zip Code) |
Item 1. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 6. | |||
NELNET, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
(Dollars in thousands, except share data) | ||||||
As of | As of | |||||
September 30, 2013 | December 31, 2012 | |||||
(unaudited) | ||||||
Assets: | ||||||
Student loans receivable (net of allowance for loan losses of $54,197 and $51,902, respectively) | $ | 24,701,112 | 24,830,621 | |||
Non-federally insured student loans receivable - held for sale | 28,480 | — | ||||
Cash and cash equivalents: | ||||||
Cash and cash equivalents - not held at a related party | 6,421 | 7,567 | ||||
Cash and cash equivalents - held at a related party | 44,970 | 58,464 | ||||
Total cash and cash equivalents | 51,391 | 66,031 | ||||
Investments | 232,663 | 83,312 | ||||
Restricted cash and investments | 674,926 | 815,462 | ||||
Restricted cash - due to customers | 93,695 | 96,516 | ||||
Accrued interest receivable | 303,350 | 307,518 | ||||
Accounts receivable (net of allowance for doubtful accounts of $2,510 and $1,529, respectively) | 62,951 | 63,638 | ||||
Goodwill | 117,118 | 117,118 | ||||
Intangible assets, net | 6,932 | 9,393 | ||||
Property and equipment, net | 33,013 | 31,869 | ||||
Other assets | 103,021 | 88,976 | ||||
Fair value of derivative instruments | 128,276 | 97,441 | ||||
Total assets | $ | 26,536,928 | 26,607,895 | |||
Liabilities: | ||||||
Bonds and notes payable | $ | 24,858,455 | 25,098,835 | |||
Accrued interest payable | 14,218 | 14,770 | ||||
Other liabilities | 171,134 | 161,671 | ||||
Due to customers | 93,695 | 96,516 | ||||
Fair value of derivative instruments | 21,513 | 70,890 | ||||
Total liabilities | 25,159,015 | 25,442,682 | ||||
Commitments and contingencies | ||||||
Equity: | ||||||
Nelnet, Inc. shareholders' equity: | ||||||
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding | — | — | ||||
Common stock: | ||||||
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 34,876,145 shares and 35,116,913 shares, respectively | 349 | 351 | ||||
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,495,377 shares | 115 | 115 | ||||
Additional paid-in capital | 24,068 | 32,540 | ||||
Retained earnings | 1,347,609 | 1,129,389 | ||||
Accumulated other comprehensive earnings | 5,722 | 2,813 | ||||
Total Nelnet, Inc. shareholders' equity | 1,377,863 | 1,165,208 | ||||
Noncontrolling interest | 50 | 5 | ||||
Total equity | 1,377,913 | 1,165,213 | ||||
Total liabilities and equity | $ | 26,536,928 | 26,607,895 | |||
Supplemental information - assets and liabilities of consolidated variable interest entities: | ||||||
Student loans receivable | $ | 24,755,486 | 24,920,130 | |||
Restricted cash and investments | 673,304 | 753,511 | ||||
Fair value of derivative instruments | 101,819 | 82,841 | ||||
Other assets | 305,546 | 306,454 | ||||
Bonds and notes payable | (25,017,110 | ) | (25,209,341 | ) | ||
Other liabilities | (311,541 | ) | (348,364 | ) | ||
Net assets of consolidated variable interest entities | $ | 507,504 | 505,231 |
NELNET, INC. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
(Dollars in thousands, except share data) | ||||||||||||
(unaudited) | ||||||||||||
Three months | Nine months | |||||||||||
ended September 30, | ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Interest income: | ||||||||||||
Loan interest | $ | 158,675 | 150,528 | 472,277 | 454,574 | |||||||
Investment interest | 1,562 | 1,140 | 4,662 | 3,290 | ||||||||
Total interest income | 160,237 | 151,668 | 476,939 | 457,864 | ||||||||
Interest expense: | ||||||||||||
Interest on bonds and notes payable | 55,315 | 66,402 | 171,800 | 203,175 | ||||||||
Net interest income | 104,922 | 85,266 | 305,139 | 254,689 | ||||||||
Less provision for loan losses | 5,000 | 5,000 | 15,000 | 18,000 | ||||||||
Net interest income after provision for loan losses | 99,922 | 80,266 | 290,139 | 236,689 | ||||||||
Other income (expense): | ||||||||||||
Loan and guaranty servicing revenue | 64,582 | 53,285 | 180,261 | 155,164 | ||||||||
Tuition payment processing and campus commerce revenue | 19,927 | 17,928 | 61,694 | 56,675 | ||||||||
Enrollment services revenue | 22,563 | 30,661 | 76,343 | 92,035 | ||||||||
Other income | 8,613 | 12,699 | 30,317 | 32,453 | ||||||||
Gain on sale of loans and debt repurchases | 2,138 | 195 | 10,900 | 1,130 | ||||||||
Derivative market value and foreign currency adjustments and derivative settlements, net | (16,648 | ) | (31,275 | ) | 24,612 | (68,073 | ) | |||||
Total other income | 101,175 | 83,493 | 384,127 | 269,384 | ||||||||
Operating expenses: | ||||||||||||
Salaries and benefits | 48,712 | 46,395 | 144,049 | 144,193 | ||||||||
Cost to provide enrollment services | 14,668 | 20,151 | 51,097 | 62,203 | ||||||||
Depreciation and amortization | 4,340 | 8,402 | 13,037 | 24,764 | ||||||||
Other | 39,887 | 29,989 | 109,193 | 93,160 | ||||||||
Total operating expenses | 107,607 | 104,937 | 317,376 | 324,320 | ||||||||
Income before income taxes | 93,490 | 58,822 | 356,890 | 181,753 | ||||||||
Income tax expense | 30,444 | 21,870 | 123,637 | 59,978 | ||||||||
Net income | 63,046 | 36,952 | 233,253 | 121,775 | ||||||||
Net income attributable to noncontrolling interest | 216 | 124 | 1,101 | 412 | ||||||||
Net income attributable to Nelnet, Inc. | $ | 62,830 | 36,828 | 232,152 | 121,363 | |||||||
Earnings per common share: | ||||||||||||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted | $ | 1.35 | 0.78 | 4.98 | 2.56 | |||||||
Weighted average common shares outstanding - basic and diluted | 46,496,612 | 47,460,308 | 46,593,241 | 47,399,207 |
NELNET, INC. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||
(Dollars in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Three months | Nine months | |||||||||||
ended September 30, | ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Net income | $ | 63,046 | 36,952 | 233,253 | 121,775 | |||||||
Other comprehensive income: | ||||||||||||
Available-for-sale securities: | ||||||||||||
Unrealized holding gains arising during period, net of losses | 5,689 | 133 | 6,875 | 1,745 | ||||||||
Less reclassification adjustment for gains recognized in net income, net of losses | (730 | ) | (2,618 | ) | (2,246 | ) | (4,848 | ) | ||||
Income tax effect | (1,834 | ) | 961 | (1,720 | ) | 1,170 | ||||||
Total other comprehensive income (loss) | 3,125 | (1,524 | ) | 2,909 | (1,933 | ) | ||||||
Comprehensive income | 66,171 | 35,428 | 236,162 | 119,842 | ||||||||
Comprehensive income attributable to noncontrolling interest | 216 | 124 | 1,101 | 412 | ||||||||
Comprehensive income attributable to Nelnet, Inc. | $ | 65,955 | 35,304 | 235,061 | 119,430 |
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 | Employee notes receivable | Noncontrolling interest | Total equity | ||||||||||||||||||||||||||
Class A | Class B | |||||||||||||||||||||||||||||||||||
Balance as of June 30, 2012 | — | 35,847,801 | 11,495,377 | $ | — | 358 | 115 | 52,194 | 1,092,715 | (409 | ) | (368 | ) | 293 | 1,144,898 | |||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 36,828 | — | — | 124 | 36,952 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (1,524 | ) | — | — | (1,524 | ) | ||||||||||||||||||||||
Cash dividend on Class A and Class B common stock - $0.1 per share | — | — | — | — | — | — | — | (4,737 | ) | — | — | — | (4,737 | ) | ||||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | (180 | ) | — | — | — | — | 271 | — | — | — | — | 271 | |||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 584 | — | — | — | — | 584 | ||||||||||||||||||||||||
Repurchase of common stock | — | (8,545 | ) | — | — | — | — | (206 | ) | — | — | — | — | (206 | ) | |||||||||||||||||||||
Balance as of September 30, 2012 | — | 35,839,076 | 11,495,377 | $ | — | 358 | 115 | 52,843 | 1,124,806 | (1,933 | ) | (368 | ) | 417 | 1,176,238 | |||||||||||||||||||||
Balance as of June 30, 2013 | — | 34,988,110 | 11,495,377 | $ | — | 350 | 115 | 27,004 | 1,289,416 | 2,597 | — | 113 | 1,319,595 | |||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 62,830 | — | — | 216 | 63,046 | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | 3,125 | — | — | 3,125 | ||||||||||||||||||||||||
Distribution to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | (279 | ) | (279 | ) | ||||||||||||||||||||||
Cash dividend on Class A and Class B common stock - $0.1 per share | — | — | — | — | — | — | — | (4,637 | ) | — | — | — | (4,637 | ) | ||||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | (745 | ) | — | — | — | — | 264 | — | — | — | — | 264 | |||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 824 | — | — | — | — | 824 | ||||||||||||||||||||||||
Repurchase of common stock | — | (111,220 | ) | — | — | (1 | ) | — | (4,024 | ) | — | — | — | — | (4,025 | ) | ||||||||||||||||||||
Balance as of September 30, 2013 | — | 34,876,145 | 11,495,377 | $ | — | 349 | 115 | 24,068 | 1,347,609 | 5,722 | — | 50 | 1,377,913 | |||||||||||||||||||||||
Balance as of December 31, 2011 | — | 35,643,102 | 11,495,377 | $ | — | 356 | 115 | 49,245 | 1,017,629 | — | (1,140 | ) | — | 1,066,205 | ||||||||||||||||||||||
Issuance of noncontrolling interest | — | — | — | — | — | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 121,363 | — | — | 412 | 121,775 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (1,933 | ) | — | — | (1,933 | ) | ||||||||||||||||||||||
Cash dividends on Class A and Class B common stock - $0.3 per share | — | — | — | — | — | — | — | (14,186 | ) | — | — | — | (14,186 | ) | ||||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | 255,538 | — | — | 3 | — | 3,545 | — | — | — | — | 3,548 | ||||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 1,573 | — | — | — | — | 1,573 | ||||||||||||||||||||||||
Repurchase of common stock | — | (59,564 | ) | — | — | (1 | ) | — | (1,520 | ) | — | — | — | — | (1,521 | ) | ||||||||||||||||||||
Reduction of employee stock notes receivable | — | — | — | — | — | — | — | — | — | 772 | — | 772 | ||||||||||||||||||||||||
Balance as of September 30, 2012 | — | 35,839,076 | 11,495,377 | $ | — | 358 | 115 | 52,843 | 1,124,806 | (1,933 | ) | (368 | ) | 417 | 1,176,238 | |||||||||||||||||||||
Balance as of December 31, 2012 | — | 35,116,913 | 11,495,377 | $ | — | 351 | 115 | 32,540 | 1,129,389 | 2,813 | — | 5 | 1,165,213 | |||||||||||||||||||||||
Issuance of noncontrolling interest | — | — | — | — | — | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 232,152 | — | — | 1,101 | 233,253 | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | 2,909 | — | — | 2,909 | ||||||||||||||||||||||||
Distribution to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | (1,061 | ) | (1,061 | ) | ||||||||||||||||||||||
Cash dividends on Class A and Class B common stock - $0.3 per share | — | — | — | — | — | — | — | (13,932 | ) | — | — | — | (13,932 | ) | ||||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | 149,608 | — | — | 2 | — | 2,231 | — | — | — | — | 2,233 | ||||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 2,308 | — | — | — | — | 2,308 | ||||||||||||||||||||||||
Repurchase of common stock | — | (390,376 | ) | — | — | (4 | ) | — | (13,011 | ) | — | — | — | — | (13,015 | ) | ||||||||||||||||||||
Balance as of September 30, 2013 | — | 34,876,145 | 11,495,377 | $ | — | 349 | 115 | 24,068 | 1,347,609 | 5,722 | — | 50 | 1,377,913 |
NELNET, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(Dollars in thousands) | ||||||
(unaudited) | ||||||
Nine months | ||||||
ended September 30, | ||||||
2013 | 2012 | |||||
Net income attributable to Nelnet, Inc. | $ | 232,152 | 121,363 | |||
Net income attributable to noncontrolling interest | 1,101 | 412 | ||||
Net income | 233,253 | 121,775 | ||||
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 | 58,330 | 85,370 | ||||
Student loan discount accretion | (26,333 | ) | (31,693 | ) | ||
Provision for loan losses | 15,000 | 18,000 | ||||
Derivative market value adjustment | (73,743 | ) | 67,349 | |||
Foreign currency transaction adjustment | 25,902 | (6,186 | ) | |||
Payments to terminate and/or amend derivative instruments, net of proceeds | (6,469 | ) | (6,430 | ) | ||
Gain on sale of loans | (34 | ) | (80 | ) | ||
Gain from debt repurchases | (10,866 | ) | (1,050 | ) | ||
Gain from sales of available-for-sale securities, net | (2,246 | ) | (4,848 | ) | ||
Purchases of student loans - held for sale | (28,480 | ) | — | |||
Deferred income tax expense (benefit) | 13,279 | (29,141 | ) | |||
Other | 2,557 | 763 | ||||
Decrease in accrued interest receivable | 4,168 | 40,545 | ||||
Decrease (increase) in accounts receivable | 687 | (7,745 | ) | |||
(Increase) decrease in other assets | (2,445 | ) | 2,330 | |||
Decrease in accrued interest payable | (552 | ) | (2,998 | ) | ||
Increase in other liabilities | 598 | 14,636 | ||||
Net cash provided by operating activities | 202,606 | 260,597 | ||||
Cash flows from investing activities: | ||||||
Purchases of student loans | (1,696,253 | ) | (875,556 | ) | ||
Purchase of student loans from a related party | (466,941 | ) | (299 | ) | ||
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other | 2,269,253 | 2,500,005 | ||||
Proceeds from sale of student loans | 11,287 | 92,149 | ||||
Purchases of available-for-sale securities | (196,657 | ) | (155,057 | ) | ||
Proceeds from sales of available-for-sale securities | 52,733 | 112,854 | ||||
Purchases of other investments | (8,316 | ) | — | |||
Purchases of property and equipment, net | (11,720 | ) | (7,370 | ) | ||
Decrease (increase) in restricted cash | 140,536 | (291,239 | ) | |||
Net cash provided by investing activities | 93,922 | 1,375,487 | ||||
Cash flows from financing activities: | ||||||
Payments on bonds and notes payable | (4,159,079 | ) | (2,795,019 | ) | ||
Proceeds from issuance of bonds and notes payable | 3,888,772 | 1,232,250 | ||||
Payments of debt issuance costs | (13,295 | ) | (7,630 | ) | ||
Dividends paid | (13,932 | ) | (14,186 | ) | ||
Repurchases of common stock | (13,015 | ) | (1,521 | ) | ||
Proceeds from issuance of common stock | 437 | 349 | ||||
Payments received on employee stock notes receivable | — | 772 | ||||
Issuance of noncontrolling interest | 5 | 5 | ||||
Distribution to noncontrolling interest | (1,061 | ) | — | |||
Net cash used in financing activities | (311,168 | ) | (1,584,980 | ) | ||
Net (decrease) increase in cash and cash equivalents | (14,640 | ) | 51,104 | |||
Cash and cash equivalents, beginning of period | 66,031 | 42,570 | ||||
Cash and cash equivalents, end of period | $ | 51,391 | 93,674 | |||
Supplemental disclosures of cash flow information: | ||||||
Interest paid | $ | 148,482 | 179,007 | |||
Income taxes paid, net of refunds | $ | 114,744 | 86,798 |
As of | As of | ||||||||
September 30, 2013 | December 31, 2012 | ||||||||
Held for investment | Held for sale | Held for investment | |||||||
Federally insured loans | |||||||||
Stafford and other | $ | 6,884,348 | — | 7,261,114 | |||||
Consolidation | 17,908,229 | — | 17,708,732 | ||||||
Total | 24,792,577 | — | 24,969,846 | ||||||
Non-federally insured loans | 66,283 | 28,480 | 26,034 | ||||||
24,858,860 | 28,480 | 24,995,880 | |||||||
Loan discount, net of unamortized loan premiums and deferred origination costs | (103,551 | ) | — | (113,357 | ) | ||||
Allowance for loan losses – federally insured loans | (42,406 | ) | — | (40,120 | ) | ||||
Allowance for loan losses – non-federally insured loans | (11,791 | ) | — | (11,782 | ) | ||||
$ | 24,701,112 | 28,480 | 24,830,621 | ||||||
Allowance for federally insured loans as a percentage of such loans | 0.17 | % | 0.16 | % | |||||
Allowance for non-federally insured loans as a percentage of such loans | 17.79 | % | 45.26 | % |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Balance at beginning of period | $ | 51,611 | 49,657 | 51,902 | 48,482 | |||||||
Provision for loan losses: | ||||||||||||
Federally insured loans | 5,000 | 5,000 | 16,000 | 18,000 | ||||||||
Non-federally insured loans | — | — | (1,000 | ) | — | |||||||
Total provision for loan losses | 5,000 | 5,000 | 15,000 | 18,000 | ||||||||
Charge-offs: | ||||||||||||
Federally insured loans | (3,142 | ) | (5,449 | ) | (12,472 | ) | (16,943 | ) | ||||
Non-federally insured loans | (906 | ) | (1,058 | ) | (2,270 | ) | (2,355 | ) | ||||
Total charge-offs | (4,048 | ) | (6,507 | ) | (14,742 | ) | (19,298 | ) | ||||
Recoveries - non-federally insured loans | 363 | 399 | 1,173 | 1,104 | ||||||||
Purchase (sale) of federally insured loans, net | 700 | (928 | ) | (1,243 | ) | (2,647 | ) | |||||
Transfer from repurchase obligation related to non-federally insured loans repurchased, net | 571 | 588 | 2,107 | 2,568 | ||||||||
Balance at end of period | $ | 54,197 | 48,209 | 54,197 | 48,209 | |||||||
Allocation of the allowance for loan losses: | ||||||||||||
Federally insured loans | $ | 42,406 | 35,614 | 42,406 | 35,614 | |||||||
Non-federally insured loans | 11,791 | 12,595 | 11,791 | 12,595 | ||||||||
Total allowance for loan losses | $ | 54,197 | 48,209 | 54,197 | 48,209 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Beginning balance | $ | 14,594 | 17,243 | 16,130 | 19,223 | |||||||
Repurchase obligation transferred to the allowance for loan losses related to loans repurchased, net | (571 | ) | (588 | ) | (2,107 | ) | (2,568 | ) | ||||
Ending balance | $ | 14,023 | 16,655 | 14,023 | 16,655 |
As of September 30, 2013 | As of December 31, 2012 | As of September 30, 2012 | ||||||||||||||||||
Federally insured loans, excluding rehabilitation loans: | ||||||||||||||||||||
Loans in-school/grace/deferment | $ | 2,780,442 | $ | 2,949,320 | $ | 3,163,918 | ||||||||||||||
Loans in forbearance | 2,953,119 | 2,992,023 | 2,868,168 | |||||||||||||||||
Loans in repayment status: | ||||||||||||||||||||
Loans current | 14,157,330 | 87.2 | % | 14,583,044 | 87.6 | % | 13,673,217 | 87.2 | % | |||||||||||
Loans delinquent 31-60 days | 662,814 | 4.1 | 652,351 | 3.9 | 586,021 | 3.7 | ||||||||||||||
Loans delinquent 61-90 days | 354,975 | 2.2 | 330,885 | 2.0 | 308,377 | 2.0 | ||||||||||||||
Loans delinquent 91-120 days | 235,681 | 1.5 | 247,381 | 1.5 | 237,941 | 1.5 | ||||||||||||||
Loans delinquent 121-270 days | 624,042 | 3.8 | 603,942 | 3.6 | 628,697 | 4.0 | ||||||||||||||
Loans delinquent 271 days or greater | 195,853 | 1.2 | 220,798 | 1.4 | 253,438 | 1.6 | ||||||||||||||
Total loans in repayment | 16,230,695 | 100.0 | % | 16,638,401 | 100.0 | % | 15,687,691 | 100.0 | % | |||||||||||
Total federally insured loans, excluding rehabilitation loans | $ | 21,964,256 | $ | 22,579,744 | $ | 21,719,777 | ||||||||||||||
Rehabilitation loans: | ||||||||||||||||||||
Loans in-school/grace/deferment | $ | 259,377 | $ | 150,317 | $ | 90,836 | ||||||||||||||
Loans in forbearance | 443,629 | 330,278 | 129,257 | |||||||||||||||||
Loans in repayment status: | ||||||||||||||||||||
Loans current | 1,078,730 | 50.7 | % | 670,205 | 35.1 | % | 418,584 | 61.9 | % | |||||||||||
Loans delinquent 31-60 days | 188,583 | 8.9 | 113,795 | 6.0 | 52,053 | 7.7 | ||||||||||||||
Loans delinquent 61-90 days | 125,310 | 5.9 | 79,691 | 4.2 | 35,104 | 5.2 | ||||||||||||||
Loans delinquent 91-120 days | 137,016 | 6.4 | 186,278 | 9.8 | 33,931 | 5.0 | ||||||||||||||
Loans delinquent 121-270 days | 354,192 | 16.7 | 633,001 | 33.1 | 99,041 | 14.7 | ||||||||||||||
Loans delinquent 271 days or greater | 241,484 | 11.4 | 226,537 | 11.8 | 37,025 | 5.5 | ||||||||||||||
Total loans in repayment | 2,125,315 | 100.0 | % | 1,909,507 | 100.0 | % | 675,738 | 100.0 | % | |||||||||||
Total rehabilitation loans | 2,828,321 | 2,390,102 | 895,831 | |||||||||||||||||
Total federally insured loans | $ | 24,792,577 | $ | 24,969,846 | $ | 22,615,608 |
As of September 30, 2013 | |||||||
Carrying amount | Interest rate range | Final maturity | |||||
Variable-rate bonds and notes issued in asset-backed securitizations: | |||||||
Bonds and notes based on indices | $ | 22,632,522 | 0.27% - 6.90% | 11/25/15 - 8/26/52 | |||
Bonds and notes based on auction or remarketing | 890,500 | 0.08% - 2.13% | 5/1/28 - 5/25/42 | ||||
Total variable-rate bonds and notes | 23,523,022 | ||||||
FFELP warehouse facilities | 1,277,650 | 0.18% - 0.28% | 1/17/16 - 6/12/16 | ||||
Unsecured line of credit | 75,000 | 1.68% | 3/28/18 | ||||
Unsecured debt - Junior Subordinated Hybrid Securities | 99,232 | 3.62% | 9/15/61 | ||||
Other borrowings | 61,828 | 1.68% - 5.10% | 11/14/13 - 11/11/15 | ||||
25,036,732 | |||||||
Discount on bonds and notes payable | (178,277 | ) | |||||
Total | $ | 24,858,455 |
As of December 31, 2012 | |||||||
Carrying amount | Interest rate range | Final maturity | |||||
Variable-rate bonds and notes issued in asset-backed securitizations: | |||||||
Bonds and notes based on indices | $ | 21,185,140 | 0.32% - 6.90% | 11/25/15 - 8/26/52 | |||
Bonds and notes based on auction or remarketing | 969,925 | 0.15% - 2.14% | 5/1/28 - 5/25/42 | ||||
Total variable-rate bonds and notes | 22,155,065 | ||||||
FFELP warehouse facilities | 1,554,151 | 0.21% - 0.29% | 1/31/15 - 6/30/15 | ||||
Department of Education Conduit | 1,344,513 | 0.82% | 1/19/14 | ||||
Unsecured line of credit | 55,000 | 1.71% | 2/17/16 | ||||
Unsecured debt - Junior Subordinated Hybrid Securities | 99,232 | 3.68% | 9/15/61 | ||||
Other borrowings | 62,904 | 1.50% - 5.10% | 11/14/13 - 11/11/15 | ||||
25,270,865 | |||||||
Discount on bonds and notes payable | (172,030 | ) | |||||
Total | $ | 25,098,835 |
NHELP-I (a) | NHELP-III (b) | NHELP-II (c) | NFSLW-I (d) | Total | ||||||||||||
Maximum financing amount | $ | 500,000 | 750,000 | 500,000 | 500,000 | 2,250,000 | ||||||||||
Amount outstanding | — | 637,770 | 373,258 | 266,622 | 1,277,650 | |||||||||||
Amount available | $ | 500,000 | 112,230 | 126,742 | 233,378 | 972,350 | ||||||||||
Expiration of liquidity provisions | January 16, 2014 | February 28, 2014 | June 12, 2014 | |||||||||||||
Final maturity date | January 17, 2016 | February 28, 2016 | June 12, 2016 | |||||||||||||
Maximum advance rates | 92.2 - 95% | 84.5 - 94.5% | 92 - 98% | |||||||||||||
Minimum advance rates | 92.2 - 95% | 84.5 - 94.5% | 84 - 90% | |||||||||||||
Advanced as equity support | $ | — | 36,926 | 33,863 | 11,647 | 82,436 |
(a) | On October 1, 2013, the Company terminated this facility. All loans previously financed in this facility were financed in other warehouse facilities during the third quarter of 2013. |
(b) | The Company entered into this facility on January 16, 2013. On September 16, 2013, the Company amended this facility to increase the maximum financing amount from $500 million to $750 million. |
(c) | On June 3, 2013, the Company amended this facility to change the terms of the advance rates. |
(d) | On June 13, 2013, the Company amended this facility to change the terms of the advance rates and extend the expiration of the liquidity provisions and its final maturity date. |
2013-1 | 2013-2 (a) | 2013-3 | 2013-4 | 2013-5 (a) | Total | |||||||||||||||
Date securities issued | 1/31/13 | 2/28/13 | 4/30/13 | 6/21/13 | 9/30/13 | |||||||||||||||
Total original principal amount | $ | 437,500 | 1,122,000 | 765,000 | 453,000 | 399,000 | $ | 3,176,500 | ||||||||||||
Class A senior notes: | ||||||||||||||||||||
Total original principal amount | $ | 428,000 | 1,122,000 | 745,000 | 440,000 | 399,000 | 3,134,000 | |||||||||||||
Bond discount | — | (3,325 | ) | — | (1,690 | ) | (4,881 | ) | (9,896 | ) | ||||||||||
Issue price | $ | 428,000 | 1,118,675 | 745,000 | 438,310 | 394,119 | 3,124,104 | |||||||||||||
Cost of funds (1-month LIBOR plus:) | 0.60 | % | 0.50 | % | 0.50 | % | 0.50 | % | 0.63 | % | ||||||||||
Final maturity date | 6/25/41 | 7/25/40 | 2/25/37 | 12/26/42 | 1/25/37 | |||||||||||||||
Class B subordinated notes: | ||||||||||||||||||||
Total original principal amount | $ | 9,500 | 20,000 | 13,000 | 42,500 | |||||||||||||||
Bond discount | (1,525 | ) | (1,762 | ) | (1,804 | ) | (5,091 | ) | ||||||||||||
Issue price | $ | 7,975 | 18,238 | 11,196 | 37,409 | |||||||||||||||
Cost of funds (1-month LIBOR plus:) | 1.50 | % | 1.50 | % | 1.50 | % | ||||||||||||||
Final maturity date | 3/25/48 | 7/25/47 | 1/25/47 |
(a) | Total original principal amount excludes the Class B subordinated tranches for the 2013-2 and 2013-5 transactions totaling $34.0 million and $9.0 million, respectively, that were retained at issuance. As of September 30, 2013, the Company has a total of $85.5 million (face amount) of its own Class B subordinated notes remaining from prior completed asset-backed securitizations that are not included in the Company's consolidated balance sheet. |
As of September 30, 2013 | As of December 31, 2012 | |||||||||
Maturity | Notional amount | Notional amount | ||||||||
2021 | $ | 250,000 | 250,000 | |||||||
2022 | 1,900,000 | 1,900,000 | ||||||||
2023 | 3,650,000 | 3,150,000 | ||||||||
2024 | 250,000 | 250,000 | ||||||||
2026 | 800,000 | 800,000 | ||||||||
2028 | 100,000 | 100,000 | ||||||||
2036 | 700,000 | 700,000 | ||||||||
2039 | (a) | 150,000 | 150,000 | |||||||
2040 | (b) | 200,000 | 200,000 | |||||||
$ | 8,000,000 | (c) | 7,500,000 | (c) |
(c) | The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2013 and December 31, 2012, was one-month LIBOR plus 3.5 basis points and one-month LIBOR plus 3.3 basis points, respectively. |
As of September 30, 2013 | As of December 31, 2012 | |||||||||||||
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | Notional amount | Weighted average fixed rate paid by the Company (a) | ||||||||||
2013 | $ | — | — | % | $ | 3,150,000 | 0.71 | % | ||||||
2014 | 1,750,000 | 0.71 | 1,750,000 | 0.71 | ||||||||||
2015 | 1,100,000 | 0.89 | 1,100,000 | 0.89 | ||||||||||
2016 | 750,000 | 0.85 | 750,000 | 0.85 | ||||||||||
2017 | 1,250,000 | 0.86 | 750,000 | 0.99 | ||||||||||
$ | 4,850,000 | 0.81 | % | $ | 7,500,000 | 0.78 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
As of September 30, 2013 | As of December 31, 2012 | |||||||||||||
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | Notional amount | Weighted average fixed rate paid by the Company (a) | ||||||||||
2036 | $ | 25,000 | 4.28 | % | $ | 75,000 | 4.28 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Re-measurement of Euro Notes | $ | (39,974 | ) | (20,799 | ) | (25,902 | ) | 6,186 | ||||
Change in fair value of cross-currency interest rate swaps | 39,074 | 24,586 | 18,978 | (24,934 | ) | |||||||
Total impact to consolidated statements of income - income (expense) (a) | $ | (900 | ) | 3,787 | (6,924 | ) | (18,748 | ) |
(a) | The financial statement impact of the above items is included in "Derivative market value and foreign currency 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 | |||||||||
September 30, 2013 | December 31, 2012 | September 30, 2013 | December 31, 2012 | |||||||||
1:3 basis swaps | $ | 20,425 | 12,239 | — | 1,215 | |||||||
Interest rate swaps - floor income hedges | 6,032 | — | 18,186 | 45,913 | ||||||||
Interest rate swaps - hybrid debt hedges | — | — | 3,327 | 23,762 | ||||||||
Cross-currency interest rate swaps | 101,819 | 82,841 | — | — | ||||||||
Other | — | 2,361 | — | — | ||||||||
Total | $ | 128,276 | 97,441 | 21,513 | 70,890 |
Gross amounts not offset in the consolidated balance sheets | |||||||||||||
Derivative assets | Gross amounts of recognized assets presented in the consolidated balance sheets | Derivatives subject to enforceable master netting arrangement | Cash collateral received (a) | Net asset (liability) | |||||||||
Balance as of September 30, 2013 | $ | 128,276 | (17,991 | ) | (73,734 | ) | 36,551 | ||||||
Balance as of December 31, 2012 | 97,441 | (13,234 | ) | (19,993 | ) | 64,214 |
Gross amounts not offset in the consolidated balance sheets | |||||||||||||
Derivative liabilities | Gross amounts of recognized liabilities presented in the consolidated balance sheets | Derivatives subject to enforceable master netting arrangement | Cash collateral pledged (b) | Net asset (liability) | |||||||||
Balance as of September 30, 2013 | $ | (21,513 | ) | 17,991 | 4,000 | 478 | |||||||
Balance as of December 31, 2012 | (70,890 | ) | 13,234 | 63,128 | 5,472 |
(a) | As of September 30, 2013 and December 31, 2012, the trustee for certain of the Company's asset-backed securitization transactions held $73.7 million and $20.0 million, respectively, of collateral from the counterparty on the cross-currency interest rate swaps. |
(b) | As of September 30, 2013 and December 31, 2012, the Company had $4.0 million and $63.1 million, respectively, posted as collateral to derivative counterparties, which is included in “restricted cash and investments” in the Company's consolidated balance sheet. |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Settlements: | ||||||||||||
1:3 basis swaps | $ | 781 | 1,100 | 2,474 | 3,651 | |||||||
Interest rate swaps - floor income hedges | (7,178 | ) | (5,595 | ) | (24,017 | ) | (12,237 | ) | ||||
Interest rate swaps - hybrid debt hedges | (256 | ) | (733 | ) | (1,413 | ) | (1,479 | ) | ||||
Cross-currency interest rate swaps | (35 | ) | 227 | (273 | ) | 3,390 | ||||||
Other | — | (50 | ) | — | (235 | ) | ||||||
Total settlements - income (expense) | (6,688 | ) | (5,051 | ) | (23,229 | ) | (6,910 | ) | ||||
Change in fair value: | ||||||||||||
1:3 basis swaps | (2,161 | ) | (4,578 | ) | 9,402 | (2,005 | ) | |||||
Interest rate swaps - floor income hedges | (9,599 | ) | (29,903 | ) | 33,231 | (41,681 | ) | |||||
Interest rate swaps - hybrid debt hedges | 2,700 | 1,695 | 11,790 | (890 | ) | |||||||
Cross-currency interest rate swaps | 39,074 | 24,586 | 18,978 | (24,934 | ) | |||||||
Other | — | 2,775 | 342 | 2,161 | ||||||||
Total change in fair value - income (expense) | 30,014 | (5,425 | ) | 73,743 | (67,349 | ) | ||||||
Re-measurement of Euro Notes (foreign currency transaction adjustment) - income (expense) | (39,974 | ) | (20,799 | ) | (25,902 | ) | 6,186 | |||||
Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense) | $ | (16,648 | ) | (31,275 | ) | 24,612 | (68,073 | ) |
As of September 30, 2013 | As of December 31, 2012 | ||||||||||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses (a) | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||||||||
Investments: | |||||||||||||||||||||||||
Available-for-sale investments: | |||||||||||||||||||||||||
Student loan asset-backed and other debt securities (b) | $ | 211,548 | 8,535 | (968 | ) | 219,115 | 64,970 | 3,187 | (179 | ) | 67,978 | ||||||||||||||
Equity securities | 1,550 | 1,519 | (5 | ) | 3,064 | 3,449 | 1,604 | (180 | ) | 4,873 | |||||||||||||||
Total available-for-sale investments | $ | 213,098 | 10,054 | (973 | ) | 222,179 | 68,419 | 4,791 | (359 | ) | 72,851 | ||||||||||||||
Trading investments: | |||||||||||||||||||||||||
Student loan asset-backed and other debt securities | 10,484 | 10,461 | |||||||||||||||||||||||
Total available-for-sale and trading investments | $ | 232,663 | 83,312 | ||||||||||||||||||||||
Restricted Investments (c): | |||||||||||||||||||||||||
Guaranteed investment contracts - held-to-maturity | $ | 6,724 | 8,830 |
(a) | As of September 30, 2013, 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 September 30, 2013, the stated maturities of the majority of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years. |
(c) | Restricted investments are included in "restricted cash and investments" in the Company's consolidated balance sheets. |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
Affected line item in the consolidated statements of income - income (expense): | 2013 | 2012 | 2013 | 2012 | |||||||||
Other income | $ | 730 | 2,618 | 2,246 | 4,848 | ||||||||
Income tax expense | (270 | ) | (969 | ) | (831 | ) | (1,794 | ) | |||||
Net | $ | 460 | 1,649 | 1,415 | 3,054 |
Three months ended September 30, | ||||||||||||||||||
2013 | 2012 | |||||||||||||||||
Common shareholders | Unvested restricted stock shareholders | Total | Common shareholders | Unvested restricted stock shareholders | Total | |||||||||||||
Numerator: | ||||||||||||||||||
Net income attributable to Nelnet, Inc. | $ | 62,277 | 553 | 62,830 | 36,538 | 290 | 36,828 | |||||||||||
Denominator: | ||||||||||||||||||
Weighted-average common shares outstanding - basic and diluted | 46,086,743 | 409,869 | 46,496,612 | 47,086,182 | 374,126 | 47,460,308 | ||||||||||||
Earnings per share - basic and diluted | $ | 1.35 | 1.35 | 1.35 | 0.78 | 0.78 | 0.78 |
Nine months ended September 30, | ||||||||||||||||||
2013 | 2012 | |||||||||||||||||
Common shareholders | Unvested restricted stock shareholders | Total | Common shareholders | Unvested restricted stock shareholders | Total | |||||||||||||
Numerator: | ||||||||||||||||||
Net income attributable to Nelnet, Inc. | $ | 230,141 | 2,011 | 232,152 | 120,452 | 911 | 121,363 | |||||||||||
Denominator: | ||||||||||||||||||
Weighted-average common shares outstanding - basic and diluted | 46,189,200 | 404,041 | 46,593,241 | 47,042,062 | 357,145 | 47,399,207 | ||||||||||||
Earnings per share - basic and diluted | $ | 4.98 | 4.98 | 4.98 | 2.56 | 2.56 | 2.56 |
• | The operating results of Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisory subsidiary |
• | Income earned on certain investment activities |
• | Interest expense incurred on unsecured debt transactions |
• | Other product and service offerings that are not considered operating segments |
Three months ended September 30, 2013 | ||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee- Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Total | |||||||||||||||||
Total interest income | $ | 10 | — | — | 10 | 158,793 | 2,201 | (767 | ) | 160,237 | ||||||||||||||
Interest expense | — | — | — | — | 56,100 | (18 | ) | (767 | ) | 55,315 | ||||||||||||||
Net interest income (loss) | 10 | — | — | 10 | 102,693 | 2,219 | — | 104,922 | ||||||||||||||||
Less provision for loan losses | — | — | — | — | 5,000 | — | — | 5,000 | ||||||||||||||||
Net interest income (loss) after provision for loan losses | 10 | — | — | 10 | 97,693 | 2,219 | — | 99,922 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Loan and guaranty servicing revenue | 64,582 | — | — | 64,582 | — | — | — | 64,582 | ||||||||||||||||
Intersegment servicing revenue | 13,519 | — | — | 13,519 | — | — | (13,519 | ) | — | |||||||||||||||
Tuition payment processing and campus commerce revenue | — | 19,927 | — | 19,927 | — | — | — | 19,927 | ||||||||||||||||
Enrollment services revenue | — | — | 22,563 | 22,563 | — | — | — | 22,563 | ||||||||||||||||
Other income | — | — | — | — | 3,981 | 4,632 | — | 8,613 | ||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 2,138 | — | — | 2,138 | ||||||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | — | — | (12,660 | ) | 2,700 | — | (9,960 | ) | ||||||||||||||
Derivative settlements, net | — | — | — | — | (6,432 | ) | (256 | ) | — | (6,688 | ) | |||||||||||||
Total other income (expense) | 78,101 | 19,927 | 22,563 | 120,591 | (12,973 | ) | 7,076 | (13,519 | ) | 101,175 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Salaries and benefits | 29,719 | 9,229 | 4,491 | 43,439 | 555 | 4,718 | — | 48,712 | ||||||||||||||||
Cost to provide enrollment services | — | — | 14,668 | 14,668 | — | — | — | 14,668 | ||||||||||||||||
Depreciation and amortization | 2,677 | 1,117 | 57 | 3,851 | — | 489 | — | 4,340 | ||||||||||||||||
Other | 19,752 | 1,908 | 1,556 | 23,216 | 7,939 | 8,732 | — | 39,887 | ||||||||||||||||
Intersegment expenses, net | 1,457 | 1,431 | 1,139 | 4,027 | 13,705 | (4,213 | ) | (13,519 | ) | — | ||||||||||||||
Total operating expenses | 53,605 | 13,685 | 21,911 | 89,201 | 22,199 | 9,726 | (13,519 | ) | 107,607 | |||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 24,506 | 6,242 | 652 | 31,400 | 62,521 | (431 | ) | — | 93,490 | |||||||||||||||
Corporate overhead allocation | (1,822 | ) | (607 | ) | (607 | ) | (3,036 | ) | (1,302 | ) | 4,338 | — | — | |||||||||||
Income (loss) before income taxes | 22,684 | 5,635 | 45 | 28,364 | 61,219 | 3,907 | — | 93,490 | ||||||||||||||||
Income tax (expense) benefit | (8,620 | ) | (2,141 | ) | (17 | ) | (10,778 | ) | (23,263 | ) | 3,597 | — | (30,444 | ) | ||||||||||
Net income (loss) | 14,064 | 3,494 | 28 | 17,586 | 37,956 | 7,504 | — | 63,046 | ||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | 216 | — | 216 | ||||||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 14,064 | 3,494 | 28 | 17,586 | 37,956 | 7,288 | — | 62,830 | |||||||||||||||
Three months ended September 30, 2012 | ||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee- Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Total | |||||||||||||||||
Total interest income | $ | 12 | 3 | — | 15 | 150,661 | 1,891 | (899 | ) | 151,668 | ||||||||||||||
Interest expense | — | — | — | — | 64,829 | 2,472 | (899 | ) | 66,402 | |||||||||||||||
Net interest income (loss) | 12 | 3 | — | 15 | 85,832 | (581 | ) | — | 85,266 | |||||||||||||||
Less provision for loan losses | — | — | — | — | 5,000 | — | — | 5,000 | ||||||||||||||||
Net interest income (loss) after provision for loan losses | 12 | 3 | — | 15 | 80,832 | (581 | ) | — | 80,266 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Loan and guaranty servicing revenue | 53,285 | — | — | 53,285 | — | — | — | 53,285 | ||||||||||||||||
Intersegment servicing revenue | 15,855 | — | — | 15,855 | — | — | (15,855 | ) | — | |||||||||||||||
Tuition payment processing and campus commerce revenue | — | 17,928 | — | 17,928 | — | — | — | 17,928 | ||||||||||||||||
Enrollment services revenue | — | — | 30,661 | 30,661 | — | — | — | 30,661 | ||||||||||||||||
Other income | — | — | — | — | 5,834 | 6,865 | — | 12,699 | ||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 195 | — | — | 195 | ||||||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | — | — | (30,694 | ) | 4,470 | — | (26,224 | ) | ||||||||||||||
Derivative settlements, net | — | — | — | — | (4,319 | ) | (732 | ) | — | (5,051 | ) | |||||||||||||
Total other income (expense) | 69,140 | 17,928 | 30,661 | 117,729 | (28,984 | ) | 10,603 | (15,855 | ) | 83,493 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Salaries and benefits | 27,716 | 8,578 | 5,147 | 41,441 | 462 | 4,492 | — | 46,395 | ||||||||||||||||
Cost to provide enrollment services | — | — | 20,151 | 20,151 | — | — | — | 20,151 | ||||||||||||||||
Depreciation and amortization | 4,691 | 1,703 | 1,633 | 8,027 | — | 375 | — | 8,402 | ||||||||||||||||
Other | 16,775 | 2,285 | 1,782 | 20,842 | 3,451 | 5,696 | — | 29,989 | ||||||||||||||||
Intersegment expenses, net | 1,262 | 1,379 | 1,000 | 3,641 | 16,064 | (3,850 | ) | (15,855 | ) | — | ||||||||||||||
Total operating expenses | 50,444 | 13,945 | 29,713 | 94,102 | 19,977 | 6,713 | (15,855 | ) | 104,937 | |||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 18,708 | 3,986 | 948 | 23,642 | 31,871 | 3,309 | — | 58,822 | ||||||||||||||||
Corporate overhead allocation | (1,337 | ) | (446 | ) | (446 | ) | (2,229 | ) | (909 | ) | 3,138 | — | — | |||||||||||
Income (loss) before income taxes | 17,371 | 3,540 | 502 | 21,413 | 30,962 | 6,447 | — | 58,822 | ||||||||||||||||
Income tax (expense) benefit | (6,601 | ) | (1,345 | ) | (191 | ) | (8,137 | ) | (11,765 | ) | (1,968 | ) | — | (21,870 | ) | |||||||||
Net income (loss) | 10,770 | 2,195 | 311 | 13,276 | 19,197 | 4,479 | — | 36,952 | ||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | 124 | — | 124 | ||||||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 10,770 | 2,195 | 311 | 13,276 | 19,197 | 4,355 | — | 36,828 | |||||||||||||||
Nine months ended September 30, 2013 | ||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee- Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Total | |||||||||||||||||
Total interest income | $ | 29 | — | — | 29 | 472,622 | 6,708 | (2,420 | ) | 476,939 | ||||||||||||||
Interest expense | — | — | — | — | 170,502 | 3,718 | (2,420 | ) | 171,800 | |||||||||||||||
Net interest income (loss) | 29 | — | — | 29 | 302,120 | 2,990 | — | 305,139 | ||||||||||||||||
Less provision for loan losses | — | — | — | — | 15,000 | — | — | 15,000 | ||||||||||||||||
Net interest income (loss) after provision for loan losses | 29 | — | — | 29 | 287,120 | 2,990 | — | 290,139 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Loan and guaranty servicing revenue | 180,261 | — | — | 180,261 | — | — | — | 180,261 | ||||||||||||||||
Intersegment servicing revenue | 42,375 | — | — | 42,375 | — | — | (42,375 | ) | — | |||||||||||||||
Tuition payment processing and campus commerce revenue | — | 61,694 | — | 61,694 | — | — | — | 61,694 | ||||||||||||||||
Enrollment services revenue | — | — | 76,343 | 76,343 | — | — | — | 76,343 | ||||||||||||||||
Other income | — | — | — | — | 11,207 | 19,110 | — | 30,317 | ||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 10,900 | — | — | 10,900 | ||||||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | — | — | 35,711 | 12,130 | — | 47,841 | ||||||||||||||||
Derivative settlements, net | — | — | — | — | (21,816 | ) | (1,413 | ) | — | (23,229 | ) | |||||||||||||
Total other income (expense) | 222,636 | 61,694 | 76,343 | 360,673 | 36,002 | 29,827 | (42,375 | ) | 384,127 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Salaries and benefits | 86,254 | 28,015 | 15,067 | 129,336 | 1,709 | 13,004 | — | 144,049 | ||||||||||||||||
Cost to provide enrollment services | — | — | 51,097 | 51,097 | — | — | — | 51,097 | ||||||||||||||||
Depreciation and amortization | 8,197 | 3,387 | 179 | 11,763 | — | 1,274 | — | 13,037 | ||||||||||||||||
Other | 56,173 | 6,387 | 4,450 | 67,010 | 23,375 | 18,808 | — | 109,193 | ||||||||||||||||
Intersegment expenses, net | 3,243 | 4,350 | 3,418 | 11,011 | 42,955 | (11,591 | ) | (42,375 | ) | — | ||||||||||||||
Total operating expenses | 153,867 | 42,139 | 74,211 | 270,217 | 68,039 | 21,495 | (42,375 | ) | 317,376 | |||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 68,798 | 19,555 | 2,132 | 90,485 | 255,083 | 11,322 | — | 356,890 | ||||||||||||||||
Corporate overhead allocation | (4,332 | ) | (1,443 | ) | (1,443 | ) | (7,218 | ) | (3,095 | ) | 10,313 | — | — | |||||||||||
Income (loss) before income taxes | 64,466 | 18,112 | 689 | 83,267 | 251,988 | 21,635 | — | 356,890 | ||||||||||||||||
Income tax (expense) benefit | (24,498 | ) | (6,882 | ) | (261 | ) | (31,641 | ) | (95,755 | ) | 3,759 | — | (123,637 | ) | ||||||||||
Net income (loss) | 39,968 | 11,230 | 428 | 51,626 | 156,233 | 25,394 | — | 233,253 | ||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | 1,101 | — | 1,101 | ||||||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 39,968 | 11,230 | 428 | 51,626 | 156,233 | 24,293 | — | 232,152 | |||||||||||||||
Nine months ended September 30, 2012 | ||||||||||||||||||||||||
Fee-Based | ||||||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Enrollment Services | Total Fee- Based | Asset Generation and Management | Corporate Activity and Overhead | Eliminations | Total | |||||||||||||||||
Total interest income | $ | 44 | 8 | — | 52 | 455,413 | 5,226 | (2,827 | ) | 457,864 | ||||||||||||||
Interest expense | — | — | — | — | 199,675 | 6,327 | (2,827 | ) | 203,175 | |||||||||||||||
Net interest income (loss) | 44 | 8 | — | 52 | 255,738 | (1,101 | ) | — | 254,689 | |||||||||||||||
Less provision for loan losses | — | — | — | — | 18,000 | — | — | 18,000 | ||||||||||||||||
Net interest income (loss) after provision for loan losses | 44 | 8 | — | 52 | 237,738 | (1,101 | ) | — | 236,689 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Loan and guaranty servicing revenue | 155,164 | — | — | 155,164 | — | — | — | 155,164 | ||||||||||||||||
Intersegment servicing revenue | 49,210 | — | — | 49,210 | — | — | (49,210 | ) | — | |||||||||||||||
Tuition payment processing and campus commerce revenue | — | 56,675 | — | 56,675 | — | — | — | 56,675 | ||||||||||||||||
Enrollment services revenue | — | — | 92,035 | 92,035 | — | — | — | 92,035 | ||||||||||||||||
Other income | — | — | — | — | 14,415 | 18,038 | — | 32,453 | ||||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | 1,130 | — | — | 1,130 | ||||||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | — | — | (62,351 | ) | 1,188 | — | (61,163 | ) | ||||||||||||||
Derivative settlements, net | — | — | — | — | (5,431 | ) | (1,479 | ) | — | (6,910 | ) | |||||||||||||
Total other income (expense) | 204,374 | 56,675 | 92,035 | 353,084 | (52,237 | ) | 17,747 | (49,210 | ) | 269,384 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Salaries and benefits | 85,663 | 25,771 | 17,587 | 129,021 | 1,723 | 13,449 | — | 144,193 | ||||||||||||||||
Cost to provide enrollment services | — | — | 62,203 | 62,203 | — | — | — | 62,203 | ||||||||||||||||
Depreciation and amortization | 13,629 | 5,174 | 4,867 | 23,670 | — | 1,094 | — | 24,764 | ||||||||||||||||
Other | 52,980 | 7,557 | 5,483 | 66,020 | 10,203 | 16,937 | — | 93,160 | ||||||||||||||||
Intersegment expenses, net | 3,832 | 4,042 | 2,824 | 10,698 | 49,842 | (11,330 | ) | (49,210 | ) | — | ||||||||||||||
Total operating expenses | 156,104 | 42,544 | 92,964 | 291,612 | 61,768 | 20,150 | (49,210 | ) | 324,320 | |||||||||||||||
Income (loss) before income taxes and corporate overhead allocation | 48,314 | 14,139 | (929 | ) | 61,524 | 123,733 | (3,504 | ) | — | 181,753 | ||||||||||||||
Corporate overhead allocation | (4,115 | ) | (1,372 | ) | (1,372 | ) | (6,859 | ) | (3,701 | ) | 10,560 | — | — | |||||||||||
Income (loss) before income taxes | 44,199 | 12,767 | (2,301 | ) | 54,665 | 120,032 | 7,056 | — | 181,753 | |||||||||||||||
Income tax (expense) benefit | (16,796 | ) | (4,851 | ) | 874 | (20,773 | ) | (45,610 | ) | 6,405 | — | (59,978 | ) | |||||||||||
Net income (loss) | 27,403 | 7,916 | (1,427 | ) | 33,892 | 74,422 | 13,461 | — | 121,775 | |||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | 412 | — | 412 | ||||||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 27,403 | 7,916 | (1,427 | ) | 33,892 | 74,422 | 13,049 | — | 121,363 | ||||||||||||||
As of September 30, 2013 | As of December 31, 2012 | |||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||
Assets: | ||||||||||||||||||
Investments: | ||||||||||||||||||
Student loan asset-backed securities | $ | — | 229,095 | 229,095 | — | 77,652 | 77,652 | |||||||||||
Equity securities | 3,064 | — | 3,064 | 4,873 | — | 4,873 | ||||||||||||
Debt securities | 504 | — | 504 | 787 | — | 787 | ||||||||||||
Total investments | 3,568 | 229,095 | 232,663 | 5,660 | 77,652 | 83,312 | ||||||||||||
Fair value of derivative instruments | — | 128,276 | 128,276 | — | 97,441 | 97,441 | ||||||||||||
Total assets | $ | 3,568 | 357,371 | 360,939 | 5,660 | 175,093 | 180,753 | |||||||||||
Liabilities: | ||||||||||||||||||
Fair value of derivative instruments | $ | — | 21,513 | 21,513 | — | 70,890 | 70,890 | |||||||||||
Total liabilities | $ | — | 21,513 | 21,513 | — | 70,890 | 70,890 |
As of September 30, 2013 | |||||||||||||||
Fair value | Carrying value | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets: | |||||||||||||||
Student loans receivable | $ | 25,287,320 | 24,701,112 | — | — | 25,287,320 | |||||||||
Non-federally insured student loans receivable - held for sale | 28,480 | 28,480 | — | — | 28,480 | ||||||||||
Cash and cash equivalents | 51,391 | 51,391 | 51,391 | — | — | ||||||||||
Investments | 232,663 | 232,663 | 3,568 | 229,095 | — | ||||||||||
Restricted cash | 668,202 | 668,202 | 668,202 | — | — | ||||||||||
Restricted cash – due to customers | 93,695 | 93,695 | 93,695 | — | — | ||||||||||
Restricted investments | 6,724 | 6,724 | 6,724 | — | — | ||||||||||
Accrued interest receivable | 303,350 | 303,350 | — | 303,350 | — | ||||||||||
Derivative instruments | 128,276 | 128,276 | — | 128,276 | — | ||||||||||
Financial liabilities: | |||||||||||||||
Bonds and notes payable | 24,376,185 | 24,858,455 | — | 24,376,185 | — | ||||||||||
Accrued interest payable | 14,218 | 14,218 | — | 14,218 | — | ||||||||||
Due to customers | 93,695 | 93,695 | 93,695 | — | — | ||||||||||
Derivative instruments | 21,513 | 21,513 | — | 21,513 | — |
As of December 31, 2012 | |||||||||||||||
Fair value | Carrying value | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets: | |||||||||||||||
Student loans receivable | $ | 25,418,623 | 24,830,621 | — | — | 25,418,623 | |||||||||
Cash and cash equivalents | 66,031 | 66,031 | 66,031 | — | — | ||||||||||
Investments | 83,312 | 83,312 | 5,660 | 77,652 | — | ||||||||||
Restricted cash | 806,632 | 806,632 | 806,632 | — | — | ||||||||||
Restricted cash – due to customers | 96,516 | 96,516 | 96,516 | — | — | ||||||||||
Restricted investments | 8,830 | 8,830 | 8,830 | — | — | ||||||||||
Accrued interest receivable | 307,518 | 307,518 | — | 307,518 | — | ||||||||||
Derivative instruments | 97,441 | 97,441 | — | 97,441 | — | ||||||||||
Financial liabilities: | |||||||||||||||
Bonds and notes payable | 24,486,008 | 25,098,835 | — | 24,486,008 | — | ||||||||||
Accrued interest payable | 14,770 | 14,770 | — | 14,770 | — | ||||||||||
Due to customers | 96,516 | 96,516 | 96,516 | — | — | ||||||||||
Derivative instruments | 70,890 | 70,890 | — | 70,890 | — |
• | Bais Yaakov of Spring Valley v. Peterson's Nelnet, LLC |
• | Than Zaw v. Nelnet, Inc. |
• | Grant Keating v. Peterson's Nelnet, LLC et al |
• | 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 FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, 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, 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, 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 to consolidate existing FFELP loans to the Federal Direct Loan Program, risks related to the availability of government funds and actual extension of the Company's loan servicing contract with the Department for an additional five years, and the Company's ability to maintain or increase volumes under that contract, and the Company's ability to comply with agreements with third-party customers for the servicing of FFELP and Federal Direct Loan Program 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; |
• | uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and |
• | risks associated with litigation 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 September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
GAAP net income attributable to Nelnet, Inc. | $ | 62,830 | 36,828 | 232,152 | 121,363 | |||||||
Derivative market value and foreign currency adjustments, net of tax | 6,175 | 16,259 | (29,661 | ) | 37,921 | |||||||
Net income, excluding derivative market value and foreign currency adjustments (a) | $ | 69,005 | 53,087 | 202,491 | 159,284 | |||||||
Earnings per share: | ||||||||||||
GAAP net income attributable to Nelnet, Inc. | $ | 1.35 | 0.78 | 4.98 | 2.56 | |||||||
Derivative market value and foreign currency adjustments, net of tax | 0.13 | 0.34 | (0.63 | ) | 0.80 | |||||||
Net income, excluding derivative market value and foreign currency adjustments (a) | $ | 1.48 | 1.12 | 4.35 | 3.36 |
(a) | The Company provides non-GAAP information that reflects specific items management believes to be important in the evaluation of its financial position and performance. "Derivative market value and foreign currency adjustments" 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; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. The 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 affect the period-to-period comparability of the results of operations. Accordingly, the Company provides operating results excluding these items for comparability purposes. |
• | Student Loan and Guaranty Servicing ("LGS") - referred to as Nelnet Diversified Solutions ("NDS") |
• | Tuition Payment Processing and Campus Commerce ("TPP&CC") - referred to as Nelnet Business Solutions ("NBS") |
• | Enrollment Services - commonly called Nelnet Enrollment Solutions ("NES") |
(a) | Revenue includes intersegment revenue of $13.5 million and $15.9 million for the three months ended September 30, 2013 and 2012, respectively, and $42.4 million and $49.2 million for the nine months ended September 30, 2013 and 2012, respectively, earned by LGS as a result of servicing loans for AGM. |
(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, which was an expense of $12.7 million and $30.7 million for the three months ended September 30, 2013 and 2012, respectively, and income of $35.7 million and an expense of $62.4 million for the nine months ended September 30, 2013 and 2012, respectively. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax, which was an expense of $7.8 million and $19.0 million for the three months ended September 30, 2013 and 2012, respectively, and income of $22.1 million and an expense of $38.7 million for the nine months ended September 30, 2013 and 2012, respectively. |
(c) | Computed as income before income taxes divided by total revenue. |
• | As of September 30, 2013, the Company was servicing $135.0 billion in FFELP, private, and government owned student loans, as compared with $92.5 billion of loans as of September 30, 2012. |
• | Revenue increased in the three and nine months ended September 30, 2013 compared to the same periods in 2012 due to growth in servicing volume under the Company's contract with the Department and an increase in collection revenue from getting defaulted FFELP loan assets current on behalf of guaranty agencies. These increases were partially offset by decreases in traditional FFELP and guaranty servicing revenue. |
• | As of September 30, 2013, the Company was servicing $106.9 billion of loans for 5.1 million borrowers on behalf of the Department, compared with $63.6 billion of loans for 3.6 million borrowers as of September 30, 2012. Revenue from this contract increased to $26.0 million and $68.4 million for the three and nine months ended September 30, 2013, respectively, up from $19.1 million and $50.1 million for the same respective periods in 2012. The servicing contract |
• | Before tax operating margin increased in the three and nine months ended September 30, 2013 compared to the same periods in 2012. The Company made investments and incurred certain costs in 2012 to improve performance metrics under the government servicing contract and to implement and comply with the Department's special direct consolidation loan initiative. In addition, intangible assets for this segment were fully amortized in 2012. Salaries and benefits and other expense increased in 2013 to support the increase in volume under the government servicing contract and due to an increase in costs related to getting defaulted FFELP loan assets current on behalf of guaranty agencies. |
• | Revenue increased in the three and nine months ended September 30, 2013 compared to the same periods in 2012 due to an increase in the number of managed tuition payment plans, campus commerce customers, and new school customers. |
• | Before tax operating margin increased in the three and nine months ended September 30, 2013 compared to the same periods in 2012. The increase was the result of efficiencies gained in the operations of the business and a decrease in amortization expense related to intangible assets. These decreases in expenses in 2013 compared to 2012 were partially offset by an increase in salaries and benefits due to adding personnel to support the increase in the number of tuition payment plans and campus commerce customers. |
• | 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. |
• | Revenue decreased in the three and nine months ended September 30, 2013 compared to the same periods in 2012 due to a decrease in inquiry generation and management revenue as a result of the regulatory uncertainty regarding recruiting and marketing to potential students in the for-profit college industry, which has caused schools to decrease spending on marketing efforts. Additionally, clients are shifting marketing budgets to more efficient or lower cost channels, which has caused a reduction in volume. |
• | The Company continues to focus on improving the profitability of this segment by reducing operating expenses in reaction to the ongoing decline in revenue and gross margin. |
• | The Company acquired $2.2 billion of FFELP student loans during the first nine months of 2013, including $1.1 billion purchased during the third quarter. The average loan portfolio balance for the three months ended September 30, 2013 and 2012 was $24.5 billion and $23.0 billion, respectively. |
• | On October 31, 2013, the Company purchased a student loan securitization trust, giving the Company rights to the residual interest in $1.6 billion of FFELP student loans. The trust includes student loans funded to term with notes payable. The student loans and debt within the trust will be included in the Company's consolidated financial statements. |
• | Core student loan spread increased to 1.57% for the three months ended September 30, 2013, compared to 1.44% for the three months ended September 30, 2012, and increased to 1.53% for the nine months ended September 30, 2013, compared to 1.43% for the same period in 2012. This increase was due to the improved corresponding relationship between the interest rate indices governing what the Company earns on its loans and what the Company pays to fund such loans. |
• | Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During the three months ended September 30, 2013 and 2012, the Company earned $37.8 million and $34.7 million, respectively, of fixed rate floor income (net of $7.2 million and $5.6 million of derivative settlements, respectively, used to hedge such loans), and $109.6 million and $109.8 million for the nine months ended September 30, 2013 and 2012, respectively (net of $24.0 million and $12.2 million of derivative settlements, respectively). |
• | Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisory subsidiary, recognized investment advisory revenue of $2.4 million and $2.6 million for the three months ended September 30, 2013 and 2012, respectively, and $11.5 million and $8.8 million for the nine months ended September 30, 2013 and 2012, respectively. These amounts include performance fees earned from the sale of managed securities. As of September 30, 2013, WRCM was managing an investment portfolio of $942.8 million for third-party entities. |
• | As of September 30, 2013, the Company had cash and investments of $284.1 million. |
• | For the nine months ended September 30, 2013, the Company generated $202.6 million in net cash provided by operating activities. |
• | Forecasted future cash flows from the Company's FFELP student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $2.10 billion as of September 30, 2013. |
• | As of September 30, 2013, $75.0 million was outstanding on the Company's unsecured line of credit and $200.0 million was available for future use. The unsecured line of credit has a maturity date of March 28, 2018. |
• | During the nine months ended September 30, 2013, the Company repurchased $84.7 million (face amount) of its own asset-backed debt securities for a gain totaling $10.9 million, including $15.4 million (face amount) for a gain of $2.1 million during the third quarter. |
• | During the nine months ended September 30, 2013, the Company repurchased 390,376 shares of Class A common stock for $13.0 million ($33.34 per share), including 111,220 shares for $4.0 million ($36.19 per share) during the third quarter. Included in the shares purchased during the third quarter were 107,614 shares remaining in the Company's 401(k) plan. Pursuant to an amendment to the 401(k) plan effective January 1, 2013, shares of the Company's Class A common stock are no longer an eligible investment alternative for the Company's matching contributions under the plan, and after this purchase, no shares of the Company's Class A common stock are held in the Company's 401(k) plan. |
• | During the nine months ended September 30, 2013, the Company paid cash dividends of $13.9 million, including $4.6 million ($0.10 per share) during the third quarter. |
• | The Company intends to use its strong liquidity position to capitalize on market opportunities, including FFELP student loan acquisitions; strategic acquisitions and investments in its core business areas of loan financing, loan servicing, payment processing, and enrollment services; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. |
Three months | Nine months | |||||||||||||
ended September 30, | ended September 30, | |||||||||||||
2013 | 2012 | 2013 | 2012 | Additional information | ||||||||||
Loan interest | $ | 158,675 | 150,528 | 472,277 | 454,574 | Increase is due to an increase in the average student loan balance, gross fixed rate floor income, and student loan discount accretion (net), partially offset by a slight decrease in gross variable student loan yield. | ||||||||
Investment interest | 1,562 | 1,140 | 4,662 | 3,290 | Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Average investment balances increased year over year. | |||||||||
Total interest income | 160,237 | 151,668 | 476,939 | 457,864 | ||||||||||
Interest expense | 55,315 | 66,402 | 171,800 | 203,175 | Decrease is due to a decrease in student loan cost of funds, partially offset by an increase in average debt balance. | |||||||||
Net interest income | 104,922 | 85,266 | 305,139 | 254,689 | See table below for additional analysis. | |||||||||
Less provision for loan losses | 5,000 | 5,000 | 15,000 | 18,000 | Represents the periodic expense of maintaining an allowance appropriate to absorb losses inherent in the portfolio of student loans. | |||||||||
Net interest income after provision for loan losses | 99,922 | 80,266 | 290,139 | 236,689 | ||||||||||
Other income (expense): | ||||||||||||||
LGS revenue | 64,582 | 53,285 | 180,261 | 155,164 | See LGS operating segment - results of operations. | |||||||||
TPP&CC revenue | 19,927 | 17,928 | 61,694 | 56,675 | See TPP&CC operating segment - results of operations. | |||||||||
NES revenue | 22,563 | 30,661 | 76,343 | 92,035 | See NES operating segment - results of operations. | |||||||||
Other income | 8,613 | 12,699 | 30,317 | 32,453 | See table below for the components of "other income." | |||||||||
Gain on sale of loans and debt repurchases | 2,138 | 195 | 10,900 | 1,130 | Gain is primarily from the repurchase of the Company's own asset-backed debt securities. | |||||||||
Derivative settlements, net | (6,688 | ) | (5,051 | ) | (23,229 | ) | (6,910 | ) | 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. See table below for additional analysis. | |||||
Derivative market value and foreign currency adjustments, net | (9,960 | ) | (26,224 | ) | 47,841 | (61,163 | ) | 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; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. | ||||||
Total other income | 101,175 | 83,493 | 384,127 | 269,384 | ||||||||||
Operating expenses: | ||||||||||||||
Salaries and benefits | 48,712 | 46,395 | 144,049 | 144,193 | Increases due to additional personnel to support increased servicing volume and TPP&CC revenue were partially offset by expense reductions at NES. | |||||||||
Cost to provide enrollment services | 14,668 | 20,151 | 51,097 | 62,203 | See NES operating segment - results of operations. | |||||||||
Depreciation and amortization | 4,340 | 8,402 | 13,037 | 24,764 | Decrease is due to certain intangible assets becoming fully amortized in 2012. | |||||||||
Other | 39,887 | 29,989 | 109,193 | 93,160 | Increase is due to an increase in (i) third party loan servicing fees incurred by AGM as volume at third parties has grown with recent loan purchases, (ii) costs incurred by LGS to support increased servicing volume; and (iii) collection costs incurred by LGS related to getting defaulted FFELP loans current on behalf of guaranty agencies. | |||||||||
Total operating expenses | 107,607 | 104,937 | 317,376 | 324,320 | ||||||||||
Income before income taxes | 93,490 | 58,822 | 356,890 | 181,753 | ||||||||||
Income tax expense | 30,444 | 21,870 | 123,637 | 59,978 | Effective tax rate: Q3 2013 - 32.6%; Q3 2012 - 37.2%; YTD 2013 34.8%; YTD 2012 - 33.0%. During the third quarter of 2013, income tax expense was reduced by $4.1 million due to the resolution of certain tax positions. During the second quarter of 2012, state income tax laws were enacted that reduced the Company's income tax expense during the second quarter by $4.6 million. | |||||||||
Net income | 63,046 | 36,952 | 233,253 | 121,775 | ||||||||||
Net income attributable to noncontrolling interest | 216 | 124 | 1,101 | 412 | ||||||||||
Net income attributable to Nelnet, Inc. | $ | 62,830 | 36,828 | 232,152 | 121,363 | |||||||||
Additional information: | ||||||||||||||
Net income attributable to Nelnet, Inc. | $ | 62,830 | 36,828 | 232,152 | 121,363 | The Company provides non-GAAP information that reflects specific items management believes to be important in the evaluation of its operating results. The Company believes the point-in-time estimates of asset and liability values related to its derivatives and Euro-denominated bonds that are subject to interest and currency rate fluctuations affect the period-to-period comparability of the results of operations. These items are excluded here for comparability purposes. | ||||||||
Derivative market value and foreign currency adjustments | 9,960 | 26,224 | (47,841 | ) | 61,163 | |||||||||
Tax effect | (3,785 | ) | (9,965 | ) | 18,180 | (23,242 | ) | |||||||
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency adjustments | $ | 69,005 | 53,087 | 202,491 | 159,284 | |||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2013 | 2012 | 2013 | 2012 | Additional information | ||||||||||
Variable student loan interest margin, net of settlements on derivatives | $ | 59,100 | 47,543 | 172,797 | 142,484 | 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 | 37,810 | 34,736 | 109,582 | 109,812 | 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 | 1,562 | 1,140 | 4,662 | 3,290 | ||||||||||
Non-portfolio related derivative settlements | (256 | ) | (732 | ) | (1,413 | ) | (1,480 | ) | ||||||
Corporate debt interest expense | 18 | (2,472 | ) | (3,718 | ) | (6,327 | ) | Includes interest expense on the Junior Subordinated Hybrid Securities and unsecured and secured lines of credit. During the third quarter of 2013, the Company reversed $1.3 million of interest expense related to the resolution of certain tax positions. | ||||||
Net interest income (net of settlements on derivatives) | $ | 98,234 | 80,215 | 281,910 | 247,779 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Borrower late fee income | $ | 2,927 | 3,586 | 9,665 | 10,665 | |||||||
Investment advisory fees | 2,352 | 2,639 | 11,516 | 8,793 | ||||||||
Realized and unrealized gains/(losses) on investments, net | 1,096 | 3,993 | 2,002 | 5,830 | ||||||||
Other | 2,238 | 2,481 | 7,134 | 7,165 | ||||||||
Other income | $ | 8,613 | 12,699 | 30,317 | 32,453 |
Company owned | $23,139 | $23,727 | $22,650 | $22,277 | $21,926 | $21,504 | $21,237 | $20,820 | $20,629 | $20,715 | ||||||||||||||||||||
% of total | 61.6% | 38.6% | 29.8% | 27.1% | 25.6% | 23.2% | 21.8% | 18.5% | 17.7% | 15.3% | ||||||||||||||||||||
Number of servicing borrowers: | ||||||||||||||||||||||||||||||
Government servicing: | 441,913 | 2,804,502 | 3,036,534 | 3,096,026 | 3,137,583 | 3,588,412 | 3,892,929 | 4,261,637 | 4,396,341 | 5,145,901 | ||||||||||||||||||||
FFELP servicing: | 2,311,558 | 1,912,748 | 1,799,484 | 1,779,245 | 1,724,087 | 1,659,020 | 1,626,146 | 1,586,312 | 1,529,203 | 1,507,452 | ||||||||||||||||||||
Private servicing: | 152,200 | 155,947 | 164,554 | 163,135 | 161,763 | 175,070 | 173,948 | 170,224 | 173,588 | 178,935 | ||||||||||||||||||||
Total: | 2,905,671 | 4,873,197 | 5,000,572 | 5,038,406 | 5,023,433 | 5,422,502 | 5,693,023 | 6,018,173 | 6,099,132 | 6,832,288 | ||||||||||||||||||||
Number of remote hosted borrowers: | 684,996 | 545,456 | 9,566,296 | 8,645,463 | 7,909,300 | 7,505,693 | 6,912,204 | 5,001,695 | 3,218,896 | 1,986,866 |
Three months ended September 30, | Nine months ended September 30, | Additional information | ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Net interest income | $ | 10 | 12 | 29 | 44 | |||||||||
Loan and guaranty servicing revenue | 64,582 | 53,285 | 180,261 | 155,164 | See table below for additional analysis. | |||||||||
Intersegment servicing revenue | 13,519 | 15,855 | 42,375 | 49,210 | Represents revenue earned by the LGS operating segment as a result of servicing loans for the AGM operating segment. | |||||||||
Total other income | 78,101 | 69,140 | 222,636 | 204,374 | ||||||||||
Salaries and benefits | 29,719 | 27,716 | 86,254 | 85,663 | Increase due to additional personnel to support the increase in volume under the government servicing contract. | |||||||||
Depreciation and amortization | 2,677 | 4,691 | 8,197 | 13,629 | Intangible assets were fully amortized during 2012. Amortization expense for the three and nine months ended September 30, 2012 was $2.2 million and $6.5 million, respectively. | |||||||||
Other expenses | 19,752 | 16,775 | 56,173 | 52,980 | Increase due to additional servicing volume and collection costs incurred related to getting defaulted FFELP loan assets current on behalf of guaranty agencies. | |||||||||
Intersegment expenses, net | 1,457 | 1,262 | 3,243 | 3,832 | ||||||||||
Total operating expenses | 53,605 | 50,444 | 153,867 | 156,104 | ||||||||||
Income before income taxes and corporate overhead allocation | 24,506 | 18,708 | 68,798 | 48,314 | ||||||||||
Corporate overhead allocation | (1,822 | ) | (1,337 | ) | (4,332 | ) | (4,115 | ) | ||||||
Income before income taxes | 22,684 | 17,371 | 64,466 | 44,199 | ||||||||||
Income tax expense | (8,620 | ) | (6,601 | ) | (24,498 | ) | (16,796 | ) | ||||||
Net income | $ | 14,064 | 10,770 | 39,968 | 27,403 | |||||||||
Before tax operating margin | 29.0 | % | 25.1 | % | 29.0 | % | 21.6 | % |
Three months ended September 30, | Nine months ended September 30, | Additional information | ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
FFELP servicing | $ | 4,688 | 5,848 | 16,210 | 18,442 | Decrease will continue as third-party customers' FFELP portfolios run off. | ||||||||
Private servicing | 2,410 | 2,305 | 7,067 | 6,846 | ||||||||||
Government servicing | 25,963 | 19,140 | 68,425 | 50,063 | Increase due to an increase in the number of borrowers serviced under the government servicing contract. | |||||||||
FFELP guaranty collection | 18,639 | 14,032 | 54,299 | 43,594 | The Company earns revenue from getting defaulted FFELP loan assets current on behalf of guaranty agencies. This revenue has increased based on an increase in defaulted loan volume. However, over time, this FFELP-related revenue source will decrease as FFELP portfolios continue to run off. | |||||||||
FFELP guaranty servicing | 3,027 | 3,216 | 9,220 | 10,212 | Decrease will continue as FFELP portfolios run off and guaranty volume decreases. | |||||||||
Software services | 9,389 | 8,515 | 23,861 | 25,108 | A contract with a significant remote hosted customer expires in December 2013. The number of remote hosted borrowers and related revenue decreased from this customer in 2013 compared to the same periods in 2012 as this customer's loan volume is transferred to other servicers. The Company is receiving a portion of these transfers, which has increased the number of full-service borrowers under the Department's servicing contract. Revenue earned from this customer for the three months ended September 30, 2013 and 2012 was $2.4 million and $3.6 million, respectively, and for the nine months ended September 30, 2013 and 2012 was $6.8 million and $11.9 million, respectively. Excluding revenue from this customer, software services revenue increased due to an increase in the number of borrowers from other remote hosted customers. | |||||||||
Other | 466 | 229 | 1,179 | 899 | ||||||||||
Loan and guaranty servicing revenue | $ | 64,582 | 53,285 | 180,261 | 155,164 |
Three months ended September 30, | Nine months ended September 30, | Additional information | ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Net interest income | $ | — | 3 | — | 8 | |||||||||
Tuition payment processing and campus commerce revenue | 19,927 | 17,928 | 61,694 | 56,675 | Increase due to an increase in the number of managed tuition payment plans, campus commerce customers, and new school customers. | |||||||||
Salaries and benefits | 9,229 | 8,578 | 28,015 | 25,771 | Increase due to additional personnel to support the increase in payment plans and customers. | |||||||||
Depreciation and amortization | 1,117 | 1,703 | 3,387 | 5,174 | Certain intangible assets were fully amortized at the end of 2012. Amortization of intangible assets was $0.8 million and $1.5 million for the three months ended September 30, 2013 and 2012, respectively, and $2.5 million and $4.5 million for the nine months ended September 30, 2013 and 2012, respectively. | |||||||||
Other expenses | 1,908 | 2,285 | 6,387 | 7,557 | Implementation of electronic communications and processes has resulted in reductions in paper forms and freight which have decreased expenses. | |||||||||
Intersegment expenses, net | 1,431 | 1,379 | 4,350 | 4,042 | ||||||||||
Total operating expenses | 13,685 | 13,945 | 42,139 | 42,544 | ||||||||||
Income before income taxes and corporate overhead allocation | 6,242 | 3,986 | 19,555 | 14,139 | ||||||||||
Corporate overhead allocation | (607 | ) | (446 | ) | (1,443 | ) | (1,372 | ) | ||||||
Income before income taxes | 5,635 | 3,540 | 18,112 | 12,767 | ||||||||||
Income tax expense | (2,141 | ) | (1,345 | ) | (6,882 | ) | (4,851 | ) | ||||||
Net income | $ | 3,494 | 2,195 | 11,230 | 7,916 | |||||||||
Before tax operating margin | 28.2 | % | 19.7 | % | 29.4 | % | 22.5 | % |
Three months ended September 30, | Nine months ended September 30, | Additional information | ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Enrollment services revenue | $ | 22,563 | 30,661 | 76,343 | 92,035 | See table below for additional analysis. | ||||||||
Salaries and benefits | 4,491 | 5,147 | 15,067 | 17,587 | Decrease due to cost saving measures initiated by the Company in reaction to the ongoing decline in revenue. | |||||||||
Cost to provide enrollment services | 14,668 | 20,151 | 51,097 | 62,203 | See table below for additional analysis. | |||||||||
Depreciation and amortization | 57 | 1,633 | 179 | 4,867 | Intangible assets were fully amortized in 2012. Amortization expense for the three and nine months ended September 30, 2012 was $1.0 million and $3.0 million, respectively. | |||||||||
Other expenses | 1,556 | 1,782 | 4,450 | 5,483 | Decrease is due to cost saving measures initiated by the Company in reaction to the ongoing decline in revenue. | |||||||||
Intersegment expenses, net | 1,139 | 1,000 | 3,418 | 2,824 | ||||||||||
Total operating expenses | 21,911 | 29,713 | 74,211 | 92,964 | ||||||||||
Income (loss) before income taxes and corporate overhead allocation | 652 | 948 | 2,132 | (929 | ) | |||||||||
Corporate overhead allocation | (607 | ) | (446 | ) | (1,443 | ) | (1,372 | ) | ||||||
Income (loss) before income taxes | 45 | 502 | 689 | (2,301 | ) | |||||||||
Income tax (expense) benefit | (17 | ) | (191 | ) | (261 | ) | 874 | |||||||
Net income (loss) | $ | 28 | 311 | 428 | (1,427 | ) | ||||||||
Before tax operating margin | 0.2 | % | 1.6 | % | 0.9 | % | (2.5 | )% |
Three months ended September 30, 2013 | ||||||||||||||||||
Inquiry generation (a) | Inquiry management (agency) (a) | Inquiry management (software) | Digital marketing | Content solutions (b) | Total | |||||||||||||
Enrollment services revenue | $ | 3,186 | 13,386 | 988 | 1,016 | 3,987 | 22,563 | |||||||||||
Cost to provide enrollment services | 2,183 | 11,750 | — | 53 | 682 | 14,668 | ||||||||||||
Gross profit | $ | 1,003 | 1,636 | 988 | 963 | 3,305 | 7,895 | |||||||||||
Gross profit % | 31.5% | 12.2% | ||||||||||||||||
Three months ended September 30, 2012 | ||||||||||||||||||
Enrollment services revenue | $ | 4,479 | 18,595 | 1,116 | 1,177 | 5,294 | 30,661 | |||||||||||
Cost to provide enrollment services | 2,692 | 16,646 | — | 57 | 756 | 20,151 | ||||||||||||
Gross profit | $ | 1,787 | 1,949 | 1,116 | 1,120 | 4,538 | 10,510 | |||||||||||
Gross profit % | 39.9% | 10.5% | ||||||||||||||||
Nine months ended September 30, 2013 | ||||||||||||||||||
Enrollment services revenue | $ | 11,492 | 46,953 | 2,997 | 3,014 | 11,887 | 76,343 | |||||||||||
Cost to provide enrollment services | 7,412 | 41,602 | — | 170 | 1,913 | 51,097 | ||||||||||||
Gross profit | $ | 4,080 | 5,351 | 2,997 | 2,844 | 9,974 | 25,246 | |||||||||||
Gross profit % | 35.5% | 11.4% | ||||||||||||||||
Nine months ended September 30, 2012 | ||||||||||||||||||
Enrollment services revenue | $ | 13,880 | 57,668 | 3,233 | 3,424 | 13,830 | 92,035 | |||||||||||
Cost to provide enrollment services | 8,252 | 51,753 | — | 140 | 2,058 | 62,203 | ||||||||||||
Gross profit | $ | 5,628 | 5,915 | 3,233 | 3,284 | 11,772 | 29,832 | |||||||||||
Gross profit % | 40.5% | 10.3% |
(a) | Inquiry generation revenue decreased $1.3 million (28.9%) and $2.4 million (17.2%) and inquiry management (agency) revenue decreased $5.2 million (28.0%) and $10.7 million (18.6%) for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. Revenues from these services have been affected by the ongoing regulatory uncertainty regarding recruiting and marketing to potential students in the for-profit college industry, which has caused schools to decrease spending on marketing efforts. Additionally, clients are shifting marketing budgets to more efficient or lower cost channels, which has caused a reduction in volume. The decrease in inquiry generation gross profit margin is due to increased costs for higher quality sources and a shift in revenue from higher profit margin clients to clients with lower profit margins. |
(b) | Content solutions revenue decreased $1.3 million (24.7%) and $1.9 million (14.0%) for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012 due to the divesture of the Company's list marketing business during 2013. |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Beginning balance | $ | 24,718,368 | 23,582,595 | 24,995,880 | 24,359,625 | |||||||
Loan acquisitions | 1,053,972 | 152,016 | 2,200,756 | 898,606 | ||||||||
Repayments, claims, capitalized interest, participations, and other | (750,422 | ) | (466,355 | ) | (1,896,771 | ) | (1,345,883 | ) | ||||
Consolidation loans lost to external parties | (134,578 | ) | (590,148 | ) | (400,874 | ) | (1,172,316 | ) | ||||
Loans sold | — | (33,228 | ) | (11,651 | ) | (95,152 | ) | |||||
Ending balance | $ | 24,887,340 | 22,644,880 | 24,887,340 | 22,644,880 |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2013 | June 30, 2013 | September 30, 2012 | September 30, 2013 | September 30, 2012 | |||||||||||
Variable student loan yield, gross | 2.58 | % | 2.58 | % | 2.65 | % | 2.57 | % | 2.63 | % | |||||
Consolidation rebate fees | (0.76 | ) | (0.77 | ) | (0.75 | ) | (0.77 | ) | (0.75 | ) | |||||
Discount accretion, net of premium and deferred origination costs amortization | 0.02 | 0.03 | — | 0.03 | (0.01 | ) | |||||||||
Variable student loan yield, net | 1.84 | 1.84 | 1.90 | 1.83 | 1.87 | ||||||||||
Student loan cost of funds - interest expense | (0.89 | ) | (0.91 | ) | (1.08 | ) | (0.90 | ) | (1.10 | ) | |||||
Student loan cost of funds - derivative settlements | 0.01 | 0.01 | 0.02 | 0.01 | 0.04 | ||||||||||
Variable student loan spread | 0.96 | 0.94 | 0.84 | 0.94 | 0.81 | ||||||||||
Fixed rate floor income, net of settlements on derivatives | 0.61 | 0.58 | 0.60 | 0.59 | 0.62 | ||||||||||
Core student loan spread | 1.57 | % | 1.52 | % | 1.44 | % | 1.53 | % | 1.43 | % | |||||
Average balance of student loans | $ | 24,491,516 | 24,798,537 | 23,028,904 | 24,690,493 | 23,670,300 | |||||||||
Average balance of debt outstanding | 24,470,096 | 24,832,555 | 23,467,899 | 24,707,389 | 23,883,140 |
(a) | The interest earned on the majority 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. |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2013 | June 30, 2013 | September 30, 2012 | September 30, 2013 | September 30, 2012 | |||||||||||
Fixed rate floor income, gross | $ | 44,988 | 44,590 | 40,331 | 133,599 | 122,049 | |||||||||
Derivative settlements (a) | (7,178 | ) | (8,534 | ) | (5,595 | ) | (24,017 | ) | (12,237 | ) | |||||
Fixed rate floor income, net | $ | 37,810 | 36,056 | 34,736 | 109,582 | 109,812 | |||||||||
Fixed rate floor income contribution to spread, net | 0.61 | % | 0.58 | % | 0.60 | % | 0.59 | % | 0.62 | % |
(a) | Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income. |
Three months ended September 30, | Nine months ended September 30, | Additional information | ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Net interest income after provision for loan losses | $ | 97,693 | 80,832 | 287,120 | 237,738 | See table below for additional analysis. | ||||||||
Other income | 3,981 | 5,834 | 11,207 | 14,415 | The primary component of other income is borrower late fees, which have decreased slightly year over year. Net realized and unrealized gains from investments have also decreased in 2013 compared to 2012. | |||||||||
Gain on sale of loans and debt repurchases | 2,138 | 195 | 10,900 | 1,130 | Gain is primarily from the Company repurchasing its own asset-backed debt securities. | |||||||||
Derivative market value and foreign currency adjustments, net | (12,660 | ) | (30,694 | ) | 35,711 | (62,351 | ) | |||||||
Derivative settlements, net | (6,432 | ) | (4,319 | ) | (21,816 | ) | (5,431 | ) | 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. | |||||
Total other income | (12,973 | ) | (28,984 | ) | 36,002 | (52,237 | ) | |||||||
Salaries and benefits | 555 | 462 | 1,709 | 1,723 | ||||||||||
Other expenses | 7,939 | 3,451 | 23,375 | 10,203 | Increase due to higher third party servicing fees related to a significant amount of recent loan purchases being serviced at third parties. | |||||||||
Intersegment expenses, net | 13,705 | 16,064 | 42,955 | 49,842 | Amount includes fees paid to the LGS operating segment for the servicing of the Company’s student loan portfolio. Such amounts have decreased as the AGM portfolio serviced by LGS has run off. | |||||||||
Total operating expenses | 22,199 | 19,977 | 68,039 | 61,768 | ||||||||||
Income before income taxes and corporate overhead allocation | 62,521 | 31,871 | 255,083 | 123,733 | ||||||||||
Corporate overhead allocation | (1,302 | ) | (909 | ) | (3,095 | ) | (3,701 | ) | ||||||
Income before income taxes | 61,219 | 30,962 | 251,988 | 120,032 | ||||||||||
Income tax expense | (23,263 | ) | (11,765 | ) | (95,755 | ) | (45,610 | ) | ||||||
Net income | $ | 37,956 | 19,197 | 156,233 | 74,422 | |||||||||
Additional information: | ||||||||||||||
Net income | $ | 37,956 | 19,197 | 156,233 | 74,422 | The Company provides non-GAAP information that reflects specific items management believes to be important in the evaluation of its operating results. The Company believes the point-in-time estimates of asset and liability values related to its derivatives and Euro-denominated bonds that are subject to interest and currency rate fluctuations affect the period-to-period comparability of the results of operations. These items are excluded here for comparability purposes. | ||||||||
Derivative market value and foreign currency adjustments, net | 12,660 | 30,694 | (35,711 | ) | 62,351 | |||||||||
Tax effect | (4,811 | ) | (11,664 | ) | 13,570 | (23,693 | ) | |||||||
Net income, excluding derivative market value and foreign currency adjustments | $ | 45,805 | 38,227 | 134,092 | 113,080 |
Three months ended September 30, | Nine months ended September 30, | Additional information | ||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Variable interest income, net of settlements on derivatives | $ | 159,917 | 154,821 | 477,391 | 473,905 | Increase due to an increase in the average student loan portfolio, partially offset by a decrease in the yield earned on student loans, net of settlements on derivatives. | ||||||||
Consolidation rebate fees | (46,886 | ) | (43,348 | ) | (141,423 | ) | (132,827 | ) | Increase due to an increase in the average consolidation loan balance. | |||||
Discount accretion, net of premium and deferred origination costs amortization | 1,402 | (6,292 | ) | 4,910 | (21,181 | ) | Increase due to the Company's ongoing purchases of loans at a net discount, including $3.0 billion of loans purchased during the fourth quarter of 2012. | |||||||
Interest on bonds and notes payable | (55,333 | ) | (57,638 | ) | (168,081 | ) | (177,413 | ) | Decrease due to a decrease in the Company’s cost of funds, partially offset by an increase in average debt outstanding. | |||||
Variable student loan interest margin, net of settlements on derivatives | 59,100 | 47,543 | 172,797 | 142,484 | ||||||||||
Fixed rate floor income, net of settlements on derivatives | 37,810 | 34,736 | 109,582 | 109,812 | The high levels of fixed rate floor income earned are due to historically low interest rates. | |||||||||
Investment interest | 118 | 133 | 345 | 838 | ||||||||||
Intercompany interest | (767 | ) | (899 | ) | (2,420 | ) | (2,827 | ) | ||||||
Provision for loan losses - federally insured | (5,000 | ) | (5,000 | ) | (16,000 | ) | (18,000 | ) | ||||||
Provision for loan losses - nonfederally insured | — | — | 1,000 | — | ||||||||||
Net interest income after provision for loan losses (net of settlements on derivatives) | $ | 91,261 | 76,513 | 265,304 | 232,307 |
As of September 30, 2013 | |||||
Carrying amount | Final maturity | ||||
Bonds and notes issued in asset-backed securitizations | $ | 23,523,022 | 11/25/15 - 8/26/52 | ||
FFELP warehouse facilities | 1,277,650 | 1/17/16 - 6/12/16 | |||
Other borrowings | 61,828 | 11/14/13 - 11/11/15 | |||
$ | 24,862,500 |
As of September 30, 2013 | As of December 31, 2012 | ||||||||||||
Dollars | Percent | Dollars | Percent | ||||||||||
Fixed-rate loan assets | $ | 11,154,855 | 44.9 | % | $ | 11,271,233 | 45.1 | % | |||||
Variable-rate loan assets | 13,704,005 | 55.1 | 13,724,647 | 54.9 | |||||||||
Total | $ | 24,858,860 | 100.0 | % | $ | 24,995,880 | 100.0 | % | |||||
Fixed-rate debt instruments | $ | — | — | % | $ | — | — | % | |||||
Variable-rate debt instruments | 25,036,732 | 100.0 | 25,270,865 | 100.0 | |||||||||
Total | $ | 25,036,732 | 100.0 | % | $ | 25,270,865 | 100.0 | % |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Fixed rate floor income, gross | $ | 44,988 | 40,331 | 133,599 | 122,049 | |||||||
Derivative settlements (a) | (7,178 | ) | (5,595 | ) | (24,017 | ) | (12,237 | ) | ||||
Fixed rate floor income, net | $ | 37,810 | 34,736 | 109,582 | 109,812 |
(a) | Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income. |
Borrower/ | Estimated | |||||||||
Fixed | lender | variable | ||||||||
interest | weighted | conversion | Loan | |||||||
rate range | average yield | rate (a) | balance | |||||||
< 3.0% | 2.87 | % | 0.23 | % | $ | 1,772,119 | ||||
3.0 - 3.49% | 3.20 | % | 0.56 | % | 2,135,186 | |||||
3.5 - 3.99% | 3.65 | % | 1.01 | % | 1,944,371 | |||||
4.0 - 4.49% | 4.20 | % | 1.56 | % | 1,464,833 | |||||
4.5 - 4.99% | 4.72 | % | 2.08 | % | 842,142 | |||||
5.0 - 5.49% | 5.24 | % | 2.60 | % | 570,042 | |||||
5.5 - 5.99% | 5.67 | % | 3.03 | % | 346,790 | |||||
6.0 - 6.49% | 6.18 | % | 3.54 | % | 401,362 | |||||
6.5 - 6.99% | 6.70 | % | 4.06 | % | 365,898 | |||||
7.0 - 7.49% | 7.16 | % | 4.52 | % | 150,648 | |||||
7.5 - 7.99% | 7.71 | % | 5.07 | % | 256,097 | |||||
8.0 - 8.99% | 8.17 | % | 5.53 | % | 603,732 | |||||
> 9.0% | 9.04 | % | 6.40 | % | 301,635 | |||||
$ | 11,154,855 |
(a) | The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of September 30, 2013, the weighted average estimated variable conversion rate was 1.82% and the short-term interest rate was 19 basis points. |
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | |||||
2014 | $ | 1,750,000 | 0.71 | % | |||
2015 | 1,100,000 | 0.89 | |||||
2016 | 750,000 | 0.85 | |||||
2017 | 1,250,000 | 0.86 | |||||
$ | 4,850,000 | 0.81 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
Index | Frequency of variable resets | Assets | Debt outstanding that funded student loan assets | ||||||
1 month LIBOR (a) | Daily | $ | 23,746,273 | — | |||||
3 month Treasury bill | Daily | 1,046,304 | — | ||||||
3 month LIBOR (a) (b) | Quarterly | — | 15,207,762 | ||||||
1 month LIBOR | Monthly | — | 8,062,530 | ||||||
Auction-rate or remarketing (c) | Varies | — | 890,500 | ||||||
Asset-backed commercial paper (d) | Varies | — | 639,880 | ||||||
Other (e) | 69,923 | 61,828 | |||||||
$ | 24,862,500 | 24,862,500 |
(a) | The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes these derivatives as of September 30, 2013: |
Maturity | Notional amount | |||||
2021 | $ | 250,000 | ||||
2022 | 1,900,000 | |||||
2023 | 3,650,000 | |||||
2024 | 250,000 | |||||
2026 | 800,000 | |||||
2028 | 100,000 | |||||
2036 | 700,000 | |||||
2039 | (a) | 150,000 | ||||
2040 | (b) | 200,000 | ||||
$ | 8,000,000 | (c) |
(c) | The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2013 was one-month LIBOR plus 0.0 basis points. |
(b) | The Company has Euro-denominated notes that reprice on the EURIBOR index. The Company has entered into derivative instruments (cross-currency interest rate swaps) that convert the EURIBOR index to three-month LIBOR. As a result, these notes are reflected in the three-month LIBOR category in the above table. See “Foreign Currency Exchange Risk.” |
(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”) or through a remarketing utilizing remarketing agents (“Variable Rate Demand Notes”). As of September 30, 2013, the Company was sponsor for $671.3 million of Auction Rate Securities and $219.2 million of Variable Rate Demand Notes. |
(d) | The interest rates on certain of the Company's warehouse facilities are indexed to asset-backed commercial paper rates. |
(e) | Assets include restricted cash and investments and other assets. Debt outstanding includes other debt obligations secured by student loan assets and related collateral. |
Interest rates | Asset and funding index mismatches | ||||||||||||||||||||||||||
Change from increase of 100 basis points | Change from increase of 300 basis points | Increase of 10 basis points | Increase of 30 basis points | ||||||||||||||||||||||||
Dollars | Percent | Dollars | Percent | Dollars | Percent | Dollars | Percent | ||||||||||||||||||||
Three months ended September 30, 2013 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (17,720 | ) | (19.1 | )% | $ | (31,517 | ) | (33.7 | )% | $ | (4,021 | ) | (4.3 | )% | $ | (12,063 | ) | (12.9 | )% | |||||||
Impact of derivative settlements | 13,495 | 14.4 | 40,484 | 43.3 | 1,755 | 1.9 | 5,266 | 5.6 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (4,225 | ) | (4.7 | )% | $ | 8,967 | 9.6 | % | $ | (2,266 | ) | (2.4 | )% | $ | (6,797 | ) | (7.3 | )% | ||||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.06 | ) | $ | 0.12 | $ | (0.03 | ) | $ | (0.09 | ) | ||||||||||||||||
Three months ended September 30, 2012 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (16,272 | ) | (27.6 | )% | $ | (28,968 | ) | (49.3 | )% | $ | (5,899 | ) | (10.0 | )% | $ | (17,697 | ) | (30.1 | )% | |||||||
Impact of derivative settlements | 14,308 | 24.3 | 42,925 | 73.0 | 542 | 0.9 | 1,626 | 2.8 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (1,964 | ) | (3.3 | )% | $ | 13,957 | 23.7 | % | $ | (5,357 | ) | (9.1 | )% | $ | (16,071 | ) | (27.3 | )% | ||||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.03 | ) | $ | 0.18 | $ | (0.07 | ) | $ | (0.21 | ) | ||||||||||||||||
Nine months ended September 30, 2013 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (51,406 | ) | (14.4 | )% | $ | (89,558 | ) | (25.1 | )% | $ | (12,648 | ) | (3.6 | )% | $ | (37,943 | ) | (10.7 | )% | |||||||
Impact of derivative settlements | 47,899 | 13.4 | 143,696 | 40.3 | 4,945 | 1.4 | 14,836 | 4.2 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (3,507 | ) | (1.0 | )% | $ | 54,138 | 15.2 | % | $ | (7,703 | ) | (2.2 | )% | $ | (23,107 | ) | (6.5 | )% | ||||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.05 | ) | $ | 0.72 | $ | (0.10 | ) | $ | (0.31 | ) | ||||||||||||||||
Nine months ended September 30, 2012 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (48,817 | ) | (26.9 | )% | $ | (85,859 | ) | (47.2 | )% | $ | (17,881 | ) | (9.8 | )% | $ | (53,642 | ) | (29.5 | )% | |||||||
Impact of derivative settlements | 29,619 | 16.3 | 88,858 | 48.8 | 1,078 | 0.6 | 3,234 | 1.8 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (19,198 | ) | (10.6 | )% | $ | 2,999 | 1.6 | % | $ | (16,803 | ) | (9.2 | )% | $ | (50,408 | ) | (27.7 | )% | ||||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.25 | ) | $ | 0.04 | $ | (0.22 | ) | $ | (0.66 | ) |
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) | |||||||||
July 1 - July 31, 2013 | 110,667 | $ | 36.18 | 110,041 | 3,875,367 | ||||||||
August 1 - August 31, 2013 | 106 | 36.87 | — | 3,875,367 | |||||||||
September 1 - September 30, 2013 | 447 | 38.43 | — | 3,875,367 | |||||||||
Total | 111,220 | $ | 36.19 | 110,041 |
(a) | The total number of shares includes: (i) shares purchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares of Class A common stock purchased pursuant to the stock repurchase program included 107,614 shares in July 2013, that had been issued to the Company’s 401(k) plan and allocated to employee participant accounts pursuant to the plan’s provisions for Company matching contributions in shares of Company stock, and were purchased |
(b) | On May 9, 2012, the Company announced that its Board of Directors had authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 24, 2015. Certain share repurchases included in the table above were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. |
• | declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any of the Company’s capital stock. |
• | except as required in connection with the repayment of principal, and except for any partial payments of deferred interest that may be made through the alternative payment mechanism described in the Hybrid Securities indenture, make any payment of principal of, or interest or premium, if any, on, or repay, repurchase, or redeem any of the Company’s debt securities that rank pari passu with or junior to the Hybrid Securities. |
• | make any guarantee payments regarding any guarantee by the Company of the subordinated debt securities of any of the Company’s subsidiaries if the guarantee ranks pari passu with or junior in interest to the Hybrid Securities. |
• | pay dividends or distributions in additional shares of the Company’s capital stock. |
• | declare or pay a dividend in connection with the implementation of a shareholders’ rights plan, or issue stock under such a plan, or redeem or repurchase any rights distributed pursuant to such a plan. |
• | purchase common stock for issuance pursuant to any employee benefit plans. |
10.1* | Consulting and Services Agreement made and entered into as of May 1, 2013, by and between Nelnet, Inc., and Union Bank and Trust Company. |
10.2* | Amended and Restated Consulting and Services Agreement made and entered into as of October 1, 2013, by and between Nelnet, Inc. and Union Bank and Trust Company. |
31.1* | Certification of Chief Executive Officer Michael S. Dunlap pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* | Certification of Chief Financial Officer Terry J. Heimes pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32** | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith | |
** Furnished herewith |
NELNET, INC. | ||||
Date: | November 7, 2013 | By: | /s/ MICHAEL S. DUNLAP | |
Name: | Michael S. Dunlap | |||
Title: | Chairman and Chief Executive Officer Principal Executive Officer | |||
By: | /s/ TERRY J. HEIMES | |||
Name: | Terry J. Heimes | |||
Title: | Chief Financial Officer Principal Financial Officer and Principal Accounting Officer |