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 100 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) | |||||||
(unaudited) | |||||||
As of | As of | ||||||
June 30, 2016 | December 31, 2015 | ||||||
Assets: | |||||||
Student loans receivable (net of allowance for loan losses of $48,753 and $50,498, respectively) | $ | 26,539,604 | 28,324,552 | ||||
Cash and cash equivalents: | |||||||
Cash and cash equivalents - not held at a related party | 9,225 | 11,379 | |||||
Cash and cash equivalents - held at a related party | 50,028 | 52,150 | |||||
Total cash and cash equivalents | 59,253 | 63,529 | |||||
Investments and notes receivable | 285,996 | 303,681 | |||||
Restricted cash and investments | 964,799 | 832,624 | |||||
Restricted cash - due to customers | 132,018 | 144,771 | |||||
Accrued interest receivable | 380,140 | 383,825 | |||||
Accounts receivable (net of allowance for doubtful accounts of $1,498 and $2,003, respectively) | 41,964 | 51,345 | |||||
Goodwill | 147,312 | 146,000 | |||||
Intangible assets, net | 54,141 | 51,062 | |||||
Property and equipment, net | 96,079 | 80,482 | |||||
Other assets | 11,084 | 8,583 | |||||
Fair value of derivative instruments | 3,408 | 28,690 | |||||
Total assets | $ | 28,715,798 | 30,419,144 | ||||
Liabilities: | |||||||
Bonds and notes payable | $ | 26,399,686 | 28,105,921 | ||||
Accrued interest payable | 39,926 | 31,507 | |||||
Other liabilities | 136,181 | 169,906 | |||||
Due to customers | 132,018 | 144,771 | |||||
Fair value of derivative instruments | 101,771 | 74,881 | |||||
Total liabilities | 26,809,582 | 28,526,986 | |||||
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 31,024,230 shares and 32,476,528 shares, respectively | 310 | 325 | |||||
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,476,932 shares | 115 | 115 | |||||
Additional paid-in capital | 4,601 | — | |||||
Retained earnings | 1,894,551 | 1,881,708 | |||||
Accumulated other comprehensive (loss) earnings | (2,277 | ) | 2,284 | ||||
Total Nelnet, Inc. shareholders' equity | 1,897,300 | 1,884,432 | |||||
Noncontrolling interests | 8,916 | 7,726 | |||||
Total equity | 1,906,216 | 1,892,158 | |||||
Total liabilities and equity | $ | 28,715,798 | 30,419,144 | ||||
Supplemental information - assets and liabilities of consolidated variable interest entities: | |||||||
Student loans receivable | $ | 26,735,698 | 28,499,180 | ||||
Restricted cash and investments | 851,389 | 814,294 | |||||
Accrued interest receivable and other assets | 380,230 | 384,230 | |||||
Bonds and notes payable | (26,660,478 | ) | (28,405,133 | ) | |||
Other liabilities | (405,832 | ) | (353,607 | ) | |||
Fair value of derivative instruments, net | (44,602 | ) | (64,080 | ) | |||
Net assets of consolidated variable interest entities | $ | 856,405 | 874,884 |
NELNET, INC. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
(Dollars in thousands, except share data) | ||||||||||||
(unaudited) | ||||||||||||
Three months | Six months | |||||||||||
ended June 30, | ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Interest income: | ||||||||||||
Loan interest | $ | 184,067 | 175,835 | 374,055 | 347,779 | |||||||
Investment interest | 2,185 | 1,887 | 4,214 | 4,092 | ||||||||
Total interest income | 186,252 | 177,722 | 378,269 | 351,871 | ||||||||
Interest expense: | ||||||||||||
Interest on bonds and notes payable | 94,052 | 72,626 | 184,460 | 144,180 | ||||||||
Net interest income | 92,200 | 105,096 | 193,809 | 207,691 | ||||||||
Less provision for loan losses | 2,000 | 2,150 | 4,500 | 4,150 | ||||||||
Net interest income after provision for loan losses | 90,200 | 102,946 | 189,309 | 203,541 | ||||||||
Other income: | ||||||||||||
Loan and guaranty servicing revenue | 54,402 | 63,833 | 106,732 | 121,644 | ||||||||
Tuition payment processing, school information, and campus commerce revenue | 30,483 | 27,686 | 69,140 | 62,366 | ||||||||
Communications revenue | 4,478 | — | 8,824 | — | ||||||||
Enrollment services revenue | — | 12,680 | 4,326 | 26,053 | ||||||||
Other income | 9,765 | 11,985 | 23,559 | 23,393 | ||||||||
Gain on sale of loans and debt repurchases | — | 1,515 | 101 | 4,390 | ||||||||
Derivative market value and foreign currency adjustments and derivative settlements, net | (40,702 | ) | 6,502 | (69,392 | ) | 3,424 | ||||||
Total other income | 58,426 | 124,201 | 143,290 | 241,270 | ||||||||
Operating expenses: | ||||||||||||
Salaries and benefits | 60,923 | 58,787 | 124,165 | 119,837 | ||||||||
Depreciation and amortization | 8,183 | 6,501 | 15,823 | 12,163 | ||||||||
Loan servicing fees | 7,216 | 7,420 | 14,144 | 15,036 | ||||||||
Cost to provide communications services | 1,681 | — | 3,384 | — | ||||||||
Cost to provide enrollment services | — | 10,395 | 3,623 | 21,194 | ||||||||
Other expenses | 29,409 | 32,725 | 57,783 | 62,826 | ||||||||
Total operating expenses | 107,412 | 115,828 | 218,922 | 231,056 | ||||||||
Income before income taxes | 41,214 | 111,319 | 113,677 | 213,755 | ||||||||
Income tax expense | 15,036 | 40,356 | 39,469 | 77,986 | ||||||||
Net income | 26,178 | 70,963 | 74,208 | 135,769 | ||||||||
Net income attributable to noncontrolling interests | 28 | 54 | 97 | 95 | ||||||||
Net income attributable to Nelnet, Inc. | $ | 26,150 | 70,909 | 74,111 | 135,674 | |||||||
Earnings per common share: | ||||||||||||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted | $ | 0.61 | 1.54 | 1.73 | 2.94 | |||||||
Weighted average common shares outstanding - basic and diluted | 42,635,700 | 45,946,415 | 42,861,896 | 46,127,207 |
NELNET, INC. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||
(Dollars in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Three months | Six months | |||||||||||
ended June 30, | ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Net income | $ | 26,178 | 70,963 | 74,208 | 135,769 | |||||||
Other comprehensive loss: | ||||||||||||
Available-for-sale securities: | ||||||||||||
Unrealized holding losses arising during period, net | (6,138 | ) | (436 | ) | (7,648 | ) | (649 | ) | ||||
Reclassification adjustment for losses (gains) recognized in net income, net | 277 | (2,093 | ) | 409 | (2,297 | ) | ||||||
Income tax effect | 2,168 | 940 | 2,678 | 1,094 | ||||||||
Total other comprehensive loss | (3,693 | ) | (1,589 | ) | (4,561 | ) | (1,852 | ) | ||||
Comprehensive income | 22,485 | 69,374 | 69,647 | 133,917 | ||||||||
Comprehensive income attributable to noncontrolling interests | 28 | 54 | 97 | 95 | ||||||||
Comprehensive income attributable to Nelnet, Inc. | $ | 22,457 | 69,320 | 69,550 | 133,822 |
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 (loss) earnings | Noncontrolling interests | Total equity | ||||||||||||||||||||||||
Class A | Class B | ||||||||||||||||||||||||||||||||
Balance as of March 31, 2015 | — | 34,713,065 | 11,486,932 | $ | — | 347 | 115 | 13,177 | 1,762,711 | 4,872 | 271 | 1,781,493 | |||||||||||||||||||||
Issuance of noncontrolling interests | — | — | — | — | — | — | — | — | — | 19 | 19 | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 70,909 | — | 54 | 70,963 | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (1,589 | ) | — | (1,589 | ) | ||||||||||||||||||||
Distribution to noncontrolling interests | — | — | — | — | — | — | — | — | — | (44 | ) | (44 | ) | ||||||||||||||||||||
Cash dividend on Class A and Class B common stock - $0.10 per share | — | — | — | — | — | — | — | (4,559 | ) | — | — | (4,559 | ) | ||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | 9,616 | — | — | — | — | 945 | — | — | — | 945 | ||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 1,353 | — | — | — | 1,353 | ||||||||||||||||||||||
Repurchase of common stock | — | (998,210 | ) | — | — | (10 | ) | — | (15,475 | ) | (27,604 | ) | — | — | (43,089 | ) | |||||||||||||||||
Balance as of June 30, 2015 | — | 33,724,471 | 11,486,932 | $ | — | 337 | 115 | — | 1,801,457 | 3,283 | 300 | 1,805,492 | |||||||||||||||||||||
Balance as of March 31, 2016 | — | 31,008,226 | 11,476,932 | $ | — | 310 | 115 | 2,913 | 1,873,500 | 1,416 | 8,672 | 1,886,926 | |||||||||||||||||||||
Issuance of noncontrolling interests | — | — | — | — | — | — | — | — | — | 338 | 338 | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 26,150 | — | 28 | 26,178 | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (3,693 | ) | — | (3,693 | ) | ||||||||||||||||||||
Distribution to noncontrolling interests | — | — | — | — | — | — | — | — | — | (122 | ) | (122 | ) | ||||||||||||||||||||
Cash dividend on Class A and Class B common stock - $0.12 per share | — | — | — | — | — | — | — | (5,099 | ) | — | — | (5,099 | ) | ||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | 27,946 | — | — | — | — | 954 | — | — | — | 954 | ||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 1,133 | — | — | — | 1,133 | ||||||||||||||||||||||
Repurchase of common stock | — | (11,942 | ) | — | — | — | — | (399 | ) | — | — | (399 | ) | ||||||||||||||||||||
Balance as of June 30, 2016 | — | 31,024,230 | 11,476,932 | $ | — | 310 | 115 | 4,601 | 1,894,551 | (2,277 | ) | 8,916 | 1,906,216 | ||||||||||||||||||||
Balance as of December 31, 2014 | — | 34,756,384 | 11,486,932 | $ | — | 348 | 115 | 17,290 | 1,702,560 | 5,135 | 230 | 1,725,678 | |||||||||||||||||||||
Issuance of noncontrolling interests | — | — | — | — | — | — | — | — | — | 19 | 19 | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 135,674 | — | 95 | 135,769 | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (1,852 | ) | — | (1,852 | ) | ||||||||||||||||||||
Distribution to noncontrolling interests | — | — | — | — | — | — | — | — | — | (44 | ) | (44 | ) | ||||||||||||||||||||
Cash dividends on Class A and Class B common stock - $0.20 per share | — | — | — | — | — | — | — | (9,173 | ) | — | — | (9,173 | ) | ||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | 142,095 | — | — | 1 | — | 3,411 | — | — | — | 3,412 | ||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 2,711 | — | — | — | 2,711 | ||||||||||||||||||||||
Repurchase of common stock | — | (1,174,008 | ) | — | — | (12 | ) | — | (23,412 | ) | (27,604 | ) | — | — | (51,028 | ) | |||||||||||||||||
Balance as of June 30, 2015 | — | 33,724,471 | 11,486,932 | $ | — | 337 | 115 | — | 1,801,457 | 3,283 | 300 | 1,805,492 | |||||||||||||||||||||
Balance as of December 31, 2015 | — | 32,476,528 | 11,476,932 | $ | — | 325 | 115 | — | 1,881,708 | 2,284 | 7,726 | 1,892,158 | |||||||||||||||||||||
Issuance of noncontrolling interests | — | — | — | — | — | — | — | — | — | 1,312 | 1,312 | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 74,111 | — | 97 | 74,208 | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (4,561 | ) | — | (4,561 | ) | ||||||||||||||||||||
Distribution to noncontrolling interests | — | — | — | — | — | — | — | — | — | (219 | ) | (219 | ) | ||||||||||||||||||||
Cash dividends on Class A and Class B common stock - $0.24 per share | — | — | — | — | — | — | — | (10,192 | ) | — | — | (10,192 | ) | ||||||||||||||||||||
Issuance of common stock, net of forfeitures | — | 158,743 | — | — | 1 | — | 3,661 | — | — | — | 3,662 | ||||||||||||||||||||||
Compensation expense for stock based awards | — | — | — | — | — | — | 2,316 | — | — | — | 2,316 | ||||||||||||||||||||||
Repurchase of common stock | — | (1,611,041 | ) | — | — | (16 | ) | — | (1,376 | ) | (51,076 | ) | — | — | (52,468 | ) | |||||||||||||||||
Balance as of June 30, 2016 | — | 31,024,230 | 11,476,932 | $ | — | 310 | 115 | 4,601 | 1,894,551 | (2,277 | ) | 8,916 | 1,906,216 |
NELNET, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(Dollars in thousands) | ||||||
(unaudited) | ||||||
Six months | ||||||
ended June 30, | ||||||
2016 | 2015 | |||||
Net income attributable to Nelnet, Inc. | $ | 74,111 | 135,674 | |||
Net income attributable to noncontrolling interests | 97 | 95 | ||||
Net income | 74,208 | 135,769 | ||||
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: | ||||||
Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs | 62,298 | 60,191 | ||||
Student loan discount accretion | (21,524 | ) | (21,506 | ) | ||
Provision for loan losses | 4,500 | 4,150 | ||||
Derivative market value adjustment | 48,649 | 19,457 | ||||
Foreign currency transaction adjustment | 8,712 | (33,538 | ) | |||
Proceeds from termination of derivative instruments | 3,523 | 51,947 | ||||
Payment to enter into interest rate caps | — | (585 | ) | |||
Gain on sale of loans | — | (351 | ) | |||
Gain from debt repurchases | (101 | ) | (4,039 | ) | ||
Loss (gain) from sales of available-for-sale securities, net | 409 | (2,297 | ) | |||
Payments for purchases of trading securities, net | (235 | ) | (11,697 | ) | ||
Deferred income tax (benefit) expense | (20,260 | ) | 3,119 | |||
Other | 6,069 | 6,376 | ||||
Decrease (increase) in accrued interest receivable | 3,685 | (743 | ) | |||
Decrease (increase) in accounts receivable | 9,462 | (10,341 | ) | |||
Increase in other assets | (2,579 | ) | (1,967 | ) | ||
Increase in accrued interest payable | 8,419 | 2,566 | ||||
Decrease in other liabilities | (10,006 | ) | (4,526 | ) | ||
Net cash provided by operating activities | 175,229 | 191,985 | ||||
Cash flows from investing activities, net of acquisitions: | ||||||
Purchases of student loans and student loan residual interests | (183,375 | ) | (1,637,650 | ) | ||
Net proceeds from student loan repayments, claims, capitalized interest, and other | 1,927,319 | 1,953,437 | ||||
Proceeds from sale of student loans | 44,738 | 3,996 | ||||
Purchases of available-for-sale securities | (51,735 | ) | (5,550 | ) | ||
Proceeds from sales of available-for-sale securities | 58,232 | 47,951 | ||||
Purchases of investments and issuance of notes receivable | (10,222 | ) | (53,770 | ) | ||
Proceeds from investments and notes receivable | 5,360 | 8,824 | ||||
Purchases of property and equipment, net | (29,577 | ) | (9,519 | ) | ||
(Increase) decrease in restricted cash and investments, net | (131,325 | ) | 16,532 | |||
Net cash provided by investing activities | 1,629,415 | 324,251 | ||||
Cash flows from financing activities: | ||||||
Payments on bonds and notes payable | (1,972,880 | ) | (2,629,565 | ) | ||
Proceeds from issuance of bonds and notes payable | 226,194 | 2,233,630 | ||||
Payments of debt issuance costs | (1,084 | ) | (8,707 | ) | ||
Dividends paid | (10,192 | ) | (9,173 | ) | ||
Repurchases of common stock | (52,468 | ) | (51,028 | ) | ||
Proceeds from issuance of common stock | 417 | 431 | ||||
Issuance of noncontrolling interests | 1,312 | 19 | ||||
Distribution to noncontrolling interests | (219 | ) | (44 | ) | ||
Net cash used in financing activities | (1,808,920 | ) | (464,437 | ) | ||
Net (decrease) increase in cash and cash equivalents | (4,276 | ) | 51,799 | |||
Cash and cash equivalents, beginning of period | 63,529 | 130,481 | ||||
Cash and cash equivalents, end of period | $ | 59,253 | 182,280 | |||
Cash disbursements made for: | ||||||
Interest | $ | 142,446 | 108,436 | |||
Income taxes, net of refunds | $ | 55,988 | 67,211 | |||
Noncash activity: | ||||||
Investing activity - student loans and other assets acquired | $ | — | 517,845 | |||
Financing activity - borrowings and other liabilities assumed in acquisition of student loans | $ | — | 451,845 |
• | In April 2015, the Financial Accounting Standards Board ("FASB") issued accounting guidance regarding the presentation of debt issuance costs. The new guidance requires that entities present debt issuance costs related to a debt liability as a direct deduction from that liability on the balance sheet. This guidance became effective for the Company beginning January 1, 2016. As a result of this standard, the Company reclassified its debt issuance costs, which were previously included in "other assets" on the consolidated balance sheet, to "bonds and notes payable." |
• | On February 1, 2016, the Company sold 100 percent of the membership interests in Sparkroom LLC, which includes the majority of the Company's inquiry management products and services within Nelnet Enrollment Solutions. The Company retained the digital marketing and content solution products and services under the brand name Peterson's within the Nelnet Enrollment Solutions business, which include test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning information and guides, and on-line information about colleges and universities. The Company reclassified the revenue and cost of goods sold attributable to the Peterson's products and services from "enrollment services revenue" and "cost to provide enrollment services" to "other income" and "other expenses," respectively, on the consolidated statements of income. After this reclassification, "enrollment services revenue" and "cost to provide enrollment services" include the operating results of the products and services sold as part of the Sparkroom disposition for all periods presented. These reclassifications had no effect on consolidated net income. |
As of | As of | |||||
June 30, 2016 | December 31, 2015 | |||||
Federally insured loans: | ||||||
Stafford and other | $ | 5,629,034 | 6,202,064 | |||
Consolidation | 20,837,356 | 22,086,043 | ||||
Total | 26,466,390 | 28,288,107 | ||||
Private education loans | 288,170 | 267,642 | ||||
26,754,560 | 28,555,749 | |||||
Loan discount, net of unamortized loan premiums and deferred origination costs (a) | (166,203 | ) | (180,699 | ) | ||
Allowance for loan losses – federally insured loans | (33,224 | ) | (35,490 | ) | ||
Allowance for loan losses – private education loans | (15,529 | ) | (15,008 | ) | ||
$ | 26,539,604 | 28,324,552 |
(a) | As of June 30, 2016 and December 31, 2015, "loan discount, net of unamortized loan premiums and deferred origination costs" included $26.2 million and $33.0 million, respectively, of non-accretable discount associated with purchased loans of $10.1 billion and $10.8 billion, respectively. |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Balance at beginning of period | $ | 50,084 | 51,161 | 50,498 | 48,900 | |||||||
Provision for loan losses: | ||||||||||||
Federally insured loans | 2,000 | 2,000 | 4,000 | 4,000 | ||||||||
Private education loans | — | 150 | 500 | 150 | ||||||||
Total provision for loan losses | 2,000 | 2,150 | 4,500 | 4,150 | ||||||||
Charge-offs: | ||||||||||||
Federally insured loans | (3,217 | ) | (3,259 | ) | (6,266 | ) | (6,408 | ) | ||||
Private education loans | (514 | ) | (446 | ) | (915 | ) | (1,122 | ) | ||||
Total charge-offs | (3,731 | ) | (3,705 | ) | (7,181 | ) | (7,530 | ) | ||||
Recoveries - private education loans | 250 | 238 | 526 | 492 | ||||||||
Purchase (sale) of federally insured and private education loans, net | 100 | — | 260 | (230 | ) | |||||||
Transfer from repurchase obligation related to private education loans repurchased, net | 50 | 180 | 150 | 4,242 | ||||||||
Balance at end of period | $ | 48,753 | 50,024 | 48,753 | 50,024 | |||||||
Allocation of the allowance for loan losses: | ||||||||||||
Federally insured loans | $ | 33,224 | 36,762 | 33,224 | 36,762 | |||||||
Private education loans | 15,529 | 13,262 | 15,529 | 13,262 | ||||||||
Total allowance for loan losses | $ | 48,753 | 50,024 | 48,753 | 50,024 |
As of June 30, 2016 | As of December 31, 2015 | As of June 30, 2015 | ||||||||||||||||||
Federally insured loans: | ||||||||||||||||||||
Loans in-school/grace/deferment | $ | 1,936,064 | $ | 2,292,941 | $ | 2,634,088 | ||||||||||||||
Loans in forbearance | 2,672,241 | 2,979,357 | 3,118,774 | |||||||||||||||||
Loans in repayment status: | ||||||||||||||||||||
Loans current | 18,957,457 | 86.7 | % | 19,447,541 | 84.4 | % | 19,055,994 | 85.2 | % | |||||||||||
Loans delinquent 31-60 days | 828,885 | 3.8 | 1,028,396 | 4.5 | 950,055 | 4.2 | ||||||||||||||
Loans delinquent 61-90 days | 482,379 | 2.2 | 566,953 | 2.5 | 612,657 | 2.7 | ||||||||||||||
Loans delinquent 91-120 days | 320,213 | 1.5 | 415,747 | 1.8 | 355,636 | 1.6 | ||||||||||||||
Loans delinquent 121-270 days | 918,788 | 4.2 | 1,166,940 | 5.1 | 1,051,843 | 4.7 | ||||||||||||||
Loans delinquent 271 days or greater | 350,363 | 1.6 | 390,232 | 1.7 | 359,601 | 1.6 | ||||||||||||||
Total loans in repayment | 21,858,085 | 100.0 | % | 23,015,809 | 100.0 | % | 22,385,786 | 100.0 | % | |||||||||||
Total federally insured loans | $ | 26,466,390 | $ | 28,288,107 | $ | 28,138,648 | ||||||||||||||
Private education loans: | ||||||||||||||||||||
Loans in-school/grace/deferment | $ | 54,597 | $ | 30,795 | $ | 5,268 | ||||||||||||||
Loans in forbearance | 1,610 | 350 | 142 | |||||||||||||||||
Loans in repayment status: | ||||||||||||||||||||
Loans current | 225,585 | 97.2 | % | 228,464 | 96.7 | % | 161,355 | 95.0 | % | |||||||||||
Loans delinquent 31-60 days | 1,361 | 0.6 | 1,771 | 0.7 | 1,407 | 0.8 | ||||||||||||||
Loans delinquent 61-90 days | 929 | 0.4 | 1,283 | 0.5 | 1,647 | 1.0 | ||||||||||||||
Loans delinquent 91 days or greater | 4,088 | 1.8 | 4,979 | 2.1 | 5,383 | 3.2 | ||||||||||||||
Total loans in repayment | 231,963 | 100.0 | % | 236,497 | 100.0 | % | 169,792 | 100.0 | % | |||||||||||
Total private education loans | $ | 288,170 | $ | 267,642 | $ | 175,202 |
As of June 30, 2016 | |||||||
Carrying amount | Interest rate range | Final maturity | |||||
Variable-rate bonds and notes issued in asset-backed securitizations: | |||||||
Bonds and notes based on indices | $ | 23,418,478 | 0.30% - 6.90% | 8/26/19 - 8/26/52 | |||
Bonds and notes based on auction | 1,158,415 | 1.26% - 2.21% | 3/22/32 - 11/26/46 | ||||
Total variable-rate bonds and notes | 24,576,893 | ||||||
FFELP warehouse facilities | 1,811,708 | 0.46% - 0.80% | 7/9/18 - 4/26/19 | ||||
Private education loan warehouse facility | 221,114 | 0.81% | 4/28/17 | ||||
Unsecured line of credit | 105,000 | 1.94% - 1.95% | 10/30/20 | ||||
Unsecured debt - Junior Subordinated Hybrid Securities | 57,184 | 4.01% | 9/15/61 | ||||
Other borrowings | 93,355 | 1.97% - 3.38% | 10/31/16 - 12/15/45 | ||||
26,865,254 | |||||||
Discount on bonds and notes payable and debt issuance costs, net | (465,568 | ) | |||||
Total | $ | 26,399,686 |
As of December 31, 2015 | |||||||
Carrying amount | Interest rate range | Final maturity | |||||
Variable-rate bonds and notes issued in asset-backed securitizations: | |||||||
Bonds and notes based on indices | $ | 25,155,336 | 0.05% - 6.90% | 8/26/19 - 8/26/52 | |||
Bonds and notes based on auction | 1,160,365 | 0.88% - 2.17% | 3/22/32 - 11/26/46 | ||||
Total variable-rate bonds and notes | 26,315,701 | ||||||
FFELP warehouse facilities | 1,855,907 | 0.27% - 0.56% | 4/29/18 - 12/14/18 | ||||
Private education loan warehouse facility | 181,184 | 0.57% | 12/26/16 | ||||
Unsecured line of credit | 100,000 | 1.79% - 1.92% | 10/30/20 | ||||
Unsecured debt - Junior Subordinated Hybrid Securities | 57,184 | 3.99% | 9/15/61 | ||||
Other borrowings | 93,355 | 1.93% - 3.38% | 10/31/16 - 12/15/45 | ||||
28,603,331 | |||||||
Discount on bonds and notes payable and debt issuance costs, net | (497,410 | ) | |||||
Total | $ | 28,105,921 |
NFSLW-I (a) | NHELP-II | NHELP-III | Total | |||||||||||
Maximum financing amount | $ | 875,000 | 500,000 | 750,000 | 2,125,000 | |||||||||
Amount outstanding | 844,087 | 455,049 | 512,572 | 1,811,708 | ||||||||||
Amount available | $ | 30,913 | 44,951 | 237,428 | 313,292 | |||||||||
Expiration of liquidity provisions | July 8, 2016 | December 16, 2016 | April 28, 2017 | |||||||||||
Final maturity date | July 9, 2018 | December 14, 2018 | April 26, 2019 | |||||||||||
Maximum advance rates | 92.0 - 98.0% | 85.0 - 95.0% | 92.2 - 95.0% | |||||||||||
Minimum advance rates | 84.0 - 90.0% | 85.0 - 95.0% | 92.2 - 95.0% | |||||||||||
Advanced as equity support | $ | 36,663 | 38,051 | 30,694 | 105,408 |
(a) | On July 10, 2015, the Company amended the agreement for this warehouse facility to temporarily increase the maximum financing amount to $875.0 million. The maximum financing amount was scheduled to decrease by $125.0 million on March 31, 2016. On January 26, 2016, the Company amended the agreement for this warehouse facility to extend the scheduled decrease of the maximum financing amount by $125.0 million to July 8, 2016. On July 7, 2016, the Company amended the agreement for this warehouse facility to permanently set the maximum financing amount at $875.0 million, and changed the expiration of liquidity provisions to July 10, 2018 and the final maturity date to September 7, 2018. |
As of June 30, | As of December 31, | |||||||
2016 | 2015 | |||||||
Maturity | Notional amount | Notional amount | ||||||
2016 | $ | 2,000,000 | $ | 7,500,000 | ||||
2028 | 125,000 | — |
As of June 30, 2016 | As of December 31, 2015 | |||||||||||||
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | Notional amount | Weighted average fixed rate paid by the Company (a) | ||||||||||
2016 | $ | 750,000 | 0.72 | % | $ | 1,000,000 | 0.76 | % | ||||||
2017 | 1,000,000 | 0.97 | 2,100,000 | 0.84 | ||||||||||
2018 | 1,600,000 | 1.08 | 1,600,000 | 1.08 | ||||||||||
2019 | 3,250,000 | 0.97 | 500,000 | 1.12 | ||||||||||
2020 | 1,500,000 | 1.01 | — | — | ||||||||||
2025 | 100,000 | 2.32 | 100,000 | 2.32 | ||||||||||
2026 | 50,000 | 1.52 | — | — | ||||||||||
$ | 8,250,000 | 0.99 | % | $ | 5,300,000 | 0.95 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | |||||
2036 | $ | 25,000 | 4.28 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Re-measurement of Euro Notes | $ | 9,768 | (14,671 | ) | (8,712 | ) | 33,538 | |||||
Change in fair value of cross-currency interest rate swap | (12,008 | ) | 13,933 | 20,693 | (35,873 | ) | ||||||
Total impact to consolidated statements of income - income (expense) (a) | $ | (2,240 | ) | (738 | ) | 11,981 | (2,335 | ) |
(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 | |||||||||
June 30, 2016 | December 31, 2015 | June 30, 2016 | December 31, 2015 | |||||||||
1:3 basis swaps | $ | 623 | 724 | 127 | 410 | |||||||
Interest rate swaps - floor income hedges | 27 | 21,408 | 42,791 | 1,175 | ||||||||
Interest rate swap option - floor income hedge | 986 | 3,257 | — | — | ||||||||
Interest rate swaps - hybrid debt hedges | — | — | 11,660 | 7,646 | ||||||||
Interest rate caps | 355 | 1,570 | — | — | ||||||||
Cross-currency interest rate swap | — | — | 44,957 | 65,650 | ||||||||
Other | 1,417 | 1,731 | 2,236 | — | ||||||||
Total | $ | 3,408 | 28,690 | 101,771 | 74,881 |
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 pledged | Net asset (liability) | |||||||||
Balance as of June 30, 2016 | $ | 3,408 | (3,053 | ) | — | 355 | |||||||
Balance as of December 31, 2015 | 28,690 | (851 | ) | 1,632 | 29,471 |
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/received, net | Net asset (liability) | |||||||||
Balance as of June 30, 2016 | $ | (101,771 | ) | 3,053 | 90,170 | (8,548 | ) | ||||||
Balance as of December 31, 2015 | (74,881 | ) | 851 | 13,168 | (60,862 | ) |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Settlements: | ||||||||||||
1:3 basis swaps | $ | 743 | 123 | 414 | 389 | |||||||
Interest rate swaps - floor income hedges | (4,841 | ) | (5,019 | ) | (10,084 | ) | (10,034 | ) | ||||
Interest rate swaps - hybrid debt hedges | (231 | ) | (253 | ) | (463 | ) | (505 | ) | ||||
Cross-currency interest rate swap | (1,166 | ) | (293 | ) | (1,898 | ) | (507 | ) | ||||
Total settlements - expense | (5,495 | ) | (5,442 | ) | (12,031 | ) | (10,657 | ) | ||||
Change in fair value: | ||||||||||||
1:3 basis swaps | (586 | ) | 1,428 | 183 | 12,398 | |||||||
Interest rate swaps - floor income hedges | (27,276 | ) | 7,534 | (59,985 | ) | 2,662 | ||||||
Interest rate swap option - floor income hedge | (856 | ) | 1,381 | (2,272 | ) | 470 | ||||||
Interest rate swaps - hybrid debt hedges | (1,464 | ) | 2,540 | (4,014 | ) | 1,087 | ||||||
Interest rate caps | (453 | ) | (201 | ) | (1,215 | ) | (201 | ) | ||||
Cross-currency interest rate swap | (12,008 | ) | 13,933 | 20,693 | (35,873 | ) | ||||||
Other | (2,332 | ) | — | (2,039 | ) | — | ||||||
Total change in fair value - (expense) income | (44,975 | ) | 26,615 | (48,649 | ) | (19,457 | ) | |||||
Re-measurement of Euro Notes (foreign currency transaction adjustment) - income (expense) | 9,768 | (14,671 | ) | (8,712 | ) | 33,538 | ||||||
Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense) | $ | (40,702 | ) | 6,502 | (69,392 | ) | 3,424 |
As of June 30, 2016 | As of December 31, 2015 | ||||||||||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses (a) | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||||||||
Investments (at fair value): | |||||||||||||||||||||||||
Available-for-sale investments: | |||||||||||||||||||||||||
Student loan asset-backed and other debt securities (b) | $ | 133,190 | 1,091 | (6,432 | ) | 127,849 | 139,970 | 3,402 | (1,362 | ) | 142,010 | ||||||||||||||
Equity securities | 720 | 1,797 | (69 | ) | 2,448 | 846 | 1,686 | (100 | ) | 2,432 | |||||||||||||||
Total available-for-sale investments | $ | 133,910 | 2,888 | (6,501 | ) | 130,297 | 140,816 | 5,088 | (1,462 | ) | 144,442 | ||||||||||||||
Trading investments: | |||||||||||||||||||||||||
Student loan asset-backed securities | 5,867 | 6,045 | |||||||||||||||||||||||
Equity securities | 5,318 | 4,905 | |||||||||||||||||||||||
Total trading investments | 11,185 | 10,950 | |||||||||||||||||||||||
Total available-for-sale and trading investments | 141,482 | 155,392 | |||||||||||||||||||||||
Other Investments and Notes Receivable (not measured at fair value): | |||||||||||||||||||||||||
Venture capital and funds | 65,778 | 63,323 | |||||||||||||||||||||||
Real estate | 48,586 | 50,463 | |||||||||||||||||||||||
Notes receivable | 17,206 | 18,473 | |||||||||||||||||||||||
Tax liens and affordable housing | 12,944 | 16,030 | |||||||||||||||||||||||
Total investments and notes receivable | $ | 285,996 | 303,681 |
(a) | As of June 30, 2016, 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 June 30, 2016, 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. |
Cash and cash equivalents | $ | 334 | ||
Restricted cash and investments | 850 | |||
Accounts receivable | 1,935 | |||
Property and equipment | 32,479 | |||
Other assets | 371 | |||
Intangible assets | 11,410 | |||
Excess cost over fair value of net assets acquired (goodwill) | 21,112 | |||
Other liabilities | (4,587 | ) | ||
Bonds and notes payable | (13,904 | ) | ||
Net assets acquired | 50,000 | |||
Minority interest | (3,750 | ) | ||
Total consideration paid by the Company | $ | 46,250 |
Weighted average remaining useful life as of June 30, 2016 (months) | As of June 30, 2016 | As of December 31, 2015 | ||||||
Amortizable intangible assets: | ||||||||
Customer relationships (net of accumulated amortization of $5,949 and $4,028, respectively) | 171 | $ | 30,935 | 27,576 | ||||
Computer software (net of accumulated amortization of $6,820 and $4,397, respectively) | 31 | 12,128 | 11,601 | |||||
Trade names (net of accumulated amortization of $1,224 and $795, respectively) | 195 | 10,348 | 10,687 | |||||
Content (net of accumulated amortization of $1,350 and $900, respectively) | 6 | 450 | 900 | |||||
Covenants not to compete (net of accumulated amortization of $74 and $56, respectively) | 95 | 280 | 298 | |||||
Total - amortizable intangible assets | 143 | $ | 54,141 | 51,062 |
2016 (July 1 - December 31) | $ | 6,328 | |
2017 | 9,386 | ||
2018 | 8,605 | ||
2019 | 5,147 | ||
2020 | 4,231 | ||
2021 and thereafter | 20,444 | ||
$ | 54,141 |
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Total | |||||||||||||
Balance as of December 31, 2015 | $ | 8,596 | 67,168 | 19,800 | 41,883 | 8,553 | 146,000 | |||||||||||
Allo purchase price adjustment | — | — | 1,312 | — | — | 1,312 | ||||||||||||
Balance as of March 31, 2016 | 8,596 | 67,168 | 21,112 | 41,883 | 8,553 | 147,312 | ||||||||||||
Allo purchase price adjustment | — | — | — | — | — | — | ||||||||||||
Balance as of June 30, 2016 | $ | 8,596 | 67,168 | 21,112 | 41,883 | 8,553 | 147,312 |
As of | As of | |||||||
Useful life | June 30, 2016 | December 31, 2015 | ||||||
Non-communications: | ||||||||
Computer equipment and software | 1-5 years | $ | 95,113 | 89,093 | ||||
Office furniture and equipment | 3-7 years | 12,576 | 12,638 | |||||
Building and building improvements | 5-39 years | 12,244 | 12,239 | |||||
Transportation equipment | 4-10 years | 3,868 | 3,868 | |||||
Leasehold improvements | 5-20 years | 3,342 | 3,545 | |||||
Land | — | 827 | 700 | |||||
Construction in progress | — | 9,986 | 1,210 | |||||
137,956 | 123,293 | |||||||
Accumulated depreciation - non-communications | 84,583 | 77,188 | ||||||
Non-communications, net property and equipment | 53,373 | 46,105 | ||||||
Communications: | ||||||||
Network plant and fiber | 5-15 years | 26,382 | 25,669 | |||||
Central office | 5-15 years | 4,376 | 909 | |||||
Customer located property | 5-10 years | 3,823 | 6,912 | |||||
Transportation equipment | 4-10 years | 1,296 | 470 | |||||
Computer equipment and software | 1-5 years | 752 | 74 | |||||
Other | 1-20 years | 625 | 343 | |||||
Land | — | 70 | — | |||||
Construction in progress | — | 7,192 | — | |||||
44,516 | 34,377 | |||||||
Accumulated depreciation - communications | 1,810 | — | ||||||
Communications, net property and equipment | 42,706 | 34,377 | ||||||
Total property and equipment, net | $ | 96,079 | 80,482 |
Three months ended June 30, | ||||||||||||||||||
2016 | 2015 | |||||||||||||||||
Common shareholders | Unvested restricted stock shareholders | Total | Common shareholders | Unvested restricted stock shareholders | Total | |||||||||||||
Numerator: | ||||||||||||||||||
Net income attributable to Nelnet, Inc. | $ | 25,879 | 271 | 26,150 | 70,146 | 763 | 70,909 | |||||||||||
Denominator: | ||||||||||||||||||
Weighted-average common shares outstanding - basic and diluted | 42,193,769 | 441,931 | 42,635,700 | 45,451,888 | 494,527 | 45,946,415 | ||||||||||||
Earnings per share - basic and diluted | $ | 0.61 | 0.61 | 0.61 | 1.54 | 1.54 | 1.54 | |||||||||||
Six months ended June 30, | ||||||||||||||||||
2016 | 2015 | |||||||||||||||||
Common shareholders | Unvested restricted stock shareholders | Total | Common shareholders | Unvested restricted stock shareholders | Total | |||||||||||||
Numerator: | ||||||||||||||||||
Net income attributable to Nelnet, Inc. | $ | 73,334 | 777 | 74,111 | 134,227 | 1,447 | 135,674 | |||||||||||
Denominator: | ||||||||||||||||||
Weighted-average common shares outstanding - basic and diluted | 42,412,287 | 449,609 | 42,861,896 | 45,635,155 | 492,052 | 46,127,207 | ||||||||||||
Earnings per share - basic and diluted | $ | 1.73 | 1.73 | 1.73 | 2.94 | 2.94 | 2.94 |
Three months ended June 30, 2016 | |||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 22 | 3 | — | 184,966 | 2,064 | (802 | ) | 186,252 | ||||||||||||
Interest expense | — | — | 205 | 92,769 | 1,881 | (802 | ) | 94,052 | |||||||||||||
Net interest income | 22 | 3 | (205 | ) | 92,197 | 183 | — | 92,200 | |||||||||||||
Less provision for loan losses | — | — | — | 2,000 | — | — | 2,000 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 22 | 3 | (205 | ) | 90,197 | 183 | — | 90,200 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan and guaranty servicing revenue | 54,402 | — | — | — | — | — | 54,402 | ||||||||||||||
Intersegment servicing revenue | 11,408 | — | — | — | — | (11,408 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 30,483 | — | — | — | — | 30,483 | ||||||||||||||
Communications revenue | — | — | 4,478 | — | — | — | 4,478 | ||||||||||||||
Enrollment services revenue | — | — | — | — | — | — | — | ||||||||||||||
Other income | — | — | — | 3,834 | 5,931 | — | 9,765 | ||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | — | — | — | — | ||||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | — | (31,411 | ) | (3,797 | ) | — | (35,207 | ) | |||||||||||
Derivative settlements, net | — | — | — | (5,264 | ) | (231 | ) | — | (5,495 | ) | |||||||||||
Total other income | 65,810 | 30,483 | 4,478 | (32,841 | ) | 1,903 | (11,408 | ) | 58,426 | ||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 31,380 | 15,444 | 1,377 | 499 | 12,222 | — | 60,923 | ||||||||||||||
Depreciation and amortization | 445 | 2,511 | 1,378 | — | 3,848 | — | 8,183 | ||||||||||||||
Loan servicing fees | — | — | — | 7,216 | — | — | 7,216 | ||||||||||||||
Cost to provide communication services | — | — | 1,681 | — | — | — | 1,681 | ||||||||||||||
Cost to provide enrollment services | — | — | — | — | — | — | — | ||||||||||||||
Other expenses | 11,380 | 4,815 | 813 | 1,481 | 10,920 | — | 29,409 | ||||||||||||||
Intersegment expenses, net | 6,102 | 1,562 | 187 | 11,539 | (7,981 | ) | (11,408 | ) | — | ||||||||||||
Total operating expenses | 49,307 | 24,332 | 5,436 | 20,735 | 19,009 | (11,408 | ) | 107,412 | |||||||||||||
Income (loss) before income taxes | 16,525 | 6,154 | (1,163 | ) | 36,621 | (16,923 | ) | — | 41,214 | ||||||||||||
Income tax (expense) benefit | (6,280 | ) | (2,338 | ) | 442 | (13,916 | ) | 7,057 | — | (15,036 | ) | ||||||||||
Net income (loss) | 10,245 | 3,816 | (721 | ) | 22,705 | (9,866 | ) | — | 26,178 | ||||||||||||
Net income attributable to noncontrolling interests | — | — | — | — | 28 | — | 28 | ||||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 10,245 | 3,816 | (721 | ) | 22,705 | (9,894 | ) | — | 26,150 |
Three months ended June 30, 2015 (a) | ||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||
Total interest income | $ | 13 | 1 | 176,279 | 1,814 | (385 | ) | 177,722 | ||||||||||
Interest expense | — | — | 71,441 | 1,570 | (385 | ) | 72,626 | |||||||||||
Net interest income | 13 | 1 | 104,838 | 244 | — | 105,096 | ||||||||||||
Less provision for loan losses | — | — | 2,150 | — | — | 2,150 | ||||||||||||
Net interest income after provision for loan losses | 13 | 1 | 102,688 | 244 | — | 102,946 | ||||||||||||
Other income: | ||||||||||||||||||
Loan and guaranty servicing revenue | 63,833 | — | — | — | — | 63,833 | ||||||||||||
Intersegment servicing revenue | 12,223 | — | — | — | (12,223 | ) | — | |||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 27,686 | — | — | — | 27,686 | ||||||||||||
Enrollment services revenue | — | — | — | 12,680 | — | 12,680 | ||||||||||||
Other income | — | — | 3,950 | 8,035 | — | 11,985 | ||||||||||||
Gain on sale of loans and debt repurchases | — | — | 1,041 | 474 | — | 1,515 | ||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | 9,404 | 2,540 | — | 11,944 | ||||||||||||
Derivative settlements, net | — | — | (5,189 | ) | (253 | ) | — | (5,442 | ) | |||||||||
Total other income | 76,056 | 27,686 | 9,206 | 23,476 | (12,223 | ) | 124,201 | |||||||||||
Operating expenses: | . | |||||||||||||||||
Salaries and benefits | 31,585 | 13,583 | 524 | 13,095 | — | 58,787 | ||||||||||||
Depreciation and amortization | 527 | 2,195 | — | 3,779 | — | 6,501 | ||||||||||||
Loan servicing fees | — | — | 7,420 | — | — | 7,420 | ||||||||||||
Cost to provide enrollment services | — | — | — | 10,395 | — | 10,395 | ||||||||||||
Other expenses | 15,376 | 4,112 | 1,270 | 11,967 | — | 32,725 | ||||||||||||
Intersegment expenses, net | 8,045 | 2,164 | 12,362 | (10,348 | ) | (12,223 | ) | — | ||||||||||
Total operating expenses | 55,533 | 22,054 | 21,576 | 28,888 | (12,223 | ) | 115,828 | |||||||||||
Income (loss) before income taxes | 20,536 | 5,633 | 90,318 | (5,168 | ) | — | 111,319 | |||||||||||
Income tax (expense) benefit | (7,804 | ) | (2,140 | ) | (34,321 | ) | 3,910 | — | (40,356 | ) | ||||||||
Net income (loss) | 12,732 | 3,493 | 55,997 | (1,258 | ) | — | 70,963 | |||||||||||
Net income attributable to noncontrolling interests | — | — | — | 54 | — | 54 | ||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 12,732 | 3,493 | 55,997 | (1,312 | ) | — | 70,909 |
(a) | Does not include the Communications segment, which was initiated as a result of the acquisition of Allo on December 31, 2015. |
Six months ended June 30, 2016 | |||||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 43 | 5 | — | 375,689 | 4,157 | (1,625 | ) | 378,269 | ||||||||||||
Interest expense | — | — | 352 | 182,647 | 3,087 | (1,625 | ) | 184,460 | |||||||||||||
Net interest income | 43 | 5 | (352 | ) | 193,042 | 1,070 | — | 193,809 | |||||||||||||
Less provision for loan losses | — | — | — | 4,500 | — | — | 4,500 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 43 | 5 | (352 | ) | 188,542 | 1,070 | — | 189,309 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan and guaranty servicing revenue | 106,732 | — | — | — | — | — | 106,732 | ||||||||||||||
Intersegment servicing revenue | 23,415 | — | — | — | — | (23,415 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 69,140 | — | — | — | — | 69,140 | ||||||||||||||
Communications revenue | — | — | 8,824 | — | — | — | 8,824 | ||||||||||||||
Enrollment services revenue | — | — | — | — | 4,326 | — | 4,326 | ||||||||||||||
Other income | — | — | — | 8,097 | 15,462 | — | 23,559 | ||||||||||||||
Gain on sale of loans and debt repurchases | — | — | — | 101 | — | — | 101 | ||||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | — | (51,308 | ) | (6,053 | ) | — | (57,361 | ) | |||||||||||
Derivative settlements, net | — | — | — | (11,568 | ) | (463 | ) | — | (12,031 | ) | |||||||||||
Total other income | 130,147 | 69,140 | 8,824 | (54,678 | ) | 13,272 | (23,415 | ) | 143,290 | ||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 64,346 | 29,880 | 2,467 | 1,018 | 26,454 | — | 124,165 | ||||||||||||||
Depreciation and amortization | 883 | 4,782 | 2,507 | — | 7,650 | — | 15,823 | ||||||||||||||
Loan servicing fees | — | — | — | 14,144 | — | — | 14,144 | ||||||||||||||
Cost to provide communication services | — | — | 3,384 | — | — | — | 3,384 | ||||||||||||||
Cost to provide enrollment services | — | — | — | — | 3,623 | — | 3,623 | ||||||||||||||
Other expenses | 22,850 | 8,973 | 1,566 | 2,997 | 21,397 | — | 57,783 | ||||||||||||||
Intersegment expenses, net | 12,343 | 3,074 | 331 | 23,646 | (15,978 | ) | (23,415 | ) | — | ||||||||||||
Total operating expenses | 100,422 | 46,709 | 10,255 | 41,805 | 43,146 | (23,415 | ) | 218,922 | |||||||||||||
Income (loss) before income taxes | 29,768 | 22,436 | (1,783 | ) | 92,059 | (28,804 | ) | — | 113,677 | ||||||||||||
Income tax (expense) benefit | (11,312 | ) | (8,526 | ) | 678 | (34,983 | ) | 14,674 | — | (39,469 | ) | ||||||||||
Net income (loss) | 18,456 | 13,910 | (1,105 | ) | 57,076 | (14,130 | ) | — | 74,208 | ||||||||||||
Net income attributable to noncontrolling interests | — | — | — | — | 97 | — | 97 | ||||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 18,456 | 13,910 | (1,105 | ) | 57,076 | (14,227 | ) | — | 74,111 |
Six months ended June 30, 2015 (a) | ||||||||||||||||||
Student Loan and Guaranty Servicing | Tuition Payment Processing and Campus Commerce | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||
Total interest income | $ | 20 | 3 | 348,702 | 3,967 | (821 | ) | 351,871 | ||||||||||
Interest expense | — | — | 141,981 | 3,020 | (821 | ) | 144,180 | |||||||||||
Net interest income | 20 | 3 | 206,721 | 947 | — | 207,691 | ||||||||||||
Less provision for loan losses | — | — | 4,150 | — | — | 4,150 | ||||||||||||
Net interest income after provision for loan losses | 20 | 3 | 202,571 | 947 | — | 203,541 | ||||||||||||
Other income: | ||||||||||||||||||
Loan and guaranty servicing revenue | 121,644 | — | — | — | — | 121,644 | ||||||||||||
Intersegment servicing revenue | 25,094 | — | — | — | (25,094 | ) | — | |||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 62,366 | — | — | — | 62,366 | ||||||||||||
Enrollment services revenue | — | — | — | 26,053 | — | 26,053 | ||||||||||||
Other income | — | — | 8,526 | 14,867 | — | 23,393 | ||||||||||||
Gain on sale of loans and debt repurchases | — | — | 1,392 | 2,998 | — | 4,390 | ||||||||||||
Derivative market value and foreign currency adjustments, net | — | — | 12,994 | 1,087 | — | 14,081 | ||||||||||||
Derivative settlements, net | — | — | (10,152 | ) | (505 | ) | — | (10,657 | ) | |||||||||
Total other income | 146,738 | 62,366 | 12,760 | 44,500 | (25,094 | ) | 241,270 | |||||||||||
Operating expenses: | ||||||||||||||||||
Salaries and benefits | 65,288 | 26,904 | 1,065 | 26,580 | — | 119,837 | ||||||||||||
Depreciation and amortization | 973 | 4,390 | — | 6,800 | — | 12,163 | ||||||||||||
Loan servicing fees | — | — | 15,036 | — | — | 15,036 | ||||||||||||
Cost to provide enrollment services | — | — | — | 21,194 | — | 21,194 | ||||||||||||
Other expenses | 29,976 | 7,914 | 2,407 | 22,529 | — | 62,826 | ||||||||||||
Intersegment expenses, net | 14,687 | 4,199 | 25,370 | (19,162 | ) | (25,094 | ) | — | ||||||||||
Total operating expenses | 110,924 | 43,407 | 43,878 | 57,941 | (25,094 | ) | 231,056 | |||||||||||
Income (loss) before income taxes | 35,834 | 18,962 | 171,453 | (12,494 | ) | — | 213,755 | |||||||||||
Income tax (expense) benefit | (13,617 | ) | (7,206 | ) | (65,152 | ) | 7,989 | — | (77,986 | ) | ||||||||
Net income (loss) | 22,217 | 11,756 | 106,301 | (4,505 | ) | — | 135,769 | |||||||||||
Net income attributable to noncontrolling interests | — | — | — | 95 | — | 95 | ||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 22,217 | 11,756 | 106,301 | (4,600 | ) | — | 135,674 |
(a) | Does not include the Communications segment, which was initiated as a result of the acquisition of Allo on December 31, 2015. |
As of June 30, 2016 | As of December 31, 2015 | |||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||
Assets: | ||||||||||||||||||
Investments (available-for-sale and trading): | ||||||||||||||||||
Student loan asset-backed securities | $ | — | 133,592 | 133,592 | — | 147,925 | 147,925 | |||||||||||
Equity securities | 7,766 | — | 7,766 | 7,337 | — | 7,337 | ||||||||||||
Debt securities | 124 | — | 124 | 130 | — | 130 | ||||||||||||
Total investments (available-for-sale and trading) | 7,890 | 133,592 | 141,482 | 7,467 | 147,925 | 155,392 | ||||||||||||
Fair value of derivative instruments | — | 3,408 | 3,408 | — | 28,690 | 28,690 | ||||||||||||
Total assets | $ | 7,890 | 137,000 | 144,890 | 7,467 | 176,615 | 184,082 | |||||||||||
Liabilities: | ||||||||||||||||||
Fair value of derivative instruments | $ | — | 101,771 | 101,771 | — | 74,881 | 74,881 | |||||||||||
Total liabilities | $ | — | 101,771 | 101,771 | — | 74,881 | 74,881 |
As of June 30, 2016 | |||||||||||||||
Fair value | Carrying value | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets: | |||||||||||||||
Student loans receivable | $ | 26,875,363 | 26,539,604 | — | — | 26,875,363 | |||||||||
Cash and cash equivalents | 59,253 | 59,253 | 59,253 | — | — | ||||||||||
Investments (available-for-sale and trading) | 141,482 | 141,482 | 7,890 | 133,592 | — | ||||||||||
Notes receivable | 17,206 | 17,206 | — | 17,206 | — | ||||||||||
Restricted cash | 955,689 | 955,689 | 955,689 | — | — | ||||||||||
Restricted cash – due to customers | 132,018 | 132,018 | 132,018 | — | — | ||||||||||
Restricted investments | 9,110 | 9,110 | 9,110 | — | — | ||||||||||
Accrued interest receivable | 380,140 | 380,140 | — | 380,140 | — | ||||||||||
Derivative instruments | 3,408 | 3,408 | — | 3,408 | — | ||||||||||
Financial liabilities: | |||||||||||||||
Bonds and notes payable | 25,510,394 | 26,399,686 | — | 25,510,394 | — | ||||||||||
Accrued interest payable | 39,926 | 39,926 | — | 39,926 | — | ||||||||||
Due to customers | 132,018 | 132,018 | 132,018 | — | — | ||||||||||
Derivative instruments | 101,771 | 101,771 | — | 101,771 | — |
As of December 31, 2015 | |||||||||||||||
Fair value | Carrying value | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets: | |||||||||||||||
Student loans receivable | $ | 28,611,350 | 28,324,552 | — | — | 28,611,350 | |||||||||
Cash and cash equivalents | 63,529 | 63,529 | 63,529 | — | — | ||||||||||
Investments (available-for-sale and trading) | 155,392 | 155,392 | 7,467 | 147,925 | — | ||||||||||
Notes receivable | 18,067 | 18,473 | — | 18,067 | — | ||||||||||
Restricted cash | 823,450 | 823,450 | 823,450 | — | — | ||||||||||
Restricted cash – due to customers | 144,771 | 144,771 | 144,771 | — | — | ||||||||||
Restricted investments | 9,174 | 9,174 | 9,174 | — | — | ||||||||||
Accrued interest receivable | 383,825 | 383,825 | — | 383,825 | — | ||||||||||
Derivative instruments | 28,690 | 28,690 | — | 28,690 | — | ||||||||||
Financial liabilities: | |||||||||||||||
Bonds and notes payable | 27,150,775 | 28,105,921 | — | 27,150,775 | — | ||||||||||
Accrued interest payable | 31,507 | 31,507 | — | 31,507 | — | ||||||||||
Due to customers | 144,771 | 144,771 | 144,771 | — | — | ||||||||||
Derivative instruments | 74,881 | 74,881 | — | 74,881 | — |
• | student loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP student loans and initiatives to purchase additional FFELP and private education loans, and risks from changes in levels of student loan prepayment or default rates; |
• | financing and liquidity risks, including risks of changes in the general interest rate environment and in the securitization and other financing markets for student loans, including adverse changes resulting from slower than expected payments on student loans in FFELP securitization trusts, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans; |
• | risks from changes in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans, risks related to adverse changes in the Company's volumes allocated under the Company's loan servicing contract with the Department, which accounted for approximately 15 percent of the Company's revenue in 2015, risks related to the Department's initiative to procure a new contract for federal student loan servicing to acquire a single servicing solution to service all loans owned by the Department, including the risk that the Company's joint venture with Great Lakes may not be awarded the contract, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of FFELP, Federal Direct Loan Program, and private education loans; |
• | risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information; |
• | uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; |
• | the uncertain nature of the expected benefits from the acquisition of Allo Communications LLC and the ability to integrate its communications operations and successfully expand its fiber network in existing service areas and additional communities; |
• | risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the Company both within and outside of its historical core education-related businesses; and |
• | risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the recent politicization of student loan servicing, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements. |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
GAAP net income attributable to Nelnet, Inc. | $ | 26,150 | 70,909 | 74,111 | 135,674 | |||||||
Derivative market value and foreign currency adjustments | 35,207 | (11,944 | ) | 57,361 | (14,081 | ) | ||||||
Tax effect (a) | (13,379 | ) | 4,539 | (21,797 | ) | 5,351 | ||||||
Net income, excluding derivative market value and foreign currency adjustments (b) | $ | 47,978 | 63,504 | 109,675 | 126,944 | |||||||
Earnings per share: | ||||||||||||
GAAP net income attributable to Nelnet, Inc. | $ | 0.61 | 1.54 | 1.73 | 2.94 | |||||||
Derivative market value and foreign currency adjustments | 0.83 | (0.26 | ) | 1.34 | (0.31 | ) | ||||||
Tax effect (a) | (0.31 | ) | 0.10 | (0.51 | ) | 0.12 | ||||||
Net income, excluding derivative market value and foreign currency adjustments (b) | $ | 1.13 | 1.38 | 2.56 | 2.75 |
(a) | The tax effects are calculated by multiplying the derivative market value and foreign currency adjustments by the applicable statutory income tax rate. |
(b) | The Company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. "Derivative market value and foreign currency 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 are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. |
• | 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") |
• | Communications - referred to as Allo Communications ("Allo") |
(a) | Revenue includes intersegment revenue 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. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax. |
(c) | Computed as income before income taxes divided by total revenue. |
• | As of June 30, 2016, the Company was servicing $183.6 billion in FFELP, private, and government owned student loans, as compared with $169.9 billion of loans as of June 30, 2015. |
• | Revenue decreased in the three and six months ended June 30, 2016 compared to the same periods in 2015 due to a decrease in guaranty servicing and collection revenue. The Company's guaranty servicing and collection revenue was earned from two guaranty clients, and a significant amount of such revenue came from one of those clients. The contract with this client expired on October 31, 2015. FFELP guaranty servicing and collection revenue recognized by the Company from this client for the three and six months ended June 30, 2015 was $12.6 million and $21.3 million respectively. The other guaranty servicing and collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. After this customer's exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty servicing and collection revenue. |
• | Revenue from the government servicing contract increased to $37.1 million for the three months ended June 30, 2016 compared to $33.6 million for the same period in 2015, and increased to $72.3 million for the six months ended June 30, 2016, compared to $66.0 million for the same period in 2015. This increase was due to the shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses. |
• | Before tax operating margin was 25.1% and 27.0% for the three months ended June 30, 2016 and 2015, respectively, and 22.9% and 24.4% for the six months ended June 30, 2016 and 2015, respectively. This decrease was due to a decrease in guaranty servicing and collection revenue due to the loss of a significant guaranty client discussed above. The Company anticipates that margins will continue to decrease as a result of the loss of its remaining guaranty servicing and collection customer that exited the FFELP guaranty business at the end of their contract term on June 30, 2016 as discussed above. |
• | In April 2016, the Department's Office of Federal Student Aid released information regarding a new contract procurement process for the Department to acquire a single servicing solution to support the management of federal student financial aid, including the servicing of all student loans owned by the Department. The contract solicitation process is divided into two phases. Responses for Phase I were due on May 9, 2016. |
• | Revenue increased in the three and six months ended June 30, 2016 compared to the same periods in 2015 due to increases in the number of managed tuition payment plans, campus commerce customer transaction and payments volume, and new school customers. |
• | Before tax operating margin was 20.2% and 20.3% for the three months ended June 30, 2016 and 2015, respectively and 32.5% and 30.4% for the six months ended June 30, 2016 and 2015, respectively. |
• | 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. |
• | On December 31, 2015, the Company purchased 92.5 percent of the ownership interests of Allo for total cash consideration of $46.25 million. On January 1, 2016, the Company sold a 1.0 percent ownership interest in Allo to a non-related third-party for $0.5 million. The remaining 7.5 percent of the ownership interests of Allo is owned by members of Allo management, who have the opportunity to earn an additional 11.5 percent (up to 19 percent) of the total ownership interests based on the financial performance of Allo. The Allo assets acquired and liabilities assumed were recorded by the Company at their respective estimated fair values at the date of acquisition, and such assets and liabilities were included in the Company's balance sheet as of December 31, 2015. However, Allo had no impact on the consolidated statement of income for 2015. On January 1, 2016, the Company began to reflect the operations of Allo in the consolidated statements of income. |
• | For the three and six months ended June 30, 2016, the operating segment recorded a net loss of $0.7 million and $1.1 million, respectively. The Company anticipates this operating segment will be dilutive to consolidated earnings in 2016 due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs. |
• | The Company currently plans to spend a total of approximately $50 million in network capital expenditures during 2016. However, such amount could change based on customer demand for Allo's services. For the six months ended June 30, 2016, Allo's capital expenditures were $12.0 million, including $9.2 million for the three months ended June 30, 2016. |
• | Core student loan spread was 1.29% for the three months ended June 30, 2016, compared to 1.41% for the same period in 2015 and 1.34% for the three month period ended March 31, 2016. The decrease in core student loan spread for the three month period ended June 30, 2016 compared to the three month period ended March 31, 2016 was due to a widening in the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans. |
• | Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During the three months ended June 30, 2016 and 2015, and six months ended June 30, 2016 and 2015, the Company earned $39.5 million, $45.1 million, $80.1 million, and $91.3 million, respectively, of fixed rate floor income (net of derivative settlements of $4.8 million and $5.0 million for the three months ended June 30, 2016 and 2015, respectively, and $10.1 million and $10.0 million for the six months ended June 30, 2016 and 2015, respectively, used to hedge such loans). The decrease in fixed rate floor income for the three and six months ended June 30, 2016 compared to the same periods in 2015 is due to an increase in interest rates. |
• | As of June 30, 2016, the Company had cash and cash equivalents of $59.3 million. In addition, the Company had a portfolio of available-for-sale and trading investments, consisting primarily of student loan asset-backed securities, with a fair value of $141.5 million as of June 30, 2016. |
• | For the six months ended June 30, 2016, the Company generated $175.2 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 $2.37 billion as of June 30, 2016. |
• | During the six months ended June 30, 2016, the Company repurchased a total of 1,611,041 shares of Class A common stock for $52.5 million ($32.57 per share). In May 2016, the Company's Board of Directors authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 25, 2019. The five million shares authorized under the new program include the remaining 1,664,223 un-repurchased shares from the prior program, which the new program replaced. |
• | During the six months ended June 30, 2016, the Company paid cash dividends of $10.2 million ($0.24 per share), including $5.1 million ($0.12 per share) during the second quarter. |
• | The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP and private education loan acquisitions; strategic acquisitions and investments; expansion of Allo's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances. |
Three months | Six months | |||||||||||||
ended June 30, | ended June 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | Additional information | ||||||||||
Loan interest | $ | 184,067 | 175,835 | 374,055 | 347,779 | Increase due to an increase in the gross yield earned on the student loan portfolio, partially offset by a decrease in the average balance of student loans and fixed rate floor income. | ||||||||
Investment interest | 2,185 | 1,887 | 4,214 | 4,092 | Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. | |||||||||
Total interest income | 186,252 | 177,722 | 378,269 | 351,871 | ||||||||||
Interest expense | 94,052 | 72,626 | 184,460 | 144,180 | Increase due primarily to an increase in the Company's cost of funds, partially offset by a decrease in the average balance of debt outstanding. | |||||||||
Net interest income | 92,200 | 105,096 | 193,809 | 207,691 | See table below for additional analysis. | |||||||||
Less provision for loan losses | 2,000 | 2,150 | 4,500 | 4,150 | Represents the periodic expense of maintaining an allowance appropriate to absorb losses inherent in the portfolio of student loans. See AGM operating segment - results of operations. | |||||||||
Net interest income after provision for loan losses | 90,200 | 102,946 | 189,309 | 203,541 | ||||||||||
Other income: | ||||||||||||||
LGS revenue | 54,402 | 63,833 | 106,732 | 121,644 | See LGS operating segment - results of operations. | |||||||||
TPP&CC revenue | 30,483 | 27,686 | 69,140 | 62,366 | See TPP&CC operating segment - results of operations. | |||||||||
Communications revenue | 4,478 | — | 8,824 | — | See Communications operating segment - results of operations. | |||||||||
Enrollment services revenue | — | 12,680 | 4,326 | 26,053 | See table below for additional analysis. | |||||||||
Other income | 9,765 | 11,985 | 23,559 | 23,393 | See table below for the components of "other income." | |||||||||
Gain on sale of loans and debt repurchases | — | 1,515 | 101 | 4,390 | Gains are primarily from the Company repurchasing its own debt. | |||||||||
Derivative settlements, net | (5,495 | ) | (5,442 | ) | (12,031 | ) | (10,657 | ) | 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 | (35,207 | ) | 11,944 | (57,361 | ) | 14,081 | 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 | 58,426 | 124,201 | 143,290 | 241,270 | ||||||||||
Operating expenses: | ||||||||||||||
Salaries and benefits | 60,923 | 58,787 | 124,165 | 119,837 | Increase was due to additional personnel to support the increase in TPP&CC revenue and the acquisition of Allo on December 31, 2015. | |||||||||
Depreciation and amortization | 8,183 | 6,501 | 15,823 | 12,163 | Increase was due to additional depreciation expense as a result of investments in information technology infrastructure and due to the acquisition of Allo on December 31, 2015. | |||||||||
Loan servicing fees | 7,216 | 7,420 | 14,144 | 15,036 | The Company pays higher third-party servicing fees on delinquent loans. The Company's third-party serviced loan portfolio has fewer delinquent loans in 2016 compared to 2015; therefore, third-party servicing fees have decreased. | |||||||||
Cost to provide communication services | 1,681 | — | 3,384 | — | Represents costs of services and products primarily associated with television programming costs. | |||||||||
Cost to provide enrollment services | — | 10,395 | 3,623 | 21,194 | See table below for additional analysis. | |||||||||
Other | 29,409 | 32,725 | 57,783 | 62,826 | Decrease due to a decrease in collection costs associated with the decrease in FFELP guaranty collection revenue, partially offset by an increase as a result of the acquisition of Allo on December 31, 2015. | |||||||||
Total operating expenses | 107,412 | 115,828 | 218,922 | 231,056 | ||||||||||
Income before income taxes | 41,214 | 111,319 | 113,677 | 213,755 | ||||||||||
Income tax expense | 15,036 | 40,356 | 39,469 | 77,986 | The effective tax rate was 36.51% and 36.27% in the three months ended June 30, 2016 and 2015, respectively, and 34.75% and 36.50% in the six months ended June 30, 2016 and 2015, respectively. The lower effective tax rate for the six months ended June 30, 2016 compared to the same period in 2015 was due to the resolution of certain tax positions during the first quarter of 2016. | |||||||||
Net income | 26,178 | 70,963 | 74,208 | 135,769 | ||||||||||
Net income attributable to noncontrolling interest | 28 | 54 | 97 | 95 | ||||||||||
Net income attributable to Nelnet, Inc. | $ | 26,150 | 70,909 | 74,111 | 135,674 | |||||||||
Additional information: | ||||||||||||||
Net income attributable to Nelnet, Inc. | $ | 26,150 | 70,909 | 74,111 | 135,674 | See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value and foreign currency adjustments. | ||||||||
Derivative market value and foreign currency adjustments | 35,207 | (11,944 | ) | 57,361 | (14,081 | ) | ||||||||
Tax effect | (13,379 | ) | 4,539 | (21,797 | ) | 5,351 | ||||||||
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency adjustments | $ | 47,978 | 63,504 | 109,675 | 126,944 |
Three months ended June 30, | Six months ended June 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | Additional information | ||||||||||
Variable student loan interest margin, net of settlements on derivatives | $ | 47,141 | 54,521 | 100,996 | 105,155 | 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 | 39,497 | 45,069 | 80,136 | 91,313 | The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rates, generating fixed rate floor income. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" for additional information. | |||||||||
Investment interest | 2,185 | 1,887 | 4,214 | 4,092 | ||||||||||
Non-portfolio related derivative settlements | (231 | ) | (253 | ) | (463 | ) | (506 | ) | ||||||
Corporate debt interest expense | (1,887 | ) | (1,570 | ) | (3,105 | ) | (3,020 | ) | Includes interest expense on the Junior Subordinated Hybrid Securities and unsecured and secured lines of credit. | |||||
Net interest income (net of settlements on derivatives) | $ | 86,705 | 99,654 | 181,778 | 197,034 |
Inquiry management (marketing) (a) | Inquiry management (software) (a) | Total (a) | |||||||
Three months ended June 30, 2016 | |||||||||
Enrollment services revenue | $ | — | — | — | |||||
Cost to provide enrollment services | — | — | — | ||||||
Gross profit | $ | — | — | — | |||||
Three months ended June 30, 2015 | |||||||||
Enrollment services revenue | $ | 11,751 | 929 | 12,680 | |||||
Cost to provide enrollment services | 10,395 | — | 10,395 | ||||||
Gross profit | $ | 1,356 | 929 | 2,285 | |||||
Gross profit % | 11.5% | ||||||||
Six months ended June 30, 2016 | |||||||||
Enrollment services revenue | $ | 4,001 | 325 | 4,326 | |||||
Cost to provide enrollment services | 3,623 | — | 3,623 | ||||||
Gross profit | $ | 378 | 325 | 703 | |||||
Gross profit % | 9.4% | ||||||||
Six months ended June 30, 2015 | |||||||||
Enrollment services revenue | $ | 24,006 | 2,047 | 26,053 | |||||
Cost to provide enrollment services | 21,194 | — | 21,194 | ||||||
Gross profit | $ | 2,812 | 2,047 | 4,859 | |||||
Gross profit % | 11.7% |
(a) | On February 1, 2016, the Company sold 100 percent of the membership interests in Sparkroom LLC, which includes the majority of the Company's inquiry management products and services within Nelnet Enrollment Solutions. The Company retained the digital marketing and content solution products and services under the brand name Peterson's within the Nelnet Enrollment Solutions business, which include test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning information and guides, and on-line information about colleges and universities. The Company reclassified the revenue and cost of goods sold attributable to the Peterson's products and services from "enrollment services revenue" and "cost to provide enrollment services" to "other income" and "other expenses," respectively, on the consolidated statements of income. After this reclassification, "enrollment services revenue" and "cost to provide enrollment services" include the operating results of the products and services sold as part of the Sparkroom disposition for all periods presented. These reclassifications had no effect on consolidated net income. |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Borrower late fee income | $ | 3,106 | 3,621 | 6,752 | 7,752 | |||||||
Investment advisory fees | 1,014 | 833 | 1,832 | 1,491 | ||||||||
Realized and unrealized gains/(losses) on investments classified as available-for-sale and trading, net | (112 | ) | 1,826 | 1,028 | 2,349 | |||||||
Peterson's revenue (a) | 3,246 | 4,481 | 6,527 | 8,971 | ||||||||
Other (b) | 2,511 | 1,224 | 7,420 | 2,830 | ||||||||
Other income | $ | 9,765 | 11,985 | 23,559 | 23,393 |
(a) | Represents revenue previously included in "Enrollment services revenue" on the consolidated statements of income. The decrease in revenue for the three and six months ended June 30, 2016 compared to the same periods in 2015 was due to the loss of rights to a certain publication. |
(b) | The operating results for the six months ended June 30, 2016 includes a gain of approximately $3.0 million related to the Company's sale of Sparkroom, LLC in February 2016. |
Company owned | $21,397 | $19,742 | $19,369 | $18,934 | $18,593 | $18,886 | $18,433 | $18,079 | ||||||||||||||||
% of total | 15.5% | 12.2% | 11.5% | 11.1% | 10.6% | 10.7% | 10.1% | 9.8% | ||||||||||||||||
Number of servicing borrowers: | ||||||||||||||||||||||||
Government servicing: | 5,305,498 | 5,915,449 | 5,882,446 | 5,817,078 | 5,886,266 | 5,842,163 | 5,786,545 | 5,726,828 | ||||||||||||||||
FFELP servicing: | 1,462,122 | 1,397,295 | 1,358,551 | 1,353,785 | 1,339,307 | 1,335,538 | 1,298,407 | 1,296,198 | ||||||||||||||||
Private servicing: | 195,580 | 202,529 | 205,926 | 209,854 | 230,403 | 245,737 | 250,666 | 264,827 | ||||||||||||||||
Total: | 6,963,200 | 7,515,273 | 7,446,923 | 7,380,717 | 7,455,976 | 7,423,438 | 7,335,618 | 7,287,853 | ||||||||||||||||
Number of remote hosted borrowers: | 1,915,203 | 1,611,654 | 1,592,813 | 1,559,573 | 1,710,577 | 1,755,341 | 1,796,783 | 1,842,961 |
Three months ended June 30, | Six months ended June 30, | Additional information | ||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Net interest income | $ | 22 | 13 | 43 | 20 | |||||||||
Loan and guaranty servicing revenue | 54,402 | 63,833 | 106,732 | 121,644 | See table below for additional analysis. | |||||||||
Intersegment servicing revenue | 11,408 | 12,223 | 23,415 | 25,094 | Represents revenue earned by the LGS operating segment as a result of servicing loans for the AGM operating segment. Decrease was due to portfolio run-off. | |||||||||
Total other income | 65,810 | 76,056 | 130,147 | 146,738 | ||||||||||
Salaries and benefits | 31,380 | 31,585 | 64,346 | 65,288 | ||||||||||
Depreciation and amortization | 445 | 527 | 883 | 973 | ||||||||||
Other expenses | 11,380 | 15,376 | 22,850 | 29,976 | Decrease due primarily to a decrease in collection costs associated with FFELP guaranty collection revenue. Collection costs were $1.7 million and $6.0 million for the three months ended June 30, 2016 and 2015, respectively and $3.5 million and $10.8 million for the six months ended June 30, 2016 and 2015, respectively. Excluding collection costs, other expenses were $9.7 million and $9.4 million for the three months ended June 30, 2016 and 2015, respectively, and $19.3 million and $19.2 million for the six months ended June 30, 2016 and 2015, respectively. See additional information below regarding the decrease in FFELP guaranty collection revenue. | |||||||||
Intersegment expenses, net | 6,102 | 8,045 | 12,343 | 14,687 | Intersegment expenses represent costs for certain corporate activities that are allocated to each operating segment based on estimated use of such activities and services. | |||||||||
Total operating expenses | 49,307 | 55,533 | 100,422 | 110,924 | ||||||||||
Income before income taxes | 16,525 | 20,536 | 29,768 | 35,834 | ||||||||||
Income tax expense | (6,280 | ) | (7,804 | ) | (11,312 | ) | (13,617 | ) | ||||||
Net income | $ | 10,245 | 12,732 | 18,456 | 22,217 | |||||||||
Before tax operating margin | 25.1 | % | 27.0 | % | 22.9 | % | 24.4 | % | Decrease in margin is due to a decrease in guaranty servicing and collection revenue due to the loss of a guaranty client as discussed below. The Company anticipates that margins will continue to decrease as a result of the loss of its remaining guaranty servicing and collection customer that exited the FFELP guaranty business at the end of their contract term on June 30, 2016 as discussed below. |
Three months ended June 30, | Six months ended June 30, | Additional information | ||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Government servicing | $ | 37,063 | 33,633 | 72,294 | 66,041 | Increase due to the shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses. | ||||||||
FFELP servicing | 3,684 | 3,483 | 7,323 | 7,028 | Increase due to an increase in third-party servicing volume as a result of conversions to the Company's servicing platform. Over time, FFELP servicing revenue will decrease as third-party customers' FFELP portfolios run off. | |||||||||
Private servicing | 3,427 | 2,743 | 6,573 | 5,782 | Increase due to growth in private loan servicing volume from existing and new clients. | |||||||||
FFELP guaranty servicing | 1,161 | 2,416 | 2,345 | 4,897 | The Company’s guaranty servicing revenue was earned from two guaranty servicing clients. A contract with one client expired on October 31, 2015, and was not renewed. Guaranty servicing revenue from this customer was $1.3 million for the three months ended June 30, 2015 and $2.6 million for the six months ended June 30, 2015. The remaining guaranty servicing client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. Guaranty servicing revenue from this customer was $1.2 million for each of the three months ended June 30, 2016 and 2015 and $2.3 million for each of the six months ended June 30, 2016 and 2015, respectively. After this customer’s exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty servicing revenue. | |||||||||
FFELP guaranty collection | 3,424 | 15,840 | 7,211 | 26,745 | The Company’s guaranty collection revenue was earned from two guaranty collection clients. A contract with one client expired on October 31, 2015, and was not renewed. Guaranty collection revenue from this customer was $11.3 million for the three months ended June 30, 2015 and $18.7 million for the six months ended June 30, 2015. The remaining guaranty servicing client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. Guaranty collection revenue from this customer was $3.4 million and $4.5 million for the three months ended June 30, 2016 and 2015, respectively, and $7.2 million and $8.0 million for the six months ended June 30, 2016 and 2015, respectively. After this customer’s exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty collection revenue. The Company incurred collection costs that were directly related to guaranty collection revenue. | |||||||||
Software services | 4,653 | 4,638 | 9,261 | 9,506 | The majority of software services revenue relates to providing hosted student loan servicing. | |||||||||
Other | 990 | 1,080 | 1,725 | 1,645 | ||||||||||
Loan and guaranty servicing revenue | $ | 54,402 | 63,833 | 106,732 | 121,644 |
Three months ended June 30, | Six months ended June 30, | Additional information | ||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Net interest income | $ | 3 | 1 | 5 | 3 | |||||||||
Tuition payment processing, school information, and campus commerce revenue | 30,483 | 27,686 | 69,140 | 62,366 | Increase was due to an increase in the number of managed tuition payment plans, campus commerce customer transaction and payments volume, and new school customers. | |||||||||
Salaries and benefits | 15,444 | 13,583 | 29,880 | 26,904 | Increase due to additional personnel to support the increase in payment plans and continued system maintenance and enhancements. | |||||||||
Depreciation and amortization | 2,511 | 2,195 | 4,782 | 4,390 | ||||||||||
Other expenses | 4,815 | 4,112 | 8,973 | 7,914 | ||||||||||
Intersegment expenses, net | 1,562 | 2,164 | 3,074 | 4,199 | Intersegment expenses represent costs for certain corporate activities that are allocated to each operating segment based on estimated use of such activities and services. | |||||||||
Total operating expenses | 24,332 | 22,054 | 46,709 | 43,407 | ||||||||||
Income before income taxes | 6,154 | 5,633 | 22,436 | 18,962 | ||||||||||
Income tax expense | (2,338 | ) | (2,140 | ) | (8,526 | ) | (7,206 | ) | ||||||
Net income | $ | 3,816 | 3,493 | 13,910 | 11,756 | |||||||||
Before tax operating margin | 20.2 | % | 20.3 | % | 32.5 | % | 30.4 | % |
Three months ended June 30, 2016 | Six months ended June 30, 2016 | Additional information | ||||||
Interest expense | $ | 205 | 352 | |||||
Communications revenue | 4,478 | 8,824 | Communications revenue is derived primarily from the sale of pure fiber optic services to residential and business customers in Nebraska, including internet, television, and telephone services. | |||||
Salaries and benefits | 1,377 | 2,467 | At June 30, 2016, Allo had approximately 170 employees, including part-time employees. Allo also uses temporary employees in the normal course of business. Certain costs qualify for capitalization as Allo builds its network. | |||||
Depreciation and amortization | 1,378 | 2,507 | Depreciation reflects the allocation of the costs of Allo's property and equipment over the period in which such assets are used. Amortization reflects the allocation of costs related to intangible assets recorded at fair value as of the date the Company acquired Allo over their estimated useful lives. | |||||
Cost to provide communications services | 1,681 | 3,384 | Costs of services and products is primarily associated with television programming costs. | |||||
Other expenses | 813 | 1,566 | ||||||
Intersegment expenses, net | 187 | 331 | Intersegment expenses represent costs for certain corporate activities that are allocated to each operating segment based on estimated use of such activities and services. | |||||
Total operating expenses | 5,436 | 10,255 | ||||||
Loss before income taxes | (1,163 | ) | (1,783 | ) | ||||
Income tax benefit | 442 | 678 | ||||||
Net loss | $ | (721 | ) | (1,105 | ) | |||
Additional Information: | ||||||||
Net loss | $ | (721 | ) | (1,105 | ) | |||
Interest expense | 205 | 352 | ||||||
Income tax benefit | (442 | ) | (678 | ) | ||||
Depreciation and amortization | 1,378 | 2,507 | ||||||
Earnings before interest expense, income taxes, depreciation, and amortization (EBITDA) | $ | 420 | 1,076 | For additional information regarding this non-GAAP measure, see the table immediately below. |
Three months ended June 30, 2016 | Six months ended June 30, 2016 | |||||
Residential revenue | $ | 2,528 | 5,052 | |||
Business revenue | 1,584 | 3,212 | ||||
Other revenue | 366 | 560 | ||||
Total revenue | $ | 4,478 | 8,824 | |||
Net loss | $ | (721 | ) | (1,105 | ) | |
EBITDA (a) | 420 | 1,076 | ||||
Capital expenditures | 9,160 | 12,037 | ||||
Revenue contribution: | ||||||
Internet | 37.0 | % | 37.6 | % | ||
Telephone | 26.6 | 27.2 | ||||
Television | 31.4 | 32.1 | ||||
Other | 5.0 | 3.1 | ||||
100.0 | % | 100.0 | % |
As of June 30, 2016 | As of December 31, 2015 | ||||
Residential customer information: | |||||
Households served | 8,314 | 7,600 | |||
Households passed (b) | 22,977 | 21,274 | |||
Total households in current markets | 137,500 | 137,500 |
(a) | Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. Allo's management uses EBITDA to compare Allo's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest expense and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for Allo because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess Allo's performance, and it provides supplemental information about Allo's operating performance on a more variable cost basis. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from Allo's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from net income (loss) under GAAP is presented in the table immediately above. |
(b) | Represents the estimated number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected. |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Beginning balance | $ | 27,743,818 | 28,107,088 | 28,555,749 | 28,223,908 | |||||||
Loan acquisitions | 74,969 | 1,228,030 | 185,928 | 2,064,142 | ||||||||
Repayments, claims, capitalized interest, and other | (737,712 | ) | (690,556 | ) | (1,329,732 | ) | (1,318,916 | ) | ||||
Consolidation loans lost to external parties | (326,515 | ) | (330,712 | ) | (612,647 | ) | (651,288 | ) | ||||
Loans sold | — | — | (44,738 | ) | (3,996 | ) | ||||||
Ending balance | $ | 26,754,560 | 28,313,850 | 26,754,560 | 28,313,850 |
Three months ended | Six months ended | ||||||||||||||
June 30, 2016 | March 31, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||
Variable student loan yield, gross | 2.84 | % | 2.82 | % | 2.57 | % | 2.84 | % | 2.55 | % | |||||
Consolidation rebate fees | (0.83 | ) | (0.83 | ) | (0.83 | ) | (0.83 | ) | (0.84 | ) | |||||
Discount accretion, net of premium and deferred origination costs amortization | 0.06 | 0.06 | 0.04 | 0.06 | 0.05 | ||||||||||
Variable student loan yield, net | 2.07 | 2.05 | 1.78 | 2.07 | 1.76 | ||||||||||
Student loan cost of funds - interest expense | (1.35 | ) | (1.27 | ) | (1.01 | ) | (1.32 | ) | (1.00 | ) | |||||
Student loan cost of funds - derivative settlements | (0.01 | ) | (0.02 | ) | — | (0.01 | ) | — | |||||||
Variable student loan spread | 0.71 | 0.76 | 0.77 | 0.74 | 0.76 | ||||||||||
Fixed rate floor income, net of settlements on derivatives | 0.58 | 0.58 | 0.64 | 0.58 | 0.65 | ||||||||||
Core student loan spread | 1.29 | % | 1.34 | % | 1.41 | % | 1.32 | % | 1.41 | % | |||||
Average balance of student loans | $ | 27,314,389 | 28,232,489 | 28,297,312 | 27,773,439 | 28,293,366 | |||||||||
Average balance of debt outstanding | 27,240,061 | 28,099,821 | 28,331,870 | 27,669,813 | 28,395,893 |
(a) | The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on student loan spread. This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s FFELP student loan assets and related funding for those assets. |
Three months ended | Six months ended | ||||||||||||||
June 30, 2016 | March 31, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||
Fixed rate floor income, gross | $ | 44,338 | 45,882 | 50,088 | 90,220 | 101,347 | |||||||||
Derivative settlements (a) | (4,841 | ) | (5,243 | ) | (5,019 | ) | (10,084 | ) | (10,034 | ) | |||||
Fixed rate floor income, net | $ | 39,497 | 40,639 | 45,069 | 80,136 | 91,313 | |||||||||
Fixed rate floor income contribution to spread, net | 0.58 | % | 0.58 | % | 0.64 | % | 0.58 | % | 0.65 | % |
(a) | Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income. |
Three months ended June 30, | Six months ended June 30, | Additional information | ||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Net interest income after provision for loan losses | $ | 90,197 | 102,688 | 188,542 | 202,571 | See table below for additional analysis. | ||||||||
Other income | 3,834 | 3,950 | 8,097 | 8,526 | The primary component of other income is borrower late fees, which were $3.1 million and $3.6 million for the three months ended June 30, 2016 and 2015, and $6.8 million and $7.8 million for the six months ended June 30, 2016 and 2015, respectively. | |||||||||
Gain on sale of loans and debt repurchases | — | 1,041 | 101 | 1,392 | Gains were primarily from the Company repurchasing its own asset-backed debt securities. | |||||||||
Derivative market value and foreign currency adjustments, net | (31,411 | ) | 9,404 | (51,308 | ) | 12,994 | 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. | |||||||
Derivative settlements, net | (5,264 | ) | (5,189 | ) | (11,568 | ) | (10,152 | ) | 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 (expense) income | (32,841 | ) | 9,206 | (54,678 | ) | 12,760 | ||||||||
Salaries and benefits | 499 | 524 | 1,018 | 1,065 | ||||||||||
Loan servicing fees | 7,216 | 7,420 | 14,144 | 15,036 | The Company pays higher third-party servicing fees on delinquent loans. The Company's third-party serviced loan portfolio has fewer delinquent loans in 2016 compared to 2015; therefore, third-party servicing fees have decreased. | |||||||||
Other expenses | 1,481 | 1,270 | 2,997 | 2,407 | ||||||||||
Intersegment expenses, net | 11,539 | 12,362 | 23,646 | 25,370 | Amounts include fees paid to the LGS operating segment for the servicing of the Company’s student loan portfolio. Decrease due to run off of the portfolio serviced by LGS. | |||||||||
Total operating expenses | 20,735 | 21,576 | 41,805 | 43,878 | ||||||||||
Income before income taxes | 36,621 | 90,318 | 92,059 | 171,453 | ||||||||||
Income tax expense | (13,916 | ) | (34,321 | ) | (34,983 | ) | (65,152 | ) | ||||||
Net income | $ | 22,705 | 55,997 | 57,076 | 106,301 | |||||||||
Additional information: | ||||||||||||||
Net income | $ | 22,705 | 55,997 | 57,076 | 106,301 | See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value and foreign currency adjustments. Net income, excluding derivative market value and foreign currency adjustments, decreased in 2016 as compared to 2015 due to a decrease in variable student loan spread and fixed rate floor income. | ||||||||
Derivative market value and foreign currency adjustments, net | 31,411 | (9,404 | ) | 51,308 | (12,994 | ) | ||||||||
Tax effect | (11,936 | ) | 3,574 | (19,497 | ) | 4,938 | ||||||||
Net income, excluding derivative market value and foreign currency adjustments | $ | 42,180 | 50,167 | 88,887 | 98,245 |
Three months ended June 30, | Six months ended June 30, | Additional information | ||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Variable interest income, net of settlements on derivatives | $ | 191,802 | 180,868 | 388,928 | 357,346 | Increase due to an increase in the gross yield earned on student loans, net of settlements on derivatives, partially offset by a decrease in the average balance of student loans. | ||||||||
Consolidation rebate fees | (56,786 | ) | (58,427 | ) | (115,222 | ) | (117,298 | ) | Decrease due to a decrease in the average consolidation loan balance. | |||||
Discount accretion, net of premium and deferred origination costs amortization | 4,291 | 3,136 | 8,644 | 6,267 | Increase due to the Company's purchases of loans at a net discount over the last several years. | |||||||||
Interest on bonds and notes payable | (92,166 | ) | (71,056 | ) | (181,354 | ) | (141,160 | ) | Increase due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding. | |||||
Variable student loan interest margin, net of settlements on derivatives | 47,141 | 54,521 | 100,996 | 105,155 | ||||||||||
Fixed rate floor income, net of settlements on derivatives | 39,497 | 45,069 | 80,136 | 91,313 | The high levels of fixed rate floor income earned are due to historically low interest rates. Fixed rate floor income has decreased due to the rising interest rate environment. | |||||||||
Investment interest | 899 | 444 | 1,634 | 922 | ||||||||||
Intercompany interest | (604 | ) | (385 | ) | (1,292 | ) | (821 | ) | ||||||
Provision for loan losses - federally insured | (2,000 | ) | (2,000 | ) | (4,000 | ) | (4,000 | ) | See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations." | |||||
Provision for loan losses - private education loans | — | (150 | ) | (500 | ) | (150 | ) | |||||||
Net interest income after provision for loan losses (net of settlements on derivatives) | $ | 84,933 | 97,499 | 176,974 | 192,419 |
As of June 30, 2016 | |||||
Carrying amount | Final maturity | ||||
Bonds and notes issued in asset-backed securitizations | $ | 24,576,893 | 8/26/19 - 8/26/52 | ||
FFELP warehouse facilities | 1,811,708 | 7/9/18 - 4/26/19 | |||
Private education loan warehouse facility | 221,114 | 4/28/17 | |||
Other borrowings | 75,000 | 10/31/16 | |||
$ | 26,684,715 |
Total shares repurchased | Purchase price (in thousands) | Average price of shares repurchased (per share) | |||||||
Quarter ended March 31, 2016 | 1,599,099 | $ | 52,069 | 32.56 | |||||
Quarter ended June 30, 2016 | 11,942 | 399 | 33.45 | ||||||
Total | 1,611,041 | $ | 52,468 | 32.57 |
As of June 30, 2016 | As of December 31, 2015 | ||||||||||||
Dollars | Percent | Dollars | Percent | ||||||||||
Fixed-rate loan assets | $ | 10,010,100 | 37.4 | % | $ | 11,229,584 | 39.3 | % | |||||
Variable-rate loan assets | 16,744,460 | 62.6 | 17,326,165 | 60.7 | |||||||||
Total | $ | 26,754,560 | 100.0 | % | $ | 28,555,749 | 100.0 | % | |||||
Fixed-rate debt instruments | $ | 18,355 | 0.1 | % | $ | 18,355 | 0.1 | % | |||||
Variable-rate debt instruments | 26,846,899 | 99.9 | 28,584,976 | 99.9 | |||||||||
Total | $ | 26,865,254 | 100.0 | % | $ | 28,603,331 | 100.0 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Fixed rate floor income, gross | $ | 44,338 | 50,088 | 90,220 | 101,347 | |||||||
Derivative settlements (a) | (4,841 | ) | (5,019 | ) | (10,084 | ) | (10,034 | ) | ||||
Fixed rate floor income, net | $ | 39,497 | 45,069 | 80,136 | 91,313 |
(a) | Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income. |
Fixed interest rate range | Borrower/lender weighted average yield | Estimated variable conversion rate (a) | Loan balance | |||||
3.0 - 3.49% | 3.28% | 0.64% | $ | 1,536,726 | ||||
3.5 - 3.99% | 3.65% | 1.01% | 2,212,385 | |||||
4.0 - 4.49% | 4.20% | 1.56% | 1,639,781 | |||||
4.5 - 4.99% | 4.72% | 2.08% | 997,829 | |||||
5.0 - 5.49% | 5.22% | 2.58% | 627,344 | |||||
5.5 - 5.99% | 5.67% | 3.03% | 439,469 | |||||
6.0 - 6.49% | 6.19% | 3.55% | 510,363 | |||||
6.5 - 6.99% | 6.70% | 4.06% | 500,707 | |||||
7.0 - 7.49% | 7.17% | 4.53% | 174,555 | |||||
7.5 - 7.99% | 7.71% | 5.07% | 294,973 | |||||
8.0 - 8.99% | 8.18% | 5.54% | 685,884 | |||||
> 9.0% | 9.04% | 6.40% | 237,633 | |||||
$ | 9,857,649 |
(a) | The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of June 30, 2016, the weighted average estimated variable conversion rate was 2.26% and the short-term interest rate was 45 basis points. |
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | |||||
2016 | $ | 750,000 | 0.72 | % | |||
2017 | 1,000,000 | 0.97 | |||||
2018 | 1,600,000 | 1.08 | |||||
2019 | 3,250,000 | 0.97 | |||||
2020 | 1,500,000 | 1.01 | |||||
2025 | 100,000 | 2.32 | |||||
2026 | 50,000 | 1.52 | |||||
$ | 8,250,000 | 0.99 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
Index | Frequency of variable resets | Assets | Funding of student loan assets | ||||||
1 month LIBOR (a) | Daily | $ | 24,356,092 | — | |||||
3 month H15 financial commercial paper | Daily | 1,339,268 | — | ||||||
3 month Treasury bill | Daily | 771,030 | — | ||||||
3 month LIBOR (a) (b) | Quarterly | — | 14,741,895 | ||||||
1 month LIBOR | Monthly | — | 9,189,155 | ||||||
Auction-rate (c) | Varies | — | 1,158,415 | ||||||
Asset-backed commercial paper (d) | Varies | — | 1,299,136 | ||||||
Other (e) | 1,220,030 | 1,297,819 | |||||||
$ | 27,686,420 | 27,686,420 |
(a) | The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of June 30, 2016. |
Maturity | Notional amount | |||
2016 | $ | 2,000,000 | ||
2028 | 125,000 |
(b) | The Company has Euro-denominated notes that reprice on the EURIBOR index. The Company has entered into a cross-currency interest rate swap that converts the EURIBOR index to three-month LIBOR. As a result, these notes are reflected in the three-month LIBOR category in the above table. See “Foreign Currency Exchange Risk” below. |
(c) | The interest rates on certain of the Company's asset-backed securities are set and periodically reset via a "dutch auction" (“Auction Rate Securities”). As of June 30, 2016, the Company was sponsor for $1.2 billion of Auction Rate Securities. Since February 2008, problems in the auction rate securities market as a whole have led to failures of the auctions pursuant to which the Company's Auction Rate Securities' interest rates are set. As a result, the Auction Rate |
(d) | The interest rates on certain of the Company's warehouse facilities are indexed to asset-backed commercial paper rates. |
(e) | Assets include accrued interest receivable and restricted cash and investments. Funding represents overcollateralization (equity) included in FFELP asset-backed securitizations and warehouse facilities and other liabilities funding student loans and related assets. |
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 June 30, 2016 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (17,682 | ) | (42.9 | )% | $ | (32,373 | ) | (78.6 | )% | $ | (4,075 | ) | (9.9 | )% | $ | (12,226 | ) | (29.6 | )% | |||||||
Impact of derivative settlements | 13,542 | 32.9 | 40,625 | 98.6 | 717 | 1.7 | 2,151 | 5.2 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (4,140 | ) | (10.0 | )% | $ | 8,252 | 20.0 | % | $ | (3,358 | ) | (8.2 | )% | $ | (10,075 | ) | (24.4 | )% | ||||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.06 | ) | $ | 0.12 | $ | (0.05 | ) | $ | (0.15 | ) | ||||||||||||||||
Three months ended June 30, 2015 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (19,948 | ) | (17.9 | )% | $ | (35,538 | ) | (31.9 | )% | $ | (4,106 | ) | (3.7 | )% | $ | (12,316 | ) | (11.1 | )% | |||||||
Impact of derivative settlements | 8,547 | 7.7 | 25,640 | 23.0 | 1,219 | 1.1 | 3,656 | 3.3 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (11,401 | ) | (10.2 | )% | $ | (9,898 | ) | (8.9 | )% | $ | (2,887 | ) | (2.6 | )% | $ | (8,660 | ) | (7.8 | )% | |||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.15 | ) | $ | (0.13 | ) | $ | (0.04 | ) | $ | (0.12 | ) | |||||||||||||||
Six months ended June 30, 2016 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (36,040 | ) | (31.7 | )% | $ | (66,023 | ) | (58.1 | )% | $ | (8,248 | ) | (7.3 | )% | $ | (24,745 | ) | (21.8 | )% | |||||||
Impact of derivative settlements | 29,250 | 25.7 | 87,750 | 77.2 | 2,340 | 2.1 | 7,020 | 6.2 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (6,790 | ) | (6.0 | )% | $ | 21,727 | 19.1 | % | $ | (5,908 | ) | (5.2 | )% | $ | (17,725 | ) | (15.6 | )% | ||||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.10 | ) | $ | 0.31 | $ | (0.09 | ) | $ | (0.26 | ) | ||||||||||||||||
Six months ended June 30, 2015 | |||||||||||||||||||||||||||
Effect on earnings: | |||||||||||||||||||||||||||
Decrease in pre-tax net income before impact of derivative settlements | $ | (39,732 | ) | (18.6 | )% | $ | (69,605 | ) | (32.5 | )% | $ | (8,313 | ) | (3.9 | )% | $ | (24,938 | ) | (11.7 | )% | |||||||
Impact of derivative settlements | 16,547 | 7.7 | 49,640 | 23.2 | 2,781 | 1.3 | 8,343 | 3.9 | |||||||||||||||||||
Increase (decrease) in net income before taxes | $ | (23,185 | ) | (10.9 | )% | $ | (19,965 | ) | (9.3 | )% | $ | (5,532 | ) | (2.6 | )% | $ | (16,595 | ) | (7.8 | )% | |||||||
Increase (decrease) in basic and diluted earnings per share | $ | (0.31 | ) | $ | (0.26 | ) | $ | (0.08 | ) | $ | (0.23 | ) |
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) | |||||||||
April 1 - April 30, 2016 | 1,131 | $ | 38.40 | — | 1,664,223 | ||||||||
May 1 - May 31, 2016 | — | — | — | 5,000,000 | |||||||||
June 1 - June 30, 2016 | 10,811 | 32.93 | 7,640 | 4,992,360 | |||||||||
Total | 11,942 | $ | 33.45 | 7,640 |
(a) | The total number of shares includes: (i) shares repurchased 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 tendered by employees to satisfy tax withholding obligations included 1,131 shares, 0 shares, and 3,171 shares in April, May, and June 2016, respectively. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company’s shares on the date of vesting. |
(b) | On May 7, 2015, 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, 2018. On August 4, 2016, the Company announced that its Board of Directors authorized a new stock repurchase program in May 2016 to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 25, 2019. The five million shares authorized under the new program include the remaining 1,644,223 un-repurchased shares from the prior program, which the new program replaced. |
• | 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. |
3.1 | Articles of Amendment to Second Amended and Restated Articles of Incorporation of Nelnet, Inc., filed as Exhibit 3.1 to the registrant's Current Report on Form 8-K filed on May 31, 2016 and incorporated by reference herein. |
3.2* | Composite Second Amended and Restated Articles of Incorporation of Nelnet, Inc. as amended. |
31.1* | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Jeffrey R. Noordhoek. |
31.2* | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D. Kruger. |
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: | August 4, 2016 | By: | /s/ JEFFREY R. NOORDHOEK | |
Name: | Jeffrey R. Noordhoek | |||
Title: | Chief Executive Officer Principal Executive Officer | |||
By: | /s/ JAMES D. KRUGER | |||
Date: | August 4, 2016 | Name: | James D. Kruger | |
Title: | Chief Financial Officer Principal Financial Officer and Principal Accounting Officer |