NELNET INC, 10-Q filed on 11/8/2018
Quarterly Report
v3.10.0.1
Document and Entity Information Document - shares
9 Months Ended
Sep. 30, 2018
Oct. 31, 2018
Document Information [Line Items]    
Entity Registrant Name NELNET INC  
Document Type 10-Q  
Current Fiscal Year End Date --12-31  
Amendment Flag false  
Entity Central Index Key 0001258602  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Entity Emerging Growth Company false  
Entity Small Business false  
Common Class A [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   29,257,880
Common Class B [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   11,468,587
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Assets:    
Loans receivable (net of allowance for loan losses of $60,217 and $54,590, respectively) $ 22,528,362 $ 21,814,507
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 10,766 6,982
Cash and cash equivalents - held at a related party 72,771 59,770
Total cash and cash equivalents 83,537 66,752
Investments and notes receivable 246,815 240,538
Restricted cash 723,338 688,193
Restricted cash – due to customers 188,591 187,121
Loan accrued interest receivable 624,259 430,385
Accounts receivable (net of allowance for doubtful accounts of $2,426 and $1,436, respectively) 76,899 37,863
Goodwill 153,802 138,759
Intangible assets, net 95,660 38,427
Property and equipment, net 339,730 248,051
Other assets 41,889 73,021
Fair value of derivative instruments 2,043 818
Total assets 25,104,925 23,964,435
Liabilities:    
Bonds and notes payable 22,251,433 21,356,573
Accrued interest payable 60,658 50,039
Other liabilities 272,891 198,252
Due to customers 188,591 187,121
Fair value of derivative instruments 4,224 7,063
Total liabilities 22,777,797 21,799,048
Commitments and contingencies
Nelnet, Inc. shareholders' equity:    
Preferred stock 0 0
Additional paid-in capital 4,908 521
Retained earnings 2,307,573 2,143,983
Accumulated other comprehensive earnings 3,975 4,617
Total Nelnet, Inc. shareholders' equity 2,316,864 2,149,529
Noncontrolling interests 10,264 15,858
Total equity 2,327,128 2,165,387
Total liabilities and equity 25,104,925 23,964,435
Common Class A [Member]    
Nelnet, Inc. shareholders' equity:    
Common stock 293 293
Common Class B [Member]    
Nelnet, Inc. shareholders' equity:    
Common stock 115 115
Supplemental information - assets and liabilities of consolidated education lending variable interest entities: [Member]    
Assets:    
Loans receivable (net of allowance for loan losses of $60,217 and $54,590, respectively) 22,536,434 21,909,476
Cash and cash equivalents:    
Restricted cash 683,211 641,994
Other assets 625,122 431,934
Liabilities:    
Bonds and notes payable 22,337,987 21,702,298
Other liabilities 214,554 168,637
Nelnet, Inc. shareholders' equity:    
Net assets of consolidated education lending variable interest entities $ 1,292,226 $ 1,112,469
v3.10.0.1
Consolidated Balance Sheets (Parentheticals) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Allowance for loan losses $ 60,217 $ 54,590
Allowance for doubtful accounts $ 2,426 $ 1,436
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, authorized shares (in shares) 50,000,000 50,000,000
Preferred stock, issued shares (in shares) 0 0
Preferred stock, outstanding shares (in shares) 0 0
Common Class A [Member]    
Par Value (in dollars per share) $ 0.01 $ 0.01
Shares Authorized (in shares) 600,000,000 600,000,000
Shares Issued (in shares) 29,341,791 29,341,517
Shares Outstanding (in shares) 29,341,791 29,341,517
Common Class B [Member]    
Par Value (in dollars per share) $ 0.01 $ 0.01
Shares Authorized (in shares) 60,000,000 60,000,000
Shares Issued (in shares) 11,468,587 11,468,587
Shares Outstanding (in shares) 11,468,587 11,468,587
v3.10.0.1
Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Interest income:        
Loan interest $ 232,320 $ 193,087 $ 653,414 $ 564,173
Investment interest 7,628 3,800 18,581 9,616
Total interest income 239,948 196,887 671,995 573,789
Interest expense:        
Interest on bonds and notes payable 180,175 121,650 487,174 341,787
Net interest income 59,773 75,237 184,821 232,002
Less provision for loan losses 10,500 6,700 18,000 10,700
Net interest income (loss) after provision for loan losses 49,273 68,537 166,821 221,302
Other income:        
Other income 16,673 19,756 44,449 44,874
Gain from debt repurchases 0 116 359 5,537
Derivative market value and foreign currency transaction adjustments and derivative settlements, net 17,098 7,173 100,927 (25,568)
Total other income 216,577 140,104 671,699 359,361
Cost of services:        
Total cost of services 23,397 17,783 55,979 44,245
Operating expenses:        
Salaries and benefits 114,172 74,193 321,932 220,684
Depreciation and amortization 22,992 10,051 62,943 27,687
Loan servicing fees 3,087 8,017 9,428 19,670
Other expenses 45,194 29,500 119,020 81,923
Total operating expenses 185,445 121,761 513,323 349,964
Income before income taxes 57,008 69,097 269,218 186,454
Income tax expense 13,882 25,562 63,369 70,349
Net income (loss) 43,126 43,535 205,849 116,105
Net (income) loss attributable to noncontrolling interests (199) 2,768 438 8,960
Net income (loss) attributable to Nelnet, Inc. $ 42,927 $ 46,303 $ 206,287 $ 125,065
Earnings per common share:        
Net income attributable to Nelnet, Inc. shareholders - basic and diluted (in dollars per share) $ 1.05 $ 1.11 $ 5.04 $ 2.97
Weighted average common shares outstanding - basic and diluted (in shares) 40,988,965 41,553,316 40,942,177 42,054,532
Loan Servicing And Systems [Member]        
Other income:        
Revenue $ 112,579 $ 55,950 $ 327,265 $ 167,079
Education Technology Services And Payment Processing Services [Member]        
Other income:        
Revenue 58,409 50,358 167,372 149,862
Cost of services:        
Total cost of services 19,087 15,151 44,087 37,456
Communications Services [Member]        
Other income:        
Revenue 11,818 6,751 31,327 17,577
Cost of services:        
Total cost of services $ 4,310 $ 2,632 $ 11,892 $ 6,789
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 43,126 $ 43,535 $ 205,849 $ 116,105
Available-for-sale securities:        
Unrealized holding losses arising during period, net 2,438 405 964 383
Reclassification adjustment for gains recognized in net income, net of losses (765) (504) (817) (1,244)
Income tax effect (402) 35 (46) 318
Total other comprehensive income (loss) 1,271 (64) 101 (543)
Comprehensive income 44,397 43,471 205,950 115,562
Comprehensive (income) loss attributable to noncontrolling interests (199) 2,768 438 8,960
Comprehensive income attributable to Nelnet, Inc. $ 44,198 $ 46,239 $ 206,388 $ 124,522
v3.10.0.1
Consolidated Statements of Shareholders' Equity - USD ($)
$ in Thousands
Total
Preferred Stock [Member]
Common Stock [Member]
Common Class A [Member]
Common Stock [Member]
Common Class B [Member]
Additional paid-in capital [Member]
Retained earnings [Member]
Accumulated other comprehensive earnings [Member]
Noncontrolling interests [Member]
Balance (in shares) at Dec. 31, 2016   0 30,628,112 11,476,932        
Balance at Dec. 31, 2016 $ 2,070,925 $ 0 $ 306 $ 115 $ 420 $ 2,056,084 $ 4,730 $ 9,270
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 19,553             19,553
Net income (loss) 116,105         125,065   (8,960)
Other comprehensive income (loss) (543)           (543)  
Distribution to noncontrolling interests (1,274)             (1,274)
Cash dividend on Class A and Class B common stock (17,569)         (17,569)    
Issuance of common stock, net of forfeitures (in shares)     171,481          
Issuance of common stock, net of forfeitures 3,361   $ 2   3,359      
Compensation expense for stock based awards 3,213       3,213      
Repurchase of common stock (in shares)     (1,363,571)          
Repurchase of common stock (63,331)   $ (14)   (6,632) (56,685)    
Balance (in shares) at Sep. 30, 2017   0 29,436,022 11,476,932        
Balance at Sep. 30, 2017 2,130,440 $ 0 $ 294 $ 115 360 2,106,895 4,187 18,589
Balance (in shares) at Jun. 30, 2017   0 30,373,691 11,476,932        
Balance at Jun. 30, 2017 2,130,409 $ 0 $ 304 $ 115 366 2,110,158 4,251 15,215
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 6,901             6,901
Net income (loss) 43,535         46,303   (2,768)
Other comprehensive income (loss) (64)           (64)  
Distribution to noncontrolling interests (759)             (759)
Cash dividend on Class A and Class B common stock (5,766)         (5,766)    
Issuance of common stock, net of forfeitures (in shares)     10,125          
Issuance of common stock, net of forfeitures 278   $ 0   278      
Compensation expense for stock based awards 1,042       1,042      
Repurchase of common stock (in shares)     (947,794)          
Repurchase of common stock (45,136)   $ (10)   (1,326) (43,800)    
Balance (in shares) at Sep. 30, 2017   0 29,436,022 11,476,932        
Balance at Sep. 30, 2017 2,130,440 $ 0 $ 294 $ 115 360 2,106,895 4,187 18,589
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Impact of adoption of new accounting standards 1,264         2,007 (743)  
Balance (in shares) at Dec. 31, 2017   0 29,341,517 11,468,587        
Balance at Dec. 31, 2017 2,165,387 $ 0 $ 293 $ 115 521 2,143,983 4,617 15,858
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 847             847
Net income (loss) 205,849         206,287   (438)
Other comprehensive income (loss) 101           101  
Distribution to noncontrolling interests (351)             (351)
Cash dividend on Class A and Class B common stock (19,539)         (19,539)    
Issuance of common stock, net of forfeitures (in shares)     319,365          
Issuance of common stock, net of forfeitures 4,665   $ 3   4,662      
Compensation expense for stock based awards 4,526       4,526      
Repurchase of common stock (in shares)     (319,091)          
Repurchase of common stock (16,520)   $ (3)   (4,801) (11,716)    
Acquisition of noncontrolling interest (19,101)         (13,449)   (5,652)
Balance (in shares) at Sep. 30, 2018   0 29,341,791 11,468,587        
Balance at Sep. 30, 2018 2,327,128 $ 0 $ 293 $ 115 4,908 2,307,573 3,975 10,264
Balance (in shares) at Jun. 30, 2018   0 29,331,002 11,468,587        
Balance at Jun. 30, 2018 2,286,703 $ 0 $ 293 $ 115 2,586 2,271,171 2,704 9,834
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 326             326
Net income (loss) 43,126         42,927   199
Other comprehensive income (loss) 1,271           1,271  
Distribution to noncontrolling interests (95)             (95)
Cash dividend on Class A and Class B common stock (6,525)         (6,525)    
Issuance of common stock, net of forfeitures (in shares)     14,086          
Issuance of common stock, net of forfeitures 580   $ 0   580      
Compensation expense for stock based awards 1,934       1,934      
Repurchase of common stock (in shares)     (3,297)          
Repurchase of common stock (192)   $ 0   (192) 0    
Balance (in shares) at Sep. 30, 2018   0 29,341,791 11,468,587        
Balance at Sep. 30, 2018 $ 2,327,128 $ 0 $ 293 $ 115 $ 4,908 $ 2,307,573 $ 3,975 $ 10,264
v3.10.0.1
Consolidated Statements of Shareholders' Equity (Parentheticals) - $ / shares
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Common Class A [Member]        
Dividends paid per common share (in dollars per share) $ 0.16 $ 0.14 $ 0.48 $ 0.42
Common Class B [Member]        
Dividends paid per common share (in dollars per share) $ 0.16 $ 0.14 $ 0.48 $ 0.42
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Statement of Cash Flows [Abstract]    
Net income (loss) attributable to Nelnet, Inc. $ 206,287,000 $ 125,065,000
Net loss attributable to noncontrolling interests (438,000) (8,960,000)
Net income (loss) 205,849,000 116,105,000
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:    
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 136,816,000 99,826,000
Loan discount accretion (31,315,000) (32,820,000)
Provision for loan losses 18,000,000 10,700,000
Derivative market value adjustment (49,909,000) (22,381,000)
Unrealized foreign currency transaction adjustment 0 45,635,000
Proceeds from clearinghouse - initial and variation margin, net 46,418,000 58,900,000
Gain from debt repurchases (359,000) (5,537,000)
Gain from equity securities, net of losses (8,280,000) 0
Deferred income tax expense (benefit) 23,574,000 (15,012,000)
Non-cash compensation expense 4,781,000 3,370,000
Impairment expense 3,907,000 0
Other (856,000) 3,451,000
Increase in loan accrued interest receivable (193,926,000) (5,572,000)
Increase in accounts receivable (15,328,000) (19,209,000)
Decrease (increase) in other assets 49,255,000 (8,660,000)
Increase in accrued interest payable 10,619,000 2,147,000
(Decrease) increase in other liabilities (7,159,000) 20,548,000
Increase (decrease) in due to customers 1,470,000 (14,403,000)
Net cash provided by operating activities 193,557,000 237,088,000
Cash flows from investing activities, net of acquisition:    
Purchases of loans (3,231,956,000) (183,466,000)
Net proceeds from loan repayments, claims, capitalized interest, and other 2,484,596,000 2,520,197,000
Proceeds from sale of loans 23,712,000 0
Purchases of available-for-sale securities (38,064,000) (109,666,000)
Proceeds from sales of available-for-sale securities 58,594,000 141,206,000
Purchases of investments and issuance of notes receivable (49,216,000) (21,823,000)
Proceeds from investments and notes receivable 21,461,000 6,174,000
Purchases of property and equipment (96,480,000) (106,656,000)
Business acquisition, net of cash acquired (109,152,000) 0
Net cash (used in) provided by investing activities (936,505,000) 2,245,966,000
Cash flows from financing activities:    
Payments on bonds and notes payable (2,149,449,000) (3,679,592,000)
Proceeds from issuance of bonds and notes payable 3,004,848,000 1,178,027,000
Payments of debt issuance costs (10,953,000) (4,411,000)
Dividends paid (19,539,000) (17,569,000)
Repurchases of common stock (16,520,000) (63,331,000)
Proceeds from issuance of common stock 993,000 457,000
Acquisition of noncontrolling interest (13,449,000) 0
Issuance of noncontrolling interests 768,000 19,475,000
Distribution to noncontrolling interests (351,000) (1,274,000)
Net cash provided by (used in) financing activities 796,348,000 (2,568,218,000)
Net increase (decrease) in cash, cash equivalents, and restricted cash 53,400,000 (85,164,000)
Cash, cash equivalents, and restricted cash, beginning of period 942,066,000 1,170,317,000
Cash, cash equivalents, and restricted cash, end of period 995,466,000 1,085,153,000
Supplemental disclosures of cash flow information:    
Cash disbursements made for interest 425,782,000 287,265,000
Cash (refunds received) disbursements made for income taxes, net $ (6,491,000) $ 71,431,000
v3.10.0.1
Consolidated Statements of Cash Flows Cash, Cash Equivalents And Restricted Cash Reconciliation - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2016
Statement of Cash Flows [Abstract]        
Total cash and cash equivalents $ 83,537 $ 66,752 $ 254,391 $ 69,654
Restricted cash 723,338 688,193 725,463 980,961
Restricted cash – due to customers 188,591 187,121 105,299 119,702
Cash, cash equivalents, and restricted cash $ 995,466 $ 942,066 $ 1,085,153 $ 1,170,317
v3.10.0.1
Basis of Financial Reporting
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Financial Reporting
Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2017 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results for the year ending December 31, 2018. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Annual Report").

Reporting Segment Name Changes

During the first quarter of 2018, the Company changed the name of the Tuition Payment Processing and Campus Commerce operating segment to Education Technology, Services, and Payment Processing to better describe the evolution of services this operating segment provides. In addition, the Loan Systems and Servicing segment was retitled as Loan Servicing and Systems. As a result, the line items "tuition payment processing, school information, and campus commerce revenue" and "loan systems and servicing revenue" on the consolidated statements of income were changed to "education technology, services, and payment processing revenue" and "loan servicing and systems revenue," respectively.

Reclassifications

Certain amounts previously reported within the Company's consolidated balance sheet, statements of income, and statements of cash flows have been reclassified to conform to the current period presentation. These reclassifications include:

Reclassifying certain non-customer receivables, which were previously included in "accounts receivable," to "other assets."

Reclassifying direct costs to provide services for education technology, services, and payment processing, which were previously included in "other expenses," to "cost to provide education technology, services, and payment processing services."

Reclassifying the line item "cost to provide communications services" on the consolidated statements of income from part of "operating expenses" and presenting such costs as part of "cost of services."

Reclassifying consumer loan activity on the consolidated statements of income, which was previously included in "investment interest" and "other expenses," to "loan interest" and "provision for loan losses" and "loan servicing fees," respectively, and reclassifying consumer loan activity on the consolidated statements of cash flows as appropriate. This did not result in a change in the Company's previously reported net cash provided by operating or investing activities.

Accounting Standards Adopted in 2018

In the first quarter of 2018, the Company adopted the following new accounting standards and other guidance:
Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted the standard effective January 1, 2018, using the full retrospective method, which required it to restate each prior reporting period presented. As a result, the Company changed its accounting policy for revenue recognition as detailed in note 2, “Summary of Significant Accounting Policies and Practices.”
The most significant impact of the standard relates to identifying the Company's fee-based Education Technology, Services, and Payment Processing operating segment as the principal in its payment services transactions. As a result of this change, the Company presents the payment services revenue gross, with the direct costs to provide these services presented separately. The Company’s other fee-based operating segments will recognize revenue consistent with historical revenue recognition patterns. The majority of the Company's revenue earned in its non-fee-based Asset Generation and Management operating segment, including loan interest and derivative activity, is explicitly excluded from the scope of the new standard.
Impacts to Previously Reported Results
Adoption of the revenue recognition standard impacted the Company’s previously reported results on the consolidated statements of income as follows:
 
Three months ended September 30, 2017
 
As previously reported
 
Impact of adoption
 
As restated
Education technology, services, and payment processing revenue
$
35,450

 
14,908

 
50,358

 
Cost to provide education technology, services, and payment processing services

 
14,908

 
14,908

(a)

 
Nine months ended September 30, 2017
 
As previously reported
 
Impact of adoption
 
As restated
Education technology, services, and payment processing revenue
$
113,293

 
36,569

 
149,862

 
Cost to provide education technology, services, and payment processing services

 
36,569

 
36,569

(a)


(a)
In addition to the impact of adopting the new revenue recognition standard, as discussed above, the Company reclassified other direct costs to provide education technology, services, and payment processing services which were previously reported as part of "other expenses" to "cost to provide education technology, services, and payment processing services."
Adoption of the new revenue recognition standard had no impact to the consolidated balance sheets or cash provided by or used in operating, investing, or financing activities on the consolidated statements of cash flows.
Equity Investments

In January 2016, the FASB issued new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. The guidance, including a related clarifying update, requires equity investments with readily determinable fair values to be measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee). An entity may choose to measure equity investments without readily determinable fair values at fair value or use the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In addition, the impairment assessment is simplified by requiring a qualitative assessment to identify impairment.

The guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities with readily determinable fair values previously recognized in accumulated other comprehensive income, and was adopted by the Company as of January 1, 2018. Upon adoption, the Company recorded an immaterial cumulative-effect adjustment to retained earnings, accumulated other comprehensive earnings, and investments and notes receivable. Subsequent to the adoption, the Company is accounting for the majority of its equity investments without readily determinable fair values using the measurement alternative.

Other Comprehensive Income

In February 2018, the FASB issued guidance which allows a reclassification from accumulated other comprehensive earnings to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, which became effective on January 1, 2018. This guidance is effective for fiscal years beginning after December 15, 2018, but early adoption is permitted. The Company elected to early adopt this guidance as of January 1, 2018. Upon adoption, the Company recorded an immaterial reclassification between accumulated other comprehensive earnings and retained earnings.

Restricted Cash

In November 2016, the FASB issued accounting guidance related to restricted cash. The new guidance requires that the statement of cash flows present the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents, and a reconciliation of such total to amounts on the balance sheet. The Company adopted the standard effective January 1, 2018 using the retrospective transition method. Adoption of this standard impacted the Company's previously reported amounts on the consolidated statements of cash flows as follows:
 
Nine months ended September 30, 2017
 
As previously reported
 
Impact of adoption
 
As restated
Decrease in due to customers
$

 
(14,403
)
 
(14,403
)
Proceeds from clearinghouse - initial and variation margin, net
37,744

 
21,156

 
58,900

Net cash provided by operating activities
230,335

 
6,753

 
237,088

Decrease in restricted cash, net
276,654

 
(276,654
)
 

Net cash provided by investing activities
2,522,620

 
(276,654
)
 
2,245,966

v3.10.0.1
Summary of Significant Accounting Policies and Practices
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies and Practices
Summary of Significant Accounting Policies and Practices

Except for the changes below, no significant changes have been made to the Company’s significant accounting policies and practices disclosed in note 3, Summary of Significant Accounting Policies and Practices, in the 2017 Annual Report.

Revenue Recognition

The Company applies the provisions of ASC Topic 606 to its fee-based operating segments. The majority of the Company’s revenue earned in its Asset Generation and Management operating segment, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606. The Company recognizes revenue under the core principle of ASC Topic 606 to depict the transfer of control of products and services to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. Additional information related to the Company's revenue recognition of specific items is provided below.

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Loan servicing and systems revenue - Loan servicing and systems revenue consists of the following items:

Loan servicing revenue - Loan servicing revenue consideration is determined from individual contracts with customers and is calculated monthly based on the dollar value of loans, number of loans, number of borrowers serviced for each customer, or number of transactions. Loan servicing requires a significant level of integration and the individual components are not considered distinct. The Company will perform various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period. Even though the mix and quantity of activities that the Company performs each period may differ, the nature of the activities are substantially the same. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.

Software services revenue - Software services revenue consideration is determined from individual contracts with customers and includes license and maintenance fees associated with loan software products, generally in a remote hosted environment, and computer and software consulting. Usage-based revenue from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits. Revenue from any non-refundable up-front fee is recognized ratably over the contract period, as the fee relates to set-up activities that provide no incremental benefit to the customers. Computer and software consulting is also capable of being distinct and accounted for as a separate performance obligation. Revenue allocated to computer and software consulting is recognized as services are provided.

Outsourced services revenue - Outsourced services revenue consideration is determined from individual contracts with customers and is calculated monthly based on the volume of services. Revenue is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.

The following table provides disaggregated revenue by service offering:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Government servicing - Nelnet
$
38,907

 
38,594

 
118,015

 
117,409

Government servicing - Great Lakes (a)
45,671

 

 
122,107

 

FFELP servicing
7,422

 
3,979

 
24,259

 
11,693

Private education and consumer loan servicing
10,007

 
7,596

 
31,990

 
20,535

Software services
8,201

 
4,430

 
24,461

 
13,093

 Outsourced services and other
2,371

 
1,351

 
6,433

 
4,349

Loan servicing and systems revenue
$
112,579

 
55,950

 
327,265

 
167,079


(a)
Great Lakes Educational Loan Services, Inc. ("Great Lakes") was acquired by the Company on February 7, 2018. For additional information about the acquisition, see note 7.

Education technology, services, and payment processing revenue - Education technology, services, and payment processing revenue consists of the following items:

Tuition payment plan services - Tuition payment plan services consideration is determined from individual plan agreements, which are governed by plan service agreements, and includes access to a remote hosted environment and management of payment processing. The management of payment processing is considered a distinct performance obligation when sold with the remote hosted environment. Revenue for each performance obligation is allocated to the distinct service period, the academic school term, and recognized ratably over the service period as customers simultaneously receive and consume benefits.

Payment processing - Payment processing consideration is determined from individual contracts with customers and includes electronic transfer and credit card processing, reporting, virtual terminal solutions, and specialized integrations to business software for education and non-education markets. Volume-based revenue from payment processing is allocated and recognized to the distinct service period, based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.

Education technology and services - Education technology and services consideration is determined from individual contracts with customers and is based on the services selected by the customer. Services in K-12 private and faith based schools include (i) assistance with financial needs assessment, (ii) automating administrative processes such as admissions, online applications and enrollment services, scheduling, student billing, attendance, and grade book management, and (iii) professional development and educational instruction services. Revenue for these services is recognized for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. Services provided to the higher education market include innovative education-focused technologies, services, and support solutions to help schools with the everyday challenges of collecting and processing commerce data. These services are considered distinct performance obligations. Revenue for each performance obligation is allocated to the distinct service period, typically a month or based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.

The following table provides disaggregated revenue by service offering:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Tuition payment plan services
$
19,771

 
17,885

 
63,209

 
58,543

Payment processing
26,956

 
22,541

 
62,908

 
55,371

Education technology and services
11,419

 
9,831

 
40,411

 
35,804

Other
263

 
101

 
844

 
144

Education technology, services, and payment processing revenue
$
58,409

 
50,358

 
167,372

 
149,862



Cost to provide education technology, services, and payment processing services is primarily associated with providing payment processing services. Interchange and payment network fees are charged by the card associations or payment networks. Depending upon the transaction type, the fees are a percentage of the transaction’s dollar value, a fixed amount, or a combination of the two methods. Other items included in cost to provide education technology, services, and payment processing services include salaries and benefits and third-party professional service costs directly related to providing professional development and educational instruction services to teachers, school leaders, and students.

Communications revenue - Communications revenue is derived principally from internet, television, and telephone services and is billed as a flat fee in advance of providing the service. Revenues for usage-based services, such as access charges billed to other telephone carriers for originating and terminating long-distance calls on the Company's network, are billed in arrears. These are each considered distinct performance obligations. Revenue is recognized monthly for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed. The Company recognizes revenue from these services in the period the services are rendered rather than billed. Revenue received or receivable in advance of the delivery of services is included in deferred revenue. Earned but unbilled usage-based services are recorded in accounts receivable.

The following table provides disaggregated revenue by service offering and customer type:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Internet
$
6,456

 
3,205

 
16,547

 
7,978

Television
3,385

 
2,115

 
9,250

 
5,498

Telephone
1,957

 
1,413

 
5,471

 
4,018

Other
20

 
18

 
59

 
83

Communications revenue
$
11,818

 
6,751

 
31,327

 
17,577

 
 
 
 
 
 
 
 
Residential revenue
$
8,896

 
4,680

 
23,367

 
11,851

Business revenue
2,861

 
2,013

 
7,779

 
5,525

Other
61

 
58

 
181

 
201

Communications revenue
$
11,818

 
6,751

 
31,327

 
17,577



Cost to provide communications services is primarily associated with television programming costs.  The Company has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in the month the programming is available for exhibition.  Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers. Other items in cost to provide communications services include connectivity, franchise, and other regulatory costs directly related to providing internet and telephone services.





Other income - The following table provides the components of "other income" on the consolidated statements of income:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Realized and unrealized gains on investments, net
$
1,288

 
2,201

 
11,505

 
3,818

Borrower late fee income
3,253

 
2,731

 
8,994

 
9,098

Investment advisory fees
1,183

 
5,852

 
4,169

 
11,661

Management fee revenue
1,756

 

 
4,673

 

Peterson's revenue

 
3,402

 

 
9,282

Other
9,193

 
5,570

 
15,108

 
11,015

Other income
$
16,673

 
19,756

 
44,449

 
44,874



Borrower late fee income - Late fee income is earned by the education lending subsidiaries. Revenue is allocated to the distinct service period, based on when each transaction is completed.

Investment advisory fees - Investment advisory services are provided by the Company through an SEC-registered investment advisor subsidiary under various arrangements. The Company earns monthly fees based on the monthly outstanding balance of investments and certain performance measures, which are recognized monthly as the uncertainty of the transaction price is resolved.

Management fee revenue - Management fee revenue is earned for technology and certain administrative support services provided to Great Lakes' former parent company. Revenue is allocated to the distinct service period, based on when each transaction is completed.

Peterson's revenue - The Company earned revenue related to digital marketing and content solution products and services under the brand name Peterson's. These products and services included test preparation study guides, school directories and databases, career exploration guides, on-line courses and test preparation, scholarship search and selection data, career planning information and guides, and on-line information about colleges and universities. Several content solutions services included services to connect students to colleges and universities, and were sold based on subscriptions. Revenue from sales of subscription services was recognized ratably over the term of the contract as it was earned. Subscription revenue received or receivable in advance of the delivery of services was included in deferred revenue. Revenue from the sale of print products was generally earned and recognized, net of estimated returns, upon shipment or delivery. All other digital marketing and content solutions revenue was recognized over the period in which services were provided to customers. On December 31, 2017, the Company sold Peterson's. The Company applied a practical expedient allowed for the retrospective comparative period which does not require the Company to restate revenue from contracts that began and were completed within the same annual reporting period.

Contract Balances - The following table provides information about liabilities from contracts with customers:
 
As of September 30, 2018
 
As of December 31, 2017
Deferred revenue, which is included in "other liabilities" on the consolidated balance sheets
$
42,831

 
32,276



Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue when revenue is received or receivable in advance of the delivery of service. For multi-year contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component.

Activity in the deferred revenue balance is shown below:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Balance, beginning of period
$
25,660

 
25,954

 
32,276

 
33,141

Deferral of revenue
45,174

 
38,705

 
97,726

 
79,435

Recognition of revenue
(27,992
)
 
(22,181
)
 
(87,303
)
 
(70,128
)
Other
(11
)
 
27

 
132

 
57

Balance, end of period
$
42,831

 
42,505

 
42,831

 
42,505



Assets Recognized from the Costs to Obtain a Contract with a Customer - The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in “other assets” on the consolidated balance sheets.
v3.10.0.1
Loans Receivable and Allowance for Loan Losses
9 Months Ended
Sep. 30, 2018
Receivables [Abstract]  
Loans Receivable and Allowance for Loan Losses
Loans Receivable and Allowance for Loan Losses

Loans receivable consisted of the following:
 
As of
 
As of
 
September 30, 2018
 
December 31, 2017
Federally insured student loans:
 
 
 
Stafford and other
$
4,956,324

 
4,418,881

Consolidation
17,434,419

 
17,302,725

Total
22,390,743

 
21,721,606

Private education loans
169,467

 
212,160

Consumer loans
112,547

 
62,111

 
22,672,757

 
21,995,877

Loan discount, net of unamortized loan premiums and deferred origination costs
(63,566
)
 
(113,695
)
Non-accretable discount
(20,612
)
 
(13,085
)
Allowance for loan losses:
 
 
 
Federally insured loans
(43,053
)
 
(38,706
)
Private education loans
(11,253
)
 
(12,629
)
Consumer loans
(5,911
)
 
(3,255
)
 
$
22,528,362

 
21,814,507


Activity in the Allowance for Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of loans. Activity in the allowance for loan losses is shown below.
 
Three months ended September 30, 2018
 
Balance at beginning of period
 
Provision for loan losses
 
Charge-offs
 
Recoveries
 
Other
 
Balance at end of period
Federally insured loans
$
37,263

 
8,000

 
(2,210
)
 

 

 
43,053

Private education loans
11,664

 

 
(535
)
 
124

 

 
11,253

Consumer loans
4,788

 
2,500

 
(1,403
)
 
26

 

 
5,911

 
$
53,715

 
10,500

 
(4,148
)
 
150

 

 
60,217

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2017
Federally insured loans
$
35,862

 
7,000

 
(3,464
)
 

 

 
39,398

Private education loans
13,846

 
(1,000
)
 
(491
)
 
161

 
50

 
12,566

Consumer loans
1,000

 
700

 
(33
)
 

 

 
1,667

 
$
50,708

 
6,700

 
(3,988
)
 
161

 
50

 
53,631

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018
Federally insured loans
$
38,706

 
12,000

 
(8,653
)
 

 
1,000

 
43,053

Private education loans
12,629

 

 
(1,846
)
 
470

 

 
11,253

Consumer loans
3,255

 
6,000

 
(3,376
)
 
32

 

 
5,911

 
$
54,590

 
18,000

 
(13,875
)
 
502

 
1,000

 
60,217

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017
Federally insured loans
$
37,268

 
11,000

 
(8,870
)
 

 

 
39,398

Private education loans
14,574

 
(2,000
)
 
(861
)
 
603

 
250

 
12,566

Consumer loans

 
1,700

 
(33
)
 

 

 
1,667

 
$
51,842

 
10,700

 
(9,764
)
 
603

 
250

 
53,631


Student Loan Status and Delinquencies

Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.  The table below shows the Company’s loan delinquency amounts for federally insured and private education loans.
 
As of September 30, 2018
 
As of December 31, 2017
 
As of September 30, 2017
Federally insured loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
1,410,902

 
 
 
$
1,260,394

 
 
 
$
1,448,172

 
 
Loans in forbearance
1,487,107

 
 
 
1,774,405

 
 
 
2,406,346

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
16,921,119

 
86.8
%
 
16,477,004

 
88.2
%
 
16,534,795

 
88.7
%
Loans delinquent 31-60 days
689,454

 
3.5

 
682,586

 
3.7

 
579,665

 
3.1

Loans delinquent 61-90 days
412,639

 
2.1

 
374,534

 
2.0

 
334,085

 
1.8

Loans delinquent 91-120 days
347,013

 
1.8

 
287,922

 
1.5

 
255,567

 
1.4

Loans delinquent 121-270 days
853,224

 
4.4

 
629,480

 
3.4

 
700,319

 
3.8

Loans delinquent 271 days or greater
269,285

 
1.4

 
235,281

 
1.2

 
228,335

 
1.2

Total loans in repayment
19,492,734

 
100.0
%
 
18,686,807

 
100.0
%
 
18,632,766

 
100.0
%
Total federally insured loans
$
22,390,743

 
 

 
$
21,721,606

 
 

 
$
22,487,284

 
 
Private education loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
3,550

 
 
 
$
6,053

 
 
 
$
27,188

 
 
Loans in forbearance
1,577

 
 
 
2,237

 
 
 
2,904

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
156,383

 
95.2
%
 
196,720

 
96.5
%
 
190,153

 
96.8
%
Loans delinquent 31-60 days
1,796

 
1.1

 
1,867

 
0.9

 
1,200

 
0.6

Loans delinquent 61-90 days
1,155

 
0.7

 
1,052

 
0.5

 
1,195

 
0.6

Loans delinquent 91 days or greater
5,006

 
3.0

 
4,231

 
2.1

 
3,989

 
2.0

Total loans in repayment
164,340

 
100.0
%
 
203,870

 
100.0
%
 
196,537

 
100.0
%
Total private education loans
$
169,467

 
 

 
$
212,160

 
 

 
$
226,629

 
 
v3.10.0.1
Bonds and Notes Payable
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Bonds and Notes Payable
Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:
 
As of September 30, 2018
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
20,695,887

 
2.38% - 4.07%
 
4/25/24 - 10/25/66
Bonds and notes based on auction
799,576

 
2.77% - 3.51%
 
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes
21,495,463

 
 
 
 
FFELP warehouse facilities
705,144

 
2.34% / 2.38%
 
11/19/19 / 5/31/21
Variable-rate bonds and notes issued in private education loan asset-backed securitization
55,406

 
3.97%
 
12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
66,975

 
3.60% / 5.35%
 
12/26/40 / 12/28/43
Unsecured line of credit
160,000

 
3.65%
 
6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities
20,381

 
6.91%
 
9/15/61
Other borrowings
79,669

 
2.77% - 5.22%
 
10/1/18 - 12/15/45
 
22,583,038

 
 
 
 
Discount on bonds and notes payable and debt issuance costs
(331,605
)
 
 
 
 
Total
$
22,251,433

 
 
 
 
 
As of December 31, 2017
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
20,352,045

 
1.47% - 3.37%
 
8/25/21 - 2/25/66
Bonds and notes based on auction
780,829

 
2.09% - 2.69%
 
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes
21,132,874

 
 
 
 
FFELP warehouse facilities
335,992

 
1.55% / 1.56%
 
11/19/19 / 5/31/20
Variable-rate bonds and notes issued in private education loan asset-backed securitization
74,717

 
3.30%
 
12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
82,647

 
3.60% / 5.35%
 
12/26/40 / 12/28/43
Unsecured line of credit
10,000

 
2.98%
 
12/12/21
Unsecured debt - Junior Subordinated Hybrid Securities
20,381

 
5.07%
 
9/15/61
Other borrowings
70,516

 
2.44% - 3.38%
 
1/12/18 - 12/15/45
 
21,727,127

 
 
 
 
Discount on bonds and notes payable and debt issuance costs
(370,554
)
 
 
 
 
Total
$
21,356,573

 
 
 
 



FFELP Warehouse Facilities

The Company funds a portion of its Federal Family Education Loan Program (the "FFEL Program" or "FFELP") loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.

As of September 30, 2018, the Company had two FFELP warehouse facilities as summarized below.
 
 
NFSLW-I (a)
 
NHELP-II (b)
 
Total
Maximum financing amount
 
$
550,000

 
500,000

 
1,050,000

Amount outstanding
 
531,782

 
173,362

 
705,144

Amount available
 
$
18,218

 
326,638

 
344,856

Expiration of liquidity provisions
 
September 20, 2019

 
May 31, 2019

 
 
Final maturity date
 
November 19, 2019

 
May 31, 2021

 
 
Maximum advance rates
 
92 - 98%

 
85 - 95%

 
 
Minimum advance rates
 
84 - 90%

 
85 - 95%

 
 
Advanced as equity support
 
$
21,349

 
14,797

 
36,146



(a)
On April 24, 2018, the Company increased the maximum financing amount for this warehouse facility from $500.0 million to $1.25 billion. On May 3, 2018, the Company temporarily increased the maximum financing amount for this warehouse facility an additional $75.0 million to $1.325 billion. During the three months ended September 30, 2018, the Company decreased the maximum financing amount for this warehouse facility to $550.0 million.

On November 6, 2018, the Company amended the agreement for this warehouse facility, which changed the expiration date for the liquidity provisions to May 20, 2019 and changed the final maturity date to May 20, 2020. In addition, the amendment changed the advance rates on this facility that provides for formula-based advance rates that are static until the expiration date of the liquidity provisions. In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility.

(b)
On April 24, 2018, the Company amended the agreement for this warehouse facility, which changed the expiration date for the liquidity provisions to May 31, 2019 and changed the final maturity date to May 31, 2021.


Asset-Backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the first nine months of 2018.
 
 
2018-1
 
2018-2
 
2018-3
 
2018-4
 
Total
 
 
Class A-1 Notes
 
Class A-2 Notes
 
2018-1 total
 
 
 
Class A-1 Notes
 
Class A-2 Notes
 
Class A-3 Notes
 
2018-3 total
 
Class A-1 Notes
 
Class A-2 Notes
 
2018-4 total
 
 
Date securities issued
 
3/29/18
 
3/29/18
 
3/29/18
 
6/7/18
 
7/26/18
 
7/26/18
 
7/26/18
 
7/26/18
 
8/30/18
 
8/30/18
 
8/30/18
 
 
Total original principal amount
 
$
98,000

 
375,750

 
473,750

 
509,800

 
220,000

 
546,900

 
220,000

 
1,001,900

 
30,500

 
451,900

 
495,700

 
$
2,481,150

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total principal amount
 
$
98,000