NELNET INC, 10-Q filed on 8/7/2018
Quarterly Report
v3.10.0.1
Document and Entity Information Document - shares
6 Months Ended
Jun. 30, 2018
Jul. 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 Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Common Class A [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   29,332,461
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
Jun. 30, 2018
Dec. 31, 2017
Assets:    
Loans receivable (net of allowance for loan losses of $53,715 and $54,590, respectively) $ 22,710,369 $ 21,814,507
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 20,739 6,982
Cash and cash equivalents - held at a related party 47,128 59,770
Total cash and cash equivalents 67,867 66,752
Investments and notes receivable 256,647 240,538
Restricted cash 741,726 688,193
Restricted cash – due to customers 154,760 187,121
Accrued interest receivable 591,055 430,385
Accounts receivable (net of allowance for doubtful accounts of $1,778 and $1,436, respectively) 59,171 37,863
Goodwill 153,802 138,759
Intangible assets, net 102,489 38,427
Property and equipment, net 328,016 248,051
Other assets 41,388 73,021
Fair value of derivative instruments 1,954 818
Total assets 25,209,244 23,964,435
Liabilities:    
Bonds and notes payable 22,468,364 21,356,573
Accrued interest payable 63,226 50,039
Other liabilities 231,138 198,252
Due to customers 154,760 187,121
Fair value of derivative instruments 5,053 7,063
Total liabilities 22,922,541 21,799,048
Commitments and contingencies
Nelnet, Inc. shareholders' equity:    
Preferred stock 0 0
Additional paid-in capital 2,586 521
Retained earnings 2,271,171 2,143,983
Accumulated other comprehensive earnings 2,704 4,617
Total Nelnet, Inc. shareholders' equity 2,276,869 2,149,529
Noncontrolling interests 9,834 15,858
Total equity 2,286,703 2,165,387
Total liabilities and equity 25,209,244 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 $53,715 and $54,590, respectively) 22,759,323 21,909,476
Cash and cash equivalents:    
Restricted cash 699,779 641,994
Other assets 593,394 431,934
Liabilities:    
Bonds and notes payable 22,565,920 21,702,298
Other liabilities 261,731 168,637
Nelnet, Inc. shareholders' equity:    
Net assets of consolidated education lending variable interest entities $ 1,224,845 $ 1,112,469
v3.10.0.1
Consolidated Balance Sheets (Parentheticals) - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Allowance for loan losses $ 53,715 $ 54,590
Allowance for doubtful accounts $ 1,778 $ 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) 29,331,002 29,341,517
Shares Outstanding (in shares) 29,331,002 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 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Interest income:        
Loan interest $ 223,371 $ 189,878 $ 421,094 $ 371,086
Investment interest 5,818 3,200 10,952 5,816
Total interest income 229,189 193,078 432,046 376,902
Interest expense:        
Interest on bonds and notes payable 171,450 113,236 306,999 220,135
Net interest income 57,739 79,842 125,047 156,767
Less provision for loan losses 3,500 3,000 7,500 4,000
Net interest income (loss) after provision for loan losses 54,239 76,842 117,547 152,767
Other income:        
Other income 9,580 12,485 27,776 25,118
Gain from debt repurchases 0 442 359 5,421
Derivative market value and foreign currency transaction adjustments and derivative settlements, net 17,031 (27,910) 83,829 (32,741)
Total other income 200,218 91,115 455,123 219,256
Cost of services:        
Total cost of services 15,182 11,718 32,583 26,462
Operating expenses:        
Salaries and benefits 111,118 74,628 207,760 146,491
Depreciation and amortization 21,494 9,038 39,951 17,636
Loan servicing fees 3,204 5,628 6,341 11,653
Other expenses 40,409 26,262 73,826 52,423
Total operating expenses 176,225 115,556 327,878 228,203
Income before income taxes 63,050 40,683 212,209 117,358
Income tax expense 13,511 16,032 49,487 44,787
Net income (loss) 49,539 24,651 162,722 72,571
Net (income) loss attributable to noncontrolling interests (104) 4,086 637 6,192
Net income (loss) attributable to Nelnet, Inc. $ 49,435 $ 28,737 $ 163,359 $ 78,763
Earnings per common share:        
Net income attributable to Nelnet, Inc. shareholders - basic and diluted (in dollars per share) $ 1.21 $ 0.68 $ 3.99 $ 1.86
Weighted average common shares outstanding - basic and diluted (in shares) 40,886,617 42,326,540 40,918,396 42,309,295
Loan Servicing And Systems [Member]        
Other income:        
Revenue $ 114,545 $ 56,899 $ 214,687 $ 111,128
Education Technology Services And Payment Processing Services [Member]        
Other income:        
Revenue 48,742 43,480 108,963 99,504
Cost of services:        
Total cost of services 11,317 9,515 25,000 22,305
Communications Services [Member]        
Other income:        
Revenue 10,320 5,719 19,509 10,826
Cost of services:        
Total cost of services $ 3,865 $ 2,203 $ 7,583 $ 4,157
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 49,539 $ 24,651 $ 162,722 $ 72,571
Available-for-sale securities:        
Unrealized holding losses arising during period, net (413) (1,281) (1,474) (22)
Reclassification adjustment for gains recognized in net income, net of losses (5) (409) (52) (740)
Income tax effect 100 626 356 283
Total other comprehensive loss (318) (1,064) (1,170) (479)
Comprehensive income 49,221 23,587 161,552 72,092
Comprehensive (income) loss attributable to noncontrolling interests (104) 4,086 637 6,192
Comprehensive income attributable to Nelnet, Inc. $ 49,117 $ 27,673 $ 162,189 $ 78,284
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 12,652             12,652
Net income (loss) 72,571         78,763   (6,192)
Other comprehensive loss (479)           (479)  
Distribution to noncontrolling interests (515)             (515)
Cash dividend on Class A and Class B common stock (11,803)         (11,803)    
Issuance of common stock, net of forfeitures (in shares)     161,356          
Issuance of common stock, net of forfeitures 3,083   $ 2   3,081      
Compensation expense for stock based awards 2,170       2,170      
Repurchase of common stock (in shares)     (415,777)          
Repurchase of common stock (18,195)   $ (4)   (5,305) (12,886)    
Balance (in shares) at Jun. 30, 2017   0 30,373,691.000 11,476,932.000        
Balance at Jun. 30, 2017 2,130,409 $ 0 $ 304 $ 115 366 2,110,158 4,251 15,215
Balance (in shares) at Mar. 31, 2017   0 30,740,185 11,476,932        
Balance at Mar. 31, 2017 2,127,667 $ 0 $ 307 $ 115 2,236 2,100,214 5,315 19,480
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 26             26
Net income (loss) 24,651         28,737   (4,086)
Other comprehensive loss (1,064)           (1,064)  
Distribution to noncontrolling interests (205)             (205)
Cash dividend on Class A and Class B common stock (5,907)         (5,907)    
Issuance of common stock, net of forfeitures (in shares)     17,567          
Issuance of common stock, net of forfeitures 992   $ 0   992      
Compensation expense for stock based awards 1,075       1,075      
Repurchase of common stock (in shares)     (384,061)          
Repurchase of common stock (16,826)   $ (3)   (3,937) (12,886)    
Balance (in shares) at Jun. 30, 2017   0 30,373,691.000 11,476,932.000        
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]                
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 521             521
Net income (loss) 162,722         163,359   (637)
Other comprehensive loss (1,170)           (1,170)  
Distribution to noncontrolling interests (256)             (256)
Cash dividend on Class A and Class B common stock (13,014)         (13,014)    
Issuance of common stock, net of forfeitures (in shares)     305,279          
Issuance of common stock, net of forfeitures 4,085   $ 3   4,082      
Compensation expense for stock based awards 2,593       2,593      
Repurchase of common stock (in shares)     (315,794)          
Repurchase of common stock (16,328)   $ (3)   (4,610) (11,715)    
Acquisition of noncontrolling interest (19,101)         (13,449)   (5,652)
Balance (in shares) at Jun. 30, 2018   0 29,331,002.000 11,468,587.000        
Balance at Jun. 30, 2018 2,286,703 $ 0 $ 293 $ 115 2,586 2,271,171 2,704 9,834
Balance (in shares) at Mar. 31, 2018   0 29,289,689 11,468,587        
Balance at Mar. 31, 2018 2,245,226 $ 0 $ 293 $ 115 448 2,231,875 3,022 9,473
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 495             495
Net income (loss) 49,539         49,435   104
Other comprehensive loss (318)           (318)  
Distribution to noncontrolling interests (238)             (238)
Cash dividend on Class A and Class B common stock (6,508)         (6,508)    
Issuance of common stock, net of forfeitures (in shares)     134,933          
Issuance of common stock, net of forfeitures 1,911   $ 1   1,910      
Compensation expense for stock based awards 1,506       1,506      
Repurchase of common stock (in shares)     (93,620)          
Repurchase of common stock (4,910)   $ (1)   (1,278) (3,631)    
Balance (in shares) at Jun. 30, 2018   0 29,331,002.000 11,468,587.000        
Balance at Jun. 30, 2018 $ 2,286,703 $ 0 $ 293 $ 115 $ 2,586 $ 2,271,171 $ 2,704 $ 9,834
v3.10.0.1
Consolidated Statements of Shareholders' Equity (Parentheticals) - $ / shares
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Common Class A [Member]        
Dividends paid per common share (in dollars per share) $ 0.16 $ 0.14 $ 0.32 $ 0.28
Common Class B [Member]        
Dividends paid per common share (in dollars per share) $ 0.16 $ 0.14 $ 0.32 $ 0.28
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Statement of Cash Flows [Abstract]    
Net income (loss) attributable to Nelnet, Inc. $ 163,359 $ 78,763
Net loss attributable to noncontrolling interests (637) (6,192)
Net income (loss) 162,722 72,571
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 89,225 66,805
Loan discount accretion (21,799) (22,934)
Provision for loan losses 7,500 4,000
Derivative market value adjustment (55,135) (951)
Unrealized foreign currency transaction adjustment 0 31,951
Proceeds from clearinghouse - initial and variation margin, net 40,261 51,516
Gain from debt repurchases (359) (5,421)
Gain from equity securities, net of losses (7,759) 0
Deferred income tax expense (benefit) 21,294 (15,249)
Non-cash compensation expense 2,735 2,260
Other 2,741 2,577
Increase in loan accrued interest receivable (160,698) (4,470)
Decrease (increase) in accounts receivable 2,400 (12,096)
Decrease (increase) in other assets 54,249 (6,334)
Increase in accrued interest payable 13,187 1,387
Decrease in other liabilities (46,572) (7,891)
(Decrease) increase in due to customers (32,361) 17,198
Net cash provided by operating activities 71,631 174,919
Cash flows from investing activities, net of acquisition:    
Purchases of loans (2,593,232) (127,444)
Net proceeds from loan repayments, claims, capitalized interest, and other 1,694,829 1,808,864
Proceeds from sale of loans 1,392 0
Purchases of available-for-sale securities (38,064) (77,118)
Proceeds from sales of available-for-sale securities 31,785 66,492
Purchases of investments and issuance of notes receivable (24,224) (6,530)
Proceeds from investments and notes receivable 16,092 4,452
Purchases of property and equipment (65,009) (70,814)
Business acquisition, net of cash acquired (109,152) 0
Net cash (used in) provided by investing activities (1,085,583) 1,597,902
Cash flows from financing activities:    
Payments on bonds and notes payable (1,643,650) (2,549,189)
Proceeds from issuance of bonds and notes payable 2,727,412 612,279
Payments of debt issuance costs (5,445) (2,256)
Dividends paid (13,014) (11,803)
Repurchases of common stock (16,328) (18,195)
Proceeds from issuance of common stock 501 221
Acquisition of noncontrolling interest (13,449) 0
Issuance of noncontrolling interests 468 12,600
Distribution to noncontrolling interests (256) (515)
Net cash provided by (used in) financing activities 1,036,239 (1,956,858)
Net increase (decrease) in cash, cash equivalents, and restricted cash 22,287 (184,037)
Cash, cash equivalents, and restricted cash, beginning of period 942,066 1,170,317
Cash, cash equivalents, and restricted cash, end of period 964,353 986,280
Supplemental disclosures of cash flow information:    
Cash disbursements made for interest 259,980 183,821
Cash (refunds received) disbursements made for income taxes, net $ (7,290) $ 46,193
v3.10.0.1
Consolidated Statements of Cash Flows Cash, Cash Equivalents And Restricted Cash Reconciliation - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Jun. 30, 2017
Dec. 31, 2016
Statement of Cash Flows [Abstract]        
Total cash and cash equivalents $ 67,867 $ 66,752 $ 69,239 $ 69,654
Restricted cash 741,726 688,193 780,141 980,961
Restricted cash – due to customers 154,760 187,121 136,900 119,702
Cash, cash equivalents, and restricted cash $ 964,353 $ 942,066 $ 986,280 $ 1,170,317
v3.10.0.1
Basis of Financial Reporting
6 Months Ended
Jun. 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 June 30, 2018 and for the three and six months ended June 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 six months ended June 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 statements of income from part of "operating expenses" and presenting such costs as part of "cost of services."

Reclassifying consumer loan activity on the 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.

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 a new standard related to revenue recognition. 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 June 30, 2017
 
As previously reported
 
Impact of adoption
 
As restated
Education technology, services, and payment processing revenue
$
34,224

 
9,256

 
43,480

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

 
9,256

 
9,256

(a)

 
Six months ended June 30, 2017
 
As previously reported
 
Impact of adoption
 
As restated
Education technology, services, and payment processing revenue
$
77,844

 
21,660

 
99,504

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

 
21,660

 
21,660

(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, financing, or investing 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 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 along with a related clarifying update, 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:
 
Six months ended June 30, 2017
 
As previously reported
 
Impact of adoption
 
As restated
Increase in due to customers
$

 
17,198

 
17,198

Proceeds from clearinghouse - initial and variation margin, net
25,927

 
25,589

 
51,516

Net cash provided by operating activities
132,132

 
42,787

 
174,919

Decrease in restricted cash
226,409

 
(226,409
)
 

Net cash provided by investing activities
1,824,311

 
(226,409
)
 
1,597,902

v3.10.0.1
Summary of Significant Accounting Policies and Practices
6 Months Ended
Jun. 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 Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("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 consume and receive 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 and recognized in the distinct service period, typically a month, and recognized as control transfers, and non-refundable up-front revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits. 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 consume and receive benefits.

The following table provides disaggregated revenue by service offering:
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Government servicing - Nelnet
$
39,781

 
39,809

 
79,107

 
78,815

Government servicing - Great Lakes (a)
45,682

 

 
76,437

 

FFELP servicing
9,147

 
3,636

 
16,838

 
7,713

Private education and consumer loan servicing
8,882

 
7,121

 
21,983

 
12,938

Software services
8,671

 
4,326

 
16,260

 
8,663

 Outsourced services revenue and other
2,382

 
2,007

 
4,062

 
2,999

Loan servicing and systems revenue
$
114,545

 
56,899

 
214,687

 
111,128


(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 consume and receive 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 consume and receive 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 the Company has a right to invoice is an amount that 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 consume and receive benefits.


The following table provides disaggregated revenue by service offering:
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Tuition payment plan services
$
20,417

 
18,871

 
43,404

 
40,658

Payment processing
16,026

 
13,885

 
35,952

 
32,831

Education technology and services
12,018

 
10,825

 
28,993

 
25,973

Other
281

 
(101
)
 
614

 
42

Education technology, services, and payment processing revenue
$
48,742

 
43,480

 
108,963

 
99,504



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 outside professional services 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 the Company has a right to invoice is an amount that 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 June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Internet
$
5,395

 
2,569

 
10,091

 
4,773

Television
3,083

 
1,760

 
5,865

 
3,383

Telephone
1,825

 
1,344

 
3,514

 
2,605

Other
17

 
46

 
39

 
65

Communications revenue
$
10,320

 
5,719

 
19,509

 
10,826

 
 
 
 
 
 
 
 
Residential revenue
$
7,727

 
3,820

 
14,472

 
7,172

Business revenue
2,535

 
1,814

 
4,917

 
3,510

Other revenue
58

 
85

 
120

 
144

Communications revenue
$
10,320

 
5,719

 
19,509

 
10,826



Cost to provide communications services is primarily associated with television programming costs.  The Company has various contracts to obtain video 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 voice services.





Other income - The following table provides the components of "other income" on the consolidated statements of income:
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Realized and unrealized gains on investments, net
$
1,136

 
1,302

 
10,217

 
1,618

Borrower late fee income
2,758

 
3,048

 
5,741

 
6,368

Investment advisory fees
1,394

 
2,294

 
2,986

 
5,810

Management fee revenue
1,756

 

 
2,917

 

Peterson's revenue

 
3,043

 

 
5,880

Other
2,536

 
2,798

 
5,915

 
5,442

Other income
$
9,580

 
12,485

 
27,776

 
25,118



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 June 30, 2018
 
As of December 31, 2017
Deferred revenue, which is included in "other liabilities" on the consolidated balance sheets
$
25,660

 
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 June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Balance, beginning of period
$
22,715

 
24,268

 
32,276

 
33,141

Deferral of revenue
35,502

 
24,813

 
52,552

 
40,731

Recognition of unearned revenue
(32,509
)
 
(23,070
)
 
(59,311
)
 
(47,947
)
Other
(48
)
 
(57
)
 
143

 
29

Balance, end of period
$
25,660

 
25,954

 
25,660

 
25,954



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
6 Months Ended
Jun. 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
 
June 30, 2018
 
December 31, 2017
Federally insured student loans:
 
 
 
Stafford and other
$
4,879,259

 
4,418,881

Consolidation
17,715,531

 
17,302,725

Total
22,594,790

 
21,721,606

Private education loans
180,935

 
212,160

Consumer loans
80,560

 
62,111

 
22,856,285

 
21,995,877

Loan discount, net of unamortized loan premiums and deferred origination costs
(73,831
)
 
(113,695
)
Non-accretable discount
(18,370
)
 
(13,085
)
Allowance for loan losses:
 
 
 
Federally insured loans
(37,263
)
 
(38,706
)
Private education loans
(11,664
)
 
(12,629
)
Consumer loans
(4,788
)
 
(3,255
)
 
$
22,710,369

 
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 June 30, 2018
 
Balance at beginning of period
 
Provision for loan losses
 
Charge-offs
 
Recoveries
 
Other
 
Balance at end of period
Federally insured loans
$
38,374

 
2,000

 
(3,111
)
 

 

 
37,263

Private education loans
12,255

 

 
(773
)
 
182

 

 
11,664

Consumer loans
4,665

 
1,500

 
(1,378
)
 
1

 

 
4,788

 
$
55,294

 
3,500

 
(5,262
)
 
183

 

 
53,715

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017
Federally insured loans
$
36,687

 
2,000

 
(2,825
)
 

 

 
35,862

Private education loans
13,839

 

 
(288
)
 
245

 
50

 
13,846

Consumer loans

 
1,000

 

 

 

 
1,000

 
$
50,526

 
3,000

 
(3,113
)
 
245

 
50

 
50,708

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2018
Federally insured loans
$
38,706

 
4,000

 
(6,443
)
 

 
1,000

 
37,263

Private education loans
12,629

 

 
(1,312
)
 
347

 

 
11,664

Consumer loans
3,255

 
3,500

 
(1,973
)
 
6

 

 
4,788

 
$
54,590

 
7,500

 
(9,728
)
 
353

 
1,000

 
53,715

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017
Federally insured loans
$
37,268

 
4,000

 
(5,406
)
 

 

 
35,862

Private education loans
14,574

 
(1,000
)
 
(370
)
 
442

 
200

 
13,846

Consumer loans

 
1,000

 

 

 

 
1,000

 
$
51,842

 
4,000

 
(5,776
)
 
442

 
200

 
50,708


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 June 30, 2018
 
As of December 31, 2017
 
As of June 30, 2017
Federally insured loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
1,349,739

 
 
 
$
1,260,394

 
 
 
$
1,454,802

 
 
Loans in forbearance
1,633,600

 
 
 
1,774,405

 
 
 
2,065,167

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
17,211,088

 
87.8
%
 
16,477,004

 
88.2
%
 
17,106,921

 
87.2
%
Loans delinquent 31-60 days
686,083

 
3.5

 
682,586

 
3.7

 
743,738

 
3.8

Loans delinquent 61-90 days
500,480

 
2.6

 
374,534

 
2.0

 
479,552

 
2.4

Loans delinquent 91-120 days
261,612

 
1.3

 
287,922

 
1.5

 
267,139

 
1.4

Loans delinquent 121-270 days
751,526

 
3.8

 
629,480

 
3.4

 
772,875

 
3.9

Loans delinquent 271 days or greater
200,662

 
1.0

 
235,281

 
1.2

 
257,213

 
1.3

Total loans in repayment
19,611,451

 
100.0
%
 
18,686,807

 
100.0
%
 
19,627,438

 
100.0
%
Total federally insured loans
$
22,594,790

 
 

 
$
21,721,606

 
 

 
$
23,147,407

 
 
Private education loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
4,194

 
 
 
$
6,053

 
 
 
$
32,016

 
 
Loans in forbearance
2,012

 
 
 
2,237

 
 
 
1,814

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
168,093

 
96.2
%
 
196,720

 
96.5
%
 
202,155

 
96.7
%
Loans delinquent 31-60 days
1,498

 
0.9

 
1,867

 
0.9

 
2,066

 
1.0

Loans delinquent 61-90 days
1,235

 
0.7

 
1,052

 
0.5

 
1,323

 
0.6

Loans delinquent 91 days or greater
3,903

 
2.2

 
4,231

 
2.1

 
3,519

 
1.7

Total loans in repayment
174,729

 
100.0
%
 
203,870

 
100.0
%
 
209,063

 
100.0
%
Total private education loans
$
180,935

 
 

 
$
212,160

 
 

 
$
242,893

 
 
v3.10.0.1
Bonds and Notes Payable
6 Months Ended
Jun. 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 June 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
$
19,913,724

 
2.40% - 4.04%
 
4/25/24 - 7/26/66
Bonds and notes based on auction
765,548

 
2.45% - 3.16%
 
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes
20,679,272

 
 
 
 
FFELP warehouse facilities
1,697,691

 
2.32% / 2.35%
 
11/19/19 / 5/31/21
Variable-rate bonds and notes issued in private education loan asset-backed securitization
60,153

 
3.84%
 
12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
70,827

 
3.60% / 5.35%
 
12/26/40 / 12/28/43
Unsecured line of credit
170,000

 
3.55%
 
6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities
20,381

 
5.71%
 
9/15/61
Other borrowings
111,596

 
2.79% - 5.22%
 
7/9/18 - 12/15/45
 
22,809,920

 
 
 
 
Discount on bonds and notes payable and debt issuance costs
(341,556
)
 
 
 
 
Total
$
22,468,364

 
 
 
 
 
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 June 30, 2018, the Company had two FFELP warehouse facilities as summarized below.
 
 
NFSLW-I (a)
 
NHELP-II (b)
 
Total
Maximum financing amount
 
$
1,325,000

 
500,000

 
1,825,000

Amount outstanding
 
1,245,448

 
452,243

 
1,697,691

Amount available
 
$
79,552

 
47,757

 
127,309

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
 
$
47,126

 
37,251

 
84,377



(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 until September 30, 2018.

(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 six months of 2018.
 
 
NSLT 2018-1
 
NSLT 2018-2
 
Total
 
 
Class A-1 Notes
 
Class A-2 Notes
 
Total
 
 
 
 
Date securities issued
 
3/29/18
 
3/29/18
 
 
 
6/7/18
 
 
Total principal amount
 
$
98,000

 
375,750

 
473,750

 
509,800

 
983,550

Cost of funds
 
1-month LIBOR plus 0.32%
 
1-month LIBOR plus 0.76%
 
 
 
1-month LIBOR plus 0.65%
 
 
Final maturity date
 
5/25/66
 
5/25/66
 
 
 
7/26/66
 
 


Unsecured Line of Credit

On June 22, 2018, the Company amended its $350.0 million unsecured line of credit. The following provisions were modified under the amendment:

The maturity date was extended from December 12, 2021 to June 22, 2023.

The definition of the Company's line of business was expanded and other terms were modified to allow the formation or acquisition of a chartered bank subsidiary.

The definition for permitted acquisitions was revised to increase the aggregate amount of consideration that may be paid for the acquisition in any fiscal year of a business or businesses not in the Company's defined line of business.

The provisions for permitted investments were expanded to allow (i) a one-time, initial capital contribution of up to $150.0 million by the Company in connection with the formation or acquisition of a chartered bank subsidiary, and (ii) investments in pools of consumer loans.

The amount of loans not originated under the FFEL Program that the Company is permitted to own was increased from $500.0 million to $850.0 million.

The facility size of $350.0 million and the cost of funds did not change as part of the amendment. As of June 30, 2018, $170.0 million was outstanding under the line of credit and $180.0 million was available for future use.

Debt Repurchases

The following table summarizes the Company's repurchases of its own debt. Gains recorded by the Company from the repurchase of debt are included in "gain from debt repurchases" on the Company's consolidated statements of income.
 
Par value
 
Purchase price
 
Gain
 
Par value
 
Purchase price
 
Gain
 
Three months ended
 
June 30, 2018
 
June 30, 2017
Asset-backed securities
$

 

 

 
4,088

 
3,646

 
442

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended
 
June 30, 2018
 
June 30, 2017
Asset-backed securities
$
12,905

 
12,546

 
359

 
4,088

 
3,085

 
1,003

Unsecured debt - Hybrid Securities

 

 

 
29,658

 
25,240