10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
 
or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from  to .

 
COMMISSION FILE NUMBER 001-31924

NELNET, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA
(State or other jurisdiction of incorporation or organization)
84-0748903
(I.R.S. Employer Identification No.)
 
 
121 SOUTH 13TH STREET
SUITE 100
LINCOLN, NEBRASKA
(Address of principal executive offices)
 
68508
(Zip Code)
 (402) 458-2370
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]                                                  Accelerated filer [ ]
Non-accelerated filer [  ]                                                     Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[  ] No[X]

As of April 30, 2016, there were 31,004,045 and 11,476,932 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,317,364 shares of Class A Common Stock held by wholly owned subsidiaries).  
 



NELNET, INC.
FORM 10-Q
INDEX
March 31, 2016


 
 
Item 1.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 6.
 
 
 
 
 






PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
 
 
 
 
 
 
 
As of

As of
 
 
March 31, 2016

December 31, 2015
Assets:
 
 
 
 
Student loans receivable (net of allowance for loan losses of $50,084 and $50,498, respectively)
 
$
27,519,052

 
28,324,552

Cash and cash equivalents:
 
 

 
 

Cash and cash equivalents - not held at a related party
 
7,519

 
11,379

Cash and cash equivalents - held at a related party
 
43,515

 
52,150

Total cash and cash equivalents
 
51,034

 
63,529

Investments and notes receivable
 
273,451

 
303,681

Restricted cash and investments
 
924,925

 
832,624

Restricted cash - due to customers
 
85,805

 
144,771

Accrued interest receivable
 
384,277

 
383,825

Accounts receivable (net of allowance for doubtful accounts of $1,584 and $2,003, respectively)
 
45,465

 
51,345

Goodwill
 
147,312

 
146,000

Intangible assets, net
 
48,827

 
51,062

Property and equipment, net
 
88,708

 
80,482

Other assets
 
11,470

 
8,583

Fair value of derivative instruments
 
9,021

 
28,690

Total assets
 
$
29,589,347

 
30,419,144

Liabilities:
 
 

 
 

Bonds and notes payable
 
$
27,349,891

 
28,105,921

Accrued interest payable
 
38,950

 
31,507

Other liabilities
 
165,367

 
169,906

Due to customers
 
85,805

 
144,771

Fair value of derivative instruments
 
62,408

 
74,881

Total liabilities
 
27,702,421

 
28,526,986

Commitments and contingencies
 
 
 
 
Equity:
 
 
 
 
  Nelnet, Inc. shareholders' equity:
 
 

 
 

Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding
 
—

 
—

Common stock:
 
 
 
 
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 31,008,226 shares and 32,476,528 shares, respectively
 
310

 
325

Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,476,932 shares
 
115

 
115

Additional paid-in capital
 
2,913

 
—

Retained earnings
 
1,873,500

 
1,881,708

Accumulated other comprehensive earnings
 
1,416

 
2,284

Total Nelnet, Inc. shareholders' equity
 
1,878,254

 
1,884,432

Noncontrolling interests
 
8,672

 
7,726

Total equity
 
1,886,926

 
1,892,158

Total liabilities and equity
 
$
29,589,347

 
30,419,144

 
 
 
 
 
Supplemental information - assets and liabilities of consolidated variable interest entities:
 
 
 
 
Student loans receivable
 
$
27,684,335

 
28,499,180

Restricted cash and investments
 
867,707

 
814,294

Other assets
 
384,095

 
384,230

Bonds and notes payable
 
(27,642,500
)
 
(28,405,133
)
Other liabilities
 
(392,927
)
 
(353,607
)
Fair value of derivative instruments, net
 
(32,142
)
 
(64,080
)
Net assets of consolidated variable interest entities
 
$
868,568

 
874,884

See accompanying notes to consolidated financial statements.

2


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
 
Three months
 
ended March 31,
 
2016
 
2015
Interest income:
 
 
 
Loan interest
$
189,988

 
171,944

Investment interest
2,029

 
2,205

Total interest income
192,017

 
174,149

Interest expense:
 

 
 

Interest on bonds and notes payable
90,408

 
71,554

Net interest income
101,609

 
102,595

Less provision for loan losses
2,500

 
2,000

Net interest income after provision for loan losses
99,109

 
100,595

Other income:
 

 
 

Loan and guaranty servicing revenue
52,330

 
57,811

Tuition payment processing, school information, and campus commerce revenue
38,657

 
34,680

Communications revenue
4,346

 
—

Enrollment services revenue
4,326

 
13,373

Other income
13,796

 
11,408

Gain on sale of loans and debt repurchases
101

 
2,875

Derivative market value and foreign currency adjustments and derivative settlements, net
(28,691
)
 
(3,078
)
Total other income
84,865

 
117,069

Operating expenses:
 

 
 

Salaries and benefits
63,242

 
61,050

Depreciation and amortization
7,640

 
5,662

Loan servicing fees
6,928

 
7,616

Cost to provide communications services
1,703

 
—

Cost to provide enrollment services
3,623

 
10,799

Other expenses
28,376

 
30,101

Total operating expenses
111,512

 
115,228

Income before income taxes
72,462

 
102,436

Income tax expense
24,433

 
37,630

Net income
48,029

 
64,806

Net income attributable to noncontrolling interests
68

 
41

Net income attributable to Nelnet, Inc.
$
47,961

 
64,765

Earnings per common share:
 
 
 
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$
1.11

 
1.40

Weighted average common shares outstanding - basic and diluted
43,088,092

 
46,290,590


 See accompanying notes to consolidated financial statements.

3


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
 
Three months
 
ended March 31,
 
2016
 
2015
Net income
$
48,029

 
64,806

Other comprehensive loss:
 
 
 
Available-for-sale securities:
 
 
 
Unrealized holding losses arising during period, net
(1,510
)
 
(213
)
Reclassification adjustment for losses (gains) recognized in net income, net
132

 
(205
)
Income tax effect
510

 
155

Total other comprehensive loss
(868
)
 
(263
)
Comprehensive income
47,161

 
64,543

Comprehensive income attributable to noncontrolling interests
68

 
41

Comprehensive income attributable to Nelnet, Inc.
$
47,093

 
64,502


See accompanying notes to consolidated financial statements.


4


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
 
Nelnet, Inc. Shareholders
 
 
 
 
Preferred stock shares
 
Common stock shares
 
Preferred stock
 
Class A common stock
 
Class B common stock
 
Additional paid-in capital
 
 Retained earnings
 
Accumulated other comprehensive earnings
 
Noncontrolling interests
 
Total equity
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
Balance as of December 31, 2014
—

 
34,756,384

 
11,486,932

 
$
—

 
348

 
115

 
17,290

 
1,702,560

 
5,135

 
230

 
1,725,678

Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
64,765

 
—

 
41

 
64,806

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(263
)
 
—

 
(263
)
Cash dividend on Class A and Class B common stock - $0.10 per share
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,614
)
 
—

 
—

 
(4,614
)
Issuance of common stock, net of forfeitures
—

 
132,479

 
—

 
—

 
1

 
—

 
2,467

 
—

 
—

 
—

 
2,468

Compensation expense for stock based awards
—

 
—

 
—

 
—

 
—

 
—

 
1,357

 
—

 
—

 
—

 
1,357

Repurchase of common stock
—

 
(175,798
)
 
—

 
—

 
(2
)
 
—

 
(7,937
)
 
—

 
—

 
—

 
(7,939
)
Balance as of March 31, 2015
—

 
34,713,065

 
11,486,932

 
$
—

 
347

 
115

 
13,177

 
1,762,711

 
4,872

 
271

 
1,781,493

Balance as of December 31, 2015
—

 
32,476,528

 
11,476,932

 
$
—

 
325

 
115

 
—

 
1,881,708

 
2,284

 
7,726

 
1,892,158

Issuance of noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
975

 
975

Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
47,961

 
—

 
68

 
48,029

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(868
)
 
—

 
(868
)
Distribution to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(97
)
 
(97
)
Cash dividend on Class A and Class B common stock - $0.12 per share
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,093
)
 
—

 
—

 
(5,093
)
Issuance of common stock, net of forfeitures
—

 
130,797

 
—

 
—

 
1

 
—

 
2,707

 
—

 
—

 
—

 
2,708

Compensation expense for stock based awards
—

 
—

 
—

 
—

 
—

 
—

 
1,183

 
—

 
—

 
—

 
1,183

Repurchase of common stock
—

 
(1,599,099
)
 
—

 
—

 
(16
)
 
—

 
(977
)
 
(51,076
)
 
—

 
—

 
(52,069
)
Balance as of March 31, 2016
—

 
31,008,226

 
11,476,932

 
$
—

 
310

 
115

 
2,913

 
1,873,500

 
1,416

 
8,672

 
1,886,926


 See accompanying notes to consolidated financial statements.

5



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
Three months
 
ended March 31,
 
2016
 
2015
Net income attributable to Nelnet, Inc.
$
47,961

 
64,765

Net income attributable to noncontrolling interests
68

 
41

Net income
48,029

 
64,806

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
 

 
 

Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs
31,078

 
30,225

Student loan discount accretion
(10,917
)
 
(10,746
)
Provision for loan losses
2,500

 
2,000

Derivative market value adjustment
3,674

 
46,072

Foreign currency transaction adjustment
18,480

 
(48,209
)
Proceeds from termination of derivative instruments
3,522

 
34,447

Gain on sale of loans
—

 
(351
)
Gain from debt repurchases
(101
)
 
(2,524
)
 Loss (gain) from sales of available-for-sale securities, net
132

 
(205
)
(Payments for) proceeds from (purchases) sales of trading securities, net
(3,436
)
 
1,304

Deferred income tax (benefit) expense
(4,260
)
 
224

Other
3,212

 
3,115

Increase in accrued interest receivable
(452
)
 
(3,784
)
Decrease (increase) in accounts receivable
5,961

 
(5,416
)
(Increase) decrease in other assets
(2,922
)
 
605

Increase in accrued interest payable
7,443

 
1,371

Increase in other liabilities
2,551

 
16,414

Net cash provided by operating activities
104,494

 
129,348

Cash flows from investing activities, net of acquisitions:
 

 
 

Purchases of student loans
(108,543
)
 
(844,120
)
Net proceeds from student loan repayments, claims, capitalized interest, and other
870,898

 
940,907

Proceeds from sale of student loans
44,738

 
3,996

Purchases of available-for-sale securities
(14,595
)
 
(512
)
Proceeds from sales of available-for-sale securities
44,675

 
1,317

Purchases of investments and issuance of notes receivable
(3,021
)
 
(49,953
)
Proceeds from investments and notes receivable
3,087

 
4,709

Purchases of property and equipment, net
(15,258
)
 
(8,372
)
Increase in restricted cash and investments, net
(92,301
)
 
(16,147
)
Net cash provided by investing activities
729,680

 
31,825

Cash flows from financing activities:
 

 
 

Payments on bonds and notes payable
(858,147
)
 
(1,459,807
)
Proceeds from issuance of bonds and notes payable
67,698

 
1,285,760

Payments of debt issuance costs
(164
)
 
(5,256
)
Dividends paid
(5,093
)
 
(4,614
)
Repurchases of common stock
(52,069
)
 
(7,939
)
Proceeds from issuance of common stock
228

 
248

Issuance of noncontrolling interests
975

 
—

Distribution to noncontrolling interests
(97
)
 
—

Net cash used in financing activities
(846,669
)
 
(191,608
)
Net decrease in cash and cash equivalents
(12,495
)
 
(30,435
)
Cash and cash equivalents, beginning of period
63,529

 
130,481

Cash and cash equivalents, end of period
$
51,034

 
100,046

 
 
 
 
Cash disbursements made for:
 

 
 

Interest
$
66,091

 
53,235

Income taxes, net of refunds
$
1,323

 
45


See accompanying notes to consolidated financial statements.

6


NELNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise noted)
(unaudited)

1.    Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2015 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 months ended March 31, 2016 are not necessarily indicative of the results for the year ending December 31, 2016. 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, 2015 (the "2015 Annual Report").

Reclassifications

Certain amounts previously reported within the Company's consolidated balance sheet and statements of income have been reclassified to conform to the current period presentation. These reclassifications are summarized below.

•
In April 2015, the Financial Accounting Standards Board ("FASB") issued accounting guidance regarding the presentation of debt issuance costs. The new guidance requires that entities present debt issuance costs related to a debt liability as a direct deduction from that liability on the balance sheet. This guidance became effective for the Company beginning January 1, 2016. As a result of this standard, the Company reclassified its debt issuance costs, which were previously included in "other assets" on the consolidated balance sheet, to "bonds and notes payable."

•
On February 1, 2016, the Company sold 100 percent of the membership interests in Sparkroom LLC, which includes the majority of the Company's inquiry management products and services within Nelnet Enrollment Solutions. The Company retained the digital marketing and content solution products and services under the brand name Peterson's within the Nelnet Enrollment Solutions business, which include test preparation study guides, school directories and databases, career exploration guides, on-line courses, scholarship search and selection data, career planning information and guides, and on-line information about colleges and universities. The Company reclassified the revenue and cost of goods sold attributable to the Peterson's products and services from "enrollment services revenue" and "cost to provide enrollment services" to "other income" and "other expenses," respectively, on the consolidated statements of income. After this reclassification, "enrollment services revenue" and "cost to provide enrollment services" include the operating results of the products and services sold as part of the Sparkroom disposition for all periods presented. These reclassifications had no effect on consolidated net income.


7


2.    Student Loans Receivable and Allowance for Loan Losses

Student loans receivable consisted of the following:
 
As of
 
As of
 
March 31, 2016
 
December 31, 2015
Federally insured loans:
 
 
 
Stafford and other
$
5,934,834

 
6,202,064

Consolidation
21,514,363

 
22,086,043

Total
27,449,197

 
28,288,107

Private education loans
294,621

 
267,642

 
27,743,818

 
28,555,749

Loan discount, net of unamortized loan premiums and deferred origination costs (a)
(174,682
)
 
(180,699
)
Allowance for loan losses – federally insured loans
(34,441
)
 
(35,490
)
Allowance for loan losses – private education loans
(15,643
)
 
(15,008
)
 
$
27,519,052

 
28,324,552


(a)
As of March 31, 2016 and December 31, 2015, "loan discount, net of unamortized loan premiums and deferred origination costs" included $29.7 million and $33.0 million, respectively, of non-accretable discount associated with purchased loans of $10.5 billion and $10.8 billion, respectively.

Private Education Loans

In February 2015, the Company entered into an agreement with CommonBond, Inc. ("CommonBond"), a student lending company that provides private education loans to graduate students, under which the Company committed to purchase private education loans for a period of 18 months, with the total purchase obligation limited to $200.0 million. As of March 31, 2016, the Company had purchased $189.9 million in private education loans from CommonBond pursuant to this agreement.

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 student loans. Activity in the allowance for loan losses is shown below.
 
Three months ended March 31,
 
2016
 
2015
Balance at beginning of period
$
50,498

 
48,900

Provision for loan losses:
 
 
 
Federally insured loans
2,000

 
2,000

Private education loans
500

 
—

Total provision for loan losses
2,500

 
2,000

Charge-offs:
 

 
 

Federally insured loans
(3,049
)
 
(3,149
)
Private education loans
(401
)
 
(676
)
Total charge-offs
(3,450
)
 
(3,825
)
Recoveries - private education loans
276

 
254

Purchase (sale) of federally insured and private education loans, net
160

 
(230
)
Transfer from repurchase obligation related to private education loans repurchased, net
100

 
4,062

Balance at end of period
$
50,084

 
51,161

 
 
 
 
Allocation of the allowance for loan losses:
 
 
 

Federally insured loans
$
34,441

 
38,021

Private education loans
15,643

 
13,140

Total allowance for loan losses
$
50,084

 
51,161


8


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.

 
As of March 31, 2016
 
As of December 31, 2015
 
As of March 31, 2015
Federally insured loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
2,198,559

 
 
 
$
2,292,941

 
 
 
$
2,781,537

 
 
Loans in forbearance
2,736,472

 
 
 
2,979,357

 
 
 
3,244,255

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
19,375,813

 
86.0
%
 
19,447,541

 
84.4
%
 
18,672,471

 
85.0
%
Loans delinquent 31-60 days
866,207

 
3.8

 
1,028,396

 
4.5

 
911,653

 
4.2

Loans delinquent 61-90 days
538,284

 
2.4

 
566,953

 
2.5

 
571,759

 
2.6

Loans delinquent 91-120 days
329,425

 
1.5

 
415,747

 
1.8

 
346,857

 
1.6

Loans delinquent 121-270 days
1,008,157

 
4.5

 
1,166,940

 
5.1

 
1,030,645

 
4.7

Loans delinquent 271 days or greater
396,280

 
1.8

 
390,232

 
1.7

 
416,398

 
1.9

Total loans in repayment
22,514,166

 
100.0
%
 
23,015,809

 
100.0
%
 
21,949,783

 
100.0
%
Total federally insured loans
$
27,449,197

 
 

 
$
28,288,107

 
 

 
$
27,975,575

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private education loans:
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
55,668

 
 
 
$
30,795

 
 
 
$
5,006

 
 
Loans in forbearance
722

 
 
 
350

 
 
 
20

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
231,556

 
97.2
%
 
228,464

 
96.7
%
 
118,278

 
93.5
%
Loans delinquent 31-60 days
968

 
0.4

 
1,771

 
0.7

 
1,200

 
0.9

Loans delinquent 61-90 days
1,144

 
0.5

 
1,283

 
0.5

 
1,753

 
1.4

Loans delinquent 91 days or greater
4,563

 
1.9

 
4,979

 
2.1

 
5,256

 
4.2

Total loans in repayment
238,231

 
100.0
%
 
236,497

 
100.0
%
 
126,487

 
100.0
%
Total private education loans
$
294,621

 
 

 
$
267,642

 
 

 
$
131,513

 
 


9


3.    Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:
 
As of March 31, 2016
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
24,335,564

 
0.00% - 6.90%
 
8/26/19 - 8/26/52
Bonds and notes based on auction
1,159,415

 
0.99% - 2.18%
 
3/22/32 - 11/26/46
Total variable-rate bonds and notes
25,494,979

 
 
 
 
FFELP warehouse facilities
1,889,589

 
0.44% - 0.77%
 
4/29/18 - 12/14/18
Private education loan warehouse facility
206,153

 
0.78%
 
12/26/16
Unsecured line of credit
90,000

 
1.94%
 
10/30/20
Unsecured debt - Junior Subordinated Hybrid Securities
57,184

 
4.01%
 
9/15/61
Other borrowings
93,355

 
1.94% - 3.38%
 
10/31/16 - 12/15/45
 
27,831,260

 
 
 
 
Discount on bonds and notes payable and debt issuance costs, net
(481,369
)
 
 
 
 
Total
$
27,349,891

 
 
 
 
 
As of December 31, 2015
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
25,155,336

 
0.05% - 6.90%
 
8/26/19 - 8/26/52
Bonds and notes based on auction
1,160,365

 
0.88% - 2.17%
 
3/22/32 - 11/26/46
Total variable-rate bonds and notes
26,315,701

 
 
 
 
FFELP warehouse facilities
1,855,907

 
0.27% - 0.56%
 
4/29/18 - 12/14/18
Private education loan warehouse facility
181,184

 
0.57%
 
12/26/16
Unsecured line of credit
100,000

 
1.79% - 1.92%
 
10/30/20
Unsecured debt - Junior Subordinated Hybrid Securities
57,184

 
3.99%
 
9/15/61
Other borrowings
93,355

 
1.93% - 3.38%
 
10/31/16 - 12/15/45
 
28,603,331

 
 
 
 
Discount on bonds and notes payable and debt issuance costs, net
(497,410
)
 
 
 
 
Total
$
28,105,921

 
 
 
 


10


FFELP Warehouse Facilities

The Company funds a portion of its 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 March 31, 2016, the Company had three FFELP warehouse facilities as summarized below.
 
 
NHELP-III (a)
 
NFSLW-I (b)
 
NHELP-II
 
Total
Maximum financing amount
 
$
750,000

 
875,000

 
500,000

 
2,125,000

Amount outstanding
 
739,074

 
728,453

 
422,062

 
1,889,589

Amount available
 
$
10,926

 
146,547

 
77,938

 
235,411

Expiration of liquidity provisions
 
April 29, 2016

 
July 8, 2016

 
December 16, 2016

 
 
Final maturity date
 
April 29, 2018

 
July 9, 2018

 
December 14, 2018

 
 
Maximum advance rates
 
92.2 - 95.0%

 
92.0 - 98.0%

 
85.0 - 95.0%

 
 
Minimum advance rates
 
92.2 - 95.0%

 
84.0 - 90.0%

 
85.0 - 95.0%

 
 
Advanced as equity support
 
$
46,139

 
34,324

 
37,592

 
118,055


(a)
On April 29, 2016, the Company entered into an amended and restated agreement for this warehouse facility which changed the expiration date for the liquidity provisions to April 28, 2017, and changed the final maturity date to April 26, 2019.

(b)
On July 10, 2015, the Company amended the agreement for this warehouse facility to temporarily increase the maximum financing amount to $875.0 million. The maximum financing amount was scheduled to decrease by $125.0 million on March 31, 2016. On January 26, 2016, the Company amended the agreement for this warehouse facility to extend the scheduled decrease of the maximum financing amount by $125.0 million to July 8, 2016.

Private Education Loan Warehouse Facility

On June 26, 2015, the Company entered into a $275.0 million private education loan warehouse facility. As of March 31, 2016, there was $206.2 million outstanding on the facility and $68.8 million was available for future use. The facility has a static advance rate that requires initial equity for loan funding, but does not require increased equity based on market movements. The maximum advance rate on the entire facility is 88 percent and minimum advance rates, depending on loan characteristics and program type, ranged from 64 percent to 99 percent. As of March 31, 2016, $28.4 million was advanced on the facility as equity support. The facility is supported by liquidity provisions, which had an original expiration date of June 24, 2016.
On April 1, 2016, the Company amended the agreement for this facility to change the expiration date for the liquidity provisions to October 28, 2016, and to change the final maturity date to April 28, 2017. In addition, the minimum advance rates, depending on loan characteristics and program type, were changed to a range from 61.75 percent to 95.00 percent, and the maximum advance rate on the entire facility remained at 88 percent. In the event the Company is unable to renew the liquidity provisions by the amended expiration date of October 28, 2016, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's amended final maturity date of April 28, 2017.
Unsecured Line of Credit

The Company has a $350.0 million unsecured line of credit that has a maturity date of October 30, 2020.  As of March 31, 2016, the unsecured line of credit had an outstanding balance of $90.0 million and $260.0 million was available for future use.

4.   Derivative Financial Instruments

The Company uses derivative financial instruments primarily to manage interest rate risk and foreign currency exchange risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 5 of the notes to consolidated financial statements included in the 2015 Annual Report. A tabular presentation of such derivatives outstanding as of March 31, 2016 and December 31, 2015 is presented below.

11


Basis Swaps

The following table summarizes the Company’s basis swaps outstanding as of March 31, 2016 and December 31, 2015 in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
 
 
 
 
As of March 31,
 
As of December 31,
 
 
 
2016
 
2015
Maturity
 
Notional amount
 
Notional amount
2016
 
 
$
4,000,000

 
$
7,500,000

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2016 and December 31, 2015 was one-month LIBOR plus 9.8 basis points and 10.0 basis points, respectively.
Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
 
 
As of March 31, 2016
 
As of December 31, 2015
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
 
 
 
2016
 
$
1,000,000

 
0.76
%
 
$
1,000,000

 
0.76
%
2017
 
1,000,000

 
0.97

 
2,100,000

 
0.84

2018
 
1,600,000

 
1.08

 
1,600,000

 
1.08

2019
 
2,250,000

 
0.99

 
500,000

 
1.12

2020
 
500,000

 
1.02

 
—

 
—

2025
 
100,000

 
2.32

 
100,000

 
2.32

 
 
$
6,450,000

 
0.99
%
 
$
5,300,000

 
0.95
%

(a)
For all interest rate derivatives, the Company receives discrete three-month LIBOR.

On August 20, 2014, the Company paid $9.1 million for an interest rate swap option to economically hedge loans earning fixed rate floor income. The interest rate swap option gives the Company the right, but not the obligation, to enter into a $250 million notional interest rate swap in which the Company would pay a fixed amount of 3.30% and receive discrete one-month LIBOR. If the interest rate swap option is exercised, the swap would become effective in 2019 and mature in 2024.

Interest Rate Swaps – Unsecured Debt Hedges

The Company had the following derivatives outstanding as of March 31, 2016 and December 31, 2015 that are used to effectively convert the variable interest rate on a portion of the Junior Subordinated Hybrid Securities to a fixed rate of 7.66%.
 
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
2036
 
$
25,000

 
4.28
%
(a)
For all interest rate derivatives, the Company receives discrete three-month LIBOR.

Interest Rate Caps

In June 2015, in conjunction with the entry into the $275.0 million private education loan warehouse facility, the Company paid $2.9 million for two interest rate cap contracts with a total notional amount of $275.0 million. The first interest rate cap has a notional amount of $125.0 million and a one-month LIBOR strike rate of 2.50%, and the second interest rate cap has a notional amount of $150.0 million and a one-month LIBOR strike rate of 4.99%. In the event that the one-month LIBOR rate rises above the applicable strike rate, the Company would receive monthly payments related to the spread difference. Both interest rate cap contracts have a maturity date of July 15, 2020.

12


Foreign Currency Exchange Risk

In 2006, the Company issued €352.7 million of student loan asset-backed Euro Notes (the "Euro Notes") with an interest rate based on a spread to the EURIBOR index. As a result of the Euro Notes, the Company is exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. dollar and Euro. The principal and accrued interest on these notes are re-measured at each reporting period and recorded in the Company’s consolidated balance sheet in U.S. dollars based on the foreign currency exchange rate on that date.

The Company entered into a cross-currency interest rate swap in connection with the issuance of the Euro Notes. Under the terms of the cross-currency interest rate swap, the Company receives from the counterparty a spread to the EURIBOR index based on a notional amount of €352.7 million and pays a spread to the LIBOR index based on a notional amount of $450.0 million. In addition, under the terms of this agreement, all principal payments on the Euro Notes will effectively be paid at the exchange rate in effect between the U.S. dollar and Euro as of the issuance of the notes.

The following table shows the income statement impact as a result of the re-measurement of the Euro Notes and the change in the fair value of the related derivative instrument.
 
Three months ended March 31,
 
2016
 
2015
Re-measurement of Euro Notes
$
(18,480
)
 
48,209

Change in fair value of cross-currency interest rate swap
32,701

 
(49,805
)
Total impact to consolidated statements of income - income (expense) (a)
$
14,221

 
(1,596
)
(a)
The financial statement impact of the above items is included in "Derivative market value and foreign currency adjustments and derivative settlements, net" in the Company's consolidated statements of income.
Management has structured the cross-currency interest rate swap to economically hedge the Euro Notes to effectively convert the Euro Notes to U.S. dollars and pay a spread on these notes based on the LIBOR index. However, the cross-currency interest rate swap does not qualify for hedge accounting. The re-measurement of the Euro-denominated bonds generally correlates with the change in the fair value of the corresponding cross-currency interest rate swap. However, the Company will experience unrealized gains and losses between these financial instruments due to the principal and accrued interest on the Euro Notes being re-measured to U.S. dollars at each reporting date based on the foreign currency exchange rate on that date, while the cross-currency interest rate swap is measured at fair value at each reporting date with the change in fair value recognized in the current period earnings.
Consolidated Financial Statement Impact Related to Derivatives

The following table summarizes the fair value of the Company’s derivatives as reflected in the consolidated balance sheets:
 
Fair value of asset derivatives
 
Fair value of liability derivatives
 
As of
 
As of
 
As of
 
As of
 
March 31,
2016
 
December 31,
2015
 
March 31,
2016
 
December 31,
2015
1:3 basis swaps
$
1,082

 
724

 
—

 
410

Interest rate swaps - floor income hedges
3,195

 
21,408

 
18,683

 
1,175

Interest rate swap option - floor income hedge
1,842

 
3,257

 
—

 
—

Interest rate swaps - hybrid debt hedges
—

 
—

 
10,195

 
7,646

Interest rate caps
808

 
1,570

 
—

 
—

Cross-currency interest rate swap
—


—

 
32,950

 
65,650

Other
2,094

 
1,731

 
580

 
—

Total
$
9,021

 
28,690

 
62,408

 
74,881


During the three months ended March 31, 2016, the Company terminated a total notional amount of $3.1 billion of fixed rate floor income hedges for gross proceeds of $3.0 million, and a total notional amount of $300.0 million of other basis swaps for gross proceeds of $0.5 million. During the three months ended March 31, 2015, the Company terminated a total notional amount of $2.7 billion of 1:3 Basis Swaps for gross proceeds of $34.4 million.


13


Offsetting of Derivative Assets/Liabilities

The Company records derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at its fair value. Certain of the Company's derivative instruments are subject to right of offset provisions with counterparties. The following tables include the gross amounts related to the Company's derivative portfolio recognized in the consolidated balance sheets, reconciled to the net amount when excluding derivatives subject to enforceable master netting arrangements and cash collateral received/pledged:

 
 
 
 
Gross amounts not offset in the consolidated balance sheets
 
 
Derivative assets
 
Gross amounts of recognized assets presented in the consolidated balance sheets
 
Derivatives subject to enforceable master netting arrangement
 
Cash collateral pledged
 
Net asset (liability)
Balance as of
March 31, 2016
 
$
9,021

 
(8,213
)
 
—

 
808

Balance as of
December 31, 2015
 
28,690

 
(851
)
 
1,632

 
29,471


 
 
 
 
Gross amounts not offset in the consolidated balance sheets
 
 
Derivative liabilities
 
Gross amounts of recognized liabilities presented in the consolidated balance sheets
 
Derivatives subject to enforceable master netting arrangement
 
Cash collateral pledged
 
Net asset (liability)
Balance as of
March 31, 2016
 
$
(62,408
)
 
8,213

 
53,739

 
(456
)
Balance as of
December 31, 2015
 
(74,881
)
 
851

 
13,168

 
(60,862
)

The following table summarizes the effect of derivative instruments in the consolidated statements of income.
 
Three months ended March 31,
 
2016
 
2015
Settlements:
 

 
 

1:3 basis swaps
$
(329
)
 
266

Interest rate swaps - floor income hedges
(5,243
)
 
(5,015
)
Interest rate swaps - hybrid debt hedges
(232
)
 
(252
)
Cross-currency interest rate swap
(733
)
 
(214
)
Total settlements - expense
(6,537
)
 
(5,215
)
Change in fair value:
 

 
 

1:3 basis swaps
768

 
10,969

Interest rate swaps - floor income hedges
(32,709
)
 
(4,872
)
Interest rate swap option - floor income hedge
(1,415
)
 
(912
)
Interest rate swaps - hybrid debt hedges
(2,549
)
 
(1,452
)
Interest rate caps
(763
)
 
—

Cross-currency interest rate swap
32,701

 
(49,805
)
Other
293

 
—

Total change in fair value - expense
(3,674
)
 
(46,072
)
Re-measurement of Euro Notes (foreign currency transaction adjustment) - (expense) income
(18,480
)
 
48,209

Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense)
$
(28,691
)
 
(3,078
)

14


5.    Investments and Notes Receivable

A summary of the Company's investments and notes receivable follows:
 
As of March 31, 2016
 
As of December 31, 2015
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses (a)
 
Fair value
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
 
 
 
 
 
 
 
 
Investments (at fair value):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loan asset-backed and other debt securities (b)
$
109,813

 
2,326

 
(1,715
)
 
110,424

 
139,970

 
3,402

 
(1,362
)
 
142,010

Equity securities
792

 
1,736

 
(99
)
 
2,429

 
846

 
1,686

 
(100
)
 
2,432

Total available-for-sale investments
$
110,605

 
4,062

 
(1,814
)
 
112,853

 
140,816

 
5,088

 
(1,462
)
 
144,442

Trading investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loan asset-backed securities
 
 
 
 
 
 
5,946

 
 
 
 
 
 
 
6,045

Equity securities
 
 
 
 
 
 
8,439

 
 
 
 
 
 
 
4,905

Total trading investments
 
 
 
 
 
 
14,385

 
 
 
 
 
 
 
10,950

Total available-for-sale and trading investments
 
 
 
 
 
 
127,238

 
 
 
 
 
 
 
155,392

Other Investments and Notes Receivable (not measured at fair value):
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and funds
 
 
 
 
 
 
64,857

 
 
 
 
 
 
 
63,323

Real estate
 
 
 
 
 
 
48,386

 
 
 
 
 
 
 
50,463

Notes receivable
 
 
 
 
 
 
18,279

 
 
 
 
 
 
 
18,473

Tax liens and affordable housing
 
 
 
 
 
 
14,691

 
 
 
 
 
 
 
16,030

Total investments and notes receivable
 
 
 
 
 
 
$
273,451

 
 
 
 
 
 
 
303,681

    
(a)
As of March 31, 2016, the Company considered the decline in market value of its available-for-sale investments to be temporary in nature and did not consider any of its investments other-than-temporarily impaired.

(b)
As of March 31, 2016, the stated maturities of the majority of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years.

6. Business Combination

Allo Communications LLC ("Allo")

On December 31, 2015, the Company purchased 92.5 percent of the ownership interests of Allo for total cash consideration of $46.25 million.  On January 1, 2016, the Company sold a 1.0 percent ownership interest in Allo to a non-related third-party for $0.5 million. The remaining 7.5 percent of the ownership interests of Allo is owned by members of Allo management, who have the opportunity to earn an additional 11.5 percent (up to 19 percent) of the total ownership interests based on the financial performance of Allo.  The additional ownership interest that Allo management has the opportunity to earn are based on their continued employment with Allo. Accordingly, the value associated with the ownership interests issued to these employees of $1.0 million will be recognized by Allo as compensation expense over the performance period.

Allo provides pure fiber optic service to homes and businesses for internet, television, and telephone services.  The acquisition of Allo provides additional diversification of the Company's revenues and cash flows outside of education.  In addition, the acquisition leverages the Company's existing infrastructure, customer service capabilities and call centers, and financial strength and liquidity for continued growth. 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The fair values of the assets and liabilities related to Allo are subject to refinement as the Company completes its analysis relative to the fair values at the date of acquisition. During the first quarter of 2016, the Company recognized certain adjustments to the provisional amounts recorded at December 31, 2015 that were needed to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The net impact of these adjustments was an increase to goodwill, and the adjustments had no impact on the operating results during the quarter.

15


Cash and cash equivalents
 
$
334

Restricted cash and investments
 
850

Accounts receivable
 
1,935

Property and equipment
 
32,479

Other assets
 
371

Intangible assets
 
11,410

Excess cost over fair value of net assets acquired (goodwill)
 
21,112

Other liabilities
 
(4,587
)
Bonds and notes payable
 
(13,904
)
Net assets acquired
 
50,000

Minority interest
 
(3,750
)
Total consideration paid by the Company
 
$
46,250


The $11.4 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately 12 years. The intangible assets that made up this amount included customer relationships of $6.3 million (10-year useful life) and a trade name of $5.1 million (15-year useful life).

The $21.1 million of goodwill was assigned to the Communications operating segment and is expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributable to future customers to be generated through the continued expansion of Allo's services in rural markets.

The proforma impacts of the acquisition on the Company's historical results prior to the acquisition were not material.

Allo recognizes revenue when (i) persuasive evidence of an arrangement exists between Allo and the customer, (ii) delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable, and (iv) collectability of the sales price is reasonably assured. Revenues based on a flat fee, derived principally from local telephone, dedicated network access, data communications, Internet access service, and residential/business broadband service are billed in advance and recognized in subsequent periods when the services are provided. Revenues for usage-based services, such as access charges billed to other telephone carriers for originating and terminating long-distance calls on Allo's network, are billed in arrears. Allo recognizes revenue from these services in the period the services are rendered rather than billed. Earned but unbilled usage-based services are recorded in accounts receivable.

7. Intangible Assets and Goodwill

Intangible assets consist of the following:
 
Weighted average remaining useful life as of March 31, 2016 (months)
 
As of
March 31,
2016
 
As of December 31, 2015
 
 
 
Amortizable intangible assets:
 
 
 
Customer relationships (net of accumulated amortization of $4,914 and $4,028, respectively)
195
 
$
26,870

 
27,576

Computer software (net of accumulated amortization of $5,568 and $4,397, respectively)
32
 
10,431

 
11,601

Trade names (net of accumulated amortization of $1,010 and $795, respectively)
198
 
10,562

 
10,687

Content (net of accumulated amortization of $1,125 and $900, respectively)
9
 
675

 
900

Covenants not to compete (net of accumulated amortization of $65 and $56, respectively)
98
 
289

 
298

Total - amortizable intangible assets
158
 
$
48,827

 
51,062



16


The Company recorded amortization expense on its intangible assets of $2.5 million and $2.4 million during the three months ended March 31, 2016 and 2015, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of March 31, 2016, the Company estimates it will record amortization expense as follows:

2016 (April 1 - December 31)
$
7,515

2017
7,033

2018
6,558

2019
3,911

2020
3,589

2021 and thereafter
20,221

 
$
48,827


The change in the carrying amount of goodwill by reportable operating segment was as follows:
 
Student Loan and Guaranty Servicing
 
Tuition Payment Processing and Campus Commerce
 
Communications
 
Asset Generation and Management
 
Corporate and Other Activities
 
Total
Balance as of December 31, 2015
$
8,596

 
67,168

 
19,800

 
41,883

 
8,553

 
146,000

Allo purchase price adjustment
—

 
—

 
1,312

 
—

 
—

 
1,312

Balance as of March 31, 2016
$
8,596

 
67,168

 
21,112

 
41,883

 
8,553

 
147,312


8. Property and Equipment

Property and equipment consisted of the following:
 
Useful life
 
As of March 31, 2016
 
As of December 31, 2015
Non-communications:
 
 
 
 
 
Computer equipment and software
1-5 years
 
$
92,035

 
89,093

Office furniture and equipment
3-7 years
 
12,415

 
12,638

Building and building improvements
5-39 years
 
12,239

 
12,239

Transportation equipment
4-10 years
 
3,868

 
3,868

Leasehold improvements
5-20 years
 
3,332

 
3,545

Land
—
 
700

 
700

Construction in progress
—
 
9,877

 
1,210

 
 
 
134,466

 
123,293

Accumulated depreciation - non-communications
 
 
80,335

 
77,188

Non-communications, net property and equipment
 
 
54,131

 
46,105

 
 
 
 
 
 
Communications:
 
 
 
 
 
Network plant and fiber
5-15 years
 
24,868

 
25,669

Customer located property
5-10 years
 
3,776

 
6,912

Central office
5-15 years
 
3,207

 
909

Other
1-20 years
 
1,754

 
887

Construction in progress
—
 
1,752

 
—

 
 
 
35,357

 
34,377

Accumulated depreciation - communications
 
 
780

 
—

Communications, net property and equipment
 
 
34,577

 
34,377

Total property and equipment, net
 
 
$
88,708

 
80,482


Depreciation expense for the three months ended March 31, 2016 and 2015 related to property and equipment was $5.1 million and $3.3 million, respectively.

17


9.   Earnings per Common Share

Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.
 
Three months ended March 31,
 
2016
 
2015
 
Common shareholders
 
Unvested restricted stock shareholders
 
Total
 
Common shareholders
 
Unvested restricted stock shareholders
 
Total
Numerator:
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Nelnet, Inc.
$
47,452

 
509

 
47,961

 
64,078

 
687

 
64,765

 
 
 
 
 


 
 
 
 
 
 
Denominator:


 


 


 
 
 
 
 
 
Weighted-average common shares outstanding - basic and diluted
42,630,806

 
457,286

 
43,088,092

 
45,799,873

 
490,717

 
46,290,590

Earnings per share - basic and diluted
$
1.11

 
1.11

 
1.11

 
1.40

 
1.40

 
1.40


Unvested restricted stock awards are the Company's only potential common shares and, accordingly, there were no awards that were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation.


18


10.    Segment Reporting

See note 14 of the notes to consolidated financial statements included in the 2015 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.

Prior to January 1, 2016, the Company allocated certain corporate overhead expenses that are incurred within the Corporate and Other Activities segment to the other operating segments. These expenses included certain corporate activities related to executive management, internal audit, enterprise risk management, and other costs incurred by the Company due to corporate-wide initiatives. Effective January 1, 2016, internal reporting to executive management (the "chief operating decision maker") changed to eliminate the allocation of these expenses to the other segments. Management believes the change in its allocation methodology results in a better reflection of the operating results of each of the reportable segments as if they each operated as a standalone business entity, which also reflects how management evaluates the performance of the segments. Prior period segment operating results have been restated to conform to the current period presentation.
 
Three months ended March 31, 2016
 
Student Loan and Guaranty Servicing
 
Tuition Payment Processing and Campus Commerce
 
Communications
 
Asset
Generation and
Management
 
Corporate and Other Activities
 
Eliminations
 
Total
Total interest income
$
21

 
3

 
—

 
190,723

 
2,093

 
(823
)
 
192,017

Interest expense
—

 
—

 
147

 
89,877

 
1,206

 
(823
)
 
90,408

Net interest income
21

 
3

 
(147
)
 
100,846

 
887

 
—

 
101,609

Less provision for loan losses
—

 
—

 
—

 
2,500

 
—

 
—

 
2,500

Net interest income (loss) after provision for loan losses
21


3

 
(147
)
 
98,346

 
887

 
—

 
99,109

Other income:
 

 
 

 
 
 
 

 
 

 
 

 
 

Loan and guaranty servicing revenue
52,330

 
—

 
—

 
—

 
—

 
—

 
52,330

Intersegment servicing revenue
12,007

 
—

 
—

 
—

 
—

 
(12,007
)
 
—

Tuition payment processing, school information, and campus commerce revenue
—

 
38,657

 
—

 
—

 
—

 
—

 
38,657

Communications revenue
—

 
—

 
4,346

 
—

 
—

 
—

 
4,346

Enrollment services revenue
—

 
—

 
—

 
—

 
4,326

 
—

 
4,326

Other income
—

 
—

 
—

 
4,263

 
9,532

 
—

 
13,796

Gain on sale of loans and debt repurchases
—

 
—

 
—

 
101

 
—

 
—

 
101

Derivative market value and foreign currency adjustments, net
—

 
—

 
—

 
(19,897
)
 
(2,256
)
 
—

 
(22,154
)
Derivative settlements, net
—

 
—

 
—

 
(6,304