NELNET INC, 10-Q filed on 5/7/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 001-31924  
Entity Registrant Name NELNET, INC.  
Entity Incorporation, State or Country Code NE  
Entity Tax Identification Number 84-0748903  
Entity Address, Address Line One 121 South 13th Street, Suite 100  
Entity Address, City or Town Lincoln,  
Entity Address, State or Province NE  
Entity Address, Postal Zip Code 68508  
City Area Code 402  
Local Phone Number 458-2370  
Title of 12(b) Security Class A Common Stock, Par Value $0.01 per Share  
Trading Symbol NNI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Amendment Flag false  
Entity Central Index Key 0001258602  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Common Class A    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   27,903,522
Common Class B    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding   11,271,609
v3.20.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Assets:    
Loans and accrued interest receivable (net of allowance for loan losses of $208,868 and $61,914, respectively) $ 21,158,208 $ 21,402,868
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 16,045 13,922
Cash and cash equivalents - held at a related party 188,799 119,984
Total cash and cash equivalents 204,844 133,906
Investments 253,939 247,099
Restricted cash 675,589 650,939
Restricted cash - due to customers 219,905 437,756
Accounts receivable (net of allowance for doubtful accounts of $5,142 and $4,455, respectively) 63,206 115,391
Goodwill 156,912 156,912
Intangible assets, net 74,127 81,532
Property and equipment, net 351,097 348,259
Other assets 122,801 134,308
Total assets 23,280,628 23,708,970
Liabilities:    
Bonds and notes payable 20,466,730 20,529,054
Accrued interest payable 43,874 47,285
Other liabilities 224,319 303,781
Due to customers 219,905 437,756
Total liabilities 20,954,828 21,317,876
Commitments and contingencies
Nelnet, Inc. shareholders' equity:    
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding 0 0
Common stock:    
Additional paid-in capital 9,140 5,715
Retained earnings 2,310,282 2,377,627
Accumulated other comprehensive earnings 859 2,972
Total Nelnet, Inc. shareholders' equity 2,320,680 2,386,712
Noncontrolling interests 5,120 4,382
Total equity 2,325,800 2,391,094
Total liabilities and equity 23,280,628 23,708,970
Variable Interest Entity, Primary Beneficiary    
Assets:    
Loans and accrued interest receivable (net of allowance for loan losses of $208,868 and $61,914, respectively) 21,180,424 21,399,382
Cash and cash equivalents:    
Restricted cash 659,624 639,816
Other assets 30 31
Liabilities:    
Bonds and notes payable 20,625,388 20,742,798
Other liabilities 108,801 162,494
Common stock:    
Net assets of consolidated education and other lending variable interest entities 1,105,889 1,133,937
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 28,582,032 shares and 28,458,495 shares, respectively    
Common stock:    
Common stock 286 285
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,271,609 shares    
Common stock:    
Common stock $ 113 $ 113
v3.20.1
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Allowance for loan losses $ 208,868 $ 61,914
Allowance for doubtful accounts $ 5,142 $ 4,455
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    
Par value (in dollars per share) $ 0.01 $ 0.01
Shares authorized (in shares) 600,000,000 600,000,000
Shares issued (in shares) 28,582,032 28,458,495
Shares outstanding (in shares) 28,582,032 28,458,495
Common Class B    
Par value (in dollars per share) $ 0.01 $ 0.01
Shares authorized (in shares) 60,000,000 60,000,000
Shares issued (in shares) 11,271,609 11,271,609
Shares outstanding (in shares) 11,271,609 11,271,609
v3.20.1
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Interest income:    
Loan interest $ 181,793 $ 242,333
Investment interest 7,398 8,253
Total interest income 189,191 250,586
Interest expense:    
Interest on bonds and notes payable 134,118 191,770
Net interest income 55,073 58,816
Less provision for loan losses 76,299 7,000
Net interest income after provision for loan losses (21,226) 51,816
Other income/expense:    
Gain on sale of loans 18,206 0
Other income 8,281 9,067
Impairment expense (34,087) 0
Derivative market value adjustments and derivative settlements, net (16,365) (11,539)
Total other income/expense 190,626 206,128
Cost of services:    
Cost of services 28,388 25,818
Operating expenses:    
Salaries and benefits 119,878 111,059
Depreciation and amortization 27,648 24,213
Other expenses 43,384 43,816
Total operating expenses 190,910 179,088
(Loss) income before income taxes (49,898) 53,038
Income tax benefit (expense) 10,133 (11,391)
Net (loss) income (39,765) 41,647
Net income attributable to noncontrolling interests (767) (56)
Net (loss) income attributable to Nelnet, Inc. $ (40,532) $ 41,591
Earnings per common share:    
Net (loss) income attributable to Nelnet, Inc. shareholders - basic and diluted (in dollars per share) $ (1.01) $ 1.03
Weighted average common shares outstanding - basic and diluted (in shares) 39,955,514 40,373,295
Loan servicing and systems    
Other income/expense:    
Revenue $ 112,735 $ 114,898
Education technology, services, and payment processing    
Other income/expense:    
Revenue 83,675 79,159
Cost of services:    
Cost of services 22,806 21,059
Communications services    
Other income/expense:    
Revenue 18,181 14,543
Cost of services:    
Cost of services $ 5,582 $ 4,759
v3.20.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net (loss) income $ (39,765) $ 41,647
Available-for-sale securities:    
Unrealized holding losses arising during period, net of gains (3,015) (436)
Reclassification adjustment for losses recognized in net income 235 0
Income tax effect 667 105
Total other comprehensive loss (2,113) (331)
Comprehensive (loss) income (41,878) 41,316
Comprehensive income attributable to noncontrolling interests (767) (56)
Comprehensive (loss) income attributable to Nelnet, Inc. $ (42,645) $ 41,260
v3.20.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Preferred stock
Common stock
Common Class A
Common stock
Common Class B
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) earnings
Noncontrolling interests
Balance (in shares) at Dec. 31, 2018   0 28,798,464 11,459,641        
Balance at Dec. 31, 2018 $ 2,314,779 $ 0 $ 288 $ 115 $ 622 $ 2,299,556 $ 3,883 $ 10,315
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 26             26
Net (loss) income 41,647         41,591   56
Other comprehensive loss (331)           (331)  
Distribution to noncontrolling interests (22)             (22)
Cash dividend on Class A and Class B common stock (7,232)         (7,232)    
Issuance of common stock, net of forfeitures (in shares)     131,391          
Issuance of common stock, net of forfeitures 2,494   $ 1   2,493      
Compensation expense for stock based awards 1,368       1,368      
Repurchase of common stock (in shares)     (301,327)          
Repurchase of common stock (16,358)   $ (3)   (3,847) (12,508)    
Balance (in shares) at Mar. 31, 2019   0 28,628,528 11,459,641        
Balance at Mar. 31, 2019 2,330,294 $ 0 $ 286 $ 115 636 2,321,407 3,552 4,298
Balance (in shares) at Dec. 31, 2019   0 28,458,495 11,271,609        
Balance at Dec. 31, 2019 2,391,094 $ 0 $ 285 $ 113 5,715 2,377,627 2,972 4,382
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 26             26
Net (loss) income (39,765)         (40,532)   767
Other comprehensive loss (2,113)           (2,113)  
Distribution to noncontrolling interests (55)             (55)
Cash dividend on Class A and Class B common stock (7,946)         (7,946)    
Issuance of common stock, net of forfeitures (in shares)     148,422          
Issuance of common stock, net of forfeitures 2,941   $ 1   2,940      
Compensation expense for stock based awards 1,738       1,738      
Repurchase of common stock (in shares)     (24,885)          
Repurchase of common stock (1,253)       (1,253)      
Balance (in shares) at Mar. 31, 2020   0 28,582,032 11,271,609        
Balance at Mar. 31, 2020 $ 2,325,800 $ 0 $ 286 $ 113 $ 9,140 $ 2,310,282 $ 859 $ 5,120
v3.20.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parentheticals) - $ / shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Common Class A    
Cash dividend on Class A and Class B common stock (in dollars per share) $ 0.20 $ 0.18
Common Class B    
Cash dividend on Class A and Class B common stock (in dollars per share) $ 0.20 $ 0.18
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Cash Flows [Abstract]    
Net (loss) income attributable to Nelnet, Inc. $ (40,532) $ 41,591
Net income attributable to noncontrolling interests 767 56
Net (loss) income (39,765) 41,647
Adjustments to reconcile net (loss) income to net cash used in operating activities:    
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 48,763 46,948
Loan discount accretion (9,442) (9,693)
Provision for loan losses 76,299 7,000
Derivative market value adjustments 20,602 30,574
Proceeds from termination of derivative instruments 0 2,119
Payments to clearinghouse - initial and variation margin, net (20,386) (13,974)
Gain from sale of loans (18,206) 0
Loss from investments, net 4,046 1,151
Deferred income tax benefit (26,000) (2,807)
Non-cash compensation expense 1,857 1,476
Impairment expense 34,087 0
Increase in accrued interest receivable (33,167) (36,722)
Decrease (increase) in accounts receivable 52,185 (16,571)
Decrease (increase) in other assets, net 31,363 (33,440)
(Increase) decrease in the carrying amount of ROU asset, net (1,000) 1,096
(Decrease) increase in accrued interest payable (3,411) 479
Decrease in other liabilities (42,047) (3,678)
Decrease in the carrying amount of lease liability, net (2,382) (2,063)
Decrease in due to customers (217,851) (153,207)
Net cash used in operating activities (144,455) (139,665)
Cash flows from investing activities:    
Purchases of loans (409,404) (317,922)
Purchases of loans from a related party (41,217) (26,709)
Net proceeds from loan repayments, claims, and capitalized interest 517,347 769,996
Proceeds from sale of loans 90,461 0
Purchases of available-for-sale securities (29,658) 0
Proceeds from sales of available-for-sale securities 22,197 0
Purchases of other investments (32,892) (15,970)
Proceeds from beneficial interest in loan securitizations 11,264 0
Proceeds from other investments 3,135 1,719
Purchases of property and equipment (25,561) (24,813)
Net cash provided by investing activities 105,672 386,301
Cash flows from financing activities:    
Payments on bonds and notes payable (1,263,204) (932,007)
Proceeds from issuance of bonds and notes payable 1,193,388 570,532
Payments of debt issuance costs (4,854) (2,776)
Dividends paid (7,946) (7,232)
Repurchases of common stock (1,253) (16,358)
Proceeds from issuance of common stock 411 461
Distribution to noncontrolling interests (22) (22)
Net cash used in financing activities (83,480) (387,402)
Net decrease in cash, cash equivalents, and restricted cash (122,263) (140,766)
Cash, cash equivalents, and restricted cash, beginning of period 1,222,601 1,192,391
Cash, cash equivalents, and restricted cash, end of period 1,100,338 1,051,625
Supplemental disclosures of cash flow information:    
Cash disbursements made for interest 125,184 176,876
Cash disbursements made (refunds and credits received) for income taxes, net 80 (9)
Cash disbursements made for operating leases 2,702 2,376
Noncash operating, investing, and financing activity:    
ROU assets obtained in exchange for lease obligations 1,411 3,233
Receipt of beneficial interest in consumer loan securitization 38,490 0
Distribution to noncontrolling interest 33 0
Cash and cash equivalents:    
Cash, cash equivalents, and restricted cash $ 1,100,338 $ 1,192,391
v3.20.1
Basis of Financial Reporting
3 Months Ended
Mar. 31, 2020
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 March 31, 2020 and for the three months ended March 31, 2020 and 2019 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2019 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, 2020 are not necessarily indicative of the results for the year ending December 31, 2020. 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, 2019 (the "2019 Annual Report").
Reclassifications
Amounts previously reported in the line item "accrued interest receivable" in the Company's consolidated balance sheet have been reclassified to "loans and accrued interest receivable" and "investments" to conform to the current period presentation.
Accounting Standard Adopted in 2020
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired, including, for the Company, loans receivable, accounts receivable, and held-to-maturity beneficial interests in loan securitizations. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. For available-for-sale debt securities where fair value is less than amortized cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.
On January 1, 2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020. Adoption of the new guidance primarily impacted the allowance for loan losses related to the Company's loan portfolio. Upon adoption, the Company recorded an increase to the allowance for loan losses of $91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $18.9 million. The following table illustrates the impact of the adoption of ASC 326.
v3.20.1
Loans and Accrued Interest Receivable and Allowance for Loan Losses
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and Accrued Interest Receivable and Allowance for Loan Losses
Loans and accrued interest receivable consisted of the following:
As ofAs of
 March 31, 2020December 31, 2019
Federally insured student loans:
Stafford and other$4,645,574  4,684,314  
Consolidation15,539,478  15,644,229  
Total20,185,052  20,328,543  
Private education loans274,210  244,258  
Consumer loans145,803  225,918  
 20,605,065  20,798,719  
Accrued interest receivable766,773  733,497  
Loan discount, net of unamortized loan premiums and deferred origination costs
(4,762) (35,036) 
Non-accretable discount—  (32,398) 
Allowance for loan losses:
Federally insured loans(146,759) (36,763) 
Private education loans(23,056) (9,597) 
Consumer loans(39,053) (15,554) 
 $21,158,208  21,402,868  
On January 30, 2020, the Company sold $124.2 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a $18.2 million (pre-tax) gain as part of this transaction. As partial consideration received for the consumer loans sold, the Company received a 31.4 percent residual interest in the consumer loan securitization that is included in "investments" on the Company's consolidated balance sheet.
Activity in the Allowance for Loan Losses
The following table presents the activity in the allowance for loan losses by portfolio segment.
Balance at beginning of periodImpact of ASC 326 adoptionProvision for loan lossesCharge-offsRecoveriesInitial allowance on loans purchased with credit deterioration (a)Loan saleBalance at end of period
 Three months ended March 31, 2020
Federally insured loans$36,763  72,291  39,323  (6,318) —  4,700  —  146,759  
Private education loans9,597  4,797  9,800  (1,330) 192  —  —  23,056  
Consumer loans15,554  13,926  27,176  (4,350) 247  —  (13,500) 39,053  
$61,914  91,014  76,299  (11,998) 439  4,700  (13,500) 208,868  
Three months ended March 31, 2019
Federally insured loans$42,310  —  2,000  (3,376) —  —  —  40,934  
Private education loans10,838  —  —  (482) 231  —  —  10,587  
Consumer loans7,240  —  5,000  (2,006) 23  —  —  10,257  
$60,388  —  7,000  (5,864) 254  —  —  61,778  
a) During the three months ended March 31, 2020, the Company acquired $291.2 million (par value) of federally insured rehabilitation loans. These loans met the definition of PCD loans when they were purchased by the Company. The Company estimated that the expected credit losses relating to these loans was $4.7 million at the time of purchase. The noncredit discount recorded as part of these acquisitions will be recognized into interest income using an effective yield over the life of the loans.
In March 2020, the rapid outbreak of the respiratory disease caused by a novel strain of coronavirus, coronavirus 2019 or COVID-19 ("COVID-19"), was declared a global pandemic by the World Health Organization and a national emergency by the President, and caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of ASC 326 effective January 1, 2020, the Company’s allowance for loan losses increased during the first quarter of 2020 primarily as a result of the COVID-19 pandemic and its effects on current and forecasted economic conditions.
Loan Status and Delinquencies
The key credit quality indicators for the Company's federally insured, private education, and consumer loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. 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 status and delinquency amounts.
As of March 31, 2020As of December 31, 2019As of March 31, 2019
Federally insured loans:
    
Loans in-school/grace/deferment $1,111,139  5.5 % $1,074,678  5.3 % $1,288,011  5.9 %
Loans in forbearance 2,131,735  10.6   1,339,821  6.6   1,358,343  6.3  
Loans in repayment status:  
Loans current14,618,767  86.3 %15,410,993  86.0 %16,550,665  87.0 %
Loans delinquent 31-60 days581,665  3.4  650,796  3.6  666,668  3.5  
Loans delinquent 61-90 days405,575  2.4  428,879  2.4  425,098  2.2  
Loans delinquent 91-120 days267,145  1.6  310,851  1.7  296,242  1.6  
Loans delinquent 121-270 days
756,241  4.5  812,107  4.5  718,409  3.8  
Loans delinquent 271 days or greater
312,785  1.8  300,418  1.8  377,177  1.9  
Total loans in repayment16,942,178  83.9  100.0 %17,914,044  88.1  100.0 %19,034,259  87.8  100.0 %
Total federally insured loans20,185,052  100.0 % 20,328,543  100.0 % 21,680,613  100.0 %
Accrued interest receivable763,924  730,059  712,852  
Loan discount, net of unamortized premiums and deferred origination costs(5,732) (35,822) (45,139) 
Non-accretable discount (a)—  (28,036) (25,799) 
Allowance for loan losses(146,759) (36,763) (40,934) 
Total federally insured loans and accrued interest receivable, net of allowance for loan losses$20,796,485  $20,957,981  $22,281,593  
Private education loans:
Loans in-school/grace/deferment $4,783  1.7 %$4,493  1.8 %$4,208  2.0 %
Loans in forbearance 11,428  4.2  3,108  1.3  1,473  0.7  
Loans in repayment status:
Loans current252,611  97.9 %227,013  95.9 %196,122  95.5 %
Loans delinquent 31-60 days1,606  0.6  2,814  1.2  2,292  1.1  
Loans delinquent 61-90 days961  0.4  1,694  0.7  1,481  0.7  
Loans delinquent 91 days or greater2,821  1.1  5,136  2.2  5,453  2.7  
Total loans in repayment257,999  94.1  100.0 %236,657  96.9  100.0 %205,348  97.3  100.0 %
Total private education loans274,210  100.0 % 244,258  100.0 % 211,029  100.0 %
Accrued interest receivable1,716  1,558  1,134  
Loan discount, net of unamortized premiums and deferred origination costs(138) 46  (1,063) 
Non-accretable discount (a)—  (4,362) (5,311) 
Allowance for loan losses(23,056) (9,597) (10,587) 
Total private education loans and accrued interest receivable, net of allowance for loan losses$252,732  $231,903  $195,202  
Consumer loans:
Loans in repayment status:
Loans current$141,840  97.3 %$220,404  97.5 %$187,983  98.4 %
Loans delinquent 31-60 days1,525  1.0  2,046  0.9  1,162  0.6  
Loans delinquent 61-90 days851  0.6  1,545  0.7  917  0.5  
Loans delinquent 91 days or greater1,587  1.1  1,923  0.9  939  0.5  
Total loans in repayment145,803  100.0 %225,918  100.0 %191,001  100.0 %
Total consumer loans145,803  225,918  191,001  
Accrued interest receivable1,133  1,880  1,366  
Loan premium1,108  740  2,600  
Allowance for loan losses(39,053) (15,554) (10,257) 
Total consumer loans and accrued interest receivable, net of allowance for loan losses$108,991  $212,984  $184,710  
v3.20.1
Bonds and Notes Payable
3 Months Ended
Mar. 31, 2020
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 March 31, 2020
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$18,525,916  
0.90% - 3.42%
5/27/25 - 3/26/68
Bonds and notes based on auction763,476  
1.61% - 3.26%
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes19,289,392  
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations
773,997  
1.83% - 3.45%
10/25/67 - 4/25/68
FFELP warehouse facilities282,505  
1.65% / 1.70%
5/20/21 / 5/31/22
Private education loan warehouse facility85,494  1.65%2/13/22
Consumer loan warehouse facility67,097  1.68%4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations
65,859  
1.65% / 2.70%
12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
46,045  
3.60% / 5.35%
12/26/40 / 12/28/43
Unsecured line of credit100,000  2.11%12/16/24
Unsecured debt - Junior Subordinated Hybrid Securities20,381  4.81%9/15/61
Other borrowings5,000  3.11%5/30/22
 20,735,770    
Discount on bonds and notes payable and debt issuance costs(269,040) 
Total$20,466,730  

 As of December 31, 2019
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$18,428,998  
1.98% - 3.61%
5/27/25 - 1/25/68
Bonds and notes based on auction768,626  
2.75% - 3.60%
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes19,197,624  
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations
512,836  
2.00% - 3.45%
10/25/67 / 11/25/67
FFELP warehouse facilities778,094  
1.98% / 2.07%
5/20/21 / 5/31/22
Consumer loan warehouse facility116,570  1.99%4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations
73,308  
3.15% / 3.54%
12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
49,367  
3.60% / 5.35%
12/26/40 / 12/28/43
Unsecured line of credit50,000  3.29%12/16/24
Unsecured debt - Junior Subordinated Hybrid Securities20,381  5.28%9/15/61
Other borrowings5,000  3.44%5/30/22
 20,803,180    
Discount on bonds and notes payable and debt issuance costs(274,126) 
Total$20,529,054  
FFELP Warehouse Facilities
The Company funds the majority 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, 2020, the Company had two FFELP warehouse facilities as summarized below.
NFSLW-INHELP-IITotal
Maximum financing amount
$550,000  500,000  1,050,000  
Amount outstanding159,441  123,064  282,505  
Amount available$390,559  376,936  767,495  
Expiration of liquidity provisions
May 20, 2020May 31, 2020
Final maturity dateMay 20, 2021May 31, 2022
Advanced as equity support$7,981  10,556  18,537  
Asset-Backed Securitizations
The following table summarizes the asset-backed securitization transactions completed during the first three months of 2020.
2020-12020-22020-3Total
Date securities issued2/20/203/11/203/19/20
Total original principal amount$435,600  272,100  352,600  1,060,300  
Class A senior notes:
Total principal amount$424,600  264,300  343,600  1,032,500  
Bond discount—  (44) (1,503) (1,547) 
Issue price$424,600  264,256  342,097  1,030,953  
Cost of funds
1-month LIBOR plus 0.74%
1.83%
1-month LIBOR plus 0.92%
Final maturity date3/26/684/25/683/26/68
Class B subordinated notes:
Total principal amount$11,000  7,800  9,000  27,800  
Bond discount—  (574) (284) (858) 
Issue price$11,000  7,226  8,716  26,942  
Cost of funds
1-month LIBOR plus 1.75%
2.50%
1-month LIBOR plus 1.90%
Final maturity date3/26/684/25/683/26/68
Consumer Loan Warehouse Facility
The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $200.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022. As of March 31, 2020, $67.1 million was outstanding under this warehouse facility and $132.9 million was available for future funding. Additionally, as of March 31, 2020, the Company had $29.1 million advanced as equity support under this facility.
Private Education Loan Warehouse Facility
On February 13, 2020, the Company closed on a private education loan warehouse facility with an aggregate maximum financing amount available of $100.0 million. On March 20, 2020, the facility was amended to increase the maximum financing amount to $200.0 million. The facility has an advance rate of 90 percent, liquidity provisions through February 13, 2021, and a final maturity date of February 13, 2022. As of March 31, 2020, $85.5 million was outstanding under this warehouse facility
and $114.5 million was available for future funding. Additionally, as of March 31, 2020, the Company had $9.2 million advanced as equity support under this facility.
Unsecured Line of Credit
The Company has a $455.0 million unsecured line of credit that has a maturity date of December 16, 2024. As of March 31, 2020, $100.0 million was outstanding on the line of credit and $355.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $550.0 million, subject to certain conditions.
v3.20.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
The Company uses derivative financial instruments to manage interest rate 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 2019 Annual Report. A tabular presentation of such derivatives outstanding as of March 31, 2020 and December 31, 2019 is presented below.
Basis Swaps
The following table summarizes the Company’s outstanding basis swaps as of December 31, 2019 and March 31, 2020, 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").
MaturityNotional Amount
2020$1,000,000  
2021250,000  
2022 (a)2,000,000  
2023750,000  
20241,750,000  
20261,150,000  
2027250,000  
$7,150,000  
(a) $750 million of the notional amount of these derivatives have forward effective start dates in May 2020.
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2020 and December 31, 2019 was one-month LIBOR plus 9.7 basis points.
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, 2020As of December 31, 2019
MaturityNotional amountWeighted average fixed rate paid by the Company (a)Notional amountWeighted average fixed rate paid by the Company (a)
2020$1,000,000  1.00 %$1,500,000  1.01 %
2021600,000  2.15  600,000  2.15  
2022 (b)250,000  1.65  250,000  1.65  
2023150,000  2.25  150,000  2.25  
 $2,000,000  1.52 %$2,500,000  1.42 %
(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
(b) These derivatives have forward effective start dates in June 2021. Excluding these derivatives, the weighted average fixed rate paid by the Company on its floor income derivative portfolio was 1.50% as of March 31, 2020.
Interest Rate Caps
In June 2015 and June 2019, the Company paid $2.9 million and $0.3 million, respectively, for interest rate cap contracts to mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate. In the event that the one-month LIBOR or three-month LIBOR rate rises above the applicable strike rate, the Company will receive monthly payments related to the spread difference. The following table summarizes these derivative instruments as of March 31, 2020.
Notional AmountStrike rateMaturity date
$125,000  
2.50% (1-month LIBOR)
July 15, 2020
150,000  
4.99% (1-month LIBOR)
July 15, 2020
500,000  
2.25% (3-month LIBOR)
September 25, 2020
Consolidated Financial Statement Impact Related to Derivatives - Statements of Operations
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of operations.
Three months ended March 31,
 20202019
Settlements:  
1:3 basis swaps$2,112  2,334  
Interest rate swaps - floor income hedges2,125  16,701  
Total settlements - income (expense)4,237  19,035  
Change in fair value:  
1:3 basis swaps1,558  (2,212) 
Interest rate swaps - floor income hedges(22,160) (26,712) 
Interest rate swap options - floor income hedges—  (1,376) 
Interest rate caps—  (274) 
Total change in fair value - income (expense)(20,602) (30,574) 
Derivative market value adjustments and derivative settlements, net - income (expense)
$(16,365) (11,539) 
v3.20.1
Investments
3 Months Ended
Mar. 31, 2020
Investments [Abstract]  
Investments Investments
A summary of the Company's investments follows:
As of March 31, 2020As of December 31, 2019
Amortized cost