NELNET INC, 10-Q filed on 8/8/2019
Quarterly Report
v3.19.2
Cover - shares
6 Months Ended
Jun. 30, 2019
Jul. 31, 2019
Entity Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2019  
Document Transition Report false  
Entity File Number 001-31924  
Entity Registrant Name NELNET, INC  
Entity Central Index Key 0001258602  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
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 $0.01 per Share  
Trading Symbol NNI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Common Class A    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   28,403,007
Common Class B    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   11,279,641
v3.19.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Assets:    
Loans receivable (net of allowance for loan losses of $62,591 and $60,388, respectively) $ 21,455,758 $ 22,377,142
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 14,065 9,472
Cash and cash equivalents - held at a related party 70,335 111,875
Total cash and cash equivalents 84,400 121,347
Investments and notes receivable 221,936 249,370
Restricted cash - due to customers 279,017 369,678
Accrued interest receivable 724,011 679,197
Accounts receivable (net of allowance for doubtful accounts of $4,054 and $3,271, respectively) 65,414 59,531
Goodwill 156,912 156,912
Intangible assets, net 97,477 114,290
Property and equipment, net 337,418 344,784
Other assets 106,647 45,533
Fair value of derivative instruments 230 1,818
Total assets 24,219,800 25,220,968
Liabilities:    
Bonds and notes payable 21,294,192 22,218,740
Accrued interest payable 56,471 61,679
Other liabilities 263,502 256,092
Due to customers 279,017 369,678
Total liabilities 21,893,182 22,906,189
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 1,670 622
Retained earnings 2,317,115 2,299,556
Accumulated other comprehensive earnings 3,144 3,883
Total Nelnet, Inc. shareholders' equity 2,322,326 2,304,464
Noncontrolling interests 4,292 10,315
Total equity 2,326,618 2,314,779
Total liabilities and equity 24,219,800 25,220,968
Common Class A    
Common stock:    
Common stock 284 288
Common Class B    
Common stock:    
Common stock 113 115
Variable Interest Entities    
Assets:    
Loans receivable (net of allowance for loan losses of $62,591 and $60,388, respectively) 21,498,948 22,359,655
Cash and cash equivalents:    
Restricted cash 657,953 677,611
Other assets 724,227 679,735
Liabilities:    
Bonds and notes payable 21,276,901 22,146,374
Other liabilities 202,371 163,327
Common stock:    
Net assets of consolidated education and other lending variable interest entities $ 1,401,856 $ 1,407,300
v3.19.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Allowance for loan losses $ 62,591 $ 60,388
Allowance for doubtful accounts $ 4,054 $ 3,271
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    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 600,000,000 600,000,000
Common stock, shares issued (in shares) 28,399,526 28,798,464
Common stock, shares outstanding (in shares) 28,399,526 28,798,464
Common Class B    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 60,000,000 60,000,000
Common stock, shares issued (in shares) 11,279,641 11,459,641
Common stock, shares outstanding (in shares) 11,279,641 11,459,641
v3.19.2
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Interest income:        
Loan interest $ 238,222 $ 223,371 $ 480,555 $ 421,094
Investment interest 8,566 5,818 16,819 10,952
Total interest income 246,788 229,189 497,374 432,046
Interest expense:        
Interest on bonds and notes payable 186,963 171,450 378,733 306,999
Net interest income 59,825 57,739 118,641 125,047
Less provision for loan losses 9,000 3,500 16,000 7,500
Net interest income after provision for loan losses 50,825 54,239 102,641 117,547
Other income:        
Other income 16,152 9,580 25,219 28,135
Derivative market value adjustments and derivative settlements, net (24,088) 17,031 (35,628) 83,829
Total other income 182,149 200,218 388,276 455,123
Cost of services:        
Cost of services 20,972 15,182 46,790 32,583
Operating expenses:        
Salaries and benefits 111,214 111,118 222,272 207,760
Depreciation and amortization 24,484 21,494 48,697 39,951
Loan servicing fees to third parties 3,156 3,204 6,049 6,341
Other expenses 42,261 40,409 83,184 73,826
Total operating expenses 181,115 176,225 360,202 327,878
Income before income taxes 30,887 63,050 83,925 212,209
Income tax expense 6,209 13,511 17,600 49,487
Net income 24,678 49,539 66,325 162,722
Net income attributable to noncontrolling interests (59) (104) (115) 637
Net income attributable to Nelnet, Inc. $ 24,619 $ 49,435 $ 66,210 $ 163,359
Earnings per common share:        
Net income attributable to Nelnet, Inc. shareholders - basic and diluted (in dollars per share) $ 0.61 $ 1.21 $ 1.65 $ 3.99
Weighted average common shares outstanding - basic and diluted (in shares) 40,050,065 40,886,617 40,210,787 40,918,396
Loan servicing and systems revenue        
Other income:        
Revenue $ 113,985 $ 114,545 $ 228,883 $ 214,687
Education technology, services, and payment processing revenue        
Other income:        
Revenue 60,342 48,742 139,502 108,963
Cost of services:        
Cost of services 15,871 11,317 36,930 25,000
Communications services        
Other income:        
Revenue 15,758 10,320 30,300 19,509
Cost of services:        
Cost of services $ 5,101 $ 3,865 $ 9,860 $ 7,583
v3.19.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 24,678 $ 49,539 $ 66,325 $ 162,722
Available-for-sale securities:        
Unrealized holding losses arising during period, net of gains (537) (413) (972) (1,474)
Reclassification adjustment for gains recognized in net income, net of losses 0 (5) 0 (52)
Income tax effect 129 100 233 356
Total other comprehensive loss (408) (318) (739) (1,170)
Comprehensive income 24,270 49,221 65,586 161,552
Comprehensive (income) loss attributable to noncontrolling interests (59) (104) (115) 637
Comprehensive income attributable to Nelnet, Inc. $ 24,211 $ 49,117 $ 65,471 $ 162,189
v3.19.2
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, 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 income (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 at Jun. 30, 2018 2,286,703 $ 0 $ 293 $ 115 2,586 2,271,171 2,704 9,834
Balance (in shares) at Jun. 30, 2018   0 29,331,002 11,468,587        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) 162,722         163,359   (637)
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 income (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 at Jun. 30, 2018 2,286,703 $ 0 $ 293 $ 115 2,586 2,271,171 2,704 9,834
Balance (in shares) at Jun. 30, 2018   0 29,331,002 11,468,587        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) 49,539         49,435   104
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 52             52
Net income (loss) 66,325         66,210   115
Other comprehensive income (loss) (739)           (739)  
Distribution to noncontrolling interests (113)             (113)
Cash dividend on Class A and Class B common stock (14,403)         (14,403)    
Issuance of common stock, net of forfeitures (in shares)     141,529          
Issuance of common stock, net of forfeitures 3,877   $ 1   3,876      
Compensation expense for stock based awards 2,958       2,958      
Repurchase of common stock (in shares)     (720,467)          
Repurchase of common stock (40,041)   $ (7)   (5,786) (34,248)    
Conversion of common stock (in shares)     180,000 (180,000)        
Conversion of common stock     $ 2 $ (2)        
Balance at Jun. 30, 2019 2,326,618 $ 0 $ 284 $ 113 1,670 2,317,115 3,144 4,292
Balance (in shares) at Jun. 30, 2019   0 28,399,526 11,279,641        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) 66,325         66,210   115
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
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 26             26
Net income (loss) 24,678         24,619   59
Other comprehensive income (loss) (408)           (408)  
Distribution to noncontrolling interests (91)             (91)
Cash dividend on Class A and Class B common stock (7,172)         (7,172)    
Issuance of common stock, net of forfeitures (in shares)     10,138          
Issuance of common stock, net of forfeitures 1,384       1,384      
Compensation expense for stock based awards 1,590       1,590      
Repurchase of common stock (in shares)     (419,140)          
Repurchase of common stock (23,683)   $ (4)   (1,940) (21,739)    
Conversion of common stock (in shares)     180,000 (180,000)        
Conversion of common stock     $ 2 $ (2)        
Balance at Jun. 30, 2019 2,326,618 $ 0 $ 284 $ 113 $ 1,670 2,317,115 $ 3,144 4,292
Balance (in shares) at Jun. 30, 2019   0 28,399,526 11,279,641        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) $ 24,678         $ 24,619   $ 59
v3.19.2
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parentheticals) - $ / shares
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Common Class A        
Dividends paid per common share (in dollars per share) $ 0.18 $ 0.16 $ 0.36 $ 0.32
Common Class B        
Dividends paid per common share (in dollars per share) $ 0.18 $ 0.16 $ 0.36 $ 0.32
v3.19.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Statement of Cash Flows [Abstract]    
Net income attributable to Nelnet, Inc. $ 66,210 $ 163,359
Net income (loss) attributable to noncontrolling interests 115 (637)
Net income 66,325 162,722
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of acquisition:    
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 94,121 89,225
Loan discount accretion (18,806) (21,799)
Provision for loan losses 16,000 7,500
Derivative market value adjustments 67,635 (55,135)
Proceeds from termination of derivative instruments 2,119 0
(Payments to) proceeds from clearinghouse - initial and variation margin, net (77,229) 40,261
Loss on extinguishment of debt 1,801 0
Gain from sale of loans (1,712) 0
Gain from debt repurchases 0 (359)
Gain from investments and notes receivable, net (2,970) (6,828)
Deferred income tax (benefit) expense (15,023) 21,294
Non-cash compensation expense 3,138 2,735
Other (214) 1,810
Increase in accrued interest receivable (44,967) (160,698)
(Increase) decrease in accounts receivable (5,972) 2,400
(Increase) decrease in other assets (1,543) 54,249
(Decrease) increase in accrued interest payable (5,208) 13,187
Decrease in other liabilities (4,669) (46,572)
Decrease in due to customers (90,661) (32,361)
Net cash (used in) provided by operating activities (17,835) 71,631
Cash flows from investing activities, net of acquisitions:    
Purchases of loans (997,123) (2,593,232)
Purchases of loans from a related party (32,580) 0
Net proceeds from loan repayments, claims, capitalized interest, and other 1,889,084 1,694,829
Proceeds from sale of loans 42,215 1,392
Purchases of available-for-sale securities (1,010) (38,064)
Proceeds from sales of available-for-sale securities 192 31,785
Purchases of investments and issuance of notes receivable (26,314) (24,224)
Proceeds from investments and notes receivable 24,731 16,092
Purchases of property and equipment (43,715) (65,009)
Business acquisition, net of cash and restricted cash acquired 0 (109,152)
Net cash provided by (used in) investing activities 855,480 (1,085,583)
Cash flows from financing activities:    
Payments on bonds and notes payable (2,007,483) (1,643,650)
Proceeds from issuance of bonds and notes payable 1,092,186 2,727,412
Payments of debt issuance costs (5,515) (5,445)
Payment of debt extinguishment costs (1,394) 0
Dividends paid (14,403) (13,014)
Repurchases of common stock (40,041) (16,328)
Proceeds from issuance of common stock 724 501
Acquisition of noncontrolling interest 0 (13,449)
Issuance of noncontrolling interests 0 468
Distribution to noncontrolling interests (113) (256)
Net cash (used in) provided by financing activities (976,039) 1,036,239
Net (decrease) increase in cash, cash equivalents, and restricted cash (138,394) 22,287
Cash, cash equivalents, and restricted cash, beginning of period 1,192,391 942,066
Cash, cash equivalents, and restricted cash, end of period 1,053,997 964,353
Supplemental disclosures of cash flow information:    
Cash disbursements made for interest 354,902 259,980
Cash disbursements (refunds received) for income taxes, net of payments 11,529 (7,290)
Noncash investing activity:    
Receipt of beneficial interest in consumer loan securitization $ 7,921 $ 0
v3.19.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parentheticals) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Jun. 30, 2018
Dec. 31, 2017
Reconciliation of cash, cash equivalents and restricted cash        
Total cash and cash equivalents $ 84,400 $ 121,347 $ 67,867 $ 66,752
Restricted cash 690,580 701,366 741,726 688,193
Restricted cash - due to customers 279,017 369,678 154,760 187,121
Cash, cash equivalents, and restricted cash $ 1,053,997 $ 1,192,391 $ 964,353 $ 942,066
v3.19.2
Basis of Financial Reporting
6 Months Ended
Jun. 30, 2019
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, 2019 and for the three and six months ended June 30, 2019 and 2018 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2018 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, 2019 are not necessarily indicative of the results for the year ending December 31, 2019. 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, 2018 (the "2018 Annual Report").
Accounting Standard Adopted in 2019
In the first quarter of 2019, the Company adopted the following new accounting standard:
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification Topic 842, Leases ("ASC Topic 842"). The standard requires the identification of arrangements that should be accounted for as leases by lessees and the disclosure of key information about leasing arrangements. The standard establishes a right-of-use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability for all leases with a term longer than twelve months and classify the lease as operating or financing, with the income statement reflecting lease expense for operating leases and amortization/interest expense for financing leases.
The Company adopted the standard effective January 1, 2019, using the effective date as its date of initial application. Consequently, financial information is not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. The Company elected to utilize the ‘package of practical expedients’, which permitted it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs.
The most significant impact of the standard relates to (1) the recognition of new ROU assets and lease liabilities on the Company's balance sheet; (2) the deconsolidation of assets and liabilities for certain sale-leaseback transactions arising from build-to-suit lease arrangements for which construction was completed and the Company is leasing the constructed assets that did not qualify for sale accounting prior to the adoption of the new standard; and (3) significant new disclosures about the Company’s leasing activities. The build-to-suit lease arrangements have been reassessed as operating leases as of the effective date under ASC Topic 842.
Adoption of the new standard resulted in recognizing lease liabilities of $33.7 million based on the present value of the remaining minimum rental payments. In addition, the Company recognized ROU assets of $32.8 million, which corresponds to the lease liabilities reduced by deferred rent expense as of the effective date. The Company also deconsolidated total assets of $43.8 million and total liabilities of $34.8 million for entities that had been consolidated due to sale-leaseback transactions that failed to qualify for recognition as sales under the prior guidance. Deconsolidation of these entities reduced noncontrolling interests by $6.1 million. The cumulative effect of the changes made to the Company's consolidated balance sheet as of January 1, 2019 for the adoption of the new lease standard was as follows:
Balances at December 31, 2018Adjustments from adoption of new lease standardBalances at January 1, 2019
Assets
   
Cash and cash equivalents$121,347 (646)120,701 
Investments and notes receivable249,370 (23,134)226,236 
Accounts receivable59,531 (89)59,442 
Property and equipment, net344,784 (16,974)327,810 
Other assets45,533 32,804 78,337 
Liabilities
Bonds and notes payable
22,218,740 (33,182)22,185,558 
Other liabilities256,092 31,220 287,312 
Equity
Noncontrolling interests10,315 (6,077)4,238 
At the inception of an arrangement, the Company determines if the arrangement is, or contains, a lease and records the lease in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available by the lessor. The Company primarily leases dark fiber to support its telecommunications operations and office and data center space. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease expense for these leases is recognized on a straight-line basis over the lease term. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. When the discount rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate.
The Company has elected to utilize the practical expedient to account for lease and non-lease components together as a single, combined lease component for its office and data center space. In addition, the Company has identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment. The Company has also elected to utilize the practical expedient to account for those services and associated leases as a single, combined component. The non-lease services are 'predominant' in those contracts. Therefore, the combined component is considered a single performance obligation under ASC Topic 606, Revenue from Contracts with Customers.
Most leases include one or more options to renew, with renewal terms that can be extended. The exercise of lease renewal options for the majority of leases is at the Company's discretion. Renewal options that the Company is reasonably certain to exercise are included in the lease term.
Certain leases include escalating rental payments or rental payments adjusted periodically for inflation. None of the lease agreements include any residual value guarantees, a transfer of title, or a purchase option that is reasonably certain to be exercised.
The following table provides supplemental balance sheet information related to leases:
As of
June 30, 2019
Operating lease ROU assets, which is included in "other assets" on the
consolidated balance sheet
$31,822 
Operating lease liabilities, which is included in "other liabilities" on the
consolidated balance sheet
$32,753 
The following table provides components of lease expense:
Three months ended June 30, 2019Six months ended June 30, 2019
Rental expense, which is included in "other expenses" on the
consolidated statements of income (a)
$2,705 5,500 
Rental expense, which is included in "cost to provide communications
services" on the consolidated statements of income (a)
631 710 
Total operating rental expense$3,336 6,210 

(a) Includes short-term and variable lease costs, which are immaterial.
The following table provides supplemental cash flow information related to leases:
Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows related to operating leases$4,792 
Supplemental noncash activity:
Operating ROU assets obtained in exchange for lease obligations,
excluding impact of adoption
$3,298 
Weighted average remaining lease term and discount rate are shown below:
As of
June 30, 2019
Weighted average remaining lease term6.02 years
Weighted average discount rate4.00 %
Maturity of lease liabilities are shown below:
2019 (July 1 - December 31)$4,979 
20208,864 
20216,352 
20224,229 
20233,395 
2024 and thereafter9,187 
Total lease payments37,006 
Imputed interest(4,253)
Total$32,753 

The Company adopted the new lease standard using the effective date as its date of initial application as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future minimum lease payments as of December 31, 2018 are shown below:
2019$9,181 
20208,261 
20215,776 
20223,745 
20232,904 
2024 and thereafter5,479 
Total minimum lease payments$35,346 
v3.19.2
Loans Receivable and Allowance for Loan Losses
6 Months Ended
Jun. 30, 2019
Receivables [Abstract]  
Loans Receivable and Allowance for Loan Losses Loans Receivable and Allowance for Loan Losses
Loans receivable consisted of the following:
As ofAs of
 June 30, 2019December 31, 2018
Federally insured student loans:
Stafford and other$4,804,295 4,969,667 
Consolidation16,349,837 17,186,229 
Total21,154,132 22,155,896 
Private education loans198,752 225,975 
Consumer loans237,952 138,627 
 21,590,836 22,520,498 
Loan discount, net of unamortized loan premiums and deferred origination costs
(38,952)(53,572)
Non-accretable discount(33,535)(29,396)
Allowance for loan losses:
Federally insured loans(39,056)(42,310)
Private education loans(10,157)(10,838)
Consumer loans(13,378)(7,240)
 $21,455,758 22,377,142 
On May 1, 2019, the Company sold $47.7 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a $1.7 million gain as part of this transaction. As partial consideration received for the consumer loans sold, the Company received an approximate 11 percent beneficial interest in the consumer loan securitization that is included in "investments and notes receivable" on the Company's consolidated balance sheet.
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, 2019
 Balance at beginning of periodProvision for loan lossesCharge-offsRecoveriesLoan sale and otherBalance at end of period
Federally insured loans$40,934 2,000 (3,878)— — 39,056 
Private education loans10,587 — (588)158 — 10,157 
Consumer loans10,257 7,000 (2,652)273 (1,500)13,378 
$61,778 9,000 (7,118)431 (1,500)62,591 
Three months ended June 30, 2018
Federally insured loans$38,374 2,000 (3,111)— — 37,263 
Private education loans12,255 — (773)182 — 11,664 
Consumer loans4,665 1,500 (1,378)— 4,788 
$55,294 3,500 (5,262)183 — 53,715 
Six months ended June 30, 2019
Federally insured loans$42,310 4,000 (7,254)— — 39,056 
Private education loans10,838 — (1,070)389 — 10,157 
Consumer loans7,240 12,000 (4,658)296 (1,500)13,378 
$60,388 16,000 (12,982)685 (1,500)62,591 
Six months ended June 30, 2018
Federally insured loans$38,706 4,000 (6,443)— 1,000 37,263 
Private education loans12,629 — (1,312)347 — 11,664 
Consumer loans3,255 3,500 (1,973)— 4,788 
$54,590 7,500 (9,728)353 1,000 53,715 
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 June 30, 2019As of December 31, 2018As of June 30, 2018 
Federally insured loans:
    
Loans in-school/grace/deferment $1,222,021  $1,298,493  $1,349,739 
Loans in forbearance 1,420,120  1,430,291  1,633,600 
Loans in repayment status:  
Loans current16,055,368 86.7 %16,882,252 86.9 %17,211,088 87.8 %
Loans delinquent 31-60 days677,113 3.7  683,084 3.5  686,083 3.5  
Loans delinquent 61-90 days443,988 2.4  427,764 2.2  500,480 2.6  
Loans delinquent 91-120 days269,688 1.5  283,831 1.5  261,612 1.3  
Loans delinquent 121-270 days
755,093 4.1  806,692 4.2  751,526 3.8  
Loans delinquent 271 days or greater
310,741 1.6  343,489 1.7  200,662 1.0  
Total loans in repayment18,511,991 100.0 %19,427,112 100.0 %19,611,451 100.0 %
Total federally insured loans$21,154,132 $22,155,896 $22,594,790 
Private education loans:
Loans in-school/grace/deferment $3,912 $4,320 $4,194 
Loans in forbearance 1,143 1,494 2,012 
Loans in repayment status:
Loans current183,414 94.7 %208,977 95.0 %168,093 96.2 %
Loans delinquent 31-60 days3,491 1.8  3,626 1.6  1,498 0.9  
Loans delinquent 61-90 days1,658 0.9  1,560 0.7  1,235 0.7  
Loans delinquent 91 days or greater5,134 2.6  5,998 2.7  3,903 2.2  
Total loans in repayment193,697 100.0 %220,161 100.0 %174,729 100.0 %
Total private education loans$198,752 $225,975 $180,935 
Consumer loans:
Loans in repayment status:
Loans current$234,944 98.8 %$136,130 98.2 %$76,401 98.1 %
Loans delinquent 31-60 days1,254 0.5  1,012 0.7  748 1.0  
Loans delinquent 61-90 days824 0.3  832 0.6  369 0.5  
Loans delinquent 91 days or greater930 0.4  653 0.5  337 0.4  
Total loans in repayment237,952 100.0 %138,627 100.0 %77,855 100.0 %
Total consumer loans$237,952 $138,627 $77,855 
v3.19.2
Bonds and Notes Payable
6 Months Ended
Jun. 30, 2019
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, 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$19,439,363 2.44% - 4.17% 11/25/24 - 6/27/67
Bonds and notes based on auction782,076 3.34% - 3.84% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes20,221,439 
FFELP warehouse facilities777,263 2.57% / 2.62%  11/20/20 / 5/31/22
Consumer loan warehouse facility117,127 4.24%  4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations
89,612 3.90% / 4.15%  12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
56,461 3.60% / 5.35%  12/26/40 / 12/28/43
Unsecured line of credit260,000 3.88% - 3.93% 6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities20,381 5.97%  9/15/61
Other borrowings45,585 3.14% - 4.19% 7/3/19 - 5/30/22
 21,587,868   
Discount on bonds and notes payable and debt issuance costs(293,676)
Total$21,294,192 

 As of December 31, 2018
Carrying
amount
Interest rate
range
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
   
Bonds and notes based on indices$20,192,123 2.59% - 4.52% 11/25/24 - 2/25/67
Bonds and notes based on auction793,476 2.84% - 3.55% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes20,985,599 
FFELP warehouse facilities986,886 2.65% / 2.71%  5/20/20 / 5/31/21
Variable-rate bonds and notes issued in private education loan asset-backed securitization
50,720 4.26%  12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
63,171 3.60% / 5.35%  12/26/40 / 12/28/43
Unsecured line of credit310,000 3.92% - 4.01% 6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities20,381 6.17%  9/15/61
Other borrowings120,342 3.05% - 5.22% 1/3/19 - 12/15/45
 22,537,099   
Discount on bonds and notes payable and debt issuance costs(318,359)
Total$22,218,740 
FFELP Warehouse Facilities
The Company funds the majority 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, 2019, the Company had two FFELP warehouse facilities as summarized below.
NFSLW-I (a)NHELP-II (b)Total
Maximum financing amount
$500,000 500,000 1,000,000 
Amount outstanding414,870 362,393 777,263 
Amount available$85,130 137,607 222,737 
Expiration of liquidity provisions
November 20, 2019May 31, 2020
Final maturity dateNovember 20, 2020May 31, 2022
Advanced as equity support$21,661 27,658 49,319 
(a) On March 8, 2019, the Company decreased the maximum financing amount for this warehouse facility to $500 million. On May 16, 2019, the Company extended the expiration of liquidity provisions to November 20, 2019, and extended the maturity date to November 20, 2020.
(b) On May 30, 2019, the Company extended the expiration of liquidity provisions to May 31, 2020, and extended the maturity date to May 31, 2022.
Asset-Backed Securitizations
The following table summarizes the asset-backed securitization transactions completed during the first six months of 2019.
2019-12019-2Private education loan 2019-ATotal
Class A-1 NotesClass A-2 Notes2019-1 total
Date securities issued2/27/192/27/192/27/19  4/30/19  6/25/19  
Class A senior notes:
Total principal amount
$35,700 448,000 483,700 405,000 47,159 935,859 
Cost of funds
1-month LIBOR plus 0.30% 1-month LIBOR plus 0.75% 1-month LIBOR plus 0.90% Prime rate less 1.60%  
Final maturity date4/25/674/25/676/27/676/25/49
Class B subordinated notes:
Total principal amount
13,100 11,100 24,200 
Cost of funds
1-month LIBOR plus 1.40% 1-month LIBOR plus 1.50% 
Final maturity date4/25/676/27/67
Total principal amount issued
$35,700 448,000 496,800 416,100 47,159 960,059 
On June 7, 2019, the Company extinguished all $93.0 million of the notes included in one of its FFELP asset-backed securitizations prior to the notes' contractual maturity. The Company paid a $1.4 million premium to extinguish the notes and wrote off $0.4 million of debt issuance costs. In total, the Company recognized a $1.8 million expense to extinguish the notes, which is included in other expenses on the consolidated statements of income.
Subsequent to June 30, 2019, the Company obtained consent from bond holders in five additional FFELP asset-backed securitizations to extinguish a total of approximately $579 million of notes payable in these transactions prior to their contractual maturity. To extinguish the notes, the Company will pay a premium of approximately $13 million that will be expensed by the Company in the third quarter of 2019. The Company will also write off approximately $2 million of debt issuance costs associated with these securitizations. In total, the Company will recognize approximately $15 million in expenses in the third quarter of 2019 to extinguish these notes.
Consumer Loan Warehouse Facility
On January 11, 2019, the Company obtained a consumer loan warehouse facility with an aggregate maximum financing amount available of $100.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, and a maturity date of January 10, 2022. On April 25, 2019, the Company amended the agreement for this warehouse facility to increase the aggregate maximum financing amount available to $200.0 million, extend the expiration of liquidity provisions to April 23, 2021, and extend the final maturity date to April 23, 2022. As of June 30, 2019, $117.1 million was outstanding under this warehouse facility and $82.9 million was available for future funding. Additionally, as of June 30, 2019, the Company had $41.3 million advanced as equity support under this facility.
Unsecured Line of Credit
The Company has a $382.5 million unsecured line of credit that has a maturity date of June 22, 2023. As of June 30, 2019, $260.0 million was outstanding under the line of credit and $122.5 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 $400.0 million, subject to certain conditions.
Other Borrowings
During 2017, the Company entered into a repurchase agreement, the proceeds of which are collateralized by FFELP asset-backed security investments. Included in "other borrowings" as of June 30, 2019 and December 31, 2018, was $40.6 million and $41.4 million, respectively, subject to this repurchase agreement.
During 2018, the Company entered into a repurchase agreement, the proceeds of which were collateralized by private education loans. On June 25, 2019, the Company terminated this repurchase agreement. Included in "other borrowings" as of December 31, 2018 was $45.0 million subject to this repurchase agreement.
On May 30, 2019, the Company entered into a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022 and an interest rate of one-month LIBOR plus 1.75%. As of June 30, 2019, $5.0 million was outstanding under this line of credit and $17.0 million was available for future use. The line of credit is secured by several Company-owned properties.
The Company had other notes payable included in its consolidated financial statements which were issued by partnerships for certain real estate development projects. Although the Company's ownership interests in these partnerships are 50 percent or less, because the Company was the developer of and is a current tenant in the associated buildings, the operating results of these partnerships were included in the Company's consolidated financial statements. On January 1, 2019, the Company adopted a new accounting standard for leases (see note 1). As a result of the adoption of this new standard, these real estate entities were deconsolidated, including $33.9 million of related debt. Prior to January 1, 2019, this debt was included in "other borrowings."
v3.19.2
Derivative Financial Instruments
6 Months Ended
Jun. 30, 2019
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 2018 Annual Report. A tabular presentation of such derivatives outstanding as of June 30, 2019 and December 31, 2018 is presented below.
Basis Swaps
The following table summarizes the Company’s outstanding basis swaps 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 June 30,As of December 31,
20192018
Maturity
Notional amount
Notional amount
2019$1,000,000 3,500,000 
20201,000,000 1,000,000 
2021250,000 250,000 
2022 (a)2,000,000 2,000,000 
2023750,000 750,000 
20241,750,000 250,000 
20261,150,000 1,150,000 
2027 (b)375,000 375,000 
2028 (b)325,000 325,000 
2029 (b)100,000 100,000 
2031 (b)300,000 300,000 
$9,000,000 10,000,000 
(a) $750 million of the notional amount of these derivatives have forward effective start dates in May 2020.
(b) Subsequent to June 30, 2019, the Company terminated $125 million (notional amount), $325 million (notional amount), $100 million (notional amount), and $300 million (notional amount) of 1:3 Basis Swaps that had a maturity date in 2027, 2028, 2029, and 2031, respectively.
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2019 and December 31, 2018 was one-month LIBOR plus 9.6 basis points and 9.4 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 June 30, 2019As of December 31, 2018
MaturityNotional amountWeighted average fixed rate paid by the Company (a)Notional amountWeighted average fixed rate paid by the Company (a)
2019$500,000 1.12 %$3,250,000 0.97 %
20201,500,000 1.01  1,500,000 1.01  
2021600,000 2.15  100,000 2.95  
2022 (b)500,000 1.90  — —  
2023400,000 2.24  400,000 2.24  
2024200,000 2.27  300,000 2.28  
2027— —  25,000 2.35  
 $3,700,000 1.53 %$5,575,000 1.18 %
(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
(b) $250 million of the notional amount of these derivatives have forward effective start dates in June 2021.
Interest Rate Swap Options – Floor Income Hedges
During 2014 and 2018, the Company paid $9.1 million and $4.6 million, respectively, for interest rate swap options to economically hedge loans earning fixed rate floor income. The interest rate swap options give the Company the right, but not the obligation, to enter into interest rate swaps in which the Company would pay a fixed amount and receive discrete one-month LIBOR. The following table summarizes these derivative instruments as of June 30, 2019.
If exercised effective dateNotional amountWeighted average fixed rate paid by the CompanyIf exercised maturity date
August 21, 2019$750,000 3.28 %August 21, 2024
September 25, 2019250,000 3.00  September 25, 2024
$1,000,000 3.21 %
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 would receive monthly payments related to the spread difference. The following table summarizes these derivative instruments as of June 30, 2019.
Notional amount Strike 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
Balance Sheet
The following table summarizes the fair value of the Company’s derivatives as reflected in the consolidated balance sheets. There is no difference between the gross amounts of recognized assets presented in the consolidated balance sheets related to the Company's derivative portfolio and the net amount when excluding derivatives subject to enforceable master netting arrangements and cash collateral received.
 Fair value of asset derivativesFair value of liability derivatives
As of June 30, 2019As of December 31, 2018As of June 30, 2019As of December 31, 2018
Interest rate swap options - floor income hedges
$1,465 — — 
Interest rate caps229 353 — — 
Total$230 1,818 — — 
Income Statement Impact
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
Three months ended June 30,Six months ended June 30,
 2019201820192018
Settlements:  
1:3 basis swaps$807 2,979 3,140 1,315 
Interest rate swaps - floor income hedges12,165 19,074 28,867 27,664 
Interest rate swaps - hybrid debt hedges— (125)— (285)
Total settlements - income12,972 21,928 32,007 28,694 
Change in fair value:  
1:3 basis swaps(2,522)(2,209)10,775 
Interest rate swaps - floor income hedges(36,851)(2,766)(63,563)41,434 
Interest rate swap options - floor income hedges(88)(279)(1,464)468 
Interest rate caps(125)122 (399)448 
Interest rate swaps - hybrid debt hedges— 548 — 2,010 
Total change in fair value - (expense) income
(37,060)(4,897)(67,635)55,135 
Derivative market value adjustments and derivative settlements, net - (expense) income
$(24,088)17,031 (35,628)83,829 
v3.19.2
Investments and Notes Receivable
6 Months Ended
Jun. 30, 2019
Investments [Abstract]  
Investments and Notes Receivable Investments and Notes Receivable
A summary of the Company's investments and notes receivable follows:
As of June 30, 2019As of December 31, 2018
Amortized costGross unrealized gainsGross unrealized lossesFair valueAmortized costGross unrealized gainsGross unrealized lossesFair value
Investments (at fair value):