NELNET INC, 10-Q filed on 11/7/2019
Quarterly Report
v3.19.3
Cover Page - shares
9 Months Ended
Sep. 30, 2019
Oct. 31, 2019
Entity Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Sep. 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 Q3  
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 $0.01 per Share  
Trading Symbol NNI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Common Class A    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   28,416,724
Common Class B    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding   11,279,641
v3.19.3
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Assets:    
Loans receivable (net of allowance for loan losses of $66,417 and $60,388, respectively) $ 21,071,441 $ 22,377,142
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 20,897 9,472
Cash and cash equivalents - held at a related party 140,082 111,875
Total cash and cash equivalents 160,979 121,347
Investments and notes receivable 212,416 249,370
Restricted cash 667,919 701,366
Restricted cash - due to customers 309,309 369,678
Accrued interest receivable 736,901 679,197
Accounts receivable (net of allowance for doubtful accounts of $4,482 and $3,271, respectively) 67,079 59,531
Goodwill 156,912 156,912
Intangible assets, net 89,499 114,290
Property and equipment, net 342,401 344,784
Other assets 121,806 45,533
Fair value of derivative instruments 57 1,818
Total assets 23,936,719 25,220,968
Liabilities:    
Bonds and notes payable 20,910,190 22,218,740
Accrued interest payable 52,345 61,679
Other liabilities 310,210 256,092
Due to customers 309,309 369,678
Total liabilities 21,582,054 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 3,678 622
Retained earnings 2,343,185 2,299,556
Accumulated other comprehensive earnings 2,890 3,883
Total Nelnet, Inc. shareholders' equity 2,350,150 2,304,464
Noncontrolling interests 4,515 10,315
Total equity 2,354,665 2,314,779
Total liabilities and equity 23,936,719 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 $66,417 and $60,388, respectively) 21,069,156 22,359,655
Cash and cash equivalents:    
Restricted cash 650,673 677,611
Other assets 736,768 679,735
Liabilities:    
Bonds and notes payable 21,143,811 22,146,374
Other liabilities 212,160 163,327
Common stock:    
Net assets of consolidated education and other lending variable interest entities $ 1,100,626 $ 1,407,300
v3.19.3
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Allowance for loan losses $ 66,417 $ 60,388
Allowance for doubtful accounts $ 4,482 $ 3,271
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 50,000,000 50,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (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) 28,411,506 28,798,464
Common stock, shares outstanding (in shares) 28,411,506 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
v3.19.3
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Interest income:        
Loan interest $ 229,063 $ 232,320 $ 709,618 $ 653,414
Investment interest 9,882 7,628 26,701 18,581
Total interest income 238,945 239,948 736,319 671,995
Interest expense:        
Interest on bonds and notes payable 172,488 180,175 551,221 487,174
Net interest income 66,457 59,773 185,098 184,821
Less provision for loan losses 10,000 10,500 26,000 18,000
Net interest income after provision for loan losses 56,457 49,273 159,098 166,821
Other income:        
Other income 13,439 16,673 38,658 44,808
Derivative market value adjustments and derivative settlements, net 1,668 17,098 (33,959) 100,927
Total other income 219,114 216,577 607,391 671,699
Cost of services:        
Total cost of services 30,907 23,397 77,697 55,979
Operating expenses:        
Salaries and benefits 116,670 114,172 338,942 321,932
Depreciation and amortization 27,701 22,992 76,398 62,943
Loan servicing fees to third parties 3,382 3,087 9,431 9,428
Other expenses 54,947 45,194 138,131 119,020
Total operating expenses 202,700 185,445 562,902 513,323
Income before income taxes 41,964 57,008 125,890 269,218
Income tax expense 8,829 13,882 26,429 63,369
Net income 33,135 43,126 99,461 205,849
Net loss (income) attributable to noncontrolling interests 77 (199) (38) 438
Net income attributable to Nelnet, Inc. $ 33,212 $ 42,927 $ 99,423 $ 206,287
Earnings per common share:        
Net income attributable to Nelnet, Inc. shareholders - basic and diluted (in dollars per share) $ 0.83 $ 1.05 $ 2.48 $ 5.04
Weighted average common shares outstanding - basic and diluted (in shares) 39,877,129 40,988,965 40,098,346 40,942,177
Loan servicing and systems revenue        
Other income:        
Revenue $ 113,286 $ 112,579 $ 342,169 $ 327,265
Education technology, services, and payment processing revenue        
Other income:        
Revenue 74,251 58,409 213,753 167,372
Cost of services:        
Total cost of services 25,671 19,087 62,601 44,087
Communications        
Other income:        
Revenue 16,470 11,818 46,770 31,327
Cost of services:        
Total cost of services $ 5,236 $ 4,310 $ 15,096 $ 11,892
v3.19.3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income $ 33,135 $ 43,126 $ 99,461 $ 205,849
Available-for-sale securities:        
Unrealized holding (losses) gains arising during period, net (334) 2,438 (1,306) 964
Reclassification adjustment for gains recognized in net income, net of losses 0 (765) 0 (817)
Income tax effect 80 (402) 313 (46)
Total other comprehensive (loss) income (254) 1,271 (993) 101
Comprehensive income 32,881 44,397 98,468 205,950
Comprehensive loss (income) attributable to noncontrolling interests 77 (199) (38) 438
Comprehensive income attributable to Nelnet, Inc. $ 32,958 $ 44,198 $ 98,430 $ 206,388
v3.19.3
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 847             847
Net income (loss) 205,849         206,287   (438)
Other comprehensive income (loss) 101           101  
Distribution to noncontrolling interests (351)             (351)
Cash dividends on Class A and Class B common stock (19,539)         (19,539)    
Issuance of common stock, net of forfeitures (in shares)     319,365          
Issuance of common stock, net of forfeitures 4,665   $ 3   4,662      
Compensation expense for stock based awards 4,526       4,526      
Repurchase of common stock (in shares)     (319,091)          
Repurchase of common stock (16,520)   $ (3)   (4,801) (11,716)    
Acquisition of noncontrolling interest (19,101)         (13,449)   (5,652)
Balance at Sep. 30, 2018 2,327,128 $ 0 $ 293 $ 115 4,908 2,307,573 3,975 10,264
Balance (in shares) at Sep. 30, 2018   0 29,341,791 11,468,587        
Balance (in shares) at Jun. 30, 2018   0 29,331,002 11,468,587        
Balance at Jun. 30, 2018 2,286,703 $ 0 $ 293 $ 115 2,586 2,271,171 2,704 9,834
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 326             326
Net income (loss) 43,126         42,927   199
Other comprehensive income (loss) 1,271           1,271  
Distribution to noncontrolling interests (95)             (95)
Cash dividends on Class A and Class B common stock (6,525)         (6,525)    
Issuance of common stock, net of forfeitures (in shares)     14,086          
Issuance of common stock, net of forfeitures 580       580      
Compensation expense for stock based awards 1,934       1,934      
Repurchase of common stock (in shares)     (3,297)          
Repurchase of common stock (192)       (192)      
Balance at Sep. 30, 2018 2,327,128 $ 0 $ 293 $ 115 4,908 2,307,573 3,975 10,264
Balance (in shares) at Sep. 30, 2018   0 29,341,791 11,468,587        
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 4,217             4,217
Net income (loss) 99,461         99,423   38
Other comprehensive income (loss) (993)           (993)  
Distribution to noncontrolling interests (3,978)             (3,978)
Cash dividends on Class A and Class B common stock (21,546)         (21,546)    
Issuance of common stock, net of forfeitures (in shares)     156,874          
Issuance of common stock, net of forfeitures 4,401   $ 1   4,400      
Compensation expense for stock based awards 4,663       4,663      
Repurchase of common stock (in shares)     (723,832)          
Repurchase of common stock (40,262)   $ (7)   (6,007) (34,248)    
Conversion of common stock (in shares)     180,000 (180,000)        
Conversion of common stock     $ 2 $ (2)        
Balance at Sep. 30, 2019 2,354,665 $ 0 $ 284 $ 113 3,678 2,343,185 2,890 4,515
Balance (in shares) at Sep. 30, 2019   0 28,411,506 11,279,641        
Balance (in shares) at Jun. 30, 2019   0 28,399,526 11,279,641        
Balance at Jun. 30, 2019 2,326,618 $ 0 $ 284 $ 113 1,670 2,317,115 3,144 4,292
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of noncontrolling interests 4,165             4,165
Net income (loss) 33,135         33,212   (77)
Other comprehensive income (loss) (254)           (254)  
Distribution to noncontrolling interests (3,865)             (3,865)
Cash dividends on Class A and Class B common stock (7,142)         (7,142)    
Issuance of common stock, net of forfeitures (in shares)     15,345          
Issuance of common stock, net of forfeitures 524       524      
Compensation expense for stock based awards 1,705       1,705      
Repurchase of common stock (in shares)     (3,365)          
Repurchase of common stock (221)       (221)      
Balance at Sep. 30, 2019 $ 2,354,665 $ 0 $ 284 $ 113 $ 3,678 $ 2,343,185 $ 2,890 $ 4,515
Balance (in shares) at Sep. 30, 2019   0 28,411,506 11,279,641        
v3.19.3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parentheticals) - $ / shares
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Common Class A        
Dividends paid per common share (in dollars per share) $ 0.18 $ 0.16 $ 0.54 $ 0.48
Common Class B        
Dividends paid per common share (in dollars per share) $ 0.18 $ 0.16 $ 0.54 $ 0.48
v3.19.3
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Statement of Cash Flows [Abstract]    
Net income attributable to Nelnet, Inc. $ 99,423 $ 206,287
Net income (loss) attributable to noncontrolling interests 38 (438)
Net income 99,461 205,849
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition:    
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 142,519 136,816
Loan discount accretion (27,554) (31,315)
Provision for loan losses 26,000 18,000
Derivative market value adjustments 73,265 (49,909)
Payments from termination of derivative instruments, net (13,940) 0
(Payments to) proceeds from clearinghouse - initial and variation margin, net (59,967) 46,418
Loss on extinguishment of debt 15,815 0
Gain from sale of loans (1,712) 0
Gain from debt repurchases (136) (359)
Gain from investments and notes receivable, net (4,891) (9,106)
Deferred income tax (benefit) expense (9,592) 23,574
Non-cash compensation expense 4,948 4,781
Impairment expense 0 3,907
Other (141) (30)
Increase in accrued interest receivable (57,864) (193,926)
Increase in accounts receivable (7,637) (15,328)
(Increase) decrease in other assets (21,976) 49,255
(Decrease) increase in accrued interest payable (9,334) 10,619
Increase (decrease) in other liabilities 56,023 (7,159)
(Decrease) increase in due to customers (60,369) 1,470
Net cash provided by operating activities 142,918 193,557
Cash flows from investing activities, net of acquisition:    
Purchases of loans (1,360,873) (3,187,434)
Purchases of loans from a related party (32,580) (44,522)
Net proceeds from loan repayments, claims, capitalized interest, and other 2,628,156 2,484,596
Proceeds from sale of loans 42,215 23,712
Purchases of available-for-sale securities (1,010) (38,064)
Proceeds from sales of available-for-sale securities 169 58,594
Purchases of investments and issuance of notes receivable (70,600) (49,216)
Proceeds from investments and notes receivable 54,819 21,461
Purchases of property and equipment (67,681) (96,480)
Business acquisition, net of cash and restricted cash acquired 0 (109,152)
Net cash provided by (used in) investing activities 1,192,615 (936,505)
Cash flows from financing activities:    
Payments on bonds and notes payable (3,718,851) (2,149,449)
Proceeds from issuance of bonds and notes payable 2,410,363 3,004,848
Payments of debt issuance costs (10,527) (10,953)
Payment of debt extinguishment costs (14,030) 0
Dividends paid (21,546) (19,539)
Repurchases of common stock (40,262) (16,520)
Proceeds from issuance of common stock 1,171 993
Acquisition of noncontrolling interest 0 (13,449)
Issuance of noncontrolling interests 4,138 768
Distribution to noncontrolling interests (173) (351)
Net cash (used in) provided by financing activities (1,389,717) 796,348
Net (decrease) increase in cash, cash equivalents, and restricted cash (54,184) 53,400
Cash, cash equivalents, and restricted cash, beginning of period 1,192,391 942,066
Cash, cash equivalents, and restricted cash, end of period 1,138,207 995,466
Supplemental disclosures of cash flow information:    
Cash disbursements made for interest 518,557 425,782
Cash disbursements (refunds received) for income taxes, net 14,820 (6,491)
Noncash investing and financing activity:    
Receipt of beneficial interest in consumer loan securitization 7,921 0
Distribution to noncontrolling interest $ 3,805 $ 0
v3.19.3
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2019
Jan. 01, 2019
Dec. 31, 2018
Sep. 30, 2018
Dec. 31, 2017
Reconciliation of cash, cash equivalents and restricted cash          
Total cash and cash equivalents $ 160,979 $ 120,701 $ 121,347 $ 83,537 $ 66,752
Restricted cash 667,919   701,366 723,338 688,193
Restricted cash - due to customers 309,309   369,678 188,591 187,121
Cash, cash equivalents, and restricted cash $ 1,138,207   $ 1,192,391 $ 995,466 $ 942,066
v3.19.3
Basis of Financial Reporting
9 Months Ended
Sep. 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 September 30, 2019 and for the three and nine months ended September 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 nine months ended September 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
September 30, 2019
Operating lease ROU assets, which is included in "other assets" on the
consolidated balance sheet
$34,264  
Operating lease liabilities, which is included in "other liabilities" on the
consolidated balance sheet
$35,237  
The following table provides components of lease expense:
Three months ended September 30, 2019Nine months ended September 30, 2019
Rental expense, which is included in "other expenses" on the
consolidated statements of income (a)
$2,776  8,276  
Rental expense, which is included in "cost to provide communications
services" on the consolidated statements of income (a)
428  1,138  
Total operating rental expense$3,204  9,414  

(a) Includes short-term and variable lease costs, which are immaterial.
The following table provides supplemental cash flow information related to leases:
Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows related to operating leases$7,307  
Supplemental noncash activity:
Operating ROU assets obtained in exchange for lease obligations,
excluding impact of adoption
$7,972  
Weighted average remaining lease term and discount rate are shown below:
As of
September 30, 2019
Weighted average remaining lease term (years)7.2
Weighted average discount rate3.95 %
Maturity of lease liabilities are shown below:
2019 (October 1 - December 31)$2,638  
20209,916  
20216,803  
20224,652  
20233,640  
2024 and thereafter12,996  
Total lease payments40,645  
Imputed interest(5,408) 
Total$35,237  

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  
v3.19.3
Loans Receivable and Allowance for Loan Losses
9 Months Ended
Sep. 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
 September 30, 2019December 31, 2018
Federally insured student loans:
Stafford and other$4,720,338  4,969,667  
Consolidation15,975,499  17,186,229  
Total20,695,837  22,155,896  
Private education loans189,912  225,975  
Consumer loans321,199  138,627  
 21,206,948  22,520,498  
Loan discount, net of unamortized loan premiums and deferred origination costs
(36,483) (53,572) 
Non-accretable discount(32,607) (29,396) 
Allowance for loan losses:
Federally insured loans(37,676) (42,310) 
Private education loans(9,882) (10,838) 
Consumer loans(18,859) (7,240) 
 $21,071,441  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 (pre-tax) gain as part of this transaction. As partial consideration received for the consumer loans sold, the Company received an approximate 11 percent residual interest in the consumer loan securitization that is included in "investments and notes receivable" on the Company's consolidated balance sheet.
Subsequent to September 30, 2019, the Company made the decision to sell an additional $179.3 million (par value) of consumer loans to an unrelated third party who securitized such loans. As of September 30, 2019, these loans were classified as held for investment and are included in the table above. As partial consideration received for the consumer loans sold, the Company received an approximate 29 percent residual interest in the consumer loan securitization. The Company will recognize a gain in the fourth quarter of 2019 of $15.5 million (pre-tax) from the sale of these loans.
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.
 Balance at beginning of periodProvision for loan lossesCharge-offsRecoveriesLoan sale and otherBalance at end of period
Three months ended September 30, 2019  
Federally insured loans$39,056  2,000  (3,380) —  —  37,676  
Private education loans10,157  —  (459) 184  —  9,882  
Consumer loans13,378  8,000  (2,759) 240  —  18,859  
$62,591  10,000  (6,598) 424  —  66,417  
Three months ended September 30, 2018
Federally insured loans$37,263  8,000  (2,210) —  —  43,053  
Private education loans11,664  —  (535) 124  —  11,253  
Consumer loans4,788  2,500  (1,403) 26  —  5,911  
$53,715  10,500  (4,148) 150  —  60,217  
Nine months ended September 30, 2019
Federally insured loans$42,310  6,000  (10,634) —  —  37,676  
Private education loans10,838  —  (1,529) 573  —  9,882  
Consumer loans7,240  20,000  (7,417) 536  (1,500) 18,859  
$60,388  26,000  (19,580) 1,109  (1,500) 66,417  
Nine months ended September 30, 2018
Federally insured loans$38,706  12,000  (8,653) —  1,000  43,053  
Private education loans12,629  —  (1,846) 470  —  11,253  
Consumer loans3,255  6,000  (3,376) 32  —  5,911  
$54,590  18,000  (13,875) 502  1,000  60,217  
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 September 30, 2019As of December 31, 2018As of September 30, 2018  
Federally insured loans:
    
Loans in-school/grace/deferment $1,243,705   $1,298,493   $1,410,902  
Loans in forbearance 1,391,482   1,430,291   1,487,107  
Loans in repayment status:  
Loans current15,646,231  86.7 %16,882,252  86.9 %16,921,119  86.8 %
Loans delinquent 31-60 days662,431  3.8  683,084  3.5  689,454  3.5  
Loans delinquent 61-90 days402,197  2.2  427,764  2.2  412,639  2.1  
Loans delinquent 91-120 days279,524  1.5  283,831  1.5  347,013  1.8  
Loans delinquent 121-270 days
795,230  4.4  806,692  4.2  853,224  4.4  
Loans delinquent 271 days or greater
275,037  1.4  343,489  1.7  269,285  1.4  
Total loans in repayment18,060,650  100.0 %19,427,112  100.0 %19,492,734  100.0 %
Total federally insured loans$20,695,837  $22,155,896  $22,390,743  
Private education loans:
Loans in-school/grace/deferment $3,944  $4,320  $3,550  
Loans in forbearance 2,242  1,494  1,577  
Loans in repayment status:
Loans current173,883  94.7 %208,977  95.0 %156,383  95.2 %
Loans delinquent 31-60 days3,011  1.6  3,626  1.6  1,796  1.1  
Loans delinquent 61-90 days1,370  0.7  1,560  0.7  1,155  0.7  
Loans delinquent 91 days or greater5,462  3.0  5,998  2.7  5,006  3.0  
Total loans in repayment183,726  100.0 %220,161  100.0 %164,340  100.0 %
Total private education loans$189,912  $225,975  $169,467  
Consumer loans:
Loans in repayment status:
Loans current$315,708  98.3 %$136,130  98.2 %$110,885  98.5 %
Loans delinquent 31-60 days2,249  0.7  1,012  0.7  905  0.8  
Loans delinquent 61-90 days1,617  0.5  832  0.6  355  0.3  
Loans delinquent 91 days or greater1,625  0.5  653  0.5  402  0.4  
Total loans in repayment321,199  100.0 %138,627  100.0 %112,547  100.0 %
Total consumer loans$321,199  $138,627  $112,547  
v3.19.3
Bonds and Notes Payable
9 Months Ended
Sep. 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 September 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$18,961,410  2.20% - 3.81%  11/25/24 - 9/26/67
Bonds and notes based on auction773,726  3.02% - 3.84%  3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes19,735,136  
Fixed-rate bonds and notes issued in FFELP loan asset-backed
securitization
374,500  2.53% / 3.45%  10/25/67
FFELP warehouse facilities739,448  2.22% / 2.26%  11/20/20 / 5/31/22
Consumer loan warehouse facility144,022  2.23%  4/23/22
Variable-rate bonds and notes issued in private education loan asset-
backed securitizations
82,338  3.40% / 3.77%  12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed
securitization
53,368  3.60% / 5.35%  12/26/40 / 12/28/43
Unsecured line of credit—  —  6/22/23
Unsecured debt - Junior Subordinated Hybrid Securities20,381  5.46%  9/15/61
Other borrowings45,465  2.77% - 3.85%  10/7/19 - 5/30/22
 21,194,658    
Discount on bonds and notes payable and debt issuance costs(284,468) 
Total$20,910,190  

 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 September 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 outstanding387,510  351,938  739,448  
Amount available$112,490  148,062  260,552  
Expiration of liquidity provisions
November 20, 2019May 31, 2020
Final maturity dateNovember 20, 2020May 31, 2022
Advanced as equity support$22,238  25,853  48,091  
(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 nine months of 2019.
2019-12019-2Private education loan
2019-A
2019-32019-42019-5Total
Class A-1 NotesClass A-2 Notes2019-1 total
Date securities issued2/27/192/27/192/27/194/30/196/25/197/24/198/22/199/25/19
Total original principal amount$35,700  448,000  496,800  416,100  47,159  498,300  418,600  374,500  2,251,459  
Class A senior notes:
Total principal amount
$35,700  448,000  483,700  405,000  47,159  485,800  408,000  364,500  2,194,159  
Bond discount—  —  —  —  —  —  —  (114) (114) 
Issue price$35,700  448,000  483,700  405,000  47,159  485,800  408,000  364,386  2,194,045  
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%
1-month LIBOR plus 0.80%
1-month LIBOR plus 0.87%
2.53%  
Final maturity date4/25/674/25/676/27/676/25/498/25/679/26/6710/25/67
Class B subordinated notes:
Total principal amount
13,100  11,100  12,500  10,600  10,000  57,300  
Bond discount—  —  —  —  (4) (4) 
Issue price13,100  11,100  12,500  10,600  9,996  57,296  
Cost of funds
1-month LIBOR plus 1.40%
1-month LIBOR plus 1.50%
1-month LIBOR plus 1.55%
1-month LIBOR plus 1.65%
3.45%  
Final maturity date4/25/676/27/678/25/679/26/6710/25/67
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.
During the third quarter of 2019, the Company extinguished an additional $675.6 million of notes payable included in certain FFELP asset-backed securitizations prior to the notes' contractual maturities. To extinguish the notes, the Company paid a premium of $12.6 million and wrote off $1.4 million of debt issuance costs. In total, the Company recognized $14.0 million in expenses in the third quarter of 2019 to extinguish these notes, which is included in other expenses on the consolidated statements of income.
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 September 30, 2019, $144.0 million was outstanding under this warehouse facility and $56.0 million was available for future funding. Additionally, as of September 30, 2019, the Company had $50.2 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 September 30, 2019, no amount was outstanding under the line of credit. 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 September 30, 2019 and December 31, 2018, was $40.5 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 September 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 $33.9 million of related debt. Prior to January 1, 2019, this debt was included in "other borrowings."
v3.19.3
Derivative Financial Instruments
9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
The Company uses derivative financial instruments to manage interest rate risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 5 of the notes to consolidated financial statements included in the 2018 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2019 and December 31, 2018 is presented below.
Basis Swaps
The following table summarizes the Company’s outstanding basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). 
Notional amount
As of September 30,As of December 31,
Maturity20192018
2019$—  3,500,000  
20201,000,000