NELNET INC, 10-Q filed on 11/9/2016
Quarterly Report
Document and Entity Information Document (USD $)
9 Months Ended
Sep. 30, 2016
Jun. 30, 2016
Oct. 31, 2016
Common Class A [Member]
Oct. 31, 2016
Common Class B [Member]
Document Information [Line Items]
 
 
 
 
Entity Registrant Name
NELNET INC 
 
 
 
Document Type
10-Q 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
30,684,273 
11,476,932 
Entity Public Float
 
$ 781,008,370 
 
 
Amendment Flag
false 
 
 
 
Entity Central Index Key
0001258602 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
 
Document Period End Date
Sep. 30, 2016 
 
 
 
Document Fiscal Year Focus
2016 
 
 
 
Document Fiscal Period Focus
Q3 
 
 
 
Consolidated Balance Sheets (unaudited) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Assets:
 
 
Student loans receivable (net of allowance for loan losses)
$ 25,615,434 
$ 28,324,552 
Cash and cash equivalents:
 
 
Cash and cash equivalents - not held at a related party
7,678 
11,379 
Cash and cash equivalents - held at a related party
59,476 
52,150 
Total cash and cash equivalents
67,154 
63,529 
Investments and notes receivable
257,528 
303,681 
Restricted cash and investments
872,874 
832,624 
Restricted cash - due to customers
91,505 
144,771 
Accrued interest receivable
381,804 
383,825 
Accounts receivable (net of allowance for doubtful accounts)
53,408 
51,345 
Goodwill
147,312 
146,000 
Intangible assets, net
50,964 
51,062 
Property and equipment, net
107,505 
80,482 
Other assets
9,647 
8,583 
Fair value of derivative instruments
14,476 
28,690 
Total assets
27,669,611 
30,419,144 
Liabilities:
 
 
Bonds and notes payable
25,320,878 
28,105,921 
Accrued interest payable
42,840 
31,507 
Other liabilities
168,239 
169,906 
Due to customers
91,505 
144,771 
Fair value of derivative instruments
65,053 
74,881 
Total liabilities
25,688,515 
28,526,986 
Nelnet, Inc. shareholders' equity:
 
 
Preferred stock
Additional paid-in capital
224 
Retained earnings
1,971,862 
1,881,708 
Accumulated other comprehensive (loss) earnings
(424)
2,284 
Total Nelnet, Inc. shareholders' equity
1,972,085 
1,884,432 
Noncontrolling interest
9,011 
7,726 
Total equity
1,981,096 
1,892,158 
Total liabilities and equity
27,669,611 
30,419,144 
Common Class A [Member]
 
 
Nelnet, Inc. shareholders' equity:
 
 
Common stock
308 
325 
Total equity
308 
325 
Common Class B [Member]
 
 
Nelnet, Inc. shareholders' equity:
 
 
Common stock
115 
115 
Total equity
115 
115 
Variable Interest Entity, Primary Beneficiary [Member]
 
 
Assets:
 
 
Student loans receivable (net of allowance for loan losses)
25,797,430 
28,499,180 
Cash and cash equivalents:
 
 
Restricted cash and investments
807,313 
814,294 
Other assets
382,592 
384,230 
Liabilities:
 
 
Bonds and notes payable
25,680,338 
28,405,133 
Other liabilities
421,983 
353,607 
Fair value of derivative instruments
39,169 
64,080 
Equity:
 
 
Net assets of consolidated variable interest entities
$ 845,845 
$ 874,884 
Consolidated Balance Sheets (unaudited) (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Allowance for loan losses
$ 51,570 
$ 50,498 
Allowance for doubtful accounts
$ 1,745 
$ 2,003 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, authorized shares
50,000,000 
50,000,000 
Preferred stock, issued shares
Preferred stock, outstanding shares
Common Class A [Member]
 
 
Par Value (in dollars per share)
$ 0.01 
$ 0.01 
Shares Authorized
600,000,000 
600,000,000 
Shares Issued
30,839,341 
32,476,528 
Shares Outstanding
30,839,341 
32,476,528 
Common Class B [Member]
 
 
Par Value (in dollars per share)
$ 0.01 
$ 0.01 
Shares Authorized
60,000,000 
60,000,000 
Shares Issued
11,476,932 
11,476,932 
Shares Outstanding
11,476,932 
11,476,932 
Consolidated Statements of Income (unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Interest income:
 
 
 
 
Loan interest
$ 193,721 
$ 187,701 
$ 567,775 
$ 535,480 
Investment interest
2,460 
1,456 
6,674 
5,548 
Total interest income
196,181 
189,157 1
574,449 
541,028 1
Interest expense:
 
 
 
 
Interest on bonds and notes payable
96,386 
77,164 1
280,847 
221,344 1
Net interest income
99,795 
111,993 1
293,602 
319,684 1
Less provision for loan losses
6,000 
3,000 1
10,500 
7,150 1
Net interest income after provision for loan losses
93,795 
108,993 1
283,102 
312,534 1
Other income:
 
 
 
 
Loan and guaranty servicing revenue
54,350 
61,520 1
161,082 
183,164 1
Tuition payment processing, school information, and campus commerce revenue
33,071 
30,439 1
102,211 
92,805 1
Communications revenue
4,343 
13,167 
Enrollment services revenue
13,741 1
4,326 
39,794 1
Other income
15,150 
12,282 1
38,711 
35,675 1
Gain on sale of loans and debt repurchases, net
2,160 
597 1
2,260 
4,987 1
Derivative market value and foreign currency adjustments and derivative settlements, net
36,001 
(30,658)
(33,391)
(27,234)
Total other income
145,075 
87,921 1
288,366 
329,191 1
Operating expenses:
 
 
 
 
Salaries and benefits
63,743 
63,215 1
187,907 
183,052 1
Depreciation and amortization
8,994 
6,977 1
24,817 
19,140 1
Loan servicing fees
5,880 
7,793 1
20,024 
22,829 1
Cost to provide communications services
1,784 
5,169 
Cost to provide enrollment services
11,349 
3,623 
32,543 
Other expenses
26,391 
31,604 1
84,174 
94,430 1
Total operating expenses
106,792 
120,938 1
325,714 
351,994 1
Income before income taxes
132,078 
75,976 
245,754 
289,731 
Income tax expense
(47,715)
(26,999)1
(87,184)
(104,985)1
Net income
84,363 
48,977 1
158,570 
184,746 1
Net income attributable to noncontrolling interests
69 
22 1
165 
117 1
Net income attributable to Nelnet, Inc.
$ 84,294 
$ 48,955 1
$ 158,405 
$ 184,629 1
Earnings per common share:
 
 
 
 
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$ 1.98 
$ 1.09 
$ 3.70 
$ 4.03 
Weighted average common shares outstanding - basic and diluted
42,642,213 
45,047,777 
42,788,133 
45,763,443 
Consolidated Statements of Comprehensive Income (unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Net income
$ 84,363 
$ 48,977 1
$ 158,570 
$ 184,746 1
Available-for-sale securities:
 
 
 
 
Unrealized holding gains (losses) arising during period, net
3,431 
(568)
(4,217)
(1,217)
Reclassification adjustment for gains recognized in net income, net of losses
(491)
(73)
(82)
(2,370)
Income tax effect
(1,087)
234 
1,591 
1,328 
Total other comprehensive income (loss)
1,853 
(407)
(2,708)
(2,259)
Comprehensive income
86,216 
48,570 
155,862 
182,487 
Comprehensive income attributable to noncontrolling interests
69 
22 
165 
117 
Comprehensive income attributable to Nelnet, Inc.
$ 86,147 
$ 48,548 
$ 155,697 
$ 182,370 
Consolidated Statements of Shareholders' Equity (unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Preferred Stock [Member]
Common Class A [Member]
Common Class B [Member]
Additional paid-in capital [Member]
Retained earnings [Member]
Accumulated other comprehensive earnings [Member]
Noncontrolling interest [Member]
Balance at Jun. 30, 2015
$ 1,805,492 
$ 0 
$ 337 
$ 115 
$ 0 
$ 1,801,457 
$ 3,283 
$ 300 
Balance (in Shares) at Jun. 30, 2015
 
33,724,471 
11,486,932 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Issuance of noncontrolling interest
 
 
 
 
 
 
Net income
48,977 1
 
 
 
 
48,955 
 
22 
Other comprehensive (loss) income
(407)
 
 
 
 
 
(407)
 
Distribution to noncontrolling interests
(80)
 
 
 
 
 
 
(80)
Cash dividend on Class A and Class B common stock
(4,486)
 
 
 
 
(4,486)
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
10,669 
 
 
 
 
Issuance of common stock, net of forfeitures
268 
 
267 
 
 
 
Compensation expense for stock based awards
1,246 
 
 
 
1,246 
 
 
 
Repurchase of common stock (in Shares)
 
 
(356,584)
 
 
 
 
Repurchase of common stock
(15,615)
 
(4)
(72)
(15,539)
 
 
Conversion of Stock, Shares Converted
 
 
10,000 
(10,000)
 
 
 
 
Balance at Sep. 30, 2015
1,835,399 
334 
115 
1,441 
1,830,387 
2,876 
246 
Balance (in Shares) at Sep. 30, 2015
 
33,388,556 
11,476,932 
 
 
 
 
Balance at Dec. 31, 2014
1,725,678 
348 
115 
17,290 
1,702,560 
5,135 
230 
Balance (in Shares) at Dec. 31, 2014
 
34,756,384 
11,486,932 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Issuance of noncontrolling interest
23 
 
 
 
 
 
 
23 
Net income
184,746 1
 
 
 
 
184,629 
 
117 
Other comprehensive (loss) income
(2,259)
 
 
 
 
 
(2,259)
 
Distribution to noncontrolling interests
(124)
 
 
 
 
 
 
(124)
Cash dividend on Class A and Class B common stock
(13,659)
 
 
 
 
(13,659)
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
152,764 
 
 
 
 
Issuance of common stock, net of forfeitures
3,680 
 
3,678 
 
 
 
Compensation expense for stock based awards
3,957 
 
 
 
3,957 
 
 
 
Repurchase of common stock (in Shares)
 
 
(1,530,592)
 
 
 
 
Repurchase of common stock
(66,643)
 
(16)
(23,484)
(43,143)
 
 
Conversion of Stock, Shares Converted
 
 
10,000 
(10,000)
 
 
 
 
Balance at Sep. 30, 2015
1,835,399 
334 
115 
1,441 
1,830,387 
2,876 
246 
Balance (in Shares) at Sep. 30, 2015
 
33,388,556 
11,476,932 
 
 
 
 
Balance at Dec. 31, 2015
1,892,158 
325 
115 
1,881,708 
2,284 
7,726 
Balance (in Shares) at Dec. 31, 2015
 
32,476,528 
11,476,932 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Issuance of noncontrolling interest
1,339 
 
 
 
 
 
 
1,339 
Net income
158,570 
 
 
 
 
158,405 
 
165 
Other comprehensive (loss) income
(2,708)
 
 
 
 
 
(2,708)
 
Distribution to noncontrolling interests
(219)
 
 
 
 
 
 
(219)
Cash dividend on Class A and Class B common stock
(15,293)
 
 
 
 
(15,293)
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
175,405 
 
 
 
 
Issuance of common stock, net of forfeitures
3,944 
 
3,943 
 
 
 
Compensation expense for stock based awards
3,448 
 
 
 
3,448 
 
 
 
Repurchase of common stock (in Shares)
 
 
(1,812,592)
 
 
 
 
Repurchase of common stock
(60,143)
 
(18)
(7,167)
(52,958)
 
 
Balance at Sep. 30, 2016
1,981,096 
308 
115 
224 
1,971,862 
(424)
9,011 
Balance (in Shares) at Sep. 30, 2016
 
30,839,341 
11,476,932 
 
 
 
 
Balance at Jun. 30, 2016
1,906,216 
310 
115 
4,601 
1,894,551 
(2,277)
8,916 
Balance (in Shares) at Jun. 30, 2016
 
31,024,230 
11,476,932 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
Issuance of noncontrolling interest
26 
 
 
 
 
 
 
26 
Net income
84,363 
 
 
 
 
84,294 
 
69 
Other comprehensive (loss) income
1,853 
 
 
 
 
 
1,853 
 
Cash dividend on Class A and Class B common stock
(5,101)
 
 
 
 
(5,101)
 
 
Issuance of common stock, net of forfeitures (in Shares)
 
 
16,662 
 
 
 
 
Issuance of common stock, net of forfeitures
282 
 
282 
 
 
 
Compensation expense for stock based awards
1,132 
 
 
 
1,132 
 
 
 
Repurchase of common stock (in Shares)
 
 
(201,551)
 
 
 
 
Repurchase of common stock
(7,675)
 
(2)
(5,791)
(1,882)
 
 
Balance at Sep. 30, 2016
$ 1,981,096 
$ 0 
$ 308 
$ 115 
$ 224 
$ 1,971,862 
$ (424)
$ 9,011 
Balance (in Shares) at Sep. 30, 2016
 
30,839,341 
11,476,932 
 
 
 
 
Consolidated Statements of Shareholders' Equity (unaudited) (Parentheticals)
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Common Class A [Member]
 
 
 
 
Dividends paid per common share
$ 0.12 
$ 0.10 
$ 0.24 
$ 0.20 
Common Class B [Member]
 
 
 
 
Dividends paid per common share
$ 0.12 
$ 0.10 
$ 0.24 
$ 0.20 
Consolidated Statements of Cash Flows (unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Net income attributable to Nelnet, Inc.
$ 158,405 
$ 184,629 1
Net income attributable to noncontrolling interests
165 
117 1
Net income
158,570 
184,746 1
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
 
 
Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs
83,988 
91,045 
Student loan discount accretion
(30,439)
(32,684)
Provision for loan losses
10,500 
7,150 1
Derivative market value adjustment
1,556 
43,179 
Foreign currency transaction adjustment
13,543 
(32,480)
Proceeds from termination of derivative instruments
2,830 
55,627 
Increase (Decrease) in Financial Instruments Used in Operating Activities
2,936 
Gain on sale of loans
(351)
Gain from debt repurchases
(2,260)
(4,636)
Loss (gain) from sales of available-for-sale securities, net
(82)
(2,370)
(Payments for) proceeds from (purchases) sales of trading securities, net
1,192 
(8,168)
Deferred income tax benefit
(7,633)
(7,901)
Other, net
5,244 
6,589 
Decrease (increase) in accrued interest receivable
2,021 
(435)
Increase in accounts receivable
(1,982)
(14,088)
(Increase) decrease in other assets
(1,141)
1,848 
Increase in accrued interest payable
11,333 
5,242 
Increase in other liabilities
11,587 
17,978 
Net cash provided by operating activities
258,827 
307,355 
Cash flows from investing activities, net of acquisitions:
 
 
Purchases of student loans and student loan residual interests
(234,270)
(1,994,416)
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
2,908,738 
2,843,119 
Proceeds from sale of student loans
44,760 
3,996 
Purchases of available-for-sale securities
(66,733)
(6,939)
Proceeds from sales of available-for-sale securities
100,423 
49,278 
Purchases of investments and issuance of notes receivable
(14,912)
(65,548)
Proceeds from investments and notes receivable
12,169 
27,773 
Purchases of property and equipment, net
(46,821)
(12,756)
(Increase) decrease in restricted cash and investments, net
(39,400)
3,611 
Net cash provided by investing activities
2,663,954 
848,118 
Cash flows from financing activities, net of borrowings assumed:
 
 
Payments on bonds and notes payable
(2,998,017)
(3,483,804)
Proceeds from issuance of bonds and notes payable
154,619 
2,401,993 
Payments of debt issuance costs
(2,098)
(9,859)
Dividends paid
(15,293)
(13,659)
Repurchases of common stock
(60,143)
(66,643)
Proceeds from issuance of common stock
656 
617 
Issuance of noncontrolling interests
1,339 
23 
Distribution to noncontrolling interests
(219)
(124)
Net cash used in financing activities
(2,919,156)
(1,171,456)
Net increase (decrease) in cash and cash equivalents
3,625 
(15,983)
Cash and cash equivalents, beginning of period
63,529 
130,481 
Cash and cash equivalents, end of period
67,154 
114,498 
Cash disbursements made for:
 
 
Interest
219,672 
165,885 
Income taxes, net of refunds
87,633 
104,403 
Noncash activity:
 
 
Investing activity - student loans and other assets acquired
2,025,453 
Financing activity - borrowings and other liabilities assumed in acquisition of student loans
$ 0 
$ 1,885,453 
Basis of Financial Reporting
Basis of Financial Reporting

Basis of Presentation

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2015 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, except as discussed under "Revenue Recognition - Loan Interest Income" below, 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, 2016 are not necessarily indicative of the results for the year ending December 31, 2016. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the "2015 Annual Report").

Reclassifications

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

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

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

Revenue Recognition - Loan Interest Income

The Company recognizes student loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates.

In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Previously, the Company amortized premiums and accreted discounts by including in its prepayment assumption forecasted payments in excess of contractually required payments as well as forecasted defaults. The Company has determined that only payments in excess of contractually required payments should be included in the prepayment assumption. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income(a $5.2 million after tax increase to net income). The Company has concluded this error has an immaterial impact on 2016 results as well as the results for prior periods.
Student Loans Receivable and Allowance for Loan Losses
Financing Receivables [Text Block]
Student Loans Receivable and Allowance for Loan Losses

Student loans receivable consisted of the following:
 
As of
 
As of
 
September 30, 2016
 
December 31, 2015
Federally insured loans:
 
 
 
Stafford and other
$
5,353,052

 
6,202,064

Consolidation
20,189,881

 
22,086,043

Total
25,542,933

 
28,288,107

Private education loans
276,432

 
267,642

 
25,819,365

 
28,555,749

Loan discount, net of unamortized loan premiums and deferred origination costs (a)
(152,361
)
 
(180,699
)
Allowance for loan losses – federally insured loans
(37,028
)
 
(35,490
)
Allowance for loan losses – private education loans
(14,542
)
 
(15,008
)
 
$
25,615,434

 
28,324,552



(a)
As of September 30, 2016 and December 31, 2015, "loan discount, net of unamortized loan premiums and deferred origination costs" included $20.8 million and $33.0 million, respectively, of non-accretable discount associated with purchased loans of $8.5 billion and $10.8 billion, respectively.

Private Education Loans

In February 2015, the Company entered into an agreement with CommonBond, Inc. ("CommonBond"), a student lending company that provides private education loans to graduate students, under which the Company committed to purchase private education loans for a period of 18 months, with the maximum purchase obligation limited to $200.0 million. As of September 30, 2016, the Company had purchased $190.1 million in private education loans from CommonBond and has satisfied its commitment under this agreement.

Activity in the Allowance for Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of student loans. Activity in the allowance for loan losses is shown below.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Balance at beginning of period
$
48,753

 
50,024

 
50,498

 
48,900

Provision for loan losses:
 
 
 
 
 

 
 

Federally insured loans
7,000

 
2,000

 
11,000

 
6,000

Private education loans
(1,000
)
 
1,000

 
(500
)
 
1,150

Total provision for loan losses
6,000

 
3,000

 
10,500

 
7,150

Charge-offs:
 

 
 

 
 

 
 

Federally insured loans
(3,196
)
 
(2,817
)
 
(9,462
)
 
(9,225
)
Private education loans
(320
)
 
(357
)
 
(1,235
)
 
(1,479
)
Total charge-offs
(3,516
)
 
(3,174
)
 
(10,697
)
 
(10,704
)
Recoveries - private education loans
243

 
250

 
769

 
742

Purchase (sale) of federally insured and private education loans, net
30

 
30

 
290

 
(200
)
Transfer from repurchase obligation related to private education loans repurchased, net
60

 
250

 
210

 
4,492

Balance at end of period
$
51,570

 
50,380

 
51,570

 
50,380

 
 
 
 
 
 
 
 
Allocation of the allowance for loan losses:
 
 
 

 
 

 
 

Federally insured loans
$
37,028

 
35,945

 
37,028

 
35,945

Private education loans
14,542

 
14,435

 
14,542

 
14,435

Total allowance for loan losses
$
51,570

 
50,380

 
51,570

 
50,380





Student Loan Status and Delinquencies

Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.  The table below shows the Company’s loan delinquency amounts.

 
As of September 30, 2016
 
As of December 31, 2015
 
As of September 30, 2015
Federally insured loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
1,864,323

 
 
 
$
2,292,941

 
 
 
$
2,638,639

 
 
Loans in forbearance
2,403,504

 
 
 
2,979,357

 
 
 
2,993,844

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
18,445,728

 
86.8
%
 
19,447,541

 
84.4
%
 
19,681,517

 
84.4
%
Loans delinquent 31-60 days
825,905

 
3.9

 
1,028,396

 
4.5

 
1,021,515

 
4.4

Loans delinquent 61-90 days
491,395

 
2.3

 
566,953

 
2.5

 
638,037

 
2.7

Loans delinquent 91-120 days
326,020

 
1.5

 
415,747

 
1.8

 
465,261

 
2.0

Loans delinquent 121-270 days
835,250

 
3.9

 
1,166,940

 
5.1

 
1,139,864

 
4.9

Loans delinquent 271 days or greater
350,808

 
1.6

 
390,232

 
1.7

 
376,702

 
1.6

Total loans in repayment
21,275,106

 
100.0
%
 
23,015,809

 
100.0
%
 
23,322,896

 
100.0
%
Total federally insured loans
$
25,542,933

 
 

 
$
28,288,107

 
 

 
$
28,955,379

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private education loans:
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
51,042

 
 
 
$
30,795

 
 
 
$
7,724

 
 
Loans in forbearance
1,770

 
 
 
350

 
 
 
16

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
217,108

 
97.1
%
 
228,464

 
96.7
%
 
216,502

 
96.2
%
Loans delinquent 31-60 days
1,357

 
0.6

 
1,771

 
0.7

 
1,999

 
0.9

Loans delinquent 61-90 days
1,228

 
0.5

 
1,283

 
0.5

 
1,206

 
0.5

Loans delinquent 91 days or greater
3,927

 
1.8

 
4,979

 
2.1

 
5,377

 
2.4

Total loans in repayment
223,620

 
100.0
%
 
236,497

 
100.0
%
 
225,084

 
100.0
%
Total private education loans
$
276,432

 
 

 
$
267,642

 
 

 
$
232,824

 
 
Bonds and Notes Payable
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, 2016
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
22,550,964

 
0.25% - 6.90%
 
8/26/19 - 9/25/56
Bonds and notes based on auction
1,156,615

 
1.36% - 2.20%
 
3/22/32 - 11/26/46
Total variable-rate bonds and notes
23,707,579

 
 
 
 
FFELP warehouse facilities
1,706,546

 
0.52% - 0.98%
 
9/7/18 - 4/26/19
Private education loan warehouse facility
206,632

 
0.98%
 
4/28/17
Unsecured line of credit

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

 
4.21%
 
9/15/61
Other borrowings
93,355

 
2.03% - 3.38%
 
10/31/16 - 12/15/45
 
25,771,296

 
 
 
 
Discount on bonds and notes payable and debt issuance costs, net
(450,418
)
 
 
 
 
Total
$
25,320,878

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

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

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

 
 
 
 
FFELP warehouse facilities
1,855,907

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

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

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

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

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

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

 
 
 
 


Asset-backed Securitizations

The Company, through its subsidiaries, has historically funded student loans by completing asset-backed securitizations. Beginning in 2015, Fitch Ratings and Moody’s Investors Service placed numerous tranches of Federal Family Education Loan Program ("FFELP") securitizations by various issuers, including certain tranches of prior FFELP securitizations issued by subsidiaries of the Company, on review for potential downgrade due to principal payments and prepayments on the underlying student loans coming in slower than initial expectations, and the resulting risk that certain principal maturities on those FFELP securitizations may not be met by the final maturity dates, which could result in an event of default under the underlying securitization agreements. Since that time, rating agencies have resolved their downgrade watches on certain Company-issued debt through a mix of rating confirmations, downgrades, and upgrades, largely removing uncertainty that had previously prevailed in the student loan asset-backed securitization market. On June 15, 2016, the Company announced the launch of an online investor communication forum to facilitate the amendment of certain FEELP asset-backed securitizations to extend the legal final maturity dates. On September 13, 2016, the Company announced that it had received investor consent to extend by five years the legal final maturity on nine of its securitizations, which represent a total of approximately $4.8 billion in original par value. The effective date of the amendments to each of the nine securitizations was September 20, 2016. The modifications of the final maturity of these securitizations were the only changes to the terms of these securitizations and such modifications were considered not substantial. Depending on future investor consent, the Company may seek to extend the legal final maturity on additional securitizations.

FFELP Warehouse Facilities

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.

As of September 30, 2016, the Company had three FFELP warehouse facilities as summarized below.
 
 
NFSLW-I (a)
 
NHELP-II
 
NHELP-III
 
 
Total
Maximum financing amount
 
$
875,000

 
500,000

 
750,000

 
 
2,125,000

Amount outstanding
 
815,550

 
407,535

 
483,461

 
 
1,706,546

Amount available
 
$
59,450

 
92,465

 
266,539

 
 
418,454

Expiration of liquidity provisions
 
July 10, 2018

 
December 16, 2016

 
April 28, 2017

 
 
 
Final maturity date
 
September 7, 2018

 
December 14, 2018

 
April 26, 2019

 
 
 
Maximum advance rates
 
92.0 - 98.0%

 
85.0 - 95.0%

 
92.2 - 95.0%

 
 
 
Minimum advance rates
 
84.0 - 90.0%

 
85.0 - 95.0%

 
92.2 - 95.0%

 
 
 
Advanced as equity support
 
$
33,898

 
33,561

 
28,830

 
 
96,289



(a)
On July 10, 2015, the Company amended the agreement for this warehouse facility to temporarily increase the maximum financing amount to $875.0 million. The maximum financing amount was scheduled to decrease by $125.0 million on March 31, 2016. On January 26, 2016, the Company amended the agreement for this warehouse facility to extend the scheduled decrease of the maximum financing amount by $125.0 million to July 8, 2016. On July 7, 2016, the Company amended the agreement for this warehouse facility to permanently set the maximum financing amount at $875.0 million, and changed the expiration of liquidity provisions to July 10, 2018 and the final maturity date to September 7, 2018.

Private Education Loan Warehouse Facility

On June 26, 2015, the Company entered into a $275.0 million private education loan warehouse facility. As of September 30, 2016, there was $206.6 million outstanding on the facility and $68.4 million was available for future use. The facility has a static advance rate that requires initial equity for loan funding, but does not require increased equity based on market movements. The maximum advance rate on the entire facility is 88 percent and minimum advance rates, depending on loan characteristics and program type, ranged from 64 percent to 99 percent. As of September 30, 2016, $30.3 million was advanced on the facility as equity support. The facility is supported by liquidity provisions, which had an original expiration date of June 24, 2016.
On April 1, 2016, the Company amended the agreement for this facility to change the expiration date for the liquidity provisions to October 28, 2016, and to change the final maturity date to April 28, 2017. In addition, the minimum advance rates, depending on loan characteristics and program type, were changed to a range from 61.75 percent to 95.00 percent, and the maximum advance rate on the entire facility remained at 88 percent. On October 28, 2016, the Company amended the agreement for this facility to change the expiration date for the liquidity provisions to December 21, 2016; the final maturity date remained unchanged at April 28, 2017. In the event the Company is unable to renew the liquidity provisions by the amended expiration date of December 21, 2016, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date of April 28, 2017.
Unsecured Line of Credit

The Company has a $350.0 million unsecured line of credit that has a maturity date of October 30, 2020.  As of September 30, 2016, no amounts were outstanding under the unsecured line of credit and $350.0 million was available for future use.

Debt Repurchases

The following table summarizes the Company's repurchases of its own debt. Gains recorded by the Company from the repurchase of debt are included in "gain on sale of loans and debt repurchases" on the Company's consolidated statements of income.

 
Par value
 
Purchase price
 
Gain
 
Par value
 
Purchase price
 
Gain
 
Three months ended
 
September 30, 2016
 
September 30, 2015
   Asset-backed securities
$
10,965

 
8,805

 
2,160

 
9,650

 
9,053

 
597

 
$
10,965

 
8,805

 
2,160

 
9,650

 
9,053

 
597

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
September 30, 2016
 
September 30, 2015
Unsecured debt - Hybrid Securities
$

 

 

 
14,106

 
11,108

 
2,998

   Asset-backed securities
11,362

 
9,102

 
2,260

 
31,800

 
30,162

 
1,638

 
$
11,362

 
9,102

 
2,260

 
45,906

 
41,270

 
4,636



Subsequent Events - Bonds and Notes Payable

On October 12, 2016, the Company completed an asset-backed securitization totaling $426.0 million (par value). The proceeds from this transaction were used primarily to refinance certain student loans included in the Company's FFELP warehouse facilities.
The Company had a $75.0 million line of credit, which was collateralized by asset-backed security investments, that expired on October 31, 2016. As of September 30, 2016, $75.0 million was outstanding on this line of credit. Upon expiration of the line of credit on October 31, 2016, the Company used operating cash and borrowed money on its $350.0 million unsecured line of credit to pay off the outstanding $75.0 million balance of this debt facility.
Derivative Financial Instruments
Derivative Financial Instruments
Derivative Financial Instruments

The Company uses derivative financial instruments primarily to manage interest rate risk and foreign currency exchange risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 5 of the notes to consolidated financial statements included in the 2015 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2016 and December 31, 2015 is presented below.

Basis Swaps

The following table summarizes the Company’s basis swaps outstanding as of September 30, 2016 and December 31, 2015 in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
 
 
 
As of September 30,
 
As of December 31,
 
 
2016
 
2015
Maturity
 
Notional amount
 
Notional amount
2016
 
$
1,000,000

 
$
7,500,000

2028
 
125,000

 

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2016 and December 31, 2015 was one-month LIBOR plus 9.5 basis points and 10.0 basis points, respectively.
Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
 
 
As of September 30, 2016
 
As of December 31, 2015
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
 
 
 
2016
 
$

 
%
 
$
1,000,000

 
0.76
%
2017
 
750,000

 
0.99

 
2,100,000

 
0.84

2018
 
1,350,000

 
1.07

 
1,600,000

 
1.08

2019
 
3,250,000

 
0.97

 
500,000

 
1.12

2020
 
1,500,000

 
1.01

 

 

2025
 
100,000

 
2.32

 
100,000

 
2.32

2026
 
50,000

 
1.52

 

 

 
 
$
7,000,000

 
1.02
%
 
$
5,300,000

 
0.95
%

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

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

Interest Rate Swaps – Unsecured Debt Hedges

The Company had the following derivatives outstanding as of September 30, 2016 and December 31, 2015 that are used to effectively convert the variable interest rate on a portion of the Junior Subordinated Hybrid Securities to a fixed rate of 7.66%.

 
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
2036
 
$
25,000

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

Interest Rate Caps

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

Foreign Currency Exchange Risk

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

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

The following table shows the income statement impact as a result of the re-measurement of the Euro Notes and the change in the fair value of the related derivative instrument.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Re-measurement of Euro Notes
$
(4,831
)
 
(1,058
)
 
(13,543
)
 
32,480

Change in fair value of cross-currency interest rate swap
5,501

 
666

 
26,194

 
(35,207
)
Total impact to consolidated statements of income - income (expense) (a)
$
670

 
(392
)
 
12,651

 
(2,727
)
(a)
The financial statement impact of the above items is included in "Derivative market value and foreign currency adjustments and derivative settlements, net" in the Company's consolidated statements of income.
Management has structured the cross-currency interest rate swap to economically hedge the Euro Notes to effectively convert the Euro Notes to U.S. dollars and pay a spread on these notes based on the LIBOR index. However, the cross-currency interest rate swap does not qualify for hedge accounting. The re-measurement of the Euro-denominated bonds generally correlates with the change in the fair value of the corresponding cross-currency interest rate swap. However, the Company will experience unrealized gains and losses between these financial instruments due to the principal and accrued interest on the Euro Notes being re-measured to U.S. dollars at each reporting date based on the foreign currency exchange rate on that date, while the cross-currency interest rate swap is measured at fair value at each reporting date with the change in fair value recognized in the current period earnings.
Consolidated Financial Statement Impact Related to Derivatives

The following table summarizes the fair value of the Company’s derivatives as reflected in the consolidated balance sheets:
 
Fair value of asset derivatives
 
Fair value of liability derivatives
 
As of
 
As of
 
As of
 
As of
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
1:3 basis swaps
$
637

 
724

 

 
410

Interest rate swaps - floor income hedges
11,149

 
21,408

 
11,148

 
1,175

Interest rate swap option - floor income hedge
716

 
3,257

 

 

Interest rate swaps - hybrid debt hedges

 

 
11,646

 
7,646

Interest rate caps
287

 
1,570

 

 

Cross-currency interest rate swap



 
39,456

 
65,650

Other
1,687

 
1,731

 
2,803

 

Total
$
14,476

 
28,690

 
65,053

 
74,881



During the first quarter of 2016, the Company terminated a total notional amount of $3.1 billion of fixed rate floor income hedges for gross proceeds of $3.0 million, and a total notional amount of $300.0 million of other basis swaps for gross proceeds of $0.5 million. During the third quarter of 2016, the Company terminated a total notional amount of $500.0 million of fixed rate floor income hedges for gross payments of $0.7 million. During the first, second, and third quarters of 2015, the Company terminated a total notional amount of $2.7 billion, $2.8 billion, and $0.7 billion, respectively, of 1:3 Basis Swaps for gross proceeds of $34.4 million, $17.5 million, and $3.7 million, respectively.

Offsetting of Derivative Assets/Liabilities

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

 
 
 
 
Gross amounts not offset in the consolidated balance sheets
 
 
Derivative assets
 
Gross amounts of recognized assets presented in the consolidated balance sheets
 
Derivatives subject to enforceable master netting arrangement
 
Cash collateral pledged
 
Net asset (liability)
Balance as of
September 30, 2016
 
$
14,476

 
(13,944
)
 
1,800

 
2,332

Balance as of
December 31, 2015
 
28,690

 
(851
)
 
1,632

 
29,471


 
 
 
 
Gross amounts not offset in the consolidated balance sheets
 
 
Derivative liabilities
 
Gross amounts of recognized liabilities presented in the consolidated balance sheets
 
Derivatives subject to enforceable master netting arrangement
 
Cash collateral pledged/(received), net (a)
 
Net asset (liability)
Balance as of
September 30, 2016
 
$
(65,053
)
 
13,944

 
30,596

 
(20,513
)
Balance as of
December 31, 2015
 
(74,881
)
 
851

 
13,168

 
(60,862
)


(a) Cash collateral pledged (received), net as of September 30, 2016 includes $60.9 million of cash collateral paid to counterparties and $30.3 million in cash collateral received from counterparties.

The following table summarizes the effect of derivative instruments in the consolidated statements of income.
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Settlements:
 

 
 

 
 

 
 

1:3 basis swaps
$
523

 
179

 
938

 
568

Interest rate swaps - floor income hedges
(5,157
)
 
(5,456
)
 
(15,241
)
 
(15,490
)
Interest rate swaps - hybrid debt hedges
(233
)
 
(255
)
 
(696
)
 
(760
)
Cross-currency interest rate swap
(1,394
)
 
(346
)
 
(3,293
)
 
(853
)
Total settlements - expense
(6,261
)
 
(5,878
)
 
(18,292
)
 
(16,535
)
Change in fair value:
 

 
 

 
 

 
 

1:3 basis swaps
140

 
(1,886
)
 
323

 
10,513

Interest rate swaps - floor income hedges
42,073

 
(18,935
)
 
(17,913
)
 
(16,273
)
Interest rate swap option - floor income hedge
(269
)
 
(2,205
)
 
(2,541
)
 
(1,736
)
Interest rate swaps - hybrid debt hedges
13

 
(1,948
)
 
(4,000
)
 
(861
)
Interest rate caps
(68
)
 
(939
)
 
(1,283
)
 
(1,140
)
Cross-currency interest rate swap
5,501

 
666

 
26,194

 
(35,207
)
Other
(297
)
 
1,525

 
(2,336
)
 
1,525

Total change in fair value - income (expense)
47,093

 
(23,722
)
 
(1,556
)
 
(43,179
)
Re-measurement of Euro Notes (foreign currency transaction adjustment) - (expense) income
(4,831
)
 
(1,058
)
 
(13,543
)
 
32,480

Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense)
$
36,001

 
(30,658
)
 
(33,391
)
 
(27,234
)
Investments and Notes Receivable
Investments
Investments and Notes Receivable

A summary of the Company's investments and notes receivable follows:
 
As of September 30, 2016
 
As of December 31, 2015
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses (a)
 
Fair value
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
 
 
 
 
 
 
 
 
Investments (at fair value):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loan asset-backed and other debt securities (b)
$
112,324

 
2,128

 
(4,547
)
 
109,905

 
139,970

 
3,402

 
(1,362
)
 
142,010

Equity securities
720

 
1,811

 
(65
)
 
2,466

 
846

 
1,686

 
(100
)
 
2,432

Total available-for-sale investments
$
113,044

 
3,939

 
(4,612
)
 
112,371

 
140,816

 
5,088

 
(1,462
)
 
144,442

Trading investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loan asset-backed securities
 
 
 
 
 
 

 
 
 
 
 
 
 
6,045

Equity securities
 
 
 
 
 
 
253

 
 
 
 
 
 
 
4,905

Total trading investments
 
 
 
 
 
 
253

 
 
 
 
 
 
 
10,950

Total available-for-sale and trading investments
 
 
 
 
 
 
112,624

 
 
 
 
 
 
 
155,392

Other Investments and Notes Receivable (not measured at fair value):
 
 
 
 
 
 
 
 
 
 
 
 
Venture capital and funds
 
 
 
 
 
 
64,481

 
 
 
 
 
 
 
63,323

Real estate
 
 
 
 
 
 
50,246

 
 
 
 
 
 
 
50,463

Notes receivable
 
 
 
 
 
 
17,031

 
 
 
 
 
 
 
18,473

Tax liens and affordable housing
 
 
 
 
 
 
13,146

 
 
 
 
 
 
 
16,030

Total investments and notes receivable
 
 
 
 
 
 
$
257,528

 
 
 
 
 
 
 
303,681


    
(a)
As of September 30, 2016, the Company considered the decline in market value of its available-for-sale investments to be temporary in nature and did not consider any of its investments other-than-temporarily impaired.

(b)
As of September 30, 2016, the stated maturities of the majority of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years.
Business Combinations Business Combinations (Notes)
Business Combination Disclosure [Text Block]
Business Combination

Allo Communications LLC ("Allo")

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

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

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. During the first quarter of 2016, the Company recognized certain adjustments to the provisional amounts recorded at December 31, 2015 that were needed to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The net impact of these adjustments was an increase to goodwill, and the adjustments had no impact on operating results.
Cash and cash equivalents
 
$
334

Restricted cash and investments
 
850

Accounts receivable
 
1,935

Property and equipment
 
32,479

Other assets
 
371

Intangible assets
 
11,410

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

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

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



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

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

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

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

Intangible assets consist of the following:
 
Weighted average remaining useful life as of September 30, 2016 (months)
 
As of September 30, 2016
 
As of December 31, 2015
 
 
 
Amortizable intangible assets:
 
 
 
Customer relationships (net of accumulated amortization of $7,261 and $4,028, respectively)
170
 
$
29,623

 
27,576

Computer software (net of accumulated amortization of $8,236 and $4,397, respectively)
28
 
10,712

 
11,601

Trade names (net of accumulated amortization of $1,439 and $795, respectively)
192
 
10,133

 
10,687

Content (net of accumulated amortization of $1,575 and $900, respectively)
3
 
225

 
900

Covenants not to compete (net of accumulated amortization of $83 and $56, respectively)
92
 
271

 
298

Total - amortizable intangible assets
143
 
$
50,964

 
51,062



The Company recorded amortization expense on its intangible assets of $3.2 million and $2.4 million during the three months ended September 30, 2016 and 2015, respectively, and $8.4 million and $7.2 million during the nine months ended September 30, 2016 and 2015, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2016, the Company estimates it will record amortization expense as follows:

2016 (October 1 - December 31)
$
3,151

2017
9,386

2018
8,605

2019
5,147

2020
4,231

2021 and thereafter
20,444

 
$
50,964



The change in the carrying amount of goodwill by reportable operating segment was as follows:
 
Student Loan and Guaranty Servicing
 
Tuition Payment Processing and Campus Commerce
 
Communications
 
Asset Generation and Management