Edgar Filing: NELNET INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

COMMISSION FILE NUMBER 001-31924

NELNET, INC.

(Exact name of registrant as specified in its charter)



NEBRASKA (State or other jurisdiction of incorporation or organization)	84-0748903 (I.R.S. Employer Identification No.)

121 SOUTH 13TH STREET SUITE 100 LINCOLN, NEBRASKA (Address of principal executive offices)	68508 (Zip Code)

(402) 458-2370

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer [X] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [ ]

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

As of July 31, 2016, there were 31,021,028 and 11,476,932 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,317,364 shares of Class A Common Stock held by wholly owned subsidiaries).

NELNET, INC.

FORM 10-Q

INDEX

June 30, 2016



PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	2
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4.	Controls and Procedures	58

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	58
	Item 1A.	Risk Factors	58
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
	Item 6.	Exhibits	60

Signatures			61

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



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

	As of			As of
	June 30, 2016			December 31, 2015
Assets:
Student loans receivable (net of allowance for loan losses of $48,753 and $50,498, respectively)	$	26,539,604		28,324,552
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party	9,225			11,379
Cash and cash equivalents - held at a related party	50,028			52,150
Total cash and cash equivalents	59,253			63,529
Investments and notes receivable	285,996			303,681
Restricted cash and investments	964,799			832,624
Restricted cash - due to customers	132,018			144,771
Accrued interest receivable	380,140			383,825
Accounts receivable (net of allowance for doubtful accounts of $1,498 and $2,003, respectively)	41,964			51,345
Goodwill	147,312			146,000
Intangible assets, net	54,141			51,062
Property and equipment, net	96,079			80,482
Other assets	11,084			8,583
Fair value of derivative instruments	3,408			28,690
Total assets	$	28,715,798		30,419,144
Liabilities:
Bonds and notes payable	$	26,399,686		28,105,921
Accrued interest payable	39,926			31,507
Other liabilities	136,181			169,906
Due to customers	132,018			144,771
Fair value of derivative instruments	101,771			74,881
Total liabilities	26,809,582			28,526,986
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	—			—
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 31,024,230 shares and 32,476,528 shares, respectively	310			325
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,476,932 shares	115			115
Additional paid-in capital	4,601			—
Retained earnings	1,894,551			1,881,708
Accumulated other comprehensive (loss) earnings	(2,277		)	2,284
Total Nelnet, Inc. shareholders' equity	1,897,300			1,884,432
Noncontrolling interests	8,916			7,726
Total equity	1,906,216			1,892,158
Total liabilities and equity	$	28,715,798		30,419,144

Supplemental information - assets and liabilities of consolidated variable interest entities:
Student loans receivable	$	26,735,698		28,499,180
Restricted cash and investments	851,389			814,294
Accrued interest receivable and other assets	380,230			384,230
Bonds and notes payable	(26,660,478		)	(28,405,133	)
Other liabilities	(405,832		)	(353,607	)
Fair value of derivative instruments, net	(44,602		)	(64,080	)
Net assets of consolidated variable interest entities	$	856,405		874,884

See accompanying notes to consolidated financial statements.



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
	Three months				Six months
	ended June 30,				ended June 30,
	2016			2015	2016		2015
Interest income:
Loan interest	$	184,067		175,835	374,055		347,779
Investment interest	2,185			1,887	4,214		4,092
Total interest income	186,252			177,722	378,269		351,871
Interest expense:
Interest on bonds and notes payable	94,052			72,626	184,460		144,180
Net interest income	92,200			105,096	193,809		207,691
Less provision for loan losses	2,000			2,150	4,500		4,150
Net interest income after provision for loan losses	90,200			102,946	189,309		203,541
Other income:
Loan and guaranty servicing revenue	54,402			63,833	106,732		121,644
Tuition payment processing, school information, and campus commerce revenue	30,483			27,686	69,140		62,366
Communications revenue	4,478			—	8,824		—
Enrollment services revenue	—			12,680	4,326		26,053
Other income	9,765			11,985	23,559		23,393
Gain on sale of loans and debt repurchases	—			1,515	101		4,390
Derivative market value and foreign currency adjustments and derivative settlements, net	(40,702		)	6,502	(69,392	)	3,424
Total other income	58,426			124,201	143,290		241,270
Operating expenses:
Salaries and benefits	60,923			58,787	124,165		119,837
Depreciation and amortization	8,183			6,501	15,823		12,163
Loan servicing fees	7,216			7,420	14,144		15,036
Cost to provide communications services	1,681			—	3,384		—
Cost to provide enrollment services	—			10,395	3,623		21,194
Other expenses	29,409			32,725	57,783		62,826
Total operating expenses	107,412			115,828	218,922		231,056
Income before income taxes	41,214			111,319	113,677		213,755
Income tax expense	15,036			40,356	39,469		77,986
Net income	26,178			70,963	74,208		135,769
Net income attributable to noncontrolling interests	28			54	97		95
Net income attributable to Nelnet, Inc.	$	26,150		70,909	74,111		135,674
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	0.61		1.54	1.73		2.94
Weighted average common shares outstanding - basic and diluted	42,635,700			45,946,415	42,861,896		46,127,207

See accompanying notes to consolidated financial statements.



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
	Three months					Six months
	ended June 30,					ended June 30,
	2016			2015		2016		2015
Net income	$	26,178		70,963		74,208		135,769
Other comprehensive loss:
Available-for-sale securities:
Unrealized holding losses arising during period, net	(6,138		)	(436	)	(7,648	)	(649	)
Reclassification adjustment for losses (gains) recognized in net income, net	277			(2,093	)	409		(2,297	)
Income tax effect	2,168			940		2,678		1,094
Total other comprehensive loss	(3,693		)	(1,589	)	(4,561	)	(1,852	)
Comprehensive income	22,485			69,374		69,647		133,917
Comprehensive income attributable to noncontrolling interests	28			54		97		95
Comprehensive income attributable to Nelnet, Inc.	$	22,457		69,320		69,550		133,822

See accompanying notes to consolidated financial statements.



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
	Nelnet, Inc. Shareholders
	Preferred stock shares	Common stock shares			Preferred stock		Class A common stock		Class B common stock	Additional paid-in capital		Retained earnings		Accumulated other comprehensive (loss) earnings		Noncontrolling interests		Total equity
	Preferred stock shares	Class A		Class B	Preferred stock		Class A common stock		Class B common stock	Additional paid-in capital		Retained earnings		Accumulated other comprehensive (loss) earnings		Noncontrolling interests		Total equity
Balance as of March 31, 2015	—	34,713,065		11,486,932	$	—	347		115	13,177		1,762,711		4,872		271		1,781,493
Issuance of noncontrolling interests	—	—		—	—		—		—	—		—		—		19		19
Net income	—	—		—	—		—		—	—		70,909		—		54		70,963
Other comprehensive loss	—	—		—	—		—		—	—		—		(1,589	)	—		(1,589	)
Distribution to noncontrolling interests	—	—		—	—		—		—	—		—		—		(44	)	(44	)
Cash dividend on Class A and Class B common stock - $0.10 per share	—	—		—	—		—		—	—		(4,559	)	—		—		(4,559	)
Issuance of common stock, net of forfeitures	—	9,616		—	—		—		—	945		—		—		—		945
Compensation expense for stock based awards	—	—		—	—		—		—	1,353		—		—		—		1,353
Repurchase of common stock	—	(998,210	)	—	—		(10	)	—	(15,475	)	(27,604	)	—		—		(43,089	)
Balance as of June 30, 2015	—	33,724,471		11,486,932	$	—	337		115	—		1,801,457		3,283		300		1,805,492
Balance as of March 31, 2016	—	31,008,226		11,476,932	$	—	310		115	2,913		1,873,500		1,416		8,672		1,886,926
Issuance of noncontrolling interests	—	—		—	—		—		—	—		—		—		338		338
Net income	—	—		—	—		—		—	—		26,150		—		28		26,178
Other comprehensive loss	—	—		—	—		—		—	—		—		(3,693	)	—		(3,693	)
Distribution to noncontrolling interests	—	—		—	—		—		—	—		—		—		(122	)	(122	)
Cash dividend on Class A and Class B common stock - $0.12 per share	—	—		—	—		—		—	—		(5,099	)	—		—		(5,099	)
Issuance of common stock, net of forfeitures	—	27,946		—	—		—		—	954		—		—		—		954
Compensation expense for stock based awards	—	—		—	—		—		—	1,133		—		—		—		1,133
Repurchase of common stock	—	(11,942	)	—	—		—		—	(399	)			—		—		(399	)
Balance as of June 30, 2016	—	31,024,230		11,476,932	$	—	310		115	4,601		1,894,551		(2,277	)	8,916		1,906,216
Balance as of December 31, 2014	—	34,756,384		11,486,932	$	—	348		115	17,290		1,702,560		5,135		230		1,725,678
Issuance of noncontrolling interests	—	—		—	—		—		—	—		—		—		19		19
Net income	—	—		—	—		—		—	—		135,674		—		95		135,769
Other comprehensive loss	—	—		—	—		—		—	—		—		(1,852	)	—		(1,852	)
Distribution to noncontrolling interests	—	—		—	—		—		—	—		—		—		(44	)	(44	)
Cash dividends on Class A and Class B common stock - $0.20 per share	—	—		—	—		—		—	—		(9,173	)	—		—		(9,173	)
Issuance of common stock, net of forfeitures	—	142,095		—	—		1		—	3,411		—		—		—		3,412
Compensation expense for stock based awards	—	—		—	—		—		—	2,711		—		—		—		2,711
Repurchase of common stock	—	(1,174,008	)	—	—		(12	)	—	(23,412	)	(27,604	)	—		—		(51,028	)
Balance as of June 30, 2015	—	33,724,471		11,486,932	$	—	337		115	—		1,801,457		3,283		300		1,805,492
Balance as of December 31, 2015	—	32,476,528		11,476,932	$	—	325		115	—		1,881,708		2,284		7,726		1,892,158
Issuance of noncontrolling interests	—	—		—	—		—		—	—		—		—		1,312		1,312
Net income	—	—		—	—		—		—	—		74,111		—		97		74,208
Other comprehensive loss	—	—		—	—		—		—	—		—		(4,561	)	—		(4,561	)
Distribution to noncontrolling interests	—	—		—	—		—		—	—		—		—		(219	)	(219	)
Cash dividends on Class A and Class B common stock - $0.24 per share	—	—		—	—		—		—	—		(10,192	)	—		—		(10,192	)
Issuance of common stock, net of forfeitures	—	158,743		—	—		1		—	3,661		—		—		—		3,662
Compensation expense for stock based awards	—	—		—	—		—		—	2,316		—		—		—		2,316
Repurchase of common stock	—	(1,611,041	)	—	—		(16	)	—	(1,376	)	(51,076	)	—		—		(52,468	)
Balance as of June 30, 2016	—	31,024,230		11,476,932	$	—	310		115	4,601		1,894,551		(2,277	)	8,916		1,906,216

See accompanying notes to consolidated financial statements.



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
	Six months
	ended June 30,
	2016			2015
Net income attributable to Nelnet, Inc.	$	74,111		135,674
Net income attributable to noncontrolling interests	97			95
Net income	74,208			135,769
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	62,298			60,191
Student loan discount accretion	(21,524		)	(21,506	)
Provision for loan losses	4,500			4,150
Derivative market value adjustment	48,649			19,457
Foreign currency transaction adjustment	8,712			(33,538	)
Proceeds from termination of derivative instruments	3,523			51,947
Payment to enter into interest rate caps	—			(585	)
Gain on sale of loans	—			(351	)
Gain from debt repurchases	(101		)	(4,039	)
Loss (gain) from sales of available-for-sale securities, net	409			(2,297	)
Payments for purchases of trading securities, net	(235		)	(11,697	)
Deferred income tax (benefit) expense	(20,260		)	3,119
Other	6,069			6,376
Decrease (increase) in accrued interest receivable	3,685			(743	)
Decrease (increase) in accounts receivable	9,462			(10,341	)
Increase in other assets	(2,579		)	(1,967	)
Increase in accrued interest payable	8,419			2,566
Decrease in other liabilities	(10,006		)	(4,526	)
Net cash provided by operating activities	175,229			191,985
Cash flows from investing activities, net of acquisitions:
Purchases of student loans and student loan residual interests	(183,375		)	(1,637,650	)
Net proceeds from student loan repayments, claims, capitalized interest, and other	1,927,319			1,953,437
Proceeds from sale of student loans	44,738			3,996
Purchases of available-for-sale securities	(51,735		)	(5,550	)
Proceeds from sales of available-for-sale securities	58,232			47,951
Purchases of investments and issuance of notes receivable	(10,222		)	(53,770	)
Proceeds from investments and notes receivable	5,360			8,824
Purchases of property and equipment, net	(29,577		)	(9,519	)
(Increase) decrease in restricted cash and investments, net	(131,325		)	16,532
Net cash provided by investing activities	1,629,415			324,251
Cash flows from financing activities:
Payments on bonds and notes payable	(1,972,880		)	(2,629,565	)
Proceeds from issuance of bonds and notes payable	226,194			2,233,630
Payments of debt issuance costs	(1,084		)	(8,707	)
Dividends paid	(10,192		)	(9,173	)
Repurchases of common stock	(52,468		)	(51,028	)
Proceeds from issuance of common stock	417			431
Issuance of noncontrolling interests	1,312			19
Distribution to noncontrolling interests	(219		)	(44	)
Net cash used in financing activities	(1,808,920		)	(464,437	)
Net (decrease) increase in cash and cash equivalents	(4,276		)	51,799
Cash and cash equivalents, beginning of period	63,529			130,481
Cash and cash equivalents, end of period	$	59,253		182,280

Cash disbursements made for:
Interest	$	142,446		108,436
Income taxes, net of refunds	$	55,988		67,211
Noncash activity:
Investing activity - student loans and other assets acquired	$	—		517,845
Financing activity - borrowings and other liabilities assumed in acquisition of student loans	$	—		451,845

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts, unless otherwise noted)

(unaudited)

1. Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2016 and for the three and six months ended June 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, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 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.

2. Student Loans Receivable and Allowance for Loan Losses

Student loans receivable consisted of the following:



	As of			As of
	June 30, 2016			December 31, 2015
Federally insured loans:
Stafford and other	$	5,629,034		6,202,064
Consolidation	20,837,356			22,086,043
Total	26,466,390			28,288,107
Private education loans	288,170			267,642
	26,754,560			28,555,749
Loan discount, net of unamortized loan premiums and deferred origination costs (a)	(166,203		)	(180,699	)
Allowance for loan losses – federally insured loans	(33,224		)	(35,490	)
Allowance for loan losses – private education loans	(15,529		)	(15,008	)
	$	26,539,604		28,324,552


(a)	As of June 30, 2016 and December 31, 2015, "loan discount, net of unamortized loan premiums and deferred origination costs" included $26.2 million and $33.0 million, respectively, of non-accretable discount associated with purchased loans of $10.1 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 June 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 June 30,					Six months ended June 30,
	2016			2015		2016		2015
Balance at beginning of period	$	50,084		51,161		50,498		48,900
Provision for loan losses:
Federally insured loans	2,000			2,000		4,000		4,000
Private education loans	—			150		500		150
Total provision for loan losses	2,000			2,150		4,500		4,150
Charge-offs:
Federally insured loans	(3,217		)	(3,259	)	(6,266	)	(6,408	)
Private education loans	(514		)	(446	)	(915	)	(1,122	)
Total charge-offs	(3,731		)	(3,705	)	(7,181	)	(7,530	)
Recoveries - private education loans	250			238		526		492
Purchase (sale) of federally insured and private education loans, net	100			—		260		(230	)
Transfer from repurchase obligation related to private education loans repurchased, net	50			180		150		4,242
Balance at end of period	$	48,753		50,024		48,753		50,024

Allocation of the allowance for loan losses:
Federally insured loans	$	33,224		36,762		33,224		36,762
Private education loans	15,529			13,262		15,529		13,262
Total allowance for loan losses	$	48,753		50,024		48,753		50,024

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 June 30, 2016				As of December 31, 2015				As of June 30, 2015
Federally insured loans:
Loans in-school/grace/deferment	$	1,936,064			$	2,292,941			$	2,634,088
Loans in forbearance	2,672,241				2,979,357				3,118,774
Loans in repayment status:
Loans current	18,957,457		86.7	%	19,447,541		84.4	%	19,055,994		85.2	%
Loans delinquent 31-60 days	828,885		3.8		1,028,396		4.5		950,055		4.2
Loans delinquent 61-90 days	482,379		2.2		566,953		2.5		612,657		2.7
Loans delinquent 91-120 days	320,213		1.5		415,747		1.8		355,636		1.6
Loans delinquent 121-270 days	918,788		4.2		1,166,940		5.1		1,051,843		4.7
Loans delinquent 271 days or greater	350,363		1.6		390,232		1.7		359,601		1.6
Total loans in repayment	21,858,085		100.0	%	23,015,809		100.0	%	22,385,786		100.0	%
Total federally insured loans	$	26,466,390			$	28,288,107			$	28,138,648

Private education loans:
Loans in-school/grace/deferment	$	54,597			$	30,795			$	5,268
Loans in forbearance	1,610				350				142
Loans in repayment status:
Loans current	225,585		97.2	%	228,464		96.7	%	161,355		95.0	%
Loans delinquent 31-60 days	1,361		0.6		1,771		0.7		1,407		0.8
Loans delinquent 61-90 days	929		0.4		1,283		0.5		1,647		1.0
Loans delinquent 91 days or greater	4,088		1.8		4,979		2.1		5,383		3.2
Total loans in repayment	231,963		100.0	%	236,497		100.0	%	169,792		100.0	%
Total private education loans	$	288,170			$	267,642			$	175,202

3. Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:



	As of June 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	$	23,418,478		0.30% - 6.90%	8/26/19 - 8/26/52
Bonds and notes based on auction	1,158,415			1.26% - 2.21%	3/22/32 - 11/26/46
Total variable-rate bonds and notes	24,576,893
FFELP warehouse facilities	1,811,708			0.46% - 0.80%	7/9/18 - 4/26/19
Private education loan warehouse facility	221,114			0.81%	4/28/17
Unsecured line of credit	105,000			1.94% - 1.95%	10/30/20
Unsecured debt - Junior Subordinated Hybrid Securities	57,184			4.01%	9/15/61
Other borrowings	93,355			1.97% - 3.38%	10/31/16 - 12/15/45
	26,865,254
Discount on bonds and notes payable and debt issuance costs, net	(465,568		)
Total	$	26,399,686



	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

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 June 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	844,087		455,049	512,572	1,811,708
Amount available	$	30,913	44,951	237,428	313,292
Expiration of liquidity provisions	July 8, 2016		December 16, 2016	April 28, 2017
Final maturity date	July 9, 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	$	36,663	38,051	30,694	105,408

(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 June 30, 2016, there was $221.1 million outstanding on the facility and $53.9 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 June 30, 2016, $32.0 million was advanced on the facility as equity support. The facility is supported by liquidity provisions, which had an original expiration date of June 24, 2016.

On April 1, 2016, the Company amended the agreement for this facility to change the expiration date for the liquidity provisions to October 28, 2016, and to change the final maturity date to April 28, 2017. In addition, the minimum advance rates, depending on loan characteristics and program type, were changed to a range from 61.75 percent to 95.00 percent, and the maximum advance rate on the entire facility remained at 88 percent. In the event the Company is unable to renew the liquidity provisions by the amended expiration date of October 28, 2016, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's amended final maturity date of April 28, 2017.

Unsecured Line of Credit

The Company has a $350.0 million unsecured line of credit that has a maturity date of October 30, 2020. As of June 30, 2016, the unsecured line of credit had an outstanding balance of $105.0 million and $245.0 million was available for future use.

4. Derivative Financial Instruments

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

Basis Swaps

The following table summarizes the Company’s basis swaps outstanding as of June 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 June 30,		As of December 31,
	2016		2015
Maturity	Notional amount		Notional amount
2016	$	2,000,000	$	7,500,000
2028	125,000		—

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2016 and December 31, 2015 was one-month LIBOR plus 9.3 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 June 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)
Maturity	Notional amount		Weighted average fixed rate paid by the Company (a)		Notional amount		Weighted average fixed rate paid by the Company (a)
2016	$	750,000	0.72	%	$	1,000,000	0.76	%
2017	1,000,000		0.97		2,100,000		0.84
2018	1,600,000		1.08		1,600,000		1.08
2019	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		—		—
	$	8,250,000	0.99	%	$	5,300,000	0.95	%


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

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

Interest Rate Swaps – Unsecured Debt Hedges

The Company had the following derivatives outstanding as of June 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 June 30,					Six months ended June 30,
	2016			2015		2016		2015
Re-measurement of Euro Notes	$	9,768		(14,671	)	(8,712	)	33,538
Change in fair value of cross-currency interest rate swap	(12,008		)	13,933		20,693		(35,873	)
Total impact to consolidated statements of income - income (expense) (a)	$	(2,240	)	(738	)	11,981		(2,335	)


(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
	June 30, 2016		December 31, 2015	June 30, 2016	December 31, 2015
1:3 basis swaps	$	623	724	127	410
Interest rate swaps - floor income hedges	27		21,408	42,791	1,175
Interest rate swap option - floor income hedge	986		3,257	—	—
Interest rate swaps - hybrid debt hedges	—		—	11,660	7,646
Interest rate caps	355		1,570	—	—
Cross-currency interest rate swap	—		—	44,957	65,650
Other	1,417		1,731	2,236	—
Total	$	3,408	28,690	101,771	74,881

During the six months ended June 30, 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 six months ended June 30, 2015, the Company terminated a total notional amount of $5.5 billion of 1:3 Basis Swaps for gross proceeds of $51.9 million.

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 June 30, 2016	$	3,408	(3,053	)	—	355
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	Net asset (liability)
Balance as of June 30, 2016	$	(101,771	)	3,053	90,170	(8,548	)
Balance as of December 31, 2015	(74,881		)	851	13,168	(60,862	)

The following table summarizes the effect of derivative instruments in the consolidated statements of income.



	Three months ended June 30,					Six months ended June 30,
	2016			2015		2016		2015
Settlements:
1:3 basis swaps	$	743		123		414		389
Interest rate swaps - floor income hedges	(4,841		)	(5,019	)	(10,084	)	(10,034	)
Interest rate swaps - hybrid debt hedges	(231		)	(253	)	(463	)	(505	)
Cross-currency interest rate swap	(1,166		)	(293	)	(1,898	)	(507	)
Total settlements - expense	(5,495		)	(5,442	)	(12,031	)	(10,657	)
Change in fair value:
1:3 basis swaps	(586		)	1,428		183		12,398
Interest rate swaps - floor income hedges	(27,276		)	7,534		(59,985	)	2,662
Interest rate swap option - floor income hedge	(856		)	1,381		(2,272	)	470
Interest rate swaps - hybrid debt hedges	(1,464		)	2,540		(4,014	)	1,087
Interest rate caps	(453		)	(201	)	(1,215	)	(201	)
Cross-currency interest rate swap	(12,008		)	13,933		20,693		(35,873	)
Other	(2,332		)	—		(2,039	)	—
Total change in fair value - (expense) income	(44,975		)	26,615		(48,649	)	(19,457	)
Re-measurement of Euro Notes (foreign currency transaction adjustment) - income (expense)	9,768			(14,671	)	(8,712	)	33,538
Derivative market value and foreign currency adjustments and derivative settlements, net - income (expense)	$	(40,702	)	6,502		(69,392	)	3,424

5. Investments and Notes Receivable

A summary of the Company's investments and notes receivable follows:

As of June 30, 2016

As of December 31, 2015

Amortized cost

Gross unrealized gains

Gross unrealized losses (a)