NNI - 6.30.15-10Q


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, 2015
 
or

¨
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, 2015, there were 33,368,589 and 11,486,932 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, 2015


 
 
Item 1.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 6.
 
 
 
 
 






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, 2015

December 31, 2014
Assets:
 
 
 
 
Student loans receivable (net of allowance for loan losses of $50,024 and $48,900, respectively)
 
$
28,095,775

 
28,005,195

Cash and cash equivalents:
 
 

 
 

Cash and cash equivalents - not held at a related party
 
32,222

 
37,781

Cash and cash equivalents - held at a related party
 
150,058

 
92,700

Total cash and cash equivalents
 
182,280

 
130,481

Investments and notes receivable
 
245,748

 
235,709

Restricted cash and investments
 
857,853

 
850,440

Restricted cash - due to customers
 
117,820

 
118,488

Accrued interest receivable
 
364,211

 
351,588

Accounts receivable (net of allowance for doubtful accounts of $1,957 and $1,656, respectively)
 
60,893

 
50,552

Goodwill
 
126,200

 
126,200

Intangible assets, net
 
37,784

 
42,582

Property and equipment, net
 
48,047

 
45,894

Other assets
 
79,996

 
76,622

Fair value of derivative instruments
 
30,216

 
64,392

Total assets
 
$
30,246,823

 
30,098,143

Liabilities:
 
 

 
 

Bonds and notes payable
 
$
28,070,423

 
28,027,350

Accrued interest payable
 
28,859

 
25,904

Other liabilities
 
157,096

 
167,881

Due to customers
 
117,820

 
118,488

Fair value of derivative instruments
 
67,133

 
32,842

Total liabilities
 
28,441,331

 
28,372,465

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 33,724,471 shares and 34,756,384 shares, respectively
 
337

 
348

Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,486,932 shares
 
115

 
115

Additional paid-in capital
 
—

 
17,290

Retained earnings
 
1,801,457

 
1,702,560

Accumulated other comprehensive earnings
 
3,283

 
5,135

Total Nelnet, Inc. shareholders' equity
 
1,805,192

 
1,725,448

Noncontrolling interest
 
300

 
230

Total equity
 
1,805,492

 
1,725,678

Total liabilities and equity
 
$
30,246,823

 
30,098,143

 
 
 
 
 
Supplemental information - assets and liabilities of consolidated variable interest entities:
 
 
 
 
Student loans receivable
 
$
28,234,240

 
28,181,244

Restricted cash and investments
 
844,854

 
846,199

Other assets
 
364,858

 
351,934

Bonds and notes payable
 
(28,287,682
)
 
(28,391,530
)
Other liabilities
 
(329,055
)
 
(280,233
)
Fair value of derivative instruments, net
 
(53,593
)
 
(20,455
)
Net assets of consolidated variable interest entities
 
$
773,622

 
687,159

See accompanying notes to consolidated financial statements.

2


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,
 
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
Loan interest
$
175,835

 
175,466

 
347,779

 
332,362

Investment interest
1,887

 
1,482

 
4,092

 
3,461

Total interest income
177,722

 
176,948

 
351,871

 
335,823

Interest expense:
 

 
 

 
 

 
 

Interest on bonds and notes payable
72,626

 
69,235

 
144,180

 
129,239

Net interest income
105,096

 
107,713

 
207,691

 
206,584

Less provision for loan losses
2,150

 
1,500

 
4,150

 
4,000

Net interest income after provision for loan losses
102,946

 
106,213

 
203,541

 
202,584

Other income:
 

 
 

 
 

 
 

Loan and guaranty servicing revenue
63,833

 
66,460

 
121,644

 
131,217

Tuition payment processing, school information, and campus commerce revenue
27,686

 
21,834

 
62,366

 
47,069

Enrollment services revenue
17,161

 
20,145

 
35,024

 
42,156

Other income
7,504

 
15,315

 
14,422

 
33,446

Gain on sale of loans and debt repurchases
1,515

 
18

 
4,390

 
57

Derivative market value and foreign currency adjustments and derivative settlements, net
6,502

 
1,570

 
3,424

 
(2,695
)
Total other income
124,201

 
125,342

 
241,270

 
251,250

Operating expenses:
 

 
 

 
 

 
 

Salaries and benefits
58,787

 
53,888

 
119,837

 
106,372

Cost to provide enrollment services
11,162

 
13,311

 
22,864

 
27,786

Loan servicing fees
7,420

 
7,317

 
15,036

 
12,720

Depreciation and amortization
6,501

 
5,214

 
12,163

 
9,997

Other
31,958

 
33,060

 
61,156

 
63,284

Total operating expenses
115,828

 
112,790

 
231,056

 
220,159

Income before income taxes
111,319

 
118,765

 
213,755

 
233,675

Income tax expense
40,356

 
43,078

 
77,986

 
83,689

Net income
70,963

 
75,687

 
135,769

 
149,986

Net income attributable to noncontrolling interest
54

 
693

 
95

 
1,206

Net income attributable to Nelnet, Inc.
$
70,909

 
74,994

 
135,674

 
148,780

Earnings per common share:
 
 
 
 
 
 
 
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$
1.54

 
1.61

 
2.94

 
3.20

Weighted average common shares outstanding - basic and diluted
45,946,415

 
46,529,377

 
46,127,207

 
46,528,651


 See accompanying notes to consolidated financial statements.

3


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
 
Three months
 
Six months
 
ended June 30,
 
ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
70,963

 
75,687

 
135,769

 
149,986

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized holding (losses) gains arising during period, net
(436
)
 
5,826

 
(649
)
 
9,501

Less reclassification adjustment for gains recognized in net income, net of losses
(2,093
)
 
(1,238
)
 
(2,297
)
 
(8,311
)
Income tax effect
940

 
(1,698
)
 
1,094

 
(440
)
Total other comprehensive (loss) income
(1,589
)
 
2,890

 
(1,852
)
 
750

Comprehensive income
69,374

 
78,577

 
133,917

 
150,736

Comprehensive income attributable to noncontrolling interest
54

 
693

 
95

 
1,206

Comprehensive income attributable to Nelnet, Inc.
$
69,320

 
77,884

 
133,822

 
149,530


See accompanying notes to consolidated financial statements.


4


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 earnings
 
Noncontrolling interest
 
Total equity
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
Balance as of March 31, 2014
—

 
35,019,924

 
11,491,932

 
$
—

 
350

 
115

 
27,138

 
1,482,637

 
2,679

 
755

 
1,513,674

Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
74,994

 
—

 
693

 
75,687

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,890

 
—

 
2,890

Distribution to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,062
)
 
(1,062
)
Cash dividend on Class A and Class B common stock - $0.10 per share
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,643
)
 
—

 
—

 
(4,643
)
Issuance of common stock, net of forfeitures
—

 
49,802

 
—

 
—

 
1

 
—

 
882

 
—

 
—

 
—

 
883

Compensation expense for stock based awards
—

 
—

 
—

 
—

 
—

 
—

 
1,135

 
—

 
—

 
—

 
1,135

Repurchase of common stock
—

 
(209,940
)
 
—

 
—

 
(2
)
 
—

 
(8,434
)
 
—

 
—

 
—

 
(8,436
)
Balance as of June 30, 2014
—

 
34,859,786

 
11,491,932

 
$
—

 
349

 
115

 
20,721

 
1,552,988

 
5,569

 
386

 
1,580,128

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 interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
19

 
19

Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
70,909

 
—

 
54

 
70,963

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,589
)
 
—

 
(1,589
)
Distribution to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(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 December 31, 2013
—

 
34,881,338

 
11,495,377

 
$
—

 
349

 
115

 
24,887

 
1,413,492

 
4,819

 
328

 
1,443,990

Issuance of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
201

 
201

Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
148,780

 
—

 
1,206

 
149,986

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
750

 
—

 
750

Distribution to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,349
)
 
(1,349
)
Cash dividends on Class A and Class B common stock - $0.20 per share
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(9,284
)
 
—

 
—

 
(9,284
)
Issuance of common stock, net of forfeitures
—

 
205,507

 
—

 
—

 
2

 
—

 
3,126

 
—

 
—

 
—

 
3,128

Compensation expense for stock based awards
—

 
—

 
—

 
—

 
—

 
—

 
2,010

 
—

 
—

 
—

 
2,010

Repurchase of common stock
—

 
(230,504
)
 
—

 
—

 
(2
)
 
—

 
(9,302
)
 
—

 
—

 
—

 
(9,304
)
Conversion of common stock
—

 
3,445

 
(3,445
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Balance as of June 30, 2014
—

 
34,859,786

 
11,491,932

 
$
—

 
349

 
115

 
20,721

 
1,552,988

 
5,569

 
386

 
1,580,128

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 interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
19

 
19

Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
135,674

 
—

 
95

 
135,769

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,852
)
 
—

 
(1,852
)
Distribution to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(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


 See accompanying notes to consolidated financial statements.

5


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
Six months
 
ended June 30,
 
2015
 
2014
Net income attributable to Nelnet, Inc.
$
135,674

 
148,780

Net income attributable to noncontrolling interest
95

 
1,206

Net income
135,769

 
149,986

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
60,191

 
49,206

Student loan discount accretion
(21,506
)
 
(21,087
)
Provision for loan losses
4,150

 
4,000

Derivative market value adjustment
19,457

 
(7,950
)
Foreign currency transaction adjustment
(33,538
)
 
(1,798
)
Proceeds from termination of derivative instruments
51,947

 
—

Payment to enter into interest rate caps
(585
)
 
—

Gain on sale of loans
(351
)
 
—

Gain from debt repurchases
(4,039
)
 
(57
)
 Gain from sales of available-for-sale securities, net
(2,297
)
 
(8,311
)
Payments for purchases of trading securities, net
(11,697
)
 
—

Deferred income tax expense
3,119

 
5,653

Other
6,376

 
4,967

Increase in accrued interest receivable
(743
)
 
(3,567
)
Increase in accounts receivable
(10,341
)
 
(695
)
(Increase) decrease in other assets
(1,967
)
 
1,383

Increase in accrued interest payable
2,566

 
1,432

Decrease in other liabilities
(4,526
)
 
(16,690
)
Net cash provided by operating activities
191,985

 
156,472

Cash flows from investing activities, net of acquisitions:
 

 
 

Purchases of student loans and student loan residual interests
(1,637,650
)
 
(2,843,236
)
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other
1,953,437

 
1,712,350

Proceeds from sale of student loans
3,996

 
6

Purchases of available-for-sale securities
(5,550
)
 
(135,890
)
Proceeds from sales of available-for-sale securities
47,951

 
195,938

Purchases of investments and issuance of notes receivable
(53,770
)
 
(27,011
)
Proceeds from investments and notes receivable
8,824

 
3,821

Purchases of property and equipment, net
(9,519
)
 
(9,022
)
Decrease (increase) in restricted cash and investments, net
16,532

 
(27,247
)
Business and asset acquisitions, net of cash acquired
—

 
(45,583
)
Net cash provided by (used in) investing activities
324,251

 
(1,175,874
)
Cash flows from financing activities:
 

 
 

Payments on bonds and notes payable
(2,629,565
)
 
(1,821,723
)
Proceeds from issuance of bonds and notes payable
2,233,630

 
2,901,639

Payments of debt issuance costs
(8,707
)
 
(12,241
)
Dividends paid
(9,173
)
 
(9,284
)
Repurchases of common stock
(51,028
)
 
(9,304
)
Proceeds from issuance of common stock
431

 
295

Issuance of noncontrolling interest
19

 
201

Distribution to noncontrolling interest
(44
)
 
(1,349
)
Net cash (used in) provided by financing activities
(464,437
)
 
1,048,234

Net increase in cash and cash equivalents
51,799

 
28,832

Cash and cash equivalents, beginning of period
130,481

 
63,267

Cash and cash equivalents, end of period
$
182,280

 
92,099

 
 
 
 
Cash disbursements made for:
 

 
 

Interest
$
108,436

 
97,668

Income taxes, net of refunds
$
67,211

 
83,706

Noncash activity:
 
 
 
Investing activity - student loans and other assets acquired
$
517,845

 
$
2,571,997

Financing activity - borrowings and other liabilities assumed in acquisition of student loans
$
451,845

 
$
2,444,874


See accompanying notes to consolidated financial statements.

6


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, 2015 and for the three and six months ended June 30, 2015 and 2014 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2014 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, 2015 are not necessarily indicative of the results for the year ending December 31, 2015. 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, 2014 (the "2014 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 include:

•
Reclassifying certain investments and notes receivable, which were previously included in "other assets" to "investments and notes receivable."

•
Reclassifying third-party loan servicing fees, which were previously included in "other" operating expenses to "loan servicing fees."

The reclassifications had no effect on consolidated net income or consolidated assets and liabilities.

2.    Student Loans Receivable and Allowance for Loan Losses

Student loans receivable consisted of the following:
 
As of
 
As of
 
June 30, 2015
 
December 31, 2014
Federally insured loans
 
 
 
Stafford and other
$
6,574,079

 
6,030,825

Consolidation
21,564,569

 
22,165,605

Total
28,138,648

 
28,196,430

Private education loans
175,202

 
27,478

 
28,313,850

 
28,223,908

Loan discount, net of unamortized loan premiums and deferred origination costs (a)
(168,051
)
 
(169,813
)
Allowance for loan losses – federally insured loans
(36,762
)
 
(39,170
)
Allowance for loan losses – private education loans
(13,262
)
 
(9,730
)
 
$
28,095,775

 
28,005,195


(a)
As of June 30, 2015 and December 31, 2014, "loan discount, net of unamortized loan premiums and deferred origination costs" included $33.1 million and $28.8 million, respectively, of non-accretable discount associated with purchased loans of $9.5 billion and $8.5 billion, respectively.





7


Private Education Loans

On February 5, 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 total purchase obligation limited to $150.0 million. As of June 30, 2015, the Company had purchased $64.2 million in private loans from CommonBond pursuant to this agreement.

Acquisition of Student Loan Residual Interest

On May 26, 2015, the Company acquired the ownership interest in a federally insured student loan securitization trust (the "Trust"), giving the Company rights to the residual interest in $504.2 million of securitized federally insured loans. The Trust includes loans funded to term with $448.9 million (par value) of bonds and notes payable.

The Company has consolidated this Trust on its consolidated balance sheet because management has determined the Company is the primary beneficiary of the Trust. Upon acquisition of the Trust, the Company recorded all assets and liabilities of the Trust at fair value, resulting in the recognition of a student loan fair value discount of $20.7 million and a bonds and notes payable fair value premium of $2.2 million. The discount and premium will be accreted and amortized, respectively, using the effective interest method over the lives of the underlying assets and liabilities. All other assets and liabilities acquired and liabilities assumed (restricted cash, accrued interest receivable /payable, and other assets/liabilities) were recorded at cost, which approximates fair value.

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,
 
2015
 
2014
 
2015
 
2014
Balance at beginning of period
$
51,161

 
54,628

 
48,900

 
55,122

Provision for loan losses:
 
 
 
 
 

 
 

Federally insured loans
2,000

 
2,000

 
4,000

 
5,000

Private education loans
150

 
(500
)
 
150

 
(1,000
)
Total provision for loan losses
2,150

 
1,500

 
4,150

 
4,000

Charge-offs:
 

 
 

 
 

 
 

Federally insured loans
(3,259
)
 
(4,138
)
 
(6,408
)
 
(7,769
)
Private education loans
(446
)
 
(598
)
 
(1,122
)
 
(1,019
)
Total charge-offs
(3,705
)
 
(4,736
)
 
(7,530
)
 
(8,788
)
Recoveries - private education loans
238

 
339

 
492

 
710

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

 
150

 
(230
)
 
250

Transfer from repurchase obligation related to private education loans repurchased
180

 
586

 
4,242

 
1,173

Balance at end of period
$
50,024

 
52,467

 
50,024

 
52,467

 
 
 
 
 
 
 
 
Allocation of the allowance for loan losses:
 
 
 

 
 

 
 

Federally insured loans
$
36,762

 
40,921

 
36,762

 
40,921

Private education loans
13,262

 
11,546

 
13,262

 
11,546

Total allowance for loan losses
$
50,024

 
52,467

 
50,024

 
52,467


Repurchase Obligation

The Company has sold various portfolios of private education loans to third-parties. Per the terms of the servicing agreements, the Company’s servicing operations are obligated to repurchase loans subject to the sale agreements in the event such loans become 60 or 90 days delinquent. As of June 30, 2015 and December 31, 2014, the balance of loans subject to these repurchase obligations was $57.0 million and $155.3 million, respectively. The Company repurchased $94.1 million of private education loans during the first quarter of 2015. The Company's estimate related to its obligation to repurchase these loans is included in "other liabilities"

8


in the Company's consolidated balance sheets and was $3.7 million and $11.8 million as of June 30, 2015 and December 31, 2014, respectively.

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, 2015
 
As of December 31, 2014
 
As of June 30, 2014
Federally insured loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
2,634,088

 
 
 
$
2,805,228

 
 
 
$
3,095,741

 
 
Loans in forbearance
3,118,774

 
 
 
3,288,412

 
 
 
3,593,891

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
19,055,994

 
85.2
%
 
18,460,279

 
83.5
%
 
19,164,660

 
84.0
%
Loans delinquent 31-60 days
950,055

 
4.2

 
1,043,119

 
4.8

 
1,026,046

 
4.5

Loans delinquent 61-90 days
612,657

 
2.7

 
588,777

 
2.7

 
674,918

 
3.0

Loans delinquent 91-120 days
355,636

 
1.6

 
404,905

 
1.8

 
376,068

 
1.5

Loans delinquent 121-270 days
1,051,843

 
4.7

 
1,204,405

 
5.4

 
1,133,527

 
5.0

Loans delinquent 271 days or greater
359,601

 
1.6

 
401,305

 
1.8

 
447,264

 
2.0

Total loans in repayment
22,385,786

 
100.0
%
 
22,102,790

 
100.0
%
 
22,822,483

 
100.0
%
Total federally insured loans
$
28,138,648

 
 

 
$
28,196,430

 
 

 
$
29,512,115

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private education loans:
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
5,268

 
 
 
$
905

 
 
 
$
2,123

 
 
Loans in forbearance
142

 
 
 
—

 
 
 
—

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
161,355

 
95.0
%
 
18,390

 
69.2
%
 
57,048

 
87.1
%
Loans delinquent 31-60 days
1,407

 
0.8

 
1,078

 
4.1

 
1,008

 
1.5

Loans delinquent 61-90 days
1,647

 
1.0

 
1,035

 
3.9

 
1,867

 
2.8

Loans delinquent 91 days or greater
5,383

 
3.2

 
6,070

 
22.8

 
5,624

 
8.6

Total loans in repayment
169,792

 
100.0
%
 
26,573

 
100.0
%
 
65,547

 
100.0
%
Total non-federally insured loans
$
175,202

 
 

 
$
27,478

 
 

 
$
67,670

 
 


9


3.    Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:
 
As of June 30, 2015
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
25,754,105

 
0.10% - 6.90%
 
8/26/19 - 8/26/52
Bonds and notes based on auction
1,171,515

 
1.06% - 2.09%
 
3/22/32 - 11/26/46
Total variable-rate bonds and notes
26,925,620

 
 
 
 
FFELP warehouse facilities
1,190,705

 
0.19% - 0.30%
 
6/11/17 - 4/29/18
Private education loan warehouse facility
89,265

 
0.31%
 
12/26/16
Unsecured line of credit
100,000

 
1.69%
 
6/30/19
Unsecured debt - Junior Subordinated Hybrid Securities
57,582

 
3.66%
 
9/15/61
Other borrowings
79,336

 
1.69% - 5.10%
 
11/11/15 - 10/31/16
 
28,442,508

 
 
 
 
Discount on bonds and notes payable
(372,085
)
 
 
 
 
Total
$
28,070,423

 
 
 
 
 
As of December 31, 2014
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
25,713,431

 
0.19% - 6.90%
 
5/25/18 - 8/26/52
Bonds and notes based on auction
1,311,669

 
0.47% - 2.17%
 
3/22/32 - 11/26/46
Total variable-rate bonds and notes
27,025,100

 
 
 
 
FFELP warehouse facilities
1,241,665

 
0.16% - 0.26%
 
1/17/16 - 6/11/17
Unsecured line of credit
—

 
—
 
6/30/19
Unsecured debt - Junior Subordinated Hybrid Securities
71,688

 
3.63%
 
9/15/61
Other borrowings
81,969

 
1.67% - 5.10%
 
11/11/15 - 12/31/18
 
28,420,422

 
 
 
 
Discount on bonds and notes payable
(393,072
)
 
 
 
 
Total
$
28,027,350

 
 
 
 


10


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, 2015, the Company had three FFELP warehouse facilities as summarized below.
 
 
NHELP-III (a)
 
NFSLW-I (b)
 
NHELP-II
 
Total
Maximum financing amount
 
$
750,000

 
750,000

 
500,000

 
2,000,000

Amount outstanding
 
282,005

 
571,084

 
337,616

 
1,190,705

Amount available
 
$
467,995

 
178,916

 
162,384

 
809,295

Expiration of liquidity provisions
 
April 29, 2016

 
July 30, 2015

 
December 17, 2015

 
 
Final maturity date
 
April 29, 2018

 
June 11, 2017

 
December 17, 2017

 
 
Maximum advance rates
 
92.2 - 95.0%

 
92.0 - 98.0%

 
91.0 - 97.0%

 
 
Minimum advance rates
 
92.2 - 95.0%

 
84.0 - 90.0%

 
91.0 - 97.0%

 
 
Advanced as equity support
 
$
7,751

 
27,211

 
18,808

 
53,770


(a)
On April 30, 2015, the Company amended the agreement for this warehouse facility to change the expiration date for the liquidity provisions to April 29, 2016, and to change the final maturity date to April 29, 2018.

(b)
On May 14, 2015, the Company amended the agreement for this warehouse facility to extend the expiration of the liquidity provisions to July 30, 2015. On July 10, 2015, the Company amended the agreement for this warehouse facility to temporarily increase the maximum financing amount to $875.0 million, extend the expiration of the liquidity provisions to July 8, 2016, and extend the maturity date to July 9, 2018. The maximum financing amount is scheduled to decrease by $125.0 million on March 31, 2016.

Asset-backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the six months ended June 30, 2015.
 
 
2015-1
 
2015-2
 
2015-3
 
Total
 
 
 
 
Class A-1 notes
 
Class A-2 notes
 
2015-2 total
 
Class A-1 notes
 
Class A-2 notes
 
Class A-3 notes
 
2015-3 total
 
 
Date securities issued
 
2/27/15
 
3/26/15
 
3/26/15
 
3/26/15
 
5/21/15
 
5/21/15
 
5/21/15
 
5/21/15
 
 
Total original principal amount
 
$
566,346

 
122,500

 
584,500

 
722,000

 
82,500

 
270,000

 
41,400

 
401,400

 
$
1,689,746

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A senior notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total original principal amount
 
$
553,232

 
122,500

 
584,500

 
707,000

 
82,500

 
270,000

 
41,400

 
393,900

 
1,654,132

Bond discount
 
—

 
—

 
—

 
—

 
—

 
(380
)
 
(1,095
)
 
(1,475
)
 
(1,475
)
Issue price
 
$
553,232

 
122,500

 
584,500

 
707,000

 
82,500

 
269,620

 
40,305

 
392,425

 
1,652,657

Cost of funds (1-month LIBOR plus:)
 
0.59
%
 
0.27
%
 
0.60
%
 
 
 
0.30
%
 
0.60
%
 
0.90
%
 
 
 
 
Final maturity date
 
4/25/41

 
3/25/20

 
9/25/42

 
 
 
1/27/25

 
2/26/46

 
6/25/49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class B subordinated notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total original principal amount
 
$
13,114

 
 
 
 
 
15,000

 

 
 
 
 
 
7,500

 
35,614

Bond discount
 
(1,157
)
 
 
 
 
 
(1,793
)
 

 
 
 
 
 
(968
)
 
(3,918
)
Issue price
 
$
11,957

 

 
 
 
13,207

 

 
 
 
 
 
6,532

 
31,696

Cost of funds (1-month LIBOR plus:)
 
1.50
%
 
 
 
 
 
1.50
%
 

 
 
 
 
 
1.50
%
 
 
Final maturity date
 
6/25/46

 
 
 
 
 
5/25/49

 
 
 
 
 
 
 
6/27/50

 
 


11


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, 2015, there was $89.3 million outstanding on the facility and $185.7 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, range from 64 percent to 99 percent. As of June 30, 2015, $12.8 million was advanced on the facility as equity support. The facility is supported by liquidity provisions, which have a defined expiration date of June 24, 2016. In the event the Company is unable to renew the liquidity provisions by such date, 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 December 26, 2016.
Unsecured Line of Credit

The Company has a $350.0 million line of credit that has a maturity date of June 30, 2019. As of June 30, 2015, the unsecured line of credit had an outstanding balance of $100.0 million and $250.0 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
 
June 30, 2015
 
June 30, 2014
Unsecured debt - Hybrid Securities
$
2,255

 
1,781

 
474

 
—

 
—

 
—

   Asset-backed securities
22,146

 
21,105

 
1,041

 
200

 
182

 
18

 
$
24,401

 
22,886

 
1,515

 
200

 
182

 
18

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended
 
June 30, 2015
 
June 30, 2014
Unsecured debt - Hybrid Securities
$
14,106

 
11,108

 
2,998

 
—

 
—

 
—

   Asset-backed securities
22,146

 
21,105

 
1,041

 
1,550

 
1,493

 
57

 
$
36,252

 
32,213

 
4,039

 
1,550

 
1,493

 
57



12


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 2014 Annual Report. A tabular presentation of such derivatives outstanding as of June 30, 2015 and December 31, 2014 is presented below.

Basis Swaps

The following table summarizes the Company’s basis swaps outstanding as of June 30, 2015 and December 31, 2014 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,
 
 
 
2015
 
2014
Maturity
 
Notional amount
 
Notional amount
2016
 
 
$
4,000,000

 
$
—

2021
 
 
—

 
250,000

2022
 
 
800,000

 
1,900,000

2023
 
 
1,250,000

 
3,650,000

2024
 
 
—

 
250,000

2026
 
 
300,000

 
800,000

2028
 
 
—

 
100,000

2036
 
 
—

 
700,000

2039
 
 
—

 
150,000

 
 
 
$
6,350,000

 
$
7,800,000

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2015 and December 31, 2014 was one-month LIBOR plus 8.5 basis points and 3.5 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, 2015
 
As of December 31, 2014
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
 
 
 
2015
 
$
500,000

 
0.71
%
 
$
1,100,000

 
0.89
%
2016
 
750,000

 
0.85

 
750,000

 
0.85

2017
 
1,850,000

 
0.83

 
1,250,000

 
0.86

2018
 
100,000

 
1.02

 
—

 
—

2025
 
100,000

 
2.32

 
—

 
—

 
 
$
3,300,000

 
0.87
%
 
$