Fair Value Measurements

12 Months Ended

Dec. 31, 2015

We use estimates of fair value in applying various accounting standards for our financial statements.

We categorize our fair value estimates based on a hierarchal framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. For additional information regarding our policies for determining fair value and the hierarchical framework, see Note 2, “Significant Accounting Policies — Fair Value Measurement.”

The following table summarizes the valuation of our financial instruments that are marked-to-fair value on a recurring basis.



	Fair Value Measurements on a Recurring Basis
	December 31, 2015										December 31, 2014
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets

Mortgage-backed securities	$	—	$	195,391		$	—	$	195,391		$	—	$	168,934		$	—	$	168,934
Derivative instruments	—		15,314			—		15,314			—		5,238			—		5,238
Total	$	—	$	210,705		$	—	$	210,705		$	—	$	174,172		$	—	$	174,172

Liabilities
Derivative instruments	$	—	$	(30,497	)	$	—	$	(30,497	)	$	—	$	(28,688	)	$	—	$	(28,688	)
Total	$	—	$	(30,497	)	$	—	$	(30,497	)	$	—	$	(28,688	)	$	—	$	(28,688	)

The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.



	December 31, 2015						December 31, 2014
	Fair Value		Carrying Value		Difference		Fair Value		Carrying Value		Difference
Earning assets
Loans held for investment, net	$	12,343,726	$	11,630,591	$	713,135	$	10,228,399	$	9,509,786	$	718,613
Cash and cash equivalents	2,416,219		2,416,219		—		2,359,780		2,359,780		—
Available for sale investments	195,391		195,391		—		168,934		168,934		—
Accrued interest receivable	564,496		564,496		—		469,697		469,697		—
Tax indemnification receivable	186,076		186,076		—		240,311		240,311		—
Derivative instruments	15,314		15,314		—		5,238		5,238		—
Total earning assets	$	15,721,222	$	15,008,087	$	713,135	$	13,472,359	$	12,753,746	$	718,613
Interest-bearing liabilities
Money-market and savings accounts	$	5,556,254	$	5,556,254	$	—	$	5,231,736	$	5,231,736	$	—
Certificates of deposit	5,928,450		5,931,453		3,003		5,313,645		5,308,818		(4,827		)
Short-term borrowings	500,175		500,175		—		—		—		—
Long-term borrowings	567,468		579,101		11,633		—		—		—
Accrued interest payable	16,385		16,385		—		16,082		16,082		—
Derivative instruments	30,497		30,497		—		28,688		28,688		—
Total interest-bearing liabilities	$	12,599,229	$	12,613,865	14,636		$	10,590,151	$	10,585,324	$	(4,827	)

Excess of net asset fair value over carrying value					$	727,771					$	713,786

The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost. Carrying value approximated fair value for disclosure purposes. These are level 1 valuations.

Investments

Investments are classified as available-for-sale and are carried at fair value in the consolidated financial statements. Investments in mortgage-backed securities are valued using observable market prices of similar assets. As such, these are level 2 valuations.

Loans Held For Investment

Our Private Education Loans and FFELP Loans are accounted for at cost or at the lower of cost or market if the loan is held-for-sale. For both Private Education Loans and FFELP Loans, fair value was determined by modeling expected loan level cash flows using stated terms of the assets and internally developed assumptions to determine aggregate portfolio yield, net present value and average life. The significant assumptions used to determine fair value are prepayment speeds, default rates, cost of funds and required return on equity. Significant inputs into the model are not observable. However, we do calibrate the model based on market transactions when appropriate. As such, these are level 3 valuations.

Accrued Interest Receivable

Accrued interest receivable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is a level 1 valuation.

Tax Indemnification Receivable

Tax indemnification receivable is carried at cost. The carrying value approximates fair value. This is a level 1 valuation.

Money Market and Savings Accounts

The fair value of money market and savings accounts equal the amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level 1 valuations.

Certificates of Deposit

The fair value of CDs are estimated using discounted cash flows based on rates currently offered for deposits of similar remaining maturities. These are level 2 valuations.

Accrued Interest Payable

Accrued interest payable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is a level 1 valuation.

Borrowings

Borrowings are accounted for at cost in the consolidated financial statements. The carrying value of short-term borrowings approximated fair value for disclosure purposes, due to the short-term nature of those borrowings. This is a level 1 valuation. The fair value of long-term borrowings is estimated using current market prices. This is a level 2 valuation.

Derivatives

All derivatives are accounted for at fair value in the consolidated financial statements. The fair value of derivative financial instruments was determined by a standard derivative pricing and option model using the stated terms of the contracts and observable market inputs. It is our policy to compare the derivative fair values to those received from our counterparties in order to evaluate the model’s outputs.

When determining the fair value of derivatives, we take into account counterparty credit risk for positions where we are exposed to the counterparty on a net basis by assessing exposure net of collateral held. When the counterparty has exposure to us under derivative contracts with the Company, we fully collateralize the exposure (subject to certain thresholds).

Interest rate swaps are valued using a standard derivative cash flow model with a LIBOR swap yield curve, which is an observable input from an active market. These derivatives are level 2 fair value estimates in the hierarchy.

The carrying value of borrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair value due to changes in the benchmark interest rate (one-month LIBOR). These valuations are determined through standard pricing models using the stated terms of the borrowings and observable yield curves.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details