10-Q 1 nni-93017x10q.htm 10-Q 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 September 30, 2017
 
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, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [X]                                                              Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)    Smaller reporting company [ ]
            Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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 October 31, 2017, there were 29,370,343 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
September 30, 2017









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
 
 
September 30, 2017

December 31, 2016
Assets:
 
 
 
 
Student loans receivable (net of allowance for loan losses of $51,964 and $51,842, respectively)
 
$
22,528,845

 
24,903,724

Cash and cash equivalents:
 
 

 
 

Cash and cash equivalents - not held at a related party
 
11,313

 
7,841

Cash and cash equivalents - held at a related party
 
243,078

 
61,813

Total cash and cash equivalents
 
254,391

 
69,654

Investments and other receivables
 
276,536

 
254,144

Restricted cash
 
725,463

 
980,961

Restricted cash - due to customers
 
105,299

 
119,702

Accrued interest receivable
 
396,827

 
391,264

Accounts receivable (net of allowance for doubtful accounts of $1,905 and $1,549, respectively)
 
70,628

 
43,972

Goodwill
 
147,312

 
147,312

Intangible assets, net
 
40,742

 
47,813

Property and equipment, net
 
208,441

 
123,786

Other assets
 
13,230

 
10,245

Fair value of derivative instruments
 
996

 
87,531

Total assets
 
$
24,768,710

 
27,180,108

Liabilities:
 
 

 
 

Bonds and notes payable
 
$
22,240,279

 
24,668,490

Accrued interest payable
 
47,824

 
45,677

Other liabilities
 
214,763

 
197,488

Due to customers
 
105,299

 
119,702

Fair value of derivative instruments
 
30,105

 
77,826

Total liabilities
 
22,638,270

 
25,109,183

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 29,436,022 shares and 30,628,112 shares, respectively
 
294

 
306

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
 
360

 
420

Retained earnings
 
2,106,895

 
2,056,084

Accumulated other comprehensive earnings
 
4,187

 
4,730

Total Nelnet, Inc. shareholders' equity
 
2,111,851

 
2,061,655

Noncontrolling interests
 
18,589

 
9,270

Total equity
 
2,130,440

 
2,070,925

Total liabilities and equity
 
$
24,768,710

 
27,180,108

 
 
 
 
 
Supplemental information - assets and liabilities of consolidated education lending variable interest entities:
 
 
 
 
Student loans receivable
 
$
22,704,085

 
25,090,530

Restricted cash
 
687,666

 
970,306

Accrued interest receivable and other assets
 
397,093

 
390,504

Bonds and notes payable
 
(22,459,091
)
 
(25,105,704
)
Other liabilities
 
(282,441
)
 
(290,996
)
Fair value of derivative instruments, net
 
(22,773
)
 
(66,453
)
Net assets of consolidated education lending variable interest entities
 
$
1,024,539

 
988,187

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
 
Nine months
 
ended September 30,
 
ended September 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
Loan interest
$
191,755

 
193,721

 
562,451

 
567,775

Investment interest
5,129

 
2,460

 
11,335

 
6,674

Total interest income
196,884

 
196,181

 
573,786

 
574,449

Interest expense:
 
 
 

 
 
 
 
Interest on bonds and notes payable
121,650

 
96,386

 
341,787

 
280,847

Net interest income
75,234

 
99,795

 
231,999

 
293,602

Less provision for loan losses
6,000

 
6,000

 
9,000

 
10,500

Net interest income after provision for loan losses
69,234

 
93,795

 
222,999

 
283,102

Other income:
 
 
 

 
 
 
 
Loan systems and servicing revenue
55,950

 
54,350

 
167,079

 
161,082

Tuition payment processing, school information, and campus commerce revenue
35,450

 
33,071

 
113,293

 
102,211

Communications revenue
6,751

 
4,343

 
17,577

 
13,167

Enrollment services revenue

 

 

 
4,326

Other income
19,756

 
15,150

 
44,874

 
38,711

Gain from debt repurchases
116

 
2,160

 
5,537

 
2,260

Derivative market value and foreign currency transaction adjustments and derivative settlements, net
7,173

 
36,001

 
(25,568
)
 
(33,391
)
Total other income
125,196

 
145,075

 
322,792

 
288,366

Operating expenses:
 

 
 

 
 
 
 
Salaries and benefits
74,193

 
63,743

 
220,684

 
187,907

Depreciation and amortization
10,051

 
8,994

 
27,687

 
24,817

Loan servicing fees
7,939

 
5,880

 
19,584

 
20,024

Cost to provide communications services
2,632

 
1,784

 
6,789

 
5,169

Cost to provide enrollment services

 

 

 
3,623

Other expenses
30,518

 
26,391

 
84,593

 
84,174

Total operating expenses
125,333

 
106,792

 
359,337

 
325,714

Income before income taxes
69,097

 
132,078

 
186,454

 
245,754

Income tax expense
25,562

 
47,715

 
70,349

 
87,184

Net income
43,535

 
84,363

 
116,105

 
158,570

Net loss (income) attributable to noncontrolling interests
2,768

 
(69
)
 
8,960

 
(165
)
Net income attributable to Nelnet, Inc.
$
46,303

 
84,294

 
125,065

 
158,405

Earnings per common share:
 
 
 
 
 
 
 
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$
1.11

 
1.98

 
2.97

 
3.70

Weighted average common shares outstanding - basic and diluted
41,553,316

 
42,642,213

 
42,054,532

 
42,788,133


 See accompanying notes to consolidated financial statements.

3



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
 
Three months
 
Nine months
 
ended September 30,
 
ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
43,535

 
84,363

 
116,105

 
158,570

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized holding gains (losses) arising during period, net
405

 
3,431

 
383

 
(4,217
)
Reclassification adjustment for gains recognized in net income, net of losses
(504
)
 
(491
)
 
(1,244
)
 
(82
)
Income tax effect
35

 
(1,087
)
 
318

 
1,591

Total other comprehensive (loss) income
(64
)
 
1,853

 
(543
)
 
(2,708
)
Comprehensive income
43,471

 
86,216

 
115,562

 
155,862

Comprehensive loss (income) attributable to noncontrolling interests
2,768

 
(69
)
 
8,960

 
(165
)
Comprehensive income attributable to Nelnet, Inc.
$
46,239

 
86,147

 
124,522

 
155,697


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 (loss) earnings
 
Noncontrolling interests
 
Total equity
 
 
Class A
 
Class B
 
 
 
 
 
 
 
 
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

Issuance of noncontrolling interests

 

 

 

 

 

 

 

 

 
26

 
26

Net income

 

 

 

 

 

 

 
84,294

 

 
69

 
84,363

Other comprehensive income

 

 

 

 

 

 

 

 
1,853

 

 
1,853

Cash dividend on Class A and Class B common stock - $0.12 per share

 

 

 

 

 

 

 
(5,101
)
 

 

 
(5,101
)
Issuance of common stock, net of forfeitures

 
16,662

 

 

 

 

 
282

 

 

 

 
282

Compensation expense for stock based awards

 

 

 

 

 

 
1,132

 

 

 

 
1,132

Repurchase of common stock

 
(201,551
)
 

 

 
(2
)
 

 
(5,791
)
 
(1,882
)
 

 

 
(7,675
)
Balance as of September 30, 2016


30,839,341


11,476,932

 
$


308


115


224


1,971,862


(424
)

9,011

 
1,981,096

Balance as of June 30, 2017

 
30,373,691

 
11,476,932

 
$

 
304

 
115

 
366

 
2,110,158

 
4,251

 
15,215

 
2,130,409

Issuance of noncontrolling interests

 

 

 

 

 

 

 

 

 
6,901

 
6,901

Net income (loss)

 

 

 

 

 

 

 
46,303

 

 
(2,768
)
 
43,535

Other comprehensive loss

 

 

 

 

 

 

 

 
(64
)
 

 
(64
)
Distribution to noncontrolling interests

 

 

 

 

 

 

 

 

 
(759
)
 
(759
)
Cash dividend on Class A and Class B common stock - $0.14 per share

 

 

 

 

 

 

 
(5,766
)
 

 

 
(5,766
)
Issuance of common stock, net of forfeitures

 
10,125

 

 

 

 

 
278

 

 

 

 
278

Compensation expense for stock based awards

 

 

 

 

 

 
1,042

 

 

 

 
1,042

Repurchase of common stock

 
(947,794
)
 

 

 
(10
)
 

 
(1,326
)
 
(43,800
)
 

 

 
(45,136
)
Balance as of September 30, 2017

 
29,436,022

 
11,476,932

 
$

 
294

 
115

 
360

 
2,106,895

 
4,187

 
18,589

 
2,130,440

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

 

 

 

 

 

 

 

 

 
1,339

 
1,339

Net income

 

 

 

 

 

 

 
158,405

 

 
165

 
158,570

Other comprehensive loss

 

 

 

 

 

 

 

 
(2,708
)
 

 
(2,708
)
Distribution to noncontrolling interests

 

 

 

 

 

 

 

 

 
(219
)
 
(219
)
Cash dividend on Class A and Class B common stock - $0.36 per share

 

 

 

 

 

 

 
(15,293
)
 

 

 
(15,293
)
Issuance of common stock, net of forfeitures

 
175,405

 

 

 
1

 

 
3,943

 

 

 

 
3,944

Compensation expense for stock based awards

 

 

 

 

 

 
3,448

 

 

 

 
3,448

Repurchase of common stock

 
(1,812,592
)
 

 

 
(18
)
 

 
(7,167
)
 
(52,958
)
 

 

 
(60,143
)
Balance as of September 30, 2016

 
30,839,341

 
11,476,932

 
$

 
308

 
115

 
224

 
1,971,862

 
(424
)
 
9,011

 
1,981,096

Balance as of December 31, 2016

 
30,628,112

 
11,476,932

 
$

 
306

 
115

 
420

 
2,056,084

 
4,730

 
9,270

 
2,070,925

Issuance of noncontrolling interests

 

 

 

 

 

 

 

 

 
19,553

 
19,553

Net income (loss)

 

 

 

 

 

 

 
125,065

 

 
(8,960
)
 
116,105

Other comprehensive loss

 

 

 

 

 

 

 

 
(543
)
 

 
(543
)
Distribution to noncontrolling interests

 

 

 

 

 

 

 

 

 
(1,274
)
 
(1,274
)
Cash dividend on Class A and Class B common stock - $0.42 per share

 

 

 

 

 

 

 
(17,569
)
 

 

 
(17,569
)
Issuance of common stock, net of forfeitures

 
171,481

 

 

 
2

 

 
3,359

 

 

 

 
3,361

Compensation expense for stock based awards

 

 

 

 

 

 
3,213

 

 

 

 
3,213

Repurchase of common stock

 
(1,363,571
)
 

 

 
(14
)
 

 
(6,632
)
 
(56,685
)
 

 

 
(63,331
)
Balance as of September 30, 2017

 
29,436,022

 
11,476,932

 
$

 
294

 
115

 
360

 
2,106,895

 
4,187

 
18,589

 
2,130,440

 
See accompanying notes to consolidated financial statements.

5



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 
Nine months
 
ended September 30,
 
2017
 
2016
Net income attributable to Nelnet, Inc.
$
125,065

 
158,405

Net (loss) income attributable to noncontrolling interests
(8,960
)
 
165

Net income
116,105

 
158,570

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs
99,826

 
83,988

Student loan discount accretion
(32,820
)
 
(30,439
)
Provision for loan losses
9,000

 
10,500

Derivative market value adjustment
(22,381
)
 
1,556

Unrealized foreign currency transaction adjustment
45,635

 
13,543

Proceeds from termination of derivative instruments
3,013

 
2,830

Payments to enter into derivative instruments
(929
)
 

Proceeds from clearinghouse to settle variation margin, net
37,744

 

Gain from debt repurchases
(5,537
)
 
(2,260
)
Gain from sales of available-for-sale securities, net of losses
(1,244
)
 
(82
)
Proceeds related to trading securities, net
23

 
1,192

Deferred income tax benefit
(15,012
)
 
(7,633
)
Non-cash compensation expense
3,370

 
3,563

Other
4,288

 
1,681

(Increase) decrease in accrued interest receivable
(5,572
)
 
2,021

Increase in accounts receivable
(26,656
)
 
(1,982
)
Increase in other assets
(1,213
)
 
(1,141
)
Increase in accrued interest payable
2,147

 
11,333

Increase in other liabilities
20,548

 
11,587

Net cash provided by operating activities
230,335

 
258,827

Cash flows from investing activities:
 

 
 

Purchases of student loans
(137,158
)
 
(234,270
)
Net proceeds from student loan repayments, claims, capitalized interest, and other
2,515,850

 
2,908,738

Proceeds from sale of student loans

 
44,760

Purchases of available-for-sale securities
(109,666
)
 
(66,733
)
Proceeds from sales of available-for-sale securities
141,206

 
100,423

Purchases of investments and loans receivable and issuance of notes receivable
(68,131
)
 
(14,912
)
Proceeds from investments and other receivables
10,521

 
12,169

Purchases of property and equipment
(106,656
)
 
(46,821
)
Decrease (increase) in restricted cash, net
276,654

 
(39,400
)
Net cash provided by investing activities
2,522,620

 
2,663,954

Cash flows from financing activities:
 

 
 

Payments on bonds and notes payable
(3,679,592
)
 
(2,998,017
)
Proceeds from issuance of bonds and notes payable
1,178,027

 
154,619

Payments of debt issuance costs
(4,411
)
 
(2,098
)
Dividends paid
(17,569
)
 
(15,293
)
Repurchases of common stock
(63,331
)
 
(60,143
)
Proceeds from issuance of common stock
457

 
656

Issuance of noncontrolling interests
19,475

 
1,339

Distribution to noncontrolling interests
(1,274
)
 
(219
)
Net cash used in financing activities
(2,568,218
)
 
(2,919,156
)
Net increase in cash and cash equivalents
184,737

 
3,625

Cash and cash equivalents, beginning of period
69,654

 
63,529

Cash and cash equivalents, end of period
$
254,391

 
67,154

 
 
 
 
Cash disbursements made for:
 

 
 

Interest
$
287,265

 
219,672

Income taxes, net of refunds
$
71,431

 
87,633


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 September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2016 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results for the year ending December 31, 2017. 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, 2016 (the "2016 Annual Report").

Consolidation

The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

Variable Interest Entities
The following entities are VIEs of which the Company has determined that it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.
The Company's education lending subsidiaries are engaged in the securitization of education finance assets. These education lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's education lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each education lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its education lending subsidiaries and owns the residual interest of the securitization trusts. As a result, for accounting purposes, the transfers of student loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.
The Company owns 91.5 percent of the economic rights of Allo Communications LLC ("Allo") and has a disproportional 80 percent of the voting rights related to all operating decisions for Allo's business. Allo management, as current minority members, has the opportunity to earn an additional 11.5 percent of the total ownership interests based on the financial performance of Allo. In addition to the Company’s equity investment, Nelnet, Inc. (the parent) issued a $200.0 million line of credit to Allo on December 30, 2015. On September 30, 2017, the line of credit was increased by $70.0 million to a total of $270.0 million. As of September 30, 2017, the outstanding balance and accrued interest on the line of credit was $144.5 million and $4.6 million, respectively. Nelnet, Inc.’s maximum exposure to loss as a result of its involvement with Allo is equal to its equity investment and the outstanding balance and accrued interest on the line of credit. The amounts owed by Allo to Nelnet, Inc., including the interest costs incurred by Allo and interest earnings recognized by Nelnet, Inc., are not reflected in the Company’s consolidated balance sheet as they were eliminated in consolidation. All of Allo’s financial activities and related assets and liabilities, excluding the line of credit, are reflected in the Company’s consolidated financial statements. See note 10, "Segment Reporting," for disclosure of Allo's total assets and results of operations (included in the "Communications" operating segment), note 7, "Goodwill," for disclosure of Allo's goodwill, and note 8, “Property and Equipment,” for disclosure of Allo’s fixed assets. Allo's goodwill and property and equipment comprise the majority of its assets. The assets recognized as a result of consolidating Allo are the property of Allo and are not available for any other purpose, other than to Nelnet, Inc. as a secured lender under Allo's line of credit.

7



Noncontrolling Interest

Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, and Great Lakes Educational Loan Services, Inc. ("Great Lakes") created a joint venture to respond to the initiative announced by the U.S. Department of Education (the "Department") in April 2016 for the procurement of a contract for federal student loan servicing to acquire a single servicing platform to manage all loans owned by the Department.  The joint venture operates as a new legal entity called GreatNet Solutions, LLC (“GreatNet”).  Nelnet Servicing and Great Lakes each own 50 percent of the ownership interests in GreatNet.  See note 11 for additional information on the contract procurement process. 

During the first and third quarters of 2017, Nelnet Servicing and Great Lakes each contributed $12.6 million and $6.5 million, respectively, to GreatNet and during the first quarter of 2017 GreatNet began to incur certain operating costs. For financial reporting purposes, the balance sheet and operating results of GreatNet are included in the Company’s consolidated financial statements and presented in the Company’s Loan Systems and Servicing operating segment.  The proportionate share of membership interest (equity) and net loss of GreatNet that is attributable to Great Lakes is reflected as noncontrolling interests in the consolidated financial statements.

On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes. See note 14, "Subsequent Events" for additional information on this business acquisition agreement.

For a description of other entities in which the Company reflects noncontrolling interests in its consolidated financial statements, see note 2 of the notes to consolidated financial statements included in the 2016 Annual Report.

2.  Student Loans Receivable and Allowance for Loan Losses

Student loans receivable consisted of the following:
 
As of
 
As of
 
September 30, 2017
 
December 31, 2016
Federally insured loans:
 
 
 
 
Stafford and other
$
4,534,588

 
 
5,186,047

Consolidation
17,952,696

 
 
19,643,937

Total
22,487,284

 
 
24,829,984

Private education loans
226,629

 
 
273,659

 
22,713,913


 
25,103,643

Loan discount, net of unamortized loan premiums and deferred origination costs
(119,572
)
 
 
(129,507
)
Non-accretable discount (a)
(13,532
)
 
 
(18,570
)
Allowance for loan losses – federally insured loans
(39,398
)
 
 
(37,268
)
Allowance for loan losses – private education loans
(12,566
)
 
 
(14,574
)
 
$
22,528,845

 
 
24,903,724


(a)
For loans purchased where there is evidence of credit deterioration since the origination of the loan, the Company records a credit discount, separate from the allowance for loan losses, which is non-accretable to 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 instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan.
  
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 deferred origination costs and accrete discounts on its student loan portfolio. Previously, the Company amortized premiums and deferred origination costs and accreted discounts by including in its prepayment assumption

8



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 (excluding forecasted defaults) 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. The constant prepayment rates under the Company's revised policy are 5 percent for Stafford loans and 3 percent for Consolidation loans. The constant prepayment rates under the Company's prior policy in effect before this correction were 6 percent and 4 percent, respectively. During the third quarter of 2016, the Company recorded an adjustment to reflect the cumulative 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 pre-tax increase to interest income. The Company concluded this error had an immaterial impact on 2016 results as well as the results for prior periods.

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,
 
2017
 
2016
 
2017
 
2016
Balance at beginning of period
$
49,708

 
48,753

 
51,842

 
50,498

Provision for loan losses:
 
 
 
 
 
 
 
Federally insured loans
7,000

 
7,000

 
11,000

 
11,000

Private education loans
(1,000
)
 
(1,000
)
 
(2,000
)
 
(500
)
Total provision for loan losses
6,000

 
6,000

 
9,000

 
10,500

Charge-offs:
 

 
 

 
 
 
 
Federally insured loans
(3,464
)
 
(3,196
)
 
(8,870
)
 
(9,462
)
Private education loans
(491
)
 
(320
)
 
(861
)
 
(1,235
)
Total charge-offs
(3,955
)
 
(3,516
)
 
(9,731
)
 
(10,697
)
Recoveries - private education loans
161

 
243

 
603

 
769

Purchase of private education loans

 
30

 

 
290

Transfer from repurchase obligation related to private education loans repurchased
50

 
60

 
250

 
210

Balance at end of period
$
51,964

 
51,570

 
51,964

 
$
51,570

 
 
 
 
 
 
 
 
Allocation of the allowance for loan losses:
 
 
 

 
 
 
 
Federally insured loans
$
39,398

 
37,028

 
39,398

 
37,028

Private education loans
12,566

 
14,542

 
12,566

 
14,542

Total allowance for loan losses
$
51,964

 
51,570

 
51,964

 
51,570






9



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, 2017
 
As of December 31, 2016
 
As of September 30, 2016
Federally insured loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
1,448,172

 
 
 
$
1,606,468

 
 
 
$
1,864,323

 
 
Loans in forbearance
2,406,346

 
 
 
2,295,367

 
 
 
2,403,504

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
16,534,795

 
88.7
%
 
18,125,768

 
86.6
%
 
18,445,728

 
86.8
%
Loans delinquent 31-60 days
579,665

 
3.1

 
818,976

 
3.9

 
825,905

 
3.9

Loans delinquent 61-90 days
334,085

 
1.8

 
487,647

 
2.3

 
491,395

 
2.3

Loans delinquent 91-120 days
255,567

 
1.4

 
335,291

 
1.6

 
326,020

 
1.5

Loans delinquent 121-270 days
700,319

 
3.8

 
854,432

 
4.1

 
835,250

 
3.9

Loans delinquent 271 days or greater
228,335

 
1.2

 
306,035

 
1.5

 
350,808

 
1.6

Total loans in repayment
18,632,766

 
100.0
%
 
20,928,149

 
100.0
%
 
21,275,106

 
100.0
%
Total federally insured loans
$
22,487,284

 
 

 
$
24,829,984

 
 

 
$
25,542,933

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private education loans:
 
 
 
 
 
 
 
 
 
 
 
Loans in-school/grace/deferment
$
27,188

 
 
 
$
35,146

 
 
 
$
51,042

 
 
Loans in forbearance
2,904

 
 
 
3,448

 
 
 
1,770

 
 
Loans in repayment status:
 
 
 
 
 
 
 
 
 
 
 
Loans current
190,153

 
96.8
%
 
228,612

 
97.2
%
 
217,108

 
97.1
%
Loans delinquent 31-60 days
1,200

 
0.6

 
1,677

 
0.7

 
1,357

 
0.6

Loans delinquent 61-90 days
1,195

 
0.6

 
1,110

 
0.5

 
1,228

 
0.5

Loans delinquent 91 days or greater
3,989

 
2.0

 
3,666

 
1.6

 
3,927

 
1.8

Total loans in repayment
196,537

 
100.0
%
 
235,065

 
100.0
%
 
223,620

 
100.0
%
Total private education loans
$
226,629

 
 

 
$
273,659

 
 

 
$
276,432

 
 


10



3.  Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:
 
As of September 30, 2017
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
20,675,881

 
0.22% - 6.90%
 
8/25/21 - 9/25/65
Bonds and notes based on auction
781,276

 
1.97% - 2.61%
 
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes
21,457,157

 
 
 
 
FFELP warehouse facilities
745,107

 
1.23% - 1.37%
 
11/19/19 - 4/27/20
Variable-rate bonds and notes issued in private education loan asset-backed securitization
84,881

 
2.99%
 
12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
90,896

 
3.60% / 5.35%
 
12/26/40 / 12/28/43
Unsecured line of credit
210,000

 
2.74%
 
12/12/21
Unsecured debt - Junior Subordinated Hybrid Securities
20,526

 
4.71%
 
9/15/61
Other borrowings
18,355

 
3.38%
 
3/31/23 / 12/15/45
 
22,626,922

 
 
 
 
Discount on bonds and notes payable and debt issuance costs
(386,643
)
 
 
 
 
Total
$
22,240,279

 
 
 
 
 
As of December 31, 2016
 
Carrying
amount
 
Interest rate
range
 
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
 
 
 
 
 
Bonds and notes based on indices
$
22,130,063

 
0.24% - 6.90%
 
6/25/21 - 9/25/65
Bonds and notes based on auction
998,415

 
1.61% - 2.28%
 
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes
23,128,478

 
 
 
 
FFELP warehouse facilities
1,677,443

 
0.63% - 1.09%
 
9/7/18 - 12/13/19
Variable-rate bonds and notes issued in private education loan asset-backed securitization
112,582

 
2.60%
 
12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization
113,378

 
3.60% / 5.35%
 
12/26/40 / 12/28/43
Unsecured line of credit

 
 
12/12/21
Unsecured debt - Junior Subordinated Hybrid Securities
50,184

 
4.37%
 
9/15/61
Other borrowings
18,355

 
3.38%
 
3/31/23 / 12/15/45
 
25,100,420

 
 
 
 
Discount on bonds and notes payable and debt issuance costs
(431,930
)
 
 
 
 
Total
$
24,668,490

 
 
 
 



11



Asset-Backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the first nine months of 2017.
 
 
NSLT 2017-1
 
NSLT 2017-2
 
Total
Date securities issued
 
5/24/17
 
7/26/17
 
 
Total original principal amount
 
$
535,000

 
399,390

 
934,390

Bond discount
 

 
(2,002
)
 
(2,002
)
Issue price
 
$
535,000

 
397,388

 
932,388

Cost of funds
 
1-month LIBOR plus 0.78%
 
1-month LIBOR plus 0.77%
 
 
Final maturity date
 
6/25/65
 
9/25/65
 
 

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, 2017, the Company had three FFELP warehouse facilities as summarized below.
 
 
NFSLW-I (a)
 
NHELP-II
 
NHELP-III (b)
 
Total
Maximum financing amount
 
$
500,000

 
500,000

 
200,000

 
1,200,000

Amount outstanding
 
307,425

 
288,969

 
148,713

 
745,107

Amount available
 
$
192,575

 
211,031

 
51,287

 
454,893

Expiration of liquidity provisions
 
September 20, 2019

 
December 15, 2017

 
April 27, 2018

 
 
Final maturity date
 
November 19, 2019

 
December 13, 2019

 
April 27, 2020

 
 
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
 
$
4,747

 
20,531

 
3,163

 
28,441


(a)
On May 25, 2017 and August 18, 2017, the Company decreased the maximum financing amount for this warehouse facility by $175.0 million and $200.0 million, respectively. As of September 30, 2017, the maximum financing amount for this warehouse facility was $500.0 million, as reflected in this table. On September 22, 2017, the Company amended the agreement for this warehouse facility, which changed the expiration date for the liquidity provisions to September 20, 2019 and changed the final maturity date to November 19, 2019.

(b)
On April 3, 2017, the Company entered into a letter agreement for this warehouse facility to decrease the maximum financing amount from $750.0 million to $600.0 million. On April 28, 2017, the Company amended the agreement for this warehouse facility, which changed the expiration date for the liquidity provisions to April 27, 2018 and changed the final maturity date to April 27, 2020. On May 5, 2017, May 25, 2017, and June 2, 2017, the Company decreased the maximum financing amount for this warehouse facility by $200.0 million, $100.0 million, and $100.0 million, respectively. As of September 30, 2017, the maximum financing amount for this warehouse facility was $200.0 million, as reflected in this table.

Unsecured Line of Credit

The Company has a $350.0 million unsecured line of credit that has a maturity date of December 12, 2021.  As of September 30, 2017, $210.0 million was outstanding on the line of credit and $140.0 million was available for future use.

12



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 from 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, 2017
 
September 30, 2016
   Asset-backed securities
$
14,702

 
14,586

 
116

 
10,965

 
8,805

 
2,160

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
September 30, 2017
 
September 30, 2016
Unsecured debt - Hybrid Securities (a)
$
29,658

 
25,241

 
4,417

 

 

 

   Asset-backed securities
18,790

 
17,670

 
1,120

 
11,362

 
9,102

 
2,260

 
$
48,448

 
42,911

 
5,537

 
11,362

 
9,102

 
2,260


(a)
During the three months ended March 31, 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding Hybrid Securities, including a related consent solicitation to effect certain amendments to the indenture governing the notes to eliminate a provision requiring a minimum principal amount of the notes to remain outstanding after a partial redemption. After the completion of this tender offer, the Company has $20.5 million of Hybrid Securities that remain outstanding. In addition, the amendments described above have been made to the indenture.

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 2016 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2017 and December 31, 2016 is presented below.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
 
 
 
As of September 30,
 
As of December 31,
 
 
2017
 
2016
Maturity
 
Notional amount
 
Notional amount
2018
 
$
4,000,000

 
$

2019
 
3,000,000

 

2024
 
250,000

 

2026
 
1,150,000

 
1,150,000

2027
 
375,000

 

2028
 
325,000

 
325,000

2029
 
100,000

 

2031
 
300,000

 
300,000

 
 
$
9,500,000

 
$
1,775,000

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2017 and December 31, 2016 was one-month LIBOR plus 13.4 basis points and 10.1 basis points, respectively.

13



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, 2017
 
As of December 31, 2016
Maturity
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
Notional amount
 
Weighted average fixed rate paid by the Company (a)
 
 
 
 
2017
 
$

 
%
 
$
750,000

 
0.99
%
2018
 
1,350,000

 
1.07

 
1,350,000

 
1.07

2019
 
3,250,000

 
0.97

 
3,250,000

 
0.97

2020
 
1,500,000

 
1.01

 
1,500,000

 
1.01

2025
 
100,000

 
2.32

 
100,000

 
2.32

 
 
$
6,200,000

 
1.02
%
 
$
6,950,000

 
1.02
%

(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 $250.0 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 Caps

In June 2015, in conjunction with the entry into a $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 had a notional amount of $125.0 million and a one-month LIBOR strike rate of 2.50%, and the second interest rate cap had 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 rose above the applicable strike rate, the Company would receive monthly payments related to the spread difference. Both interest rate cap contracts had a maturity date of July 15, 2020. The private education loan warehouse facility was terminated by the Company on December 21, 2016. During the first quarter of 2017, the Company received $913,000 to terminate the interest rate cap contracts that were held in the private education loan warehouse legal entity and paid $929,000 to enter into new interest rate cap contracts with identical terms at Nelnet, Inc. (the parent company). The Company currently intends to keep these derivatives outstanding to partially mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate.

Interest Rate Swaps – Unsecured Debt Hedges

As of September 30, 2017 and December 31, 2016, the Company had $20.5 million and $50.2 million, respectively, of unsecured Hybrid Securities outstanding. The interest rate on the Hybrid Securities through September 29, 2036 is equal to three-month LIBOR plus 3.375%, payable quarterly. The Company had the following derivatives outstanding as of September 30, 2017 and December 31, 2016 that are used to effectively convert the variable interest rate on a designated notional amount with respect to the 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.

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 was 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 have been re-measured at each reporting period and recorded in the Company’s consolidated balance sheet in U.S. dollars based

14



on the foreign currency exchange rate on that date. Changes in the principal and accrued interest amounts as a result of foreign currency exchange rate fluctuations have been included in the Company’s consolidated statements of income.

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 has received from the counterparty a spread to the EURIBOR index based on a notional amount of €352.7 million and has paid a spread to the LIBOR index based on a notional amount of $450.0 million.

The following table shows the unrealized 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,
 
2017
 
2016
 
2017
 
2016
Re-measurement of Euro Notes
$
(13,683
)
 
(4,831
)
 
(45,635
)
 
(13,543
)
Change in fair value of cross-currency interest rate swap
16,257

 
5,501

 
44,831

 
26,194

Total impact to consolidated statements of income - income (expense) (a)
$
2,574

 
670

 
(804
)
 
12,651

(a)
The financial statement impact of the above items is included in "Derivative market value and foreign currency transaction adjustments and derivative settlements, net" in the Company's consolidated statements of income.
Management structured the cross-currency interest rate swap to economically hedge the Euro Notes to effectively convert the notes to U.S. dollars and pay a spread on these notes based on the LIBOR index. However, the cross-currency interest rate swap did not qualify for hedge accounting. The re-measurement of the Euro-denominated bonds generally correlated with the change in the fair value of the corresponding cross-currency interest rate swap. However, the Company experienced 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 was measured at fair value at each reporting date with the change in fair value recognized in the current period earnings.
On October 25, 2017, the Company completed a remarketing of the Euro Notes which reset the principal amount outstanding on the Euro Notes to $450.0 million U.S. dollars, with an interest rate based on the 3-month LIBOR index, and resulted in the termination of the cross-currency interest rate swap. See note 14, “Subsequent Events” for additional information on this remarketing.

Consolidated Financial Statement Impact Related to Derivatives

Effective June 10, 2013, all over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse.  Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default. 

Prior to January 3, 2017, the Company accounted for variation margin payments to the CME as collateral against its derivative position.  As such, these payments were treated as a separate unit of account from the derivative instrument and reported as a liability for cash collateral received and an asset (restricted cash) for cash collateral paid.  Effective January 3, 2017, the CME amended its rulebooks to legally characterize variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposure rather than collateral against the exposure.  Based on these rulebook changes, for accounting and presentation purposes, the Company considers variation margin and the corresponding derivative instrument as a single unit of account.  As such, effective January 3, 2017, the variation margin received or paid is no longer accounted for separately as a liability or asset ("collateralized-to-market").  Instead, these payments are considered in determining the fair value of the centrally cleared derivative portfolio ("settled-to-market").  The principal difference for accounting and presentation purposes is that prior to January 3, 2017, the Company recorded the fair value of collateralized-to-market derivative contracts on its balance sheet as "fair value of derivative instruments" with an equal amount of variation margin collateral accounted for separately as an asset or liability. Subsequent to January 3, 2017, the Company records settled-to-market derivative contracts on its balance sheet with a fair value of zero and no collateral posted due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis, and records the underlying daily changes in the market value of such derivative contracts that result in such receipts or payments on its income statement as realized derivative market value adjustments in "Derivative market value and foreign currency transaction adjustments and derivative settlements, net."

15




The new clearinghouse requirements did not alter or affect the accounting and presentation of the Company’s derivative instruments executed prior to June 10, 2013 and those derivatives that are not required to be cleared at a clearinghouse (non-centrally cleared derivatives). The Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at its fair value. Certain non-centrally cleared derivatives are subject to right of offset provisions with counterparties.  For these derivatives, the Company does not offset fair value amounts executed with the same counterparty under a master netting arrangement. In addition, the Company does not offset fair value amounts recognized for derivative instruments with respect to the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable).

Balance Sheet

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,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
1:3 basis swaps
$

 

 

 
2,624

Interest rate swaps - floor income hedges

 
81,159

 

 
256

Interest rate swap option - floor income hedge
765

 
2,977

 

 

Interest rate caps
231

 
1,152

 

 

Interest rate swaps - hybrid debt hedges

 

 
7,332

 
7,341

Cross-currency interest rate swap



 
22,773

 
67,605

Other

 
2,243

 

 

Total
$
996

 
87,531

 
30,105

 
77,826


During the second quarter of 2017, the Company received proceeds of $2.1 million from the termination of derivatives that were included in "other" in the preceding table.

Offsetting of Derivative Assets/Liabilities

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
Balance as of
September 30, 2017
 
$
996

 

 

 
996

Balance as of
December 31, 2016
 
87,531

 
(2,880
)
 
475

 
85,126

 
 
 
 
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
 
Net liability
Balance as of
September 30, 2017
 
$
(30,105
)
 

 
8,470

 
(21,635
)
Balance as of
December 31, 2016