4 unchanged sentences
The following table sets forth the Company’s loan assets and debt instruments by rate characteristics:
−Removed: As of September 30, 2020 As of December 31, 2019
+Added: As of March 31, 2021 As of December 31, 2020
Dollars Percent Dollars Percent
7 unchanged sentences
The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status.
−Removed: The Company generally finances its student loan portfolio with variable rate debt.
−Removed: In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates.
+Added: The Company generally finances its FFELP student loan portfolio with variable rate debt.
+Added: In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s FFELP student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates.
In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
2 unchanged sentences
All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for those loans to the Department.
−Removed: As a result of the significant drop in interest rates in March 2020 and the first half of the second quarter of 2020, the Company earned $4.8 million of variable-rate floor income on approximately $1.4 billion of FFELP loans during the six months ended June 30, 2020.
+Added: As a result of the significant drop in interest rates in March 2020, the Company earned $0.9 million of variable-rate floor income on $1.4 billion of FFELP loans during the three months ended March 31, 2020.
Since the borrower rate reset on July 1, 2020, the Company no longer earns such variable-rate floor income on these loans, reflecting the lower interest rate environment.
−Removed: No variable-rate floor income was earned by the Company in 2019.
A summary of fixed rate floor income earned by the Company follows.
−Removed: Three months ended September 30, Nine months ended September 30,
−Removed: 2020 2019 2020 2019
+Added: Three months ended March 31,
Fixed rate floor income, gross $ 35,539 18,758
2 unchanged sentences
(a) Derivative settlements consist of settlements (paid) received related to the Company's derivatives used to hedge student loans earning fixed rate floor income.
−Removed: Gross fixed rate floor income increased for the three and nine months ended September 30, 2020 as compared to the same periods in 2019 due to lower interest rates in 2020 as compared to 2019.
+Added: Gross fixed rate floor income increased for the three months ended March 31, 2021 as compared to the same period in 2020 due to lower interest rates in 2021 as compared to 2020.
Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and has an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas.
In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
−Removed: The decrease in net derivative settlements (paid) received from the floor income interest rate swaps for the three and nine months ended September 30, 2020 as compared to the same periods in 2019 was due to a decrease in the notional amount of derivatives outstanding and a decrease in interest rates.
+Added: The change from being in a net positive settlement position on such derivatives during the first quarter of 2020 to being in a net negative settlement position during the first quarter of 2021 was due to a decrease in interest rates.
The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:
−Removed: The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of September 30, 2020.
+Added: The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of March 31, 2021.
Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
13 unchanged sentences
(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate.
−Removed: As of September 30, 2020, the weighted average estimated variable conversion rate was 1.93% and the short-term interest rate was 17 basis points.
−Removed: The following table summarizes the outstanding derivative instruments as of September 30, 2020 used by the Company to economically hedge loans earning fixed rate floor income.
−Removed: Maturity Notional amount Weighted average fixed rate paid by the Company (a)(c)
+Added: As of March 31, 2021, the weighted average estimated variable conversion rate was 1.94% and the short-term interest rate was 12 basis points.
+Added: The following table summarizes the outstanding derivative instruments as of March 31, 2021 used by the Company to economically hedge loans earning fixed rate floor income.
+Added: Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2021 $ 600,000 2.15 %
1 unchanged sentence
2023 900,000 0.62
+Added: 2024 (c) 2,500,000 0.35
2025 500,000 0.35
2 unchanged sentences
(b) $250.0 million of these derivatives have forward effective start dates in June 2021.
−Removed: (c) Excluding the derivatives with forward effective start dates, the weighted average fixed rate paid by the Company as of September 30, 2020 on its $1.5 billion floor income derivative portfolio was 1.21%.
+Added: (c) $500.0 million of these derivatives have forward effective start dates in June 2021.
The Company is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company’s assets do not match the interest rate characteristics of the funding for those assets.
−Removed: The following table presents the Company’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of September 30, 2020.
+Added: The following table presents the Company’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of March 31, 2021.
Index Frequency of variable resets Assets Funding of student loan assets
11 unchanged sentences
The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets.
−Removed: The following table summarizes the 1:3 Basis Swaps outstanding as of September 30, 2020.
+Added: The following table summarizes the 1:3 Basis Swaps outstanding as of March 31, 2021.
Maturity Notional amount (i)
3 unchanged sentences
2026 1,150,000
−Removed: (i) The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2020 was one-month LIBOR plus 9.1 basis points.
−Removed: (b) As of September 30, 2020, the Company was sponsor for $751.7 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (“Auction Rate Securities”).
+Added: (i) The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2021 was one-month LIBOR plus 9.1 basis points.
+Added: (b) As of March 31, 2021, the Company was sponsor for $747.1 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (“Auction Rate Securities”).
Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture.
3 unchanged sentences
Funding represents overcollateralization (equity) and other liabilities included in FFELP asset-backed securitizations and warehouse facilities.
−Removed: There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets.
−Removed: See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2019 Annual Report.
+Added: LIBOR is in the process of being discontinued as a benchmark rate, and any market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets.
+Added: See "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" under Item 2 above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2020 Annual Report for additional information.
Sensitivity Analysis
10 unchanged sentences
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
−Removed: Three months ended September 30, 2020
−Removed: Effect on earnings:
−Removed: Decrease in pre-tax net income before
−Removed: impact of derivative settlements $ (16,328) (18.1) % $ (31,947) (35.4) % $ (1,737) (1.9) % $ (5,212) (5.7) %
−Removed: Impact of derivative settlements 2,643 2.9 7,930 8.8 1,546 1.7 4,638 5.1
−Removed: Increase (decrease) in net income
−Removed: before taxes $ (13,685) (15.2) % $ (24,017) (26.6) % $ (191) (0.2) % $ (574) (0.6) %
−Removed: Increase (decrease) in basic and
−Removed: diluted earnings per share $ (0.27) $ (0.47) $ — $ (0.01)
−Removed: Three months ended September 30, 2019
−Removed: Effect on earnings:
−Removed: Decrease in pre-tax net income before
−Removed: impact of derivative settlements $ (6,119) (14.6) % $ (12,330) (29.4) % $ (2,343) (5.6) % $ (7,029) (16.7) %
−Removed: Impact of derivative settlements 6,932 16.5 20,795 49.6 1,613 3.8 4,839 11.5
−Removed: Increase (decrease) in net income
−Removed: before taxes $ 813 1.9 % $ 8,465 20.2 % $ (730) (1.8) % $ (2,190) (5.2) %
−Removed: Increase (decrease) in basic and
−Removed: diluted earnings per share $ 0.02 $ 0.16 $ (0.01) $ (0.04)
−Removed: Nine months ended September 30, 2020
+Added: Three months ended March 31, 2021
Effect on earnings:
−Removed: Decrease in pre-tax net income before
−Removed: impact of derivative settlements $ (42,577) (28.7) % $ (79,919) (53.9) % $ (5,491) (3.7) % $ (16,479) (11.1) %
+Added: Decrease in pre-tax net income before impact of derivative settlements $ (14,282) (9.1) % $ (26,218) (16.6) % $ (1,605) (1.0) % $ (4,814) (3.1) %
Impact of derivative settlements 9,130 5.8 27,390 17.3 1,516 1.0 4,549 2.9
−Removed: Increase (decrease) in net income
−Removed: before taxes $ (33,718) (22.7) % $ (53,342) (36.0) % $ (925) (0.6) % $ (2,781) (1.9) %
−Removed: Increase (decrease) in basic and
−Removed: diluted earnings per share $ (0.65) $ (1.03) $ (0.02) $ (0.05)
−Removed: Nine months ended September 30, 2019
+Added: Increase (decrease) in net income before taxes $ (5,152) (3.3) % $ 1,172 0.7 % $ (89) — % $ (265) (0.2) %
+Added: Increase (decrease) in basic and diluted earnings per share $ (0.10) $ 0.02 $ — $ (0.01)
+Added: Three months ended March 31, 2020
Effect on earnings:
7 unchanged sentences
Financial Statement Impact – Derivatives
−Removed: For a table summarizing the effect of derivative instruments in the consolidated statements of income, including the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
+Added: For a table summarizing the effect of derivative instruments in the consolidated statements of operations, including the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of operations, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.