NELNET INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NELNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (unaudited) As of As of June 30, 2020 December 31, 2019 Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 209,445 and $ 61,914 , respectively) $ 20,460,873 21,402,868 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 14,242 13,922 Cash and cash equivalents - held at a related party 53,298 119,984 Total cash and cash equivalents 67,540 133,906 Investments 449,700 247,099 Restricted cash 585,236 650,939 Restricted cash - due to customers 268,539 437,756 Accounts receivable (net of allowance for doubtful accounts of $ 3,901 and $ 4,455 , respectively) 73,783 115,391 Goodwill 156,912 156,912 Intangible assets, net 66,733 81,532 Property and equipment, net 350,043 348,259 Other assets 131,849 134,308 Total assets $ 22,611,208 23,708,970 Liabilities: Bonds and notes payable $ 19,726,158 20,529,054 Accrued interest payable 32,760 47,285 Other liabilities 242,965 303,781 Due to customers 268,539 437,756 Total liabilities 20,270,422 21,317,876 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 27,232,836 shares and 28,458,495 shares, respectively 272 285 Class B, convertible, $ 0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,171,609 shares and 11,271,609 shares, respectively 112 113 Additional paid-in capital 1,867 5,715 Retained earnings 2,331,312 2,377,627 Accumulated other comprehensive earnings 3,233 2,972 Total Nelnet, Inc. shareholders' equity 2,336,796 2,386,712 Noncontrolling interests 3,990 4,382 Total equity 2,340,786 2,391,094 Total liabilities and equity $ 22,611,208 23,708,970 Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities: Loans and accrued interest receivable $ 20,488,321 21,399,382 Restricted cash 567,064 639,816 Other assets 30 31 Bonds and notes payable ( 19,856,362 ) ( 20,742,798 ) Accrued interest payable and other liabilities ( 97,523 ) ( 162,494 ) Net assets of consolidated education and other lending variable interest entities $ 1,101,530 1,133,937 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 ended Six months ended June 30, June 30, 2020 2019 2020 2019 Interest income: Loan interest $ 146,140 238,222 327,933 480,555 Investment interest 5,743 8,566 13,141 16,819 Total interest income 151,883 246,788 341,074 497,374 Interest expense: Interest on bonds and notes payable 85,248 186,963 219,366 378,733 Net interest income 66,635 59,825 121,708 118,641 Less provision for loan losses 2,999 9,000 79,297 16,000 Net interest income after provision for loan losses 63,636 50,825 42,411 102,641 Other income/expense: Loan servicing and systems revenue 111,042 113,985 223,778 228,883 Education technology, services, and payment processing revenue 59,304 60,342 142,979 139,502 Communications revenue 18,998 15,758 37,179 30,300 Gain on sale of loans — 1,712 18,206 1,712 Other income 60,127 14,440 68,408 23,507 Impairment expense ( 332 ) — ( 34,419 ) — Derivative market value adjustments and derivative settlements, net 1,910 ( 24,088 ) ( 14,455 ) ( 35,628 ) Total other income/expense 251,049 182,149 441,676 388,276 Cost of services: Cost to provide education technology, services, and payment processing services 15,376 15,871 38,181 36,930 Cost to provide communications services 5,743 5,101 11,325 9,860 Total cost of services 21,119 20,972 49,506 46,790 Operating expenses: Salaries and benefits 119,247 111,214 239,125 222,272 Depreciation and amortization 29,393 24,484 57,041 48,697 Other expenses 37,052 45,417 80,439 89,233 Total operating expenses 185,692 181,115 376,605 360,202 Income before income taxes 107,874 30,887 57,976 83,925 Income tax expense 21,264 6,209 11,131 17,600 Net income 86,610 24,678 46,845 66,325 Net income attributable to noncontrolling interests ( 128 ) ( 59 ) ( 895 ) ( 115 ) Net income attributable to Nelnet, Inc. $ 86,482 24,619 45,950 66,210 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 2.21 0.61 1.16 1.65 Weighted average common shares outstanding - basic and diluted 39,203,404 40,050,065 39,579,459 40,210,787 See accompanying notes to consolidated financial statements. 3 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (unaudited) Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Net income $ 86,610 24,678 46,845 66,325 Other comprehensive income (loss): Available-for-sale securities: Unrealized holding gains (losses) arising during period, net 3,236 ( 537 ) 221 ( 972 ) Reclassification adjustment for (gains) losses recognized in net income, net ( 112 ) — 123 — Income tax effect ( 750 ) 129 ( 83 ) 233 Total other comprehensive income (loss) 2,374 ( 408 ) 261 ( 739 ) Comprehensive income 88,984 24,270 47,106 65,586 Comprehensive income attributable to noncontrolling interests ( 128 ) ( 59 ) ( 895 ) ( 115 ) Comprehensive income attributable to Nelnet, Inc. $ 88,856 24,211 46,211 65,471 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 March 31, 2019 — 28,628,528 11,459,641 $ — 286 115 636 2,321,407 3,552 4,298 2,330,294 Issuance of noncontrolling interests — — — — — — — — — 26 26 Net income — — — — — — — 24,619 — 59 24,678 Other comprehensive loss — — — — — — — — ( 408 ) — ( 408 ) Distribution to noncontrolling interests — — — — — — — — — ( 91 ) ( 91 ) Cash dividends on Class A and Class B common stock - $ 0.18 per share — — — — — — — ( 7,172 ) — — ( 7,172 ) Issuance of common stock, net of forfeitures — 10,138 — — — — 1,384 — — — 1,384 Compensation expense for stock based awards — — — — — — 1,590 — — — 1,590 Repurchase of common stock — ( 419,140 ) — — ( 4 ) — ( 1,940 ) ( 21,739 ) — — ( 23,683 ) Conversion of common stock — 180,000 ( 180,000 ) — 2 ( 2 ) — — — — — Balance as of June 30, 2019 — 28,399,526 11,279,641 $ — 284 113 1,670 2,317,115 3,144 4,292 2,326,618 Balance as of March 31, 2020 — 28,582,032 11,271,609 $ — 286 113 9,140 2,310,282 859 5,120 2,325,800 Issuance of noncontrolling interests — — — — — — — — — 26 26 Net income — — — — — — — 86,482 — 128 86,610 Other comprehensive income — — — — — — — — 2,374 — 2,374 Distribution to noncontrolling interests — — — — — — — — — ( 534 ) ( 534 ) Cash dividends on Class A and Class B common stock - $ 0.20 per share — — — — — — — ( 7,733 ) — — ( 7,733 ) Issuance of common stock, net of forfeitures — 23,853 — — — — 1,660 — — — 1,660 Compensation expense for stock based awards — — — — — — 1,857 — — — 1,857 Repurchase of common stock — ( 1,473,049 ) — — ( 15 ) — ( 10,790 ) ( 56,469 ) — — ( 67,274 ) Conversion of common stock — 100,000 ( 100,000 ) — 1 ( 1 ) — — — — — Acquisition of noncontrolling interest — — — — — — — ( 1,250 ) — ( 750 ) ( 2,000 ) Balance as of June 30, 2020 — 27,232,836 11,171,609 $ — 272 112 1,867 2,331,312 3,233 3,990 2,340,786 See accompanying notes to consolidated financial statements. 5 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 December 31, 2018 — 28,798,464 11,459,641 $ — 288 115 622 2,299,556 3,883 10,315 2,314,779 Issuance of noncontrolling interests — — — — — — — — — 52 52 Net income — — — — — — — 66,210 — 115 66,325 Other comprehensive loss — — — — — — — — ( 739 ) — ( 739 ) Distribution to noncontrolling interests — — — — — — — — — ( 113 ) ( 113 ) Cash dividends on Class A and Class B common stock - $ 0.36 per share — — — — — — — ( 14,403 ) — — ( 14,403 ) Issuance of common stock, net of forfeitures — 141,529 — — 1 — 3,876 — — — 3,877 Compensation expense for stock based awards — — — — — — 2,958 — — — 2,958 Repurchase of common stock — ( 720,467 ) — — ( 7 ) — ( 5,786 ) ( 34,248 ) — — ( 40,041 ) Impact of adoption of new accounting standard — — — — — — — — — ( 6,077 ) ( 6,077 ) Conversion of common stock — 180,000 ( 180,000 ) — 2 ( 2 ) — — — — — Balance as of June 30, 2019 — 28,399,526 11,279,641 $ — 284 113 1,670 2,317,115 3,144 4,292 2,326,618 Balance as of December 31, 2019 — 28,458,495 11,271,609 $ — 285 113 5,715 2,377,627 2,972 4,382 2,391,094 Issuance of noncontrolling interests — — — — — — — — — 52 52 Net income — — — — — — — 45,950 — 895 46,845 Other comprehensive income — — — — — — — — 261 — 261 Distribution to noncontrolling interests — — — — — — — — — ( 589 ) ( 589 ) Cash dividends on Class A and Class B common stock - $ 0.40 per share — — — — — — — ( 15,679 ) — — ( 15,679 ) Issuance of common stock, net of forfeitures — 172,275 — — 1 — 4,600 — — — 4,601 Compensation expense for stock based awards — — — — — — 3,595 — — — 3,595 Repurchase of common stock — ( 1,497,934 ) — — ( 15 ) — ( 12,043 ) ( 56,469 ) — — ( 68,527 ) Impact of adoption of new accounting standard — — — — — — — ( 18,867 ) — — ( 18,867 ) Conversion of common stock — 100,000 ( 100,000 ) — 1 ( 1 ) — — — — — Acquisition of noncontrolling interest — — — — — — — ( 1,250 ) — ( 750 ) ( 2,000 ) Balance as of June 30, 2020 — 27,232,836 11,171,609 $ — 272 112 1,867 2,331,312 3,233 3,990 2,340,786 See accompanying notes to consolidated financial statements. 6 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Six months ended June 30, 2020 2019 Net income attributable to Nelnet, Inc. $ 45,950 66,210 Net income attributable to noncontrolling interests 895 115 Net income 46,845 66,325 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 99,282 94,121 Loan discount accretion ( 19,196 ) ( 18,806 ) Provision for loan losses 79,297 16,000 Derivative market value adjustments 24,513 67,635 Proceeds from termination of derivative instruments — 2,119 Payments to clearinghouse - initial and variation margin, net ( 24,453 ) ( 77,229 ) Gain on sale of loans ( 18,206 ) ( 1,712 ) Gain from investments, net ( 48,402 ) ( 2,970 ) (Gain) loss on repurchases and extinguishment of debt ( 403 ) 1,801 Deferred income tax benefit ( 14,762 ) ( 15,023 ) Non-cash compensation expense 3,581 3,138 Impairment expense 34,419 — Increase in accrued interest receivable ( 123,276 ) ( 44,967 ) Decrease (increase) in accounts receivable 41,608 ( 5,972 ) Decrease (increase) in other assets, net 22,992 ( 6,065 ) Decrease in the carrying amount of ROU asset 5,948 4,307 Decrease in accrued interest payable ( 14,525 ) ( 5,208 ) Decrease in other liabilities ( 26,817 ) ( 504 ) Decrease in the carrying amount of lease liability ( 4,829 ) ( 4,164 ) Decrease in due to customers ( 169,217 ) ( 90,661 ) Net cash used in operating activities ( 105,601 ) ( 17,835 ) Cash flows from investing activities: Purchases of loans ( 872,987 ) ( 997,123 ) Purchases of loans from a related party ( 75,118 ) ( 32,580 ) Net proceeds from loan repayments, claims, and capitalized interest 1,800,286 1,889,084 Proceeds from sale of loans 90,465 42,215 Purchases of available-for-sale securities ( 112,675 ) ( 1,010 ) Proceeds from sales of available-for-sale securities 23,372 192 Proceeds from beneficial interest in loan securitizations 21,765 968 Purchases of other investments ( 117,598 ) ( 26,314 ) Proceeds from other investments 6,770 23,763 Purchases of property and equipment ( 46,994 ) ( 43,715 ) Net cash provided by investing activities 717,286 855,480 Cash flows from financing activities: Payments on bonds and notes payable ( 2,073,710 ) ( 2,007,483 ) Proceeds from issuance of bonds and notes payable 1,252,360 1,092,186 Payments of debt issuance costs ( 5,863 ) ( 5,515 ) Payments to extinguish debt — ( 1,394 ) Dividends paid ( 15,679 ) ( 14,403 ) Repurchases of common stock ( 68,527 ) ( 40,041 ) Proceeds from issuance of common stock 781 724 Acquisition of noncontrolling interest ( 2,000 ) — Distribution to noncontrolling interests ( 333 ) ( 113 ) Net cash used in financing activities ( 912,971 ) ( 976,039 ) Net decrease in cash, cash equivalents, and restricted cash ( 301,286 ) ( 138,394 ) Cash, cash equivalents, and restricted cash, beginning of period 1,222,601 1,192,391 Cash, cash equivalents, and restricted cash, end of period $ 921,315 1,053,997 7 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) (unaudited) Six months ended June 30, 2020 2019 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 209,170 354,902 Cash disbursements made for income taxes, net of refunds and credits received $ 7,949 11,529 Cash disbursements made for operating leases $ 5,442 4,792 Noncash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 3,265 3,298 Receipt of beneficial interest in consumer loan securitizations $ 38,490 7,921 Distribution to noncontrolling interest $ 33 — Supplemental disclosures of noncash activities regarding the adoption of the new accounting standard for measurement of credit losses on financial instruments on January 1, 2020 are contained in note 1. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows. As of As of As of As of June 30, 2020 December 31, 2019 June 30, 2019 December 31, 2018 Total cash and cash equivalents $ 67,540 133,906 84,400 121,347 Restricted cash 585,236 650,939 690,580 701,366 Restricted cash - due to customers 268,539 437,756 279,017 369,678 Cash, cash equivalents, and restricted cash $ 921,315 1,222,601 1,053,997 1,192,391 See accompanying notes to consolidated financial statements. 8 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, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2019 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, 2020 are not necessarily indicative of the results for the year ending December 31, 2020. 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, 2019 (the "2019 Annual Report"). Reclassifications Certain amounts previously reported have been reclassified to conform to the current period presentation. These reclassifications include: • Reclassifying the line item "accrued interest receivable" on the Company's consolidated balance sheet to "loans and accrued interest receivable" and "investments"; and • Reclassifying "gain on sale of loans" that was previously included in "other income" to a new line item on the Company's consolidated statements of income. Accounting Standard Adopted in 2020 In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. Since its original issuance in 2016, the FASB has issued several updates to the original ASU. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired, including, for the Company, loans receivable, accounts receivable, and held-to-maturity beneficial interests in loan securitizations. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. For available-for-sale debt securities where fair value is less than amortized cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk. On January 1, 2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model); therefore, the comparative information for 2019 is not comparable to the information presented for 2020. Adoption of the new guidance primarily impacted the allowance for loan losses related to the Company's loan portfolio. Upon adoption, the Company recorded an increase to the allowance for loan losses of $ 91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $ 18.9 million. The following table illustrates the impact of the adoption of ASC 326. 9 Balances at December 31, 2019 Impact of ASC 326 adoption Balances at January 1, 2020 Assets Loans and accrued interest receivable, net of allowance Loans receivable $ 20,798,719 — 20,798,719 Accrued interest receivable 733,497 — 733,497 Loan discount, net ( 35,036 ) 33,790 ( 1,246 ) Non-accretable discount ( 32,398 ) 32,398 — Allowance for loan losses ( 61,914 ) ( 91,014 ) ( 152,928 ) Loans and accrued interest receivable, net of allowance 21,402,868 ( 24,826 ) 21,378,042 Liabilities Other liabilities (deferred taxes) 303,781 ( 5,958 ) 297,823 Equity Retained earnings 2,377,627 ( 18,868 ) 2,358,759 The Company adopted ASC 326 using the prospective transition approach for loans receivable purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI"). In accordance with the standard, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the unamortized cost basis of the PCD assets were adjusted to reflect the addition of $ 32.4 million in the allowance for loan losses (as reflected in the table above). The remaining noncredit premium on these loans as of January 1, 2020 (based on the adjusted amortized cost basis) will be amortized into interest income over the life of the loans. Changes to the allowance for loan losses on these loans after adoption are recorded through provision expense. Summary of Significant Accounting Policies Affected by Implementation of ASC 326 Allowance for Loan Losses The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments. Loans are charged off when management determines the loan is uncollectible. Charge-offs are recognized as a reduction to the allowance for loan losses. Expected recoveries of amounts previously charged off, not to exceed the aggregate of the amount previously charged off, are included in the estimate of the allowance for loan losses at the balance sheet date. The Company aggregates loans with similar risk characteristics into homogeneous pools to estimate its expected credit losses. The Company continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change. The Company determines its estimated credit losses for the following financial assets as follows: Loans receivable Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. Accordingly, the portfolio segment disclosures are presented on this basis in note 2 for each of these portfolios. The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables. The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company has determined that, for modeling current expected credit losses, in general, the Company can reasonably estimate expected losses that incorporate current and forecasted economic conditions up to a one-year period. After this "reasonable and supportable" period, the Company uses a reversion period to the Company's actual long-term historical loss experience over a full economic life cycle. Historical credit loss experience provides 10 the basis for the estimation of expected credit losses. Qualitative and quantitative adjustments to historical loss information are made separately on each of the Company’s federally insured, private education, and consumer loan portfolios. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all of the following for the Company’s federally insured loan portfolio: loans in repayment versus those in nonpaying status; delinquency status; trends in defaults in the portfolio based on Company and industry data; past experience; trends in student loan claims rejected for payment by guarantors; changes in federal student loan programs; current economic conditions, including changes in unemployment rates; and other relevant qualitative factors. The federal government guarantees 97 percent of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Student loans disbursed prior to October 1, 1993 are fully insured. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all of the following for the Company’s private education loans: loans in repayment versus those in a nonpaying status; delinquency status; type of program; trends in defaults in the portfolio based on Company and industry data; past experience; current economic conditions, including changes in unemployment rates and gross domestic product growth; and other relevant qualitative factors. The Company places private education loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days past due. Collections, if any, are reflected as a recovery through the allowance for loan losses. Qualitative and quantitative adjustments related to current conditions and a reasonable and supportable forecast period consider all of the following for the Company's consumer loans: delinquency status; type of program; trends in defaults in the portfolio based on Company and industry data; past experience; current economic conditions; and other relevant qualitative factors. The Company places consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program. Collections, if any, are reflected as a recovery through the allowance for loan losses. Purchased Loans Receivable with Credit Deterioration (“PCD”) The Company has purchased federally insured rehabilitation loans that have experienced more than insignificant credit deterioration since origination. Rehabilitation loans are loans that have previously defaulted, but for which the borrower has made a specified number of on-time payments. Although rehabilitation loans benefit from the same guarantees as other federally insured loans, rehabilitation loans have generally experienced redefault rates that are higher than default rates for federally insured loans that have not previously defaulted. These PCD loans are recorded at the amount paid. An allowance for loan losses is determined using the same methodology as for other loans held for investment. The sum of the loans’ purchase price and allowance for loan losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. Loan Accrued Interest Receivable The Company has elected to present its loan accrued interest receivable balance combined in its consolidated balance sheets with the loans receivable amortized cost balance. For the Company’s federally insured loan portfolio, the Company has elected to measure an allowance for credit losses for accrued interest receivables. For federally insured loans, accrued interest receivable is typically charged-off when the contractual payment of principal or interest has become greater than 270 days past due. Charge-offs of accrued interest receivable are recognized as a reduction to the allowance for loan losses. For the Company’s private education and consumer loan portfolios, the Company has elected not to measure an allowance for credit losses for accrued interest receivables. For private education and consumer loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due. Charge-offs of accrued interest receivable are recognized by reversing interest income. 11 2. Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and accrued interest receivable consisted of the following: As of As of June 30, 2020 December 31, 2019 Federally insured student loans: Stafford and other $ 4,439,492 4,684,314 Consolidation 14,948,379 15,644,229 Total 19,387,871 20,328,543 Private education loans 293,218 244,258 Consumer loans 149,308 225,918 19,830,397 20,798,719 Accrued interest receivable 856,880 733,497 Loan discount, net of unamortized loan premiums and deferred origination costs ( 16,959 ) ( 35,036 ) Non-accretable discount — ( 32,398 ) Allowance for loan losses: Federally insured loans ( 144,829 ) ( 36,763 ) Private education loans ( 25,535 ) ( 9,597 ) Consumer loans ( 39,081 ) ( 15,554 ) $ 20,460,873 21,402,868 On January 30, 2020, the Company sold $ 124.2 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a $ 18.2 million (pre-tax) gain as part of this transaction. As partial consideration received for the consumer loans sold, the Company received a 31.4 percent residual interest in the consumer loan securitization that is included in "investments" on the Company's consolidated balance sheet. Subsequent to June 30, 2020, the Company made the decision to sell an additional $ 60.8 million (par value) of consumer loans to an unrelated third party who securitized such loans. As of June 30, 2020, these loans were classified as held for investment and are included in the table above. As partial consideration received for the consumer loans sold, the Company received a 25.4 percent residual interest in the consumer loan securitization. The Company currently anticipates recognizing a gain in the third quarter of 2020 of $ 14.8 million (pre-tax) from the sale of those loans. 12 Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Impact of ASC 326 adoption Provision for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sale Balance at end of period Three months ended June 30, 2020 Federally insured loans $ 146,759 — ( 1,950 ) ( 6,080 ) — 6,100 — 144,829 Private education loans 23,056 — 2,322 ( 26 ) 183 — — 25,535 Consumer loans 39,053 — 2,627 ( 2,820 ) 221 — — 39,081 $ 208,868 — 2,999 ( 8,926 ) 404 6,100 — 209,445 Three months ended June 30, 2019 Federally insured loans $ 40,934 — 2,000 ( 3,878 ) — — — 39,056 Private education loans 10,587 — — ( 588 ) 158 — — 10,157 Consumer loans 10,257 — 7,000 ( 2,652 ) 273 — ( 1,500 ) 13,378 $ 61,778 — 9,000 ( 7,118 ) 431 — ( 1,500 ) 62,591 Six months ended June 30, 2020 Federally insured loans $ 36,763 72,291 37,373 ( 12,398 ) — 10,800 — 144,829 Private education loans 9,597 4,797 12,121 ( 1,355 ) 375 — — 25,535 Consumer loans 15,554 13,926 29,803 ( 7,170 ) 468 — ( 13,500 ) 39,081 $ 61,914 91,014 79,297 ( 20,923 ) 843 10,800 ( 13,500 ) 209,445 Six months ended June 30, 2019 Federally insured loans $ 42,310 — 4,000 ( 7,254 ) — — — 39,056 Private education loans 10,838 — — ( 1,070 ) 389 — — 10,157 Consumer loans 7,240 — 12,000 ( 4,658 ) 296 — ( 1,500 ) 13,378 $ 60,388 — 16,000 ( 12,982 ) 685 — ( 1,500 ) 62,591 a) During the three and six months ended June 30, 2020, the Company acquired $ 292.7 million (par value) and $ 583.9 million (par value), respectively, of federally insured rehabilitation loans. These loans met the definition of PCD loans when they were purchased by the Company. The Company estimated that the expected credit losses relating to these loans was $ 6.1 million and $ 10.8 million, respectively, at the time of purchase. The noncredit discount recorded as part of these acquisitions will be recognized into interest income using an effective yield over the life of the loans. In March 2020, the rapid outbreak of the respiratory disease caused by a novel strain of coronavirus, coronavirus 2019 or COVID-19 ("COVID-19"), was declared a global pandemic by the World Health Organization and a national emergency by the President, and caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of ASC 326 effective January 1, 2020, the Company’s allowance for loan losses increased during the first quarter of 2020 primarily as a result of the COVID-19 pandemic and its effects on current and forecasted economic conditions. The Company's provision expense for the three months ended June 30, 2020 was also impacted by the Company's estimate of certain improved economic conditions as of June 30, 2020 than what was used by the Company to determine the allowance for loan losses as of March 31, 2020. These improved economic conditions were partially offset by the Company extending its reversion period (to the Company's actual long-term historical loss experience) as of June 30, 2020, as the Company currently believes the economy will take longer to recover from the COVID-19 pandemic than what was originally estimated as of March 31, 2020. The Company's total allowance for loan losses of $ 209.4 million at June 30, 2020 represents reserves equal to 0.7 % of the Company's federally insured loans (or 29.1 % of the risk sharing component of the loans that is not covered by the federal guaranty), 8.7 % of the Company's private education loans, and 26.2 % of the Company's consumer loans. 13 Loan Status and Delinquencies The key credit quality indicators for the Company's federally insured, private education, and consumer loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. 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 status and delinquency amounts. As of June 30, 2020 As of December 31, 2019 As of June 30, 2019 Federally insured loans: Loans in-school/grace/deferment $ 936,746 4.8 % $ 1,074,678 5.3 % $ 1,222,021 5.8 % Loans in forbearance 5,370,466 27.7 1,339,821 6.6 1,420,120 6.7 Loans in repayment status: Loans current 12,984,175 99.3 % 15,410,993 86.0 % 16,055,368 86.7 % Loans delinquent 31-60 days 2,057 — 650,796 3.6 677,113 3.7 Loans delinquent 61-90 days 165 — 428,879 2.4 443,988 2.4 Loans delinquent 91-120 days 23 — 310,851 1.7 269,688 1.5 Loans delinquent 121-270 days 101 — 812,107 4.5 755,093 4.1 Loans delinquent 271 days or greater 94,138 0.7 300,418 1.8 310,741 1.6 Total loans in repayment 13,080,659 67.5 100.0 % 17,914,044 88.1 100.0 % 18,511,991 87.5 100.0 % Total federally insured loans 19,387,871 100.0 % 20,328,543 100.0 % 21,154,132 100.0 % Accrued interest receivable 853,473 730,059 720,887 Loan discount, net of unamortized premiums and deferred origination costs ( 19,116 ) ( 35,822 ) ( 38,808 ) Non-accretable discount (a) — ( 28,036 ) ( 28,527 ) Allowance for loan losses ( 144,829 ) ( 36,763 ) ( 39,056 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 20,077,399 $ 20,957,981 $ 21,768,628 Private education loans: Loans in-school/grace/deferment $ 3,971 1.3 % $ 4,493 1.8 % $ 3,912 2.0 % Loans in forbearance 21,890 7.5 3,108 1.3 1,143 0.6 Loans in repayment status: Loans current 265,720 99.4 % 227,013 95.9 % 183,414 94.7 % Loans delinquent 31-60 days 680 0.2 2,814 1.2 3,491 1.8 Loans delinquent 61-90 days 244 0.1 1,694 0.7 1,658 0.9 Loans delinquent 91 days or greater 713 0.3 5,136 2.2 5,134 2.6 Total loans in repayment 267,357 91.2 100.0 % 236,657 96.9 100.0 % 193,697 97.4 100.0 % Total private education loans 293,218 100.0 % 244,258 100.0 % 198,752 100.0 % Accrued interest receivable 1,961 1,558 1,113 Loan premium, net of unaccreted discount 813 46 ( 880 ) Non-accretable discount (a) — ( 4,362 ) ( 5,008 ) Allowance for loan losses ( 25,535 ) ( 9,597 ) ( 10,157 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,457 $ 231,903 $ 183,820 Consumer loans: Loans in deferment $ 3,274 2.2 % $ — $ — Loans in repayment status: Loans current 142,540 97.6 % 220,404 97.5 % 234,944 98.8 % Loans delinquent 31-60 days 938 0.7 2,046 0.9 1,254 0.5 Loans delinquent 61-90 days 1,078 0.7 1,545 0.7 824 0.3 Loans delinquent 91 days or greater 1,478 1.0 1,923 0.9 930 0.4 Total loans in repayment 146,034 97.8 100.0 % 225,918 100.0 % 237,952 100.0 % Total consumer loans 149,308 100.0 % 225,918 237,952 Accrued interest receivable 1,446 1,880 1,846 Loan premium 1,344 740 736 Allowance for loan losses ( 39,081 ) ( 15,554 ) ( 13,378 ) Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 113,017 $ 212,984 $ 227,156 (a) Upon adoption of ASC 326 on January 1, 2020, the Company reclassified the non-accretable discount balance related to loans purchased with evidence of credit deterioration to allowance for loan losses. 14 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act, among other things, provides broad relief, effective March 13, 2020 through September 30, 2020, for borrowers that have student loans owned by the Department of Education (the "Department"). This relief package excluded Federal Family Education Loan Program ("FFELP" or "FFEL Program"), private education, and consumer loans. Although the Company's loans are excluded from the provisions of the CARES Act, the Company is providing relief for its borrowers. For the Company's federally insured and private education loans, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request. Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans. However, the Company will continue to apply a natural disaster forbearance with an end date of September 30, 2020, to any federally insured and private education loan upon request. In addition, for private education loans, effective March 13, 2020 through September 30, 2020, the Company is delaying final demand letters and default activity, while replacing collection calls with borrower outreach on relief options. For both federally insured and private education loans, effective March 13, 2020 through September 30, 2020, borrower late fees are being waived and borrower payments made after March 13, 2020 are refunded upon a borrower's request. For the majority of the Company's consumer loans, borrowers are generally being offered, upon request and/or documented evidence of financial distress, a two-month deferral of payments, with an option of additional deferrals if the COVID-19 pandemic continues. In addition, effective March 13, 2020 through September 30, 2020, the majority of fees (non-sufficient funds, late charges, check fees) and credit bureau reporting are currently suspended. The specific relief terms on the Company's consumer loan portfolio vary depending on the loan program and servicer of such loans. The Company will continue to review whether additional and/or extended borrower relief policies and activities are needed. Nonaccrual Status The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2019 and June 30, 2020, was not material. 15 Amortized Cost Basis by Origination Year The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of June 30, 2020 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010. Six months ended June 30, 2020 2019 2018 2017 2016 Prior Years Total Private education loans: Loans in school/grace/deferment $ — 386 — — 405 3,180 3,971 Loans in forbearance — 6,947 169 — 641 14,133 21,890 Loans in repayment status: Loans current 32,868 90,929 1,021 — 5,638 135,264 265,720 Loans delinquent 31-60 days — 59 — — — 621 680 Loans delinquent 61-90 days — — — — — 244 244 Loans delinquent 91 days or greater — — — — — 713 713 Total loans in repayment 32,868 90,988 1,021 — 5,638 136,842 267,357 Total private education loans $ 32,868 98,321 1,190 — 6,684 154,155 293,218 Accrued interest receivable 1,961 Loan premium, net of unaccreted discount 813 Allowance for loan losses ( 25,535 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,457 Consumer loans: Loans in deferment $ — 1,352 1,893 29 — — 3,274 Loans in repayment status: Loans current 76,002 29,953 31,955 4,630 — — 142,540 Loans delinquent 31-60 days 349 348 178 63 — — 938 Loans delinquent 61-90 days 289 447 297 45 — — 1,078 Loans delinquent 91 days or greater 211 652 586 29 — — 1,478 Total loans in repayment 76,851 31,400 33,016 4,767 — — 146,034 Total consumer loans $ 76,851 32,752 34,909 4,796 — — 149,308 Accrued interest receivable 1,446 Loan premium 1,344 Allowance for loan losses ( 39,081 ) Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 113,017 16 3. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of June 30, 2020 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 $ 17,838,950 0.39 % - 2.08 % 5/27/25 - 3/26/68 Bonds and notes based on auction 757,925 0.36 % - 2.69 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 18,596,875 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 760,063 1.83 % - 3.45 % 10/25/67 / 4/25/68 FFELP warehouse facilities 201,126 0.79 % / 0.93 % 11/22/21 / 2/26/23 Private education loan warehouse facility 107,355 0.95 % 2/13/22 Consumer loan warehouse facility 73,571 0.83 % 4/23/22 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 59,811 1.65 % / 1.93 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 42,942 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit 30,000 1.69 % 12/16/24 Unsecured debt - Junior Subordinated Hybrid Securities 20,381 3.55 % 9/15/61 Other borrowings 91,702 0.86 % / 1.93 % 5/4/21 / 5/30/22 19,983,826 Discount on bonds and notes payable and debt issuance costs ( 257,668 ) Total $ 19,726,158 As of December 31, 2019 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 $ 18,428,998 1.98 % - 3.61 % 5/27/25 - 1/25/68 Bonds and notes based on auction 768,626 2.75 % - 3.60 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 19,197,624 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 512,836 2.00 % - 3.45 % 10/25/67 / 11/25/67 FFELP warehouse facilities 778,094 1.98 % / 2.07 % 5/20/21 / 5/31/22 Consumer loan warehouse facility 116,570 1.99 % 4/23/22 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 73,308 3.15 % / 3.54 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 49,367 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit 50,000 3.29 % 12/16/24 Unsecured debt - Junior Subordinated Hybrid Securities 20,381 5.28 % 9/15/61 Other borrowings 5,000 3.44 % 5/30/22 20,803,180 Discount on bonds and notes payable and debt issuance costs ( 274,126 ) Total $ 20,529,054 17 FFELP Warehouse Facilities The Company funds the majority 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, 2020, the Company had two FFELP warehouse facilities as summarized below. NFSLW-I (a) NHELP-II (b) Total Maximum financing amount $ 300,000 250,000 550,000 Amount outstanding 102,387 98,739 201,126 Amount available $ 197,613 151,261 348,874 Expiration of liquidity provisions November 20, 2020 February 26, 2021 Final maturity date November 22, 2021 February 26, 2023 Advanced as equity support $ 7,346 8,683 16,029 (a) On May 20, 2020, the Company decreased the maximum financing amount for this warehouse facility to $ 300 million, extended the expiration of liquidity provisions to November 20, 2020, and extended the maturity date to November 22, 2021. (b) On May 29, 2020, the Company decreased the maximum financing amount for this warehouse facility to $ 250 million, extended the expiration of liquidity provisions to February 26, 2021, and extended the maturity date to February 26, 2023. Asset-Backed Securitizations The following table summarizes the asset-backed securitization transactions completed during the first six months of 2020. 2020-1 2020-2 2020-3 Total Date securities issued 2/20/20 3/11/20 3/19/20 Total original principal amount $ 435,600 272,100 352,600 1,060,300 Class A senior notes: Total principal amount $ 424,600 264,300 343,600 1,032,500 Bond discount — ( 44 ) ( 1,503 ) ( 1,547 ) Issue price $ 424,600 264,256 342,097 1,030,953 Cost of funds 1-month LIBOR plus 0.74 % 1.83 % 1-month LIBOR plus 0.92 % Final maturity date 3/26/68 4/25/68 3/26/68 Class B subordinated notes: Total principal amount $ 11,000 7,800 9,000 27,800 Bond discount — ( 574 ) ( 284 ) ( 858 ) Issue price $ 11,000 7,226 8,716 26,942 Cost of funds 1-month LIBOR plus 1.75 % 2.50 % 1-month LIBOR plus 1.90 % Final maturity date 3/26/68 4/25/68 3/26/68 Private Education Loan Warehouse Facility On February 13, 2020, the Company closed on a private education loan warehouse facility with an aggregate maximum financing amount available of $ 100.0 million. On March 20, 2020, the facility was amended to increase the maximum financing amount to $ 200.0 million. The facility has an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2021, and a final maturity date of February 13, 2022. As of June 30, 2020, $ 107.4 million was outstanding under this warehouse facility and $ 92.6 million was available for future funding. Additionally, as of June 30, 2020, the Company had $ 12.4 million advanced as equity support under this facility. 18 Consumer Loan Warehouse Facility The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $ 200.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022. As of June 30, 2020, $ 73.6 million was outstanding under this warehouse facility and $ 126.4 million was available for future funding. Additionally, as of June 30, 2020, the Company had $ 24.7 million advanced as equity support under this facility. Unsecured Line of Credit The Company has a $ 455.0 million unsecured line of credit that has a maturity date of December 16, 2024. As of June 30, 2020, $ 30.0 million was outstanding on the line of credit and $ 425.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $ 550.0 million, subject to certain conditions. Other Borrowings During the second quarter of 2020, the Company entered into an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loan asset-backed securities. As of June 30, 2020, $ 86.7 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. The Company can participate student loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 100.0 million or an amount in excess of $ 100.0 million if mutually agreed to by both parties. Student loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing. 4. Derivative Financial Instruments The Company uses derivative financial instruments to manage interest rate 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 2019 Annual Report. A tabular presentation of such derivatives outstanding as of June 30, 2020 and December 31, 2019 is presented below. Basis Swaps The following table summarizes the Company’s outstanding basis swaps as of December 31, 2019 and June 30, 2020, 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"). Maturity Notional amount As of As of June 30, 2020 December 31, 2019 2020 $ — 1,000,000 2021 250,000 250,000 2022 2,000,000 2,000,000 (a) 2023 750,000 750,000 2024 1,750,000 1,750,000 2026 1,150,000 1,150,000 2027 250,000 250,000 $ 6,150,000 7,150,000 (a) $ 750 million of the notional amount of these derivatives had forward effective start dates in May 2020. The weighted average rate paid by the Company on the 1:3 Basis Swaps as of June 30, 2020 and December 31, 2019 was one-month LIBOR plus 9.1 basis points and 9.7 basis points, respectively. 19 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, 2020 As of December 31, 2019 Maturity Notional amount Weighted average fixed rate paid by the Company (a)(d) Notional amount Weighted average fixed rate paid by the Company (a) 2020 $ — — % $ 1,500,000 1.01 % 2021 600,000 2.15 600,000 2.15 2022 (b) 500,000 0.94 250,000 1.65 2023 (c) 400,000 1.00 150,000 2.25 $ 1,500,000 1.44 % $ 2,500,000 1.42 % (a) For all interest rate derivatives, the Company receives discrete three-month LIBOR. (b) $ 250.0 million of the derivatives outstanding at December 31, 2019 and June 30, 2020 have forward effective start dates in June 2021 and $ 250.0 million of derivatives entered into in May 2020 have forward effective start dates in August 2020. (c) $ 250.0 million of derivatives entered into in May 2020 have forward effective start dates in July 2020. (d) Excluding the derivatives with forward effective start dates, the weighted average fixed rate paid by the Company as of June 30, 2020, on its $ 750.0 million floor income derivative portfolio was 2.17 %. Interest Rate Caps In June 2015 and June 2019, the Company paid $ 2.9 million and $ 0.3 million, respectively, for interest rate cap contracts to mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate. In the event that the one-month LIBOR or three-month LIBOR rate rises above the applicable strike rate, the Company will receive monthly payments related to the spread difference. The following table summarizes these derivative instruments as of June 30, 2020. Notional Amount Strike rate Maturity date $ 125,000 2.50 % (1-month LIBOR) July 15, 2020 150,000 4.99 % (1-month LIBOR) July 15, 2020 500,000 2.25 % (3-month LIBOR) September 25, 2020 Consolidated Financial Statement Impact Related to Derivatives - Statements of Income The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Settlements: 1:3 basis swaps $ 7,129 807 9,242 3,140 Interest rate swaps - floor income hedges ( 1,308 ) 12,165 816 28,867 Total settlements - income (expense) 5,821 12,972 10,058 32,007 Change in fair value: 1:3 basis swaps ( 2,872 ) 4 ( 1,314 ) ( 2,209 ) Interest rate swaps - floor income hedges ( 1,039 ) ( 36,851 ) ( 23,199 ) ( 63,563 ) Interest rate swap options - floor income hedges — ( 88 ) — ( 1,464 ) Interest rate caps — ( 125 ) — ( 399 ) Total change in fair value - income (expense) ( 3,911 ) ( 37,060 ) ( 24,513 ) ( 67,635 ) Derivative market value adjustments and derivative settlements, net - income (expense) $ 1,910 ( 24,088 ) ( 14,455 ) ( 35,628 ) 20 5. Investments A summary of the Company's investments follows: As of June 30, 2020 As of December 31, 2019 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investments (at fair value): Student loan asset-backed and other debt securities - available-for-sale (a) $ 137,970 4,571 ( 316 ) 142,225 48,790 3,911 — 52,701 Equity securities 27,291 5,345 ( 2,664 ) 29,972 9,622 4,561 ( 1,283 ) 12,900 Total investments (at fair value) $ 165,261 9,916 ( 2,980 ) 172,197 58,412 8,472 ( 1,283 ) 65,601 Other Investments (not measured at fair value): Venture capital and funds: Measurement alternative 143,224 72,760 Equity method 14,906 15,379 Other 539 1,301 Total venture capital and funds 158,669 89,440 Real estate and solar: Equity method 55,611 51,721 Other 856 867 Total real estate and solar 56,467 52,588 Beneficial interest in federally insured loan securitizations (b) 32,396 — Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 24,837 as of June 30, 2020 (b) 24,676 33,187 Tax liens and affordable housing 5,295 6,283 Total investments (not measured at fair value) 277,503 181,498 Total investments $ 449,700 $ 247,099 (a) As of June 30, 2020, $ 86.7 million (par value) of student loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 3 under "Other Borrowings." (b) During 2020, the Company has purchased partial ownership in certain federally insured and consumer loan securitizations. As of the latest remittance reports filed by the various trusts prior to June 30, 2020, the Company's ownership correlates to approximately $ 545 million and $ 270 million of federally insured and consumer loans, respectively, included in these securitizations. Investment in Agile Sports Technologies, Inc. (doing business as "Hudl") On May 20, 2020, the Company made an additional equity investment of approximately $ 26 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2020 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20 %, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of Hudl’s equity raise, the Company recognized a $ 51.0 million (pre-tax) gain during the three months ended June 30, 2020 to adjust its carrying value to reflect the May 20, 2020 transaction value. This gain is included in "other income" on the consolidated statements of income. David S. Graff, who has served on the Company’s Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl. 21 Impairment Expense During the three months ended March 31, 2020, the Company recorded a total of $ 34.1 million (pre-tax) in impairment charges related to its investments, which included $ 26.3 million and $ 7.8 million in impairments related to the Company's beneficial interest in consumer loan securitizations and several of its venture capital investments, respectively. As of March 31, 2020, the Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic. The Company measured the allowance for credit losses on the consumer loan beneficial interests by comparing the present value of expected cash flows to the amortized cost basis and recorded an allowance for credit losses of $ 26.3 million, which represented the amount by which the fair value was less than the amortized cost basis. Additionally, as of March 31, 2020, the Company identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic during the first quarter of 2020, and estimated that the fair value of such investments was significantly reduced from their previous carrying value. During the three months ended June 30, 2020, the Company recorded a $ 0.3 million (pre-tax) impairment charge related to a real estate investment. No additional impairment charges were considered necessary by the Company as of June 30, 2020. 6. Intangible Assets A summary of the Company's intangible assets follows: Weighted average remaining useful life as of June 30, 2020 (months) As of As of June 30, 2020 December 31, 2019 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 73,827 and $ 60,553 , respectively) 81 $ 58,626 71,900 Trade names (net of accumulated amortization of $ 3,334 and $ 2,792 , respectively) 71 6,936 7,478 Computer software (net of accumulated amortization of $ 4,216 and $ 3,233 , respectively) 8 1,171 2,154 Total - amortizable intangible assets, net 78 $ 66,733 81,532 The Company recorded amortization expense on its intangible assets of $ 7.4 million and $ 8.3 million during the three months ended June 30, 2020 and 2019, respectively, and $ 14.8 million and $ 16.8 million during the six months ended June 30, 2020 and 2019, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of June 30, 2020, the Company estimates it will record amortization expense as follows: 2020 (July 1 - December 31) $ 16,011 2021 19,687 2022 6,431 2023 6,184 2024 5,771 2025 and thereafter 12,649 $ 66,733 7. Goodwill The carrying amount of goodwill as of December 31, 2019 and June 30, 2020 by reportable operating segment was as follows: Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Total Goodwill balance $ 23,639 70,278 21,112 41,883 — 156,912 22 8. Property and Equipment A summary of the Company's property and equipment follows: As of As of Useful life June 30, 2020 December 31, 2019 Non-communications: Computer equipment and software 1 - 5 years $ 177,513 160,319 Building and building improvements 5 - 48 years 38,883 37,904 Office furniture and equipment 1 - 10 years 22,049 21,245 Leasehold improvements 1 - 15 years 9,080 9,517 Transportation equipment 5 - 10 years 5,032 5,049 Land — 1,400 1,400 Construction in progress — 21,070 13,738 275,027 249,172 Accumulated depreciation - non-communications ( 162,981 ) ( 142,270 ) Non-communications, net property and equipment 112,046 106,902 Communications: Network plant and fiber 4 - 15 years 265,189 254,560 Customer located property 2 - 4 years 29,976 27,011 Central office 5 - 15 years 19,011 17,672 Transportation equipment 4 - 10 years 6,895 6,611 Computer equipment and software 1 - 5 years 6,064 5,574 Other 1 - 39 years 3,737 3,702 Land — 70 70 Construction in progress — 1,620 54 332,562 315,254 Accumulated depreciation - communications ( 94,565 ) ( 73,897 ) Communications, net property and equipment 237,997 241,357 Total property and equipment, net $ 350,043 348,259 The Company recorded depreciation expense on its property and equipment of $ 22.0 million and $ 16.2 million during the three months ended June 30, 2020 and 2019, respectively, and $ 42.3 million and $ 31.9 million during the six months ended June 30, 2020 and 2019, respectively. 23 9. Earnings per Common Share Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Three months ended June 30, 2020 2019 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 85,243 1,239 86,482 24,292 327 24,619 Denominator: Weighted-average common shares outstanding - basic and diluted 38,641,794 561,610 39,203,404 39,518,652 531,413 40,050,065 Earnings per share - basic and diluted $ 2.21 2.21 2.21 0.61 0.61 0.61 Six months ended June 30, 2020 2019 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 45,305 645 45,950 65,346 864 66,210 Denominator: Weighted-average common shares outstanding - basic and diluted 39,023,624 555,835 39,579,459 39,685,958 524,829 40,210,787 Earnings per share - basic and diluted $ 1.16 1.16 1.16 1.65 1.65 1.65 24 10. Segment Reporting See note 14 of the notes to consolidated financial statements included in the 2019 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements. Three months ended June 30, 2020 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Eliminations Total Total interest income $ 52 420 — 150,583 1,196 ( 368 ) 151,883 Interest expense 28 21 — 84,489 1,078 ( 368 ) 85,248 Net interest income (expense) 24 399 — 66,094 118 — 66,635 Less provision for loan losses — — — 2,999 — — 2,999 Net interest income after provision for loan losses 24 399 — 63,095 118 — 63,636 Other income/expense: Loan servicing and systems revenue 111,042 — — — — — 111,042 Intersegment revenue 8,537 3 — — — ( 8,540 ) — Education technology, services, and payment processing revenue — 59,304 — — — — 59,304 Communications revenue — — 18,998 — — — 18,998 Gain on sale of loans — — — — — — — Other income 1,914 — 392 732 57,089 — 60,127 Impairment expense — — — — ( 332 ) — ( 332 ) Derivative settlements, net — — — 5,821 — — 5,821 Derivative market value adjustments, net — — — ( 3,911 ) — — ( 3,911 ) Total other income/expense 121,493 59,307 19,390 2,642 56,757 ( 8,540 ) 251,049 Cost of services: Cost to provide education technology, services, and payment processing services — 15,376 — — — — 15,376 Cost to provide communications services — — 5,743 — — — 5,743 Total cost of services — 15,376 5,743 — — — 21,119 Operating expenses: Salaries and benefits 68,401 24,522 5,570 421 20,334 — 119,247 Depreciation and amortization 9,142 2,362 10,824 — 7,065 — 29,393 Other expenses 13,380 2,326 3,774 4,863 12,710 — 37,052 Intersegment expenses, net 15,996 3,429 536 9,055 ( 20,476 ) ( 8,540 ) — Total operating expenses 106,919 32,639 20,704 14,339 19,633 ( 8,540 ) 185,692 Income (loss) before income taxes 14,598 11,691 ( 7,057 ) 51,398 37,242 — 107,874 Income tax (expense) benefit ( 3,504 ) ( 2,806 ) 1,694 ( 12,336 ) ( 4,312 ) — ( 21,264 ) Net income (loss) 11,094 8,885 ( 5,363 ) 39,062 32,930 — 86,610 Net income attributable to noncontrolling interests — — — — ( 128 ) — ( 128 ) Net income (loss) attributable to Nelnet, Inc. $ 11,094 8,885 ( 5,363 ) 39,062 32,802 — 86,482 Total assets as of June 30, 2020 $ 221,313 351,392 301,741 21,136,268 732,994 ( 132,500 ) 22,611,208 25 Three months ended June 30, 2019 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Eliminations Total Total interest income $ 550 1,659 1 243,295 2,258 ( 974 ) 246,788 Interest expense 19 11 — 184,035 3,872 ( 974 ) 186,963 Net interest income (expense) 531 1,648 1 59,260 ( 1,614 ) — 59,825 Less provision for loan losses — — — 9,000 — — 9,000 Net interest income after provision for loan losses 531 1,648 1 50,260 ( 1,614 ) — 50,825 Other income/expense: Loan servicing and systems revenue 113,985 — — — — — 113,985 Intersegment revenue 11,598 — — — — ( 11,598 ) — Education technology, services, and payment processing revenue — 60,342 — — — — 60,342 Communications revenue — — 15,758 — — — 15,758 Gain on sale of loans — — — 1,712 — — 1,712 Other income 2,277 — 362 3,176 8,624 — 14,440 Impairment expense — — — — — — — Derivative settlements, net — — — 12,972 — — 12,972 Derivative market value adjustments, net — — — ( 37,060 ) — — ( 37,060 ) Total other income/expense 127,860 60,342 16,120 ( 19,200 ) 8,624 ( 11,598 ) 182,149 Cost of services: Cost to provide education technology, services, and payment processing services — 15,871 — — — — 15,871 Cost to provide communications services — — 5,101 — — — 5,101 Total cost of services — 15,871 5,101 — — — 20,972 Operating expenses: Salaries and benefits 66,496 22,823 5,192 382 16,321 — 111,214 Depreciation and amortization 8,799 3,324 7,737 — 4,623 — 24,484 Other expenses 17,118 5,805 3,865 6,207 12,423 — 45,417 Intersegment expenses, net 13,604 3,148 716 11,665 ( 17,535 ) ( 11,598 ) — Total operating expenses 106,017 35,100 17,510 18,254 15,832 ( 11,598 ) 181,115 Income (loss) before income taxes 22,374 11,019 ( 6,490 ) 12,806 ( 8,822 ) — 30,887 Income tax (expense) benefit ( 5,370 ) ( 2,645 ) 1,558 ( 3,074 ) 3,321 — ( 6,209 ) Net income (loss) 17,004 8,374 ( 4,932 ) 9,732 ( 5,501 ) — 24,678 Net income attributable to noncontrolling interests — — — — ( 59 ) — ( 59 ) Net income (loss) attributable to Nelnet, Inc. $ 17,004 8,374 ( 4,932 ) 9,732 ( 5,560 ) — 24,619 Total assets as of June 30, 2019 $ 267,611 336,896 302,873 22,907,234 595,623 ( 190,437 ) 24,219,800 26 Six months ended June 30, 2020 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Eliminations Total Total interest income $ 369 2,411 — 336,509 2,751 ( 967 ) 341,074 Interest expense 73 38 — 217,737 2,485 ( 967 ) 219,366 Net interest income (expense) 296 2,373 — 118,772 266 — 121,708 Less provision for loan losses — — — 79,297 — — 79,297 Net interest income after provision for loan losses 296 2,373 — 39,475 266 — 42,411 Other income/expense: Loan servicing and systems revenue 223,778 — — — — — 223,778 Intersegment revenue 19,591 14 — — — ( 19,605 ) — Education technology, services, and payment processing revenue — 142,979 — — — — 142,979 Communications revenue — — 37,179 — — — 37,179 Gain on sale of loans — — — 18,206 — — 18,206 Other income 4,544 — 745 3,947 59,172 — 68,408 Impairment expense — — — ( 26,303 ) ( 8,116 ) — ( 34,419 ) Derivative settlements, net — — — 10,058 — — 10,058 Derivative market value adjustments, net — — — ( 24,513 ) — — ( 24,513 ) Total other income/expense 247,913 142,993 37,924 ( 18,605 ) 51,056 ( 19,605 ) 441,676 Cost of services: Cost to provide education technology, services, and payment processing services — 38,181 — — — — 38,181 Cost to provide communications services — — 11,325 — — — 11,325 Total cost of services — 38,181 11,325 — — — 49,506 Operating expenses: Salaries and benefits 138,894 48,218 10,986 863 40,163 — 239,125 Depreciation and amortization 17,990 4,749 21,330 — 12,972 — 57,041 Other expenses 30,870 8,418 7,463 8,581 25,108 — 80,439 Intersegment expenses, net 32,235 6,756 1,160 20,971 ( 41,517 ) ( 19,605 ) — Total operating expenses 219,989 68,141 40,939 30,415 36,726 ( 19,605 ) 376,605 Income (loss) before income taxes 28,220 39,044 ( 14,340 ) ( 9,545 ) 14,596 — 57,976 Income tax (expense) benefit ( 6,773 ) ( 9,371 ) 3,442 2,291 ( 720 ) — ( 11,131 ) Net income (loss) 21,447 29,673 ( 10,898 ) ( 7,254 ) 13,876 — 46,845 Net income attributable to noncontrolling interests — — — — ( 895 ) — ( 895 ) Net income (loss) attributable to Nelnet, Inc. $ 21,447 29,673 ( 10,898 ) ( 7,254 ) 12,981 — 45,950 Total assets as of June 30, 2020 $ 221,313 351,392 301,741 21,136,268 732,994 ( 132,500 ) 22,611,208 27 Six months ended June 30, 2019 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Corporate and Other Activities Eliminations Total Total interest income $ 1,047 3,676 3 490,162 4,310 ( 1,824 ) 497,374 Interest expense 19 19 — 372,834 7,685 ( 1,824 ) 378,733 Net interest income (expense) 1,028 3,657 3 117,328 ( 3,375 ) — 118,641 Less provision for loan losses — — — 16,000 — — 16,000 Net interest income after provision for loan losses 1,028 3,657 3 101,328 ( 3,375 ) — 102,641 Other income/expense: Loan servicing and systems revenue 228,883 — — — — — 228,883 Intersegment revenue 23,815 — — — — ( 23,815 ) — Education technology, services, and payment processing revenue — 139,502 — — — — 139,502 Communications revenue — — 30,300 — — — 30,300 Gain on sale of loans — — — 1,712 — — 1,712 Other income 4,350 — 487 6,701 11,969 — 23,507 Impairment expense — — — — — — — Derivative settlements, net — — — 32,007 — — 32,007 Derivative market value adjustments, net — — — ( 67,635 ) — — ( 67,635 ) Total other income/expense 257,048 139,502 30,787 ( 27,215 ) 11,969 ( 23,815 ) 388,276 Cost of services: Cost to provide education technology, services, and payment processing services — 36,930 — — — — 36,930 Cost to provide communications services — — 9,860 — — — 9,860 Total cost of services — 36,930 9,860 — — — 46,790 Operating expenses: Salaries and benefits 132,715 45,830 9,929 760 33,038 — 222,272 Depreciation and amortization 17,671 6,835 15,099 — 9,093 — 48,697 Other expenses 36,047 11,116 7,342 10,044 24,685 — 89,233 Intersegment expenses, net 27,362 6,447 1,380 23,952 ( 35,326 ) ( 23,815 ) — Total operating expenses 213,795 70,228 33,750 34,756 31,490 ( 23,815 ) 360,202 Income (loss) before income taxes 44,281 36,001 ( 12,820 ) 39,357 ( 22,896 ) — 83,925 Income tax (expense) benefit ( 10,628 ) ( 8,640 ) 3,077 ( 9,446 ) 8,037 — ( 17,600 ) Net income (loss) 33,653 27,361 ( 9,743 ) 29,911 ( 14,859 ) — 66,325 Net income attributable to noncontrolling interests — — — — ( 115 ) — ( 115 ) Net income (loss) attributable to Nelnet, Inc. $ 33,653 27,361 ( 9,743 ) 29,911 ( 14,974 ) — 66,210 Total assets as of June 30, 2019 $ 267,611 336,896 302,873 22,907,234 595,623 ( 190,437 ) 24,219,800 28 11. Disaggregated Revenue and Deferred Revenue The following tables provide disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments. Loan Servicing and Systems Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Government servicing - Nelnet $ 37,360 40,459 76,010 80,099 Government servicing - Great Lakes 45,213 45,973 91,660 93,050 Private education and consumer loan servicing 8,196 8,985 16,805 18,465 FFELP servicing 4,917 6,424 10,531 13,119 Software services 10,651 10,021 21,969 19,762 Outsourced services and other 4,705 2,123 6,803 4,388 Loan servicing and systems revenue $ 111,042 113,985 223,778 228,883 Education Technology, Services, and Payment Processing Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Tuition payment plan services $ 22,947 24,655 54,534 54,829 Payment processing 21,168 21,311 52,910 50,290 Education technology and services 14,927 14,096 34,980 33,805 Other 262 280 555 578 Education technology, services, and payment processing revenue $ 59,304 60,342 142,979 139,502 Communications Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Internet $ 11,930 9,297 23,125 17,726 Television 4,218 4,050 8,440 7,939 Telephone 2,812 2,395 5,502 4,575 Other 38 16 112 60 Communications revenue $ 18,998 15,758 37,179 30,300 Residential revenue $ 14,209 11,890 27,766 22,955 Business revenue 4,619 3,816 9,091 7,230 Other 170 52 322 115 Communications revenue $ 18,998 15,758 37,179 30,300 Other Income The following table provides the components of "other income" on the consolidated statements of income: Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Gain on investments, net of losses $ 53,151 4,258 49,286 3,831 Management fee revenue 1,914 2,277 4,544 4,350 Investment advisory services 922 731 3,724 1,441 Borrower late fee income 319 3,161 3,506 6,674 Other 3,821 4,013 7,348 7,211 Other income $ 60,127 14,440 68,408 23,507 29 Deferred Revenue Activity in the deferred revenue balance, which is included in "other liabilities" on the consolidated balance sheets, is shown below: Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Corporate and Other Activities Total Three months ended June 30, 2020 Balance, beginning of period $ 2,195 19,640 3,414 1,640 26,889 Deferral of revenue 800 22,340 10,640 879 34,659 Recognition of revenue ( 880 ) ( 22,056 ) ( 10,326 ) ( 843 ) ( 34,105 ) Balance, end of period $ 2,115 19,924 3,728 1,676 27,443 Three months ended June 30, 2019 Balance, beginning of period $ 3,947 18,498 2,756 1,552 26,753 Deferral of revenue 764 24,770 8,798 841 35,173 Recognition of revenue ( 1,396 ) ( 21,779 ) ( 8,474 ) ( 782 ) ( 32,431 ) Balance, end of period $ 3,315 21,489 3,080 1,611 29,495 Six months ended June 30, 2020 Balance, beginning of period $ 2,712 32,074 3,232 1,628 39,646 Deferral of revenue 1,182 37,420 20,567 1,734 60,903 Recognition of revenue ( 1,779 ) ( 49,570 ) ( 20,071 ) ( 1,686 ) ( 73,106 ) Balance, end of period $ 2,115 19,924 3,728 1,676 27,443 Six months ended June 30, 2019 Balance, beginning of period $ 4,413 30,556 2,551 1,602 39,122 Deferral of revenue 1,880 38,732 17,064 1,577 59,253 Recognition of revenue ( 2,978 ) ( 47,799 ) ( 16,535 ) ( 1,568 ) ( 68,880 ) Balance, end of period $ 3,315 21,489 3,080 1,611 29,495 12. Major Customer Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department. Revenue earned by Nelnet Servicing related to this contract was $ 37.4 million and $ 40.5 million for the three months ended June 30, 2020 and 2019, and $ 76.0 million and $ 80.1 million for the six months ended June 30, 2020 and 2019, respectively. In addition, Great Lakes Educational Loan Services, Inc. ("Great Lakes"), which was acquired by the Company on February 7, 2018, also earns loan servicing revenue from a similar servicing contract with the Department. Revenue earned by Great Lakes related to this contract was $ 45.2 million and $ 46.0 million for the three months ended June 30, 2020 and 2019, and $ 91.7 million and $ 93.1 million for the six months ended June 30, 2020 and 2019, respectively. Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019. On November 26, 2019, Nelnet Servicing and Great Lakes each received extensions from the Department on their contracts through December 14, 2020. The most current contract extensions also provide the potential for two additional six-month extensions at the Department's discretion through December 14, 2021. The Department is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, the Department issued solicitations for three NextGen components: • NextGen Enhanced Processing Solution ("EPS") • NextGen Business Process Operations ("BPO") • NextGen Optimal Processing Solution ("OPS") 30 On April 1, 2019 and October 4, 2019, the Company responded to the EPS solicitation component. On January 16, 2020, the Department released an amendment to the EPS solicitation component and the Company responded on February 3, 2020. In addition, on August 1, 2019, the Company responded to the BPO solicitation component. On January 10, 2020, the Department released an amendment to the BPO solicitation component and the Company responded on January 30, 2020. The EPS solicitation component was for a transitional technology system and certain processing functions the Department planned to use under NextGen to service the Department's student loan customers for a period of time before eventually moving to OPS in the future. However, on April 3, 2020, the Department cancelled the OPS solicitation component. The BPO solicitation component is for the back office and call center operational functions for servicing the Department's student loan customers. On March 30, 2020, the Company received a letter from the Department notifying the Company that the Company's proposal in response to the EPS component had been determined to be outside of the competitive range and would receive no further consideration for an award. On April 13, 2020, the Company filed a protest with the Government Accountability Office ("GAO") challenging the Department's decision to cancel the OPS solicitation component without amending the EPS solicitation component. On April 27, 2020, the Company filed a supplemental protest challenging a number of bases for the Department's competitive range exclusion of the Company's proposal from the EPS solicitation component. On July 10, 2020, the Department cancelled the solicitation for the EPS component. In its cancellation description, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it will be introducing a new solicitation to continue the NextGen strategy in the future. Based on the Department's cancellation of the EPS procurement, on July 14, 2020, the GAO dismissed the Company's protests as moot. The Company fully intends to compete for the servicing system solution as the Department proceeds with their NextGen strategy. On June 18, 2020, the Company received a letter from the Department notifying the Company that the Company's proposal in response to the BPO solicitation component was determined to be ineligible for award, claiming the Company's response did not meet certain requirements related to small business participation. The Company immediately requested a debriefing regarding the Department's basis for this decision. Prior to providing the Company a debriefing, on June 24, 2020, the Department awarded and signed contracts with five other companies in connection with the BPO solicitation. On July 13, 2020, the Company filed a protest with the GAO challenging on a number of bases the Department's determination that the Company's BPO response did not meet small business participation requirements. In addition, on July 20, 2020, the Company filed a supplemental protest challenging the Department's decision to proceed with awards of contracts for the BPO component, when it cancelled the EPS component and a new EPS solicitation is expected to be released. On July 24, 2020, the Department provided the Company a debriefing regarding the Department's June 18, 2020 decision to eliminate the Company from the BPO competition. On July 28, 2020, the Company filed a second supplemental protest challenging the Department's BPO decision. Under applicable law, contract awards to other parties for the BPO component are subject to a stay of performance until the protests are resolved. A decision by the GAO is due on or before October 22, 2020. The Company cannot predict the outcome of the current protests regarding the BPO component, or the timing, nature, or ultimate outcome of the Department's NextGen contract procurement process. 13. Fair Value The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. As of June 30, 2020 As of December 31, 2019 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Investments: Student loan asset-backed securities - available-for-sale $ — 142,122 142,122 — 52,597 52,597 Equity securities 6 — 6 6 — 6 Equity securities measured at net asset value (a) 29,966 12,894 Debt securities - available-for-sale 103 — 103 104 — 104 Total investments 109 142,122 172,197 110 52,597 65,601 Total assets $ 109 142,122 172,197 110 52,597 65,601 (a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. 31 The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of June 30, 2020 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 20,017,543 19,603,993 — — 20,017,543 Accrued loan interest receivable 856,880 856,880 — 856,880 — Cash and cash equivalents 67,540 67,540 67,540 — — Investments (at fair value) 172,197 172,197 109 142,122 — Beneficial interest in loan securitizations 57,072 57,072 — — 57,072 Restricted cash 585,236 585,236 585,236 — — Restricted cash – due to customers 268,539 268,539 268,539 — — Financial liabilities: Bonds and notes payable 19,064,071 19,726,158 — 19,064,071 — Accrued interest payable 32,760 32,760 — 32,760 — Due to customers 268,539 268,539 268,539 — — As of December 31, 2019 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 21,477,630 20,669,371 — — 21,477,630 Accrued loan interest receivable 733,497 733,497 — 733,497 — Cash and cash equivalents 133,906 133,906 133,906 — — Investments (at fair value) 65,601 65,601 110 52,597 — Beneficial interest in loan securitizations 33,258 33,187 — — 33,258 Restricted cash 650,939 650,939 650,939 — — Restricted cash – due to customers 437,756 437,756 437,756 — — Financial liabilities: Bonds and notes payable 20,479,095 20,529,054 — 20,479,095 — Accrued interest payable 47,285 47,285 — 47,285 — Due to customers 437,756 437,756 437,756 — — The methodologies for estimating the fair value of financial assets and liabilities are described in note 21 of the notes to consolidated financial statements included in the 2019 Annual Report.