What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-05 · 256 added, 603 removed, 557 unchanged (61% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share data)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Loans and accrued interest receivable (net of allowance for loan losses of $ 157,394 and

17 unchanged sentences

Accrued interest payable 5,527 28,701

Bank deposits 111,830 54,633

Other liabilities 315,454 312,280

32 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share data)

Three months ended Nine months ended

September 30, September 30,

2020 2019 2020 2019

Three months ended

Interest income:

3 unchanged sentences

Interest expense:

Interest on bonds and notes payable 58,423 172,488 277,788 551,221

Interest on bonds and notes payable and bank deposits 27,773 134,118

Net interest income 101,330 55,073

4 unchanged sentences

Education technology, services, and payment processing revenue 95,258 83,675

74,121 74,251 217,100 213,753

Communications revenue — 18,181

Other ( 4,604 ) 8,281

Gain on sale of loans — 18,206

Other income 1,502 13,439 69,910 36,946

Impairment expense — — ( 34,419 ) —

Impairment expense and provision for beneficial interests, net 2,436 ( 34,087 )

Derivative market value adjustments and derivative settlements, net 34,505 ( 16,365 )

1,049 1,668 ( 13,406 ) ( 33,959 )

Total other income/expense 239,112 190,626

1 unchanged sentence

Cost to provide education technology, services, and payment processing services 27,052 22,806

25,243 25,671 63,424 62,601

Cost to provide communications services — 5,582

5 unchanged sentences

Total operating expenses 172,673 190,910

Income before income taxes 90,332 41,964 148,306 125,890

Income tax expense 19,156 8,829 30,286 26,429

Net income 71,176 33,135 118,020 99,461

Income (loss) before income taxes 157,765 ( 49,898 )

Income tax (expense) benefit ( 34,861 ) 10,133

Net income (loss) 122,904 ( 39,765 )

Net loss (income) attributable to noncontrolling interests 694 ( 767 )

327 77 ( 568 ) ( 38 )

Net income attributable to Nelnet, Inc.

Net income (loss) attributable to Nelnet, Inc.

$ 123,598 ( 40,532 )

Earnings per common share:

Net income attributable to Nelnet, Inc.

Net income (loss) attributable to Nelnet, Inc.

shareholders - basic and diluted

4 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

Three months ended Nine months ended

September 30, September 30,

2020 2019 2020 2019

Net income $ 71,176 33,135 118,020 99,461

Three months ended March 31,

Net income (loss) $ 122,904 ( 39,765 )

Other comprehensive income (loss):

Available-for-sale securities:

Unrealized holding gains (losses) arising during period, net 1,893 ( 334 ) 2,114 ( 1,306 )

Reclassification adjustment for (gains) losses recognized in net income, net

( 513 ) — ( 390 ) —

Net changes related to foreign currency translation adjustments $ 1 —

Net changes related to available-for-sale debt securities:

Unrealized gains (losses) during period, net 4,349 ( 3,015 )

Reclassification of (gains) losses to net income, net ( 508 ) 235

Income tax effect ( 922 ) 2,919 667 ( 2,113 )

Total other comprehensive income (loss) 1,051 ( 254 ) 1,312 ( 993 )

Comprehensive income 72,227 32,881 119,332 98,468

Other comprehensive income (loss) 2,920 ( 2,113 )

Comprehensive income (loss) 125,824 ( 41,878 )

Comprehensive loss (income) attributable to noncontrolling interests 694 ( 767 )

Comprehensive income attributable to Nelnet, Inc.

$ 72,554 32,958 118,764 98,430

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in thousands, except share data)

Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity

Class A Class B

Balance as of June 30, 2019 — 28,399,526 11,279,641 $ — 284 113 1,670 2,317,115 3,144 4,292 2,326,618

Issuance of noncontrolling interests — — — — — — — — — 4,165 4,165

Net income (loss) — — — — — — — 33,212 — ( 77 ) 33,135

Other comprehensive loss — — — — — — — — ( 254 ) — ( 254 )

Distribution to noncontrolling interests — — — — — — — — — ( 3,865 ) ( 3,865 )

Cash dividends on Class A and Class B common stock - $ 0.18 per share

— — — — — — — ( 7,142 ) — — ( 7,142 )

Issuance of common stock, net of forfeitures — 15,345 — — — — 524 — — — 524

Compensation expense for stock based awards — — — — — — 1,705 — — — 1,705

Repurchase of common stock — ( 3,365 ) — — — — ( 221 ) — — — ( 221 )

Balance as of September 30, 2019 — 28,411,506 11,279,641 $ — 284 113 3,678 2,343,185 2,890 4,515 2,354,665

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

Issuance of noncontrolling interests — — — — — — — — — 14 14

Net income (loss) — — — — — — — 71,503 — ( 327 ) 71,176

Other comprehensive income — — — — — — — — 1,051 — 1,051

Distribution to noncontrolling interests — — — — — — — — — ( 331 ) ( 331 )

Cash dividends on Class A and Class B common stock - $ 0.20 per share

Comprehensive income (loss) attributable to Nelnet, Inc.

$ 126,518 ( 42,645 )

Issuance of common stock, net of forfeitures — 24,132 — — — — 553 — — — 553

Compensation expense for stock based awards — — — — — — 1,864 — — — 1,864

Repurchase of common stock — ( 93,380 ) — — — — ( 2,580 ) ( 2,038 ) — — ( 4,618 )

Balance as of September 30, 2020 — 27,163,588 11,171,609 $ — 272 112 1,704 2,393,113 4,284 3,346 2,402,831

See accompanying notes to consolidated financial statements.

6 unchanged sentences

Issuance of noncontrolling interests — — — — — — — — — 26 26

Net income — — — — — — — 99,423 — 38 99,461

Net (loss) income — — — — — — — ( 40,532 ) — 767 ( 39,765 )

Other comprehensive loss — — — — — — — — ( 2,113 ) — ( 2,113 )

6 unchanged sentences

Impact of adoption of new accounting standard — — — — — — — ( 18,867 ) — — ( 18,867 )

Conversion of common stock — 180,000 ( 180,000 ) — 2 ( 2 ) — — — — —

Balance as of September 30, 2019 — 28,411,506 11,279,641 $ — 284 113 3,678 2,343,185 2,890 4,515 2,354,665

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

Balance as of December 31, 2020 — 27,193,154 11,155,571 $ — 272 112 3,794 2,621,762 6,102 ( 3,693 ) 2,628,349

Issuance of noncontrolling interests — — — — — — — — — 1,400 1,400

Net income — — — — — — — 117,452 — 568 118,020

Net income (loss) — — — — — — — 123,598 — ( 694 ) 122,904

Other comprehensive income — — — — — — — — 2,920 — 2,920

5 unchanged sentences

Repurchase of common stock — ( 26,199 ) — — — — ( 2,009 ) — — — ( 2,009 )

Impact of adoption of new accounting standard — — — — — — — ( 18,867 ) — — ( 18,867 )

Conversion of common stock — 1,400 ( 1,400 ) — — — — — — — —

Acquisition of noncontrolling interest — — — — — — — ( 1,250 ) — ( 750 ) ( 2,000 )

Balance as of September 30, 2020 — 27,163,588 11,171,609 $ — 272 112 1,704 2,393,113 4,284 3,346 2,402,831

Balance as of March 31, 2021 — 27,367,797 11,154,171 $ — 274 112 5,859 2,736,923 9,022 ( 3,089 ) 2,749,101

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Nine months ended

September 30,

Net income attributable to Nelnet, Inc.

$ 117,452 99,423

Net income attributable to noncontrolling interests

Three months ended

Net income (loss) attributable to Nelnet, Inc.

$ 123,598 ( 40,532 )

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

Net (loss) income attributable to noncontrolling interests

Net income (loss) 122,904 ( 39,765 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 38,415 48,763

149,175 142,519

Loan discount accretion ( 7,218 ) ( 9,442 )

Provision for loan losses 73,476 26,000

(Negative provision) provision for loan losses ( 17,048 ) 76,299

Derivative market value adjustments ( 38,809 ) 20,602

Payments from termination of derivative instruments, net — ( 13,940 )

Payments to clearinghouse - initial and variation margin, net ( 20,405 ) ( 59,967 )

Gain on sale of loans ( 33,023 ) ( 1,712 )

Gain from investments, net ( 37,766 ) ( 4,891 )

(Gain) loss on repurchases and extinguishment of debt, net ( 508 ) 15,679

Deferred income tax benefit ( 10,975 ) ( 9,592 )

Proceeds from (payments to) clearinghouse - initial and variation margin, net 38,081 ( 20,386 )

Gain from sale of loans — ( 18,206 )

Loss from investments, net 13,849 4,046

Purchases of equity securities - trading ( 13,512 ) —

Deferred income tax expense (benefit) 15,405 ( 26,000 )

Non-cash compensation expense 2,052 1,857

Impairment expense 34,419 —

(Negative provision) provision for beneficial interests and impairment expense ( 2,436 ) 34,087

Increase in loan and investment accrued interest receivable ( 114 ) ( 33,167 )

Decrease (increase) in accounts receivable 45,475 ( 7,637 )

Decrease (increase) in other assets, net 19,491 ( 28,646 )

Decrease in the carrying amount of ROU asset 9,150 6,529

(Increase) decrease in accounts receivable ( 3,831 ) 52,185

Decrease in other assets, net 5,147 31,363

Decrease (increase) in the carrying amount of ROU asset 1,418 ( 1,000 )

Decrease in accrued interest payable ( 23,174 ) ( 3,411 )

Increase in other liabilities 32,733 62,757

Decrease in other liabilities ( 10,375 ) ( 42,047 )

Decrease in the carrying amount of lease liability ( 1,247 ) ( 2,382 )

Decrease in due to customers ( 70,849 ) ( 217,851 )

Net cash provided by operating activities 173,035 142,918

Cash flows from investing activities:

Purchases of loans

( 1,032,636 ) ( 1,360,873 )

Net cash provided by (used in) operating activities 48,658 ( 144,455 )

Cash flows from investing activities, net of acquisition:

Purchases and originations of loans ( 152,329 ) ( 409,404 )

Purchases of loans from a related party ( 19,731 ) ( 41,217 )

Net proceeds from loan repayments, claims, and capitalized interest 637,275 517,347

2,209,797 2,628,156

Proceeds from sale of loans — 90,461

7 unchanged sentences

Net cash provided by investing activities $ 468,362 105,672

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three months ended

Cash flows from financing activities:

2 unchanged sentences

Payments of debt issuance costs ( 614 ) ( 4,854 )

Payments to extinguish debt — ( 14,030 )

Increase in bank deposits, net 57,197 —

Dividends paid ( 8,437 ) ( 7,946 )

1 unchanged sentence

Proceeds from issuance of common stock 381 411

Acquisition of noncontrolling interest ( 2,000 ) —

Issuance of noncontrolling interests 1,940 —

1 unchanged sentence

Net cash used in financing activities ( 528,147 ) ( 83,480 )

Effect of exchange rate changes on cash ( 77 ) —

Net decrease in cash, cash equivalents, and restricted cash ( 11,204 ) ( 122,263 )

1 unchanged sentence

Cash, cash equivalents, and restricted cash, end of period $ 947,191 1,100,338

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

Nine months ended

September 30,

Supplemental disclosures of cash flow information:

Cash disbursements made for interest $ 39,686 125,184

Cash disbursements made for income taxes, net of refunds and credits received $ 13,413 14,820

Cash disbursements made for income taxes, net of refunds and credits received (a) $ 199 80

Cash disbursements made for operating leases $ 2,098 2,702

3 unchanged sentences

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.

(a) For the three months ended March 31, 2021 and 2020, respectively, the Company utilized $ 2.0 million and $ 9.4 million, respectively, of federal and state tax credits related primarily to renewable energy.

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

September 30, 2020 December 31, 2019 September 30, 2019 December 31, 2018

March 31, 2021 December 31, 2020 March 31, 2020 December 31, 2019

Total cash and cash equivalents $ 144,229 121,249 204,844 133,906

9 unchanged sentences

The accompanying unaudited consolidated financial statements of Nelnet, Inc.

and subsidiaries (the “Company”) as of September 30, 2020 and for the three and nine months ended September 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.

and subsidiaries (the “Company”) as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2020 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.

1 unchanged sentence

Actual results could differ from those estimates.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results for the year ending December 31, 2021.

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, 2020 (the "2020 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";

• 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.

December 31, 2019 Impact of ASC 326 adoption Balances at

January 1, 2020

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

Other liabilities (deferred taxes) 303,781 ( 5,958 ) 297,823

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

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 the following factors, as applicable, for each of the Company’s loan portfolios:

student loans in repayment versus those in nonpaying status;

delinquency status;

type of private education or consumer loan program;

trends in defaults in the portfolio based on Company and industry data;

past experience;

trends in federally insured student loan claims rejected for payment by guarantors;

changes in federal student loan programs;

current economic conditions, including changes in unemployment rates and gross domestic product growth;

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.

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.

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.

Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Federally insured student loans:

3 unchanged sentences

Private education loans 314,048 320,589

Private education loans - Nelnet Bank 79,231 17,543

Consumer loans 110,792 109,346

3 unchanged sentences

( 9,091 ) ( 9,908 )

Non-accretable discount — ( 32,398 )

Allowance for loan losses:

1 unchanged sentence

Private education loans ( 20,670 ) ( 19,529 )

Private education loans - Nelnet Bank ( 744 ) ( 323 )

Consumer loans ( 14,134 ) ( 27,256 )

$ 19,737,530 20,185,656

On January 30, 2020 and July 29, 2020, the Company sold $ 124.2 million (par value) and $ 60.8 million (par value), respectively, of consumer loans to an unrelated third party who securitized such loans.

The Company recognized a gain of $ 18.2 million (pre-tax) and $ 14.8 million (pre-tax), respectively, as part of these transactions.

As partial considerations received for the consumer loans sold, the Company received a 31.4 percent and 25.4 percent residual interest, respectively, in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet.

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 (negative 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 September 30, 2020

Federally insured loans $ 144,829 — ( 5,299 ) ( 2,487 ) — 2,900 — 139,943

Private education loans 25,535 — ( 5,650 ) ( 5 ) 133 — — 20,013

Consumer loans 39,081 — 5,128 ( 2,723 ) 381 — ( 15,924 ) 25,943

$ 209,445 — ( 5,821 ) ( 5,215 ) 514 2,900 ( 15,924 ) 185,899

Three months ended September 30, 2019

Federally insured loans $ 39,056 — 2,000 ( 3,380 ) — — — 37,676

Private education loans 10,157 — — ( 459 ) 184 — — 9,882

Consumer loans 13,378 — 8,000 ( 2,759 ) 240 — — 18,859

$ 62,591 — 10,000 ( 6,598 ) 424 — — 66,417

Nine months ended September 30, 2020

Three months ended March 31, 2021

Federally insured loans $ 128,590 — ( 7,483 ) ( 61 ) — 800 — 121,846

Private education loans 19,529 — 1,431 ( 493 ) 202 — 1 20,670

Private education loans - Nelnet Bank 323 — 422 — — — ( 1 ) 744

Consumer loans 27,256 — ( 11,418 ) ( 1,950 ) 246 — — 14,134

$ 175,698 — ( 17,048 ) ( 2,504 ) 448 800 — 157,394

Nine months ended September 30, 2019

Three months ended March 31, 2020

Federally insured loans $ 36,763 72,291 39,323 ( 6,318 ) — 4,700 — 146,759

2 unchanged sentences

$ 61,914 91,014 76,299 ( 11,998 ) 439 4,700 ( 13,500 ) 208,868

a) During the three and nine months ended September 30, 2020, the Company acquired $ 137.5 million (par value) and $ 721.4 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 $ 2.9 million and $ 13.7 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.

a) During the three months ended March 31, 2021 and 2020, the Company acquired $ 54.0 million (par value) and $ 291.2 million (par value), respectively, of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company.

Beginning in March 2020, the coronavirus disease 2019 ("COVID-19") pandemic has 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 impacted by the Company's estimate of certain improved economic conditions as of June 30, 2020 in comparison to 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 provision expense for the three months ended September 30, 2020 was impacted by the Company's ongoing loan portfolio amortization;

management's estimate of certain continued improved economic conditions as of September 30, 2020 in comparison to what was used by the Company to determine the allowance for loan losses as of June 30, 2020;

and a decrease in the amount of loans in forbearance at September 30, 2020 as compared to June 30, 2020.

The Company recorded a negative provision for loan losses for its federally insured and consumer loan portfolios for the three months ended March 31, 2021 due to management's estimate of certain continued improved economic conditions (including the improvement in certain macroeconomic variables (unemployment rates, gross domestic product, and consumer price index) used in the Company's loan loss models) as of March 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020.

The Company recorded a provision expense on its private education loan portfolio during the three months ended March 31, 2021 as a result of an increase of loans in forbearance, which was partially offset by management's estimate of certain continued improved economic conditions as of March 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020.

Loan Status and Delinquencies

3 unchanged sentences

The table below shows the Company’s loan status and delinquency amounts.

As of September 30, 2020 As of December 31, 2019 As of September 30, 2019

As of March 31, 2021 As of December 31, 2020 As of March 31, 2020

Federally insured loans:

7 unchanged sentences

Loans delinquent 121-270 days 1,026,050 6.6 674,975 4.2 756,241 4.5

605 0.0 812,107 4.5 795,230 4.4

Loans delinquent 271 days or greater 63,196 0.4 20,337 0.1 312,785 1.8

19,867 0.1 300,418 1.8 275,037 1.4

Total loans in repayment 15,662,225 84.2 100.0 % 16,119,970 84.3 100.0 % 16,942,178 83.9 100.0 %

2 unchanged sentences

Loan discount, net of unamortized premiums and deferred origination costs ( 14,608 ) ( 14,505 ) ( 5,732 )

Non-accretable discount (a) — ( 28,036 ) ( 27,809 )

Allowance for loan losses ( 121,846 ) ( 128,590 ) ( 146,759 )

12 unchanged sentences

Loan premium, net of unaccreted discount 2,673 2,691 ( 138 )

Non-accretable discount (a) — ( 4,362 ) ( 4,798 )

Allowance for loan losses ( 20,670 ) ( 19,529 ) ( 23,056 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 298,354 $ 305,882 $ 252,732

Private education loans - Nelnet Bank:

Loans in-school/grace/deferment $ 82 0.1 % $ — — %

Loans in forbearance 29 — 29 0.2

Loans in repayment status:

Loans current 79,120 100.0 % 17,514 100.0 %

Loans delinquent 31-60 days — — — —

Loans delinquent 61-90 days — — — —

Loans delinquent 91 days or greater — — — —

Total loans in repayment 79,120 99.9 100.0 % 17,514 99.8 100.0 %

Total private education loans 79,231 100.0 % 17,543 100.0 %

Accrued interest receivable 125 26

Loan premium, net of unaccreted discount 999 266

Allowance for loan losses ( 744 ) ( 323 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 79,611 $ 17,512

Consumer loans:

11 unchanged sentences

Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 99,437 $ 84,731 $ 108,991

(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.

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").

On August 8, 2020, the President directed the Secretary of the Department to continue to suspend loan payments, stop collections, and waive interest on student loans owned by the Department until December 31, 2020.

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 December 31, 2020 to any federally insured and private education loan upon request.

In addition, for both federally insured and private education loans, effective March 13, 2020 through December 31, 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 were 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.

When providing relief for its borrowers, the Company follows the guidance under the CARES Act to determine if a modification is subject to troubled debt restructuring classification.

All relief provided to borrowers by the Company through September 30, 2020 have met the criteria under the CARES Act and the modifications have not been accounted for as troubled debt restructuring.

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 September 30, 2020, was not material.

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, 2020 and March 31, 2021, was not material.

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 September 30, 2020 based on year of origination.

The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of March 31, 2021 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.

Nine months ended September 30, 2020 2019 2018 2017 2016 Prior Years Total

Three months ended March 31, 2021 2020 2019 2018 2017 Prior years Total

Private education loans:

12 unchanged sentences

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 298,354

Private education loans - Nelnet Bank:

Loans in school/grace/deferment $ 82 — — — — — 82

Loans in forbearance — 29 — — — — 29

Loans in repayment status:

Loans current 62,647 16,473 — — — — 79,120

Loans delinquent 31-60 days — — — — — — —

Loans delinquent 61-90 days — — — — — — —

Loans delinquent 91 days or greater — — — — — — —

Total loans in repayment 62,647 16,473 — — — — 79,120

Total private education loans $ 62,729 16,502 — — — — 79,231

Accrued interest receivable 125

Loan premium, net of unaccreted discount 999

Allowance for loan losses ( 744 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 79,611

Consumer loans:

13 unchanged sentences

The following tables summarize the Company’s outstanding debt obligations by type of instrument:

As of September 30, 2020

As of March 31, 2021

Interest rate

12 unchanged sentences

Private education loan warehouse facility 158,197 0.26 % 2/13/23

Consumer loan warehouse facility 30,290 0.33 % 4/23/22

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

5 unchanged sentences

Unsecured line of credit — — 12/16/24

Unsecured debt - Junior Subordinated Hybrid Securities 20,381 3.60 % 9/15/61

Other borrowings 118,537 0.81 % / 1.86 %

13 unchanged sentences

10/25/67 - 8/27/68

10/25/67 / 11/25/67

FFELP warehouse facilities 252,165 0.27 % / 0.31 %

5/20/22 / 2/26/23

Private education loan warehouse facility 150,397 0.28 % 2/13/22

Consumer loan warehouse facility 25,809 0.28 % 4/23/22

1 unchanged sentence

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization 37,251 3.60 % / 5.35 %

12/26/40 / 12/28/43

Unsecured line of credit 120,000 1.65 % 12/16/24

Unsecured debt - Junior Subordinated Hybrid Securities 20,381 5.28 % 9/15/61

Other borrowings 123,558 0.84 % / 1.90 %

5/4/21 / 5/30/22

Discount on bonds and notes payable and debt issuance costs ( 238,123 )

3 unchanged sentences

Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.

As of September 30, 2020, the Company had two FFELP warehouse facilities as summarized below.

NFSLW-I (a) NHELP-II (b) Total

As of March 31, 2021, the Company had two FFELP warehouse facilities as summarized below.

NFSLW-I NHELP-II (a) Total

Maximum financing amount

3 unchanged sentences

Expiration of liquidity provisions

November 20, 2020 February 26, 2021

Final maturity date November 22, 2021 February 26, 2023

May 20, 2021 February 26, 2022

Final maturity date May 20, 2022 February 26, 2024

Advanced as equity support $ 20,529 — 20,529

(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.

On November 2, 2020, the Company decreased the maximum financing amount for each of its FFELP warehouse facilities to $ 50.0 million.

Asset-Backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the first nine months of 2020.

2020-1 2020-2 2020-3 2020-4 (a) Total

Date securities issued 2/20/20 3/11/20 3/19/20 8/27/20

Total original principal amount $ 435,600 272,100 352,600 191,300 1,251,600

Class A senior notes:

Total principal amount $ 424,600 264,300 343,600 191,300 1,223,800

Bond discount — ( 44 ) ( 1,503 ) ( 19 ) ( 1,566 )

Issue price $ 424,600 264,256 342,097 191,281 1,222,234

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 8/27/68

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

(a) Total original principal amount excludes the Class B subordinated tranche for the 2020-4 transaction totaling $ 5.0 million that was retained by the Company at issuance.

As of September 30, 2020, the Company had a total of $ 20.8 million (par value) of its own asset-backed securities that were retained upon initial issuance or repurchased in the secondary market.

For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements.

However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated in the trust estate.

Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale.

Upon sale, these notes would be

shown as "bonds and notes payable" in the Company's consolidated balance sheet.

The Company believes the market value of such notes is currently less than par value.

Any excess of the par value over the market value on the date of sale would be recognized by the Company as interest expense over the life of the bonds.

(a) On February 26, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional year to February 26, 2022 and February 26, 2024, respectively.

Private Education Loan Warehouse Facility

On February 13, 2020, the Company obtained 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 September 30, 2020, $ 102.6 million was outstanding under this warehouse facility and $ 97.4 million was available for future funding.

Additionally, as of September 30, 2020, the Company had $ 11.1 million advanced as equity support under this facility.

During 2020, the Company obtained a private education loan warehouse facility that had an aggregate maximum financing amount available of $ 200.0 million.

On February 12, 2021, the Company decreased the maximum financing amount available for this facility to $ 175.0 million and extended the liquidity provisions and final maturity date to February 13, 2022 and February 13, 2023, respectively.

As of March 31, 2021, $ 158.2 million was outstanding under this warehouse facility and $ 16.8 million was available for future funding.

The facility has an advance rate of 80 to 90 percent and, as of March 31, 2021, the Company had $ 17.0 million advanced as equity support under this facility.

Consumer Loan Warehouse Facility

The Company has a consumer loan warehouse facility that as of September 30, 2020 had an aggregate maximum financing amount available of $ 200.0 million.

The facility has 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 September 30, 2020, $ 30.3 million was outstanding under this warehouse facility and $ 169.7 million was available for future funding.

Additionally, as of September 30, 2020, the Company had $ 13.8 million advanced as equity support under this facility.

On November 3, 2020, the Company decreased the maximum financing amount on this facility to $ 100.0 million.

The Company had a $ 100.0 million consumer loan warehouse facility.

On March 31, 2021, the Company terminated 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 September 30, 2020, no amount was outstanding on the line of credit and $ 455.0 million was available for future use.

As of March 31, 2021, no amount was outstanding on the line of credit and $ 455.0 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.

Junior Subordinated Hybrid Securities ("Hybrid Securities")

Subsequent to September 30, 2020, the Company redeemed all the outstanding $ 20.4 million of Hybrid Securities at par.

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 September 30, 2020, $ 108.7 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

The Company has 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 March 31, 2021, $ 113.5 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.

1 unchanged sentence

Student loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing.

Accrued Interest Liability

During the first quarter of 2021, the Company reversed a historical accrued interest liability of $ 23.8 million on certain bonds, which liability the Company determined is no longer probable of being required to be paid.

The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013.

The reduction of this liability is reflected in (a reduction of) "interest on bonds and notes payable and bank deposits" in the consolidated statements of operations.

Derivative Financial Instruments

1 unchanged sentence

Derivative instruments used as part of the Company's risk management strategy are further described in note 6 of the notes to consolidated financial statements included in the 2020 Annual Report.

A tabular presentation of such derivatives outstanding as of September 30, 2020 and December 31, 2019 is presented below.

The following table summarizes the Company’s outstanding basis swaps as of December 31, 2019 and September 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").

A tabular presentation of such derivatives outstanding as of March 31, 2021 and December 31, 2020 is presented below.

The following table summarizes the Company’s outstanding basis swaps as of March 31, 2021 and December 31, 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

September 30, 2020 December 31, 2019

2021 $ 250,000

2022 2,000,000

2022 2,000,000 2,000,000 (a)

2024 1,750,000

2026 1,150,000

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 September 30, 2020 and December 31, 2019 was one-month LIBOR plus 9.1 basis points and 9.7 basis points, respectively.

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2021 and December 31, 2020 was one-month LIBOR plus 9.1 basis points.

Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.

As of September 30, 2020 As of December 31, 2019

Maturity Notional amount Weighted average fixed rate paid by the Company (a)(c) Notional amount Weighted average fixed rate paid by the Company (a)

2020 $ — — % $ 1,500,000 1.01 %

As of March 31, 2021 As of December 31, 2020

Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a)

2021 $ 600,000 2.15 % $ 600,000 2.15 %

1 unchanged sentence

2023 900,000 0.62 900,000 0.62

2024 (c) 2,500,000 0.35 2,000,000 0.32

2025 500,000 0.35 500,000 0.35

1 unchanged sentence

(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 September 30, 2020 have forward effective start dates in June 2021.

(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 %.

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 September 30, Nine months ended September 30,

2020 2019 2020 2019

(b) $ 250.0 million of the derivatives outstanding at March 31, 2021 and December 31, 2020 have forward effective start dates in June 2021.

(c) $ 500.0 million of the derivatives outstanding at March 31, 2021 and December 31, 2020 have forward effective start dates in June 2021.

Consolidated Financial Statement Impact Related to Derivatives - Statements of Operations

The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of operations.

Three months ended March 31,

1:3 basis swaps $ ( 19 ) 2,112

4 unchanged sentences

Interest rate swaps - floor income hedges 36,010 ( 22,160 )

Interest rate swap options - floor income hedges — ( 1 ) — ( 1,465 )

Interest rate caps — ( 171 ) — ( 570 )

Total change in fair value - income (expense) 38,809 ( 20,602 )

Derivative market value adjustments and derivative settlements, net - income (expense) $ 34,505 ( 16,365 )

$ 1,049 1,668 ( 13,406 ) ( 33,959 )

A summary of the Company's investments follows:

As of September 30, 2020 As of December 31, 2019

As of March 31, 2021 As of December 31, 2020

Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value

6 unchanged sentences

Measurement alternative 145,440 144,795

Equity method 14,104 15,379

Equity method (b) 59,583 14,018

Other 1,328 894

Total venture capital and funds 206,351 159,707

Real estate and solar:

Equity and HLBV method (b) 44,634 51,721

Other 852 867

Total real estate and solar 45,486 52,588

Beneficial interest in federally insured loan securitizations (c) 30,726 —

Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 20,947 as of September 30, 2020 (c)

Equity method 49,527 50,291

Notes receivable (c) 17,344 847

Total real estate 66,871 51,138

Investment in ALLO:

Voting interest/equity method (d) 107,177 129,396

Preferred membership interest and accrued and unpaid preferred return (e) 131,237 228,916

Total investment in ALLO 238,414 358,312

Solar (f) ( 34,091 ) ( 30,373 )

Beneficial interest in federally insured loan securitizations (g) 29,228 30,377

Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 4,449 as of December 31, 2020 (g)

22,936 27,954

2 unchanged sentences

Total investments $ 973,099 $ 992,940

(a) As of September 30, 2020, $ 108.7 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."

As of September 30, 2020, the stated maturities of a majority of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years;

however, such securities with a fair value of $ 30.9 million as of September 30, 2020 are scheduled to mature within the next 10 years, including $ 2.0 million, $ 24.4 million, and $ 4.5 million scheduled to mature within the next one year, 1-5 years, and 6-10 years, respectively.

(b) The Company makes investments in entities that promote renewable energy sources (solar).

(a) As of March 31, 2021, $ 113.5 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) In December of 2020, Wells Fargo announced the sale of its approximately $ 10.0 billion portfolio of private education student loans representing approximately 445,000 borrowers.

The Company has entered into agreements to participate in a joint venture to acquire the portfolio.

As of March 31, 2021, the Company has invested $ 44.7 million in the joint venture and is accounting for this investment under the equity method of accounting.

(c) On February 26, 2021, the Company received a $ 13.0 million promissory note from Telegraph Flats, LLC ("Telegraph Flats").

The Company owns 50 % of Telegraph Flats.

Telegraph Flats is an entity that was established for the sole purpose of acquiring, developing, and owning a multi-family and commercial real estate property in Lincoln, Nebraska.

The promissory note carries an interest rate of one-month LIBOR plus 1.75 % and has a maturity date of August 26, 2021.

(d) The Company accounts for its voting membership interests in ALLO Communications LLC ("ALLO") under the Hypothetical Liquidation at Book Value ("HLBV") method of accounting.

The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests.

The Company applies

the HLBV method using a balance sheet approach.

A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities.

The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the Company’s share of the earnings or losses from the equity investment for the period.

Because the Company will be able to utilize certain tax losses related to ALLO’s operations, the equity investment agreements for the Company have liquidation rights and priorities that are sufficiently different from the voting membership interests percentages such that the HLBV method of accounting was deemed appropriate.

Accordingly, the recognition of earnings or losses during any reporting period related to the Company’s equity investment in ALLO may or may not reflect its voting membership interests percentage and could vary substantially from those calculated based on the Company’s voting membership interests in ALLO.

During the three month period ended March 31, 2021, the Company recognized a loss of $ 22.2 million under the HLBV method of accounting on its ALLO voting membership interests investment.

Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers.

The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under generally accepted accounting principles.

Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years.

(e) The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent.

During the three months ended March 31, 2021, the Company recognized income on its ALLO preferred membership interests of $ 2.3 million.

On January 19, 2021, ALLO closed on certain private debt financing facilities from unrelated third-party lenders providing for aggregate financing of up to $ 230.0 million.

With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership interests held by the Company in exchange for an aggregate redemption price payment to the Company of $ 100.0 million.

Under the October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.

(f) The Company makes investments in entities that promote renewable energy sources (solar).

The Company's investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years.

As of September 30, 2020, the Company has funded or is committed to fund $ 153.6 million in solar investments.

As of March 31, 2021, the Company has funded $ 151.8 million in solar investments.

The carrying value of the Company's solar investments are reduced by tax credits earned when the solar project is placed in service.

The Company accounts for its solar investments using the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting.

HLBV is a balance sheet-oriented method of accounting that provides an approach for allocating pre-tax net income or loss to an investor.

HLBV allocates pre-tax net income or loss to the partners (investors) and calculates at the end of each balance sheet date the amount each partner would receive in the event the partnership were liquidated at book value.

The amount allocated to each partner requires an analysis of each partners’ capital account as adjusted according to the liquidation provisions of the partnership agreement.

For the majority of the Company’s solar investments, the HLBV

method of accounting results in accelerated losses in the initial year of investment.

During the three and nine months ended September 30, 2020, the Company recognized pre-tax losses of $ 11.8 million and $ 12.6 million, respectively, on its solar investments.

These losses are included in "other income" in the consolidated statements of income.

The losses recognized for the same periods in 2019 were not significant.

As of the latest remittance reports filed by the various trusts prior to September 30, 2020, the Company's ownership correlates to approximately $ 530 million and $ 350 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 second quarter of 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.

Graff, who has served on the Company’s Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.

Impairment Expense

During the first quarter of 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.

The solar investment balance at March 31, 2021 represents total tax credits earned on solar projects placed in service through March 31, 2021 being larger than total payments made by the Company on such projects.

The Company is committed to fund an additional $ 42.8 million on these projects.

The Company accounts for its solar investments using the HLBV method of accounting.

For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment.

During the three months ended March 31, 2021 and 2020, the Company recognized pre-tax losses of $ 1.7 million and $ 2.8 million, respectively, on its solar investments.

These losses are included in "other" in "other income/expense" on the consolidated statements of operations.

(g) 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 March 31, 2021, the Company's ownership correlates to approximately $ 500 million and $ 230 million of federally insured and consumer loans, respectively, included in these securitizations.

During the first quarter of 2020, the Company recorded a $ 26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations due to distressed economic conditions resulting from the COVID-19 pandemic.

Due to improved economic conditions, the Company has reduced the allowance for credit losses related to the consumer loan beneficial interests, including reducing such allowance by $ 2.4 million during the first quarter of 2021.

As of March 31, 2021, the Company no longer has an allowance for credit losses associated with the consumer loan beneficial interests.

The activity related to the allowance for credit losses related to the consumer loan beneficial interests is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of operations.

Intangible Assets

A summary of the Company's intangible assets follows:

Intangible assets consisted of the following:

Weighted average remaining useful life as of

September 30, 2020 (months)

September 30, 2020 December 31, 2019

March 31, 2021 (months)

March 31, 2021 December 31, 2020

Amortizable intangible assets, net:

1 unchanged sentence

102 $ 60,110 66,974

Trade names (net of accumulated amortization of $ 4,253 and $ 2,792 , respectively)

76 6,018 7,478

Computer software (net of accumulated amortization of $ 2,082 and $ 4,127 , respectively)

33 5,775 6,430

Trade names (net of accumulated amortization of $ 4,288 and $ 3,455 , respectively)

Total - amortizable intangible assets, net 95 $ 66,718 75,070

The Company recorded amortization expense on its intangible assets of $ 8.0 million during each of the three months ended September 30, 2020 and 2019, and $ 22.8 million and $ 24.8 million during the nine months ended September 30, 2020 and 2019, respectively.

The Company recorded amortization expense on its intangible assets of $ 8.4 million and $ 7.4 million during the three months ended March 31, 2021 and 2020, respectively.

The Company will continue to amortize intangible assets over their remaining useful lives.

As of September 30, 2020, the Company estimates it will record amortization expense as follows:

2020 (October 1 - December 31) $ 7,979

As of March 31, 2021, the Company estimates it will record amortization expense as follows:

2021 (April 1 - December 31) $ 14,690

2026 and thereafter 20,158

The carrying amount of goodwill as of December 31, 2019 and September 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

The carrying amount of goodwill as of December 31, 2020 and March 31, 2021 by reportable operating segment was as follows:

Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Total

Goodwill balance $ 23,639 76,570 41,883 — — 142,092

Property and Equipment

A summary of the Company's property and equipment follows:

Useful life September 30, 2020 December 31, 2019

Non-communications:

Property and equipment consisted of the following:

Useful life March 31, 2021 December 31, 2020

Computer equipment and software 1 - 5 years

9 unchanged sentences

301,901 283,152

Accumulated depreciation - non-communications ( 174,263 ) ( 142,270 )

Non-communications, net property and equipment 119,251 106,902

Communications:

Network plant and fiber

273,754 254,560

Customer located property

31,844 27,011

Central office

19,801 17,672

Transportation equipment

Computer equipment and software

Construction in progress

346,604 315,254

Accumulated depreciation - communications

( 105,365 ) ( 73,897 )

Communications, net property and equipment

241,239 241,357

Accumulated depreciation ( 171,451 ) ( 159,625 )

Total property and equipment, net $ 130,450 123,527

The Company recorded depreciation expense on its property and equipment of $ 22.3 million and $ 19.7 million during the three months ended September 30, 2020 and 2019, respectively, and $ 64.6 million and $ 51.6 million during the nine months ended September 30, 2020 and 2019, respectively.

The Company recorded depreciation expense on its property and equipment of $ 11.8 million and $ 20.3 million during the three months ended March 31, 2021 and 2020, respectively .

Earnings per Common Share

2 unchanged sentences

Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.

Three months ended September 30,

Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total

Net income attributable to Nelnet, Inc.

$ 70,483 1,020 71,503 32,778 434 33,212

Weighted-average common shares outstanding - basic and diluted 37,988,584 549,892 38,538,476 39,356,311 520,818 39,877,129

Earnings per share - basic and diluted $ 1.86 1.86 1.86 0.83 0.83 0.83

Nine months ended September 30,

Three months ended March 31,

Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total

Net income attributable to Nelnet, Inc.

Net income (loss) attributable to Nelnet, Inc.

$ 121,766 1,832 123,598 ( 39,974 ) ( 558 ) ( 40,532 )

4 unchanged sentences

The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.

Three months ended September 30, 2020

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset

Three months ended March 31, 2021

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset

Generation and

Management Corporate and Other Activities Eliminations Total

Management Nelnet Bank Corporate and Other Activities Eliminations Total

Total interest income $ 34 263 — 126,402 1,376 1,246 ( 218 ) 129,103

8 unchanged sentences

Communications revenue — — — — — — — —

Other 1,113 — — 445 22 ( 6,184 ) — ( 4,604 )

Gain on sale of loans — — — — — — — —

Other income 2,353 373 511 1,004 ( 2,737 ) — 1,502

Impairment expense — — — — — — —

Impairment expense and provision for beneficial interests, net — — — 2,436 — — — 2,436

Derivative settlements, net — — — ( 4,304 ) — — — ( 4,304 )

12 unchanged sentences

Income (loss) before income taxes 16,084 30,974 — 141,609 ( 1,254 ) ( 29,650 ) — 157,765

Income tax (expense) benefit ( 3,201 ) ( 3,610 ) 1,089 ( 21,580 ) 8,146 — ( 19,156 )

Income tax (expense) benefit (b) ( 3,860 ) ( 7,434 ) — ( 33,987 ) 286 10,133 — ( 34,861 )

Net income (loss) 12,224 23,540 — 107,622 ( 968 ) ( 19,517 ) — 122,904

2 unchanged sentences

$ 12,224 23,540 — 107,622 ( 968 ) ( 19,534 ) 711 123,598

Total assets as of September 30, 2020 $ 211,726 382,608 305,276 20,686,478 770,621 ( 134,183 ) 22,222,526

Three months ended September 30, 2019

Total assets as of March 31, 2021 $ 191,910 372,315 — 20,367,532 296,908 1,148,560 ( 210,017 ) 22,167,208

(a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.

See note 2 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the transaction and a summary of the deconsolidation impact.

Accordingly, there are no operating results for the (former) Communications operating segment in 2021.

(b) Income taxes for the Nelnet Bank operating segment reflect Nelnet Bank's actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation.

Income taxes for all other operating segments are allocated based on 24 % of that segment's income before taxes.

The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.

Three months ended March 31, 2020

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset

Generation and

Corporate and Other

Nelnet Bank (a) Corporate and Other

Activities Eliminations Total

9 unchanged sentences

Communications revenue — — 18,181 — — — — 18,181

Gain on sale of loans — — — — — — —

Other income 2,291 — 532 3,384 7,231 — 13,439

Impairment expense — — — — — — —

Derivative settlements, net — — — 7,298 — — 7,298

Derivative market value adjustments, net — — — ( 5,630 ) — — ( 5,630 )

Total other income/expense 127,188 74,251 17,002 5,052 7,231 ( 11,611 ) 219,114

Cost of services:

Cost to provide education technology, services, and payment processing services — 25,671 — — — — 25,671

Cost to provide communications services — — 5,236 — — — 5,236

Total cost of services — 25,671 5,236 — — — 30,907

Operating expenses:

Salaries and benefits 69,209 23,826 5,763 394 17,479 — 116,670

Depreciation and amortization 8,565 2,997 10,926 — 5,212 — 27,701

Other expenses 16,686 5,325 3,842 19,054 13,422 — 58,329

Intersegment expenses, net 12,955 3,194 701 11,678 ( 16,917 ) ( 11,611 ) —

Total operating expenses 107,415 35,342 21,232 31,126 19,196 ( 11,611 ) 202,700

Income (loss) before income taxes 20,254 16,725 ( 9,466 ) 25,666 ( 11,216 ) — 41,964

Income tax (expense) benefit ( 4,861 ) ( 4,014 ) 2,272 ( 6,160 ) 3,935 — ( 8,829 )

Net income (loss) 15,393 12,711 ( 7,194 ) 19,506 ( 7,281 ) — 33,135

Net loss (income) attributable to noncontrolling interests — — — — 77 — 77

Net income (loss) attributable to Nelnet, Inc.

$ 15,393 12,711 ( 7,194 ) 19,506 ( 7,204 ) — 33,212

Total assets as of September 30, 2019 $ 222,606 413,076 306,743 22,520,688 685,998 ( 212,392 ) 23,936,719

Nine months ended September 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 $ 403 2,777 — 474,468 4,397 ( 1,228 ) 480,818

Interest expense 97 54 — 275,492 3,373 ( 1,228 ) 277,788

Net interest income (expense) 306 2,723 — 198,976 1,024 — 203,030

Less (negative provision) provision for loan losses — — — 73,476 — — 73,476

Net interest income after provision for loan losses 306 2,723 — 125,500 1,024 — 129,554

Other income/expense:

Loan servicing and systems revenue 337,571 — — — — — 337,571

Intersegment revenue 27,878 17 — — — ( 27,895 ) —

Education technology, services, and payment processing revenue — 217,100 — — — — 217,100

Communications revenue — — 57,390 — — — 57,390

Gain on sale of loans — — — 33,023 — — 33,023

Other income 6,897 373 1,256 4,951 56,435 — 69,910

Impairment expense — — — ( 26,303 ) ( 8,116 ) — ( 34,419 )

Derivative settlements, net — — — 7,666 — — 7,666

Derivative market value adjustments, net — — — ( 21,072 ) — — ( 21,072 )

Total other income/expense 372,346 217,490 58,646 ( 1,735 ) 48,319 ( 27,895 ) 667,169

Cost of services:

Cost to provide education technology, services, and payment processing services — 63,424 — — — — 63,424

Cost to provide communications services — — 17,240 — — — 17,240

Total cost of services — 63,424 17,240 — — — 80,664

Operating expenses:

Salaries and benefits 211,806 73,678 16,471 1,301 61,964 — 365,220

Depreciation and amortization 27,941 7,115 32,482 — 19,811 — 87,349

Other expenses 43,277 11,544 9,681 12,253 38,428 — 115,184

Intersegment expenses, net 48,069 10,366 1,650 29,839 ( 62,030 ) ( 27,895 ) —

Total operating expenses 331,093 102,703 60,284 43,393 58,173 ( 27,895 ) 567,753

Income (loss) before income taxes 41,559 54,086 ( 18,878 ) 80,372 ( 8,830 ) — 148,306

Income tax (expense) benefit ( 9,974 ) ( 12,981 ) 4,531 ( 19,289 ) 7,426 — ( 30,286 )

Net income (loss) 31,585 41,105 ( 14,347 ) 61,083 ( 1,404 ) — 118,020

Net loss (income) attributable to noncontrolling interests — — — — ( 568 ) — ( 568 )

Net income (loss) attributable to Nelnet, Inc.

$ 31,585 41,105 ( 14,347 ) 61,083 ( 1,972 ) — 117,452

Total assets as of September 30, 2020 $ 211,726 382,608 305,276 20,686,478 770,621 ( 134,183 ) 22,222,526

Nine months ended September 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 $ 1,579 7,175 3 723,388 7,170 ( 2,995 ) 736,319

Interest expense 70 32 — 544,319 9,796 ( 2,995 ) 551,221

Net interest income (expense) 1,509 7,143 3 179,069 ( 2,626 ) — 185,098

Less (negative provision) provision for loan losses — — — 26,000 — — 26,000

Net interest income after provision for loan losses 1,509 7,143 3 153,069 ( 2,626 ) — 159,098

Other income/expense:

Loan servicing and systems revenue 342,169 — — — — — 342,169

Intersegment revenue 35,426 — — — — ( 35,426 ) —

Education technology, services, and payment processing revenue — 213,753 — — — — 213,753

Communications revenue — — 46,770 — — — 46,770

Other 2,630 — 353 3,215 — 2,083 — 8,281

Gain on sale of loans — — — 18,206 — — — 18,206

Other income 6,642 — 1,019 10,084 19,200 — 36,946

Impairment expense — — — — — — —

Impairment expense and provision for beneficial interests, net — — — ( 26,303 ) — ( 7,783 ) — ( 34,087 )

Derivative settlements, net — — — 4,237 — — — 4,237

17 unchanged sentences

$ 10,354 20,787 ( 5,536 ) ( 46,318 ) — ( 19,821 ) — ( 40,532 )

Total assets as of September 30, 2019 $ 222,606 413,076 306,743 22,520,688 685,998 ( 212,392 ) 23,936,719

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.

Total assets as of March 31, 2020 $ 223,021 302,631 301,440 21,905,150 — 679,390 ( 131,004 ) 23,280,628

(a) Nelnet Bank launched operations on November 2, 2020.

Accordingly, there are no operating results for the Nelnet Bank operating segment in the three months ended March 31, 2020.

Disaggregated Revenue

The following tables provide disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments (except ALLO).

Loan Servicing and Systems

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Government servicing - Nelnet $ 34,872 38,650

3 unchanged sentences

Software services 8,454 11,318

Outsourced services and other 8,883 2,264 15,685 6,651

Outsourced services 11,671 2,098

Loan servicing and systems revenue $ 111,517 112,735

Education Technology, Services, and Payment Processing

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Tuition payment plan services $ 29,550 31,587

3 unchanged sentences

32,322 20,054

384 286 940 864

Education technology, services, and payment processing revenue

$ 95,258 83,675

Communications

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Internet $ 12,794 9,899 35,926 27,641

Television 4,446 4,068 12,913 12,020

Telephone 2,931 2,487 8,436 7,062

Other 40 16 115 47

Communications revenue $ 20,211 16,470 57,390 46,770

Residential revenue $ 15,173 12,397 42,946 35,351

Business revenue 4,918 4,025 14,002 11,256

Other 120 48 442 163

Communications revenue $ 20,211 16,470 57,390 46,770

The following table provides the components of "other income" on the consolidated statements of income:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Other Income/Expense

The following table provides the components of "other" in "other income/expense" on the consolidated statements of operations:

Three months ended March 31,

Income/gains from investments, net $ 8,498 ( 1,025 )

Investment advisory services 2,697 2,802

ALLO preferred return 2,321 —

Management fee revenue 1,113 2,630

Borrower late fee income 442 3,188

Gain (loss) on investments, net ( 10,152 ) 1,948 39,134 5,779

Loss from ALLO voting membership interests investment ( 22,219 ) —

Loss from solar investments ( 1,679 ) ( 2,839 )

Other 4,223 3,525

Other income $ 1,502 13,439 69,910 36,946

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 September 30, 2020

Balance, beginning of period $ 2,115 19,924 3,728 1,676 27,443

Deferral of revenue 365 41,471 11,331 851 54,018

Recognition of revenue ( 970 ) ( 19,490 ) ( 11,139 ) ( 800 ) ( 32,399 )

Balance, end of period $ 1,510 41,905 3,920 1,727 49,062

Three months ended September 30, 2019

Balance, beginning of period $ 3,315 21,489 3,080 1,611 29,495

Deferral of revenue 881 42,752 9,302 953 53,888

Recognition of revenue ( 1,149 ) ( 21,820 ) ( 9,158 ) ( 850 ) ( 32,977 )

Balance, end of period $ 3,047 42,421 3,224 1,714 50,406

Nine months ended September 30, 2020

Balance, beginning of period $ 2,712 32,074 3,232 1,628 39,646

Deferral of revenue 1,547 78,891 31,898 2,585 114,921

Recognition of revenue ( 2,749 ) ( 69,060 ) ( 31,210 ) ( 2,486 ) ( 105,505 )

Balance, end of period $ 1,510 41,905 3,920 1,727 49,062

Nine months ended September 30, 2019

Balance, beginning of period $ 4,413 30,556 2,551 1,602 39,122

Deferral of revenue 2,761 81,484 26,366 2,530 113,141

Recognition of revenue ( 4,127 ) ( 69,619 ) ( 25,693 ) ( 2,418 ) ( 101,857 )

Balance, end of period $ 3,047 42,421 3,224 1,714 50,406

$ ( 4,604 ) 8,281

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 $ 36.3 million and $ 38.6 million for the three months ended September 30, 2020 and 2019, and $ 112.3 million and $ 118.7 million for the nine months ended September 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 $ 45.4 million and $ 46.2 million for the three months ended September 30, 2020 and 2019, and $ 137.0 million and $ 139.3 million for the nine months ended September 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.

On October 13, 2020, Nelnet Servicing and Great Lakes received correspondence from the Department indicating the Department's intent to exercise the first additional six-month extension of the current servicing contracts, from December 14, 2020 to approximately June 15, 2021.

The correspondence served only as a non-binding notice of intent that does not commit the Department to extend the contracts, and any formal extension of the contracts will occur only upon a unilateral modification by the Department to the contracts.

Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc.

("Great Lakes"), subsidiaries of the Company, each earn loan servicing revenue from a servicing contract with the Department of Education (the "Department").

Revenue earned by Nelnet Servicing related to this contract was $ 34.9 million and $ 38.7 million for the three months ended March 31, 2021 and 2020, respectively.

Revenue earned by Great Lakes related to this contract was $ 43.3 million and $ 46.4 million for the three months ended March 31, 2021 and 2020, respectively.

The current servicing contracts with the Department are currently scheduled to expire on June 14, 2021, but provide the potential for an additional six-month extension at the Department’s discretion through December 14, 2021.

The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, provides that the Department may extend the period of performance for the servicing contracts scheduled to expire on December 14, 2021 for up to two additional years to December 14, 2023.

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")

On April 1, 2019, October 4, 2019, and February 3, 2020, the Company responded to the EPS solicitation component.

In addition, on August 1, 2019 and January 30, 2020, the Company responded to the BPO solicitation component.

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 and April 27, 2020, the Company filed protests with the Government Accountability Office ("GAO") challenging the Department's decision to cancel the OPS solicitation component without amending the EPS solicitation component and 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.

Based on the Department's cancellation of the EPS procurement, on July 14, 2020, the GAO dismissed the Company's protests as moot.

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.

On January 15, 2019, the Department issued solicitations for certain NextGen components, including the NextGen Enhanced Processing Solution (“EPS”), which was for a technology servicing system and certain processing functions the Department planned to use under NextGen to service the Department's student loan customers, and the NextGen Business Processing Operations (“BPO”), which is for the back office and call center operational functions for servicing the Department's student loan customers.

On June 24, 2020, the Department awarded and signed contracts with five other companies in connection with the BPO solicitation.

On July 13, 2020, July 20, 2020 and July 28, 2020, the Company filed protests with the GAO challenging the Department's determination that the Company's BPO response did not meet small business participation requirements and 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 October 19, 2020, the GAO denied the Company's protests concerning the BPO solicitation component.

In the Department's description of its July 10, 2020 cancellation of the EPS solicitation component, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it would be introducing a new solicitation to continue the NextGen strategy in the future.

On July 10, 2020, the Department cancelled the solicitation for the EPS component.

In the Department's description of its cancellation of the EPS solicitation component, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it would be introducing a new solicitation to continue the NextGen strategy in the future.

On October 28, 2020, the Department issued a new federal loan servicing solicitation for an Interim Servicing Solution ("ISS").

Responses for the ISS solicitation are due December 9, 2020.

ISS is a follow-on to the existing Title IV Additional Servicing and Not-for-Profit Servicing contracts, which would award a full system and servicing solution to two providers.

The Department anticipates awarding a five-year contract followed by five, one-year optional ordering periods.

Under ISS, the selected providers will provide the technology platform to host the Department's student loan portfolio;

ISS was a follow-on to the existing contracts, which would award a full system and servicing solution to two providers.

Under ISS, the selected providers would have provided the technology platform to host the Department's student loan portfolio;

customer service (including contact centers) and back-office processing;

2 unchanged sentences

and portfolio-level operations.

As the companies awarded BPO contracts are onboarded, contact center and back-office operations will shift from the ISS contract to the BPO providers.

The Company fully intends to respond to the ISS solicitation.

As the companies awarded BPO contracts are onboarded, contact center and back-office operations would have shifted from the ISS contract to the BPO providers.

The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment shall provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance, and directed the suspension of awarding any ISS contract for at least 90 days.

On January 9, 2021, the Department suspended the ISS solicitation.

In the Department’s description of the suspension, it indicated that in consideration of the Consolidated Appropriations Act, 2021, the Government is reassessing its needs and will amend or cancel the subject solicitation in the future.

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.

As of September 30, 2020 As of December 31, 2019

As of March 31, 2021 As of December 31, 2020

Level 1 Level 2 Total Level 1 Level 2 Total

Student loan asset-backed securities -

available-for-sale $ — 178,859 178,859 — 52,597 52,597

Equity securities 6 — 6 6 — 6

Equity securities measured at net asset value (a) 30,460 12,894

Student loan asset-backed debt securities - available-for-sale $ — 379,110 379,110 — 348,504 348,504

Equity securities (a) 28,296 — 28,296 10,114 — 10,114

Equity securities measured at net asset value (b) 31,557 31,927

Debt securities - available-for-sale 103 — 103 103 — 103

Total investments 28,399 379,110 439,066 10,217 348,504 390,648

109 178,859 209,428 110 52,597 65,601

Total assets $ 28,399 379,110 439,066 10,217 348,504 390,648

(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.

(a) As of March 31, 2021, $ 13.5 million and $ 14.8 million of equity securities were classified as trading and available-for-sale, respectively.

All equity securities as of December 31, 2020 were classified as available-for-sale.

(b) 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.

The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets:

As of September 30, 2020

As of March 31, 2021

Fair value Carrying value Level 1 Level 2 Level 3

10 unchanged sentences

Accrued interest payable 5,527 5,527 — 5,527 —

Bank deposits 111,398 111,830 45,147 66,251 —

Due to customers 230,581 230,581 230,581 — —

12 unchanged sentences

Accrued interest payable 28,701 28,701 — 28,701 —

Bank deposits 54,599 54,633 48,422 6,177 —

Due to customers 301,471 301,471 301,471 — —

The methodologies for estimating the fair value of financial assets and liabilities are described in note 22 of the notes to consolidated financial statements included in the 2020 Annual Report.

Subsequent Events

Recapitalization and Additional Funding for ALLO Communications LLC ("ALLO")

On October 1, 2020, Nelnet, Inc.

entered into various agreements with SDC ALLO Holdings, LLC (“SDC”), a third party global digital infrastructure investor, and ALLO, the Company's communication's subsidiary, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO.

The agreements provide for a series of initial interrelated transactions (the “Initial Transactions”) whereby (i) on October 15, 2020, ALLO issued non-voting preferred membership units of ALLO to SDC for an aggregate purchase price payment of approximately $ 197.0 million from SDC to ALLO, and ALLO redeemed certain non-voting preferred membership units of ALLO held by Nelnet, Inc.

in exchange for an aggregate redemption price payment to Nelnet, Inc.

of $ 160.0 million;

(ii) ALLO will use its reasonable best efforts to incur and undertake private debt financing from one or more unrelated third-party lender(s) in the aggregate approximate amount of $ 100.0 million;

and (iii) subject to ALLO obtaining such debt financing, ALLO will redeem certain additional preferred return membership units of ALLO held by Nelnet, Inc.

in exchange for an aggregate redemption price payment to Nelnet, Inc.

of approximately $ 100.0 million (subject to the amount of gross proceeds actually received in the debt financing).

Upon the receipt of required regulatory approvals from the Federal Communications Commission and other applicable regulatory authorities, the non-voting preferred membership units of ALLO held by SDC will automatically convert into voting membership units of ALLO.

As a result of such conversion, SDC, Nelnet, Inc., and members of ALLO's management will own approximately 48 percent, 45 percent and 7 percent, respectively, of the outstanding voting membership interests of ALLO and Nelnet, Inc.

will deconsolidate ALLO from the Company’s consolidated financial statements.

It is currently anticipated that such regulatory conditions will be satisfied by December 31, 2020.

Upon deconsolidation of ALLO by Nelnet, Inc., the Company will initially record its 45 percent voting membership interests in ALLO at fair value, and thereafter account for such investment under the equity method of accounting.

In addition, upon deconsolidation of ALLO, the Company will initially record its remaining non-voting preferred membership units in ALLO at fair value, and account for such investment as a separate equity investment.

The agreements also provide for secondary transactions (the “Secondary Transactions”) subsequent to the completion of the Initial Transactions, whereby (i) Nelnet, Inc., SDC, and ALLO will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before the three and one-half year anniversary (subject to adjustment) of the completion of ALLO’s redemptions from Nelnet, Inc.

in the Initial Transactions, the remaining preferred membership units of ALLO held by Nelnet, Inc.

in exchange for an aggregate redemption price payment to Nelnet, Inc.

of approximately $ 126 million, plus the amount of accrued and unpaid preferred return on such units and the amount of any contributions or other amounts funded by Nelnet, Inc.

to ALLO subsequent to ALLO’s redemptions from Nelnet, Inc.

in the Initial Transactions;

and (ii) Nelnet, Inc.

will have a contingent payment obligation to pay SDC a contingent payment amount of $ 25 million to $ 35 million in the event Nelnet, Inc.

disposes of other voting membership units of ALLO that it holds and realizes from such disposition certain targeted return levels relative to the implied value of its investment in such units upon SDC's initial investment in ALLO on October 15, 2020.

The Company currently estimates the above transactions will result in the Company recognizing incremental net income before tax of approximately $ 230 million, which reflects the Company recognizing a gain as a result of the deconsolidation of ALLO and recording its voting and non-voting membership interests in ALLO at fair value, net of compensation expense for the modification of certain equity awards previously granted to members of ALLO's management and an expense to record the Company's contingent payment obligation to SDC at fair value.

The amount of incremental net income the Company ultimately recognizes as a result of these transactions will be impacted by the timing of when, or if, regulatory approval is obtained.

On November 2, 2020, the Company obtained final approval from the Federal Deposit Insurance Corporation ("FDIC") for federal deposit insurance and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations.

Nelnet Bank will operate as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah.

Nelnet Bank was funded by the Company with an initial capital contribution of $ 100 million, consisting of $ 55.9 million of cash and $ 44.1 million of student loan asset-backed securities.

In addition, the Company made a pledged deposit of $ 40.0 million with Nelnet Bank, as required under an agreement with the FDIC.

Nelnet Bank will operate as a subsidiary of the Company, and the industrial bank charter allows the Company to maintain its other diversified business offerings.

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.

What changed 10-Q

Item 1. Financial Statements