What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-05 · 315 added, 282 removed, 543 unchanged (52% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2021 and 2020.

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and nine months ended September 30, 2021 and 2020.

All dollars are in thousands, except per share amounts, unless otherwise noted.)

8 unchanged sentences

These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2020 Annual Report and elsewhere in this report, and include such risks and uncertainties as:

• risks and uncertainties related to the severity, magnitude, and duration of the coronavirus disease 2019 (“COVID-19”) pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to slow the spread of the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;

• risks and uncertainties related to the severity, magnitude, and duration of the coronavirus disease 2019 (“COVID-19”) pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;

• risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S.

2 unchanged sentences

• financing and liquidity risks, including risks of changes in the general interest rate environment, including the availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money market index rate and the rate at which the Company's assets and liabilities are priced, and changes in the securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment trends on student loans in the Company's securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;

• risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP

loan interest income due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or proposals to consolidate existing FFELP loans to the Federal Direct Loan Program, otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans, or create additional loan forgiveness or broad debt cancellation programs;

Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP loan interest income due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or proposals to consolidate existing FFELP loans to the Federal Direct Loan Program, otherwise encourage or allow FFELP loans to be refinanced with Federal Direct Loan Program loans, and/or create additional loan forgiveness or broad debt cancellation programs;

• risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;

1 unchanged sentence

• risks and uncertainties of the expected benefits from the November 2020 launch of Nelnet Bank operations, including the ability to successfully conduct banking operations and achieve expected market penetration;

• risks related to the expected benefits to the Company and to ALLO Communications LLC (“ALLO”) from the recapitalization and additional funding for ALLO and the Company’s continuing investment in ALLO, and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;

• risks and uncertainties related to other initiatives to pursue additional strategic investments, acquisitions, and other activities, such as the completed and additional planned transactions associated with the sale by Wells Fargo of its private education loan portfolio for which the Company was selected as the new servicer (including risks associated with errors that occasionally occur in converting loan servicing portfolio acquisitions to a new servicing platform), including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses;

• risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs resulting from the politicization of student loan servicing, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.

• risks related to the expected benefits to the Company and to ALLO Communications LLC (referred to collectively with its holding company ALLO Holdings, LLC as “ALLO”) from the recapitalization and additional funding for ALLO and the Company’s continuing investment in ALLO, and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;

• risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, such as the completed and potential additional transactions associated with the sale by Wells Fargo of its private education loan portfolio for which the Company was selected as the new servicer (including risks associated with errors that occasionally occur in converting loan servicing portfolio acquisitions to a new servicing platform, and uncertainties associated with expected income from the joint venture that purchased the Wells Fargo portfolio), including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses;

• risks and uncertainties associated with climate change, including extreme weather events and related natural disasters, which could result in increased loan portfolio credit risks and other asset and operational risks, as well as risks and uncertainties associated with efforts to address climate change;

• risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs resulting from the politicization of student loan servicing, potential changes to corporate tax rates, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.

All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document.

8 unchanged sentences

A reconciliation of the Company's GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020

29 unchanged sentences

There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

GAAP net income decreased for the three months ended June 30, 2021 compared to the same period in 2020 primarily due to the recognition of a $51.0 million ($38.8 million after tax) gain in the second quarter of 2020 to adjust the carrying value of the Company's investment in Hudl to reflect Hudl's May 2020 equity raise transaction value.

This factor was partially offset by the following items:

• The recognition of net investment gains and income of $15.6 million ($11.8 million after tax) on certain venture capital and real estate investments during the three months ended June 30, 2021;

• The recognition of a gain of $15.3 million ($11.6 million after tax) from the sale of a portfolio of consumer loans during the second quarter of 2021;

• The recognition of a net loss by ALLO of $7.1 million ($5.4 million after tax) during the three months ended June 30, 2020, prior to the deconsolidation of ALLO in December 2020;

• An increase of $6.2 million ($4.7 million after tax) in interest income from the Company's consumer loan beneficial interest investments;

• An increase in net income in the second quarter of 2021 as compared to 2020 of $5.5 million ($4.2 million after tax) from the Education Technology, Services, and Payment Processing operating segment.

GAAP net income increased for the six months ended June 30, 2021 compared to the same period in 2020 primarily due to the following factors:

GAAP net income decreased for the three months ended September 30, 2021 compared to the same period in 2020 primarily due to the following factors:

• The recognition of a $14.8 million ($11.3 million after tax) gain from the sale of consumer loans in 2020;

• The impairment of certain Company owned buildings and operating lease assets of $14.2 million ($10.8 million after tax) during 2021 due to continued evaluation of office space needs as employees continue to work from home due to COVID-19;

• The recognition of a net loss of $8.5 million ($6.4 million after tax) during 2021 related to the Company's investments in ALLO;

• The recognition of a provision for loan losses on the Company's loan portfolio of $5.8 million ($4.4 million after tax) in the third quarter of 2021 compared to a negative provision for loan losses of $5.8 million ($4.4 million after tax) in the third quarter of 2020.

These factors were partially offset by the following items:

• The recognition of net investment gains and income of $16.1 million ($12.2 million after tax) on certain venture capital, real estate, and other investments during 2021;

• A decrease of $8.4 million ($6.4 million after tax) in losses from solar investments in 2021 as compared to 2020;

• The recognition of a net loss by ALLO of $4.5 million ($3.5 million after tax) during 2020, prior to the deconsolidation of ALLO in December 2020.

GAAP net income increased for the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to the following factors:

• The recognition of $97.1 million ($73.8 million after tax) of certain expenses during the first quarter of 2020 as a result of the COVID-19 pandemic, consisting of the recognition of an incremental provision for loan losses of $63.0 million ($47.9 million after tax), provision expense of $26.3 million ($20.0 million after tax) related to the Company's investment in certain consumer loan beneficial interest securitizations, and $7.8 million ($5.9 million after tax) impairment expense on certain venture capital investments;

• Net income of $37.2 million ($28.3 million after tax) related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in the six months ended June 30, 2021 as compared to a net loss of $24.5 million ($18.6 million after tax) in 2020;

• An increase of $26.7 million ($20.3 million after tax) in net interest income due to improved loan spread (including derivative settlements) on the Company's loan portfolio in the six months ended June 30, 2021 as compared to the same period in 2020, including an increase in fixed rate floor income;

• Net income of $44.5 million ($33.8 million after tax) related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2021 as compared to a net loss of $21.1 million ($16.0 million after tax) in 2020;

• The recognition of net investment gains of $40.1 million ($30.5 million after tax) on certain venture capital, real estate, and other investments during 2021;

• A decrease of $23.8 million ($18.1 million after tax) in interest expense during the first quarter of 2021 as a result of the Company reversing a historical accrued interest liability on certain bonds (initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013), which liability the Company determined is no longer probable of being required to be paid;

• The recognition of net investment gains of $24.1 million ($18.3 million after tax) on certain venture capital and real estate investments during the six months ended June 30, 2021;

• The recognition of $16.7 million ($12.7 million after tax) negative provision for loan losses on the Company's loan portfolio during the six months ended June 30, 2021 as a result of management's estimate of certain continued improved economic conditions as compared to a provision expense (excluding the incremental provision for loan losses related to COVID-19) of $16.3 million ($12.4 million after tax) during 2020;

• The recognition of a $15.3 million ($11.6 million after tax) gain from the sale of consumer loans in the second quarter of 2020;

• The recognition of a net loss by ALLO of $14.3 million ($10.9 million after tax) during the six months ended June 30, 2020.

ALLO was deconsolidated in December 2020;

• An increase in net income during the six months ended June 30, 2021 as compared to 2020 of $9.2 million ($7.0 million after tax) from the Education Technology, Services, and Payment Processing operating segment;

• An increase of $5.9 million ($4.5 million after tax) in interest income from the Company's consumer loan beneficial interest investments;

• An increase in net income during the six months ended June 30, 2021 as compared to 2020 of $3.4 million ($2.6 million after tax) from the Loan Servicing and Systems operating segment.

• The recognition of a net loss by ALLO of $18.9 million ($14.3 million after tax) during 2020, prior to the deconsolidation of ALLO in December 2020;

• The recognition of $18.7 million ($14.2 million after tax) of gains from the sale of loans during 2021;

• An increase of $17.5 million ($13.3 million after tax) in net interest income due to improved loan spread (including derivative settlements) on the Company's loan portfolio in 2021 as compared to 2020, including an increase in fixed rate floor income;

• The recognition of a $10.8 million ($8.2 million after tax) negative provision for loan losses on the Company's loan portfolio during 2021 as a result of management's estimate of certain continued improved economic conditions as compared to a provision expense (excluding the incremental provision for loan losses related to COVID-19) of $10.4 million ($7.9 million after tax) during 2020;

• An increase of $8.3 million ($6.3 million after tax) in investment interest income in 2021 as compared to 2020 primarily from AGM's beneficial interest investments;

• An increase in net income during 2021 as compared to 2020 of $8.1 million ($6.2 million after tax) from the Education Technology, Services, and Payment Processing operating segment.

These factors were partially offset by the following items:

• The recognition of a $51.0 million ($38.8 million after tax) gain in the second quarter of 2020 to adjust the carrying value of the Company's investment in Hudl to reflect Hudl's May 2020 equity raise transaction value;

• The recognition of a $18.2 million ($13.8 million after tax) gain from the sale of consumer loans in the first quarter of 2020;

• The recognition of a net loss of $16.8 million ($12.8 million after tax) during the six months of 2021 related to the Company's investment in ALLO;

• A decrease of $9.9 million ($7.6 million after tax) in net interest income due to the decrease in the average balance of loans during the six months ended June 30, 2021 as compared to 2020 as a result of the amortization of the FFELP loan portfolio.

• The recognition of $33.0 million ($25.1 million after tax) of gains from the sale of consumer loans during 2020;

• The recognition of a net loss of $25.2 million ($19.2 million after tax) during 2021 related to the Company's investments in ALLO;

• A decrease of $6.6 million ($5.0 million after tax) in net interest income due to the decrease in the average balance of loans during 2021 as compared to 2020 as a result of the amortization of the FFELP loan portfolio.

Operating Results

1 unchanged sentence

This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes.

As of June 30, 2021, AGM had a $19.3 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.5 years.

As of September 30, 2021, AGM had a $18.4 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.3 years.

The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow.

In addition, the Company earns fee-based revenue through the following reportable operating segments:

• Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS")

• Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS"), which includes the operations of Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc.

("Great Lakes")

• Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Services ("NBS")

7 unchanged sentences

In addition, the Corporate segment includes direct incremental costs associated with Nelnet Bank prior to the UDFI’s approval for its bank charter and certain shared service and support costs incurred by the Company that will not be reflected in Nelnet Bank’s operating results through 2023 (the bank’s de novo period).

Such Nelnet Bank-related costs included in the Corporate segment totaled $1.0 million (pre-tax) and $1.3 million (pre-tax) for the three months ended June 30, 2021 and 2020, respectively, and $1.7 million (pre-tax) and $2.5 million (pre-tax) for the six months ended June 30, 2021 and 2020, respectively.

The information below provides the operating results for each reportable operating segment for the three and six months ended June 30, 2021 and 2020 (dollars in millions).

Such Nelnet Bank-related costs included in the Corporate segment totaled $0.8 million (pre-tax) and $1.3 million (pre-tax) for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million (pre-tax) and $3.8 million (pre-tax) for the nine months ended September 30, 2021 and 2020, respectively.

The information below provides the operating results for each reportable operating segment for the three and nine months ended September 30, 2021 and 2020 (dollars in millions).

See "Results of Operations" for each reportable operating segment (except ALLO) under this Item 2 for additional detail.

12 unchanged sentences

and world markets.

While certain COVID-19 vaccines have been approved and have become widely available for use in the U.S., the Company is unable to predict how widely utilized the vaccines will be or how effective they will be in preventing the spread of COVID-19 (including variant strains of the virus which have emerged or may emerge).

While certain COVID-19 vaccines have been approved and have become widely available for use in the U.S., significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and new variant strains of the virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among different geographical areas and demographic segments, emerging targeted vaccine mandates, and booster vaccines, and the potential for additional future spikes in infection rates including through breakthrough infections among the fully vaccinated.

As a result, although the economy has improved since the pandemic began, it is still uncertain when or if economic activity and business operations at pre-pandemic levels for the Company's customers will resume.

In addition, a significant number of the Company's employees continue to work from home, either full-time or dividing their work days between working from home and working in the office as the Company has offered employees flexibility in the amount of time they work in recently re-opened offices.

During the third quarter of 2021, the Company evaluated the use of office space due to COVID-19 and recorded an impairment charge on certain real estate assets of $14.2 million.

The results of operations discussion below should be read in conjunction with the Company’s 2020 Annual Report, including the information included in “Risk Factors – Operations – The COVID-19 pandemic has adversely impacted our results of operations, and is expected to continue to adversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Impacts of COVID-19 Pandemic.”

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's operating results for the three and six months ended June 30, 2021 compared to the same periods in 2020 is provided below.

An analysis of the Company's operating results for the three and nine months ended September 30, 2021 compared to the same periods in 2020 is provided below.

The Company’s operating results are primarily driven by the performance of its existing loan portfolio and the revenues generated by its fee-based businesses and the costs to provide such services.

3 unchanged sentences

Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis (except for ALLO, which was deconsolidated from the Company's consolidated financial statements in December 2020).

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2021 2020 2021 2020 Additional information

Loan interest $ 122,005 146,140 246,123 327,933 Decrease was due primarily to decreases in the gross yield earned on loans and the average balance of loans, partially offset by an increase in gross fixed rate floor income due to lower interest rates in 2021 as compared to 2020.

Loan interest $ 124,096 134,507 370,219 462,439 Decrease was due primarily to decreases in the gross yield earned on loans and the average balance of loans, partially offset by an increase in gross fixed rate floor income during the nine months ended September 30, 2021 due to lower interest rates in 2021 as compared to 2020.

Investment interest 12,558 5,238 29,122 18,379 Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations.

Increase was due to interest income earned on consumer loan beneficial interest investments, partially offset by a decrease in interest rates in 2021 as compared to 2020.

Increase was due to interest income earned on loan beneficial interest investments, partially offset by a decrease in interest rates in 2021 as compared to 2020.

Total interest income 136,654 139,745 399,341 480,818

3 unchanged sentences

Net interest income 86,478 81,322 271,402 203,030

Less provision (negative provision) for loan losses 374 2,999 (16,674) 79,297 The Company recognized negative provision in the first quarter of 2021 due to management's estimate of 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.

During the first quarter of 2020, the Company recognized an incremental provision of $63.0 million as a result of an increase in expected defaults due to the COVID-19 pandemic.

Less provision (negative provision) for loan losses 5,827 (5,821) (10,847) 73,476 During the first quarter of 2020, the Company recognized an incremental provision of $63.0 million as a result of an increase in expected defaults due to the COVID-19 pandemic.

During the third quarter of 2020, the Company recognized negative provision of $5.8 million due to management's estimate of improved economic conditions.

The Company recognized a negative provision of $17.0 million in the first quarter of 2021 due to management's estimate of 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.

Provision expense recognized for the three months ended September 30, 2021 represents provision primarily for new loans originated and acquired during the period.

Net interest income after provision for loan losses 80,651 87,143 282,249 129,554

4 unchanged sentences

Other 11,867 1,502 30,183 69,910 See table below for the components of "other."

Gain on sale of loans 15,271 — 15,271 18,206 The Company sold a portfolio of consumer loans in each of May 2021 and January 2020 and recognized gains of $15.3 million and $18.2 million, respectively.

Impairment expense and provision for beneficial interests, net (500) (332) 1,936 (34,419) During the first quarter of 2020, the Company recognized impairments of $26.3 million and $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively.

Such impairments were the result of impacts from the COVID-19 pandemic.

Gain on sale of loans 3,444 14,817 18,715 33,023 On May 14, 2021 and September 29, 2021, the Company sold $77.4 million (par value) and $18.4 million (par value) of consumer loans, respectively, to an unrelated third party and recognized a gain of $15.3 million (pre-tax) and $3.2 million (pre-tax), respectively.

The Company also sold $124.2 million (par value) and $60.8 million (par value) of consumer loans in January 2020 and July 2020, respectively, and recognized gains of $18.2 million and $14.8 million, respectively.

Impairment expense and provision for beneficial interests, net (14,159) — (12,223) (34,419) During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19.

As a result of this evaluation, the Company recorded an impairment charge during the third quarter of 2021 of $14.2 million.

The impairment charge related primarily to building and operating lease assets.

During the first quarter of 2020, the Company recognized impairments of $26.3 million and $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively.

Such impairments were the result of estimated impacts from the COVID-19 pandemic.

During the first quarter of 2021, the Company reversed the remaining allowance of $2.4 million related to the beneficial interest in consumer loan securitizations due to continued improved economic conditions.

3 unchanged sentences

Derivative market value adjustments, net 7,260 3,440 44,455 (21,072) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP.

The majority of the derivative market value adjustments during the six months ended June 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps.

The majority of the derivative market value adjustments during the three and nine months ended September 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps.

Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.

6 unchanged sentences

Operating expenses:

Salaries and benefits 118,968 119,247 234,759 239,125 Decrease was due to a decrease in contact center operations and support in the LSS operating segment as a result of federal student loan payments being suspended under the CARES Act, and the deconsolidation of ALLO from the Company's consolidated financial statements.

These decreases were partially offset by an increase in expenses in the ETS&PP operating segment due to an increase in headcount to support the growth of its customer base, the investment in the development of new technologies, and businesses it acquired in December 2020.

Depreciation and amortization 20,236 29,393 40,419 57,041 Decrease was primarily due to the deconsolidation of ALLO from the Company's consolidated financial statements on December 21, 2020, resulting in no depreciation expense being recorded in 2021 for ALLO.

Salaries and benefits 128,592 126,096 363,351 365,220 Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to an increase in headcount in the (i) LSS operating segment as the Company prepares for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022;

and (ii) ETS&PP operating segment to support the growth of its customer base, the investment in the development of new technologies, and businesses it acquired in December 2020.

These increases were partially offset by the deconsolidation of ALLO from the Company's consolidated financial statements.

Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to (i) a decrease in contact center operations and support personnel throughout the first half of 2021 in the LSS operating segment as a result of the suspension of federal student loan payments under the CARES Act;

and (ii) the deconsolidation of ALLO from the Company's consolidated financial statements.

These decreases were partially offset by an increase in expenses in the ETS&PP operating segment due to the items discussed above.

Depreciation and amortization 15,710 30,308 56,129 87,349 Decrease was primarily due to the deconsolidation of ALLO from the Company's consolidated financial statements on December 21, 2020, resulting in no ALLO depreciation expense for the Company in 2021.

Other expenses 38,324 34,744 107,611 115,184 Other expenses includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs.

Decrease was due to cost savings in the LSS segment from an increase in the adoption of electronic borrower statements and correspondence and a decrease in printing and postage while loan payments are suspended as a result of COVID-19 borrower relief efforts, and the deconsolidation of ALLO in December 2020.

Increase in the three months ended September 30, 2021 as compared to the same period in 2020 was due to (i) an increase in expenses in the ETS&PP operating segment due to higher costs for consulting and professional fees due to investments in new technologies, an increase in travel and in-person conferences, and businesses it acquired in December 2020.

These items were partially offset by the deconsolidation of ALLO in December 2020.

Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to (i) cost savings in the LSS segment from an increase in the adoption of electronic borrower statements and correspondence and a decrease in printing and postage while loan payments are suspended as a result of COVID-19 borrower relief efforts;

and (ii) the deconsolidation of ALLO in December 2020.

These items were partially offset by an increase in costs in the ETS&PP operating segment due to the items discussed above.

Total operating expenses 182,626 191,148 527,091 567,753

Income before income taxes 66,868 90,332 333,883 148,306

Income tax expense 26,237 21,264 61,098 11,131 The effective tax rate was 23.83% and 19.74% for the three months ended June 30, 2021 and 2020, respectively, and 22.75% and 19.50% for the six months ended June 30, 2021 and 2020, respectively.

Income tax expense 15,649 19,156 76,747 30,286 The effective tax rate was 22.75% and 21.13% for the three months ended September 30, 2021 and 2020, respectively, and 22.75% and 20.50% for the nine months ended September 30, 2021 and 2020, respectively.

The Company currently expects its effective tax rate for 2021 will range between 22 and 24 percent.

4 unchanged sentences

The following table summarizes the components of "other" in "other income/expense" on the consolidated statements of income.

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020

Income/gains from investments, net (a) $ 16,050 1,687 40,141 51,772

ALLO preferred return (b) 2,020 — 4,342 —

Investment advisory services (c) 1,145 922 3,842 3,724

Income (loss) from ALLO voting membership interest investment (d) 1,094 — (21,125) —

Investment advisory services (b) 2,400 4,463 6,242 8,187

ALLO preferred return (c) 2,043 — 6,384 —

Management fee revenue (d) 727 2,353 2,541 6,897

Borrower late fee income (e) 514 871 1,698 4,377

Management fee revenue (f) 701 1,914 1,814 4,544

(Loss) income from solar investments (g) (2,302) 2,040 (3,982) (799)

Loss from ALLO voting membership interest investment (f) (10,495) — (31,620) —

Loss from solar investments (g) (3,393) (11,839) (7,375) (12,638)

(Loss) gain on debt repurchased (3,268) 105 (3,964) 508

Other 7,289 3,862 16,136 10,807

Other income $ 11,867 1,502 30,183 69,910

(a) During the second quarter of 2020, the Company recognized a $51.0 million (pre-tax) gain to adjust the carrying value of its investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value.

During the three and six months ended June 30, 2021, the Company recognized (pre-tax) realized and unrealized gains from certain real estate and venture capital investments, including realized gains from the sale of certain real estate investments of $6.0 million and $11.1 million, respectively.

(b) Represents the Company's income on its preferred membership interests in a holding company for ALLO, which was deconsolidated from the Company's financial statements in December 2020.

As of June 30, 2021, the amount of preferred membership interests held by the Company was $129.7 million that earns a preferred annual return of 6.25 percent.

(c) The Company provides investment advisory services through Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisor subsidiary, under various arrangements.

(a) During the three and nine months ended September 30, 2021, the Company recognized (pre-tax) realized and unrealized gains from certain real estate and venture capital investments, including realized gains from the sale of certain real estate investments of $11.2 million and $22.2 million, respectively.

During the second quarter of 2020, the Company recognized a $51.0 million (pre-tax) gain to adjust the carrying value of its investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value.

See the caption "Subsequent Events" in note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for information regarding investment-related events subsequent to September 30, 2021 which are expected to impact income from investments in the fourth quarter of 2021.

(b) The Company provides investment advisory services through Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisor subsidiary, under various arrangements.

WRCM earns annual fees of 25 basis points on the majority of the outstanding balance of asset-backed securities under management and up to 50 percent of the gains from the sale of asset-backed securities or asset-backed securities being called prior to the full contractual maturity for which it provides advisory services.

As of June 30, 2021, the outstanding balance of asset-backed securities under management subject to these arrangements was $1.6 billion.

As of September 30, 2021, the outstanding balance of asset-backed securities under management subject to these arrangements was $1.9 billion.

In addition, WRCM earns annual management fees of five basis points for certain other investments under management.

(d) Represents the Company's share of income or loss on its voting membership interests in a holding company for ALLO.

See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information regarding the accounting for and income statement impact of this investment during 2021.

(c) Represents the Company's income on its preferred membership interests in ALLO, which was deconsolidated from the Company's financial statements in December 2020.

As of September 30, 2021, the amount of preferred membership interests held by the Company was $129.7 million, which earns a preferred annual return of 6.25 percent.

(d) Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.

(e) Represents borrower late fees earned by the AGM operating segment.

The decrease in borrower late fees for the six months ended June 30, 2021 as compared to the same period in 2020 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic.

(f) Represents revenue earned from providing administrative support and marketing services primarily to Great Lakes’ former parent company under a contract that expired in January 2021.

(g) Represents the Company's share of income or loss from solar investments accounted for using the HLBV method of accounting.

The decrease was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic.

(f) Represents the Company's share of loss on its voting membership interests in ALLO.

(g) Represents the Company's share of loss from solar investments under the Hypothetical Liquidation at Book Value ("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.

7 unchanged sentences

2021 June 30,

2021 September 30,

Servicing volume (dollars in millions):

16 unchanged sentences

Nelnet Servicing's and Great Lakes' current student loan servicing contracts with the Department are currently scheduled to expire on December 14, 2023.

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 for up to two additional years to December 14, 2023.

The Department is conducting a contract procurement process for a new framework for the servicing of all student loans owned by the Department.

See note 12 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

Nelnet Servicing and Great Lakes are two of the four large private sector companies (referred to as Title IV Additional Servicers, or "TIVAS") that have student loan servicing contracts with the Department.

In addition, the Department has contracts with four not-for-profit ("NFP") entities to service loans owned by the Department.

In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department.

The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance.

Nelnet cannot predict the timing, nature, or ultimate outcome of the NextGen or any other contract procurement process by the Department.

Nelnet Servicing and Great Lakes are two of the current eight private sector entities that have student loan servicing contracts with the Department.

On July 8, 2021 and July 19, 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA") and the New Hampshire Higher Education Association Foundation Network ("Granite State"), two of the current existing servicers for the Department, announced that they will exit the federal student loan servicing business after their current contracts with the Department expire in December 2021.

In addition, in October 2021, Maximus assumed Navient's student loan servicing contract with the Department.

PHEAA services approximately 8.5 million borrowers under its contract.

The Department has indicated that the PHEAA servicing volume will be transitioned to other servicers, including the Company.

A portion of the PHEAA servicing volume will be transitioned to other servicers prior to January 31, 2022, which is the effective date on which federal student loan payments will no longer be suspended under the CARES Act.

The remaining PHEAA volume will begin to transfer to other servicers during the second quarter of 2022.

The Company currently anticipates up to 1 million PHEAA borrowers will be transitioned to its servicing platform prior to January 31, 2022.

Granite State services approximately 1.3 million borrowers under its contract.

Granite State servicing volume has been and will continue to be transitioned to Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third

and fourth quarters of 2021.

Both Granite State and Edfinancial utilize Nelnet Servicing's platform to service their loans for the Department.

The Department currently allocates new loan volume among its servicers based on certain performance metrics that measure the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers, and that measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default.

Under the most recent publicly announced performance metrics measurements used by the Department for the quarterly periods July 1, 2020 through December 31, 2020, Great Lakes’ and Nelnet Servicing’s overall rankings among the eight current servicers for the Department were second and tied for third, respectively.

Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan servicing volumes for the period March 1, 2021 through August 31, 2021 are 15% and 14%, respectively.

On July 8, 2021 and July 19, 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), one of the TIVAS, and the New Hampshire Higher Education Association Foundation Network ("Granite State"), one of the NFP servicers that utilizes Nelnet Servicing's platform to service its loans for the Department, announced that they will exit the federal student loan servicing business after their current contracts with the Department expire in December 2021.

PHEAA and Granite State service approximately 8.5 million and 1.3 million borrowers, respectively, under their contracts.

As of the filing of this report, the Department has not yet indicated how or when the PHEAA and Granite State servicing volume will be transitioned to other servicers for the Department.

Under the most recent publicly announced performance metrics used by the Department for the quarterly periods January 1, 2021 through June 30, 2021, Great Lakes’ and Nelnet Servicing’s overall rankings among the remaining six go-forward servicers for the Department were third and fifth, respectively.

Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan servicing volumes beginning September 1, 2021 are 18% and 12%, respectively.

Servicing contract amendments entered into with the Department in September 2021 to extend the contracts through December 2023, also amended the methodology for performance measurements and new loan volume allocations, in substantial part by reflecting newly designed service level performance metrics under which, along with portfolio performance metrics, the Department will evaluate each servicer and make new loan volume allocations on a quarterly basis.

The new service level performance metrics will be a substantial driver used by the Department to allocate new loan volume among the servicers.

The CARES Act, among other things, provides broad relief for federal student loan borrowers through January 31, 2022.

Under the CARES Act, beginning in March 2020, federal student loan payments and interest accruals were suspended for all borrowers that had loans owned by the Department.

As a result of the CARES Act, the Company received less servicing revenue per borrower from the Department based on the borrower forbearance status through September 30, 2020 than what was earned on such accounts prior to these provisions, and the Department further reduced the monthly rate paid to its servicers for those in forbearance status for the period from October 1, 2020 through January 31, 2022 from $2.19 per borrower to $2.05 per borrower.

The Company currently anticipates revenue per borrower from the Department will increase to pre-CARES Act levels beginning February 1, 2022.

In addition, during the fourth quarter of 2021 and first quarter of 2022, the Company anticipates earning additional revenue from the Department based on incremental work to be performed by the Company to support the Department borrowers coming out of forbearance.

Such services and activities include extended hours of operation and outbound engagement.

Private Education Loan Servicing

1 unchanged sentence

In conjunction with the sale, the Company was selected as servicer of the portfolio.

During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the remaining borrowers converted in the second quarter of 2021.

During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the vast majority of the remaining borrowers converted in the second quarter of 2021.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020 Additional information

1 unchanged sentence

Loan servicing and systems revenue 112,351 113,794 335,961 337,571 See table below for additional information.

Intersegment servicing revenue 8,480 8,537 16,748 19,591 Represents revenue earned by the LSS operating segment as a result of servicing loans for the AGM and Nelnet Bank operating segments.

Decrease in the six months ended June 30, 2021 compared to the same period in 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio.

Intersegment servicing revenue 8,621 8,287 25,369 27,878 Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments.

Increase in the three months ended September 20, 2021 as compared to the same period in 2020 was due to an increase in private loan servicing revenue from AGM related to AGM's partial ownership of the former Wells Fargo private education loan portfolio, partially offset by the expected amortization of AGM's FFELP portfolio.

Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio.

FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.

Other income 701 1,914 1,814 4,544 Represents revenue earned from providing administrative support and marketing services primarily to Great Lakes’ former parent company under a contract that expired in January 2021.

Other income 727 2,353 2,541 6,897 Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.

Impairment expense (13,243) — (13,243) — During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continue to work from home due to COVID-19.

As a result of this evaluation, the Company recorded a non-cash impairment charge during the third quarter of 2021.

The impairment charge recognized by the LSS operating segment related primarily to building and building improvement assets.

Total other income 108,456 124,434 350,628 372,346

Salaries and benefits 68,388 68,401 134,846 138,894 Decrease in the six months ended June 30, 2021 compared to the same period in 2020 was due to a decrease in contact center operations and support as a result of federal student loan payments being suspended in March 2020 under the CARES Act, which suspension has been extended through at least September 30, 2021.

The Company currently expects salaries and benefits will increase as it prepares for the provisions of the CARES Act to expire.

Salaries and benefits 75,305 72,912 210,151 211,806 Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in contact center operations and support personnel as a result of the suspension of federal student loan payments beginning in March 2020 under the CARES Act.

Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to the Company hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022.

The Company currently expects salaries and benefits to continue to increase as it prepares for the provisions of the CARES Act to expire.

Depreciation and amortization 4,245 9,951 20,411 27,941 Includes depreciation on property and equipment and amortization of intangibles from the Great Lakes acquisition in February 2018.

Amortization of intangible assets for the three months ended June 30, 2021 and 2020 was $5.5 million and $5.0 million, respectively, and for the six months ended June 30, 2021 and 2020 was $11.0 million and $9.8 million, respectively.

Amortization of intangible assets for the three months ended September 30, 2021 and 2020 was $0.7 million and $5.6 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $11.6 million and $15.4 million, respectively.

The majority of the Great Lakes intangible assets became fully amortized at June 30, 2021.

The Company expects amortization expense for the second half of 2021 to be approximately $1.4 million.

Excluding amortization of intangible assets, the decrease in 2021 compared to 2020 was due to certain purchases to integrate Great Lakes and expand servicing capacity becoming fully depreciated.

Other expenses 13,273 13,380 26,557 30,870 Decrease in the six months ended June 30, 2021 compared to same period in 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily associated with the fact that while student loan payments are suspended there is a significant reduction of borrower statement printing and postage costs.

The Company currently expects these costs will increase when the provisions of the CARES Act expire, currently scheduled for September 30, 2021 but subject to possible further extension.

Other expenses 12,738 12,407 39,296 43,277 Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily through a significant reduction of borrower statement printing and postage costs while student loan payments are suspended.

The Company currently expects these costs will increase when the provisions of the CARES Act expire, scheduled for January 31, 2022.

Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence.

Intersegment expenses 19,217 15,834 52,241 48,069 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Increase in 2021 was due to the Company hiring contact center operations and support associates during the third quarter of 2021 in preparation for the provisions of the CARES Act to expire January 31, 2022.

The Company currently expects intersegment expenses to continue to increase as it prepares for the provisions of the CARES Act to expire.

Total operating expenses 111,505 111,104 322,099 331,093

Income before income taxes 15,513 14,598 31,596 28,220

Income tax expense (3,723) (3,504) (7,583) (6,773) Represents income tax expense at an effective tax rate of 24%.

Net income $ 11,790 11,094 24,013 21,447

Before tax operating margin 12.8 % 12.0 % 13.0 % 11.4 % Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue.

The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it facilitates an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

Before tax operating margin increased in 2021 as compared to 2020 primarily due to operating expenses decreasing as a result of federal student loan payments being suspended under the CARES Act as discussed above.

The Company currently expects these costs will increase and operating margin to decrease from recent historical levels as it prepares for the provisions of the CARES Act to expire.

(Loss) income before income taxes (3,042) 13,340 28,554 41,559

Income tax benefit (expense) 730 (3,201) (6,853) (9,974) Represents income tax expense at an effective tax rate of 24%.

Net (loss) income $ (2,312) 10,139 21,701 31,585

GAAP before tax operating margin (2.5) % 10.7 % 7.9 % 11.2 % Before tax operating margin, excluding impairment expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment expense) divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue.

The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it provides additional information to facilitate an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

Before tax operating margin, excluding impairment expense, decreased for the three months ended September 30, 2021 as compared to the same period in 2020 due to increased operating expenses as the Company prepares for the provisions of the CARES Act to expire on January 31, 2022.

Before tax operating margin, excluding impairment expense, increased for the nine months ended September 30, 2021 as compared to the same period in 2020 due to operating expenses being lower throughout the first half of 2021 as a result of the suspension of federal student loan payments under the CARES Act as discussed above.

Impairment expense 10.9 % — 3.6 % —

Non-GAAP before tax operating margin, excluding impairment expense 8.4 % 10.7 % 11.5 % 11.2 %

Loan servicing and systems revenue

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020 Additional information

Government servicing - Nelnet $ 37,595 36,295 107,843 112,305 Represents revenue from Nelnet Servicing's Department servicing contract.

Decrease in the six months ended June 30, 2021 compared to the same period in 2020 was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, and decrease in revenue earned per borrower as a result of certain provisions included in the CARES Act suspending federal student loan payments through at least September 30, 2021.

Decrease in revenue for the three months ended June 30, 2021 compared to the same period in 2020 was due to a further decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.

The decrease in revenue in 2021 as compared to 2020 was partially offset as a result of an increase in the number of borrowers serviced.

The Company expects future revenue per borrower to continue to be lower while the loan payment suspension provisions of the CARES Act remain in effect.

Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act, and further decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.

These items were partially offset by an increase in the number of borrowers serviced.

Increase in revenue for the three months ended September 30, 2021 compared to the same period in 2020 was a result of an increase in the number of borrowers serviced, partially offset by a decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.

Government servicing - Great Lakes 46,489 45,350 133,654 137,010 Represents revenue from Great Lakes' Department servicing contract.

Decrease in the six months ended June 30, 2021 compared to the same period in 2020 was due to a decrease in fees earned from the Department for originating consolidation loans and decrease in revenue earned per borrower as a result of certain provisions included in the CARES Act suspending federal student loan payments through at least September 30, 2021.

The decrease in revenue in 2021 as compared to 2020 was partially offset as a result of an increase in the number of borrowers serviced.

The Company expects future revenue per borrower to continue to be lower while the loan payment suspension provisions of the CARES Act remain in effect.

Private education and consumer loan servicing 12,816 8,196 21,364 16,805 Increase for the three and six months ended June 30, 2021 compared to the same periods in 2020 was due to the former Wells Fargo borrowers converted to the Company's servicing platform during March and the second quarter of 2021.

Excluding revenue earned on the former Wells Fargo portfolio, revenue for the three and six months ended June 30, 2021 decreased from the comparable periods in 2020.

Changes among the current and comparable prior periods were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes does not administer the TPD discharge program.

Private education and consumer loan servicing 13,198 7,928 34,563 24,733 Increase for the three and nine months ended September 30, 2021 compared to the same periods in 2020 was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021.

Excluding revenue earned on the former Wells Fargo portfolio, revenue for the three and nine months ended September 30, 2021 decreased compared to the comparable periods in 2020.

The decrease in revenue was due to a decrease in the number of legacy borrowers serviced, a decrease in origination fee revenue, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.

FFELP servicing 4,557 4,912 13,930 15,443 Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced.

In addition, decrease during the six months ended June 30, 2021 as compared to the same period in 2020 was due to the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic.

In addition, decrease during the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic.

Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.

Software services 7,374 10,651 15,827 21,969 Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, decreasing and/or expiring in January 2021.

Software services 6,952 10,426 22,779 32,395 Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring in January 2021.

This decrease in revenue was partially offset by an increase in the number of remote hosted servicing borrowers in 2021 as compared to 2020.

Outsourced services 7,962 4,705 19,634 6,803 The majority of this revenue relates to providing contact center and back office operational outsourcing activities.

Increase in 2021 compared to 2020 was due to contracts with state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support).

Revenue from providing these services to state agencies was $5.4 million and $15.1 million during the three and six months ended June 30, 2021, and $3.1 million during the three and six months ended June 30, 2020.

Outsourcing activities provided to state agencies are performed under shorter-term contracts, and thus revenue in future periods could decrease from current levels depending on agencies' needs for such services.

Outsourced services 3,560 8,883 23,192 15,685 The majority of this revenue relates to providing contact center and back office operational outsourcing services.

During 2020, the Company began providing services to state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support).

Outsourcing activities provided to state agencies are performed under shorter-term contracts.

Revenue from providing these services to state agencies was $1.3 million and $6.6 million for the three months ended September 30, 2021 and 2020, respectively, and $16.3 million and $9.7 million during the nine months ended September 30, 2021 and 2020, respectively.

Outsourcing activities provided to state agencies decreased during the third quarter of 2021 as the needs for such services have decreased from prior periods.

Loan servicing and systems revenue $ 112,351 113,794 335,961 337,571

4 unchanged sentences

The results of HigherSchool and CD2 are reported in the Company’s consolidated financial statements from the date of acquisition.

Revenue recognized by these acquisitions during the three and six months ended June 30, 2021 was $7.1 million and $15.1 million, respectively.

Revenue recognized by these acquisitions during the three and nine months ended September 30, 2021 was $3.4 million and $18.5 million, respectively.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020 Additional information

4 unchanged sentences

Intersegment revenue 3 3 9 17

Other income 13 373 13 373

Total other income 85,340 74,497 257,306 217,490

2 unchanged sentences

Depreciation and amortization 2,762 2,366 8,789 7,115 Represents primarily amortization of intangible assets from prior business acquisitions.

Amortization of intangible assets related to business acquisitions was $2.8 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively, and $5.7 million and $4.4 million for the six months ended June 30, 2021 and 2020, respectively.

Amortization of intangible assets related to business acquisitions was $2.6 million and $2.4 million for the three months ended September 30, 2021 and 2020, respectively, and $8.3 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively.

The increase in 2021 compared to 2020 was due to the acquisitions of HigherSchool and CD2.

Other expenses 4,437 2,326 9,259 8,418 Other expenses decreased during the first quarter of 2021 compared to the first quarter of 2020 due to a reduction of travel expenses due to COVID-19 which was partially offset due to the acquisitions of HigherSchool and CD2.

Other expenses increased during the second quarter of 2021 as compared to the second quarter of 2020 due to higher costs for consulting and professional fees due to investments in new technologies and due to the acquisitions of HigherSchool and CD2, partially offset by a decrease in costs for travel related expenses.

Other expenses 4,804 3,126 14,063 11,544 Increase was due to higher costs for consulting and professional fees due to investments in new technologies, the acquisitions of HigherSchool and CD2, and an increase in travel and in-person conferences during the third quarter of 2021.

Intersegment expenses, net 3,672 3,610 10,856 10,366 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

5 unchanged sentences

The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020 Additional information

Tuition payment plan services $ 26,538 22,947 56,088 54,534 Revenue increased for the three and six months ended June 30, 2021 as compared to the same periods in 2020 as a result of a higher number of payment plans in the K-12 market.

Revenue recognized during the first three months of 2021 was negatively impacted due to enrollment for institutions of higher education decreasing as a result of COVID-19.

Tuition payment plan services $ 23,618 22,477 79,706 77,011 Revenue increased for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 as a result of a higher number of payment plans in the K-12 market, partially offset due to enrollment for institutions of higher education decreasing as a result of COVID-19.

Payment processing 39,852 35,420 97,898 88,329 Payment volumes in 2021 increased as compared to 2020 in both the K-12 and higher education markets.

The increase in payments volume is driven by both new customers and an increase in volumes from existing customers.

The increase in payments volume is driven by both new customers and an increase in volume from existing customers.

Education technology and services 21,098 15,840 78,153 50,820 Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions.

Additionally, revenues from the Company’s application and enrollment products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.

Additionally, revenues from the Company’s school information system software, application and enrollment products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.

Other 756 384 1,527 940

5 unchanged sentences

The increase in before tax operating margin in 2021 as compared to 2020 was due to operating leverage.

Proposed Community College Legislation

On April 28, 2021, President Biden announced the American Families Plan, which includes a proposal for Congress to approve funding to allow students to enroll in community college at no tuition cost.

If such proposal were to become effective, this segment's revenue earned from community colleges would be adversely impacted.

Community colleges represented approximately 10% of total segment revenues (and net revenue) for the year ended December 31, 2020.

The decrease in margin for the three months ended September 30, 2021 as compared to the same period in 2020 was due to investment in the development of new technologies and increase in travel and in-person conferences in 2021.

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of June 30, 2021, the AGM operating segment had a $19.3 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.5 years.

For a summary of the Company’s loan portfolio as of June 30, 2021 and December 31, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of September 30, 2021, the AGM operating segment had a $18.4 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.3 years.

For a summary of the Company’s loan portfolio as of September 30, 2021 and December 31, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Activity

The following table sets forth the activity of loans in the AGM operating segment:

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020

8 unchanged sentences

Consumer loans sold (18,390) (60,779) (95,807) (185,028)

Other loans sold (5,280) — (5,280) —

Ending balance $ 18,437,694 19,519,566 18,437,694 19,519,566

The Company has also purchased partial ownership in certain private education, federally insured, and consumer loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments" in the Company's consolidated financial statements.

As of the latest remittance reports filed by the various trusts prior to June 30, 2021, the Company’s ownership correlates to approximately $460 million, $495 million, and $280 million of private education, federally insured, and consumer loans, respectively, included in these securitizations.

The Company has also purchased partial ownership in certain private education, consumer, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments" in the Company's consolidated financial statements.

As of the latest remittance reports filed by the various trusts prior to September 30, 2021, the Company’s ownership correlates to approximately $545 million, $250 million, and $485 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations.

The loans held in these securitizations are not included in the above table.

5 unchanged sentences

Allowance for Loan Losses and Loan Delinquencies

For a summary of the Company's activity in the allowance for loan losses for the three and six months ended June 30, 2021 and 2020, and a summary of the Company's loan status and delinquency amounts as of June 30, 2021, December 31, 2020, and June 30, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

AGM recorded a negative provision for loan losses for its federally insured and consumer loan portfolios of $7.5 million and $11.4 million, respectively, 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.

AGM recorded a $1.4 million 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.

During the second quarter of 2021, AGM recorded a negative provision for loan losses of $0.4 million and $1.0 million for its federally insured and private education loan portfolios, respectively, due to management's estimate of certain continued improved economic conditions as of June 30, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of March 31, 2021.

These amounts were partially offset due to the Company establishing an initial allowance for federally insured and private education loans acquired during the period.

The Company recorded a provision for loan losses of $1.7 million on its consumer loan portfolio during the second quarter of 2021 as a result of establishing an initial allowance for consumer loans acquired during the period, which was partially offset by management's estimate of certain continued improved economic conditions as of June 30, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of March 31, 2021.

AGM's total allowance for loan losses of $144.9 million at June 30, 2021 represents reserves equal to 0.6% of AGM's federally insured loans (or 23.8% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.5% of AGM's private education loans, and 11.0% of AGM's consumer loans.

For a summary of the Company's activity in the allowance for loan losses for the three and nine months ended September 30, 2021 and 2020, and a summary of the Company's loan status and delinquency amounts as of September 30, 2021, December 31, 2020, and September 30, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

AGM's total allowance for loan losses of $137.3 million at September 30, 2021 represents reserves equal to 0.6% of AGM's federally insured loans (or 23.6% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.3% of AGM's private education loans, and 12.0% of AGM's consumer loans.

Loan Spread Analysis

1 unchanged sentence

The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans or debt outstanding.

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020

3 unchanged sentences

Variable loan yield, net 1.79 1.94 1.82 2.47

Loan cost of funds - interest expense (a) (1.04) (1.67) (1.06) (2.14)

Loan cost of funds - derivative settlements (b) (c) (0.01) 0.14 (0.00 ) 0.09

Loan cost of funds - interest expense (a) (b) (0.99) (1.16) (1.03) (1.82)

Loan cost of funds - derivative settlements (c) (d) (0.02) 0.02 (0.01) 0.07

Variable loan spread 0.78 0.80 0.78 0.72

Fixed rate floor income, gross 0.75 0.73 0.75 0.58

Fixed rate floor income - derivative settlements (b) (d) (0.12) (0.02) (0.10) 0.01

Fixed rate floor income - derivative settlements (c) (e) (0.11) (0.07) (0.10) (0.02)

Fixed rate floor income, net of settlements on derivatives 0.64 0.66 0.65 0.56

5 unchanged sentences

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 income and the impact of this reduction to interest expense was excluded in the table above.

(b) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

(b) In the third quarter of 2021, the Company redeemed certain asset-backed debt securities prior to their legal maturity, resulting in the recognition of $1.5 million in interest expense from the write-off of all remaining debt issuance costs related to the initial issuance of such bonds.

This expense was excluded in the table above.

(c) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income.

3 unchanged sentences

Company for each type of derivative for the 2021 and 2020 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2021 and 2020 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without

derivative settlements follows.

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020

3 unchanged sentences

Loan spread 1.55 % 1.51 % 1.54 % 1.23 %

(d) Derivative settlements consist of net settlements (paid) received related to the Company’s floor income interest rate swaps.

(d) Derivative settlements consist of net settlements (paid) received related to the Company’s 1:3 basis swaps.

(e) Derivative settlements consist of net settlements paid related to the Company’s floor income interest rate swaps.

A trend analysis of AGM's core and variable loan spreads is summarized below.

4 unchanged sentences

See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.

Variable loan spread increased during the three and six months ended June 30, 2021 compared to the same periods in 2020 due to a narrowing of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above).

Variable loan spread increased during the nine months ended September 30, 2021 compared to the same period in 2020 due to a narrowing of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above).

The significant widening during the first and second quarters of 2020 was the result of a significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020.

In a declining interest rate environment, student loan spread is compressed, due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest resets on the Company's debt that occurs either monthly or quarterly.

See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on the AGM’s FFELP student loan assets and related funding for those assets.

The difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of AGM's federally insured student loan portfolio.

A summary of fixed rate floor income and its contribution to core loan spread follows:

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020

3 unchanged sentences

Fixed rate floor income contribution to spread, net 0.64 % 0.66 % 0.65 % 0.56 %

(a) Derivative settlements consist of net settlements (paid) received related to the Company's derivatives used to hedge student loans earning fixed rate floor income.

The increase in gross fixed rate floor income for the three and six months ended June 30, 2021 compared to the same periods in 2020 was due to lower interest rates in 2021 as compared to 2020.

(a) Derivative settlements consist of net settlements paid related to the Company's derivatives used to hedge student loans earning fixed rate floor income.

The increase in gross fixed rate floor income for the nine months ended September 30, 2021 compared to the same period in 2020 was due to lower interest rates in 2021 as compared to 2020.

The Company has a portfolio of derivative instruments in which the Company pays a fixed rate and receives a floating rate to economically hedge a portion of loans earning fixed rate floor income.

5 unchanged sentences

As a result, immediately after the announced LIBOR discontinuation dates specified above, respectively, LIBOR will no longer be representative of the underlying market and economic reality that the rates are intended to measure.

As of June 30, 2021, the interest earned on a principal amount of $17.7 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $17.0 billion of AGM’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

As of September 30, 2021, the interest earned on a principal amount of $16.9 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $16.8 billion of AGM’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

In addition, the Company’s derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR.

3 unchanged sentences

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2021 2020 2021 2020 Additional information

Net interest income after provision for loan losses $ 77,179 86,025 275,092 125,500 See table below for additional analysis.

Other income 2,316 732 2,760 3,947 During the second quarter of 2021, the Company recognized income of $1.5 million on certain investments.

Excluding income from these investments, other income consists primarily of borrower late fees.

Borrower late fees for the three months ended June 30, 2021 and 2020 was $0.7 million and $0.3 million, respectively, and for the six months ended June 30, 2021 and 2020 was $1.2 million and $3.5 million, respectively.

Gain on sale of loans 15,271 — 15,271 18,206 The Company sold $77.4 million (par value) and $124.2 million (par value) of consumer loans in May 2021 and January 2020, respectively, and recognized gains of $15.3 million and $18.2 million, respectively.

Impairment expense and provision for beneficial interests, net — — 2,436 (26,303) In March 2020, the Company recognized a provision expense of $26.3 million related to its beneficial interest in consumer loan securitization investments as a result of the expected impacts of the COVID-19 pandemic.

Other (expense) income (7,275) 1,004 (4,514) 4,951 During the third quarter of 2021, the Company recognized a loss of $6.3 million and $3.4 million from an investment accounted for under the equity method and from certain repurchases of its own debt, respectively.

These items were partially offset by $1.7 million in fees earned for serving as sponsor and administrator on certain non-consolidated securitizations of private education loans sold by Wells Fargo.

Excluding these items, other income consists primarily of borrower late fees.

Borrower late fees for the three months ended September 30, 2021 and 2020 was $0.5 million and $0.9 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $1.7 million and $4.4 million, respectively.

The decrease in borrower late fees in the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic.

During the first quarter of 2021, $2.4 million of such provision was reversed due to improved economic conditions.

2 unchanged sentences

The majority of the derivative market value adjustments during the six months ended June 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps.

2 unchanged sentences

Other expenses 5,420 3,672 12,763 12,253 The primary component of other expenses is servicing fees paid to third parties.

Intersegment expenses 8,549 9,055 16,976 20,971 Amounts include fees paid to the LSS operating segment for the servicing of the AGM’s loan portfolio.

Increase for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 was due to $2.3 million of enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio, partially offset by a decrease of servicing fees as AGM's portfolio decreases.

Intersegment expenses 8,652 8,868 25,627 29,839 Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio.

These amounts exceed the actual cost of servicing the loans.

The decrease in servicing fees for the six months ended June 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio and a decrease in certain servicing activities due to borrower relief initiatives and policies as a result of the COVID-19 pandemic.

The decrease in servicing fees for the three months ended June 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio.

The decrease in servicing fees for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio and a decrease in certain servicing activities due to borrower relief initiatives and policies as a result of the COVID-19 pandemic.

The decrease in servicing fees for the three months ended September 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio.

Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Total operating expenses 12,672 14,339 25,371 30,415 Total operating expenses were 27 basis points and 28 basis points of the average balance of loans for the three months ended June 30, 2021 and 2020, respectively, and 26 basis points and 30 basis points for the six months ended June 30, 2021 and 2020, respectively.

The decrease for the six months ended June 30, 2021 as compared to the same period in 2020 was due to a decrease in certain servicing activities beginning in March 2020 due to borrower relief initiatives and policies as a result of the COVID-19 pandemic.

Income (loss) before income taxes 78,916 51,398 220,524 (9,545)

Income tax (expense) benefit (18,940) (12,336) (52,926) 2,291 Represents income tax (expense) benefit at an effective tax rate of 24%.

Net income (loss) $ 59,976 39,062 167,598 (7,254) The increase in GAAP net income for the three months ended June 30, 2021 as compared to the same period in 2020 was due to (i) an increase in core loan spread;

(ii) a gain on sale of consumer loans during the second quarter of 2021;

and (iii) an increase in interest income from consumer loan beneficial interests.

These items were partially offset by a decrease in the average balance of loans in 2021 as compared to 2020.

The increase in GAAP net income for the six months ended June 30, 2021 as compared to the same period in 2020 was due to (i) an increase in core loan spread;

(ii) a decrease in interest expense in 2021 as a result of reversing a historical accrued interest liability on certain bonds;

(iii) the recognition of a negative provision in the first quarter of 2021 as compared to provision for loan losses in 2020 as a result of the COVID-19 pandemic;

(iv) provision expense recognized during the first quarter of 2020 related to beneficial interest investments in consumer loans as a result of the expected impacts of the COVID-19 pandemic;

and (v) an increase in interest income from consumer loan beneficial interests.

These items were partially offset due to (i) a decrease in the average balance of loans in 2021 as compared to 2020;

and (ii) a decrease in servicing costs beginning in March 2020 due to borrower relief initiatives and policies as a result of the COVID-19 pandemic.

Total operating expenses 14,614 12,978 39,984 43,393 Total operating expenses were 31 basis points and 26 basis points of the average balance of loans for the three months ended September 30, 2021 and 2020, respectively, and 28 basis points and 29 basis points for the nine months ended September 30, 2021 and 2020, respectively.

The increase for the three months ended September 30, 2021 as compared to the same period in 2020 was due to enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio.

The decrease for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to a decrease in certain servicing activities beginning in March 2020 due to borrower relief initiatives and policies as a result of the COVID-19 pandemic, partially offset by enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio.

Income before income taxes 60,085 89,917 280,613 80,372

Income tax expense (14,421) (21,580) (67,347) (19,289) Represents income tax expense at an effective tax rate of 24%.

Net income $ 45,664 68,337 213,266 61,083

Additional information:

Net income (loss) $ 59,976 39,062 167,598 (7,254) See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.

Net income $ 45,664 68,337 213,266 61,083 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.

Derivative market value adjustments, net (7,260) (3,440) (44,455) 21,072

1 unchanged sentence

Net income, excluding derivative market value adjustments $ 40,146 65,723 179,480 77,098

Net interest income after provision for loan losses, net of settlements on derivatives

The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."

Three months ended June 30, Six months ended June 30,

Net interest income after provision for loan losses, net of settlements on derivatives The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."

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

2021 2020 2021 2020 Additional information

12 unchanged sentences

derivatives (a) 37,911 41,561 135,019 111,301

Fixed rate floor income, gross 36,639 31,866 72,178 50,625 Fixed rate floor income increased in 2021 compared to 2020 due to lower interest rates in 2021 as compared to 2020.

Derivative settlements, net (a) (5,153) (1,308) (9,438) 816 Derivative settlements include the settlements (paid) received related to the Company's floor income interest rate swaps.

The increase in net settlements paid in 2021 as compared to the same periods in 2020 was due to a decrease in interest rates.

Fixed rate floor income, gross 35,850 36,633 108,029 87,258 Increase in the nine months ended September 30, 2021 compared to the same period in 2020 was due to lower interest rates in 2021 as compared to 2020.

Decrease in the three months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in the balance of fixed rate floor loans, partially offset by a decrease in interest rates.

Derivative settlements, net (a) (5,209) (3,588) (14,648) (2,772) Derivative settlements include the settlements paid related to the Company's floor income interest rate swaps.

The increase in net settlements paid in 2021 as compared to the same periods in 2020 was due to a decrease in interest rates and an increase in the notional amount of derivatives outstanding.

Fixed rate floor income, net of settlements on derivatives 30,641 33,045 93,381 84,486

Core loan interest income (a) 68,552 74,606 228,400 195,787

Investment interest 8,882 4,443 11,530 8,577 Increase in 2021 compared to 2020 was due to an increase in interest income on the Company's consumer loan beneficial interest investments, partially offset by lower interest rates and lower weighted average cash and restricted cash balances in 2021 as compared to 2020.

Investment interest 8,771 3,452 20,301 12,029 Increase in 2021 compared to 2020 was due to an increase in interest income on the Company's loan beneficial interest investments, partially offset by lower interest rates in 2021 as compared to 2020.

Intercompany interest (113) (245) (421) (1,174) Decrease in 2021 compared to 2020 was due to lower interest rates and lower weighted average debt outstanding in 2021 as compared to 2020.

Negative provision (provision) for loan losses - federally insured loans 397 1,950 7,880 (37,373) See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."

(Provision) negative provision for loan losses - federally insured loans (4,452) 5,299 3,428 (32,074) See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."

Negative provision (provision) for loan losses - private education loans 1,208 5,650 781 (6,471)

(Provision) negative provision for loan losses - consumer loans (2,696) (5,128) 7,016 (34,931)

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 75,616 68,916 188,234 49,533 Increase for the three months ended June 30, 2021 as compared to the same period in 2020 was due to (i) an increase in core loan spread;

and (ii) an increase in interest income on the Company's consumer loan beneficial interest investments.

These items were partially offset by a decrease in the average balance of loans.

Increase for the six months ended June 30, 2021 as compared to the same period in 2020 was due to (i) an increase in core loan spread;

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 71,270 83,634 259,505 133,166 Decrease for the three months ended September 30, 2021 as compared to the same period in 2020 was due to (i) a decrease in core loan spread;

(ii) a decrease in the average balance of loans;

and (iii) a net provision for loan loss recorded in 2021 compared to a net negative provision in 2020.

These items were partially offset by an increase in interest income on the Company's loan beneficial interest investments.

Increase for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to (i) an increase in core loan spread;

(ii) a decrease in interest expense in 2021 as a result of reversing a historical accrued interest liability on certain bonds;

(iii) an increase in interest income on the Company's consumer loan beneficial interest investments;

(iii) an increase in interest income on the Company's loan beneficial interest investments;

and (iv) the recognition of a negative provision for loan losses in 2021 as compared to provision for loan losses in 2020 as a result of the COVID-19 pandemic.

9 unchanged sentences

Loan Portfolio

As of June 30, 2021, Nelnet Bank had a $190.6 million loan portfolio, consisting of $97.2 million of FFELP loans and $93.4 million of private education loans.

As of June 30, 2021, Nelnet Bank's allowance for loan losses on its portfolio was $0.8 million, which represents reserves equal to 0.3% of Nelnet Bank's federally insured loans (or 10.0% of the risk sharing component of the loans that is not covered by the federal guaranty), and 0.6% of Nelnet Bank's private education loans.

There were no charge offs recognized by the bank during the three and six months ended June 30, 2021.

As of September 30, 2021, Nelnet Bank had a $192.3 million loan portfolio, consisting of $98.4 million of private education loans and $93.9 million of FFELP loans.

As of September 30, 2021, Nelnet Bank's allowance for loan losses on its portfolio was $0.7 million, which represents reserves equal to 0.3% of Nelnet Bank's federally insured loans (or 12.2% of the risk sharing component of the loans that is not covered by the federal guaranty), and 0.4% of Nelnet Bank's private education loans.

For a summary of Nelnet Bank's activity in the allowance for loan losses for the three and nine months ended September 30, 2021, and a summary of Nelnet Bank's loan status and delinquency amounts as of September 30, 2021 and December 31, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The following table sets forth the activity in Nelnet Bank's loan portfolio:

Three months ended Six months ended

June 30, 2021 June 30, 2021

Three months ended Nine months ended

September 30, 2021 September 30, 2021

Beginning balance:

6 unchanged sentences

$ 192,325 192,325

As of June 30, 2021, Nelnet Bank had $299.4 million of deposits.

As of September 30, 2021, Nelnet Bank had $302.2 million of deposits.

All of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs), intercompany savings deposits, and retail and other savings deposits and CDs.

The intercompany deposits are deposits from Nelnet, Inc.

(Parent Company) and its subsidiaries and include a pledged deposit of $40.0 million from Nelnet, Inc.

(Parent Company), as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating deposits, and Nelnet Business Services custodial deposits consisting of tuition payments collected which are subsequently remitted to the appropriate school.

(the parent company) and its subsidiaries and include a pledged deposit of $40.0 million from Nelnet, Inc.

as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating deposits, and Nelnet Business Services custodial deposits consisting of collected tuition payments which are subsequently remitted to the appropriate school.

Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans and commercial and institutional CDs.

2 unchanged sentences

The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities.

Three months ended Six months ended

June 30, 2021 June 30, 2021

Three months ended Nine months ended

September 30, 2021 September 30, 2021

Balance Rate Balance Rate

21 unchanged sentences

The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio.

Nelnet Bank has opted into the CBLR framework for the quarter ended June 30, 2021 with a leverage ratio of 26.4%.

Nelnet Bank has opted into the CBLR framework for the quarter ended September 30, 2021 with a leverage ratio of 25.5%.

Nelnet Bank intends to maintain at all times regulatory capital levels that meet both the minimum level necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework and the minimum level required by the FDIC.

4 unchanged sentences

In addition, certain shared service and support costs incurred by the Company are not and will not be reflected as part of the Nelnet Bank operating segment through 2023 (the bank's de novo period).

The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank's operating segment were $1.0 million and $1.7 million for the three and six months ended June 30, 2021, respectively.

Three months ended Six months ended

June 30, 2021 June 30, 2021 Additional information

The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank's operating segment were $0.8 million and $2.5 million for the three and nine months ended September 30, 2021, respectively.

Three months ended Nine months ended

September 30, 2021 September 30, 2021 Additional information

Total interest income $ 2,061 5,479 Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments.

1 unchanged sentence

Net interest income 1,640 4,472

Provision for loan losses 69 491 Represents provision expense during the period, primarily related to loans originated or purchased during the current period.

(Negative provision) provision for loan losses (113) 378

Net interest income after provision for loan losses 1,753 4,094

4 unchanged sentences

Total operating expenses 1,367 5,255

Loss before income taxes (268) (1,519)

Income tax benefit 64 351 Represents income tax benefit at an effective tax rate of 24.1% and 23.1% for the three and six months ended June 30, 2021, respectively.

Net loss $ (204) (1,168)

Income (loss) before income taxes 836 (686)

Income tax (expense) benefit (200) 151 Represents income tax (expense) benefit at an effective tax rate of 24.0% and 22.0% for the three and nine months ended September 30, 2021, respectively.

Net income (loss) $ 636 (535)

LIQUIDITY AND CAPITAL RESOURCES

4 unchanged sentences

The Company has historically generated positive cash flow from operations.

For the year ended December 31, 2020 and the six months ended June 30, 2021, the Company’s net cash provided by operating activities was $212.8 million and $187.6 million, respectively.

As of June 30, 2021, the Company had cash and cash equivalents of $213.0 million.

For the year ended December 31, 2020 and the nine months ended September 30, 2021, the Company’s net cash provided by operating activities was $212.8 million and $389.7 million, respectively.

As of September 30, 2021, the Company had cash and cash equivalents of $191.9 million.

Cash held by Nelnet Bank is generally not available for Company activities outside of Nelnet Bank.

Excluding Nelnet Bank, cash and cash equivalents as of June 30, 2021 was $190.1 million.

The Company invests excess cash in federally insured asset-backed securities, and the cash proceeds from the sale of these securities could be used for operating and/or other investing opportunities.

The Company had a portfolio of federally insured student loan asset-backed securities (classified as available-for-sale) with a fair value of $371.4 million as of June 30, 2021.

Excluding Nelnet Bank, cash and cash equivalents as of September 30, 2021 was $170.9 million.

The Company invests excess cash in federally insured student loan asset-backed securities, and the cash proceeds from the sale of these securities could be used for operating and/or other investing opportunities.

The Company had a portfolio of federally insured student loan asset-backed securities (classified as available-for-sale) with a fair value of $403.7 million as of September 30, 2021.

Investments held by Nelnet Bank are generally not available for Company activities outside of Nelnet Bank.

Excluding Nelnet Bank, the fair value of federally insured student loan asset-backed securities as of June 30, 2021 was $183.4 million.

As of June 30, 2021, the Company had participated $132.1 million of its non-Nelnet Bank federally insured student loan asset-backed securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

The Company also has a $455.0 million unsecured line of credit that matures on December 16, 2024.

As of June 30, 2021, there was $85.0 million outstanding on the unsecured line of credit and $370.0 million was available for future use.

Excluding Nelnet Bank, the fair value of federally insured student loan asset-backed securities as of September 30, 2021 was $210.9 million.

As of September 30, 2021, the Company had participated $194.2 million of its non-Nelnet Bank federally insured student loan asset-backed securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

The Company also has a $495.0 million unsecured line of credit that matures on September 22, 2026.

As of September 30, 2021, there was no amount outstanding on the unsecured line of credit and $495.0 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 $737.5 million, subject to certain conditions.

In addition, the Company has a $22.0 million secured line of credit agreement that matures on May 30, 2022.

As of June 30, 2021, the secured line of credit had $5.0 million outstanding and $17.0 million was available for future use.

As of September 30, 2021, the secured line of credit had $5.0 million outstanding and $17.0 million was available for future use.

In addition, the Company has retained certain of its own asset-backed securities upon their initial issuance or repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market.

2 unchanged sentences

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.

As of June 30, 2021, the Company holds $42.6 million (par value) of its own asset-backed securities.

As of September 30, 2021, the Company holds $179.7 million (par value) of its own asset-backed securities.

The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions (or investment interests therein);

2 unchanged sentences

The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.

During the six months ended June 30, 2021, the Company generated $187.6 million in operating activities, compared to using $105.6 million for the same period in 2020.

During the nine months ended September 30, 2021, the Company generated $389.7 million in operating activities, compared to generating $173.0 million for the same period in 2020.

The increase in such cash flows from operating activities was due to:

• An increase in net income;

• Adjustments to net income for the impact of loss from investments during the six months ended June 30, 2021, as compared to a gain for the same period in 2020, and the non-cash change in deferred income taxes;

• Proceeds from the Company's clearinghouse for margin payments on derivatives for the six months ended June 30, 2021 compared to payments to the clearinghouse in 2020;

• The impact of changes to the due to customers liability account, other liabilities, accrued interest receivable, and other assets during the six months ended June 30, 2021 as compared to the same period in 2020.

• Adjustments to net income for the impact of reduced gains from investments and sale of loans during the nine months ended September 30, 2021, as compared to the same period in 2020, and the non-cash change in deferred income taxes;

• Proceeds from the Company's clearinghouse for margin payments on derivatives for the nine months ended September 30, 2021 compared to payments to the clearinghouse in 2020;

• The impact of changes to the due to customers liability account and other assets during the nine months ended September 30, 2021 as compared to the same period in 2020.

These factors were partially offset by:

• The adjustments to net income for derivative market value adjustments;

• Adjustments to net income for the impact of the non-cash provision for loan losses, beneficial interests, and impairment charges (a significant portion of which during the six months ended June 30, 2020 were related to COVID-19), and depreciation and amortization;

• Adjustments to net income for the impact of the non-cash provision for loan losses, beneficial interests, and impairment charges (a significant portion of which during the nine months ended September 30, 2020 were related to COVID-19), and depreciation and amortization;

• Purchases of equity securities classified as trading;

• The impact of changes to accounts receivable and accrued interest payable during the six months ended June 30, 2021 as compared to the same period in 2020.

• The impact of changes to accrued interest receivable, accounts receivable, and accrued interest payable during the nine months ended September 30, 2021 as compared to the same period in 2020.

The primary items included in the statement of cash flows for investing activities are the purchase and repayment of loans.

The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable used to fund loans.

Cash used in investing activities and provided by financing activities for the six months ended June 30, 2021 was $243.4 million and $174.9 million, respectively.

Cash provided by investing activities and used in financing activities for the six months ended June 30, 2020 was $717.3 million and $913.0 million, respectively.

Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2021 was $543.4 million and $640.3 million, respectively.

Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2020 was $953.6 million and $1.4 billion, respectively.

Investing and financing activities are further addressed in the discussion that follows.

1 unchanged sentence

The following table shows AGM's debt obligations outstanding that are secured by loan assets and related collateral.

As of June 30, 2021

As of September 30, 2021

Carrying amount

3 unchanged sentences

Bonds and Notes Issued in Asset-backed Securitizations

The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk.

The majority of AGM’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk.

Cash generated from student loans funded in asset-backed securitizations provide the sources of liquidity to satisfy all obligations related to the outstanding bonds and notes issued in such securitizations.

In addition, due to (i) the difference between the yield the Company receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees the Company earns from these transactions, the Company has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of June 30, 2021, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its portfolio to be approximately $2.22 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of June 30, 2021.

As of June 30, 2021, the Company had $18.7 billion of loans included in asset-backed securitizations, which represented 96.8 percent of its total loan portfolio.

The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of June 30, 2021, private education and consumer loans funded with operating cash, loans acquired subsequent to June 30, 2021, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments" on the Company's consolidated balance sheets).

In addition, due to (i) the difference between the yield AGM receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees AGM earns from these transactions, AGM has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of September 30, 2021, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $2.10 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of September 30, 2021.

As of September 30, 2021, AGM had $18.2 billion of loans included in asset-backed securitizations, which represented 98.4 percent of its total loan portfolio.

The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of September 30, 2021, private education and consumer loans funded with operating cash, loans acquired subsequent to September 30, 2021, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments" on the Company's consolidated balance sheets).

Asset-backed Securitization Cash Flow Forecast

1 unchanged sentence

(dollars in millions)

The forecasted future undiscounted cash flows of approximately $2.22 billion include approximately $1.23 billion (as of June 30, 2021) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.99 billion, or approximately $0.75 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's June 30, 2021 balance of consolidated shareholders' equity.

The forecasted future undiscounted cash flows of approximately $2.10 billion include approximately $1.21 billion (as of September 30, 2021) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.89 billion, or approximately $0.68 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's September 30, 2021 balance of consolidated shareholders' equity.

The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast.

14 unchanged sentences

As the percentage of the Company's outstanding debt financed by three-month LIBOR declines, the Company's basis risk will be reduced.

In addition, the Company attempts to mitigate the impact of this basis risk by entering into certain derivative instruments.

See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."

LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations.

See "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" above and Item 1A, "Risk Factors - Loan Portfolio -

Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2020 Annual Report for additional information.

See "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2020 Annual Report for additional information.

The Company uses the current forward interest rate yield curve to forecast cash flows.

7 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 June 30, 2021, the Company had two FFELP warehouse facilities with an aggregate maximum financing amount available of $360.0 million, of which $301.1 million was outstanding and $58.9 million was available for additional funding.

One warehouse facility has a static advance rate until the expiration date of the liquidity provisions (November 22, 2021).

As of September 30, 2021, the Company had two FFELP warehouse facilities with an aggregate maximum financing amount available of $110.0 million, of which $5.4 million was outstanding and $104.6 million was available for additional funding.

On October 14, 2021, the Company terminated one of the FFELP warehouse facilities.

The remaining FFELP warehouse facility has an aggregate maximum financing amount of $60.0 million and a static advance rate until the expiration date of the liquidity provisions (November 22, 2021).

In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor.

The loans would then be funded at this new advance rate until the final maturity date of the facility (November 22, 2022).

The other warehouse facility has a static advance rate that requires initial equity for loan funding and does not require increased equity based on market movements.

As of June 30, 2021, the Company had $24.8 million advanced as equity support on these facilities.

For further discussion of the Company's FFELP warehouse facilities outstanding at June 30, 2021, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

On July 27, 2021, the Company downsized its warehouse facility with a previous maximum financing amount of $310.0 million as of June 30, 2021 to a maximum financing amount of $60.0 million.

Upon the downsizing of this warehouse facility, a portion of the loans previously funded in this facility were funded via the participation agreement with Union Bank.

The Company has a private education loan warehouse facility that, as of June 30, 2021, had an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023.

As of June 30, 2021, $140.8 million was outstanding under this warehouse facility, $34.2 million was available for future funding, and $15.0 million was advanced as equity support.

For further discussion of the Company's FFELP warehouse facilities, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The Company has a private education loan warehouse facility that, as of September 30, 2021, had an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023.

As of September 30, 2021, $118.3 million was outstanding under this warehouse facility, $56.7 million was available for future funding, and $12.9 million was advanced as equity support.

Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.

10 unchanged sentences

In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers.

The Company has entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company has an approximately 8 percent interest in the loans.

The Company has entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company has an approximately 8 percent interest in the loans and in residual interests in subsequent securitizations of the loans.

In conjunction with the sale, the Company was selected as servicer of the portfolio.

During March and throughout the second quarter of 2021, the borrowers were converted to the Company's servicing platform.

During March and throughout the second quarter of 2021, the vast majority of the borrowers were converted to the Company's servicing platform.

The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility.

As of June 30, 2021, the Company has contributed a net amount of $8.3 million into the limited partnership.

On May 20, 2021 and June 30, 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $5.8 billion of the private education loans purchased by the joint venture.

On May 20, 2021, June 30, 2021, and August 18, 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $7.4 billion of the private education loans purchased by the joint venture.

The Company is accounting for its approximately 8 percent residual interest in these securitizations as held-to-maturity beneficial interest investments.

1 unchanged sentence

As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement.

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheet as "investments" and as of June 30, 2021, the fair value of these bonds was $307.3 million.

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheet as "investments" and as of September 30, 2021, the fair value of these bonds was $371.7 million.

The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell its investment securities (bonds) to a third-party.

The Company entered into repurchase agreements with third-parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

As of June 30, 2021, $255.3 million was outstanding on the repurchase agreements.

The maturity dates on the repurchase agreements are various dates between September 24, 2021 and December 20, 2023, but are subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates.

As of September 30, 2021, $334.5 million was outstanding on the repurchase agreements.

The maturity dates on the repurchase agreements are various dates between November 15, 2021 and December 20, 2023, but are subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates.

The Company pays interest on amounts outstanding on the repurchase agreements based on LIBOR plus an applicable spread, and is also required to pay additional cash in the event the fair value of the securities subject to a repurchase agreement becomes less than the original purchase price of such securities.

Upon termination or expiration of the repurchase agreements, the Company would use cash and/or cash proceeds from its unsecured line of credit to satisfy any outstanding obligations subject to the repurchase agreements.

On October 27, 2021, the joint venture completed a final asset-backed securitization of $1.2 billion of private education loans that permanently financed all remaining eligible loans temporarily funded in the joint venture limited partnership's warehouse facility.

Union Bank Participation Agreement

The Company maintains an agreement with 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 loans.

As of June 30, 2021, $771.6 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of September 30, 2021, $878.3 million of loans 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.

4 unchanged sentences

Asset-backed Securities Transactions

On June 30, 2021, the Company completed a FFELP asset-backed securitization totaling $797.0 million (par value).

The proceeds from this transaction was used primarily to refinance student loans included in the Company's FFELP warehouse facilities.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on this securitization.

During the first nine months of 2021, the Company completed two FFELP asset-backed securitization totaling $1.3 billion (par value).

The proceeds from these transactions were used primarily to finance student loans purchased during the period and refinance student loans included in the Company's FFELP warehouse facilities.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on these securitizations.

The Company, through its subsidiaries, has historically funded student loans by completing asset-backed securitizations.

9 unchanged sentences

As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc.

is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC

requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent;

is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent;

(ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10 percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.;

2 unchanged sentences

Based on Nelnet Bank's business plan and current financial condition, the Company currently believes that the initial capital contribution of $100.0 million and pledged deposit of $40.0 million should provide sufficient capital and liquidity to Nelnet Bank for the next two to three years.

Liquidity Impact Related to ALLO Communications LLC

Liquidity Impact Related to ALLO

As previously disclosed, on October 1, 2020, the Company entered into various agreements with SDC, a third party global digital infrastructure investor, and ALLO, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO.

After completion of the initial transactions subject to these agreements, SDC, the Company, and members of ALLO's management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests of a holding company for ALLO, and upon the receipt of regulatory approvals for the transactions on December 21, 2020 the Company deconsolidated ALLO from the Company's consolidated financial statements.

After completion of the initial transactions subject to these agreements, SDC, the Company, and members of ALLO's management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests in ALLO, and upon the receipt of regulatory approvals for the transactions on December 21, 2020, the Company deconsolidated ALLO from the Company's consolidated financial statements.

In addition, on January 19, 2021, ALLO obtained 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, a portion of the non-voting preferred membership interests of a holding company for ALLO held by the Company were redeemed in exchange for an aggregate redemption price payment to the Company of $100.0 million.

The agreements among the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause the redemption, on or before April 2024, of the remaining non-voting preferred membership interests of a holding company for ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.

As of June 30, 2021, such outstanding preferred membership interests and accrued and unpaid preferred return held by the Company was $129.7 million and $3.6 million, respectively.

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

The agreements among the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause the redemption, on or before April 2024, of the remaining non-voting preferred membership interests in ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.

As of September 30, 2021, such outstanding preferred membership interests and accrued and unpaid preferred return held by the Company was $129.7 million and $5.6 million, respectively.

The non-voting preferred membership interests earn a preferred annual return of 6.25 percent.

4 unchanged sentences

By using derivative instruments, the Company is exposed to market risk which could impact its liquidity.

Based on the derivative portfolio outstanding as of June 30, 2021, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse.

Based on the derivative portfolio outstanding as of September 30, 2021, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse.

However, if interest rates move materially and negatively impact the fair value of the Company's derivative portfolio, the replacement of LIBOR as a benchmark rate has significant adverse impacts on the Company's derivatives, or if the Company enters into additional derivatives for which the fair value becomes negative, the Company could be required to make variation margin payments to its third-party clearinghouse.

3 unchanged sentences

Other Debt Facilities

As discussed above, the Company has a $455.0 million unsecured line of credit with a maturity date of December 16, 2024.

As of June 30, 2021, the unsecured line of credit had $85.0 million outstanding and $370.0 million was available for future use.

The Company's unsecured line of credit, discussed above, was amended on September 22, 2021.

As part of the amendment, the facility size increased from $455.0 million to $495.0 million and the maturity date was extended from December 16, 2024 to September 22, 2026.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for a summary of additional terms that were modified as part of the amendment.

As of September 30, 2021, the unsecured line of

credit had no amount outstanding and $495.0 million was available for future use.

The Company also has a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022.

As of June 30, 2021, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use.

As of September 30, 2021, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use.

The secured line of credit is secured by several Company-owned properties.

Upon the maturity date of these facilities, there can be no assurance that the Company will be able to maintain these lines of credit, increase the amount outstanding under the lines, or find alternative funding if necessary.

Upon the maturity date of the line of credit facilities, there can be no assurance that the Company will be able to maintain these lines of credit, increase the amount outstanding under the lines, or find alternative funding if necessary.

During 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in federally insured student loan asset-backed securities.

As of June 30, 2021, $132.1 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of September 30, 2021, $194.2 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

This participation agreement has been accounted for by the Company as a secured borrowing.

2 unchanged sentences

The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022.

As of June 30, 2021, 3,246,732 shares remained authorized for repurchase under the Company's stock repurchase program.

As of September 30, 2021, 2,909,015 shares remained authorized for repurchase under the Company's stock repurchase program.

Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity.

Shares repurchased by the Company during the three months ended March 31, 2021 and June 30, 2021 are shown below.

Such shares were repurchased from employees to satisfy tax withholding obligations upon the vesting of restricted stock, and not as part of the stock repurchase program.

Shares repurchased by the Company during the three months ended March 31, 2021, June 30, 2021, and September 30, 2021 are shown below.

For additional information on stock repurchases during the third quarter of 2021, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price

2 unchanged sentences

Quarter ended June 30, 2021 5,368 399 74.25

Quarter ended September 30, 2021 341,094 25,078 73.52

Total 372,661 $ 27,486 73.76

On June 14, 2021, the Company paid a second quarter 2021 cash dividend on the Company's Class A and Class B common stock of $0.22 per share.

In addition, the Company's Board of Directors has declared a third quarter 2021 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.22 per share.

The third quarter cash dividend will be paid on September 15, 2021 to shareholders of record at the close of business on September 1, 2021.

Included in the shares repurchased during the quarter ended September 30, 2021 in the table above are a total of 337,717 shares of Class A common stock the Company purchased on August 10, 2021 from various estate planning trusts associated with Shelby J.

Butterfield, a significant shareholder of the Company.

The shares were purchased at a discount to the closing market price of the Company's Class A common stock as of August 9, 2021, and the transaction was separately approved by the Company's Board of Directors and its Nominating and Corporate Governance Committee.

Immediately prior to the Company's repurchase of such shares, certain of the repurchased shares were shares of the Company's Class B common stock that were converted to shares of Class A common stock.

On September 15, 2021, the Company paid a third quarter 2021 cash dividend on the Company's Class A and Class B common stock of $0.22 per share.

In addition, the Company's Board of Directors has declared a fourth quarter 2021 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.24 per share.

The fourth quarter cash dividend will be paid on December 15, 2021 to shareholders of record at the close of business on December 1, 2021.

The Company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.

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 2. Management’s Discussion and Analysis