NELNET INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NELNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (unaudited) As of As of September 30, 2021 December 31, 2020 Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 138,044 and $ 175,698 , respectively) $ 19,304,203 20,185,656 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 31,966 33,292 Cash and cash equivalents - held at a related party 159,970 87,957 Total cash and cash equivalents 191,936 121,249 Investments 1,374,913 992,940 Restricted cash 764,089 553,175 Restricted cash - due to customers 295,053 283,971 Accounts receivable (net of allowance for doubtful accounts of $ 1,458 and $ 1,824 , respectively) 78,508 76,460 Goodwill 142,092 142,092 Intangible assets, net 55,176 75,070 Property and equipment, net 117,296 123,527 Other assets 79,473 92,020 Total assets $ 22,402,739 22,646,160 Liabilities: Bonds and notes payable $ 18,610,748 19,320,726 Accrued interest payable 4,441 28,701 Bank deposits 200,651 54,633 Other liabilities 375,393 312,280 Due to customers 354,543 301,471 Total liabilities 19,545,776 20,017,811 Commitments and contingencies Equity: Nelnet, Inc. shareholders' equity: Preferred stock, $ 0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — — Common stock: Class A, $ 0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,556,370 shares and 27,193,154 shares, respectively 276 272 Class B, convertible, $ 0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,681,454 shares and 11,155,571 shares, respectively 107 112 Additional paid-in capital 1,593 3,794 Retained earnings 2,843,799 2,621,762 Accumulated other comprehensive earnings, net 13,479 6,102 Total Nelnet, Inc. shareholders' equity 2,859,254 2,632,042 Noncontrolling interests ( 2,291 ) ( 3,693 ) Total equity 2,856,963 2,628,349 Total liabilities and equity $ 22,402,739 22,646,160 Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities: Loans and accrued interest receivable $ 19,032,669 20,132,996 Restricted cash 699,143 499,223 Bonds and notes payable ( 18,465,230 ) ( 19,355,375 ) Accrued interest payable and other liabilities ( 66,913 ) ( 83,127 ) Net assets of consolidated education and other lending variable interest entities $ 1,199,669 1,193,717 See accompanying notes to consolidated financial statements. 2 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (unaudited) Three months ended Nine months ended September 30, September 30, 2021 2020 2021 2020 Interest income: Loan interest $ 124,096 134,507 370,219 462,439 Investment interest 12,558 5,238 29,122 18,379 Total interest income 136,654 139,745 399,341 480,818 Interest expense: Interest on bonds and notes payable and bank deposits 50,176 58,423 127,939 277,788 Net interest income 86,478 81,322 271,402 203,030 Less provision (negative provision) for loan losses 5,827 ( 5,821 ) ( 10,847 ) 73,476 Net interest income after provision for loan losses 80,651 87,143 282,249 129,554 Other income/expense: Loan servicing and systems revenue 112,351 113,794 335,961 337,571 Education technology, services, and payment processing revenue 85,324 74,121 257,284 217,100 Communications revenue — 20,211 — 57,390 Other 11,867 1,502 30,183 69,910 Gain on sale of loans 3,444 14,817 18,715 33,023 Impairment expense and provision for beneficial interests, net ( 14,159 ) — ( 12,223 ) ( 34,419 ) Derivative market value adjustments and derivative settlements, net 1,351 1,049 28,868 ( 13,406 ) Total other income/expense 200,178 225,494 658,788 667,169 Cost of services: Cost to provide education technology, services, and payment processing services 31,335 25,243 80,063 63,424 Cost to provide communications services — 5,914 — 17,240 Total cost of services 31,335 31,157 80,063 80,664 Operating expenses: Salaries and benefits 128,592 126,096 363,351 365,220 Depreciation and amortization 15,710 30,308 56,129 87,349 Other expenses 38,324 34,744 107,611 115,184 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 15,649 19,156 76,747 30,286 Net income 51,219 71,176 257,136 118,020 Net loss (income) attributable to noncontrolling interests 1,919 327 3,467 ( 568 ) Net income attributable to Nelnet, Inc. $ 53,138 71,503 260,603 117,452 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 1.38 1.86 6.74 2.99 Weighted average common shares outstanding - basic and diluted 38,595,721 38,538,476 38,646,892 39,229,932 See accompanying notes to consolidated financial statements. 3 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (unaudited) Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Net income $ 51,219 71,176 257,136 118,020 Other comprehensive income: Net changes related to foreign currency translation adjustments $ ( 9 ) — ( 9 ) — Net changes related to available-for-sale debt securities: Unrealized gains during period, net 4,524 1,893 11,770 2,114 Reclassification of gains to net income, net ( 1,173 ) ( 513 ) ( 2,052 ) ( 390 ) Income tax effect ( 804 ) 2,547 ( 329 ) 1,051 ( 2,332 ) 7,386 ( 412 ) 1,312 Other comprehensive income 2,538 1,051 7,377 1,312 Comprehensive income 53,757 72,227 264,513 119,332 Comprehensive loss (income) attributable to noncontrolling interests 1,919 327 3,467 ( 568 ) Comprehensive income attributable to Nelnet, Inc. $ 55,676 72,554 267,980 118,764 See accompanying notes to consolidated financial statements. 4 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive earnings, net Noncontrolling interests Total equity Class A Class B Balance as of June 30, 2020 — 27,232,836 11,171,609 $ — 272 112 1,867 2,331,312 3,233 3,990 2,340,786 Issuance of noncontrolling interests — — — — — — — — — 14 14 Net income (loss) — — — — — — — 71,503 — ( 327 ) 71,176 Other comprehensive income — — — — — — — — 1,051 — 1,051 Distribution to noncontrolling interests — — — — — — — — — ( 331 ) ( 331 ) Cash dividends on Class A and Class B common stock - $ 0.20 per share — — — — — — — ( 7,664 ) — — ( 7,664 ) Issuance of common stock, net of forfeitures — 24,132 — — — — 553 — — — 553 Compensation expense for stock based awards — — — — — — 1,864 — — — 1,864 Repurchase of common stock — ( 93,380 ) — — — — ( 2,580 ) ( 2,038 ) — — ( 4,618 ) Balance as of September 30, 2020 — 27,163,588 11,171,609 $ — 272 112 1,704 2,393,113 4,284 3,346 2,402,831 Balance as of June 30, 2021 — 27,494,942 11,054,171 $ — 275 111 10,158 2,812,315 10,941 ( 5,182 ) 2,828,618 Issuance of noncontrolling interests — — — — — — — — — 4,935 4,935 Net income (loss) — — — — — — — 53,138 — ( 1,919 ) 51,219 Other comprehensive income — — — — — — — — 2,538 — 2,538 Distribution to noncontrolling interests — — — — — — — — — ( 125 ) ( 125 ) Cash dividends on Class A and Class B common stock - $ 0.22 per share — — — — — — — ( 8,407 ) — — ( 8,407 ) Issuance of common stock, net of forfeitures — 29,805 — — — — 493 — — — 493 Compensation expense for stock based awards — — — — — — 2,770 — — — 2,770 Repurchase of common stock — ( 341,094 ) — — ( 3 ) — ( 11,828 ) ( 13,247 ) — — ( 25,078 ) Conversion of common stock — 372,717 ( 372,717 ) — 4 ( 4 ) — — — — — Balance as of September 30, 2021 — 27,556,370 10,681,454 $ — 276 107 1,593 2,843,799 13,479 ( 2,291 ) 2,856,963 See accompanying notes to consolidated financial statements. 5 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive earnings, net Noncontrolling interests Total equity Class A Class B Balance as of December 31, 2019 — 28,458,495 11,271,609 $ — 285 113 5,715 2,377,627 2,972 4,382 2,391,094 Issuance of noncontrolling interests — — — — — — — — — 66 66 Net income — — — — — — — 117,452 — 568 118,020 Other comprehensive income — — — — — — — — 1,312 — 1,312 Distribution to noncontrolling interests — — — — — — — — — ( 920 ) ( 920 ) Cash dividends on Class A and Class B common stock - $ 0.60 per share — — — — — — — ( 23,343 ) — — ( 23,343 ) Issuance of common stock, net of forfeitures — 196,407 — — 2 — 5,153 — — — 5,155 Compensation expense for stock based awards — — — — — — 5,459 — — — 5,459 Repurchase of common stock — ( 1,591,314 ) — — ( 16 ) — ( 14,623 ) ( 58,506 ) — — ( 73,145 ) Impact of adoption of new accounting standard — — — — — — — ( 18,867 ) — — ( 18,867 ) Conversion of common stock — 100,000 ( 100,000 ) — 1 ( 1 ) — — — — — Acquisition of noncontrolling interest — — — — — — — ( 1,250 ) — ( 750 ) ( 2,000 ) Balance as of September 30, 2020 — 27,163,588 11,171,609 $ — 272 112 1,704 2,393,113 4,284 3,346 2,402,831 Balance as of December 31, 2020 — 27,193,154 11,155,571 $ — 272 112 3,794 2,621,762 6,102 ( 3,693 ) 2,628,349 Issuance of noncontrolling interests — — — — — — — — — 11,823 11,823 Net income (loss) — — — — — — — 260,603 — ( 3,467 ) 257,136 Other comprehensive income — — — — — — — — 7,377 — 7,377 Distribution to noncontrolling interests — — — — — — — — — ( 6,954 ) ( 6,954 ) Cash dividends on Class A and Class B common stock - $ 0.66 per share — — — — — — — ( 25,319 ) — — ( 25,319 ) Issuance of common stock, net of forfeitures — 261,760 — — 3 — 4,406 — — — 4,409 Compensation expense for stock based awards — — — — — — 7,628 — — — 7,628 Repurchase of common stock — ( 372,661 ) — — ( 4 ) — ( 14,235 ) ( 13,247 ) — — ( 27,486 ) Conversion of common stock — 474,117 ( 474,117 ) — 5 ( 5 ) — — — — — Balance as of September 30, 2021 — 27,556,370 10,681,454 $ — 276 107 1,593 2,843,799 13,479 ( 2,291 ) 2,856,963 See accompanying notes to consolidated financial statements. 6 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Nine months ended September 30, 2021 2020 Net income attributable to Nelnet, Inc. $ 260,603 117,452 Net (loss) income attributable to noncontrolling interests ( 3,467 ) 568 Net income 257,136 118,020 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 113,651 149,175 Loan discount accretion ( 25,048 ) ( 27,814 ) (Negative provision) provision for loan losses ( 10,847 ) 73,476 Derivative market value adjustments ( 44,455 ) 21,072 Proceeds from (payments to) clearinghouse - initial and variation margin, net 41,033 ( 20,405 ) Gain from sale of loans ( 18,715 ) ( 33,023 ) Gain from investments, net ( 293 ) ( 37,766 ) Loss (gain) from repurchases of debt, net 3,964 ( 508 ) Purchases of equity securities - trading, net ( 41,591 ) — Deferred income tax expense (benefit) 33,078 ( 10,975 ) Non-cash compensation expense 7,824 5,538 Provision for beneficial interests and impairment expense, net 12,223 34,419 Increase in loan and investment accrued interest receivable ( 41,931 ) ( 27,192 ) (Increase) decrease in accounts receivable ( 2,137 ) 45,475 Decrease in other assets, net 35,381 19,491 Decrease in the carrying amount of ROU asset 5,652 9,150 Decrease in accrued interest payable ( 24,260 ) ( 17,673 ) Increase in other liabilities, net 41,040 32,733 Decrease in the carrying amount of lease liability ( 5,158 ) ( 8,484 ) Increase (decrease) in due to customers 53,146 ( 151,674 ) Net cash provided by operating activities 389,693 173,035 Cash flows from investing activities: Purchases and originations of loans ( 1,145,775 ) ( 1,032,636 ) Purchases of loans from a related party ( 21,476 ) ( 75,118 ) Net proceeds from loan repayments, claims, and capitalized interest 2,010,645 2,209,797 Proceeds from sale of loans 85,906 136,126 Purchases of available-for-sale securities ( 521,565 ) ( 221,427 ) Proceeds from sales of available-for-sale securities 104,520 97,278 Proceeds from and sale of beneficial interest in loan securitizations 30,811 34,371 Purchases of other investments ( 166,664 ) ( 122,584 ) Proceeds from other investments 209,634 8,528 Purchases of property and equipment ( 42,594 ) ( 80,698 ) Net cash provided by investing activities $ 543,442 953,637 7 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine months ended September 30, 2021 2020 Cash flows from financing activities: Payments on bonds and notes payable $ ( 2,479,582 ) ( 2,803,214 ) Proceeds from issuance of bonds and notes payable 1,738,405 1,460,524 Payments of debt issuance costs ( 6,778 ) ( 7,144 ) Increase in bank deposits, net 146,018 — Dividends paid ( 25,319 ) ( 23,343 ) Repurchases of common stock ( 27,486 ) ( 73,145 ) Proceeds from issuance of common stock 1,108 1,250 Acquisition of noncontrolling interest — ( 2,000 ) Issuance of noncontrolling interests 13,905 — Distribution to noncontrolling interests ( 548 ) ( 660 ) Net cash used in financing activities ( 640,277 ) ( 1,447,732 ) Effect of exchange rate changes on cash ( 175 ) — Net increase (decrease) in cash, cash equivalents, and restricted cash 292,683 ( 321,060 ) Cash, cash equivalents, and restricted cash, beginning of period 958,395 1,222,601 Cash, cash equivalents, and restricted cash, end of period $ 1,251,078 901,541 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 117,336 259,120 Cash disbursements made for income taxes, net of refunds and credits received (a) $ 10,921 13,413 Cash disbursements made for operating leases $ 6,003 9,457 Non-cash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 4,026 4,158 Receipt of beneficial interest in consumer loan securitizations $ 23,506 52,501 Distribution to noncontrolling interests $ 6,406 260 Issuance of noncontrolling interests $ 2,082 — (a) The Company utilized $ 22.2 million and $ 17.0 million of federal and state tax credits related primarily to renewable energy during the nine months ended September 30, 2021 and 2020, respectively. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows. As of As of As of As of September 30, 2021 December 31, 2020 September 30, 2020 December 31, 2019 Total cash and cash equivalents $ 191,936 121,249 96,316 133,906 Restricted cash 764,089 553,175 519,143 650,939 Restricted cash - due to customers 295,053 283,971 286,082 437,756 Cash, cash equivalents, and restricted cash $ 1,251,078 958,395 901,541 1,222,601 See accompanying notes to consolidated financial statements. 8 NELNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts, unless otherwise noted) (unaudited) 1. Basis of Financial Reporting The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2020 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results for the year ending December 31, 2021. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report"). 2. Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and accrued interest receivable consisted of the following: As of As of September 30, 2021 December 31, 2020 Non-Nelnet Bank: Federally insured student loans: Stafford and other $ 4,142,059 4,383,000 Consolidation 13,939,429 14,746,173 Total 18,081,488 19,129,173 Private education loans 319,212 320,589 Consumer loans 36,994 109,346 Non-Nelnet Bank loans 18,437,694 19,559,108 Nelnet Bank: Federally insured student loans 93,930 — Private education loans 98,395 17,543 Nelnet Bank loans 192,325 17,543 Accrued interest receivable 834,831 794,611 Loan discount, net of unamortized loan premiums and deferred origination costs ( 22,603 ) ( 9,908 ) Allowance for loan losses: Non-Nelnet Bank: Federally insured loans ( 115,859 ) ( 128,590 ) Private education loans ( 17,053 ) ( 19,529 ) Consumer loans ( 4,429 ) ( 27,256 ) Non-Nelnet Bank allowance for loan losses ( 137,341 ) ( 175,375 ) Nelnet Bank: Federally insured loans ( 289 ) — Private education loans ( 414 ) ( 323 ) Nelnet Bank allowance for loan losses ( 703 ) ( 323 ) $ 19,304,203 20,185,656 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 who securitized such loans. The Company recognized a gain of $ 15.3 million (pre-tax) and $ 3.2 million (pre-tax), respectively, as part of these transactions. As partial consideration received for the consumer loans sold, the Company received a 24.5 percent and 6.9 percent residual interest, respectively, in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet. 9 Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Impact of ASC 326 adoption Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sales Balance at end of period Three months ended September 30, 2021 Non-Nelnet Bank Federally insured loans $ 120,802 — 4,452 ( 10,330 ) — 935 — 115,859 Private education loans 19,403 — ( 1,208 ) ( 954 ) 113 — ( 301 ) 17,053 Consumer loans 4,702 — 2,696 ( 1,133 ) 187 — ( 2,023 ) 4,429 Nelnet Bank Federally insured loans 245 — 44 — — — — 289 Private education loans 567 — ( 157 ) — 4 — — 414 $ 145,719 — 5,827 ( 12,417 ) 304 935 ( 2,324 ) 138,044 Three months ended September 30, 2020 Non-Nelnet Bank Federally insured loans $ 144,829 — ( 5,299 ) ( 2,487 ) — 2,900 — 139,943 Private education loans 25,535 — ( 5,650 ) ( 5 ) 133 — — 20,013 Consumer loans 39,081 — 5,128 ( 2,723 ) 381 — ( 15,924 ) 25,943 $ 209,445 — ( 5,821 ) ( 5,215 ) 514 2,900 ( 15,924 ) 185,899 Nine months ended September 30, 2021 Non-Nelnet Bank Federally insured loans $ 128,590 — ( 3,428 ) ( 11,563 ) — 2,260 — 115,859 Private education loans 19,529 — ( 781 ) ( 1,850 ) 454 — ( 299 ) 17,053 Consumer loans 27,256 — ( 7,016 ) ( 4,547 ) 668 — ( 11,932 ) 4,429 Nelnet Bank Federally insured loans — — 289 — — — — 289 Private education loans 323 — 89 — 4 — ( 2 ) 414 $ 175,698 — ( 10,847 ) ( 17,960 ) 1,126 2,260 ( 12,233 ) 138,044 Nine months ended September 30, 2020 Non-Nelnet Bank Federally insured loans $ 36,763 72,291 32,074 ( 14,885 ) — 13,700 — 139,943 Private education loans 9,597 4,797 6,471 ( 1,360 ) 508 — — 20,013 Consumer loans 15,554 13,926 34,931 ( 9,893 ) 849 — ( 29,424 ) 25,943 $ 61,914 91,014 73,476 ( 26,138 ) 1,357 13,700 ( 29,424 ) 185,899 a) During the three months ended September 30, 2021 and 2020, and nine months ended September 30, 2021 and 2020, the Company acquired $ 64.6 million (par value), $ 137.5 million (par value), $ 153.3 million (par value), and $ 721.4 million (par value), respectively, of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company. Beginning in March 2020, the coronavirus disease 2019 ("COVID-19") pandemic has caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of ASC 326 effective January 1, 2020, the Company’s allowance for loan losses increased during the first quarter of 2020 primarily as a result of the COVID-19 pandemic and its effects on economic conditions. During the third quarter of 2020, the Company recognized a negative provision for loan losses 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) in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of June 30, 2020. For the three months ended September 30, 2021, charge-offs for the Company’s federally insured loan portfolio were $ 10.3 million. The increased level of charge-offs in the third quarter of 2021 as compared to historical periods was due to the Company proactively applying a 90 day natural disaster forbearance due to COVID-19 to any loan that was 31-269 days past due effective March 13, 2020 through June 30, 2020. Beginning July 1, 2020, the Company discontinued proactively applying 10 90 day natural disaster forbearances on past due loans. Many loans that exited the natural disaster forbearance on July 1, 2020 have gone into default, been submitted to the guaranty agency, and been charged off by the Company during the third quarter of 2021. During the nine months ended September 30, 2021, the Company recorded a negative provision for loan losses due to management's estimate of certain continued improved economic conditions as of September 30, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. These amounts were partially offset by the establishment of an initial allowance for loans originated and acquired during the period. Loan Status and Delinquencies The key credit quality indicators for the Company's federally insured, private education, and consumer loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The table below shows the Company’s loan status and delinquency amounts. As of September 30, 2021 As of December 31, 2020 As of September 30, 2020 Federally insured loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 909,228 5.0 % $ 1,036,028 5.4 % $ 1,037,754 5.4 % Loans in forbearance 1,826,082 10.1 1,973,175 10.3 1,916,906 10.0 Loans in repayment status: Loans current 13,525,751 88.1 % 13,683,054 84.9 % 14,845,519 91.7 % Loans delinquent 31-60 days 548,670 3.6 633,411 3.9 945,411 5.9 Loans delinquent 61-90 days 286,681 1.9 307,936 1.9 249,523 1.5 Loans delinquent 91-120 days 163,447 1.1 800,257 5.0 129,994 0.8 Loans delinquent 121-270 days 467,441 3.0 674,975 4.2 605 0.0 Loans delinquent 271 days or greater 354,188 2.3 20,337 0.1 19,867 0.1 Total loans in repayment 15,346,178 84.9 100.0 % 16,119,970 84.3 100.0 % 16,190,919 84.6 100.0 % Total federally insured loans 18,081,488 100.0 % 19,129,173 100.0 % 19,145,579 100.0 % Accrued interest receivable 831,142 791,453 757,960 Loan discount, net of unamortized premiums and deferred origination costs ( 23,229 ) ( 14,505 ) ( 20,554 ) Allowance for loan losses ( 115,859 ) ( 128,590 ) ( 139,943 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 18,773,542 $ 19,777,531 $ 19,743,042 Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 10,282 3.2 % $ 5,049 1.6 % $ 3,839 1.4 % Loans in forbearance 3,554 1.1 2,359 0.7 5,437 2.0 Loans in repayment status: Loans current 300,231 98.3 % 310,036 99.0 % 261,514 98.8 % Loans delinquent 31-60 days 1,870 0.6 1,099 0.4 1,820 0.7 Loans delinquent 61-90 days 912 0.3 675 0.2 454 0.2 Loans delinquent 91 days or greater 2,363 0.8 1,371 0.4 743 0.3 Total loans in repayment 305,376 95.7 100.0 % 313,181 97.7 100.0 % 264,531 96.6 100.0 % Total private education loans 319,212 100.0 % 320,589 100.0 % 273,807 100.0 % Accrued interest receivable 2,076 2,131 1,960 Loan discount, net of unamortized premiums ( 1,496 ) 2,691 1,137 Allowance for loan losses ( 17,053 ) ( 19,529 ) ( 20,013 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 302,739 $ 305,882 $ 256,891 11 As of September 30, 2021 As of December 31, 2020 As of September 30, 2020 Consumer loans - Non-Nelnet Bank: Loans in deferment $ 18 0.0 % $ 829 0.8 % $ 1,084 1.1 % Loans in repayment status: Loans current 35,744 96.6 % 105,650 97.4 % 96,038 96.9 % Loans delinquent 31-60 days 319 0.9 954 0.9 1,044 1.1 Loans delinquent 61-90 days 243 0.7 804 0.7 776 0.8 Loans delinquent 91 days or greater 670 1.8 1,109 1.0 1,238 1.2 Total loans in repayment 36,976 100.0 100.0 % 108,517 99.2 100.0 % 99,096 98.9 % 100.0 % Total consumer loans 36,994 100.0 % 109,346 100.0 % 100,180 100.0 % Accrued interest receivable 280 1,001 867 Loan premium 664 1,640 1,505 Allowance for loan losses ( 4,429 ) ( 27,256 ) ( 25,943 ) Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 33,509 $ 84,731 $ 76,609 Federally insured loans - Nelnet Bank: Loans in-school/grace/deferment $ 283 0.3 % Loans in forbearance 1,722 1.8 Loans in repayment status: Loans current 91,366 99.4 % Loans delinquent 31-60 days 277 0.3 Loans delinquent 61-90 days 35 — Loans delinquent 91-120 days 45 0.1 Loans delinquent 121-270 days 202 0.2 Loans delinquent 271 days or greater — — Total loans in repayment 91,925 97.9 100.0 % Total federally insured loans 93,930 100.0 % Accrued interest receivable 1,177 Loan premium 28 Allowance for loan losses ( 289 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 94,846 Private education loans - Nelnet Bank: Loans in-school/grace/deferment $ 82 0.1 % $ — — % Loans in forbearance 193 0.2 29 0.2 Loans in repayment status: Loans current 98,120 100.0 % 17,514 100.0 % Loans delinquent 31-60 days — — — — Loans delinquent 61-90 days — — — — Loans delinquent 91 days or greater — — — — Total loans in repayment 98,120 99.7 100.0 % 17,514 99.8 100.0 % Total private education loans 98,395 100.0 % 17,543 100.0 % Accrued interest receivable 156 26 Deferred origination costs 1,430 266 Allowance for loan losses ( 414 ) ( 323 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 99,567 $ 17,512 Nonaccrual Status The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2020 and September 30, 2021, was not material. 12 Amortized Cost Basis by Origination Year The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of September 30, 2021 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP") and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010. Nine months ended September 30, 2021 2020 2019 2018 2017 Prior years Total Private education loans - Non-Nelnet Bank: Loans in school/grace/deferment $ 1,310 2,202 4,572 — — 2,198 10,282 Loans in forbearance — 649 657 180 — 2,068 3,554 Loans in repayment status: Loans current 2,252 75,514 53,814 367 — 168,284 300,231 Loans delinquent 31-60 days — 147 125 — — 1,598 1,870 Loans delinquent 61-90 days — — — — — 912 912 Loans delinquent 91 days or greater — — — — — 2,363 2,363 Total loans in repayment 2,252 75,661 53,939 367 — 173,157 305,376 Total private education loans $ 3,562 78,512 59,168 547 — 177,423 319,212 Accrued interest receivable 2,076 Loan discount, net of unamortized premiums ( 1,496 ) Allowance for loan losses ( 17,053 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 302,739 Consumer loans - Non-Nelnet Bank: Loans in deferment $ — — — 18 — — 18 Loans in repayment status: Loans current 19,710 1,295 6,915 7,695 129 — 35,744 Loans delinquent 31-60 days 62 80 119 51 7 — 319 Loans delinquent 61-90 days 53 — 103 87 — — 243 Loans delinquent 91 days or greater 56 42 250 321 1 — 670 Total loans in repayment 19,881 1,417 7,387 8,154 137 — 36,976 Total consumer loans $ 19,881 1,417 7,387 8,172 137 — 36,994 Accrued interest receivable 280 Loan premium 664 Allowance for loan losses ( 4,429 ) Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 33,509 Private education loans - Nelnet Bank: Loans in school/grace/deferment $ 82 — — — — — 82 Loans in forbearance 193 — — — — — 193 Loans in repayment status: Loans current 85,589 12,531 — — — — 98,120 Loans delinquent 31-60 days — — — — — — — Loans delinquent 61-90 days — — — — — — — Loans delinquent 91 days or greater — — — — — — — Total loans in repayment 85,589 12,531 — — — — 98,120 Total private education loans $ 85,864 12,531 — — — — 98,395 Accrued interest receivable 156 Deferred origination costs 1,430 Allowance for loan losses ( 414 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 99,567 13 3. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of September 30, 2021 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 16,784,982 0.20 % - 2.09 % 5/27/25 - 9/25/69 Bonds and notes based on auction 450,300 0.00 % - 2.15 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 17,235,282 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 860,434 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP warehouse facilities 5,446 0.17 % 11/22/22 / 2/26/24 Private education loan warehouse facility 118,299 0.19 % 2/13/23 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 35,648 1.65 % / 1.84 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 30,409 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 194,190 0.78 % 5/4/22 Repurchase agreements 334,473 0.57 % - 1.13 % 11/15/21 - 12/20/23 Secured line of credit 5,000 1.84 % 5/30/22 18,819,181 Discount on bonds and notes payable and debt issuance costs ( 208,433 ) Total $ 18,610,748 As of December 31, 2020 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 17,127,643 0.28 % - 2.05 % 5/27/25 - 10/25/68 Bonds and notes based on auction 749,925 1.12 % - 2.14 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 17,877,568 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 923,076 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP warehouse facilities 252,165 0.27 % / 0.31 % 5/20/22 / 2/26/23 Private education loan warehouse facility 150,397 0.28 % 2/13/22 Consumer loan warehouse facility 25,809 0.28 % 4/23/22 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 49,025 1.65 % / 1.90 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 37,251 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit 120,000 1.65 % 12/16/24 Participation agreement 118,558 0.84 % 5/4/21 Secured line of credit 5,000 1.90 % 5/30/22 19,558,849 Discount on bonds and notes payable and debt issuance costs ( 238,123 ) Total $ 19,320,726 14 FFELP Warehouse Facilities The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of September 30, 2021, the Company had two FFELP warehouse facilities as summarized below. NFSLW-I (a) NHELP-II (b) Total Maximum financing amount $ 60,000 50,000 110,000 Amount outstanding 5,446 — 5,446 Amount available $ 54,554 50,000 104,554 Expiration of liquidity provisions November 22, 2021 February 26, 2022 Final maturity date November 22, 2022 February 26, 2024 Advanced as equity support $ 328 115 443 (a) On May 20, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional six months to November 22, 2021 and November 22, 2022, respectively. On June 28, 2021, the maximum financing amount for this warehouse facility increased to $ 770.0 million, and on June 30, 2021 and July 27, 2021, the maximum financing amount decreased to $ 310.0 million and to $ 60 million, respectively. (b) On February 26, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional year to February 26, 2022 and February 26, 2024, respectively. On October 14, 2021, this facility was terminated. Asset-Backed Securitizations The following table summarizes the asset-backed securitization transactions completed by the Company during the first nine months of 2021. NSLT 2021-1 NSLT 2021-2 Total Date securities issued 6/30/21 8/31/21 Total original principal amount $ 797,000 531,300 1,328,300 Class A senior notes: Total principal amount $ 781,000 520,600 1,301,600 Cost of funds 1-month LIBOR plus 0.50 % 1-month LIBOR plus 0.50 % Final maturity date 7/25/69 9/25/69 Class B subordinated notes: Total principal amount $ 16,000 10,700 26,700 Cost of funds 1-month LIBOR plus 1.25 % 1-month LIBOR plus 1.20 % Final maturity date 7/25/69 9/25/69 Private Education Loan Warehouse Facility During 2020, the Company obtained a private education loan warehouse facility that had an aggregate maximum financing amount available of $ 200.0 million. On February 12, 2021, the Company decreased the maximum financing amount available for this facility to $ 175.0 million and extended the liquidity provisions and final maturity date to February 13, 2022 and February 13, 2023, respectively. As of September 30, 2021, $ 118.3 million was outstanding under this warehouse facility and $ 56.7 million was available for future funding. The facility has an advance rate of 80 to 90 percent and, as of September 30, 2021, the Company had $ 12.9 million advanced as equity support under this facility. Consumer Loan Warehouse Facility The Company had a $ 100.0 million consumer loan warehouse facility. On March 31, 2021, the Company terminated this facility. 15 Unsecured Line of Credit On September 22, 2021, the Company amended its existing unsecured line of credit. Under the amended terms, the following provisions of the facility were modified: • The maturity date was extended from December 16, 2024 to September 22, 2026. • The facility size increased from $ 455.0 million to $ 495.0 million. The amended terms also increased the accordion feature of the facility to provide 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. • The cost of funds decreased 25.0 basis points and 2.5 basis points for drawn and undrawn amounts, respectively, based on the Company's current credit ratings. The amended terms also include customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available. • The provisions for secured recourse indebtedness were expanded to increase the limit on the aggregate amount of secured recourse indebtedness from 5 percent of the Company's consolidated net worth to 10 percent. • The provisions for permitted investments were expanded to increase the aggregate amount of permitted investments from 40 percent of the Company's consolidated net worth to 50 percent. • The provisions for loans owned by the Company other than federally insured FFELP student loans were revised to replace the limit of $ 850.0 million on non-FFELP loans owned by the Company with a limit of 50 percent of the Company's consolidated net worth on non-FFELP loans owned by the Company with FICO scores of less than 700 . As of September 30, 2021, no amount was outstanding on the line of credit and $ 495.0 million was available for future use. Participation Agreement The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities. As of September 30, 2021, $ 194.2 million of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 100.0 million or an amount in excess of $ 100.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing. Repurchase Agreements On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by private education loan asset-backed securities. The first agreement has maturity dates of November 20, 2023 and December 20, 2023, or earlier if either party provides 180 days’ prior written notice, and the second agreement has a maturity date of November 15, 2021. The Company incurs interest on amounts outstanding under these agreements based on three-month LIBOR plus an applicable spread. Under the first agreement, the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date, and under the second agreement, the Company could be subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities and the counter-party provides notice requiring such payment. Included in “bonds and notes payable” as of September 30, 2021 was $ 223.8 million subject to the first agreement and $ 110.6 million subject to the second agreement. See note 5 for additional information about the private education loan asset-backed securities investments serving as collateral for these repurchase agreements. Accrued Interest Liability During the first quarter of 2021, the Company reversed a historical accrued interest liability of $ 23.8 million on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest on bonds and notes payable and bank deposits" in the consolidated statements of income. 16 Debt Repurchases The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in "other" in "other income/expense" on the Company's consolidated statements of income. Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Purchase price $ ( 184,827 ) ( 6,054 ) ( 205,269 ) ( 7,572 ) Par value 184,781 6,163 204,597 8,090 Remaining unamortized cost of issuance ( 3,222 ) ( 4 ) ( 3,292 ) ( 10 ) (Loss) gain $ ( 3,268 ) 105 ( 3,964 ) 508 4. Derivative Financial Instruments The Company uses derivative financial instruments to manage interest rate risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 6 of the notes to consolidated financial statements included in the 2020 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2021 and December 31, 2020 is presented below. Basis Swaps The following table summarizes the Company’s outstanding basis swaps as of September 30, 2021 and December 31, 2020, in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). Maturity Notional amount As of As of September 30, 2021 December 31, 2020 2021 $ — 250,000 2022 2,000,000 2,000,000 2023 750,000 750,000 2024 1,750,000 1,750,000 2026 1,150,000 1,150,000 2027 250,000 250,000 $ 5,900,000 6,150,000 The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2021 and December 31, 2020 was one-month LIBOR plus 9.1 basis points. 17 Interest Rate Swaps – Floor Income Hedges The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income. As of September 30, 2021 As of December 31, 2020 Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a) 2021 $ 100,000 2.95 % $ 600,000 2.15 % 2022 500,000 0.94 500,000 0.94 2023 900,000 0.62 900,000 0.62 2024 2,500,000 0.35 2,000,000 0.32 2025 500,000 0.35 500,000 0.35 2026 300,000 0.81 — — 2031 100,000 1.53 — — $ 4,900,000 0.56 % $ 4,500,000 0.70 % (a) For all interest rate derivatives, the Company receives discrete three-month LIBOR. Consolidated Financial Statement Impact Related to Derivatives - Statements of Income The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Settlements: 1:3 basis swaps $ ( 700 ) 1,197 ( 939 ) 10,438 Interest rate swaps - floor income hedges ( 5,209 ) ( 3,588 ) ( 14,648 ) ( 2,772 ) Total settlements - (expense) income ( 5,909 ) ( 2,391 ) ( 15,587 ) 7,666 Change in fair value: 1:3 basis swaps 1,061 ( 161 ) 2,755 ( 1,475 ) Interest rate swaps - floor income hedges 6,199 3,601 41,700 ( 19,597 ) Total change in fair value - income (expense) 7,260 3,440 44,455 ( 21,072 ) Derivative market value adjustments and derivative settlements, net - income (expense) $ 1,351 1,049 28,868 ( 13,406 ) 5. Investments Private Education Loan Investment 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. Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in the loans and in residual interests in subsequent securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture. During March and throughout the second quarter of 2021, the vast majority of 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. The Company’s initial contribution to the limited partnership was $ 71.1 million. In conjunction with the establishment of the limited partnership, the parties provided additional funding commitments to the partnership, in the event additional funding became necessary after the initial purchase of loans. In accordance with GAAP, the Company’s carrying value of its investment in the limited partnership is accounted for under the equity method of accounting, is reduced by cash distributions and the fair value of its portion of loans transferred into securitizations, and can be less than zero or negative because of the potential future contributions pursuant to the funding commitment. The Company’s carrying value of its investment in the limited partnership, which is included in "Venture capital and funds - equity method" in the table below, is 18 also impacted by the amount of the Company’s proportionate share of the net earnings or losses of the partnership. For the nine months ended September 30, 2021, the Company’ proportionate share of losses of this partnership was $ 5.0 million, which reduced the carrying value of this investment (and is included as an expense in "other" in "other income/expense" on the consolidated statements of income). 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. Cash distributions and the fair value of the Company’s portion of loans securitized as a result of these securitizations was $ 40.6 million and $ 43.3 million, respectively, which reduced the Company’s carrying value of its limited partnership investment. The Company records its ownership in the residual interest of securitization transactions used to permanently finance the loans at fair value as held-to-maturity beneficial interest investments, and such investments are reflected in the table below as “beneficial interest in private education loan securitizations, including accrued interest.” See the caption "Subsequent Events" below for information regarding an event on October 27, 2021 impacting the Company's investment in the joint venture limited partnership. On behalf of the joint venture, the Company is the sponsor and administrator for the loan securitizations completed by the joint venture. 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 included in “private education loan asset-backed securities – available for sale” in the table below 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. See note 3 for additional information about these repurchase agreements. 19 A summary of the Company's investments follows: As of September 30, 2021 As of December 31, 2020 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investments (at fair value): FFELP loan asset-backed securities- available-for-sale (a) $ 387,777 15,932 ( 49 ) 403,660 338,475 8,040 ( 13 ) 346,502 Private education loan asset-backed securities - available-for-sale (b) 369,859 1,865 — 371,724 — — — — Other debt securities - available-for-sale 2,337 — — 2,337 2,103 2 — 2,105 Equity securities 58,336 13,302 ( 1,594 ) 70,044 36,227 8,768 ( 2,954 ) 42,041 Total investments (at fair value) $ 818,309 31,099 ( 1,643 ) 847,765 376,805 16,810 ( 2,967 ) 390,648 Other Investments (not measured at fair value): Venture capital and funds: Measurement alternative (c) 151,100 144,795 Equity method 37,020 14,018 Other 804 894 Total venture capital and funds 188,924 159,707 Real estate Equity method 35,605 50,291 Notes receivable 3,500 847 Total real estate 39,105 51,138 Investment in ALLO: Voting interest/equity method (d) 97,776 129,396 Preferred membership interest and accrued and unpaid preferred return (e) 135,300 228,916 Total investment in ALLO 233,076 358,312 Solar (f) ( 46,539 ) ( 30,373 ) Beneficial interest in private education loan securitizations, including accrued interest (g) 44,902 — Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 4,449 as of December 31, 2020 (g) 37,021 27,954 Beneficial interest in federally insured student loan securitizations (g) 26,904 30,377 Tax liens and affordable housing 3,755 5,177 Total investments (not measured at fair value) 527,148 602,292 Total investments $ 1,374,913 $ 992,940 (a) As of September 30, 2021, $ 194.2 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union Bank. See note 3 for additional information. (b) As of September 30, 2021, a total of $ 370.4 million (par value) of private education loan asset-backed securities were subject to repurchase agreements with third-parties. See note 3 for additional information. (c) The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. On May 27, 2021, the Company made an additional equity investment of approximately $ 5 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2021 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20 %, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. For accounting purposes, the May 2021 equity raise transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities and the price was contractually agreed to during Hudl's prior May 2020 equity raise. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the May 2021 transaction value. As of September 30, 2021, the carrying amount of the Company's investment in Hudl is $ 133.9 million. David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl. See the caption "Subsequent Events" below for information regarding an event on October 15, 2021 impacting another investment accounted for using the measurement alternative method. 20 (d) The Company accounts for its voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the Hypothetical Liquidation at Book Value ("HLBV") method of accounting. The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the Company’s share of the earnings or losses from the equity investment for the period. Because the Company will be able to utilize certain tax losses related to ALLO’s operations, the equity investment agreements for the Company have liquidation rights and priorities that are sufficiently different from the voting membership interests percentages such that the HLBV method of accounting was deemed appropriate. Accordingly, the recognition of earnings or losses during any reporting period related to the Company’s equity investment in ALLO may or may not reflect its voting membership interests percentage and could vary substantially from those calculated based on the Company’s voting membership interests in ALLO. During the three and nine months ended September 30, 2021, the Company recognized losses of $ 10.5 million and $ 31.6 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment. Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers. The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP. Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years. Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income. (e) As of September 30, 2021, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $ 129.7 million and $ 5.6 million, respectively. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent. During the three and nine months ended September 30, 2021, the Company recognized income on its ALLO preferred membership interests of $ 2.0 million and $ 6.4 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income. 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, ALLO redeemed a portion of its non-voting preferred membership interests held by the Company in exchange for an aggregate redemption price payment to the Company of $ 100.0 million. Under October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests. (f) The Company makes investments in entities that promote renewable energy sources (solar). The Company's investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years. As of September 30, 2021, the Company has funded a total of $ 181.4 million in solar investments, which includes $ 24.5 million funded by syndication partners. The carrying value of the Company's solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at September 30, 2021 represents the result of total tax credits earned on solar projects placed in service through September 30, 2021 being larger than total payments made by the Company on such projects. The Company is committed to fund an additional $ 74.0 million on these projects, of which $ 55.9 million will be provided by syndication partners. The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the three months ended September 30, 2021 and 2020, the Company recognized pre-tax losses of $ 3.4 million and $ 11.8 million, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recognized pre-tax losses of $ 7.4 million and $ 12.6 million, respectively, on its solar investments. These losses are included in "other" in "other income/expense" on the consolidated statements of income. (g) The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations. 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. During the first quarter of 2020, the Company recorded a $ 26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations due to distressed economic conditions resulting from the COVID-19 pandemic. Due to improved economic conditions, the Company has reduced the allowance for credit losses related to the consumer loan beneficial interests, including reducing such allowance by $ 2.4 million during the first quarter of 2021. As of March 31, 2021, the Company no longer has an allowance for credit losses associated with the consumer loan beneficial interests. The activity related to the allowance for credit losses related to the consumer loan beneficial interests is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of income. 21 Subsequent Events On October 15, 2021, an entity in which the Company has an equity investment completed an additional equity raise. The Company accounts for its investment in this entity using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of this entity’s equity raise, the Company currently anticipates recognizing income in the fourth quarter of 2021 of $ 10 million to $ 15 million (pre-tax) to adjust its carrying value to reflect the October 15, 2021 transaction value, subject to final valuations of the equity classes. On October 27, 2021, the Company's joint venture with other investors for the acquisition of private education loans from Wells Fargo 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. The cash distribution and the fair value of the Company’s portion of loans securitized as a result of this securitization was $ 9.8 million and $ 8.5 million, respectively, which reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of approximately $ 36 million. Due to the completion of this transaction, the Company expects the joint venture limited partnership established to purchase the loans will be dissolved without further financial requirements (and the Company's funding commitment will therefore be terminated) and/or the financial commitment will be reduced or terminated by the partners of the joint venture. Upon the reduction and/or termination of the Company's financial commitment to the limited partnership, currently expected by the Company to occur during the fourth quarter of 2021, the Company will record a derecognition of all or a portion of the negative investment balance (and record positive income up to $ 36 million (pre-tax)). 6. Intangible Assets Intangible assets consisted of the following: Weighted average remaining useful life as of September 30, 2021 (months) As of As of September 30, 2021 December 31, 2020 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 94,767 and $ 83,419 , respectively) 105 $ 50,525 66,974 Computer software (net of accumulated amortization of $ 3,143 and $ 4,127 , respectively) 27 4,651 6,430 Trade names (net of accumulated amortization of $ 3,455 ) — — 1,666 Total - amortizable intangible assets, net 98 $ 55,176 75,070 The Company recorded amortization expense on its intangible assets of $ 3.3 million and $ 8.0 million during the three months ended September 30, 2021 and 2020, respectively, and $ 19.9 million and $ 22.8 million during the nine months ended September 30, 2021 and 2020, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2021, the Company estimates it will record amortization expense as follows: 2021 (October 1 - December 31) $ 3,147 2022 9,939 2023 9,830 2024 7,457 2025 4,644 2026 and thereafter 20,159 $ 55,176 22 7. Goodwill The carrying amount of goodwill as of September 30, 2021 and December 31, 2020 by reportable operating segment was as follows: Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Total Goodwill balance $ 23,639 76,570 41,883 — — 142,092 8. Property and Equipment Property and equipment consisted of the following: As of As of Useful life September 30, 2021 December 31, 2020 Computer equipment and software 1 - 5 years $ 220,509 172,664 Building and building improvements 5 - 48 years 46,018 52,444 Office furniture and equipment 1 - 10 years 23,819 21,899 Leasehold improvements 1 - 15 years 9,330 9,168 Transportation equipment 5 - 10 years 4,857 4,857 Land — 3,642 3,642 Construction in progress — 3,783 18,478 311,958 283,152 Accumulated depreciation ( 194,662 ) ( 159,625 ) Total property and equipment, net $ 117,296 123,527 The Company recorded depreciation expense on its property and equipment of $ 12.4 million and $ 22.3 million during the three months ended September 30, 2021 and 2020, respectively, and $ 36.2 million and $ 64.6 million during the nine months ended September 30, 2021 and 2020, respectively. Impairment charges 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 a non-cash impairment charge of $ 14.2 million during the three months ended September 30, 2021. The impairment charge of $ 13.2 million within its Loan Servicing and Systems operating segment related primarily to building and building improvements. The impairment charge of $ 1.0 million within its Corporate and Other Activities operating segment related to operating lease assets associated with leased office space which the Company had fully ceased to use prior to the lease term end date. These impairment charges are included in "impairment expense and provision for beneficial interest, net" in the consolidated statements of income. 23 9. Earnings per Common Share Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Three months ended September 30, 2021 2020 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 52,245 893 53,138 70,483 1,020 71,503 Denominator: Weighted-average common shares outstanding - basic and diluted 37,947,257 648,464 38,595,721 37,988,584 549,892 38,538,476 Earnings per share - basic and diluted $ 1.38 1.38 1.38 1.86 1.86 1.86 Nine months ended September 30, 2021 2020 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 256,416 4,187 260,603 115,794 1,658 117,452 Denominator: Weighted-average common shares outstanding - basic and diluted 38,025,898 620,994 38,646,892 38,676,092 553,840 39,229,932 Earnings per share - basic and diluted $ 6.74 6.74 6.74 2.99 2.99 2.99 24 10. Segment Reporting See note 15 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements. Three months ended September 30, 2021 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 31 344 — 131,781 2,061 2,609 ( 172 ) 136,654 Interest expense 24 — — 48,662 421 1,242 ( 172 ) 50,176 Net interest income 7 344 — 83,119 1,640 1,367 — 86,478 Less provision (negative provision) for loan losses — — — 5,940 ( 113 ) — — 5,827 Net interest income after provision for loan losses 7 344 — 77,179 1,753 1,367 — 80,651 Other income/expense: Loan servicing and systems revenue 112,351 — — — — — — 112,351 Intersegment revenue 8,621 3 — — — — ( 8,624 ) — Education technology, services, and payment processing revenue — 85,324 — — — — — 85,324 Communications revenue — — — — — — — — Other 727 13 — ( 7,275 ) 450 17,952 — 11,867 Gain on sale of loans — — — 3,444 — — — 3,444 Impairment expense and provision for beneficial interests, net ( 13,243 ) — — — — ( 916 ) — ( 14,159 ) Derivative settlements, net — — — ( 5,909 ) — — — ( 5,909 ) Derivative market value adjustments, net — — — 7,260 — — — 7,260 Total other income/expense 108,456 85,340 — ( 2,480 ) 450 17,036 ( 8,624 ) 200,178 Cost of services: Cost to provide education technology, services, and payment processing services — 31,335 — — — — — 31,335 Cost to provide communications services — — — — — — — — Total cost of services — 31,335 — — — — — 31,335 Operating expenses: Salaries and benefits 75,305 29,119 — 542 890 22,735 — 128,592 Depreciation and amortization 4,245 2,762 — — — 8,702 — 15,710 Other expenses 12,738 4,804 — 5,420 445 14,918 — 38,324 Intersegment expenses, net 19,217 3,672 — 8,652 32 ( 22,949 ) ( 8,624 ) — Total operating expenses 111,505 40,357 — 14,614 1,367 23,406 ( 8,624 ) 182,626 Income (loss) before income taxes ( 3,042 ) 13,992 — 60,085 836 ( 5,003 ) — 66,868 Income tax (expense) benefit (b) 730 ( 3,358 ) — ( 14,421 ) ( 200 ) 1,600 — ( 15,649 ) Net income (loss) ( 2,312 ) 10,634 — 45,664 636 ( 3,403 ) — 51,219 Net loss (income) attributable to noncontrolling interests — — — — — 1,919 — 1,919 Net income (loss) attributable to Nelnet, Inc. $ ( 2,312 ) 10,634 — 45,664 636 ( 1,484 ) — 53,138 Total assets as of September 30, 2021 $ 238,602 415,178 — 20,001,997 413,155 1,740,060 ( 406,253 ) 22,402,739 (a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021. (b) Income taxes for the Nelnet Bank operating segment reflect Nelnet Bank's actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. Income taxes for all other operating segments are allocated based on 24 % of that segment's income before taxes. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities. 25 Three months ended September 30, 2020 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Nelnet Bank (a) Corporate and Other Activities Eliminations Total Total interest income $ 34 367 — 137,959 — 1,646 ( 261 ) 139,745 Interest expense 24 16 — 57,755 — 888 ( 261 ) 58,423 Net interest income 10 351 — 80,204 — 758 — 81,322 Less provision (negative provision) for loan losses — — — ( 5,821 ) — — — ( 5,821 ) Net interest income after provision for loan losses 10 351 — 86,025 — 758 — 87,143 Other income/expense: Loan servicing and systems revenue 113,794 — — — — — — 113,794 Intersegment revenue 8,287 3 — — — — ( 8,290 ) — Education technology, services, and payment processing revenue — 74,121 — — — — — 74,121 Communications revenue — — 20,211 — — — — 20,211 Other 2,353 373 511 1,004 — ( 2,737 ) — 1,502 Gain on sale of loans — — — 14,817 — — — 14,817 Impairment expense and provision for beneficial interests, net — — — — — — — — Derivative settlements, net — — — ( 2,391 ) — — — ( 2,391 ) Derivative market value adjustments, net — — — 3,440 — — — 3,440 Total other income/expense 124,434 74,497 20,722 16,870 — ( 2,737 ) ( 8,290 ) 225,494 Cost of services: Cost to provide education technology, services, and payment processing services — 25,243 — — — — — 25,243 Cost to provide communications services — — 5,914 — — — — 5,914 Total cost of services — 25,243 5,914 — — — — 31,157 Operating expenses: Salaries and benefits 72,912 25,460 5,485 438 — 21,801 — 126,096 Depreciation and amortization 9,951 2,366 11,152 — — 6,839 — 30,308 Other expenses 12,407 3,126 2,219 3,672 — 13,320 — 34,744 Intersegment expenses, net 15,834 3,610 491 8,868 — ( 20,513 ) ( 8,290 ) — Total operating expenses 111,104 34,562 19,347 12,978 — 21,447 ( 8,290 ) 191,148 Income (loss) before income taxes 13,340 15,043 ( 4,539 ) 89,917 — ( 23,426 ) — 90,332 Income tax (expense) benefit ( 3,201 ) ( 3,610 ) 1,089 ( 21,580 ) — 8,146 — ( 19,156 ) Net income (loss) 10,139 11,433 ( 3,450 ) 68,337 — ( 15,280 ) — 71,176 Net loss (income) attributable to noncontrolling interests — — — — — 327 — 327 Net income (loss) attributable to Nelnet, Inc. $ 10,139 11,433 ( 3,450 ) 68,337 — ( 14,953 ) — 71,503 Total assets as of September 30, 2020 $ 211,726 382,608 305,276 20,686,478 — 770,621 ( 134,183 ) 22,222,526 (a) Nelnet Bank launched operations on November 2, 2020. Accordingly, there are no operating results for the Nelnet Bank operating segment in the three months ended September 30, 2020. 26 Nine months ended September 30, 2021 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 95 818 — 388,149 5,479 5,379 ( 578 ) 399,341 Interest expense 70 — — 124,282 1,007 3,158 ( 578 ) 127,939 Net interest income 25 818 — 263,867 4,472 2,221 — 271,402 Less provision (negative provision) for loan losses — — — ( 11,225 ) 378 — — ( 10,847 ) Net interest income after provision for loan losses 25 818 — 275,092 4,094 2,221 — 282,249 Other income/expense: Loan servicing and systems revenue 335,961 — — — — — — 335,961 Intersegment revenue 25,369 9 — — — — ( 25,378 ) — Education technology, services, and payment processing revenue — 257,284 — — — — — 257,284 Communications revenue — — — — — — — — Other 2,541 13 — ( 4,514 ) 475 31,668 — 30,183 Gain on sale of loans — — — 18,715 — — — 18,715 Impairment expense and provision for beneficial interests, net ( 13,243 ) — — 2,436 — ( 1,416 ) — ( 12,223 ) Derivative settlements, net — — — ( 15,587 ) — — — ( 15,587 ) Derivative market value adjustments, net — — — 44,455 — — — 44,455 Total other income/expense 350,628 257,306 — 45,505 475 30,252 ( 25,378 ) 658,788 Cost of services: Cost to provide education technology, services, and payment processing services — 80,063 — — — — — 80,063 Cost to provide communications services — — — — — — — — Total cost of services — 80,063 — — — — — 80,063 Operating expenses: Salaries and benefits 210,151 82,154 — 1,594 3,956 65,496 — 363,351 Depreciation and amortization 20,411 8,789 — — — 26,927 — 56,129 Other expenses 39,296 14,063 — 12,763 1,227 40,265 — 107,611 Intersegment expenses, net 52,241 10,856 — 25,627 72 ( 63,419 ) ( 25,378 ) — Total operating expenses 322,099 115,862 — 39,984 5,255 69,269 ( 25,378 ) 527,091 Income (loss) before income taxes 28,554 62,199 — 280,613 ( 686 ) ( 36,796 ) — 333,883 Income tax (expense) benefit (b) ( 6,853 ) ( 14,928 ) — ( 67,347 ) 151 12,230 — ( 76,747 ) Net income (loss) 21,701 47,271 — 213,266 ( 535 ) ( 24,566 ) — 257,136 Net loss (income) attributable to noncontrolling interests — — — — — 3,467 — 3,467 Net income (loss) attributable to Nelnet, Inc. $ 21,701 47,271 — 213,266 ( 535 ) ( 21,099 ) — 260,603 Total assets as of September 30, 2021 $ 238,602 415,178 — 20,001,997 413,155 1,740,060 ( 406,253 ) 22,402,739 (a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021. (b) Income taxes for the Nelnet Bank operating segment reflect Nelnet Bank's actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. Income taxes for all other operating segments are allocated based on 24 % of that segment's income before taxes. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities. 27 Nine months ended September 30, 2020 Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management Nelnet Bank (a) Corporate and Other Activities Eliminations Total Total interest income $ 403 2,777 — 474,468 — 4,397 ( 1,228 ) 480,818 Interest expense 97 54 — 275,492 — 3,373 ( 1,228 ) 277,788 Net interest income 306 2,723 — 198,976 — 1,024 — 203,030 Less provision (negative provision) for loan losses — — — 73,476 — — — 73,476 Net interest income after provision for loan losses 306 2,723 — 125,500 — 1,024 — 129,554 Other income/expense: Loan servicing and systems revenue 337,571 — — — — — — 337,571 Intersegment revenue 27,878 17 — — — — ( 27,895 ) — Education technology, services, and payment processing revenue — 217,100 — — — — — 217,100 Communications revenue — — 57,390 — — — — 57,390 Other 6,897 373 1,256 4,951 — 56,435 — 69,910 Gain on sale of loans — — — 33,023 — — — 33,023 Impairment expense and provision for beneficial interests, net — — — ( 26,303 ) — ( 8,116 ) — ( 34,419 ) Derivative settlements, net — — — 7,666 — — — 7,666 Derivative market value adjustments, net — — — ( 21,072 ) — — — ( 21,072 ) Total other income/expense 372,346 217,490 58,646 ( 1,735 ) — 48,319 ( 27,895 ) 667,169 Cost of services: Cost to provide education technology, services, and payment processing services — 63,424 — — — — — 63,424 Cost to provide communications services — — 17,240 — — — — 17,240 Total cost of services — 63,424 17,240 — — — — 80,664 Operating expenses: Salaries and benefits 211,806 73,678 16,471 1,301 — 61,964 — 365,220 Depreciation and amortization 27,941 7,115 32,482 — — 19,811 — 87,349 Other expenses 43,277 11,544 9,681 12,253 — 38,428 — 115,184 Intersegment expenses, net 48,069 10,366 1,650 29,839 — ( 62,030 ) ( 27,895 ) — Total operating expenses 331,093 102,703 60,284 43,393 — 58,173 ( 27,895 ) 567,753 Income (loss) before income taxes 41,559 54,086 ( 18,878 ) 80,372 — ( 8,830 ) — 148,306 Income tax (expense) benefit ( 9,974 ) ( 12,981 ) 4,531 ( 19,289 ) — 7,426 — ( 30,286 ) Net income (loss) 31,585 41,105 ( 14,347 ) 61,083 — ( 1,404 ) — 118,020 Net loss (income) attributable to noncontrolling interests — — — — — ( 568 ) — ( 568 ) Net income (loss) attributable to Nelnet, Inc. $ 31,585 41,105 ( 14,347 ) 61,083 — ( 1,972 ) — 117,452 Total assets as of September 30, 2020 $ 211,726 382,608 305,276 20,686,478 — 770,621 ( 134,183 ) 22,222,526 (a) Nelnet Bank launched operations on November 2, 2020. Accordingly, there are no operating results for the Nelnet Bank operating segment in the nine months ended September 30, 2020. 28 11. Disaggregated Revenue The following tables provides disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments (except ALLO). Loan Servicing and Systems Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Government servicing - Nelnet $ 37,595 36,295 107,843 112,305 Government servicing - Great Lakes 46,489 45,350 133,654 137,010 Private education and consumer loan servicing 13,198 7,928 34,563 24,733 FFELP servicing 4,557 4,912 13,930 15,443 Software services 6,952 10,426 22,779 32,395 Outsourced services 3,560 8,883 23,192 15,685 Loan servicing and systems revenue $ 112,351 113,794 335,961 337,571 Education Technology, Services, and Payment Processing Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Tuition payment plan services $ 23,618 22,477 79,706 77,011 Payment processing 39,852 35,420 97,898 88,329 Education technology and services 21,098 15,840 78,153 50,820 Other 756 384 1,527 940 Education technology, services, and payment processing revenue $ 85,324 74,121 257,284 217,100 Other Income/Expense The following table provides the components of "other" in "other income/expense" on the consolidated statements of income: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Income/gains from investments, net $ 16,050 1,687 40,141 51,772 Investment advisory services 2,400 4,463 6,242 8,187 ALLO preferred return 2,043 — 6,384 — Management fee revenue 727 2,353 2,541 6,897 Borrower late fee income 514 871 1,698 4,377 Loss from ALLO voting membership interest investment ( 10,495 ) — ( 31,620 ) — Loss from solar investments ( 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 $ 11,867 1,502 30,183 69,910 29 12. Major Customer Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc. ("Great Lakes"), subsidiaries of the Company, each earn loan servicing revenue from a servicing contract with the Department of Education (the "Department"). Revenues earned by Nelnet Servicing and Great Lakes related to these contracts are set forth in the "Government servicing - Nelnet" and "Government servicing - Great Lakes" line items of the "Loan Servicing and Systems" table in note 11. As of September 30, 2021, Nelnet Servicing and Great Lakes serviced 5.8 million and 7.8 million borrowers, respectively, under their contracts with the Department. In June 2021, Nelnet Servicing and Great Lakes each received a contract modification from the Department pursuant to which the Department exercised its option to extend the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes from June 14, 2021 through December 14, 2021. In September 2021, Nelnet Servicing and Great Lakes each entered into contract amendments with the Department, pursuant to which the student loan servicing contracts were extended from December 14, 2021 through December 14, 2023. 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. 30 13. Fair Value The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. As of September 30, 2021 As of December 31, 2020 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Investments: FFELP loan asset-backed debt securities - available-for-sale $ — 403,660 403,660 — 346,502 346,502 Private education loan asset-backed debt securities - available-for-sale — 371,724 371,724 — — — Other debt securities - available-for-sale 100 2,237 2,337 103 2,002 2,105 Equity securities (a) 61,573 — 61,573 10,114 — 10,114 Equity securities measured at net asset value (b) 8,471 31,927 Total investments 61,673 777,621 847,765 10,217 348,504 390,648 Total assets $ 61,673 777,621 847,765 10,217 348,504 390,648 (a) As of September 30, 2021, $ 41.6 million and $ 20.0 million of equity securities were classified as trading and available-for-sale, respectively. All equity securities as of December 31, 2020 were classified as available-for-sale. (b) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of September 30, 2021 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 19,690,209 18,469,372 — — 19,690,209 Accrued loan interest receivable 834,831 834,831 — 834,831 — Cash and cash equivalents 191,936 191,936 191,936 — — Investments (at fair value) 847,765 847,765 61,673 777,621 — Beneficial interest in loan securitizations 127,364 108,827 — — 127,364 Restricted cash 764,089 764,089 764,089 — — Restricted cash – due to customers 295,053 295,053 295,053 — — Financial liabilities: Bonds and notes payable 18,854,255 18,610,748 — 18,854,255 — Accrued interest payable 4,441 4,441 — 4,441 — Bank deposits 199,372 200,651 42,585 156,787 — Due to customers 354,543 354,543 354,543 — — As of December 31, 2020 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 20,454,132 19,391,045 — — 20,454,132 Accrued loan interest receivable 794,611 794,611 — 794,611 — Cash and cash equivalents 121,249 121,249 121,249 — — Investments (at fair value) 390,648 390,648 10,217 348,504 — Beneficial interest in loan securitizations 58,709 58,331 — — 58,709 Restricted cash 553,175 553,175 553,175 — — Restricted cash – due to customers 283,971 283,971 283,971 — — Financial liabilities: Bonds and notes payable 19,270,810 19,320,726 — 19,270,810 — Accrued interest payable 28,701 28,701 — 28,701 — Bank deposits 54,599 54,633 48,422 6,177 — Due to customers 301,471 301,471 301,471 — — The methodologies for estimating the fair value of financial assets and liabilities are described in note 22 of the notes to consolidated financial statements included in the 2020 Annual Report. 31