What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-25 · 497 added, 573 removed, 418 unchanged (72% of the section changed)

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"Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2020 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission on February 25, 2021.

The Company is a diverse company with a purpose to serve others and a vision to make customers' dreams possible by delivering customer focused products and services.

The Company is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible.

The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications.

A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans.

The Company also makes investments to further diversify both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate, early-stage and emerging growth companies, and renewable energy.

The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar).

The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks.

The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the FFEL Program.

The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program.

As a result, the Company no longer originates FFELP loans.

However, a significant portion of the Company's income continues to be derived from its existing FFELP student loan portfolio.

Interest income on the Company's existing FFELP loan portfolio will decline over time as the portfolio is paid down.

Since all FFELP loans will eventually run off, a key objective of the Company is to reposition itself for the post-FFELP environment.

To reduce its reliance on interest income from FFELP loans, the Company has expanded its services and products.

This expansion has been accomplished through internal growth and innovation as well as business and certain investment acquisitions.

The Company is also actively expanding its private education and consumer loan portfolios, and in November 2020 launched Nelnet Bank.

In addition, the Company has been servicing federally owned student loans for the Department since 2009.

The Company intends to use its strong liquidity position, as summarized below, to continue to provide and expand its products and services and capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions (or investment interests therein);

strategic acquisitions and investments;

and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions.

• As of December 31, 2021, the Company had cash and cash equivalents of $125.6 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 December 31, 2021 was $99.4 million.

• The Company has historically generated positive cash flow from operations.

For the year ended December 31, 2021, the Company’s net cash provided by operating activities was $544.9 million.

• The Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026.

As of December 31, 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.

• The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions.

As of December 31, 2021, the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $1.88 billion, of which approximately $1.29 billion will be generated over the next five years.

GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments

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Tax effect (a)

(0.17) (0.45)

Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)

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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 increased for the year ended December 31, 2020 compared to the same period in 2019 primarily due to the following factors:

• The recognition of a $258.6 million ($196.5 million after tax) gain from the deconsolidation of ALLO Communications LLC (“ALLO”) from the Company’s consolidated financial statements;

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

• A decrease of $48.1 million ($36.5 million after tax) in net losses related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2020 as compared to 2019;

• An increase of $30.2 million ($23.0 million after tax) in loan spread on the Company’s loan portfolio and related derivative settlements in 2020 as compared to 2019, primarily from an increase in fixed rate floor income;

• The recognition of $16.7 million ($12.7 million after tax) of expenses during 2019 to extinguish notes payable in certain asset-backed securitizations prior to the notes' contractual maturities;

• An increase of $15.8 million ($12.0 million after tax) in gains from the sale of consumer loans in 2020 as compared to 2019.

These factors were partially offset by the following items:

• An increase of $35.2 million ($26.8 million after tax) in non-cash losses related to the Company’s solar investments in 2020 as compared to 2019;

• The recognition of $24.7 million ($18.8 million after tax) of net provision and impairment charges in 2020 related to the Company's beneficial interest in consumer loan securitizations and certain venture capital investments, respectively, due to adverse economic conditions resulting from the COVID-19 pandemic;

• An increase of $24.4 million ($18.5 million after tax) in the provision for loan losses in 2020 as compared to 2019.

The provision for loan losses in 2020 was negatively impacted due to the COVID-19 pandemic;

• A decrease of $20.4 million ($15.5 million after tax) in net income due to the decrease in the average balance of loans in 2020 as compared to 2019 as a result of the amortization of the FFELP loan portfolio;

• A decrease of $18.2 million in net income from the Company's Loan Servicing and Systems operating segment in 2020 as compared to 2019 due to a decrease in revenue as a result of the COVID-19 pandemic and incurring additional costs to meet increased service and security standards under the Department servicing contracts.

Operating Results

Operating Segments

The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and Management ("AGM") operating segment.

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

As of December 31, 2020, AGM had a $19.6 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.8 years.

As of December 31, 2021, AGM had a $17.4 billion loan portfolio that management anticipates will amortize over the next approximately 15 years and has a weighted average remaining life of approximately 8 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.

However, due to the continued amortization of the Company’s FFELP loan portfolio, over time, the Company's net income generated by the AGM segment will continue to decrease.

The Company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio.

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 and Great Lakes

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

Further, the Company earned communications revenue through ALLO, formerly a majority-owned subsidiary of the Company prior to a recapitalization of ALLO resulting in the deconsolidation of ALLO from the Company’s financial statements on December 21, 2020.

The recapitalization of ALLO is not considered a strategic shift in the Company’s involvement with ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating segment.

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

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

The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating segment.

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

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

Nelnet Bank’s operations are presented by the Company as a reportable operating segment.

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Such Nelnet Bank-related costs included in the Corporate segment totaled $3.4 million (pre-tax) and $6.0 million (pre-tax) in 2021 and 2020, respectively.

The information below provides the operating results for each reportable operating segment (excluding Nelnet Bank) for the years ended December 31, 2020 and 2019 (dollars in millions).

See "Results of Operations" for each such reportable operating segment under this Item 7 for additional detail.

LSS (a) ETS&PP ALLO (c) AGM (b)

(a) Revenue includes intersegment revenue.

(b) Total revenue includes "net interest income" and "total other income/expense" from the Company's segment statements of income, excluding the impact from changes in fair values of derivatives.

Net income excludes changes in fair values of derivatives, net of tax.

For information regarding the exclusion of the impact from changes in fair values of derivatives, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.

Accordingly, the 2020 operating results for the Communications operating segment in the table above are for the period January 1, 2020 through December 21, 2020.

Certain events and transactions from 2020, which have impacted, will impact, or could impact the operating results of the Company, are discussed below.

Recapitalization and Additional Funding for ALLO

On October 1, 2020, the Company entered into various agreements with SDC Allo Holdings, LLC (“SDC”), a third party global digital infrastructure investor, and ALLO, then a majority owned communications subsidiary of the Company, to recapitalize and provide additional funding for ALLO.

On October 15, 2020, ALLO received proceeds of $197.0 million from SDC for the issuance of membership units of ALLO, and redeemed $160.0 million of non-voting preferred membership units of ALLO held by the Company.

As a result of the receipt of required regulatory approvals on December 21, 2020, 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 ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements.

Upon the deconsolidation of ALLO, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting.

In addition, the Company recorded its remaining non-voting preferred membership units in ALLO at fair value, and accounts for such investment as a separate equity investment.

As a result of the deconsolidation of ALLO, the Company recognized a gain of $258.6 million in the fourth quarter of 2020.

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

With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership units held by the Company 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 ALLO to redeem, on or before April 2024, the remaining non-voting preferred membership units of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such units.

As of January 19, 2021, the outstanding preferred membership units of ALLO held by the Company was $129.7 million.

The preferred membership units earn a preferred annual return of 6.25 percent.

As discussed above, subsequent to the recapitalization and deconsolidation of ALLO, the Company will account for its investment in ALLO under the 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.

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 net operating losses by ALLO under generally accepted accounting principles.

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

For additional information, see note 2, “Recent Developments - ALLO Recapitalization,” of the notes to consolidated financial statements included in this report.

Impacts of COVID-19 Pandemic

Beginning in March 2020, the coronavirus 2019 or COVID-19 (“COVID-19”) pandemic resulted in many businesses and schools closing or reducing hours throughout the U.S.

The information below provides the operating results (net income before taxes) for each reportable operating segment and Corporate and Other Activities for the years ended December 31, 2021 and 2020.

See “Results of Operations” for each such reportable operating segment (except for ALLO, which was deconsolidated from the Company’s financial statements in December 2020).

Year ended December 31, Certain Items Impacting Comparability (a)

2021 2020 Results in 2021 were impacted by:

Results in 2020 were impacted by:

NDS $ 62,445 53,375 • Impairment charges on owned buildings of $13.2 million due to continued evaluation of office space needs as employees continue to work from home due to COVID-19

NBS 72,713 66,200 • A full year of operating results from the December 31, 2020 acquisitions of HigherSchool and CD2

ALLO (prior to deconsolidation) — (33,188)

AGM 423,616 162,703 • Income of $92.8 million related to changes in the fair value of derivative instruments that do not qualify for hedge accounting

• Negative provision for loan losses of $13.2 million due primarily to improved economic conditions throughout 2021 as compared to December 31, 2020

• Gains from the sale of consumer loans of $18.7 million

• A net gain of $32.9 million related to the Company’s joint venture to acquire Wells Fargo’s private education student loan portfolio.

See “2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo” below

• A decrease of $23.8 million in interest expense as a result of 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

• A loss of $28.1 million related to changes in the fair value of derivative instruments that do not qualify for hedge accounting

• Provision expense for loan losses of $63.0 million as a result of the COVID-19 pandemic and its effects on economic conditions

• Gains from the sale of consumer loans of $33.0 million

• An impairment expense, net of recoveries, of $16.6 million related to the Company’s beneficial interest in consumer loan securitization investments as a result of the estimated impacts of the COVID-19 pandemic

Nelnet Bank (792) (80)

Corporate (55,875) 201,477 • Net investment gains and income of $58.7 million, including $28.8 million from venture capital investments, $22.3 million related to real estate, and $7.6 million related to asset-backed securities (bonds) and marketable equity securities

• A loss of $42.1 million related to the Company’s voting membership interest investment in ALLO

• A loss of $10.1 million from solar investments (b)

• A gain of $50.1 million to adjust the carrying value of the Company’s investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value

• A gain of $258.6 million from the deconsolidation of ALLO

• A loss of $37.4 million from solar investments (b)

Net income before taxes 502,105 450,486

Income tax expense (115,822) (100,860)

Net loss attributable to noncontrolling interests (b) 7,003 2,817

Net income $ 393,286 352,443

(a) All dollar amounts for those items impacting comparability in 2021 and 2020 are pre-tax.

(b) Losses from solar investments in 2021 and 2020 include losses of $7.1 million and $3.8 million, respectively, attributable to third-party minority interest investors in solar projects that are included in “net loss attributable to noncontrolling interests” in the table above.

Recent Transactions / Developments

2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo

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

The Company entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company had an approximately 8 percent interest in the loans and has a corresponding 8 percent interest in residual interests in the 2021 securitizations of the loans discussed below.

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

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.

During 2021, the joint venture completed four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans purchased by the joint venture (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase).

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

These investments are reflected on the Company’s consolidated balance sheet as "investments." On behalf of the joint venture, the Company is the sponsor and administrator for these loan securitizations.

As sponsor and administrator, the Company earns an annual fee of 10 to 10.75 basis points on the outstanding loan receivable balance in the securitizations.

As sponsor, the Company is required to provide a certain level of risk retention, and the Company 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 December 31, 2021, the fair value of these bonds was $412.6 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 the 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 December 31, 2021, $483.8 million was outstanding on the Company’s repurchase agreements, of which $313.2 million was borrowed to fund the private education loan securitization bonds subject to the Company’s risk retention requirement.

The repurchase agreements have various maturity dates between May 27, 2022 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 the Company 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.

During the fourth quarter of 2021, the joint venture completed its fourth and final asset-backed securitization that permanently financed all remaining eligible loans temporarily funded in the joint venture limited partnership’s warehouse facility.

The Company initially contributed $71.1 million in the joint venture.

Cash distributions, the fair value of the Company’s portion of loans securitized as a result of securitizations, and the Company’s proportionate share of losses of this partnership were $52.1 million, $51.9 million, and $5.0 million, respectively, and reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of $37.9 million.

During the fourth quarter of 2021, the Company’s financial commitment to the limited partnership was terminated by the partners of the joint venture, and the Company recognized income of $37.9 million (pre-tax) associated with the termination.

Beginning in March 2020, the COVID-19 pandemic resulted in many businesses and schools closing or reducing hours throughout the U.S.

to combat the spread of COVID-19, and states and local jurisdictions implementing various containment efforts, including lockdowns on non-essential business and other business restrictions, stay-at-home orders, and shelter-in-place orders.

The COVID-19 pandemic has caused significant disruption to the U.S.

and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates, and extreme volatility in the U.S.

The COVID-19 pandemic caused significant disruption to the U.S.

and world economies, including significantly higher unemployment and underemployment and extreme volatility in the U.S.

and world markets.

As a result of the COVID-19 outbreak and federal, state, and local government responses to COVID-19, the Company has experienced and may in the future experience various disruptions and impacts to the Company's businesses and results of operations.

The following provides a summary of how COVID-19 has impacted and may impact the Company's business and operating results.

The Company has implemented adjustments to its operations designed to keep employees safe and comply with federal, state, and local guidelines, including those regarding social distancing.

As of March 25, 2020, the majority of our associates were working and continue to work from home.

Substantially all Company associates working from home are able to connect to their work environment virtually and continue to serve our customers.

The Company has investments in real estate, early-stage and emerging growth companies (venture capital investments), and renewable energy (solar).

The Company identified several venture capital investments that were negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic and recognized impairment charges on such investments of $7.8 million (pre-tax) during the first quarter of 2020.

Loan Servicing and Systems

The CARES Act, which was signed into law on March 27, 2020, among other things, provides broad relief for federal student loan borrowers.

Under the CARES Act, federal student loan payments and interest accruals were suspended for all borrowers that have loans owned by the Department.

The benefits of the law were applied retroactively to March 13, 2020, when the President declared a state of emergency related to COVID-19, and these federal student loan borrower relief provisions have

been extended through September 30, 2021.

Beginning March 13, 2020, 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 a forbearance status for the period from October 1, 2020 through September 30, 2021 from $2.19 per borrower to $2.05 per borrower.

As a result of the extension of these CARES Act provisions through September 30, 2021, the Company currently anticipates Department servicing revenue will be lower in 2021 from recent historical periods due to the lower rates.

The Company currently anticipates revenue per borrower will return to pre-COVID levels when borrowers begin to re-enter repayment in the fourth quarter of 2021.

While federal student loan payments are suspended, the Company's operating expenses have been and will continue to be lower due to a significant reduction of borrower statement printing and postage costs.

In addition, revenue from the Department for originating consolidation loans was adversely impacted as a result of borrowers receiving relief on their existing loans, thus not initiating a consolidation.

The Company currently anticipates this revenue will continue to be negatively impacted while student loan payments and interest accruals are suspended.

During 2020, FFELP, private education, and consumer loan servicing revenue was adversely impacted by the COVID-19 pandemic due to reduced or eliminated delinquency outreach to borrowers, holds on claim filings, and reduced or eliminated late fees processing.

In addition, origination fee revenue was negatively impacted as borrowers are less likely to refinance their loans when they are receiving certain relief measures from their current lender.

The Company currently anticipates this trend will continue in future periods that are impacted by the COVID-19 pandemic, with the magnitude based on the extent to which existing or additional borrower relief policies and activities are implemented or extended by servicing customers.

If the student loan borrower relief provisions of the CARES Act were potentially extended past September 30, 2021 and/or new legislative or regulatory student loan borrower relief measures similar to such provisions of the CARES Act were to become effective, the levels and timing of future servicing revenues could continue to be impacted in a similar manner through the extended period of time that such provisions or measures are in effect.

Due to decreased servicing and transaction activity as a result of suspended payments under the CARES Act as discussed above, the Company has been able to transition associates to help state agencies process unemployment claims and conduct certain health contact tracing support activities.

Revenue earned on these temporary contracts for the year ended December 31, 2020 was $21.9 million.

These contracts were awarded to the Company as a result of the Company's technology, security, compliance, and other capabilities needed to conduct such activities.

Education Technology, Services, and Payment Processing

This segment has been and will continue to be impacted by COVID-19 through lower interest rate levels, which reduce earnings for this business compared to recent historical results as the tuition funds held in custody for schools produce less interest earnings.

If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.

In addition, as a result of COVID-19, demand for certain of the Company's products and services has been negatively impacted.

The Company currently anticipates this trend will continue through the 2020-2021 academic year and could extend longer as a result of trends and shifts in the industry that could be long term as a result of the COVID-19 pandemic.

Communications

As a result of COVID-19, ALLO experienced increased demand from new and existing residential customers to support connectivity needs primarily for work and learn from home applications.

Along with offering 60 days free for eligible customers, ALLO partnered with school districts to provide more connectivity to students, often at discounted rates.

In view of the importance of ALLO's technicians being able to connect new customers while maintaining social distance and protecting community and associate health and safety, ALLO adjusted operational procedures by implementing associate health checks, following CDC and local health official safety protocols, facilitating customer screening, and adjusting the installation process to limit the time in the home or business as much as possible.

Asset Generation and Management

AGM's results were adversely impacted during the first quarter of 2020 as a result of COVID-19 due to:

• An incremental increase in the provision for loan losses of $63.0 million (pre-tax) resulting from an increase in expected life of loan defaults due to the COVID-19 pandemic.

• A $26.3 million (pre-tax) provision charge recognized on the Company's beneficial interest in consumer loan securitizations.

The Company's estimate of future cash flows from the beneficial interest in consumer loan

securitizations was lower than originally anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic.

As economic factors improved in the third and fourth quarters of 2020, a portion of the charges noted above were reversed.

The CARES Act, among other things, provides broad relief, effective March 13, 2020, for borrowers that have student loans owned by the Department.

This relief package excluded FFELP, private education, and consumer loans.

Although the Company’s loans are excluded from the provisions of the CARES Act, the Company is providing relief for its borrowers.

For the Company's federally insured and private education loans, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request.

Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans.

However, the Company will continue to apply a natural disaster forbearance in 90 day increments to any federally insured and private education loan upon request through September 30, 2021.

As of December 31, 2020, federally insured and private education loans in forbearance were $2.0 billion (or 10.3% of the portfolio) and $2.4 million (or 0.7% of the portfolio), respectively.

The amount of federally insured and private education loans in forbearance hit their peak in May 2020 at $6.0 billion and $38.6 million, respectively.

The Company anticipates that loans in forbearance will continue to decline in 2021, absent any intervening policy change, when borrowers are currently scheduled to exit forbearance.

Despite the COVID-19 pandemic, a large portion of borrowers continue to make payments according to their payment plans.

In addition, for both federally insured and private education loans, effective March 13, 2020, borrower late fees have been waived.

For the majority of the Company's consumer loans, borrowers are generally being offered, upon request and/or documented evidence of financial distress, up to a two-month deferral of payments, with an option of additional deferrals if the COVID-19 pandemic continues.

In addition, effective March 13, 2020, the majority of fees (non-sufficient funds, late charges, check fees) and credit bureau reporting have been suspended.

The specific relief terms on the Company's consumer loan portfolio vary depending on the loan program and servicer of such loans.

The Company will continue to review whether additional and/or extended borrower relief policies and activities are needed.

The Company is not contractually committed to acquire FFELP, private education, or consumer loans, so the Company has been and will continue to be selective as to which, if any, loans it purchases during the current period of economic uncertainty.

Other Risks and Uncertainties

The COVID-19 pandemic is unprecedented and continues to evolve.

The extent to which COVID-19 may impact the Company's businesses depends on future developments, which are highly uncertain, subject to various risks, and cannot be predicted with confidence, such as the ultimate spread, severity, and duration of the pandemic, travel restrictions, stay-at-home or other similar orders and social distancing in the United States and other countries, business and/or school closures and disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the virus.

For additional information on the risks and uncertainties regarding the impacts of COVID-19, see Part I, Item 1A.

"Risk Factors - 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" in this report.

Investment in Agile Sports Technologies, Inc.

(doing business as "Hudl")

On May 20, 2020, the Company made an additional equity investment of approximately $26.0 million in Hudl, as one of the participants in an equity raise completed by Hudl.

As a result of Hudl’s equity raise, the Company recognized a $51.0 million (pre-tax) gain during the second quarter of 2020 to adjust its carrying value to reflect the May 20, 2020 transaction value.

Department of Education Servicing Contracts and Procurements for New Contracts

Nelnet Servicing, a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department.

Revenue earned by Nelnet Servicing related to this contract was $146.8 million and $158.0 million for the years ended December 31, 2020 and 2019, respectively.

In addition, Great Lakes, which was acquired by the Company on February 7, 2018, also earns loan servicing revenue from a similar servicing contract with the Department.

Revenue earned by Great Lakes related to this contract was $179.9 million and $185.7 million for the years ended December 31, 2020 and 2019, respectively.

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

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

For information regarding recent developments related to and the current status of these servicing contracts, and the Department's procurement processes for new servicing contracts, see note 17 of the notes to consolidated financial statements included in this report.

Adoption of New Accounting Standard for Credit Losses

On January 1, 2020, the Company adopted ASU No.

2016-13 , Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

The new guidance primarily impacted the allowance for loan losses related to the Company’s loan portfolio.

Upon adoption, the Company recorded an increase to the allowance for loan losses of $91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $18.9 million.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model);

therefore, the comparative information for 2019 is not comparable to the information presented for 2020.

Solar Investments

During the last three years, the Company has invested $148.6 million in tax equity investments in renewable energy solar partnerships to support the development and operations of solar projects throughout the country.

The projects are currently forecasted to generate more than 214 megawatts of power each year.

These investments provide a federal income tax credit under the Internal Revenue Code, currently at 26 percent (for projects commencing construction in 2020-2022) and 30 percent (for projects commencing construction prior to 2020) of the eligible project cost, with the tax credit available when the project is placed-in-service.

The Company is then allowed to reduce its tax estimates paid to the U.S.

Treasury based on the credits earned.

In addition to the credits, the Company structures the investments to receive quarterly distributions of cash from the operating earnings of the solar project for a period of at least five years (so the tax credits are not recaptured).

After that period, the contractual agreements typically provide for the Company’s interest in the projects to be purchased in an exit at the fair market value of the discounted forecasted future cash flows allocable to the Company.

Given the expected timing of cash flows, experience the Company has in underwriting these assets, and beneficial impact to the climate, the Company believes these investments are a great fit within its capital deployment initiatives.

These investments are structured such that a significant proportion of the cash distributions and tax items (including the income tax credit) are allocated back to the Company within the first eighteen months of the investment capital contribution, in order to achieve a target after tax return.

The cash distributions to the Company are then structured to flatten until exit, typically between years five and six.

Given the unique arrangement in which investors share in the profits and losses of the solar investment with cash and tax benefit allocations among the partners changing over the life of the project, the accounting guidance calls for the use of the Hypothetical Liquidation at Book Value (“HLBV”) method, which can result in non-linear GAAP income/loss allocation results.

Under this method, a balance sheet approach is utilized to determine what each investor would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements, assuming the net assets of the funding structures were liquidated at their recorded amounts determined in accordance with GAAP.

As the investor receives a majority of this return through the income tax credit and higher cash distributions at the beginning of the investment, as of the first period of the hypothetical liquidation, the investor’s remaining net claim on assets is relatively low compared to the initial cash contributed.

This difference between the initial cash contributions and the first period’s ending net claim on assets through the hypothetical liquidation causes significant GAAP losses on the investment to be recognized through the income statement within the initial periods of the investment.

After the carrying value of the investment on the balance sheet is written down to the hypothetical liquidation amount, subsequent year’s earnings are expected to align with and reflect the operating profits or losses of the investment.

The Company realizes that application of the HLBV method to its solar investments has a variable impact on its periodic earnings that in the early years is not reflective of the expected long-term economics of the investments.

Given the significant amount of investments made in the last couple of years and the associated ramp-up period, the negative impact to earnings in 2020 was significant as the Company recognized a $37.4 million pre-tax loss from these investments under the HLBV method.

However, as these investments mature and perform as forecasted, the Company expects to recoup that loss and realize additional income between now and the sale of each of its interests, likely 60 to 72 months from the date the project is placed in service.

Thus, the Company expects the economic gain from these investments to be realized in its future earnings, but, due to the hypothetical liquidation valuations as of the balance sheet dates

during the intended investment horizon, the HLBV method results in some volatility in the Company’s consolidated periodic earnings results.

Private Loan Servicing and Acquisition

In December of 2020, Wells Fargo announced the sale of its approximately $10 billion portfolio of private education student loans representing approximately 475,000 borrowers.

In conjunction with the sale, the Company was selected as servicer of the portfolio and will begin servicing the portfolio following a series of loan transfers during the first half of 2021.

In addition, the Company has entered into agreements to participate in a joint venture to acquire the portfolio.

The Company expects to own approximately 8 percent of the interest in the loans and, dependent upon financing, currently expects to invest approximately $100 million as part of the acquisition.

In addition, the Company will serve as the sponsor and administrator for loan securitizations on behalf of the purchaser group as the loans are securitized, and provide the required level of risk retention as the loans are permanently financed.

This transaction is expected to close during the first half of 2021, with the securitizations occurring subsequent to closing.

Liquidity and Capital Resources

• As of December 31, 2020, the Company had cash and cash equivalents of $121.2 million.

In addition, the Company had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $348.6 million as of December 31, 2020.

As of December 31, 2020, the Company has participated $118.6 million of these securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

• The Company has historically generated positive cash flow from operations.

For the year ended December 31, 2020, the Company’s net cash provided by operating activities was $212.8 million.

• The Company has a $455.0 million unsecured line of credit with a maturity date of December 16, 2024.

As of December 31, 2020, the unsecured line of credit had $120.0 million outstanding.

Subsequent to December 31, 2020, the Company paid down the full balance outstanding on the line of credit, and as of February 25, 2021, $455.0 million was available for future use.

The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $550.0 million, subject to certain conditions.

• On November 2, 2020, Nelnet Bank launched operations.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities.

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

• The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions.

As of December 31, 2020, the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $2.30 billion, of which approximately $1.51 billion will be generated over the next five years.

• The Company has a stock repurchase program to purchase 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.

During 2020, the Company repurchased a total of 1,594,394 shares of stock for $73.4 million ($46.01 per share).

As of December 31, 2020, 3,246,732 shares remained authorized for repurchase under the Company's stock repurchase program.

• During 2020, the Company paid cash dividends totaling $31.8 million ($0.82 per share).

The Company intends to use its strong liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions;

strategic acquisitions and investments;

and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions.

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

These effects had an adverse impact on the Company’s results of operations and, if these effects result in sustained economic stress, they could have a future adverse impact on the Company in a number of ways, including wage inflation and cost of service delivery, rising interest rates due to market conditions or government policy or stimulus, and loan performance (where individual student and consumer borrowers experience financial hardship).

Although certain business and economic conditions have improved since the pandemic began, significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and new variant strains of the COVID-19 virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among different geographical areas and demographic segments, vaccine mandates, booster vaccines, and the potential

impacts of potential additional future spikes in infection rates including through breakthrough infections among the fully vaccinated.

In addition, a vast majority 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 offices that were re-opened in 2021.

The results of operations discussion below should be read in conjunction with the information included in Item 1A, “Risk Factors – Operations – The COVID-19 pandemic has adversely impacted our results of operations, and either directly or indirectly through impacts on economic conditions or government policy could adversely impact our results of operations, businesses, financial condition, and/or cash flows going forward.”

CONSOLIDATED RESULTS OF OPERATIONS

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For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 15 of the notes to consolidated financial statements included in this report.

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 that Nelnet Bank’s results of operations are not discussed since such operations were launched in November 2020 and were not material to the Company’s 2020 consolidated results of operations).

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).

Year ended December 31,

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Loan interest $ 482,337 595,113 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.

It is currently anticipated that interest rates may rise in 2022 as a result of inflationary pressures in the U.S.

Investment interest 41,498 24,543 Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations.

Decrease was due to a decrease in interest rates.

Increase was due to an increase of student loan asset-backed securities investments (bonds) and 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 523,835 619,656

Interest expense 176,233 330,071 Decrease was due primarily to a decrease in cost of funds and a decrease in the average balance of debt outstanding.

Net interest income 289,585 249,350 See table below for additional analysis.

Less provision for loan losses 63,360 39,000 Increase was due to provision expense recognized in the first quarter of 2020 as a result of an increase in expected defaults due to the COVID-19 pandemic and an increased provision for loan losses on loans acquired in 2020 to reflect life of loan expected losses as compared to loans acquired in 2019 for which the provision for loan losses was recognized based upon an incurred loss methodology.

See AGM operating segment - results of operations.

In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability 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.

Net interest income 347,602 289,585

Less (negative provision) provision for loan losses (12,426) 63,360 Provision for loan losses in 2020 was impacted as a result of an increase in expected defaults due to the COVID-19 pandemic and its effects on economic conditions.

During 2021, the Company recorded a negative provision for loan losses due to management’s estimate of certain continued improved economic conditions as of December 31, 2021 in comparison to management’s estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020.

The negative provision recognized in 2021 was partially offset by the establishment of an initial allowance for loans originated and acquired during 2021.

Net interest income after provision for loan losses 360,028 226,225

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ETS&PP revenue 338,234 282,196 See ETS&PP operating segment - results of operations.

Communications revenue 76,643 64,269 See Communications operating segment - results of operations.

Other 57,561 47,918 See table below for components of “other income.”

Gain on sale of loans 33,023 17,261 Gain on sale of loans is from the sale of consumer loans.

Communications revenue — 76,643 On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements as a result of ALLO’s recapitalization.

See note 2 “ALLO Recapitalization” in the notes to consolidated financial statements included in this report for additional information.

Other 78,681 57,561 See table below for components of “other.”

Gain on sale of loans 18,715 33,023 The Company sold $95.8 million (par value) and $185.0 million (par value) of consumer loans to an unrelated third party in 2021 and 2020, respectively, and recognized gains from such sales.

Gain from deconsolidation of ALLO — 258,588 On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements as a result of ALLO’s recapitalization.

See “Overview - Recapitalization and Additional Funding for ALLO” above for additional information.

Impairment expense and provision for beneficial interests (24,723) — During the first quarter of 2020, the Company recognized a provision expense of $26.3 million and an impairment charge of $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively.

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

During the fourth quarter of 2020, the Company reversed $9.7 million of the provision related to beneficial interest in consumer loan securitization investments due to improved economic conditions.

See note 2 “ALLO Recapitalization” in the notes to consolidated financial statements included in this report for additional information.

Impairment expense and provision for beneficial interests, net (16,360) (24,723) 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 fourth quarter of 2020 and first quarter of 2021, the Company reversed $9.7 million and $2.4 million, respectively, of the provision related to the consumer loan securitization investments due to improved economic conditions.

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.

In addition, during 2021, the Company recognized impairments of $4.6 million related to venture capital investments.

Derivative settlements, net (21,367) 3,679 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

Derivative settlements for each applicable period should be evaluated with the Company's net interest income.

See table below for additional analysis.

See AGM operating segment - results of operations.

Derivative market value adjustments, net 92,813 (28,144) 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 were 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 the Company's floor income interest rate swaps.

Total other income/expense 977,079 1,110,384

Cost of services:

Cost to provide education technology, services, and payment processing services 82,206 81,603 Represents primarily direct costs to provide payment processing services in the ETS&PP operating segment.

Cost to provide communications services 22,812 20,423 Represents costs of services primarily associated with television programming costs in the Communications operating segment.

Cost to provide education technology, services, and payment processing services 108,660 82,206 Represents primarily direct costs to provide payment processing and instructional services in the ETS&PP operating segment.

See ETS&PP operating segment - results of operations.

Cost to provide communications services — 22,812 As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.

Total cost of services 108,660 105,018

Operating expenses:

Salaries and benefits 501,832 463,503 Increase was due to (i) increases in personnel in the LSS and corporate operating segments to meet increased service and security standards under the Department servicing contracts;

(ii) increases in personnel in the LSS operating segment to develop a new private education and consumer loan servicing system;

and (iii) increases in personnel to support the growth in the customer base and the development of new technologies in the ETS&PP operating segment.

In addition, on October 1, 2020 (prior to the deconsolidation of ALLO), ALLO recognized compensation expense of $9.3 million related to the modification of certain equity awards previously granted to members of ALLO’s management.

Depreciation and amortization 118,699 105,049 Increase was primarily due to additional depreciation expense in the corporate operating segment due to recent infrastructure capital expenditures to support the Company’s operating segments, as well as an increase in depreciation expense at ALLO as it continues to develop its network in existing and new markets..

Salaries and benefits 507,132 501,832 Increase was due to an increase in headcount in the (i) LSS operating segment due to 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 May 1, 2022 and to support the increase in private education and consumer loan volume primarily from the addition of the former Wells Fargo portfolio;

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 on December 21, 2020.

It is currently anticipated that salaries and benefits costs may rise in 2022 as a result of wage inflation due to a constrained labor market.

Depreciation and amortization 73,741 118,699 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 145,469 160,574 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 (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;

(ii) reduction of travel expenses and the cancellation of on-site conferences in the ETS&PP segment;

and (iii) a decrease in servicing fees paid by the AGM segment to third parties.

In addition, the AGM segment recognized $16.7 million of expense during 2019 to extinguish asset-backed notes from certain securitizations prior to their contractual maturity.

Decrease was due to (i) cost savings in the LSS operating segment as a result of a decrease in printing and postage while student loan payments are suspended as a result of COVID-19 borrower relief efforts and from an increase in the adoption of electronic borrower statements and correspondence;

and (ii) the deconsolidation of ALLO on December 21, 2020.

These items were partially offset by an increase in costs in the ETS&PP operating segment due to the business acquisitions completed in December 2020 and higher costs of consulting, professional fees, and technology services due to investments in new technologies.

See each individual operating segment results of operations discussion for additional information.

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Income tax expense 115,822 100,860 The effective tax rate was 22.75% and 22.25% for 2021 and 2020, respectively.

The increase in the effective tax rate in 2020 as compared to 2019 was due to the recognition of normal tax credit amounts relative to a much higher pre-tax book income in 2020.

The Company expects its future effective tax rate will range between 22 and 24 percent.

Net income 386,283 349,626

Net loss attributable to noncontrolling interests 2,817 509

Net loss attributable to noncontrolling interests 7,003 2,817 Amounts for noncontrolling interests reflect the net income/loss attributable to the holders of minority membership interests in WRCM and multiple solar entities.

Net income attributable to Nelnet, Inc.

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Net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 322,748 $ 373,832

The following table summarizes the components of "net interest income" and "derivative settlements, net."

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.

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in the table below.

Net interest income (net of settlements on derivatives) is a non-GAAP financial measure, and the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management.

See note 6 of the notes to consolidated financial statements included in 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 2020 and 2019 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 6 and in the table below.

Year ended December 31,

2020 2019 Additional information

Variable loan interest margin $ 144,871 174,954 Represents the yield the Company receives on its loan portfolio less the cost of funding these loans.

Variable loan spread is also impacted by the amortization/accretion of loan premiums and discounts and the 1.05% per year consolidation loan rebate fee paid to the Department.

See AGM operating segment - results of operations.

Settlements on associated derivatives 10,378 5,214 Represents the net settlements received related to the Company’s 1:3 basis swaps.

Variable loan interest margin, net of settlements on derivatives 155,249 180,168

Fixed rate floor income 123,460 49,677 The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rates, generating fixed rate floor income.

See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" for additional information.

Settlements on associated derivatives (6,699) 40,192 Represents the net settlements (paid) received related to the Company’s floor income interest rate swaps.

Fixed rate floor income, net of settlements on derivatives 116,761 89,869

Investment interest 24,543 34,421

Corporate debt interest expense (3,289) (9,702) Includes interest expense on the Junior Subordinated Hybrid Securities, unsecured line of credit, and the asset-backed securities participation agreement.

Decrease was due to a decrease in interest rates and in the average balance outstanding on the Company's unsecured line of credit, partially offset by interest expense incurred on the asset-backed securities participation agreement that was executed in May of 2020.

Net interest income (net of settlements on derivatives) $ 293,264 294,756

The following table summarizes the components of "other income."

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

Year ended December 31,

Gain on remeasurement of HUDL investment (a) $ 51,018 —

Investment advisory services (b) 10,875 2,941

Management fee revenue (c) 9,421 9,736

Income/gains from investments, net (a) $ 91,593 56,402

ALLO preferred return (b) 8,427 386

Investment advisory services (c) 7,773 10,875

Borrower late fee income (d) 3,444 5,194

Income/gains from investments, net 2,205 8,356

Loss from solar investments (e) (37,423) (2,220)

Management fee revenue (e) 3,307 9,421

Loss from ALLO voting membership interest investment (f) (42,148) (3,565)

Loss from solar investments (g) (10,132) (37,423)

(Loss) gain on debt repurchased (h) (6,775) 1,924

Other 23,192 14,347

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(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.

(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.

During 2021, the Company recognized net investment income and gains of $91.6 million, including $32.9 million from the Company’s joint venture to acquire Wells Fargo’s private education student loan portfolio, $28.8 million from venture capital investments, $22.3 million related to real estate investments, and $7.6 million related to investments in asset-backed securities (bonds) and marketable equity securities.

As the Company expects its investment portfolio will continue to grow, the Company also anticipates fluctuations in future periodic earnings resulting from investment valuation adjustments from time to time.

(b) 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 December 31, 2021, the amount of preferred membership interests held by the Company was $137.3 million, which 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.

WRCM earns annual fees of 10 basis points to 25 basis points on the majority of the outstanding balance of asset-backed securities under management and a share 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 December 31, 2021, the outstanding balance of asset-backed securities under management subject to these arrangements was $2.0 billion.

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

The increase in advisory fees in 2020 as compared to 2019 was the result of an increase in assets under management and performance fees earned.

The Company currently anticipates that assets under management will decrease from current levels and that opportunities to earn meaningful performance fees in future periods will be more limited.

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

In addition, WRCM earns annual management fees of five basis points for Nelnet stock under management (with the Nelnet stock primarily shares of Class B common stock held in various trust estates).

During 2021, WRCM earned $4.2 million in management fees and generated $3.6 million in performance fees, as compared to $3.6 million in management fees and $7.3 million in performance fees in 2020.

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

The decrease in borrower late fees in 2020 as compared to 2019 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.

(e) Represents the Company's share of income or loss from solar investments accounted for using the Hypothetical Liquidation at Book Value ("HLBV") method of accounting.

The decrease in borrower late fees in 2021 as compared to 2020 was due to the Company suspending substantially all borrower late fees effective March 13, 2020 through May 1, 2021 (for private education loans) and October 1, 2021 (for federally insured student loans), to provide borrowers relief as a result of the COVID-19 pandemic.

(e) 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.

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

See note 7 of the notes to consolidated financial statements included in this report for additional information regarding the accounting for and income statement impact of this investment.

(g) Represents the Company's share of income or 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.

The Company made substantial solar investments in 2019 and 2020.

Losses from solar investments in 2021 and 2020 include losses of $7.1 million and $3.8 million, respectively, attributable to third-party minority interest investors that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income.

(h) Represents gains/losses from the Company’s repurchase of its own debt.

See note 5 of the notes to consolidated financial statements included in this report for additional information.

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

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6,433,324 6,354,158 6,264,559 6,251,598 6,555,841 4,307,342 4,338,570 4,548,541 4,799,368

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

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

See note 17 of the notes to consolidated financial statements included in this report for additional information.

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 recently publicly announced performance metric measurements used by the Department for the quarterly periods January 1, 2020 through June 30, 2020, Great Lakes’ and Nelnet Servicing’s overall rankings among the nine then-current servicers for the Department at that time were first and tied for fifth, respectively.

Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan servicing volumes for the period September 1, 2020 through February 28, 2021 are 20 percent and 10 percent, respectively.

In October 2020, the Department communicated to its servicers that a not-for-profit servicer requested to end its contract with the Department.

Effective October 23, 2020, the percent of allocated new student loan servicing volume that previously was awarded to this servicer will be split among the remaining servicers, resulting in Great Lakes' allocation to increase by two percent and each remaining servicer to obtain an additional one percent allocation.

Government Loan Servicing

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

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

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

In July 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a servicer for the Department, announced that it will exit the federal student loan servicing business.

PHEAA notified the Department it would not be accepting a long-term extension of its student loan servicing contract beyond what was needed to ensure a smooth transition for borrowers.

In November 2021, PHEAA and the Department agreed to a short-term extension that will expire in December 2022.

All applicable student loans serviced by PHEAA will be transferred to successor servicers prior to the end of this contract extension.

At the time of its announcement, PHEAA serviced approximately 8.5 million borrowers under its contract.

A portion of the PHEAA servicing volume has been and will be transitioned prior to May 1, 2022, which is the date on which the suspension of federal student loan payments under the CARES Act is scheduled to expire.

Approximately 850,000 PHEAA borrowers have been transitioned to Nelnet Servicing’s platform as of the date of this filing (of which approximately 603,000 were converted prior to December 31, 2021).

The Company anticipates additional PHEAA volume to be transitioned to its platform during the remainder of 2022, but cannot currently estimate the number of additional borrowers that will be transferred and/or the timing of such transfers.

In addition, the New Hampshire Higher Education Association Foundation Network (“Granite State”) exited the federal student loan servicing business in 2021.

Granite State’s servicing volume of approximately 1.3 million borrowers was transitioned to Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third and fourth quarters of 2021.

Edfinancial utilizes Nelnet Servicing's platform to service their loans for the Department, as did Granite State prior to its exit.

The Department currently allocates new loan volume among its servicers based on certain performance metrics that measured the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers.

The metrics also 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 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 six go-forward servicers for the Department (which excludes PHEAA) 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 percent and 12 percent, respectively.

Servicing contract amendments entered into with the Department in September 2021 to extend the contracts through December 14, 2023, also amended the methodology for performance measurements and new loan volume allocations, in part by reflecting additional 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 CARES Act, among other things, provides broad relief for federal student loan borrowers through May 1, 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 to its servicers for those in forbearance status for the period from October 1, 2020 through May 1, 2022.

The Company currently anticipates revenue per borrower from the Department will increase to pre-CARES Act levels beginning May 2, 2022.

During the fourth quarter of 2021, the Company earned additional revenue from the Department based on incremental work being performed by the Company to support the Department borrowers coming out of forbearance, including outbound engagement.

The Company currently anticipates earning additional incremental revenue during the first half of 2022 by continuing to provide outbound engagement activity and also providing extended hours of service as borrowers come out of forbearance status.

Private Education Loan Servicing

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

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 vast majority of the remaining borrowers converted in the second quarter of 2021.

Summary and Comparison of Operating Results

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Net interest income $ 43 315 Decrease was due to lower interest rates in 2021 as compared to 2020.

Loan servicing and systems revenue 451,561 455,255 See table below for additional analysis.

Intersegment servicing revenue 36,520 46,751 Represents revenue earned by the LSS operating segment as a result of servicing loans for the AGM and Nelnet Bank operating segments.

Decrease in 2020 compared to 2019 was due to the impact of borrower relief policies implemented by AGM in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio.

Loan servicing and systems revenue 486,363 451,561 See table below for additional information.

Intersegment servicing revenue 33,956 36,520 Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments.

Decrease in 2021 compared to 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 9,421 9,736 Represents revenue earned from providing administrative support and marketing services primarily to Great Lakes’ former parent company in accordance with a contract that expired in January 2021.

Other income 3,307 9,421 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) — 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 510,383 497,502

Salaries and benefits 285,526 276,136 Increase was due to an increase in headcount to provide enhanced service levels to borrowers under the Department servicing contracts, and to develop a new private education and consumer loan servicing system.

Depreciation and amortization 37,610 34,755 Increase was due to capital expenditures to support the recent extension of the government servicing contracts.

Other expenses 57,420 71,064 Decrease was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act, primarily associated with the fact that while student loan payments are suspended there is a significant reduction of borrower statement printing and postage costs.

See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.

Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence, and a decrease in expenses related to travel and the provision for servicing losses.

Salaries and benefits 297,406 285,526 Increase in 2021 compared to 2020 was due to the Company hiring contact center operations and support associates to (i) prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on May 1, 2022;

and (ii) support the increase in private education and consumer loan volume, primarily from the addition of the former Wells Fargo portfolio.

The Company currently expects salaries and benefits to continue to increase due to continued preparations for the expiration of the CARES Act suspension.

Depreciation and amortization 25,649 37,610 Includes amortization of intangibles from the Great Lakes acquisition in February 2018 and depreciation on property and equipment.

Amortization of intangible assets for 2021 and 2020 was $12.3 million and $20.9 million, respectively.

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

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 52,720 57,420 Decrease in 2021 compared to 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 May 1, 2022.

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

Intersegment expenses 72,206 63,886 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 2020 as compared to 2019 was due to an increase in security service levels related to the Department servicing contracts.

Increase in 2021 as compared to 2020 was due to the Company hiring contact center operations and support associates during the second half of 2021 in preparation for the expiration of the CARES Act suspension on May 1, 2022.

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

Total operating expenses 447,981 444,442

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Net income $ 47,458 40,565

Before tax operating margin 10.7 % 15.1 % 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.

The LSS segment incurred additional costs during 2020 to meet increased service and security standards under the Department servicing contracts.

In addition, servicing revenue in 2020 has been negatively impacted as a result of the COVID-19 pandemic.

As a result, the segment's net income and operating margin decreased in 2020 as compared to 2019.

GAAP before tax operating margin 11.9 % 10.7 % Before tax operating margin, excluding impairment and amortization 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 and amortization 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 and amortization expense, increased for 2021 as compared to 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 2.5 —

Amortization expense 2.3 4.2

Non-GAAP before tax operating margin, excluding impairment and amortization expense 16.8 % 14.9 %

Loan servicing and systems revenue

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Government servicing - Nelnet $ 167,579 146,798 Represents revenue from Nelnet Servicing's Department servicing contract.

Decrease in 2020 compared to 2019 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.

See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.

Increase in 2021 compared to 2020 was due to (i) an increase in the number of borrowers serviced, including PHEAA borrowers transferred to Nelnet Servicing’s platform during the fourth quarter of 2021;

(ii) a per borrower rate increase beginning September 1, 2021 to reflect the increase in the cost of labor (Economic Cost Index) per the provisions of the contract;

(iii) incremental work performed during the fourth quarter of 2021 related to CARES Act forbearance exit outreach activities to borrowers;

and (iv) the discharge of nearly 170,000 TPD borrowers in the fourth quarter of 2021.

Nelnet Servicing earns revenue per each TPD borrower that satisfies the requirements for their loan to be discharged.

The revenue earned by Nelnet Servicing for CARES Act forbearance exit outreach is non-recurring and will have a less significant contribution in 2022.

These increases are partially offset by the decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act.

Government servicing - Great Lakes 193,214 179,872 Represents revenue from the Great Lakes' Department servicing contract.

Decrease in 2020 compared to 2019 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.

See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.

Private education and consumer loan servicing 32,492 36,788 Decrease was due to a decrease in the number of borrowers serviced, a decrease in origination fees, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.

See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.

The Company expects that private education loan servicing revenue will increase beginning in the first half of 2021 as a result of the Company being selected to service all of the approximately $10 billion portfolio of private education loans that Wells Fargo announced in December 2020 it had agreed to sell to investors.

FFELP servicing 20,183 25,043 Decrease was due to a decrease in the number of borrowers serviced and the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic.

See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.

Changes among the current and comparable prior period were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes did not receive any PHEAA volume in 2021 and does not administer the TPD discharge program.

Private education and consumer loan servicing 47,302 32,492 Increase 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 2021 decreased compared to 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 18,281 20,183 Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced and 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 41,999 41,077 Increase in 2020 compared to 2019 was due to increased contract programming revenue for services provided related to hosted FFELP guarantee activities and an increase in remote hosted borrowers.

These items were partially offset due to the negative impact in 2020 of COVID-19 forbearances on loans serviced by the Company's Direct Servicing hosted clients.

The Company’s remote hosted servicing and system support contract with Great Lakes’ former parent, representing 2.3 million borrowers, expired in January 2021.

Revenue recognized from providing these services during 2020 was $16.3 million.

Outsourced services and other 30,217 8,700 The majority of this revenue relates to providing contact center and back office operational outsourcing activities.

Increase in 2020 compared to 2019 was due to providing temporary outsourcing services to state agencies to process unemployment claims and conduct certain health contact tracing support activities.

Revenue from providing these temporary services was $21.9 million in 2020.

See "Overview - Impacts of COVID-19 Pandemic - Loan Servicing and Systems" above for additional information.

Software services 34,600 41,999 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, which expired 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.

In addition, the Company earned deconversion fees in the fourth quarter of 2021 from Granite State, a remote hosted servicing customer, when they exited the federal student loan servicing business and transferred their loan volume to a third party.

Outsourced services 25,387 30,217 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 $17.3 million and $22.0 million during 2021 and 2020, respectively.

Outsourcing activities provided to state agencies decreased during 2021 as the needs for such services have decreased from the prior period.

Loan servicing and systems revenue $ 486,363 451,561

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Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.

On December 31, 2020, the Company acquired HigherSchool Instructional Services, a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC, a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding.

The results of HigherSchool Instructional Services and CD2 LLC will be reported in the Company’s consolidated financial statements from the date of acquisition.

On December 31, 2020, the Company acquired HigherSchool Instructional Services (“HigherSchool”), a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC (“CD2”), a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding.

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 year ended December 31, 2021 was $26.0 million.

Summary and Comparison of Operating Results

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Net interest income $ 1,075 2,982 Represents interest income on tuition funds held in custody for schools.

Decrease was due to a decrease in interest rates in 2020 as compared with 2019.

Decrease was due to a significant decrease in interest rates in March 2020.

If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.

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services 108,660 82,206 See table below for additional information.

Salaries and benefits 98,847 94,666 Increase in 2020 compared to 2019 was due to an increase in headcount to support the growth of the customer base and investment in the development of new technologies.

Salaries and benefits 112,046 98,847 Increase in 2021 compared to 2020 was due to an increase in headcount to support the growth of the customer base, the investment in the development of new technologies, and the acquisitions of HigherSchool and CD2.

Depreciation and amortization 11,404 9,459 Represents primarily amortization of intangible assets from prior business acquisitions.

Amortization of intangible assets related to business acquisitions was $10.7 million and $8.7 million for 2021 and 2020, respectively.

Other expenses 14,566 22,027 Decrease in 2020 compared to 2019 was due to a reduction of travel expenses and the cancellation of on-site conferences as a result of the COVID-19 pandemic.

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

Other expenses 19,318 14,566 Increase was due to higher costs for consulting, professional fees, and technology services due to investments in new technologies and the acquisitions of HigherSchool and CD2.

Intersegment expenses, net 15,180 14,293 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.

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2021 2020 Additional information

Tuition payment plan services $ 100,674 106,682 Decrease in 2020 compared to 2019 was due to the COVID-19 pandemic.

Revenue recognized during the first six months of 2020 was primarily related to payment plans for the 2019-2020 academic year for K-12 schools and the spring and summer 2020 semester for institutions of higher education.

As a result, fees for the majority of payment plans for these periods were received and were based on school enrollments prior to the conditions arising from the COVID-19 pandemic.

Revenue recognized during the second six months of 2020 was related to the 2020-2021 academic year and was negatively impacted due to the COVID-19 pandemic.

Payment processing 114,304 110,848 Increase in 2020 compared to 2019 was due to an increase in payments volume from new school customers, partially offset by the decline in payment volume for certain of the Company’s existing customers as a result of the COVID-19 pandemic.

Education technology and services 65,885 58,578 Increase in 2020 compared to 2019 was due to an increase from FACTS Student Information System (“SIS”) software subscriptions, online application and enrollment services, and financial needs assessment services as a result of an increase in the number of students and customers using these products.

Tuition payment plan services $ 103,970 100,674 Revenue increased for 2021 as compared to 2020 as a result of a higher number of payment plans in the K-12 market, partially offset by lower revenues for institutions of higher education as a result of lower enrollment trends and the COVID-19 pandemic.

Payment processing 127,080 114,304 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 volume from existing customers.

Education technology and services 105,186 65,885 Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions.

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

Other 1,998 1,333

Education technology, services, and payment processing revenue 338,234 282,196

Cost to provide education technology, services, and payment processing services 82,206 81,603 Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment revenue.

Cost to provide education technology, services, and payment processing services 108,660 82,206 Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes.

Costs to provide instructional services are also included as a component of this expense and were a driver in the increase in 2021 compared to 2020 due to the acquisition of HigherSchool and growth in the FACTS Education Solutions division.

Net revenue $ 229,574 199,990

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COMMUNICATIONS OPERATING SEGMENT - RESULTS OF OPERATIONS

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

See note 2, “Recent Developments - ALLO Recapitalization,” of the notes to consolidated financial statements included in this report for additional information.

Accordingly, the operating results for the Communications operating segment for 2020 are from January 1, 2020 through December 21, 2020.

Summary and Comparison of Operating Results

Period from January 1 to December 21, 2020 Year ended December 31, 2019

Additional information

Net interest income $ 2 3

Communications revenue 76,643 64,269 Communications revenue is derived primarily from the sale of pure fiber optic services to residential and business customers in Nebraska and Colorado, including internet, television, and telephone services.

Increase was due to additional residential households and businesses served as a result of the completion of the Lincoln, Nebraska network build out in 2019 and continued maturity of ALLO's existing markets.

See additional financial and operating data for ALLO in the tables below.

Other income 1,561 1,509

Total other income 78,204 65,778

Cost to provide communications

services 22,812 20,423 Cost of services are primarily associated with television programming costs.

Other costs include connectivity, franchise, and other regulatory costs directly related to providing internet and voice services.

Salaries and benefits 30,935 21,004 On October 1, 2020 (prior to the deconsolidation of ALLO), ALLO recognized compensation expense of $9.3 million related to the modification of certain ALLO equity awards previously granted to members of ALLO’s management.

Depreciation and amortization 42,588 37,173 Depreciation reflects the allocation of the costs of ALLO's property and equipment over the period in which such assets are used.

A significant amount of property and equipment purchases have been made to support ALLO’s network expansion, which has increased depreciation expense in 2020 as compared to 2019.

Amortization reflects the allocation of costs related to intangible assets recorded at fair value as of the date the Company acquired ALLO in 2015 over their estimated useful lives.

Other expenses 13,327 15,165 Other expenses includes selling, general, and administrative expenses necessary for operations, such as advertising, occupancy, professional services, construction materials, and personal property taxes.

Decrease in 2020 as compared to 2019 was due to a reduction in certain construction costs and travel expenses as a result of the COVID-19 pandemic.

Intersegment expenses 1,732 2,962 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.

Total operating expenses 88,582 76,304

Loss before income taxes (33,188) (30,946)

Income tax benefit 7,965 7,427 Represents income tax benefit at an effective tax rate of 24%.

Net loss $ (25,223) (23,519) As ALLO grows in current and new markets, it incurs large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.

M anagement uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period.

See additional information below.

Additional Information:

Net loss $ (25,223) (23,519)

Net interest income (2) (3)

Income tax benefit (7,965) (7,427)

Depreciation and amortization 42,588 37,173

Earnings before interest, income taxes, depreciation, and amortization (EBITDA) $ 9,398 6,224 For additional information regarding this non-GAAP measure, see the table below.

Certain financial and operating data for ALLO is summarized in the tables below.

Period from January 1 to December 21, 2020 Year ended December 31, 2019

Residential revenue $ 58,029 75.7 % $ 48,344 75.2 %

Business revenue 18,038 23.5 15,689 24.4

Other revenue 576 0.8 236 0.4

Communications revenue $ 76,643 100.0 % $ 64,269 100.0 %

Internet $ 48,362 63.1 % $ 38,239 59.5 %

Television 17,091 22.3 16,196 25.2

Telephone 11,037 14.4 9,705 15.1

Other 153 0.2 129 0.2

Communications revenue $ 76,643 100.0 % $ 64,269 100.0 %

Net loss $ (25,223) $ (23,519)

EBITDA (a) 9,398 6,224

Capital expenditures 47,957 44,988

December 21, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018

Residential customer information:

Households served 59,274 56,787 53,067 49,684 47,744 45,228 42,760 40,338 37,351

Households passed (b) 149,622 147,087 144,869 143,505 140,986 137,269 132,984 127,253 122,396

Households served/passed 39.6 % 38.6 % 36.6 % 34.6 % 33.9 % 32.9 % 32.2 % 31.7 % 30.5 %

Total households in current markets 171,121 171,121 171,121 171,121 160,884 159,974 159,974 152,840 152,840

(a) Earnings before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications.

ALLO's management uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period.

EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures.

EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures.

The Company reports EBITDA for ALLO because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess ALLO's performance.

There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from ALLO's calculations.

In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP.

A reconciliation of EBITDA from net income (loss) under GAAP is presented under "Summary and Comparison of Operating Results" in the table above.

(b) Represents the number of single residence homes, apartments, and condominiums that ALLO already serves and those in which ALLO has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.

The decrease in margin for 2021 as compared to 2020 was due to investments in i) the development of new services and technologies;

and ii) superior customer experiences to align with the Company’s strategies to grow, retain, and diversify revenues.

The Company currently anticipates before tax operating margin will continue to decrease from current levels as the Company continues to invest in these areas.

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of December 31, 2020, the AGM operating segment had a $19.6 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 9.8 years.

As of December 31, 2021, the AGM operating segment had a $17.4 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 15 years and has a weighted average remaining life of approximately 8 years.

For a summary of the Company's loan portfolio as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included in this report.

Loan Activity

The following table sets forth the activity of AGM’s loan portfolio:

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

Year ended December 31,

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Total loan acquisitions 1,075,319 1,616,723

Repayments, claims, capitalized interest, and other (1,999,095) (2,511,641)

Repayments, claims, capitalized interest, participations, and other, net (2,126,708) (1,999,095)

Consolidation loans lost to external parties (964,822) (672,211)

Consumer loans sold (185,028) (226,981)

Consumer and other loans sold (101,107) (185,028)

Ending balance $ 17,441,790 19,559,108

The Company has also purchased partial ownership in certain federally insured and consumer loan securitizations.

As of the latest remittance reports filed by the various trusts prior to December 31, 2020, the Company’s ownership correlates to approximately $500 million and $280 million of 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 or as of December 31, 2021, the Company’s ownership correlates to approximately $688 million, $195 million, and $445 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.

The Company's federally insured student loan acquisitions include the purchase of rehabilitated loans purchased from guaranty agencies.

After a guaranty agency rehabilitates a federally insured student loan, the agency sells the rehabilitated loan to a private lender, such as the Company.

On March 30, 2021, the Department suspended collections on defaulted federally insured student loans held by guaranty agencies and reduced the interest rate on such loans to zero percent, effectively suspending interest payments.

The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the President first declared a national emergency for the COVID-19 pandemic.

The Company currently believes these relief efforts will negatively impact the amount of rehabilitated loans the Company will have the opportunity to purchase in future periods.

Allowance for Loan Losses and Loan Delinquencies

On January 1, 2020, the Company adopted ASU No.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

therefore, the comparative information for 2019 is not comparable to the information presented for 2020.

Management has determined that each of AGM’s federally insured, private education, and consumer loan portfolios meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses.

AGM’s total allowance for loan losses of $126.0 million at December 31, 2021 represents reserves equal to 0.6% of AGM's federally insured loans (or 22.2% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.4% of AGM's private education loans, and 12.6% of AGM's consumer loans.

For a summary of the Company’s activity in the allowance for loan losses for 2020 and 2019, and a summary of the Company's loan status and delinquency amounts as of December 31, 2020 and 2019, see note 4 of the notes to consolidated financial statements included in this report.

For a summary of AGM’s activity in the allowance for loan losses for 2021 and 2020, and a summary of AGM's loan status and delinquency amounts as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included in this report.

Loan Spread Analysis

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Consolidation rebate fees (0.85) (0.84)

Discount accretion, net of premium and deferred origination costs amortization 0.01 0.02

Discount accretion, net of premium and deferred origination costs amortization (a) 0.02 0.01

Variable loan yield, net 1.81 2.34

Loan cost of funds - interest expense (1.64) (3.25)

Loan cost of funds - derivative settlements (a) (b) 0.05 0.03

Loan cost of funds - interest expense (b) (c) (1.04) (1.64)

Loan cost of funds - derivative settlements (d) (e) (0.01) 0.05

Variable loan spread 0.76 0.75

Fixed rate floor income, gross 0.76 0.61

Fixed rate floor income - derivative settlements (a) (c) (0.03) 0.19

Fixed rate floor income - derivative settlements (d) (f) (0.11) (0.03)

Fixed rate floor income, net of settlements on derivatives 0.65 0.58

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Average balance of AGM’s debt outstanding 18,610,144 19,964,813

(a) 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.

(a) During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its consolidation loans from 3 percent to 4 percent, which resulted in a $6.2 million increase to the Company’s net loan discount balance and a corresponding decrease to interest income.

The impact of this adjustment was excluded from the above table.

(b) In 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 and the impact of this reduction to interest expense was excluded from the table above.

(c) 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 from the table above.

(d) 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.

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As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table.

The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management.

The Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management.

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Loan spread 1.53 % 1.31 %

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

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

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

(f) 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 by calendar year quarter is summarized below.

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This table (the right axis) shows the difference between AGM's liability base rate and the one-month LIBOR rate by quarter.

See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.

Variable loan spread was compressed during the first and second quarters of 2020 due to a widening 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 the significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020.

In a declining interest rate environment, variable 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 rate resets on the Company's debt that occurs either monthly or quarterly.

See Item 7A, “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 year ended December 31, 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 rate resets on the Company's debt that occurs either monthly or quarterly.

During the third and fourth quarters of 2020, as the Company's debt reset at lower interest rates, the Company's variable loan spread increased.

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.

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Fixed rate floor income contribution to spread, net 0.65 % 0.58 %

(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.

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

Gross fixed rate floor income increased in 2021 as compared to 2020 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.

The decrease in net derivative settlements (paid)

received from the floor income interest rate swaps in 2020 as compared to 2019 was due to a decrease in the weighted average of notional amount of derivatives outstanding in 2020 as compared to 2019 and a decrease in interest rates.

The Company added $2.75 billion (notional amount) of additional derivatives during the fourth quarter of 2020, resulting in a total of $4.5 billion (notional amount) of derivatives outstanding as of December 31, 2020, to hedge loans earning fixed rate floor income.

See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on AGM’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.

The increase in net derivative settlements paid on the floor income interest rate swaps in 2021 as compared to 2020 was due to a decrease in interest rates and increase in the weighted average of notional amount of derivatives outstanding in 2021 as compared to 2020.

See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.

Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate

As of December 31, 2020, the interest earned on a principal amount of $17.8 billion in the Company’s FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $17.1 billion of the Company’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

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

A market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments.

See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate."

As of December 31, 2021, the interest earned on a principal amount of $15.9 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $15.9 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.

The market transition away from the LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments.

See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" for additional information.

Summary and Comparison of Operating Results

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Net interest income after provision for loan losses $ 347,203 220,288 See table below for additional analysis.

Other income 7,189 13,088 Represents primarily borrower late fees.

The decrease in borrower late fees in 2020 compared to 2019 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.

See "Overview - Impacts of COVID-19 Pandemic - Asset Generation and Management" above for additional information.

Gain on sale of loans 33,023 17,261 The Company sold $185.0 million and $227.0 million of consumer loans in 2020 and 2019, respectively.

Impairment expense and provision for beneficial interests (16,607) — 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.

During the fourth quarter of 2020, the Company reversed $9.7 million of such provision due to improved economic conditions.

See note 7 of the notes to consolidated financial statements included in this report.

Other income, net 34,306 7,189 During 2021, the Company recognized $32.9 million related to its investment in a joint venture to purchase and securitize private education loans sold by Wells Fargo.

The Company also earned $3.7 million in 2021 as the administrator and sponsor for the securitizations completed by the joint venture to fund these loans.

Other income for 2021 also includes $3.4 million of borrower late fees.

For 2021, other income was partially offset by a $6.8 million loss recognized by the Company as a result of purchasing back its own debt.

The majority of other income recognized by the Company in 2020 related to $5.2 million of borrower late fees.

The decrease in borrower late fees in 2021 as compared to 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.

The Company began to recognize borrower late fees again on May 1, 2021 (for private education loans) and October 1, 2021 (for federally insured student loans).

Impairment expense and provision for beneficial interests, net 2,436 (16,607) 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 estimated impacts of the COVID-19 pandemic.

During the fourth quarter of 2020 and first quarter of 2021, the Company reversed $9.7 million and $2.4 million, respectively, of such provision due to improved economic conditions.

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The majority of the derivative market value adjustments 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 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps.

Total other income/expense 126,903 (860)

Salaries and benefits 2,135 1,747

Other expenses 15,806 34,445 The Company recognized $16.7 million of expenses in 2019 to extinguish asset-backed notes from certain securitizations prior to their contractual maturity.

Excluding these costs, other expenses were $17.7 million in 2019.

Other than the debt extinguishment costs, the primary component of other expenses is servicing fees paid to third parties.

The decrease in servicing fees in 2020 as compared to 2019 was due to a decrease in the Company's loan portfolio.

Intersegment expenses 39,172 47,362 Amounts include fees paid to the LSS operating segment for the servicing of the Company’s loan portfolio.

Other expenses 13,487 15,806 The primary component of other expenses is servicing fees paid to third parties.

The decrease in 2021 as compared to 2020 was due to a decrease in AGM's loan portfolio.

Intersegment expenses 34,868 39,172 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 in 2020 compared to 2019 was due to the expected amortization of the Company'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 2021 as compared to 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.

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 56,725 83,352 Total operating expenses, excluding the $16.7 million of expenses in 2019 related to the extinguishment of debt prior to their contractual maturity (as described above), were 28 basis points and 31 basis points of the average balance of loans in 2020 and 2019, respectively.

Total operating expenses 50,490 56,725 Total operating expenses were 27 basis points and 28 basis points of the average balance of loans in 2021 and 2020, respectively.

The decrease for 2021 as compared to 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 before income taxes 423,616 162,703

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Net income $ 321,948 123,654 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.

The decrease in non-GAAP net income in 2020 compared to 2019 was due to (i) the provision expense recognized by the Company in 2020 related to beneficial interest in consumer loan securitizations;

(ii) the decrease in the average balance of loans in 2020 as compared to 2019;

(iii) an incremental provision for loan losses in 2020 related to the increase in expected defaults as a result of the COVID-19 pandemic;

and (iv) a decrease in borrower late fees.

These items were partially offset by (i) an increase in core loan spread;

(ii) an increase in gains from the sale of consumer loan portfolios in 2020 as compared to 2019;

and (iii) recognizing expenses for the early extinguishment of debt in 2019.

Derivative market value adjustments, net (92,813) 28,144

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Net income, excluding derivative market value adjustments $ 251,410 145,043

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."

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."

Year ended December 31,

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Consolidation rebate fees (160,228) (168,933) Decrease was due to a decrease in the average consolidation loan balance.

Discount accretion, net of premium and deferred origination costs amortization 2,578 4,495 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.

Discount accretion, net of premium and deferred origination costs amortization (3,347) 2,578 During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its consolidation loans from 3 percent to 4 percent, which resulted in a $6.2 million increase to the Company’s net loan discount balance and a corresponding decrease to the net accretion discount (decrease to interest income).

Excluding this adjustment, the Company recognized a discount accretion (net) of $2.8 million.

Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.

Variable interest income, net 336,123 471,624

Interest on bonds and notes payable (171,320) (326,753) Decrease in 2021 compared to 2020 was due to a decrease in cost of funds and a decrease in the average balance of debt outstanding.

Derivative settlements, net (a) 10,378 5,214 Derivative settlements include the net settlements received related to the Company’s 1:3 basis swaps.

In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds.

Derivative settlements, net (a) (1,638) 10,378 Derivative settlements include the net settlements (paid) received related to the Company’s 1:3 basis swaps.

Variable loan interest margin,

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Fixed rate floor income, gross 142,606 123,460 Fixed rate floor income increased due to lower interest rates in 2021 as compared to 2020.

Derivative settlements, net (a) (6,699) 40,192 Derivative settlements include the settlements (paid) received related to the Company's floor income interest rate swaps.

It is currently anticipated that interest rates may rise in 2022 as a result of inflationary pressures in the U.S.

economy, and an increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.

Derivative settlements, net (a) (19,729) (6,699) 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 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 122,877 116,761

Core loan interest income (a) 286,042 272,010

Investment interest 16,390 17,707 Decrease was due to lower interest rates and lower weighted average cash and restricted cash balances in 2020 as compared to 2019.

Intercompany interest (1,404) (3,750) Decrease was due to lower interest rates and lower weighted average debt outstanding in 2020 as compared to 2019.

Provision for loan losses - federally insured loans (18,691) (8,000) See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations.

Provision for loan losses - private education loans (6,155) —

Provision for loan losses - consumer loans (38,183) (31,000)

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 223,967 244,994 Net interest income (net of settlements on derivatives - and excluding provision for loan losses) for 2020 and 2019 was $287.0 million and $284.0 million, respectively.

The increase in 2020 as compared to 2019 was due to an increase in core loan spread, partially offset by a decrease in the average balance of loans.

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

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in this table.

Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures, and the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management.

Investment interest 28,172 16,390 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 (1,598) (1,404) Increase was due to an increase in the weighted average intercompany debt outstanding in 2021 as compared to 2020, partially offset by lower interest rates in 2021 as compared to 2020.

Negative provision (provision) for loan losses - federally insured loans 7,343 (18,691) 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 1,333 (6,155)

Negative provision (provision) for loan losses - consumer loans 4,544 (38,183)

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 325,836 223,967 Increase for 2021 as compared to 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 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.

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

(a) Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures.

For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the limitations thereof), see footnote (d) to the table immediately under the caption “Loan Spread Analysis” above.

See note 6 of the notes to consolidated financial statements included in 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 referred to in the "Additional information" column of this table, 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 6 and in this table.

NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of December 31, 2021, Nelnet Bank had a $257.9 million loan portfolio, consisting of $169.9 million of private education loans and $88.0 million of FFELP loans.

As of December 31, 2021, Nelnet Bank's allowance for loan losses on its portfolio was $1.1 million, which represents reserves equal to 0.3% of Nelnet Bank's federally insured loans (or 12.1% of the risk sharing component of the loans that is not covered by the federal guaranty) and 0.5% of Nelnet Bank's private education loans.

For a summary of Nelnet Bank's activity in the allowance for loan losses for the year ended December 31, 2021, and a summary of Nelnet Bank's loan status and delinquency amounts as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included in this report.

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

Year ended December 31,

Beginning balance $ 17,543 —

Federally insured student loan acquisitions 99,973 —

Private education loan originations 179,749 17,660

Repayments (36,181) (117)

Sales to AGM segment (3,183) —

Ending balance $ 257,901 17,543

As of December 31, 2021, Nelnet Bank had $425.4 million of deposits, of which $81.1 million were deposits from Nelnet, Inc.

(the parent company) and its subsidiaries (intercompany), and thus eliminated for consolidated financial reporting purposes.

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

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

Union Bank, a related party, is the program manager for the College Savings plans.

The intercompany deposits 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 and savings deposits, and Nelnet Business Services custodial deposits consisting of collected tuition payments which are subsequently remitted to the appropriate school.

Average Balance Sheet

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

December 31, 2021 Period from November 2, 2020 (Nelnet Bank inception) -

December 31, 2020

Balance Rate Balance Rate

Average assets

Federally insured student loans $ 64,873 1.36 % — — %

Private education loans 86,285 3.16 5,019 3.54

Cash and investments 220,735 1.86 159,908 1.46

Total interest-earning assets 371,893 2.08 % 164,927 1.53 %

Non-interest-earning assets 10,195 5,767

Total assets $ 382,088 170,694

Average liabilities and equity

Brokered deposits 61,208 0.84 % 1,198 0.55 %

Intercompany deposits 81,064 0.25 46,504 0.30

Retail and other deposits 132,010 0.60 21,207 0.50

Total interest-bearing liabilities 274,282 0.55 % 68,909 0.36 %

Non-interest-bearing liabilities 4,705 1,410

Equity 103,101 100,375

Total liabilities and equity $ 382,088 170,694

Summary of Operating Results

On November 2, 2020, Nelnet Bank launched operations, which are presented by the Company as a reportable operating segment.

Costs associated with Nelnet Bank prior to November 2, 2020 are included in the Corporate operating segment.

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 $3.4 million and $6.0 million for the years ended December 31, 2021 and 2020, respectively.

Year ended December 31,

2021 2020 Additional information

Total interest income $ 7,721 414 Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments.

Interest expense 1,507 41 Represents interest expense on deposits.

Net interest income 6,214 373

Provision for loan losses 794 330

Net interest income after provision for loan losses 5,420 43

Other income 713 48

Salaries and benefits 5,042 36 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.

Other expenses 1,776 135 Represents various expenses such as consulting and professional fees, Nelnet Bank director fees, occupancy, certain information technology-related costs, insurance, marketing, and other operating expenses.

Intersegment expenses 107 — Represents primarily servicing costs paid to the LSS operating segment.

Total operating expenses 6,925 171

Loss before income taxes (792) (80)

Income tax benefit 175 20 Represents income tax benefit at an effective tax rate of 22.1% and 23.7% for the years ended December 31, 2021 and 2020, respectively.

Net loss $ (617) (60)

LIQUIDITY AND CAPITAL RESOURCES

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As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations.

Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment.

The Company may issue equity and debt securities in the future in order to improve capital, increase liquidity, refinance upcoming maturities, or provide for general corporate purposes.

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and repurchases of its own debt.

Recent Developments

As discussed above under “Overview - Recapitalization and Additional Funding for ALLO,” 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.

As part of the transactions, on October 15, 2020, ALLO received proceeds of $197.0 million from SDC as the purchase price payment by SDC for the issuance of membership units of ALLO, and redeemed $160.0 million of non-voting preferred membership units of ALLO held by the Company.

Upon the receipt of regulatory approvals on December 21, 2020, 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 ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements.

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

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 ALLO to redeem, on or before April 2024, the remaining preferred membership units of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such units.

As of January 19, 2021, the outstanding preferred membership units of ALLO held by the Company was $129.7 million.

The preferred membership units earn a preferred annual return of 6.25 percent.

If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest.

However, ALLO has obtained third-party debt financing to support its current growth plans, and thus the Company currently believes additional equity contributions to ALLO are not likely in the immediate future.

As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $25.0 million to $35.0 million in the event the Company disposes of its voting membership units of ALLO that it holds and realizes from such disposition certain targeted return levels.

The Company recognized the estimated fair value of the contingent payment obligation as of December 31, 2020 to be $2.3 million, which is included in “other liabilities” on the consolidated balance sheet.

On November 2, 2020, the Company obtained final approval from the FDIC for federal deposit insurance and for a bank charter from the UDFI in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1

million of student loan asset-backed securities.

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

Prior to FDIC approval, Nelnet Bank, Nelnet, Inc.

(the parent), and Michael S.

Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank.

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;

(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.;

(iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations;

and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.

Based on the current business plan for Nelnet Bank and its strong financial condition after the first few months of operations, 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.

Sources of Liquidity

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As of December 31, 2021, the Company had cash and cash equivalents of $125.6 million.

The Company also had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $348.6 million as of December 31, 2020.

As of December 31, 2020, the Company had participated $118.6 million of these 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 December 31, 2020, there was $120.0 million outstanding on the unsecured line of credit and $335.0 million was available for future use.

Subsequent to December 31, 2020, the Company paid down the full balance outstanding on the line of credit, and as of February 25, 2021, $455.0 million was available for future use.

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 December 31, 2021 was $99.4 million.

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

As of December 31, 2021, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

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

As of December 31, 2020, the secured line of credit had $5.0 million outstanding with $17.0 million 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.

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As of December 31, 2021, the Company holds $381.2 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;

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);

strategic acquisitions and investments;

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During the year ended December 31, 2021, the Company generated $544.9 million from operating activities, compared to $212.8 million for the same period in 2020.

The decrease in cash flows from operating activities was due to:

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

• Adjustments to net income for the impact of the gains from the deconsolidation of ALLO and sale of loans and investments;

• The impact of changes to other liabilities and the due to customers liability account in 2020 as compared to 2019.

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 the gain from the 2020 deconsolidation of ALLO and the non-cash change in deferred income taxes;

• A decrease in loan discount accretion in 2021 as compared to 2020;

• Net proceeds from the Company’s clearinghouse for margin payments on derivatives in 2021 compared to net payments to the clearing house in 2020;

• The impact of changes to the due to customers liability account and loan and investment accrued interest receivable in 2021 as compared to 2020.

These factors were partially offset by:

• The increase in net income;

• Adjustments to net income for the impact of the non-cash provision for loan losses and impairment charges;

• A decrease in net payments to the Company's clearinghouse for margin payments on derivatives;

• 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 and depreciation and amortization;

• Purchases of equity securities;

• The impact of changes to accounts receivable and other assets in 2021 as compared to 2020.

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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 provided by investing activities and used in financing activities for the year ended December 31, 2020 was $621.2 million and $1.10 billion, respectively.

Cash provided by investing activities and used in financing activities for the year ended December 31, 2021 was $1.19 billion and $1.49 billion, respectively.

Cash provided by investing activities and used in financing activities for the year ended December 31, 2020 was $621.2 million and $1.10 billion, respectively.

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

Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral

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

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

As of December 31, 2021

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Bonds and notes issued in asset-backed securitizations $ 16,969,211 5/27/25 - 9/25/69

FFELP, private education, and consumer loan warehouse facilities 428,371 2/13/22 - 2/26/23

FFELP and private education loan warehouse facilities 112,059 2/13/23 / 5/22/23

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 December 31, 2020, 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 $2.30 billion as detailed below.

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 December 31, 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 $1.88 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of December 31, 2021.

As of December 31, 2020, the Company had $19.0 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 December 31, 2020, private education and consumer loans funded with operating cash, loans acquired subsequent to December 31, 2020, and loans owned by Nelnet Bank.

As of December 31, 2021, AGM had $17.1 billion of loans included in asset-backed securitizations, which represented 98.3 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 December 31, 2021, private education and consumer loans funded with operating cash, loans acquired subsequent to December 31, 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

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

There is significant uncertainty regarding the availability of LIBOR as a benchmark rate after 2021, and any market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations.

In addition, the COVID-19 pandemic may impact forecasted cash flows from the Company's asset-

backed securitizations.

See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate," and "Risk Factors - 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.”

In addition, the Company attempts to mitigate the

impact of this basis risk by entering into certain derivative instruments.

See Item 7A, "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 Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate."

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

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The forecasted cash flow does not include cash flows the Company expects to pay/receive related to derivative instruments used by the Company to manage interest rate risk.

See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk."

See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."

Warehouse Facilities

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities.

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facility.

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

As of December 31, 2020, the Company had two FFELP warehouse facilities with an aggregate maximum financing amount available of $310.0 million, of which $252.2 million was outstanding and $57.8 million was available for additional funding.

One warehouse facility has a static advance rate until the expiration date of the liquidity provisions (May 20, 2021).

As of December 31, 2021, the Company’s FFELP warehouse facility had a maximum financing amount available of $60.0 million, of which $5.0 million was outstanding and $55.0 million was available for additional funding.

The warehouse facility has a static advance rate until the expiration date of the liquidity provisions (May 23, 2022).

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 (May 22, 2023).

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 December 31, 2020, the Company had $21.2 million advanced as equity support on these facilities.

For further discussion of the Company's FFELP warehouse facilities outstanding at December 31, 2020, see note 5 of the notes to consolidated financial statements included in this report.

As of December 31, 2021, the Company had $0.3 million advanced as equity support on this facility.

The Company has a private education loan warehouse facility that, as of December 31, 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 December 31, 2021, $107.0 million was outstanding under this warehouse facility, $68.0 million was available for future funding, and $11.8 million was advanced as equity support.

On February 12, 2021, the liquidity provisions on this facility were extended to February 13, 2022, the final maturity was extended to February 13, 2023, and the maximum facility amount was decreased to $175.0 million.

The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $100.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022.

As of December 31, 2020, $25.8 million was outstanding under this facility, $74.2 million was available for future funding, and $11.5 million advanced as equity support.

This facility was amended on January 28, 2022 to extend the liquidity provisions and final maturity to June 30, 2022 and June 30, 2023, respectively.

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.

Other Uses of Liquidity

The Company no longer originates new FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education and consumer loans.

In December of 2020, Wells Fargo announced the sale of its approximately $10 billion portfolio of private education student loans representing approximately 475,000 borrowers.

In conjunction with the sale, the Company was selected as servicer of the portfolio and will begin servicing the portfolio following a series of loan transfers during the first half of 2021.

In addition, the Company has entered into agreements to participate in a joint venture to acquire the portfolio.

The Company expects to own approximately 8 percent of the interest in the loans and, dependent upon financing, currently expects to invest approximately $100 million as part of the acquisition.

This transaction is expected to close during the first half of 2021, with the securitizations occurring subsequent to closing.

The Company no longer originates FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education and consumer loans (or investment interests therein).

The Company plans to fund additional loan acquisitions and related investments using current cash and investments;

using its unsecured line of credit, using its Union Bank participation agreement (as described below);

using its existing warehouse

facilities (as described above);

using its unsecured line of credit, Union Bank student loan participation agreement, Union Bank student loan asset-backed securities participation agreement, and third-party repurchase agreements (each as described below), and/or establishing similar secured and unsecured borrowing facilities;

using its existing warehouse facilities (as described above);

increasing the capacity under existing and/or establishing new warehouse facilities;

and continuing to access the asset-backed securities market.

Private Education Loan Investment

During 2021, the Company sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the private education loans sold by Wells Fargo.

For further information about these transactions, see “Overview – Recent Transactions / Developments - 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo” above.

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 December 31, 2021, the fair value of these bonds was $412.6 million.

The Company must retain these investment securities until the expiration of a holding period discussed above under “Overview – Recent Transactions / Developments – 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo.” 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 December 31, 2021, $483.8 million was outstanding on the Company’s repurchase agreements, of which $313.2 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement.

The Company is 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.

Union Bank Participation Agreement

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Asset-backed Securities Transactions

During 2020, the Company completed five FFELP asset-backed securitizations totaling $1.6 billion (par value).

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

During 2021, the Company completed two FFELP asset-backed securitizations 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 and other asset-backed securitizations.

See note 5 of the notes to consolidated financial statements included in this report for additional information on these securitizations.

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Such asset-backed securitization transactions would be used to refinance student loans included in its warehouse facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.

Liquidity Impact Related to Nelnet Bank

Nelnet Bank launched operations in November 2020.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities.

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

Prior to Nelnet Bank’s launch of operations, Nelnet Bank, Nelnet, Inc.

(the parent), and Michael S.

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

(iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations;

and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.

Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI and must meet specific capital standards.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on Nelnet Bank's business, results of operations, and financial condition.

On January 1, 2020, the Community Bank Leverage Ratio ("CBLR") framework, as issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the FDIC, became effective.

Any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9% may opt into the CBLR framework quarterly.

The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is

greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio.

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 December 31, 2021 with a leverage ratio of 22.4%.

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.

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 years.

Liquidity Impact Related to ALLO

Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the HLBV method of accounting.

In addition, the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment.

As of December 31, 2021, the outstanding preferred membership interests of ALLO held by the Company was $137.3 million that earns a preferred annual return of 6.25 percent.

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.

If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest.

Although ALLO has obtained third-party debt financing to fund a large portion of its current growth plans, the Company contributed an additional $34.7 million of additional equity to ALLO on February 25, 2022.

As a result of this equity contribution, the Company’s voting membership interests percentage did not materially change.

Liquidity Impact Related to Hedging Activities

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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 December 31, 2020, the unsecured line of credit had $120.0 million outstanding and $335.0 million was available for future use.

As of February 25, 2021, no amounts were outstanding on the line of credit and $455.0 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 December 31, 2020, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use.

The 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.

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 student loan asset-backed securities.

As of December 31, 2020, $118.6 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As discussed above, the Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026.

As of December 31, 2021, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

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

As of December 31, 2021, $254.0 million (par value) 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.

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Due to the Company’s positive liquidity position and opportunities in the capital markets, the Company has repurchased its own debt over the last several years, and may continue to do so in the future.

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

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

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

As of December 31, 2021, the Company holds $381.2 million (par value) of its own asset-backed securities.

See note 5 of the notes to consolidated financial statements included in this report for information on debt repurchased by the Company during the last three years.

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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 December 31, 2020, 3,246,732 shares remain authorized for repurchase under the Company's stock repurchase program.

Shares may be repurchased from time to time depending on various factors, including share prices and other potential uses of liquidity.

As of December 31, 2021, 2,571,680 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 2021 and 2020 are shown below.

Certain of these repurchases were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

Certain of these repurchases were made pursuant to trading plans adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

Total shares repurchased Purchase price (in thousands) Average price of shares repurchased (per share)

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Year ended December 31, 2020 1,594,394 73,358 46.01

Included in the shares repurchased during 2019 in the table above are a total of 180,000 shares of Class A common stock the Company purchased on June 17, 2019 from Shelby J.

Butterfield, a significant shareholder of the Company, and from the Butterfield Family Trust, an estate planning trust for the family of Stephen F.

Butterfield, the Company's former Vice-Chairman.

Included in the shares repurchased during 2020 are a total of 100,000 shares of Class A common stock the Company purchased on May 27, 2020 from Shelby J.

The shares purchased in 2019 and 2020 were purchased at a discount to the closing market price of the Company's Class A common stock as of June 17, 2019, and May 27, 2020, respectively, and the transactions were separately approved by the Company's Board of Directors.

Immediately prior to the Company's purchase of such shares from Ms.

Butterfield and the Butterfield Family Trust, the purchased shares were shares of the Company's Class B common stock that Ms.

Butterfield and the Butterfield Family Trust converted to shares of Class A common stock.

Included in the shares repurchased during 2020 in the table above are a total of 100,000 shares of Class A common stock the Company purchased on May 27, 2020 from Shelby J.

Butterfield, a significant shareholder of the Company.

Included in the shares repurchased during 2021 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.

The shares purchased in 2020 and 2021 were purchased at a discount to the closing market price of the Company's Class A common stock as of May 27, 2020 and August 9, 2021, respectively, and the transactions were 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.

Dividends of $0.22 per share on the Company’s Class A and Class B common stock were paid on March 15, 2021, June 14, 2021, and September 15, 2021, respectively, and a dividend of $0.24 per share was paid on December 15, 2021.

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

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Contractual Obligations

The Company’s contractual obligations were as follows:

As of December 31, 2020

Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years

Bonds and notes payable (a) $ 19,558,849 118,558 433,371 218,761 18,788,159

Operating lease liabilities 20,796 6,578 6,795 2,986 4,437

Total $ 19,579,645 125,136 440,166 221,747 18,792,596

(a) Amounts exclude interest as substantially all bonds and notes payable carry variable rates of interest.

As of December 31, 2020, the Company had a reserve of $16.0 million for uncertain income tax positions (including the federal benefit received from state positions).

This obligation is not included in the above table as the timing and resolution of the income tax positions cannot be reasonably estimated at this time.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain.

Such assumptions are discussed below, and such uncertainty is due in part to the fact that loans in the Company’s portfolio mature over the next 20 years (with a weighted average remaining life of 9.8 years), and actual credit losses will be affected by, among other things, future economic conditions and future personal financial situations for borrowers, over that extended time frame.

Such assumptions are discussed below, and such uncertainty is due in part to the fact that loans in the Company’s portfolio mature over the next 15 years (with a weighted average remaining life of approximately 8 years), and actual credit losses will be affected by, among other things, future economic conditions and future personal financial situations for borrowers, over that extended time frame.

Changes in the Company’s assumptions affect “provision for loan losses” on the Company’s consolidated income statements and the “allowance for loan losses” contained within “loans and accrued interest receivable, net of allowance for loan losses” on the Company’s consolidated balance sheets.

For additional information regarding our allowance for loan losses, see note 3 of the notes to consolidated financial statements included in this report.

For additional information regarding our allowance for loan losses, see notes 3 and 4 of the notes to consolidated financial statements included in this report.

The Company estimates the allowance for loan losses for receivables that share similar risk characteristics based on a collective assessment using a combination of measurement models and management judgment.

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If management does not believe the models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding qualitative factors including economic uncertainty, observable changes in portfolio performance, and other relevant factors.

The Company’s allowance for credit losses is based on various assumptions including:

The Company’s allowance for loan losses is based on various assumptions including:

probability of default;

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Changes in estimates could significantly affect the Company's recorded balance for the allowance for loan losses.

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

The following standard may have an impact on the Company’s consolidated financial statements and disclosures.

ASU 2019-12, Simplifying the Accounting for Income Taxes .

In December 2019, the Financial Accounting Standards Board issued a new accounting standard that simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas.

The new standard clarifies that an entity may elect to, but is not required to, reflect an allocation of consolidated current and deferred tax expense for non-taxable legal entities that are treated as disregarded by taxing authorities in their separately issued financial statements.

The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company has determined to not reflect the allocation of income taxes in the financial statements of its disregarded entities, and thus the Company currently believes this standard will not have a significant impact on the Company’s consolidated financial statements.

For additional information regarding changes in the Company’s allowance for loan losses for the years ended December 31, 2021, 2020, and 2019, see the caption “Activity in the Allowance for Loan Losses” in note 4 of the notes to consolidated financial statements included in this report.

The Company considers a range of economic scenarios in its determination of the allowance for loan losses.

These scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses, and also the expectation that conditions will eventually normalize over the longer run.

Scenarios worse than the Company’s expected outcome at December 31, 2021 include risks that the COVID-19 pandemic significantly worsens from the relatively improved conditions at December 31, 2021, or that government stimulus programs related to the pandemic are less effective than expected or have collateral adverse consequences for the economy, any of which could lead to a prolonged downturn in economic activity, reducing the number of businesses that are able to conduct normal operations until after conditions improve, which could impact borrowers’ ability to pay on their loans held with us.

Under the range of economic scenarios considered, the allowance for loan losses would have been lower by $7 million (6 percent) or higher by $13 million (10 percent).

This range reflects the sensitivity of the allowance for loan losses specifically related to the scenarios and weights considered as of December 31, 2021, and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.

Because several quantitative and qualitative factors are considered in determining the allowance for loan losses, these sensitivity analyses do not necessarily reflect the nature and extent of future changes in the allowance for loan losses.

They are intended to provide insights into the impact of adverse changes in the economy on the Company’s modeled loss estimates for the loan portfolio and do not imply any expectation of future deterioration in loss rates.

Given current processes employed by

the Company, management believes the loss model estimates currently assigned are appropriate.

It is possible that others, given the same information, may at any point in time reach different reasonable conclusions that could be significant to the Company’s financial statements.

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-K

Item 7. Management’s Discussion and Analysis