1 unchanged sentence
(All dollars are in thousands, except share amounts, unless otherwise noted)
−Removed: Interest Rate Risk
−Removed: The Company’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the Company due to shifts in market interest rates.
−Removed: The following table sets forth the Company’s loan assets and debt instruments by rate characteristics:
+Added: Interest Rate Risk - AGM Operating Segment
+Added: AGM’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact AGM due to shifts in market interest rates.
+Added: The following table sets forth AGM’s loan assets and debt instruments by rate characteristics:
As of December 31, 2021 As of December 31, 2020
8 unchanged sentences
The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status.
−Removed: The Company generally finances its student loan portfolio with variable rate debt.
−Removed: In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates.
+Added: The Company generally finances its FFELP student loan portfolio with variable rate debt.
+Added: In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s FFELP student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates.
In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
4 unchanged sentences
Since the borrower rate reset on July 1, 2020, the Company no longer earns such variable-rate floor income on these loans, reflecting the lower interest rate environment.
−Removed: No variable-rate floor income was earned by the Company in 2019.
−Removed: A summary of fixed rate floor income earned by the Company during these years follows.
+Added: No variable-rate floor income was earned in 2021.
+Added: A summary of fixed rate floor income earned by the AGM operating segment follows.
Year ended December 31,
2 unchanged sentences
Fixed rate floor income, net $ 122,877 116,761
−Removed: (a) Derivative settlements consist of settlements (paid) received related to the Company's derivatives used to hedge student loans earning fixed rate floor income.
+Added: (a) Derivative settlements consist of 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.
Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and has an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas.
−Removed: In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
−Removed: 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.
−Removed: 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.
+Added: In higher interest rate environments, where
+Added: the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
+Added: The Company enters into derivative instruments to hedge student loans earning fixed rate floor income.
+Added: The increase in net derivative settlements paid on these derivatives in 2021 as compared to 2020 was due to a decrease in interest rates and an increase in weighted average of notional amount of derivatives outstanding in 2021 as compared to 2020.
The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:
−Removed: The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of December 31, 2020:
+Added: The following table shows AGM’s federally insured student loan assets that were earning fixed rate floor income as of December 31, 2021:
Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
14 unchanged sentences
As of December 31, 2021, the weighted average estimated variable conversion rate was 1.93% and the short-term interest rate was 9 basis points.
−Removed: The following table summarizes the outstanding derivative instruments as of December 31, 2020 used by the Company to economically hedge loans earning fixed rate floor income.
+Added: The following table summarizes the outstanding derivative instruments as of December 31, 2021 used by AGM to economically hedge loans earning fixed rate floor income.
Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2022 $ 500,000 0.94 %
−Removed: 2022 (b) 500,000 0.94
2023 900,000 0.62
−Removed: 2024 (c) 2,000,000 0.32
2024 2,500,000 0.35
2025 500,000 0.35
+Added: 2026 500,000 1.02
+Added: 2031 100,000 1.53
+Added: $ 5,000,000 0.55 %
(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
−Removed: (b) $250.0 million of these derivatives have forward effective start dates in June 2021.
−Removed: (c) $750.0 million of these derivatives have forward effective start dates in June 2021.
−Removed: The Company is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company’s assets do not match the interest rate characteristics of the funding for those assets.
−Removed: The following table presents the Company’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of December 31, 2020:
+Added: AGM is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of AGM’s assets do not match the interest rate characteristics of the funding for those assets.
+Added: The following table presents AGM’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of December 31, 2021.
Index Frequency of variable resets Assets Funding of student loan assets
16 unchanged sentences
2026 1,150,000
−Removed: 2026 1,150,000
(i) The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2021 was one-month LIBOR plus 9.1 basis points.
5 unchanged sentences
Funding represents overcollateralization (equity) and other liabilities included in FFELP asset-backed securitizations and warehouse facilities.
−Removed: 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 interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets.
+Added: 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 interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets.
See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate."
Sensitivity Analysis
−Removed: The following tables summarize the effect on the Company’s earnings, based upon a sensitivity analysis performed by the Company assuming hypothetical increases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant.
+Added: The following tables summarize the effect on the Company’s consolidated earnings, based upon a sensitivity analysis performed on AGM’s assets and liabilities assuming hypothetical increases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant.
In addition, a sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index.
−Removed: The sensitivity analysis was performed on the Company’s variable rate assets (including loans earning fixed rate floor income) and liabilities.
−Removed: The analysis includes the effects of the Company’s derivative instruments in existence during these periods.
+Added: The sensitivity analysis was performed on AGM’s variable rate assets (including loans earning fixed rate floor income) and liabilities.
+Added: The analysis includes the effects of AGM’s derivative instruments in existence during these periods.
Interest rates Asset and funding index mismatches
17 unchanged sentences
Increase (decrease) in basic and diluted earnings per share $ (0.85) $ (1.29) $ (0.02) $ (0.06)
+Added: Interest Rate Risk - Nelnet Bank
+Added: To manage Nelnet Bank's risk from fluctuations in market interest rates, the Company actively monitors interest rates and other interest sensitive components to minimize the impact that changes in interest rates have on the fair value of assets, net income, and cash flow.
+Added: To achieve this objective, the Company manages and mitigates its exposure to fluctuations in market interest rates through several techniques, including managing the maturity, repricing, and mix of fixed and variable rate assets and liabilities.
+Added: The following table presents Nelnet Bank's loan assets and deposits by rate characteristics:
+Added: As of December 31, 2021 As of December 31, 2020
+Added: Dollars Percent Dollars Percent
+Added: Fixed-rate loan assets $ 191,410 74.2 % $ 16,866 96.1 %
+Added: Variable-rate loan assets 66,491 25.8 677 3.9
+Added: Total $ 257,901 100.0 % $ 17,543 100.0 %
+Added: Fixed-rate deposits $ 344,315 80.9 % $ 54,633 48.3 %
+Added: Variable-rate deposits 81,085 19.1 58,413 51.7
+Added: Total $ 425,400 100.0 % $ 113,046 100.0 %
Financial Statement Impact – Derivatives
1 unchanged sentence
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.