NELNET INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NELNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (unaudited) As of As of September 30, 2022 December 31, 2021 Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 119,057 and $ 127,113 , respectively) $ 15,876,251 18,335,197 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 30,800 30,128 Cash and cash equivalents - held at a related party 32,398 95,435 Total cash and cash equivalents 63,198 125,563 Investments and notes receivable 2,063,514 1,588,919 Restricted cash 799,212 741,981 Restricted cash - due to customers 180,919 326,645 Accounts receivable (net of allowance for doubtful accounts of $ 3,195 and $ 1,160 , respectively) 121,945 163,315 Goodwill 172,033 142,092 Intangible assets, net 70,368 52,029 Property and equipment, net 127,094 119,413 Other assets 88,999 82,887 Total assets $ 19,563,533 21,678,041 Liabilities: Bonds and notes payable $ 15,042,595 17,631,089 Accrued interest payable 21,796 4,566 Bank deposits 580,825 344,315 Other liabilities 445,606 379,231 Due to customers 306,352 366,002 Total liabilities 16,397,174 18,725,203 Commitments and contingencies Equity: Nelnet, Inc. shareholders' equity: Preferred stock, $ 0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — — Common stock: Class A, $ 0.01 par value. Authorized 600,000,000 shares; issued and outstanding 26,483,298 shares and 27,239,654 shares, respectively 265 272 Class B, convertible, $ 0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,673,659 shares and 10,676,642 shares, respectively 107 107 Additional paid-in capital 837 1,000 Retained earnings 3,208,044 2,940,523 Accumulated other comprehensive (loss) earnings, net ( 28,639 ) 9,304 Total Nelnet, Inc. shareholders' equity 3,180,614 2,951,206 Noncontrolling interests ( 14,255 ) 1,632 Total equity 3,166,359 2,952,838 Total liabilities and equity $ 19,563,533 21,678,041 Supplemental information - assets and liabilities of consolidated education lending variable interest entities: Loans and accrued interest receivable $ 15,173,335 17,981,414 Restricted cash 712,435 674,073 Bonds and notes payable ( 14,725,098 ) ( 17,462,456 ) Accrued interest payable and other liabilities ( 96,004 ) ( 36,276 ) Net assets of consolidated education lending variable interest entities $ 1,064,668 1,156,755 See accompanying notes to consolidated financial statements. 2 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (unaudited) Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Interest income: Loan interest $ 176,244 124,096 422,327 370,219 Investment interest 26,889 12,558 57,589 29,122 Total interest income 203,133 136,654 479,916 399,341 Interest expense on bonds and notes payable and bank deposits 126,625 50,176 248,347 127,939 Net interest income 76,508 86,478 231,569 271,402 Less provision (negative provision) for loan losses 9,665 5,827 18,640 ( 10,847 ) Net interest income after provision for loan losses 66,843 80,651 212,929 282,249 Other income/expense: Loan servicing and systems revenue 134,197 112,351 395,438 335,961 Education technology, services, and payment processing revenue 106,894 85,324 310,211 257,284 Solar construction revenue 9,358 — 9,358 — Other 2,225 11,867 24,750 30,183 Gain on sale of loans 2,627 3,444 5,616 18,715 Impairment expense and provision for beneficial interests, net 121 ( 14,159 ) ( 6,163 ) ( 12,223 ) Derivative market value adjustments and derivative settlements, net 63,262 1,351 251,210 28,868 Total other income/expense 318,684 200,178 990,420 658,788 Cost of services: Cost to provide education technology, services, and payment processing services 42,676 31,335 109,073 80,063 Cost to provide solar construction services 5,968 — 5,968 — Total cost of services 48,644 31,335 115,041 80,063 Operating expenses: Salaries and benefits 147,198 128,592 438,010 363,351 Depreciation and amortization 18,772 15,710 53,978 56,129 Other expenses 43,858 38,324 120,297 107,611 Total operating expenses 209,828 182,626 612,285 527,091 Income before income taxes 127,055 66,868 476,023 333,883 Income tax expense 26,586 15,649 107,765 76,747 Net income 100,469 51,219 368,258 257,136 Net loss attributable to noncontrolling interests 4,329 1,919 8,315 3,467 Net income attributable to Nelnet, Inc. $ 104,798 53,138 376,573 260,603 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 2.80 1.38 9.99 6.74 Weighted average common shares outstanding - basic and diluted 37,380,493 38,595,721 37,708,425 38,646,892 See accompanying notes to consolidated financial statements. 3 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (unaudited) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net income $ 100,469 51,219 368,258 257,136 Other comprehensive income (loss): Net changes related to foreign currency translation adjustments $ 18 ( 9 ) 19 ( 9 ) Net changes related to available-for-sale debt securities: Unrealized holding gains (losses) arising during period, net 4,790 4,524 ( 45,730 ) 11,770 Reclassification of gains recognized in net income, net of losses ( 578 ) ( 1,173 ) ( 4,220 ) ( 2,052 ) Income tax effect ( 1,011 ) 3,201 ( 804 ) 2,547 11,988 ( 37,962 ) ( 2,332 ) 7,386 Other comprehensive income (loss) 3,219 2,538 ( 37,943 ) 7,377 Comprehensive income 103,688 53,757 330,315 264,513 Comprehensive loss attributable to noncontrolling interests 4,329 1,919 8,315 3,467 Comprehensive income attributable to Nelnet, Inc. $ 108,017 55,676 338,630 267,980 See accompanying notes to consolidated financial statements. 4 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity Class A Class B Balance as of June 30, 2021 — 27,494,942 11,054,171 $ — 275 111 10,158 2,812,315 10,941 ( 5,182 ) 2,828,618 Issuance of noncontrolling interests — — — — — — — — — 4,935 4,935 Net income (loss) — — — — — — — 53,138 — ( 1,919 ) 51,219 Other comprehensive income — — — — — — — — 2,538 — 2,538 Distribution to noncontrolling interests — — — — — — — — — ( 125 ) ( 125 ) Cash dividends on Class A and Class B common stock - $ 0.22 per share — — — — — — — ( 8,407 ) — — ( 8,407 ) Issuance of common stock, net of forfeitures — 29,805 — — — — 493 — — — 493 Compensation expense for stock based awards — — — — — — 2,770 — — — 2,770 Repurchase of common stock — ( 341,094 ) — — ( 3 ) — ( 11,828 ) ( 13,247 ) — — ( 25,078 ) Conversion of common stock — 372,717 ( 372,717 ) — 4 ( 4 ) — — — — — Balance as of September 30, 2021 — 27,556,370 10,681,454 $ — 276 107 1,593 2,843,799 13,479 ( 2,291 ) 2,856,963 Balance as of June 30, 2022 — 26,613,733 10,674,892 $ — 266 107 1,180 3,127,687 ( 31,858 ) ( 6,237 ) 3,091,145 Issuance of noncontrolling interests — — — — — — — — — 14,018 14,018 Net income (loss) — — — — — — — 104,798 — ( 4,329 ) 100,469 Other comprehensive income — — — — — — — — 3,219 — 3,219 Distribution to noncontrolling interests — — — — — — — — — ( 17,707 ) ( 17,707 ) Cash dividends on Class A and Class B common stock - $ 0.24 per share — — — — — — — ( 8,925 ) — — ( 8,925 ) Issuance of common stock, net of forfeitures — 38,192 — — 1 — 476 — — — 477 Compensation expense for stock based awards — — — — — — 3,631 — — — 3,631 Repurchase of common stock — ( 169,860 ) — — ( 2 ) — ( 4,450 ) ( 9,841 ) — — ( 14,293 ) Conversion of common stock — 1,233 ( 1,233 ) — — — — — — — — Other — — — — — — — ( 5,675 ) — — ( 5,675 ) Balance as of September 30, 2022 — 26,483,298 10,673,659 $ — 265 107 837 3,208,044 ( 28,639 ) ( 14,255 ) 3,166,359 See accompanying notes to consolidated financial statements. 5 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity Class A Class B Balance as of December 31, 2020 — 27,193,154 11,155,571 $ — 272 112 3,794 2,621,762 6,102 ( 3,693 ) 2,628,349 Issuance of noncontrolling interests — — — — — — — — — 11,823 11,823 Net income (loss) — — — — — — — 260,603 — ( 3,467 ) 257,136 Other comprehensive income — — — — — — — — 7,377 — 7,377 Distribution to noncontrolling interests — — — — — — — — — ( 6,954 ) ( 6,954 ) Cash dividends on Class A and Class B common stock - $ 0.66 per share — — — — — — — ( 25,319 ) — — ( 25,319 ) Issuance of common stock, net of forfeitures — 261,760 — — 3 — 4,406 — — — 4,409 Compensation expense for stock based awards — — — — — — 7,628 — — — 7,628 Repurchase of common stock — ( 372,661 ) — — ( 4 ) — ( 14,235 ) ( 13,247 ) — — ( 27,486 ) Conversion of common stock — 474,117 ( 474,117 ) — 5 ( 5 ) — — — — — Balance as of September 30, 2021 — 27,556,370 10,681,454 $ — 276 107 1,593 2,843,799 13,479 ( 2,291 ) 2,856,963 Balance as of December 31, 2021 — 27,239,654 10,676,642 $ — 272 107 1,000 2,940,523 9,304 1,632 2,952,838 Issuance of noncontrolling interests — — — — — — — — — 25,297 25,297 Net income (loss) — — — — — — — 376,573 — ( 8,315 ) 368,258 Other comprehensive loss — — — — — — — — ( 37,943 ) — ( 37,943 ) Distribution to noncontrolling interests — — — — — — — — — ( 32,869 ) ( 32,869 ) Cash dividends on Class A and Class B common stock - $ 0.72 per share — — — — — — — ( 26,960 ) — — ( 26,960 ) Issuance of common stock, net of forfeitures — 348,831 — — 4 — 6,974 — — — 6,978 Compensation expense for stock based awards — — — — — 9,659 — — — 9,659 Repurchase of common stock — ( 1,108,170 ) — — ( 11 ) — ( 16,796 ) ( 76,417 ) — — ( 93,224 ) Conversion of common stock — 2,983 ( 2,983 ) — — — — — — — — Other — — — — — — — ( 5,675 ) — — ( 5,675 ) Balance as of September 30, 2022 — 26,483,298 10,673,659 $ — 265 107 837 3,208,044 ( 28,639 ) ( 14,255 ) 3,166,359 See accompanying notes to consolidated financial statements. 6 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Nine months ended September 30, 2022 2021 Net income attributable to Nelnet, Inc. $ 376,573 260,603 Net loss attributable to noncontrolling interests ( 8,315 ) ( 3,467 ) Net income 368,258 257,136 Adjustments to reconcile net income to net cash provided by operating activities, net of business acquisitions: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 113,655 113,651 Loan discount accretion ( 27,963 ) ( 25,048 ) Provision (negative provision) for loan losses 18,640 ( 10,847 ) Derivative market value adjustments ( 239,125 ) ( 44,455 ) Proceeds from termination of derivative instruments, net 91,786 — Proceeds from clearinghouse - initial and variation margin, net of payments 227,448 41,033 Gain on sale of loans ( 5,616 ) ( 18,715 ) Loss (gain) on investments, net 13,605 ( 293 ) (Gain) loss from repurchases of debt, net ( 1,231 ) 3,964 Proceeds from sale (purchases) of equity securities, net 42,863 ( 41,591 ) Deferred income tax expense 57,633 33,078 Non-cash compensation expense 9,872 7,824 Provision for beneficial interests and impairment expense, net 6,163 12,223 Increase in loan and investment accrued interest receivable ( 16,206 ) ( 41,931 ) Decrease (increase) in accounts receivable 47,514 ( 2,137 ) (Increase) decrease in other assets, net ( 73,291 ) 35,381 Decrease in the carrying amount of ROU asset, net 4,476 5,652 Increase (decrease) in accrued interest payable 17,230 ( 24,260 ) Increase in other liabilities, net 5,388 41,040 Decrease in the carrying amount of lease liability ( 4,227 ) ( 5,158 ) Net cash provided by operating activities 656,872 336,547 Cash flows from investing activities, net of business acquisitions: Purchases and originations of loans ( 539,118 ) ( 1,145,775 ) Purchases of loans from a related party ( 8,242 ) ( 21,476 ) Net proceeds from loan repayments, claims, and capitalized interest 2,955,097 2,010,645 Proceeds from sale of loans 38,559 85,906 Purchases of available-for-sale securities ( 944,588 ) ( 521,565 ) Proceeds from sales of available-for-sale securities 450,457 104,520 Proceeds from beneficial interest in loan securitizations 17,754 30,811 Purchases of other investments and issuance of notes receivable ( 192,773 ) ( 166,664 ) Proceeds from other investments 42,524 209,634 Purchases of property and equipment ( 44,423 ) ( 42,594 ) Business acquisitions, net of cash acquired ( 35,973 ) — Net cash provided by investing activities 1,739,274 543,442 7 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine months ended September 30, 2022 2021 Cash flows from financing activities, net of business acquisitions: Payments on bonds and notes payable $ ( 3,035,082 ) ( 2,479,582 ) Proceeds from issuance of bonds and notes payable 413,391 1,738,405 Payments of debt issuance costs ( 1,160 ) ( 6,778 ) Increase in bank deposits, net 236,510 146,018 (Decrease) increase in due to customers ( 59,467 ) 53,146 Dividends paid ( 26,960 ) ( 25,319 ) Repurchases of common stock ( 93,224 ) ( 27,486 ) Proceeds from issuance of common stock 1,206 1,108 Issuance of noncontrolling interests 19,380 13,905 Distribution to noncontrolling interests ( 1,153 ) ( 548 ) Net cash used in financing activities ( 2,546,559 ) ( 587,131 ) Effect of exchange rate changes on cash ( 447 ) ( 175 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 150,860 ) 292,683 Cash, cash equivalents, and restricted cash, beginning of period 1,194,189 958,395 Cash, cash equivalents, and restricted cash, end of period $ 1,043,329 1,251,078 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 196,278 117,336 Cash disbursements made for income taxes, net of refunds and credits received (a) $ 37,467 10,921 Cash disbursements made for operating leases $ 5,221 6,003 Non-cash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 5,981 4,026 Receipt of beneficial interest in consumer loan securitizations $ 8,336 23,506 Distribution to noncontrolling interests $ 31,716 6,406 Issuance of noncontrolling interests $ 5,917 2,082 (a) The Company utilized $ 9.4 million and $ 22.2 million of federal and state tax credits related primarily to renewable energy during the nine months ended September 30, 2022 and 2021, respectively. Supplemental disclosures of noncash activities regarding the Company's business acquisitions are contained in note 6. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows. As of As of As of As of September 30, 2022 December 31, 2021 September 30, 2021 December 31, 2020 Total cash and cash equivalents $ 63,198 125,563 191,936 121,249 Restricted cash 799,212 741,981 764,089 553,175 Restricted cash - due to customers 180,919 326,645 295,053 283,971 Cash, cash equivalents, and restricted cash $ 1,043,329 1,194,189 1,251,078 958,395 See accompanying notes to consolidated financial statements. 8 NELNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts, unless otherwise noted) (unaudited) 1. Basis of Financial Reporting The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2021 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report"). Reclassification of Prior Period Cash Flows Presentation Prior to June 30, 2022, the line item in the Company's consolidated statements of cash flows for changes during a period in amounts "due to customers" was presented in cash flows from operating activities. Beginning in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, the Company corrected this presentation in its statements of cash flows to show this activity as a financing activity. This correction had no impact on the Company's previously reported consolidated net income, total assets (including cash and cash equivalents), liabilities, and equity, and while the correction had a corresponding impact on the amounts of cash flows from operating and financing activities, it had no impact on the net increase or decrease in cash for previously reported periods. The Company has concluded that the correction was not material from a combined quantitative and qualitative perspective to its previously issued interim financial statements, or its previously issued financial statements for 2021, 2020, and 2019. 9 2. Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and accrued interest receivable consisted of the following: As of As of September 30, 2022 December 31, 2021 Non-Nelnet Bank: Federally insured student loans: Stafford and other $ 3,298,138 3,904,000 Consolidation 11,002,253 13,187,047 Total 14,300,391 17,091,047 Private education loans 262,183 299,442 Consumer and other loans 231,441 51,301 Non-Nelnet Bank loans 14,794,015 17,441,790 Nelnet Bank: Federally insured student loans 72,905 88,011 Private education loans 356,571 169,890 Nelnet Bank loans 429,476 257,901 Accrued interest receivable 793,838 788,552 Loan discount, net of unamortized loan premiums and deferred origination costs ( 22,021 ) ( 25,933 ) Allowance for loan losses: Non-Nelnet Bank: Federally insured loans ( 87,778 ) ( 103,381 ) Private education loans ( 15,577 ) ( 16,143 ) Consumer and other loans ( 13,290 ) ( 6,481 ) Non-Nelnet Bank allowance for loan losses ( 116,645 ) ( 126,005 ) Nelnet Bank: Federally insured loans ( 164 ) ( 268 ) Private education loans ( 2,248 ) ( 840 ) Nelnet Bank allowance for loan losses ( 2,412 ) ( 1,108 ) $ 15,876,251 18,335,197 The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios. As of As of September 30, 2022 December 31, 2021 Non-Nelnet Bank: Federally insured student loans (a) 0.61 % 0.60 % Private education loans 5.94 % 5.39 % Consumer and other loans (b) 5.74 % 12.63 % Nelnet Bank: Federally insured student loans (a) 0.22 % 0.30 % Private education loans 0.63 % 0.49 % (a) As of September 30, 2022 and December 31, 2021, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty for non-Nelnet Bank was 22.3 % and 22.2 %, respectively, and for Nelnet Bank was 8.9 % and 12.1 %, respectively. (b) During 2022, the Company purchased home equity loans that generally have lower default rates than unsecured consumer loans. As such, the allowance for loan losses as a percentage of the ending loan balance has decreased as of September 30, 2022 as compared to December 31, 2021. Gain on Sale of Loans On January 26, 2022 and July 7, 2022, the Company sold $ 18.1 million (par value) and $ 28.9 million (par value) of consumer loans, respectively, to an unrelated third party who securitized such loans. The Company recognized a gain of $ 3.0 million (pre-tax) and $ 2.6 million (pre-tax), respectively, as part of these transactions. As partial consideration received for the consumer loans sold, the Company received a 6.6 percent and 7.6 percent residual interest, respectively, in the consumer loan securitizations that are included in "investments and notes receivable" on the Company's consolidated balance sheet. 10 Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sales Balance at end of period Three months ended September 30, 2022 Non-Nelnet Bank: Federally insured loans $ 92,593 888 ( 5,715 ) — 12 — 87,778 Private education loans 15,253 1,154 ( 1,066 ) 236 — — 15,577 Consumer and other loans 10,576 7,173 ( 1,021 ) 147 — ( 3,585 ) 13,290 Nelnet Bank: Federally insured loans 258 ( 94 ) — — — — 164 Private education loans 1,744 504 — — — — 2,248 $ 120,424 9,625 ( 7,802 ) 383 12 ( 3,585 ) 119,057 Three months ended September 30, 2021 Non-Nelnet Bank: Federally insured loans $ 120,802 4,452 ( 10,330 ) — 935 — 115,859 Private education loans 19,403 ( 1,208 ) ( 954 ) 113 — ( 301 ) 17,053 Consumer and other loans 4,702 2,696 ( 1,133 ) 187 — ( 2,023 ) 4,429 Nelnet Bank: Federally insured loans 245 44 — — — — 289 Private education loans 567 ( 157 ) — 4 — — 414 $ 145,719 5,827 ( 12,417 ) 304 935 ( 2,324 ) 138,044 Nine months ended September 30, 2022 Non-Nelnet Bank Federally insured loans $ 103,381 505 ( 16,264 ) — 156 — 87,778 Private education loans 16,143 1,971 ( 3,072 ) 531 — 4 15,577 Consumer and other loans 6,481 14,702 ( 2,489 ) 465 — ( 5,869 ) 13,290 Nelnet Bank Federally insured loans 268 ( 102 ) ( 2 ) — — — 164 Private education loans 840 1,499 ( 87 ) — — ( 4 ) 2,248 $ 127,113 18,575 ( 21,914 ) 996 156 ( 5,869 ) 119,057 Nine months ended September 30, 2021 Non-Nelnet Bank Federally insured loans $ 128,590 ( 3,428 ) ( 11,563 ) — 2,260 — 115,859 Private education loans 19,529 ( 781 ) ( 1,850 ) 454 — ( 299 ) 17,053 Consumer and other loans 27,256 ( 7,016 ) ( 4,547 ) 668 — ( 11,932 ) 4,429 Nelnet Bank Federally insured loans — 289 — — — — 289 Private education loans 323 89 — 4 — ( 2 ) 414 $ 175,698 ( 10,847 ) ( 17,960 ) 1,126 2,260 ( 12,233 ) 138,044 (a) During the three months ended September 30, 2022 and 2021, and nine months ended September 30, 2022 and 2021, the Company acquired $ 0.9 million (par value), $ 64.6 million (par value), $ 11.6 million (par value), and $ 153.3 million (par value), respectively, of federally insured rehabilitation loans that met the definition of purchased loans with credit deterioration ("PCD loans") when they were purchased by the Company. The Company recorded a negative provision for loan losses for its federally insured loan portfolio during the first quarter of 2022 due to the amortization of the portfolio and an increase in expected prepayments as a result of an initiative offered by the Department of Education (the “Department”) for Federal Family Education Loan Program ("FFELP" or "FFEL Program") borrowers to consolidate their loans into Federal Direct Loan Program loans with the Department by October 31, 2022 to qualify for loan forgiveness under the Public Service Loan Forgiveness program. The Company recorded a provision for loan losses on its consumer loan portfolio during the first quarter of 2022 as a result of loans acquired during the period. 11 The Company recorded a provision for loan losses for its federally insured, private education, consumer, and other loan portfolios during the second and third quarters of 2022 due to management's estimate of declining economic conditions. In addition, the Company recorded provision for loan losses on its consumer and other loan and Nelnet Bank private education loan portfolios during these periods as a result of loans acquired and originated during the period. The provision for loan losses recognized by the Company for its federally insured loan portfolio during these periods was partially offset due to the continued amortization of the portfolio. Unfunded Private Education Loan Commitments As of September 30, 2022, Nelnet Bank has a liability of approximately $ 76,000 related to $ 4.3 million of unfunded private education loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the consolidated balance sheet. During the nine months ended September 30, 2022, Nelnet Bank recognized provision for loan losses of approximately $ 65,000 related to unfunded loan commitments. Key Credit Quality Indicators Loan Status and Delinquencies Key credit quality indicators for the Company's federally insured, private education, consumer, and other loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The table below shows the Company’s loan status and delinquency amounts. As of September 30, 2022 As of December 31, 2021 As of September 30, 2021 Federally insured loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 719,724 5.0 % $ 829,624 4.9 % $ 909,228 5.0 % Loans in forbearance 1,384,709 9.7 1,118,667 6.5 1,826,082 10.1 Loans in repayment status: Loans current 10,454,046 85.7 % 12,847,685 84.9 % 13,525,751 88.1 % Loans delinquent 31-60 days 431,471 3.6 895,656 5.9 548,670 3.6 Loans delinquent 61-90 days 261,616 2.1 352,449 2.3 286,681 1.9 Loans delinquent 91-120 days 185,753 1.5 251,075 1.7 163,447 1.1 Loans delinquent 121-270 days 540,555 4.4 592,449 3.9 467,441 3.0 Loans delinquent 271 days or greater 322,517 2.7 203,442 1.3 354,188 2.3 Total loans in repayment 12,195,958 85.3 100.0 % 15,142,756 88.6 100.0 % 15,346,178 84.9 100.0 % Total federally insured loans 14,300,391 100.0 % 17,091,047 100.0 % 18,081,488 100.0 % Accrued interest receivable 786,494 784,716 831,142 Loan discount, net of unamortized premiums and deferred origination costs ( 25,381 ) ( 28,309 ) ( 23,229 ) Allowance for loan losses ( 87,778 ) ( 103,381 ) ( 115,859 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 14,973,726 $ 17,744,073 $ 18,773,542 Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 15,556 5.9 % $ 9,661 3.2 % $ 10,282 3.2 % Loans in forbearance 2,745 1.1 3,601 1.2 3,554 1.1 Loans in repayment status: Loans current 238,926 98.0 % 280,457 98.0 % 300,231 98.3 % Loans delinquent 31-60 days 2,014 0.8 2,403 0.8 1,870 0.6 Loans delinquent 61-90 days 992 0.4 976 0.3 912 0.3 Loans delinquent 91 days or greater 1,950 0.8 2,344 0.9 2,363 0.8 Total loans in repayment 243,882 93.0 100.0 % 286,180 95.6 100.0 % 305,376 95.7 100.0 % Total private education loans 262,183 100.0 % 299,442 100.0 % 319,212 100.0 % Accrued interest receivable 2,207 1,960 2,076 Loan discount, net of unamortized premiums ( 185 ) ( 1,123 ) ( 1,496 ) Allowance for loan losses ( 15,577 ) ( 16,143 ) ( 17,053 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 248,628 $ 284,136 $ 302,739 12 As of September 30, 2022 As of December 31, 2021 As of September 30, 2021 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ 29 0.0 % $ 43 0.1 % $ 18 0.0 % Loans in repayment status: Loans current 228,827 98.9 % 49,697 97.0 % 35,744 96.6 % Loans delinquent 31-60 days 1,019 0.4 414 0.8 319 0.9 Loans delinquent 61-90 days 427 0.2 322 0.6 243 0.7 Loans delinquent 91 days or greater 1,139 0.5 825 1.6 670 1.8 Total loans in repayment 231,412 100.0 100.0 % 51,258 99.9 100.0 % 36,976 100.0 100.0 % Total consumer and other loans 231,441 100.0 % 51,301 100.0 % 36,994 100.0 % Accrued interest receivable 2,561 396 280 Loan discount, net of unamortized premiums ( 1,847 ) 913 664 Allowance for loan losses ( 13,290 ) ( 6,481 ) ( 4,429 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 218,865 $ 46,129 $ 33,509 Federally insured loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 274 0.4 % $ 330 0.4 % $ 283 0.3 % Loans in forbearance 2,551 3.5 1,057 1.2 1,722 1.8 Loans in repayment status: Loans current 68,970 98.4 % 85,599 98.8 % 91,366 99.4 % Loans delinquent 30-59 days 353 0.5 816 1.0 277 0.3 Loans delinquent 60-89 days 130 0.2 — — 35 0.0 Loans delinquent 90-119 days 5 0.0 — — 45 0.1 Loans delinquent 120-270 days 508 0.7 209 0.2 202 0.2 Loans delinquent 271 days or greater 114 0.2 — — — — Total loans in repayment 70,080 96.1 100.0 % 86,624 98.4 100.0 % 91,925 97.9 100.0 % Total federally insured loans 72,905 100.0 % 88,011 100.0 % 93,930 100.0 % Accrued interest receivable 1,607 1,216 1,177 Loan premium 23 26 28 Allowance for loan losses ( 164 ) ( 268 ) ( 289 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 74,371 $ 88,985 $ 94,846 Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 10,888 3.1 % $ 150 0.1 % $ 82 0.1 % Loans in forbearance 524 0.1 460 0.3 193 0.2 Loans in repayment status: Loans current 344,469 99.8 % 169,157 99.9 % 98,120 100.0 % Loans delinquent 30-59 days 197 0.1 51 0.0 — — Loans delinquent 60-89 days 79 0.0 — — — — Loans delinquent 90 days or greater 414 0.1 72 0.1 — — Total loans in repayment 345,159 96.8 100.0 % 169,280 99.6 100.0 % 98,120 99.7 100.0 % Total private education loans 356,571 100.0 % 169,890 100.0 % 98,395 100.0 % Accrued interest receivable 969 264 156 Deferred origination costs, net of unaccreted discount 5,369 2,560 1,430 Allowance for loan losses ( 2,248 ) ( 840 ) ( 414 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 360,661 $ 171,874 $ 99,567 (a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation. 13 FICO Scores - Nelnet Bank Private Education Loans An additional key credit quality indicator for Nelnet Bank private education loans is FICO scores at the time of origination. The following tables highlight the gross principal balance of Nelnet Bank's private education loan portfolio, by year of origination, stratified by FICO score at the time of origination. Loan balance as of September 30, 2022 Nine months ended September 30, 2022 2021 2020 Total FICO at origination: Less than 705 $ 5,105 5,516 350 10,971 705 - 734 21,916 10,745 537 33,198 735 - 764 34,495 17,107 1,485 53,087 765 - 794 57,481 32,421 1,639 91,541 Greater than 794 88,097 73,190 6,487 167,774 $ 207,094 138,979 10,498 356,571 Loan balance as of December 31, 2021 2021 2020 Total FICO at origination: Less than 705 $ 6,481 100 6,581 705 - 734 11,697 276 11,973 735 - 764 18,611 1,072 19,683 765 - 794 36,274 1,467 37,741 Greater than 794 86,141 7,771 93,912 $ 159,204 10,686 169,890 Nonaccrual Status The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private education, consumer, and other loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2021 and September 30, 2022, was not material. 14 Amortized Cost Basis by Origination Year The following table presents the amortized cost of the Company's private education, consumer, and other loans by loan status and delinquency amount as of September 30, 2022 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010. Nine months ended September 30, 2022 2021 2020 2019 2018 Prior years Total Private education loans - Non-Nelnet Bank: Loans in school/grace/deferment $ 2,051 7,282 1,664 2,956 101 1,502 15,556 Loans in forbearance — 30 423 1,244 134 914 2,745 Loans in repayment status: Loans current 3,877 2,912 55,156 42,006 172 134,803 238,926 Loans delinquent 31-60 days — 11 9 174 38 1,782 2,014 Loans delinquent 61-90 days — 35 202 76 — 679 992 Loans delinquent 91 days or greater — — 13 — — 1,937 1,950 Total loans in repayment 3,877 2,958 55,380 42,256 210 139,201 243,882 Total private education loans $ 5,928 10,270 57,467 46,456 445 141,617 262,183 Accrued interest receivable 2,207 Loan discount, net of unamortized premiums ( 185 ) Allowance for loan losses ( 15,577 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 248,628 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ 20 — — — 9 — 29 Loans in repayment status: Loans current 190,237 32,198 1,682 2,419 2,272 19 228,827 Loans delinquent 31-60 days 535 320 60 76 28 — 1,019 Loans delinquent 61-90 days 328 73 3 13 10 — 427 Loans delinquent 91 days or greater 151 441 14 189 344 — 1,139 Total loans in repayment 191,251 33,032 1,759 2,697 2,654 19 231,412 Total consumer and other loans $ 191,271 33,032 1,759 2,697 2,663 19 231,441 Accrued interest receivable 2,561 Loan discount, net of unamortized premiums ( 1,847 ) Allowance for loan losses ( 13,290 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 218,865 Private education loans - Nelnet Bank (a): Loans in school/grace/deferment $ 8,239 1,215 1,434 — — — 10,888 Loans in forbearance 221 211 92 — — — 524 Loans in repayment status: Loans current 198,423 137,074 8,972 — — — 344,469 Loans delinquent 30-59 days 132 65 — — — — 197 Loans delinquent 60-89 days 79 — — — — — 79 Loans delinquent 90 days or greater — 414 — — — — 414 Total loans in repayment 198,634 137,553 8,972 — — — 345,159 Total private education loans $ 207,094 138,979 10,498 — — — 356,571 Accrued interest receivable 969 Deferred origination costs, net of unaccreted discount 5,369 Allowance for loan losses ( 2,248 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 360,661 (a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation. 15 3. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of September 30, 2022 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 13,056,109 2.89 % - 5.08 % 8/26/30 - 9/25/69 Bonds and notes based on auction 208,660 0.00 % - 2.82 % 3/22/32 - 8/27/46 Total FFELP variable-rate bonds and notes 13,264,769 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 646,956 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facility 249,543 3.20 % 11/22/23 Private education loan warehouse facility 86,154 3.07 % 10/31/23 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 22,161 4.65 % / 4.83 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 24,056 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 399,744 3.77 % 5/4/23 Repurchase agreements 506,968 0.97 % - 4.26 % 10/7/22 - 11/27/24 Other - due to related party 743 3.55 % - 5.35 % 11/22/22 - 10/14/28 15,201,094 Discount on bonds and notes payable and debt issuance costs ( 158,499 ) Total $ 15,042,595 As of December 31, 2021 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 15,887,295 0.23 % - 2.10 % 5/27/25 - 9/25/69 Bonds and notes based on auction 248,550 0.00 % - 1.09 % 3/22/32 - 8/27/46 Total FFELP variable-rate bonds and notes 16,135,845 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 772,935 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facility 5,048 0.21 % 5/22/23 Private education loan warehouse facility 107,011 0.24 % 2/13/23 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 31,818 1.65 % / 1.85 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 28,613 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 253,969 0.78 % 5/4/22 Repurchase agreements 483,848 0.66 % - 1.46 % 5/27/22 - 12/20/23 Secured line of credit 5,000 1.91 % 5/30/22 17,824,087 Discount on bonds and notes payable and debt issuance costs ( 192,998 ) Total $ 17,631,089 16 Warehouse Facilities The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. FFELP loan warehouse facility As of September 30, 2022, the Company’s FFELP warehouse facility had an aggregate maximum financing amount available of $ 300.0 million that was increased from $ 25.0 million per a July 29, 2022 amendment to the facility. A May 2022 amendment extended the liquidity provisions and final maturity to November 22, 2022 and November 22, 2023, respectively. As of September 30, 2022, $ 249.5 million was outstanding under this facility, $ 50.5 million was available for future funding, and the Company had $ 20.3 million advanced as equity support. Private education loan warehouse facility As of September 30, 2022, the Company's private education warehouse facility had an aggregate maximum financing amount available of $ 175.0 million and an advance rate of 80 to 90 percent. On June 30, 2022, the Company amended the facility to extend the liquidity provisions through October 31, 2022 and final maturity date to October 31, 2023. As of September 30, 2022, $ 86.2 million was outstanding under this warehouse facility, $ 88.8 million was available for future funding, and the Company had $ 9.8 million advanced as equity support. Unsecured Line of Credit The Company has a $ 495.0 million unsecured line of credit that has a maturity date of September 22, 2026. As of September 30, 2022, no amount was outstanding on the 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. Participation Agreement The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities. As of September 30, 2022, $ 399.7 million of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. On May 4, 2022, the agreement automatically renewed for another year through May 4, 2023. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 400.0 million or an amount in excess of $ 400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities subject to this agreement are included on the Company's consolidated balance sheet as "investments and notes receivable" and the participation interests outstanding have been accounted for by the Company as a secured borrowing. See note 5 for additional information about the FFELP loan asset-backed securities investments serving as collateral under this participation agreement. Repurchase Agreements On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities. The first agreement has various maturity dates through November 27, 2024 or earlier if either party provides 180 days’ prior written notice, and the second agreement has various maturity dates through January 13, 2023. Included in “bonds and notes payable” as of September 30, 2022 was $ 218.0 million subject to the first agreement and $ 289.0 million subject to the second agreement. See note 5 and below under "Debt Repurchases" for additional information about the private education and FFELP loan asset-backed securities investments, respectively, serving as collateral for these repurchase agreements. Accrued Interest Liability During the first quarter of 2021, the Company reversed a historical accrued interest liability of $ 23.8 million on certain bonds, which liability the Company determined was 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 expense on bonds and notes payable and bank deposits" in the consolidated statements of income. 17 Debt Repurchases The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in "other" in "other income/expense" on the Company's consolidated statements of income. Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Purchase price $ ( 13,563 ) ( 184,827 ) ( 67,081 ) ( 205,269 ) Par value 13,903 184,781 69,133 204,597 Remaining unamortized cost of issuance ( 180 ) ( 3,222 ) ( 821 ) ( 3,292 ) Gain (loss) $ 160 ( 3,268 ) 1,231 ( 3,964 ) The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated 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 September 30, 2022, the Company holds $ 431.5 million (par value) of its own FFELP asset-backed securities. As of September 30, 2022, $ 230.6 million (par value) of the Company's repurchased FFELP loan asset-backed securities were serving as collateral on amounts outstanding under the Company's repurchase agreements (as discussed above). 4. Derivative Financial Instruments The Company uses derivative financial instruments to manage interest rate risk. Derivative instruments used as part of the Company's interest rate risk management strategy are further described in note 6 of the notes to consolidated financial statements included in the 2021 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2022 and December 31, 2021 is presented below. Basis Swaps The following table summarizes the Company’s outstanding basis swaps as of September 30, 2022 and December 31, 2021, in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). Maturity Notional amount As of As of September 30, 2022 December 31, 2021 2022 $ 1,000,000 2,000,000 2023 750,000 750,000 2024 1,750,000 1,750,000 2026 1,150,000 1,150,000 2027 250,000 250,000 $ 4,900,000 5,900,000 The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2022 and December 31, 2021 was one-month LIBOR plus 9.4 basis points and 9.1 basis points, respectively. 18 Interest Rate Swaps – Floor Income Hedges The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income. As of September 30, 2022 As of December 31, 2021 Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a) 2022 $ — — % $ 500,000 0.94 % 2023 — — 900,000 0.62 2024 2,000,000 0.35 2,500,000 0.35 2025 — — 500,000 0.35 2026 500,000 1.02 500,000 1.02 2031 100,000 1.53 100,000 1.53 $ 2,600,000 0.52 % $ 5,000,000 0.55 % (a) For all interest rate derivatives, the Company receives discrete three-month LIBOR. In March 2022, the Company terminated $ 650 million in notional amount of derivatives ($ 500 million and $ 150 million that had maturity dates in 2022 and 2023, respectively) for net payments of $ 0.1 million. On April 29, 2022, the Company terminated $ 1.25 billion in notional amount of derivatives ($ 500 million, $ 250 million, and $ 500 million that had maturity dates in 2023, 2024, and 2025, respectively) for total proceeds of $ 68.1 million. On August 26, 2022, the Company terminated $ 500 million in notional amount of derivatives ($ 250 million that had maturity dates in each of 2023 and 2024) for total proceeds of $ 23.8 million. Consolidated Financial Statement Impact Related to Derivatives - Statements of Income The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Settlements: 1:3 basis swaps $ ( 1,085 ) ( 700 ) 242 ( 939 ) Interest rate swaps - floor income hedges 11,356 ( 5,209 ) 11,843 ( 14,648 ) Total settlements - income (expense) 10,271 ( 5,909 ) 12,085 ( 15,587 ) Change in fair value: 1:3 basis swaps 189 1,061 929 2,755 Interest rate swaps - floor income hedges 52,802 6,199 238,196 41,700 Total change in fair value - income 52,991 7,260 239,125 44,455 Derivative market value adjustments and derivative settlements, net - income $ 63,262 1,351 251,210 28,868 19 5. Investments and Notes Receivable A summary of the Company's investments and notes receivable follows: As of September 30, 2022 As of December 31, 2021 Amortized cost Gross unrealized gains Gross unrealized losses (a) Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investments (at fair value): FFELP loan asset-backed securities- available-for-sale (b) $ 783,676 7,767 ( 6,434 ) 785,009 480,691 14,710 ( 719 ) 494,682 Private education loan asset-backed securities - available-for-sale (c) 352,500 — ( 34,599 ) 317,901 414,286 507 ( 2,241 ) 412,552 Other debt securities - available-for-sale 279,589 357 ( 4,785 ) 275,161 22,435 — — 22,435 Total available-for-sale debt securities $ 1,415,765 8,124 ( 45,818 ) 1,378,071 917,412 15,217 ( 2,960 ) 929,669 Equity securities 39,214 71,986 Total investments (at fair value) 1,417,285 1,001,655 Other Investments and Notes Receivable (not measured at fair value): Other debt securities - held-to-maturity 8,440 8,200 Venture capital and funds: Measurement alternative 159,437 157,609 Equity method 81,231 67,840 Total venture capital and funds 240,668 225,449 Real estate: Equity method 81,820 47,226 Investment in ALLO: Voting interest/equity method (d) 74,271 87,247 Preferred membership interest and accrued and unpaid preferred return (e) 143,763 137,342 Total investment in ALLO 218,034 224,589 Beneficial interest in loan securitizations (f): Private education loans, including accrued interest 77,447 66,008 Consumer loans 27,617 28,366 Federally insured student loans 24,844 25,768 Total beneficial interest in loan securitizations 129,908 120,142 Solar (g) ( 71,000 ) ( 42,457 ) Notes receivable 32,124 — Tax liens, affordable housing, and other 6,235 4,115 Total investments (not measured at fair value) 646,229 587,264 Total investments and notes receivable $ 2,063,514 $ 1,588,919 (a) As of September 30, 2022, the aggregate fair value of available-for-sale debt securities with unrealized losses was $ 1.0 billion. The Company currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses. (b) As of September 30, 2022, $ 399.7 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 3 under "Participation Agreement." (c) As of September 30, 2022, $ 350.9 million (par value) of private education loan asset-backed securities are subject to repurchase agreements with third parties, as discussed in note 3 under “Repurchase Agreements.” (d) On February 25, 2022, the Company contributed $ 34.7 million of additional equity to ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO"). As a result of this equity contribution, the Company's voting membership interests percentage in ALLO did not materially change. The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value ("HLBV") method of accounting. During the three months ended September 30, 2022 and 2021, the Company recognized pre-tax losses of $ 17.6 million and $ 10.5 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment, and during the nine months ended September 30, 2022 and 2021, the Company recognized pre-tax losses of $ 47.6 million and $ 31.6 million, respectively. Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income. 20 (e) As of September 30, 2022, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $ 137.3 million and $ 6.4 million, respectively. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent. The Company recognized pre-tax income on its ALLO preferred membership interests of $ 2.2 million and $ 2.0 million during the three months ended September 30, 2022 and 2021, respectively, and $ 6.4 million during each of the nine months ended September 30, 2022 and 2021. This income is included in "other" in "other income/expense" on the consolidated statements of income. (f) The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2022, the Company's ownership correlates to approximately $ 630 million, $ 150 million, and $ 420 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations. (g) As of September 30, 2022, the Company has funded a total of $ 252.1 million in solar investments, which includes $ 81.3 million funded by syndication partners. The carrying value of the Company’s investment in a solar project is reduced by tax credits earned when the solar project is placed in service. The solar investment balance at September 30, 2022 represents the sum of total tax credits earned on solar projects placed in service through September 30, 2022 and the calculated HLBV net losses being larger than total payments made by the Company on such projects. As of September 30, 2022, the Company is committed to fund an additional $ 42.8 million on these projects, of which $ 35.1 million will be provided by syndication partners. The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The Company recognized pre-tax losses on its solar investments of $ 4.2 million and $ 3.4 million during the three months ended September 30, 2022 and 2021, respectively, and $ 7.1 million and $ 7.4 million during the nine months ended September 30, 2022 and 2021, respectively. These losses are included in “other” in "other income/expense" on the consolidated statements of income. Losses from solar investments include losses attributable to third-party minority interest investors (syndication partners) that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income. Solar losses attributed to minority interest investors was $ 4.1 million and $ 2.1 million for the three months ended September 30, 2022 and 2021, respectively, and $ 8.0 million and $ 4.0 million for the nine months ended September 30, 2022 and 2021, respectively. Impairment Expense During the second quarter of 2022, the Company recorded an impairment charge of $ 5.4 million related primarily to one of its venture capital investments accounted for under the measurement alternative method. The impairment expense is included in "impairment expense and provision for beneficial interests, net" on the consolidated statements of income. 6. Business Combinations NGWeb Solutions, LLC On April 30, 2022, the Company acquired 30 percent of the ownership interests of NGWeb Solutions, LLC ("NextGen") for total cash consideration of $ 9.2 million. NextGen provides software solutions primarily to higher education institutions to enable administrators to efficiently manage online forms, scholarships, employment, online timesheets, and other specialized processes that require signed authorizations and interactions with student information. Prior to the acquisition, the Company owned 50 percent of the ownership interests of NextGen and accounted for this investment under the equity method. As a result of the acquisition, the previously held 50 percent ownership interests was remeasured to its fair value as of the April 30, 2022 date of acquisition of the additional 30 percent of the ownership interests, resulting in a $ 15.2 million revaluation gain, which is included in "other" in "other income/expense" on the consolidated statements of income. For segment reporting, this gain is included in Corporate and Other Activities. Subsequent to the acquisition, the Company has consolidated the operating results of NextGen and such results are included in the Education Technology, Services, and Payment Processing reportable segment. The following table summarizes the final estimated fair values of the assets acquired and liabilities assumed at the acquisition date. During the three months ended September 30, 2022, the Company recognized certain adjustments to the provisional amounts recorded on the acquisition date that were needed to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The net impact of these adjustments had no impact on operating results. 21 Cash and cash equivalents $ 1,885 Accounts receivable 1,315 Property and equipment 800 Other assets 201 Intangible assets 15,250 Excess cost over fair value of net assets acquired (goodwill) 15,937 Other liabilities ( 4,550 ) Net assets acquired 30,838 Minority interest ( 6,291 ) Remeasurement of previously held investment ( 15,342 ) Total consideration paid by the Company $ 9,205 The $ 15.3 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately 14 years. The intangible assets that made up this amount include customer relationships of $ 12.8 million ( 15 -year useful life), computer software of $ 1.7 million ( 5 -year useful life) and a trade name of $ 0.8 million ( 10 -year useful life). The $ 15.9 million of goodwill is not expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the synergies and economies of scale expected from combining the operations of the Company and NextGen. The pro forma impacts of the NextGen acquisition on the Company's historical results prior to the acquisition were not material. GRNE Solar On July 1, 2022, the Company acquired 80 percent of the ownership interests of two subsidiaries of GRNE Solutions, LLC named GRNE-Nelnet, LLC ("GRNE") and ENRG-Nelnet, LLC ("ENRG") (collectively referred to as "GRNE Solar") for total cash consideration of $ 30.4 million. GRNE designs and installs residential, commercial, and utility-scale solar systems in the Midwest. ENRG owns certain assets that generate and sell solar energy. The acquisition diversifies the Company's position in the renewable energy space to include solar construction. For segment reporting, the operating results of GRNE Solar are included in Corporate and Other Activities. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. Cash and cash equivalents $ 1,742 Accounts receivable 4,941 Property and equipment 8,720 Other assets 3,092 Intangible assets 11,683 Excess cost over fair value of net assets acquired (goodwill) 14,004 Bonds and notes payable ( 750 ) Other liabilities ( 5,438 ) Net assets acquired 37,994 Minority interest ( 7,599 ) Total consideration paid by the Company $ 30,395 The $ 11.7 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately 8 years. The intangible assets that made up this amount include a trade name of $ 8.1 million ( 10 -year useful life), customer relationships of $ 1.1 million ( 3 -year useful life), and other separably identified intangibles of $ 2.4 million ( 5 -year useful life). The $ 14.0 million of goodwill is expected to be deductible for tax purposes. The amount allocated to goodwill was attributed to synergies from combining the operations of the Company and GRNE Solar and intangible assets that do not qualify for separate recognition. The pro forma impacts of the GRNE Solar acquisition on the Company's historical results prior to the acquisition were not material. 22 7. Intangible Assets Intangible assets consisted of the following: Weighted average remaining useful life as of September 30, 2022 (months) As of As of September 30, 2022 December 31, 2021 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 49,709 and $ 97,398 , respectively) 112 $ 55,385 47,894 Trade names (net of accumulated amortization of $ 312 ) 117 8,598 — Computer software (net of accumulated amortization of $ 3,730 and $ 3,669 , respectively) 30 4,190 4,135 Other (net of accumulated amortization of $ 245 ) 57 2,195 — Total - amortizable intangible assets, net 106 $ 70,368 52,029 The Company recorded amortization expense on its intangible assets of $ 3.3 million for the three months ended September 30, 2022 and 2021, and $ 8.6 million and $ 19.9 million during the nine months ended September 30, 2022 and 2021, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2022, the Company estimates it will record amortization expense as follows: 2022 (October 1 - December 31) $ 3,509 2023 13,222 2024 10,691 2025 7,604 2026 7,259 2027 and thereafter 28,083 $ 70,368 8. Goodwill The carrying amount of goodwill by reportable operating segment was as follows: Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Total Balance as of December 31, 2021 and March 31, 2022 $ 23,639 76,570 41,883 — — 142,092 Goodwill acquired during the period (NextGen) — 7,025 — — — 7,025 Balance as of June 30, 2022 23,639 83,595 41,883 — — 149,117 Goodwill acquired during the period (GRNE Solar) — — — — 14,004 14,004 NextGen purchase price allocation adjustment — 8,912 — — — 8,912 Balance as of September 30, 2022 $ 23,639 92,507 41,883 — 14,004 172,033 23 9. Earnings per Common Share Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Three months ended September 30, 2022 2021 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 102,763 2,035 104,798 52,245 893 53,138 Denominator: Weighted-average common shares outstanding - basic and diluted 36,654,781 725,712 37,380,493 37,947,257 648,464 38,595,721 Earnings per share - basic and diluted $ 2.80 2.80 2.80 1.38 1.38 1.38 Nine months ended September 30, 2022 2021 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 369,479 7,094 376,573 256,416 4,187 260,603 Denominator: Weighted-average common shares outstanding - basic and diluted 36,998,100 710,325 37,708,425 38,025,898 620,994 38,646,892 Earnings per share - basic and diluted $ 9.99 9.99 9.99 6.74 6.74 6.74 24 10. Segment Reporting See note 15 of the notes to consolidated financial statements included in the 2021 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements. Three months ended September 30, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 831 3,707 182,932 7,551 10,860 ( 2,748 ) 203,133 Interest expense — — 120,009 3,298 6,067 ( 2,748 ) 126,625 Net interest income 831 3,707 62,923 4,253 4,793 — 76,508 Less provision (negative provision) for loan losses — — 9,215 450 — — 9,665 Net interest income after provision for loan losses 831 3,707 53,708 3,803 4,793 — 66,843 Other income/expense: Loan servicing and systems revenue 134,197 — — — — — 134,197 Intersegment revenue 8,281 8 — — — ( 8,289 ) — Education technology, services, and payment processing revenue — 106,894 — — — — 106,894 Solar construction revenue — — — — 9,358 — 9,358 Other 596 — 4,627 566 ( 3,564 ) — 2,225 Gain on sale of loans — — 2,627 — — — 2,627 Impairment expense and provision for beneficial interests, net — — — — 121 — 121 Derivative settlements, net — — 10,271 — — — 10,271 Derivative market value adjustments, net — — 52,991 — — — 52,991 Total other income/expense 143,074 106,902 70,516 566 5,915 ( 8,289 ) 318,684 Cost of services: Cost to provide education technology, services, and payment processing services — 42,676 — — — — 42,676 Cost to provide solar construction services — — — — 5,968 — 5,968 Total cost of services — 42,676 — — 5,968 — 48,644 Operating expenses: Salaries and benefits 82,067 34,950 653 1,814 27,713 — 147,198 Depreciation and amortization 5,784 2,532 — 4 10,452 — 18,772 Other expenses 16,654 7,034 3,349 1,427 15,395 — 43,858 Intersegment expenses, net 17,486 4,762 8,350 69 ( 22,378 ) ( 8,289 ) — Total operating expenses 121,991 49,278 12,352 3,314 31,182 ( 8,289 ) 209,828 Income (loss) before income taxes 21,914 18,655 111,872 1,055 ( 26,442 ) — 127,055 Income tax (expense) benefit ( 5,259 ) ( 4,475 ) ( 26,849 ) ( 246 ) 10,244 — ( 26,586 ) Net income (loss) 16,655 14,180 85,023 809 ( 16,198 ) — 100,469 Net (income) loss attributable to noncontrolling interests — ( 61 ) — — 4,390 — 4,329 Net income (loss) attributable to Nelnet, Inc. $ 16,655 14,119 85,023 809 ( 11,808 ) — 104,798 Total assets as of September 30, 2022 $ 235,858 440,859 16,374,493 884,089 2,360,882 ( 732,648 ) 19,563,533 25 Three months ended September 30, 2021 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 31 344 131,781 2,061 2,609 ( 172 ) 136,654 Interest expense 24 — 48,662 421 1,242 ( 172 ) 50,176 Net interest income 7 344 83,119 1,640 1,367 — 86,478 Less provision (negative provision) for loan losses — — 5,940 ( 113 ) — — 5,827 Net interest income after provision for loan losses 7 344 77,179 1,753 1,367 — 80,651 Other income/expense: Loan servicing and systems revenue 112,351 — — — — — 112,351 Intersegment revenue 8,621 3 — — — ( 8,624 ) — Education technology, services, and payment processing revenue — 85,324 — — — — 85,324 Solar construction revenue — — — — — — — Other 727 13 ( 7,275 ) 450 17,952 — 11,867 Gain on sale of loans — — 3,444 — — — 3,444 Impairment expense and provision for beneficial interests, net ( 13,243 ) — — — ( 916 ) — ( 14,159 ) Derivative settlements, net — — ( 5,909 ) — — — ( 5,909 ) Derivative market value adjustments, net — — 7,260 — — — 7,260 Total other income/expense 108,456 85,340 ( 2,480 ) 450 17,036 ( 8,624 ) 200,178 Cost of services: Cost to provide education technology, services, and payment processing services — 31,335 — — — — 31,335 Cost to provide solar construction services — — — — — — — Total cost of services — 31,335 — — — — 31,335 Operating expenses: Salaries and benefits 75,305 29,119 542 890 22,735 — 128,592 Depreciation and amortization 4,245 2,762 — — 8,702 — 15,710 Other expenses 12,738 4,804 5,420 445 14,918 — 38,324 Intersegment expenses, net 19,217 3,672 8,652 32 ( 22,949 ) ( 8,624 ) — Total operating expenses 111,505 40,357 14,614 1,367 23,406 ( 8,624 ) 182,626 Income (loss) before income taxes ( 3,042 ) 13,992 60,085 836 ( 5,003 ) — 66,868 Income tax (expense) benefit 730 ( 3,358 ) ( 14,421 ) ( 200 ) 1,600 — ( 15,649 ) Net income (loss) ( 2,312 ) 10,634 45,664 636 ( 3,403 ) — 51,219 Net (income) loss attributable to noncontrolling interests — — — — 1,919 — 1,919 Net income (loss) attributable to Nelnet, Inc. $ ( 2,312 ) 10,634 45,664 636 ( 1,484 ) — 53,138 Total assets as of September 30, 2021 $ 238,602 415,178 20,001,997 413,155 1,740,060 ( 406,253 ) 22,402,739 26 Nine months ended September 30, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 1,144 4,920 441,926 15,792 21,087 ( 4,953 ) 479,916 Interest expense 44 — 235,720 5,792 11,745 ( 4,953 ) 248,347 Net interest income 1,100 4,920 206,206 10,000 9,342 — 231,569 Less provision (negative provision) for loan losses — — 17,178 1,462 — — 18,640 Net interest income after provision for loan losses 1,100 4,920 189,028 8,538 9,342 — 212,929 Other income/expense: Loan servicing and systems revenue 395,438 — — — — — 395,438 Intersegment revenue 25,142 16 — — — ( 25,158 ) — Education technology, services, and payment processing revenue — 310,211 — — — — 310,211 Solar construction revenue — — — — 9,358 — 9,358 Other 1,946 — 16,270 2,224 4,309 — 24,750 Gain on sale of loans — — 5,616 — — — 5,616 Impairment expense and provision for beneficial interests, net — — — — ( 6,163 ) — ( 6,163 ) Derivative settlements, net — — 12,085 — — — 12,085 Derivative market value adjustments, net — — 239,125 — — — 239,125 Total other income/expense 422,526 310,227 273,096 2,224 7,504 ( 25,158 ) 990,420 Cost of services: Cost to provide education technology, services, and payment processing services — 109,073 — — — — 109,073 Cost to provide solar construction services — — — — 5,968 — 5,968 Total cost of services — 109,073 — — 5,968 — 115,041 Operating expenses: Salaries and benefits 257,259 98,356 1,858 5,082 75,455 — 438,010 Depreciation and amortization 16,056 7,544 — 11 30,366 — 53,978 Other expenses 46,375 19,549 9,925 3,009 41,438 — 120,297 Intersegment expenses, net 56,442 14,171 25,694 171 ( 71,320 ) ( 25,158 ) — Total operating expenses 376,132 139,620 37,477 8,273 75,939 ( 25,158 ) 612,285 Income (loss) before income taxes 47,494 66,454 424,647 2,489 ( 65,061 ) — 476,023 Income tax (expense) benefit ( 11,399 ) ( 15,947 ) ( 101,915 ) ( 574 ) 22,070 — ( 107,765 ) Net income (loss) 36,095 50,507 322,732 1,915 ( 42,991 ) — 368,258 Net (income) loss attributable to noncontrolling interests — ( 8 ) — — 8,323 — 8,315 Net income (loss) attributable to Nelnet, Inc. $ 36,095 50,499 322,732 1,915 ( 34,668 ) — 376,573 Total assets as of September 30, 2022 $ 235,858 440,859 16,374,493 884,089 2,360,882 ( 732,648 ) 19,563,533 27 Nine months ended September 30, 2021 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 95 818 388,149 5,479 5,379 ( 578 ) 399,341 Interest expense 70 — 124,282 1,007 3,158 ( 578 ) 127,939 Net interest income 25 818 263,867 4,472 2,221 — 271,402 Less provision (negative provision) for loan losses — — ( 11,225 ) 378 — — ( 10,847 ) Net interest income after provision for loan losses 25 818 275,092 4,094 2,221 — 282,249 Other income/expense: Loan servicing and systems revenue 335,961 — — — — — 335,961 Intersegment revenue 25,369 9 — — — ( 25,378 ) — Education technology, services, and payment processing revenue — 257,284 — — — — 257,284 Solar construction revenue — — — — — — — Other 2,541 13 ( 4,514 ) 475 31,668 — 30,183 Gain on sale of loans — — 18,715 — — — 18,715 Impairment expense and provision for beneficial interests, net ( 13,243 ) — 2,436 — ( 1,416 ) — ( 12,223 ) Derivative settlements, net — — ( 15,587 ) — — — ( 15,587 ) Derivative market value adjustments, net — — 44,455 — — — 44,455 Total other income/expense 350,628 257,306 45,505 475 30,252 ( 25,378 ) 658,788 Cost of services: Cost to provide education technology, services, and payment processing services — 80,063 — — — — 80,063 Cost to provide solar construction services — — — — — — — Total cost of services — 80,063 — — — — 80,063 Operating expenses: Salaries and benefits 210,151 82,154 1,594 3,956 65,496 — 363,351 Depreciation and amortization 20,411 8,789 — — 26,927 — 56,129 Other expenses 39,296 14,063 12,763 1,227 40,265 — 107,611 Intersegment expenses, net 52,241 10,856 25,627 72 ( 63,419 ) ( 25,378 ) — Total operating expenses 322,099 115,862 39,984 5,255 69,269 ( 25,378 ) 527,091 Income (loss) before income taxes 28,554 62,199 280,613 ( 686 ) ( 36,796 ) — 333,883 Income tax (expense) benefit ( 6,853 ) ( 14,928 ) ( 67,347 ) 151 12,230 — ( 76,747 ) Net income (loss) 21,701 47,271 213,266 ( 535 ) ( 24,566 ) — 257,136 Net (income) loss attributable to noncontrolling interests — — — — 3,467 — 3,467 Net income (loss) attributable to Nelnet, Inc. $ 21,701 47,271 213,266 ( 535 ) ( 21,099 ) — 260,603 Total assets as of September 30, 2021 $ 238,602 415,178 20,001,997 413,155 1,740,060 ( 406,253 ) 22,402,739 28 11. Disaggregated Revenue The following tables provide disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments. Loan Servicing and Systems Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Government servicing $ 104,428 84,084 312,368 241,497 Private education and consumer loan servicing 12,198 13,198 37,194 34,563 FFELP servicing 4,127 4,557 12,386 13,930 Software services 8,229 6,952 23,536 22,779 Outsourced services and other 5,215 3,560 9,954 23,192 Loan servicing and systems revenue $ 134,197 112,351 395,438 335,961 Education Technology, Services, and Payment Processing Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Tuition payment plan services $ 25,779 23,618 84,131 79,706 Payment processing 47,957 39,852 113,996 97,898 Education technology and services 32,548 21,295 110,755 78,752 Other 610 559 1,329 928 Education technology, services, and payment processing revenue $ 106,894 85,324 310,211 257,284 Other Income/Expense The following table provides the components of "other" in "other income/expense" on the consolidated statements of income: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Income/gains from investments, net $ 10,701 16,050 40,685 40,141 Borrower late fee income 2,824 514 7,693 1,698 ALLO preferred return 2,164 2,043 6,420 6,384 Administration/sponsor fee income 1,920 1,670 6,055 1,670 Investment advisory services 1,612 2,400 4,375 6,242 Loss from ALLO voting membership interest investment ( 17,562 ) ( 10,495 ) ( 47,633 ) ( 31,620 ) Loss from solar investments ( 4,216 ) ( 3,393 ) ( 7,100 ) ( 7,375 ) Other 4,782 3,078 14,255 13,043 $ 2,225 11,867 24,750 30,183 12. Major Customer The Company earns loan servicing revenue from servicing contracts with the Department. Revenues earned by the Company related to these contracts are set forth in the "Government servicing" line item of the "Loan Servicing and Systems" table in note 11. The Company's student loan servicing contracts with the Department are 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 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 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. In the second quarter of 2022, the Department released a solicitation entitled Unified Servicing and Data Solution ("USDS") for the new servicing framework. The Company responded to the USDS 29 solicitation. The Company cannot predict the timing, nature, or ultimate outcome of this or any other contract procurement process by the Department. On August 24, 2022, the Department issued a bulletin titled “Biden-Harris Administration Announces Final Student Loan Pause Extension Through December 31 and Targeted Debt Cancellation to Smooth Transition to Repayment” (the “August 24, 2022 Bulletin”). The August 24, 2022 Bulletin indicates the Department will provide targeted student debt cancellation to borrowers with loans held by the Department, and that borrowers whose annual income for either 2020 or 2021 was under $125,000 (for single or married, filing separately) or under $250,000 (for married couples, filing jointly or heads of household) will be eligible for otherwise unconditional loan cancellation in amounts of up to $20,000 for eligible borrowers who received a Pell Grant, or of up to $10,000 for eligible borrowers who did not receive a Pell Grant. On October 21, 2022, the U.S. Court of Appeals for the Eighth Circuit issued a temporary administrative stay of implementation of the Department's student debt relief plan in response to a legal challenge that was initiated by other parties (not the Company). As of September 30, 2022, the Company was servicing 15.7 million borrowers under its government servicing contracts. The Company cannot currently estimate how many borrowers meet the eligibility requirements and other terms and conditions for one-time debt relief under the August 24, 2022 Bulletin and subsequent publicly available guidance provided by the Department. However, revenue earned by the Company under its contracts will be negatively impacted if the Department’s student debt relief plan or other broad based loan forgiveness is implemented. 30 13. Fair Value The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. As of September 30, 2022 As of December 31, 2021 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Investments: FFELP loan asset-backed debt securities - available-for-sale $ — 785,009 785,009 — 494,682 494,682 Private education loan asset-backed debt securities - available-for-sale — 317,901 317,901 — 412,552 412,552 Other debt securities - available-for-sale 100 275,061 275,161 100 22,335 22,435 Equity securities 7,254 — 7,254 63,154 — 63,154 Equity securities measured at net asset value (a) 31,960 8,832 Total investments 7,354 1,377,971 1,417,285 63,254 929,569 1,001,655 Total assets $ 7,354 1,377,971 1,417,285 63,254 929,569 1,001,655 (a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of September 30, 2022 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 15,390,107 15,082,413 — — 15,390,107 Accrued loan interest receivable 793,838 793,838 — 793,838 — Cash and cash equivalents 63,198 63,198 63,198 — — Investments (at fair value) 1,417,285 1,417,285 7,354 1,377,971 — Beneficial interest in loan securitizations 143,128 129,908 — — 143,128 Restricted cash 799,212 799,212 799,212 — — Restricted cash – due to customers 180,919 180,919 180,919 — — Financial liabilities: Bonds and notes payable 14,653,852 15,042,595 — 14,653,852 — Accrued interest payable 21,796 21,796 — 21,796 — Bank deposits 550,834 580,825 208,811 342,023 — Due to customers 306,352 306,352 306,352 — — As of December 31, 2021 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 18,576,272 17,546,645 — — 18,576,272 Accrued loan interest receivable 788,552 788,552 — 788,552 — Cash and cash equivalents 125,563 125,563 125,563 — — Investments (at fair value) 1,001,655 1,001,655 63,254 929,569 — Beneficial interest in loan securitizations 142,391 120,142 — — 142,391 Restricted cash 741,981 741,981 741,981 — — Restricted cash – due to customers 326,645 326,645 326,645 — — Financial liabilities: Bonds and notes payable 17,819,902 17,631,089 — 17,819,902 — Accrued interest payable 4,566 4,566 — 4,566 — Bank deposits 342,463 344,315 184,897 157,566 — Due to customers 366,002 366,002 366,002 — — The methodologies for estimating the fair value of financial assets and liabilities are described in note 22 of the notes to consolidated financial statements included in the 2021 Annual Report. 31