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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-28 · 539 added, 428 removed, 487 unchanged (67% of the section changed)

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This discussion and analysis contains forward-looking statements subject to various risks and uncertainties and should be read in conjunction with the disclosures and information contained in "Forward-Looking and Cautionary Statements" and Item 1A "Risk Factors" included in this report.

A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below.

A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in Part II, Item 7.

A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2022 compared with the year ended December 31, 2021 is presented below.

A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2021 compared with the year ended December 31, 2020 can be found in Part II, Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2021 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission on February 28, 2022.

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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.

Since all FFELP loans will eventually run off, a key objective of the Company is to maximize the amount and timing of cash flow generated from its FFELP portfolio and 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.

The Company is also actively expanding its private education, consumer, and other 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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However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance.

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

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

Year ended December 31,

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55,606 22,275

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

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)

$ 231,262 322,748

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GAAP net income attributable to Nelnet, Inc.

$ 10.83 10.20

Realized and unrealized derivative market value adjustments

(6.16) (2.41)

Tax effect (a)

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

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)

(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

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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, 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.

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

The Company's reportable operating segments are described in note 1 of the notes to consolidated financial statements included in this report.

They include:

• 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 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.

• Asset Generation and Management (AGM)

• Nelnet Bank

• Communications

The Company earns fee-based revenue through its NDS and NBS reportable operating segments.

The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its AGM reportable operating segment.

This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes.

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

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.

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

Further, the Company earned revenue in its former Communications reportable operating segment 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.

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate").

Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured and other corporate related debt transactions.

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

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

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)

Corporate also includes income earned on the majority of the Company’s investments, interest expense incurred on unsecured and other corporate related debt transactions, and certain shared service activities related to internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing.

These shared services are allocated to each operating segment based on estimated use of such activities and services.

In addition, Corporate includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs.

The information below provides the operating results (net income (loss) before taxes) for each reportable operating segment and Corporate and Other Activities for the years ended December 31, 2022 and 2021.

See “Results of Operations” for each reportable operating segment and Corporate and Other Activities under this Item 7 for additional detail.

Year ended December 31,

2022 2021 Certain Items Impacting Comparability

(All dollar amounts below are pre-tax)

NDS $ 64,456 62,445 • The recognition of $5.5 million of non-cash impairment charges in 2022 compared with $13.2 million in 2021, due primarily to continued evaluation of office space needs as employees continue to work from home due to COVID-19.

• Decrease in operating margin in 2022 compared with 2021 due to increased operating expenses in 2022, primarily salaries and benefits, as the Company hired employees in preparation for the resumption of federal student loan payments once the CARES Act suspension was to expire.

The expiration of the CARES Act was extended multiple times throughout 2022.

NBS 74,105 72,713 • The recognition of $9.4 million of interest income in 2022 compared with $1.1 million in 2021 due to higher interest rates.

• The recognition of a $2.2 million non-cash impairment charge in 2022 related to previously acquired computer software.

• Decrease in operating margin in 2022 compared with 2021 due to additional investments during 2022 in the development of new services and technologies;

and superior customer experiences to grow, retain, and diversify revenue.

AGM 454,725 423,616 • A net gain of $231.7 million related to changes in the fair value of derivative instruments that do not qualify for hedge accounting in 2022 compared with a gain of $92.8 million in 2021.

• A decrease of $46.3 million in net interest income due to the decrease in the average balance of loans in 2022 compared with 2021.

• An increase of $27.1 million in net interest income due to an increase in core loan spread in 2022 compared with 2021.

• A decrease of $23.8 million in interest expense in 2021 as a result of the Company reversing a historical accrued interest liability on certain bonds, which liability the Company determined is no longer probable of being required to be paid.

• An increase of $8.4 million in interest income in 2022 compared with a $6.2 million decrease to interest income in 2021, as a result of increasing the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for loans.

• The recognition of $44.6 million in provision for loan losses in 2022 compared with a negative provision of $13.2 million in 2021.

• The recognition of a $32.9 million gain in 2021 related to the Company’s joint venture to acquire a private education student loan portfolio previously owned by Wells Fargo.

• The recognition of $10.8 million in borrower late fees in 2022 compared with $3.4 million in 2021.

• The recognition of $9.9 million in interest income on restricted cash in 2022 compared with $0.1 million in 2021 due to an increase in the balance of restricted cash and interest rates.

• The recognition of $7.9 million in administration and sponsor fee income in 2022 compared with $3.7 million in 2021.

• The recognition of $2.9 million in gains from the sale of loans in 2022 compared with $18.7 million in 2021.

• The recognition of a $1.2 million gain in 2022 from the repurchase of debt compared with a loss of $6.8 million in 2021.

Nelnet Bank 4,357 (792) • Increase in 2022 compared with 2021 was due to an increase in loans and investments, offset by increased operating expenses to support the bank’s growth.

Corporate (88,180) (55,875) • The recognition of a net loss of $68.0 million in 2022 related to the Company’s investment in ALLO compared with a net loss of $42.1 million in 2021.

• The recognition of $12.9 million of non-cash impairment and contingency charges in 2022 compared with $5.6 million in 2021.

Impairment charges were primarily due to certain venture capital investments.

Net income before taxes 509,465 502,105

Income tax expense (113,224) (115,822)

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

Net loss attributable to noncontrolling interests 11,106 7,003

Net income $ 407,347 393,286

(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 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.

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

An analysis of the Company's operating results for the year ended December 31, 2021 compared to 2020 is provided below.

An analysis of the Company's consolidated operating results for the year ended December 31, 2022 compared with 2021 is provided below.

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

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For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 17 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 for ALLO, which was deconsolidated from the Company's consolidated financial statements in December 2020).

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.

Year ended December 31,

2022 2021 Additional information

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.

Loan interest $ 651,205 482,337 Increase was due to an increase in the gross yield earned on loans, partially offset by a decrease in the average balance of loans and in gross fixed rate floor income.

Investment interest 91,601 41,498 Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations.

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.

Increase was due to an increase in interest earning investments and an increase in interest rates in 2022 compared with 2021.

Total interest income 742,806 523,835

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.

Interest expense 430,137 176,233 Increase was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.

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.

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Net interest income 312,669 347,602

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.

Less provision (negative provision) for loan losses 46,441 (12,426) Represents the current period provision (negative provision) to reflect the lifetime expected credit losses related to the Company’s loan portfolio.

See note 4 of the notes to consolidated financial statements in this report for the activity in the Company’s allowance for loan losses.

Net interest income after provision for loan losses 266,228 360,028

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ETS&PP revenue 408,543 338,234 See ETS&PP operating segment - results of operations.

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 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.

Solar construction revenue 24,543 — On July 1, 2022, the Company acquired 80% of the ownership interests of GRNE Solar.

GRNE Solar designs and installs residential, commercial, and utility-scale solar systems.

The acquisition diversifies the Company’s position in the renewable energy space to include solar construction.

Other, net 25,486 78,681 See table below for components of “other.”

Gain on sale of loans, net 2,903 18,715 The Company sold $167.0 million (par value) and $101.1 million (par value) of consumer and other loans to unrelated third parties in 2022 and 2021, respectively, and recognized net gains from such sales.

Impairment expense and provision for beneficial interests, net (15,523) (16,360) The Company continues to evaluate the use of office space as a large number of employees continue to work from home due to COVID-19.

As a result of this evaluation, the Company recorded a non-cash impairment charge on certain building and lease assets of $2.8 million and $14.2 million in 2022 and 2021, respectively.

In addition, the Company recognized non-cash impairment charges on certain venture capital investments of $6.6 million and $4.6 million during 2022 and 2021, respectively.

The Company also recognized non-cash impairment charges of $6.2 million in 2022 related to internally developed and purchased software.

Derivative settlements, net 32,943 (21,367) The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

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Cost of services:

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.

Cost to provide education technology, services, and payment processing services 148,403 108,660 Represents direct costs to provide payment processing and instructional services in the ETS&PP operating segment.

Increase in 2022 compared with 2021 was primarily due to additional instructional services costs.

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.

Cost to provide solar construction services 19,971 — As noted above, the Company acquired GRNE Solar on July 1, 2022.

These amounts represent direct costs related to GRNE providing solar construction services.

Total cost of services 168,374 108,660

Operating expenses:

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 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.

Salaries and benefits 589,579 507,132 Increase was due to an increase in headcount in the (i) LSS operating segment as the Company has been required to prepare for the resumption of federal student loan payments upon the expiration of the CARES Act borrower relief provisions, which have been extended several times throughout 2022;

and (ii) ETS&PP operating segment to support the growth of its customer base and the investment in the development of new technologies.

Depreciation and amortization 74,077 73,741 Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions.

Other expenses 170,778 145,469 Other expense includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs.

Increase was due to (i) an increase in expenses in the LSS operating segment due to growth of borrowers under the government servicing contracts;

and (ii) an increase in expenses in the ETS&PP operating segment due to higher costs for consulting, professional fees, and technology services resulting from investments in new technologies, and an increase in costs for travel and in-person hosted conferences that subsided in 2021 due to the COVID-19 pandemic.

Total operating expenses 834,434 726,342

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Income tax expense 113,224 115,822 The effective tax rate was 21.75% and 22.75% for 2022 and 2021, respectively.

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

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

Net income 396,241 386,283

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 loss attributable to noncontrolling interests 11,106 7,003 Amounts for noncontrolling interests reflect the net income/loss attributable to the holders of noncontrolling membership interests in WRCM, NextGen, multiple solar entities including, GRNE Solar, and multiple entities investing in federal opportunity zone programs.

Net income attributable to Nelnet, Inc.

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Tax effect 55,606 22,275

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

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

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 231,262 $ 322,748

The following table summarizes the components of "other, net" in "other income (expense)."

Year ended December 31,

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

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

2022 2021 Additional information

Income/gains from investments, net $ 51,552 91,593 See Corporate - results of operations and note (a) below for additional information.

Borrower late fee income 10,809 3,444 See AGM operating segment - results of operations.

ALLO preferred return 8,584 8,427 See Corporate - results of operations.

Administration/sponsor fee income 7,898 3,656 See AGM operating segment - results of operations.

Investment advisory services 6,026 7,773 See Corporate - results of operations.

Management fee revenue 2,543 3,307 See LSS operating segment - results of operations.

Loss from ALLO voting membership interest investment (67,966) (42,148) See Corporate - results of operations.

Loss from solar investments (9,479) (10,132) See Corporate - results of operations.

Other 15,519 12,761

Other income $ 78,681 57,561

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

During 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.

Other, net $ 25,486 78,681

(a) During 2022, the Company recognized net investment income and gains of $51.6 million, including $24.2 million from venture capital investments ($22.3 million recognized in Corporate), $26.6 million related to real estate investments, and $0.8 million related to investments in asset-backed securities (bonds) and marketable equity securities (a loss of $1.3 million recognized in Corporate).

Included in the 2022 venture capital gains, the Company recognized a $15.2 million gain during the second quarter of 2022 as a result of the revaluation of its previously held 50% ownership interests in NextGen.

See note 8 of the notes to the consolidated financial statements included in this report for additional information.

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 a private education student loan portfolio previously owned by Wells Fargo (included in the AGM operating segment), $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 ($6.6 million recognized in Corporate).

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 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 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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Private and consumer 16,226 21,397 24,758 24,229 23,702 23,433 22,838 22,461 21,866

Government 239,980 243,205 243,609 249,723 251,570 257,806 257,420 262,311 262,605

Total $ 490,237 505,162 506,569 513,527 529,020 556,732 589,460 590,419 587,465

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Private and consumer 636,136 882,477 1,039,537 1,097,252 1,065,439 1,030,863 998,454 979,816 951,866

Government 7,396,657 7,344,509 7,346,691 7,542,679 7,605,984 7,637,270 7,616,270 7,778,535 7,797,106

Total 15,188,743 15,417,302 15,491,451 15,817,522 16,354,025 16,793,636 17,402,846 17,547,946 17,559,133

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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.

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 solicitation.

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

If the Company’s servicing contracts are not extended beyond the current expiration date, or the Company is not chosen as a subsequent servicer, loan servicing revenue would decrease significantly.

If the terms and requirements under a potential new contract with the Department are less favorable than under our current contracts, loan servicing revenue and/or operating margins could be adversely impacted.

In addition, if any current or future Department servicing contracts become subject to unfavorable modifications or interpretations by the Department, including adverse pricing changes, servicing revenue would be negatively impacted and could result in potential restructuring charges that may be necessary to re-align the Company’s cost structure with the Company’s servicing operations.

For example, due to a lack of Federal government appropriations, the Department may modify its cost under existing contracts with its servicers, and such modifications could adversely impact the Company’s servicing revenue and operating results.

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

In July 2021, the Pennsylvania Higher Education Assistance Agency (PHEAA) announced its exit from the federal student loan servicing business.

All applicable student loans serviced for the Department by PHEAA were transferred to successor servicers.

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

As of December 31, 2021 and 2022, approximately 603,000 and 1,910,000 PHEAA borrowers, respectively, have been transitioned to the Company's platform.

In addition, over this same time period, PHEAA borrowers were transferred to other servicers that the Company provides its servicing system (remote hosted servicing customers).

This has increased the number of remote hosted borrowers as reflected in the table above.

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

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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.

In the fourth quarter of 2022, Nelnet Servicing and Edfinancial reached an agreement on a decommission schedule transferring Edfinancial’s direct loan servicing volume to another servicing platform.

As of December 31, 2022, Edfinancial was servicing 4.5 million borrowers for the Department on the Company’s platform.

In February 2023, the Department notified the Company of its intention to transfer up to one million borrowers of the Company’s existing Department servicing borrowers to another servicer, and one of the Company’s remote hosted servicing customers notified us the Department intends to move that customer’s servicing borrowers to a different servicing platform.

Neither transfer decision was based on the Company’s performance.

The Company expects the three transfers discussed above to begin in the first quarter of 2023 and be completed prior to the end of the CARES Act forbearance period.

As a result of the transfers, software services revenue for remote hosted customers and government servicing revenue will decrease in future periods as borrowers are transferred off of the Company’s platform.

In addition, once all remote hosted servicing transfers are complete, there will be no active Department remote hosted servicing customers using the Company’s platform.

Department of Education Debt Relief

In August 2022, the Department announced a broad based student debt relief plan that would 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.

Decisions by the U.S.

Courts of Appeals for the Eighth Circuit and Fifth Circuit in October 2022 and November 2022, respectively, in response to legal challenges that were initiated by other parties (not the Company) have blocked implementation of the Department's broad based student debt relief plan.

These cases have been appealed to the U.S.

Supreme Court.

As of the filing of this report, the Supreme Court has not ruled on, and the Company cannot predict the timing, nature, or ultimate outcome of, this case.

The Company cannot estimate how many borrowers meet the eligibility requirements and other terms and conditions for one-time debt relief under the Department's announcement.

If there was a broad $10,000 or $20,000 per borrower forgiveness on all government owned loans, the Company estimates it would decrease the number of borrowers serviced (based on the borrower loan information as of December 31, 2022) by approximately 4.3 million borrowers and 7.5 million borrowers, respectively.

The actual impact to the number of borrowers serviced may be less than these amounts due to annual income ceilings for borrowers to qualify for forgiveness and the impact of whether a Pell Grant was received on the amount of forgiveness for a borrower.

Revenue earned under the current Department servicing contracts will decrease in future periods if the Department's student debt relief plan or other broad based loan forgiveness is implemented.

The CARES Act

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.

As a result of the CARES Act, the Company receives less servicing revenue per borrower from the Department based on the borrower forbearance status than what was earned on such accounts prior to these provisions.

On April 6, 2022, the Department extended the student loans payment pause under the CARES Act from May 1, 2022 to August 31, 2022, and on August 24, 2022, the Department extended such payment pause from August 31, 2022 to December 31, 2022.

On November 22, 2022, the Department again extended such payment pause until 60 days following the date the Department is permitted to implement the debt relief program or the litigation initiated by other parties is resolved.

If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023, borrower forbearances will end 60 days after June 30, 2023, and payments will resume within 60 days after that (on or before October 28, 2023).

Prior to the April 2022 extension (during the fourth quarter of 2021 and first quarter of 2022), the Company earned additional revenue from the Department based on incremental work, including outbound engagement, being performed by the Company to support the anticipated Department borrowers coming out of forbearance.

Effective May 1, 2022, the Department increased the monthly per borrower CARES Act forbearance rate paid to its servicers to compensate them for supplemental outreach to certain borrowers and to support the transition of borrowers back to repayment.

Once borrowers transition back to repayment, the Company anticipates revenue per borrower from the Department will increase from the current CARES Act levels.

Private Education Loan Servicing

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2022 2021 Additional information

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

Net interest income $ 2,678 43 Increase was due to higher interest rates in 2022 compared with 2021.

Loan servicing and systems revenue 535,459 486,363 See table below for additional information.

Intersegment servicing revenue 33,170 33,956 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.

Decrease in 2022 compared with 2021 was due to the continued amortization of AGM's FFELP portfolio.

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

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 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.

Other income 2,543 3,307 Represents revenue earned from providing administrative support and marketing services.

The decrease in 2022 compared with 2021 was due to a contract for services provided to Great Lakes’ former parent company that expired in January 2021.

Impairment expense (5,511) (13,243) The Company continues to evaluate the use of office space as a large number of employees continue to work from home due to COVID-19.

As a result of this evaluation, the Company recorded a non-cash impairment charge of $1.8 million and $13.2 million in 2022 and 2021, respectively, to certain building and lease assets.

In addition, during the fourth quarter of 2022, the Company recorded a $3.7 million non-cash impairment charge to internally developed software.

Total other income (expense) 565,661 510,383

Salaries and benefits 344,809 297,406 Increase in 2022 compared with 2021 was due to the Company hiring contact center operations and support associates as the Company prepared for expiration of federal student loan payment pause and other activities under the CARES Act.

See “Government Loan Servicing - The CARES Act” above for additional details.

Depreciation and amortization 24,255 25,649 Includes amortization of intangible assets from the Great Lakes acquisition in February 2018 and depreciation on property and equipment.

The majority of the Great Lakes intangible assets became fully amortized as of June 30, 2021 and all remaining assets were fully amortized by December 2022.

Amortization of intangible assets for 2022 and 2021 was $4.5 million and $12.3 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.

Excluding amortization of intangible assets, the increase in 2022 compared with 2021 was due to scaling of the Company's servicing platform for the PHEAA loan volume transferred to its platform.

Other expenses 59,674 52,720 Increase in 2022 compared with 2021 was due to additional costs associated with the growth of borrowers under the government servicing contracts.

Intersegment expenses 75,145 72,206 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Increase in 2021 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.

Increase in 2022 compared with 2021 was due to the Company hiring contact center operations and support associates in preparation for the provisions of the CARES Act to expire.

Total operating expenses 503,883 447,981

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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.

Before tax operating margin, excluding impairment and amortization expense, decreased in 2022 compared with 2021 due to increased operating expenses, primarily salaries and benefits, as the Company prepared for a January 31, 2022 expiration of the federal student loan payment pause under the CARES Act, which has been extended multiple times throughout 2022.

Impairment expense 0.9 2.5

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2022 2021 Additional information

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

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.

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.

Government loan servicing $ 423,066 360,793 Represents revenue from the Company's Department servicing contracts.

Increase in 2022 compared with 2021 was due to (i) an increase in the number of borrowers serviced, including PHEAA borrowers transferred to the Company's servicing platform;

(ii) a per borrower rate increase on each September 1, 2021 (1.8%) and September 1, 2022 (5.0%) to reflect the increase in the cost of labor (Employment Cost Index) per the provisions of the contracts;

(iii) a CARES Act forbearance rate increase effective May 1, 2022;

(vi) the recognition of $16.2 million of revenue in 2022 related to an increase in call center hours of operations, staff retention incentive from the Department, and additional change requests;

and (v) the recognition of $9.9 million of revenue in 2022 for activities supporting preparedness for the Department’s debt relief program.

Included in revenue for 2022 and 2021 was $13.6 million and $9.1 million, respectively, of revenue related to the discharge of borrowers under the Total and Permanent Disability (TPD) discharge program (the Company earns revenue per each borrower that satisfies the requirements for their loan to be discharged under the TPD discharge program), and $7.7 million and $25.0 million of revenue, respectively, for incremental work related primarily to CARES Act forbearance exit outreach activities to borrowers.

Private education and consumer loan servicing 49,210 47,302 Increase in 2022 compared with 2021 was due to (i) 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;

and (ii) revenue earned on new backup servicing agreements.

Excluding revenue earned on the former Wells Fargo portfolio and new backup servicing agreements, revenue for 2022 decreased compared with 2021.

The decrease in revenue was due to a decrease in servicing volume and client requested enhanced delinquency services.

FFELP loan servicing 16,016 18,281 Decrease in 2022 compared with 2021 was due to a decrease in the number of borrowers serviced.

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

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.

Since late 2021, the Company has experienced accelerated run-off of its FFELP servicing portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of borrower relief under the CARES Act and initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs.

Software services 33,409 34,600 Decrease in 2022 compared with 2021 was due to (i) 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;

and (ii) many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring on January 31, 2021.

These decreases were offset by an increase in the number of remote hosted servicing borrowers primarily from the transfer of PHEAA borrowers to these servicing customers throughout 2021 and 2022.

Software services revenue from Department remote hosted servicing customers will be adversely impacted in future periods.

See “Government Loan Servicing” above for additional information.

Outsourced services 13,758 25,387 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.

In 2021, these services included assisting state agencies with COVID-19 specific activities.

Revenue from providing COVID-19 related services to state agencies in 2021 was $17.3 million.

Excluding COVID-19 specific activities, outsourced services revenue has increased in 2022 compared with 2021 due to additional outsourced opportunities, including assisting existing Department servicers as they wind down their operations.

Loan servicing and systems revenue $ 535,459 486,363

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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 (“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 $ 9,377 1,075 Represents interest income on tuition funds held in custody for schools.

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.

Increase was due to a higher interest rates in 2022 compared with 2021.

Education technology, services, and

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Intersegment revenue 81 12

Other income — 373

Total other income 338,246 282,589

Cost to provide education technology,

services, and payment processing

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

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.

Impairment expense (2,239) — During the fourth quarter of 2022, the Company recognized a non-cash impairment charge related to previously acquired computer software.

Total other income (expense) 406,385 338,246

Cost of services 148,403 108,660 See table below for additional information.

Salaries and benefits 133,428 112,046 Increase in 2022 compared with 2021 was due to an increase in headcount to support the growth of the customer base, and the investment in the development of new technologies.

Depreciation and amortization 10,184 11,404 Represents primarily amortization of intangible assets from prior business acquisitions.

Amortization of intangible assets related to business acquisitions was $9.1 million and $10.7 million for 2022 and 2021, respectively.

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.

Other expenses 30,104 19,318 Increase was due to higher costs for consulting, professional fees, and technology services resulting from investments in new technologies.

Increase was also due to an increase in costs for travel and in-person hosted conferences that subsided in 2021 due to the COVID pandemic.

Intersegment expenses, net 19,538 15,180 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 2022 compared with 2021 was due to an increase in costs to support the growth of the customer base, and the investment in the development of new technologies.

Total operating expenses 193,254 157,948

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Net income 56,320 55,262

Net income attributable to noncontrolling interests (3) — Amounts for noncontrolling interests reflect the net income attributable to the holders of minority membership interests in NextGen, of which the Company became the controlling owner on April 30, 2022.

See note 8 of the notes to consolidated financial statements included in this report for additional information.

Net income $ 56,317 55,262

Education technology, services, and payment processing revenue

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2022 2021 Additional information

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.

Tuition payment plan services $ 110,802 103,970 Revenue increased for 2022 compared with 2021 primarily due to a higher number of payment plans in the K-12 market.

Revenue for tuition payment plan services for higher education institutions in 2022 was consistent with 2021 amounts.

Payment processing 148,212 127,080 Payment volumes in 2022 increased compared with 2021 for both the K-12 and higher education markets due to new customers and an increase in volume from existing customers.

Education technology and services 146,679 105,975 Increase in 2022 compared with 2021 was due to an increase in revenues from the Company’s school information system software, enrollment and communication services, the NextGen acquisition completed in April 2022, and FACTS Education Solutions instructional and professional development services.

FACTS Education Solutions instructional services revenue was the largest component of this increase, driven by the Emergency Assistance to Non-Public Schools (EANS) program which provides funds to non-public schools through September 2024 to address the impact COVID-19 has had or continues to have on school students and teachers.

Other 2,850 1,209

Education technology, services, and payment processing revenue 408,543 338,234

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.

Cost of services 148,403 108,660 Costs relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes.

Costs to provide instructional services are also a component of this expense and were the primary driver of the increase in 2022 compared with 2021 due to the increase in instructional services resulting from the EANS program as noted above.

Net revenue $ 260,140 229,574

Before tax operating margin 31.7 % 33.1 % Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes divided by net revenue.

GAAP before tax operating margin 28.5 % 31.7 % Before tax operating margin, excluding net interest income, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes less interest income divided by net 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 decrease in margin for 2021 as compared to 2020 was due to investments in i) the development of new services and technologies;

Before tax operating margin, excluding net interest income, decreased in 2022 compared with 2021 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.

The Company anticipates before tax operating margin, excluding net interest income, will be impacted over the next several years as it continues to invest in these areas.

Net interest income (3.6) (0.5)

Non-GAAP before tax operating margin, excluding net interest income 24.9 % 31.2 %

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

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.

As of December 31, 2022, the AGM operating segment had a $14.2 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company's loan portfolio as of December 31, 2022 and 2021, see note 4 of the notes to consolidated financial statements included in this report.

Loan Activity

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

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

Year ended December 31,

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Private education loans 8,244 89,308

Consumer loans 81,923 136,985

Consumer and other loans 516,215 81,923

Total loan acquisitions 1,246,312 1,075,319

Repayments, claims, capitalized interest, participations, and other, net (1,694,742) (2,126,708)

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

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

Loans lost to external parties (2,656,639) (964,822)

Loans sold (166,950) (101,107)

Ending balance $ 14,169,771 17,441,790

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 Company has also purchased partial ownership in certain federally insured student, private education, and consumer and other loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments and notes receivable" 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, 2022, the Company’s ownership correlates to approximately $390 million, $620 million, and $310 million of federally insured student, private education, and consumer and other 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

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 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.

Since late 2021, the Company has experienced accelerated run-off of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of the CARES Act payment pause on Department held loans and the initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs.

Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of December 31, 2022 and 2021;

and the activity in AGM’s allowance for loan losses and net charge-offs as a percentage of average loans for 2022 and 2021, see note 4 of the notes to consolidated financial statements included in this report.

Loan Spread Analysis

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Average balance of AGM’s debt outstanding 15,513,824 18,610,144

(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.

(a) During each of the fourth quarters of 2022 and 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its loans which resulted in a $8.4 million increase and a $6.2 million decrease, respectively, to interest income.

The impact of these adjustments was excluded from the table above.

(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.

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 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.

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Loan spread 1.37 % 1.53 %

(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.

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

(f) Derivative settlements consist of net settlements received (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.

(a) The interest earned on a large portion of AGM's FFELP student loan assets is indexed to the one-month LIBOR rate.

The interest earned on a large portion of AGM's FFELP student loan assets is indexed to the one-month LIBOR rate.

AGM funds a portion of its assets with three-month LIBOR indexed floating rate securities.

The relationship between the indices in which AGM earns interest on its loans and funds such loans has a significant impact on loan spread.

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

Variable loan spread increased during 2022 compared with 2021 due to a significant increase in short-term interest rates throughout 2022.

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

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Fixed rate floor income contribution to spread, net 0.57 % 0.65 %

(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 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.

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

Gross fixed rate floor income decreased in 2022 compared with 2021 due to higher interest rates in 2022 compared with 2021.

Subsequent to December 31, 2022 (on February 2, 2023), the Federal Reserve again increased interest rates, and it is currently anticipated that interest rates may continue to rise as a result of inflationary pressures in the U.S.

Increases in interest rates will reduce the amount of gross fixed rate floor income the Company is currently receiving.

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

The increase in net derivative settlements received on the floor income interest rate swaps in 2022 compared with net derivative settlements paid in 2021 was due to an increase in interest rates, partially offset by a decrease in the notional amount of derivatives outstanding.

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.

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As of December 31, 2022, the interest earned on a principal amount of $12.7 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $11.9 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.

In addition, the majority of 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.

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Net interest income after provision for loan losses $ 220,056 347,203 See table below for additional analysis.

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.

Other income, net 21,170 34,306 Other income includes primarily borrower late fees, income from providing administration activities for third parties, and income from AGM's investment in a joint venture.

Borrower late fees for 2022 and 2021 were $10.8 million and $3.4 million, respectively.

The Company suspended borrower late fees in March 2020 to provide borrowers relief as a result of the COVID-19 pandemic.

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

The Company recognized revenue of $7.9 million and $3.7 million in 2022 and 2021, respectively, as administrator and sponsor for the securitizations completed during 2021 by the joint venture to purchase and securitize private education loans sold by Wells Fargo.

The Company also recognized income of $1.2 million and $32.9 million in 2022 and 2021, respectively, related to its investment in the joint venture.

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.

Gain on sale of loans, net 2,903 18,715 The Company sold $167.0 million (par value) and $101.1 million (par value) of loans to unrelated third parties in 2022 and 2021, respectively, and recognized net gains from such sales.

Provision for beneficial interests — 2,436 In the first quarter of 2021, due to improved economic conditions, the Company recorded a negative provision of $2.4 million related to its remaining allowance on a consumer loan securitization beneficial interest investment.

Such allowance was initially recorded in March 2020 as a result of the COVID-19 pandemic.

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Other expenses 16,835 13,487 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.

The increase in 2022 compared with 2021 was due to increased costs resulting from ending COVID-19 borrower relief policies which increased servicing activities in 2022 compared with 2021.

This increase was partially offset by a decrease in AGM's loan portfolio.

Other expenses also includes certain professional and legal fees.

Professional fees increased in 2022 compared with 2021 due to incurring additional costs as the Company actively expands into new asset loan classes.

Intersegment expenses 34,679 34,868 Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio.

These amounts exceed the actual cost of servicing the loans.

The decrease in servicing fees for 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.

Intersegment expenses also includes 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 54,038 50,490 Total operating expenses were 34 basis points and 27 basis points of the average balance of loans in 2022 and 2021, 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.

The increase in operating expenses as a percent of the average balance of loans in 2022 compared with 2021 was due to an increase in certain professional costs as discussed above.

Income before income taxes 454,725 423,616

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Tax effect 55,606 22,275

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

Non-GAAP net income, excluding derivative market value adjustments $ 169,506 251,410

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."

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2022 2021 Additional information

Variable interest income, gross $ 499,698 637,979 Decrease in 2021 compared to 2020 was due to a decrease in the gross yield earned on loans and a decrease in the average balance of loans.

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 (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.

Variable interest income, gross $ 701,816 499,698 Increase in 2022 compared with 2021 was due to an increase in the gross yield earned on loans, partially offset by a decrease in the average balance of loans.

Consolidation rebate fees (134,578) (160,228) Decrease in 2022 compared with 2021 was due to a decrease in the average consolidation loan balance.

Discount accretion, net of premium and deferred origination costs amortization 14,010 (3,347) During each of the fourth quarters of 2022 and 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its loans which resulted in a $8.4 million increase and a $6.2 million decrease, respectively, to interest income.

Excluding these items, the Company recognized a net discount accretion of $5.6 million and $2.9 million in 2022 and 2021, respectively.

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 581,248 336,123

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.

Interest on bonds and notes payable (399,806) (171,320) Increase in 2022 compared with 2021 was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.

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.

Derivative settlements, net (a) (206) (1,638) Derivative settlements include the net settlements paid related to the Company’s 1:3 basis swaps.

Variable loan interest margin,

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181,236 163,165

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.

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, gross 57,380 142,606 Decrease was due to higher interest rates in 2022 compared with 2021.

increases in interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.

Derivative settlements, net (a) 33,149 (19,729) Derivative settlements include the settlements received (paid) related to the Company's floor income interest rate swaps.

The increase in net derivative settlements received by the Company during 2022, compared with net derivative settlements paid during 2021, was due to an increase in interest rates, partially offset by a decrease in the notional amount of derivatives outstanding.

Fixed rate floor income, net of settlements on derivatives 90,529 122,877

Core loan interest income (a) 271,765 286,042

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.

Investment interest 37,929 28,172 Increase in 2022 compared with 2021 was due to an increase in the balance of restricted cash due to significant loan prepayments and interest earned on restricted cash due to higher rates in 2022 compared with 2021.

Intercompany interest (12,094) (1,598) Increase was due to an increase in the weighted average intercompany debt outstanding and higher interest rates in 2022 compared with 2021.

(Provision) negative provision for loan losses - federally insured loans (3,731) 7,343 The Company has recognized provision for loan losses in 2022 due to management’s estimate of declining economic conditions, as well as establishing an initial allowance for loans acquired during the period.

For additional information on the provision activity, see note 4 of the notes to consolidated financial statements included in this report.

(Provision) negative provision for loan losses - private education loans (2,487) 1,333

(Provision) negative provision for loan losses - consumer and other loans (38,383) 4,544

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 252,999 325,836 Decrease for 2022 compared with 2021 was due to (i) a decrease in the average balance of loans;

(ii) an increase in provision for loan losses;

and (iii) the reversal of a historical accrued interest liability on certain bonds in the first quarter of 2021.

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

(ii) an increase in investment interest income;

and (iii) the impact of changes in the constant prepayment rates used to accrete/amortize loan premium/discounts in both 2022 and 2021.

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

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As of December 31, 2022, Nelnet Bank had a $419.8 million loan portfolio, consisting of $353.9 million of private education loans and $65.9 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.

For a summary of the allowance as a percentage of the ending balance and loan status, delinquency amounts, and other key credit quality indicators of each of Nelnet Bank's loan portfolios as of December 31, 2022 and 2021;

and the activity in Nelnet Bank’s allowance for loan losses and net charge-offs as a percentage of average loans for the years ended December 31, 2022 and 2021, 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:

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Beginning balance $ 257,901 17,543

Loan acquisitions and originations:

Federally insured student loan acquisitions — 99,973

Private education loan acquisitions 6,856 —

Private education loan originations 228,283 179,749

Total loan acquisitions and originations 235,139 279,722

Repayments (69,022) (36,181)

Sales to AGM segment (3,183) —

Sales to AGM (4,223) (3,183)

Ending balance $ 419,795 257,901

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.

As of December 31, 2022, Nelnet Bank had $789.6 million of deposits.

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.

Retail and other saving deposits include 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 Educational 529 College Savings plans.

Nelnet Bank’s deposits include $98.3 million from Nelnet, Inc.

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

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.

as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating and savings deposits, and NBS 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

Year ended December 31, (a)

Balance Rate Balance Rate

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Total liabilities and equity $ 789,679 $ 382,088

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.

(a) Calculated using average daily balances.

Summary and Comparison of Operating Results

Year ended December 31,

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Total interest income $ 25,973 7,721 Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments.

Increase was due to an increase of these balances and interest rates in 2022 compared with 2021.

Interest expense 11,055 1,507 Represents interest expense on deposits.

Increase was due to an increase of deposits and interest rates in 2022 compared with 2021.

Net interest income 14,918 6,214

Provision for loan losses 794 330

Provision for loan losses 1,840 794 Increase in provision for loan losses was due to an increase in private education loans originated in 2022 compared with 2021 as well as management’s estimate of declining economic conditions.

For additional information on the provision activity, see note 4 of the notes to consolidated financial statements included in this report.

Net interest income after provision for loan losses 13,078 5,420

Other income 713 48

Other income 2,625 713 Represents primarily income and gains from investments.

Impairment expense (214) —

Total other income (expense) 2,411 713

Salaries and benefits 6,948 5,042 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.

Increase was due to the overall growth of Nelnet Bank activities.

Depreciation 15 —

Other expenses 3,925 1,776 Increase was due to the overall growth of Nelnet Bank activities.

Intersegment expenses 244 107 Represents primarily servicing costs paid to the LSS operating segment.

Certain shared service and support costs incurred by the Company to support Nelnet Bank are not and will not be reflected as part of the Nelnet Bank operating segment through 2023 (when the bank’s de novo period will end).

The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank’s operating segment were $5.8 million and $3.4 million for 2022 and 2021, respectively.

Total operating expenses 11,132 6,925

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)

Income (loss) before income taxes 4,357 (792)

Income tax (expense) benefit (1,013) 175 Represents income tax (expense) benefit at an effective tax rate of 23.3% and 22.1% for the years ended December 31, 2022 and 2021, respectively.

Net income (loss) $ 3,344 (617)

CORPORATE AND OTHER ACTIVITIES – RESULTS OF OPERATIONS

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities (“Corporate.”) The following table summarizes the operating results of these activities.

Income taxes are allocated based on 24% of income (loss) before taxes for each activity.

The difference between the Corporate income tax expense and the sum of taxes calculated for each activity is included in income taxes in “other” in the table below.

Summary and Comparison of Operating Results

Nelnet Renewable Energy (c) Interest income/expense, net (g)

Shared services (a) WRCM (b) Tax equity investments / syndication / administration GRNE Solar ALLO investment (d) Real estate investments (e) Venture capital investments (f) Other Total

Year ended December 31, 2022

Interest income $ — 2 — 34 — 994 1,289 39,638 619 42,576

Interest expense — — — (154) — — — (22,590) 1,206 (21,538)

Net interest income — 2 — (120) — 994 1,289 17,048 1,825 21,038

Solar construction revenue — — — 24,543 — — — — — 24,543

Other, net 2,575 6,026 (9,088) 15 (58,781) 26,139 22,272 (1,320) 11,309 (853)

Impairment expense (998) — — — — — (6,561) — — (7,559)

Cost to provide solar construction services — — — (19,971) — — — — — (19,971)

Salaries and benefits (90,259) (221) (1,386) (1,526) (972) (415) (741) — (6,350) (101,870)

Depreciation and amortization (37,852) — — (1,489) — — — — (282) (39,623)

Other expenses (43,768) (347) (589) (802) (5,483) (140) (103) (5,063) (3,945) (60,240)

Intersegment expenses, net 97,764 (12) (87) (365) — (420) — (221) (304) 96,355

Income (loss) before income taxes (72,538) 5,448 (11,150) 285 (65,236) 26,158 16,156 10,444 2,253 (88,180)

Income tax (expense) benefit 17,409 (1,177) (128) (55) 15,657 (6,276) (3,877) (2,507) 11,132 30,178

Net (income) loss attributable to noncontrolling interests — (545) 11,682 (57) — (9) — — 38 11,109

Net income (loss) $ (55,129) 3,726 404 173 (49,579) 19,873 12,279 7,937 13,423 (46,893)

Year ended December 31, 2021

Interest income $ — — — — — 541 8 8,757 495 9,801

Interest expense — — — — — — — (3,837) 322 (3,515)

Net interest income — — — — — 541 8 4,920 817 6,286

Solar construction revenue — — — — — — — — — —

Other, net 3,970 7,773 (10,311) — (33,722) 22,328 28,800 6,620 14,898 40,356

Impairment expense (916) — — — — — (4,637) — — (5,553)

Cost to provide solar construction services — — — — — — — — — —

Salaries and benefits (83,401) (227) (1,030) — (502) (332) (872) — (4,138) (90,502)

Depreciation and amortization (36,297) — — — — — — — (385) (36,682)

Other expenses (45,011) (328) (100) — — (44) (70) (1,437) (11,183) (58,173)

Intersegment expenses, net 88,685 (10) (11) — — (206) (1) (207) 143 88,393

Income (loss) before income taxes (72,970) 7,208 (11,452) — (34,224) 22,287 23,228 9,896 152 (55,875)

Income tax (expense) benefit 17,513 (1,557) 893 — 8,214 (5,334) (5,575) (2,375) 6,330 18,109

Net (income) loss attributable to noncontrolling interests — (722) 7,730 — — (62) — — 57 7,003

Net income (loss) $ (55,457) 4,929 (2,829) — (26,010) 16,891 17,653 7,521 6,539 (30,763)

(a) Includes corporate activities related to internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing.

These costs are allocated to each operating segment based on estimated use of such activities and services.

Certain shared service costs incurred to support Nelnet Bank will not be allocated to Nelnet Bank until the end of the Bank’s de novo period (November 2023).

The amount allocated to operating segments is reflected as “intersegment expenses, net” in the table above.

Also includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs.

(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 10 basis points to 25 basis points for asset-backed securities under management and a share of the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory services.

As of December 31, 2022, the outstanding balance of asset-backed securities under management subject to these arrangements was $2.8 billion, of which all of such securities were FFELP student loan asset-backed securities.

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

During 2021, WRCM earned $4.2 million in management fees and $3.6 million in performance fees, and in 2022 all income ($6.0 million) earned by WRCM was management fees.

Fees earned by WRCM are included in “other, net” in the table above.

(c) Nelnet Renewable Energy, which includes solar tax equity investments made by the Company, administrative and management services provided by the Company on tax equity investments made by third parties, and solar development.

As of December 31, 2022, the Company has invested a total of $278.4 million (which includes $102.8 million syndicated to third-party investors) in solar tax equity investments.

Due to the management and control of each of these investment partnerships, the tax equity investments are consolidated on the Company’s consolidated financial statements, with the co-investor’s portion being presented as non-controlling interests.

Included in tax equity investments is 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.

For the years ended December 31, 2022 and 2021, Nelnet Renewable Energy recognized losses of $9.5 million and $10.1 million, respectively, on its tax equity investments.

These losses, which include losses attributable to third-party noncontrolling interest investors, are included in “other, net” in the table above.

Solar losses attributable to third-party noncontrolling interest investors was $10.9 million and $7.4 million for the years ended December 31, 2022 and 2021, respectively, and are reflected in “net (income) loss attributable to noncontrolling interests” in the table above.

Nelnet Renewable Energy syndicates tax equity investments to third parties and earns management and performance fees.

Management fee income recognized by Nelnet Renewable Energy was $0.4 million for the year ended December 31, 2022, which is included in “other, net” in the table above.

In addition to solar tax equity investments, the Company has a strategy to own solar energy project assets.

Accordingly, the Company has begun to execute a multi-faceted approach to originate, acquire, finance, own, and manage these assets.

As part of this strategy, on July 1, 2022, the Company acquired 80% of the ownership interest in two subsidiaries of GRNE Solutions, LLC named GRNE-Nelnet, LLC (GRNE) and ENRG-Nelnet, LLC (ENRG) (collectively referred to as “GRNE Solar”) for total consideration of $33.9 million.

The operating results for Nelnet Solar in the table above are for the period from July 1, 2022 through December 31, 2022.

See note 8 of the notes to consolidated financial statements included in this report for additional information.

(d) Represents primarily the Company's share of loss on its voting membership interests and income on its preferred membership interest in ALLO.

The Company accounts for its approximately 45% voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the HLBV method of accounting.

During the years ended December 31, 2022 and 2021, the Company recognized losses of $68.0 million and $42.1 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment.

These amounts are reflected in “other, net” in the table above.

Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers.

The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP.

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

As of December 31, 2022, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $145.9 million.

The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25%.

During the years ended December 31, 2022 and 2021, the Company recognized income on its ALLO preferred membership interests of $8.6 million and $8.4 million, respectively.

These amounts are reflected in “other, net” in the table above.

Agreements among the Company, SDC (a third-party global digital infrastructure investor), 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 interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.

However, if the non-voting preferred membership interests are not redeemed on or before April 2024, the preferred annual return is increased from 6.25% to 10.00%.

As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has 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 interests of ALLO that it holds and realizes from such disposition certain targeted return levels.

During 2022, the Company recognized an expense of $5.3 million associated with this obligation, which is included in “other expenses” in the table above.

See note 2 of the notes to consolidated financial statements included in this report for additional information.

(e) Includes the operating results of the Company’s real estate investments and the administrative costs to manage this portfolio.

During 2022 and 2021, the Company recognized $26.6 million and $22.3 million, respectively, in net income and gains from its real estate investments, which is included in “other, net” in the table above.

In 2022, the Company incurred development fees of $0.5 million, which is included in “other, net” in the table above.

(f) Includes the operating results of the Company’s venture capital investments, including Hudl which the Company accounts for using the measurement alternative method (see note 7 of the notes to consolidated financial statements included in this report for additional information), and the administrative costs to manage this portfolio.

During 2022, the Company recognized $22.3 million in net income and gains on venture capital investments, including a $15.2 million gain as a result of the revaluation of its previously held 50% ownership interests in NextGen (previously accounted for under the equity method) as a result of the Company purchasing an additional 30% ownership interests in NextGen on April 30, 2022.

In 2021, the Company recognized $28.8 million in net income and gains on venture capital investments, including $10.3 million as a result of CompanyCam Inc.’s equity raise.

In October 2021, CompanyCam Inc., an entity in which the Company has an equity investment, completed an additional equity raise.

The Company accounts for its investment in this entity using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions.

As a result of this entity’s equity raise, the Company recognized a gain during the fourth quarter of 2021 to adjust its carrying value to reflect the October 2021 transaction value.

(g) Includes interest income earned on cash and investment debt securities (primarily student loan and other asset-backed securities), interest expense incurred on unsecured and certain other corporate related debt transactions, unrealized gains/losses on marketable equity securities, realized gains/losses on marketable equity securities and investment debt securities, and other costs to manage these investments and facilities.

During 2022 and 2021, the Company recognized $8.0 million in unrealized losses and $5.0 million in unrealized gains, respectively, on its marketable equity securities and $6.7 million and $1.6 million in realized gains, respectively, on its investment debt securities and marketable equity securities, which are included in “other, net” in the table above.

During 2022 and 2021, the Company recognized $3.6 million and $0.1 million, respectively, in fees owed on collateral deposits with its derivative third-party clearinghouse as the result of an increase in collateral deposit balances and interest rates, which is included in “other expenses” in the table above.

Certain investments, including solar tax equity, ALLO, and Hudl, may be recorded at a carrying value that is less than its market value due to HLBV (solar investments and ALLO) and the measurement alternative (Hudl) method of accounting.

Future operating results of solar and ALLO or an observable transaction of Hudl could impact the valuation on our financial statements or our investments in them and may result in significant fluctuations of the Company’s earnings.

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.

Nelnet Bank launched operations in November 2020.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million and the Company contributed an additional $30.0 million to Nelnet Bank during 2022.

Based on Nelnet Bank's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to the bank in future periods.

Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank.

See “Liquidity Impact Related to Nelnet Bank” included below for additional information.

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 and the Company's other initiatives to pursue additional strategic investments.

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Sources of Liquidity

The Company has historically generated positive cash flow from operations.

For the years ended December 31, 2021 and 2020, the Company's net cash provided by operating activities was $544.9 million and $212.8 million, respectively.

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 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 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.

As of December 31, 2022, the Company's sources of liquidity included:

Cash and cash equivalents $ 118,146

Cash and cash equivalents held at Nelnet Bank (1) (10,026)

Net cash and cash equivalents 108,120

Available-for-sale (AFS) debt securities (investments) - at fair value 1,389,037

AFS debt securities held at Nelnet Bank - at fair value (1) (471,368)

AFS debt securities serving as collateral on participation agreement - at fair value (2) (370,666)

AFS debt securities serving as collateral on repurchase agreements - at fair value (3) (306,464)

Unencumbered AFS debt securities (investments) - at fair value 240,539

Unencumbered private, consumer, and other loans (Non-Nelnet Bank) - at par 298,460

Repurchased Nelnet issued asset-backed debt securities - at par (not included on consolidated financial statements) (4) 417,176

Repurchased Nelnet issued asset-backed debt securities serving as collateral on repurchase agreements - at par (3) (331,550)

Unencumbered repurchased Nelnet issued asset-backed debt securities - at par 85,626

Unused capacity on unsecured line of credit (5) 495,000

Sources of liquidity as of December 31, 2022

(1) Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank.

(2) See the caption "Other Debt Facilities" below.

(3) See the caption "Repurchase Agreements" below.

(4) 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.

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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.

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);

Certain of these securities serve as collateral on amounts outstanding under the Company's repurchase agreements as reflected in the table above.

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

As of December 31, 2022, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

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

strategic acquisitions and investments;

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

During the 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 Company has historically generated positive cash flow from operations.

During the year ended December 31, 2022, the Company generated $684.1 million from operating activities, compared with $480.3 million for the same period in 2021.

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.

• Adjustments to net income for the impact of non-cash depreciation and amortization, provision for loan losses, gain on sale of loans, and net losses/gains on investments;

• An increase in net proceeds from the Company’s clearinghouse for margin payments on derivatives;

• Proceeds from termination of derivatives in 2022;

• Net proceeds from the sale of equity securities in 2022 compared with net purchases in 2021;

• The impact of changes to accounts receivable, accrued interest payable, and other liabilities in 2022 compared with 2021.

These factors were partially offset by:

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

• Adjustments to net income for the impact of the non-cash provision for loan losses, beneficial interests, and impairment charges and depreciation and amortization;

• Purchases of equity securities;

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

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

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

• Adjustments to net income for the impact of derivative market value adjustments, loan discount accretion, and deferred taxes;

• The impact of changes to accrued interest receivable and other assets in 2022 compared with 2021.

The primary items included in the statement of cash flows for investing activities are the purchase, origination, and repayment of loans and the purchase and sale of available-for-sale securities.

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

Cash provided by investing activities and used in financing activities for the year ended December 31, 2022 was $2.27 billion and $2.79 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.

Cash provided by investing activities and used in financing activities for the year ended December 31, 2021 was $1.19 billion and $1.43 billion, respectively.

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

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Bonds and notes issued in asset-backed securitizations $ 12,684,098 8/26/30 - 9/25/69

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

FFELP, private education, and consumer loan warehouse facilities 1,132,312 12/31/23 - 11/14/25

Bonds and Notes Issued in Asset-backed Securitizations

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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, 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).

As of December 31, 2022, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM expects future undiscounted cash flows from its portfolio to be approximately $1.46 billion as detailed below.

The forecasted cash flow presented below includes all loans, the majority of which are federally insured student loans, funded in asset-backed securitizations as of December 31, 2022.

As of December 31, 2022, AGM had $12.7 billion of loans included in asset-backed securitizations, which represented 89.3% 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, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to December 31, 2022, 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 and notes receivable" on the Company's consolidated balance sheets).

Asset-backed Securitization Cash Flow Forecast

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The forecasted future undiscounted cash flows of approximately $1.46 billion include approximately $0.94 billion (as of December 31, 2022) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.74 billion, or approximately $0.56 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's December 31, 2021 balance of consolidated shareholders' equity.

These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.52 billion, or approximately $0.40 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's December 31, 2022 balance of consolidated shareholders' equity.

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

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Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow.

The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions.

If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $120 million to $150 million.

The Company’s cash flow forecast above assumes prepayment rates of 5% for consolidation loans and 6% for all other loan types.

On April 19, 2022, the Department issued a press release, and the Department's Office of Federal Student Aid (FSA) posted a related public announcement, which together announced, among other things, several adjustments, updates, and other changes under income-driven repayment (IDR) plans for federal student loans.

In the announcements, the Department and FSA indicated that as part of these changes, any borrower with loans that have accumulated time in repayment, including time in certain forbearances and deferments, of at least 20 or 25 years will see automatic forgiveness, even if the borrower is not currently in an IDR plan, and that if a borrower has a commercially held FFEL Program loan, the borrower can only benefit from these changes if they consolidate their FFEL Program loan to a Federal Direct Loan Program loan.

These changes were reflected in executive actions announced by the Department on October 25, 2022 and final regulations announced by the Department on October 31, 2022.

The final regulations are to become effective on July 1, 2023, and the fact sheet accompanying the October 25, 2022 announcement indicates that if a borrower has a commercially held FFEL Program loan, the borrower must apply for consolidation to a Federal Direct Loan Program loan by May 1, 2023 to receive the IDR plan and other benefits set forth in the announcement.

These announced changes have increased, and the Company believes may continue to increase, FFEL Program loan prepayments.

In addition, if the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, consolidation loan programs, or further extend the suspension of borrower payments under the CARES Act, such initiatives could also significantly increase prepayments.

For example, since late 2021, the Company has experienced accelerated run-off of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of the CARES Act and an initiative offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs.

See Item 1A, "Risk Factors - Loan Portfolio - Prepayment risk" for additional information related to these announcements and other risks associated with loan prepayments.

The following table summarizes the estimated impact to the above forecasted cash flows if prepayments were greater than the prepayment rate assumptions used to calculate the forecasted cash flows.

Increase in prepayment rate

Reduction in forecasted cash flow from table above

Forecasted cash flow using increased prepayment rate

2x $0.11 billion $1.35 billion

4x $0.28 billion $1.18 billion

10x $0.52 billion $0.94 billion

If the entire AGM student loan portfolio prepaid, the Company would receive the full amount of overcollateralization included in the asset-backed securitizations of approximately $0.94 billion (as of December 31, 2022);

however, the Company would not receive the $0.52 billion ($0.40 billion after tax) of estimated future earnings from the portfolio.

Interest rates :

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The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk.

The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices.

The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the

life of the portfolio, which approximates the historical relationship between these indices.

If the forecast is computed assuming a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $50 million to $70 million.

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

In addition, the Company attempts to mitigate the

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

See Item 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."

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

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

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An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.

The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks.

The Company attempts to mitigate the impact of a rise in short-term rates by entering into certain derivative instruments.

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 - AGM Operating Segment."

See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment" for additional information about various interest rate risks which may impact future cash flows from AGM's loan assets.

In addition, 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."

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, 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.

Warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements.

The Company has a FFELP warehouse facility that, as of December 31, 2022, had an aggregate maximum financing amount available of $1.2 billion, of which $979.0 million was outstanding and $221.0 million was available for additional funding.

The warehouse facility has a static advance rate until the expiration date of the liquidity provisions (May 22, 2023).

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As of December 31, 2022, the Company had $67.0 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.

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.

The Company has a private education loan warehouse facility that, as of December 31, 2022, had an aggregate maximum financing amount available of $64.4 million, an advance rate of 75%, liquidity provisions through June 30, 2023, and a final maturity date of December 31, 2023.

As of December 31, 2022, $64.4 million was outstanding under this facility with no amount available for future funding, and the Company had $22.4 million advanced as equity support.

The Company also has a consumer loan warehouse facility that, as of December 31, 2022, had an aggregate maximum financing amount available of $250.0 million, an advance rate of 70%, liquidity provisions through November 14, 2024, and a final maturity date of November 14, 2025.

As of December 31, 2022, $89.0 million was outstanding under this facility, $161.0 million was available for future funding, and the Company had $36.6 million advanced as equity support.

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

Other Uses of Liquidity

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, 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;

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, consumer, and other loans (or investment interests therein).

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

proceeds from the sale of certain investments;

its unsecured line of credit, its Union Bank student loan participation agreement, its 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);

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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.

Repurchase Agreements

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% interest in the loans and has a corresponding 8% interest in residual interests in the 2021 securitizations of the loans discussed below.

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

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 bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheet as "investments and notes receivable" and as of December 31, 2022, the fair value of these bonds was $306.5 million.

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

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

In addition, as discussed above, the Company has repurchased certain of its own asset-backed securities in the secondary market that serve as collateral on amounts outstanding under the Company's repurchase agreements.

As of December 31, 2022, $567.3 million was outstanding on the Company's repurchase agreements, of which $291.3 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement and $276.0 million was borrowed to fund repurchased FFELP loan asset-backed securities.

The repurchase agreements have various maturity dates (as of December 31, 2022) from January 4, 2023 through November 27, 2024, but one of the agreements is subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates.

Subsequent to December 31, 2022, the maturities on these agreements were extended, and as of February 28, 2023, the maturity dates vary from March 8, 2023 through November 27, 2024.

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.

Upon termination or expiration of the repurchase agreements, the Company would use cash and/or cash proceeds from its unsecured line of credit, consider the sale of assets (subject to any restrictions described above), or transfer collateral to satisfy any outstanding obligations subject to the repurchase agreements.

Union Bank Participation Agreement

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Asset-backed Securities Transactions

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.

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

Depending on market conditions, the Company currently anticipates continuing to access the asset-backed securitization market.

Depending on market conditions, the Company anticipates continuing to access the asset-backed securitization market.

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.

There were no asset-backed securitization transactions completed during the year ended December 31, 2022

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.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million and the Company contributed an additional $30.0 million to Nelnet Bank during 2022.

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.

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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.;

(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% 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;

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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.

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, or 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 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.

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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.

Based on Nelnet Bank's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to the bank in future periods.

Liquidity Impact Related to Nelnet Renewable Energy

The Company’s Nelnet Renewable Energy business makes solar tax equity investments.

Through December 31, 2022, the Company has invested a total of $175.6 million (which excludes $102.8 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships.

These investments provide a federal income tax credit under the Internal Revenue Code, equaling either 26% or 30% of the eligible project costs, with the tax credit available when the project is placed-in-service.

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

Treasury based on the credits earned.

Based on the timing of when the Company funds a project and decreases its tax estimate to the U.S.

Treasury due to earning of the tax credit, the amount of capital committed to solar tax equity investments at any point in time is not significant and has a minimal impact on the Company’s liquidity.

In addition to solar tax equity investments, the Company has a strategy to own solar energy project assets.

These assets provide long-term, predictable, and recurring cash flows.

Accordingly, the Company has begun to execute a multi-faceted approach to originate, acquire, finance, own, and manage these assets.

As part of this strategy, on July 1, 2022, the Company acquired 80% of the ownership interest in GRNE and ENRG for total consideration of $33.9 million.

GRNE is a solar contracting company that provides full-service engineering, procurement, and construction (EPC) services to residential homes and commercial entities.

GRNE contracts to build solar on a cost-plus-margin basis.

ENRG is a development company that is primarily focused on the development of solar assets that the Company expects to own long-term.

The Company plans to expand this business geographically across the United States, increase the team size and technical expertise to build larger projects, and serve new and existing customers on a go-forward basis.

In addition to asset origination, the Company plans to begin acquiring solar assets that are in various stages of their project life-cycle with other development partners.

The Company plans to fund a large portion of its current growth plans in owning solar energy projects using third-party debt and third-party tax equity.

The collateral on any third-party debt would be limited to the assets of the

specific solar projects.

Any capital requirements for the origination or purchase of solar projects not funded by third-party debt and third-party tax equity would be provided by the Company using operating cash, borrowings on its unsecured line of credit, and/or the sale of investments.

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.

Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45% 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.

As of December 31, 2022, the outstanding preferred membership interests of ALLO held by the Company was $145.9 million that earns a preferred annual return of 6.25%.

Agreements among the Company, SDC (a third-party global digital infrastructure investor), and ALLO provide that they will use commercially reasonable efforts (which 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.

However, if the non-voting preferred membership interests are not redeemed on or before April 2024, the preferred annual return is increased from 6.25% to 10.00%.

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.

Although ALLO has obtained third-party debt financing to fund a large portion of its current growth plans, the Company contributed $48.3 million of additional equity to ALLO in 2022.

As a result of this equity contribution, the Company’s voting membership interests percentage did not materially change.

Based on ALLO's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to ALLO in future periods.

Liquidity Impact Related to Hedging Activities

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

Based on the derivative portfolio outstanding as of December 31, 2021, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse.

Based on the derivative portfolio outstanding as of December 31, 2022, the Company does not anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse.

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

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As of December 31, 2022, 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.

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 or maintain the amount outstanding under the line, or find alternative funding if necessary.

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

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For further discussion of these debt facilities described above, see note 5 of the notes to consolidated financial statements included in this report.

Debt Repurchases

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.

Stock Repurchases

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Year ended December 31, 2021 713,274 58,111 81.47

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.

Butterfield, a significant shareholder of the Company.

The shares were purchased at a discount to the closing market price of the Company's Class A common stock as of August 9, 2021 and the transaction was 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.

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The dividend will be paid on March 15, 2023, to shareholders of record at the close of business on March 1, 2023.

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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On an on-going basis, management evaluates its estimates and judgments, particularly as they relate to accounting policies that management believes are most “critical” - that is, they are most important to the portrayal of the Company’s financial condition and results of operations and they require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Management has identified the allowance for loan losses as a critical accounting policy.

Management has identified the allowance for loan losses as a critical accounting policy and estimate.

Allowance for Loan Losses

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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 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 notes 3 and 4 of the notes to consolidated financial statements included in this report.

Such assumptions are discussed below, and such uncertainty is due in part to the fact that the weighted average maturity of the Company’s loan portfolio is approximately 15 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 statements of income 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 the Company’s 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.

The models consider factors such as historical trends in credit losses, recent portfolio performance, and forward-looking macroeconomic conditions.

The models vary by portfolio type including FFELP, private education, and consumer loans.

The models vary by portfolio type including FFELP, private education, consumer, and other loans.

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.

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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).

Under the range of economic scenarios considered, the allowance for loan losses would have been lower by $16 million (12%) or higher by $9 million (7%).

This range reflects the sensitivity of the allowance for loan losses specifically related to the scenarios and weights considered as of December 31, 2022, and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.

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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.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

Financial Instruments - Credit Losses

In March 2022, the FASB issued accounting guidance which eliminates the troubled debt restructurings recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan.

The guidance also enhances the disclosure requirements for certain modifications of receivables made to borrowers experiencing financial difficulty.

The adoption of this standard by the Company on January 1, 2023, was immaterial to the Company’s consolidated financial statements and related disclosures.

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