What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-07 · 496 added, 467 removed, 418 unchanged (70% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and nine months ended September 30, 2022 and 2021.

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three months ended March 31, 2023 and 2022.

All dollars are in thousands, except per share amounts, unless otherwise noted.)

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Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements.

The words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.

The words “anticipate,” “assume,” “believe,” “continue,” “could,” “ensure,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.

The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances.

These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements.

These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2021 Annual Report, the "Risk Factors" section of this report, and elsewhere in this report, and include such risks and uncertainties as:

• risks and uncertainties related to the duration, ultimate severity, and continuing impacts of the coronavirus disease 2019 (“COVID-19”) pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on various activities intended to combat the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;

• risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S.

Department of Education (the "Department"), which current contracts accounted for 29 percent of the Company's revenue in 2021, risks to the Company related to the Biden-Harris Administration's student debt relief plan announced on August 24, 2022 that may significantly decrease the number of borrowers serviced and revenue earned by the Company under such contracts, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the pending and uncertain nature of the Department's procurement process, risks that the Company may not be successful in obtaining any of such potential new contracts, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), private education, and consumer loans;

• loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, consumer, and other loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, consumer, and other loans, and risks from changes in levels of loan prepayment or default rates;

• financing and liquidity risks, including risks of changes in the interest rate environment, such as risks from the recent increases in interest rates resulting from inflationary pressures and the transition from LIBOR to an alternative reference rate, and changes in the securitization and other financing markets for loans, including adverse changes resulting from recent market volatility resulting from rising interest rates and other economic pressures and from unanticipated repayment trends on student loans in the Company's securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;

• risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP loan interest income due to the discontinuation of new FFELP loan originations in 2010 and government initiatives or proposals to consolidate existing FFELP loans to Federal Direct Loan Program loans, otherwise encourage or allow FFELP loans to be refinanced with Federal Direct Loan Program loans, and/or create additional loan forgiveness or broad debt cancellation programs;

• risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to a disclosure of confidential loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;

These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2022 Annual Report and include such risks and uncertainties as:

• risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and future servicing contracts with the U.S.

Department of Education (the "Department") and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or FFELP), private education, and consumer loans;

• loan portfolio risks such as interest rate basis and repricing risk, the risk of loss of floor income on certain student loans originated under the FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, consumer, and other loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, consumer, and other loans, and risks from changes in levels of loan prepayment or default rates;

• financing and liquidity risks, including risks of changes in the interest rate environment;

• risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets;

• risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors;

• uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;

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• risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses;

• risks and uncertainties associated with climate change, including extreme weather events and related natural disasters, which could result in increased loan portfolio credit risks and other asset and operational risks, as well as risks and uncertainties associated with efforts to address climate change;

• risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs resulting from the politicization of student loan servicing, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.

• risks and uncertainties associated with climate change;

• risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses.

All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document.

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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.

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

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.

Three months ended March 31,

GAAP net income attributable to Nelnet, Inc.

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Realized and unrealized derivative market value adjustments 37,411 (145,734)

(52,991) (7,260) (239,125) (44,455)

Tax effect (a) (8,979) 34,976

12,718 1,742 57,390 10,669

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

$ 64,525 47,620 194,838 226,817

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 54,919 75,889

Earnings per share:

GAAP net income attributable to Nelnet, Inc.

$ 2.80 1.38 9.99 6.74

Realized and unrealized derivative market value adjustments 1.00 (3.83)

(1.42) (0.19) (6.34) (1.15)

Tax effect (a) (0.24) 0.91

0.35 0.04 1.52 0.28

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

$ 1.73 1.23 5.17 5.87

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 1.47 1.99

(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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• Nelnet Bank

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

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

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 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.

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 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.

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.

On July 1, 2022, the Company purchased 80 percent of the ownership interests of GRNE Solar.

See note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The operating results from this acquisition are also included in Corporate.

The information below provides the operating results (income (loss) before income taxes) for each reportable operating segment and Corporate and Other Activities for the three and nine months ended September 30, 2022 and 2021.

See "Results of Operations" for each reportable operating segment under this Item 2 for additional detail.

Three months ended September 30,

2022 2021 Certain Items Impacting Comparability

(All dollar amounts below are pre-tax)

NDS $ 21,914 (3,042) • The recognition of an impairment charge of $13.2 million in the third quarter of 2021 related primarily to building and building improvement assets due to an evaluation of the use of office space as a large number of employees continued to work from home as a result of the COVID-19 pandemic

NBS 18,655 13,992 • The recognition of $3.7 million of interest income in the third quarter of 2022 as compared to $0.3 million in the same period of 2021 due to higher interest rates

AGM 111,872 60,085 • A net gain of $53.0 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in the third quarter of 2022 as compared to a net gain of $7.3 million for the same period in 2021

• An increase of $6.2 million in net interest income due to an increase in FFELP core loan spread in 2022 as compared to 2021

• A decrease of $14.3 million in net interest income due to the decrease in the average balance of FFELP loans in the third quarter of 2022 as compared to 2021

• The recognition of a $6.3 million investment loss during the third quarter of 2021

Nelnet Bank 1,055 836

Corporate (26,442) (5,003) • The recognition of a net loss of $17.6 million in the third quarter of 2022 related to the Company’s investment in ALLO, as compared to a net loss of $10.5 million for the same period in 2021

• Investment income of $10.5 million in the third quarter of 2022 as compared to $21.9 million for the same period in 2021.

In 2022, the Company recognized $5.9 million in gains from the sale of real estate investments, as compared to $11.2 million in 2021.

In addition, the Company recognized $5.8 million in net realized and unrealized gains from marketable securities in 2021.

Income before income taxes 127,055 66,868

Income tax expense (26,586) (15,649)

Net loss attributable to noncontrolling interests 4,329 1,919

Net income $ 104,798 53,138

Nine months ended September 30,

2022 2021 Certain Items Impacting Comparability

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 three months ended March 31, 2023 and 2022.

See "Results of Operations" for each reportable operating segment and Corporate and Other Activities under this Item 2 for additional detail.

Three months ended March 31, Certain Items Impacting Comparability

(All dollar amounts below are pre-tax)

NDS $ 47,494 28,554 • The recognition of an impairment charge of $13.2 million in the third quarter of 2021 related primarily to building and building improvement assets due to an evaluation of the use of office space as a large number of employees continued to work from home as a result of the COVID-19 pandemic

NBS 66,454 62,199 • The recognition of $4.9 million of interest income in the first three quarters of 2022 as compared to $0.8 million in the same period of 2021 due to higher interest rates

AGM 424,647 280,613 • A net gain of $239.1 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in the first three quarters of 2022 as compared to a net gain of $44.5 million for the same period in 2021

• A decrease of $23.8 million in interest expense during the first quarter of 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

• The recognition of provision for loan losses of $17.2 million in the first three quarters of 2022 as compared to negative provision of $11.2 million for the same period in 2021

• The recognition of $18.7 million of gains from the sale of loans during the first three quarters of 2021 compared to $5.6 million for the same period in 2022

• An increase of $13.5 million in net interest income due to an increase in FFELP core loan spread in 2022 as compared to 2021

• A decrease of $32.4 million in net interest income due to the decrease in the average balance of FFELP loans in the first three quarters of 2022 as compared to 2021

NDS $ 25,219 12,094 • An increase in before tax operating margin in 2023 compared with 2022 due to a decrease in operating expenses, primarily salaries and benefits.

In 2022, the Company was fully staffed 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.

The Company reduced staff in January 2023 to manage excess staff due to the delays in the government's student debt relief and return to repayment programs.

NBS 37,637 33,113 • The recognition of $6.0 million of interest income in 2023 compared with $0.3 million in 2022 due to higher interest rates.

• A decrease in before tax operating margin, excluding net interest income, in 2023 compared with 2022 due to additional investments in the development of new services and technologies and superior customer experiences to align with the Company's strategies to grow, retain, and diversify revenue.

AGM (221) 213,429 • A net loss of $37.4 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2023 compared with a net gain of $145.7 million in 2022.

• The recognition of $31.9 million in provision for loan losses in 2023 compared with a negative provision of $0.9 million in 2022.

• A decrease of $12.6 million in net interest income due to the decrease in the average balance of loans in 2023 compared with 2022.

• An increase of $4.2 million in net interest income due to an increase in core loan spread in 2023 compared with 2022.

• The recognition of $11.8 million in gains from the sale of loans in 2023 compared with $3.0 million in 2022.

Nelnet Bank (93) 961

Corporate (65,061) (36,796) • The recognition of a net loss of $47.6 million for the first three quarters of 2022 related to the Company’s investment in ALLO, as compared to a net loss of $31.6 million for the same period in 2021

• Investment income of $37.2 million for the first three quarters of 2022 as compared to $43.7 million for the same period in 2021.

Investment income in 2022 included $13.5 million in gains from the sale of real estate investments and a $15.2 million gain as a result of the revaluation of the Company's previously held 50 percent ownership interests in NextGen.

In 2021, the Company recognized $22.2 million from the sale of real estate investments and $6.3 million in net realized and unrealized gains from marketable securities.

• The recognition of an impairment charge of $6.3 million in the second quarter of 2022 related primarily to a venture capital investment and certain real estate leases (as the Company continues to downsize its facility footprint as a result of associates working from home)

Corporate (31,275) (19,013) • The recognition of a net loss of $20.2 million in 2023 related to the Company’s investment in ALLO, compared with a net loss of $13.1 million in 2022.

• The recognition of net investment losses of $3.3 million in 2023 compared with net investment income and gains of $8.5 million in 2022.

Income before income taxes 31,267 240,583

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Net income $ 26,487 186,647

Recent Developments

On August 24, 2022, the Department issued a bulletin titled “Biden-Harris Administration Announces Final Student Loan Pause Extension Through December 31 and Targeted Debt Cancellation to Smooth Transition to Repayment” (the “August 24, 2022 Bulletin”).

The August 24, 2022 Bulletin extends the CARES Act repayment pause on Department held student loans through December 31, 2022 and indicates the Department will provide targeted student debt cancellation to borrowers with loans held by the Department, and that borrowers whose annual income for either 2020 or 2021 was under $125,000 (for single or married, filing separately) or under $250,000 (for married couples, filing jointly or heads of household) will be eligible for otherwise unconditional loan cancellation in amounts of up to $20,000 for eligible borrowers who received a Pell Grant, or of up to $10,000 for eligible borrowers who did not receive a Pell Grant.

Following the initial announcement, the Department provided more specific publicly available guidance on the student debt relief plan through the website of the Department’s Office of Federal Student Aid (“FSA”) on September 29, 2022, which guidance was subsequently revised and published in the Federal Register on October 12, 2022.

As of November 7, 2022, the following guidance on loan forgiveness was provided on the FSA website (information on the FSA website is not incorporated by reference in this report):

• All loans eligible for the CARES Act student loan payment pause are also eligible for debt relief, including loans held by the Department and guaranty agencies

• As of September 29, 2022, borrowers with federal student loans not held by the Department cannot obtain one-time debt relief by consolidating those loans into Federal Direct Loan Program loans by the Department

• Borrowers with FFEL Program loans not held by the Department and who applied to consolidate into the Federal Direct Loan Program prior to September 29, 2022, are eligible for one-time debt relief through the Federal Direct Loan Program, subject to meeting the other terms and conditions

• The Department has indicated it is assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by the Department, including FFEL Program loans

On October 21, 2022, the U.S.

Court of Appeals for the Eighth Circuit issued a temporary administrative stay of implementation of the Department's student debt relief plan in response to a legal challenge that was initiated by other parties (not the Company).

In view of this recent announcement and guidance by the Department, the Company does not currently expect there to be significant FFELP loan consolidation activity specifically as a result of the one-time student debt relief plan announced in the August 24, 2022 Bulletin.

However, 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.

Sustained higher FFELP loan prepayments will impact net interest income in the Company’s AGM operating segment, FFELP servicing revenue in the Company’s LSS operating segment, investment advisory services revenue earned by the Company’s SEC-registered investment advisor subsidiary (Whitetail Rock Capital Management, LLC) on FFELP loan asset-backed securities under management, and interest income earned on the Company’s FFELP loan asset-backed securities investments in future periods.

In addition, as of September 30, 2022, the Company was servicing 15.7 million borrowers under its government servicing contracts.

The Company cannot currently estimate how many borrowers meet the eligibility requirements and other terms and conditions for one-time debt relief under the August 24, 2022 Bulletin and subsequent guidance provided by the Department.

However, revenue earned by the Company under its contracts will be negatively impacted if the Department’s student debt relief plan or other broad based loan forgiveness is implemented.

See Part II, Item 1A, “Risk Factors - Our largest fee-based customer, the Department of Education, represented 29 percent of our revenue in 2021.

Failure to extend the Department contracts or obtain new Department contracts in the Department's current or other procurement processes, our inability to consistently surpass competitor performance metrics, unfavorable contract modifications or interpretations, or the loss of servicing borrower volume due to broad based debt cancellation by the Department, could significantly lower servicing revenue and hinder future service opportunities.” and “- Our loan portfolio is subject to prepayment risk, which could reduce the expected cash flows and earnings on our portfolio.” in this report for additional information.

Impact of COVID-19

The COVID-19 pandemic has had a significant impact on the economic environment globally and in the U.S.

There is uncertainty as to the length and breadth of the impact to the U.S.

economy and, consequently, on the Company.

As a related matter, on August 24, 2022, the Department announced that the suspension under the CARES Act on federal student loan payments and interest accruals on all loans owned by the Department was extended through December 31, 2022.

For a further overview discussion of the impact of the COVID-19 pandemic on the Company, see Part II, Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - Recent Transactions/Developments - COVID-19" in the 2021 Annual Report.

In addition, for an additional discussion regarding the risks associated with COVID-19, see Part I, 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." in the 2021 Annual Report.

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's consolidated operating results for the three and nine months ended September 30, 2022 compared to the same periods in 2021 is provided below.

An analysis of the Company's consolidated operating results for the three months ended March 31, 2023 compared with the same period in 2022 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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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.

Three months ended Nine months ended

September 30, September 30,

Three months ended

2023 2022 Additional information

Loan interest $ 225,243 111,377 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 26,889 12,558 57,589 29,122 Includes income from interest-earning deposits and investments and funds in asset-backed securitizations.

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

Investment interest 40,725 13,819 Includes income from interest-earning deposits and investments and restricted cash in asset-backed securitizations.

Increase was due to an increase in interest earning investments and an increase in interest rates.

Total interest income 265,968 125,196

Interest expense 199,449 48,079 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.

The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013.

Net interest income 66,519 77,117

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ETS&PP revenue 133,603 112,286 See ETS&PP operating segment - results of operations.

Solar construction revenue 9,358 — 9,358 — On July 1, 2022, the Company acquired 80 percent of the ownership interests of GRNE Solar.

Solar construction revenue 8,651 — 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 2,225 11,867 24,750 30,183 See table below for the components of "other."

Gain on sale of loans 2,627 3,444 5,616 18,715 The Company sold $18.1 million (par value) and $28.9 million (par value) of consumer loans in January 2022 and July 2022, respectively, and recognized a gain of $3.0 million and $2.6 million, respectively.

The Company also sold $77.4 million (par value) and $18.4 million (par value) of consumer loans in May 2021 and September 2021, respectively, and recognized gains of $15.3 million and $3.2 million, respectively.

Impairment expense and provision for beneficial interests, net 121 (14,159) (6,163) (12,223) During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continued 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.

During the second quarter of 2022, the Company recorded impairment expense of $6.3 million related primarily to a venture capital investment and certain real estate leases.

Other, net (14,071) 9,877 See table below for the components of "other, net."

Gain on sale of loans, net 11,812 2,989 The Company sold $261.9 million (par value) of consumer and other loans during 2023 and recognized a net gain of $11.8 million.

The Company sold $18.1 million (par value) of consumer loans in 2022 and recognized a gain of $3.0 million.

Derivative settlements, net 23,337 (2,809) The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

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

The majority of derivative settlements received in 2023 was from the Company's derivatives used to hedge loans earning fixed rate floor income.

This entire derivative portfolio was terminated on March 15, 2023 to minimize the Company's exposure to market volatility.

As such, there will be no derivative settlements received on this portfolio of derivatives in future periods.

See AGM operating segment - results of operations.

Derivative market value adjustments, net (37,411) 145,734 Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP.

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

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

Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.

The entire portfolio of floor income interest rate swaps was terminated on March 15, 2023 to minimize the Company's exposure to market volatility.

As such, the Company expects the derivative market value adjustments in future periods will be less substantial.

Total other income (expense) 265,148 404,445

Cost of services:

Cost to provide education technology, services, and payment processing services 42,676 31,335 109,073 80,063 Represents primarily direct costs to provide payment processing and instructional services in the ETS&PP operating segment.

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

Cost to provide education technology, services, and payment processing services 47,704 35,545 Represents direct costs to provide payment processing and instructional services in ETS&PP.

Increase was primarily due to additional instructional services costs.

See ETS&PP operating segment - results of operations.

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Operating expenses:

Salaries and benefits 147,198 128,592 438,010 363,351 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;

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

Salaries and benefits 152,710 149,414 Increase was due to an increase in headcount in ETS&PP to support the growth of its customer base and the investment in the development of new technologies.

This increase was partially offset by staff reductions in LSS to manage excess staff due to delays in the government's student debt relief and return to repayment programs.

Depreciation and amortization 16,627 16,956 Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions.

Other expenses 43,858 38,324 120,297 107,611 Other expenses 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.

Other expenses 40,785 39,499 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 an increase in expenses in ETS&PP 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 had previously subsided due to the COVID-19 pandemic.

The increase was partially offset by a decrease in expenses in LSS due to a decrease in professional fees and facility costs.

Over the last year, the Company has reduced its office space as a large number of employees continue to work from home.

Total operating expenses 210,122 205,869

Income before income taxes 31,267 240,583

Income tax expense 26,586 15,649 107,765 76,747 The effective tax rate was 20.2% and 22.7% for the three months ended September 30, 2022 and 2021, respectively, and 22.2% and 22.7% for the nine months ended September 30, 2022 and 2021, respectively.

Income tax expense 8,250 55,697 The effective tax rate was 23.7% and 23.0% for the three months ended March 31, 2023 and 2022, respectively.

Net income 23,017 184,886

Net loss attributable to noncontrolling interests 4,329 1,919 8,315 3,467 Amounts for noncontrolling interests primarily reflect the net income/loss attributable to the holders of minority membership interests in Whitetail Rock Capital Management, LLC and multiple solar entities.

Net loss attributable to noncontrolling interests 3,470 1,761 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.

$ 26,487 186,647

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

Three months ended September 30, Nine months ended September 30,

Additional information:

See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.

Net income attributable to Nelnet, Inc.

$ 26,487 186,647

Income/gains from investments, net (a) $ 10,701 16,050 40,685 40,141

Borrower late fee income (b) 2,824 514 7,693 1,698

ALLO preferred return (c) 2,164 2,043 6,420 6,384

Administration/sponsor fee income (d) 1,920 1,670 6,055 1,670

Investment advisory services (e) 1,612 2,400 4,375 6,242

Loss from ALLO voting membership interest investment (f) (17,562) (10,495) (47,633) (31,620)

Loss from solar investments (g) (4,216) (3,393) (7,100) (7,375)

Derivative market value adjustments, net 37,411 (145,734)

Tax effect (8,979) 34,976

Net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 54,919 75,889

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

Three months ended March 31,

2023 2022 Additional information

ALLO preferred return $ 2,249 2,117 See Corporate - results of operations.

Borrower late fee income 2,247 2,431 See AGM operating segment - results of operations.

Administration/sponsor fee income 1,772 2,123 See AGM operating segment - results of operations.

Investment advisory services 1,612 1,282 See Corporate - results of operations.

Loss from ALLO voting membership interest investment (20,213) (13,130) See Corporate - results of operations.

Investment activity, net (3,577) 11,856 See Corporate - results of operations and note (a) below for additional information.

Loss from solar investments (1,947) (1,030) See Corporate - results of operations.

Other 3,786 4,228

Other income $ 2,225 11,867 24,750 30,183

(a) The Company recognized net income/gains from its real estate and venture capital investment portfolios of $9.7 million during both the three months ended September 30, 2022 and 2021, respectively, and $26.6 million and $32.3 million during the nine months ended September 30, 2022 and 2021, respectively.

The majority of these gains were from the sale of investments, and thus are not recurring.

In addition, during the second quarter of 2022, the Company recognized a $15.2 million (pre-tax) gain as a result of the revaluation of its previously held 50 percent ownership interests in NextGen (previously accounted for under the equity method) as a result of the Company purchasing an additional 30 percent ownership interests in NextGen on April 30, 2022.

The remaining amount of income/gains from investments recognized by the Company and included in the table above relate to gains/losses from sales of debt and equity securities and the remeasurement of certain equity securities measured at fair value.

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

The increase in borrower late fees for the three and nine months ended September 30, 2022 as compared to the same periods in 2021 was due to the Company suspending substantially all 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 in May 2021 (for private education loans) and October 2021 (for federally insured student loans).

(c) 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 September 30, 2022 and 2021, the amount of preferred membership interests held by the Company was $137.3 million and $129.7 million, respectively, which earns a preferred annual return of 6.25 percent.

(d) Represents fee income earned by the AGM operating segment 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.

(e) 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 September 30, 2022, the outstanding balance of asset-backed securities under management subject to these arrangements was $3.0 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 (with the Nelnet stock primarily shares of Class B common stock held in various trust estates).

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

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

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

Applying the Hypothetical Liquidation at Book Value ("HLBV") method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years.

(g) Represents the Company's share of income or loss from solar investments under the HLBV method of accounting.

For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment.

Losses from solar investments include losses attributable to third-party minority interest investors of $4.1 million and $2.1 million for the three months ended September 30, 2022 and 2021, respectively, and $8.0 million and $4.0 million for the nine months ended September 30, 2022 and 2021, respectively, that are included in "net loss attributable to noncontrolling interests" in the consolidated statements of income.

Other, net $ (14,071) 9,877

(a) During the three months ended March 31, 2023, the Company recognized net investment losses of $3.6 million, including net losses of $0.3 million from venture capital investments recognized at Nelnet Bank, a gain of $0.8 million related to real estate investments at Corporate, and losses of $4.1 million primarily related to sales of investments in asset-backed securities (bonds) and marketable equity securities (a loss of $4.1 million recognized at Corporate and a loss of $0.5 million recognized at AGM partially offset by a gain of $0.5 million recognized at Nelnet Bank).

During the three months ended March 31, 2022, the Company recognized net investment income and gains of $11.9 million, including $7.2 million from venture capital investments (including $4.9 million recognized at Corporate, $1.9 million recognized at AGM, and $0.4 million recognized at Nelnet Bank), $4.4 million related to real estate investments at Corporate, and $0.3 million related to investments in asset-backed securities (bonds) and marketable equity securities (a loss of $0.8 million recognized at Corporate and income of $1.1 million recognized at Nelnet Bank).

The Company anticipates fluctuations in future periodic earnings resulting from investment sales and valuation adjustments.

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

5 unchanged sentences

2022 March 31,

2022 June 30,

2022 September 30,

Servicing volume (dollars in millions):

11 unchanged sentences

Government Loan Servicing

The Company's student loan servicing contracts with the Department are scheduled to expire on December 14, 2023.

Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes Educational Loan Services, Inc.

(Great Lakes), both subsidiaries of the Company, are two of the current six private sector entities that have student loan servicing contracts with the Department to service loans that include Federal Direct Loan Program loans originated directly by the Department and FFEL Program loans purchased by the Department.

The Company currently licenses its hosted servicing software to two of the six servicers for the Department.

Contract Modifications and Award

On March 22, 2023, each of Nelnet Servicing and Great Lakes received modifications of contract with an effective date of April 1, 2023 (collectively the “modifications”) from the Department.

Such modifications outline the Department's amendment to the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes (the “servicing contracts”) to reduce the current prices earned by Nelnet Servicing and Great Lakes under the servicing contracts.

Under the servicing contracts, Nelnet Servicing and Great Lakes earn a monthly fee from the Department for each unique borrower they service on behalf of the Department.

The modifications reduce the monthly fee by $0.19 per borrower on certain borrower statuses.

The Company's current 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.

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.

All applicable student loans serviced for the Department by PHEAA will be transferred to successor servicers by December 2022.

On April 24, 2023, Nelnet Diversified Solutions, LLC (NDS), a subsidiary of the Company, received a contract award from the Department, pursuant to which NDS was selected to provide continued servicing capabilities for the Department's Office of Federal Student Aid's student aid recipients under a new USDS contract (the "New Government Servicing Contract") which will replace the existing legacy Department student loan servicing contracts that are currently scheduled to expire December 14, 2023.

The New Government Servicing Contract is effective April 24, 2023 and has a five year base period, with 2 two-year and 1 one-year possible extensions.

The Department's total loan servicing volume of more than 37 million existing borrowers will be allocated by the Department to NDS and four other servicers that were awarded a USDS contract.

New Department borrowers will be allocated to the USDS Servicers based on service and performance levels.

Under the New Government Servicing Contract, NDS will begin immediately to make required servicing platform enhancements, for which NDS will be compensated from the Department on certain of these investments.

In a press release issued on April 24, 2023 by the Department's Office of Federal Student Aid (FSA), FSA indicated that servicing under the USDS contracts will go live in 2024 and to maintain stability as the new loan servicing environment gets underway, FSA will extend the current legacy servicing contracts with the Department from December 14, 2023 to December 2024.

Until servicing under the USDS contracts goes live, the Company will continue to earn revenue for servicing borrowers under its current legacy servicing contracts with the Department.

The fee structure included in the new Department servicing contracts under USDS are structurally different than the current legacy servicing contracts with the Department.

The USDS servicing contracts have multiple revenue components with tiered pricing based on borrower volume, while revenue earned under the legacy servicing contracts is primarily based on borrower status.

Assuming borrower volume remains consistent under the USDS servicing contract, the Company expects revenue earned on a per borrower blended basis will decrease under the USDS contract versus the current legacy contracts.

However, consistent with the current legacy contracts, the Company expects to earn additional revenue from the Department under the USDS servicing contract for change requests, consolidations, and other support services.

As discussed below, during 2023, the Company will continue to transfer the Great Lakes direct loan servicing volume to the Nelnet servicing platform.

The associated cost savings with moving government borrowers to one servicing platform will be partially offset under the USDS contract as the Company will incur additional costs for cybersecurity and other system specifications as required under the new contract.

Loan Volume Transfers

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, March 31, 2022, June 30, 2022, and September 30, 2022, approximately 603,000, 1,175,000, 1,905,000, and 1,909,000 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.

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 to which the Company provides its servicing system (remote hosted servicing customers).

Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, utilizes Nelnet Servicing's platform to service their loans for the Department.

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 March 31, 2023, Edfinancial was servicing 3.5 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 the Company the Department intends to move that customer’s servicing borrowers to a different servicing platform.

As of March 31, 2023, the remote hosted servicing customer was servicing approximately 1.4 million borrowers for the Department on the Company's platform.

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

The 2023 transfers discussed above began in the first quarter of 2023 and the Company expects the transfers to be completed by the end of the second quarter of 2023.

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.

In addition, the Company continues to transfer the Great Lakes direct loan servicing volume to the Nelnet servicing platform (the GreatNet Federal servicing platform).

The Company anticipates the transfer of active borrowers to be completed by the end of the second quarter of 2023 and decommissioning of the Great Lakes' platform to be completed by the end of 2023.

Therefore, potential associated cost savings as a result of transferring direct loan servicing volume to one platform will not be recognized in operating results until 2024.

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 March 31, 2023) by approximately 4.5 million borrowers and 7.7 million borrowers, respectively.

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.

1 unchanged sentence

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 to pre-CARES Act levels.

Department of Education Loan Forgiveness

The Department's August 24, 2022 Bulletin announcing a broad based student debt relief plan indicates the Department will provide targeted student debt cancellation to borrowers with loans held by the Department, and that borrowers whose annual income for either 2020 or 2021 was under $125,000 (for single or married, filing separately) or under $250,000 (for married

couples, filing jointly or heads of household) will be eligible for otherwise unconditional loan cancellation in amounts of up to $20,000 for eligible borrowers who received a Pell Grant, or of up to $10,000 for eligible borrowers who did not receive a Pell Grant.

On October 21, 2022, the U.S.

The Company cannot currently 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 September 30, 2022) by approximately 4.4 million borrowers and 7.5 million borrowers, respectively.

The actual impact to the number of borrowers serviced is expected to 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, and software services revenue earned in providing remote hosted services to other Department servicers, will decrease in future periods if the Department's student debt relief plan or other broad based loan forgiveness is implemented.

Private Education Loan Servicing

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

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

During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the vast majority of the remaining borrowers converted in the second quarter of 2021.

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

Reduction in Staff

On January 18, 2023, the Company announced a reduction in staff to manage excess staff capacity due to delays in the government's student debt relief and return to repayment programs under the CARES Act (as discussed above).

Approximately 350 associates who were hired within the prior six months were laid off with a 60 day notice period and approximately 210 associates were immediately terminated for performance.

On March 23, 2023, the Company announced a reduction in staff due to the March 2023 government servicing contract price modifications (as discussed above) and the notification by the Department in February 2023 of its intention to transfer up to one million borrowers of the Company's existing Department servicing borrowers to another servicer (as discussed above).

Approximately 550 associates who work in LSS, including some in related shared services areas that support LSS, were notified their positions were being eliminated.

The Company estimates incurring a charge of $4.3 million related to the staff reductions, of which $2.7 million was recognized in the first quarter of 2023.

The remaining expense will be incurred primarily during the second quarter of 2023.

Summary and Comparison of Operating Results

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Net interest income $ 831 7 1,100 25 Increase was due to higher interest rates in 2022 as compared to 2021.

Net interest income $ 1,037 43 Increase in 2023 compared with 2022 was due to higher interest rates.

Loan servicing and systems revenue 139,227 136,368 See table below for additional information.

Intersegment servicing revenue 8,281 8,621 25,142 25,369 Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments.

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

Decrease was partially offset by ending COVID-19 pandemic borrower relief policies, which increased servicing activities performed for AGM.

Intersegment servicing revenue 7,790 8,480 Represents revenue earned by LSS from servicing loans for AGM and Nelnet Bank.

Decrease in 2023 compared with 2022 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 608 740 Represents revenue earned from providing administrative support and marketing services.

Impairment expense — (13,243) — (13,243) During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continued to work from home due to COVID-19.

As a result of this evaluation, the Company recorded a non-cash impairment charge to certain building and building improvement assets during the third quarter of 2021.

Total other income 147,625 145,588

Salaries and benefits 82,067 75,305 257,259 210,151 Increase in 2022 compared to 2021 was due to the Company 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.

The CARES Act suspension was expected to expire on January 31, 2022 and has been extended three additional times to May 1, 2022, August 31, 2022, and again to December 31, 2022.

Depreciation and amortization 5,784 4,245 16,056 20,411 Includes amortization of intangible assets from the Great Lakes acquisition in February 2018 of which the majority of such assets became fully amortized as of June 30, 2021.

Amortization of intangible assets for the nine months ended September 30, 2022 and 2021 was $1.1 million and $11.6 million, respectively.

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

Other expenses 16,654 12,738 46,375 39,296 Increase in 2022 compared to 2021 was due to additional costs associated with the growth of borrowers under the government servicing contracts.

Intersegment expenses 17,486 19,217 56,442 52,241 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.

Salaries and benefits 84,560 91,972 Decrease in 2023 compared with 2022 was due to the Company being fully staffed with contact center operations and support associates in 2022 in preparation for the resumption of federal student loan payments and other activities after the CARES Act suspension.

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

In addition, the Company reduced staff in January and March 2023.

See "Reduction in Staff" above for additional details.

Depreciation and amortization 4,513 4,954

Other expenses 13,313 16,213 Decrease in 2023 compared with 2022 was due to a decrease in professional fees and facility costs.

Over the last year, the Company has reduced its office space as a large number of employees continue to work from home.

Intersegment expenses 21,057 20,398 Represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Total operating expenses 123,443 133,537

Income (loss) before income taxes 21,914 (3,042) 47,494 28,554

Income tax (expense) benefit (5,259) 730 (11,399) (6,853) Represents income tax (expense) benefit at an effective tax rate of 24%.

Net income (loss) $ 16,655 (2,312) 36,095 21,701

GAAP before tax operating margin 15.3 % (2.5) % 11.2 % 7.9 % Before tax operating margin, excluding impairment and amortization expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment and amortization expense) divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue.

Income before income taxes 25,219 12,094

Income tax expense (6,053) (2,903) Represents income tax expense at an effective tax rate of 24%.

Net income $ 19,166 9,191

Before tax operating margin 17.1 % 8.3 % Before tax operating margin represents before tax operating profitability as a percentage of revenue, and for LSS is calculated as income before income taxes divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue.

The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it 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, decreased in the nine months ended September 30, 2022 compared to the same period in 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 three additional times to May 1, 2022, August 31, 2022, and again to December 31, 2022.

Impairment expense — 10.9 % — 3.6 %

Amortization expense 0.3 % 0.5 % 0.3 % 3.2 %

Non-GAAP before tax operating margin, excluding impairment and amortization expense 15.6 % 8.9 % 11.5 % 14.7 %

Before tax operating margin increased in 2023 compared with 2022 due to a decrease in operating expenses as described above.

Loan servicing and systems revenue

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Government servicing $ 104,428 84,084 312,368 241,497 Represents revenue from the Company's Department servicing contracts.

Increase in 2022 compared to 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 beginning September 1, 2021 to reflect the increase in the cost of labor (Employment Cost Index) per the provisions of the contract;

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

Increase in the nine months ended September 30, 2022 compared to the same period in 2021 was also due to (i) the recognition of $9.1 million of revenue in the first quarter of 2022 for incremental work related primarily to CARES Act forbearance exit outreach activities to borrowers;

and (ii) the recognition of $10.5 million of revenue in the first quarter of 2022 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.

Private education and consumer loan servicing 12,198 13,198 37,194 34,563 Increase for the nine months ended September 30, 2022 compared to the same period in 2021 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 2022 decreased compared to 2021.

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

FFELP servicing 4,127 4,557 12,386 13,930 Decrease in 2022 compared to 2021 was due to a decrease in the number of borrowers serviced.

Government loan servicing $ 108,880 109,125 Represents revenue from the Company's Department servicing contracts.

Decrease in 2023 compared with 2022 was due to (i) the recognition of $6.7 million of revenue in the first quarter of 2022 for incremental work related primarily to CARES Act forbearance exit outreach activities to borrowers;

and (ii) the recognition of $10.5 million of revenue in the first quarter of 2022 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).

These decreases were partially offset by (i) an increase in the number of PHEAA borrowers serviced on the Company's servicing platform;

(ii) a per borrower CARES Act forbearance rate increase on May 1, 2022;

and (iii) a per borrower rate increase on September 1, 2022 (5.0%) to reflect the increase in the cost of labor (Employment Cost Index) per the provisions of the contracts.

Effective April 1, 2023, the monthly fee earned per borrower on certain borrower statuses will be reduced by $0.19.

See “Government Loan Servicing - Contract Modifications and Award" above for additional details.

Private education and consumer loan servicing 12,164 12,873 Decrease in 2023 compared with 2022 was due to a decrease in servicing volume and client requested enhanced delinquency services.

FFELP loan servicing 3,368 4,248 Decrease in 2023 compared with 2022 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.

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 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.

Software services 8,229 6,952 23,536 22,779 Increase in 2022 compared to 2021 is due to an increase in the number of remote hosted servicing borrowers primarily from the transfer of PHEAA borrowers to these servicing customers.

This increase was partially offset during the nine months ended September 30, 2022 compared to the same period in 2021 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, expiring on January 31, 2021.

Outsourced services and other 5,215 3,560 9,954 23,192 The majority of this revenue relates to providing contact center and back office operational outsourcing services.

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

Revenue from providing COVID-19 related services to state agencies was $1.3 million and $16.3 million during the three and nine months ended September 30, 2021.

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

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 9,697 7,400 Increase in 2023 compared with 2022 was due to an increase in remote hosted borrowers and an increase in rates.

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

See “Government Loan Servicing - Loan Volume Transfers” above for additional details.

Outsourced services 5,118 2,722 Represents primarily revenue to provide contact center and back office operational outsourcing services.

Increase in 2023 compared with 2022 was due to additional outsourced opportunities, including assisting existing Department servicers as operations transition from exiting servicers.

Loan servicing and systems revenue $ 139,227 136,368

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As discussed further in the Company's 2022 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year.

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.

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

Summary and Comparison of Operating Results

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Interest income $ 3,707 344 4,920 818 Represents interest income on tuition funds held in custody for schools.

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

Net interest income $ 6,036 339 Represents interest income on tuition funds held in custody for schools.

Increase in 2023 compared with 2022 was due to higher interest rates.

Education technology, services, and payment processing revenue 133,603 112,286 See table below for additional information.

Intersegment revenue 56 3

Other — 13 — 13

Total other income 133,659 112,289

Cost of services 47,704 35,545 See table below for additional information.

Salaries and benefits 34,950 29,119 98,356 82,154 Increase in 2022 compared to 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.

Salaries and benefits 37,913 31,286 Increase in 2023 compared with 2022 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 2,578 2,315 Represents primarily amortization of intangible assets from prior business acquisitions.

Amortization of intangible assets related to business acquisitions was $2.2 million and $2.6 million for the three months ended September 30, 2022 and 2021, respectively, and $6.8 million and $8.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Amortization of intangible assets is expected to increase in future periods as a result of the recent business acquisition of NextGen.

See note 6 of the notes to the consolidated financial statements included under Part I, Item 1 of this report.

Other expenses 7,034 4,804 19,549 14,063 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 4,762 3,672 14,171 10,856 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.

Other expenses 8,063 5,764 Increase in 2023 compared with 2022 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 previously subsided due to the COVID pandemic.

Intersegment expenses, net 5,800 4,605 Represents 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 54,354 43,970

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Net income 28,571 25,166

Net income attributable to noncontrolling interests (61) — (8) — Amounts for noncontrolling interests reflect the net income attributable to the holders of minority membership interests in NextGen, of which the Company became the majority owner on April 30, 2022.

See note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

Net income attributable to Nelnet, Inc.

$ 14,119 10,634 50,499 47,271

Net loss attributable to noncontrolling interests 138 — Amounts for noncontrolling interests reflect the net loss attributable to the holders of minority membership interests in NextGen, of which the Company became the majority owner on April 30, 2022.

Net income $ 28,709 25,166

Education technology, services, and payment processing revenue

The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Tuition payment plan services $ 25,779 23,618 84,131 79,706 Revenue increased for the three and nine months ended September 30, 2022 as compared to the same periods in 2021 due to a higher number of payment plans in the K-12 market.

In addition, revenue for the three months ended September 30, 2022 increased compared to the same period in 2021 due to a higher number of payment plans for institutions of higher education.

Payment processing 47,957 39,852 113,996 97,898 Payment volumes in 2022 increased as compared to 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 32,548 21,295 110,755 78,752 Increase in 2022 compared to 2021 was due to an increase in revenues from the Company’s school information system software, enrollment and communication products, revenue from the NextGen acquisition, 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 the COVID-19 pandemic has had or continues to have on school students and teachers.

Tuition payment plan services $ 34,187 30,716 Increase in 2023 compared with 2022 was due to a higher number of payment plans in the K-12 and higher education market.

Payment processing 44,041 38,071 Increase in 2023 compared with 2022 was due to increase in payment volumes 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 54,787 43,251 Increase in 2023 compared with 2022 was due to an increase in revenue 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 students and teachers.

Other 588 248

Education technology, services, and payment processing revenue 133,603 112,286

Cost of services 42,676 31,335 109,073 80,063 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 the primary driver of the increase in 2022 compared to 2021 due to the increase in instructional services resulting from the EANS program as noted for Education technology and services revenue above.

Cost of services 47,704 35,545 Represents costs relating 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 2023 compared with 2022 due to the increase in instructional services resulting from the EANS program as noted above.

Net revenue $ 85,899 76,741

Before tax operating margin 23.3 % 25.3 % 30.6% 34.6% 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 less interest income divided by net revenue.

GAAP before tax operating margin 43.8 % 43.1 % 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 2022 as compared to 2021 was due to investments in (i) the development of new services and technologies;

Before tax operating margin, excluding net interest income, decreased in 2023 compared with 2022 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 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 (7.0) (0.4)

Non-GAAP before tax operating margin, excluding net interest income 36.8 % 42.7 %

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of September 30, 2022, the AGM operating segment had a $14.8 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of September 30, 2022 and December 31, 2021, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of March 31, 2023, the AGM operating segment had a $13.5 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of March 31, 2023 and December 31, 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Activity

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

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

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

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Ending balance $ 13,482,620 16,618,627

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 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 September 30, 2022, the Company’s ownership correlates to approximately $630 million, $150 million, and $420 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations.

The Company has also purchased partial ownership in certain consumer, private education, and federally insured student 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 March 31, 2023, the Company’s ownership correlates to approximately $585 million, $590 million, and $370 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations.

The loans held in these securitizations are not included in the above table.

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 and Loan Delinquencies

For a summary of the allowance as a percentage of the ending balance for each of AGM's loan portfolios as of September 30, 2022 and December 31, 2021, the activity in AGM's allowance for loan losses for the three and nine months ended September 30, 2022 and 2021, and a summary of AGM's loan status and delinquency amounts as of September 30, 2022, December 31, 2021, and September 30, 2021, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

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 March 31, 2023 and December 31, 2022;

and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Spread Analysis

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The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans or debt outstanding.

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Variable loan yield, gross 7.12 % 2.75 %

2 unchanged sentences

Variable loan yield, net 6.36 1.93

Loan cost of funds - interest expense (a) (b) (3.11) (0.99) (1.95) (1.03)

Loan cost of funds - derivative settlements (c) (d) (0.03) (0.02) 0.00 (0.01)

Loan cost of funds - interest expense (5.53) (1.09)

Loan cost of funds - derivative settlements (a) (b) 0.03 0.01

Variable loan spread 0.86 0.85

Fixed rate floor income, gross 0.03 0.68

Fixed rate floor income - derivative settlements (c) (e) 0.30 (0.11) 0.10 (0.10)

Fixed rate floor income - derivative settlements (a) (c) 0.68 (0.08)

Fixed rate floor income, net of settlements on derivatives 0.71 0.60

2 unchanged sentences

Average balance of AGM's debt outstanding 13,364,876 16,773,698

(a) 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 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.

(b) In the third quarter of 2021, the Company redeemed certain asset-backed debt securities prior to their legal maturity, resulting in the recognition of $1.5 million in interest expense from the write-off of all remaining debt issuance costs related to the initial issuance of such bonds.

This expense was excluded from the table above.

(c) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

(a) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

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

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derivative settlements follows.

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Core loan spread 1.57 % 1.45 %

2 unchanged sentences

Loan spread 0.86 % 1.52 %

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

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

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

(c) 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 is summarized below.

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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 the three and nine months ended September 30, 2022 compared to the same periods in 2021 due to a significant increase in short-term interest rates during each of the first three quarters of 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.

Variable loan spread increased during the three months ended March 31, 2023 compared with the same period in 2022 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).

In an increasing interest rate environment, student loan spread on FFELP loans 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.

See Item 3, “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.

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A summary of fixed rate floor income and its contribution to core loan spread follows:

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Fixed rate floor income, gross $ 1,110 28,993

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(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.

The decrease in gross fixed rate floor income for the three and nine months ended September 30, 2022 compared to the same periods in 2021 was due to higher interest rates in 2022 as compared to 2021.

Subsequent to September 30, 2022 (on November 2, 2022), 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 by the Company during the three and nine months ended September 30, 2022, as compared to net derivative settlements paid during the same periods in 2021, was due to an increase in interest rates, partially offset by a decrease in the notional amount of derivatives outstanding.

See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on the Company’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.

Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate

As of September 30, 2022, the interest earned on a principal amount of $13.3 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $13.1 billion of AGM’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

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

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

See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2021 Annual Report for additional information.

On March 15, 2022, the President signed into law, as part of the Consolidated Appropriations Act, 2022, the Adjustable Interest Rate (LIBOR) Act (the "LIBOR Act"), which provides a framework for addressing the discontinuation of LIBOR under federal law.

The LIBOR Act provides a statutory mechanism to automatically replace LIBOR with a benchmark rate based on the Secured Overnight Financing Rate ("SOFR"), including any applicable tenor adjustment, for certain contracts that reference LIBOR and do not contain sufficient fallback provisions.

Parties remain free to agree on a different benchmark replacement rate, and the Company has worked and will continue to work with its asset-backed securitization investors to amend transaction documents to address the discontinuation of LIBOR.

On July 19, 2022, the Federal Reserve issued a notice of proposed rulemaking for proposed regulations to implement the LIBOR Act, as required by its terms.

The LIBOR Act also amends the Higher Education Act to substitute the current special allowance payment rate-setting mechanism for FFELP loans from the one-month LIBOR to the 30-day average SOFR in effect for each of the days in an applicable quarter, adjusted daily by adding a tenor spread adjustment.

Transition of the rate-setting mechanism for special allowance payments from LIBOR to SOFR is expected to occur prior to June 30, 2023.

The decrease in gross fixed rate floor income for the three months ended March 31, 2023 compared with the same period in 2022 was due to higher interest rates in 2023 compared with 2022.

The Company had a portfolio of derivative instruments in which the Company paid a fixed rate and received a floating rate to economically hedge loans earning fixed rate floor income.

The increase in net derivative settlements received by the Company during the three months ended March 31, 2023, compared with net derivative settlements paid during the same period in 2022, was due to an increase in interest rates, partially offset by a decrease in the notional amount of derivatives outstanding.

The Company's derivatives that hedge fixed rate floor income are cleared post-execution at a regulated clearinghouse.

Clearing is a process by which a third party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.

Through March 15, 2023, the Company had received cash or had a receivable from the clearinghouse related to variation margin equal to the fair value of the fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements.

To minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income.

As a result of the Company terminating these derivatives, there will be no derivative settlements on these derivatives in future periods.

Summary and Comparison of Operating Results

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Net interest income after provision for loan losses $ 13,663 73,459 See table below for additional analysis.

Other income (expense) 4,627 (7,275) 16,270 (4,514) 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 the three months ended September 30, 2022 and 2021 were $2.8 million and $0.5 million, respectively, and for the nine months ended September 30, 2022 and 2021 were $7.7 million and $1.7 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 $1.9 million and $1.7 million for the three months ended September 30, 2022 and 2021, respectively, and $6.1 million and $1.7 million for the nine months ended September 30, 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 losses of $0.3 million and $6.3 million for the three months ended September 30, 2022 and 2021, respectively, and income of $1.3 million and a loss of $5.0 million for the nine months ended September 30, 2022 and 2021, respectively, related to its investment in the joint venture.

Impairment expense and provision for beneficial interests, net — — — 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.

Other income, net 2,845 6,511 Represents primarily borrower late fees, income from providing administration activities for third parties, and income from AGM's investment in a joint venture.

Decrease in 2023 compared with 2022 was primarily due to the recognition of a $0.1 million loss in the first quarter of 2023 compared with $1.9 million of income for the same period in 2022 related to its investment in the joint venture.

Gain on sale of loans, net 11,812 2,989 The Company sold $261.9 million (par value) and $18.1 million (par value) of loans to unrelated third parties in 2023 and 2022, respectively, and recognized net gains from such sales.

Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.

The majority of derivative settlements received in 2023 was from the Company's derivatives used to hedge loans earning fixed rate floor income.

This entire derivative portfolio was terminated on March 15, 2023 to minimize the Company's exposure to market volatility.

As such, there will be no derivative settlements received on these derivatives in future periods.

1 unchanged sentence

The entire portfolio of floor income interest rate swaps was terminated on March 15, 2023 to minimize the Company's exposure to market volatility.

As such, the Company expects the derivative market value adjustments in future periods will be less substantial.

Total other income (expense) 583 152,425

Salaries and benefits 755 591

Other expenses 3,349 5,420 9,925 12,763 The primary component of other expenses is servicing fees paid to third parties.

The decrease in 2022 as compared to 2021 was due to a decrease in AGM's loan portfolio.

These decreases were partially offset by increased costs due to ending COVID-19 pandemic borrower relief policies which increased servicing activities in 2022 as compared to 2021.

Intersegment expenses 8,350 8,652 25,694 25,627 Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio.

Other expenses 5,016 3,033 Represents primarily servicing fees paid to third parties.

Also includes certain professional and legal fees.

Increase in 2023 compared with 2022 was due to incurring additional professional fees as the Company actively expands into new asset loan classes.

Intersegment expenses 8,696 8,831 Represents fees paid to LSS for the servicing of AGM’s loan portfolio.

These amounts exceed the actual cost of servicing the loans.

The increase in servicing fees for the nine months ended September 30, 2022 as compared to the same period in 2021 was due to ending COVID-19 pandemic borrower relief policies which increased servicing activities in 2022 as compared to 2021.

These increases were partially offset by the expected amortization of AGM's FFELP portfolio.

Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Total operating expenses 12,352 14,614 37,477 39,984 Total operating expenses were 32 basis points and 31 basis points of the average balance of loans for the three months ended September 30, 2022 and 2021, respectively, and 31 basis points and 28 basis points for the nine months ended September 30, 2022 and 2021, respectively.

The increase in operating expenses as a percent of the average balance of loans in 2022 as compared to 2021 was due to ending COVID-19 pandemic borrower relief policies which increased servicing activities in 2022 as compared to 2021.

Income before income taxes 111,872 60,085 424,647 280,613

Income tax expense (26,849) (14,421) (101,915) (67,347) Represents income tax expense at an effective tax rate of 24%.

Net income $ 85,023 45,664 322,732 213,266

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 14,467 12,455 Total operating expenses were 41 basis points and 29 basis points of the average balance of loans for the three months ended March 31, 2023 and 2022, respectively.

The increase in operating expenses as a percent of the average balance of loans in 2023 compared with 2022 was due to an increase in certain professional costs as discussed above.

(Loss) income before income taxes (221) 213,429

Income tax benefit (expense) 53 (51,223) Represents income tax expense at an effective tax rate of 24%.

Net (loss) income $ (168) 162,206

Additional information:

Net income $ 85,023 45,664 322,732 213,266 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.

Net (loss) income $ (168) 162,206 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional details about non-GAAP net income, excluding derivative market value adjustments.

Derivative market value adjustments, net 37,411 (145,734)

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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."

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Variable interest income, gross $ 196,910 126,270 459,575 379,705 Increase in 2022 compared to 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 (32,612) (40,340) (104,335) (121,662) Decrease in 2022 compared to 2021 was due to a decrease in the average consolidation loan balance.

Variable interest income, gross $ 246,594 115,753 Increase in 2023 compared with 2022 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 (28,399) (36,771) Decrease in 2023 compared with 2022 was due to a decrease in the average consolidation loan balance.

Discount accretion, net of

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Interest on bonds and notes

payable (118,135) (48,549) (231,960) (123,861) Increase in 2022 compared to 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) (1,085) (700) 242 (939) Derivative settlements include the net settlements (paid) received related to the Company’s 1:3 basis swaps.

Variable loan interest margin, net of settlements on derivatives (a) 45,815 37,911 127,191 135,019

Fixed rate floor income, gross 7,585 35,850 54,870 108,029 Decrease in 2022 compared to 2021 was due to higher interest rates in 2022 as compared to 2021.

Subsequent to September 30, 2022 (on November 2, 2022), 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 fixed rate floor income the Company is currently receiving.

payable (182,063) (45,209) Increase in 2023 compared with 2022 was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.

Derivative settlements, net (a) 859 396 Derivative settlements include the net settlements received related to the Company’s 1:3 basis swaps.

Variable loan interest margin, net of settlements on derivatives 38,598 35,628

Fixed rate floor income, gross 1,110 28,993 Decrease in 2023 compared with 2022 was due to higher interest rates.

Derivative settlements, net (a) 22,478 (3,205) 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, as compared to 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.

The increase in net derivative settlements received by the Company during 2023, compared with net derivative settlements paid during 2022, was due to an increase in interest rates, partially offset by a decrease in the notional amount of derivatives outstanding.

The entire portfolio of floor income interest rate swaps was terminated on March 15, 2023 to minimize the Company's exposure to market volatility.

As such, there will be no derivative settlements received on these derivatives in future periods.

Fixed rate floor income, net of settlements on derivatives 23,588 25,788

Core loan interest income (a) 62,186 61,416

Investment interest 10,312 8,771 28,147 20,301 Increase in 2022 compared to 2021 was due to an increase in the Company's loan beneficial interest investments throughout 2021.

Intercompany interest (1,874) (113) (3,760) (421)

(Provision) negative provision for loan losses - federally insured loans (888) (4,452) (505) 3,428 The Company has recognized provision for loan losses during the three and nine months ended September 30, 2022 due to management's estimate of declining economic conditions, as well as establishing an initial allowance for loans acquired and originated during the period.

See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations" and note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Investment interest 13,807 9,164 Increase in 2023 compared with 2022 was due to an increase of interest earned on restricted cash due to higher rates.

Intercompany interest (7,135) (794) Increase in 2023 compared with 2022 was due to an increase in the balance of borrowings and higher rates.

(Provision) negative provision for loan losses - federally insured loans (2,411) 2,748 The Company has recognized provision for loan losses during the three months ended March 31, 2023 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, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

(Provision) negative provision for loan losses - private education loans (240) 400

(Provision) negative provision for loan losses - consumer and other loans (7,173) (2,696) (14,702) 7,016

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 63,979 71,270 201,113 259,505 Decrease for the three and nine months ended September 30, 2022 as compared to the same periods in 2021 was due to (i) a decrease in the average balance of loans;

(Provision) for loan losses - consumer and other loans (29,207) (2,284)

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 37,000 70,650 Decrease in 2023 compared with 2022 was due to (i) a decrease in the average balance of loans;

and (ii) an increase in provision for loan losses.

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

(ii) an increase in interest income as a result of an increase in the Company's loan beneficial interest investments;

and (iii) for the year to date comparison, the reversal of a historical accrued interest liability on certain bonds in the first quarter of 2021.

and (ii) an increase in investment interest income.

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

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

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

See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2023 and 2022 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

Subsequent Event

Subsequent to the end of the first quarter, in April 2023, the Company redeemed $188.6 million of FFELP loan asset-backed securities (bonds and notes payable) prior to their legal maturity.

The remaining unamortized debt discount associated with these bonds at the time of redemption was written-off, resulting in a $25.9 million non-cash expense recognized in April 2023.

NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of September 30, 2022, Nelnet Bank had a $429.5 million loan portfolio, consisting of $356.6 million of private education loans and $72.9 million of FFELP loans.

For a summary of the allowance as a percentage of the ending balance of each of Nelnet Bank's loan portfolios as of September 30, 2022 and December 31, 2021, the activity in Nelnet Bank's allowance for loan losses for the three and nine months ended September 30, 2022 and 2021, and a summary of Nelnet Bank's loan status, delinquency amounts, and other key credit quality indicators as of September 30, 2022, December 31, 2021, and September 30, 2021, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of March 31, 2023, Nelnet Bank had a $439.0 million loan portfolio, consisting of $355.7 million of private education loans, $63.4 million of FFELP loans, and $19.9 million of consumer and other loans.

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 March 31, 2023 and December 31, 2022;

and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

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

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Beginning balance $ 419,795 257,901

Federally insured student loan acquisitions — — — 99,973

Private education loan acquisitions 6,856 — 6,856 —

Private education loan originations 14,311 13,006 219,857 99,161

Loan originations:

Private education loans 14,226 130,342

Consumer and other loans 19,632 —

Total loan originations 33,858 130,342

Repayments (14,529) (18,394)

Sales to AGM segment — (387) (4,127) (2,489)

Sales to AGM (117) (1,592)

Ending balance $ 439,007 368,257

As of September 30, 2022, Nelnet Bank had $751.4 million of deposits, of which $170.5 million were deposits from Nelnet, Inc.

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

As of March 31, 2023, Nelnet Bank had $869.8 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, Short Term Federal Investment Trust (STFIT), and commercial and institutional CDs.

Union Bank, a related party, is the program manager for the Educational 529 College Savings plans and trustee for the STFIT.

Nelnet Bank’s deposits include $194.0 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.

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Balance Rate Balance Rate Balance Rate Balance Rate

Three months ended March 31, (a)

Balance Rate Balance Rate

Average assets

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Private education loans 355,698 3.61 228,934 2.91

Consumer and other loans 7,308 12.30 — —

Cash and investments 540,513 5.95 265,101 1.66

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Total liabilities and equity $ 977,497 $ 594,576

(a) Calculated using average daily balances.

Summary and Comparison of Operating Results

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

2023 2022 Additional information

Total interest income $ 7,551 2,061 15,792 5,479 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 as compared to 2021.

Total interest income $ 12,259 3,030 Represents interest earned on loans, cash, and investments.

Increase in 2023 compared with 2022 was due to an increase of these balances and interest rates.

Interest expense 7,214 856 Represents interest expense on deposits.

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

Increase in 2023 compared with 2022 was due to an increase of deposits and interest rates.

Net interest income 5,045 2,174

Provision (negative provision) for loan losses 450 (113) 1,462 378 Represents the current period provision expense to reflect the current lifetime expected credit losses related to Nelnet Bank's loan portfolio.

Increase was due to an increase in loans originated in 2022 as compared to 2021 as well as management's estimate of declining economic conditions.

Provision for loan losses 2,417 429 Increase in provision for loan losses was due to the mix of loans, including the mix of loans originated in 2023 compared with 2022, and management's estimate of declining economic conditions.

For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Net interest income after provision for loan losses 2,628 1,745

Other income 566 450 2,224 475 Represents primarily income and gains from investments.

Other income 210 1,500 Represents primarily income and net gains from investments.

Salaries and benefits 2,064 1,554 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.

Increase in 2023 compared with 2022 was due to the overall growth of Nelnet Bank activities.

Depreciation 5 3

Other expenses 1,427 445 3,009 1,227 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.

Intersegment expenses 69 32 171 72 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 $1.6 million and $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $4.4 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Other expenses 782 682

Intersegment expenses 80 45 Represents primarily servicing costs paid to LSS.

Certain shared service and support costs incurred by the Company to support Nelnet Bank are not and will not be reflected as part of Nelnet Bank 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 $1.7 million and $1.3 million for the three months ended March 31, 2023 and 2022, respectively.

Total operating expenses 2,931 2,284

(Loss) income before income taxes (93) 961

Income tax benefit (expense) 35 (223) Represents income tax benefit (expense) at an effective tax rate of 37.4% and 23.2% for the three months ended March 31, 2023 and 2022, respectively.

Net (loss) income $ (58) 738

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)

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

Three months ended March 31, 2023

Interest income $ — 2 — 41 — 141 670 20,237 108 21,199

Interest expense — — — (273) — — — (11,977) (68) (12,318)

Net interest income — 2 — (232) — 141 670 8,260 40 8,881

Solar construction revenue — — — 8,651 — — — — — 8,651

Other, net 626 1,612 (1,948) 44 (17,864) 800 67 (3,941) 2,870 (17,734)

Cost to provide solar construction services — — — (8,299) — — — — — (8,299)

Salaries and benefits (23,384) (56) (1,007) (1,196) (30) (81) (177) — (1,488) (27,419)

Depreciation and amortization (8,830) — — (617) — (6) — — (78) (9,531)

Other expenses (10,566) (81) (821) (948) 12 (16) (165) (2,218) 1,192 (13,611)

Intersegment expenses, net 29,165 (3) 15 (513) — (95) (10) (97) (675) 27,787

Income (loss) before income taxes (12,989) 1,474 (3,761) (3,110) (17,882) 743 385 2,004 1,861 (31,275)

Income tax (expense) benefit (246) (200) (574) 151 Represents income tax (expense) benefit at an effective tax rate of 23.3% and 24.0% for the three months ended September 30, 2022 and 2021, respectively, and 23.1% and 22.0% for the nine months ended September 30, 2022 and 2021, respectively.

Income tax (expense) benefit 3,117 (319) 206 610 4,292 (180) (92) (481) (372) 6,781

Net (income) loss attributable to noncontrolling interests — (146) 2,903 569 — 6 — — — 3,332

Net income (loss) $ (9,872) 1,009 (652) (1,931) (13,590) 569 293 1,523 1,489 (21,162)

Three months ended March 31, 2022

Interest income $ — — — — — 289 — 3,603 100 3,992

Interest expense — — — — — — — (1,745) (281) (2,026)

Net interest income — — — — — 289 — 1,858 (181) 1,966

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

Other, net 689 1,281 (869) — (11,014) 4,472 4,902 (864) 2,528 1,125

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

Salaries and benefits (21,868) (55) (258) — (84) (110) (239) — (1,398) (24,012)

Depreciation and amortization (9,615) — — — — — — — (69) (9,684)

Other expenses (12,261) (100) (102) — (24) (2) (23) (449) (843) (13,804)

Intersegment expenses, net 25,755 (3) (3) — — (95) — (56) (202) 25,396

Income (loss) before income taxes (17,300) 1,123 (1,232) — (11,122) 4,554 4,640 489 (165) (19,013)

Income tax (expense) benefit 4,152 (243) (153) — 2,669 (1,092) (1,114) (117) 2,496 6,598

Net (income) loss attributable to noncontrolling interests — (112) 1,869 — — (6) — — 10 1,761

Net income (loss) $ (13,148) 768 484 — (8,453) 3,456 3,526 372 2,341 (10,654)

(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.

During the three months ended March 31, 2023 and 2022, WRCM earned $1.6 million and $1.3 million in management fees, respectively.

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 March 31, 2023, the Company has invested a total of $294.4 million (which includes $115.9 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.

During the three months ended March 31, 2023 and 2022, Nelnet Renewable Energy recognized losses of $1.9 million and $1.0 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 $2.7 million and $1.8 million for the three months ended March 31, 2023 and 2022, 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 $0.3 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively, 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”).

(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 three months ended March 31, 2023 and 2022, the Company recognized losses of $20.2 million and $13.1 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.

As of March 31, 2023, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $145.9 million and $2.2 million, respectively.

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

During the three months ended March 31, 2023 and 2022, the Company recognized income on its ALLO preferred membership interests of $2.2 million and $2.1 million, respectively.

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

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

During the three months ended March 31, 2023 and 2022, the Company recognized $0.8 million and $4.4 million, respectively, in net income and gains from its real estate investments, which is included in “other, net” in the table above.

(f) Represents the operating results of the Company’s venture capital investments and the administrative costs to manage this portfolio.

During the three months ended March 31, 2022, the Company recognized $4.9 million in net income and gains on venture capital investments, which is included in “other, net” in the table above.

(g) Represents 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 the three months ended March 31, 2023 and 2022, the Company recognized losses of $4.1 million and $0.8 million, respectively, on its marketable equity and investment debt securities, which are included in “other, net” in the table above.

During the three months ended March 31, 2023, the Company recognized $1.8 million 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.

Fees owed on collateral deposits with its derivative third-party clearinghouse were insignificant for the three months ended March 31, 2022.

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.

Sources of Liquidity

As of September 30, 2022, the Company's sources of liquidity included:

As of March 31, 2023, the Company's sources of liquidity included:

Cash and cash equivalents $ 187,574

5 unchanged sentences

AFS debt securities serving as collateral on repurchase agreements - at fair value (3) (294,590)

Net AFS debt securities (investments) - at fair value 250,468

AFS restricted debt securities - at fair value (15,910)

Unencumbered AFS debt securities (investments) - at fair value 82,884

Unencumbered private, consumer, and other loans (Non-Nelnet Bank) - at par 285,401

1 unchanged sentence

Repurchased Nelnet issued asset-backed debt securities serving as collateral on repurchase agreements - at par (197,500)

Unencumbered repurchased Nelnet issued asset-backed debt securities - at par 200,326

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

Sources of liquidity as of September 30, 2022

Sources of liquidity as of March 31, 2023

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

7 unchanged sentences

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

As of September 30, 2022, 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.

As of March 31, 2023, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

The line of credit

agreement contains certain financial covenants, including limitations on recourse indebtedness to adjusted EBITDA (over the last four rolling quarters).

Of the $495.0 million availability, approximately $260 million was available for purposes other than reducing existing recourse debt due to the limitations on recourse indebtedness to adjusted EBITDA financial covenant.

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);

3 unchanged sentences

The Company has historically generated positive cash flow from operations.

During the nine months ended September 30, 2022 and 2021, the Company generated $656.9 million and $336.5 million, respectively, in cash from operating activities.

See the caption "Reclassification of Prior Period Cash Flows Presentation" in note 1 of the notes to the consolidated financial statements under Part I, Item 1 of this report for additional information.

The increase in 2022 as compared to 2021 was due to:

• An increase in net income;

• An increase in proceeds from the Company's clearinghouse for margin payments on derivatives for the nine months ended September 30, 2022 compared to the same period in 2021;

• Proceeds from termination of derivative instruments for the nine months ended September 30, 2022 compared to no proceeds from terminations in the same period in 2021;

• Net proceeds from the sale of equity securities for the nine months ended September 30, 2022 compared to net purchases in the same period in 2021;

• Adjustments to net income for the impact of provision for loan losses, gain on sale of loans, gain/loss on investments, and the non-cash change in deferred income taxes;

• The impact of changes to accounts receivable and accrued interest receivable and payable during the nine months ended September 30, 2022 as compared to the same period in 2021.

During the three months ended March 31, 2023 and 2022, the Company generated $122.8 million and $275.3 million, respectively, in cash from operating activities.

The decrease in 2023 compared with 2022 was due to:

• A decrease in net income;

• Payments to the Company's clearinghouse for margin payments on derivatives for the three months ended March 31, 2023 compared with proceeds received in 2022;

• Adjustments to net income for the impact of the non-cash change in deferred income taxes.

These factors were partially offset by:

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

• The impact of changes to other assets and other liabilities during the nine months ended September 30, 2022 as compared to the same period in 2021.

• Proceeds from termination of derivative instruments in 2023;

• Adjustments to net income for derivative market value adjustments, the impact of provision for loan losses, and loss on investments;

• The impact of changes to accounts receivable during the three months ended March 31, 2023 compared with the same period in 2022.

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 nine months ended September 30, 2022 was $1.7 billion and $2.5 billion, respectively.

Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2021 was $543.4 million and $587.1 million, respectively.

Cash provided by investing activities and used in financing activities for the three months ended March 31, 2023 was $723.9 million and $1,306.3 million, respectively.

Cash provided by investing activities and used in financing activities for the three months ended March 31, 2022 was $603.1 million and $895.1 million, respectively.

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

1 unchanged sentence

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

As of September 30, 2022

As of March 31, 2023

Carrying amount

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Bonds and notes issued in asset-backed securitizations $ 11,774,925 8/26/30 - 9/25/69

FFELP and private education loan warehouse facilities 335,697 10/31/23 / 11/22/23

FFELP, private education, and consumer loan warehouse facilities 1,049,679 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 September 30, 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 currently expects future undiscounted cash flows from its portfolio to be approximately $1.66 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of September 30, 2022.

As of September 30, 2022, AGM had $14.1 billion of loans included in asset-backed securitizations, which represented

95.3 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, unencumbered private education and consumer loans funded with operating cash, loans acquired subsequent to September 30, 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).

As of March 31, 2023, 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 $1.43 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 March 31, 2023.

As of March 31, 2023, AGM had $12.1 billion of loans included in asset-backed securitizations, which represented 89.5% 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 March 31, 2023, 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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(dollars in millions)

The forecasted future undiscounted cash flows of approximately $1.66 billion include approximately $1.01 billion (as of September 30, 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 $0.65 billion, or approximately $0.49 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 September 30, 2022 balance of consolidated shareholders' equity.

The forecasted future undiscounted cash flows of approximately $1.43 billion include approximately $0.89 billion (as of March 31, 2023) 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 $0.54 billion, or approximately $0.41 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 March 31, 2023 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 of 4 percent for consolidation loans and 5 percent for all other loan types.

These prepayment rates are generally consistent with those utilized in the Company’s most recent asset-backed securitization transactions.

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 currently believes these announced changes 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 Part II, Item 1A, "Risk Factors" in this report for additional information related to these announcements and other risks associated with loan prepayments.

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

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 significantly increase prepayments.

See Part I, Item 1A, "Risk Factors - Loan Portfolio - Prepayments risk" in the Company's 2022 Annual Report for additional information related to 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.

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Forecasted cash flow using increased prepayment rate

2x $0.12 billion $1.54 billion

4x $0.31 billion $1.35 billion

10x $0.56 billion $1.10 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 $1.01 billion (as of September 30, 2022);

2x $0.11 billion

$1.32 billion

4x $0.25 billion

$1.18 billion

10x $0.48 billion

$0.95 billion

however, the Company would not receive the $0.54 billion ($0.41 billion after tax) of estimated future earnings from the portfolio.

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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 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 3, "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 "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2021 Annual Report for additional information.

See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2022 Annual Report.

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 September 30, 2022, the Company's warehouse facility had a maximum financing amount available of $300.0 million, of which $249.5 million was outstanding and $50.5 million was available for additional funding.

On November 1, 2022, the Company amended its FFELP warehouse facility and inc reased the maximum financing amount available to $1.2 billion and extended the liquidity provisions and final maturity to May 22, 2023 and May 22, 2024, respectively.

The increased capacity was used to fund a FFELP loan portfolio of approximately $670 million that was acquired by the Company on November 1, 2022.

In the event the liquidity provisions are not extended on the FFELP warehouse facility, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor.

The loans would then be funded at this new advance rate until the final maturity date of the facility.

The Company has a private education loan warehouse facility that, as of September 30, 2022, had an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through October 31, 2022, and a final maturity date of October 31, 2023.

As of September 30, 2022, $86.2 million was outstanding under this warehouse facility, $88.8 million was available for future funding, and $9.8 million was advanced as equity support.

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 March 31, 2023, had an aggregate maximum financing amount available of $1.25 billion, of which $919.3 million was outstanding and $330.7 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).

In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor.

The loans would then be funded at this new advance rate until the final maturity date of the facility (May 22, 2024).

As of March 31, 2023, the Company had $62.8 million advanced as equity support on this facility.

On April 3, 2023, the Company obtained an additional FFELP warehouse facility that has an aggregate maximum financing amount available of $250.0 million.

This warehouse facility's liquidity provisions expire on April 2, 2024 and has a final maturity date of April 2, 2025.

As of March 31, 2023, the Company's private education warehouse facility had an outstanding balance of $47.9 million, liquidity provisions through June 30, 2023, a final maturity of December 31, 2023, and $19.4 million was advanced as equity support.

No additional amounts can be borrowed under this facility.

The Company also has a consumer loan warehouse facility that, as of March 31, 2023, 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 March 31, 2023, $82.4 million was outstanding under this facility, $167.6 million was available for future funding, and the Company had $35.2 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.

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

using proceeds from the sale of certain 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;

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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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.

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.

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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 notes receivable" and as of September 30, 2022, the fair value of these bonds was $315.9 million.

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 March 31, 2023, the fair value of these bonds was $294.6 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 its investment securities (bonds) to a third party.

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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 September 30, 2022, $507.0 million was outstanding on the Company's repurchase agreements, of which $304.1 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement and

$202.9 million was borrowed to fund repurchased FFELP loan asset-backed securities.

The repurchase agreements have various maturity dates (as of September 30, 2022) between October 7, 2022 and 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.

As of March 31, 2023, $433.0 million was outstanding on the Company's repurchase agreements, of which $274.0 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement and $159.0 million was borrowed to fund repurchased FFELP loan asset-backed securities.

The repurchase agreements have various maturity dates (as of March 31, 2023) from April 6, 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 March 31, 2023, the maturities on these agreements were extended, and as of May 8, 2023, the maturity dates vary from May 26, 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.

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The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans.

As of September 30, 2022, $859.3 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of March 31, 2023, $684.4 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

The agreement automatically renews annually and is terminable by either party upon five business days' notice.

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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 nine months ended September 30, 2022.

There were no asset-backed securitization transactions completed during the three months ended March 31, 2023.

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.

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The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio.

Nelnet Bank has opted into the CBLR framework for the quarter ended September 30, 2022 with a leverage ratio of 14.7%.

Nelnet Bank has opted into the CBLR framework for the quarter ended March 31, 2023 with a leverage ratio of 12.6%.

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.

made additional capital contributions to Nelnet Bank in each the second and third quarters of 2022 of $15.0 million.

Nelnet Bank has a portfolio of asset-backed securities investments that were accounted for and classified as available-for-sale.

Accordingly, these securities were carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of equity.

To reduce Nelnet Bank's market exposure related to decreases in fair value on these investments, on March 31, 2023, securities at Nelnet Bank with a fair value of $149.2 million were transferred from available for sale to held to

The securities were reclassified at fair value at the time of the transfer, and such transfer represented a non-cash transaction.

Accumulated other comprehensive income as of March 31, 2023 includes pre-tax unrealized losses of $3.7 million related to the transfer.

These unrealized losses will be amortized, consistent with the amortization of any discounts on such securities, over the remaining lives of the respective securities as an adjustment of yield.

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 March 31, 2023, the Company has invested a total of $294.4 million (which includes $115.9 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.

As of March 31, 2023, the Company is committed to fund an additional $220.3 million on tax equity investments, of which $141.4 million is expected to be provided by syndication partners.

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.

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 September 30, 2022, 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.

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 percent to 10.00 percent.

As of March 31, 2023, 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, the 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%.

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

As of March 31, 2023 the estimated fair value of the contingent payment is $7.6 million.

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 $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 $8.4 million of additional equity to ALLO in the first quarter of 2023.

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 currently believes it may make additional capital contributions to ALLO during the fourth quarter of 2022 and during 2023 and 2024.

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 September 30, 2022, 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.

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.

The variation margin, if significant, could negatively impact the Company's liquidity and capital resources.

In addition, clearing rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks.

See note 4 of the notes to consolidated financial statements included in this report for additional information on the Company's derivative portfolio.

All over-the-counter derivative contracts executed by the Company are cleared post-execution at a regulated clearinghouse.

Through March 15, 2023, the

Company had received cash or had a receivable from the clearinghouse related to variation margin equal to the fair value as of March 15, 2023 of the derivatives used to hedge loans earning fixed rate floor income of $183.2 million, which included $19.1 million related to current period settlements.

To minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives).

Based on the remaining derivative portfolio outstanding as of March 31, 2023, 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.

Other Debt Facilities

As discussed above, the Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026.

As of September 30, 2022, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

As of March 31, 2023, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

The line of credit agreement contains certain financial covenants, including limitations on recourse indebtedness to adjusted EBITDA (over the last four rolling quarters).

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.

As of September 30, 2022, $399.7 million (par value) of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of March 31, 2023, $311.8 million (par value) of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

This participation agreement has been accounted for by the Company as a secured borrowing.

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Stock Repurchases

In 2019, the Board of Directors authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ended May 7, 2022.

On May 9, 2022, the Board of Directors

authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 8, 2025.

The five million shares authorized under the new program include the remaining unpurchased shares from the prior program, which the new program replaced.

As of September 30, 2022, 4,517,936 shares remained authorized for repurchase under the Company's stock repurchase program.

The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 8, 2025.

No shares were repurchased under this program during the first quarter of 2023.

As of March 31, 2023, 4,467,021 shares remained authorized for repurchase under the Company's stock repurchase program.

Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity.

Shares repurchased by the Company during the three months ended March 31, 2022, June 30, 2022, and September 30, 2022 are shown below.

For additional information on stock repurchases during the third quarter of 2022, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price

(in thousands) Average price of shares repurchased (per share)

Quarter ended March 31, 2022 380,053 $ 32,899 86.56

Quarter ended June 30, 2022 558,257 46,032 82.46

Quarter ended September 30, 2022 169,860 14,293 84.14

Total 1,108,170 $ 93,224 84.12

On September 15, 2022, the Company paid a third quarter 2022 cash dividend on the Company's Class A and Class B common stock of $0.24 per share.

In addition, the Company's Board of Directors has declared a fourth quarter 2022 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.26 per share.

The fourth quarter cash dividend will be paid on December 15, 2022 to shareholders of record at the close of business on December 1, 2022.

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

During the first quarter of 2023, the Company repurchased 36,513 shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares.

These repurchased shares are excluded from the Company's repurchase program.

See "Stock Repurchases" under Part II, Item 2 of this report.

On March 15, 2023, the Company paid a first quarter 2023 cash dividend on the Company's Class A and Class B common stock of $0.26 per share.

In addition, the Company's Board of Directors has declared a second quarter 2023 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.26 per share.

The second quarter cash dividend will be paid on June 15, 2023 to shareholders of record at the close of business on June 1, 2023.

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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Management has identified the allowance for loan losses as a critical accounting policy and estimate, as discussed further under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Allowance for Loan Losses” in the Company’s 2022 Annual Report.

For additional information regarding changes in the Company’s allowance for loan losses for the three and nine months ended September 30, 2022 and 2021, see the caption “Activity in the Allowance for Loan Losses” in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

For additional information regarding changes in the Company’s allowance for loan losses for the three months ended March 31, 2023 and 2022, see the caption “Activity in the Allowance for Loan Losses” in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

There have been no material changes to the Company’s critical accounting policy and estimate since December 31, 2022.

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.

This guidance will be effective for the Company beginning January 1, 2023 with early adoption permitted.

The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting.

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-Q

Item 2. Management’s Discussion and Analysis