NELNET INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NELNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (unaudited) As of As of March 31, 2023 December 31, 2022 Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 134,704 and $ 131,827 , respectively) $ 14,561,108 15,243,889 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 26,539 24,584 Cash and cash equivalents - held at a related party 161,035 93,562 Total cash and cash equivalents 187,574 118,146 Investments and notes receivable 1,987,570 2,111,917 Restricted cash 576,267 945,159 Restricted cash - due to customers 134,202 294,311 Accounts receivable (net of allowance for doubtful accounts of $ 3,841 and $ 3,079 , respectively) 151,172 194,851 Goodwill 176,902 176,902 Intangible assets, net 60,788 63,501 Property and equipment, net 132,628 122,526 Other assets 114,398 102,842 Total assets $ 18,082,609 19,374,044 Liabilities: Bonds and notes payable $ 13,438,416 14,637,195 Accrued interest payable 34,374 36,049 Bank deposits 675,767 691,322 Other liabilities 430,099 461,259 Due to customers 280,624 348,317 Total liabilities 14,859,280 16,174,142 Commitments and contingencies Equity: Nelnet, Inc. shareholders' equity: Preferred stock, $ 0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — — Common stock: Class A, $ 0.01 par value. Authorized 600,000,000 shares; issued and outstanding 26,623,662 shares and 26,461,651 shares, respectively 266 265 Class B, convertible, $ 0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,668,460 shares 107 107 Additional paid-in capital 4,639 1,109 Retained earnings 3,251,677 3,234,844 Accumulated other comprehensive loss, net ( 27,006 ) ( 37,366 ) Total Nelnet, Inc. shareholders' equity 3,229,683 3,198,959 Noncontrolling interests ( 6,354 ) 943 Total equity 3,223,329 3,199,902 Total liabilities and equity $ 18,082,609 19,374,044 Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities: Loans and accrued interest receivable $ 13,911,681 14,585,491 Restricted cash 540,675 867,961 Bonds and notes payable ( 13,222,429 ) ( 14,233,586 ) Accrued interest payable and other liabilities ( 140,221 ) ( 145,309 ) Net assets of consolidated education and other lending variable interest entities $ 1,089,706 1,074,557 See accompanying notes to consolidated financial statements. 2 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (unaudited) Three months ended March 31, 2023 2022 Interest income: Loan interest $ 225,243 111,377 Investment interest 40,725 13,819 Total interest income 265,968 125,196 Interest expense on bonds and notes payable and bank deposits 199,449 48,079 Net interest income 66,519 77,117 Less provision (negative provision) for loan losses 34,275 ( 435 ) Net interest income after provision for loan losses 32,244 77,552 Other income (expense): Loan servicing and systems revenue 139,227 136,368 Education technology, services, and payment processing revenue 133,603 112,286 Solar construction revenue 8,651 — Other, net ( 14,071 ) 9,877 Gain on sale of loans, net 11,812 2,989 Derivative market value adjustments and derivative settlements, net ( 14,074 ) 142,925 Total other income (expense) 265,148 404,445 Cost of services: Cost to provide education technology, services, and payment processing services 47,704 35,545 Cost to provide solar construction services 8,299 — Total cost of services 56,003 35,545 Operating expenses: Salaries and benefits 152,710 149,414 Depreciation and amortization 16,627 16,956 Other expenses 40,785 39,499 Total operating expenses 210,122 205,869 Income before income taxes 31,267 240,583 Income tax expense 8,250 55,697 Net income 23,017 184,886 Net loss attributable to noncontrolling interests 3,470 1,761 Net income attributable to Nelnet, Inc. $ 26,487 186,647 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 0.71 4.91 Weighted average common shares outstanding - basic and diluted 37,344,604 38,041,834 See accompanying notes to consolidated financial statements. 3 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (unaudited) Three months ended March 31, 2023 2022 Net income $ 23,017 184,886 Other comprehensive income (loss): Net changes related to foreign currency translation adjustments $ ( 3 ) 9 Net changes related to available-for-sale debt securities: Unrealized holding gains (losses) arising during period, net 8,651 ( 16,698 ) Reclassification of losses (gains) recognized in net income, net 4,982 ( 2,793 ) Income tax effect ( 3,272 ) 10,361 4,678 ( 14,813 ) Net changes related to equity method investee's other comprehensive income: Gain on cash flow hedges 2 — Income tax effect — 2 — — Other comprehensive income (loss) 10,360 ( 14,804 ) Comprehensive income 33,377 170,082 Comprehensive loss attributable to noncontrolling interests 3,470 1,761 Comprehensive income attributable to Nelnet, Inc. $ 36,847 171,843 See accompanying notes to consolidated financial statements. 4 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Noncontrolling interests Total equity Class A Class B Balance as of December 31, 2021 — 27,239,654 10,676,642 $ — 272 107 1,000 2,940,523 9,304 1,632 2,952,838 Issuance of noncontrolling interests — — — — — — — — — 2,004 2,004 Net income (loss) — — — — — — — 186,647 — ( 1,761 ) 184,886 Other comprehensive loss — — — — — — — — ( 14,804 ) — ( 14,804 ) Distribution to noncontrolling interests — — — — — — — — — ( 5,125 ) ( 5,125 ) Cash dividends on Class A and Class B common stock - $ 0.24 per share — — — — — — — ( 9,063 ) — — ( 9,063 ) Issuance of common stock, net of forfeitures — 289,919 — — 3 — 4,382 — — — 4,385 Compensation expense for stock based awards — — — — — — 2,841 — — — 2,841 Repurchase of common stock — ( 380,053 ) — — ( 3 ) — ( 7,015 ) ( 25,881 ) — — ( 32,899 ) Conversion of common stock — 1,750 ( 1,750 ) — — — — — — — — Balance as of March 31, 2022 — 27,151,270 10,674,892 $ — 272 107 1,208 3,092,226 ( 5,500 ) ( 3,250 ) 3,085,063 Balance as of December 31, 2022 — 26,461,651 10,668,460 $ — 265 107 1,109 3,234,844 ( 37,366 ) 943 3,199,902 Issuance of noncontrolling interests — — — — — — — — — 1,201 1,201 Net income (loss) — — — — — — — 26,487 — ( 3,470 ) 23,017 Other comprehensive income — — — — — — — — 10,360 — 10,360 Distribution to noncontrolling interests — — — — — — — — — ( 5,028 ) ( 5,028 ) Cash dividends on Class A and Class B common stock - $ 0.26 per share — — — — — — — ( 9,654 ) — — ( 9,654 ) Issuance of common stock, net of forfeitures — 198,524 — — 1 — 3,063 — — — 3,064 Compensation expense for stock based awards — — — — — — 3,769 — — — 3,769 Repurchase of common stock — ( 36,513 ) — — — — ( 3,302 ) — — — ( 3,302 ) Balance as of March 31, 2023 — 26,623,662 10,668,460 $ — 266 107 4,639 3,251,677 ( 27,006 ) ( 6,354 ) 3,223,329 See accompanying notes to consolidated financial statements. 5 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Three months ended March 31, 2023 2022 Net income attributable to Nelnet, Inc. $ 26,487 186,647 Net loss attributable to noncontrolling interests ( 3,470 ) ( 1,761 ) Net income 23,017 184,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 34,211 36,335 Loan discount accretion ( 7,676 ) ( 9,927 ) Provision (negative provision) for loan losses 34,275 ( 435 ) Derivative market value adjustments 37,411 ( 145,734 ) Proceeds from termination of derivative instruments 164,079 — (Payments to) proceeds from clearinghouse - initial and variation margin, net ( 210,284 ) 149,649 Gain on sale of loans, net ( 11,812 ) ( 2,989 ) Loss on investments, net 24,344 2,801 Proceeds from sale of equity securities, net 75 572 Deferred income tax (benefit) expense ( 13,750 ) 39,443 Non-cash compensation expense 3,838 2,920 Decrease in loan and investment accrued interest receivable 16,630 10,694 Decrease in accounts receivable 43,675 18,442 Increase in other assets, net ( 9,760 ) ( 2,073 ) Decrease in the carrying amount of ROU asset, net 1,251 1,439 (Decrease) increase in accrued interest payable ( 1,675 ) 2,650 Decrease in other liabilities ( 3,729 ) ( 11,824 ) Decrease in the carrying amount of lease liability ( 1,275 ) ( 1,500 ) Net cash provided by operating activities 122,845 275,349 Cash flows from investing activities: Purchases and originations of loans ( 289,177 ) ( 161,334 ) Purchases of loans from a related party — ( 1,049 ) Net proceeds from loan repayments, claims, and capitalized interest 684,962 848,188 Proceeds from sale of loans 157,444 15,170 Purchases of available-for-sale securities ( 242,370 ) ( 139,195 ) Proceeds from sales of available-for-sale securities 492,173 113,980 Proceeds from beneficial interest in loan securitizations 4,725 7,271 Purchases of other investments and issuance of notes receivable ( 70,509 ) ( 73,944 ) Proceeds from other investments 11,114 9,776 Purchases of property and equipment ( 24,430 ) ( 15,794 ) Net cash provided by investing activities 723,932 603,069 6 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Three months ended March 31, 2023 2022 Cash flows from financing activities: Payments on bonds and notes payable $ ( 1,415,424 ) ( 918,270 ) Proceeds from issuance of bonds and notes payable 204,884 13,512 Payments of debt issuance costs ( 169 ) ( 312 ) (Decrease) increase in bank deposits, net ( 15,555 ) 139,732 Decrease in due to customers ( 67,642 ) ( 89,884 ) Dividends paid ( 9,654 ) ( 9,063 ) Repurchases of common stock ( 3,302 ) ( 32,899 ) Proceeds from issuance of common stock 395 435 Issuance of noncontrolling interests 1,201 2,004 Distribution to noncontrolling interests ( 993 ) ( 365 ) Net cash used in financing activities ( 1,306,259 ) ( 895,110 ) Effect of exchange rate changes on cash ( 91 ) 169 Net decrease in cash, cash equivalents, and restricted cash ( 459,573 ) ( 16,523 ) Cash, cash equivalents, and restricted cash, beginning of period 1,357,616 1,194,189 Cash, cash equivalents, and restricted cash, end of period $ 898,043 1,177,666 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 189,795 33,895 Cash disbursements made for income taxes, net of refunds and credits received (a) $ 961 466 Cash disbursements made for operating leases $ 1,705 1,887 Noncash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 15,545 746 Receipt of beneficial interest in consumer loan securitizations as consideration from sale of loans $ 34,540 3,660 Receipt of asset-backed investment securities as consideration from sale of loans $ 58,182 — Distribution to noncontrolling interests $ 4,035 4,760 (a) The Company utilized $ 5.7 million and $ 1.1 million of federal and state tax credits related primarily to renewable energy during the three months ended March 31, 2023 and 2022, respectively. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows. As of As of As of As of March 31, 2023 December 31, 2022 March 31, 2022 December 31, 2021 Total cash and cash equivalents $ 187,574 118,146 162,785 125,563 Restricted cash 576,267 945,159 757,954 741,981 Restricted cash - due to customers 134,202 294,311 256,927 326,645 Cash, cash equivalents, and restricted cash $ 898,043 1,357,616 1,177,666 1,194,189 See accompanying notes to consolidated financial statements. 7 NELNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts, unless otherwise noted) (unaudited) 1. Basis of Financial Reporting The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2022 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results for the year ending December 31, 2023. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report"). 2. Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and accrued interest receivable consisted of the following: As of As of March 31, 2023 December 31, 2022 Non-Nelnet Bank: Federally insured loans: Stafford and other $ 3,229,778 3,389,178 Consolidation 9,701,781 10,177,295 Total 12,931,559 13,566,473 Private education loans 241,515 252,383 Consumer and other loans 309,546 350,915 Non-Nelnet Bank loans 13,482,620 14,169,771 Nelnet Bank: Federally insured loans 63,399 65,913 Private education loans 355,705 353,882 Consumer and other loans 19,903 — Nelnet Bank loans 439,007 419,795 Accrued interest receivable 800,400 816,864 Loan discount, net of unamortized loan premiums and deferred origination costs ( 26,215 ) ( 30,714 ) Allowance for loan losses: Non-Nelnet Bank: Federally insured loans ( 79,331 ) ( 83,593 ) Private education loans ( 15,175 ) ( 15,411 ) Consumer and other loans ( 35,317 ) ( 30,263 ) Non-Nelnet Bank allowance for loan losses ( 129,823 ) ( 129,267 ) Nelnet Bank: Federally insured loans ( 160 ) ( 170 ) Private education loans ( 2,894 ) ( 2,390 ) Consumer and other loans ( 1,827 ) — Nelnet Bank allowance for loan losses ( 4,881 ) ( 2,560 ) $ 14,561,108 15,243,889 8 The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios. As of As of March 31, 2023 December 31, 2022 Non-Nelnet Bank: Federally insured loans (a) 0.61 % 0.62 % Private education loans 6.28 % 6.11 % Consumer and other loans 11.41 % 8.62 % Nelnet Bank: Federally insured loans (a) 0.25 % 0.26 % Private education loans 0.81 % 0.68 % Consumer and other loans 9.18 % — (a) As of March 31, 2023 and December 31, 2022, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty for non-Nelnet Bank was 22.3 % and 22.4 %, respectively, and for Nelnet Bank was 10.1 % and 10.3 %, respectively. Loan Sales The Company has sold portfolios of loans to unrelated third parties who securitized such loans. As partial consideration received for the loans sold, the Company received residual interest in the loan securitizations that are included in "investments and notes receivable" on the Company's consolidated balance sheets. The following table summarizes the loans sold and gains/losses recognized by the Company during the three months ended March 31, 2023 and 2022. Loans sold (par value) Gain (loss) Loan type Residual interest received in securitization Three months ended March 31, 2023 January 31 $ 97,350 ( 1,441 ) Home equity 64.8 % (a) January 31 42,275 4,350 Consumer 13.3 March 2 122,132 8,966 Consumer 24.6 (a) March 22 145 ( 63 ) Home equity — $ 261,902 11,812 Three months ended March 31, 2022 January 26 $ 18,125 2,989 Consumer 6.6 % (a) In addition to receiving a residual interest in the securitizations, the Company also received $ 14.5 million and $ 43.7 million of asset-backed investment securities as part of the January 31 and March 2 transactions, respectively, that are included in "investments and notes receivable" on the Company's consolidated balance sheet. 9 Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration Loan sales Balance at end of period Three months ended March 31, 2023 Non-Nelnet Bank: Federally insured loans $ 83,593 2,411 ( 6,679 ) — 6 — 79,331 Private education loans 15,411 240 ( 640 ) 164 — — 15,175 Consumer and other loans 30,263 29,207 ( 2,267 ) 220 — ( 22,106 ) 35,317 Nelnet Bank: Federally insured loans 170 ( 9 ) ( 1 ) — — — 160 Private education loans 2,390 614 ( 110 ) — — — 2,894 Consumer and other loans — 1,827 — — — — 1,827 $ 131,827 34,290 ( 9,697 ) 384 6 ( 22,106 ) 134,704 Three months ended March 31, 2022 Non-Nelnet Bank: Federally insured loans $ 103,381 ( 2,748 ) ( 4,761 ) — 123 — 95,995 Private education loans 16,143 ( 400 ) ( 1,299 ) 176 — 2 14,622 Consumer and other loans 6,481 2,284 ( 937 ) 166 — ( 2,284 ) 5,710 Nelnet Bank: Federally insured loans 268 ( 21 ) — — — — 247 Private education loans 840 426 ( 13 ) — — ( 2 ) 1,251 $ 127,113 ( 459 ) ( 7,010 ) 342 123 ( 2,284 ) 117,825 The following table summarizes annualized net charge-offs as a percentage of average loans for each of the Company's loan portfolios. Three months ended March 31, 2023 2022 Non-Nelnet Bank: Federally insured loans 0.20 % 0.11 % Private education loans 0.78 % 1.58 % Consumer and other loans 2.59 % 7.40 % Nelnet Bank: Federally insured loans 0.01 % 0.00 % Private education loans 0.13 % 0.02 % Consumer and other loans — — The Company recorded a provision for loan losses for the three months ended March 31, 2023 due to (i) management's estimate of declining economic conditions as of March 31, 2023 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2022; and (ii) the establishment of an initial allowance for loans originated and acquired during the period. These amounts were partially offset by the amortization of the federally insured loan portfolio. The Company recorded a negative provision for loan losses for its federally insured loan portfolio for the three months ended March 31, 2022 due to the amortization of the portfolio and an increase in expected prepayments as a result of an initiative offered by the Department of Education (the “Department”) for Federal Family Education Loan Program (the "FFEL Program" or FFELP) borrowers to consolidate their loans into Federal Direct Loan Program loans with the Department by October 31, 2022 to qualify for loan forgiveness under the Public Service Loan Forgiveness program. The Company recorded a provision for loan losses on its consumer loan portfolio during the three months ended March 31, 2022 as a result of loans acquired during the period. 10 Unfunded Loan Commitments As of March 31, 2023, Nelnet Bank has a liability of approximately $ 71,000 related to $ 2.5 million of unfunded private education loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the consolidated balance sheets. During the three months ended March 31, 2023 and 2022, Nelnet Bank recognized negative provision for loan losses of approximately $ 15,000 and provision for loan losses of approximately $ 24,000 , respectively, related to unfunded loan commitments. Loan Modifications to Borrowers Experiencing Financial Difficulty On January 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, 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 and vintage disclosures reflecting gross charge-offs by year of origination. Under the Higher Education Act, FFELP loan borrowers may be granted a deferment or forbearance for a period of time based on need. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department. Because FFELP loan modifications are driven by the Higher Education Act, the Company does not consider these events as part of its loan modification programs. Administrative forbearances (e.g. bankruptcy, military service, death and disability, and disaster forbearance) are required by law and therefore are also not considered as part of the Company's loan modification programs. The Company does offer payment delays in the form of deferments or forbearances on certain private education and consumer loan programs for short-term periods. The Company generally considers payment delays to be insignificant when the delay is 3 months or less. The amortized cost of the Company’s private education and consumer loans in which the borrower is experiencing financial difficulty and the financial effect of such loan modifications is not material. Key Credit Quality Indicators Loan Status and Delinquencies Key credit quality indicators for the Company’s federally insured, private education, consumer, and other loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The following table presents the Company’s loan status and delinquency amounts. As of March 31, 2023 As of December 31, 2022 As of March 31, 2022 Federally insured loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 641,914 5.0 % $ 637,919 4.7 % $ 839,566 5.2 % Loans in forbearance 984,738 7.6 1,103,181 8.1 1,160,048 7.1 Loans in repayment status: Loans current 9,859,751 87.2 % 10,173,859 86.0 % 12,352,543 86.4 % Loans delinquent 31-60 days 346,665 3.1 415,305 3.5 462,750 3.2 Loans delinquent 61-90 days 254,353 2.2 253,565 2.2 282,810 2.0 Loans delinquent 91-120 days 178,078 1.6 180,029 1.5 202,371 1.4 Loans delinquent 121-270 days 440,695 3.9 534,410 4.5 712,753 5.0 Loans delinquent 271 days or greater 225,365 2.0 268,205 2.3 282,536 2.0 Total loans in repayment 11,304,907 87.4 100.0 % 11,825,373 87.2 100.0 % 14,295,763 87.7 100.0 % Total federally insured loans 12,931,559 100.0 % 13,566,473 100.0 % 16,295,377 100.0 % Accrued interest receivable 791,476 808,150 770,853 Loan discount, net of unamortized premiums and deferred origination costs ( 32,626 ) ( 35,468 ) ( 27,317 ) Allowance for loan losses ( 79,331 ) ( 83,593 ) ( 95,995 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 13,611,078 $ 14,255,562 $ 16,942,918 11 As of March 31, 2023 As of December 31, 2022 As of March 31, 2022 Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 12,218 5.1 % $ 12,756 5.1 % $ 10,226 3.7 % Loans in forbearance 2,698 1.1 2,017 0.8 2,838 1.0 Loans in repayment status: Loans current 220,921 97.5 % 232,539 97.9 % 260,911 98.3 % Loans delinquent 31-60 days 2,014 0.9 2,410 1.0 1,699 0.6 Loans delinquent 61-90 days 931 0.4 767 0.3 1,040 0.4 Loans delinquent 91 days or greater 2,733 1.2 1,894 0.8 1,823 0.7 Total loans in repayment 226,599 93.8 100.0 % 237,610 94.1 100.0 % 265,473 95.3 100.0 % Total private education loans 241,515 100.0 % 252,383 100.0 % 278,537 100.0 % Accrued interest receivable 2,277 2,146 1,898 Loan premium, net of unaccreted discount 79 ( 38 ) ( 598 ) Allowance for loan losses ( 15,175 ) ( 15,411 ) ( 14,622 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 228,696 $ 239,080 $ 265,215 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ 40 0.0 % $ 109 0.0 % $ 72 0.2 % Loans in repayment status: Loans current 304,414 98.3 % 346,812 98.9 % 43,424 97.3 % Loans delinquent 31-60 days 2,037 0.7 1,906 0.5 255 0.5 Loans delinquent 61-90 days 1,236 0.4 764 0.2 304 0.7 Loans delinquent 91 days or greater 1,819 0.6 1,324 0.4 658 1.5 Total loans in repayment 309,506 100.0 100.0 % 350,806 100.0 100.0 % 44,641 99.8 100.0 % Total consumer and other loans 309,546 100.0 % 350,915 100.0 % 44,713 100.0 % Accrued interest receivable 3,288 3,658 374 Loan premium, net of unaccreted discount 913 ( 588 ) 1,040 Allowance for loan losses ( 35,317 ) ( 30,263 ) ( 5,710 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 278,430 $ 323,722 $ 40,417 Federally insured loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 151 0.3 % $ 241 0.4 % $ 286 0.3 % Loans in forbearance 1,046 1.6 981 1.5 948 1.2 Loans in repayment status: Loans current 60,895 97.9 % 63,225 97.8 % 80,421 98.6 % Loans delinquent 30-59 days 514 0.8 436 0.7 402 0.5 Loans delinquent 60-89 days 120 0.2 466 0.7 427 0.5 Loans delinquent 90-119 days 255 0.4 222 0.3 90 0.1 Loans delinquent 120-270 days 319 0.5 183 0.3 157 0.2 Loans delinquent 271 days or greater 99 0.2 159 0.2 58 0.1 Total loans in repayment 62,202 98.1 100.0 % 64,691 98.1 100.0 % 81,555 98.5 100.0 % Total federally insured loans 63,399 100.0 % 65,913 100.0 % 82,789 100.0 % Accrued interest receivable 1,857 1,758 1,231 Loan premium 18 20 25 Allowance for loan losses ( 160 ) ( 170 ) ( 247 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 65,114 $ 67,521 $ 83,798 12 As of March 31, 2023 As of December 31, 2022 As of March 31, 2022 Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 17,021 4.8 % $ 11,580 3.3 % $ 497 0.2 % Loans in forbearance 681 0.2 864 0.2 317 0.1 Loans in repayment status: Loans current 336,967 99.7 % 340,830 99.8 % 284,081 99.8 % Loans delinquent 30-59 days 388 0.1 167 0.1 422 0.2 Loans delinquent 60-89 days 536 0.2 32 0.0 78 0.0 Loans delinquent 90 days or greater 112 — 409 0.1 73 0.0 Total loans in repayment 338,003 95.0 100.0 % 341,438 96.5 100.0 % 284,654 99.7 100.0 % Total private education loans 355,705 100.0 % 353,882 100.0 % 285,468 100.0 % Accrued interest receivable 1,385 1,152 418 Deferred origination costs, net of unaccreted discount 5,400 5,360 4,593 Allowance for loan losses ( 2,894 ) ( 2,390 ) ( 1,251 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 359,596 $ 358,004 $ 289,228 Consumer and other loans - Nelnet Bank (a): Loans in deferment $ — — % Loans in repayment status: Loans current 19,903 100.0 % Loans delinquent 30-59 days — — Loans delinquent 60-89 days — — Loans delinquent 90 days or greater — — Total loans in repayment 19,903 100.0 100.0 % Total consumer and other loans 19,903 100.0 % Accrued interest receivable 117 Loan premium 1 Allowance for loan losses ( 1,827 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 18,194 (a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation. FICO Scores - Nelnet Bank Private Education Loans An additional key credit quality indicator for Nelnet Bank private education loans is FICO scores at the time of origination. The following tables highlight the gross principal balance of Nelnet Bank's private education loan portfolio, by year of origination, stratified by FICO score at the time of origination. Loan balance as of March 31, 2023 Three months ended March 31, 2023 2022 2021 2020 Total FICO at origination: Less than 705 $ 836 5,956 5,258 344 12,394 705 - 734 2,657 23,313 9,979 536 36,485 735 - 764 2,874 35,250 16,284 1,419 55,827 765 - 794 1,413 56,325 29,900 1,579 89,217 Greater than 794 3,006 86,055 66,882 5,839 161,782 $ 10,786 206,899 128,303 9,717 355,705 13 Loan balance as of December 31, 2022 2022 2021 2020 Total FICO at origination: Less than 705 $ 5,898 5,389 348 11,635 705 - 734 23,392 10,543 542 34,477 735 - 764 35,456 16,686 1,473 53,615 765 - 794 57,141 31,035 1,622 89,798 Greater than 794 87,959 70,135 6,263 164,357 $ 209,846 133,788 10,248 353,882 Nonaccrual Status The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private education, consumer, and other loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2022 and March 31, 2023, was not material. Amortized Cost Basis by Origination Year The following table presents the amortized cost of the Company's private education, consumer, and other loans by loan status and delinquency amount as of March 31, 2023 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010. Three months ended March 31, 2023 2022 2021 2020 2019 Prior years Total Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ — 1,780 5,581 1,284 2,080 1,493 12,218 Loans in forbearance — — 79 804 808 1,007 2,698 Loans in repayment status: Loans current 116 4,009 4,057 51,441 40,385 120,913 220,921 Loans delinquent 31-60 days — 14 19 103 252 1,626 2,014 Loans delinquent 61-90 days — — — — 71 860 931 Loans delinquent 91 days or greater — — 5 35 441 2,252 2,733 Total loans in repayment 116 4,023 4,081 51,579 41,149 125,651 226,599 Total private education loans $ 116 5,803 9,741 53,667 44,037 128,151 241,515 Accrued interest receivable 2,277 Loan premium, net of unaccreted discount 79 Allowance for loan losses ( 15,175 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 228,696 Gross charge-offs - three months ended March 31, 2023 $ — — — — 171 469 640 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ — — 24 — 16 — 40 Loans in repayment status: Loans current 185,920 109,009 6,692 498 1,354 941 304,414 Loans delinquent 31-60 days 89 1,593 337 — 10 8 2,037 Loans delinquent 61-90 days — 1,085 84 38 26 3 1,236 Loans delinquent 91 days or greater — 1,112 141 55 186 325 1,819 Total loans in repayment 186,009 112,799 7,254 591 1,576 1,277 309,506 Total consumer and other loans $ 186,009 112,799 7,278 591 1,592 1,277 309,546 Accrued interest receivable 3,288 Loan premium, net of unaccreted discount 913 Allowance for loan losses ( 35,317 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 278,430 Gross charge-offs - three months ended March 31, 2023 $ — 1,868 245 27 46 81 2,267 14 Three months ended March 31, 2023 2022 2021 2020 2019 Prior years Total Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 1,863 12,915 1,117 1,126 — — 17,021 Loans in forbearance — 485 196 — — — 681 Loans in repayment status: Loans current 8,913 192,723 126,740 8,591 — — 336,967 Loans delinquent 30-59 days 10 247 131 — — — 388 Loans delinquent 60-89 days — 481 55 — — — 536 Loans delinquent 90 days or greater — 48 64 — — — 112 Total loans in repayment 8,923 193,499 126,990 8,591 — — 338,003 Total private education loans $ 10,786 206,899 128,303 9,717 — — 355,705 Accrued interest receivable 1,385 Deferred origination costs, net of unaccreted discount 5,400 Allowance for loan losses ( 2,894 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 359,596 Gross charge-offs - three months ended March 31, 2023 $ — 110 — — — — 110 Consumer and other loans - Nelnet Bank (a): Loans in deferment $ — — — — — — — Loans in repayment status: Loans current 19,259 589 55 — — — 19,903 Loans delinquent 30-59 days — — — — — — — Loans delinquent 60-89 days — — — — — — — Loans delinquent 90 days or greater — — — — — — — Total loans in repayment 19,259 589 55 — — — 19,903 Total consumer and other loans $ 19,259 589 55 — — — 19,903 Accrued interest receivable 117 Loan premium 1 Allowance for loan losses ( 1,827 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 18,194 Gross charge-offs - three months ended March 31, 2023 $ — — — — — — — (a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation. 15 3. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of March 31, 2023 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 11,043,945 4.93 % - 6.85 % 8/26/30 - 9/25/69 Bonds and notes based on auction 142,385 0.00 % - 5.43 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 11,186,330 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 548,642 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facility 919,337 5.12 % / 5.15 % 5/22/24 Private education loan warehouse facility 47,937 5.18 % 12/31/23 Consumer loan warehouse facility 82,405 5.15 % 11/14/25 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 17,808 6.40 % / 6.60 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 22,145 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 311,771 5.48 % 5/4/23 Repurchase agreements 432,984 5.38 % - 5.85 % 4/6/23 - 11/27/24 Other - due to related party 6,181 3.55 % - 6.05 % 3/1/24 - 11/15/30 13,575,540 Discount on bonds and notes payable and debt issuance costs ( 137,124 ) Total $ 13,438,416 As of December 31, 2022 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 11,868,190 4.47 % - 6.39 % 8/26/30 - 9/25/69 Bonds and notes based on auction 178,960 0.00 % - 4.02 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 12,047,150 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 594,051 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facility 978,956 4.69 % / 4.71 % 5/22/24 Private education loan warehouse facility 64,356 4.72 % 12/31/23 Consumer loan warehouse facility 89,000 4.73 % 11/14/25 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 19,865 5.90 % / 6.14 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 23,032 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 395,432 5.02 % 5/4/23 Repurchase agreements 567,254 0.97 % - 5.60 % 1/4/23 - 11/27/24 Other - due to related party 6,187 3.55 % - 6.05 % 3/1/24 - 11/15/30 14,785,283 Discount on bonds and notes payable and debt issuance costs ( 148,088 ) Total $ 14,637,195 16 Warehouse Facilities The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. FFELP loan warehouse facilities On March 31, 2023, the Company’s FFELP warehouse facility was amended to increase the aggregate maximum financing amount available from $ 1.20 billion to $ 1.25 billion. The liquidity provisions and final maturity remain through May 22, 2023 and May 22, 2024, respectively. As of March 31, 2023, $ 919.3 million was outstanding under this facility, $ 330.7 million was available for future funding, and the Company had $ 62.8 million advanced as equity support. Subsequent to the end of the first quarter, the Company closed on a $ 250.0 million FFELP warehouse facility on April 3, 2023, with liquidity provisions expiring on April 2, 2024 and a final maturity date of April 2, 2025. Private education loan warehouse facility 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. Consumer loan warehouse facility As of March 31, 2023, the Company's consumer loan warehouse facility 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. Unsecured Line of Credit The Company has a $ 495.0 million unsecured line of credit that has a maturity date of September 22, 2026. As of March 31, 2023, no amount was outstanding on the line of credit and $ 495.0 million was available for future use subject to 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. Participation Agreement The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities (bond investments). As of March 31, 2023, $ 311.8 million (par value) of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. On May 4, 2023, the agreement automatically renewed for another year through May 4, 2024. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 400.0 million or an amount in excess of $ 400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities subject to this agreement are included on the Company's consolidated balance sheets as "investments and notes receivable" and the participation interests outstanding have been accounted for by the Company as a secured borrowing. See note 5 for additional information about the FFELP loan asset-backed securities investments serving as collateral under this participation agreement. Repurchase Agreements On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities (bond investments). The first agreement has various maturity dates through November 27, 2024 or earlier if either party provides 180 days’ prior written notice, and the second agreement has various maturity dates (as of March 31, 2023) from April 6, 2023 through November 27, 2024. Subsequent to March 31, 2023, the maturities on this agreement were extended, and as of May 8, 2023, the maturity dates vary from May 26, 2023 through November 27, 2024. Under the first agreement, the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase 17 price of such securities on any scheduled reset date, and under the second agreement, the Company could be subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities and the counter-party provides notice requiring such payment. Included in “bonds and notes payable” in the consolidated balance sheets as of March 31, 2023 was $ 291.9 million subject to the first agreement and $ 141.1 million subject to the second agreement. See note 5 and below under "Debt Repurchases" for additional information about the private education and FFELP loan asset-backed securities investments, respectively, serving as collateral for these repurchase agreements. Nelnet Bank Nelnet Bank has Federal Funds lines of credit with correspondent banks totaling $ 30.0 million at a stated interest rate at the time of borrowing. As of March 31, 2023, no amounts were drawn on these lines of credit. Debt Repurchases The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in "other, net" in "other income (expense)" on the Company's consolidated statements of income. Three months ended March 31, 2023 2022 Purchase price $ ( 828 ) ( 18,454 ) Par value 908 18,530 Remaining unamortized cost of issuance ( 2 ) ( 45 ) Gain $ 78 31 The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of March 31, 2023, the Company holds $ 397.8 million (par value) of its own FFELP loan asset-backed securities. As of March 31, 2023, $ 197.5 million (par value) of the Company's repurchased FFELP loan asset-backed securities were serving as collateral on amounts outstanding under the Company's repurchase agreements (as discussed above). 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, of which the Company owned $ 140.5 million of the bonds that were redeemed. 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. 4. Derivative Financial Instruments The Company uses derivative financial instruments primarily to manage interest rate risk. Derivative instruments used as part of the Company's interest rate risk management strategy are further described in note 6 of the notes to consolidated financial statements included in the 2022 Annual Report. A tabular presentation of such derivatives outstanding as of March 31, 2023 and December 31, 2022 is presented below. 18 Basis Swaps The following table summarizes the Company’s outstanding basis swaps as of March 31, 2023 and December 31, 2022, in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). Maturity Notional amount As of As of March 31, 2023 December 31, 2022 2023 $ — 750,000 2024 1,750,000 1,750,000 2026 1,150,000 1,150,000 2027 250,000 250,000 $ 3,150,000 3,900,000 The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2023 and December 31, 2022 was one-month LIBOR plus 10.1 basis points and 9.7 basis points, respectively. Interest Rate Swaps – Floor Income Hedges The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income as of December 31, 2022. Maturity Notional amount Weighted average fixed rate paid by the Company (a) 2024 $ 2,000,000 0.35 % 2026 500,000 1.02 2031 100,000 1.53 2032 (b) 200,000 2.92 $ 2,800,000 0.70 % (a) For the interest rate derivatives maturing in 2032, the Company was to receive payments based on Secured Overnight Financing Rate (SOFR) that reset quarterly. For all other interest rate derivatives, the Company received payments based on three-month LIBOR that reset quarterly. (b) These derivatives had forward effective start dates in November 2024. All over-the-counter derivative contracts executed by the Company 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 ($ 2.8 billion in notional amount of derivatives). Consolidated Financial Statement Impact Related to Derivatives - Statements of Income The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. Three months ended March 31, 2023 2022 Settlements: 1:3 basis swaps $ 859 396 Interest rate swaps - floor income hedges (a) 22,478 ( 3,205 ) Total settlements - income (expense) 23,337 ( 2,809 ) Change in fair value: 1:3 basis swaps ( 23 ) 889 Interest rate swaps - floor income hedges (a) ( 37,388 ) 144,845 Total change in fair value - (expense) income ( 37,411 ) 145,734 Derivative market value adjustments and derivative settlements, net - (expense) income $ ( 14,074 ) 142,925 (a) As a result of the Company terminating all its interest rate swaps hedging loans earning fixed rate floor income on March 15, 2023 (as discussed above), there will be no derivative settlements and changes in fair value on these derivatives in future periods. 19 5. Investments and Notes Receivable Investments and notes receivable consisted of the following: As of March 31, 2023 As of December 31, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investments (at fair value): Available-for-sale asset-backed securities Non-Nelnet Bank: FFELP loan (a) $ 336,327 4,175 ( 7,926 ) 332,576 463,861 3,498 ( 11,105 ) 456,254 Private education loan (b) 321,120 — ( 26,531 ) 294,589 335,903 — ( 29,438 ) 306,465 Other debt securities 53,743 2,365 ( 803 ) 55,305 158,589 151 ( 3,790 ) 154,950 Total Non-Nelnet Bank 711,190 6,540 ( 35,260 ) 682,470 958,353 3,649 ( 44,333 ) 917,669 Nelnet Bank: FFELP loan (c) 240,348 754 ( 3,622 ) 237,480 349,855 955 ( 8,853 ) 341,957 Private education loan 1,818 — ( 101 ) 1,717 1,941 — ( 122 ) 1,819 Other debt securities 152,571 14 ( 3,549 ) 149,036 131,481 18 ( 3,907 ) 127,592 Total Nelnet Bank 394,737 768 ( 7,272 ) 388,233 483,277 973 ( 12,882 ) 471,368 Total available-for-sale asset-backed securities $ 1,105,927 7,308 ( 42,532 ) 1,070,703 1,441,630 4,622 ( 57,215 ) 1,389,037 Equity securities 35,663 39,082 Total investments at fair value 1,106,366 1,428,119 Other Investments and Notes Receivable (not measured at fair value): Held to maturity investments Non-Nelnet Bank: Debt securities (d) 4,700 18,554 Nelnet Bank: FFELP loan asset-backed securities (c) 149,179 — Other debt securities 240 220 Total Nelnet Bank 149,419 220 Total held to maturity investments 154,119 18,774 Venture capital and funds: Measurement alternative (e) 191,731 160,052 Equity method 98,217 89,332 Total venture capital and funds 289,948 249,384 Real estate: Equity method 84,526 80,364 Investment in ALLO: Voting interest/equity method (f) 55,756 67,538 Preferred membership interest and accrued and unpaid preferred return (g) 148,175 145,926 Total investment in ALLO 203,931 213,464 Beneficial interest in loan securitizations (h): Consumer loans and other 81,399 39,249 Private education loans 72,898 75,261 Federally insured student loans 23,591 24,228 Total beneficial interest in loan securitizations 177,888 138,738 Solar (i) ( 66,353 ) ( 55,448 ) Notes receivable 30,246 31,106 Tax liens, affordable housing, and other 6,899 7,416 Total investments (not measured at fair value) 881,204 683,798 Total investments and notes receivable $ 1,987,570 $ 2,111,917 20 (a) A portion of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 3 under "Participation Agreement." As of March 31, 2023, the par value and fair value of these securities was $ 311.8 million and $ 289.1 million, respectively. (b) A portion of private education loan asset-backed securities were subject to repurchase agreements with third parties, as discussed in note 3 under "Repurchase Agreements." As of March 31, 2023, the par value and fair value of these securities was $ 321.6 million and $ 294.6 million, respectively. (c) 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 maturity. 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. (d) On March 31, 2023, certain Non-Nelnet Bank debt securities were transferred from held to maturity to available for sale. (e) The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. On February 6, 2023, the Company acquired additional ownership interests in Hudl for $ 31.5 million. Such ownership interests were purchased by the Company from certain existing Hudl investors. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. The February 6, 2023 transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities, and the price was privately negotiated between the Company and the selling parties. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the February 2023 transaction value. As of March 31, 2023, the carrying amount of the Company's investment in Hudl is $ 165.5 million, and the Company's equity ownership interests did not materially change as a result of the February 6, 2023 transaction. David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl. (f) During the first quarter of 2023, the Company contributed $ 8.4 million of additional equity to ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO"). As a result of this equity contribution, the Company's voting membership interests percentage in ALLO did not materially change. The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. During the three months ended 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. Income and losses from the Company's investment in ALLO are included in "other, net" in "other income (expense)" on the consolidated statements of income. (g) 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 %. The Company recognized income on its ALLO preferred membership interests of $ 2.2 million and $ 2.1 million during the three months ended March 31, 2023 and 2022, respectively. This income is included in "other, net" in "other income (expense)" on the consolidated statements of income. (h) The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations. 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. (i) As of March 31, 2023, the Company has funded a total of $ 294.4 million in solar investments, which includes $ 115.9 million funded by syndication partners. The carrying value of the Company’s investment in a solar project is reduced by tax credits earned when the solar project is placed-in-service. The solar investment balance as of March 31, 2023 represents the sum of total tax credits earned on solar projects placed-in-service through March 31, 2023 and the calculated HLBV net losses being larger than the total investment contributions made by the Company on such projects. 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. The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The Company recognized losses on its solar investments of $ 1.9 million and $ 1.0 million during the three months ended March 31, 2023 and 2022, respectively. These losses, which include losses attributable to third-party noncontrolling interest investors (syndication partners), are included in “other, net” in "other income (expense)" on the consolidated statements of income. Solar losses attributed to noncontrolling interest investors was $ 2.7 million and $ 1.8 million for the three months ended March 31, 2023 and 2022, respectively, and is reflected in “net loss attributable to noncontrolling interests” in the consolidated statements of income. 21 The following table presents, by remaining contractual maturity, the amortized cost and fair value of debt securities at March 31, 2023: As of March 31, 2023 1 year or less After 1 year through 5 years After 5 years through 10 years After 10 years Total Available-for-sale asset-backed securities Non-Nelnet Bank: FFELP loan $ 26,196 12,274 50,051 247,806 336,327 Private education loan — — — 321,120 321,120 Other debt securities — 99 — 53,644 53,743 Total Non-Nelnet Bank 26,196 12,373 50,051 622,570 711,190 Fair value 25,997 12,308 48,679 595,486 682,470 Nelnet Bank: FFELP loan 39,728 6,933 34,659 159,028 240,348 Private education loan — — — 1,818 1,818 Other debt securities — 23,084 92,316 37,171 152,571 Total Nelnet Bank 39,728 30,017 126,975 198,017 394,737 Fair value 39,139 29,704 124,228 195,162 388,233 Total available-for-sale asset-backed securities at amortized cost $ 65,924 42,390 177,026 820,587 1,105,927 Total available-for-sale asset-backed securities at fair value $ 65,136 42,012 172,907 790,648 1,070,703 Held to maturity investments Non-Nelnet Bank: Debt securities $ 4,700 — — — 4,700 Fair value 4,700 — — — 4,700 Nelnet Bank: FFELP loan asset-backed securities — — 3,797 145,382 149,179 Other debt securities 240 — — — 240 Total Nelnet Bank 240 — 3,797 145,382 149,419 Fair value 240 — 3,797 145,382 149,419 Total held-to-maturity investments at amortized cost $ 4,940 — 3,797 145,382 154,119 Total held-to-maturity investments at fair value $ 4,940 — 3,797 145,382 154,119 The following table presents the gross unrealized losses and fair value of securities classified as available for sale at March 31, 2023. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities in the table below have been evaluated to determine if a credit loss exists. As part of that assessment, the Company concluded it currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses. As of March 31, 2023 Unrealized loss position less than 12 months Unrealized loss position 12 months or more Total Available-for-sale asset-backed securities Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Fair value Non-Nelnet Bank: FFELP loan $ ( 5,324 ) 182,059 ( 2,602 ) 44,238 ( 7,926 ) 226,297 Private education loan — — ( 26,531 ) 294,590 ( 26,531 ) 294,590 Other debt securities ( 803 ) 21,462 — — ( 803 ) 21,462 Total Non-Nelnet Bank ( 6,127 ) 203,521 ( 29,133 ) 338,828 ( 35,260 ) 542,349 Nelnet Bank: FFELP loan ( 2,891 ) 155,672 ( 731 ) 37,285 ( 3,622 ) 192,957 Private education loan ( 101 ) 1,717 — — ( 101 ) 1,717 Other debt securities ( 3,492 ) 111,638 ( 57 ) 3,940 ( 3,549 ) 115,578 Total Nelnet Bank ( 6,484 ) 269,027 ( 788 ) 41,225 ( 7,272 ) 310,252 Total available-for-sale asset-backed securities $ ( 12,611 ) 472,548 ( 29,921 ) 380,053 ( 42,532 ) 852,601 As of December 31, 2022, the aggregate fair value of available-for-sale debt securities with unrealized losses was $ 1.2 billion. 22 The following table summarizes the gross proceeds and gross realized gains and losses of available-for-sale asset-backed securities. Gross realized gains Gross realized losses Gross proceeds from sales Three months ended March 31, 2023 $ 1,274 ( 6,256 ) 492,173 Three months ended March 31, 2022 2,965 ( 172 ) 113,980 6. Intangible Assets Intangible assets consisted of the following: Weighted average remaining useful life as of March 31, 2023 (months) As of As of March 31, 2023 December 31, 2022 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 57,285 and $ 55,116 , respectively) 110 $ 49,569 51,738 Trade names (net of accumulated amortization of $ 882 and $ 617 , respectively) 111 8,028 8,293 Computer software (net of accumulated amortization of $ 6,514 and $ 6,400 , respectively) 49 1,406 1,520 Other (net of accumulated amortization of $ 655 and $ 490 , respectively) 51 1,785 1,950 Total - amortizable intangible assets, net 107 $ 60,788 63,501 The Company recorded amortization expense on its intangible assets of $ 2.7 million and $ 2.5 million for the three months ended March 31, 2023 and 2022, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of March 31, 2023, the Company estimates it will record amortization expense as follows: 2023 (April 1 - December 31) $ 7,648 2024 9,773 2025 8,145 2026 7,262 2027 6,736 2028 and thereafter 21,224 $ 60,788 7. Goodwill The following table presents the carrying amount of goodwill as of March 31, 2023 and December 31, 2022 by reportable operating segment: Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Total Goodwill balance $ 23,639 92,507 41,883 — 18,873 176,902 23 8. Bank Deposits 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, Short Term Federal Investment Trusts (STFIT), and commercial and institutional CDs. Union Bank and Trust Company (“Union Bank”), a related party, is the program manager for the College Savings plans and trustee for the STFIT Trust. CDs are accounts that have a stipulated maturity and interest rate. For savings accounts, the depositor may be required to give written notice of any intended withdrawal no less than seven days before the withdrawal is made. Generally, early withdrawal of brokered CDs is prohibited (except in the case of death or legal incapacity). Nelnet Bank has intercompany deposits from Nelnet, Inc. and its subsidiaries, including a $ 40.0 million pledged deposit from Nelnet, Inc. as required under a Capital and Liquidity Maintenance Agreement with the FDIC. All intercompany deposits held at Nelnet Bank are eliminated for consolidated financial reporting purposes. The following table summarizes Nelnet Bank’s interest-bearing deposits, excluding intercompany deposits: As of As of March 31, 2023 December 31, 2022 Brokered CDs, net of brokered deposit fees $ 203,714 254,817 Retail and other savings (529, STFIT, and HSA) 447,792 410,556 Retail and other CDs (commercial and institutional) 24,261 25,949 Total interest-bearing deposits $ 675,767 691,322 The following table presents certificates of deposit remaining maturities as of March 31, 2023: After two years to three years $ 65,513 After three years to four years 162,115 After four years to five years 347 Total $ 227,975 The Educational 529 College Savings, STFIT, and Health Savings plan deposits are large interest-bearing omnibus accounts structured to allow FDIC insurance to flow through to underlying individual depositors. Except for the pledged deposit from Nelnet, Inc. and an earmarked deposit required for intercompany transactions, there were no deposits exceeding the FDIC insurance limits as of March 31, 2023 and December 31, 2022. 9. Earnings per Common Share The following table p resents the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Three months ended March 31, 2023 2022 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 25,945 542 26,487 183,328 3,319 186,647 Denominator: Weighted-average common shares outstanding - basic and diluted 36,580,204 764,400 37,344,604 37,365,339 676,495 38,041,834 Earnings per share - basic and diluted $ 0.71 0.71 0.71 4.91 4.91 4.91 24 10. Segment Reporting See note 17 of the notes to consolidated financial statements included in the 2022 Annual Report for a description of the Company's operating segments. The following tables present the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements. Three months ended March 31, 2023 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 1,037 6,036 234,719 12,259 21,199 ( 9,282 ) 265,968 Interest expense — — 189,198 7,214 12,318 ( 9,282 ) 199,449 Net interest income 1,037 6,036 45,521 5,045 8,881 — 66,519 Less provision (negative provision) for loan losses — — 31,858 2,417 — — 34,275 Net interest income after provision for loan losses 1,037 6,036 13,663 2,628 8,881 — 32,244 Other income (expense): Loan servicing and systems revenue 139,227 — — — — — 139,227 Intersegment revenue 7,790 56 — — — ( 7,846 ) — Education technology, services, and payment processing revenue — 133,603 — — — — 133,603 Solar construction revenue — — — — 8,651 — 8,651 Other, net 608 — 2,845 210 ( 17,734 ) — ( 14,071 ) Gain on sale of loans, net — — 11,812 — — — 11,812 Derivative settlements, net — — 23,337 — — — 23,337 Derivative market value adjustments, net — — ( 37,411 ) — — — ( 37,411 ) Total other income (expense) 147,625 133,659 583 210 ( 9,083 ) ( 7,846 ) 265,148 Cost of services: Cost to provide education technology, services, and payment processing services — 47,704 — — — — 47,704 Cost to provide solar construction services — — — — 8,299 — 8,299 Total cost of services — 47,704 — — 8,299 — 56,003 Operating expenses: Salaries and benefits 84,560 37,913 755 2,064 27,419 — 152,710 Depreciation and amortization 4,513 2,578 — 5 9,531 — 16,627 Other expenses 13,313 8,063 5,016 782 13,611 — 40,785 Intersegment expenses, net 21,057 5,800 8,696 80 ( 27,787 ) ( 7,846 ) — Total operating expenses 123,443 54,354 14,467 2,931 22,774 ( 7,846 ) 210,122 Income (loss) before income taxes 25,219 37,637 ( 221 ) ( 93 ) ( 31,275 ) — 31,267 Income tax (expense) benefit ( 6,053 ) ( 9,066 ) 53 35 6,781 — ( 8,250 ) Net income (loss) 19,166 28,571 ( 168 ) ( 58 ) ( 24,494 ) — 23,017 Net loss attributable to noncontrolling interests — 138 — — 3,332 — 3,470 Net income (loss) attributable to Nelnet, Inc. $ 19,166 28,709 ( 168 ) ( 58 ) ( 21,162 ) — 26,487 Total assets as of March 31, 2023 $ 232,667 424,742 14,939,324 1,000,659 2,207,722 ( 722,505 ) 18,082,609 25 Three months ended March 31, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 67 339 118,598 3,030 3,992 ( 828 ) 125,196 Interest expense 24 — 46,003 856 2,026 ( 828 ) 48,079 Net interest income 43 339 72,595 2,174 1,966 — 77,117 Less provision (negative provision) for loan losses — — ( 864 ) 429 — — ( 435 ) Net interest income after provision for loan losses 43 339 73,459 1,745 1,966 — 77,552 Other income (expense): Loan servicing and systems revenue 136,368 — — — — — 136,368 Intersegment revenue 8,480 3 — — — ( 8,483 ) — Education technology, services, and payment processing revenue — 112,286 — — — — 112,286 Solar construction revenue — — — — — — — Other, net 740 — 6,511 1,500 1,125 — 9,877 Gain on sale of loans, net — — 2,989 — — — 2,989 Derivative settlements, net — — ( 2,809 ) — — — ( 2,809 ) Derivative market value adjustments, net — — 145,734 — — — 145,734 Total other income (expense) 145,588 112,289 152,425 1,500 1,125 ( 8,483 ) 404,445 Cost of services: Cost to provide education technology, services, and payment processing services — 35,545 — — — — 35,545 Cost to provide solar construction services — — — — — — — Total cost of services — 35,545 — — — — 35,545 Operating expenses: Salaries and benefits 91,972 31,286 591 1,554 24,012 — 149,414 Depreciation and amortization 4,954 2,315 — 3 9,684 — 16,956 Other expenses 16,213 5,764 3,033 682 13,804 — 39,499 Intersegment expenses, net 20,398 4,605 8,831 45 ( 25,396 ) ( 8,483 ) — Total operating expenses 133,537 43,970 12,455 2,284 22,104 ( 8,483 ) 205,869 Income (loss) before income taxes 12,094 33,113 213,429 961 ( 19,013 ) — 240,583 Income tax (expense) benefit ( 2,903 ) ( 7,947 ) ( 51,223 ) ( 223 ) 6,598 — ( 55,697 ) Net income (loss) 9,191 25,166 162,206 738 ( 12,415 ) — 184,886 Net loss attributable to noncontrolling interests — — — — 1,761 — 1,761 Net income (loss) attributable to Nelnet, Inc. $ 9,191 25,166 162,206 738 ( 10,654 ) — 186,647 Total assets as of March 31, 2022 $ 259,712 376,794 18,158,972 656,242 2,066,417 ( 528,396 ) 20,989,741 26 11. Disaggregated Revenue The following tables present disaggregated revenue by service offering or customer type for the Company's fee-based operating segments. Loan Servicing and Systems Three months ended March 31, 2023 2022 Government loan servicing $ 108,880 109,125 Private education and consumer loan servicing 12,164 12,873 FFELP loan servicing 3,368 4,248 Software services 9,697 7,400 Outsourced services 5,118 2,722 Loan servicing and systems revenue $ 139,227 136,368 Education Technology, Services, and Payment Processing Three months ended March 31, 2023 2022 Tuition payment plan services $ 34,187 30,716 Payment processing 44,041 38,071 Education technology and services 54,787 43,251 Other 588 248 Education technology, services, and payment processing revenue $ 133,603 112,286 Solar Construction GRNE Solar was acquired on July 1, 2022; accordingly, there are no results for the three months ended March 31, 2022. Three months ended March 31, 2023 Commercial revenue $ 6,234 Residential revenue 2,775 Other ( 358 ) Solar construction revenue $ 8,651 Other Income (Expense) The following table presents the components of "other, net" in "other income (expense)" on the consolidated statements of income: Three months ended March 31, 2023 2022 ALLO preferred return $ 2,249 2,117 Borrower late fee income 2,247 2,431 Administration/sponsor fee income 1,772 2,123 Investment advisory services 1,612 1,282 Loss from ALLO voting membership interest investment ( 20,213 ) ( 13,130 ) Investment activity, net ( 3,577 ) 11,856 Loss from solar investments ( 1,947 ) ( 1,030 ) Other 3,786 4,228 Other, net $ ( 14,071 ) 9,877 27 12. Major Customer Government Loan Servicing 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. Revenue earned by the Company related to these contracts was $ 108.9 million and $ 109.1 million for the three months ended March 31, 2023 and 2022, respectively. The Company currently licenses its hosted servicing software 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. 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. 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 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. 28 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. The actual impact to the number of borrowers serviced may be less than these amounts due to annual income ceilings for borrowers to qualify for forgiveness and the impact of whether a Pell Grant was received on the amount of forgiveness for a borrower. Revenue earned under the current Department servicing contracts will decrease in future periods if the Department's student debt relief plan or other broad based loan forgiveness is implemented. 29 13. Fair Value The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. As of March 31, 2023 As of December 31, 2022 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Investments: Asset-backed debt securities - available-for-sale $ 99 1,070,604 1,070,703 100 1,388,937 1,389,037 Equity securities 91 — 91 6,719 — 6,719 Equity securities measured at net asset value (a) 35,572 32,363 Total investments 190 1,070,604 1,106,366 6,819 1,388,937 1,428,119 Total assets $ 190 1,070,604 1,106,366 6,819 1,388,937 1,428,119 (a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of March 31, 2023 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 13,919,785 13,760,708 — — 13,919,785 Accrued loan interest receivable 800,400 800,400 — 800,400 — Cash and cash equivalents 187,574 187,574 187,574 — — Investments (at fair value) 1,106,366 1,106,366 190 1,070,604 — Investments - held to maturity 154,119 154,119 — 154,119 — Notes receivable 30,246 30,246 — 30,246 — Beneficial interest in loan securitizations 201,216 177,888 — — 201,216 Restricted cash 576,267 576,267 576,267 — — Restricted cash – due to customers 134,202 134,202 134,202 — — Financial liabilities: Bonds and notes payable 12,933,378 13,438,416 — 12,933,378 — Accrued interest payable 34,374 34,374 — 34,374 — Bank deposits 647,708 675,767 391,379 256,329 — Due to customers 280,624 280,624 280,624 — — As of December 31, 2022 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 14,586,794 14,427,025 — — 14,586,794 Accrued loan interest receivable 816,864 816,864 — 816,864 — Cash and cash equivalents 118,146 118,146 118,146 — — Investments (at fair value) 1,428,119 1,428,119 6,819 1,388,937 — Investments - held to maturity 18,996 18,774 — 18,996 — Notes receivable 31,106 31,106 — 31,106 — Beneficial interest in loan securitizations 162,360 138,738 — — 162,360 Restricted cash 945,159 945,159 945,159 — — Restricted cash – due to customers 294,311 294,311 294,311 — — Financial liabilities: Bonds and notes payable 14,088,666 14,637,195 — 14,088,666 — Accrued interest payable 36,049 36,049 — 36,049 — Bank deposits 664,573 691,322 355,282 309,291 — Due to customers 348,317 348,317 348,317 — — The methodologies for estimating the fair value of financial assets and liabilities are described in note 24 of the notes to consolidated financial statements included in the 2022 Annual Report. 30