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 June 30, 2023 December 31, 2022 Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 114,263 and $ 131,827 , respectively) $ 14,360,612 15,243,889 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 24,834 24,584 Cash and cash equivalents - held at a related party 96,935 93,562 Total cash and cash equivalents 121,769 118,146 Investments and notes receivable 2,006,306 2,111,917 Restricted cash 484,223 945,159 Restricted cash - due to customers 208,033 294,311 Accounts receivable (net of allowance for doubtful accounts of $ 4,855 and $ 3,079 , respectively) 135,690 194,851 Goodwill 176,902 176,902 Intangible assets, net 57,293 63,501 Property and equipment, net 130,451 122,526 Other assets 126,353 102,842 Total assets $ 17,807,632 19,374,044 Liabilities: Bonds and notes payable $ 13,070,140 14,637,195 Accrued interest payable 35,926 36,049 Bank deposits 731,046 691,322 Other liabilities 423,454 461,259 Due to customers 299,552 348,317 Total liabilities 14,560,118 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 26,646,490 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 10,114 1,109 Retained earnings 3,270,250 3,234,844 Accumulated other comprehensive loss, net ( 21,458 ) ( 37,366 ) Total Nelnet, Inc. shareholders' equity 3,259,279 3,198,959 Noncontrolling interests ( 11,765 ) 943 Total equity 3,247,514 3,199,902 Total liabilities and equity $ 17,807,632 19,374,044 Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities: Loans and accrued interest receivable $ 13,756,107 14,585,491 Restricted cash 451,792 867,961 Bonds and notes payable ( 12,999,867 ) ( 14,233,586 ) Accrued interest payable and other liabilities ( 192,978 ) ( 145,309 ) Net assets of consolidated education and other lending variable interest entities $ 1,015,054 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 Six months ended June 30, June 30, 2023 2022 2023 2022 Interest income: Loan interest $ 243,045 134,706 468,288 246,083 Investment interest 40,982 16,881 81,707 30,700 Total interest income 284,027 151,587 549,995 276,783 Interest expense on bonds and notes payable and bank deposits 233,148 73,642 432,597 121,721 Net interest income 50,879 77,945 117,398 155,062 Less provision for loan losses 9,592 9,409 43,867 8,974 Net interest income after provision for loan losses 41,287 68,536 73,531 146,088 Other income (expense): Loan servicing and systems revenue 122,020 124,873 261,247 261,241 Education technology, services, and payment processing revenue 109,858 91,031 243,462 203,317 Solar construction revenue 4,735 — 13,386 — Other, net ( 7,011 ) 12,647 ( 21,083 ) 22,524 Gain on sale of loans, net 15,511 — 27,323 2,989 Impairment expense — ( 6,284 ) — ( 6,284 ) Derivative market value adjustments and derivative settlements, net 2,070 45,024 ( 12,005 ) 187,949 Total other income (expense), net 247,183 267,291 512,330 671,736 Cost of services: Cost to provide education technology, services, and payment processing services 40,407 30,852 88,110 66,397 Cost to provide solar construction services 9,122 — 17,422 — Total cost of services 49,529 30,852 105,532 66,397 Operating expenses: Salaries and benefits 144,706 141,398 297,416 290,813 Depreciation and amortization 18,652 18,250 35,279 35,206 Other expenses 45,997 36,940 86,781 76,439 Total operating expenses 209,355 196,588 419,476 402,458 Income before income taxes 29,586 108,387 60,853 348,969 Income tax expense 10,491 25,483 18,741 81,180 Net income 19,095 82,904 42,112 267,789 Net loss attributable to noncontrolling interests 9,172 2,225 12,642 3,987 Net income attributable to Nelnet, Inc. $ 28,267 85,129 54,754 271,776 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 0.75 2.26 1.46 7.18 Weighted average common shares outstanding - basic and diluted 37,468,397 37,710,214 37,406,843 37,875,108 See accompanying notes to consolidated financial statements. 3 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (unaudited) Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Net income $ 19,095 82,904 42,112 267,789 Other comprehensive income (loss): Net changes related to foreign currency translation adjustments $ — ( 8 ) ( 3 ) 1 Net changes related to available-for-sale debt securities: Unrealized holding gains (losses) arising during period, net 8,649 ( 33,822 ) 17,300 ( 50,520 ) Reclassification of (gains) losses recognized in net income, net ( 918 ) ( 849 ) 4,064 ( 3,642 ) Amortization of net unrealized loss on securities transferred from available-for-sale to held-to-maturity 70 — 70 — Income tax effect ( 1,872 ) 5,929 8,321 ( 26,350 ) ( 5,144 ) 16,290 12,999 ( 41,163 ) Net changes related to equity method investee's other comprehensive income: Loss on cash flow hedges ( 501 ) — ( 499 ) — Income tax effect 120 ( 381 ) — — 120 ( 379 ) — — Other comprehensive income (loss) 5,548 ( 26,358 ) 15,908 ( 41,162 ) Comprehensive income 24,643 56,546 58,020 226,627 Comprehensive loss attributable to noncontrolling interests 9,172 2,225 12,642 3,987 Comprehensive income attributable to Nelnet, Inc. $ 33,815 58,771 70,662 230,614 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 March 31, 2022 — 27,151,270 10,674,892 $ — 272 107 1,208 3,092,226 ( 5,500 ) ( 3,250 ) 3,085,063 Issuance of noncontrolling interests — — — — — — — — — 9,275 9,275 Net income (loss) — — — — — — — 85,129 — ( 2,225 ) 82,904 Other comprehensive loss — — — — — — — — ( 26,358 ) — ( 26,358 ) Distribution to noncontrolling interests — — — — — — — — — ( 10,037 ) ( 10,037 ) Cash dividends on Class A and Class B common stock - $ 0.24 per share — — — — — — — ( 8,973 ) — — ( 8,973 ) Issuance of common stock, net of forfeitures — 20,720 — — — — 2,116 — — — 2,116 Compensation expense for stock based awards — — — — — — 3,187 — — — 3,187 Repurchase of common stock — ( 558,257 ) — — ( 6 ) — ( 5,331 ) ( 40,695 ) — — ( 46,032 ) Balance as of June 30, 2022 — 26,613,733 10,674,892 $ — 266 107 1,180 3,127,687 ( 31,858 ) ( 6,237 ) 3,091,145 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 Issuance of noncontrolling interests — — — — — — — — — 11,703 11,703 Net income (loss) — — — — — — — 28,267 — ( 9,172 ) 19,095 Other comprehensive income — — — — — — — — 5,548 — 5,548 Distribution to noncontrolling interests — — — — — — — — — ( 7,942 ) ( 7,942 ) Cash dividends on Class A and Class B common stock - $ 0.26 per share — — — — — — — ( 9,694 ) — — ( 9,694 ) Issuance of common stock, net of forfeitures — 27,562 — — — — 2,056 — — — 2,056 Compensation expense for stock based awards — — — — — — 3,884 — — — 3,884 Repurchase of common stock — ( 4,734 ) — — — — ( 465 ) — — — ( 465 ) Balance as of June 30, 2023 — 26,646,490 10,668,460 $ — 266 107 10,114 3,270,250 ( 21,458 ) ( 11,765 ) 3,247,514 See accompanying notes to consolidated financial statements. 5 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss 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 — — — — — — — — — 11,279 11,279 Net income (loss) — — — — — — — 271,776 — ( 3,987 ) 267,789 Other comprehensive loss — — — — — — — — ( 41,162 ) — ( 41,162 ) Distribution to noncontrolling interests — — — — — — — — — ( 15,161 ) ( 15,161 ) Cash dividends on Class A and Class B common stock - $ 0.48 per share — — — — — — — ( 18,035 ) — — ( 18,035 ) Issuance of common stock, net of forfeitures — 310,639 — — 3 — 6,498 — — — 6,501 Compensation expense for stock based awards — — — — — — 6,027 — — — 6,027 Repurchase of common stock — ( 938,310 ) — — ( 9 ) — ( 12,345 ) ( 66,577 ) — — ( 78,931 ) Conversion of common stock — 1,750 ( 1,750 ) — — — — — — — — Balance as of June 30, 2022 — 26,613,733 10,674,892 $ — 266 107 1,180 3,127,687 ( 31,858 ) ( 6,237 ) 3,091,145 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 — — — — — — — — — 12,904 12,904 Net income (loss) — — — — — — — 54,754 — ( 12,642 ) 42,112 Other comprehensive income — — — — — — — — 15,908 — 15,908 Distribution to noncontrolling interests — — — — — — — — — ( 12,970 ) ( 12,970 ) Cash dividends on Class A and Class B common stock - $ 0.52 per share — — — — — — — ( 19,348 ) — — ( 19,348 ) Issuance of common stock, net of forfeitures — 226,086 — — 1 — 5,119 — — — 5,120 Compensation expense for stock based awards — — — — — — 7,653 — — — 7,653 Repurchase of common stock — ( 41,247 ) — — — — ( 3,767 ) — — — ( 3,767 ) Balance as of June 30, 2023 — 26,646,490 10,668,460 $ — 266 107 10,114 3,270,250 ( 21,458 ) ( 11,765 ) 3,247,514 See accompanying notes to consolidated financial statements. 6 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Six months ended June 30, 2023 2022 Net income attributable to Nelnet, Inc. $ 54,754 271,776 Net loss attributable to noncontrolling interests ( 12,642 ) ( 3,987 ) Net income 42,112 267,789 Adjustments to reconcile net income to net cash provided by operating activities, net of business acquisition: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 93,573 74,080 Loan discount accretion ( 15,412 ) ( 19,554 ) Provision for loan losses 43,867 8,974 Derivative market value adjustments 35,407 ( 186,135 ) Proceeds from termination of derivative instruments 164,079 68,021 (Payments to) proceeds from clearinghouse - initial and variation margin, net ( 209,886 ) 133,622 Gain on sale of loans, net ( 27,323 ) ( 2,989 ) Loss on investments, net 47,260 3,207 Proceeds from sale of equity securities, net 75 42,398 Deferred income tax (benefit) expense ( 16,144 ) 49,890 Non-cash compensation expense 7,810 6,171 Impairment expense — 6,284 (Increase) decrease in loan and investment accrued interest receivable ( 4,884 ) 184 Decrease in accounts receivable 59,142 44,786 Increase in other assets, net ( 11,480 ) ( 9,086 ) Decrease in the carrying amount of ROU asset, net 2,390 2,735 (Decrease) increase in accrued interest payable ( 123 ) 8,397 Decrease in other liabilities ( 8,916 ) ( 12,200 ) Decrease in the carrying amount of lease liability ( 2,568 ) ( 2,860 ) Net cash provided by operating activities 198,979 483,714 Cash flows from investing activities: Purchases and originations of loans ( 411,868 ) ( 396,486 ) Purchases of loans from a related party ( 467,519 ) ( 7,675 ) Net proceeds from loan repayments, claims, and capitalized interest 1,348,827 1,792,930 Proceeds from sale of loans 290,957 15,278 Purchases of available-for-sale securities ( 296,468 ) ( 735,140 ) Proceeds from sales of available-for-sale securities 577,548 319,752 Proceeds from beneficial interest in loan securitizations 13,237 13,212 Purchases of other investments and issuance of notes receivable ( 140,129 ) ( 147,400 ) Proceeds from other investments 14,403 23,955 Purchases of held-to-maturity debt securities ( 2,889 ) — Redemption of held-to-maturity debt securities 1,487 — Purchases of property and equipment ( 37,253 ) ( 34,152 ) Business acquisition, net of cash acquired — ( 7,320 ) Net cash provided by investing activities 890,333 836,954 7 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Six months ended June 30, 2023 2022 Cash flows from financing activities: Payments on bonds and notes payable $ ( 2,417,622 ) ( 1,695,697 ) Proceeds from issuance of bonds and notes payable 806,148 159,931 Payments of debt issuance costs ( 2,214 ) ( 851 ) Increase in bank deposits, net 39,724 244,159 (Decrease) increase in due to customers ( 48,728 ) 43,544 Dividends paid ( 19,348 ) ( 18,035 ) Repurchases of common stock ( 3,767 ) ( 78,931 ) Proceeds from issuance of common stock 890 801 Issuance of noncontrolling interests 14,018 5,142 Distribution to noncontrolling interests ( 1,920 ) ( 699 ) Net cash used in financing activities ( 1,632,819 ) ( 1,340,636 ) Effect of exchange rate changes on cash ( 84 ) ( 179 ) Net decrease in cash, cash equivalents, and restricted cash ( 543,591 ) ( 20,147 ) Cash, cash equivalents, and restricted cash, beginning of period 1,357,616 1,194,189 Cash, cash equivalents, and restricted cash, end of period $ 814,025 1,174,042 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 386,686 89,281 Cash disbursements made for income taxes, net of refunds and credits received (a) $ 43,510 21,137 Cash disbursements made for operating leases $ 3,476 3,538 Noncash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 18,485 746 Receipt of beneficial interest in consumer loan securitizations as consideration from sale of loans $ 53,896 3,660 Receipt of asset-backed investment securities as consideration from sale of loans $ 58,182 — Distribution to noncontrolling interests $ 11,050 14,462 Issuance of noncontrolling interests $ 1,114 6,137 (a) The Company utilized $ 13.9 million and $ 4.1 million of federal and state tax credits related primarily to renewable energy during the six months ended June 30, 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 June 30, 2023 December 31, 2022 June 30, 2022 December 31, 2021 Total cash and cash equivalents $ 121,769 118,146 128,499 125,563 Restricted cash 484,223 945,159 754,693 741,981 Restricted cash - due to customers 208,033 294,311 290,850 326,645 Cash, cash equivalents, and restricted cash $ 814,025 1,357,616 1,174,042 1,194,189 See accompanying notes to consolidated financial statements. 8 NELNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts, unless otherwise noted) (unaudited) 1. Basis of Financial Reporting The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2023 and for the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 2023 December 31, 2022 Non-Nelnet Bank: Federally insured loans: Stafford and other $ 3,245,540 3,389,178 Consolidation 9,574,202 10,177,295 Total 12,819,742 13,566,473 Private education loans 230,056 252,383 Consumer and other loans 189,327 350,915 Non-Nelnet Bank loans 13,239,125 14,169,771 Nelnet Bank: Federally insured loans 61,501 65,913 Private education loans 352,319 353,882 Consumer and other loans 30,668 — Nelnet Bank loans 444,488 419,795 Accrued interest receivable 818,709 816,864 Loan discount, net of unamortized loan premiums and deferred origination costs ( 27,447 ) ( 30,714 ) Allowance for loan losses: Non-Nelnet Bank: Federally insured loans ( 74,061 ) ( 83,593 ) Private education loans ( 14,322 ) ( 15,411 ) Consumer and other loans ( 20,005 ) ( 30,263 ) Non-Nelnet Bank allowance for loan losses ( 108,388 ) ( 129,267 ) Nelnet Bank: Federally insured loans ( 154 ) ( 170 ) Private education loans ( 2,905 ) ( 2,390 ) Consumer and other loans ( 2,816 ) — Nelnet Bank allowance for loan losses ( 5,875 ) ( 2,560 ) $ 14,360,612 15,243,889 9 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 June 30, 2023 December 31, 2022 Non-Nelnet Bank: Federally insured loans (a) 0.58 % 0.62 % Private education loans 6.23 % 6.11 % Consumer and other loans 10.57 % 8.62 % Nelnet Bank: Federally insured loans (a) 0.25 % 0.26 % Private education loans 0.82 % 0.68 % Consumer and other loans 9.18 % — (a) As of June 30, 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 21.7 % and 22.4 %, respectively, and for Nelnet Bank was 10.0 % 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 six months ended June 30, 2023 and 2022. Loans sold (par value) Gain (loss) Loan type Residual interest received in securitization Six months ended June 30, 2023 January 31 $ 97,350 ( 1,441 ) Home equity 64.8 % (a) January 31 42,275 4,350 Consumer 13.3 March 2 122,277 8,903 Consumer 24.6 (a) April 4 5,633 659 Consumer — April 13 24,980 3,123 Consumer 11.3 May 2 127,663 11,729 Consumer 26.5 $ 420,178 27,323 Six months ended June 30, 2022 January 26 $ 18,125 2,989 Consumer 6.6 % June 30 114 — Home equity — $ 18,239 2,989 (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, 2023 transactions, respectively, that are included in "investments and notes receivable" on the Company's consolidated balance sheet. 10 Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration Loan sales Balance at end of period Three months ended June 30, 2023 Non-Nelnet Bank: Federally insured loans $ 79,331 — ( 5,270 ) — — — 74,061 Private education loans 15,175 — ( 1,069 ) 216 — — 14,322 Consumer and other loans 35,317 8,099 ( 2,881 ) 441 — ( 20,971 ) 20,005 Nelnet Bank: Federally insured loans 160 ( 4 ) ( 2 ) — — — 154 Private education loans 2,894 517 ( 506 ) — — — 2,905 Consumer and other loans 1,827 989 — — — — 2,816 $ 134,704 9,601 ( 9,728 ) 657 — ( 20,971 ) 114,263 Three months ended June 30, 2022 Non-Nelnet Bank: Federally insured loans $ 95,995 2,365 ( 5,788 ) — 21 — 92,593 Private education loans 14,622 1,217 ( 707 ) 118 — 3 15,253 Consumer and other loans 5,710 5,245 ( 531 ) 152 — — 10,576 Nelnet Bank: Federally insured loans 247 13 ( 2 ) — — — 258 Private education loans 1,251 569 ( 73 ) — — ( 3 ) 1,744 $ 117,825 9,409 ( 7,101 ) 270 21 — 120,424 Six months ended June 30, 2023 Non-Nelnet Bank: Federally insured loans $ 83,593 2,411 ( 11,949 ) — 6 — 74,061 Private education loans 15,411 240 ( 1,709 ) 380 — — 14,322 Consumer and other loans 30,263 37,306 ( 5,148 ) 661 — ( 43,077 ) 20,005 Nelnet Bank: Federally insured loans 170 ( 12 ) ( 4 ) — — — 154 Private education loans 2,390 1,129 ( 614 ) — — — 2,905 Consumer and other loans — 2,816 — — — — 2,816 $ 131,827 43,890 ( 19,424 ) 1,041 6 ( 43,077 ) 114,263 Six months ended June 30, 2022 Non-Nelnet Bank: Federally insured loans $ 103,381 ( 383 ) ( 10,549 ) — 144 — 92,593 Private education loans 16,143 817 ( 2,006 ) 295 — 4 15,253 Consumer and other loans 6,481 7,529 ( 1,469 ) 319 — ( 2,284 ) 10,576 Nelnet Bank: Federally insured loans 268 ( 8 ) ( 2 ) — — — 258 Private education loans 840 995 ( 87 ) — — ( 4 ) 1,744 $ 127,113 8,950 ( 14,113 ) 614 144 ( 2,284 ) 120,424 The primary item impacting provision for loan losses was the establishment of an initial allowance for consumer loans originated and acquired during the periods presented above. 11 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 June 30, Six months ended June 30, 2023 2022 2023 2022 Non-Nelnet Bank: Federally insured loans 0.16 % 0.14 % 0.18 % 0.13 % Private education loans 1.45 % 0.85 % 1.11 % 1.22 % Consumer and other loans 4.07 % 1.51 % 3.22 % 3.24 % Nelnet Bank: Federally insured loans 0.01 % 0.01 % 0.01 % 0.00 % Private education loans 0.57 % 0.09 % 0.35 % 0.06 % Consumer and other loans — — — — Unfunded Loan Commitments As of June 30, 2023, Nelnet Bank has a liability of approximately $ 62,000 related to $ 4.1 million of unfunded private education and consumer loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the consolidated balance sheets. During the six months ended June 30, 2023 and 2022, Nelnet Bank recognized negative provision for loan losses of approximately $ 23,000 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. 12 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 June 30, 2023 As of December 31, 2022 As of June 30, 2022 Federally insured loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 612,357 4.8 % $ 637,919 4.7 % $ 763,957 4.9 % Loans in forbearance 930,629 7.3 1,103,181 8.1 1,246,882 8.1 Loans in repayment status: Loans current 9,609,634 85.2 % 10,173,859 86.0 % 11,551,817 86.1 % Loans delinquent 31-60 days 496,953 4.4 415,305 3.5 464,234 3.5 Loans delinquent 61-90 days 360,728 3.2 253,565 2.2 309,252 2.3 Loans delinquent 91-120 days 157,685 1.4 180,029 1.5 187,452 1.4 Loans delinquent 121-270 days 457,100 4.1 534,410 4.5 638,189 4.7 Loans delinquent 271 days or greater 194,656 1.7 268,205 2.3 267,828 2.0 Total loans in repayment 11,276,756 87.9 100.0 % 11,825,373 87.2 100.0 % 13,418,772 87.0 100.0 % Total federally insured loans 12,819,742 100.0 % 13,566,473 100.0 % 15,429,611 100.0 % Accrued interest receivable 810,489 808,150 775,337 Loan discount, net of unamortized premiums and deferred origination costs ( 33,764 ) ( 35,468 ) ( 26,674 ) Allowance for loan losses ( 74,061 ) ( 83,593 ) ( 92,593 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 13,522,406 $ 14,255,562 $ 16,085,681 Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 10,440 4.6 % $ 12,756 5.1 % $ 15,403 5.6 % Loans in forbearance 1,874 0.8 2,017 0.8 2,447 0.9 Loans in repayment status: Loans current 212,522 97.6 % 232,539 97.9 % 250,268 98.1 % Loans delinquent 31-60 days 1,643 0.7 2,410 1.0 1,980 0.8 Loans delinquent 61-90 days 1,253 0.6 767 0.3 782 0.3 Loans delinquent 91 days or greater 2,324 1.1 1,894 0.8 2,063 0.8 Total loans in repayment 217,742 94.6 100.0 % 237,610 94.1 100.0 % 255,093 93.5 100.0 % Total private education loans 230,056 100.0 % 252,383 100.0 % 272,943 100.0 % Accrued interest receivable 2,196 2,146 2,058 Loan premium, net of unaccreted discount 183 ( 38 ) 94 Allowance for loan losses ( 14,322 ) ( 15,411 ) ( 15,253 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 218,113 $ 239,080 $ 259,842 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ 102 0.1 % $ 109 0.0 % $ 64 0.0 % Loans in repayment status: Loans current 181,864 96.1 % 346,812 98.9 % 150,812 98.9 % Loans delinquent 31-60 days 2,794 1.5 1,906 0.5 515 0.3 Loans delinquent 61-90 days 2,533 1.3 764 0.2 435 0.3 Loans delinquent 91 days or greater 2,034 1.1 1,324 0.4 757 0.5 Total loans in repayment 189,225 99.9 100.0 % 350,806 100.0 100.0 % 152,519 100.0 100.0 % Total consumer and other loans 189,327 100.0 % 350,915 100.0 % 152,583 100.0 % Accrued interest receivable 2,246 3,658 1,376 Loan premium, net of unaccreted discount 750 ( 588 ) ( 1,965 ) Allowance for loan losses ( 20,005 ) ( 30,263 ) ( 10,576 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 172,318 $ 323,722 $ 141,418 13 As of June 30, 2023 As of December 31, 2022 As of June 30, 2022 Federally insured loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 239 0.4 % $ 241 0.4 % $ 283 0.4 % Loans in forbearance 665 1.1 981 1.5 1,029 1.3 Loans in repayment status: Loans current 59,041 97.5 % 63,225 97.8 % 74,883 98.4 % Loans delinquent 30-59 days 320 0.5 436 0.7 587 0.8 Loans delinquent 60-89 days 301 0.5 466 0.7 165 0.2 Loans delinquent 90-119 days 372 0.6 222 0.3 245 0.3 Loans delinquent 120-270 days 448 0.7 183 0.3 236 0.3 Loans delinquent 271 days or greater 115 0.2 159 0.2 — — Total loans in repayment 60,597 98.5 100.0 % 64,691 98.1 100.0 % 76,116 98.3 100.0 % Total federally insured loans 61,501 100.0 % 65,913 100.0 % 77,428 100.0 % Accrued interest receivable 1,973 1,758 1,381 Loan premium 18 20 23 Allowance for loan losses ( 154 ) ( 170 ) ( 258 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 63,338 $ 67,521 $ 78,574 Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 16,996 4.8 % $ 11,580 3.3 % $ 1,160 0.3 % Loans in forbearance 1,797 0.5 864 0.2 1,236 0.4 Loans in repayment status: Loans current 332,205 99.6 % 340,830 99.8 % 343,148 99.8 % Loans delinquent 30-59 days 691 0.2 167 0.1 169 0.1 Loans delinquent 60-89 days 241 0.1 32 0.0 412 0.1 Loans delinquent 90 days or greater 389 0.1 409 0.1 — — Total loans in repayment 333,526 94.7 100.0 % 341,438 96.5 100.0 % 343,729 99.3 100.0 % Total private education loans 352,319 100.0 % 353,882 100.0 % 346,125 100.0 % Accrued interest receivable 1,591 1,152 539 Deferred origination costs, net of unaccreted discount 5,366 5,360 5,909 Allowance for loan losses ( 2,905 ) ( 2,390 ) ( 1,744 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 356,371 $ 358,004 $ 350,829 Consumer and other loans - Nelnet Bank (a): Loans in deferment $ 6 — % Loans in repayment status: Loans current 30,120 98.2 % Loans delinquent 30-59 days 277 0.9 Loans delinquent 60-89 days 205 0.7 Loans delinquent 90 days or greater 60 0.2 Total loans in repayment 30,662 100.0 100.0 % Total consumer and other loans 30,668 100.0 % Accrued interest receivable 214 Loan premium — Allowance for loan losses ( 2,816 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 28,066 (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. 14 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 June 30, 2023 Six months ended June 30, 2023 2022 2021 2020 Total FICO at origination: Less than 705 $ 1,731 5,869 5,100 342 13,042 705 - 734 3,936 22,881 9,776 506 37,099 735 - 764 4,109 34,497 15,794 1,401 55,801 765 - 794 1,938 54,989 29,021 1,531 87,479 Greater than 794 5,896 82,963 64,415 5,624 158,898 $ 17,610 201,199 124,106 9,404 352,319 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 June 30, 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 June 30, 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. Six months ended June 30, 2023 2022 2021 2020 2019 Prior years Total Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ — 1,390 4,831 1,122 1,907 1,190 10,440 Loans in forbearance — — 62 311 451 1,050 1,874 Loans in repayment status: Loans current 115 4,270 4,610 49,726 39,948 113,853 212,522 Loans delinquent 31-60 days — 12 3 221 95 1,312 1,643 Loans delinquent 61-90 days — — — 311 71 871 1,253 Loans delinquent 91 days or greater — 29 5 100 110 2,080 2,324 Total loans in repayment 115 4,311 4,618 50,358 40,224 118,116 217,742 Total private education loans $ 115 5,701 9,511 51,791 42,582 120,356 230,056 Accrued interest receivable 2,196 Loan premium, net of unaccreted discount 183 Allowance for loan losses ( 14,322 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 218,113 Gross charge-offs - six months ended June 30, 2023 $ — — 5 2 381 1,321 1,709 15 Six months ended June 30, 2023 2022 2021 2020 2019 Prior years Total Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ 43 40 19 — — — 102 Loans in repayment status: Loans current 120,588 53,714 5,662 457 956 487 181,864 Loans delinquent 31-60 days 1,040 1,565 153 24 8 4 2,794 Loans delinquent 61-90 days 1,458 770 227 20 50 8 2,533 Loans delinquent 91 days or greater 337 970 131 61 199 336 2,034 Total loans in repayment 123,423 57,019 6,173 562 1,213 835 189,225 Total consumer and other loans $ 123,466 57,059 6,192 562 1,213 835 189,327 Accrued interest receivable 2,246 Loan premium, net of unaccreted discount 750 Allowance for loan losses ( 20,005 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 172,318 Gross charge-offs - six months ended June 30, 2023 $ 265 4,272 439 27 55 90 5,148 Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 2,787 11,980 1,168 1,061 — — 16,996 Loans in forbearance — 969 828 — — — 1,797 Loans in repayment status: Loans current 14,772 187,799 121,291 8,343 — — 332,205 Loans delinquent 30-59 days — 391 300 — — — 691 Loans delinquent 60-89 days 31 48 162 — — — 241 Loans delinquent 90 days or greater 20 12 357 — — — 389 Total loans in repayment 14,823 188,250 122,110 8,343 — — 333,526 Total private education loans $ 17,610 201,199 124,106 9,404 — — 352,319 Accrued interest receivable 1,591 Deferred origination costs, net of unaccreted discount 5,366 Allowance for loan losses ( 2,905 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 356,371 Gross charge-offs - six months ended June 30, 2023 $ — 614 — — — — 614 Consumer and other loans - Nelnet Bank (a): Loans in deferment $ 6 — — — — — 6 Loans in repayment status: Loans current 29,547 518 55 — — — 30,120 Loans delinquent 30-59 days 277 — — — — — 277 Loans delinquent 60-89 days 205 — — — — — 205 Loans delinquent 90 days or greater 60 — — — — — 60 Total loans in repayment 30,089 518 55 — — — 30,662 Total consumer and other loans $ 30,095 518 55 — — — 30,668 Accrued interest receivable 214 Loan premium — Allowance for loan losses ( 2,816 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 28,066 Gross charge-offs - six months ended June 30, 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. 16 3. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of June 30, 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 $ 10,494,458 5.37 % - 7.15 % 8/26/30 - 9/25/69 Bonds and notes based on auction 91,335 0.00 % - 6.18 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 10,585,793 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 519,156 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facilities 1,530,429 5.15 % - 5.42 % 11/22/24 / 4/2/25 Private education loan warehouse facility 42,200 5.37 % 12/31/23 Consumer loan warehouse facility 32,324 5.44 % 11/14/25 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 16,628 6.65 % 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 19,606 5.35 % 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 6,781 5.84 % 5/4/24 Repurchase agreements 415,514 5.81 % - 6.47 % 7/26/23 - 11/27/24 Other - due to related party 6,174 3.55 % - 6.05 % 3/1/24 - 11/15/30 13,174,605 Discount on bonds and notes payable and debt issuance costs ( 104,465 ) Total $ 13,070,140 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 17 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. The following table summarizes the Company's warehouse facilities as of June 30, 2023. Type of loans Maximum financing amount Amount outstanding Amount available Expiration of liquidity provisions Final maturity date Advance rate Advanced as equity support FFELP (a) $ 1,250,000 1,119,030 130,970 11/22/2023 11/22/2024 note (b) $ 99,220 FFELP (c) 432,000 411,399 20,601 4/2/2024 4/2/2025 92 % 34,497 $ 1,682,000 1,530,429 151,571 $ 133,717 Private (d) 42,200 42,200 — 8/31/2023 12/31/2023 — 18,720 Consumer 250,000 32,324 217,676 11/14/2024 11/14/2025 70 % 13,901 (a) On March 31, 2023, this facility was amended to increase the aggregate maximum financing amount available from $ 1.20 billion to $ 1.25 billion. On May 22, 2023, this facility was amended to extend the expiration of liquidity provisions and final maturity date to November 22, 2023 and November 22, 2024, respectively. (b) This facility has a static advance rate until the expiration date of the liquidity provisions. The maximum advance rates for this facility are 90 % to 96 %, and the minimum advance rates are 84 % to 90 %. 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. (c) On April 3, 2023, the Company closed on this $ 250.0 million FFELP facility. On May 25, 2023, this facility was amended to increase the maximum financing amount from $ 250.0 million to $ 432.0 million. (d) On June 30, 2023, this facility was amended to extend the expiration of liquidity provisions to August 31, 2023. No additional amounts can be borrowed under this facility. 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 June 30, 2023, no amount was outstanding on the line of credit and $ 495.0 million was available for future use. 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 June 30, 2023, $ 6.8 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 maturity date of the second agreement (as of June 30, 2023) was July 26, 2023. Subsequent to June 30, 2023, the remaining outstanding balance of this facility was paid in full. 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 price of such securities on any scheduled reset date, and under the second agreement, the Company was subject to margin deficit payment requirements if the fair value of the securities subject to the agreement was less than the original purchase price 18 of such securities and the counter-party provided notice requiring such payment. Included in “bonds and notes payable” in the consolidated balance sheets as of June 30, 2023 was $ 347.6 million subject to the first agreement and $ 67.9 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 unsecured Federal Funds lines of credit with correspondent banks totaling $ 30.0 million at a stated interest rate at the time of borrowing. Nelnet Bank has also established an account at the Federal Reserve Bank (FRB), the Federal Home Loan Bank (FHLB), and an additional $ 10.0 million Federal Funds line of credit with a correspondent bank which must be fully collateralized. The FRB, FHLB, and secured Federal Funds line of credit accepts pledges of eligible securities. In addition, FFELP and private education loans are accepted as collateral for FRB borrowings. As of June 30, 2023 and December 31, 2022, Nelnet Bank had no amounts drawn on their Federal Funds, FRB, or FHLB lines of credit. As of June 30, 2023, the Bank has $ 20.0 million of collateral pledged with the FRB that it may borrow against. 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 June 30, Six months ended June 30, 2023 2022 2023 2022 Purchase price $ — ( 35,643 ) ( 828 ) ( 54,096 ) Par value — 36,700 908 55,229 Remaining unamortized cost of issuance — ( 17 ) ( 2 ) ( 62 ) Gain $ — 1,040 78 1,071 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 June 30, 2023, the Company holds $ 253.7 million (par value) of its own FFELP loan asset-backed securities. As of June 30, 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). In April 2023, the Company redeemed $ 188.6 million of FFELP loan asset-backed debt securities (bonds and notes payable) prior to their 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. This expense is included in "interest expense on bonds and notes payable and bank deposits" on the consolidated statements of income. 19 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 June 30, 2023 and December 31, 2022 is presented below. Non-Nelnet Bank Derivatives Basis Swaps The following table summarizes the Company’s outstanding basis swaps, 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 June 30, 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 June 30, 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 June 30, 2023 As of December 31, 2022 (a) Maturity Notional amount Weighted average fixed rate paid by the Company (b) Notional amount Weighted average fixed rate paid by the Company (b) 2024 $ — — % $ 2,000,000 0.35 % 2026 — — 500,000 1.02 2030 (c) 50,000 3.44 — — 2031 — — 100,000 1.53 2032 — — 200,000 2.92 $ 50,000 3.44 % $ 2,800,000 0.70 % (a) On March 15, 2023, 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). 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 $ 2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $ 183.2 million, which included $ 19.1 million related to current period settlements. (b) For the interest rate derivative maturing in 2030, the Company receives payments based on Secured Overnight Financing Rate (SOFR) that resets quarterly. For the interest rate derivative maturing in 2032, the Company was to receive payments based on SOFR that reset quarterly. For all other interest rate derivatives, the Company received payments based on three-month LIBOR that reset quarterly. (c) The Company entered into this derivative in June 2023. Nelnet Bank Derivatives Interest Rate Swaps Derivative instruments are used by Nelnet Bank to hedge the exposure to variability in cash flows of variable rate intercompany deposits primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Nelnet Bank has structured these derivatives so that each is economically effective; however, because these derivatives are hedging intercompany deposits, the derivative instruments are not eligible for hedge accounting in the consolidated financial statements. 20 As a result, the change in market value of these derivative instruments is reported in current period earnings and presented in "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. The following table summarizes the outstanding derivative instruments used by Nelnet Bank to hedge exposure to variability in cash flows related to variable rate intercompany deposits as of June 30, 2023. As of June 30, 2023 Maturity Notional amount Weighted average fixed rate paid by the Company (a) 2028 $ 40,000 3.33 % 2030 (b) 25,000 2.97 $ 65,000 3.19 % (a) For all interest rate derivatives, the Company receives payments based on SOFR that reset quarterly. (b) This derivative with a $ 25 million notional amount has a forward effective start date in April 2026. Unlike the Company's Non-Nelnet Bank derivatives, Nelnet Bank's derivatives are not cleared post-execution at a regulated clearinghouse. As such, the Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at fair value. As of June 30, 2023, the gross fair value of Nelnet Bank's interest rate swap derivatives was $ 1.1 million (an asset) that is included in "other assets" on the consolidated balance sheet. Consolidated Financial Statement Impact Related to Derivatives 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 June 30, Six months ended June 30, 2023 2022 2023 2022 Settlements: 1:3 basis swaps $ ( 65 ) 931 794 1,327 Interest rate swaps - floor income hedges 47 3,692 22,525 487 Interest rate swaps - Nelnet Bank 83 — 83 — Total settlements - income 65 4,623 23,402 1,814 Change in fair value: 1:3 basis swaps 235 ( 148 ) 211 741 Interest rate swaps - floor income hedges 662 40,549 ( 36,726 ) 185,394 Interest rate swaps - Nelnet Bank 1,108 — 1,108 — Total change in fair value - income (expense) 2,005 40,401 ( 35,407 ) 186,135 Derivative market value adjustments and derivative settlements, net - income (expense) $ 2,070 45,024 ( 12,005 ) 187,949 21 5. Investments and Notes Receivable Investments and notes receivable consisted of the following: As of June 30, 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) $ 329,256 5,064 ( 6,372 ) 327,948 463,861 3,498 ( 11,105 ) 456,254 Private education loan (b) 307,084 — ( 25,238 ) 281,846 335,903 — ( 29,438 ) 306,465 Other debt securities 59,631 3,050 ( 670 ) 62,011 158,589 151 ( 3,790 ) 154,950 Total Non-Nelnet Bank 695,971 8,114 ( 32,280 ) 671,805 958,353 3,649 ( 44,333 ) 917,669 Nelnet Bank: FFELP loan (c) 257,418 1,378 ( 2,430 ) 256,366 349,855 955 ( 8,853 ) 341,957 Private education loan 1,707 — ( 92 ) 1,615 1,941 — ( 122 ) 1,819 Other debt securities 120,471 161 ( 2,344 ) 118,288 131,481 18 ( 3,907 ) 127,592 Total Nelnet Bank 379,596 1,539 ( 4,866 ) 376,269 483,277 973 ( 12,882 ) 471,368 Total available-for-sale asset-backed securities $ 1,075,567 9,653 ( 37,146 ) 1,048,074 1,441,630 4,622 ( 57,215 ) 1,389,037 Equity securities 39,576 39,082 Total investments at fair value 1,087,650 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) 150,840 — Other debt securities 241 220 Total Nelnet Bank 151,081 220 Total held to maturity investments 155,781 18,774 Venture capital and funds: Measurement alternative (e) (f) 193,001 160,052 Equity method 109,988 89,332 Total venture capital and funds 302,989 249,384 Real estate: Equity method 85,284 80,364 Investment in ALLO: Voting interest/equity method (g) 43,588 67,538 Preferred membership interest and accrued and unpaid preferred return (h) 150,449 145,926 Total investment in ALLO 194,037 213,464 Beneficial interest in loan securitizations (i): Consumer loans and other 96,635 39,249 Private education loans 71,322 75,261 Federally insured student loans 23,017 24,228 Total beneficial interest in loan securitizations 190,974 138,738 Solar (j) ( 72,455 ) ( 55,448 ) Notes receivable 54,931 31,106 Tax liens, affordable housing, and other 7,115 7,416 Total investments (not measured at fair value) 918,656 683,798 Total investments and notes receivable $ 2,006,306 $ 2,111,917 22 (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 June 30, 2023, the par value and fair value of these securities was $ 6.8 million and $ 6.3 million, respectively. (b) A portion of private education loan asset-backed securities were subject to a repurchase agreement with a third party, as discussed in note 3 under "Repurchase Agreements." As of June 30, 2023, the par value and fair value of these securities was $ 307.6 million and $ 281.8 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 included pre-tax unrealized losses of $ 3.7 million related to the transfer. These unrealized losses are being 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 June 30, 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 second quarter of 2022, the Company recorded an impairment charge of $ 5.4 million related primarily to one of its venture capital investments accounted for under the measurement alternative method. The impairment expense is included in "impairment expense" on the consolidated statements of income. (g) 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 June 30, 2023 and 2022, the Company recognized losses of $ 12.2 million and $ 16.9 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment, and during the six months ended June 30, 2023 and 2022, the Company recognized losses of $ 32.4 million and $ 30.1 million, respectively. 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. (h) As of June 30, 2023, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $ 145.9 million and $ 4.5 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 $ 2.3 million and $ 2.1 million during the three months ended June 30, 2023 and 2022, respectively, and $ 4.5 million and $ 4.3 million during the six months ended June 30, 2023 and 2022, respectively. This income is included in "other, net" in "other income (expense)" on the consolidated statements of income. (i) 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 June 30, 2023, the Company's ownership correlates to approximately $ 680 million, $ 560 million, and $ 360 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations. (j) As of June 30, 2023, the Company has funded a total of $ 312.9 million in solar investments, which includes $ 120.0 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 June 30, 2023 represents the sum of total tax credits earned on solar projects placed-in-service through June 30, 2023 and the calculated HLBV net losses being larger than the total investment contributions made by the Company on such projects. As of June 30, 2023, the Company is committed to fund an additional $ 319.2 million on tax equity investments, of which $ 120.5 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 $ 7.9 million and $ 1.9 million during the three months ended June 30, 2023 and 2022, respectively, and $ 9.9 million and $ 2.9 million during the six months ended June 30, 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 $ 7.4 million and $ 2.0 million for the three months ended June 30, 2023 and 2022, respectively, and $ 10.1 million and $ 3.9 million during the six months ended June 30, 2023 and 2022, respectively, and is reflected in “net loss attributable to noncontrolling interests” in the consolidated statements of income. 23 The following table presents, by remaining contractual maturity, the amortized cost and fair value of debt securities at June 30, 2023: As of June 30, 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 $ 24,742 11,841 48,079 244,594 329,256 Private education loan — — — 307,084 307,084 Other debt securities — 99 — 59,532 59,631 Total Non-Nelnet Bank 24,742 11,940 48,079 611,210 695,971 Fair value 24,735 11,915 46,921 588,234 671,805 Nelnet Bank: FFELP loan 37,270 — 44,458 175,690 257,418 Private education loan — — — 1,707 1,707 Other debt securities 2,112 19,490 50,919 47,950 120,471 Total Nelnet Bank 39,382 19,490 95,377 225,347 379,596 Fair value 38,911 19,370 93,795 224,193 376,269 Total available-for-sale asset-backed securities at amortized cost $ 64,124 31,430 143,456 836,557 1,075,567 Total available-for-sale asset-backed securities at fair value $ 63,646 31,285 140,716 812,427 1,048,074 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 — 3,678 — 147,162 150,840 Other debt securities 241 — — — 241 Total Nelnet Bank 241 3,678 — 147,162 151,081 Fair value 241 3,743 — 147,853 151,837 Total held-to-maturity investments at amortized cost $ 4,941 3,678 — 147,162 155,781 Total held-to-maturity investments at fair value $ 4,941 3,743 — 147,853 156,537 The following table presents securities classified as available-for-sale that have gross unrealized losses at June 30, 2023 and the fair value of such securities as of June 30, 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 June 30, 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 $ ( 6,349 ) 208,144 ( 23 ) 532 ( 6,372 ) 208,676 Private education loan ( 4,304 ) 71,534 ( 20,934 ) 210,312 ( 25,238 ) 281,846 Other debt securities ( 670 ) 24,304 — — ( 670 ) 24,304 Total Non-Nelnet Bank ( 11,323 ) 303,982 ( 20,957 ) 210,844 ( 32,280 ) 514,826 Nelnet Bank: FFELP loan ( 827 ) 89,190 ( 1,603 ) 88,972 ( 2,430 ) 178,162 Private education loan ( 92 ) 1,616 — — ( 92 ) 1,616 Other debt securities ( 293 ) 30,671 ( 2,051 ) 57,692 ( 2,344 ) 88,363 Total Nelnet Bank ( 1,212 ) 121,477 ( 3,654 ) 146,664 ( 4,866 ) 268,141 Total available-for-sale asset-backed securities $ ( 12,535 ) 425,459 ( 24,611 ) 357,508 ( 37,146 ) 782,967 24 The following table summarizes the gross proceeds received and gross realized gains and losses related to sales of available-for-sale asset-backed securities. Three months ended Six months ended June 30, June 30, 2023 2022 2023 2022 Gross proceeds from sales $ 85,375 205,772 577,548 319,752 Gross realized gains $ 920 909 2,194 3,874 Gross realized losses ( 2 ) ( 60 ) ( 6,258 ) ( 232 ) Net gains (losses) $ 918 849 ( 4,064 ) 3,642 6. Intangible Assets Intangible assets consisted of the following: Weighted average remaining useful life as of June 30, 2023 (months) As of As of June 30, 2023 December 31, 2022 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 43,178 and $ 55,116 , respectively) 107 $ 47,529 51,738 Trade names (net of accumulated amortization of $ 2,085 and $ 617 , respectively) 16 6,825 8,293 Computer software (net of accumulated amortization of $ 400 and $ 6,400 , respectively) 46 1,320 1,520 Other (net of accumulated amortization of $ 821 and $ 490 , respectively) 48 1,619 1,950 Total - amortizable intangible assets, net 93 $ 57,293 63,501 The Company recorded amortization expense on its intangible assets of $ 3.5 million and $ 2.9 million for the three months ended June 30, 2023 and 2022, respectively, and $ 6.2 million and $ 5.3 million during the six months ended June 30, 2023 and 2022, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of June 30, 2023, the Company estimates it will record amortization expense as follows: 2023 (July 1 - December 31) $ 10,765 2024 8,775 2025 7,141 2026 6,294 2027 5,814 2028 and thereafter 18,504 $ 57,293 7. Goodwill The following table presents the carrying amount of goodwill as of June 30, 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 25 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, 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 totaling $ 140.4 million, 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 June 30, 2023 December 31, 2022 Brokered CDs, net of brokered deposit fees $ 203,418 254,817 Retail and other savings (529, STFIT, and HSA) 504,858 410,556 Retail and other CDs (commercial and institutional) 22,770 25,949 Total interest-bearing deposits $ 731,046 691,322 The following table presents certificates of deposit remaining maturities as of June 30, 2023: After two years to three years $ 151,559 After three years to four years 74,282 After four years to five years 347 Total $ 226,188 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 June 30, 2023 and December 31, 2022. 26 9. Earnings per Common Share The following table presents 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 June 30, 2023 2022 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 27,665 602 28,267 83,485 1,644 85,129 Denominator: Weighted-average common shares outstanding - basic and diluted 36,670,933 797,464 37,468,397 36,981,990 728,224 37,710,214 Earnings per share - basic and diluted $ 0.75 0.75 0.75 2.26 2.26 2.26 Six months ended June 30, 2023 2022 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 53,611 1,143 54,754 266,735 5,041 271,776 Denominator: Weighted-average common shares outstanding - basic and diluted 36,625,819 781,024 37,406,843 37,172,606 702,502 37,875,108 Earnings per share - basic and diluted $ 1.46 1.46 1.46 7.18 7.18 7.18 27 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 June 30, 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 $ 1,058 5,268 253,763 13,661 25,855 ( 15,578 ) 284,027 Interest expense — — 232,313 8,171 8,242 ( 15,578 ) 233,148 Net interest income 1,058 5,268 21,450 5,490 17,613 — 50,879 Less provision for loan losses — — 8,099 1,493 — — 9,592 Net interest income after provision for loan losses 1,058 5,268 13,351 3,997 17,613 — 41,287 Other income (expense): Loan servicing and systems revenue 122,020 — — — — — 122,020 Intersegment revenue 7,246 65 — — — ( 7,311 ) — Education technology, services, and payment processing revenue — 109,858 — — — — 109,858 Solar construction revenue — — — — 4,735 — 4,735 Other, net 605 — 1,319 620 ( 9,553 ) — ( 7,011 ) Gain on sale of loans, net — — 15,511 — — — 15,511 Impairment expense — — — — — — — Derivative settlements, net — — ( 18 ) 83 — — 65 Derivative market value adjustments, net — — 897 1,108 — — 2,005 Total other income (expense), net 129,871 109,923 17,709 1,811 ( 4,818 ) ( 7,311 ) 247,183 Cost of services: Cost to provide education technology, services, and payment processing services — 40,407 — — — — 40,407 Cost to provide solar construction services — — — — 9,122 — 9,122 Total cost of services — 40,407 — — 9,122 — 49,529 Operating expenses: Salaries and benefits 76,141 38,351 1,096 2,297 26,965 ( 145 ) 144,706 Depreciation and amortization 4,863 2,815 — 51 10,923 — 18,652 Other expenses 13,818 9,692 4,115 1,624 16,747 — 45,997 Intersegment expenses, net 19,079 5,884 8,145 92 ( 26,034 ) ( 7,166 ) — Total operating expenses 113,901 56,742 13,356 4,064 28,601 ( 7,311 ) 209,355 Income (loss) before income taxes 17,028 18,042 17,704 1,744 ( 24,928 ) — 29,586 Income tax (expense) benefit ( 4,086 ) ( 4,327 ) ( 4,249 ) ( 396 ) 2,567 — ( 10,491 ) Net income (loss) 12,942 13,715 13,455 1,348 ( 22,361 ) — 19,095 Net (income) loss attributable to noncontrolling interests — ( 19 ) — — 9,191 — 9,172 Net income (loss) attributable to Nelnet, Inc. $ 12,942 13,696 13,455 1,348 ( 13,170 ) — 28,267 Total assets as of June 30, 2023 $ 173,926 482,922 14,667,357 1,005,043 2,091,500 ( 613,116 ) 17,807,632 28 Three months ended June 30, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 246 874 140,396 5,212 6,235 ( 1,376 ) 151,587 Interest expense 20 — 69,708 1,639 3,652 ( 1,376 ) 73,642 Net interest income 226 874 70,688 3,573 2,583 — 77,945 Less provision for loan losses — — 8,827 582 — — 9,409 Net interest income after provision for loan losses 226 874 61,861 2,991 2,583 — 68,536 Other income (expense): Loan servicing and systems revenue 124,873 — — — — — 124,873 Intersegment revenue 8,381 7 — — — ( 8,388 ) — Education technology, services, and payment processing revenue — 91,031 — — — — 91,031 Solar construction revenue — — — — — — — Other, net 611 — 5,133 157 6,747 — 12,647 Gain on sale of loans, net — — — — — — — Impairment expense — — — — ( 6,284 ) — ( 6,284 ) Derivative settlements, net — — 4,623 — — — 4,623 Derivative market value adjustments, net — — 40,401 — — — 40,401 Total other income (expense), net 133,865 91,038 50,157 157 463 ( 8,388 ) 267,291 Cost of services: Cost to provide education technology, services, and payment processing services — 30,852 — — — — 30,852 Cost to provide solar construction services — — — — — — — Total cost of services — 30,852 — — — — 30,852 Operating expenses: Salaries and benefits 83,220 32,120 614 1,714 23,729 — 141,398 Depreciation and amortization 5,318 2,698 — 4 10,230 — 18,250 Other expenses 13,507 6,750 3,543 899 12,241 — 36,940 Intersegment expenses, net 18,558 4,805 8,513 57 ( 23,545 ) ( 8,388 ) — Total operating expenses 120,603 46,373 12,670 2,674 22,655 ( 8,388 ) 196,588 Income (loss) before income taxes 13,488 14,687 99,348 474 ( 19,609 ) — 108,387 Income tax (expense) benefit ( 3,237 ) ( 3,525 ) ( 23,844 ) ( 106 ) 5,228 — ( 25,483 ) Net income (loss) 10,251 11,162 75,504 368 ( 14,381 ) — 82,904 Net (income) loss attributable to noncontrolling interests — 53 — — 2,172 — 2,225 Net income (loss) attributable to Nelnet, Inc. $ 10,251 11,215 75,504 368 ( 12,209 ) — 85,129 Total assets as of June 30, 2022 $ 240,437 546,235 17,388,228 864,659 2,273,216 ( 688,762 ) 20,624,013 29 Six months ended June 30, 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 $ 2,095 11,304 488,482 25,920 47,054 ( 24,860 ) 549,995 Interest expense — — 421,511 15,385 20,560 ( 24,860 ) 432,597 Net interest income 2,095 11,304 66,971 10,535 26,494 — 117,398 Less provision for loan losses — — 39,957 3,910 — — 43,867 Net interest income after provision for loan losses 2,095 11,304 27,014 6,625 26,494 — 73,531 Other income (expense): Loan servicing and systems revenue 261,247 — — — — — 261,247 Intersegment revenue 15,036 121 — — — ( 15,157 ) — Education technology, services, and payment processing revenue — 243,462 — — — — 243,462 Solar construction revenue — — — — 13,386 — 13,386 Other, net 1,213 — 4,164 830 ( 27,287 ) — ( 21,083 ) Gain on sale of loans, net — — 27,323 — — — 27,323 Impairment expense — — — — — — — Derivative settlements, net — — 23,319 83 — — 23,402 Derivative market value adjustments, net — — ( 36,515 ) 1,108 — — ( 35,407 ) Total other income (expense), net 277,496 243,583 18,291 2,021 ( 13,901 ) ( 15,157 ) 512,330 Cost of services: Cost to provide education technology, services, and payment processing services — 88,110 — — — — 88,110 Cost to provide solar construction services — — — — 17,422 — 17,422 Total cost of services — 88,110 — — 17,422 — 105,532 Operating expenses: Salaries and benefits 160,701 76,264 1,851 4,361 54,384 ( 145 ) 297,416 Depreciation and amortization 9,377 5,393 — 56 20,454 — 35,279 Other expenses 27,131 17,755 9,131 2,406 30,358 — 86,781 Intersegment expenses, net 40,136 11,684 16,841 173 ( 53,822 ) ( 15,012 ) — Total operating expenses 237,345 111,096 27,823 6,996 51,374 ( 15,157 ) 419,476 Income (loss) before income taxes 42,246 55,681 17,482 1,650 ( 56,203 ) — 60,853 Income tax (expense) benefit ( 10,139 ) ( 13,393 ) ( 4,196 ) ( 362 ) 9,348 — ( 18,741 ) Net income (loss) 32,107 42,288 13,286 1,288 ( 46,855 ) — 42,112 Net (income) loss attributable to noncontrolling interests — 119 — — 12,523 — 12,642 Net income (loss) attributable to Nelnet, Inc. $ 32,107 42,407 13,286 1,288 ( 34,332 ) — 54,754 Total assets as of June 30, 2023 $ 173,926 482,922 14,667,357 1,005,043 2,091,500 ( 613,116 ) 17,807,632 30 Six months ended June 30, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 313 1,213 258,994 8,241 10,227 ( 2,205 ) 276,783 Interest expense 44 — 115,711 2,494 5,678 ( 2,205 ) 121,721 Net interest income 269 1,213 143,283 5,747 4,549 — 155,062 Less provision for loan losses — — 7,963 1,011 — — 8,974 Net interest income after provision for loan losses 269 1,213 135,320 4,736 4,549 — 146,088 Other income (expense): Loan servicing and systems revenue 261,241 — — — — — 261,241 Intersegment revenue 16,860 10 — — — ( 16,870 ) — Education technology, services, and payment processing revenue — 203,317 — — — — 203,317 Solar construction revenue — — — — — — — Other, net 1,350 — 11,644 1,659 7,872 — 22,524 Gain on sale of loans, net — — 2,989 — — — 2,989 Impairment expense — — — — ( 6,284 ) — ( 6,284 ) Derivative settlements, net — — 1,814 — — — 1,814 Derivative market value adjustments, net — — 186,135 — — — 186,135 Total other income (expense), net 279,451 203,327 202,582 1,659 1,588 ( 16,870 ) 671,736 Cost of services: Cost to provide education technology, services, and payment processing services — 66,397 — — — — 66,397 Cost to provide solar construction services — — — — — — — Total cost of services — 66,397 — — — — 66,397 Operating expenses: Salaries and benefits 175,192 63,406 1,205 3,268 47,742 — 290,813 Depreciation and amortization 10,272 5,013 — 7 19,914 — 35,206 Other expenses 29,721 12,514 6,576 1,584 26,045 — 76,439 Intersegment expenses, net 38,955 9,410 17,344 102 ( 48,941 ) ( 16,870 ) — Total operating expenses 254,140 90,343 25,125 4,961 44,760 ( 16,870 ) 402,458 Income (loss) before income taxes 25,580 47,800 312,777 1,434 ( 38,623 ) — 348,969 Income tax (expense) benefit ( 6,139 ) ( 11,472 ) ( 75,066 ) ( 328 ) 11,826 — ( 81,180 ) Net income (loss) 19,441 36,328 237,711 1,106 ( 26,797 ) — 267,789 Net (income) loss attributable to noncontrolling interests — 53 — — 3,934 — 3,987 Net income (loss) attributable to Nelnet, Inc. $ 19,441 36,381 237,711 1,106 ( 22,863 ) — 271,776 Total assets as of June 30, 2022 $ 240,437 546,235 17,388,228 864,659 2,273,216 ( 688,762 ) 20,624,013 31 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 June 30, Six months ended June 30, 2023 2022 2023 2022 Government loan servicing $ 95,736 98,815 204,618 207,940 Private education and consumer loan servicing 12,063 12,122 24,225 24,995 FFELP loan servicing 3,554 4,011 6,921 8,259 Software services 5,962 7,907 15,660 15,308 Outsourced services 4,705 2,018 9,823 4,739 Loan servicing and systems revenue $ 122,020 124,873 261,247 261,241 Education Technology, Services, and Payment Processing Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Tuition payment plan services $ 30,825 27,637 65,012 58,352 Payment processing 31,827 27,968 75,868 66,039 Education technology and services 46,216 34,956 101,004 78,207 Other 990 470 1,578 719 Education technology, services, and payment processing revenue $ 109,858 91,031 243,462 203,317 Solar Construction GRNE Solar was acquired on July 1, 2022; accordingly, there are no results for the three and six months ended June 30, 2022. Three months ended June 30, 2023 Six months ended June 30, 2023 Commercial revenue $ 2,004 8,238 Residential revenue 2,406 5,181 Other 325 ( 33 ) Solar construction revenue $ 4,735 13,386 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 June 30, Six months ended June 30, 2023 2022 2023 2022 ALLO preferred return $ 2,274 2,140 4,523 4,257 Borrower late fee income 2,168 2,436 4,414 4,867 Administration/sponsor fee income 1,697 2,012 3,468 4,134 Investment advisory services 1,639 1,482 3,251 2,764 Loss from ALLO voting membership interest investment ( 12,169 ) ( 16,941 ) ( 32,382 ) ( 30,071 ) Loss from solar investments ( 7,929 ) ( 1,854 ) ( 9,876 ) ( 2,884 ) Investment activity, net ( 3,574 ) 18,091 ( 7,154 ) 29,924 Other 8,883 5,281 12,673 9,533 Other, net $ ( 7,011 ) 12,647 ( 21,083 ) 22,524 32 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 $ 95.7 million and $ 98.8 million for the three months ended June 30, 2023 and 2022, respectively, and $ 204.6 million and $ 207.9 million for the six months ended June 30, 2023 and 2022, respectively. The Company also licensed its hosted servicing software to two of the six servicers for the Department. Contract Modifications and Award Effective April 1, 2023, the Department modified the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes (the “servicing contracts”) to reduce the monthly fee under the servicing contracts by $ 0.19 per borrower on certain borrower statuses. The Company's current student loan servicing contracts with the Department were scheduled to expire on December 14, 2023. In April 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 student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which will replace the existing legacy Department student loan servicing contracts. 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 third-party servicers that were awarded a USDS contract 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 April 2023, the Department indicated that servicing under the USDS contracts will go live in 2024 and it will extend the current legacy servicing contracts 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 new 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 the second quarter of 2023, the Company completed the transfer of 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 - Full Service Borrowers In February 2023, the Department notified the Company of its intention to transfer up to one million of the Company’s existing Department servicing borrowers to another third-party servicer. This transfer decision was not based on the Company's performance. These transfers began in the second quarter of 2023 and were completed in July 2023. In addition, the Company completed the transfer of active borrowers of Great Lakes direct loan servicing volume to the Nelnet servicing platform (the GreatNet Federal servicing platform) during the second quarter of 2023. The Company anticipates the 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. Loan Volume Transfers - Remote Hosted Servicing Borrowers Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, utilized Nelnet Servicing's platform to service their loans for the Department (remote hosted servicing customer). 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 third-party servicing platform. As of December 31, 2022, Edfinancial was servicing 4.5 million borrowers for the Department on the Company’s platform. The Company began transferring Edfinancial's servicing volume to another servicing platform in the first quarter of 2023 which reduced the number of Edfinancial's borrowers serviced on the Company's platform 33 to 3.5 million borrowers as of March 31, 2023 and 579,000 borrowers as of June 30, 2023. Edfinancial's remaining borrowers were transferred off of the Company's platform in July 2023. In February 2023, the Company’s other remote hosted servicing customer notified the Company the Department intended to move that customer’s servicing borrowers to a different third-party servicing platform. This transfer decision was the result of this customer not being one of the servicers awarded a USDS contract. As of March 31, 2023, this remote hosted servicing customer was servicing 1.4 million borrowers for the Department on the Company's platform. The majority of this volume was transferred to another third-party servicing platform during the second quarter of 2023, and the remaining borrowers were transferred off of the Company's platform in July 2023. As a result of the transfers discussed above, the Company has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods. 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 with 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. Federal courts blocked implementation of the Department's broad based student debt relief plan and on June 30, 2023, the Supreme Court struck down the Department's plan. While the current version of the Department's forgiveness plan has been invalidated, the Department recently announced that it has begun a new rulemaking process to consider other ways to provide debt relief to borrowers. The Company cannot predict the timing, nature, or ultimate outcome of any future potential student loan forgiveness programs as a result of the rulemaking process. Revenue earned under the current Department servicing contracts will decrease in future periods if the Department successfully implements broad based loan forgiveness. 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 June 30, 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 1,047,975 1,048,074 100 1,388,937 1,389,037 Equity securities 105 — 105 6,719 — 6,719 Equity securities measured at net asset value (a) 39,471 32,363 Total investments 204 1,047,975 1,087,650 6,819 1,388,937 1,428,119 Derivative instruments (b) — 1,108 1,108 — — — Total assets $ 204 1,049,083 1,088,758 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. (b) Nelnet Bank derivatives are accounted for at fair value on a recurring basis. The fair value of derivative financial instruments is determined using a market approach in which derivative pricing models use the stated terms of the contracts and observable yield curves and volatilities from active markets. When determining the fair value of derivatives, Nelnet Bank takes into account counterparty credit risk for positions where it is exposed to the counterparty on a net basis by assessing exposure net of collateral held. The net exposures for each counterparty are adjusted based on market information available for the specific counterparty. 34 The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of June 30, 2023 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 13,809,016 13,541,903 — — 13,809,016 Accrued loan interest receivable 818,709 818,709 — 818,709 — Cash and cash equivalents 121,769 121,769 121,769 — — Investments (at fair value) 1,087,650 1,087,650 204 1,047,975 — Investments - held to maturity 156,537 155,781 — 156,537 — Notes receivable 54,931 54,931 — 54,931 — Beneficial interest in loan securitizations 228,603 190,974 — — 228,603 Restricted cash 484,223 484,223 484,223 — — Restricted cash – due to customers 208,033 208,033 208,033 — — Derivative instruments 1,108 1,108 — 1,108 — Financial liabilities: Bonds and notes payable 12,724,618 13,070,140 — 12,724,618 — Accrued interest payable 35,926 35,926 — 35,926 — Bank deposits 704,116 731,046 449,297 254,819 — Due to customers 299,552 299,552 299,552 — — 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.