What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-07 · 251 added, 222 removed, 771 unchanged (38% of the section changed)

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

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2023 and 2022.

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and nine months ended September 30, 2023 and 2022.

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

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This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document.

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

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

for future operations, and statements that assume or are dependent upon future events, are forward-looking statements.

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

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

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

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

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

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

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

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

The information below presents the operating results (net income (loss) before taxes) for each reportable operating segment and Corporate and Other Activities for the three and six months ended June 30, 2023 and 2022.

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

Three months ended June 30, Six months ended June 30, Certain Items Impacting Comparability

Three months ended September 30, Nine months ended September 30, Certain Items Impacting Comparability

(All dollar amounts below are pre-tax)

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The Company reduced staff in the first and second quarters of 2023 to manage expenses due to the delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for the Company's Department servicing contracts.

NBS 18,042 14,687 55,681 47,800 • The recognition of $5.3 million and $11.3 million of interest income for the three and six months ended June 30, 2023, respectively, compared with $0.9 million and $1.2 million for the same periods in 2022, due to higher interest rates.

Margin was also positively impacted in 2023 due to $4.8 million of deconversion revenue recognized in the third quarter of 2023 related to a remote hosted servicing customer leaving the Company's platform.

NBS 22,123 18,655 77,803 66,454 • The recognition of $8.9 million and $20.2 million of interest income for the three and nine months ended September 30, 2023, respectively, compared with $3.7 million and $4.9 million for the same periods in 2022, due to higher interest rates.

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

Additionally, the Company has had significant growth in FACTS Education Solutions instructional services revenue which has a lower before tax operating margin compared to the rest of the Company's services.

AGM 17,704 99,348 17,482 312,777 • A net gain of $0.9 million and net loss of $36.5 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three and six months ended June 30, 2023, respectively, compared with a net gain of $40.4 million and $186.1 million for the same periods in 2022.

AGM 40,562 111,872 58,041 424,647 • A net gain of $1.2 million and net loss of $35.3 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three and nine months ended September 30, 2023, respectively, compared with a net gain of $53.0 million and $239.1 million for the same periods in 2022.

• The recognition of a $25.9 million non-cash expense in the second quarter of 2023 as the result of redeeming certain asset-backed debt securities prior to their maturity and writing off the remaining unamortized debt discount at the time of redemption.

• A decrease of $18.7 million and $15.2 million in net interest income due to a decrease in core loan spread for the three and six months ended June 30, 2023, respectively, compared with the same periods in 2022.

• A decrease of $7.5 million and $19.8 million in net interest income due to the decrease in the average balance of loans for the three and six months ended June 30, 2023, respectively, compared with the same periods in 2022.

• The recognition of $15.5 million and $27.3 million in gains from the sale of loans for the three and six months ended June 30, 2023, respectively, compared with no gains and $3.0 million for the same periods in 2022.

• The recognition of $8.1 million and $40.0 million in provision for loan losses for the three and six months ended June 30, 2023, respectively, compared with $8.8 million and $8.0 million for the same periods in 2022.

• A decrease of $24.0 million and $38.7 million in net interest income due to a decrease in core loan spread for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.

• A decrease of $4.9 million and $24.2 million in net interest income due to the decrease in the average balance of loans for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.

• The recognition of $18.1 million and $47.7 million of investment interest for the three and nine months ended September 30, 2023, respectively, compared with $10.3 million and $28.1 million for the same periods in 2022 due to an increase of interest earned on restricted cash due to higher interest rates.

• The recognition of $5.4 million and $32.7 million in gains from the sale of loans for the three and nine months ended September 30, 2023, respectively, compared with $2.6 million and $5.6 million for the same periods in 2022.

• The recognition of $8.7 million and $48.7 million in provision for loan losses for the three and nine months ended September 30, 2023, respectively, compared with $9.2 million and $17.2 million for the same periods in 2022.

Nelnet Bank 2,299 1,055 3,951 2,489

Corporate (24,928) (19,609) (56,203) (38,623) • An increase of $14.5 million and $20.9 million in net interest income from the Company's cash and investment (bond) portfolio due to an increase in interest rates for the three and six months ended June 30, 2023, respectively, compared with the same periods in 2022.

• The recognition of net investment losses of $1.6 million and $4.8 million for the three and six months ended June 30, 2023, respectively, compared with net investment income of $18.3 million and $26.7 million for the same periods in 2022.

In the second quarter or 2022, the Company recognized a $15.2 million gain as a result of the revaluation of the Company's previously held 50% ownership interest in NGWeb Solutions, LLC ("NextGen") (previously accounted for under the equity method) as a result of the Company purchasing an additional 30% ownership interests.

• The recognition of a net loss of $12.2 million and $32.4 million related to the Company’s equity investment in ALLO for the three and six months ended June 30, 2023, respectively, compared with a net loss of $16.9 million and $30.1 million for the same periods in 2022.

• The recognition of $8.2 million and $11.3 million of losses for the three and six months ended June 30, 2023, respectively, from the Company's acquisition of GRNE Solar on July 1, 2022.

• The recognition of an impairment charge of $6.3 million in the second quarter of 2022 related primarily to a venture capital investment.

Corporate (36,483) (26,442) (92,686) (65,061) • An increase of $4.2 million and $25.1 million in net interest income from the Company's cash and investment (bond) portfolio due to an increase in interest rates for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.

• The recognition of net investment income of $0.3 million and losses of $4.5 million for the three and nine months ended September 30, 2023, respectively, compared with net investment income of $10.5 million and $37.2 million for the same periods in 2022.

• The recognition of $4.9 million and $16.2 million of losses from the Company's acquisition of GRNE Solar on July 1, 2022 for the three and nine months ended September 30, 2023, respectively, compared with losses of $0.7 million for both the comparable periods in 2022.

• The recognition of an impairment charge of $4.7 million in the third quarter of 2023 related to real estate leases as the Company continues to downsize its facility footprint as a result of associates working from home compared with $6.2 million in the second quarter of 2022 related primarily to a venture capital investment.

Income before income taxes 52,970 127,055 113,823 476,023

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CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's consolidated operating results for the three and six months ended June 30, 2023 compared with the same periods in 2022 is provided below.

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

The performance of the Company’s portfolio is driven by net interest income (which includes financing costs) and losses related to credit quality of the assets, along with the cost to administer and service the assets and related debt.

An analysis of the Company's consolidated operating results for the three and nine months ended September 30, 2023 compared with the same periods in 2022 is provided below.

The Company operates as distinct reportable operating segments as described above.

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Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis.

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2023 2022 2023 2022 Additional information

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Less provision for loan losses 10,659 9,665 54,526 18,640 Represents the current period provision to reflect the lifetime expected credit losses related to the Company's loan portfolio.

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.

The primary item impacting provision for loan losses was the establishment of an initial allowance for loans originated and acquired during the periods presented.

Net interest income after provision for loan losses 66,733 66,843 140,265 212,929

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Other, net (211) 2,225 (21,293) 24,750 See table below for the components of "other, net."

Gain on sale of loans, net 15,511 — 27,323 2,989 The Company sold $261.9 million (par value) and $158.3 million (par value) of consumer and other loans in the first and second quarter of 2023, respectively and recognized net gains of $11.8 million and $15.5 million, respectively.

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

Impairment expense — (6,284) — (6,284) During the second quarter of 2022, the Company recorded impairment expense of $6.3 million related primarily to a venture capital investment.

Gain on sale of loans, net 5,362 2,627 32,685 5,616 The Company recognized gains from selling portfolios of loans in 2023 and 2022.

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

Impairment and other expense, net (4,974) 121 (4,974) (6,163) During the third quarter of 2023, the Company recorded an expense of $5.0 million related to real estate leases as the Company continues to downsize its facility footprint as a result of associates working from home.

During the second quarter of 2022, the Company recorded an expense of $6.2 million related primarily to a venture capital investment.

Derivative settlements, net 817 10,271 24,219 12,085 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

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Cost to provide education technology, services, and payment processing services 43,694 42,676 131,804 109,073 Represents direct costs to provide payment processing and instructional services in ETS&PP.

Increase was primarily due to additional instructional services costs.

See ETS&PP operating segment - results of operations.

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

Since the acquisition of GRNE, it has incurred low and, in some cases, negative margins on certain projects.

As existing contracts are completed and revenue from new projects grows as a percent of overall revenue, the Company expects margin to improve in future periods.

Total cost of services 51,477 48,644 157,008 115,041

Operating expenses:

Salaries and benefits 144,706 141,398 297,416 290,813 Increase was due to an increase in headcount in ETS&PP to support the growth of its customer base and the investment in the development of new technologies.

Salaries and benefits 141,204 147,198 438,620 438,010 Increase for the nine months ended September 30, 2023 compared with the same period in 2022 was primarily due to (i) an increase in headcount in ETS&PP to support the growth of its customer base and the investment in the development of new technologies;

and (ii) the acquisition of GRNE Solar on July 1, 2022.

This increase was partially offset by staff reductions in LSS in the first and second quarters of 2023 to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contracts.

In addition, increase was due to the acquisition of GRNE Solar on July 1, 2022.

The Company expects salaries and benefits beginning to increase at LSS in the fourth quarter of 2023 as it hires additional associates as a result of Department borrowers returning to repayment on September 1, 2023.

Depreciation and amortization 21,835 18,772 57,114 53,978 Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions.

Increase was primarily due to an increase in the amortization of intangibles from the GRNE Solar acquisition on July 1, 2022.

Other expenses 51,370 43,858 138,154 120,297 Includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs.

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Income before income taxes 52,970 127,055 113,823 476,023

Income tax expense 10,491 25,483 18,741 81,180 The effective tax rate was 27.1% and 23.0% for the three months ended June 30, 2023 and 2022, respectively, and 25.5% and 23.0% for the six months ended June 30, 2023 and 2022, respectively.

The increase in the effective tax rate in 2023 compared with 2022 was due to an increase in the Company's state effective tax rate due to the composition of income earned in certain states.

Income tax expense 10,734 26,586 29,475 107,765 The effective tax rate was 19.1% and 20.2% for the three months ended September 30, 2023 and 2022, respectively, and 22.7% and 22.2% for the nine months ended September 30, 2023 and 2022, respectively.

The Company expects its effective tax rate will range between 21% and 23% for the remainder of 2023.

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The following table summarizes 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,

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

2023 2022 2023 2022 Additional information

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Real Estate Venture Capital Equity / Bonds Total Real Estate Venture Capital Equity / Bonds Total

Three months ended June 30,

Three months ended September 30,

Corporate $ (535) 286 567 318 9,717 (39) 792 10,470

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$ (535) (1,613) 1,132 (1,016) 9,717 (51) 1,035 10,701

Six months ended June 30,

Nine months ended September 30,

Corporate $ (849) (605) (3,070) (4,524) 17,695 22,158 (2,673) 37,180

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Loan Servicing Volumes

2021 March 31,

2022 June 30,

September 30,

2022 December 31,

2023 June 30,

2023 March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

2022 December 31,

Servicing volume (dollars in millions):

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

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

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

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

The Company also earned remote hosted servicing revenue by licensing software to certain third-party servicers for the Department.

Contract Modifications and Award

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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.

On October 11, 2023, the USDS contract awarded to NDS was novated to Nelnet Servicing.

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.

The Department's total loan servicing volume of more than 37 million existing borrowers will be allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract based on service and performance levels.

Under the New Government Servicing Contract, Nelnet Servicing immediately began to make required servicing platform enhancements, for which it 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.

Until servicing under the USDS contracts goes live, which is anticipated to be during the second quarter of 2024, 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.

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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.

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

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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.

As a result of the transfers discussed above, the Company currently has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods.

However, the Company has executed an agreement with a third-party servicer awarded a USDS contract to license its servicing software to such entity and the Company anticipates earning remote hosted servicing revenue from this new customer when USDS goes live beginning in the second quarter of 2024.

The amount of revenue earned by the Company from this new customer will depend on the number of servicing borrowers allocated by the Department to the new customer.

The Company does not have volume projections for the new customer at this time.

Department of Education Debt Relief

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Under the CARES Act, beginning in March 2020, federal student loan payments and interest accruals were suspended for all borrowers that had loans owned by the Department.

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

After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension will end August 31, 2023, and borrowers are scheduled to return to repayment on September 1, 2023.

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

During the fourth quarter of 2021 and first quarter of 2022, the Company earned additional revenue from the Department based on incremental work, including outbound engagement, being performed by the Company to support the anticipated Department

borrowers coming out of forbearance.

As a result of the CARES Act, the Company received less servicing

revenue per borrower from the Department based on the borrower forbearance status than what was earned on such accounts prior to these provisions.

After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension ended August 31, 2023, and borrowers returned to repayment on September 1, 2023.

The Company anticipates revenue per borrower from the Department will increase with borrowers transitioned back to repayment under the legacy government contracts from the CARES Act levels.

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

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

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

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

The Company incurred a charge of $4.3 million related to the staff reductions that was primarily recognized in the first and second quarters of 2023.

Borrowers Return to Repayment

As discussed above, after multiple extensions of the student loan payment pause that began in March 2020, the payment and interest accrual suspension ended on August 31, 2023, and all borrowers returned to repayment on September 1, 2023.

This unprecedented event, along with frequent program changes announced and/or proposed by the Department, has generated extraordinary call volume and web traffic that has adversely impacted the Company’s level of service.

In August 2023, the Company began to hire additional associates to support borrowers returning to repayment.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

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Other income 687 596 1,900 1,946 Represents revenue earned from providing administrative support and marketing services.

Total other income 129,871 133,865 277,496 279,451

Impairment expense (296) — (296) — The Company continues to evaluate the use of office space as a large number of associates continue to work from home.

As a result, the Company recorded an additional impairment charge related to certain facilities no longer used by the Company.

Total other income, net 135,227 143,074 412,722 422,526

Salaries and benefits 73,310 82,067 234,012 257,259 Decrease in 2023 compared with 2022 was due to the Company being fully staffed with contact center operations and support associates in 2022 in preparation for the resumption of federal student loan payments and other activities after the CARES Act suspension.

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See "Reduction in Staff" above for additional details.

The Company expects salaries and benefits to increase beginning in the fourth quarter of 2023 as it hires additional associates as a result of Department borrowers returning to repayment on September 1, 2023.

Depreciation and amortization 5,023 5,784 14,400 16,056

Other expenses 13,818 13,507 27,131 29,721 Decrease in the first half of 2023 compared with 2022 was due to a decrease in professional fees and facility costs.

Other expenses 15,629 16,654 42,760 46,375 Decrease in 2023 compared with 2022 was due to a decrease in professional fees and facility costs.

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

Intersegment expenses 19,079 18,558 40,136 38,955 Represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Intersegment expenses 17,894 17,486 58,030 56,442 Represents costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Total operating expenses 111,856 121,991 349,202 376,132

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Before tax operating margin increased in 2023 compared with 2022 due primarily to a decrease in salaries and benefits expense as described above.

The increase in the three months ended September 30, 2023 compared with the same period in 2022 was also due to $4.8 million of revenue recognized by the Company in the third quarter of 2023 associated with deconversion of remote hosted borrowers from a customer leaving the Company's platform.

Loan servicing and systems revenue

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

Government loan servicing $ 100,154 104,428 304,769 312,368 Represents revenue from the Company's Department servicing contracts.

Decrease in the three and six months ended June 30, 2023 compared with the same periods in 2022 was due to (i) the monthly fee earned per borrower on certain borrower statuses being reduced by $0.19 effective April 1, 2023;

and (ii) a decrease of borrowers in June 2023 as part of the Department's plan to transfer up to one million of the Company's existing borrowers to another third-party servicer.

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

Decrease in the three and nine months ended September 30, 2023 compared with the same periods in 2022 was due to (i) the monthly fee earned per borrower on certain borrower statuses being reduced by $0.19 effective April 1, 2023;

and (ii) a decrease of borrowers in the second and third quarters of 2023 as part of the Department's plan to transfer up to one million of the Company's existing borrowers to another third-party servicer.

Decrease in the nine months ended September 30, 2023 compared with the same period in 2022 was also due to (i) the recognition of $6.7 million of revenue in the first quarter of 2022 for incremental work related primarily to CARES Act forbearance exit outreach activities to borrowers;

and (ii) the recognition of $10.5 million of revenue in the first quarter of 2022 related to the discharge of borrowers under the Total and Permanent Disability (TPD) discharge program (the Company earns revenue per each borrower that satisfies the requirements for their loan to be discharged under the TPD discharge program).

The decrease in revenue for the first half of 2023 compared with the same period in 2022 was partially offset by (i) an increase in borrowers serviced due to the PHEAA servicing volume transferred to the Company's platform in 2022;

The decrease in revenue for the nine months ended September 30, 2023 compared with the same period in 2022 was partially offset by (i) an increase in borrowers serviced due to the PHEAA servicing volume transferred to the Company's platform in 2022;

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

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

Private education and consumer loan servicing 12,063 12,122 24,225 24,995 Decrease in 2023 compared with 2022 was due to a decrease in servicing volume and client requested enhanced delinquency services.

Private education and consumer loan servicing 12,330 12,198 36,556 37,194 Increase in the three months ended September 30, 2023 compared with the same period in 2022 was due to an increase in backup servicing volume, partially offset by a decrease in servicing volume.

Decrease in the nine months ended September 30, 2023 compared with the same period in 2022 was due to a decrease in servicing volume and client requested enhanced delinquency services.

FFELP loan servicing 3,304 4,127 10,226 12,386 Decrease in 2023 compared with 2022 was due to a decrease in the number of borrowers serviced.

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

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

Software services 5,962 7,907 15,660 15,308 Decrease in the three months ended June 30, 2023 compared with the same period in 2022 was due to the transfer of remote hosted borrowers to other third-party servicers.

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

Software services 9,416 8,229 25,076 23,536 Represents revenue from providing remote hosted servicing software to Department and other servicers and providing diversified technology services.

Increase in the three and nine months ended September 30, 2023 compared with the same periods in 2022 was due to (i) the recognition of $4.8 million of revenue in the third quarter of 2023 associated with deconversion of remote hosted borrowers from a customer leaving the Company's platform;

(ii) annual rate increases on Department remote hosted servicing customers;

(iii) contract programming associated with loan transfers and change requests, and (iv) growth in LSS's technology outsourcing opportunities.

These increases were partially offset by the transfer of remote hosted borrowers to other third-party servicers.

As a result of the transfers, the Company currently has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods.

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

Increase in the six months ended June 30, 2023 compared with the same period in 2022 was due to annual rate increases on Department remote hosted servicing customers, contract programming associated with loan transfers and change requests, and growth in LSS's technology outsourcing opportunities.

These increases were offset by the transfer of remote hosted borrowers to other third-party servicers.

As a result of the transfers, the Company has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods.

Outsourced services 2,688 5,215 12,511 9,954 Represents primarily revenue to provide contact center and back office operational outsourcing services.

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

Contracts for support provided to Department servicers expired at the end of July 2023.

Decrease in the three months ended September 30, 2023 compared with the same period in 2022 was due to the contracts for support provided to Department servicers expiring at the end of July 2023.

Increase in the nine months ended September 30, 2023 compared with the same period in 2022 was due to additional outsourced opportunities, including assisting existing Department servicers as operations transitioned from exiting servicers.

Loan servicing and systems revenue $ 127,892 134,197 389,138 395,438

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Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

Tuition payment plan services $ 30,825 27,637 65,012 58,352 Increase in 2023 compared with 2022 was due to a higher number of payment plans in the K-12 and higher education market for both new and existing customers.

Tuition payment plan services $ 30,223 25,779 95,235 84,131 Increase in 2023 compared with 2022 was due to a higher number of payment plans in the K-12 and higher education markets for both new and existing customers.

Payment processing 50,848 47,957 126,716 113,996 Increase in 2023 compared with 2022 was due to increase in payment volumes for both the K-12 and higher education markets due to new customers and an increase in volume from existing customers.

Education technology and services 46,216 34,956 101,004 78,207 Increase in 2023 compared with 2022 was due to an increase in revenue from the Company’s school information system software, enrollment and communication services, the NextGen acquisition completed in April 2022, and FACTS Education Solutions instructional and professional development services.

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

Education technology and services 31,793 32,548 132,796 110,755 Decrease in the three months ended September 30, 2023 compared with the same period in 2022 was due to a decrease in FACTS Education Solutions instructional services revenue as a result of the wind down of economic aid provided to private schools in response to the COVID 19 pandemic.

Instructional services revenue provided to schools that was funded by the CARES Act and the Emergency Assistance to Non-Public Schools (EANS) I program was the primary cause of the decline.

EANS I program funding ended on September 30, 2023 and EANS II program funding ends on September 30, 2024.

The decrease was offset by an increase in revenue from the Company’s school information system software, enrollment and communication services, and financial needs assessments.

The increase in revenue in the nine months ended September 30, 2023 compared with the same period in 2022 was due to an increase in revenue from the Company’s school information system software, enrollment and communication services, financial needs assessments, the NextGen acquisition completed in April 2022, and instructional services.

Instructional services revenue was the largest component of this increase, driven by the EANS programs.

As economic aid provided to schools under the EANS programs stopped on September 30, 2023 (EANS I) and winds down (EANS II), future instructional services revenue will decrease from recent historical periods.

Other 932 610 2,511 1,329

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Cost of services 43,694 42,676 131,804 109,073 Represents costs relating to payment processing revenue and such costs decrease/increase in relationship to payment volumes.

Costs to provide instructional services are also a component of this expense and were the primary driver of the increase in 2023 compared with 2022 due to the increase in instructional services resulting from the EANS program as noted above.

In addition, the cost of providing instructional services has increased as a percentage of revenue in 2023 compared with 2022.

Costs to provide instructional services are also a component of this expense and decrease/increase in relationship to instructional services revenues.

Net revenue $ 70,102 64,218 225,454 201,138

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and (ii) superior customer experiences to align with the Company’s strategies to grow, retain, and diversify revenues.

The Company anticipates before tax operating margin, excluding net interest income, will be impacted over the next several years as it continues to invest in the development of new services and customer experiences but could see some improvement when the EANS program ends in September 2024.

Net interest income (12.7) (5.8) (9.0) (2.4)

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Loan Portfolio

As of June 30, 2023, the AGM operating segment had a $13.2 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of June 30, 2023 and December 31, 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of September 30, 2023, the AGM operating segment had a $12.7 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of September 30, 2023 and December 31, 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Activity

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

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The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments and notes receivable" in the Company's consolidated financial statements.

As of the latest remittance reports filed by the various trusts prior to or as of 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.

As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2023, the Company’s ownership correlates to approximately $660 million, $540 million, and $350 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations.

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

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

After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension ended August 31, 2023, and Federal Direct Loan Program borrowers returned to repayment on September 1, 2023.

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

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of June 30, 2023 and December 31, 2022;

and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three and six months ended June 30, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of September 30, 2023 and December 31, 2022;

and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three and nine months ended September 30, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Spread Analysis

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

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A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without derivative settlements follows.

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

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Loan spread 0.83 % 1.31 % 0.92 % 1.44 %

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

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

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

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

In addition, the Company faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on its assets, which generally occur daily.

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

See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.

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

Variable loan spread decreased during the three and nine months ended September 30, 2023 compared to the same periods in 2022 due to a significant increase in short-term rates during each of the first three quarters of 2022 compared with the increase in rates for the same periods in 2023.

The difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of AGM's federally insured student loan portfolio.

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

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

The decrease in gross fixed rate floor income for the three and six months ended June 30, 2023 compared with the same periods in 2022 was due to higher interest rates in 2023 compared with 2022.

The decrease in gross fixed rate floor income for the three and nine months ended September 30, 2023 compared with the same periods in 2022 was due to higher interest rates in 2023 compared with 2022.

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

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In June 2023, the Company entered into a derivative with a notional amount of $50.0 million to hedge a portion of loans remaining that earn fixed rate floor income.

The decrease in net derivative settlements received by the Company during the three months ended June 30, 2023, compared with the same period in 2022, was due to the termination of the fixed rate floor derivatives in March 2023.

The increase in net derivative settlements received by the Company during the six months ended June 30, 2023, compared with the same period in 2022, was due to an increase in settlements on the Company's derivatives outstanding during this period as a result of an increase in interest rates.

The decrease in net derivative settlements received by the Company during the three months ended September 30, 2023, compared with the same period in 2022, was due to the termination of the fixed rate floor derivatives in March 2023.

The increase in net derivative settlements received by the Company during the nine months ended September 30, 2023, compared with the same period in 2022, was due to an increase in settlements on the Company's derivatives outstanding during this period as a result of an increase in interest rates.

Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

1 unchanged sentence

Other income, net 2,776 4,627 6,939 16,270 Represents primarily borrower late fees, income from providing administration activities for third parties, gain/losses from repurchases of debt, and income/losses from AGM's investment in joint ventures.

AGM recognized joint venture losses of $2.5 million and $2.6 million for the three and six months ended June 30, 2023, respectively, compared with losses of $0.4 million and income of $1.6 million for the same periods in 2022.

Gain on sale of loans, net 15,511 — 27,323 2,989 The Company sold $261.9 million (par value) and $158.3 million (par value) of consumer and other loans in the first and second quarter of 2023, respectively, and recognized net gains of $11.8 million and $15.5 million, respectively.

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

AGM recognized joint venture losses of $1.9 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and losses of $4.5 million and income of $1.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Gain on sale of loans, net 5,362 2,627 32,685 5,616 The Company recognized gains from selling portfolios of loans in 2023 and 2022.

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

Derivative settlements, net 621 10,271 23,940 12,085 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

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

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

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

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

Derivative market value adjustments, net 1,192 52,991 (35,323) 239,125 Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP.

The majority of the derivative market value adjustments during 2023 and 2022 related to the changes in fair value of the Company's floor income interest rate swaps.

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

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

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Also includes certain professional and legal fees.

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

Increase in the nine months ended September 30, 2023 compared with the same period in 2022 was due to incurring additional professional fees as the Company actively expands into new asset loan classes.

Intersegment expenses 7,948 8,350 24,789 25,694 Represents fees paid to LSS for the servicing of AGM’s loan portfolio.

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

Total operating expenses 13,356 12,670 27,823 25,125 Total operating expenses were 39 basis points and 31 basis points of the average balance of loans for the three months ended June 30, 2023 and 2022, respectively, and 40 basis points and 30 basis points for the six months ended June 30, 2023 and 2022, respectively.

Total operating expenses 12,142 12,352 39,965 37,477 Total operating expenses were 37 basis points and 32 basis points of the average balance of loans for the three months ended September 30, 2023 and 2022, respectively, and 39 basis points and 31 basis points for the nine months ended September 30, 2023 and 2022, respectively.

The increase in operating expenses as a percent of the average balance of loans in 2023 compared with 2022 was due to an increase in costs as the Company actively expands into new asset loan classes.

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Net interest income after provision for loan losses, net of settlements on derivatives The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

1 unchanged sentence

Consolidation rebate fees (26,143) (32,612) (81,753) (104,335) Decrease in 2023 compared with 2022 was due to a decrease in the average consolidation loan balance.

Discount accretion, net of

premium and deferred

origination costs amortization 1,890 1,474 3,497 2,934 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.

Discount accretion, net of premium and deferred origination costs amortization 1,940 737 5,437 3,669 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.

Variable interest income, net 230,366 165,035 687,617 358,909

Interest on bonds and notes

payable (218,602) (68,616) (400,665) (113,825) Increase in 2023 compared with 2022 was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.

Interest on bonds and notes payable (194,098) (118,135) (594,764) (231,960) Increase in 2023 compared with 2022 was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.

In addition, during the second quarter of 2023, the Company redeemed certain asset-backed debt securities prior to their maturity, resulting in the recognition of a $25.9 million non-cash expense from the write-off of the remaining debt discount associated with these bonds at the time of redemption.

Derivative settlements, net (a) (65) 931 794 1,327 Represents net derivative settlements (paid) received related to the Company’s 1:3 basis swaps.

Derivative settlements, net (a) 386 (1,085) 1,180 242 Represents net derivative settlements received (paid) related to the Company’s 1:3 basis swaps.

Variable loan interest margin, net of settlements on derivatives 36,654 45,815 94,033 127,191

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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.

Fixed rate floor income, net of settlements on derivatives 685 18,941 24,776 66,713

Core loan interest

income (a) 19,286 67,732 81,472 129,148

Core loan interest income (a) 37,339 64,756 118,809 193,904

Investment interest 18,062 10,312 47,726 28,147 Increase in 2023 compared with 2022 was due to an increase of interest earned on restricted cash due to higher interest rates.

Intercompany interest (3,295) (1,874) (24,141) (3,760) Increase in 2023 compared with 2022 was due to an increase in the balance of borrowings and higher rates.

(Provision) negative provision for loan losses - federally insured loans — (2,365) (2,411) 383 The primary item impacting provision for loan losses was the establishment of an initial allowance for consumer loans acquired during the periods presented.

Provision for loan losses - federally insured loans (1,641) (888) (4,052) (505) The primary item impacting provision for loan losses was the establishment of an initial allowance for loans acquired during the periods presented.

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

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Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 43,374 63,979 93,705 201,113

$ 13,333 66,484 50,333 137,134 Decrease in 2023 compared with 2022 was due to (i) a decrease in the average balance of loans;

(ii) a decrease in core loan spread, primarily related to the termination of floor interest rate swaps in March 2023;

(iii) the recognition of a $25.9 million non-cash expense from the write-off of a debt discount associated with bonds redeemed prior to their maturity;

and (iv) an increase in provision for loan losses related to an initial allowance for consumer loans acquired during the periods presented.

These items were partially offset by an increase in investment interest income due to higher interest rates.

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

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

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

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

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Loan Portfolio

As of June 30, 2023, Nelnet Bank had a $444.5 million loan portfolio, consisting of $352.3 million of private education loans, $61.5 million of FFELP loans, and $30.7 million of consumer and other loans.

For a summary of the allowance as a percentage of the ending balance and loan status, delinquency amounts, and other key credit quality indicators of each of Nelnet Bank's loan portfolios as of June 30, 2023 and December 31, 2022;

and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three and six months ended June 30, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of September 30, 2023, Nelnet Bank had a $468.8 million loan portfolio, consisting of $359.9 million of private education loans, $59.3 million of FFELP loans, and $49.6 million of consumer and other loans.

Loan Activity

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

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022

Beginning balance $ 444,488 423,553 419,795 257,901

Loan originations:

Loan acquisitions and originations:

Private education loans 19,756 21,167 41,341 226,713

Consumer and other loans 22,966 — 55,766 —

Total loan originations 20,527 75,204 54,385 205,546

Total loan acquisitions and originations 42,722 21,167 97,107 226,713

Repayments (18,382) (15,244) (47,957) (51,011)

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Ending balance $ 468,813 429,476 468,813 429,476

As of June 30, 2023, Nelnet Bank had $871.4 million of deposits.

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

and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three and nine months ended September 30, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of September 30, 2023, Nelnet Bank had $947.4 million of deposits.

All of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs) and retail and other savings deposits and CDs.

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

Nelnet Bank’s deposits include $140.4 million from Nelnet, Inc.

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

As of September 30, 2023, Nelnet Bank’s deposits included $229.3 million from Nelnet, Inc.

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

The intercompany deposits include a pledged deposit of $40.0 million from Nelnet, Inc.

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The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities.

Three months ended June 30, (a) Six months ended June 30, (a)

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

2023 2022 2023 2022

Balance Rate Balance Rate Balance Rate Balance Rate

Average assets

Average assets (a)

Federally insured student loans $ 60,504 6.58 % $ 75,124 3.69 % $ 62,531 6.29 % $ 80,234 2.39 %

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Total assets $ 1,046,674 $ 859,605 $ 1,005,557 $ 746,859

Average liabilities and equity

Average liabilities and equity (a)

Brokered deposits $ 204,050 1.38 % $ 296,257 1.42 % $ 204,534 1.38 % $ 230,968 1.33 %

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Summary and Comparison of Operating Results

Three months ended June 30, Six months ended June 30,

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

2023 2022 2023 2022 Additional information

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Net interest income 5,715 4,253 16,251 10,000

Provision for loan losses 1,493 582 3,910 1,011 Increase in provision for loan losses was due to the mix of loans, including the mix of loans originated in 2023 compared with 2022.

Provision for loan losses 1,927 450 5,837 1,462 Increase in provision for loan losses was due to the mix of loans, including the mix of loans acquired and originated in 2023 compared with 2022.

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

1 unchanged sentence

Other income 565 566 1,395 2,224 Represents primarily net gains and income from investments.

Derivative settlements, net 83 — 83 — During the second quarter of 2023, Nelnet Bank entered into derivatives to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates.

Derivative settlements, net 196 — 279 — During the second and third quarter of 2023, Nelnet Bank entered into derivatives to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates.

Nelnet Bank has designated its derivative instruments as cash flow hedges;

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Derivative market value adjustments, net 1,948 — 3,057 —

Total other income/expense 1,811 157 2,021 1,659

Total other income, net 2,709 566 4,731 2,224

Salaries and benefits 2,520 1,814 6,881 5,082 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.

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Other expenses 1,290 1,427 3,696 3,009 Represents various expenses such as consulting and professional fees, Nelnet Bank director fees, occupancy, certain information technology-related costs, insurance, marketing, and other operating expenses.

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

Increase in the nine months ended September 30, 2023 compared with the same period in 2022 was due to the overall growth of Nelnet Bank activities.

Intersegment expenses 129 69 302 171 Represents primarily servicing costs paid to LSS.

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

The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank’s operating segment were $1.8 million and $1.5 million for the three months ended June 30, 2023 and 2022, respectively, and $3.5 million and $2.8 million for the six months ended June 30, 2023 and 2022, respectively.

The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank’s operating segment were $1.6 million for both the three months ended September 30, 2023 and 2022, and $5.1 million and $4.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Total operating expenses 4,198 3,314 11,194 8,273

Income before income taxes 2,299 1,055 3,951 2,489

Income tax expense (396) (106) (362) (328) Represents income tax expense at an effective tax rate of 22.7% and 22.3% for the three months ended June 30, 2023 and 2022, respectively, and 21.9% and 22.9% for the six months ended June 30, 2023 and 2022, respectively.

Income tax expense (552) (246) (913) (574) Represents income tax expense at an effective tax rate of 24.0% and 23.3% for the three months ended September 30, 2023 and 2022, respectively, and 23.1% for both the nine months ended September 30, 2023 and 2022.

Net income $ 1,747 809 3,038 1,915

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

Three months ended June 30, 2023

Three months ended September 30, 2023

Interest income $ — 3 — 36 — 141 1,631 14,069 373 16,253

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Other, net 728 1,632 (2,303) 48 (14,908) (492) 276 558 10,223 (4,238)

Impairment expense — — — — — — — — — —

Impairment and other expense (4,678) — — — — — — — — (4,678)

Cost to provide solar construction services — — — (7,783) — — — — — (7,783)

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Net income (loss) $ (15,895) 1,023 (2,669) (3,019) (11,825) (471) 1,244 6,266 2,697 (22,649)

Three months ended June 30, 2022

Three months ended September 30, 2022

Interest income $ — 1 — 3 — 235 536 9,895 190 10,860

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Other, net 631 1,612 (4,216) — (15,398) 9,867 (39) 762 3,217 (3,564)

Impairment expense (875) — — — — — (5,409) — — (6,284)

Impairment and other expense (29) — — — — — 150 — — 121

Cost to provide solar construction services — — — (5,968) — — — — — (5,968)

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Six months ended June 30, 2023

Nine months ended September 30, 2023

Interest income $ — 8 — 136 — 423 3,515 58,765 460 63,307

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Other, net 2,130 4,883 (12,179) 112 (42,483) (806) (614) (2,989) 20,420 (31,526)

Impairment expense — — — — — — — — — —

Impairment and other expense (4,678) — — — — — — — — (4,678)

Cost to provide solar construction services — — — (25,204) — — — — — (25,204)

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Net income (loss) $ (36,469) 3,061 (3,966) (9,976) (33,841) (768) 1,537 20,560 2,881 (56,981)

Six months ended June 30, 2022

Nine months ended September 30, 2022

Interest income $ — 1 — 3 — 841 642 19,181 419 21,087

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Other, net 1,781 4,375 (6,938) — (41,213) 18,076 22,156 (2,671) 8,743 4,309

Impairment expense (875) — — — — — (5,409) — — (6,284)

Impairment and other expense (904) — — — — — (5,259) — — (6,163)

Cost to provide solar construction services — — — (5,968) — — — — — (5,968)

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(b) The Company provides investment advisory services through Whitetail Rock Capital Management, LLC (WRCM), the Company's SEC-registered investment advisor subsidiary, under various arrangements.

WRCM earned management fees of $1.6 million and $1.5 million during the three months ended June 30, 2023 and 2022, respectively, and $3.2 million and $2.7 million during the six months ended June 30, 2023 and 2022, respectively.

WRCM earned management fees of $1.5 million and $1.6 million during the three months ended September 30, 2023 and 2022, respectively, and $4.7 million and $4.3 million during

the nine months ended September 30, 2023 and 2022, respectively.

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

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

As of June 30, 2023, the Company has invested a total of $312.9 million (which includes $120.0 million syndicated to third-party investors) in solar tax equity investments.

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

As of September 30, 2023, the Company has invested a total of $332.0 million (which includes $126.5 million syndicated to third-party investors) in solar tax equity investments.

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

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

Nelnet Renewable Energy recognized losses on its tax equity 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.

Nelnet Renewable Energy recognized losses on its tax equity investments of $3.6 million and $4.2 million during the three months ended September 30, 2023 and 2022, respectively, and $13.5 million and $7.1 million during the nine months ended September 30, 2023 and 2022, respectively.

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

Solar losses attributable to third-party noncontrolling interest investors was $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 for the six months ended June 30, 2023 and 2022, respectively, and are reflected in “net (income) loss attributable to noncontrolling interests” in the table above.

Solar losses attributable to third-party noncontrolling interest investors was $1.8 million and $4.1 million for the three months ended September 30, 2023 and 2022, respectively, and $12.0 million and $8.0 million for the nine months ended September 30, 2023 and 2022, respectively, and are reflected in “net (income) loss attributable to noncontrolling interests” in the table above.

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

Management fee income recognized by Nelnet Renewable Energy was $0.3 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively, and $0.6 million and $0.4 million for the six months ended June 30, 2023 and 2022, respectively, which is included in "other, net" in the table above.

Management fee income recognized by Nelnet Renewable Energy was $0.6 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $1.3 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in "other, net" in the table above.

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

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

The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $12.2 million and $16.9 million during the three months ended June 30, 2023 and 2022, respectively, and $32.4 million and $30.1 million during the six months ended June 30, 2023 and 2022, respectively.

The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $17.3 million and $17.6 million during the three months ended September 30, 2023 and 2022, respectively, and $49.7 million and $47.6 million during the nine months ended September 30, 2023 and 2022, respectively.

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

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.

As of September 30, 2023, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $145.9 million and $6.8 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.

The Company recognized income on its ALLO preferred membership interests of $2.3 million and $2.2 million during the three months ended September 30, 2023 and 2022, respectively, and $6.8 million and $6.4 million during the nine months ended September 30, 2023 and 2022, respectively.

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

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

The Company recognized an expense of $1.4 million associated with this obligation for the three months ended June 30, 2023, which is included in “other expenses” in the table above.

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

The Company recognized an expense of $0.7 million and $2.0 million associated with this obligation for the three and nine months ended September 30, 2023, respectively, which is included in “other expenses” in the table above.

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

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Nelnet Bank launched operations in November 2020.

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

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million and the Company contributed an additional $30.0 million and $5.0 million to Nelnet Bank during 2022 and the third quarter of 2023, respectively.

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

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Sources of Liquidity

As of June 30, 2023, the Company's sources of liquidity included:

As of September 30, 2023, the Company's sources of liquidity included:

Cash and cash equivalents $ 187,690

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AFS debt securities serving as collateral on participation agreement - at fair value (2) (57)

AFS debt securities serving as collateral on repurchase agreements - at fair value (3) (281,846)

AFS debt securities serving as collateral on repurchase agreement - at fair value (3) (260,108)

AFS restricted debt securities - at fair value (15,918)

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Repurchased Nelnet issued asset-backed debt securities - at par (not included on consolidated financial statements) (4) 257,278

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

Repurchased Nelnet issued asset-backed debt securities serving as collateral on repurchase agreement - at par (118,925)

Unencumbered repurchased Nelnet issued asset-backed debt securities - at par 138,353

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

Sources of liquidity as of June 30, 2023

Sources of liquidity as of September 30, 2023

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

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

As of June 30, 2023, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

As of September 30, 2023, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

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

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The Company has historically generated positive cash flow from operations.

During the six months ended June 30, 2023 and 2022, the Company generated $199.0 million and $483.7 million, respectively, in cash from operating activities.

During the nine months ended September 30, 2023 and 2022, the Company generated $353.2 million and $656.9 million, respectively, in cash from operating activities.

The decrease in 2023 compared with 2022 was due to:

• A decrease in net income;

• Payments to the Company's clearinghouse for margin payments on derivatives for the six months ended June 30, 2023 compared with proceeds received in 2022;

• Payments to the Company's clearinghouse for margin payments on derivatives for the nine months ended September 30, 2023 compared with proceeds received in 2022;

• Adjustments to net income for the impact of the non-cash change in deferred income taxes and gain on sale of loans;

• A decrease in net proceeds from the sale of equity securities in 2023 compared to 2022.

• A decrease in net proceeds from the sale of equity securities in 2023 compared with 2022;

• The impact of changes to accrued interest payable during the nine months ended September 30, 2023 compared with the same period in 2022.

These factors were partially offset by:

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

• An increase of non-cash depreciation and amortization during the six months ended June 30, 2023 compared with the same period in 2022;

• The impact of changes to accounts receivable during the six months ended June 30, 2023 compared with the same period in 2022.

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

• An increase of non-cash depreciation and amortization during the nine months ended September 30, 2023 compared with the same period in 2022;

• The impact of changes to accrued interest and accounts receivable and other assets and liabilities during the nine months ended September 30, 2023 compared with the same period in 2022.

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

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

Cash provided by investing activities and used in financing activities for the six months ended June 30, 2023 was $890.3 million and $1.6 billion, respectively.

Cash provided by investing activities and used in financing activities for the six months ended June 30, 2022 was $837.0 million and $1.3 billion, respectively.

Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2023 was $1.3 billion and $2.2 billion, respectively.

Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2022 was $1.7 billion and $2.5 billion, respectively.

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

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

As of June 30, 2023

As of September 30, 2023

Carrying amount

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In addition, due to (i) the difference between the yield AGM receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees AGM earns from these transactions, AGM has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of June 30, 2023, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.37 billion as detailed below.

The forecasted cash flow presented below includes all loans, the majority of which are federally insured student loans, funded in asset-backed securitizations as of June 30, 2023.

As of June 30, 2023, AGM had $11.3 billion of loans included in asset-backed securitizations, which represented 85.6% of its total loan portfolio.

The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to June 30, 2023, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments and notes receivable" on the Company's consolidated balance sheets).

As of September 30, 2023, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.40 billion as detailed below.

The forecasted cash flow presented below includes all loans, the majority of which are federally insured student loans, funded in asset-backed securitizations as of September 30, 2023.

As of September 30, 2023, AGM had $10.9 billion of loans included in asset-backed securitizations, which represented 85.3% of its total loan portfolio.

The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to September 30, 2023, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments and notes receivable" on the Company's consolidated balance sheets).

Asset-backed Securitization Cash Flow Forecast

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(dollars in millions)

The forecasted future undiscounted cash flows of approximately $1.37 billion include approximately $0.84 billion (as of June 30, 2023) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.53 billion, or approximately $0.40 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's June 30, 2023 balance of consolidated shareholders' equity.

The forecasted future undiscounted cash flows of approximately $1.40 billion include approximately $0.84 billion (as of September 30, 2023) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable, net" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.56 billion, or approximately $0.43 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the current September 30, 2023 balance.

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

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Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments.

A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance.

A number of factors can affect estimated prepayment rates, including the level of consolidation activity,

borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance.

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

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

If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs, such initiatives could significantly increase prepayments.

See note 13 of the notes to the consolidated financial statements included in Part I, Item 1 of this report for additional details regarding the federal government's actions with respect to student loan forgiveness and cancellations.

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$0.89 billion

If the entire AGM student loan portfolio prepaid, the Company would receive the full amount of overcollateralization included in the asset-backed securitizations of approximately $0.84 billion (as of June 30, 2023);

however, the Company would not receive the $0.56 billion ($0.43 billion after tax) of estimated future earnings from the portfolio.

Interest rates :

The Company funds a large portion of its student loans with three-month LIBOR indexed floating rate securities.

Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR rate.

On June 30, 2023, LIBOR was discontinued as a benchmark rate.

Subsequent to the discontinuation of LIBOR on June 30, 2023, the Company funds a portion of its student loans with floating rate securities that are indexed to 90-day SOFR.

Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to the bond equivalent of the 30-day average SOFR in effect for each day in a calendar quarter.

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

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

If the forecast is computed assuming a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $40 million to $65 million.

The Company’s cash flow forecast assumes, for the life of the portfolio, a relationship between the various SOFR indices that is implied by the current forward SOFR curves.

If the forecast is computed assuming a spread of an additional 12 basis points between Term SOFR and 30-day average SOFR for the life of the portfolio, the cash flow forecast would be reduced by approximately $10 million to $30 million.

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

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See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment" for additional information about various interest rate risks which may impact future cash flows from AGM's loan assets.

On June 30, 2023, LIBOR was discontinued as a benchmark rate.

See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - LIBOR Transition" in this report and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2022 Annual Report.

The Company does not expect the replacement of LIBOR as a benchmark rate to significantly impact its asset-backed securitization cash flow forecast.

Warehouse Facilities

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As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement.

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of June 30, 2023, the fair value of these bonds was $281.8 million.

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of September 30, 2023, the fair value of these bonds was $260.1 million.

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

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

As of June 30, 2023, $415.5 million was outstanding on the Company's two repurchase agreements, of which $257.2 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement and $158.3 million was borrowed to fund repurchased FFELP loan asset-backed securities.

The repurchase agreements have various maturity dates (as of June 30, 2023) from July 26, 2023 through November 27, 2024.

Subsequent to June 30, 2023, the Company paid down the outstanding balance of one of the facilities, and as of August 7, 2023, the maturity dates on the remaining facility vary from November 20, 2023 through November 27, 2024.

The remaining facility is subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates.

The Company is required to pay additional cash in the event the fair value of the securities subject to the repurchase agreement becomes less than the original purchase price of such securities.

During the third quarter of 2023, the Company paid down the outstanding balance of one of these facilities.

As of September 30, 2023, $336.5 million was outstanding on the Company's remaining repurchase agreement, of which $246.1 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement and $90.4 million was borrowed to fund repurchased FFELP loan asset-backed securities.

As of November 7, 2023, the maturity dates on this facility vary from November 20, 2023 through November 27, 2024, and the facility is subject to early termination upon 180 days' prior written notice provided by the Company or the counterparty prior to the maturity dates.

The Company is subject to cash margin deficit payment requirements in the event the fair value of the securities subject to the repurchase agreement becomes less than the original purchase price of such securities.

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

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

As of June 30, 2023, $262.7 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of September 30, 2023, $257.0 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

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

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Such asset-backed securitization transactions would be used to refinance student loans included in its warehouse facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.

There were no asset-backed securitization transactions completed during the six months ended June 30, 2023.

There were no asset-backed securitization transactions completed during the nine months ended September 30, 2023.

Cash Flow Forecast - Beneficial Interest in Loan Securitizations

The Company has partial ownership in federally insured, private education, consumer, and other loan third-party securitizations that are classified as "beneficial interest in loan securitizations" and included in "investments and notes receivable" on the Company's consolidated balance sheets.

These residual interests were acquired by the Company or have been received by the Company as consideration as the result of selling portfolios of loans to unrelated third parties who securitized such loans.

As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2023, the Company's ownership correlates to approximately $1.55 billion of loans included in these securitizations

As of September 30, 2023, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $191.2 million.

For a summary of this investment balance, see note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The Company's partial ownership percentage in each loan securitization grants the Company the right to receive the corresponding percentage of cash flows generated by the securitization.

As of September 30, 2023, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its partial ownership in these securitizations to be approximately $323.3 million.

The vast majority of these cash flows are expected to be received over the next 8 years.

The difference between the total estimated future undiscounted cash flows from these residual interests and the investment carrying value of $191.2 million of $132.1 million, or $100.4 million after income taxes based on the estimated effective tax rate, represents estimated future investment interest income (earnings) from these investments and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the current September 30, 2023 balance.

The undiscounted future cash flows from the private education, consumer, and other loan securitizations are highly subject to credit risk (defaults).

If defaults are higher than management's current estimate, the forecasted cash flows and estimated future investment interest income (earnings) from these securitizations would be adversely impacted.

Liquidity Impact Related to Nelnet Bank

Nelnet Bank launched operations in November 2020.

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

In addition, the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC discussed below.

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is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12%;

(ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10% of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.;

(ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount

equal to the greater of either 10% of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.;

(iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations;

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

Nelnet Bank has opted into the CBLR framework for the quarter ended June 30, 2023 with a leverage ratio of 12.7%.

Nelnet Bank has opted into the CBLR framework for the quarter ended September 30, 2023 with a leverage ratio of 12.7%.

Nelnet Bank intends to maintain at all times regulatory capital levels that meet both the minimum level necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework and the minimum level required by the FDIC.

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

Through June 30, 2023, the Company has invested a total of $312.9 million (which includes $120.0 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships.

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

Through September 30, 2023, the Company has invested a total of $332.0 million (which includes $126.5 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships.

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

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

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

As of 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.

As of September 30, 2023, the Company is committed to fund an additional $265.9 million on tax equity investments, of which $128.7 million is expected to be provided by syndication partners.

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

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In addition, the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment.

As of June 30, 2023, the outstanding preferred membership interests of ALLO held by the Company was $145.9 million that earns a preferred annual return of 6.25%.

As of September 30, 2023, the outstanding preferred membership interests of ALLO held by the Company was $145.9 million that earns a preferred annual return of 6.25%.

Accrued and unpaid preferred returns are converted to additional preferred membership interests each December 31.

As of June 30, 2023 the accrued and unpaid preferred return was $4.5 million.

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

As of September 30, 2023 the accrued and unpaid preferred return was $6.8 million.

If the non-voting preferred membership interests are not redeemed on or before April 2024, the

preferred annual return is increased from 6.25% to 10.00%.

In June 2023, ALLO, the Company, and SDC (a third-party global digital infrastructure investor and member of ALLO) agreed to amend the terms of the ALLO non-voting preferred membership units owned by Nelnet.

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As part of the ALLO recapitalization transaction in December 2020, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $25.0 million to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels.

As of June 30, 2023, the estimated fair value of the contingent payment is $9.0 million.

As of September 30, 2023, the estimated fair value of the contingent payment is $9.6 million.

In June 2023, ALLO closed on an asset-backed securities transaction with an aggregate size of $576.0 million.

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

Based on the derivative portfolio outstanding as of June 30, 2023, the Company does not anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse.

Based on the derivative portfolio outstanding as of September 30, 2023, the Company does not anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse.

Other Debt Facilities

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

As of June 30, 2023, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

As of September 30, 2023, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

Upon the maturity date of this facility, there can be no assurance that the Company will be able to maintain this line of credit, increase or maintain the amount outstanding under the line, or find alternative funding if necessary.

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

As of June 30, 2023, $6.8 million (par value) of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of September 30, 2023, $0.1 million (par value) of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

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

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

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

As of June 30, 2023, 4,467,021 shares remained authorized for repurchase under the Company's stock repurchase program.

No shares were repurchased under this

program during the first three quarters 2023.

As of September 30, 2023, 4,467,021 shares remained authorized for repurchase under the Company's stock repurchase program.

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

During the first half of 2023, the Company repurchased 41,247 shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares.

During the first three quarters of 2023, the Company repurchased 47,195 shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares.

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

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

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

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

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

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

In addition, the Company's Board of Directors has declared a fourth quarter 2023 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share.

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

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

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This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods.

The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable under the circumstances.

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

For additional information regarding changes in the Company’s allowance for loan losses for the three and six months ended June 30, 2023 and 2022, see the caption “Activity in the Allowance for Loan Losses” in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

For additional information regarding changes in the Company’s allowance for loan losses for the three and nine months ended September 30, 2023 and 2022, see the caption “Activity in the Allowance for Loan Losses” in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis