NELNET INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NELNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (unaudited) As of As of September 30, 2023 December 31, 2022 Assets: Loans and accrued interest receivable (net of allowance for loan losses of $ 110,093 and $ 131,827 , respectively) $ 13,867,557 15,243,889 Cash and cash equivalents: Cash and cash equivalents - not held at a related party 23,722 24,584 Cash and cash equivalents - held at a related party 163,968 93,562 Total cash and cash equivalents 187,690 118,146 Investments and notes receivable 1,945,688 2,111,917 Restricted cash 445,983 945,159 Restricted cash - due to customers 158,872 294,311 Accounts receivable (net of allowance for doubtful accounts of $ 3,989 and $ 3,079 , respectively) 130,068 194,851 Goodwill 176,902 176,902 Intangible assets, net 51,910 63,501 Property and equipment, net 126,699 122,526 Other assets 131,313 102,842 Total assets $ 17,222,682 19,374,044 Liabilities: Bonds and notes payable $ 12,448,109 14,637,195 Accrued interest payable 36,391 36,049 Bank deposits 718,053 691,322 Other liabilities 419,152 461,259 Due to customers 341,822 348,317 Total liabilities 13,963,527 16,174,142 Commitments and contingencies Equity: Nelnet, Inc. shareholders' equity: Preferred stock, $ 0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — — Common stock: Class A, $ 0.01 par value. Authorized 600,000,000 shares; issued and outstanding 26,655,651 shares and 26,461,651 shares, respectively 267 265 Class B, convertible, $ 0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,668,460 shares 107 107 Additional paid-in capital 14,165 1,109 Retained earnings 3,305,881 3,234,844 Accumulated other comprehensive loss, net ( 25,439 ) ( 37,366 ) Total Nelnet, Inc. shareholders' equity 3,294,981 3,198,959 Noncontrolling interests ( 35,826 ) 943 Total equity 3,259,155 3,199,902 Total liabilities and equity $ 17,222,682 19,374,044 Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities: Loans and accrued interest receivable $ 13,246,175 14,585,491 Restricted cash 410,520 867,961 Bonds and notes payable ( 12,459,364 ) ( 14,233,586 ) Accrued interest payable and other liabilities ( 181,730 ) ( 145,309 ) Net assets of consolidated education and other lending variable interest entities $ 1,015,601 1,074,557 See accompanying notes to consolidated financial statements. 2 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (unaudited) Three months ended Nine months ended September 30, September 30, 2023 2022 2023 2022 Interest income: Loan interest $ 236,423 176,244 704,712 422,327 Investment interest 48,128 26,889 129,835 57,589 Total interest income 284,551 203,133 834,547 479,916 Interest expense on bonds and notes payable and bank deposits 207,159 126,625 639,756 248,347 Net interest income 77,392 76,508 194,791 231,569 Less provision for loan losses 10,659 9,665 54,526 18,640 Net interest income after provision for loan losses 66,733 66,843 140,265 212,929 Other income (expense): Loan servicing and systems revenue 127,892 134,197 389,138 395,438 Education technology, services, and payment processing revenue 113,796 106,894 357,258 310,211 Solar construction revenue 6,301 9,358 19,687 9,358 Other, net ( 211 ) 2,225 ( 21,293 ) 24,750 Gain on sale of loans, net 5,362 2,627 32,685 5,616 Impairment and other expense, net ( 4,974 ) 121 ( 4,974 ) ( 6,163 ) Derivative market value adjustments and derivative settlements, net 3,957 63,262 ( 8,047 ) 251,210 Total other income (expense), net 252,123 318,684 764,454 990,420 Cost of services: Cost to provide education technology, services, and payment processing services 43,694 42,676 131,804 109,073 Cost to provide solar construction services 7,783 5,968 25,204 5,968 Total cost of services 51,477 48,644 157,008 115,041 Operating expenses: Salaries and benefits 141,204 147,198 438,620 438,010 Depreciation and amortization 21,835 18,772 57,114 53,978 Other expenses 51,370 43,858 138,154 120,297 Total operating expenses 214,409 209,828 633,888 612,285 Income before income taxes 52,970 127,055 113,823 476,023 Income tax expense 10,734 26,586 29,475 107,765 Net income 42,236 100,469 84,348 368,258 Net loss attributable to noncontrolling interests 3,096 4,329 15,738 8,315 Net income attributable to Nelnet, Inc. $ 45,332 104,798 100,086 376,573 Earnings per common share: Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 1.21 2.80 2.67 9.99 Weighted average common shares outstanding - basic and diluted 37,498,073 37,380,493 37,437,587 37,708,425 See accompanying notes to consolidated financial statements. 3 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (unaudited) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income $ 42,236 100,469 84,348 368,258 Other comprehensive (loss) income: Net changes related to foreign currency translation adjustments $ ( 8 ) 18 ( 11 ) 19 Net changes related to available-for-sale debt securities: Unrealized holding (losses) gains arising during period, net ( 4,566 ) 4,790 12,734 ( 45,730 ) Reclassification of (gains) losses recognized in net income, net ( 1,064 ) ( 578 ) 3,001 ( 4,220 ) Amortization of net unrealized loss on securities transferred from available-for-sale to held-to-maturity 66 — 136 — Income tax effect 1,335 ( 4,229 ) ( 1,011 ) 3,201 ( 3,810 ) 12,061 11,988 ( 37,962 ) Net changes related to equity method investee's other comprehensive income: Gain (loss) on cash flow hedges 336 — ( 163 ) — Income tax effect ( 80 ) 256 — — 40 ( 123 ) — — Other comprehensive (loss) income ( 3,981 ) 3,219 11,927 ( 37,943 ) Comprehensive income 38,255 103,688 96,275 330,315 Comprehensive loss attributable to noncontrolling interests 3,096 4,329 15,738 8,315 Comprehensive income attributable to Nelnet, Inc. $ 41,351 108,017 112,013 338,630 See accompanying notes to consolidated financial statements. 4 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Noncontrolling interests Total equity Class A Class B Balance as of June 30, 2022 — 26,613,733 10,674,892 $ — 266 107 1,180 3,127,687 ( 31,858 ) ( 6,237 ) 3,091,145 Issuance of noncontrolling interests — — — — — — — — — 14,018 14,018 Net income (loss) — — — — — — — 104,798 — ( 4,329 ) 100,469 Other comprehensive income — — — — — — — — 3,219 — 3,219 Distribution to noncontrolling interests — — — — — — — — — ( 17,707 ) ( 17,707 ) Cash dividends on Class A and Class B common stock - $ 0.24 per share — — — — — — — ( 8,925 ) — — ( 8,925 ) Issuance of common stock, net of forfeitures — 38,192 — — 1 — 476 — — — 477 Compensation expense for stock based awards — — — — — — 3,631 — — — 3,631 Repurchase of common stock — ( 169,860 ) — — ( 2 ) — ( 4,450 ) ( 9,841 ) — — ( 14,293 ) Conversion of common stock — 1,233 ( 1,233 ) — — — — — — — — Other — — — — — — — ( 5,675 ) — — ( 5,675 ) Balance as of September 30, 2022 — 26,483,298 10,673,659 $ — 265 107 837 3,208,044 ( 28,639 ) ( 14,255 ) 3,166,359 Balance as of June 30, 2023 — 26,646,490 10,668,460 $ — 266 107 10,114 3,270,250 ( 21,458 ) ( 11,765 ) 3,247,514 Issuance of noncontrolling interests — — — — — — — — — 19,092 19,092 Net income (loss) — — — — — — — 45,332 — ( 3,096 ) 42,236 Other comprehensive loss — — — — — — — — ( 3,981 ) — ( 3,981 ) Distribution to noncontrolling interests — — — — — — — — — ( 40,057 ) ( 40,057 ) Cash dividends on Class A and Class B common stock - $ 0.26 per share — — — — — — — ( 9,701 ) — — ( 9,701 ) Issuance of common stock, net of forfeitures — 15,109 — — 1 — 499 — — — 500 Compensation expense for stock based awards — — — — — — 4,095 — — — 4,095 Repurchase of common stock — ( 5,948 ) — — — — ( 543 ) — — — ( 543 ) Balance as of September 30, 2023 — 26,655,651 10,668,460 $ — 267 107 14,165 3,305,881 ( 25,439 ) ( 35,826 ) 3,259,155 See accompanying notes to consolidated financial statements. 5 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except share data) (unaudited) Nelnet, Inc. Shareholders Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Noncontrolling interests Total equity Class A Class B Balance as of December 31, 2021 — 27,239,654 10,676,642 $ — 272 107 1,000 2,940,523 9,304 1,632 2,952,838 Issuance of noncontrolling interests — — — — — — — — — 25,297 25,297 Net income (loss) — — — — — — — 376,573 — ( 8,315 ) 368,258 Other comprehensive loss — — — — — — — — ( 37,943 ) — ( 37,943 ) Distribution to noncontrolling interests — — — — — — — — — ( 32,869 ) ( 32,869 ) Cash dividends on Class A and Class B common stock - $ 0.72 per share — — — — — — — ( 26,960 ) — — ( 26,960 ) Issuance of common stock, net of forfeitures — 348,831 — — 4 — 6,974 — — — 6,978 Compensation expense for stock based awards — — — — — 9,659 — — — 9,659 Repurchase of common stock — ( 1,108,170 ) — — ( 11 ) — ( 16,796 ) ( 76,417 ) — — ( 93,224 ) Conversion of common stock — 2,983 ( 2,983 ) — — — — — — — — Other — — — — — — — ( 5,675 ) — — ( 5,675 ) Balance as of September 30, 2022 — 26,483,298 10,673,659 $ — 265 107 837 3,208,044 ( 28,639 ) ( 14,255 ) 3,166,359 Balance as of December 31, 2022 — 26,461,651 10,668,460 $ — 265 107 1,109 3,234,844 ( 37,366 ) 943 3,199,902 Issuance of noncontrolling interests — — — — — — — — — 31,996 31,996 Net income (loss) — — — — — — — 100,086 — ( 15,738 ) 84,348 Other comprehensive income — — — — — — — — 11,927 — 11,927 Distribution to noncontrolling interests — — — — — — — — — ( 53,027 ) ( 53,027 ) Cash dividends on Class A and Class B common stock - $ 0.78 per share — — — — — — — ( 29,049 ) — — ( 29,049 ) Issuance of common stock, net of forfeitures — 241,195 — — 2 — 5,618 — — — 5,620 Compensation expense for stock based awards — — — — — — 11,748 — — — 11,748 Repurchase of common stock — ( 47,195 ) — — — — ( 4,310 ) — — — ( 4,310 ) Balance as of September 30, 2023 — 26,655,651 10,668,460 $ — 267 107 14,165 3,305,881 ( 25,439 ) ( 35,826 ) 3,259,155 See accompanying notes to consolidated financial statements. 6 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) Nine months ended September 30, 2023 2022 Net income attributable to Nelnet, Inc. $ 100,086 376,573 Net loss attributable to noncontrolling interests ( 15,738 ) ( 8,315 ) Net income 84,348 368,258 Adjustments to reconcile net income to net cash provided by operating activities, net of business acquisition: Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 128,658 113,655 Loan discount accretion ( 22,527 ) ( 27,963 ) Provision for loan losses 54,526 18,640 Derivative market value adjustments 32,266 ( 239,125 ) Proceeds from termination of derivative instruments 164,079 91,786 (Payments to) proceeds from clearinghouse - initial and variation margin, net ( 210,168 ) 227,448 Gain on sale of loans, net ( 32,685 ) ( 5,616 ) Loss on investments, net 67,940 13,605 Proceeds from sale of equity securities, net 75 42,863 Deferred income tax (benefit) expense ( 24,712 ) 57,633 Non-cash compensation expense 11,981 9,872 Impairment expense 2,588 6,163 Decrease (increase) in loan and investment accrued interest receivable 5,613 ( 16,206 ) Decrease in accounts receivable 64,738 47,514 Decrease (increase) in other assets, net 7,069 ( 74,522 ) Decrease in the carrying amount of ROU asset, net 3,859 4,476 Increase in accrued interest payable 342 17,230 Increase in other liabilities 19,132 5,388 Decrease in the carrying amount of lease liability ( 3,908 ) ( 4,227 ) Net cash provided by operating activities 353,214 656,872 Cash flows from investing activities: Purchases and originations of loans ( 556,255 ) ( 539,118 ) Purchases of loans from a related party ( 467,554 ) ( 8,242 ) Net proceeds from loan repayments, claims, and capitalized interest 1,910,379 2,955,097 Proceeds from sale of loans 341,760 38,559 Purchases of available-for-sale securities ( 510,804 ) ( 944,588 ) Proceeds from sales of available-for-sale securities 776,096 450,457 Proceeds from beneficial interest in loan securitizations 23,753 17,754 Purchases of other investments and issuance of notes receivable ( 179,632 ) ( 192,773 ) Proceeds from other investments 29,768 42,524 Purchases of held-to-maturity debt securities ( 11,325 ) — Redemption of held-to-maturity debt securities 2,893 — Purchases of property and equipment ( 52,604 ) ( 44,423 ) Business acquisition, net of cash acquired — ( 35,973 ) Net cash provided by investing activities 1,306,475 1,739,274 7 NELNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine months ended September 30, 2023 2022 Cash flows from financing activities: Payments on bonds and notes payable $ ( 2,996,916 ) ( 3,035,082 ) Proceeds from issuance of bonds and notes payable 756,268 413,391 Payments of debt issuance costs ( 2,233 ) ( 1,160 ) Increase in bank deposits, net 26,731 236,510 Decrease in due to customers ( 6,422 ) ( 59,467 ) Dividends paid ( 29,049 ) ( 26,960 ) Repurchases of common stock ( 4,310 ) ( 93,224 ) Proceeds from issuance of common stock 1,315 1,206 Issuance of noncontrolling interests 32,581 19,380 Distribution to noncontrolling interests ( 2,519 ) ( 1,153 ) Net cash used in financing activities ( 2,224,554 ) ( 2,546,559 ) Effect of exchange rate changes on cash ( 206 ) ( 447 ) Net decrease in cash, cash equivalents, and restricted cash ( 565,071 ) ( 150,860 ) Cash, cash equivalents, and restricted cash, beginning of period 1,357,616 1,194,189 Cash, cash equivalents, and restricted cash, end of period $ 792,545 1,043,329 Supplemental disclosures of cash flow information: Cash disbursements made for interest $ 585,482 196,278 Cash disbursements made for income taxes, net of refunds and credits received (a) $ 45,444 37,467 Cash disbursements made for operating leases $ 5,029 5,221 Noncash operating, investing, and financing activity: ROU assets obtained in exchange for lease obligations $ 18,860 5,981 Receipt of beneficial interest in consumer loan securitizations as consideration from sale of loans $ 63,878 8,336 Receipt of asset-backed investment securities as consideration from sale of loans $ 58,182 — Distribution to noncontrolling interests $ 50,508 31,716 Issuance of noncontrolling interests $ 585 5,917 (a) The Company utilized $ 49.0 million and $ 9.4 million of federal and state tax credits related primarily to renewable energy during the nine months ended September 30, 2023 and 2022, respectively. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows. As of As of As of As of September 30, 2023 December 31, 2022 September 30, 2022 December 31, 2021 Total cash and cash equivalents $ 187,690 118,146 63,198 125,563 Restricted cash 445,983 945,159 799,212 741,981 Restricted cash - due to customers 158,872 294,311 180,919 326,645 Cash, cash equivalents, and restricted cash $ 792,545 1,357,616 1,043,329 1,194,189 See accompanying notes to consolidated financial statements. 8 NELNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts, unless otherwise noted) (unaudited) 1. Basis of Financial Reporting The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2022 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report"). 2. Loans and Accrued Interest Receivable and Allowance for Loan Losses Loans and accrued interest receivable consisted of the following: As of As of September 30, 2023 December 31, 2022 Non-Nelnet Bank: Federally insured loans: Stafford and other $ 3,104,569 3,389,178 Consolidation 9,194,415 10,177,295 Total 12,298,984 13,566,473 Private education loans 293,004 252,383 Consumer and other loans 143,633 350,915 Non-Nelnet Bank loans 12,735,621 14,169,771 Nelnet Bank: Federally insured loans 59,261 65,913 Private education loans 359,941 353,882 Consumer and other loans 49,611 — Nelnet Bank loans 468,813 419,795 Accrued interest receivable 806,854 816,864 Loan discount, net of unamortized loan premiums and deferred origination costs ( 33,638 ) ( 30,714 ) Allowance for loan losses: Non-Nelnet Bank: Federally insured loans ( 72,043 ) ( 83,593 ) Private education loans ( 16,944 ) ( 15,411 ) Consumer and other loans ( 14,022 ) ( 30,263 ) Non-Nelnet Bank allowance for loan losses ( 103,009 ) ( 129,267 ) Nelnet Bank: Federally insured loans ( 148 ) ( 170 ) Private education loans ( 3,083 ) ( 2,390 ) Consumer and other loans ( 3,853 ) — Nelnet Bank allowance for loan losses ( 7,084 ) ( 2,560 ) $ 13,867,557 15,243,889 9 The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios. As of As of September 30, 2023 December 31, 2022 Non-Nelnet Bank: Federally insured loans (a) 0.59 % 0.62 % Private education loans 5.78 % 6.11 % Consumer and other loans 9.76 % 8.62 % Nelnet Bank: Federally insured loans (a) 0.25 % 0.26 % Private education loans 0.86 % 0.68 % Consumer and other loans 7.77 % — (a) As of September 30, 2023 and December 31, 2022, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty for non-Nelnet Bank was 21.9 % and 22.4 %, respectively, and for Nelnet Bank was 10.0 % and 10.3 %, respectively. Loan Sales The Company has sold portfolios of loans to unrelated third parties who securitized such loans. As partial consideration received for the loans sold, the Company received residual interest in the loan securitizations that are included in "investments and notes receivable" on the Company's consolidated balance sheets. The following table summarizes the loans sold and gains/losses recognized by the Company during the nine months ended September 30, 2023 and 2022. Loans sold (par value) Gain (loss) Loan type Residual interest received in securitization Nine months ended September 30, 2023 January 31 $ 97,350 ( 1,441 ) Home equity 64.8 % (a) January 31 42,275 4,350 Consumer 13.3 March 2 122,277 8,903 Consumer 24.6 (a) April 4 5,633 659 Consumer — April 13 24,980 3,123 Consumer 11.3 May 2 127,663 11,729 Consumer 26.5 August 3 61,807 5,362 Consumer 24.3 $ 481,985 32,685 Nine months ended September 30, 2022 January 26 $ 18,125 2,989 Consumer 6.6 % June 30 114 — Home equity — July 7 28,915 2,627 Consumer 7.6 $ 47,154 5,616 (a) In addition to receiving a residual interest in the securitizations, the Company also received $ 14.5 million and $ 43.7 million of asset-backed investment securities as part of the January 31 and March 2, 2023 transactions, respectively, that are included in "investments and notes receivable" on the Company's consolidated balance sheet. 10 Activity in the Allowance for Loan Losses The following table presents the activity in the allowance for loan losses by portfolio segment. Balance at beginning of period Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration Loan sales Balance at end of period Three months ended September 30, 2023 Non-Nelnet Bank: Federally insured loans $ 74,061 1,641 ( 3,659 ) — — — 72,043 Private education loans 14,322 3,009 ( 571 ) 184 — — 16,944 Consumer and other loans 20,005 4,082 ( 4,115 ) 434 — ( 6,384 ) 14,022 Nelnet Bank: Federally insured loans 154 ( 2 ) ( 4 ) — — — 148 Private education loans 2,905 220 ( 42 ) — — — 3,083 Consumer and other loans 2,816 1,554 ( 517 ) — — — 3,853 $ 114,263 10,504 ( 8,908 ) 618 — ( 6,384 ) 110,093 Three months ended September 30, 2022 Non-Nelnet Bank: Federally insured loans $ 92,593 888 ( 5,715 ) — 12 — 87,778 Private education loans 15,253 1,154 ( 1,066 ) 236 — — 15,577 Consumer and other loans 10,576 7,173 ( 1,021 ) 147 — ( 3,585 ) 13,290 Nelnet Bank: Federally insured loans 258 ( 94 ) — — — — 164 Private education loans 1,744 504 — — — — 2,248 $ 120,424 9,625 ( 7,802 ) 383 12 ( 3,585 ) 119,057 Nine months ended September 30, 2023 Non-Nelnet Bank: Federally insured loans $ 83,593 4,052 ( 15,608 ) — 6 — 72,043 Private education loans 15,411 3,249 ( 2,279 ) 563 — — 16,944 Consumer and other loans 30,263 41,388 ( 9,264 ) 1,096 — ( 49,461 ) 14,022 Nelnet Bank: Federally insured loans 170 ( 15 ) ( 7 ) — — — 148 Private education loans 2,390 1,350 ( 657 ) — — — 3,083 Consumer and other loans — 4,370 ( 517 ) — — — 3,853 $ 131,827 54,394 ( 28,332 ) 1,659 6 ( 49,461 ) 110,093 Nine months ended September 30, 2022 Non-Nelnet Bank: Federally insured loans $ 103,381 505 ( 16,264 ) — 156 — 87,778 Private education loans 16,143 1,971 ( 3,072 ) 531 — 4 15,577 Consumer and other loans 6,481 14,702 ( 2,489 ) 465 — ( 5,869 ) 13,290 Nelnet Bank: Federally insured loans 268 ( 102 ) ( 2 ) — — — 164 Private education loans 840 1,499 ( 87 ) — — ( 4 ) 2,248 $ 127,113 18,575 ( 21,914 ) 996 156 ( 5,869 ) 119,057 The primary item impacting provision for loan losses was the establishment of an initial allowance for loans originated and acquired during the periods presented above. 11 The following table summarizes annualized net charge-offs as a percentage of average loans for each of the Company's loan portfolios. Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Non-Nelnet Bank: Federally insured loans 0.11 % 0.15 % 0.16 % 0.13 % Private education loans 0.61 % 1.23 % 0.94 % 1.22 % Consumer and other loans 9.57 % 1.96 % 4.59 % 2.54 % Nelnet Bank: Federally insured loans 0.03 % 0.00 % 0.01 % 0.00 % Private education loans 0.05 % 0.00 % 0.25 % 0.04 % Consumer and other loans 5.69 % — 3.00 % — Unfunded Loan Commitments As of September 30, 2023, Nelnet Bank has a liability of approximately $ 217,000 related to $ 13.1 million of unfunded private education and consumer loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the consolidated balance sheets. During the nine months ended September 30, 2023 and 2022, Nelnet Bank recognized provision for loan losses of approximately $ 132,000 and approximately $ 65,000 , respectively, related to unfunded loan commitments. Loan Modifications to Borrowers Experiencing Financial Difficulty On January 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, which eliminates the troubled debt restructurings recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan. The guidance also enhances the disclosure requirements for certain modifications of receivables made to borrowers experiencing financial difficulty and vintage disclosures reflecting gross charge-offs by year of origination. Under the Higher Education Act, federally insured loan borrowers may be granted a deferment or forbearance for a period of time based on need. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department of Education (the "Department"). Because federally insured loan modifications are driven by the Higher Education Act, the Company does not consider these events as part of its loan modification programs. Administrative forbearances (e.g. bankruptcy, military service, death and disability, and disaster forbearance) are required by law and therefore are also not considered as part of the Company's loan modification programs. The Company does offer payment delays in the form of deferments or forbearances on certain private education and consumer loan programs for short-term periods. The Company generally considers payment delays to be insignificant when the delay is 3 months or less. The amortized cost of the Company’s private education and consumer loans in which the borrower is experiencing financial difficulty and the financial effect of such loan modifications is not material. 12 Key Credit Quality Indicators Loan Status and Delinquencies Key credit quality indicators for the Company’s federally insured, private education, consumer, and other loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The following table presents the Company’s loan status and delinquency amounts. As of September 30, 2023 As of December 31, 2022 As of September 30, 2022 Federally insured loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 562,754 4.6 % $ 637,919 4.7 % $ 719,724 5.0 % Loans in forbearance 906,060 7.4 1,103,181 8.1 1,384,709 9.7 Loans in repayment status: Loans current 9,014,731 83.2 % 10,173,859 86.0 % 10,454,046 85.7 % Loans delinquent 31-60 days 441,016 4.1 415,305 3.5 431,471 3.6 Loans delinquent 61-90 days 301,028 2.8 253,565 2.2 261,616 2.1 Loans delinquent 91-120 days 213,245 2.0 180,029 1.5 185,753 1.5 Loans delinquent 121-270 days 648,924 6.0 534,410 4.5 540,555 4.4 Loans delinquent 271 days or greater 211,226 1.9 268,205 2.3 322,517 2.7 Total loans in repayment 10,830,170 88.0 100.0 % 11,825,373 87.2 100.0 % 12,195,958 85.3 100.0 % Total federally insured loans 12,298,984 100.0 % 13,566,473 100.0 % 14,300,391 100.0 % Accrued interest receivable 798,102 808,150 786,494 Loan discount, net of unamortized premiums and deferred origination costs ( 30,979 ) ( 35,468 ) ( 25,381 ) Allowance for loan losses ( 72,043 ) ( 83,593 ) ( 87,778 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 12,994,064 $ 14,255,562 $ 14,973,726 Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ 11,373 3.9 % $ 12,756 5.1 % $ 15,556 5.9 % Loans in forbearance 2,280 0.8 2,017 0.8 2,745 1.1 Loans in repayment status: Loans current 271,948 97.4 % 232,539 97.9 % 238,926 98.0 % Loans delinquent 31-60 days 3,485 1.2 2,410 1.0 2,014 0.8 Loans delinquent 61-90 days 1,424 0.5 767 0.3 992 0.4 Loans delinquent 91 days or greater 2,494 0.9 1,894 0.8 1,950 0.8 Total loans in repayment 279,351 95.3 100.0 % 237,610 94.1 100.0 % 243,882 93.0 100.0 % Total private education loans 293,004 100.0 % 252,383 100.0 % 262,183 100.0 % Accrued interest receivable 2,750 2,146 2,207 Loan discount, net of unamortized premiums ( 8,069 ) ( 38 ) ( 185 ) Allowance for loan losses ( 16,944 ) ( 15,411 ) ( 15,577 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,741 $ 239,080 $ 248,628 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ 20 0.0 % $ 109 0.0 % $ 29 0.0 % Loans in repayment status: Loans current 137,744 95.9 % 346,812 98.9 % 228,827 98.9 % Loans delinquent 31-60 days 1,987 1.4 1,906 0.5 1,019 0.4 Loans delinquent 61-90 days 1,293 0.9 764 0.2 427 0.2 Loans delinquent 91 days or greater 2,589 1.8 1,324 0.4 1,139 0.5 Total loans in repayment 143,613 100.0 100.0 % 350,806 100.0 100.0 % 231,412 100.0 100.0 % Total consumer and other loans 143,633 100.0 % 350,915 100.0 % 231,441 100.0 % Accrued interest receivable 1,716 3,658 2,561 Loan discount, net of unamortized premiums ( 180 ) ( 588 ) ( 1,847 ) Allowance for loan losses ( 14,022 ) ( 30,263 ) ( 13,290 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 131,147 $ 323,722 $ 218,865 13 As of September 30, 2023 As of December 31, 2022 As of September 30, 2022 Federally insured loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 283 0.5 % $ 241 0.4 % $ 274 0.4 % Loans in forbearance 862 1.5 981 1.5 2,551 3.5 Loans in repayment status: Loans current 57,059 98.3 % 63,225 97.8 % 68,970 98.4 % Loans delinquent 30-59 days 333 0.6 436 0.7 353 0.5 Loans delinquent 60-89 days 81 0.1 466 0.7 130 0.2 Loans delinquent 90-119 days 12 0.0 222 0.3 5 0.0 Loans delinquent 120-270 days 428 0.7 183 0.3 508 0.7 Loans delinquent 271 days or greater 203 0.3 159 0.2 114 0.2 Total loans in repayment 58,116 98.0 100.0 % 64,691 98.1 100.0 % 70,080 96.1 100.0 % Total federally insured loans 59,261 100.0 % 65,913 100.0 % 72,905 100.0 % Accrued interest receivable 2,008 1,758 1,607 Loan premium 19 20 23 Allowance for loan losses ( 148 ) ( 170 ) ( 164 ) Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 61,140 $ 67,521 $ 74,371 Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 23,575 6.6 % $ 11,580 3.3 % $ 10,888 3.1 % Loans in forbearance 1,169 0.3 864 0.2 524 0.1 Loans in repayment status: Loans current 333,595 99.5 % 340,830 99.8 % 344,469 99.8 % Loans delinquent 30-59 days 679 0.2 167 0.1 197 0.1 Loans delinquent 60-89 days 412 0.1 32 0.0 79 0.0 Loans delinquent 90 days or greater 511 0.2 409 0.1 414 0.1 Total loans in repayment 335,197 93.1 100.0 % 341,438 96.5 100.0 % 345,159 96.8 100.0 % Total private education loans 359,941 100.0 % 353,882 100.0 % 356,571 100.0 % Accrued interest receivable 1,905 1,152 969 Deferred origination costs, net of unaccreted discount 5,578 5,360 5,369 Allowance for loan losses ( 3,083 ) ( 2,390 ) ( 2,248 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 364,341 $ 358,004 $ 360,661 Consumer and other loans - Nelnet Bank (a): Loans in deferment $ 95 0.2 % Loans in forbearance 32 0.1 Loans in repayment status: Loans current 48,358 97.7 % Loans delinquent 30-59 days 527 1.1 Loans delinquent 60-89 days 306 0.6 Loans delinquent 90 days or greater 293 0.6 Total loans in repayment 49,484 99.7 100.0 % Total consumer and other loans 49,611 100.0 % Accrued interest receivable 373 Loan discount ( 7 ) Allowance for loan losses ( 3,853 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 46,124 (a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation. 14 FICO Scores - Nelnet Bank Private Education Loans An additional key credit quality indicator for Nelnet Bank private education loans is FICO scores at the time of origination. The following tables highlight the gross principal balance of Nelnet Bank's private education loan portfolio, by year of origination, stratified by FICO score at the time of origination. Loan balance as of September 30, 2023 Nine months ended September 30, 2023 2022 2021 2020 Total FICO at origination: Less than 705 $ 2,681 5,726 4,860 339 13,606 705 - 734 6,970 22,441 9,395 502 39,308 735 - 764 6,505 33,692 15,233 1,378 56,808 765 - 794 4,797 53,433 28,066 1,400 87,696 Greater than 794 13,719 80,523 61,283 5,425 160,950 No FICO score available or required (a) 1,573 — — — 1,573 $ 36,245 195,815 118,837 9,044 359,941 Loan balance as of December 31, 2022 2022 2021 2020 Total FICO at origination: Less than 705 $ 5,898 5,389 348 11,635 705 - 734 23,392 10,543 542 34,477 735 - 764 35,456 16,686 1,473 53,615 765 - 794 57,141 31,035 1,622 89,798 Greater than 794 87,959 70,135 6,263 164,357 $ 209,846 133,788 10,248 353,882 (a) Loans with no FICO score available or required refers to loans issued to borrowers for which the Company cannot obtain a FICO score or are not required to under a special purpose credit program. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk. Nonaccrual Status The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private education, consumer, and other loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of September 30, 2023 and December 31, 2022, was not material. 15 Amortized Cost Basis by Origination Year The following table presents the amortized cost of the Company's private education, consumer, and other loans by loan status and delinquency amount as of September 30, 2023 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010. Nine months ended September 30, 2023 2022 2021 2020 2019 Prior years Total Private education loans - Non-Nelnet Bank: Loans in-school/grace/deferment $ — 1,138 4,845 1,105 1,647 2,638 11,373 Loans in forbearance — 79 50 411 569 1,171 2,280 Loans in repayment status: Loans current 128 4,311 4,351 46,927 38,618 177,613 271,948 Loans delinquent 31-60 days — — 33 383 234 2,835 3,485 Loans delinquent 61-90 days — 4 31 145 42 1,202 1,424 Loans delinquent 91 days or greater — — — 189 — 2,305 2,494 Total loans in repayment 128 4,315 4,415 47,644 38,894 183,955 279,351 Total private education loans $ 128 5,532 9,310 49,160 41,110 187,764 293,004 Accrued interest receivable 2,750 Loan discount, net of unamortized premiums ( 8,069 ) Allowance for loan losses ( 16,944 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,741 Gross charge-offs - nine months ended September 30, 2023 $ — 35 10 105 548 1,581 2,279 Consumer and other loans - Non-Nelnet Bank: Loans in deferment $ — — 18 — — 2 20 Loans in repayment status: Loans current 83,292 48,425 4,687 506 664 170 137,744 Loans delinquent 31-60 days 677 1,128 167 — 9 6 1,987 Loans delinquent 61-90 days 623 579 84 — 5 2 1,293 Loans delinquent 91 days or greater 392 1,402 241 27 199 328 2,589 Total loans in repayment 84,984 51,534 5,179 533 877 506 143,613 Total consumer and other loans $ 84,984 51,534 5,197 533 877 508 143,633 Accrued interest receivable 1,716 Loan discount, net of unamortized premiums ( 180 ) Allowance for loan losses ( 14,022 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 131,147 Gross charge-offs - nine months ended September 30, 2023 $ 2,866 5,580 583 27 80 128 9,264 Private education loans - Nelnet Bank (a): Loans in-school/grace/deferment $ 9,028 12,210 1,218 1,119 — — 23,575 Loans in forbearance 147 683 339 — — — 1,169 Loans in repayment status: Loans current 26,709 182,313 116,684 7,889 — — 333,595 Loans delinquent 30-59 days 228 249 166 36 — — 679 Loans delinquent 60-89 days 4 165 243 — — — 412 Loans delinquent 90 days or greater 129 195 187 — — — 511 Total loans in repayment 27,070 182,922 117,280 7,925 — — 335,197 Total private education loans $ 36,245 195,815 118,837 9,044 — — 359,941 Accrued interest receivable 1,905 Deferred origination costs, net of unaccreted discount 5,578 Allowance for loan losses ( 3,083 ) Total private education loans and accrued interest receivable, net of allowance for loan losses $ 364,341 Gross charge-offs - nine months ended September 30, 2023 $ 20 637 — — — — 657 16 Nine months ended September 30, 2023 2022 2021 2020 2019 Prior years Total Consumer and other loans - Nelnet Bank (a): Loans in deferment $ 95 — — — — — 95 Loans in forbearance 32 — — — — — 32 Loans in repayment status: Loans current 47,813 490 55 — — — 48,358 Loans delinquent 30-59 days 527 — — — — — 527 Loans delinquent 60-89 days 306 — — — — — 306 Loans delinquent 90 days or greater 293 — — — — — 293 Total loans in repayment 48,939 490 55 — — — 49,484 Total consumer and other loans $ 49,066 490 55 — — — 49,611 Accrued interest receivable 373 Loan discount ( 7 ) Allowance for loan losses ( 3,853 ) Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 46,124 Gross charge-offs - nine months ended September 30, 2023 $ 517 — — — — — 517 (a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation. 17 3. Bonds and Notes Payable The following tables summarize the Company’s outstanding debt obligations by type of instrument: As of September 30, 2023 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 10,028,276 5.27 % - 7.43 % 8/26/30 - 9/25/69 Bonds and notes based on auction 89,910 0.00 % - 6.43 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 10,118,186 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 497,397 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facilities 1,466,178 5.40 % - 5.67 % 11/22/24 / 4/2/25 Private education loan warehouse facility 38,183 5.63 % 12/31/23 Consumer loan warehouse facility 49,937 5.68 % 11/14/25 Variable-rate bonds and notes issued in private education loan asset-backed securitization 15,579 6.90 % 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 16,626 5.35 % 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 63 6.06 % 5/4/24 Repurchase agreement 336,523 6.26 % - 6.72 % 11/20/23 - 11/27/24 Other - due to related party 6,010 3.55 % - 6.05 % 3/1/24 - 11/15/30 12,544,682 Discount on bonds and notes payable and debt issuance costs ( 96,573 ) Total $ 12,448,109 As of December 31, 2022 Carrying amount Interest rate range Final maturity Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations: Bonds and notes based on indices $ 11,868,190 4.47 % - 6.39 % 8/26/30 - 9/25/69 Bonds and notes based on auction 178,960 0.00 % - 4.02 % 3/22/32 - 11/26/46 Total FFELP variable-rate bonds and notes 12,047,150 Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 594,051 1.42 % - 3.45 % 10/25/67 - 8/27/68 FFELP loan warehouse facility 978,956 4.69 % / 4.71 % 5/22/24 Private education loan warehouse facility 64,356 4.72 % 12/31/23 Consumer loan warehouse facility 89,000 4.73 % 11/14/25 Variable-rate bonds and notes issued in private education loan asset-backed securitizations 19,865 5.90 % / 6.14 % 12/26/40 / 6/25/49 Fixed-rate bonds and notes issued in private education loan asset-backed securitization 23,032 3.60 % / 5.35 % 12/26/40 / 12/28/43 Unsecured line of credit — — 9/22/26 Participation agreement 395,432 5.02 % 5/4/23 Repurchase agreements 567,254 0.97 % - 5.60 % 1/4/23 - 11/27/24 Other - due to related party 6,187 3.55 % - 6.05 % 3/1/24 - 11/15/30 14,785,283 Discount on bonds and notes payable and debt issuance costs ( 148,088 ) Total $ 14,637,195 18 Warehouse Facilities The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. The following table summarizes the Company's warehouse facilities as of September 30, 2023. Type of loans Maximum financing amount Amount outstanding Amount available Expiration of liquidity provisions Final maturity date Advance rate Advanced as equity support FFELP (a) $ 1,250,000 1,067,533 182,467 11/22/2023 11/22/2024 note (b) $ 74,825 FFELP (c) 432,000 398,645 33,355 4/2/2024 4/2/2025 92 % 33,483 $ 1,682,000 1,466,178 215,822 $ 108,308 Private (d) 38,183 38,183 — 10/31/2023 12/31/2023 — 17,910 Consumer 250,000 49,937 200,063 11/14/2024 11/14/2025 70 % 21,328 (a) On March 31, 2023, this facility was amended to increase the aggregate maximum financing amount available from $ 1.20 billion to $ 1.25 billion. On May 22, 2023, this facility was amended to extend the expiration of liquidity provisions and final maturity date to November 22, 2023 and November 22, 2024, respectively. (b) This facility has a static advance rate until the expiration date of the liquidity provisions. The maximum advance rates for this facility are 90 % to 96 %, and the minimum advance rates are 84 % to 90 %. In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility. (c) On April 3, 2023, the Company closed on this $ 250.0 million FFELP facility. On May 25, 2023, this facility was amended to increase the maximum financing amount from $ 250.0 million to $ 432.0 million. (d) On June 30, 2023, August 31, 2023, and October 31, 2023, this facility was amended to extend the expiration of liquidity provisions to August 31, 2023, October 31, 2023, and December 31, 2023, respectively. No additional amounts can be borrowed under this facility. Unsecured Line of Credit The Company has a $ 495.0 million unsecured line of credit that has a maturity date of September 22, 2026. As of September 30, 2023, no amount was outstanding on the line of credit and $ 495.0 million was available for future use. Participation Agreement The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities (bond investments). As of September 30, 2023, $ 0.1 million (par value) of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. On May 4, 2023, the agreement automatically renewed for another year through May 4, 2024. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 400.0 million or an amount in excess of $ 400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities subject to this agreement are included on the Company's consolidated balance sheets as "investments and notes receivable" and the participation interests outstanding have been accounted for by the Company as a secured borrowing. See note 5 for additional information about the FFELP loan asset-backed securities investments serving as collateral under the remaining participation agreement. Repurchase Agreements On May 3, 2021, the Company entered into a repurchase agreement with a non-affiliated third party, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities (bond investments). The agreement has various maturity dates through November 27, 2024 or earlier if either party provides 180 days’ prior written notice, and the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date. Included in “bonds and notes payable” in the consolidated balance sheets as of September 30, 2023 was $ 336.5 million subject to this agreement. On June 23, 2021, the Company entered into a separate repurchase agreement with a non-affiliated third party, which was collateralized by certain private education and FFELP loan asset-backed securities (bond investments). The outstanding balance of this facility was paid in full during the third quarter of 2023. See note 5 and below under "Debt Repurchases" for additional information about the private education and FFELP loan asset-backed securities investments, respectively, serving as collateral for this repurchase agreement. 19 Debt Repurchases The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in "other, net" in "other income (expense)" on the Company's consolidated statements of income. Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Purchase price $ ( 4,284 ) ( 13,563 ) ( 5,112 ) ( 67,081 ) Par value 5,033 13,903 5,941 69,133 Remaining unamortized cost of issuance ( 12 ) ( 180 ) ( 14 ) ( 821 ) Gain $ 737 160 815 1,231 The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of September 30, 2023, the Company holds $ 257.3 million (par value) of its own FFELP loan asset-backed securities. As of September 30, 2023, $ 118.9 million (par value) of the Company's repurchased FFELP loan asset-backed securities were serving as collateral on amounts outstanding under the Company's repurchase agreement (as discussed above). In April 2023, the Company redeemed $ 188.6 million of FFELP loan asset-backed debt securities (bonds and notes payable) prior to their maturity, of which the Company owned $ 140.5 million of the bonds that were redeemed. The remaining unamortized debt discount associated with these bonds at the time of redemption was written-off, resulting in a $ 25.9 million non-cash expense recognized in April 2023. This expense is included in "interest expense on bonds and notes payable and bank deposits" on the consolidated statements of income. 4. Derivative Financial Instruments The Company uses derivative financial instruments primarily to manage interest rate risk. Derivative instruments used as part of the Company's interest rate risk management strategy are further described in note 6 of the notes to consolidated financial statements included in the 2022 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2023 and December 31, 2022 is presented below. Non-Nelnet Bank Derivatives Basis Swaps The following table summarizes the Company’s outstanding basis swaps, in which the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). Subsequent to the discontinuation of LIBOR on June 30, 2023, the Company now receives and pays the term adjusted Secured Overnight Financing Rate (SOFR) plus the tenor spread adjustment to LIBOR. Maturity Notional amount As of As of September 30, 2023 December 31, 2022 2023 $ — 750,000 2024 1,750,000 1,750,000 2026 1,150,000 1,150,000 2027 250,000 250,000 $ 3,150,000 3,900,000 The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2023 was the term adjusted SOFR plus the tenor spread adjustment relating to LIBOR plus 10.1 basis points and as of December 31, 2022 was one-month LIBOR plus 9.7 basis points, respectively. 20 Interest Rate Swaps – Floor Income Hedges The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income. As of September 30, 2023 As of December 31, 2022 (a) Maturity Notional amount Weighted average fixed rate paid by the Company (b) Notional amount Weighted average fixed rate paid by the Company (b) 2024 $ — — % $ 2,000,000 0.35 % 2026 — — 500,000 1.02 2030 (c) 50,000 3.44 — — 2031 — — 100,000 1.53 2032 — — 200,000 2.92 $ 50,000 3.44 % $ 2,800,000 0.70 % (a) On March 15, 2023, to minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income ($ 2.8 billion in notional amount of derivatives). Through March 15, 2023, the Company had received cash or had a receivable from the clearinghouse related to variation margin equal to the fair value of the $ 2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $ 183.2 million, which included $ 19.1 million related to current period settlements. (b) For the interest rate derivative maturing in 2030, the Company receives payments based on SOFR that resets quarterly. For all other interest rate derivatives that were terminated, the Company received payments based on three-month LIBOR that reset quarterly. (c) The Company entered into this derivative in June 2023. Nelnet Bank Derivatives Interest Rate Swaps Derivative instruments are used by Nelnet Bank to hedge the exposure to variability in cash flows of variable rate intercompany deposits primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Nelnet Bank has structured these derivatives so that each is economically effective; however, because these derivatives are hedging intercompany deposits, the derivative instruments are not eligible for hedge accounting in the consolidated financial statements. As a result, the change in market value of these derivative instruments is reported in current period earnings and presented in "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. The following table summarizes the outstanding derivative instruments used by Nelnet Bank to hedge exposure to variability in cash flows related to variable rate intercompany deposits as of September 30, 2023. As of September 30, 2023 Maturity Notional amount Weighted average fixed rate paid by the Company (a) 2028 $ 40,000 3.33 % 2030 (b) 50,000 3.06 2032 (c) 25,000 4.03 $ 115,000 3.36 % (a) For all interest rate derivatives, the Company receives payments based on SOFR that reset monthly or quarterly. (b) These $ 25 million notional amount derivatives have forward effective start dates in April 2026 and May 2026, respectively. (c) This $ 25 million notional amount derivative has a forward effective start date in February 2027. Unlike the Company's Non-Nelnet Bank derivatives, Nelnet Bank's derivatives are not cleared post-execution at a regulated clearinghouse. As such, the Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at fair value. As of September 30, 2023, the gross fair value of Nelnet Bank's interest rate swap derivatives was $ 3.1 million (an asset) that is included in "other assets" on the consolidated balance sheet. 21 Consolidated Financial Statement Impact Related to Derivatives The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income. Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Settlements: 1:3 basis swaps $ 386 ( 1,085 ) 1,180 242 Interest rate swaps - floor income hedges 235 11,356 22,760 11,843 Interest rate swaps - Nelnet Bank 196 — 279 — Total settlements - income 817 10,271 24,219 12,085 Change in fair value: 1:3 basis swaps ( 464 ) 189 ( 253 ) 929 Interest rate swaps - floor income hedges 1,656 52,802 ( 35,070 ) 238,196 Interest rate swaps - Nelnet Bank 1,948 — 3,057 — Total change in fair value - income (expense) 3,140 52,991 ( 32,266 ) 239,125 Derivative market value adjustments and derivative settlements, net - income (expense) $ 3,957 63,262 ( 8,047 ) 251,210 22 5. Investments and Notes Receivable Investments and notes receivable consisted of the following: As of September 30, 2023 As of December 31, 2022 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Investments (at fair value): Available-for-sale asset-backed securities Non-Nelnet Bank: FFELP loan (a) $ 295,986 5,930 ( 5,310 ) 296,606 463,861 3,498 ( 11,105 ) 456,254 Private education loan (b) 294,068 — ( 33,960 ) 260,108 335,903 — ( 29,438 ) 306,465 Other debt securities 65,923 2,082 ( 437 ) 67,568 158,589 151 ( 3,790 ) 154,950 Total Non-Nelnet Bank 655,977 8,012 ( 39,707 ) 624,282 958,353 3,649 ( 44,333 ) 917,669 Nelnet Bank: FFELP loan (c) 318,919 3,329 ( 2,393 ) 319,855 349,855 955 ( 8,853 ) 341,957 Private education loan 1,609 — ( 83 ) 1,526 1,941 — ( 122 ) 1,819 Other debt securities 115,914 146 ( 2,426 ) 113,634 131,481 18 ( 3,907 ) 127,592 Total Nelnet Bank 436,442 3,475 ( 4,902 ) 435,015 483,277 973 ( 12,882 ) 471,368 Total available-for-sale asset-backed securities $ 1,092,419 11,487 ( 44,609 ) 1,059,297 1,441,630 4,622 ( 57,215 ) 1,389,037 Equity securities 46,634 39,082 Total investments at fair value 1,105,931 1,428,119 Other Investments and Notes Receivable (not measured at fair value): Held to maturity investments Non-Nelnet Bank: Debt securities (d) 4,700 18,554 Nelnet Bank: FFELP loan asset-backed securities (c) 158,125 — Other debt securities 241 220 Total Nelnet Bank 158,366 220 Total held to maturity investments 163,066 18,774 Venture capital and funds: Measurement alternative (e) 193,106 160,052 Equity method 99,640 89,332 Total venture capital and funds 292,746 249,384 Real estate: Equity method 97,053 80,364 Investment in ALLO: Voting interest/equity method (f) 26,294 67,538 Preferred membership interest and accrued and unpaid preferred return (g) 152,748 145,926 Total investment in ALLO 179,042 213,464 Beneficial interest in loan securitizations (h): Consumer loans and other 98,701 39,249 Private education loans 69,716 75,261 Federally insured student loans 22,735 24,228 Total beneficial interest in loan securitizations 191,152 138,738 Solar (i) ( 144,929 ) ( 55,448 ) Notes receivable 54,129 31,106 Tax liens, affordable housing, and other 7,498 7,416 Total investments (not measured at fair value) 839,757 683,798 Total investments and notes receivable $ 1,945,688 $ 2,111,917 23 (a) A portion of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 3 under "Participation Agreement." As of September 30, 2023, the par value and fair value of these securities was $ 0.1 million and $ 0.1 million, respectively. (b) A portion of private education loan asset-backed securities were subject to a repurchase agreement with a third party, as discussed in note 3 under "Repurchase Agreements." As of September 30, 2023, the par value and fair value of these securities was $ 294.5 million and $ 260.1 million, respectively. (c) On March 31, 2023, securities at Nelnet Bank with a fair value of $ 149.2 million were transferred from available-for-sale to held to maturity. The securities were reclassified at fair value at the time of the transfer, and such transfer represented a non-cash transaction. Accumulated other comprehensive income as of March 31, 2023 included pre-tax unrealized losses of $ 3.7 million related to the transfer. These unrealized losses are being amortized, consistent with the amortization of any discounts on such securities, over the remaining lives of the respective securities as an adjustment of yield. (d) On March 31, 2023, certain Non-Nelnet Bank debt securities were transferred from held to maturity to available-for-sale. (e) The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. On February 6, 2023, the Company acquired additional ownership interests in Hudl for $ 31.5 million. Such ownership interests were purchased by the Company from certain existing Hudl investors. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. The February 6, 2023 transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities, and the price was privately negotiated between the Company and the selling parties. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the February 2023 transaction value. As of September 30, 2023, the carrying amount of the Company's investment in Hudl is $ 165.5 million, and the Company's equity ownership interests did not materially change as a result of the February 6, 2023 transaction. David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl. (f) During the first quarter of 2023, the Company contributed $ 8.4 million of additional equity to ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO"). As a result of this equity contribution, the Company's voting membership interests percentage in ALLO did not materially change. The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. 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. Losses from the Company's investment in ALLO are included in "other, net" in "other income (expense)" on the consolidated statements of income. (g) As of 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 $ 2.2 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. This income is included in "other, net" in "other income (expense)" on the consolidated statements of income. (h) The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to or as of 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. (i) As of September 30, 2023, the Company has funded a total of $ 332.0 million in solar investments, which includes $ 126.5 million funded by syndication partners. The carrying value of the Company’s investment in a solar project is reduced by tax credits earned when the solar project is placed-in-service. The solar investment balance as of September 30, 2023 represents the sum of total tax credits earned on solar projects placed-in-service through September 30, 2023 and the calculated HLBV net losses being larger than the total investment contributions made by the Company on such projects. 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. The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The Company recognized losses on its solar investments of $ 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 (syndication partners), are included in “other, net” in "other income (expense)" on the consolidated statements of income. Solar losses attributed to noncontrolling interest investors was $ 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 during the nine months ended September 30, 2023 and 2022, respectively, and is reflected in “net loss attributable to noncontrolling interests” in the consolidated statements of income. Excluding losses attributed to noncontrolling interest investors, the Company recognized losses on its solar investments of $ 1.8 million and $ 0.1 million during the three months ended September 30, 2023 and 2022, respectively, and losses of $ 1.5 million and gains of $ 0.9 million during the nine months ended September 30, 2023 and 2022, respectively. 24 The following table presents, by remaining contractual maturity, the amortized cost and fair value of debt securities at September 30, 2023: As of September 30, 2023 1 year or less After 1 year through 5 years After 5 years through 10 years After 10 years Total Available-for-sale asset-backed securities Non-Nelnet Bank: FFELP loan $ — 15,808 28,269 251,909 295,986 Private education loan — — — 294,068 294,068 Other debt securities — 99 9,199 56,625 65,923 Total Non-Nelnet Bank — 15,907 37,468 602,602 655,977 Fair value — 15,676 36,563 572,043 624,282 Nelnet Bank: FFELP loan 68,494 13,183 55,630 181,612 318,919 Private education loan — — — 1,609 1,609 Other debt securities 1,194 27,530 47,725 39,465 115,914 Total Nelnet Bank 69,688 40,713 103,355 222,686 436,442 Fair value 69,388 40,122 102,450 223,055 435,015 Total available-for-sale asset-backed securities at amortized cost $ 69,688 56,620 140,823 825,288 1,092,419 Total available-for-sale asset-backed securities at fair value $ 69,388 55,798 139,013 795,098 1,059,297 Held to maturity investments Non-Nelnet Bank: Debt securities $ 4,700 — — — 4,700 Fair value 4,700 — — — 4,700 Nelnet Bank: FFELP loan asset-backed securities — 3,571 — 154,554 158,125 Other debt securities 241 — — — 241 Total Nelnet Bank 241 3,571 — 154,554 158,366 Fair value 241 3,641 — 155,786 159,668 Total held-to-maturity investments at amortized cost $ 4,941 3,571 — 154,554 163,066 Total held-to-maturity investments at fair value $ 4,941 3,641 — 155,786 164,368 The following table presents securities classified as available-for-sale that have gross unrealized losses at September 30, 2023 and the fair value of such securities as of September 30, 2023. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities in the table below have been evaluated to determine if a credit loss exists. As part of that assessment, the Company concluded it currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses. As of September 30, 2023 Unrealized loss position less than 12 months Unrealized loss position 12 months or more Total Available-for-sale asset-backed securities Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Fair value Non-Nelnet Bank: FFELP loan $ ( 5,283 ) 181,168 ( 27 ) 716 ( 5,310 ) 181,884 Private education loan ( 6,138 ) 65,276 ( 27,822 ) 194,832 ( 33,960 ) 260,108 Other debt securities ( 437 ) 21,299 — — ( 437 ) 21,299 Total Non-Nelnet Bank ( 11,858 ) 267,743 ( 27,849 ) 195,548 ( 39,707 ) 463,291 Nelnet Bank: FFELP loan ( 1,328 ) 123,951 ( 1,065 ) 60,907 ( 2,393 ) 184,858 Private education loan — — ( 83 ) 1,526 ( 83 ) 1,526 Other debt securities ( 319 ) 25,045 ( 2,107 ) 42,333 ( 2,426 ) 67,378 Total Nelnet Bank ( 1,647 ) 148,996 ( 3,255 ) 104,766 ( 4,902 ) 253,762 Total available-for-sale asset-backed securities $ ( 13,505 ) 416,739 ( 31,104 ) 300,314 ( 44,609 ) 717,053 25 The following table summarizes the gross proceeds received and gross realized gains and losses related to sales of available-for-sale asset-backed securities. Three months ended Nine months ended September 30, September 30, 2023 2022 2023 2022 Gross proceeds from sales $ 198,548 130,705 776,096 450,457 Gross realized gains $ 1,257 1,142 3,451 5,016 Gross realized losses ( 193 ) ( 564 ) ( 6,452 ) ( 796 ) Net gains (losses) $ 1,064 578 ( 3,001 ) 4,220 6. Intangible Assets Intangible assets consisted of the following: Weighted average remaining useful life as of September 30, 2023 (months) As of As of September 30, 2023 December 31, 2022 Amortizable intangible assets, net: Customer relationships (net of accumulated amortization of $ 45,217 and $ 55,116 , respectively) 105 $ 45,490 51,738 Trade names (net of accumulated amortization of $ 5,177 and $ 617 , respectively) 21 3,733 8,293 Computer software (net of accumulated amortization of $ 487 and $ 6,400 , respectively) 43 1,233 1,520 Other (net of accumulated amortization of $ 986 and $ 490 , respectively) 45 1,454 1,950 Total - amortizable intangible assets, net 96 $ 51,910 63,501 The Company recorded amortization expense on its intangible assets of $ 5.4 million and $ 3.3 million for the three months ended September 30, 2023 and 2022, respectively, and $ 11.6 million and $ 8.6 million during the nine months ended September 30, 2023 and 2022, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2023, the Company estimates it will record amortization expense as follows: 2023 (October 1 - December 31) $ 5,382 2024 8,775 2025 7,141 2026 6,294 2027 5,814 2028 and thereafter 18,504 $ 51,910 7. Goodwill The following table presents the carrying amount of goodwill as of September 30, 2023 and December 31, 2022 by reportable operating segment: Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Total Goodwill balance $ 23,639 92,507 41,883 — 18,873 176,902 26 8. Impairment Expense 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 impairment charges related to operating lease assets and associated leasehold improvements of $ 5.0 million during the third quarter of 2023, which included a $ 2.4 million lease termination fee paid to Union Bank, a related party. In 2022, the Company recorded non-cash impairment charges of $ 6.2 million, primarily related to one of its venture capital investments accounted for under the measurement alternative method. The Company’s impairment charges are included in “impairment and other expense, net” in the consolidated statements of income. 9. Bank Deposits Deposits are interest-bearing deposits and primarily consist of brokered certificates of deposit (CDs) and retail and other savings deposits and CDs. Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trusts (STFIT), and commercial and institutional CDs. Union Bank, a related party, is the program manager for the College Savings plans and trustee for the STFIT Trust. CDs are accounts that have a stipulated maturity and interest rate. For savings accounts, the depositor may be required to give written notice of any intended withdrawal no less than seven days before the withdrawal is made. Generally, early withdrawal of brokered CDs is prohibited (except in the case of death or legal incapacity). As of September 30, 2023 and December 31, 2022, Nelnet Bank had intercompany deposits from Nelnet, Inc. and its subsidiaries totaling $ 229.3 million and $ 98.3 million, respectively, including a $ 40.0 million pledged deposit from Nelnet, Inc. as required under a Capital and Liquidity Maintenance Agreement with the FDIC. All intercompany deposits held at Nelnet Bank are eliminated for consolidated financial reporting purposes. The following table summarizes Nelnet Bank’s interest-bearing deposits, excluding intercompany deposits: As of As of September 30, 2023 December 31, 2022 Brokered CDs, net of brokered deposit fees $ 203,470 254,817 Commercial 2,057 — Retail and other savings (529, STFIT, and HSA) 491,496 410,556 Retail and other CDs (commercial and institutional) 21,030 25,949 Total interest-bearing deposits $ 718,053 691,322 The following table presents certificates of deposit remaining maturities as of September 30, 2023: After two years to three years $ 149,855 After three years to four years 74,298 After four years to five years 347 Total $ 224,500 The Educational 529 College Savings, STFIT, and Health Savings plan deposits are large interest-bearing omnibus accounts structured to allow FDIC insurance to flow through to underlying individual depositors. Except for the commercial deposit, the pledged deposit from Nelnet, Inc., and an earmarked deposit required for intercompany transactions, there were no deposits exceeding the FDIC insurance limits as of September 30, 2023 and December 31, 2022. 27 10. Earnings per Common Share The following table presents the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. Three months ended September 30, 2023 2022 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 44,367 965 45,332 102,763 2,035 104,798 Denominator: Weighted-average common shares outstanding - basic and diluted 36,699,510 798,563 37,498,073 36,654,781 725,712 37,380,493 Earnings per share - basic and diluted $ 1.21 1.21 1.21 2.80 2.80 2.80 Nine months ended September 30, 2023 2022 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total Numerator: Net income attributable to Nelnet, Inc. $ 97,982 2,104 100,086 369,479 7,094 376,573 Denominator: Weighted-average common shares outstanding - basic and diluted 36,650,653 786,934 37,437,587 36,998,100 710,325 37,708,425 Earnings per share - basic and diluted $ 2.67 2.67 2.67 9.99 9.99 9.99 28 11. Segment Reporting See note 17 of the notes to consolidated financial statements included in the 2022 Annual Report for a description of the Company's operating segments. The following tables present the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements. Three months ended September 30, 2023 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 1,098 8,934 248,878 15,171 16,253 ( 5,783 ) 284,551 Interest expense — — 197,393 9,456 6,093 ( 5,783 ) 207,159 Net interest income 1,098 8,934 51,485 5,715 10,160 — 77,392 Less provision for loan losses — — 8,732 1,927 — — 10,659 Net interest income after provision for loan losses 1,098 8,934 42,753 3,788 10,160 — 66,733 Other income (expense): Loan servicing and systems revenue 127,892 — — — — — 127,892 Intersegment revenue 6,944 77 — — — ( 7,021 ) — Education technology, services, and payment processing revenue — 113,796 — — — — 113,796 Solar construction revenue — — — — 6,301 — 6,301 Other, net 687 — 2,776 565 ( 4,238 ) — ( 211 ) Gain on sale of loans, net — — 5,362 — — — 5,362 Impairment and other expense, net ( 296 ) — — — ( 4,678 ) — ( 4,974 ) Derivative settlements, net — — 621 196 — — 817 Derivative market value adjustments, net — — 1,192 1,948 — — 3,140 Total other income (expense), net 135,227 113,873 9,951 2,709 ( 2,615 ) ( 7,021 ) 252,123 Cost of services: Cost to provide education technology, services, and payment processing services — 43,694 — — — — 43,694 Cost to provide solar construction services — — — — 7,783 — 7,783 Total cost of services — 43,694 — — 7,783 — 51,477 Operating expenses: Salaries and benefits 73,310 39,776 1,242 2,520 25,019 ( 663 ) 141,204 Depreciation and amortization 5,023 3,030 — 259 13,522 — 21,835 Other expenses 15,629 8,309 2,952 1,290 23,192 — 51,370 Intersegment expenses, net 17,894 5,875 7,948 129 ( 25,488 ) ( 6,358 ) — Total operating expenses 111,856 56,990 12,142 4,198 36,245 ( 7,021 ) 214,409 Income (loss) before income taxes 24,469 22,123 40,562 2,299 ( 36,483 ) — 52,970 Income tax (expense) benefit ( 5,872 ) ( 5,307 ) ( 9,735 ) ( 552 ) 10,732 — ( 10,734 ) Net income (loss) 18,597 16,816 30,827 1,747 ( 25,751 ) — 42,236 Net (income) loss attributable to noncontrolling interests — ( 6 ) — — 3,102 — 3,096 Net income (loss) attributable to Nelnet, Inc. $ 18,597 16,810 30,827 1,747 ( 22,649 ) — 45,332 Total assets as of September 30, 2023 $ 243,697 444,631 14,111,517 1,089,565 2,052,500 ( 719,228 ) 17,222,682 29 Three months ended September 30, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 831 3,707 182,932 7,551 10,860 ( 2,748 ) 203,133 Interest expense — — 120,009 3,298 6,067 ( 2,748 ) 126,625 Net interest income 831 3,707 62,923 4,253 4,793 — 76,508 Less provision for loan losses — — 9,215 450 — — 9,665 Net interest income after provision for loan losses 831 3,707 53,708 3,803 4,793 — 66,843 Other income (expense): Loan servicing and systems revenue 134,197 — — — — — 134,197 Intersegment revenue 8,281 8 — — — ( 8,289 ) — Education technology, services, and payment processing revenue — 106,894 — — — — 106,894 Solar construction revenue — — — — 9,358 — 9,358 Other, net 596 — 4,627 566 ( 3,564 ) — 2,225 Gain on sale of loans, net — — 2,627 — — — 2,627 Impairment and other expense, net — — — — 121 — 121 Derivative settlements, net — — 10,271 — — — 10,271 Derivative market value adjustments, net — — 52,991 — — — 52,991 Total other income (expense), net 143,074 106,902 70,516 566 5,915 ( 8,289 ) 318,684 Cost of services: Cost to provide education technology, services, and payment processing services — 42,676 — — — — 42,676 Cost to provide solar construction services — — — — 5,968 — 5,968 Total cost of services — 42,676 — — 5,968 — 48,644 Operating expenses: Salaries and benefits 82,067 34,950 653 1,814 27,713 — 147,198 Depreciation and amortization 5,784 2,532 — 4 10,452 — 18,772 Other expenses 16,654 7,034 3,349 1,427 15,395 — 43,858 Intersegment expenses, net 17,486 4,762 8,350 69 ( 22,378 ) ( 8,289 ) — Total operating expenses 121,991 49,278 12,352 3,314 31,182 ( 8,289 ) 209,828 Income (loss) before income taxes 21,914 18,655 111,872 1,055 ( 26,442 ) — 127,055 Income tax (expense) benefit ( 5,259 ) ( 4,475 ) ( 26,849 ) ( 246 ) 10,244 — ( 26,586 ) Net income (loss) 16,655 14,180 85,023 809 ( 16,198 ) — 100,469 Net (income) loss attributable to noncontrolling interests — ( 61 ) — — 4,390 — 4,329 Net income (loss) attributable to Nelnet, Inc. $ 16,655 14,119 85,023 809 ( 11,808 ) — 104,798 Total assets as of September 30, 2022 $ 235,858 440,859 16,374,493 884,089 2,360,882 ( 732,648 ) 19,563,533 30 Nine months ended September 30, 2023 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 3,193 20,237 737,359 41,092 63,307 ( 30,643 ) 834,547 Interest expense — — 618,905 24,841 26,653 ( 30,643 ) 639,756 Net interest income 3,193 20,237 118,454 16,251 36,654 — 194,791 Less provision for loan losses — — 48,689 5,837 — — 54,526 Net interest income after provision for loan losses 3,193 20,237 69,765 10,414 36,654 — 140,265 Other income (expense): Loan servicing and systems revenue 389,138 — — — — — 389,138 Intersegment revenue 21,980 198 — — — ( 22,178 ) — Education technology, services, and payment processing revenue — 357,258 — — — — 357,258 Solar construction revenue — — — — 19,687 — 19,687 Other, net 1,900 — 6,939 1,395 ( 31,526 ) — ( 21,293 ) Gain on sale of loans, net — — 32,685 — — — 32,685 Impairment and other expense, net ( 296 ) — — — ( 4,678 ) — ( 4,974 ) Derivative settlements, net — — 23,940 279 — — 24,219 Derivative market value adjustments, net — — ( 35,323 ) 3,057 — — ( 32,266 ) Total other income (expense), net 412,722 357,456 28,241 4,731 ( 16,517 ) ( 22,178 ) 764,454 Cost of services: Cost to provide education technology, services, and payment processing services — 131,804 — — — — 131,804 Cost to provide solar construction services — — — — 25,204 — 25,204 Total cost of services — 131,804 — — 25,204 — 157,008 Operating expenses: Salaries and benefits 234,012 116,040 3,093 6,881 79,403 ( 808 ) 438,620 Depreciation and amortization 14,400 8,424 — 315 33,976 — 57,114 Other expenses 42,760 26,063 12,083 3,696 53,550 — 138,154 Intersegment expenses, net 58,030 17,559 24,789 302 ( 79,310 ) ( 21,370 ) — Total operating expenses 349,202 168,086 39,965 11,194 87,619 ( 22,178 ) 633,888 Income (loss) before income taxes 66,713 77,803 58,041 3,951 ( 92,686 ) — 113,823 Income tax (expense) benefit ( 16,011 ) ( 18,700 ) ( 13,930 ) ( 913 ) 20,080 — ( 29,475 ) Net income (loss) 50,702 59,103 44,111 3,038 ( 72,606 ) — 84,348 Net (income) loss attributable to noncontrolling interests — 113 — — 15,625 — 15,738 Net income (loss) attributable to Nelnet, Inc. $ 50,702 59,216 44,111 3,038 ( 56,981 ) — 100,086 Total assets as of September 30, 2023 $ 243,697 444,631 14,111,517 1,089,565 2,052,500 ( 719,228 ) 17,222,682 31 Nine months ended September 30, 2022 Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Eliminations Total Total interest income $ 1,144 4,920 441,926 15,792 21,087 ( 4,953 ) 479,916 Interest expense 44 — 235,720 5,792 11,745 ( 4,953 ) 248,347 Net interest income 1,100 4,920 206,206 10,000 9,342 — 231,569 Less provision for loan losses — — 17,178 1,462 — — 18,640 Net interest income after provision for loan losses 1,100 4,920 189,028 8,538 9,342 — 212,929 Other income (expense): Loan servicing and systems revenue 395,438 — — — — — 395,438 Intersegment revenue 25,142 16 — — — ( 25,158 ) — Education technology, services, and payment processing revenue — 310,211 — — — — 310,211 Solar construction revenue — — — — 9,358 — 9,358 Other, net 1,946 — 16,270 2,224 4,309 — 24,750 Gain on sale of loans, net — — 5,616 — — — 5,616 Impairment and other expense, net — — — — ( 6,163 ) — ( 6,163 ) Derivative settlements, net — — 12,085 — — — 12,085 Derivative market value adjustments, net — — 239,125 — — — 239,125 Total other income (expense), net 422,526 310,227 273,096 2,224 7,504 ( 25,158 ) 990,420 Cost of services: Cost to provide education technology, services, and payment processing services — 109,073 — — — — 109,073 Cost to provide solar construction services — — — — 5,968 — 5,968 Total cost of services — 109,073 — — 5,968 — 115,041 Operating expenses: Salaries and benefits 257,259 98,356 1,858 5,082 75,455 — 438,010 Depreciation and amortization 16,056 7,544 — 11 30,366 — 53,978 Other expenses 46,375 19,549 9,925 3,009 41,438 — 120,297 Intersegment expenses, net 56,442 14,171 25,694 171 ( 71,320 ) ( 25,158 ) — Total operating expenses 376,132 139,620 37,477 8,273 75,939 ( 25,158 ) 612,285 Income (loss) before income taxes 47,494 66,454 424,647 2,489 ( 65,061 ) — 476,023 Income tax (expense) benefit ( 11,399 ) ( 15,947 ) ( 101,915 ) ( 574 ) 22,070 — ( 107,765 ) Net income (loss) 36,095 50,507 322,732 1,915 ( 42,991 ) — 368,258 Net (income) loss attributable to noncontrolling interests — ( 8 ) — — 8,323 — 8,315 Net income (loss) attributable to Nelnet, Inc. $ 36,095 50,499 322,732 1,915 ( 34,668 ) — 376,573 Total assets as of September 30, 2022 $ 235,858 440,859 16,374,493 884,089 2,360,882 ( 732,648 ) 19,563,533 32 12. Disaggregated Revenue The following tables present disaggregated revenue by service offering or customer type for the Company's fee-based operating segments. Loan Servicing and Systems Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Government loan servicing $ 100,154 104,428 304,769 312,368 Private education and consumer loan servicing 12,330 12,198 36,556 37,194 FFELP loan servicing 3,304 4,127 10,226 12,386 Software services 9,416 8,229 25,076 23,536 Outsourced services 2,688 5,215 12,511 9,954 Loan servicing and systems revenue $ 127,892 134,197 389,138 395,438 Education Technology, Services, and Payment Processing Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Tuition payment plan services $ 30,223 25,779 95,235 84,131 Payment processing 50,848 47,957 126,716 113,996 Education technology and services 31,793 32,548 132,796 110,755 Other 932 610 2,511 1,329 Education technology, services, and payment processing revenue $ 113,796 106,894 357,258 310,211 Solar Construction Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 (a) Commercial revenue $ 4,101 7,856 12,339 7,856 Residential revenue 2,085 1,398 7,266 1,398 Other 115 104 82 104 Solar construction revenue $ 6,301 9,358 19,687 9,358 (a) GRNE Solar was acquired on July 1, 2022. Other Income (Expense) The following table presents the components of "other, net" in "other income (expense)" on the consolidated statements of income: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 ALLO preferred return $ 2,299 2,164 6,822 6,420 Borrower late fee income 2,220 2,824 6,635 7,693 Administration/sponsor fee income 1,712 1,920 5,180 6,055 Investment advisory services 1,633 1,612 4,884 4,375 Loss from ALLO voting membership interest investment ( 17,293 ) ( 17,562 ) ( 49,676 ) ( 47,633 ) Loss from solar investments ( 3,605 ) ( 4,216 ) ( 13,481 ) ( 7,100 ) Investment activity, net ( 1,016 ) 10,701 ( 8,169 ) 40,626 Other 13,839 4,782 26,512 14,314 Other, net $ ( 211 ) 2,225 ( 21,293 ) 24,750 33 13. Major Customer Government Loan Servicing Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes Educational Loan Services, Inc. (Great Lakes), both subsidiaries of the Company, are two of the current five private sector entities that have student loan servicing contracts with the Department. Revenue earned by the Company related to these contracts was $ 100.2 million and $ 104.4 million for the three months ended September 30, 2023 and 2022, respectively, and $ 304.8 million and $ 312.4 million for the nine months ended September 30, 2023 and 2022, respectively. The Company also earned remote hosted servicing revenue by licensing its software to certain third-party servicers for the Department. Contract Modifications and Award Effective April 1, 2023, the Department modified the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes (the “servicing contracts”) to reduce the monthly fee under the servicing contracts by $ 0.19 per borrower on certain borrower statuses. The Company's current student loan servicing contracts with the Department were scheduled to expire on December 14, 2023. In April 2023, Nelnet Diversified Solutions, LLC (NDS), a subsidiary of the Company, received a contract award from the Department, pursuant to which NDS was selected to provide continued servicing capabilities for the Department's student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which will replace the existing legacy Department student loan servicing contracts. 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 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, 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. Assuming borrower volume remains consistent under the USDS servicing contract, the Company expects revenue earned on a per borrower blended basis will decrease under the USDS contract versus the current legacy contracts. However, consistent with the current legacy contracts, the Company expects to earn additional revenue from the Department under the USDS servicing contract for change requests, consolidations, and other support services. As discussed below, during the second quarter of 2023, the Company completed the transfer of Great Lakes direct loan servicing volume to the Nelnet servicing platform. The associated cost savings with moving government borrowers to one servicing platform will be partially offset under the USDS contract as the Company will incur additional costs for cybersecurity and other system specifications as required under the new contract. Loan Volume Transfers - Full Service Borrowers In February 2023, the Department notified the Company of its intention to transfer up to one million of the Company’s existing Department servicing borrowers to another third-party servicer. This transfer decision was not based on the Company's performance. These transfers began in the second quarter of 2023 and were completed in July 2023. In addition, the Company completed the transfer of active borrowers of Great Lakes direct loan servicing volume to the Nelnet servicing platform (the GreatNet Federal servicing platform) during the second quarter of 2023. The Company anticipates the decommissioning of the Great Lakes' platform to be completed by the end of 2023. Therefore, potential associated cost savings as a result of transferring direct loan servicing volume to one platform will not be recognized in operating results until 2024. Loan Volume Transfers - Remote Hosted Servicing Borrowers Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, utilized Nelnet Servicing's platform to service their loans for the Department (remote hosted servicing customer). In the fourth quarter of 2022, Nelnet Servicing and Edfinancial reached an agreement on a decommission schedule transferring Edfinancial’s direct loan servicing volume to another third-party servicing platform. As of December 31, 2022, Edfinancial was servicing 4.5 million borrowers for the Department on the Company’s platform. The Company began transferring Edfinancial's servicing volume to another servicing 34 platform in the first quarter of 2023 which reduced the number of Edfinancial's borrowers serviced on the Company's platform to 3.5 million borrowers as of March 31, 2023 and 579,000 borrowers as of June 30, 2023. Edfinancial's remaining borrowers were transferred off of the Company's platform in July 2023. In February 2023, the Company’s other remote hosted servicing customer notified the Company the Department intended to move that customer’s servicing borrowers to a different third-party servicing platform. This transfer decision was the result of this customer not being one of the servicers awarded a USDS contract. As of March 31, 2023, this remote hosted servicing customer was servicing 1.4 million borrowers for the Department on the Company's platform. The majority of this volume was transferred to another third-party servicing platform during the second quarter of 2023, and the remaining borrowers were transferred off of the Company's platform in July 2023. As a result of the transfers discussed above, the Company 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. Department of Education Debt Relief In August 2022, the Department announced a broad based student debt relief plan that would provide targeted student debt cancellation to borrowers with loans held by the Department with unconditional loan cancellation in amounts of up to $20,000 for eligible borrowers who received a Pell Grant, or of up to $10,000 for eligible borrowers who did not receive a Pell Grant. Federal courts blocked implementation of the Department's broad based student debt relief plan and on June 30, 2023, the Supreme Court struck down the Department's plan. While the current version of the Department's forgiveness plan has been invalidated, the Department recently announced that it has begun a new rulemaking process to consider other ways to provide debt relief to borrowers. The Company cannot predict the timing, nature, or ultimate outcome of any future potential student loan forgiveness programs as a result of the rulemaking process. Revenue earned under the current Department servicing contracts will decrease in future periods if the Department successfully implements broad based loan forgiveness. 14. Fair Value The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. As of September 30, 2023 As of December 31, 2022 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Investments: Asset-backed debt securities - available-for-sale $ 99 1,059,198 1,059,297 100 1,388,937 1,389,037 Equity securities 80 — 80 6,719 — 6,719 Equity securities measured at net asset value (a) 46,554 32,363 Total investments 179 1,059,198 1,105,931 6,819 1,388,937 1,428,119 Derivative instruments (b) — 3,056 3,056 — — — Total assets $ 179 1,062,254 1,108,987 6,819 1,388,937 1,428,119 (a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. (b) Nelnet Bank derivatives are accounted for at fair value on a recurring basis. The fair value of derivative financial instruments is determined using a market approach in which derivative pricing models use the stated terms of the contracts and observable yield curves and volatilities from active markets. When determining the fair value of derivatives, Nelnet Bank takes into account counterparty credit risk for positions where it is exposed to the counterparty on a net basis by assessing exposure net of collateral held. The net exposures for each counterparty are adjusted based on market information available for the specific counterparty. 35 The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets: As of September 30, 2023 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 13,462,084 13,060,703 — — 13,462,084 Accrued loan interest receivable 806,854 806,854 — 806,854 — Cash and cash equivalents 187,690 187,690 187,690 — — Investments (at fair value) 1,105,931 1,105,931 179 1,059,198 — Investments - held to maturity 164,368 163,066 — 164,368 — Notes receivable 54,129 54,129 — 54,129 — Beneficial interest in loan securitizations 239,890 191,152 — — 239,890 Restricted cash 445,983 445,983 445,983 — — Restricted cash – due to customers 158,872 158,872 158,872 — — Derivative instruments 3,056 3,056 — 3,056 — Financial liabilities: Bonds and notes payable 12,215,581 12,448,109 — 12,215,581 — Accrued interest payable 36,391 36,391 — 36,391 — Bank deposits 690,313 718,053 440,062 250,251 — Due to customers 341,822 341,822 341,822 — — As of December 31, 2022 Fair value Carrying value Level 1 Level 2 Level 3 Financial assets: Loans receivable $ 14,586,794 14,427,025 — — 14,586,794 Accrued loan interest receivable 816,864 816,864 — 816,864 — Cash and cash equivalents 118,146 118,146 118,146 — — Investments (at fair value) 1,428,119 1,428,119 6,819 1,388,937 — Investments - held to maturity 18,996 18,774 — 18,996 — Notes receivable 31,106 31,106 — 31,106 — Beneficial interest in loan securitizations 162,360 138,738 — — 162,360 Restricted cash 945,159 945,159 945,159 — — Restricted cash – due to customers 294,311 294,311 294,311 — — Financial liabilities: Bonds and notes payable 14,088,666 14,637,195 — 14,088,666 — Accrued interest payable 36,049 36,049 — 36,049 — Bank deposits 664,573 691,322 355,282 309,291 — Due to customers 348,317 348,317 348,317 — — The methodologies for estimating the fair value of financial assets and liabilities are described in note 24 of the notes to consolidated financial statements included in the 2022 Annual Report.