What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 392 added, 267 removed, 681 unchanged (49% of the section changed)

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

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three months ended March 31, 2024 and 2023.

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2024 and 2023.

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

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

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

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

• risks related to use of artificial intelligence;

7 unchanged sentences

Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by law.

The Company is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible.

The Company is a diversified hybrid holding company with primary businesses being consumer lending, loan servicing, payments, and technology - all with a large customer emphasis in the education space.

The largest operating businesses engage in loan servicing and education technology services and payments.

2 unchanged sentences

The Company is also actively expanding its private education, consumer, and other loan portfolios, and in November 2020 launched Nelnet Bank.

Reclassifications and Immaterial Error Corrections

The accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations gives effect to the immaterial error corrections made to the previously reported consolidated financial statements for the three and six months ended June 30, 2023.

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

GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments

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

Three months ended March 31,

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

2024 2023 2024 2023

GAAP net income attributable to Nelnet, Inc.

$ 45,091 27,426 118,498 53,385

Realized and unrealized derivative market value adjustments (7,964) 37,411

Tax effect (a) 1,911 (8,979)

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 67,157 54,919

Realized and unrealized derivative market value adjustments (a) (1,533) (2,005) (9,497) 35,407

Tax effect (b) 368 481 2,279 (8,498)

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 43,926 25,902 111,280 80,294

Earnings per share:

GAAP net income attributable to Nelnet, Inc.

Realized and unrealized derivative market value adjustments (0.21) 1.00

Tax effect (a) 0.05 (0.24)

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 1.81 1.47

(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

(b) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP.

$ 1.23 0.73 3.22 1.43

Realized and unrealized derivative market value adjustments (a) (0.04) (0.05) (0.26) 0.95

Tax effect (b) 0.01 0.01 0.06 (0.23)

Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 1.20 0.69 3.02 2.15

(a) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP.

"Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

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There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

(b) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

Operating Segments

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Other business activities and operating segments that are not reportable and not part of the NFS division are combined and included in Corporate and Other Activities ("Corporate").

Corporate also includes interest income earned on cash balances held at the corporate level and interest expense incurred on unsecured corporate related debt transactions, certain investment activities including its investment in ALLO and early-stage and emerging growth companies (venture capital investments), and certain shared service activities that are allocated to each operating segment based on estimated use of such activities and services.

Corporate also includes interest income earned on cash balances held at the corporate level and interest expense incurred on unsecured and secured corporate related debt transactions, certain investment activities including its investment in ALLO and early-stage and emerging growth companies (venture capital investments), and certain shared service activities that are allocated to each operating segment based on estimated use of such activities and services.

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

The information below presents the operating results (net income (loss) before taxes) for each of the Company's reportable and certain other operating segments reconciled to the consolidated financial statements for the three months ended March 31, 2024 and 2023.

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

Three months ended March 31, Certain Items Impacting Comparability

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

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

(All dollar amounts below are pre-tax)

NDS $ 15,990 25,219 • A decrease in before tax operating margin due primarily to a decrease in loan servicing and systems revenue, partially offset by a decrease in salaries and benefits resulting from restructure charges incurred during the first quarter of 2023 and staff reductions in 2023.

2024 2023 2024 2023

NDS $ 2,243 17,028 18,234 42,246 • A decrease in before tax operating margin due primarily to a decrease in revenue while operating expenses remained relatively consistent period over period.

The Company expects before tax operating margin to continue to be lower than historical prior year results for the remainder of 2024.

NBS 25,599 18,042 73,235 55,681 • An increase in before tax operating margin, excluding net interest income, due to increased revenue while maintaining a consistent cost structure.

• The recognition of $7.9 million of interest income in 2024 compared with $6.0 million in 2023 due to higher interest rates.

Nelnet Financial Services division:

AGM 33,743 (221) • A net gain of $5.7 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2024 compared with a net loss of $37.4 million in 2023.

• A decrease of $21.1 million in net interest income due to a decrease in core loan spread in 2024 compared with 2023.

• A decrease of $5.1 million in net interest income due to the decrease in the average balance of loans in 2024 compared with 2023.

• The recognition of $6.6 million in provision for loan losses in 2024 compared with $31.9 million in 2023.

• The recognition of a net gain of $11.8 million in 2023 from the sale of loans.

• The recognition of $21.8 million of investment interest in 2024 compared with $13.8 million in 2023 due to an increase in interest earned on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.

Nelnet Bank 1,147 (93)

NFS other operating segments 13,762 5,177 • The recognition of $12.2 million of net interest income in 2024 compared with $6.4 million in 2023 due to higher average yield on interest-earning debt securities (bonds) and a decrease in outstanding debt used to finance such investments.

• The recognition of $4.0 million of realized losses on sales of investment securities in 2023.

AGM 24,310 17,704 58,055 17,482 • The recognition of a $25.9 million non-cash expense in the second quarter of 2023 as the result of redeeming certain asset-backed debt securities prior to their maturity and writing off the remaining unamortized debt discount at the time of redemption.

• A decrease of $14.4 million and $49.5 million for the second quarter and first half of 2024, respectively, in net interest income due to a decrease in core loan spread and the average balance of loans compared with the same periods in 2023.

• A net gain of $6.6 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in the first half of 2024 compared with a net loss of $36.5 million for the same period in 2023.

• The recognition of $1.6 million in losses from the sale of loans for the first half of 2024 compared with $15.8 million in the same period of 2023.

• The recognition of $5.9 million in provision for beneficial interest in consumer loan securitization investments in the second quarter of 2024.

Nelnet Bank (3,718) 1,744 (2,571) 1,650 • The recognition of provision for loan losses of $7.8 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively, and $12.2 million and $3.9 million for the six months ended June 30, 2024 and 2023, respectively.

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

NFS other operating segments 16,525 16,925 30,286 22,102

Unallocated corporate costs (9,056) (14,084) (19,101) (27,072)

ALLO investment (8,593) (17,882) • The recognition of a net loss from the ALLO voting membership interest investment of $10.7 million in 2024 compared with $20.2 million in 2023.

Absent additional equity contributions, the Company will not recognize additional losses for its voting membership interests in ALLO.

• The recognition of income of $2.4 million and $2.2 million in 2024 and 2023, respectively, on the $155.0 million (as of March 31, 2024) outstanding preferred membership interests of ALLO.

The preferred membership interests of ALLO held by the Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024.

Nelnet Renewable Energy (1,533) (6,701) • The recognition of a loss in the solar construction business of $4.0 million in 2024 compared with $3.1 million in 2023.

• The recognition of a net gain from tax solar investments of $3.0 million in 2024 compared with a net loss of $1.9 million in 2023.

ALLO investment 3,940 (11,086) (4,653) (28,968) • The recognition of no loss in the second quarter of 2024 compared with a loss of $12.2 million in the same period in 2023 and a loss of $10.7 million in the first half of 2024 compared with $32.4 million in the same period in 2023 from the ALLO voting membership interest investment.

Absent additional equity contributions with respect to ALLO's voting membership interests, the Company will not recognize additional losses for its voting membership interests in ALLO.

Nelnet Renewable Energy (7,332) (19,111) (9,054) (26,808) • The recognition of a loss in the solar construction business for the three months ended June 30, 2024 and 2023 of $4.8 million and $8.2 million, respectively, and $8.8 million and $11.3 million for the six months ended June 30, 2024 and 2023, respectively.

In April 2024, the Company announced a change in its solar construction operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations.

During the second quarter of 2024, the Company recognized non-cash impairment charges of $1.9 million on certain assets related to the residential operations and $1.6 million in severance costs and commissions paid for cancelled contracts.

• The recognition of net losses from tax solar investments of $2.6 million in the second quarter of 2024 compared with $10.1 million for the same period in 2023 and a net gain of $0.2 million in the first half of 2024 compared with a net loss of $13.0 million for the same period in 2023.

Other corporate activities 5,917 270 7,936 1,389

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Income tax expense (14,753) (10,187) (37,936) (18,273)

Net loss attributable to noncontrolling interests 2,202 3,470 • The majority of noncontrolling interests represents losses attributed to noncontrolling membership interests in the Company’s Nelnet Renewable Energy operating segment, which were $2.3 million and $3.5 million in 2024 and 2023, respectively.

Net loss attributable to noncontrolling interests 1,416 10,183 4,069 13,957 • The majority of noncontrolling interests represents losses attributed to noncontrolling membership interests in the Company’s Nelnet Renewable Energy operating segment.

Net income $ 45,091 27,426 118,498 53,385

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's consolidated operating results for the three months ended March 31, 2024 compared with the same period in 2023 is provided below.

An analysis of the Company's consolidated operating results for the three and six months ended June 30, 2024 compared with the same periods in 2023 is provided below.

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

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

Three months ended

Three months ended Six months ended

June 30, June 30,

2024 2023 2024 2023 Additional information

Loan interest $ 216,724 225,243 Decrease was due to decreases in the average balance of loans and gross fixed rate floor income partially offset by an increase in the gross yield earned on loans.

Loan interest $ 202,129 243,045 418,853 468,288 Decrease was due to decreases in the average balance of loans partially offset by an increase in the gross yield earned on loans.

Investment interest 40,737 40,982 92,814 81,707 Includes income from unrestricted interest-earning deposits and investments, and restricted cash in asset-backed securitizations.

Increase was due to an increase in interest rates and an increase in interest earned on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.

Increase was due to an increase in the average balances and interest rates and, for the first half of 2024, an increase in interest earned on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.

Total interest income 242,866 284,027 511,667 549,995

Interest expense 176,459 233,148 371,039 432,597 Decrease was due to a decrease in the average balance of debt outstanding partially offset by an increase in cost of funds.

In addition, during the second quarter of 2023, the Company recognized a $25.9 million non-cash expense as the result of redeeming certain asset-backed debt securities prior to their maturity and writing off the remaining unamortized debt discount at the time of redemption.

Net interest income 66,407 50,879 140,628 117,398

Less provision for loan losses 10,928 34,275 Represents the current period provision to reflect the lifetime expected credit losses related to the Company's loan portfolio.

See note 2 of the notes to consolidated financial statements in this report for the factors impacting provision for loan losses for the periods presented.

Less provision (negative provision) for loan losses 3,611 (11,380) 14,440 791 Represents the current period provision (negative provision) to reflect the lifetime expected credit losses related to the Company's loan portfolio.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for the factors impacting provision for loan losses for the periods presented.

Net interest income after provision for loan losses 62,796 62,259 126,188 116,607

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On April 12, 2024, the Company announced a change in its solar EPC operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations.

As a result, residential revenue will decline in future periods as existing customer contracts are completed.

Residential solar construction revenue was $2.1 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively, and $11.8 million for the year ended December 31, 2023.

As a result, residential revenue will continue to decline in future periods as existing customer contracts are completed.

Other, net 28,871 (9,167) 45,734 (24,235) See table below for the components of "other, net."

(Loss) gain on sale of loans, net (41) 11,812 The Company recognized a loss and net gains from selling loans in 2024 and 2023, respectively.

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

Loss on sale of loans (1,438) (5,461) (1,579) (15,753) The Company recognized losses from selling portfolios of loans.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

Impairment expense and provision for beneficial interests (7,776) — (7,813) — Represents a provision of $5.9 million for beneficial interest in consumer loan securitization investments and a non-cash impairment charge of $1.9 million on certain solar facilities and inventory related to the discontinuation of residential solar operations.

See note 9 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

Derivative settlements, net 1,649 65 3,406 23,402 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

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

To minimize the Company's exposure to market volatility and increase liquidity, the Company terminated this derivative portfolio on March 15, 2023.

To minimize the Company's exposure to market volatility and increase liquidity, the Company terminated this derivative portfolio ($2.8 billion notional amount) on March 15, 2023.

Subsequent to terminating these derivatives, during the second and fourth quarters of 2023, the Company entered into a total of $400 million notional amount of derivatives to hedge loans earning fixed rate floor income and other loans and investments in which the Company receives a fixed rate.

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

To minimize the Company's exposure to market volatility and increase liquidity, the Company terminated this derivative portfolio on March 15, 2023.

To minimize the Company's exposure to market volatility and increase liquidity, the Company terminated this derivative portfolio ($2.8 billion notional amount) on March 15, 2023.

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

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Cost to provide solar construction services 8,072 9,122 22,300 17,422 Represents direct costs to provide solar construction services.

Since the acquisition of GRNE in July 2022, it has incurred low and, in some cases, negative margins on certain projects.

Since the acquisition of GRNE Solar in July 2022, it has incurred low and, in some cases, negative margins on certain projects.

Total cost of services 48,294 49,529 111,132 105,532

Operating expenses:

Salaries and benefits 143,875 152,710 Decrease was primarily due to restructuring charges recognized in the first quarter of 2023 and staff reductions in LSS to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contract.

Salaries and benefits 139,634 144,706 283,509 297,416 Decrease was primarily due to staff reductions in LSS to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contract.

This was partially offset by an increase in ETSP due to annual merit pay increases and an increase in headcount to support the growth of the customer base and the investment in the development of new technologies.

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Income before income taxes 58,428 27,430 152,365 57,701

Income tax expense 23,119 8,250 The effective tax rate was 24.0% and 23.7% for the three months ended March 31, 2024 and 2023, respectively.

The Company expects its tax rate will range between 22% and 24% for the remainder of 2024.

Income tax expense 14,753 10,187 37,936 18,273 The effective tax rate was 24.7% in the second quarter of 2024 compared with 27.1% for the same period in 2023 and 24.3% in the first half of 2024 compared with 25.5% for the same period in 2023.

Net income 43,675 17,243 114,429 39,428

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

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

Reinsurance premiums $ 14,851 3,816 27,631 4,351 See NFS division - results of operations - NFS other operating segments.

Borrower late fee income 3,133 2,247 See NFS division - results of operations - AGM operating segment.

Gain (loss) from solar investments, net 2,971 (1,947) See Corporate - results of operations.

ALLO preferred return 4,160 2,274 6,569 4,523 See Corporate - results of operations.

Administration/sponsor fee income 1,546 1,772 See NFS division - results of operations - AGM operating segment.

Borrower late fee income 2,584 2,168 5,718 4,414 See NFS division - results of operations - AGM operating segment.

Investment advisory services (WRCM) 1,524 1,639 3,033 3,251 See NFS division - results of operations - NFS other operating segments.

Loss from ALLO voting membership interest investment (10,693) (20,213) See Corporate - results of operations.

Administration/sponsor fee income 1,482 1,697 3,028 3,468 See NFS division - results of operations - AGM operating segment.

Investment activity, net 217 (3,574) (1,082) (7,154) See note (a) below for additional information.

Loss from ALLO voting membership interest investment — (12,169) (10,693) (32,382) See Corporate - results of operations.

(Loss) gain from solar investments, net (2,610) (10,086) 170 (13,030) See Corporate - results of operations.

Other 6,663 5,068 11,360 8,324

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

Three months ended March 31,

Three months ended June 30,

NFS - AGM $ — (2,700) — (2,700) — (2,545) — (2,545)

3 unchanged sentences

$ (1,842) 981 1,078 217 (720) (3,915) 1,061 (3,574)

Six months ended June 30,

NFS - AGM $ — (2,378) — (2,378) — (2,649) (476) (3,125)

NFS - Nelnet Bank — (189) 1,285 1,096 — (272) 1,085 813

NFS - Other Operating Segments (3,636) — 534 (3,102) 428 — (3,618) (3,190)

Corporate — 3,302 — 3,302 — (1,652) — (1,652)

$ (3,636) 735 1,819 (1,082) 428 (4,573) (3,009) (7,154)

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Servicing Volumes

2024 March 31,

2024 December 31,

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The New Government Servicing Contract became 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 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.

The Department's total loan servicing volume of existing borrowers was allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract.

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.

Servicing under the New Government Servicing Contract went live on April 1, 2024 and the Company will recognize revenue in accordance with this new contract beginning in the second quarter of 2024.

Servicing under the New Government Servicing Contract went live on April 1, 2024 and the Company recognized revenue in accordance with this new contract beginning in the second quarter of 2024.

The Company earned revenue for servicing borrowers under the legacy servicing contract with the Department through March 31, 2024.

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In addition, the Company has executed an agreement with a third-party servicer awarded a USDS contract to license its servicing software to such entity.

The Company will begin to earn remote hosted servicing revenue from this new customer during the second quarter of 2024.

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

The Company began earning remote hosted servicing revenue from this new customer during the second quarter of 2024.

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

Department of Education Debt Relief

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The Department published draft regulations for public comment in April 2024, including regulations that would grant automatic discharge for all federal student loans older than 20 or 25 years.

The April 2024 draft publication did not include regulations to provide forgiveness for borrowers “experiencing financial hardship;”

however, publication and comment period for such regulations are expected in Summer of 2024.

Final publication and effective date for all pending forgiveness regulations pursuant to the HEA are expected in Fall of 2024.

The April 2024 draft publication did not include regulations to provide forgiveness for borrowers “experiencing financial hardship;”

however, publication and comment period for such regulations are expected in early 2025, depending on the results of the presidential election.

The Company cannot predict the timing, nature, or ultimate outcome of any student debt relief program as a result of the negotiated rulemaking process.

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Private Education Loan Servicing

In January 2024, Discover announced they were moving the servicing of its approximately $10 billion private education loan portfolio, representing approximately 500,000 borrowers, to the Company.

The timing of the conversion of these loans to the Company’s platform is dependent on the timing of Discover’s potential sale of its portfolio.

On July 17, 2024, Discover Financial Services (Discover) announced the sale of its approximately $10 billion private education student loan portfolio, representing approximately 400,000 borrowers, to partnerships managed by two global investment firms, with Firstmark Services, a division of the Company, assuming responsibility for servicing the portfolio upon the sale.

The conversion of these loans to the Company’s platform is anticipated to occur in the fourth quarter of 2024.

Summary and Comparison of Operating Results

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

8 unchanged sentences

In the first half of 2023, the Company reduced staff to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contract.

As part of these reductions, the Company recognized a restructuring charge of $2.7 million in the first quarter of 2023.

In June 2024, the Company announced a reduction in headcount after the completion of the transfer of direct loan servicing volume to one platform and the required servicing platform enhancements for the New Government Servicing Contract.

Approximately 220 associates were notified their positions were being eliminated.

The Company estimates incurring a charge of $7.1 million related to these staff reductions, of which $2.1 million was recognized in the second quarter of 2024.

The remaining expense will be recognized during the third and fourth quarters of 2024.

Depreciation and amortization 5,342 4,863 10,450 9,377

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The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it provides additional information to facilitate an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

Before tax operating margin decreased due primarily to a decrease in loan servicing and systems revenue as described in the table below, partially offset by a decrease in salaries and benefits resulting from restructure charges incurred during the first quarter of 2023 and staff reductions in 2023.

Before tax operating margin decreased due primarily to a decrease in loan servicing and systems revenue as described in the table below, while operating expenses remained relatively consistent period over period.

Operating expenses have been elevated due to costs incurred for the completion of the transfer of direct loan servicing volume to one platform, making platform enhancements for the new student loan servicing contact with the Department, and preparation of the conversion of the Discover portfolio.

The Company expects before tax operating margin to continue to be lower than historical prior year results for the remainder of 2024 until the full cost savings from the June 2024 staff reductions are realized and revenue is generated from servicing the Discover portfolio.

Loan servicing and systems revenue

The following table presents disaggregated revenue by service offering for each reporting period.

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

Government loan servicing $ 105,474 108,880 Represents revenue from the Company's Department legacy servicing contract.

Decrease was due to the reduction of the monthly fee earned per borrower on certain borrower statuses by $0.19 effective April 1, 2023 and a decrease of borrowers serviced due to the Department transferring one million of the Company's existing borrowers to another third-party servicer during the second and third quarters of 2023.

Government loan servicing $ 87,014 95,736 192,490 204,618 Represents revenue from the Company's servicing contracts with the Department.

The Company recognized revenue in accordance with the New Government Servicing Contract beginning April 1, 2024.

Decrease in the second quarter of 2024 compared with the same period in 2023 was due to lower revenue earned on a per borrower blended basis under the new contract and a decrease in the number of borrowers serviced.

Decrease for the first half of 2024 compared with the same period in 2023 was also due to the legacy servicing contract reduction of the monthly fee earned per borrower on certain borrower statuses by $0.19 effective April 1, 2023 and a decrease of borrowers serviced due to the Department transferring one million of the Company's existing borrowers to another third-party servicer during the second and third quarters of 2023.

These decreases were partially offset by an increase in the average revenue earned on a per borrower blended basis as a result of borrowers moving to a repayment status on September 1, 2023.

Private education and consumer loan servicing 12,620 12,164 Increase was due to rate increases based on contractual consumer price index changes, partially offset by a decrease in the number of borrowers serviced.

Private education and consumer loan servicing 12,959 12,063 25,577 24,225 Increase was due to $0.5 million deconversion revenue recognized in the second quarter of 2024 and rate increases based on contractual consumer price index changes, partially offset by a decrease in the number of borrowers serviced.

FFELP loan servicing 3,245 3,554 6,624 6,921 Represents revenue from servicing third-party customers' FFELP portfolios.

2 unchanged sentences

Decrease was primarily due to the transfer of all Department remote hosted borrowers to other third-party servicers throughout 2023 under the Department's legacy servicing contracts.

This decrease was partially offset by the Company beginning to recognize revenue in the second quarter of 2024 from a new remote hosted servicing customer awarded a USDS contract.

Outsourced services 955 4,705 2,141 9,823 Represents revenue from providing contact center and back office operational outsourcing services.

5 unchanged sentences

Summary and Comparison of Operating Results

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

Net interest income $ 5,715 5,268 13,580 11,304 Represents interest income on tuition funds held in custody for schools.

Increase was due to higher interest rates.

Increase was due to higher balances and interest rates.

Education technology services and payments revenue

4 unchanged sentences

Salaries and benefits 40,736 38,351 80,903 76,264 Increase was due to annual merit pay increases and an increase in headcount to support the growth of the customer base and the investment in the development of new technologies.

Depreciation and amortization 2,683 2,578 Represents primarily amortization of intangible assets from prior business acquisitions.

Depreciation and amortization 2,712 2,815 5,395 5,393

Other expenses 8,600 9,692 16,158 17,755 Decrease was due to a decrease in consulting and professional services resulting from reduced outsourced work.

5 unchanged sentences

Net income 19,449 13,715 55,650 42,288

Net loss attributable to noncontrolling interests 17 138

Net loss (income) attributable to noncontrolling interests 29 (19) 46 119

Net income $ 19,478 13,696 55,696 42,407

1 unchanged sentence

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

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

6 unchanged sentences

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

Revenue earned under the EANS programs for the three months ended March 31, 2024 and 2023 was $10.6 million and $16.4 million, respectively.

Revenue earned under the EANS programs was $9.6 million and $20.2 million for the three and six month ended June 30, 2024 compared with $17.1 million and $33.5 million for the same periods in 2023, respectively.

The decrease in FACTS learning management services revenue as a result of the decrease in EANS revenue was partially offset by an increase in non-EANS professional development and instructional services provided to both new and existing customers.

Other 1,214 990 2,066 1,578

Education technology services and payments revenue 116,909 109,858 260,449 243,462

143,539 133,603

Cost of services 40,222 40,407 88,832 88,110 Represents direct costs to provide payment processing revenue and such costs decrease/increase in relationship to payment volumes.

9 unchanged sentences

Loan Portfolio

As of March 31, 2024, the AGM operating segment had a $10.8 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of March 31, 2024 and December 31, 2023, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of June 30, 2024, the AGM operating segment had a $9.9 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of June 30, 2024 and December 31, 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Activity

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

Three months ended March 31,

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

2024 2023 2024 2023

Beginning balance $ 10,799,942 13,482,620 12,049,462 14,169,771

8 unchanged sentences

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

As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2024, the Company’s ownership correlates to approximately $1.79 billion of loans included in these securitizations.

As of the latest remittance reports filed by the various trusts prior to or as of June 30, 2024, the Company’s ownership correlates to approximately $1.94 billion of loans included in these securitizations.

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

Interest income earned by the Company from the beneficial interest in loan securitizations is included in "investment income" on the Company's consolidated statements of income and is not a component of the Company's loan interest income.

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

7 unchanged sentences

The Department published draft regulations for public comment in April 2024, including regulations that would grant automatic discharge for all federal student loans, including privately-held FFELP loans, older than 20 or 25 years.

The April 2024 draft publication did not include regulations to provide forgiveness for borrowers (including borrowers with privately-held FFELP loans) “experiencing financial hardship;” however, publication and comment period for such regulations are expected in Summer of 2024.

Final publication and effective date for all pending forgiveness regulations pursuant to the HEA are expected in Fall of 2024.

In addition, during 2023, the Department issued final regulations on the Saving on a Valuable Education (SAVE) income-driven repayment (IDR) plan.

The SAVE plan makes significant changes to IDR to lower monthly payment amounts, subsidize interest, and accelerate time to forgiveness for some borrowers.

FFELP borrowers can access the new income-driven repayment changes by consolidating their loans into the Federal Direct Loan Program.

FFELP borrowers can access the new income-driven repayment

changes by consolidating their loans into the Federal Direct Loan Program.

The benefits of the SAVE plan are conferred not exclusively on a go-forward basis, as has been the case with previous IDR rulemaking, meaning borrowers who consolidate into the Federal Direct Loan Program receive credit toward forgiveness for months in repayment prior to consolidation.

The new income-driven repayment regulations are effective July 1,

The new income-driven repayment regulations were effective July 1, 2024;

however, the Biden-Harris Administration announced implementation for some features starting July 30, 2023 and SAVE forgiveness starting February 2024.

The proposed forgiveness regulations and implementation of the SAVE IDR plan regulations have increased, and may continue to increase, consolidation activity as FFELP borrowers (i) consolidate their loans into the Federal Direct Loan Program in order to be eligible for potential debt relief for Department borrowers and the SAVE plan and (ii) begin receiving automatic forgiveness for loans older than 20 or 25 years.

Two groups of states sued to block implementation of the SAVE program.

As of the date of this filing, SAVE is not operational due to a nationwide injunction ordered by the 8th Circuit Court of Appeals.

In response to the injunction, the Biden-Harris Administration placed approximately 8 million borrowers enrolled in the SAVE program into administrative forbearance.

During the forbearance period, borrowers will not have to make student loan payments, and no interest will accrue.

The proposed forgiveness regulations and implementation of the SAVE IDR plan regulations have increased, and may continue to increase, consolidation and prepayment activity as FFELP borrowers (i) consolidate their loans into the Federal Direct Loan Program in order to be eligible for potential debt relief for Department borrowers and the SAVE plan and (ii) begin receiving automatic forgiveness for loans older than 20 or 25 years.

Prepayments could significantly increase if the federal government and/or the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs.

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

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of March 31, 2024 and December 31, 2023;

and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2024 and 2023, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of June 30, 2024 and December 31, 2023;

and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three and six months ended June 30, 2024 and 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Spread Analysis

The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets.

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

Three months ended March 31,

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

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

2024 2023 2024 2023

Variable loan yield, gross 8.16 % 7.73 % 8.07 % 7.42 %

2 unchanged sentences

Variable loan yield, net 7.42 6.99 7.34 6.66

Loan cost of funds - interest expense (6.50) (5.53)

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

Loan cost of funds - interest expense (a) (6.50) (5.94) (6.50) (5.73)

Loan cost of funds - derivative settlements (b) (c) 0.01 (0.00 ) 0.01 0.01

Variable loan spread 0.93 1.05 0.85 0.94

Fixed rate floor income, gross 0.01 0.01 0.01 0.03

Fixed rate floor income - derivative settlements (a) (c) 0.04 0.68

Fixed rate floor income - derivative settlements (b) (d) 0.04 0.00 0.04 0.34

Fixed rate floor income, net of settlements on derivatives 0.05 0.01 0.05 0.37

2 unchanged sentences

Average balance of AGM's debt outstanding 10,168,761 13,011,224 10,778,080 13,187,073

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

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

This non-cash expense was excluded from the table above.

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

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

2 unchanged sentences

The Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management.

See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's Non-Nelnet Bank derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2024 and 2023 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" and in this table.

There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information,

which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's Non-Nelnet Bank derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2024 and 2023 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 5 and in this table.

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

Three months ended March 31,

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

2024 2023 2024 2023

Core loan spread 0.98 % 1.06 % 0.90 % 1.31 %

2 unchanged sentences

Loan spread 0.93 % 1.06 % 0.85 % 0.96 %

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

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

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

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

1 unchanged sentence

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

Variable loan spread was lower during the three months ended March 31, 2024 compared with the same period in 2023 due to a significant increase in short-term rates during the first quarter of 2023 compared with an insignificant change in rates for the same period in 2024.

Variable loan spread was lower during the three and six months ended June 30, 2024 compared with the same periods in 2023 due to a significant increase in short-term rates during 2023 compared with an insignificant change in rates during 2024.

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

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

Three months ended March 31,

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

2024 2023 2024 2023

Fixed rate floor income, gross $ 159 456 338 1,567

3 unchanged sentences

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

The decrease in gross fixed rate floor income for the three months ended March 31, 2024 compared with the same period in 2023 was due to higher interest rates in 2024 compared with 2023.

The decrease in gross fixed rate floor income for the three and six months ended June 30, 2024 compared with the same periods in 2023 was due to higher interest rates in 2024 compared with 2023.

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

2 unchanged sentences

Subsequent to terminating these derivatives, during the second and fourth quarters of 2023, the Company entered into a total of $400.0 million notional amount of derivatives to hedge loans earning fixed rate floor income and other loans and investments in which the Company receives a fixed rate.

The decrease in net derivative settlements received by the Company during the three months ended March 31, 2024, compared with the same period in 2023, was due to a decrease in the notional amount of derivatives outstanding and less favorable terms on the $400.0 million of notional derivatives entered into in 2023 compared with the $2.8 billion notional derivatives that were terminated due to an increase in interest rates from when the terminated derivatives were initially executed.

The increase in net derivative settlements received by the Company during the three months ended June 30, 2024, compared with the same period in 2023, was due to an increase in the notional amount of derivatives outstanding.

The decrease in net derivative settlements received by the Company during the six months ended June 30, 2024, compared with the same period in 2023, was due to a decrease in the notional amount of derivatives outstanding and less favorable terms on the $400.0 million of notional derivatives entered into in 2023 compared with the $2.8 billion notional derivatives that were terminated due to an increase in interest rates from when the terminated derivatives were initially executed.

Summary and Comparison of Operating Results

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

Net interest income after provision for loan losses $ 34,003 13,663 See table below for additional analysis.

Interest income:

Loan interest $ 193,707 237,906 403,335 458,818 See table below for additional analysis.

Investment interest 13,709 15,857 35,544 29,664 Decrease for the second quarter of 2024 compared with the same period in 2023 was due to a decrease of interest earned on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments, partially offset by an increase of interest earned on restricted cash due to higher balances and interest rates.

Increase for the first half of 2024 compared with the same period in 2023 was due to an increase of interest earned on the Company's beneficial interest investments and an increase of interest earned on restricted cash due to higher balances and interest rates.

Total interest income 207,416 253,763 438,879 488,482

Loan interest expense 164,315 218,602 348,460 400,665 See table below for additional analysis.

Intercompany interest expense 7,317 13,711 14,077 20,846 Represents interest paid by AGM to Nelnet, Inc.

(parent company) related to (i) internal borrowings to fund equity advances on certain AGM debt facilities;

and (ii) AGM issued bonds held by Nelnet, Inc.

Decrease was due to a decrease in balances outstanding.

Intercompany interest is eliminated for consolidated financial reporting purposes.

Net interest income 35,784 21,450 76,342 66,971

Less (negative provision) provision for loan losses (4,225) (12,873) 2,230 (3,119) See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for factors impacting (negative provision) provision for loan losses for the periods presented.

Net interest income after provision for loan losses 40,009 34,323 74,112 70,090

Other income, net 1,337 1,319 6,321 4,164 Represents primarily borrower late fees, income from providing administration activities for third parties, and income/losses from AGM's investment in joint ventures.

(Loss) gain on sale of loans, net (41) 11,812 The Company recognized a loss and net gains from selling portfolios of loans in 2024 and 2023, respectively.

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

Loss on sale of loans (1,438) (5,461) (1,579) (15,753) The Company recognized losses from selling portfolios of loans.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information about losses on the sale of loans for the periods presented.

Provision for beneficial interests (5,911) — (5,911) — During the three months ended June 30, 2024, the Company recorded an allowance for credit losses (and related provision expense) related to the Company's beneficial interest in consumer loan securitizations.

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

Derivative settlements, net 1,442 (18) 2,997 23,319 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.

1 unchanged sentence

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

The decrease in net derivative settlements received by the Company was due to the termination of the floor income interest rate swaps in March 2023.

The decrease in net derivative settlements received by the Company for the first half of 2024 compared with the same period in 2023 was due to the termination of the floor income interest rate swaps ($2.8 billion notional amount) in March 2023.

See above under "Loan Spread Analysis" for further information.

2 unchanged sentences

On March 15, 2023, AGM terminated its portfolio of floor income interest rate swaps to minimize the Company's exposure to market volatility and increase liquidity.

To minimize the Company's exposure to market volatility and increase liquidity, AGM terminated its portfolio of floor income interest rate swaps ($2.8 billion notional amount) in March 2023.

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

7 unchanged sentences

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

Total operating expenses 12,463 14,467 Total operating expenses were 43 basis points and 41 basis points of the average balance of loans for the three months ended March 31, 2024 and 2023, respectively.

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

Income (loss) before income taxes 33,743 (221)

Income tax (expense) benefit (8,099) 53 Represents income tax expense at an effective tax rate of 24%.

Net income (loss) $ 25,644 (168)

Total operating expenses 12,065 13,356 24,527 27,823

Income before income taxes 24,310 17,704 58,055 17,482

Income tax expense (5,835) (4,249) (13,933) (4,196) Represents income tax expense at an effective tax rate of 24%.

Net income $ 18,475 13,455 44,122 13,286

Additional information:

GAAP net income (loss) $ 25,644 (168) See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.

The decrease in non-GAAP net income, excluding derivative market value adjustments was due to (i) a decrease in the average balance of loans;

(ii) a decrease in core loan spread;

and (iii) the net gain on sale of loans in 2023.

These changes were partially offset by (i) a decrease in provision expense and (ii) an increase in investment interest income on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.

GAAP net income $ 18,475 13,455 44,122 13,286 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.

Derivative market value adjustments, net (936) (897) (6,642) 36,515

1 unchanged sentence

Non-GAAP net income, excluding derivative market value adjustments $ 17,764 12,773 39,074 41,037

Net interest income after provision for loan losses, net of settlements on derivatives

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

Three months ended March 31,

Net loan interest income, including settlements on derivatives

The following table summarizes the components of "loan interest," "loan interest expense" and "derivative settlements, net."

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

2024 2023 2024 2023 Additional information

3 unchanged sentences

Variable interest income, net 193,548 237,450 402,997 457,251

Interest on bonds and notes payable (184,145) (182,063) Increase was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.

Derivative settlements, net (a) 365 859 Represents net derivative settlements received related to the Company’s 1:3 basis swaps.

Interest on bonds and notes payable (164,315) (218,602) (348,460) (400,665) Decrease was due to a decrease in the average balance of debt outstanding, partially offset by an increase in cost of funds.

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

Derivative settlements, net (a) 249 (65) 614 794 Represents net derivative settlements received (paid) related to the Company’s 1:3 basis swaps.

Variable loan interest margin, net of settlements on derivatives 29,482 18,783 55,151 57,380

1 unchanged sentence

Derivative settlements, net (a) 1,193 47 2,383 22,525 Represents net derivative settlements received related to the Company's floor income interest rate swaps.

The decrease in net derivative settlements received by the Company was due to the termination of the floor income interest rate swaps in March 2023.

The decrease in net derivative settlements received by the Company for the first half of 2024 was due to the termination of the floor income interest rate swaps in March 2023.

See above under "Loan Spread Analysis" for further information.

Fixed rate floor income, net of settlements on derivatives 1,352 503 2,721 24,092

Core loan interest income (a) 27,038 62,186

Investment interest 21,835 13,807 Increase was due to an increase in the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.

Intercompany interest (6,760) (7,135)

Negative provision (provision) for loan losses - federally insured loans 1,870 (2,411) See note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report for factors impacting provision for loan losses for the periods presented.

Negative provision (provision) for loan losses - private education loans 265 (240)

Provision for loan losses - consumer and other loans (8,690) (29,207)

Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 35,558 37,000

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

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

See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2024 and 2023 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income."

Net loan interest income, including derivative settlements (core loan interest income) (a) $ 30,834 19,286 57,872 81,472

(a) Net loan interest income, including derivative settlements (core loan interest income) is a non-GAAP financial measure.

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

See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2024 and 2023 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 5 and in this table.

Nelnet Bank Operating Segment

Loan Portfolio

As of March 31, 2024, Nelnet Bank had a $483.7 million loan portfolio, consisting of $364.8 million of private education loans and $119.0 million of consumer and other loans.

For a summary of the Company’s loan portfolio as of March 31, 2024 and December 31, 2023, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of June 30, 2024, Nelnet Bank had a $542.4 million loan portfolio, consisting of $354.4 million of private education loans and $187.9 million of consumer and other loans.

For a summary of the Company’s loan portfolio as of June 30, 2024 and December 31, 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Loan Activity

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

Three months ended March 31,

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

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

2024 2023 2024 2023

Beginning balance $ 483,723 439,007 432,872 419,795

6 unchanged sentences

Ending balance $ 542,351 444,488 542,351 444,488

In July 2024, Nelnet Bank executed an agreement to purchase a residual trust with approximately $140 million of private education loans and $60 million of debt that finances the assets.

Nelnet Bank will use deposits to fund the approximately $80 million acquisition price.

The trust will be consolidated as part of the bank's financial statements.

The transaction is expected to close during the third quarter of 2024.

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

For a summary of the allowance as a percentage of the ending balance and loan status, delinquency amounts, and other key credit quality indicators for each of Nelnet Bank's loan portfolios as of March 31, 2024 and December 31, 2023;

and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2024 and 2023, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of March 31, 2024, Nelnet Bank had $960.6 million of deposits.

and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three and six months ended June 30, 2024 and 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

As of June 30, 2024, Nelnet Bank had $1.03 billion of deposits.

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

Retail and other savings deposits include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), and commercial and institutional CDs.

Retail and other savings deposits and CDs include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), consumer savings, and commercial, institutional, and consumer CDs.

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

As of March 31, 2024, Nelnet Bank’s deposits included $158.6 million from Nelnet, Inc.

As of June 30, 2024, Nelnet Bank’s deposits included $143.0 million from Nelnet, Inc.

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

3 unchanged sentences

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

Three months ended March 31, (a)

Balance Rate Balance Rate

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

2024 2023 2024 2023

Balance Rate Balance Rate Balance Rate Balance Rate

Average assets

16 unchanged sentences

Summary and Comparison of Operating Results

Three months ended March 31,

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

2024 2023 2024 2023 Additional information

Total interest income $ 17,064 12,259 Represents interest earned on loans, cash, and investments.

Interest income:

Loan interest $ 8,422 5,139 15,518 9,471 Represents interest earned on loans.

Increase was due to an increase in the balance of loans and interest rates.

Investment interest 10,811 8,522 20,779 16,449 Represents interest earned on cash and investments.

Increase was due to an increase of these balances and interest rates.

Total interest income 19,233 13,661 36,297 25,920

Interest expense 10,769 8,171 20,266 15,385 Represents interest expense on deposits.

1 unchanged sentence

Net interest income 8,464 5,490 16,031 10,535

Provision for loan losses 4,373 2,417 Increase in provision for loan losses was due to the mix of loans, including the mix of loans acquired and originated in 2024 compared with 2023.

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

Provision for loan losses 7,836 1,493 12,210 3,910 Increase in provision for loan losses was due to the mix of loans and an increase in the notional amount of loans acquired and originated in 2024 compared with 2023.

See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

Net interest income after provision for loan losses 628 3,997 3,821 6,625

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Intersegment expenses 719 92 1,493 173 Represents fees paid to LSS for servicing certain of Nelnet Bank's loans.

These amounts exceed the actual cost of servicing the loans.

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

The majority of shared service costs incurred by the Company to support Nelnet Bank were not allocated to Nelnet Bank through the bank’s de novo period which ended at the end of 2023.

The shared service and support costs incurred by the Company related to Nelnet Bank and not allocated to Nelnet Bank were $1.7 million for the three months ended March 31, 2023.

The shared service and support costs incurred by the Company related to Nelnet Bank and not allocated to Nelnet Bank were $1.8 million and $3.5 million for the second quarter and first half of 2023, respectively.

Total operating expenses 5,925 4,064 10,806 6,996

Income (loss) before income taxes 1,147 (93)

Income tax (expense) benefit (259) 35 Represents income tax expense at an effective tax rate of 22.6% and 37.4% for the three months ended March 31, 2024 and 2023, respectively.

Net income (loss) $ 888 (58)

(Loss) income before income taxes (3,718) 1,744 (2,571) 1,650

Income tax benefit (expense) 916 (396) 657 (362) Represents income tax expense at an effective tax rate of 24.6% and 22.7% for the second quarter of 2024 and 2023, respectively, and 25.6% and 21.9% for the first half of 2024 and 2023, respectively.

Net (loss) income $ (2,802) 1,348 (1,914) 1,288

Additional information:

Net income (loss) $ 888 (58)

Net (loss) income $ (2,802) 1,348 (1,914) 1,288

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

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Tax effect 143 266 685 266

Net loss, excluding derivative market value adjustments $ (828) (58)

Net (loss) income, excluding derivative market value adjustments $ (3,256) 506 (4,084) 446

NFS Other Operating Segments

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WRCM (a) Nelnet Insurance Services (b) Real estate investments (c) Investment securities (d) Total

Three months ended March 31, 2024

Three months ended June 30, 2024

Interest income $ 4 1,521 145 14,210 15,880

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Net income (loss) $ 963 3,735 (1,546) 9,309 12,461

Three months ended March 31, 2023

Three months ended June 30, 2023

Interest income $ 3 363 141 22,293 22,800

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Net income (loss) $ 1,033 641 (568) 11,660 12,766

Six months ended June 30, 2024

Interest income $ 7 2,339 286 28,863 31,495

Interest expense — (589) — (4,435) (5,024)

Net interest income 7 1,750 286 24,428 26,471

Other income, net 3,009 28,977 (3,626) 284 28,644

Salaries and benefits (107) (237) (388) — (732)

Other expenses (145) (23,364) (120) (3) (23,632)

Intersegment expenses, net (7) (146) (240) (72) (465)

Income (loss) before income taxes 2,757 6,980 (4,088) 24,637 30,286

Income tax (expense) benefit (595) (1,675) 975 (5,914) (7,209)

Net (income) loss attributable to noncontrolling interests (276) — 27 — (249)

Net income (loss) $ 1,886 5,305 (3,086) 18,723 22,828

Six months ended June 30, 2023

Interest income $ 5 690 282 40,483 41,460

Interest expense — — — (19,198) (19,198)

Net interest income 5 690 282 21,285 22,262

Other income, net 3,242 5,312 428 (3,756) 5,226

Salaries and benefits (109) (184) (136) — (429)

Other expenses (163) (4,488) (47) (3) (4,701)

Intersegment expenses, net (6) (62) (188) — (256)

Income (loss) before income taxes 2,969 1,268 339 17,526 22,102

Income tax (expense) benefit (641) (304) (88) (4,207) (5,240)

Net (income) loss attributable to noncontrolling interests (297) — 28 — (269)

Net income (loss) $ 2,031 964 279 13,319 16,593

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

WRCM earned management fees of $1.4 million and $1.6 million during the three months ended March 31, 2024 and 2023, respectively.

WRCM earned management fees of $1.4 million and $1.6 million for the three months ended June 30, 2024 and 2023, respectively, and $2.8 million and $3.2 million for the six months ended June 30, 2024 and 2023, respectively.

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

(b) Represents the operating results of the Company’s reinsurance treaties on property and casualty policies and the Company’s Nebraska chartered life and health company, which is in run-off mode and reinsures a decreasing term life insurance product distributed to FACTS.

During the three months ended March 31, 2024 and 2023, the Company earned reinsurance premiums of $25.5 million and $1.1 million, respectively, and ceded $12.7 million and $0.6 million, respectively, of its earned reinsurance premiums, which are included in “other income, net” in the table above.

During the three months ended March 31, 2024 and 2023, the Company recognized $22.8 million and $0.9 million, respectively, of loss reserve, commissions, and broker fees of which it ceded $11.5 million and $0.5 million, respectively, which are included in “other expenses” in the table above.

The following table presents net premiums, which are included in "other income, net" in the table above, and net loss reserve, commissions, and broker fees, which are included in "other expenses" in the table above:

Three months ended Six months ended

June 30, June 30,

2024 2023 2024 2023

Reinsurance assumed $ 29,890 7,922 55,394 9,029

Reinsurance ceded (15,039) (4,107) (27,762) (4,678)

Net premiums $ 14,851 3,815 27,632 4,351

Reinsurance assumed $ 21,675 6,603 44,517 7,528

Reinsurance ceded (10,687) (3,380) (22,212) (3,844)

Net loss reserve, commissions, and broker fees $ 10,988 3,223 22,305 3,684

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

During the three months ended March 31, 2024 and 2023, the Company recognized $1.8 million of net losses and $1.1 million of net gains, respectively, from its real estate investments, which are included in "other income, net" in the table above.

The loss recognized in the first quarter of 2024 relates primarily to the Company's proportionate share of the net losses of certain real estate investments accounted for under the equity method.

The Company recognized net losses from its real estate investments of $1.8 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and net losses of $3.6 million for the six months ended June 30, 2024 compared with a gain of $0.4 million for the same period in 2023, which are included in "other income, net" in the table above.

The net results recognized relates primarily to the Company's proportionate share of certain real estate investments accounted for under the equity method.

(d) Represents interest income earned on investment debt securities (primarily student loan and other asset-backed securities, including Nelnet-owned asset-backed securities which it has repurchased and are eliminated in consolidation), unrealized gains/losses on marketable equity securities, realized gains/losses on marketable equity securities and investment debt securities, and other costs to manage these investments.

Also includes interest expense incurred on debt used to finance such investments.

The decrease in interest income in 2024 compared with 2023 was due to a decrease in the average balance of investments from $1.3 billion in 2023 to $0.9 billion in 2024, partially offset by an increase in interest rates.

The decrease in interest expense in 2024 compared with 2023 was due to a decrease in the average debt outstanding from $0.9 billion in 2023 to $0.1 billion in 2024.

Included in 2023 was $4.0 million of realized losses on sales of asset-backed and marketable securities, which are included in "other income, net" in the table above.

The decrease in interest income and interest expense in 2024 compared with 2023 was due to a decrease in the average balance of investments and debt outstanding, respectively.

See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate and Market Risk - Investments," which provides additional detail on the Company's investment portfolio and debt used to finance such investments.

Included in first half of 2023 was $3.6 million of realized losses on sales of asset-backed and marketable securities, which are included in "other income, net" in the table above.

CORPORATE AND OTHER ACTIVITIES – RESULTS OF OPERATIONS

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Shared services (a) Tax equity investments / syndication / administration GRNE Solar ALLO investment (c) Venture capital investments (d) Other Total

Three months ended March 31, 2024

Three months ended June 30, 2024

Net interest income (expense) $ — 1 (365) — — 2,277 1,913

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Other income, net 750 (1,635) 51 4,193 3,691 3,322 10,372

Impairment expense — — (1,865) — — — (1,865)

Cost to provide solar construction services — — (8,072) — — — (8,072)

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Intersegment expenses, net 26,217 (148) (303) (3) (18) 58 25,803

Income (loss) before income taxes (10,045) 2,504 (4,037) (8,593) (704) 2,723 (18,152)

Income tax (expense) benefit 2,411 (979) 794 2,062 169 (672) 3,785

(Loss) income before income taxes (9,056) (2,580) (4,752) 3,940 3,417 2,500 (6,531)

Income tax benefit (expense) 2,174 478 917 (946) (820) (1,015) 788

Net loss attributable to noncontrolling interests — 590 926 — — — 1,516

Net income (loss) $ (7,634) 3,102 (2,515) (6,531) (535) 2,051 (12,062)

Three months ended March 31, 2023

Net (loss) income $ (6,882) (1,512) (2,909) 2,994 2,597 1,485 (4,227)

Three months ended June 30, 2023

Net interest income (expense) $ — — (363) — — 2,547 2,184

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Other income, net 776 (10,086) 58 (9,711) (1,361) 2,647 (17,677)

Impairment expense — — — — — — —

Cost to provide solar construction services — — (9,122) — — — (9,122)

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Intersegment expenses, net 26,970 47 (551) — (12) (293) 26,161

Income (loss) before income taxes (12,989) (3,591) (3,110) (17,882) (654) 1,774 (36,452)

Income tax (expense) benefit 3,117 165 610 4,292 157 (351) 7,990

(Loss) income before income taxes (14,084) (10,914) (8,197) (11,086) (1,608) 1,878 (44,011)

Income tax benefit (expense) 3,380 520 1,587 2,661 386 (1,632) 6,902

Net loss attributable to noncontrolling interests — 8,748 1,582 — — — 10,330

Net income (loss) $ (9,872) (523) (1,931) (13,590) (497) 1,423 (24,990)

Net (loss) income $ (10,704) (1,646) (5,028) (8,425) (1,222) 246 (26,779)

Nelnet Renewable Energy (b)

Shared services (a) Tax equity investments / syndication / administration GRNE Solar ALLO investment (c) Venture capital investments (d) Other Total

Six months ended June 30, 2024

Net interest income (expense) $ — 1 (677) — — 5,728 5,052

Solar construction revenue — — 23,420 — — — 23,420

Other income, net 1,456 1,242 93 (4,043) 3,302 6,174 8,224

Impairment expense — — (1,865) — (37) — (1,902)

Cost to provide solar construction services — — (22,300) — — — (22,300)

Salaries and benefits (39,243) (1,284) (4,631) — (476) (2,673) (48,307)

Depreciation and amortization (14,727) — (539) — (14) (184) (15,464)

Other expenses (20,332) (368) (1,228) (606) (26) (3,683) (26,243)

Intersegment expenses, net 53,745 143 (1,061) (4) (38) (137) 52,648

(Loss) income before income taxes (19,101) (266) (8,788) (4,653) 2,711 5,225 (24,872)

Income tax benefit (expense) 4,584 (564) 1,711 1,117 (651) (1,686) 4,511

Net loss attributable to noncontrolling interests — 2,617 1,655 — — — 4,272

Net (loss) income $ (14,517) 1,787 (5,422) (3,536) 2,060 3,539 (16,089)

Six months ended June 30, 2023

Net interest income (expense) $ — — (595) — — 4,827 4,232

Solar construction revenue — — 13,386 — — — 13,386

Other income, net 1,402 (13,030) 64 (27,575) (1,650) 5,122 (35,667)

Impairment expense — — — — — — —

Cost to provide solar construction services — — (17,422) — — — (17,422)

Salaries and benefits (46,387) (1,670) (2,667) (30) (403) (2,798) (53,955)

Depreciation and amortization (18,048) — (2,198) — — (208) (20,454)

Other expenses (19,848) (840) (787) (1,363) (185) (2,634) (25,657)

Intersegment expenses, net 55,809 39 (1,088) — (22) (660) 54,078

(Loss) income before income taxes (27,072) (15,501) (11,307) (28,968) (2,260) 3,649 (81,459)

Income tax benefit (expense) 6,497 851 2,197 6,953 543 (1,985) 15,056

Net loss attributable to noncontrolling interests — 11,956 2,151 — — — 14,107

Net (loss) income $ (20,575) (2,694) (6,959) (22,015) (1,717) 1,664 (52,296)

(a) Includes corporate activities related to internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing.

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

As of March 31, 2024, the Company has invested a total of $491.8 million (which includes $208.9 million syndicated to third-party investors) in solar tax equity investments.

As of June 30, 2024, the Company has invested a total of $502.8 million (which includes $219.8 million syndicated to third-party investors) in solar tax equity investments that remain outstanding.

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

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

Nelnet Renewable Energy recognized

net gains on its tax equity investments of $3.0 million and net losses of $1.9 million during the three months ended March 31, 2024 and 2023, respectively.

Nelnet Renewable Energy recognized net losses on its tax equity investments of $2.6 million and $10.1 million for the three months ended June 30, 2024 and 2023, respectively, and net gains of $0.2 million in the first half of 2024 compared with net losses of $13.0 million for the same period in 2023.

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

Solar net losses attributable to third-party noncontrolling interest investors was $1.2 million and $2.7 million for the three months ended March 31, 2024 and 2023, respectively, and are reflected in “net loss attributable to noncontrolling interests” in the table above.

There were minimal net losses attributable to third-party noncontrolling interest investors in the second quarter of 2024 compared with $8.4 million for the same period in 2023 and $1.6 million in the first half of 2024 compared with $11.4 million for the same period in 2023.

Amounts applicable to noncontrolling interest investors are reflected in “net loss attributable to noncontrolling interests” in the table above.

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

Management fee income recognized by Nelnet Renewable Energy was $0.7 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively, which is included in "other income, net" in the table above.

Management fee income recognized by Nelnet Renewable Energy was $0.9 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively, and $1.6 million and $0.6 million for the six months ended June 30, 2024 and 2023, respectively, which is included in "other income, net" in the table above.

In addition to solar tax equity investments, the Company has a solar construction company (GRNE Solar) that provides full-service engineering, procurement, and construction (EPC) services to residential homes and commercial entities.

Since the acquisition of GRNE in 2022, it has incurred low and, in some cases, negative margins on certain projects.

Since the acquisition of 80% of GRNE Solar's ownership interests in 2022, it has incurred low and, in some cases, negative margins on certain projects.

Due to the complexity and long-term nature of existing construction contracts, the Company may continue to incur low and/or negative margins to complete projects.

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On April 12, 2024, the Company announced a change in its solar EPC operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations.

As a result, residential revenue will decline in future periods as existing customer contracts are completed.

Residential solar construction revenue was $2.1 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively, and $11.8 million for the year ended December 31, 2023.

As a result, residential revenue will continue to decline from recent historical amounts as existing customer contracts are completed.

Residential solar construction revenue was $0.9 million and $2.4 million for the three months ended June 30, 2024 and 2023, respectively, and $3.1 million and $5.2 million for the six months ended June 30, 2024 and 2023, respectively.

In addition, during the second quarter of 2024, the Company recognized non-cash impairment charges of $1.9 million on certain solar facilities and inventory related to the residential solar operations, which is reflected in "impairment expense" in the table above, and $1.6 million in severance costs and commissions paid for cancelled projects, which is included in "salaries and benefits" in the table above.

For additional information, see note 9 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

On June 30, 2024, the Company acquired the remaining 20% of GRNE Solar for $0.3 million.

(c) Represents primarily the Company's share of loss on its voting membership interests and income on its preferred membership interest in ALLO.

The Company accounts for its approximately 45% voting membership interests in ALLO under the HLBV method of accounting.

The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $10.7 million and $20.2 million during the three months ended March 31, 2024 and 2023, respectively.

Under the HLBV method of accounting on its ALLO voting membership interests investment, the Company recognized no losses in the second quarter of 2024 compared with losses of $12.2 million for the same period in 2023 and losses of $10.7 million in the first half of 2024 compared with $32.4 million for the same period in 2023.

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

Absent additional equity contributions, the Company will not recognize additional losses for its voting membership interests in ALLO.

As of March 31, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $155.0 million and $2.4 million, respectively.

The preferred membership interests of ALLO held by the Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024.

The Company recognized income on its ALLO preferred membership interests of $2.4 million and $2.2 million during the three months ended March 31, 2024 and 2023, respectively.

Absent additional equity contributions with respect to ALLO's voting membership interests, the Company will not recognize additional losses for its voting membership interests in ALLO.

As of June 30, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $169.5 million and $6.6 million, respectively.

The Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024 for $155.0 million of preferred membership interests of ALLO held by the Company.

During the second quarter of 2024, the Company purchased an additional $14.5 million of preferred membership interests of ALLO, which earn a preferred annual return of 20.0%.

The Company recognized income on its ALLO preferred membership interests of $4.2 million and $2.3 million for the three months ended June 30, 2024 and 2023, respectively, and $6.6 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively.

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

As part of the ALLO recapitalization transaction completed in 2020, the Company and SDC (a third-party global digital infrastructure investor and member of ALLO) entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of up to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels.

The Company recognized expense of $0.4 million associated with this obligation for the three months ended March 31, 2024, which is included in “other expenses” in the table above.

The Company recognized an expense of $0.3 million and $1.4 million for the three months ended June 30, 2024 and 2023, respectively, and $0.6 million and $1.4 million for the six months ended June 30, 2024 and 2023, respectively, which is included in “other expenses” in the table above.

(d) Represents the operating results of the Company’s venture capital investments, including Hudl which the Company accounts for using the measurement alternative method, and the administrative costs to manage this portfolio.

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As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million in November 2020 and the Company contributed an additional $30.0 million and $5.0 million to Nelnet Bank during 2022 and 2023, respectively.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million in November 2020 and the Company has contributed an additional $40.0 million to Nelnet Bank since its inception.

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

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Sources of Liquidity

As of March 31, 2024, the Company's sources of liquidity included:

As of June 30, 2024, the Company's sources of liquidity included:

Cash and cash equivalents $ 145,478

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

Sources of liquidity as of March 31, 2024

Sources of liquidity as of June 30, 2024

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

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

As of March 31, 2024, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

As of June 30, 2024, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

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

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The Company has historically generated positive cash flow from operations.

During the three months ended March 31, 2024 and 2023, the Company generated $211.9 million and $122.8 million, respectively, in cash from operating activities.

During the six months ended June 30, 2024 and 2023, the Company generated $345.3 million and $198.4 million, respectively, in cash from operating activities.

The increase in 2024 compared with 2023 was due to:

• An increase in net income;

• Proceeds of $4.2 million from the Company's clearinghouse for margin payments on derivatives during the three months ended March 31, 2024 compared with payments of $210.3 million for the same period in 2023;

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

• The impact of changes to accrued interest receivable, accounts receivable, and other assets during the three months ended March 31, 2024 compared with the same period in 2023.

• Proceeds of $5.7 million from the Company's clearinghouse for margin payments on derivatives during the six months ended June 30, 2024 compared with payments of $209.9 million for the same period in 2023;

• Adjustments to net income for the impact of provision for loan losses and the non-cash change in deferred income taxes;

• The impact of changes to accrued interest receivable and other assets during the six months ended June 30, 2024 compared with the same period in 2023.

These factors were partially offset by:

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

• No proceeds from the termination of derivative instruments during the three months ended March 31, 2024 compared with $164.1 million for the same period in 2023;

• The impact of changes to other liabilities during the three months ended March 31, 2024 compared with the same period in 2023.

• Adjustments to net income for the non-cash change in depreciation and amortization, derivative market value adjustments, and gain/loss on investments;

• No proceeds from the termination of derivative instruments during the six months ended June 30, 2024 compared with $164.1 million for the same period in 2023;

• The impact of changes to accounts receivable and other liabilities during the six months ended June 30, 2024 compared with the same period in 2023.

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

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

Cash provided by investing activities and used in financing activities for the three months ended March 31, 2024 was $1.1 billion and $1.4 billion, respectively.

Cash provided by investing activities and used in financing activities for the three months ended March 31, 2023 was $0.7 billion and $1.3 billion, respectively.

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

Cash provided by investing activities and used in financing activities for the six months ended June 30, 2024 was $1.8 billion and $2.3 billion, respectively.

Cash provided by investing activities and used in financing activities for the six months ended June 30, 2023 was $0.9 billion and $1.6 billion, respectively.

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

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

As of March 31, 2024

As of June 30, 2024

Carrying amount

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

As of March 31, 2024, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.22 billion as detailed below.

The actual timing of cash flows released from the securitizations could be impacted based on when and if the Company terminates a securitization by exercising clean-up calls on the underlying securities when the assets in such securitization get to a certain threshold.

The forecasted cash flow presented below includes loans funded in asset-backed securitizations as of March 31, 2024, the majority of which are federally insured student loans.

As of March 31, 2024, AGM had $9.5 billion of loans included in asset-backed securitizations, which represented 88.4% of its total loan portfolio.

The forecasted cash flow does not include cash

flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to March 31, 2024, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments and notes receivable" on the Company's consolidated balance sheets).

As of June 30, 2024, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.25 billion as detailed below.

The forecasted cash flow presented below includes loans funded in asset-backed securitizations as of June 30, 2024, the majority of which are federally insured student loans.

As of June 30, 2024, AGM had $8.7 billion of loans included in asset-

backed securitizations, which represented 88.1% of its total loan portfolio.

The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to June 30, 2024, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments and notes receivable" on the Company's consolidated balance sheets).

Asset-backed Securitization Cash Flow Forecast

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(dollars in millions)

The forecasted future undiscounted cash flows of approximately $1.22 billion include approximately $0.78 billion (as of March 31, 2024) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets in the balances of "loans and accrued interest receivable, net" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.44 billion, or approximately $0.33 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the March 31, 2024 balance.

The forecasted future undiscounted cash flows of approximately $1.25 billion include approximately $0.75 billion (as of June 30, 2024) of overcollateralization included in the asset-backed securitizations.

These excess net asset positions are included in the consolidated balance sheets in the balances of "loans and accrued interest receivable, net" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.50 billion, or approximately $0.38 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the June 30, 2024 balance.

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

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

The Company’s cash flow forecast above assumes prepayment rates of 5% for federally insured consolidation loans and 6% for federally insured Stafford loans.

The Company’s cash flow forecast above assumes prepayment rates of 6% for both federally insured consolidation and Stafford loans.

Prepayment rates for private education loans range from 11% to 20%.

Since late 2021, the Company has experienced accelerated run-off (prepayments) of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans to qualify for loan forgiveness under various initiatives and programs offered by the federal government and the Department.

See "Nelnet Financial Services Division -

Results of Operations - Asset Generation and Management Operating Segment - Loan Activity" included in this report's Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information related to the federal government and the Department's initiatives for debt relief that has increased, and may continue to increase, prepayment activity.

initiatives and programs offered by the federal government and the Department.

See "Nelnet Financial Services Division - Results of Operations - Asset Generation and Management Operating Segment - Loan Activity" included in this report's Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information related to the federal government and the Department's initiatives for debt relief that has increased, and may continue to increase, prepayment activity.

Prepayments could significantly increase if the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs.

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$0.76 billion

If the entire AGM student loan portfolio prepaid, the Company would receive the full amount of overcollateralization included in the asset-backed securitizations of approximately $0.78 billion (as of March 31, 2024);

however, the Company would not receive the $0.50 billion ($0.38 billion after tax) of estimated future earnings from the portfolio.

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Warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements.

For a summary of the Company's warehouse facilities see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

For a summary of the Company's warehouse facilities outstanding as of June 30, 2024, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The Company has been reducing its warehouse capacity based on its estimated future loan purchases and to save on unused facility costs.

On July 1, 2024, the Company obtained a consumer loan warehouse facility that has an aggregate maximum financing amount available of $125 million, an advance rate of 80%, liquidity provisions to January 1, 2026, and a final maturity date of August 1, 2026.

On July 5, 2024, the Company advanced $76 million of debt in this facility and has $49 million available for future fundings.

Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.

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Depending on market conditions, the Company anticipates continuing to access the asset-backed securitization market.

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

There were no asset-backed securitization transactions completed during the three months ended March 31, 2024.

Such asset-backed securitization transactions would be used to refinance loans included in its warehouse facilities and existing asset-backed securitizations and/or finance loans purchased from third parties and loans that are currently unencumbered.

There were no asset-backed securitization transactions completed during the six months ended June 30, 2024.

Other Uses of Liquidity

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proceeds from the sale of certain investments;

its unsecured line of credit, its Union Bank student loan participation

agreement, its Union Bank student loan asset-backed securities participation agreement, and its third-party repurchase agreement (each as described below), and/or establishing similar secured and unsecured borrowing facilities;

its unsecured line of credit, its Union Bank student loan participation agreement, its Union Bank student loan asset-backed securities participation agreement, and its third-party repurchase agreement (each as described below), and/or establishing similar secured and unsecured borrowing facilities;

using its existing warehouse facilities (as described above);

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

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of March 31, 2024, the fair value of these bonds was $248.4 million.

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

The Company entered into a repurchase agreement with a third party, of which a portion of the proceeds from such agreement were used to purchase the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

As of March 31, 2024, $114.5 million was outstanding on the Company's repurchase agreement.

As of May 9, 2024, the maturity dates on this facility vary from November 27, 2024 through December 20, 2024, and the facility is subject to early termination upon 180 days' prior written notice provided by the Company or the counterparty prior to the maturity dates.

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of June 30, 2024, the fair value of these bonds was $235.9 million.

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

The Company entered into a repurchase agreement with a third party, of which a portion of the proceeds from such agreement was used to purchase the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

As of June 30, 2024, $111.2 million was outstanding on the Company's repurchase agreement.

As of August 8, 2024, the maturity dates on this facility vary from November 27, 2024 through December 20, 2024, and the facility is subject to early termination upon 180 days' prior written notice provided by the Company or the counterparty prior to the maturity dates.

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

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

As of March 31, 2024, $469.7 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

As of June 30, 2024, $440.4 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

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

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On May 4, 2024, the agreement automatically renewed for another year through May 4, 2025.

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.

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.

As of March 31, 2024, $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.

As of June 30, 2024, $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.

Liquidity Impact Related to Beneficial Interest in Loan Securitizations

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

As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2024, the Company's ownership correlates to approximately $1.79 billion of loans included in these securitizations

As of March 31, 2024, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $235.8 million.

As of the latest remittance reports filed by the various trusts prior to or as of June 30, 2024, the Company's ownership correlates to approximately $1.94 billion of loans included in these securitizations.

As of June 30, 2024, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $244.0 million.

For a summary of this investment balance, see note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

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

As of March 31, 2024, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its partial ownership in these securitizations to be approximately $347.1 million.

As of June 30, 2024, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its partial ownership in these securitizations to be approximately $378.3 million.

The vast majority of these cash flows are expected to be received over the next 5 years.

The difference between the total estimated future undiscounted cash flows from these residual interests ($347.1 million) and the investment carrying value ($235.8 million) of $111.3 million, or $84.6 million after income taxes based on the estimated effective tax rate, represents estimated future investment interest income (earnings) from these investments and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the March 31, 2024 balance.

The difference between the total estimated future undiscounted cash flows from these residual interests ($378.3 million) and the investment carrying value ($244.0 million) of $134.3 million, or $102.1 million after income taxes based on the estimated effective tax rate, represents estimated future investment interest income (earnings) from these investments and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the June 30, 2024 balance.

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

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Nelnet Bank launched operations in November 2020.

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

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million.

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

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Any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9% may opt into the CBLR framework quarterly.

The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio.

The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is

greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio.

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

Nelnet Bank has opted into the CBLR framework for the quarter ended March 31, 2024 with a leverage ratio of 13.0%.

Nelnet Bank has opted into the CBLR framework for the quarter ended June 30, 2024 with a leverage ratio of 12.3%.

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

Since inception, the Company has made additional contributions of $40 million to Nelnet Bank.

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

Liquidity Impact Related to Nelnet Renewable Energy

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

Through March 31, 2024, the Company has invested a total of $491.8 million (which includes $208.9 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships.

The Company’s Nelnet Renewable Energy business makes solar tax equity investments in renewable energy solar partnerships.

Through June 30, 2024, the Company has invested a total of $502.8 million (which includes $219.8 million syndicated to third-party investors) in tax equity investments that remain outstanding.

These investments provide a federal income tax credit under the Internal Revenue Code, equaling 30% to 40% of the eligible project cost, with the tax credit available when the project is placed-in-service.

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

As of March 31, 2024, the Company is committed to fund an additional $146.6 million on tax equity investments, of which $76.2 million is expected to be provided by syndication partners.

As of June 30, 2024, the Company is committed to fund an additional $125.7 million on tax equity investments, of which $83.0 million is expected to be provided by syndication partners.

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

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

As of March 31, 2024, the outstanding preferred membership interests of ALLO held by the Company was $155.0 million that earned a preferred annual return of 6.25%.

The Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024 for $155.0 million of preferred membership interests of ALLO.

On January 1, 2025, the preferred annual return on the $155.0 million of preferred membership interests of ALLO will increase to 13.5%, commencing July 1, 2025, the return will increase to 15.0%, commencing January 1, 2026, the preferred return will increase to 17.5%, and beginning on January 1, 2027 and on each January 1 of each calendar year thereafter, the annual return will increase by an additional 2.5%.

During the second quarter of 2024, the Company purchased an additional $14.5 million of preferred membership interests in ALLO, which earn a preferred annual return of 20.0%.

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

As of March 31, 2024, the accrued and unpaid preferred return was $2.4 million.

On April 1, 2024, the preferred annual return on the non-voting preferred membership interests increased from 6.25% to 10.00%.

On January 1, 2025, the preferred annual return will increase to 13.5%, commencing July 1, 2025, the return will increase to 15.0%, commencing January 1, 2026, the preferred return will increase to 17.5%, and beginning on January 1, 2027 and on each January 1 of each calendar year thereafter, the annual return will increase by an additional 2.5%.

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

As of March 31, 2024, the estimated fair value of the contingent payment is $10.1 million.

In June 2023, ALLO closed on an asset-backed securities transaction with an aggregate size over $600 million.

The proceeds from this transaction were used to refinance the majority of ALLO's prior debt and fund a portion of its current growth plans.

If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest.

As of June 30, 2024, the accrued and unpaid preferred return was $6.6 million.

If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest and/or may purchase additional preferred membership interests that include a preferred return.

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

In addition to equity contributions, ALLO has issued debt to fund its growth.

As of June 30, 2024, ALLO has $912 million (par value) of debt outstanding.

As of June 30, 2024, the estimated fair value of the contingent payment is $10.4 million.

Liquidity Impact Related to Hedging Activities

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

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

Based on the derivative portfolio outstanding as of March 31, 2024, the Company does not anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse and/or payments to its counterparties for its non-centrally cleared derivatives.

Clearing is a process by which a third party, the clearinghouse, steps in between the original counterparties and

guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.

Based on the derivative portfolio outstanding as of June 30, 2024, the Company does not anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse and/or payments to its counterparties for its non-centrally cleared derivatives.

Other Debt Facilities

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

As of March 31, 2024, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

As of June 30, 2024, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.

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

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This participation agreement will amortize as the consumer loans subject to the participation pay down.

As of March 31, 2024, the outstanding balance on this participation agreement was $8.9 million.

As of June 30, 2024, the outstanding balance on this participation agreement was $7.6 million.

Stock Repurchases

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

As of March 31, 2024, 3,824,767 shares remained authorized for repurchase under the Company's stock repurchase program.

As of June 30, 2024, 3,341,735 shares remained authorized for repurchase under the Company's stock repurchase program.

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

Shares repurchased by the Company during the three months ended March 31, 2024 are shown below.

Shares repurchased by the Company during the first half of 2024 are shown below.

Certain of these repurchases were made pursuant to trading plans adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

For additional information on stock repurchases during the first quarter of 2024, see "Stock Repurchases" under Part II, Item 2 of this report.

For additional information on stock repurchases during the second quarter of 2024, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price (in thousands) Average price of shares repurchased (per share) (a)

Quarter ended March 31, 2024 396,724 $ 35,469 89.41

(a) The average price of shares repurchased for the three months ended March 31, 2024 includes excise taxes.

Subsequent to March 31, 2024 (through May 9, 2024), the Company repurchased an additional 421,102 Class A common shares for $39.8 million (average price of $94.47 per share) under its stock repurchase program.

On March 15, 2024, the Company paid a first quarter 2024 cash dividend on the Company's Class A and Class B common stock of $0.28 per share.

In addition, the Company's Board of Directors has declared a second quarter 2024 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share.

The second quarter cash dividend will be paid on June 14, 2024 to shareholders of record at the close of business on May 31, 2024.

Quarter ended June 30, 2024 487,980 46,842 95.99

Total 884,704 $ 82,311 93.04

(a) The average price of shares repurchased for the three months ended June 30, 2024 includes excise taxes.

On June 14, 2024, the Company paid a second quarter 2024 cash dividend on the Company's Class A and Class B common stock of $0.28 per share.

In addition, the Company's Board of Directors has declared a third quarter 2024 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share.

The third quarter cash dividend will be paid on September 13, 2024 to shareholders of record at the close of business on August 30, 2024.

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

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

Actual results may differ from these estimates under varying assumptions or conditions.

Actual results may differ from these estimates under varying assumptions or

Note 2 of the notes to consolidated financial statements included in the Company’s 2023 Annual Report includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.

On an on-going basis, management evaluates its estimates and judgments, particularly as they relate to accounting policies that management believes are most “critical” - that is, they are most important to the portrayal of the Company’s financial condition and results of operations and they require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Management has identified the allowance

for loan losses as a critical accounting policy and estimate, as discussed further under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Allowance for Loan Losses” in the Company’s 2023 Annual Report.

For additional information regarding changes in the Company’s allowance for loan losses for the three months ended March 31, 2024 and 2023, see the caption “Activity in the Allowance for Loan Losses” in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Management has identified the allowance for loan losses as a critical accounting policy and estimate, as discussed further under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Allowance for Loan Losses” in the Company’s 2023 Annual Report.

For additional information regarding changes in the Company’s allowance for loan losses for the three and six months ended June 30, 2024 and 2023, see the caption “Activity in the Allowance for Loan Losses” in note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

There have been no material changes to the Company’s critical accounting policy and estimate since December 31, 2023.

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The Company intends to adopt the standard when it becomes effective for the year ending December 31, 2024 annual financial statements.

Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements.

While the Company is continuing to evaluate the impact this pronouncement will have on its ongoing financial reporting, it currently believes there will be limited impacts to the disclosures included in the notes to consolidated financial statements due to the segment expense detail already disclosed for each reportable segment.

In December 2023, the FASB issued accounting guidance to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

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The Company intends to adopt the standard when it becomes effective for the year ending December 31, 2025.

Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements.

Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to consolidated financial statements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis