What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 300 added, 263 removed, 810 unchanged (41% of the section changed)

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

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

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

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

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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.

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

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

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

2024 2023 2024 2023

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(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.

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

The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met.

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

The information below presents the operating results (net income (loss) before taxes) for each of the Company's reportable and certain other operating segments reconciled to the consolidated financial statements for the three and six months ended June 30, 2024 and 2023.

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

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

(All dollar amounts below are pre-tax)

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.

NDS $ (4,549) 24,469 13,686 66,713 • 2024 results have been negatively impacted by a decrease in revenue and increase in expenses.

Revenue has been adversely impacted based on the Company earning less revenue under the new government servicing contract that began on April 1, 2024, in addition to servicing fewer borrowers.

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 contract, preparation of the conversion of the Discover private education student loan servicing portfolio, which is expected to be completed during the fourth quarter of 2024, and increase in postage and communication costs due to borrowers returning to repayment on September 1, 2023.

The Company expects this segment's operating results will improve in future periods as the full impact of its cost-saving measures take effect and new third-party servicing opportunities convert to the Company's platform.

NBS 26,813 22,123 100,046 77,803 • An increase in before tax operating margin due to increased revenue while maintaining a consistent cost structure.

Nelnet Financial Services division:

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 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.

AGM (16,346) 40,562 41,710 58,041 • The recognition of $29.0 million and $5.9 million in provision for beneficial interest related to certain loan securitization investments in the three months ended September 30, 2024 and June 30, 2024, respectively.

Over the life of these securitizations, the Company still anticipates attractive returns on the overall pool of these investments.

• The recognition of a non-cash expense of $5.6 million and $25.9 million in the three months ended September 30, 2024 and June 30, 2023, respectively, as the result of writing off the remaining unamortized debt discount in connection with the redemption of certain asset-backed debt securities prior to their maturity.

• The recognition of $12.0 million and $2.3 million in provision for loan losses for the three months ended September 30, 2024 and 2023, respectively, and provision of $14.2 million and negative provision of $1.0 million for the nine months ended September 30, 2024 and 2023, respectively.

• A decrease of $5.9 million in net loan interest income, including derivative settlements (core loan interest income), for the three months ended September 30, 2024 compared with the same period in 2023 due to a decrease in the average balance of loans partially offset by an increase in core loan spread, and a decrease of $55.4 million for the nine months ended September 30, 2024 compared with the same period in 2023 due to a decrease in the average balance of loans and core loan spread.

• A net loss of $9.5 million and net income of $1.2 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three months ended September 30, 2024 and 2023, respectively, and a net loss of $2.9 million and $35.3 million for the nine months ended September 30, 2024 and 2023, respectively.

• The recognition of $1.7 million in losses from the sale of loans for the nine months ended September 30, 2024 compared with $16.8 million in the same period of 2023.

Nelnet Bank (4,758) 2,299 (7,330) 3,951 • The recognition of provision for loan losses of $6.1 million for the three months ended September 30, 2024 compared with $1.9 million for the same period in 2023, and $18.4 million for the nine months ended September 30, 2024 compared with $5.8 million for the same period in 2023.

• A net loss of $3.6 million and net income of $1.9 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three months ended September 30, 2024 and 2023, respectively, and a net loss of $0.8 million and net income of $3.1 million for the nine months ended September 30, 2024 and 2023, respectively.

NFS other operating segments 14,038 9,220 44,325 31,321 • An increase in net interest income and net gains related to the Company's investment securities.

Unallocated corporate costs (10,287) (20,915) (29,389) (47,986) • Decrease due to the Company's focus on reducing its cost structure and continued focus on allocating costs to operating segments based on use of such services.

ALLO investment 6,606 (15,559) 1,953 (44,528) • The recognition of no loss in the three months ended September 30, 2024 compared with a loss of $17.3 million for the same period in 2023 and a loss of $10.7 million in the nine months ended September 30, 2024 compared with $49.7 million for 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.

• The recognition of income of $4.8 million on the Company's preferred membership interests in ALLO for the three months ended September 30, 2024 compared with $2.3 million for the same period in 2023 and $11.4 million for the nine months ended September 30, 2024 compared with $6.8 million for the same period in 2023.

Nelnet Renewable Energy - GRNE (10,125) (4,864) (18,913) (16,169) • Since the acquisition of GRNE Solar in 2022, it has incurred low and, in some cases, negative margins on certain solar construction projects.

During the third quarter of 2024, the Company recorded an expense of $8.8 million related to estimated losses on legacy construction projects.

The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024.

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 these projects.

• 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

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

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

• The Company believes its solar construction business is making progress in repositioning the business for long-term profitable success.

Nelnet Renewable Energy - Tax equity investments/ syndication/ administration (8,509) (8,736) (8,775) (24,237) • The recognition of net losses from tax solar investments of $11.3 million in the three months ended September 30, 2024 compared with $6.5 million for the same period in 2023 and $11.1 million in the nine months ended September 30, 2024 compared with $19.5 million for the same period in 2023.

These losses include losses attributable to third-party non-controlling interest investors.

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

These losses are partially offset by revenue earned by the Company related to management, consulting, and performance fees provided on tax equity investments made by third parties.

Other corporate activities 4,892 1,520 12,829 2,909 • Includes operating results of the Company's venture capital investments and other corporate activities.

Increase in 2024 compared with 2023 was due to venture capital activities.

Net (loss) income before taxes (2,223) 50,119 150,141 107,819

Income tax benefit (expense) 282 (10,512) (37,653) (28,785)

Net loss attributable to noncontrolling interests 4,329 4,747 8,398 18,705 • The majority of noncontrolling interests represents losses attributed to noncontrolling membership interests in the Company’s Nelnet Renewable Energy operating segment.

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CONSOLIDATED RESULTS OF OPERATIONS

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

An analysis of the Company's consolidated operating results for the three and nine months ended September 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 Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2024 2023 2024 2023 Additional information

1 unchanged sentence

Investment interest 50,272 48,128 143,086 129,835 Includes income from unrestricted interest-earning deposits and investments, and restricted cash in asset-backed securitizations.

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.

Increase was due to an increase in the average balances and interest rates and, for the nine months ended September 30, 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 240,483 284,551 752,150 834,547

Interest expense 168,328 207,159 539,367 639,756 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.

In addition, the Company recognized a $5.6 million and $25.9 million non-cash expense during the third quarter of 2024 and the second quarter of 2023, respectively, as the result of writing off the remaining unamortized debt discount related to the redemption of certain asset-backed debt securities prior to their maturity.

Net interest income 72,155 77,392 212,783 194,791

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.

Less provision for loan losses 18,111 4,275 32,551 5,065 Represents the current period 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.

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Solar construction revenue 19,321 6,301 42,741 19,687 Represents revenue earned from GRNE Solar providing solar construction services, including design and installations of residential and commercial solar systems.

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.

In April 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 continue to decline in future periods as existing customer contracts are completed.

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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.

Impairment expense and provision for beneficial interests (29,052) (4,974) (36,865) (4,974) The Company established a provision of $29.0 million and $5.9 million for beneficial interest in loan securitization investments during the third quarter and second quarter of 2024, respectively.

The Company also recognized a non-cash impairment charge of $1.9 million during the second quarter of 2024 related to the discontinuation of residential solar operations.

During the third quarter of 2023, the Company recognized an expense of $5.0 million related to operating lease assets and associated leasehold improvements.

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

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Cost to provide solar construction services 26,815 7,783 49,115 25,204 Represents direct costs to provide solar construction services.

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

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

During the third quarter of 2024, the Company recorded an expense of $8.8 million related to estimated losses on legacy construction projects.

The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024.

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 these projects.

Total cost of services 72,088 51,477 183,221 157,008

Operating expenses:

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.

Salaries and benefits 146,192 141,204 429,701 438,620 Increase for the quarterly period was primarily due to the recognition of $4.1 million restructuring charge related to staff reductions announced in June 2024 in LSS.

Decrease for the nine month period was primarily due to staff reductions in the first half of 2023 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, 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.

Depreciation and amortization 13,661 21,835 45,572 57,114 Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions.

Other expenses 59,792 45,997 116,637 86,781 Represents expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, reinsurance loss reserve and acquisitions costs, and certain information technology-related costs.

Other expenses 61,642 51,370 178,278 138,154 Includes expenses such as postage and distribution, consulting and professional fees, occupancy, communications, reinsurance loss reserve and acquisitions costs, and certain information technology-related costs.

Increase was driven by an increase in NFS due to reinsurance loss reserve and acquisition costs as a result of growth in reinsurance policies and in LSS due to additional postage and communication costs as a result of borrowers returning to repayment on September 1, 2023.

Total operating expenses 221,495 214,409 653,551 633,888

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

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

(Loss) income before income taxes (2,223) 50,119 150,141 107,819

Income tax (benefit) expense (282) 10,512 37,653 28,785 The year to date effective tax rate was 23.75% for the nine months ended September 30, 2024 compared with 22.75% for the same period in 2023.

Net (loss) income (1,941) 39,607 112,488 79,034

Net loss attributable to noncontrolling interests 4,329 4,747 8,398 18,705 Represents the net income/loss attributable to the holders of noncontrolling membership interests.

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Additional information:

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.

See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP financial information.

Net income attributable to Nelnet, Inc.

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

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

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

2024 2023 2024 2023 Additional information

Reinsurance premiums $ 16,619 6,287 44,250 10,638 See NFS division - results of operations - NFS other operating segments.

Investment activity, net (a) 8,529 (1,003) 7,447 (8,155) See note (b) below for additional information.

ALLO preferred return 4,783 2,299 11,353 6,822 See Corporate - results of operations.

Borrower late fee income 1,741 2,220 7,460 6,635 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.

Administration/sponsor fee income 1,420 1,712 4,448 5,180 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.

Investment advisory services (WRCM) 1,394 1,633 4,427 4,884 See NFS division - results of operations - NFS other operating segments.

Loss from ALLO voting membership interest investment (a) — (17,293) (10,693) (49,676) See Corporate - results of operations.

Loss from solar investments, net (a) (11,238) (6,456) (11,068) (19,485) See Corporate - results of operations.

Other 9,077 7,539 20,433 15,860

Other, net $ 32,325 (3,062) 78,057 (27,297)

(a) The Company anticipates fluctuations in future periodic earnings resulting from investment sales and valuation adjustments.

Investment activity by operating segment and investment type follows:

(a) The Company anticipates fluctuations in future periodic earnings resulting from investment purchases, sales, and valuation adjustments.

(b) Investment activity by operating segment and investment type follows:

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

Three months ended June 30,

Three months ended September 30,

NFS - AGM $ — 1,778 — 1,778 — (1,883) — (1,883)

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$ 2,116 4,475 1,938 8,529 75 (2,528) 1,450 (1,003)

Six months ended June 30,

Nine months ended September 30,

NFS - AGM $ — (600) — (600) — (4,532) (476) (5,008)

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Loan Servicing Volumes

September 30,

2024 June 30,

2024 March 31,

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2023 December 31,

Servicing volume (dollars in millions):

Servicing volume

(dollars in millions):

Government $ 492,142 $ 489,298 495,409 494,691 500,554 519,308 537,291 545,373

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After the invalidation of this broad-based relief plan, the Department announced plans to enter into a negotiated rulemaking process to achieve debt relief for federal student loan borrowers using provisions of the Higher Education Act (HEA).

Publicly available negotiated rulemaking sessions occurred in the fourth quarter of 2023 and the first quarter of 2024.

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.

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.

Revenue earned under the New Government Servicing Contract will decrease in future periods if the Department successfully implements its debt relief plan and/or if the Department initiates additional loan forgiveness or cancellation programs in the future.

Revenue earned under the New

Government Servicing Contract will decrease in future periods if the Department successfully implements its debt relief plan and/or if the Department initiates additional loan forgiveness or cancellation programs in the future.

Private Education Loan Servicing

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.

The conversion of these loans to the Company’s platform began in September 2024 with the majority of loan conversions anticipated to be completed in the fourth quarter of 2024.

Summary and Comparison of Operating Results

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

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

2024 2023 2024 2023 Additional information

Net interest income $ 1,258 1,058 3,152 2,095 Increase was due to higher interest rates.

Interest income $ 894 1,098 4,046 3,193 Decrease in the three months ended September 30, 2024 compared with the same period in 2023 was due to decrease in average balance of loan repayment funds held in custody for lenders.

Increase in the nine months ended September 30, 2024 compared with the same period in 2023 was due to higher interest rates partially offset by a decrease in average balance of loan repayment funds held in custody for lenders.

Loan servicing and systems revenue 108,175 127,892 344,428 389,138 See table below for additional information.

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Other income 690 687 2,085 1,900 Represents revenue earned from providing administrative support services.

Impairment expense — (296) — (296) The Company recorded an impairment charge in the third quarter of 2023 related to certain facilities, as a result of the Company's on-going evaluation of the use of office space when a large number of associates continued to work remotely.

Total other income 114,293 135,227 364,932 412,722

Salaries and benefits 70,631 76,141 147,353 160,701 Decrease was due to the Company being fully staffed at the beginning of 2023 with contact center operations and support associates as the Company prepared for expiration of the federal student loan payment pause under the CARES Act.

Salaries and benefits 76,820 73,310 224,172 234,012 Decrease in the nine months ended September 30, 2024 compared with the same period in 2023 was due to the Company being fully staffed at the beginning of 2023 with contact center operations and support associates as the Company prepared for expiration of the federal student loan payment pause under the CARES Act.

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.

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.

In June 2024, the Company announced an additional 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.

The Company estimates incurring a charge of $7.1 million related to these staff reductions, of which $2.1 million and $4.1 million was recognized during the second and third quarters of 2024, respectively.

The remaining expense will be recognized during the fourth quarter of 2024.

Increase in the three months ended September 30, 2024 compared with the same period in 2023 was due to the recognition of the $4.1 million restructure charge related to staff reductions announced in June 2024.

Depreciation and amortization 4,854 5,023 15,304 14,400

Other expenses 20,661 13,818 40,198 27,131 Increase was due to additional postage and communication costs due to borrowers returning to repayment on September 1, 2023.

Other expenses 19,663 15,629 59,861 42,760 Increase was due to additional postage and communication costs due to borrowers returning to repayment on September 1, 2023, and an increase in computer services and subscription costs.

Intersegment expenses 18,399 17,894 55,955 58,030 Represents costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.

Total operating expenses 119,736 111,856 355,292 349,202

Income before income taxes 2,243 17,028 18,234 42,246

Income tax expense (538) (4,086) (4,376) (10,139) Represents income tax expense at an effective tax rate of 24%.

Net income $ 1,705 12,942 13,858 32,107

(Loss) income before income taxes (4,549) 24,469 13,686 66,713

Income tax benefit (expense) 1,092 (5,872) (3,284) (16,011) Represents income tax expense/benefit at an effective tax rate of 24%.

Net (loss) income $ (3,457) 18,597 10,402 50,702

Before tax operating margin (4.0) % 18.1 % 3.8 % 16.2 % Before tax operating margin represents before tax operating profitability as a percentage of revenue, and for LSS is calculated as income before income taxes divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income.

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, 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 until the full cost savings from the June 2024 staff reductions are realized and revenue is generated from servicing the Discover portfolio.

Before tax operating margin decreased in 2024 compared with 2023 due primarily to a decrease in loan servicing and systems revenue as described in the table below, while operating expenses increased 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 contract with the Department, preparation of the conversion of the Discover portfolio, and an increase in postage and communication costs due to borrowers returning to repayment on September 1, 2023.

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 impact of its cost-saving measures take effect and revenue is generated from servicing the entire Discover portfolio after its full conversion to the Company's platform during the fourth quarter of 2024.

Loan servicing and systems revenue

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

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

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

2024 2023 2024 2023 Additional information

Government loan servicing $ 85,215 100,154 277,705 304,769 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.

The Company recognized revenue under the New Government Servicing Contract beginning April 1, 2024.

Decrease in the three months ended September 30, 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 in the nine months ended September 30, 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 12,959 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.

Private education and consumer loan servicing 13,057 12,330 38,634 36,556 Increase in the three months ended September 30, 2024 compared with the same period in 2023 was due to an increase in backup servicing volume and conversion revenue recognized from the Discover portfolio.

Increase in the nine months ended September 30, 2024 compared with the same period in 2023 was also due to rate increases based on contractual consumer price index changes.

FFELP loan servicing 2,945 3,304 9,570 10,226 Represents revenue from servicing third-party customers' FFELP portfolios.

1 unchanged sentence

Software services 5,197 9,416 14,617 25,076 Represents revenue from providing remote hosted servicing software to certain Department and other servicers and providing diversified technology services.

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.

Decrease was primarily due to (i) the transfer of all Department remote hosted borrowers to other third-party servicers throughout 2023 under the Department's legacy servicing contracts and (ii) the recognition of $4.8 million of revenue in the third quarter of 2023 associated with deconversion of remote hosted borrowers from a customer leaving the Company's platform.

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.

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Summary and Comparison of Operating Results

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

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

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.

Interest income $ 9,734 8,934 23,315 20,237 Represents interest income on tuition funds held in custody for schools.

Increase was due to higher balances and interest rates.

4 unchanged sentences

Cost of services 45,273 43,694 134,106 131,804 See table below for additional information.

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.

Salaries and benefits 41,053 39,776 121,956 116,040 Increase in the three months ended September 30, 2024 compared with the same period in 2023 was due to annual merit pay increases.

Increase in the nine months ended September 30, 2024 compared with the same period in 2023 was also due to an increase in headcount to support the growth of the customer base and the investment in the development of new technologies.

Depreciation and amortization 2,616 3,030 8,012 8,424

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.

Other expenses 7,614 8,309 23,772 26,063 Decrease was due to a decrease in consulting and professional services resulting from reduced outsourced work and an improvement in allowance for doubtful accounts period over period.

Decrease was partially offset by an increase in technology services.

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

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

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

2024 2023 2024 2023 Additional information

1 unchanged sentence

Payment processing 55,813 50,848 137,926 126,716 Increase was due to increase in payment volumes for both the K-12 and higher education markets due to new customers and an increase in volume from existing customers.

Education technology services 47,205 46,216 103,227 101,004 Increase was due to an increase in revenue from the Company’s school information system software and application and enrollment services.

This increase was partially offset by a decrease in FACTS learning management services revenue as a result of decrease in economic aid provided to private schools in response to the COVID 19 pandemic.

Education technology services 30,080 31,793 133,306 132,796 Decrease in the three months ended September 30, 2024 compared with the same period in 2023 was due to a decrease in FACTS learning management services revenue as a result of the wind down of economic aid provided to private schools in response to the COVID 19 pandemic.

Learning management instructional services revenue provided to private schools has been funded by the CARES Act and the Emergency Assistance to Non-Public Schools (EANS) programs.

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

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

Future instructional services revenue will be adversely impacted compared to recent historical results as a result of the EANS programs ending.

Revenue earned under the EANS programs was $2.4 million and $21.4 million for the three and nine month ended September 30, 2024 compared with $8.1 million and $40.3 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.

Increase in the nine months ended September 30, 2024 compared with the same period in 2023 was due to an increase in revenue from the Company’s school information system software and application and enrollment services.

This increase was partially offset by a decrease in FACTS learning management services revenue as described above.

Other 627 932 2,693 2,511

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Loan Portfolio

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.

As of September 30, 2024, the AGM operating segment had a $9.5 billion loan portfolio, consisting primarily of federally insured loans.

For a summary of the Company’s loan portfolio as of September 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 June 30, Six months ended June 30,

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

2024 2023 2024 2023

2 unchanged sentences

Federally insured student loans 104,914 2,880 104,914 518,471

Private education loans — 77,365 — 77,365

Consumer and other loans 129,202 29,413 405,211 340,091

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

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

As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2024, the Company’s ownership correlates to approximately $1.99 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.

Investment interest income earned by the Company from the beneficial interest in loan securitizations is included in "investment interest" 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 multiple extensions of the CARES Act payment pause on Department held loans and the initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs.

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

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Notably, the Department proposed forgiveness for certain groups of borrowers with privately-held FFELP loans without consolidation into the Federal Direct Loan Program as a prerequisite requirement for such forgiveness.

Publicly available negotiated rulemaking sessions occurred in the fourth quarter of 2023 and the first quarter of 2024.

Publicly available negotiated rulemaking sessions occurred in the fourth quarter of 2023 and the first quarter of 2024, including a session to discuss broad forgiveness for borrowers “experiencing financial hardship” (financial hardship).

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.

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 (including borrowers with privately-held FFELP loans) “experiencing financial hardship;” however, publication and comment period for such regulations are expected in early 2025, depending on the results of the presidential election.

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

The April 2024 draft publication did not include financial hardship regulations to provide forgiveness for borrowers (including borrowers with privately-held FFELP loans);

however, the Biden-Harris Administration released the text of the financial hardship Notice of Proposed Rulemaking on October 25, 2024.

The proposed rule is expected to be included in the Code of Federal Regulations in the coming weeks with a 30-day comment period.

Publication of the final rule will likely

depend on the outcome of the November 2024 election.

As of the date of this filing, the Biden-Harris Administration is preemptively prohibited from implementing any final rules born of the April 2024 draft publication due to an injunction ordered by the 8 th Circuit Court of Appeals.

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.

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.

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 not conferred 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 were effective July 1, 2024;

1 unchanged sentence

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.

As of the date of this filing, SAVE is not operational due to an 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.

During the forbearance period, borrowers will not have to make student loan payments, and no interest will accrue, however, the months in forbearance will not count toward any forgiveness.

The Biden-Harris Administration announced a six-month extension of the SAVE forbearance in late October 2024.

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.

Prepayments could significantly increase if the federal government and/or the Department initiate servicing contract modifications that impede the standing of States to challenge administrative actions, 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 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.

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of September 30, 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 nine months ended September 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

1 unchanged sentence

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,

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

2024 2023 2024 2023

1 unchanged sentence

Consolidation rebate fees (0.80) (0.80) (0.80) (0.80)

Discount accretion, net of premium and deferred origination costs amortization 0.07 0.06 0.07 0.05

Premium and deferred origination costs amortization, net of discount accretion (0.02) 0.06 0.04 0.05

Variable loan yield, net 7.34 6.96 7.34 6.76

8 unchanged sentences

Average balance of AGM's debt outstanding 9,296,236 12,527,771 10,280,527 12,964,890

(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.

(a) The Company recognized $5.6 million and $25.9 million in non-cash interest expense during the third quarter of 2024 and the second quarter of 2023, respectively, as a result of writing off the remaining unamortized debt discount related to the redemption of certain asset-backed debt securities prior to their maturity.

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

(b) Derivative settlements represent the cash paid or received during the respective 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.

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.

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 June 30, Six months ended June 30,

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

2024 2023 2024 2023

3 unchanged sentences

Loan spread 0.91 % 0.83 % 0.87 % 0.92 %

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

2 unchanged sentences

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 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.

This also results in student loan spread decreasing in the short term in a decreasing interest rate environment.

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

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

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

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

2024 2023 2024 2023

4 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 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 decrease in gross fixed rate floor income for the three and nine months ended September 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.

On March 15, 2023, to minimize the Company's exposure to market volatility and increase liquidity, the Company terminated its derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives).

Through March 15, 2023, the Company had received cash or had a receivable from its clearinghouse related to variation margin equal to the fair value of the $2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements.

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 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.

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 increase in net derivative settlements received by the Company in the three months ended September 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 nine months ended September 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 June 30, Six months ended June 30,

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

2024 2023 2024 2023 Additional information

1 unchanged sentence

Loan interest $ 180,571 230,816 583,907 689,633 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.

Investment interest 18,970 18,062 54,513 47,726 Increase in the three and nine months ended September 30, 2024 compared with the same periods in 2023 was due to an increase of interest earned on restricted cash due to higher balances and interest rates.

Increase in the nine months ended September 30, 2024 compared with the same period in 2023 was also due to an increase of interest earned on the Company's beneficial interest investments.

Total interest income 199,541 248,878 638,420 737,359

3 unchanged sentences

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

Decrease was due to a decrease in balances outstanding.

Increase in the three months ended September 30, 2024 compared with the same period in 2023 was due to an increase in interest rates and an increase in the weighted average balance of outstanding AGM issued bonds held by Nelnet, Inc.

Decrease for the nine months ended September 30, 2024 compared with the same period in 2023 was due to a decrease in the weighted average balance of outstanding AGM issued bonds held by Nelnet, Inc., partially offset by an increase in interest rates.

Intercompany interest is eliminated for consolidated financial reporting purposes.

Net interest income 38,399 51,485 114,742 118,454

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.

Less provision (negative provision) for loan losses 11,968 2,348 14,199 (772) See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for factors impacting provision (negative provision) for loan losses for the periods presented.

Net interest income after provision for loan losses 26,431 49,137 100,543 119,226

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.

Other income, net 4,918 2,776 11,239 6,939 Represents primarily borrower late fees, income from providing administration activities for third parties, sponsor fee income, and income/losses from AGM's investment in joint ventures.

See "Overview - Consolidated Results of Operations" for further detail included in other income.

Loss on sale of loans (107) (1,022) (1,685) (16,776) 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 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

Provision for beneficial interests (28,952) — (34,863) — During the second and third quarters of 2024, the Company recorded an allowance for credit losses (and related provision expense) related to the Company's beneficial interest in certain 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 1,359 621 4,356 23,940 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 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.

The decrease in net derivative settlements received by the Company for the nine months ended September 30, 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.

6 unchanged sentences

Total other income, net (32,300) 3,567 (23,828) (21,220)

Salaries and benefits 1,113 1,096 2,308 1,851 Increase was due to additional headcount as the Company actively expands into new asset loan classes.

Salaries and benefits 1,220 1,242 3,529 3,093 Increase in the nine months ended September 30, 2024 compared with the same period in 2023 was due to additional headcount as the Company actively expands into new asset loan classes.

Other expenses 2,775 2,952 9,985 12,083 Represents primarily servicing fees paid to third parties.

3 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.

Decrease was due to a decrease in servicing fees due to the amortization of the FFELP student loan portfolio serviced by LSS.

Total operating expenses 10,477 12,142 35,005 39,965

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

(Loss) income before income taxes (16,346) 40,562 41,710 58,041

Income tax benefit (expense) 3,923 (9,735) (10,010) (13,930) Represents income tax expense at an effective tax rate of 24%.

Net (loss) income $ (12,423) 30,827 31,700 44,111

Additional information:

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.

GAAP net (loss) income $ (12,423) 30,827 31,700 44,111 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP financial information.

Derivative market value adjustments, net 9,518 (1,192) 2,875 35,323

Tax effect (2,284) 286 (690) (8,478)

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

Non-GAAP net (loss) income, excluding derivative market value adjustments $ (5,189) 29,921 33,885 70,956

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,

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

2024 2023 2024 2023 Additional information

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Consolidation rebate fees (19,687) (26,143) (63,870) (81,753) Decrease was due to a decrease in the average consolidation loan balance.

Discount accretion, net of premium and deferred origination costs amortization 1,705 1,890 3,994 3,497 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.

Premium and deferred origination costs amortization, net of discount accretion (495) 1,940 3,500 5,437 Net premium amortization in the three months ended September 30, 2024 was due to consumer loans purchased at a premium during the third quarter of 2024.

Net discount accretion for the other periods presented was due to the Company's purchases of loans at a net discount over the last several years.

Variable interest income, net 180,346 230,366 583,344 687,617

Interest on bonds and notes payable (156,050) (194,098) (504,509) (594,764) 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.

In addition, the Company recognized a $5.6 million and $25.9 million non-cash expense during the third quarter of 2024 and second quarter of 2023, respectively, as the result of writing off the remaining unamortized debt discount related to the redemption of certain asset-backed debt securities prior to their maturity.

Derivative settlements, net (a) 159 386 773 1,180 Represents net derivative settlements received related to the Company’s 1:3 basis swaps.

Variable loan interest margin, net of settlements on derivatives 24,455 36,654 79,608 94,033

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Derivative settlements, net (a) 1,200 235 3,583 22,760 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 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 1,425 685 4,146 24,776

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Loan Portfolio

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.

As of September 30, 2024, Nelnet Bank had a $559.9 million loan portfolio, consisting of $352.7 million of private education loans and $207.2 million of consumer and other loans.

Loan Activity

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,

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

2024 2023 2024 2023

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Ending balance $ 559,872 468,813 559,872 468,813

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.

Subsequent to the end of the third quarter, on October 4, 2024, Nelnet Bank purchased a residual trust that included $133 million of private education loans, $7 million in cash and other assets, and $54 million of debt that finances the assets.

Nelnet Bank used deposits to fund the approximately $74 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 June 30, 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 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.

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

As of September 30, 2024, Nelnet Bank had $1.15 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 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.

Retail and other savings deposits and CDs include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), commercial and 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 June 30, 2024, Nelnet Bank’s deposits included $143.0 million from Nelnet, Inc.

As of September 30, 2024, Nelnet Bank’s deposits included $77.7 million from Nelnet, Inc.

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

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

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

Three months ended September 30, (a)

Nine months ended September 30, (a)

2024 2023 2024 2023

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Summary and Comparison of Operating Results

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

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

2024 2023 2024 2023 Additional information

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Net interest income after provision for loan losses 4,412 3,788 8,234 10,414

Other income 775 620 1,150 830 Represents primarily net gains and income from investments.

Derivative settlements, net 207 83 409 83 During the second and third quarter of 2023, Nelnet Bank entered into derivatives to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates.

Other income, net 841 565 1,991 1,395 Represents primarily net gains and income from investments.

Derivative settlements, net 281 196 690 279 Nelnet Bank's use of derivatives is to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates.

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

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Accordingly, all changes in fair value of such derivatives are recorded through earnings and presented as "derivative market value adjustments, net" in the statements of operations.

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

For additional information on Nelnet Bank's derivative portfolio, see note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

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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 $1.8 million and $3.5 million for the second quarter and first half of 2023, respectively.

The shared service and support costs incurred by the Company related to Nelnet Bank and not allocated to Nelnet Bank were $1.6 million and $5.1 million for the three and nine months ended September 30, 2023, respectively.

Total operating expenses 6,645 4,198 17,452 11,194

(Loss) income before income taxes (4,758) 2,299 (7,330) 3,951

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.

Income tax benefit (expense) 1,143 (552) 1,800 (913) Represents income tax expense at an effective tax rate of 24.0% for the three months ended September 30, 2024 and 2023, respectively, and 24.6% and 23.1% for the nine months ended September 30, 2024 and 2023, respectively.

Net (loss) income $ (3,615) 1,747 (5,530) 3,038

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Net (loss) income $ (3,615) 1,747 (5,530) 3,038

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.

See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional details about non-GAAP financial information.

Derivative market value adjustments, net 3,647 (1,948) 793 (3,057)

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

Three months ended June 30, 2024

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

Three months ended September 30, 2024

Investment interest $ 4 1,354 95 10,962 12,415

Interest expense — (463) — (1,782) (2,245)

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Income tax (expense) benefit (276) (227) (450) (2,388) (3,341)

Net (income) loss attributable to noncontrolling interests (141) — 12 — (129)

Net loss (income) attributable to noncontrolling interests (128) — 11 — (117)

Net income (loss) $ 872 717 1,426 7,565 10,580

Three months ended June 30, 2023

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

Three months ended September 30, 2023

Investment interest $ 3 411 141 12,466 13,021

Interest expense — — — (5,661) (5,661)

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Income tax (expense) benefit (325) (18) 7 (1,841) (2,177)

Net (income) loss attributable to noncontrolling interests (151) — 23 — (128)

Net loss (income) attributable to noncontrolling interests (150) — 1 — (149)

Net income (loss) $ 1,027 58 (23) 5,832 6,894

Six months ended June 30, 2024

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

Nine months ended September 30, 2024

Investment interest $ 11 3,693 380 39,826 43,910

Interest expense — (1,052) — (6,216) (7,268)

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Income tax (expense) benefit (871) (1,902) 525 (8,302) (10,550)

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

Net loss (income) attributable to noncontrolling interests (403) — 37 — (366)

Net income (loss) $ 2,759 6,023 (1,661) 26,288 33,409

Six months ended June 30, 2023

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

Nine months ended September 30, 2023

Investment interest $ 8 1,101 423 52,949 54,481

Interest expense — — — (24,860) (24,860)

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Income tax (expense) benefit (966) (323) (81) (6,047) (7,417)

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

Net loss (income) attributable to noncontrolling interests (447) — 29 — (418)

Net income (loss) $ 3,058 1,020 255 19,153 23,486

(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 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.

WRCM earned management and performance fees of $1.4 million and $1.6 million for the three months ended September 30, 2024 and 2023, respectively, and $4.4 million and $4.9 million for the nine months ended September 30, 2024 and 2023, respectively.

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

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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,

Three months ended Nine months ended

September 30, September 30,

2024 2023 2024 2023

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

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 Company recognized net gains from its real estate investments of $2.1 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and net losses of $1.5 million for the nine months ended September 30, 2024 compared with a gain of $0.5 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.

The net gain for the third quarter of 2024 also includes a $2.8 million gain from the sale of a real estate investment.

(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.

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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 June 30, 2024

Three months ended September 30, 2024

Investment interest $ — 1 1 — — 3,103 3,105

Interest expense — — (103) — — (601) (704)

Net interest income (expense) — 1 (102) — — 2,502 2,401

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Net (loss) income $ (7,818) (3,129) (7,695) 5,021 1,623 2,882 (9,116)

Three months ended June 30, 2023

Three months ended September 30, 2023

Investment interest $ — — 36 — — 3,196 3,232

Interest expense — — (108) — — (324) (432)

Net interest income (expense) — — (72) — — 2,872 2,800

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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

Nine months ended September 30, 2024

Investment interest $ — 2 32 — — 9,532 9,566

Interest expense — — (811) — — (1,303) (2,114)

Net interest income (expense) — 2 (779) — — 8,229 7,452

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Net (loss) income $ (22,336) (1,342) (13,117) 1,484 3,684 6,421 (25,206)

Six months ended June 30, 2023

Nine months ended September 30, 2023

Investment interest $ — — 136 — — 8,690 8,826

Interest expense — — (805) — — (988) (1,793)

Net interest income (expense) — — (669) — — 7,702 7,033

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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 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.

As of September 30, 2024, the Company has invested a total of $543.7 million (which includes $241.4 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 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.

Nelnet Renewable Energy recognized net losses on its tax equity investments of $11.2 million and $6.5 million for the three months ended September 30, 2024 and 2023, respectively, and $11.1 million and $19.5 million for the nine months ended September 30, 2024 and 2023, respectively.

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

The amount of net losses attributable to third-party noncontrolling interest investors for the three months ended September 30, 2024 and 2023 was $3.9 million and $3.3 million, respectively, and $5.6 million and $14.7 million for the nine months

ended September 30, 2024 and 2023, respectively.

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 $0.9 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.

Management fee income recognized by Nelnet Renewable Energy was $0.9 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively, and $2.5 million and $1.3 million for the nine months ended September 30, 2024 and 2023, respectively, which is included in "other income, net" in the table above.

During the third quarter of 2024, Nelnet Renewable Energy also recognized solar consulting revenue of $4.2 million.

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 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.

In addition, higher interest rates reduced residential demand and made community solar projects more costly.

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.

During the third quarter of 2024, the Company recorded an expense of $8.8 million related to estimated losses on legacy construction projects.

The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024.

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 these projects.

In April 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 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.

Residential solar construction revenue was $0.6 million and $2.1 million for the three months ended September 30, 2024 and 2023, respectively, and $3.3 million and $7.3 million for the nine months ended September 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.

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

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.

Under the HLBV method of accounting on its ALLO voting membership interests investment, the Company recognized no losses in the third quarter of 2024 compared with losses of $17.3 million for the same period in 2023 and losses of $10.7 million for the nine months ended September 30, 2024 compared with $49.7 million for the same period in 2023.

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

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.

As of September 30, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $184.0 million and $11.4 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.

During the second and third quarter of 2024, the Company purchased an additional $29.0 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 $4.8 million and $2.3 million for the three months ended September 30, 2024 and 2023, respectively, and $11.4 million and $6.8 million for the nine months ended September 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 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.

The Company adjusts the balance of this contingent liability each reporting period.

For the three and nine months ended September 30, 2024, the Company reduced the obligation resulting in an expense reduction of $2.1 million and $1.5 million, respectively, and for the three and nine months ended September 30, 2023, recognized expense of $0.7 million and $2.0 million, 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 has contributed an additional $40.0 million to Nelnet Bank since its inception.

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 $65.0 million to Nelnet Bank since its inception, including $30.0 million year to date through November 7, 2024.

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

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Sources of Liquidity

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

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

Cash and cash equivalents $ 219,684

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

Sources of liquidity as of June 30, 2024

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

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

During the nine months ended September 30, 2024 and 2023, the Company generated $482.4 million and $352.6 million, respectively, in cash from operating activities.

The increase in 2024 compared with 2023 was due to:

• An increase in net income;

• 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.

• Payments of $4.4 million to the Company's clearinghouse for margin payments on derivatives during the nine months ended September 30, 2024 compared with payments of $210.2 million for the same period in 2023;

• Adjustments to net income for the impact of provision for beneficial interests and provision for loan losses;

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

These factors were partially offset by:

• 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.

• Adjustments to net income for the non-cash change in loss on investments, derivative market value adjustments, loan discount and deferred lender fees accretion, and depreciation and amortization;

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

• The impact of changes to other liabilities, accrued interest payable, and accounts receivable during the nine months ended September 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, 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.

Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2024 was $2.1 billion and $2.7 billion, respectively.

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

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

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

As of June 30, 2024

As of September 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 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.

As of September 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 $1.18 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 reach a certain threshold.

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).

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

As of September 30, 2024, AGM had $8.4 billion of loans included in

asset-backed securitizations, which represented 87.6% of its total loan portfolio.

The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, its 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), loans acquired subsequent to September 30, 2024, and loans owned by Nelnet Bank.

Asset-backed Securitization Cash Flow Forecast

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(dollars in millions)

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 forecasted future undiscounted cash flows of approximately $1.18 billion include approximately $0.74 billion (as of September 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 $0.44 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 September 30, 2024 balance.

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

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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.

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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$0.75 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 $0.75 billion (as of June 30, 2024);

however, the Company would not receive the $0.44 billion ($0.33 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 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.

For a summary of the Company's warehouse facilities outstanding as of September 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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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.

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

Other Uses of Liquidity

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

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

The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of September 30, 2024, the fair value of these bonds was $227.3 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 entered into a repurchase agreement with a third party in which a portion of the risk retention investments serve as collateral on the repurchase obligations.

As of September 30, 2024, $108.2 million was outstanding on the Company's repurchase agreement and the maturity dates on this facility vary from November 27, 2024 through December 20, 2024.

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

As of September 30, 2024, $326.2 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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The agreement automatically renews annually and is terminable by either party upon five business days' notice.

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.

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 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.

As of September 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 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.

As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2024, the Company's ownership correlates to approximately $1.99 billion of loans included in these securitizations.

Investment 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.

As of September 30, 2024, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $218.7 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 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.

As of September 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 $328.2 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 ($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 difference between the total estimated future undiscounted cash flows from these residual interests ($328.2 million) and the investment carrying value ($218.7 million) of $109.5 million, or $83.2 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 September 30, 2024 balance.

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

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

For example, the Company established an allowance of $5.9 million and $29.0 million during the second and third quarter of 2024, respectively, related to certain of the Company's beneficial interest securitization investments.

The Company's change in estimate of future cash flows from the beneficial interest in certain loan securitizations was lower than previously anticipated due to actual and estimated loan defaults within such securitizations.

Liquidity Impact Related to Nelnet Bank

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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 June 30, 2024 with a leverage ratio of 12.3%.

Nelnet Bank has opted into the CBLR framework for the quarter ended September 30, 2024 with a leverage ratio of 12.4%.

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.

Since inception, the Company has made additional contributions of $65.0 million to Nelnet Bank, including $30.0 million year to date through November 7, 2024.

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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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.

Through September 30, 2024, the Company has invested a total of $543.7 million (which includes $241.4 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 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.

As of September 30, 2024, the Company is committed to fund an additional $107.9 million on tax equity investments, of which $89.5 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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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%.

During the second and third quarter of 2024, the Company purchased an additional $29.0 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 June 30, 2024, the accrued and unpaid preferred return was $6.6 million.

As of September 30, 2024, the accrued and unpaid preferred return was $11.4 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.

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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 September 30, 2024, ALLO has $1.1 billion (par value) of debt outstanding.

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

As of September 30, 2024, the estimated fair value of the contingent payment is $8.3 million.

Liquidity Impact Related to Hedging Activities

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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

Based on the derivative portfolio outstanding as of September 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 used by Nelnet Bank.

Unsecured Line of Credit

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

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

As of September 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.

On December 21, 2023, the Company entered into a $10.0 million participation agreement with a third-party, the proceeds of which are collateralized by consumer loans.

The third-party participant does not have the right to pledge, transfer, or otherwise dispose of their participation interest in all or any portion of the loans subject to this agreement.

As such, the consumer loans subject to this agreement are included on the Company's consolidated balance sheet and the participation interests outstanding have been accounted for by the Company as a secured borrowing.

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

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

As of September 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 first half of 2024 are shown below.

Shares repurchased by the Company during the first three quarters of 2024 are shown below, and include shares repurchased under the Company's stock repurchase program and shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares.

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 second quarter of 2024, see "Stock Repurchases" under Part II, Item 2 of this report.

For additional information on stock repurchases during the third 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)

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

Quarter ended September 30, 2024 5,259 576 109.62

Total 889,963 $ 82,887 93.14

(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.

(a) The average price of shares repurchased includes excise taxes.

On September 13, 2024, the Company paid a third 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 fourth quarter 2024 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share.

The fourth quarter cash dividend will be paid on December 16, 2024 to shareholders of record at the close of business on December 2, 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

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

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.

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 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.

For additional information regarding changes in the Company’s allowance for loan losses for the three and nine months ended September 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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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