NELNET INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three months ended March 31, 2025 and 2024. All dollars are in thousands, except per share amounts, unless otherwise noted.) The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion should be read in conjunction with the Company’s consolidated financial statements included in the 2024 Annual Report. Forward-looking and cautionary statements This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “continue,” “could,” “ensure,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2024 Annual Report and include such risks and uncertainties as: • risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and future servicing contracts with the Department, risks related to unfavorable contract modifications or interpretations, risks related to consistently meeting service requirements to avoid the assessment of performance penalties, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, FFEL Program, private education, and consumer loans; • loan portfolio risks such as credit risk, prepayment risk, interest rate basis and repricing risk, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, consumer, and other loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, consumer, and other loans; • financing and liquidity risks, including risks of changes in the interest rate environment; • risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets; • risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including disclosure of confidential or personal information and/or damage to reputation resulting from cyber breaches; • risks related to use of artificial intelligence; • uncertainties inherent in forecasting future cash flows from student loan assets, including investment interests therein, and related asset-backed securitizations; • risks related to the ability of Nelnet Bank to achieve its business objectives and effectively deploy loan and deposit strategies and achieve expected market penetration; • risks related to the expected benefits to the Company from its continuing investment in ALLO, and risks related to solar tax equity investments, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities; 32 • risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom) including venture capital and real estate investments, reinsurance, acquisitions, solar construction, and other activities (including risks associated with errors that occasionally occur in converting loan servicing portfolios to a new servicing platform), including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses; • risks and uncertainties associated with climate change; and • risks and uncertainties associated with litigation matters and maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, including changes to the regulatory environment from the change in presidential administration, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company’s consolidated financial statements. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by law. OVERVIEW The Company is a diversified hybrid holding company with primary businesses being consumer lending, loan servicing, payments, and technology – with many of these businesses serving customers in the education space. The largest operating businesses engage in loan servicing and education technology services and payments. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes and manages investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in a fiber communications company (ALLO), early-stage and emerging growth companies (venture capital investments), real estate, reinsurance, and renewable energy (solar). In the Nelnet Financial Services division, which includes Nelnet Bank, the Company is also actively expanding its private education, consumer, and other loan portfolios. Reclassification 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 months ended March 31, 2024. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report. GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments The Company prepares its financial statements and presents its financial results in accordance with GAAP. However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. 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, are provided below. Three months ended March 31, 2025 2024 GAAP net income attributable to Nelnet, Inc. $ 82,560 73,408 Realized and unrealized derivative market value adjustments (a) 6,324 (7,964) Tax effect (b) (1,519) 1,911 Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 87,365 67,355 Earnings per share: GAAP net income attributable to Nelnet, Inc. $ 2.26 1.98 Realized and unrealized derivative market value adjustments (a) 0.17 (0.22) Tax effect (b) (0.04) 0.05 Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 2.39 1.81 (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 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 are met. Management has structured all of the Company’s 33 derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting in the consolidated financial statements. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period. The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, 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 and represents what earnings would have been had these derivatives qualified for hedge accounting. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. (b) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate. Recent Development - Partial Redemption of ALLO Investment The Company has both a voting and preferred membership interest investment in ALLO. The Company's 45% voting membership interest in ALLO is accounted for under the Hypothetical Liquidation at Book Value (HLBV) method of accounting and as of March 31, 2025 has a carrying value of $0. As of March 31, 2025, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $225.6 million and $8.4 million, respectively. The Company earns a preferred return of 13.50% and 20.00% on $169.1 million and $56.5 million, respectively, of the Company's preferred membership interests of ALLO. In April 2025, the Company entered into an agreement pursuant to which ALLO will redeem certain of its membership interests. The Company expects ALLO to redeem all of the Company's outstanding preferred membership interests, including the accrued preferred return earned through the closing date, and a portion of the Company's voting membership interest. The transaction is expected to close in late May 2025. The Company expects to receive cash proceeds of approximately $410.0 million from ALLO for these redemptions and recognize a pre-tax gain of approximately $175.0 million. As a result of this transaction, Nelnet's ownership of ALLO will decrease from 45% to approximately 26%. Nelnet will continue to account for its remaining voting membership interest of ALLO under the HLBV method of accounting, with the carrying value of such interest remaining at $0 as of the closing date of the transaction. Operating Segments The Company's reportable operating segments are described in note 1 of the notes to consolidated financial statements included in the 2024 Annual Report. They include: • Loan Servicing and Systems (LSS) - referred to as Nelnet Diversified Services (NDS) • Education Technology Services and Payments (ETSP) - referred to as Nelnet Business Services (NBS) • Asset Generation and Management (AGM), part of the Nelnet Financial Services (NFS) division • Nelnet Bank, part of the NFS division The Company earns fee-based revenue through its NDS and NBS reportable operating segments. The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, through its AGM reportable operating segment. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes. The Company actively works to maximize the amount and timing of cash flows generated from its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow. Nelnet Bank operates as an internet industrial bank franchise focused on the private education and unsecured consumer loan markets, with a home office in Salt Lake City, Utah. Other operating segments included in the NFS division include the Company's U.S. Securities and Exchange Commission (SEC)-registered investment advisor subsidiary, property and casualty reinsurance activities, investment activities in real estate, and investment debt securities (primarily student loan and other asset-backed securities) and interest expense incurred on debt used to finance such investments. Other business activities and operating segments that are not reportable and not part of the NFS division are combined and included in Corporate and Other Activities ("Corporate"). Corporate also includes interest income earned on cash balances held at the corporate level and interest expense incurred on unsecured corporate related debt transactions, certain investment 34 activities including its investment in ALLO, early-stage and emerging growth companies (venture capital investments), and solar tax equity investments, the operating results of the Company's solar engineering, procurement, and construction business, and certain shared service activities that are allocated to each operating segment based on estimated use of such activities and services. In addition, Corporate includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs. The information below presents the operating results (net income (loss) before taxes) for each of the Company's reportable and certain other operating segments reconciled to the consolidated financial statements for the three months ended March 31, 2025 and 2024. 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 March 31, Certain Items Impacting Comparability (All dollar amounts below are pre-tax) 2025 2024 NDS $ 18,512 15,990 • An increase in before tax operating margin due to an increase in private education and consumer loan servicing volume and a decrease in total expenses obtained through cost-saving measures. This was partially offset by a decrease in government loan servicing revenue due to lower revenue earned on a per borrower blended basis under the new government servicing contract (which the Company began recognizing revenue under on April 1, 2024). NBS 47,462 47,635 • ETSP revenue increased to $147.3 million for the three months ended March 31, 2025 compared with $143.5 million for the same period in 2024. However, NBS experienced a decrease in before tax operating margin due to a decrease in FACTS education services revenue and an increase in operating expenses to support the growth in the customer base and investments in the development of new technologies. Net income and before tax operating margin will continue to be impacted by these items throughout 2025 compared with 2024. Nelnet Financial Services division: AGM 29,834 33,743 • The recognition of $13.0 million and $6.5 million in provision for loan losses for the three months ended March 31, 2025 and 2024, respectively. Increase was due to an increase of loan acquisitions in the first quarter of 2025. • A decrease of $9.1 million in investment interest income for the three months ended March 31, 2025 compared with the same period in 2024, due to a decrease of interest earned on restricted cash driven by lower balances and a decrease in interest rates and a decrease of interest income from beneficial interest investments. • A net loss of $3.8 million and net income of $5.7 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three months ended March 31, 2025 and 2024, respectively. • An increase in net loan interest income of $16.6 million for the three months ended March 31, 2025 compared with the same period in 2024, due to an increase in loan spread driven by an increase in consumer loans funded with operating cash (versus funded with debt), partially offset by a decrease in the average balance of loans. Nelnet Bank 1,952 1,147 • An increase of $4.8 million in net interest income for the three months ended March 31, 2025 compared with the same period in 2024 due to an increase in the average balance of loans and investments and an increase in net interest margin. • A net loss of $2.5 million and net income of $2.3 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three months ended March 31, 2025 and 2024, respectively. • The recognition of $2.3 million and $4.4 million of provision for loan losses for the three months ended March 31, 2025 and 2024, respectively. NFS other operating segments 10,060 13,762 • Net interest income earned on investment debt securities (primarily student loan and other asset-backed securities) was $6.8 million for the three months ended March 31, 2025 compared with $12.2 million for the same period in 2024. Corporate: Unallocated corporate costs (9,988) (10,045) Solar tax equity investments 1,205 2,314 • Includes operating results of the Company's tax equity investments in renewable energy solar partnerships. The Company accounts for these investments under the HLBV method of accounting, which commonly results in accelerated losses in the initial years of the investment. In the periods presented, these HLBV net losses are offset by gains recognized from sales of certain investments at the end of the contractual agreement (typically five years). These losses are also offset by revenue earned by the Company related to management, consulting, and performance fees provided on tax equity investments made by third parties. Due to the recognition pattern (accelerated losses in initial years and gains upon sale at the end of the contractual agreement), these investments may create volatility in earnings. • These results include results attributable to third-party noncontrolling interest investors. See note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information. Nelnet Renewable Energy - solar construction (6,575) (4,037) • Since the acquisition of GRNE Solar in 2022, the Company has incurred low and, in some cases, negative margins on certain legacy solar construction projects. The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024. Uncertain economic conditions have impacted the costs to complete existing construction contracts and new construction projects being initiated which may continue to negatively impact margins and revenue, respectively, in future periods. 35 ALLO investment 8,416 (8,593) • The recognition of no loss in the three months ended March 31, 2025 compared with a loss of $10.7 million for the same period in 2024 related to the Company's ALLO voting membership interest investment. The loss recognized in the first quarter of 2024 reduced the Company's carrying value of its voting membership interest to $0. Absent additional equity contributions with respect to ALLO's voting membership interest, the Company will not recognize additional losses for its voting membership interest in ALLO. • The recognition of income of $8.4 million on the Company's preferred membership interests in ALLO for the three months ended March 31, 2025 compared with $2.4 million for the same period in 2024. Venture capital investments 4,220 (704) • Includes operating results of the Company's venture capital investments. During the first quarter of 2025, the Company recognized income, net of losses, of $2.1 million from equity method investees, $1.7 million related to the periodic adjustment of certain fund investments to their respective fair value, and $0.6 million on certain measurement alternative investments as a result of observable price changes. Other corporate activities 946 2,723 Eliminations/reclassifications 97 — Net income before taxes 106,140 93,937 Income tax expense (25,010) (23,181) Net loss attributable to noncontrolling interests 1,430 2,652 • The majority of noncontrolling interests represents losses attributed to noncontrolling membership interests related to the Company’s solar tax equity investments. Net income $ 82,560 73,408 CONSOLIDATED RESULTS OF OPERATIONS An analysis of the Company's consolidated operating results for the three months ended March 31, 2025 compared with the same period in 2024 is provided below. The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 11 of the notes to consolidated financial statements included under Part I, Item 1 of this report. 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 March 31, 2025 2024 Additional information Loan interest $ 166,439 216,724 Decrease was due to a decrease in the average balance of loans and gross yield earned on loans. Investment interest 41,389 52,078 Includes income from unrestricted interest-earning deposits and investments, and restricted cash in asset-backed securitizations. Decrease was due to a decrease of interest earned on restricted cash in asset-backed securitizations due to lower balances and a decrease in interest rates and a decrease 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 207,828 268,802 Interest expense 125,114 194,580 Decrease was due to a decrease in the average balance of debt outstanding and decrease in cost of funds. Net interest income 82,714 74,222 Less provision for loan losses 15,337 10,828 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. Net interest income after provision for loan losses 67,377 63,394 Other income (expense): LSS revenue 120,741 127,201 See LSS operating segment - results of operations. ETSP revenue 147,330 143,539 See ETSP operating segment - results of operations. Reinsurance premiums earned 24,687 12,780 Represents premiums earned, net of ceded portion, from reinsurance treaties on property and casualty policies. Increase was primarily due to an increase in overall property volume and new business. Solar construction revenue 3,995 13,726 Represents revenue earned from Nelnet Renewable Energy (NRE) providing solar construction services, including design and installations of commercial solar systems. Other, net 23,694 4,082 See table below for the components of "other, net." Gain (loss) on sale of loans, net 909 (141) The Company recognizes gains/losses from selling loans. See NFS division - results of operations - AGM operating segment. 36 Derivative settlements, net 746 1,757 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See NFS division - results of operations - AGM and Nelnet Bank operating segments - for additional information. Derivative market value adjustments, net (6,324) 7,964 Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the periods presented related to the changes in fair value of the Company's floor income interest rate swaps and derivatives at Nelnet Bank. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps. Total other income (expense), net 315,778 310,908 Cost of services and expenses: Loan servicing contract fulfillment and acquisition costs 1,633 — Represents primarily the amortization of previously capitalized contract fulfillment costs. The costs were pre-contract costs incurred to enhance the resources of the Company to satisfy future performance obligations. Cost to provide education technology services and payments 48,047 48,610 Represents direct costs to provide payment processing and instructional services in ETSP. See ETSP operating segment - results of operations. Cost to provide solar construction services 7,828 14,229 Represents direct costs related to NRE providing solar construction services. Since the acquisition of GRNE Solar in 2022, it has incurred low and, in some cases, negative margins on certain legacy projects. The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024. Uncertain economic conditions have impacted the costs to complete existing construction contracts and new construction projects being initiated which may continue to negatively impact margins and revenue, respectively, in future periods. Total cost of services 57,508 62,839 Salaries and benefits 138,223 143,875 Decrease was primarily due to staff reductions announced in June 2024 in LSS after the completion of required servicing platform enhancements for the new government servicing contract and the transfer of direct loan serving volume to one platform. These staff reductions took place during the second half of 2024. Depreciation and amortization 9,255 16,769 Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions. Decrease was primarily due to reduction in depreciation due to prior year non-cash impairment charges recognized for lease, buildings, and associated improvements as the Company continues to evaluate the use of office space as it modifies its hybrid work model for associates. Reinsurance losses and underwriting expenses 22,212 11,317 Represents case reserve, estimated loss reserve, and amortization of acquisition costs, which consist primarily of commissions and brokerage expenses, net of ceded portion, from reinsurance treaties on property and casualty policies. Increase was primarily due to an increase in overall property volume and new business. Other expenses 48,226 45,528 Includes expenses such as postage and distribution, consulting and professional fees, occupancy, servicing fees, marketing, travel, communications, and certain information technology-related costs. Total operating expenses 217,916 217,489 Impairment expense and provision for beneficial interests 1,591 37 During 2025, the Company recorded an additional allowance of $1.5 million 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. Total expenses 277,015 280,365 Income before income taxes 106,140 93,937 Income tax expense 25,010 23,181 The effective tax rate was 23.25% and 24.00% for the three months ended March 31, 2025 and 2024, respectively. The Company expects its tax rate will range between 22% and 24% for the remainder of 2025. Net income 81,130 70,756 Net loss attributable to noncontrolling interests 1,430 2,652 Represents the net income/loss attributable to the holders of noncontrolling membership interests. The majority is attributed to noncontrolling membership interests related to the Company's solar tax equity investments. Net income attributable to Nelnet, Inc. $ 82,560 73,408 Additional information: 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. $ 82,560 73,408 Derivative market value adjustments, net 6,324 (7,964) Tax effect (1,519) 1,911 Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 87,365 67,355 37 The following table summarizes the components of "other, net" in "other income (expense)" on the consolidated statements of income. Three months ended March 31, 2025 2024 Additional information ALLO preferred return $ 8,416 2,409 See Corporate - results of operations. Investment activity, net (a) 5,161 (1,298) See note (b) below for additional information. Borrower late fee income 1,587 3,133 See NFS division - results of operations - AGM operating segment. Investment advisory services (WRCM) 1,473 1,508 See NFS division - results of operations - NFS other operating segments. Administration/sponsor fee income 1,305 1,546 See NFS division - results of operations - AGM operating segment. Gain from solar investments, net (a) 456 2,780 See Corporate - results of operations and note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report. Loss from ALLO voting membership interest investment (a) — (10,693) See Corporate - results of operations. Other 5,296 4,697 Other, net $ 23,694 4,082 (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 March 31, 2025 2024 NFS - AGM $ — 1,047 — 1,047 — 322 — 322 NFS - Nelnet Bank — (62) 287 225 — (179) 529 350 NFS - Other Operating Segments (1,643) — 1,040 (603) (1,794) — 212 (1,582) Corporate — 4,492 — 4,492 — (388) — (388) $ (1,643) 5,477 1,327 5,161 (1,794) (245) 741 (1,298) 38 LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS Loan Servicing Volumes As of March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Servicing volume (dollars in millions): Government $ 482,786 489,877 492,142 489,298 495,409 494,691 FFELP 12,826 13,260 13,745 14,576 15,783 17,462 Private and consumer 46,728 29,226 20,666 19,876 21,015 20,493 Total $ 542,340 532,363 526,553 523,750 532,207 532,646 Number of servicing borrowers: Government 13,453,127 14,049,550 14,114,468 14,096,152 14,328,013 14,503,057 FFELP 524,421 549,861 574,979 610,745 656,814 725,866 Private and consumer 1,645,423 1,168,293 851,747 829,072 882,256 894,703 Total 15,622,971 15,767,704 15,541,194 15,535,969 15,867,083 16,123,626 Number of remote hosted borrowers: 1,427,800 842,200 662,075 133,681 65,295 70,580 Summary and Comparison of Operating Results Three months ended March 31, 2025 2024 Additional information Interest income $ 721 1,894 Represents interest income on cash balances primarily collected from borrower remittances that are subsequently disbursed to servicing customers (lenders). Decrease was due to decrease in average balance of loan repayment funds held in custody for lenders and a decrease in interest rates. Loan servicing and systems revenue 120,741 127,201 See table below for additional information. Intersegment servicing revenue 5,684 6,886 Represents revenue earned by LSS from servicing loans for AGM and Nelnet Bank. Decrease was due to the continued amortization of AGM's FFELP portfolio. Intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off. Other income 112 710 Represents revenue earned from providing administrative support services. Total other income 126,537 134,797 Contract fulfillment and acquisition costs 1,633 — Represents primarily the amortization of previously capitalized contract fulfillment costs. The costs were pre-contract costs incurred to enhance the resources of the Company to satisfy future performance obligations. Salaries and benefits 69,574 76,722 Decrease was due to staff reductions announced in June 2024 after the completion of required servicing platform enhancements for the new government servicing contract and the transfer of direct loan servicing volume to one platform. These staff reductions took place during the second half of 2024. Depreciation 2,654 5,109 Decrease was due to certain information technology activities moved to cloud computing and incurred at the corporate level and such costs are classified as other expenses and intercompany expenses, respectively. Postage expense 7,575 10,605 Decrease was due to a non-recurring volume based credit earned from the Company's mail provider and recognized in the first quarter of 2025. The volume increase was a result of additional mailings as borrowers returned to repayment under the government servicing contract and consumer borrower growth. Other expenses 10,832 8,933 The total of other expenses and intercompany expenses decreased due to moving to one platform in 2024 and continued focus on expense reductions. Intersegment expenses represents costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Intersegment expenses 16,478 19,332 Total operating expenses 107,113 120,701 Total expenses 108,746 120,701 Income before income taxes 18,512 15,990 Income tax expense (4,443) (3,838) Represents income tax expense at an effective tax rate of 24%. Net income $ 14,069 12,152 39 Before tax operating margin 14.8 % 11.9 % Before tax operating margin is a measure of 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 (less contract fulfillment and acquisition costs), 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 increased due to an increase in private education and consumer loan servicing volume and a decrease in total expenses obtained through cost-saving measures executed in 2024. This was partially offset by a decrease in government loan servicing revenue due to lower revenue earned on a per borrower blended basis under the new government servicing contract. Loan servicing and systems revenue The following table presents disaggregated revenue by service offering for each reporting period. Three months ended March 31, 2025 2024 Additional information Government loan servicing $ 87,358 105,474 Represents revenue from the Company's servicing contract with the Department. The Company recognized revenue under the new government servicing USDS contract beginning April 1, 2024. Decrease was due to lower revenue earned on a per borrower blended basis under the new contract as compared with the government legacy contract and a decrease in the number of borrowers serviced. The Company expects the number of borrowers serviced under this contract will continue to decrease as volume is transferred from the Company to its remote hosted servicing customer. Private education and consumer loan servicing 22,696 12,620 Increase was due to an increase in loan servicing volume from the conversion of Discover Financial Services and SoFi Lending Corp. loan portfolios during the fourth quarter of 2024 and first quarter of 2025. FFELP loan servicing 2,633 3,380 Represents revenue from servicing third-party customers' FFELP portfolios. Over time, FFELP servicing revenue will decrease as third-party customers' FFELP portfolios pay off. Software services 6,992 4,541 Represents revenue from providing remote hosted servicing software to certain Department and other servicers and providing diversified technology services. Increase was primarily due to the Company's recognition of revenue beginning in the second quarter of 2024 from a new remote hosted servicing customer awarded a USDS contract. The Company expects software services revenue to increase in future periods as additional volume is transferred from the Company to this new remote hosted servicing customer. Outsourced services 1,062 1,186 Represents revenue from providing contact center and back office operational outsourcing services. Loan servicing and systems revenue $ 120,741 127,201 40 EDUCATION TECHNOLOGY SERVICES AND PAYMENTS OPERATING SEGMENT – RESULTS OF OPERATIONS As discussed further in the Company's 2024 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and before tax operating margin are higher in the first quarter compared with the remainder of the year. Summary and Comparison of Operating Results Three months ended March 31, 2025 2024 Additional information Interest income $ 6,939 7,866 Represents interest income on tuition funds held in custody for schools. Decrease was due to a decrease in interest rates partially offset by higher balances. Education technology services and payments revenue 147,330 143,539 See table below for additional information. Intersegment revenue 64 49 Total other income 147,394 143,588 Cost of services 48,047 48,610 See table below for additional information. Salaries and benefits 41,741 40,167 Increase was 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 2,430 2,683 Other expenses 9,048 7,558 Increase was due to an increase in technology services and professional fees. Intersegment expenses, net 5,605 4,801 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 58,824 55,209 Total expenses 106,871 103,819 Income before income taxes 47,462 47,635 Income tax expense (11,402) (11,435) Represents income tax expense at an effective tax rate of 24%. Net income 36,060 36,200 Net loss attributable to noncontrolling interests 45 17 Amounts for noncontrolling interests reflect the net loss attributable to the holders of minority membership interests in NextGen. In April 2025, the Company acquired the remaining 20.0% of NextGen for $3.9 million. Net income $ 36,105 36,217 The Company expects net income to be impacted in 2025 compared with 2024 due to a decrease in contribution from FACTS education services as a result of the end of funding of the EANS program in 2024 as described in the revenue table below and an increase in operating expenses to support the growth in the customer base and investments in the development of new technologies. 41 Education technology services and payments revenue The following table presents disaggregated revenue by service offering and before tax operating margin for each reporting period. Three months ended March 31, 2025 2024 Additional information Tuition payment plan services $ 40,072 38,880 Increase was due to a higher number of payment plans in the K-12 and higher education markets for both new and existing customers. Payment processing 51,536 47,786 Increase was due to an 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 55,695 56,021 Decrease was due to a decrease in FACTS education services revenue which resulted from the wind down of economic aid provided to private schools in response to the COVID 19 pandemic. Instructional services revenue provided to private schools has been funded by the Emergency Assistance to Non-Public Schools (EANS) program. The EANS II program funding ended on September 30, 2024. Although schools still have allocated funds to spend, future instructional services revenue will be adversely impacted compared to recent historical results as a result of the EANS funding ending in 2024. Revenue earned under the EANS program was $10.1 million for the three months ended March 31, 2024 compared with $1.6 million for the three months ended March 31, 2025. This decrease was partially offset by an increase in revenue from the Company’s professional development services, financial aid management, enrollment services, and instructional services from non-EANS funding sources. Other 27 852 Education technology services and payments revenue 147,330 143,539 Cost of services 48,047 48,610 Represents direct costs to provide payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also a component of this expense and decrease/increase in relationship to instructional services revenues. Net revenue $ 99,283 94,929 GAAP before tax operating margin 47.8 % 50.2 % Before tax operating margin, excluding net interest income, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the ETSP segment is calculated as income before income taxes less net interest income divided by net revenue. 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 facilitates 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, excluding net interest income, decreased due to a decrease in FACTS education services revenue and an increase in operating expenses to support the growth in the customer base and investments in the development of new technologies. Before tax operating margin will continue to be impacted by these items throughout 2025 compared with 2024. Net interest income (7.0) (8.3) Non-GAAP before tax operating margin, excluding net interest income 40.8 % 41.9 % 42 NELNET FINANCIAL SERVICES DIVISION - RESULTS OF OPERATIONS Asset Generation and Management Operating Segment Loan Portfolio As of March 31, 2025, the AGM operating segment had a $9.3 billion loan portfolio, consisting primarily of federally insured loans. For a summary of the Company’s loan portfolio as of March 31, 2025 and December 31, 2024, 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: FFELP Private Consumer and other Total Three months ended March 31, 2025 Balance as of December 31, 2024 $ 8,388,564 221,744 345,560 8,955,868 Loan acquisitions 702,800 — 129,787 832,587 Repayments, claims, capitalized interest, participations, and other, net (230,558) (12,535) (93,984) (337,077) Loans lost to external parties (58,764) (702) — (59,466) Loans sold (131,758) — (148) (131,906) Balance as of March 31, 2025 $ 8,670,284 208,507 381,215 9,260,006 Three months ended March 31, 2024 Balance as of December 31, 2023 $ 11,686,207 277,320 85,935 12,049,462 Loan acquisitions — — 80,730 80,730 Repayments, claims, capitalized interest, participations, and other, net (324,953) (14,591) (10,952) (350,496) Loans lost to external parties (778,508) (1,147) — (779,655) Loans sold (199,694) — (405) (200,099) Balance as of March 31, 2024 $ 10,383,052 261,582 155,308 10,799,942 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 "other investments and notes receivable, net" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2025, the Company’s ownership correlates to approximately $1.82 billion of loans included in these securitizations. The loans held in these securitizations are not included in the above table. 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. Beginning in late 2021, the Company 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 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 various programs. However, the Company has experienced a significant decrease in FFELP borrowers consolidating their loans into the Federal Direct Loan Program since August 2024 that has resulted in prepayment rates on the Company’s FFELP portfolio being more consistent with longer-term historical rates. Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs For a summary of the allowance as a percentage of the ending balance, loan status, delinquency amounts, and other key credit quality indicators for each of AGM’s loan portfolios as of March 31, 2025 and December 31, 2024; and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2025 and 2024, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report. 43 Loan Spread Analysis The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net loan interest income, including settlements on derivatives" below, divided by the average balance of loans or debt outstanding. Three months ended March 31, 2025 2024 Variable loan yield, gross 7.43 % 7.99 % Consolidation rebate fees (0.79) (0.80) Premium and deferred origination costs amortization, net of discount accretion (0.13) 0.09 Variable loan yield, net 6.51 7.28 Loan cost of funds - interest expense (5.39) (6.50) Loan cost of funds - derivative settlements (a) (b) 0.01 0.01 Variable loan spread 1.13 0.79 Fixed rate floor income, gross 0.04 0.01 Fixed rate floor income - derivative settlements (a) (c) 0.02 0.04 Fixed rate floor income, net of settlements on derivatives 0.06 0.05 Core loan spread 1.19 % 0.84 % Average balance of AGM's loans $ 9,544,317 11,561,504 Average balance of AGM's debt outstanding 8,451,699 11,387,400 (a) 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. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. 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. 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 2025 and 2024 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 5 and in this table. A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without derivative settlements follows. Three months ended March 31, 2025 2024 Core loan spread 1.19 % 0.84 % Derivative settlements (basis swaps) (0.01) (0.01) Derivative settlements (fixed rate floor income) (0.02) (0.04) Loan spread 1.16 % 0.79 % (b) Derivative settlements consist of net settlements received related to the Company’s basis swaps. (c) Derivative settlements consist of net settlements received related to the Company’s floor income interest rate swaps. The relationship between the indices in which AGM earns interest on its loans and funds such loans has a significant impact on loan spread. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets. In an increasing interest rate environment, student loan spread on FFELP loans increases in the short term because of the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest rate resets on the Company's debt occurring either monthly or quarterly. This also results in student loan spread decreasing in the short term in a decreasing interest rate environment. 44 Variable loan spread was higher during the three months ended March 31, 2025 compared with the same period in 2024 due to an increase in consumer loans funded by the Company with operating cash (versus funded with debt). 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. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM's federally insured student loans earning fixed rate floor income. Summary and Comparison of Operating Results Three months ended March 31, 2025 2024 Additional information Interest income: Loan interest $ 154,469 209,628 See table below for additional analysis. Investment interest 12,769 21,835 Represents primarily investment interest earned on beneficial interest investments and restricted cash included in student loan securitizations and other secured borrowings. Decrease was due to a decrease of interest earned on restricted cash due to lower balances and a decrease in interest rates and a decrease of interest earned on beneficial interest investments. AGM earned $8.7 million and $13.1 million of interest income on beneficial interest investments for the three months ended March 31, 2025 and 2024, respectively. Total interest income 167,238 231,463 Loan interest expense 112,411 184,145 See table below for additional analysis. Intercompany interest expense 1,892 6,760 Represents interest paid by AGM to Nelnet, Inc. (parent company) related to (i) internal borrowings to fund equity advances on certain AGM debt facilities; and (ii) AGM issued bonds held by Nelnet, Inc. Decrease was due to a decrease in interest rates and a decrease in the weighted average balance of outstanding AGM issued bonds held by Nelnet, Inc. Intercompany interest is eliminated for consolidated financial reporting purposes. Net interest income 52,935 40,558 Less provision for loan losses 13,012 6,455 See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for factors impacting provision for loan losses for the periods presented. Net interest income after provision for loan losses 39,923 34,103 Other income, net 3,995 4,983 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. Decrease was primarily due to a decrease in borrower late fees due to the continued amortization of the Company's FFELP portfolio. Gain (loss) on sale of loans, net 909 (141) The Company recognizes gains/losses from selling portfolios of loans. See above under "Loan Activity" for loans sold during the three months ended March 31, 2025 and 2024. Derivative settlements, net 582 1,555 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below. Derivative market value adjustments, net (3,795) 5,706 Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the periods presented related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps. Total other income, net 1,691 12,103 Salaries and benefits 1,221 1,195 Servicing fees 6,911 8,951 Represents servicing fees paid to (i) third parties and (ii) LSS for the servicing of AGM’s loans. The amounts paid to LSS exceed the actual cost of servicing the loans. Decrease was due to the amortization of the FFELP student loan portfolio, the majority of which is serviced by LSS. Intercompany servicing expense of $4.9 million and $6.6 million during the three months ended March 31, 2025 and 2024, respectively, was eliminated for consolidated financial reporting purposes. Other expenses 888 1,109 Intersegment expenses 1,250 1,208 Includes costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Total operating expenses 10,270 12,463 Total operating expenses were 43 basis points of the average balance of loans in each of 2025 and 2024, respectively. Provision for beneficial interests 1,510 — During 2025, the Company recorded an additional 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. Total expenses 11,780 12,463 Income before income taxes 29,834 33,743 45 Income tax expense (7,156) (8,099) Represents income tax expense at an effective tax rate of 24%. Net income 22,678 25,644 Net income attributable to noncontrolling interests (17) — Net income $ 22,661 25,644 Additional information: GAAP net income $ 22,661 25,644 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP financial information. Increase in net income, excluding derivative market value adjustments, was due to an increase in net loan interest income and a decrease in intercompany interest expense, partially offset by a decrease in investment interest income and an increase in provision for loan losses. Derivative market value adjustments, net 3,795 (5,706) Tax effect (911) 1,369 Non-GAAP net income, excluding derivative market value adjustments $ 25,545 21,307 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 March 31, 2025 2024 Additional information Variable interest income, gross $ 175,306 230,217 Decrease was due to a decrease in the average balance of loans and gross yield earned on loans. Consolidation rebate fees (18,748) (23,057) Decrease was due to a decrease in the average consolidation loan balance. Premium and deferred origination costs amortization, net of discount accretion (3,064) 2,288 Net premium amortization in the three months ended March 31, 2025 was due to consumer and other loans purchased at a premium during 2024 and the first quarter of 2025 that have a short estimated life, offset by purchases of loans at a net discount over the last several years that have substantially longer estimated lives. Net discount accretion for the three months ended March 31, 2024 was due to the Company's purchases of loans at a net discount over the last several years. Variable interest income, net 153,494 209,448 Interest on bonds and notes payable (112,411) (184,145) Decrease was due to a decrease in the average balance of debt outstanding and cost of funds. Derivative settlements, net (a) 153 365 Represents net derivative settlements received related to the Company’s basis swaps. Variable loan interest margin, net of settlements on derivatives 41,236 25,668 Fixed rate floor income, gross 975 180 Increase was due to lower interest rates. Derivative settlements, net (a) 429 1,190 Represents net derivative settlements received related to the Company's floor income interest rate swaps. Fixed rate floor income, net of settlements on derivatives 1,404 1,370 Net loan interest income, including derivative settlements (core loan interest income) (a) $ 42,640 27,038 (a) Net loan interest income, including derivative settlements (core loan interest income) is a non-GAAP financial measure. For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the limitations thereof), see footnote (a) to the table immediately under the caption “Loan Spread Analysis” above. See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2025 and 2024 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. 46 Nelnet Bank Operating Segment Loan Portfolio As of March 31, 2025, Nelnet Bank had a $761.6 million loan portfolio. For a summary of the Company’s loan portfolio as of March 31, 2025 and December 31, 2024, 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 Nelnet Bank operating segment: FFELP Private Consumer and other Total Three months ended March 31, 2025 Balance as of December 31, 2024 $ — 482,445 162,152 644,597 Loan acquisitions and originations 111,002 29,041 4,555 144,598 Repayments (815) (22,035) (4,712) (27,562) Balance as of March 31, 2025 $ 110,187 489,451 161,995 761,633 Three months ended March 31, 2024 Balance as of December 31, 2023 $ — 360,520 72,352 432,872 Loan acquisitions and originations — 16,715 56,847 73,562 Repayments — (12,469) (10,242) (22,711) Balance as of March 31, 2024 $ — 364,766 118,957 483,723 Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs For a summary of the allowance as a percentage of the ending balance, loan status, delinquency amounts, and other key credit quality indicators for each of Nelnet Bank's loan portfolios as of March 31, 2025 and December 31, 2024; and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2025 and 2024, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report. Deposits As of March 31, 2025, Nelnet Bank had $1.38 billion of deposits, which included $68.6 million from Nelnet, Inc. (parent company) and its subsidiaries (intercompany), and thus have been eliminated for consolidated financial reporting purposes. For a summary of deposits as of March 31, 2025 and December 31, 2024, see note 9 of the notes to consolidated financial statements included under Part I, Item 1 of this report. 47 Average Balance Sheet The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities. Three months ended March 31, (a) 2025 2024 Balance Rate Balance Rate Average assets Federally insured student loans $ 25,621 6.55 % $ — — % Private education loans 489,211 6.10 366,858 4.28 Consumer and other loans 162,602 10.47 97,136 13.23 Cash and investments 793,537 6.39 577,947 6.94 Total interest-earning assets 1,470,971 6.75 % 1,041,941 6.59 % Non-interest-earning assets 14,646 12,767 Total assets $ 1,485,617 $ 1,054,708 Average liabilities and equity Brokered deposits $ 249,259 1.95 % $ 204,651 1.39 % Intercompany deposits 72,836 3.41 160,349 4.90 Retail and other deposits 962,954 4.21 544,136 4.90 Federal funds purchased and other borrowed money 10,404 4.69 — — Total interest-bearing liabilities 1,295,453 3.73 % 909,136 4.11 % Non-interest-bearing liabilities 8,602 8,477 Equity 181,562 137,095 Total liabilities and equity $ 1,485,617 $ 1,054,708 Net interest margin 3.46 % 3.00 % (a) Calculated using average daily balances. 48 Summary and Comparison of Operating Results Three months ended March 31, 2025 2024 Additional information Interest income: Loan interest $ 11,971 7,096 Represents interest earned on loans. Increase was due to an increase in the balance and mix of loans. Investment interest 12,496 9,968 Represents interest earned on cash and investments. Increase was due to an increase of these balances, partially offset by a decrease in interest rates. Total interest income 24,467 17,064 Interest expense 12,077 9,497 Represents interest expense on deposits. Increase was due to an increase in the balance of deposits, partially offset by a decrease in interest rates. Net interest income 12,390 7,567 Provision for loan losses 2,325 4,373 Decrease was due to the mix of loans originated, acquired, and outstanding during each period. See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information. Net interest income after provision for loan losses 10,065 3,194 Other income, net 142 375 Represents primarily net gains and income from investments. Derivative settlements, net 164 202 Nelnet Bank uses derivatives to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates. Nelnet Bank has designated its derivative instruments as cash flow hedges; however, because the hedged items are intercompany deposits, the derivative instruments are not eligible for hedge accounting in the consolidated financial statements. 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. Derivative market value adjustments, net (2,529) 2,258 Total other income, net (2,223) 2,835 Salaries and benefits 2,816 2,721 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor. Depreciation 339 260 Servicing fees 667 233 Represents primarily fees paid to LSS for servicing certain of Nelnet Bank's loans. Intercompany servicing of $0.5 million and $0.2 million for the three months ended March 31, 2025 and 2024, respectively, was eliminated for consolidated financial reporting purposes. Other expenses 1,358 1,111 Represents various expenses such as marketing, consulting and professional fees, software, insurance, and management fees. Increase was due to the overall growth of Nelnet Bank activities. Intersegment expenses 710 557 Intersegment expenses include 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 5,890 4,882 Income before income taxes 1,952 1,147 Income tax expense (434) (259) Represents income tax expense at an effective tax rate of 22.2% and 22.6% for the three months ended March 31, 2025 and 2024, respectively. Net income $ 1,518 888 Additional information: Net income $ 1,518 888 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 2,529 (2,258) Tax effect (607) 542 Net income (loss), excluding derivative market value adjustments $ 3,440 (828) 49 NFS Other Operating Segments The following table summarizes the operating results of other operating segments included in NFS that are not reportable. Income taxes are allocated based on 24% of income (loss) before taxes for each activity. Summary and Comparison of Operating Results WRCM (a) Nelnet Insurance Services (b) Real estate investments (c) Investment securities (d) Total Three months ended March 31, 2025 Investment interest $ 4 1,994 — 6,822 8,820 Interest expense — (769) — (1) (770) Net interest income 4 1,225 — 6,821 8,050 Reinsurance premiums earned — 24,687 — — 24,687 Other income, net 1,473 574 (1,643) 706 1,110 Salaries and benefits (32) (249) (197) — (478) Reinsurance losses and underwriting expenses — (22,212) — — (22,212) Other expenses (63) (677) (31) (1) (772) Intersegment expenses, net (4) (109) (99) (32) (244) Impairment expense — — (81) — (81) Income (loss) before income taxes 1,378 3,239 (2,051) 7,494 10,060 Income tax (expense) benefit (298) (777) 489 (1,799) (2,385) Net (income) loss attributable to noncontrolling interests (138) — 14 — (124) Net income (loss) $ 942 2,462 (1,548) 5,695 7,551 Three months ended March 31, 2024 Investment interest $ 3 818 141 14,654 15,616 Interest expense — — — (2,418) (2,418) Net interest income 3 818 141 12,236 13,198 Reinsurance premiums earned — 12,780 — — 12,780 Other income, net 1,477 286 (1,794) 192 161 Salaries and benefits (55) (114) (189) — (358) Reinsurance losses and underwriting expenses — (11,317) — — (11,317) Other expenses (75) (340) (70) — (485) Intersegment expenses, net (4) (47) (130) (36) (217) Impairment expense — — — — — Income (loss) before income taxes 1,346 2,066 (2,042) 12,392 13,762 Income tax (expense) benefit (291) (496) 487 (2,974) (3,274) Net (income) loss attributable to noncontrolling interests (135) — 15 — (120) Net income (loss) $ 920 1,570 (1,540) 9,418 10,368 (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 and performance fees of $1.5 million for each of the three months ended March 31, 2025 and 2024. Fees earned by WRCM are included in "other income, net" in the table above. (b) Represents the operating results of the Company’s reinsurance treaties on property and casualty policies and the Company’s Nebraska chartered life and health company, which is in run-off mode and reinsures a decreasing term life insurance product distributed to FACTS. Increase in insurance premiums in the first quarter of 2025 compared with the same period in 2024 was primarily due to an increase in overall property volume and new business. (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 $1.6 million and $1.8 million for the three months ended March 31, 2025 and 2024, respectively, which are included in "other income, net" in the table above. The net losses recognized relates primarily to the Company's proportionate share of certain real estate investments accounted for under the equity method. (d) Represents interest income earned on investment debt securities (primarily student loan and other asset-backed securities, including Nelnet-owned asset-backed securities which it has repurchased and are eliminated in consolidation), interest income on certain notes receivable, unrealized gains/losses on marketable equity securities, realized gains/losses on marketable equity securities and investment debt securities, and other costs to manage these investments. Also includes interest expense incurred on debt used to finance such investments. The decrease in interest income and interest expense in 2025 compared with 2024 was primarily due to a decrease in the average balance of investments and debt outstanding, respectively, and a decrease in interest rates. As of December 31, 2024, the majority of debt used to finance such investments had been repaid. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate and Market Risk - Investments," which provides additional detail on NFS's investment debt securities. 50 CORPORATE AND OTHER ACTIVITIES – RESULTS OF OPERATIONS Other business activities and operating segments that are not reportable and not part of the NFS division are combined and included in Corporate and Other Activities (“Corporate”). The following table summarizes the operating results of these activities. Income taxes are allocated based on 24% of income (loss) before taxes for each activity. The difference between the Corporate income tax expense and the sum of taxes calculated for each activity is included in income taxes in “other” in the table below. Summary and Comparison of Operating Results Shared services (a) Solar tax equity investments (b) Nelnet Renewable Energy (c) ALLO investment (d) Venture capital investments (e) Other Total Three months ended March 31, 2025 Investment interest $ — 5 — — — 2,307 2,312 Interest expense — — (2) — — (631) (633) Net interest income (expense) — 5 (2) — — 1,676 1,679 Solar construction revenue — — 3,995 — — — 3,995 Other income, net 619 1,730 — 8,416 4,492 2,981 18,238 Cost to provide solar construction services — — (7,828) — — — (7,828) Salaries and benefits (18,720) (388) (1,644) — (207) (1,537) (22,496) Depreciation and amortization (3,519) — (276) — (1) (37) (3,833) Other expenses (13,184) (77) (421) — (24) (1,880) (15,586) Intersegment expenses, net 24,816 (65) (399) — (40) (257) 24,055 Impairment expense — — — — — — — (Loss) income before income taxes (9,988) 1,205 (6,575) 8,416 4,220 946 (1,776) Income tax benefit (expense) 2,397 (678) 1,578 (2,020) (1,013) 546 810 Net loss attributable to noncontrolling interests — 1,623 — — — — 1,623 Net (loss) income $ (7,591) 2,150 (4,997) 6,396 3,207 1,492 657 Three months ended March 31, 2024 Investment interest $ — — 19 — — 3,796 3,815 Interest expense — — (331) — — (345) (676) Net interest income (expense) — — (312) — — 3,451 3,139 Solar construction revenue — — 13,726 — — — 13,726 Other income, net 706 2,877 42 (8,236) (389) 2,853 (2,147) Cost to provide solar construction services — — (14,229) — — — (14,229) Salaries and benefits (20,020) (683) (1,371) — (237) (1,210) (23,521) Depreciation and amortization (8,368) — (250) — (6) (92) (8,716) Other expenses (9,891) (171) (885) (356) (16) (2,083) (13,402) Intersegment expenses, net 27,528 291 (758) (1) (19) (196) 26,845 Impairment expense — — — — (37) — (37) (Loss) income before income taxes (10,045) 2,314 (4,037) (8,593) (704) 2,723 (18,342) Income tax benefit (expense) 2,411 (1,041) 794 2,062 169 (672) 3,723 Net loss attributable to noncontrolling interests — 2,027 728 — — — 2,755 Net (loss) income $ (7,634) 3,300 (2,515) (6,531) (535) 2,051 (11,864) (a) Includes corporate activities related to internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services. The amount allocated to operating segments is reflected as “intersegment expenses, net” in the table above. Also includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs. (b) Includes operating results of the Company's tax equity investments in renewable energy solar partnerships. The Company accounts for these investments under the HLBV method of accounting, which commonly results in accelerated losses in the initial years of the investment. In the periods presented, these HLBV net losses are offset by gains recognized from sales of certain investments at the end of the contractual agreement (typically five years). These losses are also offset by revenue earned by the Company related to management, consulting, and performance fees provided on tax equity investments made by third parties. Due to the recognition pattern 51 (accelerated losses in initial years and gains upon sale at the end of the contractual agreement), these investments may create volatility in earnings. For additional information on the results of this operating segment, see note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report. (c) Nelnet Renewable Energy (NRE) is the Company’s solar construction business that provides full-service engineering, procurement, and construction (EPC) services to residential homes and commercial entities. The Company entered this business from its acquisition of 80% of GRNE Solar in June 2022. Since the acquisition of GRNE Solar, it has incurred low and, in some cases, negative margins on certain legacy projects. The Company has a handful of remaining legacy construction contracts to complete, down from over 30 at the beginning of 2024. Uncertain economic conditions have impacted the costs to complete existing construction contracts and new construction projects being initiated which may continue to negatively impact margins and revenue, respectively, in future periods. In April 2024, the Company announced a change in its solar EPC operations to focus exclusively on the commercial solar market and discontinued its residential solar operations. As a result, residential revenue will decline from recent historical amounts as existing customer contracts are completed. Residential solar construction revenue was $1.8 million for the three months ended March 31, 2024. The amount of residential construction revenue earned in 2025 was insignificant. On June 30, 2024, the Company acquired the remaining 20% of GRNE Solar for $0.3 million. (d) Represents primarily the Company's share of loss on its voting membership interest and income on its preferred membership interests in ALLO. For additional information on the results of these investments, see note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report. In April 2025, the Company entered into an agreement pursuant to which ALLO will redeem certain of its membership interests. The Company expects ALLO to redeem all of the Company's outstanding preferred membership interests, including the accrued preferred return on such membership interests through the closing date, and a portion of the Company's voting membership interest. The transaction is expected to close in late May 2025. As a result of this transaction, the Company expects to receive cash proceeds of approximately $410 million and recognize a pre-tax gain of approximately $175 million. For additional information on this transaction, see note 16 of the notes to consolidated financial statements included under Part I, Item 1 of this report. (e) 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. During the first quarter of 2025, the Company recognized income, net of losses, of $2.1 million from equity method investees, $1.7 million related to the periodic adjustment of certain fund investments to their respective fair value, and $0.6 million on certain measurement alternative investments as a result of observable price changes. 52 LIQUIDITY AND CAPITAL RESOURCES The Company’s Loan Servicing and Systems, and Education Technology Services and Payments operating segments are non-capital intensive and both produce positive operating cash flows. 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. Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Nelnet Financial Services division, which includes the Asset Generation and Management and Nelnet Bank reportable operating segments, and the Company's other initiatives to pursue additional strategic investments. Sources of Liquidity As of March 31, 2025, the Company's sources of liquidity included: Cash and cash equivalents $ 220,517 Less: Cash and cash equivalents held at Nelnet Bank (a) (44,887) Net cash and cash equivalents 175,630 Available-for-sale (AFS) debt securities (investments) - at fair value 1,158,062 Less: AFS debt securities held at Nelnet Bank - at fair value (a) (652,967) AFS private education and consumer loan debt securities - held as risk retention - at fair value (b) (216,980) Restricted investments (c) (123,518) Unencumbered AFS debt securities (investments) - at fair value 164,597 Unencumbered private, consumer, and other loans (Non-Nelnet Bank) - at par 327,744 Unencumbered repurchased Nelnet issued asset-backed debt securities - at par (not included on consolidated financial statements) (d) 97,419 Unused capacity on unsecured line of credit (e) 495,000 Sources of liquidity as of March 31, 2025 $ 1,260,390 (a) Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank. (b) The Company is sponsor for certain private education and consumer loan securitizations and as sponsor, is required to provide a certain level of risk retention. To satisfy this requirement, the Company has purchased bonds issued in the securitizations. The majority of the purchased bonds reflected in the table above relate to private education loan securitizations. For these securitizations, the Company is required to retain these bonds 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 these bonds to a third party. The Company estimates these bonds will be restricted from trading until approximately the first half of 2027. (c) The Company is required to hold collateral in third-party trusts related to its reinsurance business. (d) The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties, redeem the notes at par as cash is generated by the trust estate, or pledge the securities as collateral on repurchase agreements. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. (e) The Company has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of March 31, 2025, 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); strategic acquisitions and investments; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances. 53 Recent Development - Partial Redemption of ALLO Investment The Company has both a voting and preferred membership interest investment in ALLO. In April 2025, the Company entered into an agreement pursuant to which ALLO will redeem certain of its membership interests. The Company expects ALLO to redeem all of the Company's outstanding preferred membership interests, including the accrued preferred return earned through the closing date, and a portion of the Company's voting membership interest. The transaction is expected to close in late May 2025. The Company expects to receive cash proceeds of approximately $410 million from ALLO for these redemptions and recognize a pre-tax gain of approximately $175 million. See note 16 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information about this transaction. Cash Flows The Company has historically generated positive cash flow from operations. During the three months ended March 31, 2025 and 2024, the Company generated $91.2 million and $211.6 million, respectively, in cash from operating activities. The decrease in 2025 compared with 2024 was due to: • Adjustments to net income for the non-cash change in gain on investments, loan discount and deferred lender fees accretion, and depreciation and amortization; and • The impact of changes to accrued interest receivable, accounts receivable, and other assets during the three months ended March 31, 2025 compared with the same period in 2024. These factors were partially offset by: • An increase in net income; • Adjustments to net income for the non-cash change in derivative market value adjustments, deferred income tax expense, and provision for loan losses; and • The impact of changes to other liabilities during the three months ended March 31, 2025 compared with the same period in 2024. 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 the payments on bonds and notes payable, the change in deposits at Nelnet Bank used to fund loans and investment activity at Nelnet Bank, and the change in due to customers. Cash provided by investing activities and used in financing activities for the three months ended March 31, 2025 was $136.4 million and $326.4 million, respectively. Cash provided by investing activities and used in financing activities for the three months ended March 31, 2024 was $1.09 billion and $1.38 billion, respectively. Investing and financing activities are further addressed in the discussion that follows. Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral - AGM Operating Segment The following table shows AGM's debt obligations outstanding that are secured by loan assets and related collateral. As of March 31, 2025 Carrying amount Final maturity Bonds and notes issued in asset-backed securitizations $ 7,753,104 8/26/30 - 9/25/69 FFELP and consumer loan warehouse facilities 890,680 5/1/26 - 11/13/27 $ 8,643,784 Bonds and Notes Issued in Asset-backed Securitizations The majority of AGM’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk. Cash generated from student loans funded in asset-backed securitizations provides the sources of liquidity to satisfy all obligations related to the outstanding bonds and notes issued in such securitizations. In addition, due to (i) the difference between the yield AGM receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees AGM earns from these transactions, AGM has created a portfolio that will generate earnings and significant cash flow over the life of these transactions. As of March 31, 2025, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM expects future undiscounted cash flows from its portfolio to be approximately $1.02 billion as detailed below. The actual timing of cash flows released from the securitizations 54 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 March 31, 2025, the majority of which are federally insured student loans. As of March 31, 2025, AGM had $8.0 billion of loans included in asset-backed securitizations, which represented 86.1% of its total loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive in relation 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 "other investments and notes receivable, net" on the Company's consolidated balance sheets), loans acquired subsequent to March 31, 2025, and loans owned by Nelnet Bank. Asset-backed Securitization Cash Flow Forecast $1.02 billion (dollars in millions) The forecasted future undiscounted cash flows of approximately $1.02 billion include approximately $0.74 billion (as of March 31, 2025) 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 $0.28 billion, or approximately $0.21 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the March 31, 2025 balance. The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below. Prepayments : The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the 55 projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates of 6% for both federally insured consolidation and Stafford loans. Prepayment rates for private education loans range from 11% to 20%. Beginning in late 2021, the Company 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. However, the Company has experienced a significant decrease in FFELP borrowers consolidating their loans into the Federal Direct Loan Program since August 2024 that has resulted in prepayment rates on the Company’s FFELP portfolio being more consistent with longer-term historical rates. The following table summarizes the estimated impact to the above forecasted cash flows if prepayments were greater than the prepayment rate assumptions used to calculate the forecasted cash flows. Increase in prepayment rate Reduction in forecasted cash flow from table above Forecasted cash flow using increased prepayment rate 2x $0.07 billion $0.95 billion 4x $0.19 billion $0.83 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 $0.74 billion (as of March 31, 2025); however, the Company would not receive the $0.28 billion ($0.21 billion after tax) of estimated future earnings from the portfolio. Interest rates : The Company funds a portion of its student loans with floating rate securities that are indexed to 90-day SOFR. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to the 30-day average SOFR in effect for each day in a calendar quarter. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes, for the life of the portfolio, a relationship between the various SOFR indices that is implied by the current forward SOFR curves. If the forecast is computed assuming a spread of an additional 12 basis points between 3-month Term SOFR and 30-day average SOFR for the life of the portfolio, the cash flow forecast would be reduced by approximately $5 million to $15 million. The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk — AGM Operating Segment" for additional information about various interest rate risks which may impact future cash flows from AGM's loan assets. Warehouse Facilities 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 March 31, 2025, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report. 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. Asset-backed Securities Transactions The Company, through its subsidiaries, has historically funded loans by completing asset-backed securitizations. Depending on market conditions, the Company anticipates continuing to access the asset-backed securitization market. Such asset-backed securitization transactions would be used to refinance loans included in its warehouse facilities 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 three months ended March 31, 2025. Other Uses of Liquidity Subsequent to the Reconciliation Act of 2010, the Company no longer originates FFELP loans but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education, consumer, and other loans (or investment interests therein). The Company plans to fund additional loan acquisitions and related investments using current cash; cash provided by operating activities; proceeds from the sale of certain investments; its unsecured line of credit, its Union Bank student loan participation agreement, and its Union Bank student loan asset-backed securities participation agreement (each as described below), and/or 56 establishing similar secured and unsecured borrowing facilities; using its existing warehouse facilities (as described above); increasing the capacity under existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market. Union Bank Participation Agreements The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. As of March 31, 2025, $597.2 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. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company. The Company can sell participation interests in loans to Union Bank to the extent of availability under the grantor trusts, up to $900.0 million or an amount in excess of $900.0 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets. The Company also has an agreement with Union Bank under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities (bond investments). The agreement automatically renews annually and is terminable by either party upon five business days' notice. 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 at fair value" and the participation interests outstanding have been accounted for by the Company as a secured borrowing. As of March 31, 2025, $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 The Company has partial ownership in consumer, private education, and federally insured student loan third-party securitizations that are classified as "beneficial interest in loan securitizations" and included in "other investments and notes receivable, net" on the Company's consolidated balance sheets. These residual interests were acquired by the Company or have been received by the Company as consideration from selling portfolios of loans to unrelated third parties who securitized such loans. As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2025, the Company's ownership correlates to approximately $1.82 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 interest" on the Company's consolidated statements of income and is not a component of the Company's loan interest income. As of March 31, 2025, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $206.4 million. For a summary of this investment balance, see note 6 of the notes to consolidated financial statements included under Part I, Item 1 of this report. The Company's partial ownership percentage in each loan securitization grants the Company the right to receive the corresponding percentage of cash flows generated by the securitization. As of March 31, 2025, 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 $310.2 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 ($310.2 million) and the investment carrying value ($206.4 million) of $103.8 million, or $78.9 million after income taxes based on the estimated effective tax rate, represents estimated future investment interest income (earnings) from these investments and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the March 31, 2025 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. 57 Sources and Needs of Liquidity - Nelnet Bank Sources of Liquidity Nelnet Bank launched operations in November 2020. Nelnet Bank was funded by the Company with an initial capital contribution of $100 million and the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC as discussed below. The Company has contributed an additional $82 million to Nelnet Bank since its inception. Based on Nelnet Bank's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to the bank in future periods. Nelnet Bank also has unsecured Federal Funds lines of credit with correspondent banks and has established accounts at the Federal Reserve Bank and the Federal Home Loan Bank. The growth of Nelnet Bank is primarily driven by its ability to achieve loan growth goals while sustaining credit quality and maintaining cost-efficient funding sources to support its loan growth. Deposits Nelnet Bank utilizes brokered, retail, and other deposits to meet its funding needs and enhance its liquidity position. The deposits can be term or liquid deposits. The term deposits have terms from three months to ten years. Retail, commercial, and institutional deposits are sourced through a direct banking platform and a deposit marketplace and provide diversified funding sources. Brokered deposits are sourced through a network of brokers and provide a stable source of funding. In addition, Nelnet Bank accepts certain deposits considered non-brokered that are held in large accounts structured to allow FDIC insurance to flow through to underlying individual depositors. The deposits are diversified with deposits from Educational 529 College Savings and Health Savings plans, STFIT, and FDIC sweep deposits. Regulatory Capital Prior to Nelnet Bank’s launch of operations, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12%; (ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10% of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank. As of March 31, 2025, Nelnet Bank's leverage ratio of capital to total assets was 12.6%. Liquidity Impact Related to Solar Tax Equity Investments The Company makes solar tax equity investments in renewable energy solar partnerships that support the development and operations of solar projects. As of March 31, 2025, the Company has funded a total of $309.9 million in tax equity investments which remain outstanding for itself and $280.4 million on behalf of its syndication partners, for a funded total of $590.3 million. These investments provide a federal income tax credit under the Internal Revenue Code, currently equaling 30% to 70% of the eligible project cost, with the tax credit available when the project is placed in service. The Company is then allowed to reduce its tax estimates paid to the U.S. Treasury based on the credits earned. In addition to the credits, the Company structures the investments to receive quarterly distributions of cash from the operating earnings of the solar project for a period of at least five years after the project is placed in service. After that period, the contractual agreements typically provide for the Company’s entire interest in the projects to be sold at the fair market value of the discounted forecasted future cash flows allocable to the Company. Based on the timing of when the Company funds a project and decreases its tax estimate to the U.S. Treasury due to earning of the tax credit, the net amount of capital funded to solar tax equity investments at any point in time is not significant and has a minimal impact on the Company’s liquidity. As of March 31, 2025, the Company is committed to fund an additional $56.0 million directly in solar tax equity investments and $44.0 million will be funded by its syndication partners, for a total commitment of $100.0 million. Liquidity Impact Related to Hedging Activities The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company is exposed to market risk which could impact its liquidity. All Non-Nelnet Bank over-the-counter derivative contracts executed by the Company are cleared post-execution at a regulated clearinghouse. Clearing is a process by which a third party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to- 58 market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default. Nelnet Bank derivative contracts have protection against counterparty risk provided by International Swaps and Derivatives Association, Inc. agreements. The agreements require collateral to be exchanged based on the net fair value of derivatives with each counterparty. The Company’s exposure related to the Nelnet Bank derivatives is limited to the value of the derivative contracts in a gain position, less any collateral held by us. Based on the derivative portfolio outstanding as of March 31, 2025, 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. 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 March 31, 2025, 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. Stock Repurchases In 2022, the Board of Directors 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. On March 20, 2025, the Board of Directors authorized a new stock repurchase program that will be effective when the now current program expires 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, 2028. The five million shares authorized under the new program will include any remaining unpurchased shares from the prior program, which the new program will replace. As of March 31, 2025, 3,341,735 shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity. Shares repurchased by the Company during the three months ended March 31, 2025 are shown below. For additional information on stock repurchases during the first quarter of 2025, 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) Quarter ended March 31, 2025 38,491 $ 4,458 115.81 Dividends On March 14, 2025, the Company paid a first quarter 2025 cash dividend on the Company's Class A and Class B common stock of $0.28 per share. In addition, the Company's Board of Directors has declared a second quarter 2025 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share. The second quarter cash dividend will be paid on June 16, 2025 to shareholders of record at the close of business on June 2, 2025. The Company plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors. CRITICAL ACCOUNTING ESTIMATES This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. Note 2 of the notes to consolidated financial statements included in the Company’s 2024 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 59 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 estimate, as discussed further under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates – Allowance for Loan Losses” in the Company’s 2024 Annual Report. For additional information regarding changes in the Company’s allowance for loan losses for the three months ended March 31, 2025 and 2024, 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, 2024. RECENT ACCOUNTING PRONOUNCEMENTS In December 2023, the FASB issued accounting guidance to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance will be effective for the Company for the year ending December 31, 2025 annual financial statements, with early adoption permitted. The guidance will be applied on a prospective basis. The Company intends to adopt the standard when it becomes effective for the year ending December 31, 2025. Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements. In November 2024, the FASB issued accounting guidance to increase disclosure requirements primarily through enhanced disclosures about types of expenses (including employee compensation, depreciation, and amortization) in commonly presented expense captions. This guidance will be effective for the Company for fiscal years beginning after December 15, 2026. The guidance is required to be applied prospectively with the option for retrospective application. Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements. There are no other recently issued, but not yet adopted, accounting pronouncements which are expected to have a material impact on the Company's consolidated financial statements and related disclosures.