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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2026-02-26 compared with 2025-02-27 · 35 added, 33 removed, 118 unchanged (37% of the section changed)

4 unchanged sentences

Interest Rate Risk - AGM Operating Segment

AGM’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact AGM due to shifts in market interest rates.

AGM’s primary market risk exposure arises from fluctuations in its lending and borrowing rates, the spread between which could impact AGM due to shifts in market interest rates.

The following table sets forth AGM’s loan assets and debt instruments by rate characteristics:

13 unchanged sentences

Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1.

As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset

annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income.

As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed-rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable-rate floor income.

All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed-rate floor income and variable-rate floor income for those loans to the Department.

Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and has an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas.

In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.

No variable rate floor income was earned by the Company in 2024 or 2023.

A summary of fixed rate floor income earned by the AGM operating segment follows.

Year ended December 31,

Fixed rate floor income, gross $ 1,249 2,169

Derivative settlements (a) 4,288 23,044

Fixed rate floor income, net $ 5,537 25,213

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

Gross fixed rate floor income decreased in 2024 compared with 2023 due to higher interest rates in 2024 compared with 2023.

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

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

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

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

For further details of the Company’s derivatives used to hedge fixed rate loans and investments, see note 5 of the notes to consolidated financial statements included in this report.

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

The Company earned no variable-rate floor income in 2025 or 2024.

The following table shows AGM’s federally insured student loan assets that were earning fixed-rate floor income as of December 31, 2025:

4 unchanged sentences

8.0 - 8.99% 8.18% 5.54% 194,146

> 9.0% 9.06% 6.42% 82,037

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate.

As of December 31, 2025, the weighted-average estimated variable conversion rate was 5.48% and the short-term interest rate was 427 basis points.

In higher interest rate environments, where the interest rate rises above the borrower rate and fixed-rate loans effectively become variable-rate loans, the impact of the rate fluctuations is reduced.

A summary of fixed-rate floor income earned by the AGM operating segment follows:

Year ended December 31,

Fixed-rate floor income, gross $ 4,309 1,249

Derivative settlements (a) 1,475 4,288

Fixed-rate floor income, net $ 5,784 5,537

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

See note 6 of the notes to consolidated financial statements included in this report for a summary of fixed-rate floor derivatives.

AGM is also exposed to interest rate risk in the form of repricing risk and basis risk because the interest rate characteristics of AGM’s assets do not match the interest rate characteristics of the funding for those assets.

2 unchanged sentences

30-day average SOFR (a) Daily $ 6,971,938 —

3-month H15 financial commercial paper Daily 271,536 —

3-month Treasury bill Daily 235,241 —

3-month H15 financial commercial paper Daily 230,064 —

30-day average SOFR / 1-month CME Term SOFR Monthly — 5,023,236

90-day average SOFR / 3-month CME Term SOFR (a) Quarterly — 1,424,976

Asset-backed commercial paper / SOFR (b) Varies — 853,165

Fixed rate — — 302,791

Asset-backed commercial paper / SOFR (b) Varies — 213,982

Auction-rate (c) Varies — 24,150

1 unchanged sentence

$ 8,176,747 8,176,747

(a) The Company has certain basis swaps outstanding in which the Company receives and pays the term adjusted SOFR plus the tenor spread adjustment to LIBOR (the "1:3 Basis Swaps").

(a) The Company has certain basis swaps outstanding in which the Company receives payments indexed to three-month SOFR and makes payments based on the one-month SOFR index (plus or minus a spread) as defined in the agreements (the "Basis Swaps").

The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets.

The following table summarizes the Basis Swaps outstanding as of December 31, 2025:

Maturity Notional amount (i)

Maturity Notional amount

2026 $ 1,150,000

(i) The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2024 was the term adjusted SOFR (plus the tenor spread adjustment relating to LIBOR) plus 10.4 basis points.

(b) The interest rate on the Company's FFELP warehouse facilities is indexed to asset-backed commercial paper rates and daily SOFR.

5 unchanged sentences

The following table summarizes the effect on the Company’s consolidated earnings based upon a sensitivity analysis performed on AGM’s variable-rate assets (including loans earning fixed-rate floor income) and liabilities.

The sensitivity analysis was performed assuming the funding index changes 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index.

The sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index.

Asset and funding index mismatches

28 unchanged sentences

The derivatives are not reflected in the above table.

See note 5 of the notes to the consolidated financial statements included in this report for a summary of Nelnet Bank's derivatives outstanding as of December 31, 2024.

See note 6 of the notes to consolidated financial statements included in this report for a summary of Nelnet Bank's derivatives outstanding as of December 31, 2025.

Interest Rate and Market Risk - Investments

6 unchanged sentences

Participation agreement - variable rate (c) $ 971 50 5.15 % $ 4,335 261 6.00 %

Repurchases agreements - variable rate (d) 101,905 7,035 6.88 381,378 23,540 6.17

Repurchase agreements - variable rate (d) — — — 101,905 7,035 6.88

$ 971 50 5.15 $ 106,240 7,296 6.85

(a) The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market.

(a) The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market or retained such instruments upon initial issuance.

For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements.

However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate.

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.

3 unchanged sentences

(c) Interest incurred by the Company on amounts borrowed under the participation agreement is at a variable rate of SOFR + 62.5 basis points.

(d) Interest incurred by the Company on amounts that were borrowed under repurchase agreements were at a variable rate of SOFR + 100 to 140 basis points.

(d) Interest incurred by the Company on amounts that were borrowed under repurchase agreements was at a variable rate of SOFR + 100 to 140 basis points.

The Company’s portfolio of asset-backed investment securities has limited liquidity, and the Company could incur a significant loss if the investments were sold prior to maturity at an amount less than the original purchase price.

As of December 31, 2024, the gross unrealized loss on the Company’s available-for-sale debt securities was $20.7 million, and the aggregate fair value of available-for-sale debt securities with unrealized losses was $370.0 million.

As of December 31, 2025, the gross unrealized loss on the Company’s available-for-sale debt securities (including available-for-sale securities held at Nelnet Bank) was $16.2 million, and the aggregate fair value of available-for-sale debt securities with unrealized losses was $498.7 million.

The Company currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses.

18 unchanged sentences

Increase (decrease) in basic and diluted earnings per share $ 0.32 $ 1.23 $ (0.23) $ (0.49)

(a) Impact associated with variable rate loans and variable rate bonds and notes payable, including the impact of derivative settlements.

Year ended December 31, 2024

Effect on earnings:

AGM operating segment (a) $ 6,507 $ 25,369 $ 1,186 $ 12,374

Nelnet Bank operating segment (b) (542) (1,627) 542 1,627

NFS other operating segments (c) 5,837 17,512 (5,837) (17,512)

ETSP operating segment (d) 5,932 17,795 (5,932) (17,795)

Corporate and Other Activities (d) 1,026 3,077 (1,026) (3,077)

Increase (decrease) in net income before taxes $ 18,760 8.2 % $ 62,126 27.2 % $ (11,067) (4.8) % $ (24,383) (10.7) %

Increase (decrease) in basic and diluted earnings per share $ 0.39 $ 1.29 $ (0.23) $ (0.51)

(a) Impact associated with variable-rate restricted cash, variable-rate loans, and variable-rate bonds and notes payable, including the impact of derivative settlements.

(b) Impact associated with variable-rate loans and debt securities (investments) and variable-rate deposits, including the impact of derivative settlements.

(c) Impact associated with variable rate debt securities (investments) and debt facilities used to fund a portion of such investments.

(d) Impact associated with interest earning operating and restricted cash accounts.

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk