株探米国株
英語
エドガーで原本を確認する
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023 
or    
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to . 
Commission File Number: 001-31924
Nelnet_Logo_color.jpg
NELNET, INC.
(Exact name of registrant as specified in its charter)
Nebraska
84-0748903
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
121 South 13th Street, Suite 100
Lincoln, Nebraska 68508
(Address of principal executive offices)
(Zip Code)
(402) 458-2370
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 per Share NNI New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                       Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒                                                     Accelerated filer ☐
Non-accelerated filer ☐                    Smaller reporting company ☐
        Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2023, there were 26,655,134 and 10,668,460 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding a total of 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).




NELNET, INC.
FORM 10-Q
INDEX
September 30, 2023

 
  Item 1.
  Item 2.
  Item 3.
  Item 4.
       
 
Item 1.
  Item 1A.
  Item 2.
Item 5.
Other Information
  Item 6.
       
 






PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
 
As of
As of
  September 30, 2023 December 31, 2022
Assets:    
Loans and accrued interest receivable (net of allowance for loan losses of $110,093 and
   $131,827, respectively)
 $ 13,867,557  15,243,889 
Cash and cash equivalents:    
Cash and cash equivalents - not held at a related party 23,722  24,584 
Cash and cash equivalents - held at a related party 163,968  93,562 
Total cash and cash equivalents 187,690  118,146 
Investments and notes receivable 1,945,688  2,111,917 
Restricted cash 445,983  945,159 
Restricted cash - due to customers 158,872  294,311 
Accounts receivable (net of allowance for doubtful accounts of $3,989 and $3,079, respectively)
 130,068  194,851 
Goodwill 176,902  176,902 
Intangible assets, net 51,910  63,501 
Property and equipment, net 126,699  122,526 
Other assets 131,313  102,842 
Total assets $ 17,222,682  19,374,044 
Liabilities:    
Bonds and notes payable $ 12,448,109  14,637,195 
Accrued interest payable 36,391  36,049 
Bank deposits 718,053  691,322 
Other liabilities 419,152  461,259 
Due to customers 341,822  348,317 
Total liabilities 13,963,527  16,174,142 
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:    
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding
 —  — 
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 26,655,651
     shares and 26,461,651 shares, respectively
 267  265 
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding
     10,668,460 shares
 107  107 
Additional paid-in capital 14,165  1,109 
Retained earnings 3,305,881  3,234,844 
Accumulated other comprehensive loss, net (25,439) (37,366)
Total Nelnet, Inc. shareholders' equity 3,294,981  3,198,959 
Noncontrolling interests (35,826) 943 
Total equity 3,259,155  3,199,902 
Total liabilities and equity $ 17,222,682  19,374,044 
Supplemental information - assets and liabilities of consolidated education and other lending
     variable interest entities:
Loans and accrued interest receivable $ 13,246,175  14,585,491 
Restricted cash 410,520  867,961 
Bonds and notes payable (12,459,364) (14,233,586)
Accrued interest payable and other liabilities (181,730) (145,309)
Net assets of consolidated education and other lending variable interest entities $ 1,015,601  1,074,557 
See accompanying notes to consolidated financial statements.
2


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
  Three months ended Nine months ended
  September 30, September 30,
  2023 2022 2023 2022
Interest income:    
Loan interest $ 236,423  176,244  704,712  422,327 
Investment interest 48,128  26,889  129,835  57,589 
Total interest income 284,551  203,133  834,547  479,916 
Interest expense on bonds and notes payable and bank deposits 207,159  126,625  639,756  248,347 
Net interest income 77,392  76,508  194,791  231,569 
Less provision for loan losses 10,659  9,665  54,526  18,640 
Net interest income after provision for loan losses 66,733  66,843  140,265  212,929 
Other income (expense):  
Loan servicing and systems revenue 127,892  134,197  389,138  395,438 
Education technology, services, and payment processing revenue 113,796  106,894  357,258  310,211 
Solar construction revenue 6,301  9,358  19,687  9,358 
Other, net (211) 2,225  (21,293) 24,750 
Gain on sale of loans, net 5,362  2,627  32,685  5,616 
Impairment and other expense, net (4,974) 121  (4,974) (6,163)
Derivative market value adjustments and derivative settlements, net 3,957  63,262  (8,047) 251,210 
Total other income (expense), net 252,123  318,684  764,454  990,420 
Cost of services:
Cost to provide education technology, services, and payment processing services 43,694  42,676  131,804  109,073 
Cost to provide solar construction services 7,783  5,968  25,204  5,968 
Total cost of services 51,477  48,644  157,008  115,041 
Operating expenses:    
Salaries and benefits 141,204  147,198  438,620  438,010 
Depreciation and amortization 21,835  18,772  57,114  53,978 
Other expenses 51,370  43,858  138,154  120,297 
Total operating expenses 214,409  209,828  633,888  612,285 
Income before income taxes 52,970  127,055  113,823  476,023 
Income tax expense 10,734  26,586  29,475  107,765 
Net income 42,236  100,469  84,348  368,258 
Net loss attributable to noncontrolling interests 3,096  4,329  15,738  8,315 
Net income attributable to Nelnet, Inc. $ 45,332  104,798  100,086  376,573 
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
 $ 1.21  2.80  2.67  9.99 
Weighted average common shares outstanding - basic and diluted
 37,498,073  37,380,493  37,437,587  37,708,425 
    
See accompanying notes to consolidated financial statements.
3


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Net income $ 42,236  100,469  84,348  368,258 
Other comprehensive (loss) income:
Net changes related to foreign currency translation adjustments $ (8) 18  (11) 19 
Net changes related to available-for-sale debt securities:
Unrealized holding (losses) gains arising during period, net (4,566) 4,790  12,734  (45,730)
Reclassification of (gains) losses recognized in net income, net (1,064) (578) 3,001  (4,220)
Amortization of net unrealized loss on securities transferred from available-for-sale to held-to-maturity 66  —  136  — 
Income tax effect 1,335  (4,229) (1,011) 3,201  (3,810) 12,061  11,988  (37,962)
Net changes related to equity method investee's other comprehensive income:
Gain (loss) on cash flow hedges 336  —  (163) — 
Income tax effect (80) 256  —  —  40  (123) —  — 
Other comprehensive (loss) income (3,981) 3,219  11,927  (37,943)
Comprehensive income 38,255  103,688  96,275  330,315 
Comprehensive loss attributable to noncontrolling interests 3,096  4,329  15,738  8,315 
Comprehensive income attributable to Nelnet, Inc. $ 41,351  108,017  112,013  338,630 

See accompanying notes to consolidated financial statements.
4


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
 
Nelnet, Inc. Shareholders
  Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital  Retained earnings Accumulated other comprehensive loss Noncontrolling interests Total equity
  Class A Class B
Balance as of June 30, 2022 —  26,613,733  10,674,892  $ —  266  107  1,180  3,127,687  (31,858) (6,237) 3,091,145 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  14,018  14,018 
Net income (loss) —  —  —  —  —  —  —  104,798  —  (4,329) 100,469 
Other comprehensive income —  —  —  —  —  —  —  —  3,219  —  3,219 
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  —  (17,707) (17,707)
Cash dividends on Class A and Class B common stock - $0.24 per share
 —  —  —  —  —  —  —  (8,925) —  —  (8,925)
Issuance of common stock, net of forfeitures —  38,192  —  —  1  —  476  —  —  —  477 
Compensation expense for stock based awards —  —  —  —  —  —  3,631  —  —  —  3,631 
Repurchase of common stock —  (169,860) —  —  (2) —  (4,450) (9,841) —  —  (14,293)
Conversion of common stock —  1,233  (1,233) —  —  —  —  —  —  —  — 
Other —  —  —  —  —  —  —  (5,675) —  —  (5,675)
Balance as of September 30, 2022 —  26,483,298  10,673,659  $ —  265  107  837  3,208,044  (28,639) (14,255) 3,166,359 
Balance as of June 30, 2023 —  26,646,490  10,668,460  $ —  266  107  10,114  3,270,250  (21,458) (11,765) 3,247,514 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  19,092  19,092 
Net income (loss) —  —  —  —  —  —  —  45,332  —  (3,096) 42,236 
Other comprehensive loss —  —  —  —  —  —  —  —  (3,981) —  (3,981)
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  —  (40,057) (40,057)
Cash dividends on Class A and Class B common stock - $0.26 per share
 —  —  —  —  —  —  —  (9,701) —  —  (9,701)
Issuance of common stock, net of forfeitures —  15,109  —  —  1  —  499  —  —  —  500 
Compensation expense for stock based awards —  —  —  —  —  —  4,095  —  —  —  4,095 
Repurchase of common stock —  (5,948) —  —  —  —  (543) —  —  —  (543)
Balance as of September 30, 2023 —  26,655,651  10,668,460  $ —  267  107  14,165  3,305,881  (25,439) (35,826) 3,259,155 

See accompanying notes to consolidated financial statements.

5


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Nelnet, Inc. Shareholders
Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Noncontrolling interests Total equity
Class A Class B
Balance as of December 31, 2021 —  27,239,654  10,676,642  $ —  272  107  1,000  2,940,523  9,304  1,632  2,952,838 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  25,297  25,297 
Net income (loss) —  —  —  —  —  —  —  376,573  —  (8,315) 368,258 
Other comprehensive loss —  —  —  —  —  —  —  —  (37,943) —  (37,943)
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  —  (32,869) (32,869)
Cash dividends on Class A and Class B common stock - $0.72 per share
 —  —  —  —  —  —  —  (26,960) —  —  (26,960)
Issuance of common stock, net of forfeitures —  348,831  —  —  4  —  6,974  —  —  —  6,978 
Compensation expense for stock based awards —  —  —  —  —  9,659  —  —  —  9,659 
Repurchase of common stock —  (1,108,170) —  —  (11) —  (16,796) (76,417) —  —  (93,224)
Conversion of common stock —  2,983  (2,983) —  —  —  —  —  —  —  — 
Other —  —  —  —  —  —  —  (5,675) —  —  (5,675)
Balance as of September 30, 2022 —  26,483,298  10,673,659  $ —  265  107  837  3,208,044  (28,639) (14,255) 3,166,359 
Balance as of December 31, 2022 —  26,461,651  10,668,460  $ —  265  107  1,109  3,234,844  (37,366) 943  3,199,902 
Issuance of noncontrolling interests —  —  —  —  —  —  —  —  —  31,996  31,996 
Net income (loss) —  —  —  —  —  —  —  100,086  —  (15,738) 84,348 
Other comprehensive income —  —  —  —  —  —  —  —  11,927  —  11,927 
Distribution to noncontrolling interests —  —  —  —  —  —  —  —  —  (53,027) (53,027)
Cash dividends on Class A and Class B common stock - $0.78 per share
 —  —  —  —  —  —  —  (29,049) —  —  (29,049)
Issuance of common stock, net of forfeitures —  241,195  —  —  2  —  5,618  —  —  —  5,620 
Compensation expense for stock based awards —  —  —  —  —  —  11,748  —  —  —  11,748 
Repurchase of common stock —  (47,195) —  —  —  —  (4,310) —  —  —  (4,310)
Balance as of September 30, 2023 —  26,655,651  10,668,460  $ —  267  107  14,165  3,305,881  (25,439) (35,826) 3,259,155 

See accompanying notes to consolidated financial statements.


6


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
  Nine months ended
September 30,
  2023 2022
Net income attributable to Nelnet, Inc. $ 100,086  376,573 
Net loss attributable to noncontrolling interests (15,738) (8,315)
Net income 84,348  368,258 
Adjustments to reconcile net income to net cash provided by operating activities, net of business acquisition:    
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 128,658  113,655 
Loan discount accretion (22,527) (27,963)
Provision for loan losses 54,526  18,640 
Derivative market value adjustments 32,266  (239,125)
Proceeds from termination of derivative instruments 164,079  91,786 
(Payments to) proceeds from clearinghouse - initial and variation margin, net (210,168) 227,448 
Gain on sale of loans, net (32,685) (5,616)
Loss on investments, net 67,940  13,605 
Proceeds from sale of equity securities, net 75  42,863 
Deferred income tax (benefit) expense (24,712) 57,633 
Non-cash compensation expense 11,981  9,872 
Impairment expense 2,588  6,163 
Decrease (increase) in loan and investment accrued interest receivable 5,613  (16,206)
Decrease in accounts receivable 64,738  47,514 
Decrease (increase) in other assets, net 7,069  (74,522)
Decrease in the carrying amount of ROU asset, net 3,859  4,476 
Increase in accrued interest payable 342  17,230 
Increase in other liabilities 19,132  5,388 
Decrease in the carrying amount of lease liability (3,908) (4,227)
Net cash provided by operating activities 353,214  656,872 
Cash flows from investing activities:
 
 
Purchases and originations of loans (556,255) (539,118)
Purchases of loans from a related party (467,554) (8,242)
Net proceeds from loan repayments, claims, and capitalized interest 1,910,379  2,955,097 
Proceeds from sale of loans 341,760  38,559 
Purchases of available-for-sale securities (510,804) (944,588)
Proceeds from sales of available-for-sale securities 776,096  450,457 
Proceeds from beneficial interest in loan securitizations 23,753  17,754 
Purchases of other investments and issuance of notes receivable (179,632) (192,773)
Proceeds from other investments 29,768  42,524 
Purchases of held-to-maturity debt securities (11,325) — 
Redemption of held-to-maturity debt securities 2,893  — 
Purchases of property and equipment (52,604) (44,423)
Business acquisition, net of cash acquired —  (35,973)
Net cash provided by investing activities 1,306,475  1,739,274 
7


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine months ended
September 30,
2023 2022
Cash flows from financing activities:    
Payments on bonds and notes payable $ (2,996,916) (3,035,082)
Proceeds from issuance of bonds and notes payable 756,268  413,391 
Payments of debt issuance costs (2,233) (1,160)
Increase in bank deposits, net 26,731  236,510 
Decrease in due to customers (6,422) (59,467)
Dividends paid (29,049) (26,960)
Repurchases of common stock (4,310) (93,224)
Proceeds from issuance of common stock 1,315  1,206 
Issuance of noncontrolling interests 32,581  19,380 
Distribution to noncontrolling interests (2,519) (1,153)
Net cash used in financing activities (2,224,554) (2,546,559)
Effect of exchange rate changes on cash (206) (447)
Net decrease in cash, cash equivalents, and restricted cash (565,071) (150,860)
Cash, cash equivalents, and restricted cash, beginning of period 1,357,616  1,194,189 
Cash, cash equivalents, and restricted cash, end of period $ 792,545  1,043,329 
Supplemental disclosures of cash flow information:
Cash disbursements made for interest $ 585,482  196,278 
Cash disbursements made for income taxes, net of refunds and credits received (a) $ 45,444  37,467 
Cash disbursements made for operating leases $ 5,029  5,221 
Noncash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations $ 18,860  5,981 
Receipt of beneficial interest in consumer loan securitizations as consideration from sale of loans $ 63,878  8,336 
Receipt of asset-backed investment securities as consideration from sale of loans $ 58,182  — 
Distribution to noncontrolling interests $ 50,508  31,716 
Issuance of noncontrolling interests $ 585  5,917 
(a) The Company utilized $49.0 million and $9.4 million of federal and state tax credits related primarily to renewable energy during the nine months ended September 30, 2023 and 2022, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.
As of As of As of As of
September 30, 2023 December 31, 2022 September 30, 2022 December 31, 2021
Total cash and cash equivalents $ 187,690  118,146  63,198  125,563 
Restricted cash 445,983  945,159  799,212  741,981 
Restricted cash - due to customers 158,872  294,311  180,919  326,645 
Cash, cash equivalents, and restricted cash
 $ 792,545  1,357,616  1,043,329  1,194,189 
See accompanying notes to consolidated financial statements.
8


NELNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise noted)
(unaudited)
1.  Basis of Financial Reporting
The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2022 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report").
2.  Loans and Accrued Interest Receivable and Allowance for Loan Losses
Loans and accrued interest receivable consisted of the following:
As of As of
  September 30, 2023 December 31, 2022
Non-Nelnet Bank:
Federally insured loans:
Stafford and other $ 3,104,569  3,389,178 
Consolidation 9,194,415  10,177,295 
Total 12,298,984  13,566,473 
Private education loans 293,004  252,383 
Consumer and other loans 143,633  350,915 
Non-Nelnet Bank loans 12,735,621  14,169,771 
Nelnet Bank:
Federally insured loans 59,261  65,913 
Private education loans 359,941  353,882 
Consumer and other loans 49,611  — 
Nelnet Bank loans 468,813  419,795 
Accrued interest receivable 806,854  816,864 
Loan discount, net of unamortized loan premiums and deferred origination costs (33,638) (30,714)
Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans (72,043) (83,593)
Private education loans (16,944) (15,411)
Consumer and other loans (14,022) (30,263)
Non-Nelnet Bank allowance for loan losses (103,009) (129,267)
Nelnet Bank:
Federally insured loans (148) (170)
Private education loans (3,083) (2,390)
Consumer and other loans (3,853) — 
Nelnet Bank allowance for loan losses (7,084) (2,560)
  $ 13,867,557  15,243,889 
9


The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios.
As of As of
September 30, 2023 December 31, 2022
Non-Nelnet Bank:
Federally insured loans (a) 0.59  % 0.62  %
Private education loans 5.78  % 6.11  %
Consumer and other loans 9.76  % 8.62  %
Nelnet Bank:
Federally insured loans (a) 0.25  % 0.26  %
Private education loans 0.86  % 0.68  %
Consumer and other loans 7.77  % — 
(a)    As of September 30, 2023 and December 31, 2022, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty for non-Nelnet Bank was 21.9% and 22.4%, respectively, and for Nelnet Bank was 10.0% and 10.3%, respectively.
Loan Sales
The Company has sold portfolios of loans to unrelated third parties who securitized such loans. As partial consideration received for the loans sold, the Company received residual interest in the loan securitizations that are included in "investments and notes receivable" on the Company's consolidated balance sheets. The following table summarizes the loans sold and gains/losses recognized by the Company during the nine months ended September 30, 2023 and 2022.
Loans sold
(par value)		 Gain (loss) Loan type Residual interest received in securitization
Nine months ended September 30, 2023
January 31 $ 97,350  (1,441) Home equity 64.8  % (a)
January 31 42,275  4,350  Consumer 13.3 
March 2 122,277  8,903  Consumer 24.6  (a)
April 4 5,633  659  Consumer — 
April 13 24,980  3,123  Consumer 11.3 
May 2 127,663  11,729  Consumer 26.5 
August 3 61,807  5,362  Consumer 24.3 
$ 481,985  32,685 
Nine months ended September 30, 2022
January 26 $ 18,125  2,989  Consumer 6.6  %
June 30 114  —  Home equity — 
July 7 28,915  2,627  Consumer 7.6 
$ 47,154  5,616 
(a)    In addition to receiving a residual interest in the securitizations, the Company also received $14.5 million and $43.7 million of asset-backed investment securities as part of the January 31 and March 2, 2023 transactions, respectively, that are included in "investments and notes receivable" on the Company's consolidated balance sheet.

10


Activity in the Allowance for Loan Losses
The following table presents the activity in the allowance for loan losses by portfolio segment.
Balance at beginning of period Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration Loan sales Balance at end of period
Three months ended September 30, 2023
Non-Nelnet Bank:
Federally insured loans $ 74,061  1,641  (3,659) —  —  —  72,043 
Private education loans 14,322  3,009  (571) 184  —  —  16,944 
Consumer and other loans 20,005  4,082  (4,115) 434  —  (6,384) 14,022 
Nelnet Bank:
Federally insured loans 154  (2) (4) —  —  —  148 
Private education loans 2,905  220  (42) —  —  —  3,083 
Consumer and other loans 2,816  1,554  (517) —  —  —  3,853 
$ 114,263  10,504  (8,908) 618  —  (6,384) 110,093 
Three months ended September 30, 2022
Non-Nelnet Bank:
Federally insured loans $ 92,593  888  (5,715) —  12  —  87,778 
Private education loans 15,253  1,154  (1,066) 236  —  —  15,577 
Consumer and other loans 10,576  7,173  (1,021) 147  —  (3,585) 13,290 
Nelnet Bank:
Federally insured loans 258  (94) —  —  —  —  164 
Private education loans 1,744  504  —  —  —  —  2,248 
$ 120,424  9,625  (7,802) 383  12  (3,585) 119,057 
Nine months ended September 30, 2023
Non-Nelnet Bank:
Federally insured loans $ 83,593  4,052  (15,608) —  6  —  72,043 
Private education loans 15,411  3,249  (2,279) 563  —  —  16,944 
Consumer and other loans 30,263  41,388  (9,264) 1,096  —  (49,461) 14,022 
Nelnet Bank:
Federally insured loans 170  (15) (7) —  —  —  148 
Private education loans 2,390  1,350  (657) —  —  —  3,083 
Consumer and other loans —  4,370  (517) —  —  —  3,853 
$ 131,827  54,394  (28,332) 1,659  6  (49,461) 110,093 
Nine months ended September 30, 2022
Non-Nelnet Bank:
Federally insured loans $ 103,381  505  (16,264) —  156  —  87,778 
Private education loans 16,143  1,971  (3,072) 531  —  4  15,577 
Consumer and other loans 6,481  14,702  (2,489) 465  —  (5,869) 13,290 
Nelnet Bank:
Federally insured loans 268  (102) (2) —  —  —  164 
Private education loans 840  1,499  (87) —  —  (4) 2,248 
$ 127,113  18,575  (21,914) 996  156  (5,869) 119,057 
The primary item impacting provision for loan losses was the establishment of an initial allowance for loans originated and acquired during the periods presented above.
11


The following table summarizes annualized net charge-offs as a percentage of average loans for each of the Company's loan portfolios.
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Non-Nelnet Bank:
Federally insured loans 0.11  % 0.15  % 0.16  % 0.13  %
Private education loans 0.61  % 1.23  % 0.94  % 1.22  %
Consumer and other loans 9.57  % 1.96  % 4.59  % 2.54  %
Nelnet Bank:
Federally insured loans 0.03  % 0.00  % 0.01  % 0.00  %
Private education loans 0.05  % 0.00  % 0.25  % 0.04  %
Consumer and other loans 5.69  % —  3.00  % — 
Unfunded Loan Commitments
As of September 30, 2023, Nelnet Bank has a liability of approximately $217,000 related to $13.1 million of unfunded private education and consumer loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the consolidated balance sheets. During the nine months ended September 30, 2023 and 2022, Nelnet Bank recognized provision for loan losses of approximately $132,000 and approximately $65,000, respectively, related to unfunded loan commitments.
Loan Modifications to Borrowers Experiencing Financial Difficulty
On January 1, 2023, the Company adopted ASU No. 2022-02, Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, which eliminates the troubled debt restructurings recognition and measurement guidance and instead requires an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan. The guidance also enhances the disclosure requirements for certain modifications of receivables made to borrowers experiencing financial difficulty and vintage disclosures reflecting gross charge-offs by year of origination.
Under the Higher Education Act, federally insured loan borrowers may be granted a deferment or forbearance for a period of time based on need. In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department of Education (the "Department"). Because federally insured loan modifications are driven by the Higher Education Act, the Company does not consider these events as part of its loan modification programs. Administrative forbearances (e.g. bankruptcy, military service, death and disability, and disaster forbearance) are required by law and therefore are also not considered as part of the Company's loan modification programs. The Company does offer payment delays in the form of deferments or forbearances on certain private education and consumer loan programs for short-term periods. The Company generally considers payment delays to be insignificant when the delay is 3 months or less. The amortized cost of the Company’s private education and consumer loans in which the borrower is experiencing financial difficulty and the financial effect of such loan modifications is not material.

12


Key Credit Quality Indicators
Loan Status and Delinquencies
Key credit quality indicators for the Company’s federally insured, private education, consumer, and other loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The following table presents the Company’s loan status and delinquency amounts.
As of September 30, 2023 As of December 31, 2022 As of September 30, 2022
Federally insured loans - Non-Nelnet Bank:        
Loans in-school/grace/deferment $ 562,754  4.6  %   $ 637,919  4.7  %   $ 719,724  5.0  %
Loans in forbearance 906,060  7.4    1,103,181  8.1    1,384,709  9.7 
Loans in repayment status:    
Loans current 9,014,731  83.2  % 10,173,859  86.0  % 10,454,046  85.7  %
Loans delinquent 31-60 days 441,016  4.1  415,305  3.5  431,471  3.6 
Loans delinquent 61-90 days 301,028  2.8  253,565  2.2  261,616  2.1 
Loans delinquent 91-120 days 213,245  2.0  180,029  1.5  185,753  1.5 
Loans delinquent 121-270 days 648,924  6.0  534,410  4.5  540,555  4.4 
Loans delinquent 271 days or greater 211,226  1.9  268,205  2.3  322,517  2.7 
Total loans in repayment 10,830,170  88.0  100.0  % 11,825,373  87.2  100.0  % 12,195,958  85.3  100.0  %
Total federally insured loans 12,298,984  100.0  %   13,566,473  100.0  %   14,300,391  100.0  %
Accrued interest receivable 798,102  808,150  786,494 
Loan discount, net of unamortized premiums and deferred origination costs (30,979) (35,468) (25,381)
Allowance for loan losses (72,043) (83,593) (87,778)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 12,994,064  $ 14,255,562  $ 14,973,726 
Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment $ 11,373  3.9  % $ 12,756  5.1  % $ 15,556  5.9  %
Loans in forbearance 2,280  0.8  2,017  0.8  2,745  1.1 
Loans in repayment status:
Loans current 271,948  97.4  % 232,539  97.9  % 238,926  98.0  %
Loans delinquent 31-60 days 3,485  1.2  2,410  1.0  2,014  0.8 
Loans delinquent 61-90 days 1,424  0.5  767  0.3  992  0.4 
Loans delinquent 91 days or greater 2,494  0.9  1,894  0.8  1,950  0.8 
Total loans in repayment 279,351  95.3  100.0  % 237,610  94.1  100.0  % 243,882  93.0  100.0  %
Total private education loans 293,004  100.0  %   252,383  100.0  %   262,183  100.0  %
Accrued interest receivable 2,750  2,146  2,207 
Loan discount, net of unamortized premiums (8,069) (38) (185)
Allowance for loan losses (16,944) (15,411) (15,577)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,741  $ 239,080  $ 248,628 
Consumer and other loans - Non-Nelnet Bank:
Loans in deferment $ 20  0.0  % $ 109  0.0  % $ 29  0.0  %
Loans in repayment status:
Loans current 137,744  95.9  % 346,812  98.9  % 228,827  98.9  %
Loans delinquent 31-60 days 1,987  1.4  1,906  0.5  1,019  0.4 
Loans delinquent 61-90 days 1,293  0.9  764  0.2  427  0.2 
Loans delinquent 91 days or greater 2,589  1.8  1,324  0.4  1,139  0.5 
Total loans in repayment 143,613  100.0  100.0  % 350,806  100.0  100.0  % 231,412  100.0  100.0  %
Total consumer and other loans 143,633  100.0  % 350,915  100.0  % 231,441  100.0  %
Accrued interest receivable 1,716  3,658  2,561 
Loan discount, net of unamortized premiums (180) (588) (1,847)
Allowance for loan losses (14,022) (30,263) (13,290)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 131,147  $ 323,722  $ 218,865 
13


As of September 30, 2023 As of December 31, 2022 As of September 30, 2022
Federally insured loans - Nelnet Bank (a):
Loans in-school/grace/deferment $ 283  0.5  % $ 241  0.4  % $ 274  0.4  %
Loans in forbearance 862  1.5  981  1.5  2,551  3.5 
Loans in repayment status:
Loans current 57,059  98.3  % 63,225  97.8  % 68,970  98.4  %
Loans delinquent 30-59 days 333  0.6  436  0.7  353  0.5 
Loans delinquent 60-89 days 81  0.1  466  0.7  130  0.2 
Loans delinquent 90-119 days 12  0.0  222  0.3  5  0.0 
Loans delinquent 120-270 days 428  0.7  183  0.3  508  0.7 
Loans delinquent 271 days or greater 203  0.3  159  0.2  114  0.2 
Total loans in repayment 58,116  98.0  100.0  % 64,691  98.1  100.0  % 70,080  96.1  100.0  %
Total federally insured loans 59,261  100.0  % 65,913  100.0  % 72,905  100.0  %
Accrued interest receivable 2,008  1,758  1,607 
Loan premium 19  20  23 
Allowance for loan losses (148) (170) (164)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 61,140  $ 67,521  $ 74,371 
Private education loans - Nelnet Bank (a):
Loans in-school/grace/deferment $ 23,575  6.6  % $ 11,580  3.3  % $ 10,888  3.1  %
Loans in forbearance 1,169  0.3  864  0.2  524  0.1 
Loans in repayment status:
Loans current 333,595  99.5  % 340,830  99.8  % 344,469  99.8  %
Loans delinquent 30-59 days 679  0.2  167  0.1  197  0.1 
Loans delinquent 60-89 days 412  0.1  32  0.0  79  0.0 
Loans delinquent 90 days or greater 511  0.2  409  0.1  414  0.1 
Total loans in repayment 335,197  93.1  100.0  % 341,438  96.5  100.0  % 345,159  96.8  100.0  %
Total private education loans 359,941  100.0  % 353,882  100.0  % 356,571  100.0  %
Accrued interest receivable 1,905  1,152  969 
Deferred origination costs, net of unaccreted discount 5,578  5,360  5,369 
Allowance for loan losses (3,083) (2,390) (2,248)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 364,341  $ 358,004  $ 360,661 
Consumer and other loans - Nelnet Bank (a):
Loans in deferment $ 95  0.2  %
Loans in forbearance 32  0.1 
Loans in repayment status:
Loans current 48,358  97.7  %
Loans delinquent 30-59 days 527  1.1 
Loans delinquent 60-89 days 306  0.6 
Loans delinquent 90 days or greater 293  0.6 
Total loans in repayment 49,484  99.7  100.0  %
Total consumer and other loans 49,611  100.0  %
Accrued interest receivable 373 
Loan discount (7)
Allowance for loan losses (3,853)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 46,124 
(a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation.
14


FICO Scores - Nelnet Bank Private Education Loans
An additional key credit quality indicator for Nelnet Bank private education loans is FICO scores at the time of origination. The following tables highlight the gross principal balance of Nelnet Bank's private education loan portfolio, by year of origination, stratified by FICO score at the time of origination.
Loan balance as of September 30, 2023
Nine months ended September 30, 2023 2022 2021 2020 Total
FICO at origination:
Less than 705 $ 2,681  5,726  4,860  339  13,606 
705 - 734 6,970  22,441  9,395  502  39,308 
735 - 764 6,505  33,692  15,233  1,378  56,808 
765 - 794 4,797  53,433  28,066  1,400  87,696 
Greater than 794 13,719  80,523  61,283  5,425  160,950 
No FICO score available or required (a) 1,573  —  —  —  1,573 
$ 36,245  195,815  118,837  9,044  359,941 
Loan balance as of December 31, 2022
2022 2021 2020 Total
FICO at origination:
Less than 705 $ 5,898  5,389  348  11,635 
705 - 734 23,392  10,543  542  34,477 
735 - 764 35,456  16,686  1,473  53,615 
765 - 794 57,141  31,035  1,622  89,798 
Greater than 794 87,959  70,135  6,263  164,357 
$ 209,846  133,788  10,248  353,882 
(a)    Loans with no FICO score available or required refers to loans issued to borrowers for which the Company cannot obtain a FICO score or are not required to under a special purpose credit program. Management proactively assesses the risk and size of this loan category and, when necessary, takes actions to mitigate the credit risk.
Nonaccrual Status
The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private education, consumer, and other loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of September 30, 2023 and December 31, 2022, was not material.

15


Amortized Cost Basis by Origination Year
The following table presents the amortized cost of the Company's private education, consumer, and other loans by loan status and delinquency amount as of September 30, 2023 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010.
Nine months ended September 30, 2023 2022 2021 2020 2019 Prior years Total
Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment $ —  1,138  4,845  1,105  1,647  2,638  11,373 
Loans in forbearance —  79  50  411  569  1,171  2,280 
Loans in repayment status:
Loans current 128  4,311  4,351  46,927  38,618  177,613  271,948 
Loans delinquent 31-60 days —  —  33  383  234  2,835  3,485 
Loans delinquent 61-90 days —  4  31  145  42  1,202  1,424 
Loans delinquent 91 days or greater —  —  —  189  —  2,305  2,494 
Total loans in repayment 128  4,315  4,415  47,644  38,894  183,955  279,351 
Total private education loans $ 128  5,532  9,310  49,160  41,110  187,764  293,004 
Accrued interest receivable 2,750 
Loan discount, net of unamortized premiums (8,069)
Allowance for loan losses (16,944)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 270,741 
Gross charge-offs - nine months ended September 30, 2023 $ —  35  10  105  548  1,581  2,279 
Consumer and other loans - Non-Nelnet Bank:
Loans in deferment $ —  —  18  —  —  2  20 
Loans in repayment status:
Loans current 83,292  48,425  4,687  506  664  170  137,744 
Loans delinquent 31-60 days 677  1,128  167  —  9  6  1,987 
Loans delinquent 61-90 days 623  579  84  —  5  2  1,293 
Loans delinquent 91 days or greater 392  1,402  241  27  199  328  2,589 
Total loans in repayment 84,984  51,534  5,179  533  877  506  143,613 
Total consumer and other loans $ 84,984  51,534  5,197  533  877  508  143,633 
Accrued interest receivable 1,716 
Loan discount, net of unamortized premiums (180)
Allowance for loan losses (14,022)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 131,147 
Gross charge-offs - nine months ended September 30, 2023 $ 2,866  5,580  583  27  80  128  9,264 
Private education loans - Nelnet Bank (a):
Loans in-school/grace/deferment $ 9,028  12,210  1,218  1,119  —  —  23,575 
Loans in forbearance 147  683  339  —  —  —  1,169 
Loans in repayment status:
Loans current 26,709  182,313  116,684  7,889  —  —  333,595 
Loans delinquent 30-59 days 228  249  166  36  —  —  679 
Loans delinquent 60-89 days 4  165  243  —  —  —  412 
Loans delinquent 90 days or greater 129  195  187  —  —  —  511 
Total loans in repayment 27,070  182,922  117,280  7,925  —  —  335,197 
Total private education loans $ 36,245  195,815  118,837  9,044  —  —  359,941 
Accrued interest receivable 1,905 
Deferred origination costs, net of unaccreted discount 5,578 
Allowance for loan losses (3,083)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 364,341 
Gross charge-offs - nine months ended September 30, 2023 $ 20  637  —  —  —  —  657 
16


Nine months ended September 30, 2023 2022 2021 2020 2019 Prior years Total
Consumer and other loans - Nelnet Bank (a):
Loans in deferment $ 95  —  —  —  —  —  95 
Loans in forbearance 32  —  —  —  —  —  32 
Loans in repayment status:
Loans current 47,813  490  55  —  —  —  48,358 
Loans delinquent 30-59 days 527  —  —  —  —  —  527 
Loans delinquent 60-89 days 306  —  —  —  —  —  306 
Loans delinquent 90 days or greater 293  —  —  —  —  —  293 
Total loans in repayment 48,939  490  55  —  —  —  49,484 
Total consumer and other loans $ 49,066  490  55  —  —  —  49,611 
Accrued interest receivable 373 
Loan discount (7)
Allowance for loan losses (3,853)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 46,124 
Gross charge-offs - nine months ended September 30, 2023 $ 517  —  —  —  —  —  517 
(a) For the periods presented for Nelnet Bank, the delinquency bucket periods conform with the delinquency bucket periods reflected in Nelnet Bank's Call Reports filed with the Federal Deposit Insurance Corporation.
17


3.  Bonds and Notes Payable
The following tables summarize the Company’s outstanding debt obligations by type of instrument:
  As of September 30, 2023
Carrying
amount
Interest rate
range
 Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:      
Bonds and notes based on indices $ 10,028,276 
5.27% - 7.43%
 8/26/30 - 9/25/69
Bonds and notes based on auction 89,910 
0.00% - 6.43%
 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 10,118,186 
Fixed-rate bonds and notes issued in FFELP loan asset-backed
      securitizations		 497,397 
1.42% - 3.45%
 10/25/67 - 8/27/68
FFELP loan warehouse facilities 1,466,178 
5.40% - 5.67%
 11/22/24 / 4/2/25
Private education loan warehouse facility 38,183  5.63% 12/31/23
Consumer loan warehouse facility 49,937  5.68% 11/14/25
Variable-rate bonds and notes issued in private education loan asset-backed securitization 15,579 
6.90%
 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization 16,626 
5.35%
 12/28/43
Unsecured line of credit —  — 9/22/26
Participation agreement 63  6.06% 5/4/24
Repurchase agreement 336,523 
6.26% - 6.72%
 11/20/23 - 11/27/24
Other - due to related party 6,010 
3.55% - 6.05%
 3/1/24 - 11/15/30
12,544,682     
Discount on bonds and notes payable and debt issuance costs (96,573)
Total $ 12,448,109 
  As of December 31, 2022
Carrying
amount
Interest rate
range
 Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:      
Bonds and notes based on indices $ 11,868,190 
4.47% - 6.39%
 8/26/30 - 9/25/69
Bonds and notes based on auction 178,960 
0.00% - 4.02%
 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 12,047,150 
Fixed-rate bonds and notes issued in FFELP loan asset-backed
      securitizations
 594,051 
1.42% - 3.45%
 10/25/67 - 8/27/68
FFELP loan warehouse facility 978,956 
4.69% / 4.71%
 5/22/24
Private education loan warehouse facility 64,356  4.72% 12/31/23
Consumer loan warehouse facility 89,000  4.73% 11/14/25
Variable-rate bonds and notes issued in private education loan asset-backed securitizations 19,865 
5.90% / 6.14%
 12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization 23,032 
3.60% / 5.35%
 12/26/40 / 12/28/43
Unsecured line of credit —  — 9/22/26
Participation agreement 395,432  5.02% 5/4/23
Repurchase agreements 567,254 
0.97% - 5.60%
 1/4/23 - 11/27/24
Other - due to related party 6,187 
3.55% - 6.05%
 3/1/24 - 11/15/30
14,785,283     
Discount on bonds and notes payable and debt issuance costs (148,088)
Total $ 14,637,195 
18


Warehouse Facilities
The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. The following table summarizes the Company's warehouse facilities as of September 30, 2023.
Type of loans Maximum financing amount Amount outstanding Amount available Expiration of liquidity provisions Final maturity date Advance rate Advanced as equity support
FFELP (a) $ 1,250,000  1,067,533  182,467  11/22/2023 11/22/2024 note (b) $ 74,825 
FFELP (c) 432,000  398,645  33,355  4/2/2024 4/2/2025 92  % 33,483 
$ 1,682,000  1,466,178  215,822  $ 108,308 
Private (d) 38,183  38,183  —  10/31/2023 12/31/2023 —  17,910 
Consumer 250,000  49,937  200,063  11/14/2024 11/14/2025 70  % 21,328 
(a)    On March 31, 2023, this facility was amended to increase the aggregate maximum financing amount available from $1.20 billion to $1.25 billion. On May 22, 2023, this facility was amended to extend the expiration of liquidity provisions and final maturity date to November 22, 2023 and November 22, 2024, respectively.
(b)    This facility has a static advance rate until the expiration date of the liquidity provisions. The maximum advance rates for this facility are 90% to 96%, and the minimum advance rates are 84% to 90%. In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility.
(c)    On April 3, 2023, the Company closed on this $250.0 million FFELP facility. On May 25, 2023, this facility was amended to increase the maximum financing amount from $250.0 million to $432.0 million.
(d)    On June 30, 2023, August 31, 2023, and October 31, 2023, this facility was amended to extend the expiration of liquidity provisions to August 31, 2023, October 31, 2023, and December 31, 2023, respectively. No additional amounts can be borrowed under this facility.
Unsecured Line of Credit
The Company has a $495.0 million unsecured line of credit that has a maturity date of September 22, 2026. As of September 30, 2023, no amount was outstanding on the line of credit and $495.0 million was available for future use.
Participation Agreement
The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities (bond investments). As of September 30, 2023, $0.1 million (par value) of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. On May 4, 2023, the agreement automatically renewed for another year through May 4, 2024. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $400.0 million or an amount in excess of $400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities subject to this agreement are included on the Company's consolidated balance sheets as "investments and notes receivable" and the participation interests outstanding have been accounted for by the Company as a secured borrowing.
See note 5 for additional information about the FFELP loan asset-backed securities investments serving as collateral under the remaining participation agreement.
Repurchase Agreements
On May 3, 2021, the Company entered into a repurchase agreement with a non-affiliated third party, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities (bond investments). The agreement has various maturity dates through November 27, 2024 or earlier if either party provides 180 days’ prior written notice, and the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date. Included in “bonds and notes payable” in the consolidated balance sheets as of September 30, 2023 was $336.5 million subject to this agreement. On June 23, 2021, the Company entered into a separate repurchase agreement with a non-affiliated third party, which was collateralized by certain private education and FFELP loan asset-backed securities (bond investments). The outstanding balance of this facility was paid in full during the third quarter of 2023.
See note 5 and below under "Debt Repurchases" for additional information about the private education and FFELP loan asset-backed securities investments, respectively, serving as collateral for this repurchase agreement.
19


Debt Repurchases
The following table summarizes the Company's repurchases of its own debt. Gains/losses recorded by the Company from the repurchase of debt are included in "other, net" in "other income (expense)" on the Company's consolidated statements of income.
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Purchase price $ (4,284) (13,563) (5,112) (67,081)
Par value 5,033  13,903  5,941  69,133 
Remaining unamortized cost of issuance (12) (180) (14) (821)
Gain $ 737  160  815  1,231 
The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of September 30, 2023, the Company holds $257.3 million (par value) of its own FFELP loan asset-backed securities. As of September 30, 2023, $118.9 million (par value) of the Company's repurchased FFELP loan asset-backed securities were serving as collateral on amounts outstanding under the Company's repurchase agreement (as discussed above).
In April 2023, the Company redeemed $188.6 million of FFELP loan asset-backed debt securities (bonds and notes payable) prior to their maturity, of which the Company owned $140.5 million of the bonds that were redeemed. The remaining unamortized debt discount associated with these bonds at the time of redemption was written-off, resulting in a $25.9 million non-cash expense recognized in April 2023. This expense is included in "interest expense on bonds and notes payable and bank deposits" on the consolidated statements of income.
4.  Derivative Financial Instruments
The Company uses derivative financial instruments primarily to manage interest rate risk. Derivative instruments used as part of the Company's interest rate risk management strategy are further described in note 6 of the notes to consolidated financial statements included in the 2022 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 2023 and December 31, 2022 is presented below.
Non-Nelnet Bank Derivatives
Basis Swaps
The following table summarizes the Company’s outstanding basis swaps, in which the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). Subsequent to the discontinuation of LIBOR on June 30, 2023, the Company now receives and pays the term adjusted Secured Overnight Financing Rate (SOFR) plus the tenor spread adjustment to LIBOR.
Maturity Notional amount
As of As of
September 30, 2023 December 31, 2022
2023 $ —  750,000 
2024 1,750,000  1,750,000 
2026 1,150,000  1,150,000 
2027 250,000  250,000 
$ 3,150,000  3,900,000 
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2023 was the term adjusted SOFR plus the tenor spread adjustment relating to LIBOR plus 10.1 basis points and as of December 31, 2022 was one-month LIBOR plus 9.7 basis points, respectively.
20


Interest Rate Swaps – Floor Income Hedges
The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
As of September 30, 2023 As of December 31, 2022 (a)
Maturity Notional amount Weighted average fixed rate paid by the Company (b) Notional amount Weighted average fixed rate paid by the Company (b)
2024 $ —  —  % $ 2,000,000  0.35  %
2026 —  —  500,000  1.02 
2030 (c) 50,000  3.44  —  — 
2031 —  —  100,000  1.53 
2032 —  —  200,000  2.92 
  $ 50,000  3.44  % $ 2,800,000  0.70  %
(a)    On March 15, 2023, to minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives). Through March 15, 2023, the Company had received cash or had a receivable from the clearinghouse related to variation margin equal to the fair value of the $2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements.
(b)    For the interest rate derivative maturing in 2030, the Company receives payments based on SOFR that resets quarterly. For all other interest rate derivatives that were terminated, the Company received payments based on three-month LIBOR that reset quarterly.
(c)    The Company entered into this derivative in June 2023.
Nelnet Bank Derivatives
Interest Rate Swaps
Derivative instruments are used by Nelnet Bank to hedge the exposure to variability in cash flows of variable rate intercompany deposits primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Nelnet Bank has structured these derivatives so that each is economically effective; however, because these derivatives are hedging intercompany deposits, the derivative instruments are not eligible for hedge accounting in the consolidated financial statements. As a result, the change in market value of these derivative instruments is reported in current period earnings and presented in "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
The following table summarizes the outstanding derivative instruments used by Nelnet Bank to hedge exposure to variability in cash flows related to variable rate intercompany deposits as of September 30, 2023.
As of September 30, 2023
Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2028 $ 40,000  3.33  %
2030 (b) 50,000  3.06 
2032 (c) 25,000  4.03 
  $ 115,000  3.36  %
(a)    For all interest rate derivatives, the Company receives payments based on SOFR that reset monthly or quarterly.
(b)    These $25 million notional amount derivatives have forward effective start dates in April 2026 and May 2026, respectively.
(c)    This $25 million notional amount derivative has a forward effective start date in February 2027.
Unlike the Company's Non-Nelnet Bank derivatives, Nelnet Bank's derivatives are not cleared post-execution at a regulated clearinghouse. As such, the Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at fair value. As of September 30, 2023, the gross fair value of Nelnet Bank's interest rate swap derivatives was $3.1 million (an asset) that is included in "other assets" on the consolidated balance sheet.
21


Consolidated Financial Statement Impact Related to Derivatives
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.
Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022
Settlements:    
1:3 basis swaps $ 386  (1,085) 1,180  242 
Interest rate swaps - floor income hedges 235  11,356  22,760  11,843 
Interest rate swaps - Nelnet Bank 196  —  279  — 
Total settlements - income 817  10,271  24,219  12,085 
Change in fair value:    
1:3 basis swaps (464) 189  (253) 929 
Interest rate swaps - floor income hedges 1,656  52,802  (35,070) 238,196 
Interest rate swaps - Nelnet Bank 1,948  —  3,057  — 
Total change in fair value - income (expense) 3,140  52,991  (32,266) 239,125 
Derivative market value adjustments and derivative settlements, net - income (expense) $ 3,957  63,262  (8,047) 251,210 

22


5.  Investments and Notes Receivable
Investments and notes receivable consisted of the following:
As of September 30, 2023 As of December 31, 2022
Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Investments (at fair value):
Available-for-sale asset-backed securities
Non-Nelnet Bank:
FFELP loan (a) $ 295,986  5,930  (5,310) 296,606  463,861  3,498  (11,105) 456,254 
Private education loan (b) 294,068  —  (33,960) 260,108  335,903  —  (29,438) 306,465 
Other debt securities 65,923  2,082  (437) 67,568  158,589  151  (3,790) 154,950 
Total Non-Nelnet Bank 655,977  8,012  (39,707) 624,282  958,353  3,649  (44,333) 917,669 
Nelnet Bank:
FFELP loan (c) 318,919  3,329  (2,393) 319,855  349,855  955  (8,853) 341,957 
Private education loan 1,609  —  (83) 1,526  1,941  —  (122) 1,819 
Other debt securities 115,914  146  (2,426) 113,634  131,481  18  (3,907) 127,592 
Total Nelnet Bank 436,442  3,475  (4,902) 435,015  483,277  973  (12,882) 471,368 
Total available-for-sale asset-backed securities $ 1,092,419  11,487  (44,609) 1,059,297  1,441,630  4,622  (57,215) 1,389,037 
Equity securities 46,634  39,082 
Total investments at fair value 1,105,931  1,428,119 
Other Investments and Notes Receivable (not measured at fair value):
Held to maturity investments
Non-Nelnet Bank:
Debt securities (d) 4,700  18,554 
Nelnet Bank:
FFELP loan asset-backed securities (c) 158,125  — 
Other debt securities 241  220
Total Nelnet Bank 158,366  220 
Total held to maturity investments 163,066  18,774 
Venture capital and funds:
Measurement alternative (e) 193,106  160,052 
Equity method 99,640  89,332 
Total venture capital and funds 292,746  249,384 
Real estate:
Equity method 97,053  80,364 
Investment in ALLO:
Voting interest/equity method (f) 26,294  67,538 
Preferred membership interest and accrued and unpaid preferred return (g) 152,748  145,926 
Total investment in ALLO 179,042  213,464 
Beneficial interest in loan securitizations (h):
Consumer loans and other 98,701  39,249 
Private education loans 69,716  75,261 
Federally insured student loans 22,735  24,228 
Total beneficial interest in loan securitizations 191,152  138,738 
Solar (i) (144,929) (55,448)
Notes receivable 54,129  31,106 
Tax liens, affordable housing, and other 7,498  7,416 
Total investments (not measured at fair value) 839,757  683,798 
Total investments and notes receivable $ 1,945,688  $ 2,111,917 
23


(a)    A portion of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 3 under "Participation Agreement." As of September 30, 2023, the par value and fair value of these securities was $0.1 million and $0.1 million, respectively.
(b)    A portion of private education loan asset-backed securities were subject to a repurchase agreement with a third party, as discussed in note 3 under "Repurchase Agreements." As of September 30, 2023, the par value and fair value of these securities was $294.5 million and $260.1 million, respectively.
(c)    On March 31, 2023, securities at Nelnet Bank with a fair value of $149.2 million were transferred from available-for-sale to held to maturity. The securities were reclassified at fair value at the time of the transfer, and such transfer represented a non-cash transaction. Accumulated other comprehensive income as of March 31, 2023 included pre-tax unrealized losses of $3.7 million related to the transfer. These unrealized losses are being amortized, consistent with the amortization of any discounts on such securities, over the remaining lives of the respective securities as an adjustment of yield.
(d)    On March 31, 2023, certain Non-Nelnet Bank debt securities were transferred from held to maturity to available-for-sale.
(e)    The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. On February 6, 2023, the Company acquired additional ownership interests in Hudl for $31.5 million. Such ownership interests were purchased by the Company from certain existing Hudl investors. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. The February 6, 2023 transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities, and the price was privately negotiated between the Company and the selling parties. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the February 2023 transaction value. As of September 30, 2023, the carrying amount of the Company's investment in Hudl is $165.5 million, and the Company's equity ownership interests did not materially change as a result of the February 6, 2023 transaction. David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.
(f)    During the first quarter of 2023, the Company contributed $8.4 million of additional equity to ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO"). As a result of this equity contribution, the Company's voting membership interests percentage in ALLO did not materially change.
The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $17.3 million and $17.6 million during the three months ended September 30, 2023 and 2022, respectively, and $49.7 million and $47.6 million during the nine months ended September 30, 2023 and 2022, respectively. Losses from the Company's investment in ALLO are included in "other, net" in "other income (expense)" on the consolidated statements of income.
(g)    As of September 30, 2023, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $145.9 million and $6.8 million, respectively. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25%. The Company recognized income on its ALLO preferred membership interests of $2.3 million and $2.2 million during the three months ended September 30, 2023 and 2022, respectively, and $6.8 million and $6.4 million during the nine months ended September 30, 2023 and 2022, respectively. This income is included in "other, net" in "other income (expense)" on the consolidated statements of income.
(h)    The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2023, the Company's ownership correlates to approximately $660 million, $540 million, and $350 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations.
(i)    As of September 30, 2023, the Company has funded a total of $332.0 million in solar investments, which includes $126.5 million funded by syndication partners. The carrying value of the Company’s investment in a solar project is reduced by tax credits earned when the solar project is placed-in-service. The solar investment balance as of September 30, 2023 represents the sum of total tax credits earned on solar projects placed-in-service through September 30, 2023 and the calculated HLBV net losses being larger than the total investment contributions made by the Company on such projects. As of September 30, 2023, the Company is committed to fund an additional $265.9 million on tax equity investments, of which $128.7 million is expected to be provided by syndication partners.
The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The Company recognized losses on its solar investments of $3.6 million and $4.2 million during the three months ended September 30, 2023 and 2022, respectively, and $13.5 million and $7.1 million during the nine months ended September 30, 2023 and 2022, respectively. These losses, which include losses attributable to third-party noncontrolling interest investors (syndication partners), are included in “other, net” in "other income (expense)" on the consolidated statements of income. Solar losses attributed to noncontrolling interest investors was $1.8 million and $4.1 million for the three months ended September 30, 2023 and 2022, respectively, and $12.0 million and $8.0 million during the nine months ended September 30, 2023 and 2022, respectively, and is reflected in “net loss attributable to noncontrolling interests” in the consolidated statements of income. Excluding losses attributed to noncontrolling interest investors, the Company recognized losses on its solar investments of $1.8 million and $0.1 million during the three months ended September 30, 2023 and 2022, respectively, and losses of $1.5 million and gains of $0.9 million during the nine months ended September 30, 2023 and 2022, respectively.
24


The following table presents, by remaining contractual maturity, the amortized cost and fair value of debt securities at September 30, 2023:
As of September 30, 2023
1 year or less After 1 year through 5 years After 5 years through 10 years After 10 years Total
Available-for-sale asset-backed securities
Non-Nelnet Bank:
FFELP loan $ —  15,808  28,269  251,909  295,986 
Private education loan —  —  —  294,068  294,068 
Other debt securities —  99  9,199  56,625  65,923 
Total Non-Nelnet Bank —  15,907  37,468  602,602  655,977 
Fair value —  15,676  36,563  572,043  624,282 
Nelnet Bank:
FFELP loan 68,494  13,183  55,630  181,612  318,919 
Private education loan —  —  —  1,609  1,609 
Other debt securities 1,194  27,530  47,725  39,465  115,914 
Total Nelnet Bank 69,688  40,713  103,355  222,686  436,442 
Fair value 69,388  40,122  102,450  223,055  435,015 
Total available-for-sale asset-backed securities at amortized cost $ 69,688  56,620  140,823  825,288  1,092,419 
Total available-for-sale asset-backed securities at fair value $ 69,388  55,798  139,013  795,098  1,059,297 
Held to maturity investments
Non-Nelnet Bank:
Debt securities $ 4,700  —  —  —  4,700 
Fair value 4,700  —  —  —  4,700 
Nelnet Bank:
FFELP loan asset-backed securities —  3,571  —  154,554  158,125 
Other debt securities 241  —  —  —  241 
Total Nelnet Bank 241  3,571  —  154,554  158,366 
Fair value 241  3,641  —  155,786  159,668 
Total held-to-maturity investments at amortized cost $ 4,941  3,571  —  154,554  163,066 
Total held-to-maturity investments at fair value $ 4,941  3,641  —  155,786  164,368 
The following table presents securities classified as available-for-sale that have gross unrealized losses at September 30, 2023 and the fair value of such securities as of September 30, 2023. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities in the table below have been evaluated to determine if a credit loss exists. As part of that assessment, the Company concluded it currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses.
As of September 30, 2023
Unrealized loss position less than 12 months Unrealized loss position 12 months or more Total
Available-for-sale asset-backed securities Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Fair value
Non-Nelnet Bank:
FFELP loan $ (5,283) 181,168  (27) 716  (5,310) 181,884 
Private education loan (6,138) 65,276  (27,822) 194,832  (33,960) 260,108 
Other debt securities (437) 21,299  —  —  (437) 21,299 
Total Non-Nelnet Bank (11,858) 267,743  (27,849) 195,548  (39,707) 463,291 
Nelnet Bank:
FFELP loan (1,328) 123,951  (1,065) 60,907  (2,393) 184,858 
Private education loan —  —  (83) 1,526  (83) 1,526 
Other debt securities (319) 25,045  (2,107) 42,333  (2,426) 67,378 
Total Nelnet Bank (1,647) 148,996  (3,255) 104,766  (4,902) 253,762 
Total available-for-sale asset-backed securities $ (13,505) 416,739  (31,104) 300,314  (44,609) 717,053 
25


The following table summarizes the gross proceeds received and gross realized gains and losses related to sales of available-for-sale asset-backed securities.
Three months ended Nine months ended
September 30, September 30,
2023 2022 2023 2022
Gross proceeds from sales $ 198,548  130,705  776,096  450,457 
Gross realized gains $ 1,257  1,142  3,451  5,016 
Gross realized losses (193) (564) (6,452) (796)
Net gains (losses) $ 1,064  578  (3,001) 4,220 
6. Intangible Assets
Intangible assets consisted of the following:
Weighted average remaining useful life as of
September 30, 2023 (months)
As of As of
September 30, 2023 December 31, 2022
Amortizable intangible assets, net:    
Customer relationships (net of accumulated amortization of $45,217 and $55,116, respectively)
 105 $ 45,490  51,738 
Trade names (net of accumulated amortization of $5,177 and $617, respectively)
 21 3,733  8,293 
Computer software (net of accumulated amortization of $487 and $6,400, respectively)
 43 1,233  1,520 
Other (net of accumulated amortization of $986 and $490, respectively)
 45 1,454  1,950 
Total - amortizable intangible assets, net 96 $ 51,910  63,501 
The Company recorded amortization expense on its intangible assets of $5.4 million and $3.3 million for the three months ended September 30, 2023 and 2022, respectively, and $11.6 million and $8.6 million during the nine months ended September 30, 2023 and 2022, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2023, the Company estimates it will record amortization expense as follows:
2023 (October 1 - December 31) $ 5,382 
2024 8,775 
2025 7,141 
2026 6,294 
2027 5,814 
2028 and thereafter 18,504 
  $ 51,910 
7. Goodwill
The following table presents the carrying amount of goodwill as of September 30, 2023 and December 31, 2022 by reportable operating segment:
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset Generation and Management Nelnet Bank Corporate and Other Activities Total
Goodwill balance $ 23,639  92,507  41,883  —  18,873  176,902 
26


8.  Impairment Expense
The Company continues to evaluate the use of office space as a large number of associates continue to work from home. As a result, the Company recorded impairment charges related to operating lease assets and associated leasehold improvements of $5.0 million during the third quarter of 2023, which included a $2.4 million lease termination fee paid to Union Bank, a related party. In 2022, the Company recorded non-cash impairment charges of $6.2 million, primarily related to one of its venture capital investments accounted for under the measurement alternative method. The Company’s impairment charges are included in “impairment and other expense, net” in the consolidated statements of income.
9.  Bank Deposits
Deposits are interest-bearing deposits and primarily consist of brokered certificates of deposit (CDs) and retail and other savings deposits and CDs. Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trusts (STFIT), and commercial and institutional CDs. Union Bank, a related party, is the program manager for the College Savings plans and trustee for the STFIT Trust. CDs are accounts that have a stipulated maturity and interest rate. For savings accounts, the depositor may be required to give written notice of any intended withdrawal no less than seven days before the withdrawal is made. Generally, early withdrawal of brokered CDs is prohibited (except in the case of death or legal incapacity).
As of September 30, 2023 and December 31, 2022, Nelnet Bank had intercompany deposits from Nelnet, Inc. and its subsidiaries totaling $229.3 million and $98.3 million, respectively, including a $40.0 million pledged deposit from Nelnet, Inc. as required under a Capital and Liquidity Maintenance Agreement with the FDIC. All intercompany deposits held at Nelnet Bank are eliminated for consolidated financial reporting purposes.
The following table summarizes Nelnet Bank’s interest-bearing deposits, excluding intercompany deposits:
As of As of
September 30, 2023 December 31, 2022
Brokered CDs, net of brokered deposit fees $ 203,470  254,817 
Commercial 2,057  — 
Retail and other savings (529, STFIT, and HSA) 491,496  410,556 
Retail and other CDs (commercial and institutional) 21,030  25,949 
Total interest-bearing deposits $ 718,053  691,322 
The following table presents certificates of deposit remaining maturities as of September 30, 2023:
After two years to three years $ 149,855 
After three years to four years 74,298 
After four years to five years 347 
Total $ 224,500 
The Educational 529 College Savings, STFIT, and Health Savings plan deposits are large interest-bearing omnibus accounts structured to allow FDIC insurance to flow through to underlying individual depositors. Except for the commercial deposit, the pledged deposit from Nelnet, Inc., and an earmarked deposit required for intercompany transactions, there were no deposits exceeding the FDIC insurance limits as of September 30, 2023 and December 31, 2022.
27


10.  Earnings per Common Share
The following table presents the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.
  Three months ended September 30,
2023 2022
Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:
Net income attributable to Nelnet, Inc. $ 44,367  965  45,332  102,763  2,035  104,798 
Denominator:
Weighted-average common shares outstanding - basic and diluted 36,699,510  798,563  37,498,073  36,654,781  725,712  37,380,493 
Earnings per share - basic and diluted $ 1.21  1.21  1.21  2.80  2.80  2.80 
Nine months ended September 30,
2023 2022
Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:
Net income attributable to Nelnet, Inc. $ 97,982  2,104  100,086  369,479  7,094  376,573 
Denominator:
Weighted-average common shares outstanding - basic and diluted 36,650,653  786,934  37,437,587  36,998,100  710,325  37,708,425 
Earnings per share - basic and diluted $ 2.67  2.67  2.67  9.99  9.99  9.99 

28


11.  Segment Reporting
See note 17 of the notes to consolidated financial statements included in the 2022 Annual Report for a description of the Company's operating segments. The following tables present the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.
  Three months ended September 30, 2023
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset
Generation and
Management		 Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 1,098  8,934  248,878  15,171  16,253  (5,783) 284,551 
Interest expense —  —  197,393  9,456  6,093  (5,783) 207,159 
Net interest income 1,098  8,934  51,485  5,715  10,160  —  77,392 
Less provision for loan losses —  —  8,732  1,927  —  —  10,659 
Net interest income after provision for loan losses 1,098  8,934  42,753  3,788  10,160  —  66,733 
Other income (expense):
Loan servicing and systems revenue 127,892  —  —  —  —  —  127,892 
Intersegment revenue 6,944  77  —  —  —  (7,021) — 
Education technology, services, and payment processing revenue —  113,796  —  —  —  —  113,796 
Solar construction revenue —  —  —  —  6,301  —  6,301 
Other, net 687  —  2,776  565  (4,238) —  (211)
Gain on sale of loans, net —  —  5,362  —  —  —  5,362 
Impairment and other expense, net (296) —  —  —  (4,678) —  (4,974)
Derivative settlements, net —  —  621  196  —  —  817 
Derivative market value adjustments, net —  —  1,192  1,948  —  —  3,140 
Total other income (expense), net 135,227  113,873  9,951  2,709  (2,615) (7,021) 252,123 
Cost of services:
Cost to provide education technology, services, and payment processing services —  43,694  —  —  —  —  43,694 
Cost to provide solar construction services —  —  —  —  7,783  —  7,783 
Total cost of services —  43,694  —  —  7,783  —  51,477 
Operating expenses:
Salaries and benefits 73,310  39,776  1,242  2,520  25,019  (663) 141,204 
Depreciation and amortization 5,023  3,030  —  259  13,522  —  21,835 
Other expenses 15,629  8,309  2,952  1,290  23,192  —  51,370 
Intersegment expenses, net 17,894  5,875  7,948  129  (25,488) (6,358) — 
Total operating expenses 111,856  56,990  12,142  4,198  36,245  (7,021) 214,409 
Income (loss) before income taxes 24,469  22,123  40,562  2,299  (36,483) —  52,970 
Income tax (expense) benefit (5,872) (5,307) (9,735) (552) 10,732  —  (10,734)
Net income (loss) 18,597  16,816  30,827  1,747  (25,751) —  42,236 
Net (income) loss attributable to noncontrolling interests —  (6) —  —  3,102  —  3,096 
Net income (loss) attributable to Nelnet, Inc. $ 18,597  16,810  30,827  1,747  (22,649) —  45,332 
Total assets as of September 30, 2023 $ 243,697  444,631  14,111,517  1,089,565  2,052,500  (719,228) 17,222,682 


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  Three months ended September 30, 2022
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset
Generation and
Management		 Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 831  3,707  182,932  7,551  10,860  (2,748) 203,133 
Interest expense —  —  120,009  3,298  6,067  (2,748) 126,625 
Net interest income 831  3,707  62,923  4,253  4,793  —  76,508 
Less provision for loan losses —  —  9,215  450  —  —  9,665 
Net interest income after provision for loan losses 831  3,707  53,708  3,803  4,793  —  66,843 
Other income (expense):
Loan servicing and systems revenue 134,197  —  —  —  —  —  134,197 
Intersegment revenue 8,281  8  —  —  —  (8,289) — 
Education technology, services, and payment processing revenue —  106,894  —  —  —  —  106,894 
Solar construction revenue —  —  —  —  9,358  —  9,358 
Other, net 596  —  4,627  566  (3,564) —  2,225 
Gain on sale of loans, net —  —  2,627  —  —  —  2,627 
Impairment and other expense, net —  —  —  —  121  —  121 
Derivative settlements, net —  —  10,271  —  —  —  10,271 
Derivative market value adjustments, net —  —  52,991  —  —  —  52,991 
Total other income (expense), net 143,074  106,902  70,516  566  5,915  (8,289) 318,684 
Cost of services:
Cost to provide education technology, services, and payment processing services —  42,676  —  —  —  —  42,676 
Cost to provide solar construction services —  —  —  —  5,968  —  5,968 
Total cost of services —  42,676  —  —  5,968  —  48,644 
Operating expenses:
Salaries and benefits 82,067  34,950  653  1,814  27,713  —  147,198 
Depreciation and amortization 5,784  2,532  —  4  10,452  —  18,772 
Other expenses 16,654  7,034  3,349  1,427  15,395  —  43,858 
Intersegment expenses, net 17,486  4,762  8,350  69  (22,378) (8,289) — 
Total operating expenses 121,991  49,278  12,352  3,314  31,182  (8,289) 209,828 
Income (loss) before income taxes 21,914  18,655  111,872  1,055  (26,442) —  127,055 
Income tax (expense) benefit (5,259) (4,475) (26,849) (246) 10,244  —  (26,586)
Net income (loss) 16,655  14,180  85,023  809  (16,198) —  100,469 
Net (income) loss attributable to noncontrolling interests —  (61) —  —  4,390  —  4,329 
Net income (loss) attributable to Nelnet, Inc. $ 16,655  14,119  85,023  809  (11,808) —  104,798 
Total assets as of September 30, 2022 $ 235,858  440,859  16,374,493  884,089  2,360,882  (732,648) 19,563,533 



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Nine months ended September 30, 2023
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset
Generation and
Management		 Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 3,193  20,237  737,359  41,092  63,307  (30,643) 834,547 
Interest expense —  —  618,905  24,841  26,653  (30,643) 639,756 
Net interest income 3,193  20,237  118,454  16,251  36,654  —  194,791 
Less provision for loan losses —  —  48,689  5,837  —  —  54,526 
Net interest income after provision for loan losses 3,193  20,237  69,765  10,414  36,654  —  140,265 
Other income (expense):
Loan servicing and systems revenue 389,138  —  —  —  —  —  389,138 
Intersegment revenue 21,980  198  —  —  —  (22,178) — 
Education technology, services, and payment processing revenue —  357,258  —  —  —  —  357,258 
Solar construction revenue —  —  —  —  19,687  —  19,687 
Other, net 1,900  —  6,939  1,395  (31,526) —  (21,293)
Gain on sale of loans, net —  —  32,685  —  —  —  32,685 
Impairment and other expense, net (296) —  —  —  (4,678) —  (4,974)
Derivative settlements, net —  —  23,940  279  —  —  24,219 
Derivative market value adjustments, net —  —  (35,323) 3,057  —  —  (32,266)
Total other income (expense), net 412,722  357,456  28,241  4,731  (16,517) (22,178) 764,454 
Cost of services:
Cost to provide education technology, services, and payment processing services —  131,804  —  —  —  —  131,804 
Cost to provide solar construction services —  —  —  —  25,204  —  25,204 
Total cost of services —  131,804  —  —  25,204  —  157,008 
Operating expenses:
Salaries and benefits 234,012  116,040  3,093  6,881  79,403  (808) 438,620 
Depreciation and amortization 14,400  8,424  —  315  33,976  —  57,114 
Other expenses 42,760  26,063  12,083  3,696  53,550  —  138,154 
Intersegment expenses, net 58,030  17,559  24,789  302  (79,310) (21,370) — 
Total operating expenses 349,202  168,086  39,965  11,194  87,619  (22,178) 633,888 
Income (loss) before income taxes 66,713  77,803  58,041  3,951  (92,686) —  113,823 
Income tax (expense) benefit (16,011) (18,700) (13,930) (913) 20,080  —  (29,475)
Net income (loss) 50,702  59,103  44,111  3,038  (72,606) —  84,348 
Net (income) loss attributable to noncontrolling interests —  113  —  —  15,625  —  15,738 
Net income (loss) attributable to Nelnet, Inc. $ 50,702  59,216  44,111  3,038  (56,981) —  100,086 
Total assets as of September 30, 2023 $ 243,697  444,631  14,111,517  1,089,565  2,052,500  (719,228) 17,222,682 


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Nine months ended September 30, 2022
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset
Generation and
Management		 Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 1,144  4,920  441,926  15,792  21,087  (4,953) 479,916 
Interest expense 44  —  235,720  5,792  11,745  (4,953) 248,347 
Net interest income 1,100  4,920  206,206  10,000  9,342  —  231,569 
Less provision for loan losses —  —  17,178  1,462  —  —  18,640 
Net interest income after provision for loan losses 1,100  4,920  189,028  8,538  9,342  —  212,929 
Other income (expense):
Loan servicing and systems revenue 395,438  —  —  —  —  —  395,438 
Intersegment revenue 25,142  16  —  —  —  (25,158) — 
Education technology, services, and payment processing revenue —  310,211  —  —  —  —  310,211 
Solar construction revenue —  —  —  —  9,358  —  9,358 
Other, net 1,946  —  16,270  2,224  4,309  —  24,750 
Gain on sale of loans, net —  —  5,616  —  —  —  5,616 
Impairment and other expense, net —  —  —  —  (6,163) —  (6,163)
Derivative settlements, net —  —  12,085  —  —  —  12,085 
Derivative market value adjustments, net —  —  239,125  —  —  —  239,125 
Total other income (expense), net 422,526  310,227  273,096  2,224  7,504  (25,158) 990,420 
Cost of services:
Cost to provide education technology, services, and payment processing services —  109,073  —  —  —  —  109,073 
Cost to provide solar construction services —  —  —  —  5,968  —  5,968 
Total cost of services —  109,073  —  —  5,968  —  115,041 
Operating expenses:
Salaries and benefits 257,259  98,356  1,858  5,082  75,455  —  438,010 
Depreciation and amortization 16,056  7,544  —  11  30,366  —  53,978 
Other expenses 46,375  19,549  9,925  3,009  41,438  —  120,297 
Intersegment expenses, net 56,442  14,171  25,694  171  (71,320) (25,158) — 
Total operating expenses 376,132  139,620  37,477  8,273  75,939  (25,158) 612,285 
Income (loss) before income taxes 47,494  66,454  424,647  2,489  (65,061) —  476,023 
Income tax (expense) benefit (11,399) (15,947) (101,915) (574) 22,070  —  (107,765)
Net income (loss) 36,095  50,507  322,732  1,915  (42,991) —  368,258 
Net (income) loss attributable to noncontrolling interests —  (8) —  —  8,323  —  8,315 
Net income (loss) attributable to Nelnet, Inc. $ 36,095  50,499  322,732  1,915  (34,668) —  376,573 
Total assets as of September 30, 2022 $ 235,858  440,859  16,374,493  884,089  2,360,882  (732,648) 19,563,533 

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12. Disaggregated Revenue
The following tables present disaggregated revenue by service offering or customer type for the Company's fee-based operating segments.
Loan Servicing and Systems
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022
Government loan servicing $ 100,154  104,428  304,769  312,368 
Private education and consumer loan servicing 12,330  12,198  36,556  37,194 
FFELP loan servicing 3,304  4,127  10,226  12,386 
Software services 9,416  8,229  25,076  23,536 
Outsourced services 2,688  5,215  12,511  9,954 
Loan servicing and systems revenue $ 127,892  134,197  389,138  395,438 
Education Technology, Services, and Payment Processing
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022
Tuition payment plan services $ 30,223  25,779  95,235  84,131 
Payment processing 50,848  47,957  126,716  113,996 
Education technology and services 31,793  32,548  132,796  110,755 
Other 932  610  2,511  1,329 
Education technology, services, and payment processing revenue $ 113,796  106,894  357,258  310,211 
Solar Construction
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022 (a)
Commercial revenue $ 4,101  7,856  12,339  7,856 
Residential revenue 2,085  1,398  7,266  1,398 
Other 115  104  82  104 
Solar construction revenue $ 6,301  9,358  19,687  9,358 
(a) GRNE Solar was acquired on July 1, 2022.
Other Income (Expense)
The following table presents the components of "other, net" in "other income (expense)" on the consolidated statements of income:
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
ALLO preferred return $ 2,299  2,164  6,822  6,420 
Borrower late fee income 2,220  2,824  6,635  7,693 
Administration/sponsor fee income 1,712  1,920  5,180  6,055 
Investment advisory services 1,633  1,612  4,884  4,375 
Loss from ALLO voting membership interest investment (17,293) (17,562) (49,676) (47,633)
Loss from solar investments (3,605) (4,216) (13,481) (7,100)
Investment activity, net (1,016) 10,701  (8,169) 40,626 
Other 13,839  4,782  26,512  14,314 
Other, net $ (211) 2,225  (21,293) 24,750 
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13.  Major Customer
Government Loan Servicing
Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes Educational Loan Services, Inc. (Great Lakes), both subsidiaries of the Company, are two of the current five private sector entities that have student loan servicing contracts with the Department. Revenue earned by the Company related to these contracts was $100.2 million and $104.4 million for the three months ended September 30, 2023 and 2022, respectively, and $304.8 million and $312.4 million for the nine months ended September 30, 2023 and 2022, respectively. The Company also earned remote hosted servicing revenue by licensing its software to certain third-party servicers for the Department.
Contract Modifications and Award
Effective April 1, 2023, the Department modified the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes (the “servicing contracts”) to reduce the monthly fee under the servicing contracts by $0.19 per borrower on certain borrower statuses.
The Company's current student loan servicing contracts with the Department were scheduled to expire on December 14, 2023. In April 2023, Nelnet Diversified Solutions, LLC (NDS), a subsidiary of the Company, received a contract award from the Department, pursuant to which NDS was selected to provide continued servicing capabilities for the Department's student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which will replace the existing legacy Department student loan servicing contracts. On October 11, 2023, the USDS contract awarded to NDS was novated to Nelnet Servicing.
The New Government Servicing Contract is effective April 24, 2023 and has a five year base period, with 2 two-year and 1 one-year possible extensions. The Department's total loan servicing volume of more than 37 million existing borrowers will be allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract based on service and performance levels. Under the New Government Servicing Contract, Nelnet Servicing immediately began to make required servicing platform enhancements, for which it will be compensated from the Department on certain of these investments. In April 2023, the Department indicated that servicing under the USDS contracts will go live in 2024 and it will extend the current legacy servicing contracts from December 14, 2023 to December 2024. Until servicing under the USDS contracts goes live, which is anticipated to be during the second quarter of 2024, the Company will continue to earn revenue for servicing borrowers under its current legacy servicing contracts with the Department.
The new USDS servicing contracts have multiple revenue components with tiered pricing based on borrower volume, while revenue earned under the legacy servicing contracts is primarily based on borrower status. Assuming borrower volume remains consistent under the USDS servicing contract, the Company expects revenue earned on a per borrower blended basis will decrease under the USDS contract versus the current legacy contracts. However, consistent with the current legacy contracts, the Company expects to earn additional revenue from the Department under the USDS servicing contract for change requests, consolidations, and other support services. As discussed below, during the second quarter of 2023, the Company completed the transfer of Great Lakes direct loan servicing volume to the Nelnet servicing platform. The associated cost savings with moving government borrowers to one servicing platform will be partially offset under the USDS contract as the Company will incur additional costs for cybersecurity and other system specifications as required under the new contract.
Loan Volume Transfers - Full Service Borrowers
In February 2023, the Department notified the Company of its intention to transfer up to one million of the Company’s existing Department servicing borrowers to another third-party servicer. This transfer decision was not based on the Company's performance. These transfers began in the second quarter of 2023 and were completed in July 2023.
In addition, the Company completed the transfer of active borrowers of Great Lakes direct loan servicing volume to the Nelnet servicing platform (the GreatNet Federal servicing platform) during the second quarter of 2023. The Company anticipates the decommissioning of the Great Lakes' platform to be completed by the end of 2023. Therefore, potential associated cost savings as a result of transferring direct loan servicing volume to one platform will not be recognized in operating results until 2024.
Loan Volume Transfers - Remote Hosted Servicing Borrowers
Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, utilized Nelnet Servicing's platform to service their loans for the Department (remote hosted servicing customer). In the fourth quarter of 2022, Nelnet Servicing and Edfinancial reached an agreement on a decommission schedule transferring Edfinancial’s direct loan servicing volume to another third-party servicing platform. As of December 31, 2022, Edfinancial was servicing 4.5 million borrowers for the Department on the Company’s platform. The Company began transferring Edfinancial's servicing volume to another servicing platform in the first quarter of 2023 which reduced the number of Edfinancial's borrowers serviced on the Company's platform to 3.5 million borrowers as of March 31, 2023 and 579,000 borrowers as of June 30, 2023.
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Edfinancial's remaining borrowers were transferred off of the Company's platform in July 2023.
In February 2023, the Company’s other remote hosted servicing customer notified the Company the Department intended to move that customer’s servicing borrowers to a different third-party servicing platform. This transfer decision was the result of this customer not being one of the servicers awarded a USDS contract. As of March 31, 2023, this remote hosted servicing customer was servicing 1.4 million borrowers for the Department on the Company's platform. The majority of this volume was transferred to another third-party servicing platform during the second quarter of 2023, and the remaining borrowers were transferred off of the Company's platform in July 2023.
As a result of the transfers discussed above, the Company currently has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods. However, the Company has executed an agreement with a third-party servicer awarded a USDS contract to license its servicing software to such entity and the Company anticipates earning remote hosted servicing revenue from this new customer when USDS goes live beginning in the second quarter of 2024.
Department of Education Debt Relief
In August 2022, the Department announced a broad based student debt relief plan that would provide targeted student debt cancellation to borrowers with loans held by the Department with unconditional loan cancellation in amounts of up to $20,000 for eligible borrowers who received a Pell Grant, or of up to $10,000 for eligible borrowers who did not receive a Pell Grant. Federal courts blocked implementation of the Department's broad based student debt relief plan and on June 30, 2023, the Supreme Court struck down the Department's plan. While the current version of the Department's forgiveness plan has been invalidated, the Department recently announced that it has begun a new rulemaking process to consider other ways to provide debt relief to borrowers. The Company cannot predict the timing, nature, or ultimate outcome of any future potential student loan forgiveness programs as a result of the rulemaking process. Revenue earned under the current Department servicing contracts will decrease in future periods if the Department successfully implements broad based loan forgiveness.
14.  Fair Value
The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.
  As of September 30, 2023 As of December 31, 2022
  Level 1 Level 2 Total Level 1 Level 2 Total
Assets:      
Investments:
Asset-backed debt securities - available-for-sale $ 99  1,059,198  1,059,297  100  1,388,937  1,389,037 
Equity securities 80  —  80  6,719  —  6,719 
Equity securities measured at net asset value (a) 46,554  32,363 
Total investments 179  1,059,198  1,105,931  6,819  1,388,937  1,428,119 
Derivative instruments (b) —  3,056  3,056  —  —  — 
Total assets $ 179  1,062,254  1,108,987  6,819  1,388,937  1,428,119 
(a)    In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)    Nelnet Bank derivatives are accounted for at fair value on a recurring basis. The fair value of derivative financial instruments is determined using a market approach in which derivative pricing models use the stated terms of the contracts and observable yield curves and volatilities from active markets. When determining the fair value of derivatives, Nelnet Bank takes into account counterparty credit risk for positions where it is exposed to the counterparty on a net basis by assessing exposure net of collateral held. The net exposures for each counterparty are adjusted based on market information available for the specific counterparty.

35


The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets:
  As of September 30, 2023
  Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:        
Loans receivable $ 13,462,084  13,060,703  —  —  13,462,084 
Accrued loan interest receivable 806,854  806,854  —  806,854  — 
Cash and cash equivalents 187,690  187,690  187,690  —  — 
Investments (at fair value) 1,105,931  1,105,931  179  1,059,198  — 
Investments - held to maturity 164,368  163,066  —  164,368  — 
Notes receivable 54,129  54,129  —  54,129  — 
Beneficial interest in loan securitizations 239,890  191,152  —  —  239,890 
Restricted cash 445,983  445,983  445,983  —  — 
Restricted cash – due to customers 158,872  158,872  158,872  —  — 
Derivative instruments 3,056  3,056  —  3,056  — 
Financial liabilities:    
Bonds and notes payable 12,215,581  12,448,109  —  12,215,581  — 
Accrued interest payable 36,391  36,391  —  36,391  — 
Bank deposits 690,313  718,053  440,062  250,251  — 
Due to customers 341,822  341,822  341,822  —  — 
  As of December 31, 2022
  Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:        
Loans receivable $ 14,586,794  14,427,025  —  —  14,586,794 
Accrued loan interest receivable 816,864  816,864  —  816,864  — 
Cash and cash equivalents 118,146  118,146  118,146  —  — 
Investments (at fair value) 1,428,119  1,428,119  6,819  1,388,937  — 
Investments - held to maturity 18,996  18,774  —  18,996  — 
Notes receivable 31,106  31,106  —  31,106  — 
Beneficial interest in loan securitizations 162,360  138,738  —  —  162,360 
Restricted cash 945,159  945,159  945,159  —  — 
Restricted cash – due to customers 294,311  294,311  294,311  —  — 
Financial liabilities:    
Bonds and notes payable 14,088,666  14,637,195  —  14,088,666  — 
Accrued interest payable 36,049  36,049  —  36,049  — 
Bank deposits 664,573  691,322  355,282  309,291  — 
Due to customers 348,317  348,317  348,317  —  — 
The methodologies for estimating the fair value of financial assets and liabilities are described in note 24 of the notes to consolidated financial statements included in the 2022 Annual Report.
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 and nine months ended September 30, 2023 and 2022. 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 2022 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.
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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 2022 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 U.S. Department of Education (the "Department") and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or FFELP), private education, and consumer loans;
•loan portfolio risks such as credit 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, and risks from changes in levels of loan prepayment or default rates;
•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;
•uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
•risks and uncertainties of the expected benefits from the November 2020 launch of Nelnet Bank operations, including the ability to successfully conduct banking operations and achieve expected market penetration;
•risks related to the expected benefits to the Company from its continuing investment in ALLO Holdings, LLC (referred to collectively with its subsidiary ALLO Communications LLC as "ALLO"), and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;
•risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, 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 with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses.
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.
37


OVERVIEW
The Company is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications. 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 investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar). The Company is also actively expanding its private education, consumer, and other loan portfolios, and in November 2020 launched Nelnet Bank.
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, is provided below.
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
GAAP net income attributable to Nelnet, Inc. $ 45,332  104,798  100,086  376,573 
Realized and unrealized derivative market value adjustments (3,140) (52,991) 32,266  (239,125)
Tax effect (a) 754  12,718  (7,744) 57,390 
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 42,946  64,525  124,608  194,838 
Earnings per share:
GAAP net income attributable to Nelnet, Inc. $ 1.21  2.80  2.67  9.99 
Realized and unrealized derivative market value adjustments (0.08) (1.42) 0.86  (6.34)
Tax effect (a) 0.02  0.35  (0.20) 1.52 
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 1.15  1.73  3.33  5.17 
(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.
(b) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s 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. 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.
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Operating Segments
The Company's reportable operating segments are described in note 1 of the notes to consolidated financial statements included in the 2022 Annual Report. They include:
•Loan Servicing and Systems (LSS) - referred to as Nelnet Diversified Services (NDS)
•Education Technology, Services, and Payment Processing (ETS&PP) - referred to as Nelnet Business Services (NBS)
•Asset Generation and Management (AGM)
•Nelnet Bank
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, in 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 business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate also includes income earned on the majority of the Company’s investments, interest expense incurred on unsecured and other corporate related debt transactions, and certain shared service activities related to internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These shared services 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 reportable operating segment and Corporate and Other Activities for the three and nine months ended September 30, 2023 and 2022. See "Results of Operations" for each reportable operating segment and Corporate and Other Activities under this Item 2 for additional detail.
Three months ended September 30, Nine months ended September 30, Certain Items Impacting Comparability
(All dollar amounts below are pre-tax)
2023 2022 2023 2022
NDS $ 24,469  21,914  66,713  47,494 
•An increase in before tax operating margin in 2023 compared with 2022 due to a decrease in operating expenses, primarily salaries and benefits. In 2022, the Company was fully staffed in preparation for the resumption of federal student loan payments once the CARES Act suspension was to expire. The expiration of the CARES Act was extended multiple times throughout 2022. The Company reduced staff in the first and second quarters of 2023 to manage expenses due to the delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for the Company's Department servicing contracts. Margin was also positively impacted in 2023 due to $4.8 million of deconversion revenue recognized in the third quarter of 2023 related to a remote hosted servicing customer leaving the Company's platform.
NBS 22,123  18,655  77,803  66,454 
•The recognition of $8.9 million and $20.2 million of interest income for the three and nine months ended September 30, 2023, respectively, compared with $3.7 million and $4.9 million for the same periods in 2022, due to higher interest rates.
•A decrease in before tax operating margin, excluding net interest income, in 2023 compared with 2022 due to additional investments in the development of new services and technologies and superior customer experiences to align with the Company's strategies to grow, retain, and diversify revenue.
39


AGM 40,562  111,872  58,041  424,647 
•A net gain of $1.2 million and net loss of $35.3 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting for the three and nine months ended September 30, 2023, respectively, compared with a net gain of $53.0 million and $239.1 million for the same periods in 2022.
•The recognition of a $25.9 million non-cash expense in the second quarter of 2023 as the result of redeeming certain asset-backed debt securities prior to their maturity and writing off the remaining unamortized debt discount at the time of redemption.
•A decrease of $24.0 million and $38.7 million in net interest income due to a decrease in core loan spread for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.
•A decrease of $4.9 million and $24.2 million in net interest income due to the decrease in the average balance of loans for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.
•The recognition of $18.1 million and $47.7 million of investment interest for the three and nine months ended September 30, 2023, respectively, compared with $10.3 million and $28.1 million for the same periods in 2022 due to an increase of interest earned on restricted cash due to higher interest rates.
•The recognition of $5.4 million and $32.7 million in gains from the sale of loans for the three and nine months ended September 30, 2023, respectively, compared with $2.6 million and $5.6 million for the same periods in 2022.
•The recognition of $8.7 million and $48.7 million in provision for loan losses for the three and nine months ended September 30, 2023, respectively, compared with $9.2 million and $17.2 million for the same periods in 2022.
Nelnet Bank 2,299  1,055  3,951  2,489 
Corporate (36,483) (26,442) (92,686) (65,061)
•An increase of $4.2 million and $25.1 million in net interest income from the Company's cash and investment (bond) portfolio due to an increase in interest rates for the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022.
•The recognition of net investment income of $0.3 million and losses of $4.5 million for the three and nine months ended September 30, 2023, respectively, compared with net investment income of $10.5 million and $37.2 million for the same periods in 2022.
•The recognition of $4.9 million and $16.2 million of losses from the Company's acquisition of GRNE Solar on July 1, 2022 for the three and nine months ended September 30, 2023, respectively, compared with losses of $0.7 million for both the comparable periods in 2022.
•The recognition of an impairment charge of $4.7 million in the third quarter of 2023 related to real estate leases as the Company continues to downsize its facility footprint as a result of associates working from home compared with $6.2 million in the second quarter of 2022 related primarily to a venture capital investment.
Income before income taxes 52,970  127,055  113,823  476,023 
Income tax expense (10,734) (26,586) (29,475) (107,765)
Net loss attributable to noncontrolling interests 3,096  4,329  15,738  8,315 
Net income $ 45,332  104,798  100,086  376,573 
40


CONSOLIDATED RESULTS OF OPERATIONS
An analysis of the Company's consolidated operating results for the three and nine months ended September 30, 2023 compared with the same periods in 2022 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 Nine months ended
  September 30, September 30,
  2023 2022 2023 2022 Additional information
Loan interest $ 236,423  176,244  704,712  422,327  Increase was due to an increase in the gross yield earned on loans, partially offset by a decrease in the average balance of loans and in gross fixed rate floor income.
Investment interest 48,128  26,889  129,835  57,589  Includes income from interest-earning deposits and investments and restricted cash in asset-backed securitizations. Increase was due to an increase in interest earning investments and an increase in interest rates.
Total interest income 284,551  203,133  834,547  479,916 
Interest expense 207,159  126,625  639,756  248,347  Increase was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding. In addition, during the second quarter of 2023, the Company redeemed certain asset-backed debt securities prior to their maturity, resulting in the recognition of a $25.9 million non-cash expense from the write-off of the remaining debt discount associated with these bonds at the time of redemption.
Net interest income 77,392  76,508  194,791  231,569 
Less provision for loan losses 10,659  9,665  54,526  18,640 
Represents the current period provision to reflect the lifetime expected credit losses related to the Company's loan portfolio. The primary item impacting provision for loan losses was the establishment of an initial allowance for loans originated and acquired during the periods presented.
Net interest income after provision for loan losses 66,733  66,843  140,265  212,929 
Other income (expense):        
LSS revenue 127,892  134,197  389,138  395,438  See LSS operating segment - results of operations.
ETS&PP revenue 113,796  106,894  357,258  310,211  See ETS&PP operating segment - results of operations.
Solar construction revenue 6,301  9,358  19,687  9,358 
On July 1, 2022, the Company acquired 80% of the ownership interests of GRNE Solar. GRNE Solar designs and installs residential, commercial, and utility-scale solar systems. The acquisition diversifies the Company's position in the renewable energy space to include solar construction.
Other, net (211) 2,225  (21,293) 24,750 
See table below for the components of "other, net."
Gain on sale of loans, net 5,362  2,627  32,685  5,616 
The Company recognized gains from selling portfolios of loans in 2023 and 2022. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Impairment and other expense, net (4,974) 121  (4,974) (6,163)
During the third quarter of 2023, the Company recorded an expense of $5.0 million related to real estate leases as the Company continues to downsize its facility footprint as a result of associates working from home. During the second quarter of 2022, the Company recorded an expense of $6.2 million related primarily to a venture capital investment.
Derivative settlements, net 817  10,271  24,219  12,085 
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. The majority of derivative settlements received by the Company was from the Company's derivatives used to hedge loans earning fixed rate floor income. To minimize the Company's exposure to market volatility, the Company terminated this derivative portfolio on March 15, 2023.
Derivative market value adjustments, net 3,140  52,991  (32,266) 239,125 
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 were 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. To minimize the Company's exposure to market volatility, the Company terminated this derivative portfolio on March 15, 2023. As such, the Company expects the derivative market value adjustments in future periods will be less substantial.
Total other income (expense), net 252,123  318,684  764,454  990,420 
Cost of services:
Cost to provide education technology, services, and payment processing services 43,694  42,676  131,804  109,073 
Represents direct costs to provide payment processing and instructional services in ETS&PP. See ETS&PP operating segment - results of operations.
41


Cost to provide solar construction services 7,783  5,968  25,204  5,968  As noted above, the Company acquired GRNE Solar on July 1, 2022. These amounts represent direct costs related to GRNE providing solar construction services. Since the acquisition of GRNE, it has incurred low and, in some cases, negative margins on certain projects. As existing contracts are completed and revenue from new projects grows as a percent of overall revenue, the Company expects margin to improve in future periods.
Total cost of services 51,477  48,644  157,008  115,041 
Operating expenses:        
Salaries and benefits 141,204  147,198  438,620  438,010 
Increase for the nine months ended September 30, 2023 compared with the same period in 2022 was primarily due to (i) an increase in headcount in ETS&PP to support the growth of its customer base and the investment in the development of new technologies; and (ii) the acquisition of GRNE Solar on July 1, 2022. This increase was partially offset by staff reductions in LSS in the first and second quarters of 2023 to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contracts. The Company expects salaries and benefits beginning to increase at LSS in the fourth quarter of 2023 as it hires additional associates as a result of Department borrowers returning to repayment on September 1, 2023.
Depreciation and amortization 21,835  18,772  57,114  53,978  Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions. Increase was primarily due to an increase in the amortization of intangibles from the GRNE Solar acquisition on July 1, 2022.
Other expenses 51,370  43,858  138,154  120,297  Includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs. Increase was due to an increase in expenses in ETS&PP due to higher costs for consulting, professional fees, and technology services resulting from investments in new technologies, and an increase in costs for travel and in-person hosted conferences that had previously subsided due to the COVID-19 pandemic.
Total operating expenses 214,409  209,828  633,888  612,285 
Income before income taxes 52,970  127,055  113,823  476,023 
Income tax expense 10,734  26,586  29,475  107,765 
The effective tax rate was 19.1% and 20.2% for the three months ended September 30, 2023 and 2022, respectively, and 22.7% and 22.2% for the nine months ended September 30, 2023 and 2022, respectively. The Company expects its effective tax rate will range between 21% and 23% for the remainder of 2023.
Net income 42,236  100,469  84,348  368,258 
Net loss attributable to noncontrolling interests 3,096  4,329  15,738  8,315  Amounts for noncontrolling interests reflect the net income/loss attributable to the holders of noncontrolling membership interests in WRCM, NextGen, multiple solar entities (including GRNE Solar), and multiple entities investing in federal opportunity zone programs.
Net income attributable to Nelnet, Inc. $ 45,332  104,798  100,086  376,573 
Additional information: See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.
Net income attributable to Nelnet, Inc. $ 45,332  104,798  100,086  376,573 
Derivative market value adjustments, net (3,140) (52,991) 32,266  (239,125)
Tax effect 754  12,718  (7,744) 57,390 
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 42,946  64,525  124,608  194,838 
42


The following table summarizes the components of "other, net" in "other income (expense)" on the consolidated statements of income.
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
ALLO preferred return $ 2,299  2,164  6,822  6,420  See Corporate - results of operations.
Borrower late fee income 2,220  2,824  6,635  7,693  See AGM operating segment - results of operations.
Administration/sponsor fee income 1,712  1,920  5,180  6,055  See AGM operating segment - results of operations.
Investment advisory services 1,633  1,612  4,884  4,375  See Corporate - results of operations.
Loss from ALLO voting membership interest investment (17,293) (17,562) (49,676) (47,633) See Corporate - results of operations.
Loss from solar investments (3,605) (4,216) (13,481) (7,100) See Corporate - results of operations.
Investment activity, net (1,016) 10,701  (8,169) 40,626  See Corporate - results of operations and note (a) below for additional information.
Other 13,839  4,782  26,512  14,314 
Other, net $ (211) 2,225  (21,293) 24,750 
(a)    The Company anticipates fluctuations in future periodic earnings resulting from investment sales and valuation adjustments. Investment activity by operating segment and investment type follows:
Real Estate Venture Capital Equity / Bonds Total Real Estate Venture Capital Equity / Bonds Total
Three months ended September 30,
2023 2022
Corporate $ (535) 286  567  318  9,717  (39) 792  10,470 
AGM —  (1,883) —  (1,883) —  (315) —  (315)
Nelnet Bank —  (16) 565  549  —  303  243  546 
$ (535) (1,613) 1,132  (1,016) 9,717  (51) 1,035  10,701 
Nine months ended September 30,
2023 2022
Corporate $ (849) (605) (3,070) (4,524) 17,695  22,158  (2,673) 37,180 
AGM —  (4,532) (476) (5,008) —  1,260  —  1,260 
Nelnet Bank —  (288) 1,651  1,363  —  675  1,511  2,186 
$ (849) (5,425) (1,895) (8,169) 17,695  24,093  (1,162) 40,626 



43


LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Servicing Volumes
As of
September 30,
2023		 June 30,
2023		 March 31,
2023		 December 31,
2022		 September 30,
2022		 June 30,
2022		 March 31,
2022		 December 31,
2021
Servicing volume (dollars in millions):
Government $ 500,554  519,308  537,291  545,373  545,546  542,398  507,653  478,402 
FFELP 18,400  19,021  19,815  20,226  22,412  24,224  25,646  26,916 
Private and consumer 20,394  20,805  21,484  21,866  22,461  22,838  23,433  23,702 
Total $ 539,348  559,134  578,590  587,465  590,419  589,460  556,732  529,020 
Number of servicing borrowers:
Government 14,543,382  14,898,901  15,518,751  15,777,328  15,657,942  15,426,607  14,727,860  14,196,520 
FFELP 764,660  788,686  819,791  829,939  910,188  977,785  1,034,913  1,092,066 
Private and consumer 896,613  899,095  925,861  951,866  979,816  998,454  1,030,863  1,065,439 
Total 16,204,655  16,586,682  17,264,403  17,559,133  17,547,946  17,402,846  16,793,636  16,354,025 
Number of remote hosted borrowers: 103,396  716,908  5,048,324  6,135,760  6,025,377  5,738,381  5,487,943  4,799,368 
Government Loan Servicing
Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes Educational Loan Services, Inc. (Great Lakes), both subsidiaries of the Company, are two of the current five private sector entities that have student loan servicing contracts with the Department to service loans that include Federal Direct Loan Program loans originated directly by the Department and FFEL Program loans purchased by the Department. The Company also earned remote hosted servicing revenue by licensing software to certain third-party servicers for the Department.
Contract Modifications and Award
Effective April 1, 2023, the Department modified the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes (the “servicing contracts”) to reduce the monthly fee under the servicing contracts by $0.19 per borrower on certain borrower statuses.
The Company's current student loan servicing contracts with the Department were scheduled to expire on December 14, 2023. In April 2023, Nelnet Diversified Solutions, LLC (NDS), a subsidiary of the Company, received a contract award from the Department, pursuant to which NDS was selected to provide continued servicing capabilities for the Department's student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which will replace the existing legacy Department student loan servicing contracts. On October 11, 2023, the USDS contract awarded to NDS was novated to Nelnet Servicing.
The New Government Servicing Contract is effective April 24, 2023 and has a five year base period, with 2 two-year and 1 one-year possible extensions. The Department's total loan servicing volume of more than 37 million existing borrowers will be allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract based on service and performance levels. Under the New Government Servicing Contract, Nelnet Servicing immediately began to make required servicing platform enhancements, for which it will be compensated from the Department on certain of these investments. In April 2023, the Department indicated that servicing under the USDS contracts will go live in 2024 and it will extend the current legacy servicing contracts from December 14, 2023 to December 2024. Until servicing under the USDS contracts goes live, which is anticipated to be during the second quarter of 2024, the Company will continue to earn revenue for servicing borrowers under its current legacy servicing contracts with the Department.
The new USDS servicing contracts have multiple revenue components with tiered pricing based on borrower volume, while revenue earned under the legacy servicing contracts is primarily based on borrower status. Assuming borrower volume remains consistent under the USDS servicing contract, the Company expects revenue earned on a per borrower blended basis will decrease under the USDS contract versus the current legacy contracts. However, consistent with the current legacy contracts, the Company expects to earn additional revenue from the Department under the USDS servicing contract for change requests, consolidations, and other support services. As discussed below, during the second quarter of 2023, the Company completed the transfer of Great Lakes direct loan servicing volume to the Nelnet servicing platform. The associated cost savings with moving government borrowers to one servicing platform will be partially offset under the USDS contract as the Company will incur additional costs for cybersecurity and other system specifications as required under the new contract.
44


Loan Volume Transfers - Full Service Borrowers
In July 2021, the Pennsylvania Higher Education Assistance Agency (PHEAA) announced its exit from the federal student loan servicing business. All applicable student loans serviced for the Department by PHEAA were transferred to successor servicers. As of December 31, 2021 and 2022, approximately 603,000 and 1,910,000 PHEAA borrowers, respectively, have been transferred from PHEAA to the Company's platform. In addition, over this same time period, PHEAA borrowers were transferred to other servicers to which the Company provided its servicing system (remote hosted servicing customers).
In February 2023, the Department notified the Company of its intention to transfer up to one million of the Company’s existing Department servicing borrowers to another third-party servicer. This transfer decision was not based on the Company's performance. These transfers began in the second quarter of 2023 and were completed in July 2023.
In addition, the Company completed the transfer of active borrowers of Great Lakes direct loan servicing volume to the Nelnet servicing platform (the GreatNet Federal servicing platform) during the second quarter of 2023. The Company anticipates the decommissioning of the Great Lakes' platform to be completed by the end of 2023. Therefore, potential associated cost savings as a result of transferring direct loan servicing volume to one platform will not be recognized in operating results until 2024.
Loan Volume Transfers - Remote Hosted Servicing Borrowers
Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, utilized Nelnet Servicing's platform to service their loans for the Department (remote hosted servicing customer). In the fourth quarter of 2022, Nelnet Servicing and Edfinancial reached an agreement on a decommission schedule transferring Edfinancial’s direct loan servicing volume to another third-party servicing platform. As of December 31, 2022, Edfinancial was servicing 4.5 million borrowers for the Department on the Company’s platform. The Company began transferring Edfinancial's servicing volume to another servicing platform in the first quarter of 2023 which reduced the number of Edfinancial's borrowers serviced on the Company's platform to 3.5 million borrowers as of March 31, 2023 and 579,000 borrowers as of June 30, 2023. Edfinancial's remaining borrowers were transferred off of the Company's platform in July 2023.
In February 2023, the Company’s other remote hosted servicing customer notified the Company the Department intended to move that customer’s servicing borrowers to a different third-party servicing platform. This transfer decision was the result of this customer not being one of the servicers awarded a USDS contract. As of March 31, 2023, this remote hosted servicing customer was servicing 1.4 million borrowers for the Department on the Company's platform. The majority of this volume was transferred to another third-party servicing platform during the second quarter of 2023, and the remaining borrowers were transferred off of the Company's platform in July 2023.
As a result of the transfers discussed above, the Company currently has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods. However, the Company has executed an agreement with a third-party servicer awarded a USDS contract to license its servicing software to such entity and the Company anticipates earning remote hosted servicing revenue from this new customer when USDS goes live beginning in the second quarter of 2024. The amount of revenue earned by the Company from this new customer will depend on the number of servicing borrowers allocated by the Department to the new customer. The Company does not have volume projections for the new customer at this time.
Department of Education Debt Relief
In August 2022, the Department announced a broad based student debt relief plan that would provide targeted student debt cancellation to borrowers with loans held by the Department with unconditional loan cancellation in amounts of up to $20,000 for eligible borrowers who received a Pell Grant, or of up to $10,000 for eligible borrowers who did not receive a Pell Grant. Federal courts blocked implementation of the Department's broad based student debt relief plan and on June 30, 2023, the Supreme Court struck down the Department's plan. While the current version of the Department's forgiveness plan has been invalidated, the Department recently announced that it has begun a new rulemaking process to consider other ways to provide debt relief to borrowers. The Company cannot predict the timing, nature, or ultimate outcome of any future potential student loan forgiveness programs as a result of the rulemaking process. Revenue earned under the current Department servicing contracts will decrease in future periods if the Department successfully implements broad based loan forgiveness.
The CARES Act
Under the CARES Act, beginning in March 2020, federal student loan payments and interest accruals were suspended for all borrowers that had loans owned by the Department. As a result of the CARES Act, the Company received less servicing revenue per borrower from the Department based on the borrower forbearance status than what was earned on such accounts prior to these provisions.
45


After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension ended August 31, 2023, and borrowers returned to repayment on September 1, 2023. The Company anticipates revenue per borrower from the Department will increase with borrowers transitioned back to repayment under the legacy government contracts from the CARES Act levels.
During the fourth quarter of 2021 and first quarter of 2022, the Company earned additional revenue from the Department based on incremental work, including outbound engagement, being performed by the Company to support the anticipated Department borrowers coming out of forbearance. Effective May 1, 2022, the Department increased the monthly per borrower CARES Act forbearance rate paid to its servicers to compensate them for supplemental outreach to certain borrowers and to support the transition of borrowers back to repayment. Effective April 1, 2023, the Department decreased the monthly per borrower CARES Act forbearance rate by $0.19 per borrower (as discussed above).
Reduction in Staff
On January 18, 2023, the Company announced a reduction in staff to manage expenses due to delays in the government's student debt relief and return to repayment programs under the CARES Act. Approximately 350 associates who were hired within the prior six months were laid off with a 60 day notice period and approximately 210 associates were immediately terminated for performance.
On March 23, 2023, the Company announced a reduction in staff due to the March 2023 government servicing contract price modifications (as discussed above) and the notification by the Department in February 2023 of its intention to transfer up to one million of the Company's existing Department servicing borrowers to another servicer (as discussed above). Approximately 550 associates who work in LSS, including some in related shared services areas that support LSS, were notified their positions were being eliminated. The Company incurred a charge of $4.3 million related to the staff reductions that was primarily recognized in the first and second quarters of 2023.
Borrowers Return to Repayment

As discussed above, after multiple extensions of the student loan payment pause that began in March 2020, the payment and interest accrual suspension ended on August 31, 2023, and all borrowers returned to repayment on September 1, 2023. This unprecedented event, along with frequent program changes announced and/or proposed by the Department, has generated extraordinary call volume and web traffic that has adversely impacted the Company’s level of service. In August 2023, the Company began to hire additional associates to support borrowers returning to repayment.


46


Summary and Comparison of Operating Results
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Net interest income $ 1,098 831 3,193 1,100 Increase in 2023 compared with 2022 was due to higher interest rates.
Loan servicing and systems revenue 127,892 134,197 389,138 395,438 See table below for additional information.
Intersegment servicing revenue 6,944 8,281 21,980 25,142
Represents revenue earned by LSS from servicing loans for AGM and Nelnet Bank. Decrease in 2023 compared with 2022 was due to the continued amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income 687 596 1,900 1,946
Represents revenue earned from providing administrative support and marketing services.
Impairment expense (296) — (296) — The Company continues to evaluate the use of office space as a large number of associates continue to work from home. As a result, the Company recorded an additional impairment charge related to certain facilities no longer used by the Company.
Total other income, net 135,227 143,074 412,722 422,526
Salaries and benefits 73,310 82,067 234,012 257,259
Decrease in 2023 compared with 2022 was due to the Company being fully staffed with contact center operations and support associates in 2022 in preparation for the resumption of federal student loan payments and other activities after the CARES Act suspension. During the first and second quarters of 2023, the Company reduced staff to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for government servicing contracts. See "Reduction in Staff" above for additional details. The Company expects salaries and benefits to increase beginning in the fourth quarter of 2023 as it hires additional associates as a result of Department borrowers returning to repayment on September 1, 2023.
Depreciation and amortization 5,023 5,784 14,400 16,056
Other expenses 15,629 16,654 42,760 46,375
Decrease in 2023 compared with 2022 was due to a decrease in professional fees and facility costs. Over the last year, the Company has reduced its office space as a large number of employees continue to work from home.
Intersegment expenses 17,894 17,486 58,030 56,442
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 111,856 121,991 349,202 376,132
Income before income taxes 24,469 21,914 66,713 47,494
Income tax expense (5,872) (5,259) (16,011) (11,399) Represents income tax expense at an effective tax rate of 24%.
Net income $ 18,597 16,655 50,702 36,095

Before tax operating margin 18.1  % 15.3  % 16.2  % 11.2  %
Before tax operating margin represents before tax operating profitability as a percentage of revenue, and for LSS is calculated as income before income taxes divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income 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 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 in 2023 compared with 2022 due primarily to a decrease in salaries and benefits expense as described above. The increase in the three months ended September 30, 2023 compared with the same period in 2022 was also due to $4.8 million of revenue recognized by the Company in the third quarter of 2023 associated with deconversion of remote hosted borrowers from a customer leaving the Company's platform.
47


Loan servicing and systems revenue
Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Government loan servicing $ 100,154  104,428  304,769  312,368 
Represents revenue from the Company's Department servicing contracts. Decrease in the three and nine months ended September 30, 2023 compared with the same periods in 2022 was due to (i) the monthly fee earned per borrower on certain borrower statuses being reduced by $0.19 effective April 1, 2023; and (ii) a decrease of borrowers in the second and third quarters of 2023 as part of the Department's plan to transfer up to one million of the Company's existing borrowers to another third-party servicer. Decrease in the nine months ended September 30, 2023 compared with the same period in 2022 was also due to (i) the recognition of $6.7 million of revenue in the first quarter of 2022 for incremental work related primarily to CARES Act forbearance exit outreach activities to borrowers; and (ii) the recognition of $10.5 million of revenue in the first quarter of 2022 related to the discharge of borrowers under the Total and Permanent Disability (TPD) discharge program (the Company earns revenue per each borrower that satisfies the requirements for their loan to be discharged under the TPD discharge program). The decrease in revenue for the nine months ended September 30, 2023 compared with the same period in 2022 was partially offset by (i) an increase in borrowers serviced due to the PHEAA servicing volume transferred to the Company's platform in 2022; (ii) a per borrower CARES Act forbearance rate increase on May 1, 2022; and (iii) a per borrower rate increase on certain statuses on September 1, 2022 (5.0%) to reflect the increase in the cost of labor (Employment Cost Index) per the provisions of the contracts.
Private education and consumer loan servicing 12,330  12,198  36,556  37,194 
Increase in the three months ended September 30, 2023 compared with the same period in 2022 was due to an increase in backup servicing volume, partially offset by a decrease in servicing volume. Decrease in the nine months ended September 30, 2023 compared with the same period in 2022 was due to a decrease in servicing volume and client requested enhanced delinquency services.
FFELP loan servicing 3,304  4,127  10,226  12,386 
Decrease in 2023 compared with 2022 was due to a decrease in the number of borrowers serviced. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off. Since late 2021, the Company has experienced accelerated run-off of its FFELP servicing portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of borrower relief under the CARES Act and initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs.
Software services 9,416  8,229  25,076  23,536 
Represents revenue from providing remote hosted servicing software to Department and other servicers and providing diversified technology services. Increase in the three and nine months ended September 30, 2023 compared with the same periods in 2022 was due to (i) the recognition of $4.8 million of revenue in the third quarter of 2023 associated with deconversion of remote hosted borrowers from a customer leaving the Company's platform; (ii) annual rate increases on Department remote hosted servicing customers; (iii) contract programming associated with loan transfers and change requests, and (iv) growth in LSS's technology outsourcing opportunities. These increases were partially offset by the transfer of remote hosted borrowers to other third-party servicers. As a result of the transfers, the Company currently has no remaining Department remote hosted servicing borrowers on its platform and software services revenue will be negatively impacted in future periods. See “Government Loan Servicing - Loan Volume Transfers - Remote Hosted Servicing Borrowers” above for additional details.
Outsourced services 2,688  5,215  12,511  9,954 
Represents primarily revenue to provide contact center and back office operational outsourcing services. Decrease in the three months ended September 30, 2023 compared with the same period in 2022 was due to the contracts for support provided to Department servicers expiring at the end of July 2023. Increase in the nine months ended September 30, 2023 compared with the same period in 2022 was due to additional outsourced opportunities, including assisting existing Department servicers as operations transitioned from exiting servicers.
Loan servicing and systems revenue $ 127,892  134,197  389,138  395,438 
48


EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS
As discussed further in the Company's 2022 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 September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Net interest income $ 8,934  3,707  20,237  4,920 
Represents interest income on tuition funds held in custody for schools. Increase in 2023 compared with 2022 was due to higher interest rates.
Education technology, services, and payment processing revenue 113,796  106,894  357,258  310,211  See table below for additional information.
Intersegment revenue 77  8  198  16 
Total other income 113,873  106,902  357,456  310,227 
Cost of services 43,694  42,676  131,804  109,073  See table below for additional information.
Salaries and benefits 39,776  34,950  116,040  98,356 
Increase in 2023 compared with 2022 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 3,030  2,532  8,424  7,544  Represents primarily amortization of intangible assets from prior business acquisitions and depreciation of capitalized software development costs.
Other expenses 8,309  7,034  26,063  19,549 
Increase in 2023 compared with 2022 was due to higher costs for consulting, professional fees, and technology services resulting from investments in new technologies. Increase was also due to an increase in costs for travel and in-person hosted conferences that previously subsided due to the COVID pandemic. In addition, during the second quarter of 2023 the Company increased its allowance for uncollectible accounts due to the age of certain receivables primarily driven by economic conditions and the increase in volume of FACTS Education Solutions instructional services revenue.
Intersegment expenses, net 5,875  4,762  17,559  14,171  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 56,990  49,278  168,086  139,620 
Income before income taxes 22,123  18,655  77,803  66,454 
Income tax expense (5,307) (4,475) (18,700) (15,947) Represents income tax expense at an effective tax rate of 24%.
Net income 16,816  14,180  59,103  50,507 
Net (income) loss attributable to noncontrolling interests (6) (61) 113  (8) Amounts for noncontrolling interests reflect the net (income) loss attributable to the holders of minority membership interests in NextGen, of which the Company became the majority owner on April 30, 2022.
Net income $ 16,810  14,119  59,216  50,499 


49


Education technology, services, and payment processing revenue
The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Tuition payment plan services $ 30,223 25,779 95,235 84,131
Increase in 2023 compared with 2022 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 50,848 47,957 126,716 113,996
Increase in 2023 compared with 2022 was due to increase in payment volumes for both the K-12 and higher education markets due to new customers and an increase in volume from existing customers.
Education technology and services 31,793 32,548 132,796 110,755
Decrease in the three months ended September 30, 2023 compared with the same period in 2022 was due to a decrease in FACTS Education Solutions instructional services revenue as a result of the wind down of economic aid provided to private schools in response to the COVID 19 pandemic. Instructional services revenue provided to schools that was funded by the CARES Act and the Emergency Assistance to Non-Public Schools (EANS) I program was the primary cause of the decline. EANS I program funding ended on September 30, 2023 and EANS II program funding ends on September 30, 2024. The decrease was offset by an increase in revenue from the Company’s school information system software, enrollment and communication services, and financial needs assessments. The increase in revenue in the nine months ended September 30, 2023 compared with the same period in 2022 was due to an increase in revenue from the Company’s school information system software, enrollment and communication services, financial needs assessments, the NextGen acquisition completed in April 2022, and instructional services. Instructional services revenue was the largest component of this increase, driven by the EANS programs. As economic aid provided to schools under the EANS programs stopped on September 30, 2023 (EANS I) and winds down (EANS II), future instructional services revenue will decrease from recent historical periods.
Other 932 610 2,511 1,329
Education technology, services, and payment processing revenue 113,796 106,894 357,258 310,211
Cost of services 43,694 42,676 131,804 109,073
Represents costs relating to 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 $ 70,102 64,218 225,454 201,138
GAAP before tax operating margin 31.6  % 29.1  % 34.5  % 33.0  %
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 ETS&PP segment is calculated as income before income taxes less 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 in 2023 compared with 2022 due to investments in (i) the development of new services and technologies; and (ii) superior customer experiences to align with the Company’s strategies to grow, retain, and diversify revenues. The Company anticipates before tax operating margin, excluding net interest income, will be impacted over the next several years as it continues to invest in the development of new services and customer experiences.
Net interest income (12.7) (5.8) (9.0) (2.4)
Non-GAAP before tax operating margin, excluding net interest income 18.9  % 23.3  % 25.5  % 30.6  %


50


ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of September 30, 2023, the AGM operating segment had a $12.7 billion loan portfolio, consisting primarily of federally insured loans. For a summary of the Company’s loan portfolio as of September 30, 2023 and December 31, 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Loan Activity
The following table sets forth the activity of loans in the AGM operating segment:
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022
Beginning balance $ 13,239,125  15,855,137  14,169,771  17,441,790 
Loan acquisitions:
Federally insured student loans 2,880  896  518,471  54,845 
Private education loans 77,365  667  77,365  8,177 
Consumer and other loans 29,413  120,465  340,091  256,998 
Total loan acquisitions 109,658  122,028  935,927  320,020 
Repayments, claims, capitalized interest, participations, and other, net (322,013) (385,312) (1,175,320) (1,310,913)
Loans lost to external parties (229,342) (768,923) (712,772) (1,609,728)
Loans sold (61,807) (28,915) (481,985) (47,154)
Ending balance $ 12,735,621  14,794,015  12,735,621  14,794,015 
The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments and notes receivable" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to or as of September 30, 2023, the Company’s ownership correlates to approximately $660 million, $540 million, and $350 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations. The loans held in these securitizations are not included in the above table.
Since late 2021, the Company has experienced accelerated run-off of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of the CARES Act payment pause on Department held loans and the initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs. After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension ended August 31, 2023, and Federal Direct Loan Program borrowers returned to repayment on September 1, 2023.
Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs
For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of September 30, 2023 and December 31, 2022; and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three and nine months ended September 30, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

51


Loan Spread Analysis
The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans or debt outstanding.
  Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Variable loan yield, gross 7.70  % 5.05  % 7.51  % 3.76  %
Consolidation rebate fees (0.80) (0.84) (0.80) (0.85)
Discount accretion, net of premium and deferred origination costs amortization 0.06  0.02  0.05  0.03 
Variable loan yield, net 6.96  4.23  6.76  2.94 
Loan cost of funds - interest expense (a) (6.14) (3.11) (5.86) (1.95)
Loan cost of funds - derivative settlements (b) (c) 0.01  (0.03) 0.01  0.00 
Variable loan spread 0.83  1.09  0.91  0.99 
Fixed rate floor income, gross 0.01  0.19  0.02  0.45 
Fixed rate floor income - derivative settlements (b) (d) 0.01  0.30  0.23  0.10 
Fixed rate floor income, net of settlements on derivatives 0.02  0.49  0.25  0.55 
Core loan spread 0.85  % 1.58  % 1.16  % 1.54  %
Average balance of AGM's loans $ 13,157,152  15,466,505  13,588,427  16,371,092 
Average balance of AGM's debt outstanding 12,527,771  15,060,823  12,964,890  15,905,170 
(a)    In the second quarter of 2023, the Company redeemed certain asset-backed debt securities prior to their maturity, resulting in the recognition of $25.9 million in interest expense from the write-off of the remaining unamortized debt discount associated with these bonds at the time of redemption. This expense was excluded from the table above.
(b)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. 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 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's Non-Nelnet Bank derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2023 and 2022 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 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 September 30, Nine months ended September 30,
2023 2022 2023 2022
Core loan spread 0.85  % 1.58  % 1.16  % 1.54  %
Derivative settlements (1:3 basis swaps) (0.01) 0.03  (0.01) (0.00  )
Derivative settlements (fixed rate floor income) (0.01) (0.30) (0.23) (0.10)
Loan spread 0.83  % 1.31  % 0.92  % 1.44  %
(c)    Derivative settlements consist of net settlements received (paid) related to the Company’s 1:3 basis swaps.
(d)    Derivative settlements consist of net settlements received related to the Company’s floor income interest rate swaps.
52


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 that occurs either monthly or quarterly.
Variable loan spread decreased during the three and nine months ended September 30, 2023 compared to the same periods in 2022 due to a significant increase in short-term rates during each of the first three quarters of 2022 compared with the increase in rates for the same periods in 2023.
The difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of AGM's federally insured student loan portfolio. A summary of fixed rate floor income and its contribution to core loan spread follows:
  Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Fixed rate floor income, gross $ 450  7,585  2,016  54,870 
Derivative settlements (a) 235  11,356  22,760  11,843 
Fixed rate floor income, net $ 685  18,941  24,776  66,713 
Fixed rate floor income contribution to spread, net 0.02  % 0.49  % 0.25  % 0.55  %

(a)    Derivative settlements consist of net settlements received related to the Company's derivatives used to hedge student loans earning fixed rate floor income.
The decrease in gross fixed rate floor income for the three and nine months ended September 30, 2023 compared with the same periods in 2022 was due to higher interest rates in 2023 compared with 2022.
The Company had a significant portfolio of derivative instruments in which the Company paid a fixed rate and received a floating rate to economically hedge loans earning fixed rate floor income. On March 15, 2023, to minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives). Through March 15, 2023, the Company had received cash or had a receivable from its clearinghouse related to variation margin equal to the fair value of the $2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements. In June 2023, the Company entered into a derivative with a notional amount of $50.0 million to hedge a portion of loans remaining that earn fixed rate floor income.
The decrease in net derivative settlements received by the Company during the three months ended September 30, 2023, compared with the same period in 2022, was due to the termination of the fixed rate floor derivatives in March 2023. The increase in net derivative settlements received by the Company during the nine months ended September 30, 2023, compared with the same period in 2022, was due to an increase in settlements on the Company's derivatives outstanding during this period as a result of an increase in interest rates.



53


Summary and Comparison of Operating Results
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Net interest income after provision for loan losses $ 42,753  53,708  69,765  189,028  See table below for additional analysis.
Other income, net 2,776  4,627  6,939  16,270 
Represents primarily borrower late fees, income from providing administration activities for third parties, gain/losses from repurchases of debt, and income/losses from AGM's investment in joint ventures. AGM recognized joint venture losses of $1.9 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and losses of $4.5 million and income of $1.3 million for the nine months ended September 30, 2023 and 2022, respectively.
Gain on sale of loans, net 5,362  2,627  32,685  5,616 
The Company recognized gains from selling portfolios of loans in 2023 and 2022. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Derivative settlements, net 621  10,271  23,940  12,085  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. The majority of derivative settlements received in the periods presented was from the Company's derivative portfolio used to hedge loans earning fixed rate floor income. This derivative portfolio was terminated on March 15, 2023 to minimize the Company's exposure to market volatility.
Derivative market value adjustments, net 1,192  52,991  (35,323) 239,125 
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 for 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. On March 15, 2023, AGM terminated its portfolio of floor income interest rate swaps to minimize the Company's exposure to market volatility. As such, the Company expects the derivative market value adjustments in future periods will be less substantial.
Total other income, net 9,951  70,516  28,241  273,096 
Salaries and benefits 1,242  653  3,093  1,858  Increase in 2023 compared with 2022 was due to additional headcount as the Company actively expands into new asset loan classes.
Other expenses 2,952  3,349  12,083  9,925  Represents primarily servicing fees paid to third parties. Also includes certain professional and legal fees. Increase in the nine months ended September 30, 2023 compared with the same period in 2022 was due to incurring additional professional fees as the Company actively expands into new asset loan classes.
Intersegment expenses 7,948  8,350  24,789  25,694  Represents fees paid to LSS for the servicing of AGM’s loan portfolio. These amounts exceed the actual cost of servicing the loans. Intersegment expenses also includes costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 12,142  12,352  39,965  37,477 
Total operating expenses were 37 basis points and 32 basis points of the average balance of loans for the three months ended September 30, 2023 and 2022, respectively, and 39 basis points and 31 basis points for the nine months ended September 30, 2023 and 2022, respectively. The increase in operating expenses as a percent of the average balance of loans in 2023 compared with 2022 was due to an increase in costs as the Company actively expands into new asset loan classes.
Income before income taxes 40,562  111,872  58,041  424,647 
Income tax expense (9,735) (26,849) (13,930) (101,915) Represents income tax expense at an effective tax rate of 24%.
Net income $ 30,827  85,023  44,111  322,732 
Additional information:
Net income $ 30,827  85,023  44,111  322,732  See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional details about non-GAAP net income, excluding derivative market value adjustments.
Derivative market value adjustments, net (1,192) (52,991) 35,323  (239,125)
Tax effect 286  12,718  (8,478) 57,390 
Net income, excluding derivative market value adjustments $ 29,921  44,750  70,956  140,997 

54


Net interest income after provision for loan losses, net of settlements on derivatives The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Variable interest income, gross $ 254,569  196,910  763,933  459,575  Increase in 2023 compared with 2022 was due to an increase in the gross yield earned on loans, partially offset by a decrease in the average balance of loans.
Consolidation rebate fees (26,143) (32,612) (81,753) (104,335) Decrease in 2023 compared with 2022 was due to a decrease in the average consolidation loan balance.
Discount accretion, net of premium and deferred origination costs amortization 1,940  737  5,437  3,669  Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.
Variable interest income, net 230,366  165,035  687,617  358,909 
Interest on bonds and notes payable (194,098) (118,135) (594,764) (231,960) Increase in 2023 compared with 2022 was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding. In addition, during the second quarter of 2023, the Company redeemed certain asset-backed debt securities prior to their maturity, resulting in the recognition of a $25.9 million non-cash expense from the write-off of the remaining debt discount associated with these bonds at the time of redemption.
Derivative settlements, net (a) 386  (1,085) 1,180  242  Represents net derivative settlements received (paid) related to the Company’s 1:3 basis swaps.
Variable loan interest margin, net of settlements on derivatives 36,654  45,815  94,033  127,191 
Fixed rate floor income, gross 450  7,585  2,016  54,870  Decrease in 2023 compared with 2022 was due to higher interest rates.
Derivative settlements, net (a) 235  11,356  22,760  11,843 
Represents net derivative settlements received related to the Company's floor income interest rate swaps. On March 15, 2023, to minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income. The decrease in net derivative settlements received by the Company during the three months ended September 30, 2023, compared with the same period in 2022, was due to the termination of the fixed rate floor derivatives in March 2023. The increase in net derivative settlements received by the Company during the nine months ended September 30, 2023, compared with the same period in 2022, was due to an increase in settlements on the Company's derivatives outstanding during this period as a result of an increase in interest rates.
Fixed rate floor income, net of settlements on derivatives 685  18,941  24,776  66,713 
Core loan interest income (a) 37,339  64,756  118,809  193,904 
Investment interest 18,062  10,312  47,726  28,147  Increase in 2023 compared with 2022 was due to an increase of interest earned on restricted cash due to higher interest rates.
Intercompany interest (3,295) (1,874) (24,141) (3,760) Increase in 2023 compared with 2022 was due to an increase in the balance of borrowings and higher rates.
Provision for loan losses - federally insured loans (1,641) (888) (4,052) (505)
The primary item impacting provision for loan losses was the establishment of an initial allowance for loans acquired during the periods presented.

For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Provision for loan losses - private education loans (3,009) (1,154) (3,249) (1,971)
Provision for loan losses - consumer and other loans (4,082) (7,173) (41,388) (14,702)
Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 43,374  63,979  93,705  201,113 
(a)    Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures. For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the limitations thereof), see footnote (b) to the table immediately under the caption “Loan Spread Analysis” above. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2023 and 2022 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

55


NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of September 30, 2023, Nelnet Bank had a $468.8 million loan portfolio, consisting of $359.9 million of private education loans, $59.3 million of FFELP loans, and $49.6 million of consumer and other loans. For a summary of the Company’s loan portfolio as of September 30, 2023 and December 31, 2022, see note 2 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 in Nelnet Bank's loan portfolio:
  Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Beginning balance $ 444,488  423,553  419,795  257,901 
Loan acquisitions and originations:
Private education loans 19,756  21,167  41,341  226,713 
Consumer and other loans 22,966  —  55,766  — 
Total loan acquisitions and originations 42,722  21,167  97,107  226,713 
Repayments (18,382) (15,244) (47,957) (51,011)
Loans sold to AGM (15) —  (132) (4,127)
Ending balance $ 468,813  429,476  468,813  429,476 

Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs
For a summary of the allowance as a percentage of the ending balance and loan status, delinquency amounts, and other key credit quality indicators of each of Nelnet Bank's loan portfolios as of September 30, 2023 and December 31, 2022; and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three and nine months ended September 30, 2023 and 2022, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Deposits
As of September 30, 2023, Nelnet Bank had $947.4 million of deposits. All of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs) and retail and other savings deposits and CDs. Retail and other saving deposits include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), and commercial and institutional CDs. Union Bank, a related party, is the program manager for the Educational 529 College Savings plans and trustee for the STFIT.
As of September 30, 2023, Nelnet Bank’s deposits included $229.3 million from Nelnet, Inc. (the parent company) and its subsidiaries (intercompany), and thus have been eliminated for consolidated financial reporting purposes. The intercompany deposits include a pledged deposit of $40.0 million from Nelnet, Inc. as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating and savings deposits, and NBS custodial deposits consisting of collected tuition payments which are subsequently remitted to the appropriate school.

56


Average Balance Sheet
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities.
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Balance Rate Balance Rate Balance Rate Balance Rate
Average assets (a)
Federally insured student loans $ 60,504  6.58  % $ 75,124  3.69  % $ 62,531  6.29  % $ 80,234  2.39  %
Private education loans 353,740  3.85  350,668  3.31  354,513  3.74  304,174  3.13 
Consumer and other loans 36,041  12.90  —  —  23,065  12.92  —  — 
Cash and investments 586,067  6.47  424,899  3.67  556,401  6.25  348,697  2.78 
Total interest-earning assets 1,036,352  5.81  % 850,691  3.52  % 996,510  5.51  % 733,105  2.88  %
Non-interest-earning assets 10,322  8,914  9,047  13,754 
Total assets $ 1,046,674  $ 859,605  $ 1,005,557  $ 746,859 
Average liabilities and equity (a)
Brokered deposits $ 204,050  1.38  % $ 296,257  1.42  % $ 204,534  1.38  % $ 230,968  1.33  %
Intercompany deposits 184,829  6.86  155,350  2.24  173,929  6.10  121,557  1.32 
Retail and other deposits 521,344  4.22  293,209  1.84  493,939  4.01  283,386  1.08 
Total interest-bearing liabilities 910,223  4.04  % 744,816  1.76  % 872,402  3.76  % 635,911  1.22  %
Non-interest-bearing liabilities 5,377  4,106  5,291  5,037 
Equity 131,074  110,683  127,864  105,911 
Total liabilities and equity $ 1,046,674  $ 859,605  $ 1,005,557  $ 746,859 
(a) Calculated using average daily balances.

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Summary and Comparison of Operating Results
  Three months ended September 30, Nine months ended September 30,
  2023 2022 2023 2022 Additional information
Total interest income $ 15,171  7,551  41,092  15,792  Represents interest earned on loans, cash, and investments. Increase in 2023 compared with 2022 was due to an increase of these balances and interest rates.
Interest expense 9,456  3,298  24,841  5,792  Represents interest expense on deposits. Increase in 2023 compared with 2022 was due to an increase of deposits and interest rates.
Net interest income 5,715  4,253  16,251  10,000 
Provision for loan losses 1,927  450  5,837  1,462 
Increase in provision for loan losses was due to the mix of loans, including the mix of loans acquired and originated in 2023 compared with 2022. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Net interest income after provision for loan losses 3,788  3,803  10,414  8,538 
Other income 565  566  1,395  2,224 
Represents primarily net gains and income from investments.
Derivative settlements, net 196  —  279  — 
During the second and third quarter of 2023, Nelnet Bank entered into derivatives to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates. 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 market value adjustments, net 1,948  —  3,057  — 
Total other income, net 2,709  566  4,731  2,224 
Salaries and benefits 2,520  1,814  6,881  5,082  Represents salaries and benefits of Nelnet Bank associates and third-party contract labor. Increase in 2023 compared with 2022 was due to the overall growth of Nelnet Bank activities.
Depreciation 259  4  315  11 
Other expenses 1,290  1,427  3,696  3,009  Represents various expenses such as consulting and professional fees, Nelnet Bank director fees, occupancy, certain information technology-related costs, insurance, marketing, and other operating expenses. Increase in the nine months ended September 30, 2023 compared with the same period in 2022 was due to the overall growth of Nelnet Bank activities.
Intersegment expenses 129  69  302  171 
Represents primarily servicing costs paid to LSS. Certain shared service and support costs incurred by the Company to support Nelnet Bank are not and will not be reflected as part of Nelnet Bank through 2023 (when the bank’s de novo period will end). The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank’s operating segment were $1.6 million for both the three months ended September 30, 2023 and 2022, and $5.1 million and $4.4 million for the nine months ended September 30, 2023 and 2022, respectively.
Total operating expenses 4,198  3,314  11,194  8,273 
Income before income taxes 2,299  1,055  3,951  2,489 
Income tax expense (552) (246) (913) (574)
Represents income tax expense at an effective tax rate of 24.0% and 23.3% for the three months ended September 30, 2023 and 2022, respectively, and 23.1% for both the nine months ended September 30, 2023 and 2022.
Net income $ 1,747  809  3,038  1,915 
Additional information:
Net income $ 1,747  809  3,038  1,915 

See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional details about non-GAAP net income, excluding derivative market value adjustments.
Derivative market value adjustments, net (1,948) —  (3,057) — 
Tax effect 468  —  734  — 
Net income, excluding derivative market value adjustments $ 267  809  715  1,915 
58


CORPORATE AND OTHER ACTIVITIES – RESULTS OF OPERATIONS
Other business activities and operating segments that are not reportable 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
Nelnet Renewable Energy (c)
Shared services (a) WRCM (b) Tax equity investments / syndication / administration GRNE Solar ALLO investment (d) Real estate investments (e) Venture capital investments (f) Interest income/expense, net (g) Other Total
Three months ended September 30, 2023
Interest income $ —  3  —  36  —  141  1,631  14,069  373  16,253 
Interest expense —  —  —  (108) —  —  —  (5,816) (169) (6,093)
Net interest income —  3  —  (72) —  141  1,631  8,253  204  10,160 
Solar construction revenue —  —  —  6,301  —  —  —  —  —  6,301 
Other, net 728  1,632  (2,303) 48  (14,908) (492) 276  558  10,223  (4,238)
Impairment and other expense (4,678) —  —  —  —  —  —  —  —  (4,678)
Cost to provide solar construction services —  —  —  (7,783) —  —  —  —  —  (7,783)
Salaries and benefits (21,537) (53) (686) (971) —  (145) (237) —  (1,390) (25,019)
Depreciation and amortization (9,917) —  —  (3,501) —  (8) —  —  (96) (13,522)
Other expenses (12,110) (83) (262) (892) (651) (11) (15) (470) (8,698) (23,192)
Intersegment expenses, net 26,599  (3) (2,621) 2,006  —  (106) (18) (97) (272) 25,488 
Income (loss) before income taxes (20,915) 1,496  (5,872) (4,864) (15,559) (621) 1,637  8,244  (29) (36,483)
Income tax (expense) benefit 5,020  (323) 843  954  3,734  149  (393) (1,978) 2,726  10,732 
Net (income) loss attributable to noncontrolling interests —  (150) 2,360  891  —  1  —  —  —  3,102 
Net income (loss) $ (15,895) 1,023  (2,669) (3,019) (11,825) (471) 1,244  6,266  2,697  (22,649)
Three months ended September 30, 2022
Interest income $ —  1  —  3  —  235  536  9,895  190  10,860 
Interest expense —  —  —  (9) —  —  —  (5,833) (225) (6,067)
Net interest income —  1  —  (6) —  235  536  4,062  (35) 4,793 
Solar construction revenue —  —  —  9,358  —  —  —  —  —  9,358 
Other, net 631  1,612  (4,216) —  (15,398) 9,867  (39) 762  3,217  (3,564)
Impairment and other expense (29) —  —  —  —  —  150  —  —  121 
Cost to provide solar construction services —  —  —  (5,968) —  —  —  —  —  (5,968)
Salaries and benefits (23,152) (56) (340) (2,390) (77) 197  (172) —  (1,723) (27,713)
Depreciation and amortization (9,649) —  —  (732) —  —  —  —  (71) (10,452)
Other expenses (9,696) (83) (127) (958) (150) (47) (18) (1,422) (2,894) (15,395)
Intersegment expenses, net 23,056  (3) (65) (24) —  (134) —  (55) (397) 22,378 
Income (loss) before income taxes (18,839) 1,471  (4,748) (720) (15,625) 10,118  457  3,347  (1,903) (26,442)
Income tax (expense) benefit 4,521  (318) 77  149  3,750  (2,431) (110) (803) 5,409  10,244 
Net (income) loss attributable to noncontrolling interests —  (148) 4,426  101  —  11  —  —  —  4,390 
Net income (loss) $ (14,318) 1,005  (245) (470) (11,875) 7,698  347  2,544  3,506  (11,808)
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Nelnet Renewable Energy (c)
Shared services (a) WRCM (b) Tax equity investments / syndication / administration GRNE Solar ALLO investment (d) Real estate investments (e) Venture capital investments (f) Interest income/expense, net (g) Other Total
Nine months ended September 30, 2023
Interest income $ —  8  —  136  —  423  3,515  58,765  460  63,307 
Interest expense —  —  —  (805) —  —  —  (25,320) (528) (26,653)
Net interest income —  8  —  (669) —  423  3,515  33,445  (68) 36,654 
Solar construction revenue —  —  —  19,687  —  —  —  —  —  19,687 
Other, net 2,130  4,883  (12,179) 112  (42,483) (806) (614) (2,989) 20,420  (31,526)
Impairment and other expense (4,678) —  —  —  —  —  —  —  —  (4,678)
Cost to provide solar construction services —  —  —  (25,204) —  —  —  —  —  (25,204)
Salaries and benefits (67,923) (162) (2,356) (3,638) (30) (283) (640) —  (4,371) (79,403)
Depreciation and amortization (27,965) —  —  (5,696) —  (21) —  —  (294) (33,976)
Other expenses (31,958) (246) (1,102) (1,679) (2,014) (58) (200) (3,114) (13,179) (53,550)
Intersegment expenses, net 82,408  (9) (2,582) 918  (1) (294) (39) (290) (801) 79,310 
Income (loss) before income taxes (47,986) 4,474  (18,219) (16,169) (44,528) (1,039) 2,022  27,052  1,707  (92,686)
Income tax (expense) benefit 11,517  (966) 1,253  3,150  10,687  242  (485) (6,492) 1,174  20,080 
Net (income) loss attributable to noncontrolling interests —  (447) 13,000  3,043  —  29  —  —  —  15,625 
Net income (loss) $ (36,469) 3,061  (3,966) (9,976) (33,841) (768) 1,537  20,560  2,881  (56,981)
Nine months ended September 30, 2022
Interest income $ —  1  —  3  —  841  642  19,181  419  21,087 
Interest expense —  —  —  (9) —  —  —  (10,798) (938) (11,745)
Net interest income —  1  —  (6) —  841  642  8,383  (519) 9,342 
Solar construction revenue —  —  —  9,358  —  —  —  —  —  9,358 
Other, net 1,781  4,375  (6,938) —  (41,213) 18,076  22,156  (2,671) 8,743  4,309 
Impairment and other expense (904) —  —  —  —  —  (5,259) —  —  (6,163)
Cost to provide solar construction services —  —  —  (5,968) —  —  —  —  —  (5,968)
Salaries and benefits (66,562) (167) (1,180) (2,390) (232) (310) (564) —  (4,050) (75,455)
Depreciation and amortization (29,423) —  —  (732) —  —  —  —  (211) (30,366)
Other expenses (30,782) (264) (514) (958) (174) (37) (64) (2,518) (6,127) (41,438)
Intersegment expenses, net 72,527  (9) (183) (24) (2) (324) —  (166) (499) 71,320 
Income (loss) before income taxes (53,363) 3,936  (8,815) (720) (41,621) 18,246  16,911  3,028  (2,663) (65,061)
Income tax (expense) benefit 12,807  (850) 52  149  9,989  (4,383) (4,059) (726) 9,091  22,070 
Net (income) loss attributable to noncontrolling interests —  (394) 8,600  101  —  16  —  —  —  8,323 
Net income (loss) $ (40,556) 2,692  (163) (470) (31,632) 13,879  12,852  2,302  6,428  (34,668)
(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. Certain shared service costs incurred to support Nelnet Bank will not be allocated to Nelnet Bank until the end of the Bank’s de novo period (November 2023). 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) The Company provides investment advisory services through Whitetail Rock Capital Management, LLC (WRCM), the Company's SEC-registered investment advisor subsidiary, under various arrangements. WRCM earned management fees of $1.5 million and $1.6 million during the three months ended September 30, 2023 and 2022, respectively, and $4.7 million and $4.3 million during the nine months ended September 30, 2023 and 2022, respectively. Fees earned by WRCM are included in "other, net" in the table above.
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(c)    Nelnet Renewable Energy includes solar tax equity investments made by the Company, administrative and management services provided by the Company on tax equity investments made by third parties, and solar development. As of September 30, 2023, the Company has invested a total of $332.0 million (which includes $126.5 million syndicated to third-party investors) in solar tax equity investments. Due to the management and control of each of these investment partnerships, the tax equity investments are consolidated on the Company’s consolidated financial statements, with the co-investor’s portion being presented as non-controlling interests.
Included in tax equity investments is the Company's share of income or loss from solar investments under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. Nelnet Renewable Energy recognized losses on its tax equity investments of $3.6 million and $4.2 million during the three months ended September 30, 2023 and 2022, respectively, and $13.5 million and $7.1 million during the nine months ended September 30, 2023 and 2022, respectively. These losses, which include losses attributable to third-party noncontrolling interest investors, are included in “other, net” in the table above. Solar losses attributable to third-party noncontrolling interest investors was $1.8 million and $4.1 million for the three months ended September 30, 2023 and 2022, respectively, and $12.0 million and $8.0 million for the nine months ended September 30, 2023 and 2022, respectively, and are reflected in “net (income) loss attributable to noncontrolling interests” in the table above.
Nelnet Renewable Energy syndicates tax equity investments to third parties and earns management and performance fees. Management fee income recognized by Nelnet Renewable Energy was $0.6 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $1.3 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in "other, net" in the table above.
In addition to solar tax equity investments, the Company has a strategy to own solar energy project assets. Accordingly, the Company has begun to execute a multi-faceted approach to originate, acquire, finance, own, and manage these assets. As part of this strategy, on July 1, 2022, the Company acquired 80% of the ownership interest in two subsidiaries of GRNE Solutions, LLC named GRNE-Nelnet, LLC (GRNE) and ENRG-Nelnet, LLC (ENRG) (collectively referred to as “GRNE Solar”).
GRNE is a solar contracting company that provides full-service engineering, procurement, and construction (EPC) services to residential homes and commercial entities. Since the acquisition of GRNE, it has incurred low and, in some cases, negative margins on certain projects. As existing contracts are completed and revenue from new projects grows as a percent of overall revenue, the Company expects margin to improve in future periods.
(d)    Represents primarily the Company's share of loss on its voting membership interests and income on its preferred membership interest in ALLO.
The Company accounts for its approximately 45% voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the HLBV method of accounting. The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $17.3 million and $17.6 million during the three months ended September 30, 2023 and 2022, respectively, and $49.7 million and $47.6 million during the nine months ended September 30, 2023 and 2022, respectively. These amounts are reflected in “other, net” in the table above.
As of September 30, 2023, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $145.9 million and $6.8 million, respectively. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25%. The Company recognized income on its ALLO preferred membership interests of $2.3 million and $2.2 million during the three months ended September 30, 2023 and 2022, respectively, and $6.8 million and $6.4 million during the nine months ended September 30, 2023 and 2022, respectively. These amounts are reflected in “other, net” in the table above.
As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $25.0 million to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels. The Company recognized an expense of $0.7 million and $2.0 million associated with this obligation for the three and nine months ended September 30, 2023, respectively, which is included in “other expenses” in the table above.
(e)    Represents the operating results of the Company’s real estate investments and the administrative costs to manage this portfolio.
(f)    Represents the operating results of the Company’s venture capital investments and the administrative costs to manage this portfolio. In April 2022, the Company recognized a $15.2 million gain as a result of the revaluation of its previously held 50% ownership interests in NextGen (previously accounted for under the equity method) as a result of the Company purchasing an additional 30% ownership interests in NextGen.
(g)    Represents interest income earned on cash and investment debt securities (primarily student loan and other asset-backed securities), interest expense incurred on unsecured and certain other corporate related debt transactions, 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 and facilities.
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LIQUIDITY AND CAPITAL RESOURCES
The Company’s Loan Servicing and Systems, and Education Technology, Services, and Payment Processing 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.
Nelnet Bank launched operations in November 2020. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million and the Company contributed an additional $30.0 million and $5.0 million to Nelnet Bank during 2022 and the third quarter of 2023, respectively. 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. Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank. See “Liquidity Impact Related to Nelnet Bank” included below for additional information.
Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment and the Company's other initiatives to pursue additional strategic investments.
Sources of Liquidity
As of September 30, 2023, the Company's sources of liquidity included:
Cash and cash equivalents $ 187,690 
Less: Cash and cash equivalents held at Nelnet Bank (1) (8,187)
Net cash and cash equivalents 179,503 
Available-for-sale (AFS) debt securities (investments) - at fair value 1,059,297 
Less: AFS debt securities held at Nelnet Bank - at fair value (1) (435,015)
AFS debt securities serving as collateral on participation agreement - at fair value (2) (57)
AFS debt securities serving as collateral on repurchase agreement - at fair value (3) (260,108)
AFS restricted debt securities - at fair value (15,918)
Unencumbered AFS debt securities (investments) - at fair value 348,199 
Unencumbered private, consumer, and other loans (Non-Nelnet Bank) - at par 231,317 
Repurchased Nelnet issued asset-backed debt securities - at par (not included on consolidated financial statements) (4) 257,278 
Less: Repurchased Nelnet issued asset-backed debt securities serving as collateral on repurchase agreement - at par (118,925)
Unencumbered repurchased Nelnet issued asset-backed debt securities - at par 138,353 
Unused capacity on unsecured line of credit (5) 495,000 
Sources of liquidity as of September 30, 2023
 $ 1,392,372 
(1) Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank.
(2) See the caption "Other Debt Facilities" below.
(3) See the caption "Repurchase Agreements" below.
(4) The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. Certain of these securities serve as collateral on amounts outstanding under the Company's repurchase agreements as reflected in the table above.
(5)    The Company has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of September 30, 2023, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.
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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.
Cash Flows
The Company has historically generated positive cash flow from operations. During the nine months ended September 30, 2023 and 2022, the Company generated $353.2 million and $656.9 million, respectively, in cash from operating activities. The decrease in 2023 compared with 2022 was due to:
•A decrease in net income;
•Payments to the Company's clearinghouse for margin payments on derivatives for the nine months ended September 30, 2023 compared with proceeds received in 2022;
•Adjustments to net income for the impact of the non-cash change in deferred income taxes and gain on sale of loans;
•A decrease in net proceeds from the sale of equity securities in 2023 compared with 2022; and
•The impact of changes to accrued interest payable during the nine months ended September 30, 2023 compared with the same period in 2022.
These factors were partially offset by:
•An increase in proceeds from termination of derivative instruments in 2023 compared with 2022;
•Adjustments to net income for derivative market value adjustments, the impact of provision for loan losses, and loss on investments;
•An increase of non-cash depreciation and amortization during the nine months ended September 30, 2023 compared with the same period in 2022; and
•The impact of changes to accrued interest and accounts receivable and other assets and liabilities during the nine months ended September 30, 2023 compared with the same period in 2022.
The primary items included in the statement of cash flows for investing activities are the purchase, origination, repayment, and sale of loans and the purchase and sale of available-for-sale securities. The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable and Nelnet Bank deposits used to fund loans and investment activity. Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2023 was $1.3 billion and $2.2 billion, respectively. Cash provided by investing activities and used in financing activities for the nine months ended September 30, 2022 was $1.7 billion and $2.5 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
The following table shows AGM's debt obligations outstanding that are secured by loan assets and related collateral.
  As of September 30, 2023
Carrying amount
 Final maturity
Bonds and notes issued in asset-backed securitizations $ 10,647,788  8/26/30 - 9/25/69
FFELP, private education, and consumer loan warehouse facilities 1,554,298  12/31/23 - 11/14/25
  $ 12,202,086   
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 provide 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.
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As of September 30, 2023, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.40 billion as detailed below.
The forecasted cash flow presented below includes all loans, the majority of which are federally insured student loans, funded in asset-backed securitizations as of September 30, 2023. As of September 30, 2023, AGM had $10.9 billion of loans included in asset-backed securitizations, which represented 85.3% of its total loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to September 30, 2023, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments and notes receivable" on the Company's consolidated balance sheets).
Asset-backed Securitization Cash Flow Forecast
$1.40 billion
(dollars in millions)
abscfforecast2023q3.jpg
The forecasted future undiscounted cash flows of approximately $1.40 billion include approximately $0.84 billion (as of September 30, 2023) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are included in the consolidated balance sheets and included 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 $0.56 billion, or approximately $0.43 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 current September 30, 2023 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.
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Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates of 5% for consolidation loans and 6% for all other loan types.
Since late 2021, the Company has experienced accelerated run-off of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of the CARES Act payment pause on Department held loans and the initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs. After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension ended August 31, 2023, and Federal Direct Loan Program borrowers returned to repayment on September 1, 2023. If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs, such initiatives could significantly increase prepayments. See note 13 of the notes to the consolidated financial statements included in Part I, Item 1 of this report for additional details regarding the federal government's actions with respect to student loan forgiveness and cancellations.
In addition, on July 10, 2023, the Department issued final regulations on income-driven repayment plans for Federal Direct loans. Eligible FFELP borrowers can access the new changes by consolidating their loans into the Federal Direct Loan Program. The new regulations are effective July 1, 2024; however, the Department has elected early implementation for some features starting July 30, 2023. The regulations provide a lower monthly loan payment on a Direct loan by decreasing discretionary income, decreasing the percentage of discretionary income that must be paid toward a Direct loan, and providing the option for married borrowers to exclude their spouse’s income from being factored by filing a separate tax return. Other changes provide for the elimination of accrued interest that is not covered by the monthly payment amount, provide credit towards loan forgiveness that counts certain periods of deferment and forbearance, a shorter loan forgiveness period for borrowers with an original principal balance less than or equal to $12,000, and credit toward loan forgiveness for eligible payments on a Direct or FFELP loan that is repaid by a Direct Consolidation loan. This new income-driven repayment plan may increase consolidation activity in the future as FFELP borrowers consolidate their loans into the Federal Direct Loan Program in order to be eligible for the new income-driven repayment plan.
See Part I, Item 1A, "Risk Factors - Loan Portfolio - Prepayments risk" in the Company's 2022 Annual Report for additional information related to risks associated with loan prepayments.
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
$0.10 billion
$1.30 billion
4x
$0.28 billion
$1.12 billion
10x
$0.51 billion
$0.89 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 $0.84 billion (as of September 30, 2023); however, the Company would not receive the $0.56 billion ($0.43 billion after tax) of estimated future earnings from the portfolio.
Interest rates: On June 30, 2023, LIBOR was discontinued as a benchmark rate. Subsequent to the discontinuation of LIBOR on June 30, 2023, 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 bond equivalent of 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 Term SOFR and 30-day average SOFR for the life of the portfolio, the cash flow forecast would be reduced by approximately $10 million to $30 million. The Company attempts to mitigate the impact of this basis risk by entering into certain derivative instruments.
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.
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Warehouse Facilities
Warehousing allows the Company to buy and manage FFELP, private education, and consumer loans prior to transferring them into more permanent financing arrangements. For a summary of the Company's warehouse facilities see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
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.
Other Uses of Liquidity
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; proceeds from the sale of certain investments; its unsecured line of credit, its Union Bank student loan participation agreement, its Union Bank student loan asset-backed securities participation agreement, and third-party repurchase agreements (each as described below), and/or 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.
Repurchase Agreements
In December 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company had an approximately 8% interest in the loans and has a corresponding 8% interest in residual interests in the 2021 securitizations of the loans discussed below. The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility.
During 2021, the Company sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of private education loans sold by Wells Fargo (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase). As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of September 30, 2023, the fair value of these bonds was $260.1 million. The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell its investment securities (bonds) to a third party. The Company entered into repurchase agreements with third parties, of which a portion of the proceeds from such agreements were used to purchase the asset-backed investments, and such investments serve as collateral on the repurchase obligations.
In addition, as discussed above, the Company has repurchased certain of its own asset-backed securities in the secondary market that serve as collateral on amounts outstanding under the Company's repurchase agreements. During the third quarter of 2023, the Company paid down the outstanding balance of one of these facilities.
As of September 30, 2023, $336.5 million was outstanding on the Company's remaining repurchase agreement, of which $246.1 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement and $90.4 million was borrowed to fund repurchased FFELP loan asset-backed securities. As of November 7, 2023, the maturity dates on this facility vary from November 20, 2023 through November 27, 2024, and the facility is subject to early termination upon 180 days' prior written notice provided by the Company or the counterparty prior to the maturity dates. The Company is subject to cash margin deficit payment requirements in the event the fair value of the securities subject to the repurchase agreement becomes less than the original purchase price of such securities.
Upon termination or expiration of the remaining repurchase agreement, the Company would use cash and/or cash proceeds from its unsecured line of credit, consider the sale of assets (subject to any restrictions described above), or transfer collateral to satisfy any outstanding obligations subject to the repurchase agreements.
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Union Bank Participation Agreement
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 September 30, 2023, $257.0 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 participate 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.
Asset-backed Securities Transactions
The Company, through its subsidiaries, has historically funded student 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 student loans included in its warehouse facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.
There were no asset-backed securitization transactions completed during the nine months ended September 30, 2023.
Cash Flow Forecast - Beneficial Interest in Loan Securitizations
The Company has partial ownership in federally insured, private education, consumer, and other loan third-party securitizations that are classified as "beneficial interest in loan securitizations" and included in "investments and notes receivable" on the Company's consolidated balance sheets. These residual interests were acquired by the Company or have been received by the Company as consideration as the result of 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 September 30, 2023, the Company's ownership correlates to approximately $1.55 billion of loans included in these securitizations
As of September 30, 2023, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $191.2 million. For a summary of this investment balance, see note 5 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 September 30, 2023, 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 $323.3 million. The vast majority of these cash flows are expected to be received over the next 8 years.
The difference between the total estimated future undiscounted cash flows from these residual interests and the investment carrying value of $191.2 million of $132.1 million, or $100.4 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 current September 30, 2023 balance.
The undiscounted future cash flows from the private education, consumer, and other 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.
Liquidity Impact Related to Nelnet Bank
Nelnet Bank launched operations in November 2020. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million and the Company contributed an additional $30.0 million and $5.0 million to Nelnet Bank during 2022 and the third quarter of 2023, respectively. In addition, the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC discussed below.
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.
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Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI and must meet specific capital standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on Nelnet Bank’s business, results of operations, or financial condition. On January 1, 2020, the Community Bank Leverage Ratio (CBLR) framework, as issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the FDIC, became effective. Any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9% may opt into the CBLR framework quarterly. The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio. The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio. Nelnet Bank has opted into the CBLR framework for the quarter ended September 30, 2023 with a leverage ratio of 12.7%. Nelnet Bank intends to maintain at all times regulatory capital levels that meet both the minimum level necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework and the minimum level required by the FDIC.
Nelnet Bank has a portfolio of asset-backed securities investments that were accounted for and classified as available-for-sale. Accordingly, these securities were carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of equity. To reduce Nelnet Bank's market exposure related to decreases in fair value on these investments, on March 31, 2023, securities at Nelnet Bank with a fair value of $149.2 million were transferred from available-for-sale to held to maturity. The securities were reclassified at fair value at the time of the transfer, and such transfer represented a non-cash transaction. Accumulated other comprehensive income as of the date of the transfer (March 31, 2023) included pre-tax unrealized losses of $3.7 million. These unrealized losses will be amortized, consistent with the amortization of any discounts on such securities, over the remaining lives of the respective securities as an adjustment of yield.
Based on Nelnet Bank's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to the bank in future periods.
Liquidity Impact Related to Nelnet Renewable Energy
The Company’s Nelnet Renewable Energy business makes solar tax equity investments. Through September 30, 2023, the Company has invested a total of $332.0 million (which includes $126.5 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships. These investments provide a federal income tax credit under the Internal Revenue Code, equaling 30% of the eligible project costs, with the tax credit available when the project is placed-in-service. The Company is allowed to reduce its tax estimates paid to the U.S. Treasury based on the credits earned. 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 amount of capital committed 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 September 30, 2023, the Company is committed to fund an additional $265.9 million on tax equity investments, of which $128.7 million is expected to be provided by syndication partners.
In addition to solar tax equity investments, the Company has a strategy to own solar energy project assets. These assets provide long-term, predictable, and recurring cash flows. Accordingly, the Company has begun to execute a multi-faceted approach to originate, acquire, finance, own, and manage these assets. The Company plans to fund a large portion of its current growth plans in owning solar energy projects using third-party debt and third-party tax equity. The collateral on any third-party debt would be limited to the assets of the specific solar projects. Any capital requirements for the origination or purchase of solar projects not funded by third-party debt and third-party tax equity would be provided by the Company using operating cash, borrowings on its unsecured line of credit, and/or the sale of investments.
Liquidity Impact Related to ALLO
Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45% voting membership interests in ALLO at fair value, and accounts for such investment under the HLBV method of accounting. In addition, the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment. As of September 30, 2023, the outstanding preferred membership interests of ALLO held by the Company was $145.9 million that earns a preferred annual return of 6.25%. Accrued and unpaid preferred returns are converted to additional preferred membership interests each December 31. As of September 30, 2023 the accrued and unpaid preferred return was $6.8 million. If the non-voting preferred membership interests are not redeemed on or before April 2024, the preferred annual return is increased from 6.25% to 10.00%.
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In June 2023, ALLO, the Company, and SDC (a third-party global digital infrastructure investor and member of ALLO) agreed to amend the terms of the ALLO non-voting preferred membership units owned by Nelnet. Such amended terms provide that commencing January 1, 2025, the preferred annual return will increase to 13.5%, commencing July 1, 2025, the return will increase to 15.0%, commencing January 1, 2026, the preferred return will increase to 17.5%, and beginning on January 1, 2027 and on each January 1 of each calendar year thereafter, the annual return will increase by an additional 2.5%. In addition, any preferred return accruing on or after January 1, 2025 is expected to be paid on a quarterly basis in cash rather than through an increase to the outstanding preferred membership interests.
As part of the ALLO recapitalization transaction in December 2020, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $25.0 million to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels. As of September 30, 2023, the estimated fair value of the contingent payment is $9.6 million.
In June 2023, ALLO closed on an asset-backed securities transaction with an aggregate size of $576.0 million. The proceeds from this transaction were used to refinance the majority of ALLO's prior debt and fund a portion of its current growth plans. If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest. Although ALLO has obtained debt financing to fund a large portion of its growth plans, the Company contributed $8.4 million of additional equity to ALLO in the first quarter of 2023. As a result of this equity contribution, the Company’s voting membership interests percentage did not materially change. Based on ALLO's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to ALLO in future periods.
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-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.
To minimize the Company's exposure to market volatility, on March 15, 2023, 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 the clearinghouse related to variation margin equal to the fair value as of March 15, 2023 of the derivatives used to hedge loans earning fixed rate floor income of $183.2 million, which included $19.1 million related to current period settlements.
Based on the derivative portfolio outstanding as of September 30, 2023, 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.
Other Debt Facilities
As discussed above, the Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026. As of September 30, 2023, 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.
During 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in federally insured student loan asset-backed securities. As of September 30, 2023, $0.1 million (par value) of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. This participation agreement has been accounted for by the Company as a secured borrowing. Upon termination or expiration of this agreement, the Company would expect to use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.
Stock Repurchases
The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 8, 2025. No shares were repurchased under this program during the first three quarters 2023.
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As of September 30, 2023, 4,467,021 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.
During the first three quarters of 2023, the Company repurchased 47,195 shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. These repurchased shares are excluded from the Company's repurchase program. See "Stock Repurchases" under Part II, Item 2 of this report.
Dividends
On September 15, 2023, the Company paid a third quarter 2023 cash dividend on the Company's Class A and Class B common stock of $0.26 per share. In addition, the Company's Board of Directors has declared a fourth quarter 2023 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share. The fourth quarter cash dividend will be paid on December 15, 2023 to shareholders of record at the close of business on December 1, 2023.
The Company plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.
CRITICAL ACCOUNTING POLICIES AND 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 3 of the notes to consolidated financial statements included in the Company’s 2022 Annual Report includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.
On an on-going basis, management evaluates its estimates and judgments, particularly as they relate to accounting policies that management believes are most “critical” - that is, they are most important to the portrayal of the Company’s financial condition and results of operations and they require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has identified the allowance for loan losses as a critical accounting policy and estimate, as discussed further under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Allowance for Loan Losses” in the Company’s 2022 Annual Report. For additional information regarding changes in the Company’s allowance for loan losses for the three and nine months ended September 30, 2023 and 2022, see the caption “Activity in the Allowance for Loan Losses” in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report. There have been no material changes to the Company’s critical accounting policy and estimate since December 31, 2022.
RECENT ACCOUNTING PRONOUNCEMENTS
Investments - Proportional Amortization Method
In March 2023, the FASB issued accounting guidance which permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. A reporting entity may make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than at the reporting entity level or for individual investments. This guidance will be effective for the Company beginning January 1, 2024 with early adoption permitted. Management believes this pronouncement will not have a material impact on the Company's consolidated financial statements upon adoption.
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(All dollars are in thousands, except share amounts, unless otherwise noted)
LIBOR Transition
On June 30, 2023, the LIBOR administrator ceased publication (on a representative basis) of all USD LIBOR rates. When possible, the Company relied on fallback provisions or negotiated with counterparties to transition financial contracts from LIBOR to SOFR. Due to certain noteholder consent requirements, it was not practicable to modify certain of the Company's asset-backed securities transactions.
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The SAP formula for the Company's FFELP loans, the majority of which were indexed to one-month LIBOR, were not able to be modified without legislative action. On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) was signed into law. The LIBOR Act provides that for contracts that contain no fallback provision or contain fallback provisions that do not identify a specific USD LIBOR benchmark replacement (including the SAP formula for FFELP loans), a benchmark replacement based on SOFR will automatically replace the USD LIBOR benchmark in the contract after June 30, 2023. Following the enactment and implementation of the LIBOR Act, all of the Company's financial instruments which were indexed to USD LIBOR transitioned to SOFR after June 30, 2023. Specifically, after June 30, 2023, the SAP formula for FFELP loans transitioned to 30-day Average SOFR and the Company's LIBOR-indexed FFELP asset-backed securities also transitioned to a short-term SOFR index. The Company does not expect the transition from LIBOR to SOFR to significantly impact its asset-backed securitization cash flow forecast as discussed under Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral - Bonds and Notes Issued in Asset-backed Securitizations." The Company's LIBOR-indexed derivatives transitioned to the fallback rate (SOFR) as defined in the individual agreements and/or published industry guidelines, as applicable.
The market transition away from the previous LIBOR framework could result in significant changes to the interest rate characteristics of the Company's prior LIBOR-indexed assets and funding for those assets. The Company is still uncertain as to the long-term relationship between overnight SOFR and Term SOFR as they are new indices, and the Company's assumptions with respect to this relationship may evolve over time. To the extent that the spread between these indices were to widen, it could adversely impact future interest income earned on the Company's FFELP student loan portfolio. For a discussion of the risks related to the LIBOR transition, see Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2022 Annual Report for additional information.
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.
The following table sets forth AGM’s loan assets and debt instruments by rate characteristics:
  As of September 30, 2023 As of December 31, 2022
  Dollars Percent Dollars Percent
Fixed-rate loan assets $ 601,169  4.7  % $ 1,339,900  9.5  %
Variable-rate loan assets 12,134,452  95.3  12,829,871  90.5 
Total $ 12,735,621  100.0  % $ 14,169,771  100.0  %
Fixed-rate debt instruments $ 514,023  4.2  % $ 617,083  4.5  %
Variable-rate debt instruments 11,688,063  95.8  13,199,327  95.5 
Total $ 12,202,086  100.0  % $ 13,816,410  100.0  %
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the special allowance payment (SAP) formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its FFELP student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s FFELP student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
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. 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.
No variable-rate floor income was earned by the Company in 2023 or 2022.
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A summary of fixed rate floor income earned by the AGM operating segment follows.
Three months ended September 30, Nine months ended September 30,
2023 2022 2023 2022
Fixed rate floor income, gross $ 450  7,585  2,016  54,870 
Derivative settlements (a) 235  11,356  22,760  11,843 
Fixed rate floor income, net $ 685  18,941  24,776  66,713 
(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 for the three and nine months ended September 30, 2023 compared with the same periods in 2022 due to higher interest rates in 2023 compared with 2022.
The Company had a significant portfolio of derivative instruments in which the Company paid a fixed rate and received a floating rate to economically hedge loans earning fixed rate floor income. On March 15, 2023, to minimize the Company's exposure to market volatility, the Company terminated its entire derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives). Through March 15, 2023, the Company had received cash or had a receivable from its clearinghouse related to variation margin equal to the fair value of the $2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements.
The decrease in net derivative settlements received by the Company during the three months ended September 30, 2023, compared with the same period in 2022, was due to the termination of the fixed rate floor derivatives in March 2023. The increase in net derivative settlements received by the Company during the nine months ended September 30, 2023, compared with the same period in 2022, was due to an increase in settlements on the Company's derivatives outstanding during this period as a result of an increase in interest rates.
The following table shows AGM’s federally insured student loan assets that were earning fixed rate floor income as of September 30, 2023.
Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
8.0 - 8.99% 8.24% 5.60% $ 209,696 
> 9.0%
 9.05% 6.41% 127,221 
$ 336,917 
(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of September 30, 2023, the weighted average estimated variable conversion rate was 5.91% and the short-term interest rate was 541 basis points.
In June 2023, the Company entered into a derivative with a notional amount of $50.0 million and a maturity date in 2030 to hedge a portion of loans remaining that earn fixed rate floor income. Based on the terms of this derivative, the Company pays a weighted average fixed rate of 3.44% and receives payments based on SOFR that resets quarterly.

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AGM is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of AGM’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents AGM’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of September 30, 2023.
Index Frequency of variable resets Assets Funding of student loan assets
30 day Average SOFR (a) (b) Daily $ 11,513,858  — 
3 month H15 financial commercial paper Daily 396,323  — 
3 month Treasury bill Daily 388,803  — 
30 day Average SOFR / 1 month CME Term SOFR (a) Monthly —  6,932,106 
90 day Average SOFR / 3 month CME Term SOFR (a) (b) Quarterly —  3,096,170 
Asset-backed commercial paper (c) Varies —  1,466,178 
Fixed rate — —  497,397 
Auction-rate (d) Varies —  89,910 
Other (e) — 1,197,776  1,414,999 
    $ 13,496,760  13,496,760 
(a)    Transitioned from LIBOR to SOFR after June 30, 2023. See "LIBOR Transition" above.
(b)    The Company has certain basis swaps outstanding in which the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). Subsequent to the discontinuation of LIBOR on June 30, 2023, the Company now receives and pays the term adjusted SOFR plus the tenor spread adjustment relating to LIBOR. 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 1:3 Basis Swaps outstanding as of September 30, 2023.
Maturity Notional amount (i)
2024 $ 1,750,000 
2026 1,150,000 
2027 250,000 
$ 3,150,000 
(i)    The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 2023 was the term adjusted SOFR plus the tenor spread adjustment relating to LIBOR plus 10.1 basis points.
(c)    The interest rate on the Company's FFELP warehouse facilities is indexed to asset-backed commercial paper rates.
(d)    As of September 30, 2023, the Company was sponsor for $89.9 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (the “Auction Rate Securities”). Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to SOFR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.
(e)    Assets include accrued interest receivable and restricted cash. Funding represents overcollateralization (equity) and other liabilities included in FFELP loan asset-backed securitizations and warehouse facility.

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Sensitivity Analysis
The following tables summarize the effect on the Company’s consolidated earnings, based upon a sensitivity analysis performed on AGM’s assets and liabilities assuming hypothetical increases and decreases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant. In addition, a 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. The sensitivity analysis was performed on AGM’s variable rate assets (including loans earning fixed rate floor income) and liabilities.
  Interest rates
Change from increase of
100 basis points		 Change from increase of
300 basis points		 Change from decrease of
100 basis points		 Change from decrease of
300 basis points
  Dollars Percent Dollars Percent Dollars Percent Dollars Percent
  Three months ended September 30, 2023
Effect on earnings:      
Increase (decrease) in pre-tax net income before impact of derivative settlements $ 522  1.0  % $ 2,093  4.0  % $ 2,166  4.1  % $ 9,199  17.4  %
Impact of derivative settlements (a) 126  0.2  378  0.7  (126) (0.2) (378) (0.7)
Increase (decrease) in net income before taxes $ 648  1.2  % $ 2,471  4.7  % $ 2,040  3.9  % $ 8,821  16.7  %
Increase (decrease) in basic and diluted earnings per share $ 0.01  $ 0.05  $ 0.04  $ 0.18 
  Three months ended September 30, 2022
Effect on earnings:      
Increase (decrease) in pre-tax net income before impact of derivative settlements $ (2,396) (1.9) % $ (3,702) (2.9) %
Impact of derivative settlements 6,553  5.2  19,660  15.5 
Increase (decrease) in net income before taxes $ 4,157  3.3  % $ 15,958  12.6  %
Increase (decrease) in basic and diluted earnings per share $ 0.08  $ 0.32 
  Nine months ended September 30, 2023
Effect on earnings:      
Increase (decrease) in pre-tax net income before impact of derivative settlements $ 2,006  1.8  % $ 9,525  8.4  % $ 2,556  2.2  % $ 16,611  14.6  %
Impact of derivative settlements (a) 159  0.1  477  0.4  (159) (0.1) (477) (0.4)
Increase (decrease) in net income before taxes $ 2,165  1.9  % $ 10,002  8.8  % $ 2,397  2.1  % $ 16,134  14.2  %
Increase (decrease) in basic and diluted earnings per share $ 0.04  $ 0.20  $ 0.05  $ 0.33 
  Nine months ended September 30, 2022
Effect on earnings:                
Increase (decrease) in pre-tax net income before impact of derivative settlements $ (18,464) (3.9) % $ (31,854) (6.7) %
Impact of derivative settlements 25,008  5.3  75,025  15.8 
Increase (decrease) in net income before taxes $ 6,544  1.4  % $ 43,171  9.1  %
Increase (decrease) in basic and diluted earnings per share $ 0.13  $ 0.87 
(a)On March 15, 2023, the Company terminated its existing derivative portfolio hedging loans earning fixed rate floor income. The table above excludes the impact of these derivatives for the entire period.
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  Asset and funding index mismatches
Increase of
10 basis points		 Increase of
30 basis points		 Increase of
10 basis points		 Increase of
30 basis points
  Dollars Percent Dollars Percent Dollars Percent Dollars Percent
  Three months ended September 30, 2023 Three months ended September 30, 2022
Effect on earnings:  
Increase (decrease) in pre-tax net income before impact of derivative settlements $ (1,167) (2.2) % $ (3,501) (6.6) % $ (1,148) (0.9) % $ (3,445) (2.7) %
Impact of derivative settlements 794  1.5  2,382  4.5  1,235  1.0  3,705  2.9 
Increase (decrease) in net income before taxes $ (373) (0.7) % $ (1,119) (2.1) % $ 87  0.1  % $ 260  0.2  %
Increase (decrease) in basic and diluted earnings per share $ (0.01) $ (0.02) $ 0.00  $ 0.01 
  Nine months ended September 30, 2023 Nine months ended September 30, 2022
Effect on earnings:  
Increase (decrease) in pre-tax net income before impact of derivative settlements $ (3,462) (3.0) % $ (10,387) (9.1) % $ (3,609) (0.8) % $ (10,828) (2.3) %
Impact of derivative settlements 2,356  2.1  7,068  6.2  3,912  0.8  11,733  2.5 
Increase (decrease) in net income before taxes $ (1,106) (0.9) % $ (3,319) (2.9) % $ 303  —  % $ 905  0.2  %
Increase (decrease) in basic and diluted earnings per share $ (0.02) $ (0.07) $ 0.01  $ 0.02 
Interest Rate Risk - Nelnet Bank
To manage Nelnet Bank's risk from fluctuations in market interest rates, the Company actively monitors interest rates and other interest sensitive components to minimize the impact that changes in interest rates have on the fair value of assets, net income, and cash flow. To achieve this objective, the Company manages and mitigates Nelnet Bank’s exposure to fluctuations in market interest rates through several techniques, including managing the maturity, repricing, and mix of fixed and variable rate assets and liabilities and the use of derivative instruments.
The following table presents Nelnet Bank's loan assets, asset-backed security investments, and deposits by rate characteristics:
  As of September 30, 2023 As of December 31, 2022
  Dollars Percent Dollars Percent
Fixed-rate loan assets $ 400,639  $ 341,776 
Fixed-rate investments 135,552  123,809 
Total fixed-rate assets 536,191  50.5  % 465,585  52.2  %
Variable-rate loan assets 68,174  78,019 
Variable-rate investments 457,587  347,559 
Total variable rate assets 525,761  49.5  425,578  47.8 
Total assets $ 1,061,952  100.0  % $ 891,163  100.0  %
Fixed-rate deposits $ 282,547  29.8  % $ 336,040  42.6  %
Variable-rate deposits (a) 664,832  70.2  453,604  57.4 
Total deposits $ 947,379  100.0  % $ 789,644  100.0  %
(a)    Nelnet Bank uses derivative instruments to hedge exposure to variability in cash flows of variable rate deposits to minimize the exposure to volatility in cash flows from future changes in interest rates. The derivatives are not reflected in the above table. See note 4 of the notes to the consolidated financial statements included under Part I, Item 1 of this report for a summary of Nelnet Bank's derivatives outstanding as of September 30, 2023.
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Interest Rate and Market Risk - Investments
The following table presents the rates earned on the Company’s available-for-sale debt securities (investments) and debt facilities used to fund a portion of such investments. The table below excludes securities (investments) held by Nelnet Bank.
Average balance Interest income/ expense Average yields/ rates Average balance Interest income/ expense Average yields/ rates
Nine months ended September 30,
2023 2022
Investments:
Asset-backed securities available-for-sale (a) (b) $ 1,018,489  50,182  6.59  % $ 1,219,013  18,373  2.02  %
Debt funding asset-backed securities available-for-sale:
Participation agreement - variable rate (c) $ 154,295  6,206  5.38  % $ 336,109  5,088  2.02  %
Repurchase agreements - variable rate (d) 421,266  18,653  5.92  452,813  5,247  1.55 
$ 575,561  24,859  5.77  $ 788,922  10,335  1.75 
(a)    The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The table above includes these repurchased bonds.
(b)    The majority of the Company’s asset-backed securities earn floating rates with expected returns of approximately SOFR + 100 to 350 basis points to maturity. As of September 30, 2023, $257.5 million (par value) of the Company’s asset-backed securities earn a weighted average fixed rate of 3.52%.
(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 borrowed under the repurchase agreements is at a variable rate of SOFR + 75 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 September 30, 2023, the gross unrealized loss on the Company’s available-for-sale debt securities was $44.6 million, and the aggregate fair value of available-for-sale debt securities with unrealized losses was $717.1 million. The Company currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses. See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.
ITEM 4.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company's principal executive and principal financial officers, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2023. Based on this evaluation, the Company’s principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes from the information referred to in the Legal Proceedings section of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 under Part I, Item 3 of such Form 10-K.
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ITEM 1A.  RISK FACTORS
There have been no material changes from the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 in response to Part I, Item 1A of such Form 10-K.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases
The following table summarizes the repurchases of Class A common stock during the third quarter of 2023 by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.
Period Total number of shares purchased (a) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (b) Maximum number of shares that may yet be purchased under the plans or programs (b)
July 1 - July 31, 2023 —  $ —  —  4,467,021 
August 1 - August 31, 2023 —  —  —  4,467,021 
September 1 - September 30, 2023 5,948  91.26  —  4,467,021 
Total 5,948  $ 91.26  — 
(a) The total number of shares includes shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company's shares on the date of vesting.
(b) On May 9, 2022, the Company announced that its 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.
Working capital and dividend restrictions/limitations
The Company's $495.0 million unsecured line of credit, which is available through September 22, 2026, imposes restrictions on the payment of dividends through covenants requiring a minimum consolidated net worth and a minimum level of unencumbered cash, cash equivalent investments, and available borrowing capacity under the line of credit. In addition, trust indentures and other financing agreements governing debt issued by the Company's lending subsidiaries generally have limitations on the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends at certain times. Further, Nelnet Bank is subject to laws and regulations that restrict the ability of Nelnet Bank to pay dividends to the Company, and authorize regulatory authorities to prohibit or limit the payment of dividends by Nelnet Bank to the Company. These provisions do not currently materially limit the Company's ability to pay dividends, and, based on the Company's current financial condition and recent results of operations, the Company does not currently anticipate that these provisions will materially limit the future payment of dividends.
77


ITEM 5.  OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the third quarter of 2023, none of the Company's officers or directors adopted or terminated any contract, instruction, or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), referred to as Rule 10b5-1 trading plans, or any non-Rule 10b5-1 trading arrangement.
ITEM 6.  EXHIBITS
10.1*+
10.2*+
31.1*
31.2*
32**
101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith
** Furnished herewith
+ Filed herewith for purposes of providing a complete set of all amended documents to student loan servicing contracts between the United States Department of Education and Nelnet Servicing, LLC and Nelnet Diversified Solutions.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
  NELNET, INC.  
       
Date: November 7, 2023 By: /s/ JEFFREY R. NOORDHOEK  
  Name: Jeffrey R. Noordhoek  
  Title:
Chief Executive Officer
Principal Executive Officer
  
       
Date: November 7, 2023 By: /s/ JAMES D. KRUGER  
Name: James D. Kruger  
  Title: 
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer
  


79
EX-10.1 2 exhibit101-usds10102023n.htm EX-10.1 exhibit101-usds10102023n
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning or (c) By separate letter or electronic communication which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by letter or electronic communication, provided each letter or electronic communication makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified. E. IMPORTANT: Contractor is not is required to sign this document and return copies to the issuing office. AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE 2. AMENDMENT/MODIFICATION NUMBER 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQUISITION NUMBER 5. PROJECT NUMBER (If applicable) 7. ADMINISTERED BY (If other than Item 6) CODE STANDARD FORM 30 (REV. 11/2016) Prescribed by GSA FAR (48 CFR) 53.243 FACILITY CODE 9A. AMENDMENT OF SOLICITATION NUMBER 9B. DATED (SEE ITEM 11) 10A. MODIFICATION OF CONTRACT/ORDER NUMBER 10B. DATED (SEE ITEM 13) 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers is extended. is not extended. 12. ACCOUNTING AND APPROPRIATION DATA (If required) copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NUMBER AS DESCRIBED IN ITEM 14. CHECK ONE A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NUMBER IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation data, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b). C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: D. OTHER (Specify type of modification and authority) Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15C. DATE SIGNED 15A. NAME AND TITLE OF SIGNER (Type or print) 16C. DATE SIGNED 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) 14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) PAGE OF PAGES 6. ISSUED BY CODE 8. NAME AND ADDRESS OF CONTRACTOR (Number, street, county, State and ZIP Code) (X) CODE 15B. CONTRACTOR/OFFEROR (Signature of person authorized to sign) 16B. UNITED STATES OF AMERICA (Signature of Contracting Officer) Previous edition unusable 1. The purpose of this modification is to: a. Reflect the Novation from Nelnet Diversified Solutions, LLC (Transferor) to Nelnet Servicing, LLC (Transferee), for contract 91003123D0005 for Unified Servicing and Data Solution (USDS) and Task Order 91003123F0321, for USDS. Transferee is a wholly owned subsidiary ...See Continuation Page 1 8 91003123D0005P00008 OCT 10, 2023 FSA-ACQ US Department of Education FSA - Acquisitions, 830 First St NE - Suite 91F3 Washington DC 20202 See Block 6 00030812 91003123D0005 APR 24, 2023 See Schedule ✖ Mutual agreement of the parties and Novation Agreement per FAR 42.1203 ✖ 1 Jackson McClam, Contracting Officer 202-304-2149 jackson.mcclam@ed.gov OCT 10, 2023 UEI: MNXKQ62J7AE8 DUNS: 00030812 Cage Code: 5JZQ5 NELNET SERVICING LLC 121 S. 13TH STREET SUITE 201 LINCOLN NE 68508 Modification Amount: $0.00 Modification Obligated Amount: $0.00 ✖ JACKSON MCCLAM Digitally signed by JACKSON MCCLAM Date: 2023.10.11 14:23:06 -04'00'

 
Continuation Page Continued from Block 14... of the Transferor. b. Change the Unique Entity ID from Nelnet Diversified Solutions (KQHJEPVWRNQ6) to Nelnet Servicing, LLC (MNXKQ62J7AE8) as reflected in block 8. 2. In accordance with FAR 42.1204 a properly formatted Novation Agreement package has been fully executed by the following parties: US Government (i.e. Department of Education, Office of Federal Student Aid), Nelnet Diversified Solutions, and Nelnet Servicing. a. The following documents regarding the novation are attached to this modification: i. Novation Agreement which identifies affected contract and Task Order. ii. Assignment and Assumption Agreement effective on 9/05/2023 3. All other terms and conditions remain unchanged. PAGE 2 OF 8 91003123D0005P00008

 
Attachment Page PAGE 3 OF 8 91003123D0005P00008 Novation Agreement Nelnet Diversified Solutions, LLC (Transferor), a limited liability company duly organized and existing under the laws of Nebraska with its principal office in Lincoln, Nebraska; Nelnet Servicing, LLC (Transferee), a limited liability company duly organized and existing under the laws of Nebraska with its principal office in Lincoln, Nebraska; and the United States of America (Government) enter into this Agreement as of September 5, 2023. A. The parties agree to the following facts: 1. The Government, represented by various Contracting Officers of the United States Department of Education, Office of Federal Student Aid, has entered a contract with the Transferor, namely: Contract No. 91003123D0005, dated April 24, 2023 and the associated “Initial Task Order” No. 91003123F0321 (together, the “0005 Contract”). The term "0005 Contract," as used in this Agreement, means the above contract and purchase orders, including all task orders and modifications, made between the Government and the Transferor before the effective date of this Agreement (whether or not performance and payment have been completed and releases executed if the Government or the Transferor has any remaining rights, duties, or obligations under this contract and purchase orders). Included in the term "0005 Contract" are also all modifications made under the terms and conditions of that contract and purchase orders between the Government and the Transferee, on or after the effective date of this Agreement. 2. As of September 5, 2023, the Transferee has acquired the 0005 Contract from the Transferor via an Assignment and Assumption Agreement. 3. The Transferee possesses all of the assets the Transferor would need to perform the 0005 Contract. 4. The Transferee has assumed all obligations and liabilities of the Transferor under the 0005 Contract by virtue of the above transfer. 5. The Transferee is in a position to fully perform all obligations that may exist under the 0005 Contract. 6. It is consistent with the Government’s interest to recognize the Transferee as the successor party to the 0005 Contract. 7. Evidence of the above transfer and other documents and information required by FAR 42.1204 have been submitted to the Government. 8. The Transferee is a wholly owned subsidiary of the Transferor, and is party to a contract with The Government, represented by various Contracting Officers of the United States Department of Education, Office of Federal Student Aid, namely: Contract No. ED-FSA- 09-D-0013, dated June 17, 2009, as amended and including purchase orders and all modifications made between the Government and the Transferee before the effective date of this Agreement (the “0013 Contract”).

 
Attachment Page PAGE 4 OF 8 91003123D0005P00008 9. The services provided pursuant to the 0013 Contract are substantially similar to those to be required under the 0005 Contract, and Transferee owns or has appropriate rights to all assets necessary to perform under the 0013 Contract, which assets will also be necessary for performance under the 0005 Contract. B. In consideration of these facts, the parties agree that by this Agreement: 1. The Transferor confirms the transfer to the Transferee and waives any claims and rights against the Government that it now has or may have in the future in connection with the 0005 Contract. 2. The Transferee agrees to be bound by and to perform the 0005 Contract in accordance with the conditions contained in the 0005 Contract. The Transferee also assumes all obligations and liabilities of, and all claims against, the Transferor under the 0005 Contract as if the Transferee were the original party to the contract. 3. The Transferee ratifies all previous actions taken by the Transferor with respect to the 0005 Contract, with the same force and effect as if the action had been taken by the Transferee. 4. Based on the foregoing, the Government recognizes the Transferee as the Transferor’s successor in interest in and to the 0005 Contract. The Transferee by this Agreement becomes entitled to all rights, titles, and interests of the Transferor in and to the 0005 Contract as if the Transferee were the original party to the 0005 Contract. Following the effective date of this Agreement, the term "Contractor," as used in the 0005 Contract, shall refer to the Transferee. 5. Except as expressly provided in this Agreement, nothing in it shall be construed as a waiver of any rights of the Government against the Transferor. 6. All payments and reimbursements previously made by the Government to the Transferor, and all other previous actions taken by the Government under the 0005 Contract, shall be considered to have discharged those parts of the Government’s obligations under the contract. All payments and reimbursements made by the Government after the date of this Agreement in the name of or to the Transferor shall have the same force and effect as if made to the Transferee and shall constitute a complete discharge of the Government’s obligations under the contract, to the extent of the amounts paid or reimbursed. 7. The Transferor and the Transferee agree that the Government is not obligated to pay or reimburse either of them for, or otherwise give effect to, any costs, taxes, or other expenses, or any related increases, directly or indirectly arising out of or resulting from the transfer or this Agreement, other than those that the Government in the absence of this transfer or Agreement would have been obligated to pay or reimburse under the terms of the contract. 8. The Transferor guarantees payment of all liabilities and the performance of all obligations that the Transferee- i. Assumes under this Agreement;

 
Attachment Page PAGE 5 OF 8 91003123D0005P00008 ii. Incurs with respect to third-party claims arising out of a security incident or breach or any alleged or actual intellectual property infringement; or iii. May undertake in the future should the 0005 Contract be modified under its terms and conditions. The Transferor waives notice of, and consents to, any such future modifications. 9. The 0005 Contract shall remain in full force and effect, except as modified by this Agreement. Each party has executed this Agreement as of the day and year first above written. United States of America By _______________________________________________ Title _____________________________________________ Nelnet Diversified Solutions, LLC, Transferor ________________________ By Joe Popevis, President Nelnet Servicing, LLC, Transferee ___________________________ By Jennifer Burkey, President Contracting Officer JACKSON MCCLAM Digitally signed by JACKSON MCCLAM Date: 2023.10.10 15:09:54 -04'00'

 
Attachment Page PAGE 6 OF 8 91003123D0005P00008 Certificate I, William J. Munn certify that I am the Secretary of Nelnet Diversified Solutions, LLC, that Joseph Popevis, who signed this Agreement for this entity, was then President of this entity; and that this Agreement was duly signed for and on behalf of this entity by authority of its governing body and within the scope of its powers. Dated: September 5, 2023. By _______________________ William J. Munn, Secretary Certificate I, William J. Munn certify that I am the Secretary of Nelnet Servicing, LLC, that Jennifer Burkey, who signed this Agreement for this entity, was then President of this entity; and that this Agreement was duly signed for and on behalf of this entity by authority of its governing body and within the scope of its powers. Dated: September 5, 2023. By _______________________ William J. Munn, Secretary

 
Attachment Page PAGE 7 OF 8 91003123D0005P00008 ASSIGNMENT AND ASSUMPTION AGREEMENT --Novation of U.S. Government Contract-- THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”), is entered into effective as of September 5, 2023, between Nelnet Diversified Solutions, LLC, a Nebraska limited liability company (“Assignor”) and Nelnet Servicing, LLC, a Nebraska limited liability company (“Assignee”). WHEREAS, Assignor has been awarded Contract No. 91003123D0005 and its associated “Initial Task Order No. 91003123F0321” with the United States Department of Education, Office of Federal Student Aid (“FSA”), under which NDS would service Federal student loans on behalf of FSA for a period of five to ten years (together, the “0005 Contract”); WHEREAS, Assignee is currently party to a substantially similar contract with FSA which will expire upon the effectiveness of the 0005 Contract, and the Assignee is positioned to and capable of performing under the 0005 Contract; WHEREAS, the parties have determined it is in their best interests to enter a (i) Novation Agreement among them and FSA (the “Novation Agreement”) in order to transfer the 0005 Contract to Nelnet Servicing. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Conveyance and Assignment of the 0005 Contract. Assignor hereby grants, conveys, assigns, transfers, bargains and delivers unto Assignee and its successors and assigns all of its right, title and interest in and to the 0005 Contract, effective as of the date of this agreement. 2. Assumption. Assignee hereby assumes and undertakes to pay, discharge and perform or otherwise satisfy, and assumes and agrees to be bound by, the terms and conditions of the 0005 Contract, effective as of such same date as the assignment as set forth in Section 1 hereof. 3. Subsequent Actions. Assignor hereby covenants to and with Assignee, its successors and assigns, to execute and deliver to Assignee, it successors and assigns, all such other and further instruments of conveyance, assignment and transfer, and all such notices, releases and other documents, that would more fully and specifically convey, assign, and transfer to and vest in Assignee, its successors and assigns, the right, title and interest of Assignor in and to all and singular the 0005 Contract hereby conveyed, assigned, and transferred, or intended to be conveyed, assigned or transferred. 4. Governing Law. This agreement shall be governed by and construed in accordance with the laws of the state of Nebraska.

 
Attachment Page PAGE 8 OF 8 91003123D0005P00008 5. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 6. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement as of the day and year first above written. NELNET DIVERSIFIED SOLUTIONS, LLC (“Assignor”) By: ___________________________________ Name: Joseph Popevis Title: President NELNET SERVICING, LLC (“Assignee”) By: ____________________________________ Name: Jennifer Burkey Title: President

 
EX-10.2 3 exhibit102-loanservicing.htm EX-10.2 exhibit102-loanservicing
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning or (c) By separate letter or electronic communication which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by letter or electronic communication, provided each letter or electronic communication makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified. E. IMPORTANT: Contractor is not is required to sign this document and return copies to the issuing office. AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE 2. AMENDMENT/MODIFICATION NUMBER 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQUISITION NUMBER 5. PROJECT NUMBER (If applicable) 7. ADMINISTERED BY (If other than Item 6) CODE STANDARD FORM 30 (REV. 11/2016) Prescribed by GSA FAR (48 CFR) 53.243 FACILITY CODE 9A. AMENDMENT OF SOLICITATION NUMBER 9B. DATED (SEE ITEM 11) 10A. MODIFICATION OF CONTRACT/ORDER NUMBER 10B. DATED (SEE ITEM 13) 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers is extended. is not extended. 12. ACCOUNTING AND APPROPRIATION DATA (If required) copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; 13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NUMBER AS DESCRIBED IN ITEM 14. CHECK ONE A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NUMBER IN ITEM 10A. B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation data, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b). C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: D. OTHER (Specify type of modification and authority) Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect. 15C. DATE SIGNED 15A. NAME AND TITLE OF SIGNER (Type or print) 16C. DATE SIGNED 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) 14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) PAGE OF PAGES 6. ISSUED BY CODE 8. NAME AND ADDRESS OF CONTRACTOR (Number, street, county, State and ZIP Code) (X) CODE 15B. CONTRACTOR/OFFEROR (Signature of person authorized to sign) 16B. UNITED STATES OF AMERICA (Signature of Contracting Officer) Previous edition unusable See Attachment Page 1 5 EDFSA09D0013P00162 OCT 11, 2023 FSA-ACQ US Department of Education FSA - Acquisitions, 830 First St NE - Suite 91F3 Washington DC 20202 Elvis Taylor 202-377-4013 elvis.taylor@ed.gov FSA-FS2 United States Department of Education Federal Student Aid/Mission Support Group 830 First St NE - Suite 91F3 Washington DC 20202 00030812 EDFSA09D0013 JUN 17, 2009 See Schedule ✖ FAR 52.212-4 (c) - Contract Terms and Conditions - Commercial Items (Mar 2009) - TAILORED ✖ 1 Elvis Taylor, Contracting Officer 202-377-4013 elvis.taylor@ed.gov OCT 12, 2023 UEI: MNXKQ62J7AE8 DUNS: 00030812 Cage Code: 5JZQ5 NELNET SERVICING LLC 121 S. 13TH STREET SUITE 201 LINCOLN NE 68508 Modification Amount: $0.00 Modification Obligated Amount: $0.00 ✖ ELVIS TAYLOR Digitally signed by ELVIS TAYLOR Date: 2023.10.13 11:18:46 -04'00'

 
Attachment Page PAGE 2 OF 5 EDFSA09D0013P00162 The purpose of this modification is to do the following: 1. Incorporate a 1-year extension, authorized by Congress, for the associated Task Orders under contract ED-FSA-09-D-0013 via four 3-month option periods accordingly: Option Period V – December 15, 2023 through March 14, 2024 Operations and Maintenance (O&M) services. Option Period VI – March 15, 2024 through June 14, 2024. Operations and Maintenance (O&M) services. When O&M services are assumed under the USDS contract 91003123D0005 which is tentatively scheduled for April 1, 2024, O&M will no longer be invoiced under the associated Legacy Task Orders. All outstanding previously funded Change Request (CR) delivery dates will remain the same unless otherwise authorized by the Contracting Officer. Option Period VII - June 15, 2024 through September 14, 2024 All outstanding previously funded Change Request (CR) delivery dates will remain the same unless otherwise authorized by the Contracting Officer. Option Period VIII - September 15, 2024 through December 14, 2024 All outstanding previously funded Change Request (CR) delivery dates will remain the same unless otherwise authorized by the Contracting Officer. 2. Incorporate FSA Clause 39-8 Supplemental Instruction to EDAR 3452.204 -72, Contractor Security Vetting Requirements, (DEVIATION) (Aug 2023) FSA 39-8 – Supplemental Instructions to EDAR 3452.204-72, Contractor Security Vetting Requirements. (DEVIATION) (AUG 2023) EDAR 3452.204.72, Contractor Security Vetting Requirements, paragraph (j)(1) is supplemented by the following: (j)(1)(a) Contractors will submit their completed Background Investigation Requests electronically. Upload the documents into electronic Questionnaires for Investigation Process (eQIP), or beginning November 30, 2023, its successor system the National Background Investigation Servicers’ electronic application (e-App), and release the Investigation Request Packet to FSA in e-QIP, or e-App. (b) Send an electronic copy of the completed coversheet to your contract COR and system ISSO(s). If contractors require a blank coversheet, please contact the COR. When transmitting the cover sheet, please use the following subject in the header of the Microsoft Outlook Message: Subject: [Name of Prime Contractor-Company Name (Name of Sub-Contractor- Company Name, if applicable)]: [Background Investigation (BI) Type] [BI Level] [Date of Submission] [Name of Company Official Responsible for Background applications] (c) Please ensure that each coversheet is encrypted, and password protected with a unique password. Do not send the password with the coversheet; instead send a separate email with the exact same

 
Attachment Page PAGE 3 OF 5 EDFSA09D0013P00162 subject line with the password in the body of the email. The password should include upper- and lower-case letters, numbers, and special characters. (d) Other than entering the requested data, do not modify the cover sheet format, structure, or any other part of the spreadsheet. Any such change may result in the return of the cover sheet and background investigation paperwork for corrections and delay the processing of the packages. (e) Do not submit System Access Requests (SARs) with the background investigation paperwork. SARs are to be submitted to the Information System Security Officer (ISSO) that is responsible for the applicable system(s). Please contact the ISSO(s) for specific information regarding the delivery (email, etc.) of the System Access Requests. (f) Contact your assigned COR with questions. (End Clause) 3. Incorporate By Reference (IBR) the following EDAR clauses (https://www2.ed.gov/policy/fund/reg/clibrary/edar.html): EDAR Clause 3452.204-70 Records Management EDAR Clause 3452.204-71 Contractor Security Vetting Requirements EDAR Clause 3452.216-71 Award -Term EDAR Clause 3452.224-71 Notice About Research Activities Involving Human Subjects EDAR Clause 3452.224-72 Research Activities Involving Human Subjects EDAR Clause 3452.224-73 Protection of Student Privacy in Compliance with FERPA EDAR Clause 3452.231-71 Invitational Travel Cost EDAR Clause 3452.232-72 Limitation of Government Obligation EDAR Clause 3452.233-70 Agency Level Protest EDAR Clause 3452.239-70 Internet Protocol Version 6 (IPv6) EDAR Clause 3452.239-71 Department Information Security and Privacy Requirements EDAR Clause 3452.243-70 Key Personnel 4. Modify Statement of Objective (SOO) language to include Contractor and Government Obligations Regarding Fully Funded CLINS. Contractor and Government Obligations Regarding Fully Funded CLINs. (a) This requirement applies to CLINs where funding equals the total estimated price. (b) The total estimated price of the CLIN(s) is a product of the fixed-unit price, as specified in the order or contract, multiplied by an estimated quantity for the period of performance specified in the order or contract. (c) The Contractor shall notify the Contracting Officer in writing whenever it has reason to believe either that- (1) The quantity the Contractor expects to process in the next 60 days, when added to all previously processed quantities and multiplied by the fixed-unit rate, will exceed 75 percent of the total estimated price specified in the order or contract; or

 
Attachment Page PAGE 4 OF 5 EDFSA09D0013P00162 (2) The total quantity for the performance of the CLIN will be either greater or less than the total estimated quantity in the order or contract. (d) As part of the required notification in (c) above, the Contractor shall provide the Contracting Officer a revised estimate of the total quantity expected to be processed and the basis for the estimate. (e) Upon either the Contractor’s notification under (c) or upon notification by the Contracting Officer that the Government estimates a quantity lower or higher than that currently specified for the CLIN(s), the parties will negotiate a revised estimate and modify the order or contract accordingly. (f) Government and Contractor obligations- (1) The Government is not obligated to pay the Contractor in excess of the total estimated price specified for the CLIN(s); and (2) The Contractor is not authorized to continue performance under this contract when amounts paid and payable equal the total estimated price of the CLIN specified in the order or contract, unless the Contracting Officer authorizes in writing (e.g., typically in the form of a modification) the order or contract to increase the total estimated price and allots additional funds. Absent such written authorization, the Contractor is required to stop work and any continued performance will be at no cost to the Government. The Contractor waives any claims, demands or actions related to compensation for such unauthorized performance and releases, remises and discharges the Government from all liability related thereto. Nothing herein shall be construed as authorization of voluntary services whose acceptance is otherwise prohibited under 31 U.S.C. 1342. (g) No notice, communication, or representation in any form other than the written authorization specified in paragraph (f)(2) of this clause, or from any person other than the Contracting Officer, shall affect the CLIN’s total estimated price to the Government. In the absence of the specified notice, the Government is not obligated to pay the Contractor any amount in excess of the total estimated price. (h) Change orders shall not be considered an authorization to exceed the total estimated price specified for the CLIN(s), unless they contain a statement increasing the total estimated price. (i) If upon the end of the performance period and after the final invoice, the actual quantity is below the estimated quantity, the Contracting Officer may unilaterally reduce the total estimated price to equal the actual price and de-obligate excess funds. Such an action is not a Termination for Convenience of the Government.

 
SCHEDULE Continued ITEM NO. SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT Contracting Officer: Elvis Taylor, 202-377-4013, elvis.taylor@ed.gov Primary Contracting Officer Representative: Patrice Washington, (202) 377-3845, Patrice.Washington@ed.gov Alternate Contracting Officer Representative(s): Andre Barbosa, 202-377-3332, Andre.Barbosa@ed.gov Primary Technical Point of Contact: None Alternate Technical Point(s) of Contact: None PAGE 5 OF 5 EDFSA09D0013P00162

 
EX-31.1 4 nni-09302023xex_311.htm EX-31.1 Document

Exhibit 31.1
 


Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Jeffrey R. Noordhoek, certify that:
 
1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

                                                      
Date:
 November 7, 2023 /s/ JEFFREY R. NOORDHOEK
Jeffrey R. Noordhoek Chief Executive Officer
Principal Executive Officer
   

EX-31.2 5 nni-09302023xex_312.htm EX-31.2 Document

Exhibit 31.2
 


Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, James D. Kruger, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


    
Date:
 November 7, 2023 /s/ JAMES D. KRUGER
James D. Kruger
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer


EX-32 6 nni-09302023xex_32.htm EX-32 Document

Exhibit 32



Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Nelnet, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 

 
Date: November 7, 2023
By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek
Title:   Chief Executive Officer
 Principal Executive Officer
By: /s/ JAMES D. KRUGER
Name: James D. Kruger
Title:   Chief Financial Officer
 Principal Financial Officer and Principal Accounting Officer