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, 2021~~March 31, 2022


☐			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, 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, 2021,~~April 30, 2022, there were ~~27,560,397~~26,994,698 and ~~10,681,454~~10,674,892 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, 2021~~March 31, 2022

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


NELNET, INC. AND SUBSIDIARIES	NELNET, INC. AND SUBSIDIARIES				NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS	CONSOLIDATED BALANCE SHEETS				CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)				(Dollars in thousands, except share data)
(unaudited)	(unaudited)				(unaudited)
		As of		As of		As of		As of
		September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Assets:	Assets:				Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $138,044 and $175,698, respectively)		$	19,304,203	20,185,656
Loans and accrued interest receivable (net of allowance for loan losses of $117,825 and $127,113, respectively)					Loans and accrued interest receivable (net of allowance for loan losses of $117,825 and $127,113, respectively)	$	17,621,576	18,335,197
Cash and cash equivalents:	Cash and cash equivalents:				Cash and cash equivalents:
Cash and cash equivalents - not held at a related party	Cash and cash equivalents - not held at a related party	31,966		33,292	Cash and cash equivalents - not held at a related party	36,111		30,128
Cash and cash equivalents - held at a related party	Cash and cash equivalents - held at a related party	159,970		87,957	Cash and cash equivalents - held at a related party	126,674		95,435
Total cash and cash equivalents	Total cash and cash equivalents	191,936		121,249	Total cash and cash equivalents	162,785		125,563
Investments	Investments	1,374,913		992,940	Investments	1,649,578		1,588,919
Restricted cash	Restricted cash	764,089		553,175	Restricted cash	757,954		741,981
Restricted cash - due to customers	Restricted cash - due to customers	295,053		283,971	Restricted cash - due to customers	256,927		326,645
Accounts receivable (net of allowance for doubtful accounts of $1,458 and $1,824, respectively)		78,508		76,460
Accounts receivable (net of allowance for doubtful accounts of $1,098 and $1,160, respectively)					Accounts receivable (net of allowance for doubtful accounts of $1,098 and $1,160, respectively)	144,902		163,315
Goodwill	Goodwill	142,092		142,092	Goodwill	142,092		142,092
Intangible assets, net	Intangible assets, net	55,176		75,070	Intangible assets, net	49,544		52,029
Property and equipment, net	Property and equipment, net	117,296		123,527	Property and equipment, net	120,779		119,413
Other assets	Other assets	79,473		92,020	Other assets	83,604		82,887

Total assets	Total assets	$	22,402,739	22,646,160	Total assets	$	20,989,741	21,678,041
Liabilities:	Liabilities:				Liabilities:
Bonds and notes payable	Bonds and notes payable	$	18,610,748	19,320,726	Bonds and notes payable	$	16,736,701	17,631,089
Accrued interest payable	Accrued interest payable	4,441		28,701	Accrued interest payable	7,216		4,566
Bank deposits	Bank deposits	200,651		54,633	Bank deposits	484,047		344,315
Other liabilities	Other liabilities	375,393		312,280	Other liabilities	400,523		379,231
Due to customers	Due to customers	354,543		301,471	Due to customers	276,191		366,002

Total liabilities	Total liabilities	19,545,776		20,017,811	Total liabilities	17,904,678		18,725,203
Commitments and contingencies	Commitments and contingencies	0		0	Commitments and contingencies	0		0
Equity:	Equity:				Equity:
Nelnet, Inc. shareholders' equity:	Nelnet, Inc. shareholders' equity:				Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	—		—	Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	—		—
Common stock:	Common stock:				Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,556,370 shares and 27,193,154 shares, respectively		276		272
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,681,454 shares and 11,155,571 shares, respectively		107		112
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,151,270 shares and 27,239,654 shares, respectively					Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,151,270 shares and 27,239,654 shares, respectively	272		272
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,674,892 shares and 10,676,642 shares, respectively					Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,674,892 shares and 10,676,642 shares, respectively	107		107
Additional paid-in capital	Additional paid-in capital	1,593		3,794	Additional paid-in capital	1,208		1,000
Retained earnings	Retained earnings	2,843,799		2,621,762	Retained earnings	3,092,226		2,940,523
Accumulated other comprehensive earnings, net		13,479		6,102
Accumulated other comprehensive (loss) earnings, net					Accumulated other comprehensive (loss) earnings, net	(5,500)		9,304
Total Nelnet, Inc. shareholders' equity	Total Nelnet, Inc. shareholders' equity	2,859,254		2,632,042	Total Nelnet, Inc. shareholders' equity	3,088,313		2,951,206
Noncontrolling interests	Noncontrolling interests	(2,291)		(3,693)	Noncontrolling interests	(3,250)		1,632
Total equity	Total equity	2,856,963		2,628,349	Total equity	3,085,063		2,952,838
Total liabilities and equity	Total liabilities and equity	$	22,402,739	22,646,160	Total liabilities and equity	$	20,989,741	21,678,041

Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:	Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:				Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:
Loans and accrued interest receivable	Loans and accrued interest receivable	$	19,032,669	20,132,996	Loans and accrued interest receivable	$	17,162,119	17,981,414
Restricted cash	Restricted cash	699,143		499,223	Restricted cash	666,369		674,073

Bonds and notes payable	Bonds and notes payable	(18,465,230)		(19,355,375)	Bonds and notes payable	(16,660,541)		(17,462,456)
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	(66,913)		(83,127)	Accrued interest payable and other liabilities	(48,267)		(36,276)

Net assets of consolidated education and other lending variable interest entities	Net assets of consolidated education and other lending variable interest entities	$	1,199,669	1,193,717	Net assets of consolidated education and other lending variable interest entities	$	1,119,680	1,156,755

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES	NELNET, INC. AND SUBSIDIARIES						NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME	CONSOLIDATED STATEMENTS OF INCOME						CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)						(Dollars in thousands, except share data)
(unaudited)	(unaudited)						(unaudited)
		Three months ended			Nine months ended			Three months ended
		September 30,			September 30,			March 31,
		2021		2020	2021	2020		2022		2021
Interest income:	Interest income:						Interest income:
Loan interest	Loan interest	$	124,096	134,507	370,219	462,439	Loan interest	$	111,377	124,117
Investment interest	Investment interest	12,558		5,238	29,122	18,379	Investment interest	13,819		4,986
Total interest income	Total interest income	136,654		139,745	399,341	480,818	Total interest income	125,196		129,103
Interest expense:
Interest on bonds and notes payable and bank deposits		50,176		58,423	127,939	277,788
Interest expense on bonds and notes payable and bank deposits							Interest expense on bonds and notes payable and bank deposits	48,079		27,773
Net interest income	Net interest income	86,478		81,322	271,402	203,030	Net interest income	77,117		101,330
Less provision (negative provision) for loan losses		5,827		(5,821)	(10,847)	73,476
Less negative provision for loan losses							Less negative provision for loan losses	(435)		(17,048)
Net interest income after provision for loan losses	Net interest income after provision for loan losses	80,651		87,143	282,249	129,554	Net interest income after provision for loan losses	77,552		118,378
Other income/expense:	Other income/expense:						Other income/expense:
Loan servicing and systems revenue	Loan servicing and systems revenue	112,351		113,794	335,961	337,571	Loan servicing and systems revenue	136,368		111,517
Education technology, services, and payment processing revenue	Education technology, services, and payment processing revenue	85,324		74,121	257,284	217,100	Education technology, services, and payment processing revenue	112,286		95,258
Communications revenue		—		20,211	—	57,390

Other	Other	11,867		1,502	30,183	69,910	Other	9,877		(2,168)
Gain on sale of loans	Gain on sale of loans	3,444		14,817	18,715	33,023	Gain on sale of loans	2,989		—

Impairment expense and provision for beneficial interests, net		(14,159)		—	(12,223)	(34,419)

Derivative market value adjustments and derivative settlements, net	Derivative market value adjustments and derivative settlements, net	1,351		1,049	28,868	(13,406)	Derivative market value adjustments and derivative settlements, net	142,925		34,505
Total other income/expense	Total other income/expense	200,178		225,494	658,788	667,169	Total other income/expense	404,445		239,112
Cost of services:
Cost to provide education technology, services, and payment processing services	Cost to provide education technology, services, and payment processing services	31,335		25,243	80,063	63,424	Cost to provide education technology, services, and payment processing services	35,545		27,052
Cost to provide communications services		—		5,914	—	17,240
Total cost of services		31,335		31,157	80,063	80,664

Operating expenses:	Operating expenses:						Operating expenses:
Salaries and benefits	Salaries and benefits	128,592		126,096	363,351	365,220	Salaries and benefits	149,414		115,791
Depreciation and amortization	Depreciation and amortization	15,710		30,308	56,129	87,349	Depreciation and amortization	16,956		20,184

Other expenses	Other expenses	38,324		34,744	107,611	115,184	Other expenses	39,499		36,698
Total operating expenses	Total operating expenses	182,626		191,148	527,091	567,753	Total operating expenses	205,869		172,673
Income before income taxes	Income before income taxes	66,868		90,332	333,883	148,306	Income before income taxes	240,583		157,765
Income tax expense	Income tax expense	15,649		19,156	76,747	30,286	Income tax expense	55,697		34,861
Net income	Net income	51,219		71,176	257,136	118,020	Net income	184,886		122,904
Net loss (income) attributable to noncontrolling interests		1,919		327	3,467	(568)
Net loss attributable to noncontrolling interests							Net loss attributable to noncontrolling interests	1,761		694
Net income attributable to Nelnet, Inc.	Net income attributable to Nelnet, Inc.	$	53,138	71,503	260,603	117,452	Net income attributable to Nelnet, Inc.	$	186,647	123,598
Earnings per common share:	Earnings per common share:						Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	1.38	1.86	6.74	2.99	Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	4.91	3.20
Weighted average common shares outstanding - basic and diluted	Weighted average common shares outstanding - basic and diluted	38,595,721		38,538,476	38,646,892	39,229,932	Weighted average common shares outstanding - basic and diluted	38,041,834		38,603,555

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES	NELNET, INC. AND SUBSIDIARIES										NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME										CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)	(Dollars in thousands)										(Dollars in thousands)
(unaudited)	(unaudited)										(unaudited)
		Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
		2021			2020		2021		2020			2022			2021
Net income	Net income		$	51,219		71,176		257,136		118,020	Net income		$	184,886		122,904
Other comprehensive income:
Other comprehensive (loss) income:											Other comprehensive (loss) income:
Net changes related to foreign currency translation adjustments	Net changes related to foreign currency translation adjustments	$	(9)			—		(9)		—	Net changes related to foreign currency translation adjustments	$	9			1
Net changes related to available-for-sale debt securities:	Net changes related to available-for-sale debt securities:										Net changes related to available-for-sale debt securities:
Unrealized gains during period, net		4,524			1,893		11,770		2,114
Reclassification of gains to net income, net		(1,173)			(513)		(2,052)		(390)
Unrealized holding (losses) gains arising during period, net											Unrealized holding (losses) gains arising during period, net	(16,698)			4,349
Reclassification of gains recognized in net income, net of losses											Reclassification of gains recognized in net income, net of losses	(2,793)			(508)
Income tax effect	Income tax effect	(804)	2,547		(329)	1,051	(2,332)	7,386	(412)	1,312	Income tax effect	4,678	(14,813)		(922)	2,919
Other comprehensive income			2,538			1,051		7,377		1,312
Other comprehensive (loss) income											Other comprehensive (loss) income		(14,804)			2,920
Comprehensive income	Comprehensive income		53,757			72,227		264,513		119,332	Comprehensive income		170,082			125,824
Comprehensive loss (income) attributable to noncontrolling interests			1,919			327		3,467		(568)
Comprehensive loss attributable to noncontrolling interests											Comprehensive loss attributable to noncontrolling interests		1,761			694
Comprehensive income attributable to Nelnet, Inc.	Comprehensive income attributable to Nelnet, Inc.		$	55,676		72,554		267,980		118,764	Comprehensive income attributable to Nelnet, Inc.		$	171,843		126,518

See accompanying notes to consolidated financial statements.

																						NELNET, INC. AND SUBSIDIARIES																								CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY	(Dollars in thousands, except share data)	(unaudited)
		Nelnet, Inc. Shareholders																								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 earnings, net		Noncontrolling interests			Total equity					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) earnings		Noncontrolling interests		Total equity
			Class A	Class B											Class A					Class B
Balance as of June 30, 2020		—	27,232,836	11,171,609			$	—			272			112			1,867		2,331,312				3,233					3,990		2,340,786
Issuance of noncontrolling interests		—	—	—	—				—	—		—	—			—		14			14
Net income (loss)		—	—	—	—				—	—		—	71,503			—		(327)			71,176��
Other comprehensive income		—	—	—	—				—	—		—	—			1,051		—			1,051
Distribution to noncontrolling interests		—	—	—	—				—	—		—	—			—		(331)			(331)
Cash dividends on Class A and Class B common stock - $0.20 per share		—	—	—	—				—	—		—	(7,664)			—		—			(7,664)
Issuance of common stock, net of forfeitures		—	24,132	—	—				—	—		553	—			—		—			553
Compensation expense for stock based awards		—	—	—	—				—	—		1,864	—			—		—			1,864
Repurchase of common stock		—	(93,380)	—	—				—	—		(2,580)	(2,038)			—		—			(4,618)

Balance as of September 30, 2020		—	27,163,588	11,171,609	$	—			272	112		1,704	2,393,113			4,284		3,346			2,402,831

Balance as of June 30, 2021		—	27,494,942	11,054,171	$	—			275	111		10,158	2,812,315			10,941		(5,182)			2,828,618
Balance as of December 31, 2020																							Balance as of December 31, 2020		—		27,193,154		11,155,571		$	—	272		112		3,794		2,621,762		6,102		(3,693)		2,628,349
Issuance of noncontrolling interests	Issuance of noncontrolling interests	—	—	—	—				—	—		—	—			—		4,935			4,935			Issuance of noncontrolling interests		—		—		—		—		—		—		—		—		—		1,400		1,400
Net income (loss)	Net income (loss)	—	—	—	—				—	—		—	53,138			—		(1,919)			51,219			Net income (loss)		—		—		—		—		—		—		—		123,598		—		(694)		122,904
Other comprehensive income	Other comprehensive income	—	—	—	—				—	—		—	—			2,538		—			2,538			Other comprehensive income		—		—		—		—		—		—		—		—		2,920		—		2,920
Distribution to noncontrolling interests	Distribution to noncontrolling interests	—	—	—	—				—	—		—	—			—		(125)			(125)			Distribution to noncontrolling interests		—		—		—		—		—		—		—		—		—		(102)		(102)
Cash dividends on Class A and Class B common stock - $0.22 per share	Cash dividends on Class A and Class B common stock - $0.22 per share	—	—	—	—				—	—		—	(8,407)			—		—			(8,407)			Cash dividends on Class A and Class B common stock - $0.22 per share		—		—		—		—		—		—		—		(8,437)		—		—		(8,437)
Issuance of common stock, net of forfeitures	Issuance of common stock, net of forfeitures	—	29,805	—	—				—	—		493	—			—		—			493			Issuance of common stock, net of forfeitures		—		199,442		—		—		2		—		2,089		—		—		—		2,091
Compensation expense for stock based awards	Compensation expense for stock based awards	—	—	—	—				—	—		2,770	—			—		—			2,770			Compensation expense for stock based awards		—		—		—		—		—		—		1,985		—		—		—		1,985
Repurchase of common stock	Repurchase of common stock	—	(341,094)	—	—				(3)	—		(11,828)	(13,247)			—		—			(25,078)			Repurchase of common stock		—		(26,199)		—		—		—		—		(2,009)		—		—		—		(2,009)

Conversion of common stock	Conversion of common stock	—	372,717	(372,717)	—				4	(4)		—	—			—		—			—			Conversion of common stock		—		1,400		(1,400)		—		—		—		—		—		—		—		—

Balance as of September 30, 2021		—	27,556,370	10,681,454	$	—			276	107		1,593	2,843,799			13,479		(2,291)			2,856,963
Balance as of March 31, 2021																							Balance as of March 31, 2021		—		27,367,797		11,154,171		$	—	274		112		5,859		2,736,923		9,022		(3,089)		2,749,101

Balance as of December 31, 2021																							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																							Issuance of noncontrolling interests		—		—		—		—		—		—		—		—		—		2,004		2,004
Net income (loss)																							Net income (loss)		—		—		—		—		—		—		—		186,647		—		(1,761)		184,886
Other comprehensive loss																							Other comprehensive loss		—		—		—		—		—		—		—		—		(14,804)		—		(14,804)
Distribution to noncontrolling interests																							Distribution to noncontrolling interests		—		—		—		—		—		—		—		—		—		(5,125)		(5,125)
Cash dividends on Class A and Class B common stock - $0.24 per share																							Cash dividends on Class A and Class B common stock - $0.24 per share		—		—		—		—		—		—		—		(9,063)		—		—		(9,063)
Issuance of common stock, net of forfeitures																							Issuance of common stock, net of forfeitures		—		289,919		—		—		3		—		4,382		—		—		—		4,385
Compensation expense for stock based awards																							Compensation expense for stock based awards		—		—		—		—		—		—		2,841		—		—		—		2,841
Repurchase of common stock																							Repurchase of common stock		—		(380,053)		—		—		(3)		—		(7,015)		(25,881)		—		—		(32,899)

Conversion of common stock																							Conversion of common stock		—		1,750		(1,750)		—		—		—		—		—		—		—		—

Balance as of March 31, 2022																							Balance as of March 31, 2022		—		27,151,270		10,674,892		$	—	272		107		1,208		3,092,226		(5,500)		(3,250)		3,085,063

See accompanying notes to consolidated financial statements.

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 earnings, net Noncontrolling interests Total equity
Class A Class B
Balance as of December 31, 2019 — 28,458,495 11,271,609 $ — 285 113 5,715 2,377,627 2,972 4,382 2,391,094
Issuance of noncontrolling interests — — — — — — — — — 66 66
Net income — — — — — — — 117,452 — 568 118,020
Other comprehensive income — — — — — — — — 1,312 — 1,312
Distribution to noncontrolling interests — — — — — — — — — (920) (920)
Cash dividends on Class A and Class B common stock - $0.60 per share — — — — — — — (23,343) — — (23,343)
Issuance of common stock, net of forfeitures — 196,407 — — 2 — 5,153 — — — 5,155
Compensation expense for stock based awards — — — — — — 5,459 — — — 5,459
Repurchase of common stock — (1,591,314) — — (16) — (14,623) (58,506) — — (73,145)
Impact of adoption of new accounting standard — — — — — — — (18,867) — — (18,867)
Conversion of common stock — 100,000 (100,000) — 1 (1) — — — — —
Acquisition of noncontrolling interest — — — — — — — (1,250) — (750) (2,000)
Balance as of September 30, 2020 — 27,163,588 11,171,609 $ — 272 112 1,704 2,393,113 4,284 3,346 2,402,831
Balance as of December 31, 2020 — 27,193,154 11,155,571 $ — 272 112 3,794 2,621,762 6,102 (3,693) 2,628,349
Issuance of noncontrolling interests — — — — — — — — — 11,823 11,823
Net income (loss) — — — — — — — 260,603 — (3,467) 257,136
Other comprehensive income — — — — — — — — 7,377 — 7,377
Distribution to noncontrolling interests — — — — — — — — — (6,954) (6,954)
Cash dividends on Class A and Class B common stock - $0.66 per share — — — — — — — (25,319) — — (25,319)
Issuance of common stock, net of forfeitures — 261,760 — — 3 — 4,406 — — — 4,409
Compensation expense for stock based awards — — — — — — 7,628 — — — 7,628
Repurchase of common stock — (372,661) — — (4) — (14,235) (13,247) — — (27,486)
Conversion of common stock — 474,117 (474,117) — 5 (5) — — — — —
Balance as of September 30, 2021 — 27,556,370 10,681,454 $ — 276 107 1,593 2,843,799 13,479 (2,291) 2,856,963

~~See accompanying notes to consolidated financial statements.~~


NELNET, INC. AND SUBSIDIARIES	NELNET, INC. AND SUBSIDIARIES				NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS				CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)	(Dollars in thousands)				(Dollars in thousands)
(unaudited)	(unaudited)				(unaudited)
		Nine months ended				Three months ended
		September 30,				March 31,
		2021		2020		2022		2021
Net income attributable to Nelnet, Inc.	Net income attributable to Nelnet, Inc.	$	260,603	117,452	Net income attributable to Nelnet, Inc.	$	186,647	123,598
Net (loss) income attributable to noncontrolling interests		(3,467)		568
Net loss attributable to noncontrolling interests					Net loss attributable to noncontrolling interests	(1,761)		(694)
Net income	Net income	257,136		118,020	Net income	184,886		122,904
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:				Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs	Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs	113,651		149,175	Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs	36,335		38,415
Loan discount accretion	Loan discount accretion	(25,048)		(27,814)	Loan discount accretion	(9,927)		(7,218)
(Negative provision) provision for loan losses		(10,847)		73,476
Negative provision for loan losses					Negative provision for loan losses	(435)		(17,048)
Derivative market value adjustments	Derivative market value adjustments	(44,455)		21,072	Derivative market value adjustments	(145,734)		(38,809)

Proceeds from (payments to) clearinghouse - initial and variation margin, net		41,033		(20,405)
Proceeds from clearinghouse - initial and variation margin, net of payments					Proceeds from clearinghouse - initial and variation margin, net of payments	149,649		38,081

Gain from sale of loans		(18,715)		(33,023)
Gain on sale of loans					Gain on sale of loans	(2,989)		—

Gain from investments, net		(293)		(37,766)
Loss (gain) from repurchases of debt, net		3,964		(508)
Purchases of equity securities - trading, net		(41,591)		—
Deferred income tax expense (benefit)		33,078		(10,975)
Loss on investments, net					Loss on investments, net	2,801		13,849

Proceeds from sale (purchases) of equity securities, net					Proceeds from sale (purchases) of equity securities, net	572		(13,512)
Deferred income tax expense					Deferred income tax expense	39,443		15,405
Non-cash compensation expense	Non-cash compensation expense	7,824		5,538	Non-cash compensation expense	2,920		2,052
Provision for beneficial interests and impairment expense, net		12,223		34,419

Increase in loan and investment accrued interest receivable		(41,931)		(27,192)
(Increase) decrease in accounts receivable		(2,137)		45,475
Decrease in other assets, net		35,381		19,491
Decrease in the carrying amount of ROU asset		5,652		9,150
Decrease in accrued interest payable		(24,260)		(17,673)
Increase in other liabilities, net		41,040		32,733
Negative provision for beneficial interests					Negative provision for beneficial interests	—		(2,436)
Decrease (increase) in loan and investment accrued interest receivable					Decrease (increase) in loan and investment accrued interest receivable	10,694		(114)
Decrease (increase) in accounts receivable					Decrease (increase) in accounts receivable	18,442		(3,831)
(Increase) decrease in other assets, net					(Increase) decrease in other assets, net	(1,963)		5,147
Decrease in the carrying amount of ROU asset, net					Decrease in the carrying amount of ROU asset, net	1,439		1,418
Increase (decrease) in accrued interest payable					Increase (decrease) in accrued interest payable	2,650		(23,174)
Decrease in other liabilities, net					Decrease in other liabilities, net	(11,824)		(10,375)
Decrease in the carrying amount of lease liability	Decrease in the carrying amount of lease liability	(5,158)		(8,484)	Decrease in the carrying amount of lease liability	(1,500)		(1,247)
Increase (decrease) in due to customers		53,146		(151,674)
Decrease in due to customers					Decrease in due to customers	(89,884)		(70,849)
Other					Other	(110)		—
Net cash provided by operating activities	Net cash provided by operating activities	389,693		173,035	Net cash provided by operating activities	185,465		48,658
Cash flows from investing activities:	Cash flows from investing activities:				Cash flows from investing activities:
Purchases and originations of loans	Purchases and originations of loans	(1,145,775)		(1,032,636)	Purchases and originations of loans	(161,334)		(152,329)
Purchases of loans from a related party	Purchases of loans from a related party	(21,476)		(75,118)	Purchases of loans from a related party	(1,049)		(19,731)
Net proceeds from loan repayments, claims, and capitalized interest	Net proceeds from loan repayments, claims, and capitalized interest	2,010,645		2,209,797	Net proceeds from loan repayments, claims, and capitalized interest	848,188		637,275
Proceeds from sale of loans	Proceeds from sale of loans	85,906		136,126	Proceeds from sale of loans	15,170		—
Purchases of available-for-sale securities	Purchases of available-for-sale securities	(521,565)		(221,427)	Purchases of available-for-sale securities	(139,195)		(44,335)
Proceeds from sales of available-for-sale securities	Proceeds from sales of available-for-sale securities	104,520		97,278	Proceeds from sales of available-for-sale securities	113,980		18,077
Proceeds from and sale of beneficial interest in loan securitizations		30,811		34,371
Proceeds from beneficial interest in loan securitizations					Proceeds from beneficial interest in loan securitizations	7,271		8,603
Purchases of other investments	Purchases of other investments	(166,664)		(122,584)	Purchases of other investments	(73,944)		(71,590)
Proceeds from other investments	Proceeds from other investments	209,634		8,528	Proceeds from other investments	9,776		110,290
Purchases of property and equipment	Purchases of property and equipment	(42,594)		(80,698)	Purchases of property and equipment	(15,794)		(17,898)

Net cash provided by investing activities	Net cash provided by investing activities	$	543,442	953,637	Net cash provided by investing activities	603,069		468,362


NELNET, INC. AND SUBSIDIARIES	NELNET, INC. AND SUBSIDIARIES				NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)	CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)				CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
		Nine months ended				Three months ended
		September 30,				March 31,
		2021		2020		2022		2021
Cash flows from financing activities:	Cash flows from financing activities:				Cash flows from financing activities:
Payments on bonds and notes payable	Payments on bonds and notes payable	$	(2,479,582)	(2,803,214)	Payments on bonds and notes payable	$	(918,270)	(584,303)
Proceeds from issuance of bonds and notes payable	Proceeds from issuance of bonds and notes payable	1,738,405		1,460,524	Proceeds from issuance of bonds and notes payable	13,512		7,800
Payments of debt issuance costs	Payments of debt issuance costs	(6,778)		(7,144)	Payments of debt issuance costs	(312)		(614)

Increase in bank deposits, net	Increase in bank deposits, net	146,018		—	Increase in bank deposits, net	139,732		57,197
Dividends paid	Dividends paid	(25,319)		(23,343)	Dividends paid	(9,063)		(8,437)
Repurchases of common stock	Repurchases of common stock	(27,486)		(73,145)	Repurchases of common stock	(32,899)		(2,009)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	1,108		1,250	Proceeds from issuance of common stock	435		381
Acquisition of noncontrolling interest		—		(2,000)

Issuance of noncontrolling interests	Issuance of noncontrolling interests	13,905		—	Issuance of noncontrolling interests	2,004		1,940
Distribution to noncontrolling interests	Distribution to noncontrolling interests	(548)		(660)	Distribution to noncontrolling interests	(365)		(102)
Net cash used in financing activities	Net cash used in financing activities	(640,277)		(1,447,732)	Net cash used in financing activities	(805,226)		(528,147)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(175)		—	Effect of exchange rate changes on cash	169		(77)
Net increase (decrease) in cash, cash equivalents, and restricted cash		292,683		(321,060)
Net decrease in cash, cash equivalents, and restricted cash					Net decrease in cash, cash equivalents, and restricted cash	(16,523)		(11,204)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	958,395		1,222,601	Cash, cash equivalents, and restricted cash, beginning of period	1,194,189		958,395
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	1,251,078	901,541	Cash, cash equivalents, and restricted cash, end of period	$	1,177,666	947,191


Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:				Supplemental disclosures of cash flow information:
Cash disbursements made for interest	Cash disbursements made for interest	$	117,336	259,120	Cash disbursements made for interest	$	33,895	39,686
Cash disbursements made for income taxes, net of refunds and credits received (a)	Cash disbursements made for income taxes, net of refunds and credits received (a)	$	10,921	13,413	Cash disbursements made for income taxes, net of refunds and credits received (a)	$	466	199
Cash disbursements made for operating leases	Cash disbursements made for operating leases	$	6,003	9,457	Cash disbursements made for operating leases	$	1,887	2,098
Non-cash operating, investing, and financing activity:	Non-cash operating, investing, and financing activity:				Non-cash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations	ROU assets obtained in exchange for lease obligations	$	4,026	4,158	ROU assets obtained in exchange for lease obligations	$	746	740
Receipt of beneficial interest in consumer loan securitizations		$	23,506	52,501
Receipt of beneficial interest in consumer loan securitization					Receipt of beneficial interest in consumer loan securitization	$	3,660	—
Distribution to noncontrolling interests	Distribution to noncontrolling interests	$	6,406	260	Distribution to noncontrolling interests	$	4,760	—
Issuance of noncontrolling interests	Issuance of noncontrolling interests	$	2,082	—	Issuance of noncontrolling interests	$	—	540

(a) The Company utilized ~~$22.2~~$1.1 million and ~~$17.0~~$2.0 million of federal and state tax credits related primarily to renewable energy during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ 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		As of		As of	As of	As of
		September 30, 2021		December 31, 2020	September 30, 2020	December 31, 2019		March 31, 2022		December 31, 2021	March 31, 2021	December 31, 2020
Total cash and cash equivalents	Total cash and cash equivalents	$	191,936	121,249	96,316	133,906	Total cash and cash equivalents	$	162,785	125,563	144,229	121,249
Restricted cash	Restricted cash	764,089		553,175	519,143	650,939	Restricted cash	757,954		741,981	609,881	553,175
Restricted cash - due to customers	Restricted cash - due to customers	295,053		283,971	286,082	437,756	Restricted cash - due to customers	256,927		326,645	193,081	283,971
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	1,251,078	958,395	901,541	1,222,601	Cash, cash equivalents, and restricted cash	$	1,177,666	1,194,189	947,191	958,395

See accompanying notes to consolidated financial statements.

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, 2021~~March 31, 2022 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, ~~2020~~2021 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, 2021~~March 31, 2022 are not necessarily indicative of the results for the year ending December 31, ~~2021.~~2022. 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, ~~2020~~2021 (the ~~"2020~~"2021 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		As of		As of
		September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Non-Nelnet Bank:	Non-Nelnet Bank:				Non-Nelnet Bank:
Federally insured student loans:	Federally insured student loans:				Federally insured student loans:
Stafford and other	Stafford and other	$	4,142,059	4,383,000	Stafford and other	$	3,741,495	3,904,000
Consolidation	Consolidation	13,939,429		14,746,173	Consolidation	12,553,882		13,187,047
Total	Total	18,081,488		19,129,173	Total	16,295,377		17,091,047
Private education loans	Private education loans	319,212		320,589	Private education loans	278,537		299,442
Consumer loans	Consumer loans	36,994		109,346	Consumer loans	44,713		51,301
Non-Nelnet Bank loans	Non-Nelnet Bank loans	18,437,694		19,559,108	Non-Nelnet Bank loans	16,618,627		17,441,790
Nelnet Bank:	Nelnet Bank:				Nelnet Bank:
Federally insured student loans	Federally insured student loans	93,930		—	Federally insured student loans	82,789		88,011

Private education loans	Private education loans	98,395		17,543	Private education loans	285,468		169,890

Nelnet Bank loans	Nelnet Bank loans	192,325		17,543	Nelnet Bank loans	368,257		257,901

Accrued interest receivable	Accrued interest receivable	834,831		794,611	Accrued interest receivable	774,774		788,552
Loan discount, net of unamortized loan premiums and deferred origination costs	Loan discount, net of unamortized loan premiums and deferred origination costs	(22,603)		(9,908)	Loan discount, net of unamortized loan premiums and deferred origination costs	(22,257)		(25,933)

Allowance for loan losses:	Allowance for loan losses:				Allowance for loan losses:
Non-Nelnet Bank:	Non-Nelnet Bank:				Non-Nelnet Bank:
Federally insured loans	Federally insured loans	(115,859)		(128,590)	Federally insured loans	(95,995)		(103,381)
Private education loans	Private education loans	(17,053)		(19,529)	Private education loans	(14,622)		(16,143)
Consumer loans	Consumer loans	(4,429)		(27,256)	Consumer loans	(5,710)		(6,481)
Non-Nelnet Bank allowance for loan losses	Non-Nelnet Bank allowance for loan losses	(137,341)		(175,375)	Non-Nelnet Bank allowance for loan losses	(116,327)		(126,005)
Nelnet Bank:	Nelnet Bank:				Nelnet Bank:
Federally insured loans	Federally insured loans	(289)		—	Federally insured loans	(247)		(268)
Private education loans	Private education loans	(414)		(323)	Private education loans	(1,251)		(840)

Nelnet Bank allowance for loan losses	Nelnet Bank allowance for loan losses	(703)		(323)	Nelnet Bank allowance for loan losses	(1,498)		(1,108)
		$	19,304,203	20,185,656		$	17,621,576	18,335,197

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
	March 31, 2022		December 31, 2021
Non-Nelnet Bank:
Federally insured student loans (a)	0.59	%	0.60	%
Private education loans	5.25	%	5.39	%
Consumer loans	12.77	%	12.63	%
Nelnet Bank:
Federally insured student loans (a)	0.30	%	0.30	%
Private education loans	0.44	%	0.49	%

(a) As of March 31, 2022 and December 31, 2021, 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 21.6% and 22.2%, respectively, and for Nelnet Bank was 11.8% and 12.1%, respectively.

Gain on Sale of Loans

On ~~May 14, 2021 and September 29, 2021,~~January 26, 2022, the Company sold ~~$77.4 million (par value) and $18.4~~$18.1 million (par value) of consumer loans ~~respectively,~~ to an unrelated third party who securitized such loans. The Company recognized a gain of ~~$15.3~~$3.0 million (pre-tax) ~~and $3.2 million (pre-tax), respectively,~~ as part of ~~these transactions.~~this transaction. As partial consideration received for the consumer loans sold, the Company received a ~~24.5 percent and 6.9~~6.6 percent residual interest ~~respectively,~~ in the consumer loan ~~securitizations that are~~securitization, which is included in "investments" on the Company's consolidated balance sheet.

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		Impact of ASC 326 adoption	Provision (negative provision) for loan losses	Charge-offs	Recoveries	Initial allowance on loans purchased with credit deterioration (a)	Loan sales	Balance at end of period		Balance at beginning of period		Provision (negative provision) for loan losses	Charge-offs	Recoveries	Initial allowance on loans purchased with credit deterioration (a)	Loan sales	Balance at end of period
		Three months ended September 30, 2021										Three months ended March 31, 2022
Non-Nelnet Bank
Non-Nelnet Bank:											Non-Nelnet Bank:
Federally insured loans	Federally insured loans	$	120,802	—	4,452	(10,330)	—	935	—	115,859	Federally insured loans	$	103,381	(2,748)	(4,761)	—	123	—	95,995
Private education loans	Private education loans	19,403		—	(1,208)	(954)	113	—	(301)	17,053	Private education loans	16,143		(400)	(1,299)	176	—	2	14,622
Consumer loans	Consumer loans	4,702		—	2,696	(1,133)	187	—	(2,023)	4,429	Consumer loans	6,481		2,284	(937)	166	—	(2,284)	5,710
Nelnet Bank
Nelnet Bank:											Nelnet Bank:
Federally insured loans	Federally insured loans	245		—	44	—	—	—	—	289	Federally insured loans	268		(21)	—	—	—	—	247
Private education loans	Private education loans	567		—	(157)	—	4	—	—	414	Private education loans	840		426	(13)	—	—	(2)	1,251

		$	145,719	—	5,827	(12,417)	304	935	(2,324)	138,044		$	127,113	(459)	(7,010)	342	123	(2,284)	117,825

		Three months ended September 30, 2020										Three months ended March 31, 2021
Non-Nelnet Bank
Non-Nelnet Bank:											Non-Nelnet Bank:
Federally insured loans	Federally insured loans	$	144,829	—	(5,299)	(2,487)	—	2,900	—	139,943	Federally insured loans	$	128,590	(7,483)	(61)	—	800	—	121,846
Private education loans	Private education loans	25,535		—	(5,650)	(5)	133	—	—	20,013	Private education loans	19,529		1,431	(493)	202	—	1	20,670
Consumer loans	Consumer loans	39,081		—	5,128	(2,723)	381	—	(15,924)	25,943	Consumer loans	27,256		(11,418)	(1,950)	246	—	—	14,134
Nelnet Bank:											Nelnet Bank:

Private education loans											Private education loans	323		422	—	—	—	(1)	744

												$	175,698	(17,048)	(2,504)	448	800	—	157,394

		$	209,445	—	(5,821)	(5,215)	514	2,900	(15,924)	185,899

		Nine months ended September 30, 2021
Non-Nelnet Bank
Federally insured loans		$	128,590	—	(3,428)	(11,563)	—	2,260	—	115,859
Private education loans		19,529		—	(781)	(1,850)	454	—	(299)	17,053
Consumer loans		27,256		—	(7,016)	(4,547)	668	—	(11,932)	4,429
Nelnet Bank
Federally insured loans		—		—	289	—	—	—	—	289
Private education loans		323		—	89	—	4	—	(2)	414

		$	175,698	—	(10,847)	(17,960)	1,126	2,260	(12,233)	138,044

		Nine months ended September 30, 2020
Non-Nelnet Bank
Federally insured loans		$	36,763	72,291	32,074	(14,885)	—	13,700	—	139,943
Private education loans		9,597		4,797	6,471	(1,360)	508	—	—	20,013
Consumer loans		15,554		13,926	34,931	(9,893)	849	—	(29,424)	25,943

		$	61,914	91,014	73,476	(26,138)	1,357	13,700	(29,424)	185,899

a)(a) During the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, and nine months ended September 30, 2021 and 2020,~~ the Company acquired ~~$64.6~~$9.2 million (par value)~~, $137.5 million (par value), $153.3 million (par value),~~ and ~~$721.4~~$54.0 million (par value), respectively, of federally insured rehabilitation loans that met the definition of purchased loans with credit deterioration ("PCD ~~loans~~loans") when they were purchased by the Company.

Beginning in March 2020, the coronavirus disease 2019 ("COVID-19") pandemic has caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of ASC 326 effective January 1, 2020, the Company’s allowance for loan losses increased during the first quarter of 2020 primarily as a result of the COVID-19 pandemic and its effects on economic conditions. During the third quarter of 2020, theThe Company ~~recognized~~recorded a negative provision for loan losses for its federally insured loan portfolio for the three months ended March 31, 2022 due to the amortization of the portfolio and an increase in expected prepayments as a result of an initiative offered by the Department of Education (the “Department”) for Federal Family Education Loan Program ("FFELP" or "FFEL Program") borrowers to consolidate their loans into Federal Direct Loan Program loans with the Department by October 31, 2022 to qualify for loan forgiveness under the Public Service Loan Forgiveness program. The Company recorded a provision for loan losses on its consumer loan portfolio during the three months ended March 31, 2022 as a result of loans acquired during the period.

The Company recorded a negative provision for loan losses for its federally insured and consumer loan portfolios for the three months ended March 31, 2021 due to management's estimate of certain ~~continued~~ improved economic conditions (including the improvement in certain macroeconomic variables (unemployment rates, gross domestic product, and consumer price index) used in the Company's loan loss models) ~~in comparison to management's estimate of economic conditions used to determine the allowance for loan losses~~ as of ~~June 30, 2020.~~

For the three months ended September 30, 2021, charge-offs for the Company’s federally insured loan portfolio were $10.3 million. The increased level of charge-offs in the third quarter of 2021 as compared to historical periods was due to the Company proactively applying a 90 day natural disaster forbearance due to COVID-19 to any loan that was 31-269 days past due effective March ~~13, 2020 through June 30, 2020. Beginning July 1, 2020, the Company discontinued proactively applying~~

90 day natural disaster forbearances on past due loans. Many loans that exited the natural disaster forbearance on July 1, 2020 have gone into default, been submitted to the guaranty agency, and been charged off by the Company during the third quarter of 2021.

During the nine months ended September 30, 2021, the Company recorded a negative provision for loan losses due to management's estimate of certain continued improved economic conditions as of September 30,31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. ~~These amounts were~~The Company recorded a provision expense on its private education loan portfolio during the three months ended March 31, 2021 as a result of an increase of loans in forbearance, which was partially offset by ~~the establishment~~management's estimate of ~~an initial~~certain improved economic conditions as of March 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for ~~loans originated and acquired during~~loan losses as of December 31, 2020.

Unfunded Private Education Loan Commitments

As of March 31, 2022, Nelnet Bank has a liability of approximately $36,000 related to $37.9 million of unfunded private education loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the ~~period.~~consolidated balance sheet. During the three months ended March 31, 2022, Nelnet Bank recognized provision for loan losses of approximately $24,000 related to unfunded loan commitments.

Key Credit Quality Indicators

Loan Status and Delinquencies

~~The key~~Key credit quality indicators for the Company's federally insured, private education, and consumer 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 table below shows the Company’s loan status and delinquency amounts.


		As of September 30, 2021						As of December 31, 2020						As of September 30, 2020							As of March 31, 2022						As of December 31, 2021						As of March 31, 2021
Federally insured loans - Non-Nelnet Bank:	Federally insured loans - Non-Nelnet Bank:																			Federally insured loans - Non-Nelnet Bank:
Loans in-school/grace/deferment	Loans in-school/grace/deferment	$	909,228	5.0	%			$	1,036,028	5.4	%			$	1,037,754	5.4	%			Loans in-school/grace/deferment	$	839,566	5.2	%			$	829,624	4.9	%			$	1,006,605	5.4	%
Loans in forbearance	Loans in forbearance	1,826,082		10.1				1,973,175		10.3				1,916,906		10.0				Loans in forbearance	1,160,048		7.1				1,118,667		6.5				1,936,553		10.4
Loans in repayment status:	Loans in repayment status:																			Loans in repayment status:
Loans current	Loans current	13,525,751				88.1	%	13,683,054				84.9	%	14,845,519				91.7	%	Loans current	12,352,543				86.4	%	12,847,685				84.9	%	13,787,038				88.0	%
Loans delinquent 31-60 days	Loans delinquent 31-60 days	548,670				3.6		633,411				3.9		945,411				5.9		Loans delinquent 31-60 days	462,750				3.2		895,656				5.9		425,599				2.7
Loans delinquent 61-90 days	Loans delinquent 61-90 days	286,681				1.9		307,936				1.9		249,523				1.5		Loans delinquent 61-90 days	282,810				2.0		352,449				2.3		234,871				1.5
Loans delinquent 91-120 days	Loans delinquent 91-120 days	163,447				1.1		800,257				5.0		129,994				0.8		Loans delinquent 91-120 days	202,371				1.4		251,075				1.7		125,471				0.8
Loans delinquent 121-270 days	Loans delinquent 121-270 days	467,441				3.0		674,975				4.2		605				0.0		Loans delinquent 121-270 days	712,753				5.0		592,449				3.9		1,026,050				6.6
Loans delinquent 271 days or greater	Loans delinquent 271 days or greater	354,188				2.3		20,337				0.1		19,867				0.1		Loans delinquent 271 days or greater	282,536				2.0		203,442				1.3		63,196				0.4
Total loans in repayment	Total loans in repayment	15,346,178		84.9		100.0	%	16,119,970		84.3		100.0	%	16,190,919		84.6		100.0	%	Total loans in repayment	14,295,763		87.7		100.0	%	15,142,756		88.6		100.0	%	15,662,225		84.2		100.0	%
Total federally insured loans	Total federally insured loans	18,081,488		100.0	%			19,129,173		100.0	%			19,145,579		100.0	%			Total federally insured loans	16,295,377		100.0	%			17,091,047		100.0	%			18,605,383		100.0	%
Accrued interest receivable	Accrued interest receivable	831,142						791,453						757,960						Accrued interest receivable	770,853						784,716						791,199
Loan discount, net of unamortized premiums and deferred origination costs	Loan discount, net of unamortized premiums and deferred origination costs	(23,229)						(14,505)						(20,554)						Loan discount, net of unamortized premiums and deferred origination costs	(27,317)						(28,309)						(14,608)

Allowance for loan losses	Allowance for loan losses	(115,859)						(128,590)						(139,943)						Allowance for loan losses	(95,995)						(103,381)						(121,846)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses	Total federally insured loans and accrued interest receivable, net of allowance for loan losses	$	18,773,542					$	19,777,531					$	19,743,042					Total federally insured loans and accrued interest receivable, net of allowance for loan losses	$	16,942,918					$	17,744,073					$	19,260,128
Private education loans - Non-Nelnet Bank:	Private education loans - Non-Nelnet Bank:																			Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment	Loans in-school/grace/deferment	$	10,282	3.2	%			$	5,049	1.6	%			$	3,839	1.4	%			Loans in-school/grace/deferment	$	10,226	3.7	%			$	9,661	3.2	%			$	10,405	3.3	%
Loans in forbearance	Loans in forbearance	3,554		1.1				2,359		0.7				5,437		2.0				Loans in forbearance	2,838		1.0				3,601		1.2				7,567		2.4
Loans in repayment status:	Loans in repayment status:																			Loans in repayment status:
Loans current	Loans current	300,231				98.3	%	310,036				99.0	%	261,514				98.8	%	Loans current	260,911				98.3	%	280,457				98.0	%	292,840				98.9	%
Loans delinquent 31-60 days	Loans delinquent 31-60 days	1,870				0.6		1,099				0.4		1,820				0.7		Loans delinquent 31-60 days	1,699				0.6		2,403				0.8		1,343				0.5
Loans delinquent 61-90 days	Loans delinquent 61-90 days	912				0.3		675				0.2		454				0.2		Loans delinquent 61-90 days	1,040				0.4		976				0.3		843				0.3
Loans delinquent 91 days or greater	Loans delinquent 91 days or greater	2,363				0.8		1,371				0.4		743				0.3		Loans delinquent 91 days or greater	1,823				0.7		2,344				0.9		1,050				0.3
Total loans in repayment	Total loans in repayment	305,376		95.7		100.0	%	313,181		97.7		100.0	%	264,531		96.6		100.0	%	Total loans in repayment	265,473		95.3		100.0	%	286,180		95.6		100.0	%	296,076		94.3		100.0	%
Total private education loans	Total private education loans	319,212		100.0	%			320,589		100.0	%			273,807		100.0	%			Total private education loans	278,537		100.0	%			299,442		100.0	%			314,048		100.0	%
Accrued interest receivable	Accrued interest receivable	2,076						2,131						1,960						Accrued interest receivable	1,898						1,960						2,303
Loan discount, net of unamortized premiums	Loan discount, net of unamortized premiums	(1,496)						2,691						1,137						Loan discount, net of unamortized premiums	(598)						(1,123)						2,673

Allowance for loan losses	Allowance for loan losses	(17,053)						(19,529)						(20,013)						Allowance for loan losses	(14,622)						(16,143)						(20,670)
Total private education loans and accrued interest receivable, net of allowance for loan losses	Total private education loans and accrued interest receivable, net of allowance for loan losses	$	302,739					$	305,882					$	256,891					Total private education loans and accrued interest receivable, net of allowance for loan losses	$	265,215					$	284,136					$	298,354


	As of March 31, 2022						As of December 31, 2021						As of March 31, 2021
Consumer loans - Non-Nelnet Bank:
Loans in deferment	$	72	0.2	%			$	43	0.1	%			$	306	0.3	%
Loans in repayment status:
Loans current	43,424				97.3	%	49,697				97.0	%	108,126				97.9	%
Loans delinquent 31-60 days	255				0.5		414				0.8		760				0.7
Loans delinquent 61-90 days	304				0.7		322				0.6		577				0.5
Loans delinquent 91 days or greater	658				1.5		825				1.6		1,023				0.9
Total loans in repayment	44,641		99.8		100.0	%	51,258		99.9		100.0	%	110,486		99.7	%	100.0	%
Total consumer loans	44,713		100.0	%			51,301		100.0	%			110,792		100.0	%
Accrued interest receivable	374						396						934
Loan premium	1,040						913						1,845
Allowance for loan losses	(5,710)						(6,481)						(14,134)
Total consumer loans and accrued interest receivable, net of allowance for loan losses	$	40,417					$	46,129					$	99,437



Federally insured loans - Nelnet Bank (a):
Loans in-school/grace/deferment	$	286	0.3	%			$	330	0.4	%
Loans in forbearance	948		1.2				1,057		1.2
Loans in repayment status:
Loans current	80,421				98.6	%	85,599				98.8	%
Loans delinquent 30-59 days	402				0.5		816				1.0
Loans delinquent 60-89 days	427				0.5		—				—
Loans delinquent 90-119 days	90				0.1		—				—
Loans delinquent 120-270 days	157				0.2		209				0.2
Loans delinquent 271 days or greater	58				0.1		—				—
Total loans in repayment	81,555		98.5		100.0	%	86,624		98.4		100.0	%
Total federally insured loans	82,789		100.0	%			88,011		100.0	%
Accrued interest receivable	1,231						1,216
Loan premium	25						26
Allowance for loan losses	(247)						(268)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses	$	83,798					$	88,985
Private education loans - Nelnet Bank (a):
Loans in-school/grace/deferment	$	497	0.2	%			$	150	0.1	%			$	82	0.1	%
Loans in forbearance	317		0.1				460		0.3				29		—
Loans in repayment status:
Loans current	284,081				99.8	%	169,157				99.9	%	79,120				100.0	%
Loans delinquent 30-59 days	422				0.2		51				—		—				—
Loans delinquent 60-89 days	78				—		—				—		—				—
Loans delinquent 90 days or greater	73				—		72				0.1		—				��
Total loans in repayment	284,654		99.7		100.0	%	169,280		99.6		100.0	%	79,120		99.9		100.0	%
Total private education loans	285,468		100.0	%			169,890		100.0	%			79,231		100.0	%
Accrued interest receivable	418						264						125
Deferred origination costs	4,593						2,560						999
Allowance for loan losses	(1,251)						(840)						(744)
Total private education loans and accrued interest receivable, net of allowance for loan losses	$	289,228					$	171,874					$	79,611

(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.

As of September 30, 2021 As of December 31, 2020 As of September 30, 2020
Consumer loans - Non-Nelnet Bank:
Loans in deferment $ 18 0.0 % $ 829 0.8 % $ 1,084 1.1 %
Loans in repayment status:
Loans current 35,744 96.6 % 105,650 97.4 % 96,038 96.9 %
Loans delinquent 31-60 days 319 0.9 954 0.9 1,044 1.1
Loans delinquent 61-90 days 243 0.7 804 0.7 776 0.8
Loans delinquent 91 days or greater 670 1.8 1,109 1.0 1,238 1.2
Total loans in repayment 36,976 100.0 100.0 % 108,517 99.2 100.0 % 99,096 98.9 % 100.0 %
Total consumer loans 36,994 100.0 % 109,346 100.0 % 100,180 100.0 %
Accrued interest receivable 280 1,001 867
Loan premium 664 1,640 1,505
Allowance for loan losses (4,429) (27,256) (25,943)
Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 33,509 $ 84,731 $ 76,609
Federally insured loans - Nelnet Bank:
Loans in-school/grace/deferment $ 283 0.3 %
Loans in forbearance 1,722 1.8
Loans in repayment status:
Loans current 91,366 99.4 %
Loans delinquent 31-60 days 277 0.3
Loans delinquent 61-90 days 35 —
Loans delinquent 91-120 days 45 0.1
Loans delinquent 121-270 days 202 0.2
Loans delinquent 271 days or greater — —
Total loans in repayment 91,925 97.9 100.0 %
Total federally insured loans 93,930 100.0 %
Accrued interest receivable 1,177
Loan premium 28
Allowance for loan losses (289)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 94,846
Private education loans - Nelnet Bank:
Loans in-school/grace/deferment $ 82 0.1 % $ — — %
Loans in forbearance 193 0.2 29 0.2
Loans in repayment status:
Loans current 98,120 100.0 % 17,514 100.0 %
Loans delinquent 31-60 days — — — —
Loans delinquent 61-90 days — — — —
Loans delinquent 91 days or greater — — — —
Total loans in repayment 98,120 99.7 100.0 % 17,514 99.8 100.0 %
Total private education loans 98,395 100.0 % 17,543 100.0 %
Accrued interest receivable 156 26
Deferred origination costs 1,430 266
Allowance for loan losses (414) (323)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 99,567 $ 17,512
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 March 31, 2022
	Three months ended March 31, 2022		2021	2020	Total
FICO at origination:
Less than 705	$	2,097	5,841	99	8,037
705 - 734	10,935		11,391	272	22,598
735 - 764	17,278		17,906	1,049	36,233
765 - 794	34,510		34,100	1,389	69,999
Greater than 794	62,116		79,633	6,852	148,601
	$	126,936	148,871	9,661	285,468


	Loan balance as of December 31, 2021
	2021		2020	Total
FICO at origination:
Less than 705	$	6,481	100	6,581
705 - 734	11,697		276	11,973
735 - 764	18,611		1,072	19,683
765 - 794	36,274		1,467	37,741
Greater than 794	86,141		7,771	93,912
	$	159,204	10,686	169,890

Nonaccrual Status

The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, ~~2020~~2021 and ~~September 30, 2021,~~March 31, 2022, was not material.

Amortized Cost Basis by Origination Year

The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of ~~September 30, 2021~~March 31, 2022 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the ~~Federal Family Education Loan~~FFEL Program ~~(the "FFEL Program" or "FFELP")~~ 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, 2021		2020	2019	2018	2017	Prior years	Total			Three months ended March 31, 2022		2021	2020	2019	2018	Prior years	Total
Private education loans - Non-Nelnet Bank:	Private education loans - Non-Nelnet Bank:										Private education loans - Non-Nelnet Bank:
Loans in school/grace/deferment	Loans in school/grace/deferment	$	1,310	2,202	4,572	—	—	2,198	10,282		Loans in school/grace/deferment	$	121	3,030	1,899	3,318	—	1,858	10,226
Loans in forbearance	Loans in forbearance	—		649	657	180	—	2,068	3,554		Loans in forbearance	—		10	372	858	181	1,417	2,838
Loans in repayment status:	Loans in repayment status:										Loans in repayment status:
Loans current	Loans current	2,252		75,514	53,814	367	—	168,284	300,231		Loans current	1,452		2,796	60,651	46,107	284	149,621	260,911
Loans delinquent 31-60 days	Loans delinquent 31-60 days	—		147	125	—	—	1,598	1,870		Loans delinquent 31-60 days	—		2	10	239	—	1,448	1,699
Loans delinquent 61-90 days	Loans delinquent 61-90 days	—		—	—	—	—	912	912		Loans delinquent 61-90 days	—		13	102	—	—	925	1,040
Loans delinquent 91 days or greater	Loans delinquent 91 days or greater	—		—	—	—	—	2,363	2,363		Loans delinquent 91 days or greater	—		—	87	—	—	1,736	1,823
Total loans in repayment	Total loans in repayment	2,252		75,661	53,939	367	—	173,157	305,376		Total loans in repayment	1,452		2,811	60,850	46,346	284	153,730	265,473
Total private education loans	Total private education loans	$	3,562	78,512	59,168	547	—	177,423	319,212		Total private education loans	$	1,573	5,851	63,121	50,522	465	157,005	278,537
Accrued interest receivable	Accrued interest receivable								2,076		Accrued interest receivable								1,898
Loan discount, net of unamortized premiums	Loan discount, net of unamortized premiums								(1,496)		Loan discount, net of unamortized premiums								(598)
Allowance for loan losses	Allowance for loan losses								(17,053)		Allowance for loan losses								(14,622)
Total private education loans and accrued interest receivable, net of allowance for loan losses	Total private education loans and accrued interest receivable, net of allowance for loan losses								$	302,739	Total private education loans and accrued interest receivable, net of allowance for loan losses								$	265,215

Consumer loans - Non-Nelnet Bank:	Consumer loans - Non-Nelnet Bank:										Consumer loans - Non-Nelnet Bank:
Loans in deferment	Loans in deferment	$	—	—	—	18	—	—	18		Loans in deferment	$	—	34	—	32	6	—	72
Loans in repayment status:	Loans in repayment status:										Loans in repayment status:
Loans current	Loans current	19,710		1,295	6,915	7,695	129	—	35,744		Loans current	17,335		17,475	574	3,738	4,243	59	43,424
Loans delinquent 31-60 days	Loans delinquent 31-60 days	62		80	119	51	7	—	319		Loans delinquent 31-60 days	32		74	15	99	31	4	255
Loans delinquent 61-90 days	Loans delinquent 61-90 days	53		—	103	87	—	—	243		Loans delinquent 61-90 days	—		181	50	12	57	4	304
Loans delinquent 91 days or greater	Loans delinquent 91 days or greater	56		42	250	321	1	—	670		Loans delinquent 91 days or greater	—		54	39	208	357	—	658
Total loans in repayment	Total loans in repayment	19,881		1,417	7,387	8,154	137	—	36,976		Total loans in repayment	17,367		17,784	678	4,057	4,688	67	44,641
Total consumer loans	Total consumer loans	$	19,881	1,417	7,387	8,172	137	—	36,994		Total consumer loans	$	17,367	17,818	678	4,089	4,694	67	44,713
Accrued interest receivable	Accrued interest receivable								280		Accrued interest receivable								374
Loan premium	Loan premium								664		Loan premium								1,040
Allowance for loan losses	Allowance for loan losses								(4,429)		Allowance for loan losses								(5,710)
Total consumer loans and accrued interest receivable, net of allowance for loan losses	Total consumer loans and accrued interest receivable, net of allowance for loan losses								$	33,509	Total consumer loans and accrued interest receivable, net of allowance for loan losses								$	40,417

Private education loans - Nelnet Bank:
Private education loans - Nelnet Bank (a):											Private education loans - Nelnet Bank (a):
Loans in school/grace/deferment	Loans in school/grace/deferment	$	82	—	—	—	—	—	82		Loans in school/grace/deferment	$	133	364	—	—	—	—	497
Loans in forbearance	Loans in forbearance	193		—	—	—	—	—	193		Loans in forbearance	139		178	—	—	—	—	317
Loans in repayment status:	Loans in repayment status:										Loans in repayment status:
Loans current	Loans current	85,589		12,531	—	—	—	—	98,120		Loans current	126,380		148,040	9,661	—	—	—	284,081
Loans delinquent 31-60 days		—		—	—	—	—	—	—
Loans delinquent 61-90 days		—		—	—	—	—	—	—
Loans delinquent 91 days or greater		—		—	—	—	—	—	—
Loans delinquent 30-59 days											Loans delinquent 30-59 days	284		138	—	—	—	—	422
Loans delinquent 60-89 days											Loans delinquent 60-89 days	—		78	—	—	—	—	78
Loans delinquent 90 days or greater											Loans delinquent 90 days or greater	—		73	—	—	—	—	73
Total loans in repayment	Total loans in repayment	85,589		12,531	—	—	—	—	98,120		Total loans in repayment	126,664		148,329	9,661	—	—	—	284,654
Total private education loans	Total private education loans	$	85,864	12,531	—	—	—	—	98,395		Total private education loans	$	126,936	148,871	9,661	—	—	—	285,468
Accrued interest receivable	Accrued interest receivable								156		Accrued interest receivable								418
Deferred origination costs	Deferred origination costs								1,430		Deferred origination costs								4,593
Allowance for loan losses	Allowance for loan losses								(414)		Allowance for loan losses								(1,251)
Total private education loans and accrued interest receivable, net of allowance for loan losses	Total private education loans and accrued interest receivable, net of allowance for loan losses								$	99,567	Total private education loans and accrued interest receivable, net of allowance for loan losses								$	289,228

3. Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:

As of September 30, 2021

As of March 31, 2022

Carrying

amount

Interest rate

range

Final maturity

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

16,784,982

0.20% - 2.09%

5/27/25 - 9/25/69

Bonds and notes based on indices

15,144,282

0.37% - 2.46%

5/27/25 - 9/25/69

Bonds and notes based on auction

450,300

0.00% - 2.15%

3/22/32 - 11/26/46

Bonds and notes based on auction

225,535

0.00% - 1.43%

3/22/32 - 8/27/46

Total FFELP variable-rate bonds and notes

17,235,282

Total FFELP variable-rate bonds and notes

15,369,817

Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations

860,434

1.42% - 3.45%

10/25/67 - 8/27/68

Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations

736,079

1.42% - 3.45%

10/25/67 - 8/27/68

FFELP warehouse facilities

5,446

0.17%

11/22/22 / 2/26/24

FFELP loan warehouse facility

5,017

0.61%

5/22/23

Private education loan warehouse facility

118,299

0.19%

2/13/23

Private education loan warehouse facility

96,714

0.55%

6/30/23

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

35,648

1.65% / 1.84%

12/26/40 / 6/25/49

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

28,039

1.90% / 2.21%

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

30,409

3.60% / 5.35%

12/26/40 / 12/28/43

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

26,764

3.60% / 5.35%

12/26/40 / 12/28/43

Unsecured line of credit

—

9/22/26

Unsecured line of credit

—

9/22/26

Participation agreement

194,190

0.78%

5/4/22

Participation agreement

267,481

1.08%

5/4/22

Repurchase agreements

334,473

0.57% - 1.13%

11/15/21 - 12/20/23

Repurchase agreements

384,343

0.95% - 1.46%

4/14/22 - 12/20/23

Secured line of credit

5,000

1.84%

5/30/22

Secured line of credit

5,000

2.05%

5/30/22

18,819,181

16,919,254

Discount on bonds and notes payable and debt issuance costs

(208,433)

Discount on bonds and notes payable and debt issuance costs

(182,553)

Total

18,610,748

Total

16,736,701

As of December 31, 2020

As of December 31, 2021

Carrying

amount

Interest rate

range

Final maturity

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

17,127,643

0.28% - 2.05%

5/27/25 - 10/25/68

Bonds and notes based on indices

15,887,295

0.23% - 2.10%

5/27/25 - 9/25/69

Bonds and notes based on auction

749,925

1.12% - 2.14%

3/22/32 - 11/26/46

Bonds and notes based on auction

248,550

0.00% - 1.09%

3/22/32 - 8/27/46

Total FFELP variable-rate bonds and notes

17,877,568

Total FFELP variable-rate bonds and notes

16,135,845

Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations

923,076

1.42% - 3.45%

10/25/67 - 8/27/68

Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations

772,935

1.42% - 3.45%

10/25/67 - 8/27/68

FFELP warehouse facilities

252,165

0.27% / 0.31%

5/20/22 / 2/26/23

FFELP loan warehouse facility

5,048

0.21%

5/22/23

Private education loan warehouse facility

150,397

0.28%

2/13/22

Private education loan warehouse facility

107,011

0.24%

2/13/23

Consumer loan warehouse facility

25,809

0.28%

4/23/22

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

49,025

1.65% / 1.90%

12/26/40 / 6/25/49

Variable-rate bonds and notes issued in private education loan asset-backed securitizations

31,818

1.65% / 1.85%

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

37,251

3.60% / 5.35%

12/26/40 / 12/28/43

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

28,613

3.60% / 5.35%

12/26/40 / 12/28/43

Unsecured line of credit

120,000

1.65%

12/16/24

Unsecured line of credit

—

9/22/26

Participation agreement

118,558

0.84%

5/4/21

Participation agreement

253,969

0.78%

5/4/22

Repurchase agreements

483,848

0.66% - 1.46%

5/27/22 - 12/20/23

Secured line of credit

5,000

1.90%

5/30/22

Secured line of credit

5,000

1.91%

5/30/22

19,558,849

17,824,087

Discount on bonds and notes payable and debt issuance costs

(238,123)

Discount on bonds and notes payable and debt issuance costs

(192,998)

Total

19,320,726

Total

17,631,089

~~FFELP~~ Warehouse Facilities

The Company funds a portion of its ~~FFELP~~ loan acquisitions using ~~its FFELP~~ warehouse facilities. ~~Student loan~~Loan warehousing allows the Company to buy and manage ~~student~~ loans prior to transferring them into more permanent financing arrangements.

~~As of September 30, 2021, the Company had 2~~ FFELP ~~warehouse facilities as summarized below.~~

NFSLW-I (a) NHELP-II (b) Total
Maximum financing amount $ 60,000 50,000 110,000
Amount outstanding 5,446 — 5,446
Amount available $ 54,554 50,000 104,554
Expiration of liquidity provisions November 22, 2021 February 26, 2022
Final maturity date November 22, 2022 February 26, 2024
Advanced as equity support $ 328 115 443

(a) On May 20, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional six months to November 22, 2021 and November 22, 2022, respectively. On June 28, 2021, the maximum financing amount for this warehouse facility increased to $770.0 million, and on June 30, 2021 and July 27, 2021, the maximum financing amount decreased to $310.0 million and to $60 million, respectively.

(b) On February 26, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional year to February 26, 2022 and February 26, 2024, respectively. On October 14, 2021, this facility was terminated.

~~Asset-Backed Securitizations~~

~~The following table summarizes the asset-backed securitization transactions completed by the Company during the first nine months of 2021.~~

NSLT 2021-1 NSLT 2021-2 Total
Date securities issued 6/30/21 8/31/21
Total original principal amount $ 797,000 531,300 1,328,300
Class A senior notes:
Total principal amount $ 781,000 520,600 1,301,600
Cost of funds 1-month LIBOR plus 0.50% 1-month LIBOR plus 0.50%
Final maturity date 7/25/69 9/25/69
Class B subordinated notes:
Total principal amount $ 16,000 10,700 26,700
Cost of funds 1-month LIBOR plus 1.25% 1-month LIBOR plus 1.20%
Final maturity date 7/25/69 9/25/69

~~Private Education Loan Warehouse Facility~~

~~During 2020, the Company obtained a private education~~ loan warehouse facility ~~that~~

As of March 31, 2022, the Company’s FFELP warehouse facility had an aggregate maximum financing amount available of ~~$200.0 million. On February 12, 2021,~~$60.0 million, liquidity provisions through May 23, 2022, and a final maturity of May 22, 2023. As of March 31, 2022, $5.0 million was outstanding under this facility, $55.0 million was available for future funding, and the Company ~~decreased~~had $0.3 million advanced as equity support.

Private education loan warehouse facility

As of March 31, 2022, the Company's private education warehouse facility had an aggregate maximum financing amount available ~~for this facility to~~of $175.0 million and ~~extended~~an advance rate of 80 to 90 percent. On January 28, 2022, the Company amended the facility to extend the liquidity provisions through June 30, 2022 and final maturity date to ~~February 13, 2022 and February 13, 2023, respectively.~~June 30, 2023. As of ~~September 30, 2021, $118.3~~March 31, 2022, $96.7 million was outstanding under this warehouse facility, ~~and $56.7~~$78.3 million was available for future ~~funding. The facility has an advance rate of 80 to 90 percent~~funding, and ~~as of September 30, 2021,~~ the Company had ~~$12.9~~$10.6 million advanced as equity ~~support under this facility.~~support.

~~Consumer Loan Warehouse Facility~~

~~The Company had a $100.0 million consumer loan warehouse facility. On March 31, 2021, the Company terminated this facility.~~

Unsecured Line of Credit

~~On September 22, 2021, the~~The Company ~~amended its existing~~has a $495.0 million unsecured line of ~~credit. Under the amended terms, the following provisions of the facility were modified:~~

•~~The~~credit that has a maturity date ~~was extended from December 16, 2024 to~~of September 22, 2026.

• As of March 31, 2022, no amount was outstanding on the line of credit and $495.0 million was available for future use. The ~~facility size increased from $455.0 million to $495.0 million. The amended terms also increased the accordion feature~~line of ~~the facility to provide~~credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 ~~million.~~

•The cost of funds decreased 25.0 basis points and 2.5 basis points for drawn and undrawn amounts, respectively, based on the Company's current credit ratings. The amended terms also include customary provisionsmillion, subject to ~~provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available.~~

•The provisions for secured recourse indebtedness were expanded to increase the limit on the aggregate amount of secured recourse indebtedness from 5 percent of the Company's consolidated net worth to 10 percent.

•~~The provisions for permitted investments were expanded to increase the aggregate amount of permitted investments from 40 percent of the Company's consolidated net worth to 50 percent.~~

•The provisions for loans owned by the Company other than federally insured FFELP student loans were revised to replace the limit of $850.0 million on non-FFELP loans owned by the Company with a limit of 50 percent of the Company's consolidated net worth on non-FFELP loans owned by the Company with FICO scores of less than 700.

~~As of September 30, 2021, no amount was outstanding on the line of credit and $495.0 million was available for future use.~~certain conditions.

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. As of ~~September 30, 2021, $194.2~~March 31, 2022, $267.5 million 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, 2022, the agreement automatically renewed for another year through May 4, 2023. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to ~~$100.0~~$400.0 million or an amount in excess of ~~$100.0~~$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 under this agreement 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 this participation agreement.

Repurchase Agreements

On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities. The first agreement has maturity dates of November 20, 2023 and December 20, 2023, or earlier if either party provides 180 days’ prior written notice, and the second agreement has a maturity ~~date~~dates (as of November 15, 2021. The Company incurs interest on amounts outstanding under these agreements based on three-month LIBOR plus an applicable spread. Under the first agreement, the Company is subject to margin deficit payment requirements if the fair valueMarch 31, 2022) of ~~the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date,~~April 14, 2022, May 27, 2022, and under the second agreement, the Company could be 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 and the counter-party provides notice requiring such payment.January 13, 2023. Included in “bonds and notes payable” as of ~~September 30, 2021~~March 31, 2022 was ~~$223.8~~$192.9 million subject to the first agreement and ~~$110.6~~$191.4 million subject to the second agreement.

See note 5 for additional information about the private education loan asset-backed securities investments serving as collateral for these repurchase agreements.

Accrued Interest Liability

During the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which liability the Company determined iswas no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest expense on bonds and notes payable and bank deposits" in the consolidated statements of income.

1615

Debt Repurchases

~~The following table summarizes~~During the ~~Company's repurchases~~three months ended March 31, 2022, the Company repurchased $18.5 million of its own debt. ~~Gains/losses recorded by~~The gain recognized from these debt repurchases was not significant. No debt was repurchased during the three months ended March 31, 2021.

The Company ~~from~~has retained certain of its own asset-backed securities upon their initial issuance or repurchased certain of its own asset-backed securities (bonds and notes payable) in the ~~repurchase of debt~~secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in ~~"other" in "other income/expense" on~~ the Company's consolidated ~~statements~~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 ~~income.~~

Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Purchase price $ (184,827) (6,054) (205,269) (7,572)
Par value 184,781 6,163 204,597 8,090
Remaining unamortized cost of issuance (3,222) (4) (3,292) (10)
(Loss) gain $ (3,268) 105 (3,964) 508

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 March 31, 2022, the Company holds $398.1 million (par value) of its own asset-backed securities. As of March 31, 2022, $45.7 million of the Company's repurchased asset-backed securities were financed with proceeds from the Company's repurchase agreements (as discussed above).

4. Derivative Financial Instruments

The Company uses derivative financial instruments 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 ~~2020~~2021 Annual Report. A tabular presentation of such derivatives outstanding as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 is presented below.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").

Maturity Notional amount
As of As of
September 30, 2021 December 31, 2020
2021 $ — 250,000
2022 2,000,000 2,000,000
2023 750,000 750,000
2024 1,750,000 1,750,000
2026 1,150,000 1,150,000
2027 250,000 250,000
$ 5,900,000 6,150,000


Maturity	Notional amount


2022	$	2,000,000
2023	750,000
2024	1,750,000
2026	1,150,000
2027	250,000







	$	5,900,000

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was one-month LIBOR plus 9.1 basis points.

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, 2021 As of December 31, 2020
Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a)
2021 $ 100,000 2.95 % $ 600,000 2.15 %
2022 500,000 0.94 500,000 0.94
2023 900,000 0.62 900,000 0.62
2024 2,500,000 0.35 2,000,000 0.32
2025 500,000 0.35 500,000 0.35
2026 300,000 0.81 — —
2031 100,000 1.53 — —
$ 4,900,000 0.56 % $ 4,500,000 0.70 %


	As of March 31, 2022				As of December 31, 2021
Maturity	Notional amount		Weighted average fixed rate paid by the Company (a)		Notional amount		Weighted average fixed rate paid by the Company (a)

2022	$	—	—	%	$	500,000	0.94	%
2023	750,000		0.30		900,000		0.62
2024	2,500,000		0.35		2,500,000		0.35
2025	500,000		0.35		500,000		0.35
2026	500,000		1.02		500,000		1.02
2031	100,000		1.53		100,000		1.53



	$	4,350,000	0.44	%	$	5,000,000	0.55	%

(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.

On April 28, 2022, the Company terminated $1.25 billion in notional amount of derivatives ($500 million, $250 million, and $500 million that had maturity dates in 2023, 2024, and 2025, respectively) that are included in the table above.

Consolidated Financial Statement Impact Related to Derivatives - Statements of Income

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,
2021 2020 2021 2020
Settlements:
1:3 basis swaps $ (700) 1,197 (939) 10,438
Interest rate swaps - floor income hedges (5,209) (3,588) (14,648) (2,772)
Total settlements - (expense) income (5,909) (2,391) (15,587) 7,666
Change in fair value:
1:3 basis swaps 1,061 (161) 2,755 (1,475)
Interest rate swaps - floor income hedges 6,199 3,601 41,700 (19,597)
Total change in fair value - income (expense) 7,260 3,440 44,455 (21,072)
Derivative market value adjustments and derivative settlements, net - income (expense) $ 1,351 1,049 28,868 (13,406)

~~5. Investments~~

~~Private Education Loan Investment~~

In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company has entered into a joint venture with other investors to acquire the loans. Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in the loans and in residual interests in subsequent securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture. During March and throughout the second quarter of 2021, the vast majority of borrowers were converted to the Company's servicing platform.

The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility. The Company’s initial contribution to the limited partnership was $71.1 million. In conjunction with the establishment of the limited partnership, the parties provided additional funding commitments to the partnership, in the event additional funding became necessary after the initial purchase of loans. In accordance with GAAP, the Company’s carrying value of its investment in the limited partnership is accounted for under the equity method of accounting, is reduced by cash distributions and the fair value of its portion of loans transferred into securitizations, and can be less than zero or negative because of the potential future contributions pursuant to the funding commitment. The Company’s carrying value of its investment in the limited partnership, which is included in "Venture capital and funds - equity method" in the table below, is


	Three months ended March 31,
	2022		2021
Settlements:
1:3 basis swaps	$	396	(19)
Interest rate swaps - floor income hedges	(3,205)		(4,285)

Total settlements - income (expense)	(2,809)		(4,304)
Change in fair value:
1:3 basis swaps	889		2,799
Interest rate swaps - floor income hedges	144,845		36,010



Total change in fair value - income (expense)	145,734		38,809
Derivative market value adjustments and derivative settlements, net - income (expense)	$	142,925	34,505

1817

also impacted by the amount of the Company’s proportionate share of the net earnings or losses of the partnership. For the nine months ended September 30, 2021, the Company’ proportionate share of losses of this partnership was $5.0 million, which reduced the carrying value of this investment (and is included as an expense in "other" in "other income/expense" on the consolidated statements of income).

On May 20, 2021, June 30, 2021, and August 18, 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $7.4 billion of the private education loans purchased by the joint venture. Cash distributions and the fair value of the Company’s portion of loans securitized as a result of these securitizations was $40.6 million and $43.3 million, respectively, which reduced the Company’s carrying value of its limited partnership investment. The Company records its ownership in the residual interest of securitization transactions used to permanently finance the loans at fair value as held-to-maturity beneficial interest investments, and such investments are reflected in the table below as “beneficial interest in private education loan securitizations, including accrued interest.”

~~See the caption "Subsequent Events" below for information regarding an event on October 27, 2021 impacting the Company's investment in the joint venture limited partnership.~~

On behalf of the joint venture, the Company is the sponsor and administrator for the loan securitizations completed by the joint venture. 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 included in “private education loan asset-backed securities – available for sale” in the table below and as of September 30, 2021, the fair value of these bonds was $371.7 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, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations. See note 3 for additional information about these repurchase agreements.

5. Investments

A summary of the Company's investments follows:


		As of September 30, 2021						As of December 31, 2020						As of March 31, 2022							As of December 31, 2021
		Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value		Amortized cost	Gross unrealized gains	Gross unrealized losses	Fair value			Amortized cost		Gross unrealized gains	Gross unrealized losses (a)	Fair value			Amortized cost	Gross unrealized gains	Gross unrealized losses	Fair value

Investments (at fair value):	Investments (at fair value):																			Investments (at fair value):
FFELP loan asset-backed securities- available-for-sale ~~(a)~~(b)	FFELP loan asset-backed securities- available-for-sale ~~(a)~~(b)	$	387,777	15,932	(49)	403,660		338,475	8,040	(13)	346,502		FFELP loan asset-backed securities- available-for-sale ~~(a)~~(b)	$	507,378	12,079	(2,388)	517,069			480,691	14,710	(719)	494,682
Private education loan asset-backed securities - available-for-sale ~~(b)~~(c)	Private education loan asset-backed securities - available-for-sale ~~(b)~~(c)	369,859		1,865	—	371,724		—	—	—	—		Private education loan asset-backed securities - available-for-sale ~~(b)~~(c)	388,736		—	(16,851)	371,885			414,286	507	(2,241)	412,552
Other debt securities - available-for-sale	Other debt securities - available-for-sale	2,337		—	—	2,337		2,103	2	—	2,105		Other debt securities - available-for-sale	49,306		4	(78)	49,232			22,435	—	—	22,435
Total available-for-sale debt securities													Total available-for-sale debt securities	$	945,420	12,083	(19,317)	938,186			917,412	15,217	(2,960)	929,669
Equity securities	Equity securities	58,336		13,302	(1,594)	70,044		36,227	8,768	(2,954)	42,041		Equity securities					71,698						71,986
Total investments (at fair value)	Total investments (at fair value)	$	818,309	31,099	(1,643)	847,765		376,805	16,810	(2,967)	390,648		Total investments (at fair value)					1,009,884						1,001,655

Other Investments (not measured at fair value):	Other Investments (not measured at fair value):												Other Investments (not measured at fair value):
Other debt securities - held-to-maturity													Other debt securities - held-to-maturity					8,200						8,200
Venture capital and funds:	Venture capital and funds:												Venture capital and funds:
Measurement alternative (c)						151,100					144,795
Measurement alternative													Measurement alternative					164,368						157,609
Equity method	Equity method					37,020					14,018		Equity method					74,339						67,840
Other						804					894

Total venture capital and funds	Total venture capital and funds					188,924					159,707		Total venture capital and funds					238,707						225,449
Real estate
Real estate:													Real estate:
Equity method	Equity method					35,605					50,291		Equity method					50,257						47,226
Notes receivable	Notes receivable					3,500					847		Notes receivable					4,169						—
Total real estate	Total real estate					39,105					51,138		Total real estate					54,426						47,226
Investment in ALLO:	Investment in ALLO:												Investment in ALLO:
Voting interest/equity method (d)	Voting interest/equity method (d)					97,776					129,396		Voting interest/equity method (d)					108,773						87,247
Preferred membership interest and accrued and unpaid preferred return (e)	Preferred membership interest and accrued and unpaid preferred return (e)					135,300					228,916		Preferred membership interest and accrued and unpaid preferred return (e)					139,459						137,342
Total investment in ALLO	Total investment in ALLO					233,076					358,312		Total investment in ALLO					248,232						224,589
Solar (f)						(46,539)					(30,373)
Beneficial interest in private education loan securitizations, including accrued interest (g)						44,902					—
Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $4,449 as of December 31, 2020 (g)						37,021					27,954
Beneficial interest in federally insured student loan securitizations (g)						26,904					30,377
Tax liens and affordable housing						3,755					5,177
Beneficial interest in loan securitizations (f):													Beneficial interest in loan securitizations (f):
Private education loans													Private education loans					73,915						66,008
Consumer loans													Consumer loans					31,222						28,366
Federally insured student loans													Federally insured student loans					25,217						25,768
Total beneficial interest in loan securitizations													Total beneficial interest in loan securitizations					130,354						120,142
Solar (g)													Solar (g)					(44,354)						(42,457)
Tax liens, affordable housing, and other													Tax liens, affordable housing, and other					4,129						4,115
Total investments (not measured at fair value)	Total investments (not measured at fair value)					527,148					602,292		Total investments (not measured at fair value)					639,694						587,264
Total investments	Total investments					$	1,374,913				$	992,940	Total investments					$	1,649,578					$	1,588,919

(a) As of ~~September 30, 2021, $194.2~~March 31, 2022, the aggregate fair value of asset-backed securities classified as available-for-sale with unrealized losses was $640.6 million. The Company currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses.

(b) As of March 31, 2022, $267.5 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union ~~Bank. See~~Bank, as discussed in note 3 ~~for additional information.~~under "Participation Agreement."

~~(b)~~(c) As of ~~September 30, 2021,~~March 31, 2022, a total of ~~$370.4~~$374.4 million (par value) of private education loan asset-backed securities were subject to repurchase agreements with ~~third-parties. See~~third parties, as discussed in note 3 ~~for additional information.~~under “Repurchase Agreements.”

~~(c) 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.~~(d) On ~~May 27, 2021,~~February 25, 2022, the Company ~~made an~~contributed $34.7 million of additional equity ~~investment of approximately $5 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior~~ to the additional 2021 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20%, which did not materially change as a result of this transaction. 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. For accounting purposes, the May 2021 equity raise transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities and the price was contractually agreed to during Hudl's prior May 2020 equity raise. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the May 2021 transaction value. As of September 30, 2021, the carrying amount of the Company's investment in Hudl is $133.9 million.

~~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.~~

~~See the caption "Subsequent Events" below for information regarding an event on October 15, 2021 impacting another investment accounted for using the measurement alternative method.~~

~~(d) The Company accounts for its voting membership interests in~~ 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 HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the Company’s share of the earnings or losses from the equity investment for the period. Because the Company will be able to utilize certain tax losses related to ALLO’s operations, the equity investment agreements for the Company have liquidation rights and priorities that are sufficiently different from the voting membership interests percentages such that the HLBV method of accounting was deemed appropriate. Accordingly, the recognition of earnings or losses during any reporting period related to the Company’s equity investment in ALLO may or may not reflect its voting membership interests percentage and could vary substantially from those calculated based on the Company’s voting membership interests in ALLO.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, the Company recognized pre-tax losses of ~~$10.5~~$13.1 million and ~~$31.6~~$22.2 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment.

Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers. The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP. Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years. Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income.

(e) As of ~~September 30, 2021,~~March 31, 2022, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was ~~$129.7~~$137.3 million and ~~$5.6~~$2.1 million, respectively. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, the Company recognized pre-tax income on its ALLO preferred membership interests of ~~$2.0~~$2.1 million and ~~$6.4~~$2.3 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income.

~~On January 19, 2021, ALLO obtained~~(f) The Company has partial ownership in certain private ~~debt financing facilities from unrelated third-party lenders providing for aggregate financing~~education, consumer, and federally insured student loan securitizations. As of ~~up to $230.0 million. With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership interests held~~the latest remittance reports filed by the ~~Company~~various trusts prior to or as of March 31, 2022, the Company's ownership correlates to approximately $680 million, $190 million, and $450 million of private education, consumer, and federally insured student loans, respectively, included in exchange for an aggregate redemption price payment to the Company of $100.0 million. Under October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.these securitizations.

~~(f)~~(g) The Company makes investments in entities that promote renewable energy sources (solar). The ~~Company's~~Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years. As of ~~September 30, 2021,~~March 31, 2022, the Company has funded a total of ~~$181.4~~$231.4 million in solar investments, which includes ~~$24.5~~$62.6 million funded by syndication partners. The carrying value of the ~~Company's~~Company’s solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at ~~September 30, 2021~~March 31, 2022 represents the ~~result~~sum of total tax credits earned on solar projects placed in service through ~~September 30, 2021~~March 31, 2022 and the calculated HLBV net losses being larger than total payments made by the Company on such projects. ~~The~~As of March 31, 2022, the Company is committed to fund an additional ~~$74.0~~$19.0 million on these projects, of which ~~$55.9~~$14.8 million will 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~~Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company recognized pre-tax losses of ~~$3.4~~$1.0 million and ~~$11.8 million, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recognized pre-tax losses of $7.4 million and $12.6~~$1.7 million, respectively, on its solar investments. These losses are included in ~~"other"~~“other” in "other income/expense" on the consolidated statements of income.

~~(g) The Company has partial ownership in certain private education, consumer,~~ Losses from solar investments during the three months ended March 31, 2022 and ~~federally insured student loan securitizations. As~~2021 include losses of ~~the latest remittance reports filed by the various trusts prior to September 30, 2021, the Company's ownership correlates to approximately $545 million, $250~~$1.8 million and ~~$485~~$0.6 million, ~~of private education, consumer, and federally insured student loans,~~ respectively, attributable to third-party minority interest investors (syndication partners) that are included in ~~these securitizations.~~

~~During the first quarter of 2020, the Company recorded a $26.3 million provision charge related~~“net loss attributable to ~~the Company's beneficial interest~~noncontrolling interests” in consumer loan securitizations due to distressed economic conditions resulting from the COVID-19 pandemic. Due to improved economic conditions, the Company has reduced the allowance for credit losses related to the consumer loan beneficial interests, including reducing such allowance by $2.4 million during the first quarter of 2021. As of March 31, 2021, the Company no longer has an allowance for credit losses associated with the consumer loan beneficial interests. The activity related to the allowance for credit losses related to the consumer loan beneficial interests is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of income.

~~Subsequent Events~~

On October 15, 2021, an entity in which the Company has an equity investment completed an additional equity raise. The Company accounts for its investment in this entity using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. As a result of this entity’s equity raise, the Company currently anticipates recognizing income in the fourth quarter of 2021 of $10 million to $15 million (pre-tax) to adjust its carrying value to reflect the October 15, 2021 transaction value, subject to final valuations of the equity classes.

On October 27, 2021, the Company's joint venture with other investors for the acquisition of private education loans from Wells Fargo completed a final asset-backed securitization of $1.2 billion of private education loans that permanently financed all remaining eligible loans temporarily funded in the joint venture limited partnership’s warehouse facility. The cash distribution and the fair value of the Company’s portion of loans securitized as a result of this securitization was $9.8 million and $8.5 million, respectively, which reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of approximately $36 million. Due to the completion of this transaction, the Company expects the joint venture limited partnership established to purchase the loans will be dissolved without further financial requirements (and the Company's funding commitment will therefore be terminated) and/or the financial commitment will be reduced or terminated by the partners of the joint venture. Upon the reduction and/or termination of the Company's financial commitment to the limited partnership, currently expected by the Company to occur during the fourth quarter of 2021, the Company will record a derecognition of all or a portion of the negative investment balance (and record positive income up to $36 million (pre-tax)).

6. Intangible Assets

Intangible assets consisted of the following:

Weighted average remaining useful life as of
September 30, 2021 (months)
As of As of
September 30, 2021 December 31, 2020
Amortizable intangible assets, net:
Customer relationships (net of accumulated amortization of $94,767 and $83,419, respectively) 105 $ 50,525 66,974
Computer software (net of accumulated amortization of $3,143 and $4,127, respectively) 27 4,651 6,430
Trade names (net of accumulated amortization of $3,455) — — 1,666
Total - amortizable intangible assets, net 98 $ 55,176 75,070


	Weighted average remaining useful life as of March 31, 2022 (months)
		As of		As of
		March 31, 2022		December 31, 2021
Amortizable intangible assets, net:
Customer relationships (net of accumulated amortization of $99,366 and $97,398, respectively)	100	$	45,926	47,894
Computer software (net of accumulated amortization of $4,236 and $3,669, respectively)	21	3,618		4,135

Total - amortizable intangible assets, net	94	$	49,544	52,029

The Company recorded amortization expense on its intangible assets of ~~$3.3~~$2.5 million and ~~$8.0~~$8.4 million during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $19.9 million and $22.8 million during the nine months ended September 30, 2021 and 2020,~~ respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of ~~September 30, 2021,~~March 31, 2022, the Company estimates it will record amortization expense as follows:


2021 (October 1 - December 31)		$	3,147
2022		9,939
2022 (April 1 - December 31)				2022 (April 1 - December 31)	$	7,454
2023	2023	9,830		2023	9,830
2024	2024	7,457		2024	7,457
2025	2025	4,644		2025	4,644
2026 and thereafter		20,159
2026				2026	4,517
2027 and thereafter				2027 and thereafter	15,642
		$	55,176		$	49,544

7. Goodwill

The carrying amount of goodwill as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 by reportable operating segment was as follows:


	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	76,570	41,883	—	—	142,092

8. ~~Property and Equipment~~

~~Property and equipment consisted of the following:~~

As of As of
Useful life September 30, 2021 December 31, 2020
Computer equipment and software 1-5 years $ 220,509 172,664
Building and building improvements 5-48 years 46,018 52,444
Office furniture and equipment 1-10 years 23,819 21,899
Leasehold improvements 1-15 years 9,330 9,168
Transportation equipment 5-10 years 4,857 4,857
Land — 3,642 3,642
Construction in progress — 3,783 18,478
311,958 283,152
Accumulated depreciation (194,662) (159,625)
Total property and equipment, net $ 117,296 123,527

The Company recorded depreciation expense on its property and equipment of $12.4 million and $22.3 million during the three months ended September 30, 2021 and 2020, respectively, and $36.2 million and $64.6 million during the nine months ended September 30, 2021 and 2020, respectively.

~~Impairment charges~~

During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge of $14.2 million during the three months ended September 30, 2021. The impairment charge of $13.2 million within its Loan Servicing and Systems operating segment related primarily to building and building improvements. The impairment charge of $1.0 million within its Corporate and Other Activities operating segment related to operating lease assets associated with leased office space which the Company had fully ceased to use prior to the lease term end date. These impairment charges are included in "impairment expense and provision for beneficial interest, net" in the consolidated statements of income.

9. Earnings per Common Share

Presented below is a summary of 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,								Three months ended March 31,
		2021				2020				2022				2021
		Common shareholders		Unvested restricted stock shareholders	Total	Common shareholders	Unvested restricted stock shareholders	Total		Common shareholders		Unvested restricted stock shareholders	Total	Common shareholders	Unvested restricted stock shareholders	Total
Numerator:	Numerator:								Numerator:
Net income attributable to Nelnet, Inc.	Net income attributable to Nelnet, Inc.	$	52,245	893	53,138	70,483	1,020	71,503	Net income attributable to Nelnet, Inc.	$	183,328	3,319	186,647	121,766	1,832	123,598

Denominator:	Denominator:								Denominator:
Weighted-average common shares outstanding - basic and diluted	Weighted-average common shares outstanding - basic and diluted	37,947,257		648,464	38,595,721	37,988,584	549,892	38,538,476	Weighted-average common shares outstanding - basic and diluted	37,365,339		676,495	38,041,834	38,031,267	572,288	38,603,555
Earnings per share - basic and diluted	Earnings per share - basic and diluted	$	1.38	1.38	1.38	1.86	1.86	1.86	Earnings per share - basic and diluted	$	4.91	4.91	4.91	3.20	3.20	3.20

		Nine months ended September 30,
		2021				2020
		Common shareholders		Unvested restricted stock shareholders	Total	Common shareholders	Unvested restricted stock shareholders	Total
Numerator:
Net income attributable to Nelnet, Inc.		$	256,416	4,187	260,603	115,794	1,658	117,452

Denominator:
Weighted-average common shares outstanding - basic and diluted		38,025,898		620,994	38,646,892	38,676,092	553,840	39,229,932
Earnings per share - basic and diluted		$	6.74	6.74	6.74	2.99	2.99	2.99

2420

~~10.~~9. Segment Reporting

See note 15 of the notes to consolidated financial statements included in the ~~2020~~2021 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.


		Three months ended September 30, 2021										Three months ended March 31, 2022
		Loan Servicing and Systems		Education Technology, Services, and Payment Processing	Communications (a)	Asset Generation and Management	Nelnet Bank	Corporate and Other Activities	Eliminations	Total		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	Total interest income	$	31	344	—	131,781	2,061	2,609	(172)	136,654	Total interest income	$	67	339	118,598	3,030	3,992	(828)	125,196
Interest expense	Interest expense	24		—	—	48,662	421	1,242	(172)	50,176	Interest expense	24		—	46,003	856	2,026	(828)	48,079
Net interest income	Net interest income	7		344	—	83,119	1,640	1,367	—	86,478	Net interest income	43		339	72,595	2,174	1,966	—	77,117
Less provision (negative provision) for loan losses		—		—	—	5,940	(113)	—	—	5,827
Less (negative provision) provision for loan losses											Less (negative provision) provision for loan losses	—		—	(864)	429	—	—	(435)
Net interest income after provision for loan losses	Net interest income after provision for loan losses	7		344	—	77,179	1,753	1,367	—	80,651	Net interest income after provision for loan losses	43		339	73,459	1,745	1,966	—	77,552
Other income/expense:	Other income/expense:										Other income/expense:
Loan servicing and systems revenue	Loan servicing and systems revenue	112,351		—	—	—	—	—	—	112,351	Loan servicing and systems revenue	136,368		—	—	—	—	—	136,368
Intersegment revenue	Intersegment revenue	8,621		3	—	—	—	—	(8,624)	—	Intersegment revenue	8,480		3	—	—	—	(8,483)	—
Education technology, services, and payment processing revenue	Education technology, services, and payment processing revenue	—		85,324	—	—	—	—	—	85,324	Education technology, services, and payment processing revenue	—		112,286	—	—	—	—	112,286
Communications revenue		—		—	—	—	—	—	—	—

Other	Other	727		13	—	(7,275)	450	17,952	—	11,867	Other	740		—	6,511	1,500	1,125	—	9,877
Gain on sale of loans	Gain on sale of loans	—		—	—	3,444	—	—	—	3,444	Gain on sale of loans	—		—	2,989	—	—	—	2,989

Impairment expense and provision for beneficial interests, net		(13,243)		—	—	—	—	(916)	—	(14,159)

Derivative settlements, net	Derivative settlements, net	—		—	—	(5,909)	—	—	—	(5,909)	Derivative settlements, net	—		—	(2,809)	—	—	—	(2,809)
Derivative market value adjustments, net	Derivative market value adjustments, net	—		—	—	7,260	—	—	—	7,260	Derivative market value adjustments, net	—		—	145,734	—	—	—	145,734
Total other income/expense	Total other income/expense	108,456		85,340	—	(2,480)	450	17,036	(8,624)	200,178	Total other income/expense	145,588		112,289	152,425	1,500	1,125	(8,483)	404,445
Cost of services:
Cost to provide education technology, services, and payment processing services		—		31,335	—	—	—	—	—	31,335
Cost to provide communications services		—		—	—	—	—	—	—	—
Total cost of services		—		31,335	—	—	—	—	—	31,335
Cost of services											Cost of services	—		35,545	—	—	—	—	35,545
Operating expenses:	Operating expenses:										Operating expenses:
Salaries and benefits	Salaries and benefits	75,305		29,119	—	542	890	22,735	—	128,592	Salaries and benefits	91,972		31,286	591	1,554	24,012	—	149,414
Depreciation and amortization	Depreciation and amortization	4,245		2,762	—	—	—	8,702	—	15,710	Depreciation and amortization	4,954		2,315	—	3	9,684	—	16,956
Other expenses	Other expenses	12,738		4,804	—	5,420	445	14,918	—	38,324	Other expenses	16,213		5,764	3,033	682	13,804	—	39,499
Intersegment expenses, net	Intersegment expenses, net	19,217		3,672	—	8,652	32	(22,949)	(8,624)	—	Intersegment expenses, net	20,398		4,605	8,831	45	(25,396)	(8,483)	—
Total operating expenses	Total operating expenses	111,505		40,357	—	14,614	1,367	23,406	(8,624)	182,626	Total operating expenses	133,537		43,970	12,455	2,284	22,104	(8,483)	205,869
Income (loss) before income taxes	Income (loss) before income taxes	(3,042)		13,992	—	60,085	836	(5,003)	—	66,868	Income (loss) before income taxes	12,094		33,113	213,429	961	(19,013)	—	240,583
Income tax (expense) benefit (b)		730		(3,358)	—	(14,421)	(200)	1,600	—	(15,649)
Income tax (expense) benefit											Income tax (expense) benefit	(2,903)		(7,947)	(51,223)	(223)	6,598	—	(55,697)
Net income (loss)	Net income (loss)	(2,312)		10,634	—	45,664	636	(3,403)	—	51,219	Net income (loss)	9,191		25,166	162,206	738	(12,415)	—	184,886
Net loss (income) attributable to noncontrolling interests		—		—	—	—	—	1,919	—	1,919
Net loss attributable to noncontrolling interests											Net loss attributable to noncontrolling interests	—		—	—	—	1,761	—	1,761
Net income (loss) attributable to Nelnet, Inc.	Net income (loss) attributable to Nelnet, Inc.	$	(2,312)	10,634	—	45,664	636	(1,484)	—	53,138	Net income (loss) attributable to Nelnet, Inc.	$	9,191	25,166	162,206	738	(10,654)	—	186,647

Total assets as of September 30, 2021		$	238,602	415,178	—	20,001,997	413,155	1,740,060	(406,253)	22,402,739
Total assets as of March 31, 2022											Total assets as of March 31, 2022	$	259,712	376,794	18,158,972	656,242	2,066,417	(528,396)	20,989,741

(a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021.

(b) Income taxes for the Nelnet Bank operating segment reflect Nelnet Bank's actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. Income taxes for all other operating segments are allocated based on 24% of that segment's income before taxes. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.

2521


		Three months ended September 30, 2020										Three months ended March 31, 2021
		Loan Servicing and Systems		Education Technology, Services, and Payment Processing	Communications	Asset Generation and Management	Nelnet Bank (a)	Corporate and Other Activities	Eliminations	Total		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	Total interest income	$	34	367	—	137,959	—	1,646	(261)	139,745	Total interest income	$	34	263	126,402	1,376	1,246	(218)	129,103
Interest expense	Interest expense	24		16	—	57,755	—	888	(261)	58,423	Interest expense	23		—	26,950	194	824	(218)	27,773
Net interest income	Net interest income	10		351	—	80,204	—	758	—	81,322	Net interest income	11		263	99,452	1,182	422	—	101,330
Less provision (negative provision) for loan losses		—		—	—	(5,821)	—	—	—	(5,821)
Less (negative provision) provision for loan losses											Less (negative provision) provision for loan losses	—		—	(17,470)	422	—	—	(17,048)
Net interest income after provision for loan losses	Net interest income after provision for loan losses	10		351	—	86,025	—	758	—	87,143	Net interest income after provision for loan losses	11		263	116,922	760	422	—	118,378
Other income/expense:	Other income/expense:										Other income/expense:
Loan servicing and systems revenue	Loan servicing and systems revenue	113,794		—	—	—	—	—	—	113,794	Loan servicing and systems revenue	111,517		—	—	—	—	—	111,517
Intersegment revenue	Intersegment revenue	8,287		3	—	—	—	—	(8,290)	—	Intersegment revenue	8,268		3	—	—	—	(8,271)	—
Education technology, services, and payment processing revenue	Education technology, services, and payment processing revenue	—		74,121	—	—	—	—	—	74,121	Education technology, services, and payment processing revenue	—		95,258	—	—	—	—	95,258
Communications revenue		—		—	20,211	—	—	—	—	20,211

Other	Other	2,353		373	511	1,004	—	(2,737)	—	1,502	Other	1,113		—	2,881	22	(6,184)	—	(2,168)
Gain on sale of loans	Gain on sale of loans	—		—	—	14,817	—	—	—	14,817	Gain on sale of loans	—		—	—	—	—	—	—

Impairment expense and provision for beneficial interests, net		—		—	—	—	—	—	—	—

Derivative settlements, net	Derivative settlements, net	—		—	—	(2,391)	—	—	—	(2,391)	Derivative settlements, net	—		—	(4,304)	—	—	—	(4,304)
Derivative market value adjustments, net	Derivative market value adjustments, net	—		—	—	3,440	—	—	—	3,440	Derivative market value adjustments, net	—		—	38,809	—	—	—	38,809
Total other income/expense	Total other income/expense	124,434		74,497	20,722	16,870	—	(2,737)	(8,290)	225,494	Total other income/expense	120,898		95,261	37,386	22	(6,184)	(8,271)	239,112
Cost of services:
Cost to provide education technology, services, and payment processing services		—		25,243	—	—	—	—	—	25,243
Cost to provide communications services		—		—	5,914	—	—	—	—	5,914
Total cost of services		—		25,243	5,914	—	—	—	—	31,157
Cost of services											Cost of services	—		27,052	—	—	—	—	27,052
Operating expenses:	Operating expenses:										Operating expenses:
Salaries and benefits	Salaries and benefits	72,912		25,460	5,485	438	—	21,801	—	126,096	Salaries and benefits	66,458		25,941	495	1,488	21,409	—	115,791
Depreciation and amortization	Depreciation and amortization	9,951		2,366	11,152	—	—	6,839	—	30,308	Depreciation and amortization	8,192		3,071	—	—	8,920	—	20,184
Other expenses	Other expenses	12,407		3,126	2,219	3,672	—	13,320	—	34,744	Other expenses	13,285		4,822	3,777	545	14,272	—	36,698
Intersegment expenses, net	Intersegment expenses, net	15,834		3,610	491	8,868	—	(20,513)	(8,290)	—	Intersegment expenses, net	16,890		3,664	8,427	3	(20,713)	(8,271)	—
Total operating expenses	Total operating expenses	111,104		34,562	19,347	12,978	—	21,447	(8,290)	191,148	Total operating expenses	104,825		37,498	12,699	2,036	23,888	(8,271)	172,673
Income (loss) before income taxes	Income (loss) before income taxes	13,340		15,043	(4,539)	89,917	—	(23,426)	—	90,332	Income (loss) before income taxes	16,084		30,974	141,609	(1,254)	(29,650)	—	157,765
Income tax (expense) benefit	Income tax (expense) benefit	(3,201)		(3,610)	1,089	(21,580)	—	8,146	—	(19,156)	Income tax (expense) benefit	(3,860)		(7,434)	(33,987)	286	10,133	—	(34,861)
Net income (loss)	Net income (loss)	10,139		11,433	(3,450)	68,337	—	(15,280)	—	71,176	Net income (loss)	12,224		23,540	107,622	(968)	(19,517)	—	122,904
Net loss (income) attributable to noncontrolling interests		—		—	—	—	—	327	—	327
Net loss attributable to noncontrolling interests											Net loss attributable to noncontrolling interests	—		—	—	—	694	—	694
Net income (loss) attributable to Nelnet, Inc.	Net income (loss) attributable to Nelnet, Inc.	$	10,139	11,433	(3,450)	68,337	—	(14,953)	—	71,503	Net income (loss) attributable to Nelnet, Inc.	$	12,224	23,540	107,622	(968)	(18,823)	—	123,598

Total assets as of September 30, 2020		$	211,726	382,608	305,276	20,686,478	—	770,621	(134,183)	22,222,526
Total assets as of March 31, 2021											Total assets as of March 31, 2021	$	191,910	372,315	20,367,532	296,908	1,148,560	(210,017)	22,167,208

~~(a) Nelnet Bank launched operations on November 2, 2020. Accordingly, there are no operating results for the Nelnet Bank operating segment in the three months ended September 30, 2020.~~

Nine months ended September 30, 2021
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset
Generation and
Management Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 95 818 — 388,149 5,479 5,379 (578) 399,341
Interest expense 70 — — 124,282 1,007 3,158 (578) 127,939
Net interest income 25 818 — 263,867 4,472 2,221 — 271,402
Less provision (negative provision) for loan losses — — — (11,225) 378 — — (10,847)
Net interest income after provision for loan losses 25 818 — 275,092 4,094 2,221 — 282,249
Other income/expense:
Loan servicing and systems revenue 335,961 — — — — — — 335,961
Intersegment revenue 25,369 9 — — — — (25,378) —
Education technology, services, and payment processing revenue — 257,284 — — — — — 257,284
Communications revenue — — — — — — — —
Other 2,541 13 — (4,514) 475 31,668 — 30,183
Gain on sale of loans — — — 18,715 — — — 18,715
Impairment expense and provision for beneficial interests, net (13,243) — — 2,436 — (1,416) — (12,223)
Derivative settlements, net — — — (15,587) — — — (15,587)
Derivative market value adjustments, net — — — 44,455 — — — 44,455
Total other income/expense 350,628 257,306 — 45,505 475 30,252 (25,378) 658,788
Cost of services:
Cost to provide education technology, services, and payment processing services — 80,063 — — — — — 80,063
Cost to provide communications services — — — — — — — —
Total cost of services — 80,063 — — — — — 80,063
Operating expenses:
Salaries and benefits 210,151 82,154 — 1,594 3,956 65,496 — 363,351
Depreciation and amortization 20,411 8,789 — — — 26,927 — 56,129
Other expenses 39,296 14,063 — 12,763 1,227 40,265 — 107,611
Intersegment expenses, net 52,241 10,856 — 25,627 72 (63,419) (25,378) —
Total operating expenses 322,099 115,862 — 39,984 5,255 69,269 (25,378) 527,091
Income (loss) before income taxes 28,554 62,199 — 280,613 (686) (36,796) — 333,883
Income tax (expense) benefit (b) (6,853) (14,928) — (67,347) 151 12,230 — (76,747)
Net income (loss) 21,701 47,271 — 213,266 (535) (24,566) — 257,136
Net loss (income) attributable to noncontrolling interests — — — — — 3,467 — 3,467
Net income (loss) attributable to Nelnet, Inc. $ 21,701 47,271 — 213,266 (535) (21,099) — 260,603
Total assets as of September 30, 2021 $ 238,602 415,178 — 20,001,997 413,155 1,740,060 (406,253) 22,402,739

Nine months ended September 30, 2020
Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset
Generation and
Management Nelnet Bank (a) Corporate and Other Activities Eliminations Total
Total interest income $ 403 2,777 — 474,468 — 4,397 (1,228) 480,818
Interest expense 97 54 — 275,492 — 3,373 (1,228) 277,788
Net interest income 306 2,723 — 198,976 — 1,024 — 203,030
Less provision (negative provision) for loan losses — — — 73,476 — — — 73,476
Net interest income after provision for loan losses 306 2,723 — 125,500 — 1,024 — 129,554
Other income/expense:
Loan servicing and systems revenue 337,571 — — — — — — 337,571
Intersegment revenue 27,878 17 — — — — (27,895) —
Education technology, services, and payment processing revenue — 217,100 — — — — — 217,100
Communications revenue — — 57,390 — — — — 57,390
Other 6,897 373 1,256 4,951 — 56,435 — 69,910
Gain on sale of loans — — — 33,023 — — — 33,023
Impairment expense and provision for beneficial interests, net — — — (26,303) — (8,116) — (34,419)
Derivative settlements, net — — — 7,666 — — — 7,666
Derivative market value adjustments, net — — — (21,072) — — — (21,072)
Total other income/expense 372,346 217,490 58,646 (1,735) — 48,319 (27,895) 667,169
Cost of services:
Cost to provide education technology, services, and payment processing services — 63,424 — — — — — 63,424
Cost to provide communications services — — 17,240 — — — — 17,240
Total cost of services — 63,424 17,240 — — — — 80,664
Operating expenses:
Salaries and benefits 211,806 73,678 16,471 1,301 — 61,964 — 365,220
Depreciation and amortization 27,941 7,115 32,482 — — 19,811 — 87,349
Other expenses 43,277 11,544 9,681 12,253 — 38,428 — 115,184
Intersegment expenses, net 48,069 10,366 1,650 29,839 — (62,030) (27,895) —
Total operating expenses 331,093 102,703 60,284 43,393 — 58,173 (27,895) 567,753
Income (loss) before income taxes 41,559 54,086 (18,878) 80,372 — (8,830) — 148,306
Income tax (expense) benefit (9,974) (12,981) 4,531 (19,289) — 7,426 — (30,286)
Net income (loss) 31,585 41,105 (14,347) 61,083 — (1,404) — 118,020
Net loss (income) attributable to noncontrolling interests — — — — — (568) — (568)
Net income (loss) attributable to Nelnet, Inc. $ 31,585 41,105 (14,347) 61,083 — (1,972) — 117,452
Total assets as of September 30, 2020 $ 211,726 382,608 305,276 20,686,478 — 770,621 (134,183) 22,222,526

~~(a) Nelnet Bank launched operations on November 2, 2020. Accordingly, there are no operating results for the Nelnet Bank operating segment in the nine months ended September 30, 2020.~~

2822

~~11.~~10. Disaggregated Revenue

The following tables provides disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating ~~segments (except ALLO).~~segments.

Loan Servicing and Systems

Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Government servicing - Nelnet $ 37,595 36,295 107,843 112,305
Government servicing - Great Lakes 46,489 45,350 133,654 137,010
Private education and consumer loan servicing 13,198 7,928 34,563 24,733
FFELP servicing 4,557 4,912 13,930 15,443
Software services 6,952 10,426 22,779 32,395
Outsourced services 3,560 8,883 23,192 15,685
Loan servicing and systems revenue $ 112,351 113,794 335,961 337,571


	Three months ended March 31,
	2022		2021
Government servicing - Nelnet	$	61,049	34,872
Government servicing - Great Lakes	48,076		43,302
Private education and consumer loan servicing	12,873		8,548
FFELP servicing	4,248		4,670
Software services	7,400		8,454
Outsourced services and other	2,722		11,671
Loan servicing and systems revenue	$	136,368	111,517

Education Technology, Services, and Payment Processing

Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Tuition payment plan services $ 23,618 22,477 79,706 77,011
Payment processing 39,852 35,420 97,898 88,329
Education technology and services 21,098 15,840 78,153 50,820
Other 756 384 1,527 940
Education technology, services, and payment processing revenue $ 85,324 74,121 257,284 217,100


	Three months ended March 31,
	2022		2021
Tuition payment plan services	$	30,716	29,550
Payment processing	38,071		33,038
Education technology and services	43,251		32,527
Other	248		143
Education technology, services, and payment processing revenue	$	112,286	95,258

Other Income/Expense

The following table provides the components of "other" in "other income/expense" on the consolidated statements of income:

Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Income/gains from investments, net $ 16,050 1,687 40,141 51,772
Investment advisory services 2,400 4,463 6,242 8,187
ALLO preferred return 2,043 — 6,384 —
Management fee revenue 727 2,353 2,541 6,897
Borrower late fee income 514 871 1,698 4,377
Loss from ALLO voting membership interest investment (10,495) — (31,620) —
Loss from solar investments (3,393) (11,839) (7,375) (12,638)
(Loss) gain on debt repurchased (3,268) 105 (3,964) 508
Other 7,289 3,862 16,136 10,807
$ 11,867 1,502 30,183 69,910


	Three months ended March 31,
	2022		2021
Income/gains from investments, net	$	11,856	8,498
Borrower late fee income	2,431		442
ALLO preferred return	2,117		2,321
Investment advisory services	1,282		2,697
Negative provision for beneficial interests investment	—		2,436
Loss from ALLO voting membership interest investment	(13,130)		(22,219)
Loss from solar investments	(1,030)		(1,679)


Other	6,351		5,336
	$	9,877	(2,168)

~~12.~~11. Major Customer

Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc. ("Great Lakes"), subsidiaries of the Company, each earn loan servicing revenue from a servicing contract with the ~~Department of Education (the "Department").~~Department. Revenues earned by Nelnet Servicing and Great Lakes related to these contracts are set forth in the "Government servicing - Nelnet" and "Government servicing - Great Lakes" line items of the "Loan Servicing and Systems" table in note ~~11. As of September 30, 2021,~~ 10.

Nelnet ~~Servicing~~Servicing's and Great ~~Lakes serviced 5.8 million and 7.8 million borrowers, respectively, under their contracts with the Department.~~

~~In June 2021, Nelnet Servicing and Great Lakes each received a contract modification from the Department pursuant to which the Department exercised its option to extend the~~Lakes' student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes from June 14, 2021 through December 14, 2021. In September 2021, Nelnet Servicing and Great Lakes each entered into contract amendments with the Department ~~pursuant~~are scheduled to ~~which the student loan servicing contracts were extended from~~expire on December 14, ~~2021 through December 14,~~ 2023.

In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance. ~~Nelnet~~The Company cannot predict the timing, nature, or ultimate outcome of ~~the~~ NextGen or any other contract procurement process by the Department.

~~13.~~12. 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, 2021			As of December 31, 2020			As of March 31, 2022					As of December 31, 2021
		Level 1		Level 2	Total	Level 1	Level 2		Total		Level 1		Level 2	Total	Level 1	Level 2	Total
Assets:	Assets:									Assets:
Investments:	Investments:									Investments:
FFELP loan asset-backed debt securities - available-for-sale	FFELP loan asset-backed debt securities - available-for-sale	$	—	403,660	403,660	—	346,502		346,502	FFELP loan asset-backed debt securities - available-for-sale	$	—	517,069	517,069	—	494,682	494,682
Private education loan asset-backed debt securities - available-for-sale	Private education loan asset-backed debt securities - available-for-sale	—		371,724	371,724	—	—		—	Private education loan asset-backed debt securities - available-for-sale	—		371,885	371,885	—	412,552	412,552
Other debt securities - available-for-sale	Other debt securities - available-for-sale	100		2,237	2,337	103	2,002		2,105	Other debt securities - available-for-sale	100		49,132	49,232	100	22,335	22,435
Equity securities ~~(a)~~	Equity securities ~~(a)~~	61,573		—	61,573	10,114	—		10,114	Equity securities ~~(a)~~	59,943		—	59,943	63,154	—	63,154
Equity securities measured at net asset value ~~(b)~~(a)	Equity securities measured at net asset value ~~(b)~~(a)				8,471				31,927	Equity securities measured at net asset value ~~(b)~~(a)				11,755			8,832

Total investments	Total investments	61,673		777,621	847,765	10,217	348,504		390,648	Total investments	60,043		938,086	1,009,884	63,254	929,569	1,001,655

Total assets	Total assets	$	61,673	777,621	847,765	10,217	348,504		390,648	Total assets	$	60,043	938,086	1,009,884	63,254	929,569	1,001,655

(a) As of September 30, 2021, $41.6 million and $20.0 million of equity securities were classified as trading and available-for-sale, respectively. All equity securities as of December 31, 2020 were classified as available-for-sale.

~~(b)~~ 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.

The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets:


		As of September 30, 2021							As of March 31, 2022
		Fair value		Carrying value	Level 1	Level 2	Level 3		Fair value		Carrying value	Level 1	Level 2	Level 3
Financial assets:	Financial assets:							Financial assets:
Loans receivable	Loans receivable	$	19,690,209	18,469,372	—	—	19,690,209	Loans receivable	$	17,656,032	16,846,802	—	—	17,656,032
Accrued loan interest receivable	Accrued loan interest receivable	834,831		834,831	—	834,831	—	Accrued loan interest receivable	774,774		774,774	—	774,774	—
Cash and cash equivalents	Cash and cash equivalents	191,936		191,936	191,936	—	—	Cash and cash equivalents	162,785		162,785	162,785	—	—
Investments (at fair value)	Investments (at fair value)	847,765		847,765	61,673	777,621	—	Investments (at fair value)	1,009,884		1,009,884	60,043	938,086	—

Beneficial interest in loan securitizations	Beneficial interest in loan securitizations	127,364		108,827	—	—	127,364	Beneficial interest in loan securitizations	145,623		130,354	—	—	145,623
Restricted cash	Restricted cash	764,089		764,089	764,089	—	—	Restricted cash	757,954		757,954	757,954	—	—
Restricted cash – due to customers	Restricted cash – due to customers	295,053		295,053	295,053	—	—	Restricted cash – due to customers	256,927		256,927	256,927	—	—

Financial liabilities:	Financial liabilities:							Financial liabilities:
Bonds and notes payable	Bonds and notes payable	18,854,255		18,610,748	—	18,854,255	—	Bonds and notes payable	16,705,877		16,736,701	—	16,705,877	—
Accrued interest payable	Accrued interest payable	4,441		4,441	—	4,441	—	Accrued interest payable	7,216		7,216	—	7,216	—
Bank deposits	Bank deposits	199,372		200,651	42,585	156,787	—	Bank deposits	469,559		484,047	189,319	280,240	—
Due to customers	Due to customers	354,543		354,543	354,543	—	—	Due to customers	276,191		276,191	276,191	—	—


		As of December 31, 2020							As of December 31, 2021
		Fair value		Carrying value	Level 1	Level 2	Level 3		Fair value		Carrying value	Level 1	Level 2	Level 3
Financial assets:	Financial assets:							Financial assets:
Loans receivable	Loans receivable	$	20,454,132	19,391,045	—	—	20,454,132	Loans receivable	$	18,576,272	17,546,645	—	—	18,576,272
Accrued loan interest receivable	Accrued loan interest receivable	794,611		794,611	—	794,611	—	Accrued loan interest receivable	788,552		788,552	—	788,552	—
Cash and cash equivalents	Cash and cash equivalents	121,249		121,249	121,249	—	—	Cash and cash equivalents	125,563		125,563	125,563	—	—
Investments (at fair value)	Investments (at fair value)	390,648		390,648	10,217	348,504	—	Investments (at fair value)	1,001,655		1,001,655	63,254	929,569	—

Beneficial interest in loan securitizations	Beneficial interest in loan securitizations	58,709		58,331	—	—	58,709	Beneficial interest in loan securitizations	142,391		120,142	—	—	142,391
Restricted cash	Restricted cash	553,175		553,175	553,175	—	—	Restricted cash	741,981		741,981	741,981	—	—
Restricted cash – due to customers	Restricted cash – due to customers	283,971		283,971	283,971	—	—	Restricted cash – due to customers	326,645		326,645	326,645	—	—

Financial liabilities:	Financial liabilities:							Financial liabilities:
Bonds and notes payable	Bonds and notes payable	19,270,810		19,320,726	—	19,270,810	—	Bonds and notes payable	17,819,902		17,631,089	—	17,819,902	—
Accrued interest payable	Accrued interest payable	28,701		28,701	—	28,701	—	Accrued interest payable	4,566		4,566	—	4,566	—
Bank deposits	Bank deposits	54,599		54,633	48,422	6,177	—	Bank deposits	342,463		344,315	184,897	157,566	—
Due to customers	Due to customers	301,471		301,471	301,471	—	—	Due to customers	366,002		366,002	366,002	—	—

The methodologies for estimating the fair value of financial assets and liabilities are described in note 22 of the notes to consolidated financial statements included in the ~~2020~~2021 Annual Report.

3124

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, 2021~~March 31, 2022 and ~~2020.~~2021. 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 ~~2020~~2021 Annual Report.

Forward-looking and cautionary statements

This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “continue,” “could,” “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 ~~2020~~2021 Annual Report, the "Risk Factors" section of this report, and elsewhere in this report, and include such risks and uncertainties as:

•risks and uncertainties related to the severity, magnitude, and duration of the coronavirus disease 2019 (“COVID-19”) pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;

•risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contracts accounted for 2729 percent of the Company's revenue in ~~2020,~~2021, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the pending and uncertain nature of the Department's procurement process, ~~(under which awards of new contracts have been made to other service providers),~~ risks that the Company may not be successful in obtaining any of such potential new contracts, 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 interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the FFEL Program, 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, and consumer loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of loan prepayment or default rates;

•financing and liquidity risks, including risks of changes in the ~~general~~ interest rate environment, ~~including the availability of any relevant money market index rate~~ such as ~~LIBOR or~~risks from the ~~relationship between the relevant money market index rate~~recent increases in interest rates resulting from inflationary pressures and the transition from LIBOR to an alternative reference rate, ~~at which the Company's assets and liabilities are priced,~~ and changes in the securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment trends on student loans in the Company's securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;

•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, such as changes resulting from the

Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP loan interest income due to the discontinuation of new FFELP loan originations in 2010 and ~~potential~~ government initiatives or proposals to consolidate existing FFELP loans to ~~the~~ Federal Direct Loan Program loans, otherwise encourage or allow

FFELP loans to be refinanced with Federal Direct Loan Program loans, and/or create additional loan forgiveness or broad debt cancellation programs;

•risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to ~~the potential~~a disclosure of confidential loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;

•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 ~~and to~~from its continuing investment in ALLO ~~Communications~~Holdings, LLC (referred to collectively with its ~~holding company~~subsidiary ALLO ~~Holdings,~~Communications LLC as ~~“ALLO”~~"ALLO") ~~from the recapitalization and additional funding for ALLO and the Company’s continuing investment in 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, such as the completed and potential additional transactions associated with the sale by Wells Fargo of its private education loan portfolio for which the Company was selected as the new servicer (including risks associated with errors that occasionally occur in converting loan servicing portfolio acquisitions to a new servicing platform, and uncertainties associated with expected income from the joint venture that purchased the Wells Fargo portfolio), 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, including extreme weather events and related natural disasters, which could result in increased loan portfolio credit risks and other asset and operational risks, as well as risks and uncertainties associated with efforts to address 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, reputational and other risks, including the risk of increased regulatory costs resulting from the politicization of student loan servicing, ~~potential changes to corporate tax rates,~~ and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.

All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by law.

3326

OVERVIEW

The Company is a diverse, innovative company with a purpose to serve others and a vision to make ~~customers'~~ dreams ~~possible by delivering customer focused products and services.~~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 ~~real estate,~~ early-stage and emerging growth companies, real estate, and renewable ~~energy.~~energy (solar). The Company is also actively expanding its private education and consumer 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 ~~U.S.~~ 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 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,			Three months ended March 31,
		2021		2020	2021	2020		2022		2021
GAAP net income attributable to Nelnet, Inc.	GAAP net income attributable to Nelnet, Inc.	$	53,138	71,503	260,603	117,452	GAAP net income attributable to Nelnet, Inc.	$	186,647	123,598
Realized and unrealized derivative market value adjustments	Realized and unrealized derivative market value adjustments	(7,260)		(3,440)	(44,455)	21,072	Realized and unrealized derivative market value adjustments	(145,734)		(38,809)
Tax effect (a)	Tax effect (a)	1,742		826	10,669	(5,057)	Tax effect (a)	34,976		9,314
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	47,620	68,889	226,817	133,467	Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	75,889	94,103

Earnings per share:	Earnings per share:						Earnings per share:
GAAP net income attributable to Nelnet, Inc.	GAAP net income attributable to Nelnet, Inc.	$	1.38	1.86	6.74	2.99	GAAP net income attributable to Nelnet, Inc.	$	4.91	3.20
Realized and unrealized derivative market value adjustments	Realized and unrealized derivative market value adjustments	(0.19)		(0.09)	(1.15)	0.54	Realized and unrealized derivative market value adjustments	(3.83)		(1.01)
Tax effect (a)	Tax effect (a)	0.04		0.02	0.28	(0.13)	Tax effect (a)	0.91		0.25
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	1.23	1.79	5.87	3.40	Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	1.99	2.44

(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. 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.

3427

~~GAAP net income decreased for~~Operating Segments

The Company's reportable operating segments are described in note 1 of the ~~three months ended September 30,~~notes to consolidated financial statements included in the 2021 ~~compared to the same period in 2020 primarily due to the following factors:~~Annual Report. They include:

•~~The recognition of a $14.8 million ($11.3 million after tax) gain from the sale of consumer loans in 2020;~~Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS")

•The impairment of certain Company owned buildings and operating lease assets of $14.2 million ($10.8 million after tax) during 2021 due to continued evaluation of office space needs as employees continue to work from home due to COVID-19;

•~~The recognition of a net loss of $8.5 million ($6.4 million after tax) during 2021 related to the Company's investments in ALLO; and~~

•The recognition of a provision for loan losses on the Company's loan portfolio of $5.8 million ($4.4 million after tax) in the third quarter of 2021 compared to a negative provision for loan losses of $5.8 million ($4.4 million after tax) in the third quarter of 2020.

~~These factors were partially offset by the following items:~~

•~~The recognition of net investment gains and income of $16.1 million ($12.2 million after tax) on certain venture capital, real estate, and other investments during 2021;~~

•~~A decrease of $8.4 million ($6.4 million after tax) in losses from solar investments in 2021 as compared to 2020; and~~

•~~The recognition of a net loss by ALLO of $4.5 million ($3.5 million after tax) during 2020, prior to the deconsolidation of ALLO in December 2020.~~

~~GAAP net income increased for the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to the following factors:~~

•The recognition of $97.1 million ($73.8 million after tax) of certain expenses during the first quarter of 2020 as a result of the COVID-19 pandemic, consisting of the recognition of an incremental provision for loan losses of $63.0 million ($47.9 million after tax), provision expense of $26.3 million ($20.0 million after tax) related to the Company's investment in certain consumer loan beneficial interest securitizations, and $7.8 million ($5.9 million after tax) impairment expense on certain venture capital investments;

•Net income of $44.5 million ($33.8 million after tax) related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2021 as compared to a net loss of $21.1 million ($16.0 million after tax) in 2020;

•~~The recognition of net investment gains of $40.1 million ($30.5 million after tax) on certain venture capital, real estate, and other investments during 2021;~~

•A decrease of $23.8 million ($18.1 million after tax) in interest expense during the first quarter of 2021 as a result of the Company reversing a historical accrued interest liability on certain bonds (initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013), which liability the Company determined is no longer probable of being required to be paid;

•~~The recognition of a net loss by ALLO of $18.9 million ($14.3 million after tax) during 2020, prior to the deconsolidation of ALLO in December 2020;~~

•~~The recognition of $18.7 million ($14.2 million after tax) of gains from the sale of loans during 2021;~~

•An increase of $17.5 million ($13.3 million after tax) in net interest income due to improved loan spread (including derivative settlements) on the Company's loan portfolio in 2021 as compared to 2020, including an increase in fixed rate floor income;

•The recognition of a $10.8 million ($8.2 million after tax) negative provision for loan losses on the Company's loan portfolio during 2021 as a result of management's estimate of certain continued improved economic conditions as compared to a provision expense (excluding the incremental provision for loan losses related to COVID-19) of $10.4 million ($7.9 million after tax) during 2020;

•~~An increase of $8.3 million ($6.3 million after tax) in investment interest income in 2021 as compared to 2020 primarily from AGM's beneficial interest investments; and~~

•~~An increase in net income during 2021 as compared to 2020 of $8.1 million ($6.2 million after tax) from the~~ Education Technology, Services, and Payment Processing ~~operating segment.~~

~~These factors were partially offset by the following items:~~

•~~The recognition of a $51.0 million ($38.8 million after tax) gain in the second quarter of 2020~~("ETS&PP") - referred to ~~adjust the carrying value of the Company's investment in Hudl to reflect Hudl's May 2020 equity raise transaction value;~~as Nelnet Business Services ("NBS")

•~~The recognition of $33.0 million ($25.1 million after tax) of gains from the sale of consumer loans during 2020;~~

•~~The recognition of a net loss of $25.2 million ($19.2 million after tax) during 2021 related to the Company's investments in ALLO;~~Asset Generation and Management ("AGM")

•A decrease of $6.6 million ($5.0 million after tax) in net interest income due to the decrease in the average balance of loans during 2021 as compared to 2020 as a result of the amortization of the FFELP loan portfolio.

~~Operating Results~~

The Company earns fee-based revenue through its NDS and NBS operating segments. The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its ~~Asset Generation and Management ("AGM")~~AGM operating segment. This segment is expected to generate ~~a stable net interest margin and~~ significant amounts of cash as the FFELP portfolio amortizes. ~~As of September 30, 2021, AGM had a $18.4 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.3 years.~~ The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow.

~~In addition, the Company earns fee-based revenue through the following reportable operating segments:~~

•Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS"), which includes the operations of Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc. ("Great Lakes")

•~~Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Services ("NBS")~~

Further, the Company earned communications revenue through ALLO, formerly a majority owned subsidiary of the Company prior to a recapitalization of ALLO resulting in the deconsolidation of ALLO from the Company’s financial statements on December 21, 2020. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating segment.

On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation ("FDIC") and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank operates as an internet ~~Utah-chartered~~ industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah. ~~Nelnet Bank’s operations are presented by the Company as a reportable operating segment.~~

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured and other corporate related debt transactions. In addition, the Corporate segment includes direct incremental costs associated with Nelnet Bank prior to the UDFI’s approval for its bank charter and certain shared service and support costs incurred by the Company that will not be reflected in Nelnet Bank’s operating results through 2023 (the bank’s de novo period). Such Nelnet Bank-related costs included in the Corporate segment totaled $0.8 million (pre-tax) and $1.3 million (pre-tax) for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million (pre-tax) and $3.8 million (pre-tax) for the nine months ended September 30, 2021 and 2020, respectively.

The information below provides the operating results (net income before taxes) for each reportable operating segment and Corporate and Other Activities for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020 (dollars in millions).~~2021. See "Results of Operations" for each reportable operating segment ~~(except ALLO)~~ under this Item 2 for additional detail.

~~LSS (a)~~

~~ETS&PP~~

~~ALLO (b)~~

~~AGM (c)~~

~~Bank (c)~~

~~(a) Revenue includes intersegment revenue.~~

(b) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021.

(c) Total revenue includes "net interest income" and "total other income/expense" from the Company's segment statements of income, excluding from AGM the impact from changes in fair values of derivatives. Net income (loss) excludes from AGM changes in fair values of derivatives, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.

~~COVID-19~~

Beginning in March 2020, the COVID-19 pandemic resulted in many businesses and schools closing or reducing hours throughout the U.S. to combat the spread of COVID-19, and states and local jurisdictions implementing various containment efforts, including lockdowns on non-essential business and other business restrictions, stay-at-home orders, and shelter-in-place orders. The COVID-19 pandemic caused significant disruption to the U.S. and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates, and extreme volatility in the U.S. and world markets.


	Three months ended March 31,
	2022		2021	Certain Items Impacting Comparability (All dollar amounts below are pre-tax)
NDS	$	12,094	16,084
NBS	33,113		30,974

AGM	213,429		141,609	•A net gain of $145.7 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in the first quarter of 2022 as compared to a net gain of $38.8 million for the same period in 2021 •An increase of $6.5 million in investment interest income in 2022 as compared to 2021 primarily from beneficial interest investments •A decrease of $23.8 million in interest expense during the first quarter of 2021 as a result of the Company reversing a historical accrued interest liability on certain bonds, which liability the Company determined is no longer probable of being required to be paid •The recognition of $17.5 million negative provision for loan losses on AGM’s loan portfolio in the first quarter of 2021, as compared to a negative provision of $0.9 million for the same period in 2022 •A decrease of $8.2 million in net interest income due to the decrease in the average balance of loans and the decrease in fixed rate floor income in the first quarter of 2022 as compared to 2021 •The recognition of $3.0 million on the sale of loans during the first quarter of 2022
Nelnet Bank	961		(1,254)
Corporate	(19,013)		(29,650)	•The recognition of a net loss of $13.1 million for the first quarter of 2022 related to the Company’s investment in ALLO, as compared to a net loss of $22.2 million for the same period in 2021
Net income before taxes	240,583		157,765
Income tax expense	(55,697)		(34,861)
Net loss attributable to noncontrolling interests	1,761		694
Net income	$	186,647	123,598

3728

~~While~~Recent Developments

On April 19, 2022, the Department issued a press release, and the Department’s Office of Federal Student Aid (“FSA”) posted a related public announcement, which together announced, among other things, several adjustments, updates, and other changes under income-driven repayment (“IDR”) plans for federal student loans. In the announcements, the Department and FSA indicated that as part of these changes, any borrower with loans that have accumulated time in repayment, including time in certain ~~COVID-19 vaccines~~forbearances and deferments, of at least 20 or 25 years will see automatic forgiveness, even if the borrower is not currently in an IDR plan, and that if a borrower has a commercially held FFEL Program loan, the borrower can only benefit from these changes if they consolidate their FFEL Program loan to a Federal Direct Loan Program loan before the Department completes implementation of these changes, which the Department estimates to be no sooner than January 1, 2023. The Company currently believes these announced changes could significantly increase FFEL Program loan prepayments.

A significant increase in FFEL Program loan prepayments could have ~~been approved and have become widely available for use~~a materially adverse impact in future periods on the Company’s net interest income in its AGM operating segment, FFELP servicing revenue in the ~~U.S.,~~Company’s LSS operating segment, investment advisory services revenue earned by the Company’s SEC-registered investment advisor subsidiary (Whitetail Rock Capital Management, LLC) on FFELP loan asset-backed securities under management, and interest income earned on the Company’s FFELP loan asset-backed securities investments. In addition, student loan forgiveness under the Federal Direct Loan Program as a result of the changes described in the announcements could have a materially adverse impact on future revenue earned by the LSS operating segment under the Company’s government servicing contracts, including software services revenue earned by the Company in providing remote hosted services to other government servicers.

See Part II, Item 1A, “Risk Factors” in this report for additional information.

Impact of COVID-19

The COVID-19 pandemic is unprecedented and has had a significant ~~uncertainties remain, including with respect~~impact on the economic environment globally and in the U.S. There is uncertainty as to the ~~effectiveness of vaccines against existing~~length and ~~new variant strains~~breadth of the ~~virus which could be vaccine resistant,~~impact to the ~~potential impacts of variations in vaccination rates among different geographical areas~~U.S. economy and, ~~demographic segments, emerging targeted vaccine mandates, and booster vaccines, and~~consequently, on the ~~potential for additional future spikes in infection rates including through breakthrough infections among the fully vaccinated.~~Company. As a ~~result, although~~related matter, on April 6, 2022, the ~~economy has improved since~~Department announced that the suspension under the CARES Act on federal student loan payments and interest accruals on all loans owned by the Department was extended through August 31, 2022.

For a further overview discussion of the impact of the COVID-19 pandemic ~~began, it is still uncertain when or if economic activity~~on the Company, see Part II, Item 7. "Management's Discussion and ~~business operations at pre-pandemic levels for~~Analysis of Financial Condition and Results of Operations - Overview - Recent Transactions/Developments - COVID-19" in the ~~Company's customers will resume.~~2021 Annual Report. In addition, ~~a significant number of~~for an additional discussion regarding the Company's employees continue to work from home, either full-time or dividing their work days between working from home and working in the office as the Company has offered employees flexibility in the amount of time they work in recently re-opened offices. During the third quarter of 2021, the Company evaluated the use of office space due torisks associated with COVID-19, ~~and recorded an impairment charge on certain real estate assets of $14.2 million.~~

~~The results of operations discussion below should be read in conjunction with the Company’s 2020 Annual Report, including the information included in “Risk~~see Part I, Item 1A. "Risk Factors –- Operations –- The COVID-19 pandemic has adversely impacted our results of operations, and ~~is expected to continue to~~either directly or indirectly through impacts on economic conditions or government policy could adversely impact our results of operations, ~~as well as adversely impact our~~ businesses, financial condition, and/or cash ~~flows” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Impacts of COVID-19 Pandemic.”~~flows going forward." in the 2021 Annual Report.

3829

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's consolidated operating results for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 compared to the same ~~periods~~period in ~~2020~~2021 is provided below.

The Company’s operating results are primarily driven by the performance of its existing loan portfolio and the revenues generated by its fee-based businesses and the costs to provide such services. The performance of the Company’s portfolio is driven by net interest income (which includes financing costs) and losses related to credit quality of the assets, along with the cost to administer and service the assets and related debt.

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 109 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 (except for ALLO, which was deconsolidated from the Company's consolidated financial statements in December 2020).~~basis.


		Three months ended			Nine months ended				Three months ended
		September 30,			September 30,				March 31,
		2021		2020	2021	2020	Additional information		2022		2021	Additional information
Loan interest	Loan interest	$	124,096	134,507	370,219	462,439	Decrease was due primarily to decreases in the gross yield earned on loans and the average balance of loans, partially offset by an increase in gross fixed rate floor income during the nine months ended September 30, 2021 due to lower interest rates in 2021 as compared to 2020.	Loan interest	$	111,377	124,117	Decrease was due primarily to a decrease in the average balance of loans and in gross fixed rate floor income, partially offset by an increase in the gross yield earned on loans in 2022 as compared to 2021.
Investment interest	Investment interest	12,558		5,238	29,122	18,379	Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Increase was due to interest income earned on loan beneficial interest investments, partially offset by a decrease in interest rates in 2021 as compared to 2020.	Investment interest	13,819		4,986	Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Increase was due to interest income earned on loan beneficial interest investments and an increase in interest rates in 2022 as compared to 2021.
Total interest income	Total interest income	136,654		139,745	399,341	480,818		Total interest income	125,196		129,103
Interest expense	Interest expense	50,176		58,423	127,939	277,788	Decrease was due primarily to a decrease in cost of funds and a decrease in the average balance of debt outstanding. In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013.	Interest expense	48,079		27,773	During the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds. which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. Excluding this reduction, interest expense decreased in 2022 as compared to 2021. This decrease was due to a decrease in the average balance of debt outstanding, partially offset by an increase in cost of funds.
Net interest income	Net interest income	86,478		81,322	271,402	203,030		Net interest income	77,117		101,330
Less provision (negative provision) for loan losses		5,827		(5,821)	(10,847)	73,476	During the first quarter of 2020, the Company recognized an incremental provision of $63.0 million as a result of an increase in expected defaults due to the COVID-19 pandemic. During the third quarter of 2020, the Company recognized negative provision of $5.8 million due to management's estimate of improved economic conditions. The Company recognized a negative provision of $17.0 million in the first quarter of 2021 due to management's estimate of improved economic conditions as of March 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. Provision expense recognized for the three months ended September 30, 2021 represents provision primarily for new loans originated and acquired during the period.
Less negative provision for loan losses								Less negative provision for loan losses	(435)		(17,048)	The Company recorded a negative provision for loan losses for its federally insured loan portfolio for the three months ended March 31, 2022 due to the amortization of the portfolio and an increase in expected prepayments as a result of an initiative offered by the Department for FFELP borrowers to consolidate their loans into Federal Direct Loan Program loans with the Department by October 31, 2022 to qualify for loan forgiveness under the Public Service Loan Forgiveness program. This negative provision was partially offset by the Company recording a provision for loan losses for loans acquired and originated during the period. The Company recorded a negative provision for loan losses for the three months ended March 31, 2021 due to management's estimate of certain improved economic conditions as of March 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. The negative provision recorded during the first quarter of 2021 was partially offset by the Company recording a provision expense for loans originated and acquired during the period as well as recording additional provision expense for its private education loan portfolio as a result of an increase of loans in forbearance.
Net interest income after provision for loan losses	Net interest income after provision for loan losses	80,651		87,143	282,249	129,554		Net interest income after provision for loan losses	77,552		118,378
Other income/expense:	Other income/expense:							Other income/expense:
LSS revenue	LSS revenue	112,351		113,794	335,961	337,571	See LSS operating segment - results of operations.	LSS revenue	136,368		111,517	See LSS operating segment - results of operations.
ETS&PP revenue	ETS&PP revenue	85,324		74,121	257,284	217,100	See ETS&PP operating segment - results of operations.	ETS&PP revenue	112,286		95,258	See ETS&PP operating segment - results of operations.
Communications revenue		—		20,211	—	57,390	As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.

Other	Other	11,867		1,502	30,183	69,910	See table below for the components of "other."	Other	9,877		(2,168)	See table below for the components of "other."
Gain on sale of loans	Gain on sale of loans	3,444		14,817	18,715	33,023	On May 14, 2021 and September 29, 2021, the Company sold $77.4 million (par value) and $18.4 million (par value) of consumer loans, respectively, to an unrelated third party and recognized a gain of $15.3 million (pre-tax) and $3.2 million (pre-tax), respectively. The Company also sold $124.2 million (par value) and $60.8 million (par value) of consumer loans in January 2020 and July 2020, respectively, and recognized gains of $18.2 million and $14.8 million, respectively.	Gain on sale of loans	2,989		—	On January 26, 2022, the Company sold $18.1 million (par value) of consumer loans to an unrelated third party and recognized a gain of $3.0 million.

Impairment expense and provision for beneficial interests, net		(14,159)		—	(12,223)	(34,419)	During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded an impairment charge during the third quarter of 2021 of $14.2 million. The impairment charge related primarily to building and operating lease assets. During the first quarter of 2020, the Company recognized impairments of $26.3 million and $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively. Such impairments were the result of estimated impacts from the COVID-19 pandemic. During the first quarter of 2021, the Company reversed the remaining allowance of $2.4 million related to the beneficial interest in consumer loan securitizations due to continued improved economic conditions.
Derivative settlements, net								Derivative settlements, net	(2,809)		(4,304)	The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See AGM operating segment - results of operations.
Derivative market value adjustments, net								Derivative market value adjustments, net	145,734		38,809	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 related to the changes in fair value of the Company's floor income interest rate swaps. An increase in the forward yield curve during the three months ended March 31, 2022 and 2021 resulted in an increase in the fair value of such swaps.
Total other income/expense								Total other income/expense	404,445		239,112
Cost of services:								Cost of services:
Cost to provide education technology, services, and payment processing services								Cost to provide education technology, services, and payment processing services	35,545		27,052	Represents primarily direct costs to provide payment processing and instructional services in the ETS&PP operating segment. Increase in 2022 compared to 2021 was primarily due to additional instructional services costs. See ETS&PP operating segment - results of operations.

Total cost of services								Total cost of services	35,545		27,052

3930

Derivative settlements, net (5,909) (2,391) (15,587) 7,666 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See AGM operating segment - results of operations.
Derivative market value adjustments, net 7,260 3,440 44,455 (21,072) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the three and nine months ended September 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.
Total other income/expense 200,178 225,494 658,788 667,169
Cost of services:
Cost to provide education technology, services, and payment processing services 31,335 25,243 80,063 63,424 Represents primarily direct costs to provide payment processing and instructional services in the ETS&PP operating segment. Increase in 2021 compared to 2020 was primarily due to additional instructional services costs.
Cost to provide communications services — 5,914 — 17,240 As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.
Total cost of services 31,335 31,157 80,063 80,664
Operating expenses:
Salaries and benefits 128,592 126,096 363,351 365,220 Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to an increase in headcount in the (i) LSS operating segment as the Company prepares for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022; and (ii) ETS&PP operating segment to support the growth of its customer base, the investment in the development of new technologies, and businesses it acquired in December 2020. These increases were partially offset by the deconsolidation of ALLO from the Company's consolidated financial statements. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to (i) a decrease in contact center operations and support personnel throughout the first half of 2021 in the LSS operating segment as a result of the suspension of federal student loan payments under the CARES Act; and (ii) the deconsolidation of ALLO from the Company's consolidated financial statements. These decreases were partially offset by an increase in expenses in the ETS&PP operating segment due to the items discussed above.
Depreciation and amortization 15,710 30,308 56,129 87,349 Decrease was primarily due to the deconsolidation of ALLO from the Company's consolidated financial statements on December 21, 2020, resulting in no ALLO depreciation expense for the Company in 2021.
Other expenses 38,324 34,744 107,611 115,184 Other expenses includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs. Increase in the three months ended September 30, 2021 as compared to the same period in 2020 was due to (i) an increase in expenses in the ETS&PP operating segment due to higher costs for consulting and professional fees due to investments in new technologies, an increase in travel and in-person conferences, and businesses it acquired in December 2020. These items were partially offset by the deconsolidation of ALLO in December 2020. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to (i) cost savings in the LSS segment from an increase in the adoption of electronic borrower statements and correspondence and a decrease in printing and postage while loan payments are suspended as a result of COVID-19 borrower relief efforts; and (ii) the deconsolidation of ALLO in December 2020. These items were partially offset by an increase in costs in the ETS&PP operating segment due to the items discussed above.
Total operating expenses 182,626 191,148 527,091 567,753
Income before income taxes 66,868 90,332 333,883 148,306
Income tax expense 15,649 19,156 76,747 30,286 The effective tax rate was 22.75% and 21.13% for the three months ended September 30, 2021 and 2020, respectively, and 22.75% and 20.50% for the nine months ended September 30, 2021 and 2020, respectively. The Company currently expects its effective tax rate for 2021 will range between 22 and 24 percent.
Net income 51,219 71,176 257,136 118,020
Net loss (income) attributable to noncontrolling interests 1,919 327 3,467 (568)
Net income attributable to Nelnet, Inc. $ 53,138 71,503 260,603 117,452


Operating expenses:
Salaries and benefits	149,414		115,791	Increase was due to an increase in headcount in the (i) LSS operating segment as the Company prepares for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on August 31, 2022; and (ii) ETS&PP operating segment to support the growth of its customer base and the investment in the development of new technologies.
Depreciation and amortization	16,956		20,184	Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions. Amortization of intangible assets for the three months ended March 31, 2022 and 2021 was $2.5 million and $8.4 million, respectively. The decrease in the amortization of intangibles during 2022 as compared to 2021 was due to the majority of intangible assets recorded from the acquisition of Great Lakes in February 2018 becoming fully amortized as of June 30, 2021.

Other expenses	39,499		36,698	Other expenses 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 (i) an increase in expenses in the LSS operating segment due to costs associated with Nelnet Renewable Energy activities and technology costs associated with the growth of borrowers under the government servicing contracts; and (ii) an increase in expenses in the ETS&PP operating segment due to higher costs for consulting, professional fees, and technology services resulting from investments in new technologies.
Total operating expenses	205,869		172,673
Income before income taxes	240,583		157,765
Income tax expense	55,697		34,861	The effective tax rate was 23% and 22% for the three months ended March 31, 2022 and 2021, respectively. The Company currently expects its effective tax rate for 2022 will range between 22 and 24 percent.
Net income	184,886		122,904
Net loss attributable to noncontrolling interests	1,761		694	Amounts for noncontrolling interests reflect the net income/loss attributable to the holders of minority membership interests in WRCM and multiple solar entities.
Net income attributable to Nelnet, Inc.	$	186,647	123,598

The following table summarizes the components of "other" in "other income/expense" on the consolidated statements of income.


		Three months ended September 30,			Nine months ended September 30,			Three months ended March 31,
		2021		2020	2021	2020		2022		2021
Income/gains from investments, net (a)	Income/gains from investments, net (a)	$	16,050	1,687	40,141	51,772	Income/gains from investments, net (a)	$	11,856	8,498
Investment advisory services (b)		2,400		4,463	6,242	8,187
Borrower late fee income (b)							Borrower late fee income (b)	2,431		442
ALLO preferred return (c)	ALLO preferred return (c)	2,043		—	6,384	—	ALLO preferred return (c)	2,117		2,321
Management fee revenue (d)		727		2,353	2,541	6,897
Borrower late fee income (e)		514		871	1,698	4,377
Investment advisory services (d)							Investment advisory services (d)	1,282		2,697
Negative provision for beneficial interests investment (e)							Negative provision for beneficial interests investment (e)	—		2,436
Loss from ALLO voting membership interest investment (f)	Loss from ALLO voting membership interest investment (f)	(10,495)		—	(31,620)	—	Loss from ALLO voting membership interest investment (f)	(13,130)		(22,219)
Loss from solar investments (g)	Loss from solar investments (g)	(3,393)		(11,839)	(7,375)	(12,638)	Loss from solar investments (g)	(1,030)		(1,679)
(Loss) gain on debt repurchased		(3,268)		105	(3,964)	508

Other	Other	7,289		3,862	16,136	10,807	Other	6,351		5,336
Other income	Other income	$	11,867	1,502	30,183	69,910	Other income	$	9,877	(2,168)

(a) During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, the Company recognized (pre-tax) realized and unrealized gains from certain real estate and venture capital investments of $4.4 million and $5.3 million, respectively. In addition, during 2022 the Company recognized income of $1.9 million from its investment in the joint venture that purchased the former Wells Fargo private education loan portfolio. During the three months ended March 31, 2021, the Company recognized (pre-tax) realized and unrealized gains from certain real estate and venture capital investments ~~including realized gains~~of $5.9 million and $2.5 million, respectively.

(b) Represents borrower late fees earned by the AGM operating segment. The increase in borrower late fees for the three months ended March 31, 2022 as compared to the same period in 2021 was due to the Company suspending substantially all borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic. The Company began to recognize borrower late fees again in May 2021 (for private education loans) and October 2021 (for federally insured student loans).

(c) Represents the Company's income on its preferred membership interests in ALLO, which was deconsolidated from the ~~sale~~Company's financial statements in December 2020. As of ~~certain real estate investments~~March 31, 2022, the amount of ~~$11.2 million and $22.2 million, respectively. During the second quarter of 2020,~~preferred membership interests held by the Company ~~recognized~~was $137.3 million, which earns a ~~$51.0 million (pre-tax) gain to adjust the carrying value~~preferred annual return of ~~its investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value.~~6.25 percent.

See the caption "Subsequent Events" in note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for information regarding investment-related events subsequent to September 30, 2021 which are expected to impact income from investments in the fourth quarter of 2021.

~~(b)~~(d) 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 earns annual fees of 10 basis points to 25 basis points on the majority of the outstanding balance of asset-backed securities under management and ~~up to 50 percent~~a share of the gains from the sale of asset-backed securities or asset-backed securities being called prior to the full contractual maturity for which it provides advisory services. As of ~~September 30, 2021,~~March 31, 2022, the outstanding balance of asset-backed securities under management subject to these arrangements was ~~$1.9 billion.~~$2.2 billion, of which all of such securities were FFELP student loan

asset-backed securities. In addition, WRCM earns annual management fees of five basis points for ~~certain other investments~~Nelnet stock under ~~management.~~management (with the Nelnet stock primarily shares of Class B common stock held in various trust estates).

~~(c) Represents~~(e) In the ~~Company's income on its preferred membership interests in ALLO, which was deconsolidated from the Company's financial statements in December 2020. As~~first quarter of ~~September 30,~~ 2021, ~~the amount of preferred membership interests held by~~due to improved economic conditions, the Company recorded a negative provision of $2.4 million related to its remaining allowance on a consumer loan securitization beneficial interest investment. Such allowance was ~~$129.7 million, which earns a preferred annual return of 6.25 percent.~~

~~(d) Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired~~initially recorded in ~~January 2021.~~

~~(e) Represents borrower late fees earned by the AGM operating segment. The decrease was due to the Company suspending borrower late fees effective~~ March ~~13,~~ 2020 ~~to provide borrowers relief~~ as a result of the COVID-19 pandemic.

(f) Represents the Company's share of loss on its voting membership interests in ALLO. See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information regarding the accounting for and income statement impact of this ~~investment during 2021.~~investment.

(g) Represents 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. Losses from solar investments in 2022 and 2021 include losses of $1.8 million and $0.6 million, respectively, attributable to third-party minority interest investors that are included in "net loss attributable to noncontrolling interests" in the consolidated statements of income.

4132

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Servicing Volumes

As of
December 31,
2019 March 31,
2020 June 30,
2020 September 30,
2020 December 31,
2020 March 31,
2021 June 30,
2021 September 30,
2021
Servicing volume (dollars in millions):
Nelnet Servicing:
Government $ 183,790 185,477 185,315 189,932 191,678 195,875 195,030 198,743
FFELP 33,185 32,326 31,392 31,122 30,763 30,084 29,361 28,244
Private and consumer 16,033 16,364 16,223 16,267 16,226 21,397 24,758 24,229
Great Lakes:
Government 239,980 243,205 243,609 249,723 251,570 257,806 257,420 262,311
Total $ 472,988 477,372 476,539 487,044 490,237 505,162 506,569 513,527
Number of servicing borrowers:
Nelnet Servicing:
Government 5,574,001 5,498,872 5,496,662 5,604,685 5,645,946 5,664,094 5,636,781 5,791,521
FFELP 1,478,703 1,423,286 1,370,007 1,332,908 1,300,677 1,233,461 1,198,863 1,150,214
Private and consumer 682,836 670,702 653,281 649,258 636,136 882,477 1,039,537 1,097,252
Great Lakes:
Government 7,396,657 7,344,509 7,346,691 7,542,679 7,605,984 7,637,270 7,616,270 7,778,535
Total 15,132,197 14,937,369 14,866,641 15,129,530 15,188,743 15,417,302 15,491,451 15,817,522
Number of remote hosted borrowers: 6,433,324 6,354,158 6,264,559 6,251,598 6,555,841 4,307,342 4,338,570 4,548,541


	As of
	December 31, 2020		March 31, 2021	June 30, 2021	September 30, 2021	December 31, 2021	March 31, 2022
Servicing volume (dollars in millions):
Nelnet Servicing:
Government	$	191,678	195,875	195,030	198,743	215,797	243,011
FFELP	30,763		30,084	29,361	28,244	26,916	25,646
Private and consumer	16,226		21,397	24,758	24,229	23,702	23,433
Great Lakes:
Government	251,570		257,806	257,420	262,311	262,605	264,642


Total	$	490,237	505,162	506,569	513,527	529,020	556,732

Number of servicing borrowers:
Nelnet Servicing:
Government	5,645,946		5,664,094	5,636,781	5,791,521	6,399,414	6,978,548
FFELP	1,300,677		1,233,461	1,198,863	1,150,214	1,092,066	1,034,913
Private and consumer	636,136		882,477	1,039,537	1,097,252	1,065,439	1,030,863
Great Lakes:
Government	7,605,984		7,637,270	7,616,270	7,778,535	7,797,106	7,749,312


Total	15,188,743		15,417,302	15,491,451	15,817,522	16,354,025	16,793,636

Number of remote hosted borrowers:	6,555,841		4,307,342	4,338,570	4,548,541	4,799,368	5,487,943

Government Loan Servicing

Nelnet Servicing's and Great Lakes' current student loan servicing contracts with the Department are ~~currently~~ scheduled to expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance. ~~Nelnet~~The Company cannot predict the timing, nature, or ultimate outcome of ~~the~~ NextGen or any other contract procurement process by the Department.

Nelnet Servicing and Great Lakes are two of the current ~~eight~~seven private sector entities that have student loan servicing contracts with the Department. OnIn July ~~8, 2021 and July 19,~~ 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA") ~~and the New Hampshire Higher Education Association Foundation Network ("Granite State")~~, ~~two of the current existing servicers~~a servicer for the Department, announced that ~~they~~it will exit the federal student loan servicing ~~business after their current contracts with~~business. All applicable student loans serviced for the Department ~~expire in~~by PHEAA will be transferred to successor servicers by December ~~2021. In addition, in October 2021, Maximus assumed Navient's student loan servicing contract with~~2022. At the ~~Department.~~

time of this announcement, PHEAA ~~services~~serviced approximately 8.5 million borrowers under its contract. ~~The Department has indicated that the~~As of March 31, 2022, approximately 1,175,000 PHEAA ~~servicing volume will be~~borrowers have been transitioned to ~~other servicers, including the Company. A portion of the PHEAA servicing volume will be transitioned to other servicers~~Nelnet Servicing’s platform (of which approximately 603,000 were converted prior to ~~January~~December 31, ~~2022, which is the effective date on which federal student loan payments will no longer be suspended under the CARES Act.~~2021). The ~~remaining~~Company anticipates additional PHEAA volume ~~will begin~~ to ~~transfer to other servicers during the second quarter of 2022. The Company currently anticipates up to 1 million PHEAA borrowers will~~ be transitioned to its ~~servicing~~ platform ~~prior to January 31, 2022.~~during the remainder of 2022, but cannot currently estimate the number of additional borrowers that will be transferred and/or the timing of such transfers.

Granite State services approximately 1.3 million borrowers under its contract. Granite State servicing volume has been and will continue to be transitioned to Edfinancial Services, LLC ("Edfinancial"), a current servicer forOn April 6, 2022, the Department ~~during~~extended the ~~third~~

~~and fourth quarters of 2021. Both Granite State and Edfinancial utilize Nelnet Servicing's platform to service their loans for the Department.~~

The Department currently allocates new loan volume among its servicers based on certain performance metrics that measure the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers, and that measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default. Under the most recent publicly announced performance metrics used by the Department for the quarterly periods January 1, 2021 through June 30, 2021, Great Lakes’ and Nelnet Servicing’s overall rankings among the remaining six go-forward servicers for the Department were third and fifth, respectively. Based on these results, Great Lakes’ and Nelnet Servicing’s allocation of new student loan ~~servicing volumes beginning September 1, 2021 are 18% and 12%, respectively.~~

~~Servicing contract amendments entered into with~~payment pause under the Department in September 2021 to extend the contracts through December 2023, also amended the methodology for performance measurements and new loan volume allocations, in substantial part by reflecting newly designed service level performance metrics under which, along with portfolio performance metrics, the Department will evaluate each servicer and make new loan volume allocations on a quarterly basis. The new service level performance metrics will be a substantial driver used by the Department to allocate new loan volume among the servicers.

~~The~~ CARES Act ~~among other things, provides broad relief for federal student loan borrowers through January~~from May 1, 2022 to August 31, 2022. 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~~receives less servicing revenue per borrower from the Department based on the borrower forbearance status ~~through September 30, 2020~~ than what was earned on such accounts prior to these provisions, and the Department further reduced the monthly rate paid to its servicers for those in forbearance status for the period from October 1, 2020 through January 31, 2022 from $2.19 per borrower to $2.05 per borrower.provisions. The Company currently anticipates revenue per borrower from the Department will increase to pre-CARES Act levels beginning ~~February~~September 1, 2022. ~~In addition, during~~During the fourth quarter of 2021 and first quarter of 2022, the Company ~~anticipates earning~~earned additional revenue from the Department based on incremental work ~~to be~~being performed by the Company to support the Department borrowers coming out of ~~forbearance. Such services and activities include extended hours~~forbearance, including outbound engagement. The Department paused supplemental outreach with the additional extension of ~~operation and outbound engagement.~~the CARES Act student loan payment pause from May 1, 2022 to August 31, 2022.

Private Education Loan Servicing

In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education student loans representing approximately 445,000 borrowers. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the vast majority of the remaining borrowers converted in the second quarter of 2021.

Summary and Comparison of Operating Results


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021	2020	Additional information		2022			2021		Additional information
Net interest income	Net interest income	$	7	10	25	306	Decrease was due to lower interest rates in 2021 as compared to 2020.	Net interest income	$	43		11
Loan servicing and systems revenue	Loan servicing and systems revenue	112,351		113,794	335,961	337,571	See table below for additional information.	Loan servicing and systems revenue	136,368			111,517		See table below for additional information.
Intersegment servicing revenue	Intersegment servicing revenue	8,621		8,287	25,369	27,878	Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments. Increase in the three months ended September 20, 2021 as compared to the same period in 2020 was due to an increase in private loan servicing revenue from AGM related to AGM's partial ownership of the former Wells Fargo private education loan portfolio, partially offset by the expected amortization of AGM's FFELP portfolio. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.	Intersegment servicing revenue	8,480			8,268		Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments. Increase was due to ending COVID-19 pandemic borrower relief policies which increased servicing activities performed for AGM in the first quarter of 2022 as compared to the same period in 2021. Increase was partially offset by the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income	Other income	727		2,353	2,541	6,897	Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.	Other income	740			1,113		Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired on January 31, 2021.
Impairment expense		(13,243)		—	(13,243)	—	During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge during the third quarter of 2021. The impairment charge recognized by the LSS operating segment related primarily to building and building improvement assets.

Total other income	Total other income	108,456		124,434	350,628	372,346		Total other income	145,588			120,898
Salaries and benefits								Salaries and benefits	91,972			66,458		Increase in 2022 compared to 2021 was due to the Company hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension. The CARES Act suspension was originally expected to expire on January 31, 2022 and has been extended two additional times to May 1, 2022 and again to August 31, 2022. The Company currently expects salaries and benefits to continue to be higher throughout 2022 as compared to the same periods in 2021 as it continues to stand ready for the suspension provisions of the CARES Act to expire on August 31, 2022.
Depreciation and amortization								Depreciation and amortization	4,954			8,192		Includes amortization of intangibles from the Great Lakes acquisition in February 2018 and depreciation on property and equipment. Amortization of intangible assets for the three months ended March 31, 2022 and 2021 was $0.4 million and $5.5 million, respectively. The majority of the Great Lakes intangible assets became fully amortized as of June 30, 2021. Excluding amortization of intangible assets, the increase in 2022 compared to 2021 was due to scaling of the Nelnet servicing platform for the PHEAA loan volume transferred to Nelnet's platform.
Other expenses								Other expenses	16,213			13,285		Increase in 2022 compared to 2021 was due to costs associated with Nelnet Renewable Energy activities and technology costs associated with the growth of borrowers under the government servicing contracts.
Intersegment expenses								Intersegment expenses	20,398			16,890		Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase in 2022 as compared to 2021 was due to the Company hiring contact center operations and support associates throughout 2021 and 2022 in preparation for the federal student loan payment pause under the CARES Act to expire. The Company currently expects intersegment expenses to be higher throughout 2022 as compared to the same periods in 2021 as it continues to stand ready for the payment pause to expire on August 31, 2022.
Total operating expenses								Total operating expenses	133,537			104,825
Income before income taxes								Income before income taxes	12,094			16,084
Income tax expense								Income tax expense	(2,903)			(3,860)		Represents income tax expense at an effective tax rate of 24%.
Net income								Net income	$	9,191		12,224

Before tax operating margin								Before tax operating margin	8.3		%	13.3	%	Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the LSS segment 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 decreased in 2022 as compared to 2021 due to increased operating expenses as the Company prepared for a January 31, 2022 expiration of the federal student loan payment pause under the CARES Act, which was extended to May 1, 2022 (and then again to August 31, 2022).

Salaries and benefits 75,305 72,912 210,151 211,806 Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in contact center operations and support personnel as a result of the suspension of federal student loan payments beginning in March 2020 under the CARES Act. Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to the Company hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022. The Company currently expects salaries and benefits to continue to increase as it prepares for the provisions of the CARES Act to expire.
Depreciation and amortization 4,245 9,951 20,411 27,941 Includes depreciation on property and equipment and amortization of intangibles from the Great Lakes acquisition in February 2018. Amortization of intangible assets for the three months ended September 30, 2021 and 2020 was $0.7 million and $5.6 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $11.6 million and $15.4 million, respectively. The majority of the Great Lakes intangible assets became fully amortized at June 30, 2021. Excluding amortization of intangible assets, the decrease in 2021 compared to 2020 was due to certain purchases to integrate Great Lakes and expand servicing capacity becoming fully depreciated.
Other expenses 12,738 12,407 39,296 43,277 Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily through a significant reduction of borrower statement printing and postage costs while student loan payments are suspended. The Company currently expects these costs will increase when the provisions of the CARES Act expire, scheduled for January 31, 2022. Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence.
Intersegment expenses 19,217 15,834 52,241 48,069 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase in 2021 was due to the Company hiring contact center operations and support associates during the third quarter of 2021 in preparation for the provisions of the CARES Act to expire January 31, 2022. The Company currently expects intersegment expenses to continue to increase as it prepares for the provisions of the CARES Act to expire.
Total operating expenses 111,505 111,104 322,099 331,093
(Loss) income before income taxes (3,042) 13,340 28,554 41,559
Income tax benefit (expense) 730 (3,201) (6,853) (9,974) Represents income tax expense at an effective tax rate of 24%.
Net (loss) income $ (2,312) 10,139 21,701 31,585

GAAP before tax operating margin (2.5) % 10.7 % 7.9 % 11.2 %
Before tax operating margin, excluding impairment expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment expense) 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, excluding impairment expense, decreased for the three months ended September 30, 2021 as compared to the same period in 2020 due to increased operating expenses as the Company prepares for the provisions of the CARES Act to expire on January 31, 2022. Before tax operating margin, excluding impairment expense, increased for the nine months ended September 30, 2021 as compared to the same period in 2020 due to operating expenses being lower throughout the first half of 2021 as a result of the suspension of federal student loan payments under the CARES Act as discussed above.
Impairment expense 10.9 % — 3.6 % —
Non-GAAP before tax operating margin, excluding impairment expense 8.4 % 10.7 % 11.5 % 11.2 %

4434

Loan servicing and systems revenue


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021	2020	Additional information		2022		2021	Additional information
Government servicing - Nelnet	Government servicing - Nelnet	$	37,595	36,295	107,843	112,305	Represents revenue from Nelnet Servicing's Department servicing contract. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act, and further decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020. These items were partially offset by an increase in the number of borrowers serviced. Increase in revenue for the three months ended September 30, 2021 compared to the same period in 2020 was a result of an increase in the number of borrowers serviced, partially offset by a decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.	Government servicing - Nelnet	$	61,049	34,872	Represents revenue from Nelnet Servicing's Department servicing contract. Increase in 2022 compared to 2021 was due to (i) an increase in the number of borrowers serviced, including PHEAA borrowers transferred to Nelnet Servicing’s platform; (ii) a per borrower rate increase beginning September 1, 2021 to reflect the increase in the cost of labor (Economic Cost Index) per the provisions of the contract; (iii) 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 (iv) 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. Nelnet Servicing earns revenue per each borrower that satisfies the requirements for their loan to be discharged under the TPD discharge program. The revenue earned by Nelnet Servicing for the discharge of TPD borrowers and CARES Act forbearance exit outreach is expected to be minimal for the remainder of 2022.
Government servicing - Great Lakes	Government servicing - Great Lakes	46,489		45,350	133,654	137,010	Represents revenue from Great Lakes' Department servicing contract. Changes among the current and comparable prior periods were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes does not administer the TPD discharge program.	Government servicing - Great Lakes	48,076		43,302	Represents revenue from the Great Lakes' Department servicing contract. Increase in 2022 compared to 2021 was due to (i) an increase in the number of borrowers serviced; (ii) a per borrower rate increase beginning September 1, 2021 to reflect the increase in the cost of labor (Economic Cost Index) per the provisions of the contract; and (iii) the recognition of $2.4 million of revenue in the first quarter of 2022 for incremental work related to CARES Act forbearance exit outreach activities to borrowers. The revenue earned by Great Lakes for CARES Act forbearance exit outreach is expected to be minimal for the remainder of 2022.
Private education and consumer loan servicing	Private education and consumer loan servicing	13,198		7,928	34,563	24,733	Increase for the three and nine months ended September 30, 2021 compared to the same periods in 2020 was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021. Excluding revenue earned on the former Wells Fargo portfolio, revenue for the three and nine months ended September 30, 2021 decreased compared to the comparable periods in 2020. The decrease in revenue was due to a decrease in the number of legacy borrowers serviced, a decrease in origination fee revenue, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.	Private education and consumer loan servicing	12,873		8,548	Increase in 2022 compared to 2021 was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021. Excluding revenue earned on the former Wells Fargo portfolio, revenue for 2022 decreased compared to 2021. The decrease in revenue was due to a decrease in client requested enhanced delinquency services.
FFELP servicing	FFELP servicing	4,557		4,912	13,930	15,443	Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced. In addition, decrease during the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.	FFELP servicing	4,248		4,670	Decrease in 2022 compared to 2021 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.
Software services	Software services	6,952		10,426	22,779	32,395	Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring in January 2021. This decrease in revenue was partially offset by an increase in the number of remote hosted servicing borrowers in 2021 as compared to 2020.	Software services	7,400		8,454	Decrease in 2022 compared to 2021 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring on January 31, 2021. This decrease in revenue was partially offset by an increase in 2022 as compared to 2021 in the number of remote hosted servicing borrowers from the Company's remaining customers.
Outsourced services		3,560		8,883	23,192	15,685	The majority of this revenue relates to providing contact center and back office operational outsourcing services. During 2020, the Company began providing services to state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support). Outsourcing activities provided to state agencies are performed under shorter-term contracts. Revenue from providing these services to state agencies was $1.3 million and $6.6 million for the three months ended September 30, 2021 and 2020, respectively, and $16.3 million and $9.7 million during the nine months ended September 30, 2021 and 2020, respectively. Outsourcing activities provided to state agencies decreased during the third quarter of 2021 as the needs for such services have decreased from prior periods.
Outsourced services and other								Outsourced services and other	2,722		11,671	The majority of this revenue relates to providing contact center and back office operational outsourcing services, including services to state agencies to assist with COVID-19 specific activities that have been performed under shorter-term contracts. Revenue from providing COVID-19 related services to state agencies was $0.3 million and $9.7 million for the three months ended March 31, 2022 and 2021, respectively. Outsourcing activities provided for these activities decreased in 2022 as the needs for such services have decreased from prior periods.
Loan servicing and systems revenue	Loan servicing and systems revenue	$	112,351	113,794	335,961	337,571		Loan servicing and systems revenue	$	136,368	111,517

4535

EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS

As discussed further in the Company's ~~2020~~2021 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 pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.

On December 31, 2020, the Company acquired HigherSchool Instructional Services ("HigherSchool"), a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC ("CD2"), a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding. The results of HigherSchool and CD2 are reported in the Company’s consolidated financial statements from the date of acquisition. Revenue recognized by these acquisitions during the three and nine months ended September 30, 2021 was $3.4 million and $18.5 million, respectively.

Summary and Comparison of Operating Results


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021	2020	Additional information		2022		2021	Additional information
Net interest income	Net interest income	$	344	351	818	2,723	Represents interest income on tuition funds held in custody for schools. Decrease was due to a significant decrease in interest rates in March 2020. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.	Net interest income	$	339	263	Represents interest income on tuition funds held in custody for schools.
Education technology, services, and payment processing revenue	Education technology, services, and payment processing revenue	85,324		74,121	257,284	217,100	See table below for additional information.	Education technology, services, and payment processing revenue	112,286		95,258	See table below for additional information.
Intersegment revenue	Intersegment revenue	3		3	9	17		Intersegment revenue	3		3
Other income		13		373	13	373

Total other income	Total other income	85,340		74,497	257,306	217,490		Total other income	112,289		95,261
Cost to provide education technology, services, and payment processing services		31,335		25,243	80,063	63,424	See table below for additional information.
Cost of services								Cost of services	35,545		27,052	See table below for additional information.
Salaries and benefits	Salaries and benefits	29,119		25,460	82,154	73,678	Increase in 2021 compared to 2020 was due to an increase in headcount to support the growth of the customer base, the investment in the development of new technologies, and the acquisitions of HigherSchool and CD2.	Salaries and benefits	31,286		25,941	Increase in 2022 compared to 2021 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	Depreciation and amortization	2,762		2,366	8,789	7,115	Represents primarily amortization of intangible assets from prior business acquisitions. Amortization of intangible assets related to business acquisitions was $2.6 million and $2.4 million for the three months ended September 30, 2021 and 2020, respectively, and $8.3 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in 2021 compared to 2020 was due to the acquisitions of HigherSchool and CD2.	Depreciation and amortization	2,315		3,071	Represents primarily amortization of intangible assets from prior business acquisitions. Amortization of intangible assets related to business acquisitions was $2.1 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively.

Other expenses	Other expenses	4,804		3,126	14,063	11,544	Increase was due to higher costs for consulting and professional fees due to investments in new technologies, the acquisitions of HigherSchool and CD2, and an increase in travel and in-person conferences during the third quarter of 2021.	Other expenses	5,764		4,822	Increase was due to higher costs for consulting, professional fees, and technology services resulting from investments in new technologies.
Intersegment expenses, net	Intersegment expenses, net	3,672		3,610	10,856	10,366	Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.	Intersegment expenses, net	4,605		3,664	Intersegment expenses represent 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	Total operating expenses	40,357		34,562	115,862	102,703		Total operating expenses	43,970		37,498
Income before income taxes	Income before income taxes	13,992		15,043	62,199	54,086		Income before income taxes	33,113		30,974
Income tax expense	Income tax expense	(3,358)		(3,610)	(14,928)	(12,981)	Represents income tax expense at an effective tax rate of 24%.	Income tax expense	(7,947)		(7,434)	Represents income tax expense at an effective tax rate of 24%.
Net income	Net income	$	10,634	11,433	47,271	41,105		Net income	$	25,166	23,540

4636

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,				Three months ended March 31,
		2021			2020		2021	2020	Additional information		2022			2021		Additional information
Tuition payment plan services	Tuition payment plan services	$	23,618		22,477		79,706	77,011	Revenue increased for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 as a result of a higher number of payment plans in the K-12 market, partially offset due to enrollment for institutions of higher education decreasing as a result of COVID-19.	Tuition payment plan services	$	30,716		29,550		Revenue increased in 2022 as compared to 2021 as a result of a higher number of payment plans in the K-12 market, partially offset by lower revenues for institutions of higher education as a result of lower enrollment trends.
Payment processing	Payment processing	39,852			35,420		97,898	88,329	Payment volumes in 2021 increased as compared to 2020 in both the K-12 and higher education markets. The increase in payments volume is driven by both new customers and an increase in volume from existing customers.	Payment processing	38,071			33,038		Payment volumes in 2022 increased as compared to 2021 in both the K-12 and higher education markets. The increase in payments volume is driven by both new customers and an increase in volume from existing customers.
Education technology and services	Education technology and services	21,098			15,840		78,153	50,820	Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions. Additionally, revenues from the Company’s school information system software, application and enrollment products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.	Education technology and services	43,251			32,527		Increase in 2022 compared to 2021 was due to an increase in revenues from the Company’s school information system software, enrollment and communication products, and FACTS Education Solutions instructional and professional development services. FACTS Education Solutions instructional services revenue was the largest component of this increase driven by the Emergency Assistance to Non-Public Schools (“EANS”) program which provides funds to non-public schools to address the impact the COVID-19 pandemic has had or continues to have on school students and teachers.
Other	Other	756			384		1,527	940		Other	248			143
Education technology, services, and payment processing revenue	Education technology, services, and payment processing revenue	85,324			74,121		257,284	217,100		Education technology, services, and payment processing revenue	112,286			95,258
Cost to provide education technology, services, and payment processing services		31,335			25,243		80,063	63,424	Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also included as a component of this expense and were a driver in the increase in 2021 compared to 2020 due to the acquisition of HigherSchool and growth in the FACTS Education Solutions division.
Cost of services										Cost of services	35,545			27,052		Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also included as a component of this expense and were the primary driver in the increase in 2022 compared to 2021 due to the increase in instructional services resulting from the EANS program as noted for Education technology and services revenue above.
Net revenue	Net revenue	$	53,989		48,878		177,221	153,676		Net revenue	$	76,741		68,206

Before tax operating margin	Before tax operating margin	25.9		%	30.8	%	35.1%	35.2%	Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes 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. The decrease in margin for the three months ended September 30, 2021 as compared to the same period in 2020 was due to investment in the development of new technologies and increase in travel and in-person conferences in 2021.	Before tax operating margin	43.1		%	45.4	%	Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes 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. The decrease in margin for 2022 as compared to 2021 was 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 currently anticipates before tax operating margin will be lower throughout 2022 as compared to the same periods in 2021 as the Company continues to invest in these areas.

4737

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of ~~September 30, 2021,~~March 31, 2022, the AGM operating segment had a ~~$18.4~~$16.6 billion loan portfolio, consisting primarily of federally insured ~~loans, that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.3 years.~~loans. For a summary of the Company’s loan portfolio as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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,			Three months ended March 31,
		2021		2020	2021	2020		2022		2021
Beginning balance	Beginning balance	$	19,331,725	19,830,397	19,559,108	20,798,719	Beginning balance	$	17,441,790	19,559,108
Loan acquisitions:	Loan acquisitions:						Loan acquisitions:
Federally insured student loans	Federally insured student loans	70,844		137,714	833,313	947,288	Federally insured student loans	10,202		64,731
Private education loans	Private education loans	1,680		—	88,131	80,908	Private education loans	1,026		23,038
Consumer loans	Consumer loans	20,939		26,446	61,319	112,257	Consumer loans	18,522		19,456
Total loan acquisitions	Total loan acquisitions	93,463		164,160	982,763	1,140,453	Total loan acquisitions	29,750		107,225
Repayments, claims, capitalized interest, participations, and other, net	Repayments, claims, capitalized interest, participations, and other, net	(818,554)		(277,949)	(1,415,249)	(1,715,214)	Repayments, claims, capitalized interest, participations, and other, net	(447,140)		(406,565)
Consolidation loans lost to external parties		(145,270)		(136,263)	(587,841)	(519,364)
Loans lost to external parties							Loans lost to external parties	(387,648)		(229,545)
Consumer loans sold	Consumer loans sold	(18,390)		(60,779)	(95,807)	(185,028)	Consumer loans sold	(18,125)		—
Other loans sold		(5,280)		—	(5,280)	—

Ending balance	Ending balance	$	18,437,694	19,519,566	18,437,694	19,519,566	Ending balance	$	16,618,627	19,030,223

The Company has also purchased partial ownership in certain private education, consumer, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to ~~September 30, 2021,~~or as of March 31, 2022, the Company’s ownership correlates to approximately ~~$545~~$680 million, ~~$250~~$190 million, and ~~$485~~$450 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations. The loans held in these securitizations are not included in the above table.

The Company's federally insured student loan acquisitions include the purchase of rehabilitated loans purchased from guaranty agencies. After a guaranty agency rehabilitates a federally insured student loan, the agency sells the rehabilitated loan to a private lender, such as the Company. On March 30, 2021, the Department suspended collections on defaulted federally insured student loans held by guaranty agencies and reduced the interest rate on such loans to zero percent, effectively suspending interest payments. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the President first declared a national emergency for the COVID-19 pandemic. The Company currently believes these relief efforts will negatively impact the amount of rehabilitated loans the Company will have the opportunity to purchase in future periods.

Allowance for Loan Losses and Loan Delinquencies

AGM's total allowance for loan losses of $116.3 million at March 31, 2022 represents reserves equal to 0.59% of AGM's federally insured loans (or 21.6% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.25% of AGM's private education loans, and 12.77% of AGM's consumer loans.

For a summary of the ~~Company's~~allowance as a percentage of the ending balance for each of AGM's loan portfolios as of March 31, 2022 and December 31, 2021, the activity in ~~the~~AGM's allowance for loan losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ and a summary of ~~the Company's~~AGM's loan status and delinquency amounts as of ~~September 30, 2021,~~March 31, 2022, December 31, ~~2020,~~2021, and ~~September 30, 2020,~~March 31, 2021, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

AGM's total allowance for loan losses of $137.3 million at September 30, 2021 represents reserves equal to 0.6% of AGM's federally insured loans (or 23.6% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.3% of AGM's private education loans, and 12.0% of AGM's consumer loans.

4838

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,					Three months ended March 31,
		2021			2020		2021		2020			2022			2021
Variable loan yield, gross	Variable loan yield, gross	2.61		%	2.77	%	2.65	%	3.29	%	Variable loan yield, gross	2.75		%	2.71	%
Consolidation rebate fees	Consolidation rebate fees	(0.85)			(0.84)		(0.84)		(0.84)		Consolidation rebate fees	(0.85)			(0.84)
Discount accretion, net of premium and deferred origination costs amortization	Discount accretion, net of premium and deferred origination costs amortization	0.03			0.01		0.01		0.02		Discount accretion, net of premium and deferred origination costs amortization	0.03			0.00
Variable loan yield, net	Variable loan yield, net	1.79			1.94		1.82		2.47		Variable loan yield, net	1.93			1.87
Loan cost of funds - interest expense (a) (b)		(0.99)			(1.16)		(1.03)		(1.82)
Loan cost of funds - derivative settlements (c) (d)		(0.02)			0.02		(0.01)		0.07
Loan cost of funds - interest expense (a)											Loan cost of funds - interest expense (a)	(1.09)			(1.07)
Loan cost of funds - derivative settlements (b) (c)											Loan cost of funds - derivative settlements (b) (c)	0.01			(0.00	)
Variable loan spread	Variable loan spread	0.78			0.80		0.78		0.72		Variable loan spread	0.85			0.80
Fixed rate floor income, gross	Fixed rate floor income, gross	0.75			0.73		0.75		0.58		Fixed rate floor income, gross	0.68			0.74
Fixed rate floor income - derivative settlements (c) (e)		(0.11)			(0.07)		(0.10)		(0.02)
Fixed rate floor income - derivative settlements (b) (d)											Fixed rate floor income - derivative settlements (b) (d)	(0.08)			(0.09)
Fixed rate floor income, net of settlements on derivatives	Fixed rate floor income, net of settlements on derivatives	0.64			0.66		0.65		0.56		Fixed rate floor income, net of settlements on derivatives	0.60			0.65
Core loan spread	Core loan spread	1.42		%	1.46	%	1.43	%	1.28	%	Core loan spread	1.45		%	1.45	%

Average balance of AGM's loans	Average balance of AGM's loans	$	19,084,320		19,866,040		19,178,788		20,300,617		Average balance of AGM's loans	$	17,208,909		19,494,002
Average balance of AGM's debt outstanding	Average balance of AGM's debt outstanding	18,863,730			19,632,675		18,890,832		20,153,478		Average balance of AGM's debt outstanding	16,773,698			19,156,797

(a) In the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest expense on bonds and notes payable and bank deposits" in the consolidated statements of income and the impact of this reduction to interest expense was excluded infrom the table above.

(b) In the third quarter of 2021, the Company redeemed certain asset-backed debt securities prior to their legal maturity, resulting in the recognition of $1.5 million in interest expense from the write-off of all remaining debt issuance costs related to the initial issuance of such bonds. This expense was excluded in the table above.

~~(c)~~ 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 itthe 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 derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the ~~2021~~2022 and ~~2020~~2021 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,					Three months ended March 31,
		2021		2020		2021		2020			2022		2021
Core loan spread	Core loan spread	1.42	%	1.46	%	1.43	%	1.28	%	Core loan spread	1.45	%	1.45	%
Derivative settlements (1:3 basis swaps)	Derivative settlements (1:3 basis swaps)	0.02		(0.02)		0.01		(0.07)		Derivative settlements (1:3 basis swaps)	(0.01)		0.00
Derivative settlements (fixed rate floor income)	Derivative settlements (fixed rate floor income)	0.11		0.07		0.10		0.02		Derivative settlements (fixed rate floor income)	0.08		0.09
Loan spread	Loan spread	1.55	%	1.51	%	1.54	%	1.23	%	Loan spread	1.52	%	1.54	%

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

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

A trend analysis of AGM's core and variable loan spreads is summarized below.

(a) The interest earned on a large portion of AGM's FFELP student loan assets is indexed to the one-month LIBOR rate. AGM funds a portion of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which AGM earns interest on its loans and funds such loans has a significant impact on loan spread. This table (the right axis) shows the difference between AGM's liability base rate and the one-month LIBOR rate by quarter. 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.

Variable loan spread increased during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 due to a narrowing of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above). ~~The significant widening during the first and second quarters of 2020 was the result of a significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020.~~ In ~~a declining~~an increasing interest rate environment, student loan spread ~~is compressed,~~increases due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest resets on the Company's debt that occurs either monthly or quarterly. 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.

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,					Three months ended March 31,
		2021			2020		2021		2020			2022			2021
Fixed rate floor income, gross	Fixed rate floor income, gross	$	35,850		36,633		108,029		87,258		Fixed rate floor income, gross	$	28,993		35,539
Derivative settlements (a)	Derivative settlements (a)	(5,209)			(3,588)		(14,648)		(2,772)		Derivative settlements (a)	(3,205)			(4,285)
Fixed rate floor income, net	Fixed rate floor income, net	$	30,641		33,045		93,381		84,486		Fixed rate floor income, net	$	25,788		31,254
Fixed rate floor income contribution to spread, net	Fixed rate floor income contribution to spread, net	0.64		%	0.66	%	0.65	%	0.56	%	Fixed rate floor income contribution to spread, net	0.60		%	0.65	%

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

The ~~increase~~decrease in gross fixed rate floor income for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 was due to ~~lower~~higher interest rates in ~~2021~~2022 as compared to ~~2020.~~2021. On May 4, 2022, the Federal Reserve increased interest rates, and it is currently anticipated that interest rates may continue to rise in 2022 as a result of inflationary pressures in the U.S. economy; increases in interest rates will reduce the amount of gross fixed rate floor income the Company is currently receiving. The Company has a portfolio of derivative instruments in which the Company pays a fixed rate and receives a floating rate to economically hedge a portion of loans earning fixed rate floor income. The decrease in derivative settlements paid for the three months ended March 31, 2022 compared to the same period in 2021 was due to an increase in interest rates and a decrease in the notional amount of derivatives outstanding. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on the Company’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.

Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate

On March 5, 2021, the ICE Benchmark Administration Limited (the “IBA”), which administers LIBOR, published the results of a consultation confirming its intention to cease the publication of LIBOR (i) after June 30, 2023 in the case of U.S. Dollar LIBOR rates for one-month, three-month, and certain other tenors, and (ii) after December 31, 2021 in all other cases. Also on March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates the IBA, announced that it does not intend to sustain LIBOR by requiring panel banks to continue providing quotations of LIBOR beyond the dates for which they have notified their departure from IBA’s LIBOR quotation scheme, or to require IBA to publish LIBOR beyond such dates. As a result, immediately after the announced LIBOR discontinuation dates specified above, respectively, LIBOR will no longer be representative of the underlying market and economic reality that the rates are intended to measure. As of ~~September 30, 2021,~~March 31, 2022, the interest earned on a principal amount of ~~$16.9~~$15.2 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of ~~$16.8~~$15.1 billion of AGM’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, the Company’s derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR. ~~New LIBOR contracts are generally not expected to be entered into after December 31, 2021.~~ The market transition away from the ~~current~~ LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's ~~2020~~2021 Annual Report for additional information.

On March 15, 2022, the President signed into law, as part of the Consolidated Appropriations Act, 2022, the Adjustable Interest Rate (LIBOR) Act (the "LIBOR Act"), which provides a framework for addressing the discontinuation of LIBOR under federal law. The LIBOR Act provides a statutory mechanism to automatically replace LIBOR with a benchmark rate based on the Secured Overnight Financing Rate ("SOFR"), including any applicable tenor adjustment, for certain contracts that reference LIBOR and do not contain sufficient fallback provisions. The LIBOR Act preempts and supersedes any state law or regulation relating to the selection or use of a benchmark rate replacement for LIBOR, such as similar legislation enacted by the State of New York in April 2021. Parties remain free to agree on a different benchmark replacement rate, and the Company has worked and will continue to work with its asset-backed securitization investors to amend transaction documents to address the discontinuation of LIBOR.

The LIBOR Act also amends the Higher Education Act to substitute the current special allowance payment rate-setting mechanism for FFELP loans from the one-month LIBOR to the 30-day average SOFR in effect for each of the days in an applicable quarter, adjusted daily by adding a tenor spread adjustment. Transition of the rate-setting mechanism for special allowance payments from LIBOR to SOFR is expected to occur prior to June 30, 2023.

Summary and Comparison of Operating Results


		Three months ended September 30,			Nine months ended September 30,				Three months ended March 31,
		2021		2020	2021	2020	Additional information		2022		2021	Additional information
Net interest income after provision for loan losses	Net interest income after provision for loan losses	$	77,179	86,025	275,092	125,500	See table below for additional analysis.	Net interest income after provision for loan losses	$	73,459	116,922	See table below for additional analysis.
Other (expense) income		(7,275)		1,004	(4,514)	4,951	During the third quarter of 2021, the Company recognized a loss of $6.3 million and $3.4 million from an investment accounted for under the equity method and from certain repurchases of its own debt, respectively. These items were partially offset by $1.7 million in fees earned for serving as sponsor and administrator on certain non-consolidated securitizations of private education loans sold by Wells Fargo. Excluding these items, other income consists primarily of borrower late fees. Borrower late fees for the three months ended September 30, 2021 and 2020 was $0.5 million and $0.9 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $1.7 million and $4.4 million, respectively. The decrease in borrower late fees in the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic.
Other income								Other income	6,511		2,881	Other income includes borrower late fees, which were $2.4 million and $0.4 million during the three months ended March 31, 2022 and 2021, respectively. The Company suspended borrower late fees in March 2020 to provide borrowers relief as a result of the COVID-19 pandemic. The Company began to recognize borrower late fees again in May 2021 (for private education loans) and October 2021 (for federally insured student loans). The Company also recognized revenue of $2.1 million in the first quarter of 2022 as administrator and sponsor for the securitizations completed by the joint venture to purchase and securitize private education loans sold by Wells Fargo and recognized income of $1.9 million in the first quarter of 2022 related to its investment in the joint venture. In the first quarter of 2021, due to improved economic conditions, the Company recorded a negative provision of $2.4 million related to its remaining allowance on a consumer loan securitization beneficial interest investment. Such allowance was initially recorded in March 2020 as a result of the COVID-19 pandemic.
Gain on sale of loans								Gain on sale of loans	2,989		—	On January 26, 2022, the Company sold $18.1 million (par value) of consumer loans to an unrelated third party and recognized a gain of $3.0 million.

Derivative settlements, net								Derivative settlements, net	(2,809)		(4,304)	The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
Derivative market value adjustments, net								Derivative market value adjustments, net	145,734		38,809	Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the three months ended March 31, 2022 and 2021 related to the changes in fair value of the Company's floor income interest rate swaps. An increase in the forward yield curve during the three months ended March 31, 2022 and 2021 resulted in an increase in the fair value of such swaps.
Total other income/expense								Total other income/expense	152,425		37,386
Salaries and benefits								Salaries and benefits	591		495
Other expenses								Other expenses	3,033		3,777	The primary component of other expenses is servicing fees paid to third parties. The decrease in 2022 as compared to 2021 was due to a decrease in AGM's loan portfolio.
Intersegment expenses								Intersegment expenses	8,831		8,427	Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio. These amounts exceed the actual cost of servicing the loans. The increase in servicing fees in 2022 as compared to 2021 was due to ending COVID-19 pandemic borrower relief policies which increased servicing activities in the first quarter of 2022 as compared to the same period in 2021. These increases were partially offset by the expected amortization of AGM's FFELP portfolio. Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses								Total operating expenses	12,455		12,699	Total operating expenses were 29 basis points and 26 basis points of the average balance of loans for the three months ended March 31, 2022 and 2021, respectively. The increase in operating expenses as a percent of the average balance of loans in 2022 as compared to 2021 was due to ending COVID-19 pandemic borrower relief policies which increased servicing activities in the first quarter of 2022 as compared to the same period in 2021.
Income before income taxes								Income before income taxes	213,429		141,609
Income tax expense								Income tax expense	(51,223)		(33,987)	Represents income tax expense at an effective tax rate of 24%.
Net income								Net income	$	162,206	107,622
Additional information:								Additional information:
Net income								Net income	$	162,206	107,622	See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.
Derivative market value adjustments, net								Derivative market value adjustments, net	(145,734)		(38,809)
Tax effect								Tax effect	34,976		9,314
Net income, excluding derivative market value adjustments								Net income, excluding derivative market value adjustments	$	51,448	78,127

5142

Gain on sale of loans 3,444 14,817 18,715 33,023 On May 14, 2021 and September 29, 2021, the Company sold $77.4 million (par value) and $18.4 million (par value) of consumer loans, respectively, to an unrelated third party and recognized a gain of $15.3 million (pre-tax) and $3.2 million (pre-tax), respectively. The Company also sold $124.2 million (par value) and $60.8 million (par value) of consumer loans in January 2020 and July 2020, respectively, and recognized gains of $18.2 million and $14.8 million, respectively.
Impairment expense and provision for beneficial interests, net — — 2,436 (26,303) In March 2020, the Company recognized a provision expense of $26.3 million related to its beneficial interest in consumer loan securitization investments as a result of the estimated impacts of the COVID-19 pandemic. During the first quarter of 2021, $2.4 million of such provision was reversed due to improved economic conditions.
Derivative settlements, net (5,909) (2,391) (15,587) 7,666 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
Derivative market value adjustments, net 7,260 3,440 44,455 (21,072) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the three and nine months ended September 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.
Total other income/expense (2,480) 16,870 45,505 (1,735)
Salaries and benefits 542 438 1,594 1,301
Other expenses 5,420 3,672 12,763 12,253 The primary component of other expenses is servicing fees paid to third parties. Increase for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 was due to $2.3 million of enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio, partially offset by a decrease of servicing fees as AGM's portfolio decreases.
Intersegment expenses 8,652 8,868 25,627 29,839 Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio. These amounts exceed the actual cost of servicing the loans. The decrease in servicing fees for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio and a decrease in certain servicing activities due to borrower relief initiatives and policies as a result of the COVID-19 pandemic. The decrease in servicing fees for the three months ended September 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio. Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 14,614 12,978 39,984 43,393 Total operating expenses were 31 basis points and 26 basis points of the average balance of loans for the three months ended September 30, 2021 and 2020, respectively, and 28 basis points and 29 basis points for the nine months ended September 30, 2021 and 2020, respectively. The increase for the three months ended September 30, 2021 as compared to the same period in 2020 was due to enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio. The decrease for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to a decrease in certain servicing activities beginning in March 2020 due to borrower relief initiatives and policies as a result of the COVID-19 pandemic, partially offset by enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio.
Income before income taxes 60,085 89,917 280,613 80,372

Income tax expense (14,421) (21,580) (67,347) (19,289) Represents income tax expense at an effective tax rate of 24%.
Net income $ 45,664 68,337 213,266 61,083
Additional information:
Net income $ 45,664 68,337 213,266 61,083 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.
Derivative market value adjustments, net (7,260) (3,440) (44,455) 21,072
Tax effect 1,742 826 10,669 (5,057)
Net income, excluding derivative market value adjustments $ 40,146 65,723 179,480 77,098

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,				Three months ended March 31,
		2021		2020	2021	2020	Additional information		2022		2021	Additional information
Variable interest income, gross	Variable interest income, gross	$	126,270	138,986	379,705	500,141	Decrease in 2021 compared to 2020 was due to a decrease in the gross yield earned on loans and a decrease in the average balance of loans.	Variable interest income, gross	$	115,753	129,170	Decrease in 2022 compared to 2021 was due to a decrease in the average balance of loans, partially offset by an increase in the gross yield earned on loans.
Consolidation rebate fees	Consolidation rebate fees	(40,340)		(41,768)	(121,662)	(127,292)	Decrease in 2021 compared to 2020 was due to a decrease in the average consolidation loan balance.	Consolidation rebate fees	(36,771)		(41,073)	Decrease in 2022 compared to 2021 was due to a decrease in the average consolidation loan balance.
Discount accretion, net of premium and deferred origination costs amortization	Discount accretion, net of premium and deferred origination costs amortization	1,230		656	1,776	2,332	Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.	Discount accretion, net of premium and deferred origination costs amortization	1,459		118	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	Variable interest income, net	87,160		97,874	259,819	375,181		Variable interest income, net	80,441		88,215
Interest on bonds and notes payable	Interest on bonds and notes payable	(48,549)		(57,510)	(123,861)	(274,318)	Decrease in 2021 compared to 2020 was due to a decrease in cost of funds and a decrease in the average balance of debt outstanding. In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds.	Interest on bonds and notes payable	(45,209)		(26,771)	During the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds. Excluding this adjustment, interest expense decreased in 2022 as compared to 2021. This decrease was due to a decrease in the average balance of debt outstanding, partially offset by an increase in cost of funds.
Derivative settlements, net (a)	Derivative settlements, net (a)	(700)		1,197	(939)	10,438	Derivative settlements include the net settlements (paid) received related to the Company’s 1:3 basis swaps.	Derivative settlements, net (a)	396		(19)	Derivative settlements include the net settlements received (paid) related to the Company’s 1:3 basis swaps.
Variable loan interest margin, net of settlements on derivatives (a)	Variable loan interest margin, net of settlements on derivatives (a)	37,911		41,561	135,019	111,301		Variable loan interest margin, net of settlements on derivatives (a)	35,628		61,425
Fixed rate floor income, gross	Fixed rate floor income, gross	35,850		36,633	108,029	87,258	Increase in the nine months ended September 30, 2021 compared to the same period in 2020 was due to lower interest rates in 2021 as compared to 2020. Decrease in the three months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in the balance of fixed rate floor loans, partially offset by a decrease in interest rates.	Fixed rate floor income, gross	28,993		35,539	Decrease in 2022 compared to 2021 was due to higher interest rates in 2022 as compared to 2021. On May 4, 2022, the Federal Reserve increased interest rates, and it is currently anticipated that interest rates may continue to rise in 2022 as a result of inflationary pressures in the U.S. economy; increases in interest rates will reduce the amount of fixed rate floor income the Company is currently receiving.
Derivative settlements, net (a)	Derivative settlements, net (a)	(5,209)		(3,588)	(14,648)	(2,772)	Derivative settlements include the settlements paid related to the Company's floor income interest rate swaps. The increase in net settlements paid in 2021 as compared to the same periods in 2020 was due to a decrease in interest rates and an increase in the notional amount of derivatives outstanding.	Derivative settlements, net (a)	(3,205)		(4,285)	Derivative settlements include the settlements paid related to the Company's floor income interest rate swaps. The decrease in net settlements paid in 2022 as compared to 2021 was due to an increase in interest rates and a decrease in the notional amount of derivatives outstanding.
Fixed rate floor income, net of settlements on derivatives	Fixed rate floor income, net of settlements on derivatives	30,641		33,045	93,381	84,486		Fixed rate floor income, net of settlements on derivatives	25,788		31,254
Core loan interest income (a)	Core loan interest income (a)	68,552		74,606	228,400	195,787		Core loan interest income (a)	61,416		92,679
Investment interest	Investment interest	8,771		3,452	20,301	12,029	Increase in 2021 compared to 2020 was due to an increase in interest income on the Company's loan beneficial interest investments, partially offset by lower interest rates in 2021 as compared to 2020.	Investment interest	9,164		2,648	Increase in 2022 compared to 2021 was due primarily to an increase in interest income on the Company's loan beneficial interest investments.
Intercompany interest	Intercompany interest	(113)		(245)	(421)	(1,174)	Decrease in 2021 compared to 2020 was due to lower interest rates and lower weighted average debt outstanding in 2021 as compared to 2020.	Intercompany interest	(794)		(179)
(Provision) negative provision for loan losses - federally insured loans		(4,452)		5,299	3,428	(32,074)	See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
Negative provision for loan losses - federally insured loans								Negative provision for loan losses - federally insured loans	2,748		7,483	See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
Negative provision (provision) for loan losses - private education loans	Negative provision (provision) for loan losses - private education loans	1,208		5,650	781	(6,471)		Negative provision (provision) for loan losses - private education loans	400		(1,431)
(Provision) negative provision for loan losses - consumer loans	(Provision) negative provision for loan losses - consumer loans	(2,696)		(5,128)	7,016	(34,931)	See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."	(Provision) negative provision for loan losses - consumer loans	(2,284)		11,418
Net interest income after provision for loan losses (net of settlements on derivatives) (a)	Net interest income after provision for loan losses (net of settlements on derivatives) (a)	$	71,270	83,634	259,505	133,166		Net interest income after provision for loan losses (net of settlements on derivatives) (a)	$	70,650	112,618	Decrease in 2022 as compared to 2021 was due to (i) a decrease in the average balance of loans; (ii) the reversal of a historical accrued interest liability on certain bonds in 2021; and (iii) the Company recognizing a larger negative provision for loan losses in 2021 as compared to 2022. These items were partially offset by an increase in interest income on the Company's loan beneficial interest investments in 2022 as compared to 2021.

(a)Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements on 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 as presented in this table. Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial ~~measures,~~measures. For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports ~~this~~these non-GAAP ~~information because~~measures (and 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 forlimitations thereof), see footnote (b) to 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.~~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 ~~2021~~2022 and ~~2020~~2021 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.

Future levels of net interest income can be affected by the levels of prepayments with respect to the Company's loan portfolios. See Part II, Item 1A, "Risk Factors" in this report for information regarding the potential impact on prepayments of recent government announcements related to student loan income-driven repayment forgiveness.

5343

NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of ~~September 30, 2021,~~March 31, 2022, Nelnet Bank had a ~~$192.3~~$368.3 million loan portfolio, consisting of ~~$98.4~~$285.5 million of private education loans and ~~$93.9~~$82.8 million of FFELP loans.

As of ~~September 30, 2021,~~March 31, 2022, Nelnet Bank's allowance for loan losses on its portfolio was ~~$0.7~~$1.5 million, which represents reserves equal to ~~0.3%~~0.30% of Nelnet Bank's federally insured loans (or ~~12.2%~~11.8% of the risk sharing component of the loans that is not covered by the federal guaranty), and ~~0.4%~~0.44% of Nelnet Bank's private education loans.

For a summary of the allowance as a percentage of the ending balance of each of Nelnet Bank's loan portfolios as of March 31, 2022 and December 31, 2021, the activity in ~~the~~Nelnet Bank's allowance for loan losses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, and a summary of Nelnet Bank's loan status, ~~and~~ delinquency amounts, and other key credit quality indicators as of ~~September 30,~~March 31, 2022, December 31, 2021, and ~~December~~March 31, ~~2020,~~2021, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The following table sets forth the activity in Nelnet Bank's loan portfolio:


		Three months ended		Nine months ended		Three months ended March 31,
		September 30, 2021		September 30, 2021		2022		2021
Beginning balance:	Beginning balance:	$	190,571	17,543	Beginning balance:	$	257,901	17,543
Federally insured student loan acquisitions		—		99,973

Private education loan originations	Private education loan originations	13,006		99,161	Private education loan originations	130,342		64,909
Repayments	Repayments	(10,865)		(21,863)	Repayments	(18,394)		(1,995)

Sales to AGM segment	Sales to AGM segment	(387)		(2,489)	Sales to AGM segment	(1,592)		(1,226)

Ending balance:	Ending balance:	$	192,325	192,325	Ending balance:	$	368,257	79,231

Deposits

As of ~~September 30, 2021,~~March 31, 2022, Nelnet Bank had ~~$302.2~~$546.7 million of ~~deposits.~~deposits, of which $62.6 million were deposits from Nelnet, Inc. (the parent company) and its subsidiaries (intercompany), and thus eliminated for consolidated financial reporting purposes. All of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs)~~, intercompany savings deposits,~~ and retail and other savings deposits and CDs. Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans and commercial and institutional CDs. Union Bank, a related party, is the program manager for the College Savings plans. The intercompany deposits ~~are deposits from Nelnet, Inc. (the parent company) and its subsidiaries and~~ 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 Nelnet Business Services custodial deposits consisting of collected tuition payments which are subsequently remitted to the appropriate school. Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans and commercial and institutional CDs. Union Bank and Trust Company ("Union Bank"), a related party, is the program manager for the College Savings plans.

Average Balance Sheet

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

Three months ended Nine months ended
September 30, 2021 September 30, 2021
Balance Rate Balance Rate
Average assets
Federally insured student loans $ 95,510 1.36 % 56,000 1.36 %
Private education loans 95,752 3.14 75,522 3.19
Cash and investments 206,802 1.87 215,213 1.93
Total interest-earning assets 398,064 2.05 % 346,735 2.11 %
Non-interest-earning assets 10,452 8,758
Total assets $ 408,516 355,493
Average liabilities and equity
Brokered deposits 84,175 0.84 % 53,459 0.84 %
Intercompany deposits 98,436 0.24 83,004 0.25
Retail and other deposits 117,360 0.62 112,255 0.61
Total interest-bearing liabilities 299,971 0.56 % 248,718 0.54 %
Non-interest-bearing liabilities 5,340 4,178
Equity 103,205 102,597
Total liabilities and equity $ 408,516 355,493


	Three months ended March 31,
	2022				2021
	Balance		Rate		Balance	Rate
Average assets
Federally insured student loans	$	85,266	1.42	%	—	—	%
Private education loans	228,934		2.91		43,746	3.37
Cash and investments	265,101		1.66		215,613	1.91
Total interest-earning assets	579,301		2.12	%	259,359	2.15	%
Non-interest-earning assets	15,275				6,541
Total assets	$	594,576			265,900
Average liabilities and equity
Brokered deposits	144,527		1.20	%	2,984	0.55	%
Intercompany deposits	70,576		0.20		56,684	0.28
Retail and other deposits	269,027		0.59		101,462	0.60
Total interest-bearing liabilities	484,130		0.72	%	161,130	0.49	%
Non-interest-bearing liabilities	6,427				2,870
Equity	104,019				101,900
Total liabilities and equity	$	594,576			265,900

5444

~~Regulatory Capital Requirements~~

~~Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements administered by the FDIC~~Summary 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, and 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, 2021 with a leverage ratio of 25.5%. 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.

~~Summary~~Comparison of Operating Results

On November 2, 2020, Nelnet Bank obtained final approval for federal deposit insurance from the FDIC and for a bank charter from the UDFI and Nelnet Bank launched operations. Nelnet Bank's operations are presented by the Company as a reportable operating segment. Costs associated with Nelnet Bank prior to November 2, 2020 are included in the Corporate operating segment. In addition, certain shared service and support costs incurred by the Company are not and will not be reflected as part of the Nelnet Bank operating segment through 2023 (the bank's de novo period). The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank's operating segment were $0.8 million and $2.5 million for the three and nine months ended September 30, 2021, respectively.


		Three months ended		Nine months ended			Three months ended March 31,
		September 30, 2021		September 30, 2021	Additional information		2022		2021	Additional information
Total interest income	Total interest income	$	2,061	5,479	Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments.	Total interest income	$	3,030	1,376	Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments. Increase is due to an increase of these balances in 2022 as compared to 2021.
Interest expense	Interest expense	421		1,007	Represents interest expense on deposits.	Interest expense	856		194	Represents interest expense on deposits. Increase is due to an increase of deposits and interest rates in 2022 as compared to 2021.
Net interest income	Net interest income	1,640		4,472		Net interest income	2,174		1,182
(Negative provision) provision for loan losses		(113)		378
Provision for loan losses						Provision for loan losses	429		422
Net interest income after provision for loan losses	Net interest income after provision for loan losses	1,753		4,094		Net interest income after provision for loan losses	1,745		760
Other income	Other income	450		475		Other income	1,500		22	Represents primarily income and gains from investments. During the first quarter of 2022, Nelnet Bank recognized gains of approximately $1.1 million on certain asset-backed securities that were sold or called during the quarter.

Salaries and benefits	Salaries and benefits	890		3,956	Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.	Salaries and benefits	1,554		1,488	Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.
Depreciation						Depreciation	3		—
Other expenses	Other expenses	445		1,227	Represents various expenses such as postage, consulting and professional fees, Nelnet Bank director fees, occupancy, certain information technology-related costs, insurance, marketing, and other operating expenses.	Other expenses	682		545	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.
Intersegment expenses	Intersegment expenses	32		72	Represents primarily servicing costs paid to the LSS operating segment.	Intersegment expenses	45		3	Represents primarily servicing costs paid to the LSS operating segment. Certain shared service and support costs incurred by the Company to support Nelnet Bank are not and will not be reflected as part of the Nelnet Bank operating segment 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 $1.3 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively.
Total operating expenses	Total operating expenses	1,367		5,255		Total operating expenses	2,284		2,036
Income (loss) before income taxes	Income (loss) before income taxes	836		(686)		Income (loss) before income taxes	961		(1,254)
Income tax (expense) benefit	Income tax (expense) benefit	(200)		151	Represents income tax (expense) benefit at an effective tax rate of 24.0% and 22.0% for the three and nine months ended September 30, 2021, respectively.	Income tax (expense) benefit	(223)		286	Represents income tax (expense) benefit at an effective tax rate of 23.2% and 22.8% for the three months ended March 31, 2022 and 2021, respectively.
Net income (loss)	Net income (loss)	$	636	(535)		Net income (loss)	$	738	(968)

5545

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. 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

The Company has historically generated positive cash flow from operations. For the year ended December 31, ~~2020~~2021 and the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company’s net cash provided by operating activities was ~~$212.8~~$544.9 million and ~~$389.7~~$185.5 million, respectively.

As of ~~September 30, 2021,~~March 31, 2022, the Company had cash and cash equivalents of ~~$191.9~~$162.8 million. Cash held by Nelnet Bank is generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, cash and cash equivalents as of ~~September 30, 2021~~March 31, 2022 was ~~$170.9~~$144.8 million.

The Company invests excess cash in federally insured student loan asset-backed securities, and the cash proceeds from the sale of these securities could be used for operating and/or other investing opportunities. The Company had a portfolio of federally insured student loan asset-backed securities (classified as available-for-sale) with a fair value of $403.7 million as of September 30, 2021. Investments held by Nelnet Bank are generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, the fair value of federally insured student loan asset-backed securities as of September 30, 2021 was $210.9 million. As of September 30, 2021, the Company had participated $194.2 million of its non-Nelnet Bank federally insured student loan asset-backed securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

The Company also has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of ~~September 30, 2021,~~March 31, 2022, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 million, subject to certain conditions. In addition, the Company has a $22.0 million secured line of credit agreement that matures on May 30, 2022. As of September 30, 2021, the secured line of credit had $5.0 million outstanding and $17.0 million was available for future use.

In addition, the Company has retained certain of its own asset-backed securities upon their initial issuance or 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, 2021,~~March 31, 2022, the Company holds ~~$179.7~~$398.1 million (par value) of its own asset-backed securities. As of March 31, 2022, $45.7 million of the Company's repurchased asset-backed securities were financed with proceeds from the Company's repurchase agreements and such amount is included in "bonds and notes payable" on the Company's consolidated balance sheet as of March 31, 2022.

The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, and consumer 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

During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company generated ~~$389.7~~$185.5 million in operating activities, compared to generating ~~$173.0~~$48.7 million for the same period in ~~2020.~~2021. The increase in such cash flows from operating activities was due to:

•An increase in net income;

•Adjustments to net income for the impact of ~~reduced gains from investments and sale of loans during the nine months ended September 30, 2021, as compared to the same period in 2020,~~provision for loan losses and the non-cash change in deferred income taxes;

•~~Proceeds~~An increase in proceeds from the Company's clearinghouse for margin payments on derivatives for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~payments~~the same period in 2021;

•Proceeds from the sale of equity securities for the three months ended March 31, 2022 compared to purchases in the ~~clearinghouse~~same period in ~~2020;~~2021; and

•The impact of changes to ~~the due to customers liability account~~accrued interest receivable, accounts receivable, and ~~other assets~~accrued interest payable during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020.~~2021.

These factors were partially offset by:

•The adjustments to net income for derivative market value adjustments;

•Adjustments to net income for the impact of ~~the non-cash provision for loan~~ losses ~~beneficial interests, and impairment charges (a significant portion of which during the nine months ended September 30, 2020 were related to COVID-19), and depreciation and amortization;~~

•~~Purchases of equity securities classified as trading;~~recognized on certain investments; and

•The impact of changes to ~~accrued interest receivable, accounts receivable, and accrued interest payable~~the due to customers liability account during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020.~~2021.

The primary items included in the statement of cash flows for investing activities are the purchase, origination, and repayment of loans. The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable and deposits used to fund loans. Cash provided by investing activities and used in financing activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$543.4~~$603.1 million and ~~$640.3~~$805.2 million, respectively. Cash provided by investing activities and used in financing activities for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$953.6~~$468.4 million and ~~$1.4 billion,~~$528.1 million, 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, 2021~~March 31, 2022
	Carrying amount		Final maturity
Bonds and notes issued in asset-backed securitizations	$	~~18,161,773~~16,160,699	5/27/25 - 9/25/69
FFELP and private education loan warehouse facilities	~~123,745~~101,731		~~11/~~5/22/2223 - ~~2/26/24~~6/30/23
	$	~~18,285,518~~16,262,430

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.

As of ~~September 30, 2021,~~March 31, 2022, 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 ~~$2.10~~$1.83 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of ~~September 30, 2021.~~March 31, 2022. As of ~~September 30, 2021,~~March 31, 2022, AGM had ~~$18.2~~$16.3 billion of loans included in asset-backed securitizations, which represented 98.4 percent 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, ~~as of September 30, 2021,~~ private education and consumer loans funded with operating cash, loans acquired subsequent to ~~September 30, 2021,~~March 31, 2022, 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" on the Company's consolidated balance sheets).

5747

Asset-backed Securitization Cash Flow Forecast

$~~2.10~~1.83 billion

(dollars in millions)

The forecasted future undiscounted cash flows of approximately ~~$2.10~~$1.83 billion include approximately ~~$1.21~~$1.11 billion (as of ~~September 30, 2021)~~March 31, 2022) 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" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately ~~$0.89~~$0.72 billion, or approximately ~~$0.68~~$0.55 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 ~~September 30, 2021~~March 31, 2022 balance of consolidated shareholders' equity.

The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.

Prepayments: The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates ~~that~~of 4 percent for consolidation loans and 5 percent for all other loan types. These prepayment rates are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions. ~~If management used~~

On April 19, 2022, the Department issued a press release, and the Department's Office of Federal Student Aid ("FSA") posted a related public announcement, which together announced, among other things, several adjustments, updates, and other changes under income-driven repayment ("IDR") plans for federal student loans. In the announcements, the Department and FSA indicated that as part of these changes, any borrower with loans that have accumulated time in repayment, including time in certain forbearances and deferments, of at least 20 or 25 years will see automatic forgiveness, even if the borrower is not currently in an IDR plan, and that if a borrower has a commercially held FFEL Program loan, the borrower can only benefit from these changes if they consolidate their FFEL Program loan to a Federal Direct Loan Program loan. The Company

currently believes these announced changes could significantly increase FFEL Program loan prepayments. See Part II, Item 1A, "Risk Factors" in this report for additional information related to these announcements.

The following table summarizes the estimated impact to the above forecasted cash flows if prepayments were greater than the prepayment rate ~~assumption two times greater than what was~~assumptions used to ~~forecast~~calculate the forecasted cash flows.

Increase in prepayment rate

Reduction in forecasted cash flow from table above

Forecasted cash flow using increased prepayment rate

$0.13 billion

$1.70 billion

$0.35 billion

$1.48 billion

10x

$0.63 billion

$1.20 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 $1.11 billion (as of March 31, 2022); however, the Company would not receive the $0.72 billion ($0.55 billion after tax) of estimated future earnings from the portfolio.

The forecasted cash flow presented below includes the $1.83 billion estimated cash flow as presented in the above cash flow forecast ~~would be reduced by approximately $115 million to $150 million.~~table, and the estimated cash flow assuming a 10 times increase in prepayments on the Company's FFELP asset-backed securities transactions.

Asset-backed Securitization Cash Flow Forecast

(dollars in millions)

Interest rates: The Company funds a large portion of its student loans with three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR rate. 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 three-month LIBOR will exceed one-month LIBOR by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices. If the forecast is computed assuming a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately ~~$50~~$70 million to ~~$75~~$90 million. As the percentage of the Company's outstanding debt financed by three-month LIBOR declines, the Company's basis risk will be reduced. In addition, the Company attempts to mitigate the impact of this basis risk by entering into certain derivative instruments. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."

LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations. See "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" above and Item 1A, "Risk Factors - Loan Portfolio -

Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's ~~2020~~2021 Annual Report for additional information.

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. An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. The forecasted cash flow does not include cash flows the Company expects to pay/receive related to derivative instruments used by the Company to manage interest rate risk. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk —- Interest Rate Risk - AGM Operating Segment."

Warehouse Facilities

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse ~~facilities.~~facility. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of ~~September 30, 2021,~~March 31, 2022, the ~~Company~~Company's warehouse facility had ~~two FFELP warehouse facilities with an aggregate~~a maximum financing amount available of ~~$110.0~~$60.0 million, of which ~~$5.4~~$5.0 million was outstanding and ~~$104.6~~$55.0 million was available for additional funding. ~~On October 14, 2021, the Company terminated one of the FFELP warehouse facilities.~~ The ~~remaining FFELP~~ warehouse facility has ~~an aggregate maximum financing amount of $60.0 million and~~ a static advance rate until the expiration date of the liquidity provisions ~~(November 22, 2021)~~(May 23, 2022). 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 ~~(November~~(May 22, ~~2022)~~2023). ~~For further discussion~~As of March 31, 2022, the ~~Company's FFELP warehouse facilities, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of~~Company had $0.3 million advanced as equity support on this ~~report.~~facility.

The Company has a private education loan warehouse facility that, as of ~~September 30, 2021,~~March 31, 2022, had an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through ~~February 13,~~June 30, 2022, and a final maturity date of ~~February 13,~~June 30, 2023. As of ~~September 30, 2021, $118.3~~March 31, 2022, $96.7 million was outstanding under this warehouse facility, ~~$56.7~~$78.3 million was available for future funding, and ~~$12.9~~$10.6 million was advanced as equity support.

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.

The Company had a $100.0 million consumer loan warehouse facility that was terminated on March 31, 2021. The Company used operating cash to pay off the $20.7 million outstanding balance on this facility upon its termination.

Other Uses of Liquidity

The Company no longer originates ~~new~~ 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 and consumer loans (or investment interests therein).

The Company plans to fund additional loan acquisitions and related investments using current cash and investments; using its unsecured line of credit, Union Bank student loan participation agreement, 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.

Private Education Loan Investment

In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company ~~has~~ entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company ~~has~~had an approximately 8 percent interest in the loans and has a corresponding 8 percent interest in residual interests in ~~subsequent~~the 2021 securitizations of the loans. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March and throughout the second quarter of 2021, the vast majority of the borrowers were converted to the Company's servicing platform.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.

~~On May 20, 2021, June 30, 2021, and August 18,~~During 2021, the ~~joint venture completed~~Company sponsored four asset-backed securitization transactions to permanently finance a total of ~~$7.4~~$8.7 billion of ~~the~~ private education loans sold by Wells Fargo (which represented the total remaining loans originally purchased byfrom Wells Fargo, factoring in borrower payments from the joint venture. The Company is accounting for its approximately 8 percent residual interest in these securitizations as held-to-maturity beneficial interest investments. These investments are reflected on the Company's consolidated balance sheet as "investments." On behalfdate of ~~the joint venture, the Company is the sponsor and administrator for these loan securitizations.~~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 sheet as "investments" and as of ~~September 30, 2021,~~March 31, 2022, the fair value of these bonds was ~~$371.7~~$371.9 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.~~third party. The Company entered into repurchase agreements with ~~third-parties,~~third

parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

As of ~~September 30, 2021, $334.5~~March 31, 2022, $384.3 million was outstanding on the Company's repurchase ~~agreements.~~agreements, of which $338.6 million was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement. The repurchase agreements have various maturity dates ~~on the repurchase agreements are various dates~~(as of March 31, 2022) between ~~November 15, 2021~~April 14, 2022 and December 20, 2023, but are subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates. The Company ~~pays interest on amounts outstanding on the repurchase agreements based on LIBOR plus an applicable spread, and~~ is ~~also~~ required to pay additional cash in the event the fair value of the securities subject to a repurchase agreement becomes less than the original purchase price of such securities.

Upon termination or expiration of the repurchase agreements, the Company would use cash and/or cash proceeds from its unsecured line of credit to satisfy any outstanding obligations subject to the repurchase agreements.

On October 27, 2021, the joint venture completed a final asset-backed securitization of $1.2 billion of private education loans that permanently financed all remaining eligible loans temporarily funded in the joint venture limited partnership's warehouse facility.

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, 2021, $878.3~~March 31, 2022, $917.5 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

During the first nine months of 2021, the Company completed two FFELP asset-backed securitization totaling $1.3 billion (par value). The proceeds from these transactions were used primarily to finance student loans purchased during the period and refinance student loans included in the Company's FFELP warehouse facilities. See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on these securitizations.

The Company, through its subsidiaries, has historically funded student loans by completing asset-backed securitizations. Depending on market conditions, the Company currently 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 first three months of 2022.

Liquidity Impact Related to Nelnet Bank

~~On November 2, 2020, the Company obtained final approval for federal deposit insurance from the FDIC and for a bank charter from the UDFI in connection with the establishment of Nelnet Bank, and~~ Nelnet Bank launched ~~operations.~~operations in November 2020. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities. 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 ~~FDIC approval,~~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 percent; (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 percent 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.

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, and 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 March 31, 2022 with a leverage ratio of 17.2%. 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.

Based on Nelnet Bank's business plan for growth and current financial condition, the Company currently believes ~~that the initial~~additional capital ~~contribution of $100.0 million and pledged deposit of $40.0 million should provide sufficient capital and liquidity~~contributions to Nelnet Bank ~~for~~may be required during the ~~next two to three years.~~fourth quarter of 2022 and/or during 2023.

Liquidity Impact Related to ALLO

~~As previously disclosed, on October 1, 2020,~~Upon the ~~Company entered into various agreements with SDC, a third party global digital infrastructure investor, and~~deconsolidation of ALLO for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO. After completion of the initial transactions subject to these agreements, SDC, the Company, and members of ALLO's management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests in ALLO, and upon the receipt of regulatory approvals for the transactions on December 21, 2020, the Company ~~deconsolidated~~recorded its 45 percent voting membership interests in ALLO ~~from~~at fair value, and accounts for such investment under the ~~Company's consolidated financial statements.~~HLBV method of accounting. In addition, on January 19, 2021, ALLO obtained certain private debt financing facilities from unrelated third-party lenders providing for aggregate financing of up to $230.0 million. With proceeds from this transaction, a portion of the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment. As of March 31, 2022, the outstanding preferred membership interests inof ALLO held by the Company ~~were redeemed in exchange for an aggregate redemption price payment to the Company~~was $137.3 million that earns a preferred annual return of ~~$100.0 million.~~6.25 percent.

The agreements among the Company, SDC (a third party global digital infrastructure investor), and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause the redemption, on or before April 2024, of the remaining non-voting preferred membership interests in ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests. As of September 30, 2021, such outstanding preferred membership interests and accrued and unpaid preferred return held by the Company was $129.7 million and $5.6 million, respectively. The non-voting preferred membership interests earn a preferred annual return of 6.25 percent.

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. ~~However,~~Although ALLO has obtained third-party debt financing to ~~support~~fund a large portion of its current growth plans, ~~and thus~~ the Company ~~currently believes~~contributed $34.7 million of additional equity ~~contributions~~ to ALLO ~~are~~on February 25, 2022. As a result of this equity contribution, the Company’s voting membership interests percentage did not ~~likely in the immediate future.~~materially change.

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. Based on the derivative portfolio outstanding as of ~~September 30, 2021,~~March 31, 2022, the Company does not currently 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. However, if interest rates move materially and negatively impact the fair value of the Company's derivative portfolio, the replacement of LIBOR as a benchmark rate has significant adverse impacts on the Company's derivatives, or if the Company enters into additional derivatives for which the fair value becomes negative, the Company could be required to make variation margin payments to its third-party clearinghouse. The variation margin, if significant, could negatively impact the Company's liquidity and capital resources. In addition, clearing rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks. See note 4 of the notes to consolidated financial statements included ~~under Part I, Item 1 of~~in this report for additional information on the Company's derivative portfolio.

Other Debt Facilities

~~The Company's~~As discussed above, the Company has a $495.0 million unsecured line of credit ~~discussed above, was amended on September 22, 2021. As part of the amendment, the facility size increased from $455.0 million to $495.0 million and the~~with a maturity date ~~was extended from December 16, 2024 to~~of September 22, 2026. ~~See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for a summary of additional terms that were modified as part of the amendment.~~ As of ~~September 30, 2021,~~March 31, 2022, the unsecured line of

credit had no amount outstanding and $495.0 million was available for future use. The Company also has a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022. As of September 30, 2021, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use. The secured line of credit is secured by several Company-owned properties. Upon the maturity date of ~~the line of credit facilities,~~this facility, there can be no assurance that the Company will be able to maintain ~~these lines~~this line of credit, increase the amount outstanding under the ~~lines,~~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, 2021, $194.2~~March 31, 2022, $267.5 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~~In 2019, 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~~ended May 7, 2022. On May 9, 2022, the Board of Directors authorized a new 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. The five million shares authorized under the new program include the

remaining unpurchased shares from the prior program, which the new program replaced. As of ~~September 30, 2021, 2,909,015~~March 31, 2022, 2,222,859 shares remained authorized for repurchase under the Company's ~~stock repurchase~~prior program. Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity.

Shares repurchased by the Company during the three months ended March 31, ~~2021, June 30, 2021, and September 30, 2021~~2022 are shown below. For additional information on stock repurchases during the ~~third~~first quarter of ~~2021,~~2022, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price
(in thousands) Average price of shares repurchased (per share)
Quarter ended March 31, 2021 26,199 $ 2,009 76.70
Quarter ended June 30, 2021 5,368 399 74.25
Quarter ended September 30, 2021 341,094 25,078 73.52
Total 372,661 $ 27,486 73.76


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

Quarter ended March 31, 2022	380,053	$	32,899	86.56

~~Included in~~Subsequent to March 31, 2022 (through May 9, 2022), the ~~shares~~Company repurchased ~~during the quarter ended September 30, 2021 in the table above are a total of 337,717 shares of~~an additional 253,838 Class A common ~~stock the Company purchased on August 10, 2021 from various estate planning trusts associated with Shelby J. Butterfield, a significant shareholder of the Company. The~~ shares ~~were purchased at a discount to the closing market~~for $21.2 million (average price of the Company's Class A common stock as of August 9, 2021, and the transaction was separately approved by the Company's Board of Directors and its Nominating and Corporate Governance Committee. Immediately prior to the Company's repurchase of such shares, certain of the repurchased shares were shares of the Company's Class B common stock that were converted to shares of Class A common stock.$83.62 per share).

Dividends

On ~~September~~March 15, ~~2021,~~2022, the Company paid a ~~third~~first quarter ~~2021~~2022 cash dividend on the Company's Class A and Class B common stock of ~~$0.22~~$0.24 per share. In addition, the Company's Board of Directors has declared a ~~fourth~~second quarter ~~2021~~2022 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.24 per share. The ~~fourth~~second quarter cash dividend will be paid on ~~December~~June 15, ~~2021~~2022 to shareholders of record at the close of business on ~~December~~June 1, ~~2021.~~2022.

The Company currently 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 2021 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 2021 Annual Report. For additional information regarding changes in the Company’s allowance for loan losses for the three months ended March 31, 2022 and 2021, 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, 2021.

RECENT ACCOUNTING PRONOUNCEMENTS

Financial Instruments - Credit Losses

In March 2022, the FASB issued accounting guidance 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. This guidance will be effective for the Company beginning January 1, 2023 with early adoption permitted. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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, 2021				As of December 31, 2020					As of March 31, 2022				As of December 31, 2021
		Dollars		Percent		Dollars		Percent			Dollars		Percent		Dollars		Percent
Fixed-rate loan assets	Fixed-rate loan assets	$	7,866,098	42.7	%	$	8,720,480	44.6	%	Fixed-rate loan assets	$	6,954,856	41.8	%	$	7,434,068	42.6	%
Variable-rate loan assets	Variable-rate loan assets	10,571,596		57.3		10,838,628		55.4		Variable-rate loan assets	9,663,771		58.2		10,007,722		57.4
Total	Total	$	18,437,694	100.0	%	$	19,559,108	100.0	%	Total	$	16,618,627	100.0	%	$	17,441,790	100.0	%

Fixed-rate debt instruments	Fixed-rate debt instruments	$	890,843	4.9	%	$	960,327	5.0	%	Fixed-rate debt instruments	$	762,843	4.7	%	$	801,548	4.7	%
Variable-rate debt instruments	Variable-rate debt instruments	17,394,675		95.1		18,354,964		95.0		Variable-rate debt instruments	15,499,587		95.3		16,279,722		95.3
Total	Total	$	18,285,518	100.0	%	$	19,315,291	100.0	%	Total	$	16,262,430	100.0	%	$	17,081,270	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.

~~As a result of the significant drop in interest rates in March 2020 and the first half of the second quarter of 2020, the Company earned $3.9 million and $4.8 million of~~No variable-rate floor income ~~on approximately $1.4 billion of FFELP loans during the three and six months ended June 30, 2020, respectively. Since the borrower rate reset on July 1, 2020,~~was earned by the Company ~~no longer earns such variable-rate floor income on these loans, reflecting the lower interest rate environment.~~in 2022 or 2021.

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


		Three months ended September 30,			Nine months ended September 30,			Three months ended March 31,
		2021		2020	2021	2020		2022		2021
Fixed rate floor income, gross	Fixed rate floor income, gross	$	35,850	36,633	108,029	87,258	Fixed rate floor income, gross	$	28,993	35,539
Derivative settlements (a)	Derivative settlements (a)	(5,209)		(3,588)	(14,648)	(2,772)	Derivative settlements (a)	(3,205)		(4,285)
Fixed rate floor income, net	Fixed rate floor income, net	$	30,641	33,045	93,381	84,486	Fixed rate floor income, net	$	25,788	31,254

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

Gross fixed rate floor income ~~increased~~decreased for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020~~2021 due to ~~lower~~higher interest rates in ~~2021~~2022 as compared to ~~2020.~~2021.

Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and has an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.

The Company enters into derivative instruments to hedge student loans earning fixed rate floor income. The ~~increase~~decrease in net derivative settlements paid on these derivatives in ~~2021~~2022 as compared to ~~the same periods in 2020~~2021 was due to ~~a decrease~~an increase in interest rates and ~~an increase~~a decrease in the notional amount of derivatives ~~outstanding.~~outstanding in 2022 as compared to 2021.

The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:

The following table shows AGM’s federally insured student loan assets that were earning fixed rate floor income as of ~~September 30, 2021.~~March 31, 2022.


Fixed interest rate range	Fixed interest rate range	Borrower/lender weighted average yield	Estimated variable conversion rate (a)	Loan balance		Fixed interest rate range	Borrower/lender weighted average yield	Estimated variable conversion rate (a)	Loan balance
< 3.0%	< 3.0%	2.87%	0.23%	$	1,097,529	< 3.0%	2.88%	0.24%	$	896,417
3.0 - 3.49%	3.0 - 3.49%	3.19%	0.55%	1,384,287		3.0 - 3.49%	3.19%	0.55%	1,216,340
3.5 - 3.99%	3.5 - 3.99%	3.65%	1.01%	1,311,190		3.5 - 3.99%	3.65%	1.01%	1,170,382
4.0 - 4.49%	4.0 - 4.49%	4.20%	1.56%	979,349		4.0 - 4.49%	4.19%	1.55%	881,110
4.5 - 4.99%	4.5 - 4.99%	4.71%	2.07%	612,533		4.5 - 4.99%	4.71%	2.07%	547,249
5.0 - 5.49%	5.0 - 5.49%	5.22%	2.58%	409,149		5.0 - 5.49%	5.22%	2.58%	368,303
5.5 - 5.99%	5.5 - 5.99%	5.67%	3.03%	272,253		5.5 - 5.99%	5.67%	3.03%	239,988
6.0 - 6.49%	6.0 - 6.49%	6.19%	3.55%	311,004		6.0 - 6.49%	6.19%	3.55%	277,698
6.5 - 6.99%	6.5 - 6.99%	6.70%	4.06%	304,230		6.5 - 6.99%	6.70%	4.06%	274,368
7.0 - 7.49%	7.0 - 7.49%	7.17%	4.53%	114,190		7.0 - 7.49%	7.17%	4.53%	102,274
7.5 - 7.99%	7.5 - 7.99%	7.71%	5.07%	206,858		7.5 - 7.99%	7.71%	5.07%	189,295
8.0 - 8.99%	8.0 - 8.99%	8.18%	5.54%	486,961		8.0 - 8.99%	8.18%	5.54%	444,724
> 9.0%	> 9.0%	9.05%	6.41%	186,168		> 9.0%	9.05%	6.41%	172,229
				$	7,675,701				$	6,780,377

(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, 2021,~~March 31, 2022, the weighted average estimated variable conversion rate was ~~1.93%~~1.97% and the short-term interest rate was 923 basis points.

6455

The following table summarizes the outstanding derivative instruments as of ~~September 30, 2021~~March 31, 2022 used by AGM to economically hedge loans earning fixed rate floor income.

Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2021 $ 100,000 2.95 %
2022 500,000 0.94
2023 900,000 0.62
2024 2,500,000 0.35
2025 500,000 0.35
2026 300,000 0.81
2031 100,000 1.53
$ 4,900,000 0.56 %


Maturity	Notional amount		Weighted average fixed rate paid by the Company (a)


2023	$	750,000	0.30	%
2024	2,500,000		0.35
2025	500,000		0.35
2026	500,000		1.02
2031	100,000		1.53


	$	4,350,000	0.44	%

(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.

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, 2021.~~March 31, 2022.


Index	Index	Frequency of variable resets	Assets		Funding of student loan assets	Index	Frequency of variable resets	Assets		Funding of student loan assets
1 month LIBOR (a)	1 month LIBOR (a)	Daily	$	16,867,459	—	1 month LIBOR (a)	Daily	$	15,198,552	—
3 month H15 financial commercial paper	3 month H15 financial commercial paper	Daily	656,099		—	3 month H15 financial commercial paper	Daily	587,763		—
3 month Treasury bill	3 month Treasury bill	Daily	557,930		—	3 month Treasury bill	Daily	509,062		—
1 month LIBOR	1 month LIBOR	Monthly	—		11,147,340	1 month LIBOR	Monthly	—		10,069,293
3 month LIBOR (a)	3 month LIBOR (a)	Quarterly	—		5,637,642	3 month LIBOR (a)	Quarterly	—		5,074,989
Fixed rate	Fixed rate	—	—		860,434	Fixed rate	—	—		736,079
Auction-rate (b)	Auction-rate (b)	Varies	—		450,300	Auction-rate (b)	Varies	—		225,535
Asset-backed commercial paper (c)	Asset-backed commercial paper (c)	Varies	—		5,446	Asset-backed commercial paper (c)	Varies	—		5,017
Other (d)	Other (d)	—	1,526,469		1,506,795	Other (d)	—	1,431,818		1,616,282
			$	19,607,957	19,607,957			$	17,727,195	17,727,195

(a) The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of ~~September 30, 2021.~~March 31, 2022.


Maturity	Notional amount (i)
2022	$	2,000,000
2023	750,000
2024	1,750,000
2026	1,150,000
2027	250,000







	$	5,900,000

(i) The weighted average rate paid by the Company on the 1:3 Basis Swaps as of ~~September 30, 2021~~March 31, 2022 was one-month LIBOR plus 9.1 basis points.

(b) As of ~~September 30, 2021,~~March 31, 2022, the Company was sponsor for ~~$450.3~~$225.5 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (“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 LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.

(d) Assets include accrued interest receivable and restricted cash. Funding represents overcollateralization (equity) and other liabilities included in FFELP asset-backed securitizations and warehouse facilities.

LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets. See "Interest Rate Risk - ~~Replacement~~Repayment of LIBOR as a Benchmark Rate" under Item 2 above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's ~~2020~~2021 Annual Report for additional information.

6556

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 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. The analysis includes the effects of AGM’s derivative instruments in existence during these periods.

Interest rates Asset and funding index mismatches
Change from increase of
100 basis points Change from increase of
300 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, 2021
Effect on earnings:
Decrease in pre-tax net income before impact of derivative settlements $ (14,394) (21.5) % $ (27,280) (40.8) % $ (1,484) (2.2) % $ (4,453) (6.7) %
Impact of derivative settlements 12,252 18.3 36,756 55.0 1,487 2.2 4,461 6.7
Increase (decrease) in net income before taxes $ (2,142) (3.2) % $ 9,476 14.2 % $ 3 0.0 % $ 8 0.0 %
Increase (decrease) in basic and diluted earnings per share $ (0.04) $ 0.19 $ 0.00 $ 0.00
Three months ended September 30, 2020
Effect on earnings:
Decrease in pre-tax net income before
   impact of derivative settlements $ (16,328) (18.1) % $ (31,947) (35.4) % $ (1,737) (1.9) % $ (5,212) (5.7) %
Impact of derivative settlements 2,643 2.9 7,930 8.8 1,546 1.7 4,638 5.1
Increase (decrease) in net income
   before taxes $ (13,685) (15.2) % $ (24,017) (26.6) % $ (191) (0.2) % $ (574) (0.6) %
Increase (decrease) in basic and
   diluted earnings per share $ (0.27) $ (0.47) (0.00 ) $ (0.01)
Nine months ended September 30, 2021
Effect on earnings:
Decrease in pre-tax net income before
   impact of derivative settlements $ (42,749) (12.8) % $ (79,285) (23.7) % $ (4,659) (1.4) % $ (13,980) (4.2) %
Impact of derivative settlements 30,944 9.3 92,831 27.8 4,474 1.3 13,423 4.0
Increase (decrease) in net income
   before taxes $ (11,805) (3.5) % $ 13,546 4.1 % $ (185) (0.1) % $ (557) (0.2) %
Increase (decrease) in basic and
   diluted earnings per share $ (0.23) $ 0.27 (0.00 ) $ (0.01)
Nine months ended September 30, 2020
Effect on earnings:
Decrease in pre-tax net income before
   impact of derivative settlements $ (42,577) (28.7) % $ (79,919) (53.9) % $ (5,491) (3.7) % $ (16,479) (11.1) %
Impact of derivative settlements 8,859 6.0 26,577 17.9 4,566 3.1 13,698 9.2
Increase (decrease) in net income
   before taxes $ (33,718) (22.7) % $ (53,342) (36.0) % $ (925) (0.6) % $ (2,781) (1.9) %
Increase (decrease) in basic and
   diluted earnings per share $ (0.65) $ (1.03) $ (0.02) $ (0.05)


	Interest rates								Asset and funding index mismatches
	Change from increase of 100 basis points				Change from increase of 300 basis points				Increase of 10 basis points					Increase of 30 basis points

	Dollars		Percent		Dollars		Percent		Dollars			Percent		Dollars		Percent
	Three months ended March 31, 2022
Effect on earnings:
Decrease in pre-tax net income before impact of derivative settlements	$	(10,141)	(4.2)	%	$	(17,647)	(7.3)	%	$	(1,262)		(0.5)	%	$	(3,786)	(1.6)	%
Impact of derivative settlements	10,726		4.5		32,178		13.4		1,455			0.6		4,364		1.8
Increase (decrease) in net income before taxes	$	585	0.3	%	$	14,531	6.1	%	$	193		0.1	%	$	578	0.2	%
Increase (decrease) in basic and diluted earnings per share	$	0.01			$	0.29			$	0.00				$	0.01
	Three months ended March 31, 2021
Effect on earnings:
Decrease in pre-tax net income before impact of derivative settlements	$	(14,282)	(9.1)	%	$	(26,218)	(16.6)	%	$	(1,605)		(1.0)	%	$	(4,814)	(3.1)	%
Impact of derivative settlements	9,130		5.8		27,390		17.3		1,516			1.0		4,549		2.9
Increase (decrease) in net income before taxes	$	(5,152)	(3.3)	%	$	1,172	0.7	%	$	(89)		—	%	$	(265)	(0.2)	%
Increase (decrease) in basic and diluted earnings per share	$	(0.10)			$	0.02			(0.00		)			$	(0.01)

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 ~~its~~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.

The following table presents Nelnet Bank's loan assets and deposits by rate characteristics:


		As of September 30, 2021				As of December 31, 2020					As of March 31, 2022				As of December 31, 2021
		Dollars		Percent		Dollars		Percent			Dollars		Percent		Dollars		Percent
Fixed-rate loan assets	Fixed-rate loan assets	$	126,633	65.8	%	$	16,866	96.1	%	Fixed-rate loan assets	$	278,450	75.6	%	$	191,410	74.2	%
Variable-rate loan assets	Variable-rate loan assets	65,692		34.2		677		3.9		Variable-rate loan assets	89,807		24.4		66,491		25.8
Total	Total	$	192,325	100.0	%	$	17,543	100.0	%	Total	$	368,257	100.0	%	$	257,901	100.0	%

Fixed-rate deposits	Fixed-rate deposits	$	200,651	66.4	%	$	54,633	48.3	%	Fixed-rate deposits	$	484,047	88.5	%	$	344,315	80.9	%
Variable-rate deposits	Variable-rate deposits	101,564		33.6		58,413		51.7		Variable-rate deposits	62,623		11.5		81,085		19.1
Total	Total	$	302,215	100.0	%	$	113,046	100.0	%	Total	$	546,670	100.0	%	$	425,400	100.0	%

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, 2021.~~March 31, 2022. 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, 2021.~~March 31, 2022.

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, 2021~~March 31, 2022 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, ~~2020~~2021 under Item 3 of Part I of such Form 10-K.

ITEM 1A. RISK FACTORS

The following risk factor updates the corresponding risk factor in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 in response to Item 1A of Part I of such Form 10-K under the caption "Loan Portfolio - Our loan portfolio is subject to certain risks related to interest rates, and the derivatives we use to manage interest rate risks, prepayment risk, and credit risk, each of which could reduce the expected cash flows and earnings on our portfolio - Prepayment risk," in order to provide information regarding the potential impact of recent ~~changes in~~announcements by the Department and the Department's Office of ~~Education policy~~Federal Student Aid ("FSA") related to ~~the Public Service Loan Forgiveness program.~~student loan income-driven repayment forgiveness.

Prepayment risk

Higher rates of prepayments of student loans, including consolidations by the Department through the Federal Direct Loan Program or private refinancing programs, would reduce our interest income.

Pursuant to the Higher Education Act, borrowers may prepay loans made under the FFEL Program at any time without penalty. Prepayments may result from consolidations of student loans by the Department through the Federal Direct Loan Program or by a lending institution through a private education or unsecured consumer loan, which historically tend to occur more frequently in low interest rate environments; from borrower defaults on federally insured loans, which will result in the receipt of a guaranty payment; and from voluntary full or partial prepayments; among other things.

Legislative and executive action risk exists as Congress and the President evaluate economic stimulus packages and proposals to reauthorize the Higher Education Act. If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs, or further extend the suspension of borrower payments under the CARES Act, such initiatives could further increase prepayments and reduce interest income and could also reduce servicing fees. Future laws, executive actions, or other policy statements may encourage or force consolidation, create additional income-based repayment or debt forgiveness programs, create broad debt cancellation programs, or establish other policies and programs that impact prepayments on education loans. Even if a broad debt cancellation program only applied to student loans held by the Department, such program could result in a significant increase in consolidations of FFELP loans to Federal Direct Loan Program loans and a corresponding increase in prepayments with respect to our FFELP loan portfolio. For example, in October 2021, the Department ~~recently~~ announced a set of policy changes and released proposed negotiated rulemaking materials relating to the Public Service Loan Forgiveness program under its Federal Direct Loan Program, which may result in an increase in consolidations of FFELP loans into Federal Direct Loan Program loans held by the Department (which results in the loans no longer being on our balance sheet). ~~While implementation of the~~Such policy changes ~~and final new regulations are unknown at this time, individually or collectively, they~~ may cause higher than anticipated prepayment rates on our portfolio of loans. In addition, on April 19, 2022, the Department issued a press release, and FSA posted a related public announcement, which together announced, among other things, several adjustments, updates, and other changes under income-driven repayment (“IDR”) plans for federal student loans. In the announcements, the Department and FSA indicated that as part of these changes, any borrower with loans that have accumulated time in repayment, including time in certain forbearances and deferments, of at least 20 or 25 years will see automatic forgiveness, even if the borrower is not currently in an IDR plan, and that if a borrower has a commercially held FFEL Program loan, the borrower can only benefit from these changes if they

consolidate their FFEL Program loan to a Federal Direct Loan Program loan before the Department completes implementation of these changes, which the Department estimates to be no sooner than January 1, 2023. The Company currently believes these announced changes could significantly increase FFEL Program loan prepayments.

A significant increase in FFEL Program loan prepayments could have a materially adverse impact in future periods on the Company’s net interest income in its AGM operating segment, FFELP servicing revenue in the Company’s LSS operating segment, investment advisory services revenue earned by the Company’s SEC-registered investment advisor subsidiary (Whitetail Rock Capital Management, LLC) on FFELP loan asset-backed securities under management, and interest income earned on the Company’s FFELP loan asset-backed securities investments. In addition, student loan forgiveness under the Federal Direct Loan Program as a result of the changes described in the announcements could have a materially adverse impact on future revenue earned by the LSS operating segment under the Company’s government servicing contracts, including software services revenue earned by the Company in providing remote hosted services to other government servicers. As of March 31, 2022, the Company was servicing 14.7 million borrowers under its government servicing contracts. If there is a broad $10,000 or $50,000 per borrower forgiveness on all government owned loans, the Company estimates it would decrease the number of borrowers serviced by the Company (based on the borrower loan information as of March 31, 2022) by approximately 4.4 million borrowers and 11.7 million borrowers, respectively.

Some variability in prepayment levels is expected, although extraordinary or extended increases in prepayment rates could have a materially adverse effect on our revenues, cash flows, profitability, and business outlook, and, as a result, could materially, adversely affect our business, financial condition, and results of operations.

We cannot otherwise predict how or what programs or policies will be impacted by any actions that the Administration, Congress, or the federal government may ~~take.~~take, the timing of when such programs or policies may be implemented, and/or the ultimate outcome thereof. In addition, any changes to government programs or policies may be legally challenged, which may impact the extent and timing these changes may have to the Company's business, financial condition, and results of operations.

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~~first quarter of ~~2021~~2022 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. Certain share repurchases included in the table below were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 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, 2021 — $ — — 3,246,732
August 1 - August 31, 2021 337,717 73.46 337,717 2,909,015
September 1 - September 30, 2021 3,377 80.04 — 2,909,015
Total 341,094 $ 73.52 337,717


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)
January 1 - January 31, 2022	142,619	$	90.39	142,619	2,429,061
February 1 - February 28, 2022	12,952	87.24		12,952	2,416,109
March 1 - March 31, 2022	224,482	84.09		193,250	2,222,859
Total	380,053	$	86.56	348,821

(a) The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares purchased pursuant to the applicable stock repurchase program discussed in footnote (b) below during August consisted of a total of 337,717 shares of Class A common stock purchased from a certain significant shareholder in a privately negotiated transaction on August 10, 2021. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included ~~3,377~~31,232 shares in ~~September 2021.~~March 2022. 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 8, 2019, 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~~ended May 7, 2022. On May 9, 2022, the Company announced that its Board of Directors authorized a new 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. The five million shares authorized under the new program include the remaining unpurchased shares from the prior program, which the new program replaces. As of March 31, 2022, 2,222,859 shares remained authorized for repurchase under the Company's prior program.

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.

ITEM 6. EXHIBITS



~~10.1#~~			~~Third Amended and Restated Credit Agreement dated as of September~~ 22 , 2021, among Nelnet, Inc., U.S. Bank National Association, as Administrative Agent; Wells Fargo Bank, National Association, as Syndication Agent, Royal Bank of Canada, as Documentation Agent, U.S. Bank National Association and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners; and various lender parties thereto, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 22 ~~, 2021 and incorporated herein by reference.~~

~~10.2~~			Third Amended and Restated Guaranty dated as of September 22, 2021, by each of the subsidiaries of Nelnet, Inc. signatories thereto, in favor of U.S. Bank National Association, as Administrative Agent, filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference.

~~10.3~~			Form of Modification of Contract entered into on September 24, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 27, 2021 and incorporated herein by reference.

~~10.4~~			Form of Modification of Contract entered into on September 24, 2021 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 27, 2021 and incorporated herein by reference.

31.1*			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Jeffrey R. Noordhoek.

31.2*			Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D. Kruger.

32**			Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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





#			~~Certain schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K~~

6960

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 8, 2021~~May 9, 2022

By:

/s/ JEFFREY R. NOORDHOEK

Name:

Jeffrey R. Noordhoek

Title:

Chief Executive Officer

Principal Executive Officer

Date:

~~November 8, 2021~~May 9, 2022

By:

/s/ JAMES D. KRUGER

Name:

James D. Kruger

Title:

Chief Financial Officer

Principal Financial Officer and Principal Accounting Officer

7061


PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	2
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3225
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6354
	Item 4.	Controls and Procedures	6758

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	6758
	Item 1A.	Risk Factors	6758
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6859
	Item 6.	Exhibits	6960

Signatures			7061


	NFSLW-I (a)		NHELP-II (b)	Total
Maximum financing amount	$	60,000	50,000	110,000
Amount outstanding	5,446		—	5,446
Amount available	$	54,554	50,000	104,554
Expiration of liquidity provisions	November 22, 2021		February 26, 2022
Final maturity date	November 22, 2022		February 26, 2024


Advanced as equity support	$	328	115	443


		As of		As of
	Useful life	September 30, 2021		December 31, 2020
Computer equipment and software	1-5 years	$	220,509	172,664
Building and building improvements	5-48 years	46,018		52,444
Office furniture and equipment	1-10 years	23,819		21,899
Leasehold improvements	1-15 years	9,330		9,168
Transportation equipment	5-10 years	4,857		4,857
Land	—	3,642		3,642
Construction in progress	—	3,783		18,478
		311,958		283,152
Accumulated depreciation		(194,662)		(159,625)
Total property and equipment, net		$	117,296	123,527


	As of
	December 31, 2019		March 31, 2020	June 30, 2020	September 30, 2020	December 31, 2020	March 31, 2021	June 30, 2021	September 30, 2021
Servicing volume (dollars in millions):
Nelnet Servicing:
Government	$	183,790	185,477	185,315	189,932	191,678	195,875	195,030	198,743
FFELP	33,185		32,326	31,392	31,122	30,763	30,084	29,361	28,244
Private and consumer	16,033		16,364	16,223	16,267	16,226	21,397	24,758	24,229
Great Lakes:
Government	239,980		243,205	243,609	249,723	251,570	257,806	257,420	262,311


Total	$	472,988	477,372	476,539	487,044	490,237	505,162	506,569	513,527

Number of servicing borrowers:
Nelnet Servicing:
Government	5,574,001		5,498,872	5,496,662	5,604,685	5,645,946	5,664,094	5,636,781	5,791,521
FFELP	1,478,703		1,423,286	1,370,007	1,332,908	1,300,677	1,233,461	1,198,863	1,150,214
Private and consumer	682,836		670,702	653,281	649,258	636,136	882,477	1,039,537	1,097,252
Great Lakes:
Government	7,396,657		7,344,509	7,346,691	7,542,679	7,605,984	7,637,270	7,616,270	7,778,535


Total	15,132,197		14,937,369	14,866,641	15,129,530	15,188,743	15,417,302	15,491,451	15,817,522

Number of remote hosted borrowers:	6,433,324		6,354,158	6,264,559	6,251,598	6,555,841	4,307,342	4,338,570	4,548,541