Equibles

10-Q

NELNET INC (NNI)

10-Q 2022-05-09 For: 2022-03-31
View Original
Added on April 04, 2026

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 March 31, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to .

Commission File Number: 001-31924

nni-20220331_g1.jpg

NELNET, INC.

(Exact name of registrant as specified in its charter)

Nebraska 84-0748903
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
121 South 13th Street, Suite 100
Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)

(402) 458-2370

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 per Share NNI New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                       Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒                                                     Accelerated filer ☐

Non-accelerated filer ☐                    Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2022, there were 26,994,698 and 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

March 31, 2022

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 54
Item 4. Controls and Procedures 58
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 58
Item 1A. Risk Factors 58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 59
Item 6. Exhibits 60
Signatures 61

ITEM 1.  FINANCIAL STATEMENTS

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
As of As of
March 31, 2022 December 31, 2021
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $117,825 and<br><br>$127,113, respectively) $ 17,621,576 18,335,197
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party 36,111 30,128
Cash and cash equivalents - held at a related party 126,674 95,435
Total cash and cash equivalents 162,785 125,563
Investments 1,649,578 1,588,919
Restricted cash 757,954 741,981
Restricted cash - due to customers 256,927 326,645
Accounts receivable (net of allowance for doubtful accounts of $1,098 and $1,160, respectively) 144,902 163,315
Goodwill 142,092 142,092
Intangible assets, net 49,544 52,029
Property and equipment, net 120,779 119,413
Other assets 83,604 82,887
Total assets $ 20,989,741 21,678,041
Liabilities:
Bonds and notes payable $ 16,736,701 17,631,089
Accrued interest payable 7,216 4,566
Bank deposits 484,047 344,315
Other liabilities 400,523 379,231
Due to customers 276,191 366,002
Total liabilities 17,904,678 18,725,203
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — —
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,151,270<br><br>shares and 27,239,654 shares, respectively 272 272
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding<br><br>10,674,892 shares and 10,676,642 shares, respectively 107 107
Additional paid-in capital 1,208 1,000
Retained earnings 3,092,226 2,940,523
Accumulated other comprehensive (loss) earnings, net (5,500) 9,304
Total Nelnet, Inc. shareholders' equity 3,088,313 2,951,206
Noncontrolling interests (3,250) 1,632
Total equity 3,085,063 2,952,838
Total liabilities and equity $ 20,989,741 21,678,041
Supplemental information - assets and liabilities of consolidated education and other lending<br>     variable interest entities:
Loans and accrued interest receivable $ 17,162,119 17,981,414
Restricted cash 666,369 674,073
Bonds and notes payable (16,660,541) (17,462,456)
Accrued interest payable and other liabilities (48,267) (36,276)
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
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
Three months ended
March 31,
2022 2021
Interest income:
Loan interest $ 111,377 124,117
Investment interest 13,819 4,986
Total interest income 125,196 129,103
Interest expense on bonds and notes payable and bank deposits 48,079 27,773
Net interest income 77,117 101,330
Less negative provision for loan losses (435) (17,048)
Net interest income after provision for loan losses 77,552 118,378
Other income/expense:
Loan servicing and systems revenue 136,368 111,517
Education technology, services, and payment processing revenue 112,286 95,258
Other 9,877 (2,168)
Gain on sale of loans 2,989 —
Derivative market value adjustments and derivative settlements, net 142,925 34,505
Total other income/expense 404,445 239,112
Cost to provide education technology, services, and payment processing services 35,545 27,052
Operating expenses:
Salaries and benefits 149,414 115,791
Depreciation and amortization 16,956 20,184
Other expenses 39,499 36,698
Total operating expenses 205,869 172,673
Income before income taxes 240,583 157,765
Income tax expense 55,697 34,861
Net income 184,886 122,904
Net loss attributable to noncontrolling interests 1,761 694
Net income attributable to Nelnet, Inc. $ 186,647 123,598
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 4.91 3.20
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
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
Three months ended March 31,
2022 2021
Net income $ 184,886 122,904
Other comprehensive (loss) income:
Net changes related to foreign currency translation adjustments $ 9 1
Net changes related to available-for-sale debt securities:
Unrealized holding (losses) gains arising during period, net (16,698) 4,349
Reclassification of gains recognized in net income, net of losses (2,793) (508)
Income tax effect 4,678 (14,813) (922) 2,919
Other comprehensive (loss) income (14,804) 2,920
Comprehensive income 170,082 125,824
Comprehensive loss attributable to noncontrolling interests 1,761 694
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
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
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 — — — — — — — — — 1,400 1,400
Net income (loss) — — — — — — — 123,598 — (694) 122,904
Other comprehensive income — — — — — — — — 2,920 — 2,920
Distribution to noncontrolling interests — — — — — — — — — (102) (102)
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 — 199,442 — — 2 — 2,089 — — — 2,091
Compensation expense for stock based awards — — — — — — 1,985 — — — 1,985
Repurchase of common stock — (26,199) — — — — (2,009) — — — (2,009)
Conversion of common stock — 1,400 (1,400) — — — — — — — —
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 — 27,239,654 10,676,642 $ — 272 107 1,000 2,940,523 9,304 1,632 2,952,838
Issuance of noncontrolling interests — — — — — — — — — 2,004 2,004
Net income (loss) — — — — — — — 186,647 — (1,761) 184,886
Other comprehensive loss — — — — — — — — (14,804) — (14,804)
Distribution to noncontrolling interests — — — — — — — — — (5,125) (5,125)
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 — 289,919 — — 3 — 4,382 — — — 4,385
Compensation expense for stock based awards — — — — — — 2,841 — — — 2,841
Repurchase of common stock — (380,053) — — (3) — (7,015) (25,881) — — (32,899)
Conversion of common stock — 1,750 (1,750) — — — — — — — —
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 CASH FLOWS
(Dollars in thousands)
(unaudited)
Three months ended
March 31,
2022 2021
Net income attributable to Nelnet, Inc. $ 186,647 123,598
Net loss attributable to noncontrolling interests (1,761) (694)
Net income 184,886 122,904
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 36,335 38,415
Loan discount accretion (9,927) (7,218)
Negative provision for loan losses (435) (17,048)
Derivative market value adjustments (145,734) (38,809)
Proceeds from clearinghouse - initial and variation margin, net of payments 149,649 38,081
Gain on sale of loans (2,989) —
Loss on investments, net 2,801 13,849
Proceeds from sale (purchases) of equity securities, net 572 (13,512)
Deferred income tax expense 39,443 15,405
Non-cash compensation expense 2,920 2,052
Negative provision for beneficial interests — (2,436)
Decrease (increase) in loan and investment accrued interest receivable 10,694 (114)
Decrease (increase) in accounts receivable 18,442 (3,831)
(Increase) decrease in other assets, net (1,963) 5,147
Decrease in the carrying amount of ROU asset, net 1,439 1,418
Increase (decrease) in accrued interest payable 2,650 (23,174)
Decrease in other liabilities, net (11,824) (10,375)
Decrease in the carrying amount of lease liability (1,500) (1,247)
Decrease in due to customers (89,884) (70,849)
Other (110) —
Net cash provided by operating activities 185,465 48,658
Cash flows from investing activities:
Purchases and originations of loans (161,334) (152,329)
Purchases of loans from a related party (1,049) (19,731)
Net proceeds from loan repayments, claims, and capitalized interest 848,188 637,275
Proceeds from sale of loans 15,170 —
Purchases of available-for-sale securities (139,195) (44,335)
Proceeds from sales of available-for-sale securities 113,980 18,077
Proceeds from beneficial interest in loan securitizations 7,271 8,603
Purchases of other investments (73,944) (71,590)
Proceeds from other investments 9,776 110,290
Purchases of property and equipment (15,794) (17,898)
Net cash provided by investing activities 603,069 468,362
NELNET, INC. AND SUBSIDIARIES
--- --- --- ---
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three months ended
March 31,
2022 2021
Cash flows from financing activities:
Payments on bonds and notes payable $ (918,270) (584,303)
Proceeds from issuance of bonds and notes payable 13,512 7,800
Payments of debt issuance costs (312) (614)
Increase in bank deposits, net 139,732 57,197
Dividends paid (9,063) (8,437)
Repurchases of common stock (32,899) (2,009)
Proceeds from issuance of common stock 435 381
Issuance of noncontrolling interests 2,004 1,940
Distribution to noncontrolling interests (365) (102)
Net cash used in financing activities (805,226) (528,147)
Effect of exchange rate changes on cash 169 (77)
Net decrease in cash, cash equivalents, and restricted cash (16,523) (11,204)
Cash, cash equivalents, and restricted cash, beginning of period 1,194,189 958,395
Cash, cash equivalents, and restricted cash, end of period $ 1,177,666 947,191 Supplemental disclosures of cash flow information:
--- --- --- ---
Cash disbursements made for interest $ 33,895 39,686
Cash disbursements made for income taxes, net of refunds and credits received (a) $ 466 199
Cash disbursements made for operating leases $ 1,887 2,098
Non-cash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations $ 746 740
Receipt of beneficial interest in consumer loan securitization $ 3,660 —
Distribution to noncontrolling interests $ 4,760 —
Issuance of noncontrolling interests $ — 540

(a) The Company utilized $1.1 million and $2.0 million of federal and state tax credits related primarily to renewable energy during the three months ended March 31, 2022 and 2021, 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
March 31, 2022 December 31, 2021 March 31, 2021 December 31, 2020
Total cash and cash equivalents $ 162,785 125,563 144,229 121,249
Restricted cash 757,954 741,981 609,881 553,175
Restricted cash - due to customers 256,927 326,645 193,081 283,971
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 March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 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 months ended March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 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, 2021 (the "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
March 31, 2022 December 31, 2021
Non-Nelnet Bank:
Federally insured student loans:
Stafford and other $ 3,741,495 3,904,000
Consolidation 12,553,882 13,187,047
Total 16,295,377 17,091,047
Private education loans 278,537 299,442
Consumer loans 44,713 51,301
Non-Nelnet Bank loans 16,618,627 17,441,790
Nelnet Bank:
Federally insured student loans 82,789 88,011
Private education loans 285,468 169,890
Nelnet Bank loans 368,257 257,901
Accrued interest receivable 774,774 788,552
Loan discount, net of unamortized loan premiums and deferred origination costs (22,257) (25,933)
Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans (95,995) (103,381)
Private education loans (14,622) (16,143)
Consumer loans (5,710) (6,481)
Non-Nelnet Bank allowance for loan losses (116,327) (126,005)
Nelnet Bank:
Federally insured loans (247) (268)
Private education loans (1,251) (840)
Nelnet Bank allowance for loan losses (1,498) (1,108)
$ 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 January 26, 2022, the Company sold $18.1 million (par value) of consumer loans to an unrelated third party who securitized such loans. The Company recognized a gain of $3.0 million (pre-tax) as part of this transaction. As partial consideration received for the consumer loans sold, the Company received a 6.6 percent residual interest in the consumer loan 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 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 March 31, 2022
Non-Nelnet Bank:
Federally insured loans $ 103,381 (2,748) (4,761) — 123 — 95,995
Private education loans 16,143 (400) (1,299) 176 — 2 14,622
Consumer loans 6,481 2,284 (937) 166 — (2,284) 5,710
Nelnet Bank:
Federally insured loans 268 (21) — — — — 247
Private education loans 840 426 (13) — — (2) 1,251
$ 127,113 (459) (7,010) 342 123 (2,284) 117,825
Three months ended March 31, 2021
Non-Nelnet Bank:
Federally insured loans $ 128,590 (7,483) (61) — 800 — 121,846
Private education loans 19,529 1,431 (493) 202 — 1 20,670
Consumer loans 27,256 (11,418) (1,950) 246 — — 14,134
Nelnet Bank:
Private education loans 323 422 — — — (1) 744
$ 175,698 (17,048) (2,504) 448 800 — 157,394

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

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 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 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) 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 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 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.

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 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

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 March 31, 2022 As of December 31, 2021 As of March 31, 2021
Federally insured loans - Non-Nelnet Bank:
Loans in-school/grace/deferment $ 839,566 5.2 % $ 829,624 4.9 % $ 1,006,605 5.4 %
Loans in forbearance 1,160,048 7.1 1,118,667 6.5 1,936,553 10.4
Loans in repayment status:
Loans current 12,352,543 86.4 % 12,847,685 84.9 % 13,787,038 88.0 %
Loans delinquent 31-60 days 462,750 3.2 895,656 5.9 425,599 2.7
Loans delinquent 61-90 days 282,810 2.0 352,449 2.3 234,871 1.5
Loans delinquent 91-120 days 202,371 1.4 251,075 1.7 125,471 0.8
Loans delinquent 121-270 days 712,753 5.0 592,449 3.9 1,026,050 6.6
Loans delinquent 271 days or greater 282,536 2.0 203,442 1.3 63,196 0.4
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 16,295,377 100.0 % 17,091,047 100.0 % 18,605,383 100.0 %
Accrued interest receivable 770,853 784,716 791,199
Loan discount, net of unamortized premiums and deferred origination costs (27,317) (28,309) (14,608)
Allowance for loan losses (95,995) (103,381) (121,846)
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:
Loans in-school/grace/deferment $ 10,226 3.7 % $ 9,661 3.2 % $ 10,405 3.3 %
Loans in forbearance 2,838 1.0 3,601 1.2 7,567 2.4
Loans in repayment status:
Loans current 260,911 98.3 % 280,457 98.0 % 292,840 98.9 %
Loans delinquent 31-60 days 1,699 0.6 2,403 0.8 1,343 0.5
Loans delinquent 61-90 days 1,040 0.4 976 0.3 843 0.3
Loans delinquent 91 days or greater 1,823 0.7 2,344 0.9 1,050 0.3
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 278,537 100.0 % 299,442 100.0 % 314,048 100.0 %
Accrued interest receivable 1,898 1,960 2,303
Loan discount, net of unamortized premiums (598) (1,123) 2,673
Allowance for loan losses (14,622) (16,143) (20,670)
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.

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, 2021 and 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 March 31, 2022 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010.

Three months ended March 31, 2022 2021 2020 2019 2018 Prior years Total
Private education loans - Non-Nelnet Bank:
Loans in school/grace/deferment $ 121 3,030 1,899 3,318 — 1,858 10,226
Loans in forbearance — 10 372 858 181 1,417 2,838
Loans in repayment status:
Loans current 1,452 2,796 60,651 46,107 284 149,621 260,911
Loans delinquent 31-60 days — 2 10 239 — 1,448 1,699
Loans delinquent 61-90 days — 13 102 — — 925 1,040
Loans delinquent 91 days or greater — — 87 — — 1,736 1,823
Total loans in repayment 1,452 2,811 60,850 46,346 284 153,730 265,473
Total private education loans $ 1,573 5,851 63,121 50,522 465 157,005 278,537
Accrued interest receivable 1,898
Loan discount, net of unamortized premiums (598)
Allowance for loan losses (14,622)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 265,215
Consumer loans - Non-Nelnet Bank:
Loans in deferment $ — 34 — 32 6 — 72
Loans in repayment status:
Loans current 17,335 17,475 574 3,738 4,243 59 43,424
Loans delinquent 31-60 days 32 74 15 99 31 4 255
Loans delinquent 61-90 days — 181 50 12 57 4 304
Loans delinquent 91 days or greater — 54 39 208 357 — 658
Total loans in repayment 17,367 17,784 678 4,057 4,688 67 44,641
Total consumer loans $ 17,367 17,818 678 4,089 4,694 67 44,713
Accrued interest receivable 374
Loan premium 1,040
Allowance for loan losses (5,710)
Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 40,417
Private education loans - Nelnet Bank (a):
Loans in school/grace/deferment $ 133 364 — — — — 497
Loans in forbearance 139 178 — — — — 317
Loans in repayment status:
Loans current 126,380 148,040 9,661 — — — 284,081
Loans delinquent 30-59 days 284 138 — — — — 422
Loans delinquent 60-89 days — 78 — — — — 78
Loans delinquent 90 days or greater — 73 — — — — 73
Total loans in repayment 126,664 148,329 9,661 — — — 284,654
Total private education loans $ 126,936 148,871 9,661 — — — 285,468
Accrued interest receivable 418
Deferred origination costs 4,593
Allowance for loan losses (1,251)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 289,228

(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.

3.  Bonds and Notes Payable

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

As of March 31, 2022
Carrying<br><br>amount Interest rate<br><br>range Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
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 225,535 0.00% - 1.43% 3/22/32 - 8/27/46
Total FFELP variable-rate bonds and notes 15,369,817
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 loan warehouse facility 5,017 0.61% 5/22/23
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 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 26,764 3.60% / 5.35% 12/26/40 / 12/28/43
Unsecured line of credit — — 9/22/26
Participation agreement 267,481 1.08% 5/4/22
Repurchase agreements 384,343 0.95% - 1.46% 4/14/22 - 12/20/23
Secured line of credit 5,000 2.05% 5/30/22
16,919,254
Discount on bonds and notes payable and debt issuance costs (182,553)
Total $ 16,736,701
As of December 31, 2021
--- --- --- --- ---
Carrying<br><br>amount Interest rate<br><br>range Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:
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 248,550 0.00% - 1.09% 3/22/32 - 8/27/46
Total FFELP variable-rate bonds and notes 16,135,845
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 loan warehouse facility 5,048 0.21% 5/22/23
Private education loan warehouse facility 107,011 0.24% 2/13/23
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 28,613 3.60% / 5.35% 12/26/40 / 12/28/43
Unsecured line of credit — — 9/22/26
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 1.91% 5/30/22
17,824,087
Discount on bonds and notes payable and debt issuance costs (192,998)
Total $ 17,631,089

Warehouse Facilities

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

FFELP loan warehouse facility

As of March 31, 2022, the Company’s FFELP warehouse facility had an aggregate maximum financing amount available of $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 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 of $175.0 million and 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 June 30, 2023. As of March 31, 2022, $96.7 million was outstanding under this warehouse facility, $78.3 million was available for future funding, and the Company had $10.6 million advanced as equity support.

Unsecured Line of Credit

The Company has a $495.0 million unsecured line of credit that has a maturity date of September 22, 2026. As of March 31, 2022, no amount was outstanding on the 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.

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 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 $400.0 million or an amount in excess of $400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities 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 maturity dates (as of March 31, 2022) of April 14, 2022, May 27, 2022, and January 13, 2023. Included in “bonds and notes payable” as of March 31, 2022 was $192.9 million subject to the first agreement and $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 was 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.

Debt Repurchases

During the three months ended March 31, 2022, the Company repurchased $18.5 million of its own debt. The gain recognized from these debt repurchases was not significant. No debt was repurchased during the three months ended March 31, 2021.

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 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 2021 Annual Report. A tabular presentation of such derivatives outstanding as of March 31, 2022 and December 31, 2021 is presented below.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps as of March 31, 2022 and December 31, 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
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 March 31, 2022 and December 31, 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 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 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

5.  Investments

A summary of the Company's investments follows:

As of March 31, 2022 As of December 31, 2021
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):
FFELP loan asset-backed securities- available-for-sale (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 (c) 388,736 — (16,851) 371,885 414,286 507 (2,241) 412,552
Other debt securities - available-for-sale 49,306 4 (78) 49,232 22,435 — — 22,435
Total available-for-sale debt securities $ 945,420 12,083 (19,317) 938,186 917,412 15,217 (2,960) 929,669
Equity securities 71,698 71,986
Total investments (at fair value) 1,009,884 1,001,655
Other Investments (not measured at fair value):
Other debt securities - held-to-maturity 8,200 8,200
Venture capital and funds:
Measurement alternative 164,368 157,609
Equity method 74,339 67,840
Total venture capital and funds 238,707 225,449
Real estate:
Equity method 50,257 47,226
Notes receivable 4,169 —
Total real estate 54,426 47,226
Investment in ALLO:
Voting interest/equity method (d) 108,773 87,247
Preferred membership interest and accrued and unpaid preferred return (e) 139,459 137,342
Total investment in ALLO 248,232 224,589
Beneficial interest in loan securitizations (f):
Private education loans 73,915 66,008
Consumer loans 31,222 28,366
Federally insured student loans 25,217 25,768
Total beneficial interest in loan securitizations 130,354 120,142
Solar (g) (44,354) (42,457)
Tax liens, affordable housing, and other 4,129 4,115
Total investments (not measured at fair value) 639,694 587,264
Total investments $ 1,649,578 $ 1,588,919

(a)    As of 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, as discussed in note 3 under "Participation Agreement."

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

(d)    On February 25, 2022, the Company contributed $34.7 million of additional equity to ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO"). As a result of this equity contribution, the Company's voting membership interests percentage in ALLO did not materially change. The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value ("HLBV") method of accounting. During the three months ended March 31, 2022 and 2021, the Company recognized pre-tax losses of $13.1 million and $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 March 31, 2022, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $137.3 million and $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 months ended March 31, 2022 and 2021, the Company recognized pre-tax income on its ALLO preferred membership interests of $2.1 million and $2.3 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income.

(f)    The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations. As of the latest remittance reports filed by the 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 these securitizations.

(g)    The Company makes investments in entities that promote renewable energy sources (solar). The 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 March 31, 2022, the Company has funded a total of $231.4 million in solar investments, which includes $62.6 million funded by syndication partners. The carrying value of the Company’s solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at March 31, 2022 represents the sum of total tax credits earned on solar projects placed in service through March 31, 2022 and the calculated HLBV net losses being larger than total payments made by the Company on such projects. As of March 31, 2022, the Company is committed to fund an additional $19.0 million on these projects, of which $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 solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the three months ended March 31, 2022 and 2021, the Company recognized pre-tax losses of $1.0 million and $1.7 million, respectively, on its solar investments. These losses are included in “other” in "other income/expense" on the consolidated statements of income. Losses from solar investments during the three months ended March 31, 2022 and 2021 include losses of $1.8 million and $0.6 million, respectively, attributable to third-party minority interest investors (syndication partners) that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income.

  1. Intangible Assets

Intangible assets consisted of the following:

Weighted average remaining useful life as of<br><br>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 $2.5 million and $8.4 million during the three months ended March 31, 2022 and 2021, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of March 31, 2022, the Company estimates it will record amortization expense as follows:

2022 (April 1 - December 31) $ 7,454
2023 9,830
2024 7,457
2025 4,644
2026 4,517
2027 and thereafter 15,642
$ 49,544
  1. Goodwill

The carrying amount of goodwill as of March 31, 2022 and December 31, 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.  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 March 31,
2022 2021
Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:
Net income attributable to Nelnet, Inc. $ 183,328 3,319 186,647 121,766 1,832 123,598
Denominator:
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 $ 4.91 4.91 4.91 3.20 3.20 3.20

9.  Segment Reporting

See note 15 of the notes to consolidated financial statements included in the 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 March 31, 2022
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset<br>Generation and<br>Management Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 67 339 118,598 3,030 3,992 (828) 125,196
Interest expense 24 — 46,003 856 2,026 (828) 48,079
Net interest income 43 339 72,595 2,174 1,966 — 77,117
Less (negative provision) provision for loan losses — — (864) 429 — — (435)
Net interest income after provision for loan losses 43 339 73,459 1,745 1,966 — 77,552
Other income/expense:
Loan servicing and systems revenue 136,368 — — — — — 136,368
Intersegment revenue 8,480 3 — — — (8,483) —
Education technology, services, and payment processing revenue — 112,286 — — — — 112,286
Other 740 — 6,511 1,500 1,125 — 9,877
Gain on sale of loans — — 2,989 — — — 2,989
Derivative settlements, net — — (2,809) — — — (2,809)
Derivative market value adjustments, net — — 145,734 — — — 145,734
Total other income/expense 145,588 112,289 152,425 1,500 1,125 (8,483) 404,445
Cost of services — 35,545 — — — — 35,545
Operating expenses:
Salaries and benefits 91,972 31,286 591 1,554 24,012 — 149,414
Depreciation and amortization 4,954 2,315 — 3 9,684 — 16,956
Other expenses 16,213 5,764 3,033 682 13,804 — 39,499
Intersegment expenses, net 20,398 4,605 8,831 45 (25,396) (8,483) —
Total operating expenses 133,537 43,970 12,455 2,284 22,104 (8,483) 205,869
Income (loss) before income taxes 12,094 33,113 213,429 961 (19,013) — 240,583
Income tax (expense) benefit (2,903) (7,947) (51,223) (223) 6,598 — (55,697)
Net income (loss) 9,191 25,166 162,206 738 (12,415) — 184,886
Net loss attributable to noncontrolling interests — — — — 1,761 — 1,761
Net income (loss) attributable to Nelnet, Inc. $ 9,191 25,166 162,206 738 (10,654) — 186,647
Total assets as of March 31, 2022 $ 259,712 376,794 18,158,972 656,242 2,066,417 (528,396) 20,989,741
Three months ended March 31, 2021
--- --- --- --- --- --- --- ---
Loan Servicing and Systems Education Technology, Services, and Payment Processing Asset<br>Generation and<br>Management Nelnet Bank Corporate and Other Activities Eliminations Total
Total interest income $ 34 263 126,402 1,376 1,246 (218) 129,103
Interest expense 23 — 26,950 194 824 (218) 27,773
Net interest income 11 263 99,452 1,182 422 — 101,330
Less (negative provision) provision for loan losses — — (17,470) 422 — — (17,048)
Net interest income after provision for loan losses 11 263 116,922 760 422 — 118,378
Other income/expense:
Loan servicing and systems revenue 111,517 — — — — — 111,517
Intersegment revenue 8,268 3 — — — (8,271) —
Education technology, services, and payment processing revenue — 95,258 — — — — 95,258
Other 1,113 — 2,881 22 (6,184) — (2,168)
Gain on sale of loans — — — — — — —
Derivative settlements, net — — (4,304) — — — (4,304)
Derivative market value adjustments, net — — 38,809 — — — 38,809
Total other income/expense 120,898 95,261 37,386 22 (6,184) (8,271) 239,112
Cost of services — 27,052 — — — — 27,052
Operating expenses:
Salaries and benefits 66,458 25,941 495 1,488 21,409 — 115,791
Depreciation and amortization 8,192 3,071 — — 8,920 — 20,184
Other expenses 13,285 4,822 3,777 545 14,272 — 36,698
Intersegment expenses, net 16,890 3,664 8,427 3 (20,713) (8,271) —
Total operating expenses 104,825 37,498 12,699 2,036 23,888 (8,271) 172,673
Income (loss) before income taxes 16,084 30,974 141,609 (1,254) (29,650) — 157,765
Income tax (expense) benefit (3,860) (7,434) (33,987) 286 10,133 — (34,861)
Net income (loss) 12,224 23,540 107,622 (968) (19,517) — 122,904
Net loss attributable to noncontrolling interests — — — — 694 — 694
Net income (loss) attributable to Nelnet, Inc. $ 12,224 23,540 107,622 (968) (18,823) — 123,598
Total assets as of March 31, 2021 $ 191,910 372,315 20,367,532 296,908 1,148,560 (210,017) 22,167,208
  1. Disaggregated Revenue

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

Loan Servicing and Systems

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 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 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)

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. 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 10.

Nelnet Servicing's and Great Lakes' student loan servicing contracts with the Department are 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. The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department.

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 March 31, 2022 As of December 31, 2021
Level 1 Level 2 Total Level 1 Level 2 Total
Assets:
Investments:
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 — 371,885 371,885 — 412,552 412,552
Other debt securities - available-for-sale 100 49,132 49,232 100 22,335 22,435
Equity securities 59,943 — 59,943 63,154 — 63,154
Equity securities measured at net asset value (a) 11,755 8,832
Total investments 60,043 938,086 1,009,884 63,254 929,569 1,001,655
Total assets $ 60,043 938,086 1,009,884 63,254 929,569 1,001,655

(a) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

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

As of March 31, 2022
Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:
Loans receivable $ 17,656,032 16,846,802 — — 17,656,032
Accrued loan interest receivable 774,774 774,774 — 774,774 —
Cash and cash equivalents 162,785 162,785 162,785 — —
Investments (at fair value) 1,009,884 1,009,884 60,043 938,086 —
Beneficial interest in loan securitizations 145,623 130,354 — — 145,623
Restricted cash 757,954 757,954 757,954 — —
Restricted cash – due to customers 256,927 256,927 256,927 — —
Financial liabilities:
Bonds and notes payable 16,705,877 16,736,701 — 16,705,877 —
Accrued interest payable 7,216 7,216 — 7,216 —
Bank deposits 469,559 484,047 189,319 280,240 —
Due to customers 276,191 276,191 276,191 — — As of December 31, 2021
--- --- --- --- --- --- ---
Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:
Loans receivable $ 18,576,272 17,546,645 — — 18,576,272
Accrued loan interest receivable 788,552 788,552 — 788,552 —
Cash and cash equivalents 125,563 125,563 125,563 — —
Investments (at fair value) 1,001,655 1,001,655 63,254 929,569 —
Beneficial interest in loan securitizations 142,391 120,142 — — 142,391
Restricted cash 741,981 741,981 741,981 — —
Restricted cash – due to customers 326,645 326,645 326,645 — —
Financial liabilities:
Bonds and notes payable 17,819,902 17,631,089 — 17,819,902 —
Accrued interest payable 4,566 4,566 — 4,566 —
Bank deposits 342,463 344,315 184,897 157,566 —
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 2021 Annual Report.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three months ended March 31, 2022 and 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 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 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 29 percent of the Company's revenue in 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, 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 interest rate environment, such as risks from the recent increases in interest rates resulting from inflationary pressures and the transition from LIBOR to an alternative reference rate, 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 government initiatives or proposals to consolidate existing FFELP loans to 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 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 from its continuing investment in ALLO Holdings, LLC (referred to collectively with its subsidiary ALLO Communications LLC as "ALLO"), and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;

•risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses;

•risks and uncertainties associated with climate change, 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, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.

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

OVERVIEW

The Company is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar). The Company is also actively expanding its private education 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 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 March 31,
2022 2021
GAAP net income attributable to Nelnet, Inc. $ 186,647 123,598
Realized and unrealized derivative market value adjustments (145,734) (38,809)
Tax effect (a) 34,976 9,314
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 75,889 94,103
Earnings per share:
GAAP net income attributable to Nelnet, Inc. $ 4.91 3.20
Realized and unrealized derivative market value adjustments (3.83) (1.01)
Tax effect (a) 0.91 0.25
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.

Operating Segments

The Company's reportable operating segments are described in note 1 of the notes to consolidated financial statements included in the 2021 Annual Report. They include:

•Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS")

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

•Asset Generation and Management ("AGM")

•Nelnet Bank

The Company earns fee-based revenue through its NDS and NBS operating segments. The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its AGM operating segment. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes. The Company actively works to maximize the amount and timing of cash flows generated 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.

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 industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah.

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured and other corporate related debt transactions.

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

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<br><br><br><br>•An increase of $6.5 million in investment interest income in 2022 as compared to 2021 primarily from beneficial interest investments<br><br><br><br>•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<br><br><br><br>•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<br><br><br><br>•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<br><br><br><br>•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

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 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.

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 impact on the economic environment globally and in the U.S. There is uncertainty as to the length and breadth of the impact to the U.S. economy and, consequently, on the Company. As a related matter, on April 6, 2022, the 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 on the Company, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - Recent Transactions/Developments - COVID-19" in the 2021 Annual Report. In addition, for an additional discussion regarding the risks associated with COVID-19, see Part I, Item 1A. "Risk Factors - Operations - The COVID-19 pandemic has adversely impacted our results of operations, and either directly or indirectly through impacts on economic conditions or government policy could adversely impact our results of operations, businesses, financial condition, and/or cash flows going forward." in the 2021 Annual Report.

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's consolidated operating results for the three months ended March 31, 2022 compared to the same period in 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 9 of the notes to consolidated financial statements included under Part I, Item 1 of this report. Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis.

Three months ended
March 31,
2022 2021 Additional information
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 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 125,196 129,103
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 77,117 101,330
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.<br><br><br><br>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 77,552 118,378
Other income/expense:
LSS revenue 136,368 111,517 See LSS operating segment - results of operations.
ETS&PP revenue 112,286 95,258 See ETS&PP operating segment - results of operations.
Other 9,877 (2,168) See table below for the components of "other."
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 (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 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 404,445 239,112
Cost of 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 35,545 27,052
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 March 31,
2022 2021
Income/gains from investments, net (a) $ 11,856 8,498
Borrower late fee income (b) 2,431 442
ALLO preferred return (c) 2,117 2,321
Investment advisory services (d) 1,282 2,697
Negative provision for beneficial interests investment (e) — 2,436
Loss from ALLO voting membership interest investment (f) (13,130) (22,219)
Loss from solar investments (g) (1,030) (1,679)
Other 6,351 5,336
Other income $ 9,877 (2,168)

(a)    During the three months ended 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 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 Company's financial statements in December 2020. As of March 31, 2022, the amount of preferred membership interests held by the Company was $137.3 million, which earns a preferred annual return of 6.25 percent.

(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 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 March 31, 2022, the outstanding balance of asset-backed securities under management subject to these arrangements was $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 Nelnet stock under management (with the Nelnet stock primarily shares of Class B common stock held in various trust estates).

(e)    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.

(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.

(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.

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Servicing Volumes

As of
December 31,<br>2020 March 31,<br>2021 June 30,<br>2021 September 30,<br>2021 December 31,<br>2021 March 31,<br>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 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. The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department.

Nelnet Servicing and Great Lakes are two of the current seven private sector entities that have student loan servicing contracts with the Department. In July 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a servicer for the Department, announced that it will exit the federal student loan servicing business. All applicable student loans serviced for the Department by PHEAA will be transferred to successor servicers by December 2022. At the time of this announcement, PHEAA serviced approximately 8.5 million borrowers under its contract. As of March 31, 2022, approximately 1,175,000 PHEAA borrowers have been transitioned to Nelnet Servicing’s platform (of which approximately 603,000 were converted prior to December 31, 2021). The Company anticipates additional PHEAA volume to be transitioned to its platform 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.

On April 6, 2022, the Department extended the student loan payment pause under the CARES Act 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 receives less servicing revenue per borrower from the Department based on the borrower forbearance status than what was earned on such accounts prior to these provisions. The Company currently anticipates revenue per borrower from the Department will increase to pre-CARES Act levels beginning September 1, 2022. During the fourth quarter of 2021 and first quarter of 2022, the Company earned additional revenue from the Department based on incremental work being performed by the Company to support the Department borrowers coming out of forbearance, including outbound engagement. The Department paused supplemental outreach with the additional extension of the CARES Act student loan payment pause from May 1, 2022 to August 31, 2022.

Private Education Loan Servicing

In December 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 March 31,
2022 2021 Additional information
Net interest income $ 43 11
Loan servicing and systems revenue 136,368 111,517 See table below for additional information.
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 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.
Total other income 145,588 120,898
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 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 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 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 133,537 104,825
Income before income taxes 12,094 16,084
Income tax expense (2,903) (3,860) Represents income tax expense at an effective tax rate of 24%.
Net income $ 9,191 12,224
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.<br><br><br><br>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).

Loan servicing and systems revenue

Three months ended March 31,
2022 2021 Additional information
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 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 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 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 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 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 $ 136,368 111,517

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

As discussed further in the Company's 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.

Summary and Comparison of Operating Results

Three months ended March 31,
2022 2021 Additional information
Net interest income $ 339 263 Represents interest income on tuition funds held in custody for schools.
Education technology, services, and payment processing revenue 112,286 95,258 See table below for additional information.
Intersegment revenue 3 3
Total other income 112,289 95,261
Cost of services 35,545 27,052 See table below for additional information.
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 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 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 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 43,970 37,498
Income before income taxes 33,113 30,974
Income tax expense (7,947) (7,434) Represents income tax expense at an effective tax rate of 24%.
Net income $ 25,166 23,540

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 March 31,
2022 2021 Additional information
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 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 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 248 143
Education technology, services, and payment processing revenue 112,286 95,258
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 $ 76,741 68,206
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.<br><br><br><br>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.

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of March 31, 2022, the AGM operating segment had a $16.6 billion loan portfolio, consisting primarily of federally insured loans. For a summary of the Company’s loan portfolio as of March 31, 2022 and December 31, 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 March 31,
2022 2021
Beginning balance $ 17,441,790 19,559,108
Loan acquisitions:
Federally insured student loans 10,202 64,731
Private education loans 1,026 23,038
Consumer loans 18,522 19,456
Total loan acquisitions 29,750 107,225
Repayments, claims, capitalized interest, participations, and other, net (447,140) (406,565)
Loans lost to external parties (387,648) (229,545)
Consumer loans sold (18,125) —
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 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 these securitizations. The loans held in these securitizations are not included in the above table.

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 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 AGM's allowance for loan losses for the three months ended March 31, 2022 and 2021, and a summary of AGM's loan status and delinquency amounts as of March 31, 2022, December 31, 2021, and March 31, 2021, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

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 March 31,
2022 2021
Variable loan yield, gross 2.75 % 2.71 %
Consolidation rebate fees (0.85) (0.84)
Discount accretion, net of premium and deferred origination costs amortization 0.03 0.00
Variable loan yield, net 1.93 1.87
Loan cost of funds - interest expense (a) (1.09) (1.07)
Loan cost of funds - derivative settlements (b) (c) 0.01 (0.00 )
Variable loan spread 0.85 0.80
Fixed rate floor income, gross 0.68 0.74
Fixed rate floor income - derivative settlements (b) (d) (0.08) (0.09)
Fixed rate floor income, net of settlements on derivatives 0.60 0.65
Core loan spread 1.45 % 1.45 %
Average balance of AGM's loans $ 17,208,909 19,494,002
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 from the table above.

(b)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2022 and 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 March 31,
2022 2021
Core loan spread 1.45 % 1.45 %
Derivative settlements (1:3 basis swaps) (0.01) 0.00
Derivative settlements (fixed rate floor income) 0.08 0.09
Loan spread 1.52 % 1.54 %

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

(d)    Derivative settlements consist of net settlements 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.

nni-20220331_g2.jpg

(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 three months ended March 31, 2022 compared to the same period in 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). In an increasing interest rate environment, student loan spread 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 March 31,
2022 2021
Fixed rate floor income, gross $ 28,993 35,539
Derivative settlements (a) (3,205) (4,285)
Fixed rate floor income, net $ 25,788 31,254
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 decrease in gross fixed rate floor income for the three months ended March 31, 2022 compared to the same period in 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 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

As of March 31, 2022, the interest earned on a principal amount of $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 $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. The market transition away from the 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 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 March 31,
2022 2021 Additional information
Net interest income after provision for loan losses $ 73,459 116,922 See table below for additional analysis.
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 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 (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 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 152,425 37,386
Salaries and benefits 591 495
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 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 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 213,429 141,609
Income tax expense (51,223) (33,987) Represents income tax expense at an effective tax rate of 24%.
Net income $ 162,206 107,622
Additional information:
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 (145,734) (38,809)
Tax effect 34,976 9,314
Net income, excluding derivative market value adjustments $ 51,448 78,127

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 March 31,
2022 2021 Additional information
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 (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<br>     premium and deferred<br>     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 80,441 88,215
Interest on bonds and notes<br>     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) 396 (19) Derivative settlements include the net settlements received (paid) related to the Company’s 1:3 basis swaps.
Variable loan interest margin,<br>     net of settlements on<br>     derivatives (a) 35,628 61,425
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) (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 25,788 31,254
Core loan interest income (a) 61,416 92,679
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 (794) (179)
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 400 (1,431)
(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) $ 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)    Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures. For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the limitations thereof), see footnote (b) to the table immediately under the caption “Loan Spread Analysis” above. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2022 and 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.

NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Portfolio

As of March 31, 2022, Nelnet Bank had a $368.3 million loan portfolio, consisting of $285.5 million of private education loans and $82.8 million of FFELP loans.

As of March 31, 2022, Nelnet Bank's allowance for loan losses on its portfolio was $1.5 million, which represents reserves equal to 0.30% of Nelnet Bank's federally insured loans (or 11.8% of the risk sharing component of the loans that is not covered by the federal guaranty), and 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 Nelnet Bank's allowance for loan losses for the three months ended March 31, 2022 and 2021, and a summary of Nelnet Bank's loan status, delinquency amounts, and other key credit quality indicators as of March 31, 2022, December 31, 2021, and March 31, 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 March 31,
2022 2021
Beginning balance: $ 257,901 17,543
Private education loan originations 130,342 64,909
Repayments (18,394) (1,995)
Sales to AGM segment (1,592) (1,226)
Ending balance: $ 368,257 79,231

Deposits

As of March 31, 2022, Nelnet Bank had $546.7 million of 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) 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 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.

Average Balance Sheet

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

Three months ended March 31,
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

Summary and Comparison of Operating Results

Three months ended March 31,
2022 2021 Additional information
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 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 2,174 1,182
Provision for loan losses 429 422
Net interest income after provision for loan losses 1,745 760
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 1,554 1,488 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.
Depreciation 3 —
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 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 2,284 2,036
Income (loss) before income taxes 961 (1,254)
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) $ 738 (968)

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, 2021 and the three months ended March 31, 2022, the Company’s net cash provided by operating activities was $544.9 million and $185.5 million, respectively.

As of March 31, 2022, the Company had cash and cash equivalents of $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 March 31, 2022 was $144.8 million.

The Company also has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of 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 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 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 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 three months ended March 31, 2022, the Company generated $185.5 million in operating activities, compared to generating $48.7 million for the same period in 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 provision for loan losses and the non-cash change in deferred income taxes;

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

•The impact of changes to accrued interest receivable, accounts receivable, and accrued interest payable during the three months ended March 31, 2022 as compared to the same period in 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 losses recognized on certain investments; and

•The impact of changes to the due to customers liability account during the three months ended March 31, 2022 as compared to the same period in 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 three months ended March 31, 2022 was $603.1 million and $805.2 million, respectively. Cash provided by investing activities and used in financing activities for the three months ended March 31, 2021 was $468.4 million and $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 March 31, 2022
Carrying amount Final maturity
Bonds and notes issued in asset-backed securitizations $ 16,160,699 5/27/25 - 9/25/69
FFELP and private education loan warehouse facilities 101,731 5/22/23 - 6/30/23
$ 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 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 $1.83 billion as detailed below.

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of March 31, 2022. As of March 31, 2022, AGM had $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, private education and consumer loans funded with operating cash, loans acquired subsequent to 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).

Asset-backed Securitization Cash Flow Forecast

$1.83 billion

(dollars in millions)

nni-20220331_g3.jpg

The forecasted future undiscounted cash flows of approximately $1.83 billion include approximately $1.11 billion (as of 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 $0.72 billion, or approximately $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 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 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.

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 assumptions used to calculate the forecasted cash flows.

Increase in prepayment rate Reduction in forecasted cash flow from table above Forecasted cash flow using increased prepayment rate
2x $0.13 billion $1.70 billion
4x $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 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)

nni-20220331_g4.jpg

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 $70 million to $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 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 facility. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of March 31, 2022, the Company's warehouse facility had a maximum financing amount available of $60.0 million, of which $5.0 million was outstanding and $55.0 million was available for additional funding. The warehouse facility has a static advance rate until the expiration date of the liquidity provisions (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 (May 22, 2023). As of March 31, 2022, the Company had $0.3 million advanced as equity support on this facility.

The Company has a private education loan warehouse facility that, as of 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 June 30, 2022, and a final maturity date of June 30, 2023. As of March 31, 2022, $96.7 million was outstanding under this warehouse facility, $78.3 million was available for future funding, and $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.

Other Uses of Liquidity

The Company no longer originates FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education 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 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company had an approximately 8 percent interest in the loans and has a corresponding 8 percent interest in residual interests in the 2021 securitizations of the loans discussed below. The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility.

During 2021, the Company sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of private education loans sold by Wells Fargo (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase). As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheet as "investments" and as of March 31, 2022, the fair value of these bonds was $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. The Company entered into repurchase agreements with third

As of March 31, 2022, $384.3 million was outstanding on the Company's repurchase 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 (as of March 31, 2022) between 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 is 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.

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 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

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

Nelnet Bank launched 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 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 additional capital contributions to Nelnet Bank may be required during the fourth quarter of 2022 and/or during 2023.

Liquidity Impact Related to ALLO

Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the HLBV method of accounting. In addition, the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment. As of March 31, 2022, the outstanding preferred membership interests of ALLO held by the Company was $137.3 million that earns a preferred annual return of 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.

If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest. Although ALLO has obtained third-party debt financing to fund a large portion of its current growth plans, the Company contributed $34.7 million of additional equity to ALLO on February 25, 2022. As a result of this equity contribution, the Company’s voting membership interests percentage did not 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 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 in this report for additional information on the Company's derivative portfolio.

Other Debt Facilities

As discussed above, the Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026. As of March 31, 2022, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use. Upon the maturity date of this facility, there can be no assurance that the Company will be able to maintain this line of credit, increase the amount outstanding under the line, or find alternative funding if necessary.

During 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in federally insured student loan asset-backed securities. As of 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

In 2019, the Board of Directors authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period 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 March 31, 2022, 2,222,859 shares remained authorized for repurchase under the Company's 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, 2022 are shown below. For additional information on stock repurchases during the first quarter of 2022, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price<br>(in thousands) Average price of shares repurchased (per share)
Quarter ended March 31, 2022 380,053 $ 32,899 86.56

Subsequent to March 31, 2022 (through May 9, 2022), the Company repurchased an additional 253,838 Class A common shares for $21.2 million (average price of $83.62 per share).

Dividends

On March 15, 2022, the Company paid a first quarter 2022 cash dividend on the Company's Class A and Class B common stock of $0.24 per share. In addition, the Company's Board of Directors has declared a second quarter 2022 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.24 per share. The second quarter cash dividend will be paid on June 15, 2022 to shareholders of record at the close of business on June 1, 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 March 31, 2022 As of December 31, 2021
Dollars Percent Dollars Percent
Fixed-rate loan assets $ 6,954,856 41.8 % $ 7,434,068 42.6 %
Variable-rate loan assets 9,663,771 58.2 10,007,722 57.4
Total $ 16,618,627 100.0 % $ 17,441,790 100.0 %
Fixed-rate debt instruments $ 762,843 4.7 % $ 801,548 4.7 %
Variable-rate debt instruments 15,499,587 95.3 16,279,722 95.3
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.

No variable-rate floor income was earned by the Company in 2022 or 2021.

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

Three months ended March 31,
2022 2021
Fixed rate floor income, gross $ 28,993 35,539
Derivative settlements (a) (3,205) (4,285)
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 decreased for the three months ended March 31, 2022 as compared to the same period in 2021 due to higher interest rates in 2022 as compared to 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 decrease in net derivative settlements paid on these derivatives in 2022 as compared to 2021 was due to an increase in interest rates and a decrease in the notional amount of derivatives 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%:

nni-20220331_g5.jpg

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

Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
< 3.0% 2.88% 0.24% $ 896,417
3.0 - 3.49% 3.19% 0.55% 1,216,340
3.5 - 3.99% 3.65% 1.01% 1,170,382
4.0 - 4.49% 4.19% 1.55% 881,110
4.5 - 4.99% 4.71% 2.07% 547,249
5.0 - 5.49% 5.22% 2.58% 368,303
5.5 - 5.99% 5.67% 3.03% 239,988
6.0 - 6.49% 6.19% 3.55% 277,698
6.5 - 6.99% 6.70% 4.06% 274,368
7.0 - 7.49% 7.17% 4.53% 102,274
7.5 - 7.99% 7.71% 5.07% 189,295
8.0 - 8.99% 8.18% 5.54% 444,724
> 9.0% 9.05% 6.41% 172,229
$ 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 March 31, 2022, the weighted average estimated variable conversion rate was 1.97% and the short-term interest rate was 23 basis points.

The following table summarizes the outstanding derivative instruments as of 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)
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.

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.

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 March 31, 2022.

Index Frequency of variable resets Assets Funding of student loan assets
1 month LIBOR (a) Daily $ 15,198,552 —
3 month H15 financial commercial paper Daily 587,763 —
3 month Treasury bill Daily 509,062 —
1 month LIBOR Monthly — 10,069,293
3 month LIBOR (a) Quarterly — 5,074,989
Fixed rate — — 736,079
Auction-rate (b) Varies — 225,535
Asset-backed commercial paper (c) Varies — 5,017
Other (d) — 1,431,818 1,616,282
$ 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 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 March 31, 2022 was one-month LIBOR plus 9.1 basis points.

(b)    As of March 31, 2022, the Company was sponsor for $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.

(c)    The interest rates on the Company's warehouse facilities are indexed to asset-backed commercial paper rates.

(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 - 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 2021 Annual Report for additional information.

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<br>100 basis points Change from increase of<br>300 basis points Increase of<br>10 basis points Increase of<br>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<br>   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<br>   before taxes $ (5,152) (3.3) % $ 1,172 0.7 % $ (89) — % $ (265) (0.2) %
Increase (decrease) in basic and<br>   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 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 March 31, 2022 As of December 31, 2021
Dollars Percent Dollars Percent
Fixed-rate loan assets $ 278,450 75.6 % $ 191,410 74.2 %
Variable-rate loan assets 89,807 24.4 66,491 25.8
Total $ 368,257 100.0 % $ 257,901 100.0 %
Fixed-rate deposits $ 484,047 88.5 % $ 344,315 80.9 %
Variable-rate deposits 62,623 11.5 81,085 19.1
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 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 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 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, 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, 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 announcements by the Department and the Department's Office of Federal Student Aid ("FSA") related to 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, 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 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). Such policy changes 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, 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 first quarter of 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)
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 of Class A common stock tendered by employees to satisfy tax withholding obligations included 31,232 shares in 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 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

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

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: May 9, 2022 By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek
Title: Chief Executive Officer<br><br>Principal Executive Officer Date: May 9, 2022 By: /s/ JAMES D. KRUGER
--- --- --- ---
Name: James D. Kruger
Title: Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

61

Document

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey R. Noordhoek, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2022 /s/ JEFFREY R. NOORDHOEK
Jeffrey R. Noordhoek Chief Executive Officer<br>Principal Executive Officer

Document

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James D. Kruger, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. (the “Company”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 9, 2022 /s/ JAMES D. KRUGER
James D. Kruger<br><br>Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

Document

Exhibit 32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Nelnet, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2022 By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek<br><br>Title:   Chief Executive Officer<br><br>Principal Executive Officer
By: /s/ JAMES D. KRUGER
Name: James D. Kruger<br><br>Title:   Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

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