Equibles

10-Q

NELNET INC (NNI)

10-Q 2024-05-09 For: 2024-03-31
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, 2024

or

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

For the transition period from  to .

Commission File Number: 001-31924

Nelnet_Logo_color.jpg

NELNET, INC.

(Exact name of registrant as specified in its charter)

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

(402) 458-2370

(Registrant’s telephone number, including area code)

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

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

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

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

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

Large accelerated filer ☒                                                     Accelerated filer ☐

Non-accelerated filer ☐                    Smaller reporting company ☐

Emerging growth company ☐

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

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

As of April 30, 2024, there were 25,703,894 and 10,663,088 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).

NELNET, INC.

FORM 10-Q

INDEX

March 31, 2024

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
Item 3. Quantitative and Qualitative Disclosures About Market Risk 61
Item 4. Controls and Procedures 66
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 66
Item 1A. Risk Factors 66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 66
Item 5. Other Information 67
Item 6. Exhibits 67
Signatures 68

ITEM 1.  FINANCIAL STATEMENTS

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
As of As of
March 31, 2024 December 31, 2023
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $106,008 and<br><br>$104,643, respectively) $ 11,829,078 13,108,204
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party 39,407 34,912
Cash and cash equivalents - held at a related party 140,275 133,200
Total cash and cash equivalents 179,682 168,112
Investments and notes receivable (including investments at fair value of $1,037,637 and $988,841, respectively) 1,921,691 1,870,968
Restricted cash 618,363 488,723
Restricted cash - due to customers 142,778 368,656
Restricted investments 36,076 17,969
Accounts receivable (net of allowance for doubtful accounts of $4,248 and $4,304, respectively) 134,647 196,200
Goodwill 158,029 158,029
Intangible assets, net 42,670 44,819
Property and equipment, net 149,249 127,008
Other assets 186,399 187,957
Total assets $ 15,398,662 16,736,645
Liabilities:
Bonds and notes payable $ 10,582,513 11,828,393
Accrued interest payable 31,983 35,391
Bank deposits 802,061 743,599
Other liabilities 449,568 481,840
Due to customers 274,757 425,507
Total liabilities 12,140,882 13,514,730
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding — —
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 26,055,314<br><br>shares and 26,400,630 shares, respectively 261 264
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding<br><br>10,663,088 shares 107 107
Additional paid-in capital 1,101 3,096
Retained earnings 3,312,869 3,279,273
Accumulated other comprehensive loss, net (8,476) (20,119)
Total Nelnet, Inc. shareholders' equity 3,305,862 3,262,621
Noncontrolling interests (48,082) (40,706)
Total equity 3,257,780 3,221,915
Total liabilities and equity $ 15,398,662 16,736,645
Supplemental information - assets and liabilities of consolidated education and other lending<br>     variable interest entities:
Loans and accrued interest receivable $ 11,293,401 12,676,932
Restricted cash 587,980 451,932
Bonds and notes payable (10,841,316) (12,006,170)
Accrued interest payable and other liabilities (121,130) (135,748)
Net assets of consolidated education and other lending variable interest entities $ 918,935 986,946

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,
2024 2023
Interest income:
Loan interest $ 216,724 225,243
Investment interest 52,078 40,725
Total interest income 268,802 265,968
Interest expense on bonds and notes payable and bank deposits 194,580 199,449
Net interest income 74,222 66,519
Less provision for loan losses 10,928 34,275
Net interest income after provision for loan losses 63,294 32,244
Other income (expense):
Loan servicing and systems revenue 127,201 139,227
Education technology services and payments revenue 143,539 133,603
Solar construction revenue 13,726 8,651
Other, net 17,015 (14,071)
(Loss) gain on sale of loans, net (41) 11,812
Derivative market value adjustments and derivative settlements, net 9,721 (14,074)
Total other income (expense), net 311,161 265,148
Cost of services:
Cost to provide education technology services and payments 48,610 47,704
Cost to provide solar construction services 14,229 8,299
Total cost of services 62,839 56,003
Operating expenses:
Salaries and benefits 143,875 152,710
Depreciation and amortization 16,769 16,627
Other expenses 56,845 40,785
Total operating expenses 217,489 210,122
Income before income taxes 94,127 31,267
Income tax expense 23,119 8,250
Net income 71,008 23,017
Net loss attributable to noncontrolling interests 2,202 3,470
Net income attributable to Nelnet, Inc. $ 73,210 26,487
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted $ 1.97 0.71
Weighted average common shares outstanding - basic and diluted 37,156,971 37,344,604

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,
2024 2023
Net income $ 71,008 23,017
Other comprehensive income:
Net changes related to foreign currency translation adjustments $ 5 (3)
Net changes related to available-for-sale debt securities:
Unrealized holding gains arising during period, net of losses 16,761 8,651
Reclassification of (gains) losses recognized in net income, net (552) 4,982
Amortization of net unrealized loss on securities transferred from available-for-sale to held-to-maturity 71 —
Income tax effect (3,907) 12,373 (3,272) 10,361
Net changes related to equity method investee's other comprehensive income:
(Loss) gain on cash flow hedge (967) 2
Income tax effect 232 (735) — 2
Other comprehensive income 11,643 10,360
Comprehensive income 82,651 33,377
Comprehensive loss attributable to noncontrolling interests 2,202 3,470
Comprehensive income attributable to Nelnet, Inc. $ 84,853 36,847

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 Noncontrolling interests Total equity
Class A Class B
Balance as of December 31, 2022 — 26,461,651 10,668,460 $ — 265 107 1,109 3,234,844 (37,366) 943 3,199,902
Issuance of noncontrolling interests — — — — — — — — — 1,201 1,201
Net income (loss) — — — — — — — 26,487 — (3,470) 23,017
Other comprehensive income — — — — — — — — 10,360 — 10,360
Distribution to noncontrolling interests — — — — — — — — — (5,028) (5,028)
Cash dividends on Class A and Class B common stock - $0.26 per share — — — — — — — (9,654) — — (9,654)
Issuance of common stock, net of forfeitures — 198,524 — — 1 — 3,063 — — — 3,064
Compensation expense for stock based awards — — — — — — 3,769 — — — 3,769
Repurchase of common stock — (36,513) — — — — (3,302) — — — (3,302)
Balance as of March 31, 2023 — 26,623,662 10,668,460 $ — 266 107 4,639 3,251,677 (27,006) (6,354) 3,223,329
Balance as of December 31, 2023 — 26,400,630 10,663,088 $ — 264 107 3,096 3,279,273 (20,119) (40,706) 3,221,915
Issuance of noncontrolling interests — — — — — — — — — 1,532 1,532
Net income (loss) — — — — — — — 73,210 — (2,202) 71,008
Other comprehensive income — — — — — — — — 11,643 — 11,643
Distribution to noncontrolling interests — — — — — — — — — (6,706) (6,706)
Cash dividends on Class A and Class B common stock - $0.28 per share — — — — — — — (10,370) — — (10,370)
Issuance of common stock, net of forfeitures — 51,408 — — 1 — 1,126 — — — 1,127
Compensation expense for stock based awards — — — — — — 3,100 — — — 3,100
Repurchase of common stock — (396,724) — — (4) — (6,221) (29,244) — — (35,469)
Balance as of March 31, 2024 — 26,055,314 10,663,088 $ — 261 107 1,101 3,312,869 (8,476) (48,082) 3,257,780

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,
2024 2023
Net income attributable to Nelnet, Inc. $ 73,210 26,487
Net loss attributable to noncontrolling interests (2,202) (3,470)
Net income 71,008 23,017
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 33,957 34,211
Loan discount accretion (7,433) (7,676)
Provision for loan losses 10,928 34,275
Derivative market value adjustments (7,964) 37,411
Proceeds from termination of derivative instruments — 164,079
Proceeds from (payments to) clearinghouse - initial and variation margin, net 4,054 (210,284)
Loss (gain) on sale of loans, net 41 (11,812)
Loss on investments, net of gains 8,348 24,344
Deferred income tax benefit (2,234) (13,750)
Non-cash compensation expense 3,166 3,838
Decrease in loan and investment accrued interest receivable 79,841 16,630
Decrease in accounts receivable 61,494 43,675
Decrease (increase) in other assets, net 10,443 (9,955)
Decrease in the carrying amount of ROU asset, net 953 1,251
Decrease in accrued interest payable (3,408) (1,675)
Decrease in other liabilities (50,218) (3,729)
Decrease in the carrying amount of lease liability (1,025) (1,275)
Other (36) 270
Net cash provided by operating activities 211,915 122,845
Cash flows from investing activities:
Purchases and originations of loans (157,047) (289,177)
Net proceeds from loan repayments, claims, and capitalized interest 1,147,413 684,962
Proceeds from sale of loans 199,963 157,444
Purchases of available-for-sale securities (163,610) (242,370)
Purchases of restricted available-for-sale securities (18,287) —
Proceeds from sales of available-for-sale securities 153,033 492,173
Proceeds from sales of restricted available-for-sale securities 340 —
Proceeds from beneficial interest in loan securitizations 5,875 4,725
Purchases of other investments and issuance of notes receivable (70,975) (70,509)
Proceeds from other investments and repayments of notes receivable 10,820 11,114
Redemption of held-to-maturity debt securities 1,779 —
Purchases of property and equipment (23,225) (24,430)
Net cash provided by investing activities $ 1,086,079 723,932
NELNET, INC. AND SUBSIDIARIES
--- --- --- ---
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three months ended
March 31,
2024 2023
Cash flows from financing activities:
Payments on bonds and notes payable $ (1,276,160) (1,415,424)
Proceeds from issuance of bonds and notes payable 18,108 204,884
Payments of debt issuance costs (31) (169)
Increase (decrease) in bank deposits, net 58,462 (15,555)
Decrease in due to customers (150,712) (67,642)
Dividends paid (10,370) (9,654)
Repurchases of common stock (35,469) (3,302)
Proceeds from issuance of common stock 374 395
Issuance of noncontrolling interests 14,098 1,201
Distribution to noncontrolling interests (799) (993)
Net cash used in financing activities (1,382,499) (1,306,259)
Effect of exchange rate changes on cash and restricted cash (163) (91)
Net decrease in cash, cash equivalents, and restricted cash (84,668) (459,573)
Cash, cash equivalents, and restricted cash, beginning of period 1,025,491 1,357,616
Cash, cash equivalents, and restricted cash, end of period $ 940,823 898,043 Supplemental disclosures of cash flow information:
--- --- --- ---
Cash disbursements made for interest $ 185,784 189,795
Cash disbursements made for income taxes, net of refunds and credits received (a) $ 791 961
Cash disbursements made for operating leases $ 1,258 1,705
Non-cash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations $ 48 15,545
Receipt of beneficial interest in consumer loan securitizations as consideration from sale of loans $ — 34,540
Receipt of asset-backed investment securities as consideration from sale of loans $ — 58,182
Distribution to noncontrolling interests $ 5,907 4,035
Issuance of noncontrolling interests $ 12,566 —

(a) The Company utilized $8.6 million and $5.7 million of federal and state tax credits related primarily to renewable energy during the three months ended March 31, 2024 and 2023, respectively.

The following table presents 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, 2024 December 31, 2023 March 31, 2023 December 31, 2022
Total cash and cash equivalents $ 179,682 168,112 187,574 118,146
Restricted cash 618,363 488,723 576,267 945,159
Restricted cash - due to customers 142,778 368,656 134,202 294,311
Cash, cash equivalents, and restricted cash $ 940,823 1,025,491 898,043 1,357,616

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, 2024 and for the three months ended March 31, 2024 and 2023 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2023 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, 2024 are not necessarily indicative of the results for the year ending December 31, 2024. 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, 2023 (the "2023 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, 2024 December 31, 2023
Non-Nelnet Bank:
Federally insured loans:
Stafford and other $ 2,546,852 2,936,174
Consolidation 7,836,200 8,750,033
Total 10,383,052 11,686,207
Private education loans 261,582 277,320
Consumer and other loans 155,308 85,935
Non-Nelnet Bank loans 10,799,942 12,049,462
Nelnet Bank:
Private education loans 364,766 360,520
Consumer and other loans 118,957 72,352
Nelnet Bank loans 483,723 432,872
Accrued interest receivable 684,095 764,385
Loan discount, net of unamortized loan premiums and deferred origination costs (32,674) (33,872)
Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans (61,723) (68,453)
Private education loans (14,736) (15,750)
Consumer and other loans (18,761) (11,742)
Non-Nelnet Bank allowance for loan losses (95,220) (95,945)
Nelnet Bank:
Private education loans (3,660) (3,347)
Consumer and other loans (7,128) (5,351)
Nelnet Bank allowance for loan losses (10,788) (8,698)
$ 11,829,078 13,108,204

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, 2024 December 31, 2023
Non-Nelnet Bank:
Federally insured loans (a) 0.59 % 0.59 %
Private education loans 5.63 % 5.68 %
Consumer and other loans 12.08 % 13.66 %
Nelnet Bank:
Private education loans 1.00 % 0.93 %
Consumer and other loans 5.99 % 7.40 %

(a)    As of March 31, 2024 and December 31, 2023, the allowance for loan losses as a percent of the risk sharing component of federally insured student loans not covered by the federal guaranty was 21.7% and 21.8%, respectively.

Loan Sales

The Company has sold portfolios of loans to unrelated third parties who securitized such loans. As partial consideration received for the loans sold, the Company received residual interest in the loan securitizations that are included in "investments and notes receivable" on the Company's consolidated balance sheets. The following table summarizes the loans sold and gains/losses recognized by the Company during the three months ended March 31, 2024 and 2023.

Loans sold<br>(par value) Gain (loss) Loan type Residual interest received in securitization
Three months ended March 31, 2024
March 27 $ 199,694 — FFELP —
March 28 405 (41) Home equity —
$ 200,099 (41)
Three months ended March 31, 2023
January 31 $ 97,350 (1,441) Home equity 64.8 % (a)
January 31 42,275 4,350 Consumer 13.3
March 2 122,132 8,966 Consumer 24.6 (a)
March 22 145 (63) Home equity —
$ 261,902 11,812

(a)    In addition to receiving a residual interest in the securitizations, the Company also received $14.5 million and $43.7 million of asset-backed investment securities as part of the January 31 and March 2, 2023 transactions, respectively, that are included in "investments and notes receivable" on the Company's consolidated balance sheet.

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 Loan sales Balance at end of period
Three months ended March 31, 2024
Non-Nelnet Bank:
Federally insured loans $ 68,453 (1,870) (4,860) — — 61,723
Private education loans 15,750 (265) (1,013) 264 — 14,736
Consumer and other loans 11,742 8,690 (1,957) 381 (95) 18,761
Nelnet Bank:
Private education loans 3,347 757 (446) 2 — 3,660
Consumer and other loans 5,351 3,717 (1,967) 27 — 7,128
$ 104,643 11,029 (10,243) 674 (95) 106,008
Three months ended March 31, 2023
Non-Nelnet Bank:
Federally insured loans $ 83,593 2,411 (6,673) — — 79,331
Private education loans 15,411 240 (640) 164 — 15,175
Consumer and other loans 30,263 29,207 (2,267) 220 (22,106) 35,317
Nelnet Bank:
Federally insured loans 170 (9) (1) — — 160
Private education loans 2,390 614 (110) — — 2,894
Consumer and other loans — 1,827 — — — 1,827
$ 131,827 34,290 (9,691) 384 (22,106) 134,704

The following table summarizes annualized net charge-offs as a percentage of average loans for each of the Company's loan portfolios.

Three months ended March 31,
2024 2023
Non-Nelnet Bank:
Federally insured loans 0.17 % 0.20 %
Private education loans 1.12 % 0.78 %
Consumer and other loans 5.73 % 2.59 %
Nelnet Bank:
Federally insured loans — 0.01 %
Private education loans 0.49 % 0.13 %
Consumer and other loans 8.01 % —

The Company recorded a negative provision for loan losses for the three months ended March 31, 2024 for its Non-Nelnet Bank federally insured and private education loan portfolios primarily due to the amortization of these portfolios. The primary item impacting provision for loan losses for Non-Nelnet Bank consumer loans and Nelnet Bank's loan portfolios for the three months ended March 31, 2024 was the establishment of an initial allowance for loans originated and acquired during the period.

The Company recorded a provision for loan losses for the three months ended March 31, 2023 due to (i) management's estimate of declining economic conditions as of March 31, 2023 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2022; and (ii) the establishment of an initial allowance for loans originated and acquired during the period. These amounts were partially offset by the amortization of the federally insured loan portfolio.

Unfunded Loan Commitments

As of March 31, 2024 and December 31, 2023, Nelnet Bank had a liability of approximately $57,000 and $158,000, respectively, related to $9.1 million and $12.3 million, respectively, of unfunded private education, consumer, and other loan commitments. The liability for unfunded loan commitments is included in "other liabilities" on the consolidated balance sheets. During the three months ended March 31, 2024 and 2023, Nelnet Bank recognized negative provision for loan losses of approximately $101,000 and $15,000, respectively, 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, consumer, and other loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The following table presents the Company’s loan status and delinquency amounts.

As of March 31, 2024 As of December 31, 2023 As of March 31, 2023
Federally insured loans - Non-Nelnet Bank:
Loans in-school/grace/deferment $ 490,402 4.7 % $ 522,304 4.5 % $ 641,914 5.0 %
Loans in forbearance 777,141 7.5 979,588 8.4 984,738 7.6
Loans in repayment status:
Loans current 7,691,650 84.4 % 8,416,624 82.6 % 9,859,751 87.2 %
Loans delinquent 31-60 days 360,237 3.9 377,108 3.7 346,665 3.1
Loans delinquent 61-90 days 189,035 2.1 254,553 2.5 254,353 2.2
Loans delinquent 91-120 days 143,656 1.6 187,145 1.9 178,078 1.6
Loans delinquent 121-270 days 422,979 4.6 685,829 6.7 440,695 3.9
Loans delinquent 271 days or greater 307,952 3.4 263,056 2.6 225,365 2.0
Total loans in repayment 9,115,509 87.8 100.0 % 10,184,315 87.1 100.0 % 11,304,907 87.4 100.0 %
Total federally insured loans 10,383,052 100.0 % 11,686,207 100.0 % 12,931,559 100.0 %
Accrued interest receivable 677,001 757,713 791,476
Loan discount, net of unamortized premiums and deferred origination costs (26,658) (28,963) (32,626)
Allowance for loan losses (61,723) (68,453) (79,331)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 10,971,672 $ 12,346,504 $ 13,611,078
Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment $ 8,979 3.4 % $ 9,475 3.4 % $ 12,218 5.1 %
Loans in forbearance 2,601 1.0 2,529 0.9 2,698 1.1
Loans in repayment status:
Loans current 243,637 97.4 % 257,639 97.1 % 220,921 97.5 %
Loans delinquent 31-60 days 2,162 0.9 3,395 1.3 2,014 0.9
Loans delinquent 61-90 days 1,542 0.6 1,855 0.7 931 0.4
Loans delinquent 91 days or greater 2,661 1.1 2,427 0.9 2,733 1.2
Total loans in repayment 250,002 95.6 100.0 % 265,316 95.7 100.0 % 226,599 93.8 100.0 %
Total private education loans 261,582 100.0 % 277,320 100.0 % 241,515 100.0 %
Accrued interest receivable 2,560 2,653 2,277
Loan discount, net of unamortized premiums (7,616) (8,037) 79
Allowance for loan losses (14,736) (15,750) (15,175)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 241,790 $ 256,186 $ 228,696
As of March 31, 2024 As of December 31, 2023 As of March 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumer and other loans - Non-Nelnet Bank:
Loans in deferment $ 54 0.0 % $ 146 0.2 % $ 40 0.0 %
Loans in repayment status:
Loans current 150,947 97.2 % 81,195 94.6 % 304,414 98.3 %
Loans delinquent 31-60 days 1,758 1.1 2,035 2.4 2,037 0.7
Loans delinquent 61-90 days 1,471 1.0 1,189 1.4 1,236 0.4
Loans delinquent 91 days or greater 1,078 0.7 1,370 1.6 1,819 0.6
Total loans in repayment 155,254 100.0 100.0 % 85,789 99.8 100.0 % 309,506 100.0 100.0 %
Total consumer and other loans 155,308 100.0 % 85,935 100.0 % 309,546 100.0 %
Accrued interest receivable 1,209 861 3,288
Loan discount, net of unamortized premiums (5,451) (2,474) 913
Allowance for loan losses (18,761) (11,742) (35,317)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 132,305 $ 72,580 $ 278,430
Private education loans - Nelnet Bank (a):
Loans in-school/grace/deferment $ 42,699 11.7 % $ 25,957 7.2 % $ 17,021 4.8 %
Loans in forbearance 1,277 0.4 1,285 0.4 681 0.2
Loans in repayment status:
Loans current 318,906 99.4 % 331,580 99.4 % 336,967 99.7 %
Loans delinquent 30-59 days 327 0.1 839 0.3 388 0.1
Loans delinquent 60-89 days 665 0.2 253 0.1 536 0.2
Loans delinquent 90 days or greater 892 0.3 606 0.2 112 —
Total loans in repayment 320,790 87.9 100.0 % 333,278 92.4 100.0 % 338,003 95.0 100.0 %
Total private education loans 364,766 100.0 % 360,520 100.0 % 355,705 100.0 %
Accrued interest receivable 2,445 2,023 1,385
Deferred origination costs, net of unaccreted discount 5,692 5,608 5,400
Allowance for loan losses (3,660) (3,347) (2,894)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 369,243 $ 364,804 $ 359,596
Consumer and other loans - Nelnet Bank (a):
Loans in deferment $ 141 0.1 % $ 103 0.1 % $ — — %
Loans in repayment status:
Loans current 115,152 96.9 % 69,584 96.3 % 19,903 100.0 %
Loans delinquent 30-59 days 1,511 1.3 1,075 1.5 — —
Loans delinquent 60-89 days 1,084 0.9 941 1.3 — —
Loans delinquent 90 days or greater 1,069 0.9 649 0.9 — —
Total loans in repayment 118,816 99.9 100.0 % 72,249 99.9 100.0 % 19,903 100.0 100.0 %
Total consumer and other loans 118,957 100.0 % 72,352 100.0 % 19,903 100.0 %
Accrued interest receivable 880 575 117
Loan premium, net of unaccreted discount 1,359 (6) 1
Allowance for loan losses (7,128) (5,351) (1,827)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 114,068 $ 67,570 $ 18,194

(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

An additional key credit quality indicator for Nelnet Bank private education and consumer loans is FICO scores at the time of origination. The following tables highlight the gross principal balance of Nelnet Bank's portfolios, by year of origination, stratified by FICO score at the time of origination.

Nelnet Bank Private Education Loans

Loan balance as of March 31, 2024
Three months ended March 31, 2024 2023 2022 2021 2020 Total
FICO at origination:
Less than 705 $ 380 4,175 5,349 4,524 381 14,809
705 - 734 834 9,946 21,468 8,410 519 41,177
735 - 764 954 9,479 32,227 14,383 1,338 58,381
765 - 794 625 6,815 50,588 26,414 1,322 85,764
Greater than 794 1,523 18,207 75,304 56,079 4,979 156,092
No FICO score available or required 2,488 6,055 — — — 8,543
$ 6,804 54,677 184,936 109,810 8,539 364,766 Loan balance as of December 31, 2023
--- --- --- --- --- --- ---
2023 2022 2021 2020 Total
FICO at origination:
Less than 705 $ 3,840 5,495 4,647 386 14,368
705 - 734 9,534 21,961 8,805 525 40,825
735 - 764 8,648 32,969 14,910 1,358 57,885
765 - 794 5,776 52,045 27,221 1,374 86,416
Greater than 794 15,057 77,996 58,695 5,226 156,974
No FICO score available or required 4,052 — — — 4,052
$ 46,907 190,466 114,278 8,869 360,520

Nelnet Bank Consumer and Other Loans

Loan balance as of March 31, 2024
Three months ended March 31, 2024 2023 2022 2021 2020 Total
FICO at origination:
Less than 720 $ 12,913 18,324 — — — 31,237
720 - 769 21,017 29,900 48 — — 50,965
Greater than 769 21,359 14,280 108 — — 35,747
No FICO score available or required 230 441 282 55 — 1,008
$ 55,519 62,945 438 55 — 118,957 Loan balance as of December 31, 2023
--- --- --- --- --- --- ---
2023 2022 2021 2020 Total
FICO at origination:
Less than 720 $ 21,412 — — — 21,412
720 - 769 33,571 51 — — 33,622
Greater than 769 16,484 109 — — 16,593
No FICO score available or required 386 284 55 — 725
$ 71,853 444 55 — 72,352

Nonaccrual Status

The Company does not place federally insured loans on nonaccrual status due to the government guaranty. The amortized cost of private education, consumer, and other loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of March 31, 2024 and December 31, 2023, was not material.

Amortized Cost Basis by Origination Year

The following table presents the amortized cost of the Company's private education, consumer, and other loans by loan status and delinquency amount as of March 31, 2024 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, 2024 2023 2022 2021 2020 Prior years Total
Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment $ — — 806 3,751 869 3,553 8,979
Loans in forbearance — — 21 141 604 1,835 2,601
Loans in repayment status:
Loans current — 208 4,367 4,908 44,180 189,974 243,637
Loans delinquent 31-60 days — — 13 51 94 2,004 2,162
Loans delinquent 61-90 days — — — — 55 1,487 1,542
Loans delinquent 91 days or greater — — — — 91 2,570 2,661
Total loans in repayment — 208 4,380 4,959 44,420 196,035 250,002
Total private education loans $ — 208 5,207 8,851 45,893 201,423 261,582
Accrued interest receivable 2,560
Loan discount, net of unamortized premiums (7,616)
Allowance for loan losses (14,736)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 241,790
Gross charge-offs - three months ended March 31, 2024 $ — — — 76 36 901 1,013
Consumer and other loans - Non-Nelnet Bank:
Loans in deferment $ — 54 — — — — 54
Loans in repayment status:
Loans current 48,660 96,183 4,887 690 300 227 150,947
Loans delinquent 31-60 days — 1,253 449 51 — 5 1,758
Loans delinquent 61-90 days — 1,024 375 24 21 27 1,471
Loans delinquent 91 days or greater — 652 344 71 4 7 1,078
Total loans in repayment 48,660 99,112 6,055 836 325 266 155,254
Total consumer and other loans $ 48,660 99,166 6,055 836 325 266 155,308
Accrued interest receivable 1,209
Loan discount, net of unamortized premiums (5,451)
Allowance for loan losses (18,761)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 132,305
Gross charge-offs - three months ended March 31, 2024 $ — 733 1,076 101 21 26 1,957
Three months ended March 31, 2024 2023 2022 2021 2020 Prior years Total
--- --- --- --- --- --- --- --- --- ---
Private education loans - Nelnet Bank (a):
Loans in-school/grace/deferment $ 4,367 26,586 10,074 739 933 — 42,699
Loans in forbearance — 84 591 493 109 — 1,277
Loans in repayment status:
Loans current 2,437 27,592 173,645 107,735 7,497 — 318,906
Loans delinquent 30-59 days — 89 135 103 — — 327
Loans delinquent 60-89 days — 237 305 123 — — 665
Loans delinquent 90 days or greater — 89 186 617 — — 892
Total loans in repayment 2,437 28,007 174,271 108,578 7,497 — 320,790
Total private education loans $ 6,804 54,677 184,936 109,810 8,539 — 364,766
Accrued interest receivable 2,445
Deferred origination costs, net of unaccreted discount 5,692
Allowance for loan losses (3,660)
Total private education loans and accrued interest receivable, net of allowance for loan losses $ 369,243
Gross charge-offs - three months ended March 31, 2024 $ — 178 146 122 — — 446
Consumer and other loans - Nelnet Bank (a):
Loans in deferment $ 86 55 — — — — 141
Loans in repayment status:
Loans current 55,344 59,315 438 55 — — 115,152
Loans delinquent 30-59 days 89 1,422 — — — — 1,511
Loans delinquent 60-89 days — 1,084 — — — — 1,084
Loans delinquent 90 days or greater — 1,069 — — — — 1,069
Total loans in repayment 55,433 62,890 438 55 — — 118,816
Total consumer and other loans $ 55,519 62,945 438 55 — — 118,957
Accrued interest receivable 880
Loan premium, net of unaccreted discount 1,359
Allowance for loan losses (7,128)
Total consumer and other loans and accrued interest receivable, net of allowance for loan losses $ 114,068
Gross charge-offs - three months ended March 31, 2024 $ — 1,967 — — — — 1,967

(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, 2024
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 $ 8,766,041 5.47% - 7.44% 8/26/30 - 9/25/69
Bonds and notes based on auction 84,660 0.00% - 6.44% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 8,850,701
Fixed-rate bonds and notes issued in FFELP loan asset-backed<br>      securitizations 430,061 1.42% - 3.45% 10/25/67 - 8/27/68
FFELP loan warehouse facilities 1,066,197 5.41% - 5.57% 4/2/25 / 5/22/25
Consumer loan warehouse facility 41,762 5.55% 11/14/25
Variable-rate bonds and notes issued in private education loan asset-backed securitizations 71,963 6.90% / 7.57% 6/25/49 / 11/25/53
Fixed-rate bonds and notes issued in private education loan asset-backed securitizations 70,310 5.35% / 7.15% 12/28/43 / 11/25/53
Unsecured line of credit — — 9/22/26
Participation agreements 9,023 5.58% - 6.06% 5/4/24 / 1/30/33
Repurchase agreement 114,498 6.43% - 6.74% 11/27/24 / 12/20/24
Other - due to related party 5,591 5.00% - 6.05% 4/30/24 - 11/15/30
10,660,106
Discount on bonds and notes payable and debt issuance costs (77,593)
Total $ 10,582,513 As of December 31, 2023
--- --- --- --- ---
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 $ 9,552,667 5.45% - 7.47% 8/26/30 - 9/25/69
Bonds and notes based on auction 87,360 0.00% - 6.45% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes 9,640,027
Fixed-rate bonds and notes issued in FFELP loan asset-backed<br>securitizations 471,427 1.42% - 3.45% 10/25/67 - 8/27/68
FFELP loan warehouse facilities 1,398,485 5.41% - 5.70% 4/2/25 / 5/22/25
Consumer loan warehouse facility 23,691 5.70% 11/14/25
Variable-rate bonds and notes issued in private education loan asset-backed securitizations 80,393 6.90% / 7.57% 6/25/49 / 11/25/53
Fixed-rate bonds and notes issued in private education loan asset-backed securitizations 80,130 5.35% / 7.15% 12/28/43 / 11/25/53
Unsecured line of credit — — 9/22/26
Participation agreements 10,063 5.58% - 6.08% 3/12/24 / 5/4/24
Repurchase agreement 208,164 6.35% - 6.81% 1/22/24 - 12/20/24
Other - due to related party 5,778 5.00% - 6.05% 3/1/24 - 11/15/30
11,918,158
Discount on bonds and notes payable and debt issuance costs (89,765)
Total $ 11,828,393

Warehouse Facilities

The Company funds a portion of its loan acquisitions using warehouse facilities. Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. The following table summarizes the Company's warehouse facilities as of March 31, 2024.

Type of loans Maximum financing amount Amount outstanding Amount available Expiration of liquidity provisions Final maturity date Advance rate Advanced as equity support
FFELP (a) $ 950,000 712,198 237,802 11/22/2024 5/22/2025 note (b) $ 50,093
FFELP (c) 432,000 353,999 78,001 4/2/2024 4/2/2025 92 % 29,196
$ 1,382,000 1,066,197 315,803 $ 79,289
Consumer (d) 150,000 41,762 108,238 11/14/2024 11/14/2025 70 % 17,405

(a)    Effective March 6, 2024, the maximum financing amount on this facility was reduced from $1.25 billion to $950 million.

(b)    This facility has a static advance rate until the expiration date of the liquidity provisions. The maximum advance rates for this facility are 90% to 96%, and the minimum advance rates are 84% to 90%. In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor. The loans would then be funded at this new advance rate until the final maturity date of the facility.

(c)    On April 2, 2024, this facility was amended to reduce the maximum financing amount from $432 million to $375 million, and to extend the expiration of liquidity provisions and final maturity date to April 1, 2025 and April 1, 2026, respectively.

(d)    On March 11, 2024, this facility was amended to reduce the maximum financing amount from $200 million to $150 million.

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, 2024, no amount was outstanding on the line of credit and $495.0 million was available for future use.

Repurchase Agreement

The Company has a repurchase agreement with a non-affiliated third party, the proceeds of which are collateralized by certain private education loan asset-backed securities (bond investments). The outstanding balance under this agreement as of March 31, 2024 was $114.5 million. The agreement has various maturity dates through December 20, 2024 or earlier if either party provides 180 days’ prior written notice, and the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date. See note 5 for additional information about the private education loan asset-backed securities investments serving as collateral for this repurchase agreement.

Debt Repurchases

The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of March 31, 2024, the Company holds $310.3 million (par value) of its own FFELP asset-backed securities.

4.  Derivative Financial Instruments

Non-Nelnet Bank Derivatives

The Company uses settled-to-market 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 5 of the notes to consolidated financial statements included in the 2023 Annual Report. A tabular presentation of such derivatives outstanding as of March 31, 2024 and December 31, 2023 is presented below.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps as of March 31, 2024 and December 31, 2023, in which the Company receives and pays the term adjusted Secured Overnight Financing Rate (SOFR) plus the tenor spread adjustment to LIBOR. Prior to the discontinuation of LIBOR on June 30, 2023, the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").

Maturity Notional amount
2024 $ 1,750,000
2026 1,150,000
2027 250,000
$ 3,150,000

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2024 and December 31, 2023 was the term adjusted SOFR (plus the tenor spread adjustment relating to LIBOR) plus 10.1 basis points.

Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company as of March 31, 2024 and December 31, 2023, to economically hedge loans earning fixed rate floor income.

Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2026 $ 200,000 3.92 %
2028 50,000 3.56
2029 (b) 50,000 3.17
2030 (c) 100,000 3.63
$ 400,000 3.71 %

(a)    For all interest rate derivatives, the Company receives payments based on SOFR, the majority of which reset quarterly.

(b)    This $50 million notional amount derivative has a forward effective start date in January 2026.

(c)    A $50 million notional amount derivative maturing in 2030 has a forward effective start date in November 2025.

During the first quarter of 2023, the Company received $183.2 million, which included $19.1 million related to 2023 settlements, to terminate $2.8 billion in notional amount of floor income interest rate swaps prior to their final maturity.

Nelnet Bank Derivatives

Interest Rate Swaps

The following table summarizes the outstanding non-centrally cleared derivative instruments used by Nelnet Bank as of March 31, 2024 and December 31, 2023, to hedge exposure to variability in cash flows related to variable rate intercompany deposits.

Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2028 $ 40,000 3.33 %
2030 (b) 50,000 3.06
2032 (c) 25,000 4.03
2033 (d) 25,000 3.90
$ 140,000 3.46 %

(a)    For all interest rate derivatives, the Company receives payments based on SOFR that reset monthly or quarterly.

(b)    These $25 million notional amount derivatives have forward effective start dates in April 2026 and May 2026, respectively.

(c)    This $25 million notional amount derivative has a forward effective start date in February 2027.

(d)    This $25 million notional amount derivative has a forward effective start date in November 2025.

Consolidated Financial Statement Impact Related to Derivatives

Balance Sheets

Unlike the Company's Non-Nelnet Bank derivatives, Nelnet Bank's derivatives are not cleared post-execution at a regulated clearinghouse. As such, the Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset (included in "other assets") or liability (included in "other liabilities") measured at fair value. The following table summarizes the fair value of the Company's Nelnet Bank derivatives as reflected in the consolidated balance sheets.

Fair value of asset derivatives Fair value of liability derivatives
As of March 31, 2024 As of December 31, 2023 As of March 31, 2024 As of December 31, 2023
Interest rate swaps - Nelnet Bank $ 1,820 452 1,085 1,976

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,
2024 2023
Settlements:
1:3 basis swaps $ 365 859
Interest rate swaps - floor income hedges 1,190 22,478
Interest rate swaps - Nelnet Bank 202 —
Total settlements - income 1,757 23,337
Change in fair value:
1:3 basis swaps (354) (23)
Interest rate swaps - floor income hedges 6,060 (37,388)
Interest rate swaps - Nelnet Bank 2,258 —
Total change in fair value - income (expense) 7,964 (37,411)
Derivative market value adjustments and derivative settlements, net - income (expense) $ 9,721 (14,074)

5.  Investments and Notes Receivable

"Restricted investments" and “investments and notes receivable” consisted of the following:

As of March 31, 2024 As of December 31, 2023
Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Restricted available-for-sale investments (at fair value):
FFELP loan and other debt securities $ 34,958 1,198 (80) 36,076 16,993 1,069 (93) 17,969
Non-restricted available-for-sale investments (at fair value):
Non-Nelnet Bank:
FFELP loan $ 263,335 6,226 (3,043) 266,518 271,479 4,883 (5,393) 270,969
Private education loan (a) 269,983 — (21,547) 248,436 281,791 — (28,874) 252,917
Other debt securities 20,586 1,803 — 22,389 41,693 2,020 (1,275) 42,438
Total Non-Nelnet Bank 553,904 8,029 (24,590) 537,343 594,963 6,903 (35,542) 566,324
Nelnet Bank:
FFELP loan 300,235 7,171 (1,611) 305,795 304,555 4,488 (2,286) 306,757
Private education loan 29,440 88 — 29,528 17,083 20 (10) 17,093
Other debt securities 110,915 528 (1,498) 109,945 49,284 117 (1,641) 47,760
Total Nelnet Bank 440,590 7,787 (3,109) 445,268 370,922 4,625 (3,937) 371,610
Total available-for-sale asset-backed securities $ 994,494 15,816 (27,699) 982,611 965,885 11,528 (39,479) 937,934
Equity securities 55,026 50,907
Total investments at fair value 1,037,637 988,841
Other Investments and Notes Receivable (not measured at fair value):
Held-to-maturity investments
Non-Nelnet Bank:
Debt securities 4,700 4,700
Nelnet Bank:
FFELP loan asset-backed securities 148,438 149,938
Private education loan asset-backed securities 8,100 8,100
Total Nelnet Bank 156,538 158,038
Total held-to-maturity investments 161,238 162,738
Venture capital and funds:
Measurement alternative 194,574 194,084
Equity method 102,309 91,464
Total venture capital and funds 296,883 285,548
Real estate:
Equity method 105,523 103,811
Investment in ALLO:
Voting interest/equity method (b) — 10,693
Preferred membership interest and accrued and unpaid preferred return (c) 157,456 155,047
Total investment in ALLO 157,456 165,740
Beneficial interest in loan securitizations (d):
Consumer loans 147,076 134,113
Private education loans 66,307 68,372
Federally insured student loans 22,441 22,594
Total beneficial interest in loan securitizations 235,824 225,079
Solar (e) (133,772) (121,779)
Notes receivable 53,140 53,747
Tax liens, affordable housing, and other 7,762 7,243
Total investments (not measured at fair value) 884,054 882,127
Total investments and notes receivable $ 1,921,691 $ 1,870,968

(a)    A portion of the private education loan asset-backed securities were subject to a repurchase agreement with a third party, as discussed in note 3 under "Repurchase Agreement." As of March 31, 2024, the par value and fair value of these securities was $151.9 million and $135.3 million, respectively.

(b)    The Company accounts for its voting membership interests in ALLO under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $10.7 million and $20.2 million during the three months ended March 31, 2024 and 2023, respectively. Losses from the Company's investment in ALLO are included in "other, net" in "other income (expense)" on the consolidated statements of income. Absent additional equity contributions, the Company will not recognize additional losses for its voting membership interests in ALLO.

(c)    As of March 31, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $155.0 million and $2.4 million, respectively. The preferred membership interests of ALLO held by the Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024. The Company recognized income on its ALLO preferred membership interests of $2.4 million and $2.2 million during the three months ended March 31, 2024 and 2023, respectively. This income is included in "other, net" in "other income (expense)" on the consolidated statements of income.

(d)    The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2024, the Company's ownership correlates to approximately $965 million, $490 million, and $335 million of consumer, private education, and federally insured student loans, respectively, included in these securitizations.

(e)    As of March 31, 2024, the Company has funded a total of $491.8 million in solar investments, which includes $208.9 million funded by syndication partners. The carrying value of the Company’s investment in a solar project is reduced by tax credits earned when the solar project is placed-in-service. As of March 31, 2024, the Company has earned a total of $511.6 million of tax credits, which includes $248.6 million earned by syndication partners. The solar investment carrying value on the consolidated balance sheet of $(133.8) million as of March 31, 2024 represents the sum of total tax credits earned on solar projects placed-in-service through March 31, 2024 and the calculated HLBV cumulative net losses being larger than the total investment contributions made by the Company and its syndication partners on such projects. The solar investment balance as of March 31, 2024, excluding the portion owned by syndication partners and reflected as "noncontrolling interests" on the consolidated balance sheet, was $(70.1) million.

The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. The Company recognized net gains of $3.0 million and net losses of $1.9 million on its solar investments during the three months ended March 31, 2024 and 2023, respectively. These amounts, which include net losses attributable to third-party noncontrolling interest investors (syndication partners), are included in “other, net” in "other income (expense)" on the consolidated statements of income. Solar net losses attributed to noncontrolling interest investors was $1.2 million and $2.7 million for the three months ended March 31, 2024 and 2023, respectively, and is reflected in “net loss attributable to noncontrolling interests” in the consolidated statements of income. Excluding net losses attributed to noncontrolling interest investors, the Company recognized net gains on its solar investments of $4.2 million and $0.8 million during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the Company is committed to fund an additional $146.6 million on solar investments, of which $76.2 million is expected to be provided by syndication partners.

The following table presents, by remaining contractual maturity, the amortized cost and fair value of debt securities as of March 31, 2024:

As of March 31, 2024
1 year or less After 1 year through 5 years After 5 years through 10 years After 10 years Total
Available-for-sale asset-backed securities
Restricted Investments:
FFELP loan and other debt securities $ — 9,267 4,017 21,674 34,958
Fair value — 9,270 4,037 22,769 36,076
Non-Nelnet Bank:
FFELP loan 8,796 9,206 22,190 223,143 263,335
Private education loan — — — 269,983 269,983
Other debt securities — 99 — 20,487 20,586
Total Non-Nelnet Bank 8,796 9,305 22,190 513,613 553,904
Fair value 8,697 9,244 21,651 497,751 537,343
Nelnet Bank:
FFELP loan 60,739 22,744 26,144 190,608 300,235
Private education loan — — 15,940 13,500 29,440
Other debt securities — 47,839 11,868 51,208 110,915
Total Nelnet Bank 60,739 70,583 53,952 255,316 440,590
Fair value 61,249 70,585 53,924 259,510 445,268
Total available-for-sale asset-backed securities at amortized cost $ 69,535 89,155 80,159 790,603 1,029,452
Total available-for-sale asset-backed securities at fair value $ 69,946 89,099 79,612 780,030 1,018,687
Held-to-maturity investments
Non-Nelnet Bank:
Debt securities $ 4,700 — — — 4,700
Fair value 4,700 — — — 4,700
Nelnet Bank:
FFELP loan asset-backed securities — 3,278 1,407 143,753 148,438
Private education loan asset-backed securities — — — 8,100 8,100
Total Nelnet Bank — 3,278 1,407 151,853 156,538
Fair value — 3,351 1,435 155,007 159,793
Total held-to-maturity investments at amortized cost $ 4,700 3,278 1,407 151,853 161,238
Total held-to-maturity investments at fair value $ 4,700 3,351 1,435 155,007 164,493
Beneficial interest in loan securitizations (a):
Amortized cost $ — — — — 235,824
Fair value $ — — — — 260,537

(a) The Company's beneficial interest in loan securitizations are not due at a singe maturity date.

The following table summarizes the unrealized positions for held-to-maturity investments and the beneficial interest in loan securitizations as of March 31, 2024:

Carrying value Gross unrealized gains Gross unrealized losses (a) Fair value
Asset-backed and other securities $ 161,238 3,302 (47) 164,493
Beneficial interest in loan securitizations 235,824 28,806 (4,093) 260,537

(a) None of the unrealized losses at March 31, 2024 were due to credit losses.

The following table presents securities classified as available-for-sale that have gross unrealized losses at March 31, 2024 and the fair value of such securities as of March 31, 2024. These securities are segregated between investments that had been in a continuous unrealized loss position for less than twelve months and twelve months or more, based on the point in time that the fair value declined below the amortized cost basis. All securities in the table below have been evaluated to determine if a credit loss exists. As part of that assessment, the Company concluded it currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses.

As of March 31, 2024
Unrealized loss position less than 12 months Unrealized loss position 12 months or more Total
Unrealized loss Fair value Unrealized loss Fair value Unrealized loss Fair value
Available-for-sale asset-backed securities
Restricted Investments:
FFELP loan and other debt securities $ (80) 8,175 — — (80) 8,175
Non-Nelnet Bank:
FFELP loan (335) 16,011 (2,708) 119,466 (3,043) 135,477
Private education loan — — (21,547) 248,436 (21,547) 248,436
Total Non-Nelnet Bank (335) 16,011 (24,255) 367,902 (24,590) 383,913
Nelnet Bank:
FFELP loan (779) 26,112 (832) 34,654 (1,611) 60,766
Other debt securities (63) 15,088 (1,435) 14,713 (1,498) 29,801
Total Nelnet Bank (842) 41,200 (2,267) 49,367 (3,109) 90,567
Total available-for-sale asset-backed securities $ (1,257) 65,386 (26,522) 417,269 (27,779) 482,655

The following table summarizes the gross proceeds received and gross realized gains and losses related to sales of available-for-sale asset-backed securities.

Three months ended
March 31,
2024 2023
Gross proceeds from sales $ 153,373 492,173
Gross realized gains $ 1,054 1,274
Gross realized losses (502) (6,256)
Net gains (losses) $ 552 (4,982)
  1. Intangible Assets

Intangible assets consisted of the following:

Weighted average remaining useful life as of<br><br>March 31, 2024 (months)
As of As of
March 31, 2024 December 31, 2023
Amortizable intangible assets, net:
Customer relationships (net of accumulated amortization of $48,617 and $46,573, respectively) 102 $ 40,987 43,031
Trade names (net of accumulated amortization of $148 and $8,268, respectively) 97 622 642
Computer software (net of accumulated amortization of $659 and $574, respectively) 37 1,061 1,146
Total amortizable intangible assets, net 100 $ 42,670 44,819

The Company recorded amortization expense on its intangible assets of $2.1 million and $2.7 million for the three months ended March 31, 2024 and 2023, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of March 31, 2024, the Company estimates it will record amortization expense as follows:

2024 (April 1 - December 31) $ 6,342
2025 6,099
2026 6,012
2027 5,714
2028 5,354
2029 and thereafter 13,149
$ 42,670
  1. Goodwill

The following table presents the carrying amount of goodwill as of March 31, 2024 and December 31, 2023 by reportable operating segment:

Nelnet Financial Services
Loan Servicing and Systems Education Technology Services and Payments Asset<br>Generation and<br>Management Nelnet Bank NFS Other Operating Segments Corporate and Other Activities Total
Total goodwill $ 23,639 92,507 41,883 — — — 158,029

8.  Bank Deposits

The following table summarizes Nelnet Bank’s interest-bearing deposits, excluding intercompany deposits:

As of As of
March 31, 2024 December 31, 2023
Retail and other savings $ 575,732 517,960
Brokered CDs, net of brokered deposit fees 204,174 203,522
Retail and other CDs (commercial and institutional) 19,320 20,060
Commercial 2,835 2,057
Total interest-bearing deposits $ 802,061 743,599

As of March 31, 2024 and December 31, 2023, Nelnet Bank had intercompany deposits from Nelnet, Inc. and its subsidiaries totaling $158.6 million and $104.0 million, respectively, including a $40.0 million pledged deposit from Nelnet, Inc. as required under a Capital and Liquidity Maintenance Agreement with the FDIC. All intercompany deposits held at Nelnet Bank are eliminated for consolidated financial reporting purposes.

The following table presents certificates of deposit remaining maturities as of March 31, 2024:

One year or less $ —
After one year to two years 63,026
After two years to three years 159,320
After three years to four years 348
After four years to five years 800
After five years —
Total $ 223,494

Retail and other deposits include savings deposits from Educational 529 College Savings, Short Term Federal Investment Trusts, and Health Savings plan deposits. These deposits are large interest-bearing omnibus accounts structured to allow FDIC insurance to flow through to underlying individual depositors. There were no deposits exceeding the FDIC insurance limits as of March 31, 2024, with the exception of $45.0 million, which includes the commercial deposit, the pledged deposit from Nelnet, Inc., and an earmarked deposit required for intercompany transactions.

9.  Earnings per Common Share

The following table presents the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.

Three months ended March 31,
2024 2023
Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:
Net income attributable to Nelnet, Inc. $ 71,727 1,483 73,210 25,945 542 26,487
Denominator:
Weighted-average common shares outstanding - basic and diluted 36,404,364 752,607 37,156,971 36,580,204 764,400 37,344,604
Earnings per share - basic and diluted $ 1.97 1.97 1.97 0.71 0.71 0.71

10.  Segment Reporting

See note 16 of the notes to consolidated financial statements included in the 2023 Annual Report for a description of the Company's operating segments. The following tables present the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.

Three months ended March 31, 2024
Nelnet Financial Services
Loan Servicing and Systems Education Technology Services and Payments Asset<br>Generation and<br>Management Nelnet Bank NFS Other Operating Segments Corporate and Other Activities Eliminations Total
Total interest income $ 1,894 7,866 231,463 17,064 15,616 3,815 (8,915) 268,802
Interest expense — — 190,905 9,497 2,418 676 (8,915) 194,580
Net interest income 1,894 7,866 40,558 7,567 13,198 3,139 — 74,222
Less provision for loan losses — — 6,555 4,373 — — — 10,928
Net interest income after provision for loan losses 1,894 7,866 34,003 3,194 13,198 3,139 — 63,294
Other income (expense):
Loan servicing and systems revenue 127,201 — — — — — — 127,201
Intersegment revenue 6,886 49 — — — — (6,935) —
Education technology services and payments revenue — 143,539 — — — — — 143,539
Solar construction revenue — — — — — 13,726 — 13,726
Other, net 710 — 4,983 375 12,941 (1,994) — 17,015
(Loss) gain on sale of loans, net — — (41) — — — — (41)
Derivative settlements, net — — 1,555 202 — — — 1,757
Derivative market value adjustments, net — — 5,706 2,258 — — — 7,964
Total other income (expense), net 134,797 143,588 12,203 2,835 12,941 11,732 (6,935) 311,161
Cost of services:
Cost to provide education technology services and payments — 48,610 — — — — — 48,610
Cost to provide solar construction services — — — — — 14,229 — 14,229
Total cost of services — 48,610 — — — 14,229 — 62,839
Operating expenses:
Salaries and benefits 76,722 40,167 1,195 2,721 358 23,521 (807) 143,875
Depreciation and amortization 5,109 2,683 — 260 — 8,716 — 16,769
Other expenses 19,538 7,558 3,418 1,128 11,802 13,402 — 56,845
Intersegment expenses, net 19,332 4,801 7,850 773 217 (26,845) (6,128) —
Total operating expenses 120,701 55,209 12,463 4,882 12,377 18,794 (6,935) 217,489
Income (loss) before income taxes 15,990 47,635 33,743 1,147 13,762 (18,152) — 94,127
Income tax (expense) benefit (3,838) (11,435) (8,099) (259) (3,274) 3,785 — (23,119)
Net income (loss) 12,152 36,200 25,644 888 10,488 (14,367) — 71,008
Net loss (income) attributable to noncontrolling interests — 17 — — (120) 2,305 — 2,202
Net income (loss) attributable to Nelnet, Inc. $ 12,152 36,217 25,644 888 10,368 (12,062) — 73,210
Total assets as of March 31, 2024 $ 212,381 389,990 12,315,238 1,125,122 1,111,587 880,107 (635,763) 15,398,662
Three months ended March 31, 2023
--- --- --- --- --- --- --- --- --- ---
Nelnet Financial Services
Loan Servicing and Systems Education Technology Services and Payments Asset<br>Generation and<br>Management Nelnet Bank NFS Other Operating Segments Corporate and Other Activities Eliminations Total
Total interest income $ 1,037 6,036 234,719 12,259 18,660 2,539 (9,282) 265,968
Interest expense — — 189,198 7,214 11,827 491 (9,282) 199,449
Net interest income 1,037 6,036 45,521 5,045 6,833 2,048 — 66,519
Less provision for loan losses — — 31,858 2,417 — — — 34,275
Net interest income after provision for loan losses 1,037 6,036 13,663 2,628 6,833 2,048 — 32,244
Other income (expense):
Loan servicing and systems revenue 139,227 — — — — — — 139,227
Intersegment revenue 7,790 56 — — — — (7,846) —
Education technology services and payments revenue — 133,603 — — — — — 133,603
Solar construction revenue — — — — — 8,651 — 8,651
Other, net 608 — 2,845 210 (741) (16,993) — (14,071)
(Loss) gain on sale of loans, net — — 11,812 — — — — 11,812
Derivative settlements, net — — 23,337 — — — — 23,337
Derivative market value adjustments, net — — (37,411) — — — — (37,411)
Total other income (expense), net 147,625 133,659 583 210 (741) (8,342) (7,846) 265,148
Cost of services:
Cost to provide education technology services and payments — 47,704 — — — — — 47,704
Cost to provide solar construction services — — — — — 8,299 — 8,299
Total cost of services — 47,704 — — — 8,299 — 56,003
Operating expenses:
Salaries and benefits 84,560 37,913 755 2,064 219 27,200 — 152,710
Depreciation and amortization 4,513 2,578 — 5 — 9,531 — 16,627
Other expenses 13,313 8,063 5,016 782 567 13,044 — 40,785
Intersegment expenses, net 21,057 5,800 8,696 80 129 (27,916) (7,846) —
Total operating expenses 123,443 54,354 14,467 2,931 915 21,859 (7,846) 210,122
Income (loss) before income taxes 25,219 37,637 (221) (93) 5,177 (36,452) — 31,267
Income tax (expense) benefit (6,053) (9,066) 53 35 (1,209) 7,990 — (8,250)
Net income (loss) 19,166 28,571 (168) (58) 3,968 (28,462) — 23,017
Net loss (income) attributable to noncontrolling interests — 138 — — (140) 3,472 — 3,470
Net income (loss) attributable to Nelnet, Inc. $ 19,166 28,709 (168) (58) 3,828 (24,990) — 26,487
Total assets as of March 31, 2023 $ 232,667 424,742 14,939,324 1,000,659 1,206,023 1,002,249 (723,055) 18,082,609
  1. Disaggregated Revenue

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

Loan Servicing and Systems

Three months ended March 31,
2024 2023
Government loan servicing $ 105,474 108,880
Private education and consumer loan servicing 12,620 12,164
FFELP loan servicing 3,380 3,368
Software services 4,541 9,697
Outsourced services 1,186 5,118
Loan servicing and systems revenue $ 127,201 139,227

Education Technology Services and Payments

Three months ended March 31,
2024 2023
Tuition payment plan services $ 38,880 34,187
Payment processing 47,786 44,041
Education technology services 56,021 54,787
Other 852 588
Education technology services and payments revenue $ 143,539 133,603

Solar Construction

Three months ended March 31,
2024 2023
Commercial revenue $ 11,578 5,876
Residential revenue (a) 2,148 2,775
Solar construction revenue $ 13,726 8,651

(a)    On April 12, 2024, the Company announced a change in its solar engineering, procurement, and construction operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, residential revenue will decline in future periods as existing customer contracts are completed.

Other Income (Expense)

The following table presents the components of "other, net" in "other income (expense)" on the consolidated statements of income:

Three months ended March 31,
2024 2023
Reinsurance premiums $ 12,780 535
Borrower late fee income 3,133 2,247
Gain (loss) from solar investments, net 2,971 (1,947)
ALLO preferred return 2,409 2,249
Administration/sponsor fee income 1,546 1,772
Investment advisory services (WRCM) 1,508 1,612
Loss from ALLO voting membership interest investment (10,693) (20,213)
Investment activity, net (1,298) (3,577)
Other 4,659 3,251
Other, net $ 17,015 (14,071)

12.  Major Customer

Government Loan Servicing

Nelnet Servicing, a subsidiary of the Company, earns loan servicing revenue from a servicing contract with the Department of Education (the "Department"). Revenue earned by the Company related to this contract was $105.5 million and $108.9 million for the three months ended March 31, 2024 and 2023, respectively.

The Company's legacy student loan servicing contract with the Department was scheduled to expire on December 14, 2023. In April 2023, Nelnet Servicing received a contract award from the Department, pursuant to which it was selected to provide continued servicing capabilities for the Department's student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which replaced the legacy Department student loan servicing contract.

The New Government Servicing Contract became effective April 24, 2023 and has a five year base period, with 2 two-year and 1 one-year possible extensions. The Department's total loan servicing volume of existing borrowers will be allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract based on service and performance levels. Under the New Government Servicing Contract, Nelnet Servicing immediately began to make required servicing platform enhancements, for which it will be compensated from the Department on certain of these investments. Servicing under the New Government Servicing Contract went live on April 1, 2024 and the Company will recognize revenue in accordance with this new contract beginning in the second quarter of 2024. The Company earned revenue for servicing borrowers under the legacy servicing contract with the Department through March 31, 2024.

The New Government Servicing Contract has multiple revenue components with tiered pricing based on borrower volume, while revenue earned under the legacy servicing contract was primarily based on borrower status. Assuming borrower volume remains consistent under the New Government Servicing Contract, the Company expects revenue earned on a per borrower blended basis will decrease under the New Government Servicing Contract versus the legacy contract. However, consistent with the legacy contract, the Company expects to earn additional revenue from the Department under the New Government Servicing Contact for change requests and other support services.

13.  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, 2024 As of December 31, 2023
Level 1 Level 2 Total Level 1 Level 2 Total
Assets:
Investments:
Asset-backed debt securities - available-for-sale $ 99 1,018,588 1,018,687 99 955,804 955,903
Equity securities 56 — 56 73 — 73
Equity securities measured at net asset value (a) 54,970 50,834
Total investments 155 1,018,588 1,073,713 172 955,804 1,006,810
Derivative instruments — 1,820 1,820 — 452 452
Total assets $ 155 1,020,408 1,075,533 172 956,256 1,007,262
Liabilities:
Derivative instruments $ — 1,085 1,085 — 1,976 1,976
Total liabilities $ — 1,085 1,085 — 1,976 1,976

(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, 2024
Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:
Loans receivable $ 11,479,342 11,144,983 — — 11,479,342
Accrued loan interest receivable 684,095 684,095 — 684,095 —
Cash and cash equivalents 179,682 179,682 179,682 — —
Investments (at fair value) 1,073,713 1,073,713 155 1,018,588 —
Investments - held-to-maturity 164,493 161,238 — 164,493 —
Notes receivable 53,140 53,140 — 53,140 —
Beneficial interest in loan securitizations 260,537 235,824 — — 260,537
Restricted cash 618,363 618,363 618,363 — —
Restricted cash – due to customers 142,778 142,778 142,778 — —
Derivative instruments 1,820 1,820 — 1,820 —
Financial liabilities:
Bonds and notes payable 10,481,221 10,582,513 — 10,481,221 —
Accrued interest payable 31,983 31,983 — 31,983 —
Bank deposits 781,814 802,061 528,315 253,499 —
Due to customers 274,757 274,757 274,757 — —
Derivative instruments 1,085 1,085 — 1,085 — As of December 31, 2023
--- --- --- --- --- --- ---
Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:
Loans receivable $ 12,800,638 12,343,819 — — 12,800,638
Accrued loan interest receivable 764,385 764,385 — 764,385 —
Cash and cash equivalents 168,112 168,112 168,112 — —
Investments (at fair value) 1,006,810 1,006,810 172 955,804 —
Investments - held-to-maturity 163,622 162,738 — 163,622 —
Notes receivable 53,747 53,747 — 53,747 —
Beneficial interest in loan securitizations 262,093 225,079 — — 262,093
Restricted cash 488,723 488,723 488,723 — —
Restricted cash – due to customers 368,656 368,656 368,656 — —
Derivative instruments 452 452 — 452 —
Financial liabilities:
Bonds and notes payable 11,629,359 11,828,393 — 11,629,359 —
Accrued interest payable 35,391 35,391 — 35,391 —
Bank deposits 722,973 743,599 467,420 255,553 —
Due to customers 425,507 425,507 425,507 — —
Derivative instruments 1,976 1,976 — 1,976 —

The methodologies for estimating the fair value of financial assets and liabilities are described in note 23 of the notes to consolidated financial statements included in the 2023 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, 2024 and 2023. 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 2023 Annual Report.

Forward-looking and cautionary statements

This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “continue,” “could,” “ensure,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.

The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in the “Risk Factors” section of the 2023 Annual Report and include such risks and uncertainties as:

•risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and future servicing contracts with the Department, risks related to unfavorable contract modifications or interpretations, 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 prepayment risk, credit risk, interest rate basis and repricing risk, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, consumer, and other loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, consumer, and other loans;

•financing and liquidity risks, including risks of changes in the interest rate environment;

•risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets;

•risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors;

•risks related to use of artificial intelligence;

•uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;

•risks related to the ability of Nelnet Bank to achieve its business objectives and effectively deploy loan and deposit strategies and achieve expected market penetration;

•risks related to the expected benefits to the Company from its continuing investment in ALLO 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 and rising construction costs;

•risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom) including venture capital and real estate investments, reinsurance, acquisitions, and other activities (including risks associated with errors that occasionally occur in converting loan servicing portfolios to a new servicing platform), including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses;

•risks and uncertainties associated with climate change; and

•risks and uncertainties associated with litigation matters and maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, 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 payments. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in a fiber communications company (ALLO), early-stage and emerging growth companies (venture capital investments), real estate, reinsurance, and renewable energy (solar). The Company is also actively expanding its private education, consumer, and other loan portfolios, and in November 2020 launched Nelnet Bank.

GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments

The Company prepares its financial statements and presents its financial results in accordance with GAAP. However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. A reconciliation of the Company's GAAP net income to Non-GAAP net income, excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.

Three months ended March 31,
2024 2023
GAAP net income attributable to Nelnet, Inc. $ 73,210 26,487
Realized and unrealized derivative market value adjustments (7,964) 37,411
Tax effect (a) 1,911 (8,979)
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 67,157 54,919
Earnings per share:
GAAP net income attributable to Nelnet, Inc. $ 1.97 0.71
Realized and unrealized derivative market value adjustments (0.21) 1.00
Tax effect (a) 0.05 (0.24)
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b) $ 1.81 1.47

(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

(b) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.

The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting in the consolidated financial statements. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.

The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

Operating Segments

The Company's reportable operating segments are described in note 1 of the notes to consolidated financial statements included in the 2023 Annual Report. They include:

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

•Education Technology Services and Payments (ETSP) - referred to as Nelnet Business Services (NBS)

•Asset Generation and Management (AGM), part of the Nelnet Financial Services (NFS) division

•Nelnet Bank, part of the NFS division

The Company earns fee-based revenue through its NDS and NBS reportable operating segments. The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, through its AGM reportable operating segment. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes. The Company actively works to maximize the amount and timing of cash flows generated from its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow. Nelnet Bank operates as an internet industrial bank franchise focused on the private education and unsecured consumer loan markets, with a home office in Salt Lake City, Utah. Other operating segments included in the NFS division include the Company's U.S. Securities and Exchange Commission (SEC)-registered investment advisor subsidiary, property and casualty reinsurance activities, investment activities in real estate, and investment debt securities (primarily student loan and other asset-backed securities) and interest expense incurred on debt used to finance such investments.

Other business activities and operating segments that are not reportable and not part of the NFS division are combined and included in Corporate and Other Activities ("Corporate"). Corporate also includes interest income earned on cash balances held at the corporate level and interest expense incurred on unsecured corporate related debt transactions, certain investment activities including its investment in ALLO and early-stage and emerging growth companies (venture capital investments), and certain shared service activities that are allocated to each operating segment based on estimated use of such activities and services. In addition, Corporate includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs.

The information below presents the operating results (net income (loss) before taxes) for each of the Company's reportable and certain other operating segments reconciled to the consolidated financial statements for the three months ended March 31, 2024 and 2023. See "Results of Operations" for each reportable operating segment, the NFS operating segments, and Corporate and Other Activities under this Item 2 for additional detail.

Three months ended March 31, Certain Items Impacting Comparability<br>(All dollar amounts below are pre-tax)
2024 2023
NDS $ 15,990 25,219 •A decrease in before tax operating margin due primarily to a decrease in loan servicing and systems revenue, partially offset by a decrease in salaries and benefits resulting from restructure charges incurred during the first quarter of 2023 and staff reductions in 2023.
NBS 47,635 37,637 •An increase in before tax operating margin, excluding net interest income, due to increased revenue while maintaining a consistent cost structure.<br><br>•The recognition of $7.9 million of interest income in 2024 compared with $6.0 million in 2023 due to higher interest rates.
Nelnet Financial Services division:
AGM 33,743 (221) •A net gain of $5.7 million related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2024 compared with a net loss of $37.4 million in 2023.<br><br>•A decrease of $21.1 million in net interest income due to a decrease in core loan spread in 2024 compared with 2023.<br><br>•A decrease of $5.1 million in net interest income due to the decrease in the average balance of loans in 2024 compared with 2023.<br><br>•The recognition of $6.6 million in provision for loan losses in 2024 compared with $31.9 million in 2023.<br><br>•The recognition of a net gain of $11.8 million in 2023 from the sale of loans.<br><br>•The recognition of $21.8 million of investment interest in 2024 compared with $13.8 million in 2023 due to an increase in interest earned on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.
Nelnet Bank 1,147 (93)
NFS other operating segments 13,762 5,177 •The recognition of $12.2 million of net interest income in 2024 compared with $6.4 million in 2023 due to higher average yield on interest-earning debt securities (bonds) and a decrease in outstanding debt used to finance such investments.<br><br>•The recognition of $4.0 million of realized losses on sales of investment securities in 2023.
Corporate:
Unallocated corporate costs (10,045) (12,989)
ALLO investment (8,593) (17,882) •The recognition of a net loss from the ALLO voting membership interest investment of $10.7 million in 2024 compared with $20.2 million in 2023. Absent additional equity contributions, the Company will not recognize additional losses for its voting membership interests in ALLO.<br><br>•The recognition of income of $2.4 million and $2.2 million in 2024 and 2023, respectively, on the $155.0 million (as of March 31, 2024) outstanding preferred membership interests of ALLO. The preferred membership interests of ALLO held by the Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024.
Nelnet Renewable Energy (1,533) (6,701) •The recognition of a loss in the solar construction business of $4.0 million in 2024 compared with $3.1 million in 2023.<br><br>•The recognition of a net gain from tax solar investments of $3.0 million in 2024 compared with a net loss of $1.9 million in 2023.
Other corporate activities 2,019 1,120
Net income before taxes 94,127 31,267
Income tax expense (23,119) (8,250)
Net loss attributable to noncontrolling interests 2,202 3,470 •The majority of noncontrolling interests represents losses attributed to noncontrolling membership interests in the Company’s Nelnet Renewable Energy operating segment, which were $2.3 million and $3.5 million in 2024 and 2023, respectively.
Net income $ 73,210 26,487

CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's consolidated operating results for the three months ended March 31, 2024 compared with the same period in 2023 is provided below.

The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 10 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,
2024 2023 Additional information
Loan interest $ 216,724 225,243 Decrease was due to decreases in the average balance of loans and gross fixed rate floor income partially offset by an increase in the gross yield earned on loans.
Investment interest 52,078 40,725 Includes income from unrestricted interest-earning deposits and investments, and restricted cash in asset-backed securitizations. Increase was due to an increase in interest rates and an increase in interest earned on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.
Total interest income 268,802 265,968
Interest expense 194,580 199,449 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 74,222 66,519
Less provision for loan losses 10,928 34,275 Represents the current period provision to reflect the lifetime expected credit losses related to the Company's loan portfolio. See note 2 of the notes to consolidated financial statements in this report for the factors impacting provision for loan losses for the periods presented.
Net interest income after provision for loan losses 63,294 32,244
Other income (expense):
LSS revenue 127,201 139,227 See LSS operating segment - results of operations.
ETSP revenue 143,539 133,603 See ETSP operating segment - results of operations.
Solar construction revenue 13,726 8,651 Represents revenue earned from GRNE Solar providing solar construction services, including design and installations of residential and commercial solar systems. On April 12, 2024, the Company announced a change in its solar EPC operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, residential revenue will decline in future periods as existing customer contracts are completed. Residential solar construction revenue was $2.1 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively, and $11.8 million for the year ended December 31, 2023.
Other, net 17,015 (14,071) See table below for the components of "other, net."
(Loss) gain on sale of loans, net (41) 11,812 The Company recognized a loss and net gains from selling loans in 2024 and 2023, respectively. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Derivative settlements, net 1,757 23,337 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. The majority of derivative settlements received in the periods presented was from the Company's derivatives used to hedge loans earning fixed rate floor income. To minimize the Company's exposure to market volatility and increase liquidity, the Company terminated this derivative portfolio on March 15, 2023. Subsequent to terminating these derivatives, during the second and fourth quarters of 2023, the Company entered into a total of $400 million notional amount of derivatives to hedge loans earning fixed rate floor income and other loans and investments in which the Company receives a fixed rate. See AGM operating segment - results of operations for additional information.
Derivative market value adjustments, net 7,964 (37,411) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the periods presented related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps. To minimize the Company's exposure to market volatility and increase liquidity, the Company terminated this derivative portfolio on March 15, 2023. As such, the Company expects the derivative market value adjustments in future periods will be less substantial.
Total other income (expense), net 311,161 265,148
Cost of services:
Cost to provide education technology services and payments 48,610 47,704 Represents direct costs to provide payment processing and instructional services in ETSP. See ETSP operating segment - results of operations.
Cost to provide solar construction services 14,229 8,299 Represents direct costs to provide solar construction services. Since the acquisition of GRNE in July 2022, it has incurred low and, in some cases, negative margins on certain projects.
Total cost of services 62,839 56,003
Operating expenses:
--- --- --- --- ---
Salaries and benefits 143,875 152,710 Decrease was primarily due to restructuring charges recognized in the first quarter of 2023 and staff reductions in LSS to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contract. This was partially offset by an increase in ETSP due to annual merit pay increases and an increase in headcount to support the growth of the customer base and the investment in the development of new technologies.
Depreciation and amortization 16,769 16,627 Includes depreciation of property and equipment and the amortization of intangibles from prior business acquisitions.
Other expenses 56,845 40,785 Represents expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, reinsurance loss reserve and acquisitions costs, and certain information technology-related costs. Increase was driven by an increase in NFS due to reinsurance loss reserve and acquisition costs as a result of growth in reinsurance policies and in LSS due to additional postage and communication costs as a result of borrowers returning to repayment on September 1, 2023.
Total operating expenses 217,489 210,122
Income before income taxes 94,127 31,267
Income tax expense 23,119 8,250 The effective tax rate was 24.0% and 23.7% for the three months ended March 31, 2024 and 2023, respectively. The Company expects its tax rate will range between 22% and 24% for the remainder of 2024.
Net income 71,008 23,017
Net loss attributable to noncontrolling interests 2,202 3,470 Represents the net income/loss attributable to the holders of noncontrolling membership interests. The majority is attributed to noncontrolling membership interests in the Company's Nelnet Renewable Energy operating segment.
Net income attributable to Nelnet, Inc. $ 73,210 26,487
Additional information: See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.
Net income attributable to Nelnet, Inc. $ 73,210 26,487
Derivative market value adjustments, net (7,964) 37,411
Tax effect 1,911 (8,979)
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments $ 67,157 54,919

The following table summarizes the components of "other, net" in "other income (expense)" on the consolidated statements of income.

Three months ended March 31,
2024 2023 Additional information
Reinsurance premiums $ 12,780 535 See NFS division - results of operations - NFS other operating segments.
Borrower late fee income 3,133 2,247 See NFS division - results of operations - AGM operating segment.
Gain (loss) from solar investments, net 2,971 (1,947) See Corporate - results of operations.
ALLO preferred return 2,409 2,249 See Corporate - results of operations.
Administration/sponsor fee income 1,546 1,772 See NFS division - results of operations - AGM operating segment.
Investment advisory services (WRCM) 1,508 1,612 See NFS division - results of operations - NFS other operating segments.
Loss from ALLO voting membership interest investment (10,693) (20,213) See Corporate - results of operations.
Investment activity, net (1,298) (3,577) See note (a) below for additional information.
Other 4,659 3,251
Other, net $ 17,015 (14,071)

(a)    The Company anticipates fluctuations in future periodic earnings resulting from investment sales and valuation adjustments. Investment activity by operating segment and investment type follows:

Real Estate Venture Capital and Funds Equity / Bonds Total Real Estate Venture Capital and Funds Equity / Bonds Total
Three months ended March 31,
2024 2023
NFS - AGM $ — 322 — 322 — (104) (476) (580)
NFS - Nelnet Bank — (179) 529 350 — (263) 465 202
NFS - Other Operating Segments (1,794) — 212 (1,582) 1,148 — (4,058) (2,910)
Corporate — (388) — (388) — (289) — (289)
$ (1,794) (245) 741 (1,298) 1,148 (656) (4,069) (3,577)

LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Servicing Volumes

As of
March 31,<br>2024 December 31,<br>2023 September 30,<br>2023 June 30,<br>2023 March 31,<br>2023 December 31,<br>2022
Servicing volume (dollars in millions):
Government $ 495,409 494,691 500,554 519,308 537,291 545,373
FFELP 15,783 17,462 18,400 19,021 19,815 20,226
Private and consumer 21,015 20,493 20,394 20,805 21,484 21,866
Total $ 532,207 532,646 539,348 559,134 578,590 587,465
Number of servicing borrowers:
Government 14,328,013 14,503,057 14,543,382 14,898,901 15,518,751 15,777,328
FFELP 656,814 725,866 764,660 788,686 819,791 829,939
Private and consumer 882,256 894,703 896,613 899,095 925,861 951,866
Total 15,867,083 16,123,626 16,204,655 16,586,682 17,264,403 17,559,133
Number of remote hosted borrowers: 65,295 70,580 103,396 716,908 5,048,324 6,135,760

Government Loan Servicing

Nelnet Servicing earns loan servicing revenue from a servicing contract with the Department. The Company's legacy student loan servicing contract with the Department was scheduled to expire on December 14, 2023. In April 2023, Nelnet Servicing received a contract award from the Department, pursuant to which it was selected to provide continued servicing capabilities for the Department's student aid recipients under a new Unified Servicing and Data Solution (USDS) contract (the "New Government Servicing Contract") which replaced the legacy Department student loan servicing contract.

The New Government Servicing Contract became effective April 24, 2023 and has a five year base period, with 2 two-year and 1 one-year possible extensions. The Department's total loan servicing volume of existing borrowers will be allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract based on service and performance levels. Under the New Government Servicing Contract, Nelnet Servicing immediately began to make required servicing platform enhancements, for which it will be compensated from the Department on certain of these investments. Servicing under the New Government Servicing Contract went live on April 1, 2024 and the Company will recognize revenue in accordance with this new contract beginning in the second quarter of 2024. The Company earned revenue for servicing borrowers under the legacy servicing contract with the Department through March 31, 2024.

The New Government Servicing Contract has multiple revenue components with tiered pricing based on borrower volume, while revenue earned under the legacy servicing contract was primarily based on borrower status. Assuming borrower volume remains consistent under the New Government Servicing Contract, the Company expects revenue earned on a per borrower blended basis will decrease under the New Government Servicing Contract versus the legacy contract. However, consistent with the legacy contract, the Company expects to earn additional revenue from the Department under the New Government Servicing Contract for change requests and other support services. In addition, the Company has executed an agreement with a third-party servicer awarded a USDS contract to license its servicing software to such entity. The Company will begin to earn remote hosted servicing revenue from this new customer during the second quarter of 2024. The amount of revenue earned by the Company from this new customer will depend on the number of servicing borrowers allocated by the Department to the new customer.

Department of Education Debt Relief

In August 2022, the Department announced a broad-based student debt relief plan that would have provided up to $20,000 in one-time debt relief to income-qualified recipients with Department held student loans. On June 30, 2023, the Supreme Court ruled that the Department was prohibited from implementing this plan. After the invalidation of this broad-based relief plan, the Department announced plans to enter into a negotiated rulemaking process to achieve debt relief for federal student loan borrowers using provisions of the Higher Education Act (HEA). Publicly available negotiated rulemaking sessions occurred in the fourth quarter of 2023 and the first quarter of 2024. The Department published draft regulations for public comment in April 2024, including regulations that would grant automatic discharge for all federal student loans older than 20 or 25 years. The April 2024 draft publication did not include regulations to provide forgiveness for borrowers “experiencing financial hardship;”

however, publication and comment period for such regulations are expected in Summer of 2024. Final publication and effective date for all pending forgiveness regulations pursuant to the HEA are expected in Fall of 2024. The Company cannot predict the timing, nature, or ultimate outcome of any student debt relief program as a result of the negotiated rulemaking process. Revenue earned under the New Government Servicing Contract will decrease in future periods if the Department successfully implements its debt relief plan and/or if the Department initiates additional loan forgiveness or cancellation programs in the future.

Private Education Loan Servicing

In January 2024, Discover announced they were moving the servicing of its approximately $10 billion private education loan portfolio, representing approximately 500,000 borrowers, to the Company. The timing of the conversion of these loans to the Company’s platform is dependent on the timing of Discover’s potential sale of its portfolio.

Summary and Comparison of Operating Results

Three months ended March 31,
2024 2023 Additional information
Net interest income $ 1,894 1,037 Increase was due to higher interest rates.
Loan servicing and systems revenue 127,201 139,227 See table below for additional information.
Intersegment servicing revenue 6,886 7,790 Represents revenue earned by LSS from servicing loans for AGM and Nelnet Bank. Decrease was due to the continued amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income 710 608 Represents revenue earned from providing administrative support services.
Total other income 134,797 147,625
Salaries and benefits 76,722 84,560 Decrease was due to the Company being fully staffed at the beginning of 2023 with contact center operations and support associates as the Company prepared for expiration of the federal student loan payment pause under the CARES Act. In the first half of 2023, the Company reduced staff to manage expenses due to delays in the government's student debt relief and return to repayment programs and lower pricing and reduced servicing volume for LSS's Department servicing contract. As part of these reductions, the Company recognized a restructuring charge of $2.7 million in the first quarter of 2023.
Depreciation and amortization 5,109 4,513
Other expenses 19,538 13,313 Increase was due to additional postage and communication costs due to borrowers returning to repayment on September 1, 2023.
Intersegment expenses 19,332 21,057 Represents costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 120,701 123,443
Income before income taxes 15,990 25,219
Income tax expense (3,838) (6,053) Represents income tax expense at an effective tax rate of 24%.
Net income $ 12,152 19,166
Before tax operating margin 11.9 % 17.1 % Before tax operating margin represents before tax operating profitability as a percentage of revenue, and for LSS is calculated as income before income taxes divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income. 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>Before tax operating margin decreased due primarily to a decrease in loan servicing and systems revenue as described in the table below, partially offset by a decrease in salaries and benefits resulting from restructure charges incurred during the first quarter of 2023 and staff reductions in 2023.

Loan servicing and systems revenue

The following table presents disaggregated revenue by service offering for each reporting period.

Three months ended March 31,
2024 2023 Additional information
Government loan servicing $ 105,474 108,880 Represents revenue from the Company's Department legacy servicing contract. Decrease was due to the reduction of the monthly fee earned per borrower on certain borrower statuses by $0.19 effective April 1, 2023 and a decrease of borrowers serviced due to the Department transferring one million of the Company's existing borrowers to another third-party servicer during the second and third quarters of 2023. These decreases were partially offset by an increase in the average revenue earned on a per borrower blended basis as a result of borrowers moving to a repayment status on September 1, 2023.
Private education and consumer loan servicing 12,620 12,164 Increase was due to rate increases based on contractual consumer price index changes, partially offset by a decrease in the number of borrowers serviced.
FFELP loan servicing 3,380 3,368 Represents revenue from servicing third-party customers' FFELP portfolios. Over time, FFELP servicing revenue will decrease as third-party customers' FFELP portfolios pay off.
Software services 4,541 9,697 Represents revenue from providing remote hosted servicing software to certain Department and other servicers and providing diversified technology services. Decrease was primarily due to the transfer of all Department remote hosted borrowers to other third-party servicers throughout 2023 under the Department's legacy servicing contracts.
Outsourced services 1,186 5,118 Represents revenue from providing contact center and back office operational outsourcing services. Decrease was due to the contracts for support provided to certain Department servicers expiring in July 2023.
Loan servicing and systems revenue $ 127,201 139,227

EDUCATION TECHNOLOGY SERVICES AND PAYMENTS OPERATING SEGMENT – RESULTS OF OPERATIONS

As discussed further in the Company's 2023 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and before tax operating margin are higher in the first quarter compared with the remainder of the year.

Summary and Comparison of Operating Results

Three months ended March 31,
2024 2023 Additional information
Net interest income $ 7,866 6,036 Represents interest income on tuition funds held in custody for schools. Increase was due to higher interest rates.
Education technology services and payments revenue 143,539 133,603 See table below for additional information.
Intersegment revenue 49 56
Total other income 143,588 133,659
Cost of services 48,610 47,704 See table below for additional information.
Salaries and benefits 40,167 37,913 Increase was due to annual merit pay increases and an increase in headcount to support the growth of the customer base and the investment in the development of new technologies.
Depreciation and amortization 2,683 2,578 Represents primarily amortization of intangible assets from prior business acquisitions.
Other expenses 7,558 8,063 Decrease was due to a decrease in consulting and professional services resulting from reduced outsourced work. Decrease was partially offset by an increase in technology services.
Intersegment expenses, net 4,801 5,800 Represents costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 55,209 54,354
Income before income taxes 47,635 37,637
Income tax expense (11,435) (9,066) Represents income tax expense at an effective tax rate of 24%.
Net income 36,200 28,571
Net loss attributable to noncontrolling interests 17 138
Net income $ 36,217 28,709

Education technology services and payments revenue

The following table presents disaggregated revenue by service offering and before tax operating margin for each reporting period.

Three months ended March 31,
2024 2023 Additional information
Tuition payment plan services $ 38,880 34,187 Increase was due to a higher number of payment plans in the K-12 and higher education markets for both new and existing customers.
Payment processing 47,786 44,041 Increase was due to increase in payment volumes for both the K-12 and higher education markets due to new customers and an increase in volume from existing customers.
Education technology services 56,021 54,787 Increase was due to an increase in revenue from the Company’s school information system software and application and enrollment services. This increase was partially offset by a decrease in FACTS learning management services revenue as a result of decrease in economic aid provided to private schools in response to the COVID 19 pandemic. Learning management instructional services revenue provided to private schools has been funded by the CARES Act and the Emergency Assistance to Non-Public Schools (EANS) programs. The EANS I program funding ended on September 30, 2023 and EANS II program funding ends on September 30, 2024. As economic aid provided to schools under the EANS programs stopped on September 30, 2023 (EANS I) and winds down (EANS II), future instructional services revenue will decrease from recent historical periods. Revenue earned under the EANS programs for the three months ended March 31, 2024 and 2023 was $10.6 million and $16.4 million, respectively.
Other 852 588
Education technology services and payments revenue 143,539 133,603
Cost of services 48,610 47,704 Represents direct costs to provide payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also a component of this expense and decrease/increase in relationship to instructional services revenues.
Net revenue $ 94,929 85,899
GAAP before tax operating margin 50.2 % 43.8 % Before tax operating margin, excluding net interest income, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the ETSP segment is calculated as income before income taxes less net interest income divided by net revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it facilitates an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.<br><br>Before tax operating margin, excluding net interest income, increased due to increased net revenue while maintaining a consistent cost structure.
Net interest income (8.3) (7.0)
Non-GAAP before tax operating margin, excluding net interest income 41.9 % 36.8 %

NELNET FINANCIAL SERVICES DIVISION - RESULTS OF OPERATIONS

Asset Generation and Management Operating Segment

Loan Portfolio

As of March 31, 2024, the AGM operating segment had a $10.8 billion loan portfolio, consisting primarily of federally insured loans. For a summary of the Company’s loan portfolio as of March 31, 2024 and December 31, 2023, 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,
2024 2023
Beginning balance $ 12,049,462 14,169,771
Loan acquisitions:
Federally insured student loans — 2,980
Consumer and other loans 80,730 250,706
Total loan acquisitions 80,730 253,686
Repayments, claims, capitalized interest, participations, and other, net (350,496) (410,239)
Loans lost to external parties (779,655) (268,696)
Loans sold (200,099) (261,902)
Ending balance $ 10,799,942 13,482,620

The Company has partial ownership in certain consumer, private education, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments and notes receivable" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2024, the Company’s ownership correlates to approximately $1.79 billion of loans included in these securitizations. The loans held in these securitizations are not included in the above table.

Since late 2021, the Company has experienced accelerated run-off of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of the CARES Act payment pause on Department held loans and the initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs. After multiple extensions of the student loans payment pause under the CARES Act, the payment and interest accrual suspension ended August 31, 2023, and Federal Direct Loan Program borrowers returned to repayment on September 1, 2023. In August 2022, the Department announced a broad-based student debt relief plan that would have provided up to $20,000 in one-time debt relief to income-qualified recipients with Department held student loans. On June 30, 2023, the Supreme Court ruled that the Department was prohibited from implementing this plan. After the invalidation of this broad-based relief plan, the Department announced plans to enter into a negotiated rulemaking process to achieve debt relief for federal student loan borrowers using provisions of the Higher Education Act (HEA). The Department released proposed regulatory text prior to holding its statutorily-required negotiated rulemaking sessions. Notably, the Department proposed forgiveness for certain groups of borrowers with privately-held FFELP loans without consolidation into the Federal Direct Loan Program as a prerequisite requirement for such forgiveness. Publicly available negotiated rulemaking sessions occurred in the fourth quarter of 2023 and the first quarter of 2024. The Department published draft regulations for public comment in April 2024, including regulations that would grant automatic discharge for all federal student loans, including privately-held FFELP loans, older than 20 or 25 years. The April 2024 draft publication did not include regulations to provide forgiveness for borrowers (including borrowers with privately-held FFELP loans) “experiencing financial hardship;” however, publication and comment period for such regulations are expected in Summer of 2024. Final publication and effective date for all pending forgiveness regulations pursuant to the HEA are expected in Fall of 2024. In addition, during 2023, the Department issued final regulations on the Saving on a Valuable Education (SAVE) income-driven repayment (IDR) plan. The SAVE plan makes significant changes to IDR to lower monthly payment amounts, subsidize interest, and accelerate time to forgiveness for some borrowers. FFELP borrowers can access the new income-driven repayment changes by consolidating their loans into the Federal Direct Loan Program. The benefits of the SAVE plan are conferred not exclusively on a go-forward basis, as has been the case with previous IDR rulemaking, meaning borrowers who consolidate into the Federal Direct Loan Program receive credit toward forgiveness for months in repayment prior to consolidation. The new income-driven repayment regulations are effective July 1,

2024; however, the Biden-Harris Administration announced implementation for some features starting July 30, 2023 and SAVE forgiveness starting February 2024. The proposed forgiveness regulations and implementation of the SAVE IDR plan regulations have increased, and may continue to increase, consolidation activity as FFELP borrowers (i) consolidate their loans into the Federal Direct Loan Program in order to be eligible for potential debt relief for Department borrowers and the SAVE plan and (ii) begin receiving automatic forgiveness for loans older than 20 or 25 years. Prepayments could significantly increase if the federal government and/or the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs.

Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs

For a summary of the allowance as a percentage of the ending balance and loan status and delinquency amounts for each of AGM's loan portfolios as of March 31, 2024 and December 31, 2023; and the activity in AGM's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2024 and 2023, 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,
2024 2023
Variable loan yield, gross 7.99 % 7.12 %
Consolidation rebate fees (0.80) (0.81)
Discount accretion, net of premium and deferred origination costs amortization 0.09 0.05
Variable loan yield, net 7.28 6.36
Loan cost of funds - interest expense (6.50) (5.53)
Loan cost of funds - derivative settlements (a) (b) 0.01 0.03
Variable loan spread 0.79 0.86
Fixed rate floor income, gross 0.01 0.03
Fixed rate floor income - derivative settlements (a) (c) 0.04 0.68
Fixed rate floor income, net of settlements on derivatives 0.05 0.71
Core loan spread 0.84 % 1.57 %
Average balance of AGM's loans $ 11,561,504 13,991,241
Average balance of AGM's debt outstanding 11,387,400 13,364,876

(a)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's Non-Nelnet Bank derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2024 and 2023 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" 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,
2024 2023
Core loan spread 0.84 % 1.57 %
Derivative settlements (1:3 basis swaps) (0.01) (0.03)
Derivative settlements (fixed rate floor income) (0.04) (0.68)
Loan spread 0.79 % 0.86 %

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

(c)    Derivative settlements consist of net settlements received related to the Company’s floor income interest rate swaps.

The relationship between the indices in which AGM earns interest on its loans and funds such loans has a significant impact on loan spread. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets. In an increasing interest rate environment, student loan spread on FFELP loans increases in the short term because of the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest rate resets on the Company's debt occurring either monthly or quarterly.

Variable loan spread was lower during the three months ended March 31, 2024 compared with the same period in 2023 due to a significant increase in short-term rates during the first quarter of 2023 compared with an insignificant change in rates for the same period in 2024.

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,
2024 2023
Fixed rate floor income, gross $ 180 1,110
Derivative settlements (a) 1,190 22,478
Fixed rate floor income, net $ 1,370 23,588
Fixed rate floor income contribution to spread, net 0.05 % 0.71 %

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

The decrease in gross fixed rate floor income for the three months ended March 31, 2024 compared with the same period in 2023 was due to higher interest rates in 2024 compared with 2023.

The Company had a significant portfolio of derivative instruments in which the Company paid a fixed rate and received a floating rate to economically hedge loans earning fixed rate floor income. On March 15, 2023, to minimize the Company's exposure to market volatility and increase liquidity, the Company terminated its derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives). Through March 15, 2023, the Company had received cash or had a receivable from its clearinghouse related to variation margin equal to the fair value of the $2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements. Subsequent to terminating these derivatives, during the second and fourth quarters of 2023, the Company entered into a total of $400.0 million notional amount of derivatives to hedge loans earning fixed rate floor income and other loans and investments in which the Company receives a fixed rate.

The decrease in net derivative settlements received by the Company during the three months ended March 31, 2024, compared with the same period in 2023, was due to a decrease in the notional amount of derivatives outstanding and less favorable terms on the $400.0 million of notional derivatives entered into in 2023 compared with the $2.8 billion notional derivatives that were terminated due to an increase in interest rates from when the terminated derivatives were initially executed.

Summary and Comparison of Operating Results

Three months ended March 31,
2024 2023 Additional information
Net interest income after provision for loan losses $ 34,003 13,663 See table below for additional analysis.
Other income, net 4,983 2,845 Represents primarily borrower late fees, income from providing administration activities for third parties, and income/losses from AGM's investment in joint ventures.
(Loss) gain on sale of loans, net (41) 11,812 The Company recognized a loss and net gains from selling portfolios of loans in 2024 and 2023, respectively. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Derivative settlements, net 1,555 23,337 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below. The majority of derivative settlements received in the periods presented was from the Company's derivative portfolio used to hedge loans earning fixed rate floor income. The decrease in net derivative settlements received by the Company was due to the termination of the floor income interest rate swaps in March 2023. See above under "Loan Spread Analysis" for further information.
Derivative market value adjustments, net 5,706 (37,411) Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the periods presented related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps. On March 15, 2023, AGM terminated its portfolio of floor income interest rate swaps to minimize the Company's exposure to market volatility and increase liquidity. As such, the Company expects the derivative market value adjustments in future periods will be less substantial. See above under "Loan Spread Analysis" for further information.
Total other income, net 12,203 583
Salaries and benefits 1,195 755 Increase was due to additional headcount as the Company actively expands into new asset loan classes.
Other expenses 3,418 5,016 Represents primarily servicing fees paid to third parties. Decrease in servicing fees was due to the amortization of the FFELP student loan portfolio.
Intersegment expenses 7,850 8,696 Represents fees paid to LSS for the servicing of the majority of AGM’s loans. These amounts exceed the actual cost of servicing the loans. Intersegment expenses also includes costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses 12,463 14,467 Total operating expenses were 43 basis points and 41 basis points of the average balance of loans for the three months ended March 31, 2024 and 2023, respectively. The increase in operating expenses as a percent of the average balance of loans was due to an increase in costs as the Company actively expands into new asset loan classes.
Income (loss) before income taxes 33,743 (221)
Income tax (expense) benefit (8,099) 53 Represents income tax expense at an effective tax rate of 24%.
Net income (loss) $ 25,644 (168)
Additional information:
GAAP net income (loss) $ 25,644 (168) 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.<br><br>The decrease in non-GAAP net income, excluding derivative market value adjustments was due to (i) a decrease in the average balance of loans; (ii) a decrease in core loan spread; and (iii) the net gain on sale of loans in 2023. These changes were partially offset by (i) a decrease in provision expense and (ii) an increase in investment interest income on the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.
Derivative market value adjustments, net (5,706) 37,411
Tax effect 1,369 (8,979)
Non-GAAP net income, excluding derivative market value adjustments $ 21,307 28,264

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,
2024 2023 Additional information
Variable interest income, gross $ 229,817 246,594 Decrease 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 (23,057) (28,399) Decrease was due to a decrease in the average consolidation loan balance.
Discount accretion, net of premium and deferred origination costs amortization 2,688 1,607 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 209,448 219,802
Interest on bonds and notes payable (184,145) (182,063) Increase was due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.
Derivative settlements, net (a) 365 859 Represents net derivative settlements received related to the Company’s 1:3 basis swaps.
Variable loan interest margin, net of settlements on derivatives 25,668 38,598
Fixed rate floor income, gross 180 1,110 Decrease was due to higher interest rates.
Derivative settlements, net (a) 1,190 22,478 Represents net derivative settlements received related to the Company's floor income interest rate swaps. The decrease in net derivative settlements received by the Company was due to the termination of the floor income interest rate swaps in March 2023. See above under "Loan Spread Analysis" for further information.
Fixed rate floor income, net of settlements on derivatives 1,370 23,588
Core loan interest income (a) 27,038 62,186
Investment interest 21,835 13,807 Increase was due to an increase in the Company's partial ownership in loan securitizations that are accounted for as held-to-maturity beneficial interest investments.
Intercompany interest (6,760) (7,135)
Negative provision (provision) for loan losses - federally insured loans 1,870 (2,411) See note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report for factors impacting provision for loan losses for the periods presented.
Negative provision (provision) for loan losses - private education loans 265 (240)
Provision for loan losses - consumer and other loans (8,690) (29,207)
Net interest income after provision for loan losses (net of settlements on derivatives) (a) $ 35,558 37,000

(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 (a) 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 2024 and 2023 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income."

Nelnet Bank Operating Segment

Loan Portfolio

As of March 31, 2024, Nelnet Bank had a $483.7 million loan portfolio, consisting of $364.8 million of private education loans and $119.0 million of consumer and other loans. For a summary of the Company’s loan portfolio as of March 31, 2024 and December 31, 2023, 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 Nelnet Bank operating segment:

Three months ended March 31,
2024 2023
Beginning balance $ 432,872 419,795
Loan acquisitions and originations:
Private education loans 16,715 14,226
Consumer and other loans 56,847 19,632
Total loan acquisitions and originations 73,562 33,858
Repayments (22,711) (14,529)
Loans sold to AGM — (117)
Ending balance $ 483,723 439,007

Allowance for Loan Losses, Loan Delinquencies, and Loan Charge-offs

For a summary of the allowance as a percentage of the ending balance and loan status, delinquency amounts, and other key credit quality indicators for each of Nelnet Bank's loan portfolios as of March 31, 2024 and December 31, 2023; and the activity in Nelnet Bank's allowance for loan losses and net charge-offs as a percentage of average loans for the three months ended March 31, 2024 and 2023, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Deposits

As of March 31, 2024, Nelnet Bank had $960.6 million of deposits. All of Nelnet Bank’s deposits are interest-bearing and primarily consist of brokered certificates of deposit (CDs), retail and other savings deposits and CDs, and intercompany deposits. Retail and other savings deposits include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), and commercial and institutional CDs. Union Bank, a related party, is the program manager for the Educational 529 College Savings plans and trustee for the STFIT.

As of March 31, 2024, Nelnet Bank’s deposits included $158.6 million from Nelnet, Inc. (parent company) and its subsidiaries (intercompany), and thus have been eliminated for consolidated financial reporting purposes. The intercompany deposits include a pledged deposit of $40.0 million from Nelnet, Inc. as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating deposits, and NBS custodial deposits consisting of tuition payments collected 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, (a)
2024 2023
Balance Rate Balance Rate
Average assets
Federally insured student loans $ — — % $ 64,655 5.93 %
Private education loans 366,858 4.28 355,698 3.61
Consumer and other loans 97,136 13.23 7,308 12.30
Cash and investments 577,947 6.94 540,513 5.95
Total interest-earning assets 1,041,941 6.59 % 968,174 5.14 %
Non-interest-earning assets 12,767 9,323
Total assets $ 1,054,708 $ 977,497
Average liabilities and equity
Brokered deposits $ 204,651 1.39 % $ 205,411 1.39 %
Intercompany deposits 160,349 4.90 187,872 4.96
Retail and other deposits 544,136 4.90 452,008 3.78
Total interest-bearing liabilities 909,136 4.11 % 845,291 3.46 %
Non-interest-bearing liabilities 8,477 5,608
Equity 137,095 126,598
Total liabilities and equity $ 1,054,708 $ 977,497

(a) Calculated using average daily balances.

Summary and Comparison of Operating Results

Three months ended March 31,
2024 2023 Additional information
Total interest income $ 17,064 12,259 Represents interest earned on loans, cash, and investments. Increase was due to an increase of these balances and interest rates.
Interest expense 9,497 7,214 Represents interest expense on deposits. Increase was due to an increase of deposits and interest rates.
Net interest income 7,567 5,045
Provision for loan losses 4,373 2,417 Increase in provision for loan losses was due to the mix of loans, including the mix of loans acquired and originated in 2024 compared with 2023. For additional information, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Net interest income after provision for loan losses 3,194 2,628
Other income 375 210 Represents primarily net gains and income from investments.
Derivative settlements, net 202 — During the second and third quarter of 2023, Nelnet Bank entered into derivatives to hedge its exposure related to variable rate intercompany deposits to minimize volatility from future changes in interest rates. Nelnet Bank has designated its derivative instruments as cash flow hedges; however, because the hedged items are intercompany deposits, the derivative instruments are not eligible for hedge accounting in the consolidated financial statements. Accordingly, all changes in fair value of such derivatives are recorded through earnings and presented as "derivative market value adjustments, net" in the statements of operations. For additional information on Nelnet Bank's derivative portfolio, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Derivative market value adjustments, net 2,258 —
Total other income, net 2,835 210
Salaries and benefits 2,721 2,064 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor. Increase was due to the overall growth of Nelnet Bank activities.
Depreciation 260 5
Other expenses 1,128 782 Represents various expenses such as consulting and professional fees, Nelnet Bank director fees, occupancy, certain technology-related costs, insurance, and marketing. Increase was due to the overall growth of Nelnet Bank activities.
Intersegment expenses 773 80 Represents fees paid to LSS for servicing certain of Nelnet Bank's loans. These amounts exceed the actual cost of servicing the loans. 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. The majority of shared service costs incurred by the Company to support Nelnet Bank were not allocated to Nelnet Bank through the bank’s de novo period which ended at the end of 2023. The shared service and support costs incurred by the Company related to Nelnet Bank and not allocated to Nelnet Bank were $1.7 million for the three months ended March 31, 2023.
Total operating expenses 4,882 2,931
Income (loss) before income taxes 1,147 (93)
Income tax (expense) benefit (259) 35 Represents income tax expense at an effective tax rate of 22.6% and 37.4% for the three months ended March 31, 2024 and 2023, respectively.
Net income (loss) $ 888 (58)
Additional information:
Net income (loss) $ 888 (58) See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional details about non-GAAP net income, excluding derivative market value adjustments.
Derivative market value adjustments, net (2,258) —
Tax effect 542 —
Net loss, excluding derivative market value adjustments $ (828) (58)

NFS Other Operating Segments

The following table summarizes the operating results of other operating segments included in NFS that are not reportable. Income taxes are allocated based on 24% of income (loss) before taxes for each activity.

Summary and Comparison of Operating Results

WRCM (a) Nelnet Insurance Services (b) Real estate investments (c) Investment securities (d) Total
Three months ended March 31, 2024
Interest income $ 3 818 141 14,654 15,616
Interest expense — — — (2,418) (2,418)
Net interest income 3 818 141 12,236 13,198
Other income, net 1,477 13,066 (1,794) 192 12,941
Salaries and benefits (55) (114) (189) — (358)
Other expenses (75) (11,657) (70) — (11,802)
Intersegment expenses, net (4) (47) (130) (36) (217)
Income (loss) before income taxes 1,346 2,066 (2,042) 12,392 13,762
Income tax (expense) benefit (291) (496) 487 (2,974) (3,274)
Net (income) loss attributable to noncontrolling interests (135) — 15 — (120)
Net income (loss) $ 920 1,570 (1,540) 9,418 10,368
Three months ended March 31, 2023
Interest income $ 2 326 141 18,191 18,660
Interest expense — — — (11,827) (11,827)
Net interest income 2 326 141 6,364 6,833
Other income, net 1,596 691 1,147 (4,175) (741)
Salaries and benefits (56) (95) (68) — (219)
Other expenses (81) (469) (16) (1) (567)
Intersegment expenses, net (3) (31) (95) — (129)
Income (loss) before income taxes 1,458 422 1,109 2,188 5,177
Income tax (expense) benefit (315) (101) (268) (525) (1,209)
Net (income) loss attributable to noncontrolling interests (146) — 6 — (140)
Net income (loss) $ 997 321 847 1,663 3,828

(a)    The Company provides investment advisory services through Whitetail Rock Capital Management, LLC (WRCM), the Company's SEC-registered investment advisor subsidiary, under various arrangements. WRCM earned management fees of $1.4 million and $1.6 million during the three months ended March 31, 2024 and 2023, respectively. Fees earned by WRCM are included in "other income, net" in the table above.

(b)    Represents the operating results of the Company’s reinsurance treaties on property and casualty policies and the Company’s Nebraska chartered life and health company, which is in run-off mode and reinsures a decreasing term life insurance product distributed to FACTS. During the three months ended March 31, 2024 and 2023, the Company earned reinsurance premiums of $25.5 million and $1.1 million, respectively, and ceded $12.7 million and $0.6 million, respectively, of its earned reinsurance premiums, which are included in “other income, net” in the table above. During the three months ended March 31, 2024 and 2023, the Company recognized $22.8 million and $0.9 million, respectively, of loss reserve, commissions, and broker fees of which it ceded $11.5 million and $0.5 million, respectively, which are included in “other expenses” in the table above.

(c)    Represents the operating results of the Company’s real estate investments and the administrative costs to manage this portfolio. During the three months ended March 31, 2024 and 2023, the Company recognized $1.8 million of net losses and $1.1 million of net gains, respectively, from its real estate investments, which are included in "other income, net" in the table above. The loss recognized in the first quarter of 2024 relates primarily to the Company's proportionate share of the net losses of certain real estate investments accounted for under the equity method.

(d)    Represents interest income earned on investment debt securities (primarily student loan and other asset-backed securities, including Nelnet-owned asset-backed securities which it has repurchased and are eliminated in consolidation), unrealized gains/losses on marketable equity securities, realized gains/losses on marketable equity securities and investment debt securities, and other costs to manage these investments. Also includes interest expense incurred on debt used to finance such investments. The decrease in interest income in 2024 compared with 2023 was due to a decrease in the average balance of investments from $1.3 billion in 2023 to $0.9 billion in 2024, partially offset by an increase in interest rates. The decrease in interest expense in 2024 compared with 2023 was due to a decrease in the average debt outstanding from $0.9 billion in 2023 to $0.1 billion in 2024. Included in 2023 was $4.0 million of realized losses on sales of asset-backed and marketable securities, which are included in "other income, net" in the table above.

CORPORATE AND OTHER ACTIVITIES – RESULTS OF OPERATIONS

Other business activities and operating segments that are not reportable and not part of the NFS division are combined and included in Corporate and Other Activities (“Corporate”). The following table summarizes the operating results of these activities.

Income taxes are allocated based on 24% of income (loss) before taxes for each activity. The difference between the Corporate income tax expense and the sum of taxes calculated for each activity is included in income taxes in “other” in the table below.

Summary and Comparison of Operating Results

Nelnet Renewable Energy (b)
Shared services (a) Tax equity investments / syndication / administration GRNE Solar ALLO investment (c) Venture capital investments (d) Other Total
Three months ended March 31, 2024
Net interest income (expense) $ — — (312) — — 3,451 3,139
Solar construction revenue — — 13,726 — — — 13,726
Other income, net 706 3,067 42 (8,236) (426) 2,853 (1,994)
Cost to provide solar construction services — — (14,229) — — — (14,229)
Salaries and benefits (20,020) (683) (1,371) — (237) (1,210) (23,521)
Depreciation and amortization (8,368) — (250) — (6) (92) (8,716)
Other expenses (9,891) (171) (885) (356) (16) (2,083) (13,402)
Intersegment expenses, net 27,528 291 (758) (1) (19) (196) 26,845
Income (loss) before income taxes (10,045) 2,504 (4,037) (8,593) (704) 2,723 (18,152)
Income tax (expense) benefit 2,411 (979) 794 2,062 169 (672) 3,785
Net loss attributable to noncontrolling interests — 1,577 728 — — — 2,305
Net income (loss) $ (7,634) 3,102 (2,515) (6,531) (535) 2,051 (12,062)
Three months ended March 31, 2023
Net interest income (expense) $ — — (232) — — 2,280 2,048
Solar construction revenue — — 8,651 — — — 8,651
Other income, net 626 (1,948) 6 (17,864) (289) 2,476 (16,993)
Cost to provide solar construction services — — (8,299) — — — (8,299)
Salaries and benefits (23,384) (870) (1,196) (30) (190) (1,530) (27,200)
Depreciation and amortization (8,830) — (617) — — (84) (9,531)
Other expenses (10,240) (765) (886) 12 (165) (1,000) (13,044)
Intersegment expenses, net 28,839 (8) (537) — (10) (368) 27,916
Income (loss) before income taxes (12,989) (3,591) (3,110) (17,882) (654) 1,774 (36,452)
Income tax (expense) benefit 3,117 165 610 4,292 157 (351) 7,990
Net loss attributable to noncontrolling interests — 2,903 569 — — — 3,472
Net income (loss) $ (9,872) (523) (1,931) (13,590) (497) 1,423 (24,990)

(a)    Includes corporate activities related to internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services. The amount allocated to operating segments is reflected as “intersegment expenses, net” in the table above. Also includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs.

(b)    Nelnet Renewable Energy includes solar tax equity investments made by the Company, administrative and management services provided by the Company on tax equity investments made by third parties, and solar construction and development. As of March 31, 2024, the Company has invested a total of $491.8 million (which includes $208.9 million syndicated to third-party investors) in solar tax equity investments. Due to the management and control of each of these investment partnerships, such partnerships that invest in tax equity investments are consolidated on the Company’s consolidated financial statements, with the co-investor’s portion being presented as noncontrolling interests.

Included in tax equity investments in the table above is the Company's share of income or loss from solar investments accounted for under the Hypothetical Liquidation at Book Value (HLBV) method of accounting. For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. Nelnet Renewable Energy recognized

net gains on its tax equity investments of $3.0 million and net losses of $1.9 million during the three months ended March 31, 2024 and 2023, respectively. These income statement amounts, which include amounts attributable to third-party noncontrolling interest investors, are included in “other income, net” in the table above. Solar net losses attributable to third-party noncontrolling interest investors was $1.2 million and $2.7 million for the three months ended March 31, 2024 and 2023, respectively, and are reflected in “net loss attributable to noncontrolling interests” in the table above.

Nelnet Renewable Energy syndicates tax equity investments to third parties and earns management and performance fees. Management fee income recognized by Nelnet Renewable Energy was $0.7 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively, which is included in "other income, net" in the table above.

In addition to solar tax equity investments, the Company has a solar construction company (GRNE Solar) that provides full-service engineering, procurement, and construction (EPC) services to residential homes and commercial entities. Since the acquisition of GRNE in 2022, it has incurred low and, in some cases, negative margins on certain projects. Due to the complexity and long-term nature of existing construction contracts, the Company may continue to incur low and/or negative margins to complete projects. In addition, higher interest rates reduced residential demand and made community solar projects more costly. On April 12, 2024, the Company announced a change in its solar EPC operations to focus exclusively on the commercial solar market and will discontinue its residential solar operations. As a result, residential revenue will decline in future periods as existing customer contracts are completed. Residential solar construction revenue was $2.1 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively, and $11.8 million for the year ended December 31, 2023.

(c)    Represents primarily the Company's share of loss on its voting membership interests and income on its preferred membership interest in ALLO.

The Company accounts for its approximately 45% voting membership interests in ALLO under the HLBV method of accounting. The Company recognized losses under the HLBV method of accounting on its ALLO voting membership interests investment of $10.7 million and $20.2 million during the three months ended March 31, 2024 and 2023, respectively. These amounts are reflected in “other income, net” in the table above. Absent additional equity contributions, the Company will not recognize additional losses for its voting membership interests in ALLO.

As of March 31, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $155.0 million and $2.4 million, respectively. The preferred membership interests of ALLO held by the Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024. The Company recognized income on its ALLO preferred membership interests of $2.4 million and $2.2 million during the three months ended March 31, 2024 and 2023, respectively. These amounts are reflected in “other income, net” in the table above.

As part of the ALLO recapitalization transaction completed in 2020, the Company and SDC (a third-party global digital infrastructure investor and member of ALLO) entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of up to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels. The Company recognized expense of $0.4 million associated with this obligation for the three months ended March 31, 2024, which is included in “other expenses” in the table above.

(d)    Represents the operating results of the Company’s venture capital investments, including Hudl which the Company accounts for using the measurement alternative method, and the administrative costs to manage this portfolio.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s Loan Servicing and Systems, and Education Technology Services and Payments operating segments are non-capital intensive and both produce positive operating cash flows. As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations.

Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million in November 2020 and the Company contributed an additional $30.0 million and $5.0 million to Nelnet Bank during 2022 and 2023, respectively. Based on Nelnet Bank's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to the bank in future periods. Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank. See “Liquidity Impact Related to Nelnet Bank” included below for additional information.

Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment and the Company's other initiatives to pursue additional strategic investments.

Sources of Liquidity

As of March 31, 2024, the Company's sources of liquidity included:

Cash and cash equivalents $ 179,682
Less: Cash and cash equivalents held at Nelnet Bank (a) (22,869)
Net cash and cash equivalents 156,813
Available-for-sale (AFS) debt securities (investments) - at fair value 1,018,687
Less: AFS debt securities held at Nelnet Bank - at fair value (a) (445,268)
AFS private education loan debt securities - held as risk retention - at fair value (b) (248,436)
Restricted investments (36,076)
Unencumbered AFS debt securities (investments) - at fair value 288,907
Unencumbered private, consumer, and other loans (Non-Nelnet Bank) - at par 139,377
Unencumbered repurchased Nelnet issued asset-backed debt securities - at par (not included on consolidated financial statements) (c) 310,321
Unused capacity on unsecured line of credit (d) 495,000
Sources of liquidity as of March 31, 2024 $ 1,390,418

(a)    Cash and investments held at Nelnet Bank are generally not available for Company activities outside of Nelnet Bank.

(b)    The Company is sponsor for certain securitizations and as sponsor, is required to provide a certain level of risk retention. To satisfy this requirement, the Company has purchased bonds issued in the securitizations. The Company is required to retain these bonds as described under the caption “Repurchase Agreement” below.

(c)    The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties, redeem the notes at par as cash is generated by the trust estate, or pledge the securities as collateral on repurchase agreements. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale.

(d)    The Company has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of March 31, 2024, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use.

The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education, consumer, and other loan acquisitions (or investment interests therein); strategic acquisitions and investments; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.

Cash Flows

The Company has historically generated positive cash flow from operations. During the three months ended March 31, 2024 and 2023, the Company generated $211.9 million and $122.8 million, respectively, in cash from operating activities. The increase in 2024 compared with 2023 was due to:

•An increase in net income;

•Proceeds of $4.2 million from the Company's clearinghouse for margin payments on derivatives during the three months ended March 31, 2024 compared with payments of $210.3 million for the same period in 2023;

•Adjustments to net income for the impact of the non-cash change in deferred income taxes; and

•The impact of changes to accrued interest receivable, accounts receivable, and other assets during the three months ended March 31, 2024 compared with the same period in 2023.

These factors were partially offset by:

•Adjustments to net income for derivative market value adjustments, the impact of provision for loan losses, and gain/losses on investments;

•No proceeds from the termination of derivative instruments during the three months ended March 31, 2024 compared with $164.1 million for the same period in 2023; and

•The impact of changes to other liabilities during the three months ended March 31, 2024 compared with the same period in 2023.

The primary items included in the statement of cash flows for investing activities are the purchase, origination, repayment, and sale of loans, the purchase and sale of available-for-sale securities, and the purchase of other investments (primarily solar investments). The primary items included in financing activities are proceeds from the issuance of and payments on bonds and notes payable and the change in deposits at Nelnet Bank used to fund loans and investment activity. Cash provided by investing activities and used in financing activities for the three months ended March 31, 2024 was $1.1 billion and $1.4 billion, respectively. Cash provided by investing activities and used in financing activities for the three months ended March 31, 2023 was $0.7 billion and $1.3 billion, respectively. Investing and financing activities are further addressed in the discussion that follows.

Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related Collateral

The following table shows AGM's debt obligations outstanding that are secured by loan assets and related collateral.

As of March 31, 2024
Carrying amount Final maturity
Bonds and notes issued in asset-backed securitizations $ 9,423,035 8/26/30 - 9/25/69
FFELP and consumer loan warehouse facilities 1,107,959 4/2/25 - 11/14/25
$ 10,530,994

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, 2024, 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 $1.22 billion as detailed below. The actual timing of cash flows released from the securitizations could be impacted based on when and if the Company terminates a securitization by exercising clean-up calls on the underlying securities when the assets in such securitization get to a certain threshold.

The forecasted cash flow presented below includes loans funded in asset-backed securitizations as of March 31, 2024, the majority of which are federally insured student loans. As of March 31, 2024, AGM had $9.5 billion of loans included in asset-backed securitizations, which represented 88.4% of its total loan portfolio. The forecasted cash flow does not include cash

flows that the Company expects to receive related to loans funded in its warehouse facilities, unencumbered private education, consumer, and other loans funded with operating cash, loans acquired subsequent to March 31, 2024, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments and notes receivable" on the Company's consolidated balance sheets).

Asset-backed Securitization Cash Flow Forecast

$1.22 billion

(dollars in millions)

abscfforecast2024q1.jpg

The forecasted future undiscounted cash flows of approximately $1.22 billion include approximately $0.78 billion (as of March 31, 2024) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are included in the consolidated balance sheets in the balances of "loans and accrued interest receivable, net" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.44 billion, or approximately $0.33 billion after income taxes based on the estimated effective tax rate, represents estimated future net interest income (earnings) from the portfolio and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the March 31, 2024 balance.

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

Prepayments: The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates of 5% for federally insured consolidation loans and 6% for federally insured Stafford loans. Prepayment rates for private education loans range from 11% to 20%.

Since late 2021, the Company has experienced accelerated run-off (prepayments) of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans to qualify for loan forgiveness under various initiatives and programs offered by the federal government and the Department. See "Nelnet Financial Services Division -

Results of Operations - Asset Generation and Management Operating Segment - Loan Activity" included in this report's Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information related to the federal government and the Department's initiatives for debt relief that has increased, and may continue to increase, prepayment activity. Prepayments could significantly increase if the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs. In addition, see Part I, Item 1A, "Risk Factors - Loan Portfolio - Prepayments risk" in the Company's 2023 Annual Report for additional information related to risks associated with loan prepayments.

The following table summarizes the estimated impact to the above forecasted cash flows if prepayments were greater than the prepayment rate assumptions used to calculate the forecasted cash flows.

Increase in prepayment rate Reduction in forecasted cash flow from table above Forecasted cash flow using increased prepayment rate
2x $0.09 billion $1.13 billion
4x $0.26 billion $0.96 billion
10x $0.45 billion $0.77 billion

If the entire AGM student loan portfolio prepaid, the Company would receive the full amount of overcollateralization included in the asset-backed securitizations of approximately $0.78 billion (as of March 31, 2024); however, the Company would not receive the $0.44 billion ($0.33 billion after tax) of estimated future earnings from the portfolio.

Interest rates: The Company funds a portion of its student loans with floating rate securities that are indexed to 90-day SOFR. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to the 30-day average SOFR in effect for each day in a calendar quarter. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes, for the life of the portfolio, a relationship between the various SOFR indices that is implied by the current forward SOFR curves. If the forecast is computed assuming a spread of an additional 12 basis points between Term SOFR and 30-day average SOFR for the life of the portfolio, the cash flow forecast would be reduced by approximately $40 million to $60 million.

The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment" for additional information about various interest rate risks which may impact future cash flows from AGM's loan assets.

Warehouse Facilities

Warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements. For a summary of the Company's warehouse facilities see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.

Asset-backed Securities Transactions

The Company, through its subsidiaries, has historically funded loans by completing asset-backed securitizations. Depending on market conditions, the Company anticipates continuing to access the asset-backed securitization market. Such asset-backed securitization transactions would be used to refinance loans included in its warehouse facilities, loans purchased from third parties, and/or loans in its existing asset-backed securitizations.

There were no asset-backed securitization transactions completed during the three months ended March 31, 2024.

Other Uses of Liquidity

The Company no longer originates FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist, including opportunities to purchase private education, consumer, and other loans (or investment interests therein).

The Company plans to fund additional loan acquisitions and related investments using current cash; cash provided by operating activities; proceeds from the sale of certain investments; its unsecured line of credit, its Union Bank student loan participation

agreement, its Union Bank student loan asset-backed securities participation agreement, and its third-party repurchase agreement (each as described below), and/or establishing similar secured and unsecured borrowing facilities; using its existing warehouse facilities (as described above); increasing the capacity under existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market.

Repurchase Agreement

In December 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company had an approximately 8% interest in the loans and has a corresponding 8% interest in residual interests in the 2021 securitizations of the loans discussed below.

During 2021, the Company sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of private education loans sold by Wells Fargo (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase). As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheets as "investments and notes receivable" and as of March 31, 2024, the fair value of these bonds was $248.4 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 a repurchase agreement with a third party, of which a portion of the proceeds from such agreement were used to purchase the asset-backed investments, and such investments serve as collateral on the repurchase obligations. As of March 31, 2024, $114.5 million was outstanding on the Company's repurchase agreement. As of May 9, 2024, the maturity dates on this facility vary from November 27, 2024 through December 20, 2024, and the facility is subject to early termination upon 180 days' prior written notice provided by the Company or the counterparty prior to the maturity dates. The Company is subject to cash margin deficit payment requirements in the event the fair value of the securities subject to the repurchase agreement becomes less than the original purchase price of such securities.

Upon termination or maturity of the repurchase agreement, there can be no assurance that the Company will be able to maintain this or a similar agreement, or find alternative funding if necessary. If necessary, the Company would expect to use operating cash, consider the sale of unencumbered investments, or borrow on its unsecured line of credit to satisfy any remaining obligations.

Union Bank Participation Agreements

The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. As of March 31, 2024, $469.7 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.

The Company also has an agreement with Union Bank under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities (bond investments). The agreement automatically renews annually and is terminable by either party upon five business days' notice. On May 4, 2024, the agreement automatically renewed for another year through May 4, 2025. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $400.0 million or an amount in excess of $400.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities subject to this agreement are included on the Company's consolidated balance sheets as "investments and notes receivable" and the participation interests outstanding have been accounted for by the Company as a secured borrowing. As of March 31, 2024, $0.1 million (par value) of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

Liquidity Impact Related to Beneficial Interest in Loan Securitizations

The Company has partial ownership in consumer, private education, and federally insured student loan third-party securitizations that are classified as "beneficial interest in loan securitizations" and included in "investments and notes receivable" on the Company's consolidated balance sheets. These residual interests were acquired by the Company or have been received by the Company as consideration from selling portfolios of loans to unrelated third parties who securitized such loans. As of the latest remittance reports filed by the various trusts prior to or as of March 31, 2024, the Company's ownership correlates to approximately $1.79 billion of loans included in these securitizations

As of March 31, 2024, the investment balance on the Company's consolidated balance sheet of its beneficial interest in loan securitizations was $235.8 million. For a summary of this investment balance, see note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The Company's partial ownership percentage in each loan securitization grants the Company the right to receive the corresponding percentage of cash flows generated by the securitization. As of March 31, 2024, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its partial ownership in these securitizations to be approximately $347.1 million. The vast majority of these cash flows are expected to be received over the next 5 years.

The difference between the total estimated future undiscounted cash flows from these residual interests ($347.1 million) and the investment carrying value ($235.8 million) of $111.3 million, or $84.6 million after income taxes based on the estimated effective tax rate, represents estimated future investment interest income (earnings) from these investments and is expected to be accretive to the Company's balance of consolidated shareholders' equity from the March 31, 2024 balance.

The undiscounted future cash flows from the consumer and private education loan securitizations are highly subject to credit risk (defaults). If defaults are higher than management's current estimate, the forecasted cash flows and estimated future investment interest income (earnings) from these securitizations would be adversely impacted.

Liquidity Impact Related to Nelnet Bank

Nelnet Bank launched operations in November 2020. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million and the Company contributed an additional $30.0 million and $5.0 million to Nelnet Bank during 2022 and 2023, respectively. In addition, the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC discussed below.

Prior to Nelnet Bank’s launch of operations, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12%; (ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10% of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.

Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI and must meet specific capital standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on Nelnet Bank’s business, results of operations, or financial condition. On January 1, 2020, the Community Bank Leverage Ratio (CBLR) framework, as issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the FDIC, became effective. Any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9% may opt into the CBLR framework quarterly. The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio. The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio. Nelnet Bank has opted into the CBLR framework for the quarter ended March 31, 2024 with a leverage ratio of 13.0%. 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 believes it will make additional capital contributions to the bank in future periods.

Liquidity Impact Related to Nelnet Renewable Energy

The Company’s Nelnet Renewable Energy business makes solar tax equity investments. Through March 31, 2024, the Company has invested a total of $491.8 million (which includes $208.9 million syndicated to third-party investors) in tax equity investments in renewable energy solar partnerships. These investments provide a federal income tax credit under the Internal Revenue Code, equaling 30% to 40% of the eligible project cost, with the tax credit available when the project is placed-in-service. The Company is allowed to reduce its tax estimates paid to the U.S. Treasury based on the credits earned. Based on the timing of when the Company funds a project and decreases its tax estimate to the U.S. Treasury due to earning of the tax credit, the amount of capital funded to solar tax equity investments at any point in time is not significant and has a minimal impact on the Company’s liquidity. As of March 31, 2024, the Company is committed to fund an additional $146.6 million on tax equity investments, of which $76.2 million is expected to be provided by syndication partners.

In addition to solar tax equity investments, the Company has a strategy to own solar energy project assets. The Company plans to fund a portion of its current growth plans in owning solar energy projects using third-party debt and third-party tax equity. The collateral on any third-party debt would be limited to the assets of the specific solar projects. Any capital requirements for the origination or purchase of solar projects not funded by third-party debt and third-party tax equity would be provided by the Company using operating cash, borrowings on its unsecured line of credit, and/or the sale of investments.

Liquidity Impact Related to ALLO

Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45% voting membership interests in ALLO at fair value, and accounts for such investment under the HLBV method of accounting. In addition, the Company recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a separate equity investment. As of March 31, 2024, the outstanding preferred membership interests of ALLO held by the Company was $155.0 million that earned a preferred annual return of 6.25%. Accrued and unpaid preferred returns are converted to additional preferred membership interests each December 31. As of March 31, 2024, the accrued and unpaid preferred return was $2.4 million. On April 1, 2024, the preferred annual return on the non-voting preferred membership interests increased from 6.25% to 10.00%. On January 1, 2025, the preferred annual return will increase to 13.5%, commencing July 1, 2025, the return will increase to 15.0%, commencing January 1, 2026, the preferred return will increase to 17.5%, and beginning on January 1, 2027 and on each January 1 of each calendar year thereafter, the annual return will increase by an additional 2.5%.

As part of the ALLO recapitalization transaction in December 2020, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of up to $35.0 million in the event the Company disposes of its voting membership interests of ALLO that it holds and realizes from such disposition certain targeted return levels. As of March 31, 2024, the estimated fair value of the contingent payment is $10.1 million.

In June 2023, ALLO closed on an asset-backed securities transaction with an aggregate size over $600 million. The proceeds from this transaction were used to refinance the majority of ALLO's prior debt and fund a portion of its current growth plans. If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest. Based on ALLO's business plan for growth and current financial condition, the Company believes it will make additional capital contributions to ALLO in future periods.

Liquidity Impact Related to Hedging Activities

The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company is exposed to market risk which could impact its liquidity.

All Non-Nelnet Bank over-the-counter derivative contracts executed by the Company are cleared post-execution at a regulated clearinghouse. Clearing is a process by which a third party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.

Based on the derivative portfolio outstanding as of March 31, 2024, the Company does not anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to make variation margin payments to its third-party clearinghouse and/or payments to its counterparties for its non-centrally cleared derivatives.

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, 2024, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use. Upon the maturity date of this facility, there can be no assurance that the Company will be able to maintain this line of credit, increase or maintain the amount outstanding under the line, or find alternative funding if necessary.

On December 21, 2023, the Company entered into a $10.0 million participation agreement with a third-party, the proceeds of which are collateralized by consumer loans. The third-party participant does not have the right to pledge, transfer, or otherwise dispose of their participation interest in all or any portion of the loans subject to this agreement. As such, the consumer loans subject to this agreement are included on the Company's consolidated balance sheet and the participation interests outstanding have been accounted for by the Company as a secured borrowing. This participation agreement will amortize as the consumer loans subject to the participation pay down. As of March 31, 2024, the outstanding balance on this participation agreement was $8.9 million.

Stock Repurchases

The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 8, 2025. As of March 31, 2024, 3,824,767 shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity.

Shares repurchased by the Company during the three months ended March 31, 2024 are shown below. Certain of these repurchases were made pursuant to trading plans adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. For additional information on stock repurchases during the first quarter of 2024, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchased Purchase price (in thousands) Average price of shares repurchased (per share) (a)
Quarter ended March 31, 2024 396,724 $ 35,469 89.41

(a)     The average price of shares repurchased for the three months ended March 31, 2024 includes excise taxes.

Subsequent to March 31, 2024 (through May 9, 2024), the Company repurchased an additional 421,102 Class A common shares for $39.8 million (average price of $94.47 per share) under its stock repurchase program.

Dividends

On March 15, 2024, the Company paid a first quarter 2024 cash dividend on the Company's Class A and Class B common stock of $0.28 per share. In addition, the Company's Board of Directors has declared a second quarter 2024 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.28 per share. The second quarter cash dividend will be paid on June 14, 2024 to shareholders of record at the close of business on May 31, 2024.

The Company plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. Note 2 of the notes to consolidated financial statements included in the Company’s 2023 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 2023 Annual Report. For additional information regarding changes in the Company’s allowance for loan losses for the three months ended March 31, 2024 and 2023, 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, 2023.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2023, the FASB issued accounting guidance which improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit (referred to as the “significant expense principle”). This guidance will be effective for the Company for the year ending December 31, 2024 annual financial statements, with early adoption permitted. The guidance will be applied retrospectively for all prior periods presented in the financial statements. The Company intends to adopt the standard when it becomes effective for the year ending December 31, 2024 annual financial statements. Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements.

In December 2023, the FASB issued accounting guidance to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance will be effective for the Company for the year ending December 31, 2025 annual financial statements, with early adoption permitted. The guidance will be applied on a prospective basis. The Company intends to adopt the standard when it becomes effective for the year ending December 31, 2025. Management is currently evaluating the impact this guidance will have on the disclosures included in the notes to the consolidated financial statements.

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, 2024 As of December 31, 2023
Dollars Percent Dollars Percent
Fixed-rate loan assets $ 536,445 5.0 % $ 510,666 4.2 %
Variable-rate loan assets 10,263,497 95.0 11,538,796 95.8
Total $ 10,799,942 100.0 % $ 12,049,462 100.0 %
Fixed-rate debt instruments $ 509,294 4.8 % $ 561,557 4.8 %
Variable-rate debt instruments 10,030,623 95.2 11,142,596 95.2
Total $ 10,539,917 100.0 % $ 11,704,153 100.0 %

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.

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

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

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

Three months ended March 31,
2024 2023
Fixed rate floor income, gross $ 180 1,110
Derivative settlements (a) 1,190 22,478
Fixed rate floor income, net $ 1,370 23,588

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

Gross fixed rate floor income decreased for the three months ended March 31, 2024 compared with the same period in 2023 due to higher interest rates in 2024 compared with 2023.

The Company had a significant portfolio of derivative instruments in which the Company paid a fixed rate and received a floating rate to economically hedge loans earning fixed rate floor income. During the first quarter of 2023, to minimize the Company's exposure to market volatility and increase liquidity, the Company terminated its derivative portfolio hedging loans earning fixed rate floor income ($2.8 billion in notional amount of derivatives). Through March 15, 2023, the Company had received cash or had a receivable from its clearinghouse related to variation margin equal to the fair value of the $2.8 billion notional amount of fixed rate floor derivatives as of March 15, 2023 of $183.2 million, which included $19.1 million related to current period settlements. Subsequent to terminating these derivatives, during the second and fourth quarters of 2023, the Company entered into a total of $400.0 million notional amount of derivatives to hedge loans earning fixed rate floor income and other loans and investments in which the Company receives a fixed rate.

The decrease in net derivative settlements received by the Company during the three months ended March 31, 2024, compared with the same period in 2023, was due to a decrease in the notional amount of derivatives outstanding and less favorable terms on the $400.0 million of notional derivatives entered into in 2023 compared with the $2.8 billion notional derivatives that were terminated due to an increase in interest rates from when the terminated derivatives were initially executed.

For further details of the Company’s derivatives used to hedge fixed rate loans, see note 4 of the notes to consolidated financial statements included in Part I, Item 1 of this report.

The following table shows AGM’s federally insured student loan assets that were earning fixed rate floor income as of March 31, 2024.

Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
8.0 - 8.99% 8.25% 5.61% $ 161,073
> 9.0% 9.06% 6.42% 106,942
$ 268,015

(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, 2024, the weighted average estimated variable conversion rate was 5.93% and the short-term interest rate was 556 basis points.

AGM is also exposed to interest rate risk in the form of repricing risk and basis risk because the interest rate characteristics of AGM’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents AGM’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of March 31, 2024.

Index Frequency of variable resets Assets Funding of student loan assets
30-day average SOFR (a) Daily $ 9,725,214 —
3-month H15 financial commercial paper Daily 336,128 —
3-month Treasury bill Daily 321,711 —
30-day average SOFR / 1-month CME Term SOFR Monthly — 6,198,559
90-day average SOFR / 3-month CME Term SOFR (a) Quarterly — 2,567,482
Asset-backed commercial paper (b) Varies — 1,066,197
Fixed rate — — 430,061
Auction-rate (c) Varies — 84,660
Other (d) — 1,250,367 1,286,461
$ 11,633,420 11,633,420

(a)    The Company has certain basis swaps outstanding in which the Company receives and pays the term adjusted SOFR plus the tenor spread adjustment to LIBOR. Prior to the discontinuation of LIBOR on June 30, 2023, the Company received three-month LIBOR set discretely in advance and paid one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). 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, 2024.

Maturity Notional amount (i)
2024 $ 1,750,000
2026 1,150,000
2027 250,000
$ 3,150,000

(i)    The weighted average rate paid by the Company on the 1:3 Basis Swaps as of March 31, 2024 was the term adjusted SOFR (plus the tenor spread adjustment relating to LIBOR) plus 10.1 basis points.

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

(c)    As of March 31, 2024, the Company was sponsor for $84.7 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (the “Auction Rate Securities”). Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to SOFR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.

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

Sensitivity Analysis

The following tables summarize the effect on the Company’s consolidated earnings, based upon a sensitivity analysis performed on AGM’s assets and liabilities assuming hypothetical increases and decreases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant. In addition, a sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index. The sensitivity analysis was performed on AGM’s variable rate assets (including loans earning fixed rate floor income) and liabilities.

Interest rates
Change from increase of<br>100 basis points Change from increase of<br>300 basis points Change from decrease of<br>100 basis points Change from decrease of<br>300 basis points
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
Three months ended March 31, 2024
Effect on earnings:
Increase in pre-tax net income before impact of derivative settlements $ 711 0.7 % $ 2,500 2.7 % $ 1,941 2.1 % $ 8,557 9.1 %
Impact of derivative settlements 746 0.8 2,238 2.3 (746) (0.8) (2,238) (2.4)
Increase in net income before taxes $ 1,457 1.5 % $ 4,738 5.0 % $ 1,195 1.3 % $ 6,319 6.7 %
Increase in basic and diluted earnings per share $ 0.03 $ 0.10 $ 0.02 $ 0.13
Three months ended March 31, 2023
Effect on earnings:
Increase in pre-tax net income before impact of derivative settlements $ 772 2.5 % $ 4,403 14.1 % $ 76 0.2 % $ 3,650 11.7 %
Impact of derivative settlements (a) — — — — — — — —
Increase in net income before taxes $ 772 2.5 % $ 4,403 14.1 % $ 76 0.2 % $ 3,650 11.7 %
Increase in basic and diluted earnings per share $ 0.02 $ 0.09 $ 0.00 $ 0.07

(a)On March 15, 2023, the Company terminated its derivative portfolio hedging loans earning fixed rate floor income. The table above excludes the impact of these derivatives for the entire period.

Asset and funding index mismatches
Increase of10 basis points Increase of<br>30 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, 2024 Three months ended March 31, 2023
Effect on earnings:
Decrease in pre-tax net income before impact of derivative settlements (1.0) % $ (3,050) (3.2) % $ (1,113) (3.6) % $ (3,339) (10.7) %
Impact of derivative settlements 783 0.8 2,349 2.5 777 2.5 2,330 7.5
Decrease in net income before taxes (0.2) % $ (701) (0.7) % $ (336) (1.1) % $ (1,009) (3.2) %
Decrease in basic and diluted earnings per share (0.00) $ (0.01) $ (0.01) $ (0.02)

All values are in US Dollars.

Interest Rate Risk - Nelnet Bank

To manage Nelnet Bank's risk from fluctuations in market interest rates, the Company actively monitors interest rates and other interest sensitive components to minimize the impact that changes in interest rates have on the fair value of assets, net income, and cash flow. To achieve this objective, the Company manages and mitigates Nelnet Bank’s exposure to fluctuations in market interest rates through several techniques, including managing the maturity, repricing, and mix of fixed and variable rate assets and liabilities and the use of derivative instruments.

The following table presents Nelnet Bank's loan assets, asset-backed security investments, and deposits by rate characteristics:

As of March 31, 2024 As of December 31, 2023
Dollars Percent Dollars Percent
Fixed-rate loan assets $ 475,779 $ 424,284
Fixed-rate investments 70,743 34,644
Total fixed-rate assets 546,522 50.3 % 458,928 47.7 %
Variable-rate loan assets 7,944 8,588
Variable-rate investments 531,063 495,004
Total variable rate assets 539,007 49.7 503,592 52.3
Total assets $ 1,085,529 100.0 % $ 962,520 100.0 %
Fixed-rate deposits $ 279,331 29.1 % $ 280,736 33.1 %
Variable-rate deposits (a) 681,302 70.9 566,828 66.9
Total deposits $ 960,633 100.0 % $ 847,564 100.0 %

(a)    Nelnet Bank uses derivative instruments to hedge exposure to variability in cash flows of variable rate deposits to minimize the exposure to volatility in cash flows from future changes in interest rates. The derivatives are not reflected in the above table. See note 4 of the notes to the consolidated financial statements included under Part I, Item 1 of this report for a summary of Nelnet Bank's derivatives outstanding as of March 31, 2024.

Interest Rate and Market Risk - Investments

The following table presents the rates earned on the Company’s available-for-sale debt securities (investments) and debt facilities used to fund a portion of such investments. The table below excludes securities (investments) held by Nelnet Bank.

Three months ended March 31,
2024 2023
Average balance Interest income/ expense Average yields/ rates Average balance Interest income/ expense Average yields/ rates
Investments:
Asset-backed securities available-for-sale (a) (b) $ 863,634 14,012 6.51 % $ 1,309,752 17,486 5.41 %
Debt funding asset-backed securities available-for-sale:
Participation agreement - variable rate (c) $ 91 1 4.41 % $ 365,115 5,059 5.62 %
Repurchase agreements - variable rate (d) 137,914 2,417 7.03 511,759 6,768 5.36
$ 138,005 2,418 7.03 $ 876,874 11,827 5.47

(a)    The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. The table above includes these repurchased bonds.

(b)    The majority of the Company’s asset-backed securities earn floating rates with expected returns of approximately SOFR + 100 to 350 basis points to maturity. As of March 31, 2024, $212.3 million (par value) of the Company’s asset-backed securities earn a weighted average fixed rate of 3.17%.

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

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

The Company’s portfolio of asset-backed investment securities has limited liquidity, and the Company could incur a significant loss if the investments were sold prior to maturity at an amount less than the original purchase price. As of March 31, 2024, the gross unrealized loss on the Company’s available-for-sale debt securities was $27.8 million, and the aggregate fair value of available-for-sale debt securities with unrealized losses was $482.7 million. The Company currently has the intent and ability to retain these investments, and none of the unrealized losses were due to credit losses. See note 5 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company's principal executive and principal financial officers, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31, 2024. 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, 2024.

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, 2024 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, 2023 under Part I, Item 3 of such Form 10-K.

ITEM 1A.  RISK FACTORS

There have been no material changes from the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 in response to Part I, Item 1A of such Form 10-K.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchases

The following table summarizes the repurchases of Class A common stock during the first quarter of 2024 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 (b) Total number of shares purchased as part of publicly announced plans or programs (c) Maximum number of shares that may yet be purchased under the plans or programs (c)
January 1 - January 31, 2024 13,523 $ 82.79 13,523 4,167,651
February 1 - February 29, 2024 — — — 4,167,651
March 1 - March 31, 2024 383,201 89.03 342,884 3,824,767
Total 396,724 $ 88.82 356,407

(a)    The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (c) 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 40,317 shares in March 2024. 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)    The average price of shares repurchased excludes excise taxes.

(c)    On May 9, 2022, the Company announced that its Board of Directors authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 8, 2025.

Working capital and dividend restrictions/limitations

The Company's $495.0 million unsecured line of credit, which is available through September 22, 2026, imposes restrictions on the payment of dividends through covenants requiring a minimum consolidated net worth and a minimum level of unencumbered cash, cash equivalent investments, and available borrowing capacity under the line of credit. In addition, trust indentures and other financing agreements governing debt issued by the Company's lending subsidiaries generally have limitations on the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends at certain times. Further, Nelnet Bank is subject to laws and regulations that restrict the ability of Nelnet Bank to pay dividends to the Company, and authorize regulatory authorities to prohibit or limit the payment of dividends by Nelnet Bank to the Company. These provisions do not currently materially limit the Company's ability to pay dividends, and, based on the Company's current financial condition and recent results of operations, the Company does not currently anticipate that these provisions will materially limit the future payment of dividends.

ITEM 5.  OTHER INFORMATION

Rule 10b5-1 Trading Plans

The following table describes contracts, instructions, or written plans for the purchase or sale of the Company's securities adopted by the Company's directors or executive officers during the first quarter of 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), referred to as Rule 10b5-1 trading plans.

Name and Title Date of Adoption of Rule 10b5-1 Trading Plan Scheduled Expiration Date of Rule 10b5-1 Trading Plan (a) Aggregate Number of Securities to Be Purchased or Sold
Kathleen A. Farrell<br><br>Director 3/6/2024 3/5/2025 Sale of 1,700 shares of Class A common stock

(a) A trading plan may also expire on such earlier date as all transactions under the trading plan are completed.

ITEM 6.  EXHIBITS

10.1*+ Guaranty Supplement to the Third Amended and Restated Guaranty, dated as of March 15, 2024, in favor of U.S. Bank National Association, as Administrative Agent.
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
+ Filed herewith for purposes of providing a complete set of all documents to the Third Amended and Restated Guaranty related to the Third Amended and Restated Credit Agreement, both dated September 22, 2021.

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, 2024 By: /s/ JEFFREY R. NOORDHOEK
Name: Jeffrey R. Noordhoek
Title: Chief Executive Officer<br><br>Principal Executive Officer Date: May 9, 2024 By: /s/ JAMES D. KRUGER
--- --- --- ---
Name: James D. Kruger
Title: Chief Financial Officer<br><br>Principal Financial Officer and Principal Accounting Officer

68

a101guarantysupplement

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, 2024 /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, 2024 /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, 2024 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, 2024 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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