EX-99.2 3 aex992-22823xsupplement.htm EX-99.2

For Release: February 28, 2023

Investor Contact: Phil Morgan, 402.458.3038

Nelnet, Inc. supplemental financial information for the fourth quarter 2022

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

The following information should be read in connection with Nelnet, Inc.'s (the “Company's”) press release for fourth quarter 2022 earnings, dated February 28, 2023, and the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

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 Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report"), and include such risks and uncertainties as:

•risks and uncertainties related to the duration, ultimate severity, and continuing impacts of the coronavirus disease 2019 (“COVID-19”) pandemic;

•risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S. Department of Education (the "Department") and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or FFELP), private education, and consumer loans;

•loan portfolio risks such as interest rate basis and repricing risk, the risk of loss of floor income on certain student loans originated under the FFEL Program, risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, consumer, and other loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, consumer, and other loans, and risks from changes in levels of loan prepayment or default rates;

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

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

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

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

•risks and uncertainties of the expected benefits from the November 2020 launch of Nelnet Bank operations, including the ability to successfully conduct banking operations and achieve expected market penetration;

•risks related to the expected benefits to the Company from its continuing investment in ALLO Holdings, LLC (referred to collectively with its subsidiary ALLO Communications LLC as "ALLO"), and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;

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

•risks and uncertainties associated with climate change; and

•risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses.

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

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Consolidated Statements of Income

(Dollars in thousands, except share data)

(unaudited)

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Interest income:
Loan interest			$	228,878					176,244						112,118						651,205						482,337
Investment interest			34,012						26,889						12,376						91,601						41,498
Total interest income			262,890						203,133						124,494						742,806						523,835
Interest expense on bonds and notes payable and bank deposits			181,790						126,625						48,294						430,137						176,233
Net interest income			81,100						76,508						76,200						312,669						347,602
Less provision (negative provision) for loan losses			27,801						9,665						(1,578)						46,441						(12,426)
Net interest income after provision for loan losses			53,299						66,843						77,778						266,228						360,028
Other income (expense):
Loan servicing and systems revenue			140,021						134,197						150,402						535,459						486,363
Education technology, services, and payment processing revenue			98,332						106,894						80,950						408,543						338,234
Solar construction revenue			15,186						9,358						—						24,543						—
Other, net			735						2,225						48,497						25,486						78,681
(Loss) gain on sale of loans, net			(2,713)						2,627						—						2,903						18,715
Impairment expense and provision for beneficial interests, net			(9,361)						121						(4,137)						(15,523)						(16,360)
Derivative settlements, net			20,858						10,271						(5,780)						32,943						(21,367)
Derivative market value adjustments, net			(7,434)						52,991						48,359						231,691						92,813
Total other income (expense)			255,624						318,684						318,291						1,246,045						977,079
Cost of services:
Cost to provide education technology, services, and payment processing services			39,330						42,676						28,597						148,403						108,660
Cost to provide solar construction services			14,004						5,968						—						19,971						—
Total cost of services			53,334						48,644						28,597						168,374						108,660
Operating expenses:
Salaries and benefits			151,568						147,198						143,781						589,579						507,132
Depreciation and amortization			20,099						18,772						17,612						74,077						73,741
Other expenses			50,481						43,858						37,857						170,778						145,469
Total operating expenses			222,148						209,828						199,250						834,434						726,342
Income before income taxes			33,441						127,055						168,222						509,465						502,105
Income tax expense			(5,459)						(26,586)						(39,075)						(113,224)						(115,822)
Net income			27,982						100,469						129,147						396,241						386,283
Net loss attributable to noncontrolling interests			2,791						4,329						3,536						11,106						7,003
Net income attributable to Nelnet, Inc.			$	30,773					104,798						132,683						407,347						393,286
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted			$	0.83					2.80						3.46						10.83						10.20
Weighted average common shares outstanding - basic and diluted			37,290,293						37,380,493						38,352,942						37,603,033						38,572,801

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Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)

			As of						As of						As of
			December 31, 2022						September 30, 2022						December 31, 2021
Assets:
Loans and accrued interest receivable, net			$	15,243,889					15,876,251						18,335,197
Cash, cash equivalents, and investments			2,230,063						2,126,712						1,714,482
Restricted cash			1,239,470						980,131						1,068,626
Goodwill and intangible assets, net			240,403						242,401						194,121
Other assets			420,219						338,038						365,615
Total assets			$	19,374,044					19,563,533						21,678,041
Liabilities:
Bonds and notes payable			$	14,637,195					15,042,595						17,631,089
Bank deposits			691,322						580,825						344,315
Other liabilities			845,625						773,754						749,799
Total liabilities			16,174,142						16,397,174						18,725,203
Equity:
Total Nelnet, Inc. shareholders' equity			3,198,959						3,180,614						2,951,206
Noncontrolling interests			943						(14,255)						1,632
Total equity			3,199,902						3,166,359						2,952,838
Total liabilities and equity			$	19,374,044					19,563,533						21,678,041

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Overview

The Company is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible. The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar).

The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student loans, principally consisting of loans originated under the FFEL Program.

The Health Care and Education Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program. As a result, the Company no longer originates FFELP loans. However, a significant portion of the Company's income continues to be derived from its existing FFELP student loan portfolio. Interest income on the Company's existing FFELP loan portfolio will decline over time as the portfolio is paid down. Since all FFELP loans will eventually run off, a key objective of the Company is to maximize the amount and timing of cash flow generated from its FFELP portfolio and reposition itself for the post-FFELP environment.

To reduce its reliance on interest income from FFELP loans, the Company has expanded its services and products. This expansion has been accomplished through internal growth and innovation as well as business and certain investment acquisitions. The Company is also actively expanding its private education, consumer, and other loan portfolios, and in November 2020 launched Nelnet Bank. In addition, the Company has been servicing federally owned student loans for the Department since 2009.

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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																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
GAAP net income attributable to Nelnet, Inc.			$	30,773					104,798						132,683						407,347						393,286
Realized and unrealized derivative market value adjustments			7,434						(52,991)						(48,359)						(231,691)						(92,813)
Tax effect (a)			(1,784)						12,718						11,606						55,606						22,275
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)			$	36,423					64,525						95,930						231,262						322,748
Earnings per share:
GAAP net income attributable to Nelnet, Inc.			$	0.83					2.80						3.46						10.83						10.20
Realized and unrealized derivative market value adjustments			0.20						(1.42)						(1.26)						(6.16)						(2.41)
Tax effect (a)			(0.05)						0.35						0.30						1.48						0.58
Non-GAAP net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)			$	0.98					1.73						2.50						6.15						8.37

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

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

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

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

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Operating Segments

A description of the Company's reportable operating segments is included in note 1 of the notes to consolidated financial statements included in the Company's 2022 Annual Report. The Company's reportable operating segments include:

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

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

•Asset Generation and Management (AGM)

•Nelnet Bank

The Company earns fee-based revenue through its NDS and NBS reportable operating segments. The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its AGM reportable operating segment. This segment is expected to generate significant amounts of cash as the FFELP portfolio amortizes. The Company actively works to maximize the amount and timing of cash flows generated from its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow.

On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation (FDIC) and for a bank charter from the Utah Department of Financial Institutions (UDFI) in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank operates as an internet industrial bank franchise focused on the private education and unsecured consumer loan markets, with a home office in Salt Lake City, Utah.

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate includes the following items:

•The operating results of Whitetail Rock Capital Management, LLC, the Company's U.S. Securities and Exchange Commission-registered investment advisor subsidiary

•The operating results of Nelnet Renewable Energy, which include solar tax equity investments made by the Company, administrative and management services provided by the Company on tax equity investments made by third parties, and solar development

•The results of the majority of the Company’s investment activities, including early-stage and emerging growth companies and real estate

•Interest income earned on cash and investment debt securities (primarily student loan and other asset-backed securities)

•Interest expense incurred on unsecured and certain other corporate related debt transactions

•Other product and service offerings that are not considered reportable operating segments

Corporate also includes certain 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. Corporate also includes corporate costs and overhead functions not allocated to operating segments, including executive management, investments in innovation, and other holding company organizational costs.

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The information below provides the operating results (net income (loss) before taxes) for each reportable operating segment and Corporate and Other Activities for the years ended December 31, 2022 and 2021.

			Year ended December 31,
			2022						2021						Certain Items Impacting Comparability (All dollar amounts below are pre-tax)
NDS			$	64,456					62,445						•The recognition of $5.5 million of non-cash impairment charges in 2022 compared with $13.2 million in 2021, due primarily to continued evaluation of office space needs as employees continue to work from home due to COVID-19. •Decrease in operating margin in 2022 compared with 2021 due to increased operating expenses in 2022, primarily salaries and benefits, as the Company hired employees in preparation for the resumption of federal student loan payments once the CARES Act suspension was to expire. The expiration of the CARES Act was extended multiple times throughout 2022.
NBS			74,105						72,713						•The recognition of $9.4 million of interest income in 2022 compared with $1.1 million in 2021 due to higher interest rates. •The recognition of a $2.2 million non-cash impairment charge in 2022 related to previously acquired computer software. •Decrease in operating margin in 2022 compared with 2021 due to additional investments during 2022 in the development of new services and technologies; and superior customer experiences to grow, retain, and diversify revenue.
AGM			454,725						423,616						•A net gain of $231.7 million related to changes in the fair value of derivative instruments that do not qualify for hedge accounting in 2022 compared with a gain of $92.8 million in 2021. •A decrease of $46.3 million in net interest income due to the decrease in the average balance of loans in 2022 compared with 2021. •An increase of $27.1 million in net interest income due to an increase in core loan spread in 2022 compared with 2021. •A decrease of $23.8 million in interest expense in 2021 as a result of the Company reversing a historical accrued interest liability on certain bonds, which liability the Company determined is no longer probable of being required to be paid. •An increase of $8.4 million in interest income in 2022 compared with a $6.2 million decrease to interest income in 2021, as a result of increasing the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for loans. •The recognition of $44.6 million in provision for loan losses in 2022 compared with a negative provision of $13.2 million in 2021. •The recognition of a $32.9 million gain in 2021 related to the Company’s joint venture to acquire a private education student loan portfolio previously owned by Wells Fargo. •The recognition of $10.8 million in borrower late fees in 2022 compared with $3.4 million in 2021. •The recognition of $9.9 million in interest income on restricted cash in 2022 compared with $0.1 million in 2021 due to an increase in the balance of restricted cash and interest rates. •The recognition of $7.9 million in administration and sponsor fee income in 2022 compared with $3.7 million in 2021. •The recognition of $2.9 million in gains from the sale of loans in 2022 compared with $18.7 million in 2021. •The recognition of a $1.2 million gain in 2022 from the repurchase of debt compared with a loss of $6.8 million in 2021.
Nelnet Bank			4,357						(792)						•Increase in 2022 compared with 2021 was due to an increase in loans and investments, offset by increased operating expenses to support the bank’s growth.
Corporate			(88,180)						(55,875)						•The recognition of a net loss of $68.0 million in 2022 related to the Company’s investment in ALLO compared with a net loss of $42.1 million in 2021. •The recognition of $12.9 million of non-cash impairment and contingency charges in 2022 compared with $5.6 million in 2021. Impairment charges were due to certain venture capital investments.
Net income before taxes			509,465						502,105
Income tax expense			(113,224)						(115,822)
Net loss attributable to noncontrolling interests			11,106						7,003
Net income			$	407,347					393,286

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Segment Reporting

The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.

			Three months ended December 31, 2022
			Loan Servicing and Systems						Education Technology, Services, and Payment Processing												Asset Generation and Management						Nelnet Bank						Corporate and Other Activities						Eliminations						Total
Total interest income			$	1,578					4,457												234,631						10,181						21,489						(9,446)						262,890
Interest expense			—						—												176,180						5,263						9,793						(9,446)						181,790
Net interest income			1,578						4,457												58,451						4,918						11,696						—						81,100
Less provision (negative provision) for loan losses			—						—												27,423						378						—						—						27,801
Net interest income after provision for loan losses			1,578						4,457												31,028						4,540						11,696						—						53,299
Other income (expense):
Loan servicing and systems revenue			140,021						—												—						—						—						—						140,021
Intersegment revenue			8,028						64												—						—						—						(8,092)						—
Education technology, services, and payment processing revenue			—						98,332												—						—						—						—						98,332
Solar construction revenue			—						—												—						—						15,186						—						15,186
Other, net			597						—												4,898						402						(5,161)						—						735
(Loss) gain on sale of loans, net			—						—												(2,712)						—						—						—						(2,713)
Impairment expense and provision for beneficial interests, net			(5,511)						(2,239)												—						(214)						(1,397)						—						(9,361)
Derivative settlements, net			—						—												20,858						—						—						—						20,858
Derivative market value adjustments, net			—						—												(7,434)						—						—						—						(7,434)
Total other income (expense)			143,135						96,157												15,610						188						8,628						(8,092)						255,624
Cost of services:
Cost to provide education technology, services, and payment processing services			—						39,330												—						—						—						—						39,330
Cost to provide solar construction services			—						—												—						—						14,003						—						14,004
Total cost of services			—						39,330												—						—						14,003						—						53,334
Operating expenses:
Salaries and benefits			87,550						35,072												666						1,866						26,415						—						151,568
Depreciation and amortization			8,199						2,639												—						4						9,258						—						20,099
Other expenses			13,299						10,555												6,910						916						18,802						—						50,481
Intersegment expenses, net			18,703						5,367												8,985						73						(25,036)						(8,092)						—
Total operating expenses			127,751						53,633												16,561						2,859						29,439						(8,092)						222,148
Income (loss) before income taxes			16,962						7,651												30,077						1,869						(23,118)						—						33,441
Income tax (expense) benefit			(4,071)						(1,838)												(7,219)						(439)						8,108						—						(5,459)
Net income (loss)			12,891						5,813												22,858						1,430						(15,010)						—						27,982
Net (income) loss attributable to noncontrolling interests			—						5												—						—						2,786						—						2,791
Net income (loss) attributable to Nelnet, Inc.			$	12,891					5,818												22,858						1,430						(12,224)						—						30,773

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

9

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			Three months ended December 31, 2021
			Loan Servicing and Systems						Education Technology, Services, and Payment Processing												Asset Generation and Management						Nelnet Bank						Corporate and Other Activities						Eliminations						Total
Total interest income			$	42					258												118,753						2,242						4,423						(1,222)						124,494
Interest expense			24						—												48,636						499						358						(1,222)						48,294
Net interest income			18						258												70,117						1,743						4,065						—						76,200
Less provision (negative provision) for loan losses			—						—												(1,994)						416						—						—						(1,578)
Net interest income after provision for loan losses			18						258												72,111						1,327						4,065						—						77,778
Other income (expense):
Loan servicing and systems revenue			150,402						—												—						—						—						—						150,402
Intersegment revenue			8,587						3												—						—						—						(8,590)						—
Education technology, services, and payment processing revenue			—						80,950												—						—						—						—						80,950
Solar construction revenue			—						—												—						—						—						—						—
Other, net			765						(14)												38,820						237						8,689						—						48,497
(Loss) gain on sale of loans, net			—						—												—						—						—						—						—
Impairment expense and provision for beneficial interests, net			—						—												—						—						(4,137)						—						(4,137)
Derivative settlements, net			—						—												(5,780)						—						—						—						(5,780)
Derivative market value adjustments, net			—						—												48,359						—						—						—						48,359
Total other income (expense)			159,754						80,939												81,399						237						4,552						(8,590)						318,291
Cost of services:
Cost to provide education technology, services, and payment processing services			—						28,597												—						—						—						—						28,597
Cost to provide solar construction services			—						—												—						—						—						—						—
Total cost of services			—						28,597												—						—						—						—						28,597
Operating expenses:
Salaries and benefits			87,255						29,892												542						1,086						25,006						—						143,781
Depreciation and amortization			5,239						2,615												—						—						9,755						—						17,612
Other expenses			13,424						5,254												724						549						17,910						—						37,857
Intersegment expenses, net			19,964						4,324												9,241						35						(24,974)						(8,590)						—
Total operating expenses			125,882						42,085												10,507						1,670						27,697						(8,590)						199,250
Income (loss) before income taxes			33,890						10,515												143,003						(106)						(19,080)						—						168,222
Income tax (expense) benefit			(8,134)						(2,523)												(34,321)						24						5,879						—						(39,075)
Net income (loss)			25,756						7,992												108,682						(82)						(13,201)						—						129,147
Net (income) loss attributable to noncontrolling interests			—						—												—						—						3,536						—						3,536
Net income (loss) attributable to Nelnet, Inc.			$	25,756					7,992												108,682						(82)						(9,665)						—						132,683

10

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			Year ended December 31, 2022
			Loan Servicing and Systems						Education Technology, Services, and Payment Processing												Asset Generation and Management						Nelnet Bank						Corporate and Other Activities						Eliminations						Total
Total interest income			$	2,722					9,377												676,557						25,973						42,576						(14,399)						742,806
Interest expense			44						—												411,900						11,055						21,538						(14,399)						430,137
Net interest income			2,678						9,377												264,657						14,918						21,038						—						312,669
Less provision (negative provision) for loan losses			—						—												44,601						1,840						—						—						46,441
Net interest income after provision for loan losses			2,678						9,377												220,056						13,078						21,038						—						266,228
Other income (expense):
Loan servicing and systems revenue			535,459						—												—						—						—						—						535,459
Intersegment revenue			33,170						81												—						—						—						(33,251)						—
Education technology, services, and payment processing revenue			—						408,543												—						—						—						—						408,543
Solar construction revenue			—						—												—						—						24,543						—						24,543
Other, net			2,543						—												21,170						2,625						(853)						—						25,486
(Loss) gain on sale of loans, net			—						—												2,903						—						—						—						2,903
Impairment expense and provision for beneficial interests, net			(5,511)						(2,239)												—						(214)						(7,559)						—						(15,523)
Derivative settlements, net			—						—												32,943						—						—						—						32,943
Derivative market value adjustments, net			—						—												231,691						—						—						—						231,691
Total other income (expense)			565,661						406,385												288,707						2,411						16,131						(33,251)						1,246,045
Cost of services:
Cost to provide education technology, services, and payment processing services			—						148,403												—						—						—						—						148,403
Cost to provide solar construction services			—						—												—						—						19,971						—						19,971
Total cost of services			—						148,403												—						—						19,971						—						168,374
Operating expenses:
Salaries and benefits			344,809						133,428												2,524						6,948						101,870						—						589,579
Depreciation and amortization			24,255						10,184												—						15						39,623						—						74,077
Other expenses			59,674						30,104												16,835						3,925						60,240						—						170,778
Intersegment expenses, net			75,145						19,538												34,679						244						(96,355)						(33,251)						—
Total operating expenses			503,883						193,254												54,038						11,132						105,378						(33,251)						834,434
Income (loss) before income taxes			64,456						74,105												454,725						4,357						(88,180)						—						509,465
Income tax (expense) benefit			(15,470)						(17,785)												(109,134)						(1,013)						30,178						—						(113,224)
Net income (loss)			48,986						56,320												345,591						3,344						(58,002)						—						396,241
Net (income) loss attributable to noncontrolling interests			—						(3)												—						—						11,109						—						11,106
Net income (loss) attributable to Nelnet, Inc.			$	48,986					56,317												345,591						3,344						(46,893)						—						407,347

11

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			Year ended December 31, 2021
			Loan Servicing and Systems						Education Technology, Services, and Payment Processing												Asset Generation and Management						Nelnet Bank						Corporate and Other Activities						Eliminations						Total
Total interest income			$	137					1,075												506,901						7,721						9,801						(1,800)						523,835
Interest expense			94						—												172,918						1,507						3,515						(1,800)						176,233
Net interest income			43						1,075												333,983						6,214						6,286						—						347,602
Less provision (negative provision) for loan losses			—						—												(13,220)						794						—						—						(12,426)
Net interest income after provision for loan losses			43						1,075												347,203						5,420						6,286						—						360,028
Other income (expense):
Loan servicing and systems revenue			486,363						—												—						—						—						—						486,363
Intersegment revenue			33,956						12												—						—						—						(33,968)						—
Education technology, services, and payment processing revenue			—						338,234												—						—						—						—						338,234
Solar construction revenue			—						—												—						—						—						—						—
Other, net			3,307						—												34,306						713						40,356						—						78,681
(Loss) gain on sale of loans, net			—						—												18,715						—						—						—						18,715
Impairment expense and provision for beneficial interests, net			(13,243)						—												2,436						—						(5,553)						—						(16,360)
Derivative settlements, net			—						—												(21,367)						—						—						—						(21,367)
Derivative market value adjustments, net			—						—												92,813						—						—						—						92,813
Total other income (expense)			510,383						338,246												126,903						713						34,803						(33,968)						977,079
Cost of services:
Cost to provide education technology, services, and payment processing services			—						108,660												—						—						—						—						108,660
Cost to provide solar construction services			—						—												—						—						—						—						—
Total cost of services			—						108,660												—						—						—						—						108,660
Operating expenses:
Salaries and benefits			297,406						112,046												2,135						5,042						90,502						—						507,132
Depreciation and amortization			25,649						11,404												—						—						36,682						—						73,741
Other expenses			52,720						19,318												13,487						1,776						58,173						—						145,469
Intersegment expenses, net			72,206						15,180												34,868						107						(88,393)						(33,968)						—
Total operating expenses			447,981						157,948												50,490						6,925						96,964						(33,968)						726,342
Income (loss) before income taxes			62,445						72,713												423,616						(792)						(55,875)						—						502,105
Income tax (expense) benefit			(14,987)						(17,451)												(101,668)						175						18,109						—						(115,822)
Net income (loss)			47,458						55,262												321,948						(617)						(37,766)						—						386,283
Net (income) loss attributable to noncontrolling interests			—						—												—						—						7,003						—						7,003
Net income (loss) attributable to Nelnet, Inc.			$	47,458					55,262												321,948						(617)						(30,763)						—						393,286

12

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Loan Servicing and Systems Revenue

The following table provides disaggregated revenue by service offering for the Loan Servicing and Systems operating segment.

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Government loan servicing			$	110,698					104,428						119,296						423,066						360,793
Private education and consumer loan servicing			12,016						12,198						12,739						49,210						47,302
FFELP loan servicing			3,630						4,127						4,351						16,016						18,281
Software services			9,873						8,229						11,821						33,409						34,600
Outsourced services			3,804						5,215						2,195						13,758						25,387
Loan servicing and systems revenue			$	140,021					134,197						150,402						535,459						486,363

Loan Servicing Volumes

			As of
			December 31, 2020						March 31, 2021						June 30, 2021						September 30, 2021						December 31, 2021						March 31, 2022						June 30, 2022						September 30, 2022						December 31, 2022
Servicing volume (dollars in millions):
Government			$	443,248					453,681						452,450						461,054						478,402						507,653						542,398						545,546						545,373
FFELP			30,763						30,084						29,361						28,244						26,916						25,646						24,224						22,412						20,226
Private and consumer			16,226						21,397						24,758						24,229						23,702						23,433						22,838						22,461						21,866
Total			$	490,237					505,162						506,569						513,527						529,020						556,732						589,460						590,419						587,465
Number of servicing    borrowers:
Government			13,251,930						13,301,364						13,253,051						13,570,056						14,196,520						14,727,860						15,426,607						15,657,942						15,777,328
FFELP			1,300,677						1,233,461						1,198,863						1,150,214						1,092,066						1,034,913						977,785						910,188						829,939
Private and consumer			636,136						882,477						1,039,537						1,097,252						1,065,439						1,030,863						998,454						979,816						951,866
Total			15,188,743						15,417,302						15,491,451						15,817,522						16,354,025						16,793,636						17,402,846						17,547,946						17,559,133
Number of remote hosted borrowers:			6,555,841						4,307,342						4,338,570						4,548,541						4,799,368						5,487,943						5,738,381						6,025,377						6,135,760

Education Technology, Services, and Payment Processing

The following table provides disaggregated revenue by servicing offering for the Education Technology, Services, and Payment Processing operating segment.

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Tuition payment plan services			$	26,671					25,779						24,264						110,802						103,970
Payment processing			34,216						47,957						29,182						148,212						127,080
Education technology and services			35,924						32,548						27,033						146,679						105,975
Other			1,521						610						471						2,850						1,209
Education technology, services, and payment processing revenue			$	98,332					106,894						80,950						408,543						338,234

13

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Other Income/Expense

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

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Income/gains from investments, net			$	10,866					10,701						51,451						51,552						91,593
Borrower late fee income			3,116						2,824						1,745						10,809						3,444
ALLO preferred return			2,164						2,164						2,043						8,584						8,427
Administration/sponsor fee income			1,844						1,920						1,986						7,898						3,656
Investment advisory services			1,651						1,612						1,531						6,026						7,773
Management fee revenue			597						596						765						2,543						3,307
Loss from ALLO voting membership interest investment			(20,332)						(17,562)						(10,528)						(67,966)						(42,148)
Loss from solar investments			(2,379)						(4,216)						(2,757)						(9,479)						(10,132)
Other			3,208						4,186						2,261						15,519						12,761
Other, net			$	735					2,225						48,497						25,486						78,681

Derivative Settlements

The following table summarizes the components of "derivative settlements, net" on the consolidated statements of income.

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
1:3 basis swaps			$	(448)					(1,085)						(699)						(206)						(1,638)
Interest rate swaps - floor income hedges			21,306						11,356						(5,081)						33,149						(19,729)
Total derivative settlements - income (expense)			$	20,858					10,271						(5,780)						32,943						(21,367)

14

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Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable and allowance for loan losses consisted of the following:

			As of						As of						As of
			December 31, 2022						September 30, 2022						December 31, 2021
Non-Nelnet Bank:
Federally insured loans:
Stafford and other			$	3,389,178					3,298,138						3,904,000
Consolidation			10,177,295						11,002,253						13,187,047
Total			13,566,473						14,300,391						17,091,047
Private education loans			252,383						262,183						299,442
Consumer and other loans			350,915						231,441						51,301
Non-Nelnet Bank loans			14,169,771						14,794,015						17,441,790
Nelnet Bank:
Federally insured loans			65,913						72,905						88,011
Private education loans			353,882						356,571						169,890
Nelnet Bank loans			419,795						429,476						257,901
Accrued interest receivable			816,864						793,838						788,552
Loan discount, net of unamortized loan premiums and deferred origination costs			(30,714)						(22,021)						(25,933)
Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans			(83,593)						(87,778)						(103,381)
Private education loans			(15,411)						(15,577)						(16,143)
Consumer and other loans			(30,263)						(13,290)						(6,481)
Non-Nelnet Bank allowance for loan losses			(129,267)						(116,645)						(126,005)
Nelnet Bank:
Federally insured loans			(170)						(164)						(268)
Private education loans			(2,390)						(2,248)						(840)
Nelnet Bank allowance for loan losses			(2,560)						(2,412)						(1,108)
			$	15,243,889					15,876,251						18,335,197

The following table summarizes the allowance for loan losses as a percentage of the ending loan balance for each of the Company's loan portfolios.

			As of						As of						As of
			December 31, 2022						September 30, 2022						December 31, 2021
Non-Nelnet Bank:
Federally insured loans (a)			0.62		%				0.61		%				0.60		%
Private education loans			6.11		%				5.94		%				5.39		%
Consumer and other loans (b)			8.62		%				5.74		%				12.63		%
Nelnet Bank:
Federally insured loans (a)			0.26		%				0.22		%				0.30		%
Private education loans			0.68		%				0.63		%				0.49		%

(a)    As of December 31, 2022 September 30, 2022, and December 31, 2021, the allowance for loan losses as a percent of the risk sharing component of federally insured loans not covered by the federal guaranty for non-Nelnet Bank was 22.4%, 22.3%, and 22.2%, respectively, and for Nelnet Bank was 10.3%, 8.9%, and 12.1%, respectively.

(b)    During 2022, the Company purchased home equity loans that generally have lower default rates than unsecured consumer loans. As such, the allowance for loan losses as a percentage of the ending loan balance has decreased in 2022 compared with December 31, 2021.

15

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Loan Activity

The following table sets forth the activity of the Company's loan portfolios:

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Non-Nelnet Bank:
Beginning balance			$	14,794,015					15,855,137						18,437,694						17,441,790						19,559,108
Loan acquisitions:
Federally insured student loans			667,008						896						70,775						721,853						904,088
Private education loans			67						667						1,177						8,244						89,308
Consumer and other loans			259,217						120,465						20,604						516,215						81,923
Total loan acquisitions			926,292						122,028						92,556						1,246,312						1,075,319
Repayments, claims, capitalized interest, participations, and other, net			(383,829)						(385,312)						(711,459)						(1,694,742)						(2,126,708)
Loans lost to external parties			(1,046,911)						(768,923)						(376,981)						(2,656,639)						(964,822)
Loans sold			(119,796)						(28,915)						(20)						(166,950)						(101,107)
Ending balance			$	14,169,771					14,794,015						17,441,790						14,169,771						17,441,790
Nelnet Bank:
Beginning balance			$	429,476					423,553						192,325						257,901						17,543
Loan acquisitions and originations:
Federally insured student loan acquisitions									—						—						—						99,973
Private education loan acquisitions			—						6,856						—						6,856						—
Private education loan originations			8,426						14,311						80,588						228,283						179,749
Total loan acquisitions and originations			8,426						21,167						80,588						235,139						279,722
Repayments			(18,011)						(15,244)						(14,318)						(69,022)						(36,181)
Sales to AGM			(96)						—						(694)						(4,223)						(3,183)
Ending balance			$	419,795					429,476						257,901						419,795						257,901

The Company has also purchased partial ownership in certain federally insured student, private education, and consumer and other 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 December 31, 2022, the Company’s ownership correlates to approximately $390 million, $620 million, and $310 million of federally insured student, private education, and consumer and other loans, respectively, included in these securitizations. The loans held in these securitizations are not included in the above table.

Since late 2021, the Company has experienced accelerated run-off of its FFELP portfolio due to FFELP borrowers consolidating their loans into Federal Direct Loan Program loans as a result of the continued extension of the CARES Act payment pause on Department held loans and the initiatives offered by the Department for FFELP borrowers to consolidate their loans to qualify for loan forgiveness under the Public Service Loan Forgiveness and other programs.

16

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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.

			Three months ended																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Variable loan yield, gross			6.52		%				5.05		%				2.62		%				4.39		%				2.64		%
Consolidation rebate fees			(0.82)						(0.84)						(0.85)						(0.84)						(0.85)
Discount accretion, net of premium and deferred origination costs amortization (a)			0.06						0.02						0.02						0.04						0.02
Variable loan yield, net			5.76						4.23						1.79						3.59						1.81
Loan cost of funds - interest expense (b) (c)			(4.64)						(3.11)						(1.06)						(2.58)						(1.04)
Loan cost of funds - derivative settlements (d) (e)			(0.01)						(0.03)						(0.02)						(0.00		)				(0.01)
Variable loan spread			1.11						1.09						0.71						1.01						0.76
Fixed rate floor income, gross			0.07						0.19						0.76						0.36						0.76
Fixed rate floor income - derivative settlements (d) (f)			0.59						0.30						(0.11)						0.21						(0.11)
Fixed rate floor income, net of settlements on derivatives			0.66						0.49						0.65						0.57						0.65
Core loan spread			1.77		%				1.58		%				1.36		%				1.58		%				1.41		%
Average balance of AGM's loans			$	14,764,466					15,466,505						18,063,787						15,969,435						18,900,038
Average balance of AGM's debt outstanding			14,352,548						15,060,823						17,777,230						15,513,824						18,610,144

(a)    During each of the fourth quarters of 2022 and 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete federally insured loan premium/discounts for its loans which resulted in a $8.4 million increase and a $6.2 million decrease, respectively, to interest income. The impact of these adjustments was excluded from the table above.

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

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

(d)    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 "Derivative Settlements" included in this supplement for the net settlement activity recognized by the Company for each type of derivative for the periods presented in the 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																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Core loan spread			1.77		%				1.58		%				1.36		%				1.58		%				1.41		%
Derivative settlements (1:3 basis swaps)			0.01						0.03						0.02						0.00						0.01
Derivative settlements (fixed rate floor income)			(0.59)						(0.30)						0.11						(0.21)						0.11
Loan spread			1.19		%				1.31		%				1.49		%				1.37		%				1.53		%

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

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

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A trend analysis of AGM’s core and variable loan spreads by calendar year quarter is summarized below.

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

Variable loan spread increased during 2022 compared with 2021 due to a significant increase in short-term interest rates throughout 2022. In an increasing interest rate environment, student loan spread increases due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest resets on the Company's debt that occurs either monthly or quarterly.

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																		Year ended
			December 31, 2022						September 30, 2022						December 31, 2021						December 31, 2022						December 31, 2021
Fixed rate floor income, gross			$	2,510					7,585						34,577						57,380						142,606
Derivative settlements (a)			21,306						11,356						(5,081)						33,149						(19,729)
Fixed rate floor income, net			$	23,816					18,941						29,496						90,529						122,877
Fixed rate floor income contribution to spread, net			0.66		%				0.49		%				0.65		%				0.57		%				0.65		%

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

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Fixed Rate Floor Income

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

Fixed interest rate range						Borrower/lender weighted average yield						Estimated variable conversion rate (a)						Loan balance
6.5 - 6.99%						6.77%						4.13%						$	135,031
7.0 - 7.49%						7.18%						4.54%						69,205
7.5 - 7.99%						7.72%						5.08%						158,317
8.0 - 8.99%						8.18%						5.54%						363,579
> 9.0%						9.05%						6.41%						139,081
																		$	865,213

(a)    The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of December 31, 2022, the weighted average estimated variable conversion rate was 5.30% and the short-term interest rate was 397 basis points.

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

Maturity						Notional amount						Weighted average fixed rate paid by the Company (a)
2024						$	2,000,000					0.35		%
2026						500,000						1.02
2031						100,000						1.53
2032 (b)						200,000						2.92
						$	2,800,000					0.70		%

(a)    For the interest rate derivatives maturing in 2032, the Company receives payments based on Secured Overnight Financing Rate (SOFR) that resets quarterly. For all other interest rate derivatives, the Company receives payments based on three-month LIBOR that resets quarterly.

(b)    These derivatives have forward effective start dates in November 2024.

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