NELNET INC

Previous wording

(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.)

Current wording

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2024 and 2023. All dollars are in thousands, except per share amounts, unless otherwise noted.)

Previous wording

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

Current wording

•risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including disclosure of confidential or personal information and/or damage to reputation resulting from cyber breaches;

Previous wording

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.

Current wording

The Company is a diversified hybrid holding company with primary businesses being consumer lending, loan servicing, payments, and technology - all with a large customer emphasis in the education space. 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.

Previous wording

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.

Current wording

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 and secured 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.

Previous wording

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.

Current wording

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 and six months ended June 30, 2024 and 2023. See "Results of Operations" for additional detail regarding each reportable operating segment, the NFS operating segments, and Corporate and Other Activities under this Item 2.

Previous wording

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.

Current wording

An analysis of the Company's consolidated operating results for the three and six months ended June 30, 2024 compared with the same periods in 2023 is provided below.

Previous wording

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.

Current wording

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 was allocated by the Department to Nelnet Servicing and four other third-party servicers that were awarded a USDS contract. 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 recognized 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.

Previous wording

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.

Current wording

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 began earning 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 this servicer.

Previous wording

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;”

Current wording

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. Final publication and effective date for all pending forgiveness regulations pursuant to the HEA are expected in Fall of 2024. The April 2024 draft publication did not include regulations to provide forgiveness for borrowers “experiencing financial hardship;”

Previous wording

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.

Current wording

however, publication and comment period for such regulations are expected in early 2025, depending on the results of the presidential election. 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.

Previous wording

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.

Current wording

On July 17, 2024, Discover Financial Services (Discover) announced the sale of its approximately $10 billion private education student loan portfolio, representing approximately 400,000 borrowers, to partnerships managed by two global investment firms, with Firstmark Services, a division of the Company, assuming responsibility for servicing the portfolio upon the sale. The conversion of these loans to the Company’s platform is anticipated to occur in the fourth quarter of 2024.

Previous wording

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.

Current wording

As of June 30, 2024, the AGM operating segment had a $9.9 billion loan portfolio, consisting primarily of federally insured loans. For a summary of the Company’s loan portfolio as of June 30, 2024 and December 31, 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Previous wording

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.

Current wording

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 June 30, 2024, the Company’s ownership correlates to approximately $1.94 billion of loans included in these securitizations. The loans held in these securitizations are not included in the above table. Interest income earned by the Company from the beneficial interest in loan securitizations is included in "investment income" on the Company's consolidated statements of income and is not a component of the Company's loan interest income.

Previous wording

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 rece…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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. Final publication and effective date for all pending forgiveness regulations pursuant to the HEA are expected in Fall of 2024. 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 early 2025, depending on the results of the presidential election.

Previous wording

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.

Current wording

The proposed forgiveness regulations and implementation of the SAVE IDR plan regulations have increased, and may continue to increase, consolidation and prepayment 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.

Previous wording

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.

Current wording

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 June 30, 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 and six months ended June 30, 2024 and 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Previous wording

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.

Current wording

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 loan interest income, including settlements on derivatives" below, divided by the average balance of loans or debt outstanding.

Previous wording

(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.

Current wording

(b) Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 5 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" in note 5 and in this table.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

Variable loan spread was lower during the three and six months ended June 30, 2024 compared with the same periods in 2023 due to a significant increase in short-term rates during 2023 compared with an insignificant change in rates during 2024.

Previous wording

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.

Current wording

The decrease in gross fixed rate floor income for the three and six months ended June 30, 2024 compared with the same periods in 2023 was due to higher interest rates in 2024 compared with 2023.

Previous wording

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.

Current wording

The increase in net derivative settlements received by the Company during the three months ended June 30, 2024, compared with the same period in 2023, was due to an increase in the notional amount of derivatives outstanding. The decrease in net derivative settlements received by the Company during the six months ended June 30, 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.

Previous wording

The following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."

Current wording

The following table summarizes the components of "loan interest," "loan interest expense" and "derivative settlements, net."

Previous wording

(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."

Current wording

(a) Net loan interest income, including derivative settlements (core loan interest income) is a non-GAAP financial measure. For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the limitations thereof), see footnote (b) to the table immediately under the caption “Loan Spread Analysis” above. See note 5 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" in note 5 and in this table.

Previous wording

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.

Current wording

As of June 30, 2024, Nelnet Bank had a $542.4 million loan portfolio, consisting of $354.4 million of private education loans and $187.9 million of consumer and other loans. For a summary of the Company’s loan portfolio as of June 30, 2024 and December 31, 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Previous wording

The following table sets forth the activity of loans in Nelnet Bank operating segment:

Current wording

The following table sets forth the activity of loans in the Nelnet Bank operating segment:

Previous wording

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.

Current wording

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 June 30, 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 and six months ended June 30, 2024 and 2023, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Previous wording

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.

Current wording

As of June 30, 2024, Nelnet Bank had $1.03 billion 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 and CDs include deposits from Educational 529 College Savings and Health Savings plans, Short Term Federal Investment Trust (STFIT), consumer savings, and commercial, institutional, and consumer CDs. Union Bank, a related party, is the program manager for the Educational 529 College Savings plans and trustee for the STFIT.

Previous wording

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.

Current wording

As of June 30, 2024, Nelnet Bank’s deposits included $143.0 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.

Previous wording

(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.

Current wording

(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 for the three months ended June 30, 2024 and 2023, respectively, and $2.8 million and $3.2 million for the six months ended June 30, 2024 and 2023, respectively. Fees earned by WRCM are included in "other income, net" in the table above.

Previous wording

(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.

Current wording

(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. The following table presents net premiums, which are included in "other income, net" in the table above, and net loss reserve, commissions, and broker fees, which are included in "other expenses" in the table above:

Previous wording

(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.

Current wording

(c) Represents the operating results of the Company’s real estate investments and the administrative costs to manage this portfolio. The Company recognized net losses from its real estate investments of $1.8 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and net losses of $3.6 million for the six months ended June 30, 2024 compared with a gain of $0.4 million for the same period in 2023, which are included in "other income, net" in the table above. The net results recognized relates primarily to the Company's proportionate share of certain real estate investments accounted for under the equity method.

Previous wording

(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.

Current wording

(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 and interest expense in 2024 compared with 2023 was due to a decrease in the average balance of investments and debt outstanding, respectively. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate and Market Risk - Investments," which provides additional detail on the Company's investment portfolio and debt used to finance such investments. Included in first half of 2023 was $3.6 million of realized losses on sales of asset-backed and marketable securities, which are included in "other income, net" in the table above.

Previous wording

(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.

Current wording

(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 June 30, 2024, the Company has invested a total of $502.8 million (which includes $219.8 million syndicated to third-party investors) in solar tax equity investments that remain outstanding. 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.

Previous wording

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.

Current wording

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 losses on its tax equity investments of $2.6 million and $10.1 million for the three months ended June 30, 2024 and 2023, respectively, and net gains of $0.2 million in the first half of 2024 compared with net losses of $13.0 million for the same period in 2023. These income statement amounts, which include amounts attributable to third-party noncontrolling interest investors, are included in “other income, net” in the table above. There were minimal net losses attributable to third-party noncontrolling interest investors in the second quarter of 2024 compared with $8.4 million for the same period in 2023 and $1.6 million in the first half of 2024 compared with $11.4 million for the same period in 2023. Amounts applicable to noncontrolling interest investors are reflected in “net loss attributable to noncontrolling interests” in the table above.

Previous wording

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.

Current wording

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 $0.9 million and $0.3 million for the three months ended June 30, 2024 and 2023, respectively, and $1.6 million and $0.6 million for the six months ended June 30, 2024 and 2023, respectively, which is included in "other income, net" in the table above.

Previous wording

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.

Current wording

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 80% of GRNE Solar's ownership interests 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 continue to decline from recent historical amounts as existing customer contracts are completed. Residential solar construction revenue was $0.9 million and $2.4 million for the three months ended June 30, 2024 and 2023, respectively, and $3.1 million and $5.2 million for the six months ended June 30, 2024 and 2023, respectively. In addition, during the second quarter of 2024, the Company recognized non-cash impairment charges of $1.9 million on certain solar facilities and inventory related to the residential solar operations, which is reflected in "impairment expense" in the table above, and $1.6 million in severance costs and commissions paid for cancelled projects, which is included in "salaries and benefits" in the table above. For additional information, see note 9 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Previous wording

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.

Current wording

The Company accounts for its approximately 45% voting membership interests in ALLO under the HLBV method of accounting. Under the HLBV method of accounting on its ALLO voting membership interests investment, the Company recognized no losses in the second quarter of 2024 compared with losses of $12.2 million for the same period in 2023 and losses of $10.7 million in the first half of 2024 compared with $32.4 million for the same period in 2023. These amounts are reflected in “other income, net” in the table above. Absent additional equity contributions with respect to ALLO's voting membership interests, the Company will not recognize additional losses for its voting membership interests in ALLO.

Previous wording

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.

Current wording

As of June 30, 2024, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $169.5 million and $6.6 million, respectively. The Company historically earned a preferred annual return of 6.25% that increased to 10.00% on April 1, 2024 for $155.0 million of preferred membership interests of ALLO held by the Company. During the second quarter of 2024, the Company purchased an additional $14.5 million of preferred membership interests of ALLO, which earn a preferred annual return of 20.0%. The Company recognized income on its ALLO preferred membership interests of $4.2 million and $2.3 million for the three months ended June 30, 2024 and 2023, respectively, and $6.6 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively. These amounts are reflected in “other income, net” in the table above.

Previous wording

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.

Current wording

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 an expense of $0.3 million and $1.4 million for the three months ended June 30, 2024 and 2023, respectively, and $0.6 million and $1.4 million for the six months ended June 30, 2024 and 2023, respectively, which is included in “other expenses” in the table above.