UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172021
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to.

Commission File Number: 001-31924

NELNET, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA
Nebraska
84-0748903
(State or other jurisdiction of incorporation or organization)
84-0748903
(I.R.S. Employer Identification No.)
121 SOUTH 13TH STREET
SUITESouth 13th Street, Suite 100
LINCOLN, NEBRASKA
Lincoln,Nebraska68508
(Address of principal executive offices)
68508
(Zip Code)
(402) 458-2370
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, Par Value $0.01 per ShareNNINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                       Yes [X] No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                             Yes [X] No [  ]

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

Large accelerated filer [X]                                                     Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)                    Smaller reporting company [ ]
        Emerging growth company [ ]

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

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

As of October 31, 2017,2021, there were 29,370,34327,560,397 and 11,476,93210,681,454 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,317,364a total of 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).






NELNET, INC.
FORM 10-Q
INDEX
September 30, 20172021



Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.











PART I. FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
     
  As of
As of
  September 30, 2017
December 31, 2016
Assets:    
Student loans receivable (net of allowance for loan losses of $51,964 and $51,842, respectively) $22,528,845
 24,903,724
Cash and cash equivalents:  
  
Cash and cash equivalents - not held at a related party 11,313
 7,841
Cash and cash equivalents - held at a related party 243,078
 61,813
Total cash and cash equivalents 254,391
 69,654
Investments and other receivables 276,536
 254,144
Restricted cash 725,463
 980,961
Restricted cash - due to customers 105,299
 119,702
Accrued interest receivable 396,827
 391,264
Accounts receivable (net of allowance for doubtful accounts of $1,905 and $1,549, respectively) 70,628
 43,972
Goodwill 147,312
 147,312
Intangible assets, net 40,742
 47,813
Property and equipment, net 208,441
 123,786
Other assets 13,230
 10,245
Fair value of derivative instruments 996
 87,531
Total assets $24,768,710
 27,180,108
Liabilities:  
  
Bonds and notes payable $22,240,279
 24,668,490
Accrued interest payable 47,824
 45,677
Other liabilities 214,763
 197,488
Due to customers 105,299
 119,702
Fair value of derivative instruments 30,105
 77,826
Total liabilities 22,638,270
 25,109,183
Commitments and contingencies 

 

Equity:    
  Nelnet, Inc. shareholders' equity:  
  
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding 
 
Common stock:    
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 29,436,022 shares and 30,628,112 shares, respectively 294
 306
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,476,932 shares 115
 115
Additional paid-in capital 360
 420
Retained earnings 2,106,895
 2,056,084
Accumulated other comprehensive earnings 4,187
 4,730
Total Nelnet, Inc. shareholders' equity 2,111,851
 2,061,655
Noncontrolling interests 18,589
 9,270
Total equity 2,130,440
 2,070,925
Total liabilities and equity $24,768,710
 27,180,108
     
Supplemental information - assets and liabilities of consolidated education lending variable interest entities:    
Student loans receivable $22,704,085
 25,090,530
Restricted cash 687,666
 970,306
Accrued interest receivable and other assets 397,093
 390,504
Bonds and notes payable (22,459,091) (25,105,704)
Other liabilities (282,441) (290,996)
Fair value of derivative instruments, net (22,773) (66,453)
Net assets of consolidated education lending variable interest entities $1,024,539
 988,187
See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
 Three months Nine months
 ended September 30, ended September 30,
 2017 2016 2017 2016
Interest income:       
Loan interest$191,755
 193,721
 562,451
 567,775
Investment interest5,129
 2,460
 11,335
 6,674
Total interest income196,884
 196,181
 573,786
 574,449
Interest expense:   
    
Interest on bonds and notes payable121,650
 96,386
 341,787
 280,847
Net interest income75,234
 99,795
 231,999
 293,602
Less provision for loan losses6,000
 6,000
 9,000
 10,500
Net interest income after provision for loan losses69,234
 93,795
 222,999
 283,102
Other income:   
    
Loan systems and servicing revenue55,950
 54,350
 167,079
 161,082
Tuition payment processing, school information, and campus commerce revenue35,450
 33,071
 113,293
 102,211
Communications revenue6,751
 4,343
 17,577
 13,167
Enrollment services revenue
 
 
 4,326
Other income19,756
 15,150
 44,874
 38,711
Gain from debt repurchases116
 2,160
 5,537
 2,260
Derivative market value and foreign currency transaction adjustments and derivative settlements, net7,173
 36,001
 (25,568) (33,391)
Total other income125,196
 145,075
 322,792
 288,366
Operating expenses: 
  
    
Salaries and benefits74,193
 63,743
 220,684
 187,907
Depreciation and amortization10,051
 8,994
 27,687
 24,817
Loan servicing fees7,939
 5,880
 19,584
 20,024
Cost to provide communications services2,632
 1,784
 6,789
 5,169
Cost to provide enrollment services
 
 
 3,623
Other expenses30,518
 26,391
 84,593
 84,174
Total operating expenses125,333
 106,792
 359,337
 325,714
Income before income taxes69,097
 132,078
 186,454
 245,754
Income tax expense25,562
 47,715
 70,349
 87,184
Net income43,535
 84,363
 116,105
 158,570
Net loss (income) attributable to noncontrolling interests2,768
 (69) 8,960
 (165)
Net income attributable to Nelnet, Inc.$46,303
 84,294
 125,065
 158,405
Earnings per common share:       
Net income attributable to Nelnet, Inc. shareholders - basic and diluted$1.11
 1.98
 2.97
 3.70
Weighted average common shares outstanding - basic and diluted41,553,316
 42,642,213
 42,054,532
 42,788,133

 See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
 Three months Nine months
 ended September 30, ended September 30,
 2017 2016 2017 2016
Net income$43,535
 84,363
 116,105
 158,570
Other comprehensive (loss) income:       
Available-for-sale securities:       
Unrealized holding gains (losses) arising during period, net405
 3,431
 383
 (4,217)
Reclassification adjustment for gains recognized in net income, net of losses(504) (491) (1,244) (82)
Income tax effect35
 (1,087) 318
 1,591
Total other comprehensive (loss) income(64) 1,853
 (543) (2,708)
Comprehensive income43,471
 86,216
 115,562
 155,862
Comprehensive loss (income) attributable to noncontrolling interests2,768
 (69) 8,960
 (165)
Comprehensive income attributable to Nelnet, Inc.$46,239
 86,147
 124,522
 155,697

NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
 As ofAs of
 September 30, 2021December 31, 2020
Assets:  
Loans and accrued interest receivable (net of allowance for loan losses of $138,044 and
   $175,698, respectively)
$19,304,203 20,185,656 
Cash and cash equivalents:  
Cash and cash equivalents - not held at a related party31,966 33,292 
Cash and cash equivalents - held at a related party159,970 87,957 
Total cash and cash equivalents191,936 121,249 
Investments1,374,913 992,940 
Restricted cash764,089 553,175 
Restricted cash - due to customers295,053 283,971 
Accounts receivable (net of allowance for doubtful accounts of $1,458 and $1,824, respectively)78,508 76,460 
Goodwill142,092 142,092 
Intangible assets, net55,176 75,070 
Property and equipment, net117,296 123,527 
Other assets79,473 92,020 
Total assets$22,402,739 22,646,160 
Liabilities:  
Bonds and notes payable$18,610,748 19,320,726 
Accrued interest payable4,441 28,701 
Bank deposits200,651 54,633 
Other liabilities375,393 312,280 
Due to customers354,543 301,471 
Total liabilities19,545,776 20,017,811 
Commitments and contingencies00
Equity:
Nelnet, Inc. shareholders' equity:  
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding— — 
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,556,370
     shares and 27,193,154 shares, respectively
276 272 
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding
     10,681,454 shares and 11,155,571 shares, respectively
107 112 
Additional paid-in capital1,593 3,794 
Retained earnings2,843,799 2,621,762 
Accumulated other comprehensive earnings, net13,479 6,102 
Total Nelnet, Inc. shareholders' equity2,859,254 2,632,042 
Noncontrolling interests(2,291)(3,693)
Total equity2,856,963 2,628,349 
Total liabilities and equity$22,402,739 22,646,160 
Supplemental information - assets and liabilities of consolidated education and other lending
     variable interest entities:
Loans and accrued interest receivable$19,032,669 20,132,996 
Restricted cash699,143 499,223 
Bonds and notes payable(18,465,230)(19,355,375)
Accrued interest payable and other liabilities(66,913)(83,127)
Net assets of consolidated education and other lending variable interest entities$1,199,669 1,193,717 
See accompanying notes to consolidated financial statements.


2
NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
 Nelnet, Inc. Shareholders   
 Preferred stock shares Common stock shares Preferred stock Class A common stock Class B common stock Additional paid-in capital  Retained earnings Accumulated other comprehensive (loss) earnings Noncontrolling interests Total equity
  Class A Class B        
Balance as of June 30, 2016
 31,024,230
 11,476,932
 $
 310
 115
 4,601
 1,894,551
 (2,277) 8,916
 1,906,216
Issuance of noncontrolling interests
 
 
 
 
 
 
 
 
 26
 26
Net income
 
 
 
 
 
 
 84,294
 
 69
 84,363
Other comprehensive income
 
 
 
 
 
 
 
 1,853
 
 1,853
Cash dividend on Class A and Class B common stock - $0.12 per share
 
 
 
 
 
 
 (5,101) 
 
 (5,101)
Issuance of common stock, net of forfeitures
 16,662
 
 
 
 
 282
 
 
 
 282
Compensation expense for stock based awards
 
 
 
 
 
 1,132
 
 
 
 1,132
Repurchase of common stock
 (201,551) 
 
 (2) 
 (5,791) (1,882) 
 
 (7,675)
Balance as of September 30, 2016

30,839,341

11,476,932
 $

308

115

224

1,971,862

(424)
9,011
 1,981,096
Balance as of June 30, 2017
 30,373,691
 11,476,932
 $
 304
 115
 366
 2,110,158
 4,251
 15,215
 2,130,409
Issuance of noncontrolling interests
 
 
 
 
 
 
 
 
 6,901
 6,901
Net income (loss)
 
 
 
 
 
 
 46,303
 
 (2,768) 43,535
Other comprehensive loss
 
 
 
 
 
 
 
 (64) 
 (64)
Distribution to noncontrolling interests
 
 
 
 
 
 
 
 
 (759) (759)
Cash dividend on Class A and Class B common stock - $0.14 per share
 
 
 
 
 
 
 (5,766) 
 
 (5,766)
Issuance of common stock, net of forfeitures
 10,125
 
 
 
 
 278
 
 
 
 278
Compensation expense for stock based awards
 
 
 
 
 
 1,042
 
 
 
 1,042
Repurchase of common stock
 (947,794) 
 
 (10) 
 (1,326) (43,800) 
 
 (45,136)
Balance as of September 30, 2017
 29,436,022
 11,476,932
 $
 294
 115
 360
 2,106,895
 4,187
 18,589
 2,130,440
Balance as of December 31, 2015
 32,476,528
 11,476,932
 $
 325
 115
 
 1,881,708
 2,284
 7,726
 1,892,158
Issuance of noncontrolling interests
 
 
 
 
 
 
 
 
 1,339
 1,339
Net income
 
 
 
 
 
 
 158,405
 
 165
 158,570
Other comprehensive loss
 
 
 
 
 
 
 
 (2,708) 
 (2,708)
Distribution to noncontrolling interests
 
 
 
 
 
 
 
 
 (219) (219)
Cash dividend on Class A and Class B common stock - $0.36 per share
 
 
 
 
 
 
 (15,293) 
 
 (15,293)
Issuance of common stock, net of forfeitures
 175,405
 
 
 1
 
 3,943
 
 
 
 3,944
Compensation expense for stock based awards
 
 
 
 
 
 3,448
 
 
 
 3,448
Repurchase of common stock
 (1,812,592) 
 
 (18) 
 (7,167) (52,958) 
 
 (60,143)
Balance as of September 30, 2016
 30,839,341
 11,476,932
 $
 308
 115
 224
 1,971,862
 (424) 9,011
 1,981,096
Balance as of December 31, 2016
 30,628,112
 11,476,932
 $
 306
 115
 420
 2,056,084
 4,730
 9,270
 2,070,925
Issuance of noncontrolling interests
 
 
 
 
 
 
 
 
 19,553
 19,553
Net income (loss)
 
 
 
 
 
 
 125,065
 
 (8,960) 116,105
Other comprehensive loss
 
 
 
 
 
 
 
 (543) 
 (543)
Distribution to noncontrolling interests
 
 
 
 
 
 
 
 
 (1,274) (1,274)
Cash dividend on Class A and Class B common stock - $0.42 per share
 
 
 
 
 
 
 (17,569) 
 
 (17,569)
Issuance of common stock, net of forfeitures
 171,481
 
 
 2
 
 3,359
 
 
 
 3,361
Compensation expense for stock based awards
 
 
 
 
 
 3,213
 
 
 
 3,213
Repurchase of common stock
 (1,363,571) 
 
 (14) 
 (6,632) (56,685) 
 
 (63,331)
Balance as of September 30, 2017
 29,436,022
 11,476,932
 $
 294
 115
 360
 2,106,895
 4,187
 18,589
 2,130,440


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
 Three months endedNine months ended
 September 30,September 30,
 2021202020212020
Interest income:  
Loan interest$124,096 134,507 370,219 462,439 
Investment interest12,558 5,238 29,122 18,379 
Total interest income136,654 139,745 399,341 480,818 
Interest expense: 
Interest on bonds and notes payable and bank deposits50,176 58,423 127,939 277,788 
Net interest income86,478 81,322 271,402 203,030 
Less provision (negative provision) for loan losses5,827 (5,821)(10,847)73,476 
Net interest income after provision for loan losses80,651 87,143 282,249 129,554 
Other income/expense: 
Loan servicing and systems revenue112,351 113,794 335,961 337,571 
Education technology, services, and payment processing revenue85,324 74,121 257,284 217,100 
Communications revenue— 20,211 — 57,390 
Other11,867 1,502 30,183 69,910 
Gain on sale of loans3,444 14,817 18,715 33,023 
Impairment expense and provision for beneficial interests, net(14,159)— (12,223)(34,419)
Derivative market value adjustments and derivative settlements, net1,351 1,049 28,868 (13,406)
Total other income/expense200,178 225,494 658,788 667,169 
Cost of services:
Cost to provide education technology, services, and payment processing services31,335 25,243 80,063 63,424 
Cost to provide communications services— 5,914 — 17,240 
Total cost of services31,335 31,157 80,063 80,664 
Operating expenses:  
Salaries and benefits128,592 126,096 363,351 365,220 
Depreciation and amortization15,710 30,308 56,129 87,349 
Other expenses38,324 34,744 107,611 115,184 
Total operating expenses182,626 191,148 527,091 567,753 
Income before income taxes66,868 90,332 333,883 148,306 
Income tax expense15,649 19,156 76,747 30,286 
Net income51,219 71,176 257,136 118,020 
Net loss (income) attributable to noncontrolling interests1,919 327 3,467 (568)
Net income attributable to Nelnet, Inc.$53,138 71,503 260,603 117,452 
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted$1.38 1.86 6.74 2.99 
Weighted average common shares outstanding - basic and diluted38,595,721 38,538,476 38,646,892 39,229,932 

See accompanying notes to consolidated financial statements.


3
NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 Nine months
 ended September 30,
 2017 2016
Net income attributable to Nelnet, Inc.$125,065
 158,405
Net (loss) income attributable to noncontrolling interests(8,960) 165
Net income116,105
 158,570
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and amortization, including debt discounts and student loan premiums and deferred origination costs99,826
 83,988
Student loan discount accretion(32,820) (30,439)
Provision for loan losses9,000
 10,500
Derivative market value adjustment(22,381) 1,556
Unrealized foreign currency transaction adjustment45,635
 13,543
Proceeds from termination of derivative instruments3,013
 2,830
Payments to enter into derivative instruments(929) 
Proceeds from clearinghouse to settle variation margin, net37,744
 
Gain from debt repurchases(5,537) (2,260)
Gain from sales of available-for-sale securities, net of losses(1,244) (82)
Proceeds related to trading securities, net23
 1,192
Deferred income tax benefit(15,012) (7,633)
Non-cash compensation expense3,370
 3,563
Other4,288
 1,681
(Increase) decrease in accrued interest receivable(5,572) 2,021
Increase in accounts receivable(26,656) (1,982)
Increase in other assets(1,213) (1,141)
Increase in accrued interest payable2,147
 11,333
Increase in other liabilities20,548
 11,587
Net cash provided by operating activities230,335
 258,827
Cash flows from investing activities: 
  
Purchases of student loans(137,158) (234,270)
Net proceeds from student loan repayments, claims, capitalized interest, and other2,515,850
 2,908,738
Proceeds from sale of student loans
 44,760
Purchases of available-for-sale securities(109,666) (66,733)
Proceeds from sales of available-for-sale securities141,206
 100,423
Purchases of investments and loans receivable and issuance of notes receivable(68,131) (14,912)
Proceeds from investments and other receivables10,521
 12,169
Purchases of property and equipment(106,656) (46,821)
Decrease (increase) in restricted cash, net276,654
 (39,400)
Net cash provided by investing activities2,522,620
 2,663,954
Cash flows from financing activities: 
  
Payments on bonds and notes payable(3,679,592) (2,998,017)
Proceeds from issuance of bonds and notes payable1,178,027
 154,619
Payments of debt issuance costs(4,411) (2,098)
Dividends paid(17,569) (15,293)
Repurchases of common stock(63,331) (60,143)
Proceeds from issuance of common stock457
 656
Issuance of noncontrolling interests19,475
 1,339
Distribution to noncontrolling interests(1,274) (219)
Net cash used in financing activities(2,568,218) (2,919,156)
Net increase in cash and cash equivalents184,737
 3,625
Cash and cash equivalents, beginning of period69,654
 63,529
Cash and cash equivalents, end of period$254,391
 67,154
    
Cash disbursements made for: 
  
Interest$287,265
 219,672
Income taxes, net of refunds$71,431
 87,633



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
Three months ended September 30,Nine months ended September 30,
2021202020212020
Net income$51,219 71,176 257,136 118,020 
Other comprehensive income:
Net changes related to foreign currency translation adjustments$(9)— (9)— 
Net changes related to available-for-sale debt securities:
Unrealized gains during period, net4,524 1,893 11,770 2,114 
Reclassification of gains to net income, net(1,173)(513)(2,052)(390)
Income tax effect(804)2,547 (329)1,051 (2,332)7,386 (412)1,312 
Other comprehensive income2,538 1,051 7,377 1,312 
Comprehensive income53,757 72,227 264,513 119,332 
Comprehensive loss (income) attributable to noncontrolling interests1,919 327 3,467 (568)
Comprehensive income attributable to Nelnet, Inc.$55,676 72,554 267,980 118,764 

See accompanying notes to consolidated financial statements.

4



NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
 Nelnet, Inc. Shareholders
 Preferred stock sharesCommon stock sharesPreferred stockClass A common stockClass B common stockAdditional paid-in capital Retained earningsAccumulated other comprehensive earnings, netNoncontrolling interestsTotal equity
 Class AClass B
Balance as of June 30, 2020— 27,232,836 11,171,609 $— 272 112 1,867 2,331,312 3,233 3,990 2,340,786 
Issuance of noncontrolling interests— — — — — — — — — 14 14 
Net income (loss)— — — — — — — 71,503 — (327)71,176��
Other comprehensive income— — — — — — — — 1,051 — 1,051 
Distribution to noncontrolling interests— — — — — — — — — (331)(331)
Cash dividends on Class A and Class B common stock - $0.20 per share— — — — — — — (7,664)— — (7,664)
Issuance of common stock, net of forfeitures— 24,132 — — — — 553 — — — 553 
Compensation expense for stock based awards— — — — — — 1,864 — — — 1,864 
Repurchase of common stock— (93,380)— — — — (2,580)(2,038)— — (4,618)
Balance as of September 30, 2020— 27,163,588 11,171,609 $— 272 112 1,704 2,393,113 4,284 3,346 2,402,831 
Balance as of June 30, 2021— 27,494,942 11,054,171 $— 275 111 10,158 2,812,315 10,941 (5,182)2,828,618 
Issuance of noncontrolling interests— — — — — — — — — 4,935 4,935 
Net income (loss)— — — — — — — 53,138 — (1,919)51,219 
Other comprehensive income— — — — — — — — 2,538 — 2,538 
Distribution to noncontrolling interests— — — — — — — — — (125)(125)
Cash dividends on Class A and Class B common stock - $0.22 per share— — — — — — — (8,407)— — (8,407)
Issuance of common stock, net of forfeitures— 29,805 — — — — 493 — — — 493 
Compensation expense for stock based awards— — — — — — 2,770 — — — 2,770 
Repurchase of common stock— (341,094)— — (3)— (11,828)(13,247)— — (25,078)
Conversion of common stock— 372,717 (372,717)— (4)— — — — — 
Balance as of September 30, 2021— 27,556,370 10,681,454 $— 276 107 1,593 2,843,799 13,479 (2,291)2,856,963 

See accompanying notes to consolidated financial statements.

5


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

See accompanying notes to consolidated financial statements.



6


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
 Nine months ended
September 30,
 20212020
Net income attributable to Nelnet, Inc.$260,603 117,452 
Net (loss) income attributable to noncontrolling interests(3,467)568 
Net income257,136 118,020 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs113,651 149,175 
Loan discount accretion(25,048)(27,814)
(Negative provision) provision for loan losses(10,847)73,476 
Derivative market value adjustments(44,455)21,072 
Proceeds from (payments to) clearinghouse - initial and variation margin, net41,033 (20,405)
Gain from sale of loans(18,715)(33,023)
Gain from investments, net(293)(37,766)
Loss (gain) from repurchases of debt, net3,964 (508)
Purchases of equity securities - trading, net(41,591)— 
Deferred income tax expense (benefit)33,078 (10,975)
Non-cash compensation expense7,824 5,538 
Provision for beneficial interests and impairment expense, net12,223 34,419 
Increase in loan and investment accrued interest receivable(41,931)(27,192)
(Increase) decrease in accounts receivable(2,137)45,475 
Decrease in other assets, net35,381 19,491 
Decrease in the carrying amount of ROU asset5,652 9,150 
Decrease in accrued interest payable(24,260)(17,673)
Increase in other liabilities, net41,040 32,733 
Decrease in the carrying amount of lease liability(5,158)(8,484)
Increase (decrease) in due to customers53,146 (151,674)
Net cash provided by operating activities389,693 173,035 
Cash flows from investing activities:  
Purchases and originations of loans(1,145,775)(1,032,636)
Purchases of loans from a related party(21,476)(75,118)
Net proceeds from loan repayments, claims, and capitalized interest2,010,645 2,209,797 
Proceeds from sale of loans85,906 136,126 
Purchases of available-for-sale securities(521,565)(221,427)
Proceeds from sales of available-for-sale securities104,520 97,278 
Proceeds from and sale of beneficial interest in loan securitizations30,811 34,371 
Purchases of other investments(166,664)(122,584)
Proceeds from other investments209,634 8,528 
Purchases of property and equipment(42,594)(80,698)
Net cash provided by investing activities$543,442 953,637 
7


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Nine months ended
September 30,
20212020
Cash flows from financing activities:  
Payments on bonds and notes payable$(2,479,582)(2,803,214)
Proceeds from issuance of bonds and notes payable1,738,405 1,460,524 
Payments of debt issuance costs(6,778)(7,144)
Increase in bank deposits, net146,018 — 
Dividends paid(25,319)(23,343)
Repurchases of common stock(27,486)(73,145)
Proceeds from issuance of common stock1,108 1,250 
Acquisition of noncontrolling interest— (2,000)
Issuance of noncontrolling interests13,905 — 
Distribution to noncontrolling interests(548)(660)
Net cash used in financing activities(640,277)(1,447,732)
Effect of exchange rate changes on cash(175)— 
Net increase (decrease) in cash, cash equivalents, and restricted cash292,683 (321,060)
Cash, cash equivalents, and restricted cash, beginning of period958,395 1,222,601 
Cash, cash equivalents, and restricted cash, end of period$1,251,078 901,541 
Supplemental disclosures of cash flow information:
Cash disbursements made for interest$117,336 259,120 
Cash disbursements made for income taxes, net of refunds and credits received (a)$10,921 13,413 
Cash disbursements made for operating leases$6,003 9,457 
Non-cash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations$4,026 4,158 
Receipt of beneficial interest in consumer loan securitizations$23,506 52,501 
Distribution to noncontrolling interests$6,406 260 
Issuance of noncontrolling interests$2,082 — 
(a) The Company utilized $22.2 million and $17.0 million of federal and state tax credits related primarily to renewable energy during the nine months ended September 30, 2021 and 2020, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.
As ofAs ofAs ofAs of
September 30, 2021December 31, 2020September 30, 2020December 31, 2019
Total cash and cash equivalents$191,936 121,249 96,316 133,906 
Restricted cash764,089 553,175 519,143 650,939 
Restricted cash - due to customers295,053 283,971 286,082 437,756 
Cash, cash equivalents, and restricted cash$1,251,078 958,395 901,541 1,222,601 
See accompanying notes to consolidated financial statements.
8


NELNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise noted)
(unaudited)


1.  Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of September 30, 20172021 and for the three and nine months ended September 30, 20172021 and 20162020 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 20162020 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 20172021 are not necessarily indicative of the results for the year ending December 31, 2017.2021. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 20162020 (the "2016"2020 Annual Report").

Consolidation

The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

Variable Interest Entities
The following entities are VIEs of which the Company has determined that it is the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.
The Company's education lending subsidiaries are engaged in the securitization of education finance assets. These education lending subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the Company's education lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each education lending subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized assets held in its education lending subsidiaries and owns the residual interest of the securitization trusts. As a result, for accounting purposes, the transfers of student loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.
The Company owns 91.5 percent of the economic rights of Allo Communications LLC ("Allo") and has a disproportional 80 percent of the voting rights related to all operating decisions for Allo's business. Allo management, as current minority members, has the opportunity to earn an additional 11.5 percent of the total ownership interests based on the financial performance of Allo. In addition to the Company’s equity investment, Nelnet, Inc. (the parent) issued a $200.0 million line of credit to Allo on December 30, 2015. On September 30, 2017, the line of credit was increased by $70.0 million to a total of $270.0 million. As of September 30, 2017, the outstanding balance and accrued interest on the line of credit was $144.5 million and $4.6 million, respectively. Nelnet, Inc.’s maximum exposure to loss as a result of its involvement with Allo is equal to its equity investment and the outstanding balance and accrued interest on the line of credit. The amounts owed by Allo to Nelnet, Inc., including the interest costs incurred by Allo and interest earnings recognized by Nelnet, Inc., are not reflected in the Company’s consolidated balance sheet as they were eliminated in consolidation. All of Allo’s financial activities and related assets and liabilities, excluding the line of credit, are reflected in the Company’s consolidated financial statements. See note 10, "Segment Reporting," for disclosure of Allo's total assets and results of operations (included in the "Communications" operating segment), note 7, "Goodwill," for disclosure of Allo's goodwill, and note 8, “Property and Equipment,” for disclosure of Allo’s fixed assets. Allo's goodwill and property and equipment comprise the majority of its assets. The assets recognized as a result of consolidating Allo are the property of Allo and are not available for any other purpose, other than to Nelnet, Inc. as a secured lender under Allo's line of credit.


Noncontrolling Interest

Nelnet Servicing, LLC ("Nelnet Servicing"), a subsidiary of the Company, and Great Lakes Educational Loan Services, Inc. ("Great Lakes") created a joint venture to respond to the initiative announced by the U.S. Department of Education (the "Department") in April 2016 for the procurement of a contract for federal student loan servicing to acquire a single servicing platform to manage all loans owned by the Department.  The joint venture operates as a new legal entity called GreatNet Solutions, LLC (“GreatNet”).  Nelnet Servicing and Great Lakes each own 50 percent of the ownership interests in GreatNet.  See note 11 for additional information on the contract procurement process. 

During the first and third quarters of 2017, Nelnet Servicing and Great Lakes each contributed $12.6 million and $6.5 million, respectively, to GreatNet and during the first quarter of 2017 GreatNet began to incur certain operating costs. For financial reporting purposes, the balance sheet and operating results of GreatNet are included in the Company’s consolidated financial statements and presented in the Company’s Loan Systems and Servicing operating segment.  The proportionate share of membership interest (equity) and net loss of GreatNet that is attributable to Great Lakes is reflected as noncontrolling interests in the consolidated financial statements.

On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes. See note 14, "Subsequent Events" for additional information on this business acquisition agreement.

For a description of other entities in which the Company reflects noncontrolling interests in its consolidated financial statements, see note 2 of the notes to consolidated financial statements included in the 2016 Annual Report.

2.  Student Loans and Accrued Interest Receivable and Allowance for Loan Losses

Student loansLoans and accrued interest receivable consisted of the following:
As ofAs of
 September 30, 2021December 31, 2020
Non-Nelnet Bank:
Federally insured student loans:
Stafford and other$4,142,059 4,383,000 
Consolidation13,939,429 14,746,173 
Total18,081,488 19,129,173 
Private education loans319,212 320,589 
Consumer loans36,994 109,346 
Non-Nelnet Bank loans18,437,694 19,559,108 
Nelnet Bank:
Federally insured student loans93,930 — 
Private education loans98,395 17,543 
Nelnet Bank loans192,325 17,543 
 
Accrued interest receivable834,831 794,611 
Loan discount, net of unamortized loan premiums and deferred origination costs(22,603)(9,908)
Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans(115,859)(128,590)
Private education loans(17,053)(19,529)
Consumer loans(4,429)(27,256)
Non-Nelnet Bank allowance for loan losses(137,341)(175,375)
Nelnet Bank:
Federally insured loans(289)— 
Private education loans(414)(323)
Nelnet Bank allowance for loan losses(703)(323)
 $19,304,203 20,185,656 
 As of As of
 September 30, 2017 December 31, 2016
Federally insured loans:    
Stafford and other$4,534,588
  5,186,047
Consolidation17,952,696
  19,643,937
Total22,487,284
  24,829,984
Private education loans226,629
  273,659
 22,713,913

 25,103,643
Loan discount, net of unamortized loan premiums and deferred origination costs(119,572)  (129,507)
Non-accretable discount (a)(13,532)  (18,570)
Allowance for loan losses – federally insured loans(39,398)  (37,268)
Allowance for loan losses – private education loans(12,566)  (14,574)
 $22,528,845
  24,903,724

(a)For loans purchased where there is evidence of credit deterioration since the origination of the loan, the Company records a credit discount, separate from the allowance for loan losses, which is non-accretable to interest income.

On May 14, 2021 and September 29, 2021, the Company sold $77.4 million (par value) and $18.4 million (par value) of consumer loans, respectively, to an unrelated third party who securitized such loans. The Company recognizes student loan interest incomerecognized a gain of $15.3 million (pre-tax) and $3.2 million (pre-tax), respectively, as earned, netpart of amortization of loan premiums and deferred origination costs andthese transactions. As partial consideration received for the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits") and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of theconsumer loans which includes an estimate of forecasted payments in excess of contractually required payments. The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates. In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan.
In the third quarter of 2016,sold, the Company revised its policy to correct for an errorreceived a 24.5 percent and 6.9 percent residual interest, respectively, in its method of applying the interest method used to amortize premiums and deferred origination costs and accrete discounts on its studentconsumer loan portfolio. Previously, the Company amortized premiums and deferred origination costs and accreted discounts by including in its prepayment assumption


forecasted payments in excess of contractually required payments as well as forecasted defaults. The Company has determinedsecuritizations that only payments in excess of contractually required payments (excluding forecasted defaults) should beare included in the prepayment assumption. Under"investments" on the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. The constant prepayment rates under the Company's revised policy are 5 percent for Stafford loans and 3 percent for Consolidation loans. The constant prepayment rates under the Company's prior policy in effect before this correction were 6 percent and 4 percent, respectively. During the third quarter of 2016, the Company recorded an adjustment to reflect the cumulative net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discountconsolidated balance and a corresponding pre-tax increase to interest income. The Company concluded this error had an immaterial impact on 2016 results as well as the results for prior periods.sheet.

9


Activity in the Allowance for Loan Losses

The provision for loan losses representsfollowing table presents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of student loans. Activityactivity in the allowance for loan losses is shown below.by portfolio segment.
Balance at beginning of periodImpact of ASC 326 adoptionProvision (negative provision) for loan lossesCharge-offsRecoveriesInitial allowance on loans purchased with credit deterioration (a)Loan salesBalance at end of period
Three months ended September 30, 2021
Non-Nelnet Bank
Federally insured loans$120,802 — 4,452 (10,330)— 935 — 115,859 
Private education loans19,403 — (1,208)(954)113 — (301)17,053 
Consumer loans4,702 — 2,696 (1,133)187 — (2,023)4,429 
Nelnet Bank
Federally insured loans245 — 44 — — — — 289 
Private education loans567 — (157)— — — 414 
$145,719 — 5,827 (12,417)304 935 (2,324)138,044 
Three months ended September 30, 2020
Non-Nelnet Bank
Federally insured loans$144,829 — (5,299)(2,487)— 2,900 — 139,943 
Private education loans25,535 — (5,650)(5)133 — — 20,013 
Consumer loans39,081 — 5,128 (2,723)381 — (15,924)25,943 
$209,445 — (5,821)(5,215)514 2,900 (15,924)185,899 
Nine months ended September 30, 2021
Non-Nelnet Bank
Federally insured loans$128,590 — (3,428)(11,563)— 2,260 — 115,859 
Private education loans19,529 — (781)(1,850)454 — (299)17,053 
Consumer loans27,256 — (7,016)(4,547)668 — (11,932)4,429 
Nelnet Bank
Federally insured loans— — 289 — — — — 289 
Private education loans323 — 89 — — (2)414 
$175,698 — (10,847)(17,960)1,126 2,260 (12,233)138,044 
Nine months ended September 30, 2020
Non-Nelnet Bank
Federally insured loans$36,763 72,291 32,074 (14,885)— 13,700 — 139,943 
Private education loans9,597 4,797 6,471 (1,360)508 — — 20,013 
Consumer loans15,554 13,926 34,931 (9,893)849 — (29,424)25,943 
$61,914 91,014 73,476 (26,138)1,357 13,700 (29,424)185,899 
a) During the three months ended September 30, 2021 and 2020, and nine months ended September 30, 2021 and 2020, the Company acquired $64.6 million (par value), $137.5 million (par value), $153.3 million (par value), and $721.4 million (par value), respectively, of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company.
Beginning in March 2020, the coronavirus disease 2019 ("COVID-19") pandemic has caused significant disruptions in the U.S. and world economies. Apart from the impact of the adoption of ASC 326 effective January 1, 2020, the Company’s allowance for loan losses increased during the first quarter of 2020 primarily as a result of the COVID-19 pandemic and its effects on economic conditions. During the third quarter of 2020, the Company recognized a negative provision for loan losses due to management's estimate of certain continued improved economic conditions (including the improvement in certain macroeconomic variables (unemployment rates, gross domestic product, and consumer price index) used in the Company's loan loss models) in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of June 30, 2020.
For the three months ended September 30, 2021, charge-offs for the Company’s federally insured loan portfolio were $10.3 million. The increased level of charge-offs in the third quarter of 2021 as compared to historical periods was due to the Company proactively applying a 90 day natural disaster forbearance due to COVID-19 to any loan that was 31-269 days past due effective March 13, 2020 through June 30, 2020. Beginning July 1, 2020, the Company discontinued proactively applying
10


 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Balance at beginning of period$49,708
 48,753
 51,842
 50,498
Provision for loan losses:       
Federally insured loans7,000
 7,000
 11,000
 11,000
Private education loans(1,000) (1,000) (2,000) (500)
Total provision for loan losses6,000
 6,000
 9,000
 10,500
Charge-offs: 
  
    
Federally insured loans(3,464) (3,196) (8,870) (9,462)
Private education loans(491) (320) (861) (1,235)
Total charge-offs(3,955) (3,516) (9,731) (10,697)
Recoveries - private education loans161
 243
 603
 769
Purchase of private education loans
 30
 
 290
Transfer from repurchase obligation related to private education loans repurchased50
 60
 250
 210
Balance at end of period$51,964
 51,570
 51,964
 $51,570
        
Allocation of the allowance for loan losses:   
    
Federally insured loans$39,398
 37,028
 39,398
 37,028
Private education loans12,566
 14,542
 12,566
 14,542
Total allowance for loan losses$51,964
 51,570
 51,964
 51,570
90 day natural disaster forbearances on past due loans. Many loans that exited the natural disaster forbearance on July 1, 2020 have gone into default, been submitted to the guaranty agency, and been charged off by the Company during the third quarter of 2021.

During the nine months ended September 30, 2021, the Company recorded a negative provision for loan losses due to management's estimate of certain continued improved economic conditions as of September 30, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. These amounts were partially offset by the establishment of an initial allowance for loans originated and acquired during the period.





Student Loan Status and Delinquencies

The key credit quality indicators for the Company's federally insured, private education, and consumer loan portfolios are loan status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The table below shows the Company’s loan status and delinquency amounts.

As of September 30, 2021As of December 31, 2020As of September 30, 2020
Federally insured loans - Non-Nelnet Bank:    
Loans in-school/grace/deferment$909,228 5.0 % $1,036,028 5.4 % $1,037,754 5.4 %
Loans in forbearance1,826,082 10.1  1,973,175 10.3  1,916,906 10.0 
Loans in repayment status:  
Loans current13,525,751 88.1 %13,683,054 84.9 %14,845,519 91.7 %
Loans delinquent 31-60 days548,670 3.6 633,411 3.9 945,411 5.9 
Loans delinquent 61-90 days286,681 1.9 307,936 1.9 249,523 1.5 
Loans delinquent 91-120 days163,447 1.1 800,257 5.0 129,994 0.8 
Loans delinquent 121-270 days467,441 3.0 674,975 4.2 605 0.0 
Loans delinquent 271 days or greater354,188 2.3 20,337 0.1 19,867 0.1 
Total loans in repayment15,346,178 84.9 100.0 %16,119,970 84.3 100.0 %16,190,919 84.6 100.0 %
Total federally insured loans18,081,488 100.0 % 19,129,173 100.0 % 19,145,579 100.0 %
Accrued interest receivable831,142 791,453 757,960 
Loan discount, net of unamortized premiums and deferred origination costs(23,229)(14,505)(20,554)
Allowance for loan losses(115,859)(128,590)(139,943)
Total federally insured loans and accrued interest receivable, net of allowance for loan losses$18,773,542 $19,777,531 $19,743,042 
Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment$10,282 3.2 %$5,049 1.6 %$3,839 1.4 %
Loans in forbearance3,554 1.1 2,359 0.7 5,437 2.0 
Loans in repayment status:
Loans current300,231 98.3 %310,036 99.0 %261,514 98.8 %
Loans delinquent 31-60 days1,870 0.6 1,099 0.4 1,820 0.7 
Loans delinquent 61-90 days912 0.3 675 0.2 454 0.2 
Loans delinquent 91 days or greater2,363 0.8 1,371 0.4 743 0.3 
Total loans in repayment305,376 95.7 100.0 %313,181 97.7 100.0 %264,531 96.6 100.0 %
Total private education loans319,212 100.0 % 320,589 100.0 % 273,807 100.0 %
Accrued interest receivable2,076 2,131 1,960 
Loan discount, net of unamortized premiums(1,496)2,691 1,137 
Allowance for loan losses(17,053)(19,529)(20,013)
Total private education loans and accrued interest receivable, net of allowance for loan losses$302,739 $305,882 $256,891 
11


As of September 30, 2021As of December 31, 2020As of September 30, 2020
Consumer loans - Non-Nelnet Bank:Consumer loans - Non-Nelnet Bank:
Loans in defermentLoans in deferment$18 0.0 %$829 0.8 %$1,084 1.1 %
Loans in repayment status:Loans in repayment status:
Loans currentLoans current35,744 96.6 %105,650 97.4 %96,038 96.9 %
Loans delinquent 31-60 daysLoans delinquent 31-60 days319 0.9 954 0.9 1,044 1.1 
Loans delinquent 61-90 daysLoans delinquent 61-90 days243 0.7 804 0.7 776 0.8 
Loans delinquent 91 days or greaterLoans delinquent 91 days or greater670 1.8 1,109 1.0 1,238 1.2 
Total loans in repaymentTotal loans in repayment36,976 100.0 100.0 %108,517 99.2 100.0 %99,096 98.9 %100.0 %
Total consumer loansTotal consumer loans36,994 100.0 %109,346 100.0 %100,180 100.0 %
Accrued interest receivableAccrued interest receivable280 1,001 867 
Loan premiumLoan premium664 1,640 1,505 
Allowance for loan lossesAllowance for loan losses(4,429)(27,256)(25,943)
Total consumer loans and accrued interest receivable, net of allowance for loan lossesTotal consumer loans and accrued interest receivable, net of allowance for loan losses$33,509 $84,731 $76,609 
As of September 30, 2017 As of December 31, 2016 As of September 30, 2016
Federally insured loans:           
Federally insured loans - Nelnet Bank:Federally insured loans - Nelnet Bank:
Loans in-school/grace/deferment$1,448,172
   $1,606,468
   $1,864,323
  Loans in-school/grace/deferment$283 0.3 %
Loans in forbearance2,406,346
   2,295,367
   2,403,504
  Loans in forbearance1,722 1.8 
Loans in repayment status:           Loans in repayment status:
Loans current16,534,795
 88.7% 18,125,768
 86.6% 18,445,728
 86.8%Loans current91,366 99.4 %
Loans delinquent 31-60 days579,665
 3.1
 818,976
 3.9
 825,905
 3.9
Loans delinquent 31-60 days277 0.3 
Loans delinquent 61-90 days334,085
 1.8
 487,647
 2.3
 491,395
 2.3
Loans delinquent 61-90 days35 — 
Loans delinquent 91-120 days255,567
 1.4
 335,291
 1.6
 326,020
 1.5
Loans delinquent 91-120 days45 0.1 
Loans delinquent 121-270 days700,319
 3.8
 854,432
 4.1
 835,250
 3.9
Loans delinquent 121-270 days202 0.2 
Loans delinquent 271 days or greater228,335
 1.2
 306,035
 1.5
 350,808
 1.6
Loans delinquent 271 days or greater— — 
Total loans in repayment18,632,766
 100.0% 20,928,149
 100.0% 21,275,106
 100.0%Total loans in repayment91,925 97.9 100.0 %
Total federally insured loans$22,487,284
  
 $24,829,984
  
 $25,542,933
  Total federally insured loans93,930 100.0 %
Accrued interest receivableAccrued interest receivable1,177 
Loan premiumLoan premium28 
           
Private education loans:           
Allowance for loan lossesAllowance for loan losses(289)
Total federally insured loans and accrued interest receivable, net of allowance for loan lossesTotal federally insured loans and accrued interest receivable, net of allowance for loan losses$94,846 
Private education loans - Nelnet Bank:Private education loans - Nelnet Bank:
Loans in-school/grace/deferment$27,188
   $35,146
   $51,042
  Loans in-school/grace/deferment$82 0.1 %$— — %
Loans in forbearance2,904
   3,448
   1,770
  Loans in forbearance193 0.2 29 0.2 
Loans in repayment status:           Loans in repayment status:
Loans current190,153
 96.8% 228,612
 97.2% 217,108
 97.1%Loans current98,120 100.0 %17,514 100.0 %
Loans delinquent 31-60 days1,200
 0.6
 1,677
 0.7
 1,357
 0.6
Loans delinquent 31-60 days— — — — 
Loans delinquent 61-90 days1,195
 0.6
 1,110
 0.5
 1,228
 0.5
Loans delinquent 61-90 days— — — — 
Loans delinquent 91 days or greater3,989
 2.0
 3,666
 1.6
 3,927
 1.8
Loans delinquent 91 days or greater— — — — 
Total loans in repayment196,537
 100.0% 235,065
 100.0% 223,620
 100.0%Total loans in repayment98,120 99.7 100.0 %17,514 99.8 100.0 %
Total private education loans$226,629
  
 $273,659
  
 $276,432
  Total private education loans98,395 100.0 %17,543 100.0 %
Accrued interest receivableAccrued interest receivable156 26 
Deferred origination costsDeferred origination costs1,430 266 
Allowance for loan lossesAllowance for loan losses(414)(323)
Total private education loans and accrued interest receivable, net of allowance for loan lossesTotal private education loans and accrued interest receivable, net of allowance for loan losses$99,567 $17,512 




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

12


Amortized Cost Basis by Origination Year
The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of September 30, 2021 based on year of origination. Effective July 1, 2010, no new loan originations can be made under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP") and all new federal loan originations must be made under the Federal Direct Loan Program. As such, all the Company’s federally insured loans were originated prior to July 1, 2010.
Nine months ended September 30, 20212020201920182017Prior yearsTotal
Private education loans - Non-Nelnet Bank:
Loans in school/grace/deferment$1,310 2,202 4,572 — — 2,198 10,282 
Loans in forbearance— 649 657 180 — 2,068 3,554 
Loans in repayment status:
Loans current2,252 75,514 53,814 367 — 168,284 300,231 
Loans delinquent 31-60 days— 147 125 — — 1,598 1,870 
Loans delinquent 61-90 days— — — — — 912 912 
Loans delinquent 91 days or greater— — — — — 2,363 2,363 
Total loans in repayment2,252 75,661 53,939 367 — 173,157 305,376 
Total private education loans$3,562 78,512 59,168 547 — 177,423 319,212 
Accrued interest receivable2,076 
Loan discount, net of unamortized premiums(1,496)
Allowance for loan losses(17,053)
Total private education loans and accrued interest receivable, net of allowance for loan losses$302,739 
Consumer loans - Non-Nelnet Bank:
Loans in deferment$— — — 18 — — 18 
Loans in repayment status:
Loans current19,710 1,295 6,915 7,695 129 — 35,744 
Loans delinquent 31-60 days62 80 119 51 — 319 
Loans delinquent 61-90 days53 — 103 87 — — 243 
Loans delinquent 91 days or greater56 42 250 321 — 670 
Total loans in repayment19,881 1,417 7,387 8,154 137 — 36,976 
Total consumer loans$19,881 1,417 7,387 8,172 137 — 36,994 
Accrued interest receivable280 
Loan premium664 
Allowance for loan losses(4,429)
Total consumer loans and accrued interest receivable, net of allowance for loan losses$33,509 
Private education loans - Nelnet Bank:
Loans in school/grace/deferment$82 — — — — — 82 
Loans in forbearance193 — — — — — 193 
Loans in repayment status:
Loans current85,589 12,531 — — — — 98,120 
Loans delinquent 31-60 days— — — — — — — 
Loans delinquent 61-90 days— — — — — — — 
Loans delinquent 91 days or greater— — — — — — — 
Total loans in repayment85,589 12,531 — — — — 98,120 
Total private education loans$85,864 12,531 — — — — 98,395 
Accrued interest receivable156 
Deferred origination costs1,430 
Allowance for loan losses(414)
Total private education loans and accrued interest receivable, net of allowance for loan losses$99,567 

13


3.  Bonds and Notes Payable

The following tables summarize the Company’s outstanding debt obligations by type of instrument:
As of September 30, 2017 As of September 30, 2021
Carrying
amount
 
Interest rate
range
 Final maturity
Carrying
amount
Interest rate
range
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:     Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:   
Bonds and notes based on indices$20,675,881
 0.22% - 6.90% 8/25/21 - 9/25/65Bonds and notes based on indices$16,784,982 0.20% - 2.09%5/27/25 - 9/25/69
Bonds and notes based on auction781,276
 1.97% - 2.61% 3/22/32 - 11/26/46Bonds and notes based on auction450,300 0.00% - 2.15%3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes21,457,157
 Total FFELP variable-rate bonds and notes17,235,282 
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizationsFixed-rate bonds and notes issued in FFELP loan asset-backed securitizations860,434 1.42% - 3.45%10/25/67 - 8/27/68
FFELP warehouse facilities745,107
 1.23% - 1.37% 11/19/19 - 4/27/20FFELP warehouse facilities5,446 0.17%11/22/22 / 2/26/24
Variable-rate bonds and notes issued in private education loan asset-backed securitization84,881
 2.99% 12/26/40
Private education loan warehouse facilityPrivate education loan warehouse facility118,299 0.19%2/13/23
Variable-rate bonds and notes issued in private education loan asset-backed securitizationsVariable-rate bonds and notes issued in private education loan asset-backed securitizations35,648 1.65% / 1.84%12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization90,896
 3.60% / 5.35% 12/26/40 / 12/28/43Fixed-rate bonds and notes issued in private education loan asset-backed securitization30,409 3.60% / 5.35%12/26/40 / 12/28/43
Unsecured line of credit210,000
 2.74% 12/12/21Unsecured line of credit— 9/22/26
Unsecured debt - Junior Subordinated Hybrid Securities20,526
 4.71% 9/15/61
Other borrowings18,355
 3.38% 3/31/23 / 12/15/45
Participation agreementParticipation agreement194,190 0.78%5/4/22
Repurchase agreementsRepurchase agreements334,473 0.57% - 1.13%11/15/21 - 12/20/23
Secured line of creditSecured line of credit5,000 1.84%5/30/22
22,626,922
     18,819,181   
Discount on bonds and notes payable and debt issuance costs(386,643) Discount on bonds and notes payable and debt issuance costs(208,433)
Total$22,240,279
 Total$18,610,748 
 As of December 31, 2016
 
Carrying
amount
 
Interest rate
range
 Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:     
Bonds and notes based on indices$22,130,063
 0.24% - 6.90% 6/25/21 - 9/25/65
Bonds and notes based on auction998,415
 1.61% - 2.28% 3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes23,128,478
    
FFELP warehouse facilities1,677,443
 0.63% - 1.09% 9/7/18 - 12/13/19
Variable-rate bonds and notes issued in private education loan asset-backed securitization112,582
 2.60% 12/26/40
Fixed-rate bonds and notes issued in private education loan asset-backed securitization113,378
 3.60% / 5.35% 12/26/40 / 12/28/43
Unsecured line of credit
  12/12/21
Unsecured debt - Junior Subordinated Hybrid Securities50,184
 4.37% 9/15/61
Other borrowings18,355
 3.38% 3/31/23 / 12/15/45
 25,100,420
    
Discount on bonds and notes payable and debt issuance costs(431,930)    
Total$24,668,490
    


 As of December 31, 2020
Carrying
amount
Interest rate
range
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed securitizations:   
Bonds and notes based on indices$17,127,643 0.28% - 2.05%5/27/25 - 10/25/68
Bonds and notes based on auction749,925 1.12% - 2.14%3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes17,877,568 
Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations923,076 1.42% - 3.45%10/25/67 - 8/27/68
FFELP warehouse facilities252,165 0.27% / 0.31%5/20/22 / 2/26/23
Private education loan warehouse facility150,397 0.28%2/13/22
Consumer loan warehouse facility25,809 0.28%4/23/22
Variable-rate bonds and notes issued in private education loan asset-backed securitizations49,025 1.65% / 1.90%12/26/40 / 6/25/49
Fixed-rate bonds and notes issued in private education loan asset-backed securitization37,251 3.60% / 5.35%12/26/40 / 12/28/43
Unsecured line of credit120,000 1.65%12/16/24
Participation agreement118,558 0.84%5/4/21
Secured line of credit5,000 1.90%5/30/22
 19,558,849   
Discount on bonds and notes payable and debt issuance costs(238,123)
Total$19,320,726 




Asset-Backed Securitizations

The following table summarizes the asset-backed securitization transactions completed during the first nine months of 2017.
14

  NSLT 2017-1 NSLT 2017-2 Total
Date securities issued 5/24/17 7/26/17  
Total original principal amount $535,000
 399,390
 934,390
Bond discount 
 (2,002) (2,002)
Issue price $535,000
 397,388
 932,388
Cost of funds 1-month LIBOR plus 0.78% 1-month LIBOR plus 0.77%  
Final maturity date 6/25/65 9/25/65  


FFELP Warehouse Facilities

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

As of September 30, 2017,2021, the Company had three2 FFELP warehouse facilities as summarized below.
NFSLW-I (a)NHELP-II (b)Total
Maximum financing amount$60,000 50,000 110,000 
Amount outstanding5,446 — 5,446 
Amount available$54,554 50,000 104,554 
Expiration of liquidity provisionsNovember 22, 2021February 26, 2022
Final maturity dateNovember 22, 2022February 26, 2024
Advanced as equity support$328 115 443 

(a)    On May 20, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional six months to November 22, 2021 and November 22, 2022, respectively. On June 28, 2021, the maximum financing amount for this warehouse facility increased to $770.0 million, and on June 30, 2021 and July 27, 2021, the maximum financing amount decreased to $310.0 million and to $60 million, respectively.
(b)    On February 26, 2021, the Company extended the expiration of liquidity provisions and the maturity date for this warehouse facility an additional year to February 26, 2022 and February 26, 2024, respectively. On October 14, 2021, this facility was terminated.
Asset-Backed Securitizations
The following table summarizes the asset-backed securitization transactions completed by the Company during the first nine months of 2021.
NSLT 2021-1NSLT 2021-2Total
Date securities issued6/30/218/31/21
Total original principal amount$797,000 531,300 1,328,300 
Class A senior notes:
Total principal amount$781,000 520,600 1,301,600 
Cost of funds1-month LIBOR plus 0.50%1-month LIBOR plus 0.50%
Final maturity date7/25/699/25/69
Class B subordinated notes:
Total principal amount$16,000 10,700 26,700 
Cost of funds1-month LIBOR plus 1.25%1-month LIBOR plus 1.20%
Final maturity date7/25/699/25/69

Private Education Loan Warehouse Facility
During 2020, the Company obtained a private education loan warehouse facility that had an aggregate maximum financing amount available of $200.0 million. On February 12, 2021, the Company decreased the maximum financing amount available for this facility to $175.0 million and extended the liquidity provisions and final maturity date to February 13, 2022 and February 13, 2023, respectively. As of September 30, 2021, $118.3 million was outstanding under this warehouse facility and $56.7 million was available for future funding. The facility has an advance rate of 80 to 90 percent and, as of September 30, 2021, the Company had $12.9 million advanced as equity support under this facility.
Consumer Loan Warehouse Facility
The Company had a $100.0 million consumer loan warehouse facility. On March 31, 2021, the Company terminated this facility.
15

  NFSLW-I (a) NHELP-II NHELP-III (b) Total
Maximum financing amount $500,000
 500,000
 200,000
 1,200,000
Amount outstanding 307,425
 288,969
 148,713
 745,107
Amount available $192,575
 211,031
 51,287
 454,893
Expiration of liquidity provisions September 20, 2019
 December 15, 2017
 April 27, 2018
  
Final maturity date November 19, 2019
 December 13, 2019
 April 27, 2020
  
Maximum advance rates 92.0 - 98.0%
 85.0 - 95.0%
 92.2 - 95.0%
  
Minimum advance rates 84.0 - 90.0%
 85.0 - 95.0%
 92.2 - 95.0%
  
Advanced as equity support $4,747
 20,531
 3,163
 28,441


(a)On May 25, 2017 and August 18, 2017, the Company decreased the maximum financing amount for this warehouse facility by $175.0 million and $200.0 million, respectively. As of September 30, 2017, the maximum financing amount for this warehouse facility was $500.0 million, as reflected in this table. On September 22, 2017, the Company amended the agreement for this warehouse facility, which changed the expiration date for the liquidity provisions to September 20, 2019 and changed the final maturity date to November 19, 2019.

(b)On April 3, 2017, the Company entered into a letter agreement for this warehouse facility to decrease the maximum financing amount from $750.0 million to $600.0 million. On April 28, 2017, the Company amended the agreement for this warehouse facility, which changed the expiration date for the liquidity provisions to April 27, 2018 and changed the final maturity date to April 27, 2020. On May 5, 2017, May 25, 2017, and June 2, 2017, the Company decreased the maximum financing amount for this warehouse facility by $200.0 million, $100.0 million, and $100.0 million, respectively. As of September 30, 2017, the maximum financing amount for this warehouse facility was $200.0 million, as reflected in this table.

Unsecured Line of Credit

TheOn September 22, 2021, the Company has a $350.0 millionamended its existing unsecured line of credit that has acredit. Under the amended terms, the following provisions of the facility were modified:
The maturity date was extended from December 16, 2024 to September 22, 2026.
The facility size increased from $455.0 million to $495.0 million. The amended terms also increased the accordion feature of December 12, 2021.  the facility to provide that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 million.
The cost of funds decreased 25.0 basis points and 2.5 basis points for drawn and undrawn amounts, respectively, based on the Company's current credit ratings. The amended terms also include customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available.
The provisions for secured recourse indebtedness were expanded to increase the limit on the aggregate amount of secured recourse indebtedness from 5 percent of the Company's consolidated net worth to 10 percent.
The provisions for permitted investments were expanded to increase the aggregate amount of permitted investments from 40 percent of the Company's consolidated net worth to 50 percent.
The provisions for loans owned by the Company other than federally insured FFELP student loans were revised to replace the limit of $850.0 million on non-FFELP loans owned by the Company with a limit of 50 percent of the Company's consolidated net worth on non-FFELP loans owned by the Company with FICO scores of less than 700.
As of September 30, 2017, $210.0 million2021, no amount was outstanding on the line of credit and $140.0$495.0 million was available for future use.

Participation Agreement

The Company has an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in FFELP loan asset-backed securities. As of September 30, 2021, $194.2 million of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. The Company can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $100.0 million or an amount in excess of $100.0 million if mutually agreed to by both parties. The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities. As such, the FFELP loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing.
Repurchase Agreements
On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by private education loan asset-backed securities. The first agreement has maturity dates of November 20, 2023 and December 20, 2023, or earlier if either party provides 180 days’ prior written notice, and the second agreement has a maturity date of November 15, 2021. The Company incurs interest on amounts outstanding under these agreements based on three-month LIBOR plus an applicable spread. Under the first agreement, the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date, and under the second agreement, the Company could be subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities and the counter-party provides notice requiring such payment. Included in “bonds and notes payable” as of September 30, 2021 was $223.8 million subject to the first agreement and $110.6 million subject to the second agreement.
See note 5 for additional information about the private education loan asset-backed securities investments serving as collateral for these repurchase agreements.
Accrued Interest Liability
During the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which liability the Company determined 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 on bonds and notes payable and bank deposits" in the consolidated statements of income.

16


Debt Repurchases

The following table summarizes the Company's repurchases of its own debt. GainsGains/losses recorded by the Company from the repurchase of debt are included in "gain from debt repurchases""other" in "other income/expense" on the Company's consolidated statements of income.
Three months ended September 30,Nine months ended September 30,
2021202020212020
Purchase price$(184,827)(6,054)(205,269)(7,572)
Par value184,781 6,163 204,597 8,090 
Remaining unamortized cost of issuance(3,222)(4)(3,292)(10)
(Loss) gain$(3,268)105 (3,964)508 
 Par value Purchase price Gain Par value Purchase price Gain
 Three months ended
 September 30, 2017 September 30, 2016
   Asset-backed securities$14,702
 14,586
 116
 10,965
 8,805
 2,160
            
 Nine months ended
 September 30, 2017 September 30, 2016
Unsecured debt - Hybrid Securities (a)$29,658
 25,241
 4,417
 
 
 
   Asset-backed securities18,790
 17,670
 1,120
 11,362
 9,102
 2,260
 $48,448
 42,911
 5,537
 11,362
 9,102
 2,260


(a)During the three months ended March 31, 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding Hybrid Securities, including a related consent solicitation to effect certain amendments to the indenture governing the notes to eliminate a provision requiring a minimum principal amount of the notes to remain outstanding after a partial redemption. After the completion of this tender offer, the Company has $20.5 million of Hybrid Securities that remain outstanding. In addition, the amendments described above have been made to the indenture.

4.  Derivative Financial Instruments

The Company uses derivative financial instruments primarily to manage interest rate risk and foreign currency exchange risk. Derivative instruments used as part of the Company's risk management strategy are further described in note 56 of the notes to consolidated financial statements included in the 20162020 Annual Report. A tabular presentation of such derivatives outstanding as of September 30, 20172021 and December 31, 20162020 is presented below.

Basis Swaps

The following table summarizes the Company’s outstanding basis swaps as of September 30, 2021 and December 31, 2020, in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
MaturityNotional amount
As ofAs of
September 30, 2021December 31, 2020
2021$— 250,000 
20222,000,000 2,000,000 
2023750,000 750,000 
20241,750,000 1,750,000 
20261,150,000 1,150,000 
2027250,000 250,000 
$5,900,000 6,150,000 
  As of September 30, As of December 31,
  2017 2016
Maturity Notional amount Notional amount
2018 $4,000,000
 $
2019 3,000,000
 
2024 250,000
 
2026 1,150,000
 1,150,000
2027 375,000
 
2028 325,000
 325,000
2029 100,000
 
2031 300,000
 300,000
  $9,500,000
 $1,775,000

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 20172021 and December 31, 20162020 was one-month LIBOR plus 13.49.1 basis points and 10.1 basis points, respectively.points.

17



Interest Rate Swaps – Floor Income Hedges

The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans earning fixed rate floor income.
As of September 30, 2021As of December 31, 2020
MaturityNotional amountWeighted average fixed rate paid by the Company (a)Notional amountWeighted average fixed rate paid by the Company (a)
2021$100,000 2.95 %$600,000 2.15 %
2022500,000 0.94 500,000 0.94 
2023900,000 0.62 900,000 0.62 
20242,500,000 0.35 2,000,000 0.32 
2025500,000 0.35 500,000 0.35 
2026300,000 0.81 — — 
2031100,000 1.53 — — 
 $4,900,000 0.56 %$4,500,000 0.70 %
  As of September 30, 2017 As of December 31, 2016
Maturity Notional amount Weighted average fixed rate paid by the Company (a) Notional amount Weighted average fixed rate paid by the Company (a)
    
2017 $
 % $750,000
 0.99%
2018 1,350,000
 1.07
 1,350,000
 1.07
2019 3,250,000
 0.97
 3,250,000
 0.97
2020 1,500,000
 1.01
 1,500,000
 1.01
2025 100,000
 2.32
 100,000
 2.32
  $6,200,000
 1.02% $6,950,000
 1.02%


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

On August 20, 2014, the Company paid $9.1 million for an interest rate swap option to economically hedge loans earning fixed rate floor income. The interest rate swap option gives the Company the right, but not the obligation, to enter into a $250.0 million notional interest rate swap in which the Company would pay a fixed amount of 3.30% and receivereceives discrete one-monththree-month LIBOR. If the interest rate swap option is exercised, the swap would become effective in 2019 and mature in 2024.

Interest Rate Caps

In June 2015, in conjunction with the entry into a $275.0 million private education loan warehouse facility, the Company paid $2.9 million for two interest rate cap contracts with a total notional amount of $275.0 million. The first interest rate cap had a notional amount of $125.0 million and a one-month LIBOR strike rate of 2.50%, and the second interest rate cap had a notional amount of $150.0 million and a one-month LIBOR strike rate of 4.99%. In the event that the one-month LIBOR rate rose above the applicable strike rate, the Company would receive monthly payments related to the spread difference. Both interest rate cap contracts had a maturity date of July 15, 2020. The private education loan warehouse facility was terminated by the Company on December 21, 2016. During the first quarter of 2017, the Company received $913,000 to terminate the interest rate cap contracts that were held in the private education loan warehouse legal entity and paid $929,000 to enter into new interest rate cap contracts with identical terms at Nelnet, Inc. (the parent company). The Company currently intends to keep these derivatives outstanding to partially mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate.

Interest Rate Swaps – Unsecured Debt Hedges

As of September 30, 2017 and December 31, 2016, the Company had $20.5 million and $50.2 million, respectively, of unsecured Hybrid Securities outstanding. The interest rate on the Hybrid Securities through September 29, 2036 is equal to three-month LIBOR plus 3.375%, payable quarterly. The Company had the following derivatives outstanding as of September 30, 2017 and December 31, 2016 that are used to effectively convert the variable interest rate on a designated notional amount with respect to the Hybrid Securities to a fixed rate of 7.66%.
Maturity Notional amount Weighted average fixed rate paid by the Company (a)
2036 $25,000
 4.28%
(a)For all interest rate derivatives, the Company receives discrete three-month LIBOR.

Foreign Currency Exchange Risk

In 2006, the Company issued €352.7 million of student loan asset-backed Euro Notes (the "Euro Notes") with an interest rate based on a spread to the EURIBOR index. As a result of the Euro Notes, the Company was exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. dollar and Euro. The principal and accrued interest on these notes have been re-measured at each reporting period and recorded in the Company’s consolidated balance sheet in U.S. dollars based


on the foreign currency exchange rate on that date. Changes in the principal and accrued interest amounts as a result of foreign currency exchange rate fluctuations have been included in the Company’s consolidated statements of income.

The Company entered into a cross-currency interest rate swap in connection with the issuance of the Euro Notes. Under the terms of the cross-currency interest rate swap, the Company has received from the counterparty a spread to the EURIBOR index based on a notional amount of €352.7 million and has paid a spread to the LIBOR index based on a notional amount of $450.0 million.

The following table shows the unrealized income statement impact as a result of the re-measurement of the Euro Notes and the change in the fair value of the related derivative instrument.
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Re-measurement of Euro Notes$(13,683) (4,831) (45,635) (13,543)
Change in fair value of cross-currency interest rate swap16,257
 5,501
 44,831
 26,194
Total impact to consolidated statements of income - income (expense) (a)$2,574
 670
 (804) 12,651
(a)The financial statement impact of the above items is included in "Derivative market value and foreign currency transaction adjustments and derivative settlements, net" in the Company's consolidated statements of income.
Management structured the cross-currency interest rate swap to economically hedge the Euro Notes to effectively convert the notes to U.S. dollars and pay a spread on these notes based on the LIBOR index. However, the cross-currency interest rate swap did not qualify for hedge accounting. The re-measurement of the Euro-denominated bonds generally correlated with the change in the fair value of the corresponding cross-currency interest rate swap. However, the Company experienced unrealized gains and losses between these financial instruments due to the principal and accrued interest on the Euro Notes being re-measured to U.S. dollars at each reporting date based on the foreign currency exchange rate on that date, while the cross-currency interest rate swap was measured at fair value at each reporting date with the change in fair value recognized in the current period earnings.
On October 25, 2017, the Company completed a remarketing of the Euro Notes which reset the principal amount outstanding on the Euro Notes to $450.0 million U.S. dollars, with an interest rate based on the 3-month LIBOR index, and resulted in the termination of the cross-currency interest rate swap. See note 14, “Subsequent Events” for additional information on this remarketing.

Consolidated Financial Statement Impact Related to Derivatives

Effective June 10, 2013, all over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse.  Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance - Statements of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default. 

Prior to January 3, 2017, the Company accounted for variation margin payments to the CME as collateral against its derivative position.  As such, these payments were treated as a separate unit of account from the derivative instrument and reported as a liability for cash collateral received and an asset (restricted cash) for cash collateral paid.  Effective January 3, 2017, the CME amended its rulebooks to legally characterize variation margin payments for over-the-counter derivatives they clear as settlements of the derivatives’ exposure rather than collateral against the exposure.  Based on these rulebook changes, for accounting and presentation purposes, the Company considers variation margin and the corresponding derivative instrument as a single unit of account.  As such, effective January 3, 2017, the variation margin received or paid is no longer accounted for separately as a liability or asset ("collateralized-to-market").  Instead, these payments are considered in determining the fair value of the centrally cleared derivative portfolio ("settled-to-market").  The principal difference for accounting and presentation purposes is that prior to January 3, 2017, the Company recorded the fair value of collateralized-to-market derivative contracts on its balance sheet as "fair value of derivative instruments" with an equal amount of variation margin collateral accounted for separately as an asset or liability. Subsequent to January 3, 2017, the Company records settled-to-market derivative contracts on its balance sheet with a fair value of zero and no collateral posted due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis, and records the underlying daily changes in the market value of such derivative contracts that result in such receipts or payments on its income statement as realized derivative market value adjustments in "Derivative market value and foreign currency transaction adjustments and derivative settlements, net."



The new clearinghouse requirements did not alter or affect the accounting and presentation of the Company’s derivative instruments executed prior to June 10, 2013 and those derivatives that are not required to be cleared at a clearinghouse (non-centrally cleared derivatives). The Company records these derivative instruments in the consolidated balance sheets on a gross basis as either an asset or liability measured at its fair value. Certain non-centrally cleared derivatives are subject to right of offset provisions with counterparties.  For these derivatives, the Company does not offset fair value amounts executed with the same counterparty under a master netting arrangement. In addition, the Company does not offset fair value amounts recognized for derivative instruments with respect to the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable).

Balance Sheet

The following table summarizes the fair value of the Company’s derivatives as reflected in the consolidated balance sheets:
 Fair value of asset derivatives Fair value of liability derivatives
 As of As of As of As of
 September 30,
2017
 December 31,
2016
 September 30,
2017
 December 31,
2016
1:3 basis swaps$
 
 
 2,624
Interest rate swaps - floor income hedges
 81,159
 
 256
Interest rate swap option - floor income hedge765
 2,977
 
 
Interest rate caps231
 1,152
 
 
Interest rate swaps - hybrid debt hedges
 
 7,332
 7,341
Cross-currency interest rate swap


 22,773
 67,605
Other
 2,243
 
 
Total$996
 87,531
 30,105
 77,826

During the second quarter of 2017, the Company received proceeds of $2.1 million from the termination of derivatives that were included in "other" in the preceding table.

Offsetting of Derivative Assets/Liabilities

The following tables include the gross amounts related to the Company's derivative portfolio recognized in the consolidated balance sheets, reconciled to the net amount when excluding derivatives subject to enforceable master netting arrangements and cash collateral received/pledged.
    Gross amounts not offset in the consolidated balance sheets  
Derivative assets Gross amounts of recognized assets presented in the consolidated balance sheets Derivatives subject to enforceable master netting arrangement Cash collateral pledged Net asset
Balance as of
September 30, 2017
 $996
 
 
 996
Balance as of
December 31, 2016
 87,531
 (2,880) 475
 85,126
    Gross amounts not offset in the consolidated balance sheets  
Derivative liabilities Gross amounts of recognized liabilities presented in the consolidated balance sheets Derivatives subject to enforceable master netting arrangement Cash collateral pledged Net liability
Balance as of
September 30, 2017
 $(30,105) 
 8,470
 (21,635)
Balance as of
December 31, 2016
 (77,826) 2,880
 7,292
 (67,654)



Income Statement Impact

The following table summarizes the components of "derivative market value and foreign currency transaction adjustments and derivative settlements, net" included in the consolidated statements of income.
Three months ended September 30,Nine months ended September 30,
 2021202020212020
Settlements:  
1:3 basis swaps$(700)1,197 (939)10,438 
Interest rate swaps - floor income hedges(5,209)(3,588)(14,648)(2,772)
Total settlements - (expense) income(5,909)(2,391)(15,587)7,666 
Change in fair value:  
1:3 basis swaps1,061 (161)2,755 (1,475)
Interest rate swaps - floor income hedges6,199 3,601 41,700 (19,597)
Total change in fair value - income (expense)7,260 3,440 44,455 (21,072)
Derivative market value adjustments and derivative settlements, net - income (expense)$1,351 1,049 28,868 (13,406)
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Settlements: 
  
    
1:3 basis swaps$(2,172) 523
 (1,836) 938
Interest rate swaps - floor income hedges3,883
 (5,157) 5,877
 (15,241)
Interest rate swaps - hybrid debt hedges(191) (233) (593) (696)
Cross-currency interest rate swap(2,093) (1,394) (5,762) (3,293)
Total settlements - (expense) income(573) (6,261) (2,314) (18,292)
Change in fair value: 
  
    
1:3 basis swaps5,916
 140
 (5,499) 323
Interest rate swaps - floor income hedges(185) 42,073
 (13,670) (17,913)
Interest rate swap option - floor income hedge(500) (269) (2,212) (2,541)
Interest rate caps(103) (68) (936) (1,283)
Interest rate swaps - hybrid debt hedges44
 13
 10
 (4,000)
Cross-currency interest rate swap16,257
 5,501
 44,831
 26,194
Other
 (297) (143) (2,336)
Total change in fair value - income (expense)21,429
 47,093
 22,381
 (1,556)
Re-measurement of Euro Notes (foreign currency transaction adjustment) - (expense) income(13,683) (4,831) (45,635) (13,543)
Derivative market value and foreign currency transaction adjustments and derivative settlements, net - income (expense)$7,173
 36,001
 (25,568) (33,391)


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

The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility. The Company’s initial contribution to the limited partnership was $71.1 million. In conjunction with the establishment of the limited partnership, the parties provided additional funding commitments to the partnership, in the event additional funding became necessary after the initial purchase of loans. In accordance with GAAP, the Company’s carrying value of its investment in the limited partnership is accounted for under the equity method of accounting, is reduced by cash distributions and the fair value of its portion of loans transferred into securitizations, and can be less than zero or negative because of the potential future contributions pursuant to the funding commitment. The Company’s carrying value of its investment in the limited partnership, which is included in "Venture capital and funds - equity method" in the table below, is
18


also impacted by the amount of the Company’s proportionate share of the net earnings or losses of the partnership. For the nine months ended September 30, 2021, the Company’ proportionate share of losses of this partnership was $5.0 million, which reduced the carrying value of this investment (and is included as an expense in "other" in "other income/expense" on the consolidated statements of income).
On May 20, 2021, June 30, 2021, and August 18, 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $7.4 billion of the private education loans purchased by the joint venture. Cash distributions and the fair value of the Company’s portion of loans securitized as a result of these securitizations was $40.6 million and $43.3 million, respectively, which reduced the Company’s carrying value of its limited partnership investment. The Company records its ownership in the residual interest of securitization transactions used to permanently finance the loans at fair value as held-to-maturity beneficial interest investments, and such investments are reflected in the table below as “beneficial interest in private education loan securitizations, including accrued interest.”
See the caption "Subsequent Events" below for information regarding an event on October 27, 2021 impacting the Company's investment in the joint venture limited partnership.
On behalf of the joint venture, the Company is the sponsor and administrator for the loan securitizations completed by the joint venture. As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are included in “private education loan asset-backed securities – available for sale” in the table below and as of September 30, 2021, the fair value of these bonds was $371.7 million. The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell its investment securities (bonds) to a third party. The Company entered into repurchase agreements with third-parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations. See note 3 for additional information about these repurchase agreements.

19


A summary of the Company's investments follows:
As of September 30, 2021As of December 31, 2020
Amortized costGross unrealized gainsGross unrealized lossesFair valueAmortized costGross unrealized gainsGross unrealized lossesFair value
Investments (at fair value):
FFELP loan asset-backed securities- available-for-sale (a)$387,777 15,932 (49)403,660 338,475 8,040 (13)346,502 
Private education loan asset-backed securities - available-for-sale (b)369,859 1,865 — 371,724 — — — — 
Other debt securities - available-for-sale2,337 — — 2,337 2,103 — 2,105 
Equity securities58,336 13,302 (1,594)70,044 36,227 8,768 (2,954)42,041 
Total investments (at fair value)$818,309 31,099 (1,643)847,765 376,805 16,810 (2,967)390,648 
Other Investments (not measured at fair value):
Venture capital and funds:
Measurement alternative (c)151,100 144,795 
Equity method37,020 14,018 
Other804 894 
Total venture capital and funds188,924 159,707 
Real estate
Equity method35,605 50,291 
Notes receivable3,500 847 
Total real estate39,105 51,138 
Investment in ALLO:
Voting interest/equity method (d)97,776 129,396 
Preferred membership interest and accrued and unpaid preferred return (e)135,300 228,916 
Total investment in ALLO233,076 358,312 
Solar (f)(46,539)(30,373)
Beneficial interest in private education loan securitizations, including accrued interest (g)44,902 — 
Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $4,449 as of December 31, 2020 (g)37,021 27,954 
Beneficial interest in federally insured student loan securitizations (g)26,904 30,377 
Tax liens and affordable housing3,755 5,177 
Total investments (not measured at fair value)527,148 602,292 
Total investments$1,374,913 $992,940 

(a)    As of September 30, 2021, $194.2 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union Bank. See note 3 for additional information.
(b)    As of September 30, 2021, a total of $370.4 million (par value) of private education loan asset-backed securities were subject to repurchase agreements with third-parties. See note 3 for additional information.
(c)    The Company has an investment in Agile Sports Technologies, Inc. (doing business as “Hudl”) that is included in “venture capital and funds” in the above table. On May 27, 2021, the Company made an additional equity investment of approximately $5 million in Hudl, as one of the participants in an equity raise completed by Hudl. Prior to the additional 2021 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20%, which did not materially change as a result of this transaction. The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions. For accounting purposes, the May 2021 equity raise transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities and the price was contractually agreed to during Hudl's prior May 2020 equity raise. Accordingly, the Company did not adjust its carrying value of its Hudl investment to the May 2021 transaction value. As of September 30, 2021, the carrying amount of the Company's investment in Hudl is $133.9 million.
David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.
See the caption "Subsequent Events" below for information regarding an event on October 15, 2021 impacting another investment accounted for using the measurement alternative method.
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(d)    The Company accounts for its voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the Hypothetical Liquidation at Book Value ("HLBV") method of accounting. The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the Company’s share of the earnings or losses from the equity investment for the period. Because the Company will be able to utilize certain tax losses related to ALLO’s operations, the equity investment agreements for the Company have liquidation rights and priorities that are sufficiently different from the voting membership interests percentages such that the HLBV method of accounting was deemed appropriate. Accordingly, the recognition of earnings or losses during any reporting period related to the Company’s equity investment in ALLO may or may not reflect its voting membership interests percentage and could vary substantially from those calculated based on the Company’s voting membership interests in ALLO.
During the three and nine months ended September 30, 2021, the Company recognized losses of $10.5 million and $31.6 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment.
Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers. The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP. Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years. Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income.
(e)    As of September 30, 2021, the outstanding preferred membership interests and accrued and unpaid preferred return of ALLO held by the Company was $129.7 million and $5.6 million, respectively. The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent. During the three and nine months ended September 30, 2021, the Company recognized income on its ALLO preferred membership interests of $2.0 million and $6.4 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income.
On January 19, 2021, ALLO obtained certain private debt financing facilities from unrelated third-party lenders providing for aggregate financing of up to $230.0 million. With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership interests held by the Company in exchange for an aggregate redemption price payment to the Company of $100.0 million. Under October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.
(f)    The Company makes investments in entities that promote renewable energy sources (solar). The Company's investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other receivables follows:tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years. As of September 30, 2021, the Company has funded a total of $181.4 million in solar investments, which includes $24.5 million funded by syndication partners. The carrying value of the Company's solar investments are reduced by tax credits earned when the solar project is placed in service. The solar investment balance at September 30, 2021 represents the result of total tax credits earned on solar projects placed in service through September 30, 2021 being larger than total payments made by the Company on such projects. The Company is committed to fund an additional $74.0 million on these projects, of which $55.9 million will be provided by syndication partners.
The Company accounts for its solar investments using the HLBV method of accounting. For the majority of the Company's solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment. During the three months ended September 30, 2021 and 2020, the Company recognized pre-tax losses of $3.4 million and $11.8 million, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recognized pre-tax losses of $7.4 million and $12.6 million, respectively, on its solar investments. These losses are included in "other" in "other income/expense" on the consolidated statements of income.
(g)    The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations. As of the latest remittance reports filed by the various trusts prior to September 30, 2021, the Company's ownership correlates to approximately $545 million, $250 million, and $485 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations.
During the first quarter of 2020, the Company recorded a $26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations due to distressed economic conditions resulting from the COVID-19 pandemic. Due to improved economic conditions, the Company has reduced the allowance for credit losses related to the consumer loan beneficial interests, including reducing such allowance by $2.4 million during the first quarter of 2021. As of March 31, 2021, the Company no longer has an allowance for credit losses associated with the consumer loan beneficial interests. The activity related to the allowance for credit losses related to the consumer loan beneficial interests is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of income.
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 As of September 30, 2017 As of December 31, 2016
 Amortized cost Gross unrealized gains Gross unrealized losses (a) Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value
        
Investments (at fair value):               
Available-for-sale investments:               
Student loan asset-backed and other debt securities (b)$68,010
 4,768
 (240) 72,538
 98,260
 6,280
 (641) 103,899
Equity securities756
 2,140
 (21) 2,875
 720
 1,930
 (61) 2,589
Total available-for-sale investments$68,766
 6,908
 (261) 75,413
 98,980
 8,210
 (702) 106,488
Trading investments - equity securities      
       105
Total available-for-sale and trading investments      75,413
       106,593
Other Investments and Other Receivables (not measured at fair value):            
Venture capital and funds      84,903
       69,789
Notes and loans receivable      56,732
       17,031
Real estate      49,567
       48,379
Tax liens and affordable housing      9,921
       12,352
Total investments and other receivables      $276,536
       254,144
Subsequent Events
(a)
As of September 30, 2017, the aggregate fair value of available-for-sale investments with unrealized losses was $2.7 million, of which $0.4 million had been in a continuous unrealized loss position for greater than 12 months. Because the Company currently has the intent and ability to retain these investments for an anticipated recovery in fair value, as of September 30, 2017, the Company considered the decline in market value of its available-for-sale investments to be temporary in nature and did not consider any of its investments other-than-temporarily impaired.

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

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

(b)
As of September 30, 2017, the stated maturities of substantially all of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years.

6. Intangible Assets net

Intangible assets consistconsisted of the following:
Weighted average remaining useful life as of
September 30, 2021 (months)
As ofAs of
September 30, 2021December 31, 2020
Amortizable intangible assets, net:  
Customer relationships (net of accumulated amortization of $94,767 and $83,419, respectively)105$50,525 66,974 
Computer software (net of accumulated amortization of $3,143 and $4,127, respectively)274,651 6,430 
Trade names (net of accumulated amortization of $3,455)— 1,666 
Total - amortizable intangible assets, net98$55,176 75,070 
  Weighted average remaining useful life as of September 30, 2017 (months) As of September 30, 2017 As of December 31, 2016
 
 Amortizable intangible assets, net:   
 Customer relationships (net of accumulated amortization of $11,704 and $8,548, respectively)162 $25,179
 28,335
 Trade names (net of accumulated amortization of $2,287 and $1,653, respectively)180 9,285
 9,919
 Computer software (net of accumulated amortization of $8,929 and $5,675, respectively)17 6,042
 9,296
 Covenants not to compete (net of accumulated amortization of $118 and $91, respectively)80 236
 263
 Total - amortizable intangible assets, net144 $40,742
 47,813


The Company recorded amortization expense on its intangible assets of $2.3$3.3 million and $3.2$8.0 million during the three months ended September 30, 20172021 and 2016,2020, respectively, and $7.1$19.9 million and $8.4$22.8 million during the nine months ended September 30, 20172021 and 2016,2020, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of September 30, 2017,2021, the Company estimates it will record amortization expense as follows:

2021 (October 1 - December 31)$3,147 
20229,939 
20239,830 
20247,457 
20254,644 
2026 and thereafter20,159 
 $55,176 

22
2017 (October 1 - December 31)$2,315
20188,605
20195,147
20204,231
20213,480
2022 and thereafter16,964
 $40,742



7. Goodwill

The carrying amount of goodwill as of September 30, 2021 and December 31, 2016 and September 30, 20172020 by reportable operating segment was as follows:
Loan Servicing and SystemsEducation Technology, Services, and Payment ProcessingAsset Generation and ManagementNelnet BankCorporate and Other ActivitiesTotal
Goodwill balance$23,639 76,570 41,883 — — 142,092 
 Loan Systems and Servicing Tuition Payment Processing and Campus Commerce Communications Asset Generation and Management Corporate and Other Activities Total
Goodwill balance$8,596
 67,168
 21,112
 41,883
 8,553
 147,312




8. Property and Equipment

Property and equipment consisted of the following:
As ofAs of
 
As of
September 30, 2017
 
As of
December 31, 2016
Useful lifeSeptember 30, 2021December 31, 2020
Useful life 
Non-communications:    
Computer equipment and software1-5 years $108,430
 97,317
Computer equipment and software1-5 years$220,509 172,664 
Building and building improvements5-39 years 25,283
 13,363
Building and building improvements5-48 years46,018 52,444 
Office furniture and equipment3-7 years 14,357
 12,344
Office furniture and equipment1-10 years23,819 21,899 
Leasehold improvements5-20 years 6,496
 3,579
Leasehold improvements1-15 years9,330 9,168 
Transportation equipment4-10 years 3,813
 3,809
Transportation equipment5-10 years4,857 4,857 
Land 2,605
 1,682
Land3,642 3,642 
Construction in progress 14,025
 16,346
Construction in progress3,783 18,478 
 175,009
 148,440
311,958 283,152 
Accumulated depreciation - non-communications 104,430
 91,285
Non-communications, net property and equipment 70,579
 57,155
    
Communications:    
Network plant and fiber5-15 years 83,870
 40,844
Customer located property5-10 years 10,987
 5,138
Central office5-15 years 8,476
 6,448
Transportation equipment4-10 years 5,011
 2,966
Computer equipment and software1-5 years 3,318
 2,026
Other1-39 years 2,285
 1,268
Land 70
 70
Construction in progress 35,709
 12,537
 149,726
 71,297
Accumulated depreciation - communications 11,864
 4,666
Communications, net property and equipment 137,862
 66,631
Accumulated depreciationAccumulated depreciation(194,662)(159,625)
Total property and equipment, net $208,441
 123,786
Total property and equipment, net$117,296 123,527 
The Company recorded depreciation expense on its property and equipment of $7.7$12.4 million and $5.8$22.3 million during the three months ended September 30, 20172021 and 2016,2020, respectively, and $20.6$36.2 million and $16.4$64.6 million during the nine months ended September 30, 20172021 and 2016,2020, respectively.

Impairment charges

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

23


9.  Earnings per Common Share

Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.
 Three months ended September 30,
20212020
Common shareholdersUnvested restricted stock shareholdersTotalCommon shareholdersUnvested restricted stock shareholdersTotal
Numerator:
Net income attributable to Nelnet, Inc.$52,245 893 53,138 70,483 1,020 71,503 
Denominator:
Weighted-average common shares outstanding - basic and diluted37,947,257 648,464 38,595,721 37,988,584 549,892 38,538,476 
Earnings per share - basic and diluted$1.38 1.38 1.38 1.86 1.86 1.86 
Nine months ended September 30,
20212020
Common shareholdersUnvested restricted stock shareholdersTotalCommon shareholdersUnvested restricted stock shareholdersTotal
Numerator:
Net income attributable to Nelnet, Inc.$256,416 4,187 260,603 115,794 1,658 117,452 
Denominator:
Weighted-average common shares outstanding - basic and diluted38,025,898 620,994 38,646,892 38,676,092 553,840 39,229,932 
Earnings per share - basic and diluted$6.74 6.74 6.74 2.99 2.99 2.99 

24
 Three months ended September 30,
 2017 2016
 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:           
Net income attributable to Nelnet, Inc.$45,850
 453
 46,303
 83,419
 875
 84,294
     

      
Denominator:

 

 

      
Weighted-average common shares outstanding - basic and diluted41,146,424
 406,892
 41,553,316
 42,199,580
 442,633
 42,642,213
Earnings per share - basic and diluted$1.11
 1.11
 1.11
 1.98
 1.98
 1.98



 Nine months ended September 30,
 2017 2016
 Common shareholders Unvested restricted stock shareholders Total Common shareholders Unvested restricted stock shareholders Total
Numerator:           
Net income attributable to Nelnet, Inc.$123,816
 1,249
 125,065
 156,749
 1,656
 158,405
            
Denominator:           
Weighted-average common shares outstanding - basic and diluted41,634,578
 419,954
 42,054,532
 42,340,867
 447,266
 42,788,133
Earnings per share - basic and diluted$2.97
 2.97
 2.97
 3.70
 3.70
 3.70





10.  Segment Reporting

See note 1415 of the notes to consolidated financial statements included in the 20162020 Annual Report for a description of the Company's operating segments. The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.
 Three months ended September 30, 2021
Loan Servicing and SystemsEducation Technology, Services, and Payment ProcessingCommunications (a)Asset
Generation and
Management
Nelnet BankCorporate and Other ActivitiesEliminationsTotal
Total interest income$31 344 — 131,781 2,061 2,609 (172)136,654 
Interest expense24 — — 48,662 421 1,242 (172)50,176 
Net interest income344 — 83,119 1,640 1,367 — 86,478 
Less provision (negative provision) for loan losses— — — 5,940 (113)— — 5,827 
Net interest income after provision for loan losses344 — 77,179 1,753 1,367 — 80,651 
Other income/expense:
Loan servicing and systems revenue112,351 — — — — — — 112,351 
Intersegment revenue8,621 — — — — (8,624)— 
Education technology, services, and payment processing revenue— 85,324 — — — — — 85,324 
Communications revenue— — — — — — — — 
Other727 13 — (7,275)450 17,952 — 11,867 
Gain on sale of loans— — — 3,444 — — — 3,444 
Impairment expense and provision for beneficial interests, net(13,243)— — — — (916)— (14,159)
Derivative settlements, net— — — (5,909)— — — (5,909)
Derivative market value adjustments, net— — — 7,260 — — — 7,260 
Total other income/expense108,456 85,340 — (2,480)450 17,036 (8,624)200,178 
Cost of services:
Cost to provide education technology, services, and payment processing services— 31,335 — — — — — 31,335 
Cost to provide communications services— — — — — — — — 
Total cost of services— 31,335 — — — — — 31,335 
Operating expenses:
Salaries and benefits75,305 29,119 — 542 890 22,735 — 128,592 
Depreciation and amortization4,245 2,762 — — — 8,702 — 15,710 
Other expenses12,738 4,804 — 5,420 445 14,918 — 38,324 
Intersegment expenses, net19,217 3,672 — 8,652 32 (22,949)(8,624)— 
Total operating expenses111,505 40,357 — 14,614 1,367 23,406 (8,624)182,626 
Income (loss) before income taxes(3,042)13,992 — 60,085 836 (5,003)— 66,868 
Income tax (expense) benefit (b)730 (3,358)— (14,421)(200)1,600 — (15,649)
Net income (loss)(2,312)10,634 — 45,664 636 (3,403)— 51,219 
Net loss (income) attributable to noncontrolling interests— — — — — 1,919 — 1,919 
Net income (loss) attributable to Nelnet, Inc.$(2,312)10,634 — 45,664 636 (1,484)— 53,138 
Total assets as of September 30, 2021$238,602 415,178 — 20,001,997 413,155 1,740,060 (406,253)22,402,739 

(a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements. See note 2 of the notes to consolidated financial statements included in the 2020 Annual Report for a description of the transaction and a summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021.
(b) Income taxes for the Nelnet Bank operating segment reflect Nelnet Bank's actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. Income taxes for all other operating segments are allocated based on 24% of that segment's income before taxes. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.
25


Three months ended September 30, 2017 Three months ended September 30, 2020
Loan Systems and Servicing Tuition Payment Processing and Campus Commerce Communications Asset
Generation and
Management
 Corporate and Other Activities Eliminations TotalLoan Servicing and SystemsEducation Technology, Services, and Payment ProcessingCommunicationsAsset
Generation and
Management
Nelnet Bank (a)Corporate and Other ActivitiesEliminationsTotal
Total interest income$147
 5
 1
 194,968
 3,903
 (2,139) 196,884
Total interest income$34 367 — 137,959 — 1,646 (261)139,745 
Interest expense
 
 1,551
 121,074
 1,165
 (2,139) 121,650
Interest expense24 16 — 57,755 — 888 (261)58,423 
Net interest income147
 5
 (1,550) 73,894
 2,738
 
 75,234
Net interest income10 351 — 80,204 — 758 — 81,322 
Less provision for loan losses
 
 
 6,000
 
 
 6,000
Net interest income (loss) after provision for loan losses147

5
 (1,550) 67,894
 2,738
 
 69,234
Other income: 
  
    
  
  
  
Loan systems and servicing revenue55,950
 
 
 
 
 
 55,950
Intersegment servicing revenue10,563
 
 
 
 
 (10,563) 
Tuition payment processing, school information, and campus commerce revenue
 35,450
 
 
 
 
 35,450
Less provision (negative provision) for loan lossesLess provision (negative provision) for loan losses— — — (5,821)— — — (5,821)
Net interest income after provision for loan lossesNet interest income after provision for loan losses10 351 — 86,025 — 758 — 87,143 
Other income/expense:Other income/expense:
Loan servicing and systems revenueLoan servicing and systems revenue113,794 — — — — — — 113,794 
Intersegment revenueIntersegment revenue8,287 — — — — (8,290)— 
Education technology, services, and payment processing revenueEducation technology, services, and payment processing revenue— 74,121 — — — — — 74,121 
Communications revenue
 
 6,751
 
 
 
 6,751
Communications revenue— — 20,211 — — — — 20,211 
Other income
 
 
 2,753
 17,003
 
 19,756
Gain from debt repurchases
 
 
 116
 
 
 116
OtherOther2,353 373 511 1,004 — (2,737)— 1,502 
Gain on sale of loansGain on sale of loans— — — 14,817 — — — 14,817 
Impairment expense and provision for beneficial interests, netImpairment expense and provision for beneficial interests, net— — — — — — — — 
Derivative settlements, net
 
 
 (382) (191) 
 (573)Derivative settlements, net— — — (2,391)— — — (2,391)
Derivative market value and foreign currency transaction adjustments, net
 
 
 7,702
 44
 
 7,746
Total other income66,513
 35,450
 6,751
 10,189
 16,856
 (10,563) 125,196
Derivative market value adjustments, netDerivative market value adjustments, net— — — 3,440 — — — 3,440 
Total other income/expenseTotal other income/expense124,434 74,497 20,722 16,870 — (2,737)(8,290)225,494 
Cost of services:Cost of services:
Cost to provide education technology, services, and payment processing servicesCost to provide education technology, services, and payment processing services— 25,243 — — — — — 25,243 
Cost to provide communications servicesCost to provide communications services— — 5,914 — — — — 5,914 
Total cost of servicesTotal cost of services— 25,243 5,914 — — — — 31,157 
Operating expenses: 
  
      
    
Operating expenses:
Salaries and benefits38,435
 17,432
 4,099
 392
 13,834
 
 74,193
Salaries and benefits72,912 25,460 5,485 438 — 21,801 — 126,096 
Depreciation and amortization549
 2,316
 3,145
 
 4,040
 
 10,051
Depreciation and amortization9,951 2,366 11,152 — — 6,839 — 30,308 
Loan servicing fees
 
 
 7,939
 
 
 7,939
Cost to provide communications services
 
 2,632
 
 
 
 2,632
Other expenses10,317
 4,224
 2,278
 1,451
 12,248
 
 30,518
Other expenses12,407 3,126 2,219 3,672 — 13,320 — 34,744 
Intersegment expenses, net7,774
 2,219
 470
 10,659
 (10,559) (10,563) 
Intersegment expenses, net15,834 3,610 491 8,868 — (20,513)(8,290)— 
Total operating expenses57,075
 26,191
 12,624
 20,441
 19,563
 (10,563) 125,333
Total operating expenses111,104 34,562 19,347 12,978 — 21,447 (8,290)191,148 
Income (loss) before income taxes9,585
 9,264
 (7,423) 57,642
 31
 
 69,097
Income (loss) before income taxes13,340 15,043 (4,539)89,917 — (23,426)— 90,332 
Income tax (expense) benefit(4,937) (3,520) 2,821
 (21,904) 1,978
 
 (25,562)Income tax (expense) benefit(3,201)(3,610)1,089 (21,580)— 8,146 — (19,156)
Net income (loss)4,648
 5,744
 (4,602) 35,738
 2,009
 
 43,535
Net income (loss)10,139 11,433 (3,450)68,337 — (15,280)— 71,176 
Net loss (income) attributable to noncontrolling interests3,408
 
 
 
 (640) 
 2,768
Net loss (income) attributable to noncontrolling interests— — — — — 327 — 327 
Net income (loss) attributable to Nelnet, Inc.$8,056
 5,744
 (4,602) 35,738
 1,369
 
 46,303
Net income (loss) attributable to Nelnet, Inc.$10,139 11,433 (3,450)68,337 — (14,953)— 71,503 
             
Total assets as of September 30, 2017$98,555
 208,290
 179,206
 23,724,413
 863,700
 (305,454) 24,768,710
Total assets as of September 30, 2020Total assets as of September 30, 2020$211,726 382,608 305,276 20,686,478 — 770,621 (134,183)22,222,526 



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

26


Three months ended September 30, 2016Nine months ended September 30, 2021
Loan Systems and Servicing Tuition Payment Processing and Campus Commerce Communications 
Asset
Generation and
Management
 Corporate and Other
Activities
 Eliminations TotalLoan Servicing and SystemsEducation Technology, Services, and Payment ProcessingCommunications (a)Asset
Generation and
Management
Nelnet BankCorporate and Other ActivitiesEliminationsTotal
Total interest income$37
 2
 
 194,701
 2,370
 (930) 196,181
Total interest income$95 818 — 388,149 5,479 5,379 (578)399,341 
Interest expense
 
 318
 95,383
 1,615
 (930) 96,386
Interest expense70 — — 124,282 1,007 3,158 (578)127,939 
Net interest income37
 2
 (318) 99,318
 755
 
 99,795
Net interest income25 818 — 263,867 4,472 2,221 — 271,402 
Less provision for loan losses
 
 
 6,000
 
 
 6,000
Net interest income (loss) after provision for loan losses37
 2
 (318) 93,318
 755
 
 93,795
Other income: 
  
    
  
  
  
Loan systems and servicing revenue54,350
 
 
 
 
 
 54,350
Intersegment servicing revenue11,021
 
 
 
 
 (11,021) 
Tuition payment processing, school information, and campus commerce revenue
 33,071
 
 
 
 
 33,071
Less provision (negative provision) for loan lossesLess provision (negative provision) for loan losses— — — (11,225)378 — — (10,847)
Net interest income after provision for loan lossesNet interest income after provision for loan losses25 818 — 275,092 4,094 2,221 — 282,249 
Other income/expense:Other income/expense:
Loan servicing and systems revenueLoan servicing and systems revenue335,961 — — — — — — 335,961 
Intersegment revenueIntersegment revenue25,369 — — — — (25,378)— 
Education technology, services, and payment processing revenueEducation technology, services, and payment processing revenue— 257,284 — — — — — 257,284 
Communications revenue
 
 4,343
 
 
 
 4,343
Communications revenue— — — — — — — — 
Enrollment services revenue
 
 
 
 
 
 
Other income
 
 
 4,265
 10,886
 
 15,150
Gain from debt repurchases
 
 
 2,160
 
 
 2,160
OtherOther2,541 13 — (4,514)475 31,668 — 30,183 
Gain on sale of loansGain on sale of loans— — — 18,715 — — — 18,715 
Impairment expense and provision for beneficial interests, netImpairment expense and provision for beneficial interests, net(13,243)— — 2,436 — (1,416)— (12,223)
Derivative settlements, net
 
 
 (6,028) (233) 
 (6,261)Derivative settlements, net— — — (15,587)— — — (15,587)
Derivative market value and foreign currency transaction adjustments, net
 
 
 42,546
 (284) 
 42,262
Total other income65,371
 33,071
 4,343
 42,943
 10,369
 (11,021) 145,075
Derivative market value adjustments, netDerivative market value adjustments, net— — — 44,455 — — — 44,455 
Total other income/expenseTotal other income/expense350,628 257,306 — 45,505 475 30,252 (25,378)658,788 
Cost of services:Cost of services:
Cost to provide education technology, services, and payment processing servicesCost to provide education technology, services, and payment processing services— 80,063 — — — — — 80,063 
Cost to provide communications servicesCost to provide communications services— — — — — — — — 
Total cost of servicesTotal cost of services— 80,063 — — — — — 80,063 
Operating expenses: 
  
    
  
 .
  
Operating expenses:
Salaries and benefits32,505
 15,979
 2,325
 486
 12,448
 
 63,743
Salaries and benefits210,151 82,154 — 1,594 3,956 65,496 — 363,351 
Depreciation and amortization557
 2,929
 1,630
 
 3,878
 
 8,994
Depreciation and amortization20,411 8,789 — — — 26,927 — 56,129 
Loan servicing fees
 
 
 5,880
 
 
 5,880
Cost to provide communications services
 
 1,784
 
 
 
 1,784
Cost to provide enrollment services
 
 
 
 
 
 
Other expenses8,784
 4,149
 1,545
 1,769
 10,143
 
 26,391
Other expenses39,296 14,063 — 12,763 1,227 40,265 — 107,611 
Intersegment expenses, net5,825
 1,616
 279
 11,146
 (7,845) (11,021) 
Intersegment expenses, net52,241 10,856 — 25,627 72 (63,419)(25,378)— 
Total operating expenses47,671
 24,673
 7,563
 19,281
 18,624
 (11,021) 106,792
Total operating expenses322,099 115,862 — 39,984 5,255 69,269 (25,378)527,091 
Income (loss) before income taxes17,737
 8,400
 (3,538) 116,980
 (7,500) 
 132,078
Income (loss) before income taxes28,554 62,199 — 280,613 (686)(36,796)— 333,883 
Income tax (expense) benefit(6,740) (3,192) 1,344
 (44,571) 5,443
 
 (47,715)
Income tax (expense) benefit (b)Income tax (expense) benefit (b)(6,853)(14,928)— (67,347)151 12,230 — (76,747)
Net income (loss)10,997
 5,208
 (2,194) 72,409
 (2,057) 
 84,363
Net income (loss)21,701 47,271 — 213,266 (535)(24,566)— 257,136 
Net loss (income) attributable to noncontrolling interests
 
 
 
 (69) 
 (69)Net loss (income) attributable to noncontrolling interests— — — — — 3,467 — 3,467 
Net income (loss) attributable to Nelnet, Inc.$10,997
 5,208
 (2,194) 72,409
 (2,126) 
 84,294
Net income (loss) attributable to Nelnet, Inc.$21,701 47,271 — 213,266 (535)(21,099)— 260,603 
             
Total assets as of September 30, 2016$79,418
 190,682
 90,361
 26,888,950
 687,347
 (267,147) 27,669,611
Total assets as of September 30, 2021Total assets as of September 30, 2021$238,602 415,178 — 20,001,997 413,155 1,740,060 (406,253)22,402,739 



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


(b) Income taxes for the Nelnet Bank operating segment reflect Nelnet Bank's actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation. Income taxes for all other operating segments are allocated based on 24% of that segment's income before taxes. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.
27


Nine months ended September 30, 2017Nine months ended September 30, 2020
Loan Systems and Servicing Tuition Payment Processing and Campus Commerce Communications Asset
Generation and
Management
 Corporate and Other Activities Eliminations TotalLoan Servicing and SystemsEducation Technology, Services, and Payment ProcessingCommunicationsAsset
Generation and
Management
Nelnet Bank (a)Corporate and Other ActivitiesEliminationsTotal
Total interest income$361
 10
 2
 568,661
 10,026
 (5,274) 573,786
Total interest income$403 2,777 — 474,468 — 4,397 (1,228)480,818 
Interest expense
 
 3,367
 340,898
 2,794
 (5,274) 341,787
Interest expense97 54 — 275,492 — 3,373 (1,228)277,788 
Net interest income361
 10
 (3,365) 227,763
 7,232
 
 231,999
Net interest income306 2,723 — 198,976 — 1,024 — 203,030 
Less provision for loan losses
 
 
 9,000
 
 
 9,000
Net interest income (loss) after provision for loan losses361

10
 (3,365) 218,763
 7,232
 
 222,999
Other income: 
  
    
  
  
  
Loan systems and servicing revenue167,079
 
 
 
 
 
 167,079
Intersegment servicing revenue30,839
 
 
 
 
 (30,839) 
Tuition payment processing, school information, and campus commerce revenue
 113,293
 
 
 
 
 113,293
Less provision (negative provision) for loan lossesLess provision (negative provision) for loan losses— — — 73,476 — — — 73,476 
Net interest income after provision for loan lossesNet interest income after provision for loan losses306 2,723 — 125,500 — 1,024 — 129,554 
Other income/expense:Other income/expense:
Loan servicing and systems revenueLoan servicing and systems revenue337,571 — — — — — — 337,571 
Intersegment revenueIntersegment revenue27,878 17 — — — — (27,895)— 
Education technology, services, and payment processing revenueEducation technology, services, and payment processing revenue— 217,100 — — — — — 217,100 
Communications revenue
 
 17,577
 
 
 
 17,577
Communications revenue— — 57,390 — — — — 57,390 
Other income
 
 
 9,152
 35,722
 
 44,874
Gain from debt repurchases
 
 
 1,097
 4,440
 
 5,537
OtherOther6,897 373 1,256 4,951 — 56,435 — 69,910 
Gain on sale of loansGain on sale of loans— — — 33,023 — — — 33,023 
Impairment expense and provision for beneficial interests, netImpairment expense and provision for beneficial interests, net— — — (26,303)— (8,116)— (34,419)
Derivative settlements, net
 
 
 (1,721) (593) 
 (2,314)Derivative settlements, net— — — 7,666 — — — 7,666 
Derivative market value and foreign currency transaction adjustments, net
 
 
 (23,121) (133) 
 (23,254)
Total other income197,918
 113,293
 17,577
 (14,593) 39,436
 (30,839) 322,792
Derivative market value adjustments, netDerivative market value adjustments, net— — — (21,072)— — — (21,072)
Total other income/expenseTotal other income/expense372,346 217,490 58,646 (1,735)— 48,319 (27,895)667,169 
Cost of services:Cost of services:
Cost to provide education technology, services, and payment processing servicesCost to provide education technology, services, and payment processing services— 63,424 — — — — — 63,424 
Cost to provide communications servicesCost to provide communications services— — 17,240 — — — — 17,240 
Total cost of servicesTotal cost of services— 63,424 17,240 — — — — 80,664 
Operating expenses: 
  
      
    
Operating expenses:
Salaries and benefits116,932
 50,986
 10,489
 1,156
 41,121
 
 220,684
Salaries and benefits211,806 73,678 16,471 1,301 — 61,964 — 365,220 
Depreciation and amortization1,644
 7,053
 7,880
 
 11,109
 
 27,687
Depreciation and amortization27,941 7,115 32,482 — — 19,811 — 87,349 
Loan servicing fees
 
 
 19,584
 
 
 19,584
Cost to provide communications services
 
 6,789
 
 
 
 6,789
Other expenses28,333
 14,072
 5,422
 4,269
 32,497
 
 84,593
Other expenses43,277 11,544 9,681 12,253 — 38,428 — 115,184 
Intersegment expenses, net23,496
 6,430
 1,472
 31,114
 (31,673) (30,839) 
Intersegment expenses, net48,069 10,366 1,650 29,839 — (62,030)(27,895)— 
Total operating expenses170,405
 78,541
 32,052
 56,123
 53,054
 (30,839) 359,337
Total operating expenses331,093 102,703 60,284 43,393 — 58,173 (27,895)567,753 
Income (loss) before income taxes27,874
 34,762
 (17,840) 148,047
 (6,386) 
 186,454
Income (loss) before income taxes41,559 54,086 (18,878)80,372 — (8,830)— 148,306 
Income tax (expense) benefit(14,410) (13,210) 6,779
 (56,258) 6,749
 
 (70,349)Income tax (expense) benefit(9,974)(12,981)4,531 (19,289)— 7,426 — (30,286)
Net income (loss)13,464
 21,552
 (11,061) 91,789
 363
 
 116,105
Net income (loss)31,585 41,105 (14,347)61,083 — (1,404)— 118,020 
Net loss (income) attributable to noncontrolling interests10,050
 
 
 
 (1,090) 
 8,960
Net loss (income) attributable to noncontrolling interests— — — — — (568)— (568)
Net income (loss) attributable to Nelnet, Inc.$23,514
 21,552
 (11,061) 91,789
 (727) 
 125,065
Net income (loss) attributable to Nelnet, Inc.$31,585 41,105 (14,347)61,083 — (1,972)— 117,452 
             
Total assets as of September 30, 2017$98,555
 208,290
 179,206
 23,724,413
 863,700
 (305,454) 24,768,710
Total assets as of September 30, 2020Total assets as of September 30, 2020$211,726 382,608 305,276 20,686,478 — 770,621 (134,183)22,222,526 



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



28


 Nine months ended September 30, 2016
 Loan Systems and Servicing Tuition Payment Processing and Campus Commerce Communications Asset
Generation and
Management
 Corporate and Other Activities Eliminations Total
Total interest income$80
 7
 1
 570,390
 6,527
 (2,556) 574,449
Interest expense
 
 671
 278,029
 4,702
 (2,556) 280,847
Net interest income80
 7
 (670) 292,361
 1,825
 
 293,602
Less provision for loan losses
 
 
 10,500
 
 
 10,500
Net interest income (loss) after provision for loan losses80

7
 (670) 281,861
 1,825
 
 283,102
Other income: 
  
    
  
  
  
Loan systems and servicing revenue161,082
 
 
 
 
 
 161,082
Intersegment servicing revenue34,436
 
 
 
 
 (34,436) 
Tuition payment processing, school information, and campus commerce revenue
 102,211
 
 
 
 
 102,211
Communications revenue
 
 13,167
 
 
 
 13,167
Enrollment services revenue
 
 
 
 4,326
 
 4,326
Other income
 
 
 12,362
 26,349
 
 38,711
Gain from debt repurchases
 
 
 2,260
 
 
 2,260
Derivative settlements, net
 
 
 (17,596) (696) 
 (18,292)
Derivative market value and foreign currency transaction adjustments, net
 
 
 (8,763) (6,336) 
 (15,099)
Total other income195,518
 102,211
 13,167
 (11,737) 23,643
 (34,436) 288,366
Operating expenses: 
  
      
    
Salaries and benefits96,851
 45,859
 4,792
 1,504
 38,902
 
 187,907
Depreciation and amortization1,440
 7,711
 4,137
 
 11,528
 
 24,817
Loan servicing fees
 
 
 20,024
 
 
 20,024
Cost to provide communications services
 
 5,169
 
 
 
 5,169
Cost to provide enrollment services
 
 
 
 3,623
 
 3,623
Other expenses31,635
 13,122
 3,110
 4,766
 31,540
 
 84,174
Intersegment expenses, net18,168
 4,690
 610
 34,791
 (23,823) (34,436) 
Total operating expenses148,094
 71,382
 17,818
 61,085
 61,770
 (34,436) 325,714
Income (loss) before income taxes47,504
 30,836
 (5,321) 209,039
 (36,302) 
 245,754
Income tax (expense) benefit(18,052) (11,718) 2,022
 (79,434) 19,998
 
 (87,184)
Net income (loss)29,452
 19,118
 (3,299) 129,605
 (16,304) 
 158,570
  Net loss (income) attributable to noncontrolling interests
 
 
 
 (165) 
 (165)
Net income (loss) attributable to Nelnet, Inc.$29,452
 19,118
 (3,299) 129,605
 (16,469) 
 158,405
              
Total assets as of September 30, 2016$79,418
 190,682
 90,361
 26,888,950
 687,347
 (267,147) 27,669,611




11. Disaggregated Revenue
The following tables provides disaggregated revenue by service offering and/or customer type for the Company's fee-based reportable operating segments (except ALLO).
Loan Servicing and Systems
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Government servicing - Nelnet$37,595 36,295 107,843 112,305 
Government servicing - Great Lakes46,489 45,350 133,654 137,010 
Private education and consumer loan servicing13,198 7,928 34,563 24,733 
FFELP servicing4,557 4,912 13,930 15,443 
Software services6,952 10,426 22,779 32,395 
Outsourced services3,560 8,883 23,192 15,685 
Loan servicing and systems revenue$112,351 113,794 335,961 337,571 

Education Technology, Services, and Payment Processing
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Tuition payment plan services$23,618 22,477 79,706 77,011 
Payment processing39,852 35,420 97,898 88,329 
Education technology and services21,098 15,840 78,153 50,820 
Other756 384 1,527 940 
Education technology, services, and payment processing revenue$85,324 74,121 257,284 217,100 

Other Income/Expense
The following table provides the components of "other" in "other income/expense" on the consolidated statements of income:
Three months ended September 30,Nine months ended September 30,
2021202020212020
Income/gains from investments, net$16,050 1,687 40,141 51,772 
Investment advisory services2,400 4,463 6,242 8,187 
ALLO preferred return2,043 — 6,384 — 
Management fee revenue727 2,353 2,541 6,897 
Borrower late fee income514 871 1,698 4,377 
Loss from ALLO voting membership interest investment(10,495)— (31,620)— 
Loss from solar investments(3,393)(11,839)(7,375)(12,638)
(Loss) gain on debt repurchased(3,268)105 (3,964)508 
Other7,289 3,862 16,136 10,807 
$11,867 1,502 30,183 69,910 

29


12.  Major Customer
TheNelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc. ("Great Lakes"), subsidiaries of the Company, earnseach earn loan servicing revenue from a servicing contract with the Department that currently is set to expire on June 16, 2019. Revenueof Education (the "Department"). Revenues earned by the Company's Loan SystemsNelnet Servicing and Servicing operating segmentGreat Lakes related to this contract was $38.6these contracts are set forth in the "Government servicing - Nelnet" and "Government servicing - Great Lakes" line items of the "Loan Servicing and Systems" table in note 11. As of September 30, 2021, Nelnet Servicing and Great Lakes serviced 5.8 million and $40.27.8 million forborrowers, respectively, under their contracts with the three months ended September 30, 2017Department.
In June 2021, Nelnet Servicing and 2016, respectively, and $117.4 million and $112.5 million for the nine months ended September 30, 2017 and 2016, respectively. In April 2016,Great Lakes each received a contract modification from the Department announcedpursuant to which the Department exercised its option to extend the student loan servicing contracts between the Department and each of Nelnet Servicing and Great Lakes from June 14, 2021 through December 14, 2021. In September 2021, Nelnet Servicing and Great Lakes each entered into contract amendments with the Department, pursuant to which the student loan servicing contracts were extended from December 14, 2021 through December 14, 2023.
In 2017, the Department initiated a new contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the Department to acquire a single servicing platform to manageof all student loans owned by the Department.

In May 2016, Nelnet Servicing, a subsidiary The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the Company, and Great Lakes submitted a joint response to the procurement as part of a newly created joint venture to respond to the contract solicitationNextGen process, and to provide services under aincluding that any new contract in the event that the Department selects it for a contract award. The joint venture operates as a new legal entity called GreatNet. Nelnet Servicing and Great Lakes each own 50 percent of the ownership interests of GreatNet. In addition to Nelnet Servicing, Great Lakes is currently one of four large private sector companies (referred to as Title IV Additional Servicers, or "TIVAS") that has afederal student loan servicing contract with the Departmentenvironment is required to provide servicing for loans owned by the Department. On May 19, 2017,participation of multiple student loan servicers and the Department announced it had amendedallocation of borrower accounts to eligible student loan servicers based on performance. Nelnet cannot predict the timing, nature, or ultimate outcome of the NextGen or any other contract procurement process which required another response by the participants, and on July 7, 2017, GreatNet submitted its response to the Department.

On August 1, 2017, the Department announced it was canceling the current procurement process for a single servicing platform and that it intends to develop a new contract procurement proposal. The Department indicated that its new approach is expected to require separate contract acquisitions for database housing, system processing, and customer account servicing.

30

On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes. See note 14, "Subsequent Events" for additional information on this business acquisition agreement.


12. Related Parties

The Company has entered into certain contractual arrangements with related parties as described in note 19 of the notes to consolidated financial statements included in the 2016 Annual Report. The following provides an update for related party transactions that occurred during the first nine months of 2017.

Transactions with Union Bank and Trust Company

During the three and nine months ended September 30, 2017, the Company purchased $2.4 million (par value) and $7.3 million (par value), respectively, of consumer loans from Union Bank and Trust Company. The Company's investment in consumer loans is included in "investments and other receivables" in the Company's consolidated balance sheet.

Transactions with Agile Sports Technologies, Inc. (doing business as "Hudl")

David Graff, who currently serves as an independent director on the Company's Board of Directors, is CEO, co-founder, and a director of Hudl. On July 7, 2017, the Company made an additional $10.4 million preferred stock investment in Hudl as part of a significantly larger equity financing by Hudl. Prior to this investment, the Company and Michael Dunlap, the Company's Executive Chairman and a principal shareholder, made separate equity investments in Hudl. The additional preferred stock investment made by the Company in July 2017 slightly increased the Company's direct and indirect equity ownership in Hudl. The Company's and Mr. Dunlap's direct and indirect equity ownership interests in Hudl consist of preferred stock with certain liquidation preferences that are considered substantive. Accordingly, for accounting purposes, the Company's and Mr. Dunlap's equity ownership interests are not considered in-substance common stock and the Company is accounting for its equity investment in Hudl under the cost method. The Company's investment in Hudl is included in "investments and other receivables" in the Company's consolidated balance sheet.



13.  Fair Value

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. There were no transfers into or out

 As of September 30, 2021As of December 31, 2020
 Level 1Level 2TotalLevel 1Level 2Total
Assets:   
Investments:
FFELP loan asset-backed debt securities - available-for-sale$— 403,660 403,660 — 346,502 346,502 
Private education loan asset-backed debt securities - available-for-sale— 371,724 371,724 — — — 
Other debt securities - available-for-sale100 2,237 2,337 103 2,002 2,105 
Equity securities (a)61,573 — 61,573 10,114 — 10,114 
Equity securities measured at net asset value (b)8,471 31,927 
Total investments61,673 777,621 847,765 10,217 348,504 390,648 
Total assets$61,673 777,621 847,765 10,217 348,504 390,648 
(a) As of level 1, level 2, or level 3 for the nine months ended September 30, 2017.2021, $41.6 million and $20.0 million of equity securities were classified as trading and available-for-sale, respectively. All equity securities as of December 31, 2020 were classified as available-for-sale.
 As of September 30, 2017 As of December 31, 2016
 Level 1 Level 2 Total Level 1 Level 2 Total
Assets:           
Investments (available-for-sale and trading):    

      
Student loan and other asset-backed securities$
 72,427
 72,427
 
 103,780
 103,780
Equity securities2,875
 
 2,875
 2,694
 
 2,694
Debt securities111
 
 111
 119
 
 119
Total investments (available-for-sale and trading)2,986
 72,427
 75,413
 2,813
 103,780
 106,593
Derivative instruments
 996
 996
 
 87,531
 87,531
Total assets$2,986
 73,423
 76,409
 2,813
 191,311
 194,124
Liabilities: 
  
  
      
Derivative instruments$
 30,105
 30,105
 
 77,826
 77,826
Total liabilities$
 30,105
 30,105
 
 77,826
 77,826

(b) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheets:
 As of September 30, 2021
 Fair valueCarrying valueLevel 1Level 2Level 3
Financial assets:    
Loans receivable$19,690,209 18,469,372 — — 19,690,209 
Accrued loan interest receivable834,831 834,831 — 834,831 — 
Cash and cash equivalents191,936 191,936 191,936 — — 
Investments (at fair value)847,765 847,765 61,673 777,621 — 
Beneficial interest in loan securitizations127,364 108,827 — — 127,364 
Restricted cash764,089 764,089 764,089 — — 
Restricted cash – due to customers295,053 295,053 295,053 — — 
Financial liabilities:  
Bonds and notes payable18,854,255 18,610,748 — 18,854,255 — 
Accrued interest payable4,441 4,441 — 4,441 — 
Bank deposits199,372 200,651 42,585 156,787 — 
Due to customers354,543 354,543 354,543 — — 
 As of September 30, 2017
 Fair value Carrying value Level 1 Level 2 Level 3
Financial assets:         
Student loans receivable$23,635,887
 22,528,845
 
 
 23,635,887
Cash and cash equivalents254,391
 254,391
 254,391
 
 
Investments (available-for-sale)75,413
 75,413
 2,986
 72,427
 
Notes receivable16,393
 16,393
 
 16,393
 
Loans receivable42,006
 40,339
 
 
 42,006
Restricted cash725,463
 725,463
 725,463
 
 
Restricted cash – due to customers105,299
 105,299
 105,299
 
 
Accrued interest receivable396,827
 396,827
 
 396,827
 
Derivative instruments996
 996
 
 996
 
Financial liabilities: 
  
      
Bonds and notes payable22,319,439
 22,240,279
 
 22,319,439
 
Accrued interest payable47,824
 47,824
 
 47,824
 
Due to customers105,299
 105,299
 105,299
 
 
Derivative instruments30,105
 30,105
 
 30,105
 
As of December 31, 2016 As of December 31, 2020
Fair value Carrying value Level 1 Level 2 Level 3 Fair valueCarrying valueLevel 1Level 2Level 3
Financial assets:         Financial assets:    
Student loans receivable$25,653,581
 24,903,724
 
 
 25,653,581
Loans receivableLoans receivable$20,454,132 19,391,045 — — 20,454,132 
Accrued loan interest receivableAccrued loan interest receivable794,611 794,611 — 794,611 — 
Cash and cash equivalents69,654
 69,654
 69,654
 
 
Cash and cash equivalents121,249 121,249 121,249 — — 
Investments (available-for-sale and trading)106,593
 106,593
 2,813
 103,780
 
Notes receivable17,031
 17,031
 
 17,031
 
Investments (at fair value)Investments (at fair value)390,648 390,648 10,217 348,504 — 
Beneficial interest in loan securitizationsBeneficial interest in loan securitizations58,709 58,331 — — 58,709 
Restricted cash980,961
 980,961
 980,961
 
 
Restricted cash553,175 553,175 553,175 — — 
Restricted cash – due to customers119,702
 119,702
 119,702
 
 
Restricted cash – due to customers283,971 283,971 283,971 — — 
Accrued interest receivable391,264
 391,264
 
 391,264
 
Derivative instruments87,531
 87,531
 
 87,531
 
Financial liabilities: 
  
      Financial liabilities:  
Bonds and notes payable24,220,996
 24,668,490
 
 24,220,996
 
Bonds and notes payable19,270,810 19,320,726 — 19,270,810 — 
Accrued interest payable45,677
 45,677
 
 45,677
 
Accrued interest payable28,701 28,701 — 28,701 — 
Bank depositsBank deposits54,599 54,633 48,422 6,177 — 
Due to customers119,702
 119,702
 119,702
 
 
Due to customers301,471 301,471 301,471 — — 
Derivative instruments77,826
 77,826
 
 77,826
 
The methodologies for estimating the fair value of financial assets and liabilities are described in note 2022 of the notes to consolidated financial statements included in the 20162020 Annual Report.

31



14. Subsequent Events


On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes for a purchase price of $150.0 million in cash. The transaction is scheduled to close on January 1, 2018, subject to customary closing conditions.

On October 25, 2017, the Company completed a remarketing of its Euro Notes which reset the principal amount outstanding on the Euro Notes from €352.7 million to $450.0 million U.S. dollars and reset the interest rate from an interest rate based on a spread to the EURIBOR index to an interest rate based on the 3-month LIBOR index. As a result of the remarketing, the Company terminated its cross-currency interest rate swap associated with the Euro Notes. The pre-tax GAAP income statement impact of this remarketing and swap termination was a non-cash expense of $10.6 million that will be included in “Derivative market value and foreign currency transaction adjustments and derivative settlements, net” on the consolidated statements of income.    

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

(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and nine months ended September 30, 20172021 and 2016.2020. All dollars are in thousands, except per share amounts, unless otherwise noted.)

The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion should be read in conjunction with the Company’s consolidated financial statements included in the 20162020 Annual Report.

Forward-looking and cautionary statements

This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “may,“anticipate,“should,“assume,” “believe,” “continue,” “could,” “would,” “predict,” “potential,” “continue,“estimate,” “expect,” “anticipate,“forecast,” “future,” “intend,” “scheduled,“may,” “plan,” “believe,“potential,“estimate,“predict,“assume,“scheduled,“forecast,“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 20162020 Annual Report and elsewhere in this report, and include such risks and uncertainties as:

risks and uncertainties related to the severity, magnitude, and duration of the coronavirus disease 2019 (“COVID-19”) pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business, educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions resulting from the pandemic, including interest rates, the value of equities, and other financial assets;
risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the Company under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contracts accounted for 27 percent of the Company's revenue in 2020, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the pending and uncertain nature of the Department's procurement process (under which awards of new contracts have been made to other service providers), risks that the Company may not be successful in obtaining any of such potential new contracts, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), private education, and consumer loans;
loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education LoanFFEL Program, (the "FFEL Program" or "FFELP"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, and consumer loans, or investment interests therein, and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of student loan prepayment or default rates;
financing and liquidity risks, including risks of changes in the general interest rate environment, including the availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money market index rate and the rate at which the Company's assets and liabilities are priced, and changes in the securitization and other financing markets for student loans, including adverse changes resulting from slower than expected paymentsunanticipated repayment trends on student loans in FFELPthe Company's securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;
risks from changes in the terms of education loans and in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the
32


Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program, otherwise encourage or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans;loans, and/or create additional loan forgiveness or broad debt cancellation programs;


risks that the reported agreement to acquire Great Lakes Educational Loan Services, Inc. ("Great Lakes") may not be completed within the currently scheduled time frame or at all, the uncertain nature of the expected benefits from the acquisition and the ability to successfully integrate loan servicing operations and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), risks to the Company related to the Department's initiative to procure new contracts for federal student loan servicing, including the risk that the Company's joint venture with Great Lakes, or the Company on a post-Great Lakes acquisition basis, may not be awarded a contract, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of FFELP, Federal Direct Loan Program, and private education and consumer loans;
risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information;information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;
uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
the uncertain naturerisks and uncertainties of the expected benefits from the acquisitionNovember 2020 launch of Allo Communications LLC on December 31, 2015 andNelnet Bank operations, including the ability to integrate its communicationssuccessfully conduct banking operations and successfully expandachieve expected market penetration;
risks related to the expected benefits to the Company and to ALLO Communications LLC (referred to collectively with its fiber network in existing service areasholding company ALLO Holdings, LLC as “ALLO”) from the recapitalization and additional communitiesfunding for ALLO and managethe Company’s continuing investment in ALLO, and risks related construction risks;to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;
risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income therefrom), acquisitions, and other activities, such as the completed and potential additional transactions associated with the sale by Wells Fargo of its private education loan portfolio for which the Company was selected as the new servicer (including risks associated with errors that occasionally occur in converting loan servicing portfolio acquisitions to a new servicing platform, and uncertainties associated with expected income from the joint venture that purchased the Wells Fargo portfolio), including investments and acquisitionsactivities that are intended to diversify the Company both within and outside of its historical core education-related businesses;
risks and uncertainties associated with climate change, including extreme weather events and related natural disasters, which could result in increased loan portfolio credit risks and other asset and operational risks, as well as risks and uncertainties associated with efforts to address climate change; and
risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs resulting from the recent politicization of student loan servicing, potential changes to corporate tax rates, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements.
All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so except as required by securities laws.law.


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OVERVIEW

The Company is a diverse company with a focus onpurpose to serve others and a vision to make customers' dreams possible by delivering education-relatedcustomer focused products and services and student loan asset management.services. The largest operating businesses engage in student loan servicing tuitionand education technology, services, and payment processing, and school information systems, andthe 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 the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate, early-stage and start-up ventures.



emerging growth companies, and renewable energy.
GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments

The Company prepares its financial statements and presents its financial results in accordance with U.S. GAAP. However, it also provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results and performance. A reconciliation of the Company's GAAP net income to net income, excluding derivative market value and foreign currency transaction adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.
Three months ended September 30,Nine months ended September 30,
2021202020212020
GAAP net income attributable to Nelnet, Inc.$53,138 71,503 260,603 117,452 
Realized and unrealized derivative market value adjustments(7,260)(3,440)(44,455)21,072 
Tax effect (a)1,742 826 10,669 (5,057)
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)$47,620 68,889 226,817 133,467 
Earnings per share:
GAAP net income attributable to Nelnet, Inc.$1.38 1.86 6.74 2.99 
Realized and unrealized derivative market value adjustments(0.19)(0.09)(1.15)0.54 
Tax effect (a)0.04 0.02 0.28 (0.13)
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)$1.23 1.79 5.87 3.40 
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
GAAP net income attributable to Nelnet, Inc.$46,303
 84,294
 125,065
 158,405
Realized and unrealized derivative market value adjustments(21,429) (47,093) (22,381) 1,556
Unrealized foreign currency transaction adjustments13,683
 4,831
 45,635
 13,543
Net tax effect (a)2,943
 16,060
 (8,837) (5,737)
Net income, excluding derivative market value and foreign currency transaction adjustments (b)$41,500
 58,092
 139,482
 167,767
        
Earnings per share:       
GAAP net income attributable to Nelnet, Inc.$1.11
 1.98
 2.97
 3.70
Realized and unrealized derivative market value adjustments(0.51) (1.10) (0.53) 0.03
Unrealized foreign currency transaction adjustments0.33
 0.11
 1.09
 0.32
Net tax effect (a)0.07
 0.37
 (0.21) (0.13)
Net income, excluding derivative market value and foreign currency transaction adjustments (b)$1.00
 1.36
 3.32
 3.92
(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

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

(b)"Derivative market value and foreign currency transaction adjustments" include (i) 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 under new rules effective January 3, 2017) 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; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars.(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 and foreign currency transaction 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. In addition, the Company has incurred unrealized foreign currency transaction adjustments for periodic fluctuations in currency exchange rates between the U.S. dollar and Euro in connection with its student loan asset-backed Euro-denominated bonds with an interest rate based on a spread to the EURIBOR index.
The principal and accrued interest on these bonds were remeasured at each reporting period and recorded in the Company's consolidated balance sheet in U.S. dollars based on the foreign currency exchange rate on that date.

The CompanyCompany believes these point-in-time estimates of asset and liability values related to its derivative instruments and Euro-denominated bonds that are or were subject to interest and currency rate fluctuations are or were 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.


On October 25, 2017, the Company completed a remarketing of the Company’s bonds that were prior to that date denominated in Euros, to denominate those bonds in U.S. dollars and reset the interest rate to be based on the 3-month LIBOR index. The Company also terminated a cross-currency interest rate swap associated with those bonds. As a result, foreign currency transaction adjustments will not be incurred with respect to those bonds after October 25, 2017.
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The decrease in GAAP net income decreased for the three months ended September 30, 2017,2021 compared withto the same period in 2016, was2020 primarily due to the following factors:
The recognition of a reduction$14.8 million ($11.3 million after tax) gain from the sale of consumer loans in 2020;
The impairment of certain Company owned buildings and operating lease assets of $14.2 million ($10.8 million after tax) during 2021 due to continued evaluation of office space needs as employees continue to work from home due to COVID-19;
The recognition of a net loss of $8.5 million ($6.4 million after tax) during 2021 related to the Company's investments in ALLO; and
The recognition of a provision for loan losses on the Company's loan portfolio of $5.8 million ($4.4 million after tax) in the third quarter of 2021 compared to a negative provision for loan losses of $5.8 million ($4.4 million after tax) in the third quarter of 2020.
These factors were partially offset by the following items:
The recognition of net investment gains and income of $16.1 million ($12.2 million after tax) on certain venture capital, real estate, and other investments during 2021;
A decrease of $8.4 million ($6.4 million after tax) in losses from solar investments in 2021 as compared to 2020; and
The recognition of a net loss by ALLO of $4.5 million ($3.5 million after tax) during 2020, prior to the deconsolidation of ALLO in December 2020.
GAAP net income increased for the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to the following factors:
The recognition of $97.1 million ($73.8 million after tax) of certain expenses during the first quarter of 2020 as a result of the COVID-19 pandemic, consisting of the recognition of an incremental provision for loan losses of $63.0 million ($47.9 million after tax), provision expense of $26.3 million ($20.0 million after tax) related to the Company's investment in certain consumer loan beneficial interest securitizations, and $7.8 million ($5.9 million after tax) impairment expense on certain venture capital investments;
Net income of $44.5 million ($33.8 million after tax) related to changes in the fair values of derivative instruments that do not qualify for hedge accounting in 2021 as compared to a net loss of $21.1 million ($16.0 million after tax) in 2020;
The recognition of net investment gains of $40.1 million ($30.5 million after tax) on certain venture capital, real estate, and other investments during 2021;
A decrease of $23.8 million ($18.1 million after tax) in interest expense during the first quarter of 2021 as a result of the Company reversing a historical accrued interest liability on certain bonds (initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013), which liability the Company determined is no longer probable of being required to be paid;
The recognition of a net loss by ALLO of $18.9 million ($14.3 million after tax) during 2020, prior to the deconsolidation of ALLO in December 2020;
The recognition of $18.7 million ($14.2 million after tax) of gains from the sale of loans during 2021;
An increase of $17.5 million ($13.3 million after tax) in net interest income due to improved loan spread (including derivative settlements) on the Company's loan portfolio in 2021 as compared to 2020, including an increase in fixed rate floor income;
The recognition of a $10.8 million ($8.2 million after tax) negative provision for loan losses on the Company's loan portfolio during 2021 as a result of management's estimate of certain continued improved economic conditions as compared to a provision expense (excluding the incremental provision for loan losses related to foreign currency transaction adjustments causedCOVID-19) of $10.4 million ($7.9 million after tax) during 2020;
An increase of $8.3 million ($6.3 million after tax) in investment interest income in 2021 as compared to 2020 primarily from AGM's beneficial interest investments; and
An increase in net income during 2021 as compared to 2020 of $8.1 million ($6.2 million after tax) from the Education Technology, Services, and Payment Processing operating segment.
These factors were partially offset by the re-measurementfollowing items:
The recognition of a $51.0 million ($38.8 million after tax) gain in the second quarter of 2020 to adjust the carrying value of the Company's Euro-denominated bondsinvestment in Hudl to U.S. dollars. reflect Hudl's May 2020 equity raise transaction value;

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

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The decreaserecognition of a net loss of $25.2 million ($19.2 million after tax) during 2021 related to the Company's investments in GAAP net income for the nine months ended September 30, 2017, compared with the same period in 2016, was primarilyALLO;
The impairment of certain Company owned buildings and operating lease assets of $14.2 million ($10.8 million after tax) during 2021 due to an increasecontinued evaluation of office space needs as employees continue to work from home due to COVID-19; and
A decrease of $6.6 million ($5.0 million after tax) in losses related to foreign currency transaction adjustments caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars, partially offset by an increase in net gains related to changes in the fair values of derivative instruments. 

In addition, net interest income earned on the Company’s student loan portfolio decreased in 2017 compared to 2016 due to the expected runoffdecrease in the average balance of loans during 2021 as compared to 2020 as a result of the portfolio and lower studentamortization of the FFELP loan spread.portfolio.

Operating Results

The Company earns net interest income on its FFELP student loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and Management ("AGM") operating segment. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes. As of September 30, 2017, the Company2021, AGM had a $22.5$18.4 billion student loan portfolio that management anticipates will amortize over the next approximately 2520 years and has a weighted average remaining life of 9.3 years. The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional FFELP loan portfoliosassets to leverage its servicing scale and expertise to generate incremental earnings and cash flow.

In addition, the Company earns fee-based revenue through the following reportable operating segments:
Loan SystemsServicing and ServicingSystems ("LSS") - referred to as Nelnet Diversified SolutionsServices ("NDS"), which includes the operations of Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes Educational Loan Services, Inc. ("Great Lakes")
TuitionEducation Technology, Services, and Payment Processing and Campus Commerce ("TPP&CC"ETS&PP") - referred to as Nelnet Business SolutionsServices ("NBS")
Communications - referredFurther, the Company earned communications revenue through ALLO, formerly a majority owned subsidiary of the Company prior to a recapitalization of ALLO resulting in the deconsolidation of ALLO from the Company’s financial statements on December 21, 2020. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as Allo Communicationsa reportable operating segment.
On November 2, 2020, the Company obtained final approval for federal deposit insurance from the Federal Deposit Insurance Corporation ("Allo"FDIC")

and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah. Nelnet Bank’s operations are presented by the Company as a reportable operating segment.
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured and other corporate related debt transactions. In addition, the Corporate segment includes direct incremental costs associated with Nelnet Bank prior to the UDFI’s approval for its bank charter and certain shared service and support costs incurred by the Company that will not be reflected in Nelnet Bank’s operating results through 2023 (the bank’s de novo period). Such Nelnet Bank-related costs included in the Corporate segment totaled $0.8 million (pre-tax) and $1.3 million (pre-tax) for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million (pre-tax) and $3.8 million (pre-tax) for the nine months ended September 30, 2021 and 2020, respectively.


36


The information below provides the operating results for each reportable operating segment and Corporate and Other Activities for the three and nine months ended September 30, 20172021 and 20162020 (dollars in millions).

segopresults2017q3a01.jpg


(a)    Revenue includes intersegment revenue earned by LSS as a result of servicing loans for AGM.

(b)Total revenue includes "net interest income after provision for loan losses" and "total other income" from the Company's segment statements of income, excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.

A summary of the results and financial highlights for each reportable operating segment and a summary of the Company's liquidity and capital resources follows. See "Results of Operations" for each reportable operating segment and "Liquidity and Capital Resources"(except ALLO) under this Item 2 for additional detail.

LSS (a)ETS&PPALLO (b)AGM (c)Bank (c)
Loan Systems and Servicingnni-20210930_g1.jpg

nni-20210930_g2.jpg
As of September 30, 2017,(a)    Revenue includes intersegment revenue.
(b)    On December 21, 2020, the Company was servicing $207.8 billion in FFELP, government owned, and private education and consumer loans, as compared with $193.2 billiondeconsolidated ALLO from the Company’s consolidated financial statements. See note 2 of loans as of September 30, 2016.

Revenue increasedthe notes to consolidated financial statements included in the three2020 Annual Report for a description of the transaction and nine months ended September 30, 2017 compareda summary of the deconsolidation impact. Accordingly, there are no operating results for the (former) Communications operating segment in 2021.
(c)    Total revenue includes "net interest income" and "total other income/expense" from the Company's segment statements of income, excluding from AGM the impact from changes in fair values of derivatives. Net income (loss) excludes from AGM changes in fair values of derivatives, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.
COVID-19
Beginning in March 2020, the COVID-19 pandemic resulted in many businesses and schools closing or reducing hours throughout the U.S. to combat the spread of COVID-19, and states and local jurisdictions implementing various containment efforts, including lockdowns on non-essential business and other business restrictions, stay-at-home orders, and shelter-in-place orders. The COVID-19 pandemic caused significant disruption to the same periodsU.S. and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates, and extreme volatility in 2016 duethe U.S. and world markets.
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While certain COVID-19 vaccines have been approved and have become widely available for use in the U.S., significant uncertainties remain, including with respect to growth in private education and consumer loan servicing volume fromthe effectiveness of vaccines against existing and new clients. In addition, revenue increasedvariant strains of the virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among different geographical areas and demographic segments, emerging targeted vaccine mandates, and booster vaccines, and the potential for additional future spikes in infection rates including through breakthrough infections among the nine months ended September 30, 2017 compared tofully vaccinated. As a result, although the same period in 2016 due to an increase in revenue oneconomy has improved since the government servicing contract. The increase in revenue for the nine months ended September 30, 2017 compared to the same period in 2016 was partially offset by the loss of guaranty servicingpandemic began, it is still uncertain when or if economic activity and collection revenue on June 30, 2016.

Revenue from the government servicing contract decreased to $38.6 million for the three months ended September 30, 2017 compared to $40.2 million for the same period in 2016, and increased to $117.4 million for the nine months ended September 30, 2017, compared to $112.5 million for the same period in 2016. The decrease for the three months ended September 30, 2017 compared to the same period in 2016 was due to a decrease in application volumebusiness operations at pre-pandemic levels for the Company's administrationcustomers will resume. In addition, a significant number of the TotalCompany's employees continue to work from home, either full-time or dividing their work days between working from home and Permanent Disability Discharge (TPD) program during the third quarter of 2017. The increase for the nine months ended September 30, 2017 compared to the same period in 2016 was due to an increase in TPD and Direct Loan Consolidation program application volume, the transfer of borrowers to the Company from a not-for-profit servicer who exited the loan servicing business in August 2016, and the shiftworking in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses. As of September 30, 2017, the Company was servicing $171.6 billion of student loans for 5.9 million borrowers under this contract.

Revenue from private education and consumer loan servicing increased to $7.6 million for the three months ended September 30, 2017 compared to $4.1 million for the same period in 2016, and increased to $20.5 million for the nine months ended September 30, 2017, compared to $10.7 million for the same period in 2016. As of September 30, 2017, the Company was servicing $10.8 billion of private education and consumer loans for approximately 478,000 borrowers,office as compared to $6.4 billion of private education and consumer loans for approximately 293,000 borrowers as of September 30, 2016.

The Company's remaining guaranty servicing and collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. After this customer's exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty servicing and collection revenue. Guaranty servicing and collection revenue earned from this customeroffered employees flexibility in the nine months ended September 30, 2016 was $9.6 million.

The Company's government servicing contract is currently set to expire on June 16, 2019. In April 2016, the Department announced a new contract procurement process for the Department to acquire a single servicing platform to manage all student loans owned by the Department.

In May 2016, Nelnet Servicing, a subsidiaryamount of the Company, and Great Lakes submitted a joint response to the procurement as part of a newly created joint venture to respond to the contract solicitation process and to provide services under a new contracttime they work in the event that the Department selects it for a contract award. The joint venture operates as a new legal entity called GreatNet. Nelnet Servicing and Great Lakes each own 50 percent of the ownership interests of GreatNet. In addition to Nelnet Servicing, Great Lakes is currently one of four private sector companies (referred to as Title IV Additional Servicers, or "TIVAS") that has a student loan servicing contract with the Department to provide servicing for loans owned by the Department. On May 19, 2017, the Department announced it had amended the contract procurement process, which required another response by the participants, and on July 7, 2017, GreatNet submitted its response to the Department.



On August 1, 2017, the Department announced it was canceling the current procurement process for a single servicing platform and that it intends to develop a new contract procurement proposal. The Department indicated that its new approach is expected to require separate contract acquisitions for database housing, system processing, and customer account servicing.

For financial reporting purposes, the operating results of GreatNet are included in the Company's consolidated financial statements. The proportionate share of membership interest (equity) and net loss of GreatNet that is attributable to Great Lakes is reflected as noncontrolling interests. During the first and third quarters of 2017, Nelnet Servicing and Great Lakes each contributed capital to GreatNet and during the first quarter of 2017 GreatNet began to incur certain operating costs.

Before tax operating margin decreased in 2017 compared to 2016 due to operating expenses incurred related to GreatNet and an increase in personnel to support the increase in volume of loans serviced for the government entering repayment status.
On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes for a purchase price of $150.0 million in cash. The transaction is scheduled to close on January 1, 2018, subject to customary closing conditions.  After the transaction settles, Great Lakes and the Company will maintain their distinct brands, servicing operations, and operational teams, and each will continue to compete for new student loan volume under its respective existing contract with the Department. Over time, shared services teams will integrate and technology systems will be leveraged to support both the Great Lakes and the Company's servicing operations. The operating results of Great Lakes will be included in the Loan Systems and Servicing operating segment.

Tuition Payment Processing and Campus Commerce

Revenue increased in the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to increases in the number of managed tuition payment plans, campus commerce customer transactions and payments volume, and new school customers.

Before tax operating margin for the three months ended September 30, 2017 and 2016 was 26.1 percent and 25.4 percent, respectively, and for the nine months ended September 30, 2017 and 2016 was 30.7 percent and 30.2 percent, respectively. This segment is subject to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year.

Communications

For the three months ended September 30, 2017 and 2016, Allo recorded net losses of $4.6 million and $2.2 million, respectively, and for the nine months ended September 30, 2017 and 2016 recorded net losses of $11.1 million and $3.3 million, respectively. The Company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.

Revenue from Allo for the three months ended September 30, 2017 and 2016 was $6.8 million and $4.3 million, respectively, and for the nine months ended September 30, 2017 and 2016 revenue was $17.6 million and $13.2 million, respectively. The increase in revenue was primarily due to additional residential households served, which increased to 16,394 as of September 30, 2017 from 8,745 as of September 30, 2016.

For the three and nine months ended September 30, 2017, Allo's capital expenditures were $29.4 million and $78.4 million, respectively. The Company anticipates total network capital expenditures of approximately $30.0 million in the fourth quarter of 2017 and approximately $100.0 million in 2018; however, such amounts could change based on customer demand for Allo's services. The number of residential households passed, which represents the estimated number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines (but have not been connected) increased to 54,815 as of September 30, 2017 as compared to 30,962 as of December 31, 2016. The total households in current markets that Allo plans to expand its network to make services available is 137,500.


Asset Generation and Management

During the three months ended September 30, 2017 compared to the same period in 2016, the average balance of student loans decreased $3.2 billion, to $23.2 billion, due primarily to the amortization of the student loan portfolio, partially offset by limited portfolio acquisitions from third parties. The Company acquired $37.5 million and $142.4 million of student loans during the three and nine months ended September 30, 2017, respectively.

Core student loan spread was 1.17% for the three months ended September 30, 2017, compared to 1.26% for the same period in 2016. The decrease in core student loan spread was primarily due to a decrease in fixed rate floor income and an increase in derivative settlements paid related to the Company's 1:3 basis swaps.

Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During the three months ended September 30, 2017 and 2016, and nine months ended September 30, 2017 and 2016, the Company earned $24.6 million, $41.5 million, $84.4 million, and $131.7 million, respectively, of fixed rate floor income.

Provision for loan losses for federally insured loans was $7.0 million for the three months ended September 30, 2017. During the three months ended September 30, 2017, the Company determined an additional allowance was necessary related to a $1.6 billion (principal balance as of September 30, 2017) portfolio of federally insured loans that were purchased in 2014 and 2015, and recognized $5.0 million (pre-tax) in provision expense related to these loans.

recently re-opened offices. During the third quarter of 2017,2021, the Company incurred $2.8 million (pre-tax) in expenses relatedevaluated the use of office space due to conversion fees to transfer loans from a third-party servicer to the Company's servicing platform, which will decrease servicing costs over the remaining lifeCOVID-19 and recorded an impairment charge on certain real estate assets of this portfolio.

Corporate and Other Activities

Whitetail Rock Capital Management, LLC, the Company's SEC-registered investment advisor subsidiary, recognized investment advisory revenue of $5.9 million, $1.5 million, $11.7 million, and $3.4 million in the three months ended September 30, 2017 and 2016 and nine months ended September 30, 2017 and 2016, respectively. These amounts include performance fees earned from the sale of managed securities or managed securities being called prior to the full contractual maturity.

Liquidity and Capital Resources

As of September 30, 2017, the Company had cash and cash equivalents of $254.4$14.2 million. In addition, the Company had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $75.4 million as of September 30, 2017.

For the nine months ended September 30, 2017, the Company generated $230.3 million in net cash from operating activities.

Forecasted undiscounted future cash flows from the Company's student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $1.93 billion as of September 30, 2017.

As of September 30, 2017, there was $210.0 million outstanding on the Company's $350.0 million unsecured line of credit and $140.0 million was available for future use. The unsecured line of credit has a maturity date of December 12, 2021.

During the nine months ended September 30, 2017, the Company repurchased a total of 1,363,571 shares of Class A common stock for $63.3 million ($46.44 per share), including a total of 947,794 shares of Class A common stock repurchased for $45.1 million ($47.62 per share) during the three months ended September 30, 2017. Certain of these repurchases were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

During the first quarter of 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding unsecured Hybrid Securities. The aggregate principal amount of notes tendered to the Company was $29.7 million. The Company paid $25.3 million to redeem these notes, and recognized a $4.4 million (pre-tax) gain. In addition, during the three and nine months ended September 30, 2017, the Company repurchased $14.7 million and $18.8 million of its own asset-backed debt securities and recognized gains of $0.1 million and $1.1 million, respectively.



During the nine months ended September 30, 2017, the Company paid cash dividends of $17.6 million ($0.42 per share), including $5.8 million ($0.14 per share) during the three months ended September 30, 2017. In addition, the Company's Board of Directors has declared a fourth quarter 2017 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.16 per share. The fourth quarter cash dividend will be paid on December 15, 2017 to shareholders of record at the close of business on December 1, 2017.

The Company intendsresults of operations discussion below should be read in conjunction with the Company’s 2020 Annual Report, including the information included in “Risk Factors – Operations – The COVID-19 pandemic has adversely impacted our results of operations, and is expected to use its liquidity positioncontinue to capitalize on market opportunities, including FFELPadversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows” and private education“Management’s Discussion and consumer loan acquisitions; strategic acquisitionsAnalysis of Financial Condition and investments; expansionResults of Allo's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and sizeOperations – Overview – Impacts of these opportunities will vary and will have a direct impact on the Company's cash and investment balances.COVID-19 Pandemic.”


38


CONSOLIDATED RESULTS OF OPERATIONS

An analysis of the Company's operating results for the three and nine months ended September 30, 20172021 compared to the same periods in 20162020 is provided below.

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

The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable segment operating results to the consolidated results of operations, see note 10 of the notes to consolidated financial statements included under Part I, Item 1 of this report. Since the Company monitors and assesses its operations and results based on these segments, the discussion following the consolidated results of operations is presented on a reportable segment basis.basis (except for ALLO, which was deconsolidated from the Company's consolidated financial statements in December 2020).


 Three months endedNine months ended
 September 30,September 30,
 2021202020212020Additional information
Loan interest$124,096 134,507 370,219 462,439 Decrease was due primarily to decreases in the gross yield earned on loans and the average balance of loans, partially offset by an increase in gross fixed rate floor income during the nine months ended September 30, 2021 due to lower interest rates in 2021 as compared to 2020.
Investment interest12,558 5,238 29,122 18,379 Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. Increase was due to interest income earned on loan beneficial interest investments, partially offset by a decrease in interest rates in 2021 as compared to 2020.
Total interest income136,654 139,745 399,341 480,818 
Interest expense50,176 58,423 127,939 277,788 Decrease was due primarily to a decrease in cost of funds and a decrease in the average balance of debt outstanding. In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013.
Net interest income86,478 81,322 271,402 203,030 
Less provision (negative provision) for loan losses5,827 (5,821)(10,847)73,476 During the first quarter of 2020, the Company recognized an incremental provision of $63.0 million as a result of an increase in expected defaults due to the COVID-19 pandemic. During the third quarter of 2020, the Company recognized negative provision of $5.8 million due to management's estimate of improved economic conditions. The Company recognized a negative provision of $17.0 million in the first quarter of 2021 due to management's estimate of improved economic conditions as of March 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020. Provision expense recognized for the three months ended September 30, 2021 represents provision primarily for new loans originated and acquired during the period.
Net interest income after provision for loan losses80,651 87,143 282,249 129,554 
Other income/expense:    
LSS revenue112,351 113,794 335,961 337,571 See LSS operating segment - results of operations.
ETS&PP revenue85,324 74,121 257,284 217,100 See ETS&PP operating segment - results of operations.
Communications revenue— 20,211 — 57,390 As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.
Other11,867 1,502 30,183 69,910 See table below for the components of "other."
Gain on sale of loans3,444 14,817 18,715 33,023 On May 14, 2021 and September 29, 2021, the Company sold $77.4 million (par value) and $18.4 million (par value) of consumer loans, respectively, to an unrelated third party and recognized a gain of $15.3 million (pre-tax) and $3.2 million (pre-tax), respectively. The Company also sold $124.2 million (par value) and $60.8 million (par value) of consumer loans in January 2020 and July 2020, respectively, and recognized gains of $18.2 million and $14.8 million, respectively.
Impairment expense and provision for beneficial interests, net(14,159)— (12,223)(34,419)During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded an impairment charge during the third quarter of 2021 of $14.2 million. The impairment charge related primarily to building and operating lease assets. During the first quarter of 2020, the Company recognized impairments of $26.3 million and $7.8 million related to beneficial interest in consumer loan securitization investments and several venture capital investments, respectively. Such impairments were the result of estimated impacts from the COVID-19 pandemic. During the first quarter of 2021, the Company reversed the remaining allowance of $2.4 million related to the beneficial interest in consumer loan securitizations due to continued improved economic conditions.
39


 Three months Nine months  
 ended September 30, ended September 30, Additional information
 2017 2016 2017 2016  
Loan interest$191,755
 193,721
 562,451
 567,775
 Decrease due to a decrease in the average balance of student loans, a decrease in gross fixed rate floor income, and an adjustment recorded during the third quarter of 2016 to reflect the net impact on prior periods for a correction of an error regarding the Company's method of applying the interest method to amortize premiums and accrete discounts on its student loan portfolio, partially offset by an increase in the gross yield earned on the student loan portfolio.
Investment interest5,129
 2,460
 11,335
 6,674
 Includes income from unrestricted interest-earning deposits and investments and funds in asset-backed securitizations. The increase in 2017 compared to 2016 is due to an increase in interest-earning investments and an increase in interest rates.
Total interest income196,884
 196,181
 573,786
 574,449
  
Interest expense121,650
 96,386
 341,787
 280,847
 Increase due primarily to an increase in the Company's cost of funds, partially offset by a decrease in the average balance of debt outstanding.
Net interest income75,234
 99,795
 231,999
 293,602
 See table below for additional analysis.
Less provision for loan losses6,000
 6,000
 9,000
 10,500
 Represents the periodic expense of maintaining an allowance appropriate to absorb losses inherent in the portfolio of student loans. See AGM operating segment - results of operations.
Net interest income after provision for loan losses69,234
 93,795
 222,999
 283,102
  
Other income: 
  
  
  
  
LSS revenue55,950
 54,350
 167,079
 161,082
 See LSS operating segment - results of operations.
TPP&CC revenue35,450
 33,071
 113,293
 102,211
 See TPP&CC operating segment - results of operations.
Communications revenue6,751
 4,343
 17,577
 13,167
 See Communications operating segment - results of operations.
Enrollment services revenue
 
 
 4,326
 On February 1, 2016, the Company sold Sparkroom LLC. After this sale, the Company no longer earns enrollment services revenue.
Other income19,756
 15,150
 44,874
 38,711
 See table below for the components of "other income."
Gain from debt repurchases116
 2,160
 5,537
 2,260
 Gains are from the Company repurchasing its own debt. During the first quarter of 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding Hybrid Securities. The Company paid $25.3 million to redeem $29.7 million of these notes and recognized a gain of $4.4 million. Other gains are from the repurchase of the Company's asset-backed debt securities.
Derivative settlements, net(573) (6,261) (2,314) (18,292) The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See table below for additional analysis.
Derivative market value and foreign currency transaction adjustments, net7,746
 42,262
 (23,254) (15,099) Includes (i) the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars.
Total other income125,196
 145,075
 322,792
 288,366
  
Operating expenses: 
  
  
  
  
Salaries and benefits74,193
 63,743
 220,684
 187,907
 Increase was due to an (i) increase in contract programming related to the GreatNet joint venture and an increase in personnel to support the increase in volume of loans serviced for the government entering repayment status and the increase in private education and consumer loan servicing volume in the LSS operating segment; (ii) increase in personnel to support the growth in revenue in the TPP&CC operating segment; and (iii) increase in personnel at Allo to support the Lincoln, Nebraska network expansion. See each individual operating segment results of operations discussion for additional information.
Depreciation and amortization10,051
 8,994
 27,687
 24,817
 Increase was due to additional depreciation expense at Allo. Since the acquisition of Allo on December 31, 2015, there has been a significant amount of property and equipment purchases to support the Lincoln, Nebraska network expansion.
Loan servicing fees7,939
 5,880
 19,584
 20,024
 Increase for the three months ended September 30, 2017 compared to the same period in 2016 due to a payment of $2.8 million in conversion fees related to a transfer of loans in August 2017 from a third-party servicer to the LSS operating segment's servicing platform. Excluding the $2.8 million conversion fee paid in the third quarter of 2017, loan servicing fees paid to third-parties decreased $0.7 million and $3.2 million for the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to runoff of the Company's student loan portfolio and transfers of loans in August 2017 and June 2016 from third-party servicers to the LSS's servicing platform.
Cost to provide communication services2,632
 1,784
 6,789
 5,169
 Represents costs of services and products primarily associated with television programming costs in the Communications operating segment.
Cost to provide enrollment services
 
 
 3,623
 On February 1, 2016, the Company sold Sparkroom LLC. After this sale, the Company no longer provides enrollment services.
Other expenses30,518
 26,391
 84,593
 84,174
 Increase was a result of an increase in operating expenses due to GreatNet, additional costs to support the increase in payment plans and campus commerce activity, and an increase in operating expenses at Allo to support the Lincoln, Nebraska network expansion, partially offset by the elimination of FFELP guaranty collection costs. The Company's remaining guaranty collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016, and after this date the Company has no remaining guaranty collection revenue. Accordingly, there were no collection costs for the three and nine months ended September 30, 2017, compared to no collection costs and $3.5 million for the three months and nine months ended September 30, 2016, respectively.
Total operating expenses125,333
 106,792
 359,337
 325,714
  
Derivative settlements, net(5,909)(2,391)(15,587)7,666 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. See AGM operating segment - results of operations.
Derivative market value adjustments, net7,260 3,440 44,455 (21,072)Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the three and nine months ended September 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.
Total other income/expense200,178 225,494 658,788 667,169 
Cost of services:
Cost to provide education technology, services, and payment processing services31,335 25,243 80,063 63,424 Represents primarily direct costs to provide payment processing and instructional services in the ETS&PP operating segment. Increase in 2021 compared to 2020 was primarily due to additional instructional services costs.
Cost to provide communications services— 5,914 — 17,240 As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.
Total cost of services31,335 31,157 80,063 80,664 
Operating expenses:    
Salaries and benefits128,592 126,096 363,351 365,220 Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to an increase in headcount in the (i) LSS operating segment as the Company prepares for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022; and (ii) ETS&PP operating segment to support the growth of its customer base, the investment in the development of new technologies, and businesses it acquired in December 2020. These increases were partially offset by the deconsolidation of ALLO from the Company's consolidated financial statements. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to (i) a decrease in contact center operations and support personnel throughout the first half of 2021 in the LSS operating segment as a result of the suspension of federal student loan payments under the CARES Act; and (ii) the deconsolidation of ALLO from the Company's consolidated financial statements. These decreases were partially offset by an increase in expenses in the ETS&PP operating segment due to the items discussed above.
Depreciation and amortization15,710 30,308 56,129 87,349 Decrease was primarily due to the deconsolidation of ALLO from the Company's consolidated financial statements on December 21, 2020, resulting in no ALLO depreciation expense for the Company in 2021.
Other expenses38,324 34,744 107,611 115,184 Other expenses includes expenses necessary for operations, such as postage and distribution, consulting and professional fees, occupancy, communications, and certain information technology-related costs. Increase in the three months ended September 30, 2021 as compared to the same period in 2020 was due to (i) an increase in expenses in the ETS&PP operating segment due to higher costs for consulting and professional fees due to investments in new technologies, an increase in travel and in-person conferences, and businesses it acquired in December 2020. These items were partially offset by the deconsolidation of ALLO in December 2020. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to (i) cost savings in the LSS segment from an increase in the adoption of electronic borrower statements and correspondence and a decrease in printing and postage while loan payments are suspended as a result of COVID-19 borrower relief efforts; and (ii) the deconsolidation of ALLO in December 2020. These items were partially offset by an increase in costs in the ETS&PP operating segment due to the items discussed above.
Total operating expenses182,626 191,148 527,091 567,753 
Income before income taxes66,868 90,332 333,883 148,306 
Income tax expense15,649 19,156 76,747 30,286 The effective tax rate was 22.75% and 21.13% for the three months ended September 30, 2021 and 2020, respectively, and 22.75% and 20.50% for the nine months ended September 30, 2021 and 2020, respectively. The Company currently expects its effective tax rate for 2021 will range between 22 and 24 percent.
Net income51,219 71,176 257,136 118,020 
Net loss (income) attributable to noncontrolling interests1,919 327 3,467 (568)
Net income attributable to Nelnet, Inc.$53,138 71,503 260,603 117,452 




40

Income before income taxes69,097
 132,078
 186,454
 245,754
  
Income tax expense25,562
 47,715
 70,349
 87,184
 The effective tax rate was 35.60% and 36.15% for the three months ended September 30, 2017 and 2016, respectively, and 36.00% and 35.50% for the nine months ended September 30, 2017 and 2016, respectively. The lower effective tax rate for the nine months ended September 30, 2016 was due to the resolution of certain tax positions during the first quarter of 2016.
Net income43,535
 84,363
 116,105
 158,570
  
Net loss (income) attributable to noncontrolling interest2,768
 (69) 8,960
 (165) In 2017, represents primarily the net loss of GreatNet attributable to Great Lakes. See "Noncontrolling Interest" in note 1 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Net income attributable to Nelnet, Inc.$46,303
 84,294
 125,065
 158,405
  
          
Additional information:         
Net income attributable to Nelnet, Inc.$46,303
 84,294
 125,065
 158,405
 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value and foreign currency transaction adjustments.
Derivative market value and foreign currency transaction adjustments, net(7,746) (42,262) 23,254
 15,099
 
Net tax effect2,943
 16,060
 (8,837) (5,737) 
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency transaction adjustments$41,500
 58,092
 139,482
 167,767
 



The following table summarizes the components of “net interest income”"other" in "other income/expense" on the consolidated statements of income.
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Income/gains from investments, net (a)$16,050 1,687 40,141 51,772 
Investment advisory services (b)2,400 4,463 6,242 8,187 
ALLO preferred return (c)2,043 — 6,384 — 
Management fee revenue (d)727 2,353 2,541 6,897 
Borrower late fee income (e)514 871 1,698 4,377 
Loss from ALLO voting membership interest investment (f)(10,495)— (31,620)— 
Loss from solar investments (g)(3,393)(11,839)(7,375)(12,638)
(Loss) gain on debt repurchased(3,268)105 (3,964)508 
Other7,289 3,862 16,136 10,807 
Other income$11,867 1,502 30,183 69,910 

(a)     During the three and “derivative settlements, net.”nine months ended September 30, 2021, the Company recognized (pre-tax) realized and unrealized gains from certain real estate and venture capital investments, including realized gains from the sale of certain real estate investments of $11.2 million and $22.2 million, respectively. During the second quarter of 2020, the Company recognized a $51.0 million (pre-tax) gain to adjust the carrying value of its investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value.

Derivative settlements representSee the cash paid or received during the current period to settle with derivative instrument counterparties the economic effectcaption "Subsequent Events" in note 5 of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respectnotes to derivatives that do not qualifyconsolidated financial statements included under Part I, Item 1 of this report for "hedge treatment" under GAAP be recordedinformation regarding investment-related events subsequent to September 30, 2021 which are expected to impact income from investments in a separate income statement line item below net interest income.the fourth quarter of 2021.
(b)    The Company maintains an overall riskprovides investment advisory services through Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisor subsidiary, under various arrangements. WRCM earns annual fees of 25 basis points on the majority of the outstanding balance of asset-backed securities under management strategy that incorporatesand up to 50 percent of the usegains from the sale of derivative instrumentsasset-backed securities or asset-backed securities being called prior to reduce the economic effectfull contractual maturity for which it provides advisory services. As of interest rate volatility.September 30, 2021, the outstanding balance of asset-backed securities under management subject to these arrangements was $1.9 billion. In addition, WRCM earns annual management fees of five basis points for certain other investments under management.
(c)    Represents the Company's income on its preferred membership interests in ALLO, which was deconsolidated from the Company's financial statements in December 2020. As such, management believes derivative settlements for each applicable period should be evaluated withof September 30, 2021, the Company’s net interest income as presented in the table below.  Net interest income (netamount of settlements on derivatives) is a non-GAAP financial measure, andpreferred membership interests held by the Company reports this non-GAAP information becausewas $129.7 million, which earns a preferred annual return of 6.25 percent.
(d)    Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.
(e)    Represents borrower late fees earned by the AGM operating segment. The decrease was due to 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 forsuspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the presentationCOVID-19 pandemic.
(f)    Represents the Company's share of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.loss on its voting membership interests in ALLO. See note 45 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information onregarding the accounting for and income statement impact of this investment during 2021.
(g)    Represents the Company's derivative instruments, includingshare of loss from solar investments under the net settlement activity recognized byHypothetical Liquidation at Book Value ("HLBV") method of accounting. For the Company for each typemajority of derivative for the periods presentedCompany's solar investments, the HLBV method of accounting results in accelerated losses in the table under the caption "Income Statement Impact" in note 4 and in the table below. initial years of investment.

41


 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Variable student loan interest margin$46,683
 57,442
 139,082
 159,932
 Represents the yield the Company receives on its student loan portfolio less the cost of funding these loans. Variable student loan spread is also impacted by the amortization/accretion of loan premiums and discounts and the 1.05% per year consolidation loan rebate fee paid to the Department. In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income. See AGM operating segment - results of operations.
Settlements on associated derivatives(4,265) (871) (7,598) (2,355) Includes the net settlements paid/received related to the Company’s 1:3 basis swaps and cross-currency interest rate swap.
Variable student loan interest margin, net of settlements on derivatives42,418
 56,571
 131,484
 157,577
  
Fixed rate floor income24,586
 41,509
 84,382
 131,720
 The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rates, generating fixed rate floor income. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" for additional information.
Settlements on associated derivatives3,883
 (5,157) 5,877
 (15,241) Includes the net settlements paid/received related to the Company’s floor income interest rate swaps.
Fixed rate floor income, net of settlements on derivatives28,469
 36,352
 90,259
 116,479
  
Investment interest5,129
 2,460
 11,335
 6,674
  
Corporate debt interest expense(1,164) (1,616) (2,800) (4,724) Includes interest expense on the Junior Subordinated Hybrid Securities and unsecured line of credit. During the first quarter of 2017, the Company repurchased $29.7 million of its Hybrid Securities. In addition, the weighted average balance outstanding under the Company's unsecured line of credit was lower during 2017 as compared to 2016. These factors resulted in less corporate debt interest expense in 2017 as compared to 2016.
Non-portfolio related derivative settlements(191) (233) (593) (696) 
Includes the net settlements paid/received related to the Company’s hybrid debt hedges.

Net interest income (net of settlements on derivatives)$74,661
 93,534
 229,685
 275,310
  






The following table summarizes the components of "other income."
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Investment advisory fees$5,852
 1,535
 11,661
 3,367
Peterson's revenue3,402
 4,128
 9,282
 10,655
Borrower late fee income2,731
 3,158
 9,098
 9,910
Realized and unrealized gains on investments classified as available-for-sale and trading, net2,468
 506
 3,185
 1,444
Other5,303
 5,823
 11,648
 13,335
Other income$19,756
 15,150
 44,874
 38,711




LOAN SYSTEMSSERVICING AND SERVICINGSYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS

Loan Servicing Volumes (dollars
As of
December 31,
2019
March 31,
2020
June 30,
2020
September 30,
2020
December 31,
2020
March 31,
2021
June 30,
2021
September 30,
2021
Servicing volume (dollars in millions):
Nelnet Servicing:
Government$183,790 185,477 185,315 189,932 191,678 195,875 195,030 198,743 
FFELP33,185 32,326 31,392 31,122 30,763 30,084 29,361 28,244 
Private and consumer16,033 16,364 16,223 16,267 16,226 21,397 24,758 24,229 
Great Lakes:
Government239,980 243,205 243,609 249,723 251,570 257,806 257,420 262,311 
Total$472,988 477,372 476,539 487,044 490,237 505,162 506,569 513,527 
Number of servicing borrowers:
Nelnet Servicing:
Government5,574,001 5,498,872 5,496,662 5,604,685 5,645,946 5,664,094 5,636,781 5,791,521 
FFELP1,478,703 1,423,286 1,370,007 1,332,908 1,300,677 1,233,461 1,198,863 1,150,214 
Private and consumer682,836 670,702 653,281 649,258 636,136 882,477 1,039,537 1,097,252 
Great Lakes:
Government7,396,657 7,344,509 7,346,691 7,542,679 7,605,984 7,637,270 7,616,270 7,778,535 
Total15,132,197 14,937,369 14,866,641 15,129,530 15,188,743 15,417,302 15,491,451 15,817,522 
Number of remote hosted borrowers:6,433,324 6,354,158 6,264,559 6,251,598 6,555,841 4,307,342 4,338,570 4,548,541 

Government Loan Servicing
Nelnet Servicing's and Great Lakes' current student loan servicing contracts with the Department are currently scheduled to expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance. Nelnet cannot predict the timing, nature, or ultimate outcome of the NextGen or any other contract procurement process by the Department.
Nelnet Servicing and Great Lakes are two of the current eight private sector entities that have student loan servicing contracts with the Department. On July 8, 2021 and July 19, 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA") and the New Hampshire Higher Education Association Foundation Network ("Granite State"), two of the current existing servicers for the Department, announced that they will exit the federal student loan servicing business after their current contracts with the Department expire in millions)December 2021. In addition, in October 2021, Maximus assumed Navient's student loan servicing contract with the Department.
lnservvol2017q3a02.jpgPHEAA services approximately 8.5 million borrowers under its contract. The Department has indicated that the PHEAA servicing volume will be transitioned to other servicers, including the Company. A portion of the PHEAA servicing volume will be transitioned to other servicers prior to January 31, 2022, which is the effective date on which federal student loan payments will no longer be suspended under the CARES Act. The remaining PHEAA volume will begin to transfer to other servicers during the second quarter of 2022. The Company currently anticipates up to 1 million PHEAA borrowers will be transitioned to its servicing platform prior to January 31, 2022.
Granite State services approximately 1.3 million borrowers under its contract. Granite State servicing volume has been and will continue to be transitioned to Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third
42


Company owned $19,742 $18,886 $18,433 $18,079 $17,429 $16,962 $16,352 $15,789 $18,403
% of total 12.2% 10.7% 10.1% 9.8% 9.0% 8.7% 8.2% 7.9% 8.9%
Number of servicing borrowers:              
Government servicing: 5,915,449
 5,842,163
 5,786,545
 5,726,828
 6,009,433
 5,972,619
 5,924,099
 5,849,283
 5,906,404
FFELP servicing: 1,397,295
 1,335,538
 1,298,407
 1,296,198
 1,357,412
 1,312,192
 1,263,785
 1,218,706
 1,317,552
Private education and consumer loan servicing: 202,529
 245,737
 250,666
 267,073
 292,989
 355,096
 389,010
 454,182
 478,150
Total: 7,515,273
 7,423,438
 7,335,618
 7,290,099
 7,659,834
 7,639,907
 7,576,894
 7,522,171
 7,702,106
                   
Number of remote hosted borrowers: 1,611,654
 1,755,341
 1,796,783
 1,842,961
 2,103,989
 2,230,019
 2,305,991
 2,317,151
 2,714,588
and fourth quarters of 2021. Both Granite State and Edfinancial utilize Nelnet Servicing's platform to service their loans for the Department.

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

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

The CARES Act, among other things, provides broad relief for federal student loan borrowers through January 31, 2022. Under the CARES Act, beginning in March 2020, federal student loan payments and interest accruals were suspended for all borrowers that had loans owned by the Department. As a result of the CARES Act, the Company received less servicing revenue per borrower from the Department based on the borrower forbearance status through September 30, 2020 than what was earned on such accounts prior to these provisions, and the Department further reduced the monthly rate paid to its servicers for those in forbearance status for the period from October 1, 2020 through January 31, 2022 from $2.19 per borrower to $2.05 per borrower. The Company currently anticipates revenue per borrower from the Department will increase to pre-CARES Act levels beginning February 1, 2022. In addition, during the fourth quarter of 2021 and first quarter of 2022, the Company anticipates earning additional revenue from the Department based on incremental work to be performed by the Company to support the Department borrowers coming out of forbearance. Such services and activities include extended hours of operation and outbound engagement.

Private Education Loan Servicing




In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education student loans representing approximately 445,000 borrowers. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the vast majority of the remaining borrowers converted in the second quarter of 2021.
Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income$71025306Decrease was due to lower interest rates in 2021 as compared to 2020.
Loan servicing and systems revenue112,351113,794335,961337,571See table below for additional information.
Intersegment servicing revenue8,6218,28725,36927,878Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments. Increase in the three months ended September 20, 2021 as compared to the same period in 2020 was due to an increase in private loan servicing revenue from AGM related to AGM's partial ownership of the former Wells Fargo private education loan portfolio, partially offset by the expected amortization of AGM's FFELP portfolio. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income7272,3532,5416,897Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.
Impairment expense(13,243)(13,243)During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge during the third quarter of 2021. The impairment charge recognized by the LSS operating segment related primarily to building and building improvement assets.
Total other income108,456124,434350,628372,346
43


 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Net interest income$147
 37
 361
 80
 
Loan systems and servicing revenue55,950
 54,350
 167,079
 161,082
 See table below for additional analysis.
Intersegment servicing revenue10,563
 11,021
 30,839
 34,436
 Represents revenue earned by the LSS operating segment as a result of servicing loans for the AGM operating segment. Decrease was due to a decrease in loans serviced for the AGM segment during the comparable periods due to portfolio run-off. In August 2017, the AGM operating segment converted $3.1 billion of loans from a third-party servicer to the LSS operating segment's servicing platform.
Total other income66,513
 65,371
 197,918
 195,518
 
Salaries and benefits38,435
 32,505
 116,932
 96,851
 Increase due to contract programming related to GreatNet and an increase in personnel to support the increase in volume of loans serviced for the government entering repayment status and the increase in private education and consumer loan servicing volume.
Depreciation and amortization549
 557
 1,644
 1,440
 
Other expenses10,317
 8,784
 28,333
 31,635
 Increase in the three months ended September 30, 2017 compared to the same period in 2016 due to increase in operating expenses related to GreatNet. Decrease in the nine months ended September 30, 2017 compared to the same period in 2016 due primarily to the elimination of FFELP guaranty collection costs directly related to the loss of FFELP guaranty collection revenue. There were no collection costs for the three and nine months ended September 30, 2017 and three months ended September 30, 2016, and $3.5 million for the nine months ended September 30, 2016. Excluding collection costs, other expenses were $28.1 million for the nine months ended September 30, 2016. See additional information below regarding the loss of FFELP guaranty collection revenue.
Intersegment expenses, net7,774
 5,825
 23,496
 18,168
 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses57,075
 47,671
 170,405
 148,094
 
Income before income taxes9,585
 17,737
 27,874
 47,504
 
Income tax expense(4,937) (6,740) (14,410) (18,052) Reflects income tax expense based on 38% of income before taxes and the net loss attributable to noncontrolling interest.
Net income4,648
 10,997
 13,464
 29,452
 
  Net loss attributable to noncontrolling interest3,408
 
 10,050
 
 Represents the net loss of GreatNet attributable to Great Lakes. See "Noncontrolling Interest" in note 1 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Net income attributable to
Nelnet, Inc.
$8,056
 10,997
 23,514
 29,452
  
Before tax operating margin14.4% 27.1% 14.1% 24.3% Decrease in margin due to increases in salaries and benefits and other operating expenses as described above (including costs incurred related to GreatNet) and the loss of the guaranty business which had higher margin than the remaining businesses. Before tax operating margin, excluding the net loss attributable to noncontrolling interest (Great Lakes) for the three and nine months ended September 30, 2017 was 18.5% and 18.2%, respectively.
Salaries and benefits75,30572,912210,151211,806Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in contact center operations and support personnel as a result of the suspension of federal student loan payments beginning in March 2020 under the CARES Act. Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to the Company hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022. The Company currently expects salaries and benefits to continue to increase as it prepares for the provisions of the CARES Act to expire.
Depreciation and amortization4,2459,95120,41127,941Includes depreciation on property and equipment and amortization of intangibles from the Great Lakes acquisition in February 2018. Amortization of intangible assets for the three months ended September 30, 2021 and 2020 was $0.7 million and $5.6 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $11.6 million and $15.4 million, respectively. The majority of the Great Lakes intangible assets became fully amortized at June 30, 2021. Excluding amortization of intangible assets, the decrease in 2021 compared to 2020 was due to certain purchases to integrate Great Lakes and expand servicing capacity becoming fully depreciated.
Other expenses12,73812,40739,29643,277Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily through a significant reduction of borrower statement printing and postage costs while student loan payments are suspended. The Company currently expects these costs will increase when the provisions of the CARES Act expire, scheduled for January 31, 2022. Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence.
Intersegment expenses19,21715,83452,24148,069Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase in 2021 was due to the Company hiring contact center operations and support associates during the third quarter of 2021 in preparation for the provisions of the CARES Act to expire January 31, 2022. The Company currently expects intersegment expenses to continue to increase as it prepares for the provisions of the CARES Act to expire.
Total operating expenses111,505111,104322,099331,093
(Loss) income before income taxes(3,042)13,34028,55441,559
Income tax benefit (expense)730(3,201)(6,853)(9,974)Represents income tax expense at an effective tax rate of 24%.
Net (loss) income$(2,312)10,13921,70131,585

GAAP before tax operating margin(2.5)%10.7 %7.9 %11.2 %
Before tax operating margin, excluding impairment expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment expense) divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it provides additional information to facilitate an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

Before tax operating margin, excluding impairment expense, decreased for the three months ended September 30, 2021 as compared to the same period in 2020 due to increased operating expenses as the Company prepares for the provisions of the CARES Act to expire on January 31, 2022. Before tax operating margin, excluding impairment expense, increased for the nine months ended September 30, 2021 as compared to the same period in 2020 due to operating expenses being lower throughout the first half of 2021 as a result of the suspension of federal student loan payments under the CARES Act as discussed above.
Impairment expense10.9 %— 3.6 %— 
Non-GAAP before tax operating margin, excluding impairment expense8.4 %10.7 %11.5 %11.2 %

44




Loan systemsservicing and servicingsystems revenue
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Government servicing - Nelnet$37,595 36,295 107,843 112,305 Represents revenue from Nelnet Servicing's Department servicing contract. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act, and further decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020. These items were partially offset by an increase in the number of borrowers serviced. Increase in revenue for the three months ended September 30, 2021 compared to the same period in 2020 was a result of an increase in the number of borrowers serviced, partially offset by a decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.
Government servicing - Great Lakes46,489 45,350 133,654 137,010 Represents revenue from Great Lakes' Department servicing contract. Changes among the current and comparable prior periods were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes does not administer the TPD discharge program.
Private education and consumer loan servicing13,198 7,928 34,563 24,733 Increase for the three and nine months ended September 30, 2021 compared to the same periods in 2020 was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021. Excluding revenue earned on the former Wells Fargo portfolio, revenue for the three and nine months ended September 30, 2021 decreased compared to the comparable periods in 2020. The decrease in revenue was due to a decrease in the number of legacy borrowers serviced, a decrease in origination fee revenue, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.
FFELP servicing4,557 4,912 13,930 15,443 Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced. In addition, decrease during the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.
Software services6,952 10,426 22,779 32,395 Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring in January 2021. This decrease in revenue was partially offset by an increase in the number of remote hosted servicing borrowers in 2021 as compared to 2020.
Outsourced services3,560 8,883 23,192 15,685 The majority of this revenue relates to providing contact center and back office operational outsourcing services. During 2020, the Company began providing services to state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support). Outsourcing activities provided to state agencies are performed under shorter-term contracts. Revenue from providing these services to state agencies was $1.3 million and $6.6 million for the three months ended September 30, 2021 and 2020, respectively, and $16.3 million and $9.7 million during the nine months ended September 30, 2021 and 2020, respectively. Outsourcing activities provided to state agencies decreased during the third quarter of 2021 as the needs for such services have decreased from prior periods.
Loan servicing and systems revenue$112,351 113,794 335,961 337,571 

45
 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Government servicing$38,594
 40,159
 117,409
 112,453
 Increase for the nine months ended September 30, 2017 compared to the same period in 2016 due to an increase in application volume for the Company's administration of the Total and Permanent Disability Discharge (TPD) and Direct Loan Consolidation programs, the transfer of borrowers from a not-for-profit servicer who exited the loan servicing business in August 2016, and the shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses. Decrease for the three months ended September 30, 2017 compared to the same period in 2016 due to lower TPD application volume. On August 15, 2017, the Department provided an update on its Direct Loan servicing contract with performance metrics results for the period January 1, 2017 through June 30, 2017 and new volume allocations for its student loan servicers based on these results. The new performance results had the Company ranked fourth among all TIVAS and NFP servicers, which resulted in the Company being allocated 11 percent of new student loan servicing volume for the period September 1, 2017 through February 28, 2018. The Company ranked second among the four large TIVAS, with Great Lakes ranking first.
FFELP servicing3,979
 4,541
 11,693
 11,864
 Decrease due to conversion revenue recognized during the third quarter of 2016. Over time, FFELP servicing revenue will decrease as third-party customers' FFELP portfolios run off.
Private education and consumer loan servicing7,596
 4,142
 20,535
 10,715
 Increase due to growth in loan servicing volume from existing and new clients.
FFELP guaranty servicing
 
 
 2,349
 The Company’s remaining guaranty servicing client exited the FFELP guaranty business at the end of their contract term on June 30, 2016, and after this date the Company has no remaining guaranty servicing revenue.
FFELP guaranty collection
 
 
 7,211
 The Company’s remaining guaranty collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016, and after this date the Company has no remaining guaranty collection revenue. The Company incurred collection costs that were directly related to guaranty collection revenue.
Software services4,430
 4,491
 13,093
 13,753
 The majority of software services revenue relates to providing hosted student loan servicing. The decrease in 2017 as compared to 2016 was due to (i) a not-for-profit servicer exiting the loan servicing business in August 2016, resulting in a transfer of its servicing volume to the Company that is included in the Company's government servicing volume; (ii) a shift in the composition of loans serviced by remote hosted customers from borrowers in higher paying repayment status to in-school status; and (iii) a decrease in revenue from other software service products. These decreases were partially offset by an increase in the number of remote hosted borrowers.
 Other1,351
 1,017
 4,349
 2,737
 Increase due to growth in contact center outsourcing activities.
Loan systems and servicing revenue$55,950
 54,350
 167,079
 161,082
  




TUITIONEDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING AND CAMPUS COMMERCE OPERATING SEGMENT – RESULTS OF OPERATIONS

ThisAs discussed further in the Company's 2020 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Tuition management revenue is recognized over the course of the academic term, but the peak operational activities take place in summer and early fall. Higher amounts of revenue are typically recognized during the first quarter due to fees related to grant and aid applications as well as online applications and enrollment services.  The Company’s operating expenses do not follow the seasonality of the revenues. This is primarily due to generally fixed year-round personnel costs and seasonal marketing costs. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.

On December 31, 2020, the Company acquired HigherSchool Instructional Services ("HigherSchool"), a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC ("CD2"), a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding. The results of HigherSchool and CD2 are reported in the Company’s consolidated financial statements from the date of acquisition. Revenue recognized by these acquisitions during the three and nine months ended September 30, 2021 was $3.4 million and $18.5 million, respectively.
Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income$344 351 818 2,723 Represents interest income on tuition funds held in custody for schools. Decrease was due to a significant decrease in interest rates in March 2020. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.
Education technology, services, and payment processing revenue85,324 74,121 257,284 217,100 See table below for additional information.
Intersegment revenue17 
Other income13 373 13 373 
Total other income85,340 74,497 257,306 217,490 
Cost to provide education technology, services, and payment processing services31,335 25,243 80,063 63,424 See table below for additional information.
Salaries and benefits29,119 25,460 82,154 73,678 Increase in 2021 compared to 2020 was due to an increase in headcount to support the growth of the customer base, the investment in the development of new technologies, and the acquisitions of HigherSchool and CD2.
Depreciation and amortization2,762 2,366 8,789 7,115 Represents primarily amortization of intangible assets from prior business acquisitions. Amortization of intangible assets related to business acquisitions was $2.6 million and $2.4 million for the three months ended September 30, 2021 and 2020, respectively, and $8.3 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in 2021 compared to 2020 was due to the acquisitions of HigherSchool and CD2.
Other expenses4,804 3,126 14,063 11,544 Increase was due to higher costs for consulting and professional fees due to investments in new technologies, the acquisitions of HigherSchool and CD2, and an increase in travel and in-person conferences during the third quarter of 2021.
Intersegment expenses, net3,672 3,610 10,856 10,366 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses40,357 34,562 115,862 102,703 
Income before income taxes13,992 15,043 62,199 54,086 
Income tax expense(3,358)(3,610)(14,928)(12,981)Represents income tax expense at an effective tax rate of 24%.
Net income$10,634 11,433 47,271 41,105 


46


 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Net interest income$5
 2
 10
 7
  
Tuition payment processing, school information, and campus commerce revenue35,450
 33,071
 113,293
 102,211
 Increase was due to an increase in the number of managed tuition payment plans, campus commerce customer transactions and payments volume, and new school customers.
Salaries and benefits17,432
 15,979
 50,986
 45,859
 Increase due to additional personnel to support the increase in payment plans and campus commerce activity and continued investments in and enhancements of payment plan and campus commerce systems and products.
Depreciation and amortization2,316
 2,929
 7,053
 7,711
  
Other expenses4,224
 4,149
 14,072
 13,122
 Increase due to additional costs to support the increase in payment plans and campus commerce activity and continued investments in and enhancements of payment plan and campus commerce systems and products.
Intersegment expenses, net2,219
 1,616
 6,430
 4,690
 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses26,191
 24,673
 78,541
 71,382
  
Income before income taxes9,264
 8,400
 34,762
 30,836
  
Income tax expense(3,520) (3,192) (13,210) (11,718)  
Net income$5,744
 5,208
 21,552
 19,118
  
Before tax operating margin26.1% 25.4% 30.7% 30.2%  
Education technology, services, and payment processing revenue


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

 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Tuition payment plan services$23,61822,47779,70677,011Revenue increased for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 as a result of a higher number of payment plans in the K-12 market, partially offset due to enrollment for institutions of higher education decreasing as a result of COVID-19.
Payment processing39,85235,42097,89888,329Payment volumes in 2021 increased as compared to 2020 in both the K-12 and higher education markets. The increase in payments volume is driven by both new customers and an increase in volume from existing customers.
Education technology and services21,09815,84078,15350,820Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions. Additionally, revenues from the Company’s school information system software, application and enrollment products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.
Other7563841,527940
Education technology, services, and payment processing revenue85,32474,121257,284217,100
Cost to provide education technology, services, and payment processing services31,33525,24380,06363,424Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also included as a component of this expense and were a driver in the increase in 2021 compared to 2020 due to the acquisition of HigherSchool and growth in the FACTS Education Solutions division.
Net revenue$53,98948,878177,221153,676
Before tax operating margin25.9 %30.8 %35.1%35.2%
Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes divided by net revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it facilitates an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

The decrease in margin for the three months ended September 30, 2021 as compared to the same period in 2020 was due to investment in the development of new technologies and increase in travel and in-person conferences in 2021.
COMMUNICATIONS OPERATING SEGMENT – RESULTS OF OPERATIONS

Summary and Comparison of Operating Results
47
 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Net interest income (expense)$(1,550) (318) (3,365) (670) Allo has a line of credit with Nelnet, Inc. (parent company). The interest expense incurred by Allo and related interest income earned by Nelnet, Inc. is eliminated for the Company's consolidated financial statements. The average outstanding balance on this line of credit for the three months ended September 30, 2017 and 2016 was $131.4 million and $35.7 million, respectively, and $98.3 million and $24.6 million for the nine months ended September 30, 2017 and 2016, respectively. The proceeds from debt were used by Allo for network capital expenditures and related expenses.
Communications revenue6,751
 4,343
 17,577
 13,167
 Communications revenue is derived primarily from the sale of pure fiber optic services to residential and business customers in Nebraska, including internet, television, and telephone services. Increase was primarily due to additional residential households served. See additional financial and operating data for Allo in the tables below.
Salaries and benefits4,099
 2,325
 10,489
 4,792
 Since the acquisition of Allo on December 31, 2015, there has been a significant increase in personnel to support the Lincoln, Nebraska network expansion. As of December 31, 2015, September 30, 2016, December 31, 2016, and September 30, 2017, Allo had 97, 279, 318, and 464 employees, respectively, including part-time employees. Allo also uses temporary employees in the normal course of business. Certain costs qualify for capitalization as Allo builds its network.
Depreciation and amortization3,145
 1,630
 7,880
 4,137
 Depreciation reflects the allocation of the costs of Allo's property and equipment over the period in which such assets are used. Since the acquisition of Allo on December 31, 2015, there has been a significant amount of property and equipment purchases to support the Lincoln, Nebraska network expansion. Amortization reflects the allocation of costs related to intangible assets recorded at fair value as of the date the Company acquired Allo over their estimated useful lives.
Cost to provide communications services2,632
 1,784
 6,789
 5,169
 Cost of services and products primarily associated with television programming costs.
Other expenses2,278
 1,545
 5,422
 3,110
 Other operating expenses includes selling, general, and administrative expenses necessary for operations, such as advertising, occupancy, professional services, construction materials, personal property taxes, and provision for losses on accounts receivable. Increase was due to expansion of the Lincoln, Nebraska network and number of households served.
Intersegment expenses, net470
 279
 1,472
 610
 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses12,624
 7,563
 32,052
 17,818
  
Loss before income taxes(7,423) (3,538) (17,840) (5,321)  
Income tax benefit2,821
 1,344
 6,779
 2,022
  
Net loss$(4,602) (2,194) (11,061) (3,299) 
The Company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.

          
Additional Information:         
Net loss$(4,602) (2,194) (11,061) (3,299)  
Net interest expense1,550
 318
 3,365
 670
  
Income tax benefit(2,821) (1,344) (6,779) (2,022)  
Depreciation and amortization3,145
 1,630
 7,880
 4,137
  
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)$(2,728) (1,590) (6,595) (514) For additional information regarding this non-GAAP measure, see the table below.



Certain financial and operating data for Allo is summarized in the tables below.


 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Residential revenue$4,691
 2,643
 11,862
 7,695
Business revenue2,003
 1,565
 5,514
 4,777
Other revenue57
 135
 201
 695
Total revenue$6,751
 4,343
 17,577
 13,167
        
Net loss$(4,602) (2,194) (11,061) (3,299)
EBITDA (a)(2,728) (1,590) (6,595) (514)
        
Capital expenditures29,417
 12,610
 78,430
 24,647
        
Revenue contribution:       
Internet46.7% 40.5 % 44.6% 38.5%
Television30.8
 32.5
 30.7
 32.2
Telephone20.6
 27.2
 22.5
 27.1
Other1.9
 (0.2) 2.2
 2.2
 100.0% 100.0 % 100.0% 100.0%

 As of September 30, 2017 As of
June 30, 2017
 As of
March 31, 2017
 
As of
December 31, 2016
 As of September 30, 2016 
As of
June 30, 2016
 As of
March 31, 2016
 
As of
December 31, 2015
Residential customer information:               
Households served16,394
 12,460
 10,524
 9,814
 8,745
 8,314
 7,909
 7,600
Households passed (b)54,815
 45,880
 34,925
 30,962
 22,977
 22,977
 21,274
 21,274
Total households in current markets (c)137,500
 137,500
 137,500
 137,500
 137,500
 137,500
 137,500
 28,874

(a)
Earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. Allo's management uses EBITDA to compare Allo's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for Allo because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess Allo's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from Allo's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from net income (loss) under GAAP is presented under "Summary and Comparison of Operating Results" in the table above.
(b)Represents the number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.
(c)During the first quarter of 2016, Allo announced plans to expand its network to make services available to substantially all commercial and residential premises in Lincoln, Nebraska, and currently plans to expand to additional communities in Nebraska and surrounding states over the next several years.


ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS

Student Loan Portfolio

As of September 30, 2017,2021, the CompanyAGM operating segment had a $22.5$18.4 billion student loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 2520 years and has a weighted average remaining life of 9.3 years. For a summary of the Company’s student loan portfolio as of September 30, 20172021 and December 31, 2016,2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income$71025306Decrease was due to lower interest rates in 2021 as compared to 2020.
Loan servicing and systems revenue112,351113,794335,961337,571See table below for additional information.
Intersegment servicing revenue8,6218,28725,36927,878Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments. Increase in the three months ended September 20, 2021 as compared to the same period in 2020 was due to an increase in private loan servicing revenue from AGM related to AGM's partial ownership of the former Wells Fargo private education loan portfolio, partially offset by the expected amortization of AGM's FFELP portfolio. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income7272,3532,5416,897Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.
Impairment expense(13,243)(13,243)During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge during the third quarter of 2021. The impairment charge recognized by the LSS operating segment related primarily to building and building improvement assets.
Total other income108,456124,434350,628372,346
43


Salaries and benefits75,30572,912210,151211,806Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in contact center operations and support personnel as a result of the suspension of federal student loan payments beginning in March 2020 under the CARES Act. Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to the Company hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022. The Company currently expects salaries and benefits to continue to increase as it prepares for the provisions of the CARES Act to expire.
Depreciation and amortization4,2459,95120,41127,941Includes depreciation on property and equipment and amortization of intangibles from the Great Lakes acquisition in February 2018. Amortization of intangible assets for the three months ended September 30, 2021 and 2020 was $0.7 million and $5.6 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $11.6 million and $15.4 million, respectively. The majority of the Great Lakes intangible assets became fully amortized at June 30, 2021. Excluding amortization of intangible assets, the decrease in 2021 compared to 2020 was due to certain purchases to integrate Great Lakes and expand servicing capacity becoming fully depreciated.
Other expenses12,73812,40739,29643,277Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily through a significant reduction of borrower statement printing and postage costs while student loan payments are suspended. The Company currently expects these costs will increase when the provisions of the CARES Act expire, scheduled for January 31, 2022. Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence.
Intersegment expenses19,21715,83452,24148,069Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase in 2021 was due to the Company hiring contact center operations and support associates during the third quarter of 2021 in preparation for the provisions of the CARES Act to expire January 31, 2022. The Company currently expects intersegment expenses to continue to increase as it prepares for the provisions of the CARES Act to expire.
Total operating expenses111,505111,104322,099331,093
(Loss) income before income taxes(3,042)13,34028,55441,559
Income tax benefit (expense)730(3,201)(6,853)(9,974)Represents income tax expense at an effective tax rate of 24%.
Net (loss) income$(2,312)10,13921,70131,585

GAAP before tax operating margin(2.5)%10.7 %7.9 %11.2 %
Before tax operating margin, excluding impairment expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment expense) divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it provides additional information to facilitate an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

Before tax operating margin, excluding impairment expense, decreased for the three months ended September 30, 2021 as compared to the same period in 2020 due to increased operating expenses as the Company prepares for the provisions of the CARES Act to expire on January 31, 2022. Before tax operating margin, excluding impairment expense, increased for the nine months ended September 30, 2021 as compared to the same period in 2020 due to operating expenses being lower throughout the first half of 2021 as a result of the suspension of federal student loan payments under the CARES Act as discussed above.
Impairment expense10.9 %— 3.6 %— 
Non-GAAP before tax operating margin, excluding impairment expense8.4 %10.7 %11.5 %11.2 %
44


Loan Activityservicing and systems revenue

 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Government servicing - Nelnet$37,595 36,295 107,843 112,305 Represents revenue from Nelnet Servicing's Department servicing contract. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act, and further decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020. These items were partially offset by an increase in the number of borrowers serviced. Increase in revenue for the three months ended September 30, 2021 compared to the same period in 2020 was a result of an increase in the number of borrowers serviced, partially offset by a decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.
Government servicing - Great Lakes46,489 45,350 133,654 137,010 Represents revenue from Great Lakes' Department servicing contract. Changes among the current and comparable prior periods were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes does not administer the TPD discharge program.
Private education and consumer loan servicing13,198 7,928 34,563 24,733 Increase for the three and nine months ended September 30, 2021 compared to the same periods in 2020 was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021. Excluding revenue earned on the former Wells Fargo portfolio, revenue for the three and nine months ended September 30, 2021 decreased compared to the comparable periods in 2020. The decrease in revenue was due to a decrease in the number of legacy borrowers serviced, a decrease in origination fee revenue, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.
FFELP servicing4,557 4,912 13,930 15,443 Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced. In addition, decrease during the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.
Software services6,952 10,426 22,779 32,395 Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring in January 2021. This decrease in revenue was partially offset by an increase in the number of remote hosted servicing borrowers in 2021 as compared to 2020.
Outsourced services3,560 8,883 23,192 15,685 The majority of this revenue relates to providing contact center and back office operational outsourcing services. During 2020, the Company began providing services to state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support). Outsourcing activities provided to state agencies are performed under shorter-term contracts. Revenue from providing these services to state agencies was $1.3 million and $6.6 million for the three months ended September 30, 2021 and 2020, respectively, and $16.3 million and $9.7 million during the nine months ended September 30, 2021 and 2020, respectively. Outsourcing activities provided to state agencies decreased during the third quarter of 2021 as the needs for such services have decreased from prior periods.
Loan servicing and systems revenue$112,351 113,794 335,961 337,571 

45


EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS
As discussed further in the Company's 2020 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.
On December 31, 2020, the Company acquired HigherSchool Instructional Services ("HigherSchool"), a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC ("CD2"), a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding. The results of HigherSchool and CD2 are reported in the Company’s consolidated financial statements from the date of acquisition. Revenue recognized by these acquisitions during the three and nine months ended September 30, 2021 was $3.4 million and $18.5 million, respectively.
Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income$344 351 818 2,723 Represents interest income on tuition funds held in custody for schools. Decrease was due to a significant decrease in interest rates in March 2020. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.
Education technology, services, and payment processing revenue85,324 74,121 257,284 217,100 See table below for additional information.
Intersegment revenue17 
Other income13 373 13 373 
Total other income85,340 74,497 257,306 217,490 
Cost to provide education technology, services, and payment processing services31,335 25,243 80,063 63,424 See table below for additional information.
Salaries and benefits29,119 25,460 82,154 73,678 Increase in 2021 compared to 2020 was due to an increase in headcount to support the growth of the customer base, the investment in the development of new technologies, and the acquisitions of HigherSchool and CD2.
Depreciation and amortization2,762 2,366 8,789 7,115 Represents primarily amortization of intangible assets from prior business acquisitions. Amortization of intangible assets related to business acquisitions was $2.6 million and $2.4 million for the three months ended September 30, 2021 and 2020, respectively, and $8.3 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in 2021 compared to 2020 was due to the acquisitions of HigherSchool and CD2.
Other expenses4,804 3,126 14,063 11,544 Increase was due to higher costs for consulting and professional fees due to investments in new technologies, the acquisitions of HigherSchool and CD2, and an increase in travel and in-person conferences during the third quarter of 2021.
Intersegment expenses, net3,672 3,610 10,856 10,366 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses40,357 34,562 115,862 102,703 
Income before income taxes13,992 15,043 62,199 54,086 
Income tax expense(3,358)(3,610)(14,928)(12,981)Represents income tax expense at an effective tax rate of 24%.
Net income$10,634 11,433 47,271 41,105 


46


Education technology, services, and payment processing revenue
The following table sets forthprovides disaggregated revenue by service offering and before tax operating margin for each reporting period.
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Tuition payment plan services$23,61822,47779,70677,011Revenue increased for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 as a result of a higher number of payment plans in the K-12 market, partially offset due to enrollment for institutions of higher education decreasing as a result of COVID-19.
Payment processing39,85235,42097,89888,329Payment volumes in 2021 increased as compared to 2020 in both the K-12 and higher education markets. The increase in payments volume is driven by both new customers and an increase in volume from existing customers.
Education technology and services21,09815,84078,15350,820Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions. Additionally, revenues from the Company’s school information system software, application and enrollment products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.
Other7563841,527940
Education technology, services, and payment processing revenue85,32474,121257,284217,100
Cost to provide education technology, services, and payment processing services31,33525,24380,06363,424Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also included as a component of this expense and were a driver in the increase in 2021 compared to 2020 due to the acquisition of HigherSchool and growth in the FACTS Education Solutions division.
Net revenue$53,98948,878177,221153,676
Before tax operating margin25.9 %30.8 %35.1%35.2%
Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes divided by net revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it facilitates an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

The decrease in margin for the three months ended September 30, 2021 as compared to the same period in 2020 was due to investment in the development of new technologies and increase in travel and in-person conferences in 2021.


47


ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of September 30, 2021, the activityAGM operating segment had a $18.4 billion loan portfolio, consisting primarily of loans:
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Beginning balance$23,390,300
 26,754,560
 25,103,643
 28,555,749
Loan acquisitions37,532
 52,667
 142,386
 238,595
Repayments, claims, capitalized interest, and other(446,588) (660,074) (1,643,049) (1,989,806)
Consolidation loans lost to external parties(267,331) (327,766) (889,067) (940,413)
Loans sold
 (22) 
 (44,760)
Ending balance$22,713,913
 25,819,365
 22,713,913
 25,819,365
Allowance for Loan Losses and Loan Delinquencies

The Company maintains an allowancefederally insured loans, that management believes is appropriate to absorb losses, netanticipates will amortize over the next approximately 20 years and has a weighted average remaining life of recoveries, inherent in the portfolio of student loans, which results in periodic expense provisions for loan losses. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.  

9.3 years. For a summary of the activity in the allowance forCompany’s loan losses for the three and nine months ended portfolio as of September 30, 20172021 and 2016, and a summary of the Company's student loan delinquency amounts as of September 30, 2017, December 31, 2016, and September 30, 2016,2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

Provision for loan losses for federally insured loans was $7.0 million for the three months ended September 30, 2017. During the three months ended September 30, 2017, the Company determined an additional allowance was necessary related to a $1.6 billion (principal balance as of September 30, 2017) portfolio of federally insured loans that were purchased in 2014 and 2015, and recognized $5.0 million (pre-tax) in provision expense related to these loans.

Provision for loan losses for federally insured loans was also $7.0 million for the three months ended September 30, 2016. During the three months ended September 30, 2016, the Company determined an additional allowance was necessary related to a $1.2 billion (principal balance as of September 30, 2016) portfolio of federally insured rehabilitation loans that were purchased in 2012 and 2013, and recognized $5.0 million (pre-tax) in provision expense related to these loans.

For loans purchased where there is evidence of credit deterioration since the origination of the loan, the Company records a credit discount, separate from the allowance for loan losses, which is non-accretable to interest income.  Remaining discounts and premiums for purchased loans are recognized in interest income over the remaining estimated lives of the loans.  The Company continues to evaluate credit losses associated with purchased loans based on current information and changes in expectations to determine the need for any additional allowance for loan losses. 

The Company recorded a negative provision for private education loan losses for the three and nine months ended September 30, 2017 and 2016 due to better than expected credit performance.





Student Loan Spread Analysis

The following table analyzes the student loan spread on the Company’s portfolio of student loans, which represents the spread between the yield earned on student 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, net of settlements on derivatives" below, divided by the average balance of student loans or debt outstanding.
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Variable student loan yield, gross3.62 % 2.93 % 3.44 % 2.87 %
Consolidation rebate fees(0.85) (0.83) (0.84) (0.83)
Discount accretion, net of premium and deferred origination costs amortization (a)0.07
 0.06
 0.07
 0.06
Variable student loan yield, net2.84
 2.16
 2.67
 2.10
Student loan cost of funds - interest expense(2.09) (1.44) (1.91) (1.36)
Student loan cost of funds - derivative settlements (b) (c)(0.07) (0.01) (0.04) (0.01)
Variable student loan spread0.68
 0.71
 0.72
 0.73
Fixed rate floor income, gross0.42
 0.63
 0.47
 0.64
Fixed rate floor income - derivative
settlements (b) (d)
0.07
 (0.08) 0.03
 (0.07)
Fixed rate floor income, net of settlements on derivatives0.49
 0.55
 0.50
 0.57
Core student loan spread1.17 % 1.26 % 1.22 % 1.30 %
        
Average balance of student loans$23,188,577
 26,368,507
 23,948,108
 27,305,128
Average balance of debt outstanding22,892,789
 26,235,053
 23,687,067
 27,188,069

(a)In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income. The impact of this adjustment was excluded from the above table.

(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 (student loan spread) as presented in this table. The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management.  There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.  See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the periods presented in the table under the caption "Income Statement Impact" in note 4 and in this table.

(c)Reflects the net settlements paid/received related to the Company’s 1:3 basis swaps and cross-currency interest rate swap. 

(d)Derivative settlements include the net settlements paid/received related to the Company’s floor income interest rate swaps.


A trend analysis of the Company's core and variable student loan spreads is summarized below.

slsgraph2017q3a01.jpg
(a)The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate.  The Company funds a majority of its assets with three-month LIBOR indexed floating rate securities.  The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on student loan spread.  This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s FFELP student loan assets and related funding for those assets.

Variable student loan spread decreased during the three months ended September 30, 2017 as compared to the same period in 2016 due to an increase in derivative settlements paid related to the Company's 1:3 basis swaps.

The primary difference between variable student loan spread and core student loan spread is fixed rate floor income.  A summary of fixed rate floor income and its contribution to core student loan spread follows:
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Fixed rate floor income, gross$24,586
 41,509
 84,382
 131,720
Derivative settlements (a)3,883
��(5,157) 5,877
 (15,241)
Fixed rate floor income, net$28,469
 36,352
 90,259
 116,479
Fixed rate floor income contribution to spread, net0.49% 0.55% 0.50% 0.57%
(a)Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.

The high levels of fixed rate floor income earned during 2017 and 2016 are due to historically low interest rates.  If interest rates remain low, the Company anticipates continuing to earn significant fixed rate floor income in future periods. The decrease in gross fixed rate floor income for the three and nine months ended September 30, 2017 compared to the same periods in 2016 was due to an increase in interest rates. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk,” which provides additional detail on the Company’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.


Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income$71025306Decrease was due to lower interest rates in 2021 as compared to 2020.
Loan servicing and systems revenue112,351113,794335,961337,571See table below for additional information.
Intersegment servicing revenue8,6218,28725,36927,878Represents revenue earned by the LSS operating segment from servicing loans for the AGM and Nelnet Bank operating segments. Increase in the three months ended September 20, 2021 as compared to the same period in 2020 was due to an increase in private loan servicing revenue from AGM related to AGM's partial ownership of the former Wells Fargo private education loan portfolio, partially offset by the expected amortization of AGM's FFELP portfolio. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to the impact of borrower relief policies implemented in March 2020 in response to the COVID-19 pandemic and the expected amortization of AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to decrease as AGM's FFELP portfolio pays off.
Other income7272,3532,5416,897Represents revenue earned from providing administrative support and marketing services, which primarily was to Great Lakes’ former parent company under a contract that expired in January 2021.
Impairment expense(13,243)(13,243)During the third quarter of 2021, the Company evaluated use of office space as a large number of employees continue to work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge during the third quarter of 2021. The impairment charge recognized by the LSS operating segment related primarily to building and building improvement assets.
Total other income108,456124,434350,628372,346
43


 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Net interest income after provision for loan losses$67,894
 93,318
 218,763
 281,861
 See table below for additional analysis.
Other income2,753
 4,265
 9,152
 12,362
 The primary component of other income is borrower late fees, which were $2.7 million and $3.2 million for the three months ended September 30, 2017 and 2016, respectively, and $9.1 million and $9.9 million for the nine months ended September 30, 2017 and 2016, respectively.
Gain from debt repurchases116
 2,160
 1,097
 2,260
 Gains were from the Company repurchasing its own asset-backed debt securities.
Derivative settlements, net(382) (6,028) (1,721) (17,596) The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
Derivative market value and foreign currency transaction adjustments, net7,702
 42,546
 (23,121) (8,763) Includes (i) the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars.
Total other income (expense)10,189
 42,943
 (14,593) (11,737)  
Salaries and benefits392
 486
 1,156
 1,504
  
Loan servicing fees7,939
 5,880
 19,584
 20,024
 Increase for the three months ended September 30, 2017 compared to the same period in 2016 due to a payment of $2.8 million in conversion fees related to a transfer of loans in August 2017 from a third-party servicer to the LSS operating segment's servicing platform. Excluding the $2.8 million conversion fee paid in the third quarter of 2017, loan servicing fees paid to third parties decreased $0.7 million and $3.2 million for the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to runoff of the Company's student loan portfolio and transfers of loans in August 2017 and June 2016 from third-party servicers to the LSS operating segment's servicing platform.
Other expenses1,451
 1,769
 4,269
 4,766
  
Intersegment expenses, net10,659
 11,146
 31,114
 34,791
 Amounts include fees paid to the LSS operating segment for the servicing of the Company’s student loan portfolio. These amounts exceed the actual cost of servicing the loans. Decrease due to a decrease in loans serviced by the LSS operating segment during the comparable periods due to portfolio runoff. In addition, intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses20,441
 19,281
 56,123
 61,085
 Total operating expenses were 35 basis points and 29 basis points of the average balance of student loans for the three months ended September 30, 2017 and 2016, respectively, and 31 basis points and 30 basis points for the nine months ended September 30, 2017 and 2016, respectively. When excluding the $2.8 million conversion fees paid in August 2017 to a third-party to transfer loans to the LSS operating segment's servicing platform, total operating expenses were 30, 29, 30 and 30 basis points for the three months ended September 30, 2017 and 2016 and nine months ended September 30, 2017 and 2016, respectively.
Income before income taxes57,642
 116,980
 148,047
 209,039
  
Income tax expense(21,904) (44,571) (56,258) (79,434)  
Net income$35,738
 72,409
 91,789
 129,605
  
          


Salaries and benefits75,30572,912210,151211,806Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in contact center operations and support personnel as a result of the suspension of federal student loan payments beginning in March 2020 under the CARES Act. Increase in the three months ended September 30, 2021 compared to the same period in 2020 was due to the Company hiring contact center operations and support associates to prepare for the resumption of federal student loan payments and other activities after the CARES Act suspension expires on January 31, 2022. The Company currently expects salaries and benefits to continue to increase as it prepares for the provisions of the CARES Act to expire.
Depreciation and amortization4,2459,95120,41127,941Includes depreciation on property and equipment and amortization of intangibles from the Great Lakes acquisition in February 2018. Amortization of intangible assets for the three months ended September 30, 2021 and 2020 was $0.7 million and $5.6 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $11.6 million and $15.4 million, respectively. The majority of the Great Lakes intangible assets became fully amortized at June 30, 2021. Excluding amortization of intangible assets, the decrease in 2021 compared to 2020 was due to certain purchases to integrate Great Lakes and expand servicing capacity becoming fully depreciated.
Other expenses12,73812,40739,29643,277Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to cost savings as a result of the impact of the COVID-19 pandemic and the resulting CARES Act (which became effective March 13, 2020), primarily through a significant reduction of borrower statement printing and postage costs while student loan payments are suspended. The Company currently expects these costs will increase when the provisions of the CARES Act expire, scheduled for January 31, 2022. Decrease was also due to cost savings from an increase in the adoption of electronic borrower statements and correspondence.
Intersegment expenses19,21715,83452,24148,069Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services. Increase in 2021 was due to the Company hiring contact center operations and support associates during the third quarter of 2021 in preparation for the provisions of the CARES Act to expire January 31, 2022. The Company currently expects intersegment expenses to continue to increase as it prepares for the provisions of the CARES Act to expire.
Total operating expenses111,505111,104322,099331,093
(Loss) income before income taxes(3,042)13,34028,55441,559
Income tax benefit (expense)730(3,201)(6,853)(9,974)Represents income tax expense at an effective tax rate of 24%.
Net (loss) income$(2,312)10,13921,70131,585

GAAP before tax operating margin(2.5)%10.7 %7.9 %11.2 %
Before tax operating margin, excluding impairment expense, is a non-GAAP measure of before tax operating profitability as a percentage of revenue, and for the LSS segment is calculated as income before income taxes (excluding impairment expense) divided by the total of loan servicing and systems revenue, intersegment servicing revenue, and other income revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it provides additional information to facilitate an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

Before tax operating margin, excluding impairment expense, decreased for the three months ended September 30, 2021 as compared to the same period in 2020 due to increased operating expenses as the Company prepares for the provisions of the CARES Act to expire on January 31, 2022. Before tax operating margin, excluding impairment expense, increased for the nine months ended September 30, 2021 as compared to the same period in 2020 due to operating expenses being lower throughout the first half of 2021 as a result of the suspension of federal student loan payments under the CARES Act as discussed above.
Impairment expense10.9 %— 3.6 %— 
Non-GAAP before tax operating margin, excluding impairment expense8.4 %10.7 %11.5 %11.2 %
44


Additional information:         
Net income$35,738
 72,409
 91,789
 129,605
  
Derivative market value and foreign currency transaction adjustments, net(7,702) (42,546) 23,121
 8,763
 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value and foreign currency transaction adjustments. Net income, excluding derivative market value and foreign currency transaction adjustments, decreased in 2017 as compared to 2016 due to (i) a decrease in the Company's student loan portfolio, (ii) a decrease in core student loan spread, (iii) a $2.8 million ($1.7 million after tax) expense related to conversion fees paid in August 2017 to a third-party to transfer loans to the LSS operating segment's servicing platform, and (iv) an increase in interest income of $8.2 million ($5.1 million after tax) recognized in the third quarter of 2016 related to a correction of an error as further described in note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Net tax effect2,927
 16,167
 (8,786) (3,330) 
Net income, excluding derivative market value and foreign currency transaction adjustments$30,963
 46,030
 106,124
 135,038
 
Loan servicing and systems revenue

 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Government servicing - Nelnet$37,595 36,295 107,843 112,305 Represents revenue from Nelnet Servicing's Department servicing contract. Decrease in the nine months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in revenue from the administration of the Total and Permanent Disability (TPD) Discharge program, decrease in fees earned from the Department for originating consolidation loans, decrease in revenue earned per borrower as a result of the suspension of federal student loan payments under the CARES Act, and further decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020. These items were partially offset by an increase in the number of borrowers serviced. Increase in revenue for the three months ended September 30, 2021 compared to the same period in 2020 was a result of an increase in the number of borrowers serviced, partially offset by a decrease in revenue earned per borrower (from the monthly rate of $2.19 per borrower to $2.05 per borrower) as a result of the Department issuing a change request effective October 1, 2020.
Government servicing - Great Lakes46,489 45,350 133,654 137,010 Represents revenue from Great Lakes' Department servicing contract. Changes among the current and comparable prior periods were due to the same factors as discussed immediately above for Nelnet Servicing, except that Great Lakes does not administer the TPD discharge program.
Private education and consumer loan servicing13,198 7,928 34,563 24,733 Increase for the three and nine months ended September 30, 2021 compared to the same periods in 2020 was due to the addition of the former Wells Fargo private education loan borrowers converted to the Company's servicing platform during March and the second quarter of 2021. Excluding revenue earned on the former Wells Fargo portfolio, revenue for the three and nine months ended September 30, 2021 decreased compared to the comparable periods in 2020. The decrease in revenue was due to a decrease in the number of legacy borrowers serviced, a decrease in origination fee revenue, and the impact of borrower relief policies implemented by private lenders in response to the COVID-19 pandemic.
FFELP servicing4,557 4,912 13,930 15,443 Decrease in 2021 compared to 2020 was due to a decrease in the number of borrowers serviced. In addition, decrease during the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the impact of borrower relief policies implemented by lenders in response to the COVID-19 pandemic. Over time, FFELP servicing revenue will continue to decrease as third-party customers' FFELP portfolios pay off.
Software services6,952 10,426 22,779 32,395 Decrease in 2021 compared to 2020 was due to many of the services provided under the Company's remote hosted servicing and system support contract with Great Lakes' former parent, representing 2.3 million borrowers, expiring in January 2021. This decrease in revenue was partially offset by an increase in the number of remote hosted servicing borrowers in 2021 as compared to 2020.
Outsourced services3,560 8,883 23,192 15,685 The majority of this revenue relates to providing contact center and back office operational outsourcing services. During 2020, the Company began providing services to state agencies to process unemployment claims and conduct certain health tracing support activities (including vaccination registration support). Outsourcing activities provided to state agencies are performed under shorter-term contracts. Revenue from providing these services to state agencies was $1.3 million and $6.6 million for the three months ended September 30, 2021 and 2020, respectively, and $16.3 million and $9.7 million during the nine months ended September 30, 2021 and 2020, respectively. Outsourcing activities provided to state agencies decreased during the third quarter of 2021 as the needs for such services have decreased from prior periods.
Loan servicing and systems revenue$112,351 113,794 335,961 337,571 


Net
45


EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS OF OPERATIONS
As discussed further in the Company's 2020 Annual Report, this segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year.
On December 31, 2020, the Company acquired HigherSchool Instructional Services ("HigherSchool"), a services company that provides supplemental instructional services and educational professional development for K-12 schools in New York City, and CD2 LLC ("CD2"), a platform technology solution that includes learning management, collaboration/workflow, gamification, customer management/document storage, and employee boarding. The results of HigherSchool and CD2 are reported in the Company’s consolidated financial statements from the date of acquisition. Revenue recognized by these acquisitions during the three and nine months ended September 30, 2021 was $3.4 million and $18.5 million, respectively.
Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income$344 351 818 2,723 Represents interest income on tuition funds held in custody for schools. Decrease was due to a significant decrease in interest rates in March 2020. If interest rates remain at current levels, the Company anticipates this segment will earn minimal interest income in future periods.
Education technology, services, and payment processing revenue85,324 74,121 257,284 217,100 See table below for additional information.
Intersegment revenue17 
Other income13 373 13 373 
Total other income85,340 74,497 257,306 217,490 
Cost to provide education technology, services, and payment processing services31,335 25,243 80,063 63,424 See table below for additional information.
Salaries and benefits29,119 25,460 82,154 73,678 Increase in 2021 compared to 2020 was due to an increase in headcount to support the growth of the customer base, the investment in the development of new technologies, and the acquisitions of HigherSchool and CD2.
Depreciation and amortization2,762 2,366 8,789 7,115 Represents primarily amortization of intangible assets from prior business acquisitions. Amortization of intangible assets related to business acquisitions was $2.6 million and $2.4 million for the three months ended September 30, 2021 and 2020, respectively, and $8.3 million and $7.1 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in 2021 compared to 2020 was due to the acquisitions of HigherSchool and CD2.
Other expenses4,804 3,126 14,063 11,544 Increase was due to higher costs for consulting and professional fees due to investments in new technologies, the acquisitions of HigherSchool and CD2, and an increase in travel and in-person conferences during the third quarter of 2021.
Intersegment expenses, net3,672 3,610 10,856 10,366 Intersegment expenses represent costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses40,357 34,562 115,862 102,703 
Income before income taxes13,992 15,043 62,199 54,086 
Income tax expense(3,358)(3,610)(14,928)(12,981)Represents income tax expense at an effective tax rate of 24%.
Net income$10,634 11,433 47,271 41,105 


46


Education technology, services, and payment processing revenue
The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting period.
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Tuition payment plan services$23,61822,47779,70677,011Revenue increased for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 as a result of a higher number of payment plans in the K-12 market, partially offset due to enrollment for institutions of higher education decreasing as a result of COVID-19.
Payment processing39,85235,42097,89888,329Payment volumes in 2021 increased as compared to 2020 in both the K-12 and higher education markets. The increase in payments volume is driven by both new customers and an increase in volume from existing customers.
Education technology and services21,09815,84078,15350,820Increase in 2021 compared to 2020 was primarily the result of the HigherSchool and CD2 acquisitions. Additionally, revenues from the Company’s school information system software, application and enrollment products, grant and aid assessments, and FACTS Education Solutions instructional and professional development services increased compared to the prior year.
Other7563841,527940
Education technology, services, and payment processing revenue85,32474,121257,284217,100
Cost to provide education technology, services, and payment processing services31,33525,24380,06363,424Costs primarily relate to payment processing revenue and such costs decrease/increase in relationship to payment volumes. Costs to provide instructional services are also included as a component of this expense and were a driver in the increase in 2021 compared to 2020 due to the acquisition of HigherSchool and growth in the FACTS Education Solutions division.
Net revenue$53,98948,878177,221153,676
Before tax operating margin25.9 %30.8 %35.1%35.2%
Before tax operating margin is a measure of before tax operating profitability as a percentage of revenue, and for the ETS&PP segment is calculated as income before income taxes divided by net revenue. The Company uses this metric to monitor and assess the segment’s performance, manage operating costs, identify and evaluate business trends affecting the segment, and make strategic decisions, and believes that it facilitates an understanding of the operating performance of the segment and provides a meaningful comparison of the results of operations between periods.

The decrease in margin for the three months ended September 30, 2021 as compared to the same period in 2020 was due to investment in the development of new technologies and increase in travel and in-person conferences in 2021.


47


ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of September 30, 2021, the AGM operating segment had a $18.4 billion loan portfolio, consisting primarily of federally insured loans, that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 9.3 years. For a summary of the Company’s loan portfolio as of September 30, 2021 and December 31, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
Loan Activity
The following table sets forth the activity of loans in the AGM operating segment:
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
Beginning balance$19,331,725 19,830,397 19,559,108 20,798,719 
Loan acquisitions:
Federally insured student loans70,844 137,714 833,313 947,288 
Private education loans1,680 — 88,131 80,908 
Consumer loans20,939 26,446 61,319 112,257 
Total loan acquisitions93,463 164,160 982,763 1,140,453 
Repayments, claims, capitalized interest, participations, and other, net(818,554)(277,949)(1,415,249)(1,715,214)
Consolidation loans lost to external parties(145,270)(136,263)(587,841)(519,364)
Consumer loans sold(18,390)(60,779)(95,807)(185,028)
Other loans sold(5,280)— (5,280)— 
Ending balance$18,437,694 19,519,566 18,437,694 19,519,566 

The Company has also purchased partial ownership in certain private education, consumer, and federally insured student loan securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments" in the Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to September 30, 2021, the Company’s ownership correlates to approximately $545 million, $250 million, and $485 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations. The loans held in these securitizations are not included in the above table.
The Company's federally insured student loan acquisitions include the purchase of rehabilitated loans purchased from guaranty agencies. After a guaranty agency rehabilitates a federally insured student loan, the agency sells the rehabilitated loan to a private lender, such as the Company. On March 30, 2021, the Department suspended collections on defaulted federally insured student loans held by guaranty agencies and reduced the interest rate on such loans to zero percent, effectively suspending interest payments. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the President first declared a national emergency for the COVID-19 pandemic. The Company currently believes these relief efforts will negatively impact the amount of rehabilitated loans the Company will have the opportunity to purchase in future periods.
Allowance for Loan Losses and Loan Delinquencies
For a summary of the Company's activity in the allowance for loan losses for the three and nine months ended September 30, 2021 and 2020, and a summary of the Company's loan status and delinquency amounts as of September 30, 2021, December 31, 2020, and September 30, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
AGM's total allowance for loan losses of $137.3 million at September 30, 2021 represents reserves equal to 0.6% of AGM's federally insured loans (or 23.6% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.3% of AGM's private education loans, and 12.0% of AGM's consumer loans.
48


Loan Spread Analysis
The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts included in the following table are calculated by using the notional dollar values found in the table under the caption "Net interest income after provision for loan losses, net of settlements on derivativesderivatives" below, divided by the average balance of loans or debt outstanding.

 Three months ended September 30,Nine months ended September 30,
2021202020212020
Variable loan yield, gross2.61 %2.77 %2.65 %3.29 %
Consolidation rebate fees(0.85)(0.84)(0.84)(0.84)
Discount accretion, net of premium and deferred origination costs amortization0.03 0.01 0.01 0.02 
Variable loan yield, net1.79 1.94 1.82 2.47 
Loan cost of funds - interest expense (a) (b)(0.99)(1.16)(1.03)(1.82)
Loan cost of funds - derivative settlements (c) (d)(0.02)0.02 (0.01)0.07 
Variable loan spread0.78 0.80 0.78 0.72 
Fixed rate floor income, gross0.75 0.73 0.75 0.58 
Fixed rate floor income - derivative settlements (c) (e)(0.11)(0.07)(0.10)(0.02)
Fixed rate floor income, net of settlements on derivatives0.64 0.66 0.65 0.56 
Core loan spread1.42 %1.46 %1.43 %1.28 %
Average balance of AGM's loans$19,084,320 19,866,040 19,178,788 20,300,617 
Average balance of AGM's debt outstanding18,863,730 19,632,675 18,890,832 20,153,478 

(a)     In the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of) "interest 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 in the table above.
(b)    In the third quarter of 2021, the Company redeemed certain asset-backed debt securities prior to their legal maturity, resulting in the recognition of $1.5 million in interest expense from the write-off of all remaining debt issuance costs related to the initial issuance of such bonds. This expense was excluded in the table above.
(c)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the 2021 and 2020 periods presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 4 and in this table.
49


A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without
derivative settlements follows.
Three months ended September 30,Nine months ended September 30,
2021202020212020
Core loan spread1.42 %1.46 %1.43 %1.28 %
Derivative settlements (1:3 basis swaps)0.02 (0.02)0.01 (0.07)
Derivative settlements (fixed rate floor income)0.11 0.07 0.10 0.02 
Loan spread1.55 %1.51 %1.54 %1.23 %

(d)    Derivative settlements consist of net settlements (paid) received related to the Company’s 1:3 basis swaps.
(e)    Derivative settlements consist of net settlements paid related to the Company’s floor income interest rate swaps.
A trend analysis of AGM's core and variable loan spreads is summarized below.
nni-20210930_g3.jpg
(a)    The interest earned on a large portion of AGM's FFELP student loan assets is indexed to the one-month LIBOR rate. AGM funds a portion of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which AGM earns interest on its loans and funds such loans has a significant impact on loan spread. This table (the right axis) shows the difference between AGM's liability base rate and the one-month LIBOR rate by quarter. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.
Variable loan spread increased during the nine months ended September 30, 2021 compared to the same period in 2020 due to a narrowing of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans (as reflected in the table above). The significant widening during the first and second quarters of 2020 was the result of a significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020. In a declining interest rate environment, student loan spread is compressed, due to the timing of interest rate resets on the Company's assets occurring daily in contrast to the timing of the interest resets on the Company's debt that occurs either monthly or quarterly. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.
50


The difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of AGM's federally insured student loan portfolio. A summary of fixed rate floor income and its contribution to core loan spread follows:
 Three months ended September 30,Nine months ended September 30,
2021202020212020
Fixed rate floor income, gross$35,850 36,633 108,029 87,258 
Derivative settlements (a)(5,209)(3,588)(14,648)(2,772)
Fixed rate floor income, net$30,641 33,045 93,381 84,486 
Fixed rate floor income contribution to spread, net0.64 %0.66 %0.65 %0.56 %

(a)    Derivative settlements consist of net settlements paid related to the Company's derivatives used to hedge student loans earning fixed rate floor income.
The increase in gross fixed rate floor income for the nine months ended September 30, 2021 compared to the same period in 2020 was due to lower interest rates in 2021 as compared to 2020. The Company has a portfolio of derivative instruments in which the Company pays a fixed rate and receives a floating rate to economically hedge a portion of loans earning fixed rate floor income. See Item 3, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on the Company’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.
Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate
On March 5, 2021, the ICE Benchmark Administration Limited (the “IBA”), which administers LIBOR, published the results of a consultation confirming its intention to cease the publication of LIBOR (i) after June 30, 2023 in the case of U.S. Dollar LIBOR rates for one-month, three-month, and certain other tenors, and (ii) after December 31, 2021 in all other cases. Also on March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates the IBA, announced that it does not intend to sustain LIBOR by requiring panel banks to continue providing quotations of LIBOR beyond the dates for which they have notified their departure from IBA’s LIBOR quotation scheme, or to require IBA to publish LIBOR beyond such dates. As a result, immediately after the announced LIBOR discontinuation dates specified above, respectively, LIBOR will no longer be representative of the underlying market and economic reality that the rates are intended to measure. As of September 30, 2021, the interest earned on a principal amount of $16.9 billion of AGM's FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $16.8 billion of AGM’s FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, the Company’s derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR. New LIBOR contracts are generally not expected to be entered into after December 31, 2021. The market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative instruments. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2020 Annual Report for additional information.
Summary and Comparison of Operating Results
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Net interest income after provision for loan losses$77,179 86,025 275,092 125,500 See table below for additional analysis.
Other (expense) income(7,275)1,004 (4,514)4,951 During the third quarter of 2021, the Company recognized a loss of $6.3 million and $3.4 million from an investment accounted for under the equity method and from certain repurchases of its own debt, respectively. These items were partially offset by $1.7 million in fees earned for serving as sponsor and administrator on certain non-consolidated securitizations of private education loans sold by Wells Fargo. Excluding these items, other income consists primarily of borrower late fees. Borrower late fees for the three months ended September 30, 2021 and 2020 was $0.5 million and $0.9 million, respectively, and for the nine months ended September 30, 2021 and 2020 was $1.7 million and $4.4 million, respectively. The decrease in borrower late fees in the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the Company suspending borrower late fees effective March 13, 2020 to provide borrowers relief as a result of the COVID-19 pandemic.
51


Gain on sale of loans3,444 14,817 18,715 33,023 On May 14, 2021 and September 29, 2021, the Company sold $77.4 million (par value) and $18.4 million (par value) of consumer loans, respectively, to an unrelated third party and recognized a gain of $15.3 million (pre-tax) and $3.2 million (pre-tax), respectively. The Company also sold $124.2 million (par value) and $60.8 million (par value) of consumer loans in January 2020 and July 2020, respectively, and recognized gains of $18.2 million and $14.8 million, respectively.
Impairment expense and provision for beneficial interests, net— — 2,436 (26,303)In March 2020, the Company recognized a provision expense of $26.3 million related to its beneficial interest in consumer loan securitization investments as a result of the estimated impacts of the COVID-19 pandemic. During the first quarter of 2021, $2.4 million of such provision was reversed due to improved economic conditions.
Derivative settlements, net(5,909)(2,391)(15,587)7,666 The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the Company's net interest income as reflected in the table below.
Derivative market value adjustments, net7,260 3,440 44,455 (21,072)Includes the realized and unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority of the derivative market value adjustments during the three and nine months ended September 30, 2021 and 2020 related to the changes in fair value of the Company's floor income interest rate swaps. Such changes reflect that a decrease in the forward yield curve during a reporting period results in a decrease in the fair value of the Company's floor income interest rate swaps, and an increase in the forward yield curve during a reporting period results in an increase in the fair value of such swaps.
Total other income/expense(2,480)16,870 45,505 (1,735)
Salaries and benefits542 438 1,594 1,301 
Other expenses5,420 3,672 12,763 12,253 The primary component of other expenses is servicing fees paid to third parties. Increase for the three and nine months ended September 30, 2021 as compared to the same periods in 2020 was due to $2.3 million of enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio, partially offset by a decrease of servicing fees as AGM's portfolio decreases.
Intersegment expenses8,652 8,868 25,627 29,839 Amounts include fees paid to the LSS operating segment for the servicing of AGM’s loan portfolio. These amounts exceed the actual cost of servicing the loans. The decrease in servicing fees for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio and a decrease in certain servicing activities due to borrower relief initiatives and policies as a result of the COVID-19 pandemic. The decrease in servicing fees for the three months ended September 30, 2021 as compared to the same period in 2020 was due to the expected amortization of AGM's FFELP portfolio. Intersegment expenses also include costs for certain corporate activities and services that are allocated to each operating segment based on estimated use of such activities and services.
Total operating expenses14,614 12,978 39,984 43,393 Total operating expenses were 31 basis points and 26 basis points of the average balance of loans for the three months ended September 30, 2021 and 2020, respectively, and 28 basis points and 29 basis points for the nine months ended September 30, 2021 and 2020, respectively. The increase for the three months ended September 30, 2021 as compared to the same period in 2020 was due to enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio. The decrease for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to a decrease in certain servicing activities beginning in March 2020 due to borrower relief initiatives and policies as a result of the COVID-19 pandemic, partially offset by enhanced servicing costs incurred during the third quarter of 2021 on the Company's consumer loan portfolio.
Income before income taxes60,085 89,917 280,613 80,372 


Income tax expense(14,421)(21,580)(67,347)(19,289)Represents income tax expense at an effective tax rate of 24%.
Net income$45,664 68,337 213,266 61,083 
Additional information:
Net income$45,664 68,337 213,266 61,083 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above for additional information about non-GAAP net income, excluding derivative market value adjustments.
Derivative market value adjustments, net(7,260)(3,440)(44,455)21,072 
Tax effect1,742 826 10,669 (5,057)
Net income, excluding derivative market value adjustments$40,146 65,723 179,480 77,098 


52



Net interest income after provision for loan losses, net of settlements on derivativesThe following table summarizes the components of "net interest income after provision for loan losses" and "derivative settlements, net."
 Three months ended September 30,Nine months ended September 30,
 2021202020212020Additional information
Variable interest income, gross$126,270 138,986 379,705 500,141 Decrease in 2021 compared to 2020 was due to a decrease in the gross yield earned on loans and a decrease in the average balance of loans.
Consolidation rebate fees(40,340)(41,768)(121,662)(127,292)Decrease in 2021 compared to 2020 was due to a decrease in the average consolidation loan balance.
Discount accretion, net of
     premium and deferred
     origination costs amortization
1,230 656 1,776 2,332 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years.
Variable interest income, net87,160 97,874 259,819 375,181 
Interest on bonds and notes
     payable
(48,549)(57,510)(123,861)(274,318)Decrease in 2021 compared to 2020 was due to a decrease in cost of funds and a decrease in the average balance of debt outstanding. In addition, during the first quarter of 2021, the Company reduced interest expense by $23.8 million as a result of reversing a historical accrued interest liability on certain bonds.
Derivative settlements, net (a)(700)1,197 (939)10,438 Derivative settlements include the net settlements (paid) received related to the Company’s 1:3 basis swaps.
Variable loan interest margin,
     net of settlements on
     derivatives (a)
37,911 41,561 135,019 111,301 
Fixed rate floor income, gross35,850 36,633 108,029 87,258 Increase in the nine months ended September 30, 2021 compared to the same period in 2020 was due to lower interest rates in 2021 as compared to 2020. Decrease in the three months ended September 30, 2021 compared to the same period in 2020 was due to a decrease in the balance of fixed rate floor loans, partially offset by a decrease in interest rates.
Derivative settlements, net (a)(5,209)(3,588)(14,648)(2,772)Derivative settlements include the settlements paid related to the Company's floor income interest rate swaps. The increase in net settlements paid in 2021 as compared to the same periods in 2020 was due to a decrease in interest rates and an increase in the notional amount of derivatives outstanding.
Fixed rate floor income, net of settlements on derivatives30,641 33,045 93,381 84,486 
Core loan interest income (a)68,552 74,606 228,400 195,787 
Investment interest8,771 3,452 20,301 12,029 Increase in 2021 compared to 2020 was due to an increase in interest income on the Company's loan beneficial interest investments, partially offset by lower interest rates in 2021 as compared to 2020.
Intercompany interest(113)(245)(421)(1,174)Decrease in 2021 compared to 2020 was due to lower interest rates and lower weighted average debt outstanding in 2021 as compared to 2020.
(Provision) negative provision for loan losses - federally insured loans(4,452)5,299 3,428 (32,074)See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
Negative provision (provision) for loan losses - private education loans1,208 5,650 781 (6,471)
(Provision) negative provision for loan losses - consumer loans(2,696)(5,128)7,016 (34,931)
Net interest income after provision for loan losses (net of settlements on derivatives) (a)$71,270 83,634 259,505 133,166 Decrease for the three months ended September 30, 2021 as compared to the same period in 2020 was due to (i) a decrease in core loan spread; (ii) a decrease in the average balance of loans; and (iii) a net provision for loan loss recorded in 2021 compared to a net negative provision in 2020. These items were partially offset by an increase in interest income on the Company's loan beneficial interest investments. Increase for the nine months ended September 30, 2021 as compared to the same period in 2020 was due to (i) an increase in core loan spread; (ii) a decrease in interest expense in 2021 as a result of reversing a historical accrued interest liability on certain bonds; (iii) an increase in interest income on the Company's loan beneficial interest investments; and (iv) the recognition of a negative provision for loan losses in 2021 as compared to provision for loan losses in 2020 as a result of the COVID-19 pandemic. These items were partially offset by a decrease in the average balance of loans.
 Three months ended September 30, Nine months ended September 30, Additional information
 2017 2016 2017 2016  
Variable interest income, gross$211,785
 194,877
 616,474
 585,299
 Increase due to an increase in the gross yield earned on student loans, partially offset by a decrease in the average balance of student loans.
Consolidation rebate fees(48,986) (55,131) (151,469) (170,352) Decrease due to a decrease in the average consolidation loan balance.
Discount accretion, net of premium and deferred origination costs amortization4,371
 12,466
 13,064
 21,109
 Net discount accretion is due to the Company's purchases of loans at a net discount over the last several years. In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income.
Variable interest income, net167,170
 152,212
 478,069
 436,056
  
Interest on bonds and notes payable(120,487) (94,770) (338,987) (276,124) Increase due to an increase in cost of funds, partially offset by a decrease in the average balance of debt outstanding.
Derivative settlements, net (a)(4,265) (871) (7,598) (2,355) Derivative settlements include the net settlements paid/received related to the Company’s 1:3 basis swaps and cross-currency interest rate swap.
Variable student loan interest margin, net of settlements on derivatives (a)42,418
 56,571
 131,484
 157,577
  
Fixed rate floor income, gross24,586
 41,509
 84,382
 131,720
 The high levels of fixed rate floor income earned are due to historically low interest rates. Fixed rate floor income has decreased due to the rising interest rate environment. Derivative settlements include the net settlements paid/received related to the Company’s floor income interest rate swaps.
Derivative settlements, net (a)3,883
 (5,157) 5,877
 (15,241) Derivative settlements include the settlements paid/received related to the Company's floor income interest rate swaps.
Fixed rate floor income, net of settlements on derivatives28,469
 36,352
 90,259
 116,479
  
Core student loan interest income70,887
 92,923
 221,743
 274,056
  
Investment interest3,213
 980
 6,210
 2,614
 Increase due to a higher balance of interest-earning investments and an increase in interest rates.
Intercompany interest(588) (613) (1,911) (1,905)  
Provision for loan losses - federally insured loans(7,000) (7,000) (11,000) (11,000) See "Allowance for Loan Losses and Loan Delinquencies" included above under "Asset Generation and Management Operating Segment - Results of Operations."
Negative provision for loan losses - private education loans1,000
 1,000
 2,000
 500
 
Net interest income after provision for loan losses (net of settlements on derivatives) (a)$67,512
 87,290
 217,042
 264,265
  

(a)Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements on derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income.  The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility.  As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in this table. Core student loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures, and 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


(a)    Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements on derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income as presented in this table. Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures, and the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2021 and 2020 periods presented in the table under the caption "Income"Consolidated Financial Statement Impact"Impact Related to Derivatives - Statements of Income" in note 4 and in this table.

53



NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of September 30, 2021, Nelnet Bank had a $192.3 million loan portfolio, consisting of $98.4 million of private education loans and $93.9 million of FFELP loans.
As of September 30, 2021, Nelnet Bank's allowance for loan losses on its portfolio was $0.7 million, which represents reserves equal to 0.3% of Nelnet Bank's federally insured loans (or 12.2% of the risk sharing component of the loans that is not covered by the federal guaranty), and 0.4% of Nelnet Bank's private education loans.
For a summary of Nelnet Bank's activity in the allowance for loan losses for the three and nine months ended September 30, 2021, and a summary of Nelnet Bank's loan status and delinquency amounts as of September 30, 2021 and December 31, 2020, see note 2 of the notes to consolidated financial statements included under Part I, Item 1 of this report.
The following table sets forth the activity in Nelnet Bank's loan portfolio:
 Three months endedNine months ended
September 30, 2021September 30, 2021
Beginning balance:$190,571 17,543 
Federally insured student loan acquisitions— 99,973 
Private education loan originations13,006 99,161 
Repayments(10,865)(21,863)
Sales to AGM segment(387)(2,489)
Ending balance:$192,325 192,325 
Deposits
As of September 30, 2021, Nelnet Bank had $302.2 million of deposits. All of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs), intercompany savings deposits, and retail and other savings deposits and CDs. The intercompany deposits are deposits from Nelnet, Inc. (the parent company) and its subsidiaries and include a pledged deposit of $40.0 million from Nelnet, Inc. as required under the Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating deposits, and Nelnet Business Services custodial deposits consisting of collected tuition payments which are subsequently remitted to the appropriate school. Retail and other deposits include savings deposits from Educational 529 College Savings and Health Savings plans and commercial and institutional CDs. Union Bank and Trust Company ("Union Bank"), a related party, is the program manager for the College Savings plans.
Average Balance Sheet
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities.
Three months endedNine months ended
September 30, 2021September 30, 2021
BalanceRateBalanceRate
Average assets
Federally insured student loans$95,510 1.36 %56,000 1.36 %
Private education loans95,752 3.14 75,522 3.19 
Cash and investments206,802 1.87 215,213 1.93 
Total interest-earning assets398,064 2.05 %346,735 2.11 %
Non-interest-earning assets10,452 8,758 
Total assets$408,516 355,493 
Average liabilities and equity
Brokered deposits84,175 0.84 %53,459 0.84 %
Intercompany deposits98,436 0.24 83,004 0.25 
Retail and other deposits117,360 0.62 112,255 0.61 
Total interest-bearing liabilities299,971 0.56 %248,718 0.54 %
Non-interest-bearing liabilities5,340 4,178 
Equity103,205 102,597 
Total liabilities and equity$408,516 355,493 

54


Regulatory Capital Requirements
Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI and must meet specific capital standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on Nelnet Bank's business, results of operations, and financial condition. On January 1, 2020, the Community Bank Leverage Ratio ("CBLR") framework, as issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, and the FDIC, became effective. Any banking organization with total consolidated assets of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9% may opt into the CBLR framework quarterly. The CBLR framework allows banks to satisfy capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk profile warrants a more stringent leverage ratio. The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio. Nelnet Bank has opted into the CBLR framework for the quarter ended September 30, 2021 with a leverage ratio of 25.5%. Nelnet Bank intends to maintain at all times regulatory capital levels that meet both the minimum level necessary to be considered “well capitalized” under the FDIC’s prompt corrective action framework and the minimum level required by the FDIC.
Summary of Operating Results
On November 2, 2020, Nelnet Bank obtained final approval for federal deposit insurance from the FDIC and for a bank charter from the UDFI and Nelnet Bank launched operations. Nelnet Bank's operations are presented by the Company as a reportable operating segment. Costs associated with Nelnet Bank prior to November 2, 2020 are included in the Corporate operating segment. In addition, certain shared service and support costs incurred by the Company are not and will not be reflected as part of the Nelnet Bank operating segment through 2023 (the bank's de novo period). The shared service and support costs incurred by the Company related to Nelnet Bank and not reflected in the bank's operating segment were $0.8 million and $2.5 million for the three and nine months ended September 30, 2021, respectively.
 Three months endedNine months ended
 September 30, 2021September 30, 2021Additional information
Total interest income$2,061 5,479 Represents interest earned on Nelnet Bank's FFELP and private education student loans, cash, and investments.
Interest expense421 1,007 Represents interest expense on deposits.
Net interest income1,640 4,472 
(Negative provision) provision for loan losses(113)378 
Net interest income after provision for loan losses1,753 4,094 
Other income450 475 
Salaries and benefits890 3,956 Represents salaries and benefits of Nelnet Bank associates and third-party contract labor.
Other expenses445 1,227 Represents various expenses such as postage, consulting and professional fees, Nelnet Bank director fees, occupancy, certain information technology-related costs, insurance, marketing, and other operating expenses.
Intersegment expenses32 72 Represents primarily servicing costs paid to the LSS operating segment.
Total operating expenses1,367 5,255 
Income (loss) before income taxes836 (686)
Income tax (expense) benefit(200)151 Represents income tax (expense) benefit at an effective tax rate of 24.0% and 22.0% for the three and nine months ended September 30, 2021, respectively.
Net income (loss)$636 (535)



55


LIQUIDITY AND CAPITAL RESOURCES

The Company’s Loan Servicing and Systems, and ServicingEducation Technology, Services, and Tuition Payment Processing and Campus Commerce operating segments are non-capital intensive and both produce positive operating cash flows. As such, a minimal amount of debt and equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations. Therefore, the following Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet existing debt obligations in the Asset Generation and Management operating segment and capital needs to expand Allo's communications network in the Company's Communications operating segment.

other initiatives to pursue additional strategic investments.
Sources of Liquidity and Available Capacity

The Company has historically generated positive cash flow from operations. For the year ended December 31, 2020 and the nine months ended September 30, 2017 and2021, the year ended December 31, 2016, the Company'sCompany’s net cash provided fromby operating activities was $230.3$212.8 million and $325.3$389.7 million, respectively.

As of September 30, 2017,2021, the Company had cash and cash equivalents of $254.4$191.9 million. Cash held by Nelnet Bank is generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, cash and cash equivalents as of September 30, 2021 was $170.9 million.
The Company alsoinvests excess cash in federally insured student loan asset-backed securities, and the cash proceeds from the sale of these securities could be used for operating and/or other investing opportunities. The Company had a portfolio of available-for-sale investments, consisting primarily offederally insured student loan asset-backed securities (classified as available-for-sale) with a fair value of $75.4$403.7 million as of September 30, 2017.2021. Investments held by Nelnet Bank are generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, the fair value of federally insured student loan asset-backed securities as of September 30, 2021 was $210.9 million. As of September 30, 2021, the Company had participated $194.2 million of its non-Nelnet Bank federally insured student loan asset-backed securities, and such participation is reflected as debt on the Company's consolidated balance sheet.

The Company also has a $350.0$495.0 million unsecured line of credit that matures on December 12, 2021.September 22, 2026. As of September 30, 2017,2021, there was $210.0 millionno amount outstanding on the unsecured line of credit and $140.0$495.0 million was available for future use.

The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $737.5 million, subject to certain conditions. In addition, the Company has a $22.0 million secured line of credit agreement that matures on May 30, 2022. As of September 30, 2021, the secured line of credit had $5.0 million outstanding and $17.0 million was available for future use.
In addition, the Company has retained certain of its own asset-backed securities upon their initial issuance or repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of September 30, 2017,2021, the Company holds $81.1$179.7 million (par value) of its own asset-backed securities.

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

On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes for a purchase price of $150.0 million in cash. The transaction is scheduled to close on January 1, 2018, subject to customary closing conditions. The Company plans to finance the acquisition with existing cash and by using its $350.0 million unsecured line of credit.



Cash Flows

During the nine months ended September 30, 2017,2021, the Company generated $230.3$389.7 million fromin operating activities, compared to $258.8generating $173.0 million for the same period in 2016.2020. The decreaseincrease in such cash provided byflows from operating activities reflects the decreasewas due to:
An increase in net income;
Adjustments to net income for the impact of reduced gains from investments and sale of loans during the nine months ended September 30, 2021, as compared to the same period in 2020, and the non-cash change in deferred income taxes;
Proceeds from the Company's clearinghouse for margin payments on derivatives for the nine months ended September 30, 2021 compared to payments to the clearinghouse in 2020; and
The impact of changes to the due to customers liability account and other assets during the nine months ended September 30, 2021 as compared to the same period in the2020.
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These factors were partially offset by:
The adjustments to net income fromfor derivative market value adjustments andadjustments;
Adjustments to net income for the impact of the non-cash provision for loan losses, beneficial interests, and impairment charges (a significant portion of which during the nine months ended September 30, 2020 were related to COVID-19), and depreciation and amortization;
Purchases of equity securities classified as trading; and
The impact of changes into accrued interest receivable, accounts receivable, and accrued interest payable during the nine months ended September 30, 20172021 as compared to the same period in 2016. These factors were partially offset by an increase in the adjustments to net income for depreciation and amortization, changes in adjustments for foreign currency transaction adjustments, the impact of changes in other liabilities, and net proceeds received in 2017 from the Company's clearinghouse to settle variation margin.

2020.
The primary items included in the statement of cash flows for investing activities are the purchase and repayment of student loans. The primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable used to fund student loans. Cash provided by investing activities and used in financing activities for the nine months ended September 30, 20172021 was $543.4 million and 2016 was $2.5 billion and $2.7 billion,$640.3 million, respectively. Cash provided by investing activities and used in financing activities was $2.6 billion and $2.9 billion for the nine months ended September 30, 20172020 was $953.6 million and 2016,$1.4 billion, respectively. Investing and financing activities are further addressed in the discussion that follows.

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

The following table shows the Company'sAGM's debt obligations outstanding that are secured by student loan assets and related collateral.
As of September 30, 2021
Carrying amountFinal maturity
Bonds and notes issued in asset-backed securitizations$18,161,773 5/27/25 - 9/25/69
FFELP and private education loan warehouse facilities123,745 11/22/22 - 2/26/24
$18,285,518 
 As of September 30, 2017
 
Carrying
amount
 Final maturity
Bonds and notes issued in asset-backed securitizations$21,632,934
 8/25/21 - 9/25/65
FFELP warehouse facilities745,107
 11/19/19 - 4/27/20
 $22,378,041
  


Bonds and Notes Issued in Asset-backed Securitizations

The majority of the Company’sAGM’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially match the maturity of the funded assets, thereby minimizing liquidity risk. Cash generated from student loans funded in asset-backed securitizations provide the sources of liquidity to satisfy all obligations related to the outstanding bonds and notes issued in such securitizations. In addition, due to (i) the difference between the yield the CompanyAGM receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees the CompanyAGM earns from these transactions, the CompanyAGM has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of September 30, 2017,2021, based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the CompanyAGM currently expects future undiscounted cash flows from its portfolio to be approximately $1.93$2.10 billion as detailed below.  The $1.93 billion includes approximately $821.9 million (as of September 30, 2017) of overcollateralization included in the asset-backed securitizations.  These excess net asset positions are reflected variously in the following balances in the consolidated balance sheet:  "student loans receivable," "restricted cash," and "accrued interest receivable."

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of September 30, 2017.2021. As of September 30, 2017, the Company2021, AGM had $21.9$18.2 billion of loans included in asset-backed securitizations, which represented 96.598.4 percent of its total FFELP and private education student loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans funded in its warehouse facilities as of September 30, 2017,2021, private education and consumer loans funded with operating cash, on the balance sheet, and loans acquired subsequent to September 30, 20172021, loans owned by Nelnet Bank, and cash flows relating to the Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as "investments" on the Company's consolidated balance sheets).



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Asset-backed Securitization Cash Flow Forecast
$1.932.10 billion
(dollars in millions)
abscashflowfcst2017q3.jpgnni-20210930_g4.jpg
The forecasted future undiscounted cash flows of approximately $2.10 billion include approximately $1.21 billion (as of September 30, 2021) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and "restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of approximately $0.89 billion, or approximately $0.68 billion after income taxes based on the estimated effective tax rate, is expected to be accretive to the Company's September 30, 2021 balance of consolidated shareholders' equity.
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow forecast. These assumptions are further discussed below.

Prepayments: The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity, borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $220$115 million to $250$150 million.

Interest rates: The Company funds a majoritylarge portion of its student loans with three-month LIBOR indexed floating rate securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR rate. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis risk. The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the life of the portfolio, which approximates the historical relationship between these indices. If the forecast is computed assuming a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast would be reduced by approximately $95$50 million to $115$75 million. As the percentage of the Company's outstanding debt financed by three-month LIBOR declines, the Company's basis risk will be reduced. In addition, the Company attempts to mitigate the impact of this basis risk by entering into certain derivative instruments. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."

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LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations. See "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2020 Annual Report for additional information.
The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate curve would impact the future cash flows generated from the portfolio. An increase in future interest rates will reduce the amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in short-term rates by hedging interest rate risks. The forecasted cash flow does not include cash flows the Company expects to pay/receive related to derivative instruments used by the Company to manage interest rate risk. See Item 3, "Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk.Risk - AGM Operating Segment."

FFELP Warehouse Facilities

The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facilities. Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. As of September 30, 2017,2021, the Company had threetwo FFELP warehouse facilities with an aggregate maximum financing amount available


of $1.2 billion,$110.0 million, of which $0.7 billion$5.4 million was outstanding and $0.5 billion$104.6 million was available for additional funding. OfOn October 14, 2021, the three facilities,Company terminated one of the FFELP warehouse facilities. The remaining FFELP warehouse facility provides for formula-basedhas an aggregate maximum financing amount of $60.0 million and a static advance rates, dependingrate until the expiration date of the liquidity provisions (November 22, 2021). In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on FFELP loan type, upthe underlying loans funded in this facility, subject to a maximumfloor. The loans would then be funded at this new advance rate until the final maturity date of the principal and interest of loans financed. The advance rates for collateral may increase or decrease based on market conditions. The other two FFELP warehouse facilities have static advance rates that require initial equity for loan funding, but do not require increased equity based on market movements. As of September 30, 2017, the Company had $28.4 million advanced as equity support on these facilities.facility (November 22, 2022). For further discussion of the Company's FFELP warehouse facilities, outstanding at September 30, 2017, see note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

The Company has a private education loan warehouse facility that, as of September 30, 2021, had an aggregate maximum financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023. As of September 30, 2021, $118.3 million was outstanding under this warehouse facility, $56.7 million was available for future funding, and $12.9 million was advanced as equity support.
Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market, obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.

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

Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made through the Federal Direct Loan Program.  As a result, theThe Company no longer originates new FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes additional loan purchase opportunities exist.

exist, including opportunities to purchase private education and consumer loans (or investment interests therein).
The Company plans to fund additional FFELP student loan acquisitions and related investments using current cash and investments; using its unsecured line of credit, Union Bank student loan participation agreement, (asUnion Bank student loan asset-backed securities participation agreement, and third-party repurchase agreements (each as described below);, and/or establishing similar secured and unsecured borrowing facilities; using its FFELPexisting warehouse facilities (as described above); increasing the capacity under existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market.

Private Education Loan Investment
In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education loans representing approximately 445,000 borrowers. The Company has entered into a joint venture with other investors to acquire the loans, and under the joint venture, the Company has an approximately 8 percent interest in the loans and in residual interests in subsequent securitizations of the loans. In conjunction with the sale, the Company was selected as servicer of the portfolio. During March and throughout the second quarter of 2021, the vast majority of the borrowers were converted to the Company's servicing platform. The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility.
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On May 20, 2021, June 30, 2021, and August 18, 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $7.4 billion of the private education loans purchased by the joint venture. The Company is accounting for its approximately 8 percent residual interest in these securitizations as held-to-maturity beneficial interest investments. These investments are reflected on the Company's consolidated balance sheet as "investments." On behalf of the joint venture, the Company is the sponsor and administrator for these loan securitizations. As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the Company's consolidated balance sheet as "investments" and as of September 30, 2021, the fair value of these bonds was $371.7 million. The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33% or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33% or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell its investment securities (bonds) to a third-party. The Company entered into repurchase agreements with third-parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.
As of September 30, 2021, $334.5 million was outstanding on the repurchase agreements. The maturity dates on the repurchase agreements are various dates between November 15, 2021 and December 20, 2023, but are subject to early termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates. The Company pays interest on amounts outstanding on the repurchase agreements based on LIBOR plus an applicable spread, and is also required to pay additional cash in the event the fair value of the securities subject to a repurchase agreement becomes less than the original purchase price of such securities.
Upon termination or expiration of the repurchase agreements, the Company would use cash and/or cash proceeds from its unsecured line of credit to satisfy any outstanding obligations subject to the repurchase agreements.
On October 27, 2021, the joint venture completed a final asset-backed securitization of $1.2 billion of private education loans that permanently financed all remaining eligible loans temporarily funded in the joint venture limited partnership's warehouse facility.
Union Bank Participation Agreement

The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. As of September 30, 2017, $461.32021, $878.3 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $750.0$900.0 million or an amount in excess of $750.0$900.0 million if mutually agreed to by both parties. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheets.

Asset-BackedAsset-backed Securities Transactions

On May 24, 2017 and July 26, 2017,During the first nine months of 2021, the Company completed two FFELP asset-backed securitizationssecuritization totaling $535.0 million$1.3 billion (par value) and $399.4 million (par value), respectively.. The proceeds from these transactions were used primarily to finance student loans purchased during the period and refinance student loans included in the Company's FFELP warehouse facilities. See note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on these securitizations.

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

Liquidity Impact Related to Nelnet Bank
On November 2, 2020, the Company obtained final approval for federal deposit insurance from the FDIC and for a bank charter from the UDFI in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations. Nelnet Bank was funded by the Company with an initial capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities. In addition, the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the FDIC discussed below.
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Prior to FDIC approval, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent; (ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10 percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.
Based on Nelnet Bank's business plan and current financial condition, the Company currently believes that the initial capital contribution of $100.0 million and pledged deposit of $40.0 million should provide sufficient capital and liquidity to Nelnet Bank for the next two to three years.
Liquidity Impact Related to ALLO
As previously disclosed, on October 1, 2020, the Company entered into various agreements with SDC, a third party global digital infrastructure investor, and ALLO, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO. After completion of the initial transactions subject to these agreements, SDC, the Company, and members of ALLO's management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests in ALLO, and upon the receipt of regulatory approvals for the transactions on December 21, 2020, the Company deconsolidated ALLO from the Company's consolidated financial statements. In addition, on January 19, 2021, ALLO obtained certain private debt financing facilities from unrelated third-party lenders providing for aggregate financing of up to $230.0 million. With proceeds from this transaction, a portion of the non-voting preferred membership interests in ALLO held by the Company were redeemed in exchange for an aggregate redemption price payment to the Company of $100.0 million.
The agreements among the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause the redemption, on or before April 2024, of the remaining non-voting preferred membership interests in ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests. As of September 30, 2021, such outstanding preferred membership interests and accrued and unpaid preferred return held by the Company was $129.7 million and $5.6 million, respectively. The non-voting preferred membership interests earn a preferred annual return of 6.25 percent.
If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute additional capital to maintain its voting equity interest. However, ALLO has obtained third-party debt financing to support its current growth plans, and thus the Company currently believes additional equity contributions to ALLO are not likely in the immediate future.
Liquidity Impact Related to Hedging Activities

The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company is exposed to market risk which could impact its liquidity. Based on the derivative portfolio outstanding as of September 30, 2017,2021, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to meet potential collateral deposits with its counterparties and/ormake variation margin payments withto its third-party clearinghouse. However, if interest rates move materially and negatively impact the fair value of the Company's derivative portfolio, the replacement of LIBOR as a benchmark rate has significant adverse impacts on the Company's derivatives, or if the Company enters into additional derivatives for which the fair value becomes negative, the Company could be required to deposit additional collateral with its derivative instrument counterparties and/or pay additionalmake variation margin payments to aits third-party clearinghouse. Derivative contracts executed through a clearinghouse require daily movement of variation margin to be exchanged based on the net fair value of the contracts. The collateral deposits or variation margin, if significant, could negatively impact the Company's liquidity and capital resources. In addition, clearing rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on the Company's derivative portfolio.

Other Debt Facilities

Liquidity Impact Related to the Communications Operating Segment

Allo has made significant investments in its communications network and currently provides fiber directly to homes and businesses in seven Nebraska communities. In the first quarter of 2016, Allo announced plans to expand its network to make its services available to substantially all commercial and residential premises in Lincoln, Nebraska, and currently plans to expand to additional communities in Nebraska and surrounding states over the next several years. For the nine months ended September 30, 2017, Allo's capital expenditures were $78.4 million. The Company anticipates total Allo network capital expenditures of approximately $30.0 million in the fourth quarter of 2017 and approximately $100.0 million in 2018. However, such amounts could change based on customer demand for Allo's services. Allo had a $200.0 million line of credit with Nelnet, Inc. (parent company) that was increased on September 30, 2017 by $70.0 million to a total of $270.0 million, which Allo uses for its operating activities and capital expenditures. The outstanding amount owed by Allo to Nelnet, Inc. and the related interest expense incurred by Allo and the interest income recognized by Nelnet, Inc. under this line of credit is eliminated in the Company's consolidated financial statements. The Company currently plans to use cash from operating activities and its third-party unsecured line of credit, to fund Allo's operating activities and capital expenditures.

Other Debt Facilities

As discussed above, the Company has a $350.0 million unsecured line of credit with a maturity date of December 12,was amended on September 22, 2021. As part of September 30, 2017, the unsecured line of credit had $210.0amendment, the facility size increased from $455.0 million outstandingto $495.0 million and $140.0 million was available for future use. Upon the maturity date in 2021, there can be no assurance that the Company will be ablewas extended from December 16, 2024 to maintain this line of credit, increase the amount outstanding under the line, or find alternative funding if necessary.

The Company has issued Junior Subordinated Hybrid Securities (the "Hybrid Securities") that have a final maturity date of September 15, 2061. The Hybrid Securities are unsecured obligations of the Company. During the first quarter of 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding Hybrid Securities, including a related consent solicitation to effect certain amendments to the indenture governing the notes to eliminate a provision requiring a minimum principal amount of the notes to remain outstanding after a partial redemption. The aggregate principal amount of notes tendered to the Company was $29.7 million. The Company paid $25.3 million to redeem these notes, and the amendments described above were made to the indenture. As of September 30, 2017, the Company had $20.5 million of Hybrid Securities that remain outstanding.

The Company also has two notes payable, which were each issued by TDP Phase Three, LLC ("TDP") on December 30, 2015 in connection with the development of a commercial building in Lincoln, Nebraska that is to be the new corporate headquarters for Hudl, a related party. TDP is an entity established during 2015 for the sole purpose of developing and operating this building. The Company owns 25 percent of TDP. However, because the Company plans to be a tenant in this building once the development is complete, the operating results of TDP are included in the Company's consolidated financial statements. As of September 30, 2017, one of the TDP notes has $12.0 million outstanding with a maturity date of March 31, 2023; the other TDP note has $6.4 million outstanding with a maturity date of December 15, 2045. Recourse to the Company on the outstanding balance of these notes is equal to its ownership percentage of TDP.

Debt Repurchases

Due to the Company's positive liquidity position and opportunities in the capital markets, the Company has repurchased its own debt over the last several years, and may continue to do so in the future.22, 2026. See note 4 of the notes to consolidated financial statements included in the 2016 Annual Report for information on debt repurchased by the Company during the years 2014 through 2016 and note 3 of the notes to consolidated financial statements included under Part I, Item 1 of this report for debt repurchaseda summary of additional terms that were modified as part of the amendment. As of September 30, 2021, the unsecured line of
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credit had no amount outstanding and $495.0 million was available for future use. The Company also has a $22.0 million secured line of credit agreement with a maturity date of May 30, 2022. As of September 30, 2021, the secured line of credit had $5.0 million outstanding with $17.0 million available for future use. The secured line of credit is secured by several Company-owned properties. Upon the maturity date of the line of credit facilities, there can be no assurance that the Company will be able to maintain these lines of credit, increase the amount outstanding under the lines, or find alternative funding if necessary.
During 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in federally insured student loan asset-backed securities. As of September 30, 2021, $194.2 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. This participation agreement has been accounted for by the Company duringas a secured borrowing. Upon termination or expiration of this agreement, the nine months ended September 30, 2017.

Company would expect to use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.
Stock Repurchases

The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 25, 2019.7, 2022. As of September 30, 2021, 2,909,015 shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various factors, including share prices and other potential uses of liquidity.
Shares repurchased by the Company during the three months ended March 31, 2017,2021, June 30, 20172021, and September 30, 20172021 are shown below. Certain of these repurchases were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. For additional information on stock repurchases during the third quarter of 2017,2021, see "Stock Repurchases" under Part II, Item 2 of this report.

Total shares repurchasedPurchase price
(in thousands)
Average price of shares repurchased (per share)
Quarter ended March 31, 202126,199 $2,009 76.70 
Quarter ended June 30, 20215,368 399 74.25 
Quarter ended September 30, 2021341,094 25,078 73.52 
  Total372,661 $27,486 73.76 

 Total shares repurchased Purchase price (in thousands) Average price of shares repurchased (per share)
   
Quarter ended March 31, 201731,716
 $1,369
 43.18
Quarter ended June 30, 2017384,061
 16,826
 43.81
Quarter ended September 30, 2017947,794
 45,136
 47.62
  Total1,363,571
 $63,331
 46.44

Subsequent toIncluded in the shares repurchased during the quarter ended September 30, 2017, from October 1, 2017 through November 7, 2017,2021 in the Company has repurchased an additional 69,541table above are a total of 337,717 shares of Class A common stock for $3.5 million ($50.45 per share). These purchasesthe Company purchased on August 10, 2021 from various estate planning trusts associated with Shelby J. Butterfield, a significant shareholder of the Company. The shares were made pursuantpurchased at a discount to a trading plan adoptedthe closing market price of the Company's Class A common stock as of August 9, 2021, and the transaction was separately approved by the Company in accordance with Rule 10b5-1 under the Securities Exchange ActCompany's Board of 1934. As of November 7, 2017, 3,179,339 shares remain authorized for repurchase underDirectors and its Nominating and Corporate Governance Committee. Immediately prior to the Company's repurchase of such shares, certain of the repurchased shares were shares of the Company's Class B common stock repurchase program.

that were converted to shares of Class A common stock.
Dividends

On September 15, 2017,2021, the Company paid a third quarter 20172021 cash dividend on the Company's Class A and Class B common stock of $0.14$0.22 per share. In addition, the Company's Board of Directors has declared a fourth quarter 20172021 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.16$0.24 per share. The fourth quarter cash dividend will be paid on December 15, 20172021 to shareholders of record at the close of business on December 1, 2017.

2021.
The Company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.  In addition, the payment of dividends is subject to the terms of the Company’s outstanding Hybrid Securities, which generally provide that if the Company defers interest payments on those securities it cannot pay dividends on its capital stock.

62
Off-Balance Sheet Arrangements



The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations addresses the Company's consolidated financial statements, which have been prepared in accordance with GAAP. A discussion of the Company's critical accounting policies, which include allowance for loan losses, revenue recognition, consolidation of Variable Interest Entities, income taxes, and accounting for derivatives can be found in the Company's 2016 Annual Report. There were no significant changes to these critical accounting policies during the first nine months of 2017.

RECENT ACCOUNTING PRONOUNCEMENTS

Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting guidance regarding the recognition of revenue from contracts with customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance once it becomes effective on January 1, 2018 and the standard allows the use of either the retrospective or cumulative effect transition method. The Company currently plans to use the cumulative effect transition method. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting. However, it does not currently believe the implementation will have a material impact to its financial statements. The majority of the Company's revenue earned in its Asset Generation and Management segment, including loan interest and derivative activity, is explicitly excluded from the scope of the new guidance. The Company continues to evaluate the impact to revenue earned from its fee-based operating segments and the presentation and disclosures. In regards to the Company's fee-based operating segments, the Company's implementation efforts to date include the identification of revenue and review of related contracts within these segments. Based upon this review, the Company has not yet identified nor does it anticipate material changes in the timing of revenue recognition. However, the Company's review is ongoing as it continues to evaluate both contract revenue and certain contract costs.



Classification and Measurement

In January 2016, the FASB issued accounting guidance regarding the recognition and measurement of financial assets and financial liabilities, which will change the income statement impact of equity investments, and the recognition of changes in fair value of financial liabilities when the fair value option is elected.   The new guidance requires all equity investments to be measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee), and requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  This guidance will be effective for the Company beginning January 1, 2018 and requires a cumulative effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting. However, it does not currently believe the implementation will have a material impact to its financial statements.

Leases

In February 2016, the FASB issued accounting guidance regarding the accounting for leases. The new standard will require the identification of arrangements that should be accounted for as leases by lessees and the disclosure of key information about leasing arrangements. In general, lease arrangements exceeding a twelve-month term will be recognized as assets and liabilities on the balance sheet of the lessee. A right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption must be calculated using the applicable incremental borrowing rate at the date of adoption. The standard requires the use of the modified retrospective transition method, which will require adjustment to all comparative periods presented with certain practical expedients available. It will be effective for the Company beginning January 1, 2019 with early adoption permitted. The Company currently expects to adopt the new standard on its effective date and to elect all of the standard's available practical expedients on adoption. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting.

Allowance for Loan Losses

In June 2016, the FASB issued accounting guidance regarding the measurement of credit losses on financial instruments, which will change the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over the asset's remaining life. The Company currently uses an incurred loss model when calculating its allowance for loan losses. As a result, the Company expects the new guidance will increase the allowance for loan losses. This guidance will be effective for the Company beginning January 1, 2020. Early application is permitted beginning January 1, 2019. This standard represents a significant departure from existing GAAP, and may result in significant changes to the Company's accounting for the allowance for loan losses. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting.

Statement of Cash Flows

In August 2016, the FASB issued accounting guidance regarding the presentation and classification of certain cash receipts and cash payments in the statement of cash flows.  Among the cash flow matters addressed in the update are payments for costs related to debt prepayments or extinguishments, payments related to settlement of certain types of debt instruments, payments of contingent consideration made after a business combination, and distributions received from equity method investees, among others.  This guidance will be effective for the Company beginning January 1, 2018 with early adoption permitted.  The guidance will be applied using a retrospective transition method to each period presented, unless impracticable for specific cash flow matters, in which case the update would be applied prospectively as of the earliest date practicable.  The Company believes the adoption of this guidance will not have a significant impact on its consolidated financial statements.

In November 2016, the FASB issued accounting guidance which provides amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows.  This guidance will be effective for the Company beginning January 1, 2018 with early adoption permitted.  The amendments will be applied using a retrospective transition method to each period presented.  The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting. 






Goodwill

In January 2017, the FASB issued accounting guidance which will eliminate the two-step process that requires identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will be determined by using the difference between the carrying amount and the fair value of the reporting unit. The new standard will be effective for the Company beginning January 1, 2020 with early adoption permitted. The Company is evaluating the impact this pronouncement will have on its ongoing financial reporting.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(All dollars are in thousands, except share amounts, unless otherwise noted)

Interest Rate Risk - AGM Operating Segment

The Company’sAGM’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the CompanyAGM due to shifts in market interest rates.

The following table sets forth the Company’sAGM’s loan assets and debt instruments by rate characteristics:
As of September 30, 2017 As of December 31, 2016 As of September 30, 2021As of December 31, 2020
Dollars Percent Dollars Percent DollarsPercentDollarsPercent
Fixed-rate loan assets$5,334,565
 23.5% $8,585,283
 34.2%Fixed-rate loan assets$7,866,098 42.7 %$8,720,480 44.6 %
Variable-rate loan assets17,379,348
 76.5
 16,518,360
 65.8
Variable-rate loan assets10,571,596 57.3 10,838,628 55.4 
Total$22,713,913
 100.0% $25,103,643
 100.0%Total$18,437,694 100.0 %$19,559,108 100.0 %
       
Fixed-rate debt instruments$109,251
 0.5% $131,733
 0.5%Fixed-rate debt instruments$890,843 4.9 %$960,327 5.0 %
Variable-rate debt instruments22,517,671
 99.5
 24,968,687
 99.5
Variable-rate debt instruments17,394,675 95.1 18,354,964 95.0 
Total$22,626,922
 100.0% $25,100,420
 100.0%Total$18,285,518 100.0 %$19,315,291 100.0 %
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a period of time, or a floating rate based on the special allowance payment ("SAP") formula set by the Department. The SAP rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The Company generally finances its FFELP student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the SAP rate, the Company’s FFELP student loans earn at a fixed rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.

Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are required to rebate fixed rate floor income and variable rate floor income for those loans to the Department.

NoAs a result of the significant drop in interest rates in March 2020 and the first half of the second quarter of 2020, the Company earned $3.9 million and $4.8 million of variable-rate floor income was earned byon approximately $1.4 billion of FFELP loans during the three and six months ended June 30, 2020, respectively. Since the borrower rate reset on July 1, 2020, the Company duringno longer earns such variable-rate floor income on these loans, reflecting the nine months ended September 30, 2017 and 2016. lower interest rate environment.
A summary of fixed rate floor income earned by the CompanyAGM operating segment follows.
Three months ended September 30,Nine months ended September 30,
2021202020212020
Fixed rate floor income, gross$35,850 36,633 108,029 87,258 
Derivative settlements (a)(5,209)(3,588)(14,648)(2,772)
Fixed rate floor income, net$30,641 33,045 93,381 84,486 
 Three months ended September 30, Nine months ended September 30,
 2017 2016 2017 2016
Fixed rate floor income, gross$24,586
 41,509
 84,382
 131,720
Derivative settlements (a)3,883
 (5,157) 5,877
 (15,241)
Fixed rate floor income, net$28,469
 36,352
 90,259
 116,479

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





The high levels of gross fixed rate floor income earned during 2017 and 2016 are due to historically low interest rates.  If interest rates remain low, the Company anticipates continuing to earn significant fixed rate floor income in future periods. income.
Gross fixed rate floor income decreasedincreased for the three and nine months ended September 30, 20172021 as compared to the same periodsperiod in 20162020 due to an increaselower interest rates in interest rates.

2021 as compared to 2020.
Absent the use of derivative instruments, a rise in interest rates maywill reduce the amount of floor income received and this may havehas an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their special allowance paymentSAP formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.

63


The Company enters into derivative instruments to hedge student loans earning fixed rate floor income. The increase in net settlements paid on these derivatives in 2021 as compared to the same periods in 2020 was due to a decrease in interest rates and an increase in the notional amount of derivatives outstanding.
The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%.:
nni-20210930_g5.jpg
The following table shows the Company’sAGM’s federally insured student loan assets that were earning fixed rate floor income as of September 30, 2017.2021.
Fixed interest rate rangeBorrower/lender weighted average yieldEstimated variable conversion rate (a)Loan balance
< 3.0%2.87%0.23%$1,097,529 
3.0 - 3.49%3.19%0.55%1,384,287 
3.5 - 3.99%3.65%1.01%1,311,190 
4.0 - 4.49%4.20%1.56%979,349 
4.5 - 4.99%4.71%2.07%612,533 
5.0 - 5.49%5.22%2.58%409,149 
5.5 - 5.99%5.67%3.03%272,253 
6.0 - 6.49%6.19%3.55%311,004 
6.5 - 6.99%6.70%4.06%304,230 
7.0 - 7.49%7.17%4.53%114,190 
7.5 - 7.99%7.71%5.07%206,858 
8.0 - 8.99%8.18%5.54%486,961 
> 9.0%9.05%6.41%186,168 
$7,675,701 

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of September 30, 2021, the weighted average estimated variable conversion rate was 1.93% and the short-term interest rate was 9 basis points.

64


Fixed interest rate range Borrower/lender weighted average yield Estimated variable conversion rate (a) Loan balance
3.5 - 3.99% 3.92% 1.28% $1,090
4.0 - 4.49% 4.20% 1.56% 1,408,663
4.5 - 4.99% 4.71% 2.07% 851,229
5.0 - 5.49% 5.22% 2.58% 539,482
5.5 - 5.99% 5.67% 3.03% 379,443
6.0 - 6.49% 6.19% 3.55% 437,761
6.5 - 6.99% 6.70% 4.06% 421,737
7.0 - 7.49% 7.17% 4.53% 150,722
7.5 - 7.99% 7.71% 5.07% 252,994
8.0 - 8.99% 8.18% 5.54% 584,749
> 9.0% 9.05% 6.41% 202,455
      $5,230,325

(a)The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of September 30, 2017, the weighted average estimated variable conversion rate was 3.11% and the short-term interest rate was 125 basis points.



The following table summarizes the outstanding derivative instruments as of September 30, 20172021 used by the CompanyAGM to economically hedge loans earning fixed rate floor income.
MaturityNotional amountWeighted average fixed rate paid by the Company (a)
2021$100,000 2.95 %
2022500,000 0.94 
2023900,000 0.62 
20242,500,000 0.35 
2025500,000 0.35 
2026300,000 0.81 
2031100,000 1.53 
$4,900,000 0.56 %
Maturity Notional amount Weighted average fixed rate paid by the Company (a)
  
2018 $1,350,000
 1.07%
2019 3,250,000
 0.97
2020 1,500,000
 1.01
2025 100,000
 2.32
  $6,200,000
 1.02%

(a)
(a)    For all interest rate derivatives, the Company receives discrete three-month LIBOR.
In addition, on August 20, 2014, the Company paid $9.1 million for an interest rate swap option to economically hedge loans earning fixed rate floor income. The interest rate swap option gives the Company the right, but not the obligation, to enter into a $250.0 million notional interest rate swap in which the Company would pay a fixed amount of 3.30% and receivereceives discrete one-monththree-month LIBOR. If the interest rate swap option is exercised, the swap would become effective in 2019 and mature in 2024.

The CompanyAGM is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company’sAGM’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents the Company’sAGM’s FFELP student loan assets and related funding for those assets arranged by underlying indices as of September 30, 2017.2021.
IndexFrequency of variable resetsAssetsFunding of student loan assets
1 month LIBOR (a)Daily$16,867,459 — 
3 month H15 financial commercial paperDaily656,099 — 
3 month Treasury billDaily557,930 — 
1 month LIBORMonthly— 11,147,340 
3 month LIBOR (a)Quarterly— 5,637,642 
Fixed rate— 860,434 
Auction-rate (b)Varies— 450,300 
Asset-backed commercial paper (c)Varies— 5,446 
Other (d)1,526,469 1,506,795 
  $19,607,957 19,607,957 
Index Frequency of variable resets Assets Funding of student loan assets
1 month LIBOR (a) Daily $20,692,662
 
3 month H15 financial commercial paper Daily 1,146,947
 
3 month Treasury bill Daily 647,675
 
3 month LIBOR (a) (b) Quarterly 
 12,274,155
1 month LIBOR Monthly 
 8,550,438
Auction-rate (c) Varies 
 781,276
Asset-backed commercial paper (d) Varies 
 596,395
Other (e)   1,074,851
 1,359,871
    $23,562,135
 23,562,135
(a)    The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of September 30, 2021.

(a)The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps outstanding as of September 30, 2017.
MaturityNotional amount (i)
2022$2,000,000 
2023750,000 
20241,750,000 
20261,150,000 
2027250,000 
$5,900,000 
Maturity Notional amount
2018 $4,000,000
2019 3,000,000
2024 250,000
2026 1,150,000
2027 375,000
2028 325,000
2029 100,000
2031 300,000
  $9,500,000

(i)    The weighted average rate paid by the Company on the 1:3 Basis Swaps as of September 30, 20172021 was one-month LIBOR plus 13.49.1 basis points.

(b)    As of September 30, 2021, the Company was sponsor for $450.3 million of outstanding asset-backed securities that were set and provide for interest rates to be periodically reset via a "dutch auction" (“Auction Rate Securities”). Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.

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

(b)As of September 30, 2017, the Company had Euro-denominated notes that repriced on the EURIBOR index. The Company had entered into a cross-currency interest rate swap that converted the EURIBOR index to three-month LIBOR. As a result, these notes are reflected in the three-month LIBOR category in the above table. See “Foreign Currency Exchange Risk” below.

(c)The interest rates on certain of the Company's asset-backed securities are set and periodically reset via a "dutch auction" (“Auction Rate Securities”). As of September 30, 2017, the Company was sponsor for $781.3 million of Auction Rate Securities. Since February 2008, problems in the auction rate securities market as a whole have led to failures of the auctions pursuant to which the Company's Auction Rate Securities' interest rates are set. As a result, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.

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

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


LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and funding for those assets. See "Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate" under Item 2 above and Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" in the Company's 2020 Annual Report for additional information.
65


Sensitivity Analysis

The following tables summarize the effect on the Company’s consolidated earnings, based upon a sensitivity analysis performed by the Companyon AGM's assets and liabilities assuming hypothetical increases in interest rates of 100 basis points and 300 basis points while funding spreads remain constant. In addition, a sensitivity analysis was performed assuming the funding index increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the asset index. The sensitivity analysis was performed on the Company’sAGM’s variable rate assets (including loans earning fixed rate floor income) and liabilities. The analysis includes the effects of the Company’s interest rate and basis swapsAGM’s derivative instruments in existence during these periods.
 Interest ratesAsset and funding index mismatches
Change from increase of
100 basis points
Change from increase of
300 basis points
Increase of
10 basis points
Increase of
30 basis points
 
 DollarsPercentDollarsPercentDollarsPercentDollarsPercent
 Three months ended September 30, 2021
Effect on earnings:   
Decrease in pre-tax net income before impact of derivative settlements$(14,394)(21.5)%$(27,280)(40.8)%$(1,484)(2.2)%$(4,453)(6.7)%
Impact of derivative settlements12,252 18.3 36,756 55.0 1,487 2.2 4,461 6.7 
Increase (decrease) in net income before taxes$(2,142)(3.2)%$9,476 14.2 %$0.0 %$0.0 %
Increase (decrease) in basic and diluted earnings per share$(0.04)$0.19 $0.00 $0.00 
 Three months ended September 30, 2020
Effect on earnings:   
Decrease in pre-tax net income before
   impact of derivative settlements
$(16,328)(18.1)%$(31,947)(35.4)%$(1,737)(1.9)%$(5,212)(5.7)%
Impact of derivative settlements2,643 2.9 7,930 8.8 1,546 1.7 4,638 5.1 
Increase (decrease) in net income
   before taxes
$(13,685)(15.2)%$(24,017)(26.6)%$(191)(0.2)%$(574)(0.6)%
Increase (decrease) in basic and
   diluted earnings per share
$(0.27)$(0.47)(0.00 )$(0.01)
 Nine months ended September 30, 2021
Effect on earnings:   
Decrease in pre-tax net income before
   impact of derivative settlements
$(42,749)(12.8)%$(79,285)(23.7)%$(4,659)(1.4)%$(13,980)(4.2)%
Impact of derivative settlements30,944 9.3 92,831 27.8 4,474 1.3 13,423 4.0 
Increase (decrease) in net income
   before taxes
$(11,805)(3.5)%$13,546 4.1 %$(185)(0.1)%$(557)(0.2)%
Increase (decrease) in basic and
   diluted earnings per share
$(0.23)$0.27 (0.00 )$(0.01)
 Nine months ended September 30, 2020
Effect on earnings:        
Decrease in pre-tax net income before
   impact of derivative settlements
$(42,577)(28.7)%$(79,919)(53.9)%$(5,491)(3.7)%$(16,479)(11.1)%
Impact of derivative settlements8,859 6.0 26,577 17.9 4,566 3.1 13,698 9.2 
Increase (decrease) in net income
   before taxes
$(33,718)(22.7)%$(53,342)(36.0)%$(925)(0.6)%$(2,781)(1.9)%
Increase (decrease) in basic and
   diluted earnings per share
$(0.65)$(1.03)$(0.02)$(0.05)

66


 Interest rates Asset and funding index mismatches
 Change from increase of 100 basis points Change from increase of 300 basis points Increase of 10 basis points Increase of 30 basis points
   
 Dollars Percent Dollars Percent Dollars Percent Dollars Percent
 Three months ended September 30, 2017
Effect on earnings:               
Decrease in pre-tax net income before impact of derivative settlements$(9,044) (13.1)% $(16,828) (24.4)% $(3,296) (4.8)% $(9,889) (14.3)%
Impact of derivative settlements14,179
 20.5
 42,534
 61.6
 1,890
 2.7
 5,671
 8.2
Increase (decrease) in net income before taxes$5,135
 7.4 % $25,706
 37.2 % $(1,406) (2.1)% $(4,218) (6.1)%
Increase (decrease) in basic and diluted earnings per share$0.08
   $0.38
   $(0.02)   $(0.06)  
                
 Three months ended September 30, 2016
Effect on earnings:             
  
Decrease in pre-tax net income before impact of derivative settlements$(16,758) (12.6)% $(31,121) (23.6)% $(3,987) (3.0)% $(11,960) (9.1)%
Impact of derivative settlements15,775
 11.9
 47,324
 35.9
 436
 0.3
 1,307
 1.0
Increase (decrease) in net income before taxes$(983) (0.7)% $16,203
 12.3 % $(3,551) (2.7)% $(10,653) (8.1)%
Increase (decrease) in basic and diluted earnings per share$(0.01)   $0.24
   $(0.05)   $(0.15)  
                
 Nine months ended September 30, 2017
Effect on earnings:             
  
Decrease in pre-tax net income before impact of derivative settlements$(30,205) (16.2)% $(54,221) (29.1)% $(10,314) (5.5)% $(30,943) (16.6)%
Impact of derivative settlements45,396
 24.3
 136,182
 73.1
 4,368
 2.3
 13,105
 7.0
Increase (decrease) in net income before taxes$15,191
 8.1 % $81,961
 44.0 % $(5,946) (3.2)% $(17,838) (9.6)%
Increase (decrease) in basic and diluted earnings per share$0.23
   $1.20
   $(0.08)   $(0.25)  
                
 Nine months ended September 30, 2016
Effect on earnings: 
  
  
  
  
  
  
  
Decrease in pre-tax net income before impact of derivative settlements$(52,798) (21.5)% $(97,144) (39.4)% $(12,235) (4.9)% $(36,705) (14.9)%
Impact of derivative settlements45,025
 18.3
 135,074
 55.0
 2,776
 1.1
 8,327
 3.4
Increase (decrease) in net income before taxes$(7,773) (3.2)%
$37,930
 15.6 % $(9,459) (3.8)% $(28,378) (11.5)%
Increase (decrease) in basic and diluted earnings per share$(0.11)   $0.55
   $(0.14)   $(0.41)  
Interest Rate Risk - Nelnet Bank


Foreign Currency Exchange Risk

In 2006,To manage Nelnet Bank's risk from fluctuations in market interest rates, the Company issued €352.7 millionactively monitors interest rates and other interest sensitive components to minimize the impact that changes in interest rates have on the fair value of student loan asset-backed Euro Notes (the "Euro Notes") with an interest rate based on a spread to the EURIBOR index. As a result,assets, net income, and cash flow. To achieve this objective, the Company was exposed to market risk relatedmanages and mitigates its exposure to fluctuations in foreign currency exchangemarket interest rates betweenthrough several techniques, including managing the U.S. dollarmaturity, repricing, and Euro. mix of fixed and variable rate assets and liabilities.
The Company entered into a cross-currency interestfollowing table presents Nelnet Bank's loan assets and deposits by rate swap in connection with the issuance of the Euro Notes. See note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information, including a summary of the terms of the cross-currency interest rate swap associated with the Euro Notes and the related financial statement impact.characteristics:

 As of September 30, 2021As of December 31, 2020
 DollarsPercentDollarsPercent
Fixed-rate loan assets$126,633 65.8 %$16,866 96.1 %
Variable-rate loan assets65,692 34.2 677 3.9 
Total$192,325 100.0 %$17,543 100.0 %
Fixed-rate deposits$200,651 66.4 %$54,633 48.3 %
Variable-rate deposits101,564 33.6 58,413 51.7 
Total$302,215 100.0 %$113,046 100.0 %
On October 25, 2017, the Company completed a remarketing of the Euro Notes which reset the principal amount outstanding on the Euro Notes to $450.0 million U.S. dollars, with an interest rate based on the 3-month LIBOR index, and resulted in the termination of the cross-currency interest rate swap. See note 14 of the notes to consolidated financial statements included under Part I, Item 1 of this report for additional information on this remarketing.

Financial Statement Impact – Derivatives and Foreign Currency Transaction Adjustments

For a table summarizing the effect of derivative instruments in the consolidated statements of income, including the components of "derivative market value and foreign currency transaction adjustments and derivative settlements, net" included in the consolidated statements of income, see note 4 of the notes to consolidated financial statements included under Part I, Item 1 of this report.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under supervision andThe Company’s management, with the participation of certain members of the Company’s management, including the chiefCompany's principal executive and chiefprincipal financial officers, the Company completed an evaluation ofevaluated the effectiveness of the design and operation of itsCompany’s disclosure controls and procedures (as defined in SEC Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). as of September 30, 2021. Based on this evaluation, the Company’s principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to the Company's management, including the chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

September 30, 2021.
Changes in Internal Control over Financial Reporting

There waswere no changechanges in the Company’s internal control over financial reporting during the Company’s last fiscal quarter ended September 30, 2021 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes from the information set forthreferred to in the Legal Proceedings section of the Company's Annual Report on Form 10-K for the year ended December 31, 20162020 under Item 3 of Part I of such Form 10-K.

ITEM 1A.  RISK FACTORS

There have been no material changes fromThe following risk factor updates the corresponding risk factors describedfactor in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20162020 in response to Item 1A of Part I of such Form 10-K.10-K under the caption "Loan Portfolio - Our loan portfolio is subject to certain risks related to interest rates, and the derivatives we use to manage interest rate risks, prepayment risk, and credit risk, each of which could reduce the expected cash flows and earnings on our portfolio - Prepayment risk," in order to provide information regarding the potential impact of recent changes in Department of Education policy related to the Public Service Loan Forgiveness program.

Prepayment risk

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

Pursuant to the Higher Education Act, borrowers may prepay loans made under the FFEL Program at any time without penalty. Prepayments may result from consolidations of student loans by the Department through the Federal Direct Loan Program or by a lending institution through a private education or unsecured consumer loan, which historically tend to occur more frequently in low interest rate environments; from borrower defaults, which will result in the receipt of a guaranty payment; and from voluntary full or partial prepayments; among other things.
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Legislative and executive action risk exists as Congress and the President evaluate economic stimulus packages and proposals to reauthorize the Higher Education Act. If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, or consolidation loan programs, such initiatives could further increase prepayments and reduce interest income, and could also reduce servicing fees. Future laws, executive actions, or other policy statements may encourage or force consolidation, create additional income-based repayment or debt forgiveness programs, create broad debt cancellation programs, or establish other policies and programs that impact prepayments on education loans. Even if a broad debt cancellation program only applied to student loans held by the Department, such program could result in a significant increase in consolidations of FFELP loans to Federal Direct Loan Program loans and a corresponding increase in prepayments with respect to our FFELP loan portfolio. For example, the Department recently announced a set of policy changes and released proposed negotiated rulemaking materials relating to the Public Service Loan Forgiveness program under its Federal Direct Loan Program, which may result in an increase in consolidations of FFELP loans into Federal Direct Loan Program loans held by the Department (which results in the loans no longer being on our balance sheet). While implementation of the policy changes and final new regulations are unknown at this time, individually or collectively, they may cause higher than anticipated prepayment rates on our portfolio of loans. Some variability in prepayment levels is expected, although extraordinary or extended increases in prepayment rates could have a materially adverse effect on our revenues, cash flows, profitability, and business outlook, and, as a result, could materially, adversely affect our business, financial condition, and results of operations.
We cannot predict how or what programs or policies will be impacted by any actions that the Administration, Congress, or the federal government may take.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchases

The following table summarizes the repurchases of Class A common stock during the third quarter of 20172021 by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934. Certain share repurchases included in the table below were made
PeriodTotal number of shares purchased (a)Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs (b)Maximum number of shares that may yet be purchased under the plans or programs (b)
July 1 - July 31, 2021— $— — 3,246,732 
August 1 - August 31, 2021337,717 73.46 337,717 2,909,015 
September 1 - September 30, 20213,377 80.04 — 2,909,015 
Total341,094 $73.52 337,717 
(a) The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares purchased pursuant to the applicable stock repurchase program discussed in footnote (b) below during August consisted of a trading plan adoptedtotal of 337,717 shares of Class A common stock purchased from a certain significant shareholder in a privately negotiated transaction on August 10, 2021. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included 3,377 shares in September 2021. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company's shares on the date of vesting.
(b) On May 8, 2019, the Company in accordance with Rule 10b5-1 underannounced that its Board of Directors authorized a stock repurchase program to repurchase up to a total of five million shares of the Securities Exchange Act of 1934.
Period Total number of shares purchased (a) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (b) Maximum number of shares that may yet be purchased under the plans or programs (b)
July 1 - July 31, 2017 318,610
 $47.83
 318,200
 3,875,613
August 1 - August 31, 2017 325,983
 46.84
 325,983
 3,549,630
September 1 - September 30, 2017 303,201
 48.24
 300,750
 3,248,880
Total 947,794
 $47.62
 944,933
  

(a)The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii) shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares of Class A common stock tendered by employees to satisfy tax withholding obligations included 410 shares, 0 shares, and 2,451 shares in July, August, and September, respectively. Unless otherwise indicated, shares owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company’s shares on the date of vesting.

(b)On August 4, 2016, the Company announced that its Board of Directors authorized a new stock repurchase program in May 2016 to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 25, 2019.

Company's Class A common stock during the three-year period ending May 7, 2022.
Working capital and dividend restrictions/limitations

The Company’s credit facilities, including its revolvingCompany's $495.0 million unsecured line of credit, which is available through December 12, 2021, imposeSeptember 22, 2026, imposes restrictions with respect toon the Company’spayment of dividends through covenants requiring a minimum consolidated net worth the ratioand a minimum level of the Company’s adjusted EBITDA to corporate debt interest, the amount of recourse indebtedness, the amount and nature ofunencumbered cash, cash equivalent investments, and business acquisitions, andavailable borrowing capacity under the amountline of private education loans held by the Company.credit. In addition, trust indentures and other financing agreements governing debt issued by the Company's education lending subsidiaries maygenerally have general limitations on the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends.

The supplemental indenture fordividends at certain times. Further, Nelnet Bank is subject to laws and regulations that restrict the Company’s Hybrid Securities issued in September 2006 provides that so long as any Hybrid Securities remain outstanding, ifability of Nelnet Bank to pay dividends to the Company, gives noticeand authorize regulatory authorities to prohibit or limit the payment of its electiondividends by Nelnet Bank to defer interest payments but the related deferral period hasCompany. These provisions do not yet commenced or a deferral period is continuing, thencurrently materially limit the Company's ability to pay dividends, and, based on the Company's current financial condition and recent results of operations, the Company does not currently anticipate that these provisions will not, and will not permit any of its subsidiaries to:

declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any ofmaterially limit the Company’s capital stock.

except as required in connection with the repayment of principal, and except for any partial payments of deferred interest that may be made through the alternative payment mechanism described in the Hybrid Securities indenture, make anyfuture payment of principal of, or interest or premium, if any, on, or repay, repurchase, or redeem any of the Company’s debt securities that rank pari passu with or junior to the Hybrid Securities.dividends.
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make any guarantee payments regarding any guarantee by the Company of the subordinated debt securities of any of the Company’s subsidiaries if the guarantee ranks pari passu with or junior in interest to the Hybrid Securities.

In addition, if any deferral period lasts longer than one year, the limitation on the Company’s ability to redeem or repurchase any of its securities that rank pari passu with or junior in interest to the Hybrid Securities will continue until the first anniversary of the date on which all deferred interest has been paid or canceled.


If the Company is involved in a business combination where immediately after its consummation more than 50% of the surviving entity’s voting stock is owned by the shareholders of the other party to the business combination, then the immediately preceding sentence will not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of the business combination.

However, at any time, including during a deferral period, the Company will be permitted to:

pay dividends or distributions in additional shares of the Company’s capital stock.

declare or pay a dividend in connection with the implementation of a shareholders’ rights plan, or issue stock under such a plan, or redeem or repurchase any rights distributed pursuant to such a plan.

purchase common stock for issuance pursuant to any employee benefit plans.

ITEM 6.  EXHIBITS
31.1*10.1#
10.2
10.3
10.4
31.1*
31.2*
32**
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*   Filed herewith
*Filed herewith
**Furnished herewith
#Certain schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NELNET, INC.
Date:November 7, 20178, 2021By:/s/ JEFFREY R. NOORDHOEK
Name:Jeffrey R. Noordhoek
Title:
Chief Executive Officer
Principal Executive Officer
Date:November 8, 2021By:/s/ JAMES D. KRUGER
Date:November 7, 2017Name:James D. Kruger
Title: 
Chief Financial Officer
Principal Financial Officer and Principal Accounting Officer





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