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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-27 · 211 added, 236 removed, 232 unchanged (66% of the section changed)

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We are subject to risks including, but not limited to, strategic, market, liquidity, credit, regulatory, technology, operational, security, and other business risks such as reputation damage related to negative publicity and dependencies on key personnel, customers, vendors, and systems.

This section highlights specific risks that could adversely affect our financial results and condition and the value of, and return on, an investment in the Company.

Although this section attempts to highlight key risk factors, other risks may emerge at any time and we cannot predict all risks or estimate the extent to which they may affect our financial performance.

This section discusses material risk factors that could adversely affect our financial results and condition and the value of, and return on, an investment in us.

Although this section attempts to highlight key risk factors, other risks may emerge at any time and we cannot predict all risks or estimate the extent to which they may affect us.

These risk factors should be read in conjunction with the other information included in this report.

Loan Portfolio

Our loan portfolio is subject to certain risks related to interest rates, our ability to manage the risks related to interest rates, prepayment, and credit risk, each of which could reduce the expected cash flows and earnings on our 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.

Interest rate risk - basis and repricing risk

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We also face repricing risk due to the timing of the interest rate resets on our liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the interest rate resets on our assets, which generally occur daily.

In a declining interest rate environment, this may cause our student loan spread to compress, while in a rising interest rate environment, it may cause the spread to increase.

In a declining interest rate environment, this may cause our variable student loan spread to compress, while in a rising interest rate environment, it may cause the variable spread to increase.

As of December 31, 2020, we had $17.8 billion, $0.7 billion, and $0.6 billion of FFELP loans indexed to the one-month LIBOR, three-month commercial paper, and three-month Treasury bill rate, respectively, all of which reset daily, and $6.5 billion of debt indexed to three-month LIBOR, which resets quarterly, and $10.7 billion of debt indexed to one-month LIBOR, which resets monthly.

While these indices are all short term in nature with rate movements that are highly correlated over a longer period of time, there can be no assurance that the indices' historically high level of correlation will not be disrupted in the future due to capital market dislocations or other factors not within our control.

In such circumstances, our earnings could be adversely affected, possibly to a material extent.

We have entered into basis swaps to hedge our basis and repricing risk.

For these derivatives, we receive three-month LIBOR set discretely in advance and pay one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").

While these indices are all short term in nature with rate movements that are highly correlated over a longer period of time, the indices' historically high level of correlation may be disrupted in the future due to capital market dislocations or other factors not within our control.

In such circumstances, our earnings could be adversely affected to a material extent.

We have entered into basis swaps to hedge our basis and repricing risk, under which we receive three-month LIBOR set discretely in advance and pay one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").

Interest rate risk - loss of floor income

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As a result, for loans where the borrower rate is fixed to term, we may earn floor income for an extended period of time, which we refer to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, we may earn floor income to the next reset date, which we refer to as variable rate floor income.

For the year ended December 31, 2019, we earned $89.9 million of fixed rate floor income, which includes $40.2 million of net settlement proceeds received related to derivatives used to hedge loans earning fixed rate floor income.

For the year ended December 31, 2020, we earned $116.8 million of fixed rate floor income, which reflects $6.7 million of net settlements paid related to derivatives used to hedge loans earning fixed rate floor income.

Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and this will have an impact on earnings due to interest margin compression caused by increased financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their SAP formulas.

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We utilize derivative instruments to manage interest rate sensitivity.

See note 6 of the notes to the consolidated financial statements included in this report for additional information on derivatives used by us to manage interest rate risk.

Our derivative instruments are intended as economic hedges but do not qualify for hedge accounting;

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Accordingly, changes or shifts in the forward yield curve will impact our results of operations.

Although we believe our derivative instruments are highly effective, developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely insulate us from risks associated with such fluctuations.

Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely insulate us from risks associated with such fluctuations.

Because many of our derivatives are not balance guaranteed to a particular pool of student loans and we may not elect to fully hedge our risk on a notional and/or duration basis, we are subject to the risk of being under or over hedged, which could result in material losses.

In addition, our interest rate risk management activities could expose us to substantial mark-to-market losses if interest rates move in a materially different way than was expected based on the environment when the derivatives were entered into.

As a result, there is no assurance that our economic hedging activities will effectively manage our interest rate sensitivity or have the desired beneficial impact on our results of operations or financial condition.

The Dodd-Frank Act provides the CFTC with substantial authority to regulate over-the-counter derivative transactions.

As a result, our economic hedging activities may not effectively manage our interest rate sensitivity or have the desired beneficial impact on our results of operations or financial condition.

Since June 10, 2013, the CFTC has required over-the-counter derivative transactions to be executed through an exchange or central clearinghouse.

Accordingly, all over-the-counter derivative contracts executed by us since that date are cleared post-execution at a regulated clearinghouse.

Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post substantial amounts of 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.

The clearing requirements require us to post substantial amounts of liquid collateral when executing new derivative instruments, which could negatively impact our liquidity and capital resources and may prevent or limit us from utilizing derivative instruments to manage interest rate sensitivity and risks.

However, the clearing requirements reduce counterparty risk associated with over-the-counter derivative instruments executed by us after June 10, 2013.

For derivatives executed on and prior to June 10, 2013 or not required to be executed through an exchange or central clearinghouse ("non-centrally cleared derivatives"), we are exposed to credit risk.

However, the majority of our derivatives currently outstanding and anticipated to be executed in future periods are and will be executed and cleared at a regulated clearinghouse, thus, significantly reducing counterparty credit risk on our derivative portfolio.

Interest rate movements have an impact on the amount of collateral we are required to deposit with our derivative instrument counterparties (for non-centrally cleared derivatives) and variation margin payments with our clearinghouse (for centrally cleared derivatives).

Interest rate movements have an impact on the amount of payments we are required to settle with our clearinghouse on a daily basis.

We attempt to manage market risk associated with interest rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken.

Our derivative portfolio and hedging strategy is reviewed periodically by our internal risk committee and our board of directors' Risk and Finance Committee.

With our current derivative portfolio, which consists primarily of interest rate swaps to hedge floor income and basis swaps to hedge basis and repricing risk, we do not currently anticipate a near term movement in interest rates having a material impact on our liquidity or capital resources, nor expect future movements in interest rates to have a material impact on our ability to meet potential collateral deposit requirements with our counterparties and/or make variation margin payments to our clearinghouse.

Based on the interest rate swaps outstanding as of December 31, 2019, if the forward interest rate curve was 50 basis points lower for the remaining duration of these derivatives, we would have been required to pay approximately $10 million in additional collateral and/or variation margin.

In addition, if the forward basis curve between one-month and three-month LIBOR experienced a ten basis point reduction in spread for the remaining duration of our 1:3 Basis Swaps (in which we pay one-month LIBOR and receive three-month LIBOR), we would have been required to post approximately $25 million in additional collateral and/or variation margin.

Due to the existing low interest rate environment, our exposure to downward movements in interest rates on our interest rate swaps is limited.

In addition, we believe the historical high correlation between one-month and three-month LIBOR limits our exposure to interest rate movements on the 1:3 Basis Swaps.

However, if interest rates move materially and negatively impact the fair value of our derivative portfolio, the replacement of LIBOR as a benchmark rate as discussed below has significant adverse impacts on our derivatives, or if we enter into additional derivatives in which the fair value of such derivatives becomes negative, we could be required to pay a significant amount of collateral to our derivative instrument counterparties and/or variation margin to our clearinghouse.

These payments, if significant, could negatively impact our liquidity and capital resources.

Based on our interest rate swaps outstanding as of December 31, 2020, if the forward interest rate curve was 50 basis points lower for the remaining duration of these derivatives, we would have been required to pay approximately $64.4 million in additional variation margin.

In addition, if the forward basis curve between one-month and three-month LIBOR experienced a

ten basis point reduction in spread for the remaining duration of our 1:3 Basis Swaps (in which we pay one-month LIBOR and receive three-month LIBOR), we would have been required to pay approximately $19.1 million in additional variation margin.

In addition, some of our variable rate debt is floored at zero percent, while the floating side of our fixed rate derivatives hedging the debt are not floored.

If one-month LIBOR were to fall below zero percent, we may experience losses.

The scope of these losses would depend on three factors - the notional amount of the fixed rate derivative portfolio, the extent to which one-month LIBOR is below zero percent, and the amount of time it remained there.

Interest rate risk - replacement of LIBOR as a benchmark rate

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As of December 31, 2020, the interest earned on a principal amount of $17.8 billion in our FFELP student loan asset portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $17.1 billion of our FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR.

In addition, the majority of our derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR.

In addition, the majority of our derivative financial instrument transactions used to manage interest rate risks are indexed to LIBOR.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop compelling banks to submit LIBOR rates after 2021.

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In particular, any such transition could:

• adversely affect the interest rates paid or received on, the income and expenses associated with, and the pricing and value of our LIBOR-based assets and liabilities, which include the majority of our FFELP student loan assets and FFELP student loan asset-backed debt securities issued to fund those assets, as well as the majority of our derivative

financial instruments we use to manage LIBOR-based interest rate risks associated with such FFELP student loan-related assets and liabilities;

• result in uncertainty or differences in the calculation of the applicable interest rate or payment amounts on our LIBOR-based assets and liabilities depending on the terms of the governing instruments, which in turn could result in disputes, litigation, or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities and contracts, and the potential renegotiation of previous contracts;

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among other things.

Legislative risk exists as Congress evaluates proposals to reauthorize the Higher Education Act.

If the federal government and the Department initiate additional loan forgiveness, 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.

The rate of prepayments of student loans may be influenced by a variety of economic, social, political, and other factors affecting borrowers, including interest rates, federal budgetary pressures, and the availability of alternative financing.

Our profits could be adversely affected by higher prepayments, which reduce the balance of loans outstanding and, therefore, the amount of interest income we receive.

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.

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.

Future losses due to defaults on loans held by us present credit risk which could adversely affect our earnings.

Our estimated allowance for loan losses is based on periodic evaluations of the credit risk in our loan portfolios, including the consideration of the following factors (as applicable), for each of our loan portfolios:

loans in repayment versus those in nonpaying status;

delinquency status;

type of private education or consumer loan program;

trends in defaults in the portfolio based on internal and industry data;

past experience;

trends in federally insured student loan claims rejected for payment by guarantors;

changes to federal student loan programs;

current macroeconomic factors, including unemployment rates, gross domestic product, and consumer price index;

and other relevant qualitative factors.

The vast majority (97.8 percent) of our student loan portfolio is federally guaranteed.

The allowance for loan losses from the federally insured loan portfolio is based on periodic evaluations of our loan portfolios, considering loans in repayment versus those in nonpaying status, delinquency status, trends in defaults in the portfolio based on Company and industry data, past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant qualitative factors.

The federal government currently guarantees 97 percent of the principal and interest on federally insured student loans disbursed on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits our loss exposure on the outstanding balance of our federally insured portfolio.

Student loans disbursed prior to October 1, 1993 are fully insured for both principal and interest.

Federally insured student loans disbursed prior to October 1, 1993 are fully insured for both principal and interest.

Our private education and consumer loans are unsecured, with neither a government nor a private insurance guarantee.

Accordingly, we bear the full risk of loss on these loans if the borrower and co-borrower, if applicable, default.

In determining the adequacy of the allowance for loan losses on the private education and consumer loans, we consider several factors, including:

loans in repayment versus those in a nonpaying status, delinquency status, type of program, and trends in defaults in the portfolio based on Company and industry data, past experience, current economic conditions, and other relevant qualitative factors.

We place our private education and consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due, and charge off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on the type of loan program.

We are actively expanding our acquisition of private education and consumer loan portfolios, which increases our exposure to credit risk.

The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be subject to significant changes.

As of December 31, 2019, our allowance for loan losses was $61.9 million.

During the year ended December 31, 2019, we recognized a provision for loan losses of $39.0 million.

The provision for loan losses reflects the activity for the applicable period and provides an allowance at a level that management believes is appropriate to cover probable losses inherent in the loan portfolio.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments — Credit Losses , which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model.

The new CECL standard became effective for us on January 1, 2020.

Under the CECL model, we are required to measure and recognize an allowance for loan losses that estimates remaining expected credit losses for financial assets held at the reporting date.

This will result in us presenting certain financial assets carried at amortized cost, such as our loans held for investment, at the net amount expected to be collected.

The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter.

This differs significantly from the “incurred loss” model (the model used by us to recognize credit losses for all periods prior to January 1, 2020), which delays recognition until it is probable a loss has been incurred.

See the MD&A - “Recent Accounting Pronouncements - Allowance for Loan Losses” for further details on the expected impact on our consolidated financial statements from the adoption of the CECL accounting standard.

On January 1, 2020, we adopted Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments — Credit Losses , which utilizes an “expected loss” model for recognizing credit losses referred to as the Current Expected Credit Loss (“CECL”) model.

This differs significantly from the “incurred loss” model (the model used by us to recognize credit losses for all periods prior to January 1, 2020), which delayed recognition until it was probable a loss had been incurred, and the adoption of the CECL model on January 1, 2020 resulted in an increase to our allowance for loan losses of $91.0 million.

See note 3 of the notes to consolidated financial statements included in this report for further details on the impact on our consolidated financial statements from the adoption of the CECL accounting standard.

If future defaults on loans held by us are higher than anticipated, which could result from a variety of factors such as downturns in the economy, regulatory or operational changes, and other unforeseen future trends, or actual performance is significantly worse than currently estimated, our estimate of the allowance for loan losses and the related provision for loan losses in our statements of income would be materially affected.

Our loan portfolio and other assets and operations could suffer adverse consequences to the extent that natural disasters, widespread health crises similar to the COVID-19 pandemic discussed further below, terrorist activities, or international hostilities affect the financial markets or the economy in general or in any particular region.

Natural disasters, widespread health crises similar to the COVID-19 pandemic discussed further below, terrorist activities, or international hostilities affecting the financial markets or the economy in general or in any particular region could lead, for example, to an increase in loan delinquencies, borrower bankruptcies, or defaults that could result in higher levels of nonperforming assets, net charge-offs, and provisions for credit losses, as well as have adverse effects on our other assets and business operations.

Our ability to mitigate the adverse consequences of these occurrences is in part dependent on the quality of our resiliency planning, and our ability, if any, to anticipate the nature of any such event that occurs.

The adverse impact of natural disasters, widespread health crises, terrorist activities, or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we transact with, particularly those that we depend upon, but have no control over.

Additionally, the force and frequency of natural disasters are increasing as the climate changes.

Liquidity and Funding

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We also have loans funded in shorter term warehouse facilities.

The current maturities of these facilities do not match the maturity of the related funded assets.

The current maturities of the warehouse facilities do not match the maturity of the related funded assets.

Therefore, we will need to modify and/or find alternative funding related to the loan collateral in these facilities prior to their expiration.

As of December 31, 2019, we maintained two FFELP warehouse facilities as described in note 4 of the notes to consolidated financial statements included in this report.

The FFELP warehouse facilities have revolving financing structures supported by liquidity provisions, which expire in May 2020.

In the event we are unable to renew the liquidity provisions for a facility, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and we would be required to refinance the existing loans in the facility by the final maturity dates in May 2021 and May 2022, respectively.

We have two FFELP warehouse facilities as described in note 5 of the notes to consolidated financial statements included in this report.

The FFELP warehouse facilities have revolving financing structures supported by liquidity provisions, which expire on February 26, 2021 and in May 2021, respectively.

The FFELP warehouse facilities also contain financial covenants relating to levels of our consolidated net worth, ratio of recourse indebtedness to adjusted EBITDA, and unencumbered cash.

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As of December 31, 2020, $252.2 million was outstanding under the FFELP warehouse facilities and $21.2 million was advanced as equity support.

We also have a consumer loan warehouse facility that has an aggregate maximum financing amount available of $200.0 million, an advance rate of 70 or 75 percent depending on the type of collateral and subject to certain concentration limits, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022.

We also have a consumer loan warehouse facility that has an aggregate maximum financing amount available of $100.0 million, liquidity provisions to April 23, 2021, and a final maturity date of April 23, 2022.

As of December 31, 2020, $25.8 million was outstanding and $11.5 million was advanced as equity support under this warehouse facility.

In addition, on February 13, 2020, we closed on a private loan warehouse facility with an aggregate maximum financing amount available of $100.0 million, an advance rate of 90 percent, liquidity provisions through February 15, 2021, and a final maturity date of February 11, 2022.

In addition, we have a private education loan warehouse facility that has an aggregate maximum financing amount available of $175.0 million, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023.

As of December 31, 2020, $150.4 million was outstanding and $16.4 million was advanced as equity support under this warehouse facility.

If we are unable to obtain cost-effective funding alternatives for the loans in the warehouse facilities prior to the facilities' maturities, our cost of funds could increase, adversely affecting our results of operations.

If we cannot find any funding alternatives, we would lose our collateral, including the loan assets and cash advances, related to these facilities.

We are exposed to mark-to-formula collateral support risk on one of our FFELP warehouse facilities.

One of our FFELP warehouse facilities has a static advance rate until the expiration date of the liquidity provisions (May 2020).

In the event the liquidity provisions are not extended, the valuation agent has the right to perform a one-time mark to market on the underlying loans funded in this facility, subject to a floor.

The loans would then be funded at this new advance rate until the final maturity date of the facility.

As of December 31, 2019, $489.3 million was outstanding under this warehouse facility and $21.7 million was advanced as equity support.

In the event that the liquidity provisions are not renewed, a significant change in the valuation of loans could result in additional required equity funding support for this warehouse facility greater than what we can provide, which could result in an event of default resulting in termination of the facility and an acceleration of the repayment provisions.

If we cannot find any funding alternatives, we would lose our collateral, including the student loan assets and cash advances, related to this facility.

A default on the FFELP warehouse facility would also result in an event of default on our $455.0 million unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.

Changes in ratings on asset-backed securitization transactions, including those we sponsor, can have a material adverse impact on our ability to access the asset-backed securities market.

After securitizations are initially issued, if their performance does not align with rating agencies' expectations at the time of issuance, or if the rating agencies modify their assumptions and methodologies used for rating student loan securitizations, it is possible that initial high quality ratings on our subsidiaries’ securitizations, or those of other asset-backed securities issuers, could be materially lowered.

Such actions could adversely affect our ability to access the asset-backed securities market, or make new securitization transactions more expensive by requiring us to pay a higher spread over LIBOR when pricing new bonds.

If we cannot find funding alternatives, we would lose our collateral, including the loan assets and cash advances, related to these facilities.

Risks associated with our operations, as further discussed below, include those related to the importance of maintaining scale by retaining existing customers and attracting new business opportunities, our information technology systems and potential security and privacy breaches, and our ability to manage performance related to regulatory requirements.

Our largest fee-based customer, the Department of Education, represented 27 percent of our revenue in 2020.

Failure to extend the Department contracts or obtain new Department contracts for different components, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or interpretations, could significantly lower loan servicing revenue and hinder future servicing opportunities.

With the acquisition of Great Lakes, we are two of four TIVAS awarded a student loan servicing contract by the Department to provide additional servicing capacity for loans owned by the Department.

The Department also has contracts with 31 NFP entities to service student loans, although currently five NFP servicers service the volume allocated to these 31 entities.

Failure to extend the Department contracts or obtain new Department contracts in the Department's NextGen or ISS procurement processes, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or interpretations, could significantly lower servicing revenue and hinder future service opportunities.

Our subsidiaries Nelnet Servicing, LLC (“Nelnet Servicing”) and Great Lakes Educational Loan Services, Inc.

(“Great Lakes”) are two of four large private sector companies that have student loan servicing contracts awarded by the Department in June

2009 to provide additional servicing capacity for loans owned by the Department.

The Department also contracts with four not-for-profit entities to service student loans.

As of December 31, 2020, Nelnet Servicing was servicing $191.7 billion of student loans for 5.6 million borrowers under its contract, and Great Lakes was servicing $251.6 billion of student loans for 7.6 million borrowers under its contract.

For the year ended December 31, 2020, we recognized $326.7 million in revenue from the Department under these contracts, which represented 27 percent of our revenue.

The current servicing contracts with the Department expire on December 14, 2020 and provide the potential for two additional six-month extensions at the Department’s discretion through December 14, 2021.

The Department's Office of Federal Student Aid (“FSA”) is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department.

On January 15, 2019, FSA issued solicitations for three new NextGen components:

• NextGen Enhanced Processing Solution (“EPS”)

• NextGen Business Process Operations (“BPO”)

• NextGen Optimal Processing Solution (“OPS”)

On April 1, 2019 and October 4, 2019, the Company responded to the EPS component.

On January 16, 2020 FSA released an amendment to the EPS component and the Company responded on February 3, 2020.

In addition, on August 1, 2019, the Company responded to the BPO component.

On January 10, 2020 FSA released an amendment to the BPO component and the Company responded on January 30, 2020.

The Company is also part of a team that has responded and intends to respond to various aspects of the OPS component;

however, on November 12, 2019, FSA put an indefinite hold on the OPS solicitation.

The current servicing contracts with the Department are currently scheduled to expire on June 14, 2021, but provide the potential for an additional six-month extension at the Department’s discretion through December 14, 2021.

The Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, provides that the Department may extend the period of performance for the servicing contracts scheduled to expire on December 14, 2021 for up to two additional years to December 14, 2023.

The Department is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department.

The Department has also issued a new federal loan servicing solicitation for an Interim Servicing Solution ("ISS"), which solicitation is currently suspended.

For additional information on the NextGen and ISS procurement processes, see Part I, Item 1, “Loan Servicing and Systems - Servicing federally-owned student loans for the Department.”

In the event that our servicing contracts are not extended beyond the current expiration date or we are not chosen as a subsequent servicer, loan servicing revenue would decrease significantly.

There are significant risks and uncertainties regarding the current Department contracts and potential future Department contracts, including potential delays, cancellations, or material changes to the structure of the contract procurement process, and uncertainties as to the terms and requirements under a potential new contract or contracts with the Department.

We cannot predict the timing or outcome of the Department's contract procurement solicitations.

New loan volume is currently allocated among the four TIVAS and five NFP servicers based on certain performance metrics established by the Department and compared among all loan servicers in this group.

There are significant risks to us and uncertainties regarding the current Department contracts and potential future Department contracts, including the uncertain nature of the Department's awards of new NextGen contracts to other service providers and the pending and uncertain nature of other components of the NextGen contract procurement process and the ISS contract procurement process, which could be subject to potential delays, cancellations, or material changes to the structure of the contract procurement process;

the possibility that new contract awards and evaluations of proposals may be challenged by various interested parties and may not be finalized or implemented for an extended period of time or at all;

risks that we may not be successful in obtaining any new contracts with the Department;

and risks and uncertainties as to the terms and requirements under a potential new contract or contracts with the Department.

We cannot predict the timing, nature, or ultimate outcome of the Department's NextGen contract procurement process or the ISS solicitation.

New loan volume is currently allocated among the eight servicers based on certain performance metrics established by the Department and compared among all loan servicers in this group.

The amount of future allocations of new loan volume could be negatively impacted if we are unable to consistently surpass comparable competitor and/or other performance metrics.

In the event the current Department servicing contracts become subject to unfavorable modifications or interpretations by the Department, loan servicing revenue could decrease significantly.

For example, as of January 2020, a change instituted by the Department required enrollment in the Ongoing Security Authorization (OSA) program that requires quarterly control assessments.

The OSA program replaced the previous Authority to Operate (ATO) triennial assessment process.

Because the OSA program is a novel process, we may encounter unforeseen issues with the Department, including differing interpretations on compliance controls and reporting requirements.

Our inability to remediate any such issues to the satisfaction of the Department may cause a temporary or permanent injunction on servicing student loans under the contracts.

In the event the current or any future Department servicing contracts become subject to unfavorable modifications or interpretations by the Department, loan servicing revenue could decrease significantly, performance penalties could be assessed, and/or operating costs to perform the contracts could increase significantly.

Additionally, we are partially dependent on the existing Department contracts to broaden servicing operations with the Department, other federal and state agencies, and commercial clients.

The size and importance of these contracts provide us the scale and infrastructure needed to profitably expand into new business opportunities.

Failure to extend the Department contracts beyond the current expiration date, or obtain new Department contracts, could significantly hinder future opportunities, as well as result in potential impairment and restructuring charges that may be necessary to re-align our cost structure with our servicing operations.

Failure to extend the Department contracts beyond the current expiration date, or obtain new Department contracts, could significantly hinder future opportunities, as well as result in potential restructuring charges that may be necessary to re-align our cost structure with our servicing operations.

The COVID-19 pandemic has adversely impacted our results of operations, and is expected to continue to adversely impact our results of operations, as well as adversely impact our businesses, financial condition, and/or cash flows.

The COVID-19 pandemic has caused significant disruption to the U.S.

and world economies, including significantly higher unemployment and underemployment, significantly lower interest rates, and extreme volatility in the U.S.

and world markets.

These effects have adversely impacted our results of operations and, if these effects result in sustained economic stress or recession, they could have a material adverse impact on us in a number of ways.

COVID-19 has materially disrupted business operations, resulting in significantly higher levels of unemployment or underemployment.

As a result, many individual student and consumer borrowers have experienced financial hardship, making it difficult, if not impossible, to meet loan payment obligations without temporary assistance, and we expect that more borrowers will be similarly affected the longer the COVID-19 pandemic continues.

We are monitoring key metrics of financial hardship, including changes in weekly unemployment claims, enrollment in auto-debit payments, requests for new forbearances, enrollment in hardship payment plans, and early delinquency metrics.

We consider the characteristics of our loan portfolios and their expected behavior in forecasted economic scenarios.

We update our evaluation of current and forecasted economic conditions each reporting period and adjust our allowance for loan losses as

If future economic conditions as a result of COVID-19 are significantly worse than what was assumed as a part of these assessments, specifically related to the severity and length of the downturn and the timing and extent of subsequent recovery, it could result in additional allowance for loan losses and impairment charges being recorded in future periods.

Our net interest income and profitability have been and could further be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19.

Higher income volatility from changes in interest rates and spreads to benchmark indices has caused and could cause a loss of net interest income and adverse changes in current fair value measurements of our assets and liabilities.

Fluctuations in interest rates have impacted and will continue to impact both the level of income and expense recorded on most of our assets and liabilities and the value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

The majority of our employees continue to work from home.

We have never had to run our operations to such extent remotely for an extended period of time, and it is possible we will encounter challenges to running our businesses.

For example, COVID-19 has presented potential risks to staffing, such as stress on our workforce as a result of homeschooling, caring for themselves and loved ones, and potential burnout, and it is possible that key employees or a significant number of employees may be affected by the virus.

In addition, our operations rely on the efficient and secure collection, processing, storage, and transmission of personal, confidential, and other information in a significant number of customer transactions on a continuous basis through our computer systems and networks and those of our third-party service providers.

Unanticipated issues arising from handling personal, confidential, and other information in a work-from-home environment could lead to greater risks for us, including cybersecurity and privacy risks.

Beginning in March 2020, schools largely moved to on-line classes for their students.

Although many schools moved to on-campus learning beginning with the 2020/2021 academic year, it is uncertain if, and the extent to which, they will have to move back to on-line classes during the academic term if the COVID-19 pandemic increases in severity.

The COVID-19 pandemic has and may continue to impact demand for our education technologies, services, and payment processing products and services.

Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, federal student loan payments and interest accruals were suspended on all loans owned by the Department.

The benefits of the law were applied retroactively to March 13, 2020, when the President declared a state of emergency related to COVID-19, and these federal student loan borrower relief provisions have been extended through September 30, 2021.

Beginning March 13, 2020, we received less servicing revenue per borrower from the Department based on the borrower forbearance status than what was earned on such accounts prior to these provisions.

As a result of the extension of these CARES Act provisions through September 30, 2021, we currently anticipate Department servicing revenue will be lower in 2021 from recent historical periods due to the lower rates.

In addition, revenue from the Department for originating consolidation loans was adversely impacted as a result of borrowers receiving relief on their existing loans, thus not initiating a consolidation.

We currently anticipate this revenue will continue to be negatively impacted while student loan payments and interest accruals are suspended.

During 2020, FFELP, private education, and consumer loan servicing revenue was adversely impacted by the COVID-19 pandemic, due to reduced or eliminated delinquency outreach to borrowers, holds on claim filings, and reduced or eliminated late fees processing.

In addition, origination fee revenue was negatively impacted as borrowers are less likely to refinance their loans when they are receiving certain relief measures from their current lender.

We currently anticipate this trend will continue in future periods that are impacted by the COVID-19 pandemic, with the magnitude based on the extent to which existing or additional borrower relief policies and activities are implemented or extended by servicing customers.

For additional information on the impacts of COVID-19 on our results of operations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Impacts of COVID-19 Pandemic.”

If new legislative or regulatory student loan borrower relief measures similar to such provisions of the CARES Act were to become effective, the levels and timing of future servicing revenues could continue to be impacted in a similar manner through the extended period of time that such provisions or measures are in effect.

Although the CARES Act does not apply to our FFELP, private education, or consumer loans, several states have announced various initiatives to suspend payment obligations for private education loan borrowers in those states, and we continue to support these initiatives and our FFELP, private education, and consumer loan borrowers.

Due to uncertainties regarding, among other things, the duration of the COVID-19 pandemic and any new legislation, regulations, guidance, or widely accepted practices with respect to relief to loan borrowers, we are not able to estimate the ultimate impact that debt relief measures will have on our results of operations.

The CARES Act and other COVID-19-related borrower relief measures have resulted in, and may continue to result in, certain processing and other changes within our loan servicing operations, including the processing of automatic forbearances, special

payment instructions, and special credit reporting.

Such changes involve additional regulatory and other complexities, uncertainties, and matters of interpretation, and have resulted in litigation.

In addition, such COVID-19 regulatory measures and associated operational changes increase the risk that noncompliance with applicable laws, regulations, and Consumer Financial Protection Bureau guidance could result in penalties, litigation, reputation damage, and a loss of customers.

Legislative risk exists as Congress evaluates additional COVID-19 related economic stimulus packages.

If the federal government initiates additional loan forgiveness, other repayment options or plans, or consolidation loan programs, such initiatives could increase prepayments and reduce interest income, and could also reduce servicing fees.

We currently believe our liquidity and capital resources position is strong, and we expect to be able to fund our business operations for the foreseeable future.

We also currently plan to continue making regular quarterly dividend payments on our Class A and Class B common stock, subject to future earnings, capital requirements, financial condition, and other factors.

However, if circumstances surrounding COVID-19 continue to change in significantly adverse ways and/or if the pandemic continues for an extended period of time, our liquidity and capital resources position could be materially and adversely affected, which could adversely impact our businesses, cash flows (including forecasted cash flows from our asset-backed securitizations), and overall financial condition, and could also result in a reduction, suspension, or discontinuation of quarterly dividend payments on our Class A and Class B common stock.

The extent to which the COVID-19 pandemic impacts our businesses, results of operations, financial condition, and/or cash flows will depend on future developments, which are highly uncertain and largely beyond our control, including, among others:

the scope, severity, and duration of the pandemic;

the number of our employees, borrowers, customers, and vendors adversely affected by the pandemic;

the impact of the pandemic on schools, student enrollment, and the need for student and consumer loans;

the broader public health and economic dislocations resulting from the pandemic;

the actions taken by governmental authorities to limit the public health, financial, and economic impacts of the pandemic;

any further legislative or regulatory changes that suspend or reduce payments or cancel or discharge obligations for student or consumer loan borrowers;

any reputational damage related to the broader reception and perception of our response to the pandemic;

and the impact of the pandemic on local, U.S., and world economies.

However, as with many other businesses, the impact of the COVID-19 pandemic, or any other pandemic, on our businesses could be material and adverse.

To the extent that the COVID-19 pandemic continues to adversely affect the U.S.

and world economies and/or adversely affects our businesses, results of operations, financial condition, and/or cash flows, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in this report.

A failure of our operating systems or infrastructure could disrupt our businesses, cause significant losses, result in regulatory action, and damage our reputation.

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Any significant loss of customers or revenue, or significant increase in costs of serving those customers, could adversely affect our growth, financial condition, and results of operations.

Operating system and infrastructure risks continue to increase in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to support and process customer transactions, the increased number and complexity of transactions being processed, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties.

In addition, to access our services and products, our customers may use personal smartphones, tablet PCs, and other mobile devices that are beyond our control systems.

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These activities could have adverse consequences on our network and our customers, including degradation of service, excessive call volume, and damage to our or our customers' equipment and data.

Although to date we have not experienced a material loss relating to cyberattacks or system outage, there can be no assurance that we will not suffer such losses in the future or that there is not a current threat that remains undetected at this time.

Although to date we have not experienced a material loss relating to cyberattacks or system outage, there can be no assurance that we will not suffer such

losses in the future or that there is not a current threat that remains undetected at this time.

Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, and the size and scale of our services.

control system and compliance requirements, and failures to properly execute business continuation and disaster recovery plans.

We could also incur losses resulting from the risk of unauthorized access to our computer systems, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and failures to properly execute business continuation and disaster recovery plans.

In the event of a breakdown in the internal control system, improper operation of systems, or unauthorized employee actions, we could suffer financial loss, potential legal actions, fines, or civil monetary penalties that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity and damage to our reputation.

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A security breach of our information technology systems could result in the disclosure of confidential customer and other information, significant financial losses and legal exposure, and damage to our reputation.

Our operations rely on the secure processing, storage and transmission of personal, confidential and other information in our information technology systems, including customer, personnel, and vendor data.

Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our systems, software and networks and to protect the confidentiality, integrity and availability of information belonging to us and our customers, we experience increasingly numerous and more sophisticated daily attacks on our systems, and our security measures may not be entirely effective.

We may not be able to anticipate or to implement effective preventive measures against all types of potential security breaches, because the techniques used change frequently, generally increase in sophistication, often are not recognized until launched, sometimes go undetected even when successful, and result in security attacks originating from a wide variety of sources, including organized crime, hackers, terrorists, activists, hostile foreign governments, and other external parties.

Our operations rely on the secure processing, storage and transmission of personal, confidential and other sensitive information in our information technology systems, including customer, personnel, and vendor data.

Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our systems, software and networks and to protect the confidentiality, integrity and availability of information belonging to us and our customers, we experience increasingly numerous and more sophisticated attacks on our systems, and our cybersecurity measures may not be entirely effective.

We may not be able to anticipate or to implement effective preventive measures against all types of potential security breaches, because the techniques used change frequently, generally increase in sophistication, often are not recognized until launched, sometimes go undetected even when successful, and result in cybersecurity attacks originating from a wide variety of sources, including organized crime, hackers, terrorists, activists, hostile foreign governments, and other external parties.

Those parties may also attempt to fraudulently induce employees, customers, or other users of our systems to disclose sensitive information to gain access to our data or that of our customers, such as through “phishing” schemes.

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financial loss to us or to our customers;

loss of confidence in our security measures;

loss of confidence in our cybersecurity measures;

customer dissatisfaction;

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Although to date we have not experienced a material loss relating to information security breaches, there can be no assurance that we will not suffer such losses in the future or that there is not a current threat that remains undetected at this time.

In addition, we routinely transmit and receive large volumes of personal, confidential and proprietary information through third parties.

In addition, we routinely transmit, receive, and process large volumes of personal, confidential and proprietary information through third parties.

Although we work to ensure that third parties with which we do business maintain information security systems and processes, those measures may not be entirely effective, and an information security breach of a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.

An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a third party could result in material adverse legal liability, regulatory actions, disruptions, and reputational harm with respect to our businesses.

We could suffer adverse consequences to the extent that natural disasters, terrorist activities, or international hostilities affect the financial markets or the economy in general or in any particular region.

Natural disasters, terrorist activities, or international hostilities affecting the financial markets or the economy in general or in any particular region could lead, for example, to an increase in loan delinquencies, borrower bankruptcies, or defaults that could result in higher levels of nonperforming assets, net charge-offs, and provisions for credit losses.

The adverse impact of natural disasters, terrorist activities, or international hostilities also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we transact with, particularly those that we depend upon, but have no control over.

Additionally, the force and frequency of natural disasters are increasing as the climate changes.

Negative publicity could damage our reputation and adversely impact business and financial results.

Negative public opinion about the Company, our operating segments, or the industries in which we serve could adversely affect our ability to retain and attract customers and employees, and expose us to litigation and regulatory action.

Negative public opinion can result from our actual or alleged conduct in any number of activities, including but not limited to lending practices, cybersecurity breaches, failures to safeguard personal information, loan servicing practices, corporate governance, sales and marketing practices, regulatory compliance, mergers and acquisitions, and actions taken by government regulators and community organizations in response to that conduct.

Because most of our businesses operate under the Nelnet brand, actual or alleged conduct by one business can result in negative public opinion about other businesses that we operate.

Although we take steps to minimize reputational risk in dealing with customers and other constituencies, we are inherently exposed to this risk.

In addition, third parties with whom we have important relationships may take actions over which we have limited control that could negatively impact perceptions about us or the industries in which we serve.

The proliferation of social media may increase the likelihood that negative public opinion from any of the events discussed above will impact our reputation and business.

Our business may suffer if we are not able to retain and attract skilled and qualified employees.

Our success depends, in large part, on our ability to continually attract and retain key employees.

Competition for the best people in our industry can be intense.

If we are not able to hire sufficient, qualified employees to support our technology and business operations, or to train, motivate, and retain our employees, it could have a material adverse effect on our financial results.

An interception, misuse or mishandling of personal, confidential or proprietary information being processed, sent to or received from a third party could result in material adverse legal liability, regulatory actions, disruptions, and reputational harm with respect to our businesses.

We must adapt to rapid technological change.

If we are unable to take advantage of technological developments, or if we adopt and implement them more slowly than our competitors, we may experience a decline in the demand for our products and services.

If we are unable to take advantage of technological developments or our software products experience quality problems and development delays, we may experience a decline in the demand for our products and services.

Our long-term operating results depend substantially upon our ability to continually enhance, develop, introduce, and market new products and services.

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If we fail to enhance and scale our systems and operational infrastructure or products and services, our operating segments may lose their competitive advantage and this could adversely affect financial and operating results.

Our software products may experience quality problems and development delays, which could damage client relations, our potential profitability, and expose us to liability.

Our products, primarily in our NDS and NBS segments, are based on sophisticated software and computing systems that often encounter development delays, and the underlying software may contain undetected bugs or other defects that interfere with its intended operation.

Our products and services are based on sophisticated software and computing systems that often encounter development delays, and the underlying software may contain undetected bugs or other defects that interfere with its intended operation.

Quality problems with our software products and errors or delays in our processing of electronic transactions could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential clients, harm to our reputation, or exposure to liability claims.

In addition, we rely on technologies supplied to us by third parties that may also contain undetected errors or defects that could have a material adverse effect on our business, financial condition, and results of operations.

We rely on third parties for a wide array of services for our customers, and to meet our contractual obligations.

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We also rely upon data from external sources to maintain our proprietary databases, including data from customers, business partners, and various government sources.

Our third-party service providers may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, cyberattacks, telecommunications failures, and similar events.

Our third-party service providers may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, cyberattacks, telecommunications failures, acts of terrorism, and similar events.

They may also be subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct, as well as local administrative actions, changes to legal or permitting requirements, and litigation to stop, limit or delay operations.

If a third-party service provider experiences an outage, we may temporarily lose the ability to conduct certain business activities, which could impact our ability to serve our customers and meet our contractual, legal or regulatory compliance obligations.

If a third-party service provider experiences an outage, or our services are disrupted, we may temporarily lose the ability to conduct certain business activities, which could impact our ability to serve our customers and meet our contractual, legal or regulatory compliance obligations.

Our businesses would also be harmed if our customers and potential customers believe our services are unreliable.

Despite existing precautionary measures, the occurrence of a natural disaster or an act of terrorism, a decision to discontinue services without adequate notice to us, or other unanticipated problems with third-party service providers could result in lengthy interruptions in our services.

Even with disaster recovery and business continuity arrangements, our services could be interrupted.

Some of our third-party service providers may engage vendors of their own as

they provide services or technology solutions for our operations, which introduces the same risks that these “fourth parties” could be the source of operational failures.

In addition, interruptions at financial or other institutions engaged in data processing and important to the overall functioning of the financial system could also adversely affect, directly or indirectly, aspects of our businesses.

The increasing consolidation, interdependence, and complexity of financial entities and technology systems means that a technology failure, cyberattack, or other breach that significantly degrades, deletes, or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including our businesses.

This consolidation, interconnectivity, and complexity increases the risk of operational failure, on both an entity-specific and an industry-wide basis.

Even though we have selected the third parties with which we do business carefully and have disaster recovery and business continuity arrangements, our services could be interrupted.

Some of our third-party service providers may engage vendors of their own as they provide services or technology solutions for our operations, which introduces the same risks that these “fourth parties” could be the source of operational failures.

Third parties that facilitate our business activities, including exchanges, clearinghouses, payment networks, or financial intermediaries, could also be sources of operational risks to our businesses, including with respect to breakdowns or failures of their systems, misconduct by their employees, or cyberattacks that could affect their ability to deliver a product or service to us or result in the loss or compromise of our information or the information of our customers.

Our ability to implement back-up systems or other safeguards with respect to third-party systems is limited.

Our ability to implement backup systems or other safeguards with respect to third-party systems is limited.

Furthermore, an attack on, or failure of, a third-party system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.

While we have selected the third parties with which we do business carefully, we do not control their actions.

Any problems caused by third-party service providers, including as a result of not providing their services for any reason or performing their services poorly, could adversely affect our ability to deliver services and products to our customers and otherwise to conduct business.

Replacing third-party service providers could also entail significant delay and expense.

In addition, failure of third-party service providers to handle current or higher volumes of use could adversely affect our ability to deliver services and products to our customers and otherwise to conduct business.

If any of these third parties experiences financial difficulties, system interruptions, regulatory violations, database disruptions, security threats, or they cannot otherwise meet our specifications, our ability to provide some services may be materially adversely affected, in which case our businesses, results of operations, and financial condition may be adversely affected.

We must satisfy certain requirements necessary to maintain the federal guarantees of our federally insured loans and the federally insured loans that we service for third parties, and we may incur penalties or lose our guarantees if we fail to meet these requirements.

As of December 31, 2019, we serviced $33.2 billion of FFELP loans that maintained a federal guarantee, of which $17.5 billion and $15.7 billion were owned by the Company and third-party entities, respectively.

We must meet various requirements in order to maintain the federal guarantee on federally insured loans.

The federal guarantee on federally insured loans is conditional based on compliance with origination, servicing, and collection policies set by the Department and guaranty agencies.

If the Company misinterprets Department guidance, or incorrectly applies the Higher Education Act, the Department could determine that the Company is not in compliance.

As of December 31, 2020, we serviced $30.8 billion of FFELP loans that maintained a federal guarantee, of which $16.3 billion and $14.5 billion were owned by us and third-party entities, respectively.

We must meet various requirements in order to maintain the federal guarantee on federally insured loans, which is conditional based on compliance with origination, servicing, and collection policies set by the Department and guaranty agencies.

If we misinterpret Department guidance, or incorrectly apply the Higher Education Act, the Department could determine that we are not in compliance.

Federally insured loans that are not originated, disbursed, or serviced in accordance with the Department's and guaranty agency regulations may risk partial or complete loss of the guarantee.

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Failure to comply with federal and guarantor regulations may result in fines, penalties, the loss of the insurance and related federal guarantees on affected FFELP loans, the loss of special allowance payment benefits, expenses required to cure servicing deficiencies, suspension or termination of the right to participate as a FFELP servicer, negative publicity, and potential legal claims, including potential claims by our servicing customers if they lose the federal guarantee on loans that we service for them.

If the Company is subjected to significant fines, or loss of insurance or guarantees on a material number of FFELP loans, or if the Company loses its ability to service FFELP loans, it could have a material, negative impact on the Company's business, financial condition, or results of operations.

Our contracts with the Department of Education expose us to additional risks inherent in government contracts.

If we are subjected to significant fines, or loss of insurance or guarantees on a material number of FFELP loans, or if we lose our ability to service FFELP loans, it could have a material, negative impact on our business, financial condition, or results of operations.

Our servicing contracts with the Department of Education expose us to additional risks inherent in government contracts and our third-party FFELP loan servicing business is subject to additional risks inherent in government programs.

The Federal government could engage in a prolonged debate linking the federal deficit, debt ceiling, government shutdown, and other budget issues.

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Further, legislation to address the federal deficit and spending could impose proposals that would adversely affect the FFEL and Federal Direct Loan Programs' servicing businesses.

We contract with FSA to administer loans held by FSA in both the FFEL and Federal Direct Loan Programs, we own a portfolio of FFELP loans, and we service our FFELP loans and loans for third parties.

These loan programs are authorized by the Higher Education Act and subject to periodic reauthorization and changes to the programs by the Administration and U.S.

The latest round of reauthorization is taking place currently.

We cannot predict what will or will not be in the final law.

However, any changes, including the potential for borrowers to refinance loans via Direct Consolidation Loans, could have a material impact to our cash flows from servicing, interest income, and operating margins.

We contract with the Department to administer loans held by the Department in both the FFEL and Federal Direct Loan Programs, we own a portfolio of FFELP loans, and we service our FFELP loans and loans for third parties.

These loan programs are authorized by the Higher Education Act and are subject to periodic reauthorization and changes to the programs by the Administration and U.S.

Any changes, including the potential for borrowers to refinance loans via Direct Consolidation Loans, or broad loan forgiveness, could have a material impact to our cash flows from servicing, interest income, and operating margins.

For example, a broad student loan debt cancellation program by the government could result in a significant decrease in our Department servicing revenues and our revenues for servicing FFELP loans for third parties, and 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 held by third parties to Federal Direct Loan Program loans, and thus an associated decrease in our third-party FFELP loan servicing revenues.

Government entities in the United States often reserve the right to audit contract costs and conduct inquiries and investigations of business practices.

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Due to the inherent limitations of internal controls, it may not be possible to detect or prevent all improper or illegal activities.

The Government could change governmental policies, regulatory environments, spending sentiment, and many other factors and conditions, some of which could adversely impact our business, financial condition, and results of operations.

The Government could change governmental policies, programs, regulatory environments, spending sentiment, and many other factors and conditions, some of which could adversely impact our business, financial condition, and results of operations.

We cannot predict how or what programs or policies will be impacted by the federal government.

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In most cases, these contracts are subject to termination rights, audits, and investigations.

The laws and regulations that impact our operating segments are outlined in Part I, Item 1, “Regulation and Supervision.” Additionally, our contracts with the federal government require that we maintain internal controls in accordance with the National Institute of Standards and Technologies (“NIST”) and our operating segments that utilize payment cards are subject to the Payment Card Industry Data Security Standards (“PCI DSS”).

(“NIST”) and our operating segments that utilize payment cards are subject to the Payment Card Industry Data Security Standards (“PCI DSS”).

If we are found to be in noncompliance with the contract provisions or applicable laws, regulations, or standards, or the contracted party exercises its termination or other rights for that or other reasons, our reputation could be negatively affected, and our ability to compete for new contracts or maintain existing contracts could diminish.

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Ensuring the collection, use, transfer, and storage of personal information complies with applicable laws and regulations in relevant jurisdictions can increase operating costs, impact the development of new products or services, and reduce operational efficiency.

Any mishandling or misuse of the personal information of customers, employees, or others by the Company or a third party affiliate could expose us to litigation or regulatory fines, penalties, or other sanctions.

Any mishandling or misuse of the personal information of customers, employees, or others by us or a third party affiliate could expose us to litigation or regulatory fines, penalties, or other sanctions.

Additional risks could arise if we or an affiliated third party do not provide adequate disclosure or transparency to our customers about the personal information collected from them and its use;

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The regulatory framework for privacy issues is evolving and is likely to continue doing so for the foreseeable future, which creates uncertainty.

interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices.

Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices.

Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations, and privacy standards, could result in additional cost and liability for us, damage our reputation, and harm our business.

Nelnet Bank’s operations may not achieve expected market penetration and business plan results.

On November 2, 2020, Nelnet Bank, our banking subsidiary, launched operations.

Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, and its bank charter allows us to maintain our other diversified business offerings.

Nelnet Bank was funded by us 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, we made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the Federal Deposit Insurance Corporation (“FDIC”).

The regulatory landscape surrounding industrial banks continues to be scrutinized.

Nelnet Bank will monitor the regulatory environment and any related changes that may impact the charter or its operations.

Nelnet Bank has established a 3-year business plan, which requires ongoing monitoring to ensure alignment to financial and asset targets as well as other commitments.

Failure to meet these targets and commitments could jeopardize the Nelnet Bank charter.

Our failure to successfully manage business and certain asset acquisitions and other investments could have a material adverse effect on our business, financial condition, and/or results of operations.

The success of our acquisition of ALLO in December 2015 and continued investment in the communications business depends in large part on the ability of ALLO to successfully develop and expand fiber networks in existing service areas and additional communities within acceptable cost parameters, gain market share in communities in existing service areas, and obtain acceptable market share levels in additional communities that we do not yet serve.

ALLO may not be able to achieve those objectives and we may not realize the expected benefits from ALLO.

In addition, the expected benefits are subject to risks related to our ability to successfully maintain technological competitive advantages with respect to the offered telecommunications, internet, television, telephone, and other related services and minimize potential system disruptions to the availability, speed, and quality of such services;

potential changes in the marketplace, including potential decreases in market pricing for telecommunications and related services;

potential changes in the demand for fiber optic internet, television, and telephone services;

and increases in transport and content costs as discussed below.

We acquired Great Lakes on February 7, 2018.

The success of our acquisition of Great Lakes depends on our ability to successfully integrate technology and other operating activities and successfully maintain and increase allocated volumes of student loans serviced by Great Lakes and Nelnet Servicing under existing and any future servicing contracts with the Department.

Great Lakes and Nelnet Servicing have also been working to develop a new, state-of-the-art servicing system for government-owned student loans.

The servicing platform under development will utilize modern technology to effectively scale for additional volume, protect customer information, and support enhanced borrower experience initiatives.

The expected benefits from the servicing platform under development may not be realized.

We may acquire other new businesses, products, and services, or enhance existing businesses, products, and services, or make other investments to further diversify our businesses both within and outside of our historical education-related businesses, through acquisitions of other companies, product lines, technologies, and personnel, or through investments in new asset classes.

We have expanded our services and products through business acquisitions and we may acquire other new businesses, products, and services, or enhance existing businesses, products, and services, or make other investments to further diversify our businesses both within and outside of our historical education-related businesses, through acquisitions of other companies, product lines, technologies, and personnel, or through investments in new asset classes.

Any acquisition or investment is subject to a number of risks.

Such risks may include diversion of management time and resources, disruption of our ongoing businesses, difficulties in integrating acquisitions, loss of key employees, degradation of services, difficulty expanding information technology systems and other business processes to incorporate the acquired businesses, extensive regulatory requirements, dilution to existing shareholders if our common stock is issued in consideration for an acquisition or investment, incurring or assuming indebtedness or other liabilities in connection with an acquisition, unexpected declines in real estate values or the failure to realize expected benefits from real estate development projects, lack of familiarity with new markets, and difficulties in supporting new product lines.

Such risks may include diversion of management time and resources, disruption of our ongoing businesses, difficulties in integrating acquisitions (including potential delays or errors in converting loan servicing portfolio acquisitions to our servicing platform), loss of key employees, degradation of services, difficulty expanding information technology systems and other business processes to incorporate the acquired businesses, extensive regulatory requirements, dilution to existing shareholders if our common stock is issued in consideration for an acquisition or investment, incurring or assuming indebtedness or other liabilities in connection with an acquisition, unexpected declines in real estate values or the failure to realize expected benefits from real estate development projects, lack of familiarity with new markets, and difficulties in supporting new product lines.

Our failure to successfully manage acquisitions or investments, or successfully integrate acquisitions, could have a material adverse effect on our business, financial condition, and/or results of operations.

Correspondingly, our expectations as to the accretive nature of the acquisitions or investments could be inaccurate.

Transport and content costs related to ALLO’s video products and services are substantial and continue to increase.

The cost of video transport and content costs is expected to continue to be one of ALLO’s largest operating costs associated with providing television service.

Television programming content includes cable-oriented programming, as well as the programming of local over-the-air television stations that ALLO retransmits.

In addition, on-demand programming is being made available in response to customer demand.

In recent years, the cable industry has experienced rapid increases in the cost of programming, especially the costs for sports programming and for local broadcast station retransmission consent.

Programming costs are generally assessed on a per-subscriber basis, and therefore are related directly to the number of subscribers to which the programming is provided.

ALLO’s relatively small base of subscribers limits our ability to negotiate lower per-subscriber programming costs, whereas larger providers can often obtain discounts based on the number of their subscribers.

This cost difference can cause ALLO to experience reduced operating margins relative to our competitors with a larger subscriber base.

In addition, escalators in existing content agreements cause cost increases that are greater than general inflation.

While ALLO expects these increases to continue, it may not be able to pass programming cost increases on to customers, particularly as an increasing amount of programming content becomes available via the internet at little or no cost.

Also, some competitors (or their affiliates) own national content companies and ALLO may be unable to secure license rights to that programming.

As ALLO’s programming contracts with content providers expire, there can be no assurance that they will be renewed on acceptable terms or at all, in which case ALLO may be unable to provide such television programming, causing business results to be adversely affected.

If ALLO cannot obtain and maintain necessary rights-of-way for its communications network, ALLO's operations may be interrupted and it would likely face increased costs.

ALLO is dependent on easements, franchises, pole attachments, and licenses from various private parties such as established telephone companies and other utilities, railroads, and long-distance companies, and from state highway authorities, local governments, and transit authorities for access to aerial pole space, underground conduits, and other rights-of-way in order to construct and operate its networks.

Some agreements relating to rights-of-way may be short-term or revocable at will, and ALLO cannot be certain that it will continue to have access to existing rights-of-way after the governing agreements are terminated or expire.

If any of ALLO's right-of-way agreements were terminated or could not be renewed, it may be forced to remove network facilities from the affected areas, relocate, or abandon networks, which would interrupt operations and force ALLO to find alternative rights-of-way, and make unexpected capital expenditures.

If ALLO cannot successfully manage construction risks and uncertainties, the expansion of its communications networks may not be achieved within acceptable cost parameters or result in desired levels of market share.

The success of our investment in ALLO depends on the ability of ALLO to successfully execute its current efforts and plans to construct expanded fiber communications networks to make its services available to additional homes and businesses.

The construction of communications networks is subject to various risks and uncertainties, including risks and uncertainties related to the determination of the precise locations of easements and other rights-of-way necessary to construct and operate the networks, and the management of such construction in a manner that reasonably minimizes the disruption to other private property owners, including minimizing any unintended damage to property or equipment owned or utilized by private parties.

If ALLO is not successful in managing these and similar construction risks, it could experience higher than expected costs and reputational damage that adversely impacts market share and future revenues, and the currently expected benefits from its expansion efforts and plans may not be realized.

ALLO may incur liabilities or suffer negative financial impact relating to occupational, health, and safety matters or failure to comply with safety or environmental laws.

Aerial and underground construction of new networks and service requires employees and contractors to work in the proximity of gas, electric, water, sewer, and other competitors’ utility services, and ALLO's operations are subject to extensive laws and regulations relating to the maintenance of safe conditions in the workplace.

While ALLO has invested, and will continue to invest, substantial resources in its robust occupational, health, and safety programs, ALLO's business involves a high degree of operational risk, and there can be no assurance that it will avoid significant exposure.

These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment, and other consequential damages and could lead to suspension of operations, large damage claims and, in extreme cases, criminal liability.

ALLO could also be subject to potential liabilities in the event it causes a release of hazardous substances or other environmental damage resulting from underground objects it encounters.

Environmental laws and regulations can impose significant fines and criminal sanctions for violations.

Costs associated with the discharge of hazardous substances may include clean-up costs and related damages or liabilities.

These costs could be significant and could adversely affect ALLO's results of operations and cash flows.

Industry changes and competitive pressures may harm revenues and profit margins, including future revenues and profit margins of our communications business through ALLO.

We face aggressive price competition for our products and services and, as a result, we may have to lower our product and service prices to stay competitive, while at the same time, expand market share and maintain profit margins.

Even if we maintain or increase market share for a product or service, revenue or profit margins could decline because the product or service is in a maturing market or market conditions have changed due to economic, political, or regulatory pressures.

The internet, television, and telecommunications businesses are highly competitive.

For a discussion of the competitive factors faced by ALLO, see Part I, Item I, "Communications - Competition." ALLO may not be able to successfully anticipate and respond to many of these various competitive factors affecting the industry, including regulatory changes that may affect competitors and ALLO differently, new technologies, services, and applications that may be introduced, and changes in consumer preferences, demographic trends, and discount or bundled pricing strategies by competitors which are larger and have more resources than ALLO.

If ALLO does not compete effectively, it could lose customers, revenue, and market share;

customers may reduce their usage of ALLO's services or switch to a less profitable service;

and ALLO may need to lower prices or increase marketing efforts to remain competitive.

Our enterprise risk management framework may not be effective in mitigating all risks.

Our enterprise risk management framework seeks to mitigate risk and loss.

Our established framework includes policies, processes, personnel, and control systems to identify, measure, monitor, control, and report risks.

This framework is designed to

mitigate and appropriately balance risk exposure with the Company’s strategic objectives and desired returns.

However, there may be risks that exist, or that develop in the future, that we have not anticipated, identified, or mitigated.

If our enterprise risk management framework does not effectively identify and manage these risks, we could suffer litigation and negative regulatory consequences, unexpected losses, and our results of operations, cash flow, or financial condition could be materially adversely affected.

Our significant investments in ALLO and Hudl are subject to a number of risks, including macroeconomic conditions, competition, political and regulatory requirements, technology advancements, cybersecurity threats, retention of key personnel, and other risks.

ALLO derives its revenue primarily from the sale of telecommunication services, including internet, telephone, and television services, to business, governmental, and residential customers in Nebraska and Colorado, and specializes in high-speed internet and broadband services available through its all-fiber network.

Telecommunications businesses are highly competitive and subject to extensive federal, state, and local regulations.

Additionally, our investment in ALLO is dependent on ALLO maintaining and expanding its infrastructure and ability to continue to increase market share in existing and new markets.

Hudl is a leading sports performance analysis company and their software provides more than 4.3 million coaches, athletes, trainers and analysts across 30+ sports the insights to be more competitive.

The Hudl business is subject to global market conditions, new competition, advancements in technology, and continued demand for their products and services.

The COVID-19 pandemic was significantly disruptive to the Hudl business, and this impact could continue for the duration of the pandemic.

The operating results of these companies could impact the valuation of these investments on our financial statements and we may not be able to fully monetize these investments without a liquidation event.

Regulatory and Legal

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Our operating segments are heavily regulated by federal and state government regulatory agencies.

See Part I, Item 1, "Regulation and Supervision." The laws and regulations enforced by these agencies are proposed or enacted to protect consumers and the financial industry as a whole, not necessarily the Company, our operating segments, or our shareholders.

We have procedures and controls in place to monitor compliance with numerous federal and state laws and regulations.

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If in the course of such an examination the CFPB were to determine that we were not in compliance with applicable laws, regulations, and CFPB guidance, it is possible that this could result in material adverse consequences, including, without limitation, settlements, fines, penalties, public enforcement action, adverse regulatory actions, changes in our business practices, or other actions.

In 2015, the CFPB conducted a public inquiry into student loan servicing practices and issued a report recommending the creation of consistent, industry-wide standards for the entire servicing market.

The CFPB has also announced that it may issue student loan servicing rules in the future.

There is significant uncertainty regarding how the CFPB's recommendations, strategies, and priorities will impact our businesses and our results of operations going forward.

The CFPB has also issued student loan servicing rules since its inception, and continues to review servicing areas where new guidance or rules may be issued in the future.

There continues to be uncertainty regarding how the CFPB's recommendations, strategies, and priorities will impact our businesses and our results of operations going forward.

Actions by the CFPB could result in requirements to alter our services, causing them to be less attractive or effective and impair our ability to offer them profitably.

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We anticipate additional states adopting similar laws.

As a result of the Reconciliation Act of 2010, interest income on our existing FFELP loan portfolio, as well as revenue from FFELP servicing and FFELP loan servicing software licensing and consulting fees, will continue to decline over time as our and our third-party lender clients' FFELP loan portfolios are paid down and FFELP clients exit the market.

The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program effective July 1, 2010, and requires that all new federal loan originations be made through the Federal Direct Loan Program.

Although the law did not alter or affect the terms and conditions of existing FFELP loans, interest income and revenue streams related to existing FFELP loans will continue to decline over time as existing FFELP loans are paid down, refinanced, or repaid by guaranty agencies after default.

During the years ended December 31, 2019, 2018, and 2017, we recognized approximately $206 million, $230 million, and $290 million, respectively, of net interest income on our FFELP loan portfolio, and approximately $25 million, $32 million, and $16 million, respectively, in guaranty and third-party FFELP servicing revenue.

In addition, the Company recognized

approximately $5 million in each of the last three years in FFELP loan servicing software licensing and consulting fees related to the FFEL Program.

The 2018 increase in FFELP servicing revenue was due to the acquisition of Great Lakes, and these amounts will otherwise continue to decline over time as our and our third-party lender clients' FFELP loan portfolios are paid down and FFELP clients exit the market.

As a result of the Reconciliation Act of 2010, our existing FFELP loan portfolio will continue to decline over time.

The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program effective July 1, 2010, and requires all new federal loan originations be made through the Federal Direct Loan Program.

Although the new law did not alter or affect the terms and conditions of existing FFELP loans, interest income related to existing FFELP loans will decline over time as existing FFELP loans are paid down, refinanced, or repaid by guaranty agencies after default.

We currently believe that in the short-term we will not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio.

If we are unable to grow or develop new revenue streams, our consolidated revenue and operating margin will decrease as a result of the decline in FFELP loan volume outstanding.

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We may also be impacted by changes in tax laws, including tax rate changes, new tax laws, and subsequent interpretations of tax laws by federal and state tax authorities.

For example, any future tax legislation increasing the corporate federal income tax rate and/or limiting deductions could have a negative impact on the Company’s financial results.

In addition, several states are in a deficit position due to the pandemic.

Accordingly, states may look to expand their taxable base, alter their tax calculation, or increase tax rates, which could result in an additional cost to the Company.

In addition to corporate tax matters, as both a lender and servicer of student loans, we are required to report student loan interest received and cancellation of indebtedness to individuals and the Internal Revenue Service on an annual basis.

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The complexity and volume associated with these informational forms creates a risk of error which could result in penalties or damage to our reputation.

The Company invests in certain tax-advantaged projects promoting renewable energy resources (solar projects).

The Company’s investments in these projects are designed to generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, over specified time periods.

The Company’s investments in these projects may not generate returns as anticipated and may have an adverse impact on the Company’s financial results.

The Company is subject to the risk that tax credits recorded currently and previously, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain government compliance requirements and will not be able to be realized.

The possible inability to realize these tax credits and other tax benefits can have a negative impact on the Company’s financial results.

The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of the Company’s control, including changes in the applicable tax code and the ability of the projects to continue operation.

We invest in certain tax-advantaged projects promoting renewable energy resources (solar projects).

Our investments in these projects are designed to generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, over specified time periods.

Our investments in these projects may not generate returns as anticipated and may have an adverse impact on our financial results.

We are subject to the risk that tax credits recorded currently and previously, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain government compliance requirements and will not be able to be realized.

The possible inability to realize these tax credits and other tax benefits can have a negative impact on our financial results.

The risk of not being able to realize the tax credits and other tax benefits depends on many factors outside of our control, including changes in the applicable tax code and the ability of the projects to continue operation.

Principal Shareholder and Related Party Transactions

Our Executive Chairman beneficially owns 81.9 percent of the voting rights of our shareholders and effectively has control over all matters at our Company.

Our Executive Chairman beneficially owns 82.3 percent of the voting rights of our shareholders and effectively has control over all of our matters.

Dunlap, our Executive Chairman and a principal shareholder, beneficially owns 82.3 percent of the voting rights of our shareholders.

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As a result, Mr.

Dunlap, as Executive Chairman and controlling shareholder, has control over all matters at our Company and has the ability to take actions that benefit him, but may not benefit other minority shareholders, and may otherwise exercise his control in a manner with which other minority shareholders may not agree or which they may not consider to be in their best interests.

Dunlap, as Executive Chairman and controlling shareholder, has control over all of our matters and has the ability to take actions that benefit him, but may not benefit other minority shareholders, and may otherwise exercise his control in a manner with which other minority shareholders may not agree or which they may not consider to be in their best interests.

Our contractual arrangements and transactions with Union Bank and Trust Company ("Union Bank"), which is under common control with us, present conflicts of interest and pose risks to our shareholders that the terms may not be as favorable to us as we could receive from unrelated third parties.

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("F&M"), which owns 81.5 percent of Union Bank's common stock and 15.5 percent of Union Bank's non-voting non-convertible preferred stock.

Dunlap, a significant shareholder, as well as Executive Chairman, and a member of our Board of Directors, along with his spouse and children, owns or controls a total of 33.0 percent of the stock of F&M, including a total of 48.6 percent of the outstanding voting common stock of F&M, and Mr.

Certain grantor retained annuity trusts established by Mr.

Dunlap, a significant shareholder, as well as Executive Chairman, and a member of our Board of Directors, and his spouse own a total of 50.4 percent of F&M’s outstanding voting common stock, and a certain grantor retained annuity trust established by Mr.

Dunlap’s sister, Angela L.

Muhleisen, along with her spouse and children, owns or controls a total of

31.7 percent of F&M stock, including a total of 47.5 percent of the outstanding voting common stock of F&M.

Muhleisen, owns 49.2 percent of F&M’s outstanding voting common stock.

In addition, Mr.

Dunlap and his family and Ms.

Muhleisen and her family own a total of 8.9 percent and 7.9 percent, respectively, of F&M’s outstanding non-voting preferred stock, which amounts are convertible into shares of F&M common stock which would currently represent an additional 3.0 percent and 2.8 percent, respectively, of F&M’s outstanding common stock on an as converted basis.

Dunlap serves as a Director and Chairman of F&M, and as a Director of Union Bank.

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Union Bank is deemed to have beneficial ownership of a significant number of shares of Nelnet because it serves in a capacity of trustee or account manager for various trusts and accounts holding shares of Nelnet, and may share voting and/or investment power with respect to such shares.

As of December 31, 2019, Union Bank was deemed to beneficially own 10.0 percent of the voting rights of our outstanding common stock.

As of December 31, 2019, Mr.

As of December 31, 2020, Union Bank was deemed to beneficially own 10.1 percent of the voting rights of our outstanding common stock, and Mr.

Dunlap and Ms.

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See note 21 of the notes to consolidated financial statements included in this report for additional information related to the transactions between us and Union Bank.

Transactions between Union Bank and us are generally based on available market information for comparable assets, products, and services and are extensively negotiated.

In addition, all related party transactions between Union Bank and us are approved by both the Union Bank Board of Directors and our Board of Directors.

Furthermore, Union Bank is subject to regulatory oversight and review by the FDIC, the Federal Reserve, and the State of Nebraska Department of Banking and Finance.

The FDIC and the State of Nebraska Department of Banking and Finance regularly review Union Bank's transactions with affiliates.

The regulatory standard applied to the bank falls under Regulation W, which places restrictions on certain “covered” transactions with affiliates.

We intend to maintain our relationship with Union Bank, which our management believes provides certain benefits to us.

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The Company has no unresolved comments from the staff of the Securities and Exchange Commission regarding its periodic or current reports under the Securities Exchange Act of 1934.

The Company's headquarters are located in Lincoln, Nebraska.

The Company owns or leases office space facilities primarily in Nebraska, Wisconsin, and Colorado.

The Company believes its existing office space facilities and equipment, which are used by all reportable segments, are in good operating condition and are suitable for the conduct of its business.

LEGAL PROCEEDINGS

Note 23, “Legal Proceedings,” of the notes to consolidated financial statements included in this report is incorporated herein by reference.

MINE SAFETY DISCLOSURES

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors