What changed in this filing

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Item 9A. Controls and Procedures

2021-02-25 compared with 2020-02-27 · 841 added, 669 removed, 2268 unchanged (40% of the section changed)

5 unchanged sentences

There were no changes in the Company's internal control over financial reporting during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Effective January 1, 2019, the Company implemented ASC Topic 842, Leases .

As a result, management made the following significant modifications to its internal control over financial reporting environment, including changes to accounting policies and procedures, operational processes, and documentation practices:

(a) Updated policies and procedures related to accounting for lease assets and liabilities and related income and expense.

(b) Modified contract review controls to consider the new criteria for determining whether a contract is or contains a lease, specifically to clarify the definition of a lease and align with the concept of control.

(d) Added controls to address related required disclosures regarding leases, including significant assumptions and judgments used in applying ASC Topic 842.

The Company has not experienced any material impact to its internal control over financial reporting despite the fact that the majority of its employees are working remotely due to the COVID-19 pandemic.

The Company is continually monitoring and assessing the effect of the COVID-19 situation on its internal controls to minimize the impact on their design and operating effectiveness.

Effective January 1, 2020, the Company implemented ASU No.

2016-13, Financial Instruments - Credit Losses .

As a result, management made the following significant modifications to the Company's internal control over financial reporting environment, including changes to accounting policies and procedures, operational processes, and documentation practices:

(a) Updated written policies and procedures addressing selected methods and policies for developing the allowance for loan losses and determining significant judgments, including the data used;

assessment of risk;

and identification of significant assumptions in the allowance estimation process.

(b) Developed a process to evaluate whether adjustments to the selected methodology are necessary based on historical information, current economic conditions, and reasonable and supportable forecasts.

(c) Updated documentation for assumptions and data used to develop its loss rates, including evaluation of the relevance and reliability of any external data;

amount and timing of expected cash flows;

and remaining life of loan methodologies.

Management's Report on Internal Control over Financial Reporting

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The information set forth under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” “CORPORATE GOVERNANCE - Board Composition and Director Independence,” and “CORPORATE GOVERNANCE - Board Committees” in the Proxy Statement is incorporated herein by reference.

PRINCIPAL ACCOUNTING FEES AND SERVICES

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the caption “PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Independent Accountant Fees and Services” in the Proxy Statement is incorporated herein by reference.

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3.2 Ninth Amended and Restated Bylaws of Nelnet, Inc., as amended as of May 24, 2018, filed as Exhibit 3.2 to the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.

4.1* Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934.

4.1 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, filed as Exhibit 4.1 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.

4.2 Form of Class A Common Stock Certificate of Nelnet, Inc., filed on November 24, 2003 as Exhibit 4.1 to the registrant’s Registration Statement on Form S-1 (Registration No.

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4.3 Certain instruments, including indentures of trust, defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries, none of which instruments authorizes a total amount of indebtedness thereunder in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis, are omitted from this Exhibit Index pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.

Many of such instruments have been previously filed with the Securities and Exchange Commission, and the registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request.

Certain of such instruments have been previously filed with the Securities and Exchange Commission, and the registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request.

4.4 Registration Rights Agreement, dated as of December 16, 2003, by and among Nelnet, Inc.

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10.21+ Amendment to Nelnet, Inc.

Restricted Stock Plan, effective as of February 11, 2020.

Restricted Stock Plan, effective as of February 11, 2020 , filed as Exhi bit 10.21 to the registrant ’ s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference .

10.22+ Nelnet, Inc.

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10.29 Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.

10.30 Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference.

10.31 Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.

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10.35 Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.

10.36 Modification of Contract dated effective as of December 15, 2020 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on December 15, 2020 and incorporated herein by reference.

10.37 Management Agreement, dated effective as of May 1, 2011, by Whitetail Rock Capital Management, LLC and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by reference.

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10.39 Management Agreement, dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.25 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.

10.40# Appendix A, dated July 29, 2020, to Management Agreement dated effective as of October 27, 2015, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.41 Management Agreement, dated effective as of January 4, 2016, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference.

1 unchanged sentence

10.43 Amended Appendix A, dated May 8, 2019, to Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference.

10.44# Amended Appendix A, dated July 29, 2020, to Management Agreement dated effective as of March 23, 2017, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.45# Management Agreement dated effective as of July 29, 2020, by and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.6 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.46 Investment Management Agreement, dated effective as of February 10, 2012, by and among Whitetail Rock SLAB Fund I, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference.

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and various lender parties thereto, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on December 16, 2019 and incorporated herein by reference.

10.53 Amendment No.

1 to Second Amended and Restated Credit Agreement dated as of October 1, 2020, among Nelnet, Inc., the various Lenders signatory thereto, and U.S.

Bank National Association, as Administrative Agent for the Lenders, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on October 2, 2020 and incorporated herein by reference.

10.54 Second Amended and Restated Guaranty dated as of December 16, 2019, by each of the subsidiaries of Nelnet, Inc.

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10.61± Private Student Loan Origination and Servicing Agreement dated as of August 22, 2018, by and between Nelnet Servicing, LLC, d/b/a Firstmark Services, and Union Bank and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by reference.

10.56*±± Private Student Loan Purchase Agreement dated as of November 19, 2019, by and among National Education Loan Network, Inc., as Purchaser, Union Bank and Trust Company, and Purchaser Lender Trustee, and Union Bank and Trust Company, as Seller.

10.62±± Private Student Loan Purchase Agreement dated as of November 19, 2019, by and among National Education Loan Network, Inc., as Purchaser, Union Bank and Trust Company, as Purchaser Lender Trustee, and Union Bank and Trust Company, as Seller, filed as Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference .

10.63 Private Loan Sale Agreement dated as of October 9, 2014, by and between Nelnet, Inc.

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Bank Trust National Association, as Delaware Trustee, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.66±± Interim Trust Agreement, dated effective as of January 11, 2019, by and among ACM F Acquisition, LLC, as ACM Seller, National Education Loan Network, Inc., as NELN Seller, and Union Bank and Trust Company, as Interim Trustee, filed as E x hibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.72±± Interim Trust Agreement, dated effective as of January 11, 2019, by and among ACM F Acquisition, LLC, as ACM Seller, National Education Loan Network, Inc., as NELN Seller, and Union Bank and Trust Company, as Interim Trustee, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.73 SLABS Participation Agreement, dated effective as of May 5, 2020, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.74 Parent Company Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.75 Capital and Liquidity Maintenance Agreement, dated as of June 26, 2020, by and among the Federal Deposit Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.

10.76++ Master Agreement entered into as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.

10.77++ Membership Unit Purchase Agreement, dated as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.

10.78 Omnibus Amendment dated as of October 15, 2020 to the Master Agreement and the Membership Unit Purchase Agreement, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.

21.1* Subsidiaries of Nelnet, Inc.

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±± Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because the

information in such portions is both not material and would likely cause competitive harm to the registrant if publicly

information in such portions is both not material and would likely cause competitive harm to the registrant if publicly disclosed.

# Schedules, exhibits, and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

FORM 10-K SUMMARY

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HENNING Director February 25, 2021

MARTIN Director February 25, 2021

/s/ KIMBERLY K.

RATH Director February 25, 2021

/s/ MICHAEL D.

REARDON Director February 27, 2020

AND SUBSIDIARIES

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and its related amendments.”

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for loan losses for loans collectively evaluated for impairment

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company’s allowance for loan losses related to the Company’s loans collectively evaluated for impairment (ALL) was $61.9 million as of December 31, 2019.

The Company estimated the ALL using a historical loss rate methodology adjusted for qualitative factors.

The federally insured loans ALL is based on periodic evaluations of the loans considering loans in repayment versus those in a 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 private education and consumer loans ALL is based on periodic evaluations of the loans considering loans in repayment versus those in a nonpaying status, delinquency status, type of program, trends in defaults in the portfolio based on Company and industry data, past experience, current economic conditions, and other relevant qualitative factors.

We identified the assessment of the ALL as a critical audit matter because it involved significant measurement uncertainty requiring complex auditor judgment, and knowledge and experience in the industry.

This assessment encompassed the evaluation of the ALL methodology, inclusive of the factors and assumptions used to estimate the historical loss rates, including (1) historical losses in the portfolio over time, (2) the loss emergence period, and (3) qualitative factor adjustments.

The primary procedures we performed to address the critical audit matter included the following.

We tested certain internal controls related to the Company’s ALL process, including controls over the (1) development and approval of the ALL methodology, (2) determination of the key factors and assumptions used to estimate historical loss rates and qualitative factor adjustments, and (3) analysis of the ALL results, trends, and ratios.

We tested the Company’s process to develop the ALL estimate.

Specifically, we tested the sources of data, factors, and assumptions that the Company used and considered the relevance and reliability of such data, factors, and assumptions.

We tested the historical losses over time by evaluating (1) if loss data in the historical loss period was representative of the credit characteristics of the current portfolio and (2) the sufficiency of loss data within the historical loss period.

We tested the loss emergence period assumptions by (1) testing the accuracy of those calculations and inputs, (2) considering the Company’s credit risk policies, and (3) testing observable loss data.

We evaluated the methodology used to develop the resulting qualitative adjustments and the effect of those adjustments on the ALL compared with relevant credit risk factors and consistency with credit trends.

Assessment of the allowance for loan losses

As discussed in Note 3 to the consolidated financial statements, the Company adopted ASU No.

2016-13, Financial Instruments — Credit Losses (ASC Topic 326), as of January 1, 2020.

The allowance for loan losses as of January 1, 2020 was $152.9 million (the January 1, 2020 ALL).

As discussed in Note 4 to the consolidated financial statements, the Company’s allowance for loan losses as of December 31, 2020 was $175.7 million (the December 31, 2020 ALL).

The January 1, 2020 ALL and December 31, 2020 ALL, collectively the ALL, is the measure of expected credit losses on a pooled basis for those loans that share similar risk characteristics.

The Company estimated the ALL using an undiscounted cash flow model on its federally insured and private education loan portfolios and a remaining life method for its consumer loan portfolio.

The Company’s methodologies are based on relevant available information,

from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

For the undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD), and the exposure at default (EAD) over the expected life of the loans.

For the remaining life method, the expected credit losses are the product of multiplying the Company’s estimated net loss rate by the EAD over the expected life of the loans.

Both the undiscounted model and remaining life method incorporate current and forecasted economic scenarios over the reasonable and supportable forecast periods.

After the reasonable and supportable forecast periods, the Company reverts to their actual long-term historical loss experience in the historical observation period.

A portion of the ALL is comprised of qualitative adjustments to historical loss experience.

We identified the assessment of the January 1, 2020 ALL and the December 31, 2020 ALL as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty.

Specifically, the assessment encompassed the evaluation of the ALL methodology, including the methods and models used to estimate the PD, LGD, and net loss rates used in the remaining life method, and their significant assumptions.

Such assumptions included segmentation of loans with similar risk characteristics, the current and forecasted economic scenarios, the reasonable and supportable forecast period, and the historical observation period.

In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the ALL estimates, including controls over the:

• development of the ALL methodology

• development of the PD and LGD models

• identification and determination of the significant assumptions used in the PD and LGD models, and the net loss rates used in the remaining life method

• performance monitoring of the PD and LGD models, and net loss rates used in the remaining life method for the December 31, 2020 ALL

• analysis of the ALL results, trends, and ratios.

We evaluated the Company’s process to develop the ALL estimates by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions.

In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:

• evaluating the Company’s ALL methodology for compliance with U.S.

generally accepted accounting principles

• evaluating judgments made by the Company relative to the development and performance testing of the PD and LGD models, and net loss rates used in the remaining life method

• assessing the conceptual soundness and performance testing of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use

• evaluating the methodology used to develop the economic forecast scenarios and underlying assumptions by comparing it to the Company’s business environment and relevant industry practices

• assessing the economic forecast scenarios through comparison to publicly available forecasts

• evaluating the length of the historical observation period and reasonable and supportable forecast period by comparing to specific portfolio risk characteristics and trends

• determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices.

We also assessed the cumulative results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the ALL by evaluating the:

• cumulative results of the audit procedures

• qualitative aspects of the Company’s accounting practices

• potential bias in the accounting estimate.

We have served as the Company’s auditor since 1998.

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(Dollars in thousands, except share data)

Loans receivable (net of allowance for loan losses of $ 61,914 and $ 60,388 respectively)

Loans and accrued interest receivable (net of allowance for loan losses of $ 175,698 and

$ 61,914 , respectively)

$ 20,185,656 21,402,868

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Total cash and cash equivalents 121,249 133,906

Investments and notes receivable 246,973 249,370

Investments 992,940 247,099

Restricted cash 553,175 650,939

Restricted cash - due to customers 283,971 437,756

Accrued interest receivable 733,623 679,197

Accounts receivable (net of allowance for doubtful accounts of $ 1,824 and $ 4,455 , respectively)

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Other assets 92,020 134,308

Fair value of derivative instruments — 1,818

Total assets $ 22,646,160 23,708,970

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Accrued interest payable 28,701 47,285

Bank deposits 54,633 —

Other liabilities 312,280 303,781

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Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:

Loans receivable

$ 20,664,126 22,359,655

Loans and accrued interest receivable $ 20,132,996 21,399,382

Restricted cash

499,223 639,847

Loan accrued interest receivable and other assets

735,286 679,735

Bonds and notes payable

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Interest expense:

Interest on bonds and notes payable 699,327 669,906 465,188

Interest on bonds and notes payable and bank deposits 330,071 699,327 669,906

Net interest income 289,585 249,350 254,360

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Net interest income after provision for loan losses 226,225 210,350 231,360

Other income:

Other income/expense:

Loan servicing and systems revenue 451,561 455,255 440,027

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Communications revenue 76,643 64,269 44,653

Other income 65,179 54,805 55,728

Derivative market value and foreign currency transaction adjustments and derivative settlements, net

( 30,789 ) 71,085 ( 18,554 )

Total other income 831,245 832,532 479,062

Other 57,561 47,918 54,805

Gain on sale of loans 33,023 17,261 —

Gain from deconsolidation of ALLO 258,588 — —

Impairment expense and provision for beneficial interests ( 24,723 ) — ( 11,721 )

Derivative market value adjustments and derivative settlements, net ( 24,465 ) ( 30,789 ) 71,085

Total other income/expense 1,110,384 831,245 820,811

Cost of services:

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Net income $ 349,626 141,294 227,524

Other comprehensive (loss) income:

Other comprehensive income (loss):

Available-for-sale securities:

Unrealized holding (losses) gains arising during period, net ( 1,199 ) 1,056 2,349

Unrealized holding gains (losses) arising during period, net 6,637 ( 1,199 ) 1,056

Reclassification adjustment for gains recognized in net income, net of losses ( 2,521 ) — ( 978 )

— ( 978 ) ( 2,528 )

Income tax effect ( 986 ) 288 ( 69 )

Total other comprehensive (loss) income ( 911 ) 9 ( 113 )

Total other comprehensive income (loss) 3,130 ( 911 ) 9

Comprehensive income 352,756 140,383 227,533

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Net income (loss) — — — — — — — 227,913 — ( 389 ) 227,524

Other comprehensive loss — — — — — — — — ( 113 ) — ( 113 )

Other comprehensive income

— — — — — — — — 9 — 9

Distribution to noncontrolling interests — — — — — — — — — ( 525 ) ( 525 )

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Repurchase of common stock — ( 868,147 ) — — ( 8 ) — ( 11,264 ) ( 34,059 ) — — ( 45,331 )

Impact of adoption of new accounting standards — — — — — — — 2,007 ( 743 ) — 1,264

Conversion of common stock — 8,946 ( 8,946 ) — — — — — — — —

Acquisition of noncontrolling interest — — — — — — — ( 13,449 ) — ( 5,652 ) ( 19,101 )

Balance as of December 31, 2018 — 28,798,464 11,459,641 — 288 115 622 2,299,556 3,883 10,315 2,314,779

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Net income (loss) — — — — — — — 141,803 — ( 509 ) 141,294

Other comprehensive income

Other comprehensive loss

— — — — — — — — ( 911 ) — ( 911 )

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Repurchase of common stock — ( 726,273 ) — — ( 7 ) — ( 6,157 ) ( 34,247 ) — — ( 40,411 )

Impact of adoption of new accounting standards — — — — — — — 2,007 ( 743 ) — 1,264

Acquisition of noncontrolling interest — — — — — — — ( 13,449 ) — ( 5,652 ) ( 19,101 )

Impact of adoption of new accounting standard — — — — — — — — — ( 6,077 ) ( 6,077 )

Conversion of common stock — 188,032 ( 188,032 ) — 2 ( 2 ) — — — — —

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Net income (loss) — — — — — — — 352,443 — ( 2,817 ) 349,626

Other comprehensive loss — — — — — — — — ( 911 ) — ( 911 )

Other comprehensive income

— — — — — — — — 3,130 — 3,130

Distribution to noncontrolling interests — — — — — — — — — ( 16,123 ) ( 16,123 )

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Conversion of common stock — 116,038 ( 116,038 ) — 1 ( 1 ) — — — — —

Acquisition of noncontrolling interest — — — — — — — ( 375 ) — ( 225 ) ( 600 )

Deconsolidation of noncontrolling interest - ALLO — — — — — — — — — ( 208,175 ) ( 208,175 )

Other equity transactions, net of costs incurred to sell shares of subsidiary — — — — — — — 1,218 — — 1,218

Balance as of December 31, 2020 — 27,193,154 11,155,571 $ — 272 112 3,794 2,621,762 6,102 ( 3,693 ) 2,628,349

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Net loss attributable to noncontrolling interests ( 2,817 ) ( 509 ) ( 389 )

( 509 ) ( 389 ) ( 11,345 )

141,294 227,524 161,821

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:

Net income 349,626 141,294 227,524

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs

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Derivative market value adjustments 28,144 76,195 ( 1,014 )

Unrealized foreign currency transaction adjustment — — 45,600

(Payments to) proceeds from termination of derivative instruments, net — ( 12,530 ) 10,283

Loss on extinguishment of debt 16,689 — —

(Payments to) proceeds from clearinghouse - initial and variation margin, net ( 26,747 ) ( 70,685 ) 40,382

Gain from deconsolidation of ALLO, including cash impact ( 287,579 ) — —

Gain from sale of loans ( 33,023 ) ( 17,261 ) —

Deferred income tax (benefit) expense ( 7,265 ) 10,981 ( 1,544 )

Gain from investments, net ( 14,055 ) ( 3,095 ) ( 8,139 )

(Gain from) loss on repurchases and extinguishment of debt, net ( 1,924 ) 16,553 ( 359 )

Deferred income tax expense (benefit) 7,974 ( 7,265 ) 10,981

Non-cash compensation expense 16,739 6,781 6,539

Impairment expense — 11,721 3,626

Impairment expense and provision for beneficial interests 24,723 — 11,721

Other 186 584 ( 2,551 )

Increase in accrued interest receivable ( 54,586 ) ( 248,869 ) ( 39,203 )

(Increase) decrease in accounts receivable ( 55,949 ) 3,059 ( 4,234 )

Increase in other assets ( 11,065 ) ( 4,069 ) ( 42,270 )

Increase in loan and investment accrued interest receivable ( 61,090 ) ( 54,586 ) ( 248,869 )

Decrease (increase) in accounts receivable 40,880 ( 55,949 ) 3,059

Decrease (increase) in other assets, net 59,182 ( 19,858 ) ( 4,069 )

Decrease in the carrying amount of ROU asset 11,594 8,793 —

(Decrease) increase in accrued interest payable ( 18,584 ) ( 14,394 ) 11,640

Increase (decrease) in other liabilities 35,907 49,100 ( 12,506 )

Increase in due to customers 68,078 59,388 67,419

Decrease in the carrying amount of lease liability ( 9,401 ) ( 8,678 ) —

(Decrease) increase in due to customers ( 136,285 ) 68,078 59,388

Net cash provided by operating activities 212,815 298,915 270,892

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Purchases of loans ( 1,459,696 ) ( 1,906,669 ) ( 3,847,553 )

( 2,008,207 ) ( 3,922,251 ) ( 325,476 )

Purchases of loans from a related party ( 147,539 ) ( 101,538 ) ( 74,698 )

Net proceeds from loan repayments, claims, and capitalized interest 2,644,347 3,462,391 3,322,783

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Proceeds from sales of available-for-sale securities 173,784 105 71,415

Purchases of investments and issuance of notes receivable ( 103,250 ) ( 67,040 ) ( 29,339 )

Proceeds from investments and notes receivable 70,472 23,039 11,545

Proceeds from beneficial interest in loan securitizations 44,213 6,593 —

Purchases of other investments ( 168,216 ) ( 103,250 ) ( 67,040 )

Proceeds from other investments 13,011 63,879 23,039

Purchases of property and equipment ( 113,312 ) ( 92,499 ) ( 125,023 )

Business (acquisitions) sale, net of cash and restricted cash acquired — ( 12,562 ) 4,511

Business acquisitions, net of cash and restricted cash acquired ( 29,989 ) — ( 12,562 )

Net cash provided by (used in) investing activities $ 621,219 1,524,566 ( 732,351 )

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

2020 2019 2018

(Dollars in thousands)

Cash flows from financing activities:

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Payments to extinguish debt — ( 14,030 ) —

Payment of contingent consideration — — ( 850 )

Increase in bank deposits, net 54,633 — —

Dividends paid ( 31,778 ) ( 29,485 ) ( 26,839 )

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Net cash (used in) provided by financing activities ( 1,098,240 ) ( 1,793,271 ) 711,784

Net increase (decrease) in cash, cash equivalents and restricted cash 30,210 250,325 ( 228,251 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 264,206 ) 30,210 250,325

Cash, cash equivalents, and restricted cash, beginning of year 1,222,601 1,192,391 942,066

Cash, cash equivalents, and restricted cash, end of year $ 958,395 1,222,601 1,192,391

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

Year ended December 31,

2019 2018 2017

Supplemental disclosures of cash flow information:

Cash disbursements made for interest $ 301,570 657,436 591,394

Cash disbursements made for income taxes, net of refunds and credits (a) $ 17,672 473 96,271

Noncash investing and financing activity:

Cash disbursements made for income taxes, net of refunds and credits received (a) $ 29,685 17,672 473

Cash disbursements made for operating leases $ 11,488 9,966 —

Noncash operating, investing, and financing activity:

ROU assets obtained in exchange for lease obligations $ 4,282 8,731 —

Receipt of beneficial interest in consumer loan securitizations $ 52,501 39,780 —

Distribution to noncontrolling interests $ 3,868 — —

(a) For 2019 and 2018, the Company utilized $ 31.8 million and $ 14.7 million of federal and state tax credits, respectively, related primarily to renewable energy.

Supplemental disclosures of noncash activities regarding the adoption of the new lease standard on January 1, 2019 are contained in notes 2 and 17.

Supplemental disclosures of noncash operating and investing activities regarding the Company's business acquisitions during 2018 are contained in note 7.

Distribution to noncontrolling interest $ 15,035 3,868 —

(a) For 2020, 2019, and 2018 the Company utilized $ 53.9 million, $ 31.8 million, and $ 14.7 million of federal and state tax credits, respectively, related primarily to renewable energy.

Supplemental disclosures of noncash activities regarding the adoption of the new accounting standard for measurement of credit losses on January 1, 2020 are contained in note 3.

Supplemental disclosures of noncash activities regarding the Company's recapitalization of ALLO in 2020 and business acquisitions during 2020 and 2018 are contained in note 2 and note 8, respectively.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.

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and its subsidiaries (“Nelnet” or the “Company”) is a diverse company with a purpose to serve others and a vision to make customers' dreams possible by delivering customer focused products and services.

The largest operating businesses engage in loan servicing;

education technology, services, and payment processing;

and communications.

The largest operating businesses engage in loan servicing and education technology, services, and payment processing, and the Company also has a significant investment in communications.

A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans.

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This expansion has been accomplished through internal growth and innovation as well as business acquisitions.

The Company has four reportable operating segments.

The Company's reportable operating segments include:

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• Asset Generation and Management (“AGM”)

• Nelnet Bank

A description of each reportable operating segment is included below.

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• Originating and servicing private education and consumer loans

• Backup servicing for FFELP, private education and consumer loans

• Providing student loan servicing software and other information technology products and services

• Customer acquisition, management services, and backup servicing for community solar developers

• Providing outsourced services including call center, processing, and marketing services

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These activities are performed internally for the Company's portfolio in addition to generating external fee revenue when performed for third-party clients.

On February 7, 2018, the Company acquired Great Lakes Educational Loan Services, Inc.

In addition, LSS provides backup servicing to third-parties, which allows a transfer of the customer’s servicing volume to the Company’s platform and becoming a full servicing customer if their existing servicer cannot perform their duties.

On February 7, 2018, NDS acquired Great Lakes Educational Loan Services, Inc.

(“Great Lakes”).

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Nelnet Servicing, LLC, (“Nelnet Servicing”), a subsidiary of the Company, and Great Lakes are two of four large private sector companies (referred to as Title IV Additional Servicers, or “TIVAS”) awarded a student loan servicing contract by the Department to provide additional servicing capacity for loans owned by the Department.

This segment also provides student loan servicing software, which is used internally by the Company and licensed to third-party student loan holders and servicers.

These software systems have been adapted so that they can be offered as hosted servicing software solutions usable by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL Program loans.

AND SUBSIDIARIES

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(Dollars in thousands, except share amounts, unless otherwise noted)

This segment also provides student loan servicing software, which is used internally and licensed to third-party student loan holders and servicers.

This segment also provides business process outsourcing primarily specializing in contact center management.

The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, and interacting with customers through multi-channels.

The contact center solutions and services include taking inbound calls, helping with outreach campaigns and sales, interacting with customers through multi-channels, and processing and technology services.

Education Technology, Services, and Payment Processing

NBS provides service and technology to administrators, teachers, students, and families of K-12 schools and higher education institutions.

The Education Technology, Services, and Payment Processing segment (known as Nelnet Business Solutions (“NBS”)) provides service and technology to administrators, teachers, students, and families of K-12 schools and higher education institutions.

The Company's payment processing services and technologies also serve customers outside of education.

In the K-12 market, the Company (known as FACTS) offers (i) financial management, including actively managed tuition payment plans, financial needs assessment (grant and aid), incidental billing, advanced accounting, and payment forms;

In the K-12 market, the Company (known as FACTS) offers (i) financial management, including tuition payment plans, financial needs assessment (grant and aid), incidental billing, advanced accounting, and payment forms;

(ii) school administration solutions, including school information system software that automates the flow of information between school administrators, teachers, and parents and includes administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management;

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and (vi) innovative technology products that aid in teacher and student evaluations.

In the higher education market, the Company (known as Nelnet Campus Commerce) offers solutions including (i) actively managed tuition payment plans and (ii) payment technology and processing.

In the higher education market, the Company (known as Nelnet Campus Commerce) offers solutions including (i) tuition payment plans and (ii) payment technology and processing.

Outside of the education market, the Company also offers technology and payment services including electronic transfer and credit card processing, reporting, billing and invoicing, mobile and virtual terminal solutions, and specialized integrations to business software.

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ALLO Communications LLC (“ALLO”) provides pure fiber optic service to homes and businesses for internet, television, and telephone services.

The acquisition of ALLO in 2015 provides additional diversification of the Company's revenues and cash flows outside of education.

In addition, the acquisition leverages the Company's existing infrastructure, customer service capabilities and call centers, and financial strength and liquidity for continued growth.

ALLO derives its revenue primarily from the sale of communication services to residential, governmental, and business customers in Nebraska and Colorado.

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ALLO data services provide high-speed internet access over ALLO's all-fiber network at various symmetrical speeds of up to 1 gigabit per second for residential customers and is capable of providing symmetrical speeds of over 1 gigabit per second for business customers.

Telephone services include local and long distance telephone service, hostedPBX services, and other services.

Telephone services include local and long distance telephone service, hosted PBX services, and other services.

On December 21, 2020 the Company deconsolidated ALLO from the Company’s consolidated financial statements due to ALLO’s recapitalization.

The recapitalization of ALLO is not considered a strategic shift in the Company’s involvement with ALLO and ALLO’s results of operations, prior to deconsolidation, are presented by the Company as a reportable operating segment.

See note 2, “Recent Developments - ALLO Recapitalization,” for a description of this transaction and the Company’s continued involvement.

Asset Generation and Management

The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company's loan assets.

The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of the Company's loan assets (excluding loan assets held by Nelnet Bank).

Substantially all loan assets included in this segment are student loans originated under the FFEL Program, including the Stafford Loan Program, the PLUS Loan program, and loans that reflect the consolidation into a single loan of certain previously separate borrower obligations (“Consolidation” loans).

The Company also acquires private education and consumer loans.

The Company generates a substantial portion of its earnings from the spread, referred to as the Company's loan spread, between the yield it receives on its loan portfolio and the associated costs to finance such portfolio.

AGM also acquires private education and consumer loans.

AGM generates a substantial portion of its earnings from the spread, referred to as the Company's loan spread, between the yield it receives on its loan portfolio and the associated costs to finance such portfolio.

The loan assets are held in a series of lending subsidiaries and associated securitization trusts designed specifically for this purpose.

In addition to the loan spread earned on its portfolio, all costs and activity associated with managing the portfolio, such as servicing of the assets and debt maintenance, are included in this segment.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

On November 2, 2020, the Company obtained final approval from the Federal Deposit Insurance Corporation ("FDIC") for federal deposit insurance and for a bank charter from the Utah Department of Financial Institutions ("UDFI") in connection with the establishment of Nelnet Bank, and Nelnet Bank launched operations.

Nelnet Bank operates as an internet Utah-chartered industrial bank franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah.

Corporate and Other Activities

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• The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered investment advisor subsidiary

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

• Income earned on certain investment activities, including real estate and renewable energy (solar)

• Interest expense incurred on unsecured debt transactions

• Income earned on certain investment activities, including renewable energy (solar) and real estate

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

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

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These costs are allocated to each operating segment based on estimated use of such activities and services.

Recent Developments - ALLO Recapitalization

On October 1, 2020, the Company entered into various agreements with SDC Allo Holdings, LLC (“SDC”), a third party global digital infrastructure investor, and ALLO, then a majority owned communications subsidiary of the Company, for various transactions contemplated by the parties in connection with a recapitalization and additional funding for ALLO.

The agreements provided for a series of interrelated transactions, whereby on October 15, 2020, ALLO received proceeds of $ 197.0 million from SDC as the purchase price for the issuance of non-voting preferred membership units of ALLO, and redeemed $ 160.0 million of non-voting preferred membership units of ALLO held by the Company.

On December 21, 2020, the non-voting preferred membership units of ALLO held by SDC automatically converted into voting membership units of ALLO pursuant to the terms of the agreements upon the receipt on December 21, 2020 of the required approvals from applicable regulatory authorities.

As a result of such conversion, SDC, the Company, and members of ALLO’s management own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests of ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements.

Upon the deconsolidation of ALLO, the Company recorded its 45 percent voting membership interests in ALLO at fair value, and accounts for such investment under the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting.

In addition, the Company recorded its remaining non-voting preferred membership units in ALLO at fair value, and accounts for such investment as a separate equity investment.

As a result of the deconsolidation of ALLO, the Company recognized a gain of $ 258.6 million in the fourth quarter of 2020 as summarized below.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

December 21, 2020

Voting interest/equity method investment - recorded at fair value $ 132,960

Preferred membership interest investment - recorded at fair value 228,530

ALLO assets deconsolidated:

Cash and cash equivalents – not held at a related party ( 299 )

Cash and cash equivalents – held at a related party ( 28,692 )

Accounts receivable ( 4,138 )

Goodwill ( 21,112 )

Intangible assets ( 6,083 )

Property and equipment, net ( 245,295 )

Other assets ( 29,643 )

Other liabilities 24,185

Noncontrolling interests 208,175

Gain recognized upon deconsolidation of ALLO $ 258,588

The agreements between the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership units of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such units.

As of December 31, 2020, the outstanding preferred membership units of ALLO held by the Company was $ 228.9 million.

The preferred membership units earn a preferred annual return of 6.25 percent.

The impact to the Company’s 2020 operating results as a result of the ALLO recapitalization is summarized below:

Gain from deconsolidation $ 258,588

Compensation expense (note 1) ( 9,298 )

Obligation to SDC (note 2) ( 2,339 )

On October 1, 2020 (prior to the deconsolidation of ALLO), ALLO recognized compensation expense related to the modification of certain equity awards previously granted to members of ALLO’s management.

As part of the ALLO recapitalization transaction, the Company and SDC entered into an agreement, in which the Company has a contingent payment obligation to pay SDC a contingent payment amount of $ 25.0 million to $ 35.0 million in the event the Company disposes of its voting membership units of ALLO that it holds and realizes from such disposition certain targeted return levels.

The Company recognized the estimated fair value of the contingent payment as of December 31, 2020 to be $ 2.3 million, which is included in “other liabilities” on the consolidated balance sheet.

Summary of Significant Accounting Policies and Practices

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The primary beneficiary is the entity which has both:

(1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

The Company examines specific criteria and uses judgment when determining whether an entity is a VIE and whether it is the primary beneficiary.

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Accordingly, all the financial activities and related assets and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are summarized as supplemental information on the balance sheet.

As of December 31, 2019, the Company owned 98.9 percent of the economic rights of ALLO Communications LLC and has a disproportional 80 percent of the voting rights related to all operating decisions for ALLO's business.

See note 1, “Description of Business,” for a description of ALLO, including the primary services offered.

In addition to the Company’s original equity investment, Nelnet, Inc.

(the parent) contributed additional equity with a yield-based preferred return of future earnings due on the newly contributed equity.

The Company will continue to increase its ownership interests as it makes cash contributions to fund ALLO's operating losses and capital expenditures.

In addition, ALLO's management, as current minority members, has the opportunity to earn ownership interests based on the financial performance of ALLO.

Nelnet, Inc.’s maximum exposure to loss as a result of its involvement with ALLO is equal to its ownership interests investment.

All of ALLO’s financial activities and related assets and liabilities are reflected in the Company’s consolidated financial statements.

See note 14, “Segment Reporting,” for disclosure of ALLO’s total assets and results of operations (included in the "Communications" operating segment), note 15, "Disaggregated Revenue and Deferred Revenue," for disclosure of ALLO's disaggregated revenue and deferred revenue, note 9, "Goodwill," for disclosure of ALLO's goodwill, and note 10, “Property and Equipment,” for disclosure of ALLO’s fixed assets.

ALLO's goodwill and property and equipment comprise the majority of its assets.

The assets recognized as a result of consolidating ALLO are the property of ALLO and are not available for any other purpose.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

VIEs - Not consolidated

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The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods.

These investments are included in "investments and notes receivable" on the consolidated balance sheets.

These investments are included in "investments" on the consolidated balance sheets and accounted for under the HLBV method of accounting.

The carrying value of these investments are reduced by tax credits earned when the solar project is placed in service.

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Maximum exposure to loss (a) $ 104,829 88,637

(a) Amount includes $ 3.0 million as of December 31, 2019 syndicated to other investors in certain solar projects.

(a) Amounts include $ 15.6 million and $ 3.0 million as of December 31, 2020 and 2019, respectively, syndicated to other investors in certain solar projects.

As of December 31, 2020, the Company owned 45 percent of the economic rights of ALLO Communications LLC and has a disproportional 43 percent of the voting rights related to all operating decisions for ALLO's business.

See note 1, “Description of Business,” for a description of ALLO, including the primary services offered.

See note 2, “Recent Developments - ALLO Recapitalization,” for disclosure of ALLO’s recapitalization and the Company’s recognition of its voting interest/equity method and non-voting preferred membership investments, which is the Company’s maximum exposure to loss.

Accounting Standard Adopted in 2020

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification Topic 842, Leases ("ASC Topic 842").

The standard requires the identification of arrangements that should be accounted for as leases by lessees and the disclosure of key information about leasing arrangements.

The standard establishes a right-of-use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability for all leases with a term longer than twelve months and classify the lease as either operating or financing, with the income statement reflecting lease expense for operating leases and amortization/interest expense for financing leases.

The Company adopted the standard effective January 1, 2019, using the effective date as its date of initial application.

Consequently, financial information is not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.

The Company elected to utilize the ‘package of practical expedients’, which permitted it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs.

The most significant impact of the standard relates to (1) the recognition of new ROU assets and lease liabilities on the Company's consolidated balance sheet;

(2) the deconsolidation of assets and liabilities for certain sale-leaseback transactions arising from build-to-suit lease arrangements for which construction was completed and the Company is leasing the constructed assets that did not qualify for sale accounting prior to the adoption of the new standard;

and (3) significant new disclosures about the Company’s leasing activities.

The build-to-suit lease arrangements have been reassessed as operating leases as of the effective date under ASC Topic 842.

Adoption of the new standard resulted in recognizing lease liabilities of $ 33.7 million based on the present value of the remaining minimum rental payments.

In addition, the Company recognized ROU assets of $ 32.8 million, which corresponds to the lease liabilities reduced by deferred rent expense as of the effective date.

The Company also deconsolidated total assets of $ 43.8 million and total liabilities of $ 34.8 million for entities that had been consolidated due to sale-leaseback transactions that failed to qualify for recognition as sales under the prior guidance.

Deconsolidation of these entities reduced noncontrolling

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

2016-13, Financial Instruments – Credit Losses (“ASC 326”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the

AND SUBSIDIARIES

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(Dollars in thousands, except share amounts, unless otherwise noted)

interests by $ 6.1 million.

The cumulative effect of the changes made to the Company's consolidated balance sheet as of January 1, 2019 for the adoption of the new lease standard was as follows:

Adjustments from adoption of new lease standard

Balances at December 31, 2018 ROU assets and lease liabilities Deconsolidation of sale-leaseback transactions Balances at January 1, 2019

Cash and cash equivalents $ 121,347 — ( 646 ) 120,701

Investments and notes receivable 249,370 — ( 23,134 ) 226,236

Accounts receivable 59,531 — ( 89 ) 59,442

Property and equipment, net 344,784 — ( 16,974 ) 327,810

Other assets 45,533 32,831 ( 27 ) 78,337

Bonds and notes payable

22,218,740 — ( 33,182 ) 22,185,558

Other liabilities 256,092 32,831 ( 1,611 ) 287,312

Noncontrolling interests 10,315 — ( 6,077 ) 4,238

current expected credit loss ("CECL") methodology.

Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for financial assets measured at amortized cost at the time the financial asset is originated or acquired, including, for the Company, loans receivable, accounts receivable, and held-to-maturity beneficial interests in loan securitizations.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

For available-for-sale debt securities where fair value is less than amortized cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.

On January 1, 2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 (recognizing estimated credit losses expected to occur over the asset's remaining life) while prior period amounts continue to be reported in accordance with previously applicable GAAP (recognizing estimated credit losses using an incurred loss model);

therefore, the comparative information for 2019 is not comparable to the information presented for 2020.

Adoption of the new guidance primarily impacted the allowance for loan losses related to the Company's loan portfolio.

Upon adoption, the Company recorded an increase to the allowance for loan losses of $ 91.0 million, which included a reclassification of the non-accretable discount balance and premiums related to loans purchased with evidence of credit deterioration, and decreased retained earnings, net of tax, by $ 18.9 million.

The following table illustrates the impact of the adoption of ASC 326.

December 31, 2019 Impact of ASC 326 adoption Balances at

January 1, 2020

Loans and accrued interest receivable, net of allowance

Loans receivable $ 20,798,719 — 20,798,719

Accrued interest receivable 733,497 — 733,497

Loan discount, net ( 35,036 ) 33,790 ( 1,246 )

Non-accretable discount ( 32,398 ) 32,398 —

Allowance for loan losses ( 61,914 ) ( 91,014 ) ( 152,928 )

Loans and accrued interest receivable, net of allowance 21,402,868 ( 24,826 ) 21,378,042

Other liabilities (deferred taxes) 303,781 ( 5,958 ) 297,823

Retained earnings 2,377,627 ( 18,868 ) 2,358,759

The Company adopted ASC 326 using the prospective transition approach for loans receivable purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI").

In accordance with the standard, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2020, the unamortized cost basis of the PCD assets were adjusted to reflect the addition of $ 32.4 million in the allowance for loan losses (as reflected in the table above).

The remaining noncredit premium on these loans as of January 1, 2020 (based on the adjusted amortized cost basis) will be amortized into interest income over the life of the loans.

Changes to the allowance for loan losses on these loans after adoption are recorded through provision expense.

Summary of Significant Accounting Policies Affected by Implementation of ASC 326

Allowance for Loan Losses

The allowance for loan losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans as of the balance sheet date.

Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments.

Loans are charged off when management determines the loan is uncollectible.

Charge-offs are recognized as a reduction to the allowance for loan losses.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

recoveries of amounts previously charged off, not to exceed the aggregate of the amount previously charged off, are included in the estimate of the allowance for loan losses at the balance sheet date.

The Company aggregates loans with similar risk characteristics into pools to estimate its expected credit losses.

The Company evaluates such pooling decisions each quarter and makes adjustments as risk characteristics change.

The Company determines its estimated credit losses for the following financial assets as follows:

Loans receivable

Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses.

Accordingly, the portfolio segment disclosures are presented on this basis in note 4 for each of these portfolios.

The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables.

The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio.

For the undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of probability of default and loss given default and the exposure of default over the expected life of the loans.

For the remaining life method, the expected credit losses are the product of multiplying the Company’s estimated net loss rate by the exposure at default over the expected life of the loans.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current economic conditions, and reasonable and supportable forecasts.

The Company has determined that, for modeling current expected credit losses, the Company can reasonably estimate expected losses that incorporate current economic conditions and forecasted probability weighted economic scenarios up to a one-year period.

Macroeconomic factors used in the models include such variables as unemployment rates, gross domestic product, and consumer price index.

After the "reasonable and supportable" period, the Company reverts to its actual long-term historical loss experience in the historical observation period.

The Company uses a straight line reversion method over two years.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

A portion of the allowance is comprised of qualitative adjustments to historical loss experience.

Qualitative adjustments consider the following factors, as applicable, for each of the Company’s loan portfolios:

student 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 Company and industry data;

past experience;

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

changes in federal student loan programs;

and other relevant qualitative factors.

Changes in the allowance for the year ended December 31, 2020 were primarily a result of the adoption of ASC 326 and changes in macroeconomic factors that were impacted by COVID-19.

The federal government guarantees 97 percent of the principal of and the 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 the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio.

Federally insured student loans disbursed prior to October 1, 1993 are fully insured.

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

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

The Company places private education loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days past due.

The Company places consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program.

Collections, if any, are reflected as a recovery through the allowance for loan losses.

Purchased Loans Receivable with Credit Deterioration (“PCD”)

The Company has purchased federally insured rehabilitation loans that have experienced more than insignificant credit deterioration since origination.

Rehabilitation loans are loans that have previously defaulted, but for which the borrower has made a specified number of on-time payments.

Although rehabilitation loans benefit from the same guarantees as other federally insured loans, rehabilitation loans have generally experienced redefault rates that are higher than default rates for federally insured loans that have not previously defaulted.

These PCD loans are recorded at the amount paid.

An allowance for loan losses is determined using the same methodology as for other loans held for investment.

The sum of the loans’ purchase

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

price and allowance for loan losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through provision expense.

Loan Accrued Interest Receivable

The Company has elected to present its loan accrued interest receivable balance combined in its consolidated balance sheets with the loans receivable amortized cost balance.

For the Company’s federally insured loan portfolio, the Company has elected to measure an allowance for credit losses for accrued interest receivables.

For federally insured loans, accrued interest receivable is typically charged-off when the contractual payment of principal or interest has become greater than 270 days past due.

Charge-offs of accrued interest receivable are recognized as a reduction to the allowance for loan losses.

For the Company’s private education and consumer loan portfolios, the Company has elected not to measure an allowance for credit losses for accrued interest receivables.

For private education and consumer loans, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due.

Charge-offs of accrued interest receivable are recognized by reversing interest income.

Reclassifications

Certain amounts previously reported within the Company’s consolidated statements of income have been reclassified to conform to the current period presentation.

Certain amounts previously reported have been reclassified to conform to the current period presentation.

These reclassifications include:

• Reclassifying “gain from debt repurchases” to “other income”;

• Reclassifying “loan servicing fees to third parties” to “other expenses.”

• Reclassifying the line item "accrued interest receivable" on the Company's consolidated balance sheet to "loans and accrued interest receivable" and "investments";

• Reclassifying "gain on sale of loans" that was previously included in "other income" to a new line item on the Company's consolidated statements of income;

• Reclassifying “impairment expense” that was previously included in “other expenses” to a new line on the Company’s consolidated statements of income.

Noncontrolling Interests

2 unchanged sentences

WRCM issued 10 percent minority membership interests on January 1, 2012.

• ALLO Communications LLC - On December 31, 2015, the Company purchased 92.5 percent of the ownership interests in ALLO.

On January 1, 2016, the Company sold a 1.0 percent ownership interest in ALLO to a non-related third party.

Subsequently, the Company contributed additional equity to increase its ownership interest in ALLO to 98.9 percent.

Per ALLO's operating agreement, currently all operating results of ALLO are allocated to the Company.

In addition, the Company has established entities for the purpose of investing in renewable energy (solar) and federal opportunity zone programs in which it has noncontrolling members.

In addition, the Company has established multiple entities for the purpose of investing in renewable energy (solar) and federal opportunity zone programs in which it has noncontrolling members.

Use of Estimates

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Any loans the Company has the ability and intent to sell are classified as held for sale and are carried at the lower of cost or fair value.

Loans which are held for sale do not have the associated premium or discount and origination costs and fees amortized into interest income and

Loans which are held for sale do not have the associated premium or discount and origination costs and fees amortized into interest income and there is also no related allowance for loan losses.

There were no loans classified as held for sale as of December 31, 2020 and 2019.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share amounts, unless otherwise noted)

there is also no related allowance for loan losses.

There were no loans classified as held for sale as of December 31, 2019 and 2018.

Federally insured loans were originated under the FFEL Program by certain eligible lenders as defined by the Higher Education Act of 1965, as amended (the “Higher Education Act”).

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FFELP loans do not require repayment while the borrower is in-school, and during the grace period immediately upon leaving school.

The borrower may also be granted a deferment or forbearance for a period of time based on need, during which time the borrower is not considered to be in repayment.

Under the Higher Education Act a borrower may also be granted a deferment or forbearance for a period of time based on need, during which time the borrower is not considered to be in repayment.

Interest continues to accrue on loans in the in-school, deferment, and forbearance program periods.

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These loans are used primarily to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans, or borrowers' personal resources.

The terms of the private education loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to 30 years.

The terms of the private education loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest over a period of up to thirty years .

The private education loans are not covered by a guarantee or collateral in the event of borrower default.

Consumer loans are unsecured loans to an individual for personal, family, or household purposes.

The terms of the consumer loans, which vary on an individual basis, generally provide for repayment in weekly or monthly installments of principal and interest over a period of up to 6 years.

Allowance for Loan Losses

The allowance for loan losses represents management's estimate of probable losses on loans.

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

The Company evaluates the adequacy of the allowance for loan losses using a historical loss rate methodology adjusted for qualitative factors separately on each of its federally insured, private education, and consumer loan portfolios.

These evaluation processes are subject to numerous judgments and uncertainties including the selection of loss rates over time and determination of the loss emergence period.

The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company's loan portfolios considering loans in repayment versus those in a 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 guarantees 97 percent of the principal of and the 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 the Company's loss exposure on the outstanding balance of the Company's federally insured portfolio.

Student loans disbursed prior to October 1, 1993 are fully insured.

In determining the appropriate allowance for loan losses on the private education and consumer loans, the Company considers several factors, including:

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

The Company places private education and consumer loans on nonaccrual status when the collection of principal and interest is 90 days past due, and charges off the loan when the collection of principal and interest is 120 days or 180 days past due, depending on type of loan program.

Collections, if any, are reflected as a recovery through the allowance for loan losses.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Management has determined that each of the federally insured, private education, and consumer loan portfolios meet the definition of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses.

Accordingly, the portfolio segment disclosures are presented on this basis in note 3 for each of these portfolios.

The Company does not disaggregate its portfolio segment loan portfolios into classes of financing receivables.

The Company collectively evaluates loans for impairment and as of December 31, 2019 and 2018, the Company did no t have any impaired loans as defined in the Receivables Topic of the FASB Accounting Standards Codification.

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

Remaining discounts and premiums for purchased loans are recognized in interest income over the remaining estimated lives of the loans.

The Company continues to evaluate credit losses associated with purchased loans based on current information and changes in expectations to determine the need for any additional allowance for loan losses.

The terms of the consumer loans, which vary on an individual basis, generally provide for repayment in weekly or monthly installments of principal and interest over a period of up to six years .

Allowance for Loan Losses – Prior to Adoption of ASC 326

Prior to the adoption of ASC 326 effective January 1, 2020, the allowance for loan losses represented management's estimate of probable losses on loans.

The provision for loan losses for periods ended prior to January 1, 2020 reflected the activity for the applicable period and provided an allowance at a level that the Company's management believed was appropriate to cover probable losses inherent in the loan portfolio.

The Company evaluated the adequacy of the allowance for loan losses using a historical loss rate methodology adjusted for qualitative factors separately on each of its federally insured, private education, and consumer loan portfolios.

These evaluation processes were subject to numerous judgments and uncertainties including the selection of loss rates over time and determination of the loss emergence period.

In determining the appropriate allowance for loan losses, the Company considered several factors, as applicable, for each of the Company’s loan portfolios, including:

loans in repayment versus those in a 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, type of program, current economic conditions, and other relevant qualitative factors.

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

Remaining discounts and premiums for purchased loans were recognized in interest income over the remaining estimated lives of the loans.

The Company continued to evaluate credit losses associated with purchased loans based on current information and changes in expectations to determine if additional allowance for loan losses on such portfolios were needed.

Cash and Cash Equivalents and Statements of Cash Flows

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Accrued interest on loans purchased and sold is included in cash flows from operating activities in the respective period.

Net purchased loan accrued interest was $ 112.9 million and $ 181.0 million in 2019 and 2018, respectively.

The amount of purchased loan accrued interest in 2017 was no t significant.

Net purchased loan accrued interest was $ 92.3 million, $ 112.9 million, and $ 181.0 million in 2020, 2019, and 2018, respectively.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

The Company classifies its debt securities, primarily student loan and other asset-backed securities, as available-for-sale.

These securities are carried at fair value, with the temporary changes in fair value, net of taxes, carried as a separate component of shareholders’ equity.

These securities are carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of shareholders’ equity.

The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate method.

Other-than-temporary impairment is evaluated by considering several factors, including the length of time and extent to which the fair value has been less than the amortized cost basis, the financial condition and near-term prospects of the issuer of the security (considering factors such as adverse conditions specific to the security and ratings agency actions), and the intent and ability of the Company to retain the investment to allow for any anticipated recovery in fair value.

The entire fair value loss on a security that has experienced an other-than-temporary impairment is recorded in earnings if the Company intends to sell the security or if it is more likely than not that the Company will be required to sell the security before the expected recovery of the loss.

However, if the impairment is other-than-temporary, and either of those two conditions does not exist, the portion of the impairment related to credit losses is recorded in earnings and the impairment related to other factors is recorded in other comprehensive income.

When an investment is sold, the cost basis is determined through specific identification of the security sold.

The Company classifies its residual interest in consumer loan securitizations as held-to-maturity beneficial interest investments.

The Company classifies its residual interest in federally insured and consumer loan securitizations as held-to-maturity beneficial interest investments.

The Company measures accretable yield initially as the excess of all cash flows expected to be collected attributable to the beneficial interest estimated at the acquisition/transaction date over the initial investment and recognizes interest income over the life of the beneficial interest using the effective interest method.

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Beneficial interest investments are evaluated for impairment by comparing the present value of the remaining cash flows as estimated at the initial transaction date (or the last date previously revised) to the present value of the cash flows expected to be collected at the current financial reporting date, both discounted using the same effective rate equal to the current yield used to accrete the beneficial interest.

If the present value of remaining cash flows is less than the present value of cash flows expected to be collected, the Company records an allowance for credit losses for the difference.

Subsequent favorable changes, if any, decreases the allowance for credit losses.

The Company reflects the changes in the allowance for credit losses in provision for beneficial interests on the consolidated statements of income.

Equity investments with readily determinable fair values are measured at fair value, with changes in the fair value recognized through net income (other than those equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee).

2 unchanged sentences

The Company accounts for equity investments over which it has significant influence but not a controlling financial interest using the equity method of accounting.

Equity method investments are recorded at cost and subsequently increased or decreased by the amount of the Company’s proportionate share of the net earnings or losses and other comprehensive income of the

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Equity method investments are evaluated for other-than-temporary impairment using certain impairment indicators such as a series of operating losses of an investee or other factors.

These factors may indicate that a decrease in value of the investment has occurred that is other-than-temporary and shall be recognized.

For periods prior to January 1, 2018, equity securities with readily determinable fair values were primarily classified as available-for-sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.

Equity securities without readily determinable fair values were recorded at cost less impairment, if any.

The Company accounts for its solar investments and equity investments in ALLO under the HLBV method of accounting.

The HLBV method of accounting is used by the Company for equity method investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership or voting interests.

The Company applies the HLBV method using a balance sheet approach.

A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if an equity investment entity were to liquidate its net assets and distribute that cash to the investors based on the contractually defined liquidation priorities.

The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is the amount the Company recognizes for its share of the earnings or losses from the equity investment for the period.

Restricted Cash

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Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the student loans held as trust assets and when principal and interest is paid on the trust's asset-backed debt securities.

Restricted cash also includes collateral deposits with derivative counterparties and third-party clearinghouses.

Restricted cash also includes collateral deposits with derivative third-party clearinghouses.

Restricted Cash - Due to Customers

As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to the appropriate lending entities.

In addition, as part of the Company's Education Technology, Services, and Payment Processing operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools.

In addition, as part of the Company's Education Technology, Services, and Payment Processing

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools.

Cash collected for customers and the related liability are included in the accompanying consolidated balance sheets.

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Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is resolved, and changes in fair value are recognized in earnings .

The Company reviews goodwill for impairment annually (in the fourth quarter) and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable.

The Company reviews goodwill for impairment annually (as of November 30) and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable.

Goodwill is tested for impairment using a fair value approach at the reporting unit level.

3 unchanged sentences

The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount.

If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform a quantitative impairment test (described below), otherwise no further analysis is required.

An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

If the Company elects to not perform a qualitative assessment or if the Company determines it is more likely than not that the fair value of a reporting unit is less than the carrying amount, then the Company performs a quantitative impairment test on goodwill.

In the quantitative test, the Company compares the fair value of each reporting unit to its carrying value.

If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

and the Company is not required to perform further testing.

If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company would record an impairment loss equal to the difference.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions.

These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables.

Actual future results may differ from those estimates.

See note 9, "Goodwill," for information regarding the Company's annual goodwill impairment review.

For the 2020, 2019, and 2018 annual reviews of goodwill, the Company assessed qualitative factors and concluded it was not more likely than not that the fair value of its reporting units were less than their carrying amount.

As such, the Company was not required to perform further impairment testing and concluded there was no impairment of goodwill.

Intangible Assets

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Maintenance and repairs are charged to expense as incurred, and major improvements, including leasehold improvements, are capitalized.

Gains and losses from the sale of property and equipment are included in determining net income.

Gains and losses from the sale of

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

property and equipment are included in determining net income.

The Company uses the straight-line method for recording depreciation and amortization.

1 unchanged sentence

At the inception of an arrangement, the Company determines if the arrangement is, or contains, a lease and records the lease in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available by the lessor.

The Company primarily leases dark fiber to support its telecommunications operations and office and data center space.

The Company primarily leases office and data center space.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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When the discount rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate.

The Company has elected to utilize the practical expedient to account for lease and non-lease components together as a single, combined lease component for its office and data center space.

In addition, the Company has identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment.

The Company has also elected to utilize the practical expedient to account for those services and associated leases as a single, combined component.

The Company accounts for lease and non-lease components together as a single, combined lease component for its office and data center space.

In addition, the Company identified itself as the lessor in its Communications operating segment for services provided to customers that include customer-premise equipment.

The Company accounts for those services and associated leases as a single, combined component.

The non-lease services are 'predominant' in those contracts.

3 unchanged sentences

Renewal options that the Company is reasonably certain to exercise are included in the lease term.

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Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Certain leases include escalating rental payments or rental payments adjusted periodically for inflation.

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The values presented may not represent future fair values and may not be realizable.

Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates of current or future values.

Additionally, there may be inherent weaknesses in any calculation

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates of current or future values.

The Company categorizes its fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring assets and liabilities at fair value.

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In order to achieve that core principle, the Company applies the following five-step approach:

(1) identify the contract with a customer, (2)

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

(1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer.

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The Department provides a special allowance to lenders participating in the FFEL Program.

The special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January 1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000, and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to the yield of the student loan.

The special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January 1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000, and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to the yield of the student loan.

The Company recognizes loan interest income as earned, net of amortization of loan premiums and deferred origination costs and the accretion of loan discounts.

1 unchanged sentence

Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually required payments (the constant prepayment rate).

The constant prepayment rate used by the Company to amortize/accrete loan premiums/discounts is 5 percent for Stafford loans and 3 percent for Consolidation loans.

The constant prepayment rate used by the Company to amortize/accrete federally insured loan premiums/discounts is 5 percent for Stafford loans and 3 percent for Consolidation loans.

The Company periodically evaluates the assumptions used to estimate the life of the loans and prepayment rates.

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The amortization of debt issuance costs and accretion of discounts are recognized using the effective interest method .

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Transfer of Financial Assets and Extinguishments of Liabilities

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All over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile Exchange (“CME”), a regulated clearinghouse.

Substantially all of the Company’s outstanding derivatives are over-the-counter contracts.

Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.

2 unchanged sentences

As such, variation margin payments are considered in determining the fair value of the centrally cleared derivative portfolio.

The Company records derivative contracts on its balance sheet with a fair value of zero due to the payment or receipt of variation margin between the Company and the CME settling the outstanding mark-to-market exposure on such derivatives to a balance of zero on a daily basis, and records the underlying daily changes in the market value of such derivative contracts that result in such receipts or payments on its consolidated statements of income as realized derivative market value adjustments in "derivative market value and foreign currency transaction adjustments and derivative settlements, net."

The Company records derivative instruments that are not required to be cleared at a clearinghouse (non-centrally cleared derivatives) in the consolidated balance sheets on a gross basis as either an asset or liability measured at its fair value.

Certain non-centrally cleared derivatives are subject to right of offset provisions with counterparties.

For these derivatives, the Company does not offset fair value amounts executed with the same counterparty under a master netting arrangement.

In addition, the Company does not offset fair value amounts recognized for derivative instruments with respect to the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable).

The Company determines the fair value for its derivative instruments using either (i) pricing models that consider current market conditions and the contractual terms of the derivative instrument or (ii) counterparty valuations.

The factors that impact the fair value of the Company's derivatives include interest rates, time value, forward interest rate curve, and volatility factors.

Pricing models and their underlying assumptions impact the amount and timing of realized and unrealized gains and losses recognized, and the use of different pricing models or assumptions could produce different financial results.

Management has structured all of the Company's derivative transactions with the intent that each is economically effective;

however, the Company's derivative instruments do not qualify for hedge accounting.

As a result, the change in fair value of derivative instruments is reported in current period earnings.

Changes or shifts in the forward yield curve can significantly impact the valuation of the Company’s derivatives, and therefore impact the financial position and results of operations of the Company.

Any proceeds received or payments made by the Company to terminate a derivative in advance of its expiration date, or to amend the terms of an existing derivative, are included in the Company's consolidated statements of income and are accounted for as a change in fair value of such derivative.

The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included in “derivative market value and foreign currency adjustments and derivative settlements, net” on the consolidated statements of income .

Foreign Currency

During 2006, the Company issued Euro-denominated bonds, which were included in “bonds and notes payable” on the consolidated balance sheets.

Transaction gains and losses resulting from exchange rate changes when re-measuring these bonds to U.S.

dollars at the balance sheet date were included in “derivative market value and foreign currency adjustments and derivative settlements, net” on the consolidated statements of income.

The Company entered into a cross-currency interest rate swap in connection with the issuance of the Euro-denominated bonds.

On October 25, 2017, the Company completed a remarketing of its Euro notes which reset the principal amount outstanding on the notes to U.S.

dollars and the Company terminated the cross-currency interest rate swap.

As a result, the change in market value of derivative instruments is reported in current period earnings.

Changes or shifts in the forward yield curve can significantly impact the valuation of the Company’s derivatives, and therefore impact the results of operations of the Company.

The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included in “derivative market value adjustments and derivative settlements, net” on the consolidated statements of income .

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

Deferred tax assets and liabilities are

AND SUBSIDIARIES

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(Dollars in thousands, except share amounts, unless otherwise noted)

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

11 unchanged sentences

The fair value of grants under this plan is determined on the grant date based on the Company's stock price, and is expensed over the board member's annual service period.

Loans Receivable and Allowance for Loan Losses

Loans receivable consisted of the following:

Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:

As of December 31,

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19,576,651 20,798,719

Accrued interest receivable 794,611 733,497

Loan discount, net of unamortized loan premiums and deferred origination costs ( 9,908 ) ( 35,036 )

( 35,036 ) ( 53,572 )

Non-accretable discount (a) ( 32,398 ) ( 29,396 )

Non-accretable discount — ( 32,398 )

Allowance for loan losses:

3 unchanged sentences

$ 20,185,656 21,402,868

(a) At December 31, 2019 and 2018, the non-accretable discount related to purchased loan portfolios of $ 5.4 billion and $ 5.7 billion, respectively.

On January 30, 2020 and July 29, 2020, the Company sold $ 124.2 million (par value) and $ 60.8 million (par value), respectively, of consumer loans to an unrelated third party who securitized such loans.

The Company recognized a gain of $ 18.2 million (pre-tax) and $ 14.8 million (pre-tax), respectively, as part of these transactions.

As partial considerations received for the consumer loans sold, the Company received a 31.4 percent and 25.4 percent residual interest, respectively, in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share amounts, unless otherwise noted)

On May 1, 2019 and October 17, 2019, the Company sold $ 47.7 million (par value) and $ 179.3 million (par value) of consumer loans, respectively, to an unrelated third party who securitized such loans.

The Company recognized a $ 1.7 million (pre-tax) and $ 15.6 million (pre-tax) gain, respectively, as part of these transactions.

As partial consideration received for the consumer loans sold, the Company received an 11.0 percent and 28.7 percent residual interest, respectively, in the consumer loan securitizations that are included in "investments and notes receivable" on the Company's consolidated balance sheet.

Activity in the Allowance for Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of loans.

Activity in the allowance for loan losses is shown below.

Balance at beginning of period Provision for loan losses Charge-offs Recoveries Loan sale and other Balance at end of period

The following table presents the activity in the allowance for loan losses by portfolio segment.

Balance at beginning of period Impact of ASC 326 adoption Provision for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sale and other Balance at end of period

Year ended December 31, 2020

13 unchanged sentences

$ 54,590 — 23,000 ( 18,867 ) 665 — 1,000 60,388

(a) During the year ended December 31, 2020, the Company acquired $ 835.0 million (par value) of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company.

Loan Status and Delinquencies

The key credit quality indicators for the Company’s federally insured, private education, and consumer loan portfolios are loan status, including delinquencies.

The impact of changes in loan status is incorporated into the allowance for loan losses calculation.

Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.

The table below shows the Company’s loan status and delinquency amounts.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share amounts, unless otherwise noted)

Student Loan Status and Delinquencies

Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs.

The table below shows the Company’s loan delinquency amounts.

As of December 31,

12 unchanged sentences

Total federally insured loans 19,129,173 100.0 % 20,328,543 100.0 % 22,155,896 100.0 %

Accrued interest receivable 791,453 730,059 675,898

Loan discount, net of unamortized premiums and deferred origination costs ( 14,505 ) ( 35,822 ) ( 54,546 )

Non-accretable discount (e) — ( 28,036 ) ( 23,833 )

Allowance for loan losses ( 128,590 ) ( 36,763 ) ( 42,310 )

Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 19,777,531 $ 20,957,981 $ 22,711,105

Private education loans:

8 unchanged sentences

Total private education loans 338,132 100.0 % 244,258 100.0 % 225,975 100.0 %

Accrued interest receivable 2,157 1,558 1,126

Loan premium, net of unaccreted discount 2,957 46 ( 1,245 )

Non-accretable discount (e) — ( 4,362 ) ( 5,563 )

Allowance for loan losses ( 19,852 ) ( 9,597 ) ( 10,838 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 323,394 $ 231,903 $ 209,455

Consumer loans:

Loans in deferment $ 829 0.8 % $ — $ —

Loans in repayment status:

5 unchanged sentences

Total consumer loans 109,346 100.0 % 225,918 138,627

(a) Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make

payments on the loans, e.g.

Accrued interest receivable 1,001 1,880 665

Loan premium 1,640 740 2,219

Allowance for loan losses ( 27,256 ) ( 15,554 ) ( 7,240 )

Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 84,731 $ 212,984 $ 134,271

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

(a) Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g.

, residency periods for medical students or a grace period for bar exam preparation for law students.

(b) Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by

the servicer consistent with the established loan program servicing procedures and policies.

(c) The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is,

receivables not charged off, and not in school, grace, deferment, or forbearance.

(d) A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default

and have been submitted to the guaranty agency.

(b) Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.

(c) The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.

(d) A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency.

(e) Upon adoption of ASC 326 on January 1, 2020, the Company reclassified the non-accretable discount balance related to loans purchased with evidence of credit deterioration to allowance for loan losses.

In March 2020, the rapid outbreak of the respiratory disease caused by a novel strain of coronavirus, coronavirus 2019 or COVID-19 (“COVID-19”), was declared a global pandemic by the World Health Organization and a national emergency by the President, and caused significant disruptions in the U.S.

and world economies.

As a result of COVID-19, effective March 13, 2020 through June 30, 2020, the Company proactively applied a 90 day natural disaster forbearance to any loan that was 31-269 days past due (for federally insured loans) and 80 days past due (for private education loans), and to any current loan upon request.

Beginning July 1, 2020, the Company discontinued proactively applying 90 day natural disaster forbearances on past due loans.

However, the Company will continue to apply a natural disaster forbearance in 90 day increments to any federally insured and private education loan upon request through September 30, 2021.

For the majority of the Company's consumer loans, borrowers are generally being offered, upon request and/or documented evidence of financial distress, up to a two-month deferral of payments, with an option of additional deferrals if the COVID-19 pandemic continues.

The Company will continue to review whether additional and/or extended borrower relief policies and activities are needed.

All relief provided to borrowers by the Company through December 31, 2020 have been delays in payment that the Company considers to be insignificant and the modifications have not been accounted for as troubled debt restructuring.

Nonaccrual Status

The Company does not place federally insured loans on nonaccrual status due to the government guaranty.

The amortized cost of private and consumer loans on nonaccrual status, as well as the allowance for loan losses related to such loans, as of December 31, 2020, 2019, and 2018 was not material.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share amounts, unless otherwise noted)

Amortized Cost Basis by Origination Year

The following table presents the amortized cost of the Company's private education and consumer loans by loan status and delinquency amount as of December 31, 2020 based on year of origination.

Effective July 1, 2010, no new loan originations can be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program.

As such, all the Company’s federally insured loans were originated prior to July 1, 2010.

2020 2019 2018 2017 2016 Prior years Total

Private education loans:

Loans in school/grace/deferment $ 638 1,518 — — 206 2,687 5,049

Loans in forbearance 392 313 — — 305 1,378 2,388

Loans in repayment status:

Loans current 112,783 79,161 958 — 5,444 129,204 327,550

Loans delinquent 31-60 days — 24 — — 28 1,047 1,099

Loans delinquent 61-90 days 94 — — — — 581 675

Loans delinquent 91 days or greater — — — — — 1,371 1,371

Total loans in repayment 112,877 79,185 958 — 5,472 132,203 330,695

Total private education loans $ 113,907 81,016 958 — 5,983 136,268 338,132

Accrued interest receivable 2,157

Loan premium, net of unaccreted discount 2,957

Allowance for loan losses ( 19,852 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 323,394

Consumer loans:

Loans in deferment $ 62 447 317 3 — — 829

Loans in repayment status:

Loans current 58,738 22,213 22,098 2,601 — — 105,650

Loans delinquent 31-60 days 405 371 159 19 — — 954

Loans delinquent 61-90 days 264 390 130 20 — — 804

Loans delinquent 91 days or greater 93 452 550 14 — — 1,109

Total loans in repayment 59,500 23,426 22,937 2,654 — — 108,517

Total consumer loans $ 59,562 23,873 23,254 2,657 — — 109,346

Accrued interest receivable 1,001

Loan premium 1,640

Allowance for loan losses ( 27,256 )

Total consumer loans and accrued interest receivable, net of allowance for loan losses $ 84,731

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Bonds and Notes Payable

5 unchanged sentences

Bonds and notes based on indices $ 17,127,643 0.28 % - 2.05 %

5/27/25 - 10/25/68

Bonds and notes based on auction 749,925 1.12 % - 2.14 %

3/22/32 - 11/26/46

Total FFELP variable-rate bonds and notes 17,877,568

1 unchanged sentence

securitizations 923,076 1.42 % - 3.45 %

10/25/67 - 8/27/68

FFELP warehouse facilities 252,165 0.27 % / 0.31 %

5/20/22 / 2/26/23

Private education loan warehouse facility 150,397 0.28 % 2/13/22

Consumer loan warehouse facility 25,809 0.28 % 4/23/22

1 unchanged sentence

49,025 1.65 % / 1.90 %

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

37,251 3.60 % / 5.35 %

12/26/40 / 12/28/43

Unsecured line of credit 120,000 1.65 % 12/16/24

Unsecured debt - Junior Subordinated Hybrid Securities 20,381 5.28 % 9/15/61

Other borrowings 123,558 0.84 % / 1.90 %

5/4/21 / 5/30/22

Discount on bonds and notes payable and debt issuance costs ( 238,123 )

5 unchanged sentences

Bonds and notes based on indices $ 18,428,998 1.98 % - 3.61 %

5/27/25 - 1/25/68

Bonds and notes based on auction 768,626 2.75 % - 3.60 %

3/22/32 - 11/26/46

Total FFELP variable-rate bonds and notes 19,197,624

Fixed-rate bonds and notes issued in FFELP loan asset-backed securitizations 512,836 2.00 % - 3.45 %

10/25/67 / 11/25/67

FFELP warehouse facilities 778,094 1.98 % / 2.07 %

Variable-rate bonds and notes issued in private education loan asset-backed securitization

5/20/21 / 5/31/22

Consumer loan warehouse facility 116,570 1.99 % 4/23/22

Variable-rate bonds and notes issued in private education loan asset-backed securitizations 73,308 3.15 % / 3.54 %

12/26/40 / 6/25/49

Fixed-rate bonds and notes issued in private education loan asset-backed securitization

49,367 3.60 % / 5.35 %

12/26/40 / 12/28/43

Unsecured line of credit 50,000 3.29 % 12/16/24

18 unchanged sentences

Maximum financing amount $ 260,000 50,000 310,000

$ 550,000 500,000 1,050,000

Amount outstanding 252,165 — 252,165

Amount available $ 7,835 50,000 57,835

Expiration of liquidity provisions

May 20, 2020 May 31, 2020

Final maturity date May 20, 2021 May 31, 2022

Expiration of liquidity provisions May 20, 2021 February 26, 2021

Final maturity date May 20, 2022 February 26, 2023

Advanced as equity support $ 21,209 — 21,209

13 unchanged sentences

Securitizations completed during the year ended December 31, 2020

2019-1 2019-2 Private education loan

2019-A 2019-3 2019-4 2019-5 2019-6 2019-7 Total

Class A-1 Notes Class A-2 Notes 2019-1 total Class A-1 Notes Class A-2 Notes 2019-7 total

2020-1 2020-2 2020-3 2020-4 (a) 2020-5 (a) Total

Date securities issued 2/20/20 3/11/20 3/19/20 8/27/20 10/1/20

7 unchanged sentences

1.42 % 1-month LIBOR plus 0.88 %

Prime rate less 1.60 %

1-month LIBOR plus 0.80 %

1-month LIBOR plus 0.87 %

1-month LIBOR plus 0.50 %

1-month LIBOR plus 1.00 %

Final maturity date 3/26/68 4/25/68 3/26/68 8/27/68 10/25/68

5 unchanged sentences

2.50 % 1-month LIBOR plus 1.90 %

1-month LIBOR plus 1.55 %

1-month LIBOR plus 1.65 %

1-month LIBOR plus 1.75 %

Final maturity date 3/26/68 4/25/68 3/26/68

During 2019, the Company extinguished $ 1.05 billion of notes payable included in certain FFELP asset-backed securitizations prior to the notes’ contractual maturities.

To extinguish the notes, the Company paid premiums of $ 14.0 million and wrote off $ 2.7 million of debt issuance costs.

In total, the Company recognized $ 16.7 million (pre-tax) in expenses to extinguish these notes, which is included in “other expenses” on the consolidated statements of income.

(a) Total original principal amount excludes the Class B subordinated tranche for the 2020-4 and 2020-5 transactions, totaling $ 5.0 million and $ 7.5 million, respectively, that was retained by the Company at issuance.

As of December 31, 2020, the Company had a total of $ 40.1 million (par value) of its own asset-backed securities that were retained upon initial issuance or repurchased in the secondary market.

For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements.

However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated in the trust estate.

Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale.

Upon sale, these notes would be shown as "bonds and notes payable" in the Company's consolidated balance sheet.

The Company believes the market value of such notes is currently less than par value.

Any excess of the par value over the market value on the date of sale would be recognized by the Company as interest expense over the life of the bonds.

AND SUBSIDIARIES

2 unchanged sentences

Securitizations completed during the year ended December 31, 2019

2018-1 2018-2 2018-3 2018-4 2018-5 Total

Notes 2018-1 total Class

Notes 2018-3 total Class

Notes 2018-4 total

2019-1 2019-2 Private education loan

2019-A 2019-3 2019-4 2019-5 2019-6 2019-7 Total

Class A-1 Notes Class A-2 Notes 2019-1 total Class A-1 Notes Class A-2 Notes 2019-7 total

Date securities issued 2/27/19 2/27/19 2/27/19 4/30/19 6/25/19 7/24/19 8/22/19 9/25/19 10/30/19 12/19/19 12/19/19 12/19/19

Total original principal amount $ 35,700 448,000 496,800 416,100 47,159 498,300 418,600 374,500 145,200 210,300 200,000 420,800 2,817,459

$ 98,000 375,750 473,750 509,800 220,000 546,900 220,000 1,001,900 30,500 451,900 495,700 511,500 2,992,650

Class A senior notes:

Total principal amount $ 35,700 448,000 483,700 405,000 47,159 485,800 408,000 364,500 140,200 210,300 200,000 410,300 2,744,659

$ 98,000 375,750 473,750 509,800 220,000 546,900 220,000 986,900 30,500 451,900 482,400 498,000 2,950,850

Bond discount — — — — — — — ( 114 ) ( 26 ) — — — ( 140 )

Issue price $ 35,700 448,000 483,700 405,000 47,159 485,800 408,000 364,386 140,174 210,300 200,000 410,300 2,744,519

Cost of funds 1-month LIBOR plus 0.30 %

0.32 % 0.76 % 0.65 % 0.30 % 0.44 % 0.75 % 0.26 % 0.70 % 0.68 %

1-month LIBOR plus 0.75 %

1-month LIBOR plus 0.90 %

Prime rate less 1.60 %

1-month LIBOR plus 0.80 %

1-month LIBOR plus 0.87 %

1-month LIBOR plus 0.50 %

1-month LIBOR plus 1.00 %

Final maturity date 4/25/67 4/25/67 6/27/67 6/25/49 8/25/67 9/26/67 10/25/67 11/25/67 1/25/68 1/25/68

Class B subordinated notes:

Total original principal amount

$ 15,000 13,300 13,500 41,800

Total principal amount $ 13,100 11,100 12,500 10,600 10,000 5,000 10,500 72,800

Bond discount — — — — ( 4 ) ( 913 ) — ( 917 )

1 unchanged sentence

Cost of funds 1-month LIBOR plus 1.40 %

1.20 % 1.40 % 1.45 %

1-month LIBOR plus 1.50 %

1-month LIBOR plus 1.55 %

1-month LIBOR plus 1.65 %

1-month LIBOR plus 1.75 %

Final maturity date 4/25/67 6/27/67 8/25/67 9/26/67 10/25/67 11/25/67 1/25/68

During 2019, the Company extinguished $ 1.05 billion of notes payable included in certain FFELP asset-backed securitizations prior to the notes’ contractual maturities.

To extinguish the notes, the Company paid premiums of $ 14.0 million and wrote off $ 2.7 million of debt issuance costs.

In total, the Company recognized $ 16.7 million (pre-tax) in expenses to extinguish these notes, which is included in “other expenses” on the consolidated statements of income.

Auction Rate Securities

3 unchanged sentences

While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the Net Loan Rate as defined in the financing documents.

Private Education Loan Warehouse Facility

During 2020, the Company obtained a private education loan warehouse facility.

As of December 31, 2020, the facility has an aggregate maximum financing amount available of $ 200.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2021, and a final maturity date of February 13, 2022.

As of December 31, 2020, $ 150.4 million was outstanding under this warehouse facility, $ 49.6 million was available for future funding, and the Company had $ 16.4 million advanced as equity support.

Consumer Loan Warehouse Facility

During 2019, the Company obtained 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.

As of December 31, 2019, $ 116.6 million was outstanding under this warehouse facility and $ 83.4 million was available for future funding.

Additionally, as of December 31, 2019, the Company had $ 41.3 million advanced as equity support under this facility.

The Company has a consumer loan warehouse facility that has an aggregate maximum financing amount available of $ 100.0 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.

As of December 31, 2020, $ 25.8 million was

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

outstanding under this warehouse facility, $ 74.2 million was available for future funding, and the Company had $ 11.5 million advanced as equity support.

Unsecured Line of Credit

3 unchanged sentences

Interest on amounts borrowed under the line of credit is payable, at the Company's election, at an alternate base rate or a Eurodollar rate, plus a variable rate (LIBOR), in each case as defined in the credit agreement.

As of December 31, 2020, the Company has selected the Eurodollar rate.

The initial margin applicable to Eurodollar borrowings is 150 basis points and may vary from 100 to 200 basis points depending on the Company's credit rating.

5 unchanged sentences

• A limitation on the amount of unsecuritized private education and consumer loans in the Company’s portfolio

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

• A limitation on permitted investments, including business acquisitions that are not in one of the Company's existing lines of business

5 unchanged sentences

Junior Subordinated Hybrid Securities

On September 27, 2006, the Company issued $ 200.0 million aggregate principal amount of Junior Subordinated Hybrid Securities ("Hybrid Securities").

The Hybrid Securities are unsecured obligations of the Company.

The interest rate on the Hybrid Securities through September 29, 2036 ("the scheduled maturity date") is equal to three-month LIBOR plus 3.375 %, payable quarterly, which was 5.28 % at December 31, 2019.

The principal amount of the Hybrid Securities will become due on the scheduled maturity date only to the extent that prior to such date the Company has received proceeds from the sale of certain qualifying capital securities (as defined in the Hybrid Securities' indenture).

If any amount is not paid on the scheduled maturity date, it will remain outstanding and bear interest at a floating rate as defined in the indenture, payable monthly.

On September 15, 2061, the Company must pay any remaining principal and interest on the Hybrid Securities in full whether or not the Company has sold qualifying capital securities.

At the Company's option, the Hybrid Securities are redeemable in whole or in part at their principal amount plus accrued and unpaid interest.

During 2020, the Company redeemed all the outstanding $ 20.4 million of Hybrid Securities at par.

Other Borrowings

During 2017, the Company entered into a repurchase agreement, the proceeds of which are collateralized by FFELP asset-backed security investments.

Included in "other borrowings" as of December 31, 2018 was $ 41.4 million, subject to this repurchase agreement.

During 2018, the Company entered into a repurchase agreement, the proceeds of which were collateralized by private education loans.

On June 25, 2019, the Company terminated this repurchase agreement.

Included in "other borrowings" as of December 31, 2018 was $ 45.0 million subject to this repurchase agreement.

On May 30, 2019, the Company entered into a $ 22.0 million secured line of credit agreement with a maturity date of May 30, 2022 and an interest rate of one-month LIBOR plus 1.75 %.

During 2020, the Company entered into an agreement with Union Bank and Trust Company ("Union Bank"), a related party, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loan asset-backed securities.

As of December 31, 2020, $ 118.6 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

The agreement automatically renews annually and is terminable by either party upon five business days' notice.

The Company can participate student loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 100.0 million or an amount in excess of $ 100.0 million if mutually agreed to by both parties.

Student loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing.

During 2019, the Company entered into a $ 22.0 million secured line of credit agreement with a maturity date of May 30, 2022 and an interest rate of one-month LIBOR plus 1.75 %.

As of December 31, 2020, $ 5.0 million was outstanding under this line of credit and $ 17.0 million was available for future use.

The line of credit is secured by several Company-owned properties.

The Company had other notes payable included in its consolidated financial statements which were issued by partnerships for certain real estate development projects in Lincoln, Nebraska.

Although the Company’s ownership interests in these partnerships are 50 percent or less, because the Company was the developer of and is a current tenant in the associated buildings, the operating results of these partnerships were included in the Company’s consolidated financial statements.

On January 1, 2019, the Company adopted a new accounting standard for leases (see note 2).

As a result of the adoption of this new standard, these real estate entities were deconsolidated, including $ 33.9 million of related debt.

Prior to January 1, 2019, this debt was included in "other borrowings."

Debt Covenants

6 unchanged sentences

Bonds and notes outstanding as of December 31, 2020 are due in varying amounts as shown below.

2021 $ 118,558

2026 and thereafter 18,788,159

2 unchanged sentences

Debt Repurchases

The following table summarizes the Company's repurchases of its own debt in 2018 and 2017.

There were no debt repurchases in 2019.

Gains (losses) recorded by the Company from the repurchase of debt are included in "other income" on the Company’s consolidated statements of income.

value Purchase price Gain (loss) Par

value Purchase price Gain (loss)

The following table summarizes the Company's repurchases of its own debt.

Gains recorded by the Company from the repurchase of debt are included in "other income" on the Company’s consolidated statements of income.

Year ended December 31,

Unsecured debt - Hybrid Securities

2020 2019 2018

Asset-backed securities 12,905 12,546 359 154,407 155,951 ( 1,544 )

$ 12,905 12,546 359 184,210 181,308 2,902

Par value $ 27,445 — 12,905

Purchase price ( 25,521 ) — ( 12,546 )

Gain $ 1,924 — 359

Derivative Financial Instruments

The Company uses derivative financial instruments primarily to manage interest rate risk.

In addition, the Company previously used derivative financial instruments to manage foreign currency exchange risk associated with student loan asset-backed notes that were denominated in Euros prior to a remarketing of such notes in October 2017.

The Company is exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company's assets do not match the interest rate characteristics of the funding for those assets.

7 unchanged sentences

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

The Company has used derivative instruments to hedge its basis risk and repricing risk.

The Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus a spread as defined in the agreements (the 1:3 Basis Swaps).

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share amounts, unless otherwise noted)

The Company has used derivative instruments to hedge its basis risk and repricing risk.

The following table summarizes the Company’s 1:3 Basis Swaps outstanding:

4 unchanged sentences

2022 2,000,000 2,000,000

2022 (a) 2,000,000 2,000,000

2023 750,000 750,000

3 unchanged sentences

$ 6,150,000 7,150,000

2029 — 100,000

2031 — 300,000

$ 7,150,000 10,000,000

(a) $ 750 million of the notional amount of these derivatives have forward effective start dates of May 2020.

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2020 and 2019, was one-month LIBOR plus 9.1 basis points and 9.7 basis points, respectively.

19 unchanged sentences

2021 600,000 2.15 600,000 2.15

2021 600,000 2.15 100,000 2.95

2022 (b) 500,000 0.94 250,000 1.65

2023 900,000 0.62 150,000 2.25

2024 — — 300,000 2.28

2024 (c) 2,000,000 0.32 — —

2025 500,000 0.35 — —

1 unchanged sentence

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

(b) These derivatives have forward effective start dates in June 2021.

Interest Rate Swap Options – Floor Income Hedges

During 2014 and 2018, the Company paid $ 9.1 million and $ 4.6 million, respectively for interest rate swap options to economically hedge loans earning fixed rate floor income.

The interest rate swap options gave the Company the right, but not the obligation, to enter into interest rate swaps during the third quarter of 2019 in which the Company would pay a weighted average fixed amount of 3.21 percent and receive discrete one-month or three-month LIBOR through 2024.

The Company did not exercise its rights on these options, and such swap options expired.

Interest Rate Caps

In June 2015 and June 2019, the Company paid $ 2.9 million and $ 0.3 million, respectively, for interest rate cap contracts to mitigate a rise in interest rates and its impact on earnings related to its student loan portfolio earning a fixed rate.

In the event that the one-month LIBOR or three-month LIBOR rate rises above the applicable strike rate, the Company will receive monthly payments related to the spread difference.

The following table summarizes these derivative instruments as of December 31, 2019.

Notional Amount Strike rate Maturity date

$ 125,000 2.50% (1-month LIBOR) July 15, 2020

150,000 4.99 (1-month LIBOR) July 15, 2020

500,000 2.25 (3-month LIBOR) September 25, 2020

Interest Rate Swaps - Unsecured Debt Hedges

The Company has unsecured debt (Hybrid Securities) outstanding in which it pays interest at three-month LIBOR plus 3.375 %.

The Company had $ 25.0 million (notional amount) of derivative financial instruments that were used to effectively convert the variable interest rate on a designated notional amount of this debt to a fixed rate.

These derivatives were terminated during the fourth quarter of 2018.

Derivative Terminations

During the year ended December 31, 2019, the Company terminated certain derivatives for net payments of $ 12.5 million, including payments of $ 14.4 million on the termination of floor income hedges, proceeds of $ 1.4 million on the termination of other hedges, and proceeds of $ 0.5 million on the termination of 1:3 basis swaps.

During the year ended December 31, 2018, the Company terminated certain derivatives for net proceeds of $ 10.3 million, including proceeds of $ 14.2 million on the termination of floor income hedges, and payments of $ 3.9 million on the termination of hybrid debt hedges.

During the year ended December 31, 2017, the Company terminated certain derivatives for net payments of $ 30.4 million, including proceeds of $ 2.1 million and $ 0.9 million on the termination of 1:3 basis swaps and interest rate caps, respectively, and payments of $ 33.4 million on the termination of its cross-currency interest rate swap.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Consolidated Financial Statement Impact Related to Derivatives

Balance Sheet

The following table summarizes the fair value of the Company’s derivatives as reflected on the consolidated balance sheets.

There is no difference between the gross amounts of recognized assets presented in the consolidated balance sheets related to the Company's derivative portfolio and the net amount when excluding derivatives subject to enforceable master netting arrangements and cash collateral received.

Fair value of asset derivatives Fair value of liability derivatives

As of As of As of As of

December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018

Interest rate swap options - floor income hedges

$ — 1,465 — —

Interest rate caps — 353 — —

Total $ — 1,818 — —

Income Statement Impact

The following table summarizes the components of "derivative market value and foreign currency transaction adjustments and derivative settlements, net" included in the consolidated statements of income.

(b) $ 250.0 million of the derivatives outstanding at December 31, 2020 and 2019 have forward effective start dates in June 2021.

Consolidated Financial Statement Impact Related to Derivatives - Statements of Income

The following table summarizes the components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of income.

Year ended December 31,

2 unchanged sentences

Interest rate swaps - floor income hedges ( 6,699 ) 40,192 64,901

Interest rate swaps - hybrid debt hedges — ( 407 ) ( 781 )

Cross-currency interest rate swap — — ( 6,321 )

Other — — ( 407 )

Total settlements - income 3,679 45,406 70,071

2 unchanged sentences

Interest rate swaps - floor income hedges ( 20,682 ) ( 77,027 ) ( 10,962 )

Interest rate swap options - floor income hedges ( 1,465 ) ( 3,848 ) ( 2,433 )

Interest rate caps ( 628 ) 78 ( 893 )

Interest rate swaps - hybrid debt hedges — 3,173 279

Cross-currency interest rate swap — — 34,208

Other — ( 683 ) ( 597 )

Total change in fair value - (expense) income ( 28,144 ) ( 76,195 ) 1,014

Re-measurement of Euro Notes (foreign currency transaction adjustment) — — ( 45,600 )

Derivative market value and foreign currency transaction adjustments and derivative settlements, net - (expense) income $ ( 30,789 ) 71,085 ( 18,554 )

Derivative market value adjustments and derivative settlements, net - (expense) income $ ( 24,465 ) ( 30,789 ) 71,085

Derivative Instruments - Credit and Market Risk

For non-centrally cleared derivatives, the Company is exposed to credit risk.

However, the majority of the Company's 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 associated with the Company's derivative portfolio.

Interest rate movements have an impact on the amount of collateral the Company is required to deposit with its derivative instrument counterparties and variation margin payments to its third-party clearinghouse.

Interest rate movements have an impact on the amount of variation margin the Company may be required to pay to its third-party clearinghouse.

The Company attempts 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.

The Company's derivative portfolio and hedging strategy is reviewed periodically by its internal risk committee and board of directors' Risk and Finance Committee.

With the Company's current derivative portfolio, the Company does

With the Company's current derivative portfolio, the Company does not currently anticipate any movement in interest rates having a material impact on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to meet variation margin payments to its third-party clearinghouse.

Due to the existing low interest rate environment, the Company's exposure to downward movements in interest rates on its interest rate swaps is limited.

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

AND SUBSIDIARIES

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(Dollars in thousands, except share amounts, unless otherwise noted)

not currently anticipate any movement in interest rates having a material impact on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to meet potential collateral deposits with its counterparties and/or make variation margin payments to its third-party clearinghouse.

Due to the existing low interest rate environment, the Company's exposure to downward movements in interest rates on its interest rate swaps is limited.

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

Investments and Notes Receivable

A summary of the Company's investments and notes receivable follows:

A summary of the Company's investments follows:

As of December 31, 2020 As of December 31, 2019

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Student loan asset-backed and other debt securities - available-for-sale (a) $ 340,578 8,042 ( 13 ) 348,607 48,790 3,911 — 52,701

$ 48,790 3,911 — 52,701 47,931 5,109 — 53,040

Equity securities 36,227 8,768 ( 2,954 ) 42,041 9,622 4,561 ( 1,283 ) 12,900

Total investments (at fair value) $ 376,805 16,810 ( 2,967 ) 390,648 58,412 8,472 ( 1,283 ) 65,601

Other Investments and Notes Receivable (not measured at fair value):

Other Investments (not measured at fair value):

Venture capital and funds:

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Total real estate 51,138 45,026

Equity method 7,562 2,724

Beneficial interest in consumer loan securitizations (c) 33,187 —

Investment in ALLO:

Voting interest/equity method 129,396 —

Preferred membership interest 228,916 —

Total investment in ALLO 358,312 —

Solar (c) ( 30,373 ) 7,562

Beneficial interest in federally insured loan securitizations (d) 30,377 —

Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 4,449 as of December 31, 2020 (d)

27,954 33,187

Tax liens and affordable housing 5,177 6,283

Notes receivable — 16,373

Total investments and notes receivable (not measured at fair value) 181,372 178,683

Total investments and notes receivable $ 246,973 249,370

(a) As of December 31, 2019, the stated maturities of substantially all of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years.

(b) During 2018, the Company recorded upward adjustments of $ 7.2 million (pre-tax) on these investments, which are included in "other income" in the consolidated statements of income.

The upward adjustments were made as a result of observable price changes.

The Company also recorded $ 0.8 million (pre-tax) in impairments in 2018 on these investments.

(c) The Company's current expectation of cash flows from the beneficial interest in consumer loan securitizations is approximately three years.

Total investments (not measured at fair value) 602,292 181,498

Total investments $ 992,940 247,099

(a) As of December 31, 2020, $ 118.6 million (par value) of student loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 5 under "Other Borrowings."

As of December 31, 2020, the stated maturities of a majority of the Company's student loan asset-backed and other debt securities classified as available-for-sale were greater than 10 years;

however, such securities with a fair value of $ 58.6 million as of December 31, 2020 are scheduled to mature within the next 10 years, including $ 2.6 million, $ 31.2 million, and $ 24.8 million scheduled to mature within the next one year, 1-5 years, and 6-10 years, respectively.

AND SUBSIDIARIES

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(Dollars in thousands, except share amounts, unless otherwise noted)

(b) The Company has an investment in Agile Sports Technologies, Inc.

(doing business as “Hudl”) that is included in “venture capital and funds” in the above table.

On May 20, 2020, the Company made an additional equity investment of approximately $ 26 million in Hudl, as one of the participants in an equity raise completed by Hudl.

Prior to the additional 2020 investment, the Company had direct and indirect equity ownership interests in Hudl of less than 20 %, which did not materially change as a result of this transaction.

The Company accounts for its investment in Hudl using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions.

As a result of Hudl’s equity raise, the Company recognized a $ 51.0 million (pre-tax) gain during the second quarter of 2020 to adjust its carrying value to reflect the May 20, 2020 transaction value.

This gain is included in "other income" on the consolidated statements of income.

As of December 31, 2020, the carrying amount of the Company’s investment in Hudl is $ 128.6 million.

Graff, who has served on the Company’s Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.

As of December 31, 2020, the Company has funded $ 148.6 million in solar investments.

The carrying value of the Company’s solar investments are reduced by tax credits earned when the solar project is placed in service.

The solar investment balance at December 31, 2020 represents total tax credits earned on solar projects placed in service through December 31, 2020 being larger than total payments made by the Company on such projects.

The Company is committed to fund an additional $ 17.5 million on these projects.

The Company accounts for its solar investments using the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting.

For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment.

During the years ended December 31, 2020 and 2019, the Company recognized pre-tax losses of $ 37.4 million and $ 2.2 million, respectively, on its solar investments.

These losses are included in "other income" in the consolidated statements of income.

(d) The Company has purchased partial ownership in certain federally insured and consumer loan securitizations.

As of the latest remittance reports filed by the various trusts prior to December 31, 2020, the Company's ownership correlates to approximately $ 500 million and $ 280 million of federally insured and consumer loans, respectively, included in these securitizations.

Impairment Expense and Provision for Beneficial Interests

During the first quarter of 2020, the Company recorded a $ 26.3 million provision charge related to the Company's beneficial interest in consumer loan securitizations.

As of March 31, 2020, the Company's estimate of future cash flows from the beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19 pandemic and recorded an allowance for credit losses of $ 26.3 million.

Additionally, during the first quarter of 2020, the Company recorded a $ 7.8 million impairment charge related to several of its venture capital investments.

The Company identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic, and estimated that the fair value of such investments was significantly reduced from their previous carrying value.

During the fourth quarter of 2020, due to improved economic conditions, the Company reduced the allowance for credit losses related to the consumer loan beneficial interests by $ 9.7 million.

The activity described above is included in “impairment expense and provision for beneficial interests” on the consolidated statements of income.

Business Combinations

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Prior to the acquisition of the remaining 50 percent of GreatNet, the Company consolidated the operating results of GreatNet, as the Company was deemed to have control over the joint venture.

The proportionate share of membership interest (equity) and net loss of GreatNet that was attributable to Great Lakes was reflected as a noncontrolling interest in the Company's consolidated financial statements.

The proportionate share of membership interest (equity) and net

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

loss of GreatNet that was attributable to Great Lakes was reflected as a noncontrolling interest in the Company's consolidated financial statements.

The Company recognized a $ 19.1 million reduction to consolidated shareholders' equity as a result of acquiring Great Lakes' 50 percent ownership in GreatNet.

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The amount allocated to goodwill was primarily attributed to the deferred tax liability related to the difference between the carrying amount and tax bases of acquired identifiable intangible assets and the synergies and economies of scale expected from combining the operations of the Company and Great Lakes.

The Great Lakes assets acquired and liabilities assumed were recorded by the Company at their respective fair values at the date of acquisition, and Great Lakes' operating results from the date of acquisition forward are included in the Company's consolidated operating results.

During 2018, the Company converted Great Lakes' FFELP and private education loan servicing volume to Nelnet Servicing's servicing platform.

In addition, the Company began to combine certain shared services and overhead functions between Great Lakes and the Company.

As a result of these operational changes, the results of operations for the year ended December 31, 2018 attributed to Great Lakes since the acquisition are not provided since the results of the Great Lakes legal entity are no longer reflective of the entity acquired.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

The following unaudited pro forma information for the Company has been prepared as if the acquisition of Great Lakes had occurred on January 1, 2017.

The information is based on the historical results of the separate companies and may not necessarily be indicative of the results that could have been achieved or of results that may occur in the future.

The pro forma adjustments include the impact of depreciation and amortization of property and equipment and intangible assets acquired.

Year ended December 31,

Loan servicing and systems revenue $ 460,074 452,760

Net income attributable to Nelnet, Inc.

$ 229,409 185,369

Net income per share - basic and diluted $ 5.61 4.44

The pro forma impacts of the Great Lakes acquisition on the Company’s 2018 historical results prior to the acquisition were not material.

Tuition Management Systems, LLC ("TMS")

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Net assets acquired $ 27,017

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

The $ 26.4 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately 10 years.

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The pro forma impacts of the TMS acquisition on the Company's historical results prior to the acquisition were not material.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

HigherSchool Publishing Company ("HigherSchool")

On December 31, 2020, the Company acquired 100 percent of the outstanding stock of HigherSchool for total cash consideration of $ 24.7 million.

HigherSchool provides supplemental instructional services and educational professional development for K-12 schools.

The acquisition of HigherSchool has expanded the Company's professional development and educational instruction services.

The operating results of HigherSchool are included in the Education Technology, Services, and Payment Processing operating segment from the date of acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

Cash and cash equivalents $ 7

Accounts receivable 5,711

Intangible assets 24,200

Excess cost over fair value of net assets acquired (goodwill) 6,292

Other liabilities ( 11,510 )

Net assets acquired $ 24,700

The acquired intangible assets were customer relationships of $ 24.2 million ( 10 -year useful life).

The $ 6.3 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment and is not expected to be deductible for tax purposes.

The amount allocated to goodwill was primarily attributed to the deferred tax liability related to the difference between the carrying amount and tax basis of acquired identifiable intangible assets.

The pro forma impacts of the HigherSchool acquisition on the Company's historical results prior to the acquisition were not material.

Intangible Assets

Intangible assets consist of the following:

Weighted average remaining useful life as of December 31, 2019 (months) As of December 31,

Weighted average remaining useful life as of

December 31, 2020 (months)

As of December 31,

Amortizable intangible assets, net:

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99 $ 66,974 71,900

Trade names (net of accumulated amortization of $ 2,792 and $ 5,825 , respectively)

96 7,478 10,868

Computer software (net of accumulated amortization of $ 4,127 and $ 3,233 , respectively)

35 6,430 2,154

Trade names (net of accumulated amortization of $ 3,455 and $ 2,792 , respectively)

6 1,666 7,478

Total - amortizable intangible assets, net 91 $ 75,070 81,532

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

The Company recorded amortization expense on its intangible assets of $ 30.8 million, $ 32.8 million, and $ 30.2 million during the years ended December 31, 2020, 2019, and 2018, respectively.

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Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management (a) Corporate and Other Activities Total

Balance as of December 31, 2017 $ 8,596 67,168 21,112 41,883 — 138,759

Goodwill acquired 15,043 3,110 — — — 18,153

Balance as of December 31, 2018 and 2019 $ 23,639 70,278 21,112 41,883 — 156,912

Goodwill acquired — 6,292 — — — 6,292

Deconsolidation of ALLO — — ( 21,112 ) — — ( 21,112 )

Balance as of December 31, 2020 $ 23,639 76,570 — 41,883 — 142,092

(a) As a result of the Reconciliation Act of 2010, the Company no longer originates new FFELP loans, and net interest income from the Company's existing FFELP loan portfolio will decline over time as the Company's portfolio pays down.

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Management believes the elimination of new FFELP loan originations will not have an adverse impact on the fair value of the Company's other reporting units.

The Company reviews goodwill for impairment annually.

This annual review is completed by the Company as of November 30 of each year and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable.

For the 2019 and 2018 annual reviews of goodwill, the Company assessed qualitative factors and concluded it was not more likely than not that the fair value of its reporting units were less than their carrying amount.

As such, the Company was not required to perform further impairment testing and concluded there was no impairment of goodwill.

In 2017, due to the sale of a reporting unit at the Corporate segment, the Company recognized an impairment expense of $ 3.6 million (pre-tax) which is included in "other expenses" in the consolidated statements of income.

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Computer equipment and software 1 - 5 years

$ 172,664 160,319

Building and building improvements 5 - 48 years

52,444 37,904

Office furniture and equipment 1 - 10 years

21,899 21,245

Leasehold improvements 1 - 15 years

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Communications:

Network plant and fiber

4-15 years 254,560 215,787

Customer located property

2-4 years 27,011 21,234

Central office

5-15 years 17,672 15,688

Transportation equipment

4-10 years 6,611 6,580

Computer equipment and software

1-5 years 5,574 4,943

1-39 years 3,702 3,219

Network plant and fiber 4 - 15 years

Customer located property 2 - 4 years

Central office 5 - 15 years

Transportation equipment 4 - 10 years

Computer equipment and software 1 - 5 years

Other 1 - 39 years

Construction in progress — — 54

315,254 273,865

Accumulated depreciation - communications — ( 73,897 )

( 73,897 ) ( 38,073 )

Communications, net property and equipment — 241,357

241,357 235,792

Total property and equipment, net $ 123,527 348,259

The Company recorded depreciation expense on its property and equipment of $ 87.9 million, $ 72.3 million, and $ 56.7 million during the years ended December 31, 2020, 2019, and 2018, respectively.

On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.

See note 2, “Recent Developments - ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact.

Impairment charges

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The charge primarily represents computer equipment and external software development costs related to the payment processing platform.

The above impairment charges are included in "other expenses" in the consolidated statements of income.

The above impairment charges are included in "impairment expense, net of recoveries" in the consolidated statements of income.

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Weighted-average common shares outstanding - basic and diluted 38,506,351 553,237 39,059,588 39,523,082 524,320 40,047,402 40,416,719 492,303 40,909,022

39,523,082 524,320 40,047,402 40,416,719 492,303 40,909,022 41,375,964 415,977 41,791,941

Earnings per share - basic and diluted $ 9.02 9.02 9.02 3.54 3.54 3.54 5.57 5.57 5.57

$ 3.54 3.54 3.54 5.57 5.57 5.57 4.14 4.14 4.14

Unvested restricted stock awards are the Company's only potential common shares and, accordingly, there were no awards that were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation.

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Provision for uncertain federal and state tax matters ( 0.2 ) ( 0.7 ) ( 1.0 )

Reduction of statutory federal rate (a) — — ( 8.0 )

Other ( 0.2 ) 0.2 —

Effective tax rate 22.3 % 20.0 % 20.5 %

(a) The Tax Cuts and Jobs Act (the “Tax Act”), signed into law on December 22, 2017, changed existing United States tax law and included numerous provisions that affect businesses, including the Company.

The Tax Act, for instance, introduced changes that impact U.S.

corporate tax rates, business-related exclusions, and deductions and credits.

The Company accounted for the change in tax laws in accordance with ASC Topic 740 that provides guidance that a change in tax law or rates be recognized in the financial reporting period that includes the enactment date, which is the date the changes were signed into law.

The income tax accounting effect of a change in tax laws or tax rates includes, for example, adjusting (or re-measuring) deferred tax liabilities and deferred tax assets, as well as evaluating whether a valuation allowance is needed for deferred tax assets.

The Company re-measured its deferred tax liabilities and deferred tax assets as of December 22, 2017 which resulted in a decrease to income tax expense of $ 19.3 million.

The Company determined no valuation allowance was needed for any deferred tax assets as a result of the Tax Act.

AND SUBSIDIARIES

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Deferred tax assets:

Deferred revenue $ 18,037 16,633

Student loans $ 26,894 15,479

Deferred revenue 18,081 18,037

Accrued expenses 10,661 4,112

Tax credit carryforwards 5,987 9,394

Basis in certain derivative contracts 5,061 —

Lease liability 4,123 5,891

Accrued expenses 4,112 3,254

Stock compensation 2,546 2,167

Securitizations 694 1,261

State net operating losses 551 528

Net operating losses 647 551

Total gross deferred tax assets 74,694 56,892

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Partnership basis 64,023 56,741

Debt and equity investments 20,538 3,775

Depreciation 14,092 11,489

Lease right of use asset 5,684 —

Intangible assets 7,703 5,399

Loan origination services 5,040 4,647

Debt and equity investments 3,775 1,363

Lease right of use asset 4,037 5,684

Basis in certain derivative contracts — 2,730

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Segment Reporting

The Company has four reportable operating segments.

The Company's reportable operating segments include:

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• Asset Generation and Management

The Company earns fee-based revenue through its Loan Servicing and Systems;

Education Technology, Services, and Payment Processing;

and Communications operating segments.

• Nelnet Bank

The Company earns fee-based revenue through its Loan Servicing and Systems and Education Technology, Services, and Payment Processing operating segments and earned revenue from its Communications operating segment prior to its deconsolidation on December 21, 2020.

In addition, the Company earns interest income on its loan portfolio in its Asset Generation and Management operating segment.

On November 2, 2020, the Company launched operations of Nelnet Bank.

Nelnet bank operates as an internet bank franchise focused primarily on the private education loan marketplace.

The Company’s operating segments are defined by the products and services they offer and the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management.

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Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management.

As a result of the Tax Cuts and Jobs Act, beginning January 1, 2018, income taxes are allocated based on 24 % of income before taxes for each individual operating segment.

Prior to January 1, 2018, income taxes were allocated based on 38 % of income before taxes for each individual operating segment.

Income taxes are allocated based on 24 % of income before taxes for each individual operating segment.

The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate and Other Activities.

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Corporate and Other Activities includes the following items:

• Income earned on certain investment activities, including real estate and renewable energy (solar)

• Interest expense incurred on unsecured debt transactions

• Income earned on certain investment activities, including renewable energy (solar) and real estate

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

• Other product and service offerings that are not considered reportable operating segments including, but not limited to, WRCM, the SEC-registered investment advisor subsidiary

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Year ended December 31, 2020

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications (a) Asset

Generation and

Management Corporate and Other Activities Eliminations Total

Management Nelnet Bank Corporate and Other Activities Eliminations Total

Total interest income $ 436 3,036 2 611,474 414 5,775 ( 1,480 ) 619,656

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Less provision for loan losses — — — 63,029 330 — — 63,360

Net interest income (loss) after provision for loan losses

1,916 9,198 3 199,588 ( 355 ) — 210,350

Other income:

Net interest income after provision for loan losses 315 2,982 2 220,288 43 2,597 — 226,225

Other income/expense:

Loan servicing and systems revenue 451,561 — — — — — — 451,561

455,255 — — — — — 455,255

Intersegment servicing revenue

46,751 — — — — ( 46,751 ) —

Intersegment revenue 36,520 20 — — — — ( 36,540 ) —

Education technology, services, and payment processing revenue — 282,196 — — — — — 282,196

— 277,331 — — — — 277,331

Communications revenue — — 76,643 — — — — 76,643

— — 64,269 — — — 64,269

Other income 9,736 259 1,509 30,349 23,327 — 65,179

Other 9,421 373 1,561 7,189 48 38,969 — 57,561

Gain on sale of loans — — — 33,023 — — — 33,023

Gain from deconsolidation of ALLO — — — — — 258,588 — 258,588

Impairment expense and provision for beneficial interests — — — ( 16,607 ) — ( 8,116 ) — ( 24,723 )

Derivative settlements, net — — — 3,679 — — — 3,679

— — — 45,406 — — 45,406

Derivative market value and foreign currency transactions adjustments, net

— — — ( 76,195 ) — — ( 76,195 )

Total other income 511,742 277,590 65,778 ( 440 ) 23,327 ( 46,751 ) 831,245

Derivative market value adjustments, net — — — ( 28,144 ) — — — ( 28,144 )

Total other income/expense 497,502 282,589 78,204 ( 860 ) 48 289,441 ( 36,540 ) 1,110,384

Cost of services:

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Income (loss) before income taxes 53,375 66,200 ( 33,188 ) 162,703 ( 80 ) 201,477 — 450,486

77,378 62,267 ( 30,946 ) 115,796 ( 47,748 ) — 176,745

Income tax (expense) benefit ( 12,810 ) ( 15,888 ) 7,965 ( 39,049 ) 20 ( 41,098 ) — ( 100,860 )

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Net loss (income) attributable to noncontrolling interests — — — — — 2,817 — 2,817

— — — — 509 — 509

Net income (loss) attributable to Nelnet, Inc.

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Total assets as of December 31, 2020 $ 190,297 436,702 — 20,773,968 216,937 1,225,790 ( 197,534 ) 22,646,160

(a) On December 21, 2020, the Company deconsolidated ALLO from the Company’s consolidated financial statements.

See note 2, “Recent Developments - ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact.

Accordingly, the operating results for the Communications operating segment in the table above are for the period from January 1 2020 through December 21, 2020.

AND SUBSIDIARIES

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Generation and

Management Corporate and Other Activities Eliminations Total

Management Nelnet Bank Corporate and Other Activities Eliminations Total

Total interest income $ 2,031 9,244 3 931,963 — 9,232 ( 3,796 ) 948,677

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Less provision for loan losses — — — 39,000 — — — 39,000

Net interest income (loss) after provision for loan losses

1,351 4,444 ( 9,983 ) 226,142 9,404 — 231,360

Other income:

Net interest income after provision for loan losses 1,916 9,198 3 199,588 — ( 355 ) — 210,350

Other income/expense:

Loan servicing and systems revenue 455,255 — — — — — — 455,255

440,027 — — — — — 440,027

Intersegment servicing revenue

47,082 — — — — ( 47,082 ) —

Intersegment revenue 46,751 — — — — — ( 46,751 ) —

Education technology, services, and payment processing revenue — 277,331 — — — — — 277,331

— 221,962 — — — — 221,962

Communications revenue — — 64,269 — — — — 64,269

Other income 7,284 — 1,075 12,723 33,724 — 54,805

Other 9,736 259 1,509 13,088 — 23,327 — 47,918

Gain on sale of loans — — — 17,261 — — — 17,261

Gain from deconsolidation of ALLO — — — — — — — —

Impairment expense and provision for beneficial interests — — — — — — — —

Derivative settlements, net — — — 45,406 — — — 45,406

— — — 70,478 ( 407 ) — 70,071

Derivative market value and foreign currency transaction adjustments, net

— — — ( 2,159 ) 3,173 — 1,014

Total other income 494,393 221,962 45,728 81,042 36,490 ( 47,082 ) 832,532

Derivative market value adjustments, net — — — ( 76,195 ) — — — ( 76,195 )

Total other income/expense 511,742 277,590 65,778 ( 440 ) — 23,327 ( 46,751 ) 831,245

Cost of services:

Cost to provide education technology, services,

and payment processing services — 59,566 — — — — 59,566

Cost to provide communications revenue — — 16,926 — — — 16,926

Cost to provide education technology, services, and payment processing services — 81,603 — — — — — 81,603

Cost to provide communications services — — 20,423 — — — — 20,423

Total cost of services — 81,603 20,423 — — — — 102,026

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Depreciation and amortization 34,755 12,820 37,173 — — 20,300 — 105,049

32,074 13,484 23,377 — 17,960 — 86,896

Other expenses 71,064 22,027 15,165 34,445 — 51,571 — 194,272

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Income (loss) before income taxes 77,378 62,267 ( 30,946 ) 115,796 — ( 47,748 ) — 176,745

69,834 33,458 ( 37,815 ) 241,827 ( 21,011 ) — 286,294

Income tax (expense) benefit ( 18,571 ) ( 14,944 ) 7,427 ( 27,792 ) — 18,428 — ( 35,451 )

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Net loss (income) attributable to noncontrolling interests — — — — — 509 — 509

808 — — — ( 419 ) — 389

Net income (loss) attributable to Nelnet, Inc.

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Generation and

Management Corporate and Other Activities Eliminations Total

Management Nelnet Bank Corporate and Other Activities Eliminations Total

Total interest income $ 1,351 4,453 4 911,502 — 19,944 ( 12,989 ) 924,266

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Less provision for loan losses — — — 23,000 — — — 23,000

Net interest income (loss) after provision for loan losses

510 17 ( 5,424 ) 285,519 10,166 — 290,788

Other income:

Net interest income after provision for loan losses 1,351 4,444 ( 9,983 ) 226,142 — 9,404 — 231,360

Other income/expense:

Loan servicing and systems revenue 440,027 — — — — — — 440,027

223,000 — — — — — 223,000

Intersegment servicing revenue

41,674 — — — — ( 41,674 ) —

Intersegment revenue 47,082 — — — — — ( 47,082 ) —

Education technology, services, and payment processing revenue — 221,962 — — — — — 221,962

— 193,188 — — — — 193,188

Communications revenue — — 44,653 — — — — 44,653

Other income — — — 11,857 43,871 — 55,728

Other 7,284 — 1,075 12,723 — 33,724 — 54,805

Gain on sale of loans — — — — — — — —

Gain from deconsolidation of ALLO — — — — — — — —

Impairment expense and provision for beneficial interests ( 3,906 ) ( 7,815 ) — — — — — ( 11,721 )

Derivative settlements, net — — — 70,478 — ( 407 ) — 70,071

Derivative market value and foreign currency transaction adjustments, net

— — — ( 19,357 ) 136 — ( 19,221 )

Total other income 264,674 193,188 25,700 ( 6,052 ) 43,226 ( 41,674 ) 479,062

Derivative market value adjustments, net — — — ( 2,159 ) — 3,173 — 1,014

Total other income/expense 490,487 214,147 45,728 81,042 — 36,490 ( 47,082 ) 820,811

Cost of services:

Cost to provide education technology, services,

and payment processing services — 48,678 — — — — 48,678

Cost to provide education technology, services, and payment processing services — 59,566 — — — — — 59,566

Cost to provide communications services — — 16,926 — — — — 16,926

3 unchanged sentences

Depreciation and amortization 32,074 13,484 23,377 — — 17,960 — 86,896

2,864 9,424 11,835 — 15,418 — 39,541

Other expenses 63,430 20,322 11,900 15,961 — 54,697 — 166,310

2 unchanged sentences

Income (loss) before income taxes 69,834 33,458 ( 37,815 ) 241,827 — ( 21,011 ) — 286,294

35,067 38,627 ( 26,631 ) 208,455 ( 28,832 ) — 226,684

Income tax (expense) benefit ( 16,954 ) ( 8,030 ) 9,075 ( 58,038 ) — 15,177 — ( 58,770 )

1 unchanged sentence

Net loss (income) attributable to noncontrolling interests 808 — — — — ( 419 ) — 389

12,640 — — — ( 1,295 ) — 11,345

Net income (loss) attributable to Nelnet, Inc.

10 unchanged sentences

Loan servicing requires a significant level of integration and the individual components are not considered distinct.

The Company will perform various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period.

The Company performs various services, including, but not limited to, (i) application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each distinct service period.

Even though the mix and quantity of activities that the Company performs each period may differ, the nature of the activities are substantially the same.

14 unchanged sentences

FFELP servicing 20,183 25,043 31,542

25,043 31,542 15,542

Software services 41,999 41,077 32,929

1 unchanged sentence

Loan servicing and systems revenue $ 451,561 455,255 440,027

$ 455,255 440,027 223,000

Education Technology, Services, and Payment Processing Revenue

43 unchanged sentences

The following table provides disaggregated revenue by service offering and customer type.

Year ended December 31,

2019 2018 2017

The amounts listed for 2020 reflect activity prior to ALLO’s deconsolidation on December 21, 2020:

Period from January 1 2020 - December 21, 2020 Year ended December 31,

Internet $ 48,362 38,239 24,069

15 unchanged sentences

2020 2019 2018

Gain on sale of loans $ 17,261 — —

Borrower late fee income 12,884 12,302 11,604

Management fee revenue 8,838 6,497 —

Gain on investments and notes receivable, net of losses 6,136 9,579 939

Gain on remeasurement of HUDL investment $ 51,018 — —

Investment advisory services 10,875 2,941 6,009

Peterson's revenue — — 12,572

Management fee revenue 9,421 9,736 7,284

Borrower late fee income 5,194 12,884 12,302

Income/gains from investments, net 2,205 8,356 9,579

Loss from solar investments ( 37,423 ) ( 2,220 ) —

Other 16,271 16,221 19,631

Other income $ 57,561 47,918 54,805

• Borrower late fee income - Late fee income is earned by the education lending subsidiaries.

Revenue is allocated to the distinct service period, based on when each transaction is completed.

• Management fee revenue - Management fee revenue is earned for providing administrative support and marketing services provided primarily to Great Lakes' former parent company.

Revenue is allocated to the distinct service period, based on when each transaction is completed.

• Investment advisory fees - Investment advisory services are provided by WRCM, the Company's SEC-registered investment advisor subsidiary, under various arrangements.

The Company earns monthly fees based on the monthly outstanding balance of investments and certain performance measures, which are recognized monthly as the uncertainty of the transaction price is resolved.

• Peterson's revenue - The Company earned revenue related to educational digital marketing and content solution products and services under the brand name Peterson's.

On December 31, 2017, the Company sold Peterson's.

• Management fee revenue - Management fee revenue is earned for providing administrative support and marketing services provided primarily to Great Lakes' former parent company.

Revenue is allocated to the distinct service period, based on when each transaction is completed.

• Borrower late fee income - Late fee income is earned by the education lending subsidiaries.

Revenue is allocated to the distinct service period, based on when each transaction is completed.

AND SUBSIDIARIES

13 unchanged sentences

Recognition of revenue ( 3,824 ) ( 90,409 ) ( 42,903 ) ( 3,286 ) ( 140,422 )

Deconsolidation of ALLO — — ( 3,925 ) — ( 3,925 )

Business acquisition — 1,419 — — 1,419

Balance as of December 31, 2020 $ 1,378 33,267 — 1,551 36,196

3 unchanged sentences

In addition, Great Lakes, which was acquired by the Company on February 7, 2018, also earns loan servicing revenue from a similar servicing contract with the Department.

Revenue earned by Great Lakes related to this contract was $ 185.7 million for the year ended December 31, 2019.

Revenue earned by Great Lakes related to this contract was $ 179.9 million and $ 185.7 million for the years ended December 31, 2020 and 2019, respectively.

Revenue of $ 168.3 million was earned for the period from February 7, 2018 to December 31, 2018.

Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019.

On May 15, 2019, Nelnet Servicing and Great Lakes each received a contract extension from the Department's Office of Federal Student Aid (“FSA”) pursuant to which FSA extended the expiration date of the current contracts to December 15, 2019.

On November 26, 2019, Nelnet Servicing and Great Lakes each received an additional extension from FSA on their contracts through December 14, 2020.

The contract extensions also provided the potential for two additional six-month extensions at the Department’s discretion through December 14, 2021.

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 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 Company cannot predict the timing, nature, or outcome of these solicitations.

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.

On January 15, 2019, the Department issued solicitations for certain NextGen components, including the NextGen Enhanced Processing Solution (“EPS”), which is for a technology servicing system and certain processing functions the Department planned to use under NextGen to service the Department's student loan customers, and the NextGen Business Processing Operations (“BPO”), which is for the back office and call center operational functions for servicing the Department's student loan customers.

On June 24, 2020, the Department awarded and signed contracts with five other companies in connection with the BPO solicitation.

On July 10, 2020, the Department cancelled the solicitation for the EPS component.

In the Department's description of its cancellation of the EPS solicitation component, the Department indicated that it continues to be committed to the goals and vision of NextGen, and that it would be introducing a new solicitation to continue the NextGen strategy in the future.

On October 28, 2020, the Department issued a new federal loan servicing solicitation for an Interim Servicing Solution ("ISS").

ISS was a follow-on to the existing contracts, which would award a full system and servicing solution to two providers.

Under ISS, the selected providers would have provided the technology platform to host the Department's student loan portfolio;

customer service (including contact centers) and back-office processing;

digital engagement layer including borrower-facing website and mobile-applications;

intake, imaging, and fulfillment;

and portfolio-level operations.

As the companies awarded BPO contracts are onboarded, contact center and back-office operations would have shifted from the ISS contract to the BPO providers.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars in thousands, except share amounts, unless otherwise noted)

Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment shall provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance, and directed the suspension of awarding any ISS contract for at least 90 days.

On January 9, 2021, the Department suspended the ISS solicitation.

In the Department’s description of the suspension, it indicated that in consideration of the Consolidated Appropriations Act, 2021, the Government is reassessing its needs and will amend or cancel the subject solicitation in the future.

The following table provides supplemental balance sheet information related to leases:

December 31, 2019

As of December 31,

Operating lease ROU assets, which is included in " other assets " on the

consolidated balance sheet

$ 18,301 32,770

Operating lease liabilities, which is included in " other liabilities " on the

consolidated balance sheet

$ 18,733 33,689

The following table provides components of lease expense:

6 unchanged sentences

(a) Includes short-term and variable lease costs, which are immaterial.

The following table provides supplemental cash flow information related to leases:

Year ended December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflows related to operating leases $ 9,966

Supplemental noncash activity:

Operating ROU assets obtained in exchange for lease obligations,

excluding impact of adoption $ 8,731

Weighted average remaining lease term and discount rate are shown below:

December 31, 2019

As of December 31,

Weighted average remaining lease term (years) 5.65 7.29

1 unchanged sentence

Maturity of lease liabilities are shown below:

2020 $ 10,178

2026 and thereafter 4,437

9 unchanged sentences

Total minimum lease payments $ 35,346

Total rental expense incurred by the Company prior to the adoption of the new lease standard was $ 8.4 million and $ 5.7 million during 2018 and 2017, respectively.

Total rental expense incurred by the Company prior to the adoption of the new lease standard was $ 8.4 million during 2018.

Defined Contribution Benefit Plan

28 unchanged sentences

The following table provides the number of shares awarded under this plan for the years ended December 31, 2020, 2019, and 2018.

Shares issued - not deferred Shares issued- deferred Total

Shares issued -

not deferred Shares issued-

deferred Total

Year ended December 31, 2020 12,740 16,513 29,253

20 unchanged sentences

There were no private education loan purchases in 2018.

In addition, the Company purchased $ 32.6 million (par value), $ 74.7 million (par value), and $ 10.3 million (par value) of consumer loans from Union Bank in 2019, 2018, and 2017, respectively.

The net premium paid by the Company on these loan acquisitions was $ 1.2 million in 2019.

The premiums paid by the Company in 2018 and 2017 were no t significant.

In addition, the Company purchased $ 32.6 million (par value) and $ 74.7 million (par value) of consumer loans from Union Bank in 2019 and 2018, respectively.

There were no consumer loan purchases in 2020.

The net premiums paid by the Company on the loan acquisitions was $ 2.6 million and $ 1.2 million in 2020 and 2019, respectively.

The premiums paid by the Company in 2018 were no t significant.

AND SUBSIDIARIES

2 unchanged sentences

The Company has an agreement with Union Bank in which the Company provides marketing, origination, and loan servicing services to Union Bank related to private education loans.

Union Bank paid $ 1.8 million in marketing fees to the Company in 2019 under this agreement.

Union Bank paid $ 2.0 million and $ 1.8 million in marketing fees to the Company in 2020 and 2019, respectively, under this agreement.

Marketing fees paid in 2018 were not significant.

Loan Servicing

1 unchanged sentence

Servicing and origination fee revenue earned by the Company from servicing loans for Union Bank was $ 0.7 million, $ 0.6 million, and $ 0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Funding - Participation Agreement

Funding - Participation Agreements

The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”).

6 unchanged sentences

Accordingly, the participation interests sold are not included on the Company's consolidated balance sheets.

As of December 31, 2020, $ 118.6 million of student loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

The agreement automatically renews annually and is terminable by either party upon five business days' notice.

Student loan asset-backed securities under this agreement have been accounted for by the Company as a secured borrowing.

Funding - Real Estate

401 Building, LLC (“401 Building”) is an entity that was established in 2015 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska.

The Company owns 50 % of 401 Building.

On May 1, 2018, Union Bank, as lender, received a $ 1.5 million promissory note from 401 Building.

The promissory note carries an interest rate of 6.00 % and has a maturity date of December 1, 2032.

330-333, LLC (“330-333”) is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska.

The Company owns 50 % of 330-333.

On October 22, 2019, Union Bank, as lender, received a $ 162,000 promissory note from 330-333.

The promissory note carries an interest rate of 6.00 % and has a maturity date of December 1, 2032.

12100.5 West Center, LLC ("West Center") is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a commercial real estate property in Omaha, Nebraska.

6 unchanged sentences

As of December 31, 2020 and 2019, the Company had $ 285.6 million and $ 390.5 million, respectively, invested in the STFIT or deposited at Union Bank in operating accounts, of which $ 197.6 million and $ 270.5 million as of December 31, 2020 and 2019, respectively, represented cash collected for customers.

Interest income earned by the Company on the amounts invested in the STFIT and in cash operating accounts for the years ended December 31, 2019, 2018, and 2017, was $ 1.6 million, $ 1.0 million, and $ 0.9 million, respectively.

529 Plan Administration Services

Interest income earned by the Company on the amounts

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

invested in the STFIT and in cash operating accounts for the years ended December 31, 2020, 2019, and 2018, was $ 0.5 million, $ 1.6 million, and $ 1.0 million, respectively.

The Company provides certain 529 Plan administration services to certain college savings plans (the “College Savings Plans”) through a contract with Union Bank, as the program manager.

1 unchanged sentence

For the years ended December 31, 2020, 2019, and 2018, the Company has received fees of $ 1.3 million, $ 3.7 million, and $ 3.2 million, respectively, from Union Bank related to the administration services provided to the College Savings Plans.

During 2020, certain call center services were provided by the Company to Union Bank for College Savings Plan clients.

Fees received from Union Bank for such services were not significant.

Additionally, Union Bank, as the program manager for the College Savings Plans, has agreed to allocate plan bank deposits to Nelnet Bank.

As of December 31, 2020, Nelnet Bank had received $ 48.4 million in deposits from the funds offered under the College Savings Plans.

Lease Arrangements

2 unchanged sentences

The lease agreement expires on June 30, 2023.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

Other Fees Paid to Union Bank

During the years ended December 31, 2019, 2018, and 2017, the Company paid Union Bank approximately $ 213,000 , $ 128,000 , and $ 127,000 , respectively, in cash management and trustee fees.

During the years ended December 31, 2020, 2019, and 2018, the Company paid Union Bank approximately $ 279,000 , $ 213,000 , and $ 128,000 , respectively, in cash management, trustee, and health savings account maintenance fees.

Other Fees Received from Union Bank

2 unchanged sentences

In addition, during the years ended December 31, 2019 and 2018, Union Bank paid the Company approximately $ 1,000 and $ 4,000 in payment processing fees (net of merchant fees of approximately $ 4,000 and $ 13,000 ), respectively.

No such fees were received from Union Bank during 2020.

401(k) Plan Administration

5 unchanged sentences

The agreement provides that Union Bank will pay to WRCM annual fees of 25 basis points on the outstanding balance of the investments in the trusts.

As of December 31, 2019, the outstanding balance of investments in the trusts was $ 756.3 million.

As of December 31, 2020, the outstanding balance of investments in the trusts was $ 1.2 billion.

In addition, Union Bank will pay additional fees to WRCM of up to 50 percent of the gains from the sale of securities from the trusts or securities being called prior to the full contractual maturity.

1 unchanged sentence

WRCM also has management agreements with Union Bank under which it is designated to serve as investment advisor with respect to the assets (principally Nelnet stock) within several trusts established by Mr.

Dunlap and his spouse and Stephen F.

Butterfield, former Vice Chairman and former member of the board of directors of the Company who passed away in April 2018, and his spouse Shelby J.

Dunlap and his spouse, and Ms.

Muhleisen and her spouse.

Union Bank serves as trustee for the trusts.

Per the terms of the agreements, Union Bank pays WRCM five basis points of the aggregate value of the assets of the trusts as of the last day of each calendar quarter.

As of December 31, 2019, WRCM was the investment advisor with respect to a total of 6.3 million shares of the Company's Class B common stock held directly by these trusts, and the 50 % interest held by the Butterfield Family Trust, an estate planning trust for the family of Mr.

Butterfield, in Union Financial Services, Inc.

(“UFS”), which holds a total of 1.6 million shares of the Company’s Class B common stock and the other 50 % interest in which is owned by Mr.

Per the terms of the agreements, Union Bank pays

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

WRCM five basis points of the aggregate value of the assets of the trusts as of the last day of each calendar quarter.

As of December 31, 2020, WRCM was the investment advisor with respect to a total 480,000 shares and 4.8 million shares of the Company's Class A and Class B common stock, respectively, held directly by these trusts.

For the years ended December 31, 2020, 2019, and 2018, the Company earned approximately $ 141,000 , $ 144,000 , and $ 141,000 , respectively, of fees under these agreements.

7 unchanged sentences

The Company paid Union Bank $ 0.3 million in each of 2020, 2019, and 2018, as custodian of the funds.

Upon its establishment on November 2, 2020, Nelnet Bank entered into agreements with Union Bank in which Union Bank provides investment custodial services and correspondent bank services.

Fees paid during 2020 by Nelnet Bank to Union Bank under these agreements were not significant.

Transactions with F&M

During the third quarter of 2019, the Company, F&M, and the holding company of BankFirst of Norfolk, Nebraska ("BankFirst"), of which Mr.

Dunlap is a member of the Board of Directors, co-invested $ 0.7 million, $ 2.1 million, and $ 2.1 million, respectively, in a Company-managed limited liability company that invests in renewable energy (solar).

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

these transactions, the Company receives management and performance fees under a management agreement.

During the third quarter of 2019, the Company earned a total of approximately $ 138,000 of management fees under this agreement, allocable in equal amounts of approximately $ 69,000 to the investments of each of F&M and BankFirst.

Transactions with UFS

The Company, F&M, and the holding company of BankFirst of Norfolk, Nebraska ("BankFirst"), of which Mr.

Dunlap is a member of the Board of Directors, have co-invested a total of $ 10.3 million, $ 4.6 million, and $ 1.7 million, respectively, in a Company-managed limited liability company that invests in renewable energy (solar).

As part of these transactions, the Company receives management and performance fees under a management agreement.

For the years ended December 31, 2020 and 2019, the Company earned approximately $ 46,000 and $ 69,000 and approximately $ 15,000 and $ 69,000 of management fees from F&M and BankFirst, respectively, under this agreement.

Transactions with Union Financial Services (“UFS”)

UFS is owned 50 percent by Mr.

Dunlap and 50 percent by the Butterfield Family Trust, an estate planning trust for the family of Mr.

Historically, the Company owned a 65 percent interest in an aircraft due to the frequent business travel needs of the Company's executives and the limited availability of commercial flights in Lincoln, Nebraska, where the Company's headquarters are located.

6 unchanged sentences

David Graff, who has served on the Company's Board of Directors since 2014, is CEO, co-founder, and a director of Hudl.

On May 20, 2020, the Company made an additional equity investment in Hudl, as one of the participants in an equity raise completed by Hudl.

See Note 7, “Investments” for additional information on this equity raise.

The Company and Mr.

Dunlap, along with his children, currently hold combined direct and indirect equity ownership interests in Hudl of 19.2 % and 3.7 %, respectively.

Dunlap, along with his children, currently hold combined direct and indirect equity ownership interests in Hudl of 19.6 % and 3.7 %, respectively, which did not materially change as a result of the May 2020 transaction.

The Company's and Mr.

2 unchanged sentences

Dunlap's equity ownership interests are not considered in-substance common stock and the Company is accounting for its equity investment in Hudl using the measurement alternative method.

As of December 31, 2019, the carrying amount of the Company's investment in Hudl is $ 51.8 million, and is included in "investments and notes receivable" in the Company's consolidated balance sheet.

On July 26, 2019, the Company, as lender, received a $ 16.0 million promissory note from Hudl.

2 unchanged sentences

The $ 16.0 million promissory note from Hudl was paid in full to the Company in August 2019.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

The Company makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including investments in real estate.

Recent real estate investments have been focused on the development of commercial properties in the Midwest, and particularly in Lincoln, Nebraska, where the Company's headquarters are located.

One investment includes the development of a building in Lincoln's Haymarket District that is the new headquarters of Hudl, in which Hudl is the primary tenant in this building.

One investment includes the development of a building in Lincoln's Haymarket District that is the headquarters of Hudl, in which Hudl is the primary tenant in this building.

Transaction with Assurity Life Insurance Company ("Assurity")

Thomas Henning, who has served on the Company's Board of Directors since 2003, is the President and Chief Executive Officer of Assurity.

During the years ended December 31, 2019, 2018, and 2017, Nelnet Business Solutions, a subsidiary of the Company, paid $ 1.7 million, $ 1.7 million, and $ 1.5 million, respectively, to Assurity for insurance premiums for insurance on certain tuition payment plans.

As part of providing the tuition payment plan insurance to Nelnet Business Solutions, Assurity entered into a reinsurance agreement with the Company's insurance subsidiary, under which Assurity paid the Company's insurance subsidiary reinsurance premiums of $ 1.3 million, $ 1.3 million, and $ 1.4 million in 2019, 2018, and 2017, respectively, and the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $ 0.9 million, $ 0.9 million, and $ 0.7 million in 2019, 2018, and 2017, respectively.

In addition, Assurity pays Nelnet Business Solutions a partial refund annually based on claim experience, which was approximately $ 56,000 , $ 84,000 , and $ 10,000 for the years ended December 31, 2019, 2018, and 2017, respectively.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except share amounts, unless otherwise noted)

During the years ended December 31, 2020, 2019, and 2018, Nelnet Business Services, a subsidiary of the Company, paid $ 1.8 million, $ 1.7 million, and $ 1.7 million, respectively, to Assurity for insurance premiums for insurance on certain tuition payment plans.

As part of providing the tuition payment plan insurance to Nelnet Business Services, Assurity entered into a reinsurance agreement with the Company's insurance subsidiary, under which Assurity paid the Company's insurance subsidiary reinsurance premiums of $ 1.4 million, $ 1.3 million, and $ 1.3 million in 2020, 2019, and 2018, respectively, and the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $ 1.0 million, $ 0.9 million, and $ 0.9 million in 2020, 2019, and 2018, respectively.

In addition, Assurity pays Nelnet Business Services a partial refund annually based on claim experience, which was approximately $ 64,000 , $ 56,000 , and $ 84,000 for the years ended December 31, 2020, 2019, and 2018, respectively.

During 2020, Assurity invested approximately $ 1.2 million in a Company-managed limited liability company that invests in renewable energy (solar).

As part of this transaction, the Company receives management and performance fees under a management agreement.

During the year ended December 31, 2020, the Company earned approximately $ 12,000 in management fees from Assurity under this agreement.

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.

3 unchanged sentences

Investments (a):

Student loan asset-backed securities - available-for-sale $ — 52,597 52,597 — 52,936 52,936

Student loan asset-backed and other debt securities - available-for-sale $ — 348,504 348,504 — 52,597 52,597

Equity securities 10,114 — 10,114 6 — 6

2 unchanged sentences

Total investments 10,217 348,504 390,648 110 52,597 65,601

110 52,597 65,601 2,826 52,936 70,687

Derivative instruments (c) — — — — 1,818 1,818

Total assets $ 10,217 348,504 390,648 110 52,597 65,601

3 unchanged sentences

Treasury securities that trade in active markets.

Level 2 investments include student loan asset-backed securities.

Level 2 investments include student loan asset-backed securities and municipal bonds.

The fair value for the student loan asset-backed securities is determined using indicative quotes from broker-dealers or an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms issued by companies with comparable credit risk.

(b) In accordance with the Fair Value Measurements Topic of the FASB Accounting Standards Codification, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value of derivative financial instruments is determined using a market approach in which derivative pricing models use the stated terms of the contracts, observable yield curves, and volatilities from active markets.

When determining the fair value of derivatives, the Company takes into account counterparty credit risk for positions where it is exposed to the counterparty on a net basis by assessing exposure net of collateral held.

The net exposures for each counterparty are adjusted based on market information available for the specific counterparty.

AND SUBSIDIARIES

6 unchanged sentences

Loans receivable $ 20,454,132 19,391,045 — — 20,454,132

Accrued loan interest receivable 794,611 794,611 — 794,611 —

Cash and cash equivalents 121,249 121,249 121,249 — —

Investments (at fair value) 390,648 390,648 10,217 348,504 —

Beneficial interest in consumer loan securitizations 33,258 33,187 — — 33,258

Beneficial interest in loan securitizations 58,709 58,331 — — 58,709

Restricted cash 553,175 553,175 553,175 — —

Restricted cash – due to customers 283,971 283,971 283,971 — —

Accrued interest receivable 733,623 733,623 — 733,623 —

Financial liabilities:

1 unchanged sentence

Accrued interest payable 28,701 28,701 — 28,701 —

Bank deposits 54,599 54,633 48,422 6,177 —

Due to customers 301,471 301,471 301,471 — —

3 unchanged sentences

Loans receivable $ 21,477,630 20,669,371 — — 21,477,630

Accrued loan interest receivable 733,497 733,497 — 733,497 —

Cash and cash equivalents 133,906 133,906 133,906 — —

Investments (at fair value) 65,601 65,601 110 52,597 —

Notes receivable 16,373 16,373 — 16,373 —

Beneficial interest in loan securitizations 33,258 33,187 — — 33,258

Restricted cash 650,939 650,939 650,939 — —

Restricted cash – due to customers 437,756 437,756 437,756 — —

Accrued interest receivable 679,197 679,197 — 679,197 —

Derivative instruments 1,818 1,818 — 1,818 —

Financial liabilities:

8 unchanged sentences

A number of significant inputs into the models are internally derived and not observable to market participants.

Beneficial Interest in Consumer Loan Securitizations

Fair values for beneficial interest in consumer loan securitizations were determined by modeling securitization cash flows and internally-developed assumptions.

Beneficial Interest in Loan Securitizations

Fair values for beneficial interest in loan securitizations were determined by modeling securitization cash flows and internally-developed assumptions.

The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, required return on equity, and future interest rate and index relationships.

3 unchanged sentences

(Dollars in thousands, except share amounts, unless otherwise noted)

Notes Receivable

Fair values for notes receivable were determined by using model-derived valuations with observable inputs, including current market rates.

Cash and Cash Equivalents, Restricted Cash, Restricted Cash – Due to Customers, Accrued Interest Receivable, Accrued Interest Payable, and Due to Customers

Cash and Cash Equivalents, Restricted Cash, Restricted Cash – Due to Customers, Accrued Loan Interest Receivable, Accrued Interest Payable, and Due to Customers

The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.

2 unchanged sentences

Fair value adjustments for unsecured corporate debt are made based on indicative quotes from observable trades.

Bank Deposits

Some of the Company’s deposits are fixed-rate and the fair value for these deposits are estimated using discounted cash flows based on rates currently offered for deposits of similar maturities.

These are level 2 valuations.

The fair value of the remaining deposits equal the amounts payable on demand at the balance sheet date and are reported at their carrying value.

These are level 1 valuations.

The fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments.

18 unchanged sentences

Net interest income $ 55,073 66,635 81,322 86,556

Less provision for loan losses 7,000 9,000 10,000 13,000

Net interest income after provision for loan losses 51,816 50,825 56,457 51,252

(Provision) negative provision for loan losses ( 76,299 ) ( 2,999 ) 5,821 10,116

Net interest income (loss) after provision (negative provision) for loan losses ( 21,226 ) 63,636 87,143 96,672

Loan servicing and systems revenue 112,735 111,042 113,794 113,990

Education technology, services, and payment processing revenue 83,675 59,304 74,121 65,097

79,159 60,342 74,251 63,578

Communications revenue 18,181 18,998 20,211 19,253

Other income 9,067 16,152 13,439 26,522

Derivative market value and foreign currency transaction adjustments and derivative settlements, net

( 11,539 ) ( 24,088 ) 1,668 3,170

Other 8,281 60,127 1,502 ( 12,350 )

Gain on sale of loans 18,206 — 14,817 —

Gain from deconsolidation of ALLO — — — 258,588

Impairment expense and provision for beneficial interests ( 34,087 ) ( 332 ) — 9,696

Derivative market value adjustments and derivative settlements, net ( 16,365 ) 1,910 1,049 ( 11,059 )

Cost to provide education technology, services, and payment processing services ( 22,806 ) ( 15,376 ) ( 25,243 ) ( 18,782 )

2 unchanged sentences

Depreciation and amortization ( 27,648 ) ( 29,393 ) ( 30,308 ) ( 31,350 )

Other operating expenses ( 43,816 ) ( 45,417 ) ( 58,329 ) ( 46,710 )

Income tax (expense) benefit ( 11,391 ) ( 6,209 ) ( 8,829 ) ( 9,022 )

Net income 41,647 24,678 33,135 41,834

Net loss (income) attributable to noncontrolling interests

( 56 ) ( 59 ) 77 546

Net income attributable to Nelnet, Inc.

Other expenses ( 43,384 ) ( 37,052 ) ( 34,744 ) ( 45,391 )

Income tax benefit (expense) 10,133 ( 21,264 ) ( 19,156 ) ( 70,573 )

Net (loss) income ( 39,765 ) 86,610 71,176 231,606

Net (income) loss attributable to noncontrolling interests ( 767 ) ( 128 ) 327 3,385

Net (loss) income attributable to Nelnet, Inc.

$ ( 40,532 ) 86,482 71,503 234,991

Earnings per common share:

Net income attributable to Nelnet, Inc.

Net (loss) income attributable to Nelnet, Inc.

shareholders - basic and diluted $ ( 1.01 ) 2.21 1.86 6.10

4 unchanged sentences

Net interest income $ 58,816 59,825 66,457 64,252

Less provision for loan losses 4,000 3,500 10,500 5,000

Provision for loan losses ( 7,000 ) ( 9,000 ) ( 10,000 ) ( 13,000 )

Net interest income after provision for loan losses 51,816 50,825 56,457 51,252

1 unchanged sentence

Education technology, services, and payment processing revenue 79,159 60,342 74,251 63,578

60,221 48,742 58,409 54,589

Communications revenue 14,543 15,758 16,470 17,499

Other income 18,557 9,580 16,673 9,998

Derivative market value and foreign currency transaction adjustments and derivative settlements, net

66,799 17,031 17,098 ( 29,843 )

Other 9,067 14,440 13,439 10,973

Gain on sale of loans — 1,712 — 15,549

Derivative market value adjustments and derivative settlements, net ( 11,539 ) ( 24,088 ) 1,668 3,170

Cost to provide education technology, services, and payment processing services ( 21,059 ) ( 15,871 ) ( 25,671 ) ( 19,002 )

2 unchanged sentences

Depreciation and amortization ( 24,213 ) ( 24,484 ) ( 27,701 ) ( 28,651 )

Other operating expenses ( 36,553 ) ( 43,613 ) ( 48,281 ) ( 49,583 )

Income tax (expense) benefit ( 35,976 ) ( 13,511 ) ( 13,882 ) 4,599

Other expenses ( 43,816 ) ( 45,417 ) ( 58,329 ) ( 46,710 )

Income tax expense ( 11,391 ) ( 6,209 ) ( 8,829 ) ( 9,022 )

Net income 41,647 24,678 33,135 41,834

Net loss (income) attributable to noncontrolling interests ( 56 ) ( 59 ) 77 546

740 ( 104 ) ( 199 ) ( 48 )

Net income attributable to Nelnet, Inc.

10 unchanged sentences

These limitations relate to the restrictions by trust indentures under the lending subsidiaries debt financing arrangements.

The amounts of cash and investments restricted in the respective reserve accounts of the education lending subsidiaries are shown on the consolidated balance sheets as restricted cash.

Balance Sheets

8 unchanged sentences

Other assets 115,631 100,059

Fair value of derivative instruments — 1,818

Total assets $ 3,009,446 2,557,491

21 unchanged sentences

Interest expense on bonds and notes payable 3,179 9,588 9,270

Net interest (expense) income ( 4,663 ) 8,437 9,745

Other income:

Net interest income (expense) 931 ( 4,663 ) 8,437

Other income/expense:

Other income 40,904 8,384 13,944

2 unchanged sentences

132,101 182,346 158,364

Gain from deconsolidation of ALLO 258,588 — —

Derivative market value adjustments and derivative settlements, net

( 24,465 ) ( 30,789 ) 71,085

Total other income 160,077 243,752 176,741

Total other income/expense 409,090 160,077 243,752

Operating expenses 14,006 19,561 4,795

Income before income taxes 396,015 135,853 247,394

Income tax benefit (expense) 5,950 ( 19,481 ) ( 7,491 )

Income tax (expense) benefit ( 43,577 ) 5,950 ( 19,481 )

Net income 352,438 141,803 227,913

7 unchanged sentences

Net income $ 352,438 141,803 227,913

Other comprehensive (loss) income:

Other comprehensive income (loss):

Available-for-sale securities:

Unrealized holding (losses) gains arising during period, net ( 1,199 ) 1,056 2,349

Unrealized holding gains (losses) arising during period, net 6,637 ( 1,199 ) 1,056

Reclassification adjustment for gains recognized in net

1 unchanged sentence

Income tax effect ( 986 ) 288 ( 69 )

Total other comprehensive (loss) income ( 911 ) 9 ( 113 )

Total other comprehensive income (loss) 3,130 ( 911 ) 9

Comprehensive income 355,568 140,892 227,922

19 unchanged sentences

Equity in earnings of subsidiaries ( 132,101 ) ( 182,346 ) ( 158,364 )

Deferred income tax (benefit) expense ( 19,183 ) 21,814 ( 8,056 )

Gain from deconsolidation of ALLO, including cash impact ( 287,579 ) — —

Gain from debt repurchases ( 1,962 ) ( 136 ) ( 359 )

Gain from investments, net ( 46,019 ) ( 3,969 ) ( 11,177 )

Deferred income tax expense (benefit) 23,747 ( 19,183 ) 21,814

Non-cash compensation expense 16,739 6,781 6,539

Impairment expense 7,784 — —

Other ( 329 ) ( 481 ) ( 4,770 )

7 unchanged sentences

Decrease (increase) in notes receivable from subsidiaries 21,343 14,421 ( 31,325 )

(Purchases of) proceeds from subsidiary debt, net ( 25,085 ) — 61,841

Increase in guaranteed payment from subsidiary — — ( 70,270 )

Proceeds from investments and notes receivable 27,926 7,783 4,823

Proceeds from (purchases of) subsidiary debt, net — 61,841 ( 3,844 )

Purchases of investments and issuances of notes receivable ( 47,106 ) ( 28,610 ) ( 18,023 )

Net cash provided by (used in) investing activities 444,843 ( 365,638 ) ( 9,251 )

Purchases of other investments ( 54,637 ) ( 47,106 ) ( 28,610 )

Proceeds from other investments 8,564 27,926 7,783

Net cash (used in) provided by investing activities ( 123,993 ) 444,843 ( 365,638 )

Cash flows from financing activities:

7 unchanged sentences

Issuance of noncontrolling interest 194,985 878 13

Net cash (used in) provided by financing activities ( 369,867 ) 206,275 ( 58,736 )

Net cash provided by (used in) financing activities 260,992 ( 369,867 ) 206,275

Net increase (decrease) in cash, cash equivalents, and restricted cash 80,247 29,604 ( 12,043 )

8 unchanged sentences

Recapitalization of guaranteed payment to investment in subsidiary $ — — 273,360

Contributions to subsidiaries $ — — 2,092

Contribution to subsidiary, net $ 49,066 — —

Description of

353 unchanged sentences

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 9A. Controls and Procedures