What changed in this filing

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Item 9A. Controls and Procedures

2022-02-28 compared with 2021-02-25 · 713 added, 787 removed, 2322 unchanged (39% of the section changed)

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Changes in Internal Control over Financial Reporting

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.

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.

The Company implemented a new enterprise resource planning system in 2021 which replaced multiple systems, including the general ledger and payroll processing systems, and resulted in changes to business processes.

We believe the change has enhanced the Company’s internal control over financial reporting due to increased automation and further integration of related processes.

The Company replaced multiple internal controls that were previously considered effective with new or modified controls that are also considered effective.

There were no other changes in the Company's internal control over financial reporting during the fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

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During the fourth quarter of 2021, no information was required to be disclosed in a report on Form 8-K, but not reported.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

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Exhibit Index

2.1 ++ Stock Purchase Agreement dated as of October 18, 2017, among Nelnet Diversified Solutions, LLC, as Purchaser, Nelnet, Inc., as Purchaser Parent, and Great Lakes Higher Education Corporation, as Seller, filed as Exhibit 2.1 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

2.2 First Amendment to Stock Purchase Agreement dated as of February 1, 2018, among Nelnet Diversified Solutions, LLC, as Purchaser, Nelnet, Inc., as Purchaser Parent, and Great Lakes Higher Education Corporation, as Seller, filed as Exhibit 2.2 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

2.3 Second Amendment to Stock Purchase Agreement dated as of February 1, 2018, among Nelnet Diversified Solutions, LLC, as Purchaser, Nelnet, Inc., as Purchaser Parent, and Great Lakes Higher Education Corporation, as Seller, filed as Exhibit 2.3 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

3.1 Composite Third Amended and Restated Articles of Incorporation of Nelnet, Inc., as amended on May 23, 2019, filed as Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

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10.12 Amendment to Office Building Lease dated June 11, 1997 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.4 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.13*# Of fice Building Lease dated J anu ary 5, 2021 betwee n Union Bank and Trust Company and National Educa tion Loan Ne twork.

10.14 Lease Amendment Number Two dated February 8, 2001 between Miller & Paine and Union Bank and Trust Company, filed as Exhibit 10.5 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

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and Union Bank and Trust Company, filed as Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.

10.18 Lease Agreement dated May 20, 2005 between Miller & Paine, LLC and Union Bank and Trust Company, filed as Exhibit 10.7 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.19 Office Sublease dated April 30, 2001 between Union Bank and Trust Company and Nelnet, Inc., filed as Exhibit 10.8 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein by reference.

10.19+ Nelnet, Inc.

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10.20+ Amendment to Nelnet, Inc.

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 .

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

10.21+ Nelnet, Inc.

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10.29 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.

10.30 Form of Modification of Contract dated effective as of June 15, 2021 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 June 10, 2021 and incorporated herein by reference.

10.31 Form of Modification of Contract entered into on September 24, 2021 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 September 27, 2021 and incorporated herein by reference.

10.32* Form of Modification of Contract entered into December 29, 2021 for Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing, LLC.

10.33 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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10.38 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.

10.39 Form of Modification of Contract dated effective as of June 15, 2021 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 June 10, 2021 and incorporated herein by reference.

10.40 Form of Modification of Contract entered into on September 24, 2021 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 September 27, 2021 and incorporated herein by reference.

10.41* Form of Modification of Contract entered into on January 7, 2022 for Student Loan Servicing Contract between the United States Department of Education and Great Lakes Educational Loan Services, Inc.

10.42 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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10.56 Subordination Agreement effective as of July 26, 2019, by and between Union Bank and Trust Company, Nelnet, Inc., and Agile Sports Technologies, Inc., filed as Exhibit 10.7 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference.

10.52 Second Amended and Restated Credit Agreement dated as of December 16, 2019, among Nelnet, Inc., U.S.

10.57# Third Amended and Restated Credit Agreement dated as of September 22, 2021, among Nelnet, Inc., U.S.

Bank National Association, as Administrative Agent;

Wells Fargo Bank, National Association, as Syndication Agent;

Citibank, N.A.

and Royal Bank of Canada, as Co-Documentation Agents;

Wells Fargo Bank, National Association, as Syndication Agent, Royal Bank of Canada, as Documentation Agent, U.S.

Bank National Association and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners;

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.

and various lender parties thereto, filed as Exhibit 10.1 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference.

10.58 Third Amended and Restated Guaranty dated as of September 22, 2021, by each of the subsidiaries of Nelnet, Inc.

signatories thereto, in favor of U.S.

Bank National Association, as Administrative Agent, filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on December 16, 2019 and incorporated herein by reference.

10.55 Agreement for Purchase and Sale of Interest in Aircraft dated as of December 31, 2018, by and between National Education Loan Network, Inc.

and Union Financial Services, Inc., filed as Exhibit 10.42 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.

Bank National Association, as Administrative Agent, filed as Exhibit 10.2 to the registrant's Current Report on Form 8-K filed on September 22, 2021 and incorporated herein by reference.

10.59 Aircraft Joint Ownership Agreement dated as of January 1, 2019, by and between National Education Loan Network, Inc.

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10.76 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.

10.77* First Amendment of SLABS Participation Agreement, dated effective as of October 1, 2021, by and between National Education Loan Network, Inc., and Union Bank and Trust Company, as Trustee.

10.78 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.

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10.82 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.

10.83*±± Form of Amended & Restated Limited Liability Company Operating Agreement for solar energy investments managed by a subsidiary of Nelnet, Inc.

and in which certain parties referred to therein with other relationships with Nelnet, Inc.

have participated.

10.84*±± Form of Management Agreement for solar energy investments managed by a subsidiary of Nelnet, Inc.

and in which certain parties referred to therein with other relationships with Nelnet, Inc.

have participated.

21.1* Subsidiaries of Nelnet, Inc.

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Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.

±± 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 disclosed.

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

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

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HENNING Director February 28, 2022

MARTIN Director February 25, 2021

/s/ KIMBERLY K.

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generally accepted accounting principles.

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.

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, 2021, based on criteria established in I nternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 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.”

2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.”

Basis for Opinion

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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.

As discussed in Note 4 to the consolidated financial statements, the Company’s allowance for loan losses as of December 31, 2021 was $127.1 million, of which $103.4 related to the Company’s allowance for loan losses on Non-Nelnet Bank federally insured loans and $16.1 related to the Company’s allowance for loan losses on Non-Nelnet Bank private education loans, collectively, the allowance for loan losses (the ALL).

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.

The Company’s methodology is 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 over the expected life of the loans.

The undiscounted cash flow model incorporates a single economic forecast scenario and macroeconomic assumptions over the reasonable and supportable forecast periods.

After the reasonable and supportable forecast periods, the Company reverts on a straight-line basis over the reversion period to its historical loss rates, evaluated over the historical observation period, for the remaining life of the loans.

All such periods are established for each portfolio segment.

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.

We identified the assessment of the 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.

Specifically, the assessment encompassed the evaluation of the ALL methodology, including the methods, models, and significant assumptions used to estimate the PD and LGD.

Such assumptions included segmentation of loans with similar risk characteristics, the economic forecast scenario and macroeconomic assumptions, the reasonable and supportable forecast periods, and the historical observation period.

The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models.

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:

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

• continued use and appropriateness of changes made to PD and LGD models

• identification and determination of the significant assumptions used in the PD and LGD models

• performance monitoring of the PD and LGD models

• 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.

We evaluated the Company’s process to develop the ALL estimate 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:

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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

• evaluating judgments made by the Company relative to the assessment and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry practices

• 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

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

• evaluating the length of the historical observation period and reasonable and supportable forecast periods 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:

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

• cumulative results of the audit procedures

• qualitative aspects of the Company’s accounting practices

• potential bias in the accounting estimate.

• potential bias in the accounting estimates.

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

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Retained earnings 2,940,523 2,621,762

Accumulated other comprehensive earnings 6,102 2,972

Accumulated other comprehensive earnings, net 9,304 6,102

Total Nelnet, Inc.

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Restricted cash 674,073 499,223

499,223 639,847

Bonds and notes payable ( 17,462,456 ) ( 19,355,375 )

( 19,355,375 ) ( 20,742,798 )

Accrued interest payable and other liabilities ( 36,276 ) ( 83,127 )

( 83,127 ) ( 162,494 )

Net assets of consolidated education and other lending variable interest entities $ 1,156,755 1,193,717

$ 1,193,717 1,133,937

See accompanying notes to consolidated financial statements.

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Net interest income 347,602 289,585 249,350

Less provision for loan losses 63,360 39,000 23,000

Less (negative provision) provision for loan losses ( 12,426 ) 63,360 39,000

Net interest income after provision for loan losses 360,028 226,225 210,350

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Gain from deconsolidation of ALLO — 258,588 —

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

Impairment expense and provision for beneficial interests, net ( 16,360 ) ( 24,723 ) —

Derivative market value adjustments and derivative settlements, net 71,446 ( 24,465 ) ( 30,789 )

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Other comprehensive income (loss):

Available-for-sale securities:

Net changes related to foreign currency translation adjustments $ ( 10 ) — —

Net changes related to available-for-sale debt securities:

Unrealized holding gains (losses) arising during period, net 6,921 6,637 ( 1,199 )

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

Reclassification of gains recognized in net income, net of losses ( 2,695 ) ( 2,521 ) —

Income tax effect ( 1,014 ) 3,212 ( 986 ) 3,130 288 ( 911 )

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

Other comprehensive income (loss) 3,202 3,130 ( 911 )

Comprehensive income 389,485 352,756 140,383

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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

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

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

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

Balance as of December 31, 2019 — 28,458,495 11,271,609 — 285 113 5,715 2,377,627 2,972 4,382 2,391,094

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

Other comprehensive loss

Other comprehensive income

— — — — — — — — 3,130 — 3,130

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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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Repurchase of common stock — ( 713,274 ) — — ( 7 ) — ( 18,036 ) ( 40,068 ) — — ( 58,111 )

Impact of adoption of new accounting standard — — — — — — — ( 18,868 ) — — ( 18,868 )

Conversion of common stock — 478,929 ( 478,929 ) — 5 ( 5 ) — — — — —

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, 2021 — 27,239,654 10,676,642 $ — 272 107 1,000 2,940,523 9,304 1,632 2,952,838

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Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs 132,325 198,473 192,662

198,473 192,662 184,682

Loan discount accretion ( 7,990 ) ( 35,285 ) ( 35,824 )

Provision for loan losses 63,360 39,000 23,000

(Negative provision) provision for loan losses ( 12,426 ) 63,360 39,000

Derivative market value adjustments ( 92,813 ) 28,144 76,195

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

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

Payments to terminate derivative instruments, net — — ( 12,530 )

Proceeds from (payments to) clearinghouse - initial and variation margin, net 91,294 ( 26,747 ) ( 70,685 )

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

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Gain from investments, net ( 3,811 ) ( 14,055 ) ( 3,095 )

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

Loss on (gain from) repurchases and extinguishments of debt, net 6,775 ( 1,924 ) 16,553

Purchases of equity securities, net ( 42,916 ) — —

Deferred income tax expense (benefit) 55,622 7,974 ( 7,265 )

Non-cash compensation expense 10,673 16,739 6,781

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

Provision for beneficial interests and impairment expense, net 16,360 24,723 —

Other — 186 584

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 loan and investment accrued interest receivable 1,378 ( 61,090 ) ( 54,586 )

(Increase) decrease in accounts receivable ( 86,982 ) 40,880 ( 55,949 )

Decrease (increase) in other assets, net 39,439 59,182 ( 19,858 )

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 )

Decrease in the carrying amount of ROU asset, net 7,170 11,594 8,793

Decrease in accrued interest payable ( 24,135 ) ( 18,584 ) ( 14,394 )

Increase in other liabilities, net 29,775 35,907 49,100

Decrease in the carrying amount of lease liability ( 6,978 ) ( 9,401 ) ( 8,678 )

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

Increase (decrease) in due to customers 64,539 ( 136,285 ) 68,078

Net cash provided by operating activities 544,867 212,815 298,915

Cash flows from investing activities, net of acquisitions:

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

Cash flows from investing activities:

Purchases and originations of loans ( 1,318,605 ) ( 1,459,696 ) ( 1,906,669 )

Purchases of loans from a related party ( 22,678 ) ( 147,539 ) ( 101,538 )

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Proceeds from sales of available-for-sale securities 160,976 173,784 105

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

Proceeds from and sale of beneficial interest in loan securitizations, net 40,602 44,213 6,593

Purchases of other investments ( 253,894 ) ( 168,216 ) ( 103,250 )

Proceeds from other investments 191,821 13,011 63,879

Purchases of held-to-maturity debt securities ( 8,200 ) — —

Purchases of property and equipment ( 58,952 ) ( 113,312 ) ( 92,499 )

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

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

Net cash provided by investing activities $ 1,185,935 621,219 1,524,566

AND SUBSIDIARIES

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Distribution to noncontrolling interests ( 878 ) ( 1,088 ) ( 235 )

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

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

Net cash used in financing activities ( 1,494,887 ) ( 1,098,240 ) ( 1,793,271 )

Effect of exchange rate changes on cash ( 121 ) — —

Net increase (decrease) in cash, cash equivalents, and restricted cash 235,794 ( 264,206 ) 30,210

Cash, cash equivalents, and restricted cash, beginning of period 958,395 1,222,601 1,192,391

Cash, cash equivalents, and restricted cash, end of period $ 1,194,189 958,395 1,222,601

Supplemental disclosures of cash flow information:

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Receipt of beneficial interest in consumer loan securitizations $ 23,506 52,501 39,780

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

Distribution to noncontrolling interests $ 47,881 15,035 3,868

Issuance of noncontrolling interests $ 10,371 4,132 —

(a) For 2021, 2020, and 2019 the Company utilized $ 34.1 million, $ 53.9 million, and $ 31.8 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.

Supplemental disclosures of noncash activities regarding the Company's recapitalization of ALLO in 2020 and business acquisitions during 2020 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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Description of Business

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.

and its subsidiaries (“Nelnet” or the “Company”) is a diverse, innovative company with a purpose to serve others and a vision to make dreams possible.

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

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

The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate, early-stage and emerging growth companies, and renewable energy.

The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in early-stage and emerging growth companies, real estate, and renewable energy (solar).

Substantially all revenue from external customers is earned, and all long-lived assets are located, in the United States.

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Department of Education (the “Department”).

The Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act of 2010”) discontinued new loan originations under the FFEL Program, effective July 1, 2010, and requires that all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program.

The Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act of 2010”) discontinued loan originations under the FFEL Program, effective July 1, 2010, and requires that all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program.

This law does not alter or affect the terms and conditions of existing FFELP loans.

As a result of this law, the Company no longer originates new FFELP loans.

As a result of this law, the Company no longer originates FFELP loans.

However, a significant portion of the Company’s income continues to be derived from its existing FFELP student loan portfolio.

Interest income on the Company’s existing FFELP loan portfolio will decline over time as the portfolio is paid down.

Since all FFELP loans will eventually run off, a key objective of the Company is to reposition itself for the post-FFELP environment.

To reduce its reliance on interest income on student loans, the Company has expanded its services and products.

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

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

The Company is also actively expanding its private education and consumer loan portfolios, and in November 2020 launched Nelnet Bank (as further discussed below).

In addition, the Company has been servicing federally owned student loans for the Department since 2009.

The Company's reportable operating segments include:

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Loan Servicing and Systems

The primary service offerings of the Loan Servicing and Systems operating segment include:

The primary service offerings of the Loan Servicing and Systems operating segment (known as Nelnet Diversified Services (“NDS”)) include:

• Servicing federally-owned student loans for the Department of Education

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

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

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

LSS provides for the servicing of the Company's student loan portfolio and the portfolios of third parties.

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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”).

See note 8 for additional information related to this acquisition.

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.

AND SUBSIDIARIES

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

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

(“Great Lakes”), subsidiaries of the Company, are two of the current seven private sector entities that have student loan servicing contracts with the Department to provide servicing capacity for loans owned by the Department.

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

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Education Technology, Services, and Payment Processing

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 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;

(iii) advancement (giving management), including a comprehensive donation platform that streamlines donor communications, organizes donor information, and provides access to data analysis and reporting;

(iv) enrollment and communications, including website design and cost effective admissions software;

(v) professional development and educational instruction services;

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) 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.

In addition, this operating segment offers mobile first technology focused on increasing engagement, online giving, and communication for church and not-for-profit customers.

Additionally, the Company may earn revenue for payment processing fees when families make tuition payments.

The Education Technology, Services, and Payment Processing segment (known as Nelnet Business Services (“NBS”)) provides education services, payment technology, and community management solutions for K-12 schools, higher education institutions, churches, and businesses in the United States and internationally.

NBS provides service and technology under five divisions as follows:

FACTS provides solutions that elevate the education experience in the K-12 market for school administrators, teachers, and families.

FACTS offers (i) financial management, including tuition payment plans and financial needs assessment (grant and aid);

(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 scheduling, cafeteria management, attendance, and grade book management;

(iii) enrollment and communications, including website design and cost effective admissions software;

(iv) advancement (giving management), including a comprehensive donation platform that streamlines donor communications, organizes donor information, and provides access to data analysis and reporting;

and (v) education development, including customized professional development and coaching services, educational instruction services, and innovative technology products that aid in teacher and student evaluations.

Nelnet Campus Commerce delivers payment technology to higher education institutions.

Nelnet Campus Commerce solutions include (i) tuition management, including tuition payment plans and service and technology for student billings, payments, and refunds;

and (ii) integrated commerce including solutions for in-person, online, and mobile payment experiences on campus.

PaymentSpring provides secure payment processing technology.

PaymentSpring supports and provides payment processing services, including credit card and electronic transfer, to the other divisions of NBS in addition to other industries and software platforms across the United States.

Nelnet Community Engagement provides faith community engagement, giving management, and learning management services and technologies.

Nelnet Community Engagement serves customers in the technology, nonprofit, religious, health care, and professional services industries.

Nelnet International provides its services and technology in more than 50 countries with the largest concentrations in Australia, New Zealand, and the Asia-Pacific region.

Nelnet International serves customers in the education, local government, and healthcare industries.

Nelnet International’s suite of services include an integrated commerce payment platform, financial management and tuition payment plan services, and a school management platform that provides administrative, information management, financial management, and communication functions for K-12 schools.

Communications

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

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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.

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

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

Asset Generation and Management

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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.

AGM generates a substantial portion of its earnings from the spread, referred to as 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.

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

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

Nelnet Bank serves and plans to serve a niche market, with a concentration in the private education and unsecured consumer loan markets.

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

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

• The majority of the Company’s investment activities

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

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

Corporate and Other Activities also include certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing.

Corporate and Other Activities also includes certain corporate activities and overhead functions related to executive management, internal audit, human resources, accounting, legal, enterprise risk management, information technology, occupancy, and marketing.

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

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.

ALLO Recapitalization

On October 1, 2020, the Company entered into various agreements with 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.

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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

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

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

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.

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

The voting membership interests and non-voting preferred membership interests of ALLO are included on the consolidated balance sheet in “investments.” See note 7 for additional information.

As a result of the deconsolidation of ALLO on December 21, 2020, the Company recognized a gain of $ 258.6 million as summarized below.

December 21, 2020

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Gain recognized upon deconsolidation of ALLO $ 258,588

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:

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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.

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 interests 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.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

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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The Company is not required to consolidate VIEs in which it has determined it is not the primary beneficiary.

In December of 2020, Wells Fargo announced the sale of its approximately $ 10.0 billion portfolio of private education loans representing approximately 445,000 borrowers.

The Company entered into a joint venture with other investors to acquire the loans.

During 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $ 8.7 billion of the private education loans purchased by the joint venture (which represented the total remaining loans originally purchased from Wells Fargo, factoring in borrower payments from the date of purchase).

Under the terms of the joint venture agreements, the Company is the servicer of the portfolio, owns an approximate 8 percent interest in residual interests in securitizations of the loans, and serves as the sponsor and administrator for the loan securitizations completed by the joint venture.

See note 7, “Investments” for a description of, and the Company’s accounting for, these transactions, and disclosure of the Company’s maximum exposure.

The Company makes investments in entities that promote renewable energy sources (solar).

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While the Company believes potential losses from these investments are remote, the maximum exposure was determined by assuming a scenario where the energy-producing projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The following table provides a summary of solar investment VIEs that the Company has not consolidated:

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Unfunded capital and other commitments 4,350 13,330

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

(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.

Company’s maximum exposure to loss 74,609 89,267

Exposure syndicated to third-party investors 71,511 15,562

Maximum exposure to loss $ 146,120 104,829

As of December 31, 2021, 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 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

See note 2, “ALLO Recapitalization,” for disclosure of ALLO’s recapitalization and the Company’s initial recognition of its voting interest/equity method and non-voting preferred membership investments.

See note 7, “Investments,” for the Company’s carrying value of its voting interest/equity method and non-voting preferred membership investments, which is the Company’s maximum exposure to loss.

Noncontrolling Interests

Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interests in the following entities:

• Whitetail Rock Capital Management, LLC - WRCM is the Company’s SEC-registered investment advisor subsidiary.

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

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

The preparation of the consolidated financial statements in conformity with U.S.

generally accepted accounting principles (“GAAP”) requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of revenues and expenses, and other disclosures.

Actual results may differ from those estimates.

Loans Receivable

Loans consist of federally insured student loans, private education loans, and consumer loans.

If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and carried at amortized cost.

Amortized cost includes the unamortized premium or discount and capitalized origination costs and fees, all of which are amortized to interest income.

Loans which are held-for-investment also have an allowance for loan loss as needed.

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 there is also no related allowance for loan losses.

There were no loans classified as held for sale as of December 31, 2021 and 2020.

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”).

These loans, including related accrued interest, are guaranteed at their maximum level permitted under the Higher Education Act by an authorized guaranty agency, which has a contract of reinsurance with the Department.

The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest.

Generally, Stafford and PLUS loans have repayment periods between five and ten years .

Consolidation loans have repayment periods of twelve to thirty years .

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

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.

In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department.

These plans determine the borrower's payment amount based on their discretionary income and may extend their repayment period.

AND SUBSIDIARIES

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

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.

rates on federally insured student loans may be fixed or variable, dependent upon the type of loan, terms of the loan agreements, and date of origination.

Substantially all FFELP loan principal and related accrued interest is guaranteed as provided by the Higher Education Act.

These guarantees are subject to the performance of certain loan servicing due diligence procedures stipulated by applicable Department regulations.

If these due diligence requirements are not met, affected student loans may not be covered by the guarantees in the event of borrower default.

Such student loans are subject to “cure” procedures and reinstatement of the guarantee under certain circumstances.

Loans also include private education and consumer loans.

Private education loans are loans to students or their families that are non-federal loans and loans not insured or guaranteed under the FFEL Program.

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 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 six years .

Allowance for Loan Losses

On January 1, 2020, the Company adopted ASU No.

2016-13, Financial Instruments – Credit Losses (“Topic 326”):

Measurement of Credit Losses on Financial Instruments , which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.

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.

The Company adopted Topic 326 using the modified retrospective method.

As such, the results for reporting periods beginning after January 1, 2020 are presented under Topic 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 and 2021.

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

Upon adoption, the Company recorded an increase to the allowance for loan losses of $ 91.0 million and decreased retained earnings, net of tax, by $ 18.9 million.

Allowance for Loan Losses - Accounting Policies Under Topic 326

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.

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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.

Expected 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.

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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 undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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.

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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.

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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.

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.

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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 sum of the loans’ purchase 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.

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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.

Accrued interest receivable on loans is combined and presented with the loans receivable amortized cost balance on the Company’s consolidated balance sheet.

For the Company’s federally insured loan portfolio, the Company records 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 the Company’s private education and consumer loan portfolios, the Company does not 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 have been reclassified to conform to the current period presentation.

These reclassifications include:

• 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

• Whitetail Rock Capital Management, LLC - WRCM is the Company’s SEC-registered investment advisor subsidiary.

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

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

The preparation of the consolidated financial statements in conformity with U.S.

Actual results may differ from those estimates.

Loans Receivable

Loans consist of federally insured student loans, private education loans, and consumer loans.

If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and carried at amortized cost.

Amortized cost includes the unamortized premium or discount and capitalized origination costs and fees, all of which are amortized to interest income.

Loans which are held-for-investment also have an allowance for loan loss as needed.

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 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.

Allowance for Loan Losses - Accounting Policies Prior to Adoption of Topic 326

Prior to the adoption of Topic 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

AND SUBSIDIARIES

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

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”).

The terms of the loans, which vary on an individual basis, generally provide for repayment in monthly installments of principal and interest.

Generally, Stafford and PLUS loans have repayment periods between five and ten years .

Consolidation loans have repayment periods of twelve to thirty years .

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

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.

In addition, eligible borrowers may qualify for income-driven repayment plans offered by the Department.

These plans determine the borrower's payment amount based on their discretionary income and may extend their repayment period.

Interest rates on federally insured student loans may be fixed or variable, dependent upon the type of loan, terms of the loan agreements, and date of origination.

Substantially all FFELP loan principal and related accrued interest is guaranteed as provided by the Higher Education Act.

These guarantees are subject to the performance of certain loan servicing due diligence procedures stipulated by applicable Department regulations.

If these due diligence requirements are not met, affected student loans may not be covered by the guarantees in the event of borrower default.

Such student loans are subject to “cure” procedures and reinstatement of the guarantee under certain circumstances.

Loans also include private education and consumer loans.

Private education loans are loans to students or their families that are non-federal loans and loans not insured or guaranteed under the FFEL Program.

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 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 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 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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Net purchased loan accrued interest was $ 48.3 million, $ 92.3 million, and $ 112.9 million in 2021, 2020, and 2019, 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.

2 unchanged sentences

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

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

The Company classifies its residual interest in federally insured, private education, 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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These factors may indicate that a decrease in value of the investment has occurred that is other-than-temporary and shall be recognized.

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

The Company accounts for its solar investments, voting equity investment in ALLO, and certain real estate investments 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.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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.

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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

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.

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.

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

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The estimates of future cash flows associated with intangible assets are generally prepared using a cost savings method, a lost income method, or an excess return method, as appropriate.

In utilizing such methods, management must make certain assumptions about the amount and timing of estimated future cash flows and other economic benefits from the assets, the remaining economic useful life of the assets, and general economic factors concerning the selection of an appropriate discount rate.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

utilizing such methods, management must make certain assumptions about the amount and timing of estimated future cash flows and other economic benefits from the assets, the remaining economic useful life of the assets, and general economic factors concerning the selection of an appropriate discount rate.

The Company may also use replacement cost or market comparison approaches to estimate fair value if such methods are determined to be more appropriate.

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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

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.

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

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

Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset .

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 determines if the arrangement is, or contains, a lease at the inception of an arrangement 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 office and data center space.

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

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

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Impairment of Long-Lived Assets

The Company reviews its long-lived assets, such as ROU assets, property and equipment, and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company reviews its long-lived assets, such as property and equipment, purchased intangibles subject to amortization, and ROU assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

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Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Fair Value Measurements

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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

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.

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.

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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The Company applies the provisions of ASC Topic 606 , Revenue from Contracts with Customers ("ASC Topic 606") , to its fee-based operating segments.

The majority of the Company’s revenue earned in its Asset Generation and Management operating segment, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606.

The majority of the Company’s revenue earned in its Asset Generation and Management and Nelnet Bank operating segments, including loan interest and derivative activity, is explicitly excluded from the scope of ASC Topic 606.

The Company recognizes revenue under the core principle of ASC Topic 606 to depict the transfer of control of products and services to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled.

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The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year.

The Company has determined that certain sales incentive programs and pre-production contract fulfillment costs meet the requirements to be capitalized.

Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in “other assets” on the consolidated balance sheets.

1 unchanged sentence

See note 16, "Disaggregated Revenue and Deferred Revenue" for additional information related to the Company's fee-based operating segments.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Loan interest income - Loan interest on federally insured student loans is paid by the Department or the borrower, depending on the status of the loan at the time of the accrual.

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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

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 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 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 federally insured loan premiums/discounts is 5 percent for Stafford loans and 3 percent for Consolidation loans.

The constant prepayment rate currently used by the Company to amortize/accrete federally insured loan premiums/discounts is 5 percent for Stafford loans and 4 percent for Consolidation loans.

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

In instances where there are changes to the assumptions, amortization/accretion is adjusted on a cumulative basis to reflect the change since the acquisition of the loan.

During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate on its consolidation loans from 3 percent to 4 percent, which resulted in a $ 6.2 million increase to the Company’s net loan discount balance and a corresponding pre-tax decrease to interest income.

The Company also pays the Department an annual 105 basis point rebate fee on Consolidation loans.

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The Company from time to time repurchases its outstanding debt and records a gain or loss on the early extinguishment of debt based upon the difference between the carrying amount of the debt and the amount paid to the third party.

The Company recognizes the results of a transfer of loans and the extinguishment of debt based upon the settlement date of the transaction .

Derivative Accounting

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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.

The Company records

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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.

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

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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

Notes to Consolidated Financial Statements

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

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.

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.

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.

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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.

Translation of Foreign Currencies

The Company’s foreign subsidiaries use the local currency of the countries in which they are located as their functional currency.

Accordingly, assets and liabilities are translated into U.S.

dollars (the Company’s reporting currency) using the exchange rates in effect on the consolidated balance sheet dates.

Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process.

Revenue and expense accounts are translated using the weighted average exchange rate during the period.

The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in accumulated other comprehensive earnings in the accompanying consolidated statements of shareholders’ equity.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Loans and Accrued Interest Receivable and Allowance for Loan Losses

Loans and accrued interest receivable consisted of the following:

As of December 31,

December 31, 2021 December 31, 2020

Non-Nelnet Bank:

Federally insured student loans:

4 unchanged sentences

Consumer loans 51,301 109,346

19,576,651 20,798,719

Non-Nelnet Bank loans 17,441,790 19,559,108

Federally insured student loans 88,011 —

Private education loans 169,890 17,543

Nelnet Bank loans 257,901 17,543

Accrued interest receivable 788,552 794,611

Loan discount, net of unamortized loan premiums and deferred origination costs ( 25,933 ) ( 9,908 )

Non-accretable discount — ( 32,398 )

Allowance for loan losses:

Non-Nelnet Bank:

Federally insured loans ( 103,381 ) ( 128,590 )

1 unchanged sentence

Consumer loans ( 6,481 ) ( 27,256 )

Non-Nelnet Bank allowance for loan losses ( 126,005 ) ( 175,375 )

Federally insured loans ( 268 ) —

Private education loans ( 840 ) ( 323 )

Nelnet Bank allowance for loan losses ( 1,108 ) ( 323 )

$ 18,335,197 20,185,656

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.

The Company has sold portfolios of consumer loans to an unrelated third party who securitized such loans.

As partial consideration received for the consumer loans sold, the Company received residual interest in the consumer loan securitizations that are included in "investments" on the Company's consolidated balance sheet.

The following table provides a summary of the consumer loans sold and gains recognized by the Company during 2021, 2020, and 2019.

(par value) Gain Residual interest received in securitization

May 14, 2021 $ 77,417 15,271 24.5 %

September 29, 2021 18,390 3,249 6.9

$ 95,807 18,520

January 30, 2020 $ 124,249 18,206 31.4 %

July 29, 2020 60,779 14,817 25.4

$ 185,028 33,023

May 1, 2019 $ 47,680 1,712 11.0 %

October 17, 2019 179,301 15,549 28.7

$ 226,981 17,261

AND SUBSIDIARIES

3 unchanged sentences

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

Balance at beginning of period Impact of Topic 326 adoption Provision (negative provision) for loan losses Charge-offs Recoveries Initial allowance on loans purchased with credit deterioration (a) Loan sales Balance at end of period

Year ended December 31, 2021

Non-Nelnet Bank

Federally insured loans $ 128,590 — ( 7,343 ) ( 21,139 ) — 3,273 — 103,381

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Consumer loans 27,256 — ( 4,544 ) ( 5,123 ) 824 — ( 11,932 ) 6,481

Federally insured loans — — 268 — — — — 268

Private education loans 323 — 526 ( 4 ) — — ( 5 ) 840

$ 175,698 — ( 12,426 ) ( 28,742 ) 1,545 3,273 ( 12,235 ) 127,113

Year ended December 31, 2020

Non-Nelnet Bank

Federally insured loans $ 36,763 72,291 18,691 ( 14,955 ) — 15,800 — 128,590

1 unchanged sentence

Consumer loans 15,554 13,926 38,183 ( 12,115 ) 1,132 — ( 29,424 ) 27,256

Private education loans — — 330 ( 7 ) — — — 323

$ 61,914 91,014 63,360 ( 28,729 ) 1,763 15,800 ( 29,424 ) 175,698

Year ended December 31, 2019

Non-Nelnet Bank

Federally insured loans $ 42,310 — 8,000 ( 13,547 ) — — — 36,763

2 unchanged sentences

$ 60,388 — 39,000 ( 28,010 ) 1,536 — ( 11,000 ) 61,914

(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.

(a) During the years ended December 31, 2021 and 2020, the Company acquired $ 224.1 million (par value) and $ 835.0 million (par value), respectively, of federally insured rehabilitation loans that met the definition of PCD loans when they were purchased by the Company.

Beginning in March 2020, the coronavirus disease 2019 (“COVID-19”) pandemic caused significant disruptions in the U.S.

and world economies.

Apart from the impact of the adoption of Topic 326 effective January 1, 2020, the Company’s allowance for loan losses increased in 2020 primarily as a result of the COVID-19 pandemic and its effects on economic conditions.

During the year ended December 31, 2021, the Company recorded a negative provision for loan losses due to (i) management's estimate of certain continued improved economic conditions as of December 31, 2021 in comparison to management's estimate of economic conditions used to determine the allowance for loan losses as of December 31, 2020;

(ii) an increase in the constant prepayment rate on FFELP consolidation loans;

and (iii) the amortization of the federally insured loan portfolio.

These amounts were partially offset by the establishment of an initial allowance for loans originated and acquired during the period.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Loan Status and Delinquencies

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

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

As of December 31,

2021 2020 2019

Federally insured loans:

Federally insured loans - Non-Nelnet Bank:

Loans in-school/grace/deferment (a) $ 829,624 4.9 % $ 1,036,028 5.4 % $ 1,074,678 5.3 %

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Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 17,744,073 $ 19,777,531 $ 20,957,981

Private education loans:

Private education loans - Non-Nelnet Bank:

Loans in-school/grace/deferment (a) $ 9,661 3.2 % $ 5,049 1.6 % $ 4,493 1.8 %

8 unchanged sentences

Accrued interest receivable 1,960 2,131 1,558

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

Loan discount, net of unamortized premiums ( 1,123 ) 2,691 46

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

1 unchanged sentence

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 284,136 $ 305,882 $ 231,903

Consumer loans:

Loans in deferment $ 829 0.8 % $ — $ —

Consumer loans - Non-Nelnet Bank:

Loans in deferment (a) $ 43 0.1 % $ 829 0.8 % $ —

Loans in repayment status:

12 unchanged sentences

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

As of December 31,

2021 2020 2019

Federally insured loans - Nelnet Bank:

Loans in-school/grace/deferment (a) $ 330 0.4 %

Loans in forbearance (b) 1,057 1.2

Loans in repayment status:

Loans current 85,599 98.8 %

Loans delinquent 31-60 days (c) 816 1.0

Loans delinquent 61-90 days (c) — —

Loans delinquent 91-120 days (c) — —

Loans delinquent 121-270 days (c) 209 0.2

Loans delinquent 271 days or greater (c) — —

Total loans in repayment 86,624 98.4 100.0 %

Total federally insured loans 88,011 100.0 %

Accrued interest receivable 1,216

Loan premium 26

Allowance for loan losses ( 268 )

Total federally insured loans and accrued interest receivable, net of allowance for loan losses $ 88,985

Private education loans - Nelnet Bank:

Loans in-school/grace/deferment (a) $ 150 0.1 % $ — — %

Loans in forbearance (b) 460 0.3 29 0.2

Loans in repayment status:

Loans current 169,157 99.9 % 17,514 100.0 %

Loans delinquent 31-60 days (c) 51 — — —

Loans delinquent 61-90 days (c) — — — —

Loans delinquent 91 days or greater (c) 72 0.1 — —

Total loans in repayment 169,280 99.6 100.0 % 17,514 99.8 100.0 %

Total private education loans 169,890 100.0 % 17,543 100.0 %

Accrued interest receivable 264 26

Deferred origination costs 2,560 266

Allowance for loan losses ( 840 ) ( 323 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 171,874 $ 17,512

(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.

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(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.

However, the Company continued to apply a natural disaster forbearance in 90 day increments to any private education and federally insured loan upon request through July 31, 2021 and September 30, 2021, respectively.

As a result of the ongoing impacts of the COVID-19 pandemic, the Company continues 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, 2021 have been delays in payment that the Company considers to be insignificant and have not been accounted for as troubled debt restructuring.

AND SUBSIDIARIES

1 unchanged sentence

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

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, 2021, 2020, and 2019 was not material.

Amortized Cost Basis by Origination Year

3 unchanged sentences

2021 2020 2019 2018 2017 Prior years Total

Private education loans:

Private education loans - Non-Nelnet Bank:

Loans in school/grace/deferment $ 2,266 1,981 3,557 — — 1,857 9,661

8 unchanged sentences

Accrued interest receivable 1,960

Loan premium, net of unaccreted discount 2,957

Loan discount, net of unamortized premiums ( 1,123 )

Allowance for loan losses ( 16,143 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 284,136

Consumer loans:

Consumer loans - Non-Nelnet Bank:

Loans in deferment $ 25 — — 18 — — 43

9 unchanged sentences

Allowance for loan losses ( 6,481 )

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

Total consumer loans and accrued interest

receivable, net of allowance for loan losses $ 46,129

Private education loans - Nelnet Bank:

Loans in school/grace/deferment $ 150 — — — — — 150

Loans in forbearance 445 15 — — — — 460

Loans in repayment status:

Loans current 158,486 10,671 — — — — 169,157

Loans delinquent 31-60 days 51 — — — — — 51

Loans delinquent 61-90 days — — — — — — —

Loans delinquent 91 days or greater 72 — — — — — 72

Total loans in repayment 158,609 10,671 — — — — 169,280

Total private education loans $ 159,204 10,686 — — — — 169,890

Accrued interest receivable 264

Deferred origination costs 2,560

Allowance for loan losses ( 840 )

Total private education loans and accrued interest receivable, net of allowance for loan losses $ 171,874

AND SUBSIDIARIES

15 unchanged sentences

10/25/67 - 8/27/68

FFELP warehouse facilities 252,165 0.27 % / 0.31 %

5/20/22 / 2/26/23

FFELP loan warehouse facility 5,048 0.21 %

Private education loan warehouse facility 107,011 0.24 % 2/13/23

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

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

5 unchanged sentences

Unsecured line of credit — — 9/22/26

Other borrowings 123,558 0.84 % / 1.90 %

Participation agreement 253,969 0.78 % 5/4/22

Repurchase agreements 483,848 0.66 % - 1.46 %

5/27/22 - 12/20/23

Secured line of credit 5,000 1.91 % 5/30/22

Discount on bonds and notes payable and debt issuance costs ( 192,998 )

11 unchanged sentences

10/25/67 - 8/27/68

FFELP warehouse facilities 778,094 1.98 % / 2.07 %

FFELP loan 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

3 unchanged sentences

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 5,000 3.44 % 5/30/22

Participation agreement 118,558 0.84 % 5/4/21

Secured line of credit 5,000 1.90 % 5/30/22

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

3 unchanged sentences

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

Secured Financing Transactions

The Company has historically relied upon secured financing vehicles as its most significant source of funding for loans.

Warehouse Facilities

The Company funds a portion of its loan acquisitions using warehouse facilities.

Loan warehousing allows the Company to buy and manage loans prior to transferring them into more permanent financing arrangements.

FFELP loan warehouse facility

As of December 31, 2021, the Company’s FFELP warehouse facility had an aggregate maximum financing amount available of $ 60.0 million, liquidity provisions through May 23, 2022, and a final maturity of May 22, 2023.

As of December 31, 2021, $ 5.0 million was outstanding under this facility, $ 55.0 million was available for future funding, and the Company had $ 0.3 million advanced as equity support.

In the event the Company is unable to renew the liquidity provisions by May 23, 2022, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date.

Private Education loan warehouse facility

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

As of December 31, 2021, the facility has an aggregate maximum financing amount available of $ 175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13, 2022, and a final maturity date of February 13, 2023.

As of December 31, 2021, $ 107.0 million was outstanding under this warehouse facility, $ 68.0 million was available for future funding, and the Company had $ 11.8 million advanced as equity support.

Consumer loan warehouse facility

The Company had a $ 100.0 million consumer loan warehouse facility.

On March 31, 2021, the Company terminated this facility.

Asset-backed securitizations

The Company has historically relied upon asset-backed securitizations as its most significant source of funding for loans.

The net cash flow the Company receives from the securitized loans generally represents the excess amounts, if any, generated by the underlying loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations.

The Company’s rights to cash flow from securitized loans are subordinate to bondholder interests, and the securitized loans may fail to generate any cash flow beyond what is due to bondholders.

The Company’s secured financing vehicles during the periods presented include loan warehouse facilities and asset-backed securitizations.

The majority of the bonds and notes payable are primarily secured by the loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective bond resolutions or financing agreements.

FFELP warehouse facilities

The Company funds the majority of its FFELP loan acquisitions using its FFELP warehouse facilities.

Student loan warehousing allows the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements.

As of December 31, 2020, the Company had two FFELP warehouse facilities as summarized below.

NFSLW-I NHELP-II Total

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

Amount outstanding 252,165 — 252,165

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

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

The FFELP warehouse facilities are supported by liquidity provisions, which are subject to the respective expiration date shown in the above table.

In the event the Company is unable to renew the liquidity provisions by such date, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by the facility's final maturity date.

The NFSLW-I warehouse facility has a static advance rate until the expiration date of the liquidity provisions.

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

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

The NHELP-II warehouse facility has a static advance rate that requires initial equity for loan funding and does not require increased equity based on market movements.

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

Any noncompliance with these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facilities.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Asset-backed securitizations

The bonds and notes payable are primarily secured by the loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective financing agreements.

The following tables summarize the asset-backed securitization transactions completed in 2021 and 2020.

Securitizations completed during the year ended December 31, 2021

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

2021-1 2021-2 Total

Date securities issued 6/30/21 8/31/21

2 unchanged sentences

Total principal amount $ 781,000 520,600 1,301,600

Bond discount — ( 44 ) ( 1,503 ) ( 19 ) — ( 1,566 )

Issue price $ 424,600 264,256 342,097 191,281 295,000 1,517,234

Cost of funds 1-month LIBOR plus 0.50 %

1-month LIBOR plus 0.50 %

1.42 % 1-month LIBOR plus 0.88 %

Final maturity date 7/25/69 9/25/69

1 unchanged sentence

Total principal amount $ 16,000 10,700 26,700

Bond discount — ( 574 ) ( 284 ) ( 858 )

Issue price $ 11,000 7,226 8,716 26,942

Cost of funds 1-month LIBOR plus 1.25 %

1 unchanged sentence

Final maturity date 7/25/69 9/25/69

(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, 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.

Auction Rate Securities

The interest rates on certain of the Company's FFELP asset-backed securities were set and provide for interest rates to be periodically reset via a "dutch auction" ("Auction Rate Securities").

As of December 31, 2020, the Company is currently the sponsor on $ 749.9 million of Auction Rate Securities.

Since the auction feature has essentially been inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum rate as defined by the indenture.

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

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

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.

As of December 31, 2021, the Company had a total of $ 381.2 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.

Unsecured Line of Credit

The Company has a $ 455.0 million unsecured line of credit that has a maturity date of December 16, 2024.

The Company has a $ 495.0 million unsecured line of credit that has a maturity date of September 22, 2026.

The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $ 737.5 million, subject to certain conditions.

As of December 31, 2020, $ 120.0 million was outstanding on the line of credit and $ 335.0 million was available for future use.

As of December 31, 2021, no amount was outstanding on the line of credit and $ 495.0 million was available for future use.

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.

11 unchanged sentences

A default on the Company's other debt facilities would result in an event of default on the Company's unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.

Junior Subordinated Hybrid Securities

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

Other Borrowings

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.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Participation Agreement

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

As of December 31, 2021, $ 254.0 million of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

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

The Company can participate 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 can participate FFELP loan asset-backed securities to Union Bank to the extent of availability under the grantor trusts, up to $ 400.0 million or an amount in excess of $ 400.0 million if mutually agreed to by both parties.

The Company maintains legal ownership of the FFELP loan asset-backed securities and, in its discretion, approves and accomplishes any sale, assignment, transfer, encumbrance, or other disposition of the securities.

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

See note 7 for additional information about the FFELP loan asset-backed securities investments serving as collateral under this participation agreement.

Repurchase Agreements

On May 3, 2021 and June 23, 2021, the Company entered into repurchase agreements with non-affiliated third parties, the proceeds of which are collateralized by certain private education and FFELP loan asset-backed securities.

The first agreement has maturity dates of November 20, 2023 and December 20, 2023, or earlier if either party provides 180 days’ prior written notice, and the second agreement has a maturity date of May 27, 2022.

The Company incurs interest on amounts outstanding under these agreements based on three-month LIBOR plus an applicable spread.

Under the first agreement, the Company is subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities on any scheduled reset date, and under the second agreement, the Company could be subject to margin deficit payment requirements if the fair value of the securities subject to the agreement is less than the original purchase price of such securities and the counter-party provides notice requiring such payment.

Included in “bonds and notes payable” as of December 31, 2021 was $ 208.1 million subject to the first agreement and $ 275.8 million subject to the second agreement.

See note 7 for additional information about the private education loan asset-backed securities investments serving as collateral for these repurchase agreements.

Debt Covenants

1 unchanged sentence

Management believes the Company is in compliance with all covenants of the bond indentures and related credit agreements as of December 31, 2021.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Maturity Schedule

4 unchanged sentences

Subject to certain provisions, all bonds and notes are subject to redemption prior to maturity at the option of certain lending subsidiaries.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Accrued Interest Liability

During the first quarter of 2021, the Company reversed a historical accrued interest liability of $ 23.8 million on certain bonds, which liability the Company determined was no longer probable of being required to be paid.

The liability was initially recorded when certain asset-backed securitizations were acquired in 2011 and 2013.

The reduction of this liability is reflected in (a reduction of) "interest on bonds and notes payable and bank deposits" in the consolidated statements of income.

Debt Repurchases

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.

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

Year ended December 31,

2021 2020 2019

Par value $ 27,445 — 12,905

Purchase price $ ( 407,487 ) ( 25,643 ) ( 39,864 )

Gain $ 1,924 — 359

Par value 406,875 27,605 40,000

Remaining debt discount and unamortized cost of issuance ( 6,163 ) ( 38 ) —

(Loss) gain $ ( 6,775 ) 1,924 136

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.

Derivative Financial Instruments

8 unchanged sentences

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

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.

As of December 31, 2021, the Company’s AGM operating segment had $ 15.9 billion, $ 0.6 billion, and $ 0.5 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 $ 5.4 billion of debt indexed to three-month LIBOR, the indices for which reset quarterly, and $ 10.5 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.

13 unchanged sentences

$ 5,900,000 6,150,000

$ 6,150,000 7,150,000

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.

The weighted average rate paid by the Company on the 1:3 Basis Swaps as of December 31, 2021 and 2020, was one-month LIBOR plus 9.1 basis points.

Interest rate swaps – floor income hedges

9 unchanged sentences

In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.

As of December 31, 2020 and 2019, the Company had $ 8.4 billion and $ 3.3 billion, respectively, of FFELP student loan assets that were earning fixed rate floor income, of which the weighted average estimated variable conversion rate for these loans, which is the estimated short-term interest rate at which loans would convert to a variable rate, was 1.94 % and 3.72 %, respectively.

As of December 31, 2021 and 2020, the Company had $ 7.2 billion and $ 8.4 billion, respectively, of FFELP student loan assets that were earning fixed rate floor income.

AND SUBSIDIARIES

6 unchanged sentences

2022 500,000 0.94 500,000 0.94

2022 (b) 500,000 0.94 250,000 1.65

2023 900,000 0.62 900,000 0.62

2024 (c) 2,000,000 0.32 — —

2024 2,500,000 0.35 2,000,000 0.32

2025 500,000 0.35 500,000 0.35

2026 500,000 1.02 — —

2031 100,000 1.53 — —

$ 5,000,000 0.55 % $ 4,500,000 0.70 %

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

(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

4 unchanged sentences

Interest rate swaps - floor income hedges ( 19,729 ) ( 6,699 ) 40,192

Other — — ( 407 )

Total settlements - income 3,679 45,406 70,071

Total settlements - (expense) income ( 21,367 ) 3,679 45,406

Change in fair value:

2 unchanged sentences

Other — — ( 683 )

Total change in fair value - (expense) income ( 28,144 ) ( 76,195 ) 1,014

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

Total change in fair value - income (expense) 92,813 ( 28,144 ) ( 76,195 )

Derivative market value adjustments and derivative settlements, net - income (expense)

$ 71,446 ( 24,465 ) ( 30,789 )

Derivative Instruments - Credit and Market Risk

8 unchanged sentences

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

Private Education Loan Investment

In December 2020, Wells Fargo announced the sale of its approximately $ 10.0 billion portfolio of private education loans representing approximately 445,000 borrowers.

The Company entered into a joint venture with other investors to acquire the loans.

The joint venture established a limited partnership that purchased the private education loans and funded such loans with a temporary warehouse facility.

The Company’s initial contribution to the limited partnership was $ 71.1 million.

In conjunction with the establishment of the limited partnership, the parties provided additional funding commitments to the partnership, in the event additional funding became necessary after the initial purchase of loans.

In accordance with GAAP, the Company’s carrying value of its investment in the limited partnership is accounted for under the equity method of accounting, is reduced by cash distributions and the fair value of its portion of loans transferred into securitizations, and can be less than zero or negative because of the potential future contributions pursuant to the funding commitment.

The carrying value of the investment in the limited partnership is also impacted by the amount of the Company’s proportionate share of the net earnings or losses of the partnership.

During 2021, the joint venture completed asset-backed securitization transactions to permanently finance a total of $ 8.7 billion of the private education loans purchased by the joint venture.

Cash distributions, the fair value of the Company’s portion of loans securitized as a result of these securitizations, and the Company’s proportionate share of losses of this partnership were $ 52.1 million, $ 51.9 million, and $ 5.0 million, respectively, and reduced the Company’s carrying value of its limited partnership investment to a credit (negative) balance of $ 37.9 million.

During the fourth quarter of 2021, the Company’s financial commitment to the limited partnership was terminated by the partners of the joint venture, and the Company recognized income of $ 37.9 million (pre-tax) associated with the termination, which is included in “other” in “other income/expense” on the consolidated statements of income.

The Company’s ownership in the residual interest of securitization transactions used to permanently finance the loans are reflected in the table below as “beneficial interest in private education loan securitizations.”

As sponsor of the loan securitizations, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such securitizations to satisfy this requirement.

The bonds purchased to satisfy the risk retention requirement are included in “private education loan asset-backed securities – available for sale” in the table below and as of December 31, 2021, the fair value of these bonds was $ 412.6 million.

The Company must retain these investment securities until the latest of (i) two years from the closing date of the securitization, (ii) the date the aggregate outstanding principal balance of the loans in the securitization is 33 % or less of the initial loan balance, and (iii) the date the aggregate outstanding principal balance of the bonds is 33 % or less of the aggregate initial outstanding principal balance of the bonds, at which time the Company can sell its investment securities (bonds) to a third party.

The Company entered into repurchase agreements with third-parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

A summary of the Company's investments follows:

2 unchanged sentences

Investments (at fair value):

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

FFELP loan asset-backed securities- available-for-sale (a) $ 480,691 14,710 ( 719 ) 494,682 338,475 8,040 ( 13 ) 346,502

Private education loan asset-backed securities - available-for-sale (b) 414,286 507 ( 2,241 ) 412,552 — — — —

Other debt securities - available-for-sale 22,435 — — 22,435 2,103 2 — 2,105

Equity securities 60,153 13,930 ( 2,097 ) 71,986 36,227 8,768 ( 2,954 ) 42,041

1 unchanged sentence

Other Investments (not measured at fair value):

Other debt securities - held-to-maturity (c) 8,200 —

Venture capital and funds:

Measurement alternative (b) 144,795 72,760

Measurement alternative (d)(e) 157,609 144,795

Equity method 67,840 14,912

Other 894 1,301

Total venture capital and funds 225,449 159,707

Equity method 47,226 50,291

Other 847 867

Notes receivable — 847

Total real estate 47,226 51,138

Investment in ALLO:

Voting interest/equity method 129,396 —

Preferred membership interest 228,916 —

Voting interest/equity method (f) 87,247 129,396

Preferred membership interest and accrued and unpaid preferred return (g) 137,342 228,916

Total investment in ALLO 224,589 358,312

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)

Solar (h) ( 42,457 ) ( 30,373 )

Beneficial interest in private education loan securitizations (i)

Beneficial interest in consumer loan securitizations, net of allowance for credit losses of $ 4,449 as of December 31, 2020 (i)

28,366 27,954

Tax liens and affordable housing 5,177 6,283

Beneficial interest in federally insured student loan securitizations (i) 25,768 30,377

Tax liens, affordable housing, and other 4,115 5,177

Total investments (not measured at fair value) 587,264 602,292

Total investments $ 1,588,919 $ 992,940

(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.

(a) As of December 31, 2021, $ 254.0 million (par value) of FFELP loan asset-backed securities were subject to participation interests held by Union Bank, as discussed in note 5 under "Participation Agreement."

As of December 31, 2021, the stated maturities of a majority of the Company’s FFELP student loan asset-backed securities classified as available-for-sale were greater than 10 years;

however, such securities with a fair value of $ 77.9 million as of December 31, 2021 are scheduled to mature within the next 10 years, including $ 25.2 million, $ 32.1 million, and $ 20.6 million due within the next one year, 1-5 years, and 6-10 years, respectively.

(b) As of December 31, 2021, a total of $ 400.0 million (par value) of private education loan asset-backed securities were subject to repurchase agreements with third-parties, as discussed in note 5 under “Repurchase Agreements.”

As of December 31, 2021, the stated maturities for all the Company’s private education loan asset-backed securities classified as available for sale were greater than 10 years.

(c) As of December 31, 2021, securities classified as held-to-maturity of $ 3.5 million and $ 4.7 million were scheduled to mature within one year and 1-5 years, respectively.

As of December 31, 2021, the fair value of these securities approximated their carrying value.

AND SUBSIDIARIES

1 unchanged sentence

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

(b) The Company has an investment in Agile Sports Technologies, Inc.

(d) 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.

In May 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.

1 unchanged sentence

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 2020 transaction value.

This gain is included in "other income" on the consolidated statements of income.

This gain is included in “other” in “other income/expense” on the consolidated statements of income.

In May 2021, the Company made an additional $ 5 million investment in Hudl.

For accounting purposes, the May 2021 equity raise transaction was not considered an observable market transaction (not orderly) because it was not subject to customary marketing activities and the price was contractually agreed to during Hudl's prior May 2020 equity raise.

Accordingly, the Company did not adjust its carrying value of its Hudl investment to the May 2021 transaction value.

As of December 31, 2021, the carrying amount of the Company's investment in Hudl is $ 133.9 million.

Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director of Hudl.

(e) In October 2021, CompanyCam Inc., an entity in which the Company has an equity investment, completed an additional equity raise.

The Company accounts for its investment in this entity using the measurement alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable market transactions.

As a result of this entity’s equity raise, the Company recognized a $ 10.3 million (pre-tax) gain during the fourth quarter of 2021 to adjust its carrying value to reflect the October 2021 transaction value.

As of December 31, 2021, the carrying amount of this investment is $ 11.5 million.

(f) The Company accounts for its voting membership interests in ALLO Holdings LLC, a holding company for ALLO Communications LLC (collectively referred to as "ALLO") under the HLBV method of accounting.

During the years ended December 31, 2021 and 2020 , the Company recognized pre-tax losses of $ 42.1 million and $ 3.6 million, respectively, under the HLBV method of accounting on its ALLO voting membership interests investment.

Assuming ALLO continues its planned growth in existing and new communities, it will continue to invest substantial amounts in property and equipment to build the network and connect customers.

The resulting recognition of depreciation and development costs could result in continuing net operating losses by ALLO under GAAP.

Applying the HLBV method of accounting, the Company will continue to recognize a significant portion of ALLO’s anticipated losses over the next several years.

Income and losses from the Company's investment in ALLO are included in "other" in "other income/expense" on the consolidated statements of income.

(g) On January 19, 2021, ALLO obtained certain private debt financing facilities from unrelated third-party lenders.

With proceeds from this transaction, ALLO redeemed a portion of its non-voting preferred membership interests held by the Company in exchange for an aggregate redemption price payment to the Company of $ 100.0 million.

Under October 2020 recapitalization agreements for ALLO, the parties have agreed to use commercially reasonable efforts (which expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause ALLO to redeem, on or before April 2024, the remaining preferred membership interests of ALLO held by the Company, plus the amount of accrued and unpaid preferred return on such interests.

As of December 31, 2021, the outstanding preferred membership interests of ALLO held by the Company was $ 137.3 million, which includes accrued and unpaid preferred return of $ 7.7 million that was capitalized at December 31, 2021.

The preferred membership interests of ALLO held by the Company earn a preferred annual return of 6.25 percent.

During the years ended December 31, 2021 and 2020 , the Company recognized pre-tax income on its ALLO preferred membership interests of $ 8.4 million and $ 0.4 million, respectively, that is included in "other" in "other income/expense" on the consolidated statements of income.

(h) The Company makes investments in entities that promote renewable energy sources (solar).

The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods which range from 5 to 6 years.

As of December 31, 2020, the Company has funded $ 148.6 million in solar investments.

As of December 31, 2021, the Company has funded a total of $ 227.9 million in solar investments, which includes $ 59.2 million funded by syndication partners.

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

The solar investment balance at 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.

The solar investment balance at December 31, 2021 represents the sum of total tax credits earned on solar projects placed in service through December 31, 2021 and the calculated HLBV net losses being larger than total payments made by the Company on such projects.

The Company is committed to fund an additional $ 22.3 million on these projects, of which $ 17.9 million will be provided by syndication partners.

The Company accounts for its solar investments using the HLBV method of accounting.

For the majority of the Company’s solar investments, the HLBV method of accounting results in accelerated losses in the initial years of investment.

During the 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.

During the years ended December 31, 2021 and 2020, the Company recognized pre-tax losses of $ 10.1

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

million and $ 37.4 million, respectively, on its solar investments.

These losses are included in “other” in "other income/expense" on the consolidated statements of income.

Losses from solar investments in 2021 and 2020 include losses of $ 7.1 million and $ 3.8 million, respectively, attributable to third-party minority interest investors that are included in “net loss attributable to noncontrolling interests” in the consolidated statements of income.

(i) The Company has partial ownership in certain private education, consumer, and federally insured student loan securitizations.

As of the latest remittance reports filed by the various trusts prior to or as of December 31, 2021, the Company's ownership correlates to approximately $ 688 million, $ 195 million, and $ 445 million of private education, consumer, and federally insured student loans, respectively, included in these securitizations.

Impairment Expense and Provision for Beneficial Interests

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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

Great Lakes Educational Loan Services, Inc.

("Great Lakes")

On February 7, 2018, the Company acquired 100 percent of the outstanding stock of Great Lakes for total cash consideration of $ 150.0 million.

Great Lakes provides servicing for federally-owned student loans for the Department of Education, FFELP loans, and private education loans.

The acquisition of Great Lakes has expanded the Company's portfolio of loans it services.

The operating results of Great Lakes are included in the Loan Servicing and Systems operating segment.

As part of the acquisition, the Company acquired the remaining 50 percent ownership in GreatNet Solutions, LLC ("GreatNet"), a joint venture formed prior to the acquisition between Nelnet Servicing, a subsidiary of the Company, and Great Lakes.

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

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.

This transaction resulted in a $ 5.7 million decrease in noncontrolling interests and a $ 13.4 million decrease in retained earnings.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

The fair value assigned to the acquisition of the noncontrolling interest in GreatNet reduced the total consideration allocated to the assets acquired and liabilities assumed of Great Lakes from $ 150.0 million to $ 136.6 million.

Cash and cash equivalents $ 27,399

Accounts receivable 23,708

Property and equipment 35,919

Other assets 14,018

Intangible assets 75,329

Excess cost over fair value of net assets acquired (goodwill) 15,043

Other liabilities ( 54,865 )

Net assets acquired $ 136,551

The $ 75.3 million of acquired intangible assets on the date of acquisition had a weighted-average useful life of approximately 4 years.

The intangible assets that made up this amount include customer relationships of $ 70.2 million ( 4 -year average useful life) and a trade name of $ 5.1 million ( 7 -year useful life).

The $ 15.0 million of goodwill was assigned to the Loan Servicing and Systems 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 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 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")

On November 20, 2018, the Company acquired 100 percent of the membership interests of TMS for total cash consideration of $ 27.0 million.

TMS provides tuition payment plans, billing services, payment technology solutions, and refund management to educational institutions.

The TMS acquisition added both K-12 and higher education schools to the Company's existing customer base, further enhancing the Company's market share leading position with private faith based K-12 schools and advancing to a market leading position in higher education.

The operating results of TMS 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 $ 438

Restricted cash - due to customers 123,169

Accounts receivable 1,019

Other assets 381

Intangible assets 26,390

Excess cost over fair value of net assets acquired (goodwill) 3,110

Other liabilities ( 4,321 )

Due to customers ( 123,169 )

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.

The intangible assets that made up this amount include customer relationships of $ 25.4 million ( 10 -year useful life) and computer software of $ 1.0 million ( 2 -year useful life).

The $ 3.1 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment and is expected to be deductible for tax purposes.

The amount allocated to goodwill was primarily attributed to the synergies and economies of scale expected from combining the operations of the Company and TMS.

The pro forma impacts of the TMS acquisition on the Company's historical results prior to the acquisition were not material.

During the fourth quarter of 2020 and first quarter of 2021, due to improved economic conditions, the Company reduced the allowance for credit losses related to the consumer loan beneficial interests by $ 9.7 million and $ 2.4 million, respectively.

During 2021, the Company recorded a total impairment charge of $ 4.6 million related to several of its venture capital investments accounted for under the measurement alternative method.

The impairment expense and recovery activity described above is included in “impairment expense and provision for beneficial interests, net” on the consolidated statements of income.

Business Combination

HigherSchool Publishing Company ("HigherSchool")

14 unchanged sentences

The pro forma impacts of the HigherSchool 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)

Intangible Assets

8 unchanged sentences

24 4,135 6,430

Trade names (net of accumulated amortization of $ 3,455 and $ 2,792 , respectively)

6 1,666 7,478

Trade names (net of accumulated amortization of $ 3,455 )

Total - amortizable intangible assets, net 96 $ 52,029 75,070

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 $ 23.0 million, $ 30.8 million, and $ 32.8 million during the years ended December 31, 2021, 2020, and 2019, respectively.

1 unchanged sentence

As of December 31, 2021, the Company estimates it will record amortization expense as follows:

2021 $ 23,042

2027 and thereafter 15,642

The change in the carrying amount of goodwill by reportable operating segment was as follows:

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, 2018 and 2019 $ 23,639 70,278 21,112 41,883 — 156,912

Loan Servicing and Systems Education Technology, Services, and Payment Processing Communications Asset Generation and Management (a) Nelnet Bank Corporate and Other Activities Total

Balance as of December 31, 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

Balance as of December 31, 2020 and 2021 $ 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.

8 unchanged sentences

Useful life 2021 2020

Non-communications:

Computer equipment and software 1 - 5 years

9 unchanged sentences

326,519 283,152

Accumulated depreciation - non-communications ( 159,625 ) ( 142,270 )

Non-communications, net property and equipment 123,527 106,902

Communications:

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

Accumulated depreciation - communications — ( 73,897 )

Communications, net property and equipment — 241,357

Accumulated depreciation ( 207,106 ) ( 159,625 )

Total property and equipment, net $ 119,413 123,527

The Company recorded depreciation expense on its property and equipment of $ 50.7 million, $ 87.9 million, and $ 72.3 million during the years ended December 31, 2021, 2020, and 2019, 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

As part of integrating technology and becoming more efficient and effective in meeting borrower needs, the Company continues to evaluate the best use of its servicing systems on a post-Great Lakes acquisition basis.

As a result of this evaluation, in 2018, the Company recorded an impairment charge of $ 3.9 million (pre-tax) within its Loan Servicing and Systems operating segment related to certain external software development costs that were previously capitalized.

On October 16, 2018, the Company terminated its investment in a proprietary payment processing platform.

This decision was made as a result of decreases in price and advancements of technology by established processors in the industry.

As a result of this decision, in 2018, the Company recorded an impairment charge of $ 7.8 million (pre-tax) within its Education Technology, Services, and Payment Processing operating segment.

The charge primarily represents computer equipment and external software development costs related to the payment processing platform.

The above impairment charges are included in "impairment expense, net of recoveries" in the consolidated statements of income.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to work from home due to COVID-19.

As a result of this evaluation, the Company recorded a non-cash impairment charge of $ 14.2 million during the three months ended September 30, 2021.

The impairment charge of $ 13.2 million within its Loan Servicing and Systems operating segment related primarily to building and building improvements.

The impairment charge of $ 1.0 million within its Corporate and Other Activities operating segment related to operating lease assets associated with leased office space which the Company had fully ceased to use prior to the lease term end date.

These impairment charges are included in "impairment expense and provision for beneficial interest, net" in the consolidated statements of income.

Shareholders’ Equity

14 unchanged sentences

Year ended December 31, 2019 726,273 40,411 55.64

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Earnings per Common Share

12 unchanged sentences

These shares are included in the Company's weighted average shares outstanding calculation.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company is subject to income taxes in the United States, Canada, and Australia.

13 unchanged sentences

Additions based on tax positions related to the current year 2,388 2,523

Settlements with taxing authorities — ( 1,810 )

Reductions for tax positions of prior years ( 1,002 ) ( 69 )

1 unchanged sentence

Gross balance - end of year $ 19,678 20,318

All the reductions shown in the table above that are due to prior year tax positions, settlements, and the lapse of statutes of limitations impacted the effective tax rate.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

All the reductions shown in the table above that are due to prior year tax positions and the lapse of statutes of limitations impacted the effective tax rate.

The Company's policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense and other expense, respectively.

As of December 31, 2021 and 2020, $ 5.1 million and $ 5.4 million in accrued interest and penalties, respectively, were included in “other liabilities” on the consolidated balance sheets.

The Company recognized interest expense of $ 0.4 million, $ 0.1 million, and $ 0.4 million related to uncertain tax positions for the years ended December 31, 2020, 2019, and 2018, respectively.

The impact to the consolidated statements of income related to penalties for uncertain tax positions was not significant for the years 2020, 2019, and 2018.

The impact to the consolidated statements of income related to interest expense and penalties for uncertain tax positions was not significant for the years 2021, 2020, and 2019.

The impact of timing differences and tax attributes are considered when calculating interest and penalty accruals associated with the unrecognized tax benefits.

6 unchanged sentences

As of December 31, 2021, the Company has tax uncertainties that remain unsettled in the jurisdiction of California (2010 through 2017).

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The provision for income taxes consists of the following components:

26 unchanged sentences

Deferred tax assets:

Student loans $ 26,894 15,479

Deferred revenue $ 21,593 18,081

Student loans 19,776 26,894

Accrued expenses 10,712 10,661

Tax credit carryforwards 5,987 9,394

Basis in certain derivative contracts 5,061 —

Lease liability 4,123 5,891

State tax credit carryforwards 8,546 5,987

Stock compensation 4,027 2,546

Securitizations 694 1,261

Lease liability 3,685 4,123

Net operating losses 2,410 647

Basis in certain derivative contracts — 5,061

Securitizations — 694

Total gross deferred tax assets 70,749 74,694

Less valuation allowance ( 569 ) ( 548 )

Less state tax valuation allowance ( 2,084 ) ( 569 )

Net deferred tax assets 68,665 74,125

1 unchanged sentence

Partnership basis 100,428 64,023

Debt and equity investments 20,538 3,775

Basis in certain derivative contracts 15,927 —

Depreciation 15,264 14,092

Intangible assets 7,703 5,399

Debt and equity investments 12,859 20,538

Loan origination services 4,930 5,040

Intangible assets 4,772 7,703

Lease right of use asset 3,317 4,037

Basis in certain derivative contracts — 2,730

Securitization 128 —

Other 1,665 661

8 unchanged sentences

As of December 31, 2021 and 2020, the Company had a current income tax receivable of $ 8.1 million and $ 21.5 million, respectively, that is included in "other assets" on the consolidated balance sheets.

Net deferred tax assets of $ 27.3 million and net deferred tax liabilities of $ 117.9 million are included in “other assets” and “other liabilities,” respectively, on the consolidated balance sheets.

AND SUBSIDIARIES

19 unchanged sentences

Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management.

Income taxes are allocated based on 24 % 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, except for Nelnet Bank, which reflects Nelnet Bank’s actual tax expense/benefit as allocated and reflected in its Call Report filed with the Federal Deposit Insurance Corporation.

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.

2 unchanged sentences

Corporate and Other Activities includes the following items:

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

• The majority of the Company’s investment activities, including investments accounted for under the equity method.

See note 7 for the amounts of investments in equity method investees.

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

2 unchanged sentences

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

Certain shared service costs incurred to support Nelnet Bank will not be allocated to Nelnet Bank until the end of the Bank’s de novo period (November 2023).

Segment Results

10 unchanged sentences

Net interest income (expense) 43 1,075 — 333,983 6,214 6,286 — 347,602

Less provision for loan losses — — — 63,029 330 — — 63,360

Less (negative provision) provision for loan losses — — — ( 13,220 ) 794 — — ( 12,426 )

Net interest income after provision for loan losses 43 1,075 — 347,203 5,420 6,286 — 360,028

7 unchanged sentences

Gain from deconsolidation of ALLO — — — — — — — —

Impairment expense and provision for beneficial interests — — — ( 16,607 ) — ( 8,116 ) — ( 24,723 )

Impairment expense and provision for beneficial interests, net ( 13,243 ) — — 2,436 — ( 5,553 ) — ( 16,360 )

Derivative settlements, net — — — ( 21,367 ) — — — ( 21,367 )

14 unchanged sentences

Net income (loss) 47,458 55,262 — 321,948 ( 617 ) ( 37,766 ) — 386,283

Net loss (income) attributable to noncontrolling interests — — — — — 2,817 — 2,817

Net loss attributable to noncontrolling interests — — — — — 7,003 — 7,003

Net income (loss) attributable to Nelnet, Inc.

2 unchanged sentences

(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.

See note 2, “ALLO Recapitalization,” for a description of the transaction and a summary of the deconsolidation impact.

Accordingly, there are no operating results for the (former) Communications operating segment in 2021.

AND SUBSIDIARIES

2 unchanged sentences

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 Nelnet Bank Corporate and Other Activities Eliminations Total

Management Nelnet Bank (b) Corporate and Other Activities Eliminations Total

Total interest income $ 436 3,036 2 611,474 414 5,775 ( 1,480 ) 619,656

1 unchanged sentence

Net interest income (expense) 315 2,982 2 283,317 373 2,597 — 289,585

Less provision for loan losses — — — 39,000 — — — 39,000

Less (negative provision) provision for loan losses — — — 63,029 330 — — 63,360

Net interest income after provision for loan losses 315 2,982 2 220,288 43 2,597 — 226,225

7 unchanged sentences

Gain from deconsolidation of ALLO — — — — — 258,588 — 258,588

Impairment expense and provision for beneficial interests — — — — — — — —

Impairment expense and provision for beneficial interests, net — — — ( 16,607 ) — ( 8,116 ) — ( 24,723 )

Derivative settlements, net — — — 3,679 — — — 3,679

14 unchanged sentences

Net income (loss) 40,565 50,312 ( 25,223 ) 123,654 ( 60 ) 160,379 — 349,626

Net loss (income) attributable to noncontrolling interests — — — — — 509 — 509

Net loss attributable to noncontrolling interests — — — — — 2,817 — 2,817

Net income (loss) attributable to Nelnet, Inc.

1 unchanged sentence

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, “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.

(b) Nelnet Bank launched operations on November 2, 2020.

Accordingly, the operating results for the Nelnet Bank operating segment in the table above are for the period from November 2, 2020 through December 31, 2020.

AND SUBSIDIARIES

4 unchanged sentences

Generation and

Management Nelnet Bank Corporate and Other Activities Eliminations Total

Management Nelnet Bank (a) Corporate and Other Activities Eliminations Total

Total interest income $ 2,031 9,244 3 931,963 — 9,232 ( 3,796 ) 948,677

1 unchanged sentence

Net interest income (expense) 1,916 9,198 3 238,588 — ( 355 ) — 249,350

Less provision for loan losses — — — 23,000 — — — 23,000

Less (negative provision) provision for loan losses — — — 39,000 — — — 39,000

Net interest income after provision for loan losses 1,916 9,198 3 199,588 — ( 355 ) — 210,350

7 unchanged sentences

Gain from deconsolidation of ALLO — — — — — — — —

Impairment expense and provision for beneficial interests ( 3,906 ) ( 7,815 ) — — — — — ( 11,721 )

Impairment expense and provision for beneficial interests, net — — — — — — — —

Derivative settlements, net — — — 45,406 — — — 45,406

14 unchanged sentences

Net income (loss) 58,807 47,323 ( 23,519 ) 88,004 — ( 29,320 ) — 141,294

Net loss (income) attributable to noncontrolling interests 808 — — — — ( 419 ) — 389

Net loss attributable to noncontrolling interests — — — — — 509 — 509

Net income (loss) attributable to Nelnet, Inc.

1 unchanged sentence

Total assets as of December 31, 2019 $ 290,311 506,382 303,347 22,128,917 — 627,897 ( 147,884 ) 23,708,970

(a) Nelnet Bank launched operations on November 2, 2020.

Accordingly, there are no operating results for the Nelnet Bank operating segment in the year ended December 31, 2019 .

AND SUBSIDIARIES

11 unchanged sentences

• Software services revenue - Software services revenue consideration is determined from individual contracts with customers and includes license and maintenance fees associated with loan software products, generally in a remote hosted environment, and computer and software consulting.

Usage-based revenue from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.

Usage-based revenue, based on each loan or unique borrower, from remote hosted licenses is allocated to the distinct service period, typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.

Revenue from any non-refundable up-front fee is recognized ratably over the contract period, as the fee relates to set-up activities that provide no incremental benefit to the customers.

18 unchanged sentences

Revenue for each performance obligation is allocated to the distinct service period, the academic school term, and recognized ratably over the service period as customers simultaneously receive and consume benefits.

• Payment processing - Payment processing consideration is determined from individual contracts with customers and includes electronic transfer and credit card processing, reporting, virtual terminal solutions, and specialized

AND SUBSIDIARIES

1 unchanged sentence

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

integrations to business software for education and non-education markets.

Volume-based revenue from payment processing is allocated and recognized to the distinct service period, based on when each transaction is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.

4 unchanged sentences

• Education technology and services - Education technology and services consideration is determined from individual contracts with customers and is based on the services selected by the customer.

Services in K-12 private and faith based schools primarily includes (i) assistance with financial needs assessment, (ii) school information system software that automates administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management, and (iii) professional development and educational instruction services.

Services in K-12 private and faith-based markets primarily includes (i) assistance with financial needs assessment, (ii) school information system software that automates administrative processes such as admissions, enrollment, scheduling, cafeteria management, attendance, and grade book management, and (iii) professional development and educational instruction services.

Revenue for these services is recognized for the consideration the Company has a right to invoice, the amount of which corresponds directly with the value provided to the customer based on the performance completed.

38 unchanged sentences

Cost to provide communications services is primarily associated with television programming costs.

The Company has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer.

ALLO has various contracts to obtain television programming from programming vendors whose compensation is typically based on a flat fee per customer.

The cost of the right to exhibit network programming under such arrangements is recorded in the month the programming is available for exhibition.

Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers.

Programming costs are paid each month based on calculations performed by ALLO and are subject to periodic audits performed by the programmers.

Other items in cost to provide communications services include connectivity, franchise, and other regulatory costs directly related to providing internet and telephone services.

The following table provides the components of "other income" on the consolidated statements of income:

The following table provides the components of "other" in “other income/expense” on the consolidated statements of income:

Year ended December 31,

2021 2020 2019

Gain on remeasurement of HUDL investment $ 51,018 — —

Income/gains from investments, net $ 91,593 56,402 8,356

ALLO preferred return 8,427 386 —

Investment advisory services 7,773 10,875 2,941

Management fee revenue 9,421 9,736 7,284

Borrower late fee income 3,444 5,194 12,884

Income/gains from investments, net 2,205 8,356 9,579

Management fee revenue 3,307 9,421 9,736

Loss from ALLO voting membership interest investment ( 42,148 ) ( 3,565 ) —

Loss from solar investments ( 10,132 ) ( 37,423 ) ( 2,220 )

(Loss) gain on debt repurchased ( 6,775 ) 1,924 136

Other 23,192 14,347 16,085

2 unchanged sentences

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.

• 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.

• Management fee revenue - Management fee revenue is earned for providing administrative support and marketing services, which primarily was to Great Lakes' former parent company under a contract that expired in January 2021.

Revenue is allocated to the distinct service period, based on when each transaction is completed.

AND SUBSIDIARIES

10 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

1 unchanged sentence

Recognition of revenue ( 4,844 ) ( 105,801 ) — ( 5,316 ) ( 115,961 )

Deconsolidation of ALLO — — ( 3,925 ) — ( 3,925 )

Business acquisition — 1,419 — — 1,419

Balance as of December 31, 2021 $ 2,416 36,744 — 2,010 41,170

Major Customer

Nelnet Servicing earns loan servicing revenue from a servicing contract with the Department.

Nelnet Servicing and Great Lakes, subsidiaries of the Company, each earn loan servicing revenue from a servicing contract with the Department.

Revenue earned by Nelnet Servicing related to this contract was $ 167.6 million, $ 146.8 million, and $ 158.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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 $ 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.

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

Notes to Consolidated Financial Statements

(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.

Revenue earned by Great Lakes related to this contract was $ 193.2 million, $ 179.9 million, and $ 185.7 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Nelnet Servicing's and Great Lakes' student loan servicing contracts with the Department are scheduled to expire on December 14, 2023.

In 2017, the Department initiated a contract procurement process referred to as the Next Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by the Department.

The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen process, including that any new federal student loan servicing environment is required to provide for the participation of multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance.

The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by the Department.

The following table provides supplemental balance sheet information related to leases:

6 unchanged sentences

$ 15,899 18,733

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The following table provides components of lease expense:

Year ended December 31,

2021 2020 2019

Rental expense, which is included in "other expenses" on the

13 unchanged sentences

Total $ 15,899

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company adopted the new lease standard using the effective date as its date of initial application (January 1, 2019) as noted above, and as required, the following disclosure is provided for periods prior to adoption.

Future minimum lease payments as of December 31, 2018 are shown below:

2024 and thereafter 5,479

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 during 2018.

Defined Contribution Benefit Plan

3 unchanged sentences

The Company made contributions to the plan of $ 11.2 million, $ 11.7 million, and $ 10.8 million during the years ended December 31, 2021, 2020, and 2019, respectively.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Stock Based Compensation Plans

11 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019, the Company recognized compensation expense of $ 10.4 million, $ 7.3 million, and $ 6.4 million, respectively, related to shares issued under the restricted stock plan, which is included in "salaries and benefits" on the consolidated statements of income.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Employee Share Purchase Plan

5 unchanged sentences

Non-employee directors who choose to receive Class A common stock may also elect to defer receipt of the Class A common stock until termination of their service on the board of directors.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

For the years ended December 31, 2021, 2020, and 2019, the Company recognized $ 1.4 million, $ 1.2 million, and $ 1.2 million, respectively, of expense related to this plan, which is included in "other expenses" on the consolidated statements of income.

23 unchanged sentences

Loan Purchases

The Company purchased $ 144.9 million (par value) and $ 67.7 million (par value) of private education loans from Union Bank in 2020 and 2019, respectively.

There were no private education loan purchases in 2018.

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

Notes to Consolidated Financial Statements

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

The Company purchased $ 22.3 million (par value), $ 144.9 million (par value), and $ 67.7 million (par value) of private education loans from Union Bank in 2021, 2020, and 2019, respectively.

In addition, the Company purchased $ 32.6 million (par value) of consumer loans from Union Bank in 2019.

There were no consumer loan purchases in 2021 or 2020.

The net premiums paid by the Company on these loan acquisitions was $ 0.4 million, $ 2.6 million, and $ 1.2 million in 2021, 2020, and 2019, respectively.

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 $ 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.

Union Bank paid $ 0.1 million, $ 2.0 million, and $ 1.8 million in marketing fees to the Company in 2021, 2020, and 2019, respectively, under this agreement.

Loan Servicing

The Company serviced $ 262.6 million, $ 331.3 million, and $ 395.5 million of FFELP and private education loans for Union Bank as of December 31, 2021, 2020, and 2019, respectively.

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.

Servicing and origination fee revenue earned by the Company from servicing loans for Union Bank was $ 0.5 million, $ 0.7 million, and $ 0.6 million in 2021, 2020, and 2019, respectively.

Funding - Participation Agreements

3 unchanged sentences

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

This agreement provides beneficiaries of Union Bank's grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company on a short-term basis.

This agreement provides beneficiaries of Union Bank's grantor trusts with access to investments in interests in student loans,

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

while providing liquidity to the Company on a short-term basis.

The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $ 900 million or an amount in excess of $ 900 million if mutually agreed to by both parties.

1 unchanged sentence

Accordingly, the participation interests sold are not included on the Company's consolidated balance sheets.

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 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.

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

As of December 31, 2021 and 2020, $ 254.0 million and $ 118.6 million, respectively, of FFELP loan asset-backed securities were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.

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

See note 5 for additional information.

Funding - Real Estate

15 unchanged sentences

As of December 31, 2021 and 2020, the Company had $ 380.2 million and $ 285.6 million, respectively, invested in the STFIT or deposited at Union Bank in operating accounts, of which $ 284.8 million and $ 197.6 million as of December 31, 2021 and 2020, respectively, represented cash collected for customers.

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.

Interest income earned by the Company on the amounts invested in the STFIT and in cash operating accounts in 2021, 2020, and 2019, was $ 0.2 million, $ 0.5 million, and $ 1.6 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, 2021, 2020, and 2019, the Company has received fees of $ 3.5 million, $ 1.3 million, and $ 3.7 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.

During 2021 and 2020, certain call center services were provided by the Company to Union Bank for College Savings Plan clients.

For services provided in 2021, the Company received $ 0.4 million from Union Bank;

fees received for services provided in 2020 were no t 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.

As of December 31, 2021 and 2020, Nelnet Bank had $ 184.9 million and $ 48.4 million, respectively, in deposits from the funds offered under the College Savings Plans.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Lease Arrangements

3 unchanged sentences

Other Fees Paid to Union Bank

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.

During the years ended December 31, 2021, 2020, and 2019, the Company paid Union Bank approximately $ 280,000 , $ 279,000 , and $ 213,000 , respectively, in cash and flexible spending accounts management, trustee and health savings account maintenance fees, including investment custodial and correspondent services for Nelnet Bank.

Other Fees Received from Union Bank

1 unchanged sentence

During the years ended December 31, 2020 and 2019, Union Bank paid the Company approximately $ 273,000 , and $ 92,000 , respectively, for communications services.

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

4 unchanged sentences

WRCM, an SEC-registered investment advisor and a subsidiary of the Company, has a management agreement with Union Bank under which WRCM performs various advisory and management services on behalf of Union Bank with respect to investments in securities by the trusts, including identifying securities for purchase or sale by the trusts.

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.

The agreement provides that Union Bank will pay to WRCM annual fees of 10 basis points to 25 basis points on the outstanding balance of the investments in the trusts.

As of December 31, 2021, the outstanding balance of investments in the trusts was $ 1.8 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.

In addition, Union Bank will pay additional fees to WRCM which equal a share of the gains from the sale of securities from the trusts or securities being called prior to the full contractual maturity.

For the years ended December 31, 2021, 2020, and 2019, the Company earned $ 6.3 million, $ 9.8 million, and $ 1.8 million, respectively, of fees under this agreement.

3 unchanged sentences

Union Bank serves as trustee for the trusts.

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.

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, 2021, WRCM was the investment advisor with respect to a total 428,414 shares and 4.7 million shares of the Company's Class A and Class B common stock, respectively, held directly by these trusts.

8 unchanged sentences

The Company paid Union Bank $ 0.3 million in each of 2021, 2020, and 2019 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

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.

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.

UFS owned the remaining interest in the same aircraft.

On December 31, 2018, the Company purchased an additional 17.5 percent interest in the aircraft from UFS for $ 717,500 , which reflected what available information indicated was the aircraft's fair market value at the time of sale.

As a result of this transaction, the Company's ownership in the aircraft increased to 82.5 percent.

On December 31, 2018, UFS also contributed a 17.5 percent interest in the aircraft to an entity owned by Mr.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Transactions with Agile Sports Technologies, Inc.

1 unchanged sentence

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.

On each of May 20, 2020 and May 27, 2021, the Company made additional equity investments in Hudl, as one of the participants in equity raises completed by Hudl.

See Note 7, “Investments” for additional information on these transactions.

The Company and Mr.

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.

Dunlap, along with his children, currently hold combined direct and indirect equity ownership interests in Hudl of 19.3 % and 3.8 %, respectively, which did not materially change as a result of the May 2020 and May 2021 transactions.

The Company's and Mr.

6 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.

2 unchanged sentences

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, 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.

Thomas Henning, who has served on the Company's Board of Directors since 2003, was President and Chief Executive Officer of Assurity during the years ended December 31, 2021, 2020, and 2019, when Nelnet Business Services, a subsidiary of the Company, paid $ 2.1 million, $ 1.8 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 $ 1.8 million, $ 1.4 million, and $ 1.3 million in 2021, 2020, and 2019, respectively, and the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $ 1.5 million, $ 1.0 million, and $ 0.9 million in 2021, 2020, and 2019, respectively.

In addition, Assurity pays Nelnet Business Services a partial refund annually based on claim experience, which was approximately $ 41,000 , $ 64,000 , and $ 56,000 for the years ended December 31, 2021, 2020, and 2019, 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.

Henning retired as President and Chief Executive Officer of Assurity effective January 1, 2022, and now serves as the Non-Executive Chairman of Assurity’s board of directors.

Solar Transactions

The Company has co-invested in Company-managed limited liability companies with related parties that invest in renewable energy (solar) (as summarized below).

As part of these transactions, the Company receives management and performance fees under a management agreement.

Entity/Relationship Investment amount Fees earned by the Company

2021 2020 2019 2021 2020 2019

F&M $ 7,913,000 4,600,000 2,068,868 29,491 46,154 68,869

Assurity (Board member Thomas Henning) 5,421,659 1,150,000 — 16,027 11,538 —

Ameritas Life Insurance Corp.

(Board member James Abel) 5,000,000 — — 9,615 — —

North Central Bancorp, Inc.

(directly and indirectly owned by F&M, Mr.

Dunlap, and Ms.

Muhleisen) 2,466,667 1,533,333 2,068,868 14,958 15,385 68,869

Infovisa, Inc.

(directly and indirectly owned by F&M,

Dunlap, and Ms.

Muhleisen) 562,600 — — 1,923 — —

Farm and Home Insurance Agency, Inc.

(indirectly owned by Mr.

Dunlap and Ms.

Muhleisen) 116,667 383,333 — 962 3,846 —

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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 and other debt securities - available-for-sale $ — 348,504 348,504 — 52,597 52,597

FFELP loan asset-backed securities - available-for-sale $ — 494,682 494,682 — 346,502 346,502

Private education loan asset-backed debt securities - available for sale — 412,552 412,552 — — —

Other debt securities - available for sale 100 22,335 22,435 103 2,002 2,105

Equity securities 63,154 — 63,154 10,114 — 10,114

Equity securities measured at net asset value (b) 8,832 31,927

Debt securities - available-for-sale 103 — 103 104 — 104

Total investments 63,254 929,569 1,001,655 10,217 348,504 390,648

1 unchanged sentence

(a) Investments represent investments recorded at fair value on a recurring basis.

Level 1 investments are measured based upon quoted prices and include investments traded on an active exchange, such as the New York Stock Exchange, and corporate bonds, mortgage-backed securities, U.S.

government bonds, and U.S.

Treasury securities that trade in active markets.

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.

Level 1 investments are measured based upon quoted prices and as of December 31, 2021 and 2020, include investments traded on an active exchange and a single U.S.

Treasury security.

Level 2 investments include student loan asset-backed, mortgage-backed, and collateralized loan obligation securities.

The fair value for the Level 2 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.

31 unchanged sentences

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 — —

15 unchanged sentences

Bonds and Notes Payable

The fair value of bonds and notes payable was determined from quotes from broker-dealers or through standard bond pricing models using the stated terms of the borrowings, observable yield curves, market credit spreads, and weighted average life of underlying collateral.

Fair value adjustments for unsecured corporate debt are made based on indicative quotes from observable trades.

The fair value of student loan asset-backed securitizations and warehouse facilities was determined from quotes from broker-dealers or through standard bond pricing models using the stated terms of the borrowings, observable yield curves, market credit spreads, and weighted average life of underlying collateral.

For all other bonds and notes payable, the carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.

Bank Deposits

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These matters frequently involve claims by student loan borrowers disputing the manner in which their student loans have been serviced or the accuracy of reports to credit bureaus, claims by student loan borrowers or other consumers alleging that state or Federal consumer protection laws have been violated in the process of collecting loans or conducting other business activities, and disputes with other business entities.

In addition, from time to time, the Company receives information and document requests from state or federal regulators concerning its business practices.

The Company cooperates with these inquiries and responds to the requests.

In addition, from time to time, the Company receives information and document requests or demands from state or federal regulators concerning its business practices.

The Company cooperates with these inquiries and responds to the requests or demands.

While the Company cannot predict the ultimate outcome of any regulatory examination, inquiry, or investigation, the Company believes its activities have materially complied with applicable law, including the Higher Education Act, the rules and regulations adopted by the Department thereunder, and the Department's guidance regarding those rules and regulations.

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

Quarterly Financial Information (Unaudited)

quarter Second

quarter Third

quarter Fourth

Net interest income $ 55,073 66,635 81,322 86,556

(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

Communications revenue 18,181 18,998 20,211 19,253

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 )

Cost to provide communications services ( 5,582 ) ( 5,743 ) ( 5,914 ) ( 5,573 )

Salaries and benefits ( 119,878 ) ( 119,247 ) ( 126,096 ) ( 136,612 )

Depreciation and amortization ( 27,648 ) ( 29,393 ) ( 30,308 ) ( 31,350 )

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 (loss) income attributable to Nelnet, Inc.

shareholders - basic and diluted $ ( 1.01 ) 2.21 1.86 6.10

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

First quarter Second quarter Third quarter Fourth quarter

Net interest income $ 58,816 59,825 66,457 64,252

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

Loan servicing and systems revenue 114,898 113,985 113,286 113,086

Education technology, services, and payment processing revenue 79,159 60,342 74,251 63,578

Communications revenue 14,543 15,758 16,470 17,499

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 )

Cost to provide communications services ( 4,759 ) ( 5,101 ) ( 5,236 ) ( 5,327 )

Salaries and benefits ( 111,059 ) ( 111,214 ) ( 116,670 ) ( 124,561 )

Depreciation and amortization ( 24,213 ) ( 24,484 ) ( 27,701 ) ( 28,651 )

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

Net income attributable to Nelnet, Inc.

$ 41,591 24,619 33,212 42,380

Earnings per common share:

Net income attributable to Nelnet, Inc.

shareholders - basic and diluted $ 1.03 0.61 0.83 1.06

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Condensed Parent Company Financial Statements

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Cash and cash equivalents $ 47,434 69,687

Investments and notes receivable 707,332 137,229

Investments 1,236,933 707,332

Investment in subsidiary debt 374,087 38,903

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Total assets $ 3,875,723 3,009,446

Notes payable $ 236,317 67,655

Notes payable, net of debt issuance costs $ 734,881 236,317

Other liabilities 189,317 140,710

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Other income 45,291 48,688 8,384

Gain from debt repurchases 1,962 136 359

(Loss) gain from debt repurchases, net ( 6,530 ) 1,962 136

Equity in subsidiaries income

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Gain from deconsolidation of ALLO — 258,588 —

Impairment expense ( 4,637 ) ( 7,784 ) —

Derivative market value adjustments and derivative settlements, net

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Other comprehensive income (loss):

Available-for-sale securities:

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 )

Net changes related to equity in subsidiaries other comprehensive income $ 6,692 — —

Net changes related to available-for-sale securities:

Unrealized holding (losses) gains arising during period, net ( 4,220 ) 6,637 ( 1,199 )

Reclassification of gains recognized in net income, net of losses ( 372 ) ( 2,521 ) —

Income tax effect 1,102 ( 3,490 ) ( 986 ) 3,130 288 ( 911 )

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

Other comprehensive income (loss) 3,202 3,130 ( 911 )

Comprehensive income 396,430 355,568 140,892

Comprehensive loss attributable to noncontrolling interest 5 — —

Comprehensive loss attributable to noncontrolling interests 58 5 —

Comprehensive income attributable to Nelnet, Inc.

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Net income 393,228 352,438 141,803

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 591 534 467

Derivative market value adjustments ( 92,813 ) 28,144 76,195

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

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

Payments to terminate derivative instruments, net — — ( 12,530 )

Proceeds from (payments to) clearinghouse - initial and variation margin, net 91,294 ( 26,747 ) ( 70,685 )

Equity in earnings of subsidiaries ( 313,451 ) ( 132,101 ) ( 182,346 )

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 )

Loss on (gain from) debt repurchases 6,530 ( 1,962 ) ( 136 )

Loss on (gain from) investments, net 721 ( 46,019 ) ( 3,969 )

Purchases of equity securities, net ( 42,916 ) — —

Deferred income tax expense (benefit) 47,423 23,747 ( 19,183 )

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Other — ( 329 ) ( 481 )

(Increase) decrease in other assets ( 17,410 ) ( 10,672 ) 25,252

Increase (decrease) in other liabilities 26,009 29,384 ( 9,621 )

Net cash (used in) provided by operating activities ( 56,752 ) ( 45,372 ) 147,320

Increase in other assets ( 9,108 ) ( 17,410 ) ( 10,672 )

Increase in other liabilities 1,784 26,009 29,384

Net cash provided by (used in) operating activities 98,593 ( 56,752 ) ( 45,372 )

Cash flows from investing activities:

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Capital distributions/contributions from/to subsidiaries, net 294,578 99,830 449,602

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 )

Decrease in notes receivable from subsidiaries 20,895 21,343 14,421

Purchases of subsidiary debt, net ( 335,184 ) ( 25,085 ) —

Purchases of other investments ( 110,184 ) ( 54,637 ) ( 47,106 )

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Net cash provided by (used in) financing activities 400,340 260,992 ( 369,867 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 80,247 29,604 ( 12,043 )

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 8,421 ) 80,247 29,604

Cash, cash equivalents, and restricted cash, beginning of period 162,958 82,711 53,107

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Income taxes, net of refunds and credits $ 18,659 29,685 17,672

Noncash investing and financing activities:

Recapitalization of accrued interest payable to accrued guaranteed payment $ — — 6,674

Recapitalization of note payable to guaranteed payment $ — — 186,429

Recapitalization of guaranteed payment to investment in subsidiary $ — — 273,360

Contribution to subsidiary, net $ 49,066 — —

Noncash investing activities:

(Distribution from) contribution to subsidiary, net $ ( 835 ) 49,066 —

Description of

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For PLUS and SLS Loans made prior to July 1, 1994, and PLUS loans made on or after July 1, 1998, which bear interest at rates adjusted annually, special allowance payments are made only in quarters during which the interest rate ceiling on such loans operates to reduce the rate that would otherwise apply based upon the applicable formula.

See “Interest Rates for PLUS Loans” and “Interest Rates for SLS Loans.” Special allowance payments are available on variable rate PLUS Loans and SLS

Loans made on or after July 1, 1987, and before July 1, 1994, and on any PLUS Loans made on or after July 1, 1998, and before January 1, 2000, only if the variable rate, which is reset annually, based on the weekly average one-year constant maturity Treasury yield for loans made before July 1, 1998, and based on the 91-day or 52-week Treasury bill, as applicable for loans made on or after July 1, 1998, exceeds the applicable maximum borrower rate.

See “Interest Rates for PLUS

Loans” and “Interest Rates for SLS Loans.” Special allowance payments are available on variable rate PLUS Loans and SLS Loans made on or after July 1, 1987, and before July 1, 1994, and on any PLUS Loans made on or after July 1, 1998, and before January 1, 2000, only if the variable rate, which is reset annually, based on the weekly average one-year constant maturity Treasury yield for loans made before July 1, 1998, and based on the 91-day or 52-week Treasury bill, as applicable for loans made on or after July 1, 1998, exceeds the applicable maximum borrower rate.

The maximum borrower rate is between 9% and 12% per annum.

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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