2021
Annual Report
Opportunity Unlocked.
February 28, 2022
Dear Shareholder,
In the close of last year’s letter to shareholders, I stated that our outlook for 2021 was driven by optimism and hope
for the future given everything the world endured in 2020. As we head into 2022, we continue to be motivated to
fulfill our purpose to serve others and live our core values: providing superior customer experiences, creating an
awesome work environment, pursuing opportunities for diversification and growth, communicating openly and
honestly, and giving back to the communities in which we live and work. Across our businesses, we measure our
net promoter scores (NPS) to hold ourselves accountable to our customer experience core value. NPS helps us
evaluate customer satisfaction with our products and services and provides a critical feedback loop for ongoing
improvement. While our current NPS scores are solid, an indication of our success, we are eager to improve.
ALLO Subscribers
NBS Clients (higher education and K-12)
NDS Clients
BPO
FFELP Servicing
Private/Consumer Loan Servicing
Select Nelnet NPS Scores
68.0
78.4
66.7
14.3
66.7
In addition to fulfilling our purpose, one of our stated goals was to be good stewards of the capital you have
entrusted to us. We can say with confidence we accomplished that goal. In 2021, we earned GAAP net income of
$10.20 per share. Our 2021 adjusted net income, excluding our mark-to-market on derivatives that do not qualify
for hedge accounting, was $8.37 1 per share, achieving our second-largest earnings of all time, bested only by 2020.
Early in 2021, we celebrated our 25th year as a company. The world in which we live and work is a very different
place today than it was in 1996. We now must navigate through global pandemics, rapid inflation, ever-changing
political winds, and the once unimaginable reality of Nebraska college football losing seasons.
Through all the uncertainty, one of the growing themes we hear in reference to our performance over the years
pertains to how we have purposefully and successfully allocated capital to various businesses and investment
opportunities. I believe this theme will continue to gain momentum well into the future as we now have almost $1.6
billion in investments on the balance sheet. Given the increasing size of our investment portfolio, I am dedicating a
large portion of this letter to the performance, scope, and overall perspective of these investments.
1We prepare our financial statements and present our financial results in accordance with GAAP. However, we also provide additional non-GAAP financial
information related to specific items management believes to be important in the evaluation of our operating results and performance. A reconciliation
of our GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why we believe providing this additional
information is useful to investors can be found in our Annual Report on Form 10-K for the year ended Dec. 31, 2021, filed with the Securities and Exchange
Commission on February 28, 2022.
2021 Letter to Shareholders | Page 1
Virtually every division of Nelnet performed at or above our expectations in 2021—from the unbelievable success
of private and consumer loan acquisitions and securitizations to the growth in loan servicing assets, education
payments, and software technology offerings.
We have created several flywheels that have significant potential to generate cash flow, and we will invest that
cash for long-term earnings growth. If you look back, we started acquiring student loans in 1996 with a very small
amount of capital ($0.01 per share), and it took 16 years for Nelnet’s book value per share (with dividends included)
to exceed $25. Then, only five years later, Nelnet’s book value per share grew to over $50. During 2021 (less than
four years after going over $50 per share), Nelnet’s book value per share went over $75, ending the year at $77.83
per share. In the last two years alone, the flywheel effect of Nelnet’s book value on a per share basis has increased
almost $18.
The flywheel of value creation continues to spin. Currently, we are benefiting from the cash flow we have generated
from decisions made years in the past, and we are allocating that capital with a growth mindset. To be a content
shareholder in Nelnet, I believe one must have patience and philosophical alignment with our management
commitment to long-term cash generation. Our long-term time horizon comes at the expense of short-term/non-
linear year-to-year book earnings. We are okay with that and hope you are as well.
Our performance this year is clearly indicative of some of the decisions we made a few years back to invest
in several “outside-the-box” ideas such as ALLO, Hudl, real estate, solar/renewable energy, and other venture
investments. Meanwhile, we are constantly re-investing in the core businesses of Nelnet—loan asset management,
payments, and servicing. Some of our decisions may have raised a few questioning eyebrows along the way, but
we hope we are gaining your confidence in our thought processes. We are constantly evaluating time-weighted
risk versus reward trade-offs on capital allocation. That stated, fortune favors the bold, and when we are certain
the odds are in our favor, we are not afraid to be bold. I think it is also indicative of our mindset that we have never
booked an annual loss in our 25-year history; and through 2021, a tumultuous year for so many, we have grown
Nelnet’s per share book value with a 17.2% compounded annual growth rate as a publicly traded company. It is also
clear the true enterprise value of Nelnet remains significantly greater than the current book value of the company.
In 2021, we purchased more than 713,000 shares, or just under 2% of the company, at an average price of $81.47.
In 2020, we purchased almost 1.6 million shares, or 4% of the company, at an average price of $46.01 per share.
We will continue to opportunistically buy our shares when the market value gets out of alignment to the enterprise
value of the company.
2021 Letter to Shareholders | Page 2
Nelnet’s Corporate Performance (Annual Percentage Change)
Nelnet Per Share Book Value
With Dividends Included
Nelnet Per Share Market Value
With Dividends Included
S&P 500
With Dividends Included
Net Income Reinvested2
(in millions)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
CAGR/Total
49.2%
41.5%
6.3%
(1.6%)
6.6%
21.0%
23.7%
22.6%
16.7%
26.1%
21.1%
16.0%
15.4%
8.8%
9.9%
6.2%
15.6%
14.7%
17.2%
20.2%
51.1%
(32.7%)
(52.5%)
13.3%
20.7%
41.6%
4.9%
27.5%
42.8%
10.9%
(26.6%)
52.7%
9.1%
(3.2%)
12.7%
23.7%
38.4%
9.8%
10.9%
4.9%
15.8%
5.5%
(37.0%)
26.5%
15.1%
2.1%
16.0%
32.4%
13.7%
1.4%
12.0%
21.8%
(4.4%)
31.5%
18.4%
28.7%
10.6%
$149
$181
$6
($63)
$24
$135
$115
$160
$89
$271
$273
$153
$166
$80
$156
$72
$247
$301
$2,515
2We believe well-managed companies do not distribute to the shareholders all their earnings. Instead, they retain a part of their earnings and reinvest the
capital to grow the business. Since going public in late 2003, the company has recognized $3.6 billion in cumulative net income and, of that amount, has
reinvested $2.5 billion – or 70% of our earnings over time – back into the business.
The ongoing pandemic continues to add interesting complexity as we move into 2022. In response to the pandemic
and to ensure their safety, we moved 6,000 Nelnet associates to work from home within one week. Two years
later, we now have nearly 8,000 associates working for the company with a vast majority of associates choosing
to work full-time remote, some are hybrid associates alternating between the office and remote, and a minority of
us are full-time in the office. This dynamic has changed how we recruit, train, retain, and manage our workforce. A
positive outcome of the changing workplace environment is that it has allowed us to expand our reaches for talent
in an increasingly competitive marketplace and grow our associate base to every state except Alaska, increasing
diversity across several metrics. Just one of many silver linings of the challenges of the last two years, for which we
are grateful.
Now, let’s move on to brief overviews about the successes and challenges of the significant business lines and
investments within Nelnet and see how our strategically engineered flywheels are being put to work.
2021 Letter to Shareholders | Page 3
// Nelnet Financial Services
Nelnet Financial Services, our loan asset generation and management division, had a very successful 2021. In our core
Federal Family Education Loan Program (FFELP) student loan business, we priced two transactions that re-levered
inefficient legacy securitizations and funded new loan purchases. Although our FFELP portfolio will continue to
amortize, we were an active market participant in the non-guaranteed student loan market. In late 2020, we partnered
with two asset managers to purchase Wells Fargo's legacy private student loan portfolio. During the last year, we
sponsored the issuance of almost $9 billion in bonds using our student loan securitization platform to permanently
finance the acquisition. These securitizations will provide long-term fee income to us in the form of administration and
servicing fees. In addition, the capital we contributed to the securitizations is expected to achieve returns above our
historical return on equity. As we look forward to 2022, we hope this partnership model is one we will duplicate to
leverage our securitization platform and investor relationships.
Our loan portfolio has historically been the primary generator of cash in the company, which allows us to allocate that
capital into our fee-based businesses, where we continue to innovate. Asset finance will continue to be a core driver
of Nelnet. We are opportunistically acquiring loans when the risk/return profiles make sense, and we are working on
launching new loan products on our balance sheet in 2022. Nelnet Bank will be a key component in the flywheel we are
creating in the loan origination and asset management business.
// Nelnet Bank
Headquartered in Salt Lake City, Utah, Nelnet Bank completed its first full year of operations with a robust student
loan refinance product that now serves over 2,200 customers and has refinanced almost $200 million in student loans.
Nelnet Bank customers will save more than $20 million over the life of their refinanced loans. The bank also purchased a
FFELP student loan portfolio and exceeded $500 million in assets at year-end. It has successfully raised deposits from
a variety of sources, has strong liquidity, and has an acceptable level of brokered deposits. The bank has also made
great progress toward meeting the strategic goals outlined in its business plan for the first year of its 3-year de novo
period. Nelnet Bank is poised for growth and diversification in loan and deposit products and has a strong foundation of
consumer compliance on which to build.
The bank has closely followed the Coronavirus Aid, Relief, and Economic Security (CARES) Act legislation and is ready
to help borrowers when the CARES Act relief expires. Borrowers will be looking to refinance and consolidate their
education loans into lower interest options when they are required to begin making payments on their Federal
Direct Loans.
The bank will advance its in-school product with new origination technology for the 2022 peak school season. Nelnet
Bank will be represented on over 400 colleges’ and universities’ financial aid office lender lists for the peak season
and expects to increase the in-school channel to over 600 institutions over the course of 2022. The bank will launch a
mobile app with a unique design that will enhance the consumer experience.
2021 Letter to Shareholders | Page 4
In 2021, Nelnet Bank invested $7.5 million into community-focused loans and investments that address critical needs in
areas defined by the bank’s Community Reinvestment Act Plan. The bank was pleased to award financial scholarships
to 46 low-to-moderate income students participating in technical and associate degree programs in Utah, and we are
excited to support our communities and expand Nelnet Bank’s programs in the future.
We appreciate the interactions, insight, and support we receive from our federal and state regulators as we continue
to enhance our operational, credit, compliance, and risk practices.
We are optimistic as we head into 2022. We are confident the solid foundation we created for Nelnet Bank, our
superior customer service, and enhancements to our products will create a loyal customer base and ultimately grow
our business so we can keep the flywheels turning.
// Nelnet Business Services
Nelnet Business Services (NBS) continues to focus on serving clients in the K–12 and higher education markets in
the United States (U.S.) and internationally. In addition, we added new products to serve faith-based institutions and
the not-for-profit market in the U.S. The value we bring to clients is to provide industry-leading, secure technology
platforms that are supported by outstanding customer service. Every day, NBS lives their mission of “making
educational dreams possible through service and technology.” Under the Nelnet Business Services umbrella, we have
five primary businesses: FACTS, Nelnet Campus Commerce, PaymentSpring, Nelnet Community Engagement, and
Nelnet International.
FACTS
Our K–12 business serves more than 4 million students and families at almost 11,000 schools in the U.S., and, in
partnership with Nelnet International, over 50 countries and growing. In addition to our bread-and-butter business
of payment plan administration, we have two primary areas of focus. Our traditional business serves the financial
and information requirements of educational institutions by providing a school information system and suite of
products that support the data, communication, and payment needs of the school faculty, students, and parents. We
have also introduced a giving platform and mobile app to further enhance efficient communication and support the
development and donor needs of private schools and the families who support them. We continue to enhance our
financial aid assessment tool, which we modified to support scholarship granting organizations in many states. In 2021,
we sold over 5,000 FACTS products to 1,900 existing and new customers.
In 2021, we rapidly grew FACTS Education Solutions, which provides supplemental education services and teacher
development in private and public schools through Title I and Title II funding. Our acquisition of HigherSchool at
the end of 2020 allowed us to expand this business, especially in the New York market. In addition, the consolidated
business is well-positioned to help support state governments across the country by working with them to administer
federal supplemental COVID relief programs for private schools, Every Student Succeeds Act title programs, and grant
application and review services. In 2021, this business worked with almost 1,000 teachers and over 12,000 students
through the title programs, clearly a learning flywheel in full effect.
FACTS creates a significant amount of cash flow for Nelnet, and the primary need for capital in this business comes
from our continuing need to re-invest in technology to stay ahead of the changing expectations and learning
environment facing our students and schools as well as provide cybersecurity solutions to keep information safe
and secure. While these investments are worthwhile over the long run, they will most likely impact margins over
the next few years.
2021 Letter to Shareholders | Page 5
Nelnet Campus Commerce
Higher education in the United States experienced similar trends in 2021 compared to 2020, with most institutions
feeling enrollment pressure. Our products, used by more than 1,150 colleges and universities and more than 7 million
students and families, focus on the electronic presentment and payment of tuition and fees and are enrollment
dependent. While higher education is experiencing headwinds, Nelnet Campus Commerce maintains a strong position
in the industry with retention rates of over 98%. As a result, we have an opportunity to innovate with new service
offerings that will expand existing relationships and add new clients who desire the exceptional service for which
Nelnet is known.
PaymentSpring
PaymentSpring processes ACH and credit card payments for education and non-education markets. In 2021, we
processed over $39 billion in payments for our education markets and almost $390 million for non-education clients.
We enhanced our systems with beneficial tools throughout last year including automated underwriting, rapid on-
boarding, and payment facilitation for non-education markets.
Nelnet Community Engagement
During 2021, we established Nelnet Community Engagement (NCE) by combining CD2 Learning, Catholic Faith
Technologies, and Aware3 into a single organization focused on providing learning and development services. NCE
serves over 35 archdioceses and ministries and over 4,000 churches in the U.S. and internationally with its powerful
learning and content management platform. With the addition of CD2, this business also serves for-profit corporations’
learning and development needs.
Nelnet International
We grew our business internationally despite the inability to travel most of the year due to the pandemic. Our office
in Melbourne, Australia, was in extreme lockdown for most of 2021, but like other areas of our business, we were able
to creatively use technology to serve existing clients and add new relationships. Our focus in 2022 is to expand our
business in Australia, New Zealand, and other countries in the Asia Pacific region. For the first time, we added private
K–12 schools as clients in Pakistan and will continue to expand as we enter other countries with reseller partners.
// Nelnet Diversified Services
We posted a very solid year in our loan servicing, servicing systems, and business process outsourcing businesses.
The biggest win of the year was our private loan servicing business almost doubling in size with the conversion of the
Wells Fargo private loan portfolio onto the Nelnet platform. We now service private loans for over 1 million consumer
customers. In addition, we signed extensions with the U.S. Department of Education (Department) to service their
loans through 2023, and we completed the first full year of servicing consumer accounts in the community solar
space. Our new API-first servicing system, “Velocity,” went live for both loan originations and repayment servicing in
April, providing the most flexible and adaptive solution in the industry.
2021 Letter to Shareholders | Page 6
One of the largest unknowns facing the division is when the CARES Act relief for federal student loan borrowers
will end. Since March 2020, the 42.9 million customers of the federal government, representing nearly $1.7 trillion
in student loan volume, have not accrued interest or had to make payments on their loans. Nelnet services over 14
million of those borrowers, and multiple extensions of the original CARES Act relief period have kept us in a repeated
cycle of recruiting, hiring, training, and getting government security clearance for thousands of associates so we are
ready to go when those millions of borrowers resume payments. The government pays its servicers a significantly
reduced fee for loans covered by the CARES Act relief yet requires us to be fully staffed and prepared for the end of
the relief, which has had a moving date. Our costs are significant, and frankly, the situation has put a lot of pressure on
this business and has been difficult to manage for months. As we near two full years of CARES Act student loan relief,
Nelnet stands ready to assist the federal government and borrowers successfully transition back into repayment.
// Nelnet Communication Services/ALLO
2021 was a year of growth and milestones for ALLO Communications. Superior product offerings create high
demand, and when delivered with superior service, create loyal customers—all the true makings of a successful
flywheel strategy.
I always consider 100 a good number, and it was meaningful for ALLO in 2021 as they eclipsed 100,000 customers and
$100 million in annualized revenue. Customers served increased 20%, and homes and businesses passed by ALLO’s
fiber network grew by 31,000 to 310,000. Market share increased in all markets including those in which ALLO has
operated for more than a decade. The combination of work-from-home, learn-from-home, and entertainment needs
continues to drive demand for high-quality connections—fast download and upload speeds with low latency and jitter.
Work-from-anywhere means businesses must have consistent services across their communities. Connectivity and
communications excellence is required in the office, to the customer, and for employees. ALLO’s modern fiber network
serves all community stakeholders of our gigabit societies. With consistently high customer service ratings, local and
national recognition, and low customer churn, ALLO is achieving market shares well beyond our expectations when
Nelnet invested in 2015.
Increasing the regional fiber footprint and communities served was a specific focus for 2021. Northeast Nebraska
and northeast Colorado saw numerous markets developed and services launched. The technological advancement
included constructing markets for speeds up to 10 gigabits to the home, 10 times faster than previously available.
Higher speeds from this platform are being offered to customers in 2022, supporting ALLO’s philosophy of offering
bandwidth and internet services that do not constrain customers. Internet access is a vital utility in today’s
modern world.
ALLO also announced and began developing Arizona. ALLO’s first customers are expected to be served in 2022 and
supported by the 800+ person ALLO team. The team has performed safely and professionally during the pandemic
and strives to provide businesses, government entities, and households with world-class communications and
entertainment solutions. While competition for talent and supply chain inconsistencies are a challenge in the industry,
the ALLO team has fared well and continues its expansion.
In 2022, ALLO expects to accelerate customer, market, headcount, and service expansion. ALLO’s team is focused on
its values: being local, honest, hassle-free, and exceptional while meeting its purpose: create, connect, and serve gig
communities. The importance of fiber connectivity has never been more critical, and we expect it to be even more
important in the future.
2021 Letter to Shareholders | Page 7
// Nelnet Renewable Energy Services
Our renewable energy businesses experienced another strong year of growth and diversification, and I continue
to be excited about the financial, environmental, and social benefits derived from our investments in this sector.
We and our co-investor partners have now committed to fund more than $288 million of tax equity to support the
construction and operation of solar projects worth approximately $980 million. We estimate these investments will
power nearly 50,000 homes and will eliminate more than 9 million tons of carbon emissions during their lifecycle. In
addition to carbon savings, these investments create jobs, generate cost savings for consumers, strengthen energy
resilience, and provide financial returns that fit well within our capital deployment strategy. In addition to growth and
optimization of our own balance sheet in this asset class, we are excited about the continued advancement of our tax
credit syndication platform and take great pride in the service we offer to our co-investor partners. During 2021, our
co-investors earned approximately $92 million to reinvest back into their businesses and communities. We expect
our growth in this area to continue to be strong, though there are some headwinds in the near term associated with
material and labor cost increases, supply chain shortages, interconnection demands on utilities, and the potential for
federal legislative action on climate change.
Though these investments continue to create some volatility in our earnings due to the unique accounting treatment,
we appreciate the front-loaded and life-to-term cash flows they generate. In addition, as we establish a more
consistent balance year over year, we expect the impact to earnings per share to better reflect the true economic
performance of these assets.
We also continue to grow the community solar subscription business in megawatts under management as well
as communities served. We now manage more than 549 MW hours per year for more than 6,000 customers. We
continue to be encouraged by the anticipated growth in this market as well as our ability to execute on behalf of our
developer partners. More and more states are adopting community solar programs to expand access to cost-efficient,
clean energy resources, and we are well-positioned to fulfill these needs. We continue to expand our footprint serving
new markets and programs as demand warrants, and we can leverage our servicing and back-office competencies to
provide exemplary service.
With our customer relationships in education and renewable energy and our financial acumen, Nelnet intends to
originate and operate solar projects as the long-term owner of these assets. We believe unique value propositions
exist for our educational clients such as cost savings, recruiting campaigns, progress toward carbon neutrality,
educational curriculum, and sustainable investment opportunities. Additionally, we will be opportunistic in terms of
renewable energy project acquisition, repowering, storage, and other ventures that offer long-term, recurring
cash flows.
Again, our investment and deployment of capital and people within renewable energy fit well into our overall strategy
focused on customers, associates, shareholders, communities, and the environment. This area is very accretive to our
core values and a key component of Nelnet Serves, our purpose-driven focus on serving others.
2021 Letter to Shareholders | Page 8
// Nelnet Real Estate Services
Real estate continues to be an integral component of Nelnet’s diversification strategy, and 2021 was a strong year for
our portfolio, which includes 33 investments across the country with $69 million of net equity invested. We remain
pleased with the risk-adjusted returns generated by the asset class and believe Nelnet’s portfolio is well positioned to
withstand market volatility given our focus on capital preservation.
Despite ongoing uncertainty from the pandemic, 2021 was a record year for U.S. real estate from a valuation
standpoint, and capital continues to flood the market due to the low interest rate environment and inflation protection
provided by the asset class. Nelnet leveraged the competitive market dynamics to strategically sell 11 properties,
generating $22 million of capital gains with weighted average returns exceeding 24%. We redeployed 86% of the
capital gains into qualified Opportunity Zone investments in the real estate and renewable energy sectors, enabling
Nelnet to have a positive community impact while also gaining tax efficiencies.
While our intent is to increase Nelnet’s allocation to real estate, we recognize the importance of maintaining our
underwriting discipline and patience given pricing is at peak levels. We target middle-market transactions with a
value-add component and invest across the capital stack to diversify risk. In concert with our internal acquisition and
asset management proficiencies, the Nelnet real estate team identifies strategic partners with whom we share an
alignment of interests, leading to long-term relationships that generate a pipeline of qualified deal flow. In 2021, we
closed on eight transactions representing $31 million of capital commitments, the majority of which were multi-family
or industrial assets. We look forward to the continued growth of the real estate portfolio and will remain proactive in
strategically sourcing deals that meet our investment criteria.
// Nelnet Venture Capital
The venture capital market has been on fire, but recently is showing signs of cooling. Valuations for fast-growing
companies have doubled and, in some cases, tripled over the last couple years. The rule of thumb recently was to
value fast-growing SaaS companies at somewhere between 5–10 times revenue. This has jumped to 20–30 times
revenue. While the case can be made that the net present value of future cash flows can justify these valuations for
fast-growing companies, they will have to, at some point, make money and stay in business to be relevant going
forward. At today’s valuations, there is not much room for error. Some are concerned we may be in a venture capital
bubble. Returns have been substantial, and the industry has attracted roughly three times prior funding levels over the
last few years. Time will tell. We believe that as a strong corporate citizen in our community, it is important to support
early-stage investment in companies we feel have a good chance of success. We continue to evaluate virtually every
new investment opportunity in our home state of Nebraska.
I thought it might be beneficial for our shareholders to better understand how we approach venture investing. Nelnet
has committed to investing in emerging companies (start-ups) and has done so over the last decade. We have learned
a lot in this process and have developed our best practices as a result. These best practices continue to evolve and will
likely always be in flux. That said, some important markers don’t seem to change. We, like others, look at the product
or service, the market for that product or service, and the founders of the company when making an investment. The
product or service is almost always what catches the eye first; but in the end, the most important aspect of a company
is its people. I am sure you will not find it surprising that we believe the people of Nelnet make us great; so, of course
we apply the same thought process to the companies we invest in.
2021 Letter to Shareholders | Page 9
Investing in emerging companies requires a completely different strategy than our more traditional investments.
Whereas one would rarely expect a single investment to fail in a traditional portfolio, a high failure rate is expected in
an emerging company portfolio. Generally, this type of portfolio can have 50% or more of its invested companies go
out of business. Portfolio returns are often created by a small handful of the companies (maybe one or two) that return
30 times or more to the portfolio.
Since there is often no (or a very minimal) track record for emerging companies, it is also important to invest in a
broadly diversified portfolio. It is incredibly difficult to predict the winners, so we invest small amounts initially in a
broad group of promising companies, most of which are in our backyard of Nebraska, which has been a good time-
tested strategy for us.
As mentioned earlier, the founding management team is of critical importance for the success of an emerging
company. Below are some of the traits of a founding team we like to see as we evaluate an investment opportunity:
• Understands and practices the tenets of a “lean start-up”
• Creates a strong board of directors
•
•
•
•
•
Reaches out often to stakeholders
Listens
Provides feedback
Reports to investors on a regular basis
Exposes the good, the bad, and the ugly early and often
• Understands and defines what keeps them up at night
•
Trusts/encourages the team to report to stakeholders when appropriate
• Can set near- and medium-term goals that fall in line with long-term goals
• Understands funding needs over the long haul and has planned accordingly
•
•
Knows and exposes the company’s key performance indicators (KPIs)
Knows how to prepare and read financial statements
Other items that help get the company on the right track include:
•
•
•
•
The team is willing to or has invested their own money
The company has the right co-investors
The company is meeting financial commitments
The team has defined roles and responsibilities
Nelnet has invested approximately $115 million in early-stage companies over the last decade. In that time, the
portfolio has returned just over $18 million with a remaining value of roughly $204 million. (The remaining value is
based on “observable transactions,” therefore, investments are held at cost until a new priced investment round or
Nelnet determines that the company is no longer a going concern and the investment is written down.) This translates
into a 1.94 multiple on invested capital (MOIC). Of the 91 investments Nelnet has made, 15 have exited, 23 have been
written down or off, leaving 53 companies that are in various stages of growth.
2021 Letter to Shareholders | Page 10
Within the portfolio we have broken out our investments into angel and venture depending on the stage of
investment. Generally, we consider investments in seed capital and Series A to be angel and Series B and beyond as
venture. Most of our investments would be considered angel investments. To date, our angel portfolio's internal rate of
return (IRR) has been 16.9% with a 2.07 MOIC (realized and unrealized) and 11% realized. The venture portfolio’s IRR is
13.2% with a 1.88 MOIC (realized and unrealized) and 192% realized. Note: The realized venture return was a relatively
small investment that roughly doubled in value over an 8-month time frame.
The most exciting news for 2021 in our investment portfolio though was not an exit but a funding in October of a
portfolio company, CompanyCam. Nelnet participated in the first two rounds of this company for a total of $850,000
invested. Nelnet’s previously adjusted value of $1.3 million is now valued at $11.6 million for a gain of $10.3 million. We
love when this happens even though it adds to the choppiness of our corporate earnings. Some problems are good
problems to have.
Capital Deployment by Year (in millions)
2013
2014
2015
2016
2017
2018
2019
2020
2021
$38
$68
-
-
-
$17
-
$20
$79
$13
$19
$127
$17
$47
-
-
$26
$1
$45
$47
$16
$19
$140
$173
-
-
$47
$17
$41
$53
$42
$96
$19
-
$61
-
-
$39
$29
-
$22
$77
$69
$21
-
$75
-
-
$115
$41
$10
$19
$181
$69
$24
$105
$188
$153
-
$87
$38
-
$67
$13
$45
$27
$71
$61
-
-
$45
$48
-
$141
$71
$30
$100
$48
$65
$26
$103
$396
-
$40
$29
$26
$73
$32
$39
$143
-
-
-
$59
$5
$726
$407
$58
$34
9-Year
Total
$661
$857
$230
$100
$381
$340
$83
$1,451
$872
$479
$224
$254
$345
$628
$318
$534
$723
$397
$1,008
$1,471
$5,678
FFELP loan/residual acquisitions, net of financing
Private and consumer loan/residual acquisitions, net of financing
Business acquisitions
Nelnet Bank
ALLO acquisition and capital expenditures
Other capital expenditures (non-ALLO)
Hudl investment
Other investments (including capital/real estate/solar)
Debt repurchases
Stock repurchases
Dividends
// Hudl
The world saw sports largely return in 2021, with coaches and athletes taking lessons from 2020 into their new
seasons. Hudl adapted to and led many of these changes. The organization accelerated through the curve and stayed
true to its mission to make every moment count.
Hudl continued its strong growth, with a team of more than 3,000 Hudlies spread across 19 countries around the
world. The company now serves more than 200,000 teams across 40 sports and 150 countries.
Last year, we shared that sports teams turned to Hudl Focus to livestream games that fans couldn’t attend. In 2021,
the company found that though crowds largely returned to stadiums and gyms, Hudl Focus still played a large part in
teams’ workflows. More than 630,000 games, matches, and practices were captured, and almost 200,000 of them
were livestreamed. The company has plans to further its camera offerings with the addition of Focus Flex, a portable
camera launching in 2022.
2021 Letter to Shareholders | Page 11
Hudl’s media division made great strides over the year as well. With an 8-week streak of over 1 million active weekly
athletes, the team found new ways to engage athletes. They partnered with strong brands and launched a Snapchat
show showcasing female athletes—Her Hudl.
Assist (Hudl’s professional analysis service) remains another strong player in helping the company make every
moment count. Analysts broke down just under 1 million games without missing a single turnaround time.
The company also looked inward over the last year to evolve its practices and associate experience. An employee
resource group (ERG) framework was formalized and is led by a governing body, Together @ Hudl. More than 150
Hudlies participate in the new ERGs—Community Champions, Her Hudl, Pride @ Hudl, and Mental Wellness. Hudl again
partnered with WeCOACH to host the third annual BreakThrough Summit, a free, digital leadership summit designed
to develop and celebrate women in sports. The 2021 BreakThrough Summit featured Becky Hammon, assistant coach
for the San Antonio Spurs, Julie Foudy, two-time FIFA Women's World Cup and Olympic gold medalist, and Dr.
Condoleezza Rice, former U.S. Secretary of State.
We remain extremely pleased with our investment in Hudl.
// Mike Dunlap’s Thoughts about Economics
As I have stated for more than a decade, it is our goal for each Nelnet shareholder to record a gain or loss in market
value proportional to the gain or loss in per-share fundamental (intrinsic) value recorded by the company. To achieve
this goal, we strive to maintain a one-to-one relationship between the company’s fundamental value and market. As
that implies, we would rather see Nelnet’s stock price at a fair level than at an artificial level. Our fair value approach
may not be preferred by all investors, but we believe it aligns with Nelnet’s long-term approach to both our business
model and market value. However, from time to time Mrs./Mr. Market can be irrational and will materially overvalue or
undervalue the investment style they currently love. Short-term, Mrs./Mr. Market is a voting machine; long-term, the
market is a weighing machine. For the last two years, it is my deep belief that the markets have turned on the voting
machine and have fallen into an unhealthy love with growth stocks, crypto, NFTs, and meme stocks, with the primary
focus seeming to be on speculating versus investing. Long term, the weighing machine is always turned on again and
dominates in the end. After the way I ate over the holidays, I, like Nelnet, weigh more than last year.
The economic relief and stimulus passed by the government since the pandemic began is truly astounding! To provide
relief to so many impacted individuals and businesses was critical when the economy was shut down at the beginning
of the worst pandemic in 100 years. There was $4 trillion in stimulus in 2020. In 2021, there was $1.9 trillion in stimulus,
and the U.S. approved an additional $1 trillion infrastructure package. That is almost $7 trillion, not including the
government balance sheet expanded from $4 trillion to $8 trillion by buying the debt the government printed, the
Fed cut interest rates by 1.5–2% to take rates to basically zero, and deferred payments on $1.7 trillion in student loans
through May 1, 2022. It can take 12 to 18 months for government stimulus to completely roll through the economy. This
would imply the tailwinds (also referred to as inflationary pressures) of the stimulus passed in 2021 could continue
through the majority of 2023. The amount of stimulus truly is incredible, and much of it was needed to help people
and the country through the worst of the pandemic. However, some could argue it was too much. Here’s an analogy
to put the current situation into perspective: Let’s say we met at my favorite sports bar for a beer or two and then we
went on to drink a case instead. Common sense would suggest our actions might result in quite a hangover. Thanks to
the actions of many administrations and congresses from both parties, our national debt just went over $30 trillion.
2021 Letter to Shareholders | Page 12
Where did all the stimulus go and where is it headed? When the markets see cash and there is no place to invest the
extra cash, what happens? The markets will create something from nothing to fill the demand in part created by the
government printing money. How did the markets create something from nothing? Let me give you examples: more
than $2 trillion in crypto (6,000+ currencies, Bitcoin is up 800% from March 2020), 1,300+ IPOs, 850+ SPACs, $400
billion in new venture capital deals in the last two years, NFTs of over $31 billion, home prices up close to 20% in 2021,
and other real estate prices are up over 20% across the board in almost all sectors. From the trough of the stock
market in March of 2020 to the end of 2021, the S&P 500 and the NASDAQ increased in value by over $20 trillion.
The markets are amazing! I just finished reading an overview by investor and investment strategist Jeremy Grantham
claiming we are in a “superbubble” with stocks, housing, commodities, crypto, and NFTs all surging at the same time.
It appears we went to the sports bar, and after our inhibitions were lowered, we decided to drink a case instead of a
couple beers.
What else happens when a government prints an astounding amount of money? When I took economics in college, I
learned that if you endlessly print money, it leads to much higher interest rates and/or devaluation of the currency—
in some extreme cases it is devalued all the way to zero (some examples: Argentina every few decades, Venezuela,
Germany at the end of World War I and World War II). If a government prints money and keeps interest rates too
low for too long, one or both economic challenges will happen. Turkey is a great current example as the country’s
leader continues to print money and lower rates, their currency continues to devalue. Inequality is decreasing in these
countries because everyone is becoming poorer together. We are seeing double-digit monthly inflation rates in
those countries.
The United States is known as the land of opportunity and the most incredible wealth-creating country to ever exist
given our rule of law, freedom of speech, robust capital markets, government structure, and solid oversight. With
hard work and grit, anyone can turn his or her dream into reality. That opportunity continues to exist as Americans
historically keep moving up. We have repeatedly heard in the media about the hollowing out of the middle class over
the last 40 years since the Reagan administration—is that accurate? From Steven Pinker’s book, Enlightenment Now,
“Poor was defined as an income of $0–$30,000 (in 2014 dollars) for a family of three, lower middle class as $30,000–
$50,000, middle class $50,000–$100,000, upper middle class $100,000–$350,000. The study found that in absolute
terms, Americans have been moving up. Between 1979 and 2014, the percentage of poor Americans dropped from 24
to 20, the lower middle class dropped from 24% to 17%, and the percentage in the middle class shrank from 32 to 30.
Where did they go? Many ended up in the upper middle class, which grew from 13% to 30% of the population and in
the upper class, which grew from 0.1% to 2%.” While many Americans have climbed the income ladder, it remains true
that income inequality also did increase, which is concerning.
For most of 2021, the Federal Reserve (Fed) kept telling the market, “inflation is transitory,” because of supply
disruptions caused by COVID-19; therefore, they decided to not raise interest rates or cut back on quantitative easing.
History tells us when bubbles are created, income inequality increases. Those with assets see their value increase while
those without assets see prices for the goods they purchase increase. In 2021, wages were up over 4%, but prices were
up over 7%. The highest earners, most of whom have college educations, can earn their way out of a downturn. The
poorest Americans are hurt for a generation or more by high inflation and the resulting impact on household savings
and safety nets being depleted.
The Fed has now realized what many organizations were already seeing; inflation was not transitory. Now they are
playing catch-up to stop quantitative easing and raise interest rates to try to tame the inflation they helped create by
printing too much cash. As rates go up, the value of discounted cash flow generated from companies over time goes
down, which usually leads to stock prices going down. Over the long term, printing money hurts everyone but hurts
lower-income families the most.
2021 Letter to Shareholders | Page 13
As the stimulus continues its slow roll though the economy through 2023, it is my prediction that we are going to
start seeing cracks in the ice. Jeremy Grantham’s newsletter, Let the Wild Rumpus Begin, explains the superbubble
we created. Half the companies that finished SPAC deals in the last two years are down 40% or more, erasing tens of
billions of dollars in investor value. As I write this message at the end of January 2022, cryptocurrencies have erased
$1.2 trillion in supposed value in the last few weeks, and the stock market is approaching correction territory. The
market created something from nothing to fill the demand fueled by the government printing money. It is my fear that
as the sun comes up, we are all going to pay the price for drinking a case of beer and staying up all night at the bar. To
be clear, hair of the dog is NOT the answer (printing more money). We live in the best country in the world. Let’s hope
as we wake up from our hangover, we don’t make the same economic mistakes and create a nation where we have
perfect equality because we are all broke. On the bright side as these future disruptions occur in the economy we will
continue to position Nelnet to help our customers, associates, and communities be successful and help their dreams
come true while positioning Nelnet to be opportunistic as we have in the past.
// Where We Are Going/Closing
It wasn’t all positive in our corner of the world last year, as 2021 also came with some hard times. We lost one of our
dear friends and board members, JoAnn Martin, to a rapid onset disease. JoAnn had an illustrious career as CEO of
Ameritas Corporation. She was an icon in our community, and we miss her counsel and wisdom greatly in
our meetings.
In 2022, our longest-serving board member, Jim Abel, will be retiring from the board. Jim has been a key mentor to
Mike, me, and the entire senior management team. He has always held our feet to the fire, reminded us of our duty
to all our constituents (customers, associates, communities, and shareholders), has challenged us when we needed it
most, and more importantly, coached us up when we needed it. Jim will be greatly missed in our board room.
With change comes opportunity. With open positions to fill and as part of our ongoing board refreshment and
succession process, our Nominating and Corporate Governance Committee has carefully vetted and considered
multiple candidates for the Nelnet board and is recommending three individuals for appointment, which we expect to
happen in the coming weeks. Each will come with a different set of talents and skills. Jona Van Deun is the president
of the Nebraska Tech Collaborative, which was established to attract top technologists to our home state. With an
extensive background in politics and public affairs, Jona was formerly vice president of Small Business Coalitions
and Engagement for the U.S. Chamber of Commerce in Washington, D.C., before returning home as president of the
Nebraska Tech Collaborative. She will bring much-needed technology and talent acquisition expertise to the board.
Adam Peterson is co-CEO and president of Boston Omaha, a public holding company with businesses engaged
in several sectors including advertising, insurance, telecommunications, and real estate. The company's principal
objective is to grow intrinsic value per share at an attractive rate, while seeking to maintain a strong financial position.
Adam’s Magnolia Capital Fund, which is a significant shareholder of Boston Omaha, also happens to be one of Nelnet’s
largest external, non-management shareholders. Adam will bring a wealth of relevant investment expertise to our
board meetings. We will also be adding Matthew Dunlap, Mike’s eldest son, to the board to further add succession
planning and consultation from our largest shareholder group, the Dunlap family. Matt is currently a managing
director in our Nelnet Business Services division. Matt went to undergraduate school at Northwestern University and
law school at the University of Nebraska and has been working for the company for about five years. We have lofty
aspirations for Matt as he works in the various divisions of Nelnet. (For important additional information about the
expected new board members, see the “Additional Information” caption below.)
2021 Letter to Shareholders | Page 14
Jona Van
Duen
Adam
Peterson
Matthew
Dunlap
At the very end of the year, right before the holidays, Mike was diagnosed with prostate cancer. Thankfully, through
the same preventive wellness services we offer our associates, the disease was detected early. Mike immediately
underwent surgery to have his prostate removed, recovered quickly, and we are happy to report he plans to lead us as
executive chairman for many years to come. Admittedly, the diagnosis gave us all pause, and we are truly thankful for
the positive outcome.
These types of life events remind us to stay humble, be grateful for every day, and live our purpose. To that end, here
at Nelnet, we will continue to fuel the machine so we can fulfill our purpose of serving others and helping make their
dreams come true.
Dream. Learn. Grow.
Jeff Noordhoek
Chief Executive Officer
Nelnet Board of Directors
Michael S.
Dunlap
James P.
Abel
Preeta
Bansal
William R.
Cintani
Kathleen A.
Farrell Ph.D.
David
Graff
Thomas E.
Henning
Kimberly
Rath
Nelnet Bank Board of Directors
Michael S.
Dunlap
Crawford
Cragun
Tim
Tewes
Jaime
Pack
Carine Strom
Clark
Connie
Edmond
Anthony
Goins
Andrea
Moss
2021 Letter to Shareholders | Page 15
Additional Information
More information about the expected new board members will be in an 8-K we’ll file with the Securities and Exchange
Commission (SEC) shortly after they are appointed, and in our definitive proxy materials to be filed for the 2022
annual meeting of shareholders scheduled for May 19, 2022. We currently expect Adam Peterson will be appointed
to the board as a Class II director, which means his term will expire at the 2022 annual meeting and that the board
will recommend that shareholders elect him to continue as a Class II director. We also expect to file our definitive
proxy materials in April 2022, which will include information about the participants in the solicitation of proxies and a
description of their direct or indirect interests, by security holdings or otherwise. Shareholders should read the proxy
statement when it is available because it contains important information. Shareholders and investors will be able to
get the proxy statement and any other relevant filed documents, free of charge, on the SEC’s website at www.sec.gov
and on our investor relations website at www.nelnetinvestors.com once such documents have been filed.
2021 Letter to Shareholders | Page 16
Forward-Looking and Cautionary Statements
This letter to shareholders contains forward-looking statements within the meaning of federal securities laws. The
words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,”
“predict,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to
identify forward-looking statements. These statements are based on management's current expectations as of the
date of this letter and are subject to known and unknown risks, uncertainties, assumptions, and other factors that
may cause the actual results and performance to be materially different from any future results or performance
expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:
risks and uncertainties related to the severity, magnitude, and duration of the Coronavirus Disease 2019 ("COVID-19")
pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business,
educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions
resulting from the pandemic; risks related to the ability to successfully maintain and increase allocated volumes
of student loans serviced by the company under existing and any future servicing contracts with the Department,
which current contracts accounted for 29 percent of the company's revenue in 2021; risks to the company related
to the Department's initiatives to procure new contracts for federal student loan servicing, including the pending
and uncertain nature of the Department's procurement process, risks that the company may not be successful in
obtaining any of such potential new contracts, and risks related to the company's ability to comply with agreements
with third-party customers for the servicing of loans; risks related to the company's loan portfolio, such as interest
rate basis and repricing risk and changes in levels of loan repayment or default rates; the use of derivatives to
manage exposure to interest rate fluctuations; the uncertain nature of expected benefits from FFEL Program, private
education, and consumer loan purchases and initiatives to purchase additional FFEL Program, private education,
and consumer loans or investment interests therein; financing and liquidity risks, including risks of changes in the
securitization and other financing markets for loans; risks and uncertainties from changes in terms of education loans
and in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and
government programs and budgets, such as changes resulting from the CARES Act and the expected decline over
time in FFEL Program loan interest income due to the discontinuation of new FFEL Program loan originations in 2010
and the resulting initiatives by the company to adjust to a post-FFEL Program environment; risks and uncertainties of
the expected benefits from the November 2020 launch of Nelnet Bank operations, including the ability to successfully
conduct banking operations and achieve expected market penetration; risks related to investments in solar projects,
including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities; risks and
uncertainties related to other initiatives to pursue additional strategic investments, acquisitions, and other activities,
including activities that are intended to diversify the company both within and outside of its historical core education-
related businesses; risks from changes in economic conditions and consumer behavior; cybersecurity risks, including
disruptions to systems, disclosure of confidential information, and/or damage to reputation resulting from cyber-
breaches; and changes in the general interest rate environment, including the availability of any relevant money-
market index rate such as LIBOR or the relationship between the relevant money-market index rate and the rate at
which the company's assets and liabilities are priced.
For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties
included in documents filed or furnished by the company with the SEC, including the most recent Form 10-K filed by
the company with the SEC. All forward- looking statements in this letter are as of the date of this letter. Although the
company may voluntarily update or revise its forward-looking statements from time to time to reflect actual results or
changes in the company's expectations, the company disclaims any commitment to do so except as required by law.
2021 Letter to Shareholders | Page 17
10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
COMMISSION FILE NUMBER 001-31924
NELNET, INC.
(Exact name of registrant as specified in its charter)
Nebraska
(State or other jurisdiction of incorporation or organization)
121 South 13th Street, Suite 100
Lincoln, Nebraska
(Address of principal executive offices)
84-0748903
(I.R.S. Employer Identification No.)
68508
(Zip Code)
Registrant’s telephone number, including area code: (402) 458-2370
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
Class A Common Stock, Par Value $0.01 per Share
Trading Symbol
NNI
Name of each exchange on which registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant on June 30, 2021 (the last business
day of the registrant’s most recently completed second fiscal quarter), based upon the closing sale price of the registrant’s Class A Common
Stock on that date of $75.23 per share, was $1,468,829,489. The registrant’s Class B Common Stock is not listed for public trading on any
exchange or market system, but shares of Class B Common Stock are convertible into shares of Class A Common Stock at any time on a
share-for-share basis. For purposes of this calculation, shares of common stock beneficially owned by any director or executive officer of the
registrant or by any person who beneficially owns greater than 10 percent of the Class A Common Stock or who is otherwise believed by the
registrant to be in a control position have been excluded, since such persons may be deemed to be affiliates of the registrant. This
determination of affiliate status is not conclusive for other purposes.
As of January 31, 2022, there were 27,101,036 and 10,674,892 shares of Class A Common Stock and Class B Common Stock, par value
$0.01 per share, outstanding, respectively (excluding 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed for its 2022 Annual Meeting of Shareholders, scheduled to be held May 19,
2022, are incorporated by reference into Part III of this Form 10-K.
Auditor Name: KPMG LLP
Auditor Location: Lincoln, Nebraska
Auditor Firm ID: 185
NELNET, INC.
FORM 10-K
TABLE OF CONTENTS
December 31, 2021
Forward-Looking and Cautionary Statements ............................................................................................
2
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business ..........................................................................................................................
Risk Factors .....................................................................................................................
Unresolved Staff Comments ...........................................................................................
Properties ........................................................................................................................
Legal Proceedings ...........................................................................................................
Mine Safety Disclosures .................................................................................................
PART II
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities ...............................................................................
[Reserved] .......................................................................................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations ..............................................................................................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ........................................
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Financial Statements and Supplementary Data ...............................................................
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ...............................................................................................................
Controls and Procedures .................................................................................................
Other Information ...........................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ...........................
PART III
Directors, Executive Officers, and Corporate Governance .............................................
Executive Compensation .................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ...............................................................................................
Certain Relationships and Related Transactions, and Director Independence ...............
Principal Accountant Fees and Services .........................................................................
PART IV
Exhibits and Financial Statement Schedules ..................................................................
Form 10-K Summary ......................................................................................................
Signatures ....................................................................................................................................................
4
21
36
36
36
36
36
38
38
69
73
73
73
74
74
75
75
75
75
75
76
82
83
Appendix A
Description of The Federal Family Education Loan Program ........................................
A-1
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This report contains forward-looking statements and information that are based on management's current expectations as of the
date of this document. Statements that are not historical facts, including statements about the Company's plans and expectations
for future financial condition, results of operations or economic performance, or that address management's plans and objectives
for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The
words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,”
“plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future
tense, are intended to identify forward-looking statements.
The forward-looking statements are based on assumptions and analyses made by management in light of management's
experience and its perception of historical trends, current conditions, expected future developments, and other factors that
management believes are appropriate under the circumstances. These statements are subject to known and unknown risks,
uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from
any future results or performance expressed or implied by such forward-looking statements. These factors include, among
others, the risks and uncertainties set forth in “Risk Factors” and elsewhere in this report, and include such risks and
uncertainties as:
•
•
•
•
•
•
risks and uncertainties related to the severity, magnitude, and duration of the coronavirus disease 2019 (“COVID-19”)
pandemic, including changes in the macroeconomic environment and consumer behavior, restrictions on business,
educational, individual, or travel activities intended to combat the pandemic, and volatility in market conditions
resulting from the pandemic, including interest rates, the value of equities, and other financial assets;
risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by the
Company under existing and any future servicing contracts with the U.S. Department of Education (the "Department"),
which current contracts accounted for 29 percent of the Company's revenue in 2021, risks to the Company related to
the Department's initiatives to procure new contracts for federal student loan servicing, including the pending and
uncertain nature of the Department's procurement process, risks that the Company may not be successful in obtaining
any of such potential new contracts, and risks related to the Company's ability to comply with agreements with third-
party customers for the servicing of Federal Direct Loan Program, Federal Family Education Loan Program (the
"FFEL Program" or "FFELP"), private education, and consumer loans;
loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate
characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets,
the risk of loss of floor income on certain student loans originated under the FFEL Program, risks related to the use of
derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from
purchased securitized and unsecuritized FFELP, private education, and consumer loans, or investment interests therein,
and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels
of loan prepayment or default rates;
financing and liquidity risks, including risks of changes in the general interest rate environment, including the
availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money
market index rate and the rate at which the Company's assets and liabilities are priced, and changes in the
securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment
trends on student loans in the Company's securitization trusts that could accelerate or delay repayment of the
associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance,
or continue to hold student loans;
risks from changes in the terms of education loans and in the educational credit and services markets resulting from
changes in applicable laws, regulations, and government programs and budgets, such as changes resulting from the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and the expected decline over time in FFELP
loan interest income due to the discontinuation of new FFELP loan originations in 2010 and potential government
initiatives or proposals to consolidate existing FFELP loans to the Federal Direct Loan Program, otherwise encourage
or allow FFELP loans to be refinanced with Federal Direct Loan Program loans, and/or create additional loan
forgiveness or broad debt cancellation programs;
risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of
third-party vendors, including cybersecurity risks related to a disclosure of confidential loan borrower and other
customer information, the potential disruption of the Company's systems or those of third-party vendors or customers,
and/or the potential damage to the Company's reputation resulting from cyber-breaches;
•
uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
2
•
•
•
•
•
risks and uncertainties of the expected benefits from the November 2020 launch of Nelnet Bank operations, including
the ability to successfully conduct banking operations and achieve expected market penetration;
risks related to the expected benefits to the Company and to ALLO Communications LLC (referred to collectively
with its holding company ALLO Holdings, LLC as “ALLO”) from the recapitalization and additional funding for
ALLO and the Company’s continuing investment in ALLO, and risks related to investments in solar projects,
including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities;
risks and uncertainties related to other initiatives to pursue additional strategic investments (and anticipated income
therefrom), acquisitions, and other activities, such as the transactions associated with the sale by Wells Fargo of its
private education loan portfolio for which the Company was selected as the new servicer (including risks associated
with errors that occasionally occur in converting loan servicing portfolio acquisitions to a new servicing platform, and
uncertainties associated with expected income from the joint venture that purchased the Wells Fargo portfolio),
including activities that are intended to diversify the Company both within and outside of its historical core education-
related businesses;
risks and uncertainties associated with climate change, including extreme weather events and related natural disasters,
which could result in increased loan portfolio credit risks and other asset and operational risks, as well as risks and
uncertainties associated with efforts to address climate change; and
risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive
regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of
increased regulatory costs resulting from the politicization of student loan servicing, potential changes to corporate tax
rates, and uncertainties inherent in the estimates and assumptions about future events that management is required to
make in the preparation of the Company's consolidated financial statements.
All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the
date of this document. Although the Company may from time to time voluntarily update or revise its prior forward-looking
statements to reflect actual results or changes in the Company's expectations, the Company disclaims any commitment to do so
except as required by law. In this report, unless the context indicates otherwise, references to "Nelnet," "the Company," "we,"
"our," and "us" refer to Nelnet, Inc. and its subsidiaries.
3
ITEM 1. BUSINESS
Overview
PART I.
Nelnet 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 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.
The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The
Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student
loans, principally consisting of loans originated under the Federal Family Education Loan Program. A detailed description of
the FFEL Program is included in Appendix A to this report.
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 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 the Reconciliation Act of 2010, 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. As of December 31, 2021, the
Company had a $17.2 billion FFELP loan portfolio that management anticipates will amortize over the next approximately 15
years and has a weighted average remaining life of approximately 8 years. 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 from FFELP loans, the Company has expanded its services and products. 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 explained below). In addition, the Company has been servicing federally owned student
loans for the Department since 2009.
Operating Segments
The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and
Management operating segment. This segment is expected to generate a stable net interest margin and significant amounts of
cash as the FFELP portfolio amortizes. In addition, the Company earns fee-based revenue through its Loan Servicing and
Systems and Education Technology, Services, and Payment Processing operating segments.
Further, the Company earned communications revenue through ALLO, formerly a majority-owned subsidiary of the Company
prior to a recapitalization of ALLO, resulting in the deconsolidation of ALLO from the Company’s financial statements on
December 21, 2020. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with
ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating
segment. See note 2, “ALLO Recapitalization” in the accompanying notes to consolidated financial statements included in this
report for a description of ALLO’s recapitalization and the Company’s continued involvement.
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’s operations are presented by the
Company as a reportable operating segment.
The Company’s reportable operating segments are summarized below. Business activities and operating segments that are not
reportable are combined and included in "Corporate and Other Activities." Corporate and Other Activities also includes income
earned on the majority of the Company’s investments and interest expense incurred on unsecured and other corporate related
debt transactions.
4
Loan Servicing and Systems (“LSS”)
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Referred to as Nelnet Diversified Services (“NDS”)
Focuses on student and consumer loan origination services and servicing, loan origination and servicing-related
technology solutions, and outsourcing business services
Includes the brands Nelnet Diversified Solutions, Nelnet Loan Servicing, Nelnet Servicing, Great Lakes
Educational Loan Services, Inc. (“Great Lakes”), Firstmark Services, GreatNet, Nelnet Renewable Energy, and
Nelnet Government Services
Education Technology, Services, and Payment Processing (“ETS&PP”)
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Referred to as Nelnet Business Services (“NBS”)
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
Includes the divisions of FACTS, Nelnet Campus Commerce, PaymentSpring, Nelnet Community Engagement,
and Nelnet International
Communications
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Includes the operations of ALLO prior to the deconsolidation of ALLO on December 21, 2020
Focuses on providing fiber optic service directly to homes and businesses for internet, telephone, and television
services
Asset Generation and Management (“AGM”)
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Also referred to as Nelnet Financial Services
Includes the acquisition and management of student and other loan assets
Nelnet Bank
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Internet Utah-chartered industrial bank focused on the private education loan marketplace
A more detailed description of each of the Company's reportable operating segments and Corporate and Other Activities is
provided below.
Loan Servicing and Systems
The primary service offerings of this operating segment include:
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Servicing federally-owned student loans for the Department
Servicing FFELP loans
Originating and servicing private education and consumer loans
Backup servicing for FFELP, private education, and consumer loans
Providing student loan servicing software and other information technology products and services
Customer acquisition, management services, and backup servicing for community solar developers
Providing outsourced services including call center, processing, and technology services
As of December 31, 2021, the Company serviced $529.0 billion of loans for 16.4 million borrowers. See Part II, Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) - “Loan Servicing and
Systems Operating Segment - Results of Operations - Loan Servicing Volumes” for additional information related to the
Company's servicing volume.
Servicing federally-owned student loans for the Department
Nelnet Servicing, LLC (“Nelnet Servicing”), a subsidiary of the Company, and Great Lakes, acquired by the Company in
February 2018, are two of the current seven private sector entities that have student loan servicing contracts with the
Department to service loans that include Federal Direct Loan Program loans originated directly by the Department and FFEL
Program loans purchased by the Department. As of December 31, 2021, Nelnet Servicing was servicing $215.8 billion of
student loans for 6.4 million borrowers under its contract, and Great Lakes was servicing $262.6 billion of student loans for 7.8
million borrowers under its contract. Under the servicing contracts, Nelnet Servicing and Great Lakes earn a monthly fee from
the Department for each unique borrower they service on behalf of the Department. The Department is the Company's largest
customer, representing 29 percent of the Company's revenue and 69 percent of the LSS operating segment’s revenue in 2021.
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
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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.
In July 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a servicer for the Department, announced
that it will exit the federal student loan servicing business. PHEAA notified the Department it would not be accepting a long-
term extension of its student loan servicing contract beyond what was needed to ensure a smooth transition for borrowers. In
November 2021, PHEAA and the Department agreed to a short-term extension that will expire in December 2022. All
applicable student loans serviced by PHEAA will be transferred to successor servicers prior to the end of this contract
extension. At the time of its announcement, PHEAA serviced approximately 8.5 million borrowers under its contract. A portion
of the PHEAA servicing volume has been and will be transitioned prior to May 1, 2022, which is the date on which the
suspension of federal student loan payments under the CARES Act is scheduled to expire. Approximately 850,000 PHEAA
borrowers have been transitioned to Nelnet Servicing’s platform as of the date of this filing (of which approximately 603,000
were converted prior to December 31, 2021). The Company anticipates additional PHEAA volume to be transitioned to its
platform during the remainder of 2022, but cannot currently estimate the number of additional borrowers that will be transferred
and/or the timing of such transfers.
In addition, the New Hampshire Higher Education Association Foundation Network (“Granite State”) exited the federal student
loan servicing business in 2021. Granite State’s servicing volume of approximately 1.3 million borrowers was transitioned to
Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third and fourth quarters of 2021.
Edfinancial utilizes Nelnet Servicing's platform to service their loans for the Department, as did Granite State prior to its exit.
The Department currently allocates new loan volume among its servicers based on certain performance metrics that measure the
satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers. The
metrics also measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default.
Under the most recent publicly announced performance metrics used by the Department for the quarterly periods January 1,
2021 through June 30, 2021, Great Lakes’ and Nelnet Servicing’s overall rankings among the remaining six go-forward
servicers for the Department (which excludes PHEAA) were third and fifth, respectively. Based on these results, Great Lakes’
and Nelnet Servicing’s allocation of new student loan servicing volumes beginning September 1, 2021 are 18 percent and 12
percent, respectively.
Servicing contract amendments entered into with the Department in September 2021 to extend the contracts through December
14, 2023, also amended the methodology for performance measurements and new loan volume allocations, in part by reflecting
additional service level performance metrics under which, along with portfolio performance metrics, the Department will
evaluate each servicer and make new loan volume allocations on a quarterly basis.
Incremental revenue components earned by Nelnet Servicing or Great Lakes from the Department (in addition to loan servicing
revenues) include:
•
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Administration of the Total and Permanent Disability (TPD) Discharge program. Nelnet Servicing processes
applications for the TPD discharge program and is responsible for discharge, monitoring, and servicing TPD loans.
Individuals who are totally and permanently disabled may qualify for a discharge of their federal student loans, and the
Company processes applications under the program and receives a fee from the Department on a per application basis,
as well as a monthly servicing fee during the monitoring period. Nelnet Servicing is the exclusive provider of this
service to the Department.
Origination of consolidation loans. The Department outsources the origination of consolidation loans whereby each of
the servicers receive Federal Direct Loan consolidation origination volume based on borrower choice. The Department
pays the Company a fee for each completed consolidation loan application it processes. Nelnet Servicing and Great
Lakes each service the consolidation volume it originates.
Servicing FFELP loans
NDS services the Company's FFELP student loan portfolio and the portfolios of third parties. The loan servicing activities
include loan conversion activities, application processing, borrower updates, customer service, payment processing, due
diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for the
Company's portfolio, in addition to generating external fee revenue when performed for third-party clients.
6
The Company uses proprietary systems to manage the servicing process. These systems provide for automated compliance with
most of the federal student loan regulations adopted under Title IV of the Higher Education Act of 1965, as amended (the
“Higher Education Act”).
The Company serviced FFELP loans on behalf of 120 third-party servicing customers as of December 31, 2021. The
Company's FFELP servicing customers include national and regional banks, credit unions, and various state and nonprofit
secondary markets. The majority of the Company's external FFELP loan servicing activities are performed under “life of loan”
contracts, which essentially provide that as long as the applicable loan exists, the Company shall be the sole servicer of that
loan; however, the agreement may contain “deconversion” provisions where, for a fee, the lender may move the loan to another
servicer.
The discontinuation of new FFELP loan originations in July 2010 has caused and will continue to cause FFELP servicing
revenue to decline as these loan portfolios are paid down. However, the Company believes there may be opportunities to
service additional FFELP loan portfolios from current FFELP participants as the program winds down.
Originating and servicing private education and consumer loans
NDS conducts origination and servicing activities for private education and consumer loans. Private education loans are non-
federal private credit loans made to students or their family; as such, the loans are not issued or guaranteed by the federal
government. 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 the borrowers' personal resources. Although similar in terms of activities and functions
as FFELP loan servicing (e.g., application processing, disbursement processing, payment processing, customer service,
statement distribution, and reporting), private education loan servicing activities are not required to comply with provisions of
the Higher Education Act and may be more customized to individual client requirements.
The Company has invested and currently plans to continue to invest in modernizing key technologies and services to position
its consumer loan servicing business for the long-term, expanding services to include personal loan products and other
consumer installment assets. The Company is in the process of a complete modernization of its private education and consumer
loan origination and repayment servicing systems. Improvements in systems will allow for diversified products to be both
originated and serviced with secure, state-of-the-art application and servicing platforms to drive growth for the Company's
client partners. Presenting a very wide market opportunity of new entrants and existing players, consumer lending is currently
expected to be a growth area. In both backup servicing and full servicing partnerships, the Company is a valuable resource for
consumer lenders and asset holders as it allows for leveraged economies of scale, high compliance, and secure service to client
partners.
In December of 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education student
loans representing approximately 445,000 borrowers. In conjunction with the sale, the Company was selected as servicer of the
portfolio. During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the
vast majority of the remaining borrowers converted in the second quarter of 2021.
As of December 31, 2021, NDS serviced private education and consumer loans on behalf of 37 third-party servicing customers.
Backup servicing for FFELP, private education, and consumer loans
NDS offers protection against unexpected business failure, or any event that stretches a third party service provider’s resources
beyond its capability to perform essential services, through backup servicing. Backup servicing for loan asset owners, investors,
financiers, and other stakeholders is a way to safeguard assets and mitigate financial risk, generally in conjunction with a
structured long-term financing of the assets (like an asset-backed securitization).
NDS’s backup service provides a trigger response plan with pre-built system profiles that remain on standby, ready to be
utilized if a contracted asset manager or service provider cannot perform its duties. The Company performs testing and
maintenance against the loan transfer process each month with backup clients and certifies compliance. For a monthly fee, these
arrangements require a 30 to 90 day notice from a triggering event to transfer the customer's servicing volume to the Company's
platform and becoming a full servicing customer. NDS offers backup servicing for FFEL, private education, and consumer loan
programs that leverages existing servicing systems and full service experience. NDS provides backup servicing arrangements to
assist 18 entities for more than 13 million borrowers.
Providing student loan servicing software and other information technology products and services
NDS provides data center services, student loan servicing software for servicing private education and federal loans, guaranty
servicing software, and consulting and professional services to support the technology platforms. These proprietary software
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systems are used internally by the Company and/or licensed to third-party student loan holders and servicers. These software
systems have been adapted so they can be offered as hosted servicing software solutions that can be used by third parties for
guaranty servicing and to service various types of student loans, including Federal Direct Loan Program and FFEL Program
loans. The Company earns a monthly fee from its remote hosting customers for each loan or unique borrower on the Company's
platform, with a minimum monthly charge for most contracts. As of December 31, 2021, 4.8 million borrowers were hosted on
the Company's hosted servicing software solution platforms, including 4.6 million borrowers who were serviced by entities that
have contracts to service loans for the Department. As of December 31, 2020, 6.6 million borrowers were hosted on the
Company’s platforms. In January 2021, a contract with Great Lakes’ former parent company expired that resulted in a reduction
of 2.3 million borrowers.
Customer acquisition, management services, and backup servicing for community solar developers
NDS, under the brand Nelnet Renewable Energy, works with solar developers and financiers to provide marketing, sales, and
customer engagement services to meet key milestones before solar projects are interconnected to the grid and provide the
subsequent operational support for the term of the subscriber agreement, including addressing incoming inquiries, verifying
eligibility, billing, payment processing, and reconciliation. The Company earns a one-time fee for subscriber acquisition and a
recurring fee for subscriber management. Additionally, NDS provides backup servicing capabilities to solar developers and
financiers, which provides assurances that projects will still be serviced in the event the primary servicer’s situation changes.
Providing outsourced services including call center, processing, technology, and marketing services
NDS provides business process outsourcing primarily specializing in contact center management. The contact center solutions
and services include taking inbound calls, helping with outreach campaigns and sales, and interacting with customers through
multi-channels. Processing services include application processing and verification, payment processing, credit dispute, and
account management services. NDS also outsources technology expertise and capacity to supplement development needs in
organizations.
Competition
The Company's scalable servicing platform allows it to provide compliant, efficient, and reliable service at a low cost, giving
the Company a competitive advantage over others in the industry. In contrast to its competitors, the Company has segmented its
private education loan servicing on a distinct platform, created specifically to meet the needs of private education student loan
borrowers, their family, the school they attend, and the lenders who serve them. This ensures access to specialized teams with a
dedicated focus on servicing these borrowers.
Seven entities, including Nelnet Servicing and Great Lakes, are currently servicers of federally-owned loans. Upon completion
of the exit of PHEAA from the federal student loan servicing business, six servicers will remain on a go-forward basis. NDS
currently licenses its hosted servicing software to two of the eventual remaining six servicers for the Department.
NDS is one of the leaders in the development of servicing software for guaranty agencies, consumer and private education loan
programs, the Federal Direct Loan Program, and FFELP student loans. Many student loan lenders and servicers utilize the
Company's software either directly or indirectly. NDS believes the investments it has made to scale its systems and to create a
secure infrastructure to support the Department's servicing volume and requirements increase its competitive advantage as a
long-term partner in the loan servicing market.
Education Technology, Services, and Payment Processing
NBS is a service and technology company that operates as the following divisions:
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•
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FACTS
Nelnet Campus Commerce
PaymentSpring
Nelnet Community Engagement
Nelnet International
The majority of this segment’s customers are located in the United States; however, the Company also provides services and
technology as part of its Nelnet International division in Australia, New Zealand, and Southeast Asia, and currently believes
there are opportunities to increase its customer base and revenues internationally.
See the MD&A - “Education Technology, Services, and Payment Processing Operating Segment - Results of Operations” for
an overview of the seasonality of the business in this operating segment.
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A more detailed description of each NBS division is provided below. For a presentation of NBS revenue disaggregated by
service offering into tuition payment plan services revenue, payment processing revenue, and education technology and
services revenue, see the MD&A - “Education Technology, Services, and Payment Processing Operating Segment - Results of
Operations - Summary and Comparison of Operating Results - Education technology, services, and payment processing
revenue.” In the discussion below, revenues from the described products and services are included in education technology and
services revenue in such presentation, unless specifically indicated otherwise.
FACTS
NBS uses the FACTS brand in the K-12 private and faith-based markets. FACTS provides solutions that elevate the K-12
experience for school administrators, teachers, and families. FACTS solutions include the following categories:
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•
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Financial Management
Administration
Enrollment and Communications
Advancement
Education Development
FACTS provides services for almost 11,000 K-12 schools and serves over 4 million students and families. FACTS generated
$185 million and $142 million in revenue for the years ended December 31, 2021 and 2020, respectively.
Financial Management - FACTS is the market leader in education financial management services, including tuition payment
plans and financial needs assessment (grant and aid). K-12 educational institutions contract with the Company to administer
tuition payment plans that allow families to make recurring payments generally over six to 12 months. The Company earns
tuition payment plan services revenue by collecting a fee from either the institution or the payer to administer the plan.
Additionally, the Company may earn revenue for payment processing fees when families make tuition payments. The
Company's grant and aid assessment service helps K-12 schools evaluate and determine the amount of financial aid to disburse
to the families it serves. The Company earns service revenue by charging a fee for grant and aid applications processed.
Administration - The Company’s school administration solutions include FACTS Student Information System (“SIS”), Family
App, and Parent Alert. FACTS SIS 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. The
Company’s information systems software is sold as a subscription service to schools. The Company also offers a streamlined,
social, and fully integrated learning management system to enhance classroom instruction for both teachers and students.
FACTS Family App provides families with mobile access to the information they need and Parent Alert allows for instant
communication with families when needed.
Enrollment and Communications – The Company’s enrollment and communications tools are used by schools to enhance and
streamline admissions and communications efforts. FACTS Application & Enrollment provides a paperless experience for the
admissions office and provides schools with real-time information as applications and enrollment forms are completed. The
Company earns a fee per completed application and/or enrollment form. FACTS School Site is a website content management
system for schools to promote and share information with current and prospective families. FACTS solutions in this area allow
for better overall connection between admissions, enrollment, and marketing.
The combination of the Company’s financial management, administration, and enrollment and communications products has
significantly increased the value of the Company’s offerings in this area, allowing the Company to deliver a comprehensive
suite of solutions to schools.
Advancement - The Company's advancement solution, FACTS Giving, is a comprehensive donation platform that streamlines
donor communications, organizes donor information, and provides access to data analysis and reporting. FACTS Giving pairs
with other FACTS solutions like SIS, School Site, and Family App. FACTS Giving simplifies incoming donations through
appeal pages and online registration for virtual school events. FACTS Giving features also include text-to-give functionality,
options to manage specific fundraising projects or year-long campaigns, and real-time reports to analyze fundraising efforts.
The Company earns subscription fees and payment processing revenues for these services.
Education Development - FACTS Education Solutions provides customized professional development and coaching services
for teachers and school leaders as well as instructional services for students experiencing academic challenges. These services
provide continuous advanced learning and professional development while helping private schools identify and attain equitable
participation in Title I and Title II federal education programs. FACTS Education Solutions also offers an innovative
technology product that aids in both teacher and student evaluation.
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Nelnet Campus Commerce
NBS uses the Nelnet Campus Commerce brand to offer payment technologies for a smarter campus to higher education
institutions. Nelnet Campus Commerce offers the following solutions:
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Tuition Management
Integrated Commerce
The Company provides service for more than 1,150 colleges and universities worldwide and serves over 7 million students and
families. Nelnet Campus Commerce generated $99 million and $97 million in revenue for the years ended December 31, 2021
and 2020, respectively.
Tuition Management - Higher education institutions contract with the Company to administer tuition payment plans that allow
the student and family to make recurring payments on either a semester or annual basis. The Company earns tuition payment
plan services revenue by collecting a fee from either the student or family to administer the plan. Additionally, the Company
may earn payment processing revenue when families make tuition payments.
Nelnet Billing & Payments allows schools to send automated bills for tuition and fees, housing, parking, and other campus
service offerings and allows students to safely make online payments from anywhere. Nelnet Refunds helps schools stay
compliant with federal refund regulations and allows students choice in their refund method. The Company earns hosting fees,
per transaction fees, and credit card processing fees for its Nelnet Billing & Payments and Nelnet Refunds products. Credit card
processing fees are included in payment processing revenue.
Integrated Commerce – Nelnet Campus Commerce integrated commerce solutions help schools maintain revenue sources
across campus including in-person payments, online shopping experiences, and a mobile app. Nelnet Storefront provides online
stores for departments across campus with consolidated views and management by the business office. Nelnet Cashiering
allows higher education institutions to manage all in-person payments on campus. Students can receive in-app messages, make
payments on their phone, and use a digital student ID with the Company’s Nelnet Campus Key product. The Company earns
hosting fees, per transaction fees, and credit card processing fees for its integrated commerce solutions. Credit card processing
fees are included in payment processing revenue.
PaymentSpring
NBS uses the PaymentSpring brand to provide secure payment processing technology. PaymentSpring supports and provides
payment processing services, including credit card and electronic transfers, to the other divisions of NBS in addition to other
industries and software platforms across the United States. PaymentSpring offers mobile, in-person, and online solutions for
customers to collect, process, and view credit card and Automated Clearing House (“ACH”) payments. PaymentSpring services
are Payment Card Industry (“PCI”) compliant. PaymentSpring earns payment processing revenues through fees for credit card
and ACH transactions. PaymentSpring generated $43 million and $39 million in revenue for the years ended December 31,
2021 and 2020, respectively.
Nelnet Community Engagement
NBS uses the Nelnet Community Engagement (“NCE”) brand to provide faith community engagement, giving management,
and learning management services and technologies. NCE serves customers in the technology, nonprofit, religious, health care,
and professional services industries and is the newest division within NBS. NCE generated $6 million and $2 million in revenue
for the years ended December 31, 2021 and 2020, respectively, and offers the following solutions:
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Faith Community Engagement
Giving Management
Learning Management
Faith Community Engagement – NCE services and technologies enable church leaders and members to easily engage and
communicate with each other. Faith Community Engagement product features include a customizable mobile app, text
messaging, forms and registrations, and other digital tools to strengthen communication and engagement. Additional solutions
provide content management services including bulletin, news articles, and event calendars, as well as customized websites that
provide on-demand support and automated communication to keep members engaged through newsletters and social media.
The Company earns subscription fees and content creation fees for these services.
Giving Management – Giving Management products connect organizations with partners, donors, and volunteers to make
personalized giving simple. Giving management administrative features provide a dashboard, customizable receipts, pledge
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management, and real-time reporting. Donors have options to give using the product's mobile app, text messaging, or passcode
and can be one-time or recurring gifts. The Company earns subscription fees and payment processing revenues for these
services.
Learning Management – NCE offers comprehensive solutions that use innovations such as extended enterprise, social
collaborations, and gamification to expand capabilities and engage and motivate learners. Live and online training and
certification is managed with simplified reporting, tracking, and record maintenance. NCE technologies allow customers to
update certificate programs or create new custom learning programs to meet emerging needs. The Company earns subscription
fees and content creation fees for these services. Additionally, a fee may be earned from learners completing course offerings.
Nelnet International
NBS uses the brand Nelnet International to serve customers in the education, local government, and health care space to build
future-focused agile businesses. Nelnet International products include service and technology that align with the similarly
named products categories for FACTS and Nelnet Campus Commerce. Nelnet International products include:
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Integrated Commerce
Financial Management
Administration
Integrated Commerce – Nelnet International’s Xetta platform provides commerce payment solutions to its customers. Xetta
captures and centralizes financial information across organizations and integrates with core business systems to simplify
workflows, expand payment capabilities, streamline reconciliation, reduce security and compliance risk, and provide reporting
and analytics. The Company earns subscription and consulting fees for the utilization of the Xetta platform.
Financial Management – Tuition payment plans and other financial management services are provided to customers
internationally using the FACTS brand and service platforms. Refer to “Financial Management” under the FACTS division for
additional information.
Administration – PCSchool is a cloud-based school management platform that provides administrative, information
management, financial management, and communication functions for K-12 schools in Australia and New Zealand. Outside of
Australia and New Zealand, Nelnet International provides administration products under the FACTS brand. The technology and
services provided are consistent with the “Administration” products described under the FACTS division. The Company earns
subscription fees and per transaction revenues for providing these services.
Nelnet International provides its services and technology to schools in more than 50 countries, with the largest concentrations in
Australia, New Zealand, and the Asia-Pacific region. Nelnet International generated $7 million and $6 million in revenue for
the years ended December 31, 2021 and 2020, respectively.
Competition
The Company is the largest provider of tuition management and financial needs assessment services to the private and faith-
based K-12 market in the United States. Competitors include financial institutions, tuition management providers, financial
needs assessment providers, accounting firms, and a myriad of software companies.
In the higher education market, the Company targets business offices at colleges and universities. In this market, the primary
competition is from a relatively small number of campus commerce and tuition payment providers, as well as solutions
developed in-house by colleges and universities.
The Company's principal competitive advantages are (i) the customer service it provides to institutions and consumers, (ii) the
technology provided with the Company's service, and (iii) the Company's ability to integrate its technology with the institution
clients and their third-party service providers. The Company believes its clients select products primarily based on technology
features, functionality, and the ability to integrate with other systems, but price and service also impact the selection process.
Communications
The Company provided communication services through ALLO, a former majority-owned subsidiary, until a recapitalization
and additional funding for ALLO resulted in a deconsolidation of ALLO from the Company’s consolidated financial statements
in the fourth quarter of 2020. The Company continues to hold a significant investment in ALLO. See note 2 of the notes to
consolidated financial statements included in this report for additional information related to the ALLO recapitalization.
ALLO’s results of operations, prior to deconsolidation, are presented by the Company as a reportable operating segment.
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ALLO derives its revenue primarily from the sale of telecommunication services, including internet, telephone, and television
services, to business, governmental, and residential customers in Nebraska and Colorado, and specializes in high-speed internet
and broadband services available through its all-fiber network. ALLO plans to continue to increase market share and revenue in
its existing markets and plans to expand to additional communities. ALLO has announced plans to serve customers in Arizona
and is currently seeking regulatory approval to do so. As of December 31, 2021, ALLO currently serves, is in the process of
building their network in, and has announced they will build in a total of 26 communities. The total households in these
communities is approximately 325,000. As of December 31, 2021, ALLO served almost 73,000 residential customers and had
more than 34,000 business lines.
Asset Generation and Management
AGM includes the acquisition, management, and ownership of the Company's loan assets (excluding loan assets held by Nelnet
Bank). Loans consist of federally insured student loans (originated under the FFEL Program), private education loans, and
consumer loans. Substantially all of AGM’s loan portfolio (98.0 percent as of December 31, 2021) is federally insured. As of
December 31, 2021, AGM's loan portfolio was $17.4 billion. The Company 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. See the MD&A - "Asset Generation and Management Operating Segment - Results of Operations - Loan Spread
Analysis,” for further details related to loan spread. 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.
AGM's portfolio of federally insured student loans is subject to minimal credit risk, as these loans are guaranteed by the
Department at levels ranging from 97 percent to 100 percent. The Higher Education Act regulates every aspect of the federally
insured student loan program, including certain communications with borrowers, loan originations, and default aversion. Failure
to service a student loan properly could jeopardize the guarantee on federal student loans. In the case of death, disability, or
bankruptcy of the borrower, the guarantee covers 100 percent of the loan's principal and accrued interest. FFELP loans are
guaranteed by state agencies or nonprofit companies designated as guarantors, with the Department providing reinsurance to the
guarantor. Guarantors are responsible for performing certain functions necessary to ensure the program's soundness and
accountability. Generally, the guarantor is responsible for ensuring that loans are serviced in compliance with the requirements
of the Higher Education Act. When a borrower defaults on a FFELP loan, AGM submits a claim to the guarantor, who provides
reimbursements of principal and accrued interest, subject to the applicable risk share percentage.
Origination and acquisition
The Reconciliation Act of 2010 discontinued originations of new FFELP loans, effective July 1, 2010. However, the Company
believes there may be ongoing opportunities to continue to purchase FFELP loan portfolios from current FFELP participants
looking to exit or adjust their FFELP businesses. For example, the Company purchased a total of $904.1 million of FFELP
student loans from various third parties during 2021. However, since all FFELP loans will eventually pay off, a key objective of
the Company over the last several years is to reposition itself for the post-FFELP environment. As such, the Company is
actively acquiring private education and consumer loans and currently plans to expand these portfolios. During 2021, the
Company purchased $89.3 million of private education loans and $81.9 million of consumer loans.
AGM's competition for the purchase of FFELP, private education, and consumer loan portfolios includes banks, hedge funds,
and other finance companies.
Interest rate risk management
Since the Company generates a significant portion of its earnings from its loan spread, the interest rate sensitivity of the
Company's balance sheet is very important to its operations. The current and future interest rate environment can and will affect
the Company's interest income and net income. The effects on the Company's results of operations as a result of the changing
interest rate environments are further outlined in the MD&A - "Asset Generation and Management Operating Segment - Results
of Operations - Loan Spread Analysis" and in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk -
Interest Rate Risk - AGM Operating Segment.”
Nelnet Bank
Nelnet Bank is a Utah-chartered, FDIC-insured industrial bank headquartered in Salt Lake City, Utah. Nelnet Bank is governed
by a board of directors, a majority of the members of which are independent of the Company. Nelnet Bank was formed
November 2, 2020, and is a wholly-owned subsidiary of the Company. Nelnet Bank was funded by the Company with an initial
capital contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed
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securities. As a consolidated subsidiary of the Company, the Bank’s assets, liabilities, results of operations, and cash flows are
reflected in the Company’s consolidated financial statements, and the industrial bank charter allows the Company to maintain
its other diversified business offerings.
Nelnet Bank serves and plans to serve a niche market, with a concentration in the private education and unsecured consumer
loan markets. Currently, Nelnet Bank offers refinance private education loan options to borrowers that have higher priced
private education and/or federal student loan debt. Throughout Nelnet Bank’s three-year de novo period, Nelnet Bank plans to
continue to launch products focused on helping students achieve their dreams, with the origination of in-school private
education loans, K-12 education loans offered to families attending private primary and secondary schools in the United States,
and unsecured consumer loans, primarily refinance loans, for consumers to consolidate credit card and other general-purpose
debt. Nelnet Bank extends consumer loans to borrowers in all 50 states plus the District of Columbia. As of December 31,
2021, Nelnet Bank’s loan portfolio was $257.9 million. Nelnet Bank currently plans to offer its in-school private education loan
product to students attending higher education institutions by the second quarter of 2022 for the 2022-2023 academic school
year.
Nelnet Bank’s deposits are interest-bearing and consist of brokered certificates of deposit (CDs), retail and other savings
deposits and CDs, and intercompany deposits. Retail and other deposits include savings deposits from 529 College Savings and
Health Savings plans and commercial and institutional CDs. Union Bank and Trust Company (“Union Bank”), a related party,
is the program manager for the College Savings plans. The intercompany deposits are deposits from the Company and its
subsidiaries and include a pledged deposit of $40.0 million from Nelnet, Inc. (parent company), as required under a Capital and
Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating deposits, and
NBS custodial deposits consisting of tuition payments collected which are subsequently remitted to the appropriate school. As
of December 31, 2021, Nelnet Bank had $425.4 million of deposits.
As a Utah-chartered industrial bank, Nelnet Bank is able to fulfill its mission of being a steady and stable supplier of education
credit. The Bank’s goal is to meet underserved needs in the United States for reliable education financing. The Company’s
strong history within, and understanding of, the education industry will afford Nelnet Bank access to more families
participating in education nationwide.
Corporate and Other Activities
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other
Activities. Corporate and Other Activities include the following items:
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The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered
investment advisor subsidiary
The results of the majority of the Company’s investment activities, including early-stage and emerging growth
companies, real estate, and renewable energy (solar)
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. These costs are allocated to each operating segment based on estimated use of such activities and
services.
Whitetail Rock Capital Management, LLC
As of December 31, 2021, WRCM had $2.6 billion in assets under management for third-party customers, consisting of student
loan asset-backed securities ($2.0 billion) and Nelnet stock ($0.6 billion) - primarily shares of Class B common stock. WRCM
earns annual management fees of 10 basis points to 25 basis points for asset-backed securities under management and a share of
the gains from the sale of securities or securities being called prior to the full contractual maturity for which it provides advisory
services. WRCM earns annual management fees of five basis points for Nelnet stock under management. During 2021, WRCM
earned $4.2 million in management fees and generated $3.6 million in performance fees.
Investments
The Company makes investments to further diversify itself both within and outside of its historical core education-related
businesses, including investments in early-stage and emerging growth companies, real estate, renewable energy resources (solar
projects), and various equity and student loan and other asset backed securities. As of December 31, 2021, the Company has a
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$1.6 billion portfolio of investments. See note 7 in the notes to consolidated financial statements for additional detail of the
Company’s investments, including a summary of holdings.
Early-Stage and Emerging Growth (Venture Capital) Investments
The Company has invested in early-stage, emerging growth companies and various funds. As of December 31, 2021, the
Company has investments in 76 entities and funds and the carrying value of such investments was $225.4 million. The largest
investment in the Company’s venture capital portfolio is Hudl. As of December 31, 2021, the carrying value of the Company’s
investment in Hudl was $133.9 million. Hudl is a leading sports performance analysis company, and their software provides
more than 200,000 teams across 40 sports and in 150 countries the insights to be more competitive. David S. Graff, a member
of the Company’s board of directors, is a co-founder, the chief executive officer, and a director of Hudl.
Real Estate
As of December 31, 2021, the Company has 33 real estate investments across the United States with a carrying value of $47.2
million. Included in the Company’s real estate portfolio is the development of commercial properties in the Midwest, and
particularly in Lincoln, Nebraska, where the Company is headquartered. The local investments include projects for the
development of properties in Lincoln’s east downtown Telegraph District, where a new facility for the Company’s student loan
servicing operations is located, and projects in Lincoln’s Haymarket District, including the new headquarters of Hudl. The
Company is also a tenant at Hudl's headquarters.
Solar
As of December 31, 2021, the Company has invested a total of $168.7 million (which excludes $59.2 million syndicated to
third-party investors) in tax equity investments in renewable energy solar partnerships to support the development and
operations of solar projects throughout the country. These investments provide a federal income tax credit under the Internal
Revenue Code, currently at 26 percent (for projects commencing construction in 2020-2022) and 30 percent (for projects
commencing construction prior to 2020) of the eligible project cost, with the tax credit available when the project is placed-in-
service. The Company is then allowed to reduce its tax estimates paid to the U.S. Treasury based on the credits earned. In
addition to the credits, the Company structures the investments to receive quarterly distributions of cash from the operating
earnings of the solar project for a period of at least five years (so the tax credits are not recaptured). After that period, the
contractual agreements typically provide for the Company’s interest in the projects to be purchased in an exit at the fair market
value of the discounted forecasted future cash flows allocable to the Company. Given the expected timing of cash flows,
experience the Company has in underwriting these assets, and beneficial impact to the climate, the Company believes these
investments are a great fit within its capital deployment initiatives.
These investments are structured such that a significant proportion of the cash distributions and tax items (including the income
tax credit) are allocated back to the Company within the first eighteen months of the investment capital contribution, in order to
achieve a target after tax return. The cash distributions to the Company are then structured to flatten until exit, typically
between years five and six. Given the unique arrangement in which investors share in the profits and losses of the solar
investment with cash and tax benefit allocations among the partners changing over the life of the project, the accounting
guidance calls for the use of the Hypothetical Liquidation at Book Value (“HLBV”) method, which can result in non-linear
GAAP income/loss allocation results. Under this method, a balance sheet approach is utilized to determine what each investor
would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements,
assuming the net assets of the funding structures were liquidated at their recorded amounts determined in accordance with
GAAP. As the investor receives a majority of this return through the income tax credit and higher cash distributions at the
beginning of the investment, as of the first period of the hypothetical liquidation, the investor’s remaining net claim on assets is
relatively low compared to the initial cash contributed. This difference between the initial cash contributions and the first
period’s ending net claim on assets through the hypothetical liquidation causes significant GAAP losses on the investment to be
recognized through the income statement within the initial periods of the investment. After the carrying value of the investment
on the balance sheet is written down to the hypothetical liquidation amount, subsequent year’s earnings are expected to align
with and reflect the operating profits or losses of the investment. The Company realizes that application of the HLBV method to
its solar investments has a variable impact on its periodic earnings that in the early years is not reflective of the expected long-
term economics of the investments. Given the significant amount of investments made in the last couple of years and the
associated ramp-up period, the Company recognized a $3.0 million and $33.6 million pre-tax loss attributable to its interests in
these investments in 2021 and 2020, respectively, under the HLBV method. These pre-tax loss amounts in 2021 and 2020
exclude $7.1 million and $3.8 million, respectively, of losses attributable to third-party investors that are included in “net loss
attributable to noncontrolling interests” on the Company’s consolidated statements of income. As these investments mature and
perform as forecasted, the Company expects to recoup that loss and realize additional income between now and the sale of each
of its interests, likely 60 to 72 months from the date the project is placed in service. Thus, the Company expects the economic
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gain from these investments to be realized in its future earnings, but, due to the hypothetical liquidation valuations as of the
balance sheet dates during the intended investment horizon, the HLBV method results in some volatility in the Company’s
consolidated periodic earnings results.
Regulation and Supervision
The Company's operating segments and industry partners are heavily regulated by federal and state government regulatory
agencies. The following provides a summary of the more significant existing and proposed legislation and regulations affecting
the Company. A failure to comply with these laws and regulations could subject the Company to substantial fines, penalties,
and remedial and other costs, restrictions on business, and the loss of business. Regulations and supervision can change rapidly,
and changes could alter the Company's business plans and increase the Company's operating expenses as new or additional
regulatory compliance requirements are addressed.
Loan Servicing and Systems
NDS, which services Federal Direct Loan Program, FFELP, and private education and consumer loans, is subject to federal and
state consumer protection, privacy, and related laws and regulations. Some of the more significant federal laws and regulations
include:
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The Higher Education Act, which establishes financial responsibility and administrative capability requirements that
govern all third-party servicers of federally insured student loans
The Telephone Consumer Protection Act (“TCPA”), which governs communication methods that may be used to contact
customers
The Truth-In-Lending Act (“TILA”) and Regulation Z, which govern disclosures of credit terms to consumer borrowers
The Fair Credit Reporting Act (“FCRA”) and Regulation V, which govern the use and provision of information to
consumer reporting agencies
The Equal Credit Opportunity Act (“ECOA”) and Regulation B, which prohibit discrimination on the basis of race, creed,
or other prohibited factors in extending credit
The Servicemembers Civil Relief Act (“SCRA”), which applies to all debts incurred prior to commencement of active
military service and limits the amount of interest, including certain fees or charges that are related to the obligation or
liability
The Military Lending Act (“MLA”), which protects active-duty members of the military, their spouses, and their
dependents from certain lending practices
The Electronic Funds Transfer Act (“EFTA”) and Regulation E, which protect individual consumers engaged in electronic
fund transfers (“EFTs”)
The Gramm-Leach-Bliley Act (“GLBA”) and Regulation P, which govern a financial institution’s treatment of nonpublic
personal information about consumers and require that an institution, under certain circumstances, notify consumers about
its privacy policies and practices
The General Data Protection Regulation (“GDPR”), a European Union (“EU”) regulation which places specific
requirements on businesses that collect and process personal data of individuals residing in the EU, and provides for
significant fines and other penalties for non-compliance
The California Consumer Privacy Act (“CCPA”) and California Privacy Rights Act (“CPRA”), which enhances the privacy
rights and consumer protection for residents of California
The CARES Act, which provides temporary relief measures through May 1, 2022 for federal student loans held by the
Department, as a result of the COVID-19 pandemic
Laws prohibiting unfair, deceptive, or abusive acts or practices (“UDAAP”)
Various laws, regulations, and standards that govern government contractors
As a student loan servicer for the federal government and for financial institutions, including the Company’s FFELP student
loan portfolio, the Company is subject to the Higher Education Act (“HEA”) and related laws, rules, regulations, and policies.
The HEA regulates every aspect of the federally insured student loan program. Failure to comply with the HEA could result in
fines, the loss of the insurance and related federal guarantees on affected FFELP loans, expenses required to cure servicing
deficiencies, suspension or termination of the right to participate as a FFELP servicer, negative publicity, and potential legal
claims. The Company has designed its servicing operations to comply with the HEA, and it regularly monitors the Company's
operations to maintain compliance. While the HEA is required to be reviewed and reauthorized by Congress every five years,
Congress has not reauthorized the HEA since 2008, choosing to temporarily extend the HEA each year since 2013 while
Congress works on the next reauthorization. The Company continuously monitors for potential changes to the HEA and
evaluates possible impacts to its business operations.
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Under the TCPA, plaintiffs may seek actual monetary loss or damages of $500 per violation, and courts may treble the damage
award for willful or knowing violations. In addition, TCPA lawsuits have asserted putative class action claims.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) established the Consumer Financial
Protection Bureau (“CFPB”), which has broad authority to regulate a wide range of consumer financial products and services.
The Company's student loan servicing business is subject to CFPB oversight authority.
In 2015, the CFPB conducted a public inquiry into student loan servicing practices throughout the industry and issued a report
discussing public comments submitted in response to the inquiry and suggesting a framework to improve borrower outcomes
and reduce defaults, including the creation of consistent, industry-wide standards for the entire servicing market.
The CFPB has authority to draft new regulations implementing federal consumer financial protection laws, to enforce those
laws and regulations, and to conduct examinations and investigations of the Company's operations to determine compliance.
The CFPB’s authority includes the ability to assess financial penalties and fines and provide for restitution to consumers if it
determines there have been violations of consumer financial protection laws. The CFPB also provides consumer financial
education, tracks consumer complaints, requests data from industry participants, and promotes the availability of financial
services to underserved consumers and communities. The CFPB has authority to prevent unfair, deceptive, or abusive acts or
practices and to ensure that all consumers have access to fair, transparent, and competitive markets for consumer financial
products and services. The CFPB’s scrutiny of financial services has impacted industry participants’ approach to their services,
including how the Company interacts with consumers.
The Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations of state
law. Most states also have statutes that prohibit unfair and deceptive practices. To the extent states enact requirements that
differ from federal standards or state officials and courts adopt interpretations of federal consumer laws that differ from those
adopted by the CFPB under the Dodd-Frank Act, the Company's ability to offer the same products and services to consumers
nationwide may be limited.
As a third-party service provider to financial institutions, the Company is subject to periodic examination by the Federal
Financial Institutions Examination Council (“FFIEC”). FFIEC is a formal interagency body of the U.S. government empowered
to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Federal
Reserve Banks, the FDIC, and the CFPB, and to make recommendations to promote uniformity in the supervision of financial
institutions.
Several states have enacted laws regulating and monitoring the activity of student loan servicers. Some of these laws stipulate
additional licensing fees which increase the Company’s cost of doing business. Where the Company has obtained licenses, state
licensing statutes may impose a variety of requirements and restrictions on the Company. In addition, these statutes may also
subject the Company to the supervisory and examination authority of state regulators in certain cases, and the Company will be
subject to and experience exams by state regulators. If the Company is found to not have complied with applicable laws,
regulations, or requirements, it could: (i) lose one or more of its licenses or authorizations, (ii) become subject to a consent
order or administrative enforcement action, (iii) face lawsuits (including class action lawsuits), sanctions, or penalties, or (iv) be
in breach of certain contracts, which may void or cancel such contracts. The Company anticipates additional states adopting
similar laws.
Education Technology, Services, and Payment Processing
NBS provides tuition management services and school information software for K-12 schools and tuition management services
and payment processing solutions for higher education institutions. The Company also provides payment technologies and
payment services for software platforms, businesses, and nonprofits beyond the K-12 and higher education space. As a service
provider that takes payment instructions from institutions and their constituents and sends them to bank partners, the Company
is directly or indirectly subject to a variety of federal and state laws and regulations. The Company's contracts with clients and
bank partners require the Company to comply with these laws and regulations.
The Company's payment processing services are subject to the EFTA and Regulation E, which govern automatic deposits to
and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of debit cards and certain other
electronic banking services. The Company assists bank partners with fulfilling their compliance obligations pursuant to these
requirements.
The Company's payment processing services are also subject to the National Automated Clearing House Association
(“NACHA”) requirements, which include operating rules and sound risk management procedures to govern the use of the ACH
Network. These rules are used to ensure that the ACH Network is efficient, reliable, and secure for its members. Because the
ACH Network uses a batch process, the importance of proper submissions by NACHA members is magnified. The Company is
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also impacted by laws and regulations that affect the bankcard industry. The Company is registered with Visa, MasterCard,
American Express, and the Discover Network as a service provider and is subject to their respective rules.
The Company's higher education institution clients are subject to the Family Educational Rights and Privacy Act (“FERPA”),
which protects the privacy of student education records. These clients disclose certain non-directory information concerning
their students to the Company, including contact information, student identification numbers, and the amount of students’ credit
balances pursuant to one or more exceptions under FERPA. Additionally, as the Company is indirectly subject to FERPA, it
may not permit the transfer of any personally identifiable information to another party other than in a manner in which an
educational institution may properly disclose it. A breach of this prohibition could result in a five-year suspension of the
Company's access to the related client’s records. The Company may also be subject to similar state laws and regulations that
restrict higher education institutions from disclosing certain personally identifiable student information.
Some of the Company's K-12 and higher education institution clients choose to charge convenience fees to students, parents, or
other payers who make online payments using a credit or debit card. Laws and regulations related to such fees vary from state
to state and certain states have laws that to varying degrees prohibit the imposition of a surcharge on a cardholder who elects to
use a credit or debit card in lieu of cash, check, or other means.
The Company's contracts with higher education institution clients also require the Company to comply with regulations
promulgated by the Department regarding the handling of student financial aid funds received by institutions on behalf of their
students under Title IV of the Higher Education Act. These regulations are designed to ensure students have convenient access
to their Title IV funds, do not incur unreasonable fees, and are not led to believe they must open a financial account to receive
such funds.
Asset Generation and Management
The Dodd-Frank Act created a comprehensive regulatory framework for derivatives transactions, with regulatory authority
allocated among the Commodity Futures Trading Commission (“CFTC”), other prudential regulators, and the SEC. This
framework, among other things, subjects certain swap participants to capital and margin requirements, recordkeeping, and
business conduct standards and imposes registration and regulation of swap dealers and major swap participants. Even when a
securitization trust qualifies for an exemption, many of the Company's derivative counterparties are subject to capital, margin,
and business conduct requirements; therefore, the Company may be impacted. When securitization trusts do not qualify for an
exemption, the Company may be unable to enter into new swaps to hedge interest rate risk or the costs associated with such
swaps may increase. With respect to existing securitization trusts, an inability to amend, novate, or otherwise materially modify
existing swap contracts could result in a downgrade of outstanding asset-backed securities. As a result, the Company's business,
ability to access the capital markets for financing, and costs may be impacted by these regulations.
Nelnet Bank
Nelnet Bank is a Utah industrial bank that is regulated by the FDIC and the UDFI. As an originator of private education loans,
and a purchaser and owner of federally insured student loans, Nelnet Bank is subject to federal and state consumer protection,
privacy, and related laws and regulations. In addition to having to comply with the majority of laws and regulations addressed
in the Loan Servicing and Systems section, there are additional laws and regulations Nelnet Bank must follow. Some of the
more significant laws and regulations applicable to Nelnet Bank include:
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Regulation W and Federal Reserve Act Sections 23A and 23B - Designed to prevent losses to a bank resulting from
affiliate engagement and transfer of a bank’s federal deposit insurance safety net to an affiliate
Community Reinvestment Act - Encourages depository institutions to help meet the credit needs of the communities in
which they operate
Federal Trade Commission (“FTC”) Act - Prevents unfair or deceptive acts or practices and ensures consumer privacy
(including the Telephone Sales Rule, FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising,
and FTC Policy Statement Regarding Advertising Substantiation)
Regulation O - Places limits and conditions on credit extensions that a bank can offer to its executive officers, principal
shareholders, directors, and related interests
Right to Financial Privacy Act - Establishes specific procedures that government authorities must follow when requesting a
customer’s financial records from a bank or other financial institution
Regulation D, the Truth in Savings Act (reserve requirements), and Regulation DD (disclosure of deposit terms to customers)
will be applicable to Nelnet Bank once consumer deposit products are launched, which is tentatively scheduled for 2023.
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Corporate
Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and regulations
restricting the transfer and requiring the safeguarding of nonpublic personal information. For example, in the United States, the
Company and its financial institution clients are, respectively, subject to the FTC’s and the federal banking regulators’ privacy
and information safeguarding requirements under the GLBA. The GLBA requires financial institutions to periodically disclose
their privacy policies and practices relating to sharing such information and enables customers to opt out of the Company’s
ability to share information with unaffiliated third parties under certain circumstances. Other federal and state laws and
regulations impact the Company’s ability to share certain information with affiliates and non-affiliates for marketing and/or
non-marketing purposes, or to contact customers with marketing offers. The GLBA also requires financial institutions to
implement a comprehensive information security program that includes administrative, technical, and physical safeguards to
ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures
for the protection of personal and confidential information are in effect across all businesses and geographic locations. Federal
law also makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a
financial nature by fraudulent or deceptive means. Data privacy and data protection are areas of increasing state legislative
focus. For example, the CCPA, which became effective on January 1, 2020, applies to for-profit businesses that conduct
business in California and meet certain revenue or data collection thresholds. The CCPA gives consumers the right to request
disclosure of information collected about them, and whether that information has been sold or shared with others, the right to
request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s
personal information, and the right not to be discriminated against for exercising these rights. The CCPA contains several
exemptions, including an exemption applicable to information that is collected, processed, sold, or disclosed pursuant to the
GLBA. In addition, the CPRA, which amends and expands upon the CCPA, will become effective January 1, 2023. Further,
similar laws may be adopted by other states where the Company does business. The federal government may also pass data
privacy or data protection legislation. In addition, in the EU, privacy law is governed by the GDPR, which contains extensive
compliance obligations and provides for substantial penalties for non-compliance.
Intellectual Property
The Company owns numerous trademarks and service marks (“Marks”) to identify its various products and services. As of
December 31, 2021, the Company had 92 registered Marks. The Company actively asserts its rights to these Marks when it
believes infringement may exist. The Company believes its Marks have developed and continue to develop strong brand-name
recognition in the industry and the consumer marketplace. Each of the Marks has, upon registration, an indefinite duration so
long as the Company continues to use the Mark on or in connection with such goods or services as the Mark identifies. To
protect the indefinite duration, the Company makes filings to continue registration of the Marks. The Company owns one patent
application that has been published, but has not yet been issued, and has also actively asserted its rights thereunder in situations
during which the Company believes its claims may be infringed upon. The Company owns many copyright-protected works,
including its various computer system codes and displays, websites, and marketing materials. The Company also has trade
secret rights to many of its processes and strategies and its software product designs. The Company's software products are
protected by both registered and common law copyrights, as well as strict confidentiality and ownership provisions placed in
license agreements, which restrict the ability to copy, distribute, or improperly disclose the software products. The Company
also has adopted internal procedures designed to protect the Company's intellectual property.
The Company seeks federal and/or state protection of intellectual property when deemed appropriate, including patent,
trademark/service mark, and copyright. The decision whether to seek such protection may depend on the perceived value of the
intellectual property, the likelihood of securing protection, the cost of securing and maintaining that protection, and the
potential for infringement. The Company's employees (referred to by the Company as “associates”) are trained in the
fundamentals of intellectual property, intellectual property protection, and infringement issues. The Company's associates are
also required to sign agreements requiring, among other things, confidentiality of trade secrets, assignment of inventions, and
non-solicitation of other associates post-termination. Consultants, suppliers, and other business partners are also required to sign
nondisclosure agreements to protect the Company's proprietary rights.
Human Capital Resources
The Company’s associates are critical to its success, and the executive team puts significant focus on human capital resources.
In addition, the executive team regularly updates the Company’s board of directors and its committees on the operation and
status of human capital trends and activities. Key areas of focus for the Company include:
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Headcount data
Total associate headcount by reportable segment as of December 31, 2021 follows:
NDS
NBS
Nelnet Bank
AGM
Corporate and other
Number
Percent of
total
4,892
2,370
23
11
692
7,988
61.2 %
29.7
0.3
0.1
8.7
100.0 %
None of the Company’s associates are covered by collective bargaining agreements. The Company is not involved in any
material disputes with any of its associates, and the Company believes that relations with its associates are good.
Employee recruitment, engagement, and retention
The Company works diligently to attract the best talent from a diverse range of sources to meet the current and future demands
of its businesses, and has established relationships with trade schools, universities, professional associations, and industry
groups to proactively attract talent. In 2021, the Company hired approximately 4,400 new associates, including approximately
800 temporary associates who are contracted workers who perform a job for only a short amount of time.
In 2021, the Company conducted an associate culture survey using a leading outside firm that specializes in employee
engagement. Ninety-one percent of the Company’s associates participated in the survey, 11 points above the survey provider’s
industry benchmark. There were many questions, but the overarching goal of the survey was to determine overall associate
engagement through understanding how associates feel about working for the Company and if associates would recommend the
Company as a great place to work. The results of the survey were an overall engagement score of 80 out of 100, which was five
points above the survey provider’s industry benchmark, and one point above last year’s survey engagement score. The
Company’s management team collected all the feedback and is focusing on making associate-suggested changes to become an
even better place to work.
For 2021, associate voluntary turnover was approximately 28 percent, an 8 percentage point increase from 2020. The average
associate has over six years of service.
Diversity and inclusion
The Company embraces diversity among its associates, including their unique backgrounds, experiences, and talents, and the
Company strives to cultivate a culture and vision that supports and enhances its ability to recruit, develop, and retain diverse
talent at every level. The Company demonstrates its commitment to diversity, equity, and inclusion at the highest levels of the
Company. The Company’s independent directors (seven in total) include three women.
As of December 31, 2021, the Company’s workforce was approximately 66 percent women, an increase from 57 percent as of
December 31, 2020. People of color, as defined by the U.S. Equal Employment Opportunity Commission's EEO-1 race and
ethnicity categories for the U.S., represented approximately 27 percent of the Company’s workforce (based on associate self-
identification), an increase from 20 percent as of December 31, 2020. The Company is making progress in the number of
women and people of color working in leadership positions (defined by the Company as an associate with one or more direct
reports) across the organization. As of December 31, 2021, women and people of color held 52 percent and 10 percent of
leadership positions in the Company, respectively, an increase from 50 percent and 8 percent, respectively, as of December 31,
2020. The Company has acknowledged that people of color are underrepresented in leadership positions at Nelnet and is
committed to have its workforce reflect the diversity in its communities.
To further Nelnet’s objective of creating an inspiring work environment and furthering associate development, the Company
developed and launched the Nelnet Diversity, Equity, and Inclusion Council (the “Council”), sponsored by the Chief Executive
Officer and the Executive Director of People Services. This Council of 28 members represents locations, functions, and
business segments across the entire Company. Its top priorities include:
•
Implementing a comprehensive diversity and inclusion learning and development plan to build awareness and drive
inclusive behaviors;
19
•
•
Developing the Company’s diversity pipeline through recruiting, hiring, developing, mentoring, and retaining diverse
top talent; and
Promoting a work environment that enables associates to feel safe to express their ideas and perspectives and feel they
belong.
During 2020, the Council partnered with Nelnet University, the Company’s learning and development program for associates,
to launch a robust mentoring program. The program is available to all associates, prioritizing mentorships for associates from
underrepresented racial and ethnic groups. Associates participating in this program are partnered with tenured Nelnet leaders for
guidance, support, and coaching. The Council has also provided training sessions for all associates on cultural competence and
unconscious bias. In addition, the Company has changed new hire recruiting methods and strategies to increase pools of
minority, women, veteran, and disabled candidates, and has created other programs focused on race and gender to increase
diversity throughout the Company. The Company also revised its scholarship program for the children of its associates to better
recognize minority and low-income students. In addition, the Company was named on the following three Forbes listings: Best
Employer for Women, Best Employer for Diversity, and Best in State Employer.
Talent, development, and training
The Company’s talent strategy is focused on attracting the best talent from a diverse range of sources, recognizing and
rewarding associates for their performance, and continually developing, engaging, and retaining associates.
The Company is committed to the continued development of its people. Strategic talent reviews and succession planning occur
on a planned cadence annually across all business areas. The executive team convenes meetings with senior leadership and the
board of directors to review top enterprise talent. The Company continues to provide opportunities for associates to grow their
careers internally, with over 70 percent of open management positions filled internally during 2021.
The Company provides a variety of professional, technical, and leadership training courses to help its associates grow in their
current roles and build new skills. The Company emphasizes individual development planning as part of its annual goal setting
process, and offers mentoring programs, along with change management and project management upskilling opportunities. The
Company has leadership development resources for all leaders across the organization and continues to build tools for leaders to
develop their teams on the job and in roles to create new opportunities to learn and grow.
Training is provided in a number of formats to accommodate the learner’s style, location, and technological knowledge and
access, including instructor-led courses and hundreds of online courses in the Company’s learning management system. The
Company also offers tuition assistance to associates for degree programs, non-degree seeking individual classes, or certificate
programs that are related to areas of business at Nelnet. During 2021, the Company paid almost $380,000 in tuition assistance
for its associates. During 2021, the Company partnered with Nebraska Dev Lab and Galvanize to offer two groups of
technology-driven associates a modern coding education through the Company’s first ever Coding Academy. Everyone who
participated in the rigorous program passed the program and gained valuable current information technology skills.
Competitive pay, benefits, wellness, and safety
The general compensation philosophy of the Company, as an organization that values the long-term success of its shareholders,
customers, and associates, is that the Company will pay fair, competitive, and equitable compensation designed to encourage
focus on the long-term performance objectives of the Company and is differentiated based on both the individual’s performance
and the performance of his or her respective business segment. In carrying out this philosophy, the Company structures its
overall compensation framework with the general objectives of encouraging ownership, savings, wellness, productivity, and
innovation. In addition, total compensation is intended to be market competitive compared to select industry surveys, internally
consistent, and aligned with the philosophy of a performance-based organization. The Company provides a comprehensive
benefits package, opportunities for retirement savings, and a robust wellness program. The holistic wellness program focuses on
four pillars: personal, professional, physical, and financial well-being.
In response to the COVID-19 pandemic, the Company has implemented and continues to implement safety measures in all its
facilities. The Company has implemented adjustments to its operations designed to keep associates safe and comply with
federal and local guidelines, including those regarding masks, social distancing, and any applicable vaccine mandates. Since
March 2020, a vast majority of associates continue to work from their home. However, all non-remote associates currently have
the choice to work in the office, at home, or a hybrid of both.
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Culture, values, and ethics
The Company believes acting ethically and responsibly is the right thing to do, and embraces core values of open, honest
communication in work environments. The Company also believes that it must do its part to improve the world for current and
future generations, and as part of this philosophy the Company contributes time, talent, and resources to strengthen the
communities where the Company does business. The Company’s associates participate in many initiatives focused on
supporting their communities both financially and with their time.
Ethics are deeply embedded in the Company’s values and business processes. The Company has a Code of Ethics and Conduct
that includes the Company’s core values and guiding principles for which every associate is empowered to achieve. The
Company regularly reinforces its commitment to ethics and integrity in associate communications, in its everyday actions, and
in processes and controls. As part of the Company’s ongoing efforts to ensure its associates conduct business with the highest
levels of ethics and integrity, the Company has compliance training programs. The Company also maintains an Ask Ethics
email through which associates can raise concerns they may have about business behavior they do not feel comfortable
discussing personally with managers or human resources personnel. In addition, the Company maintains a separate anonymous
portal for any associate concerns about the Company's financial reporting, internal controls, and related matters.
Available Information
The Company's internet website address is www.nelnet.com, and the Company's investor relations website address is
www.nelnetinvestors.com. Copies of the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to such reports are available on the Company's investor relations website free of charge
as soon as reasonably practicable after such reports are filed with or furnished to the SEC. The Company routinely posts
important information for investors on its investor relations website.
The Company has adopted a Code of Ethics and Conduct that applies to directors, officers, and associates, including the
Company's principal executive officer and its principal financial and accounting officer, and has posted such Code of Ethics and
Conduct on its investor relations website. Amendments to and waivers granted with respect to the Company's Code of Ethics
and Conduct relating to its executive officers and directors, which are required to be disclosed pursuant to applicable securities
laws and stock exchange rules and regulations, will also be posted on its investor relations website. The Company's Corporate
Governance Guidelines, Audit Committee Charter, People Development and Compensation Committee Charter, Nominating
and Corporate Governance Committee Charter, Risk and Finance Committee Charter, and Compliance Committee Charter are
also posted on its investor relations website.
Information on the Company's websites is not incorporated by reference into this report and should not be considered part of
this report.
ITEM 1A. RISK FACTORS
We are subject to risks including, but not limited to, strategic, market, liquidity, credit, regulatory, technology, operational,
security, and other business risks such as reputation damage related to negative publicity and dependencies on key personnel,
customers, vendors, and systems. This section discusses material risk factors that could adversely affect our financial results
and condition and the value of, and return on, an investment in us. Although this section attempts to highlight key risk factors,
other risks may emerge at any time, and we cannot predict all risks or estimate the extent to which they may affect us. These
risk factors should be read in conjunction with the other information included in this report.
Loan Portfolio
Our loan portfolio is subject to certain risks related to interest rates, and the derivatives we use to manage interest rate risks,
prepayment risk, and credit risk, each of which could reduce the expected cash flows and earnings on our portfolio.
Interest rate risk - basis and repricing risk
We are exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of our
loan assets do not always match the interest rate characteristics of the funding for those assets.
We fund the majority of our FFELP student loan assets with one-month or three-month LIBOR indexed floating rate securities.
Meanwhile, the interest earned on our FFELP student loan assets is indexed to one-month LIBOR, three-month commercial
paper, and Treasury bill rates. The differing interest rate characteristics of our loan assets versus the liabilities funding these
assets result in basis risk, which impacts the excess spread earned on our loans. We also face repricing risk due to the timing of
the interest rate resets on our liabilities, which may occur as infrequently as once a quarter, in contrast to the timing of the
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interest rate resets on our assets, which generally occur daily. In a declining interest rate environment, this may cause our
variable student loan spread to compress, while in a rising interest rate environment, it may cause the variable spread to
increase.
As of December 31, 2021, our AGM operating segment had $15.9 billion, $0.6 billion, and $0.5 billion of FFELP loans indexed
to the one-month LIBOR, three-month commercial paper, and three-month Treasury bill rate, respectively, all of which reset
daily, and $5.4 billion of debt indexed to three-month LIBOR, which resets quarterly, and $10.5 billion of debt indexed to one-
month LIBOR, which resets monthly. While these indices are all short term in nature with rate movements that are highly
correlated over a longer period of time, the indices' historically high level of correlation may be disrupted in the future due to
capital market dislocations or other factors not within our control. In such circumstances, our earnings could be adversely
affected to a material extent.
We have entered into basis swaps to hedge our basis and repricing risk, under which we receive three-month LIBOR set
discretely in advance and pay one-month LIBOR plus or minus a spread as defined in the agreements (the "1:3 Basis Swaps").
Interest rate risk - loss of floor income
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a
period of time, or a floating rate based on the Special Allowance Payments ("SAP") formula set by the Department. The SAP
rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. We
generally finance our student loan portfolio with variable rate debt. In low and/or certain declining interest rate environments,
when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the interest on the
variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate environments, we
may earn additional spread income that we refer to as floor income.
Depending on the type of loan and when it originated, the borrower rate is either fixed to term or is reset to an annual rate each
July 1. As a result, for loans where the borrower rate is fixed to term, we may earn floor income for an extended period of time,
which we refer to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, we may
earn floor income to the next reset date, which we refer to as variable rate floor income.
For the year ended December 31, 2021, we earned $122.9 million of fixed rate floor income, which reflects $19.7 million of net
settlements paid related to derivatives used to hedge loans earning fixed rate floor income. Absent the use of derivative
instruments, a rise in interest rates will reduce the amount of floor income received and this will have an impact on earnings due
to interest margin compression caused by increased financing costs, until such time as the federally insured loans earn interest
at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where the interest rate rises above
the borrower rate and fixed rate loans effectively convert to variable rate loans, the impact of the rate fluctuations is reduced.
Interest rate risk - use of derivatives
We utilize derivative instruments to manage interest rate sensitivity. See note 6 of the notes to consolidated financial statements
included in this report for additional information on derivatives used by us to manage interest rate risk. Our derivative
instruments are intended as economic hedges but do not qualify for hedge accounting; consequently, the change in fair value,
called the “mark-to-market,” of these derivative instruments is included in our operating results. Changes or shifts in the
forward yield curve can and have significantly impacted the valuation of our derivatives, and in turn can and have impacted our
results of operations.
Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely
insulate us from risks associated with such fluctuations. Because many of our derivatives are not balance guaranteed to a
particular pool of student loans and we may not elect to fully hedge our risk on a notional and/or duration basis, we are subject
to the risk of being under or over hedged, which could result in material losses. In addition, our interest rate risk management
activities could expose us to substantial mark-to-market losses if interest rates move in a materially different way than was
expected based on the environment when the derivatives were entered into. As a result, our economic hedging activities may
not effectively manage our interest rate sensitivity or have the desired beneficial impact on our results of operations or financial
condition.
Since June 10, 2013, the CFTC has required over-the-counter derivative transactions to be executed through an exchange or
central clearinghouse. Clearing is a process by which a third-party, the clearinghouse, steps in between the original
counterparties and guarantees the performance of both, by requiring that each post substantial amounts of liquid collateral on an
initial (initial margin) and mark-to-market (variation margin) basis to cover the clearinghouse's potential future exposure in the
event of default. The clearing requirements require us to post substantial amounts of liquid collateral when executing new
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derivative instruments, which could negatively impact our liquidity and capital resources and may prevent or limit us from
utilizing derivative instruments to manage interest rate sensitivity and risks.
Interest rate movements have an impact on the amount of payments we are required to settle with our clearinghouse on a daily
basis. We attempt to manage market risk associated with interest rates by establishing and monitoring limits as to the types and
degree of risk that may be undertaken. However, if interest rates move materially and negatively impact the fair value of our
derivative portfolio, the replacement of LIBOR as a benchmark rate as discussed below has significant adverse impacts on our
derivatives, or if we enter into additional derivatives in which the fair value of such derivatives becomes negative, we could be
required to pay a significant amount of variation margin to our clearinghouse. These payments, if significant, could negatively
impact our liquidity and capital resources.
Based on our interest rate swaps outstanding as of December 31, 2021, if the forward interest rate curve was 50 basis points
lower for the remaining duration of these derivatives, we would have been required to pay approximately $64.6 million in
additional variation margin. In addition, if the forward basis curve between one-month and three-month LIBOR experienced a
ten-basis point reduction in spread for the remaining duration of our 1:3 Basis Swaps (in which we pay one-month LIBOR and
receive three-month LIBOR), we would have been required to pay approximately $12.9 million in additional variation margin.
In addition, some of our variable rate debt is floored at zero percent, while the floating side of our fixed rate derivatives hedging
the debt are not floored. If one-month LIBOR were to fall below zero percent, we may experience losses. The scope of these
losses would depend on three factors - the notional amount of the fixed rate derivative portfolio, the extent to which one-month
LIBOR is below zero percent, and the amount of time it remained there.
Interest rate risk - replacement of LIBOR as a benchmark rate
As of December 31, 2021, the interest earned on a principal amount of $15.9 billion of our FFELP student loan assets held by
the AGM operating segment was indexed to the one-month LIBOR, and the interest paid on a principal amount of $15.9 billion
of our FFELP student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, our
derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR.
In March 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors
relevant to us will cease to be published or will no longer be representative after June 30, 2023. The U.S. Federal Reserve, in
conjunction with the Alternative Reference Rates Committee, a committee convened by the Federal Reserve that includes major
market participants, has identified the Secured Overnight Financing Rate (“SOFR”), calculated based on overnight repurchase
agreements backed by U.S. Treasury securities, as its preferred alternative rate for LIBOR. There are significant differences
between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR
being an overnight rate while LIBOR reflects term rates at different maturities. Accordingly, there are uncertainties as to the
transition process and broad acceptance of SOFR as the primary alternative to LIBOR, including what effect it would have on
the value of LIBOR-based securities, financial contracts, and variable rate loans.
Although the indentures for student loan asset-backed debt securities issued in our most recent LIBOR-indexed securitization
transactions include new interest rate determination fallback provisions emerging in the market for new issuances of LIBOR-
indexed debt securities, many of the contracts for our existing LIBOR-indexed assets, liabilities, and derivative instruments
from historical transactions do not include provisions that contemplated the possibility of a permanent discontinuation of
LIBOR and clearly specified a method for transitioning from LIBOR to an alternative benchmark rate, and it is not yet known
how the market in general, specific counterparties in particular, the courts, or regulators will address the significant
complexities and uncertainties involved in the transition away from LIBOR to an alternative benchmark rate. Specifically, the
Department has not yet indicated any market transition away from the current LIBOR framework for paying special allowance
payments to holders of FFELP assets. As a result, we cannot predict the impact that the transition from LIBOR to an alternative
benchmark rate will have on our existing LIBOR-indexed assets, liabilities, and derivative instruments, but such impact could
have material adverse effects on the value, performance, and related cash flows of such LIBOR-indexed items, including our
funding costs, net interest income, loan and other asset values, and asset-liability management strategies. In particular, such
transition could:
•
•
adversely affect the interest rates paid or received on, the income and expenses associated with, and the pricing and
value of our LIBOR-based assets and liabilities, which include the majority of our FFELP student loan assets and
FFELP student loan asset-backed debt securities issued to fund those assets, as well as the majority of our derivative
financial instruments we use to manage LIBOR-based interest rate risks associated with such FFELP student loan-
related assets and liabilities;
result in uncertainty or differences in the calculation of the applicable interest rate or payment amounts on our LIBOR-
based assets and liabilities depending on the terms of the governing instruments, which in turn could result in disputes,
23
litigation, or other actions with counterparties regarding the interpretation and enforceability of certain fallback
language in LIBOR-based securities and contracts, and the potential renegotiation of previous contracts;
• make future asset-backed securitizations more difficult to complete or more expensive until LIBOR or alternative
benchmark rate uncertainties are resolved; and
•
result in basis risk if the alternative benchmark rate on our loan assets does not match the alternative benchmark rate
for the funding for those assets.
In April 2021, the State of New York enacted legislation to address certain contracts that are governed by New York law, refer
to LIBOR as a benchmark reference rate, and do not have effective fallback provisions once the applicable LIBOR rate is
discontinued. The legislation provides a statutory remedy by automatically replacing LIBOR with the “recommended
benchmark replacement,” which is expected to be SOFR, and for a contract that has a “determining person” (a trustee, a
calculation agent or the like), replacing LIBOR with the recommended benchmark replacement as selected by the determining
person. The majority of our student loan asset-backed securitization indentures that do not have fallback provisions are
governed by New York law, and thus are covered by this legislation. Parties remain free to agree on a different alternative
benchmark rate, and we have and will continue to work with our asset-backed securitization investors to amend transaction
documents to address the discontinuation of LIBOR.
In addition, a transition away from LIBOR to an alternative benchmark rate or rates may impact our existing transaction data,
systems, operations, pricing, and risk management processes, and require significant efforts to transition to or develop
appropriate systems and analytics to reflect a new benchmark rate environment. There can be no assurance that such efforts will
successfully mitigate the financial and operational risks associated with a transition away from LIBOR.
Prepayment risk
Higher rates of prepayments of student loans, including consolidations by the Department through the Federal Direct Loan
Program or private refinancing programs, would reduce our interest income.
Pursuant to the Higher Education Act, borrowers may prepay loans made under the FFEL Program at any time without penalty.
Prepayments may result from consolidations of student loans by the Department through the Federal Direct Loan Program or by
a lending institution through a private education or unsecured consumer loan, which historically tend to occur more frequently
in low interest rate environments; from borrower defaults on federally insured loans, which will result in the receipt of a
guaranty payment; and from voluntary full or partial prepayments; among other things.
Legislative and executive action risk exists as Congress and the President evaluate economic stimulus packages and proposals
to reauthorize the Higher Education Act. If the federal government and the Department initiate additional loan forgiveness or
cancellation, other repayment options or plans, consolidation loan programs, or further extend the suspension of borrower
payments under the CARES Act, such initiatives could further increase prepayments and reduce interest income and could also
reduce servicing fees. Future laws, executive actions, or other policy statements may encourage or force consolidation, create
additional income-based repayment or debt forgiveness programs, create broad debt cancellation programs, or establish other
policies and programs that impact prepayments on education loans. Even if a broad debt cancellation program only applied to
student loans held by the Department, such program could result in a significant increase in consolidations of FFELP loans to
Federal Direct Loan Program loans and a corresponding increase in prepayments with respect to our FFELP loan portfolio. For
example, the Department recently announced a set of policy changes and released proposed negotiated rulemaking materials
relating to the Public Service Loan Forgiveness program under its Federal Direct Loan Program, which may result in an
increase in consolidations of FFELP loans into Federal Direct Loan Program loans held by the Department (which results in the
loans no longer being on our balance sheet). While implementation of the policy changes and final new regulations are
unknown at this time, individually or collectively, they may cause higher than anticipated prepayment rates on our portfolio of
loans. Some variability in prepayment levels is expected, although extraordinary or extended increases in prepayment rates
could have a materially adverse effect on our revenues, cash flows, profitability, and business outlook, and, as a result, could
materially, adversely affect our business, financial condition, and results of operations.
We cannot predict how or what programs or policies will be impacted by any actions that the Administration, Congress, or the
federal government may take.
Credit risk
Future losses due to defaults on loans held by us present credit risk which could adversely affect our earnings. Our estimated
allowance for loan losses is based on periodic evaluations of the credit risk in our loan portfolios, including the consideration of
the following factors (as applicable), for each of our loan portfolios: loans in repayment versus those in nonpaying status;
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delinquency status; type of private education or consumer loan program; trends in defaults in the portfolio based on internal and
industry data; past experience; trends in federally insured student loan claims rejected for payment by guarantors; changes to
federal student loan programs; current macroeconomic factors, including unemployment rates, gross domestic product, and
consumer price index; and other relevant qualitative factors.
The vast majority (97.1 percent) of our student loan portfolio is federally guaranteed. The federal government currently
guarantees 97 percent of the principal and interest on federally insured student loans disbursed on and after July 1, 2006 (and 98
percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006), which limits our loss exposure on the
outstanding balance of our federally insured portfolio. Federally insured student loans disbursed prior to October 1, 1993 are
fully insured for both principal and interest. Our private education and consumer loans are unsecured, with neither a
government nor a private insurance guarantee. Accordingly, we bear the full risk of loss on these loans if the borrower and co-
borrower, if applicable, default. We are actively expanding our acquisition of private education and consumer loan portfolios,
which increases our exposure to credit risk.
If future defaults on loans held by us are higher than anticipated, which could result from a variety of factors such as downturns
in the economy, regulatory or operational changes, and other unforeseen future trends, or actual performance is significantly
worse than currently estimated, our estimate of the allowance for loan losses and the related provision for loan losses in our
statements of income would be materially affected.
Our loan portfolio and other assets and operations could suffer adverse consequences to the extent that natural disasters,
widespread health crises similar to the COVID-19 pandemic, terrorist activities, or international hostilities affect the
financial markets or the economy in general or in any particular region.
Natural disasters, widespread health crises similar to the COVID-19 pandemic, terrorist activities, or international hostilities
affecting the financial markets or the economy in general or in any particular region could lead, for example, to an increase in
loan delinquencies, borrower bankruptcies, or defaults that could result in higher levels of nonperforming assets, net charge-
offs, and provisions for credit losses, as well as have adverse effects on our other assets and business operations. Our ability to
mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning, and our
ability, if any, to anticipate the nature of any such event that occurs. The adverse impact of natural disasters, widespread health
crises, terrorist activities, or international hostilities also could be increased to the extent that there is a lack of preparedness on
the part of national or regional emergency responders or on the part of other organizations and businesses that we transact with,
particularly those that we depend upon, but have no control over.
Liquidity and Funding
The current maturities of our loan warehouse financing facilities do not match the maturities of the related funded loans,
and we may not be able to modify and/or find alternative funding related to the loan collateral in these facilities prior to
their expiration.
The majority of our portfolio of student loans is funded through asset-backed securitizations that are structured to substantially
match the maturities of the funded assets, and there are minimal liquidity issues related to these facilities. We also have loans
funded in shorter term warehouse facilities. The current maturities of the warehouse facilities do not match the maturity of the
related funded assets. Therefore, we will need to modify and/or find alternative funding related to the loan collateral in these
facilities prior to their expiration.
We have a FFELP warehouse facility as described in note 5 of the notes to consolidated financial statements included in this
report. The FFELP warehouse facility has an aggregate maximum financing amount of $60 million and liquidity provisions
through May 23, 2022. In the event we are unable to renew the liquidity provisions for this facility, the facility would become a
term facility at a stepped-up cost, with no additional student loans being eligible for financing, and we would be required to
refinance the existing loans in the facility by the final maturity date in May 2023. The FFELP warehouse facility also contains
financial covenants relating to levels of our 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 facility. As of December 31, 2021, $5.0 million was outstanding under the FFELP
warehouse facility and $0.3 million was advanced as equity support.
We also have a private education loan warehouse facility that has an aggregate maximum financing amount available of $175.0
million, liquidity provisions through June 30, 2022, and a final maturity date of June 30, 2023. As of December 31, 2021,
$107.0 million was outstanding and $11.8 million was advanced as equity support under this warehouse facility.
If we are unable to obtain cost-effective funding alternatives for the loans in the warehouse facilities prior to the facilities'
maturities, our cost of funds could increase, adversely affecting our results of operations. If we cannot find funding alternatives,
we would lose our collateral, including the loan assets and cash advances, related to these facilities.
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We are subject to economic and market fluctuations related to our investments.
We currently invest a substantial portion of our excess cash in student loan asset-backed securities and other investments that
are subject to market fluctuations. The fair value of these investments was $1.0 billion as of December 31, 2021, including
$907.2 million in student loan asset-backed securities. The student loan asset-backed securities earn a floating interest rate and
carry expected returns of approximately LIBOR + 75-250 basis points to maturity. While we expect our overall student loan
asset-backed securities to have few credit issues if held to maturity, they do have limited liquidity, and we could incur a
significant loss if the investments were sold prior to maturity at an amount less than the original purchase price.
We will need to extend or refinance repurchase agreements funding the purchase of certain private education loan asset-
backed securities that we are required to retain as sponsor of the underlying securitizations, since the current maturities of
the agreements do not match the required holding period for the related investments and we are required to pay additional
equity support in the event the fair value of the securities subject to the repurchase agreements becomes less than the
original purchase price of such securities.
During 2021, we sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion of the
private education loans sold by Wells Fargo. For further information about these transactions, see the MD&A – “Overview –
Recent Transactions/Developments – 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo.”
As sponsor, we are required to provide a certain level of risk retention, and we have purchased bonds issued in such
securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on our
consolidated balance sheet as "investments" and as of December 31, 2021, the fair value of these bonds was $412.6 million. We
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 we can sell the investment securities (bonds) to a third party. We entered into repurchase
agreements with third parties, the proceeds of which were used to purchase a portion of the asset-backed investments, and such
investments serve as collateral on the repurchase obligations.
As of December 31, 2021, $483.8 million was outstanding on our repurchase agreements, of which $313.2 million was
borrowed to fund the private education loan securitization bonds subject to our risk retention requirements. The repurchase
agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early termination
upon required notice provided by us or the applicable counterparty prior to the maturity dates. We are required to pay additional
equity support in the event the fair value of the securities subject to the repurchase agreements becomes less than the original
purchase price of such securities.
The current maturities of the repurchase agreements do not match the required holding period for, or the maturity of, the related
funded assets. Therefore, we will need to continue to extend the maturities of the repurchase agreements and/or find alternative
funding related to the investment securities collateral funded by these repurchase agreements prior to their expiration.
Operations
Risks associated with our operations, as further discussed below, include those related to the importance of maintaining scale by
retaining existing customers and attracting new business opportunities, our information technology systems and potential
security and privacy breaches, and our ability to manage performance related to regulatory requirements.
Our largest fee-based customer, the Department of Education, represented 29 percent of our revenue in 2021. Failure to
extend the Department contracts or obtain new Department contracts in the Department's NextGen or other procurement
processes, our inability to consistently surpass competitor performance metrics, or unfavorable contract modifications or
interpretations, could significantly lower servicing revenue and hinder future service opportunities.
Our subsidiaries Nelnet Servicing and Great Lakes are two of the current seven private sector entities that have student loan
servicing contracts with the Department to service loans that include Federal Direct Loan Program loans originated directly by
the Department and FFEL Program loans purchased by the Department. As of December 31, 2021, Nelnet Servicing was
servicing $215.8 billion of student loans for 6.4 million borrowers under its contract, and Great Lakes was servicing $262.6
billion of student loans for 7.8 million borrowers under its contract. For the year ended December 31, 2021, we recognized
$360.8 million in revenue from the Department under these contracts, which represented 29 percent of our revenue.
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
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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.
In the event that our servicing contracts are not extended beyond the current expiration date, or we are not chosen as a
subsequent servicer, loan servicing revenue would decrease significantly. There are significant risks to us and uncertainties
regarding the current Department contracts and potential future Department contracts, including the pending and uncertain
nature of the NextGen contract procurement process and the Department's prior awards of new NextGen contracts to other
service providers; risks that we may not be successful in obtaining any new contracts with the Department; and risks and
uncertainties as to the terms and requirements under a potential new contract or contracts with the Department. We cannot
predict the timing, nature, or ultimate outcome of the NextGen or any other contract procurement process by the Department.
New loan volume is currently allocated among the Department servicers based on certain performance metrics established by
the Department and compared among all loan servicers. The amount of future allocations of new loan volume could be
negatively impacted if we are unable to consistently surpass comparable competitor and/or other performance metrics.
In the event the current or any future Department servicing contracts become subject to unfavorable modifications or
interpretations by the Department, loan servicing revenue could decrease significantly, performance penalties could be assessed,
and/or operating costs to perform the contracts could increase significantly.
Additionally, we are partially dependent on the existing Department contracts to broaden servicing operations with the
Department, other federal and state agencies, and commercial clients. The size and importance of these contracts provide us the
scale and infrastructure needed to profitably expand into new business opportunities. Failure to extend the Department contracts
beyond the current expiration date, or obtain new Department contracts, could significantly hinder future opportunities, as well
as result in potential restructuring charges that may be necessary to re-align our cost structure with our servicing operations.
The COVID-19 pandemic has adversely impacted our results of operations, and either directly or indirectly through impacts
on economic conditions or government policy could adversely impact our results of operations, businesses, financial
condition, and/or cash flows going forward.
The COVID-19 pandemic has caused significant disruption to the U.S. and world economies and extreme volatility in the U.S.
and world markets. These effects have adversely impacted our results of operations and, if these effects result in sustained
economic stress, they could have a material adverse impact on us in a number of ways, including but not limited to, talent
acquisition and retention, wage inflation and cost of service delivery, lower higher education school enrollments, rising interest
rates due to market conditions or government policy or stimulus, loan performance (where individual student and consumer
borrowers experience financial hardship), and performance levels and impacts of vaccine requirements on our workforce and
work environment (work from home). Although certain business and economic conditions have improved since the pandemic
began, significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and new variant
strains of the COVID-19 virus which could be vaccine resistant, the potential impacts of variations in vaccination rates among
different geographical areas and demographic segments, vaccine mandates, booster vaccines, and the potential impacts of
potential additional future spikes in infection rates including through breakthrough infections among the fully vaccinated.
COVID-19 materially disrupted business operations across many sectors, initially resulting in periods of significantly higher
levels of unemployment and underemployment, and more recently resulting in inflation associated with supply chain
disruptions, a constrained labor market, supply, and extensive government stimulus programs initiated in efforts to counteract
the economic disruptions from the pandemic. As a result, many student and consumer borrowers have experienced or may
continue to experience financial hardship, making it difficult to meet loan payment obligations without assistance, which has
had previous adverse effects and could have future adverse effects on the performance of our loan portfolio.
Our net interest income and profitability have been and could further be negatively affected by volatility in interest rates caused
by uncertainties stemming from COVID-19. Higher income volatility from changes in interest rates and spreads to benchmark
indices has caused and could cause a loss of net interest income and adverse changes in current fair value measurements of our
assets and liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial
condition. For example, the Federal Reserve has recently signaled that it may begin to raise its target interest rate beginning in
the first half of 2022 as a way of addressing the inflationary effects of the extensive pandemic-related government stimulus
programs, and an increase in interest rate levels generally results in a reduction of floor income we receive on certain FFELP
loans.
A vast majority of our employees continue to work from home, either full-time or dividing their workdays between working
from home and working in the office as we have offered employees flexibility in the amount of time they work in offices that
were reopened in 2021. Unanticipated issues arising from handling personal, confidential, and other information in a work-
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from-home environment could lead to greater risks for us, including cybersecurity and privacy risks. In addition, recent labor
market constraints have resulted in wage inflation and higher voluntary turnover rates, which in turn have led to increases in
compensation costs to attract and retain talent. Further, in September 2021, the President issued an executive order that would
require certain COVID-19 precautions for government contractors, including mandatory employee vaccinations. These
requirements would apply to us as a student loan servicer for the Department, but are currently stayed pending the outcome of
ongoing litigation. Any implementation of vaccination mandates applicable to our employees could result in workplace
disruptions, employee attrition, and difficulty securing future talent needs in an increasingly competitive job market.
The CARES Act suspended federal student loan payments and interest accruals on all loans owned by the Department
beginning as of March 13, 2020, and this suspension has been extended through May 1, 2022. As a result of this suspension, we
receive a reduced level of servicing revenue per borrower from the Department. In addition, revenue from the Department for
originating consolidation loans has been adversely impacted because of borrowers receiving relief on their existing loans, thus
not initiating a consolidation. If the suspension period is extended further, more borrowers may consolidate their FFELP loans
to the Federal Direct Loan Program, which could further increase prepayments on our loan portfolio and reduce our interest
income and servicing fees. We currently anticipate the above revenues will continue to be negatively impacted while student
loan payments and interest accruals are suspended.
The extent to which the COVID-19 pandemic continues to impact us will depend on many factors which are uncertain and
beyond our control, including: the duration and ultimate severity of the pandemic; further public health and economic
dislocations and constraints resulting from the pandemic; government actions in response to the pandemic, including any
further actions to suspend, reduce or cancel payment obligations for loan borrowers; and the impacts of the pandemic on the
U.S. and world economies. However, the impacts of the COVID-19 pandemic, or any other pandemic, on our businesses could
be material and adverse. To the extent the COVID-19 pandemic continues to adversely affect broader economic conditions and/
or adversely affects us, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in this
report.
Climate change manifesting as physical or transition risks could have a material adverse impact on our operations, vendors,
and customers.
Our businesses, and the activities of our vendors and customers, could be impacted by climate change. Climate change could
manifest as a financial risk to us either through changes in the physical climate or from the process of transitioning to a low-
carbon economy, including changes in climate policy or in the regulation of businesses with respect to risks posed by climate
change. Climate-related physical risks may include altered distribution and intensity of rainfall, prolonged droughts or flooding,
increased frequency and severity of wildfires, hurricanes, and tornadoes, rising sea levels, and a rising heat index. In addition to
possible changes in climate policy and regulation, potential transition risks may include economic and other changes
engendered by the development of low-carbon technological advances (e.g., electric vehicles and renewable energy) and/or
changes in consumer and business preferences toward low-carbon goods and services. These climate-related physical risks and
transition risks could have a financial impact on us, and our vendors and customers, including declines in asset values; cost
increases; reduced availability of insurance; reduced demand for certain goods and services; increased loan delinquencies,
bankruptcies, events of default, and force majeure events; increased interruptions to business operations and services; adverse
supply chain impacts; and negative consequences to business models, and the need to make changes in response to those
consequences.
A failure of our operating systems or infrastructure could disrupt our businesses, cause significant losses, result in
regulatory action, and damage our reputation.
We operate many different businesses in diverse markets and depend on the efficient and uninterrupted operation of our
computer network systems, software, datacenters, cloud services providers, telecommunications systems, and the rest of our
operating systems and infrastructure to process and monitor large numbers of daily transactions in compliance with contractual,
legal, regulatory, and our own standards. Such systems and infrastructure could be disrupted because of a cyberattack, spikes in
transaction volume, power outages, telecommunications failures, process breakdowns, degradation or loss of internet or website
availability, natural disasters, political or social unrest, and terrorist acts. A significant adverse incident could damage our
reputation and credibility, lead to customer dissatisfaction and loss of customers or revenue, and result in regulatory action, in
addition to increased costs to service our customers and protect our network. Such an event could also result in large
expenditures to repair or replace the damaged properties, networks, or information systems or to protect them from similar
events in the future. System redundancy may be ineffective or inadequate, and our business continuity plans may not be
sufficient for all eventualities. Any significant loss of customers or revenue, or significant increase in costs of serving those
customers, could adversely affect our growth, financial condition, and results of operations.
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Operating system and infrastructure risks continue to increase in part because of the proliferation of new technologies, the use
of the internet and telecommunications technologies to support and process customer transactions, the increased number and
complexity of transactions being processed, changes to the way we do business due to the COVID-19 pandemic (like increased
instances of employees working from home and/or using personal computing devices), and the increased sophistication and
activities of organized crime, hackers, terrorists, activists, nation state threat actors, and other external parties. In addition, to
access our services and products, our customers may use personal smartphones, tablet computers, and other mobile devices that
are beyond our control systems.
Malicious and abusive activities, such as the dissemination of computer viruses, worms, and other destructive or disruptive
software, internal and external threats, computer hacking, social engineering, denial of service attacks, ransomware or ransom
demands to not expose confidential data or vulnerabilities in systems, and other malicious activities have become more
common. These activities could have material adverse consequences on our network and our customers, including degradation
of service, excessive call volume, and damage to our or our customers' equipment and data. Although to date we have not
experienced a material loss relating to cyberattacks or system outage, there can be no assurance that we will not suffer such
losses in the future or that there is not a current threat that remains undetected at this time. Our risk and exposure to these
matters remains heightened because of, among other things, the evolving nature of these threats, and the size and scale of our
services.
We could also incur material losses resulting from the risk of unauthorized access to our computer systems, the execution of
unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal
control system and compliance requirements, and failures to properly execute business continuation and disaster recovery plans.
In the event of a breakdown in the internal control system, improper operation of systems, or unauthorized employee actions,
we could suffer material financial loss, potential legal actions, fines, or civil monetary penalties that could arise as a result of an
operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their
implementation, and customer attrition due to potential negative publicity and damage to our reputation.
As a result of the above risks, we continue to develop and enhance our training, controls, processes, and practices designed to
protect, monitor, and restore our systems, computers, software, data, and networks from attack, damage, or unauthorized access,
and this remains a priority for us, each of our business segments, and our Board of Directors. Even though we maintain
technology and telecommunication, professional services, media, network security, privacy, injury, and liability insurance
coverage to offset costs related to a cyberattack, information security breach, or extended system outage, this insurance
coverage may not cover all costs of such incidents.
A security breach of our information technology systems could result in material financial losses and legal exposure, and
damage to our reputation.
Our operations rely on the secure processing, storage and transmission of personal, confidential and other sensitive information
in our information technology systems, including customer, personnel, and vendor data. Although we devote significant
resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our systems,
software, and networks and to protect the confidentiality, integrity and availability of information belonging to us and our
customers, we experience increasingly numerous and more sophisticated attacks on our systems, and our cybersecurity
measures may not be entirely effective.
We may not be able to anticipate or to implement effective preventive measures against all types of security breaches, because
the techniques used change frequently, generally increase in sophistication, often are not recognized until launched, sometimes
go undetected even when successful, and result in cybersecurity attacks originating from a wide variety of sources, including
organized crime, hackers, terrorists, activists, hostile foreign governments, and other external parties. Those parties may also
attempt to fraudulently induce employees, customers, or other users of our systems to disclose sensitive information to gain
access to our data or that of our customers, such as through “phishing” schemes. These risks may increase in the future as we
continue to increase our mobile and internet-based product offerings and expand our internal usage of web-based products and
applications. In addition, our customers often use their own devices, such as computers, smart phones, and tablet computers, to
make payments and manage their accounts. We have limited ability to assure the safety and security of our customers’
transactions to the extent they are using their own devices, which could be subject to similar threats. A penetration or
circumvention of our information security systems, or the intentional or unintentional disclosure, alteration or destruction by an
authorized user of confidential information necessary for our operations, could result in serious negative consequences for us.
These consequences may include violations of applicable privacy and other laws; financial loss to us or to our customers; loss
of confidence in our cybersecurity measures; customer dissatisfaction; significant litigation exposure; regulatory fines, penalties
or intervention; reimbursement or other compensatory costs; additional compliance costs; significant disruption of our business
operations; and harm to our reputation.
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In addition, we routinely transmit, receive, and process large volumes of personal, confidential, and proprietary information
through third parties. Although we work to ensure that third parties with which we do business maintain information security
systems and processes, those measures may not be entirely effective, and an information security breach of a third-party system
may not be revealed to us in a timely manner, which could compromise our ability to respond effectively. An interception,
misuse or mishandling of personal, confidential, or proprietary information being processed, sent to or received from a third
party could result in material adverse legal liability, regulatory actions, disruptions, and reputational harm with respect to our
businesses.
We and our third-party vendors have experienced, and could experience in the future, cyber-attacks and information security
breaches. Although to date none of these attacks or breaches has individually or in the aggregate resulted in a security incident
with a material adverse effect on our results of operations, financial condition, or businesses, there can be no assurance that we
will not suffer material adverse effects in the future or that there is not a significant current threat that remains undetected at this
time.
We must adapt to rapid technological change. If we are unable to take advantage of technological developments or our
software products experience quality problems and development delays, we may experience a decline in the demand for our
products and services.
Our long-term operating results depend substantially upon our ability to continually enhance, develop, introduce, and market
new products and services. We must continually and cost-effectively maintain and improve our information technology systems
and infrastructure in order to successfully deliver competitive and cost-effective products and services to our customers. The
widespread adoption of new technologies and market demands could require substantial expenditures to enhance system
infrastructure and existing products and services. If we fail to enhance and scale our systems and operational infrastructure or
products and services, our operating segments may lose their competitive advantage and this could adversely affect financial
and operating results.
We require skilled technology and security workers to maintain, secure, and improve our information technology systems and
infrastructure. Talent availability, increased demand and competition for skilled workers across the technology sector may
impact our ability to maintain adequate technology and security staffing levels. If we are unable to retain existing talent, or
recruit and hire new talent when needed, we may be unable to quickly adopt new technologies, or maintain and improve our
technology systems and infrastructure.
Our products and services are based on sophisticated software and computing systems that often encounter development delays,
and the underlying software may contain undetected bugs or other defects that interfere with its intended operation. Quality
problems with our software products, with transferring between systems or with errors or delays in our processing of electronic
transactions, could result in additional development costs, diversion of technical and other resources from our other
development efforts, loss of credibility with current or potential clients, harm to our reputation, or exposure to liability claims.
We rely on third parties for a wide array of services for our customers, and to meet our contractual obligations. The failure
of a third party with which we work could adversely affect our business performance and reputation.
We rely on third parties for a wide array of critical operational services, technology, datacenter hosting facilities, cloud
computing platforms, and software. We also rely upon data from external sources to maintain our proprietary databases,
including data from customers, business partners, and various government sources.
Our third-party service providers may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss,
cyberattacks, telecommunications failures, supply chain disruptions, acts of terrorism, and similar events. They may also be
subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct, as well as local administrative actions,
changes to legal or permitting requirements, and litigation to stop, limit, or delay operations. If a third-party service provider
experiences an outage, or our services are disrupted, we may temporarily lose the ability to conduct certain business activities,
which could impact our ability to serve our customers and meet our contractual, legal, or regulatory compliance obligations.
Our businesses would also be harmed if our customers and potential customers believe our services are unreliable. Even though
we have selected the third parties with which we do business carefully and have disaster recovery and business continuity
arrangements, our services could be interrupted. Some of our third-party service providers may engage vendors of their own as
they provide services or technology solutions for our operations, which introduces the same risks that these “fourth parties”
could be the source of operational failures.
Third parties that facilitate our business activities, including exchanges, clearinghouses, payment networks, or financial
intermediaries, could also be sources of operational risks to our businesses, including with respect to breakdowns or failures of
their systems, misconduct by their employees, or cyberattacks that could affect their ability to deliver a product or service to us
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or result in the loss or compromise of our information or the information of our customers. Our ability to implement backup
systems or other safeguards with respect to third-party systems is limited. Furthermore, an attack on, or failure of, a third-party
system may not be revealed to us in a timely manner, which could compromise our ability to respond effectively.
Our reliance on Amazon Web Services to deliver cloud computing services is significant, and any disruptions with our use of
Amazon Web Services could adversely impact our business and operations.
Amazon Web Services ("AWS") provides infrastructure and software services for a significant amount of our technology
products and services. As we continue to modernize our systems, the level of dependence on AWS' cloud services will grow.
We also rely on AWS for our system backups and archive storage, and a substantial amount of our users' information and
confidential business information is stored in the AWS cloud environment. Given that we contract with many third-party
service providers and utilize third-party software applications that are also dependent on AWS, the stability and availability of
AWS is critical to our business.
AWS' operations and facilities are susceptible to service interruptions and damage, and we have limited control over the AWS
operations and facilities that support our business. We have implemented contingency plans for disaster recovery and business
continuity but are limited in our ability to move quickly off AWS to another cloud service provider. Any disruption of or
interference with our use of AWS could adversely impact our operations and our business. Any negative publicity arising from
these disruptions could also harm our reputation and brand.
We must satisfy certain requirements necessary to maintain the federal guarantees of our federally insured loans and the
federally insured loans that we service for third parties, and we may incur penalties or lose our guarantees if we fail to meet
these requirements.
As of December 31, 2021, we serviced $26.9 billion of FFELP loans that maintained a federal guarantee, of which $14.6 billion
and $12.3 billion were owned by us and third-party entities, respectively. We must meet various requirements in order to
maintain the federal guarantee on federally insured loans, which is conditional based on compliance with origination, servicing,
and collection policies set by the Department and guaranty agencies. If we misinterpret Department guidance, or incorrectly
apply the Higher Education Act, the Department could determine that we are not in compliance. Federally insured loans that are
not originated, disbursed, or serviced in accordance with the Department's and guaranty agency regulations may risk partial or
complete loss of the guarantee. If we experience a high rate of servicing deficiencies (including any deficiencies resulting from
the conversion of loans from one servicing platform to another, errors in the loan origination process, establishment of the
borrower's repayment status, and due diligence or claim filing processes), it could result in the loan guarantee being revoked or
denied. In most cases we have the opportunity to cure these deficiencies by following a prescribed cure process which usually
involves obtaining the borrower's reaffirmation of the debt. However, not all deficiencies can be cured.
A guaranty agency may also assess an interest penalty upon claim payment if the deficiency does not result in a loan rejection.
These interest penalties are not subject to cure provisions and are typically related to isolated instances of due diligence
deficiencies. Additionally, we may become ineligible for special allowance payment benefits from the time of the first
deficiency leading to the loan rejection through the date that the loan is cured.
As FFELP loan holders, servicers, and guaranty agencies exit the loan program and consolidation within the industry takes
place, this increases the complexity of servicing and claim filing due to the amount of loan servicing and loan guaranty transfers
and the opportunity for errors at the time a claim is filed.
Failure to comply with federal and guarantor regulations may result in fines, penalties, the loss of the insurance and related
federal guarantees on affected FFELP loans, the loss of special allowance payment benefits, expenses required to cure servicing
deficiencies, suspension or termination of the right to participate as a FFELP servicer, negative publicity, and potential legal
claims, including potential claims by our servicing customers if they lose the federal guarantee on loans that we service for
them. If we are subjected to significant fines, or loss of insurance or guarantees on a material number of FFELP loans, or if we
lose our ability to service FFELP loans, it could have a material, negative impact on our business, financial condition, or results
of operations.
Our servicing contracts with the Department of Education expose us to additional risks inherent in government contracts
and our third-party FFELP loan servicing business is subject to additional risks inherent in government programs.
The Federal government could engage in a prolonged debate linking the federal deficit, debt ceiling, government shutdown, and
other budget issues. If U.S. lawmakers in the future fail to reach agreement on these issues, the federal government could stop
or delay payment on its obligations. Further, legislation to address the federal deficit and spending could impose proposals that
would adversely affect the FFEL and Federal Direct Loan Programs' servicing businesses.
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We contract with the Department to administer loans held by the Department in both the FFEL and Federal Direct Loan
Programs, we own a portfolio of FFELP loans, and we service our FFELP loans and loans for third parties. These loan
programs are authorized by the Higher Education Act and are subject to periodic reauthorization and changes to the programs
by the Administration and U.S. Congress. Any changes, including the potential for borrowers to refinance loans via Direct
Consolidation Loans, or broad loan forgiveness, could have a material impact to our cash flows from servicing, interest income,
and operating margins. For example, a broad student loan debt cancellation program by the government could result in a
significant decrease in our Department servicing revenues and our revenues for servicing FFELP loans for third parties, and
even if a broad debt cancellation program only applied to student loans held by the Department, such program could result in a
significant increase in consolidations of FFELP loans held by third parties to Federal Direct Loan Program loans, and thus an
associated decrease in our third-party FFELP loan servicing revenues.
Government entities in the United States often reserve the right to audit contract costs and conduct inquiries and investigations
of business practices. These entities also conduct reviews and investigations and make inquiries regarding systems, including
systems of third parties, used in connection with the performance of the contracts. Negative findings from audits, investigations,
or inquiries could affect the contractor’s future revenues and profitability. If improper or illegal activities are found in the
course of government audits or investigations, we could become subject to various civil and criminal penalties, including those
under the civil U.S. False Claims Act. Additionally, we may be subject to administrative sanctions, which may include
termination or non-renewal of contracts, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from
doing business with other agencies of that government. Due to the inherent limitations of internal controls, it may not be
possible to detect or prevent all improper or illegal activities.
The Government could change governmental policies, programs, regulatory environments, spending sentiment, and many other
factors and conditions, some of which could adversely impact our business, financial condition, and results of operations. We
cannot predict how or what programs or policies will be impacted by the federal government. The conditions described above
could impact not only our contracts with the Department, but also other existing or future contracts with government or
commercial entities.
Our ability to continue to grow and maintain our contracts with commercial businesses and government agencies is partly
dependent on our ability to maintain compliance with various laws, regulations, and industry standards applicable to those
contracts.
We are subject to various laws, regulations, and industry standards related to our commercial and government contracts. In
most cases, these contracts are subject to termination rights, audits, and investigations. The laws and regulations that impact our
operating segments are outlined in Part I, Item 1, “Regulation and Supervision.” Additionally, our contracts with the federal
government require that we maintain internal controls in accordance with the National Institute of Standards and Technologies
(“NIST”) and our operating segments that utilize payment cards are subject to the Payment Card Industry Data Security
Standards (“PCI DSS”). If we are found to be in noncompliance with the contract provisions or applicable laws, regulations, or
standards, or the contracted party exercises its termination or other rights for that or other reasons, our reputation could be
negatively affected, and our ability to compete for new contracts or maintain existing contracts could diminish. If this were to
occur, our results of operations from existing contracts and future opportunities for new contracts could be negatively affected.
The failure to safeguard the privacy of personal information could result in significant legal and reputational harm.
We are subject to complex and evolving laws and regulations, both inside and outside of the United States, governing the
privacy and protection of personal information of individuals. The protected individuals can include our customers, employees,
and the customers and employees of our clients, vendors, counterparties, and other third parties. Ensuring the collection, use,
transfer, and storage of personal information complies with applicable laws and regulations in relevant jurisdictions can
increase operating costs, impact the development of new products or services, and reduce operational efficiency. Any
mishandling or misuse of the personal information of customers, employees, or others by us or a third party affiliate could
expose us to litigation or regulatory fines, penalties, or other sanctions. Additional risks could arise if we or an affiliated third
party do not provide adequate disclosure or transparency to our customers about the personal information collected from them
and its use; fail to receive, document, and honor the privacy preferences expressed by customers; fail to protect personal
information from unauthorized disclosure; or fail to maintain proper training on privacy practices for all employees or third
parties who have access to personal data. Concerns regarding the effectiveness of our measures to safeguard personal
information and abide by privacy preferences, or even the perception that those measures are inadequate, could cause the loss of
existing or potential customers and thereby reduce our revenue. In addition, any failure or perceived failure to comply with
applicable privacy or data protection laws and regulations could result in requirements to modify or cease certain operations or
practices, and/or significant liabilities, regulatory fines, penalties, and other sanctions. The regulatory framework for privacy
issues is evolving and is likely to continue doing so for the foreseeable future, which creates uncertainty. Because the
interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that
32
these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our practices. Any inability
to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws,
regulations, and privacy standards, could result in additional cost and liability for us, damage our reputation, and harm our
business.
The failure of Nelnet Bank to achieve business plan results and effectively deploy loan and deposit strategies in accordance
with regulatory requirements and its business plan could adversely affect the Bank’s success during its three-year de novo
period.
On November 2, 2020, Nelnet Bank, our banking subsidiary, launched operations. Nelnet Bank operates as an internet Utah-
chartered industrial bank franchise focused on the private education loan marketplace. Nelnet Bank was funded by us with an
initial capital contribution of $100.0 million, consisting of $55.9 million in cash and $44.1 million of student loan asset-backed
securities. In addition, we made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the
FDIC.
The regulatory landscape surrounding industrial banks continues to be scrutinized and banking policy changes may be difficult
to predict in advance. Nelnet Bank monitors the regulatory environment and any related changes that may impact the charter or
its operations. Nelnet Bank established a three-year business plan, which requires ongoing monitoring to ensure alignment to
financial and asset targets as well as other commitments. Failure to meet these targets and commitments could jeopardize the
success and profitability of Nelnet Bank.
The banking industry is highly regulated, and the regulatory framework, together with any future legislative changes, may have
a significant adverse effect on Nelnet Bank’s operations. Nelnet Bank’s current product offerings are primarily concentrated in
loan products for higher education, with expected expansion in alignment with the business plan to unsecured consumer
lending. Such concentrations and the competitive environment for those products subject the bank to risks that could adversely
affect its financial position. Consumer access to alternative means of financing, the costs of education, and other factors may
reduce demand for, or adversely affect Nelnet Bank’s ability to, retain private education loans.
Prior to FDIC approval, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s controlling shareholder)
entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection
with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. For additional information, see the MD&A -
“Liquidity and Capital Resources - Liquidity Impact Related to Nelnet Bank.” However, any failure to meet minimum capital
requirements and FDIC regulations can initiate certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have material adverse effect on Nelnet Bank’s business, results of operations, and financial condition.
Our failure to successfully manage business and certain asset acquisitions and other investments could have a material
adverse effect on our business, financial condition, and/or results of operations.
We have expanded our services and products through business acquisitions, and we may acquire other new businesses,
products, and services, or enhance existing businesses, products, and services, or make other investments to further diversify
our businesses both within and outside of our historical education-related businesses, through acquisitions of other companies,
product lines, technologies, and personnel, or through investments in new asset classes. Any acquisition or investment is subject
to a number of risks. Such risks may include diversion of management time and resources, disruption of our ongoing
businesses, difficulties in integrating acquisitions (including potential delays or errors in converting loan servicing portfolio
acquisitions to our servicing platform), loss of key employees, degradation of services, difficulty expanding information
technology systems and other business processes to incorporate the acquired businesses, extensive regulatory requirements,
dilution to existing shareholders if our common stock is issued in consideration for an acquisition or investment, incurring or
assuming indebtedness or other liabilities in connection with an acquisition, unexpected declines in real estate values or the
failure to realize expected benefits from real estate development projects, lack of familiarity with new markets, and difficulties
in supporting new product lines. Our failure to successfully manage acquisitions or investments, or successfully integrate
acquisitions, could have a material adverse effect on our business, financial condition, and/or results of operations.
Correspondingly, our expectations as to the accretive nature of the acquisitions or investments could be inaccurate.
Our significant investments in ALLO and Hudl are subject to a number of risks, including macroeconomic conditions,
competition, political and regulatory requirements, technology advancements, cybersecurity threats, retention of key personnel,
and other risks. ALLO derives its revenue primarily from the sale of telecommunication services, which are subject to intense
competition and extensive federal, state, and local regulations. Additionally, our investment in ALLO is dependent on ALLO
maintaining and expanding its infrastructure and continuing to increase market share in existing and new markets. Hudl’s sports
performance analysis business is subject to global market conditions, new competition, advancements in technology, and
continued demand for their products and services.
33
The operating results of these companies could impact the valuation of these investments on our financial statements, and we
may not be able to fully monetize these investments without a liquidation event.
Geopolitical risks, such as those associated with Russia’s invasion of Ukraine, could result in a decline in the outlook for the
U.S. and global economies.
The uncertain nature, magnitude, and duration of hostilities stemming from Russia’s recent military invasion of Ukraine,
including the potential effects of sanctions and retaliatory cyber-attacks on the world economy and markets, have contributed to
increased market volatility and uncertainty, and such geopolitical risks could have an adverse impact on macroeconomic factors
which affect our assets and businesses.
Regulatory and Legal
Federal and state laws and regulations can restrict our businesses and result in increased compliance expenses, and
noncompliance with these laws and regulations could result in penalties, litigation, reputation damage, and a loss of
customers.
Our operating segments are heavily regulated by federal and state government regulatory agencies. See Part I, Item 1,
"Regulation and Supervision." The laws and regulations enforced by these agencies are proposed or enacted to protect
consumers and the financial industry as a whole, not necessarily us, our operating segments, or our shareholders. We have
procedures and controls in place to monitor compliance with numerous federal and state laws and regulations. However,
because these laws and regulations are complex, differ between jurisdictions, and are often subject to interpretation, or as a
result of unintended errors, we may, from time to time, inadvertently be in non-compliance with these laws and regulations.
Compliance with these laws and regulations is expensive and requires the time and attention of management. These costs divert
capital and focus away from efforts intended to grow our business. If we do not successfully comply with laws, regulations, or
policies, we could incur fines or penalties, lose existing or new customer contracts or other business, and suffer damage to our
reputation. Changes in these laws and regulations can significantly alter our business environment, limit business operations,
and increase costs of doing business, and we cannot predict the impact such changes would have on our profitability.
For example, the CFPB has the authority to supervise, examine, and investigate large nonbank student loan servicers, including
us. If the CFPB were to determine that we were not in compliance with applicable laws, regulations, and CFPB guidance, it is
possible that this could result in material adverse consequences, including, without limitation, settlements, fines, penalties,
public enforcement actions, adverse regulatory actions, changes in our business practices, or other actions. The CFPB has also
issued student loan servicing rules since its inception and continues to review servicing areas where new guidance or rules may
be issued in the future.
There continues to be uncertainty regarding how the CFPB's recommendations, strategies, and priorities will impact our
businesses and our results of operations going forward. Actions by the CFPB could result in requirements to alter our services,
causing them to be less attractive or effective and impair our ability to offer them profitably. In the event that the CFPB changes
regulations adopted in the past by other regulators, or modifies past regulatory guidance, our compliance costs and litigation
exposure could increase.
Several states have enacted laws regulating and monitoring the activity of student loan servicers. For additional information,
including risks to us from such state laws, see the paragraph beginning with the same sentence as the immediately preceding
sentence that is set forth in Part I, Item 1, “Regulation and Supervision - Loan Servicing and Systems.”
As a result of the Reconciliation Act of 2010, our existing FFELP loan portfolio will continue to decline over time.
The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program and requires all new federal loan
originations to be made through the Federal Direct Loan Program. Although the new law did not alter or affect the terms and
conditions of existing FFELP loans, interest income related to existing FFELP loans will decline over time as existing FFELP
loans are paid down, refinanced, or repaid by guaranty agencies after default. We currently believe that in the short term we will
not be able to invest the excess cash generated from the FFELP loan portfolio into assets that immediately generate the rates of
return historically realized from that portfolio. If we are unable to grow or develop new revenue streams, our consolidated
revenue and operating margin will decrease as a result of the decline in FFELP loan volume outstanding.
Exposure related to certain tax issues could decrease our net income.
Federal and state income tax laws and regulations are often complex and require interpretation. From time to time, we engage in
transactions in which the tax consequences may be subject to uncertainty. Significant judgment is required in assessing and
estimating the tax consequences of these transactions. We prepare and file tax returns based on the interpretation of tax laws
34
and regulations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such
examinations may result in future tax and interest assessments by these authorities. In accordance with authoritative accounting
guidance, we establish reserves for tax contingencies related to deductions and credits that we may be unable to sustain.
Differences between the reserves for tax contingencies and the amounts ultimately owed are recorded in the period they become
known. Adjustments to our reserves could have a material effect on our financial statements.
We may also be impacted by changes in tax laws, including tax rate changes, new tax laws, and subsequent interpretations of
tax laws by federal and state tax authorities. For example, any future tax legislation increasing the corporate federal income tax
rate and/or limiting deductions could have a negative impact on the Company’s financial results. In addition, several states are
in a deficit position. Accordingly, states may look to expand their taxable base, alter their tax calculation, or increase tax rates,
which could result in an additional cost to the Company.
In addition to corporate tax matters, as both a lender and servicer of student loans, we are required to report student loan interest
received and cancellation of indebtedness to individuals and the Internal Revenue Service on an annual basis. These
informational forms assist individuals in complying with their federal and state income tax obligations. The statutory and
regulatory guidance regarding the calculations, recipients, and timing are complex and we know that interpretations of these
rules vary across the industry. The complexity and volume associated with these informational forms creates a risk of error
which could result in penalties or damage to our reputation.
We invest in certain tax-advantaged projects promoting renewable energy resources (solar projects). Our investments in these
projects are designed to generate a return primarily through the realization of federal income tax credits, operating cash flows,
and other tax benefits, over specified time periods. Our investments in these projects may not generate returns as anticipated
and may have an adverse impact on our financial results. We are subject to the risk that tax credits recorded currently and
previously, which remain subject to recapture by taxing authorities based on compliance features required to be met at the
project level, will fail to meet certain government compliance requirements and will not be able to be realized. The possible
inability to realize these tax credits and other tax benefits can have a negative impact on our financial results. The risk of not
being able to realize the tax credits and other tax benefits depends on many factors outside of our control, including changes in
the applicable tax code and the ability of the projects to continue operation.
Principal Shareholder and Related Party Transactions
Our Executive Chairman beneficially owns 81.8 percent of the voting rights of our shareholders and effectively has control
over all of our matters.
Michael S. Dunlap, our Executive Chairman and a principal shareholder, beneficially owns 81.8 percent of the voting rights of
our shareholders. Accordingly, each member of the Board of Directors and each member of management has been elected or
effectively appointed by Mr. Dunlap and can be removed by Mr. Dunlap. As a result, Mr. Dunlap, as Executive Chairman and
controlling shareholder, has control over all of our matters and has the ability to take actions that benefit him, but may not
benefit other minority shareholders, and may otherwise exercise his control in a manner with which other minority shareholders
may not agree or which they may not consider to be in their best interests.
Our contractual arrangements and transactions with Union Bank and Trust Company ("Union Bank"), which is under
common control with us, present conflicts of interest and pose risks to our shareholders that the terms may not be as
favorable to us as we could receive from unrelated third parties.
Union Bank is controlled by Farmers & Merchants Investment Inc. ("F&M"), which owns 81.5 percent of Union Bank's
common stock and 15.5 percent of Union Bank's non-voting non-convertible preferred stock. Certain grantor retained annuity
trusts established by Mr. Dunlap, a controlling shareholder as well as Executive Chairman of our Board of Directors, and his
spouse own a total of 50.4 percent of F&M’s outstanding voting common stock, and a certain grantor retained annuity trust
established by Mr. Dunlap’s sister, Angela L. Muhleisen, owns 49.2 percent of F&M’s outstanding voting common stock. In
addition, Mr. Dunlap and his family and Ms. Muhleisen and her family own a total of 8.9 percent and 7.9 percent, respectively,
of F&M’s outstanding non-voting preferred stock, which amounts are convertible into shares of F&M common stock which
would currently represent an additional 3.0 percent and 2.8 percent, respectively, of F&M’s outstanding common stock on an as
converted basis. Mr. Dunlap serves as a Director and Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen
serves as a Director and Chief Executive Officer of F&M and as a Director, Chairperson, President, and Chief Executive
Officer of Union Bank. Union Bank is deemed to have beneficial ownership of a significant number of shares of Nelnet because
it serves in a capacity of trustee or account manager for various trusts and accounts holding shares of Nelnet and may share
voting and/or investment power with respect to such shares. As of December 31, 2021, Union Bank was deemed to beneficially
own 9.8 percent of the voting rights of our outstanding common stock, and Mr. Dunlap and Ms. Muhleisen beneficially owned
35
81.8 percent and 11.8 percent, respectively, of the voting rights of our outstanding common stock (with certain shares deemed
under applicable SEC rules to be beneficially owned by both Mr. Dunlap and Ms. Muhleisen).
We have entered into, and intend to continue entering into, certain contractual arrangements with Union Bank, including loan
purchases, loan servicing, loan participations, banking and lending services, 529 Plan administration services, lease
arrangements, trustee services, and various other investment and advisory services. The net aggregate impact on our
consolidated statements of income for the years ended December 31, 2021, 2020, and 2019 related to the transactions with
Union Bank was income (before income taxes) of $11.0 million, $15.4 million, and $9.7 million, respectively. See note 21 of
the notes to consolidated financial statements included in this report for additional information related to the transactions
between us and Union Bank.
We intend to maintain our relationship with Union Bank, which our management believes provides certain benefits to us. Those
benefits include Union Bank's knowledge of and experience in the FFELP industry, its willingness to provide services, and at
times liquidity and capital resources, on an expedient basis, and its proximity to our corporate headquarters in Lincoln,
Nebraska.
The majority of the transactions and arrangements with Union Bank are not offered to unrelated third parties or subject to
competitive bids. Accordingly, these transactions and arrangements not only present conflicts of interest, but also pose the risk
to our shareholders that the terms of such transactions and arrangements may not be as favorable to us as we could receive from
unrelated third parties. Moreover, we may have and/or may enter into contracts and business transactions with related parties
that benefit Mr. Dunlap and his sister, as well as other related parties, that may not benefit us and/or our minority shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved comments from the staff of the Securities and Exchange Commission regarding its periodic or
current reports under the Securities Exchange Act of 1934.
ITEM 2. PROPERTIES
The Company's headquarters are located in Lincoln, Nebraska. The Company owns or leases office space facilities primarily in
Nebraska, Wisconsin, and Colorado.
The Company believes its existing office space facilities and equipment, which are used by all reportable segments, are in good
operating condition and are suitable for the conduct of its business.
ITEM 3. LEGAL PROCEEDINGS
Note 23, “Legal Proceedings,” of the notes to consolidated financial statements included in this report is incorporated herein by
reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Class A common stock is listed and traded on the New York Stock Exchange under the symbol “NNI,” while
its Class B common stock is not publicly traded. The number of holders of record of the Company's Class A common stock and
Class B common stock as of January 31, 2022 was 1,477 and 72, respectively. The record holders of the Class B common stock
are Michael S. Dunlap, Shelby J. Butterfield, various members of the Dunlap and Butterfield families, and various other estate
planning trusts established by and/or entities controlled by them. Because many shares of the Company's Class A common
stock are held by brokers and other institutions on behalf of shareholders, the Company is unable to estimate the total number of
beneficial owners represented by these record holders.
The Company paid quarterly cash dividends on its Class A and Class B common stock during the years ended December 31,
2020 and 2021 in amounts totaling $0.82 per share and $0.90 per share, respectively. The Company currently plans to continue
making comparable regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition,
and other factors.
36
Performance Graph
The following graph compares the change in the cumulative total shareholder return on the Company's Class A common stock
to that of the cumulative return of the S&P 500 Index and the S&P 500 Financials Index. The graph assumes that the value of
an investment in the Company's Class A common stock and each index was $100 on December 31, 2016 and that all dividends,
if applicable, were reinvested. The performance shown in the graph represents past performance and should not be considered
an indication of future performance.
Company/Index
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
Nelnet, Inc.
S&P 500
S&P 500 Financials
$
100.00 $
109.27 $
105.62 $
118.96 $
147.56 $
100.00
100.00
121.83
122.18
116.49
106.26
153.17
140.40
181.35
138.02
204.66
233.41
186.38
The preceding information under the caption “Performance Graph” shall be deemed to be “furnished” but not “filed” with the
Securities and Exchange Commission.
37
Stock Repurchases
The following table summarizes the repurchases of Class A common stock during the fourth quarter of 2021 by the Company or
any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934. Certain
share repurchases included in the table below were made pursuant to a trading plan adopted by the Company in accordance with
Rule 10b5-1 under the Securities Exchange Act of 1934.
Period
October 1 - October 31, 2021
November 1 - November 30, 2021
December 1 - December 31, 2021
Total
Total number
of shares
purchased (a)
Average price
paid per share
Total number of shares
purchased as part of
publicly announced
plans or programs (b)
Maximum number of
shares that may yet be
purchased under the
plans or programs (b)
— $
145,626
194,987
340,613 $
—
87.83
91.46
89.91
—
145,626
191,709
337,335
2,909,015
2,763,389
2,571,680
(a)
(b)
The total number of shares includes: (i) shares repurchased pursuant to the stock repurchase program discussed in footnote (b) below; and (ii)
shares owned and tendered by employees to satisfy tax withholding obligations upon the vesting of restricted shares. Shares of Class A common
stock tendered by employees to satisfy tax withholding obligations included 3,278 shares in December 2021. Unless otherwise indicated, shares
owned and tendered by employees to satisfy tax withholding obligations were purchased at the closing price of the Company’s shares on the date
of vesting.
On May 8, 2019, the Company announced that its Board of Directors authorized a new stock repurchase program to repurchase up to a total of
five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022.
Equity Compensation Plans
For information regarding the securities authorized for issuance under the Company's equity compensation plans, see Part III,
Item 12 of this report.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the years ended
December 31, 2021 and 2020. All dollars are in thousands, except share data, unless otherwise noted.)
The following discussion and analysis provides information that the Company’s management believes is relevant to an
assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion
and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes included in
this report. This discussion and analysis contains forward-looking statements subject to various risks and uncertainties and
should be read in conjunction with the disclosures and information contained in "Forward-Looking and Cautionary Statements"
and Item 1A "Risk Factors" included in this report.
A discussion related to the results of operations and changes in financial condition for the year ended December 31, 2021
compared to the year ended December 31, 2020 is presented below. A discussion related to the results of operations and
changes in financial condition for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be
found in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's 2020 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission
on February 25, 2021.
OVERVIEW
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 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).
38
The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The
Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student
loans, principally consisting of loans originated under the FFEL Program.
The Reconciliation Act of 2010 discontinued new loan originations under the FFEL Program, effective July 1, 2010, and
requires all new federal student loan originations be made directly by the Department through the Federal Direct Loan Program.
As a result, 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 from FFELP loans, the Company has expanded its services and products. 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. In addition, the Company has been servicing federally owned student loans for the Department
since 2009.
Liquidity
The Company intends to use its strong liquidity position, as summarized below, to continue to provide and expand its products
and services and capitalize on market opportunities, including FFELP, private education, and consumer loan acquisitions (or
investment interests therein); strategic acquisitions and investments; and capital management initiatives, including stock
repurchases, debt repurchases, and dividend distributions.
•
•
•
•
As of December 31, 2021, the Company had cash and cash equivalents of $125.6 million. Cash held by Nelnet Bank is
generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, cash and cash
equivalents as of December 31, 2021 was $99.4 million.
The Company has historically generated positive cash flow from operations. For the year ended December 31, 2021,
the Company’s net cash provided by operating activities was $544.9 million.
The Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026. As of
December 31, 2021, there was no amount outstanding on the unsecured line of credit and $495.0 million was available
for future use. The line of credit provides that the Company may increase the aggregate financing commitments,
through the existing lenders and/or through new lenders, up to a total of $737.5 million, subject to certain conditions.
The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate
significant earnings and cash flow over the life of these transactions. As of December 31, 2021, the Company currently
expects future undiscounted cash flows from its securitization portfolio to be approximately $1.88 billion, of which
approximately $1.29 billion will be generated over the next five years.
39
GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments
The Company prepares its financial statements and presents its financial results in accordance with GAAP. However, it also
provides additional non-GAAP financial information related to specific items management believes to be important in the
evaluation of its operating results and performance. A reconciliation of the Company's GAAP net income to net income,
excluding derivative market value adjustments, and a discussion of why the Company believes providing this additional
information is useful to investors, is provided below.
Year ended December 31,
2021
2020
GAAP net income attributable to Nelnet, Inc.
$
393,286
352,443
Realized and unrealized derivative market value adjustments
Tax effect (a)
Net income attributable to Nelnet, Inc., excluding derivative market
value adjustments (b)
Earnings per share:
(92,813)
22,275
28,144
(6,755)
$
322,748
373,832
GAAP net income attributable to Nelnet, Inc.
$
10.20
Realized and unrealized derivative market value adjustments
Tax effect (a)
Net income attributable to Nelnet, Inc., excluding derivative market
value adjustments (b)
$
(2.41)
0.58
8.37
9.02
0.72
(0.17)
9.57
(a)
(b)
The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory
income tax rate.
"Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or
paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused
by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments"
does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative
instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no
fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s
derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for
hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration
for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused
by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract.
However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.
The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to
interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the
period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding
these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating
agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it
provides additional information regarding operational and performance indicators that are closely assessed by management. There is no
comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP
results by providing additional information that management utilizes to assess performance.
40
Operating Segments
The Company earns net interest income on its loan portfolio, consisting primarily of FFELP loans, in its Asset Generation and
Management ("AGM") operating segment. This segment is expected to generate a stable net interest margin and significant
amounts of cash as the FFELP portfolio amortizes. As of December 31, 2021, AGM had a $17.4 billion loan portfolio that
management anticipates will amortize over the next approximately 15 years and has a weighted average remaining life of
approximately 8 years. The Company actively works to maximize the amount and timing of cash flows generated by its FFELP
portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental
earnings and cash flow.
In addition, the Company earns fee-based revenue through the following reportable operating segments:
•
•
Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Services ("NDS"), which includes the
operations of Nelnet Servicing and Great Lakes
Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Services
("NBS")
Further, the Company earned communications revenue through ALLO, formerly a majority-owned subsidiary of the Company
prior to a recapitalization of ALLO resulting in the deconsolidation of ALLO from the Company’s financial statements on
December 21, 2020. The recapitalization of ALLO was not considered a strategic shift in the Company’s involvement with
ALLO, and ALLO’s results of operations, prior to the deconsolidation, are presented by the Company as a reportable operating
segment.
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 industrial bank
franchise focused on the private education loan marketplace, with a home office in Salt Lake City, Utah. Nelnet Bank’s
operations are presented by the Company as a reportable operating segment.
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other
Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest
expense incurred on unsecured and other corporate related debt transactions. In addition, the Corporate segment includes direct
incremental costs associated with Nelnet Bank prior to the UDFI’s approval for its bank charter, and certain shared service and
support costs incurred by the Company that will not be reflected in Nelnet Bank’s operating results through 2023 (the bank’s de
novo period). Such Nelnet Bank-related costs included in the Corporate segment totaled $3.4 million (pre-tax) and $6.0 million
(pre-tax) in 2021 and 2020, respectively.
41
The information below provides the operating results (net income before taxes) for each reportable operating segment and
Corporate and Other Activities for the years ended December 31, 2021 and 2020. See “Results of Operations” for each such
reportable operating segment (except for ALLO, which was deconsolidated from the Company’s financial statements in
December 2020).
Year ended
December 31,
Certain Items Impacting Comparability (a)
2021
2020
Results in 2021 were impacted by:
Results in 2020 were impacted by:
NDS
NBS
$ 62,445
53,375
72,713
66,200
ALLO (prior to deconsolidation)
—
(33,188)
• Impairment charges on owned buildings of
$13.2 million due to continued evaluation of
office space needs as employees continue to
work from home due to COVID-19
• A full year of operating results from the
of
2020
acquisitions
31,
December
HigherSchool and CD2
• Income of $92.8 million related to changes in
the fair value of derivative instruments that do
not qualify for hedge accounting
• A loss of $28.1 million related to changes in
the fair value of derivative instruments that do
not qualify for hedge accounting
• Negative provision for loan losses of $13.2
million due primarily to improved economic
conditions throughout 2021 as compared to
December 31, 2020
• Provision expense for loan losses of $63.0
million as a result of the COVID-19 pandemic
and its effects on economic conditions
• Gains from the sale of consumer loans of
• Gains from the sale of consumer loans of
$18.7 million
$33.0 million
AGM
Nelnet Bank
423,616
162,703
(792)
(80)
• A net gain of $32.9 million related to the
Company’s joint venture to acquire Wells
Fargo’s private education
loan
portfolio. See “2021 Transactions Related to
the Private Education Loan Portfolio Sold by
Wells Fargo” below
student
• A decrease of $23.8 million in interest
expense as a result of reversing a historical
accrued interest liability on certain bonds
(initially recorded when certain asset-backed
securitizations were acquired in 2011 and
2013), which
the Company
liability
determined is no longer probable of being
required to be paid
• Net investment gains and income of $58.7
million, including $28.8 million from venture
capital investments, $22.3 million related to
real estate, and $7.6 million related to asset-
backed securities (bonds) and marketable
equity securities
• A
loss of $42.1 million related
Company’s voting membership
investment in ALLO
to
the
interest
• An impairment expense, net of recoveries, of
the Company’s
$16.6 million related
beneficial
loan
consumer
securitization investments as a result of the
estimated impacts of the COVID-19 pandemic
interest
to
in
• A gain of $50.1 million to adjust the carrying
value of the Company’s investment in Hudl to
reflect Hudl’s May 2020 equity
raise
transaction value
• A gain of $258.6 million
from
the
deconsolidation of ALLO
Corporate
(55,875)
201,477
investments (b)
investments (b)
• A
loss of $10.1 million
from
solar
• A
loss of $37.4 million
from
solar
Net income before taxes
502,105
450,486
Income tax expense
(115,822)
(100,860)
Net loss attributable to
noncontrolling interests (b)
Net income
7,003
2,817
$ 393,286
352,443
(a)
(b)
All dollar amounts for those items impacting comparability in 2021 and 2020 are pre-tax.
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 in solar projects that are included in “net loss attributable to
noncontrolling interests” in the table above.
42
Recent Transactions / Developments
2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo
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, and under the joint venture, the Company had an approximately 8 percent interest in the loans and has a corresponding 8
percent interest in residual interests in the 2021 securitizations of the loans discussed below. In conjunction with the sale, the
Company was selected as servicer of the portfolio. During March and throughout the second quarter of 2021, the vast majority
of the borrowers were converted to the Company’s servicing platform. The joint venture established a limited partnership that
purchased the private education loans and funded such loans with a temporary warehouse facility.
During 2021, the joint venture completed four 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). The Company is accounting for its
approximately 8 percent residual interest in these securitizations as held-to-maturity beneficial interest investments. These
investments are reflected on the Company’s consolidated balance sheet as "investments." On behalf of the joint venture, the
Company is the sponsor and administrator for these loan securitizations. As sponsor and administrator, the Company earns an
annual fee of 10 to 10.75 basis points on the outstanding loan receivable balance in the securitizations. As sponsor, the
Company is required to provide a certain level of risk retention, and the Company has purchased bonds issued in such
securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the
Company’s consolidated balance sheet as "investments" and as of 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 the investment securities (bonds) to a
third party. The Company entered into repurchase agreements with third parties, the proceeds of which were used to purchase a
portion of the asset-backed investments, and such investments serve as collateral on the repurchase obligations.
As of December 31, 2021, $483.8 million was outstanding on the Company’s repurchase agreements, of which $313.2 million
was borrowed to fund the private education loan securitization bonds subject to the Company’s risk retention requirement. The
repurchase agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early
termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates. The
Company pays interest on amounts outstanding on the repurchase agreements based on LIBOR plus an applicable spread, and
the Company is also required to pay additional cash in the event the fair value of the securities subject to a repurchase
agreement becomes less than the original purchase price of such securities.
During the fourth quarter of 2021, the joint venture completed its fourth and final asset-backed securitization that permanently
financed all remaining eligible loans temporarily funded in the joint venture limited partnership’s warehouse facility. The
Company initially contributed $71.1 million in the joint venture. Cash distributions, the fair value of the Company’s portion of
loans securitized as a result of 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.
COVID-19
Beginning in March 2020, the COVID-19 pandemic resulted in many businesses and schools closing or reducing hours
throughout the U.S. to combat the spread of COVID-19, and states and local jurisdictions implementing various containment
efforts, including lockdowns on non-essential business and other business restrictions, stay-at-home orders, and shelter-in-place
orders. The COVID-19 pandemic caused significant disruption to the U.S. and world economies, including significantly higher
unemployment and underemployment and extreme volatility in the U.S. and world markets. These effects had an adverse
impact on the Company’s results of operations and, if these effects result in sustained economic stress, they could have a future
adverse impact on the Company in a number of ways, including wage inflation and cost of service delivery, rising interest rates
due to market conditions or government policy or stimulus, and loan performance (where individual student and consumer
borrowers experience financial hardship). Although certain business and economic conditions have improved since the
pandemic began, significant uncertainties remain, including with respect to the effectiveness of vaccines against existing and
new variant strains of the COVID-19 virus which could be vaccine resistant, the potential impacts of variations in vaccination
rates among different geographical areas and demographic segments, vaccine mandates, booster vaccines, and the potential
43
impacts of potential additional future spikes in infection rates including through breakthrough infections among the fully
vaccinated. In addition, a vast majority of the Company's employees continue to work from home, either full-time or dividing
their work days between working from home and working in the office as the Company has offered employees flexibility in the
amount of time they work in offices that were re-opened in 2021.
The results of operations discussion below should be read in conjunction with the information included in Item 1A, “Risk
Factors – Operations – The COVID-19 pandemic has adversely impacted our results of operations, and either directly or
indirectly through impacts on economic conditions or government policy could adversely impact our results of operations,
businesses, financial condition, and/or cash flows going forward.”
CONSOLIDATED RESULTS OF OPERATIONS
An analysis of the Company's operating results for the year ended December 31, 2021 compared to 2020 is provided below.
The Company’s operating results are primarily driven by the performance of its existing loan portfolio and the revenues
generated by its fee-based businesses and the costs to provide such services. The performance of the Company’s portfolio is
driven by net interest income (which includes financing costs) and losses related to credit quality of the assets, along with the
cost to administer and service the assets and related debt.
The Company operates as distinct reportable operating segments as described above. For a reconciliation of the reportable
segment operating results to the consolidated results of operations, see note 15 of the notes to consolidated financial statements
included in this report. Since the Company monitors and assesses its operations and results based on these segments, the
discussion following the consolidated results of operations is presented on a reportable segment basis (except for ALLO, which
was deconsolidated from the Company's consolidated financial statements in December 2020).
Year ended December 31,
2021
2020
Loan interest
$ 482,337
595,113
Investment interest
Total interest income
41,498
24,543
523,835
619,656
Interest expense
Net interest income
176,233
347,602
330,071
289,585
Less (negative provision) provision for
loan losses
Net interest income after provision for
loan losses
(12,426)
63,360
360,028
226,225
Additional information
Decrease was due primarily to decreases in the gross yield earned on loans and the average
balance of loans, partially offset by an increase in gross fixed rate floor income due to lower
interest rates in 2021 as compared to 2020. It is currently anticipated that interest rates may
rise in 2022 as a result of inflationary pressures in the U.S. economy.
Includes income from unrestricted interest-earning deposits and investments and funds in
asset-backed securitizations. Increase was due to an increase of student loan asset-backed
securities investments (bonds) and interest income earned on loan beneficial interest
investments, partially offset by a decrease in interest rates in 2021 as compared to 2020.
Decrease was due primarily to a decrease in cost of funds and a decrease in the average
balance of debt outstanding. In addition, during the first quarter of 2021, the Company
reduced interest expense by $23.8 million as a result of reversing a historical accrued
interest liability on certain bonds, which liability the Company determined is no longer
probable of being required to be paid. The liability was initially recorded when certain
asset-backed securitizations were acquired in 2011 and 2013.
Provision for loan losses in 2020 was impacted as a result of an increase in expected
defaults due to the COVID-19 pandemic and its effects on economic conditions. During
2021, the Company recorded a negative provision for loan losses due to 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. The negative provision recognized in
2021 was partially offset by the establishment of an initial allowance for loans originated
and acquired during 2021.
Other income/expense:
LSS revenue
ETS&PP revenue
486,363
338,234
451,561 See LSS operating segment - results of operations.
282,196 See ETS&PP operating segment - results of operations.
Communications revenue
—
76,643
On December 21, 2020, the Company deconsolidated ALLO from the Company’s
consolidated financial statements as a result of ALLO’s recapitalization. See note 2 “ALLO
Recapitalization” in the notes to consolidated financial statements included in this report for
additional information.
Other
78,681
57,561 See table below for components of “other.”
Gain on sale of loans
18,715
33,023
Gain from deconsolidation of ALLO
—
258,588
The Company sold $95.8 million (par value) and $185.0 million (par value) of consumer
loans to an unrelated third party in 2021 and 2020, respectively, and recognized gains from
such sales.
On December 21, 2020, the Company deconsolidated ALLO from the Company’s
consolidated financial statements as a result of ALLO’s recapitalization. See note 2 “ALLO
Recapitalization” in the notes to consolidated financial statements included in this report for
additional information.
44
During the first quarter of 2020, the Company recognized impairments of $26.3 million and
$7.8 million related to beneficial interest in consumer loan securitization investments and
several venture capital investments, respectively. Such impairments were the result of
estimated impacts from the COVID-19 pandemic. During the fourth quarter of 2020 and
first quarter of 2021, the Company reversed $9.7 million and $2.4 million, respectively, of
the provision related to the consumer loan securitization investments due to improved
economic conditions. During the third quarter of 2021, the Company evaluated the use of
office space as a large number of employees continue to work from home due to
COVID-19. As a result of this evaluation, the Company recorded an impairment charge
during the third quarter of 2021 of $14.2 million. The impairment charge related primarily
to building and operating lease assets. In addition, during 2021, the Company recognized
impairments of $4.6 million related to venture capital investments.
The Company maintains an overall risk management strategy that incorporates the use of
derivative instruments to reduce the economic effect of interest rate volatility. Derivative
settlements for each applicable period should be evaluated with the Company's net interest
income. See AGM operating segment - results of operations.
Includes the realized and unrealized gains and losses that are caused by changes in fair
values of derivatives which do not qualify for "hedge treatment" under GAAP. The majority
of the derivative market value adjustments were related to the changes in fair value of the
Company's floor income interest rate swaps. Such changes reflect that a decrease in the
forward yield curve during a reporting period results in a decrease in the fair value of the
Company's floor income interest rate swaps, and an increase in the forward yield curve
during a reporting period results in an increase in the fair value of such swaps.
Impairment expense and provision for
beneficial interests, net
(16,360)
(24,723)
Derivative settlements, net
(21,367)
3,679
Derivative market value adjustments, net
92,813
(28,144)
Total other income/expense
977,079
1,110,384
Cost of services:
Cost to provide education technology,
services, and payment processing
services
108,660
82,206
Represents primarily direct costs to provide payment processing and instructional services in
the ETS&PP operating segment. See ETS&PP operating segment - results of operations.
Cost to provide communications services
—
22,812
Total cost of services
108,660
105,018
Operating expenses:
Salaries and benefits
507,132
501,832
Depreciation and amortization
73,741
118,699
Other expenses
Total operating expenses
Income before income taxes
Income tax expense
Net income
145,469
726,342
502,105
115,822
386,283
160,574
781,105
450,486
100,860
349,626
As discussed above, on December 21, 2020, the Company deconsolidated ALLO from the
Company’s consolidated financial statements.
Increase was due to an increase in headcount in the (i) LSS operating segment due to hiring
contact center operations and support associates to prepare for the resumption of federal
student loan payments and other activities after the CARES Act suspension expires on May
1, 2022 and to support the increase in private education and consumer loan volume
primarily from the addition of the former Wells Fargo portfolio; and (ii) ETS&PP operating
segment to support the growth of its customer base, the investment in the development of
new technologies, and businesses it acquired in December 2020. These increases were
partially offset by the deconsolidation of ALLO from the Company's consolidated financial
statements on December 21, 2020. It is currently anticipated that salaries and benefits costs
may rise in 2022 as a result of wage inflation due to a constrained labor market.
Decrease was primarily due to the deconsolidation of ALLO from the Company's
consolidated financial statements on December 21, 2020, resulting in no ALLO depreciation
expense for the Company in 2021.
Other expenses includes expenses necessary for operations, such as postage and
distribution, consulting and professional fees, occupancy, communications, and certain
information technology-related costs. Decrease was due to (i) cost savings in the LSS
operating segment as a result of a decrease in printing and postage while student loan
payments are suspended as a result of COVID-19 borrower relief efforts and from an
increase in the adoption of electronic borrower statements and correspondence; and (ii) the
deconsolidation of ALLO on December 21, 2020. These items were partially offset by an
increase in costs in the ETS&PP operating segment due to the business acquisitions
completed in December 2020 and higher costs of consulting, professional fees, and
technology services due to investments in new technologies. See each individual operating
segment results of operations discussion for additional information.
The effective tax rate was 22.75% and 22.25% for 2021 and 2020, respectively. The
Company expects its future effective tax rate will range between 22 and 24 percent.
Net loss attributable to
noncontrolling interests
7,003
2,817
Amounts for noncontrolling interests reflect the net income/loss attributable to the holders of
minority membership interests in WRCM and multiple solar entities.
Net income attributable to Nelnet, Inc. $ 393,286
352,443
Additional information:
Net income attributable to Nelnet, Inc.
$ 393,286
Derivative market value adjustments, net
Tax effect
Net income attributable to Nelnet, Inc.,
excluding derivative market value
adjustments
(92,813)
22,275
352,443 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments"
above for additional information about non-GAAP net income, excluding derivative market
value adjustments.
28,144
(6,755)
$ 322,748 $ 373,832
45
The following table summarizes the components of "other" in "other income/expense."
Income/gains from investments, net (a)
ALLO preferred return (b)
Investment advisory services (c)
Borrower late fee income (d)
Management fee revenue (e)
Loss from ALLO voting membership interest investment (f)
Loss from solar investments (g)
(Loss) gain on debt repurchased (h)
Other
Other income
Year ended December 31,
2021
2020
$
$
91,593
8,427
7,773
3,444
3,307
(42,148)
(10,132)
(6,775)
23,192
78,681
56,402
386
10,875
5,194
9,421
(3,565)
(37,423)
1,924
14,347
57,561
(a)
During the second quarter of 2020, the Company recognized a $51.0 million (pre-tax) gain to adjust the carrying value of its
investment in Hudl to reflect Hudl’s May 2020 equity raise transaction value.
During 2021, the Company recognized net investment income and gains of $91.6 million, including $32.9 million from the
Company’s joint venture to acquire Wells Fargo’s private education student loan portfolio, $28.8 million from venture
capital investments, $22.3 million related to real estate investments, and $7.6 million related to investments in asset-backed
securities (bonds) and marketable equity securities.
As the Company expects its investment portfolio will continue to grow, the Company also anticipates fluctuations in future
periodic earnings resulting from investment valuation adjustments from time to time.
Represents the Company's income on its preferred membership interests in ALLO, which was deconsolidated from the
Company's financial statements in December 2020. As of December 31, 2021, the amount of preferred membership interests
held by the Company was $137.3 million, which earns a preferred annual return of 6.25 percent.
The Company provides investment advisory services through Whitetail Rock Capital Management, LLC ("WRCM"), the
Company's SEC-registered investment advisor subsidiary, under various arrangements. WRCM earns annual fees of 10 basis
points to 25 basis points on the majority of the outstanding balance of asset-backed securities under management and a share
of the gains from the sale of asset-backed securities or asset-backed securities being called prior to the full contractual
maturity for which it provides advisory services. As of December 31, 2021, the outstanding balance of asset-backed
securities under management subject to these arrangements was $2.0 billion. In addition, WRCM earns annual management
fees of five basis points for Nelnet stock under management (with the Nelnet stock primarily shares of Class B common
stock held in various trust estates). During 2021, WRCM earned $4.2 million in management fees and generated
$3.6 million in performance fees, as compared to $3.6 million in management fees and $7.3 million in performance fees in
2020.
Represents borrower late fees earned by the AGM operating segment. The decrease in borrower late fees in 2021 as
compared to 2020 was due to the Company suspending substantially all borrower late fees effective March 13, 2020 through
May 1, 2021 (for private education loans) and October 1, 2021 (for federally insured student loans), to provide borrowers
relief as a result of the COVID-19 pandemic.
Represents revenue earned from providing administrative support and marketing services, which primarily was to Great
Lakes’ former parent company under a contract that expired in January 2021.
Represents the Company's share of loss on its voting membership interests in ALLO. See note 7 of the notes to consolidated
financial statements included in this report for additional information regarding the accounting for and income statement
impact of this investment.
Represents the Company's share of income or loss from solar investments under the Hypothetical Liquidation at Book Value
("HLBV") method of accounting. For the majority of the Company's solar investments, the HLBV method of accounting
results in accelerated losses in the initial years of investment. The Company made substantial solar investments in 2019 and
2020. 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.
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Represents gains/losses from the Company’s repurchase of its own debt. See note 5 of the notes to consolidated financial
statements included in this report for additional information.
46
LOAN SERVICING AND SYSTEMS OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Servicing Volumes
December 31,
2019
March 31,
2020
June 30,
2020
September 30,
2020
December 31,
2020
March 31,
2021
June 30,
2021
September 30,
2021
December 31,
2021
As of
Servicing volume
(dollars in millions):
Nelnet:
Government
FFELP
Private and consumer
Great Lakes:
Government
Total
Number of servicing
borrowers:
Nelnet:
Government
FFELP
$
183,790
185,477
185,315
189,932
191,678
195,875
195,030
198,743
215,797
33,185
16,033
32,326
16,364
31,392
16,223
239,980
$
472,988
243,205
477,372
243,609
476,539
31,122
16,267
249,723
487,044
30,763
16,226
30,084
21,397
29,361
24,758
251,570
490,237
257,806
505,162
257,420
506,569
28,244
24,229
262,311
513,527
26,916
23,702
262,605
529,020
5,574,001
5,498,872
5,496,662
5,604,685
5,645,946
5,664,094
5,636,781
5,791,521
6,399,414
1,478,703
1,423,286
1,370,007
1,332,908
1,300,677
1,233,461
1,198,863
1,150,214
1,092,066
Private and consumer
682,836
670,702
653,281
649,258
636,136
882,477
1,039,537
1,097,252
1,065,439
Great Lakes:
Government
7,396,657
7,344,509
7,346,691
7,542,679
7,605,984
7,637,270
7,616,270
7,778,535
7,797,106
Total
15,132,197
14,937,369
14,866,641
15,129,530
15,188,743
15,417,302
15,491,451
15,817,522
16,354,025
Number of remote hosted
borrowers:
6,433,324
6,354,158
6,264,559
6,251,598
6,555,841
4,307,342
4,338,570
4,548,541
4,799,368
Government Loan Servicing
Nelnet Servicing's and Great Lakes' current student loan servicing contracts with the Department are currently scheduled to
expire on December 14, 2023. In 2017, the Department initiated a contract procurement process referred to as the Next
Generation Financial Services Environment ("NextGen") for a new framework for the servicing of all student loans owned by
the Department. The Consolidated Appropriations Act, 2021 contains provisions directing certain aspects of the NextGen
process, including that any new federal student loan servicing environment is required to provide for the participation of
multiple student loan servicers and the allocation of borrower accounts to eligible student loan servicers based on performance.
The Company cannot predict the timing, nature, or ultimate outcome of NextGen or any other contract procurement process by
the Department.
Nelnet Servicing and Great Lakes are two of the current seven private sector entities that have student loan servicing contracts
with the Department. In July 2021, the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a servicer for the
Department, announced that it will exit the federal student loan servicing business. PHEAA notified the Department it would
not be accepting a long-term extension of its student loan servicing contract beyond what was needed to ensure a smooth
transition for borrowers. In November 2021, PHEAA and the Department agreed to a short-term extension that will expire in
December 2022. All applicable student loans serviced by PHEAA will be transferred to successor servicers prior to the end of
this contract extension. At the time of its announcement, PHEAA serviced approximately 8.5 million borrowers under its
contract. A portion of the PHEAA servicing volume has been and will be transitioned prior to May 1, 2022, which is the date on
which the suspension of federal student loan payments under the CARES Act is scheduled to expire. Approximately 850,000
PHEAA borrowers have been transitioned to Nelnet Servicing’s platform as of the date of this filing (of which approximately
603,000 were converted prior to December 31, 2021). The Company anticipates additional PHEAA volume to be transitioned to
its platform during the remainder of 2022, but cannot currently estimate the number of additional borrowers that will be
transferred and/or the timing of such transfers.
In addition, the New Hampshire Higher Education Association Foundation Network (“Granite State”) exited the federal student
loan servicing business in 2021. Granite State’s servicing volume of approximately 1.3 million borrowers was transitioned to
Edfinancial Services, LLC ("Edfinancial"), a current servicer for the Department, during the third and fourth quarters of 2021.
Edfinancial utilizes Nelnet Servicing's platform to service their loans for the Department, as did Granite State prior to its exit.
The Department currently allocates new loan volume among its servicers based on certain performance metrics that measured
the satisfaction among separate customer groups, including borrowers and Department personnel who work with the servicers.
47
The metrics also measure the success of keeping borrowers in an on-time repayment status and helping borrowers avoid default.
Under the most recent publicly announced performance metrics used by the Department for the quarterly periods January 1,
2021 through June 30, 2021, Great Lakes’ and Nelnet Servicing’s overall rankings among the six go-forward servicers for the
Department (which excludes PHEAA) were third and fifth, respectively. Based on these results, Great Lakes’ and Nelnet
Servicing’s allocation of new student loan servicing volumes beginning September 1, 2021 are 18 percent and 12 percent,
respectively.
Servicing contract amendments entered into with the Department in September 2021 to extend the contracts through
December 14, 2023, also amended the methodology for performance measurements and new loan volume allocations, in part by
reflecting additional service level performance metrics under which, along with portfolio performance metrics, the Department
will evaluate each servicer and make new loan volume allocations on a quarterly basis.
The CARES Act, among other things, provides broad relief for federal student loan borrowers through May 1, 2022. Under the
CARES Act, beginning in March 2020, federal student loan payments and interest accruals were suspended for all borrowers
that had loans owned by the Department. As a result of the CARES Act, the Company received less servicing revenue per
borrower from the Department based on the borrower forbearance status through September 30, 2020 than what was earned on
such accounts prior to these provisions, and the Department further reduced the monthly rate to its servicers for those in
forbearance status for the period from October 1, 2020 through May 1, 2022. The Company currently anticipates revenue per
borrower from the Department will increase to pre-CARES Act levels beginning May 2, 2022. During the fourth quarter of
2021, the Company earned additional revenue from the Department based on incremental work being performed by the
Company to support the Department borrowers coming out of forbearance, including outbound engagement. The Company
currently anticipates earning additional incremental revenue during the first half of 2022 by continuing to provide outbound
engagement activity and also providing extended hours of service as borrowers come out of forbearance status.
Private Education Loan Servicing
In December 2020, Wells Fargo announced the sale of its approximately $10.0 billion portfolio of private education student
loans representing approximately 445,000 borrowers. In conjunction with the sale, the Company was selected as servicer of the
portfolio. During March 2021, approximately 261,000 borrowers were converted to the Company's servicing platform, with the
vast majority of the remaining borrowers converted in the second quarter of 2021.
48
Summary and Comparison of Operating Results
Year ended December 31,
2021
2020
Additional information
Net interest income
$
43
315
Decrease was due to lower interest rates in 2021 as compared to 2020.
Loan servicing and systems revenue
486,363
451,561
See table below for additional information.
Intersegment servicing revenue
33,956
36,520
Other income
3,307
9,421
Impairment expense
(13,243)
—
Total other income
510,383
497,502
Salaries and benefits
297,406
285,526
Depreciation and amortization
25,649
37,610
Other expenses
52,720
57,420
Intersegment expenses
72,206
63,886
Total operating expenses
447,981
444,442
Income before income taxes
62,445
53,375
Represents revenue earned by the LSS operating segment from servicing loans for
the AGM and Nelnet Bank operating segments. Decrease in 2021 compared to
2020 was due to the impact of borrower relief policies implemented in March
2020 in response to the COVID-19 pandemic and the expected amortization of
AGM's FFELP portfolio. FFELP intersegment servicing revenue will continue to
decrease as AGM's FFELP portfolio pays off.
Represents revenue earned from providing administrative support and marketing
services, which primarily was to Great Lakes’ former parent company under a
contract that expired in January 2021.
During the third quarter of 2021, the Company evaluated use of office space as a
large number of employees continue to work from home due to COVID-19. As a
result of this evaluation, the Company recorded a non-cash impairment charge
during the third quarter of 2021. The impairment charge recognized by the LSS
operating segment related primarily to building and building improvement assets.
Increase in 2021 compared to 2020 was due to the Company hiring contact center
operations and support associates to (i) prepare for the resumption of federal
student loan payments and other activities after the CARES Act suspension
expires on May 1, 2022; and (ii) support the increase in private education and
consumer loan volume, primarily from the addition of the former Wells Fargo
portfolio. The Company currently expects salaries and benefits to continue to
increase due to continued preparations for the expiration of the CARES Act
suspension.
Includes amortization of intangibles from the Great Lakes acquisition in February
2018 and depreciation on property and equipment. Amortization of intangible
assets for 2021 and 2020 was $12.3 million and $20.9 million, respectively. The
majority of the Great Lakes intangible assets became fully amortized as of June
30, 2021. Excluding amortization of intangible assets, the decrease in 2021
compared to 2020 was due to certain purchases to integrate Great Lakes and
expand servicing capacity becoming fully depreciated.
Decrease in 2021 compared to 2020 was due to cost savings as a result of the
impact of the COVID-19 pandemic and the resulting CARES Act (which became
effective March 13, 2020), primarily through a significant reduction of borrower
statement printing and postage costs while student loan payments are suspended.
The Company currently expects these costs will increase when the provisions of
the CARES Act expire, scheduled for May 1, 2022. Decrease was also due to cost
savings from an increase in the adoption of electronic borrower statements and
correspondence.
Intersegment expenses represent costs for certain corporate activities and services
that are allocated to each operating segment based on estimated use of such
activities and services. Increase in 2021 as compared to 2020 was due to the
Company hiring contact center operations and support associates during the
second half of 2021 in preparation for the expiration of the CARES Act
suspension on May 1, 2022. The Company currently expects intersegment
expenses to continue to increase as it prepares for the expiration of the CARES
Act suspension.
Income tax expense
Net income
(14,987)
(12,810)
Reflects income tax expense at an effective tax rate of 24%.
$ 47,458
40,565
GAAP before tax operating margin
11.9 %
10.7 %
Impairment expense
Amortization expense
Non-GAAP before tax operating
margin, excluding impairment and
amortization expense
2.5
2.3
—
4.2
16.8 %
14.9 %
Before tax operating margin, excluding impairment and amortization expense, is a
non-GAAP measure of before tax operating profitability as a percentage of
revenue, and for the LSS segment is calculated as income before income taxes
(excluding impairment and amortization expense) divided by the total of loan
servicing and systems revenue, intersegment servicing revenue, and other income
revenue. The Company uses this metric to monitor and assess the segment’s
performance, manage operating costs, identify and evaluate business trends
affecting the segment, and make strategic decisions, and believes that it provides
additional information to facilitate an understanding of the operating performance
of the segment and provides a meaningful comparison of the results of operations
between periods.
Before tax operating margin, excluding impairment and amortization expense,
increased for 2021 as compared to 2020 due to operating expenses being lower
throughout the first half of 2021 as a result of the suspension of federal student
loan payments under the CARES Act as discussed above.
49
Loan servicing and systems revenue
Year ended December 31,
2021
2020
Government servicing - Nelnet
$ 167,579
146,798
Government servicing - Great Lakes
193,214
179,872
Private education and consumer loan
servicing
47,302
32,492
FFELP servicing
18,281
20,183
Software services
34,600
41,999
Outsourced services
25,387
30,217
Loan servicing and systems revenue
$ 486,363
451,561
Additional information
Represents revenue from Nelnet Servicing's Department servicing contract.
Increase in 2021 compared to 2020 was due to (i) an increase in the number of
borrowers serviced, including PHEAA borrowers transferred to Nelnet
Servicing’s platform during the fourth quarter of 2021; (ii) a per borrower rate
increase beginning September 1, 2021 to reflect the increase in the cost of
labor (Economic Cost Index) per the provisions of the contract; (iii)
incremental work performed during the fourth quarter of 2021 related to
CARES Act forbearance exit outreach activities to borrowers; and (iv) the
discharge of nearly 170,000 TPD borrowers in the fourth quarter of 2021.
Nelnet Servicing earns revenue per each TPD borrower that satisfies the
requirements for their loan to be discharged. The revenue earned by Nelnet
Servicing for CARES Act forbearance exit outreach is non-recurring and will
have a less significant contribution in 2022. These increases are partially
offset by the decrease in revenue earned per borrower as a result of the
suspension of federal student loan payments under the CARES Act.
Represents revenue from the Great Lakes' Department servicing contract.
Changes among the current and comparable prior period were due to the same
factors as discussed immediately above for Nelnet Servicing, except that Great
Lakes did not receive any PHEAA volume in 2021 and does not administer
the TPD discharge program.
Increase was due to the addition of the former Wells Fargo private education
loan borrowers converted to the Company's servicing platform during March
and the second quarter of 2021. Excluding revenue earned on the former
Wells Fargo portfolio, revenue for 2021 decreased compared to 2020. The
decrease in revenue was due to a decrease in the number of legacy borrowers
serviced, a decrease in origination fee revenue, and the impact of borrower
relief policies implemented by private lenders in response to the COVID-19
pandemic.
Decrease in 2021 compared to 2020 was due to a decrease in the number of
borrowers serviced and the impact of borrower relief policies implemented by
lenders in response to the COVID-19 pandemic. Over time, FFELP servicing
revenue will continue to decrease as third-party customers' FFELP portfolios
pay off.
Decrease in 2021 compared to 2020 was due to many of the services provided
under the Company's remote hosted servicing and system support contract
with Great Lakes' former parent, representing 2.3 million borrowers, which
expired in January 2021. This decrease in revenue was partially offset by an
increase in the number of remote hosted servicing borrowers in 2021 as
compared to 2020. In addition, the Company earned deconversion fees in the
fourth quarter of 2021 from Granite State, a remote hosted servicing customer,
when they exited the federal student loan servicing business and transferred
their loan volume to a third party.
The majority of this revenue relates to providing contact center and back
office operational outsourcing services. During 2020, the Company began
providing services to state agencies to process unemployment claims and
conduct certain health tracing support activities (including vaccination
registration support). Outsourcing activities provided to state agencies are
performed under shorter-term contracts. Revenue from providing these
services to state agencies was $17.3 million and $22.0 million during 2021
and 2020, respectively. Outsourcing activities provided to state agencies
decreased during 2021 as the needs for such services have decreased from the
prior period.
50
EDUCATION TECHNOLOGY, SERVICES, AND PAYMENT PROCESSING OPERATING SEGMENT – RESULTS
OF OPERATIONS
This segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional
school year. Tuition management revenue is recognized over the course of the academic term, but the peak operational
activities take place in summer and early fall. Higher amounts of revenue are typically recognized during the first quarter due to
fees related to grant and aid applications as well as online applications and enrollment services. The Company’s operating
expenses do not follow the seasonality of the revenues. This is primarily due to generally fixed year-round personnel costs and
seasonal marketing costs. Based on the timing of revenue recognition and when expenses are incurred, revenue and pre-tax
operating margin are higher in the first quarter as compared to the remainder of the year.
On December 31, 2020, the Company acquired HigherSchool Instructional Services (“HigherSchool”), a services company that
provides supplemental instructional services and educational professional development for K-12 schools in New York City, and
CD2 LLC (“CD2”), a platform technology solution that includes learning management, collaboration/workflow, gamification,
customer management/document storage, and employee boarding. The results of HigherSchool and CD2 are reported in the
Company’s consolidated financial statements from the date of acquisition. Revenue recognized by these acquisitions during the
year ended December 31, 2021 was $26.0 million.
Summary and Comparison of Operating Results
Year ended December 31,
2021
2020
Net interest income
$
1,075
2,982
Additional information
Represents interest income on tuition funds held in custody for schools.
Decrease was due to a significant decrease in interest rates in March 2020. If
interest rates remain at current levels, the Company anticipates this segment
will earn minimal interest income in future periods.
Education technology, services, and
payment processing revenue
Intersegment revenue
Other income
338,234
282,196 See table below for additional information.
12
—
20
373
Total other income
338,246
282,589
Cost to provide education technology,
services, and payment processing
services
108,660
82,206 See table below for additional information.
Salaries and benefits
112,046
98,847
Depreciation and amortization
11,404
9,459
Other expenses
19,318
14,566
Intersegment expenses, net
15,180
14,293
Total operating expenses
157,948
137,165
Income before income taxes
72,713
66,200
Increase in 2021 compared to 2020 was due to an increase in headcount to
support the growth of the customer base, the investment in the development of
new technologies, and the acquisitions of HigherSchool and CD2.
Represents primarily amortization of intangible assets from prior business
acquisitions. Amortization of intangible assets related to business acquisitions
was $10.7 million and $8.7 million for 2021 and 2020, respectively. The
increase in 2021 compared to 2020 was due to the acquisitions of
HigherSchool and CD2.
Increase was due to higher costs for consulting, professional fees, and
technology services due to investments in new technologies and the
acquisitions of HigherSchool and CD2.
Intersegment expenses represent costs for certain corporate activities and
services that are allocated to each operating segment based on estimated use
of such activities and services.
Income tax expense
Net income
(17,451)
(15,888) Represents income tax expense at an effective tax rate of 24%.
$
55,262
50,312
51
Education technology, services, and payment processing revenue
The following table provides disaggregated revenue by service offering and before tax operating margin for each reporting
period.
Year ended December 31,
2021
2020
Tuition payment plan services
$ 103,970
100,674
Payment processing
127,080
114,304
Additional information
Revenue increased for 2021 as compared to 2020 as a result of a higher
number of payment plans in the K-12 market, partially offset by lower
revenues for institutions of higher education as a result of lower enrollment
trends and the COVID-19 pandemic.
Payment volumes in 2021 increased as compared to 2020 in both the K-12
and higher education markets. The increase in payments volume is driven by
both new customers and an increase in volume from existing customers.
Education technology and services
105,186
Other
1,998
65,885
1,333
Education technology, services, and
payment processing revenue
338,234
282,196
Cost to provide education technology,
services, and payment processing
services
Net revenue
108,660
82,206
$ 229,574
199,990
Before tax operating margin
31.7 %
33.1 %
Increase in 2021 compared to 2020 was primarily the result of the
HigherSchool and CD2 acquisitions. Additionally, revenues from the
Company’s
and
communication products, grant and aid assessments, and FACTS Education
Solutions instructional and professional development services increased
compared to the prior year.
information
enrollment
software,
system
school
Costs primarily relate to payment processing revenue and such costs
decrease/increase in relationship to payment volumes. Costs to provide
instructional services are also included as a component of this expense and
were a driver in the increase in 2021 compared to 2020 due to the acquisition
of HigherSchool and growth in the FACTS Education Solutions division.
Before tax operating margin is a measure of before tax operating profitability
as a percentage of revenue, and for the ETS&PP segment is calculated as
income before income taxes divided by net revenue. The Company uses this
metric to monitor and assess the segment’s performance, manage operating
costs, identify and evaluate business trends affecting the segment, and make
strategic decisions, and believes that it facilitates an understanding of the
operating performance of the segment and provides a meaningful comparison
of the results of operations between periods.
The decrease in margin for 2021 as compared to 2020 was due to investments
in i) the development of new services and technologies; and ii) superior
customer experiences to align with the Company’s strategies to grow, retain,
and diversify revenues. The Company currently anticipates before tax
operating margin will continue to decrease from current levels as the
Company continues to invest in these areas.
52
ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of December 31, 2021, the AGM operating segment had a $17.4 billion loan portfolio, consisting primarily of federally
insured loans, that management anticipates will amortize over the next approximately 15 years and has a weighted average
remaining life of approximately 8 years. For a summary of the Company's loan portfolio as of December 31, 2021 and 2020,
see note 4 of the notes to consolidated financial statements included in this report.
Loan Activity
The following table sets forth the activity of loans in the AGM’s operating segment:
Beginning balance
Loan acquisitions:
Federally insured student loans
Private education loans
Consumer loans
Total loan acquisitions
Year ended December 31,
2021
2020
$
19,559,108
20,798,719
904,088
89,308
81,923
1,327,690
152,048
136,985
1,075,319
1,616,723
Repayments, claims, capitalized interest, participations, and other, net
(2,126,708)
(1,999,095)
Consolidation loans lost to external parties
Consumer and other loans sold
Ending balance
(964,822)
(101,107)
(672,211)
(185,028)
$
17,441,790
19,559,108
The Company has also purchased partial ownership in certain private education, consumer, and federally insured student loan
securitizations that are accounted for as held-to-maturity beneficial interest investments and included in "investments" in the
Company's consolidated financial statements. As of the latest remittance reports filed by the various trusts prior to 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. The loans held
in these securitizations are not included in the above table.
The Company's federally insured student loan acquisitions include the purchase of rehabilitated loans purchased from guaranty
agencies. After a guaranty agency rehabilitates a federally insured student loan, the agency sells the rehabilitated loan to a
private lender, such as the Company. On March 30, 2021, the Department suspended collections on defaulted federally insured
student loans held by guaranty agencies and reduced the interest rate on such loans to zero percent, effectively suspending
interest payments. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the President
first declared a national emergency for the COVID-19 pandemic. The Company currently believes these relief efforts will
negatively impact the amount of rehabilitated loans the Company will have the opportunity to purchase in future periods.
Allowance for Loan Losses and Loan Delinquencies
AGM’s total allowance for loan losses of $126.0 million at December 31, 2021 represents reserves equal to 0.6% of AGM's
federally insured loans (or 22.2% of the risk sharing component of the loans that is not covered by the federal guaranty), 5.4%
of AGM's private education loans, and 12.6% of AGM's consumer loans.
For a summary of AGM’s activity in the allowance for loan losses for 2021 and 2020, and a summary of AGM's loan status and
delinquency amounts as of December 31, 2021 and 2020, see note 4 of the notes to consolidated financial statements included
in this report.
53
Loan Spread Analysis
The following table analyzes the loan spread on AGM’s portfolio of loans, which represents the spread between the yield
earned on loan assets and the costs of the liabilities and derivative instruments used to fund the assets. The spread amounts
included in the following table are calculated by using the notional dollar values found in the table under the caption "Net
interest income after provision for loan losses, net of settlements on derivatives" below, divided by the average balance of loans
or debt outstanding.
Variable loan yield, gross
Consolidation rebate fees
Discount accretion, net of premium and deferred origination costs amortization (a)
Variable loan yield, net
Loan cost of funds - interest expense (b) (c)
Loan cost of funds - derivative settlements (d) (e)
Variable loan spread
Fixed rate floor income, gross
Fixed rate floor income - derivative settlements (d) (f)
Fixed rate floor income, net of settlements on derivatives
Core loan spread
Year ended December 31,
2021
2020
2.64 %
(0.85)
0.02
1.81
(1.04)
(0.01)
0.76
0.76
(0.11)
0.65
1.41 %
3.17 %
(0.84)
0.01
2.34
(1.64)
0.05
0.75
0.61
(0.03)
0.58
1.33 %
Average balance of AGM’s loans
Average balance of AGM’s debt outstanding
$ 18,900,038
18,610,144
20,163,876
19,964,813
(a)
(b)
(c)
(d)
During the fourth quarter of 2021, the Company changed its estimate of the constant prepayment rate used to amortize/accrete
federally insured loan premium/discounts for 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 decrease to interest income. The impact of this
adjustment was excluded from the above table.
In the first quarter of 2021, the Company reversed a historical accrued interest liability of $23.8 million on certain bonds, which
liability the Company determined is no longer probable of being required to be paid. The liability was initially recorded when
certain asset-backed securitizations were acquired in 2011 and 2013. The reduction of this liability is reflected in (a reduction of)
"interest on bonds and notes payable and bank deposits" in the consolidated statements of income and the impact of this
reduction to interest expense was excluded from the table above.
In the third quarter of 2021, the Company redeemed certain asset-backed debt securities prior to their legal maturity, resulting in
the recognition of $1.5 million in interest expense from the write-off of all remaining debt issuance costs related to the initial
issuance of such bonds. This expense was excluded from the table above.
Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument
counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative
accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be
recorded in a separate income statement line item below net interest income. The Company maintains an overall risk
management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate
volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the
Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information
because the Company believes that it provides additional information regarding operational and performance indicators that are
closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP
information, which is only meant to supplement GAAP results by providing additional information that management utilizes to
assess performance. See note 6 of the notes to consolidated financial statements included in this report for additional information
on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of
derivative for the 2021 and 2020 periods presented in the table under the caption "Consolidated Financial Statement Impact
Related to Derivatives - Statements of Income" in note 6 and in this table.
54
A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without
derivative settlements follows.
Core loan spread
Derivative settlements (1:3 basis swaps)
Derivative settlements (fixed rate floor income)
Loan spread
Year ended December 31,
2021
2020
1.41 %
0.01
0.11
1.53 %
1.33 %
(0.05)
0.03
1.31 %
(e)
(f)
Derivative settlements consist of net settlements (paid) received related to the Company’s 1:3 basis swaps.
Derivative settlements consist of net settlements paid related to the Company’s floor income interest rate swaps.
A trend analysis of AGM’s core and variable loan spreads by calendar year quarter is summarized below.
(a)
The interest earned on a large portion of AGM's FFELP student loan assets is indexed to the one-month LIBOR rate. AGM funds a
portion of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which AGM earns
interest on its loans and funds such loans has a significant impact on loan spread. This table (the right axis) shows the difference between
AGM's liability base rate and the one-month LIBOR rate by quarter. See Item 7A, “Quantitative and Qualitative Disclosures About
Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail on AGM’s FFELP student loan assets and
related funding for those assets.
Variable loan spread increased during the year ended December 31, 2021 compared to the same period in 2020 due to a
narrowing of the basis between the asset and debt indices in which the Company earns interest on its loans and funds such loans
(as reflected in the table above). The significant widening during the first and second quarters of 2020 was the result of a
significant decrease in interest rates during March 2020 and the first half of the second quarter of 2020. In a declining interest
rate environment, student loan spread is compressed, due to the timing of interest rate resets on the Company's assets occurring
daily in contrast to the timing of the interest rate resets on the Company's debt that occurs either monthly or quarterly. During
the third and fourth quarters of 2020, as the Company's debt reset at lower interest rates, the Company's variable loan spread
increased. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating
Segment,” which provides additional detail on AGM’s FFELP student loan assets and related funding for those assets.
55
The difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of AGM's
federally insured student loan portfolio. A summary of fixed rate floor income and its contribution to core loan spread follows:
Fixed rate floor income, gross
Derivative settlements (a)
Fixed rate floor income, net
Year ended December 31,
2021
142,606
(19,729)
122,877
$
$
2020
123,460
(6,699)
116,761
Fixed rate floor income contribution to spread, net
0.65 %
0.58 %
(a)
Derivative settlements consist of net settlements paid related to the Company's derivatives used to hedge student loans
earning fixed rate floor income.
Gross fixed rate floor income increased in 2021 as compared to 2020 due to lower interest rates in 2021 as compared to 2020.
The Company has a portfolio of derivative instruments in which the Company pays a fixed rate and receives a floating rate to
economically hedge a portion of loans earning fixed rate floor income. The increase in net derivative settlements paid on the
floor income interest rate swaps in 2021 as compared to 2020 was due to a decrease in interest rates and increase in the
weighted average of notional amount of derivatives outstanding in 2021 as compared to 2020. See Item 7A, “Quantitative and
Qualitative Disclosures About Market Risk - Interest Rate Risk - AGM Operating Segment,” which provides additional detail
on AGM’s portfolio earning fixed rate floor income and the derivatives used by the Company to hedge these loans.
Interest Rate Risk - Replacement of LIBOR as a Benchmark Rate
As of December 31, 2021, the interest earned on a principal amount of $15.9 billion of AGM's FFELP student loan asset
portfolio was indexed to one-month LIBOR, and the interest paid on a principal amount of $15.9 billion of AGM’s FFELP
student loan asset-backed debt securities was indexed to one-month or three-month LIBOR. In addition, the Company’s
derivative financial instrument transactions used to manage LIBOR interest rate risks are indexed to LIBOR. The market
transition away from the LIBOR framework could result in significant changes to the interest rate characteristics of the
Company's LIBOR-indexed assets and funding for those assets, as well as the Company’s LIBOR-indexed derivative
instruments. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate" for
additional information.
56
Summary and Comparison of Operating Results
Year ended December 31,
2021
2020
Additional information
Net interest income after provision
for loan losses
$ 347,203
220,288 See table below for additional analysis.
During 2021, the Company recognized $32.9 million related to its investment in
a joint venture to purchase and securitize private education loans sold by Wells
Fargo. The Company also earned $3.7 million in 2021 as the administrator and
sponsor for the securitizations completed by the joint venture to fund these loans.
Other income for 2021 also includes $3.4 million of borrower late fees. For 2021,
other income was partially offset by a $6.8 million loss recognized by the
Company as a result of purchasing back its own debt. The majority of other
income recognized by the Company in 2020 related to $5.2 million of borrower
late fees. The decrease in borrower late fees in 2021 as compared to 2020 was
due to the Company suspending borrower late fees effective March 13, 2020 to
provide borrowers relief as a result of the COVID-19 pandemic. The Company
began to recognize borrower late fees again on May 1, 2021 (for private
education loans) and October 1, 2021 (for federally insured student loans).
The Company sold $95.8 million (par value) and $185.0 million (par value) of
consumer loans to an unrelated third party in 2021 and 2020, respectively, and
recognized gains from such sales.
In March 2020, the Company recognized a provision expense of $26.3 million
related to its beneficial interest in consumer loan securitization investments as a
result of the estimated impacts of the COVID-19 pandemic. During the fourth
quarter of 2020 and first quarter of 2021, the Company reversed $9.7 million and
$2.4 million, respectively, of such provision due to improved economic
conditions.
The Company maintains an overall risk management strategy that incorporates
the use of derivative instruments to reduce the economic effect of interest rate
volatility. Derivative settlements for each applicable period should be evaluated
with the Company's net interest income as reflected in the table below.
Includes the realized and unrealized gains and losses that are caused by changes
in fair values of derivatives which do not qualify for "hedge treatment" under
GAAP. The majority of the derivative market value adjustments during 2021 and
2020 related to the changes in fair value of the Company's floor income interest
rate swaps. Such changes reflect that a decrease in the forward yield curve during
a reporting period results in a decrease in the fair value of the Company's floor
income interest rate swaps, and an increase in the forward yield curve during a
reporting period results in an increase in the fair value of such swaps.
The primary component of other expenses is servicing fees paid to third parties.
The decrease in 2021 as compared to 2020 was due to a decrease in AGM's loan
portfolio.
Amounts include fees paid to the LSS operating segment for the servicing of
AGM’s loan portfolio. These amounts exceed the actual cost of servicing the
loans. The decrease in servicing fees for 2021 as compared to 2020 was due to
the expected amortization of AGM's FFELP portfolio and a decrease in certain
servicing activities due to borrower relief initiatives and policies as a result of the
COVID-19 pandemic. Intersegment expenses also include costs for certain
corporate activities and services that are allocated to each operating segment
based on estimated use of such activities and services.
Total operating expenses were 27 basis points and 28 basis points of the average
balance of loans in 2021 and 2020, respectively. The decrease for 2021 as
compared to 2020 was due to a decrease in certain servicing activities beginning
in March 2020 due to borrower relief initiatives and policies as a result of the
COVID-19 pandemic.
Other income, net
34,306
7,189
Gain on sale of loans
18,715
33,023
Impairment expense and provision
for beneficial interests, net
2,436
(16,607)
Derivative settlements, net
(21,367)
3,679
Derivative market value
adjustments, net
Total other income/expense
Salaries and benefits
92,813
(28,144)
126,903
2,135
(860)
1,747
Other expenses
13,487
15,806
Intersegment expenses
34,868
39,172
Total operating expenses
50,490
56,725
Income before income taxes
Income tax expense
Net income
Additional information:
Net income
Derivative market value
adjustments, net
Tax effect
423,616
(101,668)
162,703
(39,049) Represents income tax expense at an effective tax rate of 24%.
$ 321,948
123,654
$ 321,948
(92,813)
22,275
123,654 See "Overview - GAAP Net Income and Non-GAAP Net Income, Excluding
Adjustments" above for additional information about non-GAAP net income,
excluding derivative market value adjustments.
28,144
(6,755)
Net income, excluding derivative
market value adjustments
$ 251,410
145,043
57
Net interest income after provision for loan losses, net of settlements on derivatives The following table summarizes the
components of "net interest income after provision for loan losses" and "derivative settlements, net."
Year ended December 31,
2021
2020
Additional information
Variable interest income, gross
$ 499,698
637,979
Decrease in 2021 compared to 2020 was due to a decrease in the gross yield
earned on loans and a decrease in the average balance of loans.
Consolidation rebate fees
(160,228)
(168,933) Decrease was due to a decrease in the average consolidation loan balance.
Discount accretion, net of premium and
deferred origination costs
amortization
(3,347)
2,578
Variable interest income, net
336,123
471,624
Interest on bonds and notes payable
(171,320)
(326,753)
Derivative settlements, net (a)
(1,638)
10,378
Variable loan interest margin,
net of settlements on
derivatives (a)
163,165
155,249
Fixed rate floor income, gross
142,606
123,460
Derivative settlements, net (a)
(19,729)
(6,699)
Fixed rate floor income, net of
settlements on derivatives
Core loan interest income (a)
122,877
286,042
116,761
272,010
Investment interest
28,172
16,390
Intercompany interest
(1,598)
(1,404)
Negative provision (provision) for loan
losses - federally insured loans
Negative provision (provision) for loan
losses - private education loans
Negative provision (provision) for loan
losses - consumer loans
7,343
(18,691)
1,333
(6,155)
4,544
(38,183)
Net interest income after provision for
loan losses (net of settlements on
derivatives) (a)
$ 325,836
223,967
During the fourth quarter of 2021, the Company changed its estimate of the
constant prepayment rate used to amortize/accrete federally insured loan
premium/discounts for 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 decrease to the net accretion discount
(decrease to interest income). Excluding this adjustment, the Company
recognized a discount accretion (net) of $2.8 million. Net discount accretion
is due to the Company's purchases of loans at a net discount over the last
several years.
Decrease in 2021 compared to 2020 was due to a decrease in cost of funds
and a decrease in the average balance of debt outstanding. In addition,
during the first quarter of 2021, the Company reduced interest expense by
$23.8 million as a result of reversing a historical accrued interest liability on
certain bonds.
Derivative settlements include the net settlements (paid) received related to
the Company’s 1:3 basis swaps.
Fixed rate floor income increased due to lower interest rates in 2021 as
compared to 2020. It is currently anticipated that interest rates may rise in
2022 as a result of inflationary pressures in the U.S. economy, and an
increase in future interest rates will reduce the amount of fixed rate floor
income the Company is currently receiving.
Derivative settlements include the settlements paid related to the Company's
floor income interest rate swaps. The increase in net settlements paid in
2021 as compared to 2020 was due to a decrease in interest rates and an
increase in the notional amount of derivatives outstanding.
Increase in 2021 compared to 2020 was due to an increase in interest
income on the Company's loan beneficial interest investments, partially
offset by lower interest rates in 2021 as compared to 2020.
Increase was due to an increase in the weighted average intercompany debt
outstanding in 2021 as compared to 2020, partially offset by lower interest
rates in 2021 as compared to 2020.
See "Allowance for Loan Losses and Loan Delinquencies" included above
under "Asset Generation and Management Operating Segment - Results of
Operations.
Increase for 2021 as compared to 2020 was due to (i) an increase in core
loan spread; (ii) a decrease in interest expense in 2021 as a result of
reversing a historical accrued interest liability on certain bonds; (iii) an
increase in interest income on the Company's loan beneficial interest
investments; and (iv) the recognition of a negative provision for loan losses
in 2021 as compared to provision for loan losses in 2020 as a result of the
COVID-19 pandemic. These items were partially offset by a decrease in the
average balance of loans.
(a)
Core loan interest income and net interest income after provision for loan losses (net of settlements on derivatives) are non-GAAP financial measures.
For an explanation of GAAP accounting for derivative settlements and the reasons why the Company reports these non-GAAP measures (and the
limitations thereof), see footnote (d) to the table immediately under the caption “Loan Spread Analysis” above. See note 6 of the notes to consolidated
financial statements included in this report for additional information on the Company's derivative instruments, including the net settlement activity
recognized by the Company for each type of derivative referred to in the "Additional information" column of this table, for the 2021 and 2020 periods
presented in the table under the caption "Consolidated Financial Statement Impact Related to Derivatives - Statements of Income" in note 6 and in this
table.
58
NELNET BANK OPERATING SEGMENT – RESULTS OF OPERATIONS
Loan Portfolio
As of December 31, 2021, Nelnet Bank had a $257.9 million loan portfolio, consisting of $169.9 million of private education
loans and $88.0 million of FFELP loans.
As of December 31, 2021, Nelnet Bank's allowance for loan losses on its portfolio was $1.1 million, which represents reserves
equal to 0.3% of Nelnet Bank's federally insured loans (or 12.1% of the risk sharing component of the loans that is not covered
by the federal guaranty) and 0.5% of Nelnet Bank's private education loans.
For a summary of Nelnet Bank's activity in the allowance for loan losses for the year ended December 31, 2021, and a summary
of Nelnet Bank's loan status and delinquency amounts as of December 31, 2021 and 2020, see note 4 of the notes to
consolidated financial statements included in this report.
The following table sets forth the activity in Nelnet Bank's loan portfolio:
Year ended December 31,
2020
2021
Beginning balance
Federally insured student loan acquisitions
Private education loan originations
Repayments
Sales to AGM segment
Ending balance
$
$
17,543
99,973
179,749
(36,181)
(3,183)
257,901
—
—
17,660
(117)
—
17,543
Deposits
As of December 31, 2021, Nelnet Bank had $425.4 million of deposits, of which $81.1 million were deposits from Nelnet, Inc.
(the parent company) and its subsidiaries (intercompany), and thus eliminated for consolidated financial reporting purposes. All
of Nelnet Bank’s deposits are interest-bearing deposits and consist of brokered certificates of deposit (CDs) and retail and other
savings deposits and CDs. Retail and other deposits include savings deposits from Educational 529 College Savings and Health
Savings plans and commercial and institutional CDs. Union Bank, a related party, is the program manager for the College
Savings plans. The intercompany deposits include a pledged deposit of $40.0 million from Nelnet, Inc. as required under the
Capital and Liquidity Maintenance Agreement with the FDIC, deposits required for intercompany transactions, operating and
savings deposits, and Nelnet Business Services custodial deposits consisting of collected tuition payments which are
subsequently remitted to the appropriate school.
59
Average Balance Sheet
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities.
Average assets
Federally insured student loans
Private education loans
Cash and investments
Total interest-earning assets
Non-interest-earning assets
Total assets
Average liabilities and equity
Brokered deposits
Intercompany deposits
Retail and other deposits
$
$
Total interest-bearing liabilities
Non-interest-bearing liabilities
Equity
Total liabilities and equity
$
Year ended
December 31, 2021
Rate
Balance
Period from November 2,
2020 (Nelnet Bank
inception) -
December 31, 2020
Rate
Balance
64,873
86,285
220,735
371,893
10,195
382,088
61,208
81,064
132,010
274,282
4,705
103,101
382,088
1.36 %
3.16
1.86
2.08 %
0.84 %
0.25
0.60
0.55 %
—
5,019
159,908
164,927
5,767
170,694
1,198
46,504
21,207
68,909
1,410
100,375
170,694
— %
3.54
1.46
1.53 %
0.55 %
0.30
0.50
0.36 %
Summary of Operating Results
On November 2, 2020, Nelnet Bank launched operations, which are presented by the Company as a reportable operating
segment. Costs associated with Nelnet Bank prior to November 2, 2020 are included in the Corporate operating segment. In
addition, certain shared service and support costs incurred by the Company are not and will not be reflected as part of the
Nelnet Bank operating segment through 2023 (the bank's de novo period). The shared service and support costs incurred by the
Company related to Nelnet Bank and not reflected in the bank's operating segment were $3.4 million and $6.0 million for the
years ended December 31, 2021 and 2020, respectively.
Year ended December 31,
2021
2020
Additional information
Total interest income
$
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Other income
Salaries and benefits
Other expenses
Intersegment expenses
Total operating expenses
Loss before income taxes
Income tax benefit
Net loss
$
7,721
1,507
6,214
794
5,420
713
5,042
1,776
107
6,925
(792)
175
(617)
Represents interest earned on Nelnet Bank's FFELP and private
education student loans, cash, and investments.
414
41 Represents interest expense on deposits.
373
330
43
48
36
135
Represents salaries and benefits of Nelnet Bank associates and third-
party contract labor.
Represents various expenses such as consulting and professional fees,
Nelnet Bank director fees, occupancy, certain information technology-
related costs, insurance, marketing, and other operating expenses.
— Represents primarily servicing costs paid to the LSS operating segment.
Represents income tax benefit at an effective tax rate of 22.1% and
23.7% for the years ended December 31, 2021 and 2020, respectively.
171
(80)
20
(60)
60
LIQUIDITY AND CAPITAL RESOURCES
The Company’s Loan Servicing and Systems, and Education Technology, Services, and Payment Processing operating
segments are non-capital intensive and both produce positive operating cash flows. As such, a minimal amount of debt and
equity capital is allocated to these segments and any liquidity or capital needs are satisfied using cash flow from operations.
Therefore, the Liquidity and Capital Resources discussion is concentrated on the Company’s liquidity and capital needs to meet
existing debt obligations in the Asset Generation and Management operating segment and the Company's other initiatives to
pursue additional strategic investments.
The Company may issue equity and debt securities in the future in order to improve capital, increase liquidity, refinance
upcoming maturities, or provide for general corporate purposes. Moreover, the Company may from time-to-time repurchase
certain amounts of its outstanding secured debt securities, including debt securities which the Company may issue in the future,
for cash and/or through exchanges for other securities. Such repurchases or exchanges may be made in open market
transactions, privately negotiated transactions, or otherwise. Any such repurchases or exchanges will depend on prevailing
market conditions, the Company’s liquidity requirements, contractual restrictions, compliance with securities laws, and other
factors. The amounts involved in any such transactions may be material.
The Company has historically utilized operating cash flow, secured financing transactions (which include warehouse facilities
and asset-backed securitizations), operating lines of credit, and other borrowing arrangements to fund its Asset Generation and
Management operations and loan acquisitions. In addition, the Company has used operating cash flow, borrowings on its
unsecured line of credit, repurchase agreements, and unsecured debt offerings to fund corporate activities; business acquisitions;
solar, real estate, and other investments; repurchases of common stock; and repurchases of its own debt.
Sources of Liquidity
The Company has historically generated positive cash flow from operations. For the years ended December 31, 2021 and 2020,
the Company's net cash provided by operating activities was $544.9 million and $212.8 million, respectively.
As of December 31, 2021, the Company had cash and cash equivalents of $125.6 million. Cash held by Nelnet Bank is
generally not available for Company activities outside of Nelnet Bank. Excluding Nelnet Bank, cash and cash equivalents as of
December 31, 2021 was $99.4 million.
The Company also has a $495.0 million unsecured line of credit that matures on September 22, 2026. As of December 31,
2021, there was no amount outstanding on the unsecured line of credit and $495.0 million was available for future use. The line
of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or
through new lenders, up to a total of $737.5 million, subject to certain conditions.
In addition, the Company has retained certain of its own asset-backed securities upon their initial issuance or repurchased
certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these
notes are eliminated in consolidation and are not included in the Company’s consolidated financial statements. However, these
securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the
notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash
proceeds equal to the market value of the notes on the date of such sale. As of December 31, 2021, the Company holds $381.2
million (par value) of its own asset-backed securities.
The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, private education,
and consumer loan acquisitions (or investment interests therein); strategic acquisitions and investments; and capital
management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these
opportunities will vary and will have a direct impact on the Company's cash and investment balances.
Cash Flows
During the year ended December 31, 2021, the Company generated $544.9 million from operating activities, compared to
$212.8 million for the same period in 2020. The increase in such cash flows from operating activities was due to:
•
•
•
•
An increase in net income;
Adjustments to net income for the impact of the gain from the 2020 deconsolidation of ALLO and the non-
cash change in deferred income taxes;
A decrease in loan discount accretion in 2021 as compared to 2020;
Net proceeds from the Company’s clearinghouse for margin payments on derivatives in 2021 compared to net
payments to the clearing house in 2020; and
61
•
The impact of changes to the due to customers liability account and loan and investment accrued interest
receivable in 2021 as compared to 2020.
These factors were partially offset by:
•
•
•
•
The adjustments to net income for derivative market value adjustments;
Adjustments to net income for the impact of the non-cash provision for loan losses, beneficial interests, and
impairment charges and depreciation and amortization;
Purchases of equity securities; and
The impact of changes to accounts receivable and other assets in 2021 as compared to 2020.
The primary items included in the statement of cash flows for investing activities are the purchase and repayment of loans. The
primary items included in financing activities are the proceeds from the issuance of and payments on bonds and notes payable
used to fund loans. Cash provided by investing activities and used in financing activities for the year ended December 31, 2021
was $1.19 billion and $1.49 billion, respectively. Cash provided by investing activities and used in financing activities for the
year ended December 31, 2020 was $621.2 million and $1.10 billion, respectively. Investing and financing activities are further
addressed in the discussion that follows.
Liquidity Needs and Sources of Liquidity Available to Satisfy Debt Obligations Secured by Loan Assets and Related
Collateral
The following table shows AGM’s debt obligations outstanding that are secured by loan assets and related collateral.
Bonds and notes issued in asset-backed securitizations
FFELP and private education loan warehouse facilities
As of December 31, 2021
Carrying amount
Final maturity
$
$
16,969,211
5/27/25 - 9/25/69
112,059
2/13/23 / 5/22/23
17,081,270
Bonds and Notes Issued in Asset-backed Securitizations
The majority of AGM’s portfolio of student loans is funded in asset-backed securitizations that are structured to substantially
match the maturity of the funded assets, thereby minimizing liquidity risk. Cash generated from student loans funded in asset-
backed securitizations provide the sources of liquidity to satisfy all obligations related to the outstanding bonds and notes issued
in such securitizations. In addition, due to (i) the difference between the yield AGM receives on the loans and cost of financing
within these transactions, and (ii) the servicing and administration fees AGM earns from these transactions, AGM has created a
portfolio that will generate earnings and significant cash flow over the life of these transactions.
As of December 31, 2021, based on cash flow models developed to reflect management’s current estimate of, among other
factors, prepayments, defaults, deferment, forbearance, and interest rates, AGM currently expects future undiscounted cash
flows from its portfolio to be approximately $1.88 billion as detailed below.
The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of December 31, 2021. As
of December 31, 2021, AGM had $17.1 billion of loans included in asset-backed securitizations, which represented 98.3
percent of its total loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive
related to loans funded in its warehouse facilities as of December 31, 2021, private education and consumer loans funded with
operating cash, loans acquired subsequent to December 31, 2021, loans owned by Nelnet Bank, and cash flows relating to the
Company's ownership of beneficial interest in loan securitizations (such beneficial interest investments are classified as
"investments" on the Company's consolidated balance sheets).
62
Asset-backed Securitization Cash Flow Forecast
$1.88 billion
(dollars in millions)
The forecasted future undiscounted cash flows of approximately $1.88 billion include approximately $1.14 billion (as of
December 31, 2021) of overcollateralization included in the asset-backed securitizations. These excess net asset positions are
included in the consolidated balance sheets and included in the balances of "loans and accrued interest receivable" and
"restricted cash." The difference between the total estimated future undiscounted cash flows and the overcollateralization of
approximately $0.74 billion, or approximately $0.56 billion after income taxes based on the estimated effective tax rate, is
expected to be accretive to the Company's December 31, 2021 balance of consolidated shareholders' equity.
The Company uses various assumptions, including prepayments and future interest rates, when preparing its cash flow
forecast. These assumptions are further discussed below.
Prepayments: The primary variable in establishing a life of loan estimate is the level and timing of prepayments. Prepayment
rates equal the amount of loans that prepay annually as a percentage of the beginning of period balance, net of scheduled
principal payments. A number of factors can affect estimated prepayment rates, including the level of consolidation activity,
borrower default rates, and utilization of debt management options such as income-based repayment, deferments, and
forbearance. Should any of these factors change, management may revise its assumptions, which in turn would impact the
projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent
with those utilized in the Company’s recent asset-backed securitization transactions. If management used a prepayment rate
assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by
approximately $120 million to $150 million.
Interest rates: The Company funds a large portion of its student loans with three-month LIBOR indexed floating rate
securities. Meanwhile, the interest earned on the Company’s student loan assets is indexed primarily to a one-month LIBOR
rate. The different interest rate characteristics of the Company’s loan assets and liabilities funding these assets result in basis
risk. The Company’s cash flow forecast assumes three-month LIBOR will exceed one-month LIBOR by 12 basis points for the
life of the portfolio, which approximates the historical relationship between these indices. If the forecast is computed assuming
a spread of 24 basis points between three-month and one-month LIBOR for the life of the portfolio, the cash flow forecast
would be reduced by approximately $60 million to $80 million. As the percentage of the Company's outstanding debt financed
by three-month LIBOR declines, the Company's basis risk will be reduced. In addition, the Company attempts to mitigate the
63
impact of this basis risk by entering into certain derivative instruments. See Item 7A, "Quantitative and Qualitative Disclosures
About Market Risk — Interest Rate Risk - AGM Operating Segment."
LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR
framework could result in significant changes to the forecasted cash flows from the Company's asset-backed securitizations.
See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a benchmark rate."
The Company uses the current forward interest rate yield curve to forecast cash flows. A change in the forward interest rate
curve would impact the future cash flows generated from the portfolio. An increase in future interest rates will reduce the
amount of fixed rate floor income the Company is currently receiving. The Company attempts to mitigate the impact of a rise in
short-term rates by hedging interest rate risks. The forecasted cash flow does not include cash flows the Company expects to
pay/receive related to derivative instruments used by the Company to manage interest rate risk. See Item 7A, "Quantitative and
Qualitative Disclosures About Market Risk — Interest Rate Risk - AGM Operating Segment."
Warehouse Facilities
The Company funds a portion of its FFELP loan acquisitions using its FFELP warehouse facility. 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, 2021, the Company’s FFELP warehouse facility had a maximum financing amount available of $60.0
million, of which $5.0 million was outstanding and $55.0 million was available for additional funding. The warehouse facility
has a static advance rate until the expiration date of the liquidity provisions (May 23, 2022). 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
(May 22, 2023). As of December 31, 2021, the Company had $0.3 million advanced as equity support on this facility.
The Company has a private education loan warehouse facility that, as of December 31, 2021, had an aggregate maximum
financing amount available of $175.0 million, an advance rate of 80 to 90 percent, liquidity provisions through February 13,
2022, and a final maturity date of February 13, 2023. As of December 31, 2021, $107.0 million was outstanding under this
warehouse facility, $68.0 million was available for future funding, and $11.8 million was advanced as equity support. This
facility was amended on January 28, 2022 to extend the liquidity provisions and final maturity to June 30, 2022 and June 30,
2023, respectively.
Upon termination or expiration of the warehouse facilities, the Company would expect to access the securitization market,
obtain replacement warehouse facilities, use operating cash, consider the sale of assets, or transfer collateral to satisfy any
remaining obligations.
Other Uses of Liquidity
The Company no longer originates FFELP loans, but continues to acquire FFELP loan portfolios from third parties and believes
additional loan purchase opportunities exist, including opportunities to purchase private education and consumer loans (or
investment interests therein).
The Company plans to fund additional loan acquisitions and related investments using current cash and investments; using its
unsecured line of credit, Union Bank student loan participation agreement, Union Bank student loan asset-backed securities
participation agreement, and third-party repurchase agreements (each as described below), and/or establishing similar secured
and unsecured borrowing facilities; using its existing warehouse facilities (as described above); increasing the capacity under
existing and/or establishing new warehouse facilities; and continuing to access the asset-backed securities market.
Private Education Loan Investment
During 2021, the Company sponsored four asset-backed securitization transactions to permanently finance a total of $8.7 billion
of the private education loans sold by Wells Fargo. For further information about these transactions, see “Overview – Recent
Transactions / Developments - 2021 Transactions Related to the Private Education Loan Portfolio Sold by Wells Fargo” above.
As sponsor, the Company is required to provide a certain level of risk retention, and has purchased bonds issued in such
securitizations to satisfy this requirement. The bonds purchased to satisfy the risk retention requirement are reflected on the
Company's consolidated balance sheet as "investments" and as of December 31, 2021, the fair value of these bonds was $412.6
million. The Company must retain these investment securities until the expiration of a holding period discussed above under
“Overview – Recent Transactions / Developments – 2021 Transactions Related to the Private Education Loan Portfolio Sold by
Wells Fargo.” 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.
64
As of December 31, 2021, $483.8 million was outstanding on the Company’s repurchase agreements, of which $313.2 million
was borrowed to fund private education loan securitization bonds subject to the Company’s risk retention requirement. The
repurchase agreements have various maturity dates between May 27, 2022 and December 20, 2023, but are subject to early
termination upon required notice provided by the Company or the applicable counterparty prior to the maturity dates. The
Company is required to pay additional cash in the event the fair value of the securities subject to a repurchase agreement
becomes less than the original purchase price of such securities.
Upon termination or expiration of the repurchase agreements, the Company would use cash and/or cash proceeds from its
unsecured line of credit to satisfy any outstanding obligations subject to the repurchase agreements.
Union Bank Participation Agreement
The Company maintains an agreement with Union Bank, a related party, as trustee for various grantor trusts, under which
Union Bank has agreed to purchase from the Company participation interests in student loans. As of December 31, 2021,
$967.5 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement.
The agreement automatically renews annually and is terminable by either party upon five business days' notice. This agreement
provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing
liquidity to the Company. The Company can participate loans to Union Bank to the extent of availability under the grantor
trusts, up to $900.0 million or an amount in excess of $900.0 million if mutually agreed to by both parties. Loans participated
under this agreement have been accounted for by the Company as loan sales. Accordingly, the participation interests sold are
not included on the Company’s consolidated balance sheets.
Asset-backed Securities Transactions
During 2021, the Company completed two FFELP asset-backed securitizations totaling $1.3 billion (par value). The proceeds
from these transactions were used primarily to finance student loans purchased during the period and refinance student loans
included in the Company's FFELP warehouse facilities and other asset-backed securitizations. See note 5 of the notes to
consolidated financial statements included in this report for additional information on these securitizations.
The Company, through its subsidiaries, has historically funded student loans by completing asset-backed securitizations.
Depending on market conditions, the Company currently anticipates continuing to access the asset-backed securitization
market. Such asset-backed securitization transactions would be used to refinance student loans included in its warehouse
facilities, loans purchased from third parties, and/or student loans in its existing asset-backed securitizations.
Liquidity Impact Related to Nelnet Bank
Nelnet Bank launched operations in November 2020. Nelnet Bank was funded by the Company with an initial capital
contribution of $100.0 million, consisting of $55.9 million of cash and $44.1 million of student loan asset-backed securities. In
addition, the Company made a pledged deposit of $40.0 million with Nelnet Bank, as required under an agreement with the
FDIC discussed below.
Prior to Nelnet Bank’s launch of operations, Nelnet Bank, Nelnet, Inc. (the parent), and Michael S. Dunlap (Nelnet, Inc.’s
controlling shareholder) entered into a Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with
the FDIC in connection with Nelnet, Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and
Liquidity Maintenance Agreement, Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital
levels that meet FDIC requirements for a “well capitalized” bank, including a leverage ratio of capital to total assets of at least
12 percent; (ii) provide and maintain an irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an
amount equal to the greater of either 10 percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet
Bank and Nelnet, Inc.; (iii) provide additional liquidity to Nelnet Bank in such amount and duration as may be necessary for
Nelnet Bank to meet its ongoing liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with
Nelnet Bank.
Under the regulatory framework for prompt corrective action, Nelnet Bank is subject to various regulatory capital requirements
administered by the FDIC and the UDFI and must meet specific capital standards. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could
have a direct material adverse effect on Nelnet Bank's business, results of operations, and financial condition. On January 1,
2020, the Community Bank Leverage Ratio ("CBLR") framework, as issued jointly by the Office of the Comptroller of the
Currency, the Federal Reserve Board, and the FDIC, became effective. Any banking organization with total consolidated assets
of less than $10 billion, limited amounts of certain types of assets and off-balance sheet exposures, and a community bank
leverage ratio greater than 9% may opt into the CBLR framework quarterly. The CBLR framework allows banks to satisfy
capital standards and be considered "well capitalized" under the prompt corrective action framework if their leverage ratio is
65
greater than 9%, unless the banking organization's federal banking agency determines that the banking organization's risk
profile warrants a more stringent leverage ratio. The FDIC has ordered Nelnet Bank to maintain at least a 12% leverage ratio.
Nelnet Bank has opted into the CBLR framework for the quarter ended December 31, 2021 with a leverage ratio of 22.4%.
Nelnet Bank intends to maintain at all times regulatory capital levels that meet both the minimum level necessary to be
considered “well capitalized” under the FDIC’s prompt corrective action framework and the minimum level required by the
FDIC.
Based on Nelnet Bank's business plan and current financial condition, the Company currently believes that the initial capital
contribution of $100.0 million and pledged deposit of $40.0 million should provide sufficient capital and liquidity to Nelnet
Bank for the next two years.
Liquidity Impact Related to ALLO
Upon the deconsolidation of ALLO on December 21, 2020, the Company recorded its 45 percent voting membership interests
in ALLO at fair value, and accounts for such investment under the HLBV method of accounting. In addition, the Company
recorded its remaining non-voting preferred membership units of ALLO at fair value, and accounts for such investment as a
separate equity investment. As of December 31, 2021, the outstanding preferred membership interests of ALLO held by the
Company was $137.3 million that earns a preferred annual return of 6.25 percent.
The agreements among the Company, SDC, and ALLO provide that they will use commercially reasonable efforts (which
expressly excludes requiring ALLO to raise any additional equity financing or sell any assets) to cause the redemption, on or
before April 2024, of the remaining non-voting preferred membership interests in ALLO held by the Company, plus the amount
of accrued and unpaid preferred return on such interests.
If ALLO needs additional capital to support its growth in existing or new markets, the Company has the option to contribute
additional capital to maintain its voting equity interest. Although ALLO has obtained third-party debt financing to fund a large
portion of its current growth plans, the Company contributed an additional $34.7 million of additional equity to ALLO on
February 25, 2022. As a result of this equity contribution, the Company’s voting membership interests percentage did not
materially change.
Liquidity Impact Related to Hedging Activities
The Company utilizes derivative instruments to manage interest rate sensitivity. By using derivative instruments, the Company
is exposed to market risk which could impact its liquidity. Based on the derivative portfolio outstanding as of December 31,
2021, the Company does not currently anticipate any movement in interest rates having a material impact on its capital or
liquidity profile, nor does the Company expect that any movement in interest rates would have a material impact on its ability to
make variation margin payments to its third-party clearinghouse. However, if interest rates move materially and negatively
impact the fair value of the Company's derivative portfolio, the replacement of LIBOR as a benchmark rate has significant
adverse impacts on the Company's derivatives, or if the Company enters into additional derivatives for which the fair value
becomes negative, the Company could be required to make variation margin payments to its third-party clearinghouse. The
variation margin, if significant, could negatively impact the Company's liquidity and capital resources. In addition, clearing
rules require the Company to post amounts of liquid collateral when executing new derivative instruments, which could prevent
or limit the Company from utilizing additional derivative instruments to manage interest rate sensitivity and risks. See note 6 of
the notes to consolidated financial statements included in this report for additional information on the Company's derivative
portfolio.
Other Debt Facilities
As discussed above, the Company has a $495.0 million unsecured line of credit with a maturity date of September 22, 2026. As
of December 31, 2021, the unsecured line of credit had no amount outstanding and $495.0 million was available for future use.
Upon the maturity date of this facility, there can be no assurance that the Company will be able to maintain this line of credit,
increase the amount outstanding under the line, or find alternative funding if necessary.
During 2020, the Company entered into an agreement with Union Bank, as trustee for various grantor trusts, under which Union
Bank has agreed to purchase from the Company participation interests in federally insured student loan asset-backed securities.
As of December 31, 2021, $254.0 million (par value) of student loan asset-backed securities were subject to outstanding
participation interests held by Union Bank, as trustee, under this agreement. This participation agreement has been accounted
for by the Company as a secured borrowing. Upon termination or expiration of this agreement, the Company would expect to
use operating cash, consider the sale of assets, or transfer collateral to satisfy any remaining obligations.
For further discussion of these debt facilities described above, see note 5 of the notes to consolidated financial statements
included in this report.
66
Debt Repurchases
Due to the Company’s positive liquidity position and opportunities in the capital markets, the Company has repurchased its own
debt over the last several years, and may continue to do so in the future. For accounting purposes, these notes are eliminated in
consolidation and are not included in the Company’s consolidated financial statements. However, these securities remain
legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is
generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the
market value of the notes on the date of such sale. As of December 31, 2021, the Company holds $381.2 million (par value) of
its own asset-backed securities.
See note 5 of the notes to consolidated financial statements included in this report for information on debt repurchased by the
Company during the last three years.
Stock Repurchases
The Board of Directors has authorized a stock repurchase program to repurchase up to a total of five million shares of the
Company's Class A common stock during the three-year period ending May 7, 2022. As of December 31, 2021, 2,571,680
shares remained authorized for repurchase under the Company's stock repurchase program. Shares may be repurchased from
time to time on the open market, in private transactions (including with related parties), or otherwise, depending on various
factors, including share prices and other potential uses of liquidity.
Shares repurchased by the Company during 2021 and 2020 are shown below. Certain of these repurchases were made pursuant
to trading plans adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.
Year ended December 31, 2021
Year ended December 31, 2020
Total shares
repurchased
Purchase price (in
thousands)
Average price of
shares repurchased
(per share)
713,274 $
1,594,394
58,111 $
73,358
81.47
46.01
Included in the shares repurchased during 2020 in the table above are a total of 100,000 shares of Class A common stock the
Company purchased on May 27, 2020 from Shelby J. Butterfield, a significant shareholder of the Company. Included in the
shares repurchased during 2021 are a total of 337,717 shares of Class A common stock the Company purchased on August 10,
2021 from various estate planning trusts associated with Shelby J. Butterfield. The shares purchased in 2020 and 2021 were
purchased at a discount to the closing market price of the Company's Class A common stock as of May 27, 2020 and August 9,
2021, respectively, and the transactions were separately approved by the Company's Board of Directors and its Nominating and
Corporate Governance Committee. Immediately prior to the Company's repurchase of such shares, certain of the repurchased
shares were shares of the Company's Class B common stock that were converted to shares of Class A common stock.
Dividends
Dividends of $0.22 per share on the Company’s Class A and Class B common stock were paid on March 15, 2021, June 14,
2021, and September 15, 2021, respectively, and a dividend of $0.24 per share was paid on December 15, 2021.
The Company's Board of Directors declared a first quarter 2022 cash dividend on the Company's Class A and Class B common
stock of $0.24 per share. The dividend will be paid on March 15, 2022, to shareholders of record at the close of business on
March 1, 2022.
The Company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital
requirements, financial condition, and other factors.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods.
The Company bases its estimates and judgments on historical experience and on various other factors that the Company
believes are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or
conditions. Note 3 of the notes to consolidated financial statements included in this report includes a summary of the significant
accounting policies and methods used in the preparation of the consolidated financial statements.
67
On an on-going basis, management evaluates its estimates and judgments, particularly as they relate to accounting policies that
management believes are most "critical" — that is, they are most important to the portrayal of the Company’s financial
condition and results of operations and they require management’s most difficult, subjective, or complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain. Management has identified the
allowance for loan losses as a critical accounting policy.
Allowance for Loan Losses
The allowance for loan losses represents the Company’s estimate of the expected lifetime credit losses inherent in loan
receivables as of the balance sheet date. The adequacy of the allowance for loan losses is assessed quarterly and the
assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially
over time, estimating credit losses requires a number of assumptions about matters that are uncertain. Such assumptions are
discussed below, and such uncertainty is due in part to the fact that loans in the Company’s portfolio mature over the next 15
years (with a weighted average remaining life of approximately 8 years), and actual credit losses will be affected by, among
other things, future economic conditions and future personal financial situations for borrowers, over that extended time frame.
Changes in the Company’s assumptions affect “provision for loan losses” on the Company’s consolidated income statements
and the “allowance for loan losses” contained within “loans and accrued interest receivable, net of allowance for loan losses” on
the Company’s consolidated balance sheets. For additional information regarding our allowance for loan losses, see notes 3 and
4 of the notes to consolidated financial statements included in this report.
The Company estimates the allowance for loan losses for receivables that share similar risk characteristics based on a collective
assessment using a combination of measurement models and management judgment. The models consider factors such as
historical trends in credit losses, recent portfolio performance, and forward-looking macroeconomic conditions. The models
vary by portfolio type including FFELP, private education, and consumer loans. If management does not believe the models
reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding
qualitative factors including economic uncertainty, observable changes in portfolio performance, and other relevant factors.
The Company’s allowance for loan losses is based on various assumptions including: probability of default; loss given default;
exposure at default; net loss rates for its consumer portfolio; contractual terms, including prepayments; forecast period;
reversion method; reversion period; and macroeconomic factors, including unemployment rates, gross domestic product, and
the consumer price index.
The allowance for loan losses is made at a specific point in time and based on relevant information as discussed above. The
allowance for loan losses is maintained at a level management believes is appropriate to provide for expected lifetime credit
losses inherent in loan receivables as of the balance sheet date. This evaluation is inherently subjective because it requires
numerous estimates made by management. These estimates are subjective in nature and involve uncertainties and matters of
significant judgement. Changes in estimates could significantly affect the Company's recorded balance for the allowance for
loan losses. For additional information regarding changes in the Company’s allowance for loan losses for the years ended
December 31, 2021, 2020, and 2019, see the caption “Activity in the Allowance for Loan Losses” in note 4 of the notes to
consolidated financial statements included in this report.
The Company considers a range of economic scenarios in its determination of the allowance for loan losses. These scenarios are
constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the
historical correlation of those economic variables with credit losses, and also the expectation that conditions will eventually
normalize over the longer run. Scenarios worse than the Company’s expected outcome at December 31, 2021 include risks that
the COVID-19 pandemic significantly worsens from the relatively improved conditions at December 31, 2021, or that
government stimulus programs related to the pandemic are less effective than expected or have collateral adverse consequences
for the economy, any of which could lead to a prolonged downturn in economic activity, reducing the number of businesses that
are able to conduct normal operations until after conditions improve, which could impact borrowers’ ability to pay on their
loans held with us.
Under the range of economic scenarios considered, the allowance for loan losses would have been lower by $7 million (6
percent) or higher by $13 million (10 percent). This range reflects the sensitivity of the allowance for loan losses specifically
related to the scenarios and weights considered as of December 31, 2021, and does not consider other potential adjustments that
could increase or decrease loss estimates calculated using alternative economic scenarios.
Because several quantitative and qualitative factors are considered in determining the allowance for loan losses, these
sensitivity analyses do not necessarily reflect the nature and extent of future changes in the allowance for loan losses. They are
intended to provide insights into the impact of adverse changes in the economy on the Company’s modeled loss estimates for
the loan portfolio and do not imply any expectation of future deterioration in loss rates. Given current processes employed by
68
the Company, management believes the loss model estimates currently assigned are appropriate. It is possible that others, given
the same information, may at any point in time reach different reasonable conclusions that could be significant to the
Company’s financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(All dollars are in thousands, except share amounts, unless otherwise noted)
Interest Rate Risk - AGM Operating Segment
AGM’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which
could impact AGM due to shifts in market interest rates.
The following table sets forth AGM’s loan assets and debt instruments by rate characteristics:
Fixed-rate loan assets
Variable-rate loan assets
Total
Fixed-rate debt instruments
Variable-rate debt instruments
Total
As of December 31, 2021
As of December 31, 2020
Dollars
Percent
Dollars
Percent
$
7,434,068
42.6 % $
8,720,480
10,007,722
57.4
10,838,628
$
17,441,790
100.0 % $
19,559,108
$
801,548
4.7 % $
960,327
16,279,722
95.3
18,354,964
$
17,081,270
100.0 % $
19,315,291
44.6 %
55.4
100.0 %
5.0 %
95.0
100.0 %
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a
period of time, or a floating rate based on the special allowance payment ("SAP") formula set by the Department. The SAP rate
is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The
Company generally finances its FFELP student loan portfolio with variable rate debt. In low and/or declining interest rate
environments, when the fixed borrower rate is higher than the SAP rate, the Company’s FFELP student loans earn at a fixed
rate while the interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these
interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate
each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended
period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset
annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate
floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are
required to rebate fixed rate floor income and variable rate floor income for those loans to the Department.
As a result of the significant drop in interest rates during the first half of 2020, the Company earned $4.8 million of variable-
rate floor income on approximately $1.4 billion of FFELP loans during the six months ended June 30, 2020. Since the borrower
rate reset on July 1, 2020, the Company no longer earns such variable-rate floor income on these loans, reflecting the lower
interest rate environment. No variable-rate floor income was earned in 2021.
A summary of fixed rate floor income earned by the AGM operating segment follows.
Fixed rate floor income, gross
Derivative settlements (a)
Fixed rate floor income, net
Year ended December 31,
2021
2020
$
$
142,606
(19,729)
122,877
123,460
(6,699)
116,761
(a)
Derivative settlements consist of settlements paid related to the Company's derivatives used to hedge student loans earning
fixed rate floor income.
Gross fixed rate floor income increased in 2021 as compared to 2020 due to lower interest rates in 2021 as compared to 2020.
Absent the use of derivative instruments, a rise in interest rates will reduce the amount of floor income received and has an
impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally
insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate environments, where
69
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.
The Company enters into derivative instruments to hedge student loans earning fixed rate floor income. The increase in net
derivative settlements paid on these derivatives in 2021 as compared to 2020 was due to a decrease in interest rates and an
increase in weighted average of notional amount of derivatives outstanding in 2021 as compared to 2020.
The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:
The following table shows AGM’s federally insured student loan assets that were earning fixed rate floor income as of
December 31, 2021:
Fixed interest rate
range
Borrower/lender
weighted average
yield
Estimated variable
conversion rate (a)
Loan balance
< 3.0%
3.0 - 3.49%
3.5 - 3.99%
4.0 - 4.49%
4.5 - 4.99%
5.0 - 5.49%
5.5 - 5.99%
6.0 - 6.49%
6.5 - 6.99%
7.0 - 7.49%
7.5 - 7.99%
8.0 - 8.99%
> 9.0%
2.87%
3.19%
3.65%
4.20%
4.71%
5.22%
5.67%
6.19%
6.70%
7.17%
7.71%
8.18%
9.05%
$
0.23%
0.55%
1.01%
1.56%
2.07%
2.58%
3.03%
3.55%
4.06%
4.53%
5.07%
5.54%
6.41%
1,034,712
1,309,665
1,233,183
921,498
575,873
385,797
255,468
292,207
287,525
107,708
196,416
463,091
178,219
$
7,241,362
(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a
variable rate. As of December 31, 2021, the weighted average estimated variable conversion rate was 1.93% and the
short-term interest rate was 9 basis points.
70
The following table summarizes the outstanding derivative instruments as of December 31, 2021 used by AGM to economically
hedge loans earning fixed rate floor income.
Maturity
Notional amount
Weighted average
fixed rate paid by the
Company (a)
$
2022
2023
2024
2025
2026
2031
500,000
900,000
2,500,000
500,000
500,000
100,000
0.94 %
0.62
0.35
0.35
1.02
1.53
$
5,000,000
0.55 %
(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
AGM is also exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of
AGM’s assets do not match the interest rate characteristics of the funding for those assets. The following table presents AGM’s
FFELP student loan assets and related funding for those assets arranged by underlying indices as of December 31, 2021.
Index
1 month LIBOR (a)
3 month H15 financial commercial paper
3 month Treasury bill
1 month LIBOR
3 month LIBOR (a)
Fixed rate
Auction-rate (b)
Asset-backed commercial paper (c)
Other (d)
Frequency of
variable resets
Assets
Funding of student
loan assets
Daily
Daily
Daily
Monthly
Quarterly
—
Varies
Varies
—
$
15,940,182
621,327
529,538
—
—
—
—
—
1,455,317
18,546,364
$
—
—
—
10,494,895
5,392,400
772,935
248,550
5,048
1,632,536
18,546,364
(a)
The Company has certain basis swaps outstanding in which the Company receives three-month LIBOR and pays one-month LIBOR plus or
minus a spread as defined in the agreements (the "1:3 Basis Swaps"). The Company entered into these derivative instruments to better match
the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes the 1:3 Basis Swaps
outstanding as of December 31, 2021.
Maturity
Notional amount (i)
2022
2023
2024
2026
2027
$
$
2,000,000
750,000
1,750,000
1,150,000
250,000
5,900,000
(i)
The weighted average rate paid by the Company on the 1:3 Basis Swaps as of
December 31, 2021 was one-month LIBOR plus 9.1 basis points.
(b)
(c)
(d)
As of December 31, 2021, the Company was sponsor for $248.6 million of outstanding asset-backed securities that were set and provide for
interest rates to be periodically reset via a "dutch auction" (“Auction Rate Securities”). Since the auction feature has essentially been
inoperable for substantially all auction rate securities since 2008, the Auction Rate Securities generally pay interest to the holder at a maximum
rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities, or the
Net Loan Rate as defined in the financing documents.
The interest rates on the Company's warehouse facilities are indexed to asset-backed commercial paper rates.
Assets include accrued interest receivable and restricted cash. Funding represents overcollateralization (equity) and other liabilities included in
FFELP asset-backed securitizations and warehouse facilities.
71
LIBOR is in the process of being discontinued as a benchmark rate, and the market transition away from the current LIBOR
framework could result in significant changes to the interest rate characteristics of the Company's LIBOR-indexed assets and
funding for those assets. See Item 1A, "Risk Factors - Loan Portfolio - Interest rate risk - replacement of LIBOR as a
benchmark rate."
Sensitivity Analysis
The following tables summarize the effect on the Company’s consolidated earnings, based upon a sensitivity analysis
performed on AGM’s assets and liabilities assuming hypothetical increases in interest rates of 100 basis points and 300 basis
points while funding spreads remain constant. In addition, a sensitivity analysis was performed assuming the funding index
increases 10 basis points and 30 basis points while holding the asset index constant, if the funding index is different than the
asset index. The sensitivity analysis was performed on AGM’s variable rate assets (including loans earning fixed rate floor
income) and liabilities. The analysis includes the effects of AGM’s derivative instruments in existence during these periods.
Interest rates
Asset and funding index mismatches
Change from
increase of
100 basis points
Change from
increase of
300 basis points
Increase of
10 basis points
Increase of
30 basis points
Dollars
Percent
Dollars
Percent
Dollars
Percent
Dollars
Percent
Year ended December 31, 2021
$ (55,957)
(11.1) % $ (103,742)
(20.7) % $
(6,020)
(1.2) % $ (18,063)
(3.6) %
43,059
8.6
129,176
25.7
5,961
1.2
17,884
3.6
$ (12,898)
(2.5) % $ 25,434
5.0 % $
(59)
— % $
(179)
— %
$
(0.25)
$
0.50
$
—
$
—
Year ended December 31, 2020
$ (57,447)
(12.8) % $ (108,018)
(24.0) % $
(7,157)
(1.6) % $ (21,477)
(4.8) %
13,955
3.1
41,864
9.3
6,112
1.4
18,336
4.1
$ (43,492)
(9.7) % $ (66,154)
(14.7) % $
(1,045)
(0.2) % $
(3,141)
(0.7) %
$
(0.85)
$
(1.29)
$
(0.02)
$
(0.06)
Effect on earnings:
Decrease in pre-tax net income before
impact of derivative settlements
Impact of derivative settlements
Increase (decrease) in net income
before taxes
Increase (decrease) in basic and
diluted earnings per share
Effect on earnings:
Decrease in pre-tax net income before
impact of derivative settlements
Impact of derivative settlements
Increase (decrease) in net income
before taxes
Increase (decrease) in basic and
diluted earnings per share
Interest Rate Risk - Nelnet Bank
To manage Nelnet Bank's risk from fluctuations in market interest rates, the Company actively monitors interest rates and other
interest sensitive components to minimize the impact that changes in interest rates have on the fair value of assets, net income,
and cash flow. To achieve this objective, the Company manages and mitigates its exposure to fluctuations in market interest
rates through several techniques, including managing the maturity, repricing, and mix of fixed and variable rate assets and
liabilities.
The following table presents Nelnet Bank's loan assets and deposits by rate characteristics:
Fixed-rate loan assets
Variable-rate loan assets
Total
Fixed-rate deposits
Variable-rate deposits
Total
As of December 31, 2021
As of December 31, 2020
Dollars
Percent
Dollars
Percent
$
$
$
$
191,410
66,491
257,901
344,315
81,085
425,400
74.2 % $
25.8
100.0 % $
80.9 % $
19.1
16,866
677
17,543
54,633
58,413
100.0 % $
113,046
96.1 %
3.9
100.0 %
48.3 %
51.7
100.0 %
72
Financial Statement Impact – Derivatives
For a table summarizing the effect of derivative instruments in the consolidated statements of income, including the
components of "derivative market value adjustments and derivative settlements, net" included in the consolidated statements of
income, see note 6 of the notes to consolidated financial statements included in this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the consolidated financial statements listed under the heading “(a) 1. Consolidated Financial Statements”
of Item 15 of this report, which consolidated financial statements are incorporated into this report by reference in response to
this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company's principal executive and principal financial officers,
evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) as of December 31, 2021. Based on this evaluation, the Company’s principal
executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of
December 31, 2021.
Changes in Internal Control over Financial Reporting
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
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934) for the Company. The Company's internal control system is
designed to provide reasonable assurance to the Company's management and board of directors regarding the reliability of
financial reporting and the preparation and fair presentation of published financial statements in accordance with U.S. generally
accepted accounting principles.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021
based on the criteria for effective internal control described in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as
of December 31, 2021, the Company's internal control over financial reporting is effective.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been audited by
KPMG LLP, the Company's independent registered public accounting firm, as stated in their report included herein.
Inherent Limitations on Effectiveness of Internal Controls
The Company's management, including the chief executive and chief financial officers, understands that the disclosure controls
and procedures and internal control over financial reporting are subject to certain limitations, including the exercise of judgment
in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of
future events, and the inability to eliminate misconduct completely. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
73
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Nelnet, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Nelnet, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31,
2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated
statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated
February 28, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Lincoln, Nebraska
February 28, 2022
ITEM 9B. OTHER INFORMATION
During the fourth quarter of 2021, no information was required to be disclosed in a report on Form 8-K, but not reported.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
74
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information as to the directors, executive officers, and corporate governance of the Company set forth under the captions
“PROPOSAL 1 - ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS,” and “CORPORATE GOVERNANCE,” and the
information as to any delinquent report under Section 16(a) of the Securities Exchange Act of 1934 set forth under the caption
“SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS - Delinquent
Section 16(a) Reports," to the extent any such disclosure is required, in the definitive Proxy Statement to be filed on Schedule
14A with the SEC, no later than 120 days after the end of the Company's fiscal year, relating to the Company's 2022 Annual
Meeting of Shareholders scheduled to be held on May 19, 2022 (the “Proxy Statement”), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions “CORPORATE GOVERNANCE” and “EXECUTIVE COMPENSATION” in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information set forth under the caption “SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND
PRINCIPAL SHAREHOLDERS - Stock Ownership” in the Proxy Statement is incorporated herein by reference. There are no
arrangements known to the Company, the operation of which may at a subsequent date result in a change in the control of the
Company.
The following table summarizes information about compensation plans under which equity securities are authorized for
issuance.
Equity Compensation Plan Information
As of December 31, 2021
Number of shares to be
issued upon exercise of
outstanding options,
warrants, and rights (a)
Weighted-average exercise
price of outstanding
options, warrants, and
rights (b)
Number of shares
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)
—
—
—
—
—
—
1,515,565 (1)
—
1,515,565
Plan category
Equity compensation plans approved by
shareholders
Equity compensation plans not approved
by shareholders
Total
(1) Includes 1,100,414, 46,415, and 368,736 shares of Class A Common Stock remaining available for future issuance under the Nelnet,
Inc. Restricted Stock Plan, Nelnet, Inc. Directors Stock Compensation Plan, and Nelnet, Inc. Employee Share Purchase Plan,
respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the captions “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,”
“CORPORATE GOVERNANCE - Board Composition and Director Independence,” and “CORPORATE GOVERNANCE -
Board Committees” in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption “PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM - Independent Accountant Fees and Services” in the Proxy Statement is
incorporated herein by reference.
75
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Consolidated Financial Statements
PART IV.
The following consolidated financial statements of Nelnet, Inc. and its subsidiaries and the Report of Independent
Registered Public Accounting Firm thereon are included in Item 8 above:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-10
All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial
statements or notes thereto.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed, furnished, or incorporated by reference as part of this
report.
(b) Exhibits
Exhibit No. Description
Exhibit Index
3.1
3.2
4.1
4.2
4.3
4.4
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.
Ninth Amended and Restated Bylaws of Nelnet, Inc., as amended as of May 24, 2018, filed as Exhibit 3.2 to the
registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, filed as Exhibit
4.1 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated
herein by reference.
Form of Class A Common Stock Certificate of Nelnet, Inc., filed on November 24, 2003 as Exhibit 4.1 to the
registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by
reference.
Certain instruments, including indentures of trust, defining the rights of holders of long-term debt of the
registrant and its consolidated subsidiaries, none of which instruments authorizes a total amount of indebtedness
thereunder in excess of 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis,
are omitted from this Exhibit Index pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Certain of such
instruments have been previously filed with the Securities and Exchange Commission, and the registrant hereby
agrees to furnish a copy of any such instrument to the Commission upon request.
Registration Rights Agreement, dated as of December 16, 2003, by and among Nelnet, Inc. and the shareholders
of Nelnet, Inc. signatory thereto, filed on November 24, 2003 as Exhibit 4.11 to the registrant’s Registration
Statement on Form S-1 (Registration No. 333-108070) and incorporated herein by reference.
76
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10+
10.11
10.12
Composite Form of Amended and Restated Participation Agreement, dated as of June 1, 2001, between NELnet,
Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, as
amended by the First Amendment thereto dated as of December 19, 2001 through the Cancellation of the
Fifteenth Amendment thereto dated as of March 16, 2011 (such Participation Agreement and each amendment
through the Cancellation of the Fifteenth Amendment thereto have been previously filed as set forth in the
Exhibit Index for the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, and are
incorporated herein by reference), filed as Exhibit 10.1 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 2013 and incorporated herein by reference.
Sixteenth Amendment of Amended and Restated Participation Agreement, dated as of March 23, 2012, by and
between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.3 to
the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by
reference.
Seventeenth Amendment of Amended and Restated Participation Agreement, dated as of August 1, 2019, by and
between Union Bank and Trust Company and National Education Loan Network, Inc., filed as Exhibit 10.2 to
the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated
herein by reference.
Guaranteed Purchase Agreement, dated as of March 19, 2001, by and between NELnet, Inc. (subsequently
renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed on September 25,
2003 as Exhibit 10.36 to the registrant’s Registration Statement on Form S-1 (Registration No. 333-108070) and
incorporated herein by reference.
First Amendment of Guaranteed Purchase Agreement, dated as of February 1, 2002, by and between NELnet,
Inc. (subsequently renamed National Education Loan Network, Inc.) and Union Bank and Trust Company, filed
on September 25, 2003 as Exhibit 10.37 to the registrant’s Registration Statement on Form S-1 (Registration No.
333-108070) and incorporated herein by reference.
Second Amendment of Guaranteed Purchase Agreement, dated as of December 1, 2002, by and between Nelnet,
Inc. (f/k/a/ NELnet, Inc.) (subsequently renamed National Education Loan Network, Inc.) and Union Bank and
Trust Company, filed on September 25, 2003 as Exhibit 10.38 to the registrant’s Registration Statement on Form
S-1 (Registration No. 333-108070) and incorporated herein by reference.
Guaranteed Purchase Agreement, dated as of September 1, 2010, by and between Nelnet, Inc. and Union Bank
and Trust Company, filed as Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010 and incorporated herein by reference.
First Amendment of Guaranteed Purchase Agreement, dated as of March 22, 2011, by and between Nelnet, Inc.
and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2011 and incorporated herein by reference.
Amendment of Agreements dated as of February 4, 2005, by and between National Education Loan Network,
Inc. and Union Bank and Trust Company, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K
filed on February 10, 2005 and incorporated herein by reference.
Nelnet, Inc. Employee Share Purchase Plan, as amended through March 17, 2011, filed as Exhibit 10.4 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and incorporated herein by
reference.
Office Building Lease dated June 21, 1996 between Miller & Paine and Union Bank and Trust Company, filed
as Exhibit 10.3 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and incorporated herein
by reference.
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*#
Office Building Lease dated January 5, 2021 between Union Bank and Trust Company and National Education
Loan Network.
10.14
10.15
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.
Lease Amendment Number Three dated May 23, 2005 between Miller & Paine, LLC and Union Bank and Trust
Company, filed as Exhibit 10.6 to the registrant's Current Report on Form 8-K filed on October 16, 2006 and
incorporated herein by reference.
77
10.16
10.17
10.18
10.19+
10.20+
10.21+
10.22+
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32*
10.33
Lease Amendment Number Four dated November 13, 2007 between M & P Building, LLC and Union Bank and
Trust Company, filed as Exhibit 10.14 to the registrant's Annual Report on Form 10-K for the year ended
December 31, 2017 and incorporated herein by reference.
Lease Amendment Number Five entered into in September 2008 between M & P Building, LLC and Union
Bank and Trust Company, filed as Exhibit 10.15 to the registrant's Annual Report on Form 10-K for the year
ended December 31, 2017 and incorporated herein by reference.
Lease Amendment Number Six dated December 15, 2017 between Nelnet Real Estate Ventures, Inc. 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.
Nelnet, Inc. Restricted Stock Plan, as amended through May 22, 2014, filed as Exhibit 10.1 to the registrant's
Current Report on Form 8-K filed on May 28, 2014 and incorporated herein by reference.
Amendment to Nelnet, Inc. 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.
Nelnet, Inc. Directors Stock Compensation Plan, as amended through March 21, 2018, filed as Exhibit 10.1 to
the registrant's Current Report on Form 8-K filed on May 24, 2018 and incorporated herein by reference.
Nelnet, Inc. Executive Officers Incentive Compensation Plan, effective as of January 1, 2019, filed as Exhibit
10.1 to the registrant's Current Report on Form 8-K filed on May 23, 2019 and incorporated herein by reference.
Loan Purchase Agreement, dated as of November 25, 2008, by and between Nelnet Education Loan Funding,
Inc., f/k/a NEBHELP, INC., acting, where applicable, by and through Wells Fargo Bank, National Association,
not individually but as Eligible Lender Trustee for the Seller under the Warehouse Agreement or Eligible Lender
Trust Agreement, and Union Bank and Trust Company, acting in its individual capacity and as trustee, filed as
Exhibit 10.71 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2008 and
incorporated herein by reference.
Student Loan Servicing Contract between the United States Department of Education and Nelnet Servicing,
LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010
and incorporated herein by reference.
Modification of Contract dated effective as of June 17, 2014 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 18, 2014 and incorporated herein by reference.
Modification of Contract dated effective as of September 1, 2014 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 2, 2014 and incorporated herein by reference.
Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the
United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's
Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.
Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between
the United States Department of Education and Nelnet Servicing, LLC, filed as Exhibit 10.1 to the registrant's
Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by reference.
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.
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.
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.
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.
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.
78
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41*
10.42
10.43
10.44
10.45#
10.46
10.47
10.48
10.49#
Modification of Contract dated effective as of May 21, 2014 for Student Loan Servicing Contract between the
United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.7 to
the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.
Modification of Contract dated effective as of September 1, 2014 for Student Loan Servicing Contract between
the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit
10.8 to the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.
Modification of Contract dated effective as of June 16, 2019 for Student Loan Servicing Contract between the
United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit 10.2 to
the registrant's Current Report on Form 8-K filed on May 17, 2019 and incorporated herein by reference.
Modification of Contract dated effective as of November 25, 2019 for Student Loan Servicing Contract between
the United States Department of Education and Great Lakes Educational Loan Services, Inc., filed as Exhibit
10.2 to the registrant's Current Report on Form 8-K filed on November 27, 2019 and incorporated herein by
reference.
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.
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.
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.
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.
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.
Management Agreement, dated effective as of January 20, 2012, by and between Union Bank and Trust
Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.58 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.
Management Agreement, dated effective as of October 27, 2015, by and between Union Bank and Trust
Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.25 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.
Appendix A, dated July 29, 2020, to Management Agreement dated effective as of October 27, 2015, by and
between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.4 to
the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by
reference.
Management Agreement, dated effective as of January 4, 2016, by and between Union Bank and Trust Company
and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2016 and incorporated herein by reference.
Management Agreement, dated effective as of March 23, 2017, by and between Union Bank and Trust Company
and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2017 and incorporated herein by reference.
Amended Appendix A, dated May 8, 2019, to Management Agreement, dated effective as of March 23, 2017, by
and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit
10.3 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated
herein by reference.
Amended Appendix A, dated July 29, 2020, to Management Agreement dated effective as of March 23, 2017, by
and between Union Bank and Trust Company and Whitetail Rock Capital Management, LLC, filed as Exhibit
10.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated
herein by reference.
79
10.50#
10.51
10.52
10.53
10.54
10.55
10.56
10.57#
10.58
10.59
10.60
10.61
10.62
10.63±
10.64±
Management Agreement dated effective as of July 29, 2020, by and between Union Bank and Trust Company
and Whitetail Rock Capital Management, LLC, filed as Exhibit 10.6 to the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.
Investment Management Agreement, dated effective as of February 10, 2012, by and among Whitetail Rock
SLAB Fund I, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC,
filed as Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and
incorporated herein by reference.
Investment Management Agreement, dated effective as of February 14, 2013, by and among Whitetail Rock
SLAB Fund III, LLC, Whitetail Rock Fund Management, LLC, and Whitetail Rock Capital Management, LLC,
filed as Exhibit 10.31 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2013 and
incorporated herein by reference.
Form of Custodian Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail Rock Fund
Management, LLC, and Union Bank and Trust Company, filed as Exhibit 10.27 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.
Form of Administrative Services Agreement for Whitetail Rock SLAB Funds by and among the Fund, Whitetail
Rock Fund Management, LLC, Adminisystems, Inc., and Union Bank and Trust Company, filed as Exhibit
10.28 to the registrant's Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated
herein by reference.
Management Agreement dated as of August 8, 2019 between 1867 – Riley Road, LLC (of which Farmers &
Merchants Investment Inc., North Central Bancorp, Inc., and Nelnet Solar, LLC are members) and 1867
Capital-1, LLC (a wholly owned subsidiary of Nelnet, Inc.), filed as Exhibit 10.3 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference.
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.
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,
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 September 22, 2021 and incorporated herein by reference.
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 September 22, 2021 and incorporated herein by
reference.
Aircraft Joint Ownership Agreement dated as of January 1, 2019, by and between National Education Loan
Network, Inc. and MSD711, LLC, filed as Exhibit 10.43 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 2018 and incorporated herein by reference.
Aircraft Management Agreement, dated as of January 1, 2019, by and between Duncan Aviation, Inc. and
National Education Loan Network, Inc. and MSD711, LLC, filed as Exhibit 10.44 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.
Amended and Restated Consulting and Services Agreement made and entered into as of October 1, 2013, by and
between Nelnet, Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference.
Master Private Loan Program Agreement dated as of August 22, 2018, by and between Union Bank and Trust
Company and Nelnet, Inc., filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2018 and incorporated herein by reference.
Education Loan Marketing Agreement dated as of August 22, 2018, by and between Nelnet Consumer Finance,
Inc. and Union Bank and Trust Company, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2018 and incorporated herein by reference.
Private Student Loan Origination and Servicing Agreement dated as of August 22, 2018, by and between Nelnet
Servicing, LLC, d/b/a Firstmark Services, and Union Bank and Trust Company, filed as Exhibit 10.3 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and incorporated herein by
reference.
80
10.65±±
Private Student Loan Purchase Agreement dated as of November 19, 2019, by and among National Education
Loan Network, Inc., as Purchaser, Union Bank and Trust Company, as Purchaser Lender Trustee, and Union
Bank and Trust Company, as Seller, filed as Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for
the year ended December 31, 2019 and incorporated herein by reference.
10.66
10.67
10.68
10.69
10.70
10.71
10.72
10.73
10.74±±
10.75±±
10.76
10.77*
10.78
10.79
10.80++
Private Loan Sale Agreement dated as of October 9, 2014, by and between Nelnet, Inc. and Union Bank and
Trust Company, filed as Exhibit 10.47 to the registrant's Annual Report on Form 10-K for the year ended
December 31, 2014 and incorporated herein by reference.
Private Student Loan Servicing Agreement dated as of October 9, 2014, by and between Nelnet Servicing, LLC
and Union Bank and Trust Company, filed as Exhibit 10.48 to the registrant's Annual Report on Form 10-K for
the year ended December 31, 2014 and incorporated herein by reference.
First Amendment of Loan Servicing Agreement dated as of September 27, 2013, by and between Nelnet, Inc.
and Union Bank and Trust Company, filed as Exhibit 10.49 to the registrant's Annual Report on Form 10-K for
the year ended December 31, 2014 and incorporated herein by reference.
Private Loan Servicing Letter Agreement dated as of February 27, 2017, by and between Nelnet Servicing, LLC
and Union Bank and Trust Company, filed as Exhibit 10.54 to the registrant's Annual Report on Form 10-K for
the year ended December 31, 2017 and incorporated herein by reference.
Form of Trust/Custodial/Safekeeping Agreement by and between National Education Loan Network, Inc., as
Principal, and Union Bank and Trust Company, as Trustee, filed as Exhibit 10.55 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference.
Form of Special Investment Directions by National Education Loan Network, Inc. and its affiliates, as Principal
under the Form of Trust/Custodial/Safekeeping Agreement between Principal and Union Bank and Trust
Company, as Trustee, filed as Exhibit 10.56 to the registrant's Annual Report on Form 10-K for the year ended
December 31, 2017 and incorporated herein by reference.
Loan Participation Agreement dated as of January 1, 2018 between Union Bank and Trust Company and Union
Bank and Trust Company as trustee for National Education Loan Network, Inc., filed as Exhibit 10.1 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by
reference.
Amended and Restated Trust Agreement dated as of December 21, 2018 among Nelnet Private Student Loan
Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, and U.S. Bank Trust National
Association, as Delaware Trustee, filed as Exhibit 10.57 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 2018 and incorporated herein by reference.
Amended and Restated Trust Agreement, dated effective as of January 11, 2019, by and among Nelnet Private
Student Loan Financing Corporation, as Depositor, Union Bank and Trust Company, as Trustee, National
Education Loan Network, Inc., as Administrator, and U.S. Bank Trust National Association, as Delaware
Trustee, filed as Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2019 and incorporated herein by reference.
Interim Trust Agreement, dated effective as of January 11, 2019, by and among ACM F Acquisition, LLC, as
ACM Seller, National Education Loan Network, Inc., as NELN Seller, and Union Bank and Trust Company, as
Interim Trustee, filed as Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2019 and incorporated herein by reference.
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.
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.
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.
Capital and Liquidity Maintenance Agreement, dated as of June 26, 2020, by and among the Federal Deposit
Insurance Corporation, Nelnet, Inc., Michael Dunlap, and Nelnet Bank, filed as Exhibit 10.3 to the registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference.
Master Agreement entered into as of October 1, 2020, by and among SDC Allo Holdings, LLC, Nelnet, Inc., and
ALLO Communications LLC, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2020 and incorporated herein by reference.
81
10.81++
10.82
10.83*±±
Membership Unit Purchase Agreement, dated as of October 1, 2020, by and among SDC Allo Holdings, LLC,
Nelnet, Inc., and ALLO Communications LLC, filed as Exhibit 10.2 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference.
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.
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*
23.1*
31.1*
31.2*
32**
Subsidiaries of Nelnet, Inc.
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Jeffrey R.
Noordhoek.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer James D.
Kruger.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
**
+
++
Filed herewith
Furnished herewith
Indicates a management contract or compensatory plan or arrangement contemplated by Item 15(a)(3) of Form 10-K.
Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments to the exhibit have been omitted. The exhibit
is not intended to be, and should not be relied upon as, including disclosures regarding any facts and circumstances relating to the
registrant or any of its subsidiaries or affiliates. The exhibit contains representations and warranties by the registrant and the other
parties that were made only for purposes of the agreement set forth in the exhibit and as of specified dates. The representations,
warranties, and covenants in the agreement were made solely for the benefit of the parties to the agreement, may be subject to
limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of
allocating contractual risk between the parties to the agreement instead of establishing these matters as facts), and may apply
contractual standards of materiality or material adverse effect that generally differ from those applicable to investors. In addition,
information concerning the subject matter of the representations, warranties, and covenants may change after the date of the
agreement, which subsequent information may or may not be fully reflected in the registrant's public disclosures.
±
Certain portions of this exhibit have been redacted and are subject to a confidential treatment order granted by the U.S. 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.
#
Schedules, exhibits, and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
ITEM 16. FORM 10-K SUMMARY
The Company has elected not to include an optional summary of information required by Form 10-K.
82
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: February 28, 2022
NELNET, INC.
By:
/s/ JEFFREY R. NOORDHOEK
Name:
Jeffrey R. Noordhoek
Title: Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ JEFFREY R. NOORDHOEK
Jeffrey R. Noordhoek
Chief Executive Officer
(Principal Executive Officer)
February 28, 2022
/s/ JAMES D. KRUGER
James D. Kruger
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
February 28, 2022
/s/ MICHAEL S. DUNLAP
Executive Chairman
February 28, 2022
Michael S. Dunlap
/s/ JAMES P. ABEL
James P. Abel
/s/ PREETA D. BANSAL
Preeta D. Bansal
/s/ WILLIAM R. CINTANI
William R. Cintani
/s/ KATHLEEN A. FARRELL
Kathleen A. Farrell
/s/ DAVID S. GRAFF
David S. Graff
/s/ THOMAS E. HENNING
Thomas E. Henning
/s/ KIMBERLY K. RATH
Kimberly K. Rath
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
Director
Director
Director
Director
Director
Director
Director
83
NELNET, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
Notes to Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-10
F - 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Nelnet, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Nelnet, Inc. and subsidiaries (the Company) as of December
31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2021, in conformity with U.S. 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, 2021, 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 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 No. 2016-13, “Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan losses
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
F - 2
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 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, 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
estimate, including controls over the:
•
•
•
•
•
development of the ALL methodology
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 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:
•
•
•
•
•
•
evaluating the Company’s ALL methodology for compliance with U.S. generally accepted accounting principles
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 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 estimate by evaluating the:
•
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practices
potential bias in the accounting estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 1998.
Lincoln, Nebraska
February 28, 2022
F - 3
NELNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2021 and 2020
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $127,113 and
$175,698, respectively)
$
18,335,197
20,185,656
2021
2020
(Dollars in thousands, except share data)
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party
Cash and cash equivalents - held at a related party
Total cash and cash equivalents
Investments
Restricted cash
Restricted cash - due to customers
Accounts receivable (net of allowance for doubtful accounts of $1,160 and $1,824, respectively)
Goodwill
Intangible assets, net
Property and equipment, net
Other assets
Total assets
Liabilities:
Bonds and notes payable
Accrued interest payable
Bank deposits
Other liabilities
Due to customers
Total liabilities
Commitments and contingencies
Equity:
30,128
95,435
125,563
1,588,919
741,981
326,645
163,315
142,092
52,029
119,413
82,887
33,292
87,957
121,249
992,940
553,175
283,971
76,460
142,092
75,070
123,527
92,020
$
$
21,678,041
22,646,160
17,631,089
19,320,726
4,566
344,315
379,231
366,002
28,701
54,633
312,280
301,471
18,725,203
20,017,811
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding
—
—
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 27,239,654
shares and 27,193,154 shares, respectively
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding
10,676,642 shares and 11,155,571 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings, net
Total Nelnet, Inc. shareholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
Supplemental information - assets and liabilities of consolidated education and other lending
variable interest entities:
Loans and accrued interest receivable
Restricted cash
Bonds and notes payable
Accrued interest payable and other liabilities
Net assets of consolidated education and other lending variable interest entities
See accompanying notes to consolidated financial statements.
F - 4
272
107
1,000
2,940,523
9,304
2,951,206
1,632
2,952,838
$
21,678,041
272
112
3,794
2,621,762
6,102
2,632,042
(3,693)
2,628,349
22,646,160
$
$
17,981,414
674,073
(17,462,456)
(36,276)
1,156,755
20,132,996
499,223
(19,355,375)
(83,127)
1,193,717
NELNET, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2021, 2020, and 2019
2021
2020
2019
(Dollars in thousands, except share data)
$
482,337
Interest income:
Loan interest
Investment interest
Total interest income
Interest expense:
Interest on bonds and notes payable and bank deposits
Net interest income
Less (negative provision) provision for loan losses
Net interest income after provision for loan losses
Other income/expense:
Loan servicing and systems revenue
Education technology, services, and payment processing revenue
Communications revenue
Other
Gain on sale of loans
Gain from deconsolidation of ALLO
Impairment expense and provision for beneficial interests, net
Derivative market value adjustments and derivative settlements, net
Total other income/expense
Cost of services:
Cost to provide education technology, services, and payment processing services
Cost to provide communications services
Total cost of services
Operating expenses:
Salaries and benefits
Depreciation and amortization
Other expenses
Total operating expenses
Income before income taxes
Income tax expense
Net income
41,498
523,835
176,233
347,602
(12,426)
360,028
486,363
338,234
—
78,681
18,715
—
(16,360)
71,446
977,079
108,660
—
108,660
507,132
73,741
145,469
726,342
502,105
115,822
386,283
7,003
393,286
595,113
24,543
619,656
330,071
289,585
63,360
226,225
451,561
282,196
76,643
57,561
33,023
258,588
(24,723)
(24,465)
1,110,384
82,206
22,812
105,018
501,832
118,699
160,574
781,105
450,486
100,860
349,626
2,817
352,443
914,256
34,421
948,677
699,327
249,350
39,000
210,350
455,255
277,331
64,269
47,918
17,261
—
—
(30,789)
831,245
81,603
20,423
102,026
463,503
105,049
194,272
762,824
176,745
35,451
141,294
509
141,803
Net loss attributable to noncontrolling interests
Net income attributable to Nelnet, Inc.
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted
$
$
10.20
9.02
3.54
Weighted average common shares outstanding - basic and diluted
38,572,801
39,059,588
40,047,402
See accompanying notes to consolidated financial statements.
F - 5
NELNET, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2021, 2020, and 2019
2021
2020
2019
(Dollars in thousands)
$ 386,283
349,626
141,294
Net income
Other comprehensive income (loss):
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
Reclassification of gains recognized in net income, net of losses
(2,695)
6,637
(2,521)
Income tax effect
Other comprehensive income (loss)
Comprehensive income
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to Nelnet, Inc.
(1,014)
3,212
(986)
3,130
3,202
389,485
7,003
$ 396,488
3,130
352,756
2,817
355,573
(1,199)
—
288
(911)
(911)
140,383
509
140,892
See accompanying notes to consolidated financial statements.
F - 6
NELNET, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 2021, 2020, and 2019
Nelnet, Inc. Shareholders
Preferred
stock
shares
Common stock shares
Class A
Class B
Preferred
stock
Class A
common
stock
Class B
common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
earnings
Noncontrolling
interests
Total equity
(Dollars in thousands, except share data)
— 28,798,464
11,459,641
$ —
288
115
622
2,299,556
3,883
10,315
2,314,779
Repurchase of common stock
— (726,273)
—
—
—
188,032
(188,032)
— 28,458,495
11,271,609
Balance as of December 31, 2018
Issuance of noncontrolling
interests
Net income (loss)
Other comprehensive loss
Distribution to noncontrolling
interests
Cash dividends on Class A and
Class B common stock - $0.74
per share
Issuance of common stock, net of
forfeitures
Compensation expense for stock
based awards
Impact of adoption of new
accounting standard
Conversion of common stock
Balance as of December 31, 2019
Issuance of noncontrolling
interests
Net income (loss)
Other comprehensive income
Distribution to noncontrolling
interests
Cash dividends on Class A and
Class B common stock - $0.82
per share
Issuance of common stock, net of
forfeitures
Compensation expense for stock
based awards
Impact of adoption of new
accounting standard
Conversion of common stock
Acquisition of noncontrolling
interest
Deconsolidation of
noncontrolling interest - ALLO
Other equity transactions, net of
costs incurred to sell shares of
subsidiary
Balance as of December 31, 2020
Issuance of noncontrolling
interests
Net income (loss)
Other comprehensive income
Distribution to noncontrolling
interests
Cash dividends on Class A and
Class B common stock - $0.90
per share
Issuance of common stock, net of
forfeitures
Compensation expense for stock
based awards
—
—
—
—
—
—
—
—
—
—
—
—
198,272
—
—
—
—
—
—
—
—
—
—
—
—
—
213,015
—
—
—
—
—
—
—
—
—
—
—
—
—
280,845
—
Repurchase of common stock
— (1,594,394)
—
—
—
—
—
—
116,038
(116,038)
—
—
—
—
—
—
— 27,193,154
11,155,571
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
(7)
—
2
285
—
—
—
—
—
2
—
(16)
—
1
—
—
—
—
—
—
—
—
—
—
—
(2)
—
—
—
—
—
141,803
—
—
—
(29,485)
4,849
6,401
—
—
(6,157)
(34,247)
—
—
—
—
—
—
(911)
—
—
—
—
—
—
—
4,756
4,756
(509)
141,294
—
(911)
(4,103)
(4,103)
—
—
—
—
(29,485)
4,851
6,401
(40,411)
(6,077)
(6,077)
—
—
113
5,715
2,377,627
2,972
4,382
2,391,094
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
352,443
—
—
—
(31,778)
5,626
7,290
—
—
(14,837)
(58,505)
—
—
—
—
(18,868)
—
(375)
—
—
272
—
112
—
1,218
3,794
2,621,762
—
—
—
—
—
2
—
(7)
5
—
—
—
—
—
—
—
—
—
—
—
—
—
393,286
—
—
—
(34,457)
4,827
10,415
—
—
(18,036)
(40,068)
(5)
—
—
—
—
3,130
219,265
219,265
(2,817)
349,626
—
3,130
—
—
—
—
—
—
—
—
—
—
6,102
—
—
3,202
—
—
—
—
—
—
(16,123)
(16,123)
—
—
—
—
—
—
(31,778)
5,628
7,290
(73,358)
(18,868)
—
(225)
(600)
(208,175)
(208,175)
—
1,218
(3,693)
2,628,349
61,087
61,087
(7,003)
386,283
—
3,202
(48,759)
(48,759)
—
—
—
—
—
(34,457)
4,829
10,415
(58,111)
—
Repurchase of common stock
— (713,274)
Conversion of common stock
—
478,929
(478,929)
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
See accompanying notes to consolidated financial statements.
F - 7
NELNET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2021, 2020, and 2019
Net income attributable to Nelnet, Inc.
Net loss attributable to noncontrolling interests
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt discounts and loan premiums and deferred
origination costs
Loan discount accretion
(Negative provision) provision for loan losses
Derivative market value adjustments
Payments to terminate derivative instruments, net
Proceeds from (payments to) clearinghouse - initial and variation margin, net
Gain from deconsolidation of ALLO, including cash impact
Gain from sale of loans
Gain from investments, net
Loss on (gain from) repurchases and extinguishments of debt, net
Purchases of equity securities, net
Deferred income tax expense (benefit)
Non-cash compensation expense
Provision for beneficial interests and impairment expense, net
Other
Decrease (increase) in loan and investment accrued interest receivable
(Increase) decrease in accounts receivable
Decrease (increase) in other assets, net
Decrease in the carrying amount of ROU asset, net
Decrease in accrued interest payable
Increase in other liabilities, net
Decrease in the carrying amount of lease liability
Increase (decrease) in due to customers
Net cash provided by operating activities
Cash flows from investing activities:
Purchases and originations of loans
Purchases of loans from a related party
Net proceeds from loan repayments, claims, and capitalized interest
Proceeds from sale of loans
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from and sale of beneficial interest in loan securitizations, net
Purchases of other investments
Proceeds from other investments
Purchases of held-to-maturity debt securities
Purchases of property and equipment
Business acquisitions, net of cash and restricted cash acquired
2021
2020
2019
(Dollars in thousands)
$
393,286
352,443
141,803
(7,003)
(2,817)
(509)
386,283
349,626
141,294
132,325
198,473
(7,990)
(35,285)
(12,426)
(92,813)
—
63,360
28,144
—
91,294
(26,747)
—
(287,579)
(18,715)
(3,811)
6,775
(42,916)
55,622
10,673
16,360
—
1,378
(86,982)
39,439
7,170
(33,023)
(14,055)
(1,924)
—
7,974
16,739
24,723
186
(61,090)
40,880
59,182
11,594
192,662
(35,824)
39,000
76,195
(12,530)
(70,685)
—
(17,261)
(3,095)
16,553
—
(7,265)
6,781
—
584
(54,586)
(55,949)
(19,858)
8,793
(24,135)
(18,584)
(14,394)
29,775
(6,978)
64,539
35,907
(9,401)
(136,285)
49,100
(8,678)
68,078
544,867
212,815
298,915
(1,318,605)
(1,459,696)
(1,906,669)
(22,678)
(147,539)
(101,538)
3,103,776
2,644,347
3,462,391
85,906
136,126
196,564
(734,817)
(471,510)
(1,010)
160,976
40,602
173,784
44,213
105
6,593
(253,894)
(168,216)
(103,250)
191,821
(8,200)
13,011
—
63,879
—
(58,952)
(113,312)
(92,499)
—
(29,989)
—
Net cash provided by investing activities
$ 1,185,935
621,219
1,524,566
F - 8
NELNET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Cash flows from financing activities:
Payments on bonds and notes payable
Proceeds from issuance of bonds and notes payable
Payments of debt issuance costs
Payments to extinguish debt
Increase in bank deposits, net
Dividends paid
Repurchases of common stock
Proceeds from issuance of common stock
Acquisition of noncontrolling interest
Issuance of noncontrolling interests
Distribution to noncontrolling interests
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
2021
2020
2019
(Dollars in thousands)
$ (3,683,770)
(3,129,485)
(4,698,878)
1,947,559
1,884,689
2,997,972
(7,093)
(8,674)
—
289,682
(34,457)
(58,111)
1,465
—
—
54,633
(31,778)
(73,358)
1,653
(600)
50,716
205,768
(878)
(1,088)
(14,406)
(14,030)
—
(29,485)
(40,411)
1,552
—
4,650
(235)
(1,494,887)
(1,098,240)
(1,793,271)
(121)
235,794
958,395
—
—
(264,206)
30,210
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:
Cash disbursements made for interest
Cash disbursements made for income taxes, net of refunds and credits received (a)
Cash disbursements made for operating leases
Noncash operating, investing, and financing activity:
ROU assets obtained in exchange for lease obligations
Receipt of beneficial interest in consumer loan securitizations
Distribution to noncontrolling interests
Issuance of noncontrolling interests
$
$
$
$
$
$
$
152,173
18,659
7,970
4,228
23,506
47,881
10,371
301,570
29,685
11,488
4,282
52,501
15,035
4,132
657,436
17,672
9,966
8,731
39,780
3,868
—
(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 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.
As of
December 31, 2021
As of
December 31, 2020
As of
December 31, 2019
As of
December 31, 2018
Total cash and cash equivalents
$
Restricted cash
Restricted cash - due to customers
125,563
741,981
326,645
Cash, cash equivalents, and restricted cash
$
1,194,189
121,249
553,175
283,971
958,395
133,906
650,939
437,756
121,347
701,366
369,678
1,222,601
1,192,391
See accompanying notes to consolidated financial statements.
F - 9
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
1. Description of Business
Nelnet, Inc. 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 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.
The Company was formed as a Nebraska corporation in 1978 to service federal student loans for two local banks. The
Company built on this initial foundation as a servicer to become a leading originator, holder, and servicer of federal student
loans, principally consisting of loans originated under the Federal Family Education Loan Program (“FFELP” or “FFEL
Program”) of the U.S. Department of Education (the “Department”).
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 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 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:
• Loan Servicing and Systems (“LSS”)
• Education Technology, Services, and Payment Processing (“ETS&PP”)
• Communications
• Asset Generation and Management (“AGM”)
• Nelnet Bank
A description of each reportable operating segment is included below. See note 15 for additional information on the Company's
segment reporting.
Loan Servicing and Systems
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
Servicing FFELP loans
Originating and servicing private education and consumer loans
Backup servicing for FFELP, private education, and consumer loans
Providing student loan servicing software and other information technology products and services
Customer acquisition, management services, and backup servicing for community solar developers
Providing outsourced services including call center, processing, and technology services
LSS provides for the servicing of the Company's student loan portfolio and the portfolios of third parties. The loan servicing
activities include loan conversion activities, application processing, borrower updates, customer service, payment processing,
due diligence procedures, funds management reconciliations, and claim processing. These activities are performed internally for
the Company's portfolio, in addition to generating external fee revenue when performed for third-party clients. 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.
F - 10
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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. These software systems have been adapted so that they can be offered as hosted servicing software
solutions usable by third parties to service various types of student loans, including Federal Direct Loan Program and FFEL
Program loans.
This segment also provides business process outsourcing primarily specializing in contact center management. The contact
center solutions and services include taking inbound calls, helping with outreach campaigns and sales, interacting with
customers through multi-channels, and processing and technology services.
Education Technology, Services, and Payment Processing
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
ALLO Communications LLC (“ALLO”) provides pure fiber optic service to homes and businesses for internet, television, and
telephone services. ALLO derives its revenue primarily from the sale of communication services to residential, governmental,
and business customers in Nebraska and Colorado. Internet and television services include revenue from residential and
business customers for subscriptions to ALLO's data and video products. ALLO data services provide high-speed internet
access over ALLO's all-fiber network at various symmetrical speeds of up to 1 gigabit per second for residential customers and
is capable of providing symmetrical speeds of over 1 gigabit per second for business customers. Telephone services include
local and long distance telephone service, hosted PBX services, and other services.
F - 11
NELNET, INC. 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 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
The Company's Asset Generation and Management operating segment includes the acquisition, management, and ownership of
the Company's loan assets (excluding loan assets held by Nelnet Bank). Substantially all loan assets included in this segment
are student loans originated under the FFEL Program, including the Stafford Loan Program, the PLUS Loan program, and loans
that reflect the consolidation into a single loan of certain previously separate borrower obligations (“Consolidation” loans).
AGM also acquires private education and consumer loans. 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.
Nelnet Bank
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
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other
Activities. Corporate and Other Activities include the following items:
•
•
•
•
The operating results of Whitetail Rock Capital Management, LLC (“WRCM”), the Company's SEC-registered
investment advisor subsidiary
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 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.
2. 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. On December 21, 2020,
the non-voting preferred membership units of ALLO held by SDC automatically converted into voting membership units of
ALLO pursuant to the terms of the agreements upon the receipt on December 21, 2020 of the required approvals from
applicable regulatory authorities. As a result of such conversion, SDC, the Company, and members of ALLO’s management
own approximately 48 percent, 45 percent, and 7 percent, respectively, of the outstanding voting membership interests of
ALLO, and the Company deconsolidated ALLO from the Company’s consolidated financial statements.
F - 12
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
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 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.
As of
December 21, 2020
Voting interest/equity method investment - recorded at fair value
$
Preferred membership interest investment - recorded at fair value
Less: ALLO assets deconsolidated:
Cash and cash equivalents – not held at a related party
Cash and cash equivalents – held at a related party
Accounts receivable
Goodwill
Intangible assets
Property and equipment, net
Other assets
Other liabilities
Noncontrolling interests
Gain recognized upon deconsolidation of ALLO
$
132,960
228,530
(299)
(28,692)
(4,138)
(21,112)
(6,083)
(245,295)
(29,643)
24,185
208,175
258,588
The impact to the Company’s 2020 operating results as a result of the ALLO recapitalization is summarized below:
Gain from deconsolidation
Compensation expense (note 1)
Obligation to SDC (note 2)
$
$
258,588
(9,298)
(2,339)
246,951
Note 1: 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.
Note 2: 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.
F - 13
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
3. Summary of Significant Accounting Policies and Practices
Consolidation
The consolidated financial statements include the accounts of Nelnet, Inc. and its consolidated subsidiaries. In addition, the
accounts of all variable interest entities (“VIEs”) of which the Company has determined that it is the primary beneficiary are
included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated
in consolidation.
Variable Interest Entities
The Company assesses its partnerships and joint ventures to determine if the entity meets the qualifications of a VIE. The
Company performs a qualitative assessment of each VIE to determine if it is the primary beneficiary. The primary beneficiary is
the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic
performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the
VIE. The Company examines specific criteria and uses judgment when determining whether an entity is a VIE and whether it is
the primary beneficiary. The Company performs this review initially at the time it enters into a partnership or joint venture
agreement and reassess upon reconsideration events.
VIEs - Consolidated
The Company is required to consolidate VIEs in which it has determined it is the primary beneficiary.
The Company's education and other lending subsidiaries are engaged in the securitization of finance assets. These lending
subsidiaries hold beneficial interests in eligible loans, subject to creditors with specific interests. The liabilities of the
Company's lending subsidiaries are not the direct obligations of Nelnet, Inc. or any of its other subsidiaries. Each lending
subsidiary is structured to be bankruptcy remote, meaning that it should not be consolidated in the event of bankruptcy of the
parent company or any other subsidiary. The Company is generally the administrator and master servicer of the securitized
assets held in its lending subsidiaries and owns the residual interest of the securitization trusts. For accounting purposes, the
transfers of loans to the securitization trusts do not qualify as sales. Accordingly, all the financial activities and related assets
and liabilities, including debt, of the securitizations are reflected in the Company's consolidated financial statements and are
summarized as supplemental information on the balance sheet.
VIEs - Not consolidated
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). The Company’s investments in
these entities generate a return primarily through the realization of federal income tax credits, operating cash flows, and other
tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These investments are
included in "investments" on the consolidated balance sheets and accounted for under the HLBV method of accounting. The
carrying value of these investments are reduced by tax credits earned when the solar project is placed in service. The
Company’s unfunded capital and other commitments related to these unconsolidated VIEs are included in “other liabilities” on
the consolidated balance sheet. The Company’s maximum exposure to loss from these unconsolidated VIEs include the
investment, unfunded capital commitments, and previously recorded tax credits which remain subject to recapture by taxing
authorities based on compliance features required to be met at the project level. The tax credit recapture period ratably
decreases over five years from when the project is placed in service. 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.
F - 14
NELNET, INC. 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:
As of December 31,
2021
2020
Investment carrying amount
Tax credits subject to recapture
Unfunded capital and other commitments
Company’s maximum exposure to loss
Exposure syndicated to third-party investors
Maximum exposure to loss
$
$
(41,030)
111,289
4,350
74,609
71,511
146,120
(26,006)
101,943
13,330
89,267
15,562
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, “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. Interest
F - 15
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
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 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. The expected credit losses are adjusted each period for
changes in expected lifetime credit losses. 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 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. Such allowance is based on the credit losses expected
to arise over the life of the asset which includes consideration of prepayments. Loans are charged off when management
determines the loan is uncollectible. Charge-offs are recognized as a reduction to the allowance for loan losses. 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. The Company
evaluates such pooling decisions each quarter and makes adjustments as risk characteristics change.
The Company determines its estimated credit losses for the following financial assets as follows:
Loans receivable
Management has determined that the federally insured, private education, and consumer loan portfolios each meet the definition
of a portfolio segment, which is defined as the level at which an entity develops and documents a systematic method for
determining its allowance for loan losses. Accordingly, the portfolio segment disclosures are presented on this basis in note 4
for each of these portfolios. The Company does not disaggregate its portfolio segment loan portfolios into classes of financing
receivables.
The Company utilizes an undiscounted cash flow methodology in determining its lifetime expected credit losses on its federally
insured and private education loan portfolios and a remaining life methodology for its consumer loan portfolio. For the
undiscounted cash flow models, the expected credit losses are the product of multiplying the Company’s estimates of
F - 16
NELNET, INC. 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. Management estimates the allowance balance using relevant available information,
from internal and external sources, relating to past events, current economic conditions, and reasonable and supportable
forecasts. The Company has determined that, for modeling current expected credit losses, the Company can reasonably estimate
expected losses that incorporate current economic conditions and forecasted probability weighted economic scenarios up to a
one-year period. Macroeconomic factors used in the models include such variables as unemployment rates, gross domestic
product, and consumer price index. After the "reasonable and supportable" period, the Company reverts to its actual long-term
historical loss experience in the historical observation period. The Company uses a straight line reversion method over two
years. Historical credit loss experience provides the basis for the estimation of expected credit losses. A portion of the
allowance is comprised of qualitative adjustments to historical loss experience.
Qualitative adjustments consider the following factors, as applicable, for each of the Company’s loan portfolios: student loans
in repayment versus those in nonpaying status; delinquency status; type of private education or consumer loan program; trends
in defaults in the portfolio based on Company and industry data; past experience; trends in federally insured student loan claims
rejected for payment by guarantors; changes in federal student loan programs; and other relevant qualitative factors.
The federal government guarantees 97 percent of the principal of and the interest on federally insured student loans disbursed
on and after July 1, 2006 (and 98 percent for those loans disbursed on and after October 1, 1993 and prior to July 1, 2006),
which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Federally
insured student loans disbursed prior to October 1, 1993 are fully insured. Private education and consumer loans are unsecured,
with neither a government nor a private insurance guarantee. Accordingly, the Company bears the full risk of loss on these
loans if the borrower and co-borrower, if applicable, default. The Company places private education 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.
Purchased Loans Receivable with Credit Deterioration (“PCD”)
The Company has purchased federally insured rehabilitation loans that have experienced more than insignificant credit
deterioration since origination. Rehabilitation loans are loans that have previously defaulted, but for which the borrower has
made a specified number of on-time payments. Although rehabilitation loans benefit from the same guarantees as other
federally insured loans, rehabilitation loans have generally experienced redefault rates that are higher than default rates for
federally insured loans that have not previously defaulted. These PCD loans are recorded at the amount paid. An allowance for
loan losses is determined using the same methodology as for other loans held for investment. The sum of the loans’ purchase
price and allowance for loan losses becomes its initial amortized cost basis. The difference between the initial amortized cost
basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over
the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
Loan Accrued Interest Receivable
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 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.
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
F - 17
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
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.
Cash and Cash Equivalents and Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers all investments with original maturities of
three months or less to be cash equivalents.
Accrued interest on loans purchased and sold is included in cash flows from operating activities in the respective period. Net
purchased loan accrued interest was $48.3 million, $92.3 million, and $112.9 million in 2021, 2020, and 2019, respectively.
Investments
The Company classifies its debt securities, primarily student loan and other asset-backed securities, as available-for-sale. These
securities are carried at fair value, with the changes in fair value, net of taxes, carried as a separate component of shareholders’
equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of
discounts, which are amortized using the effective interest rate method. When an investment is sold, the cost basis is determined
through specific identification of the security sold. 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.
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. The
Company continues to update, over the life of the beneficial interest, the expectation of cash flows to be collected. Beneficial
interest investments are evaluated for impairment by comparing the present value of the remaining cash flows as estimated at
the initial transaction date (or the last date previously revised) to the present value of the cash flows expected to be collected at
the current financial reporting date, both discounted using the same effective rate equal to the current yield used to accrete the
beneficial interest. If the present value of remaining cash flows is less than the present value of cash flows expected to be
collected, the Company records an allowance for credit losses for the difference. Subsequent favorable changes, if any,
decreases the allowance for credit losses. The Company reflects the changes in the allowance for credit losses in provision for
beneficial interests on the consolidated statements of income.
Equity investments with readily determinable fair values are measured at fair value, with changes in the fair value recognized
through net income (other than those equity investments accounted for under the equity method of accounting or those that
result in consolidation of the investee).
For equity investments without readily determinable fair value, the Company uses the measurement alternative of cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a
similar investment of the same issuer. The Company uses qualitative factors to identify impairment on these investments.
The Company accounts for equity investments over which it has significant influence but not a controlling financial interest
using the equity method of accounting. Equity method investments are recorded at cost and subsequently increased or decreased
by the amount of the Company’s proportionate share of the net earnings or losses and other comprehensive income of the
investee. Equity method investments are evaluated for other-than-temporary impairment using certain impairment indicators
such as a series of operating losses of an investee or other factors. These factors may indicate that a decrease in value of the
investment has occurred that is other-than-temporary and shall be recognized.
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
F - 18
NELNET, INC. 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.
Restricted Cash
Restricted cash primarily includes amounts for student loan securitizations and other secured borrowings. This cash must be
used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing
differences between when principal and interest is collected on the student loans held as trust assets and when principal and
interest is paid on the trust's asset-backed debt securities. Restricted cash also includes collateral deposits with derivative third-
party clearinghouses.
Restricted Cash - Due to Customers
As a servicer of student loans, the Company collects student loan remittances and subsequently disburses these remittances to
the appropriate lending entities. In addition, as part of the Company's Education Technology, Services, and Payment Processing
operating segment, the Company collects tuition payments and subsequently remits these payments to the appropriate schools.
Cash collected for customers and the related liability are included in the accompanying consolidated balance sheets.
Accounts Receivable
Accounts receivable are presented at their net realizable values, which include allowances for doubtful accounts. Allowance
estimates are based upon individual customer experience, as well as the age of receivables and likelihood of collection.
Business Combinations
The Company uses the acquisition method in accounting for acquired businesses. Under the acquisition method, the financial
statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired
and liabilities assumed are recorded at their respective estimated fair values at the date of acquisition. Any excess of the
purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. All contingent
consideration is measured at fair value on the acquisition date and included in the consideration transferred in the acquisition.
Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is
resolved, and changes in fair value are recognized in earnings.
Goodwill
The Company reviews goodwill for impairment annually (as of November 30) and whenever triggering events or changes in
circumstances indicate its carrying value may not be recoverable. Goodwill is tested for impairment using a fair value approach
at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment if
discrete financial information is prepared and regularly reviewed by segment management. However, components are
aggregated as a single reporting unit if they have similar economic characteristics.
The Company tests goodwill for impairment in accordance with applicable accounting guidance. The guidance provides an
entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its
carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than
not, the entity is then required to perform a quantitative impairment test, otherwise no further analysis is required. An entity
also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
For the 2021, 2020, and 2019 annual reviews of goodwill, the Company assessed qualitative factors and concluded it was not
more likely than not that the fair value of its reporting units were less than their carrying amount. As such, the Company was
not required to perform further impairment testing and concluded there was no impairment of goodwill.
Intangible Assets
The Company uses estimates to determine the fair value of acquired assets to allocate the purchase price to acquired intangible
assets. Such estimates are generally based on estimated future cash flows or cost savings associated with particular assets and
are discounted to present value using an appropriate discount rate. 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
F - 19
NELNET, INC. 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.
Intangible assets with finite lives are amortized over their estimated lives. Such assets are amortized using a method of
amortization that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up.
If that pattern cannot be reliably determined, the Company uses a straight-line amortization method.
The Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in
circumstances warrant a revision to the remaining periods of amortization.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation. Maintenance and repairs are charged to expense as
incurred, and major improvements, including leasehold improvements, are capitalized. Gains and losses from the sale of
property and equipment are included in determining net income. 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.
Leases
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. Leases with an initial term of 12 months or less are
not recorded on the balance sheet. The lease expense for these leases is recognized on a straight-line basis over the lease term.
All other lease assets (ROU assets) and lease liabilities are recognized based on the present value of lease payments over the
lease term at the commencement date. The Company classifies each lease as operating or financing, with the income statement
reflecting lease expense for operating leases and amortization/interest expense for financing leases. When the discount rate
implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate.
The Company accounts for lease and non-lease components together as a single, combined lease component for its office and
data center space. In addition, the Company identified itself as the lessor in its Communications operating segment for services
provided to customers that include customer-premise equipment. The Company accounted for those services and associated
leases as a single, combined component. The non-lease services are 'predominant' in those contracts. Therefore, the combined
component is considered a single performance obligation under ASC Topic 606, Revenue from Contracts with Customers.
Most leases include one or more options to renew, with renewal terms that can be extended. The exercise of lease renewal
options for the majority of leases is at the Company's discretion. Renewal options that the Company is reasonably certain to
exercise are included in the lease term.
Certain leases include escalating rental payments or rental payments adjusted periodically for inflation. None of the lease
agreements include any residual value guarantees, a transfer of title, or a purchase option that is reasonably certain to be
exercised.
Impairment of Long-Lived Assets
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. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
Assumptions and estimates about future cash flows generated by, remaining useful lives of, and fair values of the Company's
intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including
external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy
and internal forecasts. 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.
F - 20
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Fair Value Measurements
The Company uses estimates of fair value in applying various accounting standards for its financial statements.
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market
participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical
assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value,
such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates, and credit spreads, relying first
on observable data from active markets. Depending on current market conditions, additional adjustments to fair value may be
based on factors such as liquidity, credit, and bid/offer spreads. In some cases fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Transaction costs are not included in the determination of fair value. When possible, the
Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and
prices, different valuation models could produce materially different fair value estimates. The values presented may not
represent future fair values and may not be realizable. Additionally, there may be inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could
significantly affect the estimates of current or future values.
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. Classification is based on the lowest level of input that is
significant to the fair value of the instrument. The three levels include:
•
•
•
Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1
are highly liquid instruments with quoted prices.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs are observable or whose primary value drivers are
observable.
Level 3: Instruments whose primary value drivers are unobservable. Inputs are developed based on the best information
available; however, significant judgment is required by management in developing the inputs.
Revenue Recognition
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 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. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract
with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is
satisfied. The Company’s contracts with customers often include promises to transfer multiple products and services to a
customer. Determining whether products and services are considered distinct performance obligations that should be accounted
for separately versus together may require significant judgment.
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records deferred revenue
when revenue is received or receivable in advance of the delivery of service. For multi-year contracts, the Company generally
invoices customers annually at the beginning of each annual coverage period. Payment terms and conditions vary by contract
type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue
recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant
financing component.
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. Total capitalized costs to obtain a contract were immaterial during the periods presented
and are included in “other assets” on the consolidated balance sheets.
Additional information related to revenue earned in its Asset Generation and Management operating segment is provided
below. See note 16, "Disaggregated Revenue and Deferred Revenue" for additional information related to the Company's fee-
based operating segments.
F - 21
NELNET, INC. 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. The Department makes quarterly interest subsidy payments on certain qualified
FFELP loans until the student is required under the provisions of the Higher Education Act to begin repayment. Borrower
repayment of FFELP loans normally begins within six months after completion of the borrower's course of study, leaving
school, or ceasing to carry at least one-half the normal full-time academic load, as determined by the educational institution.
Borrower repayment of PLUS and Consolidation loans normally begins within 60 days from the date of loan disbursement.
Borrower repayment of private education loans typically begins six months following the borrower's graduation from a
qualified institution, and the interest is either paid by the borrower or capitalized annually or at repayment. Repayment of
consumer loans typically starts upon origination of the loan.
The Department provides a special allowance to lenders participating in the FFEL Program. The special allowance is accrued
based upon the fiscal quarter average rate of 13-week Treasury Bill auctions (for loans originated prior to January 1, 2000), the
fiscal quarter average rate of the daily three-month financial commercial paper rates (for loans originated on and after January
1, 2000), or the fiscal quarter average rate of daily one-month LIBOR rates (for loans originated on and after January 1, 2000,
and for lenders which elected to change the special allowance index to one-month LIBOR effective April 1, 2012) relative to
the yield of the student loan.
The Company recognizes loan interest income as earned, net of amortization of loan premiums and deferred origination costs
and the accretion of loan discounts. Loan interest income is recognized based upon the expected yield of the loan after giving
effect to interest rate reductions resulting from borrower utilization of incentives such as timely payments ("borrower benefits")
and other yield adjustments. Loan premiums or discounts, deferred origination costs, and borrower benefits are amortized/
accreted over the estimated life of the loans, which includes an estimate of forecasted payments in excess of contractually
required payments (the constant prepayment rate). 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. These rebate fees are
netted against loan interest income.
Interest Expense
Interest expense is based upon contractual interest rates, adjusted for the amortization of debt issuance costs and the accretion of
discounts. The amortization of debt issuance costs and accretion of discounts are recognized using the effective interest method.
Transfer of Financial Assets and Extinguishments of Liabilities
The Company accounts for loan sales and debt repurchases in accordance with applicable accounting guidance. If a transfer of
loans qualifies as a sale, the Company derecognizes the loan and recognizes a gain or loss as the difference between the
carrying basis of the loan sold and the consideration received. 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.
Derivative Accounting
All over-the-counter derivative contracts executed by the Company are cleared post-execution at the Chicago Mercantile
Exchange (“CME”), a regulated clearinghouse. Substantially all of the Company’s outstanding derivatives are over-the-counter
contracts. Clearing is a process by which a third-party, the clearinghouse, steps in between the original counterparties and
guarantees the performance of both, by requiring that each post liquid collateral on an initial (initial margin) and mark-to-
market (variation margin) basis to cover the clearinghouse’s potential future exposure in the event of default.
The CME legally characterizes variation margin payments for over-the-counter derivatives they clear as settlements of the
derivatives’ exposure rather than collateral against the exposure. For accounting and presentation purposes, the Company
considers variation margin and the corresponding derivative instrument as a single unit of account. As such, variation margin
payments are considered in determining the fair value of the centrally cleared derivative portfolio. The Company records
F - 22
NELNET, INC. 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; however, the Company's derivative instruments do not qualify for hedge accounting. As a result, the change in market
value of derivative instruments is reported in current period earnings. Changes or shifts in the forward yield curve can
significantly impact the valuation of the Company’s derivatives, and therefore impact the results of operations of the Company.
The changes in fair value of derivative instruments, as well as the settlement payments made on such derivatives, are included
in “derivative market value adjustments and derivative settlements, net” on the consolidated statements of income.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are
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. The Company uses the deferred method of accounting for its credits
related to state tax incentives and investments that generate investment tax credits. The investment tax credits are recognized as
a reduction to the related asset.
Income tax expense includes deferred tax expense, which represents a portion of the net change in the deferred tax asset or
liability balance during the year, plus any change made in the valuation allowance, and current tax expense, which represents
the amount of tax currently payable to or receivable from a tax authority plus amounts for expected tax deficiencies.
Compensation Expense for Stock Based Awards
The Company has a restricted stock plan that is intended to provide incentives to attract, retain, and motivate employees in
order to achieve long term growth and profitability objectives. The restricted stock plan provides for the grant to eligible
employees of awards of restricted shares of Class A common stock. The fair value of restricted stock awards is determined on
the grant date based on the Company's stock price and is amortized to compensation cost over the related vesting periods, which
range up to ten years. For those awards with only service conditions that have graded vesting schedules, the Company
recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of
the award, as if the award was, in substance, multiple awards. Holders of restricted stock are entitled to receive dividends from
the date of grant whether or not vested. The Company accounts for forfeitures as they occur.
The Company also has a directors stock compensation plan pursuant to which non-employee directors can elect to receive their
annual retainer fees in the form of fully vested shares of Class A common stock, and also elect to defer receipt of such shares
until the termination of their service on the board of directors. 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.
F - 23
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
4. Loans and Accrued Interest Receivable and Allowance for Loan Losses
Loans and accrued interest receivable consisted of the following:
Non-Nelnet Bank:
Federally insured student loans:
Stafford and other
Consolidation
Total
Private education loans
Consumer loans
Non-Nelnet Bank loans
Nelnet Bank:
Federally insured student loans
Private education loans
Nelnet Bank loans
Accrued interest receivable
Loan discount, net of unamortized loan premiums and deferred origination costs
Allowance for loan losses:
Non-Nelnet Bank:
Federally insured loans
Private education loans
Consumer loans
Non-Nelnet Bank allowance for loan losses
Nelnet Bank:
Federally insured loans
Private education loans
Nelnet Bank allowance for loan losses
Loan Sales
As of
December 31, 2021
As of
December 31, 2020
$
3,904,000
13,187,047
17,091,047
299,442
51,301
17,441,790
88,011
169,890
257,901
788,552
(25,933)
(103,381)
(16,143)
(6,481)
(126,005)
(268)
(840)
(1,108)
$
18,335,197
4,383,000
14,746,173
19,129,173
320,589
109,346
19,559,108
—
17,543
17,543
794,611
(9,908)
(128,590)
(19,529)
(27,256)
(175,375)
—
(323)
(323)
20,185,656
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.
2021:
May 14, 2021
September 29, 2021
2020:
January 30, 2020
July 29, 2020
2019:
May 1, 2019
October 17, 2019
Loans sold
(par value)
Gain
Residual interest
received in
securitization
15,271
3,249
18,520
18,206
14,817
33,023
1,712
15,549
17,261
24.5 %
6.9
31.4 %
25.4
11.0 %
28.7
$
$
$
$
$
$
77,417
18,390
95,807
124,249
60,779
185,028
47,680
179,301
226,981
F - 24
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Activity in the Allowance for Loan Losses
The following table presents the activity in the allowance for loan losses by portfolio segment.
Non-Nelnet Bank
Federally insured loans
Private education loans
Consumer loans
Nelnet Bank
Federally insured loans
Private education loans
Non-Nelnet Bank
Federally insured loans
Private education loans
Consumer loans
Nelnet Bank
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
$ 128,590
19,529
27,256
—
323
$ 175,698
—
—
—
—
—
—
(7,343)
(1,333)
(4,544)
(21,139)
(2,476)
(5,123)
268
526
—
(4)
—
721
824
—
—
3,273
—
103,381
—
—
—
—
(298)
(11,932)
16,143
6,481
—
(5)
268
840
(12,426)
(28,742)
1,545
3,273
(12,235)
127,113
Year ended December 31, 2020
$
36,763
9,597
15,554
72,291
4,797
13,926
18,691
6,156
38,183
(14,955)
(1,652)
(12,115)
—
631
1,132
—
1,763
15,800
—
—
—
—
—
(29,424)
128,590
19,529
27,256
—
323
15,800
(29,424)
175,698
Private education loans
—
—
330
(7)
$
61,914
91,014
63,360
(28,729)
Non-Nelnet Bank
Federally insured loans
Private education loans
Consumer loans
Year ended December 31, 2019
$
42,310
10,838
7,240
$
60,388
—
—
—
—
8,000
—
31,000
39,000
(13,547)
(1,965)
(12,498)
(28,010)
—
724
812
1,536
—
—
—
—
—
—
(11,000)
(11,000)
36,763
9,597
15,554
61,914
(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.
F - 25
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Loan Status and Delinquencies
The key credit quality indicators for the Company’s federally insured, private education, and consumer loan portfolios are loan
status, including delinquencies. The impact of changes in loan status is incorporated into the allowance for loan losses
calculation. Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and
collection costs and account charge-offs. The table below shows the Company’s loan status and delinquency amounts.
Federally insured loans - Non-Nelnet Bank:
Loans in-school/grace/deferment (a)
$
829,624
4.9 %
$
1,036,028
5.4 %
$
1,074,678
2021
As of December 31,
2020
1,118,667
6.5
1,973,175
10.3
1,339,821
2019
5.3 %
6.6
Loans in forbearance (b)
Loans in repayment status:
Loans current
Loans delinquent 31-60 days (c)
Loans delinquent 61-90 days (c)
Loans delinquent 91-120 days (c)
Loans delinquent 121-270 days (c)
Loans delinquent 271 days or greater (c)(d)
12,847,685
84.9 %
13,683,054
84.9 %
15,410,993
86.0 %
895,656
352,449
251,075
592,449
203,442
5.9
2.3
1.7
3.9
1.3
633,411
307,936
800,257
674,975
20,337
3.9
1.9
5.0
4.2
0.1
650,796
428,879
310,851
812,107
300,418
3.6
2.4
1.7
4.5
1.8
Total loans in repayment
15,142,756
88.6
100.0 %
16,119,970
84.3
100.0 %
17,914,044
88.1
100.0 %
Total federally insured loans
17,091,047
100.0 %
19,129,173
100.0 %
20,328,543
100.0 %
Accrued interest receivable
Loan discount, net of unamortized premiums
and deferred origination costs
Non-accretable discount (e)
Allowance for loan losses
Total federally insured loans and accrued
interest receivable, net of allowance for
loan losses
784,716
(28,309)
—
(103,381)
791,453
(14,505)
—
(128,590)
730,059
(35,822)
(28,036)
(36,763)
$
17,744,073
$
19,777,531
$
20,957,981
Private education loans - Non-Nelnet Bank:
Loans in-school/grace/deferment (a)
$
Loans in forbearance (b)
Loans in repayment status:
Loans current
Loans delinquent 31-60 days (c)
Loans delinquent 61-90 days (c)
Loans delinquent 91 days or greater (c)
9,661
3,601
3.2 %
1.2
$
5,049
2,359
1.6 %
0.7
$
4,493
3,108
1.8 %
1.3
280,457
2,403
976
2,344
98.0 %
310,036
99.0 %
227,013
95.9 %
0.8
0.3
0.9
1,099
675
1,371
0.4
0.2
0.4
2,814
1,694
5,136
1.2
0.7
2.2
Total loans in repayment
286,180
95.6
100.0 %
313,181
97.7
100.0 %
236,657
96.9
100.0 %
Total private education loans
299,442
100.0 %
320,589
100.0 %
244,258
100.0 %
Accrued interest receivable
Loan discount, net of unamortized premiums
Non-accretable discount (e)
Allowance for loan losses
Total private education loans and accrued
interest receivable, net of allowance for
loan losses
Consumer loans - Non-Nelnet Bank:
Loans in deferment (a)
Loans in repayment status:
Loans current
$
$
1,960
(1,123)
—
(16,143)
284,136
43
0.1 %
2,131
2,691
—
(19,529)
305,882
829
0.8 %
$
$
1,558
46
(4,362)
(9,597)
$
$
231,903
—
49,697
97.0 %
105,650
97.4 %
220,404
97.5 %
Loans delinquent 31-60 days (c)
Loans delinquent 61-90 days (c)
Loans delinquent 91 days or greater (c)
Total loans in repayment
Total consumer loans
414
322
825
0.8
0.6
1.6
954
804
1,109
0.9
0.7
1.0
51,258
99.9
100.0 %
108,517
99.2
100.0 %
51,301
100.0 %
109,346
100.0 %
Accrued interest receivable
Loan premium
Allowance for loan losses
Total consumer loans and accrued interest
receivable, net of allowance for loan losses $
396
913
(6,481)
46,129
1,001
1,640
(27,256)
0.9
0.7
0.9
100.0 %
2,046
1,545
1,923
225,918
225,918
1,880
740
(15,554)
$
84,731
$
212,984
F - 26
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Federally insured loans - Nelnet Bank:
Loans in-school/grace/deferment (a)
$
Loans in forbearance (b)
Loans in repayment status:
Loans current
Loans delinquent 31-60 days (c)
Loans delinquent 61-90 days (c)
Loans delinquent 91-120 days (c)
Loans delinquent 121-270 days (c)
Loans delinquent 271 days or greater (c)
Total loans in repayment
Total federally insured loans
Accrued interest receivable
Loan premium
Allowance for loan losses
Total federally insured loans and accrued
interest receivable, net of allowance for
loan losses
Private education loans - Nelnet Bank:
Loans in-school/grace/deferment (a)
$
$
Loans in forbearance (b)
Loans in repayment status:
Loans current
Loans delinquent 31-60 days (c)
Loans delinquent 61-90 days (c)
Loans delinquent 91 days or greater (c)
Total loans in repayment
Total private education loans
Accrued interest receivable
Deferred origination costs
Allowance for loan losses
Total private education loans and accrued
interest receivable, net of allowance for
loan losses
As of December 31,
2020
2019
2021
330
1,057
0.4 %
1.2
85,599
98.8 %
816
—
—
209
—
1.0
—
—
0.2
—
86,624
98.4
100.0 %
88,011
100.0 %
1,216
26
(268)
88,985
150
460
0.1 %
0.3
$
—
29
— %
0.2
169,157
99.9 %
17,514
100.0 %
51
—
72
—
—
0.1
—
—
—
—
—
—
169,280
99.6
100.0 %
17,514
99.8
100.0 %
169,890
100.0 %
17,543
100.0 %
264
2,560
(840)
26
266
(323)
$
171,874
$
17,512
(a)
(b)
(c)
(d)
(e)
Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans,
e.g., residency periods for medical students or a grace period for bar exam preparation for law students.
Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer
consistent with the established loan program servicing procedures and policies.
The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not
charged off, and not in school, grace, deferment, or forbearance.
A portion of loans included in loans delinquent 271 days or greater includes loans in claim status, which are loans that have gone into default and have been
submitted to the guaranty agency.
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.
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 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.
F - 27
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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
The following table presents the amortized cost of the Company's private education and consumer loans by loan status and
delinquency amount as of December 31, 2021 based on year of origination. Effective July 1, 2010, no new loan originations can
be made under the FFEL Program and all new federal loan originations must be made under the Federal Direct Loan Program.
As such, all the Company’s federally insured loans were originated prior to July 1, 2010.
2021
2020
2019
2018
2017
Prior years
Total
Private education loans - Non-Nelnet Bank:
Loans in school/grace/deferment
Loans in forbearance
Loans in repayment status:
Loans current
Loans delinquent 31-60 days
Loans delinquent 61-90 days
Loans delinquent 91 days or greater
Total loans in repayment
Total private education loans
Accrued interest receivable
Loan discount, net of unamortized premiums
Allowance for loan losses
Total private education loans and accrued interest
receivable, net of allowance for loan losses
Consumer loans - Non-Nelnet Bank:
Loans in deferment
Loans in repayment status:
Loans current
Loans delinquent 31-60 days
Loans delinquent 61-90 days
Loans delinquent 91 days or greater
Total loans in repayment
Total consumer loans
Accrued interest receivable
Loan premium
Allowance for loan losses
Total consumer loans and accrued interest
receivable, net of allowance for loan losses
Private education loans - Nelnet Bank:
Loans in school/grace/deferment
Loans in forbearance
Loans in repayment status:
Loans current
Loans delinquent 31-60 days
Loans delinquent 61-90 days
Loans delinquent 91 days or greater
Total loans in repayment
Total private education loans
Accrued interest receivable
Deferred origination costs
Allowance for loan losses
Total private education loans and accrued interest
receivable, net of allowance for loan losses
$
2,266
—
1,981
267
3,557
960
2,768
68,754
50,348
—
—
—
2,768
5,034
$
308
81
—
69,143
71,391
225
—
4
50,577
55,094
—
47
492
—
—
—
492
539
$
25
37,822
205
113
133
38,273
$
38,298
—
960
51
40
43
1,094
1,094
—
18
5,087
5,746
120
109
261
5,577
5,577
33
60
388
6,227
6,245
$
150
445
—
15
158,486
10,671
51
—
72
—
—
—
158,609
$
159,204
10,671
10,686
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F - 28
—
—
—
—
—
—
—
—
—
82
5
—
—
87
87
—
—
—
—
—
—
—
—
1,857
2,327
9,661
3,601
158,095
280,457
1,870
895
2,340
163,200
167,384
2,403
976
2,344
286,180
299,442
1,960
(1,123)
(16,143)
$
284,136
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
43
49,697
414
322
825
51,258
51,301
396
913
(6,481)
$
46,129
150
460
169,157
51
—
72
169,280
169,890
264
2,560
(840)
$
171,874
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
5. Bonds and Notes Payable
The following tables summarize the Company’s outstanding debt obligations by type of instrument:
Variable-rate bonds and notes issued in FFELP loan asset-backed
securitizations:
Bonds and notes based on indices
Bonds and notes based on auction
As of December 31, 2021
Carrying
amount
Interest rate
range
Final maturity
$ 15,887,295
0.23% - 2.10%
5/27/25 - 9/25/69
248,550
0.00% - 1.09%
3/22/32 - 8/27/46
Total FFELP variable-rate bonds and notes
16,135,845
Fixed-rate bonds and notes issued in FFELP loan asset-backed
securitizations
FFELP loan warehouse facility
Private education loan warehouse facility
Variable-rate bonds and notes issued in private education loan asset-backed
securitizations
Fixed-rate bonds and notes issued in private education loan asset-backed
securitization
Unsecured line of credit
Participation agreement
Repurchase agreements
Secured line of credit
772,935
1.42% - 3.45%
10/25/67 - 8/27/68
5,048
107,011
0.21%
0.24%
5/22/23
2/13/23
31,818
1.65% / 1.85%
12/26/40 / 6/25/49
28,613
3.60% / 5.35%
12/26/40 / 12/28/43
—
253,969
—
0.78%
9/22/26
5/4/22
483,848
0.66% - 1.46%
5/27/22 - 12/20/23
5,000
1.91%
5/30/22
Discount on bonds and notes payable and debt issuance costs
Total
17,824,087
(192,998)
$ 17,631,089
As of December 31, 2020
Carrying
amount
Interest rate
range
Final maturity
Variable-rate bonds and notes issued in FFELP loan asset-backed
securitizations:
Bonds and notes based on indices
Bonds and notes based on auction
$ 17,127,643
0.28% - 2.05%
5/27/25 - 10/25/68
749,925
1.12% - 2.14%
3/22/32 - 11/26/46
Total FFELP variable-rate bonds and notes
17,877,568
Fixed-rate bonds and notes issued in FFELP loan asset-backed
securitizations
FFELP loan warehouse facilities
Private education loan warehouse facility
Consumer loan warehouse facility
Variable-rate bonds and notes issued in private education loan asset-backed
securitizations
Fixed-rate bonds and notes issued in private education loan asset-backed
securitization
Unsecured line of credit
Participation agreement
Secured line of credit
923,076
252,165
150,397
25,809
1.42% - 3.45%
10/25/67 - 8/27/68
0.27% / 0.31%
5/20/22 / 2/26/23
0.28%
0.28%
2/13/22
4/23/22
49,025
1.65% / 1.90%
12/26/40 / 6/25/49
37,251
3.60% / 5.35%
12/26/40 / 12/28/43
120,000
118,558
5,000
1.65%
0.84%
1.90%
12/16/24
5/4/21
5/30/22
Discount on bonds and notes payable and debt issuance costs
Total
19,558,849
(238,123)
$ 19,320,726
F - 29
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
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 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.
Date securities issued
Total original principal amount
Class A senior notes:
Total principal amount
Cost of funds
Final maturity date
Class B subordinated notes:
Securitizations completed during the year ended December 31, 2021
2021-1
6/30/21
2021-2
8/31/21
Total
797,000
531,300
1,328,300
781,000
520,600
1,301,600
$
$
1-month LIBOR plus
0.50%
1-month LIBOR plus
0.50%
7/25/69
9/25/69
Total principal amount
$
16,000
10,700
26,700
Cost of funds
Final maturity date
1-month LIBOR plus
1.25%
1-month LIBOR plus
1.20%
7/25/69
9/25/69
F - 30
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Date securities issued
2020-1
2/20/20
2020-2
3/11/20
2020-3
3/19/20
2020-4 (a)
8/27/20
2020-5 (a)
10/1/20
Total
Total original principal amount $
435,600
272,100
352,600
191,300
295,000
1,546,600
Securitizations completed during the year ended December 31, 2020
Class A senior notes:
Total principal amount
Bond discount
Issue price
Cost of funds
$
$
424,600
—
424,600
1-month LIBOR
plus 0.74%
Final maturity date
3/26/68
Class B subordinated notes:
Total principal amount
Bond discount
Issue price
Cost of funds
$
$
11,000
—
11,000
1-month LIBOR
plus 1.75%
Final maturity date
3/26/68
264,300
(44)
264,256
343,600
(1,503)
342,097
191,300
(19)
191,281
295,000
1,518,800
—
(1,566)
295,000
1,517,234
1.83%
4/25/68
1-month LIBOR
plus 0.92%
3/26/68
1.42%
8/27/68
1-month LIBOR
plus 0.88%
10/25/68
7,800
(574)
7,226
9,000
(284)
8,716
2.50%
4/25/68
1-month LIBOR
plus 1.90%
3/26/68
27,800
(858)
26,942
(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, 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 $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, 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. 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.
The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the
agreement. The covenants include, among others, maintaining:
• A minimum consolidated net worth
• A minimum recourse indebtedness to adjusted EBITDA (over the last four rolling quarters)
• A limitation on recourse indebtedness
• A limitation on the amount of unsecuritized private education and consumer loans in the Company’s portfolio
• A limitation on permitted investments, including business acquisitions that are not in one of the Company's existing
lines of business
As of December 31, 2021, the Company was in compliance with all of these requirements. Many of these covenants are
duplicated in the Company's other lending facilities, including its warehouse facilities.
The Company's operating line of credit does not have any covenants related to unsecured debt ratings. However, changes in the
Company's ratings have modest implications on the pricing level at which the Company obtains funds.
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.
F - 31
NELNET, INC. 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 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
Certain bond resolutions and related credit agreements contain, among other requirements, covenants relating to restrictions on
additional indebtedness, limits as to direct and indirect administrative expenses, and maintaining certain financial ratios.
Management believes the Company is in compliance with all covenants of the bond indentures and related credit agreements as
of December 31, 2021.
Maturity Schedule
Bonds and notes outstanding as of December 31, 2021 are due in varying amounts as shown below.
2022
2023
2024
2025
2026
2027 and thereafter
$
$
439,328
415,547
—
28,116
—
16,941,096
17,824,087
Generally, the Company's secured financing instruments can be redeemed on any interest payment date at par plus accrued
interest. Subject to certain provisions, all bonds and notes are subject to redemption prior to maturity at the option of certain
lending subsidiaries.
F - 32
NELNET, INC. 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/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
Purchase price
Par value
Remaining debt discount and unamortized cost of issuance
(Loss) gain
$
$
(407,487)
406,875
(6,163)
(6,775)
(25,643)
27,605
(38)
1,924
(39,864)
40,000
—
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.
6. Derivative Financial Instruments
The Company uses derivative financial instruments primarily to manage interest rate risk. The Company is exposed to interest
rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company's assets do not
match the interest rate characteristics of the funding for those assets. The Company periodically reviews the mismatch related to
the interest rate characteristics of its assets and liabilities together with the Company's outlook as to current and future market
conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy.
Derivative instruments used as part of the Company's interest rate risk management strategy are discussed below.
Basis Swaps
Interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate.
Meanwhile, the Company funds a portion of its FFELP loan assets with three-month LIBOR indexed floating rate
securities. The differing interest rate characteristics of the Company's loan assets versus the liabilities funding these assets
results in basis risk, which impacts the Company's excess spread earned on its loans.
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, 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. The Company has entered into basis
swaps in which the Company receives three-month LIBOR set discretely in advance and pays one-month LIBOR plus or minus
a spread as defined in the agreements (the “1:3 Basis Swaps”).
F - 33
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
The following table summarizes the Company’s 1:3 Basis Swaps outstanding:
As of December 31,
2021
2020
Maturity
Notional amount
Notional amount
2021
2022
2023
2024
2026
2027
$
$
—
2,000,000
750,000
1,750,000
1,150,000
250,000
5,900,000
250,000
2,000,000
750,000
1,750,000
1,150,000
250,000
6,150,000
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
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of the borrower rate, which is fixed over a
period of time, or a floating rate based on the Special Allowance Payments ("SAP") formula set by the Department. The SAP
rate is based on an applicable index plus a fixed spread that depends on loan type, origination date, and repayment status. The
Company generally finances its student loan portfolio with variable rate debt. In low and/or certain declining interest rate
environments, when the fixed borrower rate is higher than the SAP rate, these student loans earn at a fixed rate while the
interest on the variable rate debt typically continues to reflect the low and/or declining interest rates. In these interest rate
environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate
each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended
period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset
annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate
floor income. All FFELP loans first originated on or after April 1, 2006 effectively earn at the SAP rate, since lenders are
required to rebate fixed rate floor income and variable rate floor income for these loans to the Department.
Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may
have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the
federally insured loans earn interest at a variable rate in accordance with their SAP formulas. In higher interest rate
environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans,
the impact of the rate fluctuations is reduced.
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.
F - 34
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
The following table summarizes the outstanding derivative instruments used by the Company to economically hedge loans
earning fixed rate floor income.
As of December 31, 2021
As of December 31, 2020
Maturity
Notional amount
Weighted average
fixed rate paid by the
Company (a)
Notional amount
Weighted average
fixed rate paid by the
Company (a)
2021
2022
2023
2024
2025
2026
2031
$
—
500,000
900,000
2,500,000
500,000
500,000
100,000
— % $
0.94
0.62
0.35
0.35
1.02
1.53
600,000
500,000
900,000
2,000,000
500,000
—
—
2.15 %
0.94
0.62
0.32
0.35
—
—
$
5,000,000
0.55 % $
4,500,000
0.70 %
(a)
For all interest rate derivatives, the Company receives discrete three-month LIBOR.
Consolidated Financial Statement Impact Related to Derivatives - Statements of Income
The following table summarizes the components of "derivative market value adjustments and derivative settlements, net"
included in the consolidated statements of income.
Settlements:
1:3 basis swaps
Interest rate swaps - floor income hedges
Total settlements - (expense) income
Change in fair value:
1:3 basis swaps
Interest rate swaps - floor income hedges
Other
Total change in fair value - income (expense)
Derivative market value adjustments and derivative
settlements, net - income (expense)
Year ended December 31,
2021
2020
2019
$
(1,638)
(19,729)
(21,367)
5,027
87,786
—
92,813
10,378
(6,699)
3,679
(7,462)
(20,682)
—
(28,144)
5,214
40,192
45,406
1,515
(77,027)
(683)
(76,195)
$
71,446
(24,465)
(30,789)
Derivative Instruments - Credit and Market Risk
Interest rate movements have an impact on the amount of variation margin the Company may be required to pay to its third-
party clearinghouse. The Company attempts to manage market risk associated with interest rates by establishing and monitoring
limits as to the types and degree of risk that may be undertaken. The Company's derivative portfolio and hedging strategy is
reviewed periodically by its internal risk committee and board of directors' Risk and Finance Committee. With the Company's
current derivative portfolio, the Company does not currently anticipate any movement in interest rates having a material impact
on its liquidity or capital resources, nor expects future movements in interest rates to have a material impact on its ability to
meet variation margin payments to its third-party clearinghouse. Due to the existing low interest rate environment, the
Company's exposure to downward movements in interest rates on its interest rate swaps is limited. In addition, the historical
high correlation between one-month and three-month LIBOR limits the Company's exposure to interest rate movements on the
1:3 Basis Swaps.
F - 35
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
7. Investments
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. 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.
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.
F - 36
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
A summary of the Company's investments follows:
As of December 31, 2021
Gross
unrealized
gains
Gross
unrealized
losses
Amortized
cost
Fair value
Amortized
cost
As of December 31, 2020
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
$
480,691
14,710
(719)
494,682
338,475
8,040
(13)
346,502
Investments (at fair value):
FFELP loan asset-backed securities-
available-for-sale (a)
Private education loan asset-backed
securities - available-for-sale (b)
Other debt securities - available-for-sale
Equity securities
414,286
22,435
60,153
Total investments (at fair value)
$
977,565
Other Investments (not measured at fair
value):
Other debt securities - held-to-maturity (c)
Venture capital and funds:
Measurement alternative (d)(e)
Equity method
Total venture capital and funds
Real estate
Equity method
Notes receivable
Total real estate
Investment in ALLO:
Voting interest/equity method (f)
Preferred membership interest and accrued
and unpaid preferred return (g)
Total investment in ALLO
Solar (h)
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)
Beneficial interest in federally insured
student loan securitizations (i)
Tax liens, affordable housing, and other
Total investments (not measured at fair
value)
Total investments
507
—
13,930
29,147
(2,241)
412,552
—
—
(2,097)
22,435
71,986
2,103
36,227
(5,057)
1,001,655
376,805
—
2
8,768
16,810
—
—
—
2,105
(2,954)
42,041
(2,967)
390,648
8,200
157,609
67,840
225,449
47,226
—
47,226
87,247
137,342
224,589
(42,457)
66,008
28,366
25,768
4,115
587,264
$ 1,588,919
—
144,795
14,912
159,707
50,291
847
51,138
129,396
228,916
358,312
(30,373)
—
27,954
30,377
5,177
602,292
$ 992,940
(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)
(c)
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.
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.
F - 37
(d)
(e)
(f)
(g)
(h)
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
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. 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. The Company accounts for its investment in Hudl using the measurement
alternative method, which requires it to adjust its carrying value of the investment for changes resulting from observable
market transactions. As a result of Hudl’s equity raise, the Company recognized a $51.0 million (pre-tax) gain during the
second quarter of 2020 to adjust its carrying value to reflect the May 2020 transaction value. 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.
David S. Graff, who has served on the Company's Board of Directors since May 2014, is CEO, co-founder, and a director
of Hudl.
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.
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.
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.
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, 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,
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, 2021 and 2020, the Company recognized pre-tax losses of $10.1
F - 38
NELNET, INC. 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
During the first quarter of 2020, the Company recorded a $26.3 million provision charge related to the Company's beneficial
interest in consumer loan securitizations. As of March 31, 2020, the Company's estimate of future cash flows from the
beneficial interest in consumer loan securitizations was lower than previously anticipated due to the expectation of increased
consumer loan defaults within such securitizations due to the distressed economic conditions resulting from the COVID-19
pandemic and recorded an allowance for credit losses of $26.3 million. Additionally, during the first quarter of 2020, the
Company recorded a $7.8 million impairment charge related to several of its venture capital investments. The Company
identified several venture capital investments, a majority of which were accounted for under the measurement alternative, that
were also negatively impacted by the distressed economic conditions resulting from the COVID-19 pandemic, and estimated
that the fair value of such investments was significantly reduced from their previous carrying value. During the fourth quarter of
2020 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.
8. Business Combination
HigherSchool Publishing Company ("HigherSchool")
On December 31, 2020, the Company acquired 100 percent of the outstanding stock of HigherSchool for total cash
consideration of $24.7 million. HigherSchool provides supplemental instructional services and educational professional
development for K-12 schools. The acquisition of HigherSchool has expanded the Company's professional development and
educational instruction services. The operating results of HigherSchool are included in the Education Technology, Services, and
Payment Processing operating segment from the date of acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
Cash and cash equivalents
Accounts receivable
Intangible assets
Excess cost over fair value of net assets acquired (goodwill)
Other liabilities
Net assets acquired
$
$
7
5,711
24,200
6,292
(11,510)
24,700
The acquired intangible assets were customer relationships of $24.2 million (10-year useful life).
The $6.3 million of goodwill was assigned to the Education Technology, Services, and Payment Processing operating segment
and is not expected to be deductible for tax purposes. The amount allocated to goodwill was primarily attributed to the deferred
tax liability related to the difference between the carrying amount and tax basis of acquired identifiable intangible assets.
The pro forma impacts of the HigherSchool acquisition on the Company's historical results prior to the acquisition were not
material.
F - 39
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
9. Intangible Assets
Intangible assets consist of the following:
Weighted average
remaining useful
life as of
December 31, 2021
(months)
As of December 31,
2021
2020
Amortizable intangible assets, net:
Customer relationships (net of accumulated amortization of $97,398 and
$83,419, respectively)
Computer software (net of accumulated amortization of $3,669 and $4,127,
respectively)
Trade names (net of accumulated amortization of $3,455)
Total - amortizable intangible assets, net
103
24
—
96
$
47,894
66,974
4,135
—
$
52,029
6,430
1,666
75,070
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. The Company will continue to amortize intangible assets
over their remaining useful lives. As of December 31, 2021, the Company estimates it will record amortization expense as
follows:
2022
2023
2024
2025
2026
2027 and thereafter
$
$
9,939
9,830
7,457
4,644
4,517
15,642
52,029
10. Goodwill
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)
Nelnet
Bank
Corporate
and Other
Activities
Balance as of December 31, 2019
$
23,639
Goodwill acquired
Deconsolidation of ALLO
—
—
Balance as of December 31, 2020 and 2021 $
23,639
70,278
6,292
—
76,570
21,112
—
(21,112)
—
41,883
—
—
41,883
—
—
—
—
—
—
—
—
Total
156,912
6,292
(21,112)
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. As a result, as this revenue stream winds down,
goodwill impairment will be triggered for the Asset Generation and Management reporting unit due to the passage of time and depletion of
projected cash flows stemming from its FFELP student loan portfolio. Management believes the elimination of new FFELP loan originations
will not have an adverse impact on the fair value of the Company's other reporting units.
F - 40
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
11. Property and Equipment
Property and equipment consisted of the following:
Computer equipment and software
Building and building improvements
Office furniture and equipment
Leasehold improvements
Transportation equipment
Land
Construction in progress
Accumulated depreciation
Total property and equipment, net
Useful life
1-5 years
5-48 years
1-10 years
1-15 years
5-10 years
—
—
As of December 31,
2021
2020
$
234,222
48,782
22,463
10,537
4,857
3,266
2,392
326,519
172,664
52,444
21,899
9,168
4,857
3,642
18,478
283,152
(207,106)
(159,625)
$
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.
Impairment charges
During the third quarter of 2021, the Company evaluated the use of office space as a large number of employees continue to
work from home due to COVID-19. As a result of this evaluation, the Company recorded a non-cash impairment charge of
$14.2 million during the three months ended September 30, 2021. The impairment charge of $13.2 million within its Loan
Servicing and Systems operating segment related primarily to building and building improvements. The impairment charge of
$1.0 million within its Corporate and Other Activities operating segment related to operating lease assets associated with leased
office space which the Company had fully ceased to use prior to the lease term end date. These impairment charges are included
in "impairment expense and provision for beneficial interest, net" in the consolidated statements of income.
12. Shareholders’ Equity
Classes of Common Stock
The Company's common stock is divided into two classes. The Class B common stock has ten votes per share and the Class A
common stock has one vote per share on all matters to be voted on by the Company's shareholders. Each Class B share is
convertible at any time at the holder's option into one Class A share. With the exception of the voting rights and the conversion
feature, the Class A and Class B shares are identical in terms of other rights, including dividend and liquidation rights.
Stock Repurchases
The Company has a stock repurchase program that expires on May 7, 2022 in which it can repurchase up to five million shares
of its Class A common stock on the open market, through private transactions, or otherwise. As of December 31, 2021, 2.6
million shares may still be purchased under the Company's stock repurchase program. Shares repurchased by the Company
during 2021, 2020, and 2019 are shown in the table below. In accordance with the corporate laws of the state in which the
Company is incorporated, all shares repurchased by the Company are legally retired upon acquisition by the Company.
Year ended December 31, 2021
Year ended December 31, 2020
Year ended December 31, 2019
Total shares
repurchased
Purchase price
(in thousands)
Average price of
shares repurchased
(per share)
713,274 $
58,111 $
1,594,394
726,273
73,358
40,411
81.47
46.01
55.64
F - 41
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
13. Earnings per Common Share
Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company applies
the two-class method in computing both basic and diluted earnings per share, which requires the calculation of separate
earnings per share amounts for common stock and unvested share-based awards. Unvested share-based awards that contain
nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock.
Year ended December 31,
2021
Unvested
restricted
stock
shareholders
Common
shareholders
Total
Common
shareholders
2020
Unvested
restricted
stock
shareholders
Total
Common
shareholders
2019
Unvested
restricted
stock
shareholders
Total
Numerator:
Net income
attributable to
Nelnet, Inc.
Denominator:
Weighted-average
common shares
outstanding - basic
and diluted
Earnings per share -
basic and diluted
$
386,865
6,421
393,286
347,451
4,992
352,443
139,946
1,857
141,803
37,943,032
629,769
38,572,801
38,506,351
553,237
39,059,588
39,523,082
524,320
40,047,402
$
10.20
10.20
10.20
9.02
9.02
9.02
3.54
3.54
3.54
Unvested restricted stock awards are the Company's only potential common shares and, accordingly, there were no awards that
were antidilutive and not included in average shares outstanding for the diluted earnings per share calculation.
As of December 31, 2021, a cumulative amount of 221,996 shares have been deferred by non-employee directors under the
Directors Stock Compensation Plan and will become issuable upon the termination of service by the respective non-employee
director on the board of directors. These shares are included in the Company's weighted average shares outstanding calculation.
14. Income Taxes
The Company is subject to income taxes in the United States, Canada, and Australia. Significant judgment is required in
evaluating the Company's tax positions and determining the provision for income taxes. During the ordinary course of business,
there are many transactions and calculations for which the ultimate tax determination is uncertain.
As required by the Income Taxes Topic of the FASB Accounting Standards Codification ("ASC Topic 740"), the Company
recognizes in the consolidated financial statements only those tax positions determined to be more likely than not of being
sustained upon examination, based on the technical merits of the positions. It further requires that a change in judgment related
to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.
As of December 31, 2021, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state
positions) was $19.7 million, which is included in “other liabilities” on the consolidated balance sheet. Of this total, $15.6
million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would
favorably affect the effective tax rate in future periods. The Company currently anticipates uncertain tax positions will decrease
by $7.2 million prior to December 31, 2022 as a result of a lapse of applicable statutes of limitations, settlements,
correspondence with examining authorities, and recognition or measurement considerations with federal and state jurisdictions;
however, actual developments in this area could differ from those currently expected. Of the anticipated $7.2 million decrease,
$5.7 million, if recognized, would favorably affect the Company's effective tax rate. A reconciliation of the beginning and
ending amount of gross unrecognized tax benefits follows:
Gross balance - beginning of year
Additions based on tax positions of prior years
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Reductions due to lapse of applicable statutes of limitations
Gross balance - end of year
Year ended December 31,
2020
2021
$
$
20,318
271
2,388
(1,002)
(2,297)
19,678
20,148
634
2,523
(69)
(2,918)
20,318
F - 42
NELNET, INC. 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 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.
The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and the Company or one of its
subsidiaries files income tax returns in various state, local, and foreign jurisdictions. The Company is no longer subject to U.S.
federal income tax examinations for years prior to 2018. The Company is no longer subject to U.S. state and local income tax
examinations by tax authorities prior to 2010. As of December 31, 2021, the Company has tax uncertainties that remain
unsettled in the jurisdiction of California (2010 through 2017).
The provision for income taxes consists of the following components:
Current:
Federal
State
Foreign
Total current provision
Deferred:
Federal
State
Foreign
Total deferred provision
Provision for income tax expense
Year ended December 31,
2021
2020
2019
$
$
55,239
4,792
169
60,200
46,145
9,647
(170)
55,622
115,822
82,832
9,815
239
92,886
7,269
718
(13)
7,974
100,860
38,931
3,546
239
42,716
(4,280)
(2,922)
(63)
(7,265)
35,451
The differences between the income tax provision computed at the statutory federal corporate tax rate and the financial
statement provision for income taxes are shown below:
Tax expense at federal rate
Increase (decrease) resulting from:
State tax, net of federal income tax benefit
Tax credits
Provision for uncertain federal and state tax matters
Other
Effective tax rate
Year ended December 31,
2021
2020
2019
21.0 %
21.0 %
21.0 %
3.0
(0.8)
(0.1)
(0.3)
22.8 %
2.8
(1.1)
(0.2)
(0.2)
22.3 %
2.5
(3.0)
(0.7)
0.2
20.0 %
F - 43
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:
As of December 31,
2021
2020
Deferred tax assets:
Deferred revenue
Student loans
Accrued expenses
State tax credit carryforwards
Stock compensation
Lease liability
Net operating losses
Basis in certain derivative contracts
Securitizations
Total gross deferred tax assets
Less state tax valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Partnership basis
Basis in certain derivative contracts
Depreciation
Debt and equity investments
Loan origination services
Intangible assets
Lease right of use asset
Securitization
Other
Total gross deferred tax liabilities
Net deferred tax asset (liability)
$
$
21,593
19,776
10,712
8,546
4,027
3,685
2,410
—
—
70,749
(2,084)
68,665
100,428
15,927
15,264
12,859
4,930
4,772
3,317
128
1,665
159,290
(90,625)
18,081
26,894
10,661
5,987
2,546
4,123
647
5,061
694
74,694
(569)
74,125
64,023
—
14,092
20,538
5,040
7,703
4,037
—
661
116,094
(41,969)
The Company has performed an evaluation of the recoverability of deferred tax assets. In assessing the realizability of the
Company's deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the period in which those temporary differences become deductible or eligible for utilization of a tax credit
carryforward. Management considers the scheduled reversals of deferred tax liabilities, projected taxable income, carry back
opportunities, and tax planning strategies in making the assessment of the amount of the valuation allowance. With the
exception of a portion of the Company's state net operating losses, it is management's opinion that it is more likely than not that
the deferred tax assets will be realized and should not be reduced by a valuation allowance. The amount of deferred tax assets
considered realizable could be reduced in the near term if estimates of future taxable income during the carry forward period are
reduced.
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.
F - 44
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
15. Segment Reporting
The Company's reportable operating segments include:
• Loan Servicing and Systems
• Education Technology, Services, and Payment Processing
• Communications
• Asset Generation and Management
• Nelnet Bank
The Company earns fee-based revenue through its Loan Servicing and Systems and Education Technology, Services, and
Payment Processing operating segments and earned revenue from its Communications operating segment prior to its
deconsolidation on December 21, 2020. In addition, the Company earns interest income on its loan portfolio in its Asset
Generation and Management operating segment. On November 2, 2020, the Company launched operations of Nelnet Bank.
Nelnet bank operates as an internet bank franchise focused primarily on the private education loan marketplace.
The Company’s operating segments are defined by the products and services they offer and the types of customers they serve,
and they reflect the manner in which financial information is currently evaluated by management. See note 1, "Description of
Business," for a description of each operating segment, including the primary products and services offered.
The management reporting process measures the performance of the Company’s operating segments based on the management
structure of the Company, as well as the methodology used by management to evaluate performance and allocate resources.
Executive management (the "chief operating decision maker") evaluates the performance of the Company’s operating segments
based on their financial results prepared in conformity with U.S. GAAP.
The accounting policies of the Company’s operating segments are the same as those described in the summary of significant
accounting policies. Intersegment revenues are charged by a segment that provides a product or service to another
segment. 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, 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.
Corporate and Other Activities
Other business activities and operating segments that are not reportable are combined and included in Corporate and Other
Activities. Corporate and Other Activities includes the following items:
•
•
•
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
Other product and service offerings that are not considered reportable operating segments including, but not limited to,
WRCM, the SEC-registered investment advisor subsidiary
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. 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
The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated
financial statements.
F - 45
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Year ended December 31, 2021
Education
Technology,
Services, and
Payment
Processing
Communications
(a)
Total interest income
Interest expense
Net interest income (expense)
Less (negative provision) provision for loan
losses
Net interest income after provision for loan
losses
Other income/expense:
Loan servicing and systems revenue
Intersegment revenue
Education technology, services, and
payment processing revenue
Communications revenue
Other
Gain on sale of loans
Gain from deconsolidation of ALLO
Impairment expense and provision for
beneficial interests, net
Derivative settlements, net
Derivative market value adjustments, net
Loan
Servicing
and Systems
$
137
94
43
—
43
486,363
33,956
—
—
3,307
—
—
(13,243)
—
—
1,075
—
1,075
—
1,075
—
12
338,234
—
—
—
—
—
—
—
Total other income/expense
510,383
338,246
Cost of services:
Cost to provide education technology,
services, and payment processing services
Cost to provide communications services
Total cost of services
Operating expenses:
Salaries and benefits
Depreciation and amortization
Other expenses
Intersegment expenses, net
Total operating expenses
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
—
—
—
108,660
—
108,660
297,406
112,046
25,649
52,720
72,206
447,981
62,445
(14,987)
47,458
11,404
19,318
15,180
157,948
72,713
(17,451)
55,262
Net loss attributable to noncontrolling
interests
—
—
Net income (loss) attributable to Nelnet,
Inc.
$
47,458
55,262
Asset
Generation
and
Management
506,901
172,918
333,983
Nelnet
Bank
Corporate
and Other
Activities
7,721
1,507
6,214
9,801
3,515
6,286
(13,220)
794
—
347,203
5,420
6,286
—
—
—
—
34,306
18,715
—
2,436
(21,367)
92,813
126,903
—
—
—
2,135
—
13,487
34,868
50,490
423,616
(101,668)
321,948
—
—
—
—
—
—
—
—
713
40,356
—
—
—
—
—
—
—
(5,553)
—
—
—
—
—
5,042
—
1,776
107
6,925
(792)
175
(617)
—
—
—
90,502
36,682
58,173
(88,393)
96,964
(55,875)
18,109
(37,766)
—
—
7,003
321,948
(617)
(30,763)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Eliminations
Total
(1,800)
(1,800)
—
—
—
523,835
176,233
347,602
(12,426)
360,028
—
486,363
(33,968)
—
—
—
—
—
—
—
—
—
338,234
—
78,681
18,715
—
(16,360)
(21,367)
92,813
—
—
—
—
—
—
(33,968)
(33,968)
—
—
—
—
—
108,660
—
108,660
507,132
73,741
145,469
—
726,342
502,105
(115,822)
386,283
7,003
393,286
713
34,803
(33,968)
977,079
Total assets as of December 31, 2021
$
296,618
443,788
—
18,965,371
535,948
1,963,032
(526,716)
21,678,041
(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, there are no operating results for
the (former) Communications operating segment in 2021.
F - 46
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Year ended December 31, 2020
Loan
Servicing
and Systems
Education
Technology,
Services, and
Payment
Processing
Communications
(a)
Asset
Generation
and
Management
Nelnet
Bank (b)
Corporate
and Other
Activities
Total interest income
Interest expense
$
Net interest income (expense)
Less (negative provision) provision for loan
losses
Net interest income after provision for loan
losses
Other income/expense:
Loan servicing and systems revenue
Intersegment revenue
Education technology, services, and
payment processing revenue
Communications revenue
Other
Gain on sale of loans
Gain from deconsolidation of ALLO
Impairment expense and provision for
beneficial interests, net
Derivative settlements, net
Derivative market value adjustments, net
436
121
315
—
315
451,561
36,520
—
—
9,421
—
—
—
—
—
3,036
54
2,982
—
2,982
—
20
282,196
—
373
—
—
—
—
—
2
—
2
—
2
—
—
—
76,643
1,561
—
—
—
—
—
Total other income/expense
497,502
282,589
78,204
611,474
328,157
283,317
63,029
220,288
—
—
—
—
7,189
33,023
—
(16,607)
3,679
(28,144)
(860)
—
—
—
1,747
—
15,806
39,172
56,725
414
41
373
330
43
—
—
—
—
48
—
—
—
—
—
48
—
—
—
36
—
135
—
171
(80)
20
(60)
—
5,775
3,178
2,597
—
2,597
—
—
—
—
38,969
—
258,588
(8,116)
—
—
—
—
—
84,741
29,043
59,320
(82,543)
90,561
201,477
(41,098)
160,379
2,817
Eliminations
Total
(1,480)
(1,480)
—
—
—
619,656
330,071
289,585
63,360
226,225
—
451,561
(36,540)
—
—
—
—
—
—
—
—
—
282,196
76,643
57,561
33,023
258,588
(24,723)
3,679
(28,144)
—
—
—
—
—
—
(36,540)
(36,540)
—
—
—
—
—
82,206
22,812
105,018
501,832
118,699
160,574
—
781,105
450,486
(100,860)
349,626
2,817
352,443
289,441
(36,540)
1,110,384
Cost of services:
Cost to provide education technology,
services, and payment processing services
Cost to provide communications services
Total cost of services
Operating expenses:
Salaries and benefits
Depreciation and amortization
Other expenses
Intersegment expenses, net
Total operating expenses
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Net loss attributable to noncontrolling
interests
Net income (loss) attributable to Nelnet,
Inc.
—
—
—
285,526
37,610
57,420
63,886
444,442
53,375
(12,810)
40,565
82,206
—
82,206
98,847
9,459
14,566
14,293
137,165
66,200
(15,888)
50,312
—
22,812
22,812
30,935
42,588
13,327
1,732
88,582
(33,188)
162,703
7,965
(39,049)
(25,223)
123,654
—
—
—
—
$
40,565
50,312
(25,223)
123,654
(60)
163,196
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.
F - 47
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Total interest income
Interest expense
Net interest income (expense)
Less (negative provision) provision for loan
losses
Net interest income after provision for loan
losses
Other income/expense:
Loan servicing and systems revenue
Intersegment revenue
Education technology, services, and
payment processing revenue
Communications revenue
Other
Gain on sale of loans
Gain from deconsolidation of ALLO
Impairment expense and provision for
beneficial interests, net
Derivative settlements, net
Derivative market value adjustments, net
Loan
Servicing
and Systems
$
2,031
115
1,916
—
Education
Technology,
Services, and
Payment
Processing
9,244
46
9,198
—
1,916
9,198
455,255
46,751
—
—
9,736
—
—
—
—
—
—
—
277,331
—
259
—
—
—
—
—
Cost of services:
Cost to provide education technology,
services, and payment processing services
Cost to provide communications services
Total cost of services
Operating expenses:
Salaries and benefits
Depreciation and amortization
Other expenses
Intersegment expenses, net
Total operating expenses
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Net loss attributable to noncontrolling
interests
Net income (loss) attributable to Nelnet,
Inc.
—
—
—
276,136
34,755
71,064
54,325
436,280
77,378
(18,571)
58,807
81,603
—
81,603
94,666
12,820
22,027
13,405
142,918
62,267
(14,944)
47,323
Year ended December 31, 2019
Asset
Generation
and
Management
Nelnet
Bank (a)
Corporate
and Other
Activities
Communications
Eliminations
Total
3
—
3
—
3
—
—
—
64,269
1,509
—
—
—
—
—
—
20,423
20,423
21,004
37,173
15,165
2,962
76,304
931,963
693,375
238,588
39,000
199,588
—
—
—
—
13,088
17,261
—
—
45,406
(76,195)
(440)
—
—
—
1,545
—
34,445
47,362
83,352
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,232
9,587
(355)
—
(355)
—
—
—
—
23,327
—
—
—
—
—
(3,796)
(3,796)
—
—
—
948,677
699,327
249,350
39,000
210,350
—
455,255
(46,751)
—
—
—
—
—
—
—
—
—
277,331
64,269
47,918
17,261
—
—
45,406
(76,195)
23,327
(46,751)
831,245
—
—
—
70,152
20,300
51,571
(71,303)
70,720
(47,748)
18,428
(29,320)
509
(28,811)
—
—
—
—
—
—
(46,751)
(46,751)
—
—
—
—
—
81,603
20,423
102,026
463,503
105,049
194,272
—
762,824
176,745
(35,451)
141,294
509
141,803
(30,946)
115,796
7,427
(23,519)
(27,792)
88,004
—
—
—
—
$
58,807
47,323
(23,519)
88,004
Total other income/expense
511,742
277,590
65,778
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.
F - 48
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
16. Disaggregated Revenue and Deferred Revenue
The following provides additional revenue recognition information for the Company’s fee-based reportable operating segments.
Loan Servicing and Systems Revenue
Loan servicing and systems revenue consists of the following items:
•
•
•
Loan servicing revenue - Loan servicing revenue consideration is determined from individual contracts with customers
and is calculated monthly based on the dollar value of loans, number of loans, number of borrowers serviced for each
customer, or number of transactions. Loan servicing requires a significant level of integration and the individual
components are not considered distinct. The Company performs various services, including, but not limited to, (i)
application processing, (ii) monthly servicing, (iii) conversion processing, and (iv) fulfillment services, during each
distinct service period. Even though the mix and quantity of activities that the Company performs each period may
differ, the nature of the activities are substantially the same. Revenue is allocated to the distinct service period,
typically a month, and recognized as control transfers as customers simultaneously receive and consume benefits.
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, 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. Computer and software consulting is also capable of being distinct and accounted
for as a separate performance obligation. Revenue allocated to computer and software consulting is recognized as
services are provided.
Outsourced services revenue - Outsourced services revenue consideration is determined from individual contracts with
customers and is calculated monthly based on the volume of services. Revenue is allocated to the distinct service
period, typically a month, and recognized as control transfers as customers simultaneously receive and consume
benefits.
The following table provides disaggregated revenue by service offering:
Year ended December 31,
2021
2020
2019
Government servicing - Nelnet
Government servicing - Great Lakes
Private education and consumer loan servicing
$
FFELP servicing
Software services
Outsourced services and other
167,579
193,214
47,302
18,281
34,600
25,387
Loan servicing and systems revenue
$
486,363
146,798
179,872
32,492
20,183
41,999
30,217
451,561
157,991
185,656
36,788
25,043
41,077
8,700
455,255
Education Technology, Services, and Payment Processing Revenue
Education technology, services, and payment processing revenue consists of the following items:
•
Tuition payment plan services - Tuition payment plan services consideration is determined from individual plan
agreements, which are governed by plan service agreements, and includes access to a remote hosted environment and
management of payment processing. The management of payment processing is considered a distinct performance
obligation when sold with the remote hosted environment. 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.
F - 49
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
•
•
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
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. The electronic transfer and
credit card processing consideration is recognized as revenue on a gross basis as the Company is the principal in the
delivery of the payment processing. The Company has concluded it is the principal as it controls the services before
delivery to the educational institution or business, it is primarily responsible for the delivery of the services, and it has
discretion in setting prices charged to its customers. In addition, the Company has the unilateral ability to accept or
reject a transaction based on criteria established by the Company. The Company is liable for the costs of processing
the transactions and records such costs within "cost to provide education technology, services, and payment processing
services."
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 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. Services
provided to the higher education market include payment technology and processing that allow for electronic billing
and payment of campus charges. These services are considered distinct performance obligations. Revenue for each
performance obligation is allocated to the distinct service period, typically a month or based on when each transaction
is completed, and recognized as control transfers as customers simultaneously receive and consume benefits.
The following table provides disaggregated revenue by service offering:
Tuition payment plan services
Payment processing
Education technology and services
Other
$
Education technology, services, and payment processing revenue
$
Year ended December 31,
2021
2020
2019
103,970
127,080
105,186
1,998
338,234
100,674
114,304
65,885
1,333
282,196
106,682
110,848
58,578
1,223
277,331
Cost to provide education technology, services, and payment processing services is primarily associated with providing
payment processing services. Interchange and payment network fees are charged by the card associations or payment networks.
Depending upon the transaction type, the fees are a percentage of the transaction’s dollar value, a fixed amount, or a
combination of the two methods. Other items included in cost to provide education technology, services, and payment
processing services include salaries and benefits and third-party professional service costs directly related to providing
professional development and educational instruction services to teachers, school leaders, and students.
Communications Revenue
Communications revenue is derived principally from internet, television, and telephone services and is billed as a flat fee in
advance of providing the service. Revenues for usage-based services, such as access charges billed to other telephone carriers
for originating and terminating long-distance calls on the Company's network, are billed in arrears. These are each considered
distinct performance obligations. Revenue is recognized monthly 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. The
Company recognizes revenue from these services in the period the services are rendered rather than billed. Revenue received or
receivable in advance of the delivery of services is included in deferred revenue. Earned but unbilled usage-based services are
recorded in accounts receivable.
F - 50
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
The following table provides disaggregated revenue by service offering and customer type. The amounts listed for 2020 reflect
activity prior to ALLO’s deconsolidation on December 21, 2020:
Internet
Television
Telephone
Other
Communications revenue
Residential revenue
Business revenue
Other
Communications revenue
Period from
January 1 2020 -
December 21, 2020
Year ended
December 31, 2019
$
$
$
$
48,362
17,091
11,037
153
76,643
58,029
18,038
576
76,643
38,239
16,196
9,705
129
64,269
48,344
15,689
236
64,269
Cost to provide communications services is primarily associated with television programming costs. 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 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.
Other 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
Income/gains from investments, net
$
91,593
ALLO preferred return
Investment advisory services
Borrower late fee income
Management fee revenue
Loss from ALLO voting membership interest investment
Loss from solar investments
(Loss) gain on debt repurchased
Other
Other income
8,427
7,773
3,444
3,307
(42,148)
(10,132)
(6,775)
23,192
78,681
$
56,402
386
10,875
5,194
9,421
(3,565)
(37,423)
1,924
14,347
57,561
8,356
—
2,941
12,884
9,736
—
(2,220)
136
16,085
47,918
•
•
Investment advisory fees - Investment advisory services are provided by WRCM, the Company's SEC-registered
investment advisor subsidiary, under various arrangements. The Company earns monthly fees based on the monthly
outstanding balance of investments and certain performance measures, which are recognized monthly as the
uncertainty of the transaction price is resolved.
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.
F - 51
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Deferred Revenue
Activity in the deferred revenue balance, which is included in "other liabilities" on the consolidated balance sheets, is shown
below:
Balance as of December 31, 2018
$
Deferral of revenue
Recognition of revenue
Balance as of December 31, 2019
Deferral of revenue
Recognition of revenue
Deconsolidation of ALLO
Business acquisition
Balance as of December 31, 2020
Deferral of revenue
Recognition of revenue
Loan
Servicing
and Systems
Education,
Technology,
Services, and
Payment
Processing
Communications
Corporate
and Other
Activities
4,413
3,585
30,556
93,373
2,551
36,024
1,602
3,505
Total
39,122
136,487
(5,286)
(91,855)
(35,343)
(3,479)
(135,963)
2,712
2,490
32,074
90,183
3,232
43,596
1,628
3,209
39,646
139,478
(3,824)
(90,409)
(42,903)
(3,286)
(140,422)
—
—
1,378
5,882
—
1,419
33,267
109,278
(4,844)
(105,801)
(3,925)
—
—
—
—
—
—
—
1,551
5,775
(3,925)
1,419
36,196
120,935
(5,316)
(115,961)
2,010
41,170
Balance as of December 31, 2021
$
2,416
36,744
17. Major Customer
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. 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.
18. Leases
The following table provides supplemental balance sheet information related to leases:
Operating lease ROU assets, which is included in "other assets" on the
consolidated balance sheet
Operating lease liabilities, which is included in "other liabilities" on the
consolidated balance sheet
$
$
14,314
15,899
18,301
18,733
As of December 31,
2021
2020
F - 52
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
The following table provides components of lease expense:
Rental expense, which is included in "other expenses" on the
consolidated statements of income (a)
Rental expense, which is included in "cost to provide communications
services" on the consolidated statements of income (a)
Total operating rental expense
$
$
9,386
—
9,386
11,885
1,997
13,882
11,171
1,609
12,780
Year ended December 31,
2021
2020
2019
(a) Includes short-term and variable lease costs, which are immaterial.
Weighted average remaining lease term and discount rate are shown below:
Weighted average remaining lease term (years)
Weighted average discount rate
Maturity of lease liabilities are shown below:
2022
2023
2024
2025
2026
2027 and thereafter
Total lease payments
Imputed interest
Total
As of December 31,
2021
2020
5.15
3.23 %
5.65
2.43 %
$
$
5,816
4,122
1,757
1,421
731
3,702
17,549
(1,650)
15,899
19. Defined Contribution Benefit Plan
The Company has a 401(k) savings plan that covers substantially all of its employees. Employees may contribute up to 100
percent of their pre-tax salary, subject to IRS limitations. The Company matches up to 100 percent on the first 3 percent of
contributions and 50 percent on the next 2 percent. 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.
F - 53
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
20. Stock Based Compensation Plans
Restricted Stock Plan
The following table summarizes restricted stock activity:
Non-vested shares at beginning of year
Granted
Vested
Canceled
Non-vested shares at end of year
Year ended December 31,
2021
2020
2019
552,456
249,096
(116,842)
(24,544)
660,166
549,845
151,639
(114,282)
(34,746)
552,456
532,336
186,281
(109,651)
(59,121)
549,845
As of December 31, 2021, there was $23.5 million of unrecognized compensation cost included in equity on the consolidated
balance sheet related to restricted stock, which is expected to be recognized as compensation expense in future periods as
shown in the table below.
2022
2023
2024
2025
2026
2027 and thereafter
$
8,795
5,563
3,615
2,267
1,355
1,907
$
23,502
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.
Employee Share Purchase Plan
The Company has an employee share purchase plan pursuant to which employees are entitled to purchase Class A common
stock from payroll deductions at a 15 percent discount from market value. During the years ended December 31, 2021, 2020,
and 2019, the Company recognized compensation expense of $0.2 million, $0.4 million, and $0.3 million, respectively, in
connection with issuing 24,205 shares, 36,687 shares, and 33,250 shares, respectively, under this plan, which is included in
"salaries and benefits" on the consolidated statements of income.
Non-employee Directors Compensation Plan
The Company has a compensation plan for non-employee directors pursuant to which non-employee directors can elect to
receive their annual retainer fees in the form of cash or Class A common stock. If a non-employee director elects to receive
Class A common stock, the number of shares of Class A common stock that are awarded is equal to the amount of the annual
retainer fee otherwise payable in cash divided by 85 percent of the fair market value of a share of Class A common stock on the
date the fee is payable. 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.
F - 54
NELNET, INC. 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.
The following table provides the number of shares awarded under this plan for the years ended December 31, 2021, 2020, and
2019.
Year ended December 31, 2021
Year ended December 31, 2020
Year ended December 31, 2019
Shares issued -
not deferred
Shares issued-
deferred
Total
9,958
12,740
9,588
12,072
16,513
11,212
22,030
29,253
20,800
As of December 31, 2021, a cumulative amount of 221,996 shares have been deferred by directors and will be issued upon the
termination of their service on the board of directors. These shares are included in the Company's weighted average shares
outstanding calculation.
21. Related Parties (dollar amounts in this note are not in thousands)
Transactions with Union Bank and Trust Company
Union Bank and Trust Company ("Union Bank") is controlled by Farmers & Merchants Investment Inc. (“F&M”), which owns
a majority of Union Bank's common stock and a minority share of Union Bank's non-voting non-convertible preferred stock.
Michael S. Dunlap, Executive Chairman and a member of the board of directors and a significant shareholder of the Company,
along with his spouse and children, owns or controls a significant portion of the stock of F&M, and Mr. Dunlap's sister, Angela
L. Muhleisen, along with her spouse and children, also owns or controls a significant portion of F&M stock. Mr. Dunlap serves
as a Director and Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen serves as a Director and Chief Executive
Officer of F&M and as a Director, Chairperson, President, and Chief Executive Officer of Union Bank. Union Bank is deemed
to have beneficial ownership of a significant number of shares of the Company because it serves in a capacity of trustee or
account manager for various trusts and accounts holding shares of the Company, and may share voting and/or investment power
with respect to such shares. Mr. Dunlap and Ms. Muhleisen beneficially own a significant percent of the voting rights of the
Company's outstanding common stock.
The Company has entered into certain contractual arrangements with Union Bank. These transactions are summarized below.
Loan Purchases
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 $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 $0.5 million, $0.7 million, and $0.6 million in 2021, 2020, and 2019, respectively.
Funding - Participation Agreements
The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has
agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The
Company uses this facility as a source to fund FFELP student loans. As of December 31, 2021 and 2020, $967.5 million and
$874.2 million, respectively, of loans were subject to outstanding participation interests held by Union Bank, as trustee, under
this agreement. The agreement automatically renews annually and is terminable by either party upon five business days' notice.
This agreement provides beneficiaries of Union Bank's grantor trusts with access to investments in interests in student loans,
F - 55
NELNET, INC. 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. Loans participated under this agreement have been accounted for by the Company as loan sales. Accordingly, the
participation interests sold are not included on the Company's consolidated balance sheets.
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 FFELP loan asset-backed securities. 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
401 Building, LLC (“401 Building”) is an entity that was established in 2015 for the sole purpose of acquiring, developing, and
owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50% of 401 Building. On May 1, 2018,
Union Bank, as lender, received a $1.5 million promissory note from 401 Building. The promissory note carries an interest rate
of 6.00% and has a maturity date of December 1, 2032.
330-333, LLC (“330-333”) is an entity that was established in 2016 for the sole purpose of acquiring, developing, and owning a
commercial real estate property in Lincoln, Nebraska. The Company owns 50% of 330-333. On October 22, 2019, Union Bank,
as lender, received a $162,000 promissory note from 330-333. The promissory note carries an interest rate of 6.00% and has a
maturity date of December 1, 2032.
12100.5 West Center, LLC ("West Center") is an entity that was established in 2016 for the sole purpose of acquiring,
developing, and owning a commercial real estate property in Omaha, Nebraska. The Company owns 33.33% of West Center.
On October 29, 2019, Union Bank, as lender, received a $2.9 million promissory note from West Center. The promissory note
carries an interest rate of 3.85% and has a maturity date of October 30, 2024.
Operating Cash Accounts
The majority of the Company's cash operating accounts are maintained at Union Bank. The Company also invests amounts in
the Short term Federal Investment Trust (“STFIT”) of the Student Loan Trust Division of Union Bank, which are included in
“cash and cash equivalents - held at a related party” and “restricted cash - due to customers” on the accompanying consolidated
balance sheets. 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
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.
529 Plan
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. Union Bank is entitled to a fee as program manager pursuant to
its program management agreement with the College Savings Plans. 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 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 not significant.
Additionally, Union Bank, as the program manager for the College Savings Plans, has agreed to allocate plan bank deposits to
Nelnet Bank. As of December 31, 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.
F - 56
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Lease Arrangements
Union Bank leases approximately 4,100 square feet in the Company's corporate headquarters building. Union Bank paid the
Company approximately $81,000, $80,000, and $79,000 for commercial rent and storage income during 2021, 2020, and 2019,
respectively. The lease agreement expires on June 30, 2023.
Other Fees Paid to Union Bank
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
During the years ended December 31, 2021, 2020, and 2019, Union Bank paid the Company approximately $342,000,
$317,000, and $317,000, respectively, under certain employee sharing arrangements. During the years ended December 31,
2020 and 2019, Union Bank paid the Company approximately $273,000, and $92,000, respectively, for communications
services.
401(k) Plan Administration
Union Bank administers the Company's 401(k) defined contribution plan. Fees paid to Union Bank to administer the plan are
paid by the plan participants and were approximately $766,000, $447,000, and $366,000 during the years ended December 31,
2021, 2020, and 2019, respectively.
Investment Services
Union Bank has established various trusts whereby Union Bank serves as trustee for the purpose of purchasing, holding,
managing, and selling investments in student loan asset-backed securities. 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 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
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.
WRCM also has management agreements with Union Bank under which it is designated to serve as investment advisor with
respect to the assets (principally Nelnet stock) within several trusts established by Mr. Dunlap and his spouse, and Ms.
Muhleisen and her spouse. Union Bank serves as trustee for the trusts. Per the terms of the agreements, Union Bank pays
WRCM five basis points of the aggregate value of the assets of the trusts as of the last day of each calendar quarter. As of
December 31, 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. For the years ended December 31,
2021, 2020, and 2019, the Company earned approximately $213,000, $141,000, and $144,000, respectively, of fees under these
agreements.
WRCM has established private investment funds for the primary purpose of purchasing, selling, investing, and trading, directly
or indirectly, in student loan asset-backed securities, and to engage in financial transactions related thereto. Mr. Dunlap, Jeffrey
R. Noordhoek (an executive officer of the Company), Ms. Muhleisen and her spouse, and WRCM have invested in certain of
these funds. Based upon the current level of holdings by non-affiliated limited partners, the management agreements provide
non-affiliated limited partners the ability to remove WRCM as manager without cause. WRCM earns 50 basis points (annually)
on the outstanding balance of the investments in these funds, of which WRCM pays approximately 50 percent of such amount
to Union Bank as custodian. As of December 31, 2021, the outstanding balance of investments in these funds was $138.0
million. The Company paid Union Bank $0.3 million in each of 2021, 2020, and 2019 as custodian of the funds.
F - 57
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Transactions with Agile Sports Technologies, Inc. (doing business as "Hudl")
David Graff, who has served on the Company's Board of Directors since 2014, is CEO, co-founder, and a director of Hudl. 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
19.3% 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. Dunlap's direct and indirect equity ownership interests in Hudl consist of preferred stock with certain
liquidation preferences that are considered substantive. Accordingly, for accounting purposes, the Company's and Mr. Dunlap's
equity ownership interests are not considered in-substance common stock and the Company is accounting for its equity
investment in Hudl using the measurement alternative method.
On July 26, 2019, the Company, as lender, received a $16.0 million promissory note from Hudl. The promissory note carried a
14 percent interest rate and was due 180 days from the date of issuance. In connection with this promissory note, the Company
entered into a Subordination Agreement with Union Bank, effective as of July 26, 2019, which required the Company to
subordinate its promissory note from Hudl to existing notes Union Bank holds from Hudl. The $16.0 million promissory note
from Hudl was paid in full to the Company in August 2019.
The Company makes investments to further diversify the Company both within and outside of its historical core education-
related businesses, including investments in real estate. Recent real estate investments have been focused on the development of
commercial properties in the Midwest, and particularly in Lincoln, Nebraska, where the Company's headquarters are located.
One investment includes the development of a building in Lincoln's Haymarket District that is the headquarters of Hudl, in
which Hudl is the primary tenant in this building.
Transaction with Assurity Life Insurance Company ("Assurity")
Thomas Henning, who has served on the Company's Board of Directors since 2003, 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. Mr. 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
Assurity (Board member Thomas Henning)
5,421,659
1,150,000
Ameritas Life Insurance Corp. (Board member James Abel)
5,000,000
—
—
—
29,491
16,027
9,615
46,154
68,869
11,538
—
—
—
North Central Bancorp, Inc. (directly and indirectly owned
by F&M, Mr. Dunlap, and Ms. Muhleisen)
Infovisa, Inc. (directly and indirectly owned by F&M,
Mr. Dunlap, and Ms. Muhleisen)
Farm and Home Insurance Agency, Inc. (indirectly owned
by Mr. Dunlap and Ms. Muhleisen)
2,466,667
1,533,333
2,068,868
14,958
15,385
68,869
562,600
—
116,667
383,333
—
—
1,923
—
962
3,846
—
—
F - 58
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
22. Fair Value
The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis.
There were no transfers into or out of level 1, level 2, or level 3 for the year ended December 31, 2021.
As of December 31, 2021
As of December 31, 2020
Level 1
Level 2
Total
Level 1
Level 2
Total
Assets:
Investments (a):
FFELP loan asset-backed securities - available-
for-sale
Private education loan asset-backed debt
securities - available for sale
Other debt securities - available for sale
Equity securities
Equity securities measured at net asset value (b)
Total investments
Total assets
$
—
494,682
494,682
—
346,502
346,502
—
412,552
412,552
100
22,335
63,154
—
22,435
63,154
8,832
—
103
10,114
—
2,002
—
—
2,105
10,114
31,927
63,254
929,569
1,001,655
10,217
348,504
390,648
$ 63,254
929,569
1,001,655
10,217
348,504
390,648
(a)
(b)
Investments represent investments recorded at fair value on a recurring basis. 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.
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.
F - 59
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance
sheets:
Financial assets:
Loans receivable
Accrued loan interest receivable
Cash and cash equivalents
Investments (at fair value)
Beneficial interest in loan securitizations
Restricted cash
Restricted cash – due to customers
Financial liabilities:
Bonds and notes payable
Accrued interest payable
Bank deposits
Due to customers
Financial assets:
Loans receivable
Accrued loan interest receivable
Cash and cash equivalents
Investments (at fair value)
Beneficial interest in loan securitizations
Restricted cash
Restricted cash – due to customers
Financial liabilities:
Bonds and notes payable
Accrued interest payable
Bank deposits
Due to customers
Fair value
Carrying value
Level 1
Level 2
Level 3
As of December 31, 2021
$
18,576,272
17,546,645
788,552
125,563
788,552
125,563
1,001,655
1,001,655
142,391
741,981
326,645
120,142
741,981
326,645
17,819,902
17,631,089
4,566
342,463
366,002
4,566
344,315
366,002
—
—
125,563
63,254
—
741,981
326,645
—
—
184,897
366,002
—
18,576,272
788,552
—
929,569
—
—
—
17,819,902
4,566
157,566
—
—
—
—
142,391
—
—
—
—
—
—
Fair value
Carrying value
Level 1
Level 2
Level 3
As of December 31, 2020
$
20,454,132
19,391,045
794,611
121,249
390,648
58,709
553,175
283,971
794,611
121,249
390,648
58,331
553,175
283,971
19,270,810
19,320,726
28,701
54,599
301,471
28,701
54,633
301,471
301,471
—
—
121,249
10,217
—
553,175
283,971
—
—
48,422
—
20,454,132
794,611
—
348,504
—
—
—
19,270,810
28,701
6,177
—
—
—
—
58,709
—
—
—
—
—
—
The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring
basis are previously discussed. The remaining financial assets and liabilities were estimated using the following methods and
assumptions:
Loans Receivable
Fair values for loans receivable were determined by modeling loan cash flows using stated terms of the assets and internally-
developed assumptions. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of
funds, required return on equity, and future interest rate and index relationships. A number of significant inputs into the models
are internally derived and not observable to market participants.
Beneficial Interest in Loan Securitizations
Fair values for beneficial interest in loan securitizations were determined by modeling securitization cash flows and internally-
developed assumptions. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of
funds, required return on equity, and future interest rate and index relationships. A number of significant inputs into the models
are internally derived and not observable to market participants.
F - 60
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Cash and Cash Equivalents, Restricted Cash, Restricted Cash – Due to Customers, Accrued Loan Interest Receivable,
Accrued Interest Payable, and Due to Customers
The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.
Bonds and Notes Payable
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
Some of the Company’s deposits are fixed-rate and the fair value for these deposits are estimated using discounted cash flows
based on rates currently offered for deposits of similar maturities. These are level 2 valuations. The fair value of the remaining
deposits equal the amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level
1 valuations.
Limitations
The fair value estimates are made at a specific point in time based on relevant market information and information about the
financial instruments. Because no market exists for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision. Therefore, the calculated fair value estimates in
many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a
current sale of the instrument. Changes in assumptions could significantly affect the estimates.
23. Legal Proceedings
The Company is subject to various claims, lawsuits, and proceedings that arise in the normal course of business. 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
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. On the basis of present information, anticipated insurance coverage, and advice received from counsel, it
is the opinion of the Company's management that the disposition or ultimate determination of these claims, lawsuits, and
proceedings will not have a material adverse effect on the Company's business, financial position, or results of operations.
F - 61
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
24. Condensed Parent Company Financial Statements
The following represents the condensed balance sheets as of December 31, 2021 and 2020 and condensed statements of income,
comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2021 for Nelnet, Inc.
The Company is limited in the amount of funds that can be transferred to it by its subsidiaries through intercompany loans,
advances, or cash dividends. These limitations relate to the restrictions by trust indentures under the lending subsidiaries debt
financing arrangements.
Balance Sheets
(Parent Company Only)
As of December 31, 2021 and 2020
2021
2020
Assets:
Cash and cash equivalents
Investments
Investment in subsidiary debt
Restricted cash
Investment in subsidiaries
Notes receivable from subsidiaries
Other assets
Total assets
Liabilities:
Notes payable, net of debt issuance costs
Other liabilities
Total liabilities
Equity:
Nelnet, Inc. shareholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Total Nelnet, Inc. shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and shareholders' equity
$
$
$
$
47,434
1,236,933
374,087
107,103
1,986,136
314
123,716
3,875,723
734,881
189,317
924,198
379
1,000
2,940,523
9,304
2,951,206
319
2,951,525
3,875,723
69,687
707,332
38,903
93,271
1,963,413
21,209
115,631
3,009,446
236,317
140,710
377,027
384
3,794
2,621,762
6,102
2,632,042
377
2,632,419
3,009,446
F - 62
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Statements of Income
(Parent Company Only)
Years ended December 31, 2021, 2020, and 2019
2021
2020
2019
Investment interest income
Interest expense on bonds and notes payable
Net interest income (expense)
Other income/expense:
Other income
(Loss) gain from debt repurchases, net
Equity in subsidiaries income
Gain from deconsolidation of ALLO
Impairment expense
Derivative market value adjustments and derivative settlements, net
Total other income/expense
Operating expenses
Income before income taxes
Income tax (expense) benefit
Net income
Net loss attributable to noncontrolling interest
$
12,455
3,515
8,940
45,291
(6,530)
313,451
—
(4,637)
71,446
419,021
7,632
420,329
(27,101)
393,228
58
Net income attributable to Nelnet, Inc.
$
393,286
4,110
3,179
931
48,688
1,962
132,101
258,588
(7,784)
(24,465)
409,090
14,006
396,015
(43,577)
352,438
5
352,443
4,925
9,588
(4,663)
8,384
136
182,346
—
—
(30,789)
160,077
19,561
135,853
5,950
141,803
—
141,803
Statements of Comprehensive Income
(Parent Company Only)
Years ended December 31, 2021, 2020, and 2019
Net income
Other comprehensive income (loss):
Net changes related to equity in subsidiaries other
comprehensive income
Net changes related to available-for-sale securities:
2021
2020
2019
$ 393,228
352,438
141,803
$
6,692
—
—
Unrealized holding (losses) gains arising during period, net
Reclassification of gains recognized in net income, net of
losses
(4,220)
(372)
6,637
(2,521)
Income tax effect
Other comprehensive income (loss)
Comprehensive income
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to Nelnet, Inc.
1,102
(3,490)
(986)
3,130
3,202
396,430
58
$ 396,488
3,130
355,568
5
355,573
(1,199)
—
288
(911)
(911)
140,892
—
140,892
F - 63
NELNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share amounts, unless otherwise noted)
Statements of Cash Flows
(Parent Company Only)
Years ended December 31, 2021, 2020, and 2019
Net income attributable to Nelnet, Inc.
Net loss attributable to noncontrolling interest
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization
Derivative market value adjustments
Payments to terminate derivative instruments, net
Proceeds from (payments to) clearinghouse - initial and variation margin, net
Equity in earnings of subsidiaries
Gain from deconsolidation of ALLO, including cash impact
Loss on (gain from) debt repurchases
Loss on (gain from) investments, net
Purchases of equity securities, net
Deferred income tax expense (benefit)
Non-cash compensation expense
Impairment expense
Other
Increase in other assets
Increase in other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Capital distributions/contributions from/to subsidiaries, net
Decrease in notes receivable from subsidiaries
Purchases of subsidiary debt, net
Purchases of other investments
Proceeds from other investments
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Payments on notes payable
Proceeds from issuance of notes payable
Payments of debt issuance costs
Dividends paid
Repurchases of common stock
Proceeds from issuance of common stock
Acquisition of noncontrolling interest
Issuance of noncontrolling interest
Net cash provided by (used in) financing activities
Net (decrease) increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, end of period
Cash disbursements made for:
Interest
Income taxes, net of refunds and credits
Noncash investing activities:
(Distribution from) contribution to subsidiary, net
F - 64
2021
393,286
$
2020
352,443
(58)
(5)
2019
141,803
—
393,228
352,438
141,803
591
(92,813)
—
91,294
(313,451)
—
6,530
721
(42,916)
47,423
10,673
4,637
—
(9,108)
1,784
98,593
534
28,144
—
(26,747)
(132,101)
(287,579)
(1,962)
(46,019)
—
23,747
16,739
7,784
(329)
(17,410)
26,009
(56,752)
(640,644)
(342,563)
133,286
294,578
20,895
(335,184)
(110,184)
129,899
168,555
99,830
21,343
(25,085)
(54,637)
8,564
(507,354)
(123,993)
(126,530)
619,259
(1,286)
(34,457)
(58,111)
1,465
—
—
400,340
(8,421)
162,958
154,537
(20,381)
190,520
(49)
(31,778)
(73,358)
1,653
(600)
194,985
260,992
80,247
82,711
162,958
467
76,195
(12,530)
(70,685)
(182,346)
—
(136)
(3,969)
—
(19,183)
6,781
—
(481)
(10,672)
29,384
(45,372)
—
—
449,602
14,421
—
(47,106)
27,926
444,843
(361,272)
60,000
(1,129)
(29,485)
(40,411)
1,552
—
878
(369,867)
29,604
53,107
82,711
2,301
18,659
2,577
29,685
9,501
17,672
(835)
49,066
—
$
$
$
$
APPENDIX A
Description of
The Federal Family Education Loan Program
The Federal Family Education Loan Program
The Higher Education Act provided for a program of federal insurance for student loans as well as reinsurance of student loans
guaranteed or insured by state agencies or private non-profit corporations.
The Higher Education Act authorized certain student loans to be insured and reinsured under the Federal Family Education
Loan Program (“FFELP”). The Student Aid and Fiscal Responsibility Act, enacted into law on March 30, 2010, as part of the
Health Care and Education Reconciliation Act of 2010, terminated the authority to make FFELP loans. As of July 1, 2010, no
new FFELP loans have been made.
Generally, a student was eligible for loans made under the Federal Family Education Loan Program only if he or she:
•
Had been accepted for enrollment or was enrolled in good standing at an eligible institution of higher education;
• Was carrying or planning to carry at least one-half the normal full-time workload, as determined by the institution,
for the course of study the student was pursuing;
• Was not in default on any federal education loans;
•
Had not committed a crime involving fraud in obtaining funds under the Higher Education Act which funds had
not been fully repaid; and
• Met other applicable eligibility requirements.
Eligible institutions included higher educational institutions and vocational schools that complied with specific federal
regulations. Each loan is evidenced by an unsecured note.
The Higher Education Act also establishes maximum interest rates for each of the various types of loans. These rates vary not
only among loan types, but also within loan types depending upon when the loan was made or when the borrower first obtained
a loan under the Federal Family Education Loan Program. The Higher Education Act allows lesser rates of interest to be
charged.
Types of loans
Four types of loans were available under the Federal Family Education Loan Program:
•
•
•
•
Subsidized Stafford Loans
Unsubsidized Stafford Loans
PLUS Loans
Consolidation Loans
These loan types vary as to eligibility requirements, interest rates, repayment periods, loan limits, eligibility for interest
subsidies, and special allowance payments. Some of these loan types have had other names in the past. References to these
various loan types include, where appropriate, their predecessors.
The primary loan under the Federal Family Education Loan Program is the Subsidized Stafford Loan. Students who were not
eligible for Subsidized Stafford Loans based on their economic circumstances might have obtained Unsubsidized Stafford
Loans. Graduate or professional students and parents of dependent undergraduate students might have obtained PLUS Loans.
Consolidation Loans were available to borrowers with existing loans made under the Federal Family Education Loan Program
and other federal programs to consolidate repayment of the borrower's existing loans. Prior to July 1, 1994, the Federal Family
Education Loan Program also offered Supplemental Loans for Students (“SLS Loans”) to graduate and professional students
and independent undergraduate students and, under certain circumstances, dependent undergraduate students, to supplement
their Stafford Loans.
A - 1
Subsidized Stafford Loans
General. Subsidized Stafford Loans were eligible for insurance and reinsurance under the Higher Education Act if the eligible
student to whom the loan was made was accepted or was enrolled in good standing at an eligible institution of higher education
or vocational school and carried at least one-half the normal full-time workload at that institution. Subsidized Stafford Loans
had limits as to the maximum amount which could be borrowed for an academic year and in the aggregate for both
undergraduate and graduate or professional study. Both annual and aggregate limitations excluded loans made under the PLUS
Loan Program. The Secretary of Education had discretion to raise these limits to accommodate students undertaking
specialized training requiring exceptionally high costs of education.
Subsidized Stafford Loans were made only to student borrowers who met the needs tests provided in the Higher Education Act.
Provisions addressing the implementation of needs analysis and the relationship between unmet need for financing and the
availability of Subsidized Stafford Loan Program funding have been the subject of frequent and extensive amendments.
Interest rates for Subsidized Stafford Loans. For Stafford Loans first disbursed to a “new” borrower (a “new” borrower is
defined for purposes of this section as one who had no outstanding balance on a FFELP loan on the date the new promissory
note was signed) for a period of enrollment beginning before January 1, 1981, the applicable interest rate is fixed at 7%.
For Stafford Loans first disbursed to a “new” borrower, for a period of enrollment beginning on or after January 1, 1981, but
before September 13, 1983, the applicable interest rate is fixed at 9%.
For Stafford Loans first disbursed to a “new” borrower, for a period of enrollment beginning on or after September 13, 1983,
but before July 1, 1988, the applicable interest rate is fixed at 8%.
For Stafford Loans first disbursed to a borrower with an outstanding balance on a PLUS, SLS, or Consolidation Loan, but not
on a Stafford Loan, where the new loan is intended for a period of enrollment beginning before July 1, 1988, the applicable
interest rate is fixed at 8%.
For Stafford Loans first disbursed before October 1, 1992, to a “new” borrower or to a borrower with an outstanding balance on
a PLUS, SLS, or Consolidation Loan, but not a Stafford Loan, where the new loan is intended for a period of enrollment
beginning on or after July 1, 1988, the applicable interest rate is as follows:
•
Original fixed interest rate of 8% for the first 48 months of repayment. Beginning on the first day of the 49th
month of repayment, the interest rate increased to a fixed rate of 10% thereafter. Loans in this category were
subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent
rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.25%. The
variable interest rate is adjusted annually on July 1. The maximum interest rate for loans in this category is 10%.
For Stafford Loans first disbursed on or after July 23, 1992, but before July 1, 1994, to a borrower with an outstanding Stafford
Loan made with a 7%, 8%, 9%, or 8%/10% fixed interest rate, the original, applicable interest rate is the same as the rate
provided on the borrower's previous Stafford Loan (i.e., a fixed rate of 7%, 8%, 9%, or 8%/10%). Loans in this category were
subject to excess interest rebates and have been converted to a variable interest rate based on the bond equivalent rate of the 91-
day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable interest rate is adjusted
annually on July 1. The maximum interest rate for a loan in this category is equal to the loan's previous fixed rate (i.e., 7%, 8%,
9%, or 10%).
For Stafford Loans first disbursed on or after October 1, 1992, but before December 20, 1993, to a borrower with an
outstanding balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, the original, applicable interest rate is
fixed at 8%. Loans in this category were subject to excess interest rebates and have been converted to a variable interest rate
based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus
3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 8%.
For Stafford Loans first disbursed on or after October 1, 1992, but before July 1, 1994, to a “new” borrower, the applicable
interest rate is variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before
the preceding June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan
in this category is 9%.
For Stafford Loans first disbursed on or after December 20, 1993, but before July 1, 1994, to a borrower with an outstanding
balance on a PLUS, SLS, or Consolidation Loan, but not on a Stafford Loan, the applicable interest rate is variable and is based
on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%.
The variable interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 9%.
A - 2
For Stafford Loans first disbursed on or after July 1, 1994, but before July 1, 1995, where the loan is intended for a period of
enrollment that includes or begins on or after July 1, 1994, the applicable interest rate is variable and is based on the bond
equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1, plus 3.1%. The variable
interest rate is adjusted annually on July 1. The maximum interest rate for a loan in this category is 8.25%.
For Stafford Loans first disbursed on or after July 1, 1995, but before July 1, 1998, the applicable interest rate is as follows:
• When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is
variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before
the preceding June 1, plus 2.5%. The variable interest rate is adjusted annually on July 1. The maximum interest
rate is 8.25%.
• When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is
based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding
June 1, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%.
For Stafford Loans first disbursed on or after July 1, 1998, but before July 1, 2006, the applicable interest rate is as follows:
• When the borrower is in school, in grace, or in an authorized period of deferment, the applicable interest rate is
variable and is based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before
the preceding June 1, plus 1.7%. The variable interest rate is adjusted annually on July 1. The maximum interest
rate is 8.25%.
• When the borrower is in repayment or in a period of forbearance, the applicable interest rate is variable and is
based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding
June 1, plus 2.3%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 8.25%.
For Stafford Loans first disbursed on or after July 1, 2006, the applicable interest rate is fixed at 6.80%. However, for Stafford
Loans for undergraduates, the applicable interest rate was reduced in phases for which the first disbursement was made on or
after:
•
•
July 1, 2008 and before July 1, 2009, the applicable interest rate is fixed at 6.00%,
July 1, 2009 and before July 1, 2010, the applicable interest rate is fixed at 5.60%.
Unsubsidized Stafford Loans
General. The Unsubsidized Stafford Loan program was created by Congress in 1992 for students who did not qualify for
Subsidized Stafford Loans due to parental and/or student income and assets in excess of permitted amounts. These students
were entitled to borrow the difference between the Stafford Loan maximum for their status (dependent or independent) and
their Subsidized Stafford Loan eligibility through the Unsubsidized Stafford Loan Program. The general requirements for
Unsubsidized Stafford Loans, including special allowance payments, are essentially the same as those for Subsidized Stafford
Loans. However, the terms of the Unsubsidized Stafford Loans differ materially from Subsidized Stafford Loans in that the
federal government will not make interest subsidy payments and the loan limitations were determined without respect to the
expected family contribution. The borrower is required to either pay interest from the time the loan is disbursed or the accruing
interest is capitalized when repayment begins at the end of a deferment or forbearance, when the borrower is determined to no
longer have a partial financial hardship under the Income-Based Repayment plan or when the borrower leaves the plan.
Unsubsidized Stafford Loans were not available before October 1, 1992. A student meeting the general eligibility requirements
for a loan under the Federal Family Education Loan Program was eligible for an Unsubsidized Stafford Loan without regard to
need.
Interest rates for Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to the same interest rate provisions as
Subsidized Stafford Loans, with the exception of Unsubsidized Stafford Loans first disbursed on or after July 1, 2008, which
retain a fixed interest rate of 6.80%.
A - 3
PLUS Loans
General. PLUS Loans were made to parents, and under certain circumstances spouses of remarried parents, of dependent
undergraduate students. Effective July 1, 2006, graduate and professional students were eligible borrowers under the PLUS
Loan program. For PLUS Loans made on or after July 1, 1993, the borrower could not have an adverse credit history as
determined by criteria established by the Secretary of Education. The basic provisions applicable to PLUS Loans are similar to
those of Stafford Loans with respect to the involvement of guarantee agencies and the Secretary of Education in providing
federal insurance and reinsurance on the loans. However, PLUS Loans differ significantly, particularly from the Subsidized
Stafford Loans, in that federal interest subsidy payments are not available under the PLUS Loan Program and special allowance
payments are more restricted.
Interest rates for PLUS Loans. For PLUS Loans first disbursed on or after January 1, 1981, but before October 1, 1981, the
applicable interest rate is fixed at 9%.
For PLUS Loans first disbursed on or after October 1, 1981, but before November 1, 1982, the applicable interest rate is fixed
at 14%.
For PLUS Loans first disbursed on or after November 1, 1982, but before July 1, 1987, the applicable interest rate is fixed at
12%.
Beginning July 1, 2001, for PLUS Loans first disbursed on or after July 1, 1987, but before October 1, 1992, the applicable
interest rate is variable and is based on the weekly average one-year constant maturity Treasury bill yield for the last calendar
week ending on or before June 26 preceding July 1 of each year, plus 3.25%. The variable interest rate is adjusted annually on
July 1. The maximum interest rate is 12%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were
based on the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.25%. The annual
(July 1) variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 12%. PLUS
Loans originally made at a fixed interest rate, which have been refinanced for purposes of securing a variable interest rate, are
subject to the variable interest rate calculation described in this paragraph.
Beginning July 1, 2001, for PLUS Loans first disbursed on or after October 1, 1992, but before July 1, 1994, the applicable
interest rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week
ending on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1.
The maximum interest rate is 10%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on
the 52-week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1)
variable interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 10%.
Beginning July 1, 2001, for PLUS Loans first disbursed on or after July 1, 1994, but before July 1, 1998, the applicable interest
rate is variable and is based on the weekly average one-year constant maturity Treasury yield for the last calendar week ending
on or before June 26 preceding July 1 of each year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The
maximum interest rate is 9%. Prior to July 1, 2001, PLUS Loans in this category had interest rates which were based on the 52-
week Treasury bill auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable
interest rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 9%.
For PLUS Loans first disbursed on or after July 1, 1998, but before July 1, 2006, the applicable interest rate is variable and is
based on the bond equivalent rate of the 91-day Treasury bill auctioned at the final auction before the preceding June 1 of each
year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 9%.
For PLUS Loans first disbursed on or after July 1, 2006, the applicable interest rate is fixed at 8.5%.
SLS Loans
General. SLS Loans were limited to graduate or professional students, independent undergraduate students, and dependent
undergraduate students, if the students' parents were unable to obtain a PLUS Loan. Except for dependent undergraduate
students, eligibility for SLS Loans was determined without regard to need. SLS Loans were similar to Stafford Loans with
respect to the involvement of guarantee agencies and the Secretary of Education in providing federal insurance and reinsurance
on the loans. However, SLS Loans differed significantly, particularly from Subsidized Stafford Loans, because federal interest
subsidy payments were not available under the SLS Loan Program and special allowance payments were more restricted. The
SLS Loan Program was discontinued on July 1, 1994.
A - 4
Interest rates for SLS Loans. The applicable interest rates on SLS Loans made before October 1, 1992, and on SLS Loans
originally made at a fixed interest rate, which have been refinanced for purposes of securing a variable interest rate, are
identical to the applicable interest rates described for PLUS Loans made before October 1, 1992.
For SLS Loans first disbursed on or after October 1, 1992, but before July 1, 1994, the applicable interest rate is as follows:
•
Beginning July 1, 2001, the applicable interest rate is variable and is based on the weekly average one-year
constant maturity Treasury yield for the last calendar week ending on or before June 26 preceding July 1 of each
year, plus 3.1%. The variable interest rate is adjusted annually on July 1. The maximum interest rate is 11%.
Prior to July 1, 2001, SLS Loans in this category had interest rates which were based on the 52-week Treasury bill
auctioned at the final auction held prior to the preceding June 1, plus 3.1%. The annual (July 1) variable interest
rate adjustment was applicable prior to July 1, 2001, as was the maximum interest rate of 11%.
Consolidation Loans
General. The Higher Education Act authorized a program under which certain borrowers could consolidate their various
federally insured education loans into a single loan insured and reinsured on a basis similar to Stafford Loans. Consolidation
Loans could be obtained in an amount sufficient to pay outstanding principal, unpaid interest, late charges, and collection costs
on federally insured or reinsured student loans incurred under the Federal Family Education Loan and Direct Loan Programs,
including PLUS Loans made to the consolidating borrower, as well as loans made under the Perkins Loan (formally National
Direct Student Loan Program), Federally Insured Student Loan (FISL), Nursing Student Loan (NSL), Health Education
Assistance Loan (HEAL), and Health Professions Student Loan (HPSL) Programs. To be eligible for a FFELP Consolidation
Loan, a borrower had to:
•
•
Have outstanding indebtedness on student loans made under the Federal Family Education Loan Program and/or
certain other federal student loan programs; and
Be in repayment status or in a grace period on loans to be consolidated.
Borrowers who were in default on loans to be consolidated had to first make satisfactory arrangements to repay the loans to the
respective holder(s) or had to agree to repay the consolidating lender under an income-based repayment arrangement in order to
include the defaulted loans in the Consolidation Loan. For applications received on or after January 1, 1993, borrowers could
add additional loans to a Consolidation Loan during the 180-day period following the origination of the Consolidation Loan.
A married couple who agreed to be jointly liable on a Consolidation Loan for which the application was received on or after
January 1, 1993, but before July 1, 2006, was treated as an individual for purposes of obtaining a Consolidation Loan.
Interest rates for Consolidation Loans. For Consolidation Loans disbursed before July 1, 1994, the applicable interest rate is
fixed at the greater of:
•
•
9%, or
The weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent.
For Consolidation Loans disbursed on or after July 1, 1994, based on applications received by the lender before November 13,
1997, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the loans consolidated,
rounded up to the nearest whole percent.
For Consolidation Loans on which the application was received by the lender between November 13, 1997, and September 30,
1998, inclusive, the applicable interest rate is variable according to the following:
•
•
For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL
loans, the variable interest rate is based on the bond equivalent rate of the 91-day Treasury bills auctioned at the
final auction before the preceding June 1, plus 3.1%. The variable interest rate for this portion of the
Consolidation Loan is adjusted annually on July 1. The maximum interest rate for this portion of the
Consolidation Loan is 8.25%.
For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the variable
interest rate is based on the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the
quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation Loan is adjusted
annually on July 1. There is no maximum interest rate for the portion of a Consolidation Loan that is represented
by HEAL Loans.
A - 5
For Consolidation Loans on which the application was received by the lender on or after October 1, 1998, the applicable
interest rate is determined according to the following:
•
•
For the portion of the Consolidation Loan which is comprised of FFELP, Direct, FISL, Perkins, HPSL, or NSL
loans, the applicable interest rate is fixed and is based on the weighted average of the interest rates on the non-
HEAL loans being consolidated, rounded up to the nearest one-eighth of one percent. The maximum interest rate
for this portion of the Consolidation Loan is 8.25%.
For the portion of the Consolidation Loan which is attributable to HEAL Loans (if applicable), the applicable
interest rate is variable and is based on the average of the bond equivalent rates of the 91-day Treasury bills
auctioned for the quarter ending June 30, plus 3.0%. The variable interest rate for this portion of the Consolidation
Loan is adjusted annually on July 1. There is no maximum interest rate for the portion of the Consolidation Loan
that is represented by HEAL Loans.
For a discussion of required payments that reduce the return on Consolidation Loans, see “Fees - Rebate fee on Consolidation
Loans” in this Appendix.
Interest rate during active duty
The Higher Education Opportunity Act of 2008 revised the Servicemembers Civil Relief Act to include FFEL Program loans.
Interest charges on FFEL Program loans are capped at 6% during a period of time on or after August 14, 2008, in which a
borrower has served or is serving on active duty in the Armed Forces, National Oceanic and Atmospheric Administration,
Public Health Services, or National Guard. The interest charge cap includes the interest rate in addition to any fees, service
charges, and other charges related to the loan. The cap is applicable to loans made prior to the date the borrower was called to
active duty.
Maximum loan amounts
Each type of loan was subject to certain limits on the maximum principal amount, with respect to a given academic year and in
the aggregate. Consolidation Loans were limited only by the amount of eligible loans to be consolidated. PLUS Loans were
limited to the difference between the cost of attendance and the other aid available to the student. Stafford Loans, subsidized
and unsubsidized, were subject to both annual and aggregate limits according to the provisions of the Higher Education Act.
Loan limits for Subsidized Stafford and Unsubsidized Stafford Loans. Dependent and independent undergraduate students
were subject to the same annual loan limits on Subsidized Stafford Loans; independent students were allowed greater annual
loan limits on Unsubsidized Stafford Loans. A student who had not successfully completed the first year of a program of
undergraduate education could borrow up to $3,500 in Subsidized Stafford Loans in an academic year. A student who had
successfully completed the first year, but who had not successfully completed the second year, could borrow up to $4,500 in
Subsidized Stafford Loans per academic year. An undergraduate student who had successfully completed the first and second
years, but who had not successfully completed the remainder of a program of undergraduate education, could borrow up to
$5,500 in Subsidized Stafford Loans per academic year.
Dependent students could borrow an additional $2,000 in Unsubsidized Stafford Loans for each year of undergraduate study.
Independent students could borrow an additional $6,000 of Unsubsidized Stafford Loans for each of the first two years and an
additional $7,000 for the third, fourth, and fifth years of undergraduate study. For students enrolled in programs of less than an
academic year in length, the limits were generally reduced in proportion to the amount by which the programs were less than
one year in length. A graduate or professional student could borrow up to $20,500 in an academic year where no more than
$8,500 was representative of Subsidized Stafford Loan amounts.
The maximum aggregate amount of Subsidized Stafford and Unsubsidized Stafford Loans, including that portion of a
Consolidation Loan used to repay such loans, which a dependent undergraduate student may have outstanding is $31,000 (of
which only $23,000 may be Subsidized Stafford Loans). An independent undergraduate student may have an aggregate
maximum of $57,500 (of which only $23,000 may be Subsidized Stafford Loans). The maximum aggregate amount of
Subsidized Stafford and Unsubsidized Stafford Loans, including the portion of a Consolidation Loan used to repay such loans,
for a graduate or professional student, including loans for undergraduate education, is $138,500, of which only $65,500 may be
Subsidized Stafford Loans. In some instances, schools could certify loan amounts in excess of the limits, such as for certain
health profession students.
Loan limits for PLUS Loans. For PLUS Loans made on or after July 1, 1993, the annual amounts of PLUS Loans were limited
only by the student's unmet need. There was no aggregate limit for PLUS Loans.
A - 6
Repayment
Repayment periods. Loans made under the Federal Family Education Loan Program, other than Consolidation Loans and loans
being repaid under an income-based or extended repayment schedule, must provide for repayment of principal in periodic
installments over a period of not less than five, nor more than ten years. A borrower may request, with concurrence of the
lender, to repay the loan in less than five years with the right to subsequently extend the minimum repayment period to five
years. Since the 1998 Amendments, lenders have been required to offer extended repayment schedules to new borrowers
disbursed on or after October 7, 1998 who accumulate outstanding FFELP Loans of more than $30,000, in which case the
repayment period may extend up to 25 years, subject to certain minimum repayment amounts. Consolidation Loans must be
repaid within maximum repayment periods which vary depending upon the principal amount of the borrower's outstanding
student loans, but may not exceed 30 years. For Consolidation Loans for which the application was received prior to January 1,
1993, the repayment period cannot exceed 25 years. Periods of authorized deferment and forbearance are excluded from the
maximum repayment period. In addition, if the repayment schedule on a loan with a variable interest rate does not provide for
adjustments to the amount of the monthly installment payment, the maximum repayment period may be extended for up to three
years.
Repayment of principal on a Stafford Loan does not begin until a student drops below at least a half-time course of study. For
Stafford Loans for which the applicable rate of interest is fixed at 7%, the repayment period begins between nine and twelve
months after the borrower ceases to pursue at least a half-time course of study, as indicated in the promissory note. For other
Stafford Loans, the repayment period begins six months after the borrower ceases to pursue at least a half-time course of study.
These periods during which payments of principal are not due are the “grace periods.”
In the case of SLS, PLUS, and Consolidation Loans, the repayment period begins on the date of final disbursement of the loan,
except that the borrower of a SLS Loan who also has a Stafford Loan may postpone repayment of the SLS Loan to coincide
with the commencement of repayment of the Stafford Loan.
During periods in which repayment of principal is required, unless the borrower is repaying under an income-based repayment
schedule, payments of principal and interest must in general be made at a rate of at least $600 per year, except that a borrower
and lender may agree to a lesser rate at any time before or during the repayment period. However, at a minimum, the payments
must satisfy the interest that accrues during the year. Borrowers may make accelerated payments at any time without penalty.
Income-sensitive repayment schedule. Since 1993, lenders have been required to offer income-sensitive repayment schedules,
in addition to standard and graduated repayment schedules, for Stafford, SLS, and Consolidation Loans. Beginning in 2000,
lenders have been required to offer income-sensitive repayment schedules to PLUS borrowers as well. Use of income-sensitive
repayment schedules may extend the maximum repayment period for up to five years if the payment amount established from
the borrower's income will not repay the loan within the maximum applicable repayment period.
Income-based repayment schedule. Effective July 1, 2009, a borrower in the Federal Family Education Loan Program or
Federal Direct Loan Program, other than a PLUS Loan made to a parent borrower or any Consolidation Loan that repaid one or
more parent PLUS loans, may qualify for an income-based repayment schedule regardless of the disbursement dates of the
loans if he or she has a partial financial hardship. A borrower has a financial hardship if the annual loan payment amount based
on a 10-year repayment schedule exceeds 15% of the borrower's adjusted gross income, minus 150% of the poverty line for the
borrower's actual family size. Interest will be paid by the Secretary of Education for subsidized loans for the first three years for
any borrower whose scheduled monthly payment is not sufficient to cover the accrued interest. Interest will capitalize at the end
of the partial financial hardship period, or when the borrower begins making payments under a standard repayment schedule.
The Secretary of Education will cancel any outstanding balance after 25 years if a borrower who has made payments under this
schedule meets certain criteria.
Deferment periods. No principal payments need be made during certain periods of deferment prescribed by the Higher
Education Act. For a borrower who first obtained a Stafford or SLS loan which was disbursed before July 1, 1993, deferments
are available:
•
•
•
During a period not exceeding three years while the borrower is a member of the Armed Forces, an officer in the
Commissioned Corps of the Public Health Service or, with respect to a borrower who first obtained a student loan
disbursed on or after July 1, 1987, or a student loan for a period of enrollment beginning on or after July 1, 1987,
an active duty member of the National Oceanic and Atmospheric Administration Corps;
During a period not exceeding three years while the borrower is a volunteer under the Peace Corps Act;
During a period not exceeding three years while the borrower is a full-time paid volunteer under the Domestic
Volunteer Act of 1973;
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•
•
•
•
•
•
•
•
•
•
During a period not exceeding three years while the borrower is a full-time volunteer in service which the
Secretary of Education has determined is comparable to service in the Peace Corp or under the Domestic
Volunteer Act of 1970 with an organization which is exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code;
During a period not exceeding two years while the borrower is serving an internship necessary to receive
professional recognition required to begin professional practice or service, or a qualified internship or residency
program;
During a period not exceeding three years while the borrower is temporarily totally disabled, as established by
sworn affidavit of a qualified physician, or while the borrower is unable to secure employment because of caring
for a dependent who is so disabled;
During a period not exceeding two years while the borrower is seeking and unable to find full-time employment;
During any period that the borrower is pursuing a full-time course of study at an eligible institution (or, with
respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student loan for a
period of enrollment beginning on or after July 1, 1987, is pursuing at least a half-time course of study);
During any period that the borrower is pursuing a course of study in a graduate fellowship program;
During any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by
the Secretary of Education;
During a period not exceeding six months per request while the borrower is on parental leave;
Only with respect to a borrower who first obtained a student loan disbursed on or after July 1, 1987, or a student
loan for a period of enrollment beginning on or after July 1, 1987, during a period not exceeding three years while
the borrower is a full-time teacher in a public or nonprofit private elementary or secondary school in a “teacher
shortage area” (as prescribed by the Secretary of Education), and during a period not exceeding one year for
mothers, with preschool age children, who are entering or re-entering the work force and who are paid at a rate of
no more than $1 per hour more than the federal minimum wage; and
For loans that are in repayment status on or before September 28, 2018, the borrower is eligible for deferment
during periods the borrower is undergoing treatment for cancer and the 6 months following treatment.
For a borrower who first obtained a loan on or after July 1, 1993, deferments are available:
•
•
•
•
•
•
During any period that the borrower is pursuing at least a half-time course of study at an eligible institution;
During any period that the borrower is pursuing a course of study in a graduate fellowship program;
During any period the borrower is receiving rehabilitation training services for qualified individuals, as defined by
the Secretary of Education;
During a period not exceeding three years while the borrower is seeking and unable to find full-time employment;
During a period not exceeding three years for any reason which has caused or will cause the borrower economic
hardship. Economic hardship includes working full-time and earning an amount that does not exceed the greater
of the federal minimum wage or 150% of the poverty line applicable to a borrower's family size and state of
residence. Additional categories of economic hardship are based on the receipt of payments from a state or
federal public assistance program, service in the Peace Corps, or until July 1, 2009, the relationship between a
borrower's educational debt burden and his or her income; and
For loans that are in repayment status on or before September 28, 2018, the borrower is eligible for deferment
during periods the borrower is undergoing treatment for cancer and the 6 months following treatment.
Effective October 1, 2007, a borrower serving on active duty during a war or other military operation or national emergency, or
performing qualifying National Guard duty during a war or other military operation or national emergency may obtain a
military deferment for all outstanding Title IV loans in repayment. For all periods of active duty service that include October 1,
2007 or begin on or after that date, the deferment period includes the borrower's service period and 180 days following the
demobilization date.
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A borrower serving on or after October 1, 2007, may receive up to 13 months of active duty student deferment after the
completion of military service if he or she meets the following conditions:
•
•
•
Is a National Guard member, Armed Forces reserves member, or retired member of the Armed Forces;
Is called or ordered to active duty; and
Is enrolled at the time of, or was enrolled within six months prior to, the activation in a program at an eligible
institution.
The active duty student deferment ends the earlier of when the borrower returns to an enrolled status, or at the end of 13
months.
PLUS Loans first disbursed on or after July 1, 2008, are eligible for the following deferment options:
•
•
A parent PLUS borrower, upon request, may defer the repayment of the loan during any period during which the
student for whom the loan was borrowed is enrolled at least half time. Also upon request, the borrower can defer
the loan for the six-month period immediately following the date on which the student for whom the loan was
borrowed ceases to be enrolled at least half time, or if the parent borrower is also a student, the date after he or she
ceases to be enrolled at least half time.
A graduate or professional student PLUS borrower may defer the loan for the six-month period immediately
following the date on which he or she ceases to be enrolled at least half time. This option does not require a
request and may be granted each time the borrower ceases to be enrolled at least half time.
Prior to the 1992 Amendments, only some of the deferments described above were available to PLUS and Consolidation Loan
borrowers. Prior to the 1986 Amendments, PLUS Loan borrowers were not entitled to certain deferments.
Forbearance periods. The Higher Education Act also provides for periods of forbearance during which the lender, in case of a
borrower's temporary financial hardship, may postpone any payments. A borrower is entitled to forbearance for a period not
exceeding three years while the borrower's debt burden under Title IV of the Higher Education Act (which includes the Federal
Family Education Loan Program) equals or exceeds 20% of the borrower's gross income. A borrower is also entitled to
forbearance while he or she is serving in a qualifying internship or residency program, a “national service position” under the
National and Community Service Trust Act of 1993, a qualifying position for loan forgiveness under the Teacher Loan
Forgiveness Program, or a position that qualifies him or her for loan repayment under the Student Loan Repayment Program
administered by the Department of Defense. In addition, administrative forbearances are provided in circumstances such as, but
not limited to, a local or national emergency, a military mobilization, or when the geographical area in which the borrower or
endorser resides has been designated a disaster area by the President of the United States or Mexico, the Prime Minister of
Canada, or by the governor of a state.
Interest payments during grace, deferment, forbearance, and applicable income-based repayment ("IBR") periods. The
Secretary of Education makes interest payments on behalf of the borrower for Subsidized loans while the borrower is in school,
grace, deferment, and during the first 3 years of the IBR plan for any remaining interest that is not satisfied by the IBR payment
amount. Interest that accrues during forbearance periods, and, if the loan is not eligible for interest subsidy payments during
school, grace, deferment, and IBR periods, may be paid monthly or quarterly by the borrower. At the appropriate time, any
unpaid accrued interest may be capitalized by the lender.
For a borrower who is eligible for the Cancer Treatment Deferment, interest that accrues during the period of deferment on any
subsidized loan is subsidized. For cancer treatment deferment periods on any Unsubsidized Stafford Loan, the interest during
such periods is not charged to the borrower.
Fees
Guarantee fee and Federal default fee. For loans for which the date of guarantee of principal was on or after July 1, 2006, a
guarantee agency was required to collect and deposit into the Federal Student Loan Reserve Fund a Federal default fee in an
amount equal to 1% of the principal amount of the loan. The fee was collected either by deduction from the proceeds of the
loan or by payment from other non-Federal sources. Federal default fees could not be charged to borrowers of Consolidation
Loans.
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Origination fee. Beginning with loans first disbursed on or after July 1, 2006, the maximum origination fee which could be
charged to a Stafford Loan borrower decreased according to the following schedule:
•
•
•
1.5% with respect to loans for which the first disbursement was made on or after July 1, 2007, and before July 1,
2008;
1.0% with respect to loans for which the first disbursement was made on or after July 1, 2008, and before July 1,
2009; and
0.5% with respect to loans for which the first disbursement was made on or after July 1, 2009, and before July 1,
2010.
A lender could charge a lesser origination fee to Stafford Loan borrowers as long as the lender did so consistently with respect
to all borrowers who resided in or attended school in a particular state. Regardless of whether the lender passed all or a portion
of the origination fee on to the borrower, the lender had to pay the origination fee owed on each loan it made to the Secretary of
Education.
An eligible lender was required to charge the borrower of a PLUS Loan an origination fee equal to 3% of the principal amount
of the loan. This fee had to be deducted proportionately from each disbursement of the PLUS Loan and had to be remitted to
the Secretary of Education.
Lender fee. The lender of any loan made under the Federal Family Education Loan Program was required to pay a fee to the
Secretary of Education. For loans made on or after October 1, 2007, the fee was equal to 1.0% of the principal amount of such
loan. This fee could not be charged to the borrower.
Rebate fee on Consolidation Loans. The holder of any Consolidation Loan made on or after October 1, 1993, was required to
pay to the Secretary of Education a monthly rebate fee. For loans made on or after October 1, 1993, from applications received
prior to October 1, 1998, and after January 31, 1999, the fee is equal to 0.0875% (1.05% per annum) of the principal and
accrued interest on the Consolidation Loan. For loans made from applications received during the period beginning on or after
October 1, 1998, through January 31, 1999, the fee is 0.0517% (0.62% per annum).
Interest subsidy payments
Interest subsidy payments are interest payments paid on the outstanding principal balance of an eligible loan before the time the
loan enters repayment and during deferment periods. The Secretary of Education and the guarantee agencies enter into interest
subsidy agreements whereby the Secretary of Education agrees to pay interest subsidy payments on a quarterly basis to the
holders of eligible guaranteed loans for the benefit of students meeting certain requirements, subject to the holders' compliance
with all requirements of the Higher Education Act. Subsidized Stafford Loans are eligible for interest payments. Consolidation
Loans for which the application was received on or after January 1, 1993, are eligible for interest subsidy payments.
Consolidation Loans made from applications received on or after August 10, 1993, are eligible for interest subsidy payments
only if all underlying loans consolidated were Subsidized Stafford Loans. Consolidation Loans for which the application is
received by an eligible lender on or after November 13, 1997, are eligible for interest subsidy payments on that portion of the
Consolidation Loan that repaid subsidized FFELP Loans or similar subsidized loans made under the Direct Loan Program. The
portion of the Consolidation Loan that repaid HEAL Loans is not eligible for interest subsidy, regardless of the date the
Consolidation Loan was made.
Special allowance payments
The Higher Education Act provides for special allowance payments (SAP) to be made by the Secretary of Education to eligible
lenders. The rates for special allowance payments are based on formulas that differ according to the type of loan, the date the
loan was originally made or insured, and the type of funds used to finance the loan (taxable or tax-exempt).
Stafford Loans. The effective formulas for special allowance payment rates for Subsidized Stafford and Unsubsidized Stafford
Loans are summarized in the following chart. The T-Bill Rate mentioned in the chart refers to the average of the bond
equivalent yield of the 91-day Treasury bills auctioned during the preceding quarter.
A - 10
Date of Loans
On or after October 1, 1981
On or after November 16, 1986
On or after October 1, 1992
On or after July 1, 1995
On or after July 1, 1998
On or after January 1, 2000
On or after October 1, 2007 and held by a Department of
Education certified not-for-profit holder or Eligible
Lender Trustee holding on behalf of a Department of
Education certified not-for-profit entity
All other loans on or after October 1, 2007
Annualized SAP Rate
T-Bill Rate less Applicable Interest Rate + 3.5%
T-Bill Rate less Applicable Interest Rate + 3.25%
T-Bill Rate less Applicable Interest Rate + 3.1%
T-Bill Rate less Applicable Interest Rate + 3.1%(1)
T-Bill Rate less Applicable Interest Rate + 2.8%(2)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 2.34%(3)(6)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 1.94%(4)(6)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 1.79%(5)(6)
(1) Substitute 2.5% in this formula while such loans are in-school, grace, or deferment status
(2) Substitute 2.2% in this formula while such loans are in-school, grace, or deferment status.
(3) Substitute 1.74% in this formula while such loans are in-school, grace, or deferment status.
(4) Substitute 1.34% in this formula while such loans are in-school, grace, or deferment status.
(5) Substitute 1.19% in this formula while such loans are in-school, grace, or deferment status.
(6) The Military Construction and Veterans Affairs and Related Agencies Appropriations Act of 2012 provides an
alternate calculation method that substitutes for 3 Month Commercial Paper Rate “1 Month London Inter Bank
Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released
by the British Banker's Association." This method has to be selected by each lender or beneficial holder before April 1,
2012 and applies to all loans held under the same lender identification number for the quarter beginning April 1, 2012
and all succeeding 3-month periods.
PLUS, SLS, and Consolidation Loans. The formula for special allowance payments on PLUS, SLS, and Consolidation Loans
are as follows:
Date of Loans
On or after October 1, 1992
On or after January 1, 2000
PLUS loans on or after October 1, 2007 and held by a
Department of Education certified not-for-profit holder or
Eligible Lender Trustee holding on behalf of a
Department of Education certified not-for-profit entity
All other PLUS loans on or after October 1, 2007
Consolidation loans on or after October 1, 2007 and held
by a Department of Education certified not-for-profit
holder or Eligible Lender Trustee holding on behalf of a
Department of Education certified not-for-profit entity
All other Consolidation loans on or after October 1, 2007
Annualized SAP Rate
T-Bill Rate less Applicable Interest Rate + 3.1%
3 Month Commercial Paper Rate less Applicable Interest
Rate + 2.64%(1)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 1.94%(1)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 1.79%(1)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 2.24%(1)
3 Month Commercial Paper Rate less Applicable Interest
Rate + 2.09%(1)
(1) The Military Construction and Veterans Affairs and Related Agencies Appropriations Act of 2012 provides an
alternate calculation method that substitutes for 3 Month Commercial Paper Rate “1 Month London Inter Bank
Offered Rate (LIBOR) for United States dollars in effect for each of the days in such quarter as compiled and released
by the British Banker's Association." This method has to be selected by each lender or beneficial holder before April 1,
2012 and applies to all loans held under the same lender identification number for the quarter beginning April 1, 2012
and all succeeding 3-month periods.
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
A - 11
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. The portion, if any, of a Consolidation Loan that repaid a HEAL Loan is ineligible for special
allowance payments.
Recapture of excess interest. The Higher Education Reconciliation Act of 2005 provides that, with respect to a loan for which
the first disbursement of principal was made on or after April 1, 2006, if the applicable interest rate for any three-month period
exceeds the special allowance support level applicable to the loan for that period, an adjustment must be made by calculating
the excess interest and crediting such amounts to the Secretary of Education not less often than annually. The amount of any
adjustment of interest for any quarter will be equal to:
•
•
•
The applicable interest rate minus the special allowance support level for the loan, multiplied by
The average daily principal balance of the loan during the quarter, divided by
Four.
Special allowance payments for loans financed by tax-exempt bonds. The effective formulas for special allowance payment
rates for Stafford Loans and Unsubsidized Stafford Loans differ depending on whether loans to borrowers were acquired or
originated with the proceeds of tax-exempt obligations. The formula for special allowance payments for loans financed with
the proceeds of tax-exempt obligations originally issued prior to October 1, 1993 is:
T-Bill Rate less Applicable Interest Rate + 3.5%
2
provided that the special allowance applicable to the loans may not be less than 9.5% less the Applicable Interest Rate. Special
rules apply with respect to special allowance payments made on loans
•
•
Originated or acquired with funds obtained from the refunding of tax-exempt obligations issued prior to October
1, 1993, or
Originated or acquired with funds obtained from collections on other loans made or purchased with funds obtained
from tax-exempt obligations initially issued prior to October 1, 1993.
Amounts derived from recoveries of principal on loans eligible to receive a minimum 9.5% special allowance payment may
only be used to originate or acquire additional loans by a unit of a state or local government, or non-profit entity not owned or
controlled by or under common ownership of a for-profit entity and held directly or through any subsidiary, affiliate or trustee,
which entity has a total unpaid balance of principal equal to or less than $100,000,000 on loans for which special allowances
were paid in the most recent quarterly payment prior to September 30, 2005. Such entities may originate or acquire additional
loans with amounts derived from recoveries of principal until December 31, 2010. Loans acquired with the proceeds of tax-
exempt obligations originally issued after October 1, 1993, receive special allowance payments made on other loans.
Beginning October 1, 2006, in order to receive 9.5% special allowance payments, a lender must undergo an audit arranged by
the Secretary of Education attesting to proper billing for 9.5% payments on only eligible “first generation” and “second
generation” loans. First generation loans include those loans acquired using funds directly from the issuance of the tax-exempt
obligation. Second-generation loans include only those loans acquired using funds obtained directly from first-generation
loans. Furthermore, the lender must certify compliance of its 9.5% billing on such loans with each request for payment.
Adjustments to special allowance payments. Special allowance payments and interest subsidy payments are reduced by the
amount which the lender is authorized or required to charge as an origination fee. In addition, the amount of the lender
origination fee is collected by offset to special allowance payments and interest subsidy payments. The Higher Education Act
provides that if special allowance payments or interest subsidy payments have not been made within 30 days after the Secretary
of Education receives an accurate, timely, and complete request, the special allowance payable to the lender must be increased
by an amount equal to the daily interest accruing on the special allowance and interest subsidy payments due the lender.
A - 12
PROXY
121 SOUTH 13TH STREET, SUITE 100
LINCOLN, NE 68508
p 402.458.2370
www.nelnet.com
April 7, 2022
Dear Shareholder:
On behalf of the Board of Directors, we are pleased to invite you to Nelnet, Inc.'s Annual Shareholders' Meeting to be
held on Thursday, May 19, 2022 at 8:30 a.m. Central Time at the Hudl Building, 600 P Street, Suite 200, Lincoln,
Nebraska. The notice of the meeting and proxy statement on the following pages contain information about the
meeting.
Your participation in the Annual Meeting is important. We hope that you will be able to attend the meeting and
encourage you to read our annual report and proxy statement. At the meeting, members of the Company's management
team will discuss the Company's results of operations and business plans and will be available to answer your
questions. Consistent with the prior two Annual Meetings, we are again offering a hybrid virtual meeting format
whereby shareholders may attend, participate
the Annual Meeting online at http://
www.virtualshareholdermeeting.com/NNI2022. Regardless of whether you plan to attend, we urge you to vote your
proxy at your earliest convenience.
in, and vote at
Thank you for your support of Nelnet, Inc.
Sincerely,
Michael S. Dunlap
Executive Chairman of the Board of Directors
Nelnet, Inc.
121 South 13th Street, Suite 100, Lincoln, Nebraska 68508
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 7, 2022
TIME AND DATE
8:30 a.m., Central Time, on Thursday, May 19, 2022
PLACE
Hudl Building
600 P Street, Suite 200
Lincoln, Nebraska 68508
In addition to shareholders attending in person, we are again offering a hybrid virtual meeting
format whereby shareholders may attend, participate in, and vote at the meeting online at http://
www.virtualshareholdermeeting.com/NNI2022.
ITEMS OF BUSINESS
(1) To elect three Class II directors nominated by the Board of Directors to serve for three-year
terms until the 2025 Annual Meeting of Shareholders
(2) To ratify the appointment of KPMG LLP as the Company's independent registered public
accounting firm for 2022
(3) To conduct an advisory vote to approve the Company's executive compensation
(4) To approve an amendment to the Company’s articles of incorporation to add a federal
forum selection provision for legal actions under the Securities Act of 1933
(5) To transact such other business as may be properly introduced
RECORD DATE
You can vote if you were a shareholder as of the close of business on March 25, 2022
OTHER INFORMATION The Letter to Shareholders from the Chief Executive Officer and our 2021 Annual Report on
Form 10-K, which are not part of the proxy soliciting materials, are enclosed.
PROXY VOTING
The Board of Directors solicits your proxy and asks you to vote your proxy at your earliest
convenience to be sure your vote is received and counted. Instructions on how to vote are
contained in our proxy statement and in the Notice of Internet Availability of Proxy Materials.
Whether or not you plan to attend the meeting, we ask you to vote over the Internet as
described in those materials as promptly as possible in order to make sure that your shares
will be voted in accordance with your wishes at the meeting. Alternatively, if you requested
a copy of the proxy/voting instruction card by mail, you may mark, sign, date, and return
the proxy/voting instruction card in the envelope provided. The Board of Directors
encourages you to attend the meeting virtually or in person. If you attend the meeting virtually
or in person, you may vote by proxy or you may revoke your proxy and cast your vote virtually
or in person, respectively. We recommend you vote by proxy even if you plan to attend the
meeting.
By Order of the Board of Directors,
William J. Munn
Corporate Secretary
Nelnet, Inc.
NELNET, INC.
2022 PROXY STATEMENT
TABLE OF CONTENTS
PROXY STATEMENT
General Information ................................................................................................................................................................................. 1
VOTING ........................................................................................................................................................................................................ 2
PROPOSAL 1 - ELECTION OF DIRECTORS ........................................................................................................................................... 5
Class II Director Nominees to Hold Office for a Term Expiring at the 2025 Annual Meeting of Shareholders ..................................... 7
Class III Directors Continuing in Office for a Term Expiring at the 2023 Annual Meeting of Shareholders ......................................... 8
Class I Directors Continuing in Office for a Term Expiring at the 2024 Annual Meeting of Shareholders ............................................ 9
CORPORATE GOVERNANCE
Code of Business Conduct and Ethics for Directors, Officers, and Employees ...................................................................................... 11
Board Composition and Director Independence ...................................................................................................................................... 11
Family Relationships ................................................................................................................................................................................ 11
Governance Guidelines of the Board ....................................................................................................................................................... 11
Shareholder Communications with the Board ......................................................................................................................................... 12
Board Diversity ........................................................................................................................................................................................ 12
The Board's Role in Risk Oversight ......................................................................................................................................................... 12
Board Leadership Structure ...................................................................................................................................................................... 13
Board Committees .................................................................................................................................................................................... 13
Meetings of the Board .............................................................................................................................................................................. 15
Attendance at Annual Meetings of Shareholders ..................................................................................................................................... 15
Director Compensation Overview ............................................................................................................................................................ 16
Director Compensation Elements ............................................................................................................................................................. 16
Other Compensation ................................................................................................................................................................................. 16
Director Compensation Table for Fiscal Year 2021 ................................................................................................................................ 17
Share Ownership Guidelines for Board Members ................................................................................................................................... 17
EXECUTIVE OFFICERS ............................................................................................................................................................................. 18
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis .................................................................................................................................................. 18
People Development and Compensation Committee Report ................................................................................................................... 26
Summary Compensation Table for Fiscal Years 2021, 2020, and 2019 .................................................................................................. 27
Grants of Plan-Based Awards Table for Fiscal Year 2021 ...................................................................................................................... 28
Outstanding Equity Awards at Fiscal Year-End Table (As of December 31, 2021) ............................................................................... 29
Stock Vested Table for Fiscal Year 2021 ................................................................................................................................................. 29
Stock Option, Stock Appreciation Right, Long-Term Incentive, and Defined Benefit Plans ................................................................. 29
Potential Payments Upon Termination or Change-in-Control ................................................................................................................. 29
Pay Ratio Disclosure ................................................................................................................................................................................ 29
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS
Stock Ownership ...................................................................................................................................................................................... 31
Delinquent Section 16(a) Reports ............................................................................................................................................................ 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................................................................................................... 42
AUDIT COMMITTEE REPORT ................................................................................................................................................................. 49
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ........... 50
Independent Accountant Fees and Services ............................................................................................................................................. 51
PROPOSAL 3 - ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION ........................................................................... 51
PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION TO ADD A FEDERAL FORUM
SELECTION PROVISION FOR LEGAL ACTIONS UNDER THE SECURITIES ACT OF 1933 .......................................................... 53
OTHER SHAREHOLDER MATTERS
Householding ........................................................................................................................................................................................... 55
Other Business .......................................................................................................................................................................................... 56
Shareholder Proposals for 2023 Annual Meeting .................................................................................................................................... 56
MISCELLANEOUS ...................................................................................................................................................................................... 56
APPENDIX A - FORM OF ARTICLES OF AMENDMENT TO THIRD AMENDED AND RESTATED ARTICLES OF
INCORPORATION OF NELNET, INC. FOR FEDERAL FORUM SELECTION PROVISION AMENDMENT ................................... A-1
Nelnet, Inc.
121 South 13th Street
Suite 100
Lincoln, Nebraska 68508
PROXY STATEMENT
General Information
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Nelnet, Inc. (the
“Company”) for the 2022 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Thursday, May 19, 2022, at
8:30 a.m., Central Time, at the Hudl Building, 600 P Street, Suite 200, Lincoln, Nebraska 68508. The Annual Meeting will be
held for the purposes set forth in the notice of such Annual Meeting on the cover page hereof.
In addition to in person, we are again offering a hybrid virtual meeting format whereby shareholders may attend, participate in,
and vote at the Annual Meeting online at http://www.virtualshareholdermeeting.com/NNI2022.
Important Notice Regarding the Availability of Proxy Materials for the
2022 Annual Meeting of Shareholders to be held on May 19, 2022
Our notice of annual meeting and proxy statement, 2021 annual report on Form 10-K, letter to shareholders, electronic
proxy card, and other annual meeting materials are available on the Internet at www.proxyvote.com. We intend to begin
mailing our Notice of Internet Availability of Proxy Materials to shareholders on or about April 7, 2022. At that time, we also
will begin mailing paper copies of our proxy materials to shareholders who requested them. Additional information on how
these materials will be distributed is provided below.
Under U.S. Securities and Exchange Commission (the “SEC”) rules, we are allowed to mail a notice to our shareholders
informing them that our proxy statement, annual report on Form 10-K, electronic proxy card, and related materials are available
for viewing, free of charge, on the Internet. Shareholders may then access these materials and vote their shares over the Internet,
or request delivery of a full set of proxy materials by mail or email. These rules give us the opportunity to serve shareholders
more efficiently by making the proxy materials available online and reducing the environmental impact and costs associated
with printing and physical delivery. We are utilizing this process for the 2022 Annual Meeting. We intend to begin mailing the
required notice, called the Notice of Internet Availability of Proxy Materials (the "Notice"), to shareholders on or about April 7,
2022. The proxy materials will be posted on the Internet, at www.proxyvote.com, no later than the day we begin mailing the
Notice. If you receive a Notice, you will not receive a paper or email copy of the proxy materials unless you request one in the
manner set forth in the Notice.
The Notice contains important information, including:
•
•
•
•
The date, time, and location of the Annual Meeting, and information regarding virtual participation in the Annual
Meeting online
A brief description of the matters to be voted on at the meeting
A list of the proxy materials available for viewing at www.proxyvote.com and the control number you will need to
use to access the site
Instructions on how to access and review the proxy materials online, how to vote your shares over the Internet,
and how to get a paper or email copy of the proxy materials if that is your preference
You may vote online at the Annual Meeting through the virtual meeting process, in person at the Annual Meeting, or you may
vote by proxy. To obtain directions to attend the Annual Meeting and vote in person, please call 402-458-3038. Giving the
Board of Directors your proxy means that you authorize representatives of the Board to vote your shares at the Annual Meeting
in the manner you specify. We recommend that you vote by proxy even if you plan to attend the Annual Meeting. If your share
ownership is registered directly, you may refer to voting instructions contained in this proxy statement and in the Notice. If your
share ownership is beneficial (that is, your shares are held in the name of a bank, broker, or other nominee, referred to as being
held in “street name”), your broker will issue you a voting instruction form that you use to instruct them how to vote your
shares. Your broker must follow your voting instructions. Although most brokers and nominees offer mail, telephone, and
Internet voting, availability and specific procedures will depend on their voting arrangements.
Your vote is important. For this reason, the Board of Directors is requesting that you permit your common stock to be voted by
proxy at the Annual Meeting. This proxy statement contains important information for you to consider when deciding how to
vote on the matters brought before the Annual Meeting. Please read it carefully.
1
VOTING
Who Can Vote
You may vote if you owned Nelnet, Inc. Class A common stock, par value $0.01 per share, or Class B common stock, par value
$0.01 per share, as of the close of business on March 25, 2022 (the “record date”). At the close of business on March 25, 2022,
27,184,805 and 10,674,892 shares of the Company's Class A and Class B common stock, respectively, were outstanding and
eligible to vote. The Class A common stock is listed on the New York Stock Exchange under the symbol “NNI.” The Class B
common stock is not listed on any exchange or market. At the Annual Meeting, each Class A and Class B shareholder will be
entitled to one vote and 10 votes, respectively, in person or by proxy, for each share of Class A and Class B common stock,
respectively, owned of record as of the record date. The stock transfer books of the Company will not be closed. The Secretary
of the Company will make a complete record of the shareholders entitled to vote at the Annual Meeting available for inspection
by any shareholder beginning two business days after the Notice of the Annual Meeting is given and continuing through the
Annual Meeting, at the Company's headquarters in Lincoln, Nebraska at any time during regular business hours. Any
shareholder who would like to inspect such records should call Investor Relations at 402-458-3038 to request access and
schedule an appointment. Such records will also be available for inspection at the Annual Meeting, and will also be available
for review by shareholders during the Annual Meeting through the virtual meeting website.
As a matter of policy, the Company keeps private all proxies, ballots, and voting tabulations that identify individual
shareholders. Such documents are available for examination only by certain representatives associated with processing proxy
voting instructions and tabulating the vote. No vote of any shareholder is disclosed, except as may be necessary to meet legal
requirements.
How You Vote
You may vote your shares prior to the Annual Meeting by following the instructions provided in the Notice, this proxy
statement, and the voter website, www.proxyvote.com. If you requested a paper copy of the proxy materials, voting instructions
are also contained on the proxy card enclosed with those materials.
•
If you are a registered shareholder, there are three ways to vote your shares before the meeting:
By Internet (www.proxyvote.com): Use the Internet to transmit your voting instructions until 11:59 p.m. EDT
on May 18, 2022 for shares held directly, and by 11:59 p.m. EDT on May 16, 2022 for shares held in the
Nelnet, Inc. Employee Share Purchase Plan. Have your Notice of Internet Availability of Proxy Materials
with you when you access the website and follow the instructions to obtain your records and to create an
electronic voting instruction form.
By mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card.
There is no charge for requesting a paper copy of the materials. To be valid, proxy cards must be received
before the start of the Annual Meeting. If you want to receive a paper or e-mail copy of the proxy materials,
please choose one of the following methods to make your request:
•
•
•
By internet:
By telephone:
By e-mail*:
www.proxyvote.com
1-800-579-1639
sendmaterial@proxyvote.com
*
If requesting materials by e-mail, please send a blank e-mail with your 16-Digit Control Number in the
subject line.
By telephone (1-800-690-6903): Use any touch-tone phone to transmit your voting instructions until
11:59 p.m. EDT on May 18, 2022 for shares held directly, and by 11:59 p.m. EDT on May 16, 2022 for
shares held in the Nelnet, Inc. Employee Share Purchase Plan. Have your proxy card with you when you call
and follow the instructions.
•
If your shares are held in street name, your broker, bank, or other holder of record may provide you with a
Notice of Internet Availability of Proxy Materials. Follow the instructions on the Notice to access our proxy
materials and vote online or to request a paper or e-mail copy of our proxy materials. If you receive these
materials in paper form, the materials will include a voting instruction card so you can instruct your broker,
bank, or other holder of record how to vote your shares.
You may vote your shares by attending the Annual Meeting through the virtual meeting process or in person. If you are a
registered shareholder, you can vote at the meeting any shares that were registered in your name as the shareholder of record as
of the record date. If your shares are held in street name, you are not a holder of record of those shares and cannot vote them at
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the Annual Meeting unless you have a legal proxy from the holder of record. If you plan to attend in person and vote your street
name shares at the Annual Meeting, you should request a legal proxy from your broker, bank, or other holder of record and
bring it with you to the meeting along with proof of identification.
If you plan to vote your shares in person at the Annual Meeting, please pick up a ballot at the registration table upon your
arrival. You may then submit your ballot to a meeting usher at the time designated during the meeting. Ballots will not be
distributed during the meeting. Shares may not be voted after the final vote at the meeting.
Even if you plan to attend the Annual Meeting through the virtual meeting process or in person, we encourage you to vote your
shares by proxy.
Description of Virtual Meeting Process
Shareholders can attend and participate in the Annual Meeting via the Internet through the virtual meeting process, and may do
so by visiting http://www.virtualshareholdermeeting.com/NNI2022. The Annual Meeting will begin promptly at 8:30 a.m.
Central Time on May 19, 2022 and online check-in will begin at 8:15 a.m. Central Time. Please allow ample time for the online
check-in procedures. Interested persons who were not shareholders as of the close of business on the record date may listen, but
not participate, in the Annual Meeting via http://www.virtualshareholdermeeting.com/NNI2022. In order to attend, participate
in, and vote at the Annual Meeting through the virtual meeting process, registered shareholders will need to use their 16-digit
control number received with their proxy card or Notice to log into http://www.virtualshareholdermeeting.com/NNI2022 and
follow the provided instructions. Holders of shares in street name who do not have a control number may gain access to the
Annual Meeting by logging into their brokerage firm’s web site and selecting the shareholder communications mailbox to link
through to the Annual Meeting. Instructions should also be provided on the voting instruction card provided by their broker,
bank, or other nominee. Shareholders who wish to submit a question may do so during the Annual Meeting through http://
www.virtualshareholdermeeting.com/NNI2022.
We have structured our hybrid virtual annual meeting to provide shareholders who attend virtually with the same rights as those
shareholders who attend the meeting in person, including the ability to vote shares electronically during the meeting and ask
questions in accordance with the rules of conduct for the meeting. The hybrid virtual meeting platform is supported across
browsers and devices running the most updated version of applicable software and plug-ins. Participants should ensure they can
hear streaming audio prior to the start of the meeting. If you encounter technical difficulties with the virtual meeting platform
on the meeting day, please call the technical support number that will be posted on the meeting website. Technical support will
be available starting at 8:00 a.m. Central Time and until the end of the meeting.
If you wish to virtually submit a question during the meeting, type your question into the "Submit a question" field, and click
"Submit." Questions may be submitted beginning at 8:30 a.m. Central Time. Questions relevant to meeting matters will be
answered during the meeting. Questions regarding personal matters or matters not relevant to meeting matters will not be
answered.
What Items Require Your Vote
There are four proposals that will be presented for your consideration at the meeting:
•
•
•
•
Electing the three Class II director nominees named in this proxy statement to the Board of Directors for three-
year terms
Ratifying the appointment of KPMG LLP as the Company's independent registered public accounting firm
(“independent auditor”) for 2022
Approving on an advisory basis the Company's executive compensation
Approving an amendment to the Company's Articles of Incorporation to add a federal forum selection provision
for legal actions under the Securities Act of 1933
Each of the proposals have been submitted on behalf of the Company's Board of Directors.
3
How You Can Change Your Vote
If you are a registered shareholder, you can revoke your proxy and change your vote prior to the Annual Meeting by:
•
•
•
Sending a written notice of revocation to our Corporate Secretary at 121 South 13th Street, Suite 100, Lincoln,
Nebraska 68508 (the notification must be received by the close of business on May 18, 2022)
Voting again by Internet prior to 11:59 p.m. EDT on May 18, 2022 for shares held directly, and by 11:59 p.m.
EDT on May 16, 2022 for shares held in the Nelnet, Inc. Employee Share Purchase Plan (only the latest vote you
submit will be counted)
Submitting a new properly signed and dated paper proxy card with a later date (your proxy card must be received
before the start of the Annual Meeting)
If your shares are held in street name, you should contact your broker, bank, or other holder of record about revoking your
voting instructions and changing your vote prior to the meeting.
If you are eligible to vote at the Annual Meeting, you also can revoke your proxy or voting instructions and change your vote at
the Annual Meeting by submitting a written or virtual ballot before the final vote at the meeting. Your attendance at the Annual
Meeting will not automatically revoke your proxy; you must specifically revoke your proxy.
Quorum Needed To Hold the Meeting
In order to conduct the Annual Meeting, the Company's Articles of Incorporation and Bylaws provide that shares constituting a
majority of the voting power of all the shares of the Company's stock entitled to vote must be present in person or by proxy.
This is called a quorum. If you return valid proxy instructions or vote in person at the Annual Meeting, your shares will be
considered part of the quorum. Abstentions and broker “non-votes” will be counted as present and entitled to vote for purposes
of determining a quorum. New York Stock Exchange ("NYSE") rules allow banks, brokers, and other nominees to vote in
their discretion the shares held by them for a customer on matters that the NYSE considers to be routine, even though
the bank, broker, or nominee has not received voting instructions from the customer. A broker “non-vote” occurs when
a bank, broker, or other nominee has not received voting instructions from the customer and the bank, broker, or other
nominee cannot vote the shares because the matter is not considered to be routine under NYSE rules.
Under NYSE rules, the election of directors, the advisory vote to approve executive compensation, and the approval of
the amendment to the Articles of Incorporation will not be considered to be “routine” matters, and banks, brokers, and
other nominees who are members of the NYSE will not be permitted to vote shares held by them for a customer on these
matters without instructions from the beneficial owner of the shares.
Counting Your Vote
If you provide specific voting instructions, your shares will be voted as instructed. If you hold shares in your name and submit
a valid proxy without giving specific voting instructions, your shares will be voted as recommended by our Board of Directors.
If you hold your shares in your name and do not return a valid proxy and do not vote through the virtual meeting process for the
Annual Meeting or in person at the Annual Meeting, your shares will not be voted. If you hold your shares in the name of a
bank, broker, or other nominee, and you do not give that nominee instructions on how you want your shares to be voted, the
nominee has the authority to vote your shares in the nominee’s discretion on the ratification of the appointment of KPMG LLP
as independent auditor. However, as discussed above, the nominee will not be permitted to vote your shares without your
instructions on the election of directors, on the advisory vote to approve executive compensation, or on the approval of the
amendment to the Company's Articles of Incorporation.
Giving the Board your proxy also means that you authorize their representatives to vote in their discretion on any other matter
that may be properly presented at the Annual Meeting. As of the date of this proxy statement, the Company does not know of
any other matters to be presented at the Annual Meeting.
What Vote is Needed
Our Articles of Incorporation provide that directors are elected by a majority of the votes cast by the shares entitled to vote at
the Annual Meeting. Although abstentions and broker “non-votes” will be counted for purposes of determining whether there is
a quorum (as discussed above), they will not be counted as votes cast in the election of directors and thus will not have the
effect of votes for or against any director.
With respect to Proposal 1 (the election of the Class II directors), shareholders of the Company, or their proxy if one is
appointed, have cumulative voting rights under the Nebraska Model Business Corporation Act. That is, shareholders, or their
4
proxy, may vote their shares for as many directors as are to be elected, or may cumulate such shares and give one nominee as
many votes as the number of directors to be elected multiplied by the number of their shares, or may distribute votes on the
same principle among as many or as few nominees as they may desire. If a shareholder desires to vote cumulatively, he or she
must vote in person or give his or her specific cumulative voting instructions to the designated proxy that the number of votes
represented by his or her shares are to be cast for one or more designated nominees. Cumulative voting is not available for
internet voting, including online voting through the virtual meeting process.
The Nebraska Model Business Corporation Act and our Bylaws provide that a majority of votes cast at the meeting is required
to approve Proposals 2 and 3 (ratifying the appointment of KPMG LLP and approving on an advisory basis the Company's
executive compensation, respectively). Although abstentions and broker “non-votes” will be counted for purposes of
determining whether there is a quorum (as discussed above), they will not be counted as votes cast with respect to Proposals 2
and 3 and thus will not have the effect of votes for or against Proposals 2 and 3.
With respect to Proposal 4 (approval of an amendment to the Articles of Incorporation to add a federal forum selection
provision for legal actions under the Securities Act of 1933), the Nebraska Model Business Corporation Act provides that a
majority of votes cast at the meeting is required to approve this proposal, with the Class A common shares and the Class B
common shares voting together as a single class or voting group. Although abstentions and broker "non-votes" will be counted
for purposes of determining whether there is a quorum (as discussed above), they will not be counted as votes cast with respect
to this proposal and thus will not have the effect of votes cast for or against this proposal.
In accordance with the provisions of our Articles of Incorporation, the Class A common stock and Class B common stock will
vote as a single class on each of Proposals 1, 2, 3 and 4.
Voting Recommendations
The Company's Board of Directors recommends that you vote:
•
•
•
•
“FOR” the election of each of the Class II director nominees to the Board of Directors for a three-year term
“FOR” the ratification of the appointment of KPMG LLP as the Company's independent registered public
accounting firm for 2022
“FOR” the approval of the compensation of the Company's named executive officers, as disclosed in this proxy
statement
"FOR" the approval of the amendment to the Company's Articles of Incorporation to add a federal forum selection
provision for legal actions under the Securities Act of 1933
A proxy, when properly executed and not revoked, will be voted in accordance with the authorization and instructions
contained therein. Unless a shareholder specifies otherwise, all shares represented will be voted in accordance with the
recommendations of the Company's Board of Directors.
Voting Results
The preliminary voting results will be announced at the Annual Meeting. The final voting results will be reported in a current
report on Form 8-K to be filed within four business days after the Annual Meeting date.
Cost of This Proxy Solicitation
The Company will pay the cost of soliciting proxies, including the preparation, assembly, and furnishing of proxy solicitation
and other required annual meeting materials. Directors, officers, and regular employees of the Company may solicit proxies by
telephone, electronic communications, or personal contact, for which they will not receive any additional compensation in
respect of such solicitations. The Company will also reimburse brokerage firms and others for all reasonable expenses for
furnishing proxy solicitation and other required annual meeting materials to beneficial owners of the Company's stock.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company’s Board of Directors consists of ten directors who are divided into three classes, designated as Class I, Class II,
and Class III. In accordance with the Company’s Articles of Incorporation, the number of directors constituting the entire Board
is fixed exclusively by the Board from time to time. The classes of directors serve for staggered three-year terms, with their
current terms ending at the annual meeting of shareholders in the following years: Class I directors - 2024; Class II directors -
2022; and Class III directors - 2023.
5
Shareholders are asked to elect three Class II directors to serve on the Board of Directors for a three-year term ending at the
2025 annual meeting of shareholders. The nominees for these Class II directorships are William R. Cintani, Adam K. Peterson,
and Kimberly K. Rath. Each nominee is currently serving on the Board as a Class II director. Mr. Cintani and Ms. Rath were
most recently elected to the Board by the shareholders at the 2019 annual meeting of shareholders. Mr. Peterson was appointed
by the Board as a Class II member on March 17, 2022, upon the recommendation of the Board's Nominating and Corporate
Governance Committee, for a term expiring at the Company's 2022 annual meeting of shareholders. At the time of Mr.
Peterson's appointment to the Board on March 17, 2022, the Board also appointed Jona M. Van Deun as a Class I member,
voted to expand the board size to ten total directors, and appointed Matthew W. Dunlap as a Class III member. In making these
nominations, the Board and the Nominating and Corporate Governance Committee considered each nominee’s specific
experience, qualifications, and skills as described below.
Upon the recommendation of the Board's Nominating and Corporate Governance Committee, the Board has nominated each of
the Class II director nominees named below to serve on the Board of Directors as Class II directors.
The Board of Directors recommends that shareholders vote FOR the election of each Class II director nominee (named
below) to the Board of Directors.
In the event that before the election any Class II director nominee becomes unable to serve or for good cause unwilling to serve,
if elected, the shares represented by proxy will be voted for any substitute nominees designated by the Board, unless the proxy
does not indicate that the shares are to be voted for all Class II director nominees, or, if the Board does not designate any
substitute nominees, the shares represented by proxy may be voted for a reduced number of nominees. The Board of Directors
knows of no reason why any of the persons nominated for election as Class II directors might be unable or unwilling to serve if
elected, and each nominee has consented to and expressed an intention to serve if elected. There are no arrangements or
understandings between any of the nominees and any other person pursuant to which any of the nominees was selected as a
nominee.
The following sets forth certain information about (i) each of the three nominees for election as Class II directors to serve for a
three-year term expiring at the 2025 annual meeting of shareholders, and (ii) each of the current Class I and Class III directors
whose term of office continues beyond the 2022 Annual Meeting. The information includes, with respect to each such person:
(a) their age, (b) the year during which they were first elected a director of the Company, (c) their principal occupation(s) and
any other directorships with publicly-held companies (if applicable) during the past five years, and (d) the qualifications of such
person that led to the conclusion that such person should serve as a director of the Company.
6
Class II Director Nominees to Hold Office for a Term Expiring at the 2025 Annual Meeting of Shareholders
William R. Cintani, 69
Director since
May 2012
Adam K. Peterson, 40
Director since
March 2022
Chairman and Chief Executive Officer, Mapes Industries
Mapes Industries, a diversified manufacturer of specialty architectural products with
distribution across the United States and Canada.
Chairman and Chief Executive Officer, 1993 - present
Mr. Cintani's qualifications include more than 40 years of managing a diverse, nationwide
manufacturing business with distribution in all 50 states and Canada. Mr. Cintani's service on
numerous civic, philanthropic, and service boards has provided him with a wide array of
experience in both corporate governance and operations. His practical knowledge and board
experience provide the Company with a resource for all aspects of finance, operations, IT, and
strategic planning. In addition, Mr. Cintani served 10 years as a member of the board of
directors for certain of the Company's asset-backed securities special purpose corporations.
Co-Chairman, Co-Chief Executive Officer, and Co-President, Boston Omaha
Boston Omaha is a public holding company with businesses engaged in several sectors
including advertising, insurance, telecommunications, and real estate.
Co-Chairman, February 2015 - present
Co-CEO and Co-President, December 2017 - present
Executive Vice President, February 2015 - December 2017
The Magnolia Group LLC, an SEC registered investment advisor and general partner of
Magnolia Capital Fund, LP, which is one of Nelnet's largest external non-management
shareholders.
Managing Member, June 2014 - present
Nicholas Financial Inc., a specialized consumer finance company engaged primarily in
acquiring and servicing automobile finance installment contracts for purchases of used and
new automobiles, originating direct consumer loans, and selling consumer-finance related
products.
Director, June 2017 - present
Yellowstone Acquisition Group, a publicly-traded special purpose acquisition company
that completed a business combination with Sky Harbour LLC in January 2022 and was
renamed Sky Harbour Group Corporation.
Director, August 2020 - January 2022
Brampton Brick Ltd., a publicly-traded Canadian company specializing in masonry
materials and products.
Director, May 2016 - March 2021
Magnolia Capital Partners, LP and related entities
Chief Investment Officer, November 2005 - August 2014
Mr. Peterson's qualifications include over 17 years of extensive experience in business
operations, investments, and financial analysis in a variety of industries, including advertising,
insurance, telecommunications, and real estate.
Kimberly K. Rath, 61
Director since
October 2007
Co-Chair, Talent Plus, Inc.
Talent Plus, Inc., a global human resources consulting firm.
Co-Chair, August 2013 - present
President, Talent Plus, Inc., 2016 - 2019
Co-Founder, Talent Plus, Inc., 1989 - present
Ms. Rath's qualifications include over 30 years of experience in the field of human resources,
with expertise in executive development, employee engagement, and human capital
management. Ms. Rath has over 30 years of experience leading an international executive
management consulting and training organization, working with major global companies. Ms.
Rath serves as an executive strategic advisor to many leaders across the globe in both private
and public sectors.
7
Class III Directors Continuing in Office for a Term Expiring at the 2023 Annual Meeting of Shareholders
Matthew W. Dunlap, 32
Director since
March 2022
Chief Business Development Officer, Nelnet, Inc.
Nelnet, Inc.
Kathleen A. Farrell, 58
Director since
October 2007
David S. Graff, 39
Director since
May 2014
Chief Business Development Officer, March 2022 - present
Managing Director, Nelnet Business Services, February 2020 - March 2022
Legal counsel, February 2017 - February 2020
GVC Capital, LLC, an investment banking firm focused primarily on providing
comprehensive investment banking services to underexposed small public and private
companies.
Associate, November 2015 - January 2018
Mr. Dunlap brings to the Board of Directors his legal expertise and an in-depth understanding of
the Company's business models and practices from his experiences as an in-house attorney and
Managing Director for the Company.
Dean and Professor of Finance, College of Business, University of Nebraska-Lincoln
College of Business, University of Nebraska - Lincoln
Dean, December 2017 - present
Professor of Finance, August 2009 - present
Interim Dean, January 2017 - December 2017
Chair, Finance Department, August 2014 - December 2016
Senior Associate Dean of Academic Programs, August 2011 - July 2014
Associate Dean of Academic Programs, August 2010 - August 2011
Associate Professor of Finance, 2001 - July 2009
Assistant Professor of Finance, August 1993 - 2001
Dr. Farrell's qualifications include her expertise in corporate finance, executive turnover, and
executive compensation, and her prior experience as an auditor at a national public accounting
firm. Dr. Farrell has achieved designation as a Certified Public Accountant (inactive), has almost
30 years of experience teaching university courses in the areas of banking and finance, and has
conducted extensive research on these topics. Dr. Farrell has also published articles on these topics
in numerous scholarly journals.
Chief Executive Officer, Agile Sports Technologies, Inc. (doing business as Hudl)
Hudl provides online video analysis and coaching tools software for professional, college,
high school, club, and youth teams and athletes, and Hudl software is used by more than
200,000 teams, serving more than 40 different sports and 150 countries, including the
National Hockey League, National Football League, National Basketball Association, and
English Premier League. Hudl has approximately 3,000 employees in 20 countries.
Chief Executive Officer, May 2006 - present
Mr. Graff's qualifications include his experience and expertise in computer science, marketing, and
sales. In addition, as co-founder of Hudl, Mr. Graff provides the Board of Directors and the
Company significant expertise in business development and innovation. Mr. Graff serves on the
Advisory Board for the Jeffrey S. Raikes School of Computer Science and Management at the
University of Nebraska. In 2010, Mr. Graff was featured on Inc. Magazine's 30 Under 30 list along
with the other Hudl co-founders, and in 2016 was named one of Fast Company's Most Creative
People. In addition, Mr. Graff served as a member of the board of directors for certain of the
Company's asset-backed securities special purpose corporations.
8
Thomas E. Henning, 69
Director since
August 2003
Non-Executive Chairman, Assurity Group, Inc. and its subsidiary, Assurity Life Insurance
Company
Assurity Group, Inc. and its subsidiary, Assurity Life Insurance Company, which offers a
variety of disability income and critical illness protection, life insurance, and annuity
products.
Non-Executive Chairman, January 2022 - present
President and Chief Executive Officer, 1990 - December 2021
First Interstate Bancorp ("FIBK"), a publicly traded financial and bank holding company
focused on community banking.
Director, February 2022 - present
Great Western Bancorp, Inc. ("GWB") and Great Western Bank; GWB was a publicly traded
full service regional bank holding company. On February 1, 2022, GWB was acquired by
FIBK.
Director, August 2015 - January 2022
Federal Home Loan Bank Topeka, a part of the 12-member Federal Home Loan Bank
system. The bank serves the states of Oklahoma, Kansas, Nebraska, and Colorado and
provides liquidity to member institutions to assist in financing real estate.
Director, March 2007 - October 2015
Mr. Henning's qualifications include over 30 years of experience as President and Chief Executive
Officer of a large insurance company, his prior experience as President of a regional bank, his
financial expertise, including being a Chartered Financial Analyst, his experience in risk
assessment and management, and his vast knowledge and experience in leadership and
management.
Class I Directors Continuing in Office for a Term Expiring at the 2024 Annual Meeting of Shareholders
Michael S. Dunlap, 58
Director since
January 1996
Executive Chairman, Nelnet, Inc.
Nelnet, Inc.
Executive Chairman, January 2014 - present
Chairman, January 1996 - December 2013
Chief Executive Officer, May 2007 - December 2013 and December 2001 - August 2003
Co-Chief Executive Officer, August 2003 - May 2007
Farmers & Merchants Investment Inc. (“F&M”), the parent of Union Bank and Trust
Company (“Union Bank”) (F&M and Union Bank are affiliates of the Company)
Chairman, January 2013 - present
Co-President and Director, January 2007 - January 2013
Mr. Dunlap's qualifications include more than 30 years of experience in the areas of banking and
financial services, leadership, strategic operations, and management, including as one of our co-
founders and our Chairman since the Company's inception, as well as his experience as a member
of the boards of directors of numerous other organizations. Mr. Dunlap's knowledge of every part
of our business and his intense focus on customer service, innovation, and excellence are keys to
our Board's success.
9
Preeta D. Bansal, 56
Director since
November 2018
Jona M. Van Deun, 52
Director since
March 2022
Massachusetts Institute of Technology, Lecturer, Senior Advisor, and Visiting Scholar - 2014
- 2019
HSBC Holdings plc, a multinational investment bank and financial services company, Global
General Counsel for Litigation and Regulatory Affairs, 2012 - 2013
Office of Management and Budget, Executive Office of the President of the United States,
General Counsel and Senior Policy Advisor, 2009 - 2011
Skadden, Arps, Slate, Meagher & Flom LLC, an international law firm, Partner, 2003 - 2009
United States Commission on International Religious Freedom, Commissioner, 2003 - 2009
(Chair, 2004 - 2005)
University of Nebraska College of Law, Visiting Professor, 2001 - 2003
State of New York, Solicitor General, 1999 - 2001
Ms. Bansal's qualifications include over 30 years of experience in corporate and public law,
banking, financial services, government, regulation, public policy, U.S. diplomacy, and academia
as a distinguished lawyer, public official, and global business leader. Her experience has included
serving as general counsel and senior policy advisor in the federal Office of Management and
Budget, which oversees and coordinates all of the budgetary, regulatory, and management
activities and initiatives of the departments and agencies of the federal government on behalf of the
President of the United States; as global general counsel for litigation and regulatory affairs for
HSBC Holdings in London; as partner and practice chair of the international law firm Skadden,
Arps, Slate, Meagher & Flom LLP in New York City; and as Solicitor General of the State of New
York. Ms. Bansal is a Henry Crown Fellow at the Aspen Institute, a life member of the Council on
Foreign Relations, and active with numerous local, national and global organizations. She received
the National Organization of Women's “Woman of Power and Influence Award” in 2006 and was
named one of the “50 Most Influential Minority Lawyers in America” by the National Law Journal
in 2008. She is a magna cum laude graduate of Harvard Law School and Harvard-Radcliffe
College, and a former law clerk to U.S. Supreme Court Justice John Paul Stevens. Ms. Bansal
provides to the Board of Directors and the Company valuable insight and leadership on various
business, compliance, regulatory, and policy issues.
President, Nebraska Tech Collaborative
Nebraska Tech Collaborative, a business-led Aksarben Workforce Initiative committed to
convening leaders from government, education, and not-for-profit organizations across the
state to develop, attract, and retain tech-talent and entrepreneurs to Nebraska.
President, September 2018 - present
Small Business Coalitions and Engagement for U.S. Chamber of Commerce. The U.S.
Chamber of Commerce, whose members range from small businesses and chambers of
commerce across the country to leading industry associations and global corporations,
advocates for policies that help businesses create jobs and grow the economy.
Vice President, October 2017 - September 2018
Koch Companies Public Sector, LLC, a shared-services company that provides legal,
government, and public affairs services to affiliates of Koch Industries, Inc. around the world.
Koch Industries, Inc. is a privately-held multinational conglomerate with interests in
industries such as refining, chemicals, and biofuels; forest and consumer products; fertilizers;
polymers and fibers; process and pollution control equipment and technologies; electronics;
information systems; commodity trading; minerals; energy; glass; ranching; and investments.
Director of Coalitions, December 2012 - September 2017
Ms. Van Deun's qualifications include having vast information technology and talent acquisition
expertise from her extensive background in politics and public affairs, and she has provided
strategic expertise to several trade associations and Fortune 500 companies, including 3M
Company, DCI Group, the Pillsbury Company, and the Property Casualty Insurers Association.
10
CORPORATE GOVERNANCE
Code of Business Conduct and Ethics for Directors, Officers, and Employees
The Company has a written code of business conduct and ethics that applies to all of the Company's directors, officers, and
employees, including the Company's Executive Chairman, Chief Executive Officer, President, Chief Operating Officer, and
Chief Financial Officer (who is also the Company's principal accounting officer), and is designed to promote ethical and legal
conduct. Among other items, the code addresses the ethical handling of actual or potential conflicts of interest, compliance with
laws, accurate financial reporting, and procedures for promoting compliance with, and reporting violations of, the code. This
code is available on the Company's investor relations website at www.nelnetinvestors.com under “Corporate Governance” and
is available in print to any shareholder who requests it. Any future amendments to or waivers of the code, to the extent
applicable to any executive officer or director, will be posted at this location on the Company's website.
Board Composition and Director Independence
The Board of Directors is composed of a majority of independent directors as defined by the rules of the NYSE. A director does
not qualify as an independent director unless the Board has determined, pursuant to applicable legal and regulatory
requirements, that such director has no material relationship with the Company (either directly or as a partner, shareholder, or
officer of an organization that has a relationship with the Company). The Nominating and Corporate Governance Committee
reviews compliance with the definition of “independent” director annually. Michael S. Dunlap ("Michael Dunlap") beneficially
owns 81.9 percent of the combined voting power of the Company's shareholders. Because of his beneficial ownership, Michael
Dunlap can effectively elect each member of the Board of Directors and has the power to defeat or remove each member of the
Board of Directors.
The Board has evaluated commercial, consulting, charitable, familial, and other relationships with each of its directors, director
nominees, and entities with respect to which they are an executive officer, partner, member, and/or significant shareholder. As
part of this evaluation, the Board noted that none of the current directors received any consulting, advisory, or other
compensatory fees from the Company, other than those described under "Certain Relationships and Related Transactions" and
"Director Compensation Table for Fiscal Year 2021." The Board also noted that Matthew W. Dunlap ("Matthew Dunlap") has
invested approximately $10,000 as of December 31, 2021 in Boston Omaha, of which Mr. Peterson is Co-Chairman, Co-Chief
Executive Officer, and Co-President, which investment the Board considered to be an immaterial relationship with Mr. Peterson
given the size of Boston Omaha. Based on this independence review and evaluation, and on other facts and circumstances the
Board deemed relevant, the Board, in its business judgment, has determined that all of the Company's current directors are
independent, with the exception of Michael Dunlap and Matthew Dunlap, who are currently employees of the Company.
The Company's Nominating and Corporate Governance Committee is responsible for reviewing and approving all new
transactions, and any material amendments or modifications to existing transactions, between the Company and related parties,
and taking such actions as the Committee deems necessary and appropriate in relation to such transactions, including reporting
to the Board of Directors with respect to such transactions as the Committee deems necessary and appropriate. See “Certain
Relationships and Related Transactions.”
Family Relationships
Michael Dunlap and Matthew Dunlap are father and son. There are no other family relationships among the Company's
directors and executive officers.
Governance Guidelines of the Board
The Board's governance is guided by the Company's Corporate Governance Guidelines. The Board's current guidelines are
available on the Company's investor relations website at www.nelnetinvestors.com under “Corporate Governance” and are
available in print to any shareholder who requests them. Among other matters, the guidelines provide for the following:
•
•
•
•
A majority of the members of the Board must be independent directors.
The Board undertakes an annual self-review.
The Board and each Board Committee has the authority to engage independent or outside counsel, accountants, or
other advisors, as it determines to be necessary or appropriate. All related fees and costs of such advisors are paid
by the Company.
Board members have open communication access to all members of management and counsel.
11
Shareholder Communications with the Board
Directors who are not employees or officers of the Company or any of its subsidiaries ("Non-Employee Directors") meet in
executive session, without the presence of management. Mr. Henning currently presides at these executive sessions. Anyone
who has a concern about the Company may communicate that concern directly to these Non-Employee Directors. Such
communication may be mailed to the Corporate Secretary at Nelnet, Inc., 121 South 13th Street, Suite 100, Lincoln, Nebraska
68508 or anonymously submitted via the Company's investor relations website at www.nelnetinvestors.com under "Corporate
Governance" - “Anonymous Reporting.” All such communications will be forwarded to the appropriate Non-Employee
Directors for their review. The Non-Employee Directors may take any action deemed appropriate or necessary, including the
retention of independent or outside counsel, accountants, or other advisors, with respect to any such communication addressed
to them. No adverse action will be taken against any individual making any such communication in good faith to the Non-
Employee Directors.
Board Diversity
In considering whether to recommend any candidate for election to the Board, including candidates recommended by
shareholders, the Nominating and Corporate Governance Committee will apply the criteria set forth in Nelnet's Corporate
Governance Guidelines. These criteria include the candidate's independence, wisdom, integrity, understanding and acceptance
of the Company's corporate philosophy, business or professional knowledge and experience, record of accomplishment, and
willingness to commit time and energy to the Company. Our Corporate Governance Guidelines also specify that the value of
diversity on the Board should be considered by the Nominating and Corporate Governance Committee in the director
identification and nomination process. The Board is committed to a strong and diverse membership and a thorough process to
identify those individuals who can best contribute to the Company's continued success. As part of this process, the Nominating
and Corporate Governance Committee will continue to take all reasonable steps to identify and consider for Board membership
all candidates who satisfy the business needs of the Company at the time of appointment.
The Committee seeks nominees with a broad diversity of experience, professional skills, and backgrounds. The Committee does
not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.
The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a
significant composite mix of experience, knowledge, and abilities that will allow the Board to fulfill its responsibilities.
Nominees are not discriminated against on the basis of race, gender, religion, national origin, sexual orientation, disability, or
any other basis proscribed by law.
The Board's Role in Risk Oversight
Our Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of
organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance
shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps
management is taking to manage those risks, but also understanding what level of risk is appropriate for the company in
fostering a culture of risk-aware and risk-adjusted decision-making that allows the Company to avoid adverse financial and
operational impacts. The involvement of the full Board of Directors in setting the Company's business strategy is a key part of
its assessment of management's appetite for risk and also a determination of what constitutes an appropriate level of risk for the
Company.
While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of
the Board also have responsibility for risk management oversight. In particular, the Risk and Finance Committee assists the
Board of Directors in fulfilling its responsibilities with respect to oversight of the Company's enterprise-wide risk management
framework and oversight of the Company's strategies relating to capital management, including risks related to the availability/
transition of LIBOR as a benchmark rate applicable to significant amounts of the Company's assets and liabilities. The Audit
Committee focuses on the integrity of the Company's financial statements, system of internal controls, and policies for risk
assessment and risk management. The Nominating and Corporate Governance Committee assists the Board of Directors in
fulfilling its oversight responsibility with respect to regulatory, compliance, related-party transactions, and public policy issues
that affect the Company, and works closely with the Company's legal and policy services groups. The Compliance Committee
assists the Board of Directors in fulfilling its responsibility to oversee the Company's Compliance Management Program, which
is designed to ensure compliance with consumer protection laws, regulations, and corporate policies. In addition, the Audit
Committee and the Risk and Finance Committee oversee various aspects of the Company’s initiatives, procedures, controls,
plans, and other measures related to cybersecurity risks, including measures designed to prevent, detect, and respond to
cybersecurity threats, with the Board of Directors receiving frequent updates with respect to such measures and related
cybersecurity risk management activities. Finally, in setting compensation philosophy and strategy, the People Development
12
and Compensation Committee strives to create incentives that encourage an appropriate level of risk-taking behavior consistent
with the Company's business strategy.
Board Leadership Structure
Michael Dunlap serves as Executive Chairman of the Board and Jeffrey R. Noordhoek serves as Chief Executive Officer. While
the Board of Directors and management do not believe either a combined Chairman and CEO or separate roles necessarily
guarantee better governance or the absence of risk, they believe the Company's current leadership structure is appropriate for
our business at this time. The Board believes that its current leadership structure best serves the objectives of the Board's
oversight of management, the ability of the Board to carry out its roles and responsibilities on behalf of the shareholders, and
the Company's overall corporate governance. The Board also believes that the current separation of the Chairman and CEO
roles allows the CEO to focus his time and energy on operating and managing the Company, while leveraging the experience
and perspectives of the Executive Chairman. It also allows the Executive Chairman to focus on leadership of the Board in
addition to providing management direction on company-wide issues. The Board periodically reviews the leadership structure
and may make changes in the future.
In addition, Mr. Henning is currently serving as the independent Lead Director of the Board. The Board believes having a lead
independent director is an important governance practice, given that the Executive Chairman is not an independent director
under our Corporate Governance Guidelines and applicable rules. Michael Dunlap, as Executive Chairman, provides leadership
to the Board and works with the Board to define its structure and activities in the fulfillment of its responsibilities. In
conjunction with Mr. Henning as the independent Lead Director, Michael Dunlap sets the Board agendas with Board and
management input, facilitates communication among directors, works with Mr. Henning to provide appropriate information
flow to the Board, and presides at meetings of the Board of Directors and shareholders. Mr. Henning works with Michael
Dunlap and other Board members to provide strong, independent oversight of the Company's management and affairs. Among
other things, Mr. Henning is involved in the development of Board meeting agendas as well as the quality, quantity, and
timeliness of information sent to the Board, serves as the principal liaison between Michael Dunlap and the independent
directors, and chairs an executive session of the Non-Employee Directors at most regularly scheduled Board meetings. This
structure allows the Company to optimize the roles of Chairman, CEO, and independent Lead Director and follow sound
governance practices.
Board Committees
The Board uses committees to assist it in the performance of its duties. During 2021, the standing committees of the Board were
the Audit Committee, People Development and Compensation Committee, Compliance Committee, Nominating and Corporate
Governance Committee, Risk and Finance Committee, and Executive Committee. During 2021, all Board committees, with the
exception of the Executive Committee, were composed entirely of independent directors, and each committee other than the
Executive Committee operates pursuant to a formal written charter, approved by the Board, which sets forth the committees'
functions and responsibilities. Each committee charter is posted on the Company's investor relations website at
www.nelnetinvestors.com under “Corporate Governance” - “Governance Documents” and is available in print to any
shareholder who requests it. The purposes of each committee and their members are set forth below.
Audit Committee
During 2021, the Audit Committee was composed of Messrs. Cintani, Graff, and Henning, and Ms. JoAnn M. Martin until her
resignation from the Board on September 10, 2021. The Committee held seven meetings in 2021. Each member of the Audit
Committee during 2021 was (1) “independent” in accordance with NYSE and SEC rules and regulations and (2) sufficiently
financially literate to enable them to discharge the responsibilities of an Audit Committee member. The Board has determined
that all of the members of the Audit Committee during 2021 had accounting and related financial management expertise which
qualified each of them as an “audit committee financial expert,” as defined in the applicable SEC rules and regulations.
The Audit Committee provides assistance to the Board of Directors in its oversight of the integrity of the Company's financial
statements, the Company's system of internal controls, the Company's policy standards and guidelines for risk assessment and
risk management, the qualifications and independence of the Company's independent auditor, the performance of the
Company's internal and independent auditors, and the Company's compliance with other regulatory and legal requirements. The
Audit Committee discusses with management and the independent auditor the Company's annual audited financial statements,
including the Company's disclosures made under “Management's Discussion and Analysis of Financial Condition and Results
of Operations” in its filings with the SEC, and recommends to the Board of Directors whether such audited financial statements
should be included in the Company's annual report on Form 10-K. The Audit Committee also selects the independent auditors
for the next year and presents such selection to the shareholders for ratification.
13
The Audit Committee is currently composed of Messrs. Cintani, Graff, and Henning, and Ms. Bansal. Each member of the
Audit Committee is (1) “independent” in accordance with NYSE and SEC rules and regulations and (2) sufficiently financially
literate to enable them to discharge the responsibilities of an Audit Committee member. The Board has determined that all of
the members of the Audit Committee have accounting and related financial management expertise which qualifies each of them
as an “audit committee financial expert,” as defined in the applicable SEC rules and regulations.
People Development and Compensation Committee
During 2021, the People Development and Compensation Committee was composed of Mses. Bansal, Farrell, and Rath, and
Mr. James P. Abel, who retired as a member of the board on March 17, 2022. The Committee held four meetings in 2021. The
members of the People Development and Compensation Committee during 2021 were “independent” in accordance with NYSE
and SEC rules and regulations. The People Development and Compensation Committee oversees the Company's compensation
and benefit policies, succession planning, and leadership and people development. The Company's compensation policies are
designed with the goal of maximizing the success of our customers, associates, and shareholder value over the long term. The
People Development and Compensation Committee believes this goal is best realized by utilizing a compensation program
which serves to attract and retain superior executive talent by providing management with performance-based incentives and
closely aligning the financial interests of management with those of the Company's shareholders. The level of compensation is
based on numerous factors, including achievement of results and financial objectives established by this Committee and the
Board of Directors. See “Executive Compensation.”
The People Development and Compensation Committee is currently composed of Mses. Bansal, Rath, and Van Deun, and Mr.
Peterson. The members of the People Development and Compensation Committee are “independent” in accordance with NYSE
and SEC rules and regulations.
Compliance Committee
During 2021, the Compliance Committee was composed of Mses. Bansal and Farrell, Mr. Cintani, and Ms. JoAnn M. Martin
until her resignation from the Board on September 10, 2021. The Committee held four meetings in 2021. The Compliance
Committee has principal oversight responsibility with respect to the Company's Compliance Management Program, including
approval of applicable corporate policies, ensuring adequate resources are available for training and communications, ensuring
the Program is designed to adequately address consumer complaints and other compliance issues, and receiving periodic
reporting from management regarding compliance activities.
The Compliance Committee is currently composed of Mses. Bansal and Van Deun, and Messrs. Cintani, Peterson, and Matthew
Dunlap. The members of the Compliance Committee other than Matthew Dunlap are independent directors as defined by NYSE
rules.
Nominating and Corporate Governance Committee
During 2021, the Nominating and Corporate Governance Committee was composed of Mses. Bansal, Farrell, and Rath, and
Messrs. Graff and Abel. The Committee held four meetings in 2021. The members of the Nominating and Corporate
Governance Committee during 2021 were “independent” as determined in accordance with NYSE and SEC rules and
regulations. The Nominating and Corporate Governance Committee is responsible for identifying and recommending qualified
nominees to serve on the Company's Board of Directors, identifying members of the Board to serve on each Board committee,
overseeing the evaluation by the Board of itself and its committees, identifying individuals to serve as officers of the Company
and recommending such individuals to the Board, as well as developing and overseeing the Company's internal corporate
governance processes. The Nominating and Corporate Governance Committee reviews related party transactions in accordance
with the written policies and procedures adopted by the Board of Directors for the Committee's review of related party
transactions, and takes such actions as the Committee deems necessary and appropriate in relation to such transactions,
including reporting to the Board of Directors with respect to such transactions as the Committee deems necessary and
appropriate.
The Company's Corporate Governance Guidelines establish criteria for specific qualities and skills to be considered by the
Nominating and Corporate Governance Committee as necessary for the Company's directors to possess. These criteria include,
among other items, independence, diversity, integrity, understanding the Company's corporate philosophy, valid business or
professional knowledge, proven record of accomplishment with excellent organizations, ability to challenge and stimulate
management, and willingness to commit time and energy. The Nominating and Corporate Governance Committee has been
given the responsibility to take all reasonable steps to identify and evaluate nominees for director and has adopted a policy
requiring it to consider written proposals for director nominees received from shareholders of the Company. No such proposals
were received during 2021 from a beneficial owner of more than 5 percent of Nelnet's stock (other than current management).
There is no difference in the manner in which the Committee evaluates director nominees based on whether the nominee is
14
recommended by a shareholder. All of the nominees identified in this proxy statement have been recommended by the
Committee.
When seeking candidates for director, the Nominating and Corporate Governance Committee solicits suggestions from
incumbent directors, management, shareholders, and others. The Committee has authority under its charter to retain a search
firm for this purpose. If the Committee believes a candidate would be a valuable addition to the Board of Directors, it
recommends his or her candidacy to the full Board of Directors. The nominations of Ms. Jona M. Van Deun and Messrs. Adam
K. Peterson and Matthew Dunlap for appointment to the Board in March 2022 were originally recommended by Michael
Dunlap based on their individual leadership skills, experiences, qualifications, and other characteristics that would significantly
add to and further the diversity of the Board of Directors. As President of Nebraska Tech Collaborative, the Committee
recognized Ms. Van Deun as having vast information technology and talent acquisition expertise from her extensive
background in politics and public affairs. As Co-Chairman, Co-CEO, and Co-President of Boston Omaha, Mr. Peterson was
recognized by the Committee as a leader in the Nebraska business community with skills in both leadership and finance. The
Committee identified Matthew Dunlap as having legal expertise and an in-depth understanding of the Company's business
models and practices from his experiences as an in-house attorney and Managing Director for the Company. Based on these and
other factors, the Nominating and Corporate Governance Committee recommended Ms. Van Deun and Messrs. Peterson and
Matthew Dunlap as directors. Mr. Peterson, appointed as a Class II member, stands for reelection to the Board by the
Company's shareholders for the first time at the 2022 Annual Meeting. Matthew Dunlap, appointed as a Class III member, and
Ms. Van Deun, appointed as a Class I member, will stand for reelection at the annual meetings in 2023 and 2024, respectively.
The Company's Bylaws include provisions setting forth the specific conditions under which persons may be nominated by
shareholders for election as directors at an annual meeting of shareholders. The provisions include the condition that nominee
proposals from shareholders must be in writing and that shareholders comply with the time-frame requirements described under
“Other Shareholder Matters - Shareholder Proposals for 2023 Annual Meeting” for shareholder proposals not included in the
Company's Proxy Statement. A copy of such provisions is available upon written request to: Nelnet, Inc., 121 South 13th Street,
Suite 100, Lincoln, Nebraska 68508, Attention: Corporate Secretary. The Company's Bylaws are also posted on the Company's
investor relations website at www.nelnetinvestors.com under “Corporate Governance” - “Governance Documents.”
The Nominating and Corporate Governance Committee is currently composed of Mses. Farrell, Rath, and Van Deun, and Mr.
Peterson. The members of the Nominating and Corporate Governance Committee are “independent” as determined in
accordance with NYSE and SEC rules and regulations.
Risk and Finance Committee
During 2021, the Risk and Finance Committee was composed of Messrs. Cintani, Graff, and Henning, and Ms. JoAnn M.
Martin until her resignation from the Board on September 10, 2021. The Committee held four meetings in 2021. The Risk and
Finance Committee has principal oversight responsibility with respect to the Company's enterprise-wide risk management
framework, including the significant strategies, policies, procedures, and systems used to identify, assess, measure, and manage
the major risks facing the Company and oversight of the Company's material financial matters, including capital management,
funding strategy, investments, and acquisitions that are material to the Company's business.
The Risk and Finance Committee is currently composed of Messrs. Cintani, Graff, Henning, and Matthew Dunlap, and Ms.
Farrell. The members of the Risk and Finance Committee other than Matthew Dunlap are independent directors as defined by
NYSE rules.
Executive Committee
During 2021, the Executive Committee was composed of Ms. Farrell and Messrs. Michael Dunlap and Henning. The Executive
Committee held no formal meetings in 2021. The Executive Committee exercises all of the powers of the full Board in the
management of the business and affairs of the Company during the intervals between meetings of the full Board, subject only to
limitations as the Board may impose from time to time, or as limited by applicable law. The Executive Committee is currently
composed of Ms. Farrell and Messrs. Michael Dunlap and Henning.
Meetings of the Board
The full Board of Directors held six meetings in 2021. All directors attended at least 75 percent of the meetings of the Board
and committees on which they serve.
Attendance at Annual Meetings of Shareholders
The Company does not have a policy regarding director attendance at the annual meetings of shareholders. All directors
attended the prior year's annual meeting of shareholders.
15
Director Compensation Overview
The Company’s compensation program for directors (except for Michael Dunlap, who does not receive any compensation for
Board or committee service) is designed to reasonably compensate directors for their service on the Board of Directors and its
committees, in amounts commensurate with their roles and involvement, and taking into consideration the significant amount of
time they devote in fulfilling their duties in view of the Company’s size, complexity, and risks, as well as the experience and
skill levels required of members of the Board. The Company intends to compensate its directors in a manner that attracts and
retains high quality Board members, and ensures that their interests are aligned with the shareholders. The People Development
and Compensation Committee reviews the compensation program for directors on an annual basis and makes recommendations
regarding the program to the Board.
In addition to the various components of the Company’s compensation program for directors discussed under the "Director
Compensation Elements," “Director Compensation Table for Fiscal Year 2021,” and “Share Ownership Guidelines for Board
Members” captions below, the Company has a policy prohibiting members of the Board of Directors from short sales of the
Company’s stock, buying or selling call or put options or other derivatives related to the Company’s stock, or engaging in
hedging or monetization transactions with respect to any of their direct or indirect interest in the Company’s stock, including
through the use of financial instruments such as prepaid variable forwards, equity swaps, collars, and exchange funds. The
Company's policy also requires members of the Board who wish to buy or sell the Company’s stock to do so only through Rule
10b5-1 stock trading plans, and limits the use of margin accounts or other pledge arrangements by Board members with respect
to the Company's stock. See "Executive Compensation" - "Compensation Discussion and Analysis" - "Prohibition on Hedging
and Short Sales, and Limits on Share Pledging."
Director Compensation Elements
Directors are primarily compensated through an annual retainer in the base amount of $125,000 for each director. An additional
annual retainer of $10,000 is paid to directors who serve as members on each of the Audit Committee, People Development and
Compensation Committee, Compliance Committee, Nominating and Corporate Governance Committee, Risk and Finance
Committee, or Executive Committee, as applicable. The Chair of the Audit Committee is also paid an additional $12,500 annual
retainer fee. Directors are also compensated for Board meeting and committee meeting attendance, earning $1,000 for each
Board and committee meeting attended. As indicated above, Michael Dunlap does not receive any consideration for
participation in Board or committee meetings.
The Company's Board of Directors has approved an increase in the base annual retainer for directors from $125,000 to
$150,000, beginning in June 2022. The annual retainer for serving on a committee did not change and will remain at $10,000
for each committee on which a director is a member.
The Company has a Directors Stock Compensation Plan for Non-Employee Directors that was approved by the Board of
Directors and shareholders, pursuant to which Non-Employee Directors can elect to receive their annual retainer fees in the
form of cash or in shares of the Company's Class A common stock. If a Non-Employee Director elects to receive Class A
common stock, the number of shares that will be granted will be equal to the amount of the annual retainer fee otherwise
payable in cash divided by 85 percent of the fair market value of a share of Class A common stock on the date the fee is
payable. 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. Any dividends paid in respect of deferred shares
during the deferral period will also be deferred in the form of additional shares and paid out at termination of service on the
Board of Directors. This plan may be amended or terminated by the Board of Directors at any time, but no amendment or
termination will adversely affect a Non-Employee Director's rights with respect to previously deferred shares without the
consent of the Non-Employee Director.
Other Compensation
The Company offers health, dental, and vision insurance coverage benefits under the Company’s insurance plans to Non-
Employee Directors who do not currently participate in another similar group insurance plan. Such insurance coverage is
provided on generally the same terms and conditions that apply to employees of the Company. Effective January 1, 2022, if a
Non-Employee Director elects to participate in such plans, the Non-Employee Director pays the full cost of the insurance
coverage (which for an employee is shared by the Company and the employee).
The Company offers a matching gift program in which all employees with at least six months of service and all members of the
Board of Directors are eligible to participate. Under this program, for every dollar ($100 minimum) that an employee or Board
member contributes in cash and securities to an eligible charitable organization or educational institution, the Company will
make matching donations of additional funds, subject to terms and conditions applicable in an equal manner to all employees
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and Board members. The total maximum dollar amount payable under the program is $25,000 per director or employee per
calendar year.
Director Compensation Table for Fiscal Year 2021
The following table sets forth summary information regarding compensation of Non-Employee Directors for the fiscal year
ended December 31, 2021.
Director name
James P. Abel
Preeta D. Bansal
William R. Cintani
Kathleen A. Farrell
David S. Graff
Thomas E. Henning
JoAnn M. Martin (e)
Kimberly K. Rath
Fees paid in
cash ($) (a)
Stock
awards ($) (b)
2021 Compensation
All other compensation ($)
Matching gift
programs (c)
Insurance
premiums
14,000
18,000
21,000
18,000
21,000
17,000
10,000
14,000
170,639
182,403
182,403
194,166
182,403
197,069
182,403
170,639
—
25,000
15,000
25,000
7,500
—
—
25,000
—
9,502 (d)
—
—
—
—
—
—
Total ($)
184,639
234,905
218,403
237,166
210,903
214,069
192,403
209,639
(a)
(b)
(c)
(d)
Amounts represent cash paid to Non-Employee Directors for attendance at Board and committee meetings.
Each of the Non-Employee Directors elected to receive their annual retainer fees for 2021 in the form of awards of
the Company's Class A common stock or deferred shares under the Directors Stock Compensation Plan, which
awards are within the scope of Financial Accounting Standards Board Accounting Standards Codification Topic
718 ("FASB ASC Topic 718"). As such, the amounts under “stock awards” in the table above represent the grant
date fair value of the stock or deferred shares computed in accordance with FASB ASC Topic 718 based on the
closing market price of the Class A common stock of $74.45 per share on June 18, 2021, the trading day
immediately preceding the date of issuance. Under this plan, the Company uses 85 percent of such closing market
price of the Class A common stock on the date immediately preceding the date the annual retainer fees are payable
to calculate the number of shares to be issued under this plan. Additional information about the Company’s
accounting for stock-based compensation under FASB ASC Topic 718 can be found in Note 3 - “Summary of
Significant Accounting Policies and Practices - Compensation Expense for Stock Based Awards” and Note 20 -
“Stock Based Compensation Plans - Non-employee Directors Compensation Plan” of the Notes to Consolidated
Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2021.
Amounts represent matching contributions by the Company to charitable organizations during 2021 under the
Company's matching gift program.
Ms. Bansal received health, dental, and vision insurance coverage benefits from the Company during 2021, since
Ms. Bansal did not participate in another similar group insurance plan. This amount represents the dollar value of
insurance premiums paid by the Company in 2021 related to these benefits. Effective January 1, 2022, Ms. Bansal
began paying the full cost of such insurance coverage benefits.
(e)
Ms. Martin resigned from the Board effective as of September 10, 2021.
Share Ownership Guidelines for Board Members
The People Development and Compensation Committee of the Board of Directors believes that Board members should have a
significant equity interest in the Company. In order to promote equity ownership and further align the interests of Board
members with the Company's shareholders, the Committee has recommended and the Board has adopted Share Ownership
Guidelines for Board members. Under these guidelines, each Non-Employee Director is encouraged to own shares of the
Company's Class A common stock with a value of 50 percent of the amount obtained by multiplying the base annual retainer
fee ($125,000) by the number of years the Director has served on the Board. As of February 28, 2022, all Non-Employee
Directors owned an amount of shares in excess of that suggested by the guidelines.
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EXECUTIVE OFFICERS
Under the Company's Bylaws, each executive officer holds office for a term of one year or until his or her successor is elected
and qualified. The executive officers of the Company are elected by the Board of Directors at its annual meeting immediately
following the annual meeting of shareholders.
The following sets forth the executive officers of the Company, including their names, their ages, their positions with the
Company, and if different, their business experience during the last five years.
See "Proposal 1 - Election of Directors" for biographical information regarding Michael Dunlap and Matthew Dunlap.
Name and Age Position and Business Experience
Terry J. Heimes, 57
James D. Kruger, 59
William J. Munn, 54
Chief Operating Officer, Nelnet, Inc., January 2014 - present
Chief Financial Officer, Nelnet, Inc., October 1998 - December 2013
Chief Financial Officer, Nelnet, Inc., January 2014 - present
Controller, Nelnet, Inc., October 1998 - December 2013
Corporate Secretary, Chief Governance Officer, and General Counsel, Nelnet, Inc.,
September 2006 - present
Jeffrey R. Noordhoek, 56
Chief Executive Officer, Nelnet, Inc., January 2014 - present
President, Nelnet, Inc., January 2006 - December 2013
Timothy A. Tewes, 63
President, Nelnet, Inc., January 2014 - present
President and Chief Executive Officer, Nelnet Business Solutions, Inc., a subsidiary of
Nelnet, Inc., May 2007 - December 2013
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In this Compensation Discussion and Analysis ("CD&A"), we provide a detailed description of our executive compensation
philosophy and program for our named executive officers (the “Named Executive Officers”) for fiscal 2021:
Name
Michael S. Dunlap
Jeffrey R. Noordhoek
Terry J. Heimes
James D. Kruger
Timothy A. Tewes
Executive Summary
Title
Executive Chairman
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
President
This CD&A describes the key principles and measures that underlie the Company's executive compensation policies for the
Named Executive Officers. The Company's stated compensation philosophy is clear and consistent, that it pays for
performance. Its Named Executive Officers are accountable for the performance of the Company and the business segment or
segments they manage, and are compensated based on that performance.
For 2021, the Company had net income, excluding derivative market value adjustments, of $322.7 million, or $8.37 per share.
Net income, excluding derivative market value adjustments, and the corresponding per share measure are non-GAAP financial
measures, and there is no comprehensive, authoritative guidance for the presentation of these measures. For information on how
these measures are calculated from the Company’s financial statements, reconciliations to the most directly comparable
financial measures for 2021 under GAAP, and other information about these measures, please refer to Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Overview - GAAP Net Income and Non-GAAP
Net Income, Excluding Adjustments on page 40 of the Company’s 2021 Annual Report on Form 10-K filed with the SEC on
February 28, 2022. The Company has delivered strong financial results supported by achievement of its key objectives of
growing its core businesses, driving diversification around its core, and improving customer experiences. The Company
believes that its executive compensation program contributes to a high-performance culture where executives deliver results
that drive sustained growth.
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The following discussion summarizes the Company's executive compensation program, compensation philosophy, objectives,
and process considered in determining compensation for its Named Executive Officers.
People Development and Compensation Committee Governance and Processes
The Company's Board of Directors has designated the People Development and Compensation Committee (referred to in this
CD&A as the "Committee") to assist the Board in discharging its responsibilities relating to:
•
•
•
•
determining and administering the compensation of the Named Executive Officers and other executive officers of
the Company
administering certain compensation plans, including stock, incentive, and commission compensation plans
assessing the effectiveness of succession planning relative to key executive officers of the Company
reviewing, approving, and overseeing certain other benefit plans
The Committee consists solely of independent members (as defined by NYSE rules) of the Board of Directors, and operates
under a written charter adopted by the Board. It is the Committee's policy that all of the Company's compensation plans and
practices shall comply with applicable laws, rules, and regulations.
As discussed below, the Committee works with members of management to ensure a strong company culture and robust
practices for people development and executive compensation exist, in order to deliver quality products and services and serve
the Company's multiple stakeholders - customers, employees, shareholders, and the communities in which it operates. The
Committee or a subcommittee reviews and approves the Company's compensation framework and specific executive
compensation determinations. The Committee also coordinates with the Board of Directors to monitor the performance of the
Named Executive Officers throughout the year to ensure that the compensation being provided meets the performance incentive
objectives of the Company's compensation framework.
Role of Management in Recommending Executive Compensation
The Executive Director of People Services, the Chief Executive Officer, and the Chief Financial Officer, referred to herein as
the internal committee, are directed by the Committee to develop, recommend, and administer in a consistent manner,
compensation objectives and programs for the Committee and the Board of Directors to consider and approve. As part of this
process, each year the internal committee, with the assistance of other members of management, reviews and updates as
necessary the Company's compensation philosophy and strategy statement, and develops a proposed executive compensation
framework. The internal committee is also tasked with ensuring that the objectives of the programs are aligned with the
Company's long-term strategy. The Executive Chairman makes compensation recommendations for himself and the other
Named Executive Officers for the Committee's review and approval.
Objectives of Executive Compensation
The general compensation philosophy of the Company, as an organization that values the long-term success of its shareholders,
customers, and employees (referred to by the Company as associates), is that the Company will pay fair, competitive, and
equitable compensation that is designed to encourage focus on the long-term performance objectives of the Company and is
differentiated based on both the individual’s performance and the performance of their respective business segment. In carrying
out this philosophy, the Company structures its overall compensation framework with the general objectives of encouraging
ownership, savings, wellness, productivity, and innovation. In addition, total compensation is intended to be market competitive
compared to select industry surveys, internally consistent, and aligned with the philosophy of a performance-based
organization. The Company believes this approach will enable it to attract, retain, develop, and motivate the talent required for
the Company's long-term success, encourage the creation of shareholder value, and recognize high levels of associate
performance.
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To build a strong work environment and culture that encourages innovation, development, and high performance, the Company
structures its total compensation to be comprised of:
Element
Base salary
Purpose
Competitive cash compensation to retain and
attract executive talent.
Annual performance-based
incentive bonuses
Drive the achievement of key short-term
business results and recognize individual
contributions to these results.
Restricted stock awards
Health, retirement, and
other benefits
Intrinsic rewards
Promote long-term focus on shareholder
value, serve as an important retention tool,
and encourage equity stake in the Company.
Designed
to provide competitive health
insurance options and income replacement
upon retirement, death, or disability.
Non-cash rewards to increase engagement,
provide opportunities for individual growth,
and subsidize learning initiatives.
Characteristics
Fixed cash compensation based upon the scope and
complexity of the role, individual experience, performance,
and market competitiveness. Reviewed annually and
adjusted as warranted.
Primary mode to differentiate compensation based on
performance. Annual incentives based on a combination of
financial metrics and individual goals. Potential cash-equity
mix through performance-based incentive program stock
election framework.
Equity-based compensation subject to vesting periods, or
other restrictions on sale, generally for three to ten years.
Benefits for Named Executive Officers are the same as
those available to all associates.
Professional
coaching,
mentoring, tuition reimbursement, and community activity
support.
development,
training
and
The annual and long-term performance measures used by the Compensation Committee in reviewing and determining executive
compensation are reflected in the Executive Officers Incentive Compensation Plan described below.
Summary of Executive Compensation Policies and Practices
What we do
Pay for performance
Periodically utilize external, independent compensation consulting
firm(s)
Mitigate undue risk in compensation programs
Provide guidelines for stock ownership
Maintain minimum vesting periods for stock awards
Consider market data across industries to obtain a general sense of
current compensation practices and decisions
Prohibit hedging and short sales of stock
Provide for clawback of incentive-based compensation
Compensation Policies and Practices - Risk Management
What we don't do
No employment contracts
No significant additional perks to executive officers
No individual change in control/severance compensation
arrangements
No stock options
The Committee and the internal committee review incentive compensation arrangements to ensure that the arrangements do not
encourage associates to take unnecessary and excessive risks. This risk assessment process includes a review of program
policies and practices; program analysis to identify risk and risk control related to the programs; and determinations as to the
sufficiency of risk identification, the balance of potential risk to potential reward, risk control, and the support of the programs
and their risks to the Company's strategy. A balance between Company and business segment performance is required to protect
against unnecessary risks being taken. Based on their review and evaluation of the Company's compensation policies and
practices for its associates, the Committee, the internal committee, and the Company’s Enterprise Risk Management team
believe that the Company’s policies and practices do not create inappropriate or unintended significant risks that are reasonably
likely to have a material adverse effect on the Company.
Prohibition on Hedging and Short Sales, and Limits on Share Pledging
The Company has a policy prohibiting members of the Board of Directors and all associates and officers, including senior
management, from engaging in short sales of the Company’s stock or buying or selling call or put options or other derivatives
related to the Company’s stock. The policy also prohibits these persons from engaging in hedging or monetization transactions
with respect to any of their direct or indirect interest in the Company’s stock, including through the use of financial instruments
such as prepaid variable forwards, equity swaps, collars, and exchange funds. The policy discourages Board members, officers,
and associates from holding the Company’s stock in a margin account or otherwise pledging the Company’s stock as collateral
for a loan, unless such activity receives the prior approval of the Company, which may be granted in the Company’s discretion
if the individual can clearly demonstrate the financial capacity and the ability to promptly meet a margin call or repay the loan
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without resorting to the pledged stock. In addition, such margin account or other pledge arrangements by a Board member or an
officer are limited by the policy to no more than 25 percent of such individual’s total shares of the Company’s stock held.
Clawback Policy
The Company has a Clawback Policy, which gives the Board of Directors or any appropriate committee of the Board (such as
the Committee) the discretion to recover incentive awards paid to any current or former executive officers of the Company if
the financial results used to determine the amount of the incentive awards are materially restated and/or such person engaged in
fraud or intentional misconduct. The Board may revise the policy to the extent it becomes necessary to conform with any
applicable NYSE or SEC rules that may be adopted in the future.
Say on Pay
The Company has determined, consistent with the preference expressed by the Company’s shareholders at the 2017 annual
meeting of shareholders and the related prior recommendation by the Board of Directors, that it is important for the
shareholders to have an opportunity to cast an advisory vote on executive compensation on an annual basis as a means to
express their views regarding the Company's executive compensation philosophy, plans, programs, policies, and decisions, all
as disclosed in the Company's proxy statement. Accordingly, shareholders will have the opportunity to cast an advisory vote on
executive compensation at this year's annual meeting. See Proposal 3 in this proxy statement with respect to a shareholder
advisory vote on the compensation of the Company's Named Executive Officers as disclosed in this proxy statement. Although
the shareholder vote on this proposal is non-binding, the Committee will consider the outcome of the vote when making future
compensation decisions for Named Executive Officers.
Consideration of Prior Say on Pay Votes
In making executive compensation determinations, the Committee has also considered the results of last year's advisory
shareholder vote approving the compensation of the Company's Named Executive Officers as disclosed in the proxy statement
for the 2021 annual meeting of shareholders. At the 2021 annual meeting, the Company's shareholders overwhelmingly
approved such executive compensation by 99.9 percent of the votes cast. These voting results, and similar previous say on pay
voting results, have strongly communicated the shareholders' endorsement of the Committee's decisions and policies to date.
The Board of Directors and the Committee reviewed these final vote results and determined that, given the significant level of
support from the shareholders, no significant changes to the Company's executive compensation plans, practices, and policies
were necessary at this time based on the say on pay vote results. The Committee will continue to consider the results from this
year's and future advisory shareholder votes regarding the Company's executive compensation programs.
Use of Compensation Consultant
To assist in establishing and maintaining a competitive overall compensation program, the Committee periodically engages a
nationally recognized compensation consulting firm to review the compensation levels and practices for the most highly
compensated executive officers of the Company, and compare those to the compensation levels and practices for executives
holding comparable positions within select industries and companies. Through comparisons of the base salaries, the annual
performance-based incentives, other benefit programs, and total compensation for the Company's Executive Chairman, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President, and other executives, the consultant's analysis is
used to develop a complete executive compensation package that is designed to be competitive in the marketplace. The study is
also used by the Committee to identify potential gaps or inconsistencies in total compensation and to identify appropriate
compensation levels and compensation design features and trends. The study is conducted as part of the Committee's oversight
of the Company's continuing efforts to attract, retain, and motivate top executive talent that will drive the Company's
performance results.
In 2019, the Committee engaged Towers Watson as its independent compensation consultant to review executive compensation
at the Company. The result of this review showed that executive compensation at the Company is generally comparable to that
of similar companies in terms of revenue and size. In connection with the 2019 engagement of Towers Watson, the Committee
determined that Towers Watson does not perform any other services for the Company or have any relationship that would raise
a conflict of interest or impair the independence of Towers Watson with respect to its 2019 services or its expected future
services for the Committee. In making this determination, the Committee discussed and considered the following factors: (i) the
fact that Towers Watson does not perform any other services for the Company; (ii) the amount of fees received by Towers
Watson from the Company as a percentage of the total revenue of Towers Watson; (iii) the policies and procedures of Towers
Watson that are designed to prevent conflicts of interest; (iv) any business or personal relationship between any individual
Towers Watson consultant involved in the engagement by the Committee and a member of the Committee; (v) any stock of the
Company owned by an individual Towers Watson consultant involved in the engagement; and (vi) any business or personal
21
relationship between Towers Watson or any individual Towers Watson consultant involved in the engagement and any
executive officer of the Company.
When developing the proposed compensation framework for the Committee to consider each year, the internal committee also
reviews broad-based third party surveys of executive compensation to obtain a general sense of current compensation levels and
practices in the marketplace. These reviews are based on information from various publicly available databases and
publications. The purpose of these reviews is to ensure compensation is aligned with the market for comparable jobs so the
Company can continue to attract, retain, motivate, and reward qualified executives. In addition, the internal committee
considers the average salary adjustments anticipated in the marketplace each year, and develops proposed target increases for
the Company's Named Executive Officers accordingly. In this way, the Company seeks to ensure that any changes to
compensation are appropriate and reflect material changes in the market.
Elements of Executive Compensation
The Company's Named Executive Officers are compensated with a combination of annual base salary, annual performance-
based incentive bonus payments, and, with respect to the Named Executive Officers other than Michael Dunlap, the issuance of
shares of the Company's Class A common stock, which are typically restricted from sale for some period of time. Michael
Dunlap has historically not received equity compensation because he already owns a significant amount of the Company's
common stock and controls the majority of voting rights of the Company, and thus already has significant interests aligned with
the other shareholders of the Company. In determining levels of compensation, the Committee and the internal committee work
together to establish targeted total compensation for each executive and then allocate that compensation among base salary,
performance-based incentive compensation, and restricted stock awards.
Each element of compensation is designed to be competitive with comparable companies and to align management's incentives
with the long-term interests of the Company's shareholders. The Committee considers the Executive Chairman's
recommendations and determines the amount of each element of compensation by reviewing the current compensation mix for
each of the Named Executive Officers in view of the Company's performance, the Company's long-term objectives, and the
scope of that executive's responsibilities. The Committee seeks to achieve an appropriate balance between base salaries, annual
performance-based bonus incentives, and longer-term equity incentives for all of the Company's Named Executive Officers.
See "Objectives of Executive Compensation" above for a summary of the various elements of executive compensation. Further
details are provided below.
Base Salaries
Base salaries for the Company's Named Executive Officers are based on an evaluation of individual responsibilities of each
person, market comparisons from publicly available compensation surveys to obtain a general sense of current compensation
levels and practices in the marketplace, and an assessment of each individual's performance. Changes in base salaries of Named
Executive Officers depend on projected changes in the external market as well as individual contributions to the Company's
performance.
Base salaries for Messrs. Michael Dunlap, Noordhoek, and Heimes were increased by 3.0 percent for 2021, and base salaries
for Messrs. Tewes and Kruger were increased by 11.8 percent for 2021, primarily as a result of alignment of compensation and
responsibilities and strong individual performances and Company results in the prior year. The executives’ salary adjustments
also reflected the Committee’s determination of amounts appropriate to maintain the competitiveness of the base salary levels
for the corresponding officer positions. Other factors the Committee considered in the determination of base salaries included:
•
•
•
•
•
continued performance of core operating businesses and operating segments;
continued focus on the development of Nelnet Bank, which launched operations in November 2020, with 2021
being the first full year of its three-year de novo period;
continued oversight of the Company’s significant investment in ALLO Communications LLC ("ALLO"),
following the recapitalization and deconsolidation of ALLO in the fourth quarter of 2020, and ALLO’s plans for
growth;
continued work with the Department of Education (the "Department") under the Company's servicing contracts
with the Department;
implementation of a new state of the art platform for private education and consumer loan originations and
servicing;
22
•
•
continued investments to further diversify the Company within and outside of its historical core education-related
businesses, primarily in early-stage and emerging growth companies, real estate, and renewable energy resources
(solar projects);
the leadership and management needed to continue to facilitate various aspects of the sale to investors (including
the Company) announced by Wells Fargo in December 2020 of its $10.0 billion private education loan portfolio
for which the Company was selected as servicer, including converting such portfolio to the Company's servicing
platform and securitizing the loans using Nelnet's securitization platform; and
•
continued focus on attracting, retaining, and developing top notch talent for the Company.
Executive Officers Incentive Compensation Plan
In 2019, the Board of Directors established an Executive Officers Incentive Compensation Plan (the "Plan"), which provides the
Company's executive officers with an opportunity to earn performance-based incentive compensation that aligns their interests
with the interests of shareholders, including the achievement of long-term strategic business objectives.
The Plan, which is administered by the Committee or a subcommittee of the Committee, was approved by the Company's
shareholders at the 2019 annual meeting of shareholders. The Plan provides for performance-based awards of incentive
compensation for a performance period of a calendar year or such other period established by the Committee in its sole
discretion. The performance measures upon which incentive compensation under the Plan is based are generally described as
follows:
•
•
•
•
•
Levels of earnings per share; net income; income before income taxes; net interest income; earnings per share or
net income excluding derivative market value and other adjustments as the Committee deems appropriate in the
Committee’s sole discretion; revenues from fee-based businesses (including measures related to the diversification
of revenues from fee-based businesses and increases in revenues through both organic growth and acquisitions);
federally insured student loan assets; private education loan assets; consumer loan assets; and total assets;
Return on equity (including return on tangible equity), return on assets or net assets, return on capital (including
return on total capital or return on invested capital), return on investments, and ratio of equity to total assets;
Student loan servicing and other education finance or service customer measures (including loan servicing volume
and service rating levels under contracts with the Department);
Success or progress made in efforts to obtain new contracts with the Department, as well as other loan servicing
business;
Cash flow measures (including cash flows from operating activities, cash flow return on investment, assets,
equity, or capital, and generation of long-term cash flows (including net cash flows from the Company’s
securitized loan portfolios));
• Market share;
•
•
•
•
•
•
•
•
Customer satisfaction levels, and employee engagement, productivity, retention, and satisfaction measures;
Operating performance and efficiency targets and ratios, as well as productivity targets and ratios;
Levels of, or increases or decreases in, operating margins, operating expenses, and/or nonoperating expenses;
Business segment, division or unit profitability and other performance measures (including growth in customer
base, revenues, earnings before interest, taxes, depreciation and amortization, and segment profitability, as well as
management of operating expense levels);
Acquisitions, dispositions, projects, or other specific events or transactions (including specific events or
transactions intended to enhance the long-term strategic positioning of the Company);
Performance of investments;
Regulatory compliance measures; or
Any other criteria as determined by the Committee in its sole discretion.
The Plan provides that in no event shall the amount paid under the Plan to a participant with respect to any calendar year exceed
150 percent of that participant’s base salary for that year.
23
While the Company strives for overall consistency in executive compensation, the Named Executive Officers' potential
incentive bonus amounts can vary by business segment due to differences in roles, business models, and business performance.
Incentives are generally positioned to be within a median range of the marketplace based on available broad based data.
The Company's 2021 annual performance-based incentive bonuses were paid, at the Named Executive Officers' option (other
than Michael Dunlap, who received his incentive in cash), as either 100 percent cash, 100 percent stock, or 50 percent cash/50
percent stock. Those electing stock also received an additional number of shares representing 15 percent of the amount of their
bonus they elected to receive in stock, in order to promote increased and continued share ownership. All shares issued as part
of the incentive bonus awards were issued pursuant to the Company's Restricted Stock Plan discussed below, and were fully
vested but may not be transferred for three years from the date of issuance.
Performance of Named Executive Officers for 2021
In 2021, the Executive Chairman (Michael Dunlap), Chief Executive Officer (Mr. Noordhoek), Chief Operating Officer (Mr.
Heimes), Chief Financial Officer (Mr. Kruger), and President (Mr. Tewes) were selected by the Committee to participate in and
be eligible for incentive compensation awards under the Plan for the year ended December 31, 2021. The Committee
established performance goals for these individuals in early 2021 utilizing certain of the performance measures under the Plan
referred to above and described in more detail below, and in early 2022 the Committee reviewed performance for these
individuals for 2021 under the terms of the Plan in establishing incentive awards for each. No specific quantitative/objective
performance targets or formulas were set or used in establishing the performance goals. For 2021, the Committee considered
the Named Executive Officers’ performance in respect of the Plan measures described above, including, but not necessarily
limited to:
•
•
•
•
•
•
•
•
•
•
strong Company earnings results for 2021, which were higher than the level initially anticipated at the beginning
of 2021;
the Company's continued strong cash position and liquidity, which was enhanced by the extension and increase of
the Company's unsecured line of credit in September 2021;
achievements in strategic positioning of the Company and the execution of Company-wide and core operating
segment operations, including the diversification of business operations;
acquisitions of loans and securitized loan residual interests, and sustaining substantial estimated future cash flow
from the Company's existing loan portfolio;
the successful conversion onto the Company's servicing platform of the private education loan portfolio sold by
Wells Fargo to investors (including the Company), and the completion of securitizations to permanently finance
these loans using the Company's securitization platform;
the overall success of Nelnet Bank during its first full year of its three-year de novo period;
the development and implementation of certain technology projects, including a multi-asset class origination and
servicing system, various cloud strategies, and ongoing servicing system and security enhancements;
continued impact of COVID-19 related adjustments to operations in order to keep associates and customers safe;
performance, expansion, and growth of investments in key areas, including continued investments in Hudl and
other early-stage and emerging growth companies, real estate, and renewable energy resources (solar projects);
and
individual achievement.
Based on the Named Executive Officers’ performance in 2021 and the level of attainment of the 2021 performance goals for the
Named Executive Officers, the Committee awarded the Named Executive Officers a 2021 annual incentive under the Plan
equal to 100 percent of their respective base salaries, as reflected in the Summary Compensation Table below.
Restricted Stock Plan
The Company maintains a Restricted Stock Plan to reward performance by associates, including the Named Executive Officers
other than Michael Dunlap. This plan permits the Committee to reward a recipient with an award of shares of the Company's
Class A common stock, which, in the Committee's sole discretion, may have vesting requirements or other restrictions. These
awards are designed to recognize and reward associates, and to connect the associates' financial interests directly to the
Company's performance, thereby encouraging associates to focus their efforts as owners of the Company. As discussed above,
shares issued in payment of annual performance-based incentive bonuses and other equity compensation awards are issued
under the Restricted Stock Plan. The Company does not grant stock options, since management and the Committee believe that
24
awards of shares of restricted stock are a better method of encouraging associates, including the Named Executive Officers, to
focus on the long-term value of the Company.
March 2022 Restricted Stock Awards
Based on various factors the Committee took into consideration with respect to its review of the overall compensation levels for
Messrs. Noordhoek, Heimes, Kruger, and Tewes and the objectives of the Company, including among other factors the past
performance of these Named Executive Officers and the interests of the Company and its shareholders in continuing to retain
and incentive these Named Executive Officers with stock awards subject to continuing service over a five-year time horizon, on
March 10, 2022, the Committee awarded five-year restricted stock grants of 6,052 shares of Class A common stock under the
Restricted Stock Plan to each of Messrs. Noordhoek, Heimes, Kruger, and Tewes. The number of restricted shares granted to
each of these Named Executive Officers was computed as $500,000 divided by the average market closing price for Class A
common stock over the five-trading day period ended March 7, 2022. These awards are scheduled to vest 20 percent annually
over the following five-year service period. Since these awards were issued in 2022, they are not included in the Summary
Compensation Table below.
Employee Share Purchase Plan
The Company also has an Employee Share Purchase Plan (“ESPP”) that assists all associates, including the Named Executive
Officers, in becoming owners and increasing their ownership of the Company. Under the ESPP, associates may purchase shares
of the Company's Class A common stock through payroll deductions, at a discount of 15 percent to the lower of the average
market price of the Company's stock on the first and last trading days of each calendar quarter.
Termination or Change-in-Control Compensation
Other than with respect to provisions in restricted stock award agreements for grants of restricted stock whereby any unvested
shares of restricted stock will become fully vested upon a termination of employment as a result of death, disability, or
retirement after reaching the age of 65, which provisions are generally included in all agreements for restricted stock awards
granted to associates, the Company does not have any contracts, agreements, plans, or arrangements with the Named Executive
Officers that provide for payment in connection with any termination of employment or change-in-control of the Company.
Share Ownership Guidelines and Trading Requirements
The Committee believes that the Named Executive Officers should have a significant equity interest in the Company. In order
to promote equity ownership and further align the interests of management with the Company's shareholders, the Board of
Directors has adopted Share Ownership Guidelines for management associates at certain levels. Under these guidelines, each
Named Executive Officer is encouraged to own at least 15,000 shares of Company stock. As of February 28, 2022, all of the
Named Executive Officers met these guidelines, and are thereby subject to downside risk in the Company's equity performance.
The Company has adopted a policy requiring officers who wish to buy or sell the Company's stock to do so only through Rule
10b5-1 stock trading plans. This requirement is designed to enable officers to diversify a portion of their holdings in an orderly
manner as part of their retirement and tax planning or other financial planning activities. The use of Rule 10b5-1 stock trading
plans serves to reduce the risk that investors will view routine portfolio diversification stock sales by executive officers as a
signal of negative expectations with respect to the future value of the Company's stock. In addition, the use of Rule 10b5-1
stock trading plans reduces the potential for concerns about trading on the basis of material non-public information that could
damage the reputation of the Company.
Other Compensation
In addition to base salaries and annual performance-based incentive compensation, the Company provides the Named Executive
Officers with certain other customary benefits, including health, dental, and vision coverage to assist the Company in remaining
competitive for superior talent and to encourage executive retention. A critical aspect of the Company's health benefits program
is its focus on associate health and wellness. The Company encourages all associates, including the Named Executive Officers,
to take a proactive approach to their personal health and well-being. The Company has implemented wellness programs which
encourage and reward associates for healthy habits by offering the opportunity to lower their insurance premiums.
The Company owns a controlling interest in an aircraft due to the frequent business travel needs of the Named Executive
Officers and the limited availability of commercial flights in Lincoln, Nebraska, where the Company's headquarters are located.
An entity owned by Michael Dunlap owns the remaining interest in the aircraft. Consistent with guidance issued in 2010 from
the Federal Aviation Administration, the Company can be reimbursed for the pro rata cost of owning, operating, and
maintaining the aircraft when used for routine personal travel by certain individuals whose positions with the Company require
25
them to routinely change travel plans within a short time period. Accordingly, the Company allows certain members of
executive management to utilize its interest in the aircraft for personal travel when it is not required for business travel. The
value of the personal use of the aircraft is computed based on the Company's aggregate incremental costs, which include
variable operating costs such as fuel costs, mileage costs, trip-related maintenance and hangar costs, on-board catering, landing/
ramp fees, and other miscellaneous variable costs. Any amounts regarding the value of any personal use of the aircraft by a
Named Executive Officer are included in the separate table for all other compensation under the Summary Compensation Table
below.
The Company also offers the Named Executive Officers other perquisites, including indoor parking and use of Company-
sponsored suites at local venues for personal use when not occupied for business purposes.
Tax Treatment of Compensation
The Committee considers and evaluates the impact of applicable tax laws with respect to the Company’s executive
compensation policies, plans, and arrangements. For example, Section 162(m) of the Internal Revenue Code generally imposes
a $1,000,000 limitation on a public company's income tax deductibility in any tax year with respect to compensation paid to any
individual who served as the chief executive officer or the chief financial officer at any time during the taxable year and the
three other most highly compensated executive officers of the company (other than the chief executive officer or the chief
financial officer) for the taxable year, and once an executive becomes covered by Section 162(m), any compensation paid to
him or her in future years (including post-employment) becomes subject to the Section 162(m) limitation on tax deductibility.
While the Committee considers tax consequences to the Company as a factor when it makes compensation determinations, the
Committee reserves discretion to award compensation to the Named Executive Officers that is not deductible under Section
162(m) as the Committee deems appropriate.
Matching Gift Programs
The Company offers a matching gift program in which all associates with at least six months of service and all members of the
Board of Directors are eligible to participate. Under this program, for every dollar ($100 minimum) that an associate or Board
member contributes in cash or securities to an eligible charitable organization or educational institution, the Company will
make matching donations of additional funds, subject to terms and conditions applicable in an equal manner to all associates
and Board members. The total maximum dollar amount payable under the program is $25,000 per associate or Board member
per calendar year. In addition, the Company makes matching donations for contributions by associates to a centralized
charitable giving and financial resources program for the local community in which the associate resides. Amounts matched by
the Company for the Named Executive Officers and Board members per the provisions of these programs are reflected and
discussed in the Named Executive Officer summary compensation table below and the director compensation table under
"Director Compensation Table for Fiscal Year 2021" above, respectively.
Conclusion
By ensuring market competitive compensation that is aligned with a performance-based organization philosophy, the Company
expects to attract, motivate, and retain the executive talent required to achieve the Company's long-term goals. This is critical,
as management and the Committee know that the Company's success hinges on having engaged executives who are committed
to the Company.
People Development and Compensation Committee Report
The People Development and Compensation Committee has reviewed and discussed the above Compensation Discussion and
Analysis with management. Based on this review and discussion, and such other matters deemed relevant and appropriate by
the People Development and Compensation Committee, the People Development and Compensation Committee recommended
to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated
by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The three independent
directors listed below are the members of the People Development and Compensation Committee and current directors who
participated in the review, discussions, and recommendation with respect to the Compensation Discussion and Analysis for
2021.
Respectfully submitted,
Kimberly K. Rath, Chair
Preeta D. Bansal
Kathleen A. Farrell
26
Summary Compensation Table for Fiscal Years 2021, 2020, and 2019
The following table sets forth summary information with respect to the compensation paid and bonuses granted for services
rendered by the Company's Chief Executive Officer and Chief Financial Officer, as well as each of the Company's other three
most highly compensated executive officers during the year ended December 31, 2021 (collectively, the “Named Executive
Officers”). The information presented in the table relates to the fiscal years ended December 31, 2021, 2020, and 2019.
Salaries and bonuses are paid at the discretion of the Board of Directors.
Name and principal position
Michael S. Dunlap
Executive Chairman
Jeffrey R. Noordhoek
Chief Executive Officer
Terry J. Heimes
Chief Operating Officer
James D. Kruger
Chief Financial Officer
Timothy A. Tewes
President
Annual compensation
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Salary ($)
579,637
562,754
546,343
782,509
759,718
737,591
782,509
759,718
737,591
782,509
700,000
650,000
782,509
700,000
650,000
Bonus ($) (a)
579,637
562,754
615,000
899,897
759,718
892,265
841,203
816,731
892,265
899,897
752,563
786,941
782,509
700,000
786,941
Stock
awards
($) (b)
All other
compensation
($) (c)
—
—
—
1,000,059
—
—
1,000,059
—
—
1,000,059
—
—
1,000,059
—
—
19,015
379,585
33,666
49,850
48,875
42,722
57,412
65,222
45,573
31,210
32,936
22,003
71,964
60,502
54,525
Total ($)
1,178,289
1,505,093
1,195,009
2,732,315
1,568,311
1,672,578
2,681,183
1,641,671
1,675,429
2,713,675
1,485,499
1,458,944
2,637,041
1,460,502
1,491,466
(a)
(b)
Amounts represent bonuses paid in 2022, 2021, and 2020 for services rendered during the 2021, 2020, and 2019 calendar years,
respectively. The Company's annual performance-based incentive bonuses were paid, at the executives' option (other than to the
Executive Chairman, who received his incentive in cash), as either 100 percent cash, 100 percent stock, or 50 percent cash/50 percent
stock. Those electing stock also received an additional number of shares representing 15 percent of the amount of their bonus they
elected to receive in stock, to promote increased and continued share ownership. All shares issued as part of the incentive bonus award
were issued pursuant to the Company's Restricted Stock Plan and were fully vested, but may not be transferred for three years from the
date of issuance. The stock issuances for annual performance bonuses were not made as equity incentive plan awards contemplating
future service or performance. See "Grants of Plan-Based Awards Table for Fiscal Year 2021" below for information relating to the
shares issued in 2021 with respect to 2020 annual incentive bonus payments.
In addition to receiving annual performance-based incentive bonuses as described above, on March 10, 2021, each of Messrs.
Noordhoek, Heimes, Kruger, and Tewes were awarded five-year restricted stock grants (subject to vesting conditions) of 13,467
shares of Class A common stock under the Restricted Stock Plan, with the number of restricted shares granted to each of these Named
Executive Officers computed as $1 million divided by the average market closing price for Class A common stock over the five-
trading day period ended March 4, 2021, which was $74.26.
Amounts represent the grant date fair values of the various restricted stock awards (subject to vesting conditions) computed in
accordance with FASB ASC Topic 718. Additional information about the Company's accounting for stock-based compensation under
FASB ASC Topic 718 can be found in Note 3 - "Summary of Significant Accounting Policies and Practices - Compensation Expense
for Stock Based Awards" and Note 20 - "Stock Based Compensation Plans - Restricted Stock Plan" of the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
27
(c)
“All other compensation” includes the following:
All other compensation
Employer
matching
contributions
under 401(k)
Plan ($)
Premiums
on life
insurance ($)
Matching
gift
programs
($) (1)
Dividends
on
restricted
stock ($) (2)
Personal use
of company
aircraft
($) (3)
Other
($) (4)
11,600
11,400
11,200
11,600
11,400
11,200
11,600
11,400
11,200
11,600
11,400
11,200
11,600
11,400
11,200
352
235
423
352
235
423
352
235
423
352
235
423
352
235
423
—
349,100
—
28,740
37,240
31,099
36,050
48,550
33,150
7,500
20,250
7,500
50,354
47,747
41,150
—
—
—
9,158
—
—
9,158
—
—
9,158
170
911
9,158
170
911
6,663
18,650
22,043
—
—
—
—
5,037
—
—
—
—
—
—
—
400
200
—
—
—
—
252
—
800
2,600
881
1,969
500
950
841
Total ($)
19,015
379,585
33,666
49,850
48,875
42,722
57,412
65,222
45,573
31,210
32,936
22,003
71,964
60,502
54,525
Michael S. Dunlap
Jeffrey R. Noordhoek
Terry J. Heimes
James D. Kruger
Timothy A. Tewes
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
(1) See “Compensation Discussion and Analysis - Matching Gift Programs” above for a description of these programs. In 2020,
Michael Dunlap made a special gift in support of the Company's Service, Not Silence fundraising campaign created in 2020
for advancing racial and socioeconomic equality and social justice, with donations matched by the Nelnet Foundation 3:1.
Due in part to the inspiring level of participation throughout the Company, Michael Dunlap made a special gift of $113,000
in support of the campaign.
(2) The Company's cash dividend payments on its Class A and Class B common stock include dividend payments on unvested
shares of Class A common stock issued pursuant to the Company's Restricted Stock Plan. Dividends paid to the Named
Executive Officers on unvested restricted stock are included in the table above.
(3) See "Compensation Discussion and Analysis - Other Compensation" above for a description of this arrangement.
(4) Executive officers may receive other perquisites and other personal benefits, the aggregate annual dollar amounts of which
are below the current SEC threshold of $10,000 for reporting.
There were no stock option awards, non-equity incentive plan compensation, or pension or nonqualified deferred
compensation earnings for any of the Company's Named Executive Officers during 2021, 2020 or 2019.
Grants of Plan-Based Awards Table for Fiscal Year 2021
The following table sets forth summary information relating to each grant of an award made to the Company's Named
Executive Officers in the fiscal year ended December 31, 2021 under the Company's Restricted Stock Plan.
Name
Grant date
Michael S. Dunlap
Jeffrey R. Noordhoek
Terry J. Heimes
James D. Kruger
Timothy A. Tewes
—
March 10, 2021
March 10, 2021
March 10, 2021
March 10, 2021
(a)
(a) (b)
(a) (b)
(a)
Approval of grant
by Compensation
Committee
—
January 28, 2021
January 28, 2021
January 28, 2021
January 28, 2021
Number of
shares of stock
—
13,467
19,350
18,888
13,467
Grant date fair value
of stock awards ($) (c)
—
1,000,059
1,436,931
1,402,623
1,000,059
(a)
(b)
(c)
Included in these amounts are 13,467 shares of restricted Class A common stock issued to each of Mr. Noordhoek, Mr. Heimes, Mr. Kruger, and Mr.
Tewes pursuant to the Company's Restricted Stock Plan, of which 2,694 shares vested on March 10, 2022, 2,694 shares are scheduled to vest on March
10, 2024, and 2,693 shares are scheduled to vest on March 10, 2023, 2025, and 2026.
On March 10, 2021, the Company issued stock to pay fiscal year 2020 bonuses for those employees who elected to receive stock instead of cash for
such bonuses, and Messrs. Heimes and Kruger were issued 5,883 shares and 5,421 shares, respectively. The stock issuances were not made as equity
incentive plan awards. All 2020 bonuses paid in 2021 to employees who elected to receive stock were paid in fully vested shares of Class A common
stock issued pursuant to the Company's Restricted Stock Plan.
The Company determined the value of these awards based on the average of the closing market prices for the Company's Class A common stock on
February 26, 2021 through March 4, 2021, which was $74.26.
28
Outstanding Equity Awards at Fiscal Year-End Table (As of December 31, 2021)
The following table sets forth summary information relating to the outstanding unvested equity awards for the Company's
Named Executive Officers as of December 31, 2021.
Name
Michael S. Dunlap
Jeffrey R. Noordhoek
Terry J. Heimes
James D. Kruger
Timothy A. Tewes
Stock awards
Number of shares of
stock that have not
vested
Market value of shares
of stock that have not
vested ($) (b)
—
13,467 (a)
13,467 (a)
13,467 (a)
13,467 (a)
—
1,315,457
1,315,457
1,315,457
1,315,457
(a)
Amount represents shares of restricted Class A common stock issued to each of Mr. Noordhoek, Mr. Heimes, Mr. Kruger, and Mr. Tewes on March 10,
2021 pursuant to the Company's Restricted Stock Plan, of which 2,694 shares vested on March 10, 2022, 2,694 shares are scheduled to vest on March
10, 2024, and 2,693 shares are scheduled to vest on March 10, 2023, 2025, and 2026.
(b)
Based on the closing market price of the Company's Class A common stock on December 31, 2021 ($97.68).
Stock Vested Table for Fiscal Year 2021
There was no stock that vested for the Company's Named Executive Officers during the fiscal year ended December 31, 2021.
Stock Option, Stock Appreciation Right, Long-Term Incentive, and Defined Benefit Plans
The Company does not have any stock option, stock appreciation right, long-term incentive, or defined benefit plans covering
its Named Executive Officers.
Potential Payments Upon Termination or Change-in-Control
Other than with respect to provisions in restricted stock award agreements for certain grants of restricted stock to the Named
Executive officers on March 10, 2021 and 2022, as described under "Summary Compensation Table for Fiscal Years 2021,
2020, and 2019" and "Compensation Discussion and Analysis - March 2022 Restricted Stock Awards," respectively, whereby
any unvested shares of restricted stock will become fully vested upon a termination of employment as a result of death,
disability, or retirement after reaching the age of 65, which provisions are generally included in all agreements for restricted
stock awards granted to employees, the Company does not have any contracts, agreements, plans, or arrangements with the
Named Executive Officers that provide for payment in connection with any termination of employment or change-in-control of
the Company. The assumed market value (as of December 31, 2021) of the shares of unvested restricted stock awarded to each
of Messrs. Noordhoek, Heimes, Kruger, and Tewes in March 2021 and March 2022, which shares are scheduled to vest 20
percent annually over a five year period, was $1,906,616 each, based on the closing market price of Class A common stock on
December 31, 2021.
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of the
SEC’s Regulation S-K, the Company is providing the following information about the relationship of the annual total
compensation of the employees of the Company and its consolidated subsidiaries and the annual total compensation of Jeffrey
R. Noordhoek, the Company’s Chief Executive Officer (the “CEO”).
For 2021, the Company’s last completed fiscal year:
•
•
the median of the annual total compensation of all employees of the Company and its consolidated subsidiaries
(other than the CEO) was $40,517; and
the annual total compensation of the CEO, as disclosed above in the "Summary Compensation Table for Fiscal
Years 2021, 2020, and 2019", was $2,732,315.
Based on this information, for 2021 the ratio of the annual total compensation of the CEO to the median of the annual total
compensation of all employees was 67 to 1. This ratio is a reasonable estimate calculated in a manner consistent with Item
402(u) of the SEC’s Regulation S-K. Given the different methodologies that various public companies may use to compute
29
estimates of their pay ratios, the Company’s estimated pay ratio may not be comparable with the estimated pay ratios of other
public companies.
For purposes of the pay ratio disclosure, SEC rules permit registrants to identify the median employee once every three years,
so long as there have not been significant changes in the registrant's employee population or employee compensation
arrangements that the registrant reasonably believes would result in a significant change in the pay ratio disclosure. The
Company most recently identified its median employee in 2020. During 2021, the Company's total employee population
increased almost 30 percent due to the hiring of a significant number of employees primarily to support an increase in loan
servicing volume and anticipated activities, the growth of its customer base, and the investment in the development of new
technologies. As such, the Company determined it would identify a new median employee for 2021. To identify the median of
the annual total compensation of all employees of the Company and its consolidated subsidiaries in 2021, as well as to
determine the annual total compensation of the median employee and the CEO in 2021, the methodology and the material
assumptions, adjustments, and estimates that the Company used were as follows:
1. The Company determined that, as of December 27, 2021, the last Monday of 2021 that was a business day, the total
number of employees of the Company and its consolidated subsidiaries (excluding the CEO) was 7,987, with 7,935
(99.3 percent) of these employees located in the United States, and 52 (less than 1 percent) of these employees located
in Australia. Accordingly, the total numbers of U.S. employees and non-U.S. employees, before taking into
consideration the adjustments permitted by SEC rules (as described below), were 7,935 and 52, respectively. These
employees included all full-time, part-time, seasonal, and temporary employees of the Company and its consolidated
subsidiaries. The Company selected the last Monday of 2021 that was a business day as the date within the last three
months of the Company’s last completed fiscal year that the Company would use to identify the median employee
because it enabled the Company to make such identification for 2021 in a reasonably efficient and economical manner
from its existing internal payroll reporting system.
2. The employee population used to identify the median employee, after taking into consideration the adjustments
permitted by SEC rules, consisted of all of the 7,935 employees (excluding the CEO) located in the U.S as of
December 27, 2021. As permitted by SEC rules, the Company chose to exclude all non-U.S. employees, consisting of
all of the 52 employees who are employed in Australia, from the employee population used to identify the median
employee, given the small number of employees in that jurisdiction and the estimated additional costs of obtaining,
analyzing, and including their compensation information for purposes of identifying the median employee and
determining the annual total compensation of the median employee. Based on the total numbers of U.S. employees
and non-U.S. employees (before taking into consideration the adjustments permitted by SEC rules) as set forth above,
the Company excluded a total of less than 5 percent of the total workforce of the Company and its consolidated
subsidiaries (52 employees) from the employee population used to identify the median employee, as permitted by SEC
rules.
3. To identify the median employee from the employee population, the Company compared the amounts of salary and
wages of the employees for 2021 that are taxable for U.S. federal income tax purposes and reportable to the U.S.
Internal Revenue Service on Form W-2, as reflected in the Company’s existing internal payroll system reports as of
December 27, 2021, and this compensation measure was consistently applied to all employees included in the
calculation. In making this determination, the Company annualized the compensation of all permanent employees
(full-time or part-time) included in the employee population who were hired during 2021 but did not work for the
Company or a consolidated subsidiary for the entire fiscal year.
4. Using the median employee identified as described above, the Company combined all of the elements of such
employee’s compensation for 2021 in accordance with the requirements of Item 402(c)(x) of the SEC’s Regulation S-
K, resulting in annual total compensation of $40,517.
5. With respect to the annual total compensation of the CEO, the Company used the amount disclosed in the “Total”
column of the 2021 row for Mr. Noordhoek in the "Summary Compensation Table for Fiscal Years 2021, 2020, and
2019" included in this Proxy Statement and incorporated by reference under Item 11 of Part III of the Company’s 2021
Annual Report on Form 10-K.
30
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL SHAREHOLDERS
Stock Ownership
The authorized common stock of the Company consists of 660,000,000 shares, $0.01 par value per share. The authorized
common stock is divided into two classes, consisting of 600,000,000 shares of Class A common stock and 60,000,000 shares of
Class B common stock. The Company also has authorized 50,000,000 shares of preferred stock, $0.01 par value per share.
The following table sets forth information as of February 28, 2022, regarding the beneficial ownership of each class of the
Company's common stock by:
•
•
•
•
each person, entity, or group known by the Company to beneficially own more than five percent of the
outstanding shares of any class of common stock
each of the Named Executive Officers
each incumbent director and each nominee for director
all executive officers and directors as a group
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. Under these rules, a person is
deemed to beneficially own a share of the Company's common stock if that person has or shares voting power or investment
power with respect to that share, or has the right to acquire beneficial ownership of that share within 60 days, including through
the exercise of any option, warrant, or other right or the conversion of any other security. The application of these rules results
in numerous situations with respect to the Company’s shares where more than one beneficial owner is listed for the same
shares, as discussed in the footnotes to the following table. For additional information regarding the significant amounts of
shares deemed to be beneficially owned by Michael S. Dunlap, Shelby J. Butterfield, and Angela L. Muhleisen, principal
shareholders of the Company, including the significant amounts of shares for which there are more than one beneficial owner
listed, see the “Additional Beneficial Ownership Information for Michael S. Dunlap, Shelby J. Butterfield, and Angela L.
Muhleisen” table after the following table.
With respect to the shares for which certain non-employee directors have elected to defer delivery of, pursuant to the deferral
election provisions of the Company’s Directors Stock Compensation Plan as indicated in certain footnotes to the following
table, such shares are reported as beneficially owned by the respective director since, pursuant to such deferral election
provisions, such shares shall be distributed to such director as the lump sum payment of deferred shares at the time of the
termination of the director’s service on the Board (which the director has the unilateral right to cause within 60 days if the
director were to resign from the Board within such time period), or as the initial installment of up to five annual installments
commencing at the time of termination of the director’s service on the Board, as elected by the director.
Each share of Class B common stock is convertible at any time at the holder's option into one share of Class A common stock.
The number of shares of Class B common stock for each person in the table below assumes such person does not convert any
Class B common stock into Class A common stock. Unless otherwise indicated in a footnote, the address of each more than five
percent beneficial owner is c/o Nelnet, Inc., 121 South 13th Street, Suite 100, Lincoln, Nebraska 68508. Unless otherwise
indicated in a footnote, the persons named in the table below have sole voting and investment power with respect to all shares
of common stock shown as being beneficially owned by them.
31
Beneficial Ownership - As of February 28, 2022
Number of shares beneficially owned
Percentage of shares
beneficially owned (1)
Name
Class A
Class B
Total
Class A Class B
Total
Percentage
of combined
voting power
of all classes
of stock (2)
Michael S. Dunlap
Shelby J. Butterfield
Stephen F. Butterfield GST
Non-Exempt Marital Trust
Dunlap Holdings, LLC
Angela L. Muhleisen
Union Bank and Trust Company
Dan D. Muhleisen
Dimensional Fund Advisors LP
Magnolia Capital Fund, LP
Deborah Bartels
The Vanguard Group
Whitetail Rock Capital
Management, LLC
Union Financial Services, Inc.
Terry J. Heimes
James D. Kruger
Jeffrey R. Noordhoek
Timothy A. Tewes
James P. Abel
Preeta D. Bansal
William R. Cintani
Matthew W. Dunlap
Kathleen A. Farrell
David S. Graff
Thomas E. Henning
Adam K. Peterson
Kimberly K. Rath
Jona M. Van Deun
Executive officers, directors,
and director nominees as a
group (16 persons)
* Less than 1%.
5,596,832 (3)
510 (5)
10,395,400 (4)
2,884,821 (6)
15,992,232
2,885,331
20.7 % 97.4 % 42.4 %
7.6 %
27.0 %
*
510 (7)
—
5,998,753 (10)
3,280,976 (12)
3,688,299 (14)
2,082,103 (15)
1,900,000 (16)
1,864,177 (17)
1,730,641 (18)
428,924 (19)
—
229,890 (22)
177,673 (23)
533,212 (24)
72,583
74,346 (25)
10,683 (26)
30,608 (27)
6,726 (28)
44,665 (29)
21,889
64,690 (30)
1,900,000 (31)
52,371 (32)
—
1,784,637 (8)
1,600,000 (9)
978,748 (11)
978,748 (13)
—
—
—
—
—
7,416,608 (20)
1,586,691 (21)
—
—
—
—
—
—
—
100 (28)
—
—
—
—
—
—
1,785,147
1,600,000
6,977,501
4,259,724
3,688,299
2,082,103
1,900,000
1,864,177
1,730,641
7,845,532
1,586,691
229,890
177,673
533,212
72,583
74,346
10,683
30,608
6,826
44,665
21,889
64,690
1,900,000
52,371
—
*
—
22.1 %
12.1 %
13.6 %
7.7 %
7.0 %
6.9 %
6.4 %
4.7 %
16.7 %
15.0 %
4.2 %
9.2 % 18.5 %
9.2 % 11.3 %
9.8 %
—
5.5 %
—
5.0 %
—
4.9 %
—
4.6 %
—
1.6 % 69.5 % 20.8 %
4.2 %
14.9 %
—
*
—
*
*
—
*
1.4 %
—
2.0 %
*
—
*
*
—
*
*
—
*
*
—
*
*
*
*
*
—
*
*
—
*
*
—
*
5.0 %
—
7.0 %
*
—
*
—
—
—
81.9 %
21.6 %
13.3 %
12.0 %
11.8 %
9.8 %
2.8 %
1.6 %
1.4 %
1.4 %
1.3 %
55.7 %
11.9 %
*
*
*
*
*
*
*
*
*
*
*
1.4 %
*
—
8,592,212
10,395,400
18,987,612
31.7 % 97.4 % 50.3 %
84.1 %
(1)
(2)
(3)
Based on 27,086,884 shares of Class A common stock and 10,674,892 shares of Class B common stock
outstanding as of February 28, 2022.
These percentages reflect the different voting rights of the Company's Class A common stock and Class B
common stock under the Company's Articles of Incorporation. Each share of Class A common stock has one vote
and each share of Class B common stock has ten votes on all matters to be voted upon by the Company's
shareholders.
As reported in a Schedule 13D/A filed by Michael S. Dunlap (“Michael Dunlap”) (on a joint basis with Dunlap
Holdings, LLC and Union Financial Services, Inc. (“UFS”)) on January 28, 2022, Michael Dunlap is deemed to
have sole voting and investment power over 1,879,574 shares of Class A common stock. Michael Dunlap may be
deemed to have shared voting and investment power over a total of 3,717,258 shares of Class A common stock,
which includes (i) a total of 7,358 shares held in various increments by each of Michael Dunlap's three adult sons
(including 4,160 shares held by Matthew W. Dunlap (“Matthew Dunlap”)), (ii) a total of 3,280,976 shares held for
the accounts of miscellaneous trusts, IRAs, and investment accounts at Union Bank and Trust Company (“Union
Bank”) (some of which shares may under certain circumstances be pledged as security by Union Bank's customers
under the terms of the accounts) with respect to which Union Bank may be deemed to have or share voting or
investment power, (iii) a total of 226,046 shares held by six separate grantor retained annuity trusts (“GRATs”)
established by Angela L. Muhleisen (a sister of Michael Dunlap), for which GRATs Whitetail Rock Capital
Management, LLC ("WRCM"), a majority owned subsidiary of the Company, serves as investment adviser, as
discussed in footnote 19 below, (iv) a total of 202,368 shares held by four separate GRATs established by Dan D.
32
Muhleisen (Ms. Muhleisen’s spouse), for which GRATs WRCM serves as investment adviser, and (v) 510 shares
held by the Stephen F. Butterfield GST Non-Exempt Marital Trust (the “Butterfield GST Non-Exempt Marital
Trust”), an estate planning trust for the family of Mr. Butterfield (the former Vice Chairman of the Board of
Directors and significant shareholder of the Company who passed away in 2018), for which trust Shelby J.
Butterfield serves as a co-trustee and WRCM serves as investment adviser with respect to shares of the
Company’s stock held therein. Michael Dunlap is a control person of Union Bank through Farmers & Merchants
Investment Inc. (“F&M”). Michael Dunlap disclaims beneficial ownership of the shares held for the accounts of
miscellaneous trusts, IRAs, and investment accounts at Union Bank, except to the extent that he actually has or
shares voting power or investment power with respect to such shares. With respect to the number of shares of
Class A common stock reported as beneficially owned by Michael Dunlap that are held by Union Bank, the
number of shares set forth in this table reflects the number of shares held by Union Bank as of December 31,
2021, as reported in a Schedule 13G/A filed by Union Bank on January 28, 2022, except with respect to a total of
2,160 shares held by Union Bank in managed agency accounts for Mr. Heimes and his spouse as of December 31,
2021, the agreements for which were subsequently amended prior to February 28, 2022 to remove a provision
under which Union Bank could be deemed to beneficially own shares of the Company’s stock held in such
accounts. The total of 3,280,976 shares held for the accounts of miscellaneous trusts, IRAs, and investment
accounts at Union Bank may also be deemed to be beneficially owned by Union Bank and Ms. Muhleisen (also a
control person of Union Bank through F&M) and are also included in the total number of shares beneficially
owned by each of them as set forth in this table. Such number of shares held by Union Bank includes (a) a total of
140,006 shares held by Union Bank as trustee under a post-annuity trust and a charitable remainder unitrust
("CRUT") established by Jeffrey R. Noordhoek, which shares may also be deemed to be beneficially owned by
Mr. Noordhoek and are also included in the total number of shares beneficially owned by Mr. Noordhoek as set
forth in this table, (b) a total of 349,987 shares held by Union Bank in various managed agency accounts and
trusts for Deborah Bartels (a sister of Michael Dunlap and Ms. Muhleisen), her spouse, and the adult sons of Ms.
Bartels and her spouse, which shares may also be deemed to be beneficially owned by Ms. Bartels and are also
included in the total number of shares beneficially owned by Ms. Bartels as set forth in this table, (c) a total of
37,840 shares held by Union Bank as trustee under certain GRATs and other irrevocable trusts established by
Terry J. Heimes and his spouse, which shares may also be deemed to be beneficially owned by Mr. Heimes and
are also included in the total number of shares beneficially owned by Mr. Heimes as set forth in this table, and (d)
a total of 60,000 shares held by Union Bank as trustee under certain GRATs and other irrevocable trusts
established by James D. Kruger and his spouse in 2021, which shares may also be deemed to be beneficially
owned by Mr. Kruger and are also included in the total number of shares beneficially owned by Mr. Kruger as set
forth in this table. The total of 428,414 shares held by the total of ten separate GRATs established by Ms.
Muhleisen and Mr. Muheisen are also reported as beneficially owned by Ms. Muhleisen and are also included in
the total number of shares beneficially owned by Ms. Muhleisen as set forth in this table, and the total of 202,368
shares held by the four separate GRATs established by Mr. Muhleisen are also reported as beneficially owned by
Mr. Muhleisen and are also included in the total number of shares beneficially owned by Mr. Muhleisen as set
forth in this table. The 510 shares held by the Butterfield GST Non-Exempt Marital Trust are also reported as
beneficially owned by the Butterfield GST Non-Exempt Marital Trust and Ms. Butterfield and are also included in
the total number of shares beneficially owned by each of them as set forth in this table. The total of 428,924 shares
beneficially owned by trusts for which WRCM serves as investment adviser are also deemed to be beneficially
owned by WRCM, and are also included in the total number of shares beneficially owned by WRCM as set forth
in this table.
Michael Dunlap is deemed to have sole voting and investment power over a total of 399,544 shares of Class B
common stock, which includes 262,644 shares held by Michael Dunlap's spouse and 136,900 shares held by
Michael Dunlap. Michael Dunlap is deemed to have shared voting and investment power over a total of 9,995,856
shares of Class B common stock, which includes (i) a total of 1,600,000 shares held by Dunlap Holdings, LLC, a
family limited liability company which is controlled by Michael Dunlap and his family, (ii) 1,586,691 shares
owned by UFS, of which Michael Dunlap is a director, president, and treasurer and owns 50.0 percent of the
outstanding capital stock, of which Ms. Butterfield is the other director, and of which the Butterfield GST Non-
Exempt Marital Trust, for which WRCM serves as investment adviser with respect to shares of the Company’s
stock held therein, including shares of the Company’s stock held by such trust indirectly through UFS, owns the
remaining 50.0 percent of the outstanding capital stock, (iii) 875,290 shares held by Union Bank as trustee for a
GRAT established by Michael Dunlap in 2003, (iv) a total of 2,273,544 shares held in two separate GRATs
established by Michael Dunlap in 2011, three separate dynasty trusts established by Michael Dunlap in 2011
(including 125,000 shares held in a dynasty trust of which Matthew Dunlap is the initial beneficiary but does not
have or share investment power or voting power with respect to such shares), and three separate post-annuity
irrevocable trusts established under GRATs established by Michael Dunlap in 2011 in connection with the
33
(4)
expiration of the annuity terms of such GRATs (including 353,417 shares held in a post-annuity irrevocable trust
of which Matthew Dunlap is the beneficiary but does not have or share investment power or voting power with
respect to such shares), for which trusts WRCM serves as investment adviser, (v) a total of 2,009,286 shares held
in four separate GRATs established by Michael Dunlap's spouse in 2015 and six separate post-annuity irrevocable
trusts established under two separate other GRATs in connection with the 2020 expiration of the annuity terms of
such other GRATs that were established by Michael Dunlap’s spouse in 2015 (including a total of 132,622 shares
held in two post-annuity irrevocable trusts of which Matthew Dunlap is the beneficiary but does not have or share
investment power or voting power with respect to such shares), for which trusts WRCM serves as investment
adviser, (vi) a total of 156,879 shares held in six separate GRATs established by Michael Dunlap in 2020, for
which GRATs WRCM serves as investment adviser; (vii) a total of 227,970 shares held in six separate GRATs
established by Michael Dunlap’s spouse in 2020, for which GRATs WRCM serves as investment adviser; (viii) a
total of 711,744 shares held in eight separate GRATs established in 2015 by Ms. Butterfield and Mr. Butterfield
and two separate other trusts established by Mr. Butterfield in 2015, for which trusts WRCM serves as investment
adviser, (ix) 210,047 shares held by the Stephen F. Butterfield GST Exempt Marital Trust (the “Butterfield GST
Exempt Marital Trust”), an estate planning trust for the family of Mr. Butterfield, for which trust WRCM serves
as investment adviser with respect to shares of the Company’s stock held therein, (x) 197,946 shares held by the
Butterfield GST Non-Exempt Marital Trust, for which WRCM serves as investment adviser with respect to shares
of the Company’s stock held therein; (xi) a total of 9,022 shares held by two separate trusts for the benefit of two
of Mr. Butterfield’s children established under the restated agreement for the Stephen F. Butterfield Revocable
Living Trust, for which trusts WRCM serves as investment adviser with respect to shares of the Company’s stock
held therein, (xii) 33,479 shares held by a charitable lead annuity trust ("CLAT") established by Mr. Butterfield,
for which CLAT WRCM serves as investment adviser, (xiii) a total of 103,458 shares held by Union Bank as
trustee under three separate irrevocable trusts for the benefit of three of Mr. Butterfield's children established upon
the expiration in 2013 of the annuity term of a GRAT established by Mr. Butterfield, (xiv) a total of 300 shares
held in increments of 100 shares by each of Michael Dunlap's three adult sons (including 100 shares held by
Matthew Dunlap), and (xv) a total of 200 shares held in increments of 100 shares by each of two separate dynasty
trusts established by each of Michael Dunlap and his spouse in 2019 (of which dynasty trusts Matthew Dunlap is
one of three initial beneficiaries but does not have or share investment power or voting power with respect to such
shares). Other than the shares discussed above for which it is noted that Michael Dunlap is deemed to have sole
voting and investment power, Michael Dunlap disclaims beneficial ownership of the shares discussed above,
except to the extent that Michael Dunlap actually has or shares voting power or investment power with respect to
such shares. The 1,586,691 shares owned by UFS are also reported as beneficially owned by UFS and by Ms.
Butterfield and the Butterfield GST Non-Exempt Marital Trust, and are included in the total number of shares
beneficially owned by each of them as set forth in this table. The 875,290 shares held by Union Bank as trustee for
a GRAT established by Michael Dunlap in 2003 and the total of 103,458 shares held by Union Bank as trustee for
three separate irrevocable trusts for the benefit of three of Mr. Butterfield's children may also be deemed to be
beneficially owned by Union Bank and Ms. Muhleisen, and are also included in the total number of shares
beneficially owned by each of them as set forth in this table. The total of 711,744 shares held in eight separate
GRATs established in 2015 by Ms. Butterfield and Mr. Butterfield and two separate other trusts established by
Mr. Butterfield in 2015, the 210,047 shares held by the Butterfield GST Exempt Marital Trust, the 197,946 shares
held by the Butterfield GST Non-Exempt Marital Trust, and the 33,479 shares held by a CLAT established by Mr.
Butterfield may also be deemed to be beneficially owned by Ms. Butterfield, and are also included in the total
number of shares beneficially owned by Ms. Butterfield as set forth in this table. The total of 7,416,608 shares
beneficially owned by trusts for which WRCM serves as investment adviser, including, with respect to the
Butterfield GST Non-Exempt Marital Trust, shares beneficially owned indirectly through the holding of 50.0
percent of the outstanding capital stock of UFS, which holds a total of 1,586,691 shares, are also deemed to be
beneficially owned by WRCM, and are also included in the total number of shares beneficially owned by WRCM
as set forth in this table.
(5)
As reported in a Schedule 13G/A filed by Ms. Butterfield (on a joint basis with the Butterfield GST Non-Exempt
Marital Trust) on January 28, 2022, Ms. Butterfield is deemed to have shared voting and investment power with
respect to 510 shares of Class A common stock held by the Butterfield GST Non-Exempt Marital Trust, for which
Ms. Butterfield serves as a co-trustee and WRCM serves as investment adviser with respect to shares of the
Company’s stock held therein. Such shares are also reported as beneficially owned by Michael Dunlap, the
Butterfield GST Non-Exempt Marital Trust, and WRCM, and are included in the total number of shares reported
as beneficially owned by each of them in this table. The business address for Ms. Butterfield is c/o Gallagher &
Kennedy, 2575 East Camelback Road, Phoenix, Arizona 85016.
34
(6)
(7)
(8)
(9)
Ms. Butterfield has sole voting and investment power with respect to a total of 144,709 shares of Class B common
stock held by Ms. Butterfield and by a family limited liability company controlled by Ms. Butterfield. Ms.
Butterfield is deemed to have shared voting and investment power with respect to a total of 2,740,112 shares of
Class B common stock, which include (i) 1,586,691 shares owned by UFS, of which the Butterfield GST Non-
Exempt Marital Trust owns 50.0 percent of the outstanding capital stock, (ii) 197,946 shares held directly by the
Butterfield GST Non-Exempt Marital Trust, for which trust Ms. Butterfield serves as a co-trustee and WRCM
serves as investment adviser with investment power and voting power with respect to shares of the Company’s
stock held by the trust, including shares of the Company’s stock held indirectly through the holding of 50.0
percent of the outstanding capital stock of UFS, (iii) 210,047 shares held by the Butterfield GST Exempt Marital
Trust, for which Ms. Butterfield serves as a co-trustee and WRCM serves as investment adviser with investment
power and voting power with respect to shares of the Company’s stock held by the trust, (iv) a total of 520,223
shares held in six separate GRATs established by Ms. Butterfield in 2015, for which GRATs WRCM serves as
investment adviser, (v) a total of 154,733 shares held in two separate GRATs established by Mr. Butterfield in
2015, for which GRATs WRCM serves as investment adviser, (vi) 33,479 shares held by a CLAT established by
Mr. Butterfield, for which CLAT WRCM serves as investment adviser, (vii) a total of 36,788 shares held in two
separate trusts established by Mr. Butterfield in 2015 for the benefit of Ms. Butterfield’s two minor children, for
which trusts WRCM serves as investment adviser, (viii) 5 shares held by the Estate of Stephen F. Butterfield, for
which Ms. Butterfield serves as the Personal Representative, and (ix) a total of 200 shares held by Ms. Butterfield
as UTMA custodian for Mr. and Ms. Butterfield’s minor children. Ms. Butterfield disclaims beneficial ownership
of the shares held by UFS and the trusts discussed in this footnote, except to the extent that she actually has or
shares voting power or investment power with respect to such shares. The 1,586,691 shares owned by UFS are
also deemed to be beneficially owned by UFS and Michael Dunlap, and are also included in the total number of
shares beneficially owned by each of them as set forth in this table. The total of 2,739,907 shares held in trusts for
which WRCM serves as investment adviser, including, with respect to the Butterfield GST Non-Exempt Marital
Trust, shares held indirectly through the holding of 50 percent of the outstanding capital stock of UFS, which
holds a total of 1,586,691 shares, are also deemed to be beneficially owned by WRCM and may also be deemed to
be beneficially owned by Michael Dunlap, and are also included in the total number of shares beneficially owned
by each of them as set forth in this table.
As reported in a Schedule 13G/A filed by the Butterfield GST Non-Exempt Marital Trust (on a joint basis with
Ms. Butterfield) on January 28, 2022, the Butterfield GST Non-Exempt Marital Trust is deemed to have shared
voting and investment power with respect to 510 shares of Class A common stock held by the Butterfield GST
Non-Exempt Marital Trust, for which Ms. Butterfield serves as a co-trustee and WRCM serves as investment
adviser with respect to shares of the Company’s stock held therein. Such shares are also reported as beneficially
owned by Ms. Butterfield, WRCM, and Michael Dunlap, and are also included in the total number of shares
beneficially owned by each of them as set forth in this table.
The Butterfield GST Non-Exempt Marital Trust is deemed to have shared voting and investment power with
respect to (i) 1,586,691 shares owned by UFS, of which the Butterfield GST Non-Exempt Marital Trust owns 50
percent of the outstanding capital stock, and (ii) 197,946 shares held directly by the Butterfield GST Non-Exempt
Marital Trust, for which WRCM serves as investment adviser with respect to shares of the Company’s stock held
therein, including shares of the Company’s stock held indirectly through the holding of 50 percent of the
outstanding capital stock of UFS. Such shares are also reported as beneficially owned by Ms. Butterfield, WRCM,
and Michael Dunlap, and are also included in the total number of shares beneficially owned by each of them as set
forth in this table.
As reported in a Schedule 13G/A filed by Dunlap Holdings, LLC (on a joint basis with Michael Dunlap and UFS)
on January 28, 2022, Dunlap Holdings, LLC, a family limited liability company which is controlled by Michael
Dunlap and his family, is deemed to have shared voting and investment power with respect to 1,600,000 shares of
Class B common stock that it owns. The 1,600,000 shares owned by Dunlap Holdings, LLC are also included in
the total number of shares beneficially owned by Michael Dunlap as set forth in this table. Substantially all of the
interests of Dunlap Holdings, LLC are held by two separate dynasty trusts established by each of Michael Dunlap
and his spouse in 2019, of which dynasty trusts Matthew Dunlap is one of three initial beneficiaries but does not
have or share investment power or voting power with respect to the shares held by Dunlap Holdings, LLC.
(10)
As reported in a Schedule 13G/A filed by Ms. Muhleisen on January 28, 2022, Ms. Muhleisen is deemed to have
sole voting and investment power over 1,134,369 shares of Class A common stock held by Ms. Muhleisen. Ms.
Muhleisen is deemed to have shared voting and investment power over a total of 4,864,384 shares of Class A
common stock, which includes (i) 52,344 shares jointly owned by Ms. Muhleisen and her spouse, Dan D.
Muhleisen, (ii) 1,134,994 shares owned by Mr. Muhleisen, (iii) 692,885 shares owned by Ms. Muhleisen's adult
daughter, (iv) 681,538 shares owned by Ms. Muhleisen's adult son, (v) a total of 552,000 shares held in two
35
separate irrevocable trusts established by Ms. Muhleisen and her spouse, of which the adult daughter and the adult
son of Ms. Muhleisen and her spouse are the initial beneficiaries and for which Union Bank serves as trustee, (vi)
a total of 352,170 shares held in four separate irrevocable trusts established upon the expiration of the annuity
term of GRATs established by Ms. Muhleisen and her spouse, of which the adult daughter and the adult son of
Ms. Muhleisen and her spouse are the beneficiaries and for which Union Bank serves as trustee, (vii) a total of
226,046 shares held by six separate GRATs established by Ms. Muhleisen, for which WRCM serves as
investment adviser, (viii) a total of 202,368 shares held by four separate GRATs established by Mr. Muhleisen, for
which WRCM serves as investment adviser, (ix) a total of 20,000 shares held in two separate dynasty trusts
established by Ms. Muhleisen and her spouse, of which the adult daughter and the adult son of Ms. Muhleisen and
her spouse are the initial beneficiaries, and (x) shares that are owned by entities that Ms. Muhleisen may be
deemed to control, consisting of a total of 950,039 shares held by Union Bank for the accounts of miscellaneous
other trusts, IRAs, and investment accounts at Union Bank (some of which shares may under certain
circumstances be pledged as security by Union Bank's customers under the terms of the accounts) with respect to
which Union Bank may be deemed to have or share voting or investment power. Ms. Muhleisen, a sister of
Michael Dunlap, is a director, chairperson, president, and chief executive officer of Union Bank and is a control
person of Union Bank through F&M. Ms. Muhleisen disclaims beneficial ownership of the shares held for the
accounts of miscellaneous trusts, IRAs, and investment accounts at Union Bank, except to the extent that she
actually has or shares voting power or investment power with respect to such shares. The address for Ms.
Muhleisen is c/o Union Bank and Trust Company, P.O. Box 82529, Lincoln, Nebraska 68501. With respect to the
number of shares beneficially owned by Ms. Muhleisen that are held by Union Bank, the number of shares set
forth in this table reflects the number of shares held by Union Bank as of December 31, 2021, as reported in a
Schedule 13G/A filed by Union Bank on January 28, 2022, except with respect to a total of 2,160 shares held by
Union Bank in managed agency accounts for Mr. Heimes and his spouse as of December 31, 2021, the agreements
for which were subsequently amended prior to February 28, 2022 to remove a provision under which Union Bank
could be deemed to beneficially own shares of the Company’s stock held in such accounts.
Ms. Muhleisen is deemed to have shared voting and investment power over a total of 978,748 shares of Class B
common stock that are held by Union Bank as trustee, which includes 875,290 shares held by Union Bank as
trustee for a GRAT established by Michael Dunlap in 2003, and a total of 103,458 shares held by Union Bank as
trustee for three separate irrevocable trusts for the benefit of three of Mr. Butterfield's children established upon
the 2013 expiration of an annuity term of a GRAT previously established by Mr. Butterfield. Ms. Muhleisen
disclaims beneficial ownership of the shares held by Union Bank as trustee for such GRAT and such three
separate other trusts, except to the extent that Ms. Muhleisen actually has or shares voting power or investment
power with respect to such shares. The total of 978,748 shares held by Union Bank as trustee for such GRAT and
such three separate other trusts are also deemed to be beneficially owned by Union Bank and Michael Dunlap, and
are also included in the total number of shares beneficially owned by each of them as set forth in this table.
As reported in a Schedule 13G/A filed by Union Bank on January 28, 2022, Union Bank is deemed to have sole
voting and investment power over 30,000 shares of Class A common stock held by the Union Bank profit sharing
plan. Union Bank is deemed to have shared voting and investment power over 3,250,976 shares of Class A
common stock, which includes (i) 17,000 shares held as trustee for a charitable foundation, (ii) a total of 140,006
shares held by Union Bank as trustee under a post-annuity trust and a CRUT established by Mr. Noordhoek, (iii) a
total of 37,840 shares held by Union Bank as trustee under certain GRATs and other irrevocable trusts established
by Mr. Heimes and his spouse, (iv) a total of 60,000 shares held by Union Bank as trustee under certain GRATs
and other irrevocable trusts established by Mr. Kruger and his spouse in 2021, (v) a total of 2,330,937 shares held
by Union Bank in individual accounts for Ms. Muhleisen, Mr. Muhleisen, their adult daughter, and their adult son;
and (vi) a total of 665,193 shares held for the accounts of miscellaneous trusts, IRAs, and investment accounts at
Union Bank (some of which shares may under certain circumstances be pledged as security by Union Bank's
customers under the terms of the accounts) with respect to which Union Bank may be deemed to have or share
voting or investment power. Union Bank disclaims beneficial ownership of such shares except to the extent that
Union Bank actually has or shares voting power or investment power with respect to such shares. The address for
Union Bank is P.O. Box 82529, Lincoln, Nebraska 68501; Attention: Angela L. Muhleisen, President. The
number of shares of Class A common stock set forth in this table for Union Bank reflects the number of shares
held by Union Bank as of December 31, 2021, except with respect to a total of 2,160 shares held by Union Bank
in managed agency accounts for Mr. Heimes and his spouse as of December 31, 2021, the agreements for which
were subsequently amended prior to February 28, 2022 to remove a provision under which Union Bank could be
deemed to beneficially own shares of the Company’s stock held in such accounts.
(11)
(12)
36
(13)
(14)
(15)
(16)
(17)
Union Bank is deemed to have shared voting and investment power over a total of 978,748 shares of Class B
common stock that are held by Union Bank as trustee for a GRAT established by Michael Dunlap in 2003 and as
trustee for three separate irrevocable trusts for the benefit of three of Mr. Butterfield's children, as discussed in
footnote 11 above. Union Bank disclaims beneficial ownership of such shares except to the extent that Union
Bank actually has or shares voting power or investment power with respect to such shares.
As reported in a Schedule 13G/A filed by Mr. Muhleisen on January 28, 2022, Mr. Muhleisen is deemed to have
shared voting and investment power over a total of 3,688,299 shares of Class A common stock, which includes (i)
1,134,994 shares owned by Mr. Muhleisen; (ii) 52,344 shares owned jointly by Mr. Muhleisen and his spouse,
Angela L. Muhleisen, (iii) 692,885 shares owned by Mr. Muhleisen's adult daughter, (iv) 681,538 shares owned
by Mr. Muhleisen's adult son, (v) a total of 552,000 shares held in two separate irrevocable trusts established by
Mr. Muhleisen and his spouse, of which the adult daughter and the adult son of Mr. Muhleisen and his spouse are
the initial beneficiaries and for which Union Bank serves as trustee, (vi) a total of 352,170 shares held in four
separate irrevocable trusts established upon the expiration of the annuity term of GRATs established by Mr.
Muhleisen and his spouse, of which the adult daughter and the adult son of Mr. Muhleisen and his spouse are the
beneficiaries and for which Union Bank serves as trustee, (vii) a total of 202,368 shares held by four separate
GRATs established by Mr. Muhleisen, for which WRCM serves as investment adviser, and (viii) a total of 20,000
shares held in dynasty trusts established by Mr. Muhleisen and his spouse, of which the adult daughter and the
adult son of Mr. Muhleisen and his spouse are the initial beneficiaries. All of the shares included as beneficially
owned by Mr. Muhleisen are also included in the total number of shares beneficially owned by Ms. Muhleisen as
set forth in this table, and the total of 202,368 shares held by four separate GRATs established by Mr. Muhleisen
for which WRCM serves as investment adviser are also included in the total number of shares beneficially owned
by WRCM as set forth in this table. Mr. Muhleisen disclaims beneficial ownership of the shares held in the trusts
discussed above, except to the extent that he actually has or shares voting power or investment power with respect
to such shares. The address for Mr. Muhleisen is 6321 Doecreek Circle, Lincoln, Nebraska 68516.
On February 8, 2022, Dimensional Fund Advisors LP ("Dimensional") filed a Schedule 13G/A indicating that
they beneficially owned 7.60 percent of the Company's Class A common stock as of December 31, 2021, with
sole voting power over a total of 2,045,640 shares and sole dispositive power over a total of 2,082,103 shares. The
amount set forth in this table reflects the number of shares reported in the Schedule 13G/A. Dimensional acts as
investment advisor and manager to certain funds, and indicated that all shares reported in their 13G/A were owned
by such funds. The address of Dimensional is Building One, 6300 Bee Cave Road, Austin, Texas 78746.
On November 17, 2021, Magnolia Capital Fund, LP ("MCF") filed a Schedule 13G (on a joint basis with The
Magnolia Group, LLC (“TMG”) and Adam K. Peterson) indicating that MCF directly owned 6.89 percent of the
Company's Class A common stock, with shared voting power over 1,900,000 shares and shared dispositive power
over 1,900,000 shares. The amount set forth in this table reflects the number of shares reported in the Schedule
13G. TMG is a registered investment advisor and is the general partner of MCF, and Mr. Peterson is the managing
member of TMG. TMG and Mr. Peterson may each exercise voting and dispositive power over the 1,900,000
shares held directly by MCF and, as a result, may be deemed to be indirect beneficial owners of such shares. TMG
and Mr. Peterson disclaim beneficial ownership of such shares. The address of MCF, TMG, and Mr. Peterson is
1601 Dodge Street, Suite 3300, Omaha, Nebraska 68102.
As reported in a Schedule 13G/A filed by Deborah Bartels on January 28, 2022, Ms. Bartels (a sister of Michael
Dunlap and Ms. Muhleisen) has sole voting and dispositive power over 1,195,855 shares of Class A common
stock held by Ms. Bartels. Ms. Bartels is deemed to have shared voting and dispositive power over a total of
668,322 shares of Class A common stock, which includes (i) a total of 118,807 shares held in managed agency
accounts for Ms. Bartels and her spouse by Union Bank; (ii) 115,965 shares held by Ms. Bartels' spouse; (iii) a
total of 71,180 shares held by Union Bank as trustee for certain irrevocable trusts for the benefit of the adult sons
of Ms. Bartels and her spouse ("Post-GRAT Trusts") established in connection with the expiration of the annuity
term of GRATs established by Ms. Bartels and her spouse; (iv) a total of 160,000 shares held by Union Bank as
trustee for certain irrevocable trusts established by Ms. Bartels and her spouse, of which the adult sons of Ms.
Bartels and her spouse are the initial beneficiaries (the "2012 Dynasty Trusts"); and (v) a total of 202,370 shares
held in certain tax and estate planning trusts established by Ms. Bartels and her spouse in 2020, of which the adult
sons of Ms. Bartels and her spouse and another family member are the initial beneficiaries (the "2020 Dynasty
Trusts"). Ms. Bartels disclaims beneficial ownership of the shares held in the Post-GRAT Trusts, the 2012
Dynasty Trusts, and the 2020 Dynasty Trusts, except to the extent that she actually has or shares voting power or
dispositive power with respect to such shares. The total of 349,987 shares held in the managed agency accounts,
the Post-GRAT Trusts, and the 2012 Dynasty Trusts may also be deemed to be beneficially owned by Union
Bank, Michael Dunlap, and Ms. Muhleisen, and are included in the total number of shares beneficially owned by
each of them as set forth in this table.
37
(18)
(19)
(20)
On February 10, 2022, The Vanguard Group ("Vanguard") filed a Schedule 13G/A indicating that they
beneficially owned 6.28 percent of the Company's Class A common stock as of December 31, 2021, with shared
voting power over 16,690 shares, sole dispositive power over 1,699,020 shares, and shared dispositive power over
31,621 shares. The amount set forth in this table reflects the number of shares reported in the Schedule 13G/A.
The address of Vanguard is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. Vanguard provides investment
management services through mutual funds to the Company’s 401(k) savings plan. Fees for these services are
incorporated into the fund net asset value (NAV) and fully disclosed as an expense of the fund included in the
fund’s expense ratio. As a result, these fees are paid by participants and not by the Company. Fees fluctuate based
on participants’ allocation decisions. Fees paid to Vanguard for these investment management services are
reviewed by the fiduciaries administering the plan.
As reported in a Schedule 13G/A filed by WRCM on January 28, 2022, WRCM is deemed to have shared voting
and investment power with respect to a total of 428,924 shares of Class A common stock, which includes (i) a
total of 428,414 shares held by the total of ten separate GRATs established by Ms. Muhleisen and Mr. Muhleisen
as discussed above in footnotes 10 and 14, respectively; and (ii) 510 shares held by the Butterfield GST Non-
Exempt Marital Trust as discussed above in footnote 7. Under the trusts, WRCM, an SEC-registered investment
adviser, serves as investment adviser with investment and voting power with respect to shares of the Company’s
stock held by the trusts. WRCM is not a beneficiary of any of the trusts. WRCM is a majority owned subsidiary of
the Company, and the total of 428,924 shares of Class A common stock may also be deemed to be beneficially
owned by Michael Dunlap, and are included in the total number of shares beneficially owned by Michael Dunlap
as set forth in this table. The 510 shares of Class A common stock held by the Butterfield GST Non-Exempt
Marital Trust may also be deemed to be beneficially owned by Ms. Butterfield, and are included in the total
number of shares beneficially owned by Ms. Butterfield as set forth in this table.
WRCM is deemed to have shared voting and investment power with respect to 7,416,608 shares of Class B
common stock, including shares held in two separate GRATs and three separate other irrevocable trusts
established by Michael Dunlap in 2011, three separate post-annuity irrevocable trusts established under GRATs
established by Michael Dunlap in 2011 in connection with the expiration of the annuity terms of such GRATs,
four separate GRATs established by Michael Dunlap's spouse in 2015, six separate post-annuity irrevocable trusts
established under two separate other GRATs in connection with the 2020 expiration of the annuity terms of such
other GRATs that were established by Michael Dunlap’s spouse in 2015, six separate GRATs established by
Michael Dunlap in 2020, six separate GRATs established by Michael Dunlap’s spouse in 2020, six separate
GRATs established by Ms. Butterfield in 2015, two separate GRATs established by Mr. Butterfield in 2015, two
separate trusts established by Mr. Butterfield in 2015 for the benefit of Ms. Butterfield’s two minor children, a
CLAT established by Mr. Butterfield, the Butterfield GST Non-Exempt Marital Trust, the Butterfield GST
Exempt Marital Trust, and two separate trusts for the benefit of two of Mr. Butterfield’s children established under
the restated agreement for the Stephen F. Butterfield Revocable Living Trust. Under the trusts, WRCM serves as
investment adviser with voting and investment power with respect to shares of the Company’s stock held by the
trusts, including, with respect to the Butterfield GST Non-Exempt Marital Trust, shares of the Company’s stock
held indirectly through the holding of 50 percent of the outstanding capital stock of UFS, which holds a total of
1,586,691 shares of Class B common stock. WRCM is not a beneficiary of any of the trusts. The shares deemed to
be beneficially owned by WRCM may also be deemed to be beneficially owned by Michael Dunlap, and the
shares held in the eight separate GRATs established by Ms. Butterfield and Mr. Butterfield in 2015, the two
separate trusts established by Mr. Butterfield in 2015 for the benefit of Ms. Butterfield’s two minor children, the
CLAT established by Mr. Butterfield, the Butterfield GST Non-Exempt Marital Trust, and the Butterfield GST
Exempt Marital Trust are also reported as beneficially owned by Ms. Butterfield. For additional information
regarding the shares held in trusts established by Michael Dunlap and his spouse, and the shares held in trusts
established by or with respect to Ms. Butterfield and Mr. Butterfield, see footnotes 4 and 6, respectively, above.
(21)
As reported in a Schedule 13G/A filed by UFS (on a joint basis with Michael Dunlap and Dunlap Holdings, LLC)
on January 28, 2022, UFS is deemed to have shared voting and investment power with respect to 1,586,691 shares
of Class B common stock that it owns. The address for UFS is 502 East John Street, Carson City, Nevada 89706.
Michael Dunlap and the Butterfield GST Non-Exempt Marital Trust each own 50.0 percent of the outstanding
capital stock of UFS, and the 1,586,691 shares of Class B common stock owned by UFS are also reported as
beneficially owned by each of Michael Dunlap, Ms. Butterfield, the Butterfield GST Non-Exempt Marital Trust,
and WRCM, and are included in the total number of shares beneficially owned by each of them as set forth in this
table.
38
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
Includes (i) a total of 37,840 shares held by Union Bank as trustee under certain GRATs and other irrevocable
trusts established by Mr. Heimes and his spouse, (ii) 94,921 shares held by a revocable trust established by Mr.
Heimes, (iii) 50,000 shares held by a revocable trust established by Mr. Heimes’ spouse, and (iv) 1,167 shares
owned by Mr. Heimes' spouse. A total of 50,000 shares are pledged as collateral for a line of credit agreement,
under which no amount was drawn as of February 28, 2022. Mr. Heimes is deemed to have shared voting and
investment power with respect to the total of 37,840 shares held by Union Bank as trustee, and such shares may
also be deemed to be beneficially owned by Union Bank, Michael Dunlap, and Ms. Muhleisen and are included in
the total number of shares beneficially owned by each of them as set forth in this table.
Includes (i) 91,192 shares jointly owned by Mr. Kruger and his spouse, and (ii) a total of 60,000 shares held by
Union Bank as trustee under certain GRATs and other irrevocable trusts established by Mr. Kruger and his spouse
in 2021. Mr. Kruger is deemed to have shared voting and investment power with respect to the total of 60,000
shares held by Union Bank as trustee, and such shares may also be deemed to be beneficially owned by Union
Bank, Michael Dunlap, and Ms. Muhleisen and are included in the total number of shares beneficially owned by
each of them as set forth in this table.
Includes (i) 311,008 shares held by Mr. Noordhoek’s restated revocable trust dated August 9, 2016, (ii) 126,462
shares held by Union Bank as trustee under an irrevocable trust established upon the expiration of the annuity term
of a GRAT established by Mr. Noordhoek in 2003, and (iii) 13,544 shares held by Union Bank as trustee under a
CRUT established by Mr. Noordhoek. Mr. Noordhoek is deemed to have shared voting and investment power
with respect to the total of 140,006 shares held by Union Bank as trustee under the post-annuity trust and the
CRUT, and such shares may also be deemed to be beneficially owned by Union Bank, Michael Dunlap, and Ms.
Muhleisen and are included in the total number of shares beneficially owned by each of them as set forth in this
table.
Includes (i) 63,621 shares that Mr. Abel has elected to defer delivery of pursuant to the deferral election
provisions of the Company's Directors Stock Compensation Plan, and (ii) 500 shares owned by Mr. Abel's spouse.
Includes 1,000 shares held by an individual retirement account for a member of Ms. Bansal's immediate family
who lives in the same household as Ms. Bansal. Ms. Bansal disclaims beneficial ownership of such shares.
Includes 26,660 shares that Mr. Cintani has elected to defer delivery of pursuant to the deferral election provisions
of the Company's Directors Stock Compensation Plan.
Matthew Dunlap directly holds 6,726 shares of Class A common stock and 100 shares of Class B common stock.
Matthew Dunlap may be deemed to have shared voting and dispositive power with respect to 4,160 of the shares
of Class A common stock and the 100 shares of Class B common stock he holds, and such shares may also be
deemed to be beneficially owned by Michael Dunlap and are included in the total number of shares beneficially
owned by Michael Dunlap as set forth in this table. For additional information regarding shares beneficially
owned by Michael Dunlap and Dunlap Holdings, LLC in which Matthew Dunlap has an interest by virtue of being
a beneficiary of various trusts, but with respect to which shares Matthew Dunlap does not have or share voting
power or dispositive power and thus is not deemed to beneficially own such shares, see footnotes (3), (4) and (9)
above.
Includes 30,955 shares that Ms. Farrell has elected to defer delivery of pursuant to the deferral election provisions
of the Company's Directors Stock Compensation Plan.
Includes (i) 48,389 shares that Mr. Henning has elected to defer delivery of pursuant to the deferral election
provisions of the Company's Directors Stock Compensation Plan, and (ii) 3,102 shares owned by Mr. Henning's
spouse.
See footnote (16) above with respect to the 1,900,000 shares of the Company’s Class A common stock held by
MCF, which shares may be deemed to be indirectly beneficially owned by Mr. Peterson.
Includes 52,371 shares that Ms. Rath has elected to defer delivery of pursuant to the deferral election provisions of
the Company's Directors Stock Compensation Plan.
39
Additional Beneficial Ownership Information for Michael S. Dunlap, Shelby J. Butterfield, and Angela L. Muhleisen
As of February 28, 2022
Name
Michael S. Dunlap:
Shares held directly by Michael
Dunlap and his spouse
Shares held by Dunlap Holdings,
LLC
Shares held by Union Bank for
2003 Dunlap GRAT
Shares held by WRCM-managed
2011 Dunlap GRATs and other
trusts
Shares held by WRCM-managed
2015 Dunlap GRATs and post-
annuity trusts
Shares held by WRCM-managed
2020 Dunlap GRATs
All of the shares held by 50%-
owned UFS
Shares held by WRCM-managed
Butterfield trusts
Shares held by WRCM-managed
Muhleisen GRATs
Shares held by Union Bank for
other persons:
For Muhleisen accounts
For Bartels accounts
For Butterfield trusts
For Noordhoek trusts
For Heimes trusts
For Kruger trusts
For other accounts
Other shares
Totals for Michael S. Dunlap
Shelby J. Butterfield:
Shares held directly by Ms.
Butterfield
All of the shares held by 50%-
owned UFS
Shares directly held by WRCM-
managed Butterfield trusts
Shares held by Stephen F.
Butterfield Estate
Other shares
Totals for Shelby J. Butterfield
Angela L. Muhleisen:
Shares held directly by Ms.
Muhleisen and her spouse
Shares held by WRCM-managed
Muhleisen GRATs
Shares held by Union Bank for
other Muhleisen accounts
Shares held by Muhleisen dynasty
trusts
Number of shares beneficially owned
Total
Class B
Class A
Percentage of shares
beneficially owned (1)
Class A Class B
Total
Percentage
of combined
voting power
of all classes
of stock (2)
1,879,574
399,544
2,279,118
6.9 %
3.7 %
6.0 %
4.4 %
—
1,600,000
1,600,000
—
875,290
875,290
—
—
15.0 %
4.2 %
12.0 %
8.2 %
2.3 %
6.5 %
—
2,273,544
2,273,544
—
21.3 %
6.0 %
17.0 %
—
2,009,286
2,009,286
—
384,849
384,849
—
1,586,691
1,586,691
510
1,162,238
1,162,748
—
—
—
*
18.8 %
5.3 %
15.0 %
3.6 %
1.0 %
2.9 %
14.9 %
4.2 %
11.9 %
10.9 %
3.1 %
8.7 %
428,414
—
428,414
1.6 % —
1.1 %
*
2,330,937
349,987
—
140,006
37,840
60,000
362,206
7,358
5,596,832
—
—
103,458
—
—
—
—
500
10,395,400
2,330,937
349,987
103,458
140,006
37,840
60,000
362,206
7,858
15,992,232
8.6 %
1.3 %
—
*
*
*
1.3 %
*
—
—
*
—
—
—
—
*
20.7 % 97.4 % 42.4 %
6.2 %
*
*
*
*
*
*
*
1.7 %
*
*
*
*
*
*
*
81.9 %
—
144,709
144,709
—
1,586,691
1,586,691
510
1,153,216 (14)
1,153,726
—
—
510
5
200
2,884,821
5
200
2,885,331
—
—
*
—
—
*
1.4 %
*
1.1 %
14.9 %
4.2 %
11.9 %
10.8 %
3.1 %
8.6 %
*
*
27.0 %
*
*
7.6 %
*
*
21.6 %
(3)
(4)
(5)
(6)
(6)
(6)
(7)
(6)
(6)
(5)
(8)
(9)
(10)
(11)
(12)
(13)
(7)
(6)
(15)
2,321,707
(6)
428,414
2,278,593
20,000
—
—
—
—
40
2,321,707
8.6 %
428,414
1.6 %
2,278,593
8.4 %
20,000
*
—
—
—
—
6.1 %
1.1 %
6.0 %
*
1.7 %
1.7 %
*
*
Number of shares beneficially owned
Total
Class B
Class A
Percentage of shares
beneficially owned (1)
Class A Class B
Total
Percentage
of combined
voting power
of all classes
of stock (2)
(5)
(8)
(9)
(10)
(11)
—
349,987
—
140,006
37,840
60,000
362,206
5,998,753
875,290
—
103,458
—
—
—
—
978,748
875,290
349,987
103,458
140,006
37,840
60,000
362,206
6,977,501
—
1.3 %
—
*
*
*
1.3 %
22.1 %
8.2 %
—
*
—
—
—
—
9.2 % 18.5 %
2.3 %
*
*
*
*
*
*
6.5 %
*
*
*
*
*
*
11.8 %
Name
Shares held by Union Bank for
other persons:
For 2003 Dunlap GRAT
For Bartels accounts
For Butterfield trusts
For Noordhoek trusts
For Heimes trusts
For Kruger trusts
For other accounts
Totals for Angela L. Muhleisen
* Less than 1%.
(1) Based on 27,086,884 shares of Class A common stock and 10,674,892 shares of Class B common stock outstanding
as of February 28, 2022.
(2) These percentages reflect the different voting rights of the Company's Class A common stock and Class B common
stock under the Company's Articles of Incorporation. Each share of Class A common stock has one vote and each
share of Class B common stock has ten votes on all matters to be voted upon by the Company's shareholders.
(3) See footnotes (3) and (4) with respect to the line item for Michael S. Dunlap ("Michael Dunlap") in the Beneficial
Ownership table above.
(4) See footnote (9) with respect to the line item for Dunlap Holdings, LLC in the Beneficial Ownership table above.
(5) Union Bank and Trust Company (“Union Bank”) is indirectly controlled by Michael Dunlap and his sister Angela L.
Muhleisen through Farmers & Merchants Investment Inc. (“F&M”). See footnotes (12) and (13) with respect to the
line item for Union Bank in the Beneficial Ownership table above.
(6) Whitetail Rock Capital Management, LLC (“WRCM”) is a majority-owned subsidiary of the Company. See footnotes
(19) and (20) with respect to the line item for WRCM in the Beneficial Ownership table above.
(7) Union Financial Services, Inc. (“UFS”) is 50.0 percent owned by Michael Dunlap and 50.0 percent owned by the
Stephen F. Butterfield GST Non-Exempt Marital Trust (the “Butterfield GST Non-Exempt Marital Trust”). See
footnote (21) with respect to the line item for UFS in the Beneficial Ownership table above. See also footnotes (7)
and (8) with respect to the line item for the Butterfield GST Non-Exempt Marital Trust in the Beneficial Ownership
table above.
(8) Deborah Bartels is a sister of Michael Dunlap and Ms. Muhleisen. See footnote (17) with respect to the line item for
Ms. Bartels in the Beneficial Ownership table above.
(9) See footnote (24) with respect to the line item for Jeffrey R. Noordhoek in the Beneficial Ownership table above.
(10) See footnote (22) with respect to the line item for Terry J. Heimes in the Beneficial Ownership table above.
(11) See footnote (23) with respect to the line item for James D. Kruger in the Beneficial Ownership table above.
(12) Includes 4,160 shares of Class A common stock and 100 shares of Class B common stock held directly by Matthew
W. Dunlap, a son of Michael Dunlap. See footnote (28) with respect to the line item for Matthew W. Dunlap in the
Beneficial Ownership table above.
(13) See footnotes (5) and (6) with respect to the line item for Ms. Butterfield in the Beneficial Ownership table above.
(14) Excludes shares held in WRCM-managed trusts for the benefit of Stephen F. Butterfield’s adult children from his first
marriage.
(15) See footnotes (10) and (11) with respect to the line item for Ms. Muhleisen in the Beneficial Ownership table above.
41
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company’s executive officers and
directors, and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities, to
file with the SEC reports of ownership of Company securities and changes in reported ownership. Based solely on a review of
information furnished to the Company and contained in reports filed with the SEC, as well as written representations from
reporting persons that all reportable transactions were reported, the Company believes during the year ended December 31,
2021, the Company’s executive officers, directors, and greater than ten percent beneficial owners timely filed all reports they
were required to file under Section 16(a) of the Exchange Act, except as previously disclosed and except as noted below.
A Form 5 report for Preeta D. Bansal was filed on February 14, 2022 for the late reporting of an acquisition on February 22,
2021 of 1,000 shares of Class A common stock by a member of Ms. Bansal’s immediate family who lives in the same
household as Ms. Bansal, for an individual retirement account. Ms. Bansal disclaims beneficial ownership of such shares. In
addition, with respect to the year ending December 31, 2022, an amendment to the Form 3 that was originally filed on March
17, 2022 for Matthew Dunlap as a result of his appointment to the Board of Directors on that date was filed on March 29, 2022
(one day after the Form 3 deadline) to include an additional 2,250 shares of Class A common stock previously granted to
Matthew Dunlap and an additional 14 shares of Class A common stock acquired by Matthew Dunlap pursuant to the
Company’s dividend reinvestment plan as a result of the Company’s payment of a dividend on March 15, 2022. Such additional
shares were inadvertently omitted from the original Form 3 filing due to an administrative oversight.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policies and Procedures for Transactions with Related Parties
The Company has adopted written policies and procedures providing that the Nominating and Corporate Governance
Committee will conduct a reasonable prior review and oversight of all related party transactions for potential conflicts of
interest and will prohibit such a transaction if it determines the transaction to be inconsistent with the interests of the Company
and its shareholders. For purposes of these policies and procedures, a “related party transaction” means any transaction,
arrangement, or relationship, or series of similar transactions, arrangements, or relationships (including any indebtedness or
guarantee of indebtedness) required to be disclosed by Item 404 of SEC Regulation S-K, because (i) the Company is a
participant, (ii) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, and (iii) a
related party has or will have a direct or indirect material interest. In addition, a “related party” means (i) any of the Company’s
directors, executive officers, or nominees for director, (ii) any shareholder that beneficially owns more than five percent of the
Company's outstanding shares of common stock, and (iii) an immediate family member of any of the foregoing. The
Nominating and Corporate Governance Committee approves only those transactions that it determines in good faith are in, or
are not inconsistent with, the best interests of the Company and its shareholders. The Nominating and Corporate Governance
Committee may, in its discretion, also submit certain transactions which it has approved to the full Board of Directors for the
Board’s approval as well, where it deems appropriate.
In determining whether to approve a related party transaction, the Nominating and Corporate Governance Committee reviews
the material terms and facts of the transaction and takes into account the factors it deems appropriate, which may include,
among others, the purpose and timing of, and the potential benefits and risks to the Company of, the transaction, the availability
of other sources for comparable products or services, the impact on a director's independence in the event the related party is a
director, and the extent of the related party's interest in the transaction. If a related party transaction is ongoing, the Nominating
and Corporate Governance Committee continues oversight of the transaction and reviews and assesses ongoing relationships
with the related party on at least an annual basis to verify that they comply with the policies and remain appropriate.
All approved related party transactions are communicated to the full Board of Directors by the Chairman of the Nominating and
Corporate Governance Committee, or his designee. Michael Dunlap beneficially owns shares representing 81.9 percent of the
combined voting power of the Company's shareholders as of February 28, 2022. Because of his beneficial ownership, Michael
Dunlap can effectively elect each member of the Board of Directors, including all members of the Nominating and Corporate
Governance Committee, and has the power to defeat or remove each member.
Although there is no formal requirement for executive management of the Company to approve related party transactions,
executive management reviews all related party transactions. Upon reviewing related party transactions, executive management
takes into account the factors it deems appropriate, which may include, among others, the benefits to the Company, the
availability of other sources for comparable products or services, the impact on a director's independence in the event the
related person is a director, and the extent of the related person's interest in the transaction. As Executive Chairman and
controlling shareholder of the Company, Michael Dunlap effectively has control over each member of the Company's executive
management, who were initially hired by Michael Dunlap and can be fired or otherwise penalized at his direction.
42
During 2021, the Company entered into certain transactions and had business arrangements with Union Bank and Trust
Company, Farmers & Merchants Investment Inc. ("F&M"), Michael Dunlap, Hudl, Assurity Life Insurance Company
("Assurity"), trusts associated with Shelby J. Butterfield, and various Ameritas entities. These transactions were reviewed and
approved by the Nominating and Corporate Governance Committee and reviewed by executive management. Union Bank and
Trust Company, F&M, Hudl, Assurity, Ms. Butterfield, and the Ameritas entities are related persons as discussed below. We
cannot affirm whether or not the fees and terms of each transaction are substantially the same terms as those prevailing at the
time for transactions with persons that do not have a relationship with the Company (either directly or as a partner, shareholder,
or officer of an organization that has a relationship with the Company). However, all related party transactions are based on
available market information for comparable assets, products, and services and are extensively negotiated.
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Union Bank and Trust Company and Farmers & Merchants Investment Inc. - Union Bank is controlled by F&M,
which owns 81.5 percent of Union Bank's common stock and 15.5 percent of Union Bank's non-voting non-
convertible preferred stock. Certain grantor retained annuity trusts established by Michael Dunlap, a significant
shareholder, Executive Chairman, and a member of the Board of Directors of the Company, and his spouse, own a
total of 50.4 percent of the outstanding voting common stock of F&M, and a certain grantor retained annuity trust
established by Michael Dunlap’s sister, Angela L. Muhleisen, owns 49.2 percent of the outstanding voting common
stock of F&M. In addition, Michael Dunlap and his family and Ms. Muhleisen and her family own a total of 8.9
percent and 7.9 percent, respectively, of F&M's outstanding non-voting preferred stock, which amounts are convertible
into shares of F&M common stock which would currently represent an additional 3.0 percent and 2.8 percent,
respectively, of F&M's outstanding common stock on an as converted basis. Michael Dunlap serves as a Director and
Chairman of F&M, and as a Director of Union Bank. Ms. Muhleisen serves as a Director and Chief Executive Officer
of F&M and as a Director, Chairperson, President, and Chief Executive Officer of Union Bank. Union Bank is deemed
to have beneficial ownership of a significant number of shares of Nelnet because it serves in a capacity of trustee or
account manager for various trusts and accounts holding shares of the Company, and may share voting and/or
investment power with respect to such shares. At February 28, 2022, Union Bank was deemed to beneficially own 11.3
percent of the Company's common stock. The stock holdings of Union Bank are deemed to be beneficially owned by
both Michael Dunlap and Ms. Muhleisen. At February 28, 2022, Michael Dunlap beneficially owned 42.4 percent of
the Company's outstanding common stock and Ms. Muhleisen beneficially owned 18.5 percent of the Company's
outstanding common stock.
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North Central Bancorp, Inc. ("NCB") - F&M owns 19.7 percent of NCB's class A voting stock. Michael
Dunlap is the Vice Chairman of the Board of Directors and Matthew Dunlap is a member of the Board of
Directors. Michael Dunlap also owns approximately 1 percent and Ms. Muhleisen owns 3 percent of NCB's
class A voting stock.
Farm and Home Insurance Agency, Inc. ("F&H") - Central Agency Inc. owns 42.5 percent of F&H's Class A
voting shares and has 33.3 percent combined legal ownership of the entity. Ms. Muhleisen and her family and
Michael Dunlap and his family own 46.3 percent and 24.2 percent, respectively, of Central Agency Inc.
Infovisa, Inc. - Infovisa, Inc. is controlled by F&M, which owns 83.8 percent of the entity's common stock,
and Michael Dunlap is the Chairman of the Board of Directors.
Hudl - Hudl is an online video and coaching tools software company for athletes of all levels, of which Mr. Graff, who
has served on the Company's Board of Directors since 2014, is CEO, co-founder, and a director.
Assurity - Assurity is a company which offers a variety of disability income and critical illness protection, life
insurance, and annuity products, of which Mr. Henning, who has served on the Company's Board of Directors since
2003, was President and CEO until becoming Non-Executive Chairman on January 1, 2022.
• Ms. Butterfield - Ms. Butterfield is a significant shareholder of the Company, and is also a co-trustee of the Stephen F.
Butterfield GST Non-Exempt Marital Trust (the "Butterfield GST Non-Exempt Marital Trust"), which is also a
significant shareholder of the Company. As of February 28, 2022, Ms. Butterfield and the Butterfield GST Non-
Exempt Marital Trust beneficially owned 7.6 percent and 4.7 percent, respectively, of the Company's outstanding
common stock.
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Ameritas - Ameritas Mutual Holding Company, Ameritas Holding Company, and Ameritas Life Insurance Corp.
(collectively referred to herein as “Ameritas”) are entities based in Lincoln, Nebraska that offer a wide range of
insurance and financial products and services to individuals, families, and businesses. JoAnn M. Martin, who was a
member of the Company’s Board of Directors in 2021 until her resignation in September 2021, served as a director
and vice chair for the Ameritas entities in 2021. Ms. Martin served for many years as chief executive officer of
Ameritas Mutual Holding Company and as chair of Ameritas Life Insurance Corp., which is owned by Ameritas
Holding Company, until her retirement from those positions effective January 10, 2020. In addition, Mr. Abel is chair
of Ameritas Mutual Holding Company and Ameritas Holding Company, and a director of Ameritas Life Insurance
Corp.
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Transactions with Union Bank
The Company has entered into certain contractual arrangements with Union Bank. These transactions include:
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Loan purchases - During 2021, the Company purchased $22.3 million (par value) of private education loans from
Union Bank. The net premium paid by the Company on these loan acquisitions was $0.4 million.
In addition, 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 $0.1 million in
marketing fees to the Company in 2021 under this agreement.
Loan servicing - As of December 31, 2021, the Company serviced $262.6 million of loans for Union Bank. Servicing
and origination fee revenue earned by the Company from servicing loans for Union Bank was $0.5 million for the year
ended December 31, 2021.
Funding - Participation Agreements
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The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which
Union Bank has agreed to purchase from the Company participation interests in student loans. The Company
uses this facility as a source to fund FFELP student loans. As of December 31, 2021, $967.5 million of loans
were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The
agreement automatically renews annually and is terminable by either party upon five business days' notice.
This agreement provides beneficiaries of Union Bank's grantor trusts with access to investments in interests in
student loans, while providing liquidity to the Company 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.
In addition, 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, 2021, $254.0 million of student loan asset-backed securities were
subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The
agreement automatically renews annually and is terminable by either party upon five business days' notice.
The Company can participate student loan asset-backed securities to Union Bank to the extent of availability
under the grantor trusts, up to $400.0 million or an amount in excess of $400.0 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.
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Funding - Real Estate
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401 Building, LLC (“401 Building”) is an entity that was established in 2015 for the sole purpose of
acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company
owns 50 percent of 401 Building. On May 1, 2018, Union Bank, as lender, received a $1.5 million promissory
note from 401 Building. The promissory note carries an interest rate of 6.00% and has a maturity date of
December 1, 2032.
330-333, LLC (“330-333”) is an entity that was established in 2016 for the sole purpose of acquiring,
developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50
percent of 330-333. On October 22, 2019, Union Bank, as lender, received a $162,000 promissory note from
330-333. The promissory note carries an interest rate of 6.00% and has a maturity date of December 1, 2032.
12100.5 West Center, LLC ("West Center") is an entity that was established in 2016 for the sole purpose of
acquiring, developing, and owning a commercial real estate property in Omaha, Nebraska. The Company
owns 33.33 percent of West Center. On October 29, 2019, Union Bank, as lender, received a $2.9 million
promissory note from West Center. The promissory note carries an interest rate of 3.85% and has a maturity
date of October 30, 2024.
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Operating cash - The majority of the Company's cash operating bank accounts are maintained at Union Bank. The
Company also invests cash in the Short term Federal Investment Trust (“STFIT”) of the Student Loan Trust Division
of Union Bank, which the Company uses as operating cash accounts and accounts to hold customer funds as a loan
servicer and payments provider before remitting such funds to lending entities and schools, respectively. As of
December 31, 2021, the Company had $380.2 million deposited at Union Bank in operating accounts or invested in
the STFIT. Interest income earned from cash deposited in these accounts for the year ended December 31, 2021 was
$0.2 million.
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529 Plan administration - 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. Union Bank is
entitled to a fee as program manager pursuant to its program management agreement with the College Savings Plans.
In 2021, the Company received fees of $3.5 million from Union Bank related to the Company's administration services
provided to the College Savings Plans.
During 2021, 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 in 2021 were $0.4 million.
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, 2021, Nelnet Bank had $184.9 million in deposits from the funds offered
under the College Savings Plans.
Lease arrangements - Union Bank leases approximately 4,100 square feet of office space in the Company's corporate
headquarters building. During 2021, Union Bank paid the Company approximately $81,000 for rent. The lease
agreement expires on June 30, 2023.
Other fees paid to Union Bank - During 2021, the Company paid Union Bank approximately $280,000 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 - During 2021, the Company received approximately $342,000 from Union
Bank related to employee sharing arrangements.
Investment services - Union Bank has established various trusts whereby Union Bank serves as trustee for the purpose
of purchasing, holding, managing, and selling investments in student loan asset-backed securities. WRCM, an SEC-
registered investment advisor and a majority owned 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 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 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. During
2021, the Company earned $6.3 million of fees under this agreement.
WRCM also has management agreements with Union Bank under which it is designated to serve as investment advisor
with respect to the assets (principally Nelnet stock) within several trusts established by Michael Dunlap and his
spouse, and Ms. Muhleisen and her spouse. Union Bank serves as trustee for the trusts. Per the terms of the
agreements, Union Bank pays WRCM five basis points (annually) 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 of 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. During 2021, the Company earned approximately $213,000 of fees under these
agreements.
WRCM has established private investment funds for the primary purpose of purchasing, selling, investing, and trading,
directly or indirectly, in student loan asset-backed securities, and to engage in financial transactions related thereto.
Michael Dunlap, Jeffrey R. Noordhoek (Chief Executive Officer of the Company), Ms. Muhleisen and her spouse, and
WRCM have invested $1.2 million, $1.1 million, $5.3 million, and $0.3 million, respectively, in certain of these funds.
Based upon the current level of holdings by non-affiliated limited partners, the management agreements provide non-
affiliated limited partners the ability to remove WRCM as manager without cause. WRCM earns 50 basis points
(annually) on the outstanding balance of the investments in these funds, of which WRCM pays approximately 50
percent of such amount to Union Bank as custodian. As of December 31, 2021, the total outstanding balance of
investments in these funds was $138.0 million. During 2021, the Company paid Union Bank $0.3 million as custodian
of the funds.
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Defined contribution plan - Union Bank administers the Company's 401(k) defined contribution plan. Fees paid to
Union Bank to administer the plan, approximately $766,000 in 2021, are paid by the plan's participants.
The net aggregate impact on the Company's consolidated statements of income for the year ended December 31, 2021 related to
the transactions with Union Bank as described above was income (before income taxes) of $11.0 million.
The Company intends to maintain its relationship with Union Bank, which the Company's management believes provides
certain benefits to the Company. Those benefits include Union Bank's knowledge of and experience in the FFELP industry, its
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willingness to provide services, and at times liquidity and capital resources, on an expedient basis, and the proximity of Union
Bank to the Company's corporate headquarters located in Lincoln, Nebraska.
The majority of transactions and arrangements with Union Bank are not offered to unrelated third parties or subject to
competitive bids. Accordingly, these transactions and arrangements not only present conflicts of interest, but also pose the risk
to the Company's shareholders that the terms of such transactions and arrangements may not be as favorable to the Company as
it could receive from unrelated third parties. Moreover, the Company may have and/or may enter into contracts and business
transactions with related parties that benefit Michael Dunlap and his sister, as well as other related parties, that may not benefit
the Company and/or its minority shareholders.
Transactions with Michael Dunlap
The Company owns an 82.5 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. An
entity owned by Michael Dunlap (which entity is referred to herein as “MSD”) owns the remaining 17.5 percent interest in the
same aircraft. The aircraft joint ownership agreement between the Company and MSD for this aircraft provides that it will
continue in effect on a month to month basis until terminated by mutual agreement, and that MSD has the right to require the
Company to purchase MSD’s interest in the aircraft for an amount based on the aircraft's fair market value at that time. If the
term of the joint ownership agreement is not extended by agreement of the Company and MSD, the aircraft must be sold and
the net proceeds from the sale distributed to the Company and MSD in proportion to their ownership percentages. Under an
aircraft maintenance agreement among the Company, MSD, and an unrelated aviation service company, the Company and
MSD paid a total of $759,000 in management fees to the service company in 2021 based on the Company's and MSD's
respective ownership percentages. The maintenance agreement also provides that the Company must pay for all flight operating
expenses for each flight conducted on its behalf, with a corresponding obligation by MSD, and that both the Company and
MSD must pay their pro-rata portion, based on actual use percentages, of the cost of maintaining the aircraft.
On June 26, 2020, Nelnet Bank, Nelnet, Inc., and Michael Dunlap (as Nelnet, Inc.’s controlling shareholder) entered into a
Capital and Liquidity Maintenance Agreement and a Parent Company Agreement with the FDIC in connection with Nelnet,
Inc.’s role as a source of financial strength for Nelnet Bank. As part of the Capital and Liquidity Maintenance Agreement,
Nelnet, Inc. is obligated to (i) contribute capital to Nelnet Bank for it to maintain capital levels that meet FDIC requirements for
a “well capitalized” bank, including a leverage ratio of capital to total assets of at least 12 percent; (ii) provide and maintain an
irrevocable asset liquidity takeout commitment for the benefit of Nelnet Bank in an amount equal to the greater of either 10
percent of Nelnet Bank’s total assets or such additional amount as agreed to by Nelnet Bank and Nelnet, Inc.; (iii) provide
additional liquidity to Nelnet Bank in such amount and duration as may be necessary for Nelnet Bank to meet its ongoing
liquidity obligations; and (iv) establish and maintain a pledged deposit of $40.0 million with Nelnet Bank.
Transactions with Hudl
Prior to 2020, the Company and Michael Dunlap, along with his children (including Matthew Dunlap), held combined direct
and indirect equity ownership interests in Hudl. On May 20, 2020 and May 27, 2021, the Company made additional equity
investments in Hudl of approximately $26 million and $5 million, respectively, as one of the participants in equity raises
completed by Hudl. The Company and Michael Dunlap, along with his children, currently hold combined direct and indirect
equity ownership interests in Hudl of 19.3 percent and 3.8 percent, respectively, which did not materially change as a result of
the May 2020 and May 2021 transactions. The Company's and Michael Dunlap's direct and indirect equity ownership interests
in Hudl consist of preferred stock with certain liquidation preferences that are considered substantive.
The Company held a promissory note issued by Hudl for approximately $120,000 in certain fees paid by the Company on
behalf of Hudl in December 2015 related to the construction of a building for Hudl's corporate headquarters in Lincoln,
Nebraska, which was paid in full in July of 2021. The promissory note was interest-free and repayment by Hudl was contingent
upon its receipt of certain future refunds from the City of Lincoln based on future job creation.
The Company owns 25 percent of TDP Phase Three, LLC ("TDP"), an entity established during 2015 for the sole purpose of
developing and operating a commercial building in Lincoln, Nebraska that is the corporate headquarters for Hudl and in which
Hudl is the primary tenant. As of December 31, 2021, TDP had four notes payable outstanding totaling $23.5 million, of which
recourse to the Company on these notes is equal to its ownership percentage of TDP.
Hudl has a $30.0 million unsecured line of credit with Union Bank, which expires on December 31, 2022.
Transactions with Assurity Life Insurance Company
During the year ended December 31, 2021, Nelnet Business Solutions, a subsidiary of the Company, paid $2.1 million to
Assurity for insurance premiums for insurance on certain tuition payment plans. As part of providing the tuition payment plan
46
insurance to Nelnet Business Solutions, Assurity entered into a reinsurance agreement with the Company's insurance
subsidiary, under which Assurity paid the Company's insurance subsidiary reinsurance premiums of $1.8 million in 2021, and
the Company's insurance subsidiary paid claims on such reinsurance to Assurity of $1.5 million in 2021. In addition, Assurity
pays Nelnet Business Solutions a partial refund annually based on claim experience, which was approximately $41,000 in 2021.
During the year ended December 31, 2021, the Company made available to its employees certain voluntary insurance products
through Assurity. Premiums are paid by participants and are remitted to Assurity by the Company on behalf of the participants.
The Company remitted to Assurity approximately $576,000 in premiums related to these products during 2021.
Both the aggregate of the payments made by the Company to Assurity during 2021, and the aggregate of the payments received
by the Company from Assurity during 2021, were less than 2 percent of Assurity's gross revenues for 2021.
Transactions with Butterfield Trusts
On August 10, 2021, the Company repurchased, in a privately negotiated transaction under the Company’s existing stock
repurchase program, a total of 337,717 shares of the Company’s Class A common stock (the “Repurchased Shares”) from the
Butterfield GST Non-Exempt Marital Trust, an estate planning trust for the family of Stephen F. Butterfield, including Ms.
Butterfield, and various other estate planning trusts for the children of Ms. Butterfield. The shares were repurchased at a
discount to the closing market price of the Company's Class A common stock as of August 9, 2021, which closing market price
was $76.92 per share, and the transaction was separately approved by the Company’s Board of Directors. Immediately prior to
the Company’s repurchase of the Repurchased Shares, the Repurchased Shares were shares of the Company’s Class B common
stock that Ms. Butterfield converted to shares of Class A common stock.
WRCM has management agreements with Union Bank under which it is designated to serve as investment advisor with respect
to the Nelnet stock within several trusts established by Ms. Butterfield and Stephen F. Butterfield (who passed away in 2018).
Union Bank serves as trustee for the trusts. Per the terms of the agreements, Union Bank pays WRCM five basis points
(annually) of the aggregate value of the Nelnet stock in 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 of 510 shares and 2.0 million shares of the
Company's Class A and Class B common stock, respectively, held directly and indirectly by these trusts and for which WRCM
is compensated under these agreements. During 2021, the Company earned approximately $36,000 of fees under these
agreements.
Transactions with Ameritas
The Company and Ameritas have each invested approximately $800,000 for a 50 percent ownership interest in BenefitEd, a
joint venture started in 2017 to help employers offer student loan repayment as an employee benefit by directly contributing
toward an employee’s student loan balance. The Company does not consolidate or control BenefitEd. The Company provides
accounting and payment processing services to BenefitEd, and Ameritas provides marketing services. The total value of these
services in 2021 was approximately $465,000 and $190,000, respectively.
During the year ended December 31, 2021, the Company used Ameritas Life Insurance Corp. to process claims related to the
dental insurance plan the Company makes available to its employees and of which the Company self-insures. The total fee paid
to Ameritas Life Insurance Corp. in 2021 was approximately $161,000.
The Company and Ameritas have co-investments in certain real estate projects focused on the development of commercial and
multi-family properties throughout the United States. As of December 31, 2021, the book value of the Company’s co-
investments in these projects was $0.9 million. Additionally, as part of the co-investment transactions with Ameritas, the
Company and Ameritas entered into an agreement under which the Company pays Ameritas a management fee related to each
real estate project. The total fee paid in 2021 to Ameritas under this agreement was approximately $78,000.
Ameritas owns a building in Lincoln, Nebraska where the Company leases approximately 49,000 square feet of office space.
During 2021, the Company paid Ameritas approximately $836,000 in rent for this space.
Solar Transactions
The Company has made numerous tax equity investments in renewable energy solar partnerships to support the development
and operations of solar projects throughout the country, alongside tax equity investments in such projects syndicated to third-
party investors. These investments provide a federal income tax credit, currently at 26 percent (for projects commencing
construction in 2020-2022) and 30 percent (for projects commencing construction prior to 2020) of the eligible project cost.
The investments are made through Company-managed limited liability companies that invest in the projects, and as part of
these transactions the Company receives management and performance fees under management agreements for the transactions.
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During 2021, portions of various of the Company’s solar tax equity investment transactions were syndicated among F&M,
Assurity, Ameritas, NCB, Infovisa, and F&H as co-investors, along with other unrelated third-party investors. As of December
31, 2021, the total amount of tax equity investments in these transactions was $46.9 million, and the total amounts invested by
the Company, F&M, Assurity, Ameritas, NCB, Infovisa, and F&H were $10.7 million, $7.9 million, $5.4 million, $5.0 million,
$2.5 million, $0.6 million, and $0.1 million, respectively. The relative co-investment percentage by the Company in these
transactions varied by transaction, ranging from 2 percent to 46 percent, and the participation and relative co-investment
percentages by F&M, Assurity, Ameritas, NCB, Infovisa, and F&H also varied by transaction. The total fees earned by the
Company during 2021 from these transactions that were allocable to F&M, Assurity, Ameritas, NCB, Infovisa, and F&H were
$29,490, $16,027, $9,615, $14,958, $1,923, and $962, respectively.
Other Employment Relationships
Mr. Cintani, who serves on the Company's Board of Directors, has a son, Brian Cintani, 45, who is employed by the Company
as an experienced financial analyst in the Company's capital markets group. During the year ended December 31, 2021, Brian
Cintani's total compensation was less than $210,000. Brian Cintani has been employed by the Company since 2002 and his
employment preceded Mr. Cintani's service as a director which began in May 2012.
Matthew Dunlap, who was appointed to the Board in March 2022 as a Class III Director, is currently employed by the
Company as Chief Business Development Officer, and prior to March 2022, as a Managing Director in the Nelnet Business
Solutions operating segment. Matthew Dunlap's father is Michael Dunlap. During the year ended December 31, 2021, Matthew
Dunlap's total compensation was approximately $308,000. Matthew Dunlap has been employed by the Company since 2017.
Other Transactions
Though not required to be disclosed under Item 404(a) of Regulation S-K, below are transactions and relationships the
Company had with other related parties during 2021.
Unico Group, Inc. ("Unico"), an insurance agency of which Michael Dunlap and Ms. Muhleisen's children own approximately
4.0 percent, provided real estate related insurance services to TDP during 2021. TDP paid Unico approximately $29,000 for
these services during 2021.
During 2021, the Company paid approximately $1,000 to Union Title Company, LLC, a 74 percent owned subsidiary of F&M,
for fees related to the Company's real estate development activity.
The Company owns Canopy Park, LLC ("Canopy Park"), an entity that was established in 2019 for the sole purpose of
acquiring, developing, and owning a commercial real estate property in Lincoln, Nebraska. The Company owns 50 percent of
Canopy Park. On October 29, 2020, Great Western Bank, as lender, received a $32.5 million promissory note from Canopy
Park. The promissory note carries an interest rate of 2.1% plus one-month LIBOR and has a maturity date of November 10,
2035. Great Western Bank is a full service regional bank holding company, and was acquired by First Interstate Bancorp on
February 1, 2022. Mr. Henning served on the board of directors of Great Western Bank and subsequent to the acquisition of
Great Western Bank, now serves on the board of directors of First Interstate Bancorp.
In addition to the foregoing, from time to time, the Company, some of the Company's executive officers, and some of the
members of the Company's Board of Directors invest in small or startup companies, often in the Company's local
community. In some cases, executive officers of the Company may also serve as members of the Board of Directors of such
companies in connection with the investment.
The Company and certain executive officers have invested a total of $2.0 million in Capricorn Healthcare and Special
Opportunities, LP ("Capricorn"). Capricorn is located in Palo Alto, California and is a limited partnership that primarily invests
in healthcare-related companies. As of December 31, 2021, the investors and amount invested include the Company $973,000,
Michael Dunlap $973,000, and Mr. Noordhoek $97,000.
The Company and Matthew Dunlap have minority interest investments in CompanyCam, a Lincoln, Nebraska-based photo
documentation and communication application for contractors. As of December 31, 2021, the Company and Matthew Dunlap
have invested $0.9 million and $10,000, respectively.
Matthew Dunlap has also invested approximately $10,000 as of December 31, 2021 in Boston Omaha, a diversified publicly-
traded company of which Mr. Peterson, who joined the Company's board of directors in March 2022, is Co-Chairman, Co-
CEO, and Co-President.
Neither the Company, the Company's executive officers, nor members of the Company's Board of Directors, individually or in
the aggregate, owns a majority interest in any of these companies. While the Company does not deem these investments to be
related party transactions, the Company reports investment activity of this type to the Board of Directors.
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AUDIT COMMITTEE REPORT
Report of the Board Audit Committee
The Audit Committee of the Board of Directors (the “Committee”) is responsible for the oversight of the integrity of the
Company's consolidated financial statements, the Company's system of internal control over financial reporting, the Company's
policy standards and guidelines for risk assessment and risk management and compliance with legal and regulatory
requirements, the qualifications and independence of the Company's independent auditor, and the performance of the
Company's internal and independent auditors. The Committee has the sole authority and responsibility to select, determine the
compensation of, evaluate, and, when appropriate, replace the Company's independent auditor. The Committee, with input from
management, regularly monitors the performance of the key members of the independent auditors’ team, including the lead
partner. In the case of rotation of the lead partner, the Committee is involved in the selection of the new lead audit partner, and
considers such factors as the individual’s professional and relevant industry experience, other current assignments, and the
proximity of their office location to the Company’s headquarters. The Committee is also responsible under the Sarbanes-Oxley
Act of 2002 for establishing procedures for the receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters. The Committee operates under a written charter
adopted by the Board, a copy of which is available at www.nelnetinvestors.com. The Board has determined that each
Committee member is independent under the standards of director independence established under the Company's Corporate
Governance Guidelines and the NYSE listing requirements and is also independent under applicable independence standards of
the Exchange Act and the SEC rules thereunder.
The Committee serves in an oversight capacity and is not part of the Company's managerial or operational decision-making
process. Management is responsible for the financial reporting process, including the system of internal controls, for the
preparation of consolidated financial statements in accordance with generally accepted accounting principles, and for the report
on the Company's internal control over financial reporting. The Company's independent auditor, KPMG LLP, is responsible for
auditing the Company's financial statements and expressing an opinion as to their conformity with generally accepted
accounting principles and for expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. The Committee's responsibility is to oversee the financial reporting process and to review and discuss management's
report on the Company's internal control over financial reporting. The Committee relies, without independent verification, on
the information provided to it and on the representations made by management, the internal auditor, and the independent
auditor.
The Committee held seven meetings during 2021. The Committee, among other things:
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Reviewed and discussed the Company's earnings releases, Quarterly Reports on Form 10-Q, and Annual Report
on Form 10-K, including the consolidated financial statements and compliance with legal and regulatory
requirements
Reviewed and discussed, in conjunction with the Risk and Finance Committee, the Company's policies and
procedures for risk assessment and risk management and the major risk exposures of the Company and its
business units, as appropriate
Reviewed and discussed the annual plan and the scope of the work of the internal auditor for fiscal 2021 and
reviewed all completed reports of the internal auditor
Reviewed management's progress on addressing internal and certain external audit findings
Reviewed and discussed the annual plan and scope of the work of the independent auditor
Reviewed and discussed, in conjunction with the Compliance Committee, reports from management on the
Company's policies regarding applicable consumer-oriented legal and regulatory requirements
• Met with KPMG LLP, the internal auditor, and Company management in separate executive sessions
The Committee reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2021
with management, the internal auditor, and KPMG LLP. The Committee reviewed and discussed the critical accounting policies
and estimates as set forth in the Company's Annual Report on Form 10-K, management's annual report on the Company's
internal control over financial reporting, and KPMG LLP's opinion on the effectiveness of internal control over financial
reporting. The Committee also discussed with management and the internal auditor the process used to support certifications by
the Company's Chief Executive Officer and Chief Financial Officer that are required by the SEC and the Sarbanes-Oxley Act of
2002 to accompany the Company's periodic filings with the SEC and the processes used to support management's annual report
on the Company's internal control over financial reporting.
49
The Committee discussed with KPMG LLP matters related to the audit of the Company's consolidated financial statements and
the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, issued by the
Public Company Accounting Oversight Board (“PCAOB”), and in connection therewith discussed with KPMG LLP the matters
required to be discussed by the applicable requirements of the PCAOB and the SEC. This review included a discussion with
management and KPMG LLP as to the quality (not merely the acceptability) of the Company's accounting principles, the
reasonableness of significant estimates and judgments, and the disclosures within the Company's consolidated financial
statements, including the disclosures relating to critical accounting policies.
KPMG LLP also provided to the Committee the written disclosures and the letter required by applicable requirements of the
PCAOB regarding KPMG LLP's communications with the Committee concerning independence. The Committee discussed
with KPMG LLP their independence from the Company. When considering KPMG LLP's independence, the Committee
considered if services they provided to the Company beyond those rendered in connection with their audit of the Company's
consolidated financial statements, reviews of the Company's interim condensed consolidated financial statements included in its
Quarterly Reports on Form 10-Q, and their opinion on the effectiveness of the Company's internal control over financial
reporting were compatible with maintaining their independence. The Committee also reviewed and pre-approved, among other
things, the audit, audit-related, and tax services performed by KPMG LLP. For tax services, the pre-approval included
discussion with KPMG concerning their independence as required by PCAOB Rule 3524 (Audit Committee Pre-approval of
Certain Tax Services). The Committee received regular updates on the amount of fees and scope of audit, audit-related, and tax
services provided.
Based on the Committee's review and these meetings, discussions, and reports, and subject to the limitations on the Committee's
role and responsibilities referred to above and in the Audit Committee Charter, the Committee recommended to the Board that
the Company's audited consolidated financial statements for the year ended December 31, 2021 be included in the Company's
2021 Annual Report on Form 10-K for filing with the SEC.
The Committee has also selected KPMG LLP as the Company's independent auditor for the year ending December 31, 2022
and is presenting the selection to the shareholders for ratification.
KPMG has been the Company’s independent auditor since 1998. The Committee last went through a Request for Proposal for
independent audit and non-audit services effective for the year ended December 31, 2012.
The three independent directors listed below are the members of the Audit Committee and current directors who participated in
the review, discussions, and recommendation with respect to the Audit Committee Report for 2021.
Respectfully submitted,
Thomas E. Henning, Chairman
William R. Cintani
David S. Graff
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee selects the Company's independent registered public accounting firm. This proposal is put before the
shareholders because the Board believes that it is good corporate governance practice to seek shareholder ratification of the
selection of the independent registered public accounting firm. If the appointment of KPMG LLP is not ratified, the Audit
Committee will evaluate the basis for the shareholders' vote when determining whether to continue the firm's engagement.
The Board of Directors of the Company recommends a vote FOR the ratification of the appointment of KPMG LLP as
the independent registered public accounting firm for 2022.
The affirmative vote of the majority of votes cast at the Annual Meeting is required to ratify the appointment of KPMG LLP.
Unless marked to the contrary, proxies will be voted FOR the ratification of the appointment of KPMG LLP as the independent
registered public accounting firm for 2022.
Representatives of KPMG LLP are expected to attend the Annual Meeting and to respond to appropriate questions from
shareholders present at the meeting and will have an opportunity to make a statement if they desire to do so.
50
Independent Accountant Fees and Services
Aggregate fees for professional services rendered by KPMG LLP for the years ended December 31, 2021 and 2020 are set forth
below.
2021
2020
Audit fees
Audit-related fees
Tax fees
All other fees
Total
$
$
1,307,700 $
1,784,500
64,408
1,780
3,158,388
1,157,853
1,467,500
109,000
1,780
2,736,133
Audit-related fees were for assurance and other services related to service provider compliance reports, including Service
Organization Controls (SOC1) reports on the effectiveness of the Company's controls for student loan servicing and other
services provided for its customers, employee benefit plan audits, agreed-upon procedures for Company-sponsored student loan
securitization financings and other matters, and consultations concerning financial accounting and reporting standards.
Tax fees were for services related to tax compliance and planning.
All other fees represent the amount paid by the Company for access to an online accounting and tax reference tool.
In addition to the services and fees described above, KPMG was engaged to perform audits of and provide tax services for
certain private investment funds which are managed by WRCM, for which KPMG received total fees of $89,000 and $85,500
in 2021 and 2020, respectively. Additionally, TDP Phase Three, LLC, an entity of which the Company owns 25 percent and
was established for the sole purpose of developing and operating a building, engaged KPMG to perform audits in 2021 and
2020, for which KPMG received total fees of $26,000 and $25,000, respectively.
The Audit Committee's pre-approval policy with respect to audit and permitted non-audit services by the independent auditor is
set forth in its charter. The Audit Committee has the sole authority to appoint, retain, and terminate the Company's independent
auditor, which reports directly to the Audit Committee. The Audit Committee is directly responsible for the evaluation,
compensation (including as to fees and terms), and oversight of the work of the Company's independent auditor (including
resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or performing other audit, review, or attestation services for the Company. All related fees
and costs of the independent auditor, as determined by the Audit Committee, are paid promptly by the Company in accordance
with its normal business practices. All auditing services and permitted non-audit services performed for the Company by the
independent auditor, including the services for 2021 and 2020 described above, are pre-approved by the Audit Committee,
subject to applicable laws, rules, and regulations. The Audit Committee may form and delegate to a subcommittee the authority
to grant pre-approvals with respect to auditing services and permitted non-auditing services, provided that any such grant of
pre-approval shall be reported to the full Audit Committee at its next meeting.
PROPOSAL 3 - ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
Section 14A of the Exchange Act requires that the Company provide its shareholders with the opportunity to vote to approve,
on a nonbinding, advisory basis, the compensation of the Company's Named Executive Officers as disclosed pursuant to the
compensation disclosure rules of the SEC, and the Company is therefore providing its shareholders with the opportunity to cast
such an advisory vote on executive compensation at this year’s Annual Meeting as described below. The Company believes
that it is appropriate to seek the views of shareholders on the design and effectiveness of the Company's executive
compensation program.
Based on the results of an advisory vote on the frequency of advisory votes on executive compensation at the Company's 2017
annual meeting of shareholders, where the Board of Directors recommended and the shareholders voted in favor of holding an
advisory vote on executive compensation every year, the Board of Directors determined that, until the next vote on the
frequency of holding advisory votes on executive compensation, the Company will hold a shareholder advisory vote on
executive compensation every year. Therefore, the next advisory vote on executive compensation will occur at the Company’s
2023 annual meeting of shareholders. Section 14A of the Exchange Act requires that at least once every six years the Company
provide its shareholders with the opportunity to vote, on a nonbinding, advisory basis, on whether the frequency of future
advisory votes on executive compensation will be every one, two, or three years.
As described in the Compensation Discussion and Analysis section of this Proxy Statement, the Company's objective for its
executive compensation program is to attract, motivate, develop, and retain executives who will contribute to the Company's
long-term success and the creation of shareholder value. The Company seeks to accomplish this objective in a way that rewards
51
performance and is aligned with its shareholders' long-term interests, and the Company's compensation programs are designed
to reward the Named Executive Officers for the achievement of short-term and long-term strategic and operational goals and
the achievement of increased shareholder return, while at the same time avoiding the encouragement of unnecessary or
excessive risk-taking.
The framework and executive compensation philosophy are established by an independent People Development and
Compensation Committee of the Board of Directors. The following items reflect our commitment to pay for performance and to
maintain a strong executive compensation governance framework:
•
•
•
Incentive plans that are based upon financial and operational goals that are reviewed annually by the People
Development and Compensation Committee.
An annual risk assessment conducted by the People Development and Compensation Committee to evaluate
whether incentive programs drive behaviors that are demonstrably within the risk management parameters it
deems prudent.
A robust share ownership and retention policy.
The Compensation Discussion and Analysis and the compensation tables and disclosures provided in this Proxy Statement
describe the Company's executive compensation program in more detail, and discuss the following key elements of the
program:
• We pay for performance, both in setting base salaries and awarding incentives via an Executive Officers Incentive
Compensation Plan. This plan is used to assess the participating Named Executive Officers’ performance based
on numerous criteria, including certain financial measures such as levels of earnings, growth of assets, return on
equity and assets, cash flow, market share, operating margins and operating expenses; certain service measures
including performance of the Company's operating segments; employee engagement; and strategic positioning.
•
•
•
Periodically, we retain external, independent compensation consultants to review the compensation levels and
practices for the Named Executive Officers, compare those levels to executives in comparable positions in select
industries and companies, and identify potential gaps or inconsistencies in our compensation practices.
None of the Named Executive Officers has an employment agreement or severance arrangement. In addition, the
Company generally does not provide significant perquisites, tax reimbursements, or change in control benefits to
the Named Executive Officers that are not available to other employees, and we do not issue stock options.
Each of the Named Executive Officers is employed at-will and is expected to demonstrate exceptional personal
performance in order to continue serving as a member of the executive team.
The Company believes the compensation program for the Named Executive Officers is instrumental in helping the Company
achieve its strong financial performance, and is asking shareholders to approve the compensation of the Company's Named
Executive Officers as disclosed in this Proxy Statement, including in the Compensation Discussion and Analysis, the
compensation tables, and the narrative disclosures that accompany the compensation tables.
The vote on this proposal is not intended to address any specific element of compensation; rather, the vote relates to the
compensation of our Named Executive Officers, as described in this Proxy Statement in accordance with the compensation
disclosure rules of the SEC. As an advisory vote, the vote on this proposal is not binding upon the Company, the Board of
Directors, or the People Development and Compensation Committee. However, the People Development and Compensation
Committee, which is responsible for designing and administering the Company's executive compensation program, values the
opinions expressed by shareholders in their vote on this proposal and will consider the outcome of the vote when making future
compensation decisions for Named Executive Officers.
Accordingly, the Company's shareholders are asked to vote on the following resolution at the Annual Meeting:
“RESOLVED, that the Company's shareholders approve, on an advisory basis, the compensation of the Named
Executive Officers, as disclosed in the Company's Proxy Statement for the 2022 Annual Meeting of Shareholders
pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the
Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and
disclosure.”
The Board of Directors recommends a vote FOR the approval of the compensation of the Company's Named Executive
Officers, as disclosed in this Proxy Statement.
52
PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION TO ADD A
FEDERAL FORUM SELECTION PROVISION FOR LEGAL ACTIONS UNDER THE SECURITIES ACT OF 1933
Overview
The Board of Directors has unanimously approved and unanimously recommends that the Company’s shareholders approve an
amendment to the Company’s Articles of Incorporation to add to the existing exclusive forum provisions a provision that the
United States federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action
arising under the federal Securities Act of 1933, which governs offers and sales of securities (with such additional provision
referred to as the “Federal Forum Provision” and such amendment to the Company’s Articles of Incorporation referred to as the
“Federal Forum Amendment”). The purpose of the Federal Forum Amendment is to proactively adopt a measure intended to
promote the efficient resolution of any future complaint under the Securities Act of 1933, by allowing for the consolidation of
multi-jurisdiction litigation, the avoidance of state court forum shopping, and efficiencies in managing the procedural aspects of
any such litigation.
The description in this proxy statement of the Federal Forum Amendment is qualified in its entirety by reference to, and should
be read in conjunction with, the full text of the Federal Forum Amendment, which is included in the form of Articles of
Amendment to Third Amended and Restated Articles of Incorporation attached to this proxy statement as Appendix A. If the
Federal Forum Amendment is approved by the shareholders, the Articles of Amendment in substantially the same form as set
forth in Appendix A will be promptly filed with the Nebraska Secretary of State and will become effective upon such filing.
Description of the Amendment
If the Federal Forum Amendment is approved by the shareholders, Article XII of the Articles of Incorporation will be amended
as follows (with underlined text indicating insertions and there being no deletions of text):
EXCLUSIVE FORUM FOR ADJUDICATION OF CERTAIN LEGAL ACTIONS
ARTICLE XII.
12.1 Exclusive Forum for Certain State Law Claims. Unless the Corporation consents in writing to the selection of
an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or
proceeding brought on behalf or in the right of the Corporation; (ii) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer, or employee of the Corporation to the Corporation or the Corporation’s shareholders; (iii) any
action asserting a claim arising pursuant to any provision of the Nebraska Business Corporation Act (effective until January 1,
2017), the Nebraska Act (effective January 1, 2017), or the Articles of Incorporation or By-laws of the Corporation (as each
may be amended from time to time); or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the
District Court for the State of Nebraska located in the City of Lincoln, County of Lancaster, Nebraska (or, if such court does not
have jurisdiction, the United States District Court for the District of Nebraska located in the City of Lincoln, Nebraska). If any
action the subject matter of which is within the scope of the preceding sentence is filed in a court other than a court referred to
in the preceding sentence (a “Foreign Action”) in the name of any shareholder, such shareholder shall be deemed to have
consented to (i) the personal jurisdiction of the state and federal courts located within the State of Nebraska in connection with
any action brought in any such court to enforce the preceding sentence and (ii) having service of process made upon such
shareholder in any such action by service upon such shareholder’s counsel in the Foreign Action as agent for such shareholder.
12.2 Exclusive Federal Forum for Securities Act of 1933 Claims. Unless the Corporation consents in writing to the
selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted
by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the
Securities Act of 1933, as amended.
12.3 Deemed Shareholder Consent; Securities Exchange Act of 1934 and Other Claims With Exclusive Federal
Jurisdiction. Any person or entity owning, purchasing, or otherwise acquiring any interest in shares of capital stock of the
Corporation shall be deemed to have notice of and consented to the provisions of this Article XII. Notwithstanding the
foregoing provisions of this Article XII, the provisions of this Article XII shall not apply to suits or actions brought to enforce
any liability or duty created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal
courts of the United States of America have exclusive jurisdiction.
53
Background of, Reasons for, and General Effects of the Amendment
Background
The Articles of Incorporation already provide that, unless the Company consents in writing to the selection of an alternative
forum, to the fullest extent permitted by law, the Nebraska state district court located in Lincoln, Nebraska (or, if such court
does not have jurisdiction, the United States federal district court located in Lincoln, Nebraska) shall be the sole and exclusive
forum for state law claims involving (i) any derivative action or proceeding brought on behalf or in the right of the Company;
(ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or employee of the Company to the
Company or the Company’s shareholders; (iii) any action asserting a claim arising pursuant to any provision of Nebraska state
corporate law or the Articles of Incorporation or Bylaws of the Company (as each may be amended from time to time); and (iv)
any action asserting a claim governed by the internal affairs doctrine, which generally recognizes that corporate internal affairs
with respect to shareholders, directors, and officers should be governed by the laws of the state of incorporation. The
Company’s shareholders approved these exclusive forum provisions in 2016.
In 2018, a decision by the United States Supreme Court confirmed that federal and state courts have concurrent jurisdiction
over legal actions alleging claims under the federal Securities Act of 1933. As a result, state court filings of Securities Act of
1933 complaints increased and some companies adopted federal forum provisions in order to avoid duplicative litigation filings
for such cases in multiple jurisdictions, steer such cases to federal courts more accustomed to hearing federal securities law
claims, and provide efficiencies in managing the procedural aspects of such litigation. In 2020, a decision by the Delaware
Supreme Court upheld the facial validity of federal forum provisions under Delaware corporate law, resulting in such
provisions becoming more common for companies going public, as well as the addition of such provisions by several existing
public companies to their charter or bylaws. The Company is a Nebraska corporation governed by the Nebraska Model
Business Corporation Act (the “NMBCA”), and the statutory language for permissible provisions in the articles of
incorporation under the NMBCA with respect to managing the business and regulating the affairs of the corporation and
defining, limiting, and regulating the powers of the corporation, its board of directors, and shareholders is similar to the
corresponding Delaware statutory language underlying the Delaware Supreme Court’s decision. Accordingly, although it is
uncertain whether the Federal Forum Amendment will be enforced by any particular court, the Company believes that other
state courts may find the Delaware Supreme Court decision persuasive in deciding whether to uphold federal forum provisions,
and the Company has noted that other public companies incorporated in states which have substantially adopted the American
Bar Association’s Model Business Corporation Act (upon which the NMBCA is based) have added a similar federal forum
provision to their charter or bylaws.
Reasons for the Amendment
As indicated under “Overview” above, the purpose of the Federal Forum Amendment is to proactively adopt a measure
intended to promote the efficient resolution of any future complaint under the Securities Act of 1933, by allowing for the
consolidation of multi-jurisdiction litigation, the avoidance of state court forum shopping, and efficiencies in managing the
procedural aspects of any such litigation. The Board of Directors is not proposing the Federal Forum Amendment in reaction to
any particular pending or threatened litigation confronting the Company.
In particular, the Board of Directors believes that the Company and its shareholders would benefit from the ability to require
that legal actions under the federal Securities Act of 1933 be brought in the federal district courts, which may consolidate
duplicative actions. By designating the federal district courts as the exclusive forum for such actions, the Company seeks to
avoid: (i) costly duplicative litigation involving multiple lawsuits in multiple jurisdictions regarding essentially the same matter
under the Securities Act of 1933, which could result in increased litigation expenses and increased uncertainty regarding
outcomes that may be inconsistent when two or more similar cases proceed in different courts; and (ii) the risk that a state court
may not interpret or apply the federal Securities Act of 1933 in the same manner as the federal district courts would be expected
to do, or handle procedural aspects differently.
In determining to recommend the Federal Forum Amendment to the Board of Directors, the Nominating and Corporate
Governance Committee considered a number of factors, including: (i) the inefficiencies and costs of duplicative shareholder
lawsuits in multiple jurisdictions, which have frequently occurred with respect to securities offerings by other companies in the
absence of federal forum provisions; (ii) the background and experience of the federal district courts in addressing issues under
the Securities Act of 1933 and federal case law regarding the same; (iii) the benefits of adopting the Federal Forum Amendment
when the Company is not facing any actual or threatened shareholder lawsuits under the Securities Act of 1933; and (iv) the
views of proxy advisors and certain institutional investors with respect to federal forum provisions. In addition, Michael S.
Dunlap, the Company’s Executive Chairman, who beneficially owns significant percentages of the total shares of the
Company’s Class A common stock and Class B common stock and the combined voting power of all classes of the Company’s
stock as set forth under “Security Ownership of Directors, Executive Officers, and Principal Shareholders - Stock Ownership”
54
above, supports these provisions and has indicated his intention to vote his shares in favor of the Federal Forum Amendment.
The Nominating and Corporate Governance Committee recommended the Federal Forum Amendment as a prudent and
proactive means for managing this type of potential litigation and to promote efficient and consistent resolutions in the event
this type of litigation arises. Based on these factors, among others, the Board of Directors determined that the Federal Forum
Amendment is in the best interests of the Company and its shareholders.
General Effects of the Amendment
The adoption of the Federal Forum Amendment may limit a shareholder’s ability to bring a claim in a judicial forum that the
shareholder views as favorable for claims under the Securities Act of 1933, and may discourage lawsuits with respect to such
claims. Alternatively, if a court were to find these provisions of the Company’s Articles of Incorporation inapplicable to, or
unenforceable in respect of, such claims, the Company may incur additional costs associated with resolving such matters in
other jurisdictions. Conversely, these provisions may impose additional litigation costs on shareholders who assert the
provisions are not enforceable or are invalid. Although some shareholders may prefer to litigate such matters in a forum other
than the federal district courts because they perceive another court as more convenient or more favorable to their claims, the
Board of Directors believes that the ability to require that such claims be brought in the federal district courts promotes
consistent consideration of the issues and the application of consistent case law and expertise, as well as increased efficiency
and cost savings in the resolution of such claims. The Board of Directors further believes that the federal districts courts would
be best suited to address disputes involving the federal Securities Act of 1933, given the experience of the federal district courts
with such disputes. However, the Board of Directors also believes that the Company should retain, as set forth in the Federal
Forum Amendment, the ability to consent to an alternative forum on a case-by-case basis where the Company determines that
its interests and those of its shareholders are best served by permitting such case to proceed in a forum other than in the federal
district courts.
In addition, the Securities Exchange Act of 1934, which governs among other things ongoing disclosures and proxy
solicitations by public companies, provides that the federal courts have exclusive jurisdiction over claims under the Securities
Exchange Act of 1934, and a sentence reflecting that framework, as well as with respect to other claims for which the federal
courts have exclusive jurisdiction, is included in the Federal Forum Amendment. Further, the Federal Forum Amendment
reflects the division of the text of Article XII, as amended, into separate sections with descriptive captions, for the purposes of
convenience of reference and consistency with the format of other articles in the Articles of Incorporation.
Federal forum provisions such as those in the Federal Forum Amendment are becoming increasingly common, particularly
among corporations incorporated in Delaware, and the Company is not aware of a reason a court in another state would not be
willing to enforce such provisions. However, not all courts have opined on the validity and enforceability of such provisions.
Therefore, even if the Federal Forum Amendment is approved by the Company’s shareholders, the Company cannot be certain
that all state courts will enforce the terms of the amendment and transfer any covered proceeding to the appropriate federal
district court. In addition, to the Company’s knowledge, no Nebraska court has yet opined, either favorably or unfavorably, on
the validity and enforceability of federal forum provisions with respect to shareholder claims under the Securities Act of 1933
against a Nebraska corporation.
If the Federal Forum Amendment is adopted, any person or entity owning, purchasing, or otherwise acquiring any interest in
shares of capital stock of the Company will be deemed to have notice of and consented to these provisions.
Appraisal Rights
Shareholders are not entitled to assert appraisal rights under the NMBCA in connection with the Federal Forum Amendment.
The Board of Directors recommends a vote FOR the approval of the amendment to the Company’s Articles of
Incorporation to add a federal forum selection provision for legal actions under the Securities Act of 1933.
OTHER SHAREHOLDER MATTERS
Householding
Under SEC rules, we are allowed to send in a single envelope our Notice of Internet Availability of Proxy Materials or a single
copy of our proxy solicitation and other required annual meeting materials to two or more shareholders sharing the same
address. We may do this only if the shareholders at that address share the same last name or if we reasonably believe that the
shareholders are members of the same family or group. If we are sending a Notice, the envelope must contain a separate Notice
for each shareholder at the shared address. Each Notice must also contain a unique control number that each shareholder will
use to gain access to our proxy materials and vote online. If we are mailing a paper copy of our proxy materials, the rules
require us to send each shareholder at the shared address a separate proxy card.
55
We believe these rules are beneficial to both our shareholders and to us. Our printing and postage costs are lowered anytime we
eliminate duplicate mailings to the same household. However, shareholders at a shared address may revoke their consent to the
householding program and receive their Notice in a separate envelope, or, if they have elected to receive a full copy of our
proxy materials in the mail, receive a separate copy of these materials. If you receive a single set of proxy materials but prefer
to receive separate copies for each registered account in your household, please contact our agent, Broadridge, at:
1-866-540-7095, or in writing at: Broadridge Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
Broadridge will remove you from the householding program within 30 days of receipt of your request, following which you
will begin receiving an individual copy of the material.
You can also contact Broadridge at the phone number above if you received multiple copies of the proxy materials and would
prefer to receive a single copy in the future.
Other Business
On the date that this Proxy Statement was first made available to shareholders, the Board of Directors had no knowledge of any
other matter which will come before the Annual Meeting other than the matters described herein. However, if any such matter
is properly presented at the Annual Meeting, the proxy solicited hereby confers discretionary authority to the proxies to vote in
their sole discretion with respect to such matters, as well as other matters incident to the conduct of the Annual Meeting.
Shareholder Proposals for 2023 Annual Meeting
Shareholder proposals intended to be presented at the 2023 Annual Meeting of Shareholders, currently scheduled for May 18,
2023, must be received at the Company's offices at 121 South 13th Street, Suite 100, Lincoln, Nebraska 68508, Attention:
Corporate Secretary, on or before December 8, 2022, to be eligible for inclusion in the Company's 2023 proxy materials. The
inclusion of any such proposal in such proxy materials shall be subject to the requirements of the proxy rules adopted under the
Exchange Act (the “Proxy Rules”). The submission of a shareholder proposal does not guarantee that it will be included in the
Company's Proxy Statement.
A shareholder may otherwise propose business for consideration or nominate persons for election to the Board of Directors, in
compliance with federal proxy rules, applicable state law, and other legal requirements and without seeking to have the
proposal included in the Company's Proxy Statement pursuant to the Proxy Rules. Under the Company's Bylaws, the Secretary
of the Company must receive notice of any such proposal or nominations for the Company's 2023 Annual Meeting between
January 19 and February 18, 2023 (90 to 120 days before the first anniversary of this year's Annual Meeting date). The notice
must contain the information required by the Company's Bylaws. In addition to satisfying the foregoing requirements under the
Company’s Bylaws, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director
nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19
under the Exchange Act no later than March 20, 2023. A proxy may confer discretionary authority to vote on any matter at a
meeting if the Company does not receive notice of the matter within the time frame described above. A copy of the Company's
Bylaws is available at the Company's investor relations website at www.nelnetinvestors.com under “Corporate Governance” -
“Governance Documents” or is available upon request to: Nelnet, Inc., 121 South 13th Street, Suite 100, Lincoln, Nebraska
68508, Attention: Corporate Secretary. The Chairman of the meeting may exclude matters that are not properly presented in
accordance with these requirements.
MISCELLANEOUS
The information under the captions “People Development and Compensation Committee Report” and “Audit Committee
Report” (i) shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or the
liabilities of Section 18 of the Exchange Act, and (ii) shall not be deemed to be incorporated by reference in any filing under the
Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates such information
by reference in such filing.
56
ARTICLES OF AMENDMENT TO
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF NELNET, INC.
Appendix A
Pursuant to the provisions of Section 21-2,155 of the Nebraska Model Business Corporation Act, the undersigned
corporation adopts the following Articles of Amendment with respect to its Third Amended and Restated Articles of
Incorporation, as previously amended:
1. The name of the corporation is Nelnet, Inc.
2. The following amendment to the corporation’s Third Amended and Restated Articles of Incorporation, as
previously amended, was adopted and approved in the manner required by the Nebraska Model Business
Corporation Act and by the corporation’s Third Amended and Restated Articles of Incorporation, as
previously amended:
The text of the amendment to the corporation’s Third Amended and Restated Articles of Incorporation, as previously
amended, is to amend Article XII thereof to read as follows:
EXCLUSIVE FORUM FOR ADJUDICATION OF CERTAIN LEGAL ACTIONS
ARTICLE XII.
12.1 Exclusive Forum for Certain State Law Claims. Unless the Corporation consents in writing to the selection of
an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or
proceeding brought on behalf or in the right of the Corporation; (ii) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer, or employee of the Corporation to the Corporation or the Corporation’s shareholders; (iii) any
action asserting a claim arising pursuant to any provision of the Nebraska Business Corporation Act (effective until January 1,
2017), the Nebraska Act (effective January 1, 2017), or the Articles of Incorporation or By-laws of the Corporation (as each
may be amended from time to time); or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the
District Court for the State of Nebraska located in the City of Lincoln, County of Lancaster, Nebraska (or, if such court does not
have jurisdiction, the United States District Court for the District of Nebraska located in the City of Lincoln, Nebraska). If any
action the subject matter of which is within the scope of the preceding sentence is filed in a court other than a court referred to
in the preceding sentence (a “Foreign Action”) in the name of any shareholder, such shareholder shall be deemed to have
consented to (i) the personal jurisdiction of the state and federal courts located within the State of Nebraska in connection with
any action brought in any such court to enforce the preceding sentence and (ii) having service of process made upon such
shareholder in any such action by service upon such shareholder’s counsel in the Foreign Action as agent for such shareholder.
12.2 Exclusive Federal Forum for Securities Act of 1933 Claims. Unless the Corporation consents in writing to the
selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted
by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the
Securities Act of 1933, as amended.
12.3 Deemed Shareholder Consent; Securities Exchange Act of 1934 and Other Claims With Exclusive Federal
Jurisdiction. Any person or entity owning, purchasing, or otherwise acquiring any interest in shares of capital stock of the
Corporation shall be deemed to have notice of and consented to the provisions of this Article XII. Notwithstanding the
foregoing provisions of this Article XII, the provisions of this Article XII shall not apply to suits or actions brought to enforce
any liability or duty created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal
courts of the United States of America have exclusive jurisdiction.
3. The date of the amendment’s adoption was May 19, 2022.
4. The amendment was duly approved by the shareholders of the corporation in the manner required by the
Nebraska Model Business Corporation Act and by the corporation’s Third Amended and Restated
Articles of Incorporation, as previously amended.
Dated as of the ____ day of May, 2022.
NELNET, INC.
By: _____________________________
Jeffrey R. Noordhoek,
Chief Executive Officer
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