UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 8, 2013

NELNET, INC.
(Exact name of registrant as specified in its charter)

					
Nebraska	 	001-31924	 	84-0748903	
(State or other jurisdiction of incorporation)	 	(Commission File Number)	 	(I.R.S. Employer Identification No.)	

	
			
121 South 13th Street
Suite 201
Lincoln, Nebraska	 	68508	
(Address of principal executive offices)	 	(Zip Code)	

Registrant's telephone number, including area code (402) 458-2370
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))

 
Item 2.02 Results of Operations and Financial Condition.
On August 8, 2013 , Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended June 30, 2013 . A copy of the press release is furnished as Exhibit 99.1 to this report. In addition, a copy of the supplemental financial information for the quarter ended June 30, 2013 , which was made available on the Company's website at www.nelnetinvestors.com on August 8, 2013 in connection with the press release, is furnished as Exhibit 99.2 to this report.

The above information and Exhibits 99.1 and 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall such information and Exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. In addition, information on the Company's website is not incorporated by reference into this report and should not be considered part of this report.

Certain statements contained in the exhibits furnished with this report may be considered forward looking in nature and are subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated, estimated, or expected. Among the key risks and uncertainties that may have a direct bearing on the Company's future operating results, performance, or financial condition expressed or implied by the forward-looking statements are the matters discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on February 28, 2013. Although the Company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

Item 9.01 Financial Statements and Exhibits.

(d)      Exhibits. The following exhibits are furnished as part of this report:

			
Exhibit
No.	 	Description	
 	 	 	
99.1	 	Press Release dated August 8, 2013 - “Nelnet Reports Second Quarter 2013 Results”	
99.2	 	Supplemental Financial Information for the Quarter Ended June 30, 2013	

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 8, 2013
NELNET, INC.
By:       /s/ TERRY J. HEIMES     
		
Name:	Terry J. Heimes	
		
Title:	Chief Financial Officer	

Nelnet Reports Second Quarter 2013 Results
		
•	GAAP net income $2.17 per share	
		
•	Net income $1.53 per share, excluding derivative market value and foreign currency adjustments, up 35 percent from prior year	
		
•	59 percent increase in government loan servicing volume	

LINCOLN, Neb., August 8, 2013-Nelnet (NYSE: NNI) today reported GAAP net income of $101.2 million, or $2.17 per share, for the second quarter of 2013, compared with GAAP net income of $41.4 million, or $0.87 per share, for the same period a year ago.

Excluding the derivative market value and foreign currency adjustments, net income was $71.1 million, or $1.53 per share, for the second quarter of 2013, compared with $53.5 million, or $1.13 per share, for the same period in 2012. The company reported income from derivative market value and foreign currency adjustments of $30.1 million after tax, or $0.64 per share, for the second quarter of 2013, compared with an expense of $12.1 million after tax, or $0.26 per share, for the second quarter of 2012. 

Included in the second quarter of 2013 operating results is a gain of $7.4 million ($0.10 per share after tax) from the repurchase of $56.4 million of the company's own asset-backed debt securities. During the second quarter of 2012, the company repurchased $17.6 million of its debt and recognized a gain of $0.9 million ($0.01 per share after tax).

"We are pleased to be consistently delivering strong results over several quarters,” said Mike Dunlap, Nelnet chairman and chief executive officer. “In this most recent quarter, our strong earnings were driven by an increase in net interest income earned on the company's loan portfolio, an increase in revenue from the company's fee-based businesses, and a decrease in operating expenses."

Nelnet operates four primary business segments, earning interest income on student loans in its Asset Generation and Management operating segment, and fee-based revenue in its Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, and Enrollment Services operating segments.

Asset Generation and Management

During the second quarter of 2013, the company purchased $403.0 million of student loans. As of June 30, 2013, net student loan assets were $24.6 billion. A substantial portion of Nelnet's federally insured student loans are financed for the life of the loan at terms the company currently believes will generate significant future cash flow of approximately $2.10 billion.

On July 1, 2010, the company stopped originating federally insured student loans after legislation eliminated the origination of FFEL Program loans. As a result, the company's student loan portfolio will run off over a period of approximately 20 years.

Historically low interest rates are continuing to provide an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the second quarter of 2013, Nelnet reported net interest income of $101.4 million, compared with $84.6 million for the same period a year ago. Net interest income included $36.1 million and $37.0 million of fixed rate floor income in the second quarters of 2013 and 2012, respectively.   

Fee-Based Operating Segments

The company reported total revenue from its fee-based operating segments in the second quarters of 2013 and 2012 of $103.3 million and $98.9 million, respectively. Net income from fee-based operating segments was $16.5 million for the second quarter of 2013, up from $10.0 million for the same period in 2012. Certain intangible assets within the company's fee-based operating segments became fully amortized in 2012, which improved net income by $2.4 million during the second quarter of 2013, compared with the same period in 2012.

Revenue from the company's Student Loan and Guaranty Servicing segment increased 15 percent, or $7.7 million, to $60.1 million for the second quarter of 2013, up from $52.4 million for the second quarter of 2012. The increase in revenue was the result of growth in servicing volume under the company's contract with the U.S. Department of Education (Department) and collection revenue from guaranty agencies.

As of June 30, 2013, the company was servicing $89.2 billion of loans for 4.4 million borrowers on behalf of the Department, compared with $56.0 billion of loans for 3.1 million borrowers as of June 30, 2012. Revenue from this contract increased to $22.1 million for the second quarter of 2013, up from $16.1 million for the same period a year ago.

In total, the company was servicing $116.8 billion of Federal Direct, FFELP, and private student loans as of June 30, 2013, up from $85.5 billion as of June 30, 2012.

For the second quarter of 2013, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $18.4 million, an increase of $1.5 million, or 9 percent, from the same period in 2012. The company reported second quarter of 2013 revenue from its Enrollment Services segment of $24.8 million, compared with $29.7 million for the same period in 2012.

Operating Expenses

The company reported consolidated operating expenses of $102.9 million for the second quarter of 2013, compared with $108.2 million for the same period in 2012. Operating expenses include the amortization of intangible assets within the company's fee-based operating segments, which decreased $3.9 million ($2.4 million after tax) in the second quarter of 2013, compared with the same period in 2012.

Board of Directors Approves Dividend

The Nelnet Board of Directors declared a third quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.10 per share. The dividend will be paid on Friday, September 13, 2013, to shareholders of record at the close of business on Friday, August 30, 2013.

The company currently plans to continue making regular quarterly dividend payments, subject to future earnings, capital requirements, financial condition, and other factors.
 
Non-GAAP Performance Measures

The company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results, including specifically, but not limited to, the impact of unrealized gains and losses resulting from changes in fair values of derivative instruments which do not qualify for “hedge treatment” under GAAP and foreign currency transaction gains or losses resulting from the re-measurement of the company's Euro-denominated bonds to U.S. dollars. The company believes these point in time estimates of asset and liability values related to financial instruments that are subject to interest and currency rate fluctuations, and items whose timing and/or amount cannot be reasonably estimated in advance, affect the period to period comparability of the results of the company's fundamental business operations on a recurring basis.

Forward-looking and Cautionary Statements  

This press release contains forward-looking statements within the meaning of federal securities laws.  These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, among others, risks related to the company's student loan portfolios such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions. 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 Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the second quarter ended June 30, 2013.  All information in this release is as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

Condensed Consolidated Statements of Income (unaudited)
(Dollars in thousands, except share data)

																
 	Three months ended	 	Six months ended	
 	June 30,
2013	 	March 31,
2013	 	June 30,
2012	 	June 30, 2013	 	June 30, 2012	
Interest income:	 	 	 	 	 	 	 	 	 	
Loan interest	$	158,063		 	155,539		 	150,988		 	313,602		 	304,046		
Investment interest	1,483		 	1,617		 	1,055		 	3,100		 	2,150		
Total interest income	159,546		 	157,156		 	152,043		 	316,702		 	306,196		
Interest expense:	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	58,127		 	58,358		 	67,476		 	116,485		 	136,773		
Net interest income	101,419		 	98,798		 	84,567		 	200,217		 	169,423		
Less provision for loan losses	5,000		 	5,000		 	7,000		 	10,000		 	13,000		
Net interest income after provision for loan losses	96,419		 	93,798		 	77,567		 	190,217		 	156,423		
Other income (expense):	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	60,078		 	55,601		 	52,391		 	115,679		 	101,879		
Tuition payment processing and campus commerce revenue	18,356		 	23,411		 	16,834		 	41,767		 	38,747		
Enrollment services revenue	24,823		 	28,957		 	29,710		 	53,780		 	61,374		
Other income	12,288		 	9,416		 	8,800		 	21,704		 	19,754		
Gain on sale of loans and debt repurchases	7,355		 	1,407		 	935		 	8,762		 	935		
Derivative settlements, net	(8,357	)	 	(8,184	)	 	(2,086	)	 	(16,541	)	 	(1,859	)	
Derivative market value and foreign currency adjustments, net	48,545		 	9,256		 	(19,532	)	 	57,801		 	(34,939	)	
Total other income	163,088		 	119,864		 	87,052		 	282,952		 	185,891		
Operating expenses:	 	 	 	 	 	 	 	 	 	
Salaries and benefits	47,432		 	47,905		 	48,703		 	95,337		 	97,798		
Cost to provide enrollment services	16,787		 	19,642		 	20,374		 	36,429		 	42,052		
Depreciation and amortization	4,320		 	4,377		 	8,226		 	8,697		 	16,362		
Other	34,365		 	34,941		 	30,908		 	69,306		 	63,171		
Total operating expenses	102,904		 	106,865		 	108,211		 	209,769		 	219,383		
Income before income taxes	156,603		 	106,797		 	56,408		 	263,400		 	122,931		
Income tax expense	54,746		 	38,447		 	14,878		 	93,193		 	38,108		
Net income	101,857		 	68,350		 	41,530		 	170,207		 	84,823		
Net income attributable to noncontrolling interest	614		 	271		 	136		 	885		 	288		
Net income attributable to Nelnet, Inc.	$	101,243		 	68,079		 	41,394		 	169,322		 	84,535		
Earnings per common share:	 	 	 	 	 	 	 	 	 	
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	2.17		 	1.46		 	0.87		 	3.63		 	1.78		
Weighted average common shares outstanding - basic and diluted	46,626,853		 	46,658,031		 	47,434,915		 	46,642,356		 	47,369,776		

Condensed Consolidated Balance Sheets
(Dollars in thousands)

	
										
 	As of	 	As of	 	As of	
 	June 30, 2013	 	December 31, 2012	 	June 30, 2012	
 	(unaudited)	 		 	(unaudited)	
Assets:	 	 	 	 	 	
Student loans receivable, net	$	24,575,636		 	24,830,621		 	23,501,382		
Cash, cash equivalents, and investments	245,825		 	149,343		 	130,310		
Restricted cash and investments	763,909		 	911,978		 	976,708		
Goodwill and intangible assets, net	124,849		 	126,511		 	136,124		
Other assets	592,958		 	589,442		 	524,618		
Total assets	$	26,303,177		 	26,607,895		 	25,269,142		
Liabilities:	 	 	 	 	 	
Bonds and notes payable	$	24,690,952		 	25,098,835		 	23,836,250		
Other liabilities	292,630		 	343,847		 	287,994		
Total liabilities	24,983,582		 	25,442,682		 	24,124,244		
Equity:	 	 	 	 	 	
Total Nelnet, Inc. shareholders' equity	1,319,482		 	1,165,208		 	1,144,605		
Noncontrolling interest	113		 	5		 	293		
Total equity	1,319,595		 	1,165,213		 	1,144,898		
Total liabilities and equity	$	26,303,177		 	26,607,895		 	25,269,142		

Contacts:
Media, Ben Kiser, +1-402-458-3024, or Investors, Phil Morgan, +1-402-458-3038, both of Nelnet, Inc .

For Release: August 8, 2013
Media Contact: Ben Kiser, 402.458.3024
Investor Contact: Phil Morgan, 402.458.3038

Nelnet, Inc. supplemental financial information for the second quarter 2013
(All dollars are in thousands, except per share amounts, unless otherwise noted)

The following information should be read in connection with Nelnet, Inc.'s (the “Company's”) press release for second quarter 2013 earnings, dated August 8, 2013 , and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 .

This earnings supplement contains forward-looking statements, 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. The words “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “assume,” “forecast,” “will,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. These statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by such statements. These factors include among others, the risks and uncertainties set forth in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2012 (the "2012 Annual Report"), in particular such risks and uncertainties as:

•	student loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, and risks from changes in levels of student loan prepayment or default rates;	

•	financing and liquidity risks, including risks of changes in the general interest rate environment and in the securitization and other financing markets for student loans, 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 educational credit and services markets resulting from changes in applicable laws, regulations, and government programs, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives to consolidate existing FFELP loans to the Federal Direct Loan Program, and the Company's ability to maintain or increase volumes under its loan servicing contract with the Department and to comply with agreements with third-party customers for the servicing of FFELP and Federal Direct Loan Program loans;	

•	risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors	

•	uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and	

•	risks associated with litigation 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 its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

1

Consolidated Statements of Income
(unaudited)

																
 	Three months ended	 	Six months ended	
 	June 30, 2013	 	March 31, 2013	 	June 30, 2012	 	June 30, 2013	 	June 30, 2012	
Interest income:	 	 	 	 	 	 	 	 	 	
Loan interest	$	158,063		 	155,539		 	150,988		 	313,602		 	304,046		
Investment interest	1,483		 	1,617		 	1,055		 	3,100		 	2,150		
Total interest income	159,546		 	157,156		 	152,043		 	316,702		 	306,196		
Interest expense:	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	58,127		 	58,358		 	67,476		 	116,485		 	136,773		
Net interest income	101,419		 	98,798		 	84,567		 	200,217		 	169,423		
Less provision for loan losses	5,000		 	5,000		 	7,000		 	10,000		 	13,000		
Net interest income after provision for loan losses	96,419		 	93,798		 	77,567		 	190,217		 	156,423		
Other income (expense):	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	60,078		 	55,601		 	52,391		 	115,679		 	101,879		
Tuition payment processing and campus commerce revenue	18,356		 	23,411		 	16,834		 	41,767		 	38,747		
Enrollment services revenue	24,823		 	28,957		 	29,710		 	53,780		 	61,374		
Other income	12,288		 	9,416		 	8,800		 	21,704		 	19,754		
Gain on sale of loans and debt repurchases	7,355		 	1,407		 	935		 	8,762		 	935		
Derivative settlements, net	(8,357	)	 	(8,184	)	 	(2,086	)	 	(16,541	)	 	(1,859	)	
Derivative market value and foreign currency adjustments, net	48,545		 	9,256		 	(19,532	)	 	57,801		 	(34,939	)	
Total other income	163,088		 	119,864		 	87,052		 	282,952		 	185,891		
Operating expenses:	 	 	 	 	 	 	 	 	 	
Salaries and benefits	47,432		 	47,905		 	48,703		 	95,337		 	97,798		
Cost to provide enrollment services	16,787		 	19,642		 	20,374		 	36,429		 	42,052		
Depreciation and amortization	4,320		 	4,377		 	8,226		 	8,697		 	16,362		
Other	34,365		 	34,941		 	30,908		 	69,306		 	63,171		
Total operating expenses	102,904		 	106,865		 	108,211		 	209,769		 	219,383		
Income before income taxes	156,603		 	106,797		 	56,408		 	263,400		 	122,931		
Income tax expense	54,746		 	38,447		 	14,878		 	93,193		 	38,108		
Net income	101,857		 	68,350		 	41,530		 	170,207		 	84,823		
Net income attributable to noncontrolling interest	614		 	271		 	136		 	885		 	288		
Net income attributable to Nelnet, Inc.	$	101,243		 	68,079		 	41,394		 	169,322		 	84,535		
Earnings per common share:	 	 	 	 	 	 	 	 	 	
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	2.17		 	1.46		 	0.87		 	3.63		 	1.78		
Weighted average common shares outstanding - basic and diluted	46,626,853		 	46,658,031		 	47,434,915		 	46,642,356		 	47,369,776		

2

Condensed Consolidated Balance Sheets

										
 	As of	 	As of	 	As of	
 	June 30, 2013	 	December 31, 2012	 	June 30, 2012	
 	(unaudited)	 	 	 	(unaudited)	
Assets:	 	 	 	 	 	
Student loans receivable, net	$	24,575,636		 	24,830,621		 	23,501,382		
Cash, cash equivalents, and investments	245,825		 	149,343		 	130,310		
Restricted cash and investments	763,909		 	911,978		 	976,708		
Goodwill and intangible assets, net	124,849		 	126,511		 	136,124		
Other assets	592,958		 	589,442		 	524,618		
Total assets	$	26,303,177		 	26,607,895		 	25,269,142		
Liabilities:	 	 	 	 	 	
Bonds and notes payable	$	24,690,952		 	25,098,835		 	23,836,250		
Other liabilities	292,630		 	343,847		 	287,994		
Total liabilities	24,983,582		 	25,442,682		 	24,124,244		
Equity:	 	 	 	 	 	
Total Nelnet, Inc. shareholders' equity	1,319,482		 	1,165,208		 	1,144,605		
Noncontrolling interest	113		 	5		 	293		
Total equity	1,319,595		 	1,165,213		 	1,144,898		
Total liabilities and equity	$	26,303,177		 	26,607,895		 	25,269,142		

3

Overview

The Company is an education services company focused primarily on providing fee-based processing services and quality education-related products and services in four core areas: loan financing, loan servicing, payment processing, and enrollment services. These products and services help students and families plan, prepare, and pay for their education and make the administrative and financial processes more efficient for schools and financial organizations. In addition, the Company earns net interest income on a portfolio of federally insured student loans.

A reconciliation of the Company's GAAP net income to net income, excluding derivative market value and foreign currency adjustments, is provided below.

	
																
 	Three months ended	 	Six months ended	
 	June 30, 2013	 	March 31, 2013	 	June 30, 2012	 	June 30, 2013	 	June 30, 2012	
GAAP net income	$	101,243		 	68,079		 	41,394		 	169,322		 	84,535		
Derivative market value and foreign currency adjustments, net of tax	(30,098	)	 	(5,738	)	 	12,110		 	(35,837	)	 	21,662		
Net income, excluding derivative market value and foreign currency adjustments (a)	$	71,145		 	62,341		 	53,504		 	133,485		 	106,197		
 	 	 	 	 	 	 	 	 	 	
Earnings per share:	 	 	 	 	 	 	 	 	 	
GAAP net income	$	2.17		 	1.46		 	0.87		 	3.63		 	1.78		
Derivative market value and foreign currency adjustments, net of tax	(0.64	)	 	(0.12	)	 	0.26		 	(0.77	)	 	0.46		
Net income, excluding derivative market value and foreign currency adjustments (a)	$	1.53		 	1.34		 	1.13		 	2.86		 	2.24		

(a)	The Company provides non-GAAP information that reflects specific items management believes to be important in the evaluation of its financial position and performance. "Derivative market value and foreign currency adjustments" include (i) the unrealized gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. The Company believes these point-in-time estimates of asset and liability values related to these financial instruments that are subject to interest and currency rate fluctuations affect the period-to-period comparability of the results of operations.	

The increase in earnings for the 2013 periods compared to the 2012 periods was due to an increase in net interest income earned from the Company's student loan portfolio, an increase in revenue from the Company's fee-based operating segments, and a decrease in operating expenses. Included in the three months ended June 30, 2013 , March 31, 2013, and June 30, 2012 and six months ended June 30, 2013 and 2012 operating results is a gain of $7.4 million ($0.10 per share after tax), $1.3 million ($0.02 per share after tax), $0.9 million ($0.01 per share after tax), $8.7 million ($0.12 per share after tax), and $0.9 million ($0.01 per share after tax), respectively, from the repurchase of the Company's own asset-backed debt securities.

The Company earns net interest income on its FFELP student loan portfolio 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 June 30, 2013 , the Company had a $24.6 billion student loan portfolio that will amortize over the next approximately 20 years. The Company actively seeks to acquire additional FFELP loan portfolios 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:

•	Student Loan and Guaranty Servicing ("LGS") - referred to as Nelnet Diversified Solutions ("NDS")	
		
•	Tuition Payment Processing and Campus Commerce ("TPP&CC") - referred to as Nelnet Business Solutions ("NBS")	
		
•	Enrollment Services - commonly called Nelnet Enrollment Solutions ("NES")	

As shown in the following table, revenue and net income earned from the Company's reportable fee-based operating segments was $117.2 million and $16.5 million, respectively, for the second quarter of 2013 , compared to $115.3 million and $10.0 million, respectively, for the same period a year ago, and $240.1 million and $34.0 million, respectively, for the six months ended June 30, 2013, compared to $235.4 million and $20.6 million for the same period a year ago.

4

The information below provides the operating results for each reportable operating segment for the three and six months ended June 30, 2013 and 2012 (dollars in millions).

		
(a)	Revenue includes intersegment revenue of $13.9 million and $16.4 million for the three months ended June 30, 2013 and 2012, respectively, and $28.9 million and $33.4 million for the six months ended June 30, 2013 and 2012, respectively, earned by LGS as a result of servicing loans for AGM.	

(b)	Total revenue includes "net interest income after provision for loan losses" and "total other income" from the Company's segment statements of income, excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments, which was income of $43.1 million and an expense of $10.1 million for the three months ended June 30, 2013 and 2012, respectively, and income of $48.4 million and an expense of $31.7 million for the six months ended June 30, 2013 and 2012, respectively. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax, which was income of $26.7 million and an expense of $6.2 million for the three months ended June 30, 2013 and 2012, respectively, and income of $30.0 million and an expense of $19.6 million for the six months ended June 30, 2013 and 2012, respectively.	

(c)	Computed as income before income taxes divided by total revenue.	

Student Loan and Guaranty Servicing

•	As of June 30, 2013 , the Company was servicing $116.8 billion in student loans, as compared with $85.5 billion of loans as of June 30, 2012 . Revenue increased in the three and six months ended June 30, 2013 compared to the same periods in 2012 due to growth in servicing volume under the Company's contract with the Department and an increase in collection revenue from getting defaulted FFELP loan assets current on behalf of guaranty agencies. These increases were partially offset by decreases in traditional FFELP and guaranty servicing revenue and software services revenue.	

•	As of June 30, 2013 , the Company was servicing $89.2 billion of loans for 4.4 million borrowers on behalf of the Department, compared with $56.0 billion of loans for 3.1 million borrowers as of June 30, 2012 . Revenue from this contract increased to $22.1 million and $42.5 million for the three and six months ended June 30, 2013, respectively, up from $16.1 million and $30.9 million for the same respective periods in 2012 . The servicing contract with the Department spans five years (through June 2014), with a five-year renewal at the option of the Department. Although the Company currently anticipates that the Department will exercise its option to renew the servicing contract for an additional five years at the end of the current term in 2014, there can be no assurance of such renewal.	

•	Before tax operating margin increased in the three and six months ended June 30, 2013 compared to the same periods in 2012. The Company made investments and incurred certain costs in 2012 to improve performance metrics under the government servicing contract and to implement and comply with the Department's special direct consolidation loan initiative. In addition, intangible assets for this segment were fully amortized in 2012. The decrease in these costs in 2013 compared to 2012 were partially offset by an increase in costs incurred in 2013 to support the increase in volume under the government servicing contract.	

5

Tuition Payment Processing and Campus Commerce

•	Revenue increased in the three and six months ended June 30, 2013 compared to the same periods in 2012 due to an increase in the number of managed tuition payment plans and campus commerce customers.	

•	Before tax operating margin increased in the three and six months ended June 30, 2013 compared to the same periods in 2012. The increase was the result of efficiencies gained in the operations of the business and a decrease in amortization expense related to intangible assets. These decreases in expenses in 2013 compared to 2012 were partially offset by an increase in salaries and benefits due to adding personnel to support the increase in the number of tuition payment plans and campus commerce customers.	

•	This segment is subject to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year.	

Enrollment Services

•	Revenue decreased in the three and six months ended June 30, 2013 compared to the same periods in 2012 due to a decrease in inquiry generation and management revenue as a result of the regulatory uncertainty regarding recruiting and marketing to potential students in the for-profit college industry, which has caused schools to decrease spending on marketing efforts. Additionally, clients are shifting marketing budgets to more efficient or lower cost channels, which has caused a reduction in volume.	

•	Before tax operating margin increased in the three and six months ended June 30, 2013 compared to the same periods in 2012 due to cost saving measures initiated by the Company in reaction to the ongoing decline in revenue in this segment.	

Asset Generation and Management

•	The Company acquired $1.1 billion of FFELP student loans during the first six months of 2013 , including $403.0 million purchased during the second quarter.	

•	During the six months ended June 30, 2013, the Company completed asset-backed securitization transactions for a total original principal amount of $2.8 billion, including $1.2 billion during the second quarter.	

•	Core student loan spread increased to 1.52% for the three months ended June 30, 2013 , compared to 1.50% for the three months ended March 31, 2013, and increased to 1.51% for the six months ended June 30, 2013, compared to 1.43% for the same period in 2012. This increase was due to the tightening between the interest rate paid by the Company on its liabilities funding student loan assets and the rate earned by the Company on such student loan assets.	

•	Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During the three months ended June 30, 2013 and 2012, the Company earned $36.1 million and $37.0 million, respectively, of fixed rate floor income (net of $8.5 million and $3.5 million of derivative settlements, respectively, used to hedge such loans), compared to $71.8 million and $75.1 million for the six months ended June 30, 2013 and 2012, respectively (net of $16.8 million and $6.6 million of derivative settlements, respectively).	

Corporate Activities

•	Whitetail Rock Capital Management, LLC ("WRCM"), the Company's SEC-registered investment advisory subsidiary, recognized investment advisory revenue of $6.3 million and $3.0 million for the three months ended June 30, 2013 and 2012, respectively, and $9.2 million and $6.2 million for the six months ended June 30, 2013 and 2012, respectively. These amounts include performance fees earned from the sale of securities. As of June 30, 2013, WRCM was managing an investment portfolio of $753.4 million for third-party entities.	

Liquidity and Capital Resources

•	As of June 30, 2013 , the Company had cash and investments of $245.8 million.	

•	For the six months ended June 30, 2013, the Company generated $153.2 million in net cash provided by operating activities.	

6

		
•	Forecasted future cash flows from the Company's FFELP student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $2.10 billion as of June 30, 2013 .	

•	During the six months ended June 30, 2013, the Company repurchased $69.4 million (face amount) of its own asset-backed debt securities for a gain totaling $8.7 million, including $56.4 million (face amount) for a gain of $7.4 million during the second quarter.	

•	During the six months ended June 30, 2013 , the Company repurchased 279,156 shares of Class A common stock for $9.0 million ($32.20 per share), including 65,621 shares for $2.3 million ($34.82 per share) during the second quarter.	

•	During the six months ended June 30, 2013 , the Company paid cash dividends of $9.3 million, including $4.6 million ($0.10 per share) during the second quarter.	

•	The Company intends to use its strong liquidity position to capitalize on market opportunities, including FFELP student loan acquisitions; strategic acquisitions and investments in its core business areas of loan financing, loan servicing, payment processing, and enrollment services; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions.	

Operating Segments

The Company earns fee-based revenue through its Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, and Enrollment Services operating segments. In addition, the Company earns net interest income on its student loan portfolio in its Asset Generation and Management operating segment. 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 of the notes to the consolidated financial statements included in the 2012 Annual Report 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. generally accepted accounting principles.  

The accounting policies of the Company’s operating segments are the same as those described in note 2 of the notes to the consolidated financial statements included in the 2012 Annual Report. Intersegment revenues are charged by the 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.  Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information. Income taxes are allocated based on 38% of income (loss) before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of taxes calculated for each operating segment is included in income taxes in Corporate Activity and Overhead.

Corporate Activity and Overhead

Corporate Activity and Overhead includes the following items:

•	The operating results of WRCM, the Company's SEC-registered investment advisory subsidiary	
		
•	Income earned on certain investment activities	
		
•	Interest expense incurred on unsecured debt transactions	
		
•	Other product and service offerings that are not considered operating segments	

Corporate Activity and Overhead also includes certain corporate activities and overhead functions related to executive management, human resources, accounting, legal, occupancy, and marketing. These costs are allocated to each operating segment based on estimated use of such activities and services.

7

Segment Results of Operations

The following tables include the results of each of the Company's operating segments reconciled to the consolidated financial statements.

	
																									
 	Three months ended June 30, 2013	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	
 	Student Loan and Guaranty Servicing	 	Tuition Payment Processing and Campus Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Total	
Total interest income	$	9		 	—		 	—		 	9		 	158,175		 	2,196		 	(834	)	 	159,546		
Interest expense	—		 	—		 	—		 	—		 	56,920		 	2,041		 	(834	)	 	58,127		
Net interest income (loss)	9		 	—		 	—		 	9		 	101,255		 	155		 	—		 	101,419		
Less provision for loan losses	—		 	—		 	—		 	—		 	5,000		 	—		 	—		 	5,000		
Net interest income (loss) after provision for loan losses	9		 	—		 	—		 	9		 	96,255		 	155		 	—		 	96,419		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	60,078		 	—		 	—		 	60,078		 	—		 	—		 	—		 	60,078		
Intersegment servicing revenue	13,903		 	—		 	—		 	13,903		 	—		 	—		 	(13,903	)	 	—		
Tuition payment processing and campus commerce revenue	—		 	18,356		 	—		 	18,356		 	—		 	—		 	—		 	18,356		
Enrollment services revenue	—		 	—		 	24,823		 	24,823		 	—		 	—		 	—		 	24,823		
Other income	—		 	—		 	—		 	—		 	3,030		 	9,258		 	—		 	12,288		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	7,355		 	—		 	—		 	7,355		
Derivative market value and foreign currency adjustments, net	—		 	—		 	—		 	—		 	43,096		 	5,449		 	—		 	48,545		
Derivative settlements, net	—		 	—		 	—		 	—		 	(7,845	)	 	(512	)	 	—		 	(8,357	)	
Total other income (expense)	73,981		 	18,356		 	24,823		 	117,160		 	45,636		 	14,195		 	(13,903	)	 	163,088		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	28,091		 	9,427		 	4,809		 	42,327		 	592		 	4,513		 	—		 	47,432		
Cost to provide enrollment services	—		 	—		 	16,787		 	16,787		 	—		 	—		 	—		 	16,787		
Depreciation and amortization	2,731		 	1,132		 	61		 	3,924		 	—		 	396		 	—		 	4,320		
Other	18,031		 	2,192		 	1,243		 	21,466		 	7,923		 	4,976		 	—		 	34,365		
Intersegment expenses, net	851		 	1,494		 	1,130		 	3,475		 	14,108		 	(3,680	)	 	(13,903	)	 	—		
Total operating expenses	49,704		 	14,245		 	24,030		 	87,979		 	22,623		 	6,205		 	(13,903	)	 	102,904		
Income (loss) before income taxes and corporate overhead allocation	24,286		 	4,111		 	793		 	29,190		 	119,268		 	8,145		 	—		 	156,603		
Corporate overhead allocation	(1,513	)	 	(504	)	 	(504	)	 	(2,521	)	 	(1,081	)	 	3,602		 	—		 	—		
Income (loss) before income taxes	22,773		 	3,607		 	289		 	26,669		 	118,187		 	11,747		 	—		 	156,603		
Income tax (expense) benefit	(8,655	)	 	(1,370	)	 	(109	)	 	(10,134	)	 	(44,911	)	 	299		 	—		 	(54,746	)	
Net income (loss)	14,118		 	2,237		 	180		 	16,535		 	73,276		 	12,046		 	—		 	101,857		
Net income attributable to noncontrolling interest	—		 	—		 	—		 	—		 	—		 	614		 	—		 	614		
Net income attributable to Nelnet, Inc.	$	14,118		 	2,237		 	180		 	16,535		 	73,276		 	11,432		 	—		 	101,243		

8

	
																									
 	Three months ended March 31, 2013	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	
 	Student Loan and Guaranty Servicing	 	Tuition Payment Processing and Campus Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Total	
Total interest income	$	10		 	—		 	—		 	10		 	155,654		 	2,311		 	(819	)	 	157,156		
Interest expense	—		 	—		 	—		 	—		 	57,482		 	1,695		 	(819	)	 	58,358		
Net interest income (loss)	10		 	—		 	—		 	10		 	98,172		 	616		 	—		 	98,798		
Less provision for loan losses	—		 	—		 	—		 	—		 	5,000		 	—		 	—		 	5,000		
Net interest income (loss) after provision for loan losses	10		 	—		 	—		 	10		 	93,172		 	616		 	—		 	93,798		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	55,601		 	—		 	—		 	55,601		 	—		 	—		 	—		 	55,601		
Intersegment servicing revenue	14,953		 	—		 	—		 	14,953		 	—		 	—		 	(14,953	)	 	—		
Tuition payment processing and campus commerce revenue	—		 	23,411		 	—		 	23,411		 	—		 	—		 	—		 	23,411		
Enrollment services revenue	—		 	—		 	28,957		 	28,957		 	—		 	—		 	—		 	28,957		
Other income	—		 	—		 	—		 	—		 	4,196		 	5,220		 	—		 	9,416		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	1,407		 	—		 	—		 	1,407		
Derivative market value and foreign currency adjustments	—		 	—		 	—		 	—		 	5,275		 	3,981		 	—		 	9,256		
Derivative settlements, net	—		 	—		 	—		 	—		 	(7,539	)	 	(645	)	 	—		 	(8,184	)	
Total other income (expense)	70,554		 	23,411		 	28,957		 	122,922		 	3,339		 	8,556		 	(14,953	)	 	119,864		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	28,444		 	9,359		 	5,767		 	43,570		 	562		 	3,773		 	—		 	47,905		
Cost to provide enrollment services	—		 	—		 	19,642		 	19,642		 	—		 	—		 	—		 	19,642		
Depreciation and amortization	2,789		 	1,138		 	61		 	3,988		 	—		 	389		 	—		 	4,377		
Other	18,390		 	2,287		 	1,651		 	22,328		 	7,513		 	5,100		 	—		 	34,941		
Intersegment expenses, net	935		 	1,425		 	1,149		 	3,509		 	15,142		 	(3,698	)	 	(14,953	)	 	—		
Total operating expenses	50,558		 	14,209		 	28,270		 	93,037		 	23,217		 	5,564		 	(14,953	)	 	106,865		
Income (loss) before income taxes and corporate overhead allocation	20,006		 	9,202		 	687		 	29,895		 	73,294		 	3,608		 	—		 	106,797		
Corporate overhead allocation	(997	)	 	(332	)	 	(332	)	 	(1,661	)	 	(712	)	 	2,373		 	—		 	—		
Income (loss) before income taxes	19,009		 	8,870		 	355		 	28,234		 	72,582		 	5,981		 	—		 	106,797		
Income tax (expense) benefit	(7,223	)	 	(3,371	)	 	(135	)	 	(10,729	)	 	(27,581	)	 	(137	)	 	—		 	(38,447	)	
Net income (loss)	11,786		 	5,499		 	220		 	17,505		 	45,001		 	5,844		 	—		 	68,350		
Net income attributable to noncontrolling interest	—		 	—		 	—		 	—		 	—		 	271		 	—		 	271		
Net income (loss) attributable to Nelnet, Inc.	$	11,786		 	5,499		 	220		 	17,505		 	45,001		 	5,573		 	—		 	68,079		

9

	
																									
 	Three months ended June 30, 2012	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	
 	Student Loan and Guaranty Servicing	 	Tuition Payment Processing and Campus Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Total	
Total interest income	$	12		 	1		 	—		 	13		 	151,240		 	1,747		 	(957	)	 	152,043		
Interest expense	—		 	—		 	—		 	—		 	66,017		 	2,416		 	(957	)	 	67,476		
Net interest income (loss)	12		 	1		 	—		 	13		 	85,223		 	(669	)	 	—		 	84,567		
Less provision for loan losses	—		 	—		 	—		 	—		 	7,000		 	—		 	—		 	7,000		
Net interest income (loss) after provision for loan losses	12		 	1		 	—		 	13		 	78,223		 	(669	)	 	—		 	77,567		
Other income (expense):	 		 	 		 	 		 	 	 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	52,391		 	—		 	—		 	52,391		 	—		 	—		 	—		 	52,391		
Intersegment servicing revenue	16,401		 	—		 	—		 	16,401		 	—		 	—		 	(16,401	)	 	—		
Tuition payment processing and campus commerce revenue	—		 	16,834		 	—		 	16,834		 	—		 	—		 	—		 	16,834		
Enrollment services revenue	—		 	—		 	29,710		 	29,710		 	—		 	—		 	—		 	29,710		
Other income	—		 	—		 	—		 	—		 	3,581		 	5,219		 	—		 	8,800		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	935		 	—		 	—		 	935		
Derivative market value and foreign currency adjustments, net	—		 	—		 	—		 	—		 	(10,053	)	 	(9,479	)	 	—		 	(19,532	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	(1,339	)	 	(747	)	 	—		 	(2,086	)	
Total other income (expense)	68,792		 	16,834		 	29,710		 	115,336		 	(6,876	)	 	(5,007	)	 	(16,401	)	 	87,052		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	28,905		 	8,575		 	6,161		 	43,641		 	542		 	4,520		 	—		 	48,703		
Cost to provide enrollment services	—		 	—		 	20,374		 	20,374		 	—		 	—		 	—		 	20,374		
Depreciation and amortization	4,525		 	1,731		 	1,617		 	7,873		 	—		 	353		 	—		 	8,226		
Other	17,539		 	2,456		 	1,745		 	21,740		 	3,120		 	6,048		 	—		 	30,908		
Intersegment expenses, net	1,185		 	1,330		 	976		 	3,491		 	16,635		 	(3,725	)	 	(16,401	)	 	—		
Total operating expenses	52,154		 	14,092		 	30,873		 	97,119		 	20,297		 	7,196		 	(16,401	)	 	108,211		
Income (loss) before income taxes and corporate overhead allocation	16,650		 	2,743		 	(1,163	)	 	18,230		 	51,050		 	(12,872	)	 	—		 	56,408		
Corporate overhead allocation	(1,275	)	 	(425	)	 	(425	)	 	(2,125	)	 	(1,400	)	 	3,525		 	—		 	—		
Income (loss) before income taxes	15,375		 	2,318		 	(1,588	)	 	16,105		 	49,650		 	(9,347	)	 	—		 	56,408		
Income tax (expense) benefit	(5,843	)	 	(881	)	 	603		 	(6,121	)	 	(18,866	)	 	10,109		 	—		 	(14,878	)	
Net income (loss)	9,532		 	1,437		 	(985	)	 	9,984		 	30,784		 	762		 	—		 	41,530		
  Net income attributable to noncontrolling interest	—		 	—		 	—		 	—		 	—		 	136		 	—		 	136		
Net income (loss) attributable to Nelnet, Inc.	$	9,532		 	1,437		 	(985	)	 	9,984		 	30,784		 	626		 	—		 	41,394		

10

	
																									
 	Six months ended June 30, 2013	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	
 	Student Loan and Guaranty Servicing	 	Tuition Payment Processing and Campus Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Total	
Total interest income	$	19		 	—		 	—		 	19		 	313,829		 	4,507		 	(1,653	)	 	316,702		
Interest expense	—		 	—		 	—		 	—		 	114,402		 	3,736		 	(1,653	)	 	116,485		
Net interest income (loss)	19		 	—		 	—		 	19		 	199,427		 	771		 	—		 	200,217		
Less provision for loan losses	—		 	—		 	—		 	—		 	10,000		 	—		 	—		 	10,000		
Net interest income (loss) after provision for loan losses	19		 	—		 	—		 	19		 	189,427		 	771		 	—		 	190,217		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	115,679		 	—		 	—		 	115,679		 	—		 	—		 	—		 	115,679		
Intersegment servicing revenue	28,856		 	—		 	—		 	28,856		 	—		 	—		 	(28,856	)	 	—		
Tuition payment processing and campus commerce revenue	—		 	41,767		 	—		 	41,767		 	—		 	—		 	—		 	41,767		
Enrollment services revenue	—		 	—		 	53,780		 	53,780		 	—		 	—		 	—		 	53,780		
Other income	—		 	—		 	—		 	—		 	7,226		 	14,478		 	—		 	21,704		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	8,762		 	—		 	—		 	8,762		
Derivative market value and foreign currency adjustments, net	—		 	—		 	—		 	—		 	48,371		 	9,430		 	—		 	57,801		
Derivative settlements, net	—		 	—		 	—		 	—		 	(15,384	)	 	(1,157	)	 	—		 	(16,541	)	
Total other income (expense)	144,535		 	41,767		 	53,780		 	240,082		 	48,975		 	22,751		 	(28,856	)	 	282,952		
Operating expenses:	 		 	 		 	 		 	 	 	 		 	 		 	 		 	 		
Salaries and benefits	56,535		 	18,786		 	10,576		 	85,897		 	1,154		 	8,286		 	—		 	95,337		
Cost to provide enrollment services	—		 	—		 	36,429		 	36,429		 	—		 	—		 	—		 	36,429		
Depreciation and amortization	5,520		 	2,270		 	122		 	7,912		 	—		 	785		 	—		 	8,697		
Other	36,421		 	4,479		 	2,894		 	43,794		 	15,436		 	10,076		 	—		 	69,306		
Intersegment expenses, net	1,786		 	2,919		 	2,279		 	6,984		 	29,250		 	(7,378	)	 	(28,856	)	 	—		
Total operating expenses	100,262		 	28,454		 	52,300		 	181,016		 	45,840		 	11,769		 	(28,856	)	 	209,769		
Income (loss) before income taxes and corporate overhead allocation	44,292		 	13,313		 	1,480		 	59,085		 	192,562		 	11,753		 	—		 	263,400		
Corporate overhead allocation	(2,510	)	 	(836	)	 	(836	)	 	(4,182	)	 	(1,793	)	 	5,975		 	—		 	—		
Income (loss) before income taxes	41,782		 	12,477		 	644		 	54,903		 	190,769		 	17,728		 	—		 	263,400		
Income tax (expense) benefit	(15,878	)	 	(4,741	)	 	(244	)	 	(20,863	)	 	(72,492	)	 	162		 	—		 	(93,193	)	
Net income (loss)	25,904		 	7,736		 	400		 	34,040		 	118,277		 	17,890		 	—		 	170,207		
  Net income attributable to noncontrolling interest	—		 	—		 	—		 	—		 	—		 	885		 	—		 	885		
Net income (loss) attributable to Nelnet, Inc.	$	25,904		 	7,736		 	400		 	34,040		 	118,277		 	17,005		 	—		 	169,322		

11

	
																									
 	Six months ended June 30, 2012	
 	Fee-Based	 	 	 	 	 	 	 	 	 	 	
 	Student Loan and Guaranty Servicing	 	Tuition Payment Processing and Campus Commerce	 	Enrollment
Services	 	Total Fee-
Based	 	Asset
Generation and
Management	 	Corporate
Activity
and
Overhead	 	Eliminations	 	Total	
Total interest income	$	32		 	5		 	—		 	37		 	304,752		 	3,335		 	(1,928	)	 	306,196		
Interest expense	—		 	—		 	—		 	—		 	134,846		 	3,855		 	(1,928	)	 	136,773		
Net interest income (loss)	32		 	5		 	—		 	37		 	169,906		 	(520	)	 	—		 	169,423		
Less provision for loan losses	—		 	—		 	—		 	—		 	13,000		 	—		 	—		 	13,000		
Net interest income (loss) after provision for loan losses	32		 	5		 	—		 	37		 	156,906		 	(520	)	 	—		 	156,423		
Other income (expense):	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Loan and guaranty servicing revenue	101,879		 	—		 	—		 	101,879		 	—		 	—		 	—		 	101,879		
Intersegment servicing revenue	33,355		 	—		 	—		 	33,355		 	—		 	—		 	(33,355	)	 	—		
Tuition payment processing and campus commerce revenue	—		 	38,747		 	—		 	38,747		 	—		 	—		 	—		 	38,747		
Enrollment services revenue	—		 	—		 	61,374		 	61,374		 	—		 	—		 	—		 	61,374		
Other income	—		 	—		 	—		 	—		 	8,581		 	11,173		 	—		 	19,754		
Gain on sale of loans and debt repurchases	—		 	—		 	—		 	—		 	935		 	—		 	—		 	935		
Derivative market value and foreign currency adjustments, net	—		 	—		 	—		 	—		 	(31,657	)	 	(3,282	)	 	—		 	(34,939	)	
Derivative settlements, net	—		 	—		 	—		 	—		 	(1,112	)	 	(747	)	 	—		 	(1,859	)	
Total other income (expense)	135,234		 	38,747		 	61,374		 	235,355		 	(23,253	)	 	7,144		 	(33,355	)	 	185,891		
Operating expenses:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Salaries and benefits	57,947		 	17,193		 	12,440		 	87,580		 	1,261		 	8,957		 	—		 	97,798		
Cost to provide enrollment services	—		 	—		 	42,052		 	42,052		 	—		 	—		 	—		 	42,052		
Depreciation and amortization	8,938		 	3,471		 	3,234		 	15,643		 	—		 	719		 	—		 	16,362		
Other	36,205		 	5,272		 	3,701		 	45,178		 	6,752		 	11,241		 	—		 	63,171		
Intersegment expenses, net	2,570		 	2,663		 	1,824		 	7,057		 	33,778		 	(7,480	)	 	(33,355	)	 	—		
Total operating expenses	105,660		 	28,599		 	63,251		 	197,510		 	41,791		 	13,437		 	(33,355	)	 	219,383		
Income (loss) before income taxes and corporate overhead allocation	29,606		 	10,153		 	(1,877	)	 	37,882		 	91,862		 	(6,813	)	 	—		 	122,931		
Corporate overhead allocation	(2,778	)	 	(926	)	 	(926	)	 	(4,630	)	 	(2,792	)	 	7,422		 	—		 	—		
Income (loss) before income taxes	26,828		 	9,227		 	(2,803	)	 	33,252		 	89,070		 	609		 	—		 	122,931		
Income tax (expense) benefit	(10,195	)	 	(3,506	)	 	1,065		 	(12,636	)	 	(33,845	)	 	8,373		 	—		 	(38,108	)	
Net income (loss)	16,633		 	5,721		 	(1,738	)	 	20,616		 	55,225		 	8,982		 	—		 	84,823		
  Net income attributable to noncontrolling interest	—		 	—		 	—		 	—		 	—		 	288		 	—		 	288		
Net income (loss) attributable to Nelnet, Inc.	$	16,633		 	5,721		 	(1,738	)	 	20,616		 	55,225		 	8,694		 	—		 	84,535		

12

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,” net of “derivative settlements, net” included in the attached consolidated statements of income.

																
 	Three months ended	 	Six months ended	
 	June 30, 2013	 	March 31, 2013	 	June 30, 2012	 	June 30, 2013	 	June 30, 2012	
Variable student loan interest margin, net of settlements on derivatives	$	58,076		 	55,621		 	47,606		 	113,697		 	94,941		
Fixed rate floor income, net of settlements on derivatives	36,056		 	35,716		 	36,984		 	71,772		 	75,076		
Investment interest	1,483		 	1,617		 	1,055		 	3,100		 	2,150		
Non-portfolio related derivative settlements	(512	)	 	(645	)	 	(748	)	 	(1,157	)	 	(748	)	
Corporate debt interest expense	(2,041	)	 	(1,695	)	 	(2,416	)	 	(3,736	)	 	(3,855	)	
Provision for loan losses	(5,000	)	 	(5,000	)	 	(7,000	)	 	(10,000	)	 	(13,000	)	
Net interest income after provision for loan losses (net of settlements on derivatives)	$	88,062		 	85,614		 	75,481		 	173,676		 	154,564		

13

Student Loan Servicing Volumes (dollars in millions)

	
																												
Company owned	 	$23,139	 	$23,727	 	$22,650	 	$22,277	 	$21,926	 	$21,504	 	$21,237	 	$20,820	 	$20,629	
% of total	 	61.6%	 	38.6%	 	29.8%	 	27.1%	 	25.6%	 	23.2%	 	21.8%	 	18.5%	 	17.7%	
Number of servicing borrowers:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Government servicing:	 	441,913		 	2,804,502		 	3,036,534		 	3,096,026		 	3,137,583		 	3,588,412		 	3,892,929		 	4,261,637		 	4,396,341		
FFELP servicing:	 	2,311,558		 	1,912,748		 	1,799,484		 	1,779,245		 	1,724,087		 	1,659,020		 	1,626,146		 	1,586,312		 	1,529,203		
Private servicing:	 	152,200		 	155,947		 	164,554		 	163,135		 	161,763		 	175,070		 	173,948		 	170,224		 	173,588		
Total:	 	2,905,671		 	4,873,197		 	5,000,572		 	5,038,406		 	5,023,433		 	5,422,502		 	5,693,023		 	6,018,173		 	6,099,132		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of remote hosted borrowers:	 	684,996		 	545,456		 	9,566,296		 	8,645,463		 	7,909,300		 	7,505,693		 	6,912,204		 	5,001,695		 	3,218,896		

14

Other Income

The following table summarizes the components of "other income" included in the attached consolidated statements of income.

	
																
 	Three months ended	 	Six months ended	
 	June 30,
2013	 	March 31,
2013	 	June 30,
2012	 	June 30,
2013	 	June 30,
2012	
Borrower late fee income	$	3,233		 	3,505		 	3,377		 	6,738		 	7,080		
Investment advisory fees	6,334		 	2,830		 	3,000		 	9,164		 	6,155		
Realized and unrealized gains/(losses) on investments, net	(214	)	 	1,121		 	418		 	907		 	1,837		
Other	2,935		 	1,960		 	2,005		 	4,895		 	4,682		
Other income	$	12,288		 	9,416		 	8,800		 	21,704		 	19,754		

Derivative Market Value and Foreign Currency Adjustments

The following table summarizes the components of “derivative market value and foreign currency adjustments” included in the attached consolidated statements of income.

																
 	Three months ended	 	Six months ended	
 	June 30,
2013	 	March 31,
2013	 	June 30,
2012	 	June 30,
2013	 	June 30,
2012	
Change in fair value of derivatives - income (expense)	$	63,236		 	(19,507	)	 	(78,758	)	 	43,729		 	(61,923	)	
Foreign currency transaction adjustment - income (expense)	(14,691	)	 	28,763		 	59,226		 	14,072		 	26,984		
Derivative market value and foreign currency adjustments - income (expense)	$	48,545		 	9,256		 	(19,532	)	 	57,801		 	(34,939	)	

Derivative Settlements

The following table summarizes the components of "derivative settlements, net" included in the attached consolidated statements of income.

																
 	Three months ended	 	Six months ended	
 	June 30,
2013	 	March 31,
2013	 	June 30,
2012	 	June 30,
2013	 	June 30,
2012	
Settlements:	 	 	 	 	 	 	 	 	 	
1:3 basis swaps	$	782		 	911		 	1,169		 	1,692		 	2,551		
Interest rate swaps - floor income hedges	(8,534	)	 	(8,304	)	 	(3,505	)	 	(16,839	)	 	(6,642	)	
Interest rate swaps - hybrid debt hedges	(512	)	 	(645	)	 	(723	)	 	(1,157	)	 	(746	)	
Cross-currency interest rate swaps	(93	)	 	(146	)	 	1,055		 	(237	)	 	3,163		
Other	—		 	—		 	(82	)	 	—		 	(185	)	
Total settlements - income (expense)	$	(8,357	)	 	(8,184	)	 	(2,086	)	 	(16,541	)	 	(1,859	)	

15

Student Loans Receivable

The table below outlines the components of the Company’s student loan portfolio:

										
 	As of	 	As of	 	As of	
 	June 30, 2013	 	December 31, 2012	 	June 30, 2012	
Federally insured loans	 	 	 	 	 	
Stafford and other	$	7,010,404		 	7,261,114		 	7,127,383		
Consolidation	17,678,330		 	17,708,732		 	16,423,741		
Total	24,688,734		 	24,969,846		 	23,551,124		
Non-federally insured loans	29,634		 	26,034		 	31,471		
 	24,718,368		 	24,995,880		 	23,582,595		
Loan discount, net of unamortized loan premiums and deferred origination costs	(91,121	)	 	(113,357	)	 	(31,556	)	
Allowance for loan losses – federally insured loans	(39,848	)	 	(40,120	)	 	(36,992	)	
Allowance for loan losses – non-federally insured loans	(11,763	)	 	(11,782	)	 	(12,665	)	
 	$	24,575,636		 	24,830,621		 	23,501,382		
Allowance for federally insured loans as a percentage of such loans	0.16	%	 	0.16	%	 	0.16	%	
Allowance for non-federally insured loans as a percentage of such loans	39.69	%	 	45.26	%	 	40.24	%	

Student Loan Spread

The following table analyzes the student loan spread on the Company’s portfolio of student loans, which represents the spread between the yield earned on student loan assets and the costs of the liabilities and derivative instruments used to fund those assets.

																
 	Three months ended	 	Six months ended	
 	June 30,
2013	 	March 31,
2013	 	June 30,
2012	 	June 30,
2013	 	June 30,
2012	
Variable student loan yield, gross	2.58	 %	 	2.57	 %	 	2.63	 %	 	2.57	 %	 	2.63	 %	
Consolidation rebate fees	(0.77	)	 	(0.77	)	 	(0.75	)	 	(0.77	)	 	(0.75	)	
Discount accretion, net of premium and deferred origination costs amortization	0.03		 	0.03		 	(0.01	)	 	0.03		 	(0.02	)	
Variable student loan yield, net	1.84		 	1.83		 	1.87		 	1.83		 	1.86		
Student loan cost of funds - interest expense	(0.91	)	 	(0.93	)	 	(1.09	)	 	(0.91	)	 	(1.11	)	
Student loan cost of funds - derivative settlements	0.01		 	0.01		 	0.03		 	0.01		 	0.05		
Variable student loan spread	0.94		 	0.91		 	0.81		 	0.93		 	0.80		
Fixed rate floor income, net of settlements on derivatives	0.58		 	0.59		 	0.62		 	0.58		 	0.63		
Core student loan spread	1.52	 %	 	1.50	 %	 	1.43	 %	 	1.51	 %	 	1.43	 %	
 	 	 	 	 	 	 	 	 	 	
Average balance of student loans	$	24,798,537		 	24,781,426		 	23,863,104		 	24,789,981		 	23,990,998		
Average balance of debt outstanding	24,832,555		 	24,823,397		 	23,953,317		 	24,828,001		 	24,094,693		

16

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

		
(a)	The interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate.  The Company funds the majority of its assets with three-month LIBOR indexed floating rate securities.  The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on student loan spread.  This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter.	

Variable student loan spread increased during the three and six months ended June 30, 2013 compared to the same periods in 2012 as a result of the tightening of the Asset/Liability Base Rate Spread as reflected in the previous table.

The primary difference between variable student loan spread and core student loan spread is fixed rate floor income, net of settlements on derivatives.  A summary of fixed rate floor income and its contribution to core student loan spread follows:

																
 	Three months ended	 	Six months ended	
 	June 30, 2013	 	March 31, 2013	 	June 30, 2012	 	June 30, 2013	 	June 30, 2012	
Fixed rate floor income, gross	$	44,590		 	44,020		 	40,489		 	88,611		 	81,718		
Derivative settlements (a)	(8,534	)	 	(8,304	)	 	(3,505	)	 	(16,839	)	 	(6,642	)	
Fixed rate floor income, net	$	36,056		 	35,716		 	36,984		 	71,772		 	75,076		
Fixed rate floor income contribution to spread, net	0.58	%	 	0.59	%	 	0.62	%	 	0.58	%	 	0.63	%	

		
(a)	Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income.	

17

Fixed Rate Floor Income

The following table shows the Company’s student loan assets that are earning fixed rate floor income as of June 30, 2013 :

									
 	 	Borrower/	 	Estimated	 	 	
Fixed	 	lender	 	variable	 	 	
interest	 	weighted	 	conversion	 	Loan	
rate range	 	average yield	 	rate (a)	 	Balance	
< 3.0%	 	2.87%	 	0.23%	 	$	1,748,344		
3.0 - 3.49%	 	3.20%	 	0.56%	 	2,117,816		
3.5 - 3.99%	 	3.65%	 	1.01%	 	1,943,259		
4.0 - 4.49%	 	4.20%	 	1.56%	 	1,460,224		
4.5 - 4.99%	 	4.72%	 	2.08%	 	837,371		
5.0 - 5.49%	 	5.24%	 	2.60%	 	574,321		
5.5 - 5.99%	 	5.67%	 	3.03%	 	348,727		
6.0 - 6.49%	 	6.18%	 	3.54%	 	406,755		
6.5 - 6.99%	 	6.70%	 	4.06%	 	366,797		
7.0 - 7.49%	 	7.17%	 	4.53%	 	150,637		
7.5 - 7.99%	 	7.71%	 	5.07%	 	258,186		
8.0 - 8.99%	 	8.17%	 	5.53%	 	599,016		
> 9.0%	 	9.05%	 	6.41%	 	282,745		
 	 	 	 	 	 	$	11,094,198		

(a)	The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of June 30, 2013 , the weighted average estimated variable conversion rate was 1.82% and the short-term interest rate was 20 basis points.	

The following table summarizes the outstanding derivative instruments as of June 30, 2013 used by the Company to economically hedge a majority of loans earning fixed rate floor income.

									
 	Maturity	 	Notional amount	 	Weighted average fixed rate paid by the Company (a)	
 		 		 		
 	2013	 	$	2,000,000		 	0.71	%	
 	2014	 	1,750,000		 	0.71		
 	2015	 	1,100,000		 	0.89		
 	2016	 	750,000		 	0.85		
 	2017	 	1,250,000		 	0.86		
 	 	 	$	6,850,000		 	0.78	%	

(a)	For all interest rate derivatives, the Company receives discrete three-month LIBOR.	
Future Cash Flow from Portfolio

The majority of the Company’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. In addition, due to (i) the difference between the yield the Company receives on the loans and cost of financing within these transactions, and (ii) the servicing and administration fees the Company earns from these transactions, the Company has created a portfolio that will generate earnings and significant cash flow over the life of these transactions.

As of June 30, 2013 , based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from its portfolio to be approximately $2.10 billion as detailed below.  The $2.10 billion includes approximately $488.8 million (as of June 30, 2013 ) of overcollateralization included in the asset-backed securitizations.  These excess net asset positions are reflected variously in the following balances in the consolidated balance sheet:  "student loans receivable," "restricted cash and investments," and "accrued interest receivable."

18

The forecasted cash flow presented below includes all loans funded in asset-backed securitizations as of June 30, 2013 .  As of June 30, 2013 , the Company had $23.7 billion of loans included in asset-backed securitizations, which represented 95.8 percent of its total FFELP student loan portfolio. The forecasted cash flow does not include cash flows that the Company expects to receive related to loans currently funded in its warehouse facilities or loans acquired subsequent to June 30, 2013 .

FFELP Asset-backed Securitization Cash Flow Forecast (a)
$2.10 billion
(dollars in millions)

		
(a)	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 and default rates.  Should any of these factors change, management may revise its assumptions, which in turn would impact the projected future cash flow. The Company’s cash flow forecast above assumes prepayment rates that are generally consistent with those utilized in the Company’s recent asset-backed securitization transactions. If management used a prepayment rate assumption two times greater than what was used to forecast the cash flow, the cash flow forecast would be reduced by approximately $220 million to $280 million .

Interest rates :  The Company funds the majority of its student loans with three-month LIBOR indexed floating rate securities.  Meanwhile, the interest earned on the Company’s student loan assets are 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 $120 million to $160 million .

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. As of June 30, 2013 , the net fair value of the Company’s interest rate derivatives used to hedge loans earning fixed rate floor income was a net liability of $2.6 million .

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