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 7, 2018

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 100
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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.                        [ ]

Item 2.02 Results of Operations and Financial Condition.
On August 7, 2018 , Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended June 30, 2018 . 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, 2018 , which was made available on the Company's website at www.nelnetinvestors.com on August 7, 2018 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, 2017 filed with the SEC on February 27, 2018 . 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 7, 2018 - "Nelnet Reports Second Quarter 2018 Results"	
99.2	 	Supplemental Financial Information for the Quarter Ended June 30, 2018	

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 7, 2018
NELNET, INC.
By:     /s/ JAMES D. KRUGER      
		
Name:	James D. Kruger	
		
Title:	Chief Financial Officer	

Nelnet Reports Second Quarter 2018 Results
		
•	GAAP net income $1.21 per share, $1.30 per share excluding adjustments	
		
•	Over $2.5 billion of FFELP loans purchased year-to-date through June 30	

LINCOLN, Neb., August 7, 2018 - Nelnet (NYSE: NNI) today reported GAAP net income of $49.4 million , or $1.21 per share, for the second quarter of 2018, compared with GAAP net income of $28.7 million , or $0.68 per share, for the same period a year ago.

Net income, excluding derivative market value and foreign currency transaction adjustments, was $53.2 million , or $1.30 per share, for the second quarter of 2018, compared with $45.8 million , or $1.08 per share, for the same period in 2017. For additional information on these non-GAAP metrics, including reconciliations to GAAP net income, see "Non-GAAP Performance Measures" below.

Several factors increased GAAP net income for the three months ended June 30, 2018 , as compared with the same period in 2017:

•	The contribution to net income from the acquisition of Great Lakes Educational Loan Services, Inc. (Great Lakes) on February 7, 2018;	
		
•	The decrease in the company's effective tax rate due to the Tax Cuts and Jobs Act, effective January 1, 2018; and	
		
•	The recognition of an unrealized loss in 2017 related to the re-measurement of the company's previously Euro-denominated bonds to U.S. dollars.	

These factors were partially offset by the increase in expenses for the continued build-out of the company's ALLO fiber communications network in Lincoln, Nebraska.

"We are pleased with our operating results for the second quarter and the strong performance of our fee-based businesses and student loan portfolio,” said Jeff Noordhoek, chief executive officer of Nelnet. "We believe the future is bright and continue to look for strategic investments within our core businesses, opportunities to enhance customer experiences, and options to further diversify that will generate long-term value."

Nelnet operates four primary business segments, earning interest income on loans in its Asset Generation and Management segment, and fee-based revenue in its Loan Servicing and Systems, Education Technology, Services, and Payment Processing (formerly known as Tuition Payment Processing and Campus Commerce), and Communications segments.

Asset Generation and Management

For the second quarter of 2018, Nelnet reported net interest income of $57.7 million , compared with $79.8 million for the same period a year ago. 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. The company recognized income from derivative settlements of $21.9 million during the second quarter of 2018, compared to an expense from derivative settlements of $0.4 million for the same period in 2017.

The company's average balance of loans decreased to $23.0 billion for the second quarter of 2018, compared with $23.9 billion for the same period in 2017. Core loan spread increased to 1.29 percent for the quarter ended June 30, 2018 , compared with 1.28 percent for the same period in 2017.

Year to date through June 30, 2018, the company has purchased over $2.5 billion in federally insured student loans, including $1.9 billion during the three months ended June 30, 2018 .

Loan Servicing and Systems

On February 7, 2018, the company completed its acquisition of Great Lakes from Great Lakes Higher Education Corporation. The company paid $150.0 million in cash for 100 percent of the stock of Great Lakes. Beginning February 7, 2018, the operating results of Great Lakes are included in the company's Loan Servicing and Systems segment.

Revenue from the Loan Servicing and Systems segment was $114.5 million for the second quarter of 2018, compared with $56.9 million for the same period in 2017.

As of June 30, 2018 , the company (including Great Lakes) was servicing $470.7 billion in Federal Family Education Loan (FFEL) Program, government owned, and private education and consumer loans, as compared with $200.7 billion of loans serviced by the company as of June 30, 2017. During the second quarter of 2018, the company converted Great Lakes' FFEL Program and private education loan servicing volume to Nelnet's servicing platform to leverage the efficiencies of supporting more volume on fewer systems.

Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes are two companies that have student loan servicing contracts awarded by the U.S. Department of Education (the Department) in June 2009 to provide servicing for loans owned by the Department. As of June 30, 2018 , Nelnet Servicing was servicing $176.2 billion of student loans for 5.7 million borrowers under its contract, and Great Lakes was servicing $241.9 billion of student loans for 7.4 million borrowers under its contract. These contracts are currently scheduled to expire on June 16, 2019.

On February 20, 2018, the Department’s Office of Federal Student Aid released information regarding the new federal student loan servicing procurement process. The contract solicitation process is divided into two phases. The company responded to Phase One on April 17, 2018.

Education Technology, Services, and Payment Processing

For the second quarter of 2018, revenue from the Education Technology, Services, and Payment Processing segment was $48.7 million , an increase of $5.3 million, or 12 percent, from the same period in 2017. Prior period revenues were restated, without any impact on prior period net income, in connection with the implementation of a new revenue recognition accounting standard effective January 1, 2018. The increase in revenue was primarily driven by growth in managed tuition payment plans, campus commerce customer transactions and payments volume, new school customers, and an increase in the number of customers using the operating segment's education and technology services.

Communications

Revenue from ALLO Communications was $10.3 million for the second quarter of 2018, compared with $ 5.7 million for the same period in 2017. The number of households served as of June 30, 2018 , was 27,643 , an increase of 15,183, or more than 120 percent, from the number of households served as of June 30, 2017 .

For the second quarter of 2018, ALLO recognized a net loss of $8.1 million , compared with a net loss of $3.6 million for the same period in 2017. The company anticipates this operating segment will be dilutive to consolidated earnings as it continues to build its network in Lincoln, Nebraska and other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs. ALLO's management uses earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA) to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. For the second quarter of 2018, ALLO had negative EBITDA of $1.8 million , compared with negative EBITDA of $2.2 million for the same period in 2017. For additional information on this non-GAAP metric, including a reconciliation to ALLO's GAAP net loss, see "Non-GAAP Performance Measures" below.

ALLO incurred capital expenditures of $45.1 million year to date through June 30, 2018, including $27.2 million during the second quarter of 2018. The company currently anticipates total network expenditures for the remainder of 2018 will be approximately $45.0 million ; however, the amount of capital expenditures could change based on customer demand for ALLO's services. The number of residential households passed, which represents the estimated number of single residence homes, apartments, and condominiums that ALLO already serves, and those in which ALLO has the capacity to connect to its network distribution system without further material extensions to the transmission lines (but have not been connected), increased to 98,538 as of June 30, 2018 , compared with 71,426 as of December 31, 2017.

Liquidity and Capital Activities

For the first two quarters of 2018, the company generated $71.6 million in net cash from operating activities. In addition, as of June 30, 2018 , the company had a total of $67.9 million in cash and cash equivalents and $ 81.8 million in available-for-sale investments, consisting primarily of student loan asset-backed securities. The company also has a $350.0 million unsecured line of credit. As of June 30, 2018 , $170.0 million was outstanding on the line of credit and $180.0 million was available for future use. On June 22, 2018, the company amended its unsecured line of credit to, among other things, extend the maturity date of the facility from December 12, 2021, to June 22, 2023.

During the three months ended June 30, 2018 , the company repurchased a total of 93,620 shares of Class A common stock for $4.9 million ( $52.44 per share). The majority of these repurchases were made pursuant to a trading plan adopted by the company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934.

The company paid cash dividends of $6.5 million , or $0.16 per share, during the second quarter of 2018.

The company intends to use its liquidity position to capitalize on market opportunities, including: FFEL Program, private education, and consumer loan acquisitions; strategic acquisitions and investments; expansion of ALLO's communications network; 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.

Board of Directors Declares Third Quarter 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 $0.16 per share. The dividend will be paid on September 14, 2018, to shareholders of record at the close of business on August 31, 2018.

Non-GAAP Performance Measures

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 and foreign currency transaction adjustments, and a discussion of why the company believes providing this additional information is useful to investors, is provided below.

	
							
 	Three months ended June 30,	
 	2018	 	2017	
 	(dollars in thousands, except share data)	
GAAP net income attributable to Nelnet, Inc.	$	49,435		 	28,737		
Realized and unrealized derivative market value adjustments	4,897		 	286		
Unrealized foreign currency transaction adjustments	—		 	27,261		
Net tax effect	(1,175	)	 	(10,468	)	
Net income, excluding derivative market value and foreign currency transaction adjustments	$	53,157		 	45,816		
 	 	 	 	
Earnings per share:	 	 	 	
GAAP net income attributable to Nelnet, Inc.	$	1.21		 	0.68		
Realized and unrealized derivative market value adjustments	0.12		 	0.01		
Unrealized foreign currency transaction adjustments	—		 	0.64		
Net tax effect	(0.03	)	 	(0.25	)	
Net income, excluding derivative market value and foreign currency transaction adjustments	$	1.30		 	1.08		

"Derivative market value and foreign currency transaction adjustments" include (i) 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 that do not qualify for "hedge treatment" under GAAP; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the company's previously Euro-denominated bonds to U.S. dollars. In October 2017, the company remarketed its Euro-denominated bonds to denominate those bonds in U.S. dollars. "Derivative market value and foreign currency transaction 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 tax effects in the preceding table are calculated by multiplying the realized and unrealized derivative market value adjustments and unrealized foreign currency transaction adjustments by the applicable statutory income tax rate.

The company believes these point-in-time estimates of asset and liability values related to its derivative instruments and previously Euro-denominated bonds that are or were subject to interest and currency rate fluctuations are or were subject to volatility, primarily 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.

A reconciliation of ALLO's GAAP net loss to earnings (loss) before net interest expense, income taxes, depreciation, and amortization (EBITDA), is provided below.

	
							
 	Three months ended June 30,	
 	2018	 	2017	
 	(dollars in thousands)	
Net loss	$	(8,082	)	 	(3,637	)	
Net interest expense	3,302		 	1,103		
Income tax benefit	(2,552	)	 	(2,229	)	
Depreciation and amortization	5,497		 	2,600		
Earnings (loss) before interest, income taxes,
depreciation, and amortization (EBITDA)	$	(1,835	)	 	(2,163	)	

EBITDA is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. ALLO's management uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The company reports EBITDA for ALLO because the company believes that it provides useful additional information for investors regarding a key metric used by management to assess ALLO's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from ALLO's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP.

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements within the meaning of federal securities laws. The words "anticipate," "continue," "expect," "future," "intend," "scheduled," "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 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, but are not limited to: risks related to the company's loan portfolio, such as interest rate basis and repricing risk and changes in levels of student loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; the uncertain nature of the expected benefits from the acquisition of Great Lakes on February 7, 2018, and the ability to successfully integrate technology, shared services, and other activities and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the Department; risks to the company related to the Department's initiative to procure new contracts for federal student loan servicing, including the risk that the company on a post-Great Lakes acquisition basis may not be awarded a contract; risks related to the development by the company and Great Lakes of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized; 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; financing and liquidity risks, including risks of changes in the securitization and other financing markets for student loans; risks and uncertainties from changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFEL Program loan interest income and fee-based revenues due to the discontinuation of FFEL Program loan originations

in 2010 and the resulting initiatives by the company to adjust to a post-FFEL Program environment; the uncertain nature of the expected benefits from the acquisition of ALLO on December 31, 2015, and the ability to successfully expand its fiber network in existing service areas and additional communities and manage related construction risks; the risk that the company's industrial bank charter application may not result in the grant of a charter within the expected timeframe or at all and the uncertain nature of the expected benefits from obtaining an industrial bank charter; risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the company both within and outside of its historical core education-related businesses; 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, 2018 . All forward-looking statements in this release are as of the date of this release. 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 securities laws.

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

																
 	Three months ended	 	Six months ended	
 	June 30,
2018	 	March 31,
2018	 	June 30,
2017	 	June 30, 2018	 	June 30,
2017	
Interest income:	 	 	 	 	 	 	 	 	 	
Loan interest	$	223,371		 	197,723		 	189,878		 	421,094		 	371,086		
Investment interest	5,818		 	5,134		 	3,200		 	10,952		 	5,816		
Total interest income	229,189		 	202,857		 	193,078		 	432,046		 	376,902		
Interest expense:	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	171,450		 	135,550		 	113,236		 	306,999		 	220,135		
Net interest income	57,739		 	67,307		 	79,842		 	125,047		 	156,767		
Less provision for loan losses	3,500		 	4,000		 	3,000		 	7,500		 	4,000		
Net interest income after provision for loan losses	54,239		 	63,307		 	76,842		 	117,547		 	152,767		
Other income:	 	 	 	 	 	 	 	 	 	
Loan servicing and systems revenue	114,545		 	100,141		 	56,899		 	214,687		 	111,128		
Education technology, services, and payment processing revenue	48,742		 	60,221		 	43,480		 	108,963		 	99,504		
Communications revenue	10,320		 	9,189		 	5,719		 	19,509		 	10,826		
Other income	9,580		 	18,198		 	12,485		 	27,776		 	25,118		
Gain from debt repurchases	—		 	359		 	442		 	359		 	5,421		
Derivative market value and foreign currency transaction adjustments and derivative settlements, net	17,031		 	66,799		 	(27,910	)	 	83,829		 	(32,741	)	
Total other income	200,218		 	254,907		 	91,115		 	455,123		 	219,256		
Cost of services:	 	 	 	 	 	 	 	 	 	
 Cost to provide education technology, services, and payment processing services	11,317		 	13,683		 	9,515		 	25,000		 	22,305		
Cost to provide communications services	3,865		 	3,717		 	2,203		 	7,583		 	4,157		
Total cost of services	15,182		 	17,400		 	11,718		 	32,583		 	26,462		
Operating expenses:	 	 	 	 	 	 	 	 	 	
Salaries and benefits	111,118		 	96,643		 	74,628		 	207,760		 	146,491		
Depreciation and amortization	21,494		 	18,457		 	9,038		 	39,951		 	17,636		
Loan servicing fees	3,204		 	3,136		 	5,628		 	6,341		 	11,653		
Other expenses	40,409		 	33,417		 	26,262		 	73,826		 	52,423		
Total operating expenses	176,225		 	151,653		 	115,556		 	327,878		 	228,203		
Income before income taxes	63,050		 	149,161		 	40,683		 	212,209		 	117,358		
Income tax expense	(13,511	)	 	(35,976	)	 	(16,032	)	 	(49,487	)	 	(44,787	)	
Net income	49,539		 	113,185		 	24,651		 	162,722		 	72,571		
Net (income) loss attributable to noncontrolling interests	(104	)	 	740		 	4,086		 	637		 	6,192		
Net income attributable to Nelnet, Inc.	$	49,435		 	113,925		 	28,737		 	163,359		 	78,763		
Earnings per common share:	 	 	 	 	 	 	 	 	 	
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	1.21		 	2.78		 	0.68		 	3.99		 	1.86		
Weighted average common shares outstanding - basic and diluted	40,886,617		 	40,950,528		 	42,326,540		 	40,918,396		 	42,309,295		

Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)

	
										
 	As of	 	As of	 	As of	
 	June 30, 2018	 	December 31, 2017	 	June 30, 2017	
Assets:	 	 	 	 	 	
Loans receivable, net	$	22,710,369		 	21,814,507		 	23,226,796		
Cash, cash equivalents, investments, and notes receivable	324,514		 	307,290		 	335,041		
Restricted cash	896,486		 	875,314		 	917,041		
Goodwill and intangible assets, net	256,291		 	177,186		 	190,389		
Other assets	1,021,584		 	790,138		 	653,820		
Total assets	$	25,209,244		 	23,964,435		 	25,323,087		
Liabilities:	 	 	 	 	 	
Bonds and notes payable	$	22,468,364		 	21,356,573		 	22,790,780		
Other liabilities	454,177		 	442,475		 	401,898		
Total liabilities	22,922,541		 	21,799,048		 	23,192,678		
Equity:	 	 	 	 	 	
Total Nelnet, Inc. shareholders' equity	2,276,869		 	2,149,529		 	2,115,194		
Noncontrolling interests	9,834		 	15,858		 	15,215		
Total equity	2,286,703		 	2,165,387		 	2,130,409		
Total liabilities and equity	$	25,209,244		 	23,964,435		 	25,323,087		
Contacts:
Media, Ben Kiser, 402.458.3024, or Investors, Phil Morgan, 402.458.3038, both of Nelnet, Inc .

For Release: August 7, 2018
Investor Contact: Phil Morgan, 402.458.3038
Nelnet, Inc. supplemental financial information for the second quarter 2018
(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 2018 earnings, dated August 7, 2018 , and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 .
Forward-looking and cautionary statements
This supplemental financial information 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 “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “scheduled,” “plan,” “believe,” “estimate,” “assume,” “forecast,” “will,” 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 the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Annual Report"), and include such risks and uncertainties as:

•	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, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, and consumer loans 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 and in the securitization and other financing markets for loans, including adverse changes resulting from slower than expected payments on student loans in FFELP securitization trusts, 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 and budgets, 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 or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans;	

•	the uncertain nature of the expected benefits from the acquisition of Great Lakes Educational Loan Services, Inc. ("Great Lakes") on February 7, 2018 and the ability to successfully integrate technology, shared services, and other activities and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contract between the Company and the Department accounted for 21 percent of the Company's revenue in 2017, risks to the Company related to the Department's initiative to procure new contracts for federal student loan servicing, including the risk that the Company on a post-Great Lakes acquisition basis may not be awarded a contract, risks related to the development by the Company and Great Lakes of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of FFELP, Federal Direct Loan Program, and private education and consumer loans;	

•	the risk that the Company's industrial bank charter application may not result in the grant of a charter within the expected timeframe or at all and the uncertain nature of the expected benefits from obtaining an industrial bank charter;	

•	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 the potential disclosure of confidential student loan borrower and other customer information;	

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

•	the uncertain nature of the expected benefits from the acquisition of ALLO Communications LLC on December 31, 2015 and the ability to successfully expand its fiber network in existing service areas and additional communities and manage related construction risks;	

•	risks and uncertainties related to initiatives to pursue additional strategic investments and acquisitions, including investments and acquisitions that are intended to diversify the Company both within and outside of its historical core education-related businesses; 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 recent politicization of student loan servicing, 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 securities laws.

1

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

																
 	Three months ended	 	Six months ended	
 	June 30,
2018	 	March 31,
2018	 	June 30,
2017	 	June 30, 2018	 	June 30,
2017	
Interest income:	 	 	 	 	 	 	 	 	 	
Loan interest	$	223,371		 	197,723		 	189,878		 	421,094		 	371,086		
Investment interest	5,818		 	5,134		 	3,200		 	10,952		 	5,816		
Total interest income	229,189		 	202,857		 	193,078		 	432,046		 	376,902		
Interest expense:	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	171,450		 	135,550		 	113,236		 	306,999		 	220,135		
Net interest income	57,739		 	67,307		 	79,842		 	125,047		 	156,767		
Less provision for loan losses	3,500		 	4,000		 	3,000		 	7,500		 	4,000		
Net interest income after provision for loan losses	54,239		 	63,307		 	76,842		 	117,547		 	152,767		
Other income:	 	 	 	 	 	 	 	 	 	
Loan servicing and systems revenue	114,545		 	100,141		 	56,899		 	214,687		 	111,128		
Education technology, services, and payment processing revenue	48,742		 	60,221		 	43,480		 	108,963		 	99,504		
Communications revenue	10,320		 	9,189		 	5,719		 	19,509		 	10,826		
Other income	9,580		 	18,198		 	12,485		 	27,776		 	25,118		
Gain from debt repurchases	—		 	359		 	442		 	359		 	5,421		
Derivative settlements, net	21,928		 	6,766		 	(363	)	 	28,694		 	(1,741	)	
Derivative market value and foreign currency transaction adjustments	(4,897	)	 	60,033		 	(27,547	)	 	55,135		 	(31,000	)	
Total other income	200,218		 	254,907		 	91,115		 	455,123		 	219,256		
Cost of services:	 	 	 	 	 	 	 	 	 	
Cost to provide education technology, services, and payment processing services	11,317		 	13,683		 	9,515		 	25,000		 	22,305		
Cost to provide communications services	3,865		 	3,717		 	2,203		 	7,583		 	4,157		
Total cost of services	15,182		 	17,400		 	11,718		 	32,583		 	26,462		
Operating expenses:	 	 	 	 	 	 	 	 	 	
Salaries and benefits	111,118		 	96,643		 	74,628		 	207,760		 	146,491		
Depreciation and amortization	21,494		 	18,457		 	9,038		 	39,951		 	17,636		
Loan servicing fees	3,204		 	3,136		 	5,628		 	6,341		 	11,653		
Other expenses	40,409		 	33,417		 	26,262		 	73,826		 	52,423		
Total operating expenses	176,225		 	151,653		 	115,556		 	327,878		 	228,203		
Income before income taxes	63,050		 	149,161		 	40,683		 	212,209		 	117,358		
Income tax expense	(13,511	)	 	(35,976	)	 	(16,032	)	 	(49,487	)	 	(44,787	)	
Net income	49,539		 	113,185		 	24,651		 	162,722		 	72,571		
Net (income) loss attributable to noncontrolling interests	(104	)	 	740		 	4,086		 	637		 	6,192		
Net income attributable to Nelnet, Inc.	$	49,435		 	113,925		 	28,737		 	163,359		 	78,763		
Earnings per common share:	 	 	 	 	 	 	 	 	 	
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	1.21		 	2.78		 	0.68		 	3.99		 	1.86		
Weighted average common shares outstanding - basic and diluted	40,886,617		 	40,950,528		 	42,326,540		 	40,918,396		 	42,309,295		

2

Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)

	
										
 	As of	 	As of	 	As of	
 	June 30, 2018	 	December 31, 2017	 	June 30, 2017	
Assets:	 	 	 	 	 	
Loans receivable, net	$	22,710,369		 	21,814,507		 	23,226,796		
Cash, cash equivalents, investments, and notes receivable	324,514		 	307,290		 	335,041		
Restricted cash	896,486		 	875,314		 	917,041		
Goodwill and intangible assets, net	256,291		 	177,186		 	190,389		
Other assets	1,021,584		 	790,138		 	653,820		
Total assets	$	25,209,244		 	23,964,435		 	25,323,087		
Liabilities:	 	 	 	 	 	
Bonds and notes payable	$	22,468,364		 	21,356,573		 	22,790,780		
Other liabilities	454,177		 	442,475		 	401,898		
Total liabilities	22,922,541		 	21,799,048		 	23,192,678		
Equity:	 	 	 	 	 	
Total Nelnet, Inc. shareholders' equity	2,276,869		 	2,149,529		 	2,115,194		
Noncontrolling interests	9,834		 	15,858		 	15,215		
Total equity	2,286,703		 	2,165,387		 	2,130,409		
Total liabilities and equity	$	25,209,244		 	23,964,435		 	25,323,087		

3

Overview

The Company is a diverse company with a focus on delivering education-related products and services and student loan asset management. The largest operating businesses engage in student loan servicing; education technology, services, and payment processing; and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate and start-up ventures.

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 and foreign currency transaction adjustments, and a discussion of why the Company believes providing this additional
information is useful to investors, is provided below.

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
GAAP net income attributable to Nelnet, Inc.	$	49,435		 	113,925		 	28,737		 	163,359		 	78,763		
Realized and unrealized derivative market value adjustments	4,897		 	(60,033	)	 	286		 	(55,135	)	 	(951	)	
Unrealized foreign currency transaction adjustments	—		 	—		 	27,261		 	—		 	31,951		
Net tax effect (a)	(1,175	)	 	14,408		 	(10,468	)	 	13,232		 	(11,780	)	
Net income, excluding derivative market value and foreign currency transaction adjustments (b)	$	53,157			68,300			45,816		 	121,456		 	97,983		
 	 	 	 	 	 	 	 	 	 	
Earnings per share:	 	 	 	 	 	 	 	 	 	
GAAP net income attributable to Nelnet, Inc.	$	1.21		 	2.78		 	0.68		 	3.99		 	1.86		
Realized and unrealized derivative market value adjustments	0.12		 	(1.46	)	 	0.01		 	(1.35	)	 	(0.02	)	
Unrealized foreign currency transaction adjustments	—		 	—		 	0.64		 	—		 	0.76		
Net tax effect (a)	(0.03	)	 	0.35		 	(0.25	)	 	0.33		 	(0.28	)	
Net income, excluding derivative market value and foreign currency transaction adjustments (b)	$	1.30			1.67			1.08		 	2.97		 	2.32		

(a)	The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments and unrealized foreign currency transaction adjustments by the applicable statutory income tax rate.	

(b)	"Derivative market value and foreign currency transaction adjustments" include (i) 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; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the Company's previously Euro-denominated bonds to U.S. dollars. "Derivative market value and foreign currency transaction 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. In addition, the Company incurred unrealized foreign currency transaction adjustments for periodic fluctuations in currency exchange rates between the U.S. dollar and Euro in connection with its student loan asset-backed previously Euro-denominated bonds with an interest rate based on a spread to the EURIBOR index. The principal and accrued interest on these bonds were remeasured at each reporting period and recorded in the Company's consolidated balance sheet in U.S. dollars based on the foreign currency exchange rate on that date.

The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments and previously Euro-denominated bonds that are or were subject to interest and currency rate fluctuations are or were 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.

On October 25, 2017, the Company completed a remarketing of the Company’s bonds that were prior to that date denominated in Euros, to denominate those bonds in U.S. dollars and reset the interest rate to be based on the 3-month LIBOR index. The Company also terminated a cross-currency interest rate swap associated with those bonds. As a result, there are no foreign currency transaction adjustments with respect to those bonds after October 25, 2017.

4

Several factors increased GAAP net income for the three and six months ended June 30, 2018 , as compared with the same respective periods in 2017:

•	The contribution to net income from the acquisition of Great Lakes on February 7, 2018;	
		
•	The decrease in the Company's effective tax rate due to the Tax Cuts and Jobs Act, effective January 1, 2018;	
		
•	The recognition of unrealized losses in 2017 related to foreign currency transaction adjustments caused by the re-measurement of the Company's previously Euro-denominated bonds to U.S. dollars, which bonds were remarketed in October 2017, to denominate them in U.S. dollars; and	
		
•	The recognition of larger gains during the six months ended June 30, 2018 as compared to the same period in 2017 due to changes in the fair values of derivative instruments that do not qualify for hedge accounting.	

These factors were partially offset by the increase in expenses for the continued build-out of the Company's ALLO fiber communications network in Lincoln, Nebraska.

Operating Results

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 June 30, 2018 , the Company had a $22.7 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 7.4 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. However, due to the continued amortization of the Company’s FFELP loan portfolio and anticipated increases in interest rates, the Company's net income generated by the AGM segment will continue to decrease. The Company currently believes that in the short-term it will most likely 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.

In addition, the Company earns fee-based revenue through the following reportable operating segments:

•	Loan Servicing and Systems ("LSS") - referred to as Nelnet Diversified Solutions ("NDS")	
		
•	Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Solutions ("NBS")	
		
•	Communications - referred to as ALLO Communications ("ALLO")	

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 debt transactions.

5

The information below provides the operating results for each reportable operating segment and Corporate and Other Activities for the three and six months ended June 30, 2018 and 2017 (dollars in millions).

(a)    Revenue includes intersegment revenue earned by LSS as a result of servicing loans for AGM.

(b)	Total revenue includes "net interest income" 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. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.	

Certain events and transactions from 2018, which have impacted or will impact the operating results of the Company and its operating segments, are discussed below.

Impact from the Tax Cuts and Jobs Act

•	The Tax Cuts and Jobs Act, signed into law on December 22, 2017, and effective January 1, 2018, lowered the Company's effective tax rate to 21.46 percent and 23.25 percent for the three and six months ended June 30, 2018, respectively, compared to 35.81 percent and 36.25 percent for the same respective periods in 2017. The Company currently expects its effective tax rate will be approximately 23 to 24 percent for the remainder of 2018.	

Loan Servicing and Systems

•	On February 7, 2018, the Company paid $150.0 million in cash for 100 percent of the stock of Great Lakes. The Great Lakes assets acquired and liabilities assumed were recorded by the Company at their respective fair values at the date of acquisition, and Great Lakes' operating results from the date of acquisition forward are included in the Company's consolidated operating results.	

•	Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes are two companies that have student loan servicing contracts awarded by the Department in June 2009 to provide servicing for loans owned by the Department. As of June 30, 2018 , Nelnet Servicing was servicing $176.2 billion of student loans for 5.7 million borrowers under its contract, and Great Lakes was servicing $241.9 billion of student loans for 7.4 million borrowers under its contract. These contracts are currently scheduled to expire on June 16, 2019.	

Under the performance metrics measurements used by the Department for the period July 1, 2017 through December 31, 2017, Nelnet Servicing's and Great Lakes' overall rankings among the nine current servicers for the Department were fourth and second, respectively. These results increased Nelnet Servicing's and Great Lakes' allocations of new student loan servicing volumes under their current respective contracts with the Department from 11 percent to 12 percent and from 14 percent to 16 percent, respectively, for the period March 1, 2018 through August 31, 2018.

Going forward, Great Lakes and Nelnet Servicing will continue to service their respective government-owned portfolios on behalf of the Department, while maintaining their distinct brands, independent servicing operations, and teams. Likewise, each entity will continue to compete for new student loan volume under its respective existing contract with the Department. The Company will integrate technology, as well as shared services and other activities, to become more efficient and effective in

6

meeting borrower needs. During the second quarter of 2018, the Company converted Great Lakes' FFELP and private education loan servicing volume to Nelnet's servicing platform to leverage the efficiencies of supporting more volume on fewer systems.

The Company and Great Lakes have also been working together for almost two years to develop a new, state-of-the-art servicing system for government-owned student loans through their GreatNet joint venture.  The efficiencies gained by leveraging a single platform for government-owned loans supporting millions more borrowers will give the Company and Great Lakes opportunities to invest in strategies to further enhance borrower experiences.   

•	On February 20, 2018, the Department’s Office of Federal Student Aid ("FSA") released information regarding a new contract procurement process to service all student loans owned by the Department.  The contract solicitation process is divided into two phases. The contract solicitation requests responses from interested vendors for nine components, including:	

•	Component A: Enterprise-wide digital platform and related middleware	
		
•	Component B: Enterprise-wide contact center platform, customer relationship management (CRM), and related middleware	
		
•	Component C: Solution 3.0 (core processing, related middleware, and rules engine)	
		
•	Component D: Solution 2.0 (core processing, related middleware, and rules engine)	
		
•	Component E: Solution 3.0 business process operations	
		
•	Component F: Solution 2.0 business process operations	
		
•	Component G: Enterprise-wide data management platform	
		
•	Component H: Enterprise-wide identity and access management (IAM)	
		
•	Component I: Cybersecurity and data protection	
The solicitation indicates Component C (Solution 3.0) is anticipated to be tailored for new customers and Component D (Solution 2.0) is anticipated to serve as the primary environment for FSA’s existing customers. After Solution 3.0 is deployed, FSA will determine the best distribution of loans between Solution 2.0 and Solution 3.0. In addition, more than one business process solution may be selected for Components E and F.
Vendors may provide a response for an individual, multiple, or all components. The Company responded to Phase One on April 17, 2018.

•	As of June 30, 2018, the Company (including Great Lakes) was servicing $470.7 billion in FFELP, government owned, and private education and consumer loans, as compared with $211.4 billion of loans serviced by the Company as of December 31, 2017.	

Education Technology, Services, and Payment Processing

•	During the first quarter of 2018, the Company changed the name of its Tuition Payment Processing and Campus Commerce operating segment to Education Technology, Services, and Payment Processing to better describe the evolution of services this operating segment provides.	

•	In May 2014, the Financial Accounting Standards Board issued a new standard related to revenue recognition. The Company adopted the standard effective January 1, 2018, using the full retrospective method, which required it to restate each prior reporting period presented. The most significant impact of the standard relates to identifying the Company's Education Technology, Services, and Payment Processing operating segment as the principal in its payment services transactions. As a result of this change, the Company presents the payment services revenue gross with the direct costs to provide these services presented separately.	

•	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.	

Communications

•	In the fourth quarter of 2017, ALLO announced plans to expand its network to make services available in Hastings, Nebraska and Fort Morgan, Colorado.  This will expand total households in ALLO’s current markets from 137,500 to over 152,000.  In December 2017, the Fort Morgan city council approved a 40-year agreement with ALLO for ALLO to provide broadband service over a fiber network that the city will build and own, and ALLO will lease and operate to provide services to subscribers.  ALLO plans to continue expansion to additional communities in Nebraska and Colorado over the next several years.	

•	For the three and six months ended June 30, 2018 , ALLO incurred capital expenditures of $27.2 million and $45.1 million, respectively. The Company currently anticipates total network expenditures for the remainder of 2018 (July 1, 2018 to December	

7

31, 2018) will be approximately $45.0 million; however, the amount of capital expenditures could change based on the customer demand for ALLO's services.

•	The Company currently anticipates ALLO's operating results will be dilutive to the Company's consolidated earnings as it continues to build its network in Lincoln, Nebraska, and other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.	

Asset Generation and Management

•	During the six months ended June 30, 2018 , the Company purchased $2.6 million in loans, including $2.0 billion during the second quarter of 2018. The vast majority (approximately 99 percent) of these loans are federally insured student loans.	

•	The Company's average balance of loans decreased to $23.0 billion for the second quarter of 2018, compared with $23.9 billion for the same period in 2017. Core loan spread increased to 1.29 percent for the quarter ended June 30, 2018, compared with 1.28 percent for the same period in 2017. The Company began to purchase consumer loans in the second quarter of 2017. Consumer loans are currently funded by the Company using operating cash, until they can be funded in a secured financing transaction. As such, consumer loans do not have a cost of funds (debt) associated with them. Core loan spread, excluding consumer loans, would have been 1.23 percent and 1.27 percent for the three months ended June 30, 2018 and 2017, respectively.	

Corporate and Other Activities

•	On June 28, 2018, the Company filed an application with the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions to establish Nelnet Bank, a Utah-chartered industrial bank. If the charter is granted, Nelnet Bank would operate as an internet bank franchise focused on the private education marketplace, with a home office in Salt Lake City. Nelnet Bank would be a separate subsidiary of the Company, and the industrial bank charter would allow the Company to maintain its other diversified business offerings. The Company expects the charter application process to take an extended period of time.	

Liquidity and Capital Resources

•	As of June 30, 2018 , the Company had cash and cash equivalents of $67.9 million . In addition, the Company had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $81.8 million as of June 30, 2018 .	

•	For the six months ended June 30, 2018 , the Company generated $71.6 million in net cash from operating activities.	

•	On June 22, 2018, the Company amended its unsecured $350.0 million line of credit to, among other things, extend the maturity date of the facility from December 12, 2021 to June 22, 2023. As of June 30, 2018 , the unsecured line of credit had $170.0 million outstanding and $180.0 million was available for future use.	

•	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 June 30, 2018 , the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $1.98 billion , of which approximately $1.34 billion is expected to be generated over the next approximately five years (from July 1, 2018 through December 31, 2022).	

•	During the six months ended June 30, 2018 , the Company repurchased a total of 315,794 shares of Class A common stock for $16.3 million ( $51.71 per share), including 93,620 shares of Class A common stock for $4.9 million ($ 52.44 per share) repurchased by the Company during the three months ended June 30, 2018.	

•	During the six months ended June 30, 2018 , the Company paid cash dividends of $13.0 million ($0.32 per share), including $6.5 million ($0.16 per share) paid during the three months ended June 30, 2018. In addition, the Company's Board of Directors has declared a third quarter 2018 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.16 per share. The third quarter cash dividend will be paid on September 14, 2018 to shareholders of record at the close of business on August 31, 2018.	

•	The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP and private education and consumer loan acquisitions; strategic acquisitions and investments; expansion of ALLO's telecommunications network; 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.	

8

Segment Reporting

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, 2018	
 	Loan Servicing and Systems	 	Education Technology, Services, and Payment Processing	 	Communications	 	Asset
Generation and
Management	 	Corporate and Other Activities	 	Eliminations	 	Total	
Total interest income	$	293		 	748		 	1		 	226,509		 	6,062		 	(4,425	)	 	229,189		
Interest expense	—		 	—		 	3,303		 	169,623		 	2,949		 	(4,425	)	 	171,450		
Net interest income	293		 	748		 	(3,302	)	 	56,886		 	3,113		 	—		 	57,739		
Less provision for loan losses	—		 	—		 	—		 	3,500		 	—		 	—		 	3,500		
Net interest income (loss) after provision for loan losses	293		 	748		 	(3,302	)	 	53,386		 	3,113		 	—		 	54,239		
Other income:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan servicing and systems revenue	114,545		 	—		 	—		 	—		 	—		 	—		 	114,545		
Intersegment servicing revenue	11,609		 	—		 	—		 	—		 	—		 	(11,609	)	 	—		
Education technology, services, and payment processing revenue	—		 	48,742		 	—		 	—		 	—		 	—		 	48,742		
Communications revenue	—		 	—		 	10,320		 	—		 	—		 	—		 	10,320		
Other income	1,956		 	—		 	—		 	2,772		 	4,851		 	—		 	9,580		
Gain from debt repurchases	—		 	—		 	—		 	—		 	—		 	—		 	—		
Derivative settlements, net	—		 	—		 	—		 	22,053		 	(125	)	 	—		 	21,928		
Derivative market value and foreign currency transaction adjustments, net	—		 	—		 	—		 	(5,446	)	 	548		 	—		 	(4,897	)	
Total other income	128,110		 	48,742		 	10,320		 	19,379		 	5,274		 	(11,609	)	 	200,218		
Cost of services:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide education technology, services, and payment processing services	—		 	11,317		 	—		 	—		 	—		 	—		 	11,317		
Cost to provide communications services	—		 	—		 	3,865		 	—		 	—		 	—		 	3,865		
Total cost of services	—		 	11,317		 	3,865		 	—		 	—		 	—		 	15,182		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	69,434		 	19,513		 	4,668		 	377		 	17,126		 	—		 	111,118		
Depreciation and amortization	8,212		 	3,286		 	5,497		 	—		 	4,500		 	—		 	21,494		
Loan servicing fees	—		 	—		 	—		 	3,204		 	—		 	—		 	3,204		
Other expenses	17,490		 	5,383		 	3,023		 	1,288		 	13,225		 	—		 	40,409		
Intersegment expenses, net	15,583		 	2,570		 	599		 	11,700		 	(18,842	)	 	(11,609	)	 	—		
Total operating expenses	110,719		 	30,752		 	13,787		 	16,569		 	16,009		 	(11,609	)	 	176,225		
Income (loss) before income taxes	17,684		 	7,421		 	(10,634	)	 	56,196		 	(7,622	)	 	—		 	63,050		
Income tax (expense) benefit	(4,245	)	 	(1,781	)	 	2,552		 	(13,487	)	 	3,451		 	—		 	(13,511	)	
Net income (loss)	13,439		 	5,640		 	(8,082	)	 	42,709		 	(4,171	)	 	—		 	49,539		
  Net income attributable to noncontrolling interests	—		 	—		 	—		 	—		 	(104	)	 	—		 	(104	)	
Net income (loss) attributable to Nelnet, Inc.	$	13,439		 	5,640		 	(8,082	)	 	42,709		 	(4,275	)	 	—		 	49,435		

9

	
																						
 	Three months ended March 31, 2018	
 	Loan Servicing and Systems	 	Education Technology, Services, and Payment Processing	 	Communications	 	Asset
Generation and
Management	 	Corporate and Other Activities	 	Eliminations	 	Total	
Total interest income	$	257		 	665		 	1		 	200,334		 	4,751		 	(3,150	)	 	202,857		
Interest expense	—		 	—		 	2,509		 	134,233		 	1,958		 	(3,150	)	 	135,550		
Net interest income	257		 	665		 	(2,508	)	 	66,101		 	2,793		 	—		 	67,307		
Less provision for loan losses	—		 	—		 	—		 	4,000		 	—		 	—		 	4,000		
Net interest income (loss) after provision for loan losses	257		 	665		 	(2,508	)	 	62,101		 	2,793		 	—		 	63,307		
Other income:	 		 	 		 	 	 	 		 	 		 	 		 	 		
Loan servicing and systems revenue	100,141		 	—		 	—		 	—		 	—		 	—		 	100,141		
Intersegment servicing revenue	10,771		 	—		 	—		 	—		 	—		 	(10,771	)	 	—		
Education technology, services, and payment processing revenue	—		 	60,221		 	—		 	—		 	—		 	—		 	60,221		
Communications revenue	—		 	—		 	9,189		 	—		 	—		 	—		 	9,189		
Other income	1,292		 	—		 	—		 	2,992		 	13,914		 	—		 	18,198		
Gain from debt repurchases	—		 	—		 	—		 	359		 	—		 	—		 	359		
Derivative settlements, net	—		 	—		 	—		 	6,926		 	(160	)	 	—		 	6,766		
Derivative market value and foreign currency transaction adjustments, net	—		 	—		 	—		 	58,571		 	1,462		 	—		 	60,033		
Total other income	112,204			60,221			9,189			68,848			15,216			(10,771	)		254,907		
Cost of services:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide education technology, services, and payment processing services	—		 	13,683		 	—		 	—		 	—		 	—		 	13,683		
Cost to provide communications services	—		 	—		 	3,717		 	—		 	—		 	—		 	3,717		
Total cost of services	—		 	13,683		 	3,717		 	—		 	—		 	—		 	17,400		
Operating expenses:	 		 	 		 	 	 	 	 	 		 	 	 	 		
Salaries and benefits	58,537		 	19,067		 	4,063		 	382		 	14,594		 	—		 	96,643		
Depreciation and amortization	6,069		 	3,341		 	4,921		 	—		 	4,126		 	—		 	18,457		
Loan servicing fees	—		 	—		 	—		 	3,136		 	—		 	—		 	3,136		
Other expenses	14,463		 	4,624		 	2,638		 	848		 	10,845		 	—		 	33,417		
Intersegment expenses, net	13,356		 	2,567		 	605		 	10,865		 	(16,622	)	 	(10,771	)	 	—		
Total operating expenses	92,425			29,599			12,227			15,231			12,943			(10,771	)		151,653		
Income (loss) before income taxes	20,036		 	17,604		 	(9,263	)	 	115,718		 	5,066		 	—		 	149,161		
Income tax (expense) benefit	(5,003	)	 	(4,225	)	 	2,223		 	(27,773	)	 	(1,199	)	 	—		 	(35,976	)	
Net income (loss)	15,033			13,379			(7,040	)		87,945			3,867			—			113,185		
  Net loss (income) attributable to noncontrolling interests	808		 	—		 	—		 	—		 	(68	)	 	—		 	740		
Net income (loss) attributable to Nelnet, Inc.	$	15,841			13,379			(7,040	)		87,945			3,799			—			113,925		

10

	
																						
 	Three months ended June 30, 2017	
 	Loan Servicing and Systems	 	Education Technology, Services, and Payment Processing	 	Communications	 	Asset
Generation and
Management	 	Corporate and Other
Activities	 	Eliminations	 	Total	
Total interest income	$	120		 	3		 	1		 	191,368		 	3,362		 	(1,776	)	 	193,078		
Interest expense	—		 	—		 	1,104		 	113,073		 	835		 	(1,776	)	 	113,236		
Net interest income	120		 	3		 	(1,103	)	 	78,295		 	2,527		 	—		 	79,842		
Less provision for loan losses	—		 	—		 	—		 	3,000		 	—		 	—		 	3,000		
Net interest income (loss) after provision for loan losses	120		 	3		 	(1,103	)	 	75,295		 	2,527		 	—		 	76,842		
Other income:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan servicing and systems revenue	56,899		 	—		 	—		 	—		 	—		 	—		 	56,899		
Intersegment servicing revenue	9,952		 	—		 	—		 	—		 	—		 	(9,952	)	 	—		
Education technology, services, and payment processing revenue	—		 	43,480		 	—		 	—		 	—		 	—		 	43,480		
Communications revenue	—		 	—		 	5,719		 	—		 	—		 	—		 	5,719		
Other income	—		 	—		 	—		 	3,057		 	9,429		 	—		 	12,485		
Gain from debt repurchases	—		 	—		 	—		 	442		 	—		 	—		 	442		
Derivative settlements, net	—		 	—		 	—		 	(165	)	 	(198	)	 	—		 	(363	)	
Derivative market value and foreign currency transaction adjustments, net	—		 	—		 	—		 	(27,412	)	 	(135	)	 	—		 	(27,547	)	
Total other income	66,851		 	43,480		 	5,719		 	(24,078	)	 	9,096		 	(9,952	)	 	91,115		
Cost of services:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide education technology, services, and payment processing services	—		 	9,515		 	—		 	—		 	—		 	—		 	9,515		
Cost to provide communications services	—		 	—		 	2,203		 	—		 	—		 	—		 	2,203		
Total cost of services	—		 	9,515		 	2,203		 	—		 	—		 	—		 	11,718		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	40,506		 	16,901		 	3,411		 	363		 	13,447		 	—		 	74,628		
Depreciation and amortization	546		 	2,346		 	2,600		 	—		 	3,547		 	—		 	9,038		
Loan servicing fees	—		 	—		 	—		 	5,628		 	—		 	—		 	5,628		
Other expenses	8,879		 	4,594		 	1,772		 	820		 	10,195		 	—		 	26,262		
Intersegment expenses, net	8,324		 	2,136		 	496		 	10,043		 	(11,046	)	 	(9,952	)	 	—		
Total operating expenses	58,255		 	25,977		 	8,279		 	16,854		 	16,143		 	(9,952	)	 	115,556		
Income (loss) before income taxes	8,716		 	7,991		 	(5,866	)	 	34,363		 	(4,520	)	 	—		 	40,683		
Income tax (expense) benefit	(4,918	)	 	(3,037	)	 	2,229		 	(13,057	)	 	2,751		 	—		 	(16,032	)	
Net income (loss)	3,798		 	4,954		 	(3,637	)	 	21,306		 	(1,769	)	 	—		 	24,651		
  Net loss (income) attributable to noncontrolling interests	4,226		 	—		 	—		 	—		 	(141	)	 	—		 	4,086		
Net income (loss) attributable to Nelnet, Inc.	$	8,024		 	4,954		 	(3,637	)	 	21,306		 	(1,910	)	 	—		 	28,737		

11

	
																						
 	Six months ended June 30, 2018	
 	Loan Servicing and Systems	 	Education Technology, Services, and Payment Processing	 	Communications	 	Asset
Generation and
Management	 	Corporate and Other
Activities	 	Eliminations	 	Total	
Total interest income	$	550		 	1,413		 	2		 	426,843		 	10,813		 	(7,574	)	 	432,046		
Interest expense	—		 	—		 	5,812		 	303,854		 	4,907		 	(7,574	)	 	306,999		
Net interest income	550		 	1,413		 	(5,810	)	 	122,989		 	5,906		 	—		 	125,047		
Less provision for loan losses	—		 	—		 	 	 	7,500		 	—		 	—		 	7,500		
Net interest income (loss) after provision for loan losses	550		 	1,413		 	(5,810	)	 	115,489		 	5,906		 	—		 	117,547		
Other income:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan servicing and systems revenue	214,687		 	—		 	—		 	—		 	—		 	—		 	214,687		
Intersegment servicing revenue	22,380		 	—		 	—		 	—		 	—		 	(22,380	)	 	—		
Education technology, services, and payment processing revenue	—		 	108,963		 	—		 	—		 	—		 	—		 	108,963		
Communications revenue	—		 	—		 	19,509		 	—		 	—		 	—		 	19,509		
Other income	3,248		 	—		 	—		 	5,765		 	18,765		 	—		 	27,776		
Gain from debt repurchases	—		 	—		 	—		 	359		 	—		 	—		 	359		
Derivative settlements, net	—		 	—		 	—		 	28,979		 	(285	)	 	—		 	28,694		
Derivative market value and foreign currency transaction adjustments, net	 	 	—		 	—		 	53,125		 	2,010		 	—		 	55,135		
Total other income	240,315		 	108,963		 	19,509		 	88,228		 	20,490		 	(22,380	)	 	455,123		
Cost of services:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide education technology, services, and payment processing services	—		 	25,000		 	—		 	—		 	—		 	—		 	25,000		
Cost to provide communications services	—		 	—		 	7,583		 	—		 	—		 	—		 	7,583		
Total cost of services	—		 	25,000		 	7,583		 	—		 	—		 	—		 	32,583		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	127,971		 	38,580		 	8,730		 	759		 	31,720		 	—		 	207,760		
Depreciation and amortization	14,280		 	6,627		 	10,418		 	—		 	8,626		 	—		 	39,951		
Loan servicing fees	—		 	—		 	—		 	6,341		 	—		 	—		 	6,341		
Other expenses	31,953		 	10,006		 	5,660		 	2,137		 	24,070		 	—		 	73,826		
Intersegment expenses, net	28,939		 	5,136		 	1,204		 	22,565		 	(35,464	)	 	(22,380	)	 	—		
Total operating expenses	203,143		 	60,349		 	26,012		 	31,802		 	28,952		 	(22,380	)	 	327,878		
Income (loss) before income taxes	37,722		 	25,027		 	(19,896	)	 	171,915		 	(2,556	)	 	—		 	212,209		
Income tax (expense) benefit	(9,247	)	 	(6,006	)	 	4,775		 	(41,260	)	 	2,251		 	—		 	(49,487	)	
Net income (loss)	28,475		 	19,021		 	(15,121	)	 	130,655		 	(305	)	 	—		 	162,722		
  Net loss (income) attributable to noncontrolling interests	808		 	—		 	—		 	—		 	(172	)	 	—		 	637		
Net income (loss) attributable to Nelnet, Inc.	$	29,283		 	19,021		 	(15,121	)	 	130,655		 	(477	)	 	—		 	163,359		

12

	
																						
 	Six months ended June 30, 2017	
 	Loan Servicing and Systems	 	Education Technology, Services, and Payment Processing	 	Communications	 	Asset
Generation and
Management	 	Corporate and Other
Activities	 	Eliminations	 	Total	
Total interest income	$	214		 	5		 	1		 	373,693		 	6,123		 	(3,135	)	 	376,902		
Interest expense	—		 	—		 	1,816		 	219,824		 	1,630		 	(3,135	)	 	220,135		
Net interest income	214		 	5		 	(1,815	)	 	153,869		 	4,493		 	—		 	156,767		
Less provision for loan losses	—		 	—		 	—		 	4,000		 	—		 	—		 	4,000		
Net interest income (loss) after provision for loan losses	214		 	5		 	(1,815	)	 	149,869		 	4,493		 	—		 	152,767		
Other income:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan servicing and systems revenue	111,128		 	—		 	—		 	—		 	—		 	—		 	111,128		
Intersegment servicing revenue	20,275		 	—		 	—		 	—		 	—		 	(20,275	)	 	—		
Education technology, services, and payment processing revenue	—		 	99,504		 	—		 	—		 	—		 	—		 	99,504		
Communications revenue	—		 	—		 	10,826		 	—		 	—		 	—		 	10,826		
Other income	—		 	—		 	—		 	6,399		 	18,719		 	—		 	25,118		
Gain from debt repurchases	—		 	—		 	—		 	981		 	4,440		 	—		 	5,421		
Derivative settlements, net	—		 	—		 	—		 	(1,339	)	 	(402	)	 	—		 	(1,741	)	
Derivative market value and foreign currency transaction adjustments, net	—		 	—		 	—		 	(30,823	)	 	(177	)	 	—		 	(31,000	)	
Total other income	131,403		 	99,504		 	10,826		 	(24,782	)	 	22,580		 	(20,275	)	 	219,256		
Cost of services:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide education technology, services, and payment processing services	—		 	22,305		 	—		 	—		 	—		 	—		 	22,305		
Cost to provide communications services	—		 	—		 	4,157		 	—		 	—		 	—		 	4,157		
Total cost of services	—		 	22,305		 	4,157		 	—		 	—		 	—		 	26,462		
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	78,497		 	33,553		 	6,390		 	763		 	27,287		 	—		 	146,491		
Depreciation and amortization	1,095		 	4,737		 	4,735		 	—		 	7,069		 	—		 	17,636		
Loan servicing fees	—		 	—		 	—		 	11,653		 	—		 	—		 	11,653		
Other expenses	18,015		 	9,202		 	3,144		 	1,812		 	20,249		 	—		 	52,423		
Intersegment expenses, net	15,722		 	4,210		 	1,002		 	20,455		 	(21,114	)	 	(20,275	)	 	—		
Total operating expenses	113,329		 	51,702		 	15,271		 	34,683		 	33,491		 	(20,275	)	 	228,203		
Income (loss) before income taxes	18,288		 	25,502		 	(10,417	)	 	90,404		 	(6,418	)	 	—		 	117,358		
Income tax (expense) benefit	(9,473	)	 	(9,690	)	 	3,959		 	(34,354	)	 	4,772		 	—		 	(44,787	)	
Net income (loss)	8,815		 	15,812		 	(6,458	)	 	56,050		 	(1,646	)	 	—		 	72,571		
  Net loss (income) attributable to noncontrolling interests	6,641		 	—		 	—		 	—		 	(450	)	 	—		 	6,192		
Net income (loss) attributable to Nelnet, Inc.	$	15,456		 	15,812		 	(6,458	)	 	56,050		 	(2,096	)	 	—		 	78,763		

13

Net Interest Income, Net of Settlements on Derivatives
The following table summarizes the components of "net interest income" and "derivative settlements, net."

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 as presented in the table below.  Net interest income (net of settlements on derivatives) is a non-GAAP financial measure, and 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 "Derivative Settlements" included in this supplement for the net settlement activity recognized by the Company for each type of derivative for the periods presented in the table below.

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
Variable loan interest margin	$	40,416		 	46,884		 	49,817		 	87,302		 	92,788		
Settlements on associated derivatives (a)	2,979		 	(1,664	)	 	(2,279	)	 	1,315		 	(3,333	)	
Variable loan interest margin, net of settlements on derivatives	43,395		 	45,220		 	47,538		 	88,617		 	89,455		
Fixed rate floor income	14,453		 	17,247		 	27,664		 	31,700		 	59,795		
Settlements on associated derivatives (b)	19,074		 	8,590		 	2,114		 	27,664		 	1,994		
Fixed rate floor income, net of settlements on derivatives	33,527		 	25,837		 	29,778		 	59,364		 	61,789		
Investment interest	5,818		 	5,134		 	3,200		 	10,952		 	5,816		
Corporate debt interest expense	(2,948	)	 	(1,958	)	 	(839	)	 	(4,907	)	 	(1,632	)	
Non-portfolio related derivative settlements (c)	(125	)	 	(160	)	 	(198	)	 	(285	)	 	(402	)	
Net interest income (net of settlements on derivatives)	$	79,667		 	74,073		 	79,479		 	153,741		 	155,026		

(a)	Includes the net settlements received (paid) related to the Company’s 1:3 basis swaps, and the cross-currency interest rate swap in place prior to the October 2017 remarketing of previously Euro-denominated bonds.	

(b)	Includes the net settlements received (paid) related to the Company’s floor income interest rate swaps.	

(c)	Includes the net settlements received (paid) related to the Company’s hybrid debt hedges.	

14

Loan Servicing Volumes (dollars in millions)

The Company purchased Great Lakes on February 7, 2018. During the second quarter of 2018, the Company converted Great Lakes' FFELP and private education loan servicing volume to Nelnet's servicing platform to leverage the efficiencies of supporting more volume on fewer systems.

	
																													
Company owned	 	$16,962	 	$16,352	 	$15,789	 	$18,403	 	$17,827	 	$17,866	 	$19,113	 	
% of total	 	8.7%	 	8.2%	 	7.9%	 	8.9%	 	8.4%	 	3.8%	 	4.1%	 	
Number of servicing borrowers:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Government servicing:	 	5,972,619		 	5,924,099		 	5,849,283		 	5,906,404		 	5,877,414		 	5,819,286		 	7,456,830		 	5,745,181		 	7,378,875		 	
FFELP servicing:	 	1,312,192		 	1,263,785		 	1,218,706		 	1,317,552		 	1,420,311		 	1,399,280		 	461,553		 	1,787,419		 	—		 	
Private education and consumer loan servicing:	 	355,096		 	389,010		 	454,182		 	478,150		 	502,114		 	508,750		 	118,609		 	672,520		 	3,987		 	
Total:	 	7,639,907		 	7,576,894		 	7,522,171		 	7,702,106		 	7,799,839		 	7,727,316		 	8,036,992		 	8,205,120		 	7,382,862		 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of remote hosted borrowers:	 	2,230,019		 	2,305,991		 	2,317,151		 	2,714,588		 	2,812,713		 	6,207,747	 	6,145,981	 	

15

Comm unications Financial and Operating Data

Certain financial and operating data for ALLO is summarized in the tables below.

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
Residential revenue	$	7,727		 	6,747		 	3,820		 	14,472		 	7,172		
Business revenue	2,535		 	2,381		 	1,814		 	4,917		 	3,510		
Other revenue	58		 	61		 	85		 	120		 	144		
Total revenue	$	10,320		 	9,189		 	5,719		 	19,509		 	10,826		
 	 	 	 	 	 	 	 	 	 	
Net (loss) income	$	(8,082	)	 	(7,040	)	 	(3,637	)	 	(15,121	)	 	(6,458	)	
EBITDA (a)	(1,835	)	 	(1,834	)	 	(2,163	)	 	(3,668	)	 	(3,867	)	
 	 	 	 	 	 	 	 	 	 	
Capital expenditures	27,189		 	17,899		 	32,344		 	45,088		 	49,013		
 	 	 	 	 	 	 	 	 	 	
Revenue contribution:	 	 	 	 	 	 	 	 	 	
Internet	52.2	%	 	51.1	%	 	44.9	%	 	51.7	%	 	44.0	%	
Television	29.9		 	30.3		 	30.8		 	30.1		 	31.3		
Telephone	17.7		 	18.4		 	23.5		 	18.0		 	24.1		
Other	0.2		 	0.2		 	0.8		 	0.2		 	0.6		
 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	 	100.0	%	

	
																					
 	As of
June 30,
2018	 	As of
March 31, 2018	 	As of
December 31, 2017	 	As of September 30, 2017	 	As of
June 30,
2017	 	As of
March 31, 2017	 	As of
December 31, 2016	
Residential customer information:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Households served	27,643		 	23,541		 	20,428		 	16,394		 	12,460		 	10,524		 	9,814		
Households passed (b)	98,538		 	84,475		 	71,426		 	54,815		 	45,880		 	34,925		 	30,962		
Total households in current markets	137,500		 	137,500		 	137,500		 	137,500		 	137,500		 	137,500		 	137,500		
Total households in current markets and new markets announced (c)	152,840		 	152,840		 	152,626		 	137,500		 	137,500		 	137,500		 	137,500		

(a)	Earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. ALLO's management uses EBITDA to compare ALLO's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. EBITDA excludes interest and income taxes because these items are associated with a company's particular capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses primarily reflect the impact of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods, which may be evaluated through cash flow measures. The Company reports EBITDA for ALLO because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess ALLO's performance. There are limitations to using EBITDA as a performance measure, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from ALLO's calculations. In addition, EBITDA should not be considered a substitute for other measures of financial performance, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from ALLO's net loss under GAAP is presented in the following table:	

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
Net loss	$	(8,082	)	 	(7,040	)	 	(3,637	)	 	(15,121	)	 	(6,458	)	
Net interest expense	3,302		 	2,508		 	1,103		 	5,810		 	1,815		
Income tax benefit	(2,552	)	 	(2,223	)	 	(2,229	)	 	(4,775	)	 	(3,959	)	
Depreciation and amortization	5,497		 	4,921		 	2,600		 	10,418		 	4,735		
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)	$	(1,835	)	 	(1,834	)	 	(2,163	)	 	(3,668	)	 	(3,867	)	

16

		
(b)	Represents the number of single residence homes, apartments, and condominiums that ALLO already serves and those in which ALLO has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected.	

(c)	During the fourth quarter of 2017, ALLO announced plans to expand its network to make services available in Hastings, Nebraska and Fort Morgan, Colorado. ALLO plans to expand to additional communities in Nebraska and Colorado over the next several years.	

Other Income

The following table summarizes the components of "other income."

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
Realized and unrealized gains on investments, net	$	1,136		 	9,081		 	1,302		 	10,217		 	1,618		
Borrower late fee income	2,758		 	2,983		 	3,048		 	5,741		 	6,368		
Investment advisory fees	1,394		 	1,593		 	2,294		 	2,986		 	5,810		
Management fee revenue	1,756		 	1,161		 	—		 	2,917		 	—		
Peterson's revenue	—		 	—		 	3,043		 	—		 	5,880		
Other	2,536		 	3,380		 	2,798		 	5,915		 	5,442		
Other income	$	9,580		 	18,198		 	12,485		 	27,776		 	25,118		

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, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30,
2018	 	June 30,
2017	
1:3 basis swaps	$	2,979		 	(1,664	)	 	(362	)	 	1,315		 	336		
Interest rate swaps - floor income hedges	19,074		 	8,590		 	2,114		 	27,664		 	1,994		
Interest rate swaps - hybrid debt hedges	(125	)	 	(160	)	 	(198	)	 	(285	)	 	(402	)	
Cross-currency interest rate swap	—		 	—		 	(1,917	)	 	—		 	(3,669	)	
Total derivative settlements - income (expense)	$	21,928		 	6,766		 	(363	)	 	28,694		 	(1,741	)	

17

Derivative Market Value and Foreign Currency Transaction Adjustments

"Derivative market value and foreign currency transaction adjustments" include (i) 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; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the Company's previously Euro-denominated bonds to U.S. dollars. On October 25, 2017, the Company completed a remarketing of the Company’s bonds that were prior to that date denominated in Euros, to denominate those bonds in U.S. dollars and reset the interest rate to be based on the 3-month LIBOR index. The Company also terminated a cross-currency interest rate swap associated with those bonds. As a result, foreign currency transaction adjustments will not be incurred with respect to those bonds after October 25, 2017.

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

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30,
2018	 	June 30,
2017	
Change in fair value of derivatives -
income (expense)	$	(4,897	)	 	60,033		 	(286	)	 	55,135		 	951		
Foreign currency transaction adjustment - income (expense)	—		 	—		 	(27,261	)	 	—		 	(31,951	)	
Derivative market value and foreign currency transaction adjustments - income (expense)	$	(4,897	)	 	60,033		 	(27,547	)	 	55,135		 	(31,000	)	

Loans Receivable

Loans receivable consisted of the following:

										
 	As of	
 	June 30, 2018	 	December 31, 2017	 	June 30, 2017	
Federally insured student loans:	 	 	 	 	 	
Stafford and other	$	4,879,259		 	4,418,881		 	4,704,409		
Consolidation	17,715,531		 	17,302,725		 	18,442,998		
Total	22,594,790		 	21,721,606		 	23,147,407		
Private education loans	180,935		 	212,160		 	242,893		
Consumer loans	80,560		 	62,111		 	24,858		
 	22,856,285		 	21,995,877		 	23,415,158		
Loan discount, net of unamortized loan premiums and deferred origination costs	(73,831	)	 	(113,695	)	 	(122,682	)	
Non-accretable discount	(18,370	)	 	(13,085	)	 	(14,972	)	
Allowance for loan losses:	 	 	 	 	 	
Federally insured loans	(37,263	)	 	(38,706	)	 	(35,862	)	
Private education loans	(11,664	)	 	(12,629	)	 	(13,846	)	
Consumer loans	(4,788	)	 	(3,255	)	 	(1,000	)	
 	$	22,710,369		 	21,814,507		 	23,226,796		

18

Loan Activity

The following table sets forth the activity of loans:

	
													
 	Three months ended June 30,	 	Six months ended June 30,	
 	2018	 	2017	 	2018	 	2017	
Beginning balance	$	21,733,713		 	24,196,909		 	21,995,877		 	25,103,643		
Loan acquisitions:	 	 	 	 	 	 	 	
Federally insured student loans	1,948,372		 	52,548		 	2,532,958		 	104,279		
Private education loans	194		 	132		 	194		 	575		
Consumer loans	14,212		 	25,991		 	37,566		 	25,991		
Total loan acquisitions	1,962,778		 	78,671		 	2,570,718		 	130,845		
Repayments, claims, capitalized interest, and other	(590,062	)	 	(574,537	)	 	(1,212,346	)	 	(1,222,452	)	
Consolidation loans lost to external parties	(248,752	)	 	(310,743	)	 	(496,572	)	 	(621,736	)	
Loans sold	(1,392	)	 	—		 	(1,392	)	 	—		
Ending balance	$	22,856,285		 	23,390,300		 	22,856,285		 	23,390,300		

19

Loan Spread Analysis

The following table analyzes the loan spread on the Company’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.

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
Variable loan yield, gross	4.46	 %	 	4.15	 %	 	3.50	 %	 	4.31	 %	 	3.37	 %	
Consolidation rebate fees	(0.85	)	 	(0.85	)	 	(0.84	)	 	(0.85	)	 	(0.84	)	
Discount accretion, net of premium and deferred origination costs amortization	0.04		 	0.07		 	0.07		 	0.05		 	0.07		
Variable loan yield, net	3.65		 	3.37		 	2.73		 	3.51		 	2.60		
Loan cost of funds - interest expense	(3.00	)	 	(2.53	)	 	(1.91	)	 	(2.77	)	 	(1.82	)	
Loan cost of funds - derivative settlements (a) (b)	0.05		 	(0.03	)	 	(0.04	)	 	0.01		 	(0.03	)	
Variable loan spread	0.70		 	0.81		 	0.78		 	0.75		 	0.75		
Fixed rate floor income, gross	0.25		 	0.32		 	0.46		 	0.29		 	0.49		
Fixed rate floor income - derivative settlements (a) (c)	0.34		 	0.16		 	0.04		 	0.25		 	0.02		
Fixed rate floor income, net of settlements on derivatives	0.59		 	0.48		 	0.50		 	0.54		 	0.51		
Core loan spread (d)	1.29	 %	 	1.29	 %	 	1.28	 %	 	1.29	 %	 	1.26	 %	
 	 	 	 	 	 	 	 	 	 	
Average balance of loans	$	22,959,660		 	21,871,501		 	23,900,296		 	22,415,580		 	24,327,874		
Average balance of debt outstanding	22,476,114		 	21,449,449		 	23,644,793		 	21,965,618		 	24,090,788		

(a)	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 it 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 "Derivative Settlements" included in this supplement for the net settlement activity recognized by the Company for each type of derivative for the periods presented in this table.	

(b) Derivative settlements include the net settlements received (paid) related to the Company’s 1:3 basis swaps and previous cross-currency interest rate swap.

(c)	Derivative settlements include the net settlements received (paid) related to the Company’s floor income interest rate swaps.	

(d) The Company began to purchase consumer loans in the second quarter of 2017. Consumer loans are currently funded by the Company using operating cash, until they can be funded in a secured financing transaction. As such, consumer loans do not have a cost of funds (debt) associated with them. Core loan spread, excluding consumer loans, would have been 1.23%, 1.25%, and 1.27% for the three months ended June 30, 2018 , March 31, 2018, and June 30, 2017, respectively, and 1.23% and 1.26% for the six months ended June 30, 2018 and 2017, respectively.

20

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

(a)	The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate.  The Company funds a 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.	

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

																
 	Three months ended	 	Six months ended	
 	June 30, 2018	 	March 31, 2018	 	June 30, 2017	 	June 30, 2018	 	June 30, 2017	
Fixed rate floor income, gross	$	14,453		 	17,247		 	27,664		 	31,700		 	59,795		
Derivative settlements (a)	19,074		 	8,590		 	2,114		 	27,664		 	1,994		
Fixed rate floor income, net	$	33,527		 	25,837		 	29,778		 	59,364		 	61,789		
Fixed rate floor income contribution to spread, net	0.59	%	 	0.48	%	 	0.50	%	 	0.54	%	 	0.51	%	

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

21

Fixed Rate Floor Income

The following table shows the Company’s federally insured student loan assets that were earning fixed rate floor income as of June 30, 2018 .

											
Fixed interest rate range	 	Borrower/lender weighted average yield	 	Estimated variable conversion rate (a)	 	Loan balance	
4.5 - 4.99%	 	4.81	%	 	2.17	%	 	$	486,472		
5.0 - 5.49%	 	5.22	%	 	2.58	%	 	532,731		
5.5 - 5.99%	 	5.67	%	 	3.03	%	 	359,022		
6.0 - 6.49%	 	6.19	%	 	3.55	%	 	410,983		
6.5 - 6.99%	 	6.70	%	 	4.06	%	 	395,745		
7.0 - 7.49%	 	7.17	%	 	4.53	%	 	140,556		
7.5 - 7.99%	 	7.71	%	 	5.07	%	 	241,821		
8.0 - 8.99%	 	8.18	%	 	5.54	%	 	553,251		
> 9.0%	 	9.05	%	 	6.41	%	 	200,700		
 	 	 	 	 	 	$	3,321,281		

(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, 2018 , the weighted average estimated variable conversion rate was 3.85% and the short-term interest rate was 200 basis points.	

The following table summarizes the outstanding derivative instruments as of June 30, 2018 used by the Company to economically hedge loans earning fixed rate floor income.

								
Maturity	 	Notional amount	 	Weighted average fixed rate paid by the Company (a)	
	 		 		
2018	 	$	1,250,000		 	1.08	%	
2019	 	3,250,000		 	0.97		
2020	 	1,500,000		 	1.01		
2023	 	750,000		 	2.28		
2024	 	300,000		 	2.28		
2025	 	100,000		 	2.32		
2027	 	50,000		 	2.32		
2028	 	100,000		 	3.03		
 	 	$	7,300,000		 	1.24	%	

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

22