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)
February 27, 2020

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))
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered	
Class A Common Stock, Par Value $0.01 per Share	NNI	New York Stock Exchange	
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 February 27, 2020, Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended December 31, 2019. 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 December 31, 2019, which was made available on the Company's website at www.nelnetinvestors.com on February 27, 2020 in connection with the press release, is furnished as Exhibit 99.2 to this report. A copy of the 2019 letter to the Company's shareholders from the Chief Executive Officer of the Company is also furnished as Exhibit 99.3 to this report.
The above information and Exhibits 99.1, 99.2 and 99.3 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, 2019 filed with the SEC on February 27, 2020. 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 February 27, 2020 - "Nelnet Reports Fourth Quarter 2019 Results"	
			
99.2 	 		Supplemental Financial Information for the Quarter Ended December 31, 2019	
			
99.3 	 		2019 Letter to Shareholders from the Chief Executive Officer	
			
104 	 		Cover Page Interactive Data File (formatted as Inline XBRL and included as Exhibit 101).	

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: February 27, 2020
NELNET, INC.
By: /s/ JAMES D. KRUGER
Name: James D. Kruger
Title: Chief Financial Officer

Nelnet Reports Fourth Quarter 2019 Results
LINCOLN, Neb., February 27, 2020 - Nelnet (NYSE: NNI) today reported GAAP net income of $42.4 million, or $1.06 per share, for the fourth quarter of 2019, compared with GAAP net income of $21.6 million, or $0.53 per share, for the same period a year ago.
Net income, excluding derivative market value adjustments1, was $44.6 million, or $1.12 per share, for the fourth quarter of 2019, compared with $58.8 million, or $1.44 per share, for the same period in 2018.
"We are pleased with our financial performance and operating results for the fourth quarter and year,” said Jeff Noordhoek, chief executive officer of Nelnet. “Nelnet was founded to serve others and make their dreams possible. More than 40 years later, service still lies at the heart of everything we do. Looking ahead, serving and supporting our customers, associates, and communities will continue to be the priority for our businesses in 2020."
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; and Communications segments.
Asset Generation and Management
The company's AGM operating segment reported net interest income of $59.5 million for the three months ended December 31, 2019, compared with $67.0 million for the same period a year ago. The decrease in net interest income was due to a decrease in average loan balance and loan spread. Nelnet's average loan balance in the fourth quarter of 2019 was $21.0 billion, compared with $22.6 billion for the same period in 2018. Loan spread decreased to 1.02 percent for the quarter ended December 31, 2019, compared with 1.05 percent for the same period in 2018.

The company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. The company's AGM operating segment recognized income from derivative settlements of $6.1 million during the fourth quarter of 2019, compared with income of $19.1 million for the same period in 2018. Derivative settlements for each applicable period should be evaluated with the company's net interest income. Net interest income and derivative settlements totaled $65.6 million and $86.1 million in the fourth quarter of 2019 and 2018, respectively. Core loan spread2, which includes the impact of derivative settlements, decreased to 1.14 percent for the quarter ended December 31, 2019, compared with 1.39 percent for the same period in 2018.

Provision for loan losses was $13.0 million and $5.0 million for the three months ended December 31, 2019 and 2018, respectively. For federally insured loans, the provision for loan losses was $2.0 million for each of the three months ended December 31, 2019 and 2018. Provision for loan losses for consumer loans increased to $11.0 million for the three months ended December 31, 2019 compared with $3.0 million for the same period in 2018 as a result of additional consumer loan purchases. The company purchased $107.6 million (par value) of consumer loans in the fourth quarter of 2019, compared with $40.1 million (par value) in the same period of 2018.
During the fourth quarter of 2019, the company sold $179.3 million (par value) of consumer loans to an unrelated third party and recognized a gain of $15.6 million ($11.9 million after tax, or $0.30 per share).
Subsequent to December 31, 2019, the company made the decision to sell $124.2 million (par value) of consumer loans to an unrelated third party, and will recognize a gain in the first quarter of 2020 of $18.2 million ($13.8 million after tax, or $0.35 per share).
Loan Servicing and Systems
Revenue from the Loan Servicing and Systems segment was $113.1 million for the fourth quarter of 2019, compared with $112.8 million for the same period in 2018. As of December 31, 2019, the company was servicing $473.0 billion in government-owned, Federal Family Education Loan (FFEL) Program, private education, and consumer loans, compared with $464.6 billion of loans serviced by the company as of December 31, 2018.

															

1 Net income, excluding derivative market value adjustments, is a non-GAAP measure. See "Non-GAAP Performance Measures" at the end of this press release and the "Non-GAAP Disclosures" section below for explanatory information and reconciliations of non-GAAP to GAAP financial information.

2 Core loan spread is a non-GAAP measure. See "Non-GAAP Performance Measures" at the end of this press release and the "Non-GAAP Disclosures" section below for explanatory information and reconciliations of non-GAAP to GAAP financial information.

Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes Educational Loan Services, Inc. (Great Lakes) have student loan servicing contracts awarded by the U.S. Department of Education's Office of Federal Student Aid (the Department) in June 2009 to provide servicing for loans owned by the Department. As of December 31, 2019, Nelnet Servicing was servicing $183.8 billion of student loans for 5.6 million borrowers under its contract, and Great Lakes was servicing $240.0 billion of student loans for 7.4 million borrowers under its contract. In November 2019, Nelnet Servicing and Great Lakes each received a contract extension from the Department through December 14, 2020. The contract extensions also provided the potential for two additional six-month extensions at the Department's discretion through December 14, 2021.
Nelnet has been responding to the Department’s ongoing contract procurement process to determine the future servicing of the Department’s government-owned student loan portfolio. Most recently, the company responded to amendments to the business processing outsourcing component and transitional information technology platform component on January 30, 2020 and February 3, 2020, respectively. The company cannot predict the timing, nature, or outcome of these solicitations.
Net income for the Loan Servicing and Systems segment was $9.8 million for the three months ended December 31, 2019, compared with $14.4 million for the same period in 2018. For the three months ended December 31, 2019 and 2018, the before-tax operating margin (income before income taxes divided by revenue) from the Loan Servicing and Systems segment was 10.1 percent and 14.9 percent, respectively. The decrease in net income and operating margin in the fourth quarter of 2019 as compared with the same period in 2018 was due to an increase in headcount to meet increased service and security standards under the Department servicing contracts.
The Loan Servicing and Systems segment will continue to incur additional costs in 2020 to meet the increased service and security standards, as well as incur additional costs to be responsive to the Department's procurement. As a result, the company currently expects a significant decrease in this segment's operating margin and net income in 2020 from recent historical results.
Education Technology, Services, and Payment Processing
For the fourth quarter of 2019, revenue from the Education Technology, Services, and Payment Processing operating segment was $63.6 million, an increase of $9.0 million, or 16 percent, from the same period in 2018. The increase in revenue was due to the acquisition of Tuition Management Systems on November 20, 2018; growth in managed tuition payment plans, campus commerce customer transactions, and payments volume; and an increase in the number of customers using the operating segment's education and technology services.

Net income for the Education Technology, Services, and Payment Processing segment was $7.3 million for the three months ended December 31, 2019, compared with a loss of $1.2 million for the same period in 2018. During the fourth quarter of 2018, the company terminated its investment in a proprietary payment processing platform, and as a result, recorded a $7.8 million, or $5.9 million after tax, impairment charge for hardware and external software development costs.

Communications

Revenue from ALLO Communications was $17.5 million for the fourth quarter of 2019, compared with $13.3 million for the same period in 2018. The number of households served as of December 31, 2019, was 47,744, an increase of 10,393, or 28 percent, from the number of households served as of December 31, 2018. ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to other communities in the Midwest.

During the fourth quarter of 2019, ALLO announced plans to expand its network to Imperial, Nebraska, increasing households in current markets and newly announced markets to over 160,000, of which almost 141,000 are passed and are either already served or have the opportunity to be served by ALLO's existing network as of December 31, 2019. ALLO incurred capital expenditures of $45.0 million during the twelve months ended December 31, 2019, including $7.8 million in the fourth quarter of 2019. The company currently anticipates total network expenditures in 2020 will be approximately $35 million to $45 million; however, the amount of capital expenditures could change based on customer demand for ALLO's services.

For the fourth quarter of 2019, ALLO recognized a net loss of $6.6 million, compared with a net loss of $5.9 million for the same period in 2018. The company anticipates this operating segment will be dilutive to consolidated earnings as it continues to develop and add customers to 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)3 to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. For the fourth quarter of 2019, ALLO had positive EBITDA of $2.5 million, compared with negative EBITDA of $0.9 million for the same period in 2018.
Other Activities
As previously announced, on November 12, 2019, the company re-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 loan marketplace, with a home office in Salt Lake City.
Year-End Results
GAAP net income for the year ended December 31, 2019 was $141.8 million, or $3.54 per share, compared with GAAP net income of $227.9 million, or $5.57 per share, for 2018. Net income in 2019, excluding derivative market value adjustments1, was $199.7 million, or $4.99 per share, compared with $227.1 million, or $5.55 per share, for 2018.
Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of federal securities laws. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks 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 loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; risks related to the ability to successfully maintain and increase allocated volumes of student loans serviced by Nelnet Servicing and Great Lakes under existing and any future servicing contracts with the Department, which current contracts accounted for 30 percent of the company's revenue in 2019; risks to the company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the risk that the company or company teams may not be successful in obtaining contracts; risks related to the development by the company 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 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; risks and uncertainties related to the ability of ALLO to successfully expand its fiber network and market share in existing service areas and additional communities and manage related construction risks; risks and uncertainties related to initiatives to pursue additional strategic investments, acquisitions, and other activities, including activities that are intended to diversify the company both within and outside of its historical core education-related businesses, such as the risk that the company's industrial bank charter application may not result in the grant of a charter and the uncertain nature of the expected benefits from obtaining an industrial bank charter; cybersecurity risks, including potential disruptions to systems, disclosure of confidential information, and/or damage to reputation resulting from cyber-breaches; and changes in the general interest rate environment, including the availability of any relevant money-market index rate such as LIBOR or the relationship between the relevant money-market index rate and the rate at which the company's assets and liabilities are priced.
For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the fourth quarter ended December 31, 2019. 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.

															
					
3 EBITDA is a non-GAAP measure. See "Non-GAAP Performance Measures" at the end of this press release and the "Non-GAAP Disclosures" section below for explanatory information and reconciliations of non-GAAP to GAAP financial information.

Non-GAAP Performance Measures
The company prepares its financial statements and presents its financial results in accordance with U.S. 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. Reconciliations of GAAP to non-GAAP financial information, and a discussion of why the company believes providing this additional information is useful to investors, is provided in the "Non-GAAP Disclosures" section below.

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

																														
	Three months ended		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
	
Interest income:										
Loan interest	$	204,638 	 		229,063 	 		244,252 	 		914,256 	 		897,666 	 	
Investment interest	7,720 	 		9,882 	 		8,019 	 		34,421 	 		26,600 	 	
Total interest income	212,358 	 		238,945 	 		252,271 	 		948,677 	 		924,266 	 	
Interest expense:										
Interest on bonds and notes payable	148,106 	 		172,488 	 		182,732 	 		699,327 	 		669,906 	 	
Net interest income	64,252 	 		66,457 	 		69,539 	 		249,350 	 		254,360 	 	
Less provision for loan losses	13,000 	 		10,000 	 		5,000 	 		39,000 	 		23,000 	 	
Net interest income after provision for loan losses	51,252 	 		56,457 	 		64,539 	 		210,350 	 		231,360 	 	
Other income:										
Loan servicing and systems revenue	113,086 	 		113,286 	 		112,761 	 		455,255 	 		440,027 	 	
Education technology, services, and payment processing revenue	63,578 	 		74,251 	 		54,589 	 		277,331 	 		221,962 	 	
Communications revenue	17,499 	 		16,470 	 		13,326 	 		64,269 	 		44,653 	 	
Other income	26,522 	 		13,439 	 		9,998 	 		65,179 	 		54,805 	 	
	
  Derivative market value adjustments and
derivative settlements, net	3,170 	 		1,668 	 		(29,843)	 		(30,789)	 		71,085 	 	
Total other income	223,855 	 		219,114 	 		160,831 	 		831,245 	 		832,532 	 	
Cost of services:										
 Cost to provide education technology, services, and payment processing services	19,002 	 		25,671 	 		15,479 	 		81,603 	 		59,566 	 	
Cost to provide communications services	5,327 	 		5,236 	 		5,033 	 		20,423 	 		16,926 	 	
Total cost of services	24,329 	 		30,907 	 		20,512 	 		102,026 	 		76,492 	 	
Operating expenses:										
Salaries and benefits	124,561 	 		116,670 	 		114,247 	 		463,503 	 		436,179 	 	
Depreciation and amortization	28,651 	 		27,701 	 		23,953 	 		105,049 	 		86,896 	 	
	
Other expenses	46,710 	 		58,329 	 		49,583 	 		194,272 	 		178,031 	 	
Total operating expenses	199,922 	 		202,700 	 		187,783 	 		762,824 	 		701,106 	 	
Income before income taxes	50,856 	 		41,964 	 		17,075 	 		176,745 	 		286,294 	 	
Income tax (expense) benefit	(9,022)	 		(8,829)	 		4,599 	 		(35,451)	 		(58,770)	 	
Net income	41,834 	 		33,135 	 		21,674 	 		141,294 	 		227,524 	 	
Net loss (income) attributable to
   noncontrolling interests	546 	 		77 	 		(48)	 		509 	 		389 	 	
Net income attributable to Nelnet, Inc.	$	42,380 	 		33,212 	 		21,626 	 		141,803 	 		227,913 	 	
Earnings per common share:										
Net income attributable to Nelnet, Inc.
  shareholders - basic and diluted	$	1.06 	 		0.83 	 		0.53 	 		3.54 	 		5.57 	 	
Weighted average common shares outstanding -
  basic and diluted	39,896,232 	 		39,877,129 	 		40,810,636 	 		40,047,402 	 		40,909,022 	 	

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

	As of		As of		As of	
	December 31, 2019		September 30, 2019		December 31, 2018	
	
Assets:						
Loans receivable, net	$	20,669,371 	 		21,071,441 	 		22,377,142 	 	
Cash, cash equivalents, investments, and notes receivable	380,879 	 		373,395 	 		370,717 	 	
Restricted cash	1,088,695 	 		977,228 	 		1,071,044 	 	
Goodwill and intangible assets, net	238,444 	 		246,411 	 		271,202 	 	
Other assets	1,331,581 	 		1,268,244 	 		1,130,863 	 	
Total assets	$	23,708,970 	 		23,936,719 	 		25,220,968 	 	
Liabilities:						
Bonds and notes payable	$	20,529,054 	 		20,910,190 	 		22,218,740 	 	
Other liabilities	788,822 	 		671,864 	 		687,449 	 	
Total liabilities	21,317,876 	 		21,582,054 	 		22,906,189 	 	
Equity:						
Total Nelnet, Inc. shareholders' equity	2,386,712 	 		2,350,150 	 		2,304,464 	 	
Noncontrolling interests	4,382 	 		4,515 	 		10,315 	 	
Total equity	2,391,094 	 		2,354,665 	 		2,314,779 	 	
Total liabilities and equity	$	23,708,970 	 		23,936,719 	 		25,220,968 	 	
Contacts:
Media, Ben Kiser, 402.458.3024, or Investors, Phil Morgan, 402.458.3038, both of Nelnet, Inc.

Non-GAAP Disclosures
(Dollars in thousands, except share data)
(unaudited)

Non-GAAP financial measures disclosed by management are meant to provide additional information and insight relative to business trends to investors and, in certain cases, to present financial information as measured by rating agencies and other users of financial information. These measures are not in accordance with, or a substitute for, GAAP and may be different from, or inconsistent with, non-GAAP financial measures used by other companies. 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.
Net income, excluding derivative market value adjustments

	Three months ended December 31,		Year ended December 31,	
	2019		2018		2019		2018	
GAAP net income attributable to Nelnet, Inc.	$	42,380 	 		21,626 	 		141,803 	 		227,913 	 	
Realized and unrealized derivative market value adjustments (a)	2,930 	 		48,895 	 		76,195 	 		(1,014)	 	
Tax effect (b)	(703)	 		(11,735)	 		(18,287)	 		243 	 	
Net income attributable to Nelnet, Inc., excluding
derivative market value adjustments	$	44,607 	 		58,786 	 		199,711 	 		227,142 	 	
								
Earnings per share:								
GAAP net income attributable to Nelnet, Inc.	$	1.06 	 		0.53 	 		3.54 	 		5.57 	 	
Realized and unrealized derivative market value adjustments (a)	0.07 	 		1.20 	 		1.90 	 		(0.02)	 	
Tax effect (b)	(0.01)	 		(0.29)	 		(0.45)	 		— 	 	
Net income attributable to Nelnet, Inc., excluding
derivative market value adjustments	$	1.12 	 		1.44 	 		4.99 	 		5.55 	 	

(a) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to  
variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives that do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the company’s derivative transactions with the intent that each is economically effective; however, the company’s derivative instruments do not qualify for hedge accounting.  As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item.  Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.
The company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility, 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.

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

Core loan spread

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. The spread amounts included in the following table are calculated by using the notional dollar values found in the "Net interest income, net of settlements on derivatives" table on the following page, divided by the average balance of loans or debt outstanding.

	Three months ended December 31,	
	2019		2018	
Variable loan yield, gross	4.36 	%		4.89 	%	
Consolidation rebate fees	(0.83)	 		(0.84)	 	
Discount accretion, net of premium and deferred origination costs
amortization	0.02 	 		0.03 	 	
Variable loan yield, net	3.55 	 		4.08 	 	
Loan cost of funds - interest expense	(2.83)	 		(3.24)	 	
Loan cost of funds - derivative settlements (a) (b)	0.04 	 		0.02 	 	
Variable loan spread	0.76 	 		0.86 	 	
Fixed rate floor income, gross	0.30 	 		0.21 	 	
Fixed rate floor income - derivative settlements (a) (c)	0.08 	 		0.32 	 	
Fixed rate floor income, net of settlements on derivatives	0.38 	 		0.53 	 	
Core loan spread	1.14 	%		1.39 	%	
				
Average balance of loans	$	21,040,484 	 		22,583,222 	 	
Average balance of debt outstanding	20,850,214 	 		22,232,428 	 	

A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without derivative settlements follows.

	Three months ended December 31,	
	2019		2018	
Core loan spread	1.14 	%		1.39 	%	
Derivative settlements (1:3 basis swaps)	(0.04)	 		(0.02)	 	
Derivative settlements (fixed rate floor income)	(0.08)	 		(0.32)	 	
Loan spread	1.02 	%		1.05 	%	

(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.
(b) Derivative settlements consist of net settlements received related to the company’s 1:3 basis swaps.
(c) Derivative settlements consist of net settlements received related to the company’s floor income interest rate swaps.

Net interest income, net of settlements on derivatives
The following table summarizes the components of "net interest income" and "derivative settlements, net" from the company's Asset Generation and Management segment statements of income.

	Three months ended December 31,	
	2019		2018	
Variable interest income, gross	$	231,689 	 		278,387 	 	
Consolidation rebate fees	(43,846)	 		(47,258)	 	
Discount accretion, net of premium and deferred origination costs
amortization	1,069 	 		1,672 	 	
Variable interest income, net	188,912 	 		232,801 	 	
Interest on bonds and notes payable	(148,269)	 		(181,069)	 	
Derivative settlements (basis swaps), net (a)	1,839 	 		901 	 	
Variable loan interest margin, net of settlements on derivatives (a)	42,482 	 		52,633 	 	
Fixed rate floor income, gross	15,727 	 		11,452 	 	
Derivative settlements (interest rate swaps), net (a)	4,261 	 		18,148 	 	
Fixed rate floor income, net of settlements on derivatives (a)	19,988 	 		29,600 	 	
Core loan interest income (a)	62,470 	 		82,233 	 	
Investment interest	3,937 	 		4,367 	 	
Intercompany interest	(787)	 		(563)	 	
Net interest income (net of settlements on derivatives) (a)	$	65,620 	 		86,037 	 	

A reconciliation of net interest income (net of settlements on derivatives) to net interest income for the company's Asset Generation and Management segment follows.

															
		Three months ended December 31,	
		2019		2018	
Net interest income (net of settlements on derivatives)		$	65,620 	 		86,037 	 	
Derivative settlements (1:3 basis swaps)		(1,839)	 		(901)	 	
Derivative settlements (fixed rate floor income)		(4,261)	 		(18,148)	 	
Net interest income		$	59,520 	 		66,988 	 	

(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 on 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 this table. Core loan interest income and net interest income (net of settlements on derivatives) are non-GAAP financial measures.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

A reconciliation of ALLO's GAAP net loss to earnings (loss) before net interest expense, income taxes, depreciation, and amortization, is provided below.
												
	Three months ended December 31,	
	2019		2018	
Net loss	$	(6,581)	 		(5,876)	 	
Net interest (income) expense	— 	 		(2)	 	
Income tax benefit	(2,079)	 		(1,856)	 	
Depreciation and amortization	11,148 	 		6,792 	 	
Earnings (loss) before interest, income taxes,
depreciation, and amortization (EBITDA)	$	2,488 	 		(942)	 	

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.

For Release: February 27, 2020
Investor Contact: Phil Morgan, 402.458.3038
Nelnet, Inc. supplemental financial information for the fourth quarter 2019
(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 fourth quarter 2019 earnings, dated February 27, 2020, and the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
Forward-looking and cautionary statements
This report contains forward-looking statements and information that are based on management's current expectations as of the date of this document.  Statements that are not historical facts, including statements about the Company's plans and expectations for future financial condition, results of operations or economic performance, or that address management's plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “scheduled,” “should,” “will,” “would,” and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements.
The forward-looking statements are based on assumptions and analyses made by management in light of management's experience and its perception of historical trends, current conditions, expected future developments, and other factors that management believes are appropriate under the circumstances. These statements are subject to known and unknown risks, uncertainties, assumptions, and other factors that may cause the actual results and performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 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, including the availability of any relevant money market index rate such as LIBOR or the relationship between the relevant money market index rate and the rate at which the Company's assets and liabilities are priced, and in the securitization and other financing markets for loans, including adverse changes resulting from unanticipated repayment trends on student loans in FFELP securitization trusts that could accelerate or delay repayment of the associated bonds, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans;
•risks from changes in the 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 ability to 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 contracts accounted for 30 percent of the Company's revenue in 2019, risks to the Company related to the Department's initiatives to procure new contracts for federal student loan servicing, including the risk that Company teams may not be successful in obtaining contracts, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of Federal Direct Loan Program, FFELP, and private education and consumer loans;
•risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information, the potential disruption of the Company's systems or those of third-party vendors or customers, and/or the potential damage to the Company's reputation resulting from cyber-breaches;
•uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations;
•risks and uncertainties related to the ability of ALLO Communications LLC to successfully expand its fiber network and market share in existing service areas and additional communities and manage related construction risks;
•risks and uncertainties related to initiatives to pursue additional strategic investments, acquisitions, and other activities, including activities that are intended to diversify the Company both within and outside of its historical core education-related businesses, such as the risk that the Company's industrial bank charter application may not result in the grant of a charter and the uncertain nature of the expected benefits from obtaining an industrial bank charter;
•risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities; and
•risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the politicization of student loan servicing, 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		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Interest income:										
Loan interest	$	204,638 	 		229,063 	 		244,252 	 		914,256 	 		897,666 	 	
Investment interest	7,720 	 		9,882 	 		8,019 	 		34,421 	 		26,600 	 	
Total interest income	212,358 	 		238,945 	 		252,271 	 		948,677 	 		924,266 	 	
Interest expense:										
Interest on bonds and notes payable	148,106 	 		172,488 	 		182,732 	 		699,327 	 		669,906 	 	
Net interest income	64,252 	 		66,457 	 		69,539 	 		249,350 	 		254,360 	 	
Less provision for loan losses	13,000 	 		10,000 	 		5,000 	 		39,000 	 		23,000 	 	
Net interest income after provision for loan losses	51,252 	 		56,457 	 		64,539 	 		210,350 	 		231,360 	 	
Other income:										
Loan servicing and systems revenue	113,086 	 		113,286 	 		112,761 	 		455,255 	 		440,027 	 	
Education technology, services, and payment processing revenue	63,578 	 		74,251 	 		54,589 	 		277,331 	 		221,962 	 	
Communications revenue	17,499 	 		16,470 	 		13,326 	 		64,269 	 		44,653 	 	
Other income	26,522 	 		13,439 	 		9,998 	 		65,179 	 		54,805 	 	
	
Derivative settlements, net	6,100 	 		7,298 	 		19,052 	 		45,406 	 		70,071 	 	
Derivative market value adjustments, net	(2,930)	 		(5,630)	 		(48,895)	 		(76,195)	 		1,014 	 	
Total other income	223,855 	 		219,114 	 		160,831 	 		831,245 	 		832,532 	 	
Cost of services:										
Cost to provide education technology, services, and payment processing services	19,002 	 		25,671 	 		15,479 	 		81,603 	 		59,566 	 	
Cost to provide communications services	5,327 	 		5,236 	 		5,033 	 		20,423 	 		16,926 	 	
Total cost of services	24,329 	 		30,907 	 		20,512 	 		102,026 	 		76,492 	 	
Operating expenses:										
Salaries and benefits	124,561 	 		116,670 	 		114,247 	 		463,503 	 		436,179 	 	
Depreciation and amortization	28,651 	 		27,701 	 		23,953 	 		105,049 	 		86,896 	 	
	
Other expenses	46,710 	 		58,329 	 		49,583 	 		194,272 	 		178,031 	 	
Total operating expenses	199,922 	 		202,700 	 		187,783 	 		762,824 	 		701,106 	 	
Income before income taxes	50,856 	 		41,964 	 		17,075 	 		176,745 	 		286,294 	 	
Income tax (expense) benefit	(9,022)	 		(8,829)	 		4,599 	 		(35,451)	 		(58,770)	 	
Net income	41,834 	 		33,135 	 		21,674 	 		141,294 	 		227,524 	 	
Net loss (income) attributable to
    noncontrolling interests	546 	 		77 	 		(48)	 		509 	 		389 	 	
Net income attributable to Nelnet, Inc.	$	42,380 	 		33,212 	 		21,626 	 		141,803 	 		227,913 	 	
Earnings per common share:										
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	1.06 	 		0.83 	 		0.53 	 		3.54 	 		5.57 	 	
Weighted average common shares outstanding - basic and diluted	39,896,232 	 		39,877,129 	 		40,810,636 	 		40,047,402 	 		40,909,022 	 	

2

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

	As of		As of		As of	
	December 31, 2019		September 30, 2019		December 31, 2018	
Assets:						
Loans receivable, net	$	20,669,371 	 		21,071,441 	 		22,377,142 	 	
Cash, cash equivalents, investments, and notes receivable	380,879 	 		373,395 	 		370,717 	 	
Restricted cash	1,088,695 	 		977,228 	 		1,071,044 	 	
Goodwill and intangible assets, net	238,444 	 		246,411 	 		271,202 	 	
Other assets	1,331,581 	 		1,268,244 	 		1,130,863 	 	
Total assets	$	23,708,970 	 		23,936,719 	 		25,220,968 	 	
Liabilities:						
Bonds and notes payable	$	20,529,054 	 		20,910,190 	 		22,218,740 	 	
Other liabilities	788,822 	 		671,864 	 		687,449 	 	
Total liabilities	21,317,876 	 		21,582,054 	 		22,906,189 	 	
Equity:						
Total Nelnet, Inc. shareholders' equity	2,386,712 	 		2,350,150 	 		2,304,464 	 	
Noncontrolling interests	4,382 	 		4,515 	 		10,315 	 	
Total equity	2,391,094 	 		2,354,665 	 		2,314,779 	 	
Total liabilities and equity	$	23,708,970 	 		23,936,719 	 		25,220,968 	 	

3

Overview
The Company is a diverse company with a purpose to serve others and a vision to make customers' dreams possible by delivering customer focused products and services. The largest operating businesses engage in loan servicing; education technology, services, and payment processing; and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate, early-stage and emerging growth companies, and renewable energy.
GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments
The Company prepares its financial statements and presents its financial results in accordance with U.S. 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		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
GAAP net income attributable to Nelnet, Inc.	$	42,380 	 		33,212 	 		21,626 	 		141,803 	 			227,913 	 	
Realized and unrealized derivative market value adjustments	2,930 	 		5,630 	 		48,895 	 		76,195 	 		(1,014)	 	
Tax effect (a)	(703)	 		(1,351)	 		(11,735)	 		(18,287)	 		243 	 	
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	44,607 	 		37,491 	 		58,786 	 			199,711 	 			227,142 	 	
										
Earnings per share:										
GAAP net income attributable to Nelnet, Inc.	$	1.06 	 		0.83 	 		0.53 	 		3.54 	 		5.57 	 	
Realized and unrealized derivative market value adjustments	0.07 	 		0.14 	 		1.20 	 		1.90 	 		(0.02)	 	
Tax effect (a)	(0.01)	 		(0.03)	 		(0.29)	 		(0.45)	 		— 	 	
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	1.12 	 		0.94 	 		1.44 	 			4.99 	 			5.55 	 	
(a) The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.
(b) "Derivative market value adjustments" includes both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP. "Derivative market value adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract. However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period.
The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments that are subject to interest rate fluctuations are subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

4

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 December 31, 2019, the Company had a $20.7 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 8.8 years. The Company actively works to maximize the amount and timing of cash flows generated by its FFELP portfolio and seeks to acquire additional loan assets to leverage its servicing scale and expertise to generate incremental earnings and cash flow. However, due to the continued amortization of the Company’s FFELP loan portfolio, over time, 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 Services ("NDS")
•Education Technology, Services, and Payment Processing ("ETS&PP") - referred to as Nelnet Business Services ("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.
The information below provides the operating results for each reportable operating segment and Corporate and Other Activities for the years ended December 31, 2019 and 2018 (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. Net income excludes changes in fair values of derivatives, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives adjustments, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.
Certain events and transactions from 2019 and 2018, which have impacted or will impact the operating results of the Company and its operating segments, are discussed below.
Loan Servicing and Systems
•On February 7, 2018, the Company acquired Great Lakes Educational Loan Services, Inc. ("Great Lakes"). The operating results of Great Lakes are reported in the Company's consolidated financial statements from the date of acquisition. Thus, there are twelve months of Great Lakes' operations included in 2019 as compared to approximately eleven months of activity in 2018.
•Nelnet Servicing, LLC ("Nelnet Servicing") and Great Lakes have student loan servicing contracts awarded by the Department in June 2009 to provide servicing for loans owned by the Department. As of December 31, 2019, Nelnet
5

Servicing was servicing $183.8 billion of student loans for 5.6 million borrowers under its contract, and Great Lakes was servicing $240.0 billion of student loans for 7.4 million borrowers under its contract.
Nelnet Servicing and Great Lakes' servicing contracts with the Department previously provided for expiration on June 16, 2019. On May 15, 2019, Nelnet Servicing and Great Lakes each received a contract extension from the Department's Office of Federal Student Aid ("FSA") pursuant to which FSA extended the expiration date of the current contracts to December 15, 2019. On November 26, 2019, Nelnet Servicing and Great Lakes each received an additional extension from FSA on their contracts through December 14, 2020. The contract extensions also provide the potential for two additional six-month extensions at the Department’s discretion through December 14, 2021.
FSA is conducting a contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for a new framework for the servicing of all student loans owned by the Department. On January 15, 2019, FSA issued solicitations for three NextGen components:
•NextGen Enhanced Processing Solution ("EPS")
•NextGen Business Process Operations ("BPO")
•NextGen Optimal Processing Solution ("OPS")
On April 1, 2019 and October 4, 2019, the Company responded to the EPS component. On January 16, 2020, FSA released an amendment to the EPS component and the Company responded on February 3, 2020. In addition, on August 1, 2019, the Company responded to the BPO component. On January 10, 2020, FSA released an amendment to the BPO component and the Company responded on January 30, 2020. The Company is also part of a team that has responded and intends to respond to various aspects of the OPS component; however, on November 12, 2019, FSA put an indefinite hold on the OPS solicitation. The EPS and BPO components are essentially for the loan processing and servicing to be performed on a new single system, which the Company believes could have the most significant potential impact on the Company. The Company cannot predict the timing, nature, or outcome of these solicitations.
•The Loan Servicing and Systems segment will incur additional costs in 2020 to meet increased service and security standards under the current Department servicing contracts and to be responsive to the Department's procurement. As a result, the Company currently expects a significant decrease in this segment's operating margin and net income in 2020 from recent historical results.
Education Technology, Services, and Payment Processing
•On November 20, 2018, the Company acquired Tuition Management Systems ("TMS"), a services company that offers tuition payment plans, billing services, payment technology solutions, and refund management to educational institutions. The TMS acquisition added 380 higher education schools and 170 K-12 schools to the Company’s customer base. The results of TMS’ operations are reported in the Company’s consolidated financial statements from the date of acquisition.
•For the years ended December 31, 2019 and 2018, before tax operating margin (income before income taxes divided by net revenue) was 31.8 percent and 20.6 percent, respectively. The increase in the before tax operating margin in 2019 as compared to 2018 was due to operating leverage and cost reductions resulting from the Company's decision in October 2018 to terminate its investment in a proprietary payment processing platform.
Communications
•ALLO recognized losses of $23.5 million and $28.7 million for the years ended December 31, 2019 and 2018, respectively. The decrease in ALLO's net loss in 2019, as compared to 2018, was primarily due to a decrease in interest expense. ALLO recognized $10.0 million of interest expense to Nelnet, Inc. (parent company) during the year ended December 31, 2018. Subsequent to October 1, 2018, ALLO will not report interest expense in its income statement related to amounts contributed to ALLO from Nelnet, Inc. due to a recapitalization of ALLO. Excluding interest expense, the increase in ALLO's net loss in 2019 as compared to 2018 was due to an increase in depreciation from significant property and equipment purchases over the last several years to support the Lincoln, Nebraska network build-out that was substantially completed in 2019.
•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 years ended December 31, 2019 and 2018, ALLO had positive EBITDA of $6.2 million and negative EBITDA of $4.5 million, respectively. EBITDA is a supplemental non-GAAP performance measure which the Company believes provides useful additional information regarding a key metric used by management to assess ALLO's performance. See
6

"Communications Financial and Operating Data" below for additional information regarding the computation and use of EBITDA for ALLO.
•ALLO has made significant investments in its communications network and currently provides fiber directly to homes and businesses in communities in Nebraska and Colorado. ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to other communities in the Midwest. ALLO began providing services in Lincoln, Nebraska in September 2016 as part of a multi-year project to pass substantially all commercial and residential properties in the community. As of the end of the first quarter of 2019, the build-out of the Lincoln community was substantially complete. For the year ended December 31, 2019, ALLO's capital expenditures were $45.0 million. The Company anticipates total ALLO network capital expenditures in 2020 will be approximately $35.0 million to $45.0 million. However, this amount could change based on 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 develop and add customers to 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
•For the year ended December 31, 2019, the AGM segment recognized net interest income of $238.6 million, compared with $249.1 million in 2018. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. The AGM segment recognized income from derivative settlements of $45.4 million in 2019, compared with income of $70.5 million in 2018. Derivative settlements for each applicable period should be evaluated with the Company's net interest income. Net interest income and derivative settlements for the AGM segment totaled $284.0 million and $319.6 million in 2019 and 2018, respectively.
•The Company's average balance of loans decreased to $21.7 billion in 2019, compared with $22.6 billion in 2018. Loan spread decreased to 0.96 percent in 2019, compared with 0.99 percent in 2018. Core loan spread, which includes the impact of derivative settlements, decreased to 1.18 percent in 2019, compared with 1.32 percent in 2018. Management believes core loan spread is a useful supplemental non-GAAP measure that reflects adjustments for derivative settlements related to net interest income (loan spread). However, there is no comprehensive authoritative guidance for the presentation of this measure, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.
The Company recognized $89.9 million and $121.7 million in fixed rate floor income in 2019 and 2018, respectively (which includes $40.2 million and $64.9 million, respectively, of settlement payments received on derivatives used to hedge student loans earning fixed rate floor income). Fixed rate floor income contributed 41 basis points and 55 basis points of core loan spread in 2019 and 2018, respectively. The decrease in gross fixed rate floor income was due to higher interest rates in 2019 as compared to 2018, and the decrease in derivative settlement payments received on derivatives used to hedge student loans earning fixed rate floor income was due to a decrease in the notional amount of derivatives outstanding in 2019 as compared to 2018, partially offset by higher interest rates.
•Provision for loan losses was $39.0 million and $23.0 million for 2019 and 2018, respectively.
Provision for loan losses for federally insured loans was $8.0 million and $14.0 million for 2019 and 2018, respectively. During 2018, the Company determined an additional allowance was necessary related to portfolios of federally insured loans that were purchased in prior periods, and recognized $5.0 million in provision expense related to these loans.
Provision for loan losses for consumer loans was $31.0 million and $9.0 million for 2019 and 2018, respectively. The increase in provision was a result of the increased amount of consumer loan purchases during 2019. The Company purchased $405.7 million of consumer loans during 2019 compared to $120.5 million during 2018.
•The Company recognized $16.7 million (pre-tax) of expenses in 2019 related to the extinguishment of notes payable in certain asset-backed securitizations prior to the notes' contractual maturities (as further described below). These expenses consisted of premium payments made by the Company of $14.0 million and the write-off of $2.7 million of debt issuance costs.
•During 2019, the Company sold $227.0 million (par value) of consumer loans to an unrelated third party who securitized such loans. As partial consideration received for the consumer loans sold, the Company received a percentage interest of the residual interest of the consumer loan securitizations. The Company recognized a gain of $17.3 million (pre-tax) from the sale of these loans.
7

Corporate and Other Activities
•The Company adopted a new lease accounting standard effective January 1, 2019. The most significant impact of the standard to the Company relates to (1) the recognition of new right-of-use ("ROU") assets and lease liabilities on its balance sheet primarily for office, data center, and dark fiber operating leases; (2) the deconsolidation of assets and liabilities for certain sale-leaseback transactions arising from build-to-suit lease arrangements for which construction was completed and the Company is leasing the constructed assets that did not qualify for sale accounting prior to the adoption of the new standard; and (3) significant new disclosures about the Company’s leasing activities.
Adoption of the new standard resulted in recognizing lease liabilities of $33.7 million based on the present value of the remaining minimum rental payments. In addition, the Company recognized ROU assets of $32.8 million, which corresponds to the lease liabilities reduced by deferred rent expense as of the effective date. The Company also deconsolidated total assets of $43.8 million and total liabilities of $34.8 million for entities that had been consolidated due to sale-leaseback transactions that failed to qualify for recognition as sales under the prior guidance. Deconsolidation of these entities reduced noncontrolling interests by $6.1 million.
Liquidity and Capital Resources
•As of December 31, 2019, the Company had cash and cash equivalents of $133.9 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 $52.7 million as of December 31, 2019.
•The Company has historically generated positive cash flow from operations. For the year ended December 31, 2019, the Company’s net cash provided by operating activities was $298.9 million. 
•On December 16, 2019, the Company amended its unsecured line of credit to, among other things, extend the maturity date of the facility from June 22, 2023 to December 16, 2024 and increase the size of the facility from $382.5 million to $455.0 million. As of December 31, 2019, the unsecured line of credit had $50.0 million outstanding and $405.0 million was available for future use. The line of credit provides that the Company may increase the aggregate financing commitments, through the existing lenders and/or through new lenders, up to a total of $550.0 million, subject to certain conditions.
•The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions. As of December 31, 2019, the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $1.89 billion, of which approximately $1.28 billion will be generated over the next six years.
•Certain of the Company’s asset-backed securitizations were structured as “Turbo Transactions” which required all cash generated from the student loans (including excess spread) to be directed toward payment of interest and any outstanding principal generally until such time as all principal on the notes had been paid in full. Once the notes in such transactions were paid in full, the remaining unencumbered student loans (and other remaining assets, if any) in the securitization would be released to the Company, at which time the Company would have the option to refinance or sell these assets, or retain them on the balance sheet as unencumbered assets.
During 2019, the Company extinguished a total of $1.05 billion of notes payable in certain asset-backed securitizations, including six of the Company's eight Turbo Transactions, prior to the notes' contractual maturities, resulting in the release of $1.45 billion in student loans and accrued interest receivable that were previously encumbered in the asset-backed securitizations. Upon extinguishment of the notes payable throughout 2019, the Company refinanced the student loans in its FFELP warehouse facilities and new asset-backed securitizations, resulting in net cash proceeds of $387.1 million.
The cash proceeds generated by the debt extinguishments were used to pay down a significant portion of the outstanding balance on the Company's unsecured line of credit and provides the Company with increased liquidity and the opportunity to invest the previously underutilized capital at higher returns.
•In 2019, the Company obtained a consumer loan warehouse facility with an aggregate maximum financing amount available of $200.0 million and a final maturity date of April 23, 2022. As of December 31, 2019, $116.6 million was outstanding under this facility and $83.4 million was available for future funding.
•During the year ended December 31, 2019, the Company completed seven FFELP asset-backed securitizations totaling $2.8 billion (par value). The proceeds from these transactions were used primarily to refinance student loans included in the Company's FFELP warehouse facilities and unencumbered student loans from the extinguishment of certain asset-backed securitizations.
8

•On June 25, 2019, the Company completed a private education loan asset-backed securitization totaling $47.2 million (par value). The proceeds from this transaction were used to refinance private education loans previously funded via a private loan repurchase agreement that was terminated on June 25, 2019.
•During 2019, the Company repurchased a total of 726,273 shares of Class A common stock for $40.4 million ($55.64 per share).
•On May 8, 2019, the Board of Directors authorized a new stock repurchase program to repurchase up to a total of five million shares of the Company's Class A common stock during the three-year period ending May 7, 2022. As of December 31, 2019, 4.8 million shares remained authorized for repurchase under the Company's stock repurchase program.
•During 2019, the Company paid cash dividends totaling $29.5 million ($0.74 per share).
•The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP, 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.
Segment Reporting
The following tables include the results of each of the Company's reportable operating segments reconciled to the consolidated financial statements.
																																										
 	Three months ended December 31, 2019 	 	
	Loan Servicing and Systems 	 		Education Technology, Services, and Payment Processing 	 		Communications 	 		Asset
Generation and
Management 	 		Corporate and Other Activities 	 		Eliminations 	 		Total 	 	
Total interest income	$	452 	 		2,069 	 		— 	 		208,576 	 		2,062 	 		(801)	 		212,358 	 	
Interest expense	46 	 		14 	 		— 	 		149,056 	 		(208)	 		(801)	 		148,106 	 	
Net interest income	406 	 		2,055 	 		— 	 		59,520 	 		2,270 	 		— 	 		64,252 	 	
Less provision for loan losses	— 	 		— 	 		— 	 		13,000 	 		— 	 		— 	 		13,000 	 	
Net interest income (loss) after provision for loan losses	406 	 		2,055 	 		— 	 		46,520 	 		2,270 	 		— 	 		51,252 	 	
Other income:														
Loan servicing and systems revenue	113,086 	 		— 	 		— 	 		— 	 		— 	 		— 	 		113,086 	 	
Intersegment servicing revenue	11,325 	 		— 	 		— 	 		— 	 		— 	 		(11,325)	 		— 	 	
Education technology, services, and payment processing revenue	— 	 		63,578 	 		— 	 		— 	 		— 	 		— 	 		63,578 	 	
Communications revenue	— 	 		— 	 		17,499 	 		— 	 		— 	 		— 	 		17,499 	 	
Other income	3,094 	 		259 	 		490 	 		18,553 	 		4,127 	 		— 	 		26,522 	 	
	
Derivative settlements, net	— 	 		— 	 		— 	 		6,100 	 		— 	 		— 	 		6,100 	 	
Derivative market value adjustments, net	— 	 		— 	 		— 	 		(2,930)	 		— 	 		— 	 		(2,930)	 	
Total other income	127,505 	 		63,837 	 		17,989 	 		21,723 	 		4,127 	 		(11,325)	 		223,855 	 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 	 		19,002 	 		— 	 		— 	 		— 	 		— 	 		19,002 	 	
Cost to provide communications services	— 	 		— 	 		5,327 	 		— 	 		— 	 		— 	 		5,327 	 	
Total cost of services	— 	 		19,002 	 		5,327 	 		— 	 		— 	 		— 	 		24,329 	 	
Operating expenses:														
Salaries and benefits	74,212 	 		25,010 	 		5,312 	 		392 	 		19,635 	 		— 	 		124,561 	 	
Depreciation and amortization	8,519 	 		2,988 	 		11,148 	 		— 	 		5,995 	 		— 	 		28,651 	 	
	
Other expenses	18,332 	 		5,587 	 		3,981 	 		5,346 	 		13,464 	 		— 	 		46,710 	 	
Intersegment expenses, net	14,008 	 		3,763 	 		881 	 		11,732 	 		(19,059)	 		(11,325)	 		— 	 	
Total operating expenses	115,071 	 		37,348 	 		21,322 	 		17,470 	 		20,035 	 		(11,325)	 		199,922 	 	
Income (loss) before income taxes	12,840 	 		9,542 	 		(8,660)	 		50,773 	 		(13,638)	 		— 	 		50,856 	 	
Income tax (expense) benefit	(3,082)	 		(2,290)	 		2,079 	 		(12,186)	 		6,457 	 		— 	 		(9,022)	 	
Net income (loss)	9,758 	 		7,252 	 		(6,581)	 		38,587 	 		(7,181)	 		— 	 		41,834 	 	
  Net income attributable to noncontrolling interests	— 	 		— 	 		— 	 		— 	 		546 	 		— 	 		546 	 	
Net income (loss) attributable to Nelnet, Inc.	$	9,758 	 		7,252 	 		(6,581)	 		38,587 	 		(6,635)	 		— 	 		42,380 	 	

9

																																										
	Three months ended September 30, 2019	
	Loan Servicing and Systems 	 		Education Technology, Services, and Payment Processing 	 		Communications 	 		Asset
Generation and
Management 	 		Corporate and Other Activities 	 		Eliminations 	 		Total 	 	
Total interest income	$	532 	 		3,499 	 		— 	 		233,225 	 		2,859 	 		(1,171)	 		238,945 	 	
Interest expense	51 	 		12 	 		— 	 		171,485 	 		2,110 	 		(1,171)	 		172,488 	 	
Net interest income	481 	 		3,487 	 		— 	 		61,740 	 		749 	 		— 	 		66,457 	 	
Less provision for loan losses	— 	 		— 	 		— 	 		10,000 	 		— 	 		— 	 		10,000 	 	
Net interest income (loss) after provision for loan losses	481 	 		3,487 	 		— 	 		51,740 	 		749 	 		— 	 		56,457 	 	
Other income:														
Loan servicing and systems revenue	113,286 	 		— 	 		— 	 		— 	 		— 	 		— 	 		113,286 	 	
Intersegment servicing revenue	11,611 	 		— 	 		— 	 		— 	 		— 	 		(11,611)	 		— 	 	
Education technology, services, and payment processing revenue	— 	 		74,251 	 		— 	 		— 	 		— 	 		— 	 		74,251 	 	
Communications revenue	— 	 		— 	 		16,470 	 		— 	 		— 	 		— 	 		16,470 	 	
Other income	2,291 	 		— 	 		532 	 		3,384 	 		7,231 	 		— 	 		13,439 	 	
	
Derivative settlements, net	— 	 		— 	 		— 	 		7,298 	 		— 	 		— 	 		7,298 	 	
Derivative market value adjustments, net	— 	 		— 	 		— 	 		(5,630)	 		— 	 		— 	 		(5,630)	 	
Total other income	127,188 	 		74,251 	 		17,002 	 		5,052 	 		7,231 	 		(11,611)	 		219,114 	 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 	 		25,671 	 		— 	 		— 	 		— 	 		— 	 		25,671 	 	
Cost to provide communications services	— 	 		— 	 		5,236 	 		— 	 		— 	 		— 	 		5,236 	 	
Total cost of services	— 	 		25,671 	 		5,236 	 		— 	 		— 	 		— 	 		30,907 	 	
Operating expenses:														
Salaries and benefits	69,209 	 		23,826 	 		5,763 	 		394 	 		17,479 	 		— 	 		116,670 	 	
Depreciation and amortization	8,565 	 		2,997 	 		10,926 	 		— 	 		5,212 	 		— 	 		27,701 	 	
	
Other expenses	16,686 	 		5,325 	 		3,842 	 		19,054 	 		13,422 	 		— 	 		58,329 	 	
Intersegment expenses, net	12,955 	 		3,194 	 		701 	 		11,678 	 		(16,917)	 		(11,611)	 		— 	 	
Total operating expenses	107,415 	 		35,342 	 		21,232 	 		31,126 	 		19,196 	 		(11,611)	 		202,700 	 	
Income (loss) before income taxes	20,254 	 		16,725 	 		(9,466)	 		25,666 	 		(11,216)	 		— 	 		41,964 	 	
Income tax (expense) benefit	(4,861)	 		(4,014)	 		2,272 	 		(6,160)	 		3,935 	 		— 	 		(8,829)	 	
Net income (loss)	15,393 	 		12,711 	 		(7,194)	 		19,506 	 		(7,281)	 		— 	 		33,135 	 	
  Net income attributable to noncontrolling interests	— 	 		— 	 		— 	 		— 	 		77 	 		— 	 		77 	 	
Net income (loss) attributable to Nelnet, Inc.	$	15,393 	 		12,711 	 		(7,194)	 		19,506 	 		(7,204)	 		— 	 		33,212 	 	

10

																																										
 	Three months ended December 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	$	421 	 		1,526 	 		2 	 		248,620 	 		2,271 	 		(569)	 		252,271 	 	
Interest expense	— 	 		5 	 		— 	 		181,632 	 		1,664 	 		(569)	 		182,732 	 	
Net interest income	421 	 		1,521 	 		2 	 		66,988 	 		607 	 		— 	 		69,539 	 	
Less provision for loan losses	— 	 		— 	 		— 	 		5,000 	 		— 	 		— 	 		5,000 	 	
Net interest income (loss) after provision for loan losses	421 	 		1,521 	 		2 	 		61,988 	 		607 	 		— 	 		64,539 	 	
Other income:														
Loan servicing and systems revenue	112,761 	 		— 	 		— 	 		— 	 		— 	 		— 	 		112,761 	 	
Intersegment servicing revenue	12,412 	 		— 	 		— 	 		— 	 		— 	 		(12,412)	 		— 	 	
Education technology, services, and payment processing revenue	— 	 		54,589 	 		— 	 		— 	 		— 	 		— 	 		54,589 	 	
Communications revenue	— 	 		— 	 		13,326 	 		— 	 		— 	 		— 	 		13,326 	 	
Other income	2,088 	 		— 	 		125 	 		3,333 	 		4,451 	 		— 	 		9,998 	 	
	
Derivative settlements, net	— 	 		— 	 		— 	 		19,050 	 		2 	 		— 	 		19,052 	 	
Derivative market value adjustments, net	— 	 		— 	 		— 	 		(49,229)	 		334 	 		— 	 		(48,895)	 	
Total other income	127,261 	 		54,589 	 		13,451 	 		(26,846)	 		4,787 	 		(12,412)	 		160,831 	 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 	 		15,479 	 		— 	 		— 	 		— 	 		— 	 		15,479 	 	
Cost to provide communications services	— 	 		— 	 		5,033 	 		— 	 		— 	 		— 	 		5,033 	 	
Total cost of services	— 	 		15,479 	 		5,033 	 		— 	 		— 	 		— 	 		20,512 	 	
Operating expenses:														
Salaries and benefits	69,046 	 		22,528 	 		5,495 	 		343 	 		16,834 	 		— 	 		114,247 	 	
Depreciation and amortization	8,837 	 		3,422 	 		6,792 	 		— 	 		4,902 	 		— 	 		23,953 	 	
	
Other expenses	15,746 	 		13,188 	 		3,089 	 		3,551 	 		14,010 	 		— 	 		49,583 	 	
Intersegment expenses, net	15,074 	 		3,051 	 		776 	 		12,927 	 		(19,416)	 		(12,412)	 		— 	 	
Total operating expenses	108,703 	 		42,189 	 		16,152 	 		16,821 	 		16,330 	 		(12,412)	 		187,783 	 	
Income (loss) before income taxes	18,979 	 		(1,558)	 		(7,732)	 		18,321 	 		(10,936)	 		— 	 		17,075 	 	
Income tax (expense) benefit	(4,555)	 		374 	 		1,856 	 		(4,397)	 		11,321 	 		— 	 		4,599 	 	
Net income (loss)	14,424 	 		(1,184)	 		(5,876)	 		13,924 	 		385 	 		— 	 		21,674 	 	
  Net loss (income) attributable to noncontrolling interests	— 	 		— 	 		— 	 		— 	 		(48)	 		— 	 		(48)	 	
Net income (loss) attributable to Nelnet, Inc.	$	14,424 	 		(1,184)	 		(5,876)	 		13,924 	 		337 	 		— 	 		21,626 	 	

11

																																										
 	Year ended December 31, 2019 	 	
	Loan Servicing and Systems 	 		Education Technology, Services, and Payment Processing 	 		Communications 	 		Asset
Generation and
Management 	 		Corporate and Other
Activities 	 		Eliminations 	 		Total 	 	
Total interest income	$	2,031 	 		9,244 	 		3 	 		931,963 	 		9,232 	 		(3,796)	 		948,677 	 	
Interest expense	115 	 		46 	 		— 	 		693,375 	 		9,587 	 		(3,796)	 		699,327 	 	
Net interest income (expense)	1,916 	 		9,198 	 		3 	 		238,588 	 		(355)	 		— 	 		249,350 	 	
Less provision for loan losses	— 	 		— 	 		— 	 		39,000 	 		— 	 		— 	 		39,000 	 	
Net interest income (loss) after provision for loan losses	1,916 	 		9,198 	 		3 	 		199,588 	 		(355)	 		— 	 		210,350 	 	
Other income:														
Loan servicing and systems revenue	455,255 	 		— 	 		— 	 		— 	 		— 	 		— 	 		455,255 	 	
Intersegment servicing revenue	46,751 	 		— 	 		— 	 		— 	 		— 	 		(46,751)	 		— 	 	
Education technology, services, and payment processing revenue	— 	 		277,331 	 		— 	 		— 	 		— 	 		— 	 		277,331 	 	
Communications revenue	— 	 		— 	 		64,269 	 		— 	 		— 	 		— 	 		64,269 	 	
Other income	9,736 	 		259 	 		1,509 	 		30,349 	 		23,327 	 		— 	 		65,179 	 	
	
Derivative settlements, net	— 	 		— 	 		— 	 		45,406 	 		— 	 		— 	 		45,406 	 	
Derivative market value adjustments, net	— 	 		— 	 		— 	 		(76,195)	 		— 	 		— 	 		(76,195)	 	
Total other income	511,742 	 		277,590 	 		65,778 	 		(440)	 		23,327 	 		(46,751)	 		831,245 	 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 	 		81,603 	 		— 	 		— 	 		— 	 		— 	 		81,603 	 	
Cost to provide communications services	— 	 		— 	 		20,423 	 		— 	 		— 	 		— 	 		20,423 	 	
Total cost of services	— 	 		81,603 	 		20,423 	 		— 	 		— 	 		— 	 		102,026 	 	
Operating expenses:														
Salaries and benefits	276,136 	 		94,666 	 		21,004 	 		1,545 	 		70,152 	 		— 	 		463,503 	 	
Depreciation and amortization	34,755 	 		12,820 	 		37,173 	 		— 	 		20,300 	 		— 	 		105,049 	 	
	
Other expenses	71,064 	 		22,027 	 		15,165 	 		34,445 	 		51,571 	 		— 	 		194,272 	 	
Intersegment expenses, net	54,325 	 		13,405 	 		2,962 	 		47,362 	 		(71,303)	 		(46,751)	 		— 	 	
Total operating expenses	436,280 	 		142,918 	 		76,304 	 		83,352 	 		70,720 	 		(46,751)	 		762,824 	 	
Income (loss) before income taxes	77,378 	 		62,267 	 		(30,946)	 		115,796 	 		(47,748)	 		— 	 		176,745 	 	
Income tax (expense) benefit	(18,571)	 		(14,944)	 		7,427 	 		(27,792)	 		18,428 	 		— 	 		(35,451)	 	
Net income (loss)	58,807 	 		47,323 	 		(23,519)	 		88,004 	 		(29,320)	 		— 	 		141,294 	 	
  Net loss (income) attributable to noncontrolling interests	— 	 		— 	 		— 	 		— 	 		509 	 		— 	 		509 	 	
Net income (loss) attributable to Nelnet, Inc.	$	58,807 	 		47,323 	 		(23,519)	 		88,004 	 		(28,811)	 		— 	 		141,803 	 	

12

																																										
 	Year ended December 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	$	1,351 	 		4,453 	 		4 	 		911,502 	 		19,944 	 		(12,989)	 		924,266 	 	
Interest expense	— 	 		9 	 		9,987 	 		662,360 	 		10,540 	 		(12,989)	 		669,906 	 	
Net interest income (expense)	1,351 	 		4,444 	 		(9,983)	 		249,142 	 		9,404 	 		— 	 		254,360 	 	
Less provision for loan losses	— 	 		— 	 		— 	 		23,000 	 		— 	 		— 	 		23,000 	 	
Net interest income (loss) after provision for loan losses	1,351 	 		4,444 	 		(9,983)	 		226,142 	 		9,404 	 		— 	 		231,360 	 	
Other income:														
Loan servicing and systems revenue	440,027 	 		— 	 		— 	 		— 	 		— 	 		— 	 		440,027 	 	
Intersegment servicing revenue	47,082 	 		— 	 		— 	 		— 	 		— 	 		(47,082)	 		— 	 	
Education technology, services, and payment processing revenue	— 	 		221,962 	 		— 	 		— 	 		— 	 		— 	 		221,962 	 	
Communications revenue	— 	 		— 	 		44,653 	 		— 	 		— 	 		— 	 		44,653 	 	
Other income	7,284 	 		— 	 		1,075 	 		12,723 	 		33,724 	 		— 	 		54,805 	 	
	
Derivative settlements, net	— 	 		— 	 		— 	 		70,478 	 		(407)	 		— 	 		70,071 	 	
Derivative market value adjustments, net	— 	 		— 	 		— 	 		(2,159)	 		3,173 	 		— 	 		1,014 	 	
Total other income	494,393 	 		221,962 	 		45,728 	 		81,042 	 		36,490 	 		(47,082)	 		832,532 	 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 	 		59,566 	 		— 	 		— 	 		— 	 		— 	 		59,566 	 	
Cost to provide communications services	— 	 		— 	 		16,926 	 		— 	 		— 	 		— 	 		16,926 	 	
Total cost of services	— 	 		59,566 	 		16,926 	 		— 	 		— 	 		— 	 		76,492 	 	
Operating expenses:														
Salaries and benefits	267,458 	 		81,080 	 		18,779 	 		1,526 	 		67,336 	 		— 	 		436,179 	 	
Depreciation and amortization	32,074 	 		13,484 	 		23,377 	 		— 	 		17,960 	 		— 	 		86,896 	 	
	
Other expenses	67,336 	 		28,137 	 		11,900 	 		15,961 	 		54,697 	 		— 	 		178,031 	 	
Intersegment expenses, net	59,042 	 		10,681 	 		2,578 	 		47,870 	 		(73,088)	 		(47,082)	 		— 	 	
Total operating expenses	425,910 	 		133,382 	 		56,634 	 		65,357 	 		66,905 	 		(47,082)	 		701,106 	 	
Income (loss) before income taxes	69,834 	 		33,458 	 		(37,815)	 		241,827 	 		(21,011)	 		— 	 		286,294 	 	
Income tax (expense) benefit	(16,954)	 		(8,030)	 		9,075 	 		(58,038)	 		15,177 	 		— 	 		(58,770)	 	
Net income (loss)	52,880 	 		25,428 	 		(28,740)	 		183,789 	 		(5,834)	 		— 	 		227,524 	 	
  Net loss (income) attributable to noncontrolling interests	808 	 		— 	 		— 	 		— 	 		(419)	 		— 	 		389 	 	
Net income (loss) attributable to Nelnet, Inc.	$	53,688 	 		25,428 	 		(28,740)	 		183,789 	 		(6,253)	 		— 	 		227,913 	 	

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		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Variable loan interest margin	$	40,643 	 		46,051 	 		51,732 	 		174,954 	 		181,488 	 	
Settlements on associated derivatives (a)	1,839 	 		234 	 		901 	 		5,214 	 		5,577 	 	
Variable loan interest margin, net of settlements on derivatives	42,482 	 		46,285 	 		52,633 	 		180,168 	 		187,065 	 	
Fixed rate floor income	15,727 	 		12,685 	 		11,452 	 		49,677 	 		56,811 	 	
Settlements on associated derivatives (b)	4,261 	 		7,064 	 		18,148 	 		40,192 	 		64,901 	 	
Fixed rate floor income, net of settlements on derivatives	19,988 	 		19,749 	 		29,600 	 		89,869 	 		121,712 	 	
Investment interest	7,720 	 		9,882 	 		8,019 	 		34,421 	 		26,600 	 	
Corporate debt interest expense	162 	 		(2,161)	 		(1,664)	 		(9,702)	 		(10,539)	 	
Non-portfolio related derivative settlements (c)	— 	 		— 	 		3 	 		— 	 		(407)	 	
Net interest income (net of settlements on derivatives)	$	70,352 	 		73,755 	 		88,591 	 		294,756 	 		324,431 	 	

(a) Includes the net settlements received related to the Company’s 1:3 basis swaps.
(b) Includes the net settlements received related to the Company’s floor income interest rate swaps.
(c) Includes the net settlements received related to the Company’s hybrid debt hedges.
14

Loan Servicing and Systems Revenue
The following table provides disaggregated revenue by service offering for the Loan Servicing and Systems Revenue operating segment.

	Three months ended		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Government servicing - Nelnet	$	39,247 	 		38,645 	 		39,076 	 		157,991 	 		157,091 	 	
Government servicing - Great Lakes	46,371 	 		46,234 	 		46,191 	 		185,656 	 		168,298 	 	
Private education and consumer loan servicing	8,762 	 		9,561 	 		9,484 	 		36,788 	 		41,474 	 	
FFELP servicing	5,835 	 		6,089 	 		7,283 	 		25,043 	 		31,542 	 	
Software services	10,822 	 		10,493 	 		8,468 	 		41,077 	 		32,929 	 	
Outsourced services and other	2,049 	 		2,264 	 		2,260 	 		8,700 	 		8,693 	 	
Loan servicing and systems revenue	$	113,086 	 		113,286 	 		112,762 	 		455,255 	 		440,027 	 	
Loan Servicing Volumes
																																																						
	As of	
	December 31,
2017		March 31,
2018		June 30,
2018		September 30,
2018		December 31,
2018		March 31,
2019		June 30,
2019		September 30,
2019		December 31,
2019	
Servicing volume
(dollars in millions):																																
Nelnet:																																
Government	$	172,669 	 		176,605 	 			176,179 	 			179,283 	 			179,507 	 			183,093 	 			181,682 	 			184,399 	 			183,790 	 	
FFELP	27,262 	 		26,969 	 			37,599 	 			37,459 	 			36,748 	 			35,917 	 			35,003 	 			33,981 	 			33,185 	 	
Private and consumer	11,483 	 		12,116 	 			15,016 	 			15,466 	 			15,666 	 			16,065 	 			16,025 	 			16,286 	 			16,033 	 	
Great Lakes:																																		
Government	— 	 		242,063 	 			241,902 	 			232,741 	 			232,694 	 			237,050 	 			236,500 	 			240,268 	 			239,980 	 	
FFELP (a)	— 	 		11,136 	 			— 	 			— 	 			— 	 			— 	 			— 	 			— 	 			— 	 	
Private and consumer (a)	— 	 		1,927 	 			31 	 			— 	 			— 	 			— 	 			— 	 			— 	 			— 	 	
Total	$	211,414 	 		470,816 	 			470,727 	 			464,949 	 			464,615 	 			472,125 	 			469,210 	 			474,934 	 			472,988 	 	
																																
Number of servicing
borrowers:																		
Nelnet:																																	
Government	5,877,414 	 		5,819,286 	 			5,745,181 	 		5,805,307 	 			5,771,923 	 			5,708,582 	 			5,592,989 	 			5,635,653 	 			5,574,001 	 	
FFELP	1,420,311 	 		1,399,280 	 			1,787,419 	 		1,754,247 	 			1,709,853 	 			1,650,785 	 			1,588,530 	 			1,529,392 	 			1,478,703 	 	
Private and consumer	502,114 	 		508,750 	 			672,520 	 		692,763 	 			696,933 	 			699,768 	 			693,410 	 			701,299 	 			682,836 	 	
Great Lakes:																																	
Government	— 	 		7,456,830 	 			7,378,875 	 		7,486,311 	 			7,458,684 	 			7,385,284 	 			7,300,691 	 			7,430,165 	 			7,396,657 	 	
FFELP (a)	— 	 		461,553 	 			— 	 		— 	 			— 	 			— 	 			— 	 			— 	 			— 	 	
Private and consumer (a)	— 	 		118,609 	 			3,987 	 		— 	 			— 	 			— 	 			— 	 			— 	 			— 	 	
Total	7,799,839 	 		15,764,308 	 			15,587,982 	 			15,738,628 	 			15,637,393 	 			15,444,419 	 			15,175,620 	 			15,296,509 	 			15,132,197 	 	
																																	
Number of remote hosted borrowers:	2,812,713 	 		6,207,747 	 			6,145,981 	 		6,406,923 	 			6,393,151 	 			6,332,261 	 			6,211,132 	 			6,457,296 	 			6,433,324 	 	
(a) During the second quarter of 2018, the Company converted Great Lakes' FFELP and private education servicing volume to Nelnet Servicing's platform to leverage the efficiencies of supporting more volume on fewer systems.

15

Education Technology, Services, and Payment Processing
The following table provides disaggregated revenue by servicing offering for the Education Technology, Services, and Payment Processing operating segment.
																														
	Three months ended		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Tuition payment plan services	$	26,093 	 		25,760 	 		22,172 	 		106,682 	 			85,381 	 	
Payment processing	25,420 	 		35,138 	 		21,381 	 		110,848 	 			84,289 	 	
Education technology and services	11,706 	 		13,067 	 		10,744 	 		58,578 	 			51,155 	 	
Other	359 	 		286 	 		292 	 		1,223 	 			1,137 	 	
Education technology, services, and
payment processing revenue	$	63,578 	 		74,251 	 		54,589 	 		277,331 	 			221,962 	 	
Communications Financial and Operating Data
Certain financial and operating data for ALLO is summarized in the tables below.

	Three months ended		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Residential revenue	$	12,993 	 		74.3 	%		12,397 	 		75.3 	%		10,067 	 		75.5 	%		48,344 	 		75.2 	%		33,434 	 		74.9 	%	
Business revenue	4,433 	 		25.3 	 		4,025 	 		24.4 	 		3,197 	 		24.0 	 		15,689 	 		24.4 	 		10,976 	 		24.6 	 	
Other revenue	73 	 		0.4 	 		48 	 		0.3 	 		62 	 		0.5 	 		236 	 		0.4 	 		243 	 		0.5 	 	
   Communications revenue	$	17,499 	 		100.0 	%		16,470 	 		100.0 	%		13,326 	 		100.0 	%		64,269 	 		100.0 	%		44,653 	 		100.0 	%	
																				
Revenue contribution:																				
Internet	$	10,598 	 		60.5 	%		$	9,899 	 		60.1 	%		$	7,528 	 		56.5 	%		$	38,239 	 		59.5 	%		$	24,069 	 		53.9 	%	
Television	4,176 	 		23.9 	 		4,068 	 		24.7 	 		3,708 	 		27.8 	 		16,196 	 		25.2 	 		12,949 	 		29.0 	 	
Telephone	2,643 	 		15.1 	 		2,487 	 		15.1 	 		2,064 	 		15.5 	 		9,705 	 		15.1 	 		7,546 	 		16.9 	 	
Other	82 	 		0.5 	 		16 	 		0.1 	 		26 	 		0.2 	 		129 	 		0.2 	 		89 	 		0.2 	 	
Communications revenue	$	17,499 	 		100.0 	%		$	16,470 	 		100.0 	%		$	13,326 	 		100.0 	%		$	64,269 	 		100.0 	%		$	44,653 	 		100.0 	%	
																				
Net loss	$	(6,581)	 				(7,194)	 					(5,876)	 					(23,519)	 				(28,740)	 			
EBITDA (a)	2,488 	 				1,460 	 					(942)	 					6,224 	 				(4,455)	 			
																				
Capital expenditures	7,803 	 				10,187 	 					20,650 	 					44,988 	 				87,466 	 			

	As of
December 31,
2019		As of
September 30,
2019		As of
June 30,
2019		As of
March 31,
2019		As of
December 31,
2018		As of
September 30,
2018		As of
June 30,
2018		As of
March 31,
2018		As of
December 31,
2017	
Residential customer information:																		
Households served	47,744 	 			45,228 	 		42,760 	 		40,338 	 		37,351 	 		32,529 	 		27,643 	 		23,541 	 		20,428 	 	
Households passed (b)	140,986 	 			137,269 	 		132,984 	 		127,253 	 		122,396 	 		110,687 	 		98,538 	 		84,475 	 		71,426 	 	
Households served/passed	33.9 	%			32.9 	%			32.2 	%			31.7 	%			30.5 	%			29.4 	%			28.1 	%			27.9 	%			28.6 	%	
Total households in current markets and new markets announced (c)	160,884 	 			159,974 	 		159,974 	 		152,840 	 		152,840 	 		142,602 	 		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
16

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 below.

	Three months ended		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Net loss	$	(6,581)	 		(7,194)	 		(5,876)	 		(23,519)	 		(28,740)	 	
Net interest (income) expense	— 	 		— 	 		(2)	 		(3)	 		9,983 	 	
Income tax benefit	(2,079)	 		(2,272)	 		(1,856)	 		(7,427)	 		(9,075)	 	
Depreciation and amortization	11,148 	 		10,926 	 		6,792 	 		37,173 	 		23,377 	 	
Earnings (loss) before interest, income taxes,
depreciation, and amortization (EBITDA)	$	2,488 	 		1,460 	 		(942)	 		6,224 	 		(4,455)	 	
(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 third quarter of 2018, ALLO began providing services in Fort Morgan, Colorado. During the fourth quarter of 2018, ALLO began providing services in Hastings, Nebraska. During the second quarter of 2019, ALLO announced plans to expand its network to make services available in Breckenridge, Colorado. During the fourth quarter of 2019, ALLO announced plans to expand its network to make services available in Imperial, Nebraska. ALLO is now in eleven communities, including nine in Nebraska and two in Colorado.
Other Income
The following table summarizes the components of "other income."

 	Three months ended		Year ended	
 	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Gain on sale of loans	$	15,549 	 		— 	 		— 	 		17,261 	 		— 	 	
Borrower late fee income	3,014 	 		3,196 	 		3,308 	 		12,884 	 		12,302 	 	
Management fee revenue	2,831 	 		2,084 	 		1,824 	 		8,838 	 		6,497 	 	
Gain (loss) on investments and notes receivable, net	3,680 	 		1,948 	 		(707)	 		6,136 	 		9,579 	 	
Investment advisory services	747 	 		753 	 		1,840 	 		2,941 	 		6,009 	 	

Other	701 	 		5,458 	 		3,733 	 		17,119 	 		20,418 	 	
  Other income	$	26,522 	 		13,439 	 		9,998 	 		65,179 	 		54,805 	 	

Derivative Settlements
The following table summarizes the components of "derivative settlements, net" included in the attached consolidated statements of income.
																														
 	Three months ended		Year ended	
 	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
1:3 basis swaps	$	1,839 	 		234 	 		901 	 		5,214 	 		5,577 	 	
Interest rate swaps - floor income hedges	4,261 	 		7,064 	 		18,148 	 		40,192 	 		64,901 	 	
Interest rate swaps - hybrid debt hedges	— 	 		— 	 		3 	 		— 	 		(407)	 	
	
Total derivative settlements - income	$	6,100 	 		7,298 	 		19,052 	 		45,406 	 		70,071 	 	

17

Loans Receivable

Loans receivable consisted of the following:
																		
	As of		As of		As of	
 	December 31, 2019		September 30, 2019		December 31, 2018	
Federally insured student loans:						
Stafford and other	$	4,684,314 	 		4,720,338 	 		4,969,667 	 	
Consolidation	15,644,229 	 		15,975,499 	 		17,186,229 	 	
Total	20,328,543 	 		20,695,837 	 		22,155,896 	 	
Private education loans	244,258 	 		189,912 	 		225,975 	 	
Consumer loans	225,918 	 		321,199 	 		138,627 	 	
 	20,798,719 	 		21,206,948 	 		22,520,498 	 	
Loan discount, net of unamortized loan premiums and deferred origination costs	(35,036)	 		(36,483)	 		(53,572)	 	
Non-accretable discount	(32,398)	 		(32,607)	 		(29,396)	 	
Allowance for loan losses:						
Federally insured loans	(36,763)	 		(37,676)	 		(42,310)	 	
Private education loans	(9,597)	 		(9,882)	 		(10,838)	 	
Consumer loans	(15,554)	 		(18,859)	 		(7,240)	 	
 	$	20,669,371 	 		21,071,441 	 		22,377,142 	 	

Loan Activity

The following table sets forth the activity of loans:
																								
 	Three months ended December 31,		Year ended December 31,	
 	2019		2018		2019		2018	
Beginning balance	$	21,206,948 	 		22,672,757 	 		22,520,498 	 		21,995,877 	 	
Loan acquisitions:								
Federally insured student loans	441,645 	 		584,034 	 		1,530,294 	 		3,708,188 	 	
Private education loans	67,739 	 		68,143 	 		71,543 	 		68,337 	 	
Consumer loans	107,634 	 		40,097 	 		405,726 	 		120,482 	 	
Total loan acquisitions	617,018 	 		692,274 	 		2,007,563 	 		3,897,007 	 	
Repayments, claims, capitalized interest, and other	(635,693)	 		(567,811)	 		(2,511,641)	 		(2,282,631)	 	
Consolidation loans lost to external parties	(210,253)	 		(276,722)	 		(990,720)	 		(1,066,043)	 	
Consumer loans sold	(179,301)	 		— 	 		(226,981)	 		— 	 	
Other loans sold	— 	 		— 	 		— 	 		(23,712)	 	
Ending balance	$	20,798,719 	 		22,520,498 	 		20,798,719 	 		22,520,498 	 	

18

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		Year ended	
 	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Variable loan yield, gross	4.36 	%		4.78 	%		4.89 	%		4.80 	%		4.52 	%	
Consolidation rebate fees	(0.83)	 		(0.83)	 		(0.84)	 		(0.83)	 		(0.84)	 	
Discount accretion, net of premium and deferred origination costs amortization	0.02 	 		0.02 	 		0.03 	 		0.02 	 		0.04 	 	
Variable loan yield, net	3.55 	 		3.97 	 		4.08 	 		3.99 	 		3.72 	 	
Loan cost of funds - interest expense	(2.83)	 		(3.16)	 		(3.24)	 		(3.25)	 		(2.98)	 	
Loan cost of funds - derivative settlements (a) (b)	0.04 	 		— 	 		0.02 	 		0.03 	 		0.03 	 	
Variable loan spread	0.76 	 		0.81 	 		0.86 	 		0.77 	 		0.77 	 	
Fixed rate floor income, gross	0.30 	 		0.23 	 		0.21 	 		0.22 	 		0.25 	 	
Fixed rate floor income - derivative settlements (a) (c)	0.08 	 		0.13 	 		0.32 	 		0.19 	 		0.30 	 	
Fixed rate floor income, net of settlements on derivatives	0.38 	 		0.36 	 		0.53 	 		0.41 	 		0.55 	 	
Core loan spread (d)	1.14 	%		1.17 	%		1.39 	%		1.18 	%		1.32 	%	
										
Average balance of loans	$	21,040,484 	 		21,600,850 	 		22,583,222 	 		21,698,094 	 		22,596,436 	 	
Average balance of debt outstanding	20,850,214 	 		21,371,482 	 		22,232,428 	 		21,259,309 	 		22,181,932 	 	

A reconciliation of core loan spread, which includes the impact of derivative settlements on loan spread, to loan spread without derivative settlements follows.
																														
	Three months ended		Year ended	
	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Core loan spread	1.14 	%		1.17 	%		1.39 	%		1.18 	%		1.32 	%	
Derivative settlements (1:3 basis swaps)	(0.04)	 		— 	 		(0.02)	 		(0.03)	 			(0.03)	 	
Derivative settlements (fixed rate floor income)	(0.08)	 		(0.13)	 		(0.32)	 		(0.19)	 		(0.30)	 	
Loan spread	1.02 	%		1.04 	%		1.05 	%		0.96 	%		0.99 	%	

(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 additional information on the Company's derivative instruments, including the net settlement activity recognized by the Company for each type of derivative for the periods presented in the table.
(b) Derivative settlements consist of net settlements received related to the Company’s 1:3 basis swaps.
(c) Derivative settlements consist of net settlements received related to the Company’s floor income interest rate swaps.
(d) Variable loan spread, excluding consumer loans, would have been 0.67%, 0.67%, and 0.80% for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively, and 0.67% and 0.71% for the years ended December 31, 2019 and 2018, respectively. Core loan spread, excluding consumer loans, would have been 1.05%, 1.03%, and 1.33% for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, respectively, and 1.09% and 1.27% for the years ended December 31, 2019 and 2018, respectively.

19

A trend analysis of the Company's core and variable student loan spreads by calendar year quarter 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 portion 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 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 difference between variable loan spread and core loan spread is fixed rate floor income earned on a portion of the Company's federally insured student loan portfolio. A summary of fixed rate floor income and its contribution to core loan spread follows:

	Three months ended		Year ended	
 	December 31, 2019		September 30, 2019		December 31, 2018		December 31, 2019		December 31, 2018	
Fixed rate floor income, gross	$	15,727 	 		12,685 	 		11,452 	 		49,677 	 		56,811 	 	
Derivative settlements (a)	4,261 	 		7,064 	 		18,148 	 		40,192 	 		64,901 	 	
Fixed rate floor income, net	$	19,988 	 		19,749 	 		29,600 	 		89,869 	 		121,712 	 	
Fixed rate floor income contribution to spread, net	0.38 	%		0.36 	%		0.53 	%		0.41 	%		0.55 	%	

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

20

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 December 31, 2019.
																					
Fixed interest rate range		Borrower/lender weighted average yield		Estimated variable conversion rate (a)		Loan balance	
4.5 - 4.99%		4.72% 	 		2.08% 	 		$	727,086 	 	
5.0 - 5.49%		5.22% 	 		2.58% 	 		470,843 	 	
5.5 - 5.99%		5.67% 	 		3.03% 	 		320,031 	 	
6.0 - 6.49%		6.19% 	 		3.55% 	 		367,409 	 	
6.5 - 6.99%		6.70% 	 		4.06% 	 		357,842 	 	
7.0 - 7.49%		7.17% 	 		4.53% 	 		125,674 	 	
7.5 - 7.99%		7.71% 	 		5.07% 	 		224,635 	 	
8.0 - 8.99%		8.18% 	 		5.54% 	 		525,108 	 	
> 9.0%		9.05% 	 		6.41% 	 		197,829 	 	
 		 				$	3,316,457 	 	

(a) The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of December 31, 2019, the weighted average estimated variable conversion rate was 3.72% and the short-term interest rate was 182 basis points.

The following table summarizes the outstanding derivative instruments as of December 31, 2019 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)	
					
2020		$	1,500,000 	 		1.01 	%	
2021		600,000 	 		2.15 	 	
2022 (b)		250,000 	 		1.65 	 	
2023		150,000 	 		2.25 	 	

	

 		$	2,500,000 	 		1.42 	%	

(a) For all interest rate derivatives, the Company receives discrete three-month LIBOR.
(b) These derivatives have forward effective start dates in June 2021.
21

February 27, 2020 Dear Shareholder: Nelnet was founded over 40 years ago with one simple idea: to serve others and make their educational dreams possible. Since then, we’ve grown to be one of the nation’s largest and most respected education loan servicers. We are one of the largest education technology, payment processing, and student information system providers in the marketplace, with an amazing growth story based on exceptional service and innovation. We’ve become a growing force in the origination and servicing of private education and consumer loans. We’re even the premier high-speed fiber internet provider in our home state of Nebraska. Over the past forty-plus years, Nelnet has diversified, launched new products, started new businesses, and acquired existing companies of varying sizes in a variety of industries and markets throughout the United States, Canada, Southeast Asia, and Australia. Our dedication to serving all of our constituents and helping make their dreams a reality has been woven into the fabric of the culture of Nelnet and is the primary consideration in all that we do. We have been closely following the more recent business press and public dialogue on companies advocating for balance among their stakeholders. These discussions make us smile – because our company, since the beginning of our existence, has been focused on serving our customers, associates, communities, and shareholders. Without a balance among those four areas, we believe a company will not be sustainable for the long term and, as we have stated publicly all along, we run our company focused on long-term value creation. In order to solidify alignment of all of our stakeholders with our purpose – to serve – we are in the process of renaming the four primary divisions of the company. They will be renamed to Nelnet Diversified Services, Nelnet Business Services, Nelnet Communications Services, and Nelnet Financial Services. We live to serve others. It’s why we started and it’s why we have succeeded. // Serving Our Communities and Customers Consider this interesting data point which demonstrates the positive effect we are having on students and families through our education loan finance business. Since its inception, Nelnet has financed roughly $64 billion in education loans, funding people’s educational dreams. The average student loan borrower exits college with $27,610 in debt. After graduation, the average bachelor’s degree holder has an annual wage premium of $25,566 over high school graduates (U.S. Census Bureau). Aggregating this data, we can estimate that Nelnet has financed education for over 2.3 million students; we can estimate a combined earnings increase of $59 billion per year for all the students we have helped obtain a college education. This rough estimate helps us understand the potentially profound impact we’re having on our customers and communities. 2019 Letter to Shareholders | Page 1

 

When you read our financial results, one of the new and growing investments we have made in serving our communities will become evident. We have made investments in solar renewable energy projects as a tax equity investor. The solar projects we have funded have become a great source of pride within our company because they are environmentally friendly and they provide for solid financial returns – as all good investment decisions should. We are proud to announce that, by our estimates, Nelnet has become a carbon-negative company – meaning that more energy is produced from our investments in renewable solar energy plants than the total energy we estimate is consumed by the entire company and our associates in their daily work lives. Since 2018, Nelnet has funded or committed to fund $124 million to build solar energy projects via tax equity financing. These projects currently consist of 76 sites, generating over 270,000 megawatt hours (MWh) per year in renewable energy. If you were to add up all of the energy Nelnet associates use in their households and in their daily commutes, business travel, and in all of our offices and data centers – we consume approximately 117,000 MWh per year in energy, making the company carbon- negative. Not only is Nelnet green our corporate color, it is taking on greater meaning throughout our communities. Another initiative that we are extremely excited to have launched to serve our customers and our communities is the application for Nelnet Bank. As we anticipated in our shareholder letter last year, we re-filed the application in November 2019. There is a large need for competition in the in-school and refinance education loan marketplaces. Competition in terms of rates, terms, and service will drive numerous benefits to Nelnet’s customers. We have invested in a talented senior management team to run the bank if a charter is granted. In the coming year, we look forward to making the public case for a new state-of-the-art online bank that leverages the capital, historical performance, infrastructure, and expertise – in other words, the power – of Nelnet. We are confident we can fund prime quality consumer and education loans profitably within a bank structure. Our confidence is bolstered by the fact that U-fi relaunched in 2019 in a marketing partnership with Union Bank & Trust (Union Bank). We originated over $100 million in new refinance education loans, creating an estimated $25 million in future interest savings over the life of the loans for those borrowers. In addition to the savings we provided, we delivered frictionless service to those customers, who gave Nelnet an impressive net promoter score (NPS) of 86. According to our research, that’s higher than the scores earned by Netflix, Starbucks, Amazon, and Airbnb, but still not quite to the level of Tesla’s NPS of 96. Matching Tesla’s astounding NPS may be a wee bit difficult—however, it’s always good to aim for the moon. We are also seeing a very low delinquency rate in the loan portfolio so far. Through this partnership with Union Bank, we are creating great value and providing amazing service for our customers and Union Bank’s customers. U-fi is a prime example of how we can collaborate with our lender clients to deliver a win-win for all parties involved. Driving more assets to our portfolio has been a priority where we’re seeing opportunities to couple great products with decades of expertise. We are investing significantly in our systems and services which will benefit all of our origination and servicing clients. We look forward to expanding our originations with Union Bank and taking best-in-class systems and services to our other partners in 2020. 2019 Letter to Shareholders | Page 2

 

// Serving Our Shareholders (Financial Outcomes and Corporate Highlights) It wouldn’t be a proper letter to our shareholders without talking about our performance as measured by financial outcomes and the over-arching corporate highlights from the year. In 2019, our total revenue from our three fee-for-services divisions (Diversified, Business, and Communications) increased to $797 million, up from $707 million in 2018 – which was up from $442 million in 2017. We increased our fiber business by over 10,000 residential customers. We service loans for 15.1 million borrowers, and we manage more than 2.5 million payment plans. As expected, we are seeing continued amortization of our Federal Family Education Loan Program (FFELP) portfolio. Our total loan portfolio, net of acquisitions, paid down by $1.7 billion during the year to $20.8 billion. We purchased $1.5 billion of FFELP loans, $72 million in private education loans, and $406 million in unsecured consumer loans. Corporate-wide during the year, we created GAAP net income of $142 million, adjusted net income of $200 million1, and we generated $299 million in cash from operating activities. We refinanced $1.05 billion of the securitizations we issued following the credit crisis that were primarily “Turbo” transactions; these transactions effectively trapped excess cash by paying down bonds in an expedited method when compared to our traditional asset-backed securities. Through our refinancing, we gained access to $387 million of previously trapped cash that we can now deploy as opportunities arise. We used the cash to significantly pay down our unsecured line of credit. We also increased and extended that line of credit to $455 million for 5 years. The combination of our cash position and available credit puts the company in a great position to capitalize on future business opportunities. We bought back approximately 726,000 shares of stock at an average price of $55.64 per share, and we increased our book value from $57.24 per share on January 1, 2019 to $60.07 per share on December 31, 2019. We increased our total dividends paid throughout 2018 and 2019 from $.66 per share to $.74 per share, respectively. Our equity rose to $2.4 billion at year end, giving us a 10.07% equity-to-assets ratio. Certain things don’t change, and we still frequently get the question of what we plan to do with the cash we generate. As explained in the past, I think the answer to this question is to look back at how we deployed capital in recent years. It provides a road map to management’s focus and thoughts on the best use of capital. Last year, we deployed almost $400 million in capital, which brings our 7-year total to $3.2 billion in capital deployed (including dividends, stock repurchases, and debt repurchases). One note: the capital investment in our ALLO Communications business may not be as large in 2020 as compared to previous years because the buildout to bring fiber to Lincoln, Nebraska is essentially complete. 1We prepare our financial statements and present our financial results in accordance with GAAP. However, we also provide additional non-GAAP financial information related to specific items management believes to be important in the evaluation of our operating results and performance. A reconciliation of our GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why we believe providing this additional information is useful to investors can be found in our Annual Report on Form 10-K for the year ended Dec. 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020. 2019 Letter to Shareholders | Page 3

 

Capital Deployment By Year (in millions) 2013 2014 2015 2016 2017 2018 2019 7-Year Total FFELP loan/residual acquisitions, net of financing $38 $127 $140 - - $105 $71 $481 Private and consumer loan acquisitions, net of financing $68 $17 $173 $61 $75 $188 $61 $643 Business acquisitions - $47 - - - $153 - $200 ALLO acquisition and capital expenditures - - $47 $39 $115 $87 $45 $333 Other capital expenditures (non-ALLO) $17 $26 $17 $29 $41 $38 $48 $216 Hudl investment - $1 $41 - $10 - - $52 Other investments (venture capital/real estate/solar) $20 $45 $53 $22 $19 $67 $103 $329 Debt repurchases $79 $47 $42 $77 $181 $13 - $439 Stock repurchases $13 $16 $96 $69 $69 $45 $40 $348 Dividends $19 $19 $19 $21 $24 $27 $29 $158 $254 $345 $628 $318 $534 $723 $397 $3,199 // Nelnet Diversified Services Our Diversified Services Division had an excellent year. For loan servicing, we typically get paid on a per borrower account basis. Our customers are the federal government, state agencies, banks, and Fintech companies. At year end, we were servicing $473 billion of loans for 15.1 million Federal Direct, FFELP, private education, and consumer loan borrower customers. Our revenue increased from $440 million in 2018 to $455 million in 2019 and net income increased from $54 million in 2018 to $59 million in 2019. NDS will incur additional costs in 2020 to meet increased service and security standards under the current Department of Education’s servicing contracts and to be responsive to the Department’s procurement. As a result, we currently expect a significant decrease in this segment’s operating margin and net income in 2020 from recent historical results. As we stated last year, the big unknown in the business is what the federal government will do with its procurement for a new loan system and the service providers that will operate that system. Well, that statement remains true for 2020. Here is what we know. Our current contract with the government has been extended to December 2020, with an option for the government to extend it up to an additional year. As you’ve read in my prior letters, the procurement process has seen multiple cancellations, reissues, and amendments, as recently as January of this year. The procurements that have the biggest potential impact on Nelnet remain the single NextGen Enhanced Processing Solution and the Business Process Operations, which is essentially the loan processing and customer service work that will be performed on the single system. In 2019 we continued to grow our Fintech consumer and private loan servicing business. The revenue in that line of business grew to $37 million in 2019, as we now serve over 680,000 consumer and private education loan customers. We launched our first new servicing client onto our leading-edge Velocity origination and servicing system, which will enable Fintech lenders to deliver a first-rate experience to their borrowers. 2019 Letter to Shareholders | Page 4

 

As evidenced by the non-stop news coverage, we have officially entered the year of the 2020 presidential election. As I stated last year, “In this highly polarized and politicized world we live in, student loan servicing often gets caught in the cross-fire of the critically important public debate around college cost and student debt levels. The systems and programs put in place to help finance education are extremely complex and difficult to understand for most people. As student debt levels continue to rise for most Americans, our role in helping students finance their education is a critical one. The negative impact of delinquency or defaulting on loans can be life-altering for people. Our mission is to help borrowers navigate one of the most complex and confusing consumer loan programs in the world. Every borrower has individual life circumstances and situations that are unique. We empower borrowers with digestible levels of information so they can navigate the vast array of repayment options available today. We remain very passionate about our borrower customers and helping them achieve success repaying their loans.” I don’t know how I could say it better one year later so I will stick by the same quote. // Nelnet Business Services Nelnet Business Services (NBS) is our education technology, services, and payment processing division, with core drivers of revenue in both payment processing (tuition payment plans) and SaaS revenue from software products and services. I am sure I sound like a broken record at this point, but it was another record year for NBS in 2019. This division earned gross revenue of $277 million – a 25% increase from $222 million in 2018, up from $193 million in 2017, and $176 million in 2016. We are very pleased with the growth rates we are seeing in this division. A large part of NBS’s success is due to their focus on excellent customer service and constant innovation in their primary markets. In 2019, we launched three new products: FACTS Family App, FACTS Giving, and our new cashiering system. Another key tenet to the future growth of NBS is international expansion. Intentional international expansion offers many opportunities for NBS. The addition of new higher education clients in Hong Kong, Malaysia, and Singapore is significant, and the addition of many new global Value Added Resellers for FACTS student information systems offers excellent future opportunities for international growth. NBS acquired Tuition Management Services (TMS) in November 2018. We made significant strides in 2019 and celebrated many accomplishments with our TMS clients and associates who are now NBS clients and associates. Retention of existing customers is always an important key focus. It offers a recurring revenue stream, affirms we are providing products and services that meet the expectations and needs of our clients, and also provides opportunities for organic growth through additional product offerings. This year, all of our NBS markets and products celebrated record retention rates! We are also very proud that our sales teams for FACTS (K-12) and Nelnet Campus Commerce (higher education) both achieved record new sales in 2019. We now work with more than 11,500 K-12 schools and more than 1,300 higher education institutions worldwide. Nelnet Business Services was the first to market in our industry with a Workday integration. NBS formed a key partnership with Workday, which is a leading provider of enterprise resource planning (ERP) applications that has built capability specifically for institutions of higher education. This partnership will provide many opportunities for Nelnet Campus Commerce to integrate with several new higher education institutions. Being first to market with this integration conveys our leading edge technology and strong commitment to the needs of the higher education industry. 2019 Letter to Shareholders | Page 5

 

To cap it all off – if record total revenue, record new sales, record client retention, and international expansion were not enough – the NBS division achieved 83% associate engagement survey scores, demonstrating our core value of making Nelnet an awesome place to work. // Nelnet Communication Services Change was the theme of 2019 for ALLO Communications, our fiber-to-the-premises communications and entertainment company. Not only is the industry changing through substantial infrastructure investments, technological evolution, and content delivery methods, ALLO’s operations are changing from an intensive construction focus to a balance of construction, customer acquisition, and ongoing customer service. ALLO’s purpose is to create, connect, and serve gigabit communities through values of local, honest, hassle-free and exceptional service. With community “provider of the year” awards, top ten national speed rankings, and continued high net promotor scores, ALLO’s investments in customer service, fiber, and technologies are appreciated by their communities and reflect the company’s purpose and values. In this highly competitive industry, the financial results also began to change. Leveraging past investments while maintaining customer focus and increasing market share will be the theme for 2020 and beyond. After our 2015 acquisition of ALLO, the significant investments in markets and building a much larger work force moved operating cash flows from positive to negative. With these investments, ALLO has now passed almost 141,000 households out of a total of over 160,000 households in 11 communities in Nebraska and Colorado. In 2019, a change to positive operating cash flow was achieved while continuing strong revenue growth. We fully acknowledge capital expenditures are a tangible part of growing the business; however, ALLO reduced its GAAP net loss to $24 million from $29 million in 2018, and turned its commonly used telecommunications industry measure of earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA) to a positive EBITDA of $6 million in 2019, compared with negative EBITDA of $4 million for 2018.2 Residential revenue increased to $48 million in 2019, a 45% increase from $33 million in 2018 – and residential customers increased by more than 10,000 from 2018, reaching a total of almost 48,000 in 2019, a 28% increase. In total, ALLO ended 2019 serving an estimated 73,000 business and residential lines, an increase of 30% from 2018. In 2020, customers are expected to continue to rapidly increase bandwidth consumption and demand services that the ALLO network is uniquely positioned to support. Cloud business and consumer services, gaming, next-generation managed Wi-Fi (Wi-Fi 6), 10 GIG residential service, and many other ever-changing customer solutions will be added to ALLO’s portfolio. The fiber needs of communities create the opportunity for adding to our regional footprint. ALLO will continue to change to meet customer demands. 2Earnings (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. 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. We report EBITDA for ALLO because we believe that it provides useful additional information for investors regarding a key metric we use 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 can be found in our Annual Report on Form 10-K for the year ended Dec. 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020. 2019 Letter to Shareholders | Page 6

 

// Nelnet Financial Services Our Nelnet Financial Services business is comprised of our on-balance sheet loan portfolio, interest rate hedging, and loan acquisitions teams that are reported in the Asset Generation and Management segment; and our investment management business and venture and angel capital, solar, and real estate portfolio that are reported in corporate activity. We now have three distinct loan asset categories that drive the majority of the revenue in the segment: FFELP government guaranteed education loans, private U-fi and other education loans, and third party sourced unsecured consumer loans. 2019 was an exciting year in FFELP as we achieved efficiencies across our portfolio. Due to the refinancing activity and the $1.5 billion in FFELP whole loans we purchased, we had the most active securitization year in our company’s history. While we are pleased with our continued progress in the FFELP market, we are more excited about the progress we made to diversify our loan portfolio. In 2019, we began marketing private education loans under our U-fi brand in partnership with Union Bank. Throughout the year we purchased a portion, or $68 million, of the loans from Union Bank. We also more than tripled our unsecured consumer loan purchases from 2018 to 2019 and contributed a portion of these loans to two third party securitizations, which we believe will achieve attractive risk adjusted returns. As we look to 2020, we see many possibilities to increase our portfolio. None of those is more important than our hopeful buildout of Nelnet Bank. If the bank charter is approved, we will begin originating U-fi loans directly on the bank’s balance sheet. For financial reporting purposes, Nelnet Bank will be a separate reportable segment. // Hudl We remain a significant and supportive investor in Hudl, which continued its impressive growth streak in 2019, building further on its offering to high school and college athletic departments, top-tier club organizations, and professional teams around the world. In May 2019, Hudl acquired Krossover, one of its primary competitors in the high school space. With the acquisition, Hudl added around 6,000 teams and grew its market penetration in high school basketball to over 80 percent. Hudl has also made big moves to grow its offering to professional soccer clubs around the world. In July, Hudl finalized the acquisition of Wyscout, the global leader in soccer scouting. Wyscout, based in Chiavari, Italy, captures and analyzes video from soccer matches around the globe. It boasts the largest soccer video archive in the world, with over 200,000 full matches analyzed across 52 countries, and more than 460,000 players profiled on the platform. More than 7,000 customers subscribe to Wyscout to scout top talent and prepare for upcoming matches. The company remains headquartered in Lincoln, Nebraska and has grown its team in Lincoln to more than 600 “Hudlies”. In total, the company has grown to more than 2,300 associates across 20 countries. We remain very optimistic about our investment in Hudl. 2019 Letter to Shareholders | Page 7

 

// Belief in Long-Term Value and a Fair Value Approach As you know, we don’t provide earnings guidance as we believe it creates a focus on short-term wins at the expense of long-term value creation. However, I can tell you what our management team will be focused on in 2020. We will be focused on improvements in customer service, our culture, communicating our purpose, the government procurement, the bank charter, integration of past acquisitions, new product innovation, technology build and enhancements, new customer acquisition, loan asset replacement, revenue and earnings growth, and capital allocation. Each year, we believe it is important to share Nelnet’s “fair value approach” with our shareholders. We feel it is a fundamental component to existing and potential shareholders’ understanding of how we lead our company and where it is going in the future. It is our goal for each Nelnet shareholder to record a gain or loss in market value proportional to the gain or loss in per-share fundamental value recorded by the company. To achieve this goal we strive to maintain a one-to-one relationship between the company’s fundamental value and the market price. As that implies, we would rather see Nelnet’s stock price at a fair level than at an artificial level. Our fair value approach may not be preferred by all investors, but we believe it aligns with Nelnet’s long-term approach to both our business model and market value. However, from time to time Mrs./Mr. Market can be irrational and will materially over value or under value what style they currently love. Nelnet’s Corporate Performance (Annual Percentage Change) Nelnet Per Share Book Value Nelnet Per Share Market Value S&P 500 Net Income Reinvested3 With Dividends Included With Dividends Included With Dividends Included (in millions) 2004 49.2% 20.2% 10.9% $157 2005 41.5% 51.1% 4.9% $122 2006 6.3% (32.7%) 15.8% $22 2007 (1.6%) (52.5%) 5.5% ($82) 2008 6.6% 13.3% (37.0%) $15 2009 21.0% 20.7% 26.5% $154 2010 23.7% 41.6% 15.1% $113 2011 22.6% 4.9% 2.1% $170 2012 16.7% 27.5% 16.0% $118 2013 26.1% 42.8% 32.4% $241 2014 21.1% 10.9% 13.7% $250 2015 16.0% (26.6%) 1.4% $135 2016 15.4% 52.7% 12.0% $122 2017 8.8% 9.1% 21.8% $92 2018 9.9% (3.2%) (4.4%) $155 20194 6.2% 12.7% 31.5% $130 CAGR/Total 17.4% 7.5% 9.1% $1,914 3We believe well-managed companies do not distribute to the shareholders all their earnings. Instead, they retain a part of their earnings and reinvest the capital to grow the business. Since going public in late 2003, the company has recognized $2.8 billion in cumulative net income (excluding derivative market value and foreign currency adjustments) and, of that amount, has reinvested $1.9 billion – or 68% of our earnings over time – back into the business. 4GAAP net income for the year ended December 31, 2019 was $142 million, or $3.54 per share. Net income in 2019, excluding derivative market value adjustments, was $200 million, or $4.99 per share. This $1.45 per share or 40% difference between GAAP net income and how we track earnings per share also has a big impact on our return on equity (ROE) for the year, which is calculated using GAAP net income. Using net income, excluding derivative market value adjustments, our return on book value in 2019 would have been 8.8%. In other words, the large drop in interest rates from the beginning of 2019 to the end of 2019 has had an abnormally outsized impact on our ROE calculation. 2019 Letter to Shareholders | Page 8

 

// Serving Our Associates Our purpose is to serve and we are very proud of the work that is being done by all of the talented “Nelneters” to help fulfill our mission of helping to make our customers’ dreams a reality. We recognize that our success comes from living out our core values – and we strive to keep these values in front of our associates each day. Nelnet’s Core Values: • Provide superior customer experiences • Create an awesome work environment • Pursue opportunities for diversification and growth • Communicate openly and honestly • Give back to the communities in which we live and work Our pledge to you is that we will remain continuously focused on the critical balance of serving our customers, associates, communities, and shareholders. Thank you for your continued investment in our company. Dream. Learn. Grow. Jeff Noordhoek, Chief Executive Officer 2019 Letter to Shareholders | Page 9

 

Forward-Looking and Cautionary Statements This letter to shareholders contains forward-looking statements within the meaning of federal securities laws. Statements about the company’s plans and expectations for future financial condition, results of operations or economic performance, or that address management’s plans and objectives for future operations, and statements that assume or are dependent upon future events, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “should,” “would,” “will,” and similar expressions, as well statements in future tense, are intended to identify forward-looking statements. These statements are based on management’s current expectations as of the date of this letter and are subject to known and unknown risks 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 loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; the uncertain nature of expected benefits from FFEL Program, private education, and consumer loan purchases and initiatives to purchase additional FFEL Program, private education, and consumer loans; financing and liquidity risks, including risks of changes in the securitization and other financing markets for loans; risks related to the ability to 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 initiatives to procure new contracts for federal student loan servicing, including the risk that the company or company teams may not be successful in obtaining contracts; risks related to the development by the company of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized; risks and uncertainties from changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government program 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; risks and uncertainties related to the ability of ALLO to successfully expand its fiber network and market share in existing service areas and additional communities and manage related construction risks; risks and uncertainties related to initiatives to pursue additional strategic investments, acquisitions, and other activities including activities that are intended to diversify the company both within and outside of its historical core education-related businesses, such as the risk that the company’s industrial bank charter application may not result in the grant of a charter and the uncertain nature of the expected benefits from obtaining an industrial bank charter, and risks related to investments in solar projects, including risks of not being able to realize tax credits which remain subject to recapture by taxing authorities; cybersecurity risks, including potential disruptions to systems, disclosure of confidential information, and/or damage to reputation resulting from cyber breaches; and changes in the general interest rate environment, including the availability of any relevant money-market index rate such as LIBOR or the relationship between the relevant money-market index rate and the rate at which the company’s assets and liabilities are priced. For more information, see the “Risk Factors” sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission (SEC), including the most recent Form 10-K filed by the company with the SEC. All forward-looking statements in this letter are as of the date of this letter. Although the company may voluntarily update or revise its forward-looking statements from time to time to reflect actual results or changes in the company’s expectations, the company disclaims any commitment to do so except as required by securities laws. 2019 Letter to Shareholders | Page 10