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)
May 8, 2019  

NELNET, INC.
(Exact name of registrant as specified in its charter)
															
Nebraska		001-31924		84-0748903	
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)	

121 South 13th Street, Suite 100
Lincoln, Nebraska		68508 	
(Address of principal executive offices)		(Zip Code)	
Registrant's telephone number, including area code (402) 458-2370
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended t ransition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Ac t .                   [ ]

Securities registered pursuant to S ection 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	

Item 2.02 Results of Operations and Financial Condition.

On May 8, 2019 , Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended March 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 March 31, 2019 , which was made available on the Company's website at www.nelnetinvestors.com on May 8, 2019 in connection with the press release, is furnished as Exhibit 99.2 to this report.

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

Certain statements contained in the exhibits furnished with this report may be considered forward looking in nature and are subject to various risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated, estimated, or expected. Among the key risks and uncertainties that may have a direct bearing on the Company's future operating results, performance, or financial condition expressed or implied by the forward-looking statements are the matters discussed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 27, 2019 . 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 May 8 , 2019 - "Nelnet Reports F irst Quarter 2019 Results"	
99.2 		Supplemental Financial Information for the Q uarter Ended March 31, 2019	

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: May 8, 2019  
NELNET, INC.
By:   /s/ JAMES D. KRUGER  
Name:   James D. Kruger
Title:   Chief Financial Officer

Nelnet Reports First Quarter 201 9 Results

LINCOLN, Neb., May 8, 2019 - Nelnet (NYSE: NNI) today reported GAAP net income of $41.6 million , or $1.03 per share, for the first quarter of 201 9 , compared with GAAP net income of $113.9 million , or $2.78 per share, for the same period a year ago.

The decrease in GAAP net income for the three months ended March 31, 2019, compared with the same period in 2018, was due primarily to the recognition of a net loss in 2019 , compared with a net gain in 2018 , related to changes in the fair values of derivative instruments that do not qualify for hedge accounting . In addition, during the first quarter of 2018, the company recognized unrealized gains of $6.7 million ($5.1 million after tax, or $0.12 per share) due to the changes in fair value of certain equity securities.

Net income, excluding derivative market value adjustments , was $64.8 million , or $1.61 per share, for the first quarter of 201 9, compared with $68.3 million , or $1.67 per share, for the same period in 201 8 . For additional information on these non-GAAP metrics, including reconciliations to GAAP net income, see "Non-GAAP Performance Measures" below.

"We are excited by our start to 2019 and the strong revenue growth from our loan servicing, e ducation technology and payment processing, and communications businesses," said Jeff Noordhoek, Chief Executive Officer of Nelnet. "We are focused on continuing our strong momentum by providing superior customer experiences and pursuing opportunities for revenue diversification and growth that will result in long-term success."

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

For the first quarter of 201 9 , Nelnet reported net interest income of $58.8 million , compared with $67.3 million for the same period a year ago. Net interest income included $10.4 million and $17.2 million of fixed rate fl oor income in the first quarter of 201 9 and 2018, respectively. 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 recognized income from derivative settlements of $19.0 million during the first quarter of 201 9 , compared with income of $6.8 million for the same period in 201 8 . Derivative settlements for each applicable period should be evaluated with the company's net interest income. Net interest income and deri vative settlements totaled $77.8 million and $74.1 million in the first quarter of 2019 and 2018, respectively.

The c ompany's average balance of loans in the first quarter of 201 9 was   $22.3 billion , compared to   $21.9 billion for the same period in 201 8. Core loan spread , which includes the impact of derivative settlements, increased to 1.30 percent for the quarter ended March 31, 2019 , compared with 1.29 percent for the same period in 20 18 .

Provision for loan losses was $7.0 million and $4.0 million for the three months ended March 31, 2019 and 2018 , respectively.   F or federally insured loans , the provision for loan losses was $2.0 million for each of the three months ended March 31, 2019 and 2018 . Provision for loan losses for consumer loans increased to   $5.0 million   for the three months ended March 31, 2019 compared with   $2.0 million for the same period in 2018   as a result of   additional   consumer loan purchases .
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 included in the company's Loan Servicing and Systems segment from the date of acquisition.

Revenue from the Loan Servicing and Systems segment was $114.9 million for the first quarter of 2019 , compared with $100.1 million for the same period in 201 8 . As of March 31, 2019 , the company (including Great Lakes) was servicing $ 472.1 billion in government-owned, Federal Family Education Loan (FFEL) Program, private education, and consumer loans, compared with $ 470.8 billion of loans serviced by the company as of March 31, 2018 .

Nelnet Servicing, LLC (Nelnet Servicing) and Great Lakes are two companies that have student loan servicing contracts awarded by the U.S. Department of Education's Office of Federal Student Aid (the Department) in June 2009 to provide servicing for loans owned by the Department. As of March 31, 2019 , Nelnet Servicing was servicing $ 183. 1 billion of student loans for 5. 7 million borrowers under its contract, and Great Lakes was servicing $ 237.1 billion of student loans for 7. 4 million borrowers under its contract. The servicing contracts with the Department currently provide for expiration on June 16, 2019.

On April 24, 2019, Nelnet Servicing and Great Lakes received correspondence from the Department indicating its intent to exercise a six - month extension of the current servicing contracts, from June 16, 2019 to December 15, 2019. The correspondence served only as a non-binding notice of intent, and any formal extension of the contracts will occur only upon a signed modification to the contracts.
The Department has a new federal student loan servicing contract procurement process in progress. On April 1, 2019, the company responded to one of three componen ts of the servicing contract procurement . Nelnet is part of teams that currently intend to respond to the t wo remain ing components of the procurement.

Education Technology, Services, and Payment Processing

On November 20, 2018, the company acquired T uition 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 c ompany’s customer base. The results of TMS’ operations are reported in the c ompany’s consolidated financial statements from the date of acquisition.
For the first quarter of 201 9 , revenue from the E ducation Tech nology, Services, and Payment Processing operating segment was $79.2 million , an increase of $18.9 million , or 31 percent , from the same period in 201 8 . The increase in revenue was   due to the acquisition of TMS ;   g r owth 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.

In October 2018, the company terminated its investment in a proprietary payment processing platform. These expense reductions increased before tax operating margin for the three months ended March 31, 2019 to 43. 0 percent, compared with 37.8 percent for the same period of 2018 . This segment is subje ct to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year.

Communications

Revenue from ALLO Communications was $14.5 million for the first quarter of 201 9 , compared with $ 9.2 million for the same period in 201 8 . The number of households served as of March 31, 2019 , was 40,338 , an increase of 16, 797 , or 71 percent, from the number of households served as of March 31, 2018 .

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. In 2018, ALLO began to provide its services in Fort Morgan, Colorado, and Hastings, Nebraska, increasing households in current markets to 152,840, of which 127,253 are passed by ALLO's existing communications network as of March 31, 2019. 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 incurred capital expenditures of $12.0 million during the three months ended March 31, 2019 . The company currently anticipates total network expenditures for the remainder of 2019 will be approximately $40.0 million ; however, the amount of capital expenditures could change based on customer demand for ALLO's services.

For the first quarter of 201 9 , ALLO recognized a net loss of $4.8 million , compared with a net loss of $7.0 million for the same period in 201 8 . The decrease in ALLO's net loss in 2019 as compared to 2018 was primarily due to a decrease in interest expense. ALLO recognized $2.5 million of interest expense to Nelnet, Inc . (parent company) during the three-month period ended March 31, 2018 . Subsequent to October 1, 2018, ALLO will not re port interest expense in its income statement related to amounts contributed to ALLO from Nelnet, Inc . due to a recapitalization of ALLO . The company anticipates this operating segment will be dilutive to consolidated earnings as it continues to build 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) to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. For the first quarter of 201 9, ALLO had positive EBITDA of $1.0 million , compared with negative EBITDA of $1.8 million for the same period in 201 8 . For additional information on this non-GAAP metric, including a reconciliation to ALLO's GAAP net loss, see "Non-GAAP Performance Measures" below.

Liquidity and Capital Activities

A s of March 31, 2019 , the company had   $74.9 million in cash and cash equivalents and $52.7 million in available-for-sale investments, consisting primarily of student loan asset-backed securities. The company also has a $382.5 million unsecured line of credit. As of March 31, 2019 , $320.0 million was outstanding on the line of credit and $62.5 million was available for future use.
The company paid cash dividends of $7.2 million , or $0.18 per share, during the first quarter of 2019.

During the first quarter of 2019, the company repurchased 301,327 shares of Class A common stock for $16.4 million , or $54.29 per share. Certain of these purchases were made pursuant to a trading plan adopted by the company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. As of March 31, 2019 , 2,028,025 shares remain ed authorized for repurchase under the company's stock repurchase program.

The company intends to use its liquidity position to capitalize on market opportunities, including: FFEL Program, private education, and consumer loan acquisitions; strategic acquisitions and investments; expansion of ALLO's communications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the company's cash and investment balances.

Board of Directo r s Dec lares Second Quarter Div iden d and Authorizes New Stock Repurc hase Program

The Nelnet Board of Directors de clare d a second quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.1 8 per share. The dividend will be paid on Jun e 14 , 2019 to shareholders of record at the close of business on May 31, 2019.

In addition, the Board of Directors   has authorized a new stock repurchase program to repurchase up to five million shares of the company's Class A common stock during the three-year period ending May 7, 2022.   The five million shares authorized under the new program include the remaining unrepurchased shares from the prior program , which was set to expire on May 25, 2019 and the new program replace s .   S hares may be repurchased under the new program from time to time in the open market or private transactions, and the timing and amount of repurchases will depend on market conditions, share prices, trading volumes, and other factors, including compli anc e w ith credit agreements and securities law s .  
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. A reconciliation of the company's GAAP net income to net income, excluding derivative market value adjustments, and a discussion of why the company believes providing this additional information is useful to investors, is provided below.

	Three months ended March 31,	
	2019		2018	
	(dollars in thousands, except share data) 	
GAAP net income attributable to Nelnet, Inc.	$	41,591 		113,925 	
Realized and unrealized derivative market value adjustments	30,574 		(60,033)	
Net tax effect	(7,338)		14,408 	
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments	$	64,827 		68,300 	
				
Earnings per share:				
GAAP net income attributable to Nelnet, Inc.	$	1.03 		2.78 	
Realized and unrealized derivative market value adjustments	0.76 		(1.46)	
Net tax effect	(0.18)		0.35 	
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments	$	1.61 		1.67 	

"Derivative market value   adjustments" include s 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 tax effects in the preceding table are calculated by multiplying the realized and unrealized derivative market value adjustments by the applicable statutory income tax rate.

The company believes these point-in-time estimates of asset and liability values related to its derivative instruments 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. Consequently, the company reports this non-GAAP information because the company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

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

	Three months ended March 31,	
	2019		2018	
	(dollars in thousands)	
Net loss	$	(4,810)		(7,040)	
Net interest (income) expense	(2)		2,508 	
Income tax benefit	(1,519)		(2,223)	
Depreciation and amortization	7,362 		4,921 	
Earnings (loss) before interest, income taxes,
depreciation, and amortization (EBITDA)	$	1,031 		(1,834)	

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

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements within the meaning of federal securities laws. The words "anticipate," "continue," "expect," "future," "intend," "may," "plan," "scheduled," "will," and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, but are not limited to: risks related to the company's loan portfolio, such as interest rate basis and repricing risk and changes in levels of student loan repayment or default rates; the use of derivatives to manage exposure to interest rate fluctuations; the uncertain nature of the expected benefits from the acquisition of Great Lakes on February 7, 2018, and the ability to successfully integrate technology, shared services, and other activities and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the Department , which current contracts accounted for 30 percent of the comp any's revenue in 2018 and may be extended from J une 16, 2019 to

December 15, 2019 (but any such extension is not assured) ; 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 student loans; risks and uncertainties from changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFEL Program loan interest income and fee-based revenues due to the discontinuation of FFEL Program loan originations in 2010 and the resulting initiatives by the company to adjust to a post-FFEL Program environment; 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 and acquisitions, including investments and acquisitions that are intended to diversify the company both within and outside of its historical core education-related businesses; cybersecurity risks, including potential disruptions to systems, disclosure of confidential information, and/or damage to reputation resulting from cyber-breaches; and changes in general economic and credit market conditions, 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 first quarter ended March 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.

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

																		
	Three months ended	
	March 31, 2019		December 31, 2018		March 31, 2018	
	
Interest income:						
Loan interest	$	242,333 		244,252 		197,723 	
Investment interest	8,253 		8,019 		5,134 	
Total interest income	250,586 		252,271 		202,857 	
Interest expense:						
Interest on bonds and notes payable	191,770 		182,732 		135,550 	
Net interest income	58,816 		69,539 		67,307 	
Less provision for loan losses	7,000 		5,000 		4,000 	
Net interest income after provision for loan losses	51,816 		64,539 		63,307 	
Other income:						
Loan servicing and systems revenue	114,898 		112,761 		100,141 	
Education technology, services, and payment processing revenue	79,159 		54,589 		60,221 	
Communications revenue	14,543 		13,326 		9,189 	
Other income	9,067 		9,998 		18,557 	
	
Derivative market value adjustments and
derivative settlements, net	(11,539)		(29,843)		66,799 	
Total other income	206,128 		160,831 		254,907 	
Cost of services:						
Cost to provide education technology, services, and payment processing services	21,059 		15,479 		13,683 	
Cost to provide communications services	4,759 		5,033 		3,717 	
Total cost of services	25,818 		20,512 		17,400 	
Operating expenses:						
Salaries and benefits	111,059 		114,247 		96,643 	
Depreciation and amortization	24,213 		23,953 		18,457 	
Loan servicing fees to third parties	2,893 		2,631 		3,136 	
Other expenses	40,923 		46,952 		33,417 	
Total operating expenses	179,088 		187,783 		151,653 	
Income before income taxes	53,038 		17,075 		149,161 	
Income tax (expense) benefit	(11,391)		4,599 		(35,976)	
Net income	41,647 		21,674 		113,185 	
Net (income) loss attributable to noncontrolling interests	(56)		(48)		740 	
Net income attributable to Nelnet, Inc.	$	41,591 		21,626 		113,925 	
Earnings per common share:						
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	1.03 		0.53 		2.78 	
Weighted average common shares outstanding - basic and diluted	40,373,295 		40,810,636 		40,950,528 	

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

	As of		As of		As of		
	March 31, 2019		December 31, 2018		March 31, 2018		
	
Assets:							
Loans receivable, net	$	21,946,153 		22,377,142 		21,562,030 		
Cash, cash equivalents, investments, and notes receivable	305,393 		370,717 		327,712 		
Restricted cash	976,744 		1,071,044 		855,986 		
Goodwill and intangible assets, net	262,707 		271,202 		265,648 		
Other assets	1,230,930 		1,130,863 		887,026 		
Total assets	$	24,721,927 		25,220,968 		23,898,402 		
Liabilities:							
Bonds and notes payable	$	21,835,723 		22,218,740 		21,227,349 		
Other liabilities	555,910 		687,449 		425,827 		
Total liabilities	22,391,633 		22,906,189 		21,653,176 		
Equity:							
Total Nelnet, Inc. shareholders' equity	2,325,996 		2,304,464 		2,235,753 		
Noncontrolling interests	4,298 		10,315 		9,473 		
Total equity	2,330,294 		2,314,779 		2,245,226 		
Total liabilities and equity	$	24,721,927 		25,220,968 		23,898,402 		
Contacts:
Media, Ben Kiser, 402.458.3024, or Investors, Phil Morgan, 402.458.3038, both of Nelnet, Inc .

For Release:   May 8, 2019
Investor Contact: Phil Morgan, 402.458.3038
Nelnet, Inc. supplemental financial information for the first 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 first quarter 2019 earnings, dated May 8, 2019 , and the Company's Quarterly Report on Form 10- Q for the quarter ended March 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 the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the " 2018 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 uncertain nature of the expected benefits from the acquisition of Great Lakes Educational Loan Services, Inc. ("Great Lakes") on February 7, 2018 and the ability to successfully integrate technology and other activities and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), which current contracts accounted for 30 percent of the Company's revenue in 2018 and may be extended from June 16, 2019 to December 15, 2019 (but any such extension is not assured), 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, 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 and acquisitions, including investments and acquisitions that are intended to diversify the Company both within and outside of its historical core education-related businesses; and
• risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the 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	
	March 31, 2019		December 31, 2018		March 31, 2018	
Interest income:						
Loan interest	$	242,333 		244,252 		197,723 	
Investment interest	8,253 		8,019 		5,134 	
Total interest income	250,586 		252,271 		202,857 	
Interest expense:						
Interest on bonds and notes payable	191,770 		182,732 		135,550 	
Net interest income	58,816 		69,539 		67,307 	
Less provision for loan losses	7,000 		5,000 		4,000 	
Net interest income after provision for loan losses	51,816 		64,539 		63,307 	
Other income:						
Loan servicing and systems revenue	114,898 		112,761 		100,141 	
Education technology, services, and payment processing revenue	79,159 		54,589 		60,221 	
Communications revenue	14,543 		13,326 		9,189 	
Other income	9,067 		9,998 		18,557 	
	
Derivative settlements, net	19,035 		19,052 		6,766 	
Derivative market value adjustments	(30,574)		(48,895)		60,033 	
Total other income	206,128 		160,831 		254,907 	
Cost of services:						
Cost to provide education technology, services, and payment processing services	21,059 		15,479 		13,683 	
Cost to provide communications services	4,759 		5,033 		3,717 	
Total cost of services	25,818 		20,512 		17,400 	
Operating expenses:						
Salaries and benefits	111,059 		114,247 		96,643 	
Depreciation and amortization	24,213 		23,953 		18,457 	
Loan servicing fees to third parties	2,893 		2,631 		3,136 	
Other expenses	40,923 		46,952 		33,417 	
Total operating expenses	179,088 		187,783 		151,653 	
Income before income taxes	53,038 		17,075 		149,161 	
Income tax (expense) benefit	(11,391)		4,599 		(35,976)	
Net income	41,647 		21,674 		113,185 	
Net (income) loss attributable to noncontrolling interests	(56)		(48)		740 	
Net income attributable to Nelnet, Inc.	$	41,591 		21,626 		113,925 	
Earnings per common share:						
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	1.03 		0.53 		2.78 	
Weighted average common shares outstanding - basic and diluted	40,373,295 		40,810,636 		40,950,528 	

2

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

	As of		As of		As of	
	March 31, 2019		December 31, 2018		March 31, 2018	
	
Assets:						
Loans receivable, net	$	21,946,153 		22,377,142 		21,562,030 	
Cash, cash equivalents, investments, and notes receivable	305,393 		370,717 		327,712 	
Restricted cash	976,744 		1,071,044 		855,986 	
Goodwill and intangible assets, net	262,707 		271,202 		265,648 	
Other assets	1,230,930 		1,130,863 		887,026 	
Total assets	$	24,721,927 		25,220,968 		23,898,402 	
Liabilities:						
Bonds and notes payable	$	21,835,723 		22,218,740 		21,227,349 	
Other liabilities	555,910 		687,449 		425,827 	
Total liabilities	22,391,633 		22,906,189 		21,653,176 	
Equity:						
Total Nelnet, Inc. shareholders' equity	2,325,996 		2,304,464 		2,235,753 	
Noncontrolling interests	4,298 		10,315 		9,473 	
Total equity	2,330,294 		2,314,779 		2,245,226 	
Total liabilities and equity	$	24,721,927 		25,220,968 		23,898,402 	

3

Overview
The Company is a diverse company with a focus on delivering education-related products and services and student loan asset management. The largest operating businesses engage in student loan servicing; education technology, services, and payment processing; and communications. A significant portion of the Company's revenue is net interest income earned on a portfolio of federally insured student loans. The Company also makes investments to further diversify the Company both within and outside of its historical core education-related businesses, including, but not limited to, investments in real estate and early-stage and emerging growth companies.
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 adjustments, and a discussion of why the Company believes providing this additional information is useful to investors, is provided below.

	Three months ended	
	March 31, 2019		December 31, 2018		March 31, 2018	
GAAP net income attributable to Nelnet, Inc.	$	41,591 		21,626 		113,925 	
Realized and unrealized derivative market value adjustments	30,574 		48,895 		(60,033)	
Net tax effect (a)	(7,338)		(11,735)		14,408 	
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	64,827 		58,786 		68,300 	
						
Earnings per share:						
GAAP net income attributable to Nelnet, Inc.	$	1.03 		0.53 		2.78 	
Realized and unrealized derivative market value adjustments	0.76 		1.20 		(1.46)	
Net tax effect (a)	(0.18)		(0.29)		0.35 	
Net income attributable to Nelnet, Inc., excluding derivative market value adjustments (b)	$	1.61 		1.44 		1.67 	
(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" include s   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.
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 March 31, 2019 , the Company had a $21.9 billion loan portfolio that management anticipates will amortize over the next approximately 20 years and has a weighted average remaining life of 8.7 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
4

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

Other business activities and operating segments that are not reportable are combined and included in Corporate and Other Activities ("Corporate"). Corporate and Other Activities also includes income earned on certain investments and interest expense incurred on unsecured debt transactions.

The information below provides the operating results for each reportable operating segment and Corporate and Other Activities for the three months ended March 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 , see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.
Certain events and transactions from 2018 and 2019 , 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. The operating results of Great Lakes are reported in the Company's consolidated financial statements from the date of acquisition. Thus, there are three months of Great Lakes' operations included in the three months ended March 31, 2019 as compared to approximately two months of activity in the three months ended March 31, 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 March 31, 2019 , Nelnet Servicing was servicing $183.1 billion of student loans for 5.7 million borrowers under its contract, and Great Lakes was servicing $237.1 billion of student loans for 7.4 million borrowers under its contract. These contracts currently provide for expiration on June 16, 2019 .
On April 24, 2019, Nelnet Servicing and Great Lakes received correspondence from the Department's Office of Federal Student Aid ("FSA") indicating the FSA's intent to exercise a six-month extension of the current servicing contracts, from
5

June 16, 2019 to December 15, 2019. The correspondence served only as a non-binding notice of intent, and any formal extension of the contracts will occur only upon a signed modification to the contracts.
In addition, Nelnet Servicing's current Authority to Operate as a loan servicer for the Department expires on May 31, 2019, and is currently under review for renewal.
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, the Company responded to the EPS component. In addition, the Company is part of teams that currently intend to respond to the BPO and OPS components. The Company cannot predict the timing, nature, or outcome of these solicitations.
• The Company has begun to incur additional costs in 2019 to be responsive to the Department's procurement and develop new private education and consumer loan origination and servicing systems, a multi-year project, which the Company currently expects will decrease future operating margins from recent historical results. For the three months ended March 31, 2019 , the before tax and noncontrolling interest operating margin was 17.0 percent, as compared to 18.6 percent in the same period of 2018 . The noncontrolling interest represented Great Lakes' 50 percent interest in the GreatNet joint venture, and ceased for financial reporting purposes upon the Company's acquisition of Great Lakes on February 7, 2018.
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.
• In October 2018, the Company terminated its investment in a proprietary payment processing platform. These expense reductions increased before tax operating margin (income before income taxes divided by net revenue) for the three months ended March 31, 2019 to 43.0 percent, as compared to 37.8 percent in the same period of 2018 .
• This segment is subject to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year.
Communications
• ALLO recognized a loss of $4.8 million for the three months ended March 31, 2019 , as compared to a loss of $7.0 million for the same period in 2018 . The decrease in ALLO's net loss in 2019 , as compared to 2018 , was primarily due to a decrease in inter e st expense. A LLO recognized $2.5 million of int erest expense to Nel n e t, Inc. (parent company) during the three-month period ended March 31, 201 8. 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.
• 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 first quarter of 2019 , ALLO had positive EBITDA of $1.0 million , compared with negative EBITDA of $1.8 million for the same period in 2018 . 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 "Communications Financial and Operating Data " below for additional information regarding the computation and use of EBITDA for ALLO.
6

• ALLO has made significant investments in its communications network and currently provides fiber directly to homes and businesses in eight communities in Nebraska and one in 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 three months ended March 31, 2019 , ALLO's capital expenditures were $12.0 million . The Company anticipates total ALLO network capital expenditures for the remainder of 2019 (April 1, 2019 - December 31, 2019 ) will be approximately $40 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 build 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
• The Company's average balance of loans increased to $22.3 billion for the first quarter of 2019 , compared with $21.9 billion for the same period in 2018 . Core loan spread increased to 1.30% for the quarter ended March 31, 2019 , compared with 1.29% for the same period 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.
Other than consumer loans funded in the Company's consumer loan warehouse facility that closed on January 11, 2019, consumer loans were and continue to be funded by the Company using operating cash, until they can be funded in a secured financing transaction. As such, these loans do not have a cost of funds (debt) associated with them. Core loan spread, excluding consumer loans, would have been 1.22% and 1.25% for the three months ended March 31, 2019 and 2018 , respectively.
The Company recognized $27.1 million and $25.8 million in fixed rate floor income during the three months ended March 31, 2019 and 2018 , respectively (which includes $16.7 million and $8.6 million of settlement payments received on derivatives used to hedge student loans earning fixed rate floor income). Fixed rate floor income contributed 50 basis points and 48 basis points of core loan spread for the three months ended March 31, 2019 and 2018 , respectively.
• Provision for loan losses was $7.0 million and $4.0 million for the three months ended March 31, 2019 and 2018 , respectively.
Provision for loan losses for federally insured loans was $2.0 million for each of the three months ended March 31, 2019 and 2018 .
Provision for loan losses for consumer loans was $5.0 million and $2.0 million for the three months ended March 31, 2019 and 2018 , respectively. The increase in provision was a result of the increased amount of consumer loan purchases during the 2019 period.
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 March 31, 2019 , the Company had cash and cash equivalents of $74.9 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 March 31, 2019 .
• As of March 31, 2019 , the Company's $382.5 million unsecured line of credit had $320.0 million outstanding and $62.5 million was available for future use.
7

• The Company has repurchased certain of its own asset-backed securities (bonds and notes payable) in the secondary market. For accounting purposes, these notes are eliminated in consolidation and are not included in the Company's consolidated financial statements. However, these securities remain legally outstanding at the trust level and the Company could sell these notes to third parties or redeem the notes at par as cash is generated by the trust estate. Upon a sale of these notes to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. As of March 31, 2019 , the Company holds $15.0 million (par value) of its own asset-backed securities.
• The Company has historically generated positive cash flow from operations. However, during the three months ended March 31, 2019 , the Company used $139.7 million in operating activities. Items that negatively impacted cash from operating activities for the three months ended March 31, 2019 included:
• Net payments to the clearinghouse due to a decrease in the fair value of the Company's derivative portfolio during the period;
• An increase in accrued interest receivable during the period due to the number of borrowers utilizing income-based repayment plans;
• An increase in accounts receivable during the period due to the timing of collection from customers;
• An increase in other assets during the period due to an increase in current income taxes receivable and the qualification and recognition of certain tax incentives; and
• A decrease in “due to customers” (liability) during the period due to a corres ponding decrease in cash collected from customers for tuition payment plans that were remitted to schools. These accounts fluctuate with the fall and spring school terms based on the timing of when the Company collects tuition payments from customers and remits such payments to schools, resulting in these balances being significantly lower as of March 31 as compared to the balances as of December 31 .
• 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 March 31, 2019 , the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $2.16 billion , of which approximately $1.14 billion is expected to be generated over the next approximately five years (April 1, 2019 through December 31, 2023).
The estimated forecasted cash flow as of March 31, 2019 ($2.16 billion) increased $0.06 billion from the Company's estimated forecasted cash flow as of December 31, 2018 ($2.10 billion). This increase was due to additional estimated cash flows from the completion of an asset-backed securitization during the first quarter of 2019; a change in call mechanic assumptions regarding the Turbo Transactions that resulted in the estimated release of unencumbered assets from these transactions being deferred to later periods, resulting in additional estimated cash flows from assets included in these transactions; and a decrease in the forward yield curve, which increased the amount of expected fixed rate floor income to be earned on loans in the asset-backed securitizations. These amounts were partially offset by the amount of cash released from the asset-backed securitizations during the first quarter of 2019.
• During the three months ended March 31, 2019 , the Company repurchased a total of 301,327 shares of Class A common stock for $16.4 million ( $54.29 per share). As of March 31, 2019 , 2.0 million shares remained authorized for repurchase under the Company's stock repurchase program. 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. The five million shares authorized under the new program include the remaining unrepurchased shares from the prior program, which the new program replaces.
• During the three months ended March 31, 2019 , the Company paid cash dividends of $7.2 million ( $0.18 per share). In addition, the Company's Board of Directors has declared a second quarter 2019 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.18 per share. The second quarter cash dividend will be paid on June 14, 2019 to shareholders of record at the close of business on May 31, 2019 .
• 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.

8

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 March 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	$	497 		2,017 		2 		246,867 		2,053 		(851)		250,586 	
Interest expense	— 		8 		— 		188,799 		3,814 		(851)		191,770 	
Net interest income (expense)	497 		2,009 		2 		58,068 		(1,761)		— 		58,816 	
Less provision for loan losses	— 		— 		— 		7,000 		— 		— 		7,000 	
Net interest income (loss) after provision for loan losses	497 		2,009 		2 		51,068 		(1,761)		— 		51,816 	
Other income:														
Loan servicing and systems revenue	114,898 		— 		— 		— 		— 		— 		114,898 	
Intersegment servicing revenue	12,217 		— 		— 		— 		— 		(12,217)		— 	
Education technology, services, and payment processing revenue	— 		79,159 		— 		— 		— 		— 		79,159 	
Communications revenue	— 		— 		14,543 		— 		— 		— 		14,543 	
Other income	2,074 		— 		125 		3,525 		3,344 		— 		9,067 	
Derivative settlements, net	— 		— 		— 		19,035 		— 		— 		19,035 	
Derivative market value adjustments, net	— 		— 		— 		(30,574)		— 		— 		(30,574)	
Total other income	129,189 		79,159 		14,668 		(8,014)		3,344 		(12,217)		206,128 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 		21,059 		— 		— 		— 		— 		21,059 	
Cost to provide communications services	— 		— 		4,759 		— 		— 		— 		4,759 	
Total cost of services	— 		21,059 		4,759 		— 		— 		— 		25,818 	
Operating expenses:														
Salaries and benefits	66,220 		23,008 		4,737 		378 		16,716 		— 		111,059 	
Depreciation and amortization	8,871 		3,510 		7,362 		— 		4,469 		— 		24,213 	
Loan servicing fees to third parties	— 		— 		— 		2,893 		— 		— 		2,893 	
Other expenses	18,928 		5,311 		3,477 		944 		12,262 		— 		40,923 	
Intersegment expenses, net	13,758 		3,299 		664 		12,287 		(17,791)		(12,217)		— 	
Total operating expenses	107,777 		35,128 		16,240 		16,502 		15,656 		(12,217)		179,088 	
Income (loss) before income taxes	21,909 		24,981 		(6,329)		26,552 		(14,073)		— 		53,038 	
Income tax (expense) benefit	(5,258)		(5,995)		1,519 		(6,372)		4,716 		— 		(11,391)	
Net income (loss)	16,651 		18,986 		(4,810)		20,180 		(9,357)		— 		41,647 	
Net income attributable to noncontrolling interests	— 		— 		— 		— 		(56)		— 		(56)	
Net income (loss) attributable to Nelnet, Inc.	$	16,651 		18,986 		(4,810)		20,180 		(9,413)		— 		41,591 	

9

																																										
	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 	
Loan servicing fees to third parties	— 		— 		— 		2,631 		— 		— 		2,631 	
Other expenses	15,746 		13,188 		3,089 		920 		14,010 		— 		46,952 	
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 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 	

10

																																										
 	Three months ended March 31, 2018 	
	Loan Servicing and Systems 		Education Technology, Services, and Payment Processing 		Communications 		Asset
Generation and
Management 		Corporate and Other
Activities 		Eliminations 		Total 	
Total interest income	$	257 		665 		1 		200,334 		4,751 		(3,150)		202,857 	
Interest expense	— 		— 		2,509 		134,233 		1,958 		(3,150)		135,550 	
Net interest income (expense)	257 		665 		(2,508)		66,101 		2,793 		— 		67,307 	
Less provision for loan losses	— 		— 		— 		4,000 		— 		— 		4,000 	
Net interest income (loss) after provision for loan losses	257 		665 		(2,508)		62,101 		2,793 		— 		63,307 	
Other income:														
Loan servicing and systems revenue	100,141 		— 		— 		— 		— 		— 		100,141 	
Intersegment servicing revenue	10,771 		— 		— 		— 		— 		(10,771)		— 	
Education technology, services, and payment processing revenue	— 		60,221 		— 		— 		— 		— 		60,221 	
Communications revenue	— 		— 		9,189 		— 		— 		— 		9,189 	
Other income	1,292 		— 		— 		3,351 		13,914 		— 		18,557 	
	
Derivative settlements, net	— 		— 		— 		6,926 		(160)		— 		6,766 	
Derivative market value adjustments, net	— 		— 		— 		58,571 		1,462 		— 		60,033 	
Total other income	112,204 		60,221 		9,189 		68,848 		15,216 		(10,771)		254,907 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 		13,683 		— 		— 		— 		— 		13,683 	
Cost to provide communications services	— 		— 		3,717 		— 		— 		— 		3,717 	
Total cost of services	— 		13,683 		3,717 		— 		— 		— 		17,400 	
Operating expenses:														
Salaries and benefits	58,537 		19,067 		4,063 		382 		14,594 		— 		96,643 	
Depreciation and amortization	6,069 		3,341 		4,921 		— 		4,126 		— 		18,457 	
Loan servicing fees to third parties	— 		— 		— 		3,136 		— 		— 		3,136 	
Other expenses	14,463 		4,624 		2,638 		848 		10,845 		— 		33,417 	
Intersegment expenses, net	13,356 		2,567 		605 		10,865 		(16,622)		(10,771)		— 	
Total operating expenses	92,425 		29,599 		12,227 		15,231 		12,943 		(10,771)		151,653 	
Income (loss) before income taxes	20,036 		17,604 		(9,263)		115,718 		5,066 		— 		149,161 	
Income tax (expense) benefit	(5,003)		(4,225)		2,223 		(27,773)		(1,199)		— 		(35,976)	
Net income (loss)	15,033 		13,379 		(7,040)		87,945 		3,867 		— 		113,185 	
Net loss (income) attributable to noncontrolling interests	808 		— 		— 		— 		(68)		— 		740 	
Net income (loss) attributable to Nelnet, Inc.	$	15,841 		13,379 		(7,040)		87,945 		3,799 		— 		113,925 	

														

	

	

	

	

	

	

	

	

	

	

	

11

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	
	March 31, 2019		December 31, 2018		March 31, 2018	
Variable loan interest margin	$	43,951 		51,732 		46,884 	
Settlements on associated derivatives (a)	2,334 		901 		(1,664)	
Variable loan interest margin, net of settlements on derivatives	46,285 		52,633 		45,220 	
Fixed rate floor income	10,425 		11,452 		17,247 	
Settlements on associated derivatives (b)	16,701 		18,148 		8,590 	
Fixed rate floor income, net of settlements on derivatives	27,126 		29,600 		25,837 	
Investment interest	8,253 		8,019 		5,134 	
Corporate debt interest expense	(3,813)		(1,664)		(1,958)	
Non-portfolio related derivative settlements (c)	— 		3 		(160)	
Net interest income (net of settlements on derivatives)	$	77,851 		88,591 		74,073 	

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

12

Loan Servicing and Systems Revenue  
The following table provides disaggregated revenue by service offering for the Loan Servicing and Systems operating segment. The Company purchased Great Lakes on February 7, 2018. The results of Great Lakes' operations are reported in the Company's consolidated financial statements from the date of acquisition.

	Three months ended 	
	March 31, 2019		December 31, 2018		March 31, 2018	
Government servicing - Nelnet	$	39,640 		39,075 		39,327 	
Government servicing - Great Lakes	47,077 		46,191 		30,754 	
Private education and consumer loan servicing	9,480 		9,484 		13,101 	
FFELP servicing	6,695 		7,283 		7,691 	
Software services	9,741 		8,468 		7,589 	
Outsourced services and other	2,265 		2,260 		1,679 	
Loan servicing and systems revenue	$	114,898 		112,761 		100,141 	

Loan Servicing Volumes

	As of	
	December 31,
2017		March 31,
2018		June 30,
2018		September 30,
2018		December 31,
2018		March 31,
2019	
Servicing volume (dollars in millions):												
Nelnet												
Government	$	172,669 		176,605 		176,179 		179,283 		179,507 		183,093 	
FFELP	27,262 		26,969 		37,599 		37,459 		36,748 		35,917 	
Private and consumer	11,483 		12,116 		15,016 		15,466 		15,666 		16,065 	
Great Lakes												
Government	— 		242,063 		241,902 		232,741 		232,694 		237,050 	
FFELP (a)	— 		11,136 		— 		— 		— 		— 	
Private and consumer (a)	— 		1,927 		31 		— 		— 		— 	
Total	$	211,414 		470,816 		470,727 		464,949 		464,615 		472,125 	
												
Number of servicing borrowers:												
Nelnet												
Government	5,877,414 		5,819,286 		5,745,181 		5,805,307 		5,771,923 		5,708,582 	
FFELP	1,420,311 		1,399,280 		1,787,419 		1,754,247 		1,709,853 		1,650,785 	
Private and consumer	502,114 		508,750 		672,520 		692,763 		696,933 		699,768 	
Great Lakes												
Government	— 		7,456,830 		7,378,875 		7,486,311 		7,458,684 		7,385,284 	
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 	
												
Number of remote hosted borrowers:	2,812,713 		6,207,747 		6,145,981 		6,406,923 		6,393,151 		6,332,261 	

(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.

13

Education Technology, Services, and Payment Processing  

The following table provides disaggregated reven ue by servicing offering for the E d ucation Technology, Services, and Payment Pro cessing operating segment.
																		
	Three months ended	
	March 31, 2019		December 31, 2018		March 31, 2018	
Tuition payment plan services	$	30,173 		22,171 		23,043 	
Payment processing	28,979 		21,381 		19,926 	
Education technology and services	19,709 		10,744 		16,975 	
Other	298 		293 		277 	
Education technology, services, and payment processing revenue	$	79,159 		54,589 		60,221 	

Comm unications Financial and Operating Data

Certain financial and operating data for ALLO is summarized in the tables below.
																																				
	Three months ended			
	March 31, 2019		December 31, 2018		March 31, 2018	
Residential revenue	$	11,065 		76.1 	%		$	10,067 		75.5 	%		$	6,747 		73.4 	%	
Business revenue	3,414 		23.5 	 		3,197 		24.0 	 		2,381 		25.9 	 	
Other	64 		0.4 	 		62 		0.5 	 		61 		0.7 	 	
Communications revenue	$	14,543 		100.0 	%		$	13,326 		100.0 	%		$	9,189 		100.0 	%	

Internet	$	8,449 		58.1 	%		$	7,529 		56.5 	%		$	4,696 		51.1 	%	
Television	3,898 		26.8 	 		3,678 		27.6 	 		2,784 		30.3 	 	
Telephone	2,167 		14.9 	 		2,092 		15.7 	 		1,691 		18.4 	 	
Other	29 		0.2 	 		27 		0.2 	 		18 		0.2 	 	
Communications revenue	$	14,543 		100.0 	%		$	13,326 		100.0 	%		$	9,189 		100.0 	%	
												
Net loss	$	(4,810)				(5,876)				(7,040)			
EBITDA (a)	1,031 				(942)				(1,834)			
												
Capital expenditures	11,958 				20,650 				17,899 			

	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	40,338 		37,351 		32,529 		27,643 		23,541 		20,428 	
Households passed (b)	127,253 		122,396 		110,687 		98,538 		84,475 		71,426 	
Households served/passed	31.7 	%		30.5 	%		29.4 	%		28.1 	%		27.9 	%		28.6 	%	
Total households in current markets (c)	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 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:
14

																		
	Three months ended	
	March 31, 2019		December 31, 2018		March 31, 2018	
Net loss	$	(4,810)		(5,876)		(7,040)	
Net interest (income) expense	(2)		(2)		2,508 	
Income tax benefit	(1,519)		(1,856)		(2,223)	
Depreciation and amortization	7,362 		6,792 		4,921 	
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)	$	1,031 		(942)		(1,834)	
(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 service in Fort Morgan, Colorado. During the fourth quarter of 2018, ALLO began providing service in Hastings, Nebraska.
Other Income

The following table summarizes the components of "other income."
																		
 	Three months ended	
 	March 31, 2019		December 31, 2018		March 31, 2018	
Borrower late fee income	$	3,512 		3,308 		2,983 	
Management fee revenue	1,872 		1,824 		1,161 	
Investment advisory fees	711 		1,840 		1,593 	
(Loss) gain on investments and notes receivable, net	(427)		(1,926)		8,688 	
Other	3,399 		4,952 		4,132 	
Other income	$	9,067 		9,998 		18,557 	

Derivative Settlements

The following table summarizes the components of "derivative settlements, net" included in the attached consolidated statements of income.
																		
 	Three months ended	
 	March 31, 2019		December 31, 2018		March 31, 2018	
1:3 basis swaps	$	2,334 		901 		(1,664)	
Interest rate swaps - floor income hedges	16,701 		18,148 		8,590 	
Interest rate swaps - hybrid debt hedges	— 		3 		(160)	
Total derivative settlements - income (expense)	$	19,035 		19,052 		6,766 	

15

Loans Receivable

Loans receivable consisted of the following:
																		
	As of		As of		As of	
 	March 31, 2019		December 31, 2018		March 31, 2018	
Federally insured student loans:						
Stafford and other	$	4,901,934 		4,969,667 		4,363,159 	
Consolidation	16,778,679 		17,186,229 		17,098,389 	
Total	21,680,613 		22,155,896 		21,461,548 	
Private education loans	211,029 		225,975 		194,310 	
Consumer loans	191,001 		138,627 		77,855 	
 	22,082,643 		22,520,498 		21,733,713 	
Loan discount, net of unamortized loan premiums and deferred origination costs	(43,602)		(53,572)		(103,542)	
Non-accretable discount	(31,110)		(29,396)		(12,847)	
Allowance for loan losses:						
Federally insured loans	(40,934)		(42,310)		(38,374)	
Private education loans	(10,587)		(10,838)		(12,255)	
Consumer loans	(10,257)		(7,240)		(4,665)	
 	$	21,946,153 		22,377,142 		21,562,030 	
Loan Activity

The following table sets forth the activity of loans:
																		
 	Three months ended	
 	March 31, 2019		December 31, 2018		March 31, 2018	
Beginning balance	$	22,520,498 		22,672,757 		21,995,877 	
Loan acquisitions:						
Federally insured student loans	270,015 		584,034 		584,586 	
Private education loans	— 		68,143 		— 	
Consumer loans	70,121 		40,097 		23,354 	
Total loan acquisitions	340,136 		692,274 		607,940 	
Repayments, claims, capitalized interest, and other	(504,720)		(567,811)		(622,284)	
Consolidation loans lost to external parties	(273,271)		(276,722)		(247,820)	
Ending balance	$	22,082,643 		22,520,498 		21,733,713 	

16

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	
 	March 31, 2019		December 31, 2018		March 31, 2018	
Variable loan yield, gross	5.04 	%		4.89 	%		4.15 	%	
Consolidation rebate fees	(0.84)	 		(0.84)	 		(0.85)	 	
Discount accretion, net of premium and deferred origination costs amortization	0.03 	 		0.03 	 		0.07 	 	
Variable loan yield, net	4.23 	 		4.08 	 		3.37 	 	
Loan cost of funds - interest expense	(3.47)	 		(3.24)	 		(2.53)	 	
Loan cost of funds - derivative settlements (a) (b)	0.04 	 		0.02 	 		(0.03)	 	
Variable loan spread	0.80 	 		0.86 	 		0.81 	 	
Fixed rate floor income, gross	0.19 	 		0.21 	 		0.32 	 	
Fixed rate floor income - derivative settlements (a) (c)	0.31 	 		0.32 	 		0.16 	 	
Fixed rate floor income, net of settlements on derivatives	0.50 	 		0.53 	 		0.48 	 	
Core loan spread (d)	1.30 	%		1.39 	%		1.29 	%	
						
Average balance of loans	$	22,313,270 		22,583,222 		21,871,501 	
Average balance of debt outstanding	21,989,065 		22,232,428 		21,449,449 	

(a)     Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (loan spread) as presented in this table. The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See "Derivative Settlements"   included in this supplement for the net settlement activity recognized by the Company for each type of derivative for the periods presented in the table .  

(b)   Derivative settlements include the net settlements received (paid) related to the Company’s 1:3 basis swaps.
( c)     Derivative settlements include the net settlements received related to the Company’s floor income interest rate swaps.
(d)   Other than consumer loans funded in the Company's consumer loan warehouse facility that closed on January 11, 2019, consumer loans were and continue to be funded by the Company using operating cash, until they can be funded in a secured financing transaction. As such, these loans do not have a cost of funds (debt) associated with them. The average balance of consumer loans outstanding for the three months ended March 31, 2019 and 2018 was $159.2 million and $67.1 million , respectively, and the average balance outstanding on the consumer loan warehouse facility for the three months ended March 31, 2019 was $77.2 million . Core loan spread, excluding consumer loans, would have been 1.22% and 1.25% for the three months ended March 31, 2019 and 2018 , respectively.

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

(a)   The interest earned on the majority of the Company's FFELP student loan assets is indexed to the one-month  
LIBOR rate. The Company funds a large 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 primary difference between variable loan spread and core loan spread is fixed rate floor income.  A summary of fixed rate floor income and its contribution to core loan spread follows:

	Three months ended	
 	March 31, 2019		December 31, 2018		March 31, 2018	
Fixed rate floor income, gross	$	10,425 		11,452 		17,247 	
Derivative settlements (a)	16,701 		18,148 		8,590 	
Fixed rate floor income, net	$	27,126 		29,600 		25,837 	
Fixed rate floor income contribution to spread, net	0.50 	%		0.53 	%		0.48 	%	

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

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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 March 31, 2019 .
																					
Fixed interest rate range		Borrower/lender weighted average yield		Estimated variable conversion rate (a)		Loan balance	
	
5.0 - 5.49%		5.35% 	 		2.71% 	 		$	293,620 	
5.5 - 5.99%		5.67% 	 		3.03% 	 		350,624 	
6.0 - 6.49%		6.19% 	 		3.55% 	 		386,383 	
6.5 - 6.99%		6.70% 	 		4.06% 	 		377,268 	
7.0 - 7.49%		7.17% 	 		4.53% 	 		131,473 	
7.5 - 7.99%		7.71% 	 		5.07% 	 		227,415 	
8.0 - 8.99%		8.18% 	 		5.54% 	 		529,755 	
> 9.0%		9.05% 	 		6.41% 	 		198,654 	
 		 				$	2,495,192 	

(a)   The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of March 31, 2019 , the weighted average estimated variable conversion rate was 4.29% and the short-term interest rate was 254 basis points.

The following table summarizes the outstanding derivative instruments as of March 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)	
					
2019		$	1,500,000 		0.98 	%	
2020		1,500,000 		1.01 	 	
2021		100,000 		2.95 	 	
2023		400,000 		2.24 	 	
2024		200,000 		2.27 	 	

 		$	3,700,000 		1.25 	%	

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