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, 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 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, 2019 , Nelnet, Inc. (the “Company”) issued a press release with respect to its financial results for the quarter ended December 31, 2018 . A copy of the press release is furnished as Exhibit 99.1 to this report. In addition, a copy of the supplemental financial information for the quarter ended December 31, 2018 , which was made available on the Company's website at www.nelnetinvestors.com on February 27, 2019 in connection with the press release, is furnished as Exhibit 99.2 to this report. A copy of the 2018 letter to the Company' s shareholders from the Ch ief Executive Officer of the Company is also fur nished 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, 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 February 27, 201 9 - "Nelnet Reports Fourth Quarter 201 8 Results"	
99.2 		Supplemental Financial Information for the Quarter Ended December 31, 2018	
99.3 		2018 Letter to Shareholders from the Chief Executive Officer	

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

Nelnet Reports Fourth Quarter 2018 Results

LINCOLN, Neb., February 27, 2019 - Nelnet (NYSE: NNI) today reported GAAP net income of $21.6 million , or $0.53 per share, for the fourth quarter of 2018, compared with GAAP net income of $48.1 million , or $1.17 per share, for the same period a year ago.

T he decrease in GAAP net income for the three months ended December 31, 2018, compared with the same period in 2017, was due primar il y to losses recognized in 2018 from changes in the fair values of derivative instruments that do not qualify for hedge accounting . Net income, excluding derivative market value and foreign currency transaction adjustments, was $58.8 million , or $1.44 per share, for the fourth quarter of 2018, compared with $45.6 million ,   or $1.11 per share, for the same period in 2017. For additional information on these non-GAAP metrics, including reconciliations to GAAP net income, see "Non-GAAP Performance Measures" below.

During the fourth quarter of 2018 , the company obtained clarity regarding certain tax positions ,   r esulting in a decrease to income tax expense of $ 8 .2 milli on, or $0 .2 0 per shar e . T he com pany expects it s f uture effective tax rate will ran ge between 23 and 24 percent.

"We are pleased with our financial performance for the fourth quarter and year," said Jeff Noordhoek, chief executive officer of Nelnet. “Throughout 2018, we invested significant capital into the long-term success of each of our businesses and increased our customer bases in each of the three core fee-based businesses. Importantly, we ended the year with strong momentum and many opportunities going into 2019 ."

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 fourth quarter of 2018, Nelnet reported net interest income of $69.5 million , compared with $73.2 million for the same period a year ago. The company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative settlements for each applicable period should be evaluated with the company's net interest income. The company recognized income from derivative settlements of $19.1 million during the fourth quarter of 2018, compared with   $3.0 million for the same period in 2017.

Durin g 2018, t he company purchased $3.9 billion of loans, including $692 million in the fo urth quarter of 2018. With these acquisitions, t he company's average balance of loans in the fourth quarter of 2018, $22.6 billi o n,   remained relatively consistent with the average balance of loans in the fourth quarter of 2017 of $22.4 billion .   Core loan spread increased to 1.39   percent for the quarter ended December 31, 2018 , compared with 1.26   percent for the same period in 2017.

Loan Servicing and Systems

On February 7, 2018, the company acquired   Great Lakes Educational Loan Services, Inc. (Great Lakes) . T he 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 $112.8 million for the fourth quarter of 2018 , compared with $55.9 million for the same period in 2017.

As of December 31, 2018 , the company (including Great Lakes) was servicing $464. 6 billion in government-owned, Federal Family Education Loan (FFEL) Program, private education, and consumer loans, as compared with $2 11.4 billion of loans serviced by the company as of December 31, 2017 .

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 A id (the Department) in June 2009 to provide servicing for loans owned by the Department. As of December 31, 2018 , Nelnet Servicing was servicing $179. 5 billion of student loans for 5.8 million borrowers under its contract, and Great Lakes was servicing $232.7 billion of student loans for 7.5 million borrowers under its contract . The servicing contracts with the Department are currently scheduled to expire on June 16, 2019.

The Department   has a new federal student loan servicing contract procurement process in progress. Nelnet is part of team s that currently in tend to respon d to the three ongoing components of the procurement .

The company will incur additional costs in 2019 to integrate its two core processing systems for government- owned loans ,   be responsive to the Department's procurement , and develop new priva te e ducation and consumer loan origination and servicing s yst ems , a multi -year project.

Education Technology, Services, and Payment Processing

For the fourth quarter of 2018, revenue from the Education Technology, Services, and Payment Processing segment was $54.6 million , an increase of $11.3 million , or 26 percent , from the same period in 2017. Prior period revenues were restated, without any impact on prior period net income, in connection with the implementation of a new revenue recognition accounting standard effective January 1, 2018. The increase in revenue was primarily driven by growth in managed tuition payment plans, campus commerce customer transactions and payments volume, and an increase in the number of customers using the operating segment's education and technology services.

On Oct ober 16, 2018, the company terminated its investment in a proprietary payment processing platform due to price decreases and technology advancements made by incumbent processors. As a result of this decision, the company recorded a $7.8 million (pre-tax) , or $5.9 million after tax ( $0.15 per share), impairment charge for hardware and external software development costs. The decision will not impact the company's existing payment processing revenue or customers .

Additionally, on November 7, 2018, the company acquired 100 percent of the membership interests of 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 institutions and 170 K-12 schools to the company 's customer base , further enhancing the company's market share leading position with private faith-based K - 12 schools and advancing to a market leading position in higher education.

Communications

Revenue from ALLO Communications was $13.3 million for the fourth quarter of 2018, compared with $ 8.1 million for the same period in 2017. The number of households served as of December 31, 2018 , was 37,351 , an increase of 16,923, or 83 percent , from the number of households served as of December 31, 2017 .

For the fourth quarter of 2018, ALLO recognized a net loss of $5.9 million , compared with a net loss of $5.4 million for the same period in 2017. The company anticipates this operating segment will be dilutive to consolidated earnings as it continues to build its network in Lincoln, Nebraska and other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs. ALLO's management uses earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA) to eliminate certain non-cash and non-operating items in order to consistently measure performance from period to period. For the fourth quarter of 2018, ALLO had negative EBITDA of $0.9 million , compared with negative EBITDA of $2.8 million for the same period in 2017. For additional information on this non-GAAP metric, including a reconciliation to ALLO's GAAP net loss, see "Non-GAAP Performance Measures" below.

ALLO 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. The company currently anticipates the Lincoln build-out will be substantially complete during the first quarter of 2019. 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 122,396   a re passed by ALLO's existing dis tribution system . ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to other communities.  

ALLO incurred capital expenditures of $87.5 million   during the year ended   December 31, 2018 , including $20.7 million during the fourth quarter of 2018. The company currently anticipates total network expenditures of approximately   $50 million for 2019 ; however, the amount of capital expenditures could change based on customer demand for ALLO's services.  

Liquidity and Capital Activities

For the year ended December 31, 2018, the company generated $270.9 million in net cash from operating activities. In addition, as of December 31, 2018 , the company had a total of $121.3 million in cash and cash equivalents and $53.0 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 December 31, 2018 , $310.0 million was outstanding on the line of credit and $72.5 million was available for future use.

During the fourth quarter of 2018, the company repurchased 549,056 shares of Class A common stock for $28.8 million, or $ 52.4 8 per share .   In addition, t he company paid cash dividends of $ 7.3 million , or $0.1 8 per share, during the fourth quarter of 2018.

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

Year-End Results

GAAP net income for the year en ded December 31, 2018 was $227.9 million or $5.57 per share, compared with GAAP net income of $173.2 million , or $4.14 per share for 2017. Net income in 2018 , excluding derivative market value and foreign currency adjustments, was $227.1 million , or $5.55   per share, compared with $185.1 million , or $4.43 per share for 2017. For additional information on these non-GAAP metrics, including reconciliations to GAAP net income, see " N on-GAAP Perf ormance Me a s u res" below.

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 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 December 31,		Year ended December 31,	
	2018		2017		2018		2017	
	(dollars in thousands, except share data) 	
GAAP net income attributable to Nelnet, Inc.	$	21,626 		48,100 		227,913 		173,166 	
Realized and unrealized derivative market value adjustments	48,895 		(3,997)		(1,014)		(26,379)	
Unrealized foreign currency transaction adjustments	— 		(35)		— 		45,600 	
Net tax effect	(11,735)		1,532 		243 		(7,304)	
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency transaction adjustments	$	58,786 		45,600 		227,142 		185,083 	
								
Earnings per share:								
GAAP net income attributable to Nelnet, Inc.	$	0.53 		1.17 		5.57 		4.14 	
Realized and unrealized derivative market value adjustments	1.20 		(0.10)		(0.02)		(0.63)	
Unrealized foreign currency transaction adjustments	— 		— 		— 		1.09 	
Net tax effect	(0.29)		0.04 		— 		(0.17)	
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency transaction adjustments	$	1.44 		1.11 		5.55 		4.43 	

"Derivative market value and foreign currency transaction adjustments" include (i) both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives that do not qualify for "hedge treatment" under GAAP; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the company's previously Euro-denominated bonds to U.S. dollars. In October 2017, the company remarketed its Euro-denominated bonds to denominate those bonds in U.S. dollars. "Derivative market value and foreign currency transaction adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the company's derivative instruments based on their contractual terms. The tax effects in the preceding table are calculated by multiplying the realized and unrealized derivative market value adjustments and unrealized foreign currency transaction adjustments by the applicable statutory income tax rate.

The company believes these point-in-time estimates of asset and liability values related to its derivative instruments and previously Euro-denominated bonds that are or were subject to interest and currency rate fluctuations are or were subject to volatility, primarily due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the company reports this non-GAAP information because the company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.

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

	Three months ended December 31,	
	2018		2017	
	(dollars in thousands)	
Net loss	$	(5,876)		(5,449)	
Net interest (income) expense	(2)		2,058 	
Income tax benefit	(1,856)		(3,341)	
Depreciation and amortization	6,792 		3,955 	
Earnings (loss) before interest, income taxes,
depreciation, and amortization (EBITDA)	$	(942)		(2,777)	

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," "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; risks to the company related to the Department's initiative s to procure new contracts for federal student loan servicing, including the risk that company te a ms may not be successful in obtaining   contract s ; risks related to the development by the company and Great Lakes of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized; the uncertain nature of expected benefits from FFEL Program, private education, and consumer loan purchases and initiatives to purchase additional FFEL Program, private education, and consumer loans; financing and liquidity risks, including risks of changes in the securitization and other financing markets for student loans; risks and uncertainties from changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFEL Program loan interest income and fee-based revenues due to the discontinuation of FFEL Program loan originations in 2010 and the resulting initiatives by the company to adjust to a post-FFEL Program environment; risks and uncertainties related to t he 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 t he relevant money-market ind ex rate a nd the rate at which the company's assets and liabil i ties are price d.

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, 2018 . All forward-looking statements in this release are as of the date of this release. Although the company may voluntarily update or revise its forward-looking statements from time to time to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

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

																														
	Three months ended 		Year ended	
	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
	
Interest income:										
Loan interest 	$	244,252 		232,320 		193,556 		897,666 		757,731 	
Investment interest 	8,019 		7,628 		3,080 		26,600 		12,695 	
Total interest income 	252,271 		239,948 		196,636 		924,266 		770,426 	
Interest expense: 										
Interest on bonds and notes payable 	182,732 		180,175 		123,401 		669,906 		465,188 	
Net interest income 	69,539 		59,773 		73,235 		254,360 		305,238 	
Less provision for loan losses 	5,000 		10,500 		3,750 		23,000 		14,450 	
Net interest income after provision for loan losses	64,539 		49,273 		69,485 		231,360 		290,788 	
Other income:										
Loan servicing and systems revenue	112,761 		112,579 		55,921 		440,027 		223,000 	
Education technology, services, and payment processing revenue	54,589 		58,409 		43,326 		221,962 		193,188 	
Communications revenue	13,326 		11,818 		8,122 		44,653 		25,700 	
Other income	9,998 		16,673 		7,952 		54,446 		52,826 	
Gain (loss) from debt repurchases , net	— 		— 		(2,635)		359 		2,902 	
Derivative market value and foreign currency transaction adjustments and derivative settlements, net	(29,843)		17,098 		7,014 		71,085 		(18,554)	
Total other income 	160,831 		216,577 		119,700 		832,532 		479,062 	
Cost of services:										
Cost to provide education technology, services, and payment processing services	15,479 		19,087 		11,223 		59,566 		48,678 	
Cost to provide communications services	5,033 		4,310 		3,160 		16,926 		9,950 	
Total cost of services	20,512 		23,397 		14,383 		76,492 		58,628 	
Operating expenses: 										
Salaries and benefits 	114,247 		114,172 		81,201 		436,179 		301,885 	
Depreciation and amortization	23,953 		22,992 		11,854 		86,896 		39,541 	
Loan servicing fees to third parties	2,631 		3,087 		3,064 		12,059 		22,734 	
Other expenses	46,952 		45,194 		38,455 		165,972 		120,378 	
Total operating expenses 	187,783 		185,445 		134,574 		701,106 		484,538 	
Income before income taxes 	17,075 		57,008 		40,228 		286,294 		226,684 	
Income tax benefit (expense)	4,599 		(13,882)		5,486 		(58,770)		(64,863)	
Net income 	21,674 		43,126 		45,714 		227,524 		161,821 	
Net (income) loss attributable to noncontrolling interests	(48)		(199)		2,386 		389 		11,345 	
Net income attributable to Nelnet, Inc. 	$	21,626 		42,927 		48,100 		227,913 		173,166 	
Earnings per common share: 										
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	0.53 		1.05 		1.17 		5.57 		4.14 	
Weighted average common shares outstanding - basic and diluted	40,810,636 		40,988,965 		41,012,731 		40,909,022 		41,791,941 	

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

	As of 		As of 		As of 		
	December 31, 2018		September 30, 2018		December 31, 2017		
	
Assets: 							
Loans receivable, net	$	22,377,142 		22,528,362 		21,814,507 		
Cash, cash equivalents, investments, and notes receivable	370,717 		330,352 		307,290 		
Restricted cash	1,071,044 		911,929 		875,314 		
Goodwill and intangible assets, net	271,202 		249,462 		177,186 		
Other assets 	1,130,863 		1,084,820 		790,138 		
Total assets 	$	25,220,968 		25,104,925 		23,964,435 		
Liabilities: 							
Bonds and notes payable 	$	22,218,740 		22,251,433 		21,356,573 		
Other liabilities 	687,449 		526,364 		442,475 		
Total liabilities 	22,906,189 		22,777,797 		21,799,048 		
Equity: 							
Total Nelnet, Inc. shareholders' equity 	2,304,464 		2,316,864 		2,149,529 		
Noncontrolling interests	10,315 		10,264 		15,858 		
Total equity 	2,314,779 		2,327,128 		2,165,387 		
Total liabilities and equity 	$	25,220,968 		25,104,925 		23,964,435 		
Contacts:
Media, Ben Kiser, 402.458.3024, or Investors, Phil Morgan, 402.458.3038, both of Nelnet, Inc .

For Release:   February 27, 2019  
Investor Contact: Phil Morgan, 402.458.3038
Nelnet, Inc. supplemental financial information for the fourth quarter 2018  
(All dollars are in thousands, except per share amounts, unless otherwise noted)
The following information should be read in connection with Nelnet, Inc.'s (the “Company's”) press release for fourth quarter 2018 earnings, dated February 27, 2019 , and the Company's Annual Report on Form 10-K for the year ended December 31, 2018 .
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 , 201 8 (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, 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, risks related to the development by the Company and Great Lakes of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of 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  		Year ended	
	December 31, 2018		September 30, 2018 		December 31, 2017 		December 31, 2018		December 31, 2017	
Interest income:										
Loan interest 	$	244,252 		232,320 		193,556 		897,666 		757,731 	
Investment interest 	8,019 		7,628 		3,080 		26,600 		12,695 	
Total interest income 	252,271 		239,948 		196,636 		924,266 		770,426 	
Interest expense: 										
Interest on bonds and notes payable 	182,732 		180,175 		123,401 		669,906 		465,188 	
Net interest income 	69,539 		59,773 		73,235 		254,360 		305,238 	
Less provision for loan losses 	5,000 		10,500 		3,750 		23,000 		14,450 	
Net interest income after provision for loan losses	64,539 		49,273 		69,485 		231,360 		290,788 	
Other income:										
Loan servicing and systems revenue	112,761 		112,579 		55,921 		440,027 		223,000 	
Education technology, services, and payment processing revenue	54,589 		58,409 		43,326 		221,962 		193,188 	
Communications revenue	13,326 		11,818 		8,122 		44,653 		25,700 	
Other income	9,998 		16,673 		7,952 		54,446 		52,826 	
Gain (loss) from debt repurchases , net	— 		— 		(2,635)		359 		2,902 	
Derivative settlements, net	19,052 		22,324 		2,982 		70,071 		667 	
Derivative market value and foreign currency transaction adjustments	(48,895)		(5,226)		4,032 		1,014 		(19,221)	
Total other income 	160,831 		216,577 		119,700 		832,532 		479,062 	
Cost of services:										
Cost to provide education technology, services, and payment processing services	15,479 		19,087 		11,223 		59,566 		48,678 	
Cost to provide communications services	5,033 		4,310 		3,160 		16,926 		9,950 	
Total cost of services	20,512 		23,397 		14,383 		76,492 		58,628 	
Operating expenses: 										
Salaries and benefits 	114,247 		114,172 		81,201 		436,179 		301,885 	
Depreciation and amortization	23,953 		22,992 		11,854 		86,896 		39,541 	
Loan servicing fees to third parties	2,631 		3,087 		3,064 		12,059 		22,734 	
Other expenses	46,952 		45,194 		38,455 		165,972 		120,378 	
Total operating expenses 	187,783 		185,445 		134,574 		701,106 		484,538 	
Income before income taxes 	17,075 		57,008 		40,228 		286,294 		226,684 	
Income tax benefit (expense)	4,599 		(13,882)		5,486 		(58,770)		(64,863)	
Net income 	21,674 		43,126 		45,714 		227,524 		161,821 	
Net (income) loss attributable to
    noncontrolling interests	(48)		(199)		2,386 		389 		11,345 	
Net income attributable to Nelnet, Inc. 	$	21,626 		42,927 		48,100 		227,913 		173,166 	
Earnings per common share: 										
Net income attributable to Nelnet, Inc.
  shareholders - basic and diluted	$	0.53 		1.05 		1.17 		5.57 		4.14 	
Weighted average common shares
  outstanding - basic and diluted	40,810,636 		40,988,965 		41,012,731 		40,909,022 		41,791,941 	

2

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

	As of		As of		As of	
	December 31, 2018		September 30, 2018		December 31, 2017	
	
Assets: 						
Loans receivable, net	$	22,377,142 		22,528,362 		21,814,507 	
Cash, cash equivalents, investments, and notes receivable	370,717 		330,352 		307,290 	
Restricted cash	1,071,044 		911,929 		875,314 	
Goodwill and intangible assets, net	271,202 		249,462 		177,186 	
Other assets 	1,130,863 		1,084,820 		790,138 	
Total assets 	$	25,220,968 		25,104,925 		23,964,435 	
Liabilities: 						
Bonds and notes payable 	$	22,218,740 		22,251,433 		21,356,573 	
Other liabilities 	687,449 		526,364 		442,475 	
Total liabilities 	22,906,189 		22,777,797 		21,799,048 	
Equity: 						
Total Nelnet, Inc. shareholders' equity 	2,304,464 		2,316,864 		2,149,529 	
Noncontrolling interests	10,315 		10,264 		15,858 	
Total equity 	2,314,779 		2,327,128 		2,165,387 	
Total liabilities and equity 	$	25,220,968 		25,104,925 		23,964,435 	

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 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, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
GAAP net income attributable to Nelnet, Inc.	$	21,626 		42,927 		48,100 		227,913 		173,166 	
Realized and unrealized derivative market value adjustments	48,895 		5,226 		(3,997)		(1,014)		(26,379)	
Unrealized foreign currency transaction adjustments	— 		— 		(35)		— 		45,600 	
Net tax effect (a)	(11,735)		(1,254)		1,532 		243 		(7,304)	
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency transaction adjustments (b)	$	58,786 		46,899 		45,600 		227,142 		185,083 	
										
Earnings per share:										
GAAP net income attributable to Nelnet, Inc.	$	0.53 		1.05 		1.17 		5.57 		4.14 	
Realized and unrealized derivative market value adjustments	1.20 		0.12 		(0.10)		(0.02)		(0.63)	
Unrealized foreign currency transaction adjustments	— 		— 		— 		— 		1.09 	
Net tax effect (a)	(0.29)		(0.03)		0.04 		— 		(0.17)	
Net income attributable to Nelnet, Inc., excluding derivative market value and foreign currency transaction adjustments (b)	$	1.44 		1.14 		1.11 		5.55 		4.43 	
(a )   The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments and unrealized foreign currency   transaction   adjustments by the applicable statutory income tax rate.
(b)   "Derivative market value and foreign currency transaction adjustments" include (i) both the realized portion of gains and losses   (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the Company's previously   Euro-denominated bonds to U.S. dollars. "Derivative market value and foreign currency transaction adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms.
The accounting for derivatives requires that changes in the fair value of derivative instruments be recognized currently in earnings, with no fair value adjustment of the hedged item, unless specific hedge accounting criteria is met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting. As a result, the change in fair value of derivative instruments is reported in current period earnings with no consideration for the corresponding change in fair value of the hedged item. Under GAAP, the cumulative net realized and unrealized gain or loss caused by changes in fair values of derivatives in which the Company plans to hold to maturity will equal zero over the life of the contract.   However, the net realized and unrealized gain or loss during any given reporting period fluctuates significantly from period to period. In addition, the Company incurred unrealized foreign currency transaction adjustments in 2017 for periodic fluctuations in currency exchange rates between the U.S. dollar and Euro in connection with its student loan asset-backed bonds that were previously denominated in E uros with an interest rate based on a spread to the EURIBOR index. The principal and accrued interest on these bonds were remeasured at each reporting period and recorded in the Company's consolidated balance sheet in U.S. dollars based on the foreign currency exchange rate on that date.
The Company believes these point-in-time estimates of asset and liability values related to its derivative instruments and previously Euro- denominated bonds that are or were subject to interest and currency rate fluctuations are or were subject to volatility mostly due to timing and market factors beyond the control of management, and affect the period-to-period comparability of the results of operations. Accordingly, the Company’s management utilizes operating results excluding these items for comparability purposes when making decisions regarding the Company’s performance and in presentations with credit rating agencies, lenders, and investors. Consequently, the Company reports this non-GAAP information because the Company believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance.
On October 25, 2017, the Company completed a remarketing of the Company’s bonds that were prior to that date denominated in Euros, to denominate those bonds in U.S. dollars and reset the interest rate to be based on the three -month LIBOR index. The Company also terminated a cross-currency interest rate swap associated with those bonds. As a result, there are no foreign currency transaction adjustments with respect to those bonds after October 25, 2017.

4

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, 2018 , the Company had a $22.4 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 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:
• Lo an 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 year   ended December 31, 2018 , 2017 and 201 6 (dollars in millions).

(a)   Revenue includes intersegment revenue earned by LSS as a result of servicing loans for AGM.
(b)   Total revenue includes "net interest income" and "total other income" from the Company's segment statements of income, excluding the impact   from changes in fair values of derivatives and foreign currency transaction adjustments. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above.
Certain events and transactions from 2018, which have impacted or will impact the operating results of the Company and its operating segments, are discussed below.
Impact from the Tax Cuts and Jobs Act
• The Tax Cuts and Jobs Act (the "Act"), signed into law on December 22, 2017, and effective January 1, 2018, reduced the corporate statutory federal tax rate from 35 percent to 21 percent. The Company's effective tax rate in 2018 was 20.5 percent. During 2018, the Company obtained clarity regarding certain tax positions that resulted in a reduction to income tax expense. The Company currently anticipates its effective tax rate will range between 23 to 24 percent in future periods.

5

Loan Servicing and Systems
• On February 7, 2018, the Company paid $150.0 million in cash to acquire Great Lakes. The operating results of Great Lakes are reported in the Company's consolidated financial statements from the date of acquisition.
Nelnet Servicing and Great Lakes are two companies that have student loan servicing contracts awarded by the Department to provide servicing for loans owned by the Department. In addition to servicing loans for the Department, Great Lakes serviced FFELP and private education loans.
From the date of acquisition and going forward , Great Lakes and Nelnet Servicing have continued , and will continue , to service their respective government-owned portfolios on behalf of the Department, while maintaining their distinct brands, independent servicing operations, and teams. Likewise, each entity continues to compete for new student loan volume under its respective existing contract with the Department. The Company has integrated , and will continue to integrate , technology as well as shared services and other activities to become more efficient and effective in meeting borrower needs. During 2018, the Company converted Great Lakes' FFELP and private education loan servicing volume to Nelnet Servicing 's servicing platform to leverage the efficiencies of supporting more volume on fewer systems.
As of December 31, 2018, Nelnet Servicing was servicing $179. 5 billion of student loans for 5.8 million borrowers under its contract with the Department, and Great Lakes was servicing $232.7 billion of student loans for 7.5 million borrowers under its contract. These contracts are currently   scheduled to expire on June 16, 2019.
On February 20, 2018, the Department’s Office of Federal Student Aid ("FSA") released information regarding a   contract procurement process entitled Next Generation Financial Services Environment (“NextGen”) for the servicing of all student loans owned by the Department.   On August 24, August 27, and September 24, 2018, FSA made announcements that included canceling certain components of the NextGen process and issuing a solicitation for a separate new procurement process for certain of those NextGen components that were canceled.
On January 15, 2019, FSA released an amendment canceling all components of NextGen except the Enterprise-Wide Digital and Customer Care Platforms and Services component and issued new solicitations for three new NextGen components:
• NextGen Enhanced Processing Solution
• NextGen Business Process Operations
• NextGen Optimal Processing Solution

On February 20, 2019, FSA awarded the Enterprise-Wide Digital and Customer Care Platforms and Services component to Accenture Federal Services.   The Company is part of teams that currently intend to respond to the solicitations for each of the three ongoing NextGen components. The Company cannot predict the timing, nature, or outcome of these solicitations.
• The Company will incur additional costs in 2019 to integrate two core processing systems for government-owned loans, 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 operating margin from recent historical results.
Education Technology, Services, and Payment Processing
• In 2018, the Company changed the name of its Tuition Payment Processing and Campus Commerce operating segment to Education Technology, Services, and Payment Processing to better describe the evolution of services this operating segment provides.
• Effective January 1, 2018, the Company adopted the FASB's new revenue recognition standard using the full retrospective method, which required it to restate each prior reporting period presented. The most significant impact of the standard relates to identifying this segment as the principal in its payment services transactions. As a result of this change, the Company presents the payment services revenue gross, with the direct costs to provide these services presented separately.
6

• On October 16, 2018, the Company terminated its investment in a proprietary payment processing platform. This decision was made as a result of decreases in price and advancements of technology by established processors in the industry. As a result of this decision, the Company recorded an impairment charge of $7.8 million ( pre-tax) in 2018. The charge represents computer equipment and external software development costs related to the payment processing platform. The decision will not impact the Company's existing payment processing revenue or customers.
• On November 7, 2018, the Company paid $27.0 million in cash to acquir e 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, further enhancing NBS’ market share leading position with private faith-based K-12 schools and advancing to a market leading position in higher education.  
Communications
• In 2018, ALLO increased its residential households served from 20,428 as of December 31, 2017 to 37,351 as of December 31, 2018 and increased revenue from $25.7 million in 2017 to $44.7 million in 2018. In 2018, ALLO also began to provide its services in Fort Morgan, Colorado, and Hastings, Nebraska, increasing households in its current markets to 152,840 from 137,500 . ALLO plans to continue to increase market share and revenue in its existing markets and is currently evaluating opportunities to expand to additional communities.

• In 2018, ALLO's capital expenditures were $87.5 million and the Company currently anticipates total expenditures of approximately $ 50 million in 2019. 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. The Company currently anticipates the Lincoln build-out will be substantially complete during the first quarter of 2019.
• The Company currently anticipates ALLO's operating results will be dilutive to the Company's consolidated earnings as it finishes its network build-out in Lincoln, Nebraska, and continues to build its network in other communities, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs.
Asset Generation and Management
• During 2018, the Company purchased $3.9 billion in loans. The vast majority of these loans are federally insured student loans.
• The Company's average balance of loans decreased to $22.6 billion in 2018, compared with $23.6 billion in 2017. Core loan spread increased to 1.32 percent in 2018, compared with 1.23 percent in 2017.
The Company began to purchase consumer loans in the second quarter of 2017. Consumer loans are currently funded by the Company using operating cash, until they can be funded in a secured financing transaction. As such, consumer loans do not have a cost of funds (debt) associated with them. Core loan spread, excluding consumer loans, would have been   1.27 percent and 1.21 percent in 2018 and 2017, respectively.
In 2018, the Company recognized $121.7 million in fixed rate floor income (which includes $64.9 million of settlement payments received on derivatives used to hedge student loans earning fixed rate floor income). Fixed rate floor income contributed 55 basis points of core loan spread in 2018.
Liquidity and Capital Resources
• As of December 31, 2018, the Company had cash and cash equivalents of $121.3 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 $53.0 million as of December 31, 2018 .
• The Company has historically generated positive cash flow from operations.  For the year ended December 31, 2018 , the Company’s net cash provided by operating activities was $ 270.9 million . 
• On June 22, 2018, the Company amended its unsecured line of credit to, among other things, extend the maturity date of the facility from December 12, 2021 to June 22, 2023. On December 14, 2018, the Company increased the aggregate amount it can borrow under this facility from $350.0 million to $382.5 million. As of December 31, 2018, the unsecured line of credit had $310.0 million outstanding and $72.5 million was available for future use.
• The majority of the Company’s portfolio of student loans is funded in asset-backed securitizations that will generate significant earnings and cash flow over the life of these transactions. As of December 31, 2018 , the Company currently expects future undiscounted cash flows from its securitization portfolio to be approximately $2.1 billion , of which approximately $1.3 billion will be generated over the next five years. 
7

• During 2018, the Company repurchased a total of 868,147 shares of Class A common stock for $45.3 million ($52.22 per share) , including the repurchase of 549,056 shares of Class A common stock during the fourth quarter of 2018 for $28.8 million ($52.48 per s hare).
• During 2018, the Company paid quarterly cash dividends totaling $26.8 million ($0.66 per share) , including $7.3 million , or $0.18 per share, during the fourth quarter o f 2018.
• 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, 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 and foreign currency transaction 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 (a)	(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 	

(a)   As a result of the Tax Cuts and Jobs Act, beginning January 1, 2018, income taxes are allocated based on 24% of income before taxes for each individual operating segment. Prior to the effective dat e of the Tax Cuts and Jobs Act, income taxes were allocated based on 38% of income before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of the taxes calculated for each operating segment, if any, is included in income taxes in Corporate and Other Activities.

8

																																										
	Three months ended September 30, 2018 	
	Loan Servicing and Systems 		Education Technology, Services, and Payment Processing 		Communications 		Asset
Generation and
Management 		Corporate and Other Activities 		Eliminations 		Total 	
Total interest income	$	381 		1,513 		1 		236,039 		6,860 		(4,846)		239,948 	
Interest expense	— 		3 		4,174 		176,874 		3,968 		(4,846)		180,175 	
Net interest income	381 		1,510 		(4,173)		59,165 		2,892 		— 		59,773 	
Less provision for loan losses	— 		— 		— 		10,500 		— 		— 		10,500 	
Net interest income (loss) after provision for loan losses	381 		1,510 		(4,173)		48,665 		2,892 		— 		49,273 	
Other income:														
Loan servicing and systems revenue	112,579 		— 		— 		— 		— 		— 		112,579 	
Intersegment servicing revenue	12,290 		— 		— 		— 		— 		(12,290)		— 	
Education technology, services, and payment processing revenue	— 		58,409 		— 		— 		— 		— 		58,409 	
Communications revenue	— 		— 		11,818 		— 		— 		— 		11,818 	
Other income	1,948 		— 		950 		3,267 		10,508 		— 		16,673 	
	
Derivative settlements, net	— 		— 		— 		22,448 		(124)		— 		22,324 	
Derivative market value and foreign currency transaction adjustments, net	— 		— 		— 		(6,056)		830 		— 		(5,226)	
Total other income	126,817 		58,409 		12,768 		19,659 		11,214 		(12,290)		216,577 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 		19,087 		— 		— 		— 		— 		19,087 	
Cost to provide communications services	— 		— 		4,310 		— 		— 		— 		4,310 	
Total cost of services	— 		19,087 		4,310 		— 		— 		— 		23,397 	
Operating expenses:														
Salaries and benefits	70,440 		19,972 		4,554 		424 		18,782 		— 		114,172 	
Depreciation and amortization	8,957 		3,435 		6,167 		— 		4,433 		— 		22,992 	
Loan servicing fees to third parties	— 		— 		— 		3,087 		— 		— 		3,087 	
Other expenses	19,638 		4,943 		3,151 		845 		16,616 		— 		45,194 	
Intersegment expenses, net	15,029 		2,494 		598 		12,378 		(18,208)		(12,290)		— 	
Total operating expenses	114,064 		30,844 		14,470 		16,734 		21,623 		(12,290)		185,445 	
Income (loss) before income taxes	13,134 		9,988 		(10,185)		51,590 		(7,517)		— 		57,008 	
Income tax (expense) benefit (a)	(3,152)		(2,397)		2,444 		(12,381)		1,604 		— 		(13,882)	
Net income (loss)	9,982 		7,591 		(7,741)		39,209 		(5,913)		— 		43,126 	
Net income attributable to noncontrolling interests	— 		— 		— 		— 		(199)		— 		(199)	
Net income (loss) attributable to Nelnet, Inc.	$	9,982 		7,591 		(7,741)		39,209 		(6,112)		— 		42,927 	

(a)   As a result of the Tax Cuts and Jobs Act, beginning January 1, 2018, income taxes are allocated based on 24% of income before taxes for each individual operating segment.   Prior to the effective date of the Tax Cuts and Jobs Act, income taxes were allocated based on 38% of income before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of the taxes calculated for each operating segment, if any, is included in income taxes in Corporate and Other Activities.

9

																																										
 	Three months ended December 31, 2017 	
	Loan Servicing and Systems 		Education Technology, Services, and Payment Processing 		Communications 		Asset
Generation and
Management 		Corporate and Other
Activities 		Eliminations 		Total 	
Total interest income	$	152 		8 		1 		195,560 		3,617 		(2,702)		196,636 	
Interest expense	3 		— 		2,059 		123,358 		683 		(2,702)		123,401 	
Net interest income	149 		8 		(2,058)		72,202 		2,934 		— 		73,235 	
Less provision for loan losses	— 		— 		— 		3,750 		— 		— 		3,750 	
Net interest income (loss) after provision for loan losses	149 		8 		(2,058)		68,452 		2,934 		— 		69,485 	
Other income:														
Loan servicing and systems revenue	55,921 		— 		— 		— 		— 		— 		55,921 	
Intersegment servicing revenue	10,835 		— 		— 		— 		— 		(10,835)		— 	
Education technology, services, and payment processing revenue	— 		43,326 		— 		— 		— 		— 		43,326 	
Communications revenue	— 		— 		8,122 		— 		— 		— 		8,122 	
Other income	— 		— 		— 		4,273 		3,680 		— 		7,952 	
Gain (lo ss) from debt repurchases , net	— 		— 		— 		(2,664)		29 		— 		(2,635)	
Derivative settlements, net	— 		— 		— 		3,169 		(188)		— 		2,982 	
Derivative market value and foreign currency transaction adjustments, net	— 		— 		— 		3,763 		269 		— 		4,032 	
Total other income	66,756 		43,326 		8,122 		8,541 		3,790 		(10,835)		119,700 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 		11,223 		— 		— 		— 		— 		11,223 	
Cost to provide communications services	— 		— 		3,160 		— 		— 		— 		3,160 	
Total cost of services	— 		11,223 		3,160 		— 		— 		— 		14,383 	
Operating expenses:														
Salaries and benefits	39,324 		18,515 		4,458 		393 		18,512 		— 		81,201 	
Depreciation and amortization	1,220 		2,371 		3,955 		— 		4,309 		— 		11,854 	
Loan servicing fees to third parties	— 		— 		— 		3,064 		— 		— 		3,064 	
Other expenses	10,793 		4,712 		2,652 		1,412 		18,884 		— 		38,455 	
Intersegment expenses, net	8,374 		2,650 		629 		11,716 		(12,535)		(10,835)		— 	
Total operating expenses	59,711 		28,248 		11,694 		16,585 		29,170 		(10,835)		134,574 	
Income (loss) before income taxes	7,194 		3,863 		(8,790)		60,408 		(22,446)		— 		40,228 	
Income tax (expense) benefit	(3,718)		(1,468)		3,341 		(22,955)		30,287 		— 		5,486 	
Net income (loss)	3,476 		2,395 		(5,449)		37,453 		7,841 		— 		45,714 	
Net loss (income) attributable to noncontrolling interests	2,591 		— 		— 		— 		(205)		— 		2,386 	
Net income (loss) attributable to Nelnet, Inc.	$	6,067 		2,395 		(5,449)		37,453 		7,636 		— 		48,100 	

10

																																										
 	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	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 		12,364 		33,724 		— 		54,446 	
Gain from debt repurchases	— 		— 		— 		359 		— 		— 		359 	
Derivative settlements, net	— 		— 		— 		70,478 		(407)		— 		70,071 	
Derivative market value and foreign currency transaction 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 	
Loan servicing fees to third parties	— 		— 		— 		12,059 		— 		— 		12,059 	
Other expenses	67,336 		28,137 		11,900 		3,902 		54,697 		— 		165,972 	
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 (a)	(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 	
(a)   As a result of the Tax Cuts and Jobs Act, beginning January 1, 2018, income taxes are allocated based on 24% of income before taxes for each individual operating segment. Prior to the effective date of the Tax Cuts and Jobs Act, income taxes were allocated based on 38% of income before taxes for each individual operating segment. The difference between the consolidated income tax expense and the sum of the taxes calculated for each operating segment, if any, is included in income taxes in Corporate and Other Activities.
11

																																										
 	Year ended December 31, 2017 	
	Loan Servicing and Systems 		Education Technology, Services, and Payment Processing 		Communications 		Asset
Generation and
Management 		Corporate and Other
Activities 		Eliminations 		Total 	
Total interest income	$	513 		17 		3 		764,225 		13,643 		(7,976)		770,426 	
Interest expense	3 		— 		5,427 		464,256 		3,477 		(7,976)		465,188 	
Net interest income	510 		17 		(5,424)		299,969 		10,166 		— 		305,238 	
Less provision for loan losses	— 		— 		— 		14,450 		— 		— 		14,450 	
Net interest income (loss) after provision for loan losses	510 		17 		(5,424)		285,519 		10,166 		— 		290,788 	
Other income:														
Loan servicing and systems revenue	223,000 		— 		— 		— 		— 		— 		223,000 	
Intersegment servicing revenue	41,674 		— 		— 		— 		— 		(41,674)		— 	
Education technology, services, and payment processing revenue	— 		193,188 		— 		— 		— 		— 		193,188 	
Communications revenue	— 		— 		25,700 		— 		— 		— 		25,700 	
Other income	— 		— 		— 		13,424 		39,402 		— 		52,826 	
Gain (loss) from debt repurchases , net	— 		— 		— 		(1,567)		4,469 		— 		2,902 	
Derivative settlements, net	— 		— 		— 		1,448 		(781)		— 		667 	
Derivative market value and foreign currency transaction adjustments, net	— 		— 		— 		(19,357)		136 		— 		(19,221)	
Total other income	264,674 		193,188 		25,700 		(6,052)		43,226 		(41,674)		479,062 	
Cost of services:														
Cost to provide education technology, services, and payment processing services	— 		48,678 		— 		— 		— 		— 		48,678 	
Cost to provide communications services	— 		— 		9,950 		— 		— 		— 		9,950 	
Total cost of services	— 		48,678 		9,950 		— 		— 		— 		58,628 	
Operating expenses:														
Salaries and benefits	156,256 		69,500 		14,947 		1,548 		59,633 		— 		301,885 	
Depreciation and amortization	2,864 		9,424 		11,835 		— 		15,418 		— 		39,541 	
Loan servicing fees to third parties	— 		— 		— 		22,734 		— 		— 		22,734 	
Other expenses	39,126 		17,897 		8,074 		3,900 		51,381 		— 		120,378 	
Intersegment expenses, net	31,871 		9,079 		2,101 		42,830 		(44,208)		(41,674)		— 	
Total operating expenses	230,117 		105,900 		36,957 		71,012 		82,224 		(41,674)		484,538 	
Income (loss) before income taxes	35,067 		38,627 		(26,631)		208,455 		(28,832)		— 		226,684 	
Income tax (expense) benefit	(18,128)		(14,678)		10,120 		(79,213)		37,036 		— 		(64,863)	
Net income (loss)	16,939 		23,949 		(16,511)		129,242 		8,204 		— 		161,821 	
Net loss (income) attributable to noncontrolling interests	12,640 		— 		— 		— 		(1,295)		— 		11,345 	
Net income (loss) attributable to Nelnet, Inc.	$	29,579 		23,949 		(16,511)		129,242 		6,909 		— 		173,166 	

12

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, 	
	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Variable loan interest margin	$	51,732 		42,455 		48,788 		181,488 		189,594 	
Settlements on associated derivatives (a)	901 		3,361 		(1,791)		5,577 		(9,390)	
Variable loan interest margin, net of settlements on derivatives	52,633 		45,816 		46,997 		187,065 		180,204 	
Fixed rate floor income	11,452 		13,659 		22,053 		56,811 		106,434 	
Settlements on associated derivatives (b)	18,148 		19,087 		4,961 		64,901 		10,838 	
Fixed rate floor income, net of settlements on derivatives	29,600 		32,746 		27,014 		121,712 		117,272 	
Investment interest	8,019 		7,628 		3,080 		26,600 		12,695 	
Corporate debt interest expense	(1,664)		(3,969)		(686)		(10,539)		(3,485)	
Non-portfolio related derivative settlements (c)	3 		(124)		(188)		(407)		(781)	
Net interest income (net of settlements on derivatives)	$	88,591 		82,097 		76,217 		324,431 		305,905 	

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

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

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

13

Loan Servicing Volumes (dollars in millions)
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.

																																																									
Company owned		$16,962 		$16,352 		$15,789 		$18,403 		$17,827 		$17,866 		$19,113 		$19,206 		$19,123 	
% of total		8.7% 	 		8.2% 	 		7.9% 	 		8.9% 	 		8.4% 	 		3.8% 	 			4.1% 	 			4.1% 	 			4.1% 	 	
Number of servicing borrowers:															
Government servicing - Nelnet 		5,972,619 		5,924,099 		5,849,283 		5,906,404 		5,877,414 		5,819,286 		5,745,181 		5,805,307 		5,771,923 	
Government servicing - Great Lakes 		— 		— 		— 		— 		— 		7,456,830 		7,378,875 		7,486,311 		7,458,684 	
FFELP servicing - Nelnet 		1,312,192 		1,263,785 		1,218,706 		1,317,552 		1,420,311 		1,399,280 		1,787,419 		1,754,247 		1,709,853 	
FFELP servicing - Great Lakes 		— 		— 		— 		— 		— 		461,553 		— 		— 		— 	
Private education and consumer loan servicing - Nelnet 		355,096 		389,010 		454,182 		478,150 		502,114 		508,750 		672,520 		692,763 		696,933 	
Private education and consumer loan servicing - Great Lakes 		— 		— 		— 		— 		— 		118,609 		3,987 		— 		— 	
Total: 		7,639,907 		7,576,894 		7,522,171 		7,702,106 		7,799,839 		15,764,308 		15,587,982 		15,738,628 		15,637,393 	
																			
Number of remote hosted borrowers 		2,230,019 		2,305,991 		2,317,151 		2,714,588 		2,812,713 		6,207,747 		6,145,981 		6,406,923 		6,393,151 	

14

Comm unications Financial and Operating Data

Certain financial and operating data for ALLO is summarized in the tables below.
																														
	Three months ended		Year ended December 31,	
	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Residential revenue	$	10,067 		8,896 		5,844 		33,434 		17,696 	
Business revenue	3,197 		2,861 		2,219 		10,976 		7,744 	
Other	62 		61 		59 		243 		260 	
Communications revenue	$	13,326 		11,818 		8,122 		44,653 		25,700 	
										
Net (loss) income	$	(5,876)		(7,741)		(5,449)		(28,740)		(16,511)	
EBITDA (a)	(942)		155 		(2,777)		(4,455)		(9,372)	
										
Capital expenditures	20,650 		21,728 		36,672 		87,466 		115,102 	
										
Revenue contribution:										
Internet	56.5 	%		54.6 	%		48.4 	%		53.9 	%		46.6 	%	
Television	27.6 	 		28.6 	 		30.8 	 		29.0 	 		31.2 	 	
Telephone	15.7 	 		16.6 	 		19.3 	 		16.9 	 		21.8 	 	
Other	0.2 	 		0.2 	 		1.5 	 		0.2 	 		0.4 	 	
	100.0 	%		100.0 	%		100.0 	%		100.0 	%		100.0 	%	

	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		As of September 30, 2017		As of
June 30,
2017		As of
March 31, 2017		As of
December 31, 2016	
Residential customer information:																		
Households served	37,351 		32,529 		27,643 		23,541 		20,428 		16,394 		12,460 		10,524 		9,814 	
Households passed (b)	122,396 		110,687 		98,538 		84,475 		71,426 		54,815 		45,880 		34,925 		30,962 	
Total households in current markets (c)	152,840 		142,602 		137,500 		137,500 		137,500 		137,500 		137,500 		137,500 		137,500 	

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

	Three months ended		Year ended	
	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Net loss	$	(5,876)		(7,741)		(5,449)		(28,740)		(16,511)	
Net interest (income) expense	(2)		4,173 		2,058 		9,983 		5,424 	
Income tax benefit	(1,856)		(2,444)		(3,341)		(9,075)		(10,120)	
Depreciation and amortization	6,792 		6,167 		3,955 		23,377 		11,835 	
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA)	$	(942)		155 		(2,777)		(4,455)		(9,372)	
(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 provid ing service in Fort Morgan, Colorado.   During the fourth quarter of 2018, ALLO began providing service in Hastings, Nebraska.

15

Other Income

The following table summarizes the components of "other income."
																														
 	Three months ended		Year ended	
 	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Borrower late fee income	$	3,308 		3,253 		2,506 		12,302 		11,604 	
Gain on investments and notes receivable, net
of losses	(1,926)		2,499 		(3,648)		9,579 		939 	
Management fee revenue	1,824 		1,756 		— 		6,497 		— 	
Investment advisory fees	1,840 		1,183 		1,061 		6,009 		12,723 	
Peterson's revenue	— 		— 		3,290 		— 		12,572 	
Other	4,952 		7,982 		4,743 		20,059 		14,988 	
Other income	$	9,998 		16,673 		7,952 		54,446 		52,826 	

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, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
1:3 basis swaps 	$	901 		3,361 		(1,233)		5,577 		(3,069)	
Interest rate swaps - floor income hedges	18,148 		19,087 		4,961 		64,901 		10,838 	
Interest rate swaps - hybrid debt hedges	3 		(124)		(188)		(407)		(781)	
Cross-currency interest rate swap	— 		— 		(558)		— 		(6,321)	
Total derivative settlements - income (expense)	$	19,052 		22,324 		2,982 		70,071 		667 	

Derivative Market Value and Foreign Currency Transaction Adjustments

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

The following table summarizes the components of “derivative market value and foreign currency transaction adjustments” included in the attached consolidated statements of income.
																														
  	Three months ended		Year ended 	
  	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Change in fair value of derivatives -
income (expense)	$	(48,895)		(5,226)		3,997 		1,014 		26,379 	
Foreign currency transaction adjustment - income (expense)	— 		— 		35 		— 		(45,600)	
Derivative market value and foreign currency transaction adjustments - income (expense)	$	(48,895)		(5,226)		4,032 		1,014 		(19,221)	

16

Loans Receivable

Loans receivable consisted of the following:
																		
	As of		As of		As of	
  	December 31, 2018		September 30, 2018		December 31, 2017	
Federally insured student loans:						
Stafford and other	$	4,969,667 		4,956,324 		4,418,881 	
Consolidation	17,186,229 		17,434,419 		17,302,725 	
Total	22,155,896 		22,390,743 		21,721,606 	
Private education loans	225,975 		169,467 		212,160 	
Consumer loans	138,627 		112,547 		62,111 	
  	22,520,498 		22,672,757 		21,995,877 	
Loan discount, net of unamortized loan premiums and deferred origination costs	(53,572)		(63,566)		(113,695)	
Non-accretable discount	(29,396)		(20,612)		(13,085)	
Allowance for loan losses:						
Federally insured loans	(42,310)		(43,053)		(38,706)	
Private education loans	(10,838)		(11,253)		(12,629)	
Consumer loans	(7,240)		(5,911)		(3,255)	
  	$	22,377,142 		22,528,362 		21,814,507 	

Loan Activity

The following table sets forth the activity of loans:
																								
  	Three months ended December 31,		Year ended December 31,	
  	2018		2017		2018		2017	
Beginning balance	$	22,672,757 		22,713,913 		21,995,877 		25,103,643 	
Loan acquisitions:								
Federally insured student loans	584,034 		113,052 		3,708,188 		254,740 	
Private education loans	68,143 		3,087 		68,337 		3,785 	
Consumer loans	40,097 		26,456 		120,482 		71,726 	
Total loan acquisitions	692,274 		142,595 		3,897,007 		330,251 	
Repayments, claims, capitalized interest, and other	(567,811)		(569,131)		(2,282,631)		(2,257,450)	
Consolidation loans lost to external parties	(276,722)		(238,297)		(1,066,043)		(1,127,364)	
Loans sold	— 		(53,203)		(23,712)		(53,203)	
Ending balance	$	22,520,498 		21,995,877 		22,520,498 		21,995,877 	

17

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, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Variable loan yield, gross	4.89 	%		4.57 	%		3.80 	%		4.52 	%		3.53 	%	
Consolidation rebate fees	(0.84)	 		(0.83)	 		(0.85)	 		(0.84)	 		(0.84)	 	
Discount accretion, net of premium and deferred origination costs amortization	0.03 	 		0.03 	 		0.07 	 		0.04 	 		0.07 	 	
Variable loan yield, net	4.08 	 		3.77 	 		3.02 	 		3.72 	 		2.76 	 	
Loan cost of funds - interest expense	(3.24)	 		(3.10)	 		(2.21)	 		(2.98)	 		(1.99)	 	
Loan cost of funds - derivative settlements (a) (b)	0.02 	 		0.06 	 		(0.03)	 		0.03 	 		(0.04)	 	
Variable loan spread	0.86 	 		0.73 	 		0.78 	 		0.77 	 		0.73 	 	
Fixed rate floor income, gross	0.21 	 		0.23 	 		0.39 	 		0.25 	 		0.45 	 	
Fixed rate floor income - derivative settlements (a) (c)	0.32 	 		0.34 	 		0.09 	 		0.30 	 		0.05 	 	
Fixed rate floor income, net of settlements on derivatives	0.53 	 		0.57 	 		0.48 	 		0.55 	 		0.50 	 	
Core loan spread (d)	1.39 	%		1.30 	%		1.26 	%		1.32 	%		1.23 	%	
										
Average balance of loans	$	22,583,222 		22,971,361 		22,397,323 		22,596,436 		23,560,412 	
Average balance of debt outstanding	22,232,428 		22,557,437 		21,952,133 		22,181,932 		23,250,268 	

( 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 th is table .  
( b )   Derivative settlements include the net settlements received (paid) related to the Company’s 1:3 basis swaps and previous   cross- currency interest rate swap.
( c )   Derivative settlements include the net settlements received (paid) related to the Company’s floor income interest rate swaps.
( d )   The Company began to purchase consumer loans in the second quarter of 2017. Consumer loans are currently funded by the Company using operating cash, until they can be funded in a secured financing transaction. As such, consumer loans do not have a cost of funds (debt) associated with them. Core loan spread, excluding   c onsumer loans, would have been 1.33% , 1.25% , and 1.23% for the three months ended December 31, 2018 , September 30 , 2018, and December 31, 2017 , respectively, and 1.27% and   1.21% for the year ended December 31, 2018 and 2017, respectively.

18

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

(a)   The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. The Company funds a 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 fu nds 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 spre ad 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		Year ended	
 	December 31, 2018		September 30, 2018		December 31, 2017		December 31, 2018		December 31, 2017	
Fixed rate floor income, gross	$	11,452 		13,659 		22,053 		56,811 		106,434 	
Derivative settlements (a)	18,148 		19,087 		4,961 		64,901 		10,838 	
Fixed rate floor income, net	$	29,600 		32,746 		27,014 		121,712 		117,272 	
Fixed rate floor income contribution to spread, net	0.53 	%		0.57 	%		0.48 	%		0.55 	%		0.50 	%	

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

19

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, 2018 .
																					
Fixed interest rate range		Borrower/lender weighted average yield		Estimated variable conversion rate (a)		Loan balance	
	
5.0 - 5.49% 		5.30% 	 		2.66% 	 		$	367,077 	
5.5 - 5.99% 		5.67% 	 		3.03% 	 		357,259 	
6.0 - 6.49% 		6.19% 	 		3.55% 	 		392,253 	
6.5 - 6.99% 		6.70% 	 		4.06% 	 		382,285 	
7.0 - 7.49% 		7.17% 	 		4.53% 	 		134,034 	
7.5 - 7.99% 		7.71% 	 		5.07% 	 		229,966 	
8.0 - 8.99% 		8.18% 	 		5.54% 	 		532,171 	
> 9.0% 		9.05% 	 		6.41% 	 		198,597 	
 		 				$	2,593,642 	

(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, 2018 , the weighted average estimated variable conversion rate was 4.24% and the short-term interest rate was 240 basis points.

The following table summarizes the outstanding derivative instruments as of December 31, 2018 used by the Company to economically hedge loans earning fixed rate floor income.
															
Maturity 		Notional amount 		Weighted average fixed rate paid by the Company (a) 	
					
2019		$	3,250,000 		0.97 	%	
2020		1,500,000 		1.01 	 	
2021		100,000 		2.95 	 	
2023		400,000 		2.24 	 	
2024		300,000 		2.28 	 	
	
2027		25,000 		2.35 	 	

  		$	5,575,000 		1.18 	%	

(a)   For all interest rate derivatives, the Company receives discrete three-month LIBOR.
20

February 27, 2019 Dear Shareholders: Last year was one that brought about many mixed emotions. From a financial performance standpoint, 2018 was an excellent year for Nelnet that produced a significant amount of momentum going into 2019. However, the year was clouded with the unexpected passing of our dear friend, co-founder, long-time co-CEO, and then-vice chairman, Steve Butterfield. Steve – or “Butter,” as all who knew him affectionately refer to him – made a permanent impact on the culture of our company. His passion for all associates who keep Nelnet operating and the customers we serve is woven into the fabric of who we are and how we operate as a company. He was the consummate salesman and an eternal optimist, especially when it came to Nelnet. He always acted as a mentor to Mike Dunlap, me, and many others inside and outside of the company. Butter had a saying for every situation; some very appropriate, others that should not be put in print, and occasionally a few that would make one truly laugh out loud. Just a few of Butter’s classic one-liners were: “Can I get a 20-second time out?”; “That ain’t gonna’ feed the bulldog.”; “Give us the check, and kick us out politely.”; “You know I’m living on a fixed income now.”; “Give me a honk on the pipes.”; “You’re a good egg.”; “We’re going to Sizzler.”; “I was slightly over-served.”; “Whoa, Nelly!”; “Tied up tighter than a tie ball game”; “Honey bee”; “See your future. Be your future.”; and the favorite one among those who knew him best, “Give me a final, final.” Butter loved people. He had a way of making them feel at ease, and he could bring levity to most any situation. He loved to talk about the financials of the company, the metrics of success of each division, and how we compared to the competition. Like many, he viewed the financial performance and cash we generate as a scorecard in a permanently evolving contest. As a major shareholder, and specifically after he retired as co-CEO 12 years ago, he loved to talk about the Nelnet dividend. Every quarterly meeting where the board voted on the dividend, Butter made the motion to approve the dividend. Let there be no doubt that we miss Butter every day. We are running this company on the principles he helped instill in us and with a continual eye to make him proud and to continue his legacy. 2018 Letter to Shareholders | Page 1

 

"Can I Get a 20-Second Time Out?" In every one of our annual letters to shareholders, we talk about our view on value creation and the fair valuation of our stock price. This year will be no exception. On Jan. 1, 2018, our total market value was $2.236 billion and on Dec. 31, 2018, our market value was $2.107 billion. Let’s take a 20-second time out to think about that perplexing statistic in light of the following facts. In 2018, our total revenue from our three fee-for-services divisions (servicing, payments, and telecommunications) increased to $707 million, up from $442 million in 2017. Corporate-wide during the year, we created GAAP net income of $228 million, adjusted net income of $227 million,1 and we generated $271 million in cash from operating activities. We acquired Great Lakes, one of the most respected companies in the student loan servicing business. We acquired almost $4 billion in Federal Family Education Loan (FFEL) Program loans, private education loans, and consumer loan assets. We acquired Tuition Management Systems (TMS), a significant player in the higher education and K-12 payment plan space. We increased our fiber business by almost 17,000 residential lines. The number of servicing borrowers increased from 7.8 million to 15.6 million. The number of students served in our payments business in K-12 and higher education increased from 10.2 million to 11.5 million. Our loan portfolio increased to $22.4 billion, when most thought it would run off by more than $3 billion during the year. We bought back almost 870,000 shares of stock at an average price of $52.22 per share, and we increased our book value per share from $52.67 on Jan. 1, 2018, to $57.24 on Dec. 31, 2018. And to address Butter’s favorite topic, we increased our quarterly dividends from a total of $0.58 per share in 2017 to a total of $0.66 per share in 2018. A couple years back, we would frequently get the question of what we planned to do with the cash we generated. I think the answer to this question is a great way to highlight what we believe is the best use of our capital and our thoughts on capital allocation, as well as to explain what we are focusing on as a management team. Last year, we deployed $723 million in capital, which brings our six-year total to $2.8 billion in capital deployed (including dividends, stock repurchases, and debt repurchases). Capital Deployment By Year (in millions) 2013 2014 2015 2016 2017 2018 6-Year Total FFELP loan/residual acquisitions, net of financing $38 $127 $140 - - $105 $410 Private and consumer loan acquisitions $68 $17 $173 $61 $75 $188 $582 Business acquisitions - $47 - - - $153 $200 ALLO acquisition and capital expenditures - - $47 $39 $115 $87 $288 Other capital expenditures (non-ALLO) $17 $26 $17 $29 $41 $38 $168 HUDL investment - $1 $41 - $10 - $52 Other investments (venture capital/real estate/solar) $20 $45 $53 $22 $19 $67 $226 Debt repurchases $79 $47 $42 $77 $181 $13 $439 Stock repurchases $13 $16 $96 $69 $69 $45 $308 Dividends $19 $19 $19 $21 $24 $27 $129 $254 $345 $628 $318 $534 $723 $2,802 2018 Letter to Shareholders | Page 2

 

In light of these successes in virtually all of our business lines and overall corporate financial performance, it begs the question, did the equity markets truly believe we decreased the value of our company in 2018? Was the company over- valued at the beginning of the year? Or were there technical market issues outside of our control at play? It is hard to pinpoint the exact answer, and toward the end of the letter we will reiterate our fair value approach, but our goal for 2019 is to keep the momentum rolling. 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 and foreign currency transaction 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, 2018, filed with the Securities and Exchange Commission on Feb. 27, 2019. Loan Servicing: "I was Slightly Over-Served." Butter frequently used this quote as commentary about a fun event the previous evening. However, in our Loan Servicing business, it is our explicit aim to over-serve our customers – to in fact give them amazing service and exceptional experiences. Our Loan Servicing division started out the year with a bang with the acquisition of Great Lakes, the largest addition of people and operations in our corporate history. Over 1,600 associates joined the Nelnet family. We spent the year integrating shared services (e.g., human resources, accounting, legal, marketing, technology, etc.). Overall, we believe the integration has gone very well. That belief is based on the fact that the two companies remain first and second in government surveys of customer service. In Loan Servicing, we typically get paid on a per-borrower account basis. Throughout the year, we increased our servicing volume for all loan types – FFEL Program, private, federal Direct, and consumer loans. Our customers are the federal government, state agencies, banks, and FinTech companies. At the end of 2018, we serviced $465 billion of loans for 15.6 million borrower customers. Our revenue increased from $223 million in 2017 to $440 million in 2018 due to a significant expansion in the number of accounts serviced. The big unknown in the business is what the federal government will do in 2019 with its procurement for a new loan system and service providers to operate that system. Here is what we know from publicly available information. Our current contracts with the government provide that they will expire on June 16, 2019. The government cancelled the previously outstanding procurement on Jan. 15, 2019, and issued a new one. The procurement is now separated into three large ongoing components, and we are part of teams that intend to respond to each of the three components. These components include the single NextGen Enhanced Processing Solution in its current state, and the future state NextGen Optimal Processing Solution, in addition to the loan processing and customer service work that will accompany 2018 Letter to Shareholders | Page 3

 

the systems under the current and future states. It currently looks like the core servicing platform and servicers on that platform could be performing additional collection work under the new procurements versus the collection agencies the government hired under the existing contracts. The main impact on our loan servicing division in 2019 will be from the uncertainty around the procurement and the ongoing integration of the two core processing systems we now own. We are maintaining a delicate balance of systems integration work in light of the unknowns that come with the government procurement. In the meantime, rest assured that we will focus on the one thing we can control: our number one core value of providing superior customer experiences. This includes being the best partner for the borrowers we have the privilege of serving, our lender customers, and the federal government. We continue to see increasing opportunity with our FinTech offerings. In 2018, we began offering services for many FinTech originators, such as Prosper, QuarterSpot, Affirm, and others. In addition, we launched NelnetFinTech.com to bring additional awareness of our offerings to the growing FinTech industry. In support of our FinTech strategy, we are in the process of a complete re-architecting of our private education and consumer loan origination and repayment servicing systems. This is a large, multi-year technology build and spend for these systems. When we go live with the systems, we believe they will be the most advanced, rapidly customizable systems within the private education and consumer loan servicing industry. We are encouraged by the building momentum of our FinTech services and are confident it will continue throughout 2019 and beyond. In today’s highly polarized and politicized nation, student loan servicing often gets caught in the crossfire of the critically important public debate around college cost and student debt levels. The government and private programs in place to help finance education can be extremely complex and difficult to understand. As student debt continues to rise for most Americans, our mission and purpose of helping borrowers navigate the myriad of education loan programs is critical. The negative impact of delinquency or defaulting on loans can be life-altering, and we know that every borrower’s circumstance is unique. Our approach is to empower borrowers through caring guidance and by providing the information they need to navigate the vast array of repayment options available. We remain deeply passionate about helping our borrower customers achieve financial success, and are actively engaged with several states that are seeking to protect and educate their borrowers. What we do benefits the lives of millions of people each day and we take that obligation very seriously. Education Technology, Services, and Payment Processing: "We're Going to Sizzler." Nelnet Business Solutions (NBS) is our education technology, services, and payment processing division with core drivers of revenue in payment processing and SAAS revenue from software products and services. NBS had another record year in 2018, earning gross revenue of $222 million, a 15 percent increase from $193 million in 2017, and continuing the year over year increase from $176 million in 2016. 2018 Letter to Shareholders | Page 4

 

I know what Butter would say about NBS this year: “Pack up the car, dear. We’re going to Sizzler.” Think about this statistic. It took NBS 25 years to pass $100 million in annual net revenue, and three years later, in 2018, we are at $162 million in annual net revenue. It is a classic example of recurring revenue streams coupled with the flywheel of momentum. We characterize the business as a value-added payment processor and services company. We did have one setback in the division financials, as NBS earned $33 million in income before taxes in 2018, down from $39 million in 2017. This was a result of an impairment we took with the discontinuance of investment in a backend payment processing technology, which I will discuss in more detail below. In November 2018, NBS acquired TMS, a services company offering tuition payment plans, billing services, payment technology solutions, and refund management to educational institutions. TMS is highly regarded in our industry due to its commitment to customer service, product innovation, and client retention. The TMS acquisition added 380 higher education schools and 170 K-12 schools to the NBS customer base, further distancing us from our competitors in terms of market share in private, faith-based K-12 schools and advancing us to a market-leading position in higher education. In addition to the TMS acquisition, we continued organic momentum by expanding clients and services to 11,500 private, faith-based K-12 schools by integrating our products and services into a complete school management solution. FACTS Management is a leading brand in the private, faith-based K-12 market, and in 2018 we completed a significant rebranding effort, bringing RenWeb School Management Solutions under the FACTS brand. Our leading products and services for schools include tuition management and billing services, financial needs assessment and scholarship administration, student information systems and learning management, enrollment management, emergency notification, donation, and parent portal reporting. In 2018, we advanced FACTS Education Solutions, a subsidiary of NBS offering professional development for teachers and remedial education for students in need of additional help in reading and math. FACTS Education Solutions is innovative in its use of technology-advancing products that aid in both teacher and student evaluation. Nelnet Campus Commerce is our higher education brand in the United States. With the addition of TMS, we now serve 1,400 colleges and universities with payment processing, billing and tuition management products, and commerce services. Our products help students and families afford higher education by stretching payments over semesters and the academic year, rather than taking on burdensome education-related debt. A key component of this business’ competitive advantage is the deep integration with enterprise resource planning (ERP) partners on campus. Today, Nelnet Campus Commerce is a preferred partner of all major ERPs on campus. In 2019, we will beta test our CampusKey product, modernizing the mobile experience on campus by replacing the traditional campus ID card with a mobile experience. As mentioned above, we made the difficult decision in 2018 to discontinue our investment in a backend payment processing technology. This resulted in a pre-tax charge to earnings of almost $8 million in the fourth quarter of 2018. Backend payment processing is clearly a scale business and one in which the window of competitive advantage quickly closes. When we started the deployment of a payment processing system utilized by some of the largest banks in Europe, the Middle East, and Africa, we believed the technology would have a competitive advantage in the United States. The bottom line was a hard lesson learned in the adaptability of existing competitors to scale and leverage 2018 Letter to Shareholders | Page 5

 

investment in core systems. In the end, regardless of the strength of the technology, it could not be deployed in a profitable manner and the investment was terminated. The decision to discontinue this investment does not impact our existing payment processing revenue or customers, and we believe we can continue to grow this business. UniLink, NBS’ operating subsidiary in Australia, is a payment and commerce services provider to higher education, serving over 70 percent of all higher education institutions Down Under. Australia presents a growth opportunity in K-12 education as well. In 2018, we completed the acquisition of PCSchool, a student information system serving nearly 150 private and faith-based schools in Australia and New Zealand. We also saw strong growth in the deployment of the FACTS payment plan service in Australia, and we expect a fully integrated solution with PCSchools will enhance FACTS’ growth in the market. We began building momentum in the church and not-for-profit spaces in January 2018 with the acquisition of 80 percent of the outstanding membership interests of Aware3, a mobile-first technology company focused on these spaces. Aware3’s product provides a solution that increases engagement, online giving, and communication with church members. In addition, Aware3 is integrated with FACTS Giving, our donor management tool allowing schools and not- for-profits to manage donor relationships and modernize fundraising in a mobile-first way. We are pleased with our revenue growth and momentum in NBS. With the termination of spend on backend payment processing technology, we expect our earnings growth to recover to historical levels that are consistent with topline revenue growth. Telecommunications: "Give Me a Honk on the Pipes.” In virtually any industry, a high-quality product coupled with superior customer service will create demand. In the telecommunications industry, specifically as it relates to fiber optic service delivery, this really means: Speed + Connectivity + Network Quality = DEMAND. We have seen this translate into tremendous growth for ALLO Communications in 2018. Nelnet acquired ALLO on Dec. 31, 2015. ALLO stands out from other telecommunications providers because of its superior network and technology and hassle-free customer service. In 2004, ALLO began creating GIG communities (offering internet speeds of one gigabit per second or more) by overbuilding rural Nebraska communities with an all-fiber optic network. These fiber networks provide communities with the fastest internet speeds, unmatched broadband, and superior video and telephone services to meet the bandwidth demands of residents and businesses. Nelnet’s investment in ALLO is both good for business and good for the underserved communities in which it operates, as it helps provide critical connectivity infrastructure. 2018 Letter to Shareholders | Page 6

 

ALLO plans to complete all major construction in Lincoln, Neb. in the first quarter of 2019, after three years of building out its complete fiber network. This is a large milestone for the company and we’re proud to be able to offer these services to all residents and businesses in the community. Fiber sets ALLO apart from the competition. As cloud computing, streaming services, and the internet of things have become conventional, the need for internet speed and bandwidth is almost insatiable. The fiber light signal moves faster, carries more data, maintains speed over long distances, and is less susceptible to interference from things such as power lines. These capabilities dramatically improve how a community’s businesses, schools, medical offices, and government operate, as well as how people live and communicate, impacting a community’s growth and ability to be economically vibrant. Every customer in our service area has an opportunity to get one-GIG speeds up and down. We have transformed our service areas from lagging in comparison to other communities in their respective states to top eight rankings nationally for upload and download speeds. City speeds based on average speeds for all results. ISP speed based on Speed Score. City Download (Mbps) Upload (Mbps) Fastest ISP ISP's Speed Score Kansas City, MI 159.19 127.03 Google Fiber 228.36 Austin, TX 143.66 70.65 Google Fiber 197.44 Lubbock, TX 141.48 26.98 Sudenlink 136.82 Raleigh, NC 137.70 75.62 Google Fiber 197.19 San Antonio, TX 133.86 49.86 Grande Communications 150.30 Lincoln, NE 132.89 105.29 Allo 173.34 Henderson, NV 131.63 23.48 Cox 123.06 San Francisco, CA 131.56 69.28 Sonic 253.96 *According to the 2018 Speedtest U.S. Fixed Broadband Performance Report by Ookla What has this meant in 2018? – Greater than 80 percent growth in households served and more than 70 percent growth in revenue. We like the trajectory and the opportunity we see with ALLO and the communities we serve. We’re excited to see where this momentum takes ALLO in 2019. Revenue from ALLO was nearly $45 million in 2018, compared with $26 million in 2017. Households passed increased almost 51,000, to 122,396 at the end of 2018, and households served increased from 20,428 to nearly 37,400. Our fiber optic network includes more than 240,000 miles of fiber cabling. 2018 Letter to Shareholders | Page 7

 

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. In 2018, ALLO had negative EBITDA of $4 million, compared with negative EBITDA of $9 million for 2017.2 We have developed the infrastructure and service delivery model to continue to grow. In the fourth quarter of 2017, ALLO announced plans to develop Hastings, Neb. and Fort Morgan, Colo., which will increase our households passed to almost 153,000 by the end of 2019. ALLO plans to continue to increase market share and revenue in its existing markets and we are currently evaluating opportunities to expand to additional communities. 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, 2018, filed with the Securities and Exchange Commission on Feb. 27, 2019. Asset Generation and Management: "You Know I’m Living on a Fixed Income Now.” The primary function of our Asset Generation and Management Division is to originate or purchase loan assets and finance them by issuing bonds secured by the loans. Bonds are often equated with being fixed-income securities, which are generally excellent investments for fixed-income funds, banks, and insurance companies. We had an unexpected and amazing year in this division, with $3.7 billion in FFEL Program loan purchases from over 600 distinct sellers. The portfolio purchases ranged in size from $1,000 to over $1 billion. This was an unanticipated side benefit of the Great Lakes transaction. As we prepared to consolidate all of the Great Lakes serviced FFEL Program and private education loans onto Nelnet’s platform, we approached the loan holders with an offer to purchase their portfolios. Hundreds accepted our offer. With all of the loan acquisition activity came financing activity. We executed on five different term securitizations totaling $3 billion, our most active year securitizing since 2013. Despite a year marked by periods of extreme macroeconomic volatility, we managed to achieve relatively consistent pricing across our five transactions. Our strong investor partnerships allow us to outperform other issuers when markets are especially challenging. 2018 Letter to Shareholders | Page 8

 

We made significant portfolio investments outside of government guaranteed student loans. We purchased unsecured consumer loans from three different originators totaling $120 million. We also made our first significant purchase of private education loans since 2016, totaling $68 million. In the fall, we relaunched our U-fi consumer loan origination platform with significant customer experience improvements. We are sticking our toe back into the online lending business, and are proud to have originated our first loan in October 2018. We plan on taking the origination of new loans slowly as market conditions warrant. The bottom line is we have all the systems, people, and processes up and running and stand ready to capitalize on market opportunities, credit cycles, and our customers’ needs. This is particularly important if we are successful in launching Nelnet Bank. In June, we filed an application for an Industrial Bank Charter with the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions for Nelnet Bank. We feel that insured deposits are the most stable source of funding for student loans during any credit cycle, especially while the students are in school. After consulting with the FDIC, we felt that we were not quite ready to proceed and withdrew the application. We believe that near the end of 2019 we will be fully ready to proceed, and if all of the stars line up we intend on filing our application again in the fourth quarter. We are cautiously and methodically preparing for the right market opportunities in our Asset Generation and Management division and stand ready to capitalize on the momentum we created in 2018. Hudl: "Whoa, Nelly!” Talk about momentum. Since 2010, Nelnet has invested significantly in Hudl, a sports software company revolutionizing how teams around the world analyze game and practice film. In 2010, we invested $100,000; in 2014, we invested $726,000; in 2015, we invested $40.6 million; and in 2017, we invested $10.4 million. Our investments in Hudl total $51.8 million to date. Hudl continued to experience solid growth in 2018 by elevating its technology offerings to address the needs of the entire athletic department and broadening its offerings to elite clubs around the globe. In early 2018, the company acquired Netherlands-based Incatec, a startup focused on delivering “intelligent cameras” to elite soccer clubs in Europe. These cameras use multiple sensors on a single unit to capture panoramic video of an entire soccer pitch, stitch the video feeds together, and then generate an automated broadcast-like view of the action in real time. Hudl refocused the team on delivering that same functionality for high school basketball and volleyball teams in the United States, addressing one of the biggest challenges for these teams – reliably capturing high-quality video. The new product, aptly named Hudl Focus, had an impressive beta in 2018 and will be released broadly in 2019. 2018 Letter to Shareholders | Page 9

 

Recently, the company announced the relaunch and rebranding of one of its core products, Hudl Sportscode, the global standard for video analysis at the elite level. Globally, more than 3,000 teams spanning top collegiate and professional organizations use the product, including all 20 English Premier League teams, 29 NBA teams, and more than 70 percent of NCAA Division I men’s and women’s basketball teams. The company remains headquartered in Lincoln, Neb., and has grown its Lincoln presence to more than 450 “Hudlies.” In total, the company has grown to more than 1,300 associates across 20 countries. As Hudl continues to grow and opportunities arise, there is a potential that Hudl will raise additional capital. If the capital raise is in the form of equity, it will be the first observable price change of Hudl since accounting rules have changed, resulting in us having to record our Hudl investment at the new observable price. The difference between our cost basis and the fair value established from the equity raise offering price would run through our income statement. The momentum that Hudl is experiencing remains awesome in our opinion. Time will tell if we are right. "See Your Future. Be Your Future." In 2018, we added a new independent director, Preeta Bansal, to our board of directors. Preeta brings a wealth of experience and knowledge from her work in federal and state government, including regulatory agencies, private law practice, and global banking. With her accomplishments, it is a privilege to have her join our company. As a Lincoln, Neb. native, we are grateful to have her back in our community and look forward to the guidance and wisdom she will bring to our board. 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 we intend to go 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. 2018 Letter to Shareholders | Page 10

 

Nelnet’s Corporate Performance (Annual Percentage Change) Nelnet Per Share Book Value With Nelnet Per Share S&P 500 Dividends Included Market Value With Dividends Included With Dividends Included 2004 49.2% 20.2% 10.9% 2005 41.5% 51.1% 4.9% 2006 6.3% (32.7%) 15.8% 2007 (1.6%) (52.5%) 5.5% 2008 6.6% 13.3% (37.0%) 2009 21.0% 20.7% 26.5% 2010 23.7% 41.6% 15.1% 2011 22.6% 4.9% 2.1% 2012 16.7% 27.5% 16.0% 2013 26.1% 42.8% 32.4% 2014 21.1% 10.9% 13.7% 2015 16.0% (26.6%) 1.4% 2016 15.4% 52.7% 12.0% 2017 8.8% 9.1% 21.8% 2018 9.9% (3.2%) (4.4%) CAGR 18.2% 7.1% 7.8% We are very proud of the work that is being done by all of our talented associates and want to welcome all of the new associates who joined the Nelnet family of companies in 2018, including those from Great Lakes, TMS, Aware3, and PCSchools. As our friend Butter taught us, our people are our most valuable resource, and continuing to foster an environment where they can succeed remains our priority. We recognize that financial 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 2018 Letter to Shareholders | Page 11

 

Mike’s dad, Jay Dunlap, always said in any business there needs to be a balance among the company’s customers, associates, shareholders, and the community. This wisdom formed the basis of Nelnet’s core values. In honor of our dear friend, this year I want to call out Butter’s favorite core value: Create an awesome work environment. We will. Thank you for your continued investment in our company. Dream, Learn, Grow. Sincerely, Jeffrey Noordhoek, Chief Executive Officer 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 as statements in future tense, are intended to identify forward-looking statements. These statements are based on management’s current expectations as of the date of this letter and are subject to known and unknown risks 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 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; the uncertain nature of the expected benefits from the acquisition of Great Lakes and the ability to successfully integrate technology, shared services, and other activities and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the Department; risks to the company related to the Department’s initiatives to procure new contracts for federal student loan servicing, including the risk that company teams may not be successful in obtaining contracts; risks related to the development by the company and Great Lakes of a new student loan servicing platform, including risks as to whether the expected benefits from the new platform will be realized; 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; the risk that an application for an industrial bank charter to launch Nelnet Bank may not result in the grant of a charter; 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 (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. 2018 Letter to Shareholders | Page 12