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SLM Corporation |(SLM – NYSE) |$23.41 | |

Note: FLASH REPORT; more details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: FLASH UPDATE: 2Q13 Earnings

Previous Edition: News Update, Jun 20, 2013

Flash Update (earnings update to follow)

On Jul 17, 2013, Sallie Mae declared its 2Q13 earnings results. Core earnings of $1.02 per share, were ahead of the Zacks Consensus Estimate of $0.69. Results also compared favorably with the year-ago core earnings of $0.49.

Higher net interest income and lower loan loss provisions primarily boosted the company’s better-than-expected results. However, increased operating expenses were a plausible concern.

Including a $257 million gain from the sale of residual interest in a Federally Guaranteed Student Loans (FFELP) loan securitization trust, a $38 million after-tax gain from the sale of the company’s Campus Solutions business, and other one-time items, core earnings was $462 million, up 90% from $243 million in the prior-year quarter.

Including the aforementioned one-time items, coupled with changes in mark-to-market unrealized gains and losses on derivative contracts, as well as amortization and impairment of goodwill and intangible assets, Sallie Mae recorded 2Q13 GAAP net income of $543 million or $1.20 per share. This was up from $292 million or $0.59 per share in the prior-year quarter. 2Q13 GAAP results included a $143 million gain from derivative accounting treatment versus $83 million in the prior-year quarter.

Net interest income (NII) rose 5% year over year to $784 million, primarily due to escalation of non-cash premium expense recorded in 2Q12 related to the U.S. Department of Educations (ED) consolidation of $5.2 billion of loans. This was partially offset by a decline in average FFELP Loans outstanding.

However, provision for loan losses fell 17% year over year to $201 million, primarily due to the overall improvement in Private Education Loans credit quality, delinquency and charge-off trends leading to a decline in expected future charge-offs.

The company’s operating expenses rose 12% year over year to $258 million. This was primarily due to an increase in third-party servicing and collections activities as well as Private Education Loan marketing, together with continual investments in technology.

Segment Performance

Consumer Lending: The segment’s core earnings were $107 million in the reported quarter, compared with $85 million in the year-ago quarter. The increase was primarily attributable to a decrease in the provision for private education loan losses.

Core net interest margin, before loan loss provision, declined to 4.12% from 4.14% in the prior-year period. Private education loan originations were $368 million, up 15% year over year.

The charge-off rate (as a percentage of loans in repayment) was 2.7% on an annualized basis, down from 3.1% in the prior-year quarter. Provision for loan losses declined 17% year over year to $187 million.

Business Services: The segment reported core earnings of $166 million, up 21% from the year-ago quarter. The increase was primarily due to $38 million after-tax gain from the sale of the company’s Campus Solutions business.

FFELP: The segment generated core earnings of $237 million, up substantially from $44 million in the year-ago quarter. The increase resulted from a $257 million gain from the sale of residual interests in FFELP loan securitization trusts.

Outlook

For full-year 2013, management expects to generate core earnings of $2.80 per share, including gains of $0.44 earnings per share related to FFELP loan securitization trust residual sales and $0.08 earnings per share from the business sale that occurred till Jun 30, 2013. Further, it anticipates private education loan originations of at least $4.0 billion.

Capital Deployment Update

Sallie Mae’s capital deployment efforts are encouraging. For 2Q13, the company repurchased 9 million shares of common stock for $201 million. For the first six months of 2013, it repurchased 19 million shares for $400 million, thus completing the Feb 2013 share repurchase program. Further, in Jul 2013, the company authorized $400 million to be utilized in a new common share repurchase program that does not have an expiry date.

MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON SLM.

Portfolio Manager Executive Summary [Note: Only highlighted material has been changed.]

SLM Corporation (SLM) – also known as Sallie Mae – provides funding, servicing, management, and collection of student loans. Originally founded in 1972, as a government-sponsored enterprise (GSE) called the Student Loan Marketing Association, the company has been privatized since Jan 2005. In Dec 2010, the company acquired $27 billion of securitized federal student loans and related assets from The Student Loan Corporation (STU), a subsidiary of Citibank, N.A. The acquisition expanded SLM Corp.’s customer base.

Trend of Broker Opinions: Brokers’ sentiments on the stock are skewed toward the optimistic side, with 66.7% of the firms in the Digest group rating the stock positive and the remaining 33.3% rendering a neutral rating. None of the firms provided a negative rating. Target prices provided by the firms range from a low of $21.00 to a high of $28.00 per share. The average came in at $24.67, implying a return of 9.7%.

Chief Investment Considerations:

▪ Dominant player in the student lending market

▪ Diversified revenue base

▪ Servicing contract and federal student loan assets acquisition

▪ Ability to return capital to its shareholders

▪ Improving credit quality

▪ Expense reduction initiatives

▪ Run-off Federal Family Education Loan Program (FFELP) portfolio

▪ Business model skewed toward higher-risk private student loans

▪ Sluggish economic growth

Positive or equivalent outlook – Four firms or 66.7%: According to the firms, SLM Corp. is showing good progress in its efforts to reduce its expenses, improve credit quality trends, increase private student loan originations and new fee business measures, as well as return capital to shareholders. While the Federal Family Education Loan Program (FFELP) balances wind down, the expense reduction initiatives, decrease in private provision expenses as well as strategic FFELP portfolio acquisitions would support its earnings in the coming quarters. The firms believe that the company has a significant opportunity to enhance its private student lending and federal loan servicing business. This growth is expected to offset the loss in revenues from the FFELP portfolio. Therefore, the shares deserve a premium valuation in the future. Moreover, the firms expect the company to generate significant excess capital in the long term as the FFELP portfolio runs off. In addition, the capital deployment activities further enhance investors’ confidence.

Neutral or equivalent outlook – Two firms or 33.3%: According to the firm, SLM Corp. is expected to benefit from growth in private student lending. The firm also hopes that both FFELP and private loan NIMs will be stable, thereby aiding overall stable NIM in 2013. Further, the firm expects expenses to be well controlled in the upcoming quarters. Moreover, charge-offs are expected to fall in 2013, attributable to better loan quality and the mix shift to higher-quality loans.

June 20, 2013

Overview [Note: Only highlighted material has been changed.]

Based in Reston, Virginia, and commonly known as Sallie Mae, SLM Corporation is the nation’s market leader in education finance. The company provides funding, delivery and servicing support for education loans in the United States, through its non-federally guaranteed Private Education Loan (PEL) programs and as a servicer and collector of loans for the U.S. Department of Education (DOE). In addition, the company is the largest holder, servicer and collector of loans made under FFELP, a program that was recently terminated.

Sallie Mae’s other businesses include guarantor administrative services and default management/ collection services for large federal agencies, credit card clients, and other holders of consumer debt. Additionally, it provides processing capabilities and information technology to educational institutions. Following its acquisition of Upromise in 2006, a leading saving-for-college company, Sallie Mae is also the largest administrator of 529 direct-to-consumer college-savings plans. As of Mar 31, 2013, the company had total assets of $174.8 billion, shareholders’ equity of $5.1 billion and long-term debt of $147.0 billion.

The company currently operates under the following 4 segments:

▪ FFELP Loans Segment: (Contributed core earnings of $307 million in 2012) – The segment consists of its FFELP Loan portfolio as well as the underlying debt and capital funding the loans. These FFELP Loans are financed through various types of secured non-recourse financing vehicles and unsecured debt. In addition to the net interest margin, the company earns other fee income, which is primarily generated by late fees on the loans in the portfolio.

▪ Consumer Lending Segment: (core earnings of $278 million) – In this segment, Sallie Mae originates, acquires, finances and services Private Education Loans. Private Education Loans are generally of 2 types: (1) those that are designed to bridge the gap between the costs of higher education and the amount financed through either federal loans or borrowers’ resources, and (2) those that are used to meet the needs of students in alternative learning programs such as career training, distance learning, and lifelong learning programs.

▪ Business Services Segment: (core earnings of $540 million) – The segment generates revenues from servicing of its FFELP Loan portfolio as well as servicing of FFELP and other loans for other financial institutions, Guarantors and DOE. The segment also performs default aversion work and contingency collections on behalf of Guarantors and DOE, Campus Payment Solutions, account asset servicing, and transaction processing activities.

▪ Other Segment: (core loss of $63 million) – The Other segment primarily consists of the financial results related to the repurchase of debt, the corporate liquidity portfolio, and all overhead. The company also includes results from smaller wind-down and discontinued operations within this segment. These are the Purchased Paper businesses as well as mortgage and other loan businesses. This segment includes its remaining businesses that do not pertain directly to the primary segments identified above.

On Dec 31, 2010, Sallie Mae successfully accomplished the acquisition of $25 billion in securitized federal student loan assets from The Student Loan Corporation, a Citigroup Inc. subsidiary. The acquisition expanded Sallie Mae’s customer base by approximately 1.3 million.

Further information is available on the company’s website: .

Key investment considerations as identified by the analysts are as follows:

|Key Positive Arguments |Key Negative Arguments |

|Leader in education finance, with a significant market share |Significant financial leverage |

|Continues to shift business to its own brands, with expectations that |Persistent margin pressures on net income due to low net spreads on |

|private student loans would support spreads in the upcoming quarters |consolidations |

|Consistent benefits from increasing tuition costs and high enrollment trends|The legislation, forbidding private sector companies from making new |

|Credit improvement, acquisition deal, restructuring savings and overall |federal student loans after Jun 30, is a serious concern as SLM Corp.’s |

|economic improvement would boost earnings |traditional role would change and its loan portfolio would become heavily|

|Low credit and interest rate risks |weighted toward the higher-risk private student loans |

|Higher cash flow generated from its loan portfolios should help create value|Declining net interest income from the run-off FFELP portfolio |

|for shareholders through dividends or share repurchases |Although the company utilizes derivative instruments to hedge interest |

|Strategic FFELP portfolio acquisitions would support its earnings |rate exposure, it cannot hedge all its exposure |

NOTE: The company’s fiscal year references coincide with the calendar year.

May 1, 2013

Long-Term Growth [Note: Only highlighted material has been changed.]

According to the firms, SLM Corp. stock remains attractive from shareholders’ point of view as the company moves toward profitability in the long-term. As a matter of fact, there exists a decent long-term opportunity for the company to consolidate its position within the student lending market and increase its share in the growing private loan space that would help drive sustainable earnings growth.

The firms believe that SLM Corp. is a dominant player in every phase of a student loan life cycle, providing the competitive advantage of scale. Its operations are seen as less sensitive to economic cycles relative to its peers, and are more dependent on the demand for educational loans by students (which is expected to be fairly strong in the foreseeable future). According to the data from the National Centre for Education Statistics-U.S. Department of Education, college enrollment increased by approximately 14% from 2007 through 2011 and is further expected to rise 11% from 2011 to 2020. The demand for education credit is also expected to strengthen with enrolment over the next decade. This growth expectation, combined with increasing tuition costs and high enrollment trends, should drive solid growth in education financing in the coming years.

As SLM Corp. transforms itself into a complete private entity, the firms expect management to focus on improving the quality of its loan book (higher margin, higher spread) and expand its market share through further acquisitions. Further, consistent expense control by the company will be a growth driver. Even though the decline in FFELP portfolio is anticipated to lead to a fall in revenues, the firms hope for its mitigation by private FFELP portfolios acquisition and a rise in private loans.

May 1, 2013

Target Price/Valuation [Note: Only highlighted material has been changed.]

Provided below is a summary of valuations and ratings as compiled by Zacks Research Digest:

|Rating Distribution |

|Positive |66.7%↓ |

|Neutral |33.3%↑ |

|Negative |0.0% |

|Average Target Price |$24.67↑ |

|Maximum Upside from Current Price |24.6% |

|Minimum Upside from Current Price |-6.6% |

|Upside from Current Price |9.7% |

|Digest High |$28.00↑ |

|Digest Low |$21.00↑ |

|Number of Analysts with Target Price/Total |6↑/6↑ |

According to the firms, risks to the price target include substantially higher-than-expected private student loan charge-offs as well as loss provisions and prolonged disruption in the credit markets.

Recent Events [Note: Only highlighted material has been changed.]

On Jun 13, 2013 SLM Corp. declared the formation of a new loan trust named SLM Student Loan EDC Repackaging Trust 2013-M1. Sallie Mae sold BBB-rated bonds at face value of $225.0 million with a weighted average life of 3.05-year and a 3.5% interest rate, through this trust.

On Jun 10, 2013, SLM Corp. declared the closure of a $6.8 billion credit facility, which used to aid term securitization of its federally guaranteed (FFELP) loans. The credit facility was over-subscribed by a group of 8 international financial organizations.

On May 29, 2013 Sallie Mae announced its board of directors’ decision to split the company’s present business into 2 parts. The separated units will operate as standalone publicly traded companies. One of them will be in education loan management business while the other will function as a consumer banking business. Sallie Mae expects the division to be completed within a year.

On May 7, 2013, Sallie Mae’s Campus Solutions Business was acquired by Higher One. Campus Solutions Business comprised business-to-business solutions offered to colleges and universities. Notably, assets worth $47.3 million were acquired by higher One in compliance with the terms and conditions of the acquisition.

On Apr 17, 2013, SLM Corp. declared its 1Q13 earnings results. Core earnings of $0.61 per share, were slightly ahead of the Zacks Consensus Estimate of $0.59. Results also compared favorably with the year-ago core earnings of $0.55.

Core earnings were $283 million down from $284 million in the year-ago quarter, which included a $55 million gain from the sale of residual interest in a FFELP loan securitization trust, a $12 million decrease in the provision for loan losses and a fall in the number of common shares outstanding. These positives more than offset lower net interest income before provision for loan losses of $57 million and lower debt repurchase gains of $8 million,

Lower loan loss provisions primarily boosted the company’s better-than-expected results. However, decreased net interest income and elevated operating expenses remain matters of concern.

Including the aforementioned one-time items, with changes in mark-to-market unrealized gains and losses on derivative contracts as well as amortization and impairment of goodwill and intangible assets, Sallie Mae recorded first-quarter 2013 GAAP net income of $346 million or $0.74 per share compared with $112 million or $0.21 per share in the prior-year quarter. First-quarter 2013 GAAP results included a $110 million gain from derivative accounting treatment versus a loss of $264 million in the prior-year quarter.

Revenue

Net Interest Income

As per the company, net interest income on a GAAP basis came in at $795.0 million in 1Q13, down 2.0% year over year (y/y) from $811.0 million in 1Q12. Results were adversely affected by a $15.3 billion decrease in average FFELP Loans outstanding. The fall in average FFELP Loans outstanding was driven by normal loan amortization as well as $5.2 billion of loans that were consolidated by the U.S. Department of Education in 2012 under their Special Direct Consolidation Loan Initiative.

Other Income

On a GAAP basis, total other income was $277.0 million in 1Q13, compared with a loss of $108.0 million in 1Q12. The increase primarily reflected a $55 million gain on the sale of the residual interest in the FFELP Loan securitization trust.

Segments

Consumer Lending: The segment’s core earnings were $88.0 million in the reported quarter, up 5% from $84 million recorded in the year-ago quarter. Lower loan loss provision aided the upside. Core net interest margin, before loan loss provision, dropped to 4.15% from 4.26% in the prior-year period. Private education loan originations were $1.4 billion, up 22.0% year over year.

The charge-off rate (as a percentage of loans in repayment) was 3.0% on an annualized basis, stable from the prior-year quarter. Provision for loan losses decreased 4% year over year to $225.0 million. Delinquencies of 90 days or more were 3.9% of loans in repayment, down from 4.4%.

Business Services: The segment reported core earnings of $124.0 million, down 9.0% from the year-ago quarter. The decrease was primarily due to the lower balance of FFELP loans serviced by the company.

Federal Family Education Loan Program: This segment generated core earnings of $104.0 million in the reported quarter, up 30.0% from $80.0 million in the year-ago quarter. The increase was attributable to a $55 million gain from the sale of the residual interest in a FFELP loan securitization trust, which more than offset the decline in net interest income from the amortizing FFELP portfolio.

Other segment: This segment generated core loss of $33.0 million in the reported quarter compared with core loss $17.0 million in the year-ago quarter. Total other income was 29.0 million, down 28% y/y.

Outlook

The company intends to strengthen core earnings primarily through improving Private Education Loan portfolio performance and increased productivity. However, it still has a long way to go to offset the plummeting revenues from the FFELP business segment. Loan originations are also expected to increase in the upcoming quarter mainly due to of market as well as industry-wide growth. The company will continue to target new originations of $4.0 billion for the year 2013 compared with $3.2 billion in 2012. While it is in a position to significantly enhance loan originations, maintaining a conservative approach for its loan loss reserve will also be a priority.

Further, management anticipates loan spread in the FFELP segment to be roughly in the range of mid to high 90s throughout 2013.

Although, the fall in the FFELP loan portfolio is expected to negatively impact net interest income in the near term, the firms anticipate the company will benefit from growth in private student lending. Further, continued FFELP portfolio acquisitions, reflecting the company’s better operating margins, will prove to be another tailwind. Moreover, the firms anticipate both the FFELP and private loan NIMs to be stable, aiding overall stable NIM in 2013, based on stable student loan yields.

Margins

Operating expenses were $270.0 million in 1Q13, up 3.0% from the prior-year period. Excluding the result of a non-recurring $8 million pension termination gain in first-quarter 2012, operating expenses were stable.

Segment Details

Consumer Lending: Total expenses were $66.0 million, down 6.0% y/y, mainly due to management’s consistent focus on expense control and operating efficiencies.

Business Services: Total expenses were $122.0 million, down 1.0% y/y.

Federal Family Education Loan Program: Total expenses were $157.0 million, down 15.0% y/y. The decline was mainly as a result of the reduction in the average outstanding balance of the FFELP Loans portfolio.

Other segment: Total expenses were $74.0 million, down 10.0% y/y.

Outlook

Expense control and improving productivity remain the priorities for the company. It aims to maintain operating expenses below $1.0 billion in 2013.

Overall, the firms expect expenses to be well controlled at SLM Corp. in the coming quarters. Moreover, they share management’s opinion regarding expenses.

Earnings per Share

SLM Corp.’s 1Q13 core earnings came in at $283.0 million or $0.61 per share, compared with the year-ago quarter’s core earnings of $284.0 million or $0.55 per share.

Core earnings included a $55 million gain from the sale of residual interest in a FFELP loan securitization trust, a $12 million decrease in the provision for loan losses and a fall in the number of common shares outstanding, which more-than-offset lower net interest income before provision for loan losses of $57 million and lower debt repurchase gains of $8 million.

On a GAAP basis, SLM Corp.’s 1Q13 net income came in at $346.0 million or $0.74 per share, compared with $112.0 million or $0.21 per share reported in the quarter last year. GAAP income included the aforementioned one-time items, changes in mark-to-market unrealized gains and losses on derivative contracts as well as amortization and impairment of goodwill and intangible assets. 1Q13 GAAP results also included a $110 million gain from derivative accounting treatment versus a loss of $264 million in the prior-year quarter.

Guidance

SLM Corp. updated its guidance for 2013. For full-year 2013, management expects to generate core earnings of $2.49 per share, inclusive of the contributions from 2 FFELP loan securitization trust residual sales that were generated in 2013.

Outlook

Some of the firms have lowered their 2013 and 2014 EPS estimates based on 1Q13 results and the anticipation of lower revenue resulting from decreasing interest income from the sale of FFELP interest.

However, some firms raised their 2013 and 2014 EPS estimates based on reduced operating expenses.

Balance Sheet/Capital Structure/Others

Loan Originations

Total Private Education Loan originations were $1.4 billion, up 22% year over year from $1.1 billion in 1Q13. As of Mar 31, 2013, the company provides service to 4.8 million loan customers on behalf of the Department of Education.

Outlook

SLM Corp. will consistently pursue growth in the Private Education loan portfolio in 2013. Currently, it is targeting approximately $4.0 billion in new originations for the year compared with $3.2 billion in 2012. Further, management anticipates the student loan portfolio to grow in 2013 and further stated that for 2014, increase in loan origination will be similar to 2013.

Based on the company’s efforts to increase its market share and also industry-wide growth, the firms expect a rise in private loan originations in 2013.

Credit Quality

Provisions for loan losses declined 5.0% y/y to $241.0 million, primarily due to the overall improvement in Private Education Loans’ credit quality and delinquency trends as well as an anticipated fall in future charge-offs.

Provision for loan losses from private education loans decreased 4.0% to $225.0 million in 1Q13 from $235.0 million in the prior-year quarter, due to the overall improvement in credit quality and delinquency trends as well as an anticipated decline in future charge-offs. Private Education Loans charge-offs increased 4.0% to $232.0 million in 1Q13 from $224.0 million in 1Q12.

Credit quality improvement in the reported quarter is reflected in higher FICO scores, cosigner rates and a more seasoned portfolio in the reported quarter. Total loans delinquent (as a percentage of loans in repayment) fell to 7.8% from 9.1% in 1Q12. Loans greater than 90 days delinquent (as a percentage of loans in repayment) decreased to 3.9% from 4.4% in the year-ago quarter. Loans in forbearance (as a percentage of loans in repayment and forbearance) dropped to 3.4% from 4.3% in the year-ago quarter. The charge-off rate remained unchanged at 3.0% in both quarters.

Provision for Loan Losses for FFELP decreased 11.0% y/y to $16.0 million. Similarly, charge-offs fell 4.0% y/y to $22.0 million.

Outlook

Management anticipates the increase in delinquencies and charge-offs to reduce significantly in the near term, based on a change in portfolio mix as well as a decline in delinquencies. The company anticipates charge-offs to fall considerably in the near future.

A number of firms expect charge-offs to fall in the upcoming quarters, owing to better loan quality and the mix shift to higher-quality loans entering repayment.

Funding and Liquidity

In 1Q13, SLM Corp. issued $1.2 billion in FFELP asset-backed securities (ABS) and $1.4 million in private education loan ABS and $1.5 billion of unsecured bonds.

Total debt repurchases were $927.0 million in 1Q13 compared with $204.0 million in 1Q12.

Sallie Mae continues to issue FFELP ABS primarily as a means to finance the redemption of all remaining FFELP loans previously sold into the U.S. Department of Education’s conduit program. The company hopes to redeem all of these loans prior to the conduit program’s Jan 19, 2014 maturity date.

In 1Q13, the company issued $2.6 billion of private credit ABS in 3 separate deals. As of Mar 31, 2013, SLM Corp. has approximately $119.2 billion of FFELP loans, down from $135.9 billion as of Mar 31, 2012.

Outlook

According to the company, the ABS market continues to build up, enabling the company to implement a long-term funding strategy of originating new loans in the bank and term-funding more seasoned originations in the ABS market at attractive spreads.

Dividend Update and Share Repurchase

On May 30, 2013, the company’s board of directors approved 3Q13 dividend on its Preferred Stock Series A of $0.87125 per share. The dividend will be paid on Jul 30, 2013, to shareholders of record as on Jul 19, 2013.

Sallie Mae’s capital deployment efforts are encouraging. In 1Q13, Sallie Mae repurchased 10 million shares of common stock for $199.0 million. The shares were repurchased under the company’s Feb 2013 program that authorizes buy back of shares worth up to $400.0 million.

On Apr 9, 2013, the board of directors of SLM Corp. announced a quarterly cash dividend on its common stock of $0.15 per share. The dividend was paid on Jun 21, 2013, to shareholders of record at the close of business on Jun 7.

Additionally, the company announced a 2Q13 dividend on its Preferred Stock Series A of $0.87125 per share. The dividend was paid on Apr 30, 2013 to Series A shareholders of record at the close of business on Apr 19.

Further, the company also announced a 2Q13 dividend on its Preferred Stock Series B of $0.5170261 per share. The dividend was paid on Jun 17, 2013, to shareholders of record at the close of business on Jun 7.

On Feb 5, 2013, the board of directors of SLM Corp. announced a 20.0% hike in quarterly cash dividend on its common stock to $0.15. The dividend was paid on Mar 15, 2013 to shareholders of record at the close of business on Mar 1, 2013.

The board of directors also authorized a $400.0 million share repurchase program on the company’s outstanding common stock. The share repurchase program does not have an expiration date.

Furthermore, the company announced 1Q13 dividend on its Preferred Stock Series B of $0.4908444 per share. The dividend on the Series B Preferred Stock was paid on Mar 15, 2013 to its shareholders of record at the close of the business on Mar 5, 2013.

Outlook

Management expects capital deployment to be less than the prior year in 2013.

Overall, the firms expect the company to continue its healthy capital deployment efforts and announce a new share buyback program in the near future.

SLM Corp splits into two parts

On May 29, 2013, in order to counter regulatory upheavals, SLM Corp. announced its board of directors’ decision to split the company’s present business into 2 parts. The separated units will operate as standalone publicly traded companies. One of them will be in education loan management business while the other will function as a consumer banking business. Sallie Mae expects the division to be completed within a year.

Both newly formed companies will be initially owned by Sallie Mae’s existing shareholders. Moreover, the current executives managing the unit will be at the helm even after the split. Following the necessary approvals, the split will be made through a tax-free distribution of common shares to the company’s stockholders.

The education loan management business will consist of Sallie Mae’s federally guaranteed (FFELP) and private education loan portfolios, as well as its servicing and collection activities. The education loan management business’ principal assets are expected to constitute about $118.1 billion in FFELP Loans, $31.6 billion in private education loans and $7.9 billion of additional interest-earning assets.

Moreover, it will also constitute a leading education loan servicing platform that services loans for approximately 10 million federal education loan customers, including 4.8 million customer accounts serviced under Sallie Mae’s agreement with the U.S. Department of Education. On an aggregate, this company will own approximately 95.0% of Sallie Mae’s current assets.

The other business shall comprise private education loan origination and servicing operations – including Sallie Mae Bank and the private education loans that the company presently holds – which will operate separately under Sallie Mae. The consumer banking business is expected to include approximately $9.9 billion of total assets, including mainly private education loans and related origination and servicing platforms, cash and other investments as well as Sallie Mae Upromise Rewards program.

The decision to separate Sallie Mae’s operations comes after the suspension of new federal student loan origination, in compliance with the legislation passed by both the House and the Senate in 2012. This legislation effectively removed federal subsidy from the company.

Outlook

Some of the firms opine that the split provides better transparency to shareholders with regard to their investments. The restructuring activities will facilitate transfer of $118.1 billion FFELP loans into a tax efficient structure, thereby stimulating the stock values. This will consequently expand the number of investors in the company.

Other Developments

In Jun 2013, SLM Corp. declared the formation of a new loan trust named SLM Student Loan EDC Repackaging Trust 2013-M1. Sallie Mae sold BBB-rated bonds at face value of $225.0 million with a weighted average life of 3.05-year and a 3.5% interest rate, through this trust. The student lender also did away with its entire residual interest of the trust.

The SLM Student Loan EDC Repackaging Trust 2013-M1 is collateralized by the remaining interests from SLM Student Loan Trusts 2006-8, 2006-9 and 2007-1. However, the company declared that it will continue servicing the loans in these trusts as per existing agreements.

The sale will result in the elimination of student loans worth $6.6 billion and associated liabilities worth $6.4 billion from the company’s balance sheet. Further, the gains from the deal will add approximately $0.23 per share to Sallie Mae’s second-quarter 2013 GAAP as well as core earnings.

Additionally, the company declared the closure of a $6.8 billion credit facility, which used to aid term securitization of its federally guaranteed (FFELP) loans. The credit facility was over-subscribed by a group of 8 international financial organizations.

The facility is secured entirely by FFELP loans and amortization will take place over a one-year period. Sallie Mae intends to end participation in the Straight A federally sponsored financing program before Jan 2014 deadline, as the amount outstanding in the credit facility exceeds the residual balance in Straight A program.

The company’s suspension of the credit facility reflects its efforts to boost revenues by focusing on its consumer segment – comprising retail products and services – that directly helps students and families plan and to reduce costs of higher education.

In Apr 2013, Sallie Mae completed the sale of its remaining interest in its SLM Student Loan Trust 2006-2 securitization to a third party. However, under the existing contract, Sallie Mae will continue servicing student loans in the trust. The sale will result in the elimination of student loans worth $2.03 billion and associated liabilities worth $1.99 billion from Sallie Mae’s balance sheet. Further, the gain from the deal will produce an additional $0.13 per share to Sallie Mae’s 2Q13 GAAP as well as core earnings.

In Feb 2013, Sallie Mae sold its remaining interest in its SLM Student Loan Trust 2007-4 securitization to a third party. However, under the existing contract, Sallie Mae will continue servicing the student loans in the trust. The sale removed student loan assets of $3.8 billion and associated liabilities worth $3.7 billion from Sallie Mae’s balance sheet. Further, the gain from the deal added $0.08 per share to Sallie Mae’s 1Q13 GAAP as well as core earnings.

Moreover, the company anticipates completing another FFELP residual sale by 2Q13.

June 20, 2013

– The Online Stock Research Community

Discover what other investors are saying about SLM Corporation (SLM) at:

SLM profile on

|Coverage Team |11B |

|QCA |Kalyan Nandy |

|Lead Analyst |Priti Dhanuka |

|Analyst |Ananya Sarkar |

|Copy Editor |N/A |

|Content Ed. |Priti Dhanuka |

|No. of brokers reported/Total brokers |N/A |

|Reason for Update |Flash |

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Zacks Investment Research Page 12

July 17, 2013

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