- Net interest income increased $19.1 million or 34.4% compared to
the third quarter of 2005 and $49.4 million or 29.8% compared to
the nine months ended September 30, 2005. SAN JUAN, Puerto Rico,
Nov. 2 /PRNewswire-FirstCall/ -- Santander BanCorp (NYSE: SBP;
LATIBEX: XSBP) ("the Corporation") reported today its unaudited
financial results for the quarter and the nine months ended
September 30, 2006. Net income for the third quarter of 2006
reached $8.7 million, compared to net income of $17.4 million
reported during the third quarter of 2005. For the nine months
ended September 30, 2006 net income reached $33.1 million compared
to $62.9 million reported for the same period in 2005. Net income
for the quarter and nine months ended September 30, 2006 includes
the after- tax cost of a personnel reduction program amounting to
$4.5 million and $5.4 million, respectively. Net interest margin on
a tax equivalent basis increased by 82 basis points to 3.66% for
the quarter ended September 30, 2006, compared to the third quarter
of 2005. For the nine months ended September 30, 2006, net interest
margin on a tax equivalent basis expanded by 64 basis points to
3.61%, compared to the same period in 2005. The $8.7 million
decrease in net income for the quarter ended September 30, 2006,
was principally due to: (i) $7.8 million in expenses related to the
personnel reduction program; (ii) a $5.4 million decrease in net
interest income, excluding the operations of Santander Financial
Services, Inc. ("Island Finance"), attributable principally to the
settlement of approximately $910 million in commercial loans
secured by mortgages in two separate transactions in November 2005
and May 2006 (see Financial Results for further information); and
(iii) partially offset by a $5.3 million decrease in income tax
expense. Increases in net interest income, provision for loan
losses and operating expenses were mainly due to the operations of
Island Finance. The $29.8 million decrease in net income for the
nine months ended September 30, 2006 was principally due to: (i) a
decrease of $11.8 million in gain on sale of securities (net of
loss on extinguishment of debt); (ii) $9.6 million in expenses
related to the personnel reduction program; (iii) a $7.7 million
decrease in gain on sale of loans related to a portfolio of
charged- off consumer loans; (iv) a $9.3 million decrease in net
interest income, excluding the Island Finance operations,
attributable principally to the settlement of approximately $910
million in commercial loans secured by mortgages; and (v) partially
offset by a decrease in income tax expense of $5.0 million. The
increase in net interest income, provision for loan losses and
operating expenses during the period is primarily associated with
the Island Finance operation. Financial Results The quarter and
nine months ended September 30, 2006 reflected a decline in net
income when compared to the same periods in 2005 due principally to
expenses related to a personnel reduction program and significant
decreases in 2006 in gains on sale of loans and in other investment
portfolio activities. For the nine months ended September 30, 2006
the effect of the settlement of commercial loans secured by
mortgages also had an unfavorable impact on net interest income
when compared to the same period in 2005 which is partially offset
by the acquisition of the Island Finance business. The
Corporation's financial results for the quarter and nine months
ended September 30, 2006 were impacted by the following: -- The
Corporation experienced a net interest margin expansion of 82 basis
points including the Island Finance business and an eleven basis
point reduction excluding Island Finance for the quarter ended
September 30, 2006 versus the same period in the prior year. --
During 2006, the Corporation's net interest income reflected a
decrease over the prior year from the settlement of approximately
$910 million in commercial loans secured by mortgages that had a
net spread of approximately 1.5%. In May 2006 the Corporation
settled $608.2 million in loans to Doral Financial Corporation
("Doral") that resulted in a charge-off of $5.3 million. In
November 2005 the Corporation settled $301.3 million in commercial
loans secured by mortgages to R&G Financial Corporation
("R&G") that resulted in a termination penalty payment of $6.0
million to the Corporation. -- Non-interest income decreased during
the nine months ended September 30, 2006, compared with the same
period in the prior year, as a result of the following transactions
in 2005: a gain on sale of securities (net of the loss on
extinguishment of debt) of $11.8 million, a gain on sale of loans
of $7.7 million (comprised of a gain on sale of previously
charged-off consumer loans of $6.1 million and a gain on sale of
mortgage loans to an unrelated third party of $1.6 million). During
the nine months ended September 30, 2006, there were unfavorable
valuations of mortgage loans held for sale amounting to $1.2
million, loss on derivative transactions of $2.4 million and lower
recognition of mortgage servicing rights of $1.8 million partially
offset by higher broker-dealer, asset management and insurance fees
of $2.5 million and other fees of $2.3 million. -- The Corporation
experienced an increase in operating expenses related to the Island
Finance operation and expenses related to a personnel reduction
program. Excluding the Island Finance operation and expenses
related to the personnel reduction program, operating expenses
decreased by 2.1% and 1.7%, respectively, for the quarter and nine
months ended September 30, 2006. -- A personnel reduction program,
including an early retirement plan, was implemented at Banco
Santander Puerto Rico, our banking subsidiary, resulting in a
reduction in personnel with estimated annual savings of
approximately $6 to 8 million. The after-tax cost of the program
was $4.5 million and $5.4 million, respectively, for the quarter
and for the nine months ended September 30, 2006. -- The
Corporation's income tax expense decreased $5.3 million and $5.0
million for the three and nine month periods ended September 30,
2006, respectively. These decreases were due to lower net income
before tax. The effective income tax rate was 33.8% for the nine
months ended September 30, 2006 versus 25.8% for the same period in
2005. The increase in the effective rate was due to lower exempt
income in 2006, favorable tax rates on capital gains transactions
in 2005 and the special income taxes imposed by the Government of
Puerto Rico for taxable year 2006. -- The Corporation grew its loan
portfolio by 16.0% year over year, excluding the acquisition of the
Island Finance loan portfolio and the settlement of the commercial
loans secured by mortgages. Residential mortgage production for the
quarter increased by 32.4% over the same period in the previous
year to $237.7 million. Net income for the quarter ended September
30, 2006 was $8.7 million or $0.19 per common share compared to net
income for the quarter ended September 30, 2005 of $17.4 million or
$0.37 per common share. Annualized Return on Average Common Equity
(ROE) and Return on Average Assets (ROA) were 6.08% and 0.39%,
respectively, for the quarter ended September 30, 2006, compared to
11.78% and 0.82%, respectively, for the third quarter of 2005. The
Efficiency Ratio(1) for the quarters ended September 30, 2006 and
2005 was 70.25% and 65.82%, respectively. The cost of the personnel
reduction program, net of tax had an impact of 19 basis points, 309
basis points and 728 basis points on the Corporation's ROA, ROE and
Efficiency Ratio(2), respectively. Net income for the nine months
ended September 30, 2006 was $33.1 million or $0.71 per common
share compared to net income for the nine months ended September
30, 2005 of $62.9 million or $1.35 per common share. Annualized
Return on Average Common Equity (ROE) and Return on Average Assets
(ROA) were 7.94% and 0.51%, respectively, for the nine months ended
September 30, 2006, compared to 14.13% and 1.02%, respectively, for
the nine months ended September 30, 2005. The Efficiency Ratio(2)
for the nine months ended September 30, 2006 and 2005 was 67.16%
and 62.96%, respectively. The cost of the personnel reduction
program, net of tax had an impact of 8 basis points, 130 basis
points and 314 basis points on the Corporation's ROA, ROE and
Efficiency Ratio(2), respectively. Income Statement The $8.7
million or 49.8% reduction in net income for the quarter ended
September 30, 2006 compared to the same period in 2005 was
principally due to increases in net interest income of $19.1
million, provision for loan losses of $15.8 million and operating
expenses of $19.7 million, mainly due to the Island Finance
operation and the personnel reduction program. These changes were
partially offset by favorable variances in derivative transactions
of $1.6 million and mortgage loan valuations of $1.2 million, as
well as a decrease in the provision for income tax of $5.3 million.
For the nine months ended September 30, 2006, net income decreased
$29.8 million or 47.4% compared to the same period in 2005 due to
increases in net interest income of $49.4 million, provision for
loan losses of $28.5 million and in operating expenses of $38.6
million, mainly from the Island Finance operation and expenses
related to the personnel reduction program, together with a
decrease of $17.1 million in non-interest income. The Island
Finance operation (including the after-tax contribution to the
insurance operation of Santander Insurance Agency) contributed
approximately $1.7 million to the Corporation's net income for the
nine months ended September 30, 2006. Net interest margin(3) for
the third quarter of 2006 was 3.66% compared with 2.84% for the
third quarter of 2005. This increase of 82 basis points in net
interest margin(3) was mainly due to an increase of 220 basis
points in the yield on average interest earning assets primarily as
a result of the acquisition of the assets of Island Finance on
February 28, 2006. There was an increase of 143 basis points in the
average cost of interest bearing liabilities. Excluding the Island
Finance operation, net interest margin(3) for the third quarter of
2006 decreased eleven basis points to 2.73% versus 2.84% for the
prior year. Interest income(3) increased $49.6 million or 43.4%
during the third quarter of 2006 compared to the same period in
2005, while interest expense also increased $30.5 million or 53.6%.
For the third quarter of 2006 average interest earning assets
increased $256.0 million or 3.2% and average interest bearing
liabilities increased $444.0 million or 6.4% compared to the same
period in 2005. The increment in average interest earning assets
compared to the third quarter of 2005 was driven by an increase in
average net loans of $396.4 million, which was partially offset by
a decrease in average investments of $81.8 million and average
interest bearing deposits of $58.5 million. The increase in average
net loans was due to an increase of $531.3 million or 26.5% in
average mortgage loans as a result of the Corporation's continued
emphasis on growing this portfolio by strengthening its residential
mortgage production capabilities. There was also an increase of
$678.2 million or 127.7% in the average consumer loan portfolio as
a result of the acquisition of Island Finance. These increases were
partially offset by a decrease in the commercial loan portfolio of
$789.8 million or 21.6% due to the settlement with Doral of $608.2
million of commercial loans secured by mortgages during the second
quarter of 2006 and the settlement with R&G of $301.3 million
of commercial loans secured by mortgages during the fourth quarter
of 2005. Excluding the settlement of the loans with Doral and
R&G, the average commercial loan portfolio grew $253.1 million
or 9.7%. The increase in average interest bearing liabilities of
$444.0 million was driven by an increase in average borrowings of
$468.7 million compared to the quarter ended September 30, 2005.
This increase was due to debt of $725 million incurred pursuant to
the acquisition of Island Finance and the refinancing of other
existing debt of the Corporation, as well as the private placement
of $125 million Trust Preferred Securities classified as borrowings
in the consolidated financial statements. For the nine months ended
September 30, 2006, net interest margin(4) was 3.61% compared with
2.97% for the same period in 2005. This increase of 64 basis points
in net interest margin(4) was mainly due to an increase of 193
basis points in the yield on average interest earning assets
primarily as a result of the acquisition of the assets of Island
Finance. There was an increase of 135 basis points in the average
cost of interest bearing liabilities. Excluding the Island Finance
operation, net interest margin(4) for the nine months ended
September 30, 2006 is 2.82%. Interest income(4) increased $131.7
million or 40.3% during the nine months ended September 30, 2006
compared to the same period in 2005, while interest expense
increased $85.4 million or 56.2% over the same period. For the nine
months ended September 30, 2006 average interest earning assets
increased $321.0 million or 4.1% and average interest bearing
liabilities increased $502.6 million or 7.4% compared to the same
period in 2005. The increment in average interest earning assets
compared to the nine months of 2005 was driven by an increase in
average net loans of $543.2 million, which was partially offset by
decreases in average investment securities and average interest
bearing deposits of $120.9 million and $101.4 million,
respectively. The increase in average net loans was due to an
increase of $577.5 million or 32.5% in average mortgage loans as a
result of the Corporation's continued emphasis of growing this
portfolio by strengthening its residential mortgage production
capabilities. There was also an increase of $565.4 million or
114.0% in the average consumer loan portfolio as a result of the
acquisition of Island Finance. These increases were partially
offset by a decrease in the commercial loan portfolio of $584.0
million or 16.2% due to the settlement with Doral of $608.2 million
of commercial loans secured by mortgages during the second quarter
of 2006 and the settlement with R&G of $301.3 million of
commercial loans secured by mortgages during the fourth quarter of
2005. Excluding the settlement of the loans with Doral and R&G,
the average commercial loan portfolio grew $460.1 million or 18.0%.
The provision for loan losses increased $15.8 million or 338.71%
from $4.7 million for the quarter ended September 30, 2005 to $20.4
million for the third quarter in 2006 and $28.5 million or 185.2%
from $15.4 million for the nine months ended September 30, 2005 to
$43.9 million for the nine months ended September 30, 2006. The
increase in the provision for loan losses was due primarily to the
Island Finance operation which registered a provision for loan
losses of $14.4 million and $27.5 million for the quarter and seven
months (from acquisition) ended September 30, 2006. For the quarter
ended September 30, 2006, other income reached $31.0 million
compared to $28.7 million reported for the same period in 2005.
This $2.3 million or 8.1% increase in other income was mainly due
to an increase in gain on derivative transactions of $1.6 million
and a favorable change in the valuation of mortgage loans available
for sale of $1.2 million for the third quarter of 2006 compared to
the same period in 2005. For the nine months ended September 30,
2006, other income decreased $17.1 million or 17.1% compared to the
same period in 2005. This decrease was due to the following
transactions in 2005 that did not recur in 2006: a gain on sale of
securities (net of the loss on extinguishment of debt) of $11.8
million, a gain on sale of loans of $7.7 million composed mainly of
a gain on sale of previously charged-off consumer loans of $6.1
million and a gain on sale of mortgage loans to an unrelated third
party of $1.6 million. There was a loss on derivatives in 2006 of
$0.6 million compared to a gain in 2005 of $2.9 million. Also, a
loss on valuation of mortgage loans available for sale of $1.2
million in 2006 together with a decrease in the recognition of
mortgage servicing rights of $1.8 million on mortgage loans sold to
third parties. Broker-dealer, asset management and insurance fees
reflected an increase of $2.5 million due primarily to the effect
of the Island Finance operation on the insurance operations for the
period. Insurance fees reflected an increase of $3.6 million while
broker-dealer and asset management reflected a decrease of $1.1
million for the nine months ended September 30, 2006 compared to
the same period in 2005. Bank service charges, fees and other
increased $1.2 million, or 11.7% and $4.0 million, or 12.7% for the
quarter and nine month periods ended September 30, 2006. These
increases were primarily in fees on deposit accounts, credit cards,
mortgages and account analysis. For the quarter and nine months
ended September 30, 2006, the Efficiency Ratio(5) was 70.25% and
67.16%, respectively, reflecting increases of 443 and 420 basis
points, respectively compared to Efficiency Ratios(5) of 65.82% and
62.96% for the three and nine month periods ended September 30,
2005. These increases were mainly the result of higher operating
expenses during the quarter and nine months ended September 30,
2006 resulting expenses related to a personnel reduction program.
Payments pursuant to the personnel reduction program reached $7.8
million and $9.6 million for the quarter and nine months ended
September 30, 2006, respectively. Excluding these personnel
reduction expenses, the Efficiency Ratio(5) for the three and nine
month periods ended September 30, 2006 was 62.97% and 64.02%, a 285
basis point reduction for the quarter and a 105 basis point
increase for the nine months ended September 30, 2006, respectively
compared to the same periods in 2005. Operating expenses increased
$19.7 million or 35.2% from $55.9 million for the quarter ended
September 30, 2005 to $75.6 million for the quarter ended September
30, 2006. This increase was due primarily to the Island Finance
operation which reflected operating expenses of $13.0 million and
expenses related to a personnel reduction program of $7.8 million
for the quarter ended September 30, 2006. During the third quarter
of 2006 there were increases in salaries and employee benefits of
$11.3 million together with an increase in other operating expenses
of $8.4 million. Island Finance salaries and employee benefits for
the quarter ended September 30, 2006 were $6.1 million and other
operating expenses were $6.9 million. An increase in salaries due
to payments related to the personnel reduction program of $7.8
million was offset by decreases in accruals for performance
compensation of $0.7 million. During the second semester of 2006
the Corporation announced an early retirement program available to
all employees 55 years of age and older with at least 15 years of
service. The participation rate was higher than expected resulting
in greater expenses during the quarter. Excluding Island Finance
expenses and personnel reduction expenses, operating expenses for
the third quarter of 2006 compared to the same period in 2005,
reflected a decrease of $1.2 million or 2.1% comprised of a
decrease in personnel expenses of $2.7 million and an increase in
non-personnel expenses of $1.5 million. The reduction in personnel
expenses was due to a decrease of $1.6 million in commissions, $0.7
million in performance bonuses and $0.6 million in temporary
personnel, for the third quarter of 2006 compared to the third
quarter of 2005. The $1.5 million increase in non-personnel
expenses (excluding Island Finance expenses) was primarily due to
increases in EDP servicing, amortization and technical services of
$1.0 million, credit card expenses of $0.3 million and occupancy
costs of $0.3 million. For the nine months ended September 30,
2006, operating expenses increased $38.6 million or 23.2% from
$165.9 million for the nine months ended September 30, 2005 to
$204.5 million for the same period in 2006. This increase was due
to operating expenses of Island Finance of $31.8 million and
expenses related to a personnel reduction program of $9.6 million
in 2006. For the nine months ended September 30, 2006 there were
increases in salaries and employee benefits of $19.1 million
together with an increase in other operating expenses of $19.4
million. Island Finance salaries and employee benefits were $15.1
million for the seven months (since acquisition) ended September
30, 2006 and other operating expenses were $16.7 million. An
increase in salaries due to payments pursuant to the personnel
reduction program of $9.6 million was offset by decreases in
accruals for performance compensation of $3.5 million and $1.2
million in temporary personnel. Excluding Island Finance expenses
and expenses related to personnel reductions, operating expenses
reflected a decrease of $2.8 million or 1.7% for the nine months
ended September 30, 2006 compared to September 30, 2005. Balance
Sheet Total assets as of September 30, 2006 increased $480.0
million or 5.5% to $9.2 billion compared to $8.7 billion as of
September 30, 2005, and $906.2 million or 11.0% compared to total
assets of $8.3 billion as of December 31, 2005. As of September 30,
2006, there was an increase of $457.3 million in net loans,
including loans held for sale (further explained below) compared to
September 30, 2005 balances and $640.5 million compared to December
31, 2005 balances. The investment securities portfolio decreased
$194.2 million, from $1.7 billion as of September 30, 2005 to $1.5
billion as of September 30, 2006. The net loan portfolio, including
loans held for sale, reflected an increase of 7.5% or $457.3
million, reaching $6.6 billion at September 30, 2006, compared to
the figures reported as of September 30, 2005. Compared to December
31, 2005, the net loan portfolio grew by $640.5 million or 10.8%
from $6.0 billion. The mortgage loan portfolio at September 30,
2006 grew $534.3 million or 26.5% compared to September 30, 2005
and $407.2 million or 19.0% compared to December 31, 2005. Mortgage
loans originated during the third quarter of 2006 reached $237.7
million or 32.4% more than the same quarter last year. Mortgage
loans originated during the nine months ended September 30, 2006
reached $667.2 million or 19.8% more than the same period last
year. The consumer loan portfolio also reflected growth of $678.6
million or 125.4%, as of September 30, 2006, compared to September
30, 2005 due primarily to the acquisition of Island Finance.
Compared to December 31, 2005 the consumer loan portfolio reflected
an increase of $652.6 million or 115.1%. The commercial loan
portfolio decreased $727.6 million or 20.0% compared to September
30, 2005 and $392.0 million or $11.9% compared to December 31,
2005, as a result of the settlement of commercial loans secured by
mortgages with Doral and R&G during the second quarter of 2006
and the fourth quarter of 2005, respectively. Period End Loan
Balances % of Sep06/Dec 05 total Sep-06 Dec-05 Sep-05 $ Var % Var
Sep-06 ($ in thousands) Commercial: Retail $1,954,490 1,887,689
$1,868,421 $66,801 3.54% 29.2% Corporate 607,128 567,436 583,072
39,692 6.99% 9.1% Commercial loans secured by mortgages settled in
4Q05 and 2Q06 - 638,228 977,026 (638,228) -100.00% Construction
353,404 213,705 214,123 139,699 65.37% 5.3% 2,915,022 3,307,058
3,642,642 (392,036) -11.85% 43.6% Consumer: Consumer 581,515
567,195 541,119 14,320 2.52% 8.7% Consumer Finance 638,246 - -
638,246 n.a. 9.5% 1,219,761 567,195 541,119 652,566 115.05% 18.2%
Mortgage 2,554,720 2,147,479 2,020,378 407,241 18.96% 38.2% Total
Loans $6,689,503 $6,021,732 $6,204,139 $485,364 8.06% 100.0%
Deposits of $5.3 billion at September 30, 2006 reflected a decrease
of 6.4%, compared to deposits of $5.7 billion as of September 30,
2005 and a 2.1% increase, compared to deposits of $5.2 billion as
of December 31, 2005, respectively. Total borrowings at September
30, 2006 (comprised of federal funds purchased and other
borrowings, securities sold under agreements to repurchase,
commercial paper issued, and term and capital notes) increased
$765.2 million or 35.1% and $735.5 million or 33.3%, compared to
borrowings at September 30, 2005 and December 31, 2005,
respectively. The increase in borrowings was due to debt of $725
million incurred pursuant to the acquisition of Island Finance, the
refinancing of other existing debt of the Corporation and the
private placement of $125 million Trust Preferred Securities
classified as borrowings in the consolidated financial statements.
Financial Strength Non-performing loans to total loans as of
September 30, 2006 was 1.63%, a 48 basis point and 41 basis point
increase compared to the reported 1.15% as of September 30, 2005,
and 1.22% reported as of December 31, 2005, respectively.
Non-performing loans at September 30, 2006 amounted to $108.8
million comprised of Island Finance non-performing loans of $27.0
million and $81.8 million of non-performing loans of the Bank. The
Corporation's non- performing loans (excluding Island Finance
non-performing loans) reflected an increase of $10.6 million or
14.9% compared to non-performing loans as of September 30, 2005.
Non-performing loans of the Corporation as of September 30, 2006
(excluding Island Finance non-performing loans) reflected an
increase of $8.1 million or 11.0% compared to non-performing loans
as of December 31, 2005. The increase of non-performing loans
(excluding Island Finance non- performing loans) is principally due
to residential mortgages which increased $12.1 million and $6.8
million, respectively, when compared to September 30, 2005 and
December 31, 2005. Island Finance loans acquired pursuant to the
Asset Purchase Agreement on February 28, 2006 are subject to a
guarantee by Wells Fargo of up to $21.0 million (maximum
reimbursement amount) for net losses in excess of $34.0 million,
occurring on or prior to the 15th month anniversary of the
acquisition. The Corporation is provided with an additional
guarantee of up to $7.0 million for net losses incurred in the
acquired loan portfolio in excess of $34.0 million during months 16
to 18 of the anniversary, subject to the maximum aggregate
reimbursement amount of $21.0 million. The allowance for loan
losses represents 1.41% of total loans as of September 30, 2006, a
34 basis point increase over 1.06% reported as of September 30,
2005 and a 30 basis point increase over the 1.11% reported as of
December 31, 2005. The allowance for loan losses to total loans
excluding mortgage loans as of September 30, 2006 was 2.28%
compared to 1.58% at September 30, 2005 and 1.73% at December 31,
2005. The allowance for loan losses to total non-performing loans
at September 30, 2006 decreased to 86.53% compared to 92.82% at
September 30, 2005. This ratio was 90.72% at December 31, 2005.
This decrease was the result of the increase in non-performing
loans related primarily to the Island Finance portfolio. Excluding
non-performing mortgage loans(6) (for which the Company has
historically had a minimal loss experience) this ratio is 207.2% at
September 30, 2006 compared to 243.9% as of September 30, 2005 and
235.5% as of December 31, 2005. As of September 30, 2006, total
capital to risk-adjusted assets (BIS ratio) reached 11.19% and Tier
I capital to risk-adjusted assets and leverage ratios were 8.14%
and 5.96%, respectively. Customer Financial Assets under Control As
of September 30, 2006, the Company had $13.0 billion in Customer
Financial Assets under Control. Customer Financial Assets under
Control include bank deposits (excluding brokered deposits),
broker-dealer customer accounts, mutual fund assets managed, and
trust, institutional and private accounts under management.
Shareholder Value During the quarter ended September 30, 2006,
Santander BanCorp declared a cash dividend of 16 cents per common
share, resulting in a current annualized dividend yield of 3.4%.
Market capitalization reached approximately $0.9 billion (including
affiliated holdings) as of September 30, 2006. There were no stock
repurchases during 2006 and 2005 under the Stock Repurchase
Program. As of September 30, 2006, the Company had acquired, as
treasury stock, a total of 4,011,260 shares of common stock,
amounting to $67.6 million. Institutional Background Santander
BanCorp is a publicly held financial holding company that is traded
on the New York Stock Exchange (SBP) and on Latibex (Madrid Stock
Exchange) (XSBP). 91% of the outstanding common stock of Santander
BanCorp is owned by Banco Santander Central Hispano, S.A
(Santander). The Company has five wholly owned subsidiaries, Banco
Santander Puerto Rico, Santander Securities Corporation, Santander
Financial Services, Santander Insurance Agency and Island Insurance
Corporation. Banco Santander Puerto Rico has been operating in
Puerto Rico for nearly three decades. It offers a full array of
services through 63 branches in the areas of commercial, mortgage
and consumer banking, supported by a team of over 1,400 employees.
Santander Securities offers securities brokerage services and
provides portfolio management services through its wholly owned
subsidiary Santander Asset Management Corporation. Santander
Financial Services offers consumer finance products through its
network of 70 branches throughout the Island. Santander Insurance
Agency offers life, health and disability coverage as a corporate
agent and also operates as a general agent. For more information,
visit the Company's website at http://www.santandernet.com/.
Santander (SAN.MC, STD.N) is the largest bank in the Euro Zone by
market capitalization and one of the largest worldwide. Founded in
1857, Santander has euro 798,540 million in assets and euro 961,093
million in managed funds, 67 million customers, 10,583 offices and
a presence in 40 countries. It is the largest financial group in
Spain and Latin America, and is a major player elsewhere in Europe,
including the United Kingdom through its Abbey subsidiary and
Portugal, where it is the third largest banking group. Through
Santander Consumer Finance, it also operates a leading consumer
finance franchise in Germany, Italy, Spain and nine other European
countries. In the first nine months of 2006, Santander recorded
euro 4,947 million in net attributable profit, 28% more than in the
same period of the previous year. In Latin America, Santander
manages over US$200 billion in banking business volumes (loans,
deposits, mutual funds, pension funds and managed funds) through
4,200 offices. In the first nine months of 2006, Santander recorded
in Latin America US$2,237 million in net attributable income, 31%
higher that in the prior year. This news release contains
forward-looking statements that are based on current expectations,
estimates, forecasts and projections about the industry in which
the Company operates, its beliefs and its management's assumptions.
Words such as "expects," "anticipates," "targets," "goals,"
"projects," "intends," "plans," "believes," "seeks," "estimates"
and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from
what is expressed or forecast in such forward-looking statements.
Except as otherwise required under federal securities laws and the
rules and regulations of the SEC, the Company does not have any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events,
changes in assumptions or otherwise. (1) On a tax-equivalent basis,
excluding gains on sale of securities and loss on extinguishment of
debt realized during 2005. (2) On a tax-equivalent basis, excluding
gains on sale of securities and loss on extinguishment of debt
realized during 2005. (3) On a tax-equivalent basis. (4) On a
tax-equivalent basis. (5) On a tax-equivalent basis, excluding
gains on sales of securities and loss on extinguishment of debt
realized during 2005. (6) Mortgage loans include residential
mortgages, commercial loans with real estate collateral and
consumer loans with real estate collateral. They exclude
construction loans. SANTANDER BANCORP CONSOLIDATED BALANCE SHEETS
(UNAUDITED) AS OF SEPTEMBER 30, 2006 AND 2005 AND DECEMBER 31, 2005
(Dollars in thousands, except share data) ASSETS Variance 09/06-
30-Sep-06 30-Sep-05 31-Dec-05 12/05 CASH AND CASH EQUIVALENTS: Cash
and due from banks $135,354 $130,584 $136,731 -1.01%
Interest-bearing deposits 20,841 9,839 8,833 135.94% Federal funds
sold and securities purchased under agreements to resell 239,239
248,585 92,429 158.84% Total cash and cash equivalents 395,434
389,008 237,993 66.15% INTEREST-BEARING DEPOSITS 51,129 101,044
101,034 -49.39% TRADING SECURITIES 51,353 51,088 37,679 36.29%
INVESTMENT SECURITIES AVAILABLE FOR SALE, at fair value 1,479,029
1,678,532 1,559,681 -5.17% OTHER INVESTMENT SECURITIES, at
amortized cost 42,835 37,500 41,862 2.32% LOANS HELD FOR SALE, net
195,823 220,591 213,102 -8.11% LOANS, net 6,493,680 5,983,548
5,808,630 11.79% ALLOWANCE FOR LOAN LOSSES (94,157) (66,051)
(66,842) 40.87% ACCRUED INTEREST RECEIVABLE 112,320 64,116 77,962
44.07% PREMISES AND EQUIPMENT, net 56,729 55,257 55,867 1.54%
GOODWILL 144,723 34,791 34,791 315.98% INTANGIBLE ASSETS 47,914
9,895 10,092 374.77% OTHER ASSETS 201,313 138,813 160,097 25.74%
$9,178,125 $8,698,132 $8,271,948 10.95% LIABILITIES AND
STOCKHOLDERS' EQUITY DEPOSITS: Non interest-bearing $652,963
$651,853 $672,225 -2.87% Interest-bearing 4,678,715 5,045,213
4,552,425 2.77% Total deposits 5,331,678 5,697,066 5,224,650 2.05%
FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS 1,440,000 821,632
768,846 87.29% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
852,676 1,018,187 947,767 -10.03% COMMERCIAL PAPER ISSUED 369,191
229,852 334,319 10.43% TERM NOTES 41,202 39,902 40,215 2.45%
CAPITAL NOTES 244,676 72,985 121,098 102.05% ACCRUED INTEREST
PAYABLE 101,718 49,527 65,160 56.10% OTHER LIABILITIES 220,968
203,399 201,366 9.73% 8,602,109 8,132,550 7,703,421 11.67%
STOCKHOLDERS' EQUITY: Series A Preferred stock, $25 par value;
10,000,000 shares authorized, none issued or outstanding - - - N/A
Common stock, $2.50 par value; 200,000,000 shares authorized;
50,650,364 shares issued; 46,639,104 shares outstanding. 126,626
126,626 126,626 0.00% Capital paid in excess of par value 304,171
304,171 304,171 0.00% Treasury stock at cost, 4,011,260 shares
(67,552) (67,552) (67,552) 0.00% Accumulated other comprehensive
loss, net of taxes (44,821) (35,134) (41,591) 7.77% Retained
earnings- Reserve fund 133,759 126,820 133,759 0.00% Undivided
profits 123,833 110,651 113,114 9.48% Total stockholders' equity
576,016 565,582 568,527 1.32% $9,178,125 $8,698,132 $8,271,948
10.95% SANTANDER BANCORP CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2006
AND 2005 (Dollars in thousands, except per share data) For the nine
months For the three ended months ended September September
September September 30, 30, 30, 30, 2006 2005 2006 2005 INTEREST
INCOME: Loans $390,280 $256,954 $141,049 $94,145 Investment
securities 55,599 54,723 18,547 16,309 Interest-bearing deposits
3,267 2,741 1,346 1,194 Federal funds sold and securities purchased
under agreements to resell 3,557 3,490 1,144 822 Total interest
income 452,703 317,908 162,086 112,470 INTEREST EXPENSE: Deposits
125,603 85,551 44,518 33,051 Securities sold under agreements to
repurchase and other borrowings 101,272 64,316 38,759 23,047
Subordinated capital notes 10,478 2,094 4,101 795 Total interest
expense 237,353 151,961 87,378 56,893 Net interest income 215,350
165,947 74,708 55,577 PROVISION FOR LOAN LOSSES 43,913 15,400
20,400 4,650 Net interest income after provision for loan losses
171,437 150,547 54,308 50,927 OTHER INCOME (LOSS): Bank service
charges, fees and other 35,243 31,266 11,881 10,640 Broker-dealer,
asset management and insurance fees 43,078 40,558 13,601 14,219
Gain on sale of securities, net 85 17,838 26 462 Loss on
extinguishment of debt - (5,959) - 784 Gain on sale of mortgage
servicing rights 69 69 51 14 Gain on sale of loans 184 7,874 188
666 Other income 4,432 8,594 5,243 1,883 Total other income 83,091
100,240 30,990 28,668 OPERATING EXPENSES: Salaries and employee
benefits 91,430 72,288 35,316 23,998 Occupancy costs 16,713 12,581
5,979 4,193 Equipment expenses 3,607 2,703 1,274 903 EDP servicing,
amortization and technical assistance 28,694 23,727 10,834 8,338
Communication expenses 7,767 6,200 2,782 2,004 Business promotion
8,540 8,239 2,797 3,198 Other taxes 8,055 6,293 2,976 2,105 Other
operating expenses 39,697 33,918 13,648 11,164 Total operating
expenses 204,503 165,949 75,606 55,903 Income before provision for
income tax 50,025 84,838 9,692 23,692 PROVISION FOR INCOME TAX
16,916 21,896 966 6,297 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
$33,109 $62,942 $8,726 $17,395 EARNINGS PER COMMON SHARE $0.71
$1.35 $0.19 $0.37 SANTANDER BANCORP SELECTED CONSOLIDATED FINANCIAL
INFORMATION: (DOLLARS IN THOUSANDS) For the Quarters Ended 3Q06/
3Q06/ 3Q05 2Q06 30-Sep 30-Sep 30-Jun Varia- Varia- 2006 2005 2006
tion tion Interest Income $162,086 $112,470 $159,187 44.1% 1.8% Tax
equivalent adjustment 1,951 1,931 2,225 1.0% -12.3% Interest income
on a tax equivalent basis 164,037 114,401 161,412 43.4% 1.6%
Interest expense 87,378 56,893 80,678 53.6% 8.3% Net interest
income on a tax equivalent basis 76,659 57,508 80,734 33.3% -5.0%
Provision for loan losses 20,400 4,650 15,975 338.7% 27.7% Net
interest income on a tax equivalent basis after provision 56,259
52,858 64,759 6.4% -13.1% Other operating income 30,776 27,540
24,978 11.8% 23.2% Gain on sale of securities 26 462 56 -94.4%
-53.6% (Loss) gain on sale of loans 188 666 (1) -71.8% -18900.0%
Other operating expenses 75,606 55,903 69,184 35.2% 9.3% Income on
a tax equivalent basis before income taxes 11,643 25,623 20,608
-54.6% -43.5% Provision for income taxes 966 6,297 7,355 -84.7%
-86.9% Tax equivalent adjustment 1,951 1,931 2,225 1.0% -12.3% NET
INCOME $8,726 $17,395 $11,028 -49.8% -20.9% SELECTED RATIOS: Per
share data (1): Earnings per common share $0.19 $0.37 $0.24 Average
common shares outstanding 46,639,104 46,639,104 46,639,104 Common
shares outstanding at end of period 46,639,104 46,639,104
46,639,104 Cash Dividends per Share $0.16 $0.16 $0.16 Nine Month
Periods Ended September 30, 2006 2005 Variation Interest Income
$452,703 $317,908 42.4% Tax equivalent adjustment 6,136 9,251
-33.7% Interest income on a tax equivalent basis 458,839 327,159
40.2% Interest expense 237,353 151,961 56.2% Net interest income on
a tax equivalent basis 221,486 175,198 26.4% Provision for loan
losses 43,913 15,400 185.1% Net interest income on a tax equivalent
basis after provision 177,573 159,798 11.1% Other operating income
82,822 74,528 11.1% Gain on sale of securities 85 17,838 99.5%
(Loss) gain on sale of loans 184 7,874 97.7% Other operating
expenses 204,503 165,949 23.2% Income on a tax equivalent basis
before income taxes 56,161 94,089 -40.3% Provision for income taxes
16,916 21,896 -22.7% Tax equivalent adjustment 6,136 9,251 -33.7%
NET INCOME $33,109 $62,942 -47.4% SELECTED RATIOS: Per share data
(1): Earnings per common share $0.71 $1.35 Average common shares
outstanding 46,639,104 46,639,104 Common shares outstanding at end
of period 46,639,104 46,639,104 Cash Dividends per Share $0.48
$0.48 (1) Per share data is based on the average number of shares
outstanding during the period. Basic and diluted earnings per share
are the same. SANTANDER BANCORP 2005 YTD QTD QTD YTD QTD 30-Sep
30-Sep 30-Jun 30-Sep 30-Sep SELECTED RATIOS 2006 2006 2006 2005
2005 Net interest margin (1) 3.61% 3.66% 3.94% 2.97% 2.84% Return
on average assets (2) 0.51% 0.39% 0.50% 1.02% 0.82% Return on
average common equity (2) 7.94% 6.08% 7.83% 14.13% 11.78%
Efficiency Ratio (1,3) 67.16% 70.25% 66.67% 62.96% 65.82%
Non-interest income to revenues 15.51% 16.05% 13.59% 23.97% 20.31%
Capital: Total capital to risk- adjusted assets - 11.19% 11.25% -
11.21% Tier I capital to risk- adjusted assets - 8.14% 8.17% -
8.85% Leverage ratio - 5.96% 5.86% - 6.49% Non-performing loans to
total loans - 1.63% 1.69% - 1.15% Non-performing loans plus
accruing loans past-due 90 days or more to loans - 1.90% 1.82% -
1.25% Allowance for loan losses to non-performing loans - 86.53%
80.09% - 92.82% Allowance for loans losses to period-end loans -
1.41% 1.35% - 1.06% OTHER SELECTED FINANCIAL DATA 9/30/2006
9/30/2005 12/31/2005 (dollars in millions) Customer Financial
Assets Under Control: Bank deposits (excluding brokered deposits)
$3,956.0 $4,430.5 $4,084.0 Broker-dealer customer accounts 5,117.0
4,953.0 4,923.0 Mutual fund and assets managed 2,795.0 2,892.0
2,795.0 Trust, institutional and private accounts assets under
management 1,101.0 1,137.0 1,158.0 Total $12,969.0 $13,412.5
$12,960.0 (1) On a tax-equivalent basis. (2) Ratios for the
quarters are annualized. (3) Operating expenses divided by net
interest income, on a tax equivalent basis, plus other income,
excluding gain on sale of securities, loss on extinguishment of
debt in 2005 and gain on sale of building for 1Q04. DATASOURCE:
Santander BanCorp CONTACT: Maria Calero, +1-787-777-4437, or Evelyn
Vega, +1-787-777-4546 Web site: http://www.santandernet.com/
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