SAN JUAN, Puerto Rico, July 27 /PRNewswire-FirstCall/ -- -- Net income and other selected financial data as reported for the second quarter and first semester of 2007 are the following: ($ in millions, except Quarter Ended Semester Ended earnings per share) 30-Jun-07 30-Jun-06 30-Jun-07 30-Jun-07 Selected Financial, as reported: Net Income $4.1 $11.0 $15.8 $24.4 EPS $0.09 $0.24 $0.34 $0.52 ROA 0.18% 0.50% 0.35% 0.57% ROE 2.76% 7.83% 5.42% 8.92% Efficiency Ratio(*) 65.78% 65.41% 64.06% 65.45% -- The Corporation's net income for the second quarter and the first semester of 2007 included an after-tax compensation expense associated with certain incentive plans sponsored and reimbursable by Banco Santander Central Hispano, S.A. (BSCH), Santander BanCorp's parent company. BSCH sponsored two reimbursable incentive programs to which employees of the Corporation were eligible participants: (i) one related to a long term incentive plan upon reaching certain BSCH global corporate goals in 2006 and (ii) another related to the grant of 100 shares of BSCH to all employees of BSCH's operating entities as part of this year's celebration of BSCH 150th Anniversary. Excluding said compensation expense, results would have been: ($ in millions, except Quarter Ended Semester Ended earnings per share) 30-Jun-07 30-Jun-06 30-Jun-07 30-Jun-06 Compensation expense sponsored by BSCH, net of tax $3.5 $-- $5.0 $-- Excluding compensation expense sponsored by BSCH, the selected financial data would have been: Net Earnings $7.6 $11.0 $20.8 $24.4 EPS $0.16 $0.24 $0.45 $0.52 ROA 0.34% 0.50% 0.46% 0.57% ROE 5.14% 7.83% 7.16% 8.92% Efficiency Ratio(*) 60.60% 65.41% 60.42% 65.45% (*) Operating expenses divided by net interest income, on a tax equivalent basis, plus other income, excluding gain on sale of securities. -- Net interest income for the first semester of 2007 increased $17.0 million or 12.1% compared to the first semester of 2006. -- Net loans, including loans held for sale, reached $6.9 billion as of June 30, 2007, an increase of 7.3% when compared to net loans as of June 30, 2006. -- As of June 30, 2007, the allowance for loan losses to non-performing loans increased to 93.39%, an increase of 13.30 percentage points from 80.09% as of June 30, 2006. -- Net charge-offs to average loans for the quarter ended June 30, 2007 were 1.03% compared to 0.99% for the same period in the previous year. The provision for loan losses for the quarter ended June 30, 2007 was 1.7 times the net charge-offs of the quarter. -- The common stock dividend for the quarter ended June 30, 2007 was $0.16 resulting in a current annualized dividend yield of 4.3%. Santander BanCorp (NYSE: SBP; LATIBEX: XSBP) ("the Corporation") reported today its unaudited financial results for the quarter and semester ended June 30, 2007. The Corporation's net income for the second quarter and first semester of 2007 included an after-tax compensation expense associated with certain incentive plans sponsored and reimbursable by Banco Santander Central Hispano, S.A. (BSCH), Santander BanCorp's parent company. For the second quarter and semester ended June 30, 2007, net income and other selected financial data as reported are the following: Quarter Ended Semester Ended ($ in millions, except 30-Jun-07 30-Jun-06 30-Jun-07 30-Jun-06 earnings per share) Net Income $4.1 $11.0 $15.8 $24.4 EPS $0.09 $0.24 $0.34 $0.52 ROA 0.18% 0.50% 0.35% 0.57% ROE 2.76% 7.83% 5.42% 8.92% Efficiency Ratio(*) 65.78% 65.41% 64.06% 65.45% Excluding said compensation expense, results would have been: ($ in millions, except Quarter Ended Semester Ended earnings per share) 30-Jun-07 30-Jun-06 30-Jun-07 30-Jun-06 Compensation expense sponsored by BSCH, net of tax $3.5 $-- $5.0 $-- Excluding compensation expense sponsored by BSCH, the selected financial data would have been: Net Earnings $7.6 $11.0 $20.8 $24.4 EPS $0.16 $0.24 $0.45 $0.52 ROA 0.34% 0.50% 0.46% 0.57% ROE 5.14% 7.83% 7.16% 8.92% Efficiency Ratio (*) 60.60% 65.41% 60.42% 65.45% (*) Operating expenses divided by net interest income, on a tax equivalent basis, plus other income, excluding gain on sale of securities. BSCH sponsored two reimbursable incentives programs which employees of the Corporation are eligible to participate: (i) one related to a long term incentive plan upon reaching certain global corporate goals in 2006 and (ii) another related to the grant of 100 shares of BSCH to all employees of BSCH's operating entities as part of this year's celebration of BSCH 150th Anniversary. (i) The long term incentive plan had an after-tax compensation expense of $0.9 million and $2.4 million, respectively, for the quarter and the semester ended June 30, 2007. The incentive becomes exercisable by plan participants in January 2008, at which time, the compensation expense associated with the plan will be reimbursed to the Corporation by BSCH and recognized as a capital contribution. (ii) The grant of 100 common shares of BSCH to the Corporation's employees had an after-tax compensation expense of $2.6 million during the second quarter of 2007. The compensation expense will be reimbursed to the Corporation by an affiliate, at which time the reimbursement will be recognized as capital contribution. The settlement of this grant will be made in August of 2007, at which time the compensation expense will be reimbursed to the Corporation by an affiliate and recognized as capital contribution. The $6.9 million decrease in net income for the quarter ended June 30, 2007, compared to the same period in 2006, was principally due to: (i) an increase in the provision for loan losses of $14.9 million; (ii) an increase of $4.6 million in operating expenses which include $5.8 million related to the incentive plans sponsored by BSCH described above; (iii) partially offset by a $6.2 million increase in other income, a $5.9 million decrease in income tax expense and an increase in net interest income of $0.3 million. The $8.6 million decrease in net income for the six months ended June 30, 2007 when compared to the same period in 2006, was principally due to: (i) an increase in the provision for loan losses of $29.4 million; (ii) an increase in operating expenses of $16.9 million (of which $7.3 million relate to Santander Financial Services, Inc. ("Island Finance") and $8.3 million relate to the incentive plans described above); (iii) partially offset by a $17.0 million increase in net interest income, a $13.9 million increase in other income and a $6.9 million decrease in income tax expense. Due to the current challenging economic environment in Puerto Rico, the Corporation's financial results were not as strong as expected. Management, however feels confident in the Corporation's future outlook and is taking proactive actions to control costs and credit delinquency, and together with stringent underwriting criteria continues to target growth in its highest yielding loan portfolios (net of credit cost). As a result of unfavorable market conditions in Puerto Rico, the Corporation has decided to perform a valuation of the goodwill for its consumer finance segment as of July 1, 2007 and if required, any impairment adjustment would be recorded during the third quarter of 2007. Financial Results The Corporation's financial results for the quarter and first semester ended June 30, 2007 were primarily impacted by the following: -- The provision for loan losses increased $14.9 million or 93.1% for the quarter ended June 30, 2007 compared to the same period in 2006 and $29.4 million or 124.9% for the six months ended June 30, 2007 compared to 2006. -- The Corporation experienced a net interest margin(1) reduction of 12 basis points to 3.79% for the quarter ended June 30, 2007 versus the same period in 2006 and an expansion of 28 basis points to 3.86% for the six months ended June 30, 2007 versus the same period in the prior year. -- For the quarter and the first semester ended June 30, 2007, other income increased $6.2 million or 24.2% and $13.9 million or 26.6%, respectively, primarily due to fees related to an early cancellation of certain client structured certificates of deposit, an increase in gain on sale of residential mortgage loans and previously charged off loans, increases in broker-dealer, asset management and insurance fees, and trading gains, mortgage servicing rights recognized, and decreases in loss on valuation of mortgage loans held for sale. -- The Corporation experienced an increase in operating expenses of $4.6 million or 6.6% and $16.9 million or 13.1%, for the quarter and the six months ended June 30, 2007, respectively, when compared to the same periods in 2006. These increases were primarily related to the incentive plans sponsored by BSCH described above and for the six months ended June 30, 2007, to increased operating expenses related to the Island Finance operation. -- The Corporation's income tax expense decreased $5.9 million and $6.9 million, respectively, for the three and six month periods ended June 30, 2007 when compared to the same periods in 2006. This decrease was due to lower net income before tax and the elimination of the temporary surtaxes imposed by the Commonwealth of Puerto Rico for fiscal years 2005 and 2006. The effective income tax rate was 25.6% for the quarter ended June 30, 2007 versus 40.0% for the same period in 2006. For the six months ended June 30, 2007, the effective income tax rate was 36.4% versus 39.5% for the same period in 2006. -- The Corporation grew its net loan portfolio by 7.3% year over year. Annualized Return on Average Common Equity (ROE) and Return on Average Assets (ROA) were 2.76% and 0.18%, respectively, for the quarter ended June 30, 2007, compared to 7.83% and 0.50%, respectively, for the second quarter of 2006. The Efficiency Ratio for the quarters ended June 30, 2007 and 2006 was 65.78% and 65.41%, respectively. Excluding the effect of the BSCH incentive plans that will be reimbursed to the Corporation, ROE, ROA and the Efficiency Ratio(2) for the second quarter of 2007 would have been 5.14%, 0.34% and 60.60%, respectively. Annualized ROE and ROA were 5.42% and 0.35%, respectively, for the six months ended June 30, 2007, compared to 8.92% and 0.57%, respectively, for the first semester of 2006. The Efficiency Ratio(2) for the six months ended June 30, 2007 and 2006 was 64.06% and 65.45%, respectively. Excluding the effect of the BSCH incentive plans that will be reimbursed to the Corporation, ROE, ROA and the Efficiency Ratio(2) for the first semester of 2007 would have been 7.16%, 0.46% and 60.42%, respectively. Income Statement The $6.9 million reduction in net income for the quarter ended June 30, 2007 compared to the same period in 2006 was principally due to increases in the provision for loan losses of $14.9 million and operating expenses of $4.6 million. These changes were partially offset by increases in net interest income of $0.3 million and $6.2 million in other income, as well as a decrease in the provision for income tax of $5.9 million. Excluding the $3.5 million net effect of the incentive plans, the net income reduction for the quarter ended June 30, 2007 compared to the same period in 2006 was $3.4 million or 30.7%. Net interest margin(3) for the second quarter of 2007 was 3.79% compared to 3.91% for the second quarter of 2006. This decrease of 12 basis points in net interest margin(3) was mainly due to an increase of 43 basis points in the average cost of interest bearing liabilities and an increase in average interest bearing liabilities of $127.1 million. This was partially offset by an increase in average interest earning assets of $274.3 million and an increase in the yield on average interest earning assets of 20 basis points. Interest income(4) increased $9.5 million or 5.9% during the second quarter of 2007, compared to the same period in 2006, while interest expense increased $9.4 million or 11.6%. For the second quarter of 2007, average interest earning assets increased $274.3 million or 3.3% and average interest bearing liabilities increased $127.1 million or 1.7% compared to the same period in 2006. The increase in average interest earning assets compared to the second quarter of 2006 was driven by an increase in average net loans of $521.2 million, which was partially offset by a decrease in average investments of $208.2 million and average interest bearing deposits of $38.6 million. The increase in average net loans was due to an increase of $339.5 million or 14.4% in average mortgage loans. There was also an increase of $91.2 million or 7.8% in the average consumer loan portfolio primarily in the credit cards and personal installment loan portfolios, which increased $45.2 million and $43.8 million, respectively. An increase of $123.9 million, or 4.2%, in the average commercial loan portfolio was due primarily to an increase in construction loans of $224.8 million and partially offset by a decrease in corporate loans of $242.5 million primarily as a result of the settlement with an unrelated financial institution of $608.2 million of commercial loans secured by mortgages during the second quarter of 2006. Excluding the loans settled with an unrelated financial institution in 2006, the average commercial loan portfolio grew $425.5 million or 16.1%. The increase in average interest bearing liabilities of $127.1 million for the quarter ended June 30, 2007, was driven by an increase in average borrowings of $180.8 million compared to the quarter ended June 30, 2006. This increase was due to an increase in average other borrowings of $14.1 million incurred in connection with the operations of Island Finance and the refinancing of other existing debt of the Corporation, an increase in average federal funds purchased of $24.4 million and an increase in average FHLB Advances of $176.2 million and in average commercial paper of $138.4 million partially offset by a reduction in average repurchase agreements of $172.3 million. The increase in average borrowings was partially offset by a decrease in average interest bearing deposits of $53.8 million. The provision for loan losses increased $14.9 million or 93.1% from $16.0 million for the quarter ended June 30, 2006 to $30.9 million for the second quarter in 2007. The increase in the provision for loan losses was due primarily to increases in non-performing loans due to the deterioration in economic conditions in Puerto Rico, requiring the Corporation to increase the level of its reserve for loan losses. For the six months ended June 30, 2007, net income decreased $8.6 million or 35.1% compared to the same period in 2006 due to increases in the provision for loan losses of $29.4 million and operating expenses of $16.9 million, partially offset by increases in net interest income of $17.0 million and in non-interest income of $13.9 million and a decrease in the provision for income tax of $6.9 million. Excluding the $5.0 million net effect of the BSCH incentive plans, the net income reduction for the six months ended June 30, 2007 compared to the same period in 2006 was $3.5 million or 14.4%. For the six months ended June 30, 2007, net interest margin(4) was 3.86% compared to net interest margin(4) of 3.58% for the same period in 2006. This increase of 28 basis points in net interest margin(4) was mainly due to an increase of 80 basis points in the yield on average interest earning assets together with an increase in average interest earning assets of $315.6 million. These increases were partially offset by an increase in the cost of interest bearing liabilities of 61 basis points and an increase in average interest bearing liabilities of $242.6 million. Interest income(4) increased $44.8 million or 15.2% during the six months ended June 30, 2007 compared to 2006, while interest expense increased $27.7 million or 18.5% over the same period. For the six months ended June 30, 2007 average interest earning assets increased $315.6 million or 3.9% and average interest bearing liabilities increased $242.6 million or 3.3% compared to the same period in 2006. The increment in average interest earning assets compared to the six months ended June 30, 2006 was driven by an increase in average net loans of $612.6 million, which was partially offset by decreases in average investment securities and average interest bearing deposits of $240.0 million and $57.0 million, respectively. The increase in average net loans was due to an increase of $414.5 million or 18.3% in average mortgage loans. There was also an increase of $266.7 million or 27.1% in the average consumer loan portfolio as a result of an increase in the average consumer finance portfolio of $196.8 million as well as increases in average credit cards and personal installment loans of $38.0 million and $32.0 million, respectively. These increases were partially offset by a decrease in the commercial loan portfolio of $37.7 million or 1.2% due to the settlement with an unrelated financial institution of $608.2 million of commercial loans secured by mortgages during the second quarter of 2006. Excluding the loans settled with an unrelated financial institution in 2006, the average commercial loan portfolio grew $427.3 million or 16.2%. The increase in average interest bearing liabilities of $242.6 million for the six months ended June 30, 2007, was driven by an increase in average borrowings of $270.2 million compared to the six months ended June 30, 2006. This increase was due to an increase in average other borrowings of $221.3 million incurred in connection with the operations of Island Finance and the refinancing of other existing debt of the Corporation, an increase in average federal funds purchased of $11.6 million and increases in average FHLB Advances of $177.2 million and average commercial paper of $2.2 million, partially offset by a reduction in average repurchase agreements of $142.1 million. There was also an increase in average term notes of $37.9 million. These increase in average borrowings were partially offset by a decrease in average interest bearing deposits of $65.6 million. The provision for loan losses increased $29.4 million or 124.9% from $23.5 million for the six months ended June 30, 2006 to $52.9 million for the first semester in 2007. The increase in the provision for loan losses was due primarily to increases in non-performing loans due to the challenging economic conditions in Puerto Rico, requiring the Corporation to increase the level of its reserve for loan losses. For the quarter ended June 30, 2007, other income reached $31.9 million, a $6.2 million or 24.2% increase when compared to $25.7 million reported for the same period in 2006. For the six months ended June 30, 2007, other income reached $66.0 million, a $13.9 million or 26.6% increase when compared to $52.1 million for the same period in 2006. The following table presents the most significant variances in non-interest income for the quarter and six months ended June 30, 2007 compared to the same period in 2006. QTD Variance YTD Variance ($ in millions) Increase /(Decrease) Credit card fees $(2.00) $(1.40) Other fees 2.50 2.90 Broker-dealer and asset management fees 1.90 1.20 Insurance fees (0.20) 1.70 Gain on sale of loans 2.00 4.30 Trading gains 1.40 1.60 Loss on mortgage loan valuation (in 2006) 1.70 2.40 Other gains 0.20 1.60 Other (1.30) (1.00) $6.20 $13.30 -- The decrease in credit card fees was due a reduction in merchant fees at point-of-sale (POS) terminals due to the sale of the Corporation's merchant business to an unrelated third party during the first quarter of 2007. In April 2007, the Bank transferred its merchant business to a subsidiary, MBPR Services, Inc. ("MBPR") and subsequently sold the stock of MBPR to an unrelated third party. For an interim period until conversion to the unrelated third party's system, the Bank will provide certain processing and other services to the third party acquirer. As part of the transaction, the Bank entered into a long- term marketing alliance agreement with the third party and will serve as its sponsor with the card associations and network organizations. The Bank expects to offer better products and services to its merchant client base and to obtain certain cost efficiencies as a result of this transaction. The gain on the transaction of $12.3 million is expected to be recognized in income upon conversion to the unrelated third party's system. Such conversion is expected to occur during the fourth quarter of 2007. -- The increase in other fees was due to fees of $1.9 million related to the early cancellation of certain client structured certificates of deposit. -- The increase in broker-dealer and asset management fees was due to increases in asset management fees of $1.4 million for the quarter, and $2.1 million for the semester ended June 30, 2007 when compared to the same periods in 2006. There was an increase of $0.5 million and a decrease of $0.9 million in broker-dealer fees during the quarter and semester ended June 30, 2007 compared to the same periods in 2006. -- During the quarter ended June 30 2007 there was a reduction in insurance fees due to higher provision for cancellations recorded in that period. For the six months ended June 30, 2007 there was an increase in insurance fees of $1.7 million mainly related to insurance fees generated from credit life commissions in the Island Finance operation. -- Gain on sales of loans increased due to sales of $64.2 million and $86.7 million in mortgage loans during the second and first quarter of 2007, respectively. During 2006 there were only sales of $0.3 million during the first quarter of the year. -- There was an increase in losses on valuation of mortgage loans available for sale during 2006 which amounted to $1.7 million and $2.4 million for the quarter and the six months ended June 30, 2006. -- During 2007 the Corporation also recognized, in other gains, mortgage servicing rights of $0.7 million and $1.5 million for the quarter and six months ended June 30, 2007. -- The decreases in "Other" for the quarter ended June 30, 2007 when compared to the second quarter of 2006 was due to recognition during the second quarter of 2006 of $0.9 million on sale of previously charged off loans. There was also a reduction of rental income on POS terminals of $0.2 million due to the sale of merchant business during the first quarter of 2007 and a reduction in swap income of $0.2 million. For the six months ended June 30, 2007 the decrease of $1.0 million in "Other" was due to the recognition of $0.9 million gain on sale of previously charged off loans during the second quarter of 2006 partially offset by an increase in technical assistance income charged to unconsolidated affiliates of $0.4 million. There was also a reduction of rental income on POS terminals of $0.2 million due to the sale of merchant business during the first quarter of 2007 and a reduction in swap income of $0.3 million. Operating expenses increased $4.6 million or 6.6% from $69.2 million for the quarter ended June 30, 2006 to $73.8 million for the quarter ended June 30, 2007. This increase was due primarily to the additional compensation expense recognized during the second quarter of 2007 of $5.8 million pursuant to the incentive plans sponsored by BSCH described above. Excluding this item, operating expenses for the second quarter of 2007 decreased $1.2 million compared to second quarter of 2006. For the six months ended June 30, 2007, compared to the same period in 2006, operating expenses increased $16.9 million or 13.1%, of which $7.3 million relate to Island Finance and $8.3 million relate to the incentive plans described above. Excluding these items, operating expenses for the six months ended June 30, 2007 reflected an increase of $1.3 million or 1.0% compared to the same period in 2006. The following table presents the most significant variances in operating expenses for the quarter and six months ended June 30, 2007 compared to the same period in 2006. June 07/June 06 June 07/June 06 QTD Variance YTD Variance ($ in millions) Increase /(Decrease) Operating Expenses Salaries and employee benefits: Increase due to Island Finance operations* $0.8 $4.1 BSCH Incentive Plans Compensation expense** 5.8 8.3 Net decrease in personnel expense due to a reduction plan instituted by the Corporation in 2006 and others (2.1) (2.6) Total increase in salaries and employee benefits 4.5 9.8 Other operating expenses: Increase (decrease)due to Island Finance operations* (0.8) 3.2 Increase in business promotion Increase in repossessed 1.4 2.3 assets provision and related expenses 1.0 1.9 Credit card expenses and others (1.5) (0.9) Others -- 0.6 Total increase in other operating expenses 0.1 7.1 TOTAL $4.6 $16.9 * Year to date 2006 only includes four months of the Island Finance operation since it was acquired on February 28, 2006. ** Long-term Compensation Plan will be reimbursed to the Corporation by BSCH, and the cost of 100 shares per employee awarded by BSCH. For the quarter and six months ended June 30, 2007 there was a decrease in income tax expense of $5.9 million and $6.9 million, respectively, due primarily to lower income before tax in both periods as well as the elimination of the surtaxes imposed on corporations and financial institutions during 2006. Island Finance The table below presents condensed results of operations and selected financial information of Island Finance for the quarters and semesters ended June 30, 2007 and 2006 including certain supplemental information, such as insurance commissions related to the Island Finance loan portfolio and interest expense mark-up charged by the Corporation. Santander Financial Quarter Ended Semester Ended Services Condensed Jun-07 Jun-06 Jun-07 Jun-06* Statement of Income ($ in thousands) ($ in thousands) Interest income $34,886 $35,685 $71,357 $48,071 Interest expense (9,418) (10,353) (19,208) (13,917) Net interest income 25,468 25,332 52,149 34,154 Provision for loan losses (19,550) (10,075) (34,074) (13,113) Net interest income after provision for 5,918 15,257 18,075 21,041 loan losses Other income 1,337 (8) 2,069 27 Operating expenses (13,587) (13,617) (26,040) (18,760) Net income before tax (6,332) 1,632 (5,896) 2,308 Income tax expense 2,466 (603) 2,291 (958) Net income (loss) $(3,866) $1,029 $(3,605) $1,350 Other indirect benefits derived from Santander Financial Services: Credit insurance commissions, net of income tax $ 558 $ 917 $ 1,693 $1,086 Interest expense mark- up, net of income tax $ 191 $ 769 $ 381 $1,035 Quarter Ended Semester Ended Other Selected Jun-07 Jun-06 Jun-07 Jun-06* Information Total Assets $724,439 $770,576 $724,439 $770,576 Gross loans, net of unearned income 620,246 644,725 620,246 644,725 Net loans 554,037 607,040 554,037 607,040 Allowance for loan losses 59,888 23,394 59,888 23,394 Non performing loans 33,616 33,404 29,418 33,404 Accruing loans past due 90 days or more 4,161 -- 8,358 -- Net interest margin 16.96% 17.31% 17.09% 17.22% (*)includes four months of operations As a result of unfavorable market conditions in Puerto Rico, the Corporation has decided to perform a valuation of the goodwill for its consumer finance segment as of July 1, 2007 and if required, any impairment adjustment would be recorded during the third quarter of 2007. Balance Sheet Total assets as of June 30, 2007 increased $266.7 million or 3.0% to $9.2 billion compared to total assets of $8.9 billion as of June 30, 2006, and $8.0 million or 0.1% compared to total assets of $9.19 billion as of December 31, 2006. As of June 30, 2007, there was an increase of $470.3 million in net loans, including loans held for sale (further explained below) compared to June 30, 2006 balances and $46.0 million compared to December 31, 2006 balances. The investment securities portfolio decreased $213.1 million, from $1.6 billion as of June 30, 2006 to $1.4 billion as of June 30, 2007. The net loan portfolio, including loans held for sale, reflected an increase of 7.3% or $470.3 million, reaching $6.9 billion at June 30, 2007, compared to the figures reported as of June 30, 2006. Compared to December 31, 2006, the net loan portfolio grew by $46.0 million. The following table reflects the period end loan balances as June 30, 2007 and 2006. Jun07/Jun06 Jun-07 Jun-06 $Var %Var ($ in thousands) Commercial: Retail $1,883,252 1,941,471 $(58,219) -3.0% Corporate 632,129 590,936 41,193 7.0% Construction 500,328 297,221 203,107 68.3% 3,015,709 2,829,628 186,081 6.6% Consumer: Consumer 670,367 567,442 102,925 18.1% Consumer Finance 613,924 630,434 (16,510) -2.6% 1,284,291 1,197,876 86,415 7.2% Mortgage (mainly 9.6% residential, including loans held for sale) 2,710,573 2,472,509 238,064 9.6% Gross Loans 7,010,573 6,500,013 510,560 7.9% Allowance for loan losses (127,916) (87,695) (40,221) 45.9% Net Loans $6,882,657 $6,412,318 $470,339 7.3% The Corporation experienced net loan growth of 7.3% year over year. This growth was primarily due to residential mortgage and construction loans reflecting growth of $238.1 million and $203.1 million, respectively. Credit cards and personal installment loans at Banco Santander Puerto Rico also reflected growth of $102.9 million. Combined, these three segments achieved double digit loan growth consistent with the business strategy of the Corporation. The growth in the construction loan and residential mortgage portfolio were driven by the opportunity to regain a leading role as a residential construction lender and the enhanced mortgage distribution capabilities. The corporate portfolio benefited from a client by client business plan that yielded new relationships and opportunities with existing clients. The consumer portfolio at Banco Santander grew as a result of successful campaigns launched in credit cards and personal installment loans to increase cross-selling to the existing client base and attract new clients. Residential mortgage loan origination for the second quarter of 2007 was $164.3 million or 33.3% less than the $246.3 million originated during the same quarter last year. For the six months ended June 30, 2007 residential mortgage loan origination was $342.3 million or 20.3% less than the $429.5 million originated during the same period in 2006. The total of mortgage loans sold during the second quarter of 2007 was $64.2 million. For the six months ended June 30, 2007, mortgage loans sold were $150.0 million versus $0.3 million during the six months ended June 30, 2006. Deposits of $5.3 billion at June 30, 2007 reflected an increase of 6.2%, compared to deposits of $5.0 billion as of June 30, 2006 and a decrease of 0.6% compared to deposits of $5.3 billion as of December 31, 2006. Total borrowings at June 30, 2007 (comprised of federal funds purchased and other borrowings, securities sold under agreements to repurchase, commercial paper issued, and term and capital notes) decreased $50.7 million or 1.7% and increased $60.7 million or 2.1% compared to borrowings at June 30, 2006 and December 31, 2006, respectively. Financial Strength The ratio of non-performing loans and accruing loans past-due 90 days or more (past-due loans) to total loans as of June 30, 2007 was 2.10%, a 28 basis point and a 26 basis point increase compared to the 1.82% reported as of June 30, 2006, and 1.84% reported as of December 31, 2006, respectively. Non- performing loans and accruing loans past-due 90 days or more at June 30, 2007 amounted to $147.3 million comprised of $37.8 million at Island Finance and $109.5 million at the Bank. The Corporation's non-performing loans and accruing loans past-due 90 days or more (excluding Island Finance non- performing loans) reflected an increase of $24.6 million or 29.0% compared to June 30, 2006. The following table presents the major categories of non- performing loans and the variances for the periods indicated: Var Var Jun07/ Jun07/ Jun-07 Dec-06 Jun-06 Jun06 Dec06 ($ in thousands) Past-due loans excluding Island Finance: Non performing loans: Residential Mortgage $43,248 $31,263 $25,374 $17,874 $11,985 Consumer 8,513 7,590 5,963 2,550 923 Commercial and other 51,589 43,268 44,752 6,837 8,321 103,350 82,121 76,089 27,261 21,229 Accruing loans past- due 90 days or more 6,132 11,344 8,772 (2,640) (5,212) Total past due loans, excluding Consumer Finance 109,482 93,465 84,861 24,621 16,017 Past-due loans Island Finance: Consumer Finance - Non performing loans 33,615 24,731 33,404 211 8,884 Accruing loans past- due 90 days or more 4,161 9,594 -- 4,161 (5,433) Consumer Finance Past due loans 37,776 34,325 33,404 4,372 3,451 Total past-due loans $147,258 $127,790 $118,265 $28,993 $19,468 The allowance for loan losses represents 1.82% of total loans as of June 30, 2007, a 47 basis point increase over the 1.35% reported as of June 30, 2006, and a 28 basis point increase over the 1.54% reported as of December 31, 2006. The allowance for loan losses to total loans excluding mortgage loans as of June 30, 2007 was 2.97% compared to 2.18% at June 30, 2006 and 2.49% as of December 31, 2006. The allowance for loan losses to total non-performing loans and accruing loans past due 90 days or more at June 30, 2007 increased 12.72 percentage points to 86.87% compared to 74.15% at June 30, 2006. As of December 31, 2006, this ratio was 83.62%, a 325 basis point increase. Excluding non-performing mortgage loans , this ratio is 181.4% at June 30, 2007 compared to 141.3% as of June 30, 2006 and 161.3% as of December 31, 2006. As of June 30, 2007, total capital to risk-adjusted assets (BIS ratio) reached 10.81% and Tier I capital to risk-adjusted assets and leverage ratios were 7.78% and 5.69%, respectively. Customer Financial Assets under Control As of June 30, 2007, the Corporation had $13.6 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. Included in the $13.6 billion referred to above is approximately $0.3 billion from the trust business recently sold which amount would be transferred either to the acquiring financial institution or any other institution that the trust client elects during the second and third quarters of 2007. Shareholder Value During the quarter ended June 30, 2007, Santander BanCorp declared a cash dividend of 16 cents per common share, resulting in a current annualized dividend yield of 4.3%. Market capitalization reached approximately $0.7 billion (including affiliated holdings) as of June 30, 2007. There were no stock repurchases during 2007 and 2006 under the Stock Repurchase Program. As of June 30, 2007, the Corporation had acquired, as treasury stock, a total of 4,011,260 shares of common stock, amounting to $67.6 million. Availability on Website The Corporation makes available additional financial information on the Corporation's website at http://www.santandernet.com/, and can be accessed by clicking on "Investor Relations" on the website main page and clicking on "Financial Highlights on Excel". 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 Corporation has five wholly owned subsidiaries, Banco Santander Puerto Rico, Santander Securities Corporation, Santander Financial Services, Inc., Santander Insurance Agency, Inc. 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 61 branches in the areas of commercial, mortgage and consumer banking, supported by a team of over 1,100 employees. Santander Securities offers securities brokerage services and provides portfolio management services through its wholly owned subsidiary Santander Asset Management Corporation. Santander Financial Services, Inc. offers consumer finance products through its network of 69 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 seventh in the world by profit. Founded in 1857, Santander has EUR 833,873 million in assets and EUR 1,000,996 million in managed funds, 67 million customers, 10,852 branches and a presence in 40 countries. It is the largest financial group in Spain and Latin America, and is the sixth largest bank in the United Kingdom, through its Abbey subsidiary, and operates in 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 2006, Santander registered ?7,596 million in net attributable profits, an increase of 22% from the previous year. In Latin America, Santander manages over US$250 billion in banking business volumes (loans, deposits, mutual funds, pension funds and managed funds) through 4,370 offices. In 2006, Santander reported US$1,409 million in net attributable income in Latin America, 29% higher than 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. (2) On a tax-equivalent basis, excluding gains on sale of securities. (3) On a tax-equivalent basis. (4) On a tax-equivalent basis. (5) 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 JUNE 30, 2007 AND 2006 AND DECEMBER 31, 2006 (Dollars in thousands, except share data) ASSETS Variance 06/07- 30-Jun-07 30-Jun-06 31-Dec-06 12/06 CASH AND CASH EQUIVALENTS: Cash and due from banks $149,736 $188,544 $125,077 19.72% Interest-bearing deposits 2,544 583 780 226.15% Federal funds sold and securities purchased under agreements to resell 113,948 72,542 73,407 55.23% Total cash and cash equivalents 266,228 261,669 199,264 33.61% INTEREST-BEARING DEPOSITS 50,000 51,702 51,455 -2.83% TRADING SECURITIES, at fair value 46,088 46,682 50,792 -9.26% INVESTMENT SECURITIES AVAILABLE FOR SALE, at fair value 1,329,829 1,550,302 1,409,789 -5.67% OTHER INVESTMENT SECURITIES, at amortized cost 50,159 42,835 50,710 -1.09% LOANS HELD FOR SALE, net 164,916 302,496 196,277 -15.98% LOANS, net 6,845,657 6,197,517 6,747,279 1.46% ALLOWANCE FOR LOAN LOSSES (127,916) (87,695) (106,863) 19.70% ACCRUED INTEREST RECEIVABLE 79,335 92,330 102,244 -22.41% PREMISES AND EQUIPMENT, net 53,424 57,243 56,299 -5.11% GOODWILL 148,300 144,715 148,300 0.00% INTANGIBLE ASSETS 46,652 47,861 47,427 -1.63% OTHER ASSETS 243,487 221,804 235,195 3.53% $9,196,159 $8,929,461 $9,188,168 0.09% LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Non interest-bearing $628,647 $642,641 $746,089 -15.74% Interest-bearing 4,651,485 4,327,301 4,567,885 1.83% Total deposits 5,280,132 4,969,942 5,313,974 -0.64% FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS 1,581,500 1,375,000 1,628,400 -2.88% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 768,831 973,032 830,569 -7.43% COMMERCIAL PAPER ISSUED 382,662 437,132 209,549 82.61% TERM NOTES 42,149 40,877 41,529 1.49% SUBORDINATED CAPITAL NOTES 240,033 239,810 244,468 -1.81% ACCRUED INTEREST PAYABLE 72,879 74,302 91,245 -20.13% OTHER LIABILITIES 256,127 263,088 249,214 2.77% 8,624,313 8,373,183 8,608,948 0.18% 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 (51,962) (63,296) (44,213) 17.53% Retained earnings: Reserve fund 137,511 133,759 137,511 0.00% Undivided profits 123,052 122,570 122,677 0.31% Total stockholders' equity 571,846 556,278 579,220 -1.27% $9,196,159 $8,929,461 $9,188,168 0.09% SANTANDER BANCORP CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 (Dollars in thousands, except per share data) For the For the six months ended three months ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 INTEREST INCOME: Loans $298,189 $249,231 $149,834 $137,705 Investment securities 33,649 37,052 16,742 18,784 Interest-bearing deposits 2,260 1,921 1,110 962 Federal funds sold and securities purchased under agreements to resell 1,222 2,413 556 1,082 Total interest income 335,320 290,617 168,242 158,533 INTEREST EXPENSE: Deposits 92,828 81,085 46,864 42,449 Securities sold under agreements to repurchase and other borrowings 77,007 62,513 39,229 34,266 Subordinated capital notes 7,886 6,377 3,952 3,963 Total interest expense 177,721 149,975 90,045 80,678 Net interest income 157,599 140,642 78,197 77,855 PROVISION FOR LOAN LOSSES 52,874 23,513 30,850 15,975 Net interest income after provision for loan losses 104,725 117,129 47,347 61,880 OTHER INCOME (LOSS): Bank service charges, fees and other 24,452 23,362 12,134 11,692 Broker-dealer, asset management and insurance fees 32,369 29,476 16,081 14,431 Gain on sale of securities, net 238 - 49 - Gain on sale of mortgage servicing rights 168 18 99 15 Gain (loss) on sale of loans 4,338 (3) 1,990 (1) Other income (loss) 4,400 (752) 1,559 (450) Total other income 65,965 52,101 31,912 25,687 OPERATING EXPENSES: Salaries and employee benefits 65,902 56,115 34,073 29,559 Occupancy costs 11,488 10,734 5,914 6,085 Equipment expenses 2,241 2,334 1,076 1,294 EDP servicing, amortization and technical assistance 18,021 17,860 8,614 9,806 Communication expenses 5,451 4,985 2,766 2,667 Business promotion 8,000 5,743 4,548 3,162 Other taxes 4,948 5,079 1,843 2,703 Other operating expenses 29,750 26,047 14,920 13,908 Total operating expenses 145,801 128,897 73,754 69,184 Income before provision for income tax 24,889 40,333 5,505 18,383 PROVISION FOR INCOME TAX 9,064 15,950 1,409 7,355 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $15,825 $24,383 $4,096 $11,028 EARNINGS PER COMMON SHARE $0.34 $0.52 $0.09 $0.24 SANTANDER BANCORP SELECTED CONSOLIDATED FINANCIAL INFORMATION: (DOLLARS IN THOUSANDS) For the Quarters Ended 30-Jun 30-Jun 31-Mar 2Q07/2Q06 2Q07/1Q07 2007 2006 2007 Variation Variation Interest Income $168,242 $158,533 $167,079 6.1% 0.7% Tax equivalent adjustment 2,056 2,225 2,225 -7.6% -7.6% Interest income on a tax equivalent basis 170,298 160,758 169,304 5.9% 0.6% Interest expense 90,045 80,678 87,677 11.6% 2.7% Net interest income on a tax equivalent basis 80,253 80,080 81,627 0.2% -1.7% Provision for loan losses 30,850 15,975 22,024 93.1% 40.1% Net interest income on a tax equivalent basis after provision 49,403 64,105 59,603 -22.9% -17.1% Other operating income 29,873 25,688 31,704 16.3% -5.8% Gain on sale of securities 49 - - N/A N/A Gain on sale of loans 1,990 (1) 2,348 N/A -15.2% Other operating expenses 73,754 69,184 72,047 6.6% 2.4% Income on a tax equivalent basis before income taxes 7,561 20,608 21,608 -63.3% -65.0% Provision for income taxes 1,409 7,355 7,654 -80.8% -81.6% Tax equivalent adjustment (2,056) (2,225) (2,225) -7.6% -7.6% NET INCOME $4,096 $11,028 $11,729 -62.9% -65.1% SELECTED RATIOS: Per share data (1): Earnings per common share $0.09 $0.24 $0.25 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 (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 SELECTED CONSOLIDATED FINANCIAL INFORMATION: (DOLLARS IN THOUSANDS) Six Month Periods Ended June 30, 2007 2006 Variation Interest Income $335,320 $290,617 15.4% Tax equivalent adjustment 4,281 4,185 2.3% Interest income on a tax equivalent basis 339,601 294,802 15.2% Interest expense 177,721 149,975 18.5% Net interest income on a tax equivalent basis 161,880 144,827 11.8% Provision for loan losses 52,874 23,513 124.9% Net interest income on a tax equivalent basis after provision 109,006 121,314 -10.1% Other operating income 61,389 52,104 17.8% Gain on sale of securities 238 -- N/A Gain on sale of loans 4,338 (3) N/A Other operating expenses 145,801 128,897 13.1% Income on a tax equivalent basis before income taxes 29,170 44,518 -34.5% Provision for income taxes 9,064 15,950 -43.2% Tax equivalent adjustment (4,281) (4,185) 2.3% NET INCOME $15,825 $24,383 -35.1% SELECTED RATIOS: Per share data (1): Earnings per common share $0.34 $0.52 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 $0.32 $0.32 (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 YTD QTD QTD YTD QTD 30-Jun 30-Jun 31-Mar 30-Jun 30-Jun SELECTED RATIOS 2007 2007 2007 2006 2006 Net interest margin (1) 3.86% 3.79% 3.94% 3.58% 3.91% Return on average assets (2) 0.35% 0.18% 0.53% 0.57% 0.50% Return on average common equity (2) 5.42% 2.76% 8.20% 8.92% 7.83% Efficiency Ratio (1,3) 64.06% 65.78% 62.38% 65.45% 65.41% Non-interest income to revenues 16.44% 15.94% 16.93% 15.20% 13.94% Capital: Total capital to risk- adjusted assets -- 10.81% 10.96% -- 11.25% Tier I capital to risk-adjusted assets -- 7.78% 7.88% -- 8.17% Leverage ratio -- 5.69% 5.88% -- 5.86% Non-performing loans to total loans -- 1.95% 1.68% -- 1.68% Non-performing loans plus accruing loans past-due 90 days or more to loans -- 2.10% 1.92% -- 1.82% Allowance for loan losses to non-performing loans -- 93.39% 97.07% -- 80.09% Allowance for loans losses to period-end loans -- 1.82% 1.64% -- 1.35% OTHER SELECTED FINANCIAL DATA 06/30/2007 06/30/2006 12/31/2006 (dollars in millions) Customer Financial Assets Under Control: Bank deposits (excluding brokered deposits) $3,856.0 $3,774.0 $3,968.6 Broker-dealer customer accounts 5,907.0 4,853.0 5,648.0 Mutual fund and assets managed 3,041.0 2,745.0 2,936.0 Trust, institutional and private accounts assets under management 764.0 1,200.0 1,601.0 Total $13,568.0 $12,572.0 $14,153.6 (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. Also excluding for 4Q06 FDIC assessment credits and gain on tax credits purchased. DATASOURCE: Santander BanCorp CONTACT: Maria Calero, +1-787-777-4437, or Evelyn Vega, +1-787-777-4546, both of Santander BanCorp Web site: http://www.santandernet.com/

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