- Net interest income increased $14.2 million or 23.2% compared to
the fourth quarter of 2005 and $63.6 million or 28.0% compared to
the year ended December 31, 2005. SAN JUAN, Puerto Rico, March 16
/PRNewswire-FirstCall/ -- Santander BanCorp (NYSE: SBP; LATIBEX:
XSBP) ("the Corporation") reported today its unaudited financial
results for the quarter and the year ended December 31, 2006. Net
income for the fourth quarter of 2006 reached $10.1 million,
compared to net income of $16.9 million reported during the fourth
quarter of 2005. For the year ended December 31, 2006 net income
reached $43.2 million compared to $79.8 million reported for the
same period in 2005. Net interest margin on a tax equivalent basis
increased by 51 basis points to 3.67% for the quarter ended
December 31, 2006, compared to the fourth quarter of 2005. For the
year ended December 31, 2006, net interest margin on a tax
equivalent basis expanded by 61 basis points to 3.63%, compared to
the same period in 2005. The $6.8 million decrease in net income
for the quarter ended December 31, 2006, was principally due to:
(i) an increase in operating expenses of $17.8 million (of which
$12.8 million relate to the Island Finance operation); (ii) a $2.5
million decrease in net interest income after provision for loan
losses, (iii) partially offset by a $10.3 million increase in other
income and a $3.3 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 Santander Financial
Services, Inc. ("Island Finance"). The $36.6 million decrease in
net income for the year ended December 31, 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) an increase in
operating expenses of $56.4 million comprised of $44.4 million
pertaining to the Island Finance operation, and $10.4 million
related to the personnel reduction program implemented during the
third quarter of 2006; (iii) a $5.9 million decrease in gain on
sale of loans; and partially offset by an increase of $18.4 in net
interest income after provision for loan losses and a decrease in
income tax expense of $8.2 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.
During the fourth quarter of 2006, the Corporation sold to an
unaffiliated third party the servicing rights with respect to the
following Trust Division accounts: personal trusts, customers
employee benefit plans, guardianship accounts, insurance trusts,
escrow accounts, and securities custody accounts. No gain or loss
was recognized on this transaction. The Trust Division will focus
its efforts on the transfer & paying agent and IRA's accounts
services. Financial Results The Corporation's financial results for
the quarter and the year ended December 31, 2006 were impacted by
the following: * The Corporation experienced a net interest
margin(1) expansion of 51 basis points including the Island Finance
business and a 44 basis point reduction excluding Island Finance,
for the quarter ended December 31, 2006 versus the same period in
the prior year. For the year ended December 31, 2006, the
Corporation's net interest margin(1) increased 61 basis points
including the Island Finance business and decreased 22 basis points
excluding Island Finance, when compared to the same period in 2005.
The reduction in the Corporation's net interest income excluding
Island Finance was mainly impacted by the settlement of
approximately $910 million in commercial loans secured by mortgages
in November 2005 and May 2006, 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. * For the quarter ended December 31, 2006,
non-interest income increased $10.3 million primarily due to: a
gain on sale of an FDIC assessment credit of $1.9 million,
increases in Island Finance revolving loan annual fees of $1.7
million, trading gains of $1.3 million, gain on sale of loans of
$1.8 million, insurance fees of $4.4 million, mortgage servicing
rights recognized of $0.8 million and technical assistance fees to
affiliates of $0.6 million. Non-interest income decreased $6.9
million during the year ended December 31, 2006, compared with the
same period in the prior year, mainly due to a decrease in gain on
sale of securities (net of the loss on extinguishment of debt) of
$11.8 million, a decrease in gain on sale of loans of $5.8
million,, a decrease in gain (loss) on derivative transactions of
$2.4 million and lower recognition of mortgage servicing rights of
$1.0 million partially offset by higher insurance fees of $4.4
million, bank service charges and other fees of $6.8 million, gain
on sale of trading securities of $1.0 million and an a gain sale of
an FDIC assessment credit of $1.9 million (included in other
income). * The Corporation experienced an increase in operating
expenses related to the Island Finance operation and to a personnel
reduction program. Excluding the Island Finance operation and
expenses related to the personnel reduction program, operating
expenses increased by $4.5 million or 8.1% and $1.4 million or
0.7%, respectively, for the quarter and the year ended December 31,
2006. The increase for the quarter ended December 31, 2006 is
mainly due to an increase in $0.9 in pension expense due to a plan
curtailment, personnel reduction expenses of $0.7 million, long
term incentive plan expense of $0.8 million and an increase in EDP
servicing, amortization and technical services of $2.2 million. * 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 $0.7 million and $10.4 million,
respectively, for the quarter and for the year ended December 31,
2006. In addition, during the last quarter of 2006 the Corporation
froze its defined benefit pension plan, recognizing a loss of $0.9
million on plan curtailment related to unrecognized prior service
costs. The Corporation also recognized $0.8 million pursuant to a
Long Term Incentive Plan to certain employees. * The Corporation's
income tax expense decreased $3.3 million and $8.2 million for the
three and twelve month periods ended December 31, 2006,
respectively. These decreases were due to lower net income before
tax. The effective income tax rate was 34.3% for the year ended
December 31, 2006 versus 27.8% for the same period in 2005. The
increase in the effective rate was due to lower exempt income in
2006, more 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 net
loan portfolio by 16.8% 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 27.9% over the same period
in the previous year to $244.5 million. Net income for the quarter
ended December 31, 2006 was $10.1 million or $0.22 per common share
compared to net income for the quarter ended December 31, 2005 of
$16.9 million or $0.36 per common share. Annualized Return on
Average Common Equity (ROE) and Return on Average Assets (ROA) were
6.86% and 0.44%, respectively, for the quarter ended December 31,
2006, compared to 11.51% and 0.80%, respectively, for the fourth
quarter of 2005. The Efficiency Ratio(2) for the quarters ended
December 31, 2006 and 2005 was 65.66% and 63.00%, respectively. Net
income for the year ended December 31, 2006 was $43.2 million or
$0.93 per common share compared to net income for the year ended
December 31, 2005 of $79.8 million or $1.71 per common share.
Annualized Return on Average Common Equity (ROE) and Return on
Average Assets (ROA) were 7.66% and 0.49%, respectively, for the
year ended December 31, 2006, compared to 13.85% and 0.96%,
respectively, for the year ended December 31, 2005. The Efficiency
Ratio(2) for the year ended December 31, 2006 and 2005 was 66.84%
and 62.97%, respectively. Income Statement The $6.8 million or
40.4% reduction in net income for the quarter ended December 31,
2006 compared to the same period in 2005 was principally due to
increases in the provision for loan losses of $16.7 million and
operating expenses of $17.8 million. These changes were partially
offset by increases in net interest income of $14.2 million and
$10.3 million in non-interest income, as well as a decrease in the
provision for income tax of $3.3 million. Net interest margin(3)
for the fourth quarter of 2006 was 3.67% compared with 3.16% for
the fourth quarter of 2005. This increase of 51 basis points in net
interest margin(3) was mainly due to an increase of 171 basis
points in the yield on average interest earning assets and an
increase in average interest earning assets of $553.8 million,
primarily as a result of the acquisition of the assets of Island
Finance on February 28, 2006. There was an increase of 124 basis
points in the average cost of interest bearing liabilities and an
increase in average interest bearing liabilities of $688.0 million.
Interest income(3) increased $45.0 million or 36.4% during the
fourth quarter of 2006 compared to the same period in 2005, while
interest expense also increased $29.7 million or 49.1%. For the
fourth quarter of 2006 average interest earning assets increased
$553.8 million or 7.0% and average interest bearing liabilities
increased $688.0 million or 10.0% compared to the same period in
2005. The increment in average interest earning assets compared to
the fourth quarter of 2005 was driven by an increase in average net
loans of $644.4 million, which was partially offset by a decrease
in average investments of $52.4 million and average interest
bearing deposits of $38.2 million. The increase in average net
loans was due to an increase of $515.9 million or 24.4% 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 $664.2
million or 119.6% 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
$504.9 million or 14.7% 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 $326.1 million
or 12.5%. The increase in average interest bearing liabilities of
$688.0 million for the quarter ended December 31, 2006, was driven
by an increase in average borrowings of $560.2 million compared to
the quarter ended December 31, 2005. This increase was due to an
increase in borrowings of $614.3 million incurred in connection
with to the acquisition of Island Finance and the refinancing of
other existing debt of the Corporation, an increase in average FHLB
Advances of $58.1 million partially offset by reductions in average
repurchase agreements of $94.0 million and average commercial paper
of $18.1 million. For the year ended December 31, 2006, net income
decreased $36.6 million or 45.9% compared to 2005 due to increases
in the provision for loan losses of $45.2 million and in operating
expenses of $56.4 million, together with a decrease of $6.9 million
in non-interest income, partially offset by an increase in net
interest income of $63.6 million and a decrease in provision for
income tax of $8.2 million. For the year ended December 31, 2006,
net interest margin(4) was 3.63% compared with 3.02% for the same
period in 2005. This increase of 61 basis points in net interest
margin(4) was mainly due to an increase of 187 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 133 basis points in the average cost of interest
bearing liabilities. Interest income(4) increased $176.6 million or
39.2% during the year ended December 31, 2006 compared to 2005,
while interest expense increased $115.1 million or 54.2% over the
same period. For the year ended December 31, 2006 average interest
earning assets increased $380.6 million or 4.8% and average
interest bearing liabilities increased $549.2 million or 8.0%
compared to the same period in 2005. The increment in average
interest earning assets compared to the year ended December 31,
2005 was driven by an increase in average net loans of $567.8
million, which was partially offset by decreases in average
investment securities and average interest bearing deposits of
$103.6 million and $83.6 million, respectively. The increase in
average net loans was due to an increase of $538.2 million or 28.5%
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 $590.2 million or 115.5% 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 $541.1 million or 15.3% 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 $426.3 million or 16.6%. The provision for loan losses
increased $16.7 million or 333.4% from $5.0 million for the quarter
ended December 31, 2005 to $21.7 million for the fourth quarter in
2006 and $45.2 million or 221.5% from $20.4 million for the year
ended December 31, 2005 to $65.6 million for the year ended
December 31, 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 $15.7 million and $43.2 million for
the quarter and ten months (from acquisition) ended December 31,
2006. For the quarter ended December 31, 2006, non-interest income
reached $35.4 million compared to $25.1 million reported for the
same period in 2005. This $10.3 million or 40.9% increase in
non-interest income for the fourth quarter of 2007 compared to the
same period in 2005, was mainly due to: a gain on sale of an FDIC
assessment credit of $1.9 million; increases in bank service
charges, fees and other of $2.8 million; trading gains of $1.3
million; gain on sale of loans of $1.8 million; broker-dealer,
asset management and insurance fees of $1.4 million; mortgage
servicing rights recognized of $0.8 million; and technical
assistance fees to affiliates of $0.6 million. For the year ended
December 31, 2006, non-interest income decreased $6.9 million or
5.5% compared to the same period in 2005. This decrease was due to
lower gains on sale of securities (net of the loss on
extinguishment of debt) of $11.8 million and lower gain on sale of
loans of $5.9 million. There was a loss on derivatives in 2006 of
$0.5 million compared to a gain in 2005 of $2.0 million, due
primarily to a loss on valuation of mortgage loans available for
sale of $1.2 million in 2006. Insurance fees reflected an increase
of $4.4 million due primarily to the effect of the Island Finance
operation on the insurance operations for the period. Bank service
charges, fees and other increased $6.8 million, or 16.1% for the
year ended December 31, 2006. These increases were primarily in
fees on deposit accounts, credit cards, mortgages, trust fees and
account analysis. The Corporation recognized a gain on sale of an
FDIC assessment credit of $1.9 million during the fourth quarter of
2006. For the quarter and the year ended December 31, 2006, the
Efficiency Ratio(5) was 65.66% and 66.84%, respectively, reflecting
increases of 266 and 387 basis points, respectively compared to
Efficiency Ratios(5) of 63.00% and 62.97% for the three and twelve
month periods ended December 31, 2005. These increases were mainly
the result of higher operating expenses during the quarter and the
year ended December 31, 2006 resulting in part from expenses
related to a personnel reduction program. Payments pursuant to the
personnel reduction program reached $0.7 million and $10.4 million
for the quarter and the year ended December 31, 2006, respectively.
Excluding these personnel reduction expenses, the Efficiency
Ratio(5) for the three and twelve month periods ended December 31,
2006 was 63.99% and 63.96%, a 99 basis point increase for both the
quarter and the year ended December 31, 2006, respectively compared
to the same periods in 2005. In addition, during the fourth quarter
of 2006, operating expenses were impacted by a pension plan
curtailment pursuant to the Corporation's decision to freeze its
defined benefit pension plan, resulting in the recognition of an
additional expense of $0.9 million. The Corporation also recognized
$0.8 million pursuant to a Long Term Incentive Plan to certain
employees. This plan is sponsored by the Corporation's parent
company, Banco Santander Central Hispano, S.A. ("Santander"), and
consists of a target cash bonus to participating employees based on
the value and earnings of the shares of Santander. The Corporation
is accruing the bonus which will be paid by the Parent Company and
such payment will be reflected in the Corporation's capital when
the target cash bonuses are paid. Operating expenses increased
$17.8 million or 32.2% from $55.4 million for the quarter ended
December 31, 2005 to $73.3 million for the quarter ended December
31, 2006. This increase was due primarily to the Island Finance
operation which reflected operating expenses of $12.8 million for
the quarter ended December 31, 2006. During the fourth quarter of
2006 there were increases in salaries and employee benefits of $7.5
million together with an increase in other operating expenses of
$10.3 million. Island Finance salaries and employee benefits for
the quarter ended December 31, 2006 were $6.0 million and other
operating expenses were $6.7 million. Excluding Island Finance
expenses, operating expenses for the fourth quarter of 2006
compared to the same period in 2005 reflected an increase of $5.1
million or 9.3% comprised of an increase in personnel expenses of
$1.5 million and an increase in non-personnel expenses of $3.6
million. The increase in personnel expenses, excluding Island
Finance, for the fourth quarter of 2006 compared to the fourth
quarter of 2005 was due to an increase of $0.9 million in pension
expense due to a plan curtailment, personnel reduction expenses of
$0.7 million and an increase of $0.8 million in deferred
compensation pursuant to the long term incentive plan described
above. These increases were partially offset by an increase in
costs deferred to originate loans of $0.7 million. The $3.6 million
increase in non-personnel expenses (excluding Island Finance
expenses) was primarily due to increases in EDP servicing,
amortization and technical services of $2.2 million, other taxes of
$0.7 million, business promotion and repossessed assets provision
and expenses of $0.5 million each. For the year ended December 31,
2006, operating expenses increased $56.4 million or 25.5% from
$221.4 million for the year ended December 31, 2005 to $277.8
million for the same period in 2006. This increase was due to
operating expenses of Island Finance of $44.5 million and expenses
related to a personnel reduction program of $10.4 million in 2006.
Island Finance salaries and employee benefits were $21.1 million
for the ten months (since acquisition) ended December 31, 2006 and
other operating expenses were $23.4 million. Excluding Island
Finance expenses and expenses related to personnel reductions,
operating expenses reflected an increase of $1.5 million or 0.7%
for the year ended December 31, 2006 compared to December 31, 2005
comprised of a decrease in personnel expenses of $4.8 million and
an increase in non- personnel expenses of $6.3 million. Decrease in
personnel expenses was due mainly due to decreases in accruals for
performance compensation of $4.4 million and $1.5 million in
temporary personnel, partially offset by an increase of $0.9
million in the pension plan expense due to plan curtailment. The
increase in non-personnel expenses was due to increases of $4.1
million in EDP servicing amortization and technical services, $1.5
million in credit card expenses and $1.0 million in other taxes.
Island Finance On February 28, 2006 the Corporation acquired
substantially all the assets and business operations in Puerto Rico
of Island Finance. As a result of this acquisition the Corporation
increased its presence throughout Puerto Rico to 131 branches due
to Island Finance's extensive branch network, and also diversified
and increased its loan portfolio, consumer client base and improved
its net interest margin. The table below presents condensed results
of operations and selected financial information of Island Finance
for the quarter and the ten months (since acquisition) ended
December 31, 2006 including certain adjustments that are non GAAP
such as insurance commissions related to the Island Finance loan
portfolio and interest expense mark-up charged by the Corporation.
Ten months Quarter Ended Ended Santander Financial Services Dec-06
Dec-06 Condensed Statement of Income ($ in thousands) Interest
income $35,004 $118,154 Interest expense (10,282) (34,738) Net
interest income 24,722 83,416 Provision for loan losses (15,695)
(43,208) Net interest income after provision for loan losses 9,027
40,208 Other income 2,804 3,006 Operating expenses (12,705)
(44,501) Net loss before tax and non GAAP adjustments (874) (1,287)
Income tax benefit (336) (486) Net loss of Santander Financial
$(538) $(801) Other indirect enterprise adjustments: Credit
insurance commission, net of income tax $768 $2,894 Interest
expense mark-up, net of income tax $763 $2,505 Other Selected
Information Total Assets $805,173 $805,173 Net loans 583,986
583,986 Allowance for loan losses 41,281 41,281 Non performing
loans 24,731 24,731 Net interest margin 16.35% 16.59% Balance Sheet
Total assets as of December 31, 2006 increased $916.2 million or
11.1% to $9.2 billion compared to total assets of $8.3 billion as
of December 31, 2005. As of December 31, 2006, there was an
increase of $881.8 million in net loans, including loans held for
sale (further explained below) compared to December 31, 2005
balances. The investment securities portfolio decreased $141.0
million, from $1.6 billion as of December 31, 2005 to $1.5 billion
as of December 31, 2006. The net loan portfolio, including loans
held for sale, reflected an increase of 14.8% or $881.8 million,
reaching $6.8 billion at December 31, 2006, compared to the figures
reported as of December 31, 2005. The mortgage loan portfolio at
December 31, 2006 grew $507.0 million or 23.6% compared to December
31, 2005. Mortgage loans originated during the fourth quarter of
2006 reached $244.5 million or 27.9% more than the same quarter
last year. Mortgage loans originated during the year ended December
31, 2006 reached $911.6 million or 21.9% more than the same period
last year. Construction loans increased $221.5 million or 103.6% as
of December 31, 2006 compared to December 31, 2005. The consumer
loan portfolio also reflected growth of $664.3 million or 117.1%,
as of December 31, 2006, compared to December 31, 2005 due
primarily to the acquisition of Island Finance. The commercial loan
portfolio decreased $249.5 million or 7.5% compared to December 31,
2005, as a result of the settlement of commercial loans secured by
mortgages with Doral during the second quarter of 2006. Period End
Loan Balances % of Dec06/Dec 05 total Dec-06 Dec-05 $ Var % Var
Dec-06 ($ in thousands) Commercial: Retail $1,948,788 1,887,689
$61,099 3.2% 28.1% Corporate 673,566 567,436 106,130 18.7% 9.7%
Commercial loan secured by mortgages settled in 2Q06 - 638,228
(638,228) -100.0% Construction 435,182 213,705 221,477 103.6% 6.3%
3,057,536 3,307,058 (249,522) -7.5% 44.0% Consumer: Consumer
606,214 567,195 39,019 6.9% 8.7% Consumer Finance 625,266 - 625,266
n.a. 9.0% 1,231,480 567,195 664,285 117.1% 17.7% Mortgage (mainly
residential) 2,654,540 2,147,479 507,061 23.6% 38.2% Total Loans
$6,943,556 $6,021,732 $921,824 15.3% 100.0% Deposits of $5.3
billion at December 31, 2006 reflected an increase of 1.7%,
compared to deposits of $5.2 billion as of December 31, 2005. Total
borrowings at December 31, 2006 (comprised of federal funds
purchased and other borrowings, securities sold under agreements to
repurchase, commercial paper issued, and term and capital notes)
increased $742.3 million or 33.6% compared to borrowings at
December 31, 2005. 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. In December 2006, the Corporation and Santander
Financial Services, entered into a Bridge Facility Agreement (the
"Agreement") with National Australia Bank Limited (the "Lender").
The proceeds of the Agreement were used to refinance the
outstanding indebtedness incurred in connection with the previously
announced amended and restated loan agreement with Lloyds TBS Bank
plc and for general corporate purposes. Under the Agreement, the
Corporation and Santander Financial had available $275 million and
$525 million, respectively, all of which was drawn. The amounts
drawn under the Agreement (the "Loan") bear interest at an annual
rate equal to the applicable LIBOR rate plus 0.10% per annum.
Pursuant to the Agreement, the Company and Santander Financial will
pay the Lender a facility fee (the "Facility Fee") of 0.02% of the
principal amount of the Loan within three days of the execution of
the Agreement. The entire principal balance of the Loan is due and
payable on September 21, 2007. The Loan is guaranteed by Santander,
the parent of the Corporation. The Corporation will pay Santander a
guarantee fee equal to 10 basis points (0.1%) of the principal
amount of the Loan. Financial Strength Non-performing loans to
total loans as of December 31, 2006 was 1.54%, a 32 basis point
increase compared to the 1.22% reported as of December 31, 2005.
Non-performing loans at December 31, 2006 amounted to $106.9
million comprised of Island Finance non-performing loans of $24.7
million and $82.1 million of non-performing loans of the Bank. The
Corporation's non-performing loans (excluding Island Finance
non-performing loans) reflected an increase of $8.4 million or
11.5% 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 non-performing residential
mortgages, which increased $6.0 million, when compared to 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. As of December 31, 2006, the Corporation had $12.8 million
remaining under this guarantee. The allowance for loan losses
represents 1.54% of total loans as of December 31, 2006, a 43 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 December 31, 2006 was 2.49% compared to 1.73% at December 31,
2005. The allowance for loan losses to total non-performing loans
at December 31, 2006 increased 929 basis points to 100.01% compared
to 90.72% at December 31, 2005. This increase was the result of a
59.9% increase in the allowance for loan losses from $66.8 million
as of December 31, 2005 to $106.9 million as of December 31, 2006.
Excluding non-performing mortgage loans(6) (for which the Company
has historically had a minimal loss experience) this ratio is
235.8% at December 31, 2006 compared to 235.5% as of December 31,
2005. As of December 31, 2006, total capital to risk-adjusted
assets (BIS ratio) reached 10.93% and Tier I capital to
risk-adjusted assets and leverage ratios were 7.87% and 5.81%,
respectively. Customer Financial Assets under Control As of
December 31, 2006, the Company had $14.2 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 $14.2 billion referred to above, approximately $1.2
billion from the trust business recently sold would be transferred
either to the acquiring financial institution or any other
institution that the trust client elects during the first semester
of 2007. Shareholder Value During the quarter ended December 31,
2006, Santander BanCorp declared a cash dividend of 16 cents per
common share, resulting in a current annualized dividend yield of
3.6%. Market capitalization reached approximately $0.8 billion
(including affiliated holdings) as of December 31, 2006. There were
no stock repurchases during 2006 and 2005 under the Stock
Repurchase Program. As of December 31, 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, 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 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 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 euro
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. (1) On a
tax-equivalent basis. (2) On a tax-equivalent basis, excluding
gains on sale of securities, also excluding FDIC Assessment Credits
and Tax Credits in 2006 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, also excluding FDIC Assessment Credit and Tax Credits
in 2006 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. 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. SANTANDER BANCORP CONSOLIDATED BALANCE
SHEETS (UNAUDITED) AS OF DECEMBER 31, 2006 AND 2005 (Dollars in
thousands, except share data) ASSETS Variance 12/06- 31-Dec-06
31-Dec-05 12/05 CASH AND CASH EQUIVALENTS: Cash and due from banks
$125,077 $136,731 -8.52% Interest-bearing deposits 780 8,833
-91.17% Federal funds sold and securities purchased under
agreements to resell 73,407 92,429 -20.58% Total cash and cash
equivalents 199,264 237,993 -16.27% INTEREST-BEARING DEPOSITS
51,455 101,034 -49.07% TRADING SECURITIES 50,792 37,679 34.80%
INVESTMENT SECURITIES AVAILABLE FOR SALE, at fair value 1,409,789
1,559,681 -9.61% OTHER INVESTMENT SECURITIES, at amortized cost
50,710 41,862 21.14% LOANS HELD FOR SALE, net 196,277 213,102
-7.90% LOANS, net 6,747,279 5,808,630 16.16% ALLOWANCE FOR LOAN
LOSSES (106,863) (66,842) 59.87% ACCRUED INTEREST RECEIVABLE
102,244 77,962 31.15% PREMISES AND EQUIPMENT, net 56,299 55,867
0.77% GOODWILL 148,300 34,791 326.26% INTANGIBLE ASSETS 47,427
10,092 369.95% OTHER ASSETS 235,195 160,097 46.91% $9,188,168
$8,271,948 11.08% LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS:
Non interest-bearing $746,089 $672,225 10.99% Interest-bearing
4,567,885 4,552,425 0.34% Total deposits 5,313,974 5,224,650 1.71%
FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS 1,628,400 768,846
111.80% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 830,569
947,767 -12.37% COMMERCIAL PAPER ISSUED 209,549 334,319 -37.32%
TERM NOTES 244,468 40,215 507.90% CAPITAL NOTES 41,529 121,098
-65.71% ACCRUED INTEREST PAYABLE 91,245 65,160 40.03% OTHER
LIABILITIES 249,214 201,366 23.76% 8,608,948 7,703,421 11.75%
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 0.00% Capital paid in excess of par value 304,171 304,171
0.00% Treasury stock at cost, 4,011,260 shares (67,552) (67,552)
0.00% Accumulated other comprehensive loss, net of taxes (44,213)
(41,591) 6.30% Retained earnings- Reserve fund 137,511 133,759
2.81% Undivided profits 122,677 113,114 8.45% Total stockholders'
equity 579,220 568,527 1.88% $9,188,168 $8,271,948 11.08% SANTANDER
BANCORP CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE
TWELVE AND THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005 (Dollars
in thousands, except per share data) For the twelve For the three
months ended months ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2006
2005 2006 2005 INTEREST INCOME: Loans $535,327 $359,415 $145,046
$102,461 Investment securities 74,023 71,938 18,424 17,215
Interest-bearing deposits 4,439 4,065 1,172 1,324 Federal funds
sold and securities purchased under agreements to resell 4,531
4,187 974 697 Total interest income 618,320 439,605 165,616 121,697
INTEREST EXPENSE: Deposits 173,380 122,212 47,776 36,661 Securities
sold under agreements to repurchase and other borrowings 139,960
86,969 38,689 22,653 Subordinated capital notes 14,374 3,402 3,895
1,308 Total interest expense 327,714 212,583 90,360 60,622 Net
interest income 290,606 227,022 75,256 61,075 PROVISION FOR LOAN
LOSSES 65,583 20,400 21,670 5,000 Net interest income after
provision for loan losses 225,023 206,622 53,586 56,075 OTHER
INCOME (LOSS): Bank service charges, fees and other 49,078 42,272
13,835 11,005 Broker-dealer, asset management and insurance fees
56,973 53,016 13,896 12,458 Gain on sale of securities, net 106
17,842 20 4 Loss on extinguishment of debt - (5,959) - - Gain on
sale of mortgage servicing rights 170 83 101 14 Gain on sale of
loans 1,994 7,876 1,809 2 Other income 10,148 10,228 5,717 1,635
Total other income 118,469 125,358 35,378 25,118 OPERATING
EXPENSES: Salaries and employee benefits 121,711 95,002 30,281
22,715 Occupancy costs 22,476 16,811 5,763 4,230 Equipment expenses
4,797 3,802 1,190 1,099 EDP servicing, amortization and technical
assistance 40,084 31,589 11,390 7,862 Communication expenses 11,358
8,232 3,590 2,032 Business promotion 11,613 11,065 3,073 2,826
Other taxes 11,514 8,443 3,459 2,150 Other operating expenses
54,230 46,442 14,535 12,523 Total operating expenses 277,783
221,386 73,281 55,437 Income before provision for income tax 65,709
110,594 15,683 25,756 PROVISION FOR INCOME TAX 22,540 30,788 5,624
8,892 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $43,169 $79,806
$10,059 $16,864 EARNINGS PER COMMON SHARE $0.93 $1.71 $0.22 $0.36
SANTANDER BANCORP SELECTED CONSOLIDATED FINANCIAL INFORMATION:
(DOLLARS IN THOUSANDS) For the Quarters Ended 31-Dec 31-Dec 30-Sep
4Q06/4Q05 4Q06/3Q6 2006 2005 2006 Variation Variation Interest
Income $165,616 $121,697 $162,086 36.1% 2.2% Tax equivalent
adjustment 2,850 1,807 1,951 57.7% 46.1% Interest income on a tax
equivalent basis 168,466 123,504 164,037 36.4% 2.7% Interest
expense 90,360 60,622 87,378 49.1% 3.4% Net interest income on a
tax equivalent basis 78,106 62,882 76,659 24.2% 1.9% Provision for
loan losses 21,670 5,000 20,400 333.4% 6.2% Net interest income on
a tax equivalent basis after provision 56,436 57,882 56,259 -2.5%
0.3% Other operating income 33,549 25,112 30,776 33.6% 9.0% Gain on
sale of securities 20 4 26 400.0% -23.1% Gain on sale of loans
1,809 2 188 90350.0% 862.2% Other operating expenses 73,281 55,437
75,606 32.2% -3.1% Income on a tax equivalent basis before income
taxes 18,533 27,563 11,643 -32.8% 59.2% Provision for income taxes
5,624 8,892 966 -36.8% 482.2% Tax equivalent adjustment (2,850)
(1,807) (1,951) 57.7% 46.1% NET INCOME $10,059 $16,864 $8,726
-40.4% 15.3% SELECTED RATIOS: Per share data (1): Earnings per
common share $0.22 $0.36 $0.19 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 Years Ended December 31, 2006 2005 Variation
Interest Income $618,320 $439,605 40.7% Tax equivalent adjustment
8,986 11,059 -18.7% Interest income on a tax equivalent basis
627,306 450,664 39.2% Interest expense 327,714 212,583 54.2% Net
interest income on a tax equivalent basis 299,592 238,081 25.8%
Provision for loan losses 65,583 20,400 221.5% Net interest income
on a tax equivalent basis after provision 234,009 217,681 7.5%
Other operating income 116,369 105,599 10.2% Gain on sale of
securities 106 11,883 99.1% Gain on sale of loans 1,994 7,876 74.7%
Other operating expenses 277,783 221,386 25.5% Income on a tax
equivalent basis before income taxes 74,695 121,653 -38.6%
Provision for income taxes 22,540 30,788 -26.8% Tax equivalent
adjustment (8,986) (11,059) -18.7% NET INCOME $43,169 $79,806
-45.9% SELECTED RATIOS: Per share data (1): Earnings per common
share $0.93 $1.71 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 $0.64 $0.64 (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 31-Dec 31-Dec 30-Sep
31-Dec 31-Dec SELECTED RATIOS 2006 2006 2006 2005 2005 Net interest
margin (1) 3.63% 3.67% 3.66% 3.02% 3.16% Return on average assets
(2) 0.49% 0.44% 0.39% 0.96% 0.80% Return on average common
equity(2) 7.66% 6.86% 6.08% 13.85% 11.51% Efficiency Ratio (1,3)
66.84% 65.66% 70.25% 62.97% 63.00% Non-interest income to revenues
16.08% 17.60% 16.05% 22.19% 17.11% Capital: Total capital to risk-
adjusted assets - 10.93% 11.19% - 12.30% Tier I capital to risk-
adjusted assets - 7.87% 8.14% - 9.09% Leverage ratio - 5.81% 5.96%
- 6.50% Non-performing loans to total loans - 1.54% 1.63% - 1.22%
Non-performing loans plus accruing loans past-due 90 days or more
to loans - 1.84% 1.90% - 1.27% Allowance for loan losses to
non-performing loans - 100.01% 86.53% - 90.72% Allowance for loans
losses to period-end loans - 1.54% 1.41% - 1.11% OTHER SELECTED
FINANCIAL DATA 12/31/2006 12/31/2005 (dollars in millions) Customer
Financial Assets Under Control: Bank deposits (excluding brokered
deposits) $3,968.6 $3,965.6 Broker-dealer customer accounts 5,648.0
4,923.0 Mutual fund and assets managed 2,936.0 2,795.0 Trust,
institutional and private accounts assets under management 1,601.0
1,158.0 Total $14,153.6 $12,841.6 (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, 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, both of Santander
BanCorp Web site: http://www.santandernet.com/
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