* Net interest income increased $24.2 million or 44.7% compared to
the second quarter of 2005 and $31.5 million or 28.5% compared to
the first semester of 2005. SAN JUAN, Puerto Rico, July 31
/PRNewswire-FirstCall/ -- Santander BanCorp (NYSE: SBP; LATIBEX:
XSBP) ("the Corporation"), reported today its unaudited financial
results for the quarter and the semester ended June 30, 2006. Net
income for the second quarter of 2006 reached $11.0 million,
compared to net income of $19.6 million reported during the second
quarter of 2005. This represents a 43.8% or $8.6 million decrease
in net income that was principally due to a decrease in gain on
sale of loans of $6.1 million and a decrease in other income of
$2.3 million. 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") that
reflected the first full quarter of operations after the February
28, 2006 acquisition of the Island Finance business (detailed
below). Net interest margin on a tax equivalent basis expanded by
97 basis points to 3.94% for the quarter ended June 30, 2006. For
the six months ended June 30, 2006 net income reached $24.4 million
compared to $45.5 million reported for the same period in 2005, a
decrease of $21.2 million or 46.5%. This decrease in net income was
principally due to a decrease in gain on sale of securities (net of
loss on extinguishment of debt) of $10.6 million, a decrease in
gain on sale of loans of $7.2 million and a decrease in other
income of $7.5 million. The increase in net interest income,
provision for loan losses and operating expenses is associated with
the Island Finance operation (detailed below). For the six months
ended June 30, 2006, net interest margin on a tax equivalent basis
expanded by 56 basis points to 3.61%. Island Finance On February
28, 2006 the Corporation acquired substantially all the assets and
business operations in Puerto Rico of Island Finance. To finance
this transaction the Corporation entered into a $725 million loan
agreement ($600 million for the acquisition and $125 million to
refinance other debt of the Corporation unrelated to this
acquisition) and also completed the private placement of $125
million Trust Preferred Securities ("Preferred Securities"). As a
result of this acquisition the Corporation increased its presence
throughout Puerto Rico to 133 branches due to Island Finance's
extensive branch network, and also diversified and increased its
loan portfolio, consumer client base to over 500,000 and improved
its net interest margin. Detailed below are the results of
operations of Island Finance for the quarter and the period from
acquisition to June 30, 2006: June 30, 2006 Santander Financial
Services QTD YTD Condensed Statement of Income (Dollars in
thousands) Interest income $35,685 $48,071 Interest expense
(principally with affiliate) 10,352 13,917 Net interest income
25,333 34,154 Provision for loan losses 10,075 13,113 Net interest
income after provision for loan losses 15,258 21,041 Other income
(expense) (8) 26 Operating expenses 13,617 18,760 Net income before
taxes 1,633 2,307 Provision for income tax 603 957 Net Income
$1,030 $1,350 Other Selected Information Total Assets 770,576
$770,576 Net Loans 607,040 607,040 Allowance for loan losses 23,394
23,394 Non performing loans 33,404 33,404 Paid in capital 137,100
137,100 Net interest margin 17.31% 17.22% Santander Insurance
Agency: Incremental insurance fees associated with the Island
Finance operation, net of taxes at 41.5% $879 $1,027 Financial
Results The second quarter and first semester of 2006 reflected a
decline in net income when compared to the same periods in 2005 due
principally to the effect of the settlement of commercial loans
secured by mortgages, absence in 2006 of gains on sale of loans or
from other investment portfolio activities, expenses related to
personnel reductions and the restatement of financial statements,
and a higher effective income tax rate. Although fee income growth
was modest due to the economic environment and the Puerto Rico
government shutdown experienced in May 2006, loan growth from
mortgage and commercial banking activities was 18.1%.(1) * The
Corporation experienced a net interest margin expansion of 97 basis
points including the Island Finance business and five basis points
excluding Island Finance for the quarter ended June 30, 2006 versus
the prior year, despite the flat yield curve scenario. * During the
first semester 2006 the Corporation registered the impact on net
interest income of 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. * Adverse fluctuations in net interest income
resulting from the settlement of the above mentioned commercial
loans secured by mortgages were offset by the impact of the
acquisition of Island Finance. The second quarter of 2006 was the
first full quarter of operations for Island Finance under Santander
BanCorp. The Island Finance operation (considering the net
contribution to the insurance operation of Santander Insurance
Agency) contributed approximately $2.4 million or 9.7%, to the
Corporation's net income for the six months ended June 30, 2006. *
Non-interest income decreased during the first semester of 2006 as
a result of the following transactions in 2005: a gain on sale of
securities (net of the loss on extinguishment of debt) of $10.6
million, a gain on sale of loans of $7.2 million (composed of a
gain on sale of previously charged-off loans of $6.1 million and a
gain on sale of mortgage loans to an unrelated third party of $1.6
million). In 2006 there were unfavorable valuations of mortgage
loans held for sale amounting to $2.4 million and in Santander
Securities' investment portfolio of $0.6 million. * The Corporation
experienced an increase in operating expenses related to the Island
Finance operation, severance payments related to personnel
reductions and increases in professional expenses related to the
restatement of its financial statements during the previous
quarter. Excluding the Island Finance operation and the two
previously mentioned items, operating expenses decreased by 2.4%
and 1.9%, respectively, for the quarter and semester ended June 30,
2006. * The Corporation's income tax expense decreased $1.0 million
or 12.3% for the second quarter of 2006 and increased $0.4 million
or 2.3% for the six months ended June 30, 2006 despite the decrease
in net income before tax. The effective income tax rate was 39.5%
for the quarter and 40.0% for the semester ended June 30, 2006
versus 29.9% and 25.5%, respectively, for the prior year as a
result of the special income taxes imposed by the Government of
Puerto Rico for taxable year 2006, and lower net interest income
derived from tax-exempt investments. * The Corporation grew its
loan portfolio by 18.1% year over year, excluding the acquisition
of the Island Finance loan portfolio and the settlement of the
commercial loans secured by mortgages. Fee income growth from
banking, broker/dealer, asset management and insurance moderated to
5.3% for the quarter and 9.9% for the first semester over the
previous year. Residential mortgage production for the quarter
increased by 20.1% over the previous year to $246 million. On July
2006, the Corporation acquired at book value Island Insurance
Corporation from Wells Fargo for $5.7 million. Island Insurance
Corporation is a Puerto Rico life insurance company, duly licensed
by the Puerto Rico Commissioner of Insurance. The insurance company
has not begun operations. Net income for the quarter ended June 30,
2006 was $11.0 million or $0.24 per common share compared to net
income for the quarter ended June 30, 2005 of $19.6 million or
$0.42 per common share. Annualized Return on Average Common Equity
(ROE) and Return on Average Assets (ROA) were 7.83% and 0.50%,
respectively, for the quarter ended June 30, 2006, compared to
12.54% and 0.97%, respectively, for the second quarter of 2005. The
Efficiency Ratio(2) for the quarters ended June 30, 2006 and 2005
was 65.45% and 61.35%, respectively. Net income for the six months
ended June 30, 2006 was $24.4 million or $0.52 per common share
compared to net income for the six months ended June 30, 2005 of
$45.5 million or $0.98 per common share. Annualized Return on
Average Common Equity (ROE) and Return on Average Assets (ROA) were
8.92% and 0.57%, respectively, for the six months ended June 30,
2006, compared to 15.29% and 1.12%, respectively, for the first
semester of 2005. The Efficiency Ratio(1) for the six months ended
June 30, 2006 and 2005 was 65.47% and 61.61%, respectively. Income
Statement The $8.6 million or 43.8% reduction in net income for the
quarter ended June 30, 2006 compared to the same period in 2005 was
principally due a decrease in gain on sale of loans of $6.1 million
and a decrease in other income of $2.3 million. Increases in net
interest income of $24.2 million, in the provision for loan losses
of $11.9 million and in operating expenses of $14.5 million, were
mainly due to the Island Finance operation. The reduction of net
income before tax for this quarter compared to the same period last
year was 34.4%. For the six months ended June 30, 2006, net income
decreased $21.2 million or 46.5% compared to the same period in
2005 due to increases of $12.8 million in the provision for loan
losses and $18.9 million in operating expenses mainly from the
Island Finance operation, together with a decrease of $20.7 million
in non-interest income. These decreases were partially offset by an
increase in net interest income of $31.5 million. The reduction of
net income before tax for the first semester of this year compared
to the same period last year was 34.0%. Net interest margin(1) for
the second quarter of 2006 was 3.94% compared with 2.97% for the
second quarter of 2005. This increase of 97 basis points in net
interest margin(1) was mainly due to an increase of 232 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 136 basis points in the
average cost of interest bearing liabilities. Excluding the Island
Finance operation, net interest margin(1) for the second quarter of
2006 expanded by five basis points to 3.02% versus 2.97% for the
prior year, and by nine basis points versus the first quarter of
2006. Interest income(1) increased $54.6 million or 51.1% during
the second quarter of 2006 compared to the same period in 2005,
while interest expense also increased $30.9 million or 62.0%. For
the second quarter of 2006 average interest earning assets
increased $511.3 million or 6.6% and average interest bearing
liabilities increased $764.5 million or 11.5% compared to the same
period in 2005. The increment in average interest earning assets
compared to the second quarter of 2005 was driven by an increase in
average net loans of $568.4 million, which was partially offset by
a decrease in average interest bearing deposits of $143.5 million.
The increase in average net loans was due to an increase of $635.2
million or 37.0% 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 $684.0 million or 139.2% 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 $831.5 million or 24.6% 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. The
increase in average interest bearing liabilities of $764.5 million
was driven by an increase in average borrowings of $577.4 million
compared to the quarter ended June 30, 2005. This increase 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. For the six months ended June 30, 2006, net
interest margin(3) was 3.61% compared with 3.05% for the same
period in 2005. This increase of 56 basis points in net interest
margin(2) was mainly due to an increase of 181 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. Excluding the Island Finance operation, net
interest margin(2) for the six months ended June 30, 2006 is 2.99%.
Interest income(2) increased $83.2 million or 39.1% during the six
months ended June 30, 2006 compared to the same period in 2005,
while interest expense increased $54.9 million or 57.8% over the
same period. For the six months ended June 30, 2006 average
interest earning assets increased $362.8 million or 4.7% and
average interest bearing liabilities increased $505.6 million or
7.5% compared to the same period in 2005. The increment in average
interest earning assets compared to the second quarter of 2005 was
driven by an increase in average net loans of $626.7 million, which
was partially offset by decreases in average investment securities
and average interest bearing deposits of $140.7 million and $123.2
million, respectively. The increase in average net loans was due to
an increase of $623.5 million or 38.0% 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 $508.1 million or
106.3% 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 $565.6
million or 17.2% 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. The provision for loan losses increased $11.9 million or
294.4% from $4.1 million for the quarter ended June 30, 2005 to
$16.0 million for the second quarter in 2006 and $12.8 million or
118.7% from $10.8 million for the six months ended June 30, 2005 to
$23.5 million for the six months ended June 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
$10.1 million and $13.1 million for the quarter and four months
ended June 30, 2006. For the quarter ended June 30, 2006, other
income reached $25.0 million compared to $32.5 million reported for
the same period in 2005. This $7.5 million or 22.9% decrease in
other income was mainly due to a decrease in gain on sale of
previously charged-off loans of $6.1 million, and a loss on
valuation of mortgage loans available for sale of $1.7 million in
2006, included in other income. For the six months ended June 30,
2006, other income decreased $20.7 million or 28.9% 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 $10.6
million, a gain on sale of loans of $7.2 million composed mainly of
a gain on sale previously charged-off 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 $1.3 million
compared to a gain in 2005 of $3.0 million. Also, a loss on
valuation of mortgage loans available for sale of $2.4 million in
2006 together with a decrease in the recognition of mortgage
servicing rights of $1.9 million on mortgage loans sold to third
parties. Broker-dealer, asset management and insurance fees
reflected an increase of $3.1 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 $0.6
million, or 6% and $1.5 million, or 7% for the quarter and six
month periods ended June 30, 2006. These increases were primarily
in fees on deposit accounts, credit card fees, mortgage fees and
account analysis fees. For the quarter and six months ended June
30, 2006, the Efficiency Ratio(4) was 65.45% and 65.47%,
respectively, reflecting increases of 410 and 387 basis points,
respectively compared to Efficiency Ratios(3) of 61.35% and 61.61%
for the three and six month periods ended June 30, 2005. These
increases were mainly the result of higher operating expenses
during the second quarter and first semester of 2006 resulting from
the operations of the Island Finance business. Operating expenses
increased $14.5 million or 26.5% from $54.7 million for the quarter
ended June 30, 2005 to $69.2 million for the quarter ended June 30,
2006. This increase was due primarily to the Island Finance
operation which reflected operating expenses of $13.6 million for
the quarter ended June 30, 2006. During the second quarter of 2006
there were increases in salaries and employee benefits of $5.4
million together with an increase in other operating expenses of
$9.1 million. Island Finance salaries and employee benefits for the
quarter ended June 30, 2006 were $6.3 million and other operating
expenses were $7.4 million. An increase in salaries due to
indemnities paid for personnel reductions of $0.9 million was
offset by decreases in accruals for performance compensation of
$1.3 million. Excluding Island Finance expenses, operating expenses
for the second quarter of 2006 compared to the same period in 2005,
reflected an increase of $0.9 million or 1.6%, with increases in
EDP servicing, amortization and technical services of $0.7 million,
credit card expenses of $0.6 million and professional services
related to the restatement of the financial statements of $0.5
million and were offset by a decrease of $0.8 million in personnel
expenses. Operating expenses, exclusive of Island Finance expenses
and the items related to personnel reductions and restatement
costs, reflected a decrease of $1.3 million or 2.4% for the quarter
ended June 30, 2006 compared to June 30, 2005. For the six months
ended June 30, 2006, operating expenses increased $18.9 million or
17.1% from $110.0 million for the semester ended June 30, 2005 to
$128.9 million for the same period in 2006. This increase was due
to operating expenses of Island Finance of $18.8 million in 2006.
For the six months ended June 30, 2006 there were increases in
salaries and employee benefits of $7.8 million together with an
increase in other operating expenses of $11.0 million. Island
Finance salaries and employee benefits were $8.9 million for the
six months ended June 30, 2006 and other operating expenses were
$9.8 million. An increase in salaries due to indemnities paid for
personnel reductions of $1.5 million were offset by decreases in
accruals for performance compensation of $2.8 million. Excluding
Island Finance expenses, operating expenses reflected an increase
of $90,000 or 0.1% for the six months ended June 30, 2006 compared
to June 30, 2005. Operating expenses, exclusive of Island Finance
expenses and the items related to personnel reductions and
restatement costs, reflected a decrease of $2.1 million or 1.9% for
the six months ended June 30, 2006 compared to June 30, 2005.
Throughout 2006, the Corporation continues with its ongoing cost
control project and expects to continue reducing operating
expenses. In June 2006, the Corporation announced an early
retirement program which will be available to all employees 55
years of age and older with at least 15 years of service. Employee
acceptance is expected to occur during the third quarter of 2006. A
preliminary assessment by management, based on previous experience,
with a 50% participation rate would result in an estimated cost of
the program of approximately $3.6 million. Balance Sheet Total
assets as of June 30, 2006 increased $417.4 million or 4.90% to
$8.9 billion compared to $8.5 billion as of June 30, 2005, and
$657.5 million or 7.95% compared to total assets of $8.3 billion as
of December 31, 2005. As of June 30, 2006, there was an increase of
$457.3 million in net loans, including loans held for sale (further
explained below) compared to June 30, 2005 balances and $457.4
million compared to December 31, 2005 balances. The investment
securities portfolio increased $112.8 million, from $1.5 billion as
of June 30, 2005 to $1.6 billion as of June 30, 2006. The increase
in the investment securities portfolio was in short-term securities
The net loan portfolio, including loans held for sale, reflected an
increase of 7.7% or $457.3 million, reaching $6.4 billion at June
30, 2006, compared to the figures reported as of June 30, 2005.
Compared to December 31, 2005, the net loan portfolio grew by
$457.4 million or 7.7% from $6.0 billion. The mortgage loan
portfolio at June 30, 2006 grew $687.0 million or 38.5% compared to
June 30, 2005 and $325.0 million or 15.1% compared to December 31,
2005. Mortgage loans(5) originated during the second quarter of
2006 reached $246.3 million. Mortgage loans originated during the
first semester of 2006 reached $429.5 million. The consumer loan
portfolio also reflected growth of $686.5 million or 134.2%, as of
June 30, 2006, compared to June 30, 2005 due primarily to the
acquisition of Island Finance. Compared to December 31, 2005 the
consumer loan portfolio reflected an increase of $630.7 million or
111.2%. The commercial loan portfolio decreased $894.1 million or
24.0% compared to June 30, 2005 and $477.4 million or $14.4%
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. Deposits of $5.0 billion at June 30, 2006 reflected a
decrease of 10.34%, compared to deposits of $5.5 billion as of June
30, 2005 and 4.88%, compared to deposits of $5.2 billion as of
December 31, 2005, respectively. There was a decrease in interest
bearing deposits of $0.5 billion or 9.6% in June 2006 compared to
June 2005, composed of decreases of $0.3 billion in retail
deposits, $0.2 billion in wholesale deposits and $0.1 billion in
public funds. The decrease in retail deposits is due to higher
interest rates paid by competitors and the decrease in public funds
was due to the financial situation of the Government of Puerto
Rico. Total borrowings at June 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 $884.4 million or 40.5% and $853.6 million or 38.6%,
compared to borrowings at June 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 June
30, 2006 was 1.68%, a 41 basis point and 46 basis point increase
compared to the reported 1.27% as of June 30, 2005, and 1.22%
reported as of December 31, 2005, respectively. Non- performing
loans at June 30, 2006 amounted to $109.5 million comprised of
Island Finance non-performing loans of $33.4 million and $76.1
million of non- performing loans of the Corporation. The
Corporation's non-performing loans reflected a decrease of $0.5
million or 0.7% to non-performing loans as of June 30, 2005.
Non-performing loans of the Corporation as of June 30, 2006
excluding Island Finance non-performing loans reflected an increase
of $2.4 million or 3.3% compared to non-performing loans as of
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 1.35% of total loans as of June 30, 2006, a 26
basis point increase over 1.09% reported as of June 30, 2005 and a
24 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 June 30, 2006 was 2.18% compared to 1.55% at
June 30, 2005 and 1.73% at December 31, 2005. The allowance for
loan losses to total non-performing loans at June 30, 2006
decreased to 80.09% compared to 85.64% at June 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(5) (for which the Company has historically had a minimal loss
experience) this ratio is 164.6% at June 30, 2006 compared to
208.0% as of June 30, 2005 and 235.5% as of December 31, 2005. As
of June 30, 2006, total capital to risk-adjusted assets (BIS ratio)
reached 11.25% and Tier I capital to risk-adjusted assets and
leverage ratios were 8.17% and 5.86%, respectively. Customer
Financial Assets under Control As of June 30, 2006, the Company had
$12.6 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. Shareholder Value During the quarter ended June 30,
2006, Santander BanCorp declared a cash dividend of 16 cents per
common share, resulting in a current annualized dividend yield of
2.60%. Market capitalization reached approximately $1.1 billion
(including affiliated holdings) as of June 30, 2006. There were no
stock repurchases during 2006 and 2005 under the Stock Repurchase
Program. As of June 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 818,100 million in assets and euro 976,500
million in managed funds, 67 million customers, 10,300 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 it also operates a leading consumer finance
franchise in Germany, Italy, Spain and nine other European
countries. As of the first half of 2006, Santander recorded euro
3,216 million in net attributable profits, 26% 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, and pension funds) through 4,200 offices.
As of the first half of 2006, Santander recorded in Latin America
US$1,409 million in net attributable income, 21% higher that in the
prior year. For more information contact: Maria Calero (787)
777-4437 Evelyn Vega (787) 777-4546 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) Excluding the acquisition
of the Island Finance loan portfolio and the settlement of the
commercial loans secured by mortgages. (2) On a tax-equivalent
basis. (3) On a tax equivalent basis. (4) On a tax equivalent
basis, excluding gains on sales of securities and loss on
extinguishment of debt realized during 2005. (5) Mortgage loans
include residential mortgages, commercial loans with real estate
collateral and consumer loans with real estate collateral. They
exclude construction loans. (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 JUNE 30, 2006 AND 2005 AND DECEMBER 31, 2005
(Dollars in thousands, except share data) ASSETS Variance 30-Jun-06
30-Jun-05 31-Dec-05 06/06-12/05 CASH AND CASH EQUIVALENTS: Cash and
due from banks $188,544 $198,086 $136,731 37.89% Interest bearing
deposits 583 52,520 8,833 -93.40% Federal funds sold and securities
purchased under agreements to resell 72,542 398,630 92,429 -21.52%
Total cash and cash equivalents 261,669 649,236 237,993 9.95%
INTEREST BEARING DEPOSITS 51,702 100,000 101,034 -48.83% TRADING
SECURITIES 46,682 50,000 37,679 23.89% INVESTMENT SECURITIES
AVAILABLE FOR SALE, at fair value 1,550,841 1,443,424 1,559,681
-0.57% OTHER INVESTMENT SECURITIES, at amortized cost 42,835 37,500
41,862 2.32% LOANS HELD FOR SALE, net 302,496 278,314 213,102
41.95% LOANS, net 6,197,517 5,742,321 5,808,630 6.69% ALLOWANCE FOR
LOAN LOSSES (87,695) (65,623) (66,842) 31.20% ACCRUED INTEREST
RECEIVABLE 92,330 50,797 77,962 18.43% PREMISES AND EQUIPMENT, net
57,243 54,245 55,867 2.46% GOODWILL 144,715 34,791 34,791 315.96%
INTANGIBLE ASSETS 47,861 9,283 10,092 374.25% OTHER ASSETS 221,265
127,793 160,097 38.21% $8,929,461 $8,512,081 $ 8,271,948 7.95%
LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Non-interest bearing
$674,664 $792,667 $672,225 0.36% Interest bearing 4,295,278
4,750,517 4,552,425 -5.65% Total deposits 4,969,942 5,543,184
5,224,650 -4.88% FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS
1,375,000 926,502 768,846 78.84% SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE 973,032 876,532 947,767 2.67% COMMERCIAL PAPER ISSUED
437,132 264,592 334,319 30.75% TERM NOTES 40,877 39,282 40,215
1.65% CAPITAL NOTES 239,810 74,574 121,098 98.03% ACCRUED INTEREST
PAYABLE 74,302 37,384 65,160 14.03% OTHER LIABILITIES 263,088
180,596 201,366 30.65% 8,373,183 7,942,646 7,703,421 8.69%
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 (63,296) (21,350) (41,591) 52.19% Retained
earnings- Reserve fund 133,759 126,820 133,759 0.00% Undivided
profits 122,570 100,720 113,114 8.36% Total stockholders' equity
556,278 569,435 568,527 -2.15% $8,929,461 $8,512,081 $ 8,271,948
7.95% SANTANDER BANCORP CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2006 AND
2005 (Dollars in thousands, except per share data) For the six
months For the three ended months ended June 30, June 30, June 30,
June 30, 2006 2005 2006 2005 INTEREST INCOME: Loans $250,437
$162,809 $138,359 $85,436 Investment securities 37,052 38,414
18,784 15,958 Interest bearing deposits 1,921 1,547 962 1,336
Federal funds sold and securities purchased under agreements to
resell 2,413 2,668 1,082 1,320 Total interest income 291,823
205,438 159,187 104,050 INTEREST EXPENSE: Deposits 81,085 52,500
42,449 30,219 Securities sold under agreements to repurchase and
other borrowings 65,623 41,269 37,376 18,871 Subordinated capital
notes 3,267 1,299 853 698 Total interest expense 149,975 95,068
80,678 49,788 Net interest income 141,848 110,370 78,509 54,262
PROVISION FOR LOAN LOSSES 23,513 10,750 15,975 4,050 Net interest
income after provision for loan losses 118,335 99,620 62,534 50,212
OTHER INCOME: Bank service charges, fees and other 22,156 20,627
11,038 10,432 Broker/dealer, asset management and insurance fees
29,476 26,339 14,431 13,766 Gain on sale of securities, net 60
17,376 56 415 Loss on extinguishment of debt - (6,744) - (17) Gain
on sale of mortgage servicing rights 18 55 15 12 (Loss) gain on
sale of loans (3) 7,207 (1) 6,127 Other income (expense) (812)
6,712 (506) 1,749 Total other income 50,895 71,572 25,033 32,484
OPERATING EXPENSES: Salaries and employee benefits 56,115 48,289
29,559 24,121 Occupancy costs 10,734 8,388 6,085 4,364 Equipment
expenses 2,334 1,800 1,294 884 EDP servicing, amortization and
technical assistance 17,860 15,389 9,806 7,596 Communication
expenses 4,985 4,196 2,667 2,180 Business promotion 5,743 5,042
3,162 2,680 Other taxes 5,079 4,188 2,703 2,086 Other operating
expenses 26,047 22,754 13,908 10,769 Total operating expenses
128,897 110,046 69,184 54,680 Income before provision for income
tax 40,333 61,146 18,383 28,016 PROVISION FOR INCOME TAX 15,950
15,599 7,355 8,383 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
$24,383 $45,547 $11,028 $19,633 EARNINGS PER COMMON SHARE $0.52
$0.98 $0.24 $0.42 SANTANDER BANCORP SELECTED CONSOLIDATED FINANCIAL
INFORMATION: (DOLLARS IN THOUSANDS) For the Quarters Ended 30-Jun
30-Jun 31-Mar 2Q06/2Q05 2Q06/1Q06 2006 2005 2006 Variation
Variation Interest Income $159,187 $104,050 $132,636 53.0% 20.0%
Tax equivalent adjustment 2,225 2,786 1,960 -20.1% 13.5% Interest
income on a tax equivalent basis 161,412 106,836 134,596 51.1%
19.9% Interest expense 80,678 49,788 69,298 62.0% 16.4% Net
interest income on a tax equivalent basis 80,734 57,048 65,298
41.5% 23.6% Provision for loan losses 15,975 4,050 7,538 294.4%
111.9% Net interest income on a tax equivalent basis after
provision 64,759 52,998 57,760 22.2% 12.1% Other operating income
24,978 25,942 25,860 -3.7% -3.4% Gain on sale of securities 56 415
4 -86.5% 1300.0% (Loss) gain on sale of loans (1) 6,127 (2) -100.0%
-50.0% Other operating expenses 69,184 54,680 59,712 26.5% 15.9%
Income on a tax equivalent basis before income taxes 20,608 30,802
23,910 -33.1% -13.8% Provision for income taxes 7,355 8,383 8,594
-12.3% -14.4% Tax equivalent adjustment 2,225 2,786 1,960 -20.1%
13.5% NET INCOME $11,028 $19,633 $13,356 -43.8% -17.4% SELECTED
RATIOS: Per share data (1): Earnings per common share $0.24 $0.42
$0.29 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
Six Month Periods Ended June 30, 2006 2005 Variation Interest
Income $291,823 $205,438 42.0% Tax equivalent adjustment 4,185
7,321 -42.8% Interest income on a tax equivalent basis 296,008
212,759 39.1% Interest expense 149,975 95,068 57.8% Net interest
income on a tax equivalent basis 146,033 117,691 24.1% Provision
for loan losses 23,513 10,750 118.7% Net interest income on a tax
equivalent basis after provision 122,520 106,941 14.6% Other
operating income 50,838 46,989 8.2% Gain on sale of securities 60
17,376 99.7% (Loss) gain on sale of loans (3) 7,207 100.0% Other
operating expenses 128,897 110,046 17.1% Income on a tax equivalent
basis before income taxes 44,518 68,467 -35.0% Provision for income
taxes 15,950 15,599 2.3% Tax equivalent adjustment 4,185 7,321
-42.8% NET INCOME $24,383 $45,547 -46.5% SELECTED RATIOS: Per share
data (1): Earnings per common share $0.52 $0.98 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. 2005 YTD QTD QTD YTD QTD 30-Jun 30-Jun
31-Mar 30-Jun 30-Jun SELECTED RATIOS 2006 2006 2006 2005 2005 Net
interest margin (1) 3.61% 3.94% 3.27% 3.05% 2.97% Return on average
assets (2) 0.57% 0.50% 0.65% 1.12% 0.97% Return on average common
equity (2) 8.92% 7.83% 10.07% 15.29% 12.54% Efficiency Ratio (1,3)
65.47% 65.45% 65.51% 61.61% 61.35% Non-interest income to revenues
14.85% 13.59% 16.32% 25.84% 23.79% Capital: Total capital to risk-
adjusted assets -- 11.25% 10.62% -- 11.21% Tier I capital to risk-
adjusted assets -- 8.17% 7.60% -- 8.85% Leverage ratio -- 5.86%
6.11% -- 6.49% Non-performing loans to total loans -- 1.68% 1.10%
-- 1.27% Non-performing loans plus accruing loans past-due 90 days
or more to loans -- 1.82% 1.60% -- 1.33% Allowance for loan losses
to non-performing loans -- 80.09% 118.03% -- 85.64% Allowance for
loans losses to period-end loans -- 1.35% 1.30% -- 1.09% OTHER
SELECTED FINANCIAL DATA 6/30/2006 6/30/2005 12/31/2005 (dollars in
millions) Customer Financial Assets Under Control: Bank deposits
(excluding brokered deposits) $3,774.0 $4,525.5 $4,084.0
Broker-dealer customer accounts 4,853.0 4,865.2 4,923.0 Mutual fund
and assets managed 2,745.0 2,835.9 2,795.0 Trust, institutional and
private accounts assets under management 1,200.0 1,389.9 1,158.0
Total $12,572.0 $13,616.5 $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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