- Santander BanCorp also announces restatement of financial
information for each of the five years in the period ended December
31, 2004 and for the first, second and third quarters of 2004 and
2005 SAN JUAN, Puerto Rico, March 7 /PRNewswire-FirstCall/ --
Santander BanCorp (NYSE: SBP; LATIBEX: XSBP) ("the Company"),
reported today its unaudited financial results for the quarter and
the year ended December 31, 2005. Net income for the quarter ended
December 31, 2005 reached $16.9 million, compared to net income of
$21.8 million* reported during the fourth quarter of 2004. The
decrease in net income for the quarter ended December 31, 2005
compared to the same period in 2004 was principally due to an
increase in income tax expense. For the year ended December 31,
2005, net income amounted to $79.8 million, as compared to net
income of $86.9 million* for the year ended December 31, 2004. Net
income for the quarter ended December 31, 2005 reached $16.9
million or $0.36 per common share, compared to net income for the
quarter ended December 31, 2004 of $21.8 million or $0.47* per
common share. Annualized Return on Average Common Equity (ROE) and
Return on Average Assets (ROA) were 11.83% and 0.80%, respectively,
for the quarter ended December 31, 2005, compared to 16.46%* and
1.10%*, respectively, for the fourth quarter of 2004. The
Efficiency Ratio(1) for the quarters ended December 31, 2005 and
2004 was 63.00% and 59.98%*, respectively. Income before income
taxes for the quarter ended December 31, 2005 amounted to $25.8
million, reflecting a slight decline as compared to income before
income taxes of $26.1 million* for the same quarter of 2004.
Provision for income tax amounted to $8.9 million for the fourth
quarter of 2005, increasing the effective tax rate to 34.5% from
16.7%* for the same quarter of 2004. Provision for income tax for
the quarter ended December 31, 2004 amounted to $4.4 million*. The
increase in provision for income tax during 2005 was due in part to
higher taxable income in 2005 than in 2004, due to a change in the
composition of the Corporation's taxable and tax-exempt assets over
those periods. Additionally, during the third quarter of 2005, the
Legislature of Puerto Rico approved a temporary, two-year surtax of
2.5% for corporations effective for taxable years beginning after
December 31, 2004. This surtax effectively increases the maximum
marginal tax rate from 39% to 41.5%. Provision for income tax for
the year ended December 31, 2005 includes the effect of this surtax
in the amount of $1.9 million. Net income for the year ended
December 31, 2005 reached $79.8 million or $1.71 per common share
as compared to $86.9 million or $1.86* per common share for the
year ended December 31, 2004. Annualized ROE and ROA were 13.85%
and 0.96%, respectively, for the year ended December 31, 2005,
compared to ROE and ROA of 17.53%* and 1.14%*, respectively, for
the year ended December 31, 2004. The Efficiency Ratio(1) for the
year ended December 31, 2005 was 62.97% compared to 62.78%* for the
year ended December 31, 2004. Income before income taxes for the
year ended December 31, 2005 reached $110.6 million, a 14.4%
increase over $96.7 million* for the year ended December 31, 2004.
The provision for income tax amounted $30.8 million for the year
ended December 31, 2005, increasing the effective tax rate to 27.8%
from 10.1%* for the year ended December 31, 2004. Income tax
provision for the year ended December 31, 2004 amounted to $9.7
million*. Income Statement The $4.9 million reduction in net income
for the quarter ended December 31, 2005 compared to the same period
in 2004* was principally due to an increase of $4.5 million in
income tax expense and an increase in operating expenses of $0.5
million. There was also a decrease in provision for loan losses of
$0.5 million, and a decrease in non interest income of $4.1 million
that was partially offset by an increase in net interest income of
$4.8 million. The decline of $7.1 million in net income for the
year ended December 31, 2005 compared to the amount* reported for
the year ended December 31, 2004 was principally due to an increase
of $21.1 million in income tax expense and $4.0 million in
operating expenses. These increases were partially offset by a
reduction of $5.9 million, or 22.3%, in provision for loan losses,
and increases in non-interest income of $8.1 million, or 6.9%, and
of $4.0 million, or 1.8%, in net interest income. Net interest
margin(1) for the fourth quarter of 2005 was 3.16% compared with
3.29%* for the fourth quarter of 2004. This decrease of 13 basis
points in net interest margin(1) was mainly due to a rise of 106
basis points in the average cost of interest-bearing liabilities.
This rise was, in turn, attributable to short-term interest rate
increases caused by the Federal Reserve's increases to the discount
rate. The average yield on interest- earning assets increased 82
basis points also as a result of the higher interest rate scenario.
This increase was partially offset by a decrease in the yield of
the investment portfolio. The net interest margin(1) for the fourth
quarter of 2005 includes a $6.0 million termination penalty from a
commercial loan, secured by mortgage notes, to an unrelated
financial institution which was repaid in November 2005. Excluding
this termination penalty, the net interest margin(1) for the fourth
quarter of 2005 would have been 2.86%. For the fourth quarter of
2005, average interest-earning assets grew by $345.1 million, or
4.6%, and average interest-bearing liabilities increased $372.6
million, or 5.7%, compared to the same period in 2004*. The
increase in average interest earning assets compared to the fourth
quarter of 2004* was driven by an increase in average net loans of
$789.7 million, which, in turn, was attributable mainly to an
increase in average mortgage loans of $600.5 million, or 39.7%, and
an increase in consumer loans of $104.7 million, or 23.2%, when
compared to the same period in 2004*. This increase was partially
offset by a decrease in average investment securities of $341.1
million. The reduction in investment securities is mainly
attributable to the sale of $785 million of securities during the
first quarter of 2005. This sale resulted in a decline in the yield
on investment securities of 87 basis points from 5.32%* for the
quarter ended December 31, 2004 to 4.45% for the quarter ended
December 31, 2005, which further explains the reduction in net
interest income for the quarter. The above-mentioned sale generated
a gain of $16.9 million, which was partially offset by a loss of
$6.7 million on the extinguishment of certain long-term repo
transactions that funded portion of the securities sold. The
increase in average interest-bearing liabilities of $372.6 million
was driven by an increase in average time deposits of $1.2 billion,
partially offset by a decrease in average borrowings of $781.0
million as compared to the quarter ended December 31, 2004*. Net
interest margin(1) for the year ended December 31, 2005 was 3.02%
compared with 3.33%* for the same period in 2004. This decline of
31 basis points in net interest margin(1) was mainly due to an
increase of 88 basis points in the average cost of interest-bearing
liabilities due to short-term interest rate increases, while the
average yields of interest-earnings assets increased by 46 basis
points. The net interest margin for the year ended December 31,
2005 includes a $6.0 million termination penalty from a commercial
loan secured by mortgage notes as explained above. Excluding this
termination penalty, the net interest margin(1) for the year ended
December 31, 2005 would have been 2.94%. The provision for loan
losses reflected an increase of $0.5 million or 11.1% from $4.5
million for the quarter ended December 31, 2004 to $5.0 million for
the fourth quarter in 2005. For the year ended December 31, 2005,
the reduction in the provision for loan losses was $5.9 million or
22.3%, compared to the same period in 2004. The reduction in the
provision for loan losses was due to a 44.6% decrease in
non-performing loans (excluding mortgage loans(2)) which are down
to $28.4 million as of December 31, 2005, from $51.3 million as of
December 31, 2004. The revised accounting classification of the
purchases of mortgage loans as commercial loans, described below,
did not result in any changes to the allowance for loan losses. For
the quarter ended December 31, 2005, other income reached $25.1
million compared to $29.2* million reported for the same period in
2004. There was an increase of $1.0 million, or 9.8%, in bank
charges, fees and other that was offset by a decrease of $0.5
million in gains on sale of loans, $3.2 million in derivative
gains, $2.1 million in broker-dealer fees, and increases of $0.3
million in asset management fees and $1.3 million in insurance
commissions. For the year ended December 31, 2005, other income
increased $8.1 million or 6.9% to $125.4 million from $117.2
million* in the year ended December 31, 2004. This increase was the
result of higher gains on the sale of securities of $6.4 million.
During March 2005, the Company sold $785 million of investment
securities and realized a gain of $16.9 million. This gain was
partially offset by a loss of $6.7 million on the extinguishment of
certain long-term repo transactions that funded a portion of the
securities sold. During the year ended December 31, 2005, there was
a higher gain on sale of loans of $7.4 million as a result of sales
of mortgage loans and the sale of certain previously charged off
consumer loans to an unrelated third party. Further explaining the
increase in other income for the year ended December 31, 2005, were
higher bank service charges, fees and other of $3.3 million and
higher broker-dealer, asset management and insurance fees of $1.9
million. These gains were partially offset by a loss on
extinguishment of debt of $6.0 million and nonrecurring gains on
sale of a building (in 2004) of $2.8 million. For the quarters
ended December 31, 2005 and 2004, the Efficiency Ratio(3) was
63.00% and 59.98%*, respectively. This increase was mainly the
result of lower revenues and slightly higher operating expenses
during the fourth quarter of 2005. For the year ended December 31,
2005 and 2004, the Efficiency Ratio(3) was 62.97% and 62.78%*,
respectively. Operating expenses increased $0.5 million, or 0.9%,
from $54.9 million* for the quarter ended December 31, 2004 to
$55.4 million for the quarter ended December 31, 2005. For the year
ended December 31, 2005, operating expenses increased $4.0 million,
or 1.8%, when compared to the same period in 2004*. There was an
increase of $3.4 million in salaries and employee benefits and an
increase of $0.6 million in other operating expenses. The increase
in salaries and employee benefits was due to a decrease of $2.9
million in expenses deferred as loan origination costs (as a result
of lower standard costs of originating consumer loans) and an
increase in salaries of $1.2 million, partially offset by a
decrease in pension and other benefits of $0.7 million. Balance
Sheet Total assets as of December 31, 2005 compared to December 31,
2004* decreased 0.6%. As of December 31, 2005, there was an
increase of $464.8 million in net loans, including loans held for
sale (further explained below) compared to December 31, 2004*. The
investment securities portfolio decreased by $414.1 million from
$2.0 billion as of December 31, 2004 to $1.6 billion as of December
31, 2005. The net loan portfolio, including loans held for sale,
reflected an increase of 8.4% or $464.8 million, reaching $6.0
billion at December 31, 2005, compared to the figures reported as
of December 31, 2004*. The mortgage loan portfolio at December 31,
2005 grew $556.4 million or 37.5% compared to December 31, 2004*.
The commercial loan portfolio (including construction loans)
decreased $206.9 million or 5.7% and the consumer loan portfolio
increased by $112.9 million, or 24.9% as of December 31, 2005,
compared to December 31, 2004*. The growth in the consumer loan
portfolio is attributable to an increase of 31.7% and 24.4% in
credit cards and personal installment loans, respectively. Mortgage
loans originated during the fourth quarter of 2005 reached $191.1
million and sales were $1.0 million. Mortgage loan originations for
the year ended December 31, 2005 reached $748.1 million. Net
purchases for the year 2005 were $56.5 million, comprised of $289.9
million loans purchased and $233.3 million loans sold. Deposits at
December 31, 2005 reflected an increase of $595.4 million, or
12.5%, compared to deposits of $4.7 billion* as of December 31,
2004. Total borrowings at December 31, 2005 (comprised of federal
funds purchased and other borrowings, securities sold under
agreements to repurchase, commercial paper issued, and term and
capital notes) decreased $770.0 million, or 26.9%, compared to
borrowings at December 31, 2004*. Financial Strength The ratio of
non-performing loans to total loans as of December 31, 2005 was
1.22%, a 35 basis point improvement over the reported 1.57% as of
December 31, 2004*. Non-performing loans at December 31, 2005
amounted to $73.7 million, a 15.8% improvement compared to $87.5
million as of December 31, 2004. There had been an improving trend
in this indicator during 2004, which has continued throughout 2005.
The annualized ratio of net charge-offs to average loans for the
year ended December 31, 2005 improved 18 basis points to 0.38% from
0.56% reported for the year ended December 31, 2004*. The allowance
for loan losses to total non-performing loans at December 31, 2005
improved to 90.72% compared to 79.05%* at December 31, 2004.
Excluding non-performing mortgage loans(2) (for which the Company
has historically had a minimal loss experience) this ratio is
235.5% at December 30, 2005 compared to 135.0%* as of December 31,
2004. The allowance for loan losses represents 1.11% of total loans
as of December 31, 2005, a 13 basis point reduction over 1.24%(4)
reported as of December 31, 2004. As of December 31, 2005, total
capital to risk-adjusted assets (BIS ratio) reached 12.19% and Tier
I capital to risk-adjusted assets and leverage ratios were 9.01%
and 6.51%, respectively. Customer Financial Assets Under Control As
of December 31, 2005, the Company had $13.0 billion in Customer
Financial Assets under Control, which represents a 1.0% or $0.1
billion increase over balances as of December 31, 2004. 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 year ended December 31,
2005, Santander BanCorp declared a cash dividend of 64 cents per
common share, resulting in a current annualized dividend yield of
2.55%. Market capitalization reached approximately $1.2 billion
(including affiliated holdings) as of December 31, 2005. There were
no stock repurchases during 2005 and 2004 under the Stock
Repurchase Program. As of December 31, 2005, the Company had
acquired, as treasury stock, a total of 4,011,260 shares of common
stock, amounting to $67.6 million. Restatement for each of the five
years in the period ended December 31, 2004 and for the first,
second and third quarters of 2005 and quarters for 2004 As a result
of an internal review undertaken in light of current events in the
Puerto Rico financial services industry related to the accounting
for transfers of mortgage loans, the Company's management and Audit
Committee determined that it was appropriate to reassess the
accounting and financial reporting of certain of these transactions
to which certain of the Company's subsidiaries were a party.
Accordingly, the Company has concluded that the previously reported
annual consolidated financial information for each of the five
years in the period ended December 31, 2004 will be restated. The
consolidated financial statements for each of the five years in the
period ended December 31, 2004 and related independent registered
public accountants' reports on such statements shall not be relied
upon. Further, the previously filed interim consolidated financial
statements of the Company for the first, second and third quarters
of 2004 and 2005 will be restated. The cumulative effect+ of all
the restatement adjustments described below is a reduction of
common stockholders' equity as of December 31, 2005 by
approximately $1.2 million, or 0.22%. -- During 2000 and first half
of 2001, the Company entered into contemporaneous purchases and
sales of mortgage loans of approximately equal amounts with an
unrelated local financial institution in the aggregate principal
amount of approximately $445 million, subject to a recourse
provision for the repurchase of delinquent loans as specified in
the contracts. The transactions were not accompanied by sufficient
documentation concerning their business purpose, and the
counterparty to the transactions subsequently repurchased certain
quantities of the loans sold to the Company beyond the
counterparty's written recourse obligation. For these reasons, the
Company determined to reverse any gains previously recognized with
respect to these sales and any other effects of these transactions
on the income statements for said years and recognize such
transactions as financing transactions. These purchases of mortgage
loans in 2000 and 2001 will now be classified as commercial loans,
secured by mortgage notes, to said counterparty and our sales of
mortgage loans will be classified as commercial loans, secured by
mortgage notes, from said counterparty. As of December 31, 2005,
the balance of these commercial loans to the counterparty amounted
to $22.9 million. -- During 2003, the Company acquired the
outstanding balance of the mortgage loans previously sold during
2000 and 2001 to the same counterparty mentioned in the preceding
paragraph at a fair value of $235 million, resulting in a premium
paid of approximately $13.6 million. It also sold the mortgage
servicing rights of said portfolio to the same counterparty for
$4.0 million. Since the purchases of loans in 2000 and 2001 will
now be accounted as a financing, the acquisition of mortgage loans
in 2003 will be accounted for as a repayment of the commercial loan
and the premium paid will be accounted for as a debt extinguishment
loss in the 2003 statement of income. -- During 2003, 2004 and the
first quarter of 2005, the Company purchased mortgage loans
amounting to $441 million from one unrelated local financial
institution and $750 million from another unrelated financial
institution. The transactions included guarantees of payment of an
uncapped floating pass-through rate of interest and other
guarantees to the purchaser of mortgage loans. The Company believed
at the time of the transactions that they qualified as "true sales"
and the transactions were recorded on the Company's balance sheet
as acquisitions of mortgage loans. On the basis of a subsequent
review of the written terms and conditions included in such
contracts and the absence of other written terms and conditions
that may be customary to such transactions, legal counsel recently
retained by the Company has been unable to opine that the
transactions constitute "true sales" of the relevant assets under
applicable Puerto Rico law. Accordingly, such transactions will be
reversed and accounted for as financings secured by mortgage notes
and reported in the consolidated financial statements as commercial
loans. As of December 31, 2005 the current outstanding balance of
such loans is $638 million and is related to only one unrelated
local financial institution. This restatement has no effect on net
income or shareholders' equity. Because the commercial loans,
secured by mortgages notes, discussed above would exceed the
maximum amount that can be loaned to a single borrower under Puerto
Rico law, Banco Santander Puerto Rico, a wholly owned subsidiary of
the Company (the "Bank"), has formally requested that the Office of
the Commissioner of Financial Institutions of the Commonwealth of
Puerto Rico (the "Commissioner") issue an administrative
determination in order to avoid a violation of these statutory
limits with respect to these transactions. The Bank is in receipt
of a letter from the Commissioner stating that he has reviewed the
Bank's request and that he has no objection to the Bank's request.
In addition, the Commissioner states in that letter that the formal
approval of the Bank's request will be issued within a week. The
following table summarizes the adjustments to restate net income,
common stockholders' equity and basic and diluted earnings per
share in the annual consolidated financial statements for each of
the five years in the period ended December 31, 2004. Financial
Statements Line Items ($ in thousands) 2000 2001 2002 2003 2004
Common Stockholders' Equity - as previously reported $551,990
$548,544 $538,705 $480,832 $556,003 Net Income - as Previously
Reported $75,860 $52,758 $25,752 $39,445 $84,459 Reversal of Gains
on Sales of Mortgage Loans (5,414) (3,009) - - - Reversal of
Mortgage Servicing Rights (MSR) Recognized (5,912) (3,186) - - -
Premium amortization and Net interest income Adjustments 163 1,651
2,063 9,942 3,892 Reversal of Amortization of MSR & Net
Servicing Fee Income (Expense) 251 2,290 2,086 240 156 Recognition
of gain on sale of MSR - - - 4,068 - Reversal of premium on loans
purchased & related amortization - - - (13,637) - Provision
(Benefit) for Income Tax on the above adjustments 4,256 879 (1,618)
(239) (1,579) Net Income - as Restated $69,204 $51,383 $28,283
$39,819 $86,928 Accumulated restatement adjustment $(6,656)
$(8,031) $(5,500) $(5,126) $(2,657) Common Stockholders' Equity -
as restated $545,334 $540,513 $533,205 $475,706 $553,346 Basic and
Diluted Earnings per Share as Previously Reported $1.42 $1.00 $0.45
$0.69 $1.81 Basic and Diluted Earnings per Share as Restated $1.28
$0.97 $0.50 $0.70 $1.86 The following table summarizes the
adjustments to restate net income, common stockholders' equity and
basic and diluted earnings per share on the interim consolidated
financial statements for the quarterly periods ended March 31, June
30 and September 30, 2005 and 2004, and December 31, 2004.
Financial Statements Line Items 1Q05 2Q05 3Q05 ($ in thousands)
Common Stockholders' Equity - as Previously Reported $544,946
$571,309 $567,126 Net Income - as Previously Reported $25,509
$19,255 $17,065 Premium amortization and Net interest income
Adjustments 638 594 517 Reversal of Amortization of MSR &
Amortization of reversed gains 25 26 23 Provision (Benefit) for
Income Tax on the above adjustments (258) (242) (210) Net Income -
as Restated $25,914 $19,633 $17,395 Accumulated Effect of
restatement on Common Stockholders' Equity $(2,252) $(1,874)
$(1,544) Common Stockholders' Equity - as Restated $542,694
$569,435 $565,582 Basic and Diluted Earnings per Share as
Previously Reported $0.55 $0.41 $0.37 Basic and Diluted Earnings
per Share as Restated $0.55 $0.42 $0.37 Financial Statements Line
Items 1Q04 2Q04 3Q04 4Q04 ($ in thousands) Common Stockholders'
Equity - as Previously Reported $508,324 $491,795 $526,237 $556,003
Net Income - as Previously Reported $25,214 $16,046 $21,869 $21,330
Premium amortization and Net interest income Adjustments 1,205
1,123 870 694 Reversal of Amortization of MSR & Amortization of
reversed gains 48 40 36 32 Provision (Benefit) for Income Tax on
the above adjustments (489) (454) (353) (283) Net Income - as
Restated $25,978 $16,755 $22,422 $21,773 Accumulated Effect of
restatement on Common Stockholders' Equity $(4,362) $(3,653)
$(3,100) $(2,657) Common Stockholders' Equity - as Restated
$503,962 $488,142 $523,137 $553,346 Basic and Diluted Earnings per
Share as Previously Reported $0.54 $0.34 $0.47 $0.46 Basic and
Diluted Earnings per Share as Restated $0.56 $0.36 $0.48 $0.47 As
noted above, the Company is restating certain transactions
previously recorded as purchases of mortgage loans. Certain
transactions are being restated because the Company has found
insufficient evidence that the transactions qualify for treatment
as purchases under the criteria for sale accounting. The effect of
restating these transactions is: (i) to present such purchase
transactions as commercial loans secured by mortgage notes instead
of loan purchases, (ii) to reverse any premium paid and related
amortization with respect to such purchases, (iii) to revise the
related disclosures in the notes to the Company's consolidated
financial statements, (iv) to revise the cash flows from investing
activities of the Company's Statements of Cash Flows to reflect the
outflow resulting from the origination of loans rather than from
the purchase of loans, although total cash flows from investing
activities will not change, (v) to reverse all or a portion of the
related balance guaranteed swap derivative associated with such
transactions, if applicable, and (vi) for regulatory capital
requirement purposes, to increase the risk weighting factor on the
outstanding balance on such transactions from 50% to 100%. In the
case of sales of mortgage loans, the effect of restating such
transactions that did not meet the criteria for sale accounting on
the Company's financial statements is: (i) to present such
transactions as secured borrowings, (ii) to reverse any gain
initially recognized on such transactions, (iii) to reverse any
recognition of servicing assets and related amortization, (iv) to
reverse any related servicing income, (v) to revise the related
disclosures in the notes to the Company's consolidated financial
statements, and (vi) to revise the Company's Statements of Cash
Flows to reflect the cash inflow from a secured borrowing as a
financing activity and reverse the gain and the cash inflow from
the proceeds from sales of mortgage loans as an operating activity.
The revised accounting and financial reporting of these mortgage
transfer transactions did not result in the need for additional
reserves, and the Company has remained well capitalized. Tier I
capital, total capital to risk- based capital assets and leverage
ratios at December 31, 2005 were 9.66%, 13.06% and 6.53%,
respectively, before net effect of the restatement adjustment and
9.01%, 12.19% and 6.51%, respectively, after the restatement. The
Company intends to include restated financial statements at and for
the years ended December 31, 2003 and December 31, 2004 and
restated financial information at and for the years ended December
31, 2001 and December 31, 2002 in its annual report on Form 10-K
for the year ended December 31, 2005, which the Company expects to
file on or before March 30, 2006. The Forms 10-Q for the quarters
ended March 30, 2005, June 30, 2005 and September 30, 2005 will be
amended to reflect the restated the first, second and third quarter
of 2005 and 2004. On December 8, 2005, the Company received a
subpoena from the Securities and Exchange Commission for the
production of documents concerning its mortgage loan transactions
with an unrelated local financial institution. The Company has
commenced providing documents and information to the SEC in
response to the subpoena and concerning the transactions that are
being restated as described herein. The Company is cooperating
fully with the SEC in connection with these inquiries. Transactions
Currently Under Review Pursuant to an arrangement discussed between
the parties, during the first quarter of 2005 the Company sold to
an unrelated financial institution mortgage loans with an
approximate principal balance of $87.2 million and subsequently, in
the second quarter of 2005, purchased from the same financial
institution two pools of mortgage loans with approximate principal
balances of $60 million and $29.7 million. Although the Company has
received an opinion from independent legal counsel stating that the
transactions constitute "true sales" under applicable Puerto Rico
law, the Company is in the process of analyzing the business
purpose of the transactions and the relevance of business purpose
under U.S. GAAP in the context of roughly contemporaneous purchase
and sale transactions. The Company is considering whether it should
account for these transactions as purchases and sales of mortgage
loans (as they were in the Company's previously filed quarterly
financial statements), or not. If the Company determines that the
transactions should not be accounted as a sale and purchase of
financial assets, the gain of $1.7 million realized on the sale of
the mortgage loans and the related servicing rights of $1.1 million
recognized during the first quarter of 2005 would be reversed.
Further, the premium paid of $1.7 million on the mortgage loans
purchased by the Company during the second quarter of 2005 would be
reversed. If the Company concludes that it should restate the
financial statements for these transactions, the effect of these
possible adjustments will be a reduction in net income of $1.7
million, or $0.04 per share, in the first quarter of 2005 and an
increase in net income of approximately $0.2 million for the
second, third and fourth quarters of 2005 combined, for a total
reduction of net income for the full year 2005 of $1.5 million, or
$0.03 per share. 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). Banco Santander Central Hispano, S.A (Santander) owns 91%
of the outstanding common stock of Santander BanCorp. The Company
has four wholly owned subsidiaries, Banco Santander Puerto Rico,
Santander Securities Corporation, Santander Insurance Agency and
Santander Financial Services, Inc. Banco Santander Puerto Rico (the
Bank) 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. The Bank through its wholly owned
subsidiary, Santander Mortgage Corporation, has 6 additional
offices to offer mortgage banking products and services. Santander
Securities offers securities brokerage services and provides
portfolio management services through its wholly owned subsidiary
Santander Asset Management Corporation. Santander Insurance Agency
offers life, health and disability coverage as a corporate agent
and also operates as a general agent. Santander Financial Services,
Inc. through, Island Finance, its recently acquired business unit,
provides consumer loans and real estate-secured loans to customers
through its 70 stores in Puerto Rico, as well as sales finance
contracts through retail merchants. For more information, visit the
Company's website at http://www.santandernet.com/. 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. * As Restated + Net of income tax. (1) on
a tax equivalent basis (2) "Mortgage loans" include residential
mortgages, commercial loans with real estate collateral and
consumer loans with real estate collateral. They exclude
construction loans. (3) On a tax equivalent basis, excluding gains
on sales of securities, loss on extinguishment of debt during 2005,
and gain on the sale of a building during 2004. SANTANDER BANCORP
CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF DECEMBER 31, 2005 AND
2004 (Dollars in thousands, except share data) ASSETS As Restated
Variance 31-Dec-05 31-Dec-04 12/05-12/04 CASH AND CASH EQUIVALENTS:
Cash and due from banks $136,731 $110,148 24.13% Interest bearing
deposits 8,833 42,612 -79.27% Federal funds sold and securities
purchased under agreements to resell 92,429 326,650 -71.70% Total
cash and cash equivalents 237,993 479,410 -50.36% INTEREST BEARING
DEPOSITS 101,034 50,000 102.07% TRADING SECURITIES 37,679 34,184
10.22% INVESTMENT SECURITIES AVAILABLE FOR SALE, at fair value
1,559,681 1,978,132 -21.15% OTHER INVESTMENT SECURITIES, at
amortized cost 41,862 37,500 11.63% LOANS HELD FOR SALE, net
213,102 271,596 -21.54% LOANS, net 5,808,630 5,287,701 9.35%
ALLOWANCE FOR LOAN LOSSES (66,842) (69,177) -3.38% PREMISES AND
EQUIPMENT, net 55,867 52,854 5.70% ACCRUED INTEREST RECEIVABLE
77,962 44,682 74.48% GOODWILL 34,791 34,791 0.00% INTANGIBLE ASSETS
10,092 8,003 26.10% OTHER ASSETS 160,097 113,971 48.42% $8,271,948
$8,323,647 -0.84% LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS:
Non-interest bearing $672,225 $744,019 -9.65% Interest bearing
4,671,271 4,004,120 16.66% Total deposits 5,343,496 4,748,139
12.54% FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS 650,000 780,334
-16.70% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 947,767
1,349,444 -29.77% COMMERCIAL PAPER ISSUED 334,319 629,544 -46.90%
TERM NOTES 40,215 31,457 27.84% CAPITAL NOTES 121,098 72,588 66.83%
ACCRUED INTEREST PAYABLE 65,160 22,666 187.48% OTHER LIABILITIES
201,366 136,129 32.82% 7,703,421 7,770,301 -1.06% 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 in December 2005 and 2004 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 in December 2005 and
2004 (67,552) (67,552) 0.00% Accumulated other comprehensive loss,
net of taxes (41,591) (6,818) 510.02% Retained earnings- Reserve
fund 133,759 126,820 5.25% Undivided profits 113,114 70,099 56.04%
Total stockholders' equity 568,527 553,346 2.25% $8,271,948
$8,323,647 -0.84% SANTANDER BANCORP CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED) FOR THE YEARS AND THE QUARTERS ENDED DECEMBER
31, 2005 AND 2004 (Dollars in thousands, except per share data) For
the years For the quarters ended ended As Restated As Restated
December December December December 31, 31, 31, 31, 2005 2004 2005
2004 INTEREST INCOME: Loans $359,415 $261,744 $102,461 $73,551
Investment securities 71,938 97,901 17,215 21,084 Interest bearing
deposits 4,065 1,054 1,324 480 Federal funds sold and securities
purchased under agreements to resell 4,187 3,123 697 1,106 Total
interest income 439,605 363,822 121,697 96,221 INTEREST EXPENSE:
Deposits 126,057 60,279 37,671 18,164 Securities sold under
agreements to repurchase and other borrowings 83,124 79,901 21,643
21,213 Subordinated capital notes 3,402 582 1,308 528 Total
interest expense 212,583 140,762 60,622 39,905 Net interest income
227,022 223,060 61,075 56,316 PROVISION FOR LOAN LOSSES 20,400
26,270 5,000 4,500 Net interest income after provision for loan
losses 206,622 196,790 56,075 51,816 OTHER INCOME: Bank service
charges, fees and other 42,272 38,977 11,005 10,027 Broker/dealer,
asset management and insurance fees 53,016 51,113 12,457 12,936
Gain on sale of securities, net 17,842 11,475 4 10 (Loss) gain on
extinguishment of debt (5,959) - - - Gain on sale of mortgage
servicing rights 83 400 14 116 Gain on sale of loans 7,876 431 2
515 Gain on sale of building - 2,754 - - Other income 10,228 12,089
1,635 5,628 Total other income 125,358 117,239 25,117 29,232
OPERATING EXPENSES: Salaries and employee benefits 95,002 91,582
22,715 22,544 Occupancy costs 16,811 13,959 4,230 3,850 Equipment
expenses 3,802 3,775 1,099 927 EDP servicing, amortization and
technical expenses 31,589 34,462 7,862 8,774 Communication expenses
8,232 8,976 2,032 2,183 Business promotion 11,065 10,435 2,826
3,294 Other taxes 8,443 8,584 2,150 2,010 Other operating expenses
46,442 45,604 12,523 11,340 Total operating expenses 221,386
217,377 55,437 54,922 Income before provision for income tax
110,594 96,652 25,755 26,126 PROVISION FOR INCOME TAX 30,788 9,724
8,891 4,353 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $79,806
$86,928 $16,864 $21,773 EARNINGS PER COMMON SHARE $1.71 $1.86 $0.36
$0.47 SANTANDER BANCORP SELECTED CONSOLIDATED FINANCIAL
INFORMATION: (DOLLARS IN THOUSANDS) For the Quarters Ended As As
Restated Restated Dec. 31, Dec. 31, Sept. 30, 4Q05/4Q04 Q05/3Q05
2005 2004 2005 Variation Variation Interest Income $121,697 $96,221
$112,470 26.5% 8.2% Tax equivalent adjustment 1,807 6,022 1,931
-70.0% -6.4% Interest income on a tax equivalent basis 123,504
102,243 114,401 20.8% 8.0% Interest expense 60,622 39,905 56,893
51.9% 6.6% Net interest income on a tax equivalent basis 62,882
62,338 57,508 0.9% 9.3% Provision for loan losses 5,000 4,500 4,650
11.1% 7.5% Net interest income on a tax equivalent basis after
provision 57,882 57,838 52,858 0.1% 9.5% Other operating income
25,111 28,707 27,541 -12.5% -8.8% Gain on sale of securities 4 10
462 -60.0% -99.1% Gain on sale of loans 2 515 666 -99.6% -99.7%
Gain on sale of building - - - N/A N/A Other operating expenses
55,437 54,922 55,903 0.9% -0.8% Income on a tax equivalent basis
before income taxes 27,562 32,148 25,624 -14.3% 7.6% Provision
(credit) for income taxes 8,891 4,353 6,298 104.2% 41.2% Tax
equivalent adjustment 1,807 6,022 1,931 -70.0% -6.4% NET INCOME
(LOSS) $16,864 $21,773 $17,395 -22.5% -3.1% SELECTED RATIOS: Per
share data (1): Earnings (loss) per common share $0.36 $0.47 $0.37
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, As Restated 2005 2004 Variation Interest Income
$439,605 $363,822 20.8% Tax equivalent adjustment 11,059 20,163
-45.2% Interest income on a tax equivalent basis 450,664 383,985
17.4% Interest expense 212,583 140,762 51.0% Net interest income on
a tax equivalent basis 238,081 243,223 -2.1% Provision for loan
losses 20,400 26,270 -22.3% Net interest income on a tax equivalent
basis after provision 217,681 216,953 0.3% Other operating income
99,640 102,579 -2.9% Gain on sale of securities 17,842 11,475
-55.5% Gain on sale of loans 7,876 431 -1727.4% Gain on sale of
building - 2,754 -100.0% Other operating expenses 221,386 217,377
1.8% Income on a tax equivalent basis before income taxes 121,653
116,815 4.1% Provision (credit) for income taxes 30,788 9,724
216.6% Tax equivalent adjustment 11,059 20,163 -45.2% NET INCOME
(LOSS) $79,806 $86,928 -8.2% SELECTED RATIOS: Per share data (1):
Earnings (loss) per common share $1.71 $1.86 Average common shares
46,639,104 46,639,104 outstanding Common shares outstanding at end
of period 46,639,104 46,639,104 Cash Dividends per Share $0.64
$0.49 (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 As restated 2004 As restated YTD
QTD QTD YTD QTD Dec. 31 Dec. 31 Sept. 30, Dec. 31, Dec. 31,
SELECTED RATIOS 2005 2005 2005 2004 2004 Net interest margin (1)
3.02% 3.16% 2.84% 3.33% 3.29% Return on average assets (2) 0.96%
0.80% 0.82% 1.14% 1.10% Return on average common equity(2) 13.85%
11.83% 12.10% 17.53% 16.46% Efficiency Ratio (1,3) 62.97% 63.00%
64.63% 62.78% 59.98% Non-interest income to revenues 22.19% 17.11%
20.31% 24.37% 23.30% Capital: Total capital to risk- adjusted
assets - 12.19% 10.80% - 10.95% Tier I capital to risk- adjusted
assets - 9.01% 8.55% - 8.55% Leverage ratio - 6.51% 6.36% - 6.44%
Non-performing loans to total loans - 1.22% 1.15% - 1.57%
Non-performing loans plus accruing loans past-due 90 days or more
to loans - 1.27% 1.25% - 1.63% Allowance for loan losses to
non-performing loans - 90.72% 92.82% - 79.05% Allowance for loans
losses to period-end loans - 1.11% 1.06% - 1.24% OTHER SELECTED
FINANCIAL DATA 12/31/2005 12/31/2004 (dollars in millions) Customer
Financial Assets Under Control: Bank deposits (excluding brokered
deposits) $4,084.0 $4,275.4 Broker-dealer customer accounts 4,923.0
4,543.3 Mutual fund and assets managed 2,795.0 2,640.0 Trust,
institutional and private accounts assets under management 1,158.0
1,369.0 Total $12,960.0 $12,827.7 (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: Evelyn Vega,
+1-787-777-4546, or Maria Calero, +1-787-777-4437, both of
Santander Bancorp Web site: http://www.santandernet.com/
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