SAN JUAN, Puerto Rico, Nov. 11 /PRNewswire-FirstCall/ -- Santander
BanCorp (NYSE: SBP; LATIBEX: XSBP) ("the Corporation") reported
yesterday its unaudited financial results for the quarter and nine
months ended September 30, 2008. The Corporation reported net
income of $16.1 million for the nine-month period ended September
30, 2008 and a loss of $8.2 million for the third quarter of 2008.
These results incorporate a one-time before tax provision related
to a claim receivable of $25.1 million resulting from certain
securities sold under agreements to repurchase for which Lehman
Brothers Inc. ("LBI") was the counterparty. On September 19, 2008,
LBI was placed in a Securities Investor Protection Corporation
liquidation proceeding. The Corporation's financial results reflect
the following: -- An improvement of 64 basis points in net interest
margin, on a tax equivalent basis, to 4.40% for the nine months
ended September 30, 2008 versus 3.76% for the same period in 2007
and an improvement of 120 basis points to 4.76% for the quarter
ended September 30, 2008 compared to 3.56% for the same quarter in
2007. -- Non-interest income for to the nine and three-month
periods ended September 30, 2008 and 2007, increased $23.3 million
or 24.2% and $5.9 million or 19.4%, respectively as compared to the
same periods in prior year. -- Operating expenses for the nine and
three-month periods ended September 30, 2008 and 2007 reflected a
decrease of $10.6 million or 4.1% and $12.4 million or 10.9%,
respectively as compared to the same periods in prior year. -- The
Efficiency Ratio, on a tax equivalent basis, for the nine months
ended September 30, 2008 and 2007 was 59.21% and 65.59%,
respectively, reflecting an improvement of 638 basis points. For
the quarter ended September 30, 2008 and 2007, the Efficiency
ratio, on a tax equivalent basis, was 59.00% and 68.81%,
respectively, reflecting an improvement of 981 basis points. -- The
Corporation's total assets experienced a $1.0 billion decrease to
$8.2 billion at September 30, 2008. This decrease is partially
attributed to a reduction of $502. 3 million in investment
securities available for sale during the nine-month period ended
September 30, 2008, the sale of $194.7 million in impaired loans to
an affiliate further described below and the Corporation's ongoing
efforts taken to reduce risk weighted assets; -- The provision for
loan losses represented 112% of the net charge-offs for the nine
months ended September 30, 2008; and -- Total non-performing loans
(excluding other real estate owned) were reduced by $84.8 million
to $209.6 million or 3.26% of total loans as of September 30, 2008
from $294.4 million or 4.16% of total loans as of December 31,
2007. This decrease in non-performing loans is partially attributed
to the sale of certain impaired loans to an affiliate for $194.7
million in cash. For the nine and three months ended September 30,
2008 and 2007, net income (loss) and other selected financial
information, as reported are the following: ($ in thousands, except
earnings Nine months ended Three months ended per share) 30-Sep-08
30-Sep-07 30-Sep-08 30-Sep-07 Net Income (Loss) $16,076 $(34,274)
$(8,162) $ (50,099) EPS (LPS) $0.34 $(0.73) $(0.18) $(1.07) ROA
0.24% (0.50)% (0.38)% (2.14)% ROE 3.80% (7.85)% (5.71)% (34.58)%
Efficiency Ratio (*) 59.21% 65.59% 59.00% 68.81% Net Interest
Margin, on a tax equivalent basis 4.40% 3.76% 4.76% 3.56% (*)
Operating expenses less provision for claim receivable and
impairment charges divided by net interest income on a tax
equivalent basis plus a gain on sale of securities, gain on equity
securities and loss on extinguishment of debts and derivatives. Use
of NON-GAAP Financial Measures The following tables summarize the
effects in operating results of certain transactions on non-GAAP
financial measures for purpose of comparing the operating results
of the nine-month period and quarter ended September 30, 2008 with
the results of the same periods of 2007 excluding certain
transactions. Non-GAAP financial measures for the nine month-period
and quarter ended September 30, 2008 and 2007 excludes the goodwill
and trade name impairment charges, the after-tax compensation
expense associated with certain incentive plans and after tax of
provision for claim receivable related to the Lehman Brothers
liquidation proceeding. ($ in thousands, except earnings per share)
Nine Months Ended Three Months Ended 30-Sep-08 30-Sep-07 30-Sep-08
30-Sep-07 Net income (loss) as reported under US GAAP $16,076
$(34,274) $(8,162) $(50,099) Non GAAP adjustments: Goodwill and
trade name impairment charges $ - $39,705 $ - $39,705 Increase
(decrease) in compensation expense sponsored by Santander Group,
net of tax $(1,253) $6,169 $21 $1,113 Gain realized on settlement
by counterparty of investment securities pledged under agreement to
repurchase, net of tax $(1,924) $ - $(1,924) $ - Provision for
claim receivable, net of tax $15,323 $ - $15,323 $ - Non GAAP Net
Earnings (Loss) $28,222 $11,600 $ 5,258 $(9,281) EPS (LPS) $0.61
$0.25 $0.11 $(0.20) ROA 0.42% 0.17% 0.25% (0.40)% ROE 6.68% 2.66%
3.68% (6.41)% Efficiency Ratio 59.75% 62.58% 58.97% 67.13%
Commenting on the reported financial results of the Corporation,
Juan Moreno, President & CEO, said: "The earnings include a
provision related to estimated credit losses on securities sold
under agreements to repurchase arising from the bankruptcy of
Lehman Brothers. This one-time event is expected to be compensated
by eliminating the interest cost of an expensive repurchase
agreement. This event could represent approximately an average $4
million in additional annual net interest income. Despite the
challenging environment, the Corporation registered a significant
improvement in its net interest margin, double digit growth in
non-interest income during the nine- month period ended September
30, 2008, and a reduction in operating expenses and non-performing
loans." Net Interest Income The Corporation's net interest income
for the nine months ended September 30, 2008 was $268.1 million, an
increase of $34.4 million, or 14.7%, compared with $233.6 million
for the nine months ended September 30, 2007. This improvement was
mainly due to a decrease in interest expense of $79.4 million or
29.2% when compared with the same period in prior year. The average
cost of funds on interest-bearing liabilities experienced a
decrease of 129 basis points from 4.78% for the nine-month period
ended September 30, 2007 to 3.49% for the same period in 2008. This
was influenced by the reduction in federal funds rates made by the
Federal Reserve since June 2007 which resulted in a lower cost of
short term borrowings. Interest income reflected a reduction of
$45.0 million or 8.9% for the nine-month period ended September 30,
2008 compared to the same period in 2007 mainly due to decreases of
$31.8 million or 7.1% principally caused by changes in rate and to
a lesser extent to a decline in volume in interest income on loans
and $12.1 million or 23.8% in interest income on investment
securities attributed a decline in volume and also a decrease from
a rates. The Corporation's net interest income for the three months
ended September 30, 2008 reached $92.4 million compared with $76.0
million for the same period in 2007, reflecting an increase of
$16.4 million, or 21.5%. There was a decrease in interest expense
of $38.5 million or 40.9% when compared with the same period in
prior year due to a decrease in average cost of funds of 164 basis
points from 4.81% to 3.17% for the quarter ended September 30,
2008. Interest income reflected a reduction of $22.1 million or
13.0% for the quarter ended September 30, 2008 from $170.1 million
for the quarter ended September 30, 2007 to $148.0 million mainly
due to a decrease of $15.4 million or 10.2% in interest income on
loans. The average interest-earning assets at September 30, 2008
decreased $269.0 million or 3.2% when compared with figures
reported at September 30, 2007. This decrease was mainly due to a
decrease of $210.0 million in average investment securities due to
a reduction of $347 million of investment securities available for
sale during the nine-month period ended September 30, 2008, which
includes $221 million of investment held as collateral of the
securities sold under agreements to repurchase with LBI. There was
a decrease of $165.8 million in average net loans for the nine
months ended September 30, 2008 compared with the same period in
2007. For the nine-month period ended September 30, 2008, the
decrease in average investment available for sale and average net
loans was partially offset by an increase of $106.7 million in
average interest bearing deposits. The decrease in average
interest-bearing liabilities of $229.6 million or 3.0% for the
nine-month period ended September 30, 2008, was driven by a
decrease in average borrowings of $524.1 million when compared to
the nine- month period ended September 30, 2007. For the
three-month period ended September 30, 2008, net interest margin,
on a tax equivalent basis, reflected an increase of 120 basis
points from 3.56% for the quarter ended September 30, 2007 to 4.76%
for the quarter ended September 30, 2008. The 120 basis points
increase in net interest margin, on a tax equivalent basis, was
mainly due a decrease in interest expense on average
interest-bearing liabilities of $38.5 million or 40.9% principally
due to a decrease in the cost of average interest-bearing
liabilities of 164 basis points. This reduction in interest expense
was principally due to the significant reduction of 197 basis
points in the cost of average borrowings (comprised of federal
funds purchased and other borrowings, securities sold under
agreements to repurchase and commercial paper issued) from 5.62%
for the third quarter of 2007 to 3.65% for the same quarter of
2008, reflecting the Federal Reserve's interest rate cuts. The
impact of the decrease in average cost of funds was partially
offset by a 31 basis points decrease in yield on the average
interest-earning assets resulting in a decrease of $22.4 million in
interest income, on a tax equivalent basis, on average
interest-earning assets. This decrease was mainly due to a 42 basis
points decrease in the yield on average gross loans. For the three
months ended September 30, 2008, average interest-earning assets
decreased $807.8 million or 9.3% when compared to same period the
prior year. This reduction was mainly due a decrease of $430.8
million or 6.2% in average net loans and $393.0 million or 26.4% in
average investment securities due to a sale of $347 million of
investment securities available for sale during the year of 2008
which includes $221.0 million of investment securities held by LBI
as collateral for the securities sold under agreements to
repurchase. These reductions were partially offset by an increase
of $16.1 million or 6.4% in average interest-bearing deposits. The
$793.2 million decrease in average interest-bearing liabilities for
the quarter ended September 30, 2008, was driven by $1.1 billion
decrease in average borrowings offset by an increase of $307.4
million in average interest bearing deposits. Provision for Loan
Losses The Corporation's provision for loan losses increased $23.4
million or 23.4% from $100.2 million for the nine months ended
September 30, 2007 to $123.7 million for the same period in 2008
and decreased $1.8 million or 3.8% for the quarter ended September
30, 2008 when compared with the same period in prior year. The
increase in the provision for loan losses was due primarily to
increases in non-performing loans due to the deterioration in
economic conditions in Puerto Rico, requiring the Corporation to
increase the level of its allowance for loan losses. There was an
increase of $18.9 million in past-due loans (non-performing loans
and accruing loans past-due 90 days or more) which reached $223.2
million as of September 30, 2008, from $204.3 million as of
September 30, 2007. Non-performing loans were $209.6 million as of
September 30, 2008, an increase of $12.5 million or 6.3%, compared
to non- performing loans as of September 30, 2007. Other Income For
the nine months ended September 30, 2008, other income reached
$119.8 million, a $23.3 million or 24.2% increase when compared to
$96.5 million for the same period in 2007. For the quarter ended
September 30, 2008, other income reflected an increase of $5.9
million or 19.4% to $36.4 million when compared to the figures
reported in the same period in 2007. Other income was impacted by
the following: -- Broker-dealer, asset management and insurance
fees reflected an increase of $ 9.0 million for the nine-month
period ended September 30, 2008, due to increases in broker-dealer
and asset management fees of $12.0 million partially offset by a
decrease of $3.0 million in insurance fees due to a reduction in
credit life commissions generated from the Island Finance
operation. For the quarter ended September 30, 2008, the
broker-dealer and asset management fees and insurance fees remained
basically unchanged when compared with the third quarter of 2007.
The broker-dealer operation is carried out through Santander
Securities Corporation, whose business includes securities
underwriting and distribution, sales, trading, financial planning
and securities brokerage services. In addition, Santander
Securities provides investment management services through its
wholly-owned subsidiary, Santander Asset Management Corporation.
The broker-dealer, asset management and insurance operations
contributed 48.5% and 44.3% to the Corporation's other income for
the nine and three-month period ended September 30, 2008,
respectively, and 50.9% and 54.8% to the for the nine and
three-month period ended September 30, 2007. -- There was an
increase in gain on sale of securities available for sale of $4.9
million for the nine months ended September 30, 2008 principally
due to a reduction of $347 million of investment securities
available for sale during the nine-month period ended September 30,
2008. This reduction of balance includes sale of investment
available for sale to a third party of 125.3 million, resulting in
a gain of $2.9 million during the first quarter of 2008 and $221.4
million related to investment securities available for sale held as
collateral by LBI under securities sold under agreements to
repurchase. The Corporation recognized $2.3 million gain in
connection with the settlement of the securities sold under
agreements to repurchase. -- The Corporation reported an increase
in gain on derivative instruments of $4.1 million for the nine
months ended September 30, 2008 compared with the same period
during the prior year mainly due to the net effect of incorporating
the Corporation's credit risk in the derivative fair value
calculation methodology pursuant the adoption of SFAS 157. For the
quarter ended September 30, 2008, there was an increase in gain on
derivative instruments of $2.1 million when compared with the
quarter ended September 30, 2007 mostly resulting from a gain
million arising from the credit risk component incorporated into
the fair value calculation of a subordinated note recognized during
the quarter pursuant to SFAS 157. -- There were decreases in gain
on sale of residential mortgage loans of $2.1 million for the
nine-month periods ended September 30, 2008 compared with the same
periods the prior year, due to a decrease in mortgage loans sold of
$109.9 million and $22.1 million for the nine and three-month
period ended September 30, 2008, respectively, compared with the
same period in 2007. -- During the first quarter of 2008 a gain of
$8.6 million on the sale of part of the investment in Visa, Inc. in
connection with its initial public offering was recognized through
earnings and included within other gains and losses, net. -- An
unfavorable valuation adjustment of $6.9 million and $2.3 million
for loans held for sale was recorded through earnings and included
within other gains and losses during the nine and three-month
period ended September 30, 2008. -- There was an increase in other
income of $5.0 million for the nine months ended September 30, 2008
compared with the same period in 2007. This increase was mainly due
to the market valuation on broker CD's accounted for as per SFAS
No. 159 of $2.1 million, a commission of $1.0 million received from
NOVA as part of the sale of the Corporation's merchant business
during 2007, $0.7 million of swap income not hedged, $0.6 million
of a gain on tax credit purchased and $0.4 million incentive from
Mastercard based on customer volume affiliated. For the quarter
ended September 30, 2008 compared with the same quarter in 2007,
other income reflected an increase of $3.5 million principally due
to a valuation on broker CD's not hedge of $2.1 million, $0.6
million of a gain on tax credit purchased and $0.4 million of swap
income no hedge. Operating Expenses The Corporation's operating
expenses reflected a decrease of $10.6 million and $12.4 million
for the nine and three-month periods ended September 30, 2008,
respectively, when compared with nine and three-month period ended
September 30, 2007. The variances in operating expenses are
described below: -- Total salaries and other employee benefits
reflected a decrease of $4.4 million during the nine months ended
September 30, 2008 compared with the same period the prior year.
This reduction is mostly attributed to a decrease in stock
incentive compensation expense sponsored Santander Group, of $12.2
million which is partially offset by an increase of $4.6 million in
other compensation, mainly due to a $4.4 million increment in
commissions and bonuses. There was also a reduction in deferred
loan origination costs of $2.6 million, which also offset the
decrease in stock incentive compensation expense described above.
For the quarter ended September 30, 2008, total salaries and other
employee benefits remained basically flat when compared with the
quarter ended September 30, 2007. -- The Corporation's
non-personnel expenses decreased $6.2 million for the nine months
ended September 30, 2008 compared with the same period in prior
year. This decrease was mainly due to $39.7 million related
goodwill and trade name impairment charges recognized during the
third quarter of 2007; a provision for claim receivable of $25.1
million recognized during the third quarter of 2008 which represent
the excess of the value of the securities held by LBI over the
amount owned by the Corporation under the securities sold under
agreements to repurchase, described previously. Other increases in
non- personnel expenses includes: $5.7 million in professional fees
principally due to an increment in consulting fees regarding the
adoption of new accounting pronouncements and review of other
operational procedures; $3.0 million in occupancy cost due to the
sale and leaseback of the Corporation's two principal properties in
December 2007; $3.9 million in EDP servicing expenses, amortization
and technical services and $3.0 million in FDIC assessment due to
the 2007 assessment systems implemented under the Federal Deposit
Insurance Reform Act of 2005 that imposed insurance premiums based
on factors such as capital level, supervisory rating, certain
financial ratios and risk information. These increases were
partially offset by a decrease of $6.9 million in business
promotion. -- For the quarter ended September 30, 2008,
non-personal expenses reflected a decrease of $12.5 million
principally due to $39.7 million related to goodwill and trade name
impairment charges recognized during the third quarter of 2007
partially offset by a provision for claim receivable of $25.1
million recognized during the third quarter of 2008, described
previously. Other increases were $2.9 million in professional
services; $1.2 million in occupancy cost and $0.9 million in EDP
servicing expenses, amortization and technical services. These
increases were partially offset by a decrease in business promotion
of $2.7 million for the quarter ended September 30, 2008 when
compared with the same period in 2007. The Efficiency Ratio, on a
tax equivalent basis, for the nine months ended September 30, 2008
and 2007 was 59.21% and 65.59%, respectively, reflecting an
improvement of 638 basis points. For the quarter ended September
30, 2008 and 2007, the Efficiency ratio, on a tax equivalent basis,
was 59.00% and 68.81%, respectively, reflecting an improvement of
981 basis points. This improvement was mainly the result of higher
net interest income and reduction in operating expenses. As
previously discussed, the Corporation recorded $25.1 million
provision for claim receivable. For the third quarter of 2007, the
Corporation recorded an estimated impairment charge of $39.7
million for goodwill and other intangible assets as operating
expense. The effect of these non- recurring transactions was
excluded from operating expenses to determine the Efficiency Ratio,
on a tax equivalent basis. Balance Sheet The Corporation's assets
reached $8.1 billion as of September 30, 2008, an 11.2% or $1.0
billion decrease compared to total assets of $9.2 billion at
December 31, 2007 and a 12.1% or $1.1 billion decrease compared to
total assets of $9.2 billion at September 30, 2007. The reduction
on Corporation's total assets was mainly due to a decrease of
$663.1 million in net loan portfolio as of September 30, 2008
compared with December 31, 2007 and a decrease of $502.3 million in
investment securities due to $347 million securities sold which
includes $221 million related to investment securities held by LBI
as collateral of securities sold under agreements to repurchase.
These decreases were partially offset by an increase in cash and
cash equivalents of $202.0 million. Loans The composition of the
loan portfolio, including loans held for sale, was as follows:
Sept. 08/ Sept. 08/ Sept. 30, Dec. 31, Dec. 07 Sept. 30, Sept. 07
2008 2007 Variance 2007 Variance (In thousands) Commercial and
industrial $2,310,740 $2,561,325 $ (250,585) $2,474,795 $ (164,055)
Construction 222,304 484,237 (261,933) 492,970 (270,666) Mortgage
2,639,940 2,685,962 (46,022) 2,728,306 (88,366) Consumer 595,570
643,054 (47,484) 638,812 (43,242) Consumer Finance 591,435 611,113
(19,678) 607,623 (16,188) Leasing 68,377 92,641 (24,264) 102,297
(33,920) Gross Loans 6,428,366 7,078,332 (649,966) 7,044,803
(616,437) Allowance for loan losses (180,090) (166,952) (13,138)
(144,544) (35,546) Net Loans $6,248,276 $6,911,380 $ (663,104)
$6,900,259 $ (651,983) The net loan portfolio, including loans held
for sale, reflected a decrease of $663.1 million or 10.0%, reaching
$6.2 billion at September 30, 2008, compared to the figures
reported as of December 31, 2007, and a decrease of $652.0 million
or 9.5%, when compared to September 30, 2007. The construction and
commercial loan portfolio decreased $261.9 million, or 54.1% and
$250.6 million or 10.0%, respectively, when compared to the
December 31, 2007 balance and $270.7 million, or 55.0% and $164.1
million or 6.6% respectively, when compared to the September 30,
2007 balance. The reduction in these portfolios was basically due
to the sale of $223.3 million of certain impaired commercial and
construction loans to an affiliate and net repayments of
approximately of $289.4 million during the nine months ended
September 30, 2008. The Corporation reported decrease in consumer
loans (including consumer finance) of $67.2 million or 5.4% when
compared with December 31, 2007 balances and $59.4 million or 4.8%
when compared with September 30, 2007 balances. A leasing portfolio
also reflected decreases of $24.3 million and $33.9 million when
compared with December 31, 2007 and September 30, 2007,
respectively. The $88.4 million reduction in mortgage loan
portfolio at September 30, 2008 compared to September 30, 2007 was
principally due to a decrease in residential mortgage loan
origination of $173.2 million. Residential mortgage loan
origination for the nine months ended September 30, 2008 was $294.3
million, 37.1% less than the $467.5 million originated during the
same period in 2007. Total mortgage loans sold and securitized
during the nine months ended September 30, 2008 were $160.8 million
compared to $217.6 million during the same period in 2007.
Allowance for Loan Losses The following table sets forth an
analysis of the allowance for loan losses during the periods
indicated: ALLOWANCE FOR LOAN LOSSES For the For the nine months
ended three months ended September 30, September 30, 2008 2007 2008
2007 (In thousands) Balance at beginning of period $166,952 $
106,863 $186,889 $127,916 Provision for loan losses 123,650 100,224
45,560 47,350 290,602 207,087 232,449 175,266 Losses charged to the
allowance 113,412 65,397 53,357 31,371 Recoveries 2,900 2,854 998
649 Net loans charged-off 110,512 62,543 52,359 30,722 Balance at
end of period $180,090 $ 144,544 $180,090 $144,544 Ratios:
Allowance for loan losses to period-end loans 2.80% 2.05% 2.80%
2.05% Recoveries to charge-offs 2.56% 4.36% 1.87% 2.07% Annualized
net charge-offs to average loans 2.14% 1.19% 3.13% 1.73% The
Corporation's allowance for loan losses was $180.1 million or 2.80%
of period-end loans at September 30, 2008, a 75 basis point
increase compared to $144.5 million, or 2.05% of period-end loans
at September 30, 2007. The $180.1 million in the allowance for loan
losses is comprised of $110.5 million related to commercial banking
and $69.6 million to the consumer finance operations, with a
provision for loan losses of $80.8 million and $42.8 million for
each respective segment for the nine months ended September 30,
2008. At September 30, 2007, the composition of the allowance for
loan losses of $144.5 million was of $83.1 million related to
commercial banking and $61.4 million to the consumer finance
operations, with a provision for loan losses of $48.9 million and
$51.4 million for the same period for each respective segment. The
75 basis points increment in the allowance for loan losses to
period- end loan was due to the increase in non-performing loans
and loans past due 90 days or more of $18.9 million from $204.3
million at September 30, 2007 to $223.2 million at September 30,
2008. The ratio of allowance for loan losses to non-performing
loans and accruing loans past due 90 days or more was 80.69% and
70.77% at September 30, 2008 and September 30, 2007, respectively,
an increase of 992 basis points. At September 30, 2008, this ratio
increased 25.33 percentage points when compared to 55.36% at
December 31, 2007. Excluding non-performing mortgage loans (for
which the Corporation has historically had a minimal loss
experience) this ratio was 186.0% at September 30, 2008 compared to
120.6% as of September 30, 2007 and 79.51% as of December 31, 2007.
The annualized ratio of net charge-offs to average loans for the
nine- month period ended September 30, 2008 was 2.14%, increasing
95 basis points from 1.19% for the same period in 2007. This change
was due to an increment in net charge-offs of $48.0 million during
2008 when compared with the same period in 2007 mainly due to $28.6
million charge-offs resulting from the sale of construction and
commercial loans of $223.1 million to an affiliate during the
nine-month period ended September 30, 2008. At September 30, 2008,
impaired loans (loans evaluated individually for impairment) and
related allowance amounted to approximately $97.1 million and $9.8
million, respectively. At December 31, 2007 impaired loans and
related allowance amounted to $205.6 million and $25.6 million,
respectively. Non-performing Assets and Past Due Loans The
following table presents the major categories of non-performing
loans and the variances for the periods indicated: Non-performing
Assets and Past Due Loans September 30, December 31, September 30,
2008 2007 2007 (Dollars in thousands) Commercial and Industrial
$34,299 $21,236 $23,681 Construction 8,904 141,140 50,431 Mortgage
114,923 80,805 73,321 Consumer 13,122 10,818 10,194 Consumer
Finance 35,248 37,412 37,039 Leasing 2,786 2,334 1,762 Restructured
Loans 346 693 694 Total non-performing loans 209,628 294,438
197,122 Repossessed Assets 18,908 16,447 13,738 Total
non-performing assets $228,536 $310,885 $210,860 Accruing loans
past-due 90 days or more $13,551 $7,162 $ 7,134 Non-Performing
loans to total loans 3.26% 4.16% 2.80% Non-Performing loans plus
accruing loans past due 90 days or more to total loans 3.47% 4.26%
2.90% Non-Performing assets to total assets 2.81% 3.39% 2.28% As of
September 30, 2008, the Corporation's total non-performing loans
(excluding other real estate owned) reached $209.6 million or 3.26%
of total loans from $294.4 million or 4.16% of total loans as of
December 31, 2007 and from $197.1 million or 2.80% of total loans
as of September 30, 2007. The Corporation's non-performing loans
reflected an increase of $12.5 million or 6.3% compared to
non-performing loans as of September 30, 2007 and a decrease of
$84.8 million or 28.8% compared to non-performing loans as of
December 31, 2007. The $12.5 million increase in non-performing
loans was principally due to the $41.6 million increase in
nonperforming residential mortgage loans and $10.6 million in
commercial loans partially offset by a decrease in construction
loans of $41.5 million when compared to September 30, 2007.
Compared to December 31, 2007, the decrease of $84.8 million was
composed mainly of $132.2 million or 93.7% decrease in
non-performing construction loans due to the sale of certain
impaired construction loans to an affiliate during the nine-month
ended September 30, 2008. This decrease was partially offset by
increases of $34.1 million or 42.2% in residential mortgages and
$13.1 million or 61.5% in commercial loans Liabilities The
Corporation's total liabilities reached $7.6 billion as of
September 30, 2008, reflecting a decrease of $1.1 billion or 12.1%
compared to December 31, 2007. This reduction in total liabilities
was principally due to a decrease in total borrowings (comprised of
federal funds purchased and other borrowings, securities sold under
agreements to repurchase, commercial paper issued, federal home
loan advances, term and capital notes) of $1.4 billion or 45.2% at
September 30, 2008 from $3.1 billion at December 31, 2007. This
decrease was partially offset by an increase in total deposits of
$429.2 million or 8.3% to $5.6 billion as of September 30, 2008
from $5.2 billion as of December 31, 2007. Total deposits of $5.6
billion as of September 30, 2008 were composed of $1.1 billion in
brokered deposits and $4.5 billion of customer deposits. Compared
to December 31, 2007, brokered deposits reflected a decrease of
$358.6 million or 24.6% and customer deposits reflected increases
of $787.8 million, or 21.3% as of September 30, 2008. The increase
in customer deposits was due to a certificate of deposit for the
amount of $630 million opened by Banco Santander, S.A. at Banco
Santander Puerto Rico, described below. Total borrowings at
September 30, 2008 (comprised of federal funds purchased and other
borrowings, securities sold under agreements to repurchase,
commercial paper issued, federal home loan bank advances and term
and capital notes) decreased $1.4 billion or 45.2% and 606.0
million or 26.0% compared to borrowings at December 31, 2007 and
September 30, 2007, respectively. The $1.4 billion decrease
includes a decrease in fed funds purchased and other borrowings of
$706.1 million due to the refinancing of the $700 million
outstanding indebtedness incurred under bridge facility agreement
among the Corporation, SFS and National Australia Bank Limited
compared at December 31, 2007. Securities sold under agreements to
repurchases decrease by $260.6 million due to the cancellation of
$200 million of securities sold under agreements to repurchase due
to LBI. Also, there were decreases in commercial paper issued of
$234.6 million, federal home loan bank advances of $210.0 million
and subordinated capital notes of $11.0 million compared at
December 31, 2007. Customer Financial Assets under Control As of
September 30, 2008, the Corporation had $14.0 billion in Customer
Financial Assets under Control. Customer Financial Assets under
Control include bank deposits (excluding brokered deposits),
broker-dealer customer accounts, mutual fund assets managed, and
trust, institutional and private accounts under management.
Shareholder Value As of September 30, 2008, the Corporation's
common stock price per share was $10.8, resulting in a market
capitalization of $503.7 million, including affiliated holdings
compared to book value equity of $555.3 million. The Corporation
declared a cash dividend of $0.20 per common share during the
nine-month period ended September 30, 2008 to all stockholders. The
current annualized dividend yield is 2.5%. In light of the
continuing challenging general economic conditions in Puerto Rico
and the global capital markets, the Board of Directors of the
Corporation voted during August 2008 to discontinue the payment of
the quarterly cash dividend on the Corporation's common stock to
strengthen the institution's core capital position. The Corporation
may use a portion of the funds previously paid as dividends to
reduce its outstanding debt. The Corporation's decision is part of
the significant actions it has proactively taken in order to face
the on-going challenges presented by the Puerto Rico economy, which
among others, include: selling the merchant business to an
unrelated third party; maintaining an on- going strict control on
operating expenses; an efficiency plan driven to lower its current
efficiency ratio; and merging its mortgage banking and commercial
banking subsidiaries.. While each of the Corporation and its
banking subsidiary remain above well capitalized ratios, this
prudent measure will preserve and continue to reinforce the
Corporation's capital position. There were no stock repurchases
during the first semesters of 2008 and 2007 under the Stock
Repurchase Program. As of September 30 2008, the Corporation had
acquired, as treasury stock, a total of 4,011,260 shares of common
stock, amounting to $67.6 million. As of September 30, 2008, the
Corporation was well capitalized under the regulatory framework for
prompt corrective action. At September 30, 2008 the Corporation
continued to exceed the regulatory risk-based capital requirements
for well-capitalized institutions. Tier I capital to risk-adjusted
assets and total capital ratios at September 30, 2008 were 8.65%
and 11.84%, respectively, and the leverage ratio was 6.05%.
Availability on Website The Corporation makes available additional
financial information on the Corporation's website at
http://www.santandernet.com/, and can be accessed by clicking on
"Investor Relations" on the website main page and clicking on
"Financial Highlights on Excel". Institutional Background Santander
BanCorp is a publicly held financial holding company that is traded
on the New York Stock Exchange (SBP) and on Latibex (Madrid Stock
Exchange) (XSBP). 91% of the outstanding common stock of Santander
BanCorp is owned by Banco Santander, S.A (Santander). The
Corporation has five wholly owned subsidiaries, Banco Santander
Puerto Rico, Santander Securities Corporation, Santander Financial
Services, Inc., Santander Insurance Agency, Inc. and Island
Insurance Corporation. Banco Santander Puerto Rico has been
operating in Puerto Rico for thirty-two years. It offers a full
array of services through 57 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 68 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/. Banco Santander, S.A., (SAN.MC,
STD.N), headquartered in Madrid, engages primarily in commercial
banking with complementary activities in global wholesale banking,
cards, asset management and insurance. Santander had over EUR 1.079
trillion in funds under management at Sept. 30, 2008, from more
than 65 million customers served through 11,685 offices - more
branches than any other international bank. Founded in 1857,
Santander is the largest financial group in Spain and Latin America
and has a significant presence in Western Europe and in the United
Kingdom, through its Abbey subsidiary. In the first nine months of
2008, Santander registered ?6,935 million in attributable net
profit, an increase of 16% from 2007, excluding capital gains. For
more information, visit http://www.santander.com/. In Latin
America, (excluding Banco Real) Santander manages over US$200
billion in business volumes (loans, deposits, mutual funds, pension
funds and managed funds) through 4,638 branches. In the first nine
months of 2008, (excluding Banco Real) Santander reported EUR 2,167
million in net attributable income in Latin America. 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 SEPTEMBER 30, 2008 AND 2007 AND DECEMBER
31, 2007 (Dollars in thousands, except share data) ASSETS Variance
09/08- 30-Sep-08 30-Sep-07 31-Dec-07 12/07 CASH AND CASH
EQUIVALENTS: Cash and due from banks $251,425 $137,799 $118,096
112.90% Interest-bearing deposits 861 1,117 1,167 -26.22% Federal
funds sold and securities purchased under agreements to resell
151,371 130,195 82,434 83.63% Total cash and cash equivalents
403,657 269,111 201,697 100.13% INTEREST-BEARING DEPOSITS 6,305
1,620 5,439 15.92% TRADING SECURITIES, at fair value 70,208 58,101
68,500 2.49% INVESTMENT SECURITIES AVAILABLE FOR SALE, at fair
value 765,938 1,412,983 1,268,198 -39.60% OTHER INVESTMENT
SECURITIES, at amortized cost 54,882 48,809 64,559 -14.99% LOANS
HELD FOR SALE, net 79,666 175,307 141,902 -43.86% LOANS, gross
6,348,700 6,869,496 6,936,430 -8.47% ALLOWANCE FOR LOAN LOSSES
(180,090) (144,544) (166,952) 7.87% ACCRUED INTEREST RECEIVABLE
49,502 82,562 80,029 -38.14% PREMISES AND EQUIPMENT, net 20,579
52,597 29,523 -30.30% REAL ESTATE HELD FOR SALE 8,076 - - 0.00%
GOODWILL 121,482 113,995 121,482 0.00% INTANGIBLE ASSETS 29,940
40,581 30,203 -0.87% OTHER ASSETS 356,334 268,696 379,203 -6.03%
$8,135,179 $9,249,314 $9,160,213 -11.19% LIABILITIES AND
STOCKHOLDERS' EQUITY DEPOSITS: Non interest-bearing $721,713
$643,680 $755,457 -4.47% Interest-bearing 4,868,187 5,429,056
4,405,246 10.51% Total deposits 5,589,900 6,072,736 5,160,703 8.32%
FEDERAL FUNDS PURCHASED AND OTHER BORROWINGS 1,000 75,220 707,110
-99.86% SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 375,000
733,306 635,597 -41.00% COMMERCIAL PAPER ISSUED 49,858 403,660
284,482 -82.47% FEDERAL HOME LOAN BANK ADVANCES 1,035,000 825,000
1,245,000 -16.87% TERM NOTES 19,816 42,493 19,371 2.30%
SUBORDINATED CAPITAL NOTES 240,156 247,138 247,170 -2.84% ACCRUED
INTEREST PAYABLE 44,863 77,952 77,356 -42.00% OTHER LIABILITIES
224,280 241,819 246,888 -9.16% 7,579,873 8,719,324 8,623,677
-12.10% 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 316,412
308,171 308,373 2.61% Treasury stock at cost, 4,011,260 shares
(67,552) (67,552) (67,552) 0.00% Accumulated other comprehensive
loss, net of taxes (23,710) (40,256) (24,478) -3.14% Retained
earnings: Reserve fund 139,250 137,511 139,250 0.00% Undivided
profits 64,280 65,490 54,317 18.34% Total stockholders' equity
555,306 529,990 536,536 3.50% $8,135,179 $9,249,314 $9,160,213
-11.19% SANTANDER BANCORP CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2008
AND 2007 (Dollars in thousands, except per share data) For the nine
For the three months ended months ended September September
September September 30, 30, 30, 30, 2008 2007 2008 2007 INTEREST
INCOME: Loans $417,070 $448,859 135,263 $150,670 Investment
securities 38,758 50,846 11,442 17,196 Interest-bearing deposits
750 2,974 174 715 Federal funds sold and securities purchased under
agreements to resell 3,897 2,789 1,132 1,568 Total interest income
460,475 505,468 148,011 170,149 INTEREST EXPENSE: Deposits 117,403
144,052 37,235 51,223 Securities sold under agreements to
repurchase and other borrowings 65,047 115,862 15,240 38,882
Subordinated capital notes 9,974 11,917 3,130 4,005 Total interest
expense 192,424 271,831 55,605 94,110 Net interest income 268,051
233,637 92,406 76,039 PROVISION FOR LOAN LOSSES 123,650 100,224
45,560 47,350 Net interest income after provision for loan losses
144,401 133,413 46,846 28,689 OTHER INCOME : Bank service charges,
fees and other 33,744 34,162 10,220 9,711 Broker-dealer, asset
management and insurance fees 58,110 49,086 16,137 16,717 Gain on
sale of securities, net 5,153 238 2,279 - Gain on sale of loans
3,004 5,121 737 782 Other income (loss) 19,756 7,851 7,040 3,283
Total other income 119,767 96,458 36,413 30,493 OPERATING EXPENSES:
Salaries and employee benefits 92,883 97,249 31,372 31,347
Occupancy costs 20,631 17,686 7,409 6,198 Equipment expenses 3,340
3,379 1,087 1,139 EDP servicing, amortization and technical
assistance 31,208 27,317 10,147 9,243 Communication expenses 7,724
8,157 2,544 2,706 Business promotion 5,438 12,338 1,652 4,338
Goodwill and other intangibles impairment charges - 39,705 - 39,705
Provision for claim receivable 25,120 - 25,120 - Other taxes 10,150
8,486 3,394 3,537 Other operating expenses 52,947 45,677 19,027
15,980 Total operating expenses 249,441 259,994 101,752 114,193
Income before provision for income tax 14,727 (30,123) (18,493)
(55,011) PROVISION FOR INCOME TAX (1,349) 4,151 (10,331) (4,912)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $16,076 $(34,274)
$(8,162) $(50,099) EARNINGS PER COMMON SHARE $0.34 $(0.73) $(0.18)
$(1.07) SANTANDER BANCORP SELECTED CONSOLIDATED FINANCIAL
INFORMATION: (DOLLARS IN THOUSANDS) For the Quarters Ended 30-Sep
30-Sep 30-Jun 3Q08/3Q07 3Q08/2Q08 2008 2007 2008 Variation
Variation Interest Income $148,011 $170,149 $153,436 -13.0% -3.5%
Tax equivalent adjustment 1,430 1,713 998 -16.5% 43.3% Interest
income on a tax equivalent basis 149,441 171,862 154,434 -13.0%
-3.2% Interest expense 55,605 94,110 62,391 -40.9% -10.9% Net
interest income on a tax equivalent basis 93,836 77,752 92,043
20.7% 1.9% Provision for loan losses 45,560 47,350 38,515 -3.8%
18.3% Net interest income on a tax equivalent basis after provision
48,276 30,402 53,528 58.8% -9.8% Other operating income 33,397
29,711 30,167 12.4% 10.7% Gain on sale of securities 2,279 - - N/A
N/A Gain on sale of loans 737 782 829 N/A -11.1% Goodwill and other
intangibles impairment charges - - - N/A N/A Other operating
expenses 101,752 114,193 76,245 -10.9% 33.5% Income on a tax
equivalent basis before income taxes (17,063) (53,298) 8,279 -68.0%
-306.1% Provision for income taxes (10,331) (4,912) 765 110.3%
-1450.5% Tax equivalent adjustment (1,430) (1,713) (998) -16.5%
43.3% NET INCOME $(8,162) $(50,099) $6,516 -83.7% -225.3% SELECTED
RATIOS: Per share data (1): Earnings per common share $(0.18)
$(1.07) $0.14 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
$0.10 Nine Month-Periods ended September 30, 2008 2007 Variation
Interest Income $460,475 $505,468 -8.9% Tax equivalent adjustment
3,904 5,994 -34.9% Interest income on a tax equivalent basis
464,379 511,462 -9.2% Interest expense 192,424 271,831 -29.2% Net
interest income on a tax equivalent basis 271,955 239,631 13.5%
Provision for loan losses 123,650 100,224 23.4% Net interest income
on a tax equivalent basis after provision 148,305 139,407 6.4%
Other operating income 111,610 91,099 22.5% Gain on sale of
securities 5,153 238 2065.1% Gain on sale of loans 3,004 5,121 N/A
Goodwill and other intangibles impairment charges - - N/A Other
operating expenses 249,441 259,994 -4.1% Income on a tax equivalent
basis before income taxes 18,631 (24,129) -177.2% Provision for
income taxes (1,349) 4,151 -132.5% Tax equivalent adjustment
(3,904) (5,994) -34.9% NET INCOME $16,076 $(34,274) -146.9%
SELECTED RATIOS: Per share data (1): Earnings per common share
$0.34 $(0.73) 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 $0.20 $0.48 (1) Per share data
is based on the average number of shares outstanding during the
period. Basic and diluted earnings per share are the same.
SANTANDER BANCORP YTD QTD QTD YTD QTD 30-Sep 30-Sep 30-Jun 30-Sep
30-Sep SELECTED RATIOS 2008 2008 2008 2007 2007 Net interest margin
(1) 4.40% 4.76% 4.34% 3.76% 3.56% Return on average assets (2)
0.24% -0.38% 0.28% -0.50% -2.14% Return on average common equity
(2) 3.80% -5.71% 4.58% -7.85% -34.58% Efficiency Ratio (1,3) 59.21%
59.00% 65.55% 65.59% 68.81% Non-interest income to revenues 20.64%
19.74% 16.81% 16.02% 15.20% Capital: Total capital to risk-adjusted
assets - 11.84% 11.18% - 10.69% Tier I capital to risk- adjusted
assets - 8.65% 8.08% - 7.61% Leverage ratio - 6.05% 5.68% - 5.44%
Non-performing loans to total loans - 3.26% 4.09% - 2.80%
Non-performing loans plus accruing loans past-due 90 days or more
to loans - 3.47% 4.26% - 2.90% Allowance for loan losses to
non-performing loans - 85.91% 67.11% - 73.33% Allowance for loans
losses to period-end loans - 2.80% 2.74% - 2.05% OTHER SELECTED
FINANCIAL DATA 9/30/2008 9/30/2007 12/31/2007 (dollars in millions)
Customer Financial Assets Under Control: Bank deposits (excluding
brokered deposits) $4,493.0 $4,516.0 $3,705.0 Broker-dealer
customer accounts 5,529.0 5,959.0 5,855.0 Mutual fund and assets
managed 3,256.0 3,152.0 3,066.0 Trust, institutional and private
accounts assets under management 679.0 617.0 637.0 Total $13,957.0
$14,244.0 $13,263.0 (1) On a tax-equivalent basis. (2) Ratios for
the quarters are annualized. (3) Operating expenses, excluding
goodwill and other intangible impairment charges for 4Q07 and
provision for claim receivable for 3Q08, divided divided by net
interest income, on a tax equivalent basis, plus other income,
excluding gain on sale of securities, gain on equity security and
extinguisment of debts and derivatives. Also excluding for 4Q07
gain on sale of POS and TRUST. DATASOURCE: Santander BanCorp
CONTACT: Maria Calero, +1-787-777-4437, Michelle Balaguer,
+1-787-777-4186 Web site: http://www.santander.com/
http://www.santandernet.com/
Copyright