SAN JUAN, Puerto Rico, Nov. 14 /PRNewswire-FirstCall/ -- Santander
BanCorp (NYSE: SBP; LATIBEX: XSBP) ("the Corporation") reported
today its unaudited financial results for the quarter and nine
months ended September 30, 2007. The economy of Puerto Rico
continues to be impacted by a 17-month economic recession due to
the local government's budgetary imbalance and a higher cost of
living which has impacted consumer spending. Under these
challenging conditions, we have made significant loan loss
provisions and recognized non- cash impairment charges on our
consumer finance business that have resulted in a net loss of $34.3
million for the nine-month period ended September 30, 2007,
compared with net income of $33.1 million for the same period in
2006, and net loss of $50.1 million for the quarter ended September
30, 2007, compared with a net income of $8.7 million for the same
quarter in 2006. Financial results for the third quarter and nine
months ended September 30, 2007 were principally impacted by the
following items: -- non-cash impairment charges on the consumer
finance business of $39.7 million resulting in an overall net loss
on Santander Financial Services, Inc. (SFS) of $46.8 million for
the third quarter of 2007 and $50.4 million for the nine months
ended September 30, 2007; -- an increase in the provision for loan
losses of $27.0 million or 132.1% for the quarter ended September
30, 2007 compared to the same period in 2006 and $56.3 million or
128.2% for the nine-month period ended September 30, 2007 compared
to 2006. The $144.5 million allowance for loan losses as of
September 30, 2007 represents 2.05% of total loans, 73.3% of
non-performing loans and 128.3% of non-performing loans excluding
loans secured by real estate; -- the provision for loan losses
represented 154.1% and 160.2% of the net charge-offs for the
quarter and nine months ended September 30, 2007, respectively; --
net interest margin expansion of 15 basis points to 3.76% for the
nine-month period ended September 30, 2007 versus the same period
in the prior year; -- an increase in net interest income on a tax
equivalent basis of 8.2% to $239.6 million for the nine months
ended September 30, 2007 and 1.4% to $77.8 million for the third
quarter 2007 when compared to the same period last year; -- an
increase in non-interest income of $13.4 million or 16.1% for the
nine-month period ended September 30, 2007 attributed to higher
fees in broker-dealer, asset management, insurance and an early
cancellation of certain client structured certificates of deposit,
and an increase in gain on sale of loans, trading gains and
mortgage servicing rights recognized; -- a decrease of $2.9 million
or 3.9% in operating expenses, excluding goodwill and other
intangibles impairment charges and stock incentive compensation
expense sponsored and reimbursable by Banco Santander, S.A., the
majority stockholder (Santander Group), for the third quarter of
2007, when compared to the same periods in 2006 -- after-tax
compensation expense related to stock incentive plans sponsored and
reimbursable by Santander Group, of $1.1 million and $6.2 million,
respectively, for the quarter and nine-month period ended September
30, 2007; and -- a non-cash charge of $20.0 million related to
establishing a valuation allowance against its deferred tax assets
from its consumer finance business, mainly related to the goodwill
and trade name impairment charges and allowance for loan losses.
The Corporation has taken and continues to proactively take
significant measures to face the on-going challenges presented by
the Puerto Rico economy: -- Banco Santander Puerto Rico (BSPR) sold
its merchant business to an unrelated third party resulting in a
pre-tax gain of $12.3 million that will be recognized in the fourth
quarter of 2007. This transaction eliminates the need for
additional capital investment to support system enhancements
required by the business and results in cost efficiencies in
processing and personnel expenses. Through a marketing alliance
with the unrelated third party, BSPR expects to offers better
merchant products and services to its client base and to promote
growth in demand deposit accounts, an attractive source of funding.
-- BSPR sold to an unaffiliated third party the servicing rights
with respect to the less profitable and more labor and system
intensive lines of its trust business. For the third quarter of
2007, a gain of $382,000 was recognized as a result of the
transferred accounts to the third party. BSPR will continue to
offer trust services related to transfer and paying agent and IRA
accounts. This transaction avoided additional capital investment in
the trust business and reduced a significant portion of the labor
force dedicated to the business. -- The Corporation maintains an
on-going strict control on operating expenses and an efficiency
plan driven to lower its current efficiency ratio. The operating
expenses, excluding goodwill and other intangible assets impairment
charges and stock incentive compensation expense sponsored by
Santander Group, experienced a decrease of $2.9 million or 3.9% and
for the third quarter of 2007, when compared to the same period in
2006. -- The Corporation expects to merge as of December 31, 2007
its mortgage banking subsidiary with Banco Santander Puerto Rico to
obtain cost efficiencies and broaden the array of products that
current mortgage specialists are offering. -- The Corporation will
continue to monitor non-performing assets and to deploy significant
resources to manage the non-performing loan portfolio. Management
expects to improve its collection efforts by devoting more full
time employees and outside resources. Concurrently, management will
continue with its stringent underwriting and lending criteria.
Overview of Results of Operations For nine-month period and quarter
ended September 30, 2007, net income and other selected financial
data, as reported are the following: Nine Months Ended Three Months
Ended ($ in millions, except earnings per share) 30-Sep-07
30-Sep-06 30-Sep-07 30-Sep-06 Net (Loss) Income $(34.3) $33.1
$(50.1) $8.7 EPS $(0.73) $0.71 $(1.07) $0.19 ROA -0.50% 0.51%
-2.14% 0.39% ROE -7.85% 7.94% -34.58% 6.08% Efficiency Ratio (*)
65.59% 67.25% 68.81% 70.56% (*) Operating expenses, excluding
goodwill and trade name impairment charges, divided by net interest
income on a tax equivalent basis, plus other income, excluding gain
on sale of securities. The following table provides the non-GAAP
financial measures for the nine month-period and quarter ended
September 30, 2007: Nine Months Ended Three Months Ended ($ in
millions net of tax, except earnings per share) 30-Sep-07 30-Sep-06
30-Sep-07 30-Sep-06 Goodwill and trade name impairment charges
$39.7 $- $39.7 - Compensation expense sponsored by Santander Group
(net of tax) $6.2 $- $1.1 $- The non-GAAP selected financial data
for the nine month-period and quarter ended September 30, 2007 are
as follows excluding the consumer finance impairment charges and
the compensation expense sponsored by Santander Group: Nine Months
Ended Three Months Ended ($ in millions net of tax, except earnings
per share) 30-Sep-07 30-Sep-06 30-Sep-07 30-Sep-06 Net Income
(Loss) $11.6 $33.1 $(9.3) $8.7 EPS $0.25 $0.71 $(0.20) $0.19 ROA
0.17% 0.51% -0.40% 0.39% ROE 2.66% 7.94% -6.41% 6.08% Efficiency
Ratio (*) 62.58% 67.25% 67.13% 70.56% (*) Operating expenses,
excluding goodwill and trade name impairment charges, divided by
net interest income on a tax equivalent basis, plus other income,
excluding gain on sale of securities. Consumer Finance Business
(Island Finance) As stated with the publication of the financial
results for the second quarter of 2007 due to unfavorable market
conditions in Puerto Rico, the Corporation decided to perform a
valuation of the goodwill and intangibles for its consumer finance
business as of July 1, 2007. As a result of such valuation analysis
performed with the assistance of an independent valuation
specialist, the Corporation has recorded impairment adjustment
charges of $39.7 million during the third quarter of 2007. The
table below presents condensed results of operations and selected
financial information of the consumer finance business for the
quarters and nine months ended September 30, 2007 including certain
supplemental information, such as insurance commissions related to
the consumer finance loan portfolio and interest expense mark-up
charged by the Corporation. Nine-Month Quarter Ended Period Ended
Santander Financial Services Sep-07 Sep-06 Sep-07 Sep-06* Condensed
Statements of Income ($ in thousands) ($ in thousands) Interest
income $34,590 $35,078 $105,947 $83,149 Interest expense (8,904)
(10,538) (28,112) (24,456) Net interest income 25,686 24,540 77,835
58,693 Provision for loan losses (17,300) (14,400) (51,374)
(27,513) Net interest income after provision for loan losses 8,386
10,140 26,461 31,180 Other income 298 175 2,367 202 Goodwill and
other intangibles impairment charges (39,705) - (39,705) -
Operating expenses (12,978) (13,036) (39,018) (31,796) Net income
before tax (43,999) (2,721) (49,895) (414) Income tax (expense)
benefits (2,778) 1,108 (487) 150 Net (loss) income $(46,777)
$(1,613) $(50,382) $(264) Other indirect benefits derived from
Santander Financial Services Credit insurance commissions, net of
income tax $737 $1,040 $2,431 $2,126 Interest expense mark-up, net
of income tax $191 $773 $572 $1,808 Nine-Month Quarter Ended Period
Ended Other Selected Information Sep-07 Sep-06 Sep-07 Sep-06* Total
Assets $668,981 $772,375 $668,981 $772,375 Gross loans, net of
unearned income 607,624 638,246 607,624 638,246 Net loans 546,197
609,350 546,197 609,350 Allowance for loan losses 61,427 28,896
61,427 28,896 Non performing loans 37,039 27,052 37,039 27,052
Accruing loans past due 90 days or more 1,822 11,050 1,822 11,050
Net interest margin 18.39% 16.03% 17.50% 16.70% (*) includes seven
months of operations Financial Strength The following table
presents the major categories of non-performing loans, the
variances for the periods indicated and selected principal asset
quality ratios: Var Var Sep07/ Sep07/ Sep-07 Dec-06 Sep-06 Sep06
Dec06 ($ in thousands) Past-due loans excluding Island Finance: Non
performing loans: Residential Mortgage $46,626 $31,263 $30,008
$16,618 $15,363 Consumer 10,194 7,590 6,131 4,063 2,604 Commercial
and other 103,263 43,268 45,627 57,636 59,995 160,083 82,121 81,766
78,317 77,962 Accruing loans past- due 90 days or more 5,312 11,344
7,519 (2,207) (6,032) Total past due loans, excluding Consumer
Finance 165,395 93,465 89,285 76,110 71,930 Past-due loans Island
Finance: Consumer Finance - Non performing loans 37,039 24,731
27,052 9,987 12,308 Accruing loans past- due 90 days or more 1,822
9,594 11,050 (9,228) (7,772) Consumer Finance Past due loans 38,861
34,325 38,102 759 4,536 Total past-due loans $204,256 $127,790
$127,387 $76,869 $76,466 Non-performing loans to total loans 2.80%
1.54% 1.63% 117 bp 126 bp Allowance for loan losses to total loans
2.05% 1.54% 1.41% 64 bp 51 bp Allowance for loan losses to
Non-performing loans 73.33% 100.01% 86.53% -1320 bp -1320 bp
Annualized net-charge-offs to average loans 1.19% 0.93% 0.71% 48 bp
48 bp As of September 30, 2007, total capital to risk-adjusted
assets (BIS ratio) reached 10.69% and Tier I capital to
risk-adjusted assets and leverage ratios were 7.61% and 5.44%,
respectively. 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 nearly three decades. It
offers a full array of services through 61 branches in the areas of
commercial, mortgage and consumer banking, supported by a team of
over 1,100 employees. Santander Securities offers securities
brokerage services and provides portfolio management services
through its wholly owned subsidiary Santander Asset Management
Corporation. Santander Financial Services, Inc. offers consumer
finance products through its network of 69 branches throughout the
Island. Santander Insurance Agency offers life, health and
disability coverage as a corporate agent and also operates as a
general agent. For more information, visit the Company's website
athttp://www.santandernet.com/. Santander (SAN.MC, STD.N) is the
largest bank in the euro zone by market capitalization and seventh
in the world by profit. Founded in 1857, Santander has EUR 885,603
million in assets and EUR 1,071,815 million in managed funds, 69
million customers, 11,092 branches and a presence in 40 countries.
It is the largest financial group in Spain and Latin America, and
is the sixth largest bank in the United Kingdom, through its Abbey
subsidiary, and is the third largest banking group in Portugal.
Through Santander Consumer Finance, it also operates a leading in
12 European countries (Germany, Italy and Spain, among others) and
the United States. In the first half 2007, Santander registered
euro 4,458 million in net attributable profits, an increase of 39%
from the previous year. In Latin America, Santander manages over
US$200 billion in business volumes (loans, deposits, mutual funds,
pension funds and managed funds) through 4,481 offices. In the
first half 2007, Santander reported $1,807 million in net
attributable income in Latin America, 28% higher than the prior
year. This news release contains forward-looking statements that
are based on current expectations, estimates, forecasts and
projections about the industry in which the Company operates, its
beliefs and its management's assumptions. Words such as "expects,"
"anticipates," "targets," "goals," "projects," "intends," "plans,"
"believes," "seeks," "estimates" and variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed
or forecast in such forward-looking statements. Except as otherwise
required under federal securities laws and the rules and
regulations of the SEC, the Company does not have any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, changes in
assumptions or otherwise. DATASOURCE: Santander BanCorp CONTACT:
Maria Calero, +1-787-777-4437, or Evelyn Vega, +1-787-777-4546,
both of Santander BanCorp Web site: http://www.santandernet.com/
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