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SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Virginia | 23-2453088 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
75 State Street, Boston, Massachusetts | 02109 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number including area code
* | Registrant is not subject to the requirements of Rule 405 of Regulation S-T at this time. |
Large accelerated filero | Accelerated filero | Non-accelerated filerþ | Smaller reporting companyo |
Class | Outstanding at July 31, 2010 | |
Common Stock (no par value) | 514,107,043 shares |
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• | the strength of the United States economy in general and the strength of the regional and local economies in which SHUSA conducts operations, which may affect, among other things, the level of non-performing assets, charge-offs, and provision for credit losses; | ||
• | the effects of, or policies determined by the Federal Deposit Insurance Corporation, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; | ||
• | inflation, interest rate, market and monetary fluctuations, which may, among other things reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; | ||
• | adverse movements and volatility in debt and equity capital markets; | ||
• | adverse changes in the securities markets, including those related to the financial condition of significant issuers in our investment portfolio; | ||
• | revenue enhancement initiatives may not be successful in the marketplace or may result in unintended costs; | ||
• | changing market conditions may force us to alter the implementation or continuation of cost savings or revenue enhancement strategies; | ||
• | SHUSA’s timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers; | ||
• | the willingness of customers to substitute competitors’ products and services and vice versa; | ||
• | the ability of SHUSA and its third party vendors to convert and maintain SHUSA’s data processing and related systems on a timely and acceptable basis and within projected cost estimates; | ||
• | the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, capital, liquidity, proper accounting treatment, securities and insurance, and the application thereof by regulatory bodies and the impact of changes in and interpretation of generally accepted accounting principles in the United States; | ||
• | the “Dodd-Frank Wall Street Reform and Consumer Protection Act” enacted in July 2010 is a significant development for the industry. The true impact of this legislation to SHUSA and the industry will be unknown until the rulemaking process mandated by the legislation is complete, although the impact will involve higher compliance costs and certain elements, such as the debit interchange legislation, are likely to negatively affect our revenue and earnings. |
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(continued)
• | additional legislation and regulations may be enacted or promulgated in the future, and we are unable to predict the form such legislation or regulation may take or to the degree which we need to modify our businesses or operations to comply with such legislation or regulation (for example, proposed legislation has been introduced in Congress that would amend the Bankruptcy Code to permit modifications of certain mortgages that are secured by a Chapter 13 debtor’s principal residence); | ||
• | technological changes; | ||
• | competitors of SHUSA may have greater financial resources and develop products and technology that enable those competitors to compete more successfully than SHUSA; | ||
• | changes in consumer spending and savings habits; | ||
• | acts of terrorism or domestic or foreign military conflicts; and acts of God, including natural disasters; | ||
• | regulatory or judicial proceedings; | ||
• | changes in asset quality; | ||
• | the outcome of ongoing tax audits by federal, state and local income tax authorities may require additional taxes be paid by SHUSA as compared to what has been accrued or paid as of period end; | ||
• | the integration of SHUSA into the existing businesses of Santander or the integration may be more difficult, time consuming or costly than expected; | ||
• | the combined company may not realize, to the extent or at the time we expect, revenue synergies and cost savings from the transaction; | ||
• | deposit attrition, operating costs, customer losses and business disruptions following the acquisition of SHUSA by Santander, including difficulties in maintaining relationships with employees, could be greater than expected; and | ||
• | SHUSA’s success in managing the risks involved in the foregoing. |
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Ex-31.1 Certification | ||||||||
Ex-31.2 Certification | ||||||||
Ex-32.1 Certification | ||||||||
Ex-32.2 Certification |
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
ASSETS | ||||||||
Cash and amounts due from depository institutions | $ | 1,767,922 | $ | 2,323,290 | ||||
Investment securities: | ||||||||
Available-for-sale | 13,954,732 | 13,609,398 | ||||||
Other investments | 664,688 | 692,240 | ||||||
Loans held for investment | 58,295,047 | 57,552,177 | ||||||
Allowance for loan losses | (2,043,010 | ) | (1,818,224 | ) | ||||
Net loans held for investment | 56,252,037 | 55,733,953 | ||||||
Loans held for sale | 124,931 | 118,994 | ||||||
Premises and equipment, net | 494,142 | 477,812 | ||||||
Accrued interest receivable | 359,749 | 345,122 | ||||||
Goodwill | 4,124,351 | 4,135,540 | ||||||
Core deposit intangibles and other intangibles, net of accumulated amortization of $967,716 and $934,270 at June 30, 2010 and December 31, 2009, respectively | 218,895 | 245,641 | ||||||
Bank owned life insurance | 1,493,776 | 1,810,511 | ||||||
Other assets | 3,628,719 | 3,460,714 | ||||||
TOTAL ASSETS | $ | 83,083,942 | $ | 82,953,215 | ||||
LIABILITIES | ||||||||
Deposits and other customer accounts | $ | 41,437,988 | $ | 44,428,065 | ||||
Borrowings and other debt obligations | 28,867,412 | 27,235,151 | ||||||
Advance payments by borrowers for taxes and insurance | 108,360 | 87,445 | ||||||
Other liabilities | 2,141,148 | 1,815,019 | ||||||
TOTAL LIABILITIES | 72,554,908 | 73,565,680 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock; no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares outstanding at June 30, 2010 and at December 31, 2009 | 195,445 | 195,445 | ||||||
Common stock; no par value; 800,000,000 shares authorized; 514,107,043 shares issued at June 30, 2010 and 511,107,043 shares issued at December 31, 2009 | 11,147,355 | 10,397,214 | ||||||
Warrants and employee stock options issued | 285,435 | 285,435 | ||||||
Accumulated other comprehensive loss | (184,668 | ) | (349,869 | ) | ||||
Retained deficit | (914,533 | ) | (1,140,690 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 10,529,034 | 9,387,535 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 83,083,942 | $ | 82,953,215 | ||||
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Three-Month Period | Six-Month Period | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | ||||||||||||||||
INTEREST INCOME: | ||||||||||||||||
Interest on loans | $ | 1,033,179 | $ | 1,043,686 | $ | 2,044,404 | $ | 2,104,917 | ||||||||
Interest-earning deposits | 404 | 3,796 | 760 | 5,943 | ||||||||||||
Investment securities: | ||||||||||||||||
Available-for-sale | 123,047 | 80,743 | 237,274 | 168,291 | ||||||||||||
Other investments | 219 | 587 | 672 | 821 | ||||||||||||
TOTAL INTEREST INCOME | 1,156,849 | 1,128,812 | 2,283,110 | 2,279,972 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
Deposits and customer accounts | 54,923 | 180,412 | 123,215 | 396,810 | ||||||||||||
Borrowings and other debt obligations | 291,826 | 279,724 | 592,037 | 572,357 | ||||||||||||
TOTAL INTEREST EXPENSE | 346,749 | 460,136 | 715,252 | 969,167 | ||||||||||||
NET INTEREST INCOME | 810,100 | 668,676 | 1,567,858 | 1,310,805 | ||||||||||||
Provision for credit losses | 437,304 | 455,796 | 850,011 | 1,165,743 | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | 372,796 | 212,880 | 717,847 | 145,062 | ||||||||||||
NON-INTEREST INCOME: | ||||||||||||||||
Consumer banking fees | 141,146 | 89,931 | 232,781 | 170,802 | ||||||||||||
Commercial banking fees | 46,253 | 47,829 | 91,876 | 93,974 | ||||||||||||
Mortgage banking income/(loss) | 5,409 | 19,075 | 25,082 | (25,768 | ) | |||||||||||
Capital markets revenue | 3,852 | 4,742 | 8,227 | 1,452 | ||||||||||||
Bank owned life insurance | 13,547 | 15,991 | 27,092 | 30,918 | ||||||||||||
Miscellaneous income | 1,060 | 4,643 | 2,469 | 8,606 | ||||||||||||
TOTAL FEES AND OTHER INCOME | 211,267 | 182,211 | 387,527 | 279,984 | ||||||||||||
Total other-than-temporary impairment losses | (43,917 | ) | (65,489 | ) | (46,393 | ) | (246,513 | ) | ||||||||
Portion of loss recognized in other comprehensive income (before taxes) | 40,783 | 41,482 | 43,259 | 142,841 | ||||||||||||
Gains on the sale of investment securities | 46,028 | 534 | 72,355 | 2,502 | ||||||||||||
Net gain/(loss) on investment securities recognized in earnings | 42,894 | (23,473 | ) | 69,221 | (101,170 | ) | ||||||||||
TOTAL NON-INTEREST INCOME | 254,161 | 158,738 | 456,748 | 178,814 | ||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES: | ||||||||||||||||
Compensation and benefits | 158,605 | 176,705 | 324,776 | 380,968 | ||||||||||||
Occupancy and equipment expenses | 77,158 | 79,092 | 156,636 | 160,776 | ||||||||||||
Technology expense | 27,588 | 25,579 | 53,564 | 51,707 | ||||||||||||
Outside services | 30,317 | 29,686 | 57,491 | 55,301 | ||||||||||||
Marketing expense | 8,893 | 10,986 | 15,695 | 24,110 | ||||||||||||
Other administrative expenses | 65,936 | 48,158 | 123,250 | 102,308 | ||||||||||||
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES | 368,497 | 370,206 | 731,412 | 775,170 | ||||||||||||
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(continued)
Three-Month Period | Six-Month Period | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands) | ||||||||||||||||
OTHER EXPENSES: | ||||||||||||||||
Amortization of intangibles | $ | 16,673 | $ | 19,438 | $ | 33,446 | $ | 39,815 | ||||||||
Deposit insurance premiums | 23,460 | 54,468 | 47,302 | 76,110 | ||||||||||||
Equity method investments | 5,903 | 7,274 | 14,053 | 17,135 | ||||||||||||
Transaction related and integration charges and other restructuring costs | — | 70,513 | — | 235,088 | ||||||||||||
Loss on debt extinguishment | 2,251 | — | 3,368 | 68,733 | ||||||||||||
TOTAL OTHER EXPENSES | 48,287 | 151,693 | 98,169 | 436,881 | ||||||||||||
INCOME/(LOSS) BEFORE INCOME TAXES | 210,173 | (150,281 | ) | 345,014 | (888,175 | ) | ||||||||||
Income tax (benefit)/provision | 66,130 | (8,957 | ) | 107,810 | 20,282 | |||||||||||
NET INCOME/(LOSS) | $ | 144,043 | $ | (141,324 | ) | $ | 237,204 | $ | (908,457 | ) | ||||||
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Accumulated | Total | |||||||||||||||||||||||||||
Common | Warrants | Other | Retained | Stock- | ||||||||||||||||||||||||
Shares | Preferred | Common | & Stock | Comprehensive | Earnings | Holders’ | ||||||||||||||||||||||
Outstanding | Stock | Stock | Options | Loss | (Deficit) | Equity | ||||||||||||||||||||||
Balance, December 31, 2009 | 511,107 | $ | 195,445 | $ | 10,397,214 | $ | 285,435 | $ | (349,869 | ) | $ | (1,140,690 | ) | $ | 9,387,535 | |||||||||||||
Cumulative effect from change in accounting principle | — | — | — | — | — | (3,747 | ) | (3,747 | ) | |||||||||||||||||||
Balance, January 1, 2010 | 511,107 | $ | 195,445 | $ | 10,397,214 | $ | 285,435 | $ | (349,869 | ) | $ | (1,144,437 | ) | $ | 9,383,788 | |||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 237,204 | 237,204 | |||||||||||||||||||||
Change in unrealized gain/loss, net of tax: | ||||||||||||||||||||||||||||
Investment securities available-for-sale | — | — | — | — | 165,726 | — | 165,726 | |||||||||||||||||||||
Pension liabilities | — | — | — | — | 603 | — | 603 | |||||||||||||||||||||
Cash flow hedges | — | — | — | — | (1,128 | ) | — | (1,128 | ) | |||||||||||||||||||
Total comprehensive income | 402,405 | |||||||||||||||||||||||||||
Issuance of common stock to Parent | 3,000 | — | 750,000 | — | — | — | 750,000 | |||||||||||||||||||||
Stock issued in connection with employee benefit and incentive compensation plans | — | — | 141 | — | — | — | 141 | |||||||||||||||||||||
Dividends paid on preferred stock | — | — | — | — | — | (7,300 | ) | (7,300 | ) | |||||||||||||||||||
Balance, June 30, 2010 | 514,107 | $ | 195,445 | $ | 11,147,355 | $ | 285,435 | $ | (184,668 | ) | $ | (914,533 | ) | $ | 10,529,034 | |||||||||||||
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Six-Month Period | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income/(loss) | $ | 237,204 | $ | (908,457 | ) | |||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | ||||||||
Provision for credit losses | 850,011 | 1,165,743 | ||||||
Depreciation and amortization | 117,037 | 125,571 | ||||||
Net amortization/accretion of investment securities and loan premiums and discounts | (102,161 | ) | (243,770 | ) | ||||
Net gain on sale of loans | (13,683 | ) | (40,661 | ) | ||||
Net (gain)/loss on investment securities | (69,221 | ) | 101,170 | |||||
Loss on debt extinguishments | 3,368 | 68,733 | ||||||
Net loss on real estate owned and premises and equipment | 7,529 | 4,387 | ||||||
Stock-based compensation | 1,395 | 47,323 | ||||||
Remittance to Parent for stock-based compensation | (877 | ) | — | |||||
Origination and purchases of loans held for sale, net of repayments | (484,382 | ) | (4,428,678 | ) | ||||
Proceeds from sales of loans held for sale | 488,276 | 3,677,147 | ||||||
Net change in: | ||||||||
Accrued interest receivable | (5,736 | ) | 8,678 | |||||
Other assets and bank owned life insurance | 192,380 | 409,755 | ||||||
Other liabilities | 197,553 | (61,667 | ) | |||||
Net cash provided by / (used in) operating activities | 1,418,693 | (74,726 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Adjustments to reconcile net cash (used in)/provided by investing activities: | ||||||||
Proceeds from sales of investment securities: | ||||||||
Available-for-sale | 1,996,969 | 2,573,312 | ||||||
Proceeds from repayments and maturities of investment securities: | ||||||||
Available-for-sale | 2,569,262 | 3,594,232 | ||||||
Net change in other investments | 27,552 | 23,488 | ||||||
Purchases of available-for-sale investment securities | (3,648,265 | ) | (6,766,122 | ) | ||||
Proceeds from sales of loans held for investment | 4,583 | 38,498 | ||||||
Purchase of loans | (3,232,447 | ) | (1,234,828 | ) | ||||
Net change in loans other than purchases and sales | 1,107,226 | 4,641,771 | ||||||
Proceeds from sales of premises and equipment | 1,794 | 2,328 | ||||||
Purchases of premises and equipment | (60,988 | ) | (15,668 | ) | ||||
Proceeds from sales of real estate owned | 27,158 | 25,026 | ||||||
Cash received from contribution of subsidiary | — | 23,300 | ||||||
Net cash (used in)/provided by investing activities | (1,207,156 | ) | 2,905,337 | |||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Month Period | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Adjustments to reconcile net cash provided by financing activities: | ||||||||
Net (decrease)/increase in deposits and other customer accounts | $ | (2,990,077 | ) | $ | 827,229 | |||
Net increase/(decrease) in borrowings | 1,163,920 | (3,661,262 | ) | |||||
Net proceeds from senior notes, subordinated notes and credit facility | 3,370,700 | 1,187,852 | ||||||
Repayments of borrowings and other debt obligations | (3,075,063 | ) | (1,933,642 | ) | ||||
Net increase in advance payments by borrowers for taxes and insurance | 20,915 | 13,446 | ||||||
Cash dividends paid to preferred stockholders | (7,300 | ) | (7,300 | ) | ||||
Proceeds from the issuance of common stock, net of transaction costs | 750,000 | — | ||||||
Proceeds from issuance of preferred stock | — | 1,800,000 | ||||||
Net cash (used in)/ provided by financing activities | (766,905 | ) | (1,773,677 | |||||
Net change in cash and cash equivalents | (555,368 | ) | 1,056,934 | |||||
Cash and cash equivalents at beginning of period | 2,323,290 | 3,754,523 | ||||||
Cash and cash equivalents at end of period | $ | 1,767,922 | $ | 4,811,457 | ||||
Six-Month Period | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
(in thousands) | ||||||||
Supplemental Disclosures: | ||||||||
Net income taxes (refunded)/paid | $ | 138,375 | $ | 67,368 | ||||
Interest paid | $ | 711,612 | $ | 911,450 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
June 30, 2010 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Appreciation | Depreciation | Value | |||||||||||||
Investment Securities: | ||||||||||||||||
U.S. Treasury and government agency securities | $ | 12,997 | $ | — | $ | — | $ | 12,997 | ||||||||
Debentures of FHLB, FNMA, and FHLMC | 24,209 | 803 | — | 25,012 | ||||||||||||
Corporate debt and asset-backed securities | 6,882,153 | 190,094 | 17,293 | 7,054,954 | ||||||||||||
Equity securities | 2,579 | 181 | 1 | 2,759 | ||||||||||||
State and municipal securities | 2,584,454 | 43,903 | 37,895 | 2,590,462 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
U.S. government agencies | 7,186 | 114 | — | 7,300 | ||||||||||||
FHLMC and FNMA debt securities | 2,445,072 | 51,756 | 3,928 | 2,492,900 | ||||||||||||
Non-agency securities | 2,007,542 | 3 | 239,197 | 1,768,348 | ||||||||||||
Total investment securities available-for-sale | $ | 13,966,192 | $ | 286,854 | $ | 298,314 | $ | 13,954,732 | ||||||||
December 31, 2009 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Appreciation | Depreciation | Value | |||||||||||||
Investment Securities: | ||||||||||||||||
U.S. Treasury and government agency securities | $ | 364,596 | $ | 116 | $ | 102 | $ | 364,610 | ||||||||
Debentures of FHLB, FNMA, and FHLMC | 1,848,401 | 992 | 1,170 | 1,848,223 | ||||||||||||
Corporate debt and asset-backed securities | 6,652,059 | 117,232 | 12,119 | 6,757,172 | ||||||||||||
Equity securities | 2,579 | 181 | 1 | 2,759 | ||||||||||||
State and municipal securities | 1,836,589 | 14,434 | 48,597 | 1,802,426 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
U.S. government agencies | 1,098 | 21 | 2 | 1,117 | ||||||||||||
FHLMC and FNMA debt securities | 962,465 | 4,876 | 6,184 | 961,157 | ||||||||||||
Non-agency securities | 2,230,114 | 1 | 358,181 | 1,871,934 | ||||||||||||
Total investment securities available-for-sale | $ | 13,897,901 | $ | 137,853 | $ | 426,356 | $ | 13,609,398 | ||||||||
At June 30, 2010 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
Investment Securities | ||||||||||||||||||||||||
Corporate debt and asset-backed securities | $ | 1,259,183 | (10,108 | ) | $ | 56,315 | $ | (7,185 | ) | $ | 1,315,498 | $ | (17,293 | ) | ||||||||||
Equity securities | 253 | (1 | ) | — | — | 253 | (1 | ) | ||||||||||||||||
State and municipal securities | 231,767 | (1,927 | ) | 479,137 | (35,968 | ) | 710,904 | (37,895 | ) | |||||||||||||||
Mortgage-backed Securities: | ||||||||||||||||||||||||
FHLMC and FNMA debt securities | 493,087 | (3,927 | ) | 494 | (1 | ) | 493,581 | (3,928 | ) | |||||||||||||||
Non-agency securities | 9 | — | 1,767,807 | (239,197 | ) | 1,767,816 | (239,197 | ) | ||||||||||||||||
Total investment securities available-for-sale | $ | 1,984,299 | $ | (15,963 | ) | $ | 2,303,753 | $ | (282,351 | ) | $ | 4,288,052 | $ | (298,314 | ) | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
At December 31, 2009 | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
Investment Securities | ||||||||||||||||||||||||
U.S. Treasury and government agency securities | $ | 199,714 | $ | (102 | ) | $ | — | $ | — | $ | 199,714 | $ | (102 | ) | ||||||||||
Debentures of FHLB, FNMA and FHLMC | 1,250,970 | (1,170 | ) | — | — | 1,250,970 | (1,170 | ) | ||||||||||||||||
Corporate debt and asset-backed securities | 1,118,889 | (4,641 | ) | 53,929 | (7,478 | ) | 1,172,818 | (12,119 | ) | |||||||||||||||
Equity securities | — | — | 253 | (1 | ) | 253 | (1 | ) | ||||||||||||||||
State and municipal securities | 316,746 | (3,243 | ) | 508,333 | (45,354 | ) | 825,079 | (48,597 | ) | |||||||||||||||
Mortgage-backed Securities: | ||||||||||||||||||||||||
U.S. government agencies | 130 | (2 | ) | — | — | 130 | (2 | ) | ||||||||||||||||
FHLMC and FNMA debt securities | 729,843 | (6,179 | ) | 1,468 | (5 | ) | 731,311 | (6,184 | ) | |||||||||||||||
Non-agency securities | 11 | (1 | ) | 1,874,562 | (358,180 | ) | 1,874,573 | (358,181 | ) | |||||||||||||||
Total investment securities available-for-sale | $ | 3,616,303 | $ | (15,338 | ) | $ | 2,438,545 | $ | (411,018 | ) | $ | 6,054,848 | $ | (426,356 | ) | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Six Months | Six Months | |||||||
Ending | Ending | |||||||
June 30, 2010 | June 30, 2009 | |||||||
Beginning balance at December 31, 2009 and December 31, 2008 | $ | 206,155 | $ | 62,834 | ||||
Additions for amount related to credit loss for which an other-than-temporary-impairment was not previously recognized | 3,134 | 28,206 | ||||||
Reductions for securities sold during the period | — | — | ||||||
Reductions for increases in cash flows expected to be collected and recognized over the remaining life of security (1) | (51,293 | ) | — | |||||
Additional increases to credit losses for previously recognized other-than-temporary-impairment charges when there is no intent to sell the security | — | 38,591 | ||||||
Ending balance at June 30, 2010 and June 30, 2009 | $ | 157,996 | $ | 129,631 | ||||
(1) | For the six-month period ended June 30, 2010, SHUSA accreted into interest income $3.0 million of the expected increase in cash flow on certain non-agencies securities. The reason for the $51.3 million improvement in anticipated credit losses was due to increased prepayment speed assumptions from reduced mortgage interest rates during the first half of 2010 as well as an improvement in expected losses. |
June 30, 2010 | December 31, 2009 | |||||||
Loss severity | 49.18 | % | 49.45 | % | ||||
Expected cumulative loss percentage | 46.77 | % | 32.15 | % | ||||
Cumulative loss percentage to date | 3.61 | % | 3.01 | % | ||||
Weighted average FICO | 711 | 711 | ||||||
Weighted average LTV | 68.5 | % | 70.1 | % |
Amortized | Fair | |||||||
Cost | Value | |||||||
Due within one year | $ | 432,884 | $ | 432,892 | ||||
Due after 1 within 5 years | 4,055,863 | 4,151,227 | ||||||
Due after 5 within 10 years | 2,542,412 | 2,628,133 | ||||||
Due after 10 years/ no maturity | 6,935,033 | 6,742,480 | ||||||
Total | $ | 13,966,192 | $ | 13,954,732 | ||||
13
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
June 30, 2010 | December 31, 2009 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Commercial real estate loans | $ | 11,871,228 | 20.4 | % | $ | 12,453,575 | 21.6 | % | ||||||||
Commercial and industrial loans | 11,047,111 | 19.0 | 10,754,692 | 18.7 | ||||||||||||
Multi-family loans | 5,355,679 | 9.2 | 4,588,403 | 8.0 | ||||||||||||
Other | 1,273,700 | 2.2 | 1,317,204 | 2.3 | ||||||||||||
Total commercial loans held for investment | 29,547,718 | 50.8 | 29,113,874 | 50.6 | ||||||||||||
Residential mortgages | 10,726,754 | 18.4 | 10,607,626 | 18.4 | ||||||||||||
Home equity loans and lines of credit | 7,019,725 | 12.0 | 7,069,491 | 12.3 | ||||||||||||
Total consumer loans secured by real estate | 17,746,479 | 30.4 | 17,677,117 | 30.7 | ||||||||||||
Auto loans | 10,741,640 | 18.4 | 10,496,510 | 18.2 | ||||||||||||
Other | 259,210 | 0.4 | 264,676 | 0.5 | ||||||||||||
Total consumer loans held for investment | 28,747,329 | 49.2 | 28,438,303 | 49.4 | ||||||||||||
Total loans held for investment (1) | $ | 58,295,047 | 100.0 | % | $ | 57,552,177 | 100.0 | % | ||||||||
Total loans held for investment with: | ||||||||||||||||
Fixed rate | $ | 34,537,817 | 59.2 | % | $ | 33,667,940 | 58.5 | % | ||||||||
Variable rate | 23,757,230 | 40.8 | 23,884,237 | 41.5 | ||||||||||||
Total loans held for investment (1) | $ | 58,295,047 | 100.0 | % | $ | 57,552,177 | 100.0 | % | ||||||||
(1) | Total loans held for investment includes deferred loan origination costs, net of deferred loan fees and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net decrease in loans of $477.6 million and $382.6 million at June 30, 2010 and December 31, 2009, respectively. The reason for the variance was primarily due discounts related to loans acquired by SCUSA during the first quarter of 2010. Loans pledged as collateral for borrowings totaled $40.7 billion and $35.9 billion at June 30, 2010 and December 31, 2009, respectively. |
14
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Three-Month Period | Six-Month Period | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Allowance for loan losses, beginning of period | $ | 1,932,360 | $ | 1,687,432 | $ | 1,818,224 | $ | 1,102,753 | ||||||||
Acquired allowance for loan losses due to SCUSA contribution from Parent | — | — | — | 347,302 | ||||||||||||
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets | (19,653 | ) | — | 5,991 | — | |||||||||||
Charge-offs: | ||||||||||||||||
Commercial | 176,864 | 67,852 | 351,468 | 151,707 | ||||||||||||
Consumer secured by real estate | 36,784 | 23,196 | 65,717 | 49,010 | ||||||||||||
Consumer not secured by real estate | 151,189 | 227,390 | 380,629 | 578,318 | ||||||||||||
Total Charge-offs | 364,837 | 318,438 | 797,814 | 779,035 | ||||||||||||
Recoveries: | ||||||||||||||||
Commercial | 17,452 | 2,145 | 27,332 | 5,121 | ||||||||||||
Consumer secured by real estate | 293 | 3,216 | 773 | 5,617 | ||||||||||||
Consumer not secured by real estate | 60,525 | 73,898 | 139,438 | 164,165 | ||||||||||||
Total Recoveries | 78,270 | 79,259 | 167,543 | 174,903 | ||||||||||||
Charge-offs, net of recoveries | 286,567 | 239,179 | 630,271 | 604,132 | ||||||||||||
Provision for loan losses (1) | 416,870 | 424,914 | 849,066 | 1,027,244 | ||||||||||||
Allowance for loan losses, end of period | 2,043,010 | 1,873,167 | 2,043,010 | 1,873,167 | ||||||||||||
Reserve for unfunded lending commitments, beginning of period | 239,651 | 172,780 | 259,140 | 65,162 | ||||||||||||
Provision for unfunded lending commitments (1) | 20,434 | 30,882 | 945 | 138,500 | ||||||||||||
Reserve for unfunded lending commitments, end of period | 260,085 | 203,662 | 260,085 | 203,662 | ||||||||||||
Total allowance for credit losses, end of period | $ | 2,303,095 | $ | 2,076,829 | $ | 2,303,095 | $ | 2,076,829 | ||||||||
(1) | SHUSA defines the provision for credit losses on the consolidated statement of operations as the sum of the total provision for loan losses and provision for unfunded lending commitments. |
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Non-accrual loans: | ||||||||
Consumer: | ||||||||
Residential mortgages | $ | 626,849 | $ | 617,918 | ||||
Home equity loans and lines of credit | 120,967 | 117,390 | ||||||
Auto loans and other consumer loans | 351,556 | 535,902 | ||||||
Total consumer loans | 1,099,372 | 1,271,210 | ||||||
Commercial | 580,075 | 654,322 | ||||||
Commercial real estate | 795,387 | 823,766 | ||||||
Multi-family | 333,085 | 381,999 | ||||||
Total commercial loans | 1,708,547 | 1,860,087 | ||||||
Total non-performing loans | 2,807,919 | 3,131,297 | ||||||
Other real estate owned | 105,498 | 73,734 | ||||||
Other repossessed assets | 55,516 | 44,346 | ||||||
Total other real estate owned and other repossessed assets | 161,014 | 118,080 | ||||||
Total non-performing assets | $ | 2,968,933 | $ | 3,249,377 | ||||
15
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Impaired loans with a related allowance | $ | 1,817,892 | $ | 1,193,095 | ||||
Impaired loans without a related allowance | 354,490 | 283,652 | ||||||
Total impaired loans | $ | 2,172,382 | $ | 1,476,747 | ||||
Allowance for impaired loans | $ | 454,933 | $ | 363,059 | ||||
Total loans past due 90 days as to interest or principal and accruing interest | $ | 22,747 | $ | 27,321 | ||||
Contractual | Nonaccretable | Accretable | Carrying | |||||||||||||
Receivable Amount | Yield | Yield | Amount | |||||||||||||
Balance at January 1, 2010 | $ | 2,042,594 | $ | (225,949 | ) | $ | (35,207 | ) | $ | 1,781,438 | ||||||
Additions (Loans acquired during the period) | 1,451,771 | (147,201 | ) | 34,370 | 1,338,940 | |||||||||||
Customer repayments | (560,765 | ) | — | — | (560,765 | ) | ||||||||||
Charge-offs | (72,020 | ) | 72,020 | — | — | |||||||||||
Accretion of loan discount | — | — | 1,938 | 1,938 | ||||||||||||
Balance at June 30, 2010 | $ | 2,861,580 | $ | (301,130 | ) | $ | 1,101 | $ | 2,561,551 | |||||||
June 30, 2010 | December 31, 2009 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Amount | Percent | Rate | Amount | Percent | Rate | |||||||||||||||||||
Demand deposit accounts | $ | 7,152,161 | 17.3 | % | — | % | $ | 7,237,730 | 16.3 | % | — | % | ||||||||||||
NOW accounts | 5,559,451 | 13.4 | 0.15 | 5,703,789 | 12.8 | 0.16 | ||||||||||||||||||
Money market accounts | 13,554,087 | 32.7 | 0.59 | 13,158,001 | 29.6 | 0.82 | ||||||||||||||||||
Savings accounts | 3,616,185 | 8.7 | 0.10 | 3,537,983 | 8.0 | 0.14 | ||||||||||||||||||
Certificates of deposit | 6,918,990 | 16.7 | 1.44 | 8,515,350 | 19.2 | 1.64 | ||||||||||||||||||
Total retail and commercial deposits | 36,800,874 | 88.8 | 0.52 | 38,152,853 | 85.9 | 0.69 | ||||||||||||||||||
Wholesale NOW accounts | 118,270 | 0.3 | 0.34 | 27,570 | 0.1 | 0.50 | ||||||||||||||||||
Wholesale money market accounts | — | — | — | 486,944 | 1.1 | 0.19 | ||||||||||||||||||
Wholesale certificates of deposit | 648,184 | 1.5 | 2.27 | 1,724,841 | 3.8 | 2.20 | ||||||||||||||||||
Total wholesale deposits | 766,454 | 1.8 | 1.97 | 2,239,355 | 5.0 | 1.74 | ||||||||||||||||||
Government deposits | 2,218,721 | 5.4 | 0.34 | 2,231,752 | 5.0 | 0.14 | ||||||||||||||||||
Customer repurchase agreements | 1,651,939 | 4.0 | 0.22 | 1,804,105 | 4.1 | 0.22 | ||||||||||||||||||
Total deposits | $ | 41,437,988 | 100.0 | % | 0.53 | % | $ | 44,428,065 | 100.0 | % | 0.69 | % | ||||||||||||
16
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
June 30, 2010 | December 31, 2009 | |||||||||||||||
Effective | Effective | |||||||||||||||
Balance | Rate | Balance | Rate | |||||||||||||
Sovereign Bank borrowings and other debt obligations: | ||||||||||||||||
Securities sold under repurchase agreements | $ | 1,127,468 | 0.29 | % | $ | — | — | % | ||||||||
Fed funds purchased | 1,042,000 | 0.10 | 1,000,000 | 0.25 | ||||||||||||
FHLB advances | 12,047,624 | 4.02 | 12,056,294 | 2.64 | ||||||||||||
Reit preferred | 146,833 | 14.21 | 146,115 | 14.34 | ||||||||||||
Senior notes | 1,347,234 | 3.92 | 1,346,373 | 3.92 | ||||||||||||
Subordinated notes | 1,463,539 | 6.12 | 1,663,399 | 5.84 | ||||||||||||
Holding company borrowings and other debt obligations: | ||||||||||||||||
SCUSA unsecured note, due December 2010 | 153,000 | 2.23 | 28,000 | 4.48 | ||||||||||||
SCUSA subordinated revolving credit facility, due December 2010 | 100,000 | 2.10 | 100,000 | 3.23 | ||||||||||||
SCUSA subordinated revolving credit facility, due December 2010 | — | — | 117,000 | 4.24 | ||||||||||||
SCUSA warehouse line with Wells Fargo & Co., due May 2011 | 684,700 | 1.36 | 1,000,000 | 2.01 | ||||||||||||
SCUSA warehouse lines with Santander and related subsidiaries | 3,445,904 | 1.86 | 4,031,267 | 1.94 | ||||||||||||
SCUSA warehouse line with Credit Suisse, due March 2011 | 249,903 | 1.28 | — | — | ||||||||||||
SCUSA warehouse line with JP Morgan Chase, due May 2011 | 486,100 | 1.31 | — | — | ||||||||||||
4.80% senior notes, due September 2010 | 299,947 | 4.80 | 299,788 | 4.80 | ||||||||||||
4.90% senior notes, due September 2010 | 249,497 | 4.91 | 248,393 | 4.93 | ||||||||||||
2.50% senior notes, due June 2012 | 249,111 | 3.73 | 248,895 | 3.73 | ||||||||||||
Floating rate senior notes, due July 2010 | 375,000 | 0.70 | — | — | ||||||||||||
Floating rate senior notes, due March 2010 | — | — | 299,956 | 0.48 | ||||||||||||
Santander Puerto Rico fixed rate senior notes, due February 2010 | — | — | 250,000 | 0.61 | ||||||||||||
Subordinated notes | 750,534 | 5.96 | — | — | ||||||||||||
TALF loan | 256,469 | 2.22 | 320,133 | 2.13 | ||||||||||||
Asset-backed notes | 3,211,554 | 3.30 | 1,929,706 | 4.49 | ||||||||||||
Credit facilities | — | — | 890,000 | 0.30 | ||||||||||||
Junior subordinated debentures due to Capital Trust Entities | 1,180,995 | 6.53 | 1,259,832 | 6.46 | ||||||||||||
Total borrowings and other debt obligations | $ | 28,867,412 | 3.51 | % | $ | 27,235,151 | 2.99 | % | ||||||||
17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
18
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Notional | Receive | Pay | Life | |||||||||||||||||||||
Amount | Asset | Liability | Rate | Rate | (Years) | |||||||||||||||||||
June 30, 2010 | ||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Pay fixed — receive floating interest rate swaps | $ | 7,267,103 | $ | — | $ | 230,745 | 2.43 | % | 1.31 | % | 2.6 | |||||||||||||
December 31, 2009 | ||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Pay fixed — receive floating interest rate swaps | $ | 6,565,898 | $ | — | $ | 204,034 | 0.56 | % | 3.86 | % | 2.0 |
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Asset | Asset | |||||||
(Liability) | (Liability) | |||||||
Mortgage banking derivatives: | ||||||||
Forward commitments to sell loans | $ | (4,722 | ) | $ | 2,013 | |||
Interest rate lock commitments | 5,009 | 325 | ||||||
Total mortgage banking risk management | 287 | 2,338 | ||||||
Swaps receive fixed | 365,953 | 266,770 | ||||||
Swaps pay fixed | (361,783 | ) | (266,355 | ) | ||||
Net customer related interest rate hedges | 4,170 | 415 | ||||||
VISA total return swap | (5,240 | ) | — | |||||
Precious metals forward sale agreements | 67 | 1,421 | ||||||
Precious metals forward purchase arrangements | (67 | ) | (1,421 | ) | ||||
Foreign exchange contracts | 5,144 | 5,852 | ||||||
Total | $ | 4,361 | $ | 8,605 | ||||
19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Balance Sheet Effect at | Income Statement Effect For The Six Months Ended | |||
Derivative Activity | June 30, 2010 | June 30, 2010 | ||
Cash flow hedges: | ||||
Pay fixed-receive variable interest rate swaps | Increases to other liabilities and deferred taxes of $230.7 million and $85.2 million, respectively, and a decrease to stockholders’ equity of $137.7 million. | Decrease in net interest income of $160.6 million. | ||
Other hedges: | ||||
Forward commitments to sell loans | Decrease to other liabilities of $4.7 million. | Decrease in mortgage banking revenues of $6.7 million. | ||
Interest rate lock commitments | Increase to mortgage loans of $5.0 million. | Increase in mortgage banking revenues of $4.7 million. | ||
Net customer related hedges | Increase to other assets of $4.2 million. | Increase in capital markets revenue of $3.8 million. | ||
Total return swap associated with sale of Visa, Inc. Class B. shares | Increase to other liabilities of $5.2 million | Decrease in other non-interest income of $5.2 million | ||
Forward commitments to sell and purchase precious metals inventory | Insignificant balance sheet effect at June 30, 2010. | No income statement effect. | ||
Foreign exchange | Increase to other assets of $5.1 million. | Decrease in commercial banking fees of $0.7 million. |
Balance Sheet Effect at | Income Statement Effect For The Six Months Ended | |||
Derivative Activity | December 31, 2009 | June 30, 2009 | ||
Fair value hedges: | ||||
Receive fixed-pay variable interest rate swaps | No derivative positions designated in fair value hedging relationships as of December 31, 2009. | Increase in net interest income of $1.2 million. | ||
Cash flow hedges: | ||||
Pay fixed-receive variable interest rate swaps | Increases to other liabilities and deferred taxes of $204.0 million and $74.2 million, respectively and a net decrease to stockholders’ equity of $129.8 million. | Decrease in net interest income of $138.2 million. | ||
Other hedges: | ||||
Forward commitments to sell loans | Increase to other assets of $2.0 million. | Increase in mortgage banking revenues of $21.6 million. | ||
Interest rate lock commitments | Increase to mortgage loans of $0.3 million. | Decrease in mortgage banking revenues of $4.8 million. | ||
Net customer related hedges | Increase to other assets of $0.4 million. | Decrease in capital markets revenue of $5.3 million. | ||
Forward commitments to sell and purchase precious metals inventory | Insignificant balance sheet effect at December 31, 2009. | Decrease in commercial banking fees of $0.9 million. | ||
Foreign exchange | Increase to other assets of $5.9 million. | Decrease in commercial banking fees of $0.9 million. |
20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Three-Month Period | Six-Month Period | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income | $ | 144,043 | $ | (141,324 | ) | $ | 237,204 | $ | (908,457 | ) | ||||||
Change in accumulated (losses)/gains on cash flow hedge derivative financial instruments, net of tax | (18,191 | ) | (41,637 | ) | (5,806 | ) | (4,589 | ) | ||||||||
Change in unrealized gains/(losses) on investment securities available-for-sale, net of tax | 156,997 | 194,613 | 209,751 | 184,679 | ||||||||||||
Less reclassification adjustment, net of tax: | ||||||||||||||||
Derivative instruments | (2,353 | ) | (5,499 | ) | (4,678 | ) | (11,015 | ) | ||||||||
Pensions | (301 | ) | (389 | ) | (603 | ) | (1,185 | ) | ||||||||
Investments available-for-sale | 27,281 | (14,929 | ) | 44,025 | (64,344 | ) | ||||||||||
Comprehensive income/(loss) | $ | 258,222 | $ | 32,469 | $ | 402,405 | $ | (651,823 | ) | |||||||
Gross balance as of December 31, 2009 | $ | 179,643 | ||
Mortgage servicing assets recognized | 16,646 | |||
Amortization | (23,895 | ) | ||
Gross balance at June 30, 2010 | 172,394 | |||
Valuation allowance | (41,228 | ) | ||
Balance as June 30, 2010 | $ | 131,166 | ||
June 30, 2010 | March 31, 2010 | December 31, 2009 | June 30, 2009 | |||||||||||||
CPR | 22.88 | % | 21.56 | % | 24.44 | % | 24.44 | % | ||||||||
Escrow credit spread | 2.88 | % | 3.06 | % | 3.17 | % | 3.70 | % |
21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Balance as of December 31, 2009 | $ | 52,089 | ||
Net decrease in valuation allowance for mortgage servicing rights | (10,861 | ) | ||
Balance as June 30, 2010 | $ | 41,228 | ||
22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
For the three-month period ended | Specialized | Middle | ||||||||||||||||||||||
June 30, 2010 | Retail | Business(1) | Market | SCUSA | Other (3) | Total | ||||||||||||||||||
Net interest income/(expense) | $ | 181,287 | $ | 65,577 | $ | 87,144 | $ | 401,317 | $ | 74,775 | $ | 810,100 | ||||||||||||
Fees and other income | 111,981 | 9,473 | 16,750 | 53,538 | 19,525 | 211,267 | ||||||||||||||||||
Provision for credit losses | 72,446 | 94,754 | 42,540 | 241,404 | (13,840 | ) | 437,304 | |||||||||||||||||
General and administrative expenses | 241,017 | 23,654 | 32,641 | 81,501 | (10,316 | ) | 368,497 | |||||||||||||||||
Income/(loss) before income taxes(1) | (25,343 | ) | (43,423 | ) | 25,849 | 130,192 | 122,898 | 210,173 | ||||||||||||||||
Intersegment revenue/(expense)(2) | (29,672 | ) | (135,132 | ) | (18,739 | ) | — | 183,543 | — | |||||||||||||||
Total average assets | $ | 22,354,524 | $ | 15,526,101 | $ | 11,506,907 | $ | 9,985,339 | $ | 22,971,481 | $ | 82,344,352 |
For the six-month period ended | Specialized | Middle | ||||||||||||||||||||||
June 30, 2010 | Retail | Business(1) | Market | SCUSA | Other (3) | Total | ||||||||||||||||||
Net interest income/(expense) | $ | 356,795 | $ | 133,502 | $ | 173,164 | $ | 760,542 | $ | 143,855 | $ | 1,567,858 | ||||||||||||
Fees and other income | 230,404 | 19,109 | 34,850 | 67,821 | 35,343 | 387,527 | ||||||||||||||||||
Provision for credit losses | 138,018 | 198,295 | 73,964 | 447,111 | (7,377 | ) | 850,011 | |||||||||||||||||
General and administrative expenses | 484,039 | 48,206 | 64,219 | 154,586 | (19,638 | ) | 731,412 | |||||||||||||||||
Income/(loss) before income taxes(1) | (59,387 | ) | (94,151 | ) | 64,589 | 223,987 | 209,976 | 345,014 | ||||||||||||||||
Intersegment revenue/(expense)(2) | (55,046 | ) | (276,244 | ) | (37,815 | ) | — | 369,105 | — | |||||||||||||||
Total average assets | $ | 21,993,955 | $ | 15,491,339 | $ | 11,470,338 | $ | 9,385,569 | $ | 24,358,996 | $ | 82,700,197 |
For the three-month period ended | Specialized | Middle | ||||||||||||||||||||||
June 30, 2009 | Retail | Business(1) | Market | SCUSA | Other (3) | Total | ||||||||||||||||||
Net interest income/(expense) | $ | 155,828 | $ | 85,260 | $ | 77,846 | $ | 343,068 | $ | 6,674 | $ | 668,676 | ||||||||||||
Fees and other income | 135,620 | (2,103 | ) | 13,849 | 6,476 | 28,369 | 182,211 | |||||||||||||||||
Provision for credit losses | 38,957 | 142,397 | 44,498 | 218,796 | 11,148 | 455,796 | ||||||||||||||||||
General and administrative expenses | 265,830 | 25,251 | 33,515 | 51,698 | (6,088 | ) | 370,206 | |||||||||||||||||
Income/(loss) before income taxes(1) | (62,462 | ) | (85,789 | ) | 7,012 | 78,691 | (87,733 | ) | (150,281 | ) | ||||||||||||||
Intersegment revenue/(expense)(2) | 29,022 | (170,743 | ) | (32,689 | ) | — | 174,410 | — | ||||||||||||||||
Total average assets | $ | 22,375,812 | $ | 20,045,966 | $ | 12,600,695 | $ | 6,621,336 | $ | 22,438,095 | $ | 84,081,904 |
For the six-month period ended | Specialized | Middle | ||||||||||||||||||||||
June 30, 2009 | Retail | Business(1) | Market | SCUSA | Other (3) | Total | ||||||||||||||||||
Net interest income/(expense) | $ | 282,308 | $ | 169,703 | $ | 153,165 | $ | 676,128 | $ | 29,501 | $ | 1,310,805 | ||||||||||||
Fees and other income | 235,170 | (43,471 | ) | 26,389 | 13,647 | 48,249 | 279,984 | |||||||||||||||||
Provision for credit losses | 77,014 | 280,109 | 182,444 | 423,743 | 202,433 | 1,165,743 | ||||||||||||||||||
General and administrative expenses | 557,353 | 55,411 | 70,910 | 106,483 | (14,987 | ) | 775,170 | |||||||||||||||||
Income/(loss) before income taxes(1) | (187,411 | ) | (210,776 | ) | (81,739 | ) | 158,829 | (567,078 | ) | (888,175 | ) | |||||||||||||
Intersegment revenue/(expense)(2) | 43,994 | (350,432 | ) | (68,417 | ) | — | 374,855 | — | ||||||||||||||||
Total average assets | $ | 22,661,320 | $ | 20,837,612 | $ | 12,886,725 | $ | 6,440,361 | $ | 20,745,017 | $ | 83,571,035 |
(1) | The Retail Segment fees and other income includes residential servicing right (impairments)/ recoveries of $(3.8) million and $10.9 million for the three months and six months ended June 30, 2010, compared to a recovery of $16.3 million and an impairment charge of $1.3 million in the corresponding periods in the prior year. The Retail Segment income/(loss) before income taxes also includes an additional deposit premium assessment of $35.3 million in the second quarter of 2009. The Specialized Business Segment fees and other income includes charges of $21.9 million and $70.0 million associated with increasing multi-family recourse reserves for loans sold to Fannie Mae for the three and six months ended June 30, 2009. See Note 8 for further discussion on these items. | |
(2) | Intersegment revenue/ (expense) represent charges or credits for funds used or provided by each of the segments and are included in net interest income. | |
(3) | Included in Other for the three months and six months ended June 30, 2009 were other-than-temporary-impairment charges of $24.0 million and $103.7 million on FNMA and FHLMC preferred stock and non-agency mortgage backed securities. Prior year results also included net transaction related and integration charges and other restructuring costs, severance and debt extinguishment charges of $70.5 million and $303.8 million for the three months and six months ended June 30, 2009, respectively. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Gross unrecognized tax benefits at December 31, 2009 | $ | 97,048 | ||
Additions based on tax positions related to the current year | 520 | |||
Additions based on tax positions related to prior years | 932 | |||
Settlements | (586 | ) | ||
Reductions based on tax positions related to prior years | (696 | ) | ||
Gross unrecognized tax benefits at June 30, 2010 | 97,218 | |||
Less: Federal, state and local income tax benefits | (16,001 | ) | ||
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of June 30, 2010 | $ | 81,217 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
• | Nw Services Co., a Santander affiliate doing business as Aquanima, is under contract with Sovereign Bank to provide procurement services, with fees paid in the second quarter of 2010 in the amount of $0.4 million. |
• | Geoban, S.A., a Santander affiliate, is under contract with Sovereign Bank to provide services in the form of debit card disputes and claims support, and consumer and mortgage loan set-up and review. There were no fees paid in the second quarter of 2010 with respect to this agreement. |
• | Ingenieria De Software Bancario S.L., a Santander affiliate, is under contract with Sovereign Bank to provide information technology development, support and administration, with fees paid in the second quarter of 2010 in the amount of $32.9 million. |
• | Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under contract with Sovereign Bank to provide professional services, and administration and support of information technology production systems, telecommunications and internal/external applications, with fees paid in the second quarter of 2010 in the amount of $10.4 million. |
• | Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under contract with Sovereign Bank to provide logistical support for Sovereign Bank’s derivative and hedging transactions and programs. There were no fees paid in the second quarter of 2010 with respect to this agreement. |
• | Santander Global Facilities (“SGF”), a Santander affiliate, is under contract with Sovereign Bank to provide administration and management of employee benefits and payroll functions for Sovereign Bank and other affiliates. There were no fees paid in the second quarter of 2010 with respect to this agreement. |
• | SGF is under contract with Sovereign Bank and other Santander affiliates pursuant to which Sovereign Bank shall share in certain employee benefits and payroll processing services provided by third party vendors through sponsorship by SGF. In the second quarter of 2010, fees in the amount of $1.3 million were paid to SGF with respect to this agreement. |
• | SGF is under contract with Sovereign Bank to provide property management services. There were no fees paid in the second quarter of 2010 with respect to this agreement. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | Balance at | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | June 30, 2010 | |||||||||||||
Assets: | ||||||||||||||||
US Treasury and government agency securities | $ | — | $ | 12,997 | $ | — | $ | 12,997 | ||||||||
Debentures of FHLB, FNMA and FHLMC | — | 25,012 | — | 25,012 | ||||||||||||
Corporate debt and asset-backed securities | — | 7,003,473 | 51,481 | 7,054,954 | ||||||||||||
Equity securities | — | 2,759 | — | 2,759 | ||||||||||||
State and municipal securities | — | 2,590,462 | — | 2,590,462 | ||||||||||||
Mortgage backed securities | — | 2,504,028 | 1,764,520 | 4,268,548 | ||||||||||||
Total investment securities available-for-sale | — | 12,138,731 | 1,816,001 | 13,954,732 | ||||||||||||
Loans held for sale | — | 124,931 | — | 124,931 | ||||||||||||
Derivatives | — | (244,354 | ) | (14,422 | ) | (258,776 | ) | |||||||||
Total | $ | — | $ | 12,019,308 | $ | 1,801,579 | $ | 13,820,887 | ||||||||
Quoted Prices in Active | Significant Other | Significant | ||||||||||||||
Markets for | Observable Inputs | Unobservable | ||||||||||||||
Identical Assets (Level 1) | (Level 2) | Inputs (Level 3) | Total | |||||||||||||
June 30, 2010 | ||||||||||||||||
Loans (1) | $ | — | $ | 2,172,382 | $ | — | $ | 2,172,382 | ||||||||
Foreclosed assets (2) | — | 49,804 | — | 49,804 | ||||||||||||
Mortgage servicing rights (3) | — | — | 136,855 | 136,855 | ||||||||||||
December 31, 2009 | ||||||||||||||||
Loans (1) | $ | — | $ | 1,476,747 | $ | — | $ | 1,476,747 | ||||||||
Foreclosed assets (2) | — | 118,080 | — | 118,080 | ||||||||||||
Mortgage servicing rights (3) | — | — | 136,874 | 136,874 |
(1) | These balances are measured at fair value on a non-recurring basis using the fair value of the underlying collateral. | |
(2) | Represents the fair value of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets, based on periodic updates of appraisals and estimated selling costs. | |
(3) | These balances are measured at fair value on a non-recurring basis. Mortgage servicing rights are stratified for purposes of the impairment testing. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Six Months ended June 30, | ||||||||
2010 | 2009 | |||||||
Loans | $ | (91,874 | ) | $ | (228,996 | ) | ||
Foreclosed assets | (3,032 | ) | (1,565 | ) | ||||
Mortgage servicing rights | 11,938 | (1,327 | ) | |||||
$ | (82,968 | ) | $ | (231,888 | ) | |||
Investments | Mortgage | |||||||||||||||
Available-for-Sale | Servicing Rights | Derivatives | Total | |||||||||||||
Balance at December 31, 2009 | $ | 1,938,576 | $ | 136,874 | $ | (24,585 | ) | $ | 2,050,865 | |||||||
Gains/(losses) in other comprehensive income | 113,618 | — | (1,182 | ) | 112,436 | |||||||||||
Gains/(losses) in earnings | (4,994 | ) | 11,938 | 2,970 | 9,914 | |||||||||||
Additions | — | 16,646 | (5,240 | ) | 11,406 | |||||||||||
Repayments | (231,199 | ) | — | 13,615 | (217,584 | ) | ||||||||||
Sales/Amortization | — | (28,603 | ) | — | (28,603 | ) | ||||||||||
Balance at June 30, 2010 | $ | 1,816,001 | $ | 136,855 | $ | (14,422 | ) | $ | 1,938,434 | |||||||
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Value | Fair Value | Value | Fair Value | |||||||||||||
Financial Assets: | ||||||||||||||||
Cash and amounts due from depository institutions | $ | 1,767,922 | $ | 1,767,922 | $ | 2,323,290 | $ | 2,323,290 | ||||||||
Investment securities: | ||||||||||||||||
Available-for-sale | 13,954,732 | 13,954,732 | 13,609,398 | 13,609,398 | ||||||||||||
Loans held for investment, net | 56,252,038 | 55,438,340 | 55,733,953 | 53,483,141 | ||||||||||||
Loans held for sale | 124,931 | 124,931 | 118,994 | 118,994 | ||||||||||||
Mortgage servicing rights | 136,855 | 140,499 | 136,874 | 139,992 | ||||||||||||
Mortgage banking forward commitments | (4,722 | ) | (4,722 | ) | 2,013 | 2,013 | ||||||||||
Mortgage interest rate lock commitments | 5,009 | 5,009 | 325 | 325 | ||||||||||||
Financial Liabilities: | ||||||||||||||||
Deposits | 41,437,988 | 40,985,256 | 44,428,065 | 43,699,060 | ||||||||||||
Borrowings and other debt obligations | 28,867,412 | 29,936,854 | 27,235,151 | 27,961,841 | ||||||||||||
Interest rate derivative instruments | 253,823 | 253,823 | 220,387 | 220,387 | ||||||||||||
Total return swap | 5,240 | 5,240 | — | — | ||||||||||||
Precious metal forward sale agreements | 67 | 67 | 1,421 | 1,421 | ||||||||||||
Precious metal forward settlement arrangements | (67 | ) | (67 | ) | (1,421 | ) | (1,421 | ) | ||||||||
Unrecognized financial instruments:(1) | ||||||||||||||||
Commitments to extend credit | 103,467 | 103,384 | 95,354 | 95,278 |
(1) | The amounts shown under “carrying value” represent accruals or deferred income arising from those unrecognized financial instruments. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Three-Month | Six-Month | |||||||
Period Ended | Period Ended | |||||||
June 30, 2009 | June 30, 2009 | |||||||
Severance | $ | 64,666 | $ | 137,360 | ||||
Restricted stock acceleration charges | — | 45,037 | ||||||
Miscellaneous deal costs and other | 5,847 | 52,691 | ||||||
Transaction related and integration charges | $ | 70,513 | $ | 235,088 | ||||
Contract | ||||||||||||
Termination | Severance | Total | ||||||||||
Reserve balance at December 31, 2009 | $ | 27,805 | $ | 46,900 | $ | 74,705 | ||||||
Charge recorded in earnings | — | — | — | |||||||||
Payments | 7,161 | 19,746 | 26,907 | |||||||||
Reserve balance at June 30, 2010 | $ | 20,644 | $ | 27,154 | $ | 47,798 | ||||||
SHUSA has received an inquiry from the Trustee for the Trust Preferred Income Equity Redeemable Securities (“Trust PIERS”) concerning whether Santander’s acquisition of SHUSA on January 31, 2009, constituted a “change of control” under the Indenture for the Trust PIERS. SHUSA is cooperating in providing information to the Trustee. We understand the Trustee intends to communicate with Trust PIERS holders about this issue.
If the Trustee or a holder prevails in a claim that a “change of control” has occurred, the impact on SHUSA (as of June 30, 2010) would be a reduction of pre-tax income up to approximately $309 million, of which approximately $274 million relates to the difference in the current carry amount of the subordinated debentures and the principal amount due at maturity.
SHUSA believes the acquisition by Santander was not a “change of control” and intends to vigorously defend its position against any potential claims by the Trustee or any holder of Trust PIERS.
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FICO Band | % of Portfolio | |||
> 650 | 13 | % | ||
650-601 | 16 | % | ||
600-551 | 34 | % | ||
550-501 | 23 | % | ||
<=500 | 14 | % |
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SIX-MONTH PERIOD ENDED JUNE 30, 2010 AND 2009
(in thousands)
2010 | 2009 | |||||||||||||||||||||||
Tax | Tax | |||||||||||||||||||||||
Average | Equivalent | Yield/ | Average | Equivalent | Yield/ | |||||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||||||
EARNING ASSETS INVESTMENTS | $ | 15,365,870 | $ | 260,703 | 3.40 | % | $ | 13,706,912 | $ | 196,986 | 2.87 | % | ||||||||||||
LOANS: | ||||||||||||||||||||||||
Commercial loans | 24,243,217 | 578,450 | 4.80 | % | 26,938,217 | 598,607 | 4.47 | % | ||||||||||||||||
Multi-Family | 5,156,879 | 139,226 | 5.41 | % | 4,559,602 | 128,897 | 5.67 | % | ||||||||||||||||
Consumer loans | ||||||||||||||||||||||||
Residential mortgages | 11,020,327 | 274,646 | 4.98 | % | 11,466,274 | 304,330 | 5.31 | % | ||||||||||||||||
Home equity loans and lines of credit | 7,034,414 | 144,202 | 4.13 | % | 6,889,958 | 154,216 | 4.51 | % | ||||||||||||||||
Total consumer loans secured by real estate | 18,054,741 | 418,848 | 4.65 | % | 18,356,232 | 458,546 | 5.01 | % | ||||||||||||||||
Auto loans | 10,336,892 | 905,663 | 17.67 | % | 10,829,840 | 916,026 | 17.06 | % | ||||||||||||||||
Other | 259,824 | 8,884 | 6.89 | % | 283,056 | 9,915 | 7.06 | % | ||||||||||||||||
Total consumer | 28,651,457 | 1,333,395 | 9.37 | % | 29,469,128 | 1,384,487 | 9.46 | % | ||||||||||||||||
Total loans | 58,051,553 | 2,051,071 | 7.11 | % | 60,966,947 | 2,111,991 | 6.97 | % | ||||||||||||||||
Allowance for loan losses | (1,912,674 | ) | — | — | (1,625,996 | ) | — | — | ||||||||||||||||
NET LOANS | 56,138,879 | 2,051,071 | 7.35 | % | 59,340,951 | 2,111,991 | 7.16 | % | ||||||||||||||||
TOTAL EARNING ASSETS | 71,504,749 | 2,311,774 | 6.50 | % | 73,047,863 | 2,308,977 | 6.36 | % | ||||||||||||||||
Other assets | 11,195,448 | — | — | 10,523,172 | — | — | ||||||||||||||||||
TOTAL ASSETS | $ | 82,700,197 | $ | 2,311,774 | 5.62 | % | $ | 83,571,035 | $ | 2,308,977 | 5.56 | % | ||||||||||||
FUNDING LIABILITIES | ||||||||||||||||||||||||
Deposits and other customer related accounts: | ||||||||||||||||||||||||
Retail and commercial deposits | $ | 30,139,319 | $ | 107,166 | 0.72 | % | $ | 33,852,339 | $ | 334,632 | 1.99 | % | ||||||||||||
Wholesale deposits | 1,365,985 | 10,673 | 1.58 | % | 5,003,611 | 49,815 | 2.01 | % | ||||||||||||||||
Government deposits | 2,176,136 | 3,467 | 0.32 | % | 2,329,340 | 9,466 | 0.82 | % | ||||||||||||||||
Customer repurchase agreements | 1,692,331 | 1,909 | 0.23 | % | 1,590,574 | 2,897 | 0.37 | % | ||||||||||||||||
TOTAL DEPOSITS | 35,373,771 | 123,215 | 0.70 | % | 42,775,864 | 396,810 | 1.87 | % | ||||||||||||||||
BORROWED FUNDS: | ||||||||||||||||||||||||
FHLB advances | 11,595,404 | 274,009 | 4.75 | % | 11,513,463 | 312,219 | �� | 5.44 | % | |||||||||||||||
Fed funds and repurchase agreements | 1,830,411 | 2,000 | 0.22 | % | 1,619,420 | 2,546 | 0.32 | % | ||||||||||||||||
Other borrowings | 14,727,830 | 316,028 | 4.31 | % | 11,310,298 | 257,592 | 4.57 | % | ||||||||||||||||
TOTAL BORROWED FUNDS | 28,153,645 | 592,037 | 4.23 | % | 24,443,181 | 572,357 | 4.70 | % | ||||||||||||||||
TOTAL FUNDING LIABILITIES | 63,527,416 | 715,252 | 2.26 | % | 67,219,045 | 969,167 | 2.90 | % | ||||||||||||||||
Demand deposit accounts | 7,024,382 | — | — | 6,600,771 | — | — | ||||||||||||||||||
Other liabilities | 2,024,704 | — | — | 2,299,285 | — | — | ||||||||||||||||||
TOTAL LIABILITIES | 72,576,502 | 715,252 | 1.98 | % | 76,119,101 | 969,167 | 2.56 | % | ||||||||||||||||
STOCKHOLDERS’ EQUITY | 10,123,695 | — | — | 7,451,934 | — | — | ||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 82,700,197 | 715,252 | 1.75 | % | $ | 83,571,035 | 969,167 | 2.33 | % | ||||||||||||||
NET INTEREST INCOME | $ | 1,596,522 | $ | 1,339,810 | ||||||||||||||||||||
NET INTEREST SPREAD (1) | 4.24 | % | 3.46 | % | ||||||||||||||||||||
NET INTEREST MARGIN (2) | 4.49 | % | 3.69 | % | ||||||||||||||||||||
(1) | Represents the difference between the yield on total earning assets and the cost of total funding liabilities. | |
(2) | Represents annualized, taxable equivalent net interest income divided by average interest-earning assets. |
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Three-Month Period | Six-Month Period | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Allowance for loan losses, beginning of period | $ | 1,932,360 | $ | 1,687,432 | $ | 1,818,224 | $ | 1,102,753 | ||||||||
Acquired allowance for loan losses due to SCUSA contribution from Parent | — | — | — | 347,302 | ||||||||||||
Allowance established in connection with reconsolidation of previously unconsolidated securitized assets | (19,653 | ) | — | 5,991 | — | |||||||||||
Charge-offs: | ||||||||||||||||
Commercial | 176,864 | 67,852 | 351,468 | 151,707 | ||||||||||||
Consumer secured by real estate | 36,784 | 23,196 | 65,717 | 49,010 | ||||||||||||
Consumer not secured by real estate | 151,189 | 227,390 | 380,629 | 578,318 | ||||||||||||
Total Charge-offs | 364,837 | 318,438 | 797,814 | 779,035 | ||||||||||||
Recoveries: | ||||||||||||||||
Commercial | 17,452 | 2,145 | 27,332 | 5,121 | ||||||||||||
Consumer secured by real estate | 293 | 3,216 | 773 | 5,617 | ||||||||||||
Consumer not secured by real estate | 60,525 | 73,898 | 139,438 | 164,165 | ||||||||||||
Total Recoveries | 78,270 | 79,259 | 167,543 | 174,903 | ||||||||||||
Charge-offs, net of recoveries | 286,567 | 239,179 | 630,271 | 604,132 | ||||||||||||
Provision for loan losses (1) | 416,870 | 424,914 | 849,066 | 1,027,244 | ||||||||||||
Allowance for loan losses, end of period | 2,043,010 | 1,873,167 | 2,043,010 | 1,873,167 | ||||||||||||
Reserve for unfunded lending commitments, beginning of period | 239,651 | 172,780 | 259,140 | 65,162 | ||||||||||||
Provision for unfunded lending commitments (1) | 20,434 | 30,882 | 945 | 138,500 | ||||||||||||
Reserve for unfunded lending commitments, end of period | 260,085 | 203,662 | 260,085 | 203,662 | ||||||||||||
Total allowance for credit losses, end of period | $ | 2,303,095 | $ | 2,076,829 | $ | 2,303,095 | $ | 2,076,829 | ||||||||
(1) | The provision for credit losses on the consolidated statement of operations as the sum of the total provision for loan losses and provision for unfunded lending commitments. |
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Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Sales of mortgage loans and related securities | $ | 5,432 | $ | 27,080 | $ | 13,757 | $ | 38,717 | ||||||||
Net (losses)/gains on hedging activities | 3,243 | (343 | ) | 1,810 | 14,575 | |||||||||||
Mortgage servicing fees | 13,656 | 12,676 | 27,196 | 25,884 | ||||||||||||
Amortization of mortgage servicing rights | (13,296 | ) | (18,716 | ) | (28,603 | ) | (35,533 | ) | ||||||||
Residential mortgage servicing rights (impairments)/recoveries | (3,829 | ) | 15,041 | 10,861 | 927 | |||||||||||
Sales and changes to recourse reserves of multi-family loans | (474 | ) | (17,941 | ) | (1,016 | ) | (68,084 | ) | ||||||||
Recoveries from/(Impairments to) multi-family mortgage servicing rights | 676 | 1,278 | 1,077 | (2,254 | ) | |||||||||||
Total mortgage banking (losses)/income | $ | 5,408 | $ | 19,075 | $ | 25,082 | $ | (25,768 | ) | |||||||
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June 30, 2010 | March 31, 2010 | December 31, 2009 | June 30, 2009 | |||||||||||||
CPR | 22.88 | % | 21.56 | % | 24.44 | % | 24.44 | % | ||||||||
Escrow credit spread | 2.88 | % | 3.06 | % | 3.17 | % | 3.70 | % |
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Non-accrual loans: | ||||||||
Consumer: | ||||||||
Residential mortgages | $ | 626,849 | $ | 617,918 | ||||
Home equity loans and lines of credit | 120,967 | 117,390 | ||||||
Auto loans and other consumer loans | 351,556 | 535,902 | ||||||
Total consumer loans | 1,099,372 | 1,271,210 | ||||||
Commercial | 580,075 | 654,322 | ||||||
Commercial real estate | 795,387 | 823,766 | ||||||
Multi-family | 333,085 | 381,999 | ||||||
Total commercial loans | 1,708,547 | 1,860,087 | ||||||
Total non-performing loans | 2,807,919 | 3,131,297 | ||||||
Other real estate owned | 105,498 | 99,364 | ||||||
Other repossessed assets | 55,516 | 18,716 | ||||||
Total other real estate owned and other repossessed assets | 161,014 | 118,080 | ||||||
Total non-performing assets | $ | 2,968,933 | $ | 3,249,377 | ||||
Past due 90 days or more as to interest or principal and accruing interest | $ | 22,747 | $ | 27,321 | ||||
Annualized net loan charge-offs to average loans | 2.17 | % | 2.40 | % | ||||
Non-performing assets as a percentage of total assets | 3.57 | % | 3.92 | % | ||||
Non-performing loans as a percentage of total loans | 4.81 | % | 5.43 | % | ||||
Non-performing assets as a percentage of total loans, real estate owned and repossessed assets | 5.07 | % | 5.62 | % | ||||
Allowance for credit losses as a percentage of total non-performing assets (1) | 77.6 | % | 63.9 | % | ||||
Allowance for credit losses as a percentage of total non-performing loans (1) | 82.0 | % | 66.3 | % |
(1) | Allowance for credit losses is comprised of the allowance for loan losses and the reserve for unfunded commitments, which is included in other liabilities. |
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Accruing: | ||||||||
Commercial | $ | 29,735 | $ | — | ||||
Residential | 60,416 | 23,125 | ||||||
Consumer | 12,115 | 4,181 | ||||||
Subtotal accruing | $ | 102,266 | $ | 27,306 | ||||
Non-accruing: | ||||||||
Commercial | $ | 65,962 | $ | 24,708 | ||||
Residential | 66,850 | 31,498 | ||||||
Consumer | 18,573 | 13,323 | ||||||
Subtotal non-accruing | $ | 151,385 | $ | 69,529 | ||||
Total | $ | 253,651 | $ | 96,835 | ||||
June 30, 2010 | December 31, 2009 | |||||||||||||||
% of | % of | |||||||||||||||
Loans to | Loans to | |||||||||||||||
Total | Total | |||||||||||||||
Amount | Loans | Amount | Loans | |||||||||||||
Allocated allowance: | ||||||||||||||||
Commercial loans | $ | 973,673 | 51 | % | $ | 958,856 | 50 | % | ||||||||
Consumer loans secured by real estate | 338,063 | 30 | 335,228 | 31 | ||||||||||||
Consumer loans not secured by real estate | 714,351 | 19 | 519,637 | 19 | ||||||||||||
Unallocated allowance | 16,923 | n/a | 4,503 | n/a | ||||||||||||
Total allowance for loan losses | $ | 2,043,010 | 100 | % | $ | 1,818,224 | 100 | % | ||||||||
Reserve for unfunded lending commitments | 260,085 | 259,140 | ||||||||||||||
Total allowance for credit losses | $ | 2,303,095 | $ | 2,077,364 | ||||||||||||
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Calendar | Remaining | |||||||||||
Year | Recorded | Amount | ||||||||||
Year | Amount | To Date | To Record | |||||||||
2010 | $ | 64,174 | $ | 33,446 | $ | 30,728 | ||||||
2011 | 50,973 | — | 50,973 | |||||||||
2012 | 38,101 | — | 38,101 | |||||||||
2013 | 26,293 | — | 26,293 | |||||||||
2014 | 17,350 | — | 17,350 |
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TIER 1 | TIER 1 | TOTAL | ||||||||||
LEVERAGE | RISK-BASED | RISK-BASED | ||||||||||
CAPITAL | CAPITAL | CAPITAL | ||||||||||
REGULATORY CAPITAL | RATIO | RATIO | RATIO | |||||||||
Sovereign Bank at June 30, 2010: | ||||||||||||
Regulatory capital | $ | 5,571,092 | $ | 5,496,876 | $ | 7,192,199 | ||||||
Minimum capital requirement (1) | 2,729,376 | 2,238,465 | 4,476,929 | |||||||||
Excess | $ | 2,841,716 | $ | 3,258,411 | $ | 2,715,270 | ||||||
Sovereign Bank capital ratio | 8.16 | % | 9.82 | % | 12.85 | % | ||||||
Sovereign Bank at December 31, 2009: | ||||||||||||
Regulatory capital | $ | 5,292,202 | $ | 5,252,657 | $ | 7,239,965 | ||||||
Minimum capital requirement (1) | 2,779,235 | 2,323,303 | 4,646,605 | |||||||||
Excess | $ | 2,512,967 | $ | 2,929,354 | $ | 2,593,360 | ||||||
Sovereign Bank capital ratio | 7.62 | % | 9.04 | % | 12.46 | % |
(1) | Minimum capital requirement as defined by OTS Regulations. |
TIER 1 | ||||
LEVERAGE | ||||
CAPITAL | ||||
REGULATORY CAPITAL | RATIO | |||
Capital ratio at June 30, 2010 (1) | 8.27 | % | ||
Capital ratio at December 31, 2009 (1) | 7.13 | % |
(1) | OTS capital regulations do not apply to savings and loan holding companies. These ratios are computed as if those regulations did apply to Santander Holdings USA, Inc. |
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Payments Due by Period | ||||||||||||||||||||
Less than | Over 1 yr | Over 3 yrs | Over | |||||||||||||||||
Total | 1 year | to 3 yrs | to 5 yrs | 5 yrs | ||||||||||||||||
FHLB advances (1) | $ | 13,897,802 | $ | 6,509,074 | $ | 2,236,459 | $ | 1,536,035 | $ | 3,616,234 | ||||||||||
Securities sold under repurchase agreements (1) | 1,128,022 | 1,128,022 | — | — | — | |||||||||||||||
Fed Funds (1) | 1,042,007 | 1,042,007 | — | — | — | |||||||||||||||
Other debt obligations (1) (2) | 14,569,135 | 5,475,840 | 5,079,861 | 2,924,883 | 1,088,551 | |||||||||||||||
Junior subordinated debentures due to Capital Trust entities (1) (2) | 2,480,460 | 258,509 | 275,717 | 119,819 | 1,826,415 | |||||||||||||||
Certificates of deposit (1) | 7,691,953 | 6,364,311 | 1,009,115 | 301,264 | 17,263 | |||||||||||||||
Investment partnership commitments (3) | 981 | 862 | 26 | 26 | 67 | |||||||||||||||
Operating leases | 815,561 | 109,799 | 206,717 | 151,813 | 347,232 | |||||||||||||||
Total contractual cash obligations | $ | 41,625,921 | $ | 20,888,424 | $ | 8,807,895 | $ | 5,033,840 | $ | 6,895,762 | ||||||||||
(1) | Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based upon interest rates in effect at June 30, 2010. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid. | |
(2) | Includes all carrying value adjustments, such as unamortized premiums or discounts and hedge basis adjustments. | |
(3) | The commitments to fund investment partnerships represent future cash outlays for the construction and development of properties for low-income housing, and historic tax credit projects. The timing and amounts of these commitments are projected based upon the financing arrangements provided in each project’s partnership or operating agreement, and could change due to variances in the construction schedule, project revisions, or the cancellation of the project. |
Total | ||||||||||||||||||||
Amounts | Less than | Over 1 yr | Over 3 yrs | |||||||||||||||||
Other Commitments | Committed | 1 year | to 3 yrs | to 5 yrs | Over 5 yrs | |||||||||||||||
Commitments to extend credit | $ | 15,522,767 | $ | 6,442,661 | $ | 3,233,965 | $ | 956,382 | $ | 4,889,759 | ||||||||||
Standby letters of credit | 3,983,435 | 1,471,226 | 1,916,324 | 375,073 | 220,812 | |||||||||||||||
Loans sold with recourse | 291,715 | 15,287 | 67,180 | 55,538 | 153,710 | |||||||||||||||
Forward buy commitments | 1,017,474 | 1,001,428 | 16,046 | — | — | |||||||||||||||
Total commitments | $ | 20,815,391 | $ | 8,930,602 | $ | 5,233,515 | $ | 1,386,993 | $ | 5,264,281 | ||||||||||
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The following estimated percentage | ||||
If interest rates changed in parallel by the | increase/(decrease) to | |||
amounts below at June 30, 2010 | net interest income would result | |||
Up 100 basis points | 1.75 | % | ||
Up 200 basis points | 3.02 | % |
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The following estimated percentage | ||||||||
increase/(decrease) to MVE would result | ||||||||
If interest rates changed in parallel by | June 30, 2010 | December 31, 2009 | ||||||
Base (in thousands) | $ | 7,190,985 | $ | 6,150,298 | ||||
Up 200 basis points | (5.79 | )% | (9.55 | )% | ||||
Up 100 basis points | (2.31 | )% | (4.53 | )% |
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(2.1 | ) | Transaction Agreement, dated as of October 13, 2008, between Santander Holdings USA, Inc. and Banco Santander, S.A. (Incorporated by reference to Exhibit 2.1 to Santander Holdings USA’s Current Report on Form 8-K filed October 16, 2008). | ||
(3.1 | ) | Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA’s Current Report on Form 8-K filed January 30, 2009). | ||
(3.2 | ) | Amended and Restated Bylaws of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.2 to Santander Holdings USA’s Current Report on Form 8-K filed January 30, 2009). | ||
(3.3 | ) | Certificate of Designations for the Series D Preferred Stock (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA’s Current Report on Form 8-K filed on March 27, 2009). | ||
(3.4 | ) | Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA’s Current Report on Form 8-K filed February 5, 2010). | ||
(31.1 | ) | Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(31.2 | ) | Chief Financial Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(32.1 | ) | Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
(32.2 | ) | Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SANTANDER HOLDINGS USA, INC. (Registrant) | ||||
Date: August 11, 2010 | /s/ Gabriel Jaramillo | |||
Gabriel Jaramillo | ||||
Chairman of the Board, Chief Executive Officer (Authorized Officer) | ||||
Date: August 11, 2010 | /s/ Guillermo Sabater | |||
Guillermo Sabater | ||||
Chief Financial Officer (Principal Financial Officer) | ||||
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(2.1 | ) | Transaction Agreement, dated as of October 13, 2008, between Santander Holdings USA, Inc. and Banco Santander, S.A. (Incorporated by reference to Exhibit 2.1 to Santander Holdings USA’s Current Report on Form 8-K filed October 16, 2008). | ||
(3.1 | ) | Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA’s Current Report on Form 8-K filed January 30, 2009). | ||
(3.2 | ) | Amended and Restated Bylaws of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.2 to Santander Holdings USA’s Current Report on Form 8-K filed January 30, 2009). | ||
(3.3 | ) | Certificate of Designations for the Series D Preferred Stock (Incorporated by reference to Exhibit 3.1 of Santander Holdings USA’s Current Report on Form 8-K filed on March 27, 2009). | ||
(3.4 | ) | Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated by reference to Exhibit 3.1 to Santander Holdings USA’s Current Report on Form 8-K filed February 5, 2010). | ||
(31.1 | ) | Chief Executive Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(31.2 | ) | Chief Financial Officer certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
(32.1 | ) | Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
(32.2 | ) | Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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