Sovereign Second Quarter 2011 Results

Transcription

1 Sovereign Second Quarter 2011 Results

2 Disclaimer 2 Banco Santander, S.A. ("Santander") and Santander Holdings USA, Inc. ( SHUSA ) caution that this presentation contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates, and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. The risk factors and other key factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the SEC ), could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander or SHUSA. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the presentation. The information in this presentation is not intended to constitute research as that term is defined by applicable regulations. Nothing in this presentation constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. Recipients of this presentation should obtain advice based on their own individual circumstances from their own tax, financial, legal and other advisors before making an investment decision, and only make such decisions on the basis of the investor's own objectives, experience and resources. In making this presentation available, both Santander and SHUSA give no advice and make no recommendation to buy, sell or otherwise deal in shares in Santander or SHUSA or in any other securities or investments whatsoever. No offering of Securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act None of the presentation, or its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior written permission of Santander and SHUSA. Note: Nothing in this presentation should be construed as a profit forecast. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding performance. Information, opinions and estimates contained in this presentation reflect a judgment at its original date of publication by Santander and SHUSA and are subject to change without notice. Santander and SHUSA has no obligation to update, modify or amend this presentation or to otherwise notify a recipient thereof in the event that any information, opinion or estimate set forth herein, changes or subsequently becomes inaccurate. This presentation is provided for informational purposes only. Note: The results information for SHUSA which includes results for Sovereign Bank and other related SHUSA subsidiaries, except for Santander Consumer USA, Inc., contained in this presentation has been prepared according to Spanish accounting criteria and regulation in a manner applicable to all subsidiaries of the Santander Group and as a result it may differ from the one disclosed locally by SHUSA or Sovereign Bank. IRS Circular 230 Disclosure: Santander, SHUSA and its respective employees are not in the business of providing, and do not provide, tax or legal advice to any taxpayer outside Santander or SHUSA. Any statements in this Communication to tax matters were not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

3 Agenda 3 Market Environment 2Q11: Strategy and Business 2Q11: Results

4 Market Environment Despite recent downward projections, trends continue to support a modest recovery. GDP (% Real Annual Growth) Spread between 10-year and 2-year Treasury (bps) * 2012* Source: U.S. Department of Commerce Q11 2Q11 Source: Federal Reserve Bank Annual CPI Inflation Rate (%, annual average) USD Exchange Rate vs Euro (Average) * 2012* Source: Bureau of Labor Statistics * Estimates from Servicio de Estudios Santander Q11 2Q11 Source: Federal Reserve Bank

5 Market Environment Job creation continues to be the most significant challenge. Deleveraging from the consumer continues Unemployment Rate (%) * 2012* Source: Bureau of Labor Statistics * Estimates from Servicio de Estudios Santander Consumer Credit (% change, annual rate) Debt Payments as % of Disposable Income USA: Debt payments as % of disposable income (%) Mar-08 Mar-09 Mar-10 Mar-11 Source: Federal Reserve Personal Savings as % of Disposable Income Personal saving rate Financial gap YTD Source: Federal Reserve Bank USA: personal saving rate and financial gap Mar-08 Mar-09 Mar-10 Mar-11 Source: Bureau of Economic Analysis Prior periods have been restated by the BEA

6 Market Environment Housing Market 6 Sovereign s footprint remains relatively stable. Elevated supply levels remain a concern relative to home prices. Average Sales Price of Existing Homes Existing Home Sales Volume (seasonally adjusted) Northeast Average: 1.4% May 09 May 11 U.S. National Average: 1.9% May 09 May 11 $277,600 $281,600 4,720,000 4,810,000 $218,100 U.S. National Average: -1.7% May 09 May 11 $214,400 Northeast Average: -3.8% May 09 May , ,000 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Source: National Association of Realtors Northeast includes the states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.

7 Banking System: Loan Balances C&I is showing early signs of increased activity. Consumer loan demand is decreasing. 7 US$ in billions %, year-over-year growth rate Total Loans Commercial & Industrial 1,205 7,240 7,144 7,147 7,145 7,031 1,188 1,175 1,175 1, % -3.6% -0.7% 1.2% -2.9% -17.2% -13.9% -7.9% -2.9% 1.4% 1Q10 2Q10 3Q10 4Q10 1Q11 Real Estate 1Q10 2Q10 3Q10 4Q10 1Q11 Consumer 4,401 4,337 4,302 4,267 1,381 1, % 31.1% 1,329 1, % 24.3% 1,275 4, % -6.8% -5.0% -4.4% -5.5% -7.7% 1Q10 2Q10 3Q10 4Q10 1Q11 Source: FDIC Statistics on Depository Institutions 1Q10 2Q10 3Q10 4Q10 1Q11 Growth rates for 2010 are inflated due to the consolidation of over $300 billion of securitized credit card loans effective January 1, 2010.

8 Banking System: Deposit Balances 8 Deposits are growing, continuing shift from Time to Core Deposits. US$ in billions %, year-over-year growth rate Total Deposits 1 Core Deposits 2 Time Deposits Demand Deposits: 17.4% Money Market: 7.8% Savings: 17.8% 7,692 7,668 7,738 7,873 7,991 6,066 5,895 2,249 2,165 2,092 1,978 1,925 5, % 5,443 5, % 1.5% 2.5% 2.3% 13.7% 12.0% 11.9% 10.6% 11.5% -18.3% -18.1% -16.5% -16.4% -14.4% 1Q10 2Q10 3Q10 4Q10 1Q11 1Q10 2Q10 3Q10 4Q10 1Q11 1Q10 2Q10 3Q10 4Q10 1Q11 Source: FDIC Statistics on Depository Institutions 1 Held in domestic offices 2 Demand, NOW, money market and savings accounts

9 Market Environment Summary 9 Consumers and financial institutions remain cautious as weak housing markets, high unemployment, and budget and debt ceiling debates remain a concern. A moderate recovery is expected to continue despite downward revisions to growth accompanied by recent unfavorable job creation and housing performance. The Fed recently completed its second round of quantitative easing efforts and is ready to take additional stimulus actions if needed. Deposits in large and sound financial institutions are stable as corporations and individuals increase levels of cash. Regulatory uncertainty is beginning to lift but the impact of reform is expected to negatively affect the banking industry in the U.S.

10 Agenda 10 Market Environment 2Q11: Strategy and Business 2Q11: Results

11 Sovereign Bank Overview Sovereign s footprint is located in a very attractive market that is showing good resilience throughout current economic downturn. 11 Deposits 1 : $47,550 Loans 1 : $50,840 Branches: 723 ATMs: 2,285 Employees: 7,855 MSA # of branches Market Share % 2 Market Share Rank 2 New York % 10 Philadelphia % 13 Boston % 4 Providence % 5 Hartford % 8 1 Average period balances, calculated using local US GAAP accounting criteria. 2 FDIC Market Share of deposits; data as of June 2010 (latest date available). The most recent FDIC data reflects Sovereign s strategy to run off higher cost deposits.

12 Highlights 12 Continued growth in volume in global banking, multi-family and mortgage channels. Continued growth in core deposits and favorable mix and growth of time deposits. Favorable credit trends continue.

13 Current Initiatives 13 1 Retail Continue to build on steady growth in customer base over this past quarter Improve net growth of Core Deposit accounts Increase solutions sold per retail representative Expansion of Small & Medium Enterprise product offerings and customer base 2 Corporate Expand balance revenue mix Increase presence in large corporations Leverage relationships with existing Santander clients 3 Global banking & markets business Develop relations in US with existing Santander clients abroad Acquire new US clients with presence abroad in Santander s footprint 4 Information Technology Achieve cost synergies by completing full implementation of Santander IT platform

14 Business Core Deposit Balances 1 Consistent increases in core deposits are the result of continued successful retail bank initiatives. 14 US$ in millions %, year-over-year growth rate $29,828 $29,672 $30,147 $30,786 $32,290 2Q11 2Q10 Var. % Money Market, NOW & Savings $24,670 $22, % 8.3% 7.3% 4.4% 4.9% 8.3% Demand Deposits 7,620 6, % 2Q10 3Q10 4Q10 1Q11 2Q11 Total Core Deposits $32,290 $29, % Retail & Commercial Core Deposits Growth rate 1 Average period balances, calculated using local US GAAP accounting criteria

15 Business Time and Other Deposit Balances 1 15 High-cost time deposits generally replaced with lower-cost, longer tenor time and other deposits. US$ in millions %, year-over-year growth rate $13, % $15, % 2Q11 2Q10 Var. % Time Deposits $8,565 $7, % $11,894 $11,617 $12, % Wholesale Deposits 2, % -46.5% -41.6% Other 2 3,713 3,861 (3.8)% 2Q10 3Q10 4Q10 1Q11 2Q11 Retail & Commercial Core Deposits Growth rate Time & Other Deposits Total Core Deposits 15,260 32,290 11,894 29, % 8.3% Total Deposits $47,550 $41, % 1 Average period balances, calculated using local US GAAP accounting criteria 2 Other includes government, customer repo and Eurodollar deposits

16 Business Loan Balances 1 Continued decline of run-off portfolio is mitigated by organic growth in Multifamily, residential and C&I. 16 US$ in millions %, year-over-year growth rate $48,716 $48,959 $48, % -2.6% -9.3% $51,009 $50, % 4.4% 2Q11 2Q10 Var. % Commercial Real Estate $10,939 $12,039 (9.1)% C&I and other 11,035 10, % Multi-family 6,950 5, % Total Commercial $28,924 $27, % Home Equity & Other Consumer 10,361 10, % Residential Mortgage 11,555 10, % Total Loans $50,840 $48, % 2Q10 3Q10 4Q10 1Q11 2Q11 Total loans Growth rate Loans excluding run-off $47,974 $43, % Run-off portfolio 2,866 4,751 (39.7)% Total Loans $50,840 $48, % 1 Average period balances, calculated using local US GAAP accounting criteria.

17 Agenda 17 Market Environment 2Q11: Strategy and Business 2Q11: Results

18 Results: Net Interest Income Net interest income was flat to prior quarter and improved over prior year as cost of funding continues to improve and is offset by the impact of lower interest rates. 18 $580 US$ in millions 2.0% $581 $591 $591 $565 Loan Spread, % Q10 3Q10 4Q10 1Q11 2Q11 Deposit Spread, % Q10 3Q10 4Q10 1Q11 2Q Net interest income 2Q10 3Q10 4Q10 1Q11 2Q11

19 Results: Net Fees 19 Optimization of fee structure has kept fees relatively stable given drop in loan volumes from economic conditions and impact of regulatory environment. US$ in millions $142 $135 $130 $127 $138 1H11 1H10 Var. % Account Fees (8.6)% Security fees 4 4 (4.4)% Foreign Exchange (14.7)% 2Q10 3Q10 4Q10 1Q11 2Q11 Account fees Security fees Contingent risks Insurance / Commitments Other Insurance / Commitment fees % Other % Net fees $265 $274 (3.5)%

20 Results: Gross Income 20 Efforts are resulting in a stable revenue stream in spite of difficult economic and environmental factors. US$ in millions $682 $713 $702 $746 $745 1H11 1H10 Var. % Net interest $1,183 $1, % income Net fees (3.5)% Subtotal $1,448 $1, % 2Q10 3Q10 4Q10 1Q11 2Q11 Financial gains and other 44 (54) NM operating income Gross income $1,492 $1, % Net interest income Financial gains Net fees Other operating income/(expense)

21 Results: Total Expenses 21 Increase in expenses due to investments in personnel and increased depreciation expenses related to IT transformation. US$ in millions $300 $312 $325 $324 $327 1H11 1H10 Var. % Personnel $324 $ % General % G&A expenses $576 $ % Depreciation % Total expenses $651 $ % 2Q10 3Q10 4Q10 1Q11 2Q11 Personnel General Depreciation

22 Results: Net Operating Income 22 Stable revenue growth is offsetting the impact of increasing expenses. US$ in millions 1H11 1H10 Var. % Gross Income 1,492 1, % $382 $401 $422 $378 $418 Total Expenses (651) (603) 8.0% 2Q10 3Q10 4Q10 1Q11 2Q11 Net operating income $841 $ %

23 Results: Provisions and Loan Quality 23 Stable provisions for loan growth and improved coverage ratios. Continuing favorable trends in asset quality. US$ in millions Provision 1 Non-performing Loans & Coverage Ratio 82% 85% $193 $181 $179 $171 $149 67% 5.11% 72% 4.80% 75% 4.61% 4.15% 3.76% 2Q10 3Q10 4Q10 1Q11 2Q11 2Q10 3Q10 4Q10 1Q11 2Q11 Provision for credit losses Allowance for loan losses to non-performing loans Non-performing loans to total loans 1 Provision above includes provisions for loans and other credit exposures.

24 Results: Net Income 24 Earnings trend is driven by improved margins from lowering deposit and funding costs and deploying our excess liquidity, tight expense management. US$ in millions Pretax income/ (loss) Net income/ (loss) H11 1H10 Var. % Income/(Loss) Before Taxes $521 $ % Income Tax (Expense)/Benefit (162) (105) 54.8% Net Income/(Loss) $359 $ % 2Q10 3Q10 4Q10 1Q11 2Q11

25 Results: Ratios 25 Improvements in expense management continue to help defend ratios in a lower revenue environment. Cost to Income, % Fees / Costs, % 51.5% 46.0% 44.0% 43.6% 2Q10 2Q11 2Q10 2Q11 ROE % 12.67% 13.14% 2Q10 2Q11

26 26 Appendix Trended Results Balance Sheet

27 Income Statement Spanish Criteria 27 US$ million Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Net interest income Net fees Gains/(losses) on financial transactions 8 (17) Other operating income * (22) (22) (21) (22) (22) (23) Gross income Operating expenses (303) (300) (312) (325) (324) (327) General administrative expenses (266) (266) (279) (289) (291) (285) Personnel (148) (147) (162) (161) (161) (163) Other general and administrative expenses (118) (119) (117) (128) (130) (123) Depreciation and amortization (37) (33) (33) (36) (33) (42) Net operating income Net loan loss provisions (230) (175) (189) (81) (134) (117) Other income (12) (18) 7 (99) (36) (32) Profit before taxes Tax on profit (48) (57) (64) (21) (76) (86) Profit from continuing operations New profit on discontinued operations Consolidated profit Minority interests Attributable profit to the Group * Including dividends, income from equity-accounted method and other operating income/expenses

28 Income Statement Spanish Criteria 28 US$ million Variation H1 11 H1 10 Amount % Net interest income 1,183 1, Net fees (9) (3.5) Gains (losses) on financial transactions 89 (9) 98 Other operating income* (45) (45) (0) 0.1 Gross income 1,492 1, Operating expenses (651) (603) (48) 8.0 General administrative expenses (576) (533) (44) 8.2 Personnel (324) (296) (28) 9.6 Other general administrative expenses (252) (237) (15) 6.4 Depreciation and amortisation (75) (70) (5) 6.5 Net operating income Net loan-loss provisions (251) (406) 154 (38.0) Other income (68) (30) (38) Profit before taxes Tax on profit (162) (105) (57) 54.8 Profit from continuing operations Net profit from discontinued operations Consolidated profit Minority interests Attributable profit to the Group

29 Balance Sheet Spanish Criteria 29 US$ million Variation Amount % Loans and credits* 51,174 48,898 2, Trading portfolio (w/o loans) (23) (7.7) Available-for-sale financial assets 13,578 14,218 (640) (4.5) Due from credit institutions* Intangible assets and property and equipment Other assets 6,443 4,644 1, Total assets/liabilities & shareholders' equity 73,192 69,539 3, Customer deposits* 47,371 41,522 5, Marketable debt securities* 2,531 17,012 (14,482) (85.1) Subordinated debt 3,096 3,575 (479) (13.4) Insurance liabilities Due to credit institutions* 11, ,408 Other liabilities 2,903 3,348 (445) (13.3) Shareholders' equity** 5,821 4,018 1, Off-balance-sheet funds (92) (82.2) Mutual funds Pension funds Managed portfolios (92) (82.2) Savings-insurance policies Customer funds under management 53,017 62,221 (9,205) (14.8) * Includes all stock of concept classified in the balance sheet ** Not including profit of the year

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