Exhibit 99.1
Sovereign Bancorp Second Quarter Net Income and Earnings
Per Share Up 15% and 16% Respectively
Quarterly Financial Highlights
- Net income of $104 million, up 15% from $90 million a year ago
- Earnings per diluted share at June 30, 2003 were $.37 per share, up 16%
from $.32 per share in the second quarter of 2002
- Cash earnings were $120 million, up 12% from $107 million in the same
quarter a year ago. Cash earnings per diluted share were $.42, up from
$.38 per share in the second quarter of 2002.
- Holding Company equity to assets ratio was 7.57% at June 30, 2003
compared to 6.99% at March 31, 2003. The Tier I leverage ratio expanded
by 23 basis points to 5.25% during the quarter. Tangible common equity
to tangible assets increased 73 basis points to 4.39%.
- Net interest margin was 3.47% compared to 3.50% and 3.72% in the first
quarter of 2003 and the second quarter of 2002, respectively
- Core deposits grew by $1.1 billion during the quarter
- The provision for loan losses was $42.0 million in this quarter versus
$28.0 million in the second quarter of 2002. The provision exceeded net
charge-offs by $10.1 million in this quarter.
- The allowance for loan losses to total loans was 1.31% at June 30, 2003
compared to 1.29% at March 31, 2003
- Sovereign Bancorp, Inc. announced the execution of a definitive
agreement for the acquisition of First Essex Bancorp; the transaction is
expected to close in the first quarter of 2004
PHILADELPHIA, July 15 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported net income and earnings per share for the second quarter of 2003 of
$104 million or $.37 per diluted share. This compares to net income of $90.3
million, or $.32 per diluted share, for the second quarter of 2002. Cash
earnings increased to $120 million, up 12%, compared to $107 million for the
second quarter of 2002. A reconciliation of net income, operating earnings
and cash earnings, as well as the related earnings per share amounts, is
included in a later section of this release.
Commenting on results for the second quarter of 2003, Jay S. Sidhu,
Sovereign's Chairman and Chief Executive Officer, said, "Our core banking
fundamentals were very strong this quarter. Core deposits increased 16% over
last year and commercial and consumer loans increased 11% and 17%,
respectively. Our net interest margin held up very well in a challenging rate
environment for banks. Fee based revenues hit record levels for the company
across several categories while expense levels are principally linked to
higher fee revenues."
"Lastly, our balance sheet continues to strengthen, with tangible common
equity now at 4.39%, and Tier 1 leverage at 5.25%. Total risk-based capital
at Sovereign Bank is approximately 11%. We have essentially restored capital
levels to those existing prior to the Fleet acquisition," Sidhu continued.
Capital
Sovereign's capital expansion in the second quarter of 2003 is a result of
continued internal generation of earnings and the issuance of common shares in
connection with the Preferred Income Equity Redeemable Securities ("PIERs")
redemption. Sovereign's equity to assets ratio grew by 58 basis points during
the quarter to 7.57% at June 30, 2003. Tier I leverage ratio grew by 23 basis
points to 5.25% at June 30, 2003 and tangible common equity to tangible assets
increased 73 basis points to 4.39% from 3.66% at March 31, 2003. At June 30,
2003, bank Tier 1 Leverage increased slightly to 6.62% and the bank's risk-
based capital ratio was 10.98%. James D. Hogan, Sovereign's Chief Financial
Officer, said, "We are very pleased to have the benefit of the PIERs
redemption in the second quarter of 2003, which contributed to a 20% increase
in our tangible common equity ratio during the quarter."
Net Interest Income and Margin
Sovereign reported net interest income of $307 million for the second
quarter of 2003, up $9.8 million, or 3.3%, compared to the second quarter of
2002 driven principally by a higher level of loans and significantly lower
liability costs. On a linked quarter basis, net interest income increased by
$3.8 million, or 1.2%.
Net interest margin was 3.47% for the second quarter of 2003 compared to
3.50% in the first quarter of 2003 and 3.72% in the second quarter of 2002. A
26 basis point decline in the yield on interest earning assets during the
quarter was offset by downward re-pricing of core deposits and favorable short
term funding on repurchase agreements, in addition to a full quarter benefit
of a debt restructuring completed in March 2003. Hogan stated, "We are
pleased we were able to hold margin relatively flat compared to the first
quarter of 2003. We expect to see third and fourth quarter margin compression
of 5 to 10 basis points per quarter if the current interest rate environment
persists."
Non-Interest Income and Expense
Sovereign generated record level consumer and commercial banking fees and
capital market revenues in the second quarter of 2003, as summarized in the
financial tables attached to this release. While consumer banking fees were
at a record high this quarter, we do expect modest fee revenue pressures in
the third and fourth quarters of 2003 as a result of the recent VISA/Wal-Mart
settlement affecting ATM/debit card revenues for most banking institutions.
Consumer banking fees have increased by $9.0 million, or 20%, compared to
the same period in 2002. The increase is being driven principally by deposit
fees, which increased by $7.8 million to $44.6 million. The level of deposits
and the related number of account relationships have grown resulting in higher
transaction volumes. Consumer banking fees have also increased on a
linked-quarter basis by $5.1 million, or 10%, also driven by growth in deposit
fees and seasonality experienced in the first quarter of 2003.
Commercial banking fees increased $3.2 million, or 14%, over the same
period a year ago. On a linked-quarter basis, commercial banking fees
increased by $1.6 million, or 6%.
Mortgage banking revenues were $8.8 million in the second quarter of 2003
compared to $6.6 million for same quarter of 2002. The second quarter 2003
results included gains on mortgage production of $23.1 million versus $7.2
million in the same quarter a year ago. The increase was driven by gains on
mortgage loan sales related to continued record level origination/refinancing
activity from the first quarter of 2003 due to low residential mortgage
interest rates, as well as gains on derivative transactions. Gains on
mortgage production were offset by declines in mortgage servicing revenue,
including an impairment charge of $10.5 million on mortgage servicing rights.
The year-to-date charge for impairment of our mortgage servicing rights was
$17.9 million. At June 30, 2003, net mortgage servicing rights were $48.3
million and our servicing portfolio was $6.1 billion, or a capitalized cost of
only 79 basis points.
Capital markets revenues in the second quarter of 2003 were $9.1 million,
which represented an increase of $7.3 million compared to the same period a
year ago and $1.3 million on a linked-quarter basis. This growth continues
from expanded service and product offerings; principally fixed income
distribution capabilities.
Second quarter 2003 gains on investments and related derivatives
transactions were $19.4 million. This compares to net gains of $17.5 million
recorded in the first quarter of 2003. Mr. Hogan noted, "As low rates persist,
the opportunity to 'lock-in' capital for our balance sheet continues. Our
asset/liability profile continues to be mildly asset sensitive, which we
believe to be a prudent long-term strategy."
General & Administrative Expenses
G&A expense increased by $12 million, or 6%, to $217.7 million in the
second quarter of 2003 compared to the same quarter a year ago. The increase
was due principally to Sovereign's continued investment in people and
processes to support its expanding franchise. G&A expenses, on a linked-
quarter basis, increased by $6.6 million or 3%. The corporation's efficiency
ratio, however, was 51.94% in the second quarter of 2003 that represented
continued improvement over the ratio of 52.82% and 51.98% in the second
quarter of 2002 and first quarter of 2003, respectively. "Much of our expense
increase is directly related to the production of record levels of fee
revenues," commented Hogan.
Franchise Growth
Sovereign continued to grow its loan portfolio in the second quarter to
$24.3 billion at June 30, 2003. The following table depicts Sovereign's loan
composition as of June 30, 2003 ($ in billions):
Loan Category Ending Balance Q2 2003 Yield % of Loans Y/Y Growth
Rate
Commercial $10,750 5.12% 44% 10.9%
Consumer 9,217 5.82 38 17.2%
Residential mortgage 4,363 5.78 18 (1.8)%
Total $24,330 5.51% 100% 10.6%
Sovereign continued to grow deposits in the second quarter. The following
table summarizes our deposit position as of June 30, 2003 ($ in millions):
Deposit
Category Ending Balance Q2 2003 Cost % of Total Y/Y Growth
Deposits Rate
Checking $11,508 .55% 42% 24.7%
Other core
(MMDA & Savings) 9,557 1.10% 34 7.5%
Total Core 21,065 .80% 76 16.3%
Time deposits 6,552 2.71% 24 (13.2)%
Total deposits 27,617 1.27% 100% 7.6%
Sovereign's cost of deposits declined by 17 basis points to 1.27% in the
second quarter of 2003. The loan to deposit spread was 4.24%, and the loan to
deposit ratio was 88% at June 30, 2003.
Asset Quality
Sovereign's provision for loan losses was $42.0 million this quarter
compared to $43.4 million in the first quarter of 2003 and $28.0 million in
the second quarter of 2002. Sovereign reported $31.9 million in net charge-
offs (NCOs), a decrease of $0.8 million over the first quarter of 2003. Non-
performing assets ("NPAs") were $253 million at June 30, 2003 compared to $250
million at March 31, 2003. NPAs to total assets remained flat at 61 basis
points during the second quarter of 2003. Allowance for loan losses to total
loans was 1.31% at June 30, 2003 as compared to 1.29% at March 31, 2003 and
1.31% at June 30, 2002.
"General inconsistent economic trends continue to influence our asset
quality statistics. After making positive improvement in non-performing
assets and coverage ratios over the past four quarters, we experienced a slow
down in the pace of improvement in the second quarter," commented Dennis S.
Marlo, Sovereign's Chief Risk Management Officer. "We did not sustain any
appreciable deterioration during the quarter in net charge offs or ratios
related to non-performing loans and we are pleased that our asset quality
remains stable in this uncertain credit environment," continued Marlo. "With
loan growth of approximately 11% over June 30, 2002 our non-performing assets
shrunk 1% during the past twelve months and are down $23.3 million or 8.4%
from the highest levels at September 30, 2002."
Closing Comments
"We completed a strong second quarter of 2003. We are pleased that core
banking fundamentals are enabling us to grow our earnings in a low-risk,
controlled manner. We remain focused and committed to delivering on our
earnings guidance for the third quarter of this year of between $.36 and $.37,
and full year operating guidance, excluding the after-tax debt restructuring
charge of $.07 recorded in the first quarter, of between $1.44 and $1.45 per
fully diluted share," Sidhu concluded.
Sovereign Bancorp, Inc., ("Sovereign") headquartered in Philadelphia,
Pennsylvania, is the parent company of Sovereign Bank, a $41 billion financial
institution with approximately 530 community banking offices, nearly 1,000
ATMs and about 8,000 team members in Connecticut, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island. Sovereign is
among the 25 largest banking institutions in the United States. For more
information on Sovereign Bank, visit www.sovereignbank.com or call 1-877-SOV-
BANK.
Interested parties will have the opportunity to listen to a live web-cast
of Sovereign's second quarter earnings call on Wednesday, July 16 beginning at
8:30 am ET at www.sovereignbank.com >Investor Relations >Financial Reports >
Conference Calls/Webcasts; http://www.vcall.com/ClientPage.asp?ID=84080 or
http://www.firstcallevents.com/service/ajwz377976723gf12.html. The web-cast
replay can be accessed anytime from 11:00 am ET on Wednesday, July 16 through
9:00 pm ET on Monday, August 18. Questions may be submitted during the call
via email to investor@sovereignbank.com. A telephone replay will be accessible
during the above timeframe by dialing 1-800-642-1687, and confirmation id#
1449752.
Note:
This press release contains financial information determined by methods
other than in accordance with U.S. Generally Accepted Accounting Principles
("GAAP"). Sovereign's management uses the non-GAAP measures of Operating
Earnings and Cash Earnings, and the related per share amounts, in their
analysis of the company's performance. These measures typically adjust net
income determined in accordance with GAAP to exclude the effects of special
items, including significant gains or losses that are unusual in nature or are
associated with acquiring and integrating businesses, and certain non-cash
charges. Operating earnings in 2003 and 2002 represents net income adjusted
for the after-tax effect effects of merger-related and integration charges and
the loss on early extinguishment of debt. Cash earnings are operating
earnings excluding the after-tax effect of amortization of intangible assets
and stock-based compensation expense associated with stock options, restricted
stock, bonus deferral plans and ESOP awards. Since certain of these items and
their impact on Sovereign's performance are difficult to predict, management
believes presentations of financial measures excluding the impact of these
items provide useful supplemental information in evaluating the operating
results of Sovereign's core businesses. These disclosures should not be
viewed as a substitute for net income determined in accordance with GAAP, nor
are they necessarily comparable to non-GAAP performance measures, which may be
presented by other companies.
This press release contains statements of Sovereign's strategies, plans,
and objectives, as well as estimates of future operating results for 2003 and
beyond for Sovereign Bancorp, Inc. as well as estimates of financial
condition, operating efficiencies and revenue generation. These statements and
estimates constitute forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995), which involve significant
risks and uncertainties. Actual results may differ materially from the results
discussed in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to, general economic conditions,
changes in interest rates, deposit flows, loan demand, real estate values and
competition; changes in accounting principles, policies, or guidelines;
changes in legislation or regulation; and other economic, competitive,
governmental, regulatory, and technological factors affecting the Company's
operations, pricing, products and services.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2003 2003 2002 2002 2002
(dollars in millions,
except per share data)
Operating Data
Net income $104.2 $75.9 $93.1 $93.1 $90.3
Operating earnings (1) 104.2 94.7 93.1 93.1 90.3
Cash earnings (2) 119.5 110.4 111.7 110.3 107.2
Net interest income 306.8 303.0 293.1 297.6 297.0
Provision for loan losses 42.0 43.4 36.0 38.0 28.0
Total fees and other income
before securities
transactions 112.3 103.1 104.2 97.5 92.4
Net gain on investments and
related derivatives
transactions 19.4 17.5 14.4 12.7 3.8
G&A expense 217.7 211.1 213.1 207.3 205.7
Other operating expense $34.6 $64.1 $35.6 $35.3 $36.4
Performance Statistics
Bancorp
Net interest margin 3.47% 3.50% 3.49% 3.62% 3.72%
Cash return on average
assets (2) 1.16% 1.11% 1.12% 1.13% 1.15%
Operating return on average
assets (1) 1.01% 0.95% 0.93% 0.96% 0.97%
Cash return on average
equity (2) 16.50% 15.91% 16.20% 16.67% 17.32%
Operating return on average
equity (1) 14.38% 13.64% 13.49% 14.07% 14.59%
Annualized net loan charge-offs
to average loans 0.53% 0.56% 0.56% 0.55% 0.50%
Efficiency ratio (3) 51.94% 51.98% 53.62% 52.48% 52.82%
Bank
Cash return on average
assets (2) 1.36% 1.35% 1.39% 1.48% 1.47%
Cash return on average
equity (2) 14.66% 13.30% 13.40% 14.20% 13.99%
Per Share Data
Basic earnings per share $0.40 $0.29 $0.36 $0.36 $0.35
Diluted earnings per share 0.37 0.27 0.33 0.33 0.32
Operating earnings
per share (1) 0.37 0.34 0.33 0.33 0.32
Cash earnings per share (2) 0.42 0.39 0.40 0.39 0.38
Dividend declared per share .025 .025 .025 .025 .025
Book value (4) 10.72 10.95 10.57 10.38 9.74
Common stock price:
High 16.55 14.49 14.72 15.57 15.48
Low 14.07 12.72 11.31 12.19 14.00
Close $15.65 $13.85 $14.05 $12.90 $14.95
Weighted average common shares:
Basic 262.2 261.3 261.3 261.0 260.5
Diluted 283.9 281.4 281.5 281.0 281.2
End-of-period common shares:
Basic 292.0 261.0 261.6 261.2 260.9
Diluted 295.9 281.3 282.2 279.1 281.7
Year to Date
June June
2003 2002
(dollars in millions,
except per share data)
Operating Data
Net income $180.0 $155.8
Operating earnings (1) 198.9 170.0
Cash earnings (2) 229.9 203.3
Net interest income 609.9 568.9
Provision for loan losses 85.4 72.5
Total fees and other income before
securities transactions 215.3 179.4
Net gain on investments and related
derivatives transactions 37.0 24.4
G&A expense 428.8 399.7
Other operating expense $98.7 $88.0
Performance Statistics
Bancorp
Net interest margin 3.49% 3.68%
Cash return on average assets (2) 1.13% 1.13%
Operating return on average assets (1) 0.98% 0.94%
Cash return on average equity (2) 16.21% 17.21%
Operating return on average equity (1) 14.02% 14.39%
Annualized net loan charge-offs to
average loans 0.55% 0.61%
Efficiency ratio (3) 51.96% 53.42%
Bank
Net interest margin 3.71% 4.03%
Cash return on average assets (2) 1.36% 1.43%
Cash return on average equity (2) 13.96% 13.56%
Per Share Data
Basic earnings per share $0.69 $0.61
Diluted earnings per share 0.64 0.57
Operating earnings per share (1) 0.70 0.62
Cash earnings per share (2) 0.81 0.74
Dividend declared per share 0.050 0.050
Book value (4) 10.72 9.74
Common stock price:
High 16.55 15.48
Low 12.72 11.85
Close $15.65 $14.95
Weighted average common shares:
Basic 261.8 255.7
Diluted 282.7 275.5
End-of-period common shares:
Basic 292.0 260.9
Diluted 295.9 281.7
NOTES:
(1) Operating earnings for the three-months ended March 31, 2003 and the
six-months ended June 30, 2003 represent net income excluding the
after-tax loss on debt extinguishment of senior notes totaling
$18.8 million, or $0.07 per diluted share. Operating earnings for
the six-months ended June 30, 2002 exclude the after-tax loss on
special items related to the acquisition of Main Street Bancorp of
$14.2 million, or $0.05 per diluted share.
(2) Cash earnings represents operating earnings excluding the after-tax
effects of non-cash charges for the amortization of intangible
assets and stock based compensation. Stock based compensation
encompasses arrangements with employees under which the Company's
obligation will be settled by using stock rather than cash and
includes expense related to stock options, restricted stock, bonus
deferral plans, and ESOP expense.
(3) Efficiency ratio equals general and administrative expense excluding
merger-related and other integration charges as a percentage of
total revenue, defined as the sum of net interest income and total
fees and other income before securities transactions.
(4) Book value equals stockholders' equity at period-end divided by
common shares outstanding.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2003 2003 2002 2002 2002
(dollars in millions)
Financial Condition Data:
General
Total assets $41,343 $40,934 $39,590 $39,638 $38,305
Loans (1) 24,329 24,054 23,193 22,547 22,003
Goodwill 1,025 1,025 1,025 1,025 1,025
Core deposit intangible 306 324 343 363 383
Total deposits and
customer related
accounts: 27,617 26,746 26,851 26,610 25,669
Core and other customer
related accounts (1) 21,065 20,015 19,831 19,359 18,118
Time 6,552 6,731 7,020 7,251 7,551
Borrowings 9,507 10,126 8,829 9,115 9,007
Trust preferred securities
and minority interests 409 597 597 598 603
Stockholders' equity 3,131 2,856 2,764 2,711 2,542
Asset Quality
Non-performing assets $253.4 $249.9 $257.1 $276.7 $256.4
Non-performing loans $229.2 $221.6 $231.4 $255.3 $240.0
Non-performing assets to
total assets 0.61% 0.61% 0.65% 0.70% 0.67%
Non-performing loans to
total loans 0.94% 0.92% 1.00% 1.14% 1.09%
Allowance for loan losses $319.5 $309.4 $298.8 $295.3 $287.7
Allowance for loan losses
to total loans 1.31% 1.29% 1.29% 1.31% 1.31%
Allowance for loan losses
to non-performing loans 139% 140% 129% 116% 120%
Capitalization - Bancorp (2)
Shareholders' equity to
total assets 7.57% 6.99% 6.99% 6.85% 6.64%
Tangible equity to
tangible assets 4.39% 3.66% 3.61% 3.29% 3.04%
Tangible equity to
tangible assets,
net of tax 5.33% 4.64% 4.63% 4.37% 4.17%
Tier 1 leverage capital
ratio 5.25% 5.02% 5.01% 4.70% 4.54%
Capitalization - Bank (2)
Shareholders' equity to
total assets 9.34% 9.43% 10.39% 10.40% 10.38%
Tangible equity to
tangible assets 6.62% 6.59% 7.55% 7.36% 7.37%
Tier 1 leverage capital
ratio 6.62% 6.59% 7.55% 7.36% 7.39%
Tier 1 risk-based capital
ratio 8.34% 8.50% 9.70% 9.65% 9.64%
Total risk-based capital
ratio 10.98% 11.21% 10.69% 10.62% 10.65%
(1) Effective June 30, 2003, the Company began treating advance payments
received on certain commercial products as deposits. Previously,
these payments had been applied to reduce loan balances. Prior
period amounts have been restated to conform with the June 30, 2003
presentation.
(2) All capital ratios are calculated based upon adjusted end of period
assets consistent with OTS guidelines. The current quarter ratios
are estimated as of June 30, 2003.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 Mar. 31 Dec. 31
(dollars in thousands) 2003 2003 2002
Assets
Cash and amounts due
from depository institutions $1,497,981 $1,172,529 $972,614
Investments:
Available-for-sale 10,832,862 11,208,359 10,733,564
Held-to-maturity 492,343 569,261 632,513
Total investments 11,325,205 11,777,620 11,366,077
Loans:
Commercial 10,749,659 10,507,385 10,326,756
Consumer 9,216,825 8,830,630 8,519,166
Residential mortgages 4,362,947 4,716,348 4,347,512
Total loans 24,329,431 24,054,363 23,193,434
Less allowance for loan losses (319,537) (309,398) (298,750)
Total loans, net 24,009,894 23,744,965 22,894,684
Premises and equipment, net 273,403 277,509 281,427
Accrued interest receivable 169,288 167,737 175,291
Goodwill 1,025,292 1,025,292 1,025,292
Core deposit intangible 305,540 324,211 343,305
Bank owned life insurance 785,978 775,862 765,534
Other assets 1,950,556 1,668,677 1,766,078
Total assets $41,343,137 $40,934,402 $39,590,302
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $21,065,090 $20,014,913 $19,831,068
Time 6,551,565 6,730,872 7,020,021
Total 27,616,655 26,745,785 26,851,089
Borrowings 9,507,297 10,110,562 8,829,289
Other liabilities 679,204 625,182 548,649
Total liabilities 37,803,156 37,481,529 36,229,027
Redeemable capital securities
and other minority interests 408,987 596,541 596,957
Stockholders' equity:
Common Stock 1,869,535 1,586,421 1,580,282
Warrants and stock options 12,483 103,131 101,892
Unallocated ESOP shares (28,465) (28,465) (21,313)
Treasury stock (24,171) (23,614) (6,060)
Accumulated other
comprehensive income/ (loss) 53,368 68,133 28,009
Retained earnings 1,248,244 1,150,726 1,081,508
Total stockholders' equity 3,130,994 2,856,332 2,764,318
Total liabilities and
stockholders' equity $41,343,137 $40,934,402 $39,590,302
Sept. 30 June 30
(dollars in thousands) 2002 2002
Assets
Cash and amounts due
from depository institutions $1,236,040 $1,061,575
Investments:
Available-for-sale 11,067,631 10,735,785
Held-to-maturity 704,750 761,480
Total investments 11,772,381 11,497,265
Loans:
Commercial 9,899,087 9,692,656
Consumer 8,127,756 7,863,344
Residential mortgages 4,520,535 4,447,232
Total loans 22,547,378 22,003,232
Less allowance for loan losses (295,259) (287,741)
Total loans, net 22,252,119 21,715,491
Premises and equipment, net 280,615 276,660
Accrued interest receivable 183,773 195,982
Goodwill 1,025,292 1,025,292
Core deposit intangible 362,885 382,889
Bank owned life insurance 756,518 722,806
Other assets 1,768,112 1,426,740
Total assets $39,637,735 $38,304,700
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $19,359,612 $18,117,953
Time 7,250,861 7,550,601
Total 26,610,473 25,668,554
Borrowings 9,114,880 9,007,218
Other liabilities 603,964 484,425
Total liabilities 36,329,317 35,160,197
Redeemable capital securities
and other minority interests 597,710 602,613
Stockholders' equity:
Common Stock 1,576,354 1,573,942
Warrants and stock options 99,117 96,361
Unallocated ESOP shares (23,177) (23,177)
Treasury stock (6,255) (6,471)
Accumulated other
comprehensive income/ (loss) 69,619 (7,299)
Retained earnings 995,050 908,534
Total stockholders' equity 2,710,708 2,541,890
Total liabilities and
stockholders' equity $39,637,735 $38,304,700
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2003 2003 2002 2002 2002
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on interest-
earning deposits $542 $675 $787 $915 $978
Interest on investment
securities
Available for sale 149,468 158,231 154,331 161,094 158,638
Held to maturity 7,580 8,443 9,611 11,472 12,351
Interest on loans 332,123 333,615 349,865 350,862 353,809
Total interest and
dividend income 489,713 500,964 514,594 524,343 525,776
Interest expense:
Deposits and related
customer accounts 84,903 93,651 111,562 119,420 116,295
Borrowings 97,993 104,273 109,900 107,373 112,476
Total interest
expense 182,896 197,924 221,462 226,793 228,771
Net interest income 306,817 303,040 293,132 297,550 297,005
Provision for loan losses 42,000 43,357 36,000 38,000 28,000
Net interest income
after provision for
loan losses 264,817 259,683 257,132 259,550 269,005
Non-interest income:
Consumer banking fees 53,285 48,225 48,853 47,743 44,243
Commercial banking fees 26,787 25,223 23,802 24,976 23,554
Mortgage banking revenue 8,827 8,008 8,251 4,245 6,609
Capital markets revenue 9,062 7,749 5,414 4,436 1,808
Bank owned life
insurance income 10,116 10,332 11,801 10,722 10,644
Other 4,208 3,522 6,069 5,367 5,588
Total fees and other
income before
securities
transactions 112,285 103,059 104,190 97,489 92,446
Net gain on investments
and related derivatives
transactions 19,446 17,531 14,356 12,668 3,841
Total non-interest
income 131,731 120,590 118,546 110,157 96,287
Non-interest expense:
General and administrative
Compensation and
benefits 99,466 93,182 93,084 91,460 92,258
Occupancy and equipment 51,144 53,342 55,057 54,716 49,984
Technology expense 17,296 17,939 17,575 17,494 17,715
Outside services 13,623 13,473 12,942 12,210 12,631
Other administrative
expenses 36,166 33,152 34,392 31,445 33,105
Total general and
administrative 217,695 211,088 213,050 207,325 205,693
Other expenses:
Amortization of core
deposit intangibles 18,671 19,095 19,580 20,003 20,457
Trust preferred
securities and other
minority interest
expense 15,898 16,043 16,058 15,313 15,906
Loss on debt extinguishment - 28,981 - - -
Merger-related and
integration charges - - - - -
Total other expenses 34,569 64,119 35,638 35,316 36,363
Total non-
interest
expense 252,264 275,207 248,688 242,641 242,056
Income before
income taxes 144,284 105,066 126,990 127,066 123,236
Income tax expense 40,110 29,210 33,905 33,927 32,892
Net income $104,174 $75,856 $93,085 $93,139 $90,344
Diluted
earnings per
share $0.37 $0.27 $0.33 $0.33 $0.32
Weighted
average
shares:
Basic 262,189 261,322 261,269 261,015 260,513
Diluted 283,901 281,365 281,467 281,007 281,237
Six Months Ended
June 30 June 30
2003 2002
(dollars in thousands, except per
share data)
Interest and dividend income:
Interest on interest-earning
deposits $1,217 $2,918
Interest on investment securities
Available for sale 307,699 299,336
Held to maturity 16,023 25,884
Interest on loans 665,738 692,465
Total interest and dividend
income 990,677 1,020,603
Interest expense:
Deposits and related customer
accounts 178,554 227,305
Borrowings 202,266 224,364
Total interest expense 380,820 451,669
Net interest income 609,857 568,934
Provision for loan losses 85,357 72,500
Net interest income after
provision for loan losses 524,500 496,434
Non-interest income:
Consumer banking fees 101,510 82,806
Commercial banking fees 52,010 46,305
Mortgage banking revenue 16,835 16,075
Capital markets revenue 16,811 5,145
Bank owned life insurance income 20,448 20,933
Other 7,730 8,152
Total fees and other income before
securities transactions 215,344 179,416
Net gain on investments and
related derivatives transactions 36,977 24,407
Total non-interest income 252,321 203,823
Non-interest expense:
General and administrative
Compensation and benefits 192,648 178,269
Occupancy and equipment 104,486 100,271
Technology expense 35,235 34,355
Outside services 27,096 24,083
Other administrative expenses 69,318 62,754
Total general and
administrative 428,783 399,732
Other expenses:
Amortization of core deposit
intangibles 37,766 40,691
Trust preferred securities and other
minority interest expense 31,941 31,464
Loss on debt extinguishment 28,981 -
Merger-related and integration charges - 15,871
Total other expenses 98,688 88,026
Total non-interest
expense 527,471 487,758
Income before income taxes 249,350 212,499
Income tax expense 69,320 56,737
Net income $180,030 $155,762
Diluted earnings per share $0.64 $0.57
Weighted average shares:
Basic 261,762 255,694
Diluted 282,712 275,539
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
June 30, 2003
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $12,119,304 $161,748 5.34%
Loans:
Commercial 10,537,486 136,122 5.12%
Consumer 8,952,265 129,902 5.82%
Residential mortgages 4,644,111 67,143 5.78%
Total loans 24,133,862 333,167 5.51%
Allowance for loan losses (312,750)
Total earning assets 35,940,416 $494,915 5.50%
Other assets 5,378,749
Total assets $41,319,165
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $20,135,064 $40,251 0.80%
Time 6,606,511 44,653 2.71%
Total 26,741,575 84,904 1.27%
Borrowings:
Federal Home Loan Bank
advances 5,998,809 76,422 5.06%
Fed funds and repurchase
agreements 2,299,803 (2,206) -0.40%
Other borrowings 1,981,514 23,776 4.77%
Total borrowings 10,280,126 97,992 3.78%
Total funding liabilities 37,021,701 $182,896 1.97%
Other liabilities 1,391,938
Total liabilities 38,413,639
Stockholders' equity 2,905,526
Total liabilities and
stockholders' equity $41,319,165
Net interest income $312,019
Interest rate spread 3.02%
Net interest margin 3.47%
(1) Tax equivalent basis
Quarter Ended
March 31, 2003
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $12,294,287 $171,299 5.57%
Loans:
Commercial 10,290,307 136,532 5.31%
Consumer 8,611,316 130,028 6.12%
Residential mortgages 4,374,139 68,275 6.24%
Total loans 23,275,762 334,835 5.79%
Allowance for loan losses (300,141)
Total earning assets 35,269,908 $506,134 5.76%
Other assets 5,202,253
Total assets $40,472,161
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $19,404,801 $44,737 0.93%
Time 6,888,521 48,914 2.88%
Total 26,293,322 93,651 1.44%
Borrowings:
Federal Home Loan Bank
advances 5,626,752 75,403 5.38%
Fed funds and repurchase
agreements 2,325,965 2,760 0.47%
Other borrowings 1,986,989 26,110 5.26%
Total borrowings 9,939,706 104,273 4.21%
Total funding liabilities 36,233,028 $197,924 2.20%
Other liabilities 1,423,647
Total liabilities 37,656,675
Stockholders' equity 2,815,486
Total liabilities and
stockholders' equity $40,472,161
Net interest income $308,210
Interest rate spread 3.05%
Net interest margin 3.50%
(1) Tax equivalent basis
Quarter Ended
June 30, 2002
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $11,070,671 $176,065 6.37%
Loans:
Commercial 9,438,723 142,275 6.01%
Consumer 7,757,627 132,768 6.86%
Residential mortgages 4,630,997 79,990 6.91%
Total loans 21,827,347 355,033 6.50%
Allowance for loan losses (287,052)
Total earning assets 32,610,966 $531,098 6.52%
Other assets 4,859,802
Total assets $37,470,768
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $17,533,117 $49,411 1.13%
Time 7,597,324 66,884 3.53%
Total 25,130,441 116,295 1.86%
Borrowings:
Federal Home Loan Bank
advances 6,199,953 77,655 4.97%
Fed funds and repurchase
agreements 553,992 3,098 2.21%
Other borrowings 1,972,118 31,723 6.42%
Total borrowings 8,726,063 112,476 5.12%
Total funding liabilities 33,856,504 $228,771 2.70%
Other liabilities 1,130,437
Total liabilities 34,986,941
Stockholders' equity 2,483,827
Total liabilities and
stockholders' equity $37,470,768
Net interest income $302,327
Interest rate spread 3.23%
Net interest margin 3.72%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Six Months Ended
June 30, 2003
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment Securities $12,206,064 $333,047 5.46%
Loans:
Commercial 10,414,580 272,652 5.21%
Consumer 8,782,732 259,929 5.97%
Residential mortgages 4,509,871 135,418 6.01%
Total loans 23,707,183 667,999 5.64%
Allowance for loan losses (306,480)
Total earning assets 35,606,767 $1,001,046 5.63%
Other assets 5,291,075
Total assets $40,897,842
Funding liabilities:
Deposits:
Core $19,771,950 $84,987 0.87%
Time 6,746,737 93,567 2.80%
Total deposits 26,518,687 178,554 1.36%
Borrowings:
Federal Home Loan Bank advances 5,813,808 151,826 5.21%
Fed funds and repurchase
agreements 2,312,811 553 0.03%
Other borrowings 1,981,520 49,887 5.02%
Total borrowings 10,108,139 202,266 3.98%
Total funding liabilities 36,626,826 $380,820 2.08%
Other liabilities 1,410,422
Total liabilities 38,037,248
Stockholders' equity 2,860,594
Total liabilities and
stockholders' equity $40,897,842
Net interest income $620,226
Interest rate spread 3.03%
Net interest margin 3.49%
(1) Tax equivalent basis
Six Months Ended
June 30, 2002
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment Securities $10,582,311 $335,770 6.36%
Loans:
Commercial 9,107,620 276,040 6.07%
Consumer 7,375,186 252,852 6.91%
Residential mortgages 4,803,865 166,040 6.91%
Total loans 21,286,671 694,932 6.55%
Allowance for loan losses (282,849)
Total earning assets 31,586,133 $1,030,702 6.55%
Other assets 4,780,244
Total assets $36,366,377
Funding liabilities:
Deposits:
Core $16,901,642 $91,817 1.10%
Time 7,451,860 135,488 3.66%
Total deposits 24,353,502 227,305 1.88%
Borrowings:
Federal Home Loan Bank advances 6,070,281 153,663 5.05%
Fed funds and repurchase
agreements 448,085 5,752 2.55%
Other borrowings 1,981,427 64,950 6.55%
Total borrowings 8,499,793 224,365 5.27%
Total funding liabilities 32,853,295 $451,670 2.76%
Other liabilities 1,132,397
Total liabilities 33,985,692
Stockholders' equity 2,380,685
Total liabilities and
stockholders' equity $36,366,377
Net interest income $579,032
Interest rate spread 3.19%
Net interest margin 3.68%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
(dollars June 30 Mar. 31 Dec. 31 Sept. 30 June 30
in thousands) 2003 2003 2002 2002 2002
Non-accrual loans:
Commercial $156,873 $148,012 $160,806 $169,268 $151,981
Consumer 30,098 30,524 32,844 31,066 29,010
Residential
mortgages 40,783 41,465 36,849 53,919 57,693
Total non-
accrual
loans 227,754 220,001 230,499 254,253 238,684
Restructured
loans 1,495 1,557 893 1,087 1,305
Total non-
performing
loans 229,249 221,558 231,392 255,340 239,989
Real estate
owned, net 19,404 23,668 19,007 14,128 10,728
Other repossessed
assets 4,779 4,709 6,663 7,281 5,711
Total non-
performing
assets $253,432 $249,935 $257,062 $276,749 $256,428
Non-performing
loans as a
percentage of
total loans 0.94% 0.92% 1.00% 1.14% 1.09%
Non-performing
assets as a
percentage of
total assets 0.61% 0.61% 0.65% 0.70% 0.67%
Non-performing
assets as a
percentage of
total loans,
real estate owned
and repossessed
assets 1.04% 1.04% 1.11% 1.23% 1.17%
Allowance for
loan losses as
a percentage of
non-performing
loans 139% 140% 129% 116% 120%
NET LOAN CHARGE-OFFS
Quarters
ended (in June 30 Mar. 31 Dec. 31 Sept. 30 June 30
thousands) 2003 2003 2002 2002 2002
Commercial $21,725 $22,028 $18,564 $20,430 $17,056
Consumer 9,210 9,888 10,889 9,576 9,742
Residential
mortgages 926 793 3,056 476 476
Total $31,861 $32,709 $32,509 $30,482 $27,274
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION
Quarters
ended (in June 30 Mar. 31 Dec. 31 Sept. 30 June 30
thousands) 2003 2003 2002 2002 2002
Demand
deposit
accounts $4,276,812 $4,133,600 $4,067,784 $4,032,345 $3,848,820
NOW
accounts 6,197,211 5,818,879 5,889,582 5,407,138 4,284,922
Customer
repurchase
agreements 1,033,922 983,501 1,078,391 1,087,238 1,092,030
Savings
accounts
(1) 3,178,633 3,145,427 3,037,888 3,019,680 3,096,945
Money market
accounts 6,378,512 5,933,506 5,757,423 5,813,211 5,795,236
Certificates
of
deposits 6,551,565 6,730,872 7,020,021 7,250,861 7,550,601
Total $27,616,655 $26,745,785 $26,851,089 $26,610,473 $25,668,554
LOAN COMPOSITION
Quarters
ended (in June 30 Mar. 31 Dec. 31 Sept. 30 June 30
thousands) 2003 2003 2002 2002 2002
Commercial
real
estate $4,280,955 $4,125,570 $4,132,644 $4,097,473 $3,904,840
Commercial
industrial
loans 5,206,559 4,961,473 4,757,822 4,625,252 4,535,569
Other (1) 1,262,145 1,420,342 1,436,290 1,176,362 1,252,247
Total
commercial
loans 10,749,659 10,507,385 10,326,756 9,899,087 9,692,656
Home equity
loans 5,739,806 5,451,304 5,165,834 4,747,633 4,589,610
Auto loans 3,161,097 3,063,074 3,038,976 3,057,071 2,952,784
Other 315,922 316,252 314,356 323,052 320,950
Total consumer
loans 9,216,825 8,830,630 8,519,166 8,127,756 7,863,344
Total residential
loans 4,362,947 4,716,348 4,347,512 4,520,535 4,447,232
Total loans $24,329,431 $24,054,363 $23,193,434 $22,547,378 $22,003,232
(1) Effective June 30, 2003, the Company began treating advance payments
received on certain commercial products as savings deposits.
Previously, these payments had been applied to reduce loan balances.
Prior period amounts have been restated to conform with the June 30,
2003 presentation.
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF CASH AND OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating earnings for 2003 excludes the after tax effects of the loss on
our debt extinguishment of holding company notes that occurred in March 2003.
Operating earnings for 2002 exclude the after tax effects of loan loss
provision and merger expenses related to the Main Street acquisition. Cash
earnings are operating earnings excluding the after-tax effects of non-cash
charges for amortization of intangible assets and stock based compensation.
(dollars in thousands,
except per share
data - all amounts
are after tax) Quarter Ended
Total dollars Per share
June Mar. June June Mar. June
30 31 30 30 31 30
2003 2003 2002 2003 2003 2002
Net income as reported $104,174 $75,856 $90,344 $0.37 $0.27 $0.32
Main Street Bancorp
acquisition:
Net merger related and
integration costs - - - - - -
Provision for loan loss - - - - - -
Loss on debt
extinguishment - 18,838 - - 0.07 -
Operating earnings $104,174 $94,694 $90,344 $0.37 $0.34 $0.32
Amortization of
intangibles 12,663 12,938 13,839 0.04 0.05 0.05
Stock based
compensation (1) 2,678 2,792 3,055 0.01 0.01 0.01
Cash earnings $119,515 $110,424 $107,238 $0.42 $0.39 $0.38
Weighted average fully
diluted shares 283,901 281,365 281,237
(1) Stock based compensation encompasses arrangements with employees
under which the Company's obligation will be settled by using stock
rather than cash and includes expense related to stock options,
restricted stock, bonus deferral plans, and ESOP expense.
Six Months Ended
Total dollars Per Share
June 30 June 30 June 30 June 30
2003 2002 2003 2002
Net income as reported $180,030 $155,762 $0.64 $0.57
Main Street Bancorp acquisition:
Net merger related and integration
costs 10,316 - 0.04
Provision for loan loss 3,900 - 0.01
Loss on debt extinguishment 18,838 0.07 -
Operating earnings $198,868 $169,978 $0.70 $0.62
Amortization of intangibles 25,601 27,307 0.09 0.10
Stock based compensation (1) 5,470 5,991 0.02 0.02
Cash earnings $229,939 $203,276 $0.81 $0.74
Weighted average fully diluted shares 282,712 275,539
(1) Stock based compensation encompasses arrangements with employees
under which the Company's obligation will be settled by using stock
rather than cash and includes expense related to stock options,
restricted stock, bonus deferral plans, and ESOP expense.
Sovereign Bank
RECONCILIATION OF CASH AND OPERATING EARNINGS TO NET INCOME
(unaudited)
Net income, operating earnings and cash earnings for Sovereign Bank are
disclosed below. Operating earnings for 2002 exclude the after tax effects of
loan loss provision and merger expenses related to the Main Street
acquisition. Cash earnings are operating earnings excluding the after-tax
effects of non-cash charges for amortization of intangible assets and stock
based compensation.
(dollars in thousands,
except per share data -
all amounts are after
tax) Quarter Ended Six Months Ended
Total dollars Total dollars
June 30 Mar. 31 June 30 June 30 June 30
2003 2003 2002 2003 2002
Sovereign Bank net
income $125,857 $118,731 $119,830 $244,588 $209,946
Main Street Bancorp
acquisition:
Net merger related and
integration costs - - - - 10,316
Provision for loan loss - - - - 3,900
Sovereign Bank operating
earnings $125,857 $118,731 $119,830 $244,588 $224,162
Amortization of
intangibles 12,663 12,938 13,839 25,601 27,307
Stock based
compensation (1) 1,932 2,759 3,055 4,691 5,991
Sovereign Bank cash
earnings $140,452 $134,428 $136,724 $274,880 $257,460
(1) Stock based compensation encompasses arrangements with employees
under which the Company's obligation will be settled by using stock
rather than cash and includes expense related to stock options,
restricted stock, bonus deferral plans, and ESOP expense.