Exhibit 99.1
Sovereign Bancorp, Inc. First Quarter 2004
Net Income and Earnings Per Share Up 35% and 23% Respectively;
Operating Earnings Per Share of $.40, Up 18%;
Cash Earnings Per Share of $.45, Up 14%
Financial Highlights
-- Net income of $102 million for the first quarter of 2004, up 35%
from $76 million a year ago.
-- Earnings per share, including a one-time merger-related charge, for
the first quarter of 2004 were $.33 per share, up 23% from $.27 per
share in same quarter of 2003.
-- Operating earnings in the first quarter of 2004 were $122 million,
up 28% from $95 million a year ago. Operating earnings per share
were $.40 per share, up 18% from $.34 in the same quarter of 2003.
-- Cash earnings for the first quarter of 2004 were $137 million, up
24% from $110 million in the same quarter a year ago. Cash earnings
per share were $.45, up 14% from $.39 per share in the first quarter
of 2003.
-- Consumer Banking and Commercial Banking fee revenues were
$54 million and $29 million, respectively, up 12% and 14%,
respectively from a year earlier.
-- The provision for loan losses was $37 million (excluding a charge
associated with the acquired First Essex loan portfolio of
$6 million) in this quarter versus $40.0 million last quarter. The
total provision exceeded net charge-offs by $8.5 million in this
quarter.
-- Non-performing assets decreased to .45% of total assets at March 31,
2004, versus .51% at December 31, 2003.
-- Equity to assets ratio was 8.32% at March 31, 2004, compared to
6.98% at March 31, 2003 and 7.49% at December 31, 2003. The Tier 1
leverage ratio expanded by 151 basis points to 7.09% during the
first quarter of 2004. Tangible common equity to tangible assets
("TCE/TA") increased 53 basis points during the quarter to 5.19%.
PHILADELPHIA, April 20 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported net income and earnings per share for the first quarter of 2004 of
$102 million or $.33 per diluted share, including one-time merger-related
charges. This compares to net income of $75.9 million, or $.27 per diluted
share, for the first quarter of 2003.
Net income included an after-tax merger and integration charge of
$15.3 million and incremental loan loss provision of $3.9 million
($6.0 million pre-tax) associated with the acquisition of First Essex Bancorp
in the first quarter of 2004 and an after-tax charge of $18.8 million on the
early extinguishment of $302 million of Sovereign debt in 2003. Excluding
these charges, operating earnings were $122 million, or $.40 per diluted
share, up 28% compared to $94.7 million, or $.34 per diluted share, for the
first quarter of 2003. Cash earnings increased to $137 million, up 24%,
compared to $110 million for the first quarter of 2003. 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 first quarter of 2004, Jay S. Sidhu,
Sovereign's Chairman and Chief Executive Officer, said, "This has been a very
busy and exciting quarter for Sovereign: we have exceeded the analysts' mean
earnings estimate for the quarter, expanded our capital ratios as a result of
capital raising initiatives, closed and integrated our acquisition of First
Essex Bancorp, Inc., and announced the pending acquisitions of Seacoast
Financial Services Corporation and Waypoint Financial Corp. that dramatically
improve our franchise as both become accretive to earnings per share within
the first year. In addition, we announced a 20% increase in our cash
dividend. Despite persistently low interest rates, we were able to produce
solid results in our core banking fundamentals. Commercial and Consumer loans
were up 7% and 19%, respectively, from the first quarter of 2003, excluding
the impact of acquisitions. Fee revenue continued to be strong and we
experienced solid improvement in our credit quality."
Net Interest Income and Margin
Sovereign reported net interest income of $323 million for the first
quarter of 2004, an increase of $20 million, or 6.5%, compared to the first
quarter of 2003. On a linked-quarter basis, net interest income increased by
$14.3 million, or 4.6%.
Net interest margin was 3.28% for the first quarter of 2004 compared to
3.39% in the fourth quarter and 3.50% in the first quarter of 2003. About
half of the decline on a linked quarter basis was due to the completion of our
$800 million convertible trust preferred offering in February 2004 and effect
of purchase accounting adjustments from our First Essex acquisition. The
remainder of the decline was due to a continued decline in interest rates and
resultant margin pressure due to our desire to maintain an asset sensitive
interest rate risk position. James D. Hogan, Sovereign's Chief Financial
Officer, stated, "Although our trust preferred offering had an unfavorable
effect on net interest margin during the quarter, it was neutral to net
interest income and significantly enhances our capital position."
Well Positioned for Higher Rates
Sovereign has taken many steps in recent years to reposition its balance
sheet so that it would benefit from rising rates. "By focusing our business
strategy on core deposit growth and commercial and consumer loan growth, our
asset/liability profile is much more akin to a commercial bank than a
traditional thrift, which focuses on residential mortgages and certificates of
deposit. We remain positioned to benefit from rising rates, as $11.9 billion
of our loans are tied to short-term indices, and only $9.6 billion of our
liabilities will re-price with any short-term rate movements," stated Hogan.
Non-Interest Income and Expense
Sovereign continued to generate strong consumer and commercial banking
fees in the first quarter of 2004. Consumer banking fees increased by
$5.8 million, or 12%, compared to the same period in 2003. The increase was
driven principally by deposit fees, which increased by $5.3 million to
$45.4 million. Commercial banking fees increased $3.5 million, or 13.7%, over
the same period a year ago driven by growth in loan fees. Consumer and
commercial banking fees remained consistent with levels experienced in the
fourth quarter of 2003.
Mortgage banking revenues were $5.4 million in the first quarter of 2004,
compared to $15.7 million in the fourth quarter and $8.0 million in the first
quarter of 2003, as summarized in the financial tables attached to this
release. Due to changes in prepayment speeds, a servicing rights impairment
charge of $11.3 million was recorded in the first quarter. Offsetting this
charge were gains from sales of mortgage loans of $16.5 million. As of
March 31, 2004, mortgage servicing rights, net of reserves of $23.7 million,
were $66.4 million and our servicing portfolio was $6.6 billion, a capitalized
cost of 101 basis points. "If rates remain where they are or move higher, we
should recover most of the impairment charge taken in the first quarter,"
stated Hogan.
Capital markets revenues in the first quarter of 2004 were $4.9 million,
down compared to $7.7 million in the same period a year ago due to the current
interest rate environment. On a linked-quarter basis, capital markets
revenues increased moderately.
First quarter 2004 net gains on sales of investments were $17.9 million.
This compares to net gains of $10.2 million recorded in the fourth quarter and
$17.5 million in the first quarter of 2003.
Expenses
G&A expenses were essentially flat for the first quarter, after giving
effect to the acquisition of First Essex during the quarter. Excluding
operating expenses during the quarter of approximately $3.5 million related to
First Essex, expenses increased by only $0.2 million from the fourth quarter
and increased about 5% from $211 million a year ago. All-in, operating
expenses for the quarter were $226 million, up from $222 million in the fourth
quarter. Noted Hogan, "On the revenue side, the increase in net interest
income was substantially offset by lower mortgage banking revenue due to the
impairment of servicing rights previously discussed. We continue to forecast
an improvement in our efficiency ratio in future quarters. Our goal remains
to achieve an efficiency ratio in the high 40's within two years."
Sovereign's effective tax rate declined in the first quarter to 24.3% due,
in part, to recording the benefit on merger-related charges at 35%. We expect
our tax rate in future quarters to increase closer to our 2003 effective rate.
Franchise Growth
Sovereign's total loan portfolio increased during the first quarter to
$27.7 billion due to increases in the commercial and consumer loan portfolios
principally resulting from the First Essex acquisition. Commercial and
consumer loans now make up 43% and 40%, respectively, of the total loan
portfolio. The following table depicts Sovereign's loan composition as of
March 31, 2004 ($ in millions):
Loan Category Ending Balance Q1 2004 Yield % of Loans
Commercial $11,920 4.60% 43.0%
Consumer 11,012 5.21% 39.7
Residential mortgage 4,806 5.23% 17.3
Total $27,738 4.95% 100%
Excluding $777 million in acquired core deposits from the First Essex
acquisition, core deposits declined slightly. Sovereign's cost of deposits
declined by 5 basis points to .95% in the first quarter of 2004 due to a
decline in the cost of time deposits. Certificates of deposit account for
only 22% of total deposits. The decline in core deposits was principally a
result of some seasonal declines in commercial deposits and moving some
commercial repurchase agreements off-balance sheet. "We hope to show an
increase in core deposits over the coming few months," stated Hogan.
Sovereign has an extremely attractive relationship-oriented deposit
franchise with good balance between consumer and corporate customers. The
following table summarizes Sovereign's deposit position as of March 31, 2004
($ in millions):
Deposit Category Ending Balance Q1 2004 Cost % of Total
Deposits
Checking $11,519 0.38% 41.0%
Other core (MMDA & Savings) 10,420 0.83% 37.1
Total Core 21,939 0.60% 78.1
Time deposits 6,179 2.19% 21.9
Total deposits $28,118 0.95% 100%
Asset Quality
Non-performing assets ("NPAs") were $212 million at March 31, 2004,
compared to $220 million at December 31, 2003. NPAs to total assets decreased
to .45% during the first quarter of 2004, compared to .51% at December 31,
2003. Sovereign's provision for loan losses was $37.0 million this quarter
(excluding a $6 million provision related to the First Essex loan portfolio)
compared to $40.0 million in the fourth quarter and $43.4 million in the first
quarter of 2003. The allowance for loan losses to total loans was 1.27% at
March 31, 2004, as compared to 1.25% at December 31, 2003 and 1.29% at
March 31, 2003.
"We are pleased with our continued steady progress in our asset quality
trends," commented Dennis S. Marlo, Sovereign's Chief Risk Management Officer.
"Early warning signs are also improving, so we are optimistic that our credit
quality trends should continue to improve throughout 2004," Marlo continued.
Capital
"During the quarter, we were able to accelerate the achievement of our
2005 capital goals through the issuance of $800 million of convertible trust
preferred securities," commented Hogan. "As Sovereign's capital continues to
build into 2005 and beyond, we will consider various capital strategies,
including continued increases to our cash dividend." Boosted in part by the
aforementioned trust preferred offering, the Tier 1 leverage ratio grew by
151 basis points during the quarter to 7.09% at March 31, 2004 and tangible
common equity to tangible assets increased 53 basis points to 5.19% from 4.66%
at December 31, 2003. The equity to assets ratio increased to 8.32% at
March 31, 2004. At March 31, 2004, Sovereign Bank's Tier 1 Leverage was 6.82%
and the bank's risk-based capital ratio was 12.11%.
Looking Ahead
"We remain comfortable with mean estimates of $1.63 in operating earnings
and approximately $1.80 in cash earnings for 2004, excluding after-tax
merger-related charges for our completed acquisition of First Essex and our
pending acquisitions of Seacoast and Waypoint," Sidhu concluded. "For 2005,
the current range of thirteen analyst estimates for our company is between
$1.75 and $1.95 operating earnings per share, with a mean estimate of $1.88,
implying a mean cash estimate of about $2.00 per share. We are comfortable
with the analysts' mean estimate, which implies 2005 operating earnings growth
of 15%. While we are uncertain if the current economic environment will allow
a higher level of growth, management's goal remains to strive for $1.90 to
$2.00 operating earnings in 2005. Based upon our April 19 stock price of
$19.91, Sovereign is trading at a P/E of 12.2x for estimated 2004 operating
earnings per share, a P/E of 11.1x for cash earnings per share and only 155%
of book value. The book value per share at March 31, 2004 was $12.78."
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), headquartered in
Philadelphia, Pennsylvania, is the parent company of Sovereign Bank, a
$47 billion financial institution with approximately 550 community banking
offices, over 1,000 ATMs and about 8,300 team members in Connecticut,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode
Island. In addition to full-service retail banking, Sovereign offers a broad
array of financial services and products including business and corporate
banking, cash management, capital markets, trust and wealth management, and
insurance. Pro forma for our pending acquisitions, Sovereign is one of the
top 20 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 first quarter earnings call on Wednesday, April 21, 2004
beginning at 8:30 a.m. ET at www.sovereignbank.com >Investor Relations >News
>Conference Calls/Webcasts; or
http://www.firstcallevents.com/service/ajwz403115178gf12.html. The web-cast
replay can be accessed anytime from 11:00 am ET on April 21, 2004 through
12:00 a.m. ET on May 31, 2004. 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#
6547230.
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, as used by Sovereign,
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 represent net income adjusted
for the after-tax 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 that 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 2004 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; Sovereign's ability in
connection with any acquisition to complete such acquisition and to
successfully integrate assets, liabilities, customers, systems and management
personnel Sovereign acquires into its operations and to realize expected cost
savings and revenue enhancements within expected time frame; the possibility
that expected one-time merger-related charges are materially greater than
forecasted or that final purchase price allocations based on the fair value of
acquired assets and liabilities and related adjustments to yield and/or
amortization of the acquired assets and liabilities at any acquisition date
are materially different from those forecasted; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, integrations, pricing, products and services.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2004 2003 2003 2003 2003
(dollars in millions, except
per share data)
Operating Data
Net income $102.2 $112.6 $109.2 $104.2 $75.9
Operating earnings (1) 121.5 112.6 109.2 104.2 94.7
Cash earnings (2) 136.9 127.3 124.4 119.5 110.4
Net interest income 322.8 308.5 287.3 306.8 303.0
Provision for loan losses 43.0 40.0 36.6 42.0 43.4
Total fees and other income before
securities transactions 109.9 121.7 119.1 112.3 103.1
Net gain on investments and related
derivatives transactions 17.9 10.2 18.8 19.4 17.5
G&A expense 226.0 222.3 213.4 217.7 211.1
Other expenses (3) 46.6 23.3 24.5 34.6 64.1
Performance Statistics
Bancorp
Net interest margin (3) 3.28% 3.39% 3.32% 3.47% 3.50%
Cash return on
average assets (2) 1.20% 1.18% 1.20% 1.16% 1.11%
Operating return on
average assets (1) 1.07% 1.05% 1.05% 1.01% 0.95%
Cash return on average
equity (2) 15.47% 15.94% 15.97% 16.50% 15.91%
Operating return on
average equity (1) 13.72% 14.10% 14.03% 14.38% 13.64%
Annualized net loan
charge-offs to
average loans 0.51% 0.55% 0.55% 0.53% 0.56%
Efficiency ratio (3) (4) 52.23% 51.68% 52.51% 51.94% 51.98%
Per Share Data
Basic earnings per share $0.34 $0.38 $0.37 $0.40 $0.29
Diluted earnings per share 0.33 0.38 0.37 0.37 0.27
Operating earnings per share (1) 0.40 0.38 0.37 0.37 0.34
Cash earnings per share (2) 0.45 0.43 0.42 0.42 0.39
Dividend declared per share .030 .025 .025 .025 .025
Book value (5) 12.80 11.12 10.84 10.72 10.95
Common stock price:
High 24.51 24.99 19.68 16.55 14.49
Low 20.37 18.42 15.74 14.07 12.72
Close $21.42 $23.75 $18.55 $15.65 $13.85
Weighted average common shares:
Basic 300.7 292.5 292.2 262.2 261.3
Diluted 306.7 298.5 297.2 283.9 281.4
End-of-period common shares:
Basic 306.4 293.1 292.3 292.0 261.0
Diluted 311.7 299.4 297.4 295.9 281.3
NOTES:
(1) Operating earnings represent net income excluding the after-tax
effects of special items, including significant gains or losses that
are unusual in nature or are associated with acquiring or integrating
businesses. See reconciliation on page H.
(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. See reconciliation on page H.
(3) Effective July 1, 2003, Sovereign elected to change the Company's
accounting policy to treat trust preferred securities as liabilities
and the associated dividends on the trust preferred securities as
interest expense. Previously, this cost was classified within other
expenses. This change in accounting policy did not have any impact
on consolidated shareholders' equity or net income; however, it did
result in an increase in liabilities of $207.6 million at July 1,
2003 and an increase of $5 million and $3 million in net interest
expense, with a corresponding decrease in other expense, for the
three-month periods ended September 30, 2003 and December 31, 2003,
respectively. Prior periods have not been adjusted to conform with
this change in accounting policy.
(4) 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.
(5) Book value equals stockholders' equity at period-end divided by
common shares outstanding.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2004 2003 2003 2003 2003
(dollars in millions)
Financial Condition Data:
General
Total assets $47,043 $43,505 $41,055 $41,343 $40,934
Loans 27,739 26,149 24,550 24,329 24,054
Total deposits and customer
related accounts: 28,118 27,344 27,515 27,617 26,746
Core deposits and other
customer related
accounts 21,939 21,334 21,233 21,065 20,015
Time deposits 6,179 6,010 6,283 6,552 6,731
Borrowings (1) 14,262 12,198 9,570 9,507 10,111
Redeemable capital
securities and
other minority interests
(1) 203 202 202 409 597
Stockholders' equity 3,916 3,260 3,169 3,131 2,856
Goodwill 1,293 1,027 1,027 1,025 1,025
Core deposit intangible 262 269 287 306 324
Asset Quality
Non-performing assets $212.0 $220.4 $257.7 $253.4 $249.9
Non-performing loans $188.6 $199.4 $236.1 $229.2 $221.6
Non-performing assets to
total assets 0.45% 0.51% 0.63% 0.61% 0.61%
Non-performing loans to
total loans 0.68% 0.76% 0.96% 0.94% 0.92%
Allowance for loan losses $351.0 $327.9 $322.7 $319.5 $309.4
Allowance for loan losses
to total loans 1.27% 1.25% 1.31% 1.31% 1.29%
Allowance for loan losses
to non-performing loans 186% 164% 137% 139% 140%
Capitalization - Bancorp (2)
Stockholders' equity to
total assets 8.32% 7.49% 7.72% 7.57% 6.98%
Tier 1 leverage capital
ratio 7.09% 5.58% 5.59% 5.25% 5.02%
Tangible equity to tangible
assets, excluding OCI 5.17% 4.78% 4.72% 4.39% 3.66%
Tangible equity to tangible
assets, including OCI 5.19% 4.66% 4.67% 4.50% 3.81%
Capitalization - Bank (2)
Stockholders' equity to
total assets 9.60% 8.99% 9.49% 9.34% 9.43%
Tier 1 leverage capital
ratio 6.82% 6.66% 6.96% 6.62% 6.59%
Tier 1 risk-based capital
ratio 8.79% 8.60% 8.65% 8.40% 8.50%
Total risk-based capital
ratio 12.11% 12.12% 12.20% 11.05% 11.21%
(1) Effective July 1, 2003, Sovereign elected to change the Company's
accounting policy to treat trust preferred securities as liabilities
and Sovereign reclassified these obligations from "redeemable capital
securities and other minority interests" to "borrowings and other debt
obligations." Restatement of prior periods is not permitted.
(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 March 31, 2004.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
Mar. 31 Dec. 31 Sept. 30
(dollars in thousands) 2004 2003 2003
Assets
Cash and amounts due
from depository institutions $893,193 $950,302 $971,697
Investments:
Available-for-sale 11,912,292 10,102,619 11,109,603
Held-to-maturity 2,489,030 2,516,352 413,152
Total investments 14,401,322 12,618,971 11,522,755
Loans:
Commercial 11,919,975 11,063,686 10,756,312
Consumer 11,012,103 10,010,289 9,684,319
Residential mortgages 4,806,494 5,074,684 4,109,216
Total loans 27,738,572 26,148,659 24,549,847
Less allowance for loan losses (351,007) (327,894) (322,684)
Total loans, net 27,387,565 25,820,765 24,227,163
Premises and equipment, net 289,517 273,278 273,931
Accrued interest receivable 188,002 190,714 175,644
Goodwill 1,292,809 1,027,292 1,027,292
Core deposit intangible 261,582 268,759 287,293
Bank owned life insurance 841,568 801,535 792,607
Other assets 1,487,657 1,553,713 1,776,910
Total assets $47,043,215 $43,505,329 $41,055,292
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $21,939,435 $21,334,106 $21,232,550
Time deposits 6,178,871 6,009,902 6,282,630
Total 28,118,306 27,344,008 27,515,180
Borrowings and other debt
obligations (1) 14,261,686 12,197,603 9,570,356
Other liabilities 545,084 501,176 599,032
Total liabilities 42,925,076 40,042,787 37,684,568
Redeemable capital securities
and other minority interests (1) 202,513 202,136 201,757
Stockholders' equity:
Common Stock 2,102,183 1,892,126 1,872,953
Warrants and stock options 305,297 13,944 13,230
Unallocated ESOP shares (26,078) (26,078) (28,465)
Treasury stock (22,190) (21,927) (22,501)
Accumulated other
comprehensive income/ (loss) 6,349 (52,924) (16,345)
Retained earnings 1,550,065 1,455,265 1,350,095
Total stockholders' equity 3,915,626 3,260,406 3,168,967
Total liabilities and
stockholders' equity $47,043,215 $43,505,329 $41,055,292
(1) Effective July 1, 2003, Sovereign elected to change the Company's
accounting policy to treat trust preferred securities as liabilities
and Sovereign reclassified these obligations from "redeemable capital
securities and other minority interests" to "borrowings and other
debt obligations." Restatement of prior periods is not permitted.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 Mar. 31
(dollars in thousands) 2003 2003
Assets
Cash and amounts due
from depository institutions $1,497,981 $1,172,529
Investments:
Available-for-sale 10,832,862 11,208,359
Held-to-maturity 492,343 569,261
Total investments 11,325,205 11,777,620
Loans:
Commercial 10,749,659 10,507,385
Consumer 9,216,825 8,830,630
Residential mortgages 4,362,947 4,716,348
Total loans 24,329,431 24,054,363
Less allowance for loan losses (319,537) (309,398)
Total loans, net 24,009,894 23,744,965
Premises and equipment, net 273,403 277,509
Accrued interest receivable 169,288 167,737
Goodwill 1,025,292 1,025,292
Core deposit intangible 305,540 324,211
Bank owned life insurance 785,978 775,862
Other assets 1,950,556 1,668,677
Total assets $41,343,137 $40,934,402
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $21,065,090 $20,014,913
Time deposits 6,551,565 6,730,872
Total 27,616,655 26,745,785
Borrowings and other debt obligations
(1) 9,507,297 10,110,562
Other liabilities 679,204 625,182
Total liabilities 37,803,156 37,481,529
Redeemable capital securities
and other minority interests (1) 408,987 596,541
Stockholders' equity:
Common Stock 1,869,535 1,586,421
Warrants and stock options 12,483 103,131
Unallocated ESOP shares (28,465) (28,465)
Treasury stock (24,171) (23,614)
Accumulated other
comprehensive income/ (loss) 53,368 68,133
Retained earnings 1,248,244 1,150,726
Total stockholders' equity 3,130,994 2,856,332
Total liabilities and
stockholders' equity $41,343,137 $40,934,402
(1) Effective July 1, 2003, Sovereign elected to change the Company's
accounting policy to treat trust preferred securities as liabilities
and Sovereign reclassified these obligations from "redeemable capital
securities and other minority interests" to "borrowings and other
debt obligations." Restatement of prior periods is not permitted.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2004 2003 2003 2003 2003
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on
interest-earning
deposits $528 $385 $539 $542 $675
Interest on
investment
securities
Available for sale 137,226 144,787 132,211 149,468 158,231
Held to maturity 28,819 5,142 5,958 7,580 8,443
Interest on loans 333,190 324,990 325,062 332,123 333,615
Total interest
and dividend
income 499,763 475,304 463,770 489,713 500,964
Interest expense:
Deposits and
related customer
accounts 65,012 68,647 73,488 84,903 93,651
Borrowings 111,935 98,178 102,990 97,993 104,273
Total interest
expense 176,947 166,825 176,478 182,896 197,924
Net interest
income 322,816 308,479 287,292 306,817 303,040
Provision for loan
losses 43,000 40,000 36,600 42,000 43,357
Net interest
income after
provision for
loan losses 279,816 268,479 250,692 264,817 259,683
Non-interest income:
Consumer banking
fees 53,985 53,778 53,531 53,285 48,225
Commercial banking
fees 28,685 28,766 27,197 26,787 25,223
Mortgage banking
revenue (1) 5,427 15,725 17,458 8,827 8,008
Capital markets
revenue 4,887 4,814 5,389 9,062 7,749
Bank owned life
insurance income 9,626 10,810 12,080 10,116 10,332
Other 7,320 7,796 3,478 4,208 3,522
Total fees and other
income before
securities
transactions 109,930 121,689 119,133 112,285 103,059
Net gain on
investments and
related
derivatives
transactions 17,881 10,232 18,848 19,446 17,531
Total non-
interest
income 127,811 131,921 137,981 131,731 120,590
Non-interest expense:
General and
administrative
Compensation and
benefits 104,080 98,314 97,788 99,466 93,182
Occupancy and
equipment 54,379 53,437 52,838 51,144 53,342
Technology expense 17,605 19,145 18,652 17,296 17,939
Outside services 12,336 14,148 12,192 13,623 13,473
Marketing expense 10,700 8,385 9,218 10,895 10,326
Other
administrative
expenses 26,934 28,894 22,715 25,271 22,826
Total general
and
administrative 226,034 222,323 213,403 217,695 211,088
Other expenses:
Amortization of
core deposit
intangibles 17,553 17,823 18,246 18,671 19,095
Trust preferred
securities and
other minority
interest
expense 5,436 5,439 5,434 15,898 16,043
Loss on debt
extinguishment - - 857 - 28,981
Merger-related and
integration
charges 23,587 - - - -
Total other
expenses 46,576 23,262 24,537 34,569 64,119
Total non-
interest
expense 272,610 245,585 237,940 252,264 275,207
Income before
income taxes 135,017 154,815 150,733 144,284 105,066
Income tax expense 32,790 42,228 41,500 40,110 29,210
Net income $102,227 $112,587 $109,233 $104,174 $75,856
Diluted
earnings
per
share $0.33 $0.38 $0.37 $0.37 $0.27
Operating
earnings
per
share (2) $0.40 $0.38 $0.37 $0.37 $0.34
Weighted
average
shares:
Basic 300,720 292,540 292,169 262,189 261,322
Diluted 306,678 298,508 297,151 283,901 281,365
(1) Mortgage banking activity is summarized below:
Gains on sale of
mortgage loans and
mortgage backed
securities 16,469 9,457 19,080 16,035 16,652
Net gains/(loss)
recorded under SFAS
133 81 7,895 (14,112) 6,651 1,275
Mortgage servicing
fees, net of mortgage
servicing rights
amortization 137 (479) (5,760) (3,391) (2,490)
Changes in mortgage
servicing valuation
reserve related to
reversals/(impairments) (11,260) (1,148) 18,250 (10,468) (7,429)
Total mortgage
banking revenues 5,427 15,725 17,458 8,827 8,008
(2) See reconciliation on page H.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
March 31, 2004
(dollars in thousands) Average Balance Interest (1) Yield/ Rate
Earning assets:
Investment securities $14,120,951 $176,374 5.00%
Loans:
Commercial 11,413,060 132,325 4.60%
Consumer 10,472,369 135,709 5.21%
Residential mortgages 5,105,900 66,743 5.23%
Total loans 26,991,329 334,777 4.95%
Allowance for
loan losses (343,684)
Total earning assets 40,768,596 $511,151 5.01%
Other assets 5,087,754
Total assets $45,856,350
Funding liabilities:
Deposits and other
customer related accounts:
Core and other customer
related accounts $21,346,218 $31,661 0.60%
Time deposits 6,108,153 33,351 2.19%
Total 27,454,371 65,012 0.95%
Borrowings:
Federal Home Loan
Bank advances 8,063,115 77,815 3.83%
Fed funds and repurchase
agreements 2,554,957 7,418 1.15%
Other borrowings 3,563,656 26,702 2.98%
Total borrowings 14,181,728 111,935 3.14%
Total funding liabilities 41,636,099 $176,947 1.70%
Other liabilities 660,321
Total liabilities 42,296,420
Stockholders' equity 3,559,930
Total liabilities and
stockholders' equity $45,856,350
Net interest income $334,204
Interest rate spread 2.91%
Net interest margin 3.28%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
December 31, 2003
(dollars in thousands) Average Balance Interest (1) Yield/ Rate
Earning assets:
Investment securities $12,417,048 $159,375 5.13%
Loans:
Commercial 10,880,892 128,094 4.62%
Consumer 9,809,803 131,347 5.32%
Residential mortgages 4,726,609 66,774 5.65%
Total loans 25,417,304 326,215 5.08%
Allowance for
loan losses (323,285)
Total earning assets 37,511,067 $485,590 5.14%
Other assets 5,122,980
Total assets $42,634,047
Funding liabilities:
Deposits and other
customer related accounts:
Core and other customer
related accounts $21,180,302 $31,459 0.59%
Time deposits 6,138,121 37,188 2.40%
Total 27,318,423 68,647 1.00%
Borrowings:
Federal Home Loan Bank
advances 6,192,197 69,045 4.38%
Fed funds and repurchase
agreements 2,281,145 5,996 1.05%
Other borrowings 2,905,569 23,137 3.15%
Total borrowings 11,378,911 98,178 3.40%
Total funding liabilities 38,697,334 $166,825 1.70%
Other liabilities 769,280
Total liabilities 39,466,614
Stockholders' equity 3,167,433
Total liabilities and
stockholders' equity $42,634,047
Net interest income $318,765
Interest rate spread 2.98%
Net interest margin 3.39%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
March 31, 2003
(dollars in thousands) Average Balance Interest (1) Yield/ 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 deposits 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
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(dollars in thousands) 2004 2003 2003 2003 2003
Non-accrual loans:
Commercial $113,734 $129,029 $165,317 $156,872 $148,012
Consumer 31,573 30,921 29,667 30,099 30,524
Residential mortgages 41,925 38,195 39,745 40,783 41,465
Total non-accrual
loans 187,232 198,145 234,729 227,754 220,001
Restructured loans 1,378 1,235 1,335 1,495 1,557
Total non-
performing loans 188,610 199,380 236,064 229,249 221,558
Real estate owned, net 18,349 17,016 17,556 19,404 23,668
Other repossessed assets 5,006 4,051 4,082 4,779 4,709
Total non-
performing assets $211,965 $220,447 $257,702 $253,432 $249,935
Non-performing loans as
a percentage of total
loans 0.68% 0.76% 0.96% 0.94% 0.92%
Non-performing assets as
a percentage of total
assets 0.45% 0.51% 0.63% 0.61% 0.61%
Non-performing assets as
a percentage of total
loans, real estate
owned and repossessed
assets 0.76% 0.84% 1.05% 1.04% 1.04%
Allowance for loan
losses as a percentage
of non-performing loans 186% 164% 137% 139% 140%
NET LOAN CHARGE-OFFS
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2004 2003 2003 2003 2003
Commercial real estate $3,558 $98 $2,308 $1,770 $2,093
Commercial and industrial
and other 19,767 25,755 22,151 19,955 19,935
Total Commercial 23,325 25,853 24,459 21,725 22,028
Auto loans 7,408 5,521 5,038 5,720 5,919
Home equity loans
and other 3,605 3,277 2,964 3,490 3,969
Total Consumer 11,013 8,798 8,002 9,210 9,888
Residential mortgages 209 138 992 926 793
Total $34,547 $34,789 $33,453 $31,861 $32,709
DEPOSIT AND OTHER CUSTOMER RELATED
ACCOUNT COMPOSITION - End of period
Quarters
ended (in Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
thousands) 2004 2003 2003 2003 2003
Demand
deposit
accounts $4,481,546 $4,306,376 $4,292,621 $4,276,812 $4,133,600
NOW
accounts 6,248,412 6,068,163 6,294,730 6,197,211 5,818,879
Customer
repurchase
agreements 789,524 1,017,544 902,522 1,033,922 983,501
Savings
accounts 3,317,836 3,098,892 3,166,319 3,178,633 3,145,427
Money market
accounts 7,102,117 6,843,131 6,576,358 6,378,512 5,933,506
Certificates of
deposits 6,178,871 6,009,902 6,282,630 6,551,565 6,730,872
Total $28,118,306 $27,344,008 $27,515,180 $27,616,655 $26,745,785
LOAN COMPOSITION - End of period
Quarters ended
(in Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
thousands) 2004 2003 2003 2003 2003
Commercial
real
estate $4,638,401 $4,353,494 $4,309,687 $4,280,955 $4,125,570
Commercial
industrial
loans 5,407,107 5,365,062 5,300,034 5,206,559 4,961,473
Other 1,874,467 1,345,130 1,146,591 1,262,145 1,420,342
Total commercial
loans 11,919,975 11,063,686 10,756,312 10,749,659 10,507,385
Home equity
loans 6,971,401 6,457,682 6,102,455 5,739,806 5,451,304
Auto
loans 3,621,169 3,240,383 3,261,150 3,161,097 3,063,074
Other 419,533 312,224 320,714 315,922 316,252
Total consumer
loans 11,012,103 10,010,289 9,684,319 9,216,825 8,830,630
Total residential
loans 4,806,494 5,074,684 4,109,216 4,362,947 4,716,348
Total
loans $27,738,572 $26,148,659 $24,549,847 $24,329,431 $24,054,363
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Quarters
ended(in Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
thousands) 2004 2003 2003 2003 2003
Demand deposit
accounts $4,239,684 $4,197,814 $4,186,582 $4,057,542 $3,904,358
NOW
accounts 5,990,184 6,135,210 6,253,423 5,900,237 5,647,711
Customer
repurchase
agreements 880,544 963,885 970,330 1,016,450 1,007,629
Savings
accounts 3,217,946 3,138,766 3,180,188 3,106,420 3,011,833
Money market
accounts 7,017,860 6,744,627 6,503,263 6,054,415 5,833,270
Certificates
of
deposits 6,108,153 6,138,121 6,430,966 6,606,511 6,888,521
Total $27,454,371 $27,318,423 $27,524,752 $26,741,575 $26,293,322
LOAN COMPOSITION - Average
Quarters
ended (in Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
thousands) 2004 2003 2003 2003 2003
Commercial
real
estate $4,869,200 $4,662,734 $4,610,919 $4,410,120 $4,085,483
Commercial
industrial
loans 5,669,558 5,336,532 5,285,571 5,263,959 5,343,412
Other 874,302 881,626 864,741 863,408 861,412
Total
commercial
loans 11,413,060 10,880,892 10,761,231 10,537,487 10,290,307
Home equity
loans 6,666,343 6,241,296 5,824,058 5,537,191 5,258,975
Auto
loans 3,457,105 3,248,915 3,203,014 3,100,355 3,034,672
Other 348,921 319,592 313,217 314,720 317,669
Total consumer
loans 10,472,369 9,809,803 9,340,289 8,952,266 8,611,316
Total residential
loans 5,105,900 4,726,609 4,335,326 4,644,111 4,374,139
Total
loans $26,991,329 $25,417,304 $24,436,846 $24,133,864 $23,275,762
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF CASH AND OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating earnings for 2004 exclude the after tax effects of loan loss
provision and merger expenses related to the First Essex acquisition.
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.
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
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
Net income as reported $102,227 $112,587 $75,856
First Essex acquisition:
Merger related and
integration costs 15,332 - -
Provision for loan loss 3,900 - -
Loss on debt extinguishment - - 18,838
Operating earnings 121,459 112,587 94,694
Amortization of intangibles 11,999 12,112 12,938
Stock based compensation (1) 3,468 2,555 2,792
Cash earnings $136,926 $127,254 $110,424
Weighted average diluted
shares 306,678 298,508 281,365
(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.
(dollars in thousands,
except per share data -
all amounts are after tax) Quarter Ended
Per Share
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
Net income as reported $0.33 $0.38 $0.27
First Essex acquisition:
Merger related and
integration costs 0.05 - -
Provision for loan loss 0.01 - -
Loss on debt extinguishment - - 0.07
Operating earnings 0.40 0.38 0.34
Amortization of intangibles 0.04 0.04 0.05
Stock based compensation (1) 0.01 0.01 0.01
Cash earnings $0.45 $0.43 $0.39
Weighted average diluted shares
(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 Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Purchase of First Essex Bancorp Inc. ("First Essex")
On February 6, 2004 Sovereign completed the purchase of First Essex and
the results of its operations are included from purchase date through
March 31, 2003. Sovereign issued 12.7 million shares valued at $209.9 million
and made cash payments of $208 million to acquire and convert all outstanding
First Essex shares and associated fees. Sovereign's preliminary purchase
price allocation is as follows:
Assets and Liabilities Acquired from First Essex as of February 6, 2004:
(dollars in millions)
Assets Liabilities
Investments 394.8 Deposits:
Loans: Core 777.0
Commercial 710.4 Time 488.6
Consumer 435.6 Total deposits 1,265.6
Residential mortgages 52.2 Borrowings and other debt
obligations 236.9
Total loans 1,198.2 Other liabilities 27.5
Less allowance for loan
losses (14.7)
Total loans, net 1,183.5 Total liabilities $1,530.0
Federal funds and cash (199.0)
Premises and equipment, net 9.2
Other real estate owned 1.0
Other assets 74.5
Core deposit intangible 10.4
Goodwill 265.5
Total assets $1,739.9
In connection with the First Essex acquisition, Sovereign recorded charges
against its earnings for the three month period ended March 31, 2004 for
an additional loan loss provision of $6.0 million pretax ($3.9 million net
of tax) to conform First Essex's allowance for loan losses to Sovereign's
reserve policies and for merger-related expenses of $23.6 million pretax
($15.3 million net of tax).
SOURCE Sovereign Bancorp, Inc.
-0- 04/20/2004
/CONTACT: FINANCIAL: Jim Hogan, +1-610-320-8496, or
jhogan@sovereignbank.com, or Mark McCollom, +1-610-208-6426, or
mmccollo@sovereignbank.com, or Stacey Weikel, +1-610-208-6112, or
sweikel@sovereignbank.com; or MEDIA: Ed Shultz, +1-610-378-6159, or
eshultz1@sovereignbank.com, all of Sovereign Bancorp/
/Web site: http://www.sovereignbank.com/
(SOV)
CO: Sovereign Bancorp, Inc.
ST: Pennsylvania
IN: FIN
SU: ERN ERP CCA MAV