Exhibit 99.1
Sovereign Bancorp, Inc. Announces 2004 Third Quarter Net Income of
$83 Million, Record Operating Income of $143 Million and Cash Earnings of
$162 Million
Financial Highlights
-- Net income of $82.5 million, including a special debt redemption
charge of $42.6 million after-tax and a merger and integration charge
of $18.2 million after-tax, for the third quarter of 2004, as
compared to $109 million a year ago.
-- Earnings per share, including the above mentioned charges of $.18 per
share, for the third quarter of 2004 were $.24 per share, as compared
to $.37 per share in same quarter of 2003.
-- Operating earnings in the third quarter of 2004 were $143 million, up
31% from $109 million a year ago. Operating earnings per share were
$.42 per share, up 14% from $.37 per share in the same quarter of
2003.
-- Cash earnings for the third quarter of 2004 were $162 million, up 30%
from $124 million in the same quarter a year ago. Cash earnings per
share were $.47 per share, up 12% from $.42 per share in the third
quarter of 2003.
-- Consumer and Commercial loans, excluding the impact of acquisitions,
increased 28% and 9%, respectively, from the third quarter of 2003.
-- Core deposits increased 21% from the third quarter of 2003 and 13%
from the second quarter of 2004. Excluding acquisitions, core
deposits increased 6% from the third quarter of 2003.
-- Reduced the investment portfolio by $1.1 billion during the quarter.
-- Consumer Banking and Commercial Banking fee revenues were $63 million
and $32 million, respectively, each up 17% from a year earlier.
-- The provision for loan losses was $25.0 million in this quarter. The
provision exceeded net charge-offs by $4.5 million in this quarter.
-- Non-performing assets decreased to .30% of total assets at
September 30, 2004, versus .36% at June 30, 2004. Non-performing
assets declined $7.3 million to $169 million.
-- Equity to assets ratio was 8.64% at September 30, 2004, compared to
7.72% at September 30, 2003 and 7.84% at June 30, 2004. The Tier 1
leverage ratio was 6.56% at September 30, 2004.
-- Sovereign continues to be positioned to benefit from higher interest
rates.
-- Successfully completed the acquisition of Seacoast Financial Services
Corporation on July 23, 2004. Systems conversion successfully
completed by October 17th.
PHILADELPHIA, Oct. 19 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported third quarter 2004 net income after non-recurring charges of
$60.8 million, or $.18 per share, of $82.5 million, or $.24 per diluted share,
as compared to $109 million, or $.37 per diluted share, for the third quarter
of 2003. Net income in the third quarter of 2004 included the previously
announced after-tax merger and integration charge of $18.2 million, or $.05
per share, associated with the acquisition of Seacoast Financial Services
Corporation ("Seacoast") and an after-tax charge of $42.6 million, or $.13 per
share, in connection with the early redemption of $500 million of high-cost
debt.
Excluding these charges, operating earnings were up 31% to $143 million as
compared to $109 million for the third quarter of 2003. Operating earnings
per share were up 14% to $.42 per share from $.37 per share during the third
quarter of 2003. Cash earnings increased to $162 million, or $.47 per diluted
share, as compared to $124 million, or $.42 per diluted share, for the third
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 third quarter of 2004, Jay S. Sidhu,
Sovereign's Chairman and Chief Executive Officer, said, "The third quarter was
another strong quarter for Sovereign. We are pleased that the Federal Reserve
has begun to increase short-term interest rates, as this immediately benefited
our net interest income and should also drive net interest margin expansion in
the fourth quarter. Commercial and consumer loans were up 9% and 28%,
respectively, from the third quarter of 2003, excluding the impact of
acquisitions; while core deposits were up 6%. Our credit quality again showed
improvement during the quarter. Operating expenses are being held in check,
as the only increases in expenses for the quarter were related to our
acquisition of Seacoast. Lastly, we are pleased to welcome Seacoast's
customers, shareholders and team members to Sovereign, as we successfully
closed and converted this acquisition during the quarter."
September of this year marked the five-year anniversary of Sovereign's
announcement of the Fleet/BankBoston branch acquisition, the largest banking
divestiture in U.S. history. It consisted of 285 branches, $12 billion in
deposits and $9 billion in loans. This acquisition enabled Sovereign to enter
the New England market with a very significant market share, ranking third in
the region. Since Sovereign's successful integration in the third quarter of
2000, the annual growth rate in operating earnings per share has been 10%, and
since 2001, Sovereign's operating earnings annual growth rate has been 25%.
Since the third quarter of 2000, Sovereign's commercial and consumer loans
have grown 14% and 20%, respectively, on average per year. Core deposits have
grown 15% on average per year. Banking fees have increased 30% on average per
year. Operating expenses have increased only 1.5% on average per year.
Sovereign's efficiency ratio has decreased more than 500 basis points.
Capital levels have improved substantially. Equity to assets has expanded
315 basis points to 8.64% at September 30, 2004. Tier 1 Leverage has expanded
356 basis points to 6.56% at September 30, 2004. Tangible common equity has
expanded 315 basis points to 4.51% at September 30, 2004. In addition to
dramatically improved capital levels, the quality of Sovereign's balance sheet
has improved as Sovereign has removed most of the high-cost debt financing
incurred in this transaction. "This acquisition transformed Sovereign into a
high growth community-oriented commercial bank with a diversified loan
portfolio, a low-cost deposit base and a very strong market position. It has
substantially enhanced franchise and shareholder value. This is evidenced by
a 145% appreciation in our stock price since October of 1999, outperforming a
number of market indices including the DJIA, S&P 500, Bank Super regional,
Bank NYSE and Thrift NYSE during that time period," commented Sidhu.
Net Interest Income and Margin
Sovereign reported net interest income of $363 million for the third
quarter of 2004, an increase of $75.7 million, or 26% compared to the third
quarter of 2003. On a linked-quarter basis, net interest income increased by
$30.9 million, or 9.3%, in spite of the fact that the company de-levered the
investment portfolio by $1.1 billion. As a result of higher short-term
interest rates, commercial loan yields increased by 36 basis points and
consumer loan yields increased by 10 basis points during the quarter. Most of
Sovereign's variable rate consumer loans have repricing periods that lag rate
changes by up to one quarter. Deposit costs increased by only 14 basis points
in the third quarter.
During the quarter, Sovereign successfully redeemed $500 million of 10.50%
senior notes and replaced them with lower-cost, unsecured senior debt much
more reflective of the financial strength of Sovereign today. The 10.50%
senior notes that were redeemed carried a cost of approximately 8.18%, as
$400 million of the debt was swapped to floating rate at a cost of Libor + 550
basis points. Sovereign funded this redemption with cash on hand and a new
two-year senior note issue of $300 million at a floating rate of Libor + 33
basis points.
Net interest margin was 3.17% for the third quarter of 2004, compared to
3.22% in the second quarter of 2004 and 3.32% in the third quarter of 2003,
primarily impacted by the flattening of the yield curve. Commenting on third
quarter net interest margin, James D. Hogan, Sovereign's Chief Financial
Officer, noted, "As we have previously stated, Sovereign's net interest income
has benefited from the quarter's short-term interest rate hikes. However,
meaningful net interest margin expansion requires 100 basis points or more of
rate hikes, as replacement yields on new loan production are still lower than
the assets running off due to the flattening of the yield curve. Our fourth
quarter outlook for both net interest income and net interest margin is
positive, as the fourth quarter will reflect a full quarter's benefit of three
25 basis point rate hikes by the Federal Reserve as well as the impact of our
debt redemption, which was completed late in September."
Non-Interest Income
Sovereign's consumer and commercial banking fees generated record levels
once again in the third quarter of 2004. Consumer banking fees increased by
$9.2 million, or 17%, compared to the same period in 2003. The increase was
driven principally by deposit fees, which increased by $7.0 million to
$51.3 million. Commercial banking fees increased $4.6 million to
$31.8 million, or 17%, over the same period a year ago driven by growth in
loan fees. Consumer and commercial banking fees increased 8% and 4%,
respectively, in the third quarter of 2004 as compared to second quarter 2004
levels. Excluding approximately $3.7 million in revenue related to Seacoast,
consumer and commercial banking fees increased 11.0% and 15.4%, respectively,
over last year.
Mortgage banking revenues for the quarter were a loss of $4.1 million,
compared to revenues of $16.4 million last quarter and $17.5 million a year
ago. Due to changes in prepayment speeds and interest rates, a servicing
rights impairment charge of $9.4 million was recorded in the third quarter of
2004. This compares to reversals of valuation reserve recorded in the second
quarter of 2004 and the third quarter of 2003 of $17.1 million and
$18.3 million, respectively. Hogan noted, "Excluding an impairment charge
this quarter and reversals of the valuation reserve related to mortgage
servicing rights in the previous comparable quarters, mortgage banking
revenues were $5.3 million in the third quarter of 2004 as compared to slight
losses of $.7 million in the second quarter of 2004 and $.8 million in the
third quarter of 2003." Mortgage banking results are summarized in the
financial tables attached to this release. As of September 30, 2004, mortgage
servicing rights, net of reserves of $10.9 million, were $74.0 million and our
servicing portfolio was $6.5 billion, with a capitalized cost of 114 basis
points.
Sovereign has attempted in recent quarters to minimize fee income
volatility by realizing gains on sales of investments to offset mortgage
banking declines resulting from servicing right impairment charges, as these
two revenue sources have characteristics that offset each other. This is
evidenced by third quarter and second quarter 2004 combined revenue from
mortgage banking revenue and securities gains of $16.2 million and
$17.3 million, respectively.
Non-Interest Expense
G&A expenses for the quarter were $238 million, up 5.8% from $225 million
in the second quarter and up 13% from $211 million a year ago. Excluding
operating expenses during the quarter of approximately $18.0 million related
to Seacoast, G&A expenses decreased $5.0 million from the second quarter of
2004. Hogan stated, "In the third quarter, our efficiency ratio was 50.4%
versus 49.2% in the second quarter of 2004 and 51.8% in the third quarter of
2003. Most of the increase we've seen in our efficiency ratio is a result of
weak mortgage banking results, as well as the timing of systems conversions
related to our acquisition of Seacoast. A portion of Seacoast was converted
at closing on July 23, 2004, while a more significant portion was not
converted until the weekend of October 15th. We have committed to improving
our efficiency ratio by 100 basis points in 2004 and we are ahead of schedule
in fulfilling that commitment."
Sovereign's effective tax rate declined in the third quarter to 17.2% on a
GAAP basis due to reduced pre-tax income resulting from the debt redemption
and Seacoast merger charges incurred during the quarter, which were both tax
benefited at 35%. On an operating basis, Sovereign's effective tax rate was
25.8% in the third quarter. Sovereign's full-year 2004 effective tax rate is
expected to be approximately 26% on an operating basis, since all of
Sovereign's operating adjustments are tax benefited at 35%.
Franchise Growth
Sovereign's total loan portfolio increased during the third quarter by
$6.1 billion to $35.3 billion, $4.1 billion of which was a result of the
Seacoast acquisition. Organic loan growth was $2.0 billion during the
quarter. Consumer loans have increased 28% over the third quarter of last
year, while commercial loans have increased 9%, excluding the impact of
acquisitions. Commercial and consumer loans now make up 38% and 39%,
respectively, of the total loan portfolio. The following table depicts
Sovereign's loan composition as of September 30, 2004 ($ in millions):
Loan Category Ending Balance Q3 2004 Yield Q2 2004 Yield Q3 2004
% of Loans
Commercial $13,446 4.91% 4.55% 38.1%
Consumer 13,857 5.10% 5.00% 39.3
Residential
mortgage 7,959 5.21% 5.57% 22.6
Total $35,262 5.05% 4.90% 100%
Core deposits increased $2.9 billion during the quarter to $25.7 billion;
excluding the Seacoast acquisition, core deposits grew $468 million, or 8.2%
annualized, during the quarter. Total deposits increased $4.1 billion during
the quarter to $33.1 billion; $3.6 billion of the increase was a result of the
Seacoast acquisition. Time deposits account for only 22% of total deposits at
September 30, 2004. The following table summarizes Sovereign's deposit
position as of September 30, 2004 ($ in millions):
Deposit
Category Ending Balance Q3 2004 Cost Q2 2004 Cost Q3 2004
% of Total
Deposits
Checking $13,669 0.57% 0.40 % 41.3%
Other core
(MMDA & Savings) 12,075 0.97% 0.80 % 36.5
Total Core 25,744 0.76% 0.59% 77.8
Time deposits 7,358 2.04% 2.04% 22.2
Total deposits $33,102 1.04% .90% 100%
Asset Quality
Sovereign's credit quality continued to improve in the third quarter of
2004. Non-performing assets ("NPAs") declined $7 million during the quarter
to $169 million at September 30, 2004; this includes $17.5 million of
non-performing loans added as a result of the Seacoast acquisition. NPAs to
total assets decreased to .30% during the third quarter of 2004, compared to
..36% at June 30, 2004. Sovereign's provision for loan losses was
$25.0 million this quarter compared to $32.0 million in the second quarter and
$36.6 million in the third quarter of 2003. The allowance for loan losses to
total loans decreased to 1.15% at September 30, 2004, as compared to 1.21% at
June 30, 2004 and 1.31% at September 30, 2003, due to improved credit quality
and a shift towards a lower risk loan portfolio due to the acquisition of
Seacoast. Coverage of non-performing loans improved significantly during the
quarter. The allowance for loan losses to non-performing loans now stands at
276%, as compared to 232% at June 30, 2004 and 137% at September 30, 2003.
Capital
Sovereign's Tier 1 leverage ratio was 6.56% at September 30, 2004.
Tangible common equity to tangible assets was 4.51%. Tangible common equity
to tangible assets, excluding other comprehensive income ("OCI"), was 4.77%.
The equity to assets ratio was 8.64% at September 30, 2004. Sovereign Bank's
Tier 1 leverage ratio was 6.62% and the bank's risk-based capital ratio was
11.34% at September 30, 2004.
Accounting Changes
On September 30, 2004, the Emerging Issues Task Force (EITF) reached a
consensus on EITF 04-8 "Accounting Issues Related to Certain Features of
Contingently Convertible Debt and the Effect on Diluted Earnings per Share,"
which eliminated certain accounting benefits of convertible debt with
contingent conversion features by requiring such instruments to be accounted
for under the if-converted method for diluted earnings per share purposes.
Issuers whose contingent convertible debt can be settled in stock will be
required to increase the number of shares used in diluted earnings per share
calculations by the total number of shares underlying the contingent
convertible debt, regardless of conversion price. Many companies, including
Sovereign, are retroactively affected by this accounting change. Sovereign
issued $800 million of contingently convertible trust preferred equity income
redeemable securities in the first quarter of 2004. Effective in the fourth
quarter 2004, Sovereign will be required to adopt EITF 04-8 and as a result,
prior period earnings per share will be required to be restated. Sovereign
expects this accounting change to result in a downward restatement of
year-to-date prior period diluted GAAP earnings per share from $.99 to $.97.
A reconcilement of quarterly GAAP, earnings per share, including the
anticipated impact of EITF 04-8, is included in a later section of this
release.
Looking Ahead
"We continue to be comfortable with management's guidance of $1.65 to
$1.70 in operating earnings per share and approximately $1.85 to $1.90 in cash
earnings per share for 2004, excluding the $.03 to $.04 anticipated impact of
EITF 04-8 described above, after-tax merger related charges of $.12 for our
completed acquisitions of First Essex and Seacoast and $.13 in connection with
the debt redemption," Sidhu commented. "We are also comfortable with the
analysts' mean estimate of $1.91 per share for 2005, which implies an
operating earnings growth of 14%. In spite of recent accounting changes,
which will impact 2005 earnings per share $.05 to $.06, management's goal
remains to strive for $1.90 to $2.00 in operating earnings per share,
excluding after-tax merger related charges of $.04 to $.06 for our pending
acquisition of Waypoint, which is expected to close in January 2005." A
reconcilement of GAAP, operating, and cash earnings per share is included in a
later section of this release.
Based upon our October 18 stock price of $21.54, Sovereign is trading at a
P/E of 11.3x analysts' mean 2005 estimate of operating earnings per share, a
P/E of 10.4x for implied 2005 cash earnings per share and 154% of current book
value. The book value per share at September 30, 2004 was $13.95.
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company
of Sovereign Bank, pro forma a $60 billion financial institution with more
than 650 community banking offices, over 1,000 ATMs and approximately 9,500
team members in Connecticut, Maryland, 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 pending
acquisitions, Sovereign is the 18th largest banking institution in the United
States. For more information on Sovereign Bank, visit
http://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 Third Quarter 2004 earnings call on Wednesday, October 20
beginning at 8:30 a.m. ET at >Investor Relations >News >Conference
Calls/Webcasts; or
http://www.firstcallevents.com/service/ajwz410086127gf12.html. The web-cast
replay can be accessed anytime from 11:00 a.m. ET on October 20, 2004 through
12 a.m. ET (midnight) on December 15, 2004. Questions may be submitted during
the call via email to investor@sovereignbank.com. A telephone replay will be
accessible from October 20, 2004 - October 25, 2004 by dialing 1-800-642-1687,
and confirmation id#1093191.
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. The forward-looking operating earnings
guidance for 2004 excludes the anticipated impact of EITF 04-8, which will be
effective in the fourth quarter of 2004. 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
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2004 2004 2004 2003 2003
(dollars in millions, except
per share data)
Operating Data
Net income $82.5 $131.4 $102.2 $112.6 $109.2
Operating earnings (1) 143.3 131.4 121.5 112.6 109.2
Cash earnings (2) 161.6 147.2 136.9 127.3 124.4
Net interest income 363.0 332.0 322.8 308.5 287.3
Provision for loan losses 25.0 32.0 43.0 40.0 36.6
Total fees and other income before
securities transactions 108.3 124.2 109.1 121.2 119.5
Net gain on investment securities 20.2 0.8 17.9 10.2 18.8
G&A expense 237.7 224.6 223.1 217.6 210.8
Other expenses (3) 129.1 28.1 48.6 27.4 27.5
Performance Statistics
Bancorp
Net interest margin (3) 3.17% 3.22% 3.28% 3.39% 3.32%
Cash return on average assets (2) 1.20% 1.23% 1.20% 1.18% 1.20%
Operating return on average assets
(1) 1.07% 1.10% 1.07% 1.05% 1.05%
Cash return on average equity (2) 14.14% 15.26% 15.47% 15.94% 15.97%
Operating return on average equity
(1) 12.55% 13.62% 13.72% 14.10% 14.03%
Annualized net loan charge-offs to
average loans 0.25% 0.43% 0.51% 0.55% 0.55%
Efficiency ratio (3) (4) 50.44% 49.22% 51.67% 50.65% 51.82%
Per Share Data
Basic earnings per share $0.25 $0.43 $0.34 $0.38 $0.37
Diluted earnings per share 0.24 0.42 0.33 0.38 0.37
Operating earnings per share (1) 0.42 0.42 0.40 0.38 0.37
Cash earnings per share (2) 0.47 0.47 0.45 0.43 0.42
Dividend declared per share .030 .030 .025 .025 .025
Book value (5) 13.95 12.46 12.78 11.12 10.84
Common stock price:
High 22.48 22.10 24.51 24.99 19.68
Low 20.48 19.51 20.37 18.42 15.74
Close $21.82 $22.10 $21.42 $23.75 $18.55
Weighted average common shares:
Basic 335.6 306.1 300.7 292.5 292.2
Diluted 341.7 311.7 306.7 298.5 297.2
End-of-period common shares:
Basic 345.3 306.2 306.4 293.1 292.3
Diluted 351.2 312.1 311.7 299.4 297.4
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Year to Date
Sept. 30 Sept. 30
2004 2003
(dollars in millions, except
per share data)
Operating Data
Net income $316.1 $289.3
Operating earnings (1) 396.1 308.1
Cash earnings (2) 445.6 354.4
Net interest income 1,017.8 897.1
Provision for loan losses 100.0 122.0
Total fees and other income before
securities transactions 341.6 334.4
Net gain on investment securities 39.0 55.8
G&A expense 685.4 634.7
Other expenses (3) 205.7 130.6
Performance Statistics
Bancorp
Net interest margin (3) 3.22% 3.43%
Cash return on average assets (2) 1.21% 1.16%
Operating return on average assets
(1) 1.08% 1.00%
Cash return on average equity (2) 14.90% 16.13%
Operating return on average equity
(1) 13.24% 14.02%
Annualized net loan charge-offs to
average loans 0.39% 0.55%
Efficiency ratio (3) (4) 50.42% 51.54%
Per Share Data
Basic earnings per share $1.01 $1.06
Diluted earnings per share 0.99 1.01
Operating earnings per share (1) 1.24 1.07
Cash earnings per share (2) 1.39 1.23
Dividend declared per share 0.085 0.075
Book value (5) 13.95 10.84
Common stock price:
High 24.51 15.57
Low 19.51 11.85
Close $21.82 $12.90
Weighted average common shares:
Basic 314.4 272.1
Diluted 320.3 287.7
End-of-period common shares:
Basic 345.3 292.3
Diluted 351.2 297.4
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 I.
(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 I.
(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 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
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2004 2004 2004 2003 2003
(dollars in millions)
Financial Condition Data:
General
Total assets $55,755 $48,687 $47,043 $43,505 $41,055
Loans 35,262 29,130 27,739 26,149 24,550
Total deposits and customer
related accounts: 33,102 29,001 28,118 27,344 27,515
Core deposits and other
customer related
accounts 25,744 22,824 21,939 21,334 21,233
Time deposits 7,358 6,176 6,179 6,010 6,283
Borrowings 16,919 15,157 14,262 12,198 9,570
Minority interests 203 203 203 202 202
Stockholders' equity 4,815 3,815 3,916 3,260 3,169
Goodwill 2,103 1,289 1,293 1,027 1,027
Core deposit intangible 305 249 262 269 287
Asset Quality
Non-performing assets $168.8 $176.1 $212.0 $220.4 $257.7
Non-performing loans $147.5 $152.2 $188.6 $199.4 $236.1
Non-performing assets to
total assets 0.30% 0.36% 0.45% 0.51% 0.63%
Non-performing loans to
total loans 0.42% 0.52% 0.68% 0.76% 0.96%
Allowance for loan losses $406.6 $352.6 $351.0 $327.9 $322.7
Allowance for loan losses
to total loans 1.15% 1.21% 1.27% 1.25% 1.31%
Allowance for loan losses
to non-performing loans 276% 232% 186% 164% 137%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 8.64% 7.84% 8.32% 7.49% 7.72%
Tier 1 leverage capital
ratio 6.56% 7.13% 7.12% 5.61% 5.60%
Tangible equity to tangible
assets, excluding OCI 4.77% 5.28% 5.19% 4.80% 4.73%
Tangible equity to tangible
assets, including OCI 4.51% 4.83% 5.19% 4.66% 4.67%
Capitalization - Bank (1)
Stockholders' equity to
total assets 10.20% 9.12% 9.60% 8.99% 9.49%
Tier 1 leverage capital
ratio 6.62% 6.85% 6.82% 6.66% 6.96%
Tier 1 risk-based capital
ratio 8.42% 8.92% 8.82% 8.60% 8.65%
Total risk-based capital
ratio 11.34% 12.12% 12.13% 12.12% 12.20%
(1) All capital ratios are calculated based upon adjusted end of period
assets consistent with OTS guidelines. The current quarter ratios are
estimated as of the date of this earnings release.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
Sept. 30 June 30 Mar. 31
(dollars in thousands) 2004 2004 2004
Assets
Cash and amounts due
from depository institutions $1,266,044 $1,026,719 $893,193
Investments:
Available-for-sale 10,111,845 10,493,897 11,912,292
Held-to-maturity 4,027,472 4,007,041 2,489,030
Total investments 14,139,317 14,500,938 14,401,322
Loans:
Commercial 13,445,735 12,251,456 11,919,975
Consumer 13,856,992 11,986,107 11,012,103
Residential mortgages 7,958,974 4,892,305 4,806,494
Total loans 35,261,701 29,129,868 27,738,572
Less allowance for loan losses (406,612) (352,637) (351,007)
Total loans, net 34,855,089 28,777,231 27,387,565
Premises and equipment, net 352,089 286,682 289,517
Accrued interest receivable 225,918 196,347 188,002
Goodwill 2,103,158 1,289,340 1,292,809
Core deposit intangible 304,754 249,169 261,582
Bank owned life insurance 879,189 851,155 841,568
Other assets 1,629,450 1,509,296 1,487,657
Total assets $55,755,008 $48,686,877 $47,043,215
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $25,743,796 $22,824,310 $21,939,435
Time deposits 7,357,882 6,176,310 6,178,871
Total 33,101,678 29,000,620 28,118,306
Borrowings and other debt
obligations 16,919,164 15,157,017 14,261,686
Other liabilities 715,326 511,131 545,084
Total liabilities 50,736,168 44,668,768 42,925,076
Minority interests 203,488 202,919 202,513
Stockholders' equity:
Common Stock 2,934,733 2,105,312 2,102,183
Warrants and stock options 318,874 306,594 305,297
Unallocated ESOP shares (26,078) (26,078) (26,078)
Treasury stock (19,767) (20,242) (22,190)
Accumulated other
comprehensive income/ (loss) (136,645) (222,499) 6,349
Retained earnings 1,744,235 1,672,103 1,550,065
Total stockholders' equity 4,815,352 3,815,190 3,915,626
Total liabilities and
stockholders' equity $55,755,008 $48,686,877 $47,043,215
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
Dec. 31 Sept. 30
(dollars in thousands) 2003 2003
Assets
Cash and amounts due
from depository institutions $950,302 $971,697
Investments:
Available-for-sale 10,102,619 11,109,603
Held-to-maturity 2,516,352 413,152
Total investments 12,618,971 11,522,755
Loans:
Commercial 11,063,686 10,756,312
Consumer 10,010,289 9,684,319
Residential mortgages 5,074,684 4,109,216
Total loans 26,148,659 24,549,847
Less allowance for loan losses (327,894) (322,684)
Total loans, net 25,820,765 24,227,163
Premises and equipment, net 273,278 273,931
Accrued interest receivable 190,714 175,644
Goodwill 1,027,292 1,027,292
Core deposit intangible 268,759 287,293
Bank owned life insurance 801,535 792,607
Other assets 1,553,713 1,776,910
Total assets $43,505,329 $41,055,292
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $21,334,106 $21,232,550
Time deposits 6,009,902 6,282,630
Total 27,344,008 27,515,180
Borrowings and other debt obligations 12,197,603 9,570,356
Other liabilities 501,176 599,032
Total liabilities 40,042,787 37,684,568
Minority interests 202,136 201,757
Stockholders' equity:
Common Stock 1,892,126 1,872,953
Warrants and stock options 13,944 13,230
Unallocated ESOP shares (26,078) (28,465)
Treasury stock (21,927) (22,501)
Accumulated other
comprehensive income/ (loss) (52,924) (16,345)
Retained earnings 1,455,265 1,350,095
Total stockholders' equity 3,260,406 3,168,967
Total liabilities and
stockholders' equity $43,505,329 $41,055,292
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2004 2004 2004 2003 2003
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on interest-
earning deposits $1,505 $980 $528 $385 $539
Interest on
investment
securities
Available for sale 124,803 136,497 137,226 144,787 132,211
Held to maturity 46,470 31,879 28,819 5,142 5,958
Interest on loans 412,771 345,288 333,190 324,990 325,062
Total interest
and dividend
income 585,549 514,644 499,763 475,304 463,770
Interest expense:
Deposits and related
customer accounts 83,160 63,142 65,012 68,647 73,488
Borrowings 139,439 119,463 111,935 98,178 102,990
Total interest
expense 222,599 182,605 176,947 166,825 176,478
Net interest
income 362,950 332,039 322,816 308,479 287,292
Provision for loan
losses 25,000 32,000 43,000 40,000 36,600
Net interest
income after
provision for
loan losses 337,950 300,039 279,816 268,479 250,692
Non-interest income:
Consumer banking
fees 62,771 58,072 53,985 53,778 53,531
Commercial banking
fees 31,757 30,552 28,685 28,766 27,197
Mortgage banking
revenue (1) (4,080) 16,436 5,427 15,725 17,458
Capital markets
revenue 3,409 5,099 4,887 4,814 5,389
Bank owned life
insurance income 9,922 9,588 9,626 10,810 12,080
Other 4,498 4,499 6,444 7,262 3,861
Total fees and other
income before security
gains 108,277 124,246 109,054 121,155 119,516
Net gain on
securities 20,247 829 17,881 10,232 18,848
Total non-
interest income 128,524 125,075 126,935 131,387 138,364
Non-interest expense:
General and
administrative
Compensation and
benefits 114,871 105,224 104,080 98,314 97,788
Occupancy and
equipment 54,976 52,097 54,379 53,437 52,838
Technology expense 18,935 19,333 17,605 19,145 18,652
Outside services 14,332 12,746 12,336 14,148 12,192
Marketing expense 11,983 10,751 10,700 8,385 9,218
Other
administrative
expenses 22,583 24,433 24,046 24,201 20,132
Total general
and
administrative 237,680 224,584 223,146 217,630 210,820
Other expenses:
Amortization of core
deposit intangibles 19,836 17,576 17,553 17,823 18,246
Trust preferred
securities and other
minority interest
expense 5,502 5,438 5,436 5,439 5,434
Equity method
investments (2) 10,257 7,327 2,012 4,159 2,966
Loss/(gain) on debt
extinguishment 65,546 (2,285) - - 857
Merger-related and
integration charges 27,941 - 23,587 - -
Total other
expenses 129,082 28,056 48,588 27,421 27,503
Total non-
interest
expense 366,762 252,640 271,734 245,051 238,323
Income before
income taxes 99,712 172,474 135,017 154,815 150,733
Income tax expense 17,170 41,120 32,790 42,228 41,500
Net income $82,542 $131,354 $102,227 $112,587 $109,233
Diluted
earnings
per share $0.24 $0.42 $0.33 $0.38 $0.37
Operating
earnings
per share
(3) $0.42 $0.42 $0.40 $0.38 $0.37
Weighted
average
shares:
Basic 335,603 306,087 300,720 292,540 292,169
Diluted 341,700 311,689 306,678 298,508 297,151
(1) Mortgage banking
activity is summarized
below:
Gains on sale of
mortgage loans and
mortgage backed
securities 4,090 2,808 16,469 9,457 19,080
Net gains/(loss)
recorded under SFAS 133 (112) (1,878) 81 7,895 (14,112)
Mortgage servicing fees,
net of mortgage
servicing rights
amortization 1,343 (1,628) 137 (479) (5,760)
Mortgage servicing right
(impairments)/
recoveries (9,401) 17,134 (11,260) (1,148) 18,250
Total mortgage
banking revenues (4,080) 16,436 5,427 15,725 17,458
(2) During the second quarter of 2004, Sovereign made a $60 million
investment in a synthetic fuel partnership which is accounted for as
an equity method investment. As a result of the increasing
significance of our equity method investment portfolios, Sovereign
reclassified the income statement effects of these items to other
expenses.
(3) See reconciliation on Page I.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Year to Date
Sept. 30 Sept. 30
2004 2003
(dollars in thousands, except per
share data)
Interest and dividend income:
Interest on interest-earning
deposits $3,013 $1,756
Interest on investment securities
Available for sale 398,526 439,910
Held to maturity 107,168 21,981
Interest on loans 1,091,249 990,800
Total interest and dividend
income 1,599,956 1,454,447
Interest expense:
Deposits and related customer
accounts 211,314 252,042
Borrowings 370,837 305,256
Total interest expense 582,151 557,298
Net interest income 1,017,805 897,149
Provision for loan losses 100,000 121,957
Net interest income after
provision for loan losses 917,805 775,192
Non-interest income:
Consumer banking fees 174,828 155,041
Commercial banking fees 90,994 79,207
Mortgage banking revenue (1) 17,783 34,293
Capital markets revenue 13,395 22,200
Bank owned life insurance income 29,136 32,528
Other 15,441 11,095
Total fees and other income before
security gains 341,577 334,364
Net gain on securities 38,957 55,825
Total non-interest income 380,534 390,189
Non-interest expense:
General and administrative
Compensation and benefits 324,175 290,436
Occupancy and equipment 161,452 157,324
Technology expense 55,873 53,887
Outside services 39,414 39,288
Marketing expense 33,434 30,439
Other administrative expenses 71,062 63,361
Total general and
administrative 685,410 634,735
Other expenses:
Amortization of core deposit
intangibles 54,965 56,012
Trust preferred securities and other
minority interest expense 16,376 37,374
Equity method investments (2) 19,596 7,338
Loss/(gain) on debt extinguishment 63,261 29,838
Merger-related and integration
charges 51,528 -
Total other expenses 205,726 130,562
Total non-interest
expense 891,136 765,297
Income before income taxes 407,203 400,084
Income tax expense 91,080 110,820
Net income $316,123 $289,264
Diluted earnings per
share $0.99 $1.01
Operating earnings per
share (3) $1.24 $1.07
Weighted average shares:
Basic 314,365 272,114
Diluted 320,251 287,693
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans and
mortgage backed securities 23,367 51,767
Net gains/(loss) recorded under SFAS
133 (1,909) (6,186)
Mortgage servicing fees, net of
mortgage servicing rights
amortization (148) (11,641)
Mortgage servicing right
(impairments)/recoveries (3,527) 353
Total mortgage banking revenues 17,783 34,293
(2) During the second quarter of 2004, Sovereign made a $60 million
investment in a synthetic fuel partnership which is accounted for as
an equity method investment. As a result of the increasing
significance of our equity method investment portfolios, Sovereign
reclassified the income statement effects of these items to other
expenses.
(3) See reconciliation on Page I.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
September 30, 2004
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $15,045,842 $183,007 4.86%
Loans:
Commercial 13,006,393 162,723 4.91%
Consumer 12,919,725 165,502 5.10%
Residential mortgages 6,675,476 86,906 5.21%
Total loans 32,601,594 415,131 5.05%
Allowance for loan losses (395,427)
Total earning assets 47,252,009 $598,138 5.03%
Other assets 6,223,444
Total assets $53,475,453
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $24,753,740 $47,349 0.76%
Time deposits 6,985,446 35,811 2.04%
Total 31,739,186 83,160 1.04%
Borrowings:
Federal Home Loan Bank
advances 9,759,462 87,986 3.54%
Fed funds and repurchase
agreements 2,797,876 16,206 2.31%
Other borrowings 3,921,692 35,247 3.56%
Total borrowings 16,479,030 139,438 3.34%
Total funding liabilities 48,218,216 $222,599 1.83%
Other liabilities 713,062
Total liabilities 48,931,278
Stockholders' equity 4,544,175
Total liabilities and
stockholders' equity $53,475,453
Net interest income $375,539
Interest rate spread 2.80%
Net interest margin 3.17%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
June 30, 2004
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $14,766,721 $179,444 4.86%
Loans:
Commercial 12,084,881 138,736 4.55%
Consumer 11,302,412 140,510 5.00%
Residential mortgages 4,854,811 67,649 5.57%
Total loans 28,242,104 346,895 4.90%
Allowance for loan losses (355,125)
Total earning assets 42,653,700 $526,339 4.93%
Other assets 5,357,589
Total assets $48,011,289
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $22,101,334 $32,382 0.59%
Time deposits 6,070,703 30,760 2.04%
Total 28,172,037 63,142 0.90%
Borrowings:
Federal Home Loan Bank
advances 8,271,726 79,227 3.81%
Fed funds and repurchase
agreements 3,148,479 7,529 0.94%
Other borrowings 3,868,466 32,707 3.36%
Total borrowings 15,288,671 119,463 3.10%
Total funding liabilities 43,460,708 $182,605 1.68%
Other liabilities 671,178
Total liabilities 44,131,886
Stockholders' equity 3,879,403
Total liabilities and
stockholders' equity $48,011,289
Net interest income $343,734
Interest rate spread 2.86%
Net interest margin 3.22%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
September 30, 2003
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $11,280,351 $145,505 5.16%
Loans:
Commercial 10,761,231 130,897 4.77%
Consumer 9,340,289 130,403 5.54%
Residential mortgages 4,335,326 64,616 5.96%
Total loans 24,436,846 325,916 5.28%
Allowance for loan losses (323,743)
Total earning assets 35,393,454 $471,421 5.29%
Other assets 5,773,003
Total assets $41,166,457
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $21,093,786 $31,967 0.60%
Time deposits 6,430,966 41,521 2.56%
Total 27,524,752 73,488 1.06%
Borrowings:
Federal Home Loan Bank
advances 5,968,148 73,111 4.83%
Fed funds and repurchase
agreements 1,303,393 3,328 1.01%
Other borrowings 2,291,656 26,551 4.58%
Total borrowings 9,563,197 102,990 4.25%
Total funding liabilities 37,087,949 $176,478 1.88%
Other liabilities 988,561
Total liabilities 38,076,510
Stockholders' equity 3,089,947
Total liabilities and
stockholders' equity $41,166,457
Net interest income $294,943
Interest rate spread 2.85%
Net interest margin 3.32%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
September 30, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,645,912 538,827 4.90%
Loans:
Commercial 12,171,171 433,788 4.69%
Consumer 11,569,780 441,722 5.10%
Residential mortgages 5,549,520 221,298 5.32%
Total loans 29,290,471 1,096,808 4.97%
Allowance for loan losses (364,857)
Total earning assets 43,571,526 $1,635,635 4.99%
Other assets 5,558,865
Total assets $49,130,391
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $22,741,136 $111,393 0.65%
Time deposits 6,390,430 99,921 2.09%
Total 29,131,566 211,314 0.97%
Borrowings:
Federal Home Loan Bank
advances 8,701,974 245,027 3.72%
Fed funds and repurchase
agreements 2,833,640 31,153 1.46%
Other borrowings 3,785,105 94,657 3.31%
Total borrowings 15,320,719 370,837 3.20%
Total funding liabilities 44,452,285 $582,151 1.74%
Other liabilities 681,635
Total liabilities 45,133,920
Stockholders' equity 3,996,471
Total liabilities and
stockholders' equity $49,130,391
Net interest income $1,053,484
Interest rate spread 2.85%
Net interest margin 3.22%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
September 30, 2003
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $11,894,103 $478,552 5.36%
Loans:
Commercial 10,531,400 403,546 5.06%
Consumer 8,970,627 390,332 5.82%
Residential mortgages 4,451,050 200,034 5.99%
Total loans 23,953,077 993,912 5.52%
Allowance for loan losses (312,308)
Total earning assets 35,534,872 $1,472,464 5.51%
Other assets 5,453,491
Total assets $40,988,363
Funding liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $20,217,404 $116,955 0.77%
Time deposits 6,640,323 135,087 2.72%
Total 26,857,727 252,042 1.25%
Borrowings:
Federal Home Loan Bank
advances 5,865,820 224,937 5.08%
Fed funds and repurchase
agreements 1,972,641 3,881 0.25%
Other borrowings 2,086,034 76,438 4.86%
Total borrowings 9,924,495 305,256 4.07%
Total funding liabilities 36,782,222 $557,298 2.01%
Other liabilities 1,268,257
Total liabilities 38,050,479
Stockholders' equity 2,937,884
Total liabilities and
stockholders' equity $40,988,363
Net interest income $915,166
Interest rate spread 2.97%
Net interest margin 3.43%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
(dollars in thousands) 2004 2004 2004 2003 2003
Non-accrual loans:
Commercial $89,061 $90,370 $113,734 $129,029 $165,317
Consumer 24,417 27,923 31,573 30,921 29,667
Residential mortgages 32,858 32,635 41,925 38,195 39,745
Total non-accrual
loans 146,336 150,928 187,232 198,145 234,729
Restructured loans 1,205 1,262 1,378 1,235 1,335
Total non-
performing loans 147,541 152,190 188,610 199,380 236,064
Real estate owned, net 16,397 19,609 18,349 17,016 17,556
Other repossessed assets 4,824 4,268 5,006 4,051 4,082
Total non-
performing assets $168,762 $176,067 $211,965 $220,447 $257,702
Non-performing loans as
a percentage of total
loans 0.42% 0.52% 0.68% 0.76% 0.96%
Non-performing assets as
a percentage of total
assets 0.30% 0.36% 0.45% 0.51% 0.63%
Non-performing assets as
a percentage of total
loans, real estate
owned and repossessed
assets 0.48% 0.60% 0.76% 0.84% 1.05%
Allowance for loan
losses as a percentage
of non-performing loans 276% 232% 186% 164% 137%
NET LOAN CHARGE-OFFS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2004 2004 2004 2003 2003
Commercial real estate $(1,064) $6,117 $3,558 $98 $2,308
Commercial and industrial
and other 10,823 14,502 19,767 25,755 22,151
Total Commercial 9,759 20,619 23,325 25,853 24,459
Auto loans 7,615 6,418 7,408 5,521 5,038
Home equity loans and other 2,770 3,268 3,605 3,277 2,964
Total Consumer 10,385 9,686 11,013 8,798 8,002
Residential mortgages 326 65 209 138 992
Total $20,470 $30,370 $34,547 $34,789 $33,453
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2004 2004 2004
Demand deposit accounts $5,072,090 $4,698,610 $4,481,546
NOW accounts 7,748,012 6,554,831 6,248,412
Customer repurchase agreements 848,890 810,062 789,524
Savings accounts 3,667,116 3,303,890 3,317,836
Money market accounts 8,407,688 7,456,917 7,102,117
Certificates of deposits 7,357,882 6,176,310 6,178,871
Total $33,101,678 $29,000,620 $28,118,306
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Dec. 31 Sept. 30
Quarters ended (in thousands) 2003 2003
Demand deposit accounts $4,306,376 $4,292,621
NOW accounts 6,068,163 6,294,730
Customer repurchase agreements 1,017,544 902,522
Savings accounts 3,098,892 3,166,319
Money market accounts 6,843,131 6,576,358
Certificates of deposits 6,009,902 6,282,630
Total $27,344,008 $27,515,180
LOAN COMPOSITION - End of period
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2004 2004 2004
Commercial real estate $5,800,536 $5,050,915 $4,993,700
Commercial industrial loans 7,645,199 7,200,541 6,926,275
Total commercial loans 13,445,735 12,251,456 11,919,975
Home equity loans 8,988,139 7,790,049 6,971,401
Auto loans 4,340,487 3,631,153 3,621,169
Other 528,366 564,905 419,533
Total consumer loans 13,856,992 11,986,107 11,012,103
Total residential loans 7,958,974 4,892,305 4,806,494
Total loans $35,261,701 $29,129,868 $27,738,572
LOAN COMPOSITION - End of period
Dec. 31 Sept. 30
Quarters ended (in thousands) 2003 2003
Commercial real estate $4,702,046 $4,660,138
Commercial industrial loans 6,361,640 6,096,174
Total commercial loans 11,063,686 10,756,312
Home equity loans 6,457,682 6,102,455
Auto loans 3,240,383 3,261,150
Other 312,224 320,714
Total consumer loans 10,010,289 9,684,319
Total residential loans 5,074,684 4,109,216
Total loans $26,148,659 $24,549,847
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2004 2004 2004
Demand deposit accounts $4,936,996 $4,506,601 $4,239,684
NOW accounts 7,117,978 6,313,501 5,990,184
Customer repurchase agreements 821,182 784,850 880,544
Savings accounts 3,621,567 3,328,743 3,217,946
Money market accounts 8,256,017 7,167,639 7,017,860
Certificates of deposits 6,985,446 6,070,703 6,108,153
Total $31,739,186 $28,172,037 $27,454,371
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Dec. 31 Sept. 30
Quarters ended (in thousands) 2003 2003
Demand deposit accounts $4,197,814 $4,186,582
NOW accounts 6,135,210 6,253,423
Customer repurchase agreements 963,885 970,330
Savings accounts 3,138,766 3,180,188
Money market accounts 6,744,627 6,503,263
Certificates of deposits 6,138,121 6,430,966
Total $27,318,423 $27,524,752
LOAN COMPOSITION - Average
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2004 2004 2004
Commercial real estate $5,621,144 $5,014,765 $4,869,200
Commercial industrial loans 6,534,378 6,214,663 5,669,558
Other 850,871 855,453 874,302
Total commercial loans 13,006,393 12,084,881 11,413,060
Home equity loans 8,177,146 7,206,082 6,666,343
Auto loans 4,198,175 3,636,061 3,457,105
Other 544,404 460,269 348,921
Total consumer loans 12,919,725 11,302,412 10,472,369
Total residential loans 6,675,476 4,854,811 5,105,900
Total loans $32,601,594 $28,242,104 $26,991,329
LOAN COMPOSITION - Average
Dec. 31 Sept. 30
Quarters ended (in thousands) 2003 2003
Commercial real estate $4,662,734 $4,610,919
Commercial industrial loans 5,336,532 5,285,571
Other 881,626 864,741
Total commercial loans 10,880,892 10,761,231
Home equity loans 6,241,296 5,824,058
Auto loans 3,248,915 3,203,014
Other 319,592 313,217
Total consumer loans 9,809,803 9,340,289
Total residential loans 4,726,609 4,335,326
Total loans $25,417,304 $24,436,846
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 and Seacoast
acquisitions and the after-tax effects of the loss on our debt extinguishment
of holding company notes in September 2004. The forward-looking operating
earnings guidance for 2004 excludes the anticipated impact of EITF 04-8 which
will be effective in the fourth quarter of 2004. 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
Sept. 30 Jun. 30 Sept. 30
2004 2004 2003
Net income as reported $82,542 $131,354 $109,233
Business acquisitions:
Merger related and integration costs 18,162 - -
Provision for loan loss - - -
Adoption of EITF 04-8 (1) - - -
Loss on debt extinguishment 42,605 - -
Operating earnings 143,309 131,354 109,233
Amortization of intangibles 14,578 12,047 12,387
Stock based compensation (2) 3,671 3,761 2,795
Cash earnings $161,558 $147,162 $124,415
Weighted average diluted shares 341,700 311,689 297,151
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF CASH AND OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
(dollars in thousands, except per share data
- all amounts are after tax)
Quarter Ended
Per share
Sept. 30 Jun. 30 Sept. 30
2004 2004 2003
Net income as reported $0.24 $0.42 $0.37
Business acquisitions:
Merger related and integration costs 0.05 - -
Provision for loan loss - - -
Adoption of EITF 04-8 (1) - - -
Loss on debt extinguishment 0.13 - -
Operating earnings 0.42 0.42 0.37
Amortization of intangibles 0.04 0.04 0.04
Stock based compensation (2) 0.01 0.01 0.01
Cash earnings $0.47 $0.47 $0.42
Weighted average diluted shares
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF CASH AND OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
(dollars in thousands, except per share data
- all amounts are after tax)
Year to Date
Total dollars Per Share
Sept. Sept.
Sept. 30 Sept. 30 30 30
2004 2003 2004 2003
Net income as reported $316,123 $289,264 $0.99 $1.01
Business acquisitions:
Merger related and integration costs 33,493 - 0.11 -
Provision for loan loss 3,900 - 0.01 -
Adoption of EITF 04-8 (1) - - - -
Loss on debt extinguishment 42,605 18,838 0.13 0.07
Operating earnings 396,121 308,102 1.24 1.07
Amortization of intangibles 38,624 37,989 0.12 0.13
Stock based compensation (2) 10,900 8,265 0.03 0.03
Cash earnings $445,645 $354,356 $1.39 $1.23
Weighted average diluted shares 320,251 288,296
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF CASH AND OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
(dollars in thousands, except per share data
- all amounts are after tax)
Forward-Looking
Per Share
2004 2005
Net income as reported $1.36 - $1.41 $1.84 - $1.94
Business acquisitions:
Merger related and integration costs 0.11 .04 - .06
Provision for loan loss 0.01 -
Adoption of EITF 04-8 (1) 0.03 - 0.04 -
Loss on debt extinguishment 0.13 -
Operating earnings $1.65 - $1.70 $1.90 - $2.00
Amortization of intangibles 0.16
Stock based compensation (2) 0.04
Cash earnings $1.85 - $1.90
Weighted average diluted shares
(1) Effective in the fourth quarter of 2004, Sovereign will be required to
adopt EITF 04-8 "Accounting Issues Related to Certain Features of
Contingently Convertible Debt and the Effect on Diluted Earnings per
Share". This EITF requires the potential dilution from contingently
convertible debt be included in the calculation of diluted earnings per
share upon the issuance of the debt. Sovereign issued $800 million of
contingently convertible trust preferred equity income redeemable
securities in the first quarter of 2004. Prior period earnings per share
will be required to be restated as detailed below.
Year to
Quarter Ended Date
Sept. 30 Jun. 30 Mar. 30 Sept. 30
2004 2004 2004 2004
Net income as reported: $82,542 $131,354 $102,227 $316,123
Addback : Contingently convertible
trust preferred interest expense,
net of tax 6,310 6,300 2,285 14,895
Adjusted net income for earnings
per share purposes $88,852 $137,654 $104,512 $331,018
Weighted average diluted shares as
reported 341,700 311,689 306,678 320,251
Additional dilution from
contingently convertible debt 26,082 26,082 9,675 20,613
Adjusted weighted average diluted
shares 367,782 337,771 316,353 340,864
Adjusted diluted earnings per
share 0.24 0.41 0.33 0.97
(2) 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
September 30, 2004. Sovereign issued 12.7 million shares of common stock and
exchanged Sovereign stock options for existing First Essex stock options,
whose combined value totaled $209.9 million and made cash payments of $208.2
million to acquire and convert all outstanding First Essex shares and stock
options and pay associated fees. The preliminary purchase price was allocated
to acquired assets and liabilities of First Essex based on fair value as of
February 6, 2004. The company is in the process of finalizing these values
and as such the allocation of the purchase price is subject to revision.
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 72.7
Core deposit intangible 15.6
Goodwill 262.1
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).
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Purchase of Seacoast Bancorp Inc. ("Seacoast")
On July 23, 2004, Sovereign completed the purchase of Seacoast and the
results of its operations are included from purchase date through September
30, 2004. Sovereign issued 36.2 million shares of common stock and exchanged
Sovereign stock options for existing Seacoast stock options, whose combined
value totaled $821.7 million and made cash payments of $256.2 million to
acquire and convert all outstanding Seacoast shares and stock options and pay
associated fees. The preliminary purchase price was allocated to acquired
assets and liabilities of Seacoast based on fair value as of July 23, 2004.
The company is in the process of finalizing these values and as such the
allocation of the purchase price is subject to revision.
Assets and Liabilities Acquired from Seacoast as of July 23, 2004:
(dollars in millions)
Assets Liabilities
Investments 714.9 Deposits:
Loans: Core 2,451.5
Commercial 966.4 Time 1,202.9
Consumer 1,015.2 Total deposits 3,654.4
Residential mortgages 2,120.4 Borrowings and other debt
obligations 1,158.5
Total loans 4,102.0 Other liabilities 83.9
Less allowance for loan
losses (49.5)
Total loans, net 4,052.5 Total liabilities $4,896.8
Cash paid, net of cash
acquired (32.2)
Premises and equipment,
net 63.0
Other real estate owned 0.7
Other assets 25.4
Core deposit intangible 75.4
Goodwill 818.8
Total assets $5,718.5
In connection with the Seacoast acquisition, Sovereign recorded charges
against its earnings for the three month period ended September 30, 2004 for
merger related expenses of $27.9 million pretax ($18.2 million net of tax).
SOURCE Sovereign Bancorp, Inc.
-0- 10/19/2004
/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 MAV CCA ERP