Exhibit 99.1
Sovereign Bancorp News Release
FOR IMMEDIATE RELEASE
October 18, 2001
James D. Hogan (610) 320-8496 Jhogan@Sovereignbank.com
Mark R. McCollom (610) 208-6426 Mmccollo@Sovereignbank.com
Tye M. Barnhart (610) 988-0300 Tbarnhar@Sovereignbank.com
Sovereign Website Sovereignbank.com
Corporate Headquarters: 2000 Market Street, Philadelphia, PA
Sovereign Announces Third Quarter
Cash EPS of $.36 and
Operating EPS of $.28
Cash Earnings of $95.0 million or $.36 per share
Operating Earnings of $72.8 million or $.28 per share; $.03
higher than consensus
Net interest margin remained steady at 3.59% versus 3.60% last
quarter
Non-interest income up $6.1 million versus second quarter, net
of branch sale gain
G&A expenses down $7.9 million versus second quarter
NPAs to total assets of 0.59% versus 0.56% at December 31,
2000; Third quarter net charge-offs down by $2.1 million
versus second quarter
Bancorp equity to assets ratio up to 6.15% and Tier I capital
ratio up to 3.73%
Bank equity to assets ratio up to 10.31% and Tier I capital
ratio up to 7.11%
PHILADELPHIA, PA...Sovereign Bancorp, Inc. ("Sovereign")
(NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported cash earnings for the third quarter 2001 of $95.0
million, or $.36 per diluted share. Cash earnings are operating
earnings excluding amortization of intangible assets and ESOP
expense.
Operating earnings for the quarter ended September 30, 2001
were $72.8 million or $.28 per share. Special charges excluded
from operating earnings in the third quarter 2001 were the final
expense payments to FleetBoston for Sovereign Bank New England
acquisition. The scheduled quarterly payment plus the prepaid
October, final payment amounted to $64.2 million after tax.
Third quarter 2001 Sovereign net income, which reflects these
payments, was $8.6 million, or $.03 per diluted share.
Commenting on third quarter 2001 operating results, Jay S.
Sidhu, Sovereign's President and Chief Executive Officer, said,
"We had a very solid quarter. We exceeded consensus estimates by
three cents a share, despite having 1.4 million more shares in
our diluted share count from the prior quarter. Our net interest
margin remained steady despite more Federal Reserve rate cuts.
We had greater fee income, lower operating expenses, and made our
final payment to FleetBoston for the Sovereign Bank New England
franchise."
Net Interest Margin
Net interest margin remained stable at 3.59%, down one basis
point from the prior quarter. James Hogan, Sovereign's Chief
Financial Officer, observed, "Sovereign entered this year with an
asset-sensitive balance sheet profile. Active management of our
liabilities coupled with the Bank's ability to attract new core
deposits have enabled us to expand our net interest margin by
nine basis points over the past three quarters, a period in which
the Fed has cut interest rates by 350 basis points. Assuming
another 50 basis point cut in November, we still expect to manage
our net interest margin at current levels."
Hogan added, "Net interest margin at the Bank was 3.97% this
quarter, 38 basis points higher than that of the holding company.
As holding company debt matures, Bancorp net interest margin will
naturally expand toward Bank levels."
Non-Interest Income and Expense
Total non-interest income was up $6.1 million versus the
second quarter, normalizing for the second quarter branch sale
gain. Third quarter consumer and commercial fee income totaled
$59.2 million, approximately $2 million higher than last quarter.
In addition, mortgage banking revenues were $5.5 million higher
than in the second quarter. Sidhu commented, "We are pleased
with the on-going improvements in our fee income. We continue to
benefit from a robust mortgage banking environment. More
importantly, however, fee income in our core banking operations
is up close to 30% from the fourth quarter of 2000, the first
full quarter with the Sovereign Bank New England franchise."
Hogan added, "We continue to focus on both internal and
partnering opportunities to increase fee income. The recently
announced partnership with First Data Merchant Card Services is
an example of how Sovereign can bring additional, value-added
services to its customers without adding costly infrastructure."
With regard to non-interest expense Hogan noted, "Our G&A
expenses were down across the board with a linked-quarter
improvement of $7.9 million. We will continue to focus on
efficiencies and expense control throughout the remainder of 2001
and 2002."
Balance Sheet Composition
Sovereign has taken a conservative stance in its lending
practices over the past several months given the general level of
economic uncertainty. Rather than stretch to underwrite weaker
loans at thin spreads, management has determined that some of the
Bank's capital is more prudently deployed in government
securities over the near term. "We will continue to closely
monitor economic conditions and make tactical changes as
circumstances warrant," Hogan stated.
"One strategy that we have used for some time, as well as in
the third quarter, is to securitize existing mortgages and retain
the resulting, agency mortgage-backed securities. These
transactions have the effect of mitigating credit risk and
improving risk-based capital levels," Hogan added. At
September 30, 2001, Sovereign held approximately $1.3 billion of
agency securities that were previously residential loans on the
Company's balance sheet.
Commercial loan balances were essentially flat from June 30,
2001. "However, fee income from commercial banking operations
increased over 50% versus the fourth quarter of 2000, the first
full quarter after the Sovereign Bank New England consolidation.
The investments that we have made in cash management and other
commercial banking platforms are beginning to pay off," Sidhu
noted.
Consumer banking operations continued to improve. Fee
income for the quarter was up over 16% from the fourth quarter of
2000, the first full quarter after the Sovereign Bank New England
consolidation. The Bank continued to attract and retain new core
deposits and make new loans in a tough economic environment
despite the rapid prepayment in the home equity loan portfolio,
consumer loan balances were up about $100 million on a linked-
quarter basis. After normalizing for branches sold in the second
quarter, average core deposits increased by $150 million during
the third quarter to $15.4 billion.
Asset Quality
Sovereign's provision for loan loss was $22.0 million for
the third quarter of 2001 versus $23.1 million in the second
quarter of 2001 and $10 million during the third quarter of 2000.
Net charge-offs in the third and second quarters were $21.0
million and $23.1 million respectively, which is consistent with
Sovereign's enumerated guidance that the provision for loan
losses will equal or exceed net charge-offs each quarter. Non-
performing Assets ("NPAs") were $204.8 million at September 30,
2001, up 9.3% from December 31, 2000 and up 12.4% from June 30,
2001 levels.
"As we have stated throughout the year, we are using year-
end 2000 as the barometer for gauging credit quality, since
fourth quarter 2000 represented the first full quarter after we
acquired the Fleet business. We believe that the rise in NPAs in
the third quarter after reductions in the first and second
quarters of 2001 is clearly attributable to our current economic
slow down. With the reduced net charge-offs for the quarter, in
relation to the increase in NPAs and stable delinquency, we gauge
our asset quality as being reasonably stable compared to other
reporting regional banks. We will remain very vigilant in
managing our loan portfolio as we expect to experience continued
future challenges with select borrowers. However, based upon our
current credit migration analysis, we expect net charge-offs in
the fourth quarter 2001 to be in the low-to-mid $20 million
range," stated Dennis S. Marlo, Sovereign's Chief Risk Management
Officer.
Capital
Despite having made the October payment to FleetBoston in
the third quarter, Sovereign's capital ratios improved at both
the bank and holding company levels. The Bank's equity to assets
ratio expanded six basis points to 10.31%, and the Bank's Tier 1
leverage improved ten basis points to 7.11%. The holding company
ratios showed similar improvements. The Bancorp's equity to
assets ratio improved three basis points to 6.15%, and the Tier 1
leverage ratio expanded seven basis points to 3.73%. Hogan said,
"Having made our last payment to FleetBoston, we should begin to
internally generate about $100 million of tangible equity per
quarter."
Community Involvement
In addition to a solid financial quarter, we have been very
active in our communities. As a super-community bank, we believe
that contributing our time and money to the communities we live
and work in is important, as evidenced by the following:
Sovereign, its team members and customers raised $3.2 million
for the September 11th relief efforts.
We provided funding necessary to open the Sovereign Center and
Sovereign Performing Arts Center in downtown Reading,
Pennsylvania.
"The Spirit of Your Neighborhood Campaign" delivered grants to
47 community organizations totaling $310,000 for youth and
education, community and economic development.
Sovereign has assumed a leadership role on the Children's
Investment Strategy Oversight Committee, City of Philadelphia.
This initiative is specifically focused on enhancing support
to children to improve their academic gains.
Closing Comments
Sidhu concluded, "We are pleased and proud to serve the
communities in which we live and operate our businesses. We are
also proud of our business achievements to date, and we are very
confident in Sovereign's ability to deliver quality earnings in
the future. We reiterate our operating EPS guidance for the
fourth quarter 2001 at between $.26 and $.28. We affirm guidance
for 2002 between $1.25 and $1.30 operating EPS and between $1.45
and $1.50 cash EPS. Based on yesterday's closing price of
$9.01, Sovereign is trading at about 6 times forward 2002 cash
earnings and 7 times forward 2002 operating earnings."
Profile
Sovereign is a $35 billion financial institution with
approximately 510 community-banking offices and over 1,000 ATMs
and about 7,500 team members in Pennsylvania, New Jersey,
Connecticut, New Hampshire, Rhode Island and Massachusetts.
Sovereign is currently the third largest bank headquartered in
Pennsylvania and the third largest in New England. Recently,
Sovereign entered into a definitive agreement with Main Street
Bancorp, Inc. ("Main Street") for Sovereign to acquire Main
Street. After giving effect to this acquisition, Sovereign will
be a pro forma $36 billion financial institution with about 550
community banking offices reaching north of Boston to south of
Philadelphia. For more information on Sovereign Bank, please
visit www.sovereignbank.com or call 1-877-SOV-BANK. Sovereign's
common stock closed at $9.01 on Wednesday, October 17, 2001,
reflecting a price to earnings ratio of 8.3 times the prior
twelve months' operating earnings and 6.2 times the prior twelve
months' cash earnings.
Investors will have the opportunity to listen to a broadcast
detailing third quarter earnings on the Internet via VCALL. The
message can be accessed anytime from 8:30 a.m. ET Friday, October
19, 2001 through 10:00 p.m. Friday, October 26, 2001. To access
the broadcast, please connect to VCALL via the Internet at
http://www.sovereignbank.com through the Investor Relations page.
Questions will be answered via email, accessible from the
Internet broadcast site.
Note:
This press release contains statements of Sovereign's
strategies, plans, and objectives, as estimates of financial
condition, operating efficiencies and revenue creation. These
statements and estimates constitute forward-looking statements
(within the meaning of the Private Securities Litigation Reform
Act of 1995), which involve significant risks and uncertainties.
Actual results may differ materially from the results discussed
in these forward-looking statements. Factors that might cause
such a difference include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows,
loan demand, real estate values and competition; changes in
accounting principles, policies, or guidelines; changes in
legislation or regulation; and other economic, competitive,
governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services. Operating
earnings, cash earnings and certain other measures as defined,
are not a substitute for other financial measures determined in
accordance with generally accepted accounting principles.
Because all companies do not calculate such measures in the same
fashion, these measures as presented may not be comparable to
other similarly titled measures of other companies.
Sovereign Bancorp, Inc.
FINANCIAL HIGHLIGHTS
(unaudited)
<table>
<caption>
Quarters Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
(dollars in millions, except per share data) 2001 2001 2001 2000 2000
-------- ------- ------- ------- --------
Operating Data
<s> <c> <c> <c> <c> <c>
Cash earnings (1) $ 95.0 $ 99.6 $ 88.1 $ 80.4 $ 96.0
Operating earnings (1) 72.8 77.1 63.6 55.6 74.1
Net income/ (loss) 8.6 30.2 4.6 (3.3) (15.9)
Net interest income 270.8 258.3 247.5 254.3 254.4
Provision for loan losses 22.0 23.1 20.0 28.5 10.0
Non-interest income before securities gains 97.8 118.5 100.8 79.5 59.7
Gain/ (loss) on sale of investment securities 4.4 5.7 7.3 5.0 (45.1)
G&A expense 194.6 202.5 192.3 185.7 223.7
G&A expense (excluding special charges) 194.6 202.5 192.3 185.7 176.7
Other operating expense 145.9 119.7 131.3 141.4 92.0
------- ------ ------ ------ ------
Performance Statistics
Net interest margin 3.59% 3.60% 3.45% 3.50% 3.40%
Cash return on average assets (1) 1.07% 1.19% 1.06% 0.95% 1.09%
Operating return on average assets (1) 0.82% 0.92% 0.77% 0.65% 0.84%
Cash return on average equity (1) 17.54% 19.08% 17.42% 16.69% 20.89%
Operating return on average equity (1) 13.44% 14.78% 12.58% 11.55% 16.14%
Cash return on tangible equity (1) 49.84% 57.94% 58.57% 70.09% 75.90%
Net loan charge-offs to average loans
annualized 0.41% 0.43% 0.37% 0.56% 0.31%
Efficiency ratio (2) 52.81% 53.76% 55.21% 55.67% 56.26%
------ ------ ------ ------ ------
Per Share Data
Cash earnings per share (1) $0.36 $0.38 $0.37 $0.35 $0.43
Operating earnings per share (1) 0.28 0.29 0.27 0.25 0.33
Diluted earnings per share 0.03 0.12 0.02 (0.01) (0.07)
Dividend declared per share .025 .025 .025 .025 .025
Book value (3) 8.71 8.52 8.56 8.60 8.41
Common stock price:
High 13.22 13.00 9.16 9.47 9.88
Low 8.86 7.94 7.66 6.78 7.03
Close 9.50 13.00 8.47 8.13 9.25
Weighted average common shares:
Basic 246.9 246.7 237.9 226.1 226.0
Fully diluted 263.4 262.0 239.3 226.1 226.0
End-of-period common shares:
Basic 247.0 246.8 246.7 226.5 226.1
Fully diluted 259.7 266.0 248.0 227.7 227.2
------- ------- ------ ------ ------
</table>
------------
NOTES:
(1) 2001 and 2000 operating earnings exclude certain special
charges. See Reconcilement of Operating to Reported
Earnings for explanations of these charges.
(2) Efficiency Ratio equals general and administrative expenses
excluding merger-related and other integration charges as a
percentage of total revenue, defined as the sum of net
interest income excluding the negative carry from escrowed
financing proceeds plus non-interest income excluding
securities transactions.
(3) Book value equals stockholders' equity divided by common
shares outstanding.
Sovereign Bancorp, Inc.
FINANCIAL HIGHLIGHTS
(unaudited)
<table>
<caption>
Quarters Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
(dollars in millions) 2001 2001 2001 2000 2000
-------- ------- ------- ------- --------
<s> <c> <c> <c> <c> <c>
Financial Condition Data:
General
Total assets $34,993 $34,391 $34,049 $33,458 $34,648
Loans 20,446 20,763 21,656 21,912 23,047
Goodwill and other intangibles 1,376 1,409 1,419 1,455 1,450
Total deposits: 23,260 23,341 23,965 24,499 24,470
Core 15,506 15,356 15,216 15,229 15,032
Time 7,754 7,985 8,749 9,270 9,438
Short-term borrowings 3,141 2,894 1,710 1,331 2,448
Long term borrowings 5,568 5,359 5,361 4,909 5,126
Trust preferred securities and
minority interest 466 460 464 458 455
Stockholders' equity 2,151 2,104 2,111 1,949 1,902
Asset Quality
Non-performing assets $204.8 $182.2 $180.7 $187.4 $136.1
Non-performing assets to total assets 0.59% 0.53% 0.53% 0.56% 0.39%
Allowance for loan losses $257.1 $256.0 $256.1 $256.4 $242.4
Allowance for loan losses
to total loans 1.26% 1.23% 1.18% 1.17% 1.05%
Allowance for loan losses
to non-performing loans 134.4% 150.2% 151.4% 143.1% 185.9%
Non-performing loans to total loans 0.94% 0.82% 0.78% 0.82% 0.57%
Capitalization - Bancorp (1)
Shareholders' equity to total assets 6.15% 6.12% 6.20% 5.82% 5.49%
Tangible equity to tangible assets 2.34% 2.27% 2.20% 1.66% 1.63%
Tangible equity to tangible assets,
net of tax 3.65% 3.64% 3.59% 3.12% 3.03%
Tier 1 leverage capital ratio 3.73% 3.66% 3.62% 3.09% 3.00%
Capitalization - Bank (1)
Shareholders' equity to total assets 10.31% 10.25% 10.49% 10.47% 9.34%
Tangible equity to tangible assets 7.09% 6.99% 7.08% 6.92% 6.59%
Tier 1 leverage capital ratio 7.11% 7.01% 7.08% 6.92% 6.59%
Tier 1 risk-based capital ratio 9.49% 9.51% 9.41% 9.20% 9.05%
Total risk based capital ratio 10.50% 10.57% 10.44% 10.31% 10.06%
</table>
(1) All capital ratios are calculated based upon adjusted end of
period assets consistent with OTS guidelines.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<table>
<caption>
Sept. 30 Dec. 31 Sept. 30
(dollars in millions) 2001 2000 2000
--------- --------- ---------
<s> <c> <c> <c>
Assets
Cash and amounts due from
depository institutions $ 765.3 $ 959.6 $ 962.7
Investments:
Available-for-sale 9,340.5 5,315.6 5,447.6
Held-to-maturity 949.7 1,978.3 1,541.1
--------- --------- ---------
Total investments 10,290.2 7,293.9 6,988.7
--------- --------- ---------
Loans:
Residential mortgages 5,339.2 7,978.9 8,559.2
Commercial 7,986.8 7,831.4 8,052.6
Consumer 7,119.6 6,101.9 6,434.8
--------- --------- ---------
Total loans 20,445.6 21,912.2 23,046.6
Less allowance for loan losses (257.1) (256.4) (242.4)
--------- --------- ---------
Total loans, net 20,188.5 21,655.8 22,804.2
--------- --------- ---------
Premises and equipment, net 251.8 290.1 286.6
Accrued interest receivable 215.2 230.5 236.8
Goodwill and other intangible
assets (net of tax $940.2,
$971.9, and $968.8,
respectively) 1,376.0 1,455.3 1,449.6
Bank owned life insurance 700.0 668.7 658.8
Other assets 1,206.4 903.9 1,260.1
--------- --------- ---------
Total assets $34,993.4 $33,457.8 $34,647.5
========= ========= =========
Liabilities and Stockholders'
Equity
Liabilities:
Deposits:
Core $15,506.0 $15,229.2 $15,032.3
Time 7,754.1 9,269.7 9,438.0
--------- --------- ---------
Total deposits 23,260.1 24,498.9 24,470.3
--------- --------- ---------
Short-term borrowings 3,141.2 1,331.7 2,448.2
Long-term borrowings 5,567.5 4,908.6 5,125.8
Other liabilities 407.1 311.5 245.6
--------- --------- ---------
Total liabilities 32,375.9 31,050.7 32,289.9
--------- --------- ---------
Redeemable capital securities
and minority interest 466.3 458.2 455.5
Stockholders' equity:
Common Stock 1,413.3 1,259.4 1,258.1
Warrants 91.5 91.5 91.5
Unallocated ESOP shares (33.0) (33.2) (36.3)
Treasury stock (0.5) (3.8) (3.7)
Restricted stock grants (6.3) 0.0 0.0
Accumulated other comprehensive
income (12.2) (38.6) (90.7)
Retained earnings 698.4 673.6 683.2
--------- --------- ---------
Total stockholders' equity 2,151.2 1,948.9 1,902.1
--------- --------- ---------
Total liabilities and
stockholders' equity $34,993.4 $33,457.8 $34,647.5
========= ========= =========
</table>
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<table>
Quarters Ended Nine Months Ended
------------------------------------------------ ------------------
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 Sept. 30 Sept. 30
(dollars in millions, except per share data) 2001 2001 2001 2000 2000 2001 2000
-------- ------- ------- ------- -------- -------- --------
<s> <c> <c> <c> <c> <c> <c> <c>
Interest and dividend income:
Interest on interest-earning deposits $0.8 $0.3 $0.5 $3.5 $8.5 $1.7 $18.7
Interest on investment securities
Available for sale 157.9 120.4 106.8 95.9 118.0 385.1 391.6
Held to maturity 16.3 18.1 19.4 32.7 24.2 53.7 99.8
Interest on loans 388.3 418.8 453.2 473.4 484.0 1,260.3 1,154.2
----- ----- ----- ----- ----- ------- -------
Total interest and dividend income 563.3 557.6 579.9 605.5 634.7 1,700.8 1,664.3
----- ----- ----- ----- ----- ------- -------
Interest expense:
Deposits 165.5 193.0 221.1 235.1 217.8 579.6 500.0
Borrowings 127.0 106.3 111.3 116.1 162.5 344.6 563.8
----- ----- ----- ----- ----- ------- -------
Total interest expense 292.5 299.3 332.4 351.2 380.3 924.2 1,063.8
----- ----- ----- ----- ----- ------- -------
Net interest income 270.8 258.3 247.5 254.3 254.4 776.6 600.5
Provision for loan losses 22.0 23.1 20.0 28.5 10.0 65.1 28.0
----- ----- ----- ----- ----- ------- -------
Net interest income after provision
for loan losses 248.8 235.2 227.5 225.8 244.4 711.5 572.5
----- ----- ----- ----- ----- ------- -------
Non-interest income:
Fee-based revenues:
Consumer banking fees 37.6 39.5 39.4 32.4 29.9 116.5 64.7
Commercial banking fees 21.6 17.8 18.3 13.6 11.1 57.6 23.3
Mortgage banking revenue 20.3 14.8 21.3 8.1 4.4 56.4 17.0
Capital markets revenue 2.3 2.4 3.5 5.5 1.4 8.2 5.5
Bank owned life insurance income 10.3 10.1 9.6 9.8 9.7 30.0 24.4
Other 5.7 33.9 8.7 10.1 3.2 48.2 15.3
----- ----- ----- ----- ----- ------- -------
Non-interest income before sales of
investment securities 97.8 118.5 100.8 79.5 59.7 316.9 150.2
Gain(loss) on sale of investment
securities (1) 4.4 5.7 7.3 5.0 (45.1) 17.5 (116.7)
----- ----- ----- ----- ----- ------- -------
Total non-interest income 102.2 124.2 108.1 84.5 14.6 334.4 33.5
----- ----- ----- ----- ----- ------- -------
Non-interest expense:
General and administrative
Compensation and benefits 78.0 81.1 77.6 73.8 81.7 236.8 196.9
Occupancy and equipment 53.0 54.3 56.8 56.9 49.8 164.1 70.6
Technology expense 17.8 18.8 16.0 20.0 16.2 52.5 31.0
Outside services 12.4 14.9 13.7 14.7 38.1 40.9 131.5
Other administrative expenses 33.4 33.4 28.2 20.3 37.9 95.1 115.7
----- ----- ----- ----- ----- ------- -------
Total general and administrative 194.6 202.5 192.3 185.7 223.7 589.4 545.7
Other expenses
Amortization of goodwill and other
acquisition-related intangibles 32.6 32.8 36.1 36.2 32.6 101.4 62.8
Trust preferred securities expense 14.7 14.6 14.5 14.6 11.4 43.8 29.7
Real estate owned losses/ (gains), net (0.2) 0.1 - (0.1) 0.1 (0.1) (0.1)
Restructuring - - 8.5 18.5 - 8.5 -
Non-solicitation expense 98.8 72.2 72.2 72.2 47.9 243.2 47.8
----- ----- ----- ----- ----- ------- -------
Total other expenses 145.9 119.7 131.3 141.4 92.0 396.8 140.2
----- ----- ----- ----- ----- ------- -------
Total non-interest expense 340.5 322.2 323.6 327.1 315.7 986.2 685.9
----- ----- ----- ----- ----- ------- -----
Income/ (loss) before income taxes 10.5 37.2 12.0 (16.8) (56.7) 59.7 (79.9)
Income tax expense/ (benefit) 1.9 7.0 0.9 (13.5) (40.8) 9.8 (51.6)
----- ----- ----- ----- ----- ------- -------
Income/ (loss) before extraordinary items 8.6 30.2 11.1 (3.3) (15.9) 49.9 (28.3)
Gain on sale of FHLB advances
(net of tax of $5.2) - - - - - - 10.8
Loss on the early extinguishment of debt
(net of tax of $3.5) - - (6.5) - - (6.5) -
----- ----- ----- ----- ----- ------- -------
Net income/ (loss) $8.6 $30.2 $4.6 ($3.3) ($15.9) $43.4 ($17.5)
===== ===== ===== ===== ===== ======= =======
----- ----- ----- ----- ----- ------- -------
Diluted earnings/ (loss)
per common share $0.03 $0.12 $0.02 ($0.01) ($0.07) $0.17 ($0.12)
===== ===== ===== ===== ===== ======= =======
----- ----- ----- ----- ----- ------- -------
Operating earnings $72.8 $77.1 $63.6 $55.6 $74.1 $213.5 $184.2
===== ===== ===== ===== ===== ======= =======
----- ----- ----- ----- ----- ------- -------
Diluted operating earnings
per common share $0.28 $0.29 $0.27 $0.25 $0.33 $0.84 $0.91
===== ====== ===== ===== ===== ======= =======
Average common shares:
Basic 246.9 246.7 237.9 226.1 226.0 243.8 225.8
Diluted 263.4 262.0 239.3 226.1 226.0 254.8 225.8
Merger-related charges reflected
in G&A expense above - - - - $47.0 - -
</table>
(1) Included in 9/30/2001 Gain/ loss on sale of securities is a
$14.7 million loss related to the termination of a swap that
was hedging short term liabilities used to fund the initial
investment purchase of the securities that were sold during
the quarter.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
<table>
<caption>
Quarters Ended
----------------------------------------------------------------------------------
September 30, 2001 June 30, 2001 September 30, 2000
-------------------------- ------------------------- -------------------------
(dollars in millions) Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance (1) Rate Balance (1) Rate Balance (1) Rate
-------- -------- ----- -------- -------- ------ ------- -------- ------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Earning assets:
Investment securities $10,459.5 $177.7 6.80% $7,998.3 $141.4 7.08% $7,906.5 $153.1 7.74%
Loans:
Residential mortgages 5,603.8 105.3 7.52% 6,609.1 127.1 7.70% 8,845.7 173.8 7.85%
Commercial 7,860.3 147.8 7.42% 7,930.2 155.3 7.81% 7,656.1 175.8 9.09%
Consumer 7,057.2 136.5 7.68% 6,926.9 137.6 7.97% 6,335.0 135.3 8.51%
--------- ------ --------- ------ --------- ------
Total loans 20,521.3 389.6 7.54% 21,466.2 420.0 7.83% 22,836.8 484.9 8.45%
--------- ------ --------- ------ --------- ------
Allowance for loan losses (256.6) (252.1) (212.2)
--------- ------ --------- ------ --------- ------
Total earning assets 30,724.2 $567.3 7.63% 29,212.4 $561.4 7.69% 30,531.1 $638.0 8.32%
====== ==== ===== ==== ====== ====
Other assets 4,577.8 4,456.9 4,657.7
--------- --------- ---------
Total assets $35,302.0 $33,669.3 $35,188.8
========= ========= =========
Funding liabilities
Deposits:
Core $15,409.7 $65.6 1.69% $15,317.4 $75.0 1.96% $14,282.3 $88.4 2.46%
Time 7,783.1 99.9 5.09% 8,501.8 118.0 5.56% 8,916.5 129.4 5.77%
--------- ------ --------- ------ --------- ------
Total deposits 23,192.8 165.5 2.83% 23,819.2 193.0 3.25% 23,198.8 217.8 3.74%
--------- ------ --------- ------ --------- ------
Borrowings
Federal Home Loan Bank
advances 7,040.6 88.4 4.92% 5,206.7 70.6 5.37% 6,543.1 98.8 5.90%
Repurchase agreements 804.5 7.8 3.78% 427.8 4.8 4.44% 1,520.1 25.1 6.46%
Other borrowings 1,294.8 30.8 9.50% 1,294.8 30.9 9.55% 1,484.4 38.6 10.38%
--------- ------ --------- ------ --------- ------
Total borrowings 9,139.9 127.0 5.47% 6,929.3 106.3 6.09% 9,547.6 162.5 6.69%
--------- ------ --------- ------ --------- ------
Total funding liabilities 32,332.7 $292.5 3.58% 30,748.5 $299.3 3.89% 32,746.4 $380.3 4.60%
--------- ====== ==== --------- ====== ==== --------- ====== =====
Other liabilities 819.5 827.8 582.5
--------- --------- --------
Total liabilities 33,152.2 31,576.3 33,328.9
--------- --------- --------
Stockholders' equity 2,149.8 2,093.0 1,859.9
--------- --------- --------
Total liabilities and
stockholders' equity $35,302.0 $33,669.3 $35,188.8
========= ========= =========
Net interest income $274.8 $262.1 $257.7
====== ====== ======
Interest rate spread 3.12% 3.12% 2.95%
Net interest margin 3.59% 3.60% 3.40%
</table>
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
<table>
<caption>
Nine-Months Ended September 30, 2001 September 30, 2000
--------------------------- ----------------------------
(dollars in millions) Average Interest Yield Average Interest Yield/
Balance (1) Rate Balance (1) Rate
-------- -------- ----- ------- -------- ------
<s> <c> <c> <c> <c> <c> <c>
Earning assets:
Investment Securities $8,553.5 $447.9 6.99% $9,495.0 $517.2 7.26%
Loans:
Residential mortgages 6,681.9 386.2 7.71% 7,061.1 404.9 7.64%
Commercial 7,871.5 469.2 7.93% 5,985.9 400.6 8.87%
Consumer 6,859.1 408.7 7.96% 5,592.4 351.5 8.39%
--------- -------- --------- --------
Total loans 21,412.5 1,264.1 7.87% 18,639.4 1,157.0 8.26%
--------- -------- --------- --------
Allowance for loan losses (254.7) (168.4)
--------- -------- --------- --------
Total earning assets 29,711.3 $1,712.0 7.69% 27,966.0 $1,674.2 7.97%
======== ==== ======== ====
Other assets 4,473.9 3,358.6
--------- ---------
Total assets $34,185.2 $31,324.6
========= =========
Funding liabilities
Deposits:
Core $15,200.1 $229.0 2.01% $10,029.4 $186.9 2.49%
Time 8,447.1 350.6 5.54% 7,457.0 313.1 5.60%
--------- -------- --------- --------
Total deposits 23,647.2 579.6 3.28% 17,486.4 500.0 3.82%
--------- -------- --------- --------
Borrowings
Federal Home Loan Bank
advances 5,832.7 232.6 5.26% 8,911.6 395.5 5.84%
Repurchase agreements 485.4 15.3 4.15% 1,045.8 50.7 6.37%
Other borrowings 1,327.6 96.7 9.72% 1,553.0 117.6 10.10%
--------- -------- --------- --------
Total borrowings 7,645.7 344.6 5.96% 11,510.4 563.8 6.46%
--------- -------- --------- --------
Total funding liabilities 31,292.9 $924.2 3.93% 28,996.8 $1,063.8 4.87%
--------- ======== ==== --------- ======== ====
Other liabilities 793.1 483.4
--------- ---------
Total liabilities 32,086.0 29,480.2
--------- ---------
Stockholders' equity 2,099.2 1,844.4
--------- ---------
Total liabilities and
stockholders' equity $34,185.2 $31,324.6
========= =========
Net interest income $787.8 $610.4
======== ========
Interest rate spread 3.08% 2.61%
Net interest margin 3.54% 2.93%
</table>
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
<table>
<caption>
NON-PERFORMING ASSETS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
(dollars in millions) 2001 2001 2001 2000 2000
-------- ------- ------- ------- --------
<s> <c> <c> <c> <c> <c>
Non-accrual loans:
Residential mortgages $66.4 $64.9 $63.6 $60.3 $52.0
Commercial real estate 20.1 15.9 17.4 12.4 12.6
Commercial 78.9 62.6 62.9 64.5 27.6
Consumer 24.6 25.5 21.2 38.2 34.5
------ ------ ------ ------ ------
Total non-accrual loans $190.0 $168.9 $165.1 $175.4 $126.7
Restructured loans 1.3 1.5 4.1 3.8 3.8
------ ------ ------ ------ ------
Total non-performing loans 191.3 170.4 169.2 179.2 130.5
Real estate owned, net 6.5 5.4 7.2 4.4 3.2
Other repossessed assets 7.0 6.4 4.3 3.8 2.4
------ ------ ------ ------ ------
Total non-performing assets $204.8 $182.2 $180.7 $187.4 $136.1
Non-performing loans as a percentage
of total loans 0.94% 0.82% 0.78% 0.82% 0.57%
Non-performing assets as a percentage
of total assets 0.59% 0.53% 0.53% 0.56% 0.39%
Non-performing assets as a percentage
of total loans and real estate owned 1.00% 0.88% 0.83% 0.85% 0.59%
Allowance for loan losses as a
percentage of non-performing loans 134.4% 150.2% 151.4% 143.1% 185.9%
Allowance for loan losses as a
percentage of total non-performing
assets 125.6% 140.6% 141.7% 136.8% 178.1%
<caption>
NET LOAN CHARGE-OFFS (RECOVERIES)
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in millions) 2001 2001 2001 2000 2000
-------- ------- ------- ------- --------
<s> <c> <c> <c> <c> <c>
Residential mortgages $0.9 $2.7 $2.9 $6.3 $1.9
Commercial real estate 0.4 0.2 - - -
Commercial 10.1 10.5 9.3 18.4 9.8
Consumer 9.6 9.7 8.1 7.0 6.3
------ ------ ------ ------ ------
Total $21.0 $23.1 $20.3 $31.7 $18.0
<caption>
DEPOSIT COMPOSITION
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in millions) 2001 2001 2001 2000 2000
-------- ------- ------- ------- --------
<s> <c> <c> <c> <c> <c>
Demand deposit accounts $3,313.5 $3,331.9 $3,296.0 $3,476.0 $3,351.5
NOW accounts 4,290.8 4,205.7 4,118.3 4,247.2 4,119.4
Savings accounts 2,946.1 2,944.3 2,957.8 2,953.0 3,103.7
Money market accounts 4,955.6 4,874.1 4,844.4 4,553.0 4,457.7
Retail certificates 7,429.5 7,623.4 8,065.4 8,371.9 8,389.2
Jumbo certificates 324.6 361.5 683.4 897.8 1,048.8
-------- -------- -------- -------- --------
Total $23,260.1 $23,340.9 $23,965.3 $24,498.9 $24,470.3
<caption>
LOAN COMPOSITION
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in millions) 2001 2001 2001 2000 2000
-------- ------- ------- ------- --------
<s> <c> <c> <c> <c> <c>
Total residential loans $5,339.2 $5,780.2 $6,948.9 $7,978.9 $8,559.3
--------- --------- --------- --------- ---------
Commercial real estate loans 2,966.0 2,782.8 2,807.4 2,793.7 2,787.4
Commercial and industrial loans 4,476.5 4,525.6 4,435.8 4,397.0 4,108.7
Automotive floor plan loans 415.5 524.4 516.5 513.6 1,027.2
Multi-family loans 128.8 130.1 127.1 127.1 129.2
--------- --------- --------- --------- ---------
Total commercial loans $7,986.8 $7,962.9 $7,886.8 $7,831.4 $8,052.5
--------- --------- --------- --------- ---------
Home equity loans 3,709.6 3,660.7 3,526.2 3,256.6 3,415.1
Auto loans 2,898.0 2,840.6 2,756.4 2,309.0 2,267.1
Other 512.0 518.3 537.9 536.3 752.6
--------- --------- --------- --------- ---------
Total consumer loans $7,119.6 $7,019.6 $6,820.5 $6,101.9 $6,434.8
--------- --------- --------- --------- ---------
Total loans $20,445.6 $20,762.7 $21,656.2 $21,912.2 $23,046.6
========= ========= ========= ========= =========
</table>
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILEMENT OF OPERATING TO REPORTED EARNINGS
(unaudited)
Operating earnings for 2001 exclude special charges for
restructuring, early extinguishment of debt, and expense related
to a non-solicitation agreement with FleetBoston. The non-
solicitation agreement deferred paying approximately $340 million
of purchase price, which was fully repaid to FleetBoston in
September 2001. Operating earnings for 2000 include certain one-
time tax benefits and exclude the following special charges:
merger-related and integration charges related to acquisitions,
restructuring charges, as well as the impact on net interest
income and shares outstanding from the early issuance of certain
debt and equity instruments issued to finance Sovereign's New
England retail banking and middle market lending acquisition.
Cash earnings are operating earnings excluding amortization of
intangibles assets and ESOP expense.
<table>
<caption>
(dollars in millions, except per share data -
all amounts are after tax)
0uarters Ended Nine Months Ended
-------------------------------------------------------- --------------------------------------
Total dollars Per share Total dollars Per share
-------------------------- -------------------------- ------------------ -----------------
Sept. 30 June 30 Sept. 30 Sept. 30 June 30 Sept. 30 Sept. 30 Sept. 30 Sept. 30 Sept. 30
2001 2001 2000 2001 2001 2000 2001 2000 2001 2000
-------- ------- -------- -------- ------- -------- -------- -------- -------- --------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Net income/(loss) as
reported $8.6 $30.2 ($15.9) $0.03 $0.12 ($0.07) $43.4 ($26.9) $0.17 ($0.12)
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Loss on the early ex-
tingishment of debt - - - 6.5 0.03
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Net negative carry on
escrowed bond
proceeds (1) - - 1.6 0.01 18.6 0.08
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Net merger related and
integration costs
recorded during
the period - - 29.0 0.13 97.1 0.43
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Expense on convertible
trust preferred
securities ("PIERS")
(1) - - 0.1 - 6.5 0.03
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Loss on securities due
to restructuring of
the balance sheet - - 28.4 0.12 66.9 0.29
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Restructuring - - - 5.5 0.02
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Non-solicitation
expense 64.2 46.9 31.1 0.25 0.17 0.13 158.1 31.1 0.62 0.14
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Assumed interest exp.
reduction due to
paydown of borrow-
ings with net pro-
ceeds of common
equity and PIERS (1) - - (0.2) - - (9.1) (0.04)
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Impact of additional
shares outstanding
for 1999 common stock
offerings (2) 0.01 0.10
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Operating earnings (2) $72.8 $77.1 $74.1 $0.28 $0.29 $0.33 $213.5 $184.2 $0.84 $0.91
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Cash earnings (2) $95.0 $99.6 $96.0 $0.36 $0.38 $0.43 $282.7 $228.2 $1.11 $1.13
----- ----- ------ ----- ----- ----- ----- ----- ----- -----
Average shares before
adjustment for
offering 263.4 262.0 226.0 254.8 225.8
----- ----- ------ ----- -----
Average shares after
adjustment for
offering (2) 263.4 262.0 223.8 254.8 202.6
----- ----- ------ ----- -----
</table>
(1) As a part of the agreement to purchase Sovereign Bank New
England, Sovereign raised a total of $1.8 billion of debt
and equity capital in November and December, 1999 of which
$1.3 billion of debt proceeds were in escrow with limited
ability to reinvest the proceeds until the acquisition was
completed on July 21, 2000. Consequently, the excess of
negative carry and trust preferred expense over interest
expense reduction realized on the raised capital resulted in
a net reduction in pre-tax income of $2.9 million ($1.5
million after tax) and $24.7 million ($16.0 million after
tax) comprised of the following components for the three and
nine-month periods ending September 30, 2000, respectively:
a)a reduction of net interest income of $3.1 million ($1.6
million after-tax) and $28.6 million ($18.6 million after
tax), respectively; b) expense of $.5 million ($.1 million
after-tax) and $10.0 million ($6.5 million after tax)
associated with PIERS issued in November, 1999; c) an
assumed $.6 million ($.2 million after tax) and $13.9
million ($9.1 million after tax) of interest expense
reduction from the assumed paydown of other borrowings with
the proceeds of the Trust Preferred Securities and the
common stock offering.
(2) Operating earnings per share and cash earnings per share are
calculated using a weighted average number of shares which
include, for the three and nine month periods ended
September 30, 2000, a pro rata portion of the shares issued
in November, 1999 in proportion to deposits acquired on
March 24, 2000 and June 16, 2000 and July 21, 2000 over
total estimated SBNE deposits acquired in each phase of the
SBNE acquisition.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Dilutive Effect of Convertible Trust Preferred Securities (PIERS)
(in millions, except for share price)
Share Dilutive effect of
Price PIERS
------ ------------------
$10.00 11.9
$10.64 13.1 - Average share price 2Q '01
$11.00 13.6
$11.29 14.1 - Average share price 3Q '01
$12.00 15.1
$13.00 16.3
$14.00 17.3
$15.00 18.2
Note:
This press release contains statements of Sovereign's
strategies, plans, and objectives, as estimates of future
operating results for 2001 and beyond for Sovereign Bancorp, Inc.
as well as estimates of financial condition, operating
efficiencies and revenue creation. These statements and
estimates constitute forward-looking statements (within the
meaning of the Private Securities Litigation Reform Act of 1995),
which involve significant risks and uncertainties. Actual
results may differ materially from the results discussed in these
forward-looking statements. Factors that might cause such a
difference include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan
demand, real estate values and competition; changes in accounting
principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting the Company's
operations, pricing, products and services. Operating earnings,
cash earnings and core revenues, as defined, are not a substitute
for other financial measures determined in accordance with
generally accepted accounting principles. Because all companies
do not calculate such measures in the same fashion, these
measures as presented may not be comparable to other similarly
titled measures of other companies.