WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1995
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 34-16533
SOVEREIGN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2453088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (610) 320-8400
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1995
Common Stock (no par value) 46,110,158 shares
Preferred Stock (no par value) 2,000,000 shares
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations for the three-
month and six-month periods ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the six-
month periods ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6 - 12
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 13 - 22
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K 23
PART III. FINANCIAL DATA SCHEDULE 24
SIGNATURES 25
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
----------- ------------
(Unaudited) (Note)
(in thousands, except
per share data)
ASSETS
Cash and amounts due from
depository institutions $104,638 $ 110,270
Interest-earning deposits 29,514 29,131
Loans held for resale (approximate fair
value of $15,811 and $7,666 at
June 30, 1995 and December 31, 1994,
respectively) 15,605 7,666
Investments available-for-sale 62,820 87,128
Investment and mortgage-backed securities
held-to-maturity (approximate fair value
of $2,358,137 and $1,701,143 at June 30,
1995 and December 31, 1994, respectively) 2,376,028 1,816,840
Loans 4,503,052 4,350,898
Allowance for possible loan losses (34,803) (36,289)
Premises and equipment 48,968 48,096
Real estate owned 8,824 9,191
Accrued interest receivable 34,514 30,369
Goodwill and other intangible assets 120,796 64,553
Other assets 51,250 46,229
---------- ----------
TOTAL ASSETS $7,321,206 $6,564,082
========== ==========
LIABILITIES
Deposits $4,833,821 $4,027,119
Borrowings:
Short-term 1,409,581 1,722,726
Long-term 270,373 439,861
Advance payments by borrowers
for taxes and insurance 36,197 25,893
Other liabilities 357,143 44,583
---------- ----------
TOTAL LIABILITIES 6,907,115 6,260,182
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock; no par value;
$50 liquidation preference;
7,500,000 shares authorized;
2,000,000 shares issued and outstanding
at June 30, 1995 96,660 -
Common stock; no par value;
100,000,000 shares authorized;
46,733,260 shares issued at June 30,
1995 and 45,566,971 shares issued at
December 31, 1994 247,640 224,958
Unallocated common stock held by the Employee
Stock Ownership Plan at cost;
1,511,000 shares at June 30, 1995 (13,426) -
Unrecognized gain/(loss) on investment
and mortgage-backed securities
available-for-sale, net of tax 323 (887)
Retained earnings 82,894 79,829
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 414,091 303,900
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,321,206 $6,564,082
========== ==========
See accompanying notes to consolidated financial statements.
Note: The balance sheet at December 31, 1994 is taken from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
3
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands, except
per share data)
Interest income:
Interest and dividends on investment
and mortgage-backed securities
and other interest-earning assets $ 36,520 $ 25,055 $ 70,722 $ 49,244
Interest and fees on loans 79,700 55,660 156,907 108,164
-------- -------- -------- --------
Total interest income 116,220 80,715 227,629 157,408
-------- -------- -------- --------
Interest expense:
Interest on deposits 52,362 26,572 101,740 52,069
Interest on borrowings 22,483 17,085 41,778 31,920
-------- -------- -------- --------
Total interest expense 74,845 43,657 143,518 83,989
-------- -------- -------- --------
Net interest income 41,375 37,058 84,111 73,419
Provision for possible loan losses 250 1,013 500 2,550
-------- -------- -------- --------
Net interest income after provision for
possible loan losses 41,125 36,045 83,611 70,869
-------- -------- -------- --------
Other income:
Other loan fees and service charges 1,051 1,131 2,296 2,177
Deposit fees 1,924 1,029 4,185 2,137
Gain on sale of loans and investment
and mortgage-backed securities
available-for-sale 25 359 136 561
Mortgage banking gains 4,149 63 4,789 434
Miscellaneous income 2,145 390 2,755 840
-------- -------- -------- --------
Total other income 9,294 2,972 14,161 6,149
-------- -------- -------- --------
General and administrative expenses:
Salaries and employee benefits 9,720 7,856 20,337 16,180
Occupancy and equipment expenses 5,187 3,718 9,843 7,820
Outside services 4,321 1,637 5,765 3,663
Deposit insurance premiums 2,775 1,559 5,592 3,129
Advertising 1,898 1,272 2,467 1,947
Other administrative expenses 1,842 3,594 7,002 6,268
-------- -------- -------- --------
Total general and administrative expenses 25,743 19,636 51,006 39,007
Other operating expenses:
Amortization of goodwill and other intangibles 3,053 1,204 6,080 2,363
Real estate owned losses/(gains), net 133 (261) 635 (262)
-------- -------- -------- --------
Total other operating expenses 3,186 943 6,715 2,101
-------- -------- -------- --------
Income before income taxes 21,490 18,438 40,051 35,910
Income tax provision 7,347 6,769 13,778 13,315
-------- -------- -------- --------
Net Income $ 14,143 $ 11,669 $ 26,273 $ 22,595
======== ======== ======== ========
Net Income Applicable to Common Stock $ 12,580 $ 11,669 $ 24,710 $ 22,595
======== ======== ======== ========
Earnings per share (1) $.26 $.24 $.51 $.47
======== ======== ======== ========
Dividends per share (1) $.022 $.0269 $.0439 $.0622
======== ======== ======== ========
(1) Per share amounts have been adjusted to reflect all stock dividends and
stock splits.
See accompanying notes to consolidated financial statements.
4
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Month Period
Ended June 30,
-----------------------------
1995 1994
---- ----
(in thousands)
Cash Flows from Operating Activities:
Net income $ 26,273 $ 22,595
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses and deferred taxes 3,686 2,716
Depreciation 2,499 1,768
Amortization (1,191) (3,700)
Loss/(Gain) on sale of deposits, loans, investment and
mortgage-backed securities and real estate owned 1,886 (787)
Net change in:
Loans held for resale (7,939) 47,857
Other liabilities 1,871 57,729
Other assets (11,725) (7,255)
--------- ---------
Net cash provided by operating activities 15,360 120,923
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of investment
and mortgage-backed securities:
Available-for-sale 33,424 373,488
Proceeds from repayments and maturities of investment
and mortgage-backed securities:
Available-for-sale - 1,667
Held-to-maturity 92,406 243,235
Purchases of investment and mortgage-backed securities:
Available-for-sale (6,916) (141,833)
Held-to-maturity (336,815) (430,729)
Proceeds from sales of loans 2,346 2,183
Purchase of loans (75,455) (68,791)
Net change in loans other than purchases and sales (81,751) (604,966)
Proceeds from sales of premises and equipment 10,392 1,966
Purchases of premises and equipment (10,051) (2,050)
Proceeds from sale of real estate owned 2,948 5,403
Other, net - (4,394)
--------- ---------
Net cash used by investing activities (369,472) (624,821)
--------- ---------
Cash Flows from Financing Activities:
Assumption of deposits (net) 748,631 -
Net (decrease)/increase in deposits (4,219) 113,404
Net (decrease)/increase in short-term borrowings (550,772) 274,724
Proceeds from long-term borrowings 69,499 75,000
Prepayments of long-term borrowings (714) (2,304)
Net increase in advance payments by
borrowers for taxes and insurance 10,304 10,572
Proceeds from issuance of common stock 1,567 2,069
Proceeds from issuance of preferred stock 96,660 -
Cash dividends paid (2,093) (2,936)
Purchase of the Employee Stock Ownership Plan (20,000) -
--------- --------
Net cash provided by financing activities 348,863 470,529
--------- ---------
Net change in cash and cash equivalents (5,249) (33,369)
Cash and cash equivalents at beginning of period 139,401 130,267
--------- ---------
Cash and cash equivalents at end of period $ 134,152 $ 96,898
========= =========
Reconciliation of Cash and Cash Equivalents to Consolidated
Balance Sheets:
Cash and amounts due from depository institutions $ 104,638 $ 68,765
Interest-earning deposits and federal funds sold 29,514 28,133
--------- ---------
$ 134,152 $ 96,898
========= =========
Supplemental Disclosures:
Income tax payments totaled $11.6 million for the six-month period ended
June 30, 1995 and $13.9 million for the same period in 1994. Interest payments
totaled $143.0 million for the six-month period ended June 30, 1995 and $81.7
million for the same period in 1994. Noncash activity consisted of mortgage loan
securitization of $30.5 million for the six-month period ended June 30, 1995 and
$135.0 million for the same period in 1994; reclassification of long-term
borrowings to short-term borrowings of $226.4 million for the six-month period
ended June 30, 1995 and $319.0 million for the same period in 1994;
reclassification of mortgage loans to real estate owned of $3.6 million for the
six-month period ended June 30, 1995 and $1.7 million for the same period in
1994.
See accompanying notes to consolidated financial statements.
5
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The accompanying financial statements of Sovereign Bancorp, Inc. and
Subsidiaries ("Sovereign") include the accounts of the parent company, Sovereign
Bancorp, Inc. and its wholly-owned subsidiaries: Sovereign Bank, F.S.B.
("Sovereign Bank") and Sovereign Investment Company. All material intercompany
balances and transactions have been eliminated in consolidation. These financial
statements have been prepared in accordance with the instructions for Form 10-Q
and therefore do not include certain information or footnotes necessary for the
presentation of financial condition, results of operations, and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, the consolidated financial statements reflect all
adjustments (which consist of normal recurring accruals) necessary for a fair
presentation of the results for the unaudited periods. The results of operations
for the three-month and six-month periods ended June 30, 1995 are not
necessarily indicative of the results which may be expected for the entire year.
The consolidated financial statements should be read in conjunction with the
annual report on Form 10-K for the year ended December 31, 1994.
(2) EARNINGS PER SHARE
Earnings per share have been computed on a fully diluted basis based on the
weighted average number of common shares (including assumed conversion of
preferred shares) and common equivalent shares (dilutive stock options)
outstanding during the periods. Fully diluted shares for the three-month and
six-month periods ended June 30, 1995 were 53.6 million and 51.3 million,
compared to 48.9 million for the same periods in 1994. Earnings per share have
been adjusted to reflect all stock dividends and stock splits.
(3) INVESTMENTS AVAILABLE-FOR-SALE
The following table presents the composition and fair value of investment
and mortgage-backed securities available-for-sale at the dates indicated:
(dollars in thousands)
June 30, 1995
-------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------ ------------ -----
Equity Securities $ 62,163 $ 712 $ 55 $ 62,820
======== ===== ====== ========
December 31, 1994
-----------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------ ------------ -----
Equity Securities $ 88,583 $ 366 $1,821 $ 87,128
======== ===== ====== ========
6
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(4) INVESTMENT AND MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY
The following table presents the composition and fair value of investment
and mortgage-backed securities held-to-maturity at the dates indicated: (dollars
in thousands)
June 30, 1995
-------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------ ------------ -----
Investments:
U.S. Treasury and
government agency $ 153,196 $ 145 $ 4,210 $ 149,131
Corporate securities 1,012 44 -- 1,056
Other Securities 434 -- 1 433
Mortgage-backed Securities:
FHLMC 348,545 1,499 8,722 341,322
FNMA 376,561 1,281 7,184 370,658
GNMA 234,753 10,584 28 245,309
Private issues 288,751 6 12,873 275,884
Collateralized mortgage
obligations 972,776 6,496 4,928 974,344
--------- ------- ------- ----------
Total investment and
mortgage-backed securities
held-to-maturity $2,376,028 $20,055 $37,946 $2,358,137
========== ======= ======= ==========
December 31, 1994
-----------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------ ------------ -----
Investments:
U.S. Treasury and
government agency $ 159,353 $ 17 $ 12,675 $ 146,695
Corporate securities 4,025 -- 43 3,982
Other securities 420 -- 4 416
Mortgage-backed Securities:
FHLMC 336,556 396 26,506 310,446
FNMA 316,968 17 26,390 290,595
GNMA 237,308 147 2,877 234,578
RTC 33,976 -- 5,227 28,749
Private issues 272,833 10 20,502 252,341
Collateralized mortgage
obligations 455,401 6,801 28,861 433,341
---------- ------- -------- ----------
Total investment and
mortgage-backed securities
held-to-maturity $1,816,840 $ 7,388 $123,085 $1,701,143
========= ======= ======== ==========
7
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(5) COMPOSITION OF LOAN PORTFOLIO
The following table presents the composition of the loan portfolio by type
of loan and by fixed and adjustable rates at the dates indicated: (dollars in
thousands)
June 30, 1995 December 31, 1994
------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Residential real estate loans $ 3,857,121 85.66% $ 3,710,150 85.27%
Real estate construction loans:
Residential (net of loans in process
of $23,455 and $33,095, respectively) 40,719 .90 49,094 1.13
Residential development (net of loans
in process of $868 and $1,382,
respectively) 1,964 .04 3,226 .08
Multi-family loans 86,963 1.93 95,216 2.19
Home equity loans 441,593 9.81 413,037 9.49
----------- ------ ----------- ------
Total Residential Loans 4,428,360 98.34 4,270,723 98.16
Commercial real estate loans 38,684 .86 39,717 .91
Commercial loans 8,216 .18 5,730 .13
Consumer loans 27,792 .62 34,728 .80
----------- ------ ----------- ------
Total Loans $ 4,503,052 100.00% $ 4,350,898 100.00%
=========== ====== =========== ======
Total Loans with:
Fixed rates $ 1,110,691 24.67% $ 1,097,469 25.22%
Variable rates 3,392,361 75.33 3,253,429 74.78
----------- ------ ----------- ------
Total Loans $ 4,503,052 100.00% $ 4,350,898 100.00%
=========== ====== =========== ======
8
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(6) DEPOSIT PORTFOLIO COMPOSITION
The following table presents the composition of deposits at the dates
indicated: (dollars in thousands)
June 30, 1995 December 31, 1994
--------------------------------- ---------------------------------
Weighted Weighted
Average Average
Account Type Amount Percent Rate Amount Percent Rate
------------ ------ ------- -------- ------ ------- ---------
Retail certificates $2,836,223 58.67% 5.42% $2,207,531 54.82% 4.75%
Jumbo certificates 37,912 .78 5.62 78,794 1.96 4.86
Savings accounts 921,691 19.07 2.33 925,667 22.98 2.34
Demand deposit accounts 145,872 3.02 -- 118,346 2.94 --
NOW accounts 340,609 7.05 1.39 308,202 7.65 1.82
Money market accounts 551,514 11.41 3.62 388,579 9.65 2.44
---------- ------ ---- ---------- ------ ----
Total Deposits $4,833,821 100.00% 4.18% $4,027,119 100.00% 3.61%
========== ====== ==== ========== ====== ====
(7) BORROWINGS
The following table presents information regarding borrowings at the dates
indicated: (dollars in thousands)
June 30, 1995 December 31, 1994
------------- -----------------
Weighted Weighted
Average Average
Balance Rate Balance Rate
------- -------- -------- --------
Securities sold under
repurchase agreements $ 597,940 6.33% $ 608,810 5.72%
FHLB advances 962,872 5.66 1,434,081 5.25
Other borrowings 119,142 7.75 119,696 7.71
----------- ---- ----------- ----
Total Borrowings $ 1,679,954 6.05% $ 2,162,587 5.52%
=========== ==== =========== ====
9
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(8) INTEREST RATE EXCHANGE AGREEMENTS
Amortizing and non-amortizing interest rate swaps are generally used to
convert fixed rate assets and liabilities to variable rate assets and
liabilities and vice versa. Interest rate caps are generally used to limit the
exposure from the repricing and maturity of liabilities. Interest rate floors
are generally used to limit the exposure from repricing and maturity of assets.
Interest rate caps and floors are also used to limit the exposure created by
other interest rate swaps. In certain cases, interest rate caps or floors are
simultaneously bought and sold to create a range of protection against changing
interest rates while limiting the cost of that protection. The following table
presents information regarding interest rate exchange agreements at the dates
indicated: (dollars in thousands)
June 30, 1995
-------------
Weighted
Average
Notional Book Estimated Maturity
Amount Value Fair Value In Years
--------- ------ ---------- --------
Amortizing interest rate
swaps-pay variable
receive fixed (1) $ 784,327 -- $ (19,714) 4.03
Non-amortizing interest
rate swaps-pay variable
receive fixed (2) 50,000 -- (2,311) 5.18
Non-amortizing interest
rate swaps-pay fixed
receive variable (3) 190,000 -- 481 2.34
Interest rate caps (4) 1,446,000 13,492 6,571 2.13
----------- ---------- ----------
$ 2,470,327 $ 13,492 $ (14,973)
=========== =========== ==========
December 31, 1994
-----------------
Weighted
Average
Notional Book Estimated Maturity
Amount Value Fair Value In Years
-------- ----- ---------- --------
Amortizing interest rate
swaps-pay variable
receive fixed (1) $ 1,085,645 -- $ (84,349) 3.9
Non-amortizing interest
rate swaps-pay variable
receive fixed (2) 250,000 -- (7,931) 1.5
Interest rate caps (4) 450,000 2,310 14,595 1.6
----------- ---------- -----------
$ 1,785,645 $ 2,310 $ (77,685)
=========== =========== ==========
(1) The weighted average pay rate was 6.04% and 6.28% and the weighted average
receive rate was 5.62% and 5.91% at June 30, 1995 and December 31, 1994,
respectively.
(2) The weighted average pay rate was 7.46% and 6.59% and the weighted average
receive rate was 6.75% and 5.73% at June 30, 1995 and December 31, 1994,
respectively.
(3) The weighted average pay rate was 5.83% and the weighted average receive
rate was 5.88% at June 30, 1995.
(4) The weighted average contract rate was 6.36% and 5.50% at June 30, 1995
and December 31, 1994, respectively.
10
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following table summarizes by notional amounts the activity of
Sovereign's interest rate exchange agreements: (dollars in thousands)
Amortizing Non-Amortizing Interest
Interest Interest Rate
Rate Swaps Rate Swaps Caps
----------- -------------- ---------
Balance, December 31, 1994 $ 1,085,645 $ 250,000 $ 450,000
----------- ----------- -----------
Additions -- -- 996,000
Maturities/Amortization 786 -- --
Terminations -- -- --
Balance, March 31, 1995 $ 1,084,859 $ 250,000 $ 1,446,000
----------- ----------- -----------
Additions -- 190,000 --
Maturities/Amortization 300,532 200,000 --
Terminations -- -- --
----------- ----------- -----------
Balance, June 30, 1995 $ 784,327 $ 240,000 $ 1,446,000
=========== =========== ===========
(9) BRANCH SALE
On April 21, 1995, Sovereign Bank completed its sale of seven southern New
Jersey offices with related deposits totalling $106.7 million to Collective
Bancorp ("Collective") headquartered in Egg Harbor, New Jersey. In addition,
Sovereign acquired $7.0 million of deposits from Collective's Wilmington,
Delaware branch office. As a result of this transaction, Sovereign reduced its
core deposit intangible by approximately $6.0 million.
(10) STOCKHOLDERS' EQUITY
On May 17, 1995, Sovereign completed the sale of 2,000,000 shares of
Convertible Preferred Stock, raising $97.0 million in capital. The 6 1/4%,
non-voting, Cumulative Convertible Preferred Stock is convertible at the option
of the holder at any time, unless previously redeemed, at a conversion rate of
4.752 shares of common stock for each share of preferred stock, equivalent to a
conversion price of $10.523 per share of common stock. The Preferred Stock may
not be redeemed prior to May 15, 1998. Thereafter, the Preferred Stock is
redeemable at the option of Sovereign, in whole or in part, at $52.188 per share
during the twelve months beginning May 15, 1998, and thereafter at prices
declining ratably to par on and after May 15, 2005.
On July 18, 1995, Sovereign completed the sale of $50 million of Senior
Notes due July 1, 2000 at a rate of 6.75%, priced to yield 6.92%.
(11) ACCOUNTING CHANGES
Effective July 1, 1995, Sovereign prospectively adopted the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standard
("SFAS") No. 122 "Accounting for Mortgage Servicing Rights". SFAS No. 122
requires that management recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. Management should
allocate the total cost of mortgage loans, either purchased or originated, to
the loans and the mortgage servicing rights (MSR) based on
11
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
their relative fair value. The Statement also requires that management
assess its capitalized mortgage servicing rights for impairment based on the
fair value of those rights, and that this impairment be recognized through a
valuation allowance. Management anticipates that the adoption of SFAS No. 122
will not have a material effect on Sovereign's operations.
12
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
General
Net income for the three-month period ended June 30, 1995 was $14.1
million, an increase of 21% when compared to net income of $11.7 million for the
three-month period ended June 30, 1994. Earnings per share for the three-month
period ended June 30, 1995 were $.26 per share, an increase of 8% when compared
to $.24 for the same period in 1994. Net income for the six-month period ended
June 30, 1995 was $26.3 million or $.51 per share compared to $22.6 million or
$.47 per share for the same period in 1994. Earnings per share have been
adjusted to reflect all stock dividends and stock splits.
Return on average equity and return on average assets were 15.25% and .76%,
respectively, for the six-month period ended June 30, 1995 compared to 16.48%
and .89%, respectively, for the same period in 1994.
Net Interest Income
Net interest income for the three-month and six-month periods ended June
30, 1995 was $41.4 million and $84.1 million compared to $37.1 million and $73.4
million for the same periods in 1994. The increase is attributable to an
increase in average balances resulting from recent acquisitions and internal
growth. Sovereign's interest rate spread (the difference between the yield on
total assets and the cost of total liabilities and stockholders'
equity) was 2.46% for the six-month period ended June 30, 1995 compared to
2.93% for the same period in 1994.
Interest and dividends on investment and mortgage-backed securities and
other interest-earning assets were $36.5 million and $70.7 million for the
three-month and six-month periods ended June 30, 1995 compared to $25.1 million
and $49.2 million for the same periods in 1994. The average balance of
investment and mortgage-backed securities and other interest-earning assets was
$2.06 billion with an average yield of 6.90% for the six-month period ended June
30, 1995 compared to an average balance of $1.65 billion with an average yield
of 5.96% for the same period in 1994. The increase in the average balance of
investment and mortgage-backed securities and other assets was due to recent
purchases of mortgage-backed securities and to the Shadow Lawn acquisition on
August 5, 1994 in which Sovereign acquired $787.5 million of assets and assumed
$730.6 million of deposit liabilities of Shadow Lawn Savings Bank. The increase
in yield is the result of increasing rates on the variable rate portfolio and
higher rates on new purchases.
Interest and fees on loans were $79.7 million and $156.9 million for the
three-month and six-month periods ended June 30, 1995 compared to $55.7 million
and $108.2 million for the same periods in 1994. The average balance of loans
was $4.41 billion with an average yield of 7.12% for the six-month period ended
June 30, 1995 compared to an average balance of $3.15 billion with an average
yield of 6.88% for the same period in 1994. The increase in the average balance
of loans is due to the origination of variable rate mortgage loans and the
Shadow Lawn acquisition.
Interest on deposits was $52.4 million and $101.7 million for the
three-month and six-month periods ended June 30, 1995 compared to $26.6 million
and $52.1 million for the same periods in 1994. The average balance of deposits
was $4.95 billion with an average cost of 4.15% for the six-month period ended
June 30, 1995 compared to an average balance of $3.23 billion with an average
cost of 3.25% for the same period in 1994. The increase in the average
13
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
balance of deposits is primarily due to recent acquisitions. The cost of
deposits has increased due to a general rise in interest rates.
Interest on borrowings was $22.5 million and $41.8 million for the
three-month and six-month periods ended June 30, 1995 compared to $17.1 million
and $31.9 million for the same periods in 1994. The average balance of
borrowings was $1.45 billion with an average cost of 5.78% for the six-month
period ended June 30, 1995 compared to an average balance of $1.41 billion with
an average cost of 4.55% for the same period in 1994. The cost of borrowings has
increased due to the rise in interest rates.
Provision for Possible Loan Losses
The provision for possible loan losses was $250,000 and $500,000 for the
three-month and six-month periods ended June 30, 1995 compared to $1.0 million
and $2.6 million for the same periods in 1994. See "Financial Condition and Loan
Portfolio" for a discussion of credit quality of Sovereign's loan portfolio.
The following table presents the activity in the allowance for possible
loan losses for the periods indicated: (dollars in thousands)
Six-Month Period Ended June 30,
1995 1994
---- ----
Allowance, beginning of period $ 36,289 $ 33,099
Charge-offs:
Residential 1,448 584
Consumer 279 189
Commercial Real Estate 481 --
--------- ---------
Total Charge-offs 2,208 773
--------- ---------
Recoveries:
Residential 209 5
Consumer 13 20
Commercial Real Estate -- 38
--------- ---------
Total Recoveries 222 63
--------- ---------
Charge-offs, net of recoveries 1,986 710
Provision for possible loan losses 500 2,551
Acquired reserves and other additions -- (6)
--------- ---------
Allowance, end of period $ 34,803 $ 34,934
========= =========
Other Income
Other income was $9.3 million and $14.2 million for the three-month and
six-month periods ended June 30, 1995, compared to $3.0 million and $6.1 million
for the same periods in 1994.
Other loan fees and service charges were $1.1 million and $2.3 million for
the three-month and six-month periods ended June 30, 1995 compared to $1.1
million and $2.2 million for the same periods in 1994. Other loan fees and
service charges result primarily from Sovereign's loan servicing portfolio.
Sovereign serviced $3.82 billion of its own loans and $852.0 million of loans
for others at June 30, 1995 compared to $3.32 billion of its own loans and $1.27
billion of loans for others at June 30, 1994.
14
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Deposit fees were $1.9 million and $4.2 million for the three-month and
six-month periods ended June 30, 1995 compared to $1.0 million and $2.1 million
for the same periods in 1994. This increase was primarily the result of the
Shadow Lawn acquisition and the Berkeley acquisition on January 1, 1995 in which
Sovereign acquired 23 offices and approximately $909.3 million of deposit
liabilities from Berkeley Federal Bank and Trust.
Gain on sale of loans and investment and mortgage-backed securities
available-for-sale was $25,000 and $136,000 for the three-month and six-month
periods ended June 30, 1995 compared to $359,000 and $561,000 for the same
periods in 1994.
Mortgage banking gains were $4.1 million and $4.8 million for the
three-month and six-month periods ended June 30, 1995 compared to $63,000 and
$434,000 for the same periods in 1994. This increase is due to a gain of $3.6
million from the sale of $238.5 million of mortgage servicing rights.
Miscellaneous income was $2.1 million and $2.8 million for the three-month
and six-month periods ended June 30, 1995 compared to $390,000 and $840,000 for
the same periods in 1994. This increase includes a $1.5 million gain on the sale
of deposits to Collective.
General and Administrative Expenses
Total general and administrative expenses were $25.7 million and $51.0
million for the three-month and six-month periods ended June 30, 1995 compared
to $19.6 million and $39.0 million for the same periods in 1994. The ratio of
general and administrative expenses to average assets for the three-month period
ended June 30, 1995 was 1.50% compared to 1.54% for the same period in 1994.
This improvement in the expense ratio is the result of efficiencies realized
from recent acquisitions and an increase in average balances.
Other operating expenses were $3.2 million and $6.7 million for the
three-month and six-month periods ended June 30, 1995 compared to $943,000 and
$2.1 million for the same periods in 1994. This increase was primarily due to
the amortization of goodwill and intangible assets resulting from recent
acquisitions and write downs of REO.
Income Tax Provision
The income tax provision was $7.3 million and $ 13.8 million for the
three-month and six-month periods ended June 30, 1995 compared to $6.8 million
and $13.3 million for the same periods in 1994. The effective tax rate for the
three-month and six-month periods ended June 30, 1995 was 34.2% and 34.4%
compared to 36.7% and 37.1% for the same periods in 1994.
15
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
FINANCIAL CONDITION
Loan Portfolio
Loans at June 30, 1995 were $4.50 billion compared to $4.35 billion at
December 31, 1994. During the six-month period ended June 30, 1995, Sovereign
closed approximately $283.3 million of first mortgage loans including
approximately $195.0 million of variable rate mortgage loans the majority of
which were retained in Sovereign's loan portfolio.
Sovereign's primary loan products are variable rate mortgage loans on owner
occupied residential real estate. As a result of Sovereign's focus on these
products, 98.3% of Sovereign's total loan portfolio is secured by residential
real estate and 75.3% of the total loan portfolio is comprised of variable rate
loans. At June 30, 1995, Sovereign's total loan portfolio included $3.86 billion
of first mortgage loans secured primarily by liens on owner occupied one-to-four
family residential properties and $441.6 million of home equity loans secured
primarily by second mortgages on owner occupied one-to-four family residential
properties. At June 30, 1995, Sovereign's loan portfolio also included $87.0
million of multi-family loans. The remaining loans in Sovereign's portfolio are
gradually declining although recent acquisitions have added a limited amount of
commercial real estate loans. Sovereign has no commercial construction loans and
only $2.0 million in residential development loans. For additional information
on the composition of the loan portfolio, see Note 5 in the Notes to
Consolidated Financial Statements.
Sovereign places all loans 90 days or more delinquent (except guaranteed
student loans) on non-performing status. At June 30, 1995, Sovereign's
non-performing assets were $39.1 million compared to $40.5 million at December
31, 1994. The ratio of non-performing assets to total assets was .53% at June
30, 1995 compared to .62% at December 31, 1994.
At June 30, 1995, 82.62% of non-performing assets consisted of loans or
real estate owned (REO) related to residential real estate compared to 85.01% at
December 31, 1994. Historically, losses on disposition of non-performing
residential real estate have been lower than non-performing commercial and
commercial real estate loans. Non-performing assets at June 30, 1995 include
$8.82 million of REO which is carried at lower of cost or estimated fair market
value less estimated disposal costs.
16
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The following table presents the composition of non-performing assets at
the dates indicated: (dollars in thousands)
June 30, December 31,
1995 1994
---- ----
Non-Accrual Loans:
Past due 90 or more days
as to interest or principal:
Residential $ 26,903 $ 25,379
Other 1,797 2,892
Past due less than 90 days as to
interest and principal:
Residential 1,390 2,980
-------- --------
Total Non-Accrual Loans 30,090 31,251
Restructured Loans 215 99
-------- --------
Total Non-Performing Loans 30,305 31,350
-------- --------
Real Estate Owned:
Residential 4,036 6,104
Other 4,788 3,087
-------- --------
Total Real Estate Owned 8,824 9,191
-------- --------
TOTAL NON-PERFORMING ASSETS $ 39,129 $ 40,541
======== ========
Non-Performing Assets as a
percentage of Total Assets .53% .62%
Non-Performing Loans as a
percentage of Total Loans .67% .72%
Non-Performing Assets as a
percentage of Total Loans
and Real Estate Owned .86% .93%
Allowance for Possible Loan
Losses as a percentage of
Total Non-Performing Assets 88.03% 88.24%
Allowance for Possible Loan
Losses as a percentage of
Total Non-Performing Loans 113.67% 114.11%
Management constantly evaluates the adequacy of its allowance for possible
loan losses. Management's evaluation of the adequacy of the allowance to absorb
potential loan losses takes into consideration the risks inherent in the loan
portfolio, past loan loss experience, specific loans which could have loss
potential, geographic and industry concentrations, delinquency trends, economic
conditions and other relevant factors. At June 30, 1995, the allowance for
possible loan losses was $34.8 million or .77% of loans compared to $36.3
million or .83% of loans at December 31, 1994.
17
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The following table presents the allocation of the allowance for possible
loan losses and the percentage of such allocation to each loan type for the
dates indicated: (dollars in thousands)
June 30, December 31,
1995 1994
Balance at End of -------------------- ----------------------
Period Attributable to Amount Percent Amount Percent
----------------------- ------ ------- ------ -------
Residential real estate $ 10,909 31.35% $ 10,540 29.05%
Commercial real estate 527 1.51 657 1.81
Commercial 132 .38 164 .45
Consumer 4,506 12.95 4,435 12.22
Unallocated 18,729 53.81 20,493 56.47
-------- ------ -------- -----
Total $ 34,803 100.00% $36,289 100.00%
======== ====== ======== ======
Potential problem loans (consisting of loans as to which management has
serious doubts as to the ability of such borrowers to comply with present
repayment terms, although not currently classified as non-performing loans)
amounted to approximately $3.8 million. These loans consist of $2.7 million of
multi-family loans and $987,000 of commercial real estate loans.
Investment and Mortgage-backed Securities
Investment securities consist primarily of U.S. Treasury and government
agency securities, corporate debt securities and stock in the Federal Home Loan
Bank of Pittsburgh ("FHLB"). Mortgage-backed securities consist of obligations
issued by FHLMC, FNMA, GNMA, RTC or private issuers. Sovereign's mortgage-backed
securities are generally either guaranteed as to principal and interest by the
issuer or rated "AAA" or "AA" by Standard and Poor's or Moody's. At June 30,
1995, total investment and mortgage-backed securities were $2.44 billion
compared to $1.90 billion at December 31, 1994. For additional information on
the investment and mortgage-backed securities, see Notes 3 and 4 in the Notes to
Consolidated Financial Statements.
Goodwill and Other Intangible Assets
Total goodwill and other intangible assets at June 30, 1995 were $120.8
million compared to $64.6 million at December 31, 1994. The increase is the
result of the Berkeley acquisition.
Deposits
Deposits are attracted from within Sovereign's primary market area through
the offering of various deposit instruments including NOW accounts, money market
accounts, savings accounts, certificates of deposit and retirement savings
plans.
Total deposits at June 30, 1995 were $4.83 billion, compared to $4.03
billion at December 31, 1994. This increase is the result of the assumption of
Berkeley deposits. For additional information on the deposit portfolio
composition, see Note 6 in the Notes to Consolidated Financial Statements.
18
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Borrowings
Sovereign utilizes borrowings as a source of funds for its asset growth.
Collateralized advances are available from the FHLB provided certain standards
related to creditworthiness have been met. Another source of funds for Sovereign
is reverse repurchase agreements. Reverse repurchase agreements are short-term
obligations collateralized by a security interest in U.S. Treasury securities or
securities fully guaranteed as to principal and interest by the U.S. Government
or an agency thereof.
Total borrowings at June 30, 1995 were $1.68 billion of which $1.41 billion
were short-term compared to $2.16 billion of which $1.72 billion were short-term
at December 31, 1994. This decrease is the result of the use of funds received
from the Berkeley deposits to pay down borrowings. For additional information on
the borrowings, see Note 7 in the Notes to Consolidated Financial Statements.
Stockholders' Equity
Total stockholders' equity at June 30, 1995 was $414.1 million compared to
$303.9 million at December 31, 1994. This increase is primarily attributable to
the retention of earnings and the issuance of preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Sovereign Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in cash and U.S. Treasury and other
qualifying investments. Regulations currently in effect require Sovereign Bank
to maintain liquid assets of not less than 5% of its net withdrawable accounts
plus short-term borrowings, of which short-term liquid assets must consist of
not less than 1%. These levels are changed from time to time by the OTS to
reflect economic conditions. Sovereign Bank's liquidity ratio was 6.71% for June
30, 1995.
Sovereign's primary financing sources are deposits obtained in its own
market area and borrowings in the form of securities sold under repurchase
agreements and advances from the FHLB. At June 30, 1995, Sovereign had $1.39
billion in unpledged investments and mortgage-backed securities which could be
used to collateralize additional borrowings. Sovereign Bank can also borrow from
the FHLB, subject to required collateralization. Other sources of funds include
operating activities, repayments of principal on investment and mortgage-backed
securities, repayment of principal on loans and other investing activities.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"),
requires the OTS to prescribe uniformly applicable capital standards for all
savings associations. These standards require savings associations to maintain a
minimum tangible capital ratio of not less than 1.5%, a minimum leverage capital
ratio of not less than 3% of tangible assets and not less than 4% of risk
adjusted assets and a minimum risk-based capital ratio (based upon credit risk)
of not less than 8%. In all cases, these standards are to be no less stringent
than the capital standards that are applicable to national banks. The OTS has
issued a regulation that requires a minimum leverage capital requirement of 3%
for associations rated composite 1 under the OTS MACRO rating system. For all
other savings associations, the minimum leverage capital requirement will be 3%
plus at least an additional 100 to 200 basis points.
19
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The OTS issued its final regulations on the incorporation of an interest
rate risk component into its risk-based capital requirements. Under the
regulation, savings associations which are deemed to have an "above normal"
level of interest rate risk must deduct a portion of that risk from total
capital for regulatory capital purposes. Implementation of this interest rate
risk capital deduction has been delayed by the OTS until further notification.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
established five capital tiers: well capitalized, adequately capitalized, under
capitalized, significantly under capitalized and critically under capitalized. A
depository institution's capital tier depends upon its capital levels in
relation to various relevant capital measures, which include leverage and
risk-based capital measures and certain other factors. Depository institutions
that are not classified as well capitalized are subject to various restrictions
regarding capital distributions, payment of management fees, acceptance of
brokered deposits and other operating activities.
At June 30, 1995, Sovereign Bank is classified as well capitalized and is
in compliance with all capital requirements. Management anticipates that
Sovereign Bank will continue to be classified as well capitalized and will be in
compliance with all capital requirements.
The following table sets forth the capital ratios of Sovereign Bank and
Sovereign Bancorp and the current regulatory requirements at June 30, 1995:
Sovereign Sovereign
Bancorp(1) Bank Requirement
---------- --------- -----------
Stockholders' equity to
total assets 5.66% 6.71% None
Tangible capital to tangible
assets 4.12 5.12 1.50%
Leverage (core) capital to
tangible assets 4.12 5.12 3.00
Leverage (core) capital to
risk adjusted assets 9.05 11.45 4.00
Risk-based capital to risk
adjusted assets 13.57 12.34 8.00
(1) OTS capital regulations do not apply to savings and loan holding companies.
These ratios are computed as if those regulations did apply to Sovereign
Bancorp.
ASSET AND LIABILITY MANAGEMENT
The objective of Sovereign's asset and liability management is to identify,
manage and control its interest rate risk in order to produce consistent
earnings that are not largely contingent upon favorable trends in interest
rates. Sovereign manages its assets and liabilities to attain a stable net
interest margin across a wide spectrum of interest rate environments. This is
accomplished by monitoring the levels of interest rates, the relationships
between the rates earned on assets and the rates paid on liabilities, the
absolute amount of assets and liabilities which reprice or mature over similar
periods, off-balance sheet positions and the effect of all of these factors on
the estimated level of net interest income.
20
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
There are a number of industry standards used to measure an institution's
interest rate risk position. Most common among these is the one year gap which
is the ratio representing the difference between assets, liabilities and
off-balance sheet positions which will mature or reprice within one year
expressed as a percentage of total assets. Using management's estimates of asset
prepayments, core deposit decay and borrowing repricing in its computation,
Sovereign estimates that its cumulative one year gap position was a negative .1%
at June 30, 1995.
Sovereign also utilizes income simulation modeling in measuring its
interest rate risk and managing its interest rate sensitivity. Income simulation
considers not only the impact of changing market interest rates on forecasted
net interest income, but also other factors such as yield curve relationships,
the volume and mix of assets and liabilities, customer preferences and general
market conditions.
Pursuant to its interest rate risk management strategy, Sovereign enters
into off-balance sheet transactions which involve interest rate exchange
agreements (swaps, caps and floors) for interest rate risk management purposes.
Sovereign's objective in managing its interest rate risk is to provide
sustainable levels of net interest income while limiting the impact changes in
interest rates have on net interest income. For additional information on
Interest Rate Exchange Agreements, see Note 8 in the Notes to Consolidated
Financial Statement.
Amortizing and non-amortizing interest rate swaps are generally used to
convert fixed rate assets and liabilities to variable rate assets and
liabilities and vice versa. Sovereign utilizes amortizing interest rate swaps to
convert discounted adjustable rate loans to fixed rate for a period of time. The
amortization of the notional amount of the interest rate swaps are tied to the
level of an index such as the One Year Treasury Constant Maturity, LIBOR, or a
prepayment rate of a pool of mortgage-backed securities. In order for interest
rate swaps to achieve the desired objective, Sovereign selects interest rate
swaps that will have a high degree of correlation to the related financial
instrument. Sovereign utilizes non-amortizing swaps to convert fixed rate
liabilities to floating rate, to reduce Sovereign's overall cost of funds.
Interest rate caps are generally used to limit the exposure from the
repricing and maturity of liabilities and interest rate floors are generally
used to limit the exposure from repricing and maturity of assets. Interest rate
caps and floors are also used to limit the exposure created by other interest
rate swaps. In certain cases, interest rate caps or floors are simultaneously
bought and sold to create a range of protection against changing interest rates
while limiting the cost of that protection.
Due to competitive conditions, Sovereign originates fixed rate residential
mortgages. It exchanges the majority of these loans with FHLMC, FNMA and private
investors. The loans are exchanged for marketable fixed rate mortgage-backed
securities which are generally sold, or cash. This helps insulate Sovereign from
the interest rate risk associated with these fixed rate assets. Sovereign uses
forward sales, cash sales and options on mortgage-backed securities as means of
hedging loans in the mortgage pipeline which are originated for resale.
21
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Sovereign's primary funding source is deposits obtained in its own
marketplace. Deposit programs at Sovereign are priced to meet management's
asset/liability objectives, while taking into account the rates available on
investment opportunities and also considering the cost of alternative funding
sources. Borrowings are a significant funding source for Sovereign and have
primarily been in the form of securities sold under repurchase agreements and
advances from the FHLB. Since borrowings are not subject to the market
constraints to which deposits are, Sovereign uses borrowings to add flexibility
to its interest rate risk position.
22
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable or the responses are negative.
Item 6 - Reports on Form 8-K.
Report on Form 8-K, dated April 20, 1995 (date of earliest event -
April 20, 1995), contained a press release announcing Sovereign's
intention to offer Convertible Preferred Stock.
Report on Form 8-K, dated April 28, 1995 (date of earliest event -
April 24, 1995), described the election of Richard E. Mohn as
Chairman of the Board to succeed Frederick J. Jaindl who resigned as
Chairman and as a Director of Sovereign earlier that day.
Report on Form 8-K, dated May 6, 1995 (date of earliest event - May
15, 1995), announced that the company filed a final prospectus
supplement relating to an offering of up to 2,000,000 shares of
Cumulative Convertible Preferred Stock.
Report on Form 8-K, dated July 10, 1995 (date of earliest event -
July 6, 1995), announced the resignation of a member of the Company's
Board of Directors.
Report on Form 8-K, dated July 13, 1995 (date of earliest event -
July 13, 1995), contained a press release announcing the Company's
expected earnings for the second quarter of 1995.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOVEREIGN BANCORP, INC.
----------------------------------------
(Registrant)
Date August 10, 1995 /s/ Karl D. Gerhart
-------------------- ----------------------------------------
Karl D. Gerhart
Chief Financial Officer
Date August 10, 1995 /s/ Richard A. Elko
-------------------- ----------------------------------------
Richard A. Elko
Chief Accounting Officer
24