================================================================================
SECURITIES AND EXCHANGE COMMISSION
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 March 31, 2001
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.)
2000 Market Street, Philadelphia, Pennsylvania 19103
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (215) 557-4630
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 May 11, 2001
- ------------------------------- ---------------------------------
Common Stock (no par value) 246,795,350 shares
================================================================================
FORWARD LOOKING STATEMENTS
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Sovereign Bancorp, Inc. ("Sovereign" or "the Company") may from time to
time make "forward-looking statements," including statements contained in
Sovereign's filings with the Securities and Exchange Commission (including this
Quarterly Report on Form 10-Q and the Exhibits hereto), in its reports to
shareholders (including its 2000 Annual Report) and in other communications by
Sovereign, which are made in good faith by Sovereign, pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to
Sovereign's vision, mission, strategies, goals, beliefs, plans, objectives,
expectations, anticipations, estimates, intentions, financial condition, results
of operations, future performance and business of Sovereign, including: (i)
statements relating to Sovereign's expectations and goals with respect to (a)
growth in cash earnings, operating earnings, net income, shareholder value and
internal tangible equity generation; (b) growth in earnings per share; (c)
return on equity; (d) return on assets; (e) efficiency ratio; (f) tier 1
leverage ratio; (g) annualized net charge-offs and other asset quality measures;
(h) fee income as a percentage of total revenue; (i) tangible equity to assets;
(j) book value and tangible book value per share; (k) loan and deposit portfolio
compositions, employee retention, deposit retention, asset quality, reserve
adequacy; and (ii) statements preceded by, followed by or that include the words
"may," "could," "should," "pro forma," "looking forward," "would," "believe,"
"expect," "anticipate," "estimate," "intend," "plan," "strive," "hopefully,"
"try," or similar expressions. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, these
forward-looking statements involve risks and uncertainties which are subject to
change based on various important factors (some of which, in whole or in part,
are beyond Sovereign's control). The following factors, among others, could
cause Sovereign's financial performance to differ materially from the goals,
plans, objectives, intentions and expectations, forecasts and projections (and
underlying assumptions) expressed in such forward-looking statements: (1) the
strength of the United States economy in general and the strength of the
regional and local economies in which Sovereign conducts operations, (2) the
effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System; (3) inflation, interest rate, market and monetary fluctuations;
(4) the ability of Sovereign and Sovereign Bank to successfully integrate the
assets, liabilities, customers, systems and management we acquire into our
operations; (5) the timely development of competitive new products and services
by Sovereign and the acceptance of such products and services by customers; (6)
the willingness of customers to substitute competitors' products and services
and vice versa; (7) the success of Sovereign and Sovereign Bank in meeting the
post-closing regulatory requirements with respect to the FleetBoston acquisition
and the ability to pay installments on a timely basis related to the
non-solicitation agreement in connection with the acquisition; (8) the impact of
changes in financial services' laws and regulations and the application of such
laws and regulations (including laws concerning taxes, capital, liquidity,
proper accounting treatment, securities and insurance) and the impact of changes
in generally accepted accounting principles; (9) technological changes; (10)
changes in consumer spending and savings habits; (11) unanticipated regulatory
or judicial proceedings; (12) changes in asset quality; and (13) the success of
Sovereign at managing the risks involved in the foregoing.
FORWARD LOOKING STATEMENTS
(continued)
Sovereign cautions that the foregoing list of important factors is not
exclusive, and neither such list nor any such forward-looking statement takes
into account the impact that any future acquisition may have on Sovereign and
any such forward-looking statement, Sovereign does not undertake to update any
forward-looking statement, whether written or oral, that may be made from time
to time by or on behalf of Sovereign.
Operating earnings, cash earnings and core revenue, as defined, and the
related ratios using these measures are not a substitute for other financial
measures determined in accordance with generally accepted accounting principles
("GAAP"). Because all companies do not calculate these non-GAAP measures in the
same fashion, these measures as presented may not be comparable to other
similarly titled measures of other companies.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2001
and December 31, 2000 5
Consolidated Statements of Operations for the
three-month period ended March 31, 2001 and 2000 6 - 7
Consolidated Statement of Stockholders' Equity for
the three-month period ended March 31, 2001 8
Consolidated Statements of Cash Flows for the three-month
period ended March 31, 2001 and 2000 9
Notes to Consolidated Financial Statements 10 - 17
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 18 - 32
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K 33
SIGNATURES 34
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
(in thousands)
ASSETS
Cash and amounts due from
depository institutions $ 714,645 $ 945,196
Interest-earning deposits 48,415 14,447
Investment securities:
Available-for-sale 6,442,986 5,315,584
Held-to-maturity
(fair value of $1,110,110 and $1,971,89) 1,106,270 1,978,268
Loans (including loans held for sale
at approximate fair value of $230,633
and $59,993) 21,656,196 21,912,245
Allowance for loan losses (256,063) (256,356)
Premises and equipment 286,315 290,134
Other real estate owned
and other repossessed assets 10,741 8,183
Accrued interest receivable 216,391 230,514
Goodwill and other intangible assets ($947,783 and
$968,631 net of tax) 1,419,256 1,455,331
Bank owned life insurance 678,245 668,654
Other assets 1,725,630 895,597
----------- -----------
TOTAL ASSETS $34,049,027 $33,457,797
=========== ===========
LIABILITIES
Deposits and other customer accounts $23,965,342 $24,498,917
Short-term borrowings 1,709,556 1,330,900
Long-term borrowings:
FHLB advances and repurchase agreements 4,060,938 3,544,984
Senior secured credit facility 350,602 350,792
Senior notes and subordinated debentures 950,559 1,013,632
Advance payments by borrowers
for taxes and insurance 23,652 24,009
Other liabilities 413,116 287,464
----------- -----------
TOTAL LIABILITIES 31,473,765 31,050,698
----------- ----------
Mandatorily redeemable capital securities
("Trust Preferred Securities") and other
minority interest of subsidiaries 464,243 458,215
----------- ------------
STOCKHOLDERS' EQUITY
Common stock; no par value; 400,000,000 shares
authorized; 251,597,794 shares issued at
March 31, 2001 and 231,465,030 shares
issued at December 31, 2000 1,409,702 1,259,374
Warrants 91,500 91,500
Unallocated common stock held by the Employee
Stock Ownership Plan at cost;
4,565,924 shares at March 31, 2001
and December 31, 2000 (33,230) (33,230)
Treasury stock at cost; 380,106 shares at
March 31, 2001 and 397,756 shares at
December 31, 2000 (3,528) (3,789)
Accumulated other comprehensive loss (25,666) (38,521)
Retained earnings 672,241 673,550
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,111,019 1,948,884
----------- -----------
TOTAL LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY $34,049,027 $33,457,797
=========== ===========
See accompanying notes to consolidated financial statements.
- 5 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Month Period
Ended March 31,
------------------------
2001 2000
--------- ---------
(in thousands, except
per share data)
Interest income:
Interest-earning deposits $ 514 $ 2,278
Investment securities:
Available-for-sale 106,767 137,746
Held-to-maturity 19,397 37,204
Interest and fees on loans 453,168 294,653
-------- ---------
Total interest income 579,846 471,881
-------- ---------
Interest expense:
Interest on deposits
and other customer accounts 221,114 114,462
Interest on short-term and
long-term borrowings 111,252 198,167
-------- ---------
Total interest expense 332,366 312,629
-------- ---------
Net interest income 247,480 159,252
Provision for loan losses 20,000 8,000
-------- ---------
Net interest income after provision for
loan losses 227,480 151,252
-------- ---------
Other income:
Retail banking fees 39,866 13,779
Mortgage banking revenues 21,314 5,285
Loan fees and service charges 7,198 2,277
Capital markets revenue 3,469 3,732
Bank owned life insurance 9,591 5,999
Miscellaneous income 19,301 13,058
Gain/(loss) on investment
securities transactions 7,344 (22,872)
-------- ---------
Total other income 108,083 21,258
-------- ---------
General and administrative expenses:
Compensation and benefits 77,630 46,109
Occupancy and equipment expenses 56,754 20,773
Outside services 29,718 22,262
Other administrative expenses 28,161 24,734
-------- ---------
Total general and administrative expenses 192,263 113,878
-------- ---------
- 6 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(continued)
Three-Month Period
Ended March 31,
-----------------------------
2001 2000
--------- --------
(in thousands, except
per share data)
Other expenses:
Amortization of goodwill and other intangibles $ 36,076 $ 9,684
Trust Preferred Securities and
other minority interest expense 14,484 8,928
Real estate owned loss/(gain), net 12 (155)
Non-solicitation expense 72,216 --
Restructuring expense 8,500 --
-------- -------
Total other expenses 131,288 18,457
-------- --------
Income before income taxes
and extraordinary item 12,012 40,175
Income tax provision 900 13,250
-------- --------
Income before extraordinary item 11,112 26,925
Extraordinary item (net of tax of
($3,526) and $5,225) (6,549) 10,775
-------- --------
Net income $ 4,563 $ 37,700
======== ========
Earnings per share:
Basic
Income before extraordinary item $ .05 $ .12
Extraordinary item (.03) .05
-------- --------
Net income $ .02 $ .17
======== ========
Diluted
Income before extraordinary item $ .05 $ .12
Extraordinary item (.03) .05
-------- --------
Net income $ .02 $ .17
======== ========
Dividends declared per common share $ .025 $ .025
======== ========
See accompanying notes to consolidated financial statements.
- 7 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands)
Accumulated Total
Common Unallocated Other Stock-
Shares Common Retained Treasury Common Stock Comprehensive Holders'
Outstanding Stock Warrants Earnings Stock Held by ESOP Income/(Loss) Equity
----------- ----- -------- -------- ----- ------------ ------------ ------
Balance, December 31, 2000 226,501 $1,259,374 $91,500 $673,550 $(3,789) $ (33,230) $ (38,521) $1,948,884
Comprehensive income:
Net income -- -- -- 4,563 -- -- -- 4,563
Effect of change in accounting
principle -- -- -- -- -- -- (9,951) (9,951)
Change in unrecognized gain/
(loss) net of tax:
Investments available-for-
sale -- -- -- -- -- -- 25,975 25,975
Derivative financial
instruments -- -- -- -- -- -- (3,169) (3,169)
----------
Total comprehensive income -- -- -- -- -- -- -- 17,418
Issuance of common stock 20,000 149,000 -- -- -- -- -- 149,000
Exercise of stock options 11 295 -- -- -- -- -- 295
Cash-in-lieu of fractional shares -- (5) -- (81) -- -- -- (86)
Sale of stock under Dividend
Reinvestment Plan and Employee
Stock Purchase Plan 122 1,026 -- -- -- -- -- 1,026
Dividends paid on common stock -- -- -- (5,791) -- -- -- ( 5,791)
Treasury stock sold 18 12 -- -- 261 -- -- 273
------- ---------- ------- -------- -------- --------- --------- ----------
Balance, March 31, 2001 246,652 $1,409,702 $91,500 $672,241 $(3,528) $ (33,230) $ (25,666) $2,111,019
======= ========== ======= ======== ======= ========= ========= ==========
See accompanying notes to consolidated financial statements.
- 8 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three-Month Period
Ended March 31,
---------------------------------
2001 2000
----------- ----------
Cash Flows from Operating Activities: (in thousands)
Net income $ 4,563 $ 37,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 20,000 8,000
Deferred taxes (43,607) 9,061
Depreciation and amortization 48,440 5,718
Net amortization/(accretion) of investment
securities and loan discounts 5,233 (7,079)
(Gain)/loss on sale of loans, investment
securities and real estate owned (7,356) 22,717
(Gain) on sale of fixed assets (344) --
(Gain) on sale of FHLB advances -- (16,000)
Loss on the retirement of Bancorp debt 10,075 --
Net change in:
Unrealized gain/(loss) on derivatives (9,905) --
Loans held for sale -- 18,173
Accrued interest receivable 14,123 (3,382)
Prepaid expenses and other assets (689,217) (156,592)
Other liabilities 125,652 51,548
----------- ----------
Net cash(used) by operating activities (522,343) (30,136)
----------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of investment securities:
Available-for-sale 1,619,275 2,339,143
Proceeds from repayments and maturities of
investment securities:
Available-for-sale 260,181 208,265
Held-to-maturity 66,624 1,044,165
Purchases of investment securities:
Available-for-sale (2,156,144) (2,112,466)
Held-to-maturity (1,024) (977,210)
Proceeds from sales of loans 1,116,152 132,819
Purchase of loans (765,516) (564,950)
Net change in loans other than purchases and sales (251,698) 948,244
Proceeds from sales of premises and equipment 379 2,219
Purchases of premises and equipment (4,628) (33,929)
Proceeds from sale of real estate owned 630 750
Net cash (paid)received due to acquisitions net
of cash acquired -- (222,905)
----------- ----------
Net cash provided(used) by investing activities (115,769) 764,145
----------- ----------
Cash Flows from Financing Activities:
Net (decrease)/increase in deposits
and other customer accounts (533,575) 315,437
Net increase/(decrease) in short-term borrowings 378,212 809,025
Net increase/(decrease) in long-term borrowings 517,532 (294,037)
Proceeds from Bancorp debt 525,000 --
Repayments of Bancorp debt (590,000) --
Sale of FHLB advances -- (911,037)
Net increase in advance payments by
borrowers for taxes and insurance (357) 5,140
Cash dividends paid to stockholders (5,872) (5,334)
Proceeds from issuance of common stock 150,328 1,206
Net change in treasury stock 261 135
----------- ----------
Net cash provided(used) by financing activities 441,529 (79,465)
----------- ----------
Net change in cash and cash equivalents (196,583) 654,544
Cash and cash equivalents at beginning of period 959,643 393,234
----------- ----------
Cash and cash equivalents at end of period $ 763,060 $1,047,778
=========== =---------
Supplemental Disclosures:
Income tax payments totaled $1.3 million for the three-month period ended March
31, 2001 and $.1 million for the same period in 2000. Interest payments totaled
$342 million for the three-month period ended March 31, 2001 and $323 million
for the same period in 2000. Noncash activity consisted of acquisitions which
included $3.4 billion of loans and assumption of $4.2 billion of deposits for
the three-month period ended March 31, 2000.
See accompanying notes to consolidated financial statements.
- 9-
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
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, Sovereign
Delaware Investment Corporation, Sovereign Delaware Escrow Corporation
(dissolved July 21, 2000), Sovereign Capital Trust I, Sovereign Capital Trust II
and ML Capital Trust I. 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, stockholders' equity, 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 preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
amounts in the financial statements of prior periods have been reclassified to
conform with the presentation used in current period financial statements. These
reclassifications have no effect on net income.
The results of operations for the three-month period ended March 31,
2001 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 Form 10-K for the year ended December 31, 2000.
Goodwill and other intangibles on the consolidated balance sheet
include amounts which are deductible for federal and state income tax purposes.
The parenthetical amounts presented on the face of the statement reflect the
amounts of goodwill and other intangibles, after reducing such amounts for the
future tax benefits to be received as these amounts are amortized against future
earnings. In finalizing a purchase allocation, the Company considers all the
facts and circumstances that comes to its attention during the acquisition
period, not to exceed 12 months, and if necessary, will adjust the purchase
price allocation accordingly based upon such facts.
- 10 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing income before
extraordinary item by the weighted average common shares outstanding, excluding
options and warrants. In calculating diluted earnings per share, the dilutive
effect of options and warrants is calculated using the treasury stock method,
using the average market price for the period.
The following table presents the computation of earnings per share for
the periods indicated (in thousands, except per share data).
Three-Month Period
Ended March 31,
----------------------------
2001 2000
----------- -----------
Calculation of income for EPS:
- ------------------------------
Income before extraordinary
item for basic EPS 11,112 26,925
Extraordinary item, after tax (6,549) 10,775
----------- -----------
Net income for basic EPS $ 4,563 $ 37,700
=========== ===========
Weighted average shares for EPS:
- --------------------------------
Weighted average basic shares 237,874 225,552
Dilutive effect of average stock options 1,392 1,000
----------- -----------
Weighted average fully diluted shares 239,266 226,552
=========== ===========
Earnings per share:
- -------------------
Basic
Income before extraordinary item $ .05 $ .12
Extraordinary item (.03) .05
----------- -----------
Net income $ .02 $ .17
=========== ===========
Fully diluted
Income before extraordinary item $ .05 $ .12
Extraordinary item (.03) .05
----------- -----------
Net income $ .02 $ .17
=========== ===========
-11-
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) INVESTMENT SECURITIES AVAILABLE-FOR-SALE
The following table presents the composition and fair value of
investment securities available-for-sale at the dates indicated: (dollars in
thousands)
March 31, 2001
-------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
----------- ------------ ------------ -----
Investment Securities:
U.S. Treasury and gov't
agency securities $ 25,340 $ 104 $ 1 $ 25,443
Corporate securities/
trust preferred 328,397 7,457 30,220 305,634
Asset backed securities 493,486 1,078 6,728 487,836
Equities 22,806 181 1,715 21,272
FHLB stock 280,797 -- -- 280,797
Agency preferred stock 403,850 2,287 37 406,100
Municipal securities 29,353 1,325 470 30,208
Mortgage-backed securities:
Passthroughs:
U.S. government agency 1,744,799 18,025 3,999 1,758,825
Non-agency 2,334,153 14,695 14,912 2,333,936
Collateralized mortgage
obligations 804,466 3,271 14,802 792,935
---------- -------- -------- -----------
Total investment securities
available-for-sale $6,467,447 $ 48,423 $ 72,884 $6,442,986
========== ======== ======== ===========
December 31, 2000
--------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
----------- ------------ ------------ -----
Investment Securities:
U.S. Treasury and gov't
agency securities $ 92,341 $ 55 $ 455 $ 91,941
Corporate securities/
trust preferred 300,206 11,333 5,727 305,812
Asset backed securities 523,466 248 12,118 511,596
Equities 25,196 126 3,427 21,895
FHLB stock 225,797 -- -- 225,797
Agency preferred stock 425,888 267 2,472 423,683
Municipal securities 36,549 2,693 473 38,769
Mortgage-backed securities:
Passthroughs:
U.S. government agency 676,593 3,025 5,679 673,939
Non-agency 2,553,289 556 40,275 2,513,570
Collateralized mortgage
obligations 515,852 535 7,805 508,582
---------- ------- -------- ----------
Total investment securities
available-for-sale $5,375,177 $18,838 $ 78,431 $5,315,584
========== ======= ======== ==========
Sovereign sold $581 million of mortgage securities during the quarter ended
March 31, 2001; however, this transaction did not settle until April, 2001.
Consequently, an approximate $600 million broker receivable was included in
other assets at March 31, 2001.
- 12 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) INVESTMENT SECURITIES HELD-TO-MATURITY
The following table presents the composition and fair value of
investment securities held-to-maturity at the dates indicated: (dollars in
thousands)
March 31, 2001
--------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
---------- ------------ ------------ -----
Investment Securities:
U.S. Treasury and gov't
agency securities $ 1,705 $ 55 $ -- $ 1,760
Corporate securities/
trust preferred -- -- -- --
Municipal securities 5,774 49 9 5,814
Mortgage-backed securities:
Passthroughs:
U.S. government agency 1,092,623 16,032 12,262 1,096,393
Non-agency 6,168 54 79 6,143
---------- -------- -------- ----------
Total investment securities
held-to-maturity $1,106,270 $ 16,190 $ 12,350 $1,110,110
========== ======== ======== ==========
December 31, 2000
----------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
---------- ------------ ------------ -----
Investment Securities:
U.S. Treasury and gov't
agency securities $ 6,382 $ -- $ 138 $ 6,244
Corporate securities/
trust preferred 35,785 2,282 6 38,061
Municipal securities 739 135 6 868
Mortgage-backed securities:
Passthroughs:
U.S. government agency 1,562,525 14,780 16,502 1,560,803
Non-agency 39,117 378 234 39,261
Collateralized mortgage
obligations 333,720 505 7,566 326,659
---------- ------ ------ ---------
Total investment securities
held-to-maturity $1,978,268 $18,080 $24,452 $1,971,896
========== ======= ======= ==========
- 13 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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)
March 31, 2001 December 31, 2000
-------------------------- ---------------------------
Amount Percent Amount Percent
----------- ------- ----------- -------
Residential real estate loans $ 6,904,909 31.9% $ 7,927,442 36.2%
Residential construction loans 44,031 0.2 51,415 0.2
----------- ------ ----------- ------
Total Residential Loans 6,948,940 32.1 7,978,857 36.4
----------- ------ ----------- ------
Commercial real estate loans 2,807,414 13.0 2,793,616 12.7
Commercial and industrial loans 4,435,795 20.5 4,397,009 20.1
Automotive floor plan loans 516,516 2.4 513,641 2.4
Multi-family loans 127,075 0.6 127,141 0.6
----------- ------ ----------- ------
Total Commercial Loans 7,886,800 36.5 7,831,407 35.8
----------- ------ ----------- ------
Home equity loans 3,526,113 16.3 3,256,598 14.9
Auto loans 2,756,422 12.7 2,309,025 10.5
Loans to automotive lessors 312,922 1.4 317,281 1.4
Other 224,999 1.0 219,077 1.0
----------- ------ ----------- ------
Total Consumer Loans 6,820,456 31.4 6,101,981 27.8
----------- ------ ----------- ------
Total Loans (1) $21,656,196 100.0% $21,912,245 100.0%
=========== ====== =========== ======
Total Loans with:
Fixed rate $14,061,152 64.9% $14,165,535 64.6%
Variable rate 7,595,044 35.1 7,746,710 35.4
----------- ------ ----------- ------
Total Loans (1) $21,656,196 100.0% $21,912,245 100.0%
=========== ====== =========== ======
(1) Loan totals include deferred loan fees and unamortized premiums and
discounts. These fees, premiums and discounts resulted in a net decrease in
loans of $25 million at March 31, 2001 and a net decrease of $32 million at
December 31, 2000.
- 14 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) DEPOSIT PORTFOLIO COMPOSITION
The following table presents the composition of deposits and other
customer accounts at the dates indicated: (dollars in thousands)
March 31, 2001 December 31, 2000
---------------------------------------- ---------------------------------------
Weighted Weighted
Average Average
Account Type Amount Percent Rate Amount Percent Rate
------------ ------ ------- -------- ------ ------- --------
Demand deposit accounts $ 3,296,001 14% - % $ 3,475,994 14% - %
NOW accounts 4,118,356 17 2.23 4,247,194 17 2.67
Savings accounts 2,957,773 12 2.23 2,952,960 12 2.38
Money market accounts 4,844,370 20 4.16 4,553,020 19 4.44
Retail certificates 8,065,488 34 5.74 8,371,936 34 5.91
Jumbo certificates 683,354 3 6.14 897,813 4 6.55
----------- ---- ----- ----------- ---- ------
Total Deposits $23,965,342 100% 3.61% $24,498,917 100% 3.83%
=========== ==== ===== =========== ==== ======
(7) SHORT-TERM BORROWINGS
The following table presents information regarding borrowings at the
dates indicated: (dollars in thousands)
March 31, 2001 December 31, 2000
--------------------------- -----------------------------
Weighted Weighted
Average Average
Balance Rate Balance Rate
------- -------- ---------- ---------
Federal funds purchased $ -- --% $ 130,000 5.23%
Securities sold under
repurchase agreements -- -- 230,900 6.58
FHLB advances 1,709,556 5.65 970,000 6.62
--------- ---- ---------- ----
Total Borrowings $1,709,556 5.65% $1,330,900 6.48%
========== ===== ========== ====
(8) LONG-TERM BORROWINGS
Long-term borrowings (original maturities greater than one year)
consisted of the following: (dollars in thousands)
March 31, 2001 December 31, 2000
-------------- -----------------
Securities sold under
repurchase agreements $ 155,000 $ --
FHLB advances 3,905,938 3,544,984
Senior credit facility 350,602 350,792
Senior and subordinated Notes 950,559 1,013,632
---------- ----------
$5,362,099 $4,909,408
========== ==========
- 15 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(9) RESTRUCTURING EXPENSE
In November, 2000, the Company announced the results of a restructuring
initiative in which management analyzed front and back office operations and
computer operating platforms which were duplicated as a result of the
acquisition and eliminated approximately 500 positions. In total, Sovereign
recorded $18.5 million in restructuring costs, which was comprised of $14
million of severance and outplacement costs, and $4.5 million write-off of a
redundant computer-operating platform. During the first quarter of 2001, the
Company incurred an additional $8.5 million pre-tax ($5.5 million after-tax) of
restructuring charges related to the closure of 14 "in-store" offices and a
redirection of e-commerce efforts.
(10) COMPREHENSIVE INCOME
The following table presents the components of comprehensive income,
net of related tax, based on the provisions of SFAS No. 130 for the periods
indicated: (dollars in thousands)
Three-Month Period
Ended March 31,
----------------------
2001 2000
------- ----
Net income $ 4,563 $ 37,700
Effect of change in accounting principle (9,951) --
Net unrealized(losses)/gains on derivatives (3,169) --
Net unrealized (losses)/gains on
available-for-sale securities 30,561 29,514
Reclassification adjustment (4,586) 14,869
------- --------
Net unrealized (losses)/gains
recognized in other comprehensive
income 12,855 44,383
------- ---------
Comprehensive income/(loss) $17,418 $ 82,083
======= =========
Accumulated other comprehensive loss, net of related tax, consisted of
net unrealized losses on securities of $15.8 million and net unrealized losses
on derivatives of $9.9 million at March 31, 2001 and net unrealized losses on
securities of $38.5 million at December 31, 2000.
(11) IMPACT OF RECENTLY ISSUED ACCOUNTING STATEMENTS
Sovereign uses a variety of off-balance-sheet financial derivatives as
part of its overall interest rate risk management process and to manage risk
associated with mortgage banking activities. 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 repricing of liabilities. Interest rate floors are generally used
to limit the exposure from repricing of assets. In certain cases, interest rate
caps and floors are simultaneously bought and sold to create a range of
protection against changing interest rates while limiting the cost of that
protection. Forward contracts are used to manage risk positions associated with
mortgage origination. Substantially, all forward contracts mature within 90 days
of origination. Forward contracts are traded in over-the-counter markets and do
not have standardized terms.
- 16 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11) IMPACT OF RECENTLY ISSUED ACCOUNTING STATEMENTS (cont'd)
- -----------------------------------------------------
Counterparties to Sovereign's forward contracts are primarily U.S. government
agencies and brokers and dealers in mortgage-backed securities.
Effective January 1, 2001, the Company adopted Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, which required that all derivative instruments be
reported on the balance sheet at fair value and establishes criteria for
designation and effectiveness of hedging relationships. Upon adoption, Sovereign
designated derivative instruments used for risk management into hedging
relationships in accordance with the requirements of the new standard.
Derivative instruments used to hedge changes in the fair value of assets and
liabilities due to changes in interest rates or other factors were designated in
fair value hedge relationships. The Company accounts for changes in the value of
both the fair value hedges and the corresponding hedged items as a component of
other operating income. Derivative instruments used to hedge the variability of
forecasted cash flows attributable to a specific risk, generally interest rate
risk, were designated in cash flow hedge relationships. The changes in fair
value of cash flow hedges are recorded as other comprehensive income to the
extent effective. The ineffective portion, if any, of cash flow hedges is
recorded as other operating income. On January 1, 2001, after-tax transition
amounts associated with establishing the fair values of the derivative
instruments and hedged items on the balance sheet of $0.7 million and ($6.7)
million were recorded as an increase of net income and a reduction in other
comprehensive income, respectively. Additionally, as allowed by FAS 133, the
Company reclassified $800 million of held-to-maturity securities to
available-for-sale on January 1, 2001. These securities had an unrealized loss
of ($3.2) million, net of tax of $1.7 million, at January 1, 2001.
At March 31, 2001, the fair value of the Corporation's interest rate
swap agreements that were designated as fair value hedges was $14.5 million.
Fair value hedges are utilized to convert fixed rate long-term debt and brokered
deposits to variable rate. In certain instances, the interest rate swaps
utilized have embedded call options that mirror embedded purchased call options
in the underlying liability being hedged. At March 31, 2001, the fair value of
the Corporation's interest rate swap agreements that were designated as cash
flow hedges was ($15.2) million, which was a change of ($4.9) million since
January 1, 2001. Cash flow hedges are utilized to convert certain long-term
variable rate FHLB advances to fixed rate. The difference attributable to
ineffectiveness for both the fair value hedges and the cash flow hedges for the
three month period ended March 31, 2001 was immaterial.
Sovereign's Capital Markets Group provides risk management services for
its customers. Sovereign purchases and sells certain derivatives including
interest rate swaps, caps and floors. Customer related derivative financial
instrument transactions are generally marked to market and any gains or losses
are recorded in the income statement. Sovereign also holds derivatives in
connection with its securities trading activities and, at times, takes minimal
positions in the expectation of profiting from favorable movements in interest
rates.
- 17 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
- ---------------------
General
- -------
Cash earnings, as defined below, for the three-month period ended March
31, 2001 increased 46% to $88.1 million, or $.37 per share, up from $60.4
million, or $.33 per share, for the same period in 2000. Operating earnings for
2001 increased 20% to $63.6 million, or $.27 per share, as compared to $52.8
million, or $.29 per share, for 2000.
Operating earnings exclude certain special charges for 2001 and 2000.
Special charges for the quarters ended March 31, 2001 and 2000 were $59.0
million and $15.1 million, respectively, after tax and are outlined in the
Reconciliation of Net Income to Operating Earnings table on the following page.
Cash earnings are operating earnings excluding amortization of intangible assets
and ESOP-related expense.
Net income, including the special charges noted above, was $4.6
million, or $.02 per share, for the three-month period ended March 31, 2001, as
compared to net income of $37.7 million, or $.17 per share, for the same period
in 2000.
Cash return on average equity, cash return on average tangible equity
and cash return on average total assets, excluding special charges discussed
above, were 17.42%, 58.57% and 1.06% for the three-month period ended March 31,
2001 compared to 15.15%, 25.89% and .84% for the same period in 2000.
Successful Formation of Sovereign Bank New England
- --------------------------------------------------
Sovereign successfully completed the SBNE conversion in three phases on
March 24, June 16 and July 21, 2000. Sovereign's results include the operations
of these acquired SBNE branches, assets and liabilities from their respective
acquisition dates, and thereafter. The transaction represents the largest branch
acquisition in banking history and created the third largest bank in New England
with 281 retail banking offices, over 550 automated teller machines ("ATMs") and
approximately $12.3 billion of deposits and $8.0 billion of commercial, consumer
and mortgage loans net of a $1.1 billion sale of residential mortgages that were
not relationship assets.
- 18 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Reconciliation of Net Income to Operating Earnings
(In thousands, except per share data - all amounts are after tax)
Three-Month Period
Ended March 31
---------------------------------------------
Total Per Share
-------------------- -------------------
2001 2000 2001 2000
-------- --------- ------- --------
Net income/(loss) as reported $ 4,563 $ 37,700 $ .02 $ .17
Loss on the early extinguishment of debt 6,549 -- .03 --
Net negative carry on
escrowed bond proceeds(1) -- 8,596 -- .04
Merger-related and integration
costs recorded during the
period (2) -- 8,171 -- .03
Expense on convertible trust
preferred securities
("PIERS")(1) -- 3,820 -- .02
Restructuring expense 5,525 -- .02 --
Non-solicitation expense 46,940 -- .20 --
Assumed interest expense reduction due
to paydown of other borrowings with net
proceeds of common equity and PIERS (1) -- (5,456) -- (.02)
Impact of additional shares outstanding
for 1999 common stock offerings (3) -- -- -- .05
-------- --------- ------- --------
Operating earnings (3) $ 63,577 $ 52,831 $ .27 $ .29
======== ========= ======= ========
Cash earnings (3) $ 88,075 $ 60,361 $ .37 $ .33
======== ========= ======= ========
(1) In connection with the SBNE acquisition, Sovereign raised $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 $10.4 million ($6.9 million after tax) for
the quarter ended March 31, 2000, comprised of the following components: a)
a reduction of net interest income of $12.8 million ($8.6 after-tax); b)
expense of $5.7 million ($3.8 million after-tax) associated with PIERS
issued in November, 1999; c) an assumed $8.1 million ($5.5 million
after-tax) interest expense reduction from the assumed pay down of other
borrowings with the proceeds of the Trust Preferred Securities and common
stock offerings.
(2) Merger-related integration charges related to recent acquisitions include
direct costs associated with the SBNE acquisition, including investment
banking and debt commitment fees, indirect costs incurred to integrate
recent acquisitions into Sovereign's back-office systems, costs of
training, relocation and associated travel, and management's estimate of
the carrying costs of certain facilities and personnel acquired in the
first closing on March 24, 2000 that were not fully operational until July
21, 2000, the date of the final closing.
(3) Operating earnings per share and cash earnings per share are calculated
using a weighted average number of shares which include, for the
three-month period ended March 31, 2000, a pro rata portion of the shares
issued in November, 1999 in proportion to deposits acquired on March 24,
2000, June 16, 2000 and July 21, 2000 over total estimated SBNE deposits
acquired in each phase of the SBNE acquisition.
- 19 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS
THREE MONTH PERIOD ENDED March 31, 2001 and 2000
(in thousands)
2001 2000
----------------------------------------- -------------------------------------
Average Yield/ Balance Yield/
Balance Interest(1) Rate Average Interest(1) Rate
---------------------------------------- -------------------------------------
EARNING ASSETS
- --------------
Investments $ 7,167,511 $ 129,026 7.20% $ 10,326,558 $ 179,626 6.96%
------------ ------------ ----- ------------ ------------ ----
Loans:
Residential loans 7,860,387 153,738 7.82% 5,944,099 111,291 7.49%
Commercial loans 7,823,684 166,355 8.58% 4,319,976 91,441 8.43%
Consumer loans 6,587,921 134,590 8.28% 4,600,840 92,676 8.09%
------------ ------------ ----- ------------ ------------ -----
Total loans 22,271,992 454,683 8.22% 14,864,915 295,408 7.95%
Allowance for loan losses (255,288) -- -- (131,346) -- --
------------ ------------ ----- ------------ ------------ -----
Net loans 22,016,704 454,683 8.32% 14,733,569 295,408 8.02%
------------ ------------ ----- ------------ ------------ -----
Total earning assets 29,184,215 583,709 8.05% 25,060,127 475,034 7.58%
Other assets 4,381,587 -- -- 1,952,981 -- --
------------ ------------ ----- ------------ ------------ -----
TOTAL ASSETS $ 33,565,802 583,709 7.00% $ 27,013,108 $ 475,034 7.03%
============ ------------ ----- ============ ------------ -----
FUNDING LIABILITIES
- -------------------
Deposits:
Core deposits $ 14,867,116 88,426 2.41% $ 6,475,516 39,991 2.48%
Time deposits 9,070,640 132,688 5.93% 5,895,516 78,207 5.32%
------------ ------------ ----- ------------ ------------ -----
Total deposits 23,937,756 221,114 3.74% 12,371,032 118,198 3.84%
------------ ------------ ----- ------------ ------------ -----
Borrowed funds:
FHLB advances 5,231,007 73,561 5.63% 10,243,988 145,416 5.64%
Repurchase agreements 217,472 2,698 4.96% 630,730 9,740 6.11%
Other borrowings 1,394,238 34,993 10.08% 1,587,696 39,275 9.91%
------------ ------------ ----- ------------ ------------ -----
Total borrowed funds 6,842,717 111,252 6.51% 12,462,414 194,431 6.21%
------------ ------------ ----- ------------ ------------ -----
Total funding liabilities 30,780,473 332,366 4.36% 24,833,446 312,629 5.03%
Other liabilities 735,213 -- -- 365,025 -- --
------------ ------------ ----- ------------ ------------ -----
Total liabilities 31,515,686 332,366 4.26% 25,198,471 312,629 4.95%
STOCKHOLDERS' EQUITY 2,050,116 -- -- 1,814,637 -- --
- ------------------- ------------ ------------ ----- ------------ ------------ -----
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 33,565,802 332,366 4.00% $ 27,013,108 312,629 4.62%
============ ------------ ----- ============ ------------ -----
NET INTEREST INCOME $ 251,343 $ 162,405
============ ============
NET INTEREST SPREAD (2) 3.00% 2.41%
===== ====
NET INTEREST MARGIN (3) 3.45% 2.60%
===== =====
(1) Tax-equivalent basis
(2) Represents the difference between the yield on total assets and the cost of
total liabilities and stockholders' equity.
(3) Represents taxable equivalent net interest income divided by average
interest-earning assets
- 20 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Net interest income for the three-month period ended March 31, 2001 was
$247 million compared to $159 million for the same period in 2000. This increase
was attributable to an increase in average balances resulting from the SBNE
acquisition and internal growth. Net interest margin was 3.45% for the
three-month period ended March 31, 2001 compared to 2.60% for the same period in
2000, an improvement of 85 basis points.
Interest on investment securities was $126 million for the three-month
period ended March 31, 2001 compared to $175 million for the same period in
2000. The average balance of investment securities was $7.2 billion with an
average tax equivalent yield of 7.20% for the three-month period ended March 31,
2001 compared to an average balance of $10.3 billion with an average yield of
6.96% for the same period in 2000. The decrease in average investment securities
reflects sales of approximately $2.1 billion accomplished in 2000 and the
maturity of $1.3 of commercial paper investments at escrow break on the final
closing of the SBNE acquisition on July 21, 2000. Proceeds were used to reduce
wholesale borrowings.
Interest and fees on loans were $453 million for the three-month period
ended March 31, 2001 compared to $295 million for the same period in 2000. The
average balance of loans was $22.3 billion with an average yield of 8.22% for
the three-month period ended March 31, 2001 compared to an average balance of
$14.9 billion with an average yield of 7.95% for the same period in 2000.
Interest on deposits was $221 million for the three-month period ended
March 31, 2001 compared to $114 million for the same period in 2000. The average
balance of deposits was $23.9 billion with an average cost of 3.74% for the
three-month period ended March 31, 2001 compared to an average balance of $12.4
billion with an average cost of 3.84% for the same period in 2000.
Interest on borrowings was $111 million for the three-month period ended
March 31, 2001 compared to $198 million for the same period in 2000. The average
balance of borrowings was $6.8 billion with an average cost of 6.51% for the
three-month period ended March 31, 2001 compared to an average balance of $12.5
billion with an average cost of 6.21% for the same period in 2000. The decrease
in borrowings was the result of balance sheet restructuring accomplished
throughout 2000.
Provision for Loan Losses
- -------------------------
The provision for loan loss expense is based upon credit loss
experience and on the estimation of losses inherent in the current loan
portfolio. The provision for loan losses for the three-month period ended March
31, 2001 was $20.0 million compared to $8.0 million for the same period in 2000.
The increase over 2000 is primarily due to increased loan volumes resulting from
the SBNE acquisition and internal loan growth.
Over the last few years, through several strategic acquisitions and internal
restructuring initiatives, Sovereign has diversified its lending efforts and
increased its emphasis on providing its customers with small business loans and
an expanded line of commercial and consumer products, such as middle market
asset-based lending and automobile loans. As a result of the increased risk
inherent in these loan products and as Sovereign continues to place emphasis on
commercial business and consumer lending in future periods, management will
regularly evaluate its loan portfolio and record additional loan loss reserves
as is necessary.
- 21 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Sovereign's net charge-offs for the three-month period ended March 31,
2001 were $20.3 million and consisted of charge-offs of $33.8 million and
recoveries of $13.5 million. This compared to net charge-offs of $7.6 million
consisting of charge-offs of $12.8 million and recoveries of $5.2 million for
the three-month period ended March 31, 2000. Sovereign's increased level of net
charge-offs was primarily the result of higher overall loan balances and a
general seasoning of recent loan portfolio acquisitions.
The following table presents the activity in the allowance for possible
loan losses for the periods indicated: (dollars in thousands)
Three-month Period Ended March 31,
2001 2000
--------------------------------------
Allowance, beginning of period $ 256,356 $ 132,986
Charge-offs:
Residential 4,663 1,587
Commercial Real Estate -- 2,211
Commercial 9,743 2,212
Consumer 19,361 6,754
--------- ---------
Total Charge-offs 33,767 12,764
--------- ---------
Recoveries:
Residential 1,760 948
Commercial Real Estate - 784
Commercial 458 784
Consumer 11,256 2,637
--------- ---------
Total Recoveries 13,474 5,153
--------- ---------
Charge-offs, net of recoveries 20,293 7,611
Provision for possible loan losses 20,000 8,000
Initial allowance related to
acquisitions -- 42,002
--------- ---------
Allowance, end of period $ 256,063 $ 175,377
========= =========
Other Income
- ------------
Other income was $108 million for the three-month period ended March
31, 2001 compared to $21.3 million for the same period in 2000. Excluding
securities transactions, other income for the three month period ended March 31,
2001 was $101 million as compared to $44.1 million for the same period in 2000.
Due to a favorable shift into core deposit products over the last year
and the impact of the SBNE acquisition, retail banking fees grew to $39.9
million for the quarter ended March 31, 2001 as compared to $13.8 million for
the same period in 2000,representing an increase of 189%.
Mortgage banking revenue was $21.3 million for the quarter ended March
31, 2001 as compared to $5.3 million for the same period in 2000. The current
quarter includes a gain of $19.3 million related to the sale of $580 million of
residential mortgages offset by a charge of $6.8 million to reduce the valuation
of mortgage servicing rights.
- 22 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Gain/(loss) on investment securities were $7.3 million for the three-month
period ended March 31, 2001 compared to $(22.9) million for the same period in
2000. During the first quarter of 2000 Sovereign sold certain investment
securities and FHLB advances and paid-off certain short-term advances as part of
its balance sheet repositioning in preparation for SBNE. Upon repayment of the
short-term advances, related swaps hedging these instruments were terminated.
These transactions resulted in securities losses of $23 million included in
gain(loss) on sale of loans and investments, $9.5 million of swap termination
gains included as miscellaneous income, and a $16.0 million gain on sale
(extinguishment) of FHLB advances ($10.8 million net of tax) reported as an
extraordinary item.
Miscellaneous income was $19.3 million for the three-month period ended
March 31, 2001 compared to $13.1 million for the same period in 2000. This
increase was principally due to the addition of new lines of fee-based
businesses over the past year.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses for the three-month period ended
March 31, 2001 were $192.3 million, compared to $113.9 million for the same
period in 2000. The increase principally represents the increased costs of
operating SBNE.
Other operating expenses were $131 million for the three-month period
ended March 31, 2001 compared to $18.5 million for the same period in 2000.
Results for the three-month period ended March 31, 2001 included amortization of
goodwill of $36.1 million compared to $9.7 million for the same period in 2000.
The increase in goodwill amortization is a result of the additional intangibles
recorded for the SBNE acquisition. The $5.6 million increase in Trust Preferred
Securities and other minority interest expense is attributable to the August
2000 issuance of preferred shares of Sovereign Real Estate Investment Trust to
institutional investors. The three month period ended March 31, 2001, includes
$72.2 million of non-compete expense related to the non-solicitation provisions
of the SBNE purchase and assumption agreement. Sovereign also recorded an $8.5
million charge ($5.6 million net of tax) as the last portion of restructuring
charges related to its company-wide restructuring announced in November of 2000.
The restructuring completed over the last two quarters resulted in elimination
of over 600 positions, closure of 14 in-store offices and redirection of
e-commerce efforts to consolidate efforts within our geographic footprint.
Income Tax Provision
- --------------------
The income tax provision was $.9 million for the three-month
period ended March 31, 2001 compared to $13.3 million for the same period in
2000. The effective tax rate for the three-month period ended March 31, 2001 was
7.5%, compared to 33.0% for the same period in 2000. The current year tax rate
differs from the statutory rate of 35% due to the high proportion of non-taxable
income including bank owned life insurance income and tax-free investment
securities, combined with 35% tax benefit recorded on the extraordinary loss
related to the extinguishment of debt compared to the Company's pre-tax income.
- 23 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Extraordinary Items
- -------------------
In March 2001, Sovereign completed a $400 million term and revolving
credit facility with Bank of Scotland. Proceeds from the issue were used to
prepay an existing $350 million senior secured credit facility. In connection
with this transaction, Sovereign wrote-off $6.5 million net of tax ($10.1
million pre-tax) of deferred issuance costs remaining from the existing line of
credit. These costs were reflected net of tax as an extraordinary item in
accordance with generally accepted accounting principles.
As previously discussed, during the first quarter of 2000 Sovereign
sold FHLB advances which resulted in a pre-tax gain of $16.0 million ($10.8
million after-tax) and is treated as an early extinguishment of debt under
generally accepted accounting principles.
FINANCIAL CONDITION
- ------------------
Loan Portfolio
- --------------
At March 31, 2001, commercial loans totaled $7.9 billion representing
37% of Sovereign's loan portfolio, compared to $7.8 billion and 36% of the loan
portfolio at December 31, 2000 and $5.7 billion and 33% of the loan portfolio at
March 31, 2000.
The consumer loan portfolio (including home equity loans and lines of
credit, automobile loans, and other consumer loans) totaled $6.8 billion at
March 31, 2001, representing 31% of Sovereign's loan portfolio, compared to $6.1
billion and 28% of the loan portfolio at December 31, 2000 and $5.6 billion and
33% of the loan portfolio at March 31, 2000.
Residential mortgage loans decreased $1.0 billion during the quarter to
$6.9 billion and now represent 32% of Sovereign's loan portfolio as compared to
$8.0 billion and 36% at December 31, 2000 due primarily to the securitization of
$734 million of mortgage loans. At March 31, 2000 residential mortgage loans
totaled $5.9 billion representing 34% of the loan portfolio.
Non-Performing Assets
- ---------------------
At March 31, 2001 Sovereign's non-performing assets were $180.7 million
compared to $187.4 million at December 31, 2000. This decrease was due primarily
to a reduction in consumer non-accrual loans and from applying a non-accrual
policy of 120 days consistently to all consumer loan products. Commercial and
commercial real estate saw a small increase, $3.4 million, and residential loans
increased $3.3 million. Non-performing assets as a percentage of total assets
was .53% at March 31, 2001, down from .56% at December 31, 2000. At March 31,
2001 61% of non-performing assets consisted of loans related to real estate,
consumer loans or OREO which are primarily secured by collateral. Sovereign
places commercial and commercial real estate loans on non-performing status at
90 days (unless return to current status is expected imminently). Consumer,
residential and government guaranteed loans continue to accrue until they are
120 days delinquent, at which point they are either charged-off or fully
reserved.
- 24 -
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)
March 31, December 31,
2001 2000
--------- --------
Non-accrual loans:
Residential $ 63,639 $ 60,322
Commercial real estate 17,350 12,403
Commercial 62,896 64,485
Consumer 21,204 38,239
-------- --------
Total non-accrual loans 165,089 175,449
-------- --------
Restructured loans 4,084 3,755
-------- --------
Total non-performing loans 169,173 179,204
Other real estate owned 7,257 4,425
Other repossessed assets 4,291 3,758
-------- --------
Total Non-performing Assets $180,721 $187,387
======== ========
Past due 90 days or more as to interest
or principal and accruing interest (1) $ 47,845 $16,733
Non-performing assets as a percentage
of total assets .53% .56%
Non-performing loans as a percentage
of total loans .78% .82%
Non-performing assets as a percentage of
total loans and real estate owned .83% .85%
Allowance for loan losses as a percentage
of total non-performing assets 141.7% 136.8%
Allowance for loan losses as a percentage
of total non-performing loans 151.4% 143.1%
(1) Includes consumer and residential loans past due between 90 and 120 days.
In addition to the non-performing loans included in the non-performing
assets table above, there were $114 million and $97 million of potential problem
loans at March 31, 2001 and December 31, 2000, respectively. While these loans
were performing, management was aware of information about possible credit
problems which raise doubts as to the ability of the borrowers to comply fully
with present loan repayment terms. Total non-performing assets and potential
problem loans as a percentage of total loans outstanding increased to 1.36% at
March 31, 2001 from 1.30% at December 31, 2000.
- 25 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Allowance for Loan Losses
The following table presents the allocation of the allowance for loan
losses and the percentage of each loan type of total loans at the dates
indicated:
(dollars in thousands)
March 31, 2001 December 31, 2000
------------------- -------------------
% of Loans % of Loans
to to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
Allocated allowance:
Commercial loans $145,865 36% $149,828 36%
Residential real estate
mortgage loans 24,313 32 34,629 36
Consumer loans 56,576 32 48,053 28
--
Unallocated allowance 29,309 n/a 23,846 n/a
-------- ----- -------- ------
Total allowance for loan losses $256,063 100% $256,356 100%
======== ====== ======== ======
The adequacy of Sovereign's allowance for loan losses is regularly
evaluated. Management's evaluation of the adequacy of the allowance to absorb
loan losses takes into consideration the risks inherent in the loan portfolio,
past loan loss experience, specific loans which have loss potential, geographic
and industry concentrations, delinquency trends, economic conditions, the level
of originations and other relevant factors. Management also considers loan
quality, changes in the size and character of the loan portfolio, consultation
with regulatory authorities, amount of non-performing loans, delinquency trends,
economic conditions and industry trends when determining the allowance. Along
with higher yields, management believes the shift in loan composition from
residential into commercial and consumer brings higher inherent risk.
Sovereign maintains an allowance for loan losses sufficient to absorb
inherent losses in the loan portfolio and believes the current allowance to be
at a level adequate to cover such inherent losses. The Company gives
consideration to other risk indicators when determining the appropriate
allowance level.
The allowance for loan losses consists of two elements: (i) an allocated
allowance, which is comprised of allowances established on specific loans, and
class allowances based on risk ratings, historical loan loss experience and
current trends, and (ii) unallocated allowances based on both general economic
conditions and other risk factors in the Company's individual markets and
portfolios, and to account for a level of imprecision in management's estimation
process.
The specific allowance element of the allocated allowance is based on a
regular analysis of criticized loans where internal credit ratings are below a
predetermined classification. This analysis is performed at the relationship
manager level, and periodically reviewed by the loan review department. The
specific allowance established for these criticized loans is based on a careful
analysis of related collateral value, cash flow considerations and, if
applicable, guarantor capacity.
The class allowance element of the allocated allowance is determined by
an internal loan grading process in conjunction with associated allowance
factors. These class allowance factors are updated as required and are based
primarily on actual historical loss experience, consultation with regulatory
authorities, and peer group loss experience. While this analysis is conducted
quarterly, the
- 26 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Company has the ability to revise the class allowance factors whenever necessary
in order to address improving or deteriorating credit quality trends or specific
risks associated with a given loan pool classification.
Regardless of the extent of the Company analysis of customer performance,
portfolio evaluations, trends or risk management processes established, certain
inherent, but undetected losses are probable within the loan portfolio. This is
due to several factors including inherent delays in obtaining information
regarding a customer's financial condition or changes in their unique business
conditions; the judgmental nature of individual loan evaluations, collateral
assessments and the interpretation of economic trends; volatility of economic or
customer-specific conditions affecting the identification and estimation of
losses for larger non-homogeneous credits; and the sensitivity of assumptions
utilized to establish allocated allowances for homogeneous groups of loans among
other factors. The Company maintains an unallocated allowance to recognize the
existence of these exposures. These other risk factors are continuously reviewed
and revised by management where conditions indicate that the estimates initially
applied are different from actual results.
A comprehensive analysis of the allowance for loan losses is performed by the
Company on a quarterly basis. In addition, a review of allowance levels based on
nationally published statistics is conducted on an annual basis. The Company has
an Asset Review Committee, which has the responsibility of affirming allowance
methodology and assessing the general and specific allowance factors in relation
to estimated and actual net charge-off trends. This Committee is also
responsible for assessing the appropriateness of the allowance for loan losses
for each loan pool classification at Sovereign.
Residential Portfolio. The allowance for the residential mortgage
portfolio decreased from $34.6 million at December 31, 2000 to $24.3 million at
March 31, 2001. The change was due primarily to updating the class reserves in
relation to the most recent loss performance projections for this portfolio.
Consumer Portfolio. The allowance for the consumer loan portfolio
increased from $48.1 million at December 31, 2000, to $56.5 million at March 31,
2001. This change is primarily attributable to increases in consumer portfolio
balance.
Commercial Portfolio. The portion of the allowance for loan losses
related to the commercial portfolio has decreased from $149.8 million at
December 31, 2000 to $145.9 million at March 31, 2001. This decrease is
attributable to a slight revision in allowance methodology and increased use of
specific reserves.
Unallocated Allowance. The unallocated allowance for loan losses increased
to $29.3 million at March 31, 2001 from $23.8 million at December 31, 2000.
- 27 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Investment 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"). Investment securities also include mortgage-backed
securities which consist of collateralized mortgage obligations issued by
federal agencies or private label issues. Sovereign's mortgage-backed securities
are generally either guaranteed as to principal and interest by the issuer or
have ratings of "AAA" by Standard and Poor's and Fitch/IBCA at the date of
issuance. The classes are backed by single-family residential loans which are
primary residences geographically dispersed throughout the United States.
Sovereign purchases classes which are senior positions backed by subordinate
classes. The subordinate classes absorb the losses and must be completely
eliminated before any losses flow through the senior positions. The effective
duration of the total investment portfolio at March 31, 2001 was 2.8 years.
At March 31, 2001, total investment securities available-for-sale were
$6.4 billion compared to $5.3 billion at December 31, 2000 and investment
securities held-to-maturity were $1.1 billion compared to $2.0 billion at
December 31, 2000.
The changes in investment balances is due principally to the redesignation of
$800 million of investments from held-to-maturity to available-for-sale upon
adoption of SFAS 133 on January 1, 2001. For additional information with respect
to Sovereign's investment securities, see Notes 3 and 4 in the Notes to
Consolidated Financial Statements.
Goodwill and Other Intangible Assets
- ------------------------------------
Total goodwill and other intangible assets decreased $36 million to
$1.4 billion at March 31, 2001. This decrease is attributable to normal
year-to-date amortization.
Other Assets
- ------------
Other assets increased by $830 million from December 31, 2000. This is
primarily attributable to $600 million of receivables from brokers for unsettled
security trades at quarter end.
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 March 31, 2001 were $24.0 billion compared to $24.5
billion at December 31, 2000. The decrease in deposits is primarily due to
reduction in time deposit balances as wholesale borrowing rates are currently
more attractive than aggressive pricing of jumbo and retail CDs.
Short-term Borrowings
- ---------------------
Sovereign utilizes short-term borrowings as a source of funds for its asset
growth and its asset/liability management. Collateralized advances are available
- 28 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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
securities fully guaranteed as to principal and interest by the U.S. Government
or an agency thereof.
Total short-term borrowings at March 31, 2001 were $1.7 billion
compared to $1.3 billion at December 31, 2000. This increase is principally
attributable to Sovereign's decision to avoid high cost time deposits when
wholesale borrowings are attractively priced. See Note 7 in the Notes to
Consolidated Financial Statements for additional information.
Long-term Borrowings
Long-term borrowings increased to $5.4 billion at March 31, 2001 from
$4.9 billion at December 31, 2000. This increase was in FHLB advances and
repurchase agreements with attractive current pricing.
Sovereign issued $175 million of senior debt, at an 8.625% coupon, on
February 20, 2001. A portion of these proceeds, along with a portion of an $150
equity offering completed earlier in February, were used to retire a $240
million senior note which matured during the quarter.
Sovereign also completed a $400 million revolving and term credit
facility with Bank of Scotland on March 1, 2001. Proceeds of the issue were used
to prepay an existing $350 million senior secured credit facility. The new line
provides Sovereign a 1% interest rate savings, or $3.5 million per year, has no
prepayment penalties and offers greater financial flexibility as compared to the
previous line of credit. At March 31, 2000, this credit facility had an annual
interest cost of 7.30%.
Bank Regulatory Capital
Federal law requires institutions regulated by the Office of Thrift
Supervision to have a minimum leverage capital ratio equal to 3% of tangible
assets and 4% of risk-adjusted assets and a risk-based capital ratio equal to
8%. Federal law also requires OTS regulated institutions to have a minimum
tangible capital equal to 2% of total tangible assets.
The Office of Thrift Supervision issued an order, as amended,
applicable to the approval of the SBNE acquisition (the "OTS Order") requires
Sovereign Bank to be "Well Capitalized" and also to meet certain additional
requirements and other conditions. Various agreements with our lenders also
require Sovereign Bank to be "Well Capitalized" at all times and in compliance
with all regulatory requirements. To be "well capitalized", a thrift institution
must maintain a Tier 1 Leverage ratio of at least 5%, a Tier 1 risk-based
capital ratio of 6% and total risk-based capital of 10%.
Sovereign Bank, at March 31, 2001, met all capital adequacy requirements
to which they are subject in order to be "Well Capitalized". Management expects
that Sovereign Bank will continue to be classified as well-capitalized and in
compliance with such capital requirements and conditions. Although OTS capital
regulations do not apply to savings and loan holding companies, the OTS Order
requires the Corporation to maintain certain Tier 1 capital levels. The
Corporation is presently in compliance with this requirement and expect to
remain as such.
- 29 -
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 capital ratios of Sovereign Bank and
the current regulatory requirements at March 31, 2001:
Sovereign Bank
---------------------------------------------
Well
March 31, Minimum Capitalized
2000 Requirement Requirement
---------- ----------- -----------
Stockholders' equity to total assets 10.49% None None
Tangible capital to tangible assets 7.08 2.00% None
Tier 1 capital to tangible assets 7.08 3.00 5.00%
Tier 1 capital to risk adjusted assets 9.41 4.00 6.00
Total risk-based capital to risk
adjusted assets 10.44 8.00 10.00
Liquidity and Capital Resources
- -------------------------------
Liquidity represents the ability of Sovereign to obtain cost effective
funding to meet the needs of customers, as well as Sovereign's financial
obligations. Sovereign's primary sources of liquidity include retail deposit
gathering, Federal Home Loan Bank (FHLB) borrowings, reverse repurchase
agreements and wholesale deposit purchases. Other sources of liquidity include
federal funds purchased, asset securitizations, liquid investment portfolio
securities and debt issuances.
Sovereign is required under applicable federal regulations to maintain
specified levels of liquid investments in cash and other qualifying investments.
Current regulations require Sovereign Bank to maintain liquid assets of not less
than 4% of its net withdrawable accounts plus short-term borrowings. As of March
31, 2001, the Bank's liquidity ratio was 41.3%.
Factors which impact the liquidity position of Sovereign include loan
origination volumes, loan prepayment rates, maturity structure of existing
loans, core deposit growth levels, CD maturity structure and retention,
Sovereign's credit ratings, investment portfolio cash flows, maturity structure
of wholesale funding, etc. These risks are monitored and centrally managed. This
process includes reviewing all available wholesale liquidity sources. As of
March 31, 2001, Sovereign had $6.5 billion in available overnight liquidity in
the form of unused federal funds purchased lines, unused FHLB borrowing capacity
and unencumbered investment portfolio securities. Sovereign also forecasts
future liquidity needs and develops strategies to ensure that adequate liquidity
is available at all times.
ASSET AND LIABILITY MANAGEMENT
- ------------------------------
The objective of Sovereign's asset and liability management is to
identify, measure and control its interest rate risk in order to produce
consistent earnings that are not 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
attained 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.
- 30 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Sovereign measures interest rate risk utilizing three tools: net
interest income simulation analysis in multiple interest rate environments,
instantaneous parallel interest rate shocks and lastly, gap analysis, which is a
schedule measuring the difference between assets, liabilities and off-balance
sheet positions which will mature or reprice within specific terms. Income
simulation considers not only the impact of changing market interest rates on
forecasted net income, but also other factors, such as yield curve
relationships, the volume and mix of assets and liabilities, customer
preferences and general market conditions.
Sovereign manages the impact to net interest income in a +/- 100 basis
point instantaneous parallel rate shock environment to be generally within a 5%
variance. At March 31, 2001, Sovereign estimates that if interest rates decline
by 100 basis points, net interest income, over the next twelve months, would
decrease by $45.3 million or 4.2%; conversely, if interest rates increase by 100
basis points, net interest income would increase by $46.7 million, or 4.3%. At
December 31, 2000, if interest rates increased by 100 basis points, net interest
income would have decreased by $10.5 million, or 1.0% and if interest rates had
decreased by 100 basis points, net interest income would have decreased by $9.8
million, or .9%. The slight increase in sensitivity is due to the decrease in
rates and the steepening of the yield curve during the first quarter of 2001.
Sovereign manages the one year interest rate gap within +/- 10% range. A
positive gap position implies that the bank is asset sensitive which could cause
net interest income to decrease if interest rates fall. Conversely, a negative
gap position implies that the bank is liability sensitive which could cause net
interest income to decrease if interest rates rise. Sovereign estimates its one
year gap position was a positive 7.39% at March 31, 2001.
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 that 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 Statements.
Interest rate swaps are generally used to convert fixed rate
liabilities to variable rate liabilities. Sovereign utilizes interest rate swaps
that have a high degree of correlation to the related financial instrument.
As part of its mortgage banking strategy, Sovereign originates fixed
rate residential mortgages. It sells the majority of these loans to FHLMC, FNMA
and private investors. The loans are exchanged for cash or marketable fixed rate
mortgage-backed securities which are generally sold. This helps insulate
- 31 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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 a means of hedging loans in the mortgage pipeline which are
originated for sale.
Sovereign's primary funding source is deposits obtained in its own
marketplace. Deposits increased significantly with the completion of the SBNE
acquisition in 2000 which added $12.3 billion of deposits. 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 also 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.
- 32 -
SOVEREIGN BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Items 1 through 5 not applicable or the responses are negative.
Item 6 - Exhibits Reports on Form 8-K.
(a) Exhibits
(3.1) Articles of Incorporation, as amended and restated, of
Sovereign Bancorp, Inc. (Incorporated by reference to
Exhibit 3.1 to Sovereign's Registration Statement
No. 333-86961-01 on Form S-3)
(3.2) By-Laws of Sovereign Bancorp, Inc. (Incorporated by
reference to Exhibit 3.2 to Sovereign's Annual Report
on Form 10-K for year ended December 31, 1998.)
(b) Reports on Form 8-K
On January 25, 2001, the Company filed a Current
Report on Form 8-K dated January 25, 2001, reporting
information under Items 5 and 7 (as amended by the Current
Report on Form 8-K/A filed on February 5, 2001).
On February 8, 2001, the Company filed a Current
Report on Form 8-K dated February 7, 2001, reporting
information under Items 5 and 7.
On February 12, 2001, the Company filed a Current
Report on Form 8-K dated February 12, 2001, reporting
information under Items 5 and 7.
On February 21, 2001, the Company filed a Current
Report on Form 8-K dated February 21, 2001, reporting
information under Items 5 and 7.
On March 27, 2001, the Company filed a Current Report
on Form 8-K dated March 27, 2001, reporting information under
Items 5 and 7.
- 33 -
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 _May 15_, 2001 /s/ James D. Hogan
---------------------------------------
James D. Hogan
Chief Financial Officer
(Authorized Officer & Principal
Financial Officer)
Date _May 15_, 2001 /s/ George S. Rapp
---------------------------------------
George S. Rapp
Chief Accounting Officer
- 34 -