Sovereign Bancorp, Inc. Announces Second Quarter 2007 Earnings
PHILADELPHIA, July 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported net income for the second quarter of 2007 of $148 million, or $.29 per
diluted share as compared to a net loss of $59.1 million, or ($.15) per diluted
share, for the second quarter of 2006. Net income in the second quarter of 2007
included aggregate charges of $20.1 million after-tax, or $.04 per share,
related to the previously announced expense reduction initiative. The net loss
in the second quarter of 2006 included restructuring charges of $155 million
after-tax, or $.34 per share, a non-cash, non-operating impairment charge
related to certain Fannie Mae and Freddie Mac preferred stock of $43.9 million
after-tax, or $.10 per share, additional provision for credit losses related to
the acquisition of Independence of $8.1 million after-tax, or $.02 per share,
merger and integration charges of $4.1 million after-tax, or $.01 per share, and
a loss on economic hedges of $7.4 million, or $.02 per share.
Sovereign's operating earnings for EPS purposes were $170 million, or
$.33 per diluted share, for the quarter ended June 30, 2007, as compared to $163
million, or $.37 per diluted share a year ago, both of which excluded the
above-mentioned charges. A reconciliation of net income to operating earnings,
as well as the related earnings per share amounts, is included in a later
section of this release.
Commenting on results for the second quarter of 2007, Joseph P. Campanelli,
Sovereign's President and CEO, stated, "As planned, we have essentially
completed the balance sheet restructuring and have put the programs in place to
realize expense efficiencies we initiated in the fourth quarter of 2006. With
these critical initiatives largely completed we can now fully focus on the third
prong of our strategy. Our focus will center on improving the customer
experience as well as optimizing our overall deposit and loan profile, both of
which may increase Sovereign's net interest margin and earnings."
Net Interest Income and Margin
For the second quarter of 2007, Sovereign reported net interest income of
$453 million as compared to $439 million in the second quarter of 2006.
Sovereign's average loan balances, including acquisitions, increased by $6.2
billion over last year. Reflecting the loan sales that settled at the end of the
first quarter of 2007 as part of Sovereign's previously announced balance sheet
restructuring, average loan balances decreased about $4.4 billion on a linked
quarter basis to $56.8 billion. The period-end loan portfolio increased by
approximately $400 million from balances at March 31, 2007, reflecting strong
growth in certain commercial loan categories and in the auto loan portfolio.
Loan growth was partially offset by a $1 billion securitization consisting of
$675 million of multi-family loans and $325 million of commercial real estate
loans, which closed in early June. Sovereign's average core deposits, including
acquisitions, increased $4.9 billion over last year. Average core deposits
decreased $490 million linked quarter to $35.6 billion; however, this decrease
was driven by reductions in higher-cost deposits as government and wholesale
core deposit categories declined $1.0 billion during the quarter.
Net interest margin was 2.71% for the second quarter of 2007 as compared to
2.70% in the prior quarter and 2.86% a year ago. Consistent with its recent
balance sheet strategy to reduce wholesale transactions, Sovereign elected to
unwind a $1.2 billion financing transaction that has been in place with an
international bank, which has historically reduced funding costs. As a result of
unwinding this transaction, Sovereign's net interest margin was reduced by
approximately six basis points this quarter, compared to the prior quarter.
Non-Interest Income
Total fees and other income before security gains totaled $190 million for
the second quarter of 2007 compared to $142 million a year ago and $45.9 million
last quarter. Consumer and commercial banking fees increased 16% from a year
ago, primarily a result of the Independence acquisition and were up 10% linked
quarter, rebounding from seasonal lows typically present in the first quarter of
each year.
Mortgage banking revenues for the quarter were $26.5 million, compared to a
loss of $107 million last quarter and revenues of $4.5 million in the same
quarter a year ago. Included in mortgage banking revenues this quarter was a
gain of $13.8 million related to the commercial loan securitization that took
place during the quarter. Last quarter, the company recorded hedge losses on
this transaction of $3.3 million which was included in operating earnings. Also
included in mortgage banking revenues last quarter was a special charge of $120
million related to the sale of correspondent home equity loans, partially offset
by a $6.1 million net gain related to the sale of multi-family loans.
Non-Interest Expense
G&A expenses were $336 million for the second quarter of 2007, up
$6.6 million or 2.0% from the first quarter as a result of an anticipated
increase of $8.0 million in marketing expense. G&A expenses to average assets
were 1.65% for the quarter, compared to 1.53% in the first quarter and 1.66% a
year ago.
Asset Quality
Annualized net charge-offs were .18% of average loans for the second
quarter, compared to .16% linked quarter and .23% a year ago. In dollars, net
charge-offs were $25.6 million this quarter versus $24.1 million in the prior
quarter and $29.4 million a year ago.
Non-performing loans to total loans held for investment decreased one basis
point from first quarter levels to .42%. Non-performing loans decreased by $2.1
million from last quarter to $240 million. The allowance for credit losses to
non-performing loans was 217% at June 30, 2007, as compared to 208% at March 31
and 251% at June 30, 2006.
Sovereign's provision for credit losses was $51.0 million this quarter,
compared to $46.0 million in the first quarter and $44.5 million in the second
quarter of 2006. Provision for credit losses exceed net charge-offs this quarter
by $25.3 million to reserve for the strong loan growth experienced in the
commercial and auto loan portfolios in addition to mildly weakening credit
quality that resulted in migration of credit risk ratings.
Capital
Sovereign's Tier 1 leverage ratio was 6.40% at June 30, 2007, as compared to
6.29% last quarter. Tangible equity to tangible assets, which includes preferred
stock, was 4.33%. Tangible common equity to tangible assets was 4.07%. The
equity to assets ratio was 10.61% at June 30, 2007. Sovereign Bank's Tier 1
leverage ratio was 6.92% and the Bank's total risk-based capital ratio was
10.46% at June 30, 2007.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company of
Sovereign Bank, a financial institution with $82 billion in assets as of June
30, 2007 with principal markets in the Northeast United States. Sovereign Bank
has nearly 750 community banking offices, over 2,250 ATMs and approximately
12,000 team members. Sovereign offers a broad array of financial services and
products including retail banking, business and corporate banking, cash
management, capital markets, wealth management and insurance. Sovereign is the
18th largest banking institution in the United States. For more information on
Sovereign Bank, visit http://www.sovereignbank.com or call 1-877-SOV-BANK.
Investors, analysts and other interested parties will have the opportunity
to listen to a live web-cast of Sovereign's Second Quarter 2007 earnings call on
Thursday, July 19 beginning at 9:00 a.m. ET at www.sovereignbank.com <
http://www.sovereignbank.com > > Investor Relations > News > Conference
Calls/Webcasts; or http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=67999&eventID=1582796. International parties are invited to dial
into the conference call at 706-679-7706. The webcast and replay can be accessed
anytime from 9:00 a.m. ET on Thursday, July 19, 2007 through 12:00 a.m. ET on
October 18, 2007. Questions may be submitted during the call via email
accessible from Sovereign Bancorp's broadcast and Investor Relations sites. A
telephone replay will be accessible from 11:00 a.m. ET on Thursday, July 19,
2007 through 12:00 a.m. ET (midnight) on Thursday, July 26, 2007 by dialing
1-800-642-1687, confirmation id #4490624.
Note:
This press release contains financial information determined by methods
other than in accordance with U.S. Generally Accepted Accounting Principles
("GAAP"). Sovereign's management uses the non-GAAP measure of Operating
Earnings, and the related per share amount, in their analysis of the company's
performance. This measure, as used by Sovereign, adjusts net income determined
in accordance with GAAP to exclude the effects of special items, including
significant gains or losses that are unusual in nature or are associated with
acquiring and integrating businesses. Operating earnings for 2006 and 2007 EPS
purposes represent net income adjusted for the after-tax effects of
merger-related and integration charges, certain restructuring charges,
other-than-temporary impairment charges on Fannie Mae and Freddie Mac preferred
equity securities and proxy and related professional fees. Since certain of
these items and their impact on Sovereign's performance are difficult to
predict, management believes presentations of financial measures excluding the
impact of these items provide useful supplemental information in evaluating the
operating results of Sovereign's core businesses. These disclosures should not
be viewed as a substitute for net income determined in accordance with GAAP, nor
are they necessarily comparable to non-GAAP performance measures that may be
presented by other companies.
This press release contains statements of Sovereign's strategies, plans, and
objectives, as well as estimates of financial condition, operating and cash
efficiencies and revenue generation. These statements and estimates constitute
forward-looking statements (within the meaning of the Private Securities
Litigation Reform Act of 1995), which involve significant risks and
uncertainties. Actual results may differ materially from the results discussed
in these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, general economic conditions, changes in
interest rates, deposit flows, loan demand, real estate values and competition;
changes in accounting principles, policies, or guidelines; changes in
legislation or regulation; Sovereign's ability in connection with any
acquisition to complete such acquisition and to successfully integrate assets,
liabilities, customers, systems and management personnel Sovereign acquires into
its operations and to realize expected cost savings and revenue enhancements
within expected time frame; the possibility that expected one time
merger-related charges are materially greater than forecasted or that final
purchase price allocations based on the fair value of acquired assets and
liabilities and related adjustments to yield and/or amortization of the acquired
assets and liabilities at any acquisition date are materially different from
those forecasted; other economic, competitive, governmental, regulatory, and
technological factors affecting the Company's operations, integrations, pricing,
products and services; and acts of God, including natural disasters.
Sovereign Bancorp is followed by several market analysts. Please note that
any opinions, estimates, forecasts, or predictions regarding Sovereign Bancorp's
performance or recommendations regarding Sovereign's securities made by these
analysts are theirs alone and do not represent opinions, estimates, forecasts,
predictions or recommendations of Sovereign Bancorp or its management. Sovereign
Bancorp does not by its reference to any analyst opinions, estimates, forecasts
regarding Sovereign's performance or recommendations regarding Sovereign's
securities imply Sovereign's endorsement of or concurrence with such
information, conclusions or recommendations.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2007 2007 2006 2006 2006
(dollars in millions, except per
share data)
Operating Data
Net income (loss) $147.5 $48.1 $(129.4) $184.0 $(59.1)
Net income (loss) for EPS
purposes 150.2 44.4 (133.1) 188.5 (61.5)
Operating earnings for EPS
purposes (1) 170.3 179.6 166.6 207.0 163.2
Net interest income 453.4 487.9 487.0 491.8 438.8
Provision for credit losses (5) 51.0 46.0 366.0 45.0 44.5
Total fees and other income
before security gains (6) 190.3 45.9 149.4 171.9 142.0
Net gain (loss) on investment
securities (7) - 1.0 (36.1) 29.2 (305.0)
G&A expense 336.6 330.0 354.9 351.8 303.3
Other expenses (8) 79.5 116.8 134.5 75.3 58.9
Performance Statistics
Bancorp
Net interest margin 2.71% 2.70% 2.60% 2.64% 2.86%
Return on average assets 0.72% 0.22% -0.57% 0.81% -0.32%
Operating return on average
assets (1) 0.83% 0.83% 0.73% 0.91% 0.89%
Return on average equity 6.71% 2.23% -5.82% 8.47% -3.54%
Operating return on average
equity (1) 7.75% 8.34% 7.49% 9.52% 9.77%
Return on average tangible
equity 17.62% 6.01% -15.54% 23.72% -8.16%
Operating return on average
tangible equity (1) 20.35% 22.46% 20.00% 26.68% 22.54%
Annualized net loan charge-offs
to average loans (9) 0.18% 0.16% 2.75% 0.23% 0.23%
G & A expense to average assets 1.65% 1.53% 1.56% 1.55% 1.66%
Efficiency ratio (2) 52.29% 61.83% 55.77% 53.01% 52.22%
Per Share Data
Basic earnings (loss) per share $0.30 $0.09 $(0.28) $0.39 $(0.15)
Diluted earnings (loss) per share 0.29 0.09 (0.28) 0.37 (0.15)
Operating earnings per share (1) 0.33 0.35 0.33 0.41 0.37
Dividend declared per share 0.080 0.080 0.080 0.080 0.080
Common book value (3) 17.92 17.87 17.83 18.07 17.50
Common stock price:
High $25.16 $26.42 $25.90 $21.60 $21.76
Low 21.14 24.07 21.27 20.07 20.19
Close 21.14 25.44 25.39 21.51 20.31
Weighted average common shares:
Basic 478.3 475.1 473.4 472.4 412.0
Diluted (4) 512.6 475.1 473.4 506.1 412.0
End-of-period common shares:
Basic 479.1 475.7 473.8 472.6 471.8
Diluted 512.3 509.8 508.7 506.5 505.5
Year to Date
June 30 June 30
2007 2006
(dollars in millions, except per
share data)
Operating Data
Net income (loss) $195.5 $82.3
Net income (loss) for EPS purposes 201.0 79.9
Operating earnings for EPS purposes (1) 350.0 318.4
Net interest income 941.2 842.7
Provision for credit losses (5) 97.0 73.5
Total fees and other income before
security gains (6) 236.2 276.3
Net gain (loss) on investment securities (7) 1.0 (305.0)
G&A expense 666.6 583.3
Other expenses (8) 196.2 103.7
Performance Statistics
Bancorp
Net interest margin 2.71% 2.92%
Return on average assets 0.47% 0.24%
Operating return on average assets (1) 0.83% 0.93%
Return on average equity 4.49% 2.64%
Operating return on average equity (1) 8.04% 10.19%
Return on average tangible equity 11.94% 5.64%
Operating return on average tangible
equity (1) 21.38% 21.82%
Annualized net loan charge-offs to
average loans (9) 0.17% 0.21%
G & A expense to average assets 1.59% 1.70%
Efficiency ratio (2) 56.61% 52.12%
Per Share Data
Basic earnings (loss) per share $0.39 $0.20
Diluted earnings (loss) per share 0.39 0.20
Operating earnings per share (1) 0.68 0.74
Dividend declared per share 0.160 0.140
Common book value (3) 17.92 17.50
Common stock price:
High $26.42 $21.76
Low 21.14 19.57
Close 21.14 20.31
Weighted average common shares:
Basic 476.7 394.6
Diluted (4) 511.1 394.6
End-of-period common shares:
Basic 479.1 471.8
Diluted 512.3 505.5
NOTES:
(1) Operating earnings represent net income excluding the after-tax effects
of certain items, such as significant gains or losses that are unusual
in nature or are associated with acquiring or integrating businesses,
and certain other charges. See page H and I for a reconciliation of GAAP
and Non-GAAP measures.
(2) Efficiency ratio equals general and administrative expense as a
percentage of total revenue, defined as the sum of net interest income
and total fees and other income before security gains.
(3) Common book value equals common stockholders' equity at period-end
divided by common shares outstanding.
(4) The conversion of warrants and equity awards and the after-tax add back
of Sovereign's contingently convertible trust preferred interest expense
was excluded from Sovereign's GAAP diluted earnings per share
calculation for the first quarter of 2007, the second and fourth
quarters of 2006, and the six months ended June 30, 2006 since the
result would have been anti-dilutive. However, for operating earning
purposes these items are dilutive and as a result they have been added
back for operating earnings and operating earnings per share purposes.
(5) The fourth quarter of 2006 includes a lower of cost or market adjustment
on the correspondent home equity portfolio held for sale of $296
million.
(6) The second quarter of 2007 includes a gain of $13.8 million on a
commercial mortgage backed securitization. The first quarter of 2007
includes a lower of cost or market adjustment of $119.9 million on
correspondent home equity loans that were not sold as of March 31, 2007.
The fourth quarter of 2006 includes a net lower of cost or market
adjustment associated with the residential loan portfolio held for sale
of $28.2 million.
(7) The fourth quarter of 2006 includes a loss of $43 million associated
with the sale of $1.5 billion of CMO investments.
(8) The second quarter of 2007 includes net restructuring and debt
extinguishment charges of $32.7 million. The first quarter of 2007
includes $43.4 million of ESOP expense related to freezing of the plan
and $20 million of charges related to employee severance and charges
associated with closing certain branch locations. The fourth quarter of
2006 includes $78.7 million of severance and restructuring charges.
(9) Charge-offs for the fourth quarter of 2006 include $389.5 million of
charge-offs related to the lower of cost or market valuation adjustments
recorded for correspondent home equity and residential loan portfolios
that are held for sale as well as a $14 million charge-off on a large
commercial loan.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2007 2007 2006 2006 2006
(dollars in millions)
Financial Condition Data:
General
Total assets $82,737 $82,194 $89,642 $90,410 $88,753
Loans (1) 56,527 56,125 62,589 63,178 61,610
Total deposits and customer
related accounts: 49,845 52,563 52,385 52,784 52,592
Core deposits and other
customer related
accounts 34,722 37,001 36,321 36,031 36,593
Time deposits 15,123 15,562 16,064 16,753 15,999
Borrowings 22,462 19,162 26,850 27,101 26,171
Minority interests 146 157 156 210 209
Stockholders' equity 8,780 8,695 8,644 8,734 8,451
Goodwill 5,003 5,006 5,005 4,990 4,930
Core deposit and other
intangibles 433 465 498 533 633
Asset Quality
Non-performing assets (2) $282.4 $278.4 $235.6 $273.1 $259.1
Non-performing loans (2) 239.9 242.0 207.9 232.8 219.7
Non-performing assets to
total assets (2) (3) 0.34% 0.34% 0.29% 0.30% 0.29%
Non-performing loans to
loans (2) (3) 0.42% 0.43% 0.38% 0.37% 0.36%
Allowance for credit losses $521.1 $503.3 $486.3 $558.1 $551.4
Allowance for credit losses
to total loans (3) 0.92% 0.90% 0.88% 0.88% 0.90%
Allowance for credit losses
to non-performing loans (2) 217% 208% 234% 240% 251%
Capitalization - Bancorp (4)
Stockholders' equity to
total assets 10.61% 10.58% 9.64% 9.66% 9.52%
Tier 1 leverage capital
ratio 6.40% 6.29% 5.73% 5.82% 5.69%
Tangible equity to tangible
assets 4.33% 4.20% 3.73% 3.78% 3.49%
Tangible common equity to
tangible assets 4.07% 3.95% 3.50% 3.55% 3.25%
Capitalization - Bank (4)
Stockholders' equity to
total assets 12.71% 12.80% 11.76% 11.65% 9.70%
Tier 1 leverage capital
ratio 6.92% 6.80% 6.22% 6.21% 6.28%
Tier 1 risk-based capital
ratio 7.82% 7.77% 7.52% 7.67% 7.91%
Total risk-based capital
ratio 10.46% 10.48% 10.07% 10.34% 10.28%
(1) Loans at December 31, 2006 include $7.6 billion of loans held for sale.
(2) Non performing loans and assets at June 30, 2007 and March 31, 2007
exclude $51.6 million and $22.4 million, respectively, of correspondent
home equity loans that were written down to fair value at March 31, 2007
since they were previously classified as held for sale at December 31,
2006. Sovereign reclassified these loans back into our loan portfolio at
March 31, 2007. Non-performing loans and assets at December 31, 2006
exclude $21.5 million of residential non- accrual loans and $66.0
million of home equity non-accrual loans that are classified as held for
sale.
(3) The calculation of these ratios at June 30, 2007 and March 31, 2007
exclude approximately $491 million and $574 million, respectively, of
loans that were marked down to fair value as of March 31, 2007. The
calculation of these ratios at December 31, 2006 excludes $7.6 billion
of loans held for sale.
(4) All capital ratios are calculated based upon adjusted end of period
assets consistent with OTS guidelines. The current quarter ratios are
estimated as of the date of this earnings release.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 Mar. 31 Dec. 31
(dollars in thousands) 2007 2007 2006
Assets
Cash and amounts due
from depository institutions $1,867,294 $1,669,623 $1,804,117
Investments:
Available-for-sale 13,303,432 13,640,209 13,874,628
Other investments 798,452 703,738 1,003,012
Total investments 14,101,884 14,343,947 14,877,640
Loans:
Commercial 29,547,839 29,852,212 30,472,343
Consumer 26,979,279 26,273,285 32,116,253
Total loans (1) 56,527,118 56,125,497 62,588,596
Less allowance for loan losses (503,685) (487,286) (471,030)
Total loans, net 56,023,433 55,638,211 62,117,566
Premises and equipment, net 570,074 588,695 605,707
Accrued interest receivable 368,849 363,013 422,901
Goodwill 5,003,195 5,006,290 5,005,185
Core deposit and other intangibles 433,164 465,421 498,420
Bank owned life insurance 1,764,137 1,745,145 1,725,222
Other assets 2,605,061 2,373,220 2,585,091
Total assets $82,737,091 $82,193,565 $89,641,849
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer related accounts:
Core and other customer related
accounts $34,721,501 $37,001,193 $36,320,674
Time deposits 15,123,134 15,561,764 16,063,880
Total 49,844,635 52,562,957 52,384,554
Borrowings and other debt
obligations 22,461,638 19,162,252 26,849,717
Other liabilities 1,504,788 1,616,574 1,606,794
Total liabilities 73,811,061 73,341,783 80,841,065
Minority interests 145,742 156,896 156,385
Stockholders' equity:
Preferred Stock 195,445 195,445 195,445
Common Stock 6,253,146 6,186,470 6,183,281
Warrants and stock options 346,278 344,979 343,391
Unallocated ESOP shares - (19,019) (19,019)
Treasury stock (21,303) (22,257) (49,028)
Accumulated other
comprehensive loss (121,184) (13,177) (24,746)
Retained earnings 2,127,906 2,022,445 2,015,075
Total stockholders' equity 8,780,288 8,694,886 8,644,399
Total liabilities and
stockholders' equity $82,737,091 $82,193,565 $89,641,849
Sept. 30 June 30
(dollars in thousands) 2006 2006
Assets
Cash and amounts due
from depository institutions $1,932,603 $1,714,042
Investments:
Available-for-sale 12,821,075 12,218,168
Other investments 1,020,723 933,507
Total investments 13,841,798 13,151,675
Loans:
Commercial 29,984,325 28,999,921
Consumer 33,193,395 32,610,190
Total loans (1) 63,177,720 61,610,111
Less allowance for loan losses (544,482) (537,372)
Total loans, net 62,633,238 61,072,739
Premises and equipment, net 591,601 587,254
Accrued interest receivable 413,018 375,213
Goodwill 4,989,539 4,929,586
Core deposit and other intangibles 532,626 632,665
Bank owned life insurance 1,704,955 1,686,571
Other assets 3,770,681 4,603,322
Total assets $90,410,059 $88,753,067
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $36,030,850 $36,593,254
Time deposits 16,752,764 15,999,234
Total 52,783,614 52,592,488
Borrowings and other debt obligations 27,100,522 26,170,589
Other liabilities 1,582,174 1,329,383
Total liabilities 81,466,310 80,092,460
Minority interests 209,972 209,466
Stockholders' equity:
Preferred Stock 195,445 195,445
Common Stock 6,166,992 6,156,925
Warrants and stock options 338,867 337,637
Unallocated ESOP shares (21,396) (21,396)
Treasury stock (57,646) (65,984)
Accumulated other
comprehensive loss (74,543) (193,186)
Retained earnings 2,186,058 2,041,700
Total stockholders' equity 8,733,777 8,451,141
Total liabilities and
stockholders' equity $90,410,059 $88,753,067
(1) Loans at December 31, 2006 include $7.6 billion of loans held for sale.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
(dollars in thousands, June 30 Mar. 31 Dec. 31 Sept. 30 June 30
except per share data) 2007 2007 2006 2006 2006
Interest and
dividend income:
Interest on
interest-earning
deposits $4,144 $6,236 $6,274 $5,408 $2,954
Interest on
investment
securities
Available for sale 180,252 189,835 192,996 202,831 116,653
Held to maturity - - - - 50,473
Other 11,179 14,301 19,508 13,287 13,016
Interest on loans 943,860 1,016,967 1,035,224 1,019,325 808,922
Total interest and
dividend income 1,139,435 1,227,339 1,254,002 1,240,851 992,018
Interest expense:
Deposits and
related
customer
accounts 409,616 413,251 421,472 412,858 306,030
Borrowings 276,435 326,235 345,498 336,206 247,217
Total
interest
expense 686,051 739,486 766,970 749,064 553,247
Net interest
income 453,384 487,853 487,032 491,787 438,771
Provision for credit
losses (3) 51,000 46,000 365,961 45,000 44,500
Net interest
income after
provision for
credit losses 402,384 441,853 121,071 446,787 394,271
Non-interest income:
Consumer banking
fees 77,268 68,014 73,389 74,298 67,467
Commercial
banking fees 52,046 49,408 48,405 47,690 43,949
Mortgage banking
revenue (1) 26,500 (107,205) (7,606) 14,329 4,524
Capital markets
revenue 5,982 5,689 7,358 4,009 2,313
Bank owned life
insurance income 20,274 20,509 20,237 20,116 15,359
Other 8,227 9,467 7,586 11,409 8,363
Total fees and other
income before
security gains 190,297 45,882 149,369 171,851 141,975
Net gain/(loss)
on securities (4) - 970 (36,089) 29,154 (305,027)
Total non-interest
income 190,297 46,852 113,280 201,005 (163,052)
Non-interest
expense:
General and
administrative
Compensation and
benefits 171,557 173,796 176,851 182,607 149,467
Occupancy and
equipment 75,637 80,519 79,221 78,594 68,155
Technology expense 23,812 23,336 25,680 25,128 23,114
Outside services 16,969 15,278 19,920 17,928 16,592
Marketing expense 17,092 8,832 15,731 14,552 14,548
Other administrative
expenses 31,525 28,235 37,496 33,009 31,417
Total general and
administrative 336,592 329,996 354,899 351,818 303,293
Other expenses:
Amortization of
intangibles 32,257 33,253 34,302 34,092 24,225
Other minority
interest expense
and equity method
expense 14,487 18,415 10,974 12,850 17,033
Loss on economic
hedges - - - - 11,387
Proxy and related
professional fees (125) (391) - - -
Restructuring, other
employee severance
and debt repurchase
charges 35,938 20,032 78,668 - -
ESOP expense related
to freezing of plan (3,266) 43,385 - - -
Merger-related and
integration charges 166 2,076 10,558 28,403 6,257
Total other
expenses 79,457 116,770 134,502 75,345 58,902
Total
non-interest
expense 416,049 446,766 489,401 427,163 362,195
Income/(loss)
before income
taxes 176,632 41,939 (255,050) 220,629 (130,976)
Income tax expense/
(benefit) 29,180 (6,120) (125,610) 36,620 (71,920)
Net income/(loss) $147,452 $48,059 $(129,440) $184,009 $(59,056)
(1) Mortgage banking activity is summarized below:
(Losses)/gains on sale of mortgage loans and related securities, multifamily
loans, and home equity
loans (2) $9,065 $(103,788) $(7,838) $14,665 $3,136
Net gains/(loss)
recorded on
commercial mortgage
backed
securitization 13,772 (3,276) - - -
Net gains/(loss)
recorded under SFAS
133 783 (388) 821 (423) (663)
Mortgage servicing
fees, net of
mortgage servicing
rights amortization 2,224 247 2,863 3,758 2,051
Mortgage servicing
right recoveries/
(impairments) 656 - (3,452) (3,671) -
Total mortgage
banking revenues $26,500 $(107,205) $(7,606) $14,329 $4,524
Year to Date
(dollars in thousands, except per June 30 June 30
share data) 2007 2006
Interest and dividend income:
Interest on interest-earning
deposits $10,380 $5,070
Interest on investment securities
Available for sale 370,087 206,748
Held to maturity - 104,026
Other 25,480 18,619
Interest on loans 1,960,827 1,497,088
Total interest and dividend
income 2,366,774 1,831,551
Interest expense:
Deposits and related customer
accounts 822,867 537,867
Borrowings 602,670 450,955
Total interest expense 1,425,537 988,822
Net interest income 941,237 842,729
Provision for credit losses (3) 97,000 73,500
Net interest income after
provision for credit losses 844,237 769,229
Non-interest income:
Consumer banking fees 145,282 128,265
Commercial banking fees 101,454 82,965
Mortgage banking revenue (1) (80,705) 17,516
Capital markets revenue 11,671 6,202
Bank owned life insurance income 40,783 26,686
Other 17,694 14,682
Total fees and other income before
security gains 236,179 276,316
Net gain/(loss) on securities (4) 970 (305,027)
Total non-interest income 237,149 (28,711)
Non-interest expense:
General and administrative
Compensation and benefits 345,353 293,245
Occupancy and equipment 156,156 132,348
Technology expense 47,148 44,680
Outside services 32,247 31,347
Marketing expense 25,924 24,770
Other administrative expenses 59,760 56,882
Total general and
administrative 666,588 583,272
Other expenses:
Amortization of intangibles 65,510 41,444
Other minority interest expense and
equity method expense 32,902 33,067
Loss on economic hedges - 11,387
Proxy and related professional fees (516) 14,337
Restructuring, other employee
severance and debt repurchase
charges 55,970 -
ESOP expense related to freezing of
plan 40,119 -
Merger-related and integration
charges 2,242 3,459
Total other expenses 196,227 103,694
Total non-interest
expense 862,815 686,966
Income/ (loss) before income
taxes 218,571 53,552
Income tax expense/ (benefit) 23,060 (28,790)
Net income/ (loss) $195,511 $82,342
(1) Mortgage banking activity is summarized below:
(Losses)/gains on sale of mortgage loans and related securities, multifamily
loans, and home equity
loans (2) $(94,723) $12,898
Net gains/(loss) recorded on
commercial mortgage backed
securitization 10,496 -
Net gains/(loss) recorded under SFAS 133 395 427
Mortgage servicing fees, net of
mortgage servicing rights
amortization 2,471 4,191
Mortgage servicing right recoveries/
(impairments) 656 -
Total mortgage banking revenues $(80,705) $17,516
(2) First quarter of 2007 results include a lower of cost or market
adjustment of $119.9 million on correspondent home equity loans that
were not sold as of March 31, 2007. Fourth quarter of 2006 includes a
$28.2 million lower of cost or market adjustment on the residential
loans held for sale, as well as a $5.2 million gain on sale of $455
million of multi-family loans.
(3) The fourth quarter of 2006 includes a lower of cost or market adjustment
on the correspondent home equity portfolio held for sale of $296 million
as well a $14 million commercial loan charge-off.
(4) The fourth quarter of 2006 includes a loss of $43 million associated
with the sale of $1.5 billion of CMO investments.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
June 30, 2007
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,041,230 $215,663 6.15%
Loans:
Commercial 25,470,400 458,763 7.22%
Multi-Family 4,637,577 72,186 6.23%
Consumer:
Residential mortgages 14,429,334 203,581 5.64%
Home equity loans and
lines of credit 5,933,285 101,804 6.88%
Total consumer loans secured
by real estate 20,362,619 305,385 6.00%
Auto Loans 5,926,390 102,865 6.96%
Other 388,325 8,293 8.57%
Total Consumer 26,677,334 416,543 6.25%
Total loans 56,785,311 947,492 6.69%
Allowance for loan losses (493,621)
Total earning assets 70,332,920 $1,163,155 6.63%
Other assets 11,608,001
Total assets $81,940,921
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $5,935,760 $15,791 1.07%
NOW accounts - government
& wholesale 4,170,249 53,420 5.14%
Customer repurchase agreements 2,389,302 26,594 4.46%
Savings accounts 4,437,785 7,184 0.65%
Money market accounts 9,687,237 84,086 3.48%
Money market accounts -
wholesale 2,525,720 34,668 5.51%
Core and other customer related
accounts 29,146,053 221,743 3.05%
Time deposits 15,429,787 187,873 4.88%
Total deposits and other customer
related accounts 44,575,840 409,616 3.69%
Borrowings:
Wholesale borrowings 15,396,099 194,074 5.05%
Other borrowings 5,227,113 82,361 6.20%
Total borrowings 20,623,212 276,435 5.37%
Total funding liabilities 65,199,052 686,051 4.22%
Non-interest bearing DDA 6,421,910
Other liabilities 1,503,851
Total liabilities 73,124,813
Stockholders' equity 8,816,108
Total liabilities and stockholders'
equity $81,940,921
Net interest income $477,104
Interest rate spread 2.41%
Contribution from interest free funds 0.31%
Net interest margin 2.71%
Quarter Ended
March 31, 2007
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $15,175,372 $230,601 6.09%
Loans:
Commercial 24,599,792 438,157 7.21%
Multi-Family 5,890,879 98,783 6.72%
Consumer:
Residential mortgages 15,592,954 223,023 5.72%
Home equity loans and
lines of credit 9,497,940 165,351 7.04%
Total consumer loans secured
by real estate 25,090,894 388,374 6.22%
Auto Loans 5,186,143 86,142 6.74%
Other 422,161 8,821 8.47%
Total Consumer 30,699,198 483,337 6.34%
Total loans 61,189,869 1,020,277 6.72%
Allowance for loan losses (474,518)
Total earning assets 75,890,723 $1,250,878 6.64%
Other assets 11,724,949
Total assets $87,615,672
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $5,994,720 $16,439 1.11%
NOW accounts - government
& wholesale 4,099,733 52,072 5.15%
Customer repurchase agreements 2,262,732 25,896 4.64%
Savings accounts 4,572,309 7,179 0.64%
Money market accounts 9,150,410 74,261 3.29%
Money market accounts- wholesale 3,642,754 49,656 5.53%
Core and other customer related
accounts 29,722,658 225,503 3.08%
Time deposits 15,747,878 187,748 4.84%
Total deposits and other customer
related accounts 45,470,536 413,251 3.69%
Borrowings:
Wholesale borrowings 19,842,592 249,264 5.07%
Other borrowings 5,412,697 76,971 5.71%
Total borrowings 25,255,289 326,235 5.21%
Total funding liabilities 70,725,825 739,486 4.23%
Non-interest bearing DDA 6,335,301
Other liabilities 1,819,565
Total liabilities 78,880,691
Stockholders' equity 8,734,981
Total liabilities and stockholders'
equity $87,615,672
Net interest income $511,392
Interest rate spread 2.41%
Contribution from interest free funds 0.29%
Net interest margin 2.70%
Quarter Ended
June 30, 2006
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,207,577 $201,842 5.68%
Loans:
Commercial 19,112,403 342,125 7.18%
Multi-Family 1,992,727 31,285 6.28%
Consumer:
Residential mortgages 14,467,374 203,062 5.61%
Home equity loans and
lines of credit 10,129,080 162,530 6.44%
Total consumer loans secured
by real estate 24,596,454 365,592 5.95%
Auto Loans 4,396,659 64,223 5.86%
Other 453,383 8,344 7.38%
Total Consumer 29,446,496 438,159 5.96%
Total loans 50,551,626 811,569 6.43%
Allowance for loan losses (455,468)
Total earning assets 64,303,735 $1,013,411 6.31%
Other assets 9,136,881
Total assets $73,440,616
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $5,245,597 $9,746 0.74%
NOW accounts - government
& wholesale 4,807,682 60,320 5.03%
Customer repurchase agreements 1,407,768 15,341 4.37%
Savings accounts 3,956,176 7,254 0.74%
Money market accounts 8,082,178 52,234 2.59%
Money market accounts- wholesale 1,516,528 19,241 5.09%
Core and other customer related
accounts 25,015,929 164,136 2.63%
Time deposits 13,193,359 141,894 4.32%
Total deposits and other customer
related accounts 38,209,288 306,030 3.21%
Borrowings:
Wholesale borrowings 16,647,140 182,559 4.40%
Other borrowings 4,791,972 64,658 5.48%
Total borrowings 21,439,112 247,217 4.62%
Total funding liabilities 59,648,400 553,247 3.72%
Non-interest bearing DDA 5,662,902
Other liabilities 1,430,767
Total liabilities 66,742,069
Stockholders' equity 6,698,547
Total liabilities and stockholders'
equity $73,440,616
Net interest income $460,164
Interest rate spread 2.59%
Contribution from interest free funds 0.27%
Net interest margin 2.86%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
June 30, 2007
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,605,167 $446,257 6.12%
Loans:
Commercial 25,037,502 896,922 7.21%
Multi-Family 5,260,766 170,970 6.51%
Consumer:
Residential mortgages 15,007,930 426,604 5.69%
Home equity loans and
lines of credit 7,705,765 267,154 6.98%
Total consumer loans secured by
real estate 22,713,695 693,758 6.13%
Auto Loans 5,558,312 189,007 6.86%
Other 405,150 17,114 8.52%
Total Consumer 28,677,157 899,879 6.30%
Total loans 58,975,425 1,967,771 6.71%
Allowance for loan losses (484,122)
Total earning assets 73,096,470 $2,414,028 6.63%
Other assets 11,665,137
Total assets $84,761,607
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $5,965,077 $32,231 1.09%
NOW accounts - government
& wholesale 4,135,185 105,492 5.14%
Customer repurchase agreements 2,326,334 52,489 4.55%
Savings accounts 4,504,675 14,363 0.64%
Money market accounts 9,420,306 158,346 3.39%
Money market accounts -
wholesale 3,081,151 84,325 5.52%
Core and other customer related
accounts 29,432,728 447,246 3.06%
Time deposits 15,587,954 375,621 4.86%
Total deposits and other customer
related accounts 45,020,682 822,867 3.69%
Borrowings:
Wholesale borrowings 17,607,062 443,338 5.06%
Other borrowings 5,318,968 159,332 6.00%
Total borrowings 22,926,030 602,670 5.28%
Total funding liabilities 67,946,712 1,425,537 4.22%
Non-interest bearing DDA 6,378,845
Other liabilities 1,660,284
Total liabilities 75,985,841
Stockholders' equity 8,775,766
Total liabilities and stockholders'
equity $84,761,607
Net interest income $988,491
Interest rate spread 2.41%
Contribution from interest free funds 0.30%
Net interest margin 2.71%
Year to Date
June 30, 2006
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $13,465,431 $352,178 5.50%
Loans:
Commercial 18,004,647 630,664 7.08%
Multi-Family 1,001,868 31,285 6.25%
Consumer:
Residential mortgages 13,627,166 379,714 5.57%
Home equity loans and
lines of credit 9,902,583 314,190 6.38%
Total consumer loans secured by
real estate 23,529,749 693,904 5.91%
Auto Loans 4,403,218 126,009 5.77%
Other 465,093 17,529 7.60%
Total Consumer 28,398,060 837,442 5.92%
Total loans 47,404,575 1,499,391 6.37%
Allowance for loan losses (437,527)
Total earning assets 60,432,479 $1,851,569 6.22%
Other assets 8,333,596
Total assets $68,766,075
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $5,048,272 $16,478 0.65%
NOW accounts- government
& wholesale 4,435,647 105,907 4.81%
Customer repurchase agreements 1,325,387 27,422 4.17%
Savings accounts 3,685,505 13,642 0.75%
Money market accounts 7,813,915 92,802 2.39%
Money market accounts- wholesale 1,084,763 26,741 4.97%
Core and other customer related
accounts 23,393,489 282,992 2.44%
Time deposits 12,399,719 254,875 4.15%
Total deposits and other customer
related accounts 35,793,208 537,867 3.03%
Borrowings:
Wholesale borrowings 15,412,880 332,277 4.34%
Other borrowings 4,604,700 118,678 5.17%
Total borrowings 20,017,580 450,955 4.53%
Total funding liabilities 55,810,788 988,822 3.57%
Non-interest bearing DDA 5,376,537
Other liabilities 1,278,892
Total liabilities 62,466,217
Stockholders' equity 6,299,858
Total liabilities and stockholders'
equity $68,766,075
Net interest income $862,747
Interest rate spread 2.65%
Contribution from interest free funds 0.27%
Net interest margin 2.92%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(dollars in thousands) 2007 2007 2006 2006 2006
Non-accrual loans:
Consumer:
Residential mortgages $69,392 $62,864 $47,687 $35,365 $34,812
Home equity loans and
lines of credit 12,875 12,131 10,312 62,002 63,632
Auto loans 620 416 191 327 388
Other consumer loans 1,714 1,504 2,764 1,384 2,524
Total consumer loans 84,601 76,915 60,954 99,078 101,356
Commercial real
estate 74,077 87,896 77,196 64,138 48,494
Commercial and
industrial and other 80,706 76,668 69,207 68,995 69,264
Total non-accrual
loans 239,384 241,479 207,357 232,211 219,114
Restructured loans 503 552 557 570 576
Total non-performing
loans (1) 239,887 242,031 207,914 232,781 219,690
Real estate owned, net 34,724 29,655 22,562 34,775 35,899
Other repossessed
assets 7,755 6,722 5,126 5,500 3,487
Total non-performing
assets (1) $282,366 $278,408 $235,602 $273,056 $259,076
Non-performing loans
as a percentage
of loans (1) (2) 0.42% 0.43% 0.38% 0.37% 0.36%
Non-performing assets
as a percentage of
total assets (1) (2) 0.34% 0.34% 0.29% 0.30% 0.29%
Non-performing assets
as a percentage of
total loans, real
estate owned
and repossessed
assets (1) (2) 0.50% 0.50% 0.43% 0.43% 0.42%
Allowance for credit
losses as a percentage
of non-performing
loans (1) 217% 208% 234% 240% 251%
NET LOAN CHARGE-OFFS
Quarters ended June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(in thousands) 2007 2007 2006 2006 2006
Commercial real
estate $2,766 $5,782 $(282) $1,188 $3,938
Commercial and
industrial
and other 6,820 6,089 18,651 6,402 4,718
Total commercial 9,586 11,871 18,369 7,590 8,656
Residential
mortgages (4) 1,558 564 8,028 422 156
Home equity loans
and lines of
credit (5) 1,934 1,523 399,609 19,909 15,032
Total consumer
loans secured
by real estate 3,492 2,087 407,637 20,331 15,188
Auto loans 12,305 10,115 9,574 7,271 5,678
Other consumer loans 291 17 453 135 (97)
Total consumer 16,088 12,219 417,664 27,737 20,769
Total loan charge-offs $25,674 $24,090 $436,033 $35,327 $29,425
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT
LOSSES
Quarters ended (in June 30 Mar. 31 Dec. 31 Sept. 30 June 30
thousands) 2007 2007 2006 2006 2006
Provision for loan
losses (6) $49,589 $45,239 $364,309 $45,437 $47,113
Provision/(recoveries)
for unfunded
commitments 1,411 761 1,652 (437) (2,613)
Total provision for
credit losses $51,000 $46,000 $365,961 $45,000 $44,500
Allowance for loan
losses $503,685 $487,286 $471,030 $544,482 $537,372
Reserve for unfunded
commitments 17,427 16,016 15,255 13,603 14,040
Total allowance for
credit losses $521,112 $503,302 $486,285 $558,085 $551,412
(1) Non-performing loans and non-performing assets exclude $51.6 million and
$22.4 million of non-accrual loans at June 30, 2007 and March 31, 2007
related to correspondent home equity loans that had been previously
classified as held for sale. Credit losses related to these loans were
considered in our lower of cost or market adjustment at March 31, 2007.
Non-performing loans and non-performing assets at December 31, 2006
exclude $21.5 million of residential non-accrual loans and $66.0 million
of home equity non-accrual loans that are classified as held for sale.
(2) The calculation of these ratios at June 30, 2007 and March 31, 2007
exclude approximately $491 million and $574 million of loans that were
marked down to fair value as of March 31, 2007. The calculation of these
ratios at December 31, 2006 excludes $7.6 billion of loans held for
sale.
(3) The fourth quarter of 2006 includes a $14 million commercial loan
charge-off.
(4) Fourth quarter of 2006 includes a $7 million charge-off related to the
lower of cost or market adjustment on the residential loans held for
sale.
(5) The fourth quarter of 2006 includes $382.5 million of charge-offs
related to the lower of cost or market adjustment on the correspondent
home equity portfolio held for sale.
(6) The fourth quarter of 2006 includes a lower of cost or market adjustment
on the correspondent home equity portfolio held for sale of $296
million.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Quarters ended June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(in thousands) 2007 2007 2006 2006 2006
Demand deposit
accounts $6,313,408 $6,420,046 $6,577,585 $6,687,150 $6,821,660
NOW accounts 5,950,960 6,159,701 6,333,667 6,347,484 6,306,173
NOW accounts
- government
& wholesale 3,661,659 5,008,897 3,573,861 3,600,363 4,426,508
Customer
repurchase
agreements 2,525,932 2,310,290 2,206,445 2,027,100 1,527,852
Savings
accounts 4,312,492 4,558,367 4,637,346 4,919,190 5,189,459
Money market
accounts 10,005,554 9,452,904 8,875,353 8,380,908 9,185,266
Money market
accounts -
government
& wholesale 1,951,496 3,090,988 4,116,417 4,068,655 3,136,336
Time
deposits 15,123,134 15,561,764 16,063,880 16,752,764 15,999,234
Total deposits
and other
customer
related
accounts $49,844,635 $52,562,957 $52,384,554 $52,783,614 $52,592,488
LOAN COMPOSITION - End of period
Quarters ended June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(in thousands) 2007 2007 2006 2006 2006
Commercial
real
estate $11,741,479 $11,584,728 $11,514,983 $11,401,902 $10,817,068
Commercial
industrial
loans 13,417,347 12,908,765 12,654,746 11,212,315 10,722,844
Multi-
family 4,000,527 4,806,028 5,768,451 5,970,795 6,134,167
Other 388,486 552,691 534,164 1,399,313 1,325,842
Total
commercial
loans 29,547,839 29,852,212 30,472,344 29,984,325 28,999,921
Residential
mortgages 14,387,342 14,403,371 17,404,730 17,817,283 17,236,025
Home equity
loans and
lines of
credit 5,954,925 5,932,136 9,443,560 10,506,607 10,515,700
Total
consumer
loans
secured
by real
estate 20,342,267 20,335,507 26,848,290 28,323,890 27,751,725
Auto loans 6,320,010 5,526,953 4,848,204 4,431,891 4,399,047
Other
consumer
loans 317,002 410,825 419,758 437,614 459,418
Total
consumer
loans 26,979,279 26,273,285 32,116,252 33,193,395 32,610,190
Total loans $56,527,118 $56,125,497 $62,588,596 $63,177,720 $61,610,111
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Quarters ended June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(in thousands) 2007 2007 2006 2006 2006
Demand deposit
accounts $6,421,910 $6,335,301 $6,596,008 $6,707,400 $5,662,902
NOW
accounts 5,935,760 5,994,720 6,125,347 6,085,520 5,245,597
NOW
accounts -
government
& wholesale 4,170,249 4,099,733 3,977,652 4,328,149 4,807,682
Customer
repurchase
agreements 2,389,302 2,262,732 2,182,446 1,714,351 1,407,768
Savings
accounts 4,437,785 4,572,309 4,755,332 5,013,163 3,956,176
Money
market
accounts 9,687,237 9,150,410 8,688,901 9,050,048 8,082,178
Money
market
accounts -
government
& wholesale 2,525,720 3,642,754 3,999,190 4,017,420 1,516,528
Time
deposits 15,429,787 15,747,878 16,469,164 16,504,794 13,193,359
Total
deposits
and other
customer related
accounts $50,997,750 $51,805,837 $52,794,040 $53,420,845 $43,872,190
LOAN COMPOSITION - Average
Quarters ended June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(in thousands) 2007 2007 2006 2006 2006
Commercial
real
estate $11,737,900 $11,513,005 $11,421,431 $10,869,370 $8,358,231
Commercial
industrial
loans 12,146,382 11,566,055 11,347,975 10,805,007 9,564,869
Multi-
family 4,637,577 5,890,879 6,103,412 6,184,739 1,992,727
Other 1,586,118 1,520,732 1,427,147 1,359,632 1,189,303
Total commercial
loans 30,107,977 30,490,671 30,299,965 29,218,748 21,105,130
Residential
mortgages 14,429,334 15,592,954 17,897,922 17,860,553 14,467,374
Home equity
loans and
lines of
credit 5,933,285 9,497,940 10,145,548 10,519,717 10,129,080
Total consumer
loans
secured
by real
estate 20,362,619 25,090,894 28,043,470 28,380,270 24,596,454
Auto
loans 5,926,390 5,186,143 4,628,603 4,394,903 4,396,659
Other
consumer
loans 388,325 422,161 427,026 451,333 453,383
Total
consumer
loans 26,677,334 30,699,198 33,099,099 33,226,506 29,446,496
Total
loans $56,785,311 $61,189,869 $63,399,064 $62,445,254 $50,551,626
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating earnings for EPS purposes represents net income excluding the
after-tax effects of certain items, such as significant gains or losses that
are unusual in nature or are associated with acquiring or integrating
businesses, and certain other charges. The table below reconciles our GAAP
earnings to operating earnings for EPS purposes.
(dollars in thousands,
except per share data -
all amounts are after tax) Quarter Ended
Total dollars
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2007 2007 2006 2006 2006
Net income/ (loss) as
reported $147,452 $48,059 $(129,440) $184,009 $(59,056)
Dividends on preferred
stock (3,650) (3,650) (3,650) (1,825) (2,433)
Net income available to
common shareholders 143,802 44,409 (133,090) 182,184 (61,489)
Contingently
convertible trust
preferred interest
expense, net of tax 6,413 - - 6,344 -
Net income/ (loss) for
EPS purposes $150,215 $44,409 $(133,090) $188,528 $(61,489)
Non GAAP adjustments to
adjust antidilutive
EPS
Net income available to
common shareholders $44,409 $(133,090) $(61,489)
Trust IV expense, net
of tax 6,412 6,354 6,335
Antidilutive net
income/ (loss) for
operating EPS
calculation $50,821 $(126,736) $(55,154)
Reconciliation to
Operating earnings EPS
Net income/ (loss) for
Operating earnings EPS
purposes $150,215 $50,821 $(126,736) $188,528 $(55,154)
Merger related and
integration costs 108 1,323 6,863 18,463 4,067
Provision for credit
losses - - 192,374 - 8,125
Loss on economic hedges - - - - 7,402
Loss on investment
restructuring - - 27,961 - 154,884
Loss on mortgage
banking loan sale
restructuring - - 14,954 - -
Loss on restructuring,
other employee
severance and debt
repurchase charges 23,360 12,771 51,134 - -
ESOP expense related to
freezing of plan (3,266) 43,385 - - -
Hedge loss on sale of
multifamily loans - (3,860) - - -
Impairment on FNMA and
FHLMC preferred stock - - - - 43,875
Gain on redemption of
FNMA and FHLMC
preferred stock - (953) - - -
Writedown on
correspondent home
equity loans - 76,394 - - -
Proxy and related
professional fees (82) (249) - - -
Operating earnings for
EPS purposes $170,335 $179,632 $166,550 $206,991 $163,199
Weighted average
diluted shares for
GAAP EPS 512,641 475,115 473,404 506,135 412,000
Add back of diluted
shares for operating
EPS not factored into
GAAP diluted shares
due to antidilution
(1) - 34,353 34,583 - 33,599
Adjusted weighted
average diluted shares
for Operating EPS 512,641 509,468 507,987 506,135 445,599
(dollars in thousands,
except per share data -
all amounts are after tax) Quarter Ended
Per share
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2007 2007 2006 2006 2006
Net income/ (loss) as reported
Dividends on preferred stock
Net income available to common
shareholders
Contingently convertible trust
preferred interest expense,
net of tax
Net income/ (loss) for EPS
purposes $0.29 $0.09 $(0.28) $0.37 $(0.15)
Non GAAP adjustments to adjust
antidilutive EPS
Net income available to common
shareholders
Trust IV expense, net of tax
Antidilutive net income/ (loss)
for operating EPS calculation
Reconciliation to Operating
earnings EPS
Net income/ (loss) for Operating
earnings EPS purposes $0.29 $0.10 $(0.25) $0.37 $(0.12)
Merger related and
integration costs 0.00 0.00 0.01 0.04 0.01
Provision for credit losses - - 0.38 - 0.02
Loss on economic hedges - - - - 0.02
Loss on investment
restructuring - - 0.06 - 0.34
Loss on mortgage banking
loan sale restructuring - - 0.03 - -
Loss on restructuring,
other employee severance and
debt repurchase charges 0.05 0.02 0.10 - -
ESOP expense related to
freezing of plan (0.01) 0.09 - - -
Hedge loss on sale of
multifamily loans - (0.01) - - -
Impairment on FNMA and FHLMC
preferred stock - - - - 0.10
Gain on redemption of FNMA
and FHLMC preferred stock - (0.00) - - -
Writedown on correspondent home
equity loans - 0.15 - - -
Proxy and related professional
fees (0.00) (0.00) - - -
Operating earnings for
EPS purposes $0.33 $0.35 $0.33 $0.41 $0.37
(dollars in thousands,
except per share data -
all amounts are after tax) Year to Date
Total dollars Per Share
June 30 June 30 June 30 June 30
2007 2006 2007 2006
Net income/ (loss) as reported $195,511 $82,342
Dividends on preferred stock (7,300) (2,433)
Net income available to common
shareholders 188,211 79,909
Contingently convertible trust
preferred interest expense, net of
tax 12,825 -
Net income/ (loss) for EPS purposes $201,036 $79,909 $0.39 $0.20
Non GAAP adjustments to adjust
antidilutive EPS
Net income available to common
shareholders $79,909
Trust IV expense, net of tax 12,662
Antidilutive net income/ (loss) for
operating EPS calculation $92,571
Reconciliation to Operating earnings
EPS
Net income/ (loss) for Operating
earnings EPS purposes $201,036 $92,571 $0.39 $0.22
Merger related and integration costs 1,432 2,248 0.00 0.01
Provision for credit losses - 8,125 - 0.02
Loss on economic hedges - 7,402 - 0.02
Loss on investment restructuring - 154,884 - 0.36
Loss on mortgage banking loan sale
restructuring - - - -
Loss on restructuring, other employee
severance and debt repurchase
charges 36,130 - 0.07 -
ESOP expense related to freezing of
plan 40,119 - 0.08 -
Hedge loss on sale of multifamily
loans (3,860) - (0.01) -
Impairment on FNMA and FHLMC
preferred stock - 43,875 - 0.10
Gain on redemption of FNMA and FHLMC
preferred stock (953) - (0.00) -
Writedown on correspondent home
equity loans 76,394 - 0.15 -
Proxy and related professional fees (331) 9,319 (0.00) 0.02
Operating earnings for EPS purposes $349,967 $318,424 $0.68 $0.74
Weighted average diluted shares for
GAAP EPS 511,080 394,579
Add back of diluted shares for
operating EPS not factored into GAAP
diluted shares due to antidilution (1) - 33,545
Adjusted weighted average diluted
shares for Operating EPS 511,080 428,124
(1) The conversion of warrants and equity awards and the after-tax add back
of Sovereign's contingently convertible trust preferred interest
expense was excluded from Sovereign's GAAP diluted earnings per share
calculation for the first quarter of 2007, the second and fourth
quarters of 2006 and the six months ended June 30, 2006 since the
result would have been anti-dilutive. However, for operating earning
purposes these items are dilutive and as a result they have been added
back for operating earnings and operating earnings per share purposes.
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF AVERAGE EQUITY TO AVERAGE TANGIBLE EQUITY AND RELATED
OPERATING RETURN ON AVERAGE TANGIBLE EQUITY
(unaudited)
Reconciliation of Equity to Tangible Equity and Operating Return on
Average Equity to Tangible Returns on Average Equity
Quarter Ended
June 30 Mar. 31 Dec. 31
(dollars in thousands) 2007 2007 2006
Average Equity $8,816,108 $8,734,981 $8,816,938
Average Goodwill (5,005,116) (5,005,119) (4,992,610)
Average CDI and other intangibles (453,528) (486,214) (519,891)
Average Tangible Equity $3,357,464 $3,243,648 $3,304,437
Operating Return on Average Equity 7.75% 8.34% 7.49%
Effect of Goodwill 11.55% 12.87% 11.32%
Effect of CDI and other intangibles 1.05% 1.25% 1.18%
Tangible Return on Average Equity 20.35% 22.46% 20.00%
Quarter Ended
Sept. 30 June 30
(dollars in thousands) 2006 2006
Average Equity $8,621,910 $6,698,547
Average Goodwill (4,932,536) (3,452,687)
Average CDI and other intangibles (611,329) (342,279)
Average Tangible Equity $3,078,045 $2,903,581
Operating Return on Average Equity 9.52% 9.77%
Effect of Goodwill 15.26% 11.62%
Effect of CDI and other intangibles 1.89% 1.15%
Tangible Return on Average Equity 26.68% 22.54%
Year-to-Date
June 30 June 30
(dollars in thousands) 2007 2006
Average Equity $8,775,766 $6,299,858
Average Goodwill (5,005,118) (3,081,666)
Average CDI and other intangibles (469,781) (275,465)
Average Tangible Equity $3,300,867 $2,942,727
Operating Return on Average Equity 8.04% 10.19%
Effect of Goodwill 12.19% 10.67%
Effect of CDI and other intangibles 1.14% 0.95%
Tangible Return on Average Equity 21.38% 21.82%
SOURCE Sovereign Bancorp, Inc.
-0- 07/18/2007
/CONTACT: FINANCIAL: Mark McCollom, +1-610-208-6426,
mmccollo@sovereignbank.com , or Stacey Weikel, +1-610-208-6112,
sweikel@sovereignbank.com ; or MEDIA: Ed Shultz, +1-610-378-6159,
eshultz1@sovereignbank.com , all of Sovereign Bancorp, Inc. /
/First Call Analyst: /
/FCMN Contact: dbuffalo@sovereignbank.com /
/Web site: http://www.sovereignbank.com/
(SOV)
CO: Sovereign Bancorp, Inc.
ST: Pennsylvania
IN: FIN
SU: ERN CCA