Exhibit 99.1 SOVEREIGN BANCORP, INC. ANNOUNCES 2006 SECOND QUARTER EARNINGS Financial Highlights - Including restructuring, other-than-temporary impairment, merger and integration charges and additional provision for credit losses related to the acquisition of Independence, the net loss for the second quarter of 2006 was $51.7 million. Earnings per diluted share for the second quarter of 2006 were a net loss of $.11 as compared to net earnings of $.45 a year ago. - Operating/cash earnings per diluted share, excluding the aforementioned items, for the second quarter of 2006 were $.40 per share. Operating/cash earnings for EPS purposes were $179 million. - Sold $3.85 billion of investment securities in June as part of balance sheet restructuring. - Average deposits increased to $43.9 billion, a growth rate of 21% from a year ago. Linked quarter organic growth was 19%. Average core deposits (excluding time deposits) increased to $30.7 billion, a growth rate of 15% from a year ago. Linked quarter organic growth was 23%. - Average loans increased to $50.6 billion, an annualized growth rate of 22% from a year ago. Linked quarter organic growth was 18%. - Excluding acquisitions, consumer and commercial banking fees were $108 million, up 5% and 12%, respectively, from the first quarter of 2006. - Excluding acquisitions, G&A expenses were $282 million, up only $1.7 million, or .6%, from the first quarter of 2006. - Annualized net charge-offs of .23% of average loans in the second quarter of 2006. - Tangible equity ratio of 3.73% excluding OCI and book value per share of $17.92. - Successfully completed acquisition of Independence Community Bank Corp. and equity offering to Banco Santander Central Hispano, S.A. - Received double notch upgrade from Moody's and single notch upgrade from Standard and Poor's. PHILADELPHIA, July 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc. ("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today reported for the second quarter 2006 a net loss of $51.7 million, or $(.11) per diluted share, as compared to net income of $183 million, or $.45 per diluted share, for the second quarter of 2005. Net loss in the second quarter of 2006 included merger and integration charges of $4.1 million after-tax, or $.01 per share, additional provision for credit losses related to the acquisition of Independence of $8.1 million after-tax, or $.02 per share, restructuring charges of $155 million after-tax, or $.35 per share, and a non-cash, non-operating impairment charge related to certain Fannie Mae ("FNMA") and Freddie Mac ("FHLMC") preferred stock of $43.9 million after-tax, or $.10 per share. Net income in the second quarter of 2005 included a reversal of merger and integration charges of $5.5 million after-tax, or $.01 per share. For the quarter ended June 30, 2006, Sovereign's operating/cash earnings per diluted share were $.40, which excluded the above mentioned charges and $15.7 million, or $.04 per share, related to amortization of intangible assets, as compared to $.47 per diluted share a year ago, which excluded the above mentioned reversal of merger and integration charges and $12.2 million, or $.03 per share, related to amortization of intangible assets. A reconciliation of net income to operating/cash earnings, as well as the related earnings per share amounts, is included in a later section of this release. Commenting on the second quarter of 2006, Jay S. Sidhu, Sovereign's Chairman and CEO, stated, "The past quarter results have been mixed. We closed on our acquisition of Independence, we also closed on our equity offering to Santander, and we restructured our balance sheet to better balance our interest rate risk position going forward. Our operating expenses were well contained, credit quality continues to be in check and fee-based revenues in most categories saw solid increases. The Independence acquisition improves our critical success factors and sets the company up well for future periods; however, near-term yield curve pressures continued to hinder our net interest income growth and impacts our balance sheet growth." Net Interest Income and Margin For the second quarter of 2006, Sovereign reported net interest income of $439 million as compared to $413 million in the second quarter of 2005. Sovereign's average loan portfolio increased by $9.2 billion over last year and $6.3 billion on a linked quarter basis to $50.6 billion. Excluding acquisitions, the total loan portfolio increased $1.9 billion during the quarter, reflecting an annualized organic growth rate of 18%. Sovereign's average deposits increased $7.6 billion over last year and $5.4 billion linked quarter to $43.9 billion. Excluding acquisitions, total deposits increased $1.7 billion during the quarter, reflecting an annualized organic growth rate of 18%. Net interest margin was 2.86% for the second quarter of 2006 as compared to 3.00% in the first quarter of 2006 and 3.21% in the second quarter of 2005. Risk Mitigation In an effort to optimize its interest rate risk position and capital following the acquisition of Independence, Sovereign reduced its combined investment portfolio by $3.85 billion in June of 2006. Sovereign sold $3.5 billion of its own investments with a yield of approximately 4.40% and effective duration of 4.2 years. In addition, prior to closing Independence sold $350 million of its investment portfolio. During the second quarter of 2006, Sovereign entered into a synthetic securitization to reduce its exposure to potential credit losses on a pool of $5.2 billion of residential loans. This credit securitization caps net charge-off's at 10 basis points and generates approximately $130 million of risk-based capital at an implied cost of capital of about 2.85%. Non-Interest Income Consumer and commercial banking fees increased 13% from a year ago. Excluding acquisitions, consumer and commercial banking fees were up 9% from the second quarter of 2005. Consumer banking fees increased to $67.5 million, primarily driven by growth in deposit fees. Commercial banking fees increased year-over-year by $11.2 million to $43.9 million primarily driven by growth in loan fees and precious metals revenue. Mortgage banking revenues for the quarter were $4.5 million, compared to $13.0 million last quarter and $21.3 million in the same quarter a year ago, as the company's bias for higher credit quality has resulted in more originations being retained on its balance sheet. As discussed in a prior press release, Sovereign recorded a non-operating restructuring charge of $155 million, after-tax, related to the sale of $3.5 billion of its investment securities and a non-cash, non-operating impairment charge of $44 million, after-tax, related to certain Fannie Mae and Freddie Mac preferred stock in the second quarter of 2006. Non-Interest Expense G&A expenses, including acquisitions, were $303 million for the quarter. "Included in operating expenses for the quarter was $21.6 million of operating expenses related to the Independence acquisition. On a linked quarter basis, excluding the effects of Independence, G&A expenses were up only $1.7 million, or .6%," stated Mark R. McCollom, Sovereign's Chief Financial Officer. "We remain on schedule to convert systems in early September, and after such time, we will be able to leverage expenses to a greater degree. We are on track to exceed our initial cost savings estimate of 15%. In fact, we expect cost saves to reach about 20%." Asset Quality Asset quality remained strong in the second quarter of 2006. Annualized net charge-offs were .23% of average loans for the second quarter, compared to .26% in the first quarter of 2006. Non-performing loans to total loans decreased slightly from first quarter levels to .36%. Non-performing loans increased by $36 million from last quarter to $220 million; however, Independence's non-performing loans were $38 million of this total. The allowance for credit losses to non-performing loans improved to 251%, as compared to 239% at March 31, 2006 and 272% at June 30, 2005. Sovereign's provision for credit losses was $44.5 million this quarter, including an additional provision of $12.5 million related to the acquisition of Independence, compared to $29.0 million in the first quarter of 2006 and $22.0 million in the second quarter of 2005. Capital In addition to the $2.5 billion equity offering to Santander, Sovereign successfully raised $825 million of capital at a blended cost of 7.24%, during the second quarter, of which $625 million is Tier 1 qualified. Sovereign's Tier 1 leverage ratio was 5.69% at June 30, 2006. Tangible equity to tangible assets, which includes recently issued preferred stock, was 3.73% excluding other comprehensive income ("OCI") and was 3.49% including OCI. Tangible common equity to tangible assets, excluding other comprehensive income ("OCI") was 3.50% and including OCI was 3.25%. The equity to assets ratio was 9.54% at June 30, 2006. Sovereign Bank's Tier 1 leverage ratio was 6.28% and the Bank's risk-based capital ratio was 10.30% at June 30, 2006. Based upon our July 17 stock price of $20.39, Sovereign is trading at a P/E of 12.5x analysts mean 2006 estimate. The book value per share at June 30, 2006 was $17.92. About Sovereign Sovereign Bancorp, Inc. ("Sovereign") (NYSE: SOV), the parent company of Sovereign Bank, is an $89 billion financial institution with nearly 800 community banking offices, over 2,000 ATMs after giving effect to the recently announced branding agreement in which Sovereign ATMs will be placed in CVS/pharmacy locations and approximately 12,000 team members with principal markets in the Northeast United States. 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. Interested parties will have the opportunity to listen to a live web-cast of Sovereign's Second Quarter 2006 earnings call on Tuesday, July 18 beginning at 5:00 p.m. ET at http://www.sovereignbank.com >Investor Relations >News >Conference Calls/Webcasts; or http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=67999&eventID=1342450. The web-cast and replay can be accessed anytime from 5:00 p.m. ET on Tuesday, July 18 through 12:00 a.m. ET on September 18, 2006. Questions may be submitted during the call via email to investor@sovereignbank.com. A telephone replay will be accessible from 6:00 p.m. ET on Tuesday, July 18, 2006 through 12:00 a.m. ET (midnight) on July 24, 2006 by dialing 800-642-1687, confirmation id #2254483. 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/Cash 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, and certain non-cash charges. Operating/Cash earnings for 2005 and 2006 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, proxy and related professional fees and the amortization of intangible assets. 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 (dollars in millions, except per share data) 2006 2006 2005 2005 2005 - --------------------------------------------- ---------- ---------- ---------- ---------- ---------- Operating Data Net income (loss) $ (51.7) $ 141.4 $ 165.5 $ 181.0 $ 183.5 Net income (loss) for EPS purposes (47.8) 147.7 171.8 187.4 189.8 Operating/cash earnings for EPS purposes (1) 178.9 166.4 187.2 197.2 196.5 Net interest income 438.8 404.0 403.2 408.3 413.2 Provision for credit losses 44.5 29.0 26.0 20.0 22.0 Total fees and other income before securities transactions 142.0 134.3 159.9 158.2 148.6 Net gain (loss) on investment securities (305.0) 0.0 (1.3) 1.7 3.4 G&A expense 303.3 280.0 281.8 276.9 273.4 Other expenses 47.5 44.8 40.0 32.6 27.1 Performance Statistics Bancorp Net interest margin 2.86% 3.00% 3.01% 3.13% 3.21% Return on average assets -0.28% 0.90% 1.03% 1.17% 1.22% Operating/cash return on average assets (1) 0.98% 1.05% 1.17% 1.27% 1.31% Return on average equity -3.09% 9.72% 11.49% 12.61% 12.92% Operating/cash return on average equity (1) 10.72% 11.45% 13.00% 13.74% 13.84% Return on average tangible equity -7.14% 19.29% 23.67% 26.24% 27.15% Operating/cash return on average tangible equity(1) 24.72% 22.71% 26.78% 28.58% 29.09% Annualized net loan charge-offs to average loans 0.23% 0.26% 0.21% 0.18% 0.19% Efficiency ratio (3) 52.22% 52.01% 50.04% 48.87% 48.67% Per Share Data Basic earnings (loss) per share (2) $ (0.13) $ 0.38 $ 0.44 $ 0.48 $ 0.48 Diluted earnings (loss) per share (2) (0.11) 0.36 0.42 0.45 0.45 Operating/cash earnings per share (1)(2) 0.40 0.41 0.46 0.48 0.47 Dividend declared per share .080 .060 .060 .040 .040 Book value (4) 17.92 16.42 16.21 15.81 15.70 Common stock price: High $ 21.76 $ 21.53 $ 22.37 $ 23.54 $ 21.62 Low 20.19 19.57 19.65 20.66 19.17 Close 20.31 20.87 20.59 20.99 21.28 Weighted average common shares: (2) Basic 412.0 376.9 375.6 378.3 386.3 Diluted 445.6 410.4 409.6 412.8 420.4 End-of-period common shares: Basic 472.1 359.3 358.4 358.5 365.8 Diluted 505.5 391.1 390.5 390.7 398.3 NOTES: (1) Operating/cash 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, amortization of intangible assets, proxy and related professional fees, and certain other charges. See page H and I for a reconciliation of GAAP and Non-GAAP measures. (2) Prior period earnings per share and weighted average common shares have been restated to reflect the 5% stock dividend paid to shareholders of record on June 15, 2006. (3) Efficiency ratio equals general and administrative expense as a percentage of total revenue, defined as the sum of net interest income and total fees and other income before securities transactions. (4) Book value equals stockholders' equity at period-end divided by common shares outstanding. Year to Date ------------------------- June 30 June 30 (dollars in millions, except per share data) 2006 2005 - --------------------------------------------- ---------- ---------- Operating Data Net income (loss) $ 89.7 $ 329.6 Net income (loss) for EPS purposes 100.0 342.4 Operating/cash earnings for EPS purposes (1) 345.4 379.9 Net interest income 842.7 820.5 Provision for credit losses 73.5 44.0 Total fees and other income before securities transactions 276.3 272.8 Net gain (loss) on investment securities (305.0) 11.3 G&A expense 583.3 530.5 Other expenses 92.3 90.9 Performance Statistics Bancorp Net interest margin 2.92% 3.27% Return on average assets 0.26% 1.13% Operating/cash return on average assets (1) 1.01% 1.30% Return on average equity 2.87% 11.78% Operating/cash return on average equity (1) 11.06% 13.57% Return on average tangible equity 6.15% 24.08% Operating/cash return on average tangible equity (1) 23.67% 27.75% Annualized net loan charge-offs to average loans 0.21% 0.21% Efficiency ratio (3) 52.12% 48.52% Per Share Data Basic earnings (loss) per share (2) $ 0.23 $ 0.85 Diluted earnings (loss) per share (2) 0.23 0.81 Operating/cash earnings per share (1) (2) 0.81 0.90 Dividend declared per share 0.140 0.070 Book value (4) 17.92 15.70 Common stock price: High $ 21.76 $ 22.60 Low 19.57 19.17 Close 20.31 21.28 Weighted average common shares: (2) Basic 394.6 386.8 Diluted 428.1 420.9 End-of-period common shares: Basic 472.1 365.8 Diluted 505.5 398.3 NOTES: (1) Operating/cash 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, amortization of intangible assets, proxy and related professional fees, and certain other charges. See page H and I for a reconciliation of GAAP and Non-GAAP measures. (2) Prior period earnings per share and weighted average common shares have been restated to reflect the 5% stock dividend paid to shareholders of record on June 15, 2006. (3) Efficiency ratio equals general and administrative expense as a percentage of total revenue, defined as the sum of net interest income and total fees and other income before securities transactions. (4) Book value equals stockholders' equity at period-end divided by common shares outstanding. Sovereign Bancorp, Inc. and Subsidiaries FINANCIAL HIGHLIGHTS (unaudited) Quarter Ended -------------------------------------------------------------------- June 30 Mar. 31 Dec. 31 Sept. 30 June 30 (dollars in millions) 2006 2006 2005 2005 2005 - --------------------------------------------- ---------- ---------- ---------- ---------- ---------- Financial Condition Data: General Total assets $ 88,677 $ 65,060 $ 63,679 $ 62,960 $ 59,940 Loans 61,610 45,164 43,804 42,692 41,267 Total deposits and customer related accounts: 52,546 38,820 37,978 37,333 36,102 Core deposits and other customer related accounts 36,521 27,143 26,639 27,395 26,683 Time deposits 16,025 11,678 11,339 9,937 9,419 Borrowings 26,159 19,216 18,721 18,897 17,069 Minority interests 209 206 206 205 205 Stockholders' equity 8,459 5,900 5,811 5,668 5,743 Goodwill 4,930 2,715 2,717 2,714 2,714 Core deposit and other intangibles 633 197 214 232 250 Asset Quality Non-performing assets $ 259.1 $ 200.5 $ 205.6 $ 181.1 $ 173.2 Non-performing loans $ 219.7 $ 183.5 $ 189.5 $ 169.9 $ 162.4 Non-performing assets to total assets 0.29% 0.31% 0.32% 0.29% 0.29% Non-performing loans to total loans 0.36% 0.41% 0.43% 0.40% 0.39% Allowance for credit losses $ 551.4 $ 438.5 $ 437.8 $ 436.8 $ 442.5 Allowance for credit losses to total loans 0.90% 0.97% 1.00% 1.02% 1.07% Allowance for credit losses to non-performing loans 251% 239% 231% 257% 272% Capitalization - Bancorp (1) Stockholders' equity to total assets 9.54% 9.07% 9.13% 9.00% 9.58% Tier 1 leverage capital ratio 5.69% 6.74% 6.68% 6.48% 6.86% Tangible equity to tangible assets, excluding OCI 3.73% 5.16% 5.05% 4.84% 5.13% Tangible common equity to tangible assets, excluding OCI 3.50% 5.16% 5.05% 4.84% 5.13% Tangible equity to tangible assets, including OCI 3.49% 4.81% 4.73% 4.54% 4.88% Tangible common equity to tangible assets, including OCI 3.25% 4.81% 4.73% 4.54% 4.88% Capitalization - Bank (1) Stockholders' equity to total assets 9.70% 10.59% 10.61% 10.46% 11.30% Tier 1 leverage capital ratio 6.28% 6.97% 6.84% 6.58% 7.16% Tier 1 risk-based capital ratio 7.91% 8.52% 8.21% 7.91% 8.64% Total risk-based capital ratio 10.30% 10.97% 10.66% 10.42% 11.27% (1) All capital ratios are calculated based upon adjusted end of period assets consistent with OTS guidelines. The current quarter ratios are estimated as of the date of this earnings release. Sovereign Bancorp, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (unaudited) June 30 Mar. 31 Dec. 31 (dollars in thousands) 2006 2006 2005 - --------------------------------------------- ------------ ------------ ------------ Assets Cash and amounts due from depository institutions $ 1,641,731 $ 997,447 $ 1,131,936 Investments: Available-for-sale 12,218,168 7,063,492 7,258,402 Held-to-maturity - 4,936,066 4,647,627 Other investments 933,507 670,353 651,299 Total investments 13,151,675 12,669,911 12,557,328 Loans: Commercial 28,999,921 17,250,897 16,635,646 Consumer 32,610,190 27,913,516 27,168,201 Total loans 61,610,111 45,164,413 43,803,847 Less allowance for loan losses (537,372) (421,860) (419,599) Total loans, net 61,072,739 44,742,553 43,384,248 Premises and equipment, net 587,254 408,119 412,017 Accrued interest receivable 375,213 275,343 286,300 Goodwill 4,929,586 2,715,217 2,716,826 Core deposit and other intangibles 632,665 196,756 213,975 Bank owned life insurance 1,686,571 1,027,403 1,018,125 Other assets 4,599,338 2,027,191 1,957,971 Total assets $ 88,676,772 $ 65,059,940 $ 63,678,726 Liabilities and Stockholders' Equity Liabilities: Deposits and other customer related accounts: Core and other customer related accounts $ 36,520,944 $ 27,142,655 $ 26,639,246 Time deposits 16,025,418 11,677,492 11,338,460 Total 52,546,362 38,820,147 37,977,706 Borrowings and other debt obligations 26,159,202 19,216,159 18,720,897 Other liabilities 1,303,198 917,661 963,764 Total liabilities 80,008,762 58,953,967 57,662,367 Minority interests 209,466 206,141 205,660 Stockholders' equity: Preferred Stock 195,445 - - Common Stock 6,156,925 3,657,038 3,657,543 Warrants and stock options 337,637 335,717 337,346 Unallocated ESOP shares (21,396) (21,396) (21,396) Treasury stock (65,984) (466,328) (478,734) Accumulated other comprehensive loss (193,186) (211,760) (170,798) Retained earnings 2,049,103 2,606,561 2,486,738 Total stockholders' equity 8,458,544 5,899,832 5,810,699 Total liabilities and stockholders' equity $ 88,676,772 $ 65,059,940 $ 63,678,726 Sept. 30 June 30 (dollars in thousands) 2005 2005 - --------------------------------------------- ------------ ------------ Assets Cash and amounts due from depository institutions $ 1,438,240 $ 1,176,891 Investments: Available-for-sale 7,547,170 6,919,987 Held-to-maturity 4,500,881 4,055,135 Other investments 696,859 609,977 Total investments 12,744,910 11,585,099 Loans: Commercial 16,222,920 16,152,017 Consumer 26,468,719 25,115,462 Total loans 42,691,639 41,267,479 Less allowance for loan losses (418,353) (424,711) Total loans, net 42,273,286 40,842,768 Premises and equipment, net 401,868 391,140 Accrued interest receivable 265,120 247,505 Goodwill 2,714,073 2,713,894 Core deposit and other intangibles 231,740 250,025 Bank owned life insurance 1,006,820 996,645 Other assets 1,884,316 1,736,089 Total assets $ 62,960,373 $ 59,940,056 Liabilities and Stockholders' Equity Liabilities: Deposits and other customer related accounts: Core and other customer related accounts $ 27,395,257 $ 26,682,873 Time deposits 9,937,334 9,418,691 Total 37,332,591 36,101,564 Borrowings and other debt obligations 18,897,237 17,068,806 Other liabilities 857,530 822,136 Total liabilities 57,087,358 53,992,506 Minority interests 205,176 204,721 Stockholders' equity: Preferred Stock - - Common Stock 3,649,507 3,636,750 Warrants and stock options 337,156 339,517 Unallocated ESOP shares (23,707) (23,707) Treasury stock (467,265) (280,223) Accumulated other comprehensive loss (170,619) (105,727) Retained earnings 2,342,767 2,176,219 Total stockholders' equity 5,667,839 5,742,829 Total liabilities and stockholders' equity $ 62,960,373 $ 59,940,056 Sovereign Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Quarter Ended ------------------------------------------------------------- June 30 Mar. 31 Dec. 31 Sept. 30 June 30 (dollars in thousands, except per share data) 2006 2006 2005 2005 2005 - ---------------------------------------------------------- --------- --------- --------- --------- --------- Interest and dividend income: Interest on interest- earning deposits $ 2,954 $ 2,116 $ 2,605 $ 2,022 $ 1,896 Interest on investment securities Available for sale 116,653 90,095 91,163 86,411 91,123 Held to maturity 50,473 53,553 51,225 47,624 45,091 Other 13,016 5,603 4,971 4,443 4,755 Interest on loans 808,922 688,166 661,072 620,742 577,220 Total interest and dividend income 992,018 839,533 811,036 761,242 720,085 Interest expense: Deposits and related customer accounts 306,030 231,837 201,449 169,084 139,879 Borrowings 247,217 203,738 206,344 183,817 167,047 Total interest expense 553,247 435,575 407,793 352,901 306,926 Net interest income 438,771 403,958 403,243 408,341 413,159 Provision for credit losses 44,500 29,000 26,000 20,000 22,000 Net interest income after provision for credit losses 394,271 374,958 377,243 388,341 391,159 Non-interest income: Consumer banking fees 67,467 60,798 64,696 65,738 65,833 Commercial banking fees 43,949 39,016 46,699 39,519 32,734 Mortgage banking revenue (1) 4,524 12,992 26,501 28,671 21,290 Capital markets revenue 2,313 3,889 4,053 5,382 3,700 Bank owned life insurance income 15,359 11,327 11,398 12,066 12,918 Other 8,363 6,319 6,538 6,856 12,092 Total fees and other income before security gains 141,975 134,341 159,885 158,232 148,567 Net gain/(loss) on securities (305,027) - (1,296) 1,675 3,355 Total non- interest income (163,052) 134,341 158,589 159,907 151,922 Non-interest expense: General and administrative Compensation and benefits 149,467 143,778 137,452 140,532 135,803 Occupancy and equipment 68,155 64,193 61,679 61,096 61,348 Technology expense 23,114 21,566 22,562 21,349 21,606 Outside services 16,592 14,755 17,174 15,362 13,805 Marketing expense 14,548 10,222 15,103 14,455 11,757 Other administrative expenses 31,417 25,465 27,828 24,107 29,072 Total general and administrative 303,293 279,979 281,798 276,901 273,391 Other expenses: Amortization of intangibles 24,225 17,219 17,766 18,284 18,815 Other minority interest expense 6,079 5,992 5,951 5,837 5,752 Equity method investments 10,954 10,042 10,455 11,656 10,966 Proxy and professional fees - 14,337 5,827 - - Merger-related and integration charges 6,257 (2,798) - (3,222) (8,447) Total other expenses 47,515 44,792 39,999 32,555 27,086 Total non- interest expense 350,808 324,771 321,797 309,456 300,477 Income/ (loss) before income taxes (119,589) 184,528 214,035 238,792 242,604 Income tax expense/ (benefit) (67,935) 43,130 48,540 57,749 59,133 Net income/ (loss) $ (51,654) $ 141,398 $ 165,495 $ 181,043 $ 183,471 (1) Mortgage banking activity is summarized below: Gains on sale of mortgage loans, mortgage backed securities, and home equity loans (2) $ 3,136 $ 9,762 $ 22,708 $ 21,274 $ 28,371 Net gains/(loss) recorded under SFAS 133 (663) 1,090 (1,039) 717 314 Mortgage servicing fees, net of mortgage servicing rights amortization 2,051 2,140 914 (157) 1,370 Mortgage servicing right (impairments)/ recoveries - - 3,918 6,837 (8,765) Total mortgage banking revenues $ 4,524 $ 12,992 $ 26,501 $ 28,671 $ 21,290 (2) The results for the fourth quarter and third quarter of 2005 include gains of $18.4 million and $13.1 million related to the sale of $898 million and $503 million of home equity loans. Year to Date ---------------------------- June 30 June 30 (dollars in thousands, except per share data) 2006 2005 - --------------------------------------------- ------------ ------------ Interest and dividend income: Interest on interest-earning deposits $ 5,070 $ 4,129 Interest on investment securities Available for sale 206,748 182,118 Held to maturity 104,026 90,210 Other 18,619 8,644 Interest on loans 1,497,088 1,105,208 Total interest and dividend income 1,831,551 1,390,309 Interest expense: Deposits and related customer accounts 537,867 254,057 Borrowings 450,955 315,747 Total interest expense 988,822 569,804 Net interest income 842,729 820,505 Provision for credit losses 73,500 44,000 Net interest income after provision for credit losses 769,229 776,505 Non-interest income: Consumer banking fees 128,265 126,182 Commercial banking fees 82,965 63,057 Mortgage banking revenue (1) 17,516 32,945 Capital markets revenue 6,202 8,386 Bank owned life insurance income 26,686 23,821 Other 14,682 18,443 Total fees and other income before security gains 276,316 272,834 Net gain/(loss) on securities (305,027) 11,334 Total non-interest income (28,711) 284,168 Non-interest expense: General and administrative Compensation and benefits 293,245 260,928 Occupancy and equipment 132,348 124,218 Technology expense 44,680 40,274 Outside services 31,347 28,453 Marketing expense 24,770 22,804 Other administrative expenses 56,882 53,828 Total general and administrative 583,272 530,505 Other expenses: Amortization of intangibles 41,444 37,771 Other minority interest expense 12,071 11,420 Equity method investments 20,996 21,736 Proxy and professional fees 14,337 - Merger-related and integration charges 3,459 19,948 Total other expenses 92,307 90,875 Total non-interest expense 675,579 621,380 Income/ (loss) before income taxes 64,939 439,293 Income tax expense/ (benefit) (24,805) 109,671 Net income/ (loss) $ 89,744 $ 329,622 (1) Mortgage banking activity is summarized below: Gains on sale of mortgage loans, mortgage backed securities, and home equity loans (2) $ 12,898 $ 34,748 Net gains/(loss) recorded under SFAS 133 427 967 Mortgage servicing fees, net of mortgage servicing rights amortization 4,191 2,041 Mortgage servicing right (impairments)/recoveries - (4,811) Total mortgage banking revenues $ 17,516 $ 32,945 (2) The results for the fourth quarter and third quarter of 2005 include gains of $18.4 million and $13.1 million related to the sale of $898 million and $503 million of home equity loans. Sovereign Bancorp, Inc. and Subsidiaries AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS (unaudited) 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 $ 10,346,113 $ 73,330 2.84% Customer repurchase agreements 1,114,934 12,077 4.34% Savings accounts 3,956,176 7,254 0.74% Money market accounts 9,598,706 71,475 2.99% Core and other customer related accounts 25,015,929 164,136 2.63% Time deposits 13,193,359 141,894 4.31% Total 38,209,288 306,030 3.21% Borrowings: Federal Home Loan Bank advances 15,247,874 164,540 4.33% Fed funds and repurchase agreements 1,399,266 18,019 5.16% Other borrowings 4,791,972 64,658 5.48% Total borrowings 21,439,112 247,217 4.64% 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 Quarter Ended March 31, 2006 ---------------------------------------- Average Yield/ (dollars in thousands) Balance Interest(1) Rate - ------------------------------------------ ------------ ------------ -------- Earning assets: Investment securities $ 12,715,041 $ 168,049 5.29% Loans: Commercial 16,884,583 290,843 6.98% Multi-Family - - 0.00% Consumer: Residential mortgages 12,777,623 176,652 5.53% Home equity loans and lines of credit 9,673,570 151,660 6.32% Total consumer loans secured by real estate 22,451,193 328,312 5.87% Auto Loans 4,409,850 61,383 5.65% Other 476,946 9,185 7.81% Total Consumer 27,337,989 398,880 5.87% Total loans 44,222,572 689,723 6.29% Allowance for loan losses (419,386) Total earning assets 56,518,227 $ 857,772 6.11% Other assets 7,521,366 Total assets $ 64,039,593 Funding liabilities: Deposits and other customer related accounts: NOW accounts $ 9,124,514 $ 54,509 2.42% Customer repurchase agreements 1,025,807 9,898 3.91% Savings accounts 3,411,827 6,388 0.76% Money market accounts 8,190,873 48,068 2.38% Core and other customer related accounts 21,753,021 118,863 2.22% Time deposits 11,597,261 112,974 3.95% Total 33,350,282 231,837 2.82% Borrowings: Federal Home Loan Bank advances 13,551,387 143,083 4.27% Fed funds and repurchase agreements 613,518 6,635 4.33% Other borrowings 4,415,349 54,020 4.93% Total borrowings 18,580,254 203,738 4.43% Total funding liabilities 51,930,536 435,575 3.39% Non-interest bearing DDA 5,086,989 Other liabilities 1,125,329 Total liabilities 58,142,854 Stockholders' equity 5,896,739 Total liabilities and stockholders' equity $ 64,039,593 Net interest income $ 422,197 Interest rate spread 2.72% Contribution from interest free funds 0.28% Net interest margin 3.00% (1) Tax equivalent basis Quarter Ended June 30, 2005 ---------------------------------------- Average Yield/ (dollars in thousands) Balance Interest(1) Rate - ------------------------------------------ ------------ ------------ -------- Earning assets: Investment securities $ 12,178,325 $ 142,865 5.06% Loans: Commercial 15,768,250 234,588 5.99% Multi-Family - - 0.00% Consumer: Residential mortgages 10,634,549 138,586 5.21% Home equity loans and lines of credit 10,127,012 137,825 5.45% Total consumer loans secured by real estate 20,761,561 276,411 5.33% Auto Loans 4,262,377 55,541 5.23% Other 559,544 10,680 7.66% Total Consumer 25,583,482 342,632 5.36% Total loans 41,351,732 577,220 5.60% Allowance for loan losses (428,032) Total earning assets 53,102,025 $ 720,085 5.52% Other assets 7,103,036 Total assets $ 60,205,061 Funding liabilities: Deposits and other customer related accounts: NOW accounts $ 8,425,311 $ 31,835 1.52% Customer repurchase agreements 795,418 4,790 2.42% Savings accounts 3,864,148 6,243 0.65% Money market accounts 8,417,965 31,034 1.48% Core and other customer related accounts 21,502,842 73,902 1.38% Time deposits 9,458,184 65,977 2.80% Total 30,961,026 139,879 1.81% Borrowings: Federal Home Loan Bank advances 11,775,740 116,767 3.98% Fed funds and repurchase agreements 1,614,427 12,167 3.02% Other borrowings 4,164,200 38,113 3.67% Total borrowings 17,554,367 167,047 3.81% Total funding liabilities 48,515,393 306,926 2.54% Non-interest bearing DDA 5,276,428 Other liabilities 715,584 Total liabilities 54,507,405 Stockholders' equity 5,697,656 Total liabilities and stockholders' equity $ 60,205,061 Net interest income $ 413,159 Interest rate spread 2.98% Contribution from interest free funds 0.23% Net interest margin 3.21% (1) Tax equivalent basis Sovereign Bancorp, Inc. and Subsidiaries AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS (unaudited) 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 $ 9,738,689 $ 127,832 2.64% Customer repurchase agreements 1,070,617 21,975 4.14% Savings accounts 3,685,505 13,642 0.75% Money market accounts 8,898,678 119,543 2.71% Core and other customer related accounts 23,393,489 282,992 2.44% Time deposits 12,399,719 254,875 4.15% Total 35,793,208 537,867 3.02% Borrowings: Federal Home Loan Bank advances 14,404,317 307,622 4.30% Fed funds and repurchase agreements 1,008,563 24,655 4.91% 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 Year to Date June 30, 2005 ---------------------------------------- Average Yield/ (dollars in thousands) Balance Interest (1) Rate - ------------------------------------------ ------------ ------------ -------- Earning assets: Investment securities $ 12,153,767 $ 285,101 5.06% Loans: Commercial 15,321,314 439,486 5.82% Multi-Family - - 0.00% Consumer: Residential mortgages 9,905,070 261,540 5.28% Home equity loans and lines of credit 10,065,056 272,780 5.45% Total consumer loans secured by real estate 19,970,126 534,320 5.37% Auto loans 4,283,620 110,476 5.20% Other 568,980 20,926 7.42% Total Consumer 24,822,726 665,722 5.39% Total loans 40,144,040 1,105,208 5.55% Allowance for loan losses (421,878) Total earning assets 51,875,929 $ 1,390,309 5.48% Other assets 7,013,494 Total assets $ 58,889,423 Funding liabilities: Deposits and other customer related accounts: NOW accounts $ 8,234,704 $ 57,291 1.40% Customer repurchase agreements 818,907 8,806 2.17% Savings accounts 3,897,045 12,373 0.64% Money market accounts 8,285,978 56,521 1.38% Core and other customer related accounts 21,236,634 134,991 1.28% Time deposits 9,060,839 119,066 2.65% Total 30,297,473 254,057 1.69% Borrowings: Federal Home Loan Bank advances 11,345,327 221,703 3.94% Fed funds and repurchase agreements 1,528,315 21,705 2.85% Other borrowings 4,159,877 72,339 3.49% Total borrowings 17,033,519 315,747 3.73% Total funding liabilities 47,330,992 569,804 2.42% Non-interest bearing DDA 5,219,880 Other liabilities 695,052 Total liabilities 53,245,924 Stockholders' equity 5,643,499 Total liabilities and stockholders' equity $ 58,889,423 Net interest income $ 820,505 Interest rate spread 3.06% Contribution from interest free funds 0.21% Net interest margin 3.27% (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) 2006 2006 2005 2005 2005 - ------------------------------ ---------- ---------- ---------- ---------- ---------- Non-accrual loans: Consumer: Residential mortgages $ 34,812 $ 31,874 $ 30,393 $ 33,427 $ 31,717 Home equity loans and lines of credit 63,632 61,078 55,543 37,051 35,007 Auto loans 388 363 476 462 365 Other consumer loans 2,524 1,920 1,913 2,873 3,013 Total consumer loans 101,356 95,235 88,325 73,813 70,102 Commercial 117,758 87,566 100,372 95,303 91,358 Total non-accrual loans 219,114 182,801 188,697 169,116 161,460 Restructured loans 576 692 777 822 939 Total non-performing loans 219,690 183,493 189,474 169,938 162,399 Real estate owned, net 35,899 13,622 11,411 6,107 8,494 Other repossessed assets 3,487 3,352 4,678 5,083 2,302 Total non-performing assets 259,076 200,467 205,563 181,128 173,195 Non-performing loans as a percentage of total loans 0.36% 0.41% 0.43% 0.40% 0.39% Non-performing assets as a percentage of total assets 0.29% 0.31% 0.32% 0.29% 0.29% Non-performing assets as a percentage of total loans, real estate owned and repossessed assets 0.42% 0.44% 0.47% 0.42% 0.42% Allowance for credit losses as a percentage of non- performing loans 251% 239% 231% 257% 272% NET LOAN CHARGE-OFFS June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Quarters ended (in thousands) 2006 2006 2005 2005 2005 - ------------------------------ ---------- ---------- ---------- ---------- ---------- Commercial real estate $ 3,938 $ (744) $ 564 $ 219 $ 294 Commercial and industrial and other 4,718 8,948 4,877 6,209 8,964 Total Commercial 8,656 8,204 5,441 6,428 9,258 Residential mortgages 156 159 554 109 72 Home equity loans and lines of credit 15,032 10,654 6,998 4,319 3,115 Total consumer loans secured by real estate 15,188 10,813 7,552 4,428 3,187 Auto loans 5,678 7,995 9,137 7,539 5,851 Other consumer loans (98) 1,286 1,079 1,059 1,126 Total Consumer 20,768 20,094 17,768 13,026 10,164 Total $ 29,424 $ 28,298 $ 23,209 $ 19,454 $ 19,422 COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES June 30 Mar. 31 Quarters ended (in thousands) 2006 2006 - -------------------------------------- ------------ ------------ Provision for loan losses 47,113 30,559 Provision/(recoveries) for unfunded commitments (2,613) (1,559) Total provision for credit losses $44,500 $29,000 Allowance for loan losses 537,372 421,860 Reserve for unfunded commitments 14,040 16,653 Total allowance for credit losses $551,412 $438,513 Dec. 31 Sept. 30 June 30 Quarters ended (in thousands) 2005 2005 2005 - -------------------------------------- ------------ ------------ ------------ Provision for loan losses 26,263 19,298 20,442 Provision/(recoveries) for unfunded commitments (263) 702 1,558 Total provision for credit losses $ 26,000 $ 20,000 $ 22,000 Allowance for loan losses 419,599 418,353 424,711 Reserve for unfunded commitments 18,212 18,475 17,773 Total allowance for credit losses $ 437,811 $ 436,828 $ 442,484 Sovereign Bancorp, Inc. and Subsidiaries SUPPLEMENTAL INFORMATION (unaudited) DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period June 30 Mar. 31 Quarters ended (in thousands) 2006 2006 - ---------------------------------------- -------------- -------------- Demand deposit accounts $ 6,749,349 $ 5,165,140 NOW accounts 11,055,189 9,110,005 Customer repurchase agreements 1,205,345 1,086,010 Savings accounts 5,189,459 3,397,183 Money market accounts 12,321,602 8,384,317 Certificates of deposits 16,025,418 11,677,492 Total $ 52,546,362 $ 38,820,147 Dec. 31 Sept. 30 June 30 Quarters ended (in thousands) 2005 2005 2005 - ---------------------------------------- -------------- -------------- -------------- Demand deposit accounts $ 5,331,659 $ 5,414,212 $ 5,378,465 NOW accounts 8,844,875 9,170,052 8,269,183 Customer repurchase agreements 1,012,574 959,024 875,203 Savings accounts 3,460,292 3,684,423 3,807,967 Money market accounts 7,989,846 8,167,546 8,352,055 Certificates of deposits 11,338,460 9,937,334 9,418,691 Total $ 37,977,706 $ 37,332,591 $ 36,101,564 LOAN COMPOSITION - End of period June 30 Mar. 31 Quarters ended (in thousands) 2006 2006 - ---------------------------------------- -------------- -------------- Commercial real estate $ 10,817,068 $ 7,128,116 Commercial industrial loans 12,048,686 10,122,781 Multi-family 6,134,167 -- Total commercial loans 28,999,921 17,250,897 Residential mortgages 17,236,025 13,161,773 Home equity loans and lines of credit 10,515,700 9,892,235 Total consumer loans secured by real estate 27,751,725 23,054,008 Auto loans 4,399,047 4,400,980 Other consumer loans 459,418 458,528 Total consumer loans 32,610,190 27,913,516 Total loans $ 61,610,111 $ 45,164,413 Dec. 31 Sept. 30 June 30 Quarters ended (in thousands) 2005 2005 2005 - ---------------------------------------- -------------- -------------- -------------- Commercial real estate $ 7,209,180 $ 7,151,189 $ 6,946,477 Commercial industrial loans 9,426,466 9,071,731 9,205,540 Multi-family -- -- -- Total commercial loans 16,635,646 16,222,920 16,152,017 Residential mortgages 12,462,802 11,198,366 9,997,066 Home equity loans and lines of credit 9,793,124 10,301,161 10,300,629 Total consumer loans secured by real estate 22,255,926 21,499,527 20,297,695 Auto loans 4,434,021 4,463,931 4,285,537 Other consumer loans 478,254 505,261 532,230 Total consumer loans 27,168,201 26,468,719 25,115,462 Total loans $ 43,803,847 $ 42,691,639 $ 41,267,479 DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average June 30 Mar. 31 Quarters ended (in thousands) 2006 2006 - ---------------------------------------- -------------- -------------- Demand deposit accounts $ 5,662,902 $ 5,086,989 NOW accounts 10,346,113 9,124,514 Customer repurchase agreements 1,114,934 1,025,807 Savings accounts 3,956,176 3,411,827 Money market accounts 9,598,706 8,190,873 Certificates of deposits 13,193,359 11,597,261 Total $ 43,872,190 $ 38,437,271 Dec. 31 Sept. 30 June 30 Quarters ended (in thousands) 2005 2005 2005 - ---------------------------------------- -------------- -------------- -------------- Demand deposit accounts $ 5,340,623 $ 5,393,736 $ 5,276,428 NOW accounts 9,454,176 8,991,339 8,425,311 Customer repurchase agreements 1,007,347 903,053 795,418 Savings accounts 3,573,771 3,753,311 3,864,148 Money market accounts 8,112,584 8,294,441 8,417,965 Certificates of deposits 10,376,654 9,810,041 9,458,184 Total $ 37,865,155 $ 37,145,921 $ 36,237,454 LOAN COMPOSITION - Average June 30 Mar. 31 Quarters ended (in thousands) 2006 2006 - ---------------------------------------- -------------- -------------- Commercial real estate $ 8,358,231 $ 7,193,994 Commercial industrial loans 9,564,869 8,603,198 Multi-family 1,992,727 -- Other 1,189,303 1,087,391 Total commercial loans 21,105,130 16,884,583 Residential mortgages 14,467,374 12,777,623 Home equity loans and lines of credit 10,129,080 9,673,570 Total consumer loans secured by real estate 24,596,454 22,451,193 Auto loans 4,396,659 4,409,850 Other consumer loans 453,383 476,946 Total consumer loans 29,446,496 27,337,989 Total loans $ 50,551,626 $ 44,222,572 Dec. 31 Sept. 30 June 30 Quarters ended (in thousands) 2005 2005 2005 - ---------------------------------------- -------------- -------------- -------------- Commercial real estate $ 7,203,433 $ 7,019,781 $ 6,909,795 Commercial industrial loans 8,273,795 8,499,513 8,008,968 Multi-family -- -- -- Other 1,038,760 920,774 849,487 Total commercial loans 16,515,988 16,440,068 15,768,250 Residential mortgages 11,859,646 10,663,656 10,634,549 Home equity loans and lines of credit 10,176,307 10,321,853 10,127,012 Total consumer loans secured by real estate 22,035,953 20,985,509 20,761,561 Auto loans 4,454,501 4,400,376 4,262,377 Other consumer loans 490,069 515,522 559,544 Total consumer loans 26,980,523 25,901,407 25,583,482 Total loans $ 43,496,511 $ 42,341,475 $ 41,351,732 Sovereign Bancorp, Inc. and Subsidiaries RECONCILIATION OF OPERATING/CASH EARNINGS TO REPORTED EARNINGS (unaudited) Operating/cash 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, amortization of intangible assets, proxy and related professional fees, and certain other charges. The table below reconciles our GAAP earnings to operating/cash 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 2006 2006 2005 2005 2005 -------------- -------------- -------------- -------------- -------------- Net income as reported $ (51,654) $ 141,398 $ 165,495 $ 181,043 $ 183,471 Dividends on preferred stock (2,433) - - - - Net income available to common shareholders (54,087) 141,398 165,495 181,043 183,471 Contingently convertible trust preferred interest expense, net of tax 6,335 6,327 6,354 6,344 6,335 Net income for EPS purposes $ (47,752) $ 147,725 $ 171,849 $ 187,387 $ 189,806 Weighted average diluted shares for EPS 445,599 410,366 409,581 412,766 420,390 Reconciliation to operating/cash earnings EPS Net income for EPS purposes and EPS as reported $ (47,752) $ 147,725 $ 171,849 $ 187,387 $ 189,806 Merger related and integration costs 4,067 (1,819) - (2,094) (5,490) Provision for loan losses- Independence 8,125 - - - - Loss on balance sheet restructuring 154,884 - - - - Impairment on FNMA and FHLMC preferred stock 43,875 - - - - Proxy and professional fees - 9,319 3,788 - - Amortization of intangibles 15,746 11,192 11,548 11,885 12,229 Operating/cash earnings for EPS purposes $ 178,945 $ 166,417 $ 187,185 $ 197,178 $ 196,545 Quarter Ended Per share ------------------------------------------------------------------------------------- June 30 Mar. 31 Dec. 31 Sept. 30 June 30 2006 2006 2005 2005 2005 -------------- -------------- -------------- -------------- -------------- Net income as reported Dividends on preferred stock Net income available to common shareholders Contingently convertible trust preferred interest expense, net of tax Net income for EPS purposes $ (0.11) $ 0.36 $ 0.42 $ 0.45 $ 0.45 Weighted average diluted shares for EPS Reconciliation to operating/cash earnings EPS Net income for EPS purposes and EPS as reported $ (0.11) $ 0.36 $ 0.42 $ 0.45 $ 0.45 Merger related and integration costs 0.01 (0.00) - (0.01) (0.01) Provision for loan losses- Independence 0.02 - - - - Loss on balance sheet restructuring 0.35 - - - - Impairment on FNMA and FHLMC preferred stock 0.10 - - - - Proxy and professional fees - 0.02 0.01 - - Amortization of intangibles 0.04 0.03 0.03 0.03 0.03 Operating/cash earnings for EPS purposes $ 0.40 $ 0.41 $ 0.46 $ 0.48 $ 0.47 Year to Date ------------------------------------------------------------------ Total dollars Per Share -------------------------------- ------------------------------- June 30 June 30 June 30 June 30 2006 2005 2006 2005 -------------- -------------- -------------- -------------- Net income as reported $ 89,744 $ 329,622 Dividends on preferred stock (2,433) - Net income available to common shareholders 87,311 329,622 Contingently convertible trust preferred interest expense, net of tax 12,662 12,729 Net income for EPS purposes $ 99,973 $ 342,351 $ 0.23 $ 0.81 Weighted average diluted shares for EPS 428,124 420,885 Reconciliation to operating/cash earnings EPS Net income for EPS purposes and EPS as reported $ 99,973 $ 342,351 $ 0.23 $ 0.81 Merger related and integration costs 2,248 12,966 0.01 0.03 Provision for loan losses- Independence 8,125 - 0.02 - Loss on balance sheet restructuring 154,884 - 0.36 - Impairment on FNMA and FHLMC preferred stock 43,875 - 0.10 - Proxy and professional fees 9,319 - 0.02 - Amortization of intangibles 26,939 24,551 0.06 0.06 Operating/cash earnings for EPS purposes $ 345,363 $ 379,868 $ 0.81 $ 0.90 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 2006 2006 -------------- -------------- Average Equity $ 6,698,547 $ 5,896,739 Average Goodwill (3,452,687) (2,716,324) Average CDI and other intangibles (342,279) (207,908) Average Tangible Equity 2,903,581 2,972,507 Operating Return on Average Equity 10.72% 11.45% Effect of Goodwill 12.74% 10.46% Effect of CDI and other intangibles 1.26% 0.80% Tangible Return on Average Equity 24.72% 22.71% Quarter Ended ------------------------------------------------ Dec. 31 Sept. 30 June 30 2005 2005 2005 -------------- -------------- -------------- Average Equity $ 5,712,703 $ 5,694,895 $ 5,697,656 Average Goodwill (2,714,150) (2,714,148) (2,725,526) Average CDI and other intangibles (225,049) (243,149) (261,854) Average Tangible Equity 2,773,504 2,737,598 2,710,276 Operating Return on Average Equity 13.00% 13.74% 13.84% Effect of Goodwill 12.72% 13.62% 13.91% Effect of CDI and other intangibles 1.05% 1.22% 1.34% Tangible Return on Average Equity 26.78% 28.58% 29.09% Year-to-Date ------------------------------- June 30 June 30 2006 2005 -------------- -------------- Average Equity $ 6,299,858 $ 5,643,499 Average Goodwill (3,081,666) (2,617,281) Average CDI and other intangibles (275,465) (265,998) Average Tangible Equity 2,942,727 2,760,220 Operating Return on Average Equity 11.06% 13.57% Effect of Goodwill 11.58% 12.87% Effect of CDI and other intangibles 1.03% 1.31% Tangible Return on Average Equity 23.67% 27.75% Sovereign Bancorp, Inc. and Subsidiaries SUPPLEMENTAL INFORMATION (unaudited) Purchase of Independence Community Bank Corp. ("Independence") On June 1, 2006, Sovereign completed the purchase of Independence and the results of its operations are included from the purchase date through June 30, 2006. Sovereign made a cash payment of $3.6 billion to acquire and convert all outstanding Independence common shares and outstanding equity awards at $42 per share. The preliminary purchase price was allocated to acquired assets and liabilities of Independence based on fair value as of June 1, 2006. The company is in the process of finalizing these values and as such the allocation of the purchase price is subject to revision. Assets and Liabilities Acquired from Independence: (dollars in millions) - ---------------------------------------- Assets Investments $ 3,204.8 Loans: Commercial 10,807.2 Consumer 517.4 Residential mortgages 1,829.5 Total loans 13,154.1 Less allowance for loan losses (97.8) Total loans, net 13,056.3 Cash paid, net of cash acquired (2,713.2) Bank owned life insurance 343.3 Premises and equipment, net 177.0 Other assets 336.2 Core deposit and other intangibles 460.1 Goodwill 2,211.2 Total assets $ 17,075.7 Liabilities Deposits: Core $ 6,960.8 Time 4,070.1 Total deposits 11,030.9 Borrowings and other debt obligations 5,464.6 Other liabilities 580.2 Total liabilities $ 17,075.7 Sovereign Bancorp, Inc. and Subsidiaries SUPPLEMENTAL INFORMATION (unaudited) Abridged Stockholders' Equity Rollforward for the Quarter ended June 30, 2006 Balance, March 31, 2006 $ 5,899,832 Net loss $ (51,654) Change in unrealized gain/(loss), net of tax 18,575 Issuance of common stock 2,390,206 Issuance of preferred stock 195,445 Dividends paid on common stock (28,811) Dividends paid on preferred stock (2,433) Other 37,384 Balance, June 30, 2006 $ 8,458,544 SOURCE Sovereign Bancorp, Inc. -0- 07/18/2006 /CONTACT: Financial Contacts, Mark McCollom, +1-610-208-6426, mmccollo@sovereignbank.com, or Stacey Weikel, +1-610-208-6112, sweikel@sovereignbank.com, or Media Contact, 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 /