Exhibit 99.1
SOVEREIGN BANCORP, INC. ANNOUNCES FOURTH QUARTER
AND FULL YEAR 2006 EARNINGS
PHILADELPHIA, Jan. 17 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported for the year ended December 31, 2006 net income of $137 million, or
$.30 per share as compared to $676 million, or $1.69 per diluted share, in 2005.
Net income in 2006 included the seven-month impact of the acquisition of
Independence Community Bancorp, Inc. ("Independence"), which closed in the
second quarter of 2006. Also included in 2006 net income were other various
charges, including charges related to the recently announced expense reduction
initiative and balance sheet restructuring as well as merger charges and
additional provision for credit losses related to the Independence acquisition.
The charges related to the balance sheet restructuring and expense management
initiatives reflect a strategic shift away from wholesale revenues and increased
emphasis on improving results in Sovereign's core consumer and commercial
businesses. All charges are detailed in the financial tables included in this
release.
For the fourth quarter of 2006, Sovereign reported a net loss of $129
million, or $(.28) per share, as compared to net income of $165 million, or $.42
per diluted share, for the fourth quarter of 2005. Net income in the fourth
quarter of 2006 included an additional provision for credit losses of $192
million after-tax, or $.38 per share, related to the sale of correspondent home
equity loans; balance sheet restructuring charges of $42.9 million after-tax, or
$.08 per share; severance and restructuring charges of $51.1 million after-tax,
or $.10 per share; and merger and integration charges of $6.9 million after-tax,
or $.01 per share. Net income in the fourth quarter of 2005 included charges
related to proxy and related professional fees of $3.8 million after-tax, or
$.01 per share.
Effective in the third quarter of 2006, Sovereign refined its definition of
operating earnings and related per share amounts to now include the amortization
of intangible assets. Sovereign believes this definition is more commonly used
in the investment community and will ease comparability of its results with
other financial institutions. 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.
Operating earnings for EPS purposes were $692 million, or $1.48 per diluted
share, in 2006 as compared to $716 million, or $1.72 per diluted share, in 2005.
Operating earnings in 2006 excluded the above-mentioned charges. In 2005,
operating earnings excluded after-tax charges related to mergers and
acquisitions, restructuring charges and proxy and related professional fees.
For the quarter ended December 31, 2006, Sovereign's operating earnings for
EPS purposes were $167 million, or $.33 per diluted share, which excluded the
charges mentioned above, as compared to $176 million, or $.43 per diluted share
a year ago, which also excluded the above-mentioned charges.
Commenting on results for the full year 2006 and the fourth quarter of 2006,
Joseph P. Campanelli, Sovereign's President and CEO, stated, "Last month we
announced expense reduction initiatives and a balance sheet restructuring which
we believe are major steps toward achieving the goals announced in October to
aggressively reduce costs, strengthen our capital position, improve the customer
experience and re-present our company to investors through better
communications. While these steps will enhance the quality of our balance sheet
and improve the quality of our earnings going forward, a number of large charges
were recorded during the fourth quarter as a result of these steps, distorting
our fourth quarter and full year 2006 financial results. We believe, however,
that these steps reposition Sovereign for sustainable growth in core earnings in
the future."
Net Interest Income and Margin
For the fourth quarter of 2006, Sovereign reported net interest income of
$487 million as compared to $403 million in the fourth quarter of 2005.
Sovereign's average loan balance, including acquisitions and loans held-for-
sale, increased by $19.9 billion over last year and about $950 million on a
linked quarter basis to $63.4 billion. The period end loan portfolio decreased
by approximately $590 million from third quarter levels, reflecting the sale of
approximately $455 million of multi-family loans that settled during the quarter
and planned runoff in home equity and residential mortgage loans. This decrease
was partially offset by strong commercial loan growth. Sovereign's average core
deposits, including acquisitions, increased $8.8 billion over last year and
decreased $591 million linked quarter to $36.9 billion, driven by reductions in
higher-cost categories. Period-end core deposit balances increased $290 million
during the quarter to $36.3 billion, reflecting an annualized growth rate of
3.2%, while time deposits decreased $689 million from the previous quarter to
$16.1 billion.
Net interest margin was 2.60% for the fourth quarter of 2006 as compared to
2.64% in the third quarter of 2006 and 3.01% in the fourth quarter of 2005. The
decline in net interest margin reflects the continued impact of an inverted
yield curve and a shift in deposit mix to higher cost categories. The yield on
interest earning assets expanded 2 basis points during the quarter while total
funding costs expanded 10 basis points during the same period.
As previously announced on December 21, 2006, Sovereign has taken steps to
reduce the contribution of wholesale earnings to its results by selling loans
and reducing wholesale borrowings and brokered money market accounts.
Approximately $7.2 billion of loan sales are expected to settle throughout the
first quarter of 2007; these loans have been transferred to held-for-sale and
recorded at the lower of cost or market value as of December 31, 2006. Sovereign
also expects to sell an additional $1.5 billion of multi-family loans and record
a non-recurring gain in the first quarter of 2007.
Non-Interest Income
Total fees and other income before security gains totaled $149 million for
the fourth quarter of 2006, down from $160 million a year ago. Included in the
period's results were $23.0 million of net special charges that are discussed
later in this release; excluding these items, non-interest income increased 7.8%
from a year ago. Consumer and commercial banking fees increased 9.3% from a year
ago, primarily a result of the Independence acquisition, and were relatively
unchanged from the third quarter of 2006. Mortgage banking revenues for the
quarter were a loss of $7.6 million, compared to gains of $14.3 million last
quarter and $26.5 million in the same quarter a year ago. These losses were
driven by two special items - a loss of $28.2 million related to $2.9 billion of
residential mortgage loans transferred to held-for-sale, partially offset by a
$5.2 million gain related to the sale of approximately $455 million of
multi-family loans. Additionally, due to changes in prepayment speeds and
interest rates during the quarter, a $3.5 million impairment charge to increase
the valuation reserve for mortgage servicing rights was recorded.
During the quarter, Sovereign recognized a net loss on securities of $36.0
million, which includes a $43.0 million loss related to $1.5 billion of
investment securities that were sold and reinvested during the fourth quarter of
2006 as part of the balance sheet restructuring. This compares to a gain of
$29.2 million in the third quarter of 2006 and a net loss on securities of $1.3
million a year ago.
Non-Interest Expense
G&A expenses were $355 million for the fourth quarter of 2006, up $3.1
million or 3.5% annualized from the third quarter of 2006, primarily due to
increased marketing and legal costs. G&A expenses to average assets were 1.56%
for the quarter, compared to 1.55% in the third quarter of 2006 and 1.76% a year
ago. Due to the aforementioned net interest margin compression and special
charges impacting mortgage banking revenues, Sovereign's efficiency ratio
increased to 55.8% during the quarter versus 50.0% a year ago.
Sovereign has begun to implement several expense reduction initiatives that
were previously announced on December 15, 2006. In total Sovereign has
identified approximately $100 million of cost reductions and anticipates that
$80 million of these reductions will be reflected in the 2007 expense base.
Sovereign anticipates realizing 75% of the $100 million savings on a run rate
basis by the end of the second quarter of 2007 and 100% by the end of 2007.
Fourth Quarter Charges
Several charges are reflected in Sovereign's financial statements this
quarter. These charges relate to the recently announced cost cutting and balance
sheet restructuring program, the recent retirement of certain executives from
the Company, and the Independence acquisition. Management believes that these
events are unusual in nature, and therefore has excluded these charges from its
operating earnings definition in order for analysts and investors to obtain a
clearer picture of Sovereign's earnings stream going forward. Because these
charges impact several categories of Sovereign's income statement, the following
table highlights which items management has designated as special charges, and
where these charges are reflected:
Income Statement Pre-tax
Line Item (Charge)/Benefit Explanation
Balance Sheet Restructuring Gain/(Loss):
Provision for $(296) million Charge related to sale of $4.5
Credit Losses billion correspondent home equity
portfolio
Mortgage Banking $(28.2) million Charge related to sale of $2.9
Revenue billion residential mortgage
loans
$5.2 million Gain on sale of $455 million
multi-family loans
Net gain/(loss) on $(43.0) million Loss on sale of $1.5 billion
sale of investments investment securities
Expense Reduction Initiative and Independence Acquisition Charges:
Other Expense $(46.5) million Executive management severance
charges
$(32.2) million Reduction in workforce and other
restructuring charges
$(10.6) million Merger and integration charges
related to Independence
Additionally, net charge-offs were impacted by the balance sheet
restructuring as follows:
Net Charge-offs $(389.6) million $382.5 million net charge-off
related to sale of $4.5 billion
correspondent home equity
portfolio
$7.1 million net charge-off
related to sale of $2.0 billion
residential mortgage loans
Asset Quality
Recent strategic decisions to reduce exposures to wholesale assets impacted
certain credit quality statistics for the quarter. Annualized net charge-offs
were 2.75% of average loans for the fourth quarter, compared to .23% in the
third quarter of 2006 and .21% a year ago. In dollars, net charge-offs were
$436.0 million in the fourth quarter versus $35.3 million in the third quarter
and $23.2 million a year ago. Included in net charge-offs during the quarter
were the credit charges related to $4.5 billion of correspondent home equity
loans and $2.9 billion of residential mortgage loans, in the amount of $382.5
million and $7.1 million, respectively. Excluding these special charges, net
charge-offs were .29% of average loans. Also included during the fourth quarter
were $13.0 million of charge-offs related to the correspondent home equity
portfolio prior to its held-for-sale designation and a $14.0 million charge-off
related to one commercial credit, which in total impacted the fourth quarter net
charge-off rate by 17 basis points.
Non-performing loans to total loans held for investment decreased two basis
points from third quarter levels to .35%. Non-performing loans decreased by
$38.9 million from last quarter to $193.9 million. The allowance for credit
losses to non-performing loans was 251% at December 31, 2006, as compared to
240% at September 30, 2006 and 231% at December 31, 2005.
Sovereign's provision for credit losses was $366 million this quarter,
compared to $45.0 million in the third quarter of 2006 and $26.0 million in the
fourth quarter of 2005. As discussed earlier, the provision for credit losses
was higher during the recent quarter by $296 million due to special charges
related to the pending sale of the correspondent home equity portfolio.
Capital
Sovereign's capital ratios at December 31, 2006 reflect the charges related
to the balance sheet restructuring and expense reduction initiative; however,
the reduction in Sovereign's total assets will not be reflected until the loan
sales settle in the first quarter of 2007. Sovereign's Tier 1 leverage ratio was
5.73% at December 31, 2006. Tangible equity to tangible assets, which includes
preferred stock, was 3.78% excluding other comprehensive income ("OCI") and was
3.73% including OCI. Tangible common equity to tangible assets, excluding other
comprehensive income ("OCI") was 3.55% and including OCI was 3.50%. The equity
to assets ratio was 9.65% at December 31, 2006. Sovereign Bank's Tier 1 leverage
ratio was 6.21% and the Bank's total risk-based capital ratio was 10.08% at
December 31, 2006.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), the parent company of
Sovereign Bank, is a $90 billion financial institution with nearly 800 community
banking offices, over 2,000 ATMs 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 17th 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 Fourth Quarter 2006 earnings call on
Thursday, January 18 beginning at 8:00 a.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=1454100. International parties are invited to dial
into the conference call at 706-679-7706. The webcast and replay can be accessed
anytime from 8:00 a.m. ET on Thursday, January 18, 2007 through 12:00 a.m. ET on
April 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, January 18, 2007
through 12:00 a.m. ET (midnight) on Monday, January 29, 2007 by dialing
1-800-642-1687, confirmation id #5934673.
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 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 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
-----------------------------------------------------------
(dollars in millions, except Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
per share data) 2006 2006 2006 2006 2005
- ----------------------------------- --------- --------- --------- --------- ---------
Operating Data
Net income (loss) $ (129.4) $ 184.0 $ (59.1) $ 141.4 $ 165.5
Net income (loss) for EPS
purposes (133.1) 188.5 (61.5) 147.7 171.8
Operating earnings for EPS
purposes (1) 166.6 207.0 163.2 155.2 175.6
Net interest income 487.0 491.8 438.8 404.0 403.2
Provision for credit losses (6) 366.0 45.0 44.5 29.0 26.0
Total fees and other income
before securities transactions
(7) 149.4 171.9 142.0 134.3 159.9
Net gain (loss) on investment
securities (8) (36.1) 29.2 (305.0) 0.0 (1.3)
G&A expense 354.9 351.8 303.3 280.0 281.8
Other expenses (9) 134.5 75.3 58.9 44.8 40.0
Performance Statistics
Bancorp
Net interest margin 2.60% 2.64% 2.86% 3.00% 3.01%
Return on average assets -0.57% 0.81% -0.32% 0.90% 1.03%
Operating return on average
assets (1) 0.73% 0.91% 0.89% 0.98% 1.10%
Return on average equity -5.82% 8.47% -3.54% 9.72% 11.49%
Operating return on average
equity (1) 7.49% 9.52% 9.77% 10.68% 12.20%
Return on average tangible equity -15.54% 23.72% -8.16% 19.29% 23.67%
Operating return on average
tangible equity (1) 20.00% 26.68% 22.54% 21.18% 25.12%
Annualized net loan charge-offs
to average loans (10) 2.75% 0.23% 0.23% 0.26% 0.21%
G & A expense to average assets 1.56% 1.55% 1.66% 1.77% 1.76%
Efficiency ratio (3) 55.77% 53.01% 52.22% 52.01% 50.04%
Per Share Data
Basic earnings (loss) per share
(2) $ (0.28) $ 0.39 $ (0.15) $ 0.38 $ 0.44
Diluted earnings (loss) per share
(2) (0.28) 0.37 (0.15) 0.36 0.42
Operating earnings per share (1)
(2) 0.33 0.41 0.37 0.38 0.43
Dividend declared per share 0.080 0.080 0.080 0.060 0.060
Common book value (4) 17.83 18.07 17.50 16.42 16.21
Common stock price:
High $ 25.90 $ 21.60 $ 21.76 $ 21.53 $ 22.37
Low 21.27 20.07 20.19 19.57 19.65
Close 25.39 21.51 20.31 20.87 20.59
Weighted average common shares:
(2)
Basic 473.4 472.4 412.0 376.9 375.6
Diluted (5) 473.4 506.1 412.0 410.4 409.6
End-of-period common shares:
Basic 473.8 472.6 471.8 359.3 358.4
Diluted 508.7 506.5 505.5 391.1 390.5
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) 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) Common book value equals common stockholders' equity at period-end divided
by common shares outstanding.
(5) Diluted and basic average common shares outstanding are the same for the
fourth and second quarters of 2006 due to the net loss reported for the period.
(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.
(7) 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.
(8) The fourth quarter of 2006 includes a loss of $43 million associated with
the sale of $1.5 billion of CMO investments.
(9) The fourth quarter of 2006 includes $78.7 million of severance and
restructuring charges.
(10) 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.
Year to Date
------------------------
(dollars in millions, except Dec. 31 Dec. 31
per share data) 2006 2005
- ---------------------------------------- ---------- ----------
Operating Data
Net income (loss) $ 136.9 $ 676.2
Net income (loss) for EPS purposes 129.0 701.6
Operating earnings for EPS purposes
(1) 692.0 716.2
Net interest income 1,821.6 1,632.1
Provision for credit losses (6) 484.5 90.0
Total fees and other income before
securities transactions (7) 597.5 591.0
Net gain (loss) on investment
securities (8) (312.0) 11.7
G&A expense 1,290.0 1,089.2
Other expenses (9) 313.5 163.4
Performance Statistics
Bancorp
Net interest margin 2.75% 3.17%
Return on average assets 0.17% 1.11%
Operating return on average assets
(1) 0.87% 1.18%
Return on average equity 1.82% 11.92%
Operating return on average equity
(1) 9.20% 12.62%
Return on average tangible equity 4.46% 24.52%
Operating return on average tangible
equity (1) 22.55% 25.97%
Annualized net loan charge-offs to
average loans (10) 0.96% 0.20%
G & A expense to average assets 1.62% 1.79%
Efficiency ratio (3) 53.33% 49.00%
Per Share Data
Basic earnings (loss) per share (2) $ 0.30 $ 1.77
Diluted earnings (loss) per share
(2) 0.30 1.69
Operating earnings per share (1) (2) 1.48 1.72
Dividend declared per share 0.300 0.170
Common book value (4) 17.83 16.21
Common stock price:
High $ 25.90 $ 23.54
Low 19.57 19.17
Close 25.39 20.59
Weighted average common shares: (2)
Basic 433.9 381.8
Diluted (5) 433.9 416.0
End-of-period common shares:
Basic 473.8 358.4
Diluted 508.7 390.5
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) 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) Common book value equals common stockholders' equity at period-end divided
by common shares outstanding.
(5) Diluted and basic average common shares outstanding are the same for the
fourth and second quarters of 2006 due to the net loss reported for the period.
(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.
(7) 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.
(8) The fourth quarter of 2006 includes a loss of $43 million associated with
the sale of $1.5 billion of CMO investments.
(9) The fourth quarter of 2006 includes $78.7 million of severance and
restructuring charges.
(10) 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
-----------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
(dollars in millions) 2006 2006 2006 2006 2005
- ----------------------------------- --------- --------- --------- --------- ---------
Financial Condition Data:
General
Total assets $ 89,642 $ 90,410 $ 88,753 $ 65,060 $ 63,679
Loans held for investment 55,385 63,178 61,610 45,164 43,804
Total deposits and
customer related
accounts: 52,385 52,784 52,592 38,820 37,978
Core deposits and other
customer related
accounts 36,321 36,031 36,593 27,143 26,639
Time deposits 16,064 16,753 15,999 11,678 11,339
Borrowings 26,850 27,101 26,171 19,216 18,721
Minority interests 156 210 209 206 206
Stockholders' equity 8,644 8,734 8,451 5,900 5,811
Goodwill 5,005 4,990 4,930 2,715 2,717
Core deposit and other
intangibles 498 533 633 197 214
Asset Quality (1)
Non-performing assets $ 221.6 $ 273.1 $ 259.1 $ 200.5 $ 205.6
Non-performing loans $ 193.9 $ 232.8 $ 219.7 $ 183.5 $ 189.5
Non-performing assets to
total assets, excluding
LHS 0.27% 0.30% 0.29% 0.31% 0.32%
Non-performing loans to
loans held for
investment 0.35% 0.37% 0.36% 0.41% 0.43%
Allowance for credit
losses $ 486.3 $ 558.1 $ 551.4 $ 438.5 $ 437.8
Allowance for credit
losses to total loans
held for investment 0.88% 0.88% 0.90% 0.97% 1.00%
Allowance for credit
losses to non-performing
loans 251% 240% 251% 239% 231%
Capitalization - Bancorp
(2)
Stockholders' equity to
total assets 9.64% 9.66% 9.52% 9.07% 9.13%
Tier 1 leverage capital
ratio 5.73% 5.82% 5.69% 6.74% 6.68%
Tangible equity to
tangible assets,
excluding OCI 3.78% 3.89% 3.73% 5.16% 5.05%
Tangible common equity to
tangible assets,
excluding OCI 3.55% 3.66% 3.50% 5.16% 5.05%
Tangible equity to
tangible assets,
including OCI 3.73% 3.78% 3.49% 4.81% 4.73%
Tangible common equity to
tangible assets,
including OCI 3.50% 3.55% 3.25% 4.81% 4.73%
Capitalization - Bank (2)
Stockholders' equity to
total assets 11.75% 11.65% 9.70% 10.59% 10.61%
Tier 1 leverage capital
ratio 6.21% 6.21% 6.28% 6.97% 6.84%
Tier 1 risk-based capital
ratio 7.52% 7.67% 7.91% 8.52% 8.21%
Total risk-based capital
ratio 10.08% 10.34% 10.28% 10.97% 10.66%
(1) 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.
(2) 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)
Dec. 31 Sept. 30 June 30
(dollars in thousands) 2006 2006 2006
- ----------------------------------- -------------- -------------- --------------
Assets
Cash and amounts due
from depository institutions $ 1,804,117 $ 1,932,603 $ 1,714,042
Investments:
Available-for-sale 13,874,628 12,821,075 12,218,168
Held-to-maturity - - -
Other investments 1,003,012 1,020,723 933,507
Total investments 14,877,640 13,841,798 13,151,675
Loans:
Commercial 30,472,344 29,984,325 28,999,921
Consumer 24,913,085 33,193,395 32,610,190
Total loans held for
investment 55,385,429 63,177,720 61,610,111
Less allowance for loan losses (471,030) (544,482) (537,372)
Total loans held for
investment, net 54,914,399 62,633,238 61,072,739
Loans held for sale 7,203,167 - -
Premises and equipment, net 605,707 591,601 587,254
Accrued interest receivable 422,901 413,018 375,213
Goodwill 5,005,185 4,989,539 4,929,586
Core deposit and other intangibles 498,420 532,626 632,665
Bank owned life insurance 1,725,222 1,704,955 1,686,571
Other assets 2,585,091 3,770,681 4,603,322
Total assets $ 89,641,849 $ 90,410,059 $ 88,753,067
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer
related accounts:
Core and other customer related
accounts $ 36,320,674 $ 36,030,850 $ 36,593,254
Time deposits 16,063,880 16,752,764 15,999,234
Total 52,384,554 52,783,614 52,592,488
Borrowings and other debt
obligations 26,849,717 27,100,522 26,170,589
Other liabilities 1,606,794 1,582,174 1,329,383
Total liabilities 80,841,065 81,466,310 80,092,460
Minority interests 156,385 209,972 209,466
Stockholders' equity:
Preferred Stock 195,445 195,445 195,445
Common Stock 6,183,281 6,166,992 6,156,925
Warrants and stock options 343,391 338,867 337,637
Unallocated ESOP shares (19,019) (21,396) (21,396)
Treasury stock (49,028) (57,646) (65,984)
Accumulated other
comprehensive loss (24,746) (74,543) (193,186)
Retained earnings 2,015,075 2,186,058 2,041,700
Total stockholders' equity 8,644,399 8,733,777 8,451,141
Total liabilities and
stockholders' equity $ 89,641,849 $ 90,410,059 $ 88,753,067
Mar. 31 Dec. 31
(dollars in thousands) 2006 2005
- ---------------------------------------- -------------- --------------
Assets
Cash and amounts due from depository
institutions $ 997,447 $ 1,131,936
Investments:
Available-for-sale 7,063,492 7,258,402
Held-to-maturity 4,936,066 4,647,627
Other investments 670,353 651,299
Total investments 12,669,911 12,557,328
Loans:
Commercial 17,250,897 16,635,646
Consumer 27,913,516 27,168,201
Total loans held for investment 45,164,413 43,803,847
Less allowance for loan losses (421,860) (419,599)
Total loans held for investment, net 44,742,553 43,384,248
Loans held for sale - -
Premises and equipment, net 408,119 412,017
Accrued interest receivable 275,343 286,300
Goodwill 2,715,217 2,716,826
Core deposit and other intangibles 196,756 213,975
Bank owned life insurance 1,027,403 1,018,125
Other assets 2,027,191 1,957,971
Total assets $ 65,059,940 $ 63,678,726
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $ 27,142,655 $ 26,639,246
Time deposits 11,677,492 11,338,460
Total 38,820,147 37,977,706
Borrowings and other debt obligations 19,216,159 18,720,897
Other liabilities 917,661 963,764
Total liabilities 58,953,967 57,662,367
Minority interests 206,141 205,660
Stockholders' equity:
Preferred Stock - -
Common Stock 3,657,038 3,657,543
Warrants and stock options 335,717 337,346
Unallocated ESOP shares (21,396) (21,396)
Treasury stock (466,328) (478,734)
Accumulated other comprehensive loss (211,760) (170,798)
Retained earnings 2,606,561 2,486,738
Total stockholders' equity 5,899,832 5,810,699
Total liabilities and stockholders'
equity $ 65,059,940 $ 63,678,726
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
--------------------------------------------------------------------------
(dollars in thousands, Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
except per share data) 2006 2006 2006 2006 2005
- ------------------------- ------------ ------------ ------------ ------------ ------------
Interest and dividend
income:
Interest on
interest-earning
deposits $ 6,274 $ 5,408 $ 2,954 $ 2,116 $ 2,605
Interest on
investment
securities
Available for sale 192,084 201,766 116,653 90,095 91,163
Held to maturity 912 1,065 50,473 53,553 51,225
Other 19,508 13,287 13,016 5,603 4,971
Interest on loans 1,035,224 1,019,325 808,922 688,166 661,072
Total interest
and dividend
income 1,254,002 1,240,851 992,018 839,533 811,036
Interest expense:
Deposits and
related customer
accounts 421,472 412,858 306,030 231,837 201,449
Borrowings 345,498 336,206 247,217 203,738 206,344
Total interest
expense 766,970 749,064 553,247 435,575 407,793
Net interest
income 487,032 491,787 438,771 403,958 403,243
Provision for credit
losses (4) 365,961 45,000 44,500 29,000 26,000
Net interest
income after
provision for
credit losses 121,071 446,787 394,271 374,958 377,243
Non-interest income:
Consumer banking
fees 73,389 74,298 67,467 60,798 64,696
Commercial banking
fees 48,405 47,690 43,949 39,016 46,699
Mortgage banking
revenue (1) (7,606) 14,329 4,524 12,992 26,501
Capital markets
revenue 7,358 4,009 2,313 3,889 4,053
Bank owned life
insurance income 20,237 20,116 15,359 11,327 11,398
Other 7,586 11,409 8,363 6,319 6,538
Total fees and other
income before
security gains 149,369 171,851 141,975 134,341 159,885
Net gain/(loss)
on securities (5) (36,089) 29,154 (305,027) - (1,296)
Total non-
interest
income 113,280 201,005 (163,052) 134,341 158,589
Non-interest expense:
General and
administrative
Compensation and
benefits 176,851 182,607 149,467 143,778 137,452
Occupancy and
equipment 79,221 78,594 68,155 64,193 61,679
Technology
expense 25,680 25,128 23,114 21,566 22,562
Outside services 19,920 17,928 16,592 14,755 17,174
Marketing expense 15,731 14,552 14,548 10,222 15,103
Other administrative
expenses 37,496 33,009 31,417 25,465 27,828
Total general and
administrative 354,899 351,818 303,293 279,979 281,798
Other expenses:
Amortization of
intangibles 34,302 34,092 24,225 17,219 17,766
Other minority
interest expense and
equity method expense 10,974 12,850 17,033 16,034 16,406
Loss on economic
hedges - - 11,387 - -
Proxy and related
professional fees - - - 14,337 5,827
Restructuring and
other employee
severance charges 78,668 - - - -
Merger-related and
integration charges 10,558 28,403 6,257 (2,798) -
Total other
expenses 134,502 75,345 58,902 44,792 39,999
Total non-
interest
expense 489,401 427,163 362,195 324,771 321,797
Income/
(loss)
before
income taxes (255,050) 220,629 (130,976) 184,528 214,035
Income tax expense/
(benefit) (125,610) 36,620 (71,920) 43,130 48,540
Net income/
(loss) $ (129,440) $ 184,009 $ (59,056) $ 141,398 $ 165,495
(1) Mortgage banking
activity is
summarized below:
Gains on sale of
mortgage loans and
related securities,
multifamily loans,
and home equity loans
(2) (3) $ (7,838) $ 14,665 $ 3,136 $ 9,762 $ 22,708
Net gains/(loss)
recorded under SFAS
133 821 (423) (663) 1,090 (1,039)
Mortgage servicing
fees, net of mortgage
servicing rights
amortization 2,863 3,758 2,051 2,140 914
Mortgage servicing
right (impairments)
/recoveries (3,452) (3,671) - - 3,918
Total mortgage
banking revenues $ (7,606) $ 14,329 $ 4,524 $ 12,992 $ 26,501
(2) The results for the fourth quarter of 2005 includes a gain of $18.4 million
related to the sale of $898 million and $503 million of home equity loans.
(3) 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.
(4) 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.
(5) The fourth quarter of 2006 includes a loss of $43 million associated with
the sale of $1.5 billion of CMO investments.
Year to Date
--------------------------------
(dollars in thousands, Dec. 31 Dec. 31
except per share data) 2006 2005
- ---------------------------------------- -------------- --------------
Interest and dividend income:
Interest on interest-earning
deposits $ 16,752 $ 8,756
Interest on investment securities
Available for sale 600,598 359,692
Held to maturity 106,003 189,059
Other 51,414 18,058
Interest on loans 3,551,637 2,387,022
Total interest and dividend
income 4,326,404 2,962,587
Interest expense:
Deposits and related customer
accounts 1,372,197 624,590
Borrowings 1,132,659 705,908
Total interest expense 2,504,856 1,330,498
Net interest income 1,821,548 1,632,089
Provision for credit losses (4) 484,461 90,000
Net interest income after
provision for credit losses 1,337,087 1,542,089
Non-interest income:
Consumer banking fees 275,952 256,617
Commercial banking fees 179,060 149,274
Mortgage banking revenue (1) 24,239 88,117
Capital markets revenue 17,569 17,821
Bank owned life insurance income 67,039 47,285
Other 33,677 31,837
Total fees and other income before
security gains 597,536 590,951
Net gain/(loss) on securities (5) (311,962) 11,713
Total non-interest income 285,574 602,664
Non-interest expense:
General and administrative
Compensation and benefits 652,703 538,912
Occupancy and equipment 290,163 246,993
Technology expense 95,488 84,185
Outside services 69,195 60,989
Marketing expense 55,053 52,362
Other administrative expenses 127,387 105,763
Total general and
administrative 1,289,989 1,089,204
Other expenses:
Amortization of intangibles 109,838 73,821
Other minority interest expense and
equity method expense 56,891 67,055
Loss on economic hedges 11,387 -
Proxy and related professional fees 14,337 5,827
Restructuring and other employee
severance charges 78,668 3,982
Merger-related and integration
charges 42,420 12,744
Total other expenses 313,541 163,429
Total non-interest
expense 1,603,530 1,252,633
Income/ (loss) before income
taxes 19,131 892,120
Income tax expense/ (benefit) (117,780) 215,960
Net income/ (loss) $ 136,911 $ 676,160
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans and
related securities, multifamily
loans, and home equity loans (2) (3) $ 19,725 $ 78,730
Net gains/(loss) recorded under SFAS
133 825 645
Mortgage servicing fees, net of
mortgage servicing rights
amortization 10,812 2,798
Mortgage servicing right
(impairments)/recoveries (7,123) 5,944
Total mortgage banking revenues $ 24,239 $ 88,117
(2) The results for the fourth quarter of 2005 includes a gain of $18.4 million
related to the sale of $898 million and $503 million of home equity loans.
(3) 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.
(4) 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.
(5) 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
December 31, 2006
--------------------------------------------
Average
(dollars in thousands) Balance Interest (1) Yield/Rate
- ------------------------------------------ ------------- ------------- ------------
Earning assets:
Investment securities $ 15,546,680 $ 239,227 6.15%
Loans:
Commercial 24,196,553 437,496 7.18%
Multi-Family 6,103,412 97,708 6.39%
Consumer:
Residential mortgages 17,897,922 252,415 5.64%
Home equity loans and
lines of credit 10,145,548 166,656 6.53%
Total consumer loans
secured by real estate 28,043,470 419,071 5.96%
Auto Loans 4,628,603 74,578 6.39%
Other 427,026 9,375 8.71%
Total Consumer 33,099,099 503,024 6.06%
Total loans 63,399,064 1,038,228 6.52%
Allowance for loan losses (544,425)
Total earning assets 78,401,319 $ 1,277,455 6.49%
Other assets 11,743,219
Total assets $ 90,144,538
Funding liabilities:
Deposits and other
customer related accounts:
NOW accounts $ 6,807,893 $ 26,160 1.53%
NOW accounts -
government &
wholesale 3,977,652 51,616 5.15%
Customer repurchase
agreements 1,499,900 17,953 4.75%
Savings accounts 4,755,332 7,722 0.64%
Money market
accounts 12,688,091 122,362 3.83%
Core and other
customer related
accounts 29,728,868 225,813 3.01%
Time deposits 16,469,164 195,659 4.71%
Total 46,198,032 421,472 3.62%
Borrowings:
Wholesale borrowings 21,523,167 267,556 4.95%
Other borrowings 5,389,251 77,942 5.76%
Total borrowings 26,912,418 345,498 5.12%
Total funding
liabilities 73,110,450 766,970 4.17%
Non-interest bearing DDA 6,596,008
Other liabilities 1,621,142
Total liabilities 81,327,600
Stockholders' equity 8,816,938
Total liabilities and
stockholders'
equity $ 90,144,538
Net interest income $ 510,485
Interest rate spread 2.32%
Contribution from interest free funds 0.28%
Net interest margin 2.60%
(1) Tax equivalent basis
Quarter Ended
September 30, 2006
--------------------------------------------
Average
(dollars in thousands) Balance Interest (1) Yield/Rate
- ------------------------------------------ ------------- ------------- ------------
Earning assets:
Investment securities $ 15,886,584 $ 241,045 6.06%
Loans:
Commercial 23,034,009 419,552 7.24%
Multi-Family 6,184,739 95,298 6.16%
Consumer:
Residential mortgages 17,860,553 256,417 5.74%
Home equity loans and
lines of credit 10,519,717 173,914 6.59%
Total consumer loans
secured by real estate 28,380,270 430,331 6.05%
Auto Loans 4,394,903 66,220 5.98%
Other 451,333 10,296 9.05%
Total Consumer 33,226,506 506,847 6.08%
Total loans 62,445,254 1,021,697 6.52%
Allowance for loan losses (537,690)
Total earning assets 77,794,148 $ 1,262,742 6.47%
Other assets 12,160,105
Total assets $ 89,954,253
Funding liabilities:
Deposits and other
customer related accounts:
NOW accounts $ 6,526,816 $ 22,218 1.33%
NOW accounts -
government &
wholesale 4,328,149 58,034 5.32%
Customer repurchase
agreements 1,273,055 15,230 4.75%
Savings accounts 5,013,163 8,409 0.67%
Money market
accounts 13,067,468 121,062 3.68%
Core and other
customer related
accounts 30,208,651 224,953 2.95%
Time deposits 16,504,794 187,905 4.52%
Total 46,713,445 412,858 3.51%
Borrowings:
Wholesale borrowings 20,847,228 254,407 4.86%
Other borrowings 5,606,261 81,799 5.82%
Total borrowings 26,453,489 336,206 5.06%
Total funding
liabilities 73,166,934 749,064 4.07%
Non-interest bearing DDA 6,707,400
Other liabilities 1,458,009
Total liabilities 81,332,343
Stockholders' equity 8,621,910
Total liabilities and
stockholders'
equity $ 89,954,253
Net interest income $ 513,678
Interest rate spread 2.40%
Contribution from interest free funds 0.24%
Net interest margin 2.64%
(1) Tax equivalent basis
Quarter Ended
December 31, 2005
--------------------------------------------
Average
(dollars in thousands) Balance Interest (1) Yield/Rate
- ------------------------------------------ ------------- ------------- ------------
Earning assets:
Investment securities $ 12,700,310 $ 165,785 5.22%
Loans:
Commercial 16,515,988 277,924 6.68%
Multi-Family - - 0.00%
Consumer:
Residential mortgages 11,859,646 164,689 5.55%
Home equity loans and
lines of credit 10,176,307 148,285 5.80%
Total consumer loans
secured by real estate 22,035,953 312,974 5.67%
Auto Loans 4,454,501 62,528 5.57%
Other 490,069 9,395 7.61%
Total Consumer 26,980,523 384,897 5.69%
Total loans 43,496,511 662,821 6.06%
Allowance for loan losses (416,118)
Total earning assets 55,780,703 $ 828,606 5.92%
Other assets 7,707,153
Total assets $ 63,487,856
Funding liabilities:
Deposits and other
customer related accounts:
NOW accounts $ 5,176,007 $ 8,867 0.68%
NOW accounts -
government &
wholesale 4,278,169 44,518 4.13%
Customer repurchase
agreements 1,007,347 8,794 3.46%
Savings accounts 3,573,771 6,521 0.72%
Money market
accounts 8,112,584 39,444 1.93%
Core and other
customer related
accounts 22,147,878 108,144 1.94%
Time deposits 10,376,654 93,305 3.57%
Total 32,524,532 201,449 2.46%
Borrowings:
Wholesale borrowings 14,393,317 156,103 4.31%
Other borrowings 4,417,688 50,241 4.49%
Total borrowings 18,811,005 206,344 4.36%
Total funding
liabilities 51,335,537 407,793 3.15%
Non-interest bearing DDA 5,340,623
Other liabilities 1,098,993
Total liabilities 57,775,153
Stockholders' equity 5,712,703
Total liabilities and
stockholders'
equity $ 63,487,856
Net interest income $ 420,813
Interest rate spread 2.77%
Contribution from interest free funds 0.24%
Net interest margin 3.01%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
December 31, 2006
--------------------------------------------
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
- ------------------------------------------ ------------- ------------- ------------
Earning assets:
Investment securities $ 14,600,283 $ 850,163 5.82%
Loans:
Commercial 20,833,022 1,489,484 7.15%
Multi-Family 3,612,737 224,290 6.21%
Consumer:
Residential mortgages 15,770,676 888,546 5.63%
Home equity loans and lines of
credit 10,119,375 654,760 6.47%
Total consumer loans secured
by real estate 25,890,051 1,543,306 5.96%
Auto loans 4,457,932 266,806 5.98%
Other 452,029 37,201 8.23%
Total Consumer 30,800,012 1,847,313 6.00%
Total loans 55,245,771 3,561,087 6.45%
Allowance for loan losses (489,775)
Total earning assets 69,356,279 $ 4,411,250 6.36%
Other assets 10,139,116
Total assets $ 79,495,395
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $ 5,990,180 $ 70,303 1.17%
NOW accounts - government &
wholesale 4,293,111 215,557 5.02%
Customer repurchase agreements 1,229,845 55,158 4.48%
Savings accounts 4,286,355 29,660 0.69%
Money market accounts 10,904,581 362,969 3.33%
Core and other customer related
accounts 26,704,072 733,647 2.75%
Time deposits 14,461,441 638,550 4.42%
Total 41,165,513 1,372,197 3.33%
Borrowings:
Wholesale borrowings 18,322,761 854,241 4.66%
Other borrowings 5,054,931 278,418 5.51%
Total borrowings 23,377,692 1,132,659 4.85%
Total funding liabilities 64,543,205 2,504,856 3.88%
Non-interest bearing DDA 6,020,184
Other liabilities 1,412,368
Total liabilities 71,975,757
Stockholders' equity 7,519,638
Total liabilities and
stockholders' equity $ 79,495,395
Net interest income $ 1,906,394
Interest rate spread 2.48%
Contribution from interest free funds 0.27%
Net interest margin 2.75%
Year to Date
December 31, 2005
--------------------------------------------
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
- ------------------------------------------ ------------- ------------- ------------
Earning assets:
Investment securities $ 12,246,225 $ 626,822 5.12%
Loans:
Commercial 15,904,425 983,461 6.18%
Multi-Family - - 0.00%
Consumer:
Residential mortgages 10,588,935 568,831 5.37%
Home equity loans and lines of
credit 10,157,824 567,548 5.59%
Total consumer loans secured by real
estate 20,746,759 1,136,379 5.48%
Auto loans 4,356,121 233,283 5.36%
Other 535,616 40,468 7.56%
Total Consumer 25,638,496 1,410,130 5.50%
Total loans 41,542,921 2,393,591 5.76%
Allowance for loan losses (420,879)
Total earning assets 53,368,267 $ 3,020,413 5.66%
Other assets 7,363,707
Total assets $ 60,731,974
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $ 5,296,828 $ 33,232 0.63%
NOW accounts - government
& wholesale 3,435,963 120,045 3.49%
Customer repurchase agreements 887,614 24,230 2.73%
Savings accounts 3,779,333 25,347 0.67%
Money market accounts 8,244,406 131,354 1.59%
Core and other customer related
accounts 21,644,144 334,208 1.54%
Time deposits 9,581,336 290,382 3.03%
Total 31,225,480 624,590 2.00%
Borrowings:
Wholesale borrowings 13,459,346 539,990 4.01%
Other borrowings 4,247,821 165,918 3.91%
Total borrowings 17,707,167 705,908 3.99%
Total funding liabilities 48,932,647 1,330,498 2.72%
Non-interest bearing DDA 5,294,135
Other liabilities 831,296
Total liabilities 55,058,078
Stockholders' equity 5,673,896
Total liabilities and
stockholders' equity $ 60,731,974
Net interest income $ 1,689,915
Interest rate spread 2.94%
Contribution from interest free funds 0.23%
Net interest margin 3.17%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
(dollars in thousands) 2006 2006 2006 2006 2005
- ----------------------------------- ----------- ----------- ----------- ----------- -----------
Non-accrual loans:
Consumer:
Residential mortgages $ 33,682 $ 35,365 $ 34,812 $ 31,874 $ 30,393
Home equity loans and lines
of credit 10,312 62,002 63,632 61,078 55,543
Auto loans 191 327 388 363 476
Other consumer loans 2,764 1,384 2,524 1,920 1,913
Total consumer loans 46,949 99,078 101,356 95,235 88,325
Commercial real estate 77,196 64,138 48,494 31,531 31,800
Commercial and industrial
and other 69,207 68,995 69,264 56,035 68,572
Total non-accrual loans 193,352 232,211 219,114 182,801 188,697
Restructured loans 557 570 576 692 777
Total non-performing
loans (1) 193,909 232,781 219,690 183,493 189,474
Real estate owned, net 22,562 34,775 35,899 13,622 11,411
Other repossessed assets 5,126 5,500 3,487 3,352 4,678
Total non-performing
assets 221,597 273,056 259,076 200,467 205,563
Non-performing loans as a
percentage of loans held for
investment 0.35% 0.37% 0.36% 0.41% 0.43%
Non-performing assets as a
percentage of total assets,
excluding loans held for
sale 0.27% 0.30% 0.29% 0.31% 0.32%
Non-performing assets as a
percentage of total loans
held for investment, real
estate owned and repossessed
assets 0.40% 0.43% 0.42% 0.44% 0.47%
Allowance for credit losses
as a percentage of non-
performing loans 251% 240% 251% 239% 231%
NET LOAN CHARGE-OFFS
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
Quarters ended (in thousands) 2006 2006 2006 2006 2005
- ----------------------------------- ----------- ----------- ----------- ----------- -----------
Commercial real estate $ (282) $ 1,188 $ 3,938 $ (744) $ 564
Commercial and
industrial and other 18,651 6,402 4,718 8,948 4,877
Total Commercial 18,369 7,590 8,656 8,204 5,441
Residential mortgages 8,028 422 156 159 554
Home equity loans
and lines of credit 399,609 19,909 15,032 10,654 6,998
Total consumer loans
secured by real estate 407,637 20,331 15,188 10,813 7,552
Auto loans 9,574 7,271 5,678 7,995 9,137
Other consumer loans 453 135 (97) 1,286 1,079
Total Consumer 417,664 27,737 20,769 20,094 17,768
Total $ 436,033 $ 35,327 $ 29,425 $ 28,298 $ 23,209
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES
Quarters ended Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
(in thousands) 2006 2006 2006 2006 2005
- ----------------------------------- ----------- ----------- ----------- ----------- -----------
Provision for
loan losses 364,309 45,437 47,113 30,559 26,263
Provision/(recoveries)
for unfounded
commitments 1,652 (437) (2,613) (1,559) (263)
Total provision for
credit losses $ 365,961 $ 45,000 $ 44,500 $ 29,000 $ 26,000
Allowance for
loan losses 471,030 544,482 537,372 421,860 419,599
Reserve for unfounded
commitments 15,255 13,603 14,040 16,653 18,212
Total allowance
for credit
losses $ 486,285 $ 558,085 $ 551,412 $ 438,513 $ 437,811
(1) Non-performing loans 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 fourth quarter of 2006 includes a $14 million commercial loan
charge-off.
(3) 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.
(4) 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.
(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.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2006 2006 2006
- ------------------------------------ -------------- -------------- --------------
Demand deposit accounts $ 6,577,583 $ 6,687,150 $ 6,821,660
NOW accounts 7,052,861 6,917,455 6,628,680
NOW accounts - government
& wholesale 3,573,862 3,600,363 4,426,508
Customer repurchase
agreements 1,487,251 1,457,129 1,205,345
Savings accounts 4,637,346 4,919,190 5,189,459
Money market accounts 12,991,771 12,449,563 12,321,602
Time deposits 16,063,880 16,752,764 15,999,234
Total $ 52,384,554 $ 52,783,614 $ 52,592,488
LOAN COMPOSITION - End of period
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2006 2006 2006
- ------------------------------------ -------------- -------------- --------------
Commercial real estate $ 11,514,983 $ 11,401,902 $ 10,817,068
Commercial industrial loans 12,654,746 11,212,315 10,722,844
Multi-family 5,768,451 5,970,795 6,134,167
Other 534,164 1,399,313 1,325,842
Total commercial loans 30,472,344 29,984,325 28,999,921
Residential mortgages 17,404,730 17,817,283 17,236,025
Home equity loans
and lines of credit 9,443,560 10,506,607 10,515,700
Total consumer loans
secured by real estate 26,848,290 28,323,890 27,751,725
Auto loans 4,848,204 4,431,891 4,399,047
Other consumer loans 419,758 437,614 459,418
Total consumer loans 32,116,252 33,193,395 32,610,190
Total loans $ 62,588,596 $ 63,177,720 $ 61,610,111
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2006 2006 2006
- ------------------------------------ -------------- -------------- --------------
Demand deposit accounts $ 6,596,008 $ 6,707,400 $ 5,662,902
NOW accounts 6,807,893 6,526,816 5,538,431
NOW accounts - government
& wholesale 3,977,652 4,328,149 4,807,682
Customer repurchase
agreements 1,499,900 1,273,055 1,114,934
Savings accounts 4,755,332 5,013,163 3,956,176
Money market accounts 12,688,091 13,067,468 9,598,706
Time deposits 16,469,164 16,504,794 13,193,359
Total $ 52,794,040 $ 53,420,845 $ 43,872,190
LOAN COMPOSITION - Average
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2006 2006 2006
- ------------------------------------ -------------- -------------- --------------
Commercial real estate $ 11,421,431 $ 10,869,370 $ 8,358,231
Commercial industrial loans 11,347,975 10,805,007 9,564,869
Multi-family 6,103,412 6,184,739 1,992,727
Other 1,427,147 1,359,632 1,189,303
Total commercial loans 30,299,965 29,218,748 21,105,130
Residential mortgages 17,897,922 17,860,553 14,467,374
Home equity loans and
lines of credit 10,145,548 10,519,717 10,129,080
Total consumer loans
secured by real estate 28,043,470 28,380,270 24,596,454
Auto loans 4,628,603 4,394,903 4,396,659
Other consumer loans 427,026 451,333 453,383
Total consumer loans 33,099,099 33,226,506 29,446,496
Total loans $ 63,399,064 $ 62,445,254 $ 50,551,626
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Mar. 31 Dec. 31
Quarters ended (in thousands) 2006 2005
- -------------------------------------- -------------- --------------
Demand deposit accounts $ 5,165,140 $ 5,331,659
NOW accounts 5,210,717 5,280,872
NOW accounts- government & wholesale 3,899,288 3,564,003
Customer repurchase agreements 1,086,010 1,012,574
Savings accounts 3,397,183 3,460,292
Money market accounts 8,384,317 7,989,846
Time deposits 11,677,492 11,338,460
Total $ 38,820,147 $ 37,977,706
LOAN COMPOSITION - End of period
Mar. 31 Dec. 31
Quarters ended (in thousands) 2006 2005
- -------------------------------------- -------------- --------------
Commercial real estate $ 7,128,116 $ 7,209,180
Commercial industrial loans 8,994,845 8,354,768
Multi-family - -
Other 1,127,936 1,071,698
Total commercial loans 17,250,897 16,635,646
Residential mortgages 13,161,773 12,462,802
Home equity loans and lines
of credit 9,892,235 9,793,124
Total consumer loans secured by
real estate 23,054,008 22,255,926
Auto loans 4,400,980 4,434,021
Other consumer loans 458,528 478,254
Total consumer loans 27,913,516 27,168,201
Total loans $ 45,164,413 $ 43,803,847
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Mar. 31 Dec. 31
Quarters ended (in thousands) 2006 2005
- -------------------------------------- -------------- --------------
Demand deposit accounts $ 5,086,989 $ 5,340,623
NOW accounts 5,065,037 5,176,007
NOW accounts- government & wholesale 4,059,477 4,278,169
Customer repurchase agreements 1,025,807 1,007,347
Savings accounts 3,411,827 3,573,771
Money market accounts 8,190,873 8,112,584
Time deposits 11,597,261 10,376,654
Total $ 38,437,271 $ 37,865,155
LOAN COMPOSITION - Average
Mar. 31 Dec. 31
Quarters ended (in thousands) 2006 2005
- -------------------------------------- -------------- --------------
Commercial real estate $ 7,193,994 $ 7,203,433
Commercial industrial loans 8,603,198 8,273,795
Multi-family - -
Other 1,087,391 1,038,760
Total commercial loans 16,884,583 16,515,988
Residential mortgages 12,777,623 11,859,646
Home equity loans
and lines of credit 9,673,570 10,176,307
Total consumer loans secured by
real estate 22,451,193 22,035,953
Auto loans 4,409,850 4,454,501
Other consumer loans 476,946 490,069
Total consumer loans 27,337,989 26,980,523
Total loans $ 44,222,572 $ 43,496,511
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
----------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2006 2006 2006 2006 2005
------------ ------------ ------------ ------------ ------------
Net income (loss) as
reported $ (129,440) $ 184,009 $ (59,056) $ 141,398 $ 165,495
Dividends on preferred
stock (3,650) (1,825) (2,433) - -
Net income available to
common shareholders (133,090) 182,184 (61,489) 141,398 165,495
Contingently
convertible trust
preferred interest
expense, net of tax - 6,344 - 6,327 6,354
Net income (loss) for
EPS purposes $ (133,090) $ 188,528 $ (61,489) $ 147,725 $ 171,849
Non GAAP adjustments to
adjust antidilutive EPS
Net income available to
common shareholders $ (133,090) $ 182,184 $ (61,489) $ 141,398 $ 165,495
Trust IV expense, net
of tax 6,354 6,344 6,335 6,327 6,354
Antidilutive net
income/(loss) for
operating EPS
calculation $ (126,736) $ 188,528 $ (55,154) $ 147,725 $ 171,849
Reconciliation to
Operating earnings EPS
Net income (loss) for
Operating earnings EPS
purposes $ (126,736) $ 188,528 $ (55,154) $ 147,725 $ 171,849
Merger related and
integration costs 6,863 18,463 4,067 (1,819) -
Provision for loan
losses- Independence /
SFC 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 charges 14,954 - - - -
Loss on restructuring
and other employee
severance charges 51,134 - - - -
Impairment on FNMA and
FHLMC preferred stock - - 43,875 - -
Proxy and professional
fees - - - 9,319 3,788
Operating earnings for
EPS purposes $ 166,550 $ 206,991 $ 163,199 $ 155,225 $ 175,637
Weighted average
diluted shares for
GAAP EPS 473,404 506,135 412,000 410,366 409,581
Add back of diluted
shares for operating
EPS not factored into
GAAP diluted shares
due to antidilution (1) 34,583 - 33,599 - -
Adjusted weighted
average diluted shares
for Operating EPS 507,987 506,135 445,599 410,366 409,581
(1) Due to the GAAP net loss recorded in the fourth and second quarters of 2006,
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
quarters ended December 31, 2006 and 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.
Quarter Ended
Per share
---------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2006 2006 2006 2006 2005
------------ ------------ ------------ ------------ ------------
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 $ (0.28) $ 0.37 $ (0.15) $ 0.36 $ 0.42
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 $ (0.25) $ 0.37 $ (0.12) $ 0.36 $ 0.42
Merger related and integration costs 0.01 0.04 0.01 (0.00) -
Provision for loan losses-
Independence / SFC 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 charges 0.03 - - - -
Loss on restructuring and other
employee severance charges 0.10 - - - -
Impairment on FNMA and FHLMC
preferred stock - - 0.10 - -
Proxy and professional fees - - - 0.02 0.01
Operating earnings for EPS purposes $ 0.33 $ 0.41 $ 0.37 $ 0.38 $ 0.43
Weighted average diluted shares for
GAAP EPS
Add back of diluted shares for operating
EPS not factored into GAAP diluted
shares due to antidilution (1)
Adjusted weighted average diluted
shares for Operating EPS
(1) Due to the GAAP net loss recorded in the fourth and second quarters of 2006,
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
quarters ended December 31, 2006 and 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.
Year to Date
----------------------------------------------------------
Total dollars Per Share
---------------------------- ---------------------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net income (loss) as reported $ 136,911 $ 676,160
Dividends on preferred stock (7,908) -
Net income available to common
shareholders 129,003 676,160
Contingently convertible trust
preferred interest expense, net of
tax - 25,427
Net income (loss) for EPS purposes $ 129,003 $ 701,587 $ 0.30 $ 1.69
Non GAAP adjustments to adjust
antidilutive EPS
Net income available to common
shareholders $ 129,003 $ 676,160
Trust IV expense, net of tax 25,360 25,427
Antidilutive net income/(loss) for
operating EPS calculation $ 154,363 $ 701,587
Reconciliation to Operating earnings
EPS
Net income (loss) for Operating
earnings EPS purposes $ 154,363 $ 701,587 $ 0.33 $ 1.69
Merger related and integration costs 27,574 8,284 0.06 0.02
Provision for loan losses-
Independence / SFC 200,499 - 0.43 -
Loss on economic hedges 7,402 - 0.02 -
Loss on investment restructuring 182,845 - 0.39 -
Loss on mortgage banking loan sale
restructuring charges 14,954 - 0.03 -
Loss on restructuring and other
employee severance charges 51,134 2,589 0.11 0.01
Impairment on FNMA and FHLMC
preferred stock 43,875 - 0.10 -
Proxy and professional fees 9,319 3,788 0.02 0.01
Operating earnings for EPS purposes $ 691,965 $ 716,248 $ 1.48 $ 1.72
Weighted average diluted shares for
GAAP EPS 433,908 415,996
Add back of diluted shares for
operating EPS not factored into GAAP
diluted shares due to antidilution (1) 33,840 -
Adjusted weighted average diluted
shares for Operating EPS 467,748 415,996
(1) Due to the GAAP net loss recorded in the fourth and second quarters of 2006,
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
quarters ended December 31, 2006 and 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
----------------------------------------------------
Dec. 31 Sept. 30 June 30
2006 2006 2006
-------------- -------------- --------------
Average Equity $ 8,816,938 $ 8,621,910 $ 6,698,547
Average Goodwill (4,992,610) (4,932,536) (3,452,687)
Average CDI and other intangibles (519,891) (611,329) (342,279)
Average Tangible Equity 3,304,437 3,078,045 2,903,581
Operating Return on Average Equity 7.49% 9.52% 9.77%
Effect of Goodwill 11.32% 15.26% 11.62%
Effect of CDI and other intangibles 1.18% 1.89% 1.15%
Tangible Return on Average Equity 20.00% 26.68% 22.54%
Reconciliation of Equity to Tangible Equity and Operating Return on Average
Equity to Tangible Returns on Average Equity
Quarter Ended
---------------------------------
Mar. 31 Dec. 31
2006 2005
-------------- --------------
Average Equity $ 5,896,739 $ 5,712,703
Average Goodwill (2,716,324) (2,714,150)
Average CDI and other intangibles (207,908) (225,049)
Average Tangible Equity 2,972,507 2,773,504
Operating Return on Average Equity 10.68% 12.20%
Effect of Goodwill 9.76% 11.93%
Effect of CDI and other intangibles 0.75% 0.99%
Tangible Return on Average Equity 21.18% 25.12%
Reconciliation of Equity to Tangible Equity and Operating Return on Average
Equity to Tangible Returns on Average Equity
Year-to-Date
---------------------------------
Dec. 31 Dec. 31
2006 2005
-------------- --------------
Average Equity 7,519,638 5,673,896
Average Goodwill (4,029,857) (2,666,113)
Average CDI and other intangibles (421,730) (249,934)
Average Tangible Equity 3,068,051 2,757,849
Operating Return on Average Equity 9.20% 12.62%
Effect of Goodwill 12.09% 12.20%
Effect of CDI and other intangibles 1.26% 1.14%
Tangible Return on Average Equity 22.55% 25.97%
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 Liabilities
Investments $ 3,126.7 Deposits:
Loans: Core $ 6,960.8
Multifamily 5,571.2 Time 4,070.1
Commercial 5,313.3 Total deposits 11,030.9
Consumer 517.2 Borrowings and other
Residential debt obligations 5,488.8
mortgages 1,829.0 Other liabilities 586.8
Total loans 13,230.7
Less allowance Total liabilities $ 17,106.5
for loan losses (97.8)
Total loans, net 13,132.9
Cash paid, net
of cash acquired (2,713.2)
Bank owned
life insurance 343.3
Premises and
equipment, net 167.9
Other assets 371.9
Core deposit and
other intangibles 394.2
Goodwill 2,282.8
Total assets $ 17,106.5
SOURCE Sovereign Bancorp, Inc.
-0- 01/17/2007
/CONTACT: FINANCIAL CONTACTS: Mark McCollom, +1-610-208-6426,
mmccollo@sovereignbank.com, or Stacey Weikel, +1-610-208-6112,
sweikel@sovereignbank.com; MEDIA CONTACT: Ed Shultz, +1-610-378-6159,
eshultz1@sovereignbank.com, all of Sovereign Bancorp, Inc./
/Web site: http://www.sovereignbank.com /
(SOV)