Exhibit 99.1
SOVEREIGN BANCORP, INC. ANNOUNCES FIRST QUARTER 2007 EARNINGS
PHILADELPHIA, April 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported net income for the first quarter of 2007 of $48.1 million, or $.09 per
diluted share as compared to $141 million, or $.36 per diluted share, for the
first quarter of 2006. Net income in first quarter of 2007 included net charges
related to the previously announced expense reduction initiative and balance
sheet restructuring of $52.3 million after-tax or $.11 per share, as well as
merger related and other one-time charges which in the aggregate was less than
$.01 per share. In addition, a charge related to the correspondent home equity
held for sale portfolio was recorded of $76.4 million after-tax or $.15 per
share. Net income in the first quarter of 2006 included charges related to proxy
and related professional fees of $9.3 million after-tax, or $.02 per share.
For the quarter ended March 31, 2007, Sovereign's operating earnings for EPS
purposes were $180 million, or $.35 per diluted share, which excluded the
charges mentioned above, as compared to $155 million, or $.38 per diluted share
a year ago, which also excluded the above-mentioned charges. A reconciliation of
net income to operating earnings, as well as the related earnings per share
amounts, is included in a later section of this release.
Commenting on results for the first quarter of 2007, Joseph P. Campanelli,
Sovereign's President and CEO, stated, "We are on-track with respect to our
cost-cutting goals, as our G&A expenses declined $25 million on a linked quarter
basis. We substantially completed our balance sheet restructuring during the
quarter, and despite the additional charges required, we are pleased to report
reductions in wholesale assets in excess of $6 billion, and reductions of
wholesale borrowings in excess of $9 billion. Credit quality remains within an
expected tolerance. Our core commercial and consumer loan growth was strong
during the quarter."
Net Interest Income and Margin
For the first quarter of 2007, Sovereign reported net interest income of
$488 million as compared to $404 million in the first quarter of 2006.
Sovereign's average loan balances, including acquisitions and loans
held-for-sale, increased by $17.0 billion over last year. Reflecting the loan
sales that settled during the first quarter of 2007, average loan balances
decreased about $2.2 billion on a linked quarter basis to $61.2 billion. The
period-end loan portfolio decreased by approximately $6.4 billion from fourth
quarter levels, reflecting the sale of approximately $2.5 billion of residential
mortgage loans, $1.3 billion of multi-family loans, and $3.3 billion of
correspondent home equity loans that settled during the first quarter as well as
planned runoff in residential mortgage loans. This decrease was partially offset
by strong auto loan growth and growth in commercial loans. Sovereign's average
core deposits, including acquisitions, increased $9.2 billion over last year and
decreased $267 million linked quarter to $36.1 billion, driven by reductions in
higher-cost categories.
Net interest margin was 2.70% for the first quarter of 2007 as compared to
2.60% in the fourth quarter of 2006 and 3.00% a year ago. The increase in net
interest margin reflects the partial effects of the balance sheet restructuring,
which settled throughout the first quarter of 2007, as well as additional loan
prepayment fees. The yield on interest earning assets expanded 15 basis points
during the quarter while total funding costs increased 6 basis points during the
same period.
Non-Interest Income
Total fees and other income before security gains totaled $45.9 million for
the first quarter of 2007 compared to $134 million a year ago and $149 million
last quarter. Included in first quarter fee income was the aforementioned charge
of $120 million related to the correspondent home equity portfolio due primarily
to widening of credit spreads. Consumer and commercial banking fees increased
18% from a year ago, primarily a result of the Independence acquisition, and
were down 3.6% from the fourth quarter of 2006. Fee revenues on a linked quarter
basis were impacted by seasonal factors typically present in the consumer
banking fees the first quarter of each year.
Mortgage banking revenues for the quarter were a loss of $107 million,
compared to a loss of $7.6 million last quarter and gains of $13.0 million in
the same quarter a year ago. Included in mortgage banking revenues for the
quarter was an additional charge of $120 million related to the sale of
correspondent home equity loans, which included the establishment of a reserve
for any potential loan repurchases that may result from certain obligations
under the sales agreement as well as the lower of cost or market adjustment for
the loans that were not sold. Also included in mortgage banking revenues was a
$6.1 million net gain related to the sale of approximately $1.3 billion of
multi-family loans.
Non-Interest Expense
G&A expenses were $330 million for the first quarter of 2007, down $25
million or 7.0% from the fourth quarter of 2006 as a result of expense reduction
initiatives implemented late in the fourth quarter and during the first quarter
of 2007 and decreased marketing expenditures in the first quarter of 2007. G&A
expenses to average assets were 1.53% for the quarter, compared to 1.56% in the
fourth quarter of 2006 and 1.77% a year ago.
First Quarter Charges
Several charges are reflected in Sovereign's financial statements this
quarter. These charges relate to the previously announced cost cutting and
balance sheet restructuring program 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:
Pre-tax
Income Statement Line Item (Charge)/Benefit Explanation
- -------------------------- ---------------- ---------------------------
Balance Sheet Restructuring Gain/(Loss):
Mortgage Banking Revenue $ (120) million Charge related to
correspondent home
equity loans
$ 6.1 million Net gain on sale of $1.3
billion multi-family loans
Expense Reduction Initiative and Independence Acquisition Charges:
Other Expense $ (43.4) million Charges associated with the
freezing of the ESOP
$ (20.0) million Reduction in workforce and
other restructuring
$ (2.1) million Merger and integration
charges related to
Independence
Asset Quality
Annualized net charge-offs were .16% of average loans for the first quarter,
compared to .29% (excluding special charges) in the fourth quarter of 2006 and
..26% a year ago. In dollars, net charge-offs were $24.1 million this quarter
versus $46.4 million (excluding credit charges related to the correspondent home
equity portfolio and residential mortgage loans) in the prior quarter and $28.3
million a year ago.
Non-performing loans to total loans held for investment increased 4 basis
points from fourth quarter levels to .39%. Non-performing loans increased by
$23.7 million from last quarter to $218 million. The allowance for credit losses
to non-performing loans was 231% at March 31, 2007, as compared to 251% at
December 31, 2006 and 239% at March 31, 2006.
Sovereign's provision for credit losses was $46.0 million this quarter,
compared to $366 million in the fourth quarter of 2006 and $29.0 million in the
first quarter of 2006. The provision for credit losses in the prior quarter
included a $296 million lower of cost or market adjustment on the correspondent
home equity portfolio held-for-sale.
Sovereign has limited exposure to both sub-prime and Alt-A residential
mortgages. Sovereign's sub-prime mortgage exposure is approximately $320
million, or about 2% of residential mortgage loans outstanding. Sovereign's
Alt-A exposure is $2.6 billion, or 18% of residential mortgage loans
outstanding, down from about 25% at year-end due to the sale of residential
mortgage loans during the quarter. Delinquencies in the Alt-A mortgage portfolio
were 3.43% at March 31, 2007 as compared to 3.79% at year-end and 2.14% a year
ago.
Capital
Sovereign's Tier 1 leverage ratio was 6.25% at March 31, 2007, up from 5.73%
at year-end. Tangible equity to tangible assets, which includes preferred stock,
was 4.20%. Tangible common equity to tangible assets was 3.94%. The equity to
assets ratio was 10.57% at March 31, 2007. Sovereign Bank's Tier 1 leverage
ratio was 6.82% and the Bank's total risk-based capital ratio was 10.48% at
March 31, 2007.
On April 13, 2007, Moody's raised the ratings of Sovereign and its
affiliates one notch. Sovereign's senior unsecured rating was raised to A3 from
Baa1, the long-term deposits rating on Sovereign Bank was raised to A2 from A3
and the short-term deposits rating was raised to P-1 from P-2. Moody's noted
that the ratings reflect Sovereign's solid market shares in its direct banking
franchise in the New England and Mid-Atlantic states and a diversified loan
portfolio. Upward pressure on the rating would occur if Sovereign were to
demonstrate the successful integration of Independence resulting in an improved
franchise and profitability and restoring its capital ratios promptly.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company of
Sovereign Bank, a financial institution with $82 billion in assets as of March
31, 2007 with principal markets in the Northeast United States. Sovereign Bank
has nearly 785 community banking offices, over 2,300 ATMs and approximately
11,350 team members. Sovereign offers a broad array of financial services and
products including retail banking, business and corporate banking, cash
management, capital markets, wealth management and insurance. Sovereign is the
18th largest banking institution in the United States. For more information on
Sovereign Bank, visit http://www.sovereignbank.com or call 1-877-SOV-BANK.
Investors, analysts and other interested parties will have the opportunity
to listen to a live web-cast of Sovereign's First Quarter 2007 earnings call on
Thursday, April 19 beginning at 9:00 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=1511632 . International parties are invited to dial
into the conference call at 706-679-7706. The webcast and replay can be accessed
anytime from 9:00 a.m. ET on Thursday, April 19, 2007 through 12:00 a.m. ET on
July 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, April 19, 2007 through
12:00 a.m. ET (midnight) on Thursday, April 26 2007 by dialing 1-800-642-1687,
confirmation id #3572082.
Note:
This press release contains financial information determined by methods
other than in accordance with U.S. Generally Accepted Accounting Principles
("GAAP"). Sovereign's management uses the non-GAAP measure of Operating
Earnings, and the related per share amount, in their analysis of the company's
performance. This measure, as used by Sovereign, adjusts net income determined
in accordance with GAAP to exclude the effects of special items, including
significant gains or losses that are unusual in nature or are associated with
acquiring and integrating businesses. Operating earnings for 2006 and 2007 EPS
purposes represent net income adjusted for the after-tax effects of
merger-related and integration charges, certain restructuring charges,
other-than-temporary impairment charges on Fannie Mae and Freddie Mac preferred
equity securities and proxy and related professional fees. Since certain of
these items and their impact on Sovereign's performance are difficult to
predict, management believes presentations of financial measures excluding the
impact of these items provide useful supplemental information in evaluating the
operating results of Sovereign's core businesses. These disclosures should not
be viewed as a substitute for net income determined in accordance with GAAP, nor
are they necessarily comparable to non-GAAP performance measures that may be
presented by other companies.
This press release contains statements of Sovereign's strategies, plans, and
objectives, as well as estimates of financial condition, operating and cash
efficiencies and revenue generation. These statements and estimates constitute
forward-looking statements (within the meaning of the Private Securities
Litigation Reform Act of 1995), which involve significant risks and
uncertainties. Actual results may differ materially from the results discussed
in these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, general economic conditions, changes in
interest rates, deposit flows, loan demand, real estate values and competition;
changes in accounting principles, policies, or guidelines; changes in
legislation or regulation; Sovereign's ability in connection with any
acquisition to complete such acquisition and to successfully integrate assets,
liabilities, customers, systems and management personnel Sovereign acquires into
its operations and to realize expected cost savings and revenue enhancements
within expected time frame; the possibility that expected one time
merger-related charges are materially greater than forecasted or that final
purchase price allocations based on the fair value of acquired assets and
liabilities and related adjustments to yield and/or amortization of the acquired
assets and liabilities at any acquisition date are materially different from
those forecasted; other economic, competitive, governmental, regulatory, and
technological factors affecting the Company's operations, integrations, pricing,
products and services; and acts of God, including natural disasters.
Sovereign Bancorp is followed by several market analysts. Please note that
any opinions, estimates, forecasts, or predictions regarding Sovereign Bancorp's
performance or recommendations regarding Sovereign's securities made by these
analysts are theirs alone and do not represent opinions, estimates, forecasts,
predictions or recommendations of Sovereign Bancorp or its management. Sovereign
Bancorp does not by its reference to any analyst opinions, estimates, forecasts
regarding Sovereign's performance or recommendations regarding Sovereign's
securities imply Sovereign's endorsement of or concurrence with such
information, conclusions or recommendations.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
--------------------------------------------------------------
(dollars in millions, except per Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
share data) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Operating Data
Net income (loss) $ 48.1 $ (129.4) $ 184.0 $ (59.1) $ 141.4
Net income (loss) for EPS
purposes 44.4 (133.1) 188.5 (61.5) 147.7
Operating earnings for EPS
purposes (1) 179.6 166.6 207.0 163.2 155.2
Net interest income 487.9 487.0 491.8 438.8 404.0
Provision for credit losses (6) 46.0 366.0 45.0 44.5 29.0
Total fees and other income
before securities transactions (7) 45.9 149.4 171.9 142.0 134.3
Net gain (loss) on investment
securities (8) 1.0 (36.1) 29.2 (305.0) -
G&A expense 330.0 354.9 351.8 303.3 280.0
Other expenses (9) 116.8 134.5 75.3 58.9 44.8
Performance Statistics
Bancorp
Net interest margin 2.70% 2.60% 2.64% 2.86% 3.00%
Return on average assets 0.22% -0.57% 0.81% -0.32% 0.90%
Operating return on average
assets (1) 0.83% 0.73% 0.91% 0.89% 0.98%
Return on average equity 2.23% -5.82% 8.47% -3.54% 9.72%
Operating return on average
equity (1) 8.34% 7.49% 9.52% 9.77% 10.68%
Return on average tangible equity 6.01% -15.54% 23.72% -8.16% 19.29%
Operating return on average
tangible equity (1) 22.46% 20.00% 26.68% 22.54% 21.18%
Annualized net loan charge-offs
to average loans (10) 0.16% 2.75% 0.23% 0.23% 0.26%
G & A expense to average assets 1.53% 1.56% 1.55% 1.66% 1.77%
Efficiency ratio (3) 61.83% 55.77% 53.01% 52.22% 52.01%
Per Share Data
Basic earnings (loss) per
share (2) $ 0.09 $ (0.28) $ 0.39 $ (0.15) $ 0.38
Diluted earnings (loss) per
share (2) 0.09 (0.28) 0.37 (0.15) 0.36
Operating earnings per
share (1)(2) 0.35 0.33 0.41 0.37 0.38
Dividend declared per share 0.080 0.080 0.080 0.080 0.060
Common book value (4) 17.87 17.83 18.07 17.50 15.64
Common stock price:
High $ 26.42 $ 25.90 $ 21.60 $ 21.76 $ 21.53
Low 24.07 21.27 20.07 20.19 19.57
Close 25.44 25.39 21.51 20.31 20.87
Weighted average common shares:
Basic (2) 475.1 473.4 472.4 412.0 376.9
Diluted (2)(5) 475.1 473.4 506.1 412.0 410.4
End-of-period common shares:
Basic 475.7 473.8 472.6 471.8 359.3
Diluted 509.8 508.7 506.5 505.5 391.1
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) The conversion of warrants and equity awards and the after-tax add back of
Sovereign's contingently convertible trust preferred interest expense was
excluded from Sovereign's GAAP diluted earnings per share calculation for
the first quarter of 2007 and the second and fourth quarters of 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.
(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 first quarter of 2007 includes a lower of cost or market adjustment of
$119.9 million on correspondent home equity loans that were not sold as of
March 31, 2007. The fourth quarter of 2006 includes a net lower of cost or
market adjustment associated with the residential loan portfolio held for
sale of $28.2 million.
(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 first quarter of 2007 includes $43.4 million of ESOP expense related to
freezing of the plan and $20 million of charges related to employee
severance and charges associated with closing certain branch locations. The
fourth quarter of 2006 includes $78.7 million of severance and
restructuring charges.
(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
--------------------------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(dollars in millions) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Financial Condition Data:
General
Total assets $ 82,194 $ 89,642 $ 90,410 $ 88,753 $ 65,060
Loans (1) 56,125 62,589 63,178 61,610 45,164
Total deposits and customer
related accounts: 52,563 52,385 52,784 52,592 38,820
Core deposits and other
customer related
accounts 37,001 36,321 36,031 36,593 27,143
Time deposits 15,562 16,064 16,753 15,999 11,678
Borrowings 19,162 26,850 27,101 26,171 19,216
Minority interests 157 156 210 209 206
Stockholders' equity 8,695 8,644 8,734 8,451 5,900
Goodwill 5,006 5,005 4,990 4,930 2,715
Core deposit and other
intangibles 465 498 533 633 197
Asset Quality
Non-performing assets (2) $ 253.9 $ 221.6 $ 273.1 $ 259.1 $ 200.5
Non-performing loans (2) 217.6 193.9 232.8 219.7 183.5
Non-performing assets to
total assets (2)(3) 0.31% 0.27% 0.30% 0.29% 0.31%
Non-performing loans to
loans (2)(3) 0.39% 0.35% 0.37% 0.36% 0.41%
Allowance for credit losses $ 503.3 $ 486.3 $ 558.1 $ 551.4 $ 438.5
Allowance for credit losses
to total loans (3) 0.90% 0.88% 0.88% 0.90% 0.97%
Allowance for credit losses
to non-performing loans (2) 231% 251% 240% 251% 239%
Capitalization - Bancorp (4)
Stockholders' equity to
total assets 10.58% 9.64% 9.66% 9.52% 9.07%
Tier 1 leverage capital ratio 6.25% 5.73% 5.82% 5.69% 6.74%
Tangible equity to tangible
assets 4.20% 3.73% 3.78% 3.49% 4.81%
Tangible common equity to
tangible assets 3.94% 3.50% 3.55% 3.25% 4.81%
Capitalization - Bank (4)
Stockholders' equity to
total assets 12.79% 11.76% 11.65% 9.70% 10.59%
Tier 1 leverage capital ratio 6.82% 6.22% 6.21% 6.28% 6.97%
Tier 1 risk-based capital ratio 7.77% 7.52% 7.67% 7.91% 8.52%
Total risk-based capital
ratio 10.48% 10.07% 10.34% 10.28% 10.97%
(1) Loans at December 31, 2006 include $7.6 billion of loans held for sale.
(2) Non performing loans and assets at March 31, 2007 exclude $22.4 million of
correspondent home equity loans that were written down to fair value at
March 31, 2007 since they were previously classified as held for sale at
December 31, 2006. Sovereign has reclassified these loans back into our
loan portfolio as of March 31, 2007. Non- performing loans and assets at
December 31, 2006 exclude $21.5 million of residential non-accrual loans
and $66.0 million of home equity non- accrual loans that are classified as
held for sale.
(3) The calculation of these ratios at March 31, 2007 excludes approximately
$600 million of loans that have been marked down to fair value as of March
31, 2007. The calculation of these ratios at December 31, 2006 excludes
$7.6 billion of loans held for sale.
(4) All capital ratios are calculated based upon adjusted end of period assets
consistent with OTS guidelines. The current quarter ratios are estimated as
of the date of this earnings release.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
Mar. 31 Dec. 31 Sept. 30
(dollars in thousands) 2007 2006 2006
- ---------------------------------------- -------------- -------------- --------------
Assets
Cash and amounts due from
depository institutions $ 1,669,623 $ 1,804,117 $ 1,932,603
Investments:
Available-for-sale 13,640,209 13,874,628 12,821,075
Held-to-maturity - - -
Other investments 703,738 1,003,012 1,020,723
Total investments 14,343,947 14,877,640 13,841,798
Loans:
Commercial 29,852,212 30,472,343 29,984,325
Consumer 26,273,285 32,116,253 33,193,395
Total loans (1) 56,125,497 62,588,596 63,177,720
Less allowance for loan losses (487,286) (471,030) (544,482)
Total loans, net 55,638,211 62,117,566 62,633,238
Premises and equipment, net 588,695 605,707 591,601
Accrued interest receivable 363,013 422,901 413,018
Goodwill 5,006,290 5,005,185 4,989,539
Core deposit and other intangibles 465,421 498,420 532,626
Bank owned life insurance 1,745,145 1,725,222 1,704,955
Other assets 2,373,220 2,585,091 3,770,681
Total assets $ 82,193,565 $ 89,641,849 $ 90,410,059
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $ 37,001,193 $ 36,320,674 $ 36,030,850
Time deposits 15,561,764 16,063,880 16,752,764
Total 52,562,957 52,384,554 52,783,614
Borrowings and other debt
obligations 19,162,252 26,849,717 27,100,522
Other liabilities 1,616,574 1,606,794 1,582,174
Total liabilities 73,341,783 80,841,065 81,466,310
Minority interests 156,896 156,385 209,972
Stockholders' equity:
Preferred Stock 195,445 195,445 195,445
Common Stock 6,186,470 6,183,281 6,166,992
Warrants and stock options 344,979 343,391 338,867
Unallocated ESOP shares (19,019) (19,019) (21,396)
Treasury stock (22,257) (49,028) (57,646)
Accumulated other comprehensive loss (13,177) (24,746) (74,543)
Retained earnings 2,022,445 2,015,075 2,186,058
Total stockholders' equity 8,694,886 8,644,399 8,733,777
Total liabilities and
stockholders' equity $ 82,193,565 $ 89,641,849 $ 90,410,059
June 30 Mar. 31
(dollars in thousands) 2006 2006
- ---------------------------------------- -------------- --------------
Assets
Cash and amounts due from depository
institutions $ 1,714,042 $ 997,447
Investments:
Available-for-sale 12,218,168 7,063,492
Held-to-maturity - 4,936,066
Other investments 933,507 670,353
Total investments 13,151,675 12,669,911
Loans:
Commercial 28,999,921 17,250,897
Consumer 32,610,190 27,913,516
Total loans (1) 61,610,111 45,164,413
Less allowance for loan losses (537,372) (421,860)
Total loans, net 61,072,739 44,742,553
Premises and equipment, net 587,254 408,119
Accrued interest receivable 375,213 275,343
Goodwill 4,929,586 2,715,217
Core deposit and other intangibles 632,665 196,756
Bank owned life insurance 1,686,571 1,027,403
Other assets 4,603,322 2,027,191
Total assets $ 88,753,067 $ 65,059,940
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $ 36,593,254 $ 27,142,655
Time deposits 15,999,234 11,677,492
Total 52,592,488 38,820,147
Borrowings and other debt obligations 26,170,589 19,216,159
Other liabilities 1,329,383 917,661
Total liabilities 80,092,460 58,953,967
Minority interests 209,466 206,141
Stockholders' equity:
Preferred Stock 195,445 -
Common Stock 6,156,925 3,657,038
Warrants and stock options 337,637 335,717
Unallocated ESOP shares (21,396) (21,396)
Treasury stock (65,984) (466,328)
Accumulated other comprehensive loss (193,186) (211,760)
Retained earnings 2,041,700 2,606,561
Total stockholders' equity 8,451,141 5,899,832
Total liabilities and stockholders'
equity $ 88,753,067 $ 65,059,940
(1) Loans at December 31, 2006 include $7.6 billion of loans held for sale.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
--------------------------------------------------------------
(dollars in millions, except per Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
share data) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Interest and dividend
income:
Interest on interest-earning
deposits $ 6,236 $ 6,274 $ 5,408 $ 2,954 $ 2,116
Interest on investment
securities
Available for sale 189,835 192,996 202,831 116,653 90,095
Held to maturity - - - 50,473 53,553
Other 14,301 19,508 13,287 13,016 5,603
Interest on loans 1,016,967 1,035,224 1,019,325 808,922 688,166
Total interest and
dividend income 1,227,339 1,254,002 1,240,851 992,018 839,533
Interest expense:
Deposits and
related customer accounts 413,251 421,472 412,858 306,030 231,837
Borrowings 326,235 345,498 336,206 247,217 203,738
Total interest expense 739,486 766,970 749,064 553,247 435,575
Net interest income 487,853 487,032 491,787 438,771 403,958
Provision for credit losses (3) 46,000 365,961 45,000 44,500 29,000
Net interest income after
provision for credit
losses 441,853 121,071 446,787 394,271 374,958
Non-interest income:
Consumer banking fees 68,014 73,389 74,298 67,467 60,798
Commercial banking fees 49,408 48,405 47,690 43,949 39,016
Mortgage banking revenue (1) (107,205) (7,606) 14,329 4,524 12,992
Capital markets revenue 5,689 7,358 4,009 2,313 3,889
Bank owned life
insurance income 20,509 20,237 20,116 15,359 11,327
Other 9,467 7,586 11,409 8,363 6,319
Total fees and other income
before security gains 45,882 149,369 171,851 141,975 134,341
Net gain/(loss)
on securities (4) 970 (36,089) 29,154 (305,027) -
Total non-interest
income 46,852 113,280 201,005 (163,052) 134,341
Non-interest expense:
General and
administrative
Compensation and benefits 173,796 176,851 182,607 149,467 143,778
Occupancy and equipment 80,519 79,221 78,594 68,155 64,193
Technology expense 23,336 25,680 25,128 23,114 21,566
Outside services 15,278 19,920 17,928 16,592 14,755
Marketing expense 8,832 15,731 14,552 14,548 10,222
Other administrative expenses 28,235 37,496 33,009 31,417 25,465
Total general and
administrative 329,996 354,899 351,818 303,293 279,979
Other expenses:
Amortization of intangibles 33,253 34,302 34,092 24,225 17,219
Other minority interest
expense and equity
method expense 18,415 10,974 12,850 17,033 16,034
Loss on economic hedges - - - 11,387 -
Proxy and related
professional fees (391) - - - 14,337
Restructuring, other employee
severance and debt
repurchase charges 20,032 78,668 - - -
ESOP expense related
to freezing of plan 43,385 - - - -
Merger-related and
integration charges 2,076 10,558 28,403 6,257 (2,798)
Total other expenses 116,770 134,502 75,345 58,902 44,792
Total non-interest
expense 446,766 489,401 427,163 362,195 324,771
Income/(loss) before
income taxes 41,939 (255,050) 220,629 (130,976) 184,528
Income tax expense/(benefit) (6,120) (125,610) 36,620 (71,920) 43,130
Net income/(loss) $ 48,059 $ (129,440) $ 184,009 $ (59,056) $ 141,398
(1) Mortgage banking activity is
summarized below:
(Losses)/gains on sale of
mortgage loans and related
securities, multifamily loans,
and home equity loans (2) $ (107,064) $ (7,838) $ 14,665 $ 3,136 $ 9,762
Net gains/(loss)
recorded under SFAS 133 (388) 821 (423) (663) 1,090
Mortgage servicing fees, net of
mortgage servicing rights
amortization 247 2,863 3,758 2,051 2,140
Mortgage servicing
right impairments - (3,452) (3,671) - -
Total mortgage
banking revenues $ (107,205) $ (7,606) $ 14,329 $ 4,524 $ 12,992
(2) First quarter of 2007 results include a lower of cost or market adjustment
of $119.9 million on correspondent home equity loans that were not sold as
of March 31, 2007. Fourth quarter of 2006 includes a $28.2 million lower of
cost or market adjustment on the residential loans held for sale, as well
as a $5.2 million gain on sale of $455 million of multi-family loans.
(3) The fourth quarter of 2006 includes a lower of cost or market adjustment on
the correspondent home equity portfolio held for sale of $296 million as
well a $14 million commercial loan charge-off.
(4) The fourth quarter of 2006 includes a loss of $43 million associated with
the sale of $1.5 billion of CMO investments.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended March 31, 2007
------------------------------------------------
Average Yield/
(dollars in thousands) Balance Interest(1) Rate
- ---------------------------------------- -------------- -------------- --------------
Earning assets:
Investment securities $ 15,175,372 $ 230,601 6.09%
Loans:
Commercial 24,599,792 438,157 7.21%
Multi-Family 5,890,879 98,783 6.72%
Consumer:
Residential mortgages 15,592,954 223,023 5.72%
Home equity loans and
lines of credit 9,497,940 165,351 7.04%
Total consumer loans
secured by real estate 25,090,894 388,374 6.22%
Auto Loans 5,186,143 86,142 6.74%
Other 422,161 8,821 8.47%
Total Consumer 30,699,198 483,337 6.34%
Total loans 61,189,869 1,020,277 6.72%
Allowance for loan losses (474,518)
Total earning assets 75,890,723 $ 1,250,878 6.64%
Other assets 11,724,949
Total assets $ 87,615,672
Funding liabilities:
Deposits and other customer
related accounts:
NOW accounts $ 5,994,720 $ 16,439 1.11%
NOW accounts- government
& wholesale 4,876,155 61,329 5.10%
Customer repurchase
agreements 1,486,310 16,639 4.54%
Savings accounts 4,572,309 7,179 0.64%
Money market accounts 9,150,410 74,261 3.29%
Money market accounts-
wholesale 3,642,754 49,656 5.53%
Core and other customer
related accounts 29,722,658 225,503 3.08%
Time deposits 15,747,878 187,748 4.84%
Total deposits and other customer
related accounts 45,470,536 413,251 3.69%
Borrowings:
Wholesale borrowings 19,842,592 249,264 5.07%
Other borrowings 5,412,697 76,971 5.71%
Total borrowings 25,255,289 326,235 5.21%
Total funding liabilities 70,725,825 739,486 4.23%
Non-interest bearing DDA 6,335,301
Other liabilities 1,819,565
Total liabilities 78,880,691
Stockholders' equity 8,734,981
Total liabilities and
stockholders' equity $ 87,615,672
Net interest income $ 511,392
Interest rate spread 2.41%
Contribution from interest free funds 0.29%
Net interest margin 2.70%
Quarter Ended December 31, 2006
------------------------------------------------
Average Yield/
(dollars in thousands) Balance Interest(1) 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 $ 6,125,347 $ 17,703 1.15%
NOW accounts- government
& wholesale 4,660,198 60,073 5.11%
Customer repurchase
agreements 1,499,900 17,953 4.75%
Savings accounts 4,755,332 7,722 0.64%
Money market accounts 8,688,901 66,816 3.05%
Money market accounts-
wholesale 3,999,190 55,546 5.51%
Core and other customer related
accounts 29,728,868 225,813 3.01%
Time deposits 16,469,164 195,659 4.71%
Total deposits and other customer
related accounts 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%
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 $ 4,848,755 $ 6,737 0.56%
NOW accounts- government
& wholesale 4,275,759 47,772 4.53%
Customer repurchase agreements 1,025,807 9,898 3.91%
Savings accounts 3,411,827 6,388 0.76%
Money market accounts 7,542,671 40,567 2.18%
Money market accounts-
wholesale 648,202 7,501 4.69%
Core and other customer related
accounts 21,753,021 118,863 2.22%
Time deposits 11,597,261 112,974 3.95%
Total deposits and other customer
related accounts 33,350,282 231,837 2.82%
Borrowings:
Wholesale borrowings 14,164,905 149,718 4.27%
Other borrowings 4,415,349 54,020 4.91%
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
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(dollars in thousands) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Non-accrual loans:
Consumer:
Residential mortgages $ 38,396 $ 33,682 $ 35,365 $ 34,812 $ 31,874
Home equity loans and
lines of credit 12,131 10,312 62,002 63,632 61,078
Auto loans 416 191 327 388 363
Other consumer loans 1,504 2,764 1,384 2,524 1,920
Total consumer loans 52,447 46,949 99,078 101,356 95,235
Commercial real
estate 87,896 77,196 64,138 48,494 31,531
Commercial and
industrial and other 76,669 69,207 68,995 69,264 56,035
Total non-accrual loans 217,012 193,352 232,211 219,114 182,801
Restructured loans 552 557 570 576 692
Total non-performing
loans (1) 217,564 193,909 232,781 219,690 183,493
Real estate owned, net 29,655 22,562 34,775 35,899 13,622
Other repossessed assets 6,722 5,126 5,500 3,487 3,352
Total non-performing assets (1) $ 253,941 $ 221,597 $ 273,056 $ 259,076 $ 200,467
Non-performing loans as
a percentage of
loans (1)(2) 0.39% 0.35% 0.37% 0.36% 0.41%
Non-performing assets as
a percentage of total
assets (1)(2) 0.31% 0.27% 0.30% 0.29% 0.31%
Non-performing assets as
a percentage of total
loans, real estate
owned and repossessed
assets (1)(2) 0.45% 0.40% 0.43% 0.42% 0.44%
Allowance for credit
losses as a percentage
of non-performing loans (1) 231% 251% 240% 251% 239%
NET LOAN CHARGE-OFFS
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Commercial real estate $ 5,782 $ (282) $ 1,188 $ 3,938 $ (744)
Commercial and
industrial and other (3) 6,089 18,651 6,402 4,718 8,948
Total commercial 11,871 18,369 7,590 8,656 8,204
Residential mortgages (4) 564 8,028 422 156 159
Home equity loans and
lines of credit (5) 1,523 399,609 19,909 15,032 10,654
Total consumer loans secured
by real estate 2,087 407,637 20,331 15,188 10,813
Auto loans 10,115 9,574 7,271 5,678 7,995
Other consumer loans 17 453 135 (97) 1,286
Total consumer 12,219 417,664 27,737 20,769 20,094
Total loan charge-offs $ 24,090 $ 436,033 $ 35,327 $ 29,425 $ 28,298
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Provision for loan
losses (6) $ 45,239 $ 364,309 $ 45,437 $ 47,113 $ 30,559
Provision/(recoveries)
for unfunded commitments 761 1,652 (437) (2,613) (1,559)
Total provision for
credit losses $ 46,000 $ 365,961 $ 45,000 $ 44,500 $ 29,000
Allowance for loan
losses $ 487,286 $ 471,030 $ 544,482 $ 537,372 $ 421,860
Reserve for unfunded
commitments 16,016 15,255 13,603 14,040 16,653
Total allowance for
credit losses $ 503,302 $ 486,285 $ 558,085 $ 551,412 $ 438,513
(1) Non-performing loans and non-performing assets exclude $22.4 million of
non-accrual loans at March 31, 2007 related to $578 million of
correspondent home equity loans that had been previously classified as held
for sale. Credit losses related to these loans were considered in our lower
of cost or market adjustment at March 31, 2007. Non-performing loans and
non-performing assets at December 31, 2006 exclude $21.5 million of
residential non-accrual loans and $66.0 million of home equity non-accrual
loans that are classified as held for sale.
(2) The calculation of these ratios at March 31, 2007 excludes approximately
$600 million of loans that have been marked down to fair value as of March
31, 2007. The calculation of these ratios at December 31, 2006 excludes
$7.6 billion of loans held for sale.
(3) The fourth quarter of 2006 includes a $14 million commercial loan
charge-off.
(4) Fourth quarter of 2006 includes a $7 million charge-off related to the
lower of cost or market adjustment on the residential loans held for sale.
(5) The fourth quarter of 2006 includes $382.5 million of charge-offs related
to the lower of cost or market adjustment on the correspondent home equity
portfolio held for sale.
(6) The fourth quarter of 2006 includes a lower of cost or market adjustment on
the correspondent home equity portfolio held for sale of $296 million.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2007 2006 2006 2006 2006
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
Demand deposit accounts $ 6,420,046 $ 6,577,583 $ 6,687,150 $ 6,821,660 $ 5,165,140
NOW accounts 6,159,701 6,333,667 6,347,484 6,306,173 4,940,276
NOW accounts-government &
wholesale 5,856,899 4,293,056 4,170,334 4,749,015 4,169,729
Customer repurchase agreements 1,462,288 1,487,251 1,457,129 1,205,345 1,086,010
Savings accounts 4,558,367 4,637,346 4,919,190 5,189,459 3,397,183
Money market accounts 9,452,904 8,875,354 8,380,908 9,185,266 7,561,492
Money market accounts-
government & wholesale 3,090,988 4,116,417 4,068,655 3,136,336 822,825
Time deposits 15,561,764 16,063,880 16,752,764 15,999,234 11,677,492
Total deposits and other customer
related accounts $ 52,562,957 $ 52,384,554 $ 52,783,614 $ 52,592,488 $ 38,820,147
LOAN COMPOSITION - End of period
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2007 2006 2006 2006 2006
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
Commercial real estate $ 11,584,728 $ 11,514,983 $ 11,401,902 $ 10,817,068 $ 7,128,116
Commercial industrial loans 12,908,765 12,654,746 11,212,315 10,722,844 8,994,845
Multi-family 4,806,028 5,768,451 5,970,795 6,134,167 -
Other 552,691 534,164 1,399,313 1,325,842 1,127,936
Total commercial loans 29,852,212 30,472,344 29,984,325 28,999,921 17,250,897
Residential mortgages 14,403,371 17,404,730 17,817,283 17,236,025 13,161,773
Home equity loans and lines of
credit 5,932,136 9,443,560 10,506,607 10,515,700 9,892,235
Total consumer loans secured
by real estate 20,335,507 26,848,290 28,323,890 27,751,725 23,054,008
Auto loans 5,526,953 4,848,204 4,431,891 4,399,047 4,400,980
Other consumer loans 410,825 419,758 437,614 459,418 458,528
Total consumer loans 26,273,285 32,116,252 33,193,395 32,610,190 27,913,516
Total loans $ 56,125,497 $ 62,588,596 $ 63,177,720 $ 61,610,111 $ 45,164,413
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2007 2006 2006 2006 2006
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
Demand deposit accounts $ 6,335,301 $ 6,596,008 $ 6,707,400 $ 5,662,902 $ 5,086,989
NOW accounts 5,994,720 6,125,347 6,085,520 5,245,597 4,848,755
NOW accounts-government &
wholesale 4,876,155 4,660,198 4,769,445 5,100,516 4,275,759
Customer repurchase agreements 1,486,310 1,499,900 1,273,055 1,114,934 1,025,807
Savings accounts 4,572,309 4,755,332 5,013,163 3,956,176 3,411,827
Money market accounts 9,150,410 8,688,901 9,050,048 8,082,178 7,542,671
Money market accounts-
government & wholesale 3,642,754 3,999,190 4,017,420 1,516,528 648,202
Time deposits 15,747,878 16,469,164 16,504,794 13,193,359 11,597,261
Total deposits and other customer
related accounts $ 51,805,837 $ 52,794,040 $ 53,420,845 $ 43,872,190 $ 38,437,271
LOAN COMPOSITION - Average
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2007 2006 2006 2006 2006
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
Commercial real estate $ 11,513,005 $ 11,421,431 $ 10,869,370 $ 8,358,231 $ 7,193,994
Commercial industrial loans 11,566,055 11,347,975 10,805,007 9,564,869 8,603,198
Multi-family 5,890,879 6,103,412 6,184,739 1,992,727 -
Other 1,520,732 1,427,147 1,359,632 1,189,303 1,087,391
Total commercial loans 30,490,671 30,299,965 29,218,748 21,105,130 16,884,583
Residential mortgages 15,592,954 17,897,922 17,860,553 14,467,374 12,777,623
Home equity loans and lines of
credit 9,497,940 10,145,548 10,519,717 10,129,080 9,673,570
Total consumer loans secured
by real estate 25,090,894 28,043,470 28,380,270 24,596,454 22,451,193
Auto loans 5,186,143 4,628,603 4,394,903 4,396,659 4,409,850
Other consumer loans 422,161 427,026 451,333 453,383 476,946
Total consumer loans 30,699,198 33,099,099 33,226,506 29,446,496 27,337,989
Total loans $ 61,189,869 $ 63,399,064 $ 62,445,254 $ 50,551,626 $ 44,222,572
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.
Quarter Ended
Total dollars
(dollars in thousands, except --------------------------------------------------------------
per share data - all amounts Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
are after tax) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Net income/ (loss) as
reported $ 48,059 $ (129,440) $ 184,009 $ (59,056) $ 141,398
Dividends on preferred
stock (3,650) (3,650) (1,825) (2,433) -
Net income available to
common shareholders 44,409 (133,090) 182,184 (61,489) 141,398
Contingently convertible
trust preferred interest
expense, net of tax - - 6,344 - 6,327
Net income/ (loss) for
EPS purposes $ 44,409 $ (133,090) $ 188,528 $ (61,489) $ 147,725
Non GAAP adjustments to
adjust antidilutive EPS
Net income available to
common shareholders $ 44,409 $ (133,090) $ (61,489)
Trust IV expense, net of tax 6,412 6,354 6,335
Antidilutive net
income/ (loss) for
operating EPS calculation $ 50,821 $ (126,736) $ (55,154)
Reconciliation to
Operating earnings EPS
Net income/ (loss) for
Operating earnings
EPS purposes $ 50,821 $ (126,736) $ 188,528 $ (55,154) $ 147,725
Merger related and
integration costs 1,323 6,863 18,463 4,067 (1,819)
Provision for loan losses - 192,374 - 8,125 -
Loss on economic hedges - - - 7,402 -
Loss on investment
restructuring - 27,961 - 154,884 -
Loss on mortgage
banking loan sale
restructuring - 14,954 - - -
Loss on restructuring,
other employee
severance and debt
repurchase charges 12,771 51,134 - - -
ESOP expense related to
freezing of plan 43,385 - - - -
Hedge loss on sale of
multifamily loans (3,860) - - - -
Impairment on FNMA and
FHLMC preferred stock - - - 43,875 -
Gain on redemption of
FNMA and FHLMC
preferred stock (953) - - - -
Writedown on
correspondent home
equity loans 76,394 - - - -
Proxy and related
professional fees (249) - - - 9,319
Operating earnings for
EPS purposes $ 179,632 $ 166,550 $ 206,991 $ 163,199 $ 155,225
Weighted average
diluted shares for
GAAP EPS 475,115 473,404 506,135 412,000 410,366
Add back of diluted
shares for operating
EPS not factored into
GAAP diluted shares
due to antidilution (1) 34,353 34,583 - 33,599 -
Adjusted weighted
average diluted shares
for Operating EPS 509,468 507,987 506,135 445,599 410,366
(1) The conversion of warrants and equity awards and the after-tax add back of
Sovereign's contingently convertible trust preferred interest expense was
excluded from Sovereign's GAAP diluted earnings per share calculation for
the first quarter of 2007 and the second and fourth quarters of 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 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.
Quarter Ended
Per share
(dollars in thousands, except --------------------------------------------------------------
per share data - all amounts Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
are after tax) 2007 2006 2006 2006 2006
- ---------------------------------- ---------- ---------- ---------- ---------- ----------
Net income/ (loss)
as reported
Dividends on preferred
stock
Net income available to
common shareholders
Contingently convertible
trust preferred interest
expense, net of tax
Net income/ (loss) for
EPS purposes $ 0.09 $ (0.28) $ 0.37 $ (0.15) $ 0.36
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 $ 0.10 $ (0.25) $ 0.37 $ (0.12) $ 0.36
Merger related and
integration costs 0.00 0.01 0.04 0.01 (0.00)
Provision for loan losses - 0.38 - 0.02 -
Loss on economic hedges - - - 0.02 -
Loss on investment
restructuring - 0.06 - 0.34 -
Loss on mortgage banking
loan sale restructuring - 0.03 - - -
Loss on restructuring,
other employee severance
and debt repurchase
charges 0.02 0.10 - - -
ESOP expense related to
freezing of plan 0.09 - - - -
Hedge loss on sale of
multifamily loans (0.01) - - - -
Impairment on FNMA and
FHLMC preferred stock - - - 0.10 -
Gain on redemption of
FNMA and FHLMC
preferred stock (0.00) - - - -
Writedown on
correspondent home
equity loans 0.15 - - - -
Proxy and related
professional fees (0.00) - - - 0.02
Operating earnings for
EPS purposes $ 0.35 $ 0.33 $ 0.41 $ 0.37 $ 0.38
(1) The conversion of warrants and equity awards and the after-tax add back of
Sovereign's contingently convertible trust preferred interest expense was
excluded from Sovereign's GAAP diluted earnings per share calculation for
the first quarter of 2007 and the second and fourth quarters of 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
----------------------------------------------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(dollars in thousands) 2007 2006 2006 2006 2006
- ----------------------------------- -------------- -------------- -------------- -------------- --------------
Average Equity $ 8,734,981 $ 8,816,938 $ 8,621,910 $ 6,698,547 $ 5,896,739
Average Goodwill (5,005,119) (4,992,610) (4,932,536) (3,452,687) (2,716,324)
Average CDI and other intangibles (486,214) (519,891) (611,329) (342,279) (207,908)
Average Tangible Equity $ 3,243,648 $ 3,304,437 $ 3,078,045 $ 2,903,581 $ 2,972,507
Operating Return on Average Equity 8.34% 7.49% 9.52% 9.77% 10.68%
Effect of Goodwill 12.87% 11.32% 15.26% 11.62% 9.76%
Effect of CDI and other
intangibles 1.25% 1.18% 1.89% 1.15% 0.75%
Tangible Return on Average Equity 22.46% 20.00% 26.68% 22.54% 21.18%
SOURCE Sovereign Bancorp, Inc.
-0- 04/18/2007
/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 /