-- No impact to cash earnings, operating earnings or capital
-- Company expects to meet or exceed 2004 analyst mean estimates of $1.86
in implied cash earnings and $1.66 in operating earnings, showing
double digit growth over 2003
-- Goals for 2005 operating and cash earnings remain unchanged, with
company again expecting double digit growth
PHILADELPHIA, Jan. 5 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank, announced today
that it intends to record an other-than-temporary non-cash, non-operating
impairment charge of approximately $21 million after-tax, or $.06 per diluted
share, in the fourth quarter of 2004 related to certain Fannie Mae ("FNMA")
and Freddie Mac ("FHLMC") preferred stock. As a result of the recent events
at FNMA and FHLMC, Sovereign has decided to record this unrealized loss as an
other-than-temporary impairment in accordance with generally accepted
accounting principles (GAAP). Sovereign holds these investment grade, high
yielding, predominately fixed-rate securities as part of its available-for-
sale investment portfolio; therefore, the unrealized losses have already been
recorded as a reduction in other comprehensive income and no additional
charges to capital are required.
"We believe we are being conservative in recording this other-than-
temporary impairment," commented Sovereign's Chairman and CEO, Jay S. Sidhu.
"In addition, this should have no impact on Sovereign's current or future cash
or operating earnings. We remain comfortable with meeting or beating the
analyst mean estimate of $1.86 in implied cash earnings and $1.66 in operating
earnings for 2004."
James D. Hogan, Sovereign's Chief Financial Officer, commented, "There are
some very unusual circumstances surrounding these securities at this time.
Sovereign has held FNMA and FHLMC investment grade preferred stock in its
investment portfolio for several years and has never sold any of these
securities at a loss. Once regulators and the SEC have completed their review
of the accounting practices of FNMA and FHLMC and restated financial
information is available, we believe the market value of these securities will
improve. We are recording this charge because we believe this is a
conservative interpretation of current accounting literature, but does not
reflect the true long-term economic value of these instruments. This write-
down is being taken on $260 million of predominately fixed-rate securities
which have an effective yield of approximately 7.20% and are rated AA- and Aa3
by S&P and Moody's." In total, FNMA and FHLMC have issued in excess of $13
billion of preferred securities, which are widely held by financial
institutions and other investors across the country.
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company
of Sovereign Bank, pro forma a $60 billion financial institution with more
than 650 community banking offices, over 1,000 ATMs and approximately 9,500
team members in Connecticut, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania and Rhode Island. In addition to full-service
retail banking, Sovereign offers a broad array of financial services and
products including business and corporate banking, cash management, capital
markets, trust and wealth management and insurance. Pro forma for pending
acquisitions, 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.
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 measures of Operating
Earnings and Cash Earnings, and the related per share amounts, in their
analysis of the company's performance. These measures, as used by Sovereign,
adjust net income determined in accordance with GAAP to exclude the effects of
special items, including significant gains or losses that are unusual in
nature or are associated with acquiring and integrating businesses, and
certain non-cash charges. Guidance on 2004 operating earnings represents net
income adjusted for the after-tax effects of merger-related and integration
charges of $.12 per diluted share, the loss on early extinguishment of debt of
$.13 per diluted share, an other-than-temporary impairment to FNMA and FHLMC
securities held in available-for-sale investment portfolio of $.06 per diluted
share, and the anticipated impact of the adoption of EITF 04-08 in the fourth
quarter of 2004 of $.04 per diluted share. In addition, guidance on 2004 cash
earnings are operating earnings excluding the after-tax effect of amortization
of intangible assets of $.16 per diluted share and stock-based compensation
expense associated with stock options, restricted stock, bonus deferral plans
and ESOP awards of $.04 per diluted share. 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 future operating results for 2004 and
beyond for Sovereign Bancorp, Inc. as well as estimates of financial
condition, operating 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; and other economic, competitive,
governmental, regulatory, and technological factors affecting the Company's
operations, integrations, pricing, products and services.
SOURCE Sovereign Bancorp, Inc.
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Related links:
http://www.sovereignbank.com
CONTACT:
FINANCIAL: Jim Hogan, +1-610-320-8496, or
jhogan@sovereignbank.com, or Mark McCollom, +1-610-208-6426, or
mmccollo@sovereignbank.com, or Stacey Weikel, +1-610-208-6112, or
sweikel@sovereignbank.com; or MEDIA: Ed Shultz, +1-610-378-6159,
or eshultz1@sovereignbank.com, all of Sovereign Bancorp
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