Financial Highlights
-- GAAP net income including all non-recurring and special charges for
2004 was $454 million or $1.36 per share. GAAP net income for the
fourth quarter 2004 was $137 million or $.38 per share
-- Full year 2004 operating and cash earnings were $617 million, up 28%
from $482 million in 2003. Operating and cash earnings per share were
$1.88 in 2004 as compared to $1.66 in 2003, up 13%.
-- Operating and cash earnings for the fourth quarter of 2004 were $171
million, up 34% from $127 million in the same quarter a year ago.
Operating and cash earnings per share for the fourth quarter were $.49
per share, up 14% from $.43 per share in the fourth quarter of 2003.
-- Net interest margin expanded 12 basis points during the fourth quarter
principally due to higher yields on the loan portfolio.
-- Core bank margin expanded 16 basis points during the fourth quarter to
4.17%.
-- The bank reduced the investment portfolio by $2.6 billion, or 18%,
during the quarter, in addition to a $1.1 billion reduction during the
third quarter 2004.
-- Consumer and Commercial loans, excluding the impact of acquisitions,
increased 28% and 10%, respectively, from the fourth quarter of 2003.
-- Core deposits increased 19% from the fourth quarter of 2003.
Excluding acquisitions, core deposits increased 4% from the fourth
quarter of 2003.
-- Consumer Banking and Commercial Banking fee revenues were $68 million,
up 26%, and $33 million, up 14%, respectively, from the fourth quarter
of 2003.
-- The provision for loan losses was $27.0 million in this quarter. The
provision exceeded net charge-offs by $2.1 million.
-- Non-performing assets decreased to .29% of total assets at December
31, 2004, versus .30% at September 30, 2004. Non-performing assets
declined $8.7 million to $160 million.
-- Equity to assets ratio was 9.16% at December 31, 2004, compared to
7.49% at December 31, 2003. The Tier 1 leverage ratio was 7.05% at
December 31, 2004 versus 5.61% at December 31, 2003.
PHILADELPHIA, Jan. 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported fourth quarter 2004 net income of $137 million, or $.38 per diluted
share, as compared to $113 million, or $.38 per diluted share, for the fourth
quarter of 2003. Net income in the fourth quarter of 2004 included the
previously announced non-operating and non-cash charge of $20.9 million after-
tax, or $.06 per share, related to an other-than-temporary impairment charge
for certain Fannie Mae and Freddie Mac preferred stock.
Effective in the fourth quarter of 2004, Sovereign has redefined its
definition of operating and cash earnings and related per share amounts to
exclude most non-cash, non-operating charges; such as, the after-tax effect of
amortization of intangible assets, stock-based non-cash compensation expense
associated with stock options, restricted stock, bonus deferral plans and ESOP
awards, in addition to special items. The revised definitions of operating
and cash earnings and a reconciliation of these items to net income, as well
as the related per share amounts, are included in a later section of this
release. Since most of these items are difficult to predict and make the
results of normal operations less clear, management believes the presentation
of financial measures excluding the impact of these items provides useful
supplemental information in evaluating the operating results of Sovereign's
core businesses.
Excluding the above-mentioned charges, operating and cash earnings for the
fourth quarter of 2004 increased to $171 million, or $.49 per diluted share,
as compared to $127 million, or $.43 per diluted share, for the fourth quarter
of 2003.
For the year ended December 31, 2004, Sovereign reported net income in
accordance with generally accepted accounting principles of $454 million, or
$1.36 per diluted share, as compared to $402 million, or $1.38 per diluted
share for 2003. Net income and earnings per share in 2004 were negatively
impacted by non-recurring merger and integration charges related to the
acquisitions of First Essex Bancorp, Inc. ("First Essex") and Seacoast
Financial Services Corporation ("Seacoast"), incremental one time additional
loan loss provision related to the First Essex acquisition, a non-recurring
charge associated with the early redemption of high-cost debt, accounting
changes related to the adoption of EITF 04-08, and an other-than-temporary
impairment non-cash charge due to a write-down on certain Fannie Mae and
Freddie Mac preferred stock. Net income in 2003 included a charge on the
early extinguishment of Sovereign debt. Excluding these items and non-cash
charges, operating and cash earnings increased 28% to $617 million, up from
$482 million. Operating and cash earnings per diluted share were $1.88 in
2004, up 13% over $1.66 per diluted share, in 2003. A reconciliation of net
income and operating and cash earnings, as well as the related earnings per
share amounts, is included in a later section of this release.
Commenting on results for the full year 2004 and the fourth quarter of
2004, Jay S. Sidhu, Sovereign's Chairman and Chief Executive Officer, said,
"2004 proved to be another successful year for Sovereign as we met or exceeded
our goals for the year. We delivered 13% growth in our operating and cash
earnings per share. We improved the quality of our balance sheet by
significantly reducing the investment portfolio as a percentage of total
assets down to 21% and removing most of the high-cost debt incurred in the
Fleet branch acquisition. We experienced significant improvement in credit
quality with annual net charge-offs of 36 basis points, ahead of our stated
goal for annualized NCOs of 40 basis points or less during the second half of
2004. Our efficiency ratio improved approximately 100 basis points during the
year, consistent with our annual goal. Commercial and consumer banking fees
reached all-time highs. We successfully integrated our First Essex and
Seacoast acquisitions and are set to close our acquisition of Waypoint
Financial Corp this week." Sidhu continued, "For quite some time now we have
been saying rising rates are good for Sovereign. As a result of higher short-
term rates, the third quarter debt redemption and deleveraging of the
investment portfolio, we saw a 12 basis point expansion in our fourth quarter
net interest margin. Even better, we saw a 16 basis point expansion in our
core bank spread for the quarter."
Net Interest Income, Margin and Continued Reduction of Investment
Portfolio
Sovereign reported net interest income of $387 million for the fourth
quarter of 2004, an increase of $78.5 million, or 25%, compared to the fourth
quarter of 2003. On a linked-quarter basis, net interest income increased by
$24.1 million, or 6.6%, in spite of a $2.6 billion reduction in the investment
portfolio. As a result of higher short-term interest rates, commercial loan
yields increased by 35 basis points and consumer loan yields increased by 25
basis points during the quarter. Most of Sovereign's variable rate consumer
loans have repricing periods that lag rate changes by one quarter or more.
Deposit costs increased by only 8 basis points in the fourth quarter.
Net interest margin was 3.29% for the fourth quarter of 2004, compared to
3.17% in the third quarter of 2004 and 3.39% in the fourth quarter of 2003.
Sovereign reduced its investment portfolio by $2.6 billion during the
fourth quarter of 2004. This was in addition to a $1.1 billion reduction
during third quarter 2004. "We believe deleveraging the wholesale portion of
the balance sheet, even though we are sacrificing short-term earnings, is a
prudent action in the present environment," said Sidhu. "With this in mind,
we also encouraged Waypoint Bank to deleverage its balance sheet
significantly, focusing more on core earnings. We view the investment
portfolio, especially in a flatter yield curve environment, primarily as a
tool to manage interest rate and liquidity risk and hence are focusing much
more on commercial and consumer loan growth, higher fee income and deposit
growth while watching our expenses and risks," Sidhu continued.
Non-Interest Income
Sovereign's consumer and commercial banking fees continued to generate
record levels. Consumer banking fees increased by $14.0 million, or 26%,
compared to the same period in 2003. Commercial banking fees increased $4.1
million to $32.8 million, or 14%, over the same period a year ago, primarily
driven by growth in loan fees.
Mortgage banking revenues for the quarter were $4.7 million, compared to a
loss of $4.1 million last quarter and revenue of $15.7 million in the same
quarter a year ago. Due to changes in prepayment speeds and interest rates
during the quarter, a $1.7 million reversal of a valuation reserve for
mortgage servicing rights was recorded. This compares to a servicing rights
impairment charge of $9.4 million recorded in the third quarter of 2004 and an
impairment charge of $1.1 million in the fourth quarter of 2003. Mortgage
banking results are summarized in the financial tables attached to this
release. As of December 31, 2004, mortgage servicing rights, net of reserves
of $7.1 million, were $74.0 million and our servicing portfolio was $6.3
billion, with a capitalized cost of 117 basis points.
As discussed in a prior press release, Sovereign recorded an other-than-
temporary non-operating and non-cash charge of $20.9 million after-tax related
to certain Fannie Mae and Freddie Mac preferred stock in the fourth quarter of
2004. This was partially offset by gains on sales of investments of $7.4
million. This compares to net gains of $20.2 million recorded in the third
quarter of 2004 and $10.2 million in the fourth quarter of 2003.
Non-Interest Expense
G&A expenses for the quarter were $257 million, up 8.2% from $238 million
in the third quarter and up 18% from $218 million a year ago. Excluding
approximately $59 million of G&A expense related to the First Essex and
Seacoast acquisitions, G&A expenses for the year increased only 3.6% from 2003
levels. Commenting on fourth quarter non-interest expense, James D. Hogan,
Sovereign's Chief Financial Officer, noted, "We committed to improving our
efficiency ratio by 100 basis points in 2004 and have met that goal. Our
efficiency ratio for the full year 2004 was 50.3%, an improvement of
approximately 100 basis points. For the fourth quarter, our efficiency ratio
dropped to 50.1%. We hope to have the efficiency ratio in the high forties in
2005."
On an operating and cash basis, Sovereign's effective tax rate was 22.9%
in the fourth quarter and 24.6% for the full year.
Franchise Growth
Sovereign's total loan portfolio increased during the fourth quarter by
$1.4 billion to $36.6 billion reflecting an annualized growth rate of 16%.
Commercial and consumer loan demand remained strong in its market with
Sovereign continuing to take advantage of disruptions in its marketplace as a
result of bank mergers. The following table depicts Sovereign's loan
composition as of December 31, 2004 ($ in millions):
Loan Category Ending Balance 4Q04 4Q04 Yield 3Q04 Yield
% of Loans
Commercial $13,864 37.8% 5.26% 4.91%
Consumer 14,269 39.0 5.35% 5.10%
Residential mortgage 8,498 23.2 5.24% 5.21%
Total Loans $36,631 100% 5.29% 5.05%
Core deposits increased 4% over the fourth quarter of 2003, excluding
acquisitions. Core deposits were down slightly during the quarter at $25.4
billion, with new business being offset by run-off occurring principally in
high-rate money market deposits. Demand, NOW and savings deposit categories
showed net growth for the quarter at an annualized rate of 5%. Total deposits
decreased during the quarter to $32.6 billion, principally due to planned
decreases in higher cost deposits. Time deposits account for only 22% of
total deposits at December 31, 2004. The following table summarizes
Sovereign's deposit position as of December 31, 2004 ($ in millions):
Deposit Category Ending Balance 4Q04% of 4Q04 Cost 3Q04 Cost
Total Deposits
Demand deposits $5,087 15.6% 0.0% 0.0%
NOW accounts 7,839 24.1 1.08 .91
Customer repurchase
agreements 838 2.6 1.42 .96
Savings 3,807 11.7 .60 .55
Money market 7,870 24.2 1.21 1.16
Total Core 25,441 78.2 0.85% 0.76%
Time Deposits 7,114 21.8 2.08 2.04
Total Deposits $32,555 100% 1.12% 1.04%
Core Bank Spread
Average loan yields increased to 5.29% during fourth quarter from 5.05% in
the third quarter, while deposit costs only increased 8 basis points to 1.12%.
Hence, core bank margin (loan yield less deposit cost) expanded by 16 basis
points during the fourth quarter to 4.17%.
Asset Quality
Sovereign's credit quality continued to improve in the fourth quarter of
2004. Non-performing assets ("NPAs") declined $8.7 million during the quarter
to $160 million at December 31, 2004. NPAs to total assets decreased to .29%
during the fourth quarter of 2004, compared to .30% at September 30, 2004.
Sovereign's provision for loan losses was $27.0 million this quarter compared
to $25.0 million in the third quarter and $40.0 million in the fourth quarter
of 2003. The allowance for loan losses to total loans decreased slightly to
1.12% at December 31, 2004, as compared to 1.15% at September 30, 2004 and
1.25% at December 31, 2003. The allowance for loan losses to non-performing
loans now stands at 285%, as compared to 276% at September 30, 2004 and 164%
at December 31, 2003.
Strong Capital Growth
Capital expanded to the highest level in recent history. Sovereign's Tier
1 leverage ratio was 7.05% at December 31, 2004. Tangible common equity to
tangible assets, excluding other comprehensive income ("OCI"), was 5.25% and
including OCI was 5.00%. The equity to assets ratio was 9.16% at December 31,
2004. Sovereign Bank's Tier 1 leverage ratio was 7.21% and the bank's risk-
based capital ratio was 11.55% at December 31, 2004. "Our year-end 2005 Tier
1 Leverage goal remains at 6.50% to 7.00%, after giving effect to our
acquisition of Waypoint and any share buy-backs," commented Hogan.
Non-Operating Accounting Changes for 2004
Effective in the fourth quarter 2004, Sovereign adopted EITF 04-8, which
eliminates certain accounting benefits of convertible securities with
contingent conversion features by requiring such instruments to be accounted
for under the if-converted method for diluted earnings per share purposes
only. Issuers whose contingent convertible debt can be settled in stock are
required to increase the number of shares used in diluted earnings per share
calculations by the total number of shares underlying the contingent
convertible debt, regardless of conversion price. As a result of this
adoption, prior period GAAP earnings per share have been restated resulting in
a downward restatement of full year 2004 diluted GAAP earnings per share. The
reconciliation of net income and operating and cash earnings per share amounts
is included in a later section of this release.
Looking Ahead
"As we begin 2005, we look forward to welcoming Waypoint's customers,
shareholders, and team members to Sovereign and striving to achieve the goals
we set out in 2000 for at least $2.00 in operating and cash earnings by 2005,"
Sidhu commented. "We are comfortable with the analysts' mean estimate for
2005 of $1.90 per share, which implies $2.07 in operating and cash earnings
per share. Management's goal is to strive for about $2.10 or higher in
operating and cash earnings per share for 2005, excluding an after-tax merger
and integration charge of $.04 to $.06 per share expected during the first
quarter and after-tax non-cash charges of approximately $.17 per share. In
addition, we hope to initiate our stock buy-back plans following the Waypoint
closing," Sidhu concluded.
Based upon our January 14 stock price of $21.96, Sovereign is trading at a
P/E of 11.6x analysts mean 2005 estimate and 152% of current book value. The
book value per share at December 31, 2004 was $14.41.
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 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, 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.
Interested parties will have the opportunity to listen to a live web-cast
of Sovereign's Fourth Quarter 2004 earnings call on Wednesday, January 19
beginning at 8:30 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=986575. The web-cast replay can be accessed
anytime from 11:00 a.m. ET on January 19, 2005 through 12:00 a.m. ET
(midnight) on March 19, 2005. Questions may be submitted during the call via
email to investor@sovereignbank.com. A telephone replay will be accessible
from 11:00 a.m. ET on January 19, 2005 through 12:00 a.m. ET (midnight) on
January 24, 2005 by dialing 800-642-1687, confirmation id #3143090.
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 and
Cash Earnings, and the related per share amount, in their analysis of the
company's performance. This measure, as used by Sovereign, adjusts net income
determined in accordance with GAAP to exclude the effects of special items,
including significant gains or losses that are unusual in nature or are
associated with acquiring and integrating businesses, and certain non-cash
charges. Operating and cash earnings for 2004 represent net income adjusted
for the after-tax effects of merger-related and integration charges and the
loss on early extinguishment of debt, the fourth quarter adoption of EITF
04-8, other-than-temporary non-cash impairment charges on Fannie Mae and
Freddie Mac preferred equity securities, the amortization of intangible assets
and stock-based compensation expense associated with stock options, restricted
stock, bonus deferral plans and ESOP awards. The forward-looking operating
and cash earnings guidance for 2005 excludes the after-tax effects of
anticipated merger-related and integration charges, amortization of intangible
assets and stock-based compensation expense associated with stock options,
restricted stock, bonus deferral plans and ESOP awards. 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 and cash 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 and cash results for
2005 and beyond for Sovereign Bancorp, Inc. 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; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, integrations, pricing, products and services.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2004 2004 2004 2004 2003
(dollars in millions, except
per share data)
Operating Data
Net income $137.4 $82.5 $131.4 $102.2 $112.6
Net income for EPS purposes (1) 143.7 88.9 137.7 104.5 112.6
Operating earnings (2) 171.2 161.6 147.2 136.9 127.3
Net interest income 387.0 363.0 332.0 322.8 308.5
Provision for loan losses 27.0 25.0 32.0 43.0 40.0
Total fees and other income before
securities transactions 126.5 108.3 124.2 109.1 121.2
Net gain (loss) on investment
securities (24.7) 20.2 0.8 17.9 10.2
G&A expense 257.3 237.7 224.6 223.1 217.6
Other expenses (3) 30.5 129.1 28.1 48.6 27.4
Performance Statistics
Bancorp
Net interest margin (3) 3.29% 3.17% 3.22% 3.28% 3.39%
Operating return on
average assets (2) 1.24% 1.20% 1.23% 1.20% 1.18%
Operating return on
average equity (2) 13.90% 14.14% 15.26% 15.47% 15.94%
Operating return on average
tangible equity (2) 27.23% 27.58% 25.40% 26.08% 27.13%
Annualized net loan charge-offs to
average loans 0.28% 0.25% 0.43% 0.51% 0.55%
Efficiency ratio (3) (4) 50.10% 50.44% 49.22% 51.67% 50.65%
Per Share Data
Basic earnings per share $0.40 $0.25 $0.43 $0.34 $0.38
Diluted earnings per share (1) 0.38 0.24 0.41 0.33 0.38
Operating earnings per share (2) 0.49 0.47 0.47 0.45 0.43
Dividend declared per share .030 .030 .030 .025 .025
Book value (5) 14.41 13.95 12.46 12.78 11.12
Common stock price:
High 22.61 22.48 22.10 24.51 24.99
Low 21.14 20.48 19.51 20.37 18.42
Close $22.55 $21.82 $22.10 $21.42 $23.75
Weighted average common shares:
Basic 345.6 335.6 306.1 300.7 292.5
Diluted (1) 377.6 367.8 337.8 316.8 298.5
End-of-period common shares:
Basic 346.1 345.3 306.2 306.4 293.1
Diluted (1) 378.2 377.3 338.2 337.8 299.4
Year to Date
Dec. 31 Dec. 31
2004 2003
(dollars in millions, except
per share data)
Operating Data
Net income $453.6 $401.9
Net income for EPS purposes (1) 474.8 401.9
Operating earnings (2) 616.8 481.6
Net interest income 1,404.8 1,205.6
Provision for loan losses 127.0 162.0
Total fees and other income before
securities transactions 468.1 455.5
Net gain (loss) on investment securities 14.2 66.1
G&A expense 942.7 852.4
Other expenses (3) 236.2 158.0
Performance Statistics
Bancorp
Net interest margin (3) 3.24% 3.42%
Operating return on average assets (2) 1.22% 1.16%
Operating return on average equity (2) 14.61% 16.08%
Operating return on average tangible
equity (2) 26.57% 28.98%
Annualized net loan charge-offs to
average loans 0.36% 0.55%
Efficiency ratio (3) (4) 50.33% 51.31%
Per Share Data
Basic earnings per share $1.41 $1.45
Diluted earnings per share (1) 1.36 1.38
Operating earnings per share (2) 1.88 1.66
Dividend declared per share 0.115 0.100
Book value (5) 14.41 11.12
Common stock price:
High 24.51 24.99
Low 19.51 12.72
Close $22.55 $23.75
Weighted average common shares:
Basic 322.3 277.3
Diluted (1) 350.3 290.5
End-of-period common shares:
Basic 346.1 293.1
Diluted (1) 378.2 299.4
NOTES:
(1) Effective in the fourth quarter of 2004, Sovereign adopted EITF 04-8
"Accounting Issues Related to Certain Features of Contingently
Convertible Debt and the Effect on Diluted Earnings per Share." This
EITF requires the potential dilution from contingently convertible
debt be included in the calculation of diluted earnings per share
upon the issuance of the debt and that the after-tax impact of the
interest expense on this debt be added back to net income for
earnings per share purposes. Sovereign issued $800 million of
contingently convertible trust preferred equity income redeemable
securities in the first quarter of 2004. Prior period earnings per
share were required to be restated. We have excluded the impact of
this pronouncement in our calculation of 2004 operating earnings per
share.
(2) Operating earnings represent net income excluding the after-tax
effects of special items, including significant gains or losses that
are unusual in nature or are associated with acquiring or integrating
businesses, losses on the early retirement of debt, other than
temporary impairment charges on Fannie Mae and Freddie Mac preferred
equity securities, amortization of intangible assets, and stock-based
compensation arrangements. Additionally, for 2004, operating
earnings excludes the impact of EITF 04-8. See Note 1 above for
details of this accounting pronouncement and page I for a
reconciliation of GAAP and Non-GAAP earnings.
(3) Effective July 1, 2003, Sovereign elected to change the Company's
accounting policy to treat trust preferred securities as liabilities
and the associated dividends on the trust preferred securities as
interest expense. Previously, this cost was classified within other
expenses. This change in accounting policy did not have any impact
on consolidated shareholders' equity or net income; however, it did
result in an increase in liabilities of $207.6 million at July 1,
2003 and an increase of $5 million and $3 million in net interest
expense, with a corresponding decrease in other expense, for the
three-month periods ended September 30, 2003 and December 31, 2003,
respectively. Prior periods have not been adjusted to conform with
this change in accounting policy.
(4) 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.
(5) Book value equals stockholders' equity at period-end divided by
common shares outstanding.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2004 2004 2004 2004 2003
(dollars in millions)
Financial Condition Data:
General
Total assets $54,471 $55,755 $48,687 $47,043 $43,505
Loans 36,631 35,262 29,130 27,739 26,149
Total deposits and customer
related accounts: 32,556 33,102 29,001 28,118 27,344
Core deposits and other
customer related
accounts 25,441 25,744 22,824 21,939 21,334
Time deposits 7,114 7,358 6,176 6,179 6,010
Borrowings 16,140 16,919 15,157 14,262 12,198
Minority interests 204 203 203 203 202
Stockholders' equity 4,988 4,815 3,815 3,916 3,260
Goodwill 2,125 2,103 1,289 1,293 1,027
Core deposit intangible 257 305 249 262 269
Asset Quality
Non-performing assets $160.1 $168.8 $176.1 $212.0 $220.4
Non-performing loans $143.6 $147.5 $152.2 $188.6 $199.4
Non-performing assets to
total assets 0.29% 0.30% 0.36% 0.45% 0.51%
Non-performing loans to
total loans 0.39% 0.42% 0.52% 0.68% 0.76%
Allowance for loan losses $408.7 $406.6 $352.6 $351.0 $327.9
Allowance for loan losses
to total loans 1.12% 1.15% 1.21% 1.27% 1.25%
Allowance for loan losses
to non-performing loans 285% 276% 232% 186% 164%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.16% 8.64% 7.84% 8.32% 7.49%
Tier 1 leverage capital
ratio 7.05% 6.56% 7.13% 7.12% 5.61%
Tangible equity to tangible
assets, excluding OCI 5.25% 4.77% 5.28% 5.19% 4.80%
Tangible equity to tangible
assets, including OCI 5.00% 4.51% 4.83% 5.19% 4.66%
Capitalization - Bank (1)
Stockholders' equity to
total assets 10.77% 10.20% 9.12% 9.60% 8.99%
Tier 1 leverage capital
ratio 7.21% 6.66% 6.85% 6.82% 6.66%
Tier 1 risk-based capital
ratio 8.72% 8.51% 8.92% 8.82% 8.60%
Total risk-based capital
ratio 11.55% 11.43% 12.12% 12.13% 12.12%
(1) All capital ratios are calculated based upon adjusted end of period
assets consistent with OTS guidelines. The current quarter ratios
are estimated as of the date of this earnings release.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
Dec. 31 Sept. 30 June 30
(dollars in thousands) 2004 2004 2004
Assets
Cash and amounts due
from depository institutions $1,160,922 $1,266,044 $1,026,719
Investments:
Available-for-sale 7,642,558 10,111,845 10,493,897
Held-to-maturity 3,904,319 4,027,472 4,007,041
Total investments 11,546,877 14,139,317 14,500,938
Loans:
Commercial 13,864,240 13,445,735 12,251,456
Consumer 14,269,343 13,856,992 11,986,107
Residential mortgages 8,497,496 7,958,974 4,892,305
Total loans 36,631,079 35,261,701 29,129,868
Less allowance for loan losses (408,716) (406,612) (352,637)
Total loans, net 36,222,363 34,855,089 28,777,231
Premises and equipment, net 353,337 352,089 286,682
Accrued interest receivable 226,012 225,918 196,347
Goodwill 2,125,081 2,103,158 1,289,340
Core deposit intangible 256,694 304,754 249,169
Bank owned life insurance 885,807 879,189 851,155
Other assets 1,694,220 1,629,450 1,509,296
Total assets $54,471,313 $55,755,008 $48,686,877
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $25,441,145 $25,743,796 $22,824,310
Time deposits 7,114,373 7,357,882 6,176,310
Total 32,555,518 33,101,678 29,000,620
Borrowings and other debt
obligations 16,140,128 16,919,164 15,157,017
Other liabilities 583,389 715,326 511,131
Total liabilities 49,279,035 50,736,168 44,668,768
Minority interests 203,906 203,488 202,919
Stockholders' equity:
Common Stock 2,949,870 2,934,733 2,105,312
Warrants and stock options 317,842 318,874 306,594
Unallocated ESOP shares (23,707) (26,078) (26,078)
Treasury stock (19,136) (19,767) (20,242)
Accumulated other
comprehensive (loss) / income (108,092) (136,645) (222,499)
Retained earnings 1,871,595 1,744,235 1,672,103
Total stockholders' equity 4,988,372 4,815,352 3,815,190
Total liabilities and
stockholders' equity $54,471,313 $55,755,008 $48,686,877
Mar. 31 Dec. 31
(dollars in thousands) 2004 2003
Assets
Cash and amounts due
from depository institutions $893,193 $950,302
Investments:
Available-for-sale 11,912,292 10,102,619
Held-to-maturity 2,489,030 2,516,352
Total investments 14,401,322 12,618,971
Loans:
Commercial 11,919,975 11,063,686
Consumer 11,012,103 10,010,289
Residential mortgages 4,806,494 5,074,684
Total loans 27,738,572 26,148,659
Less allowance for loan losses (351,007) (327,894)
Total loans, net 27,387,565 25,820,765
Premises and equipment, net 289,517 273,278
Accrued interest receivable 188,002 190,714
Goodwill 1,292,809 1,027,292
Core deposit intangible 261,582 268,759
Bank owned life insurance 841,568 801,535
Other assets 1,487,657 1,553,713
Total assets $47,043,215 $43,505,329
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $21,939,435 $21,334,106
Time deposits 6,178,871 6,009,902
Total 28,118,306 27,344,008
Borrowings and other debt obligations 14,261,686 12,197,603
Other liabilities 545,084 501,176
Total liabilities 42,925,076 40,042,787
Minority interests 202,513 202,136
Stockholders' equity:
Common Stock 2,102,183 1,892,126
Warrants and stock options 305,297 13,944
Unallocated ESOP shares (26,078) (26,078)
Treasury stock (22,190) (21,927)
Accumulated other
comprehensive (loss) / income 6,349 (52,924)
Retained earnings 1,550,065 1,455,265
Total stockholders' equity 3,915,626 3,260,406
Total liabilities and
stockholders' equity $47,043,215 $43,505,329
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2004 2004 2004 2004 2003
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on interest-
earning deposits $1,721 $1,505 $980 $528 $385
Interest on investment
securities
Available for sale 102,945 124,803 136,497 137,226 144,787
Held to maturity 45,512 46,470 31,879 28,819 5,142
Interest on loans 474,010 412,771 345,288 333,190 324,990
Total interest and
dividend income 624,188 585,549 514,644 499,763 475,304
Interest expense:
Deposits and related
customer accounts 91,731 83,160 63,142 65,012 68,647
Borrowings 145,445 139,439 119,463 111,935 98,178
Total interest
expense 237,176 222,599 182,605 176,947 166,825
Net interest
income 387,012 362,950 332,039 322,816 308,479
Provision for loan losses 27,000 25,000 32,000 43,000 40,000
Net interest
income after
provision for
loan losses 360,012 337,950 300,039 279,816 268,479
Non-interest income:
Consumer banking fees 67,759 62,771 58,072 53,985 53,778
Commercial banking
fees 32,843 31,757 30,552 28,685 28,766
Mortgage banking
revenue (1) 4,726 (4,080) 16,436 5,427 15,725
Capital markets
revenue 6,548 3,409 5,099 4,887 4,814
Bank owned life
insurance income 10,136 9,922 9,588 9,626 10,810
Other 4,480 4,498 4,499 6,444 7,262
Total fees and other
income before
security gains 126,492 108,277 124,246 109,054 121,155
Net gain/(loss) on
securities (24,728) 20,247 829 17,881 10,232
Total non-
interest income 101,764 128,524 125,075 126,935 131,387
Non-interest expense:
General and
administrative
Compensation and
benefits 123,967 114,871 105,224 104,080 98,314
Occupancy and
equipment 59,221 54,976 52,097 54,379 53,437
Technology expense 21,486 18,935 19,333 17,605 19,145
Outside services 13,901 14,332 12,746 12,336 14,148
Marketing expense 13,089 11,983 10,751 10,700 8,385
Other administrative
expenses 25,587 22,583 24,433 24,046 24,201
Total general
and administrative 257,251 237,680 224,584 223,146 217,630
Other expenses:
Amortization of core
deposit intangibles 17,670 19,836 17,576 17,553 17,823
Trust preferred
securities and other
minority interest
expense 5,630 5,502 5,438 5,436 5,439
Equity method
investments (2) 11,875 10,257 7,327 2,012 4,159
Loss/(gain) on debt
extinguishment 500 65,546 (2,285) - -
Merger-related and
integration charges (5,169) 27,941 - 23,587 -
Total other
expenses 30,506 129,082 28,056 48,588 27,421
Total non-
interest
expense 287,757 366,762 252,640 271,734 245,051
Income before
income taxes 174,019 99,712 172,474 135,017 154,815
Income tax expense 36,590 17,170 41,120 32,790 42,228
Net income $137,429 $82,542 $131,354 $102,227 $112,587
(1) Mortgage banking
activity is summarized below:
Gains on sale of mortgage
loans and mortgage
backed securities $2,438 $4,090 $2,808 $16,469 $9,457
Net gains/(loss) recorded
under SFAS 133 (111) (112) (1,878) 81 7,895
Mortgage servicing fees,
net of mortgage servicing
rights amortization 664 1,343 (1,628) 137 (479)
Mortgage servicing right
(impairments)/recoveries 1,735 (9,401) 17,134 (11,260) (1,148)
Total mortgage
banking revenues $4,726 $(4,080) $16,436 $5,427 $15,725
(2) During the second quarter of 2004, Sovereign made a $60 million
investment in a synthetic fuel partnership which is accounted for as
an equity method investment. As a result of the increasing
significance of our equity method investment portfolios, Sovereign
reclassified the income statement effects of these items to other
expenses.
Year to Date
Dec. 31 Dec. 31
2004 2003
(dollars in thousands, except per
share data)
Interest and dividend income:
Interest on interest-earning
deposits $4,734 $2,141
Interest on investment securities
Available for sale 501,471 584,697
Held to maturity 152,680 27,123
Interest on loans 1,565,259 1,315,790
Total interest and dividend income 2,224,144 1,929,751
Interest expense:
Deposits and related customer accounts 303,045 320,689
Borrowings 516,282 403,434
Total interest expense 819,327 724,123
Net interest income 1,404,817 1,205,628
Provision for loan losses 127,000 161,957
Net interest income after
provision for loan losses 1,277,817 1,043,671
Non-interest income:
Consumer banking fees 242,587 208,819
Commercial banking fees 123,837 107,973
Mortgage banking revenue (1) 22,509 50,018
Capital markets revenue 19,943 27,014
Bank owned life insurance income 39,272 43,338
Other 19,921 18,357
Total fees and other income before
security gains 468,069 455,519
Net gain/(loss) on securities 14,229 66,057
Total non-interest income 482,298 521,576
Non-interest expense:
General and administrative
Compensation and benefits 448,142 388,750
Occupancy and equipment 220,673 210,761
Technology expense 77,359 73,032
Outside services 53,315 53,436
Marketing expense 46,523 38,824
Other administrative expenses 96,649 87,561
Total general and administrative 942,661 852,364
Other expenses:
Amortization of core deposit intangibles 72,635 73,835
Trust preferred securities and other
minority interest expense 22,006 42,813
Equity method investments (2) 31,471 11,498
Loss/(gain) on debt extinguishment 63,761 29,838
Merger-related and integration charges 46,359 -
Total other expenses 236,232 157,984
Total non-interest expense 1,178,893 1,010,348
Income before income taxes 581,222 554,899
Income tax expense 127,670 153,048
Net income $453,552 $401,851
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans and
mortgage backed securities $25,805 $61,224
Net gains/(loss) recorded under SFAS 133 (2,020) 1,709
Mortgage servicing fees, net of
mortgage servicing rights amortization 516 (12,120)
Mortgage servicing right
(impairments)/recoveries (1,792) (795)
Total mortgage banking revenues $22,509 $50,018
(2) During the second quarter of 2004, Sovereign made a $60 million
investment in a synthetic fuel partnership which is accounted for as
an equity method investment. As a result of the increasing
significance of our equity method investment portfolios, Sovereign
reclassified the income statement effects of these items to other
expenses.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
December 31, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $13,040,062 $160,592 4.93%
Loans:
Commercial 13,599,851 179,698 5.26%
Consumer 14,020,882 188,307 5.35%
Residential mortgages 8,199,190 107,327 5.24%
Total loans 35,819,923 475,332 5.29%
Allowance for loan losses (407,518)
Total earning assets 48,452,467 $635,924 5.24%
Other assets 6,297,437
Total assets $54,749,904
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $5,103,981 $- 0.00%
NOW accounts 7,544,694 20,536 1.08%
Customer repurchase agreements 851,928 3,044 1.42%
Savings accounts 3,821,004 5,802 0.60%
Money market accounts 8,082,448 24,599 1.21%
Core and other customer related
accounts 25,404,055 53,981 0.85%
Time deposits 7,221,061 37,750 2.08%
Total 32,625,116 91,731 1.12%
Borrowings:
Federal Home Loan Bank advances 10,416,303 101,436 3.88%
Fed funds and repurchase agreements 2,383,245 15,208 2.55%
Other borrowings 3,600,008 28,801 3.19%
Total borrowings 16,399,556 145,445 3.53%
Total funding liabilities 49,024,672 237,176 1.93%
Other liabilities 827,078
Total liabilities 49,851,750
Stockholders' equity 4,898,154
Total liabilities and
stockholders' equity $54,749,904
Net interest income $398,748
Interest rate spread 2.91%
Net interest margin 3.29%
Quarter Ended
September 30, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $15,045,842 $183,007 4.86%
Loans:
Commercial 13,006,393 162,723 4.91%
Consumer 12,919,725 165,502 5.10%
Residential mortgages 6,675,476 86,906 5.21%
Total loans 32,601,594 415,131 5.05%
Allowance for loan losses (395,427)
Total earning assets 47,252,009 $598,138 5.03%
Other assets 6,223,444
Total assets $53,475,453
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $4,936,996 $- 0.00%
NOW accounts 7,117,978 16,366 0.91%
Customer repurchase agreements 821,182 1,977 0.96%
Savings accounts 3,621,567 4,966 0.55%
Money market accounts 8,256,017 24,040 1.16%
Core and other customer related
accounts 24,753,740 47,349 0.76%
Time deposits 6,985,446 35,811 2.04%
Total 31,739,186 83,160 1.04%
Borrowings:
Federal Home Loan Bank advances 9,759,462 87,986 3.54%
Fed funds and repurchase agreements 2,797,876 16,206 2.31%
Other borrowings 3,921,692 35,247 3.56%
Total borrowings 16,479,030 139,439 3.34%
Total funding liabilities 48,218,216 222,599 1.83%
Other liabilities 713,062
Total liabilities 48,931,278
Stockholders' equity 4,544,175
Total liabilities and
stockholders' equity $53,475,453
Net interest income $375,539
Interest rate spread 2.80%
Net interest margin 3.17%
Quarter Ended
December 31, 2003
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,417,048 $159,376 5.13%
Loans:
Commercial 10,880,892 128,094 4.62%
Consumer 9,809,803 131,346 5.32%
Residential mortgages 4,726,609 66,774 5.65%
Total loans 25,417,304 326,214 5.08%
Allowance for loan losses (323,285)
Total earning assets 37,511,067 $485,590 5.14%
Other assets 5,122,980
Total assets $42,634,047
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $4,197,814 $- 0.00%
NOW accounts 6,135,210 10,089 0.65%
Customer repurchase agreements 963,885 1,516 0.62%
Savings accounts 3,138,766 4,329 0.55%
Money market accounts 6,744,627 15,526 0.91%
Core and other customer related
accounts 21,180,302 31,460 0.59%
Time deposits 6,138,121 37,187 2.40%
Total 27,318,423 68,647 1.00%
Borrowings:
Federal Home Loan Bank advances 6,192,197 69,045 4.38%
Fed funds and repurchase agreements 2,281,145 5,996 1.05%
Other borrowings 2,905,569 23,137 3.15%
Total borrowings 11,378,911 98,178 3.40%
Total funding liabilities 38,697,334 166,825 1.70%
Other liabilities 769,280
Total liabilities 39,466,614
Stockholders' equity 3,167,433
Total liabilities and
stockholders' equity $42,634,047
Net interest income $318,765
Interest rate spread 2.98%
Net interest margin 3.39%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
December 31, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,242,255 $699,481 4.91%
Loans:
Commercial 12,530,293 613,541 4.90%
Consumer 12,185,904 630,029 5.17%
Residential mortgages 6,215,557 328,625 5.29%
Total loans 30,931,754 1,572,195 5.08%
Allowance for loan losses (375,581)
Total earning assets 44,798,428 $2,271,676 5.07%
Other assets 5,744,518
Total assets $50,542,946
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $4,698,584 $- 0.00%
NOW accounts 6,744,813 56,503 0.84%
Customer repurchase agreements 834,636 7,462 0.89%
Savings accounts 3,498,539 19,417 0.56%
Money market accounts 7,633,932 81,992 1.07%
Core and other customer related
accounts 23,410,504 165,374 0.71%
Time deposits 6,599,223 137,671 2.09%
Total 30,009,727 303,045 1.01%
Borrowings:
Federal Home Loan Bank advances 9,132,898 346,461 3.79%
Fed funds and repurchase agreements 2,720,426 46,361 1.70%
Other borrowings 3,738,577 123,460 3.30%
Total borrowings 15,591,901 516,282 3.31%
Total funding liabilities 45,601,628 819,327 1.80%
Other liabilities 718,195
Total liabilities 46,319,823
Stockholders' equity 4,223,123
Total liabilities and
stockholders' equity $50,542,946
Net interest income $1,452,349
Interest rate spread 2.87%
Net interest margin 3.24%
Year to Date
December 31, 2003
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,025,913 $637,992 5.31%
Loans:
Commercial 10,619,491 530,968 5.00%
Consumer 9,182,145 521,679 5.68%
Residential mortgages 4,520,506 266,809 5.90%
Total loans 24,322,142 1,319,456 5.42%
Allowance for loan losses (315,075)
Total earning assets 36,032,980 $1,957,448 5.43%
Other assets 5,370,184
Total assets $41,403,164
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $4,087,652 $- 0.00%
NOW accounts 5,986,218 50,398 0.84%
Customer repurchase agreements 989,401 7,154 0.72%
Savings accounts 3,109,844 22,403 0.72%
Money market accounts 6,286,992 68,458 1.09%
Core and other customer related
accounts 20,460,107 148,413 0.73%
Time deposits 6,513,741 172,276 2.64%
Total 26,973,848 320,689 1.19%
Borrowings:
Federal Home Loan Bank advances 5,948,085 293,982 4.94%
Fed funds and repurchase agreements 2,050,401 9,877 0.48%
Other borrowings 2,292,602 99,575 4.34%
Total borrowings 10,291,088 403,434 3.92%
Total funding liabilities 37,264,936 724,123 1.94%
Other liabilities 1,142,485
Total liabilities 38,407,421
Stockholders' equity 2,995,743
Total liabilities and
stockholders' equity $41,403,164
Net interest income $1,233,325
Interest rate spread 2.98%
Net interest margin 3.42%
(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) 2004 2004 2004 2004 2003
Non-accrual loans:
Commercial $80,799 $89,061 $90,370 $113,734 $129,029
Consumer 28,021 24,417 27,923 31,573 30,921
Residential mortgages 33,656 32,858 32,635 41,925 38,195
Total non-accrual loans 142,476 146,336 150,928 187,232 198,145
Restructured loans 1,097 1,205 1,262 1,378 1,235
Total non-performing
loans 143,573 147,541 152,190 188,610 199,380
Real estate owned, net 12,276 16,397 19,609 18,349 17,016
Other repossessed assets 4,247 4,824 4,268 5,006 4,051
Total non-performing
assets $160,096 $168,762 $176,067 $211,965 $220,447
Non-performing loans as
a percentage of total
loans 0.39% 0.42% 0.52% 0.68% 0.76%
Non-performing assets as
a percentage of total
assets 0.29% 0.30% 0.36% 0.45% 0.51%
Non-performing assets as
a percentage of total
loans, real estate
owned and repossessed
assets 0.44% 0.48% 0.60% 0.76% 0.84%
Allowance for loan
losses as a percentage
of non-performing loans 285% 276% 232% 186% 164%
NET LOAN CHARGE-OFFS
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
Quarters ended (in thousands) 2004 2004 2004 2004 2003
Commercial real estate $614 $(1,064) $6,117 $3,558 $98
Commercial and industrial
and other 10,357 10,823 14,502 19,767 25,755
Total Commercial 10,971 9,759 20,619 23,325 25,853
Auto loans 10,641 7,615 6,418 7,408 5,521
Home equity loans and other 2,840 2,770 3,268 3,605 3,277
Total Consumer 13,481 10,385 9,686 11,013 8,798
Residential mortgages 444 326 65 209 138
Total $24,896 $20,470 $30,370 $34,547 $34,789
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Demand deposit accounts $5,087,531 $5,072,090 $4,698,610
NOW accounts 7,838,584 7,748,012 6,554,831
Customer repurchase agreements 837,643 848,890 810,062
Savings accounts 3,807,099 3,667,116 3,303,890
Money market accounts 7,870,288 8,407,688 7,456,917
Certificates of deposits 7,114,373 7,357,882 6,176,310
Total $32,555,518 $33,101,678 $29,000,620
Mar. 31 Dec. 31
Quarters ended (in thousands) 2004 2003
Demand deposit accounts $4,481,546 $4,306,376
NOW accounts 6,248,412 6,068,163
Customer repurchase agreements 789,524 1,017,544
Savings accounts 3,317,836 3,098,892
Money market accounts 7,102,117 6,843,131
Certificates of deposits 6,178,871 6,009,902
Total $28,118,306 $27,344,008
LOAN COMPOSITION - End of period
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Commercial real estate $5,824,133 $5,800,536 $5,050,915
Commercial industrial loans 8,040,107 7,645,199 7,200,541
Total commercial loans 13,864,240 13,445,735 12,251,456
Home equity loans 9,577,656 8,988,139 7,790,049
Auto loans 4,205,547 4,340,487 3,631,153
Other 486,140 528,366 564,905
Total consumer loans 14,269,343 13,856,992 11,986,107
Total residential loans 8,497,496 7,958,974 4,892,305
Total loans $36,631,079 $35,261,701 $29,129,868
Mar. 31 Dec. 31
Quarters ended (in thousands) 2004 2003
Commercial real estate $4,993,700 $4,702,046
Commercial industrial loans 6,926,275 6,361,640
Total commercial loans 11,919,975 11,063,686
Home equity loans 6,971,401 6,457,682
Auto loans 3,621,169 3,240,383
Other 419,533 312,224
Total consumer loans 11,012,103 10,010,289
Total residential loans 4,806,494 5,074,684
Total loans $27,738,572 $26,148,659
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Demand deposit accounts $5,103,981 $4,936,996 $4,506,601
NOW accounts 7,544,694 7,117,978 6,313,501
Customer repurchase agreements 851,928 821,182 784,850
Savings accounts 3,821,004 3,621,567 3,328,743
Money market accounts 8,082,448 8,256,017 7,167,639
Certificates of deposits 7,221,061 6,985,446 6,070,703
Total $32,625,116 $31,739,186 $28,172,037
Mar. 31 Dec. 31
Quarters ended (in thousands) 2004 2003
Demand deposit accounts $4,239,684 $4,197,814
NOW accounts 5,990,184 6,135,210
Customer repurchase agreements 880,544 963,885
Savings accounts 3,217,946 3,138,766
Money market accounts 7,017,860 6,744,627
Certificates of deposits 6,108,153 6,138,121
Total $27,454,371 $27,318,423
LOAN COMPOSITION - Average
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Commercial real estate $5,788,936 $5,621,144 $5,014,765
Commercial industrial loans 6,953,564 6,534,378 6,214,663
Other 857,351 850,871 855,453
Total commercial loans 13,599,851 13,006,393 12,084,881
Home equity loans 9,245,711 8,177,146 7,206,082
Auto loans 4,266,466 4,198,175 3,636,061
Other 508,705 544,404 460,269
Total consumer loans 14,020,882 12,919,725 11,302,412
Total residential loans 8,199,190 6,675,476 4,854,811
Total loans $35,819,923 $32,601,594 $28,242,104
Mar. 31 Dec. 31
Quarters ended (in thousands) 2004 2003
Commercial real estate $4,869,200 $4,662,734
Commercial industrial loans 5,669,558 5,336,532
Other 874,302 881,626
Total commercial loans 11,413,060 10,880,892
Home equity loans 6,666,343 6,241,296
Auto loans 3,457,105 3,248,915
Other 348,921 319,592
Total consumer loans 10,472,369 9,809,803
Total residential loans 5,105,900 4,726,609
Total loans $26,991,329 $25,417,304
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating earnings represent net income excluding the after-tax effects of
special items, including significant gains or losses that are unusual in
nature or are associated with acquiring or integrating businesses, losses on
the early retirement of debt, other than temporary impairment charges on
Fannie Mae and Freddie Mac preferred equity securities, amortization of
intangible assets, and stock based compensation arrangements. Additionally,
for 2004, operating earnings excludes the impact of EITF 04-8. See Note 2
below for details of this accounting pronouncement. The table below
reconciles our GAAP earnings to operating earnings.
(dollars in thousands, except
per share data - all amounts are
after tax) Quarter Ended
Total dollars
Dec. 31 Sept. 30 Dec. 31
2004 2004 2003
Net income as reported $137,429 $82,542 $112,587
Contingently convertible trust
preferred interest expense, net of
tax (1) 6,318 6,310 -
Net income/(loss) for EPS purposes $143,747 $88,852 $112,587
Weighted average diluted shares for
GAAP EPS 377,625 367,782 298,508
Reconciliation to operating earnings
Weighted average diluted shares for
GAAP EPS 377,625 367,782 298,508
Exclude dilutive effect of EITF 04-8
on contingently convertible debt (1) (26,082) (26,082) -
Adjusted weighted average diluted
shares 351,543 341,700 298,508
Net income and EPS as reported based
on adjusted share count (1) $137,429 $82,542 $112,587
Business acquisitions:
Merger related and integration
costs (3) (3,360) 18,162 -
Provision for loan loss - - -
Loss on debt extinguishment - 42,605 -
Impairment charges on FNMA and FHLMC
Preferred Stock 20,891 - -
Amortization of intangibles 12,562 14,578 12,112
Stock based compensation (2) 3,679 3,671 2,555
Operating earnings $171,201 $161,558 $127,254
Quarter Ended
Per share
Dec. 31 Sept. 30 Dec. 31
2004 2004 2003
Net income as reported
Contingently convertible trust
preferred interest expense, net of
tax (1)
Net income/(loss) for EPS purposes $0.38 $0.24 $0.38
Weighted average diluted shares for
GAAP EPS
Reconciliation to operating earnings
Weighted average diluted shares for
GAAP EPS
Exclude dilutive effect of EITF 04-8
on contingently convertible debt (1)
Adjusted weighted average diluted
shares
Net income and EPS as reported based
on adjusted share count (1) $0.39 $0.24 $0.38
Business acquisitions:
Merger related and integration
costs (3) (0.01) 0.05 -
Provision for loan loss - - -
Loss on debt extinguishment - 0.12 -
Impairment charges on FNMA and FHLMC
Preferred Stock 0.06 - -
Amortization of intangibles 0.04 0.04 0.04
Stock based compensation (2) 0.01 0.01 0.01
Operating earnings $0.49 $0.47 $0.43
Year to Date
Total dollars
Dec. 31 Dec. 31
2004 2003
Net income as reported $453,552 $401,851
Contingently convertible trust
preferred interest expense, net of tax (1) 21,212 -
Net income/(loss) for EPS purposes $474,764 $401,851
Weighted average diluted shares for
GAAP EPS 350,296 290,477
Reconciliation to operating earnings
Weighted average diluted shares for GAAP EPS 350,296 290,477
Exclude dilutive effect of EITF 04-8
on contingently convertible debt (1) (21,736) -
Adjusted weighted average diluted shares 328,560 290,477
Net income and EPS as reported based
on adjusted share count (1) $453,552 $401,851
Business acquisitions:
Merger related and integration costs (3) 30,134 -
Provision for loan loss 3,900 -
Loss on debt extinguishment 42,605 18,838
Impairment charges on FNMA and FHLMC
Preferred Stock 20,891 -
Amortization of intangibles 51,186 50,100
Stock based compensation (2) 14,579 10,819
Operating earnings $616,847 $481,608
Year to Date
Per Share
Dec. 31 Dec. 31
2004 2003
Net income as reported
Contingently convertible trust
preferred interest expense, net of tax (1)
Net income/(loss) for EPS purposes $1.36 $1.38
Weighted average diluted shares for
GAAP EPS
Reconciliation to operating earnings
Weighted average diluted shares for GAAP EPS
Exclude dilutive effect of EITF 04-8
on contingently convertible debt (1)
Adjusted weighted average diluted shares
Net income and EPS as reported based
on adjusted share count (1) $1.38 $1.38
Business acquisitions:
Merger related and integration costs (3) 0.10 -
Provision for loan loss 0.01 -
Loss on debt extinguishment 0.13 0.07
Impairment charges on FNMA and FHLMC
Preferred Stock 0.06 -
Amortization of intangibles 0.16 0.17
Stock based compensation (2) 0.04 0.04
Operating earnings $1.88 $1.66
Forward-
Looking
Per Share
2005
Net income as reported
Contingently convertible trust
preferred interest expense, net of tax (1)
Net income/(loss) for EPS purposes $1.84 - $1.94
Weighted average diluted shares for GAAP EPS
Reconciliation to operating earnings
Weighted average diluted shares for GAAP EPS
Exclude dilutive effect of EITF 04-8
on contingently convertible debt (1)
Adjusted weighted average diluted shares
Net income and EPS as reported based
on adjusted share count (1)
Business acquisitions:
Merger related and integration costs (3) .04 - .06
Provision for loan loss -
Loss on debt extinguishment -
Impairment charges on FNMA and FHLMC
Preferred Stock
Amortization of intangibles 0.12
Stock based compensation (2) 0.05
Operating earnings $2.05 - $2.17
(1) Effective in the fourth quarter of 2004, Sovereign adopted EITF 04-8
"Accounting Issues Related to Certain Features of Contingently
Convertible Debt and the Effect on Diluted Earnings per Share."
This EITF requires the potential dilution from contingently
convertible debt be included in the calculation of diluted earnings
per share upon the issuance of the debt and that the after tax
impact of the interest expense on this debt be added back to net
income for earnings per share purposes. Sovereign issued $800 million
of contingently convertible trust preferred equity income redeemable
securities in the first quarter of 2004. Prior period earnings per
share were restated. We have excluded the impact of this
pronouncement in our calculation of 2004 operating earnings per share.
(2) Stock based compensation encompasses arrangements with employees
under which the Company's obligation will be settled by using stock
rather than cash and includes expense related to stock options,
restricted stock, bonus deferral plans, and ESOP expense.
(3) In the fourth quarter of 2004, Sovereign subleased and terminated
certain lease obligations on Sovereign branches that were closed as a
result of the First Essex and Seacoast acquisitions. This resulted
in an after-tax benefit of $3.4 million when compared with our
initial accrual estimates on these specific branch locations.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Purchase of First Essex Bancorp Inc. ("First Essex")
On February 6, 2004 Sovereign completed the purchase of First Essex and
the results of its operations are included from purchase date through December
31, 2004. Sovereign issued 12.7 million shares of common stock and exchanged
Sovereign stock options for existing First Essex stock options, whose combined
value totaled $209.4 million and made cash payments of $208.2 million to
acquire and convert all outstanding First Essex shares and stock options and
pay associated fees. The preliminary purchase price was allocated to acquired
assets and liabilities of First Essex based on fair value as of February 6,
2004. 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 First Essex:
(dollars in millions)
Assets Liabilities
Investments $395.0 Deposits:
Loans: Core $777.0
Commercial 710.4 Time 488.6
Consumer 435.6 Total deposits 1,265.6
Residential mortgages 52.2 Borrowings and other debt
obligations 237.0
Total loans 1,198.2 Other liabilities 23.0
Less allowance for loan
losses (14.7)
Total loans, net 1,183.5 Total liabilities $1,525.6
Federal funds and cash (199.0)
Premises and equipment, net 9.4
Other assets 71.7
Core deposit intangible 15.5
Goodwill 258.9
Total assets $1,735.0
In connection with the First Essex acquisition, Sovereign recorded charges
against its earnings for the three-month period ended March 31, 2004 for an
additional loan loss provision of $6.0 million pretax ($3.9 million net of
tax) to conform First Essex's allowance for loan losses to Sovereign's reserve
policies and for merger related expenses of $23.6 million pretax ($15.3
million net of tax).
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Purchase of Seacoast Bancorp Inc. ("Seacoast")
On July 23, 2004, Sovereign completed the purchase of Seacoast and the
results of its operations are included from purchase date through December 31,
2004. Sovereign issued 36.2 million shares of common stock and exchanged
Sovereign stock options for existing Seacoast stock options, whose combined
value totaled $817.5 million and made cash payments of $256.2 million to
acquire and convert all outstanding Seacoast shares and stock options and pay
associated fees. The preliminary purchase price was allocated to acquired
assets and liabilities of Seacoast based on fair value as of July 23, 2004.
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 Seacoast:
(dollars in millions)
Assets Liabilities
Investments $692.0 Deposits:
Loans: Core $2,451.5
Commercial 966.4 Time 1,202.9
Consumer 1,015.2 Total deposits 3,654.4
Residential mortgages 2,120.4 Borrowings and other debt
obligations 1,158.5
Total loans 4,102.0 Other liabilities 84.9
Less allowance for loan
losses (49.4)
Total loans, net 4,052.6 Total liabilities $4,897.8
Cash paid, net of cash
acquired (9.2)
Premises and equipment, net 56.5
Other assets 39.5
Core deposit intangible 45.0
Goodwill 838.9
Total assets $5,715.3
In connection with the Seacoast acquisition, Sovereign recorded charges
against its earnings for the three-month period ended September 30, 2004 for
merger related expenses of $27.9 million pretax ($18.2 million net of tax).
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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