PHILADELPHIA, Jan. 23 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported results for the fourth quarter and full year of 2007. As
previously announced continued volatility in the financial markets and
deterioration in the credit environment had an adverse impact on the fourth
quarter of 2007 financial results. For the fourth quarter of 2007,
Sovereign reported a net loss of $1.6 billion or $(3.34) per share,
primarily driven by goodwill impairments. This compares to a net loss of
$129 million or $(.28) per diluted share for the fourth quarter of 2006.
For the full year 2007, Sovereign reported a net loss of $1.3 billion or
$(2.85) per share as compared to net income of $137 million or $.30 per
diluted share in 2006.
Commenting on results for the fourth quarter of 2007, Joseph P.
Campanelli, Sovereign's President and CEO, stated, "As previously
announced, our fourth quarter results have been impacted significantly by
disruption in the credit markets and continued weakness in the residential
mortgage market. Although disappointing, we believe that the majority of
the losses are non-cash charges that will not impact future performance or
existing tangible capital levels."
"We continue to take the necessary steps to focus on our core
businesses and markets and execute on our strategic initiatives. We
recently made the decision to discontinue our automobile lending
originations in the Southeast and Southwest as losses in these markets have
been higher than forecasted and we will provide for losses in this
portfolio as it runs off," continued Campanelli.
"Today we are discontinuing the Company's quarterly common stock
dividend to help bolster capital and mitigate risk during the ongoing
challenges in the financial services industry. The Board will review this
policy from time to time and expects to resume dividend payments when
industry conditions normalize. Today's banking environment dictates
proactive measures to strengthen capital and mitigate risk. At the same
time, these steps will help the company to prosper when more favorable
conditions resume," commented Campanelli.
"Core operating results for the quarter were encouraging. Through
disciplined balance sheet management, net interest margin expanded three
basis points during the quarter. Fee income results were solid with
consumer and commercial banking fees at historic highs. We continue to
prudently manage our expenses, with our operating expenses staying roughly
flat compared to the prior quarter and are continuing to search for
additional ways to cut costs and operate more efficiently in 2008,"
concluded Campanelli.
Fourth Quarter Charges
As previously announced in our press release on January 14, 2008, results
for the fourth quarter of 2007 were impacted by an impairment of goodwill and
FNMA and FHLMC preferred securities. The final amount of these charges were
as follows:
Pre-tax Net Earnings
($ in millions) amount income per share
Impairment of goodwill $1,577 $1,577 $3.08
Impairment of FNMA and FHLMC preferred securities 180 117 .23
The increase in the impairment of goodwill from our release on January
14, 2008 is due to recent market-driven interest rate declines, which
increased the value of fixed rate loans allocated to our Metro New York and
Consumer segments. This had a corresponding decrease to goodwill which
increased the impairment.
Additionally, Sovereign's fourth quarter results were adversely
impacted by a provision for loan losses that was in excess of net
charge-offs by $88 million, as well as $27.4 million of losses on financial
arrangements with two mortgage companies.
Operating earnings for EPS purposes were $539 million or $1.05 per
diluted share in 2007 as compared to $692 million or $1.48 per diluted
share in 2006. Operating earnings in 2007 excluded after-tax charges
related to restructuring and cost reduction initiatives in addition to the
above mentioned goodwill and preferred securities impairment charges. In
2006, operating earnings excluded after-tax charges related to mergers and
acquisitions, restructuring charges and proxy and related professional
fees.
For the quarter ended December 31, 2007, Sovereign's operating earnings
for EPS purposes were $94 million or $.18 per diluted share, excluding the
above mentioned impairment charges, as compared to $167 million or $.33 per
diluted share a year ago. Operating earnings for the fourth quarter of 2006
excluded charges related to restructuring and cost reduction initiatives. 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.
Net Interest Income and Margin
For the fourth quarter of 2007, Sovereign reported net interest income
of $466 million as compared to $457 million last quarter and $487 million
in the fourth quarter of 2006. Sovereign's average loan balances decreased
by $5.9 billion over last year as a result of the balance sheet
restructuring completed in the first quarter of 2007. Average loan balances
increased $821 million on a linked quarter basis to $57.5 billion,
reflecting growth in several commercial categories, direct home equity
loans, and auto loans partially offset by planned runoff in residential
mortgage.
Sovereign's average deposits decreased $2.6 billion over the past year
as Sovereign continued to reduce its reliance on wholesale deposit sources.
These higher-cost government and wholesale deposit categories were reduced
by $3.7 billion throughout 2007, resulting in $1.1 billion, or 2.7%,
organic deposit growth in 2007. Linked quarter, average deposits increased
$189 million to $50.2 billion driven by increases in money market and time
deposit accounts. This growth was partially offset by reductions of $524
million in government and wholesale deposit categories during the quarter.
Excluding planned wholesale run-off, deposit growth for the quarter was
$713 million, or 7% annualized.
Sovereign's deposit costs were reduced 11 basis points from the third
quarter and borrowing costs were reduced 22 basis points. Net interest
margin expanded 3 basis points during the fourth quarter to 2.77% as
compared to 2.74% in the prior quarter and 2.60% a year ago.
Non-Interest Income
Total fees and other income before security gains totaled $153 million
for the fourth quarter of 2007 compared to $149 million a year ago and $141
million last quarter. Total fees and other income before security gains
were adversely impacted this quarter as a result of $27.4 million of
estimated losses recorded primarily on financings provided to two mortgage
companies. The prior quarter was impacted by $19.4 million of similar
losses, as well as $6.2 million of market value adjustment losses impacting
commercial banking fees and $8.3 million of market value adjustment losses
impacting mortgage banking revenues. Excluding these items total fees and
other income before security gains increased 2.8% over last quarter.
Consumer and commercial banking fees increased $12.3 million or 10%
from a year ago and $10.6 million or 8.6% linked quarter, excluding a $6.2
million lower of cost or market adjustment recorded in the prior quarter on
Sovereign's syndicated loan trading portfolio.
Mortgage banking revenues for the quarter were $9.2 million, compared
to $3.8 million last quarter and a loss of $7.6 million in the same quarter
a year ago. Due to changes in interest rates during the quarter, a $2.1
million impairment charge to increase the valuation reserve for mortgage
servicing rights was recorded. Offsetting this impairment charge, were
$12.1 million of gains on sale of mortgage loans; of this, $7.5 million
relates to the sale of multi-family loans. Last quarter, mortgage banking
revenues included a loss of $8.3 million related to the CMBS pipeline and
servicing values.
Sovereign reported a loss of $18.3 million in capital markets revenues
for the quarter as a result of the previously mentioned mortgage company
financing losses. Liquidity at these companies has been impacted by adverse
developments in the real estate market which have decreased investor demand
for loans originated and sold by these mortgage companies. Sovereign has
exited relationships and restructured other similar agreements in this
sector and believes its remaining exposure is well-contained and reserved
against.
Net securities losses of $179.2 million for the fourth quarter included
the other-than-temporary impairment charge on FNMA and FHLMC preferred
stock.
Non-Interest Expense
G&A expenses were $338 million for the fourth quarter of 2007,
consistent with third quarter levels. G&A expenses to average assets were
1.63% for the quarter, compared to 1.66% in the third quarter and 1.56% a
year ago.
Asset Quality
Sovereign has increased its allowance for credit losses by $88 million
due primarily to a $50 million increase related to its indirect auto loan
portfolio. Net credit losses related to indirect auto loans have increased
in recent quarters and are expected to remain elevated through the first
half of 2008. Although Sovereign's residential and home equity portfolios
have continued to perform well, the allowance for credit losses were
increased for these portfolios given the continuing slowdown in the housing
sector as well as general economic conditions and their potential impact on
the loan portfolio. This raises Sovereign's allowance for credit losses at
year end to near historical high reserve ratios at 1.28% up from .88% a
year ago and 1.14% last quarter.
Sovereign's provision for credit losses was $148 million this quarter,
compared to $163 million in the third quarter and $366 million in the
fourth quarter of 2006. The provision for credit losses in the fourth
quarter of 2006 included a lower of cost or market adjustment on the
correspondent home equity portfolio of $296 million.
Annualized net charge-offs were .42% of average loans for the third
quarter, compared to .24% linked quarter and .29% a year ago, which
excludes the lower of cost or market valuation adjustment recorded in the
fourth quarter of last year related to correspondent home equity loans. In
dollars, net charge-offs were $60.5 million this quarter versus $33.6
million in the prior quarter and $53.5 million a year ago.
Non-performing loans to total loans increased 4 basis points from third
quarter levels to .53%. Non-performing loans increased by $21.9 million
from last quarter to $304 million. The allowance for credit losses to
non-performing loans was 242% at December 31, 2007, as compared to 230% at
September 30 and 234% at December 31, 2006.
Capital
Over the past twelve months, Sovereign has taken the following steps to
bolster its capital base in a weakening economic environment:
-- Disposed of over $7.0 billion of non-core assets and businesses;
-- Recently elected to eliminate its auto originations in the Southeast
and Southwest, which will further reduce assets in 2008;
-- Reduced annual operating expenses by over $100 million in 2007;
-- Elected to eliminate its common shareholder dividend which will
conserve approximately $160 million of capital in 2008.
Sovereign's capital exceeds the levels defined as "well capitalized" by
our regulators. Sovereign's forecasts indicate that it can maintain this
designation even under a further worsening of industry conditions.
Sovereign's Tier 1 leverage ratio was 5.89% at December 31, 2007, as
compared to 6.03% last quarter. Tangible equity to tangible assets, which
includes preferred stock, was 3.95% as compared to 4.09% last quarter and
3.73% a year ago. Tangible common equity to tangible assets was 3.70%. The
equity to assets ratio was 8.25% at December 31, 2007. Sovereign's tangible
capital ratios were negatively impacted by approximately 14 basis points
during the quarter by a decrease in other comprehensive income of
approximately $108 million.
Also impacting certain capital ratios downward by approximately 20 to
30 basis points for the quarter was the need to temporarily hold an
additional $4.0 billion of cash and short-term investments over quarter-end
to maintain compliance with a requirement relating to the ratio of
commercial loans to total assets required under Sovereign's charter.
Sovereign believes that it can achieve its interim target of 4.50% tangible
equity by the end of the third quarter of 2008, subject to resolution of
this issue. The Company is working on measures to achieve compliance with
the requirement without the need to temporarily hold short-term assets.
Sovereign Bank's Tier 1 leverage ratio was 6.53% and the Bank's total
risk-based capital ratio was 10.40% at December 31, 2007.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent
company of Sovereign Bank, a financial institution with $85 billion in
assets as of December 31, 2007 with principal markets in the Northeast
United States. Sovereign Bank has 750 community banking offices, over 2,300
ATMs and approximately 12,000 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 19th largest banking institution in the United
States. For more information on Sovereign Bank, visit
http://www.sovereignbank.com or call 1-877-SOV-BANK.
Investors, analysts and other interested parties will have the
opportunity to listen to a live web-cast of Sovereign's Fourth Quarter 2007
earnings call on Thursday, January 24, 2008 beginning at 9:00 a.m. ET at
http://www.sovereignbank.com > Investor Relations > Events & Webcasts; or
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=67999&eventID=1660290 (Due to length of URL, please copy and
paste into Internet browser). 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, January 24, 2008 through
12:00 a.m. ET on January 30, 2008. Questions may be submitted during the
call via email accessible from Sovereign Bancorp's broadcast and Investor
Relations sites. A telephone replay will be accessible from 11:00 a.m. ET
on Thursday, January 24, 2008 through 12:00 a.m. ET (midnight) on Monday,
March 24, 2008 by dialing 1-800-642-1687 in the U.S., international
706-645-9291, confirmation id # 29612456.
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 2007 and 2006 EPS purposes represent net income adjusted for
the after-tax effects of our goodwill impairment charge, 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.
ADD: /FIRST AND FINAL ADD -- NEW024 -- SOVEREIGN EARNINGS/
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2007 2007 2007 2007 2006
(dollars in millions, except
per share data)
Operating Data
Net income (loss) $(1,603.0) $58.2 $147.5 $48.1 $(129.4)
Net income (loss) for EPS
purposes (1,606.6) 54.6 150.2 44.4 (133.1)
Operating earnings for EPS
purposes (1) 93.9 95.5 170.3 179.6 166.6
Net interest income 466.0 456.8 453.4 487.9 487.0
Provision for credit losses (5) 148.2 162.5 51.0 46.0 366.0
Total fees and other income
before security gains (6) 153.2 141.4 190.3 45.9 149.4
Net gain (loss) on investment
securities (7) (179.2) 1.9 - 1.0 (36.1)
G&A expense 337.6 341.7 336.6 330.0 354.9
Other expenses (8) 1,634.4 44.0 79.5 116.8 134.5
Performance Statistics
Bancorp
Net interest margin 2.77% 2.74% 2.71% 2.70% 2.60%
Return on average assets -7.74% 0.28% 0.72% 0.22% -0.57%
Operating return on average
assets (1) 0.45% 0.46% 0.83% 0.83% 0.73%
Return on average equity -72.92% 2.63% 6.71% 2.23% -5.82%
Operating return on average
equity (1) 4.27% 4.32% 7.75% 8.34% 7.49%
Return on average tangible
equity -190.18% 6.90% 17.62% 6.01% -15.54%
Operating return on average
tangible equity (1) 11.14% 11.31% 20.35% 22.46% 20.00%
Annualized net loan charge-
offs to average loans (9) 0.42% 0.24% 0.18% 0.16% 2.75%
G & A expense to average
assets 1.63% 1.66% 1.65% 1.53% 1.56%
Efficiency ratio (2) 54.52% 57.12% 52.29% 61.83% 55.77%
Per Share Data
Basic earnings (loss)
per share $(3.34) $0.11 $0.30 $0.09 $(0.28)
Diluted earnings (loss)
per share (3.34) 0.11 0.29 0.09 (0.28)
Operating earnings per share (1) 0.18 0.19 0.33 0.35 0.33
Dividend declared per share 0.080 0.080 0.080 0.080 0.080
Common book value (3) 14.12 17.76 17.92 17.87 17.83
Common stock price:
High $17.73 $21.94 $25.16 $26.42 $25.90
Low 10.08 16.58 21.14 24.07 21.27
Close 11.40 17.04 21.14 25.44 25.39
Weighted average common shares:
Basic 481.2 480.2 478.3 475.1 473.4
Diluted (4) 481.2 480.2 512.6 475.1 473.4
End-of-period common shares:
Basic 481.4 480.4 479.1 475.7 473.8
Diluted 511.0 512.4 512.3 509.8 508.7
Year to Date
Dec. 31 Dec. 31
2007 2006
(dollars in millions, except per
share data)
Operating Data
Net income (loss) $(1,349.3) $136.9
Net income (loss) for EPS purposes (1,363.9) 129.0
Operating earnings for EPS purposes (1) 539.3 692.0
Net interest income 1,864.0 1,821.5
Provision for credit losses (5) 407.7 484.5
Total fees and other income before
security gains (6) 530.8 597.5
Net gain (loss) on investment
securities (7) (176.4) (312.0)
G&A expense 1,345.8 1,290.0
Other expenses (8) 1,874.6 313.5
Performance Statistics
Bancorp
Net interest margin 2.73% 2.75%
Return on average assets -1.62% 0.17%
Operating return on average assets (1) 0.65% 0.87%
Return on average equity -15.40% 1.82%
Operating return on average equity (1) 6.16% 9.20%
Return on average tangible equity -40.59% 4.46%
Operating return on average tangible equity (1) 16.23% 22.55%
Annualized net loan charge-offs to
average loans (9) 0.25% 0.96%
G & A expense to average assets 1.62% 1.62%
Efficiency ratio (2) 56.20% 53.33%
Per Share Data
Basic earnings (loss) per share $(2.85) $0.30
Diluted earnings (loss) per share (2.85) 0.30
Operating earnings per share (1) 1.05 1.48
Dividend declared per share 0.320 0.300
Common book value (3) 14.12 17.83
Common stock price:
High $26.42 $25.90
Low 10.08 19.57
Close 11.40 25.39
Weighted average common shares:
Basic 478.7 433.9
Diluted (4) 478.7 433.9
End-of-period common shares:
Basic 481.4 473.8
Diluted 511.0 508.7
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 Reconciliation of operating
earnings to reported earnings and Reconciliation of average equity to
average tangible equity and related operating return on average
tangible equity tables for a reconciliation of GAAP and Non GAAP
measures.
(2) 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 security gains.
(3) Common book value equals common stockholders' equity at period-end
divided by common shares outstanding.
(4) 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 majority of the periods above since the result
would have been anti-dilutive. However, for operating earnings
purposes these items are dilutive and as a result they have been added
back for operating earnings and operating earnings per share purposes.
(5) The fourth quarter of 2007 includes approximately $63 million of
additional provisions for our consumer and residential loan
portfolios. The third quarter of 2007 includes an additional provision
of $47 million on our retained correspondent home equity portfolio as
well as $37 million of additional reserves allocated to our indirect
auto portfolio due to increased losses experienced in the third
quarter and higher projected losses in future periods. 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.
(6) The fourth quarter of 2007 includes charges of $27.4 million on
repurchase agreements with mortgage related entities who defaulted on
their obligations. The third quarter of 2007 includes lower of cost or
market adjustments of $11.7 million on certain loan portfolios that
were classified as held for sale. Additionally, the third quarter of
2007 includes a charge of $19.4 million on certain financing
transactions with mortgage related entities. The second quarter of
2007 includes a gain of $13.8 million on a commercial mortgage backed
securitization. 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.
(7) The fourth quarter of 2007 includes an other-than-temporary impairment
charge of $180.5 million on FNMA and FHLMC preferred stock. The fourth
quarter of 2006 includes a loss of $43 million associated with the
sale of $1.5 billion of CMO investments.
(8) The fourth quarter of 2007 includes a $1.6 billion goodwill impairment
charge related to our Consumer and Metro New York operating segments.
The second quarter of 2007 includes net restructuring and debt
extinguishment charges of $32.7 million. 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.
(9) Charge-offs for the fourth quarter of 2006 include $389.5 million of
charge-offs related to the lower of cost or market valuation
adjustments recorded for correspondent home equity and residential
loan portfolios that are held for sale as well as a $14 million
charge-off on a large commercial loan.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2007 2007 2007 2007 2006
(dollars in millions)
Financial Condition Data:
General
Total assets $84,746 $86,607 $82,737 $82,194 $89,642
Loans (1) 57,780 57,148 56,527 56,125 62,589
Total deposits and customer
related accounts: 49,916 50,098 49,845 52,563 52,385
Core deposits and other
customer related accounts 35,013 34,472 34,722 37,001 36,321
Time deposits 14,903 15,626 15,123 15,562 16,064
Borrowings 26,126 26,161 22,462 19,162 26,850
Minority interests 146 146 146 157 156
Stockholders' equity 6,992 8,726 8,780 8,695 8,644
Goodwill 3,426 5,003 5,003 5,006 5,005
Core deposit and other
intangibles 372 402 433 465 498
Asset Quality
Non-performing assets (2) $361.6 $336.7 $282.4 $278.4 $235.6
Non-performing loans (2) 304.3 282.4 239.9 242.0 207.9
Non-performing assets to
total assets (2) (3) 0.43% 0.39% 0.34% 0.34% 0.29%
Non-performing loans
to loans (2) (3) 0.53% 0.49% 0.42% 0.43% 0.38%
Allowance for credit losses $737.7 $650.0 $521.1 $503.3 $486.3
Allowance for credit losses
to total loans (3) 1.28% 1.14% 0.92% 0.90% 0.88%
Allowance for credit losses
to non-performing loans (2) 242% 230% 217% 208% 234%
Capitalization - Bancorp (4)
Stockholders' equity to
total assets 8.25% 10.08% 10.61% 10.58% 9.64%
Tier 1 leverage
capital ratio 5.89% 6.03% 6.40% 6.29% 5.73%
Tangible equity to
tangible assets 3.95% 4.09% 4.33% 4.20% 3.73%
Tangible common equity to
tangible assets 3.70% 3.85% 4.07% 3.95% 3.50%
Capitalization - Bank (4)
Stockholders' equity
to total assets 10.30% 12.05% 12.71% 12.80% 11.76%
Tier 1 leverage
capital ratio 6.53% 6.63% 6.93% 6.80% 6.22%
Tier 1 risk-based
capital ratio 7.54% 7.66% 7.83% 7.77% 7.52%
Total risk-based
capital ratio 10.40% 10.37% 10.45% 10.48% 10.07%
(1) Loans at December 31, 2006 include $7.6 billion of loans held for
sale.
(2) Non-performing loans and non-performing assets at December 31, 2007
and September 30, 2007 include $39.4 million and $41.5 million of
loans related to our correspondent home equity portfolio that began to
be included in these totals as a result of the additional provision
for credit losses that was recorded in the third quarter of 2007.
Non-performing loans and assets at June 30, 2007 and March 31, 2007
exclude $51.6 million and $22.4 million, respectively, of
correspondent home equity loans that were written down to fair value
at March 31, 2007 since credit losses related to these loans were
considered in our lower of cost or market adjustment at
March 31, 2007. Sovereign reclassified these loans back into our loan
portfolio at 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 June 30, 2007 and March 31, 2007
exclude approximately $491 million and $574 million, respectively, of
loans that were 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)
Dec. 31 Sept. 30 June 30
(dollars in thousands) 2007 2007 2007
Assets
Cash and amounts due
from depository institutions $3,130,770 $3,992,731 $1,867,294
Investments:
Available-for-sale 13,941,847 14,307,929 13,303,432
Other investments 1,200,545 981,921 798,452
Total investments 15,142,392 15,289,850 14,101,884
Loans:
Commercial 30,912,972 29,912,883 29,547,839
Consumer 26,866,807 27,235,481 26,979,279
Total loans (1) 57,779,779 57,148,364 56,527,118
Less allowance for loan losses (709,444) (629,747) (503,685)
Total loans, net 57,070,335 56,518,617 56,023,433
Premises and equipment, net 562,332 559,040 570,074
Accrued interest receivable 350,534 384,812 368,849
Goodwill 3,426,246 5,003,022 5,003,195
Core deposit and other intangibles 372,116 402,257 433,164
Bank owned life insurance 1,794,099 1,773,829 1,764,137
Other assets 2,897,572 2,683,170 2,605,061
Total assets $84,746,396 $86,607,328 $82,737,091
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer
related accounts:
Core and other customer
related accounts $35,012,911 $34,471,615 $34,721,501
Time deposits 14,902,994 15,626,433 15,123,134
Total 49,915,905 50,098,048 49,844,635
Borrowings and other debt
obligations 26,126,082 26,161,337 22,461,638
Other liabilities 1,565,654 1,475,954 1,504,788
Total liabilities 77,607,641 77,735,339 73,811,061
Minority interests 146,430 146,075 145,742
Stockholders' equity:
Preferred Stock 195,445 195,445 195,445
Common Stock 6,295,572 6,277,292 6,253,146
Warrants and stock options 348,365 347,630 346,278
Unallocated ESOP shares - - -
Treasury stock (19,853) (20,359) (21,303)
Accumulated other
comprehensive loss (326,133) (218,155) (121,184)
Retained earnings 498,929 2,144,061 2,127,906
Total stockholders' equity 6,992,325 8,725,914 8,780,288
Total liabilities and
stockholders' equity $84,746,396 $86,607,328 $82,737,091
Mar. 31 Dec. 31
(dollars in thousands) 2007 2006
Assets
Cash and amounts due from
depository institutions $1,669,623 $1,804,117
Investments:
Available-for-sale 13,640,209 13,874,628
Other investments 703,738 1,003,012
Total investments 14,343,947 14,877,640
Loans:
Commercial 29,852,212 30,472,343
Consumer 26,273,285 32,116,253
Total loans (1) 56,125,497 62,588,596
Less allowance for loan losses (487,286) (471,030)
Total loans, net 55,638,211 62,117,566
Premises and equipment, net 588,695 605,707
Accrued interest receivable 363,013 422,901
Goodwill 5,006,290 5,005,185
Core deposit and other intangibles 465,421 498,420
Bank owned life insurance 1,745,145 1,725,222
Other assets 2,373,220 2,585,091
Total assets $82,193,565 $89,641,849
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related accounts:
Core and other customer
related accounts $37,001,193 $36,320,674
Time deposits 15,561,764 16,063,880
Total 52,562,957 52,384,554
Borrowings and other debt obligations 19,162,252 26,849,717
Other liabilities 1,616,574 1,606,794
Total liabilities 73,341,783 80,841,065
Minority interests 156,896 156,385
Stockholders' equity:
Preferred Stock 195,445 195,445
Common Stock 6,186,470 6,183,281
Warrants and stock options 344,979 343,391
Unallocated ESOP shares (19,019) (19,019)
Treasury stock (22,257) (49,028)
Accumulated other
comprehensive loss (13,177) (24,746)
Retained earnings 2,022,445 2,015,075
Total stockholders' equity 8,694,886 8,644,399
Total liabilities and
stockholders' equity $82,193,565 $89,641,849
(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 thousands, Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
except per share data) 2007 2007 2007 2007 2006
Interest and dividend income:
Interest on
interest-earning
deposits $1,615 $7,117 $4,144 $6,236 $6,274
Interest on investment
securities
Available for sale 173,803 177,125 180,252 189,835 192,996
Held to maturity - - - - -
Other 14,279 11,886 11,179 14,301 19,508
Interest on loans 949,643 954,014 943,860 1,016,967 1,035,224
Total interest and
dividend income 1,139,340 1,150,142 1,139,435 1,227,339 1,254,002
Interest expense:
Deposits and related
customer accounts 395,768 408,680 409,616 413,251 421,472
Borrowings 277,548 284,701 276,435 326,235 345,498
Total interest
expense 673,316 693,381 686,051 739,486 766,970
Net interest income 466,024 456,761 453,384 487,853 487,032
Provision for credit
losses (3) 148,192 162,500 51,000 46,000 365,961
Net interest income
after provision for
credit losses 317,832 294,261 402,384 441,853 121,071
Non-interest income:
Consumer banking fees 77,420 73,113 77,268 68,014 73,389
Commercial banking
fees (5) 56,695 44,155 52,046 49,408 48,405
Mortgage banking
revenue (1) 9,161 3,752 26,500 (107,205) (7,606)
Capital markets revenue (18,310) (12,627) 5,982 5,689 7,358
Bank owned life
insurance income 20,633 24,439 20,274 20,509 20,237
Other 7,584 8,557 8,227 9,467 7,586
Total fees and
other income before
security gains 153,183 141,389 190,297 45,882 149,369
Net gain/ (loss) on
securities (4) (179,209) 1,884 - 970 (36,089)
Total non-interest
income (26,026) 143,273 190,297 46,852 113,280
Non-interest expense:
General and administrative
Compensation and
benefits 155,856 172,319 171,557 173,796 176,851
Occupancy and equipment 77,325 75,217 75,637 80,519 79,221
Technology expense 25,177 23,940 23,812 23,336 25,680
Outside services 18,828 16,434 16,969 15,278 19,920
Marketing expense 13,881 16,296 17,092 8,832 15,731
Other administrative
expenses 46,537 37,440 31,525 28,235 37,496
Total general and
administrative 337,604 341,646 336,592 329,996 354,899
Other expenses:
Core deposit & other
intangibles 30,141 31,066 32,257 33,253 34,302
Goodwill impairment 1,576,776 - - - -
Other minority interest
expense and equity
method expense 27,448 6,913 14,487 18,415 10,974
Loss on economic hedges - - - - -
Proxy and related
professional fees - - (125) (391) -
Restructuring, other
employee severance and
debt repurchase charges - 6,029 35,938 20,032 78,668
ESOP expense related to
freezing of plan - - (3,266) 43,385 -
Merger-related and
integration charges - - 166 2,076 10,558
Total other
expenses 1,634,365 44,008 79,457 116,770 134,502
Total non-
interest expense 1,971,969 385,654 416,049 446,766 489,401
Income/ (loss)
before income
taxes (1,680,163) 51,880 176,632 41,939 (255,050)
Income tax expense/
(benefit) (77,180) (6,330) 29,180 (6,120) (125,610)
Net income/
(loss) $(1,602,983) $58,210 $147,452 $48,059 $(129,440)
(1) Mortgage banking activity
is summarized below:
(Losses)/ gains on sale
of mortgage loans and
related securities,
multifamily loans,
and home equity
loans (2) $12,075 $6,354 $9,065 $(103,788) $(7,838)
Net gains/ (loss)
recorded on commercial
mortgage backed
securitization (666) (5,355) 13,772 (3,276) -
Net gains/ (loss)
recorded under SFAS 133 (2,125) 1,781 783 (388) 821
Mortgage servicing fees,
net of mortgage
servicing rights
amortization 1,948 972 2,224 247 2,863
Mortgage servicing right
recoveries/(impairments) (2,071) - 656 - (3,452)
Total mortgage banking
revenues $9,161 $3,752 $26,500 $(107,205) $(7,606)
Year to Date
(dollars in thousands, Dec. 31 Dec. 31
except per share data) 2007 2006
Interest and dividend income:
Interest on interest-earning deposits $19,112 $16,752
Interest on investment securities
Available for sale 721,015 602,575
Held to maturity - 104,026
Other 51,645 51,414
Interest on loans 3,864,484 3,551,637
Total interest and dividend income 4,656,256 4,326,404
Interest expense:
Deposits and related customer accounts 1,627,315 1,372,197
Borrowings 1,164,919 1,132,659
Total interest expense 2,792,234 2,504,856
Net interest income 1,864,022 1,821,548
Provision for credit losses (3) 407,692 484,461
Net interest income after provision
for credit losses 1,456,330 1,337,087
Non-interest income:
Consumer banking fees 295,815 275,952
Commercial banking fees (5) 202,304 179,060
Mortgage banking revenue (1) (67,792) 24,239
Capital markets revenue (19,266) 17,569
Bank owned life insurance income 85,855 67,039
Other 33,835 33,677
Total fees and other income before
security gains 530,751 597,536
Net gain/(loss) on securities (4) (176,355) (311,962)
Total non-interest income 354,396 285,574
Non-interest expense:
General and administrative
Compensation and benefits 673,528 652,703
Occupancy and equipment 308,698 290,163
Technology expense 96,265 95,488
Outside services 67,509 69,195
Marketing expense 56,101 55,053
Other administrative expenses 143,737 127,387
Total general and administrative 1,345,838 1,289,989
Other expenses:
Core deposit & other intangibles 126,717 109,838
Goodwill impairment 1,576,776 -
Other minority interest expense
and equity method expense 67,263 56,891
Loss on economic hedges - 11,387
Proxy and related professional fees (516) 14,337
Restructuring, other employee severance
and debt repurchase charges 61,999 78,668
ESOP expense related to freezing of plan 40,119 -
Merger-related and integration charges 2,242 42,420
Total other expenses 1,874,600 313,541
Total non-interest expense 3,220,438 1,603,530
Income/ (loss) before income taxes (1,409,712) 19,131
Income tax expense/ (benefit) (60,450) (117,780)
Net income/ (loss) $(1,349,262) $136,911
(1) Mortgage banking activity
is summarized below:
(Losses)/gains on sale of mortgage loans
and related securities, multifamily
loans, and home equity loans (2) $(76,294) $19,725
Net gains/(loss) recorded on commercial
mortgage backed securitization 4,475 -
Net gains/(loss) recorded under SFAS 133 51 825
Mortgage servicing fees, net of mortgage
servicing rights amortization 5,391 10,812
Mortgage servicing right
recoveries/(impairments) (1,415) (7,123)
Total mortgage banking revenues $(67,792) $24,239
(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 2007 includes approximately $63 million of
additional provisions for our consumer and residential loan
portfolios. The third quarter of 2007 includes an additional provision
of $47 million on our retained correspondent home equity portfolio as
well as $37 million of additional reserves allocated to our indirect
auto portfolio due to increased losses experienced in the third
quarter and higher projected losses in future periods. 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 as a $14 million commercial loan charge-off.
(4) Results for the fourth quarter of 2007 include a $180.5 million
other-than-temporary impairment charge on FNMA & FHLMC preferred
stock. The fourth quarter of 2006 includes a loss of $43 million
associated with the sale of $1.5 billion of CMO investments.
(5) The third quarter of 2007 includes a lower of cost or market
adjustment of $6.2 million on our loan syndication trading portfolio.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
December 31, 2007
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $13,647,483 $209,735 6.14%
Loans:
Commercial 26,173,382 461,231 7.00%
Multi-Family 4,154,457 63,449 6.10%
Consumer:
Residential mortgages 13,744,182 195,405 5.69%
Home equity loans and lines
of credit 6,116,026 100,575 6.52%
Total consumer loans secured by
real estate 19,860,208 295,980 5.94%
Auto Loans 6,996,034 125,840 7.14%
Other 312,253 7,092 9.01%
Total Consumer 27,168,495 428,912 6.29%
Total loans 57,496,334 953,592 6.60%
Allowance for loan losses (641,102)
Total earning assets 70,502,715 $1,163,327 6.57%
Other assets 11,688,168
Total assets $82,190,883
Funding liabilities:
Deposits and other customer
related accounts:
NOW accounts $5,297,687 $14,143 1.06%
NOW accounts - government &
wholesale 3,998,074 47,975 4.76%
Customer repurchase agreements 2,877,569 26,779 3.69%
Savings accounts 3,889,735 6,562 0.67%
Money market accounts 10,530,726 94,979 3.58%
Money market accounts- wholesale 1,768,085 21,272 4.77%
Core and other customer
related accounts 28,361,876 211,710 2.96%
Time deposits 11,955,486 141,748 4.70%
Time deposits - wholesale 3,466,108 42,310 4.84%
Total deposits and other customer
related accounts 43,783,470 395,768 3.59%
Borrowings:
Wholesale borrowings 18,145,623 220,972 4.85%
Other borrowings 3,621,933 56,576 5.94%
Total borrowings 21,767,556 277,548 5.08%
Total funding liabilities 65,551,026 673,316 4.08%
Non-interest bearing DDA 6,399,359
Other liabilities 1,518,784
Total liabilities 73,469,169
Stockholders' equity 8,721,714
Total liabilities and
stockholders' equity $82,190,883
Net interest income $490,011
Interest rate spread 2.49%
Contribution from interest free funds 0.29%
Net interest margin 2.77%
Quarter Ended
September 30, 2007
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $13,850,369 $216,252 6.24%
Loans:
Commercial 25,429,487 464,984 7.26%
Multi-Family 3,975,580 61,708 6.20%
Consumer:
Residential mortgages 14,357,561 203,676 5.67%
Home equity loans and lines
of credit 5,974,643 102,033 6.78%
Total consumer loans secured by
real estate 20,332,204 305,709 6.00%
Auto Loans 6,616,774 118,324 7.09%
Other 320,848 7,042 8.71%
Total Consumer 27,269,826 431,075 6.30%
Total loans 56,674,893 957,767 6.72%
Allowance for loan losses (522,102)
Total earning assets 70,003,160 $1,174,019 6.68%
Other assets 11,594,008
Total assets $81,597,168
Funding liabilities:
Deposits and other customer
related accounts:
NOW accounts $5,497,403 $15,225 1.10%
NOW accounts - government &
wholesale 3,825,292 49,944 5.18%
Customer repurchase agreements 2,643,836 28,869 4.33%
Savings accounts 4,144,517 6,914 0.66%
Money market accounts 10,224,580 93,751 3.64%
Money market accounts - wholesale 1,862,865 25,211 5.37%
Core and other customer
related accounts 28,198,493 219,914 3.09%
Time deposits 11,323,566 134,570 4.71%
Time deposits - wholesale 4,068,060 54,196 5.29%
Total deposits and other customer
related accounts 43,590,119 408,680 3.72%
Borrowings:
Wholesale borrowings 17,654,582 225,169 5.08%
Other borrowings 3,736,339 59,532 6.06%
Total borrowings 21,390,921 284,701 5.30%
Total funding liabilities 64,981,040 693,381 4.24%
Non-interest bearing DDA 6,403,572
Other liabilities 1,439,105
Total liabilities 72,823,717
Stockholders' equity 8,773,451
Total liabilities and stockholders'
equity $81,597,168
Net interest income $480,638
Interest rate spread 2.44%
Contribution from interest free funds 0.30%
Net interest margin 2.74%
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 $6,125,346 $17,704 1.15%
NOW accounts - government &
wholesale 3,977,652 51,616 5.15%
Customer repurchase agreements 2,182,447 26,409 4.80%
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 11,535,214 129,741 4.46%
Time deposits - wholesale 4,933,950 65,918 5.30%
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%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
December 31, 2007
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,180,066 $872,232 6.15%
Loans:
Commercial 25,422,607 1,823,144 7.17%
Multi-Family 4,657,978 296,126 6.36%
Consumer:
Residential mortgages 14,525,467 825,685 5.68%
Home equity loans and lines
of credit 6,868,727 469,760 6.84%
Total consumer loans secured by
real estate 21,394,194 1,295,445 6.06%
Auto Loans 6,187,487 433,172 7.00%
Other 360,486 31,248 8.67%
Total Consumer 27,942,167 1,759,865 6.30%
Total loans 58,022,752 3,879,135 6.69%
Allowance for loan losses (533,263)
Total earning assets 71,669,555 $4,751,367 6.63%
Other assets 11,646,477
Total assets $83,316,032
Funding liabilities:
Deposits and other customer
related accounts:
NOW accounts $5,682,868 $61,599 1.08%
NOW accounts - government &
wholesale 4,022,516 203,411 5.06%
Customer repurchase agreements 2,545,304 108,137 4.25%
Savings accounts 4,258,897 27,839 0.65%
Money market accounts 9,902,914 347,077 3.50%
Money market accounts - wholesale 2,443,111 130,807 5.35%
Core and other customer
related accounts 28,855,610 878,870 3.05%
Time deposits 11,383,634 531,994 4.67%
Time deposits - wholesale 4,112,903 216,451 5.26%
Total deposits and other customer
related accounts 44,352,147 1,627,315 3.67%
Borrowings:
Wholesale borrowings 17,754,787 889,480 5.01%
Other borrowings 4,492,313 275,439 6.13%
Total borrowings 22,247,100 1,164,919 5.24%
Total funding liabilities 66,599,247 2,792,234 4.19%
Non-interest bearing DDA 6,386,359
Other liabilities 1,568,869
Total liabilities 74,554,475
Stockholders' equity 8,761,557
Total liabilities and
stockholders' equity $83,316,032
Net interest income $1,959,133
Interest rate spread 2.44%
Contribution from interest free funds 0.30%
Net interest margin 2.73%
Year to Date
December 31, 2006
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,600,283 $850,163 5.82%
Loans:
Commercial 20,833,022 1,489,484 7.15%
Multi-Family 3,612,737 224,290 6.21%
Consumer:
Residential mortgages 15,770,676 888,546 5.63%
Home equity loans and lines
of credit 10,119,375 654,760 6.47%
Total consumer loans secured by
real estate 25,890,051 1,543,306 5.96%
Auto Loans 4,457,932 266,806 5.98%
Other 452,029 37,201 8.23%
Total Consumer 30,800,012 1,847,313 6.00%
Total loans 55,245,771 3,561,087 6.45%
Allowance for loan losses (489,775)
Total earning assets 69,356,279 $4,411,250 6.36%
Other assets 10,139,116
Total assets $79,495,395
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $5,580,571 $50,991 0.91%
NOW accounts - government &
wholesale 4,293,111 215,557 5.02%
Customer repurchase agreements 1,639,453 74,470 4.54%
Savings accounts 4,286,355 29,660 0.69%
Money market accounts 8,346,033 225,167 2.70%
Money market accounts - wholesale 2,558,549 137,802 5.39%
Core and other customer related
accounts 26,704,072 733,647 2.75%
Time deposits 9,870,673 405,215 4.11%
Time deposits - wholesale 4,590,768 233,335 5.08%
Total deposits and other customer
related accounts 41,165,513 1,372,197 3.33%
Borrowings:
Wholesale borrowings 18,322,761 854,241 4.66%
Other borrowings 5,054,931 278,418 5.51%
Total borrowings 23,377,692 1,132,659 4.85%
Total funding liabilities 64,543,205 2,504,856 3.88%
Non-interest bearing DDA 6,020,184
Other liabilities 1,412,368
Total liabilities 71,975,757
Stockholders' equity 7,519,638
Total liabilities and
stockholders' equity $79,495,395
Net interest income $1,906,394
Interest rate spread 2.48%
Contribution from interest free funds 0.27%
Net interest margin 2.75%
(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) 2007 2007 2007 2007 2006
Non-accrual loans:
Consumer:
Residential mortgages $90,881 $79,909 $69,392 $62,864 $47,687
Home equity loans and
lines of credit (1) 56,099 53,974 12,875 12,131 10,312
Auto loans 1,359 730 620 416 191
Other consumer loans 2,087 2,076 1,714 1,504 2,764
Total consumer loans 150,426 136,689 84,601 76,915 60,954
Commercial real estate 68,086 66,977 74,077 87,896 77,196
Commercial and
industrial and other 85,406 78,251 80,706 76,668 69,207
Total non-accrual loans 303,918 281,917 239,384 241,479 207,357
Restructured loans 370 443 503 552 557
Total non-performing
loans (1) 304,288 282,360 239,887 242,031 207,914
Real estate owned, net 43,226 43,517 34,724 29,655 22,562
Other repossessed assets 14,062 10,861 7,755 6,722 5,126
Total non-performing
assets (1) $361,576 $336,738 $282,366 $278,408 $235,602
Non-performing loans as
a percentage of
loans (1) (2) 0.53% 0.49% 0.42% 0.43% 0.38%
Non-performing assets as
a percentage of total
assets (1) (2) 0.43% 0.39% 0.34% 0.34% 0.29%
Non-performing assets as
a percentage of total
loans, real estate
owned and repossessed
assets (1) (2) 0.63% 0.59% 0.50% 0.50% 0.43%
Allowance for credit
losses as a percentage
of non-performing
loans (1) 242% 230% 217% 208% 234%
NET LOAN CHARGE-OFFS
Quarters ended (in Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
thousands) 2007 2007 2007 2007 2006
Commercial real estate $4,591 $2,401 $2,766 $5,782 $(282)
Commercial and
industrial and
other (3) 13,647 8,387 6,820 6,089 18,651
Total commercial 18,238 10,788 9,586 11,871 18,369
Residential mortgages (4) 3,631 1,715 1,558 564 8,028
Home equity loans and lines
of credit (5) 3,808 883 1,934 1,523 399,609
Total consumer loans secured
by real estate 7,439 2,598 3,492 2,087 407,637
Auto loans 34,345 19,448 12,305 10,115 9,574
Other consumer loans 469 734 291 17 453
Total consumer 42,253 22,780 16,088 12,219 417,664
Total loan charge-offs $60,491 $33,568 $25,674 $24,090 $436,033
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT
LOSSES
Quarters ended (in Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
thousands) 2007 2007 2007 2007 2006
Provision for loan
losses (6) $140,188 $159,630 $49,589 $45,239 $364,309
Provision/(recoveries)
for unfunded commitments 8,004 2,870 1,411 761 1,652
Total provision for
credit losses $148,192 $162,500 $51,000 $46,000 $365,961
Allowance for loan
losses $709,444 $629,747 $503,685 $487,286 $471,030
Reserve for unfunded
commitments 28,301 20,297 17,427 16,016 15,255
Total allowance for
credit losses $737,745 $650,044 $521,112 $503,302 $486,285
(1) Non-performing loans and non-performing assets at December 31, 2007
and September 30, 2007 include $39.4 million and $41.5 million of
loans related to our correspondent home equity loan portfolio that
began to be included in these totals as a result of the additional
provision for credit losses that was recorded in the third quarter of
2007. Non-performing loans and non-performing assets exclude $51.6
million and $22.4 million of non-accrual loans at June 30, 2007 and
March 31, 2007 related to correspondent home equity loans that had
been previously classified as held for sale since 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 this ratio at September 30, 2007 includes $41.5
million of non-performing loans related to our correspondent home
equity portfolio. The calculation of these ratios at June 30, 2007
and March 31, 2007 exclude approximately $491 million and $574 million
of loans that were 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) The 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
$296 million.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Loan Composition - End of Period ($)
ADDITIONAL CREDIT QUALITY
STATISTICS % of Total Loans
Dec. 31 Sept. 30 Dec. 31
Quarters ended (in thousands) 2007 2007 2006
Commercial real estate and
multifamily $16,553,284 $15,859,984 $17,283,434
29% 28% 28%
Commercial and industrial and
other commercial 14,359,688 14,052,899 13,188,910
25% 25% 21%
Residential mortgages 13,341,193 14,009,891 17,404,730
23% 25% 28%
Home equity loans and lines
of credit 6,197,148 6,058,143 9,443,560
11% 11% 15%
Auto loans 7,028,894 6,853,381 4,848,204
12% 12% 8%
Net Loan Charge-Offs ($)
ADDITIONAL CREDIT QUALITY Annualized Net Loan Charge-Offs to
STATISTICS Average Loans (%)
Dec. 31 Sept. 30 Dec. 31
Quarters ended (in thousands) 2007 2007 2006
Commercial real estate and
multifamily $4,591 $2,401 $(282)
0.11% 0.06% -0.01%
Commercial and industrial and
other commercial (1) 13,647 8,387 18,651
0.39% 0.25% 0.58%
Residential mortgages (2) 3,631 1,715 8,028
0.11% 0.05% 0.18%
Home equity loans and lines
of credit (3) 3,808 883 399,609
0.25% 0.06% 15.76%
Auto loans 34,345 19,448 9,574
1.96% 1.18% 0.83%
Total Past Dues Excluding
Non-Accruals ($)
ADDITIONAL CREDIT QUALITY
STATISTICS Total Past Dues to Total Loans (%)
Dec. 31 Sept. 30 Dec. 31
Quarters ended (in thousands) 2007 2007 2006
Commercial real estate and
multifamily $71,744 $96,615 $54,612
0.43% 0.61% 0.32%
Commercial and industrial and
other commercial 68,531 70,216 47,475
0.48% 0.50% 0.36%
Residential mortgages 360,982 371,341 315,803
2.71% 2.65% 1.81%
Home equity loans and lines
of credit 34,148 29,043 26,812
0.55% 0.48% 0.28%
Auto loans 214,648 141,332 81,573
3.05% 2.06% 1.68%
(1) The fourth quarter of 2006 includes a $14 million commercial loan
charge-off, which equates to 44 basis points.
(2) The 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, which equates to 16 basis points.
(3) 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.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2007 2007 2007
Demand deposit accounts $6,444,338 $6,272,412 $6,313,408
NOW accounts 5,546,280 5,352,228 5,950,960
NOW accounts - government &
wholesale 4,014,284 4,319,805 3,661,659
Customer repurchase agreements 2,754,680 2,726,686 2,525,932
Savings accounts 3,831,636 3,984,551 4,312,492
Money market accounts 10,655,978 10,258,960 10,005,554
Money market accounts - government &
wholesale 1,765,715 1,556,973 1,951,496
Time deposits 11,872,400 11,970,145 10,996,111
Time deposits - wholesale 3,030,594 3,656,288 4,127,023
Total deposits and other customer
related accounts $49,915,905 $50,098,048 $49,844,635
LOAN COMPOSITION - End of period
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2007 2007 2007
Commercial real estate $12,306,914 $11,821,651 $11,741,479
Commercial industrial loans 12,594,652 12,355,754 12,186,379
Multi-family 4,246,370 4,038,333 4,000,527
Other 1,765,036 1,697,145 1,619,454
Total commercial loans 30,912,972 29,912,883 29,547,839
Residential mortgages 13,341,193 14,009,891 14,387,342
Home equity loans and lines of
credit 6,197,148 6,058,143 5,954,925
Total consumer loans secured by
real estate 19,538,341 20,068,034 20,342,267
Auto loans 7,028,894 6,853,381 6,320,010
Other consumer loans 299,572 314,066 317,002
Total consumer loans 26,866,807 27,235,481 26,979,279
Total loans $57,779,779 $57,148,364 $56,527,118
DEPOSIT AND OTHER CUSTOMER RELATED
ACCOUNT COMPOSITION - Average
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2007 2007 2007
Demand deposit accounts $6,399,359 $6,403,572 $6,421,910
NOW accounts 5,297,687 5,497,403 5,935,760
NOW accounts - government &
wholesale 3,998,074 3,825,292 4,170,249
Customer repurchase agreements 2,877,569 2,643,836 2,389,302
Savings accounts 3,889,735 4,144,517 4,437,785
Money market accounts 10,530,726 10,224,580 9,687,237
Money market accounts - government &
wholesale 1,768,085 1,862,865 2,525,720
Time deposits 11,955,486 11,323,566 11,004,592
Time deposits - wholesale 3,466,108 4,068,060 4,425,195
Total deposits and other customer
related accounts $50,182,829 $49,993,691 $50,997,750
LOAN COMPOSITION - Average
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2007 2007 2007
Commercial real estate $12,139,086 $11,746,854 $11,737,900
Commercial industrial loans 12,311,586 12,049,755 12,146,382
Multi-family 4,154,457 3,975,580 4,637,577
Other 1,722,710 1,632,878 1,586,118
Total commercial loans 30,327,839 29,405,067 30,107,977
Residential mortgages 13,744,182 14,357,561 14,429,334
Home equity loans and lines
of credit 6,116,026 5,974,643 5,933,285
Total consumer loans secured by
real estate 19,860,208 20,332,204 20,362,619
Auto loans 6,996,034 6,616,774 5,926,390
Other consumer loans 312,253 320,848 388,325
Total consumer loans 27,168,495 27,269,826 26,677,334
Total loans $57,496,334 $56,674,893 $56,785,311
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Mar. 31 Dec. 31
Quarters ended (in thousands) 2007 2006
Demand deposit accounts $6,420,046 $6,577,585
NOW accounts 6,159,701 6,333,667
NOW accounts - government & wholesale 5,008,897 3,573,861
Customer repurchase agreements 2,310,290 2,206,445
Savings accounts 4,558,367 4,637,346
Money market accounts 9,452,904 8,875,353
Money market accounts - government &
wholesale 3,090,988 4,116,417
Time deposits 11,144,281 11,336,147
Time deposits - wholesale 4,417,483 4,727,733
Total deposits and other customer
related accounts $52,562,957 $52,384,554
LOAN COMPOSITION - End of period
Mar. 31 Dec. 31
Quarters ended (in thousands) 2007 2006
Commercial real estate $11,584,728 $11,514,983
Commercial industrial loans 11,922,506 11,670,307
Multi-family 4,806,028 5,768,451
Other 1,538,950 1,518,603
Total commercial loans 29,852,212 30,472,344
Residential mortgages 14,403,371 17,404,730
Home equity loans and lines of
credit 5,932,136 9,443,560
Total consumer loans secured by
real estate 20,335,507 26,848,290
Auto loans 5,526,953 4,848,204
Other consumer loans 410,825 419,758
Total consumer loans 26,273,285 32,116,252
Total loans $56,125,497 $62,588,596
DEPOSIT AND OTHER CUSTOMER RELATED
ACCOUNT COMPOSITION - Average
Mar. 31 Dec. 31
Quarters ended (in thousands) 2007 2006
Demand deposit accounts $6,335,301 $6,596,008
NOW accounts 5,994,720 6,125,347
NOW accounts - government & wholesale 4,099,733 3,977,652
Customer repurchase agreements 2,262,732 2,182,446
Savings accounts 4,572,309 4,755,332
Money market accounts 9,150,410 8,688,901
Money market accounts - government &
wholesale 3,642,754 3,999,190
Time deposits 11,243,730 11,535,214
Time deposits - wholesale 4,504,148 4,933,950
Total deposits and other customer
related accounts $51,805,837 $52,794,040
LOAN COMPOSITION - Average
Mar. 31 Dec. 31
Quarters ended (in thousands) 2007 2006
Commercial real estate $11,513,005 $11,421,431
Commercial industrial loans 11,566,055 11,347,975
Multi-family 5,890,879 6,103,412
Other 1,520,732 1,427,147
Total commercial loans 30,490,671 30,299,965
Residential mortgages 15,592,954 17,897,922
Home equity loans and lines of
credit 9,497,940 10,145,548
Total consumer loans secured by
real estate 25,090,894 28,043,470
Auto loans 5,186,143 4,628,603
Other consumer loans 422,161 427,026
Total consumer loans 30,699,198 33,099,099
Total loans $61,189,869 $63,399,064
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating earnings for EPS purposes represents net income excluding the
after-tax effects of certain items, such as significant gains or losses
that are unusual in nature or are associated with acquiring or integrating
businesses, and certain other charges. The table below reconciles our
GAAP earnings to operating earnings for EPS purposes.
(dollars in thousands, except per share
data - all amounts are after tax) Quarter Ended
Total dollars
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2007 2007 2007 2007 2006
Net income/ (loss)
as reported $(1,602,983) $58,210 $147,452 $48,059 $(129,440)
Dividends on
preferred stock (3,650) (3,650) (3,650) (3,650) (3,650)
Net income available
to common
shareholders (1,606,633) 54,560 143,802 44,409 (133,090)
Contingently
convertible
trust preferred
interest expense,
net of tax - - 6,413 - -
Net income/ (loss)
for EPS purposes $(1,606,633) $54,560 $150,215 $44,409 $(133,090)
Non GAAP adjustments
to adjust antidilutive EPS
Net income available
to common
shareholders $(1,606,633) $54,560 $44,409 (133,090)
Trust IV expense,
net of tax 6,434 6,423 6,412 6,354
Antidilutive net income/
(loss) for operating
EPS calculation $(1,600,199) $60,983 $50,821 (126,736)
Reconciliation to
Operating earnings EPS
Net income/ (loss)
for Operating earnings
EPS purposes $(1,600,199) $60,983 $150,215 $50,821 (126,736)
Merger costs/ proxy
and related
professional fees - - 26 1,074 6,863
Goodwill impairment 1,576,776 - - - -
Provision for credit
losses - 30,550 - - 192,374
Loss on economic hedges - - - - -
Loss on investment
restructuring - - - - 27,961
Loss on mortgage banking
loan sale restructuring - - - - 14,954
Loss on restructuring,
other employee severance
and debt repurchase
charges - 3,919 23,360 12,771 51,134
ESOP expense related
to freezing of plan - - (3,266) 43,385 -
Hedge loss on sale of
multifamily loans - - - (3,860) -
Investment impairments/
(recoveries) and loss
on sale of
securities 117,344 - - (953) -
Writedown on
correspondent home
equity loans - - - 76,394 -
Operating earnings for
EPS purposes $93,921 $95,452 $170,335 $179,632 $166,550
Weighted average
diluted shares
for GAAP EPS 481,186 480,171 512,641 475,115 473,404
Add back of diluted
shares for
operating EPS
not factored into GAAP
diluted shares due to
antidilution (1) 30,256 32,480 - 34,353 34,583
Adjusted weighted
average diluted
shares for Operating
EPS 511,442 512,651 512,641 509,468 507,987
(dollars in thousands, except per share
data - all amounts are after tax) Quarter Ended
Per share
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
2007 2007 2007 2007 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 $(3.34) $0.11 $0.29 $0.09 $(0.28)
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 $(3.13) $0.12 $0.29 $0.10 $(0.25)
EPS purposes
Merger costs/ proxy
and related
professional fees - - 0.00 0.00 0.01
Goodwill impairment 3.08 - - - -
Provision for credit
losses - 0.06 - - 0.38
Loss on economic hedges - - - - -
Loss on investment
restructuring - - - - 0.06
Loss on mortgage banking
loan sale restructuring - - - - 0.03
Loss on restructuring,
other employee severance
and debt repurchase
charges - 0.01 0.05 0.02 0.10
ESOP expense related
to freezing of plan - - (0.01) 0.09 -
Hedge loss on sale of
multifamily loans - - - (0.01) -
Investment impairments/
(recoveries) and loss
on sale of
securities 0.23 - - (0.00) -
Writedown on
correspondent home
equity loans - - - 0.15 -
Operating earnings for
EPS purposes $0.18 $0.19 $0.33 $0.35 $0.33
(dollars in thousands, except per share
data - all amounts are after tax) Year to Date
Total dollars Per Share
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2007 2006 2007 2006
Net income/ (loss)
as reported $(1,349,262) $136,911
Dividends on
preferred stock (14,600) (7,908)
Net income available
to common
shareholders (1,363,862) 129,003
Contingently
convertible
trust preferred
interest expense,
net of tax - -
Net income/ (loss)
for EPS purposes ($1,363,862) $129,003 $(2.85) $0.30
Non GAAP adjustments
to adjust antidilutive EPS
Net income available
to common
shareholders $(1,363,862) $129,003
Trust IV expense,
net of tax 25,682 25,360
Antidilutive net income/
(loss) for operating
EPS calculation $(1,338,180) $154,363
Reconciliation to
Operating earnings EPS
Net income/ (loss)
for Operating earnings
EPS purposes $(1,338,180) $154,363 $(2.62) $0.33
Merger costs/ proxy
and related
professional fees 1,101 36,893 0.00 0.08
Goodwill impairment 1,576,776 - 3.08 -
Provision for credit
losses 30,550 200,499 0.06 0.43
Loss on economic hedges - 7,402 - 0.02
Loss on investment
restructuring - 182,845 - 0.39
Loss on mortgage banking
loan sale restructuring - 14,954 - 0.03
Loss on restructuring,
other employee severance
and debt repurchase
charges 40,049 51,134 0.08 0.11
ESOP expense related
to freezing of plan 40,119 - 0.08 -
Hedge loss on sale of
multifamily loans (3,860) - (0.01) -
Investment impairments/
(recoveries) and loss
on sale of
securities 116,390 43,875 0.23 0.09
Writedown on
correspondent home
equity loans 76,394 - 0.15 -
Operating earnings for
EPS purposes $539,339 $691,965 $1.05 $1.48
Weighted average
diluted shares
for GAAP EPS 478,726 433,908
Add back of diluted
shares for
operating EPS
not factored into GAAP
diluted shares due to
antidilution (1) 32,863 33,840
Adjusted weighted
average diluted
shares for Operating
EPS 511,589 467,748
(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 majority of the periods above since the result
would have been anti-dilutive. However, for operating earnings
purposes these items are dilutive and as a result they have been added
back for operating earnings and operating earnings per share purposes.
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF AVERAGE EQUITY TO AVERAGE TANGIBLE EQUITY AND RELATED
OPERATING RETURN ON AVERAGE TANGIBLE EQUITY
(unaudited)
Reconciliation of Equity to Tangible Equity and Operating Return on
Average Equity to Tangible Returns on Average Equity
Quarter Ended
Dec. 31 Sept. 30 June 30
(dollars in thousands) 2007 2007 2007
Average Equity $8,721,714 $8,773,451 $8,816,108
Average Goodwill (4,985,883) (5,003,137) (5,005,116)
Average CDI and other intangibles (391,628) (421,895) (453,528)
Average Tangible Equity $3,344,203 $3,348,419 $3,357,464
Operating Return on Average Equity 4.27% 4.32% 7.75%
Effect of Goodwill 6.37% 6.45% 11.55%
Effect of CDI and other intangibles 0.50% 0.54% 1.05%
Tangible Return on Average Equity 11.14% 11.31% 20.35%
Quarter Ended
Mar. 31 Dec. 31
(dollars in thousands) 2007 2006
Average Equity $8,734,981 $8,816,938
Average Goodwill (5,005,119) (4,992,610)
Average CDI and other intangibles (486,214) (519,891)
Average Tangible Equity $3,243,648 $3,304,437
Operating Return on Average Equity 8.34% 7.49%
Effect of Goodwill 12.87% 11.32%
Effect of CDI and other intangibles 1.25% 1.18%
Tangible Return on Average Equity 22.46% 20.00%
Year-to-Date
Dec. 31 Dec. 31
(dollars in thousands) 2007 2006
Average Equity $8,761,557 $7,519,638
Average Goodwill (4,999,770) (4,029,857)
Average CDI and other intangibles (438,013) (421,730)
Average Tangible Equity $3,323,774 $3,068,051
Operating Return on Average Equity 6.16% 9.20%
Effect of Goodwill 9.26% 12.09%
Effect of CDI and other intangibles 0.81% 1.26%
Tangible Return on Average Equity 16.23% 22.55%
SOURCE Sovereign Bancorp, Inc.
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Related links:
http://www.sovereignbank.com
CONTACT:
Financial: Mark McCollom, +1-610-208-6426,
mmccollo@sovereignbank.com; or Stacey Weikel, +1-610-320-8428,
sweikel@sovereignbank.com; or Media: Ed Shultz, +1-610-378-6159,
eshultz1@sovereignbank.com, all of Sovereign Bancorp, Inc.
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