Flat to inverted yield curve impacted company's earnings during the quarter
Financial Highlights
-- Net income for the first quarter of 2006 was $141 million. Earnings
per diluted share for the first quarter of 2006 were $.38, unchanged
from a year ago.
-- Operating/cash earnings per diluted share for the first quarter of
2006 were $.43 per share.
-- Efficiency ratio was 52.01% in the first quarter of 2006.
-- Total average assets, investments and borrowings remained relatively
unchanged from fourth quarter 2005 levels.
-- Net interest margin remained flat from the fourth quarter of 2005.
-- Average deposits increased to $38.4 billion, a growth rate of 10%
from a year ago; average core deposits (excluding time deposits)
increased to $26.8 billion, a growth rate of 3% from a year ago.
-- Average loans increased to $44.2 billion, an annualized growth rate
of 14% from a year ago.
-- Mortgage banking revenues were $13 million in the first quarter of
2006, down from $26 million in the fourth quarter of 2005.
-- Return on average assets of .90% as compared to 1.03% a year ago.
-- Operating/cash return on average assets of 1.05% as compared to 1.29%
a year ago.
-- Return on average tangible stockholders' equity of 19.3% as compared
to 21.1% a year ago.
-- Operating/cash return on tangible stockholders' equity of 22.7% as
compared to 26.5% a year ago.
-- Annualized net charge-offs of .26% of average loans in the first
quarter of 2006.
-- Tangible common equity ratio increased to 5.16% (excluding OCI) and
book value per share to $16.42.
-- Cash dividends increased by 33% during the quarter. Sovereign also
declared a 5% stock dividend.
PHILADELPHIA, April 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp,
Inc. ("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"),
today reported for the first quarter 2006, net income of $141 million, or
$.38 per diluted share, as compared to $146 million, or $.38 per diluted
share, for the first quarter of 2005. Net income in the first quarter of
2006 included charges related to proxy and related professional fees of
$9.3 million, after- tax, or $.02 per share; net income in the first
quarter of 2005 included merger and integration charges of $15.1 million,
after-tax, or $.04 per share in addition to lease and contract termination
charges of $3.4 million, after- tax, or $.01 per share. Sovereign's net
income for the first quarter of 2006 produced annualized returns on average
assets and average tangible equity of .90% and 19.3%, respectively, as
compared to 1.03% and 21.1%, respectively, in the same period a year ago.
For the quarter ended March 31, 2006, Sovereign's operating/cash
earnings per diluted share were $.43, which excluded the above mentioned
proxy and related professional fee charges as well as $1.8 million of
merger-related and integration cost reversals and $11.2 million, or $.03
per share, related to amortization of intangible assets, as compared to
$.46 per diluted share a year ago, which excluded the above mentioned
merger and integration charges and $12.3 million, or $.03 per share,
related to amortization of intangible assets. Operating/cash earnings for
the first quarter of 2006 produced annualized operating/cash return on
average assets and average tangible equity of 1.05% and 22.7%,
respectively, as compared to 1.29% and 26.5%, respectively, in the first
quarter of 2005. A reconciliation of net income to operating/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 first quarter of 2006, Jay S. Sidhu,
Sovereign's Chairman and CEO, stated, "Due to the prolonged flatness to
slight inversion in the yield curve, the company is focused on stabilizing
our net interest margin, controlling expense growth and maximizing
generation of capital. We are disappointed that operating/cash EPS were
lower than a year ago but are hopeful this trend will change by the second
half of 2006."
Net Interest Income and Margin
During the first quarter of 2006, Sovereign reclassified prepayment and
late fees from non-interest income to interest income as a result of a
classification change made by the Office of Thrift Supervision to include
prepayment and late fees in net interest margin rather than fee income on
regulatory reports, consistent with commercial bank call reports. Including
this retroactive reclass, Sovereign reported net interest income of $404
million for the first quarter of 2006 as compared to $407 million in the
first quarter of 2005. Sovereign's average loan portfolio increased by $5.3
billion over last year and $726 million on a linked quarter basis to $44.2
billion, reflecting an annualized growth rate of 7%. Sovereign's average
deposits increased $3.6 billion over last year and $572 million linked
quarter to $38.4 billion, reflecting an annualized growth rate of 6%.
Net interest margin was 3.00% for the first quarter of 2006 as compared
to 3.01% in the fourth quarter of 2005 and 3.34% in the first quarter of
2005. The year-over-year compression in net interest margin is primarily as
a result of the prolonged flatness of the yield curve, which continues to
challenge the entire industry.
Non-Interest Income
Consumer and commercial banking fees increased 10% from a year ago.
Consumer banking fees increased to $60.8 million, primarily driven by
growth in loan fees and investment service fees. Commercial banking fees
increased by $8.7 million to $39.0 million primarily driven by growth in
loan fees and precious metal revenues. Fee revenues on a linked quarter
basis were impacted by seasonal factors typically present in the first
quarter of each year.
Mortgage banking revenues for the quarter were $13.0 million, compared
to $26.5 million last quarter and $11.7 million in the same quarter a year
ago. Mortgage banking revenue in the fourth quarter of 2005 included sales
of mortgage and home equity loans of $22.7 million and a reversal of
mortgage servicing right impairment reserves of $3.9 million; the first
quarter of 2005 included a reversal of mortgage servicing right impairment
of $4.0 million.
Non-Interest Expense
G&A expenses for the quarter were $280 million, down on a linked
quarter basis by $1.8 million. "Expense control in this yield curve
environment remains a top priority," stated Mark R. McCollom, Sovereign's
Chief Financial Officer. "Until the yield curve environment changes, we
will remain particularly focused on expense control and only invest in
areas where there is a compelling increase in near term revenues."
Asset Quality
Asset quality remained strong in the first quarter of 2006. Annualized
net charge-offs were .26% of average loans for the first quarter, compared
to .21% in the fourth quarter of 2005. Non-performing assets to total
assets decreased slightly from fourth quarter levels to .31%. Sovereign's
provision for credit losses was $29.0 million this quarter compared to
$26.0 million in the fourth quarter of 2005 and $22.0 million in the first
quarter of 2005. The allowance for credit losses to total loans decreased
slightly to .97% at March 31, 2006, as compared to 1.00% at December 31,
2005 and 1.09% at March 31, 2005. The allowance for credit losses to
non-performing loans now stands at 239%, as compared to 231% at December
31, 2005 and 255% at March 31, 2005.
Capital
Sovereign's Tier 1 leverage ratio was 6.74% at March 31, 2006. Tangible
common equity to tangible assets, excluding other comprehensive income
("OCI"), was 5.16% and including OCI was 4.81%. The equity to assets ratio
was 9.07% at March 31, 2006. Sovereign Bank's Tier 1 leverage ratio was
6.96% and the Bank's risk-based capital ratio was 10.95% at March 31, 2006.
Based upon our April 17 stock price of $21.70, Sovereign is trading at
a P/E of 11.9x analysts mean 2006 estimate. The book value per share at
March 31, 2006 was $16.42.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent
company of Sovereign Bank, a $65 billion financial institution with more
than 650 community banking offices, over 1,000 ATMs and approximately
10,000 team members with principal markets in the Northeast United States.
Sovereign offers a broad array of financial services and products including
retail banking, business and corporate banking, cash management, capital
markets, trust and wealth management and insurance. Sovereign is the 18th
largest banking institution in the United States. For more information on
Sovereign Bank, visit http://www.sovereignbank.com or call 1-877-SOV-BANK.
Interested parties will have the opportunity to listen to a live web-cast
of Sovereign's First Quarter 2006 earnings call on Tuesday, April 18 beginning
at 5:00 p.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=1233702.
The web-cast and replay can be accessed anytime from 5:00 p.m. ET on
Tuesday, April 18 through 12:00 a.m. ET on Wednesday, July 19, 2006.
Questions may be submitted during the call via email to
investor@sovereignbank.com. A telephone replay will be accessible from 6:00
p.m. ET on Tuesday, April 18, 2006 through 12:00 a.m. ET (midnight) on
Monday, April 24 by dialing 800-642-1687, confirmation id #7005624.
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/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/cash earnings for 2005
and 2006 EPS purposes represent net income adjusted for the after-tax
effects of merger-related and integration charges, certain restructuring
charges, proxy and related professional fees and the amortization of
intangible assets. Since certain of these items and their impact on
Sovereign's performance are difficult to predict, management believes
presentations of financial measures excluding the impact of these items
provide useful supplemental information in evaluating the operating results
of Sovereign's core businesses. These disclosures should not be viewed as a
substitute for net income determined in accordance with GAAP, nor are they
necessarily comparable to non-GAAP performance measures that may be
presented by other companies.
This press release contains statements of Sovereign's strategies,
plans, and objectives, as well as estimates of financial condition,
operating and cash efficiencies and revenue generation. These statements
and estimates constitute forward-looking statements (within the meaning of
the Private Securities Litigation Reform Act of 1995), which involve
significant risks and uncertainties. Actual results may differ materially
from the results discussed in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand,
real estate values and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; Sovereign's
ability in connection with any acquisition to complete such acquisition and
to successfully integrate assets, liabilities, customers, systems and
management personnel Sovereign acquires into its operations and to realize
expected cost savings and revenue enhancements within expected time frame;
the possibility that expected one time merger-related charges are
materially greater than forecasted or that final purchase price allocations
based on the fair value of acquired assets and liabilities and related
adjustments to yield and/or amortization of the acquired assets and
liabilities at any acquisition date are materially different from those
forecasted; other economic, competitive, governmental, regulatory, and
technological factors affecting the Company's operations, integrations,
pricing, products and services; and acts of God, including natural
disasters.
Sovereign Bancorp is followed by several market analysts. Please note
that any opinions, estimates, forecasts, or predictions regarding Sovereign
Bancorp's performance or recommendations regarding Sovereign's securities
made by these analysts are theirs alone and do not represent opinions,
estimates, forecasts, predictions or recommendations of Sovereign Bancorp
or its management. Sovereign Bancorp does not by its reference to any
analyst opinions, estimates, forecasts regarding Sovereign's performance or
recommendations regarding Sovereign's securities imply Sovereign's
endorsement of or concurrence with such information, conclusions or
recommendations.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2006 2005 2005 2005 2005
(dollars in millions, except
per share data)
Operating Data
Net income $141.4 $165.5 $181.0 $183.5 $146.2
Net income for EPS purposes 147.7 171.8 187.4 189.8 152.5
Operating/cash earnings for EPS
purposes (1) 166.4 187.2 197.2 196.5 183.3
Net interest income (2) 404.0 403.2 408.3 413.2 407.3
Provision for credit losses 29.0 26.0 20.0 22.0 22.0
Total fees and other income before
securities transactions (2) 134.3 159.9 158.2 148.6 124.3
Net gain (loss) on investment
securities 0.0 (1.3) 1.7 3.4 8.0
G&A expense 280.0 281.8 276.9 273.4 257.1
Other expenses 44.8 40.0 32.6 27.1 63.8
Performance Statistics
Bancorp
Net interest margin (2) 3.00% 3.01% 3.13% 3.21% 3.34%
Return on average assets 0.90% 1.03% 1.17% 1.22% 1.03%
Operating/cash return on average
assets (1) 1.05% 1.17% 1.27% 1.31% 1.29%
Return on average equity 9.72% 11.49% 12.61% 12.92% 10.61%
Operating/cash return on average
equity (1) 11.45% 13.00% 13.74% 13.84% 13.30%
Return on average tangible equity 19.29% 23.67% 26.24% 27.15% 21.09%
Operating/cash return on average
tangible equity (1) 22.71% 26.78% 28.58% 29.09% 26.45%
Annualized net loan charge-offs to
average loans 0.26% 0.21% 0.18% 0.19% 0.20%
Efficiency ratio (3) 52.01% 50.04% 48.87% 48.67% 48.36%
Per Share Data
Basic earnings per share $0.39 $0.46 $0.50 $0.50 $0.40
Diluted earnings per share 0.38 0.44 0.48 0.47 0.38
Operating/cash earnings per share
(1) 0.43 0.48 0.50 0.49 0.46
Dividend declared per share .060 .060 .040 .040 .030
Book value (4) 16.42 $16.21 15.81 15.70 15.22
Common stock price:
High 22.61 23.49 24.72 22.70 23.73
Low 20.55 20.63 21.69 20.13 21.89
Close $21.91 $21.62 $22.04 $22.34 $22.16
Weighted average common shares:
Basic 358.9 357.8 360.3 367.9 368.9
Diluted 390.8 390.1 393.1 400.4 401.3
End-of-period common shares:
Basic 359.3 358.4 358.5 365.8 374.8
Diluted 391.1 390.5 390.7 398.3 407.4
NOTES:
(1) Operating/cash 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, amortization of intangible assets, proxy and related
professional fees, and certain other charges. See page H and I for a
reconciliation of GAAP and Non-GAAP measures.
(2) In accordance with regulatory reporting guidance issued in the first
quarter of 2006, Sovereign reclassified loan prepayment fees and late fees
from non-interest income to interest income. Prior periods were
reclassified to conform to the current period presentation.
(3) Efficiency ratio equals general and administrative expense as a
percentage of total revenue, defined as the sum of net interest income and
total fees and other income before securities transactions.
(4) Book value equals stockholders' equity at period-end divided by common
shares outstanding.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2006 2005 2005 2005 2005
(dollars in millions)
Financial Condition Data:
General
Total assets $65,060 $63,679 $62,960 $59,940 $58,942
Loans 45,164 43,804 42,692 41,267 40,320
Total deposits and customer
related accounts: 38,820 37,978 37,333 36,102 36,686
Core deposits and other
customer related
accounts 27,143 26,639 27,395 26,683 27,225
Time deposits 11,678 11,339 9,937 9,419 9,461
Borrowings 19,216 18,721 18,897 17,069 15,555
Minority interests 206 206 205 205 204
Stockholders' equity 5,900 5,811 5,668 5,743 5,705
Goodwill 2,715 2,717 2,714 2,714 2,721
Core deposit intangible 197 214 232 250 269
Asset Quality
Non-performing assets $200.5 $205.6 $181.1 $173.2 $186.9
Non-performing loans $183.5 $189.5 $169.9 $162.4 $171.9
Non-performing assets to
total assets 0.31% 0.32% 0.29% 0.29% 0.32%
Non-performing loans to
total loans 0.41% 0.43% 0.40% 0.39% 0.43%
Allowance for credit losses $438.5 $437.8 $436.8 $442.5 $437.7
Allowance for credit losses
to total loans 0.97% 1.00% 1.02% 1.07% 1.09%
Allowance for credit losses
to non-performing loans 239% 231% 257% 272% 255%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.07% 9.13% 9.00% 9.58% 9.68%
Tier 1 leverage capital
ratio 6.74% 6.68% 6.48% 6.86% 6.96%
Tangible equity to tangible
assets, excluding OCI 5.16% 5.05% 4.84% 5.13% 5.22%
Tangible equity to tangible
assets, including OCI 4.81% 4.73% 4.54% 4.88% 4.86%
Capitalization - Bank (1)
Stockholders' equity to
total assets 10.59% 10.61% 10.46% 11.30% 11.59%
Tier 1 leverage capital
ratio 6.96% 6.84% 6.58% 7.16% 7.44%
Tier 1 risk-based capital
ratio 8.50% 8.21% 7.91% 8.64% 8.93%
Total risk-based capital
ratio 10.95% 10.66% 10.42% 11.27% 11.59%
(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)
Mar. 31 Dec. 31 Sept. 30
(dollars in thousands) 2006 2005 2005
Assets
Cash and amounts due
from depository institutions $997,447 $1,131,936 $1,438,240
Investments:
Available-for-sale 7,063,492 7,258,402 7,547,170
Held-to-maturity 4,936,066 4,647,627 4,500,881
Other investments 670,353 651,299 696,859
Total investments 12,669,911 12,557,328 12,744,910
Loans:
Commercial 17,250,897 16,635,646 16,222,920
Consumer 27,913,516 27,168,201 26,468,719
Total loans 45,164,413 43,803,847 42,691,639
Less allowance for loan losses (421,860) (419,599) (418,353)
Total loans, net 44,742,553 43,384,248 42,273,286
Premises and equipment, net 408,119 412,017 401,868
Accrued interest receivable 275,343 286,300 265,120
Goodwill 2,715,217 2,716,826 2,714,073
Core deposit intangible 196,756 213,975 231,740
Bank owned life insurance 1,027,403 1,018,125 1,006,820
Other assets 2,027,191 1,957,971 1,884,316
Total assets $65,059,940 $63,678,726 $62,960,373
Liabilities and Stockholders'
Equity
Liabilities:
Deposits and other customer
related accounts:
Core and other customer
related accounts $27,142,655 $26,639,246 $27,395,257
Time deposits 11,677,492 11,338,460 9,937,334
Total 38,820,147 37,977,706 37,332,591
Borrowings and other debt
obligations 19,216,159 18,720,897 18,897,237
Other liabilities 917,661 963,764 857,530
Total liabilities 58,953,967 57,662,367 57,087,358
Minority interests 206,141 205,660 205,176
Stockholders' equity:
Common Stock 3,657,038 3,657,543 3,649,507
Warrants and stock options 335,717 337,346 337,156
Unallocated ESOP shares (21,396) (21,396) (23,707)
Treasury stock (466,328) (478,734) (467,265)
Accumulated other
comprehensive loss (211,760) (170,798) (170,619)
Retained earnings 2,606,561 2,486,738 2,342,767
Total stockholders' equity 5,899,832 5,810,699 5,667,839
Total liabilities and
stockholders' equity $65,059,940 $63,678,726 $62,960,373
June 30 Mar. 31
(dollars in thousands) 2005 2005
Assets
Cash and amounts due
from depository institutions $1,176,891 $981,674
Investments:
Available-for-sale 6,919,987 7,134,372
Held-to-maturity 4,055,135 3,839,848
Other investments 609,977 574,981
Total investments 11,585,099 11,549,201
Loans:
Commercial 16,152,017 15,363,592
Consumer 25,115,462 24,956,412
Total loans 41,267,479 40,320,004
Less allowance for loan losses (424,711) (421,446)
Total loans, net 40,842,768 39,898,558
Premises and equipment, net 391,140 394,604
Accrued interest receivable 247,505 258,849
Goodwill 2,713,894 2,720,651
Core deposit intangible 250,025 268,528
Bank owned life insurance 996,645 992,426
Other assets 1,736,089 1,877,557
Total assets $59,940,056 $58,942,048
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $26,682,873 $27,224,877
Time deposits 9,418,691 9,460,879
Total 36,101,564 36,685,756
Borrowings and other debt obligations 17,068,806 15,554,598
Other liabilities 822,136 792,191
Total liabilities 53,992,506 53,032,545
Minority interests 204,721 204,286
Stockholders' equity:
Common Stock 3,636,750 3,609,269
Warrants and stock options 339,517 346,116
Unallocated ESOP shares (23,707) (23,707)
Treasury stock (280,223) (64,495)
Accumulated other
comprehensive loss (105,727) (169,312)
Retained earnings 2,176,219 2,007,346
Total stockholders' equity 5,742,829 5,705,217
Total liabilities and
stockholders' equity $59,940,056 $58,942,048
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2006 2005 2005 2005 2005
(dollars in thousands,
except per share
data)
Interest and dividend
income:
Interest on
interest-earning
deposits $2,116 $2,605 $2,022 $1,896 $2,233
Interest on
investment
securities
Available for sale 90,095 91,163 86,411 91,123 90,995
Held to maturity 53,553 51,225 47,624 45,091 45,119
Other 5,603 4,971 4,443 4,755 3,889
Interest on loans 688,166 661,072 620,742 577,220 527,988
Total interest
and dividend
income 839,533 811,036 761,242 720,085 670,224
Interest expense:
Deposits and
related customer
accounts 231,837 201,449 169,084 139,879 114,178
Borrowings 203,738 206,344 183,817 167,047 148,700
Total interest
expense 435,575 407,793 352,901 306,926 262,878
Net interest
income 403,958 403,243 408,341 413,159 407,346
Provision for credit
losses 29,000 26,000 20,000 22,000 22,000
Net interest
income after
provision for
credit losses 374,958 377,243 388,341 391,159 385,346
Non-interest income:
Consumer banking
fees 60,798 64,696 65,738 65,833 60,349
Commercial banking
fees 39,016 46,699 39,519 32,734 30,323
Mortgage banking
revenue (1) 12,992 26,501 28,671 21,290 11,655
Capital markets
revenue 3,889 4,053 5,382 3,700 4,686
Bank owned life
insurance income 11,327 11,398 12,066 12,918 10,903
Other 6,319 6,538 6,856 12,092 6,351
Total fees and
other income
before security
gains 134,341 159,885 158,232 148,567 124,267
Net gain/(loss)
on securities - (1,296) 1,675 3,355 7,979
Total non-
interest
income 134,341 158,589 159,907 151,922 132,246
Non-interest expense:
General and
administrative
Compensation and
benefits 143,778 137,452 140,532 135,803 125,125
Occupancy and
equipment 64,193 61,679 61,096 61,348 62,870
Technology
expense 21,566 22,562 21,349 21,606 18,668
Outside services 14,755 17,174 15,362 13,805 14,648
Marketing expense 10,222 15,103 14,455 11,757 11,047
Other
administrative
expenses 25,465 27,828 24,107 29,072 24,756
Total general
and
administrative 279,979 281,798 276,901 273,391 257,114
Other expenses:
Amortization of core
deposit intangibles 17,219 17,766 18,284 18,815 18,956
Other minority
interest expense 5,992 5,951 5,837 5,752 5,668
Equity method
investments 10,042 10,268 11,656 10,966 10,770
Loss on debt
extinguishment - 187 - - -
Proxy and professional
fees 14,337 5,827 - - -
Lease and contract
termination charges - - (1,222) - 5,204
Merger-related and
integration charges (2,798) - (2,000) (8,447) 23,191
Total other
expenses 44,792 39,999 32,555 27,086 63,789
Total non-
interest
expense 324,771 321,797 309,456 300,477 320,903
Income before
income taxes 184,528 214,035 238,792 242,604 196,689
Income tax expense 43,130 48,540 57,749 59,133 50,538
Net income $141,398 $165,495 $181,043 $183,471 $146,151
(1) Mortgage banking
activity is summarized
below:
Gains on sale of
mortgage loans,
mortgage backed
securities, and home
equity loans (2) $9,762 $22,708 $21,274 $28,371 $6,377
Net gains/(loss)
recorded under SFAS
133 1,090 (1,039) 717 314 653
Mortgage servicing
fees, net of mortgage
servicing rights
amortization 2,140 914 (157) 1,370 671
Mortgage servicing
right (impairments)/
recoveries - 3,918 6,837 (8,765) 3,954
Total mortgage
banking revenues $12,992 $26,501 $28,671 $21,290 $11,655
(2) The results for the fourth quarter and third quarter of 2005 include
gains of $18.4 million and $13.1 million related to the sale of $898
million and $503 million of home equity loans.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
March 31, 2006
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $12,715,041 $168,049 5.29%
Loans:
Commercial 16,884,583 290,843 6.98%
Consumer:
Residential mortgages 12,777,623 176,652 5.53%
Home equity loans and lines of
credit 9,673,570 151,660 6.32%
Total consumer loans secured by
real estate 22,451,193 328,312 5.87%
Auto Loans 4,409,850 61,383 5.65%
Other 476,946 9,185 7.81%
Total Consumer 27,337,989 398,880 5.87%
Total loans 44,222,572 689,723 6.29%
Allowance for loan losses (419,386)
Total earning assets 56,518,227 $857,772 6.11%
Other assets 7,521,366
Total assets $64,039,593
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $9,124,514 $54,509 2.42%
Customer repurchase agreements 1,025,807 9,898 3.91%
Savings accounts 3,411,827 6,388 0.76%
Money market accounts 8,190,873 48,068 2.38%
Core and other customer related
accounts 21,753,021 118,863 2.22%
Time deposits 11,597,261 112,974 3.95%
Total 33,350,282 231,837 2.82%
Borrowings:
Federal Home Loan Bank
advances 13,551,387 143,083 4.27%
Fed funds and repurchase
agreements 613,518 6,635 4.33%
Other borrowings 4,415,349 54,020 4.93%
Total borrowings 18,580,254 203,738 4.43%
Total funding liabilities 51,930,536 435,575 3.39%
Non-interest bearing DDA 5,086,989
Other liabilities 1,125,329
Total liabilities 58,142,854
Stockholders' equity 5,896,739
Total liabilities and
stockholders' equity $64,039,593
Net interest income $422,197
Interest rate spread 2.72%
Contribution from interest free funds 0.28%
Net interest margin 3.00%
(1) Tax equivalent basis
Quarter Ended
December 31, 2005
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $12,700,310 $165,785 5.22%
Loans:
Commercial 16,515,988 277,924 6.68%
Consumer:
Residential mortgages 11,859,646 164,689 5.55%
Home equity loans and lines of
credit 10,176,307 148,285 5.80%
Total consumer loans secured by
real estate 22,035,953 312,974 5.67%
Auto Loans 4,454,501 62,528 5.57%
Other 490,069 9,395 7.61%
Total Consumer 26,980,523 384,897 5.69%
Total loans 43,496,511 662,821 6.06%
Allowance for loan losses (416,118)
Total earning assets 55,780,703 $828,606 5.92%
Other assets 7,707,153
Total assets $63,487,856
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $9,454,176 $53,385 2.24%
Customer repurchase agreements 1,007,347 8,794 3.46%
Savings accounts 3,573,771 6,521 0.72%
Money market accounts 8,112,584 39,444 1.93%
Core and other customer related
accounts 22,147,878 108,144 1.94%
Time deposits 10,376,654 93,305 3.57%
Total 32,524,532 201,449 2.46%
Borrowings:
Federal Home Loan Bank
advances 13,195,754 143,558 4.32%
Fed funds and repurchase
agreements 1,197,563 12,545 4.18%
Other borrowings 4,417,688 50,241 4.53%
Total borrowings 18,811,005 206,344 4.36%
Total funding liabilities 51,335,537 407,793 3.15%
Non-interest bearing DDA 5,340,623
Other liabilities 1,098,993
Total liabilities 57,775,153
Stockholders' equity 5,712,703
Total liabilities and
stockholders' equity $63,487,856
Net interest income $420,813
Interest rate spread 2.77%
Contribution from interest free funds 0.24%
Net interest margin 3.01%
(1) Tax equivalent basis
Quarter Ended
March 31, 2005
Yield/
(dollars in thousands) Average Balance Interest (1) Rate
Earning assets:
Investment securities $12,128,935 $153,197 5.06%
Loans:
Commercial 14,870,517 207,098 5.64%
Consumer:
Residential mortgages 9,167,485 122,953 5.37%
Home equity loans and lines of
credit 10,002,411 134,955 5.45%
Total consumer loans secured by
real estate 19,169,896 257,908 5.41%
Auto Loans 4,305,100 54,935 5.18%
Other 578,520 10,247 7.18%
Total Consumer 24,053,516 323,090 5.41%
Total loans 38,924,033 530,188 5.50%
Allowance for loan losses (416,637)
Total earning assets 50,636,331 $683,385 5.44%
Other assets 6,922,971
Total assets $57,559,302
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $8,041,978 $25,455 1.28%
Customer repurchase agreements 842,657 4,016 1.93%
Savings accounts 3,930,308 6,131 0.63%
Money market accounts 8,152,525 25,487 1.27%
Core and other customer related
accounts 20,967,468 61,089 1.18%
Time deposits 8,659,080 53,089 2.49%
Total 29,626,548 114,178 1.56%
Borrowings:
Federal Home Loan Bank
advances 10,910,131 104,938 3.89%
Fed funds and repurchase
agreements 1,441,246 9,538 2.66%
Other borrowings 4,155,507 34,224 3.32%
Total borrowings 16,506,884 148,700 3.64%
Total funding liabilities 46,133,432 262,878 2.31%
Non-interest bearing DDA 5,162,704
Other liabilities 674,463
Total liabilities 51,970,599
Stockholders' equity 5,588,703
Total liabilities and
stockholders' equity $57,559,302
Net interest income $420,507
Interest rate spread 3.13%
Contribution from interest free funds 0.21%
Net interest margin 3.34%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(dollars in thousands) 2006 2005 2005 2005 2005
Non-accrual loans:
Consumer:
Residential mortgages $31,874 $30,393 $33,427 $31,717 $37,669
Home equity loans and
lines of credit 61,078 55,543 37,051 35,007 33,383
Auto loans 363 476 462 365 539
Other consumer loans 1,920 1,913 2,873 3,013 3,715
Total consumer loans 95,235 88,325 73,813 70,102 75,306
Commercial 87,566 100,372 95,303 91,358 95,528
Total non-accrual loans 182,801 188,697 169,116 161,460 170,834
Restructured loans 692 777 822 939 1,026
Total non-performing
loans 183,493 189,474 169,938 162,399 171,860
Real estate owned, net 13,622 11,411 6,107 8,494 11,286
Other repossessed assets 3,352 4,678 5,083 2,302 3,709
Total non-performing
assets 200,467 205,563 181,128 173,195 186,855
Non-performing loans as a
percentage of total loans 0.41% 0.43% 0.40% 0.39% 0.43%
Non-performing assets as a
percentage of total assets 0.31% 0.32% 0.29% 0.29% 0.32%
Non-performing assets as a
percentage of total loans,
real estate owned and
repossessed assets 0.44% 0.47% 0.42% 0.42% 0.46%
Allowance for credit losses
as a percentage of non-
performing loans 239% 231% 257% 272% 255%
NET LOAN CHARGE-OFFS
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2006 2005 2005 2005 2005
Commercial real estate $(744) $564 $219 $294 $(492)
Commercial and industrial
and other 8,948 4,877 6,209 8,964 7,200
Total Commercial 8,204 5,441 6,428 9,258 6,708
Residential mortgages 159 554 109 72 43
Home equity loans and
lines of credit 10,654 6,998 4,319 3,115 1,831
Total consumer loans
secured by real estate 10,813 7,552 4,428 3,187 1,874
Auto loans 7,995 9,137 7,539 5,851 9,557
Other consumer loans 1,286 1,079 1,059 1,126 1,449
Total Consumer 20,094 17,768 13,026 10,164 12,880
Total $28,298 $23,209 $19,454 $19,422 $19,588
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT
LOSSES
Quarters ended (in Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
thousands) 2006 2005 2005 2005 2005
Provision for loan
losses 30,559 26,263 19,298 20,442 23,498
Provision/(recoveries)
for unfunded
commitments (1,559) (263) 702 1,558 (1,498)
Total provision for
credit losses $29,000 $26,000 $20,000 $22,000 $22,000
Allowance for loan
losses 421,860 419,599 418,353 424,711 421,446
Reserve for unfunded
commitments 16,653 18,212 18,475 17,773 16,215
Total allowance for
credit losses $438,513 $437,811 $436,828 $442,484 $437,661
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2006 2005 2005
Demand deposit accounts 5,165,140 $5,331,659 $5,414,212
NOW accounts 9,110,005 8,844,875 9,170,052
Customer repurchase agreements 1,086,010 1,012,574 959,024
Savings accounts 3,397,183 3,460,292 3,684,423
Money market accounts 8,384,317 7,989,846 8,167,546
Certificates of deposits 11,677,492 11,338,460 9,937,334
Total $38,820,147 $37,977,706 $37,332,591
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Demand deposit accounts $5,378,465 $5,377,378
NOW accounts 8,269,183 8,422,725
Customer repurchase agreements 875,203 828,388
Savings accounts 3,807,967 3,922,642
Money market accounts 8,352,055 8,673,744
Certificates of deposits 9,418,691 9,460,879
Total $36,101,564 $36,685,756
LOAN COMPOSITION - End of period
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2006 2005 2005
Commercial real estate $7,128,116 $7,209,180 $7,151,189
Commercial industrial loans 10,122,781 9,426,466 9,071,731
Total commercial loans 17,250,897 16,635,646 16,222,920
Residential mortgages 13,161,773 12,462,802 11,198,366
Home equity loans and lines of
credit 9,892,235 9,793,124 10,301,161
Total consumer loans secured by
real estate 23,054,008 22,255,926 21,499,527
Auto loans 4,400,980 4,434,021 4,463,931
Other consumer loans 458,528 478,254 505,261
Total consumer loans 27,913,516 27,168,201 26,468,719
Total loans $45,164,413 $43,803,847 $42,691,639
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Commercial real estate $6,946,477 $6,837,814
Commercial industrial loans 9,205,540 8,525,778
Total commercial loans 16,152,017 15,363,592
Residential mortgages 9,997,066 9,782,953
Home equity loans and lines of
credit 10,300,629 10,280,735
Total consumer loans secured by real
estate 20,297,695 20,063,688
Auto loans 4,285,537 4,296,296
Other consumer loans 532,230 596,428
Total consumer loans 25,115,462 24,956,412
Total loans $41,267,479 $40,320,004
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2006 2005 2005
Demand deposit accounts $5,086,989 $5,340,623 $5,393,736
NOW accounts 9,124,514 9,454,176 8,991,339
Customer repurchase agreements 1,025,807 1,007,347 903,053
Savings accounts 3,411,827 3,573,771 3,753,311
Money market accounts 8,190,873 8,112,584 8,294,441
Certificates of deposits 11,597,261 10,376,654 9,810,041
Total $38,437,271 $37,865,155 $37,145,921
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Demand deposit accounts $5,276,428 $5,162,704
NOW accounts 8,425,311 8,041,978
Customer repurchase agreements 795,418 842,657
Savings accounts 3,864,148 3,930,308
Money market accounts 8,417,965 8,152,525
Certificates of deposits 9,458,184 8,659,080
Total $36,237,454 $34,789,252
LOAN COMPOSITION - Average
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2006 2005 2005
Commercial real estate 7,193,994 $7,203,433 $7,019,781
Commercial industrial loans 8,603,198 8,273,795 8,499,513
Other 1,087,391 1,038,760 920,774
Total commercial loans 16,884,583 16,515,988 16,440,068
Residential mortgages 12,777,623 11,859,646 10,663,656
Home equity loans and lines of
credit 9,673,570 10,176,307 10,321,853
Total consumer loans secured by
real estate 22,451,193 22,035,953 20,985,509
Auto loans 4,409,850 4,454,501 4,400,376
Other consumer loans 476,946 490,069 515,522
Total consumer loans 27,337,989 26,980,523 25,901,407
Total loans $44,222,572 $43,496,511 $42,341,475
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Commercial real estate $6,909,795 $6,494,572
Commercial industrial loans 8,008,968 7,522,968
Other 849,487 852,977
Total commercial loans 15,768,250 14,870,517
Residential mortgages 10,634,549 9,167,485
Home equity loans and lines of
credit 10,127,012 10,002,411
Total consumer loans secured by real
estate 20,761,561 19,169,896
Auto loans 4,262,377 4,305,100
Other consumer loans 559,544 578,520
Total consumer loans 25,583,482 24,053,516
Total loans $41,351,732 $38,924,033
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING/CASH EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating/cash 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, amortization of intangible assets, proxy and
related professional fees, and certain other charges. The table below
reconciles our GAAP earnings to operating/cash earnings for EPS purposes.
(dollars in thousands, except per
share data - all amounts are
after tax) Quarter Ended
Total dollars
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2006 2005 2005 2005 2005
Net income as reported $141,398 $165,495 $181,043 $183,471 $146,151
Contingently convertible
trust preferred
interest expense, net
of tax 6,327 6,354 6,344 6,335 6,394
Net income for EPS
purposes $147,725 $171,849 $187,387 $189,806 $152,545
Weighted average diluted
shares for EPS 390,825 390,077 393,110 400,371 401,339
Reconciliation to
operating/cash earnings
EPS
Net income for EPS
purposes and EPS as
reported $147,725 $171,849 $187,387 $189,806 $152,545
Merger related and
integration costs (1,819) - (1,300) (5,490) 15,074
Lease and contract
termination charges - - (794) - 3,382
Proxy and professional
fees 9,319 3,788 - - -
Amortization of
intangibles 11,192 11,548 11,885 12,229 12,322
Operating/cash earnings
for EPS purposes $166,417 $187,185 $197,178 $196,545 $183,323
Quarter Ended
Per share
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2006 2005 2005 2005 2005
Net income as reported
Contingently convertible
trust preferred interest
expense, net of tax
Net income for EPS purposes $0.38 $0.44 $0.48 $0.47 $0.38
Weighted average diluted shares
for EPS
Reconciliation to operating/cash
earnings EPS
Net income for EPS purposes
and EPS as reported $0.38 $0.44 $0.48 $0.47 $0.38
Merger related and
integration costs (0.00) - (0.00) (0.01) 0.04
Lease and contract
termination charges - - (0.00) - 0.01
Proxy and professional fees 0.02 0.01 - - -
Amortization of intangibles 0.03 0.03 0.03 0.03 0.03
Operating/cash earnings for
EPS purposes $0.43 $0.48 $0.50 $0.49 $0.46
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF AVERAGE EQUITY TO AVERAGE TANGIBLE EQUITY AND RELATED
OPERATING RETURN ON AVERAGE TANGIBLE EQUITY
(unaudited)
Reconciliation of Equity to Tangible Equity and Operating Return on
Average Equity to Tangible Returns on Average Equity
Quarter Ended
Mar. 31 Dec. 31 Sept. 30
2006 2005 2005
Average Equity $5,896,739 $5,712,703 $5,694,895
Average Goodwill (2,716,324) (2,714,150) (2,714,148)
Average CDI (207,908) (225,049) (243,149)
Average Tangible Equity 2,972,507 2,773,504 2,737,598
Operating Return on Average Equity 11.45% 13.00% 13.74%
Effect of Goodwill 10.46% 12.72% 13.62%
Effect of CDI 0.80% 1.05% 1.22%
Tangible Return on Average Equity 22.71% 26.78% 28.58%
June 30 Mar. 31
2005 2005
Average Equity $5,697,656 $5,588,703
Average Goodwill (2,725,526) (2,507,849)
Average CDI (261,854) (270,193)
Average Tangible Equity 2,710,276 2,810,661
Operating Return on Average Equity 13.84% 13.30%
Effect of Goodwill 13.91% 11.87%
Effect of CDI 1.34% 1.28%
Tangible Return on Average Equity 29.09% 26.45%
SOURCE Sovereign Bancorp, Inc.
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Related links:
http://www.sovereignbank.com/
CONTACT:
FINANCIAL CONTACTS: Mark McCollom,
+1-610-208-6426, mmccollo@sovereignbank.com, or Stacey Weikel,
+1-610-208-6112, sweikel@sovereignbank.com; or MEDIA CONTACT: Ed
Shultz, +1-610-378-6159, eshultz1@sovereignbank.com, all of
Sovereign Bancorp
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