Financial Highlights
-- Net income, including after-tax merger and integration and
restructuring charges of $18.5 million, was $146 million, up 43% from
$102 million, including after-tax merger and integration charges and
additional loan loss provision of $19.2 million related to the
acquisition of First Essex Bancorp, a year ago. Earnings per diluted
share for the first quarter of 2005, including the above-mentioned
charges of $.05 per share, were $.38, up 15% from $.33 per diluted
share, including the above-mentioned charges of $.06 per share, in the
first quarter of 2004.
-- Operating earnings were $183 million, up 37% from $133 million in the
same quarter a year ago. Operating earnings per share were $.46 per
share, up 5% from $.44 per share in the first quarter of 2004. The
first quarter of 2005 was negatively impacted by $.015 per share due
to an accounting change related to EITF 04-08 "Accounting Issues
Related to Certain Features of Contingently Convertible Debt and the
Effect on Diluted Earnings per Share," which did not impact operating
earnings in prior quarters.
-- Total revenue increased 23% from a year ago and 14% annualized from
the fourth quarter of 2004 while operating expenses increased only 15%
from a year ago and decreased .20% annualized from the fourth quarter
of 2004.
-- Net interest margin was 3.26% as compared to 3.29% in the fourth
quarter of 2004 and 3.28% in the first quarter of 2004.
-- Efficiency ratio of 48.4% in the first quarter of 2005, an improvement
of 331 basis points from the first quarter of 2004 and 174 basis
points from the fourth quarter of 2004.
-- The provision for loan losses was $22.0 million in this quarter. The
provision exceeded net charge-offs by $2.4 million.
-- Annualized net charge-offs decreased to .20% of average loans at March
31, 2005, versus .28% at December 31, 2004 and .51% at March 31, 2004.
-- Sovereign repurchased 2 million shares during the quarter through our
previously announced repurchase program. Sovereign may repurchase up
to approximately 18 million additional shares under its repurchase
program and anticipates accelerating repurchase efforts in the second
quarter of 2005.
-- Sovereign increased its cash dividend by 33%, resulting in an annual
cash dividend of $.16 per share.
-- Despite the deployment of capital during the quarter for the
acquisition of Waypoint Financial Corp. on January 21, 2005, share
repurchases and an increase in the cash dividend, the Tier 1 leverage
ratio was 6.96% at March 31, 2005 versus 7.05% at December 31, 2004
and 7.12% at March 31, 2004.
-- Sovereign successfully completed the acquisition of Waypoint Financial
Corp. on January 21, 2005. Systems conversion was successfully
completed by February 13, 2005.
PHILADELPHIA, April 19 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported first quarter 2005 net income in accordance with generally accepted
accounting principles of $146 million, or $.38 per diluted share, as compared
to $102 million, or $.33 per diluted share, for the first quarter of 2004.
Net income included an after-tax restructuring charge and a merger and
integration charge related to our acquisition of Waypoint Financial Corp.
("Waypoint"), which closed on January 21, 2005, which together totaled $18.5
million or $.05 per share in the first quarter of 2005 and an after-tax merger
and integration charge of $15.3 million and incremental loan loss provision of
$3.9 million associated with the acquisition of First Essex Bancorp in the
first quarter of 2004.
For the quarter ended March 31, 2005, Sovereign's reported operating
earnings increased 37% to $183 million, or $.46 per diluted share, which
excluded the above mentioned restructuring and merger and integration charges
and $12.3 million or $.03 per share related to amortization of intangible
assets, as compared to $133 million, or $.44 per diluted share a year ago,
which excluded the above mentioned merger and integration charges and
incremental loan loss provision plus $12.0 million or $.04 per share related
to amortization of intangible assets. Effective in the fourth quarter of
2004, Sovereign redefined its definition of operating earnings and the related
per share amount to exclude most non-cash, non-operating charges; such as,
after-tax merger and integration charges, the after-tax effect of amortization
of intangible assets, in addition to special items. Since most of these items
are difficult to predict and make the results of normal operations less clear,
management believes the presentation of financial measures excluding the
impact of these items provides useful supplemental information in evaluating
the operating results of Sovereign's core businesses. A reconciliation of net
income to operating earnings, as well as the related earnings per share
amounts, is included in a later section of this release.
Commenting on results for the first quarter of 2005, Jay S. Sidhu,
Sovereign's Chairman and Chief Executive Officer, said, "We are pleased we
were able to maintain our margin and saw improvement in most performance
metrics during the first quarter. Net charge-offs declined to 20 basis points
from 28 basis points in the fourth quarter, net interest margin was relatively
stable, our efficiency ratio improved almost 175 basis points, and operating
return on assets expanded 8 basis points from 1.22% to 1.30%. These
improvements occurred despite challenges in the market, as we faced a
flattening yield curve along with competitive deposit pricing pressures.
Consistent with our new local market banking strategy, we have remained
focused on improving interest earning asset yields while increasing our core
deposit base. As a result of where the yield curve has been, we have been
reluctant to accept loan business that does not meet our spread criteria. We
believe this discipline should benefit our profitability in the coming
quarters. We successfully repurchased 2 million shares during the quarter,
increased our cash dividend 33%, and still exceeded our capital targets for
the quarter. Lastly, we are pleased to welcome Waypoint's customers,
shareholders and team members to Sovereign, as we successfully closed and
converted this acquisition during the quarter," concluded Sidhu.
Net Interest Income and Margin
Sovereign reported net interest income of $398 million for the first
quarter of 2005, an increase of $75 million, or 23%, compared to the first
quarter of 2004. On a linked-quarter basis, net interest income increased by
$11 million, or 3%, in spite of a $2.6 billion reduction in the investment
portfolio during the fourth quarter of 2004 and a $1.8 billion reduction in
investments during the first quarter in connection with the acquisition of
Waypoint.
Sovereign's total loan portfolio increased during the first quarter by
$3.7 billion to $40.3 billion. Excluding acquisitions, the total loan
portfolio increased $1.1 billion, reflecting an annualized growth rate of 12%.
Total deposits increased during the first quarter by $4.1 billion to $36.7
billion. Excluding acquisitions, total deposits increased $1.2 billion,
reflecting an annualized growth rate of 15%. Core deposits increased during
the quarter by $1.7 billion to $27.2 billion. Excluding acquisitions, core
deposits increased modestly during the quarter, reflecting an annualized
growth rate of 4%.
Net interest margin was 3.26% for the first quarter of 2005, compared to
3.29% in the fourth quarter of 2004 and 3.28% in the first quarter of 2004,
comparing very favorably to the average year-over-year change in net interest
margin for the top 50 banks in the U.S. who have reported thus far. "As we
have repeatedly mentioned, we expect that as rates rise, our deposit costs
will reprice at approximately 25% of the increase in short-term interest
rates," stated James D. Hogan, Sovereign's Chief Financial Officer. "To date,
we have been successful in limiting the increase in the cost of core deposits
to 20.5% and the cost of total deposits to 24.5% of the 175 basis point
increase in short-term rates that has occurred. We have been fortunate to be
able to maintain our net interest margin within a few basis points of the
fourth and first quarters of 2004 as a result of our slightly asset-sensitive
position in addition to remaining focused and disciplined on our loan and
deposit pricing."
Non-Interest Income
Consumer banking fees increased by $12.6 million to $66.6 million, or 23%,
compared to the same period in 2004, primarily driven by growth in loan and
deposit fees. Commercial banking fees increased $4.3 million to $33.0
million, or 15%, over the same period a year ago, primarily driven by growth
in loan fees. Fee revenues for the quarter were impacted by seasonal factors
typically present in the first quarter of each year, as well as the waiver of
certain fees for newly acquired Waypoint customers.
Mortgage banking revenues for the quarter were $11.9 million, compared to
$4.7 million last quarter and $5.4 million in the same quarter a year ago.
Due to changes in prepayment speeds and interest rates during the quarter, a
$4.0 million reversal of a valuation reserve for mortgage servicing rights was
recorded. This compares to a reversal of $1.7 million recorded in the fourth
quarter of 2004 and an impairment charge of $11.3 million in the first quarter
of 2004. Mortgage banking results are detailed in the financial tables
attached to this release. As of March 31, 2005, mortgage servicing rights,
net of reserves of $2.6 million, were $84.6 million and our servicing
portfolio was $6.8 billion, with a capitalized cost of 124 basis points.
Non-Interest Expense
G&A expenses for the quarter were $257 million, which were relatively flat
compared to the fourth quarter of 2004 and up 15%, including acquisitions,
from $223 million a year ago. "We were obviously pleased with our expense
control during the quarter, as we were able to keep expenses relatively flat
on a linked quarter basis despite adding the Waypoint acquisition into our
expense base for most of the quarter. We continue to grow revenues at a
faster pace than expenses, further improving our efficiency ratio. Our
efficiency ratio was 48.4% in the first quarter of 2005, a 174 basis point
improvement over the fourth quarter and 331 basis point improvement from one
year ago," commented Hogan.
On a GAAP basis, Sovereign's effective tax rate was 25.7% in the first
quarter; on an operating basis, it was 27.5%.
Asset Quality
Sovereign continued to see improvement in net charge-offs during the first
quarter of 2005. Annualized net charge-offs decreased to .20% of average
loans at March 31, 2005, compared to .28% at December 31, 2004 and .51% at
March 31, 2004. Non-performing assets ("NPAs") increased $26.8 million during
the quarter to $187 million at March 31, 2005. NPAs to total assets were
.32%, compared to .29% at December 31, 2004. Sovereign's provision for loan
losses was $22.0 million this quarter compared to $27.0 million in the fourth
quarter and $43.0 million in the first quarter of 2004. The allowance for
loan losses to total loans decreased slightly to 1.09% at March 31, 2005, as
compared to 1.12% at December 31, 2004 and 1.27% at March 31, 2004. The
allowance for loan losses to non-performing loans now stands at 255%, as
compared to 285% at December 31, 2004 and 186% at March 31, 2004.
Capital
During the quarter, Sovereign repurchased two million shares under a
previously announced repurchase program. Sovereign also increased its annual
cash dividend to $.16. Sovereign's Tier 1 leverage ratio was 6.96% at March
31, 2005. Tangible common equity to tangible assets, excluding other
comprehensive income ("OCI"), was 5.22% and including OCI was 4.86%. The
equity to assets ratio was 9.68% at March 31, 2005. Sovereign Bank's Tier 1
leverage ratio was 7.44% and the bank's risk-based capital ratio was 11.55% at
March 31, 2005. "We are very satisfied with our capital ratios this quarter
given the acquisition of Waypoint and the share repurchase completed to date.
In this environment, we feel it is important to maintain our loan and deposit
margins, and by sticking to our discipline we saw less balance sheet growth
during the quarter than anticipated. This resulted in meaningfully higher
capital ratios at the end of the first quarter versus our plan. We anticipate
using approximately $100 million of this excess capital to fund additional
share repurchases in the second quarter," commented Hogan.
Looking Ahead
"Overall, we felt the first quarter contained several positives -
maintained margin, improved profitability metrics, and reduced loan charge-
offs; however, there are key obstacles that remain in this challenging
interest rate and competitive environment. While it is too early to draw any
meaningful conclusions from April's data, over the last few weeks we have seen
good loan and deposit growth, which has been typical in the second quarter of
prior years. Keep in mind, 2005 will be adversely impacted by two changes
which did not impact operating earnings in prior years - accounting for
contingently convertible debt and stock-based compensation, as Sovereign is no
longer carving these items out of operating earnings. Combined, these two
items will adversely impact Sovereign's earnings by $.09 to $.11 per share in
2005. Given the high level of tangible common equity we are generating, we
are hopeful that we will be able to repurchase enough shares during 2005 to
completely mitigate the dilution from our convertible debt for 2006. With
that being said, management's goal continues to be to strive to earn about
$2.00 in operating earnings per share for 2005, excluding after-tax one-time
charges of $.05 per share and amortization of intangible assets of
approximately $.12 per share. We are totally focused on doing everything we
can to achieve this goal while we remain disciplined about our risk management
practices," Sidhu concluded.
Based upon our April 18 stock price of $21.16, Sovereign is trading at a
P/E of 11.2x analysts mean 2005 estimate and 139% of current book value. The
book value per share at March 31, 2005 was $15.22.
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company
of Sovereign Bank, a $59 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 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.
Interested parties will have the opportunity to listen to a live web-cast
of Sovereign's First Quarter 2005 earnings call on Wednesday, April 20
beginning at 8:30 a.m. ET at http://www.sovereignbank.com >Investor Relations
>News >Conference Calls/Webcasts; or
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=67999&eventID=1045113. The web-cast replay can be accessed
anytime from 11:00 a.m. ET on Wednesday, April 20, 2005 through 9:00 p.m. ET
on June 30, 2005. Questions may be submitted during the call via email to
investor@sovereignbank.com . A telephone replay will be accessible from 11:00
a.m. ET on Wednesday, April 20, 2005 through 12:00 a.m. ET (midnight) on April
25, 2005 by dialing 800-642-1687, confirmation id #5239840.
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, and certain non-cash
charges. Operating earnings for the first quarter of 2005 represent net
income adjusted for the after-tax effects of merger-related and integration
charges, certain restructuring charges and the amortization of intangible
assets. Operating earnings for 2004 represent net income adjusted for the
after-tax effects of merger-related and integration charges and the loss on
early extinguishment of debt, the fourth quarter adoption of EITF 04-8, other-
than-temporary non-cash impairment charges on Fannie Mae and Freddie Mac
preferred equity securities and the amortization of intangible assets.
Management's operating earnings goal for 2005 excludes the after-tax effects
of merger-related and integration charges, certain restructuring charges 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 future operating results for 2005 for
Sovereign Bancorp, Inc. as well as estimates of financial condition, operating
and cash efficiencies and revenue generation. These statements and estimates
constitute forward-looking statements (within the meaning of the Private
Securities Litigation Reform Act of 1995), which involve significant risks and
uncertainties. Actual results may differ materially from the results
discussed in these forward-looking statements. Factors that might cause such
a difference include, but are not limited to, general economic conditions,
changes in interest rates, deposit flows, loan demand, real estate values and
competition; changes in accounting principles, policies, or guidelines;
changes in legislation or regulation; Sovereign's ability in connection with
any acquisition to complete such acquisition and to successfully integrate
assets, liabilities, customers, systems and management personnel Sovereign
acquires into its operations and to realize expected cost savings and revenue
enhancements within expected time frame; the possibility that expected one
time merger-related charges are materially greater than forecasted or that
final purchase price allocations based on the fair value of acquired assets
and liabilities and related adjustments to yield and/or amortization of the
acquired assets and liabilities at any acquisition date are materially
different from those forecasted; and other economic, competitive,
governmental, regulatory, and technological factors affecting the Company's
operations, integrations, pricing, products and services.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2005 2004 2004 2004 2004
(dollars in millions, except
per share data)
Operating Data
Net income $146.2 $137.4 $82.5 $131.4 $102.2
Net income for EPS purposes (1) 152.5 143.7 88.9 137.7 104.5
Operating earnings (2) 183.3 167.5 157.9 143.4 133.5
Net interest income 398.2 387.0 363.0 332.0 322.8
Provision for loan losses 22.0 27.0 25.0 32.0 43.0
Total fees and other income before
securities transactions 133.4 126.5 108.3 124.2 109.1
Net gain (loss) on investment
securities 8.0 (24.7) 20.2 0.8 17.9
G&A expense 257.1 257.3 237.7 224.6 223.1
Other expenses 63.8 30.5 129.1 28.1 48.6
Performance Statistics
Bancorp
Net interest margin 3.26% 3.29% 3.17% 3.22% 3.28%
Operating return on
average assets (2) 1.30% 1.22% 1.17% 1.20% 1.17%
Operating return on
average equity (2) 13.34% 13.61% 13.82% 14.87% 15.08%
Operating return on average
tangible equity (2) 26.52% 26.65% 26.96% 24.75% 25.42%
Annualized net loan
charge-offs to
average loans 0.20% 0.28% 0.25% 0.43% 0.51%
Efficiency ratio (3) 48.36% 50.10% 50.44% 49.22% 51.67%
Per Share Data
Basic earnings per share $0.40 $0.40 $0.25 $0.43 $0.34
Diluted earnings per share (1) 0.38 0.38 0.24 0.41 0.33
Operating earnings per share (2) 0.46 0.48 0.46 0.46 0.44
Dividend declared per share .030 .030 .030 .030 .025
Book value (4) 15.22 14.41 13.95 12.46 12.78
Common stock price:
High 23.73 22.61 22.48 22.10 24.51
Low 21.89 21.14 20.48 19.51 20.37
Close $22.16 $22.55 $21.82 $22.10 $21.42
Weighted average common shares:
Basic 368.9 345.6 335.6 306.1 300.7
Diluted (1) 401.3 377.6 367.8 337.8 316.8
End-of-period common shares:
Basic 374.8 346.1 345.3 306.2 306.4
Diluted (1) 407.4 378.2 377.3 338.2 337.8
NOTES:
(1) Effective in the fourth quarter of 2004, Sovereign adopted EITF
04-8 "Accounting Issues Related to Certain Features of
Contingently Convertible Debt and the Effect on Diluted
Earnings per Share". This EITF requires the potential dilution
from contingently convertible debt be included in the
calclution of diluted earnings per share upon the issuance of
the debt and that the after tax impact of the interest expense
on this debt be added back to net income for earnings per share
purposes. Sovereign issued $800 million of contingently
convertible trust preferred equity income redeemable securities
in the first quarter of 2004. Prior period earnings per share
were required to be restated. We have excluded the impact of
this pronouncement in our calculation of 2004 operating
earnings per share.
(2) Operating earnings represent net income excluding the after-tax
effects of special items, such as significant gains or losses
that are unusual in nature or are associated with acquiring or
integrating businesses, losses on the early retirement of debt,
other than temporary impairment charges on Fannie Mae and
Freddie Mac preferred equity securities, amortization of
intangible assets, and certain restructuring charges.
Additionally, for 2004, operating earnings excludes the impact
of EITF 04-8. See page I for a reconcilation of GAAP and Non-
GAAP earnings.
(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
2005 2004 2004 2004 2004
(dollars in millions)
Financial Condition Data:
General
Total assets $58,926 $54,471 $55,755 $48,687 $47,043
Loans 40,320 36,631 35,262 29,130 27,739
Total deposits and customer
related accounts: 36,686 32,556 33,102 29,001 28,118
Core deposits and other
customer related
accounts 27,225 25,441 25,744 22,824 21,939
Time deposits 9,461 7,114 7,358 6,176 6,179
Borrowings 15,555 16,140 16,919 15,157 14,262
Minority interests 204 204 203 203 203
Stockholders' equity 5,705 4,988 4,815 3,815 3,916
Goodwill 2,721 2,125 2,103 1,289 1,293
Core deposit intangible 269 257 305 249 262
Asset Quality
Non-performing assets $186.9 $160.1 $168.8 $176.1 $212.0
Non-performing loans $171.9 $143.6 $147.5 $152.2 $188.6
Non-performing assets to
total assets 0.32% 0.29% 0.30% 0.36% 0.45%
Non-performing loans to
total loans 0.43% 0.39% 0.42% 0.52% 0.68%
Allowance for loan losses $437.7 $408.7 $406.6 $352.6 $351.0
Allowance for loan losses
to total loans 1.09% 1.12% 1.15% 1.21% 1.27%
Allowance for loan losses
to non-performing loans 255% 285% 276% 232% 186%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.68% 9.16% 8.64% 7.84% 8.32%
Tier 1 leverage capital
ratio 6.96% 7.05% 6.56% 7.13% 7.12%
Tangible equity to tangible
assets, excluding OCI 5.22% 5.25% 4.77% 5.28% 5.19%
Tangible equity to tangible
assets, including OCI 4.86% 5.00% 4.51% 4.83% 5.19%
Capitalization - Bank (1)
Stockholders' equity to
total assets 11.58% 10.77% 10.20% 9.12% 9.60%
Tier 1 leverage capital
ratio 7.44% 7.21% 6.66% 6.85% 6.82%
Tier 1 risk-based capital
ratio 8.89% 8.79% 8.51% 8.92% 8.82%
Total risk-based capital
ratio 11.55% 11.64% 11.43% 12.12% 12.13%
(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 June 30 Mar. 31
2005 2004 2004 2004 2004
(dollars in thousands)
Assets
Cash and amounts due
from depository
institutions $981,674 $1,160,922 $1,266,044 $1,026,719 $893,193
Investments:
Available-for-
sale 7,709,353 7,642,558 10,111,845 10,493,897 11,912,292
Held-to-
maturity 3,839,848 3,904,319 4,027,472 4,007,041 2,489,030
Total
invest-
ments 11,549,201 11,546,877 14,139,317 14,500,938 14,401,322
Loans:
Commercial 15,363,592 13,864,240 13,445,735 12,251,456 11,919,975
Consumer 15,173,459 14,269,343 13,856,992 11,986,107 11,012,103
Residential
mortgages 9,782,953 8,497,496 7,958,974 4,892,305 4,806,494
Total
loans 40,320,004 36,631,079 35,261,701 29,129,868 27,738,572
Less allowance
for loan
losses (437,661) (408,716) (406,612) (352,637) (351,007)
Total loans,
net 39,882,343 36,222,363 34,855,089 28,777,231 27,387,565
Premises and
equipment,
net 394,604 353,337 352,089 286,682 289,517
Accrued interest
receivable 258,849 226,012 225,918 196,347 188,002
Goodwill 2,720,651 2,125,081 2,103,158 1,289,340 1,292,809
Core deposit
intangible 268,528 256,694 304,754 249,169 261,582
Bank owned life
insurance 992,426 885,807 879,189 851,155 841,568
Other
assets 1,877,557 1,694,220 1,629,450 1,509,296 1,487,657
Total
assets $58,925,833 $54,471,313 $55,755,008 $48,686,877 $47,043,215
Liabilities and Stockholders' Equity
Liabilities:
Deposits and
other customer
related
accounts:
Core and other
customer related
accounts $27,224,877 $25,441,145 $25,743,796 $22,824,310 $21,939,435
Time
deposits 9,460,879 7,114,373 7,357,882 6,176,310 6,178,871
Total 36,685,756 32,555,518 33,101,678 29,000,620 28,118,306
Borrowings
and other
debt
obligations 15,554,598 16,140,128 16,919,164 15,157,017 14,261,686
Other
liabilities 775,976 583,389 715,326 511,131 545,084
Total
liabilit-
ies 53,016,330 49,279,035 50,736,168 44,668,768 42,925,076
Minority
interests 204,286 203,906 203,488 202,919 202,513
Stockholders'
equity:
Common
Stock 3,609,269 2,949,870 2,934,733 2,105,312 2,102,183
Warrants and
stock
options 346,116 317,842 318,874 306,594 305,297
Unallocated
ESOP
shares (23,707) (23,707) (26,078) (26,078) (26,078)
Treasury
stock (64,495) (19,136) (19,767) (20,242) (22,190)
Accumulated
other
comprehensive
(loss)/
income (169,312) (108,092) (136,645) (222,499) 6,349
Retained
earnings 2,007,346 1,871,595 1,744,235 1,672,103 1,550,065
Total
stockholders'
equity 5,705,217 4,988,372 4,815,352 3,815,190 3,915,626
Total
liabilities
and
stockholders'
equity $58,925,833 $54,471,313 $55,755,008 $48,686,877 $47,043,215
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2005 2004 2004 2004 2004
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on
interest-earning
deposits $2,233 $1,721 $1,505 $980 $528
Interest on
investment
securities
Available for sale 94,884 102,945 124,803 136,497 137,226
Held to maturity 45,119 45,512 46,470 31,879 28,819
Interest on loans 518,820 474,010 412,771 345,288 333,190
Total interest
and dividend
income 661,056 624,188 585,549 514,644 499,763
Interest expense:
Deposits and
related customer
accounts 114,178 91,731 83,160 63,142 65,012
Borrowings 148,700 145,445 139,439 119,463 111,935
Total interest
expense 262,878 237,176 222,599 182,605 176,947
Net interest
income 398,178 387,012 362,950 332,039 322,816
Provision for loan
losses 22,000 27,000 25,000 32,000 43,000
Net interest
income after
provision for
loan losses 376,178 360,012 337,950 300,039 279,816
Non-interest income:
Consumer banking
fees 66,555 67,759 62,771 58,072 53,985
Commercial banking
fees 33,008 32,843 31,757 30,552 28,685
Mortgage banking
revenue (1) 11,932 4,726 (4,080) 16,436 5,427
Capital markets
revenue 4,686 6,548 3,409 5,099 4,887
Bank owned life
insurance income 10,903 10,136 9,922 9,588 9,626
Other 6,351 4,480 4,498 4,499 6,444
Total fees and other
income before security
gains 133,435 126,492 108,277 124,246 109,054
Net gain/(loss) on
securities 7,979 (24,728) 20,247 829 17,881
Total non-
interest
income 141,414 101,764 128,524 125,075 126,935
Non-interest expense:
General and
administrative
Compensation and
benefits 125,125 123,967 114,871 105,224 104,080
Occupancy and
equipment 62,870 59,221 54,976 52,097 54,379
Technology expense 18,668 21,486 18,935 19,333 17,605
Outside services 14,648 13,901 14,332 12,746 12,336
Marketing expense 11,047 13,089 11,983 10,751 10,700
Other
administrative
expenses 24,756 25,587 22,583 24,433 24,046
Total general
and
administrative 257,114 257,251 237,680 224,584 223,146
Other expenses:
Amortization of core
deposit intangibles 18,956 17,670 19,836 17,576 17,553
Trust preferred
securities and other
minority interest
expense 5,668 5,630 5,502 5,438 5,436
Equity method
investments (2) 10,770 11,875 10,257 7,327 2,012
Loss/(gain) on debt
extinguishment - 500 65,546 (2,285) -
Restructuring charges 5,204 - - - -
Merger-related and
integration charges 23,191 (5,169) 27,941 - 23,587
Total other
expenses 63,789 30,506 129,082 28,056 48,588
Total non-
interest
expense 320,903 287,757 366,762 252,640 271,734
Income before
income taxes 196,689 174,019 99,712 172,474 135,017
Income tax expense 50,538 36,590 17,170 41,120 32,790
Net income $146,151 $137,429 $82,542 $131,354 $102,227
(1) Mortgage banking activity is summarized
below:
Gains on sale of
mortgage loans and
mortgage backed
securities $6,377 $2,438 $4,090 $2,808 $16,469
Net gains/(loss)
recorded under SFAS
133 653 (111) (112) (1,878) 81
Mortgage servicing
fees, net of mortgage
servicing rights
amortization 948 664 1,343 (1,628) 137
Mortgage servicing
right (impairments)/
recoveries 3,954 1,735 (9,401) 17,134 (11,260)
Total mortgage
banking revenues $11,932 $4,726 $(4,080) $16,436 $5,427
(2) During the second quarter of 2004, Sovereign made a $60 million
investment in a synthetic fuel partnership which is accounted for as
an equity method investment. As a result of the increasing
significance of our equity method investment portfolios, Sovereign
reclassified the income statement effects of these items to other
expenses.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
March 31, 2005
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,128,935 $153,197 5.06%
Loans:
Commercial 14,870,517 204,413 5.56%
Consumer 14,886,031 193,931 5.27%
Residential mortgages 9,167,485 122,676 5.35%
Total loans 38,924,033 521,020 5.40%
Allowance for loan losses (432,852)
Total earning assets 50,620,116 $674,217 5.37%
Other assets 6,922,971
Total assets $57,543,087
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $5,162,704 $- 0.00%
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 26,130,172 61,089 0.95%
Time deposits 8,659,080 53,089 2.49%
Total 34,789,252 114,178 1.33%
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 51,296,136 262,878 2.07%
Other liabilities 658,248
Total liabilities 51,954,384
Stockholders' equity 5,588,703
Total liabilities and
stockholders' equity $57,543,087
Net interest income $411,339
Interest rate spread 2.87%
Net interest margin 3.26%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
December 31, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $13,040,062 $160,592 4.93%
Loans:
Commercial 13,599,851 179,698 5.26%
Consumer 14,020,882 188,307 5.35%
Residential mortgages 8,199,190 107,327 5.24%
Total loans 35,819,923 475,332 5.29%
Allowance for loan losses (407,518)
Total earning assets 48,452,467 $635,924 5.24%
Other assets 6,297,437
Total assets $54,749,904
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $5,103,981 $- 0.00%
NOW accounts 7,544,694 20,536 1.08%
Customer repurchase agreements 851,928 3,044 1.42%
Savings accounts 3,821,004 5,802 0.60%
Money market accounts 8,082,448 24,599 1.21%
Core and other customer related
accounts 25,404,055 53,981 0.85%
Time deposits 7,221,061 37,750 2.08%
Total 32,625,116 91,731 1.12%
Borrowings:
Federal Home Loan Bank
advances 10,416,303 101,436 3.88%
Fed funds and repurchase
agreements 2,383,245 15,208 2.55%
Other borrowings 3,600,008 28,801 3.19%
Total borrowings 16,399,556 145,445 3.53%
Total funding liabilities 49,024,672 237,176 1.93%
Other liabilities 827,078
Total liabilities 49,851,750
Stockholders' equity 4,898,154
Total liabilities and
stockholders' equity $54,749,904
Net interest income $398,748
Interest rate spread 2.91%
Net interest margin 3.29%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
March 31, 2004
(dollars in thousands) Average Yield/
Balance Interest (1) Rate
Earning assets:
Investment securities $14,120,951 $176,374 5.00%
Loans:
Commercial 11,413,060 132,325 4.60%
Consumer 10,472,369 135,709 5.21%
Residential mortgages 5,105,900 66,743 5.23%
Total loans 26,991,329 334,777 4.95%
Allowance for loan losses (343,684)
Total earning assets 40,768,596 $511,151 5.01%
Other assets 5,087,754
Total assets $45,856,350
Funding liabilities:
Deposits and other customer
related accounts:
Demand deposit accounts $4,239,684 $- 0.00%
NOW accounts 5,990,184 9,132 0.61%
Customer repurchase
agreements 880,544 1,336 0.61%
Savings accounts 3,217,946 4,261 0.53%
Money market accounts 7,017,860 16,932 0.97%
Core and other
customer related
accounts 21,346,218 31,661 0.60%
Time deposits 6,108,153 33,351 2.19%
Total 27,454,371 65,012 0.95%
Borrowings:
Federal Home Loan
Bank advances 8,063,115 77,815 3.83%
Fed funds and repurchase
agreements 2,554,957 7,418 1.15%
Other borrowings 3,563,656 26,702 2.98%
Total borrowings 14,181,728 111,935 3.14%
Total funding liabilities 41,636,099 176,947 1.70%
Other liabilities 660,321
Total liabilities 42,296,420
Stockholders' equity 3,559,930
Total liabilities and
stockholders' equity $45,856,350
Net interest income $334,204
Interest rate spread 2.91%
Net interest margin 3.28%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
(dollars in Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
thousands) 2005 2004 2004 2004 2004
Non-accrual loans:
Commercial $95,528 $80,799 $89,061 $90,370 $113,734
Consumer 37,637 28,021 24,417 27,923 31,573
Residential
mortgages 37,669 33,656 32,858 32,635 41,925
Total non-accrual
loans 170,834 142,476 146,336 150,928 187,232
Restructured loans 1,026 1,097 1,205 1,262 1,378
Total non-performing
loans 171,860 143,573 147,541 152,190 188,610
Real estate owned, net 11,286 12,276 16,397 19,609 18,349
Other repossessed
assets 3,709 4,247 4,824 4,268 5,006
Total non-performing
assets $186,855 $160,096 $168,762 $176,067 $211,965
Non-performing loans
as a percentage of
total loans 0.43% 0.39% 0.42% 0.52% 0.68%
Non-performing assets
as a percentage of
total assets 0.32% 0.29% 0.30% 0.36% 0.45%
Non-performing assets
as a percentage of
total loans, real
estate owned and
repossessed assets 0.46% 0.44% 0.48% 0.60% 0.76%
Allowance for loan
losses as a percentage
of non-performing loans 255% 285% 276% 232% 186%
NET LOAN CHARGE-OFFS
Quarters ended Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
(in thousands) 2005 2004 2004 2004 2004
Commercial
real estate $(492) $614 $(1,064) $6,117 $3,558
Commercial and
industrial and other 7,200 10,357 10,823 14,502 19,767
Total Commercial 6,708 10,971 9,759 20,619 23,325
Auto loans 9,557 10,641 7,615 6,418 7,408
Home equity
loans and other 3,280 2,840 2,770 3,268 3,605
Total Consumer 12,837 13,481 10,385 9,686 11,013
Residential mortgages 43 444 326 65 209
Total $19,588 $24,896 $20,470 $30,370 $34,547
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2004 2004
Demand deposit accounts $5,377,378 $5,087,531 $5,072,090
NOW accounts 8,422,725 7,838,584 7,748,012
Customer repurchase agreements 828,388 837,643 848,890
Savings accounts 3,922,642 3,807,099 3,667,116
Money market accounts 8,673,744 7,870,288 8,407,688
Certificates of deposits 9,460,879 7,114,373 7,357,882
Total $36,685,756 $32,555,518 $33,101,678
June 30 Mar. 31
Quarters ended (in thousands) 2004 2004
Demand deposit accounts $4,698,610 $4,481,546
NOW accounts 6,554,831 6,248,412
Customer repurchase agreements 810,062 789,524
Savings accounts 3,303,890 3,317,836
Money market accounts 7,456,917 7,102,117
Certificates of deposits 6,176,310 6,178,871
Total $29,000,620 $28,118,306
LOAN COMPOSITION - End of period
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2004 2004
Commercial real estate $6,837,814 $5,824,133 $5,800,536
Commercial industrial loans 8,525,778 8,040,107 7,645,199
Total commercial loans 15,363,592 13,864,240 13,445,735
Home equity loans 10,280,735 9,577,656 8,988,139
Auto loans 4,296,296 4,205,547 4,340,487
Other 596,428 486,140 528,366
Total consumer loans 15,173,459 14,269,343 13,856,992
Total residential loans 9,782,953 8,497,496 7,958,974
Total loans $40,320,004 $36,631,079 $35,261,701
June 30 Mar. 31
Quarters ended (in thousands) 2004 2004
Commercial real estate $5,050,915 $4,993,700
Commercial industrial loans 7,200,541 6,926,275
Total commercial loans 12,251,456 11,919,975
Home equity loans 7,790,049 6,971,401
Auto loans 3,631,153 3,621,169
Other 564,905 419,533
Total consumer loans 11,986,107 11,012,103
Total residential loans 4,892,305 4,806,494
Total loans $29,129,868 $27,738,572
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2004 2004
Demand deposit accounts $5,162,704 $5,103,981 $4,936,996
NOW accounts 8,041,978 7,544,694 7,117,978
Customer repurchase agreements 842,657 851,928 821,182
Savings accounts 3,930,308 3,821,004 3,621,567
Money market accounts 8,152,525 8,082,448 8,256,017
Certificates of deposits 8,659,080 7,221,061 6,985,446
Total $34,789,252 $32,625,116 $31,739,186
June 30 Mar. 31
Quarters ended (in thousands) 2004 2004
Demand deposit accounts $4,506,601 $4,239,684
NOW accounts 6,313,501 5,990,184
Customer repurchase agreements 784,850 880,544
Savings accounts 3,328,743 3,217,946
Money market accounts 7,167,639 7,017,860
Certificates of deposits 6,070,703 6,108,153
Total $28,172,037 $27,454,371
LOAN COMPOSITION - Average
Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2004 2004
Commercial real estate $6,494,572 $5,788,936 $5,621,144
Commercial industrial loans 7,522,968 6,953,564 6,534,378
Other 852,977 857,351 850,871
Total commercial loans 14,870,517 13,599,851 13,006,393
Home equity loans 10,002,411 9,245,711 8,177,146
Auto loans 4,305,100 4,266,466 4,198,175
Other 578,520 508,705 544,404
Total consumer loans 14,886,031 14,020,882 12,919,725
Total residential loans 9,167,485 8,199,190 6,675,476
Total loans $38,924,033 $35,819,923 $32,601,594
June 30 Mar. 31
Quarters ended (in thousands) 2004 2004
Commercial real estate $5,014,765 $4,869,200
Commercial industrial loans 6,214,663 5,669,558
Other 855,453 874,302
Total commercial loans 12,084,881 11,413,060
Home equity loans 7,206,082 6,666,343
Auto loans 3,636,061 3,457,105
Other 460,269 348,921
Total consumer loans 11,302,412 10,472,369
Total residential loans 4,854,811 5,105,900
Total loans $28,242,104 $26,991,329
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating earnings for the first quarter of 2005 represents net income
adjusted for the after-tax effects of merger-related and integration charges,
certain restructuring charges and the amortization of intangible assets.
Operating earnings for 2004 represent net income adjusted for the after-tax
effects of merger-related and integration charges and the loss on early
extinguishment of debt, the fourth quarter adoption of EITF 04-8, other-than-
temporary non-cash impairment charges on Fannie Mae and Freddie Mac preferred
equity securities and the amortization of intangible assets. Management's
operating earnings goal for 2005 excludes the after-tax effects of merger-
related and integration charges, certain restructuring charges and the
amortization of intangible assets. The table below reconciles our GAAP
earnings to operating earnings.
(dollars in
thousands,
except per
share data -
all amounts are
after tax) Quarter Ended
Total dollars
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
2005 2004 2004 2004 2004
Net income as reported $146,151 $137,429 $82,542 $131,354 $102,227
Contingently convertible
trust preferred
interest expense, net
of tax (1) 6,394 6,318 6,310 6,301 2,285
Net income/(loss) for
EPS purposes $152,545 $143,747 $88,852 $137,655 $104,512
Weighted average diluted
shares for GAAP EPS 401,339 377,625 367,782 337,771 316,827
Reconciliation to
operating earnings
Weighted average diluted
shares for GAAP EPS 401,339 377,625 367,782 337,771 316,827
Exclude dilutive effect
of EITF 04-8 on
contingently
convertible debt (1) - (26,082) (26,082) (26,082) (10,149)
Adjusted weighted
average diluted shares
for Operating EPS 401,339 351,543 341,700 311,689 306,678
Net income and EPS as
reported based on
adjusted share
count (1) $152,545 $137,429 $82,542 $131,354 $102,227
Business acquisitions:
Merger related and
integration costs 15,074 (3,360) 18,162 - 15,332
Provision for
loan loss - - - - 3,900
Loss on debt
extinguishment - - 42,605 - -
Impairment charges on
FNMA and FHLMC
Preferred Stock - 20,891 - - -
Restructuring
charges (2) 3,382 - - - -
Amortization of
intangibles 12,322 12,562 14,578 12,047 11,999
Operating earnings $183,323 $167,522 $157,887 $143,401 $133,458
(dollars in
thousands,
except per
share data -
all amounts are
after tax) Quarter Ended Forward-
Per share Looking
Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Per Share
2005 2004 2004 2004 2004 2005
Net income as
reported
Contingently
convertible trust
preferred interest
expense, net of
tax (1)
Net income/(loss) for
EPS purposes $0.38 $0.38 $0.24 $0.41 $0.33 $1.84 - $1.94
Weighted average
diluted shares
for GAAP EPS
Reconciliation to
operating earnings
Weighted average
diluted shares
for GAAP EPS
Exclude dilutive
effect of EITF
04-8 on contingently
convertible debt (1)
Adjusted weighted
average diluted shares
for Operating EPS
Net income and EPS as
reported based
on adjusted
share count (1) $0.38 $0.39 $0.24 $0.42 $0.33
Business acquisitions:
Merger related and
integration
costs 0.04 (0.01) 0.05 - 0.05 .04 - .06
Provision for
loan loss - - - - 0.01 -
Loss on debt
extinguishment - - 0.12 - - -
Impairment charges
on FNMA and FHLMC
Preferred Stock - 0.06 - - -
Restructuring
charges (2) 0.01 - - - -
Amortization
of intangibles 0.03 0.04 0.04 0.04 0.04 0.12
Operating earnings $0.46 $0.48 $0.46 $0.46 $0.44 $2.00 - $2.12
(1) Effective in the fourth quarter of 2004, Sovereign adopted EITF 04-8
"Accounting Issues Related to Certain Features of Contingently
Convertible Debt and the Effect on Diluted Earnings per Share." This
EITF requires the potential dilution from contingently convertible
debt be included in the calculation of diluted earnings per share
upon the issuance of the debt and that the after tax impact of the
interest expense on this debt be added back to net income for
earnings per share purposes. Sovereign issued $800 million of
contingently convertible trust preferred equity income redeemable
securities in the first quarter of 2004. Prior period earnings per
share were restated. We have excluded the impact of this
pronouncement in our calculation of 2004 operating earnings per
share, however it is included in our calculation for 2005 operating
earnings per share.
(2) Sovereign incurred restructuring charges related to contract
termination costs on a loan servicing agreement and a charge related
to vacating certain underutilized real estate.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Purchase of Waypoint Financial Corp Inc. ("Waypoint")
On January 21, 2005 Sovereign completed the purchase of Waypoint and the
results of its operations are included from purchase date through March 31,
2005. Sovereign issued 29.8 million shares of common stock and exchanged
Sovereign stock options for existing Waypoint stock options, whose combined
value totaled $677.9 million and made cash payments of $269.9 million to
acquire and convert all outstanding Waypoint shares and stock options and pay
associated fees. The preliminary purchase price was allocated to acquired
assets and liabilities of Waypoint based on fair value as of January 21, 2005.
The company is in the process of finalizing these values and as such the
allocation of the purchase price is subject to revision.
Assets and Liabilities Acquired from Waypoint:
(dollars in millions)
Assets Liabilities
Investments $379.2 Deposits:
Loans: Core $1,503.7
Commercial 1,299.0 Time 1,384.6
Consumer 991.3 Total deposits 2,888.3
Residential mortgages 313.8 Borrowings and other debt
obligations 668.2
Total loans 2,604.1 Other liabilities 85.3
Less allowance for loan
losses (26.5)
Total loans, net 2,577.6 Total liabilities $3,641.8
Federal funds and cash 324.2
Premises and equipment, net 44.2
Bank owned life insurance 97.0
Other assets 266.8
Core deposit intangible 30.8
Goodwill 600.0
Total assets $4,319.8
In connection with the Waypoint acquisition, Sovereign recorded charges
against its earnings for the three month period ended March 31, 2005 for
merger related expenses of $24.7 million pretax ($16.0 million net of tax).
SOURCE Sovereign Bancorp, Inc.
 back to top
Related links:
http://www.sovereignbank.com
CONTACT:
FINANCIAL: Jim Hogan, +1-610-320-8496, or
jhogan@sovereignbank.com, or Mark McCollom, +1-610-208-6426, or
mmccollo@sovereignbank.com, or Stacey Weikel, +1-610-208-6112, or
sweikel@sovereignbank.com; or MEDIA: Ed Shultz, +1-610-378-6159,
or eshultz1@sovereignbank.com, all of Sovereign Bancorp
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