Financial Highlights
- Including restructuring, other-than-temporary impairment, merger and
integration charges and additional provision for credit losses related
to the acquisition of Independence, the net loss for the second quarter
of 2006 was $51.7 million. Earnings per diluted share for the second
quarter of 2006 were a net loss of $.11 as compared to net earnings of
$.45 a year ago.
- Operating/cash earnings per diluted share, excluding the aforementioned
items, for the second quarter of 2006 were $.40 per share.
Operating/cash earnings for EPS purposes were $179 million.
- Sold $3.85 billion of investment securities in June as part of balance
sheet restructuring.
- Average deposits increased to $43.9 billion, a growth rate of 21% from
a year ago. Linked quarter organic growth was 19%. Average core
deposits (excluding time deposits) increased to $30.7 billion, a growth
rate of 15% from a year ago. Linked quarter organic growth was 23%.
- Average loans increased to $50.6 billion, an annualized growth rate of
22% from a year ago. Linked quarter organic growth was 18%.
- Excluding acquisitions, consumer and commercial banking fees were $108
million, up 5% and 12%, respectively, from the first quarter of 2006.
- Excluding acquisitions, G&A expenses were $282 million, up only $1.7
million, or .6%, from the first quarter of 2006.
- Annualized net charge-offs of .23% of average loans in the second
quarter of 2006.
- Tangible equity ratio of 3.73% excluding OCI and book value per share
of $17.92.
- Successfully completed acquisition of Independence Community Bank Corp.
and equity offering to Banco Santander Central Hispano, S.A.
- Received double notch upgrade from Moody's and single notch upgrade
from Standard and Poor's.
PHILADELPHIA, July 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported for the second quarter of 2006 a net loss of $51.7 million, or
$(.11) per diluted share, as compared to net income of $183 million, or
$.45 per diluted share, for the second quarter of 2005. Net loss in the
second quarter of 2006 included merger and integration charges of $4.1
million after-tax, or $.01 per share, additional provision for credit
losses related to the acquisition of Independence of $8.1 million
after-tax, or $.02 per share, restructuring charges of $155 million
after-tax, or $.35 per share, and a non- cash, non-operating impairment
charge related to certain Fannie Mae ("FNMA") and Freddie Mac ("FHLMC")
preferred stock of $43.9 million after-tax, or $.10 per share. Net income
in the second quarter of 2005 included a reversal of merger and integration
charges of $5.5 million after-tax, or $.01 per share.
For the quarter ended June 30, 2006, Sovereign's operating/cash
earnings per diluted share were $.40, which excluded the above mentioned
charges and $15.7 million, or $.04 per share, related to amortization of
intangible assets, as compared to $.47 per diluted share a year ago, which
excluded the above mentioned reversal of merger and integration charges and
$12.2 million, or $.03 per share, related to amortization of intangible
assets. 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 the second quarter of 2006, Jay S. Sidhu, Sovereign's
Chairman and CEO, stated, "The past quarter results have been mixed. We
closed on our acquisition of Independence, we also closed on our equity
offering to Santander, and we restructured our balance sheet to better
balance our interest rate risk position going forward. Our operating
expenses were well contained, credit quality continues to be in check and
fee-based revenues in most categories saw solid increases. The Independence
acquisition improves our critical success factors and sets the company up
well for future periods; however, near-term yield curve pressures continued
to hinder our net interest income growth and impacts our balance sheet
growth."
Net Interest Income and Margin
For the second quarter of 2006, Sovereign reported net interest income
of $439 million as compared to $413 million in the second quarter of 2005.
Sovereign's average loan portfolio increased by $9.2 billion over last year
and $6.3 billion on a linked quarter basis to $50.6 billion. Excluding
acquisitions, the total loan portfolio increased $1.9 billion during the
quarter, reflecting an annualized organic growth rate of 18%. Sovereign's
average deposits increased $7.6 billion over last year and $5.4 billion
linked quarter to $43.9 billion. Excluding acquisitions, total deposits
increased $1.7 billion during the quarter, reflecting an annualized organic
growth rate of 18%.
Net interest margin was 2.86% for the second quarter of 2006 as
compared to 3.00% in the first quarter of 2006 and 3.21% in the second
quarter of 2005.
Risk Mitigation
In an effort to optimize its interest rate risk position and capital
following the acquisition of Independence, Sovereign reduced its combined
investment portfolio by $3.85 billion in June of 2006. Sovereign sold $3.5
billion of its own investments with a yield of approximately 4.40% and
effective duration of 4.2 years. In addition, prior to closing Independence
sold $350 million of its investment portfolio.
During the second quarter of 2006, Sovereign entered into a synthetic
securitization to reduce its exposure to potential credit losses on a pool
of $5.2 billion of residential loans. This credit securitization caps net
charge-off's at 10 basis points and generates approximately $130 million of
risk-based capital at an implied cost of capital of about 2.85%.
Non-Interest Income
Consumer and commercial banking fees increased 13% from a year ago.
Excluding acquisitions, consumer and commercial banking fees were up 9%
from the second quarter of 2005. Consumer banking fees increased to $67.5
million, primarily driven by growth in deposit fees. Commercial banking
fees increased year-over-year by $11.2 million to $43.9 million primarily
driven by growth in loan fees and precious metals revenue.
Mortgage banking revenues for the quarter were $4.5 million, compared
to $13.0 million last quarter and $21.3 million in the same quarter a year
ago, as the company's bias for higher credit quality has resulted in more
originations being retained on its balance sheet.
As discussed in a prior press release, Sovereign recorded a
non-operating restructuring charge of $155 million, after-tax, related to
the sale of $3.5 billion of its investment securities and a non-cash,
non-operating impairment charge of $44 million, after-tax, related to
certain Fannie Mae and Freddie Mac preferred stock in the second quarter of
2006.
Non-Interest Expense
G&A expenses, including acquisitions, were $303 million for the
quarter. "Included in operating expenses for the quarter was $21.6 million
of operating expenses related to the Independence acquisition. On a linked
quarter basis, excluding the effects of Independence, G&A expenses were up
only $1.7 million, or .6%," stated Mark R. McCollom, Sovereign's Chief
Financial Officer. "We remain on schedule to convert systems in early
September, and after such time, we will be able to leverage expenses to a
greater degree. We are on track to exceed our initial cost savings estimate
of 15%. In fact, we expect cost saves to reach about 20%."
Asset Quality
Asset quality remained strong in the second quarter of 2006. Annualized
net charge-offs were .23% of average loans for the second quarter, compared
to .26% in the first quarter of 2006. Non-performing loans to total loans
decreased slightly from first quarter levels to .36%. Non-performing loans
increased by $36 million from last quarter to $220 million; however,
Independence's non-performing loans were $38 million of this total. The
allowance for credit losses to non-performing loans improved to 251%, as
compared to 239% at March 31, 2006 and 272% at June 30, 2005. Sovereign's
provision for credit losses was $44.5 million this quarter, including an
additional provision of $12.5 million related to the acquisition of
Independence, compared to $29.0 million in the first quarter of 2006 and
$22.0 million in the second quarter of 2005.
Capital
In addition to the $2.5 billion equity offering to Santander, Sovereign
successfully raised $825 million of capital at a blended cost of 7.24%,
during the second quarter, of which $625 million is Tier 1 qualified.
Sovereign's Tier 1 leverage ratio was 5.69% at June 30, 2006. Tangible
equity to tangible assets, which includes recently issued preferred stock,
was 3.73% excluding other comprehensive income ("OCI") and was 3.49%
including OCI. Tangible common equity to tangible assets, excluding other
comprehensive income ("OCI") was 3.50% and including OCI was 3.25%. The
equity to assets ratio was 9.54% at June 30, 2006. Sovereign Bank's Tier 1
leverage ratio was 6.28% and the Bank's risk-based capital ratio was 10.30%
at June 30, 2006.
Based upon our July 17 stock price of $20.39, Sovereign is trading at a
P/E of 12.5x analysts mean 2006 estimate. The book value per share at June
30, 2006 was $17.92.
About Sovereign
Sovereign Bancorp, Inc. ("Sovereign") (NYSE: SOV), the parent company
of Sovereign Bank, is an $89 billion financial institution with nearly 800
community banking offices, over 2,000 ATMs after giving effect to the
recently announced branding agreement in which Sovereign ATMs will be
placed in CVS/pharmacy locations and approximately 12,000 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, 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 Second Quarter 2006 earnings call on Tuesday, July
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=1342450.
The web-cast and replay can be accessed anytime from 5:00 p.m. ET on
Tuesday, July 18 through 12:00 a.m. ET on September 18, 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, July 18,
2006 through 12:00 a.m. ET (midnight) on July 24, 2006 by dialing
800-642-1687, confirmation id #2254483.
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, other-than-temporary impairment charges on Fannie Mae and Freddie
Mac preferred equity securities, 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
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2006 2006 2005 2005 2005
(dollars in millions, except
per share data)
Operating Data
Net income (loss) $(51.7) $141.4 $165.5 $181.0 $183.5
Net income (loss) for EPS purposes (47.8) 147.7 171.8 187.4 189.8
Operating/cash earnings for EPS
purposes (1) 178.9 166.4 187.2 197.2 196.5
Net interest income 438.8 404.0 403.2 408.3 413.2
Provision for credit losses 44.5 29.0 26.0 20.0 22.0
Total fees and other income before
securities transactions 142.0 134.3 159.9 158.2 148.6
Net gain (loss) on investment
securities (305.0) 0.0 (1.3) 1.7 3.4
G&A expense 303.3 280.0 281.8 276.9 273.4
Other expenses 47.5 44.8 40.0 32.6 27.1
Performance Statistics
Bancorp
Net interest margin 2.86% 3.00% 3.01% 3.13% 3.21%
Return on average assets -0.28% 0.90% 1.03% 1.17% 1.22%
Operating/cash return on average
assets (1) 0.98% 1.05% 1.17% 1.27% 1.31%
Return on average equity -3.09% 9.72% 11.49% 12.61% 12.92%
Operating/cash return on average
equity (1) 10.72% 11.45% 13.00% 13.74% 13.84%
Return on average tangible equity -7.14% 19.29% 23.67% 26.24% 27.15%
Operating/cash return on average
tangible equity (1) 24.72% 22.71% 26.78% 28.58% 29.09%
Annualized net loan charge-offs
to average loans 0.23% 0.26% 0.21% 0.18% 0.19%
Efficiency ratio (3) 52.22% 52.01% 50.04% 48.87% 48.67%
Per Share Data
Basic earnings (loss) per
share (2) $(0.13) $0.38 $0.44 $0.48 $0.48
Diluted earnings (loss) per
share (2) (0.11) 0.36 0.42 0.45 0.45
Operating/cash earnings per
share (1) (2) 0.40 0.41 0.46 0.48 0.47
Dividend declared per share .080 .060 .060 .040 .040
Book value (4) 17.92 16.42 16.21 15.81 15.70
Common stock price:
High $21.76 $21.53 $22.37 $23.54 $21.62
Low 20.19 19.57 19.65 20.66 19.17
Close 20.31 20.87 20.59 20.99 21.28
Weighted average common
shares: (2)
Basic 412.0 376.9 375.6 378.3 386.3
Diluted 445.6 410.4 409.6 412.8 420.4
End-of-period common shares:
Basic 472.1 359.3 358.4 358.5 365.8
Diluted 505.5 391.1 390.5 390.7 398.3
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) Prior period earnings per share and weighted average common shares
have been restated to reflect the 5% stock dividend paid to
shareholders of record on June 15, 2006.
(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.
Year to Date
June 30 June 30
2006 2005
(dollars in millions, except per
share data)
Operating Data
Net income (loss) $89.7 $329.6
Net income (loss) for EPS purposes 100.0 342.4
Operating/cash earnings for EPS purposes (1) 345.4 379.9
Net interest income 842.7 820.5
Provision for credit losses 73.5 44.0
Total fees and other income before
securities transactions 276.3 272.8
Net gain (loss) on investment securities (305.0) 11.3
G&A expense 583.3 530.5
Other expenses 92.3 90.9
Performance Statistics
Bancorp
Net interest margin 2.92% 3.27%
Return on average assets 0.26% 1.13%
Operating/cash return on average assets (1) 1.01% 1.30%
Return on average equity 2.87% 11.78%
Operating/cash return on average equity (1) 11.06% 13.57%
Return on average tangible equity 6.15% 24.08%
Operating/cash return on average
tangible equity (1) 23.67% 27.75%
Annualized net loan charge-offs to
average loans 0.21% 0.21%
Efficiency ratio (3) 52.12% 48.52%
Per Share Data
Basic earnings (loss) per share (2) $0.23 $0.85
Diluted earnings (loss) per share (2) 0.23 0.81
Operating/cash earnings per share (1) (2) 0.81 0.90
Dividend declared per share 0.140 0.070
Book value (4) 17.92 15.70
Common stock price:
High $21.76 $22.60
Low 19.57 19.17
Close 20.31 21.28
Weighted average common shares: (2)
Basic 394.6 386.8
Diluted 428.1 420.9
End-of-period common shares:
Basic 472.1 365.8
Diluted 505.5 398.3
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) Prior period earnings per share and weighted average common shares
have been restated to reflect the 5% stock dividend paid to
shareholders of record on June 15, 2006.
(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
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2006 2006 2005 2005 2005
(dollars in millions)
Financial Condition Data:
General
Total assets $88,677 $65,060 $63,679 $62,960 $59,940
Loans 61,610 45,164 43,804 42,692 41,267
Total deposits and
customer related
accounts: 52,546 38,820 37,978 37,333 36,102
Core deposits and other
customer related
accounts 36,521 27,143 26,639 27,395 26,683
Time deposits 16,025 11,678 11,339 9,937 9,419
Borrowings 26,159 19,216 18,721 18,897 17,069
Minority interests 209 206 206 205 205
Stockholders' equity 8,459 5,900 5,811 5,668 5,743
Goodwill 4,930 2,715 2,717 2,714 2,714
Core deposit and other
intangibles 633 197 214 232 250
Asset Quality
Non-performing assets $259.1 $200.5 $205.6 $181.1 $173.2
Non-performing loans $219.7 $183.5 $189.5 $169.9 $162.4
Non-performing assets to
total assets 0.29% 0.31% 0.32% 0.29% 0.29%
Non-performing loans to
total loans 0.36% 0.41% 0.43% 0.40% 0.39%
Allowance for credit
losses $551.4 $438.5 $437.8 $436.8 $442.5
Allowance for credit
losses
to total loans 0.90% 0.97% 1.00% 1.02% 1.07%
Allowance for credit
losses
to non-performing loans 251% 239% 231% 257% 272%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.54% 9.07% 9.13% 9.00% 9.58%
Tier 1 leverage capital
ratio 5.69% 6.74% 6.68% 6.48% 6.86%
Tangible equity to
tangible assets,
excluding OCI 3.73% 5.16% 5.05% 4.84% 5.13%
Tangible common equity to
tangible assets,
excluding OCI 3.50% 5.16% 5.05% 4.84% 5.13%
Tangible equity to
tangible assets,
including OCI 3.49% 4.81% 4.73% 4.54% 4.88%
Tangible common equity to
tangible assets,
including OCI 3.25% 4.81% 4.73% 4.54% 4.88%
Capitalization - Bank (1)
Stockholders' equity to
total assets 9.70% 10.59% 10.61% 10.46% 11.30%
Tier 1 leverage capital
ratio 6.28% 6.97% 6.84% 6.58% 7.16%
Tier 1 risk-based capital
ratio 7.91% 8.52% 8.21% 7.91% 8.64%
Total risk-based capital
ratio 10.30% 10.97% 10.66% 10.42% 11.27%
(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)
June 30 Mar. 31 Dec. 31
(dollars in thousands) 2006 2006 2005
Assets
Cash and amounts due
from depository institutions $1,641,731 $997,447 $1,131,936
Investments:
Available-for-sale 12,218,168 7,063,492 7,258,402
Held-to-maturity - 4,936,066 4,647,627
Other investments 933,507 670,353 651,299
Total investments 13,151,675 12,669,911 12,557,328
Loans:
Commercial 28,999,921 17,250,897 16,635,646
Consumer 32,610,190 27,913,516 27,168,201
Total loans 61,610,111 45,164,413 43,803,847
Less allowance for loan losses (537,372) (421,860) (419,599)
Total loans, net 61,072,739 44,742,553 43,384,248
Premises and equipment, net 587,254 408,119 412,017
Accrued interest receivable 375,213 275,343 286,300
Goodwill 4,929,586 2,715,217 2,716,826
Core deposit and other intangibles 632,665 196,756 213,975
Bank owned life insurance 1,686,571 1,027,403 1,018,125
Other assets 4,599,338 2,027,191 1,957,971
Total assets $88,676,772 $65,059,940 $63,678,726
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer
related accounts $36,520,944 $27,142,655 $26,639,246
Time deposits 16,025,418 11,677,492 11,338,460
Total 52,546,362 38,820,147 37,977,706
Borrowings and other debt
obligations 26,159,202 19,216,159 18,720,897
Other liabilities 1,303,198 917,661 963,764
Total liabilities 80,008,762 58,953,967 57,662,367
Minority interests 209,466 206,141 205,660
Stockholders' equity:
Preferred Stock 195,445 - -
Common Stock 6,156,925 3,657,038 3,657,543
Warrants and stock options 337,637 335,717 337,346
Unallocated ESOP shares (21,396) (21,396) (21,396)
Treasury stock (65,984) (466,328) (478,734)
Accumulated other
comprehensive loss (193,186) (211,760) (170,798)
Retained earnings 2,049,103 2,606,561 2,486,738
Total stockholders' equity 8,458,544 5,899,832 5,810,699
Total liabilities and
stockholders' equity $88,676,772 $65,059,940 $63,678,726
Sept. 30 June 30
(dollars in thousands) 2005 2005
Assets
Cash and amounts due
from depository institutions $1,438,240 $1,176,891
Investments:
Available-for-sale 7,547,170 6,919,987
Held-to-maturity 4,500,881 4,055,135
Other investments 696,859 609,977
Total investments 12,744,910 11,585,099
Loans:
Commercial 16,222,920 16,152,017
Consumer 26,468,719 25,115,462
Total loans 42,691,639 41,267,479
Less allowance for loan losses (418,353) (424,711)
Total loans, net 42,273,286 40,842,768
Premises and equipment, net 401,868 391,140
Accrued interest receivable 265,120 247,505
Goodwill 2,714,073 2,713,894
Core deposit and other intangibles 231,740 250,025
Bank owned life insurance 1,006,820 996,645
Other assets 1,884,316 1,736,089
Total assets $62,960,373 $59,940,056
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $27,395,257 $26,682,873
Time deposits 9,937,334 9,418,691
Total 37,332,591 36,101,564
Borrowings and other debt obligations 18,897,237 17,068,806
Other liabilities 857,530 822,136
Total liabilities 57,087,358 53,992,506
Minority interests 205,176 204,721
Stockholders' equity:
Preferred Stock - -
Common Stock 3,649,507 3,636,750
Warrants and stock options 337,156 339,517
Unallocated ESOP shares (23,707) (23,707)
Treasury stock (467,265) (280,223)
Accumulated other comprehensive loss (170,619) (105,727)
Retained earnings 2,342,767 2,176,219
Total stockholders' equity 5,667,839 5,742,829
Total liabilities and
stockholders' equity $62,960,373 $59,940,056
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2006 2006 2005 2005 2005
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on interest-
earning deposits $2,954 $2,116 $2,605 $2,022 $1,896
Interest on
investment
securities
Available for sale 116,653 90,095 91,163 86,411 91,123
Held to maturity 50,473 53,553 51,225 47,624 45,091
Other 13,016 5,603 4,971 4,443 4,755
Interest on loans 808,922 688,166 661,072 620,742 577,220
Total interest
and dividend
income 992,018 839,533 811,036 761,242 720,085
Interest expense:
Deposits and related
customer accounts 306,030 231,837 201,449 169,084 139,879
Borrowings 247,217 203,738 206,344 183,817 167,047
Total interest
expense 553,247 435,575 407,793 352,901 306,926
Net interest
income 438,771 403,958 403,243 408,341 413,159
Provision for credit
losses 44,500 29,000 26,000 20,000 22,000
Net interest
income after
provision for
credit losses 394,271 374,958 377,243 388,341 391,159
Non-interest income:
Consumer banking
fees 67,467 60,798 64,696 65,738 65,833
Commercial banking
fees 43,949 39,016 46,699 39,519 32,734
Mortgage banking
revenue (1) 4,524 12,992 26,501 28,671 21,290
Capital markets
revenue 2,313 3,889 4,053 5,382 3,700
Bank owned life
insurance income 15,359 11,327 11,398 12,066 12,918
Other 8,363 6,319 6,538 6,856 12,092
Total fees and other
income before
security gains 141,975 134,341 159,885 158,232 148,567
Net gain/(loss) on
securities (305,027) - (1,296) 1,675 3,355
Total non-
interest income (163,052) 134,341 158,589 159,907 151,922
Non-interest expense:
General and administrative
Compensation and
benefits 149,467 143,778 137,452 140,532 135,803
Occupancy and
equipment 68,155 64,193 61,679 61,096 61,348
Technology expense 23,114 21,566 22,562 21,349 21,606
Outside services 16,592 14,755 17,174 15,362 13,805
Marketing expense 14,548 10,222 15,103 14,455 11,757
Other administrative
expenses 31,417 25,465 27,828 24,107 29,072
Total general and
administrative 303,293 279,979 281,798 276,901 273,391
Other expenses:
Amortization of
intangibles 24,225 17,219 17,766 18,284 18,815
Other minority
interest expense 6,079 5,992 5,951 5,837 5,752
Equity method
investments 10,954 10,042 10,455 11,656 10,966
Proxy and professional
fees - 14,337 5,827 - -
Merger-related and
integration charges 6,257 (2,798) - (3,222) (8,447)
Total other
expenses 47,515 44,792 39,999 32,555 27,086
Total non-
interest
expense 350,808 324,771 321,797 309,456 300,477
Income/ (loss)
before income
taxes (119,589) 184,528 214,035 238,792 242,604
Income tax expense/
(benefit) (67,935) 43,130 48,540 57,749 59,133
Net income/ (loss) ($51,654) $141,398 $165,495 $181,043 $183,471
(1) Mortgage banking
activity is summarized
below:
Gains on sale of
mortgage loans,
mortgage backed
securities, and home
equity loans (2) $3,136 $9,762 $22,708 $21,274 $28,371
Net gains/(loss)
recorded under SFAS 133 (663) 1,090 (1,039) 717 314
Mortgage servicing fees,
net of mortgage
servicing rights
amortization 2,051 2,140 914 (157) 1,370
Mortgage servicing right
(impairments)/
recoveries - - 3,918 6,837 (8,765)
Total mortgage
banking revenues $4,524 $12,992 $26,501 $28,671 $21,290
(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.
Year to Date
June 30 June 30
2006 2005
(dollars in thousands, except per
share data)
Interest and dividend income:
Interest on interest-earning
deposits $5,070 $4,129
Interest on investment securities
Available for sale 206,748 182,118
Held to maturity 104,026 90,210
Other 18,619 8,644
Interest on loans 1,497,088 1,105,208
Total interest and dividend income 1,831,551 1,390,309
Interest expense:
Deposits and related customer accounts 537,867 254,057
Borrowings 450,955 315,747
Total interest expense 988,822 569,804
Net interest income 842,729 820,505
Provision for credit losses 73,500 44,000
Net interest income after
provision for credit losses 769,229 776,505
Non-interest income:
Consumer banking fees 128,265 126,182
Commercial banking fees 82,965 63,057
Mortgage banking revenue (1) 17,516 32,945
Capital markets revenue 6,202 8,386
Bank owned life insurance income 26,686 23,821
Other 14,682 18,443
Total fees and other income before
security gains 276,316 272,834
Net gain/(loss) on securities (305,027) 11,334
Total non-interest income (28,711) 284,168
Non-interest expense:
General and administrative
Compensation and benefits 293,245 260,928
Occupancy and equipment 132,348 124,218
Technology expense 44,680 40,274
Outside services 31,347 28,453
Marketing expense 24,770 22,804
Other administrative expenses 56,882 53,828
Total general and administrative 583,272 530,505
Other expenses:
Amortization of intangibles 41,444 37,771
Other minority interest expense 12,071 11,420
Equity method investments 20,996 21,736
Proxy and professional fees 14,337 -
Merger-related and integration charges 3,459 19,948
Total other expenses 92,307 90,875
Total non-interest expense 675,579 621,380
Income/ (loss) before income taxes 64,939 439,293
Income tax expense/ (benefit) (24,805) 109,671
Net income/ (loss) $89,744 $329,622
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans,
mortgage backed securities, and home
equity loans (2) $12,898 $34,748
Net gains/(loss) recorded under SFAS 133 427 967
Mortgage servicing fees, net of
mortgage servicing rights amortization 4,191 2,041
Mortgage servicing right
(impairments)/recoveries - (4,811)
Total mortgage banking revenues $17,516 $32,945
(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
June 30, 2006
Average Yield/
(dollars in thousands) Balance Interest(1) Rate
Earning assets:
Investment securities $14,207,577 $201,842 5.68%
Loans:
Commercial 19,112,403 342,125 7.18%
Multi-Family 1,992,727 31,285 6.28%
Consumer:
Residential mortgages 14,467,374 203,062 5.61%
Home equity loans and lines
of credit 10,129,080 162,530 6.44%
Total consumer loans secured
by real estate 24,596,454 365,592 5.95%
Auto Loans 4,396,659 64,223 5.86%
Other 453,383 8,344 7.38%
Total Consumer 29,446,496 438,159 5.96%
Total loans 50,551,626 811,569 6.43%
Allowance for loan losses (455,468)
Total earning assets 64,303,735 $1,013,411 6.31%
Other assets 9,136,881
Total assets $73,440,616
Funding liabilities:
Deposits and other customer
related accounts:
NOW accounts $10,346,113 $73,330 2.84%
Customer repurchase
agreements 1,114,934 12,077 4.34%
Savings accounts 3,956,176 7,254 0.74%
Money market accounts 9,598,706 71,475 2.99%
Core and other customer
related accounts 25,015,929 164,136 2.63%
Time deposits 13,193,359 141,894 4.31%
Total 38,209,288 306,030 3.21%
Borrowings:
Federal Home Loan Bank
advances 15,247,874 164,540 4.33%
Fed funds and repurchase
agreements 1,399,266 18,019 5.16%
Other borrowings 4,791,972 64,658 5.48%
Total borrowings 21,439,112 247,217 4.64%
Total funding liabilities 59,648,400 553,247 3.72%
Non-interest bearing DDA 5,662,902
Other liabilities 1,430,767
Total liabilities 66,742,069
Stockholders' equity 6,698,547
Total liabilities and
stockholders' equity $73,440,616
Net interest income $460,164
Interest rate spread 2.59%
Contribution from interest free funds 0.27%
Net interest margin 2.86%
(1) Tax equivalent basis
Quarter Ended
March 31, 2006
Average Yield/
(dollars in thousands) Balance Interest(1) Rate
Earning assets:
Investment securities $12,715,041 $168,049 5.29%
Loans:
Commercial 16,884,583 290,843 6.98%
Multi-Family - - 0.00%
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
June 30, 2005
Average Yield/
(dollars in thousands) Balance Interest(1) Rate
Earning assets:
Investment securities $12,178,325 $142,865 5.06%
Loans:
Commercial 15,768,250 234,588 5.99%
Multi-Family - - 0.00%
Consumer:
Residential mortgages 10,634,549 138,586 5.21%
Home equity loans and lines of
credit 10,127,012 137,825 5.45%
Total consumer loans secured
by real estate 20,761,561 276,411 5.33%
Auto Loans 4,262,377 55,541 5.23%
Other 559,544 10,680 7.66%
Total Consumer 25,583,482 342,632 5.36%
Total loans 41,351,732 577,220 5.60%
Allowance for loan losses (428,032)
Total earning assets 53,102,025 $720,085 5.52%
Other assets 7,103,036
Total assets $60,205,061
Funding liabilities:
Deposits and other customer
related accounts:
NOW accounts $8,425,311 $31,835 1.52%
Customer repurchase
agreements 795,418 4,790 2.42%
Savings accounts 3,864,148 6,243 0.65%
Money market accounts 8,417,965 31,034 1.48%
Core and other customer
related accounts 21,502,842 73,902 1.38%
Time deposits 9,458,184 65,977 2.80%
Total 30,961,026 139,879 1.81%
Borrowings:
Federal Home Loan Bank
advances 11,775,740 116,767 3.98%
Fed funds and repurchase
agreements 1,614,427 12,167 3.02%
Other borrowings 4,164,200 38,113 3.67%
Total borrowings 17,554,367 167,047 3.81%
Total funding liabilities 48,515,393 306,926 2.54%
Non-interest bearing DDA 5,276,428
Other liabilities 715,584
Total liabilities 54,507,405
Stockholders' equity 5,697,656
Total liabilities and
stockholders' equity $60,205,061
Net interest income $413,159
Interest rate spread 2.98%
Contribution from interest free funds 0.23%
Net interest margin 3.21%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
June 30, 2006
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $13,465,431 $352,178 5.50%
Loans:
Commercial 18,004,647 630,664 7.08%
Multi-Family 1,001,868 31,285 6.25%
Consumer:
Residential mortgages 13,627,166 379,714 5.57%
Home equity loans and lines of
credit 9,902,583 314,190 6.38%
Total consumer loans secured by
real estate 23,529,749 693,904 5.91%
Auto loans 4,403,218 126,009 5.77%
Other 465,093 17,529 7.60%
Total Consumer 28,398,060 837,442 5.92%
Total loans 47,404,575 1,499,391 6.37%
Allowance for loan losses (437,527)
Total earning assets 60,432,479 $1,851,569 6.22%
Other assets 8,333,596
Total assets $68,766,075
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $9,738,689 $127,832 2.64%
Customer repurchase agreements 1,070,617 21,975 4.14%
Savings accounts 3,685,505 13,642 0.75%
Money market accounts 8,898,678 119,543 2.71%
Core and other customer related
accounts 23,393,489 282,992 2.44%
Time deposits 12,399,719 254,875 4.15%
Total 35,793,208 537,867 3.02%
Borrowings:
Federal Home Loan Bank advances 14,404,317 307,622 4.30%
Fed funds and repurchase
agreements 1,008,563 24,655 4.91%
Other borrowings 4,604,700 118,678 5.17%
Total borrowings 20,017,580 450,955 4.53%
Total funding liabilities 55,810,788 988,822 3.57%
Non-interest bearing DDA 5,376,537
Other liabilities 1,278,892
Total liabilities 62,466,217
Stockholders' equity 6,299,858
Total liabilities and
stockholders' equity $68,766,075
Net interest income $862,747
Interest rate spread 2.65%
Contribution from interest free funds 0.27%
Net interest margin 2.92%
(1) Tax equivalent basis
Year to Date
June 30, 2005
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,153,767 $285,101 5.06%
Loans:
Commercial 15,321,314 439,486 5.82%
Multi-Family - - 0.00%
Consumer:
Residential mortgages 9,905,070 261,540 5.28%
Home equity loans and lines of
credit 10,065,056 272,780 5.45%
Total consumer loans secured by
real estate 19,970,126 534,320 5.37%
Auto loans 4,283,620 110,476 5.20%
Other 568,980 20,926 7.42%
Total Consumer 24,822,726 665,722 5.39%
Total loans 40,144,040 1,105,208 5.55%
Allowance for loan losses (421,878)
Total earning assets 51,875,929 $1,390,309 5.48%
Other assets 7,013,494
Total assets $58,889,423
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $8,234,704 $57,291 1.40%
Customer repurchase agreements 818,907 8,806 2.17%
Savings accounts 3,897,045 12,373 0.64%
Money market accounts 8,285,978 56,521 1.38%
Core and other customer related
accounts 21,236,634 134,991 1.28%
Time deposits 9,060,839 119,066 2.65%
Total 30,297,473 254,057 1.69%
Borrowings:
Federal Home Loan Bank advances 11,345,327 221,703 3.94%
Fed funds and repurchase
agreements 1,528,315 21,705 2.85%
Other borrowings 4,159,877 72,339 3.49%
Total borrowings 17,033,519 315,747 3.73%
Total funding liabilities 47,330,992 569,804 2.42%
Non-interest bearing DDA 5,219,880
Other liabilities 695,052
Total liabilities 53,245,924
Stockholders' equity 5,643,499
Total liabilities and
stockholders' equity $58,889,423
Net interest income $820,505
Interest rate spread 3.06%
Contribution from interest free funds 0.21%
Net interest margin 3.27%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
(dollars in thousands) 2006 2006 2005 2005 2005
Non-accrual loans:
Consumer:
Residential mortgages $34,812 $31,874 $30,393 $33,427 $31,717
Home equity loans and
lines of credit 63,632 61,078 55,543 37,051 35,007
Auto loans 388 363 476 462 365
Other consumer loans 2,524 1,920 1,913 2,873 3,013
Total consumer loans 101,356 95,235 88,325 73,813 70,102
Commercial 117,758 87,566 100,372 95,303 91,358
Total non-accrual loans 219,114 182,801 188,697 169,116 161,460
Restructured loans 576 692 777 822 939
Total non-performing
loans 219,690 183,493 189,474 169,938 162,399
Real estate owned, net 35,899 13,622 11,411 6,107 8,494
Other repossessed assets 3,487 3,352 4,678 5,083 2,302
Total non-performing
assets 259,076 200,467 205,563 181,128 173,195
Non-performing loans as a
percentage of total loans 0.36% 0.41% 0.43% 0.40% 0.39%
Non-performing assets as a
percentage of total assets 0.29% 0.31% 0.32% 0.29% 0.29%
Non-performing assets as a
percentage of total loans,
real estate owned and
repossessed assets 0.42% 0.44% 0.47% 0.42% 0.42%
Allowance for credit losses
as a percentage of non-
performing loans 251% 239% 231% 257% 272%
NET LOAN CHARGE-OFFS
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2006 2006 2005 2005 2005
Commercial real estate $3,938 $(744) $564 $219 $294
Commercial and industrial
and other 4,718 8,948 4,877 6,209 8,964
Total Commercial 8,656 8,204 5,441 6,428 9,258
Residential mortgages 156 159 554 109 72
Home equity loans and
lines of credit 15,032 10,654 6,998 4,319 3,115
Total consumer loans
secured by real estate 15,188 10,813 7,552 4,428 3,187
Auto loans 5,678 7,995 9,137 7,539 5,851
Other consumer loans (98) 1,286 1,079 1,059 1,126
Total Consumer 20,768 20,094 17,768 13,026 10,164
Total $29,424 $28,298 $23,209 $19,454 $19,422
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT
LOSSES
June 30 Mar. 31
Quarters ended (in thousands) 2006 2006
Provision for loan losses 47,113 30,559
Provision/(recoveries) for unfunded
commitments (2,613) (1,559)
Total provision for credit losses $44,500 $29,000
Allowance for loan losses 537,372 421,860
Reserve for unfunded commitments 14,040 16,653
Total allowance for credit losses $551,412 $438,513
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2005 2005 2005
Provision for loan losses 26,263 19,298 20,442
Provision/(recoveries) for unfunded
commitments (263) 702 1,558
Total provision for credit losses $26,000 $20,000 $22,000
Allowance for loan losses 419,599 418,353 424,711
Reserve for unfunded commitments 18,212 18,475 17,773
Total allowance for credit losses $437,811 $436,828 $442,484
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
June 30 Mar. 31
Quarters ended (in thousands) 2006 2006
Demand deposit accounts $6,749,349 $5,165,140
NOW accounts 11,055,189 9,110,005
Customer repurchase agreements 1,205,345 1,086,010
Savings accounts 5,189,459 3,397,183
Money market accounts 12,321,602 8,384,317
Certificates of deposits 16,025,418 11,677,492
Total $52,546,362 $38,820,147
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2005 2005 2005
Demand deposit accounts $5,331,659 $5,414,212 $5,378,465
NOW accounts 8,844,875 9,170,052 8,269,183
Customer repurchase agreements 1,012,574 959,024 875,203
Savings accounts 3,460,292 3,684,423 3,807,967
Money market accounts 7,989,846 8,167,546 8,352,055
Certificates of deposits 11,338,460 9,937,334 9,418,691
Total $37,977,706 $37,332,591 $36,101,564
LOAN COMPOSITION - End of period
June 30 Mar. 31
Quarters ended (in thousands) 2006 2006
Commercial real estate $10,817,068 $7,128,116
Commercial industrial loans 12,048,686 10,122,781
Multi-family 6,134,167 -
Total commercial loans 28,999,921 17,250,897
Residential mortgages 17,236,025 13,161,773
Home equity loans and lines of
credit 10,515,700 9,892,235
Total consumer loans secured by real
estate 27,751,725 23,054,008
Auto loans 4,399,047 4,400,980
Other consumer loans 459,418 458,528
Total consumer loans 32,610,190 27,913,516
Total loans $61,610,111 $45,164,413
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2005 2005 2005
Commercial real estate $7,209,180 $7,151,189 $6,946,477
Commercial industrial loans 9,426,466 9,071,731 9,205,540
Multi-family - - -
Total commercial loans 16,635,646 16,222,920 16,152,017
Residential mortgages 12,462,802 11,198,366 9,997,066
Home equity loans and lines of
credit 9,793,124 10,301,161 10,300,629
Total consumer loans secured by
real estate 22,255,926 21,499,527 20,297,695
Auto loans 4,434,021 4,463,931 4,285,537
Other consumer loans 478,254 505,261 532,230
Total consumer loans 27,168,201 26,468,719 25,115,462
Total loans $43,803,847 $42,691,639 $41,267,479
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
June 30 Mar. 31
Quarters ended (in thousands) 2006 2006
Demand deposit accounts $5,662,902 $5,086,989
NOW accounts 10,346,113 9,124,514
Customer repurchase agreements 1,114,934 1,025,807
Savings accounts 3,956,176 3,411,827
Money market accounts 9,598,706 8,190,873
Certificates of deposits 13,193,359 11,597,261
Total $43,872,190 $38,437,271
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2005 2005 2005
Demand deposit accounts $5,340,623 $5,393,736 $5,276,428
NOW accounts 9,454,176 8,991,339 8,425,311
Customer repurchase agreements 1,007,347 903,053 795,418
Savings accounts 3,573,771 3,753,311 3,864,148
Money market accounts 8,112,584 8,294,441 8,417,965
Certificates of deposits 10,376,654 9,810,041 9,458,184
Total $37,865,155 $37,145,921 $36,237,454
LOAN COMPOSITION - Average
June 30 Mar. 31
Quarters ended (in thousands) 2006 2006
Commercial real estate $8,358,231 $7,193,994
Commercial industrial loans 9,564,869 8,603,198
Multi-family 1,992,727 -
Other 1,189,303 1,087,391
Total commercial loans 21,105,130 16,884,583
Residential mortgages 14,467,374 12,777,623
Home equity loans and lines of credit 10,129,080 9,673,570
Total consumer loans secured by real
estate 24,596,454 22,451,193
Auto loans 4,396,659 4,409,850
Other consumer loans 453,383 476,946
Total consumer loans 29,446,496 27,337,989
Total loans $50,551,626 $44,222,572
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2005 2005 2005
Commercial real estate $7,203,433 $7,019,781 $6,909,795
Commercial industrial loans 8,273,795 8,499,513 8,008,968
Multi-family - - -
Other 1,038,760 920,774 849,487
Total commercial loans 16,515,988 16,440,068 15,768,250
Residential mortgages 11,859,646 10,663,656 10,634,549
Home equity loans and lines of
credit 10,176,307 10,321,853 10,127,012
Total consumer loans secured by
real estate 22,035,953 20,985,509 20,761,561
Auto loans 4,454,501 4,400,376 4,262,377
Other consumer loans 490,069 515,522 559,544
Total consumer loans 26,980,523 25,901,407 25,583,482
Total loans $43,496,511 $42,341,475 $41,351,732
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
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2006 2006 2005 2005 2005
Net income as reported ($51,654) $141,398 $165,495 $181,043 $183,471
Dividends on preferred
stock (2,433) - - - -
Net income available to
common shareholders (54,087) 141,398 165,495 181,043 183,471
Contingently convertible
trust preferred
interest expense, net
of tax 6,335 6,327 6,354 6,344 6,335
Net income for EPS
purposes ($47,752) $147,725 $171,849 $187,387 $189,806
Weighted average diluted
shares for EPS 445,599 410,366 409,581 412,766 420,390
Reconciliation to
operating/cash earnings
EPS
Net income for EPS
purposes and EPS as
reported ($47,752) $147,725 $171,849 $187,387 $189,806
Merger related and
integration costs 4,067 (1,819) - (2,094) (5,490)
Provision for loan
losses- Independence 8,125 - - - -
Loss on balance sheet
restructuring 154,884 - - - -
Impairment on FNMA
and FHLMC preferred
stock 43,875 - - - -
Proxy and professional
fees - 9,319 3,788 - -
Amortization of
intangibles 15,746 11,192 11,548 11,885 12,229
Operating/cash earnings
for EPS purposes $178,945 $166,417 $187,185 $197,178 $196,545
Quarter Ended
Per share
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2006 2006 2005 2005 2005
Net income as reported
Dividends on preferred
stock
Net income available to
common shareholders
Contingently convertible
trust preferred
interest expense, net
of tax
Net income for EPS
purposes $(0.11) $0.36 $0.42 $0.45 $0.45
Weighted average diluted
shares for EPS
Reconciliation to
operating/cash earnings
EPS
Net income for EPS
purposes and EPS as
reported $(0.11) $0.36 $0.42 $0.45 $0.45
Merger related and
integration costs 0.01 (0.00) - (0.01) (0.01)
Provision for loan
losses- Independence 0.02 - - - -
Loss on balance sheet
restructuring 0.35 - - - -
Impairment on FNMA
and FHLMC preferred
stock 0.10 - - - -
Proxy and professional
fees - 0.02 0.01 - -
Amortization of
intangibles 0.04 0.03 0.03 0.03 0.03
Operating/cash earnings
for EPS purposes $0.40 $0.41 $0.46 $0.48 $0.47
Year to Date
Total dollars Per Share
June 30 June 30 June 30 June 30
2006 2005 2006 2005
Net income as reported $89,744 $329,622
Dividends on preferred
stock (2,433) -
Net income available to
common shareholders 87,311 329,622
Contingently convertible
trust preferred
interest expense, net
of tax 12,662 12,729
Net income for EPS
purposes $99,973 $342,351 $0.23 $0.81
Weighted average diluted
shares for EPS 428,124 420,885
Reconciliation to
operating/cash earnings
EPS
Net income for EPS
purposes and EPS as
reported $99,973 $342,351 $0.23 $0.81
Merger related and
integration costs 2,248 12,966 0.01 0.03
Provision for loan
losses- Independence 8,125 - 0.02 -
Loss on balance sheet
restructuring 154,884 - 0.36 -
Impairment on FNMA
and FHLMC preferred
stock 43,875 - 0.10 -
Proxy and professional
fees 9,319 - 0.02 -
Amortization of
intangibles 26,939 24,551 0.06 0.06
Operating/cash earnings
for EPS purposes $345,363 $379,868 $0.81 $0.90
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
June 30 Mar. 31
2006 2006
Average Equity $6,698,547 $5,896,739
Average Goodwill (3,452,687) (2,716,324)
Average CDI and other intangibles (342,279) (207,908)
Average Tangible Equity 2,903,581 2,972,507
Operating Return on Average Equity 10.72% 11.45%
Effect of Goodwill 12.74% 10.46%
Effect of CDI and other intangibles 1.26% 0.80%
Tangible Return on Average Equity 24.72% 22.71%
Quarter Ended
Dec. 31 Sept. 30 June 30
2005 2005 2005
Average Equity $5,712,703 $5,694,895 $5,697,656
Average Goodwill (2,714,150) (2,714,148) (2,725,526)
Average CDI and other intangibles (225,049) (243,149) (261,854)
Average Tangible Equity 2,773,504 2,737,598 2,710,276
Operating Return on Average Equity 13.00% 13.74% 13.84%
Effect of Goodwill 12.72% 13.62% 13.91%
Effect of CDI and other intangibles 1.05% 1.22% 1.34%
Tangible Return on Average Equity 26.78% 28.58% 29.09%
Year-to-Date
June 30 June 30
2006 2005
Average Equity $6,299,858 $5,643,499
Average Goodwill (3,081,666) (2,617,281)
Average CDI and other intangibles (275,465) (265,998)
Average Tangible Equity 2,942,727 2,760,220
Operating Return on Average Equity 11.06% 13.57%
Effect of Goodwill 11.58% 12.87%
Effect of CDI and other intangibles 1.03% 1.31%
Tangible Return on Average Equity 23.67% 27.75%
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Purchase of Independence Community Bank Corp. ("Independence")
On June 1, 2006, Sovereign completed the purchase of Independence and
the results of its operations are included from the purchase date through
June 30, 2006. Sovereign made a cash payment of $3.6 billion to acquire and
convert all outstanding Independence common shares and outstanding equity
awards at $42 per share. The preliminary purchase price was allocated to
acquired assets and liabilities of Independence based on fair value as of
June 1, 2006. 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 Independence:
(dollars in millions)
Assets Liabilities
Investments $3,204.8 Deposits:
Loans: Core $6,960.8
Commercial 10,807.2 Time 4,070.1
Consumer 517.4 Total deposits 11,030.9
Residential mortgages 1,829.5 Borrowings and other debt
obligations 5,464.6
Total loans 13,154.1 Other liabilities 580.2
Less allowance for loan
losses (97.8)
Total loans, net 13,056.3 Total liabilities $17,075.7
Cash paid, net of cash
acquired (2,713.2)
Bank owned life insurance 343.3
Premises and equipment,
net 177.0
Other assets 336.2
Core deposit and other
intangibles 460.1
Goodwill 2,211.2
Total assets $17,075.7
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
Abridged Stockholders' Equity Rollforward for the Quarter ended June 30,
2006
Balance, March 31, 2006 $5,899,832
Net loss ($51,654)
Change in unrealized gain/(loss), net of tax 18,575
Issuance of common stock 2,390,206
Issuance of preferred stock 195,445
Dividends paid on common stock (28,811)
Dividends paid on preferred stock (2,433)
Other 37,384
Balance, June 30, 2006 $8,458,544
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, Inc.
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