Financial Highlights
-- Net income was $183 million, up 40% from $131 million in the same
quarter a year ago. Earnings per diluted share for the second quarter
of 2005 were $.47, up 16% from $.41 per diluted share in the second
quarter of 2004.
-- Operating/cash earnings were $197 million, up 37% from $143 million in
the same quarter a year ago. Operating/cash earnings per diluted
share were $.49 per share, up 7% from $.46 per share in the second
quarter of 2004.
-- Efficiency ratio was 48.7% in the second quarter of 2005 as compared
to 49.2% in the second quarter of 2004.
-- Positive operating leverage of 1.1 times year-over-year.
-- Average deposits increased to $36.2 billion during the quarter, an
annualized organic growth rate of 9%; average core deposits (excluding
time deposits) increased to $26.8 billion during the quarter, an
annualized organic growth rate of 5%.
-- Average loans increased to $41.4 billion during the quarter, an
annualized organic growth rate of 19%.
-- Operating/cash return on average assets of 1.31% compared to 1.20% in
the second quarter of 2004.
-- Operating/cash return on tangible common equity of 29.1% compared to
24.8% a year ago.
-- Annualized net charge-offs decreased to .19% of average loans at June
30, 2005, versus .20% at March 31, 2005 and .43% at June 30, 2004.
-- Sovereign repurchased 10 million shares during the quarter through our
previously announced repurchase program, and a total of 12 million
shares for the six months ending June 30, 2005.
-- Despite this deployment of approximately $215 million of capital
during the quarter, the Tier 1 leverage ratio was 6.86% at June 30,
2005 versus 6.96% at March 31, 2005 and 7.13% at June 30, 2004.
PHILADELPHIA, July 19 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported second quarter 2005 net income in accordance with generally accepted
accounting principles of $183 million, or $.47 per diluted share, as compared
to $131 million, or $.42 per diluted share, for the second quarter of 2004.
Net income in the second quarter of 2005 included a reversal of merger and
integration charges related to previous acquisitions of $5.5 million, after-
tax, or $.01 per share.
For the quarter ended June 30, 2005, Sovereign's reported operating/cash
earnings increased 37% to $197 million, or $.49 per diluted share, 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,
as compared to $143 million, or $.46 per diluted share a year ago, which
excluded $12.0 million or $.04 per share related to amortization of intangible
assets. Effective in the fourth quarter of 2004, Sovereign combined its
definition of operating earnings and cash earnings and the related per share
amounts into one number which excludes amortization of core deposit
intangibles, in addition to special items. Since some 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/cash earnings, as well as the related earnings per share
amounts, is included in a later section of this release.
Sovereign's net income for the second quarter of 2005 produced annualized
returns on average assets and average shareholders' equity of 1.26% and 13.4%,
respectively. Operating/cash earnings for the second quarter of 2005 produced
annualized operating/cash return on average assets and average tangible
shareholders' equity of 1.31% and 29.1%.
Commenting on results for the second quarter of 2005, Jay S. Sidhu,
Sovereign's Chairman and Chief Executive Officer, said, "We are pleased we
were able to maintain or show modest improvement in most of our fundamental
operating metrics given the challenges presented by a flatter yield curve
facing the industry this quarter. Annualized net charge-offs were down
slightly from the first quarter to 19 basis points, our efficiency ratio was
48.7%, and operating/cash return on average assets was 1.31%. While
commercial loan growth and residential mortgage activity were very strong this
quarter, the flattening yield curve and competitive deposit pricing continued
to be challenges. In this yield curve environment we have been focused on
improving the quality of our balance sheet even though this reduces near-term
earnings. We are also emphasizing commercial loan growth and reducing our
reliance on lower-yielding investment securities as a percentage of total
assets. As a result of these initiatives, our balance sheet growth during the
quarter was minimal thereby generating additional excess capital. We
accelerated our repurchase efforts in the second quarter by repurchasing 10
million shares, as we saw Sovereign stock as the most attractive use of our
excess capital generated during the period," concluded Sidhu.
Net Interest Income and Margin
Sovereign reported net interest income of $403 million for the second
quarter of 2005, an increase of $71 million, or 21%, compared to the second
quarter of 2004. Sovereign's average loan portfolio increased during the
second quarter by $2.4 billion to $41.4 billion, reflecting an annualized
growth rate of 25%. Excluding the effects of the Waypoint acquisition in the
first quarter, average loans increased $1.8 billion during the quarter, an
annualized growth rate of 19%. Sovereign's average deposits increased $1.4
billion during the quarter, reflecting an annualized growth rate of 17%.
Average core deposits (excludes time deposits) increased during the quarter by
approximately $650 million to $26.8 billion, reflecting an annualized growth
rate of 10%. Excluding the effects of the Waypoint acquisition in the first
quarter, average deposits increased $781 million during the quarter, an
annualized growth rate of 9%; average core deposits increased $302 million
during the quarter, an annualized growth rate of 5%.
Net interest margin was 3.13% for the second quarter of 2005, compared to
3.26% in the first quarter of 2005 and 3.22% in the second quarter of 2004.
"Higher short-term rates continue to be a positive, however, the benefit is
temporarily being more than offset by the increased flattening of the yield
curve. With long-term interest rates at continuing low levels, prepayment
estimates have remained high, which triggered certain adjustments to our
consumer and residential loan portfolios during the quarter," stated Mark R.
McCollom, Sovereign's Chief Financial Officer. "Should long-term rates rise
in future periods, slower prepayment speeds will benefit consumer and
residential loan yields. Loan yields on our commercial loan portfolio
expanded nicely during the quarter, up 36 basis points from first quarter
levels, while total deposit costs increased 22 basis points during the same
period."
Non-Interest Income
Consumer and commercial banking fees were very strong during the quarter,
up 10% and 8%, respectively, from first quarter 2005 levels. Consumer banking
fees increased by $15.0 million to $73.1 million, or 26%, compared to the same
period in 2004, primarily driven by growth in loan and deposit fees. "During
the second quarter, we began to see results from our new community-based
delivery model, which was introduced to our ten markets at the beginning of
the year. New consumer checking account average weekly openings were up 16%
in the second quarter from first quarter levels," commented McCollom.
Commercial banking fees increased $4.9 million to $35.5 million, or 16%, over
the same period a year ago, primarily driven by growth in loan fees.
Mortgage banking revenues for the quarter were $21.5 million, compared to
$11.9 million last quarter and $16.4 million in the same quarter a year ago.
Due to increased activity in mortgage banking operations, mortgage banking
revenue increased $9.6 million from first quarter levels reflecting increased
sales activity offset by an impairment charge to increase the valuation
reserve for mortgage servicing rights. Mortgage banking results are detailed
in the financial tables attached to this release. As of June 30, 2005,
mortgage servicing rights, net of reserves of $11.2 million, were $78.1
million and our servicing portfolio was $7.0 billion, with a capitalized cost
of 111 basis points.
Non-Interest Expense
G&A expenses for the quarter were $273 million, including acquisitions, an
increase from $225 million a year ago. On a linked quarter basis, G&A
expenses were up $16.3 million due in part to increased marketing efforts,
technology spending related to the development of a Healthcare Savings Account
product as well as account growth and growth in Internet banking, and
commissions and other loan related expenses. "Although second quarter
expenses are up from first quarter levels, G&A expenses year-to-date are
favorable to our plan. Our efficiency ratio was 48.7% in the second quarter
of 2005," commented McCollom.
On a GAAP basis, Sovereign's effective tax rate was 24.4% in the second
quarter; on an operating basis, it was 26.1%.
Asset Quality
Sovereign continued to see improvement in net charge-offs during the
second quarter of 2005. Annualized net charge-offs decreased to .19% of
average loans at June 30, 2005, compared to .20% at March 31, 2005 and .43% at
June 30, 2004. Non-performing assets ("NPAs") decreased $13.7 million during
the quarter to $173 million at June 30, 2005. NPAs to total assets were .29%,
compared to .32% at March 31, 2005. Sovereign's provision for loan losses was
$22.0 million this quarter compared to $22.0 million in the first quarter and
$32.0 million in the second quarter of 2004. The allowance for loan losses to
total loans decreased slightly to 1.07% at June 30, 2005, as compared to 1.09%
at March 31, 2005 and 1.21% at June 30, 2004. The allowance for loan losses
to non-performing loans now stands at 272%, as compared to 255% at March 31,
2005 and 232% at June 30, 2004.
Capital
During the quarter, Sovereign repurchased ten million shares under a
previously announced repurchase program, for a total of 12 million shares in
the first and second quarters. Sovereign's Tier 1 leverage ratio was 6.86% at
June 30, 2005. Tangible common equity to tangible assets, excluding other
comprehensive income ("OCI"), was 5.13% and including OCI was 4.88%. The
equity to assets ratio was 9.58% at June 30, 2005. Sovereign Bank's Tier 1
leverage ratio was 7.19% and the bank's risk-based capital ratio was 11.28% at
June 30, 2005. "During the first and second quarter we returned 86% of net
income to our shareholders through cash dividends and share repurchases. We
believe share repurchases are an optimal use of our excess capital at the
current time and have repurchased an additional four million shares so far in
the third quarter," commented McCollom.
Looking Ahead
"Overall, we felt the second quarter contained several positives such as
very strong commercial loan growth, accelerated share repurchases, reduced
loan charge-offs, and improvement in some of our profitability metrics;
however, the interest rate environment remains a challenge for the second half
of 2005. Management's stretch goal continues to be to strive to earn about
$2.00 in operating/cash earnings per share for 2005, excluding after-tax one-
time charges of $.04 per share and amortization of intangible assets of
approximately $.12 per share, although we acknowledge this will be very
challenging to achieve if the current interest rate environment persists.
Nevertheless, we are very focused on maintaining our interest rate, credit
risk and capital management discipline and building both long-term and short-
term shareholder value through consistently improving earnings and operating
metrics over the next few years. We expect to continue sharing with you our
long-term stretch goals but will not be providing quarterly earnings
guidance," Sidhu concluded.
Based upon our July 18 stock price of $24.33, Sovereign is trading at a
P/E of 13.2x analysts mean 2005 estimate and 155% of current book value. The
book value per share at June 30, 2005 was $15.70.
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company
of Sovereign Bank, a $60 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, July 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=1088336. The web-cast replay can be accessed
anytime from 11:00 a.m. ET on Wednesday, July 20, 2005 through 12:00 a.m. ET
on September 19, 2005. Questions may be submitted during the call via email
to investor@sovereignbank.com. A telephone replay will be accessible from
11:00 a.m. ET on Wednesday, July 20, 2005 through 12:00 a.m. ET (midnight) on
July 25, 2005 by dialing 800-642-1687, confirmation id #7288002.
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 the first and second quarters 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. 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 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
2005 2005 2004 2004 2004
(dollars in millions, except
per share data)
Operating Data
Net income $183.5 $146.2 $137.4 $82.5 $131.4
Net income for EPS purposes (1) 189.8 152.5 143.7 88.9 137.7
Operating/cash earnings (2) 196.5 183.3 167.5 157.9 143.4
Net interest income 402.9 398.2 387.0 363.0 332.0
Provision for loan losses 22.0 22.0 27.0 25.0 32.0
Total fees and other income before
securities transactions 158.9 133.4 126.5 108.3 124.2
Net gain (loss) on investment
securities 3.4 8.0 (24.7) 20.2 0.8
G&A expense 273.4 257.1 257.3 237.7 224.6
Other expenses 27.1 63.8 30.5 129.1 28.1
Performance Statistics
Bancorp
Net interest margin 3.13% 3.26% 3.29% 3.17% 3.22%
Operating/cash return on average
assets (2) 1.31% 1.29% 1.22% 1.17% 1.20%
Operating/cash return on average
equity (2) 13.84% 13.30% 13.61% 13.82% 14.87%
Operating/cash return on average
tangible equity (2) 29.09% 26.45% 26.65% 26.96% 24.75%
Annualized net loan charge-offs to
average loans 0.19% 0.20% 0.28% 0.25% 0.43%
Efficiency ratio (3) 48.67% 48.36% 50.10% 50.44% 49.22%
Per Share Data
Basic earnings per share $0.50 $0.40 $0.40 $0.25 $0.43
Diluted earnings per share (1) 0.47 0.38 0.38 0.24 0.41
Operating/cash earnings per
share (2) 0.49 0.46 0.48 0.46 0.46
Dividend declared per share .040 .030 .030 .030 .030
Book value (4) 15.70 15.22 14.41 13.95 12.46
Common stock price:
High 22.70 23.73 22.61 22.48 22.10
Low 20.13 21.89 21.14 20.48 19.51
Close $22.34 $22.16 $22.55 $21.82 $22.10
Weighted average common shares:
Basic 367.9 368.9 345.6 335.6 306.1
Diluted (1) 400.4 401.3 377.6 367.8 337.8
End-of-period common shares:
Basic 365.8 374.8 346.1 345.3 306.2
Diluted (1) 398.3 407.4 378.2 377.3 338.2
Year to Date
June 30 June 30
2005 2004
(dollars in millions, except per
share data)
Operating Data
Net income $329.6 $233.6
Net income for EPS purposes (1) 342.4 242.2
Operating/cash earnings (2) 379.9 276.9
Net interest income 801.1 654.9
Provision for loan losses 44.0 75.0
Total fees and other income before
securities transactions 292.3 233.3
Net gain (loss) on investment securities 11.3 18.7
G&A expense 530.5 447.7
Other expenses 90.9 76.6
Performance Statistics
Bancorp
Net interest margin 3.19% 3.25%
Operating/cash return on average assets (2) 1.30% 1.19%
Operating/cash return on average equity (2) 13.57% 14.97%
Operating/cash return on average
tangible equity (2) 27.75% 25.07%
Annualized net loan charge-offs to
average loans 0.21% 0.48%
Efficiency ratio (3) 48.52% 50.41%
Per Share Data
Basic earnings per share $0.89 $0.77
Diluted earnings per share (1) 0.85 0.74
Operating/cash earnings per share (2) 0.95 0.90
Dividend declared per share 0.070 0.055
Book value (4) 15.70 12.46
Common stock price:
High 23.73 24.51
Low 20.13 19.51
Close $22.34 $22.10
Weighted average common shares:
Basic 368.3 303.4
Diluted (1) 400.8 327.3
End-of-period common shares:
Basic 365.8 306.2
Diluted (1) 398.3 338.2
NOTES:
(1) Effective in the fourth quarter of 2004, Sovereign adopted EITF 04-8
"Accounting Issues Related to Certain Features of Contingently
Convertible Debt and the Effect on Diluted Earnings per Share." This
EITF requires the potential dilution from contingently convertible
debt be included in the calculation of diluted earnings per share
upon the issuance of the debt and that the after-tax impact of the
interest expense on this debt be added back to net income for
earnings per share purposes. Sovereign issued $800 million of
contingently convertible trust preferred equity income redeemable
securities in the first quarter of 2004. Prior period earnings per
share were required to be restated. We have excluded the impact of
this pronouncement in our calculation of 2004 operating/cash earnings
per share.
(2) Operating/cash 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/cash
earnings excludes the impact of EITF 04-8. See page I and J for a
reconciliation of GAAP and Non-GAAP measures.
(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
2005 2005 2004 2004 2004
(dollars in millions)
Financial Condition Data:
General
Total assets $59,922 $58,926 $54,471 $55,755 $48,687
Loans 41,267 40,320 36,631 35,262 29,130
Total deposits and customer
related accounts: 36,102 36,686 32,556 33,102 29,001
Core deposits and other
customer related
accounts 26,683 27,225 25,441 25,744 22,824
Time deposits 9,419 9,461 7,114 7,358 6,176
Borrowings 17,069 15,555 16,140 16,919 15,157
Minority interests 205 204 204 203 203
Stockholders' equity 5,743 5,705 4,988 4,815 3,815
Goodwill 2,714 2,721 2,125 2,103 1,289
Core deposit intangible 250 269 257 305 249
Asset Quality
Non-performing assets $173.2 $186.9 $160.1 $168.8 $176.1
Non-performing loans $162.4 $171.9 $143.6 $147.5 $152.2
Non-performing assets to
total assets 0.29% 0.32% 0.29% 0.30% 0.36%
Non-performing loans to
total loans 0.39% 0.43% 0.39% 0.42% 0.52%
Allowance for loan losses $442.5 $437.7 $408.7 $406.6 $352.6
Allowance for loan losses
to total loans 1.07% 1.09% 1.12% 1.15% 1.21%
Allowance for loan losses
to non-performing loans 272% 255% 285% 276% 232%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.58% 9.68% 9.16% 8.64% 7.84%
Tier 1 leverage capital
ratio 6.86% 6.96% 7.05% 6.56% 7.13%
Tangible equity to tangible
assets, excluding OCI 5.13% 5.22% 5.25% 4.77% 5.28%
Tangible equity to tangible
assets, including OCI 4.88% 4.86% 5.00% 4.51% 4.83%
Capitalization - Bank (1)
Stockholders' equity to
total assets 11.30% 11.58% 10.77% 10.20% 9.12%
Tier 1 leverage capital
ratio 7.19% 7.44% 7.21% 6.66% 6.85%
Tier 1 risk-based capital
ratio 8.64% 8.93% 8.79% 8.51% 8.92%
Total risk-based capital
ratio 11.28% 11.59% 11.64% 11.43% 12.12%
(1) All capital ratios are calculated based upon adjusted end of period
assets consistent with OTS guidelines. The current quarter ratios
are estimated as of the date of this earnings release.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 Mar. 31
(dollars in thousands) 2005 2005
Assets
Cash and amounts due
from depository institutions $1,176,891 $981,674
Investments:
Available-for-sale 7,529,964 7,709,353
Held-to-maturity 4,055,135 3,839,848
Total investments 11,585,099 11,549,201
Loans:
Commercial 16,152,017 15,363,592
Consumer 15,118,396 15,173,459
Residential mortgages 9,997,066 9,782,953
Total loans 41,267,479 40,320,004
Less allowance for loan losses (442,484) (437,661)
Total loans, net 40,824,995 39,882,343
Premises and equipment, net 391,140 394,604
Accrued interest receivable 247,505 258,849
Goodwill 2,713,894 2,720,651
Core deposit intangible 250,025 268,528
Bank owned life insurance 996,645 992,426
Other assets 1,736,089 1,877,557
Total assets $59,922,283 $58,925,833
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $26,682,873 $27,224,877
Time deposits 9,418,691 9,460,879
Total 36,101,564 36,685,756
Borrowings and other debt obligations 17,068,806 15,554,598
Other liabilities 804,363 775,976
Total liabilities 53,974,733 53,016,330
Minority interests 204,721 204,286
Stockholders' equity:
Common Stock 3,636,750 3,609,269
Warrants and stock options 339,517 346,116
Unallocated ESOP shares (23,707) (23,707)
Treasury stock (280,223) (64,495)
Accumulated other
comprehensive (loss) / income (105,727) (169,312)
Retained earnings 2,176,219 2,007,346
Total stockholders' equity 5,742,829 5,705,217
Total liabilities and
stockholders' equity $59,922,283 $58,925,833
Dec. 31 Sept. 30 June 30
(dollars in thousands) 2004 2004 2004
Assets
Cash and amounts due
from depository institutions $1,160,922 $1,266,044 $1,026,719
Investments:
Available-for-sale 7,642,558 10,111,845 10,493,897
Held-to-maturity 3,904,319 4,027,472 4,007,041
Total investments 11,546,877 14,139,317 14,500,938
Loans:
Commercial 13,864,240 13,445,735 12,251,456
Consumer 14,269,343 13,856,992 11,986,107
Residential mortgages 8,497,496 7,958,974 4,892,305
Total loans 36,631,079 35,261,701 29,129,868
Less allowance for loan losses (408,716) (406,612) (352,637)
Total loans, net 36,222,363 34,855,089 28,777,231
Premises and equipment, net 353,337 352,089 286,682
Accrued interest receivable 226,012 225,918 196,347
Goodwill 2,125,081 2,103,158 1,289,340
Core deposit intangible 256,694 304,754 249,169
Bank owned life insurance 885,807 879,189 851,155
Other assets 1,694,220 1,629,450 1,509,296
Total assets $54,471,313 $55,755,008 $48,686,877
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $25,441,145 $25,743,796 $22,824,310
Time deposits 7,114,373 7,357,882 6,176,310
Total 32,555,518 33,101,678 29,000,620
Borrowings and other debt
obligations 16,140,128 16,919,164 15,157,017
Other liabilities 583,389 715,326 511,131
Total liabilities 49,279,035 50,736,168 44,668,768
Minority interests 203,906 203,488 202,919
Stockholders' equity:
Common Stock 2,949,870 2,934,733 2,105,312
Warrants and stock options 317,842 318,874 306,594
Unallocated ESOP shares (23,707) (26,078) (26,078)
Treasury stock (19,136) (19,767) (20,242)
Accumulated other
comprehensive (loss) / income (108,092) (136,645) (222,499)
Retained earnings 1,871,595 1,744,235 1,672,103
Total stockholders' equity 4,988,372 4,815,352 3,815,190
Total liabilities and
stockholders' equity $54,471,313 $55,755,008 $48,686,877
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
2005 2005 2004 2004 2004
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on interest-
earning deposits $1,896 $2,233 $1,721 $1,505 $980
Interest on investment
securities
Available for sale 95,878 94,884 102,945 124,803 136,497
Held to maturity 45,091 45,119 45,512 46,470 31,879
Interest on loans 566,936 518,820 474,010 412,771 345,288
Total interest and
dividend income 709,801 661,056 624,188 585,549 514,644
Interest expense:
Deposits and related
customer accounts 139,879 114,178 91,731 83,160 63,142
Borrowings 167,047 148,700 145,445 139,439 119,463
Total interest
expense 306,926 262,878 237,176 222,599 182,605
Net interest
income 402,875 398,178 387,012 362,950 332,039
Provision for loan losses 22,000 22,000 27,000 25,000 32,000
Net interest
income after
provision for
loan losses 380,875 376,178 360,012 337,950 300,039
Non-interest income:
Consumer banking fees 73,063 66,555 67,759 62,771 58,072
Commercial banking
fees 35,531 33,008 32,843 31,757 30,552
Mortgage banking
revenue (1) 21,547 11,932 4,726 (4,080) 16,436
Capital markets revenue 3,700 4,686 6,548 3,409 5,099
Bank owned life
insurance income 12,918 10,903 10,136 9,922 9,588
Other 12,092 6,351 4,480 4,498 4,499
Total fees and other
income before security
gains 158,851 133,435 126,492 108,277 124,246
Net gain/(loss) on
securities 3,355 7,979 (24,728) 20,247 829
Total non-
interest income 162,206 141,414 101,764 128,524 125,075
Non-interest expense:
General and administrative
Compensation and
benefits 135,803 125,125 123,967 114,871 105,224
Occupancy and equipment 61,348 62,870 59,221 54,976 52,097
Technology expense 21,606 18,668 21,486 18,935 19,333
Outside services 13,805 14,648 13,901 14,332 12,746
Marketing expense 11,757 11,047 13,089 11,983 10,751
Other administrative
expenses 29,072 24,756 25,587 22,583 24,433
Total general and
administrative 273,391 257,114 257,251 237,680 224,584
Other expenses:
Amortization of core
deposit intangibles 18,815 18,956 17,670 19,836 17,576
Trust preferred
securities and other
minority interest
expense 5,752 5,668 5,630 5,502 5,438
Equity method
investments 10,966 10,770 11,875 10,257 7,327
Loss/(gain) on debt
extinguishment - - 500 65,546 (2,285)
Restructuring charges - 5,204 - - -
Merger-related and
integration charges (8,447) 23,191 (5,169) 27,941 -
Total other expenses 27,086 63,789 30,506 129,082 28,056
Total non-
interest expense 300,477 320,903 287,757 366,762 252,640
Income before
income taxes 242,604 196,689 174,019 99,712 172,474
Income tax expense 59,133 50,538 36,590 17,170 41,120
Net income $183,471 $146,151 $137,429 $82,542 $131,354
(1) Mortgage banking
activity is summarized
below:
Gains on sale of mortgage
loans and mortgage
backed securities $28,371 $6,377 $2,438 $4,090 $2,808
Net gains/(loss) recorded
under SFAS 133 314 653 (111) (112) (1,878)
Mortgage servicing fees,
net of mortgage
servicing rights
amortization 1,627 948 664 1,343 (1,628)
Mortgage servicing right
(impairments)/recoveries (8,765) 3,954 1,735 (9,401) 17,134
Total mortgage
banking revenues $21,547 $11,932 $4,726 $(4,080) $16,436
Year to Date
June 30 June 30
2005 2004
(dollars in thousands, except per
share data)
Interest and dividend income:
Interest on interest-earning deposits $4,129 $1,508
Interest on investment securities
Available for sale 190,762 273,723
Held to maturity 90,210 60,698
Interest on loans 1,085,756 678,478
Total interest and dividend income 1,370,857 1,014,407
Interest expense:
Deposits and related customer accounts 254,057 128,154
Borrowings 315,747 231,398
Total interest expense 569,804 359,552
Net interest income 801,053 654,855
Provision for loan losses 44,000 75,000
Net interest income after
provision for loan losses 757,053 579,855
Non-interest income:
Consumer banking fees 139,618 112,057
Commercial banking fees 68,539 59,237
Mortgage banking revenue (1) 33,479 21,863
Capital markets revenue 8,386 9,986
Bank owned life insurance income 23,821 19,214
Other 18,443 10,943
Total fees and other income before
security gains 292,286 233,300
Net gain/(loss) on securities 11,334 18,710
Total non-interest income 303,620 252,010
Non-interest expense:
General and administrative
Compensation and benefits 260,928 209,304
Occupancy and equipment 124,218 106,476
Technology expense 40,274 36,938
Outside services 28,453 25,082
Marketing expense 22,804 21,451
Other administrative expenses 53,828 48,479
Total general and administrative 530,505 447,730
Other expenses:
Amortization of core deposit intangibles 37,771 35,129
Trust preferred securities and other
minority interest expense 11,420 10,874
Equity method investments 21,736 9,339
Loss/(gain) on debt extinguishment - (2,285)
Restructuring charges 5,204 -
Merger-related and integration charges 14,744 23,587
Total other expenses 90,875 76,644
Total non-interest expense 621,380 524,374
Income before income taxes 439,293 307,491
Income tax expense 109,671 73,910
Net income $329,622 $233,581
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans and
mortgage backed securities $34,748 $19,277
Net gains/(loss) recorded under SFAS 133 967 (1,797)
Mortgage servicing fees, net of
mortgage servicing rights amortization 2,575 (1,491)
Mortgage servicing right
(impairments)/recoveries (4,811) 5,874
Total mortgage banking revenues $33,479 $21,863
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Quarter Ended
June 30, 2005
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,178,325 $154,041 5.06%
Loans:
Commercial 15,768,250 232,919 5.92%
Consumer 14,948,933 196,816 5.28%
Residential mortgages 10,634,549 138,329 5.20%
Total loans 41,351,732 568,064 5.50%
Allowance for loan losses (444,761)
Total earning assets 53,085,296 $722,105 5.45%
Other assets 7,103,038
Total assets $60,188,334
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $5,276,428 $- 0.00%
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 26,779,270 73,902 1.11%
Time deposits 9,458,184 65,977 2.80%
Total 36,237,454 139,879 1.55%
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 53,791,821 306,926 2.29%
Other liabilities 698,857
Total liabilities 54,490,678
Stockholders' equity 5,697,656
Total liabilities and
stockholders' equity $60,188,334
Net interest income $415,179
Interest rate spread 2.76%
Net interest margin 3.13%
(1) Tax equivalent basis
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
Quarter Ended
June 30, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,766,721 $179,444 4.86%
Loans:
Commercial 12,084,881 138,736 4.55%
Consumer 11,302,412 140,510 5.00%
Residential mortgages 4,854,811 67,649 5.57%
Total loans 28,242,104 346,895 4.90%
Allowance for loan losses (355,125)
Total earning assets 42,653,700 $526,339 4.93%
Other assets 5,357,589
Total assets $48,011,289
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $4,506,601 $- 0.00%
NOW accounts 6,313,501 10,466 0.67%
Customer repurchase agreements 784,850 1,105 0.57%
Savings accounts 3,328,743 4,388 0.53%
Money market accounts 7,167,639 16,423 0.92%
Core and other customer related
accounts 22,101,334 32,382 0.59%
Time deposits 6,070,703 30,760 2.04%
Total 28,172,037 63,142 0.90%
Borrowings:
Federal Home Loan Bank advances 8,271,726 79,227 3.81%
Fed funds and repurchase agreements 3,148,479 7,529 0.94%
Other borrowings 3,868,466 32,707 3.36%
Total borrowings 15,288,671 119,463 3.10%
Total funding liabilities 43,460,708 182,605 1.68%
Other liabilities 671,178
Total liabilities 44,131,886
Stockholders' equity 3,879,403
Total liabilities and
stockholders' equity $48,011,289
Net interest income $343,734
Interest rate spread 2.86%
Net interest margin 3.22%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
June 30, 2005
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,153,766 $307,236 5.06%
Loans:
Commercial 15,321,314 437,327 5.75%
Consumer 14,917,656 390,747 5.27%
Residential mortgages 9,905,070 261,005 5.27%
Total loans 40,144,040 1,089,079 5.46%
Allowance for loan losses (438,839)
Total earning assets 51,858,967 $1,396,315 5.41%
Other assets 7,013,495
Total assets $58,872,462
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $5,219,880 $- 0.00%
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 26,456,514 134,991 1.03%
Time deposits 9,060,839 119,066 2.65%
Total 35,517,353 254,057 1.44%
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 4,159,878 72,339 3.49%
Total borrowings 17,033,520 315,747 3.73%
Total funding liabilities 52,550,873 569,804 2.18%
Other liabilities 678,089
Total liabilities 53,228,962
Stockholders' equity 5,643,500
Total liabilities and
stockholders' equity $58,872,462
Net interest income $826,511
Interest rate spread 2.81%
Net interest margin 3.19%
(1) Tax equivalent basis
Year to Date
June 30, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,443,837 $355,819 4.93%
Loans:
Commercial 11,748,971 271,060 4.57%
Consumer 10,887,391 276,219 5.10%
Residential mortgages 4,980,356 134,392 5.40%
Total loans 27,616,718 681,671 4.93%
Allowance for loan losses (349,405)
Total earning assets 41,711,150 $1,037,490 4.97%
Other assets 5,222,896
Total assets $46,934,046
Funding liabilities:
Deposits and other customer related
accounts:
Demand deposit accounts $4,373,142 $- 0.00%
NOW accounts 6,151,843 19,598 0.64%
Customer repurchase agreements 832,697 2,442 0.59%
Savings accounts 3,273,344 8,650 0.53%
Money market accounts 7,092,750 33,353 0.95%
Core and other customer related
accounts 21,723,776 64,043 0.59%
Time deposits 6,089,653 64,111 2.12%
Total 27,813,429 128,154 0.93%
Borrowings:
Federal Home Loan Bank advances 8,167,421 157,042 3.82%
Fed funds and repurchase
agreements 2,851,718 14,947 1.04%
Other borrowings 3,716,061 59,409 3.18%
Total borrowings 14,735,200 231,398 3.12%
Total funding liabilities 42,548,629 359,552 1.69%
Other liabilities 665,751
Total liabilities 43,214,380
Stockholders' equity 3,719,666
Total liabilities and
stockholders' equity $46,934,046
Net interest income $677,938
Interest rate spread 2.89%
Net interest margin 3.25%
(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) 2005 2005 2004 2004 2004
Non-accrual loans:
Commercial $91,358 $95,528 $80,799 $89,061 $90,370
Consumer 38,385 37,637 28,021 24,417 27,923
Residential mortgages 31,717 37,669 33,656 32,858 32,635
Total non-accrual loans 161,460 170,834 142,476 146,336 150,928
Restructured loans 939 1,026 1,097 1,205 1,262
Total non-
performing loans 162,399 171,860 143,573 147,541 152,190
Real estate owned, net 8,494 11,286 12,276 16,397 19,609
Other repossessed assets 2,302 3,709 4,247 4,824 4,268
Total non-
performing assets $173,195 $186,855 $160,096 $168,762 $176,067
Non-performing loans as
a percentage of total
loans 0.39% 0.43% 0.39% 0.42% 0.52%
Non-performing assets as
a percentage of total
assets 0.29% 0.32% 0.29% 0.30% 0.36%
Non-performing assets as
a percentage of total
loans, real estate
owned and repossessed
assets 0.42% 0.46% 0.44% 0.48% 0.60%
Allowance for loan
losses as a percentage
of non-performing loans 272% 255% 285% 276% 232%
NET LOAN CHARGE-OFFS
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2005 2005 2004 2004 2004
Commercial real estate $294 $(492) $614 $(1,064) $6,117
Commercial and industrial
and other 8,964 7,200 10,357 10,823 14,502
Total Commercial 9,258 6,708 10,971 9,759 20,619
Auto loans 5,851 9,557 10,641 7,615 6,418
Home equity loans and other 4,241 3,280 2,840 2,770 3,268
Total Consumer 10,092 12,837 13,481 10,385 9,686
Residential mortgages 72 43 444 326 65
Total $19,422 $19,588 $24,896 $20,470 $30,370
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Demand deposit accounts $5,378,465 $5,377,378
NOW accounts 8,269,183 8,422,725
Customer repurchase agreements 875,203 828,388
Savings accounts 3,807,967 3,922,642
Money market accounts 8,352,055 8,673,744
Certificates of deposits 9,418,691 9,460,879
Total $36,101,564 $36,685,756
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Demand deposit accounts $5,087,531 $5,072,090 $4,698,610
NOW accounts 7,838,584 7,748,012 6,554,831
Customer repurchase agreements 837,643 848,890 810,062
Savings accounts 3,807,099 3,667,116 3,303,890
Money market accounts 7,870,288 8,407,688 7,456,917
Certificates of deposits 7,114,373 7,357,882 6,176,310
Total $32,555,518 $33,101,678 $29,000,620
LOAN COMPOSITION - End of period
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Commercial real estate $6,946,477 $6,837,814
Commercial industrial loans 9,205,540 8,525,778
Total commercial loans 16,152,017 15,363,592
Home equity loans 10,300,629 10,280,735
Auto loans 4,285,537 4,296,296
Other 532,230 596,428
Total consumer loans 15,118,396 15,173,459
Total residential loans 9,997,066 9,782,953
Total loans $41,267,479 $40,320,004
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Commercial real estate $5,824,133 $5,800,536 $5,050,915
Commercial industrial loans 8,040,107 7,645,199 7,200,541
Total commercial loans 13,864,240 13,445,735 12,251,456
Home equity loans 9,577,656 8,988,139 7,790,049
Auto loans 4,205,547 4,340,487 3,631,153
Other 486,140 528,366 564,905
Total consumer loans 14,269,343 13,856,992 11,986,107
Total residential loans 8,497,496 7,958,974 4,892,305
Total loans $36,631,079 $35,261,701 $29,129,868
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Demand deposit accounts $5,276,428 $5,162,704
NOW accounts 8,425,311 8,041,978
Customer repurchase agreements 795,418 842,657
Savings accounts 3,864,148 3,930,308
Money market accounts 8,417,965 8,152,525
Certificates of deposits 9,458,184 8,659,080
Total $36,237,454 $34,789,252
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Demand deposit accounts $5,103,981 $4,936,996 $4,506,601
NOW accounts 7,544,694 7,117,978 6,313,501
Customer repurchase agreements 851,928 821,182 784,850
Savings accounts 3,821,004 3,621,567 3,328,743
Money market accounts 8,082,448 8,256,017 7,167,639
Certificates of deposits 7,221,061 6,985,446 6,070,703
Total $32,625,116 $31,739,186 $28,172,037
LOAN COMPOSITION - Average
June 30 Mar. 31
Quarters ended (in thousands) 2005 2005
Commercial real estate $6,909,795 $6,494,572
Commercial industrial loans 8,008,968 7,522,968
Other 849,487 852,977
Total commercial loans 15,768,250 14,870,517
Home equity loans 10,127,012 10,002,411
Auto loans 4,262,377 4,305,100
Other 559,544 578,520
Total consumer loans 14,948,933 14,886,031
Total residential loans 10,634,549 9,167,485
Total loans $41,351,732 $38,924,033
Dec. 31 Sept. 30 June 30
Quarters ended (in thousands) 2004 2004 2004
Commercial real estate $5,788,936 $5,621,144 $5,014,765
Commercial industrial loans 6,953,564 6,534,378 6,214,663
Other 857,351 850,871 855,453
Total commercial loans 13,599,851 13,006,393 12,084,881
Home equity loans 9,245,711 8,177,146 7,206,082
Auto loans 4,266,466 4,198,175 3,636,061
Other 508,705 544,404 460,269
Total consumer loans 14,020,882 12,919,725 11,302,412
Total residential loans 8,199,190 6,675,476 4,854,811
Total loans $35,819,923 $32,601,594 $28,242,104
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING/CASH EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating/cash earnings for 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/cash earnings for 2004 represent net income adjusted for the
after-tax effects of merger-related and integration charges and the loss on
early extinguishment of debt, the fourth quarter adoption of EITF 04-8,
other-than-temporary non-cash impairment charges on Fannie Mae and Freddie Mac
preferred equity securities and the amortization of intangible assets.
Management's operating/cash 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/cash earnings.
(dollars in thousands,
except per share data -
all amounts are after
tax) Quarter Ended
Total dollars
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
2005 2005 2004 2004 2004
Net income as reported $183,471 $146,151 $137,429 $82,542 $131,354
Contingently convertible
trust preferred
interest expense, net
of tax (1) 6,335 6,394 6,318 6,310 6,301
Net income/(loss) for
EPS purposes $189,806 $152,545 $143,747 $88,852 $137,655
Weighted average diluted
shares for GAAP EPS 400,371 401,339 377,625 367,782 337,771
Reconciliation to
operating/cash earnings
Weighted average diluted
shares for GAAP EPS 400,371 401,339 377,625 367,782 337,771
Exclude dilutive effect
of EITF 04-8 on
contingently
convertible debt (1) - - (26,082) (26,082) (26,082)
Adjusted weighted
average diluted shares
for Operating/cash EPS 400,371 401,339 351,543 341,700 311,689
Net income and EPS as
reported based on
adjusted share count
(1) $189,806 $152,545 $137,429 $82,542 $131,354
Business acquisitions:
Merger related and
integration costs (5,490) 15,074 (3,360) 18,162 -
Provision for
loan loss - - - - -
Loss on debt
extinguishment - - - 42,605 -
Impairment charges on
FNMA and FHLMC
Preferred Stock - - 20,891 - -
Restructuring charges (2) - 3,382 - - -
Amortization of
intangibles 12,229 12,322 12,562 14,578 12,047
Operating/cash earnings $196,545 $183,323 $167,522 $157,887 $143,401
Per share
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
2005 2005 2004 2004 2004
Net income as reported
Contingently convertible trust
preferred interest expense,
net of tax (1)
Net income/(loss)
for EPS purposes $0.47 $0.38 $0.38 $0.24 $0.41
Weighted average diluted
shares for GAAP EPS
Reconciliation to
operating/cash 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/cash EPS
Net income and EPS as
reported based on
adjusted share count (1) $0.47 $0.38 $0.39 $0.24 $0.42
Business acquisitions:
Merger related and
integration costs (0.01) 0.04 (0.01) 0.05 -
Provision for loan loss - - - - -
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 0.03 0.04 0.04 0.04
Operating/cash earnings $0.49 $0.46 $0.48 $0.46 $0.46
Forward-
Year to Date Looking
Total dollars Per Share Per Share
Jun. 30 Jun. 30 Jun. 30 Jun. 30
2005 2004 2005 2004 2005
Net income as reported $329,622 $233,581
Contingently convertible
trust preferred interest
expense, net of tax (1) 12,729 8,586
Net income/(loss) for EPS
purposes $342,351 $242,167 $0.85 $0.74 $1.84
Weighted average diluted
shares for GAAP EPS 400,843 327,298
Reconciliation to
operating/cash earnings
Weighted average diluted
shares for GAAP EPS 400,843 327,298
Exclude dilutive effect
of EITF 04-8 on contingently
convertible debt (1) - (18,115)
Adjusted weighted average
diluted shares for
Operating/cash EPS 400,843 309,183
Net income and EPS as
reported based on adjusted
share count (1) $342,351 $233,581 $0.85 $0.76
Business acquisitions:
Merger related and
integration costs 9,584 15,332 0.02 0.05 0.03
Provision for loan loss - 3,900 - 0.01 -
Loss on debt extinguishment - - - - -
Impairment charges on FNMA and
FHLMC Preferred Stock - - - - -
Restructuring charges (2) 3,382 - 0.01 - 0.01
Amortization of intangibles 24,551 24,046 0.06 0.08 0.12
Operating/cash earnings $379,868 $276,859 $0.95 $0.90 $2.00
(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/cash earnings per
share, however it is included in our calculation for 2005
operating/cash earnings per share.
(2) Sovereign incurred restructuring charges in the first quarter of 2005
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
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 Dec. 31 Sept. 30 June 30
2005 2005 2004 2004 2004
Average
Equity $5,697,656 $5,588,703 $4,898,154 $4,544,175 $3,879,403
Average
Goodwill 2,725,526 2,507,849 2,118,673 1,941,306 1,289,409
Average CDI 261,854 270,193 278,319 272,861 259,762
Average
Tangible
Equity 2,710,276 2,810,661 2,501,162 2,330,008 2,330,232
Operating
Return on
Average Equity 13.84% 13.30% 13.61% 13.82% 14.87%
Effect of
Goodwill 13.91% 11.87% 11.53% 11.52% 8.23%
Effect of CDI 1.34% 1.28% 1.51% 1.62% 1.66%
Tangible Return
on Average
Equity 29.09% 26.45% 26.65% 26.96% 24.75%
Year-to-Date
June 30 June 30
2005 2004
Average Equity $5,643,500 $3,719,666
Average Goodwill 2,617,281 1,234,570
Average CDI 265,998 264,063
Average Tangible Equity 2,760,221 2,221,033
Operating Return on Average Equity 13.57% 14.97%
Effect of Goodwill 12.87% 8.32%
Effect of CDI 1.31% 1.78%
Tangible Return on Average Equity 27.75% 25.07%
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 for
approximately $950 million. A cash payment of $269.9 million was made in
connection with the transaction with the remaining consideration consisting of
the issuance of 29.8 million shares of common stock and stock options (to
convert outstanding Waypoint stock options into Sovereign stock options). The
preliminary purchase price was allocated to acquired assets and liabilities of
Waypoint based on fair value as of January 21, 2005. Sovereign 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 67.6
Less allowance for loan
losses (26.5)
Total loans, net 2,577.6 Total liabilities $3,624.1
Federal funds and cash 324.2
Premises and equipment, net 34.2
Bank owned life insurance 97.0
Other assets 263.9
Core deposit intangible 31.1
Goodwill 598.5
Total assets $4,305.7
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.
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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; MEDIA CONTACT: Ed
Shultz, +1-610-378-6159, eshultz1@sovereignbank.com, all of
Sovereign Bancorp, Inc.
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