PHILADELPHIA, Oct. 5 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"),
announced today that deterioration in the consumer credit environment and
volatility in the mortgage-backed securities and credit markets are
expected to have an adverse impact on its third quarter of 2007 financial
results.
The following accounts for a significant portion of the expected
decline in third quarter of 2007 results:
-- An increase in the provision for credit losses of between $104 and $114
million to $155-$165 million pre-tax compared to $51 million in the
second quarter. Approximately $50 million of the increase in provision
for credit losses is related to our remaining correspondent home equity
loan portfolio. Sovereign exited the correspondent home equity
business in early 2006 and stopped originating correspondent home
equity loans, allowing the portfolio to runoff throughout 2006. In the
first quarter of 2007, Sovereign sold $3.3 billion of its correspondent
home equity portfolio but had retained a portion of the loans that
could not be sold. As of June 30, 2007, this portfolio balance was
$491 million, net of discounts and reserves. Many of these
correspondent home equity loans are non-prime loans which have been
impacted by the deterioration in the housing market and the reduction
in the number of mortgage lenders in the industry. This has caused an
elevated level of delinquencies and charge offs in this correspondent
home equity portfolio.
Approximately $40 million of increase in the provision for credit
losses is related to our decision to increase reserves in our indirect
auto lending portfolio in response to recent and anticipated higher net
credit losses, as well as portfolio growth. In late 2006, Sovereign
expanded its indirect auto lending business into the Southeast and
Southwest which has resulted in significant growth in our indirect auto
portfolio.
The remaining increase in our provision for credit losses relates to
loan loss reserves to cover exposures in our commercial portfolio,
primarily in the construction lending and commercial real estate
portfolios, as well as increased charge-offs.
-- Charges of approximately $20 million pre-tax related to losses on
financings that Sovereign provided to a number of mortgage companies
who have declared bankruptcy and/or defaulted on certain agreements.
These mortgage companies have been impacted by adverse developments in
the non-prime sector related to loan losses which has caused decreased
investor demand for loans originated and sold by these mortgage
companies. This has resulted in liquidity issues for the mortgage
companies and has had an adverse impact on financial results for these
companies.
-- Charges of approximately $15 million pre-tax related to the lower of
cost or market adjustments on certain loan portfolios that were
classified on the balance sheet as Loans Held for Sale. The lower of
cost or market adjustment reflects the disruption in the credit markets
that has extended beyond residential lending and impacted the markets
for the sale of all loan categories. The lower of cost or market
adjustments relates entirely to market spreads as there are no credit
issues for these loans. Sovereign has moved a portion of these loans
back into the Loans Held for Investment portfolio at the lower of cost
or market as we do not believe that current market pricing is
reflective of the inherent value of these loan portfolios.
EARNINGS RELEASE DATE: The date for Sovereign's third quarter 2007
earnings release is October 17, 2007 at 4:00 p.m. Eastern time. A full
discussion of financial results will be provided via web-cast at 9:00 am
Eastern time on October 18, 2007. Please refer to the investor relations
website, http://www.sovereignbank.com for full details.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent
company of Sovereign Bank, a financial institution with $82 billion in
assets as of June 30, 2007 with principal markets in the Northeast United
States. Sovereign Bank has nearly 750 community banking offices, over 2,250
ATMs and approximately 12,000 team members. Sovereign offers a broad array
of financial services and products including retail banking, business and
corporate banking, cash management, capital markets, wealth management and
insurance. Sovereign is the 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
Note:
This press release contains financial information determined by methods
other than in accordance with U.S. Generally Accepted Accounting Principles
("GAAP"). Sovereign's management uses the non-GAAP measure of Operating
Earnings, and the related per share amount, in their analysis of the
company's performance. This measure, as used by Sovereign, adjusts net
income determined in accordance with GAAP to exclude the effects of special
items, including significant gains or losses that are unusual in nature or
are associated with acquiring and integrating businesses. Operating
earnings for 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 and proxy and related
professional fees. Since certain of these items and their impact on
Sovereign's performance are difficult to predict, management believes
presentations of financial measures excluding the impact of these items
provide useful supplemental information in evaluating the operating results
of Sovereign's core businesses. These disclosures should not be viewed as a
substitute for net income determined in accordance with GAAP, nor are they
necessarily comparable to non-GAAP performance measures that may be
presented by other companies.
This press release contains statements of Sovereign's strategies,
plans, and objectives, as well as estimates of financial condition,
operating and cash efficiencies and revenue generation. These statements
and estimates constitute forward-looking statements (within the meaning of
the Private Securities Litigation Reform Act of 1995), which involve
significant risks and uncertainties. Actual results may differ materially
from the results discussed in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, general
economic conditions, changes in interest rates, deposit flows, loan demand,
real estate values and competition; changes in accounting principles,
policies, or guidelines; changes in legislation or regulation; Sovereign's
ability in connection with any acquisition to complete such acquisition and
to successfully integrate assets, liabilities, customers, systems and
management personnel Sovereign acquires into its operations and to realize
expected cost savings and revenue enhancements within expected time frame;
the possibility that expected one time merger-related charges are
materially greater than forecasted or that final purchase price allocations
based on the fair value of acquired assets and liabilities and related
adjustments to yield and/or amortization of the acquired assets and
liabilities at any acquisition date are materially different from those
forecasted; other economic, competitive, governmental, regulatory, and
technological factors affecting the Company's operations, integrations,
pricing, products and services; and acts of God, including natural
disasters.
Sovereign Bancorp is followed by several market analysts. Please note
that any opinions, estimates, forecasts, or predictions regarding Sovereign
Bancorp's performance or recommendations regarding Sovereign's securities
made by these analysts are theirs alone and do not represent opinions,
estimates, forecasts, predictions or recommendations of Sovereign Bancorp
or its management. Sovereign Bancorp does not by its reference to any
analyst opinions, estimates, forecasts regarding Sovereign's performance or
recommendations regarding Sovereign's securities imply Sovereign's
endorsement of or concurrence with such information, conclusions or
recommendations.
SOURCE Sovereign Bancorp, Inc.
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Related links:
http://www.sovereignbank.com
CONTACT:
FINANCIAL: Mark McCollom, +1-610-208-6426,
mmccollo@sovereignbank.com, or Stacey Weikel, +1-610-208-6112,
sweikel@sovereignbank.com; or MEDIA: Ed Shultz, +1-610-378-6159,
eshultz1@sovereignbank.com, all of Sovereign Bancorp, Inc.
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