PHILADELPHIA, Oct. 17 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today
reported for the third quarter of 2006 net income of $184 million, or $.37
per diluted share, as compared to $181 million, or $.45 per diluted share,
for the third quarter of 2005. Net income in the third quarter of 2006
included merger and integration charges of $18.5 million after-tax, or $.04
per share, related to the acquisition of Independence Community Bancorp,
Inc. ("Independence"). Net income in the third quarter of 2005 included a
reversal of merger and integration charges of $2.1 million after-tax, or
$.01 per share.
Effective in the third quarter of 2006, Sovereign has conformed its
definition of operating earnings and related per share amounts to now
include the amortization of intangible assets. Sovereign believes this is
more commonly used in the investment community and will ease comparability
of their results with other financial institutions. A reconciliation of net
income to operating earnings, as well as the related earnings per share
amounts, is included in a later section of this release.
For the quarter ended September 30, 2006, Sovereign's operating
earnings per diluted share, including the amortization of intangible
assets, were $.41, which excluded the above mentioned merger charges, as
compared to $.45 per diluted share a year ago, which excluded the above
mentioned reversal of merger and integration charges.
Commenting on banking industry fundamentals, Joseph P. Campanelli,
Sovereign's President and CEO, stated, "The environment for our industry is
challenging. We must operate under the assumption that negative industry
fundamentals will continue for the foreseeable future. With the integration
of Independence wrapped up, we will focus on four major objectives:
aggressive cost reductions, strengthening our capital position, improving
customer service, and re-presenting our company to investors through better
communications." Regarding the cost cutting initiatives, Campanelli added,
"Management is completing a comprehensive review of Sovereign's operating
cost structure. We will present our recommendations to Sovereign's board
within the next thirty days."
Net Interest Income and Margin
For the third quarter of 2006, Sovereign reported net interest income
of $492 million as compared to $408 million in the third quarter of 2005.
Sovereign's average loan portfolio, including acquisitions, increased by
$20.1 billion over last year and $11.9 billion on a linked quarter basis to
$62.4 billion. The total loan portfolio increased $1.6 billion during the
quarter, reflecting an annualized growth rate of 10.2%. Sovereign's average
deposits, including acquisitions, increased $16.3 billion over last year
and $9.5 billion linked quarter to $53.4 billion. Total deposits increased
$191 million during the quarter, reflecting an annualized growth rate of
1.5%.
Net interest margin was 2.64% for the third quarter of 2006 as compared
to 2.86% in the second quarter of 2006 and 3.13% in the third quarter of
2005. The decline in net interest margin reflects the continued impact of
an inverted yield curve, liabilities repricing faster than interest earning
assets and a shift in deposit mix to higher cost categories. The yield on
interest earning assets expanded 16 basis points during the quarter while
total funding costs expanded 35 basis points during the same period.
Non-Interest Income
Total fees and other income before security gains totaled $172 million
for the third quarter of 2006, up 8.6% from $158 million a year ago.
Consumer and commercial banking fees increased 15% from a year ago.
Excluding acquisitions, consumer and commercial banking fees were up
roughly 5% from the third quarter of 2005. Consumer banking fees increased
to $74.3 million, primarily driven by growth in deposit fees. Commercial
banking fees increased year-over-year by $8.2 million to $47.7 million
primarily driven by growth in loan fees and precious metals revenues.
Mortgage banking revenues for the quarter were $14.3 million, compared
to $4.5 million last quarter and $28.7 million in the same quarter a year
ago. Due to changes in prepayment speeds and interest rates during the
quarter, a $3.5 million impairment charge to increase the valuation reserve
for mortgage servicing rights was recorded. Offsetting this impairment
charge were $14.7 million of gains on sale of mortgage loans; of this, $6.3
million relates to the sale of multi-family loans.
During the quarter, Sovereign recognized a net gain on securities of
$29.2 million, compared to a net loss on securities of $305 million in the
second quarter of 2006 and a net gain on securities of $1.7 million a year
ago.
Non-Interest Expense
G&A expenses, including acquisitions, were $352 million for the third
quarter of 2006. Excluding acquisitions, G&A expense categories were
relatively flat to the second quarter of 2006 with the exception of
compensation and benefits due in part to additional overtime costs
associated with the conversion of Independence. G&A expenses to average
assets were 1.55% for the quarter, compared to 1.66% in the second quarter
of 2006 and 1.78% a year ago. Due to the aforementioned net interest margin
compression, Sovereign's efficiency ratio increased to 53.0% during the
quarter versus 48.9% a year ago.
Asset Quality
Asset quality statistics remained consistent with prior periods in the
third quarter of 2006. Annualized net charge-offs were .23% of average
loans for the third quarter, compared to .23% in the second quarter of
2006. Non- performing loans to total loans increased one basis point from
second quarter levels to .37%. Non-performing loans increased by $13.1
million from last quarter to $232.8 million. The allowance for credit
losses to non-performing loans was 240% at September 30, 2006, as compared
to 251% at June 30, 2006 and 257% at September 30, 2005. Sovereign's
provision for credit losses was $45.0 million this quarter, compared to
$44.5 million in the second quarter of 2006 and $20.0 million in the third
quarter of 2005. The provision for credit losses was higher during the
recent quarter to provide for a non-performing loan sale of correspondent
home equity loans, a decision to self-insure a portion of correspondent
home equity loans, and a high level of commercial loan growth.
Capital
Sovereign's Tier 1 leverage ratio was 5.82% at September 30, 2006.
Tangible equity to tangible assets, which includes preferred stock, was
3.89% excluding other comprehensive income ("OCI") and was 3.78% including
OCI. Tangible common equity to tangible assets, excluding other
comprehensive income ("OCI") was 3.66% and including OCI was 3.55%. The
equity to assets ratio was 9.66% at September 30, 2006. Sovereign Bank's
Tier 1 leverage ratio was 6.21% and the Bank's total risk-based capital
ratio was 10.43% at September 30, 2006.
Based upon our October 16 stock price of $23.46, Sovereign is trading
at a P/E of 14.0x analysts mean 2006 estimate. The book value per share at
September 30, 2006 was $18.07.
About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), the parent company
of Sovereign Bank, is a $90 billion financial institution with nearly 800
community banking offices, over 2,000 ATMs 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 Third Quarter 2006 earnings call on Tuesday, October 17
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=1386289.
The web-cast and replay can be accessed anytime from 5:00 p.m. ET on
Tuesday, October 17, 2006 through 12:00 a.m. ET on Friday, December 29,
2006. Questions may be submitted during the call via email accessible from
Sovereign Bancorp's broadcast and Investor Relations sites. A telephone
replay will be accessible from 7:00 p.m. ET on Tuesday, October 17, 2006
through 12:00 a.m. ET (midnight) on Monday, October 23, 2006 by dialing
1-800-642-1687, confirmation id #8143196.
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.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2006 2006 2006 2005 2005
(dollars in millions,
except per share data)
Operating Data
Net income (loss) $184.0 $(59.1) $141.4 $165.5 $181.0
Net income (loss) for EPS
purposes 188.5 (61.5) 147.7 171.8 187.4
Operating earnings for EPS
purposes (1) 207.0 163.2 155.2 175.6 185.3
Net interest income 491.8 438.8 404.0 403.2 408.3
Provision for credit losses 45.0 44.5 29.0 26.0 20.0
Total fees and other income
before securities
transactions 171.9 142.0 134.3 159.9 158.2
Net gain (loss) on investment
securities 29.2 (305.0) 0.0 (1.3) 1.7
G&A expense 351.8 303.3 280.0 281.8 276.9
Other expenses 75.3 58.9 44.8 40.0 32.6
Performance Statistics
Bancorp
Net interest margin 2.64% 2.86% 3.00% 3.01% 3.13%
Return on average assets 0.81% -0.32% 0.90% 1.03% 1.17%
Operating return on average
assets (1) 0.91% 0.89% 0.98% 1.10% 1.19%
Return on average equity 8.47% -3.54% 9.72% 11.49% 12.61%
Operating return on average
equity (1) 9.52% 9.77% 10.68% 12.20% 12.91%
Return on average tangible
equity 23.72% -8.16% 19.29% 23.67% 26.24%
Operating return on average
tangible equity (1) 26.68% 22.54% 21.18% 25.12% 26.85%
Annualized net loan
charge-offs to average
loans 0.23% 0.23% 0.26% 0.21% 0.18%
G & A expense to average
assets 1.55% 1.66% 1.77% 1.76% 1.78%
Efficiency ratio (3) 53.01% 52.22% 52.01% 50.04% 48.87%
Per Share Data
Basic earnings (loss) per
share (2) $0.39 $(0.15) $0.38 $0.44 $0.48
Diluted earnings (loss) per
share (2) 0.37 (0.15) 0.36 0.42 0.45
Operating earnings per
share (1)(2) 0.41 0.37 0.38 0.43 0.45
Dividend declared per share 0.080 0.080 0.060 0.060 0.040
Common book value (4) 18.07 17.50 16.42 16.21 15.81
Common stock price:
High $21.60 $21.76 $21.53 $22.37 $23.54
Low 20.07 20.19 19.57 19.65 20.66
Close 21.51 20.31 20.87 20.59 20.99
Weighted average common
shares: (2)
Basic 472.4 412.0 376.9 375.6 378.3
Diluted 506.1 412.0 410.4 409.6 412.8
End-of-period common shares:
Basic 472.6 471.8 359.3 358.4 358.5
Diluted 506.5 505.5 391.1 390.5 390.7
NOTES:
(1) Operating 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, 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) Common book value equals common stockholders' equity at period-end
divided by common shares outstanding.
Year to Date
Sept. 30 Sept. 30
2006 2005
(dollars in millions, except
per share data)
Operating Data
Net income (loss) $266.4 $510.7
Net income (loss) for EPS purposes 281.1 529.7
Operating earnings for EPS purposes (1) 525.4 540.6
Net interest income 1,334.5 1,228.8
Provision for credit losses 118.5 64.0
Total fees and other income before
securities transactions 448.2 431.1
Net gain (loss) on investment securities (275.9) 13.0
G&A expense 935.1 807.4
Other expenses 179.0 123.4
Performance Statistics
Bancorp
Net interest margin 2.81% 3.22%
Return on average assets 0.47% 1.14%
Operating return on average assets (1) 0.93% 1.21%
Return on average equity 5.03% 12.06%
Operating return on average equity (1) 9.92% 12.77%
Return on average tangible equity 11.92% 24.80%
Operating return on average tangible
equity (1) 23.51% 26.26%
Annualized net loan charge-offs to
average loans 0.24% 0.20%
G & A expense to average assets 1.65% 1.81%
Efficiency ratio (3) 52.45% 48.64%
Per Share Data
Basic earnings (loss) per share (2) $0.62 $1.33
Diluted earnings (loss) per share (2) 0.62 1.27
Operating earnings per share (1)(2) 1.16 1.29
Dividend declared per share 0.220 0.110
Common book value (4) 18.07 15.81
Common stock price:
High $21.76 $23.54
Low 19.57 19.17
Close 21.51 20.99
Weighted average common shares: (2)
Basic 420.7 383.9
Diluted 454.3 418.1
End-of-period common shares:
Basic 472.6 358.5
Diluted 506.5 390.7
NOTES:
(1) Operating 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, 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) Common book value equals common stockholders' equity at period-end
divided by common shares outstanding.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2006 2006 2006 2005 2005
(dollars in millions)
Financial Condition Data:
General
Total assets $90,410 $88,753 $65,060 $63,679 $62,960
Loans 63,178 61,610 45,164 43,804 42,692
Total deposits and
customer related
accounts: 52,784 52,592 38,820 37,978 37,333
Core deposits and other
customer related
accounts 36,031 36,593 27,143 26,639 27,395
Time deposits 16,753 15,999 11,678 11,339 9,937
Borrowings 27,101 26,171 19,216 18,721 18,897
Minority interests 210 209 206 206 205
Stockholders' equity 8,734 8,451 5,900 5,811 5,668
Goodwill 4,990 4,930 2,715 2,717 2,714
Core deposit and other
intangibles 533 633 197 214 232
Asset Quality
Non-performing assets $273.1 $259.1 $200.5 $205.6 $181.1
Non-performing loans $232.8 $219.7 $183.5 $189.5 $169.9
Non-performing assets to
total assets 0.30% 0.29% 0.31% 0.32% 0.29%
Non-performing loans to
total loans 0.37% 0.36% 0.41% 0.43% 0.40%
Allowance for credit
losses $558.1 $551.4 $438.5 $437.8 $436.8
Allowance for credit
losses
to total loans 0.88% 0.90% 0.97% 1.00% 1.02%
Allowance for credit
losses
to non-performing loans 240% 251% 239% 231% 257%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.66% 9.52% 9.07% 9.13% 9.00%
Tier 1 leverage capital
ratio 5.82% 5.69% 6.74% 6.68% 6.48%
Tangible equity to
tangible assets,
excluding OCI 3.89% 3.73% 5.16% 5.05% 4.84%
Tangible common equity to
tangible assets,
excluding OCI 3.66% 3.50% 5.16% 5.05% 4.84%
Tangible equity to
tangible assets,
including OCI 3.78% 3.49% 4.81% 4.73% 4.54%
Tangible common equity to
tangible assets,
including OCI 3.55% 3.25% 4.81% 4.73% 4.54%
Capitalization - Bank (1)
Stockholders' equity to
total assets 11.65% 9.70% 10.59% 10.61% 10.46%
Tier 1 leverage capital
ratio 6.21% 6.28% 6.97% 6.84% 6.58%
Tier 1 risk-based capital
ratio 7.73% 7.91% 8.52% 8.21% 7.91%
Total risk-based capital
ratio 10.43% 10.28% 10.97% 10.66% 10.42%
(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)
Sept. 30 June 30 Mar. 31
(dollars in thousands) 2006 2006 2006
Assets
Cash and amounts due from
depository institutions $1,932,603 $1,714,042 $997,447
Investments:
Available-for-sale 12,821,075 12,218,168 7,063,492
Held-to-maturity - - 4,936,066
Other investments 1,020,723 933,507 670,353
Total investments 13,841,798 13,151,675 12,669,911
Loans:
Commercial 29,984,325 28,999,921 17,250,897
Consumer 33,193,395 32,610,190 27,913,516
Total loans 63,177,720 61,610,111 45,164,413
Less allowance for loan losses (544,482) (537,372) (421,860)
Total loans, net 62,633,238 61,072,739 44,742,553
Premises and equipment, net 591,601 587,254 408,119
Accrued interest receivable 413,018 375,213 275,343
Goodwill 4,989,539 4,929,586 2,715,217
Core deposit and other intangibles 532,626 632,665 196,756
Bank owned life insurance 1,704,955 1,686,571 1,027,403
Other assets 3,770,681 4,603,322 2,027,191
Total assets $90,410,059 $88,753,067 $65,059,940
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $36,030,850 $36,593,254 $27,142,655
Time deposits 16,752,764 15,999,234 11,677,492
Total 52,783,614 52,592,488 38,820,147
Borrowings and other debt
obligations 27,100,522 26,170,589 19,216,159
Other liabilities 1,582,174 1,329,383 917,661
Total liabilities 81,466,310 80,092,460 58,953,967
Minority interests 209,972 209,466 206,141
Stockholders' equity:
Preferred Stock 195,445 195,445 -
Common Stock 6,166,992 6,156,925 3,657,038
Warrants and stock options 338,867 337,637 335,717
Unallocated ESOP shares (21,396) (21,396) (21,396)
Treasury stock (57,646) (65,984) (466,328)
Accumulated other comprehensive
loss (74,543) (193,186) (211,760)
Retained earnings 2,186,058 2,041,700 2,606,561
Total stockholders' equity 8,733,777 8,451,141 5,899,832
Total liabilities and
stockholders' equity $90,410,059 $88,753,067 $65,059,940
Dec. 31 Sept. 30
(dollars in thousands) 2005 2005
Assets
Cash and amounts due from depository
institutions $1,131,936 $1,438,240
Investments:
Available-for-sale 7,258,402 7,547,170
Held-to-maturity 4,647,627 4,500,881
Other investments 651,299 696,859
Total investments 12,557,328 12,744,910
Loans:
Commercial 16,635,646 16,222,920
Consumer 27,168,201 26,468,719
Total loans 43,803,847 42,691,639
Less allowance for loan losses (419,599) (418,353)
Total loans, net 43,384,248 42,273,286
Premises and equipment, net 412,017 401,868
Accrued interest receivable 286,300 265,120
Goodwill 2,716,826 2,714,073
Core deposit and other intangibles 213,975 231,740
Bank owned life insurance 1,018,125 1,006,820
Other assets 1,957,971 1,884,316
Total assets $63,678,726 $62,960,373
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $26,639,246 $27,395,257
Time deposits 11,338,460 9,937,334
Total 37,977,706 37,332,591
Borrowings and other debt obligations 18,720,897 18,897,237
Other liabilities 963,764 857,530
Total liabilities 57,662,367 57,087,358
Minority interests 205,660 205,176
Stockholders' equity:
Preferred Stock - -
Common Stock 3,657,543 3,649,507
Warrants and stock options 337,346 337,156
Unallocated ESOP shares (21,396) (23,707)
Treasury stock (478,734) (467,265)
Accumulated other comprehensive loss (170,798) (170,619)
Retained earnings 2,486,738 2,342,767
Total stockholders' equity 5,810,699 5,667,839
Total liabilities and stockholders'
equity $63,678,726 $62,960,373
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2006 2006 2006 2005 2005
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on
interest-earning
deposits $5,408 $2,954 $2,116 $2,605 $2,022
Interest on
investment
securities
Available
for sale 201,766 116,653 90,095 91,163 86,411
Held to
maturity 1,065 50,473 53,553 51,225 47,624
Other 13,287 13,016 5,603 4,971 4,443
Interest on loans 1,019,325 808,922 688,166 661,072 620,742
Total interest
and dividend
income 1,240,851 992,018 839,533 811,036 761,242
Interest expense:
Deposits and
related customer
accounts 412,858 306,030 231,837 201,449 169,084
Borrowings 336,206 247,217 203,738 206,344 183,817
Total interest
expense 749,064 553,247 435,575 407,793 352,901
Net interest
income 491,787 438,771 403,958 403,243 408,341
Provision for credit
losses 45,000 44,500 29,000 26,000 20,000
Net interest
income after
provision for
credit losses 446,787 394,271 374,958 377,243 388,341
Non-interest income:
Consumer banking
fees 74,298 67,467 60,798 64,696 65,738
Commercial banking
fees 47,690 43,949 39,016 46,699 39,519
Mortgage banking
revenue (1) 14,329 4,524 12,992 26,501 28,671
Capital markets
revenue 4,009 2,313 3,889 4,053 5,382
Bank-owned life
insurance income 20,116 15,359 11,327 11,398 12,066
Other 11,409 8,363 6,319 6,538 6,856
Total fees and other
income before security
gains 171,851 141,975 134,341 159,885 158,232
Net gain/(loss) on
securities 29,154 (305,027) - (1,296) 1,675
Total non-
interest
income 201,005 (163,052) 134,341 158,589 159,907
Non-interest expense:
General and
administrative
Compensation and
benefits 182,607 149,467 143,778 137,452 140,532
Occupancy and
equipment 78,594 68,155 64,193 61,679 61,096
Technology expense 25,128 23,114 21,566 22,562 21,349
Outside services 17,928 16,592 14,755 17,174 15,362
Marketing expense 14,552 14,548 10,222 15,103 14,455
Other
administrative
expenses 33,009 31,417 25,465 27,828 24,107
Total general
and
administrative 351,818 303,293 279,979 281,798 276,901
Other expenses:
Amortization of
intangibles 34,092 24,225 17,219 17,766 18,284
Other minority
interest expense 6,149 6,079 5,992 5,951 5,837
Equity method
investments 6,701 10,954 10,042 10,455 11,656
Loss on economic hedges - 11,387 - - -
Proxy and professional
fees - - 14,337 5,827 -
Lease and contract
termination charges - - - - -
Merger-related and
integration charges 28,403 6,257 (2,798) - (3,222)
Total other
expenses 75,345 58,902 44,792 39,999 32,555
Total non-
interest
expense 427,163 362,195 324,771 321,797 309,456
Income/ (loss)
before income
taxes 220,629 (130,976) 184,528 214,035 238,792
Income tax expense/
(benefit) 36,620 (71,920) 43,130 48,540 57,749
Net income/
(loss) $184,009 ($59,056) $141,398 $165,495 $181,043
(1) Mortgage banking
activity is summarized
below:
Gains on sale of
mortgage loans and
related securities,
multi-family loans, and
home equity loans (2) $14,665 $3,136 $9,762 $22,708 $21,274
Net gains/(loss)
recorded under SFAS
133 (423) (663) 1,090 (1,039) 717
Mortgage servicing
fees, net of mortgage
servicing rights
amortization 3,582 2,051 2,140 914 (157)
Mortgage servicing
right
(impairments)/
recoveries (3,495) - - 3,918 6,837
Total mortgage
banking revenues $14,329 $4,524 $12,992 $26,501 $28,671
(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
Sept. 30 Sept. 30
2006 2005
(dollars in thousands, except
per share data)
Interest and dividend income:
Interest on interest-earning
deposits $10,478 $6,151
Interest on investment securities
Available for sale 408,514 268,529
Held to maturity 105,091 137,834
Other 31,906 13,087
Interest on loans 2,516,413 1,725,950
Total interest and dividend
income 3,072,402 2,151,551
Interest expense:
Deposits and related customer
accounts 950,725 423,141
Borrowings 787,161 499,564
Total interest expense 1,737,886 922,705
Net interest income 1,334,516 1,228,846
Provision for credit losses 118,500 64,000
Net interest income after
provision for credit losses 1,216,016 1,164,846
Non-interest income:
Consumer banking fees 202,563 191,920
Commercial banking fees 130,655 102,576
Mortgage banking revenue (1) 31,845 61,616
Capital markets revenue 10,211 13,768
Bank-owned life insurance income 46,802 35,887
Other 26,091 25,299
Total fees and other income before
security gains 448,167 431,066
Net gain/(loss) on securities (275,873) 13,009
Total non-interest income 172,294 444,075
Non-interest expense:
General and administrative
Compensation and benefits 475,852 401,460
Occupancy and equipment 210,942 185,314
Technology expense 69,808 61,623
Outside services 49,275 43,815
Marketing expense 39,322 37,259
Other administrative expenses 89,891 77,935
Total general and
administrative 935,090 807,406
Other expenses:
Amortization of intangibles 75,536 56,055
Other minority interest expense 18,220 17,257
Equity method investments 27,697 33,392
Loss on economic hedges 11,387 -
Proxy and professional fees 14,337 -
Lease and contract termination
charges - 3,982
Merger-related and integration
charges 31,862 12,744
Total other expenses 179,039 123,430
Total non-interest
expense 1,114,129 930,836
Income/ (loss) before income
taxes 274,181 678,085
Income tax expense/ (benefit) 7,830 167,420
Net income/ (loss) $266,351 $510,665
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans and
related securities, multi-family
loans, and home equity loans (2) $27,563 $56,022
Net gains/(loss) recorded under
SFAS 133 4 1,684
Mortgage servicing fees, net of
mortgage servicing rights
amortization 7,773 1,884
Mortgage servicing right
(impairments)/recoveries (3,495) 2,026
Total mortgage banking revenues $31,845 $61,616
(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
September 30, 2006
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $15,886,584 $241,045 6.06%
Loans:
Commercial 23,034,009 419,552 7.24%
Multi-Family 6,184,739 95,298 6.16%
Consumer:
Residential mortgages 17,860,553 256,417 5.74%
Home equity loans and
lines of credit 10,519,717 173,914 6.59%
Total consumer loans
secured by real estate 28,380,270 430,331 6.05%
Auto Loans 4,394,903 66,220 5.98%
Other 451,333 10,296 9.05%
Total Consumer 33,226,506 506,847 6.08%
Total loans 62,445,254 1,021,697 6.52%
Allowance for loan losses (537,690)
Total earning assets 77,794,148 $1,262,742 6.47%
Other assets 12,160,105
Total assets $89,954,253
Funding liabilities:
Deposits and other
customer-related accounts:
NOW accounts $10,854,965 $80,252 2.92%
Customer repurchase
agreements 1,273,055 15,230 4.75%
Savings accounts 5,013,163 8,409 0.67%
Money market accounts 13,067,468 121,062 3.68%
Core and other
customer-related accounts 30,208,651 224,953 2.95%
Time deposits 16,504,794 187,905 4.52%
Total 46,713,445 412,858 3.51%
Borrowings:
Wholesale borrowings 20,847,228 254,407 4.86%
Other borrowings 5,606,261 81,799 5.82%
Total borrowings 26,453,489 336,206 5.06%
Total funding liabilities 73,166,934 749,064 4.07%
Non-interest bearing DDA 6,707,400
Other liabilities 1,458,009
Total liabilities 81,332,343
Stockholders' equity 8,621,910
Total liabilities and
stockholders' equity $89,954,253
Net interest income $513,678
Interest rate spread 2.40%
Contribution from
interest-free funds 0.24%
Net interest margin 2.64%
(1) Tax equivalent basis
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 4.32%
Total 38,209,288 306,030 3.21%
Borrowings:
Wholesale borrowings 16,647,140 182,559 4.40%
Other borrowings 4,791,972 64,658 5.48%
Total borrowings 21,439,112 247,217 4.62%
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
September 30, 2005
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $11,974,043 $153,802 5.14%
Loans:
Commercial 16,440,068 262,726 6.35%
Multi-Family - - 0.00%
Consumer:
Residential mortgages 10,663,656 142,604 5.35%
Home equity loans
and lines of credit 10,321,853 146,483 5.66%
Total consumer loans secured
by real estate 20,985,509 289,087 5.49%
Auto Loans 4,400,376 60,280 5.43%
Other 515,522 10,147 7.81%
Total Consumer 25,901,407 359,514 5.53%
Total loans 42,341,475 622,240 5.85%
Allowance for loan losses (423,929)
Total earning assets 53,891,589 $776,042 5.73%
Other assets 7,709,266
Total assets $61,600,855
Funding liabilities:
Deposits and other customer-related
accounts:
NOW accounts $8,991,339 $42,601 1.88%
Customer repurchase
agreements 903,053 6,630 2.91%
Savings accounts 3,753,311 6,452 0.68%
Money market accounts 8,294,441 35,390 1.69%
Core and other customer-related
accounts 21,942,144 91,073 1.65%
Time deposits 9,810,041 78,011 3.15%
Total 31,752,185 169,084 2.11%
Borrowings:
Wholesale borrowings 13,677,685 140,484 4.08%
Other borrowings 4,250,969 43,333 4.06%
Total borrowings 17,928,654 183,817 4.08%
Total funding liabilities 49,680,839 352,901 2.82%
Non-interest bearing DDA 5,393,736
Other liabilities 831,385
Total liabilities 55,905,960
Stockholders' equity 5,694,895
Total liabilities and
stockholders' equity $61,600,855
Net interest income $423,141
Interest rate spread 2.91%
Contribution from interest-free funds 0.22%
Net interest margin 3.13%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
Year to Date
September 30, 2006
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,281,351 $610,934 5.71%
Loans:
Commercial 19,699,524 1,051,982 7.14%
Multi-Family 2,748,477 126,583 6.14%
Consumer:
Residential mortgages 15,053,802 636,131 5.63%
Home equity loans
and lines of credit 10,110,555 488,104 6.45%
Total consumer loans
secured by real estate 25,164,357 1,124,235 5.96%
Auto loans 4,400,416 192,228 5.84%
Other 460,455 27,826 8.08%
Total Consumer 30,025,228 1,344,289 5.98%
Total loans 52,473,229 2,522,854 6.42%
Allowance for loan losses (471,358)
Total earning assets 66,283,222 $3,133,788 6.31%
Other assets 9,623,451
Total assets $75,906,673
Funding liabilities:
Deposits and other
customer-related accounts:
NOW accounts $10,114,033 $208,084 2.74%
Customer repurchase
agreements 1,138,838 37,205 4.37%
Savings accounts 4,128,312 21,938 0.71%
Money market accounts 10,303,545 240,605 3.12%
Core and other
customer-related accounts 25,684,728 507,832 2.64%
Time deposits 13,784,845 442,893 4.30%
Total 39,469,573 950,725 3.22%
Borrowings:
Wholesale borrowings 17,244,235 586,685 4.54%
Other borrowings 4,942,265 200,476 5.41%
Total borrowings 22,186,500 787,161 4.74%
Total funding liabilities 61,656,073 1,737,886 3.77%
Non-interest bearing DDA 5,826,134
Other liabilities 1,342,011
Total liabilities 68,824,218
Stockholders' equity 7,082,455
Total liabilities and
stockholders' equity $75,906,673
Net interest income $1,395,902
Interest rate spread 2.55%
Contribution from
interest-free funds 0.26%
Net interest margin 2.81%
(1) Tax equivalent basis
Year to Date
September 30, 2005
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $12,093,200 $461,037 5.08%
Loans:
Commercial 15,698,330 705,536 6.01%
Multi-Family - - 0.00%
Consumer:
Residential mortgages 10,160,711 404,143 5.30%
Home equity loans
and lines of credit 10,151,595 419,263 5.51%
Total consumer loans
secured by real estate 20,312,306 823,406 5.41%
Auto loans 4,322,967 170,755 5.28%
Other 550,965 31,073 7.54%
Total Consumer 25,186,238 1,025,234 5.43%
Total loans 40,884,568 1,730,770 5.65%
Allowance for loan losses (422,569)
Total earning assets 52,555,199 $2,191,807 5.57%
Other assets 7,247,966
Total assets $59,803,165
Funding liabilities:
Deposits and other
customer-related accounts:
NOW accounts $8,489,687 $99,891 1.57%
Customer repurchase
agreements 847,264 15,436 2.44%
Savings accounts 3,848,607 18,826 0.65%
Money market accounts 8,288,830 91,910 1.48%
Core and other
customer-related accounts 21,474,388 226,063 1.41%
Time deposits 9,313,316 197,078 2.83%
Total 30,787,704 423,141 1.84%
Borrowings:
Wholesale borrowings 13,144,601 383,890 3.90%
Other borrowings 4,190,575 115,674 3.69%
Total borrowings 17,335,176 499,564 3.85%
Total funding liabilities 48,122,880 922,705 2.56%
Non-interest bearing DDA 5,278,467
Other liabilities 740,996
Total liabilities 54,142,343
Stockholders' equity 5,660,822
Total liabilities and
stockholders' equity $59,803,165
Net interest income $1,269,102
Interest rate spread 3.01%
Contribution from
interest-free funds 0.21%
Net interest margin 3.22%
(1) Tax equivalent basis
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
(dollars in thousands) 2006 2006 2006 2005 2005
Non-accrual loans:
Consumer:
Residential mortgages $35,365 $34,812 $31,874 $30,393 $33,427
Home equity loans and
lines of credit 62,002 63,632 61,078 55,543 37,051
Auto loans 327 388 363 476 462
Other consumer loans 1,384 2,524 1,920 1,913 2,873
Total consumer loans 99,078 101,356 95,235 88,325 73,813
Commercial 133,133 117,758 87,566 100,372 95,303
Total non-accrual loans 232,211 219,114 182,801 188,697 169,116
Restructured loans 570 576 692 777 822
Total non-performing
loans 232,781 219,690 183,493 189,474 169,938
Real estate owned, net 34,775 35,899 13,622 11,411 6,107
Other repossessed assets 5,500 3,487 3,352 4,678 5,083
Total non-performing
assets 273,056 259,076 200,467 205,563 181,128
Non-performing loans as a
percentage of total loans 0.37% 0.36% 0.41% 0.43% 0.40%
Non-performing assets as a
percentage of total assets 0.30% 0.29% 0.31% 0.32% 0.29%
Non-performing assets as a
percentage of total loans,
real estate owned and
repossessed assets 0.43% 0.42% 0.44% 0.47% 0.42%
Allowance for credit losses
as a percentage of non-
performing loans 240% 251% 239% 231% 257%
NET LOAN CHARGE-OFFS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2006 2006 2006 2005 2005
Commercial real estate $1,188 $3,938 $(744) $564 $219
Commercial and industrial
and other 6,402 4,718 8,948 4,877 6,209
Total Commercial 7,590 8,656 8,204 5,441 6,428
Residential mortgages 422 156 159 554 109
Home equity loans and
lines of credit 19,909 15,032 10,654 6,998 4,319
Total consumer loans
secured by real estate 20,331 15,188 10,813 7,552 4,428
Auto loans 7,271 5,678 7,995 9,137 7,539
Other consumer loans 135 (97) 1,286 1,079 1,059
Total Consumer 27,737 20,769 20,094 17,768 13,026
Total $35,327 $29,425 $28,298 $23,209 $19,454
COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT
LOSSES
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2006 2006 2006 2005 2005
Provision for loan losses 45,437 47,113 30,559 26,263 19,298
Provision/(recoveries) for
unfunded commitments (437) (2,613) (1,559) (263) 702
Total provision for credit
losses $45,000 $44,500 $29,000 $26,000 $20,000
Allowance for loan losses 544,482 537,372 421,860 419,599 418,353
Reserve for unfunded
commitments 13,603 14,040 16,653 18,212 18,475
Total allowance for credit
losses $558,085 $551,412 $438,513 $437,811 $436,828
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2006 2006 2006
Demand deposit accounts $6,687,150 $6,821,660 $5,165,140
NOW accounts 10,517,818 11,055,188 9,110,005
Customer repurchase agreements 1,457,129 1,205,345 1,086,010
Savings accounts 4,919,190 5,189,459 3,397,183
Money market accounts 12,449,563 12,321,602 8,384,317
Certificates of deposits 16,752,764 15,999,234 11,677,492
Total $52,783,614 $52,592,488 $38,820,147
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2005
Demand deposit accounts $5,331,659 $5,414,212
NOW accounts 8,844,875 9,170,052
Customer repurchase agreements 1,012,574 959,024
Savings accounts 3,460,292 3,684,423
Money market accounts 7,989,846 8,167,546
Certificates of deposits 11,338,460 9,937,334
Total $37,977,706 $37,332,591
LOAN COMPOSITION - End of period
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2006 2006 2006
Commercial real estate $11,401,902 $10,817,068 $7,128,116
Commercial industrial loans 12,611,628 12,048,686 10,122,781
Multi-family 5,970,795 6,134,167 -
Total commercial loans 29,984,325 28,999,921 17,250,897
Residential mortgages 17,817,283 17,236,025 13,161,773
Home equity loans and lines
of credit 10,506,607 10,515,700 9,892,235
Total consumer loans secured by
real estate 28,323,890 27,751,725 23,054,008
Auto loans 4,431,891 4,399,047 4,400,980
Other consumer loans 437,614 459,418 458,528
Total consumer loans 33,193,395 32,610,190 27,913,516
Total loans $63,177,720 $61,610,111 $45,164,413
LOAN COMPOSITION - End of period
Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2005
Commercial real estate $7,209,180 $7,151,189
Commercial industrial loans 9,426,466 9,071,731
Multi-family - -
Total commercial loans 16,635,646 16,222,920
Residential mortgages 12,462,802 11,198,366
Home equity loans and lines of
credit 9,793,124 10,301,161
Total consumer loans secured by real
estate 22,255,926 21,499,527
Auto loans 4,434,021 4,463,931
Other consumer loans 478,254 505,261
Total consumer loans 27,168,201 26,468,719
Total loans $43,803,847 $42,691,639
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2006 2006 2006
Demand deposit accounts $6,707,400 $5,662,902 $5,086,989
NOW accounts 10,854,965 10,346,113 9,124,514
Customer repurchase agreements 1,273,055 1,114,934 1,025,807
Savings accounts 5,013,163 3,956,176 3,411,827
Money market accounts 13,067,468 9,598,706 8,190,873
Certificates of deposits 16,504,794 13,193,359 11,597,261
Total $53,420,845 $43,872,190 $38,437,271
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2005
Demand deposit accounts $5,340,623 $5,393,736
NOW accounts 9,454,176 8,991,339
Customer repurchase agreements 1,007,347 903,053
Savings accounts 3,573,771 3,753,311
Money market accounts 8,112,584 8,294,441
Certificates of deposits 10,376,654 9,810,041
Total $37,865,155 $37,145,921
LOAN COMPOSITION - Average
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2006 2006 2006
Commercial real estate $10,869,370 $8,358,231 $7,193,994
Commercial industrial loans 10,805,007 9,564,869 8,603,198
Multi-family 6,184,739 1,992,727 -
Other 1,359,632 1,189,303 1,087,391
Total commercial loans 29,218,748 21,105,130 16,884,583
Residential mortgages 17,860,553 14,467,374 12,777,623
Home equity loans and lines of
credit 10,519,717 10,129,080 9,673,570
Total consumer loans secured by
real estate 28,380,270 24,596,454 22,451,193
Auto loans 4,394,903 4,396,659 4,409,850
Other consumer loans 451,333 453,383 476,946
Total consumer loans 33,226,506 29,446,496 27,337,989
Total loans $62,445,254 $50,551,626 $44,222,572
LOAN COMPOSITION - Average
Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2005
Commercial real estate $7,203,433 $7,019,781
Commercial industrial loans 8,273,795 8,499,513
Multi-family - -
Other 1,038,760 920,774
Total commercial loans 16,515,988 16,440,068
Residential mortgages 11,859,646 10,663,656
Home equity loans and lines of
credit 10,176,307 10,321,853
Total consumer loans secured by real
estate 22,035,953 20,985,509
Auto loans 4,454,501 4,400,376
Other consumer loans 490,069 515,522
Total consumer loans 26,980,523 25,901,407
Total loans $43,496,511 $42,341,475
Sovereign Bancorp, Inc. and Subsidiaries
RECONCILIATION OF OPERATING EARNINGS TO REPORTED EARNINGS
(unaudited)
Operating 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, proxy and related professional fees, and certain
other charges. The table below reconciles our GAAP earnings to
operating earnings for EPS purposes.
(dollars in thousands, except per share data - all amounts are after tax)
Quarter Ended
Total dollars
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2006 2006 2006 2005 2005
Net income (loss) as
reported $184,009 ($59,056) $141,398 $165,495 $181,043
Dividends on preferred
stock (1,825) (2,433) - - -
Net income available to
common shareholders 182,184 (61,489) 141,398 165,495 181,043
Contingently convertible
trust preferred
interest expense, net
of tax 6,344 - 6,327 6,354 6,344
Net income (loss) for
EPS purposes $188,528 ($61,489) $147,725 $171,849 $187,387
Non GAAP Adjustments to
adjust antidilutive EPS
Net income available to
common shareholders $182,184 ($61,489) $141,398 $165,495 $181,043
Trust IV expense, net of
tax 6,344 6,335 6,327 6,354 6,344
Antidilutive net
income/(loss) for
operating EPS
calculation $188,528 ($55,154) $147,725 $171,849 $187,387
Reconciliation to
Operating earnings EPS
Net income (loss) for
operating earnings EPS
purposes $188,528 ($55,154) $147,725 $171,849 $187,387
Merger related and
integration costs 18,463 4,067 (1,819) - (2,094)
Provision for loan
losses- Independence - 8,125 - - -
Loss on economic hedges - 7,402 - - -
Loss on balance sheet
restructuring - 154,884 - - -
Impairment on FNMA and
FHLMC preferred stock - 43,875 - 3,788 -
Proxy and professional
fees - - 9,319 - -
Lease and contract
termination charges/
Restructuring - - - - -
Operating earnings for
EPS purposes $206,991 $163,199 $155,225 $175,637 $185,293
Weighted average diluted
shares for GAAP EPS 506,135 412,000 410,366 409,581 412,766
Add back of diluted
shares for operating
EPS not factored into
GAAP diluted shares due
to antidilution (1) - 33,599 - - -
Adjusted weighted
average diluted shares
for Operating EPS 506,135 445,599 410,366 409,581 412,766
(1) Due to the GAAP net loss recorded in the second quarter of 2006, the
conversion of 33.6 million of warrants and equity awards and the
after-tax add back of Sovereign's contingently convertible trust
preferred interest expense was excluded from Sovereign's GAAP diluted
earnings per share calculation for the quarter ended June 30, 2006
since the result would have been anti-dilutive. However, for
operating earning purposes these items are dilutive and as a result
they have been added back for operating earnings and operating
earnings per share purposes.
Operating 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, proxy and related professional fees, and certain
other charges. The table below reconciles our GAAP earnings to
operating earnings for EPS purposes.
(dollars in thousands, except per share data - all amounts are after tax)
Quarter Ended
Per share
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2006 2006 2006 2005 2005
Net income (loss) as reported
Dividends on preferred stock
Net income available to common
shareholders
Contingently convertible trust
preferred interest expense,
net of tax
Net income (loss) for EPS
purposes $0.37 $(0.15) $0.36 $0.42 $0.45
Non GAAP Adjustments to adjust
antidilutive EPS
Net income available to common
shareholders
Trust IV expense, net of tax
Antidilutive net income/(loss)
for operating EPS calculation
Reconciliation to Operating
earnings EPS
Net income (loss) for operating
earnings EPS purposes $0.37 $(0.12) $0.36 $0.42 $0.45
Merger related and
integration costs 0.04 0.01 (0.00) - (0.01)
Provision for loan losses-
Independence - 0.02 - - -
Loss on economic hedges - 0.02 - - -
Loss on balance sheet
restructuring - 0.35 - - -
Impairment on FNMA and FHLMC
preferred stock - 0.10 - 0.01 -
Proxy and professional fees - - 0.02 - -
Lease and contract termination
charges/ Restructuring - - - - -
Operating earnings for EPS
purposes $0.41 $0.37 $0.38 $0.43 $0.45
Weighted average diluted
shares for GAAP EPS
Add back of diluted shares
for operating EPS not
factored into GAAP
diluted shares due
to antidilution (1)
Adjusted weighted average
diluted shares for
Operating EPS
(1) Due to the GAAP net loss recorded in the second quarter of 2006, the
conversion of 33.6 million of warrants and equity awards and the
after-tax add back of Sovereign's contingently convertible trust
preferred interest expense was excluded from Sovereign's GAAP diluted
earnings per share calculation for the quarter ended June 30, 2006
since the result would have been anti-dilutive. However, for
operating earning purposes these items are dilutive and as a result
they have been added back for operating earnings and operating
earnings per share purposes.
Operating 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, proxy and related professional fees, and certain
other charges. The table below reconciles our GAAP earnings to
operating earnings for EPS purposes.
(dollars in thousands, except per share data - all amounts are after tax
Year to Date
Total dollars Per Share
Sept. 30 Sept. 30 Sept. 30 Sept. 30
2006 2005 2006 2005
Net income (loss) as reported $266,351 $510,665
Dividends on preferred stock (4,258) -
Net income available to common
shareholders 262,093 510,665
Contingently convertible trust
preferred interest expense,
net of tax 19,007 19,074
Net income (loss) for EPS
purposes $281,100 $529,739 $0.62 $1.27
Non GAAP Adjustments to adjust
antidilutive EPS
Net income available to common
shareholders $262,093 $510,665
Trust IV expense, net of tax 19,007 19,074
Antidilutive net income/(loss)
for operating EPS calculation $281,100 $529,739
Reconciliation to Operating
earnings EPS
Net income (loss) for operating
earnings EPS purposes $281,100 $529,739 $0.62 $1.27
Merger related and integration
costs 20,711 8,284 0.05 0.02
Provision for loan losses-
Independence 8,125 - 0.02 -
Loss on economic hedges 7,402 - 0.02 -
Loss on balance sheet
restructuring 154,884 - 0.34 -
Impairment on FNMA and FHLMC
preferred stock 43,875 - 0.10 -
Proxy and professional fees 9,319 - 0.02 -
Lease and contract termination
charges/ Restructuring - 2,589 - 0.01
Operating earnings for EPS
purposes $525,416 $540,612 $1.16 $1.29
Weighted average diluted shares
for GAAP EPS 454,265 418,134
Add back of diluted shares for
operating EPS not factored into
GAAP diluted shares due to
antidilution (1) - -
Adjusted weighted average
diluted shares for Operating
EPS 454,265 418,134
(1) Due to the GAAP net loss recorded in the second quarter of 2006, the
conversion of 33.6 million of warrants and equity awards and the
after-tax add back of Sovereign's contingently convertible trust
preferred interest expense was excluded from Sovereign's GAAP diluted
earnings per share calculation for the quarter ended June 30, 2006
since the result would have been anti-dilutive. However, for
operating earning purposes these items are dilutive and as a result
they have been added back for operating earnings and operating
earnings per share purposes.
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
Sept. 30 June 30 Mar. 31
2006 2006 2006
Average Equity $8,621,910 $6,698,547 $5,896,739
Average Goodwill (4,932,536) (3,452,687) (2,716,324)
Average CDI and other intangibles (611,329) (342,279) (207,908)
Average Tangible Equity 3,078,045 2,903,581 2,972,507
Operating Return on Average Equity 9.52% 9.77% 10.68%
Effect of Goodwill 15.26% 11.62% 9.76%
Effect of CDI and other intangibles 1.89% 1.15% 0.75%
Tangible Return on Average Equity 26.68% 22.54% 21.18%
Reconciliation of Equity to Tangible Equity and Operating Return on
Average Equity to Tangible Returns on Average Equity
Quarter Ended
Dec. 31 Sept. 30
2005 2005
Average Equity $5,712,703 $5,694,895
Average Goodwill (2,714,150) (2,714,148)
Average CDI and other intangibles (225,049) (243,149)
Average Tangible Equity 2,773,504 2,737,598
Operating Return on Average Equity 12.20% 12.91%
Effect of Goodwill 11.93% 12.80%
Effect of CDI and other intangibles 0.99% 1.15%
Tangible Return on Average Equity 25.12% 26.85%
Reconciliation of Equity to Tangible Equity and Operating Return on
Average Equity to Tangible Returns on Average Equity
Year-to-Date
Sept. 30 Sept. 30
2006 2005
Average Equity 7,082,455 5,660,822
Average Goodwill (3,705,413) (2,649,925)
Average CDI and other intangibles (388,650) (258,320)
Average Tangible Equity 2,988,392 2,752,577
Operating Return on Average Equity 9.92% 12.77%
Effect of Goodwill 12.30% 12.29%
Effect of CDI and other intangibles 1.29% 1.20%
Tangible Return on Average Equity 23.51% 26.26%
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
Multifamily 5,571.2 Time 4,070.1
Commercial 5,235.2 Total deposits 11,030.9
Consumer 517.2 Borrowings and other debt
Residential mortgages 1,829.0 obligations 5,470.4
Total loans 13,152.6 Other liabilities 586.6
Less allowance for loan
losses (97.8) Total liabilities $17,087.9
Total loans, net 13,054.8
Cash paid, net of cash
acquired (2,713.2)
Bank owned life
insurance 343.3
Premises and equipment,
net 167.9
Other assets 365.0
Core deposit and other
intangibles 394.2
Goodwill 2,271.1
Total assets $17,087.9
SOURCE Sovereign Bancorp, Inc.
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Related links:
http://www.sovereignbank.com
CONTACT:
FINANCIAL CONTACTS: Mark McCollom,
+1-610-208-6426, mmccollo@sovereignbank.com, or Stacey Weikel,
+1-610-208-6112, sweikel@sovereignbank.com, or MEDIA CONTACT: Ed
Shultz, +1-610-378-6159, eshultz1@sovereignbank.com, all of
Sovereign Bancorp
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