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Sovereign Bancorp, Inc. Announces 2005 Third Quarter Net Income of $181 Million and Operating/Cash Earnings of $197 MillionGAAP EPS of $.48, up 100%, and Operating/Cash EPS of $.50, up 9%
PHILADELPHIA, Oct. 18 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc. ("Sovereign") , parent company of Sovereign Bank ("Bank"), today reported third quarter 2005 net income in accordance with generally accepted accounting principles of $181 million, or $.48 per diluted share, as compared to $83 million, or $.24 per diluted share, for the third quarter of 2004. Net income in the third quarter of 2004 included merger and integration charges related to the Seacoast Financial Services Corporation acquisition of $18.2 million, after-tax, or $.05 per share, and a debt extinguishment charge of $42.6 million after-tax, or $.12 per share. For the quarter ended September 30, 2005, Sovereign's reported operating/cash earnings increased 25% to $197 million, or $.50 per diluted share, which excluded $11.9 million, or $.03 per share, related to amortization of intangible assets, as compared to $158 million, or $.46 per diluted share, a year ago, which excluded the above mentioned merger and integration and debt extinguishment charges and $14.6 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 special 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 third quarter of 2005 produced annualized returns on average assets and average shareholders' equity of 1.21% and 13.05%, respectively. Operating/cash earnings for the third quarter of 2005 produced annualized operating/cash return on average assets and average tangible shareholders' equity of 1.27% and 28.58%, respectively. Commenting on results for the third quarter of 2005, Jay S. Sidhu, Sovereign's Chairman and Chief Executive Officer, said, "We are pleased to show improvement in our core competencies this quarter. Average core deposits grew 8% annualized from second quarter levels, while total deposits increased 10%. While remaining disciplined in our underwriting, commercial loan growth remained very strong at 17%, annualized, and our consumer loan portfolio increased 5%, annualized, from second quarter levels. Credit quality continues to be strong, as annualized net charge-offs were down slightly from second quarter levels to 18 basis points. We repurchased eight million shares of our common stock during the quarter, bringing our year-to-date repurchases through quarter-end to 20 million shares," concluded Sidhu. Net Interest Income and Margin Sovereign reported net interest income of $396 million for the third quarter of 2005, an increase of $33 million, or 9%, compared to the third quarter of 2004. Sovereign's average loan portfolio increased during the third quarter by $990 million to $42.3 billion, reflecting an annualized growth rate of 10%. Included in period-end commercial loan balances was the effect of a securitization of $832 million of dealer floor plan loans, which was completed on September 30, 2005. Sovereign's average deposits increased $908 million during the quarter, reflecting an annualized growth rate of 10%. Average core deposits (excludes time deposits) increased during the quarter by approximately $557 million to $27.3 billion, reflecting an annualized growth rate of 8%, with the majority of the growth in zero- or lower-cost checking deposits. Net interest margin was 3.04% for the third quarter of 2005, compared to 3.17% in the third quarter of 2004. "The prolonged flatness of the yield curve facing the entire industry has continued to put pressure on our net interest margin in the near-term. As we believe this interest rate environment may persist in the near-term, we have taken several steps and are currently evaluating several options to stabilize or improve our net interest margin going forward," stated Mark R. McCollom, Sovereign's Chief Financial Officer. "Loan yields on our commercial loan portfolio expanded nicely during the quarter, up 35 basis points from second quarter levels, while total deposit costs (including non-interest bearing DDA) increased 25 basis points during the same period." Non-Interest Income Consumer and commercial banking fees again reached all-time highs during the quarter, up 3% and 20%, respectively, from second quarter 2005 levels and 19% and 35%, respectively, from a year ago. Consumer banking fees increased by $12.2 million to $75.0 million, or 19%, compared to the same period in 2004, primarily driven by growth in loan and deposit fees. Commercial banking fees increased by $11.0 million to $42.7 million, or 35%, over the same period a year ago, primarily driven by growth in loan fees and cash management fees as well as a gain of $3.9 million on the previously mentioned dealer floor plan securitization completed during the third quarter. Excluding this gain, commercial banking fees were up 9% from last quarter and 22% from a year ago. Mortgage banking revenues for the quarter were $29.0 million, compared to $21.5 million last quarter and a loss of $4.1 million in the same quarter a year ago. Mortgage banking revenue increased $7.4 million from second quarter levels reflecting sales of mortgage and home equity loans and a reversal of mortgage servicing right impairment reserves of $6.8 million. Mortgage banking results are detailed in the financial tables attached to this release. As of September 30, 2005, mortgage servicing rights, net of reserves of $3.9 million, were $87.6 million and our servicing portfolio was $7.3 billion, with a capitalized cost of 121 basis points. Non-Interest Expense G&A expenses for the quarter were $277 million, including acquisitions, as compared to $238 million a year ago. On a linked quarter basis, G&A expenses were up $3.5 million mostly as a result of increased marketing efforts. "Year-to-date G&A expenses continue to be favorable to our plan. Operating leverage remains positive, resulting in a 157 basis points improvement in our efficiency ratio from a year ago. Our efficiency ratio was 48.9% in the third quarter of 2005," commented McCollom. On a GAAP basis, Sovereign's effective tax rate was 24.1% in the third quarter; on an operating basis, it was 24.8%. Asset Quality Sovereign continued to see improvement in net charge-offs during the third quarter of 2005. Annualized net charge-offs decreased to .18% of average loans at September 30, 2005, compared to .19% at June 30, 2005 and .25% at September 30, 2004. Non-performing assets ("NPAs") increased $7.9 million during the quarter to $181 million at September 30, 2005. NPAs to total assets were unchanged from second quarter levels at .29%. Sovereign's provision for loan losses was $20.0 million this quarter compared to $22.0 million in the second quarter and $25.0 million in the third quarter of 2004. The allowance for loan losses to total loans decreased slightly to 1.02% at September 30, 2005, as compared to 1.07% at June 30, 2005 and 1.15% at September 30, 2004. The allowance for loan losses to non-performing loans now stands at 257%, as compared to 272% at June 30, 2005 and 276% at September 30, 2004. Capital During the quarter, Sovereign repurchased eight million shares under a previously announced repurchase program. Year-to-date Sovereign has repurchased 20 million shares, or more than 5% of fully diluted shares outstanding. Sovereign's Tier 1 leverage ratio was 6.48% at September 30, 2005. Tangible common equity to tangible assets, excluding other comprehensive income ("OCI"), was 4.84% and including OCI was 4.54%. The equity to assets ratio was 9.00% at September 30, 2005. Sovereign Bank's Tier 1 leverage ratio was 6.58% and the Bank's risk-based capital ratio was 10.33% at September 30, 2005. "Management remains committed to its capital allocation discipline. In addition to share repurchases during the quarter, the Board of Directors also declared a 50% increase to our cash dividend," commented McCollom. Looking Ahead "In closing, we were pleased with third quarter loan and deposit growth trends, credit quality continues to be strong, revenues are growing at a faster pace than expenses resulting in positive operating leverage, and we continue to generate and deploy $200 million of tangible common equity per quarter. Year-to-date we have returned 98% of net income to our shareholders through cash dividends and share repurchases. The interest rate environment remains a challenge, and we acknowledge it is unlikely we will achieve our stretch goal of $2.00 in operating/cash earnings per share for 2005. However, we are currently achieving that run rate with $.50 of operating/cash earnings per share in the third quarter. We remain very focused on maintaining our interest rate, credit risk and capital management discipline through this difficult interest rate environment and on achieving an operating earnings growth rate of 10% or higher over the long-term," Sidhu concluded. Based upon our October 17 stock price of $21.55, Sovereign is trading at a P/E of 11.8x analysts mean 2005 estimate and 136% of current book value. The book value per share at September 30, 2005 was $15.81. Sovereign Bancorp, Inc., ("Sovereign") , is the parent company of Sovereign Bank, a $63 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 Third Quarter 2005 earnings call on Wednesday, October 19 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=1138948. The web-cast replay can be accessed anytime from 11:00 a.m. ET on Wednesday, October 19, 2005 through 12:00 a.m. ET on Monday, December 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, October 19, 2005 through 12:00 a.m. ET (midnight) on Monday, October 24, 2005 by dialing 800-642-1687, confirmation id #9788706. 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, second and third 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; 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
2005 2005 2005 2004 2004
(dollars in millions, except
per share data)
Operating Data
Net income $181.0 $183.5 $146.2 $137.4 $82.5
Net income for EPS purposes (1) 187.4 189.8 152.5 143.7 88.9
Operating/cash earnings (2) 197.2 196.5 183.3 167.5 157.9
Net interest income 395.6 402.9 398.2 387.0 363.0
Provision for loan losses 20.0 22.0 22.0 27.0 25.0
Total fees and other income before
securities transactions 171.0 158.9 133.4 126.5 108.3
Net gain (loss) on investment
securities 1.7 3.4 8.0 (24.7) 20.2
G&A expense 276.9 273.4 257.1 257.3 237.7
Other expenses 32.6 27.1 63.8 30.5 129.1
Performance Statistics
Bancorp
Net interest margin 3.04% 3.13% 3.26% 3.29% 3.17%
Operating/cash return on average
assets (2) 1.27% 1.31% 1.29% 1.22% 1.17%
Operating/cash return on average
equity (2) 13.74% 13.84% 13.30% 13.61% 13.82%
Operating/cash return on average
tangible equity (2) 28.58% 29.09% 26.45% 26.65% 26.96%
Annualized net loan charge-offs to
average loans 0.18% 0.19% 0.20% 0.28% 0.25%
Efficiency ratio (3) 48.87% 48.67% 48.36% 50.10% 50.44%
Per Share Data
Basic earnings per share $0.50 $0.50 $0.40 $0.40 $0.25
Diluted earnings per share (1) 0.48 0.47 0.38 0.38 0.24
Operating/cash earnings per
share (2) 0.50 0.49 0.46 0.48 0.46
Dividend declared per share .040 .040 .030 .030 .030
Book value (4) 15.81 15.70 15.22 14.41 13.95
Common stock price:
High 24.72 22.70 23.73 22.61 22.48
Low 21.69 20.13 21.89 21.14 20.48
Close $22.04 $22.34 $22.16 $22.55 $21.82
Weighted average common shares:
Basic 360.3 367.9 368.9 345.6 335.6
Diluted (1) 393.1 400.4 401.3 377.6 367.8
End-of-period common shares:
Basic 358.5 365.8 374.8 346.1 345.3
Diluted (1) 390.7 398.3 407.4 378.2 377.3
Year to Date
Sept. 30 Sept. 30
2005 2004
(dollars in millions, except
per share data)
Operating Data
Net income $510.7 $316.1
Net income for EPS purposes (1) 529.7 331.0
Operating/cash earnings (2) 577.0 434.7
Net interest income 1,196.6 1,017.8
Provision for loan losses 64.0 100.0
Total fees and other income before
securities transactions 463.3 341.6
Net gain (loss) on investment securities 13.0 39.0
G&A expense 807.4 685.4
Other expenses 123.4 205.7
Performance Statistics
Bancorp
Net interest margin 3.14% 3.23%
Operating/cash return on average assets (2) 1.29% 1.18%
Operating/cash return on average equity (2) 13.63% 14.53%
Operating/cash return on average
tangible equity (2) 28.03% 25.68%
Annualized net loan charge-offs to
average loans 0.20% 0.39%
Efficiency ratio (3) 48.64% 50.42%
Per Share Data
Basic earnings per share $1.40 $1.01
Diluted earnings per share (1) 1.33 0.97
Operating/cash earnings per share (2) 1.45 1.36
Dividend declared per share 0.110 0.085
Book value (4) 15.81 13.95
Common stock price:
High 24.72 24.51
Low 20.13 19.51
Close $22.04 $21.82
Weighted average common shares:
Basic 365.6 314.4
Diluted (1) 398.2 341.1
End-of-period common shares:
Basic 358.5 345.3
Diluted (1) 390.7 377.3
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
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2005 2005 2005 2004 2004
(dollars in millions)
Financial Condition Data:
General
Total assets $62,942 $59,922 $58,926 $54,471 $55,755
Loans 42,692 41,267 40,320 36,631 35,262
Total deposits and customer
related accounts: 37,333 36,102 36,686 32,556 33,102
Core deposits and other
customer related
accounts 27,395 26,683 27,225 25,441 25,744
Time deposits 9,937 9,419 9,461 7,114 7,358
Borrowings 18,897 17,069 15,555 16,140 16,919
Minority interests 205 205 204 204 203
Stockholders' equity 5,668 5,743 5,705 4,988 4,815
Goodwill 2,714 2,714 2,721 2,125 2,103
Core deposit intangible 232 250 269 257 305
Asset Quality
Non-performing assets $181.1 $173.2 $186.9 $160.1 $168.8
Non-performing loans $169.9 $162.4 $171.9 $143.6 $147.5
Non-performing assets to
total assets 0.29% 0.29% 0.32% 0.29% 0.30%
Non-performing loans to
total loans 0.40% 0.39% 0.43% 0.39% 0.42%
Allowance for loan losses $436.8 $442.5 $437.7 $408.7 $406.6
Allowance for loan losses
to total loans 1.02% 1.07% 1.09% 1.12% 1.15%
Allowance for loan losses
to non-performing loans 257% 272% 255% 285% 276%
Capitalization - Bancorp (1)
Stockholders' equity to
total assets 9.00% 9.58% 9.68% 9.16% 8.64%
Tier 1 leverage capital
ratio 6.48% 6.86% 6.96% 7.05% 6.56%
Tangible equity to tangible
assets, excluding OCI 4.84% 5.13% 5.22% 5.25% 4.77%
Tangible equity to tangible
assets, including OCI 4.54% 4.88% 4.86% 5.00% 4.51%
Capitalization - Bank (1)
Stockholders' equity to
total assets 10.46% 11.30% 11.58% 10.77% 10.20%
Tier 1 leverage capital
ratio 6.58% 7.16% 7.44% 7.21% 6.66%
Tier 1 risk-based capital
ratio 7.83% 8.64% 8.93% 8.79% 8.51%
Total risk-based capital
ratio 10.33% 11.27% 11.59% 11.64% 11.43%
(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) 2005 2005 2005
Assets
Cash and amounts due
from depository institutions $1,438,240 $1,176,891 $981,674
Investments:
Available-for-sale 8,244,029 7,529,964 7,709,353
Held-to-maturity 4,500,881 4,055,135 3,839,848
Total investments 12,744,910 11,585,099 11,549,201
Loans:
Commercial 16,222,920 16,152,017 15,363,592
Consumer 26,468,719 25,115,462 24,956,412
Total loans 42,691,639 41,267,479 40,320,004
Less allowance for loan losses (436,828) (442,484) (437,661)
Total loans, net 42,254,811 40,824,995 39,882,343
Premises and equipment, net 401,868 391,140 394,604
Accrued interest receivable 265,120 247,505 258,849
Goodwill 2,714,073 2,713,894 2,720,651
Core deposit intangible 231,740 250,025 268,528
Bank owned life insurance 1,006,820 996,645 992,426
Other assets 1,884,316 1,736,089 1,877,557
Total assets $62,941,898 $59,922,283 $58,925,833
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $27,395,257 $26,682,873 $27,224,877
Time deposits 9,937,334 9,418,691 9,460,879
Total 37,332,591 36,101,564 36,685,756
Borrowings and other debt
obligations 18,897,237 17,068,806 15,554,598
Other liabilities 839,055 804,363 775,976
Total liabilities 57,068,883 53,974,733 53,016,330
Minority interests 205,176 204,721 204,286
Stockholders' equity:
Common Stock 3,649,507 3,636,750 3,609,269
Warrants and stock options 337,156 339,517 346,116
Unallocated ESOP shares (23,707) (23,707) (23,707)
Treasury stock (467,265) (280,223) (64,495)
Accumulated other
comprehensive loss (170,619) (105,727) (169,312)
Retained earnings 2,342,767 2,176,219 2,007,346
Total stockholders' equity 5,667,839 5,742,829 5,705,217
Total liabilities and
stockholders' equity $62,941,898 $59,922,283 $58,925,833
Dec. 31 Sept. 30
(dollars in thousands) 2004 2004
Assets
Cash and amounts due
from depository institutions $1,160,922 $1,266,044
Investments:
Available-for-sale 7,642,558 10,111,845
Held-to-maturity 3,904,319 4,027,472
Total investments 11,546,877 14,139,317
Loans:
Commercial 13,864,240 13,445,735
Consumer 22,766,839 21,815,966
Total loans 36,631,079 35,261,701
Less allowance for loan losses (408,716) (406,612)
Total loans, net 36,222,363 34,855,089
Premises and equipment, net 353,337 352,089
Accrued interest receivable 226,012 225,918
Goodwill 2,125,081 2,103,158
Core deposit intangible 256,694 304,754
Bank owned life insurance 885,807 879,189
Other assets 1,694,220 1,629,450
Total assets $54,471,313 $55,755,008
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Core and other customer related
accounts $25,441,145 $25,743,796
Time deposits 7,114,373 7,357,882
Total 32,555,518 33,101,678
Borrowings and other debt obligations 16,140,128 16,919,164
Other liabilities 583,389 715,326
Total liabilities 49,279,035 50,736,168
Minority interests 203,906 203,488
Stockholders' equity:
Common Stock 2,949,870 2,934,733
Warrants and stock options 317,842 318,874
Unallocated ESOP shares (23,707) (26,078)
Treasury stock (19,136) (19,767)
Accumulated other comprehensive loss (108,092) (136,645)
Retained earnings 1,871,595 1,744,235
Total stockholders' equity 4,988,372 4,815,352
Total liabilities and
stockholders' equity $54,471,313 $55,755,008
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
2005 2005 2005 2004 2004
(dollars in thousands,
except per share data)
Interest and dividend
income:
Interest on interest-
earning deposits $2,022 $1,896 $2,233 $1,721 $1,505
Interest on investment
securities
Available for sale 90,854 95,878 94,884 102,945 124,803
Held to maturity 47,624 45,091 45,119 45,512 46,470
Interest on loans 607,966 566,936 518,820 474,010 412,771
Total interest and
dividend income 748,466 709,801 661,056 624,188 585,549
Interest expense:
Deposits and related
customer accounts 169,084 139,879 114,178 91,731 83,160
Borrowings 183,817 167,047 148,700 145,445 139,439
Total interest
expense 352,901 306,926 262,878 237,176 222,599
Net interest
income 395,565 402,875 398,178 387,012 362,950
Provision for loan losses 20,000 22,000 22,000 27,000 25,000
Net interest income
after provision for
loan losses 375,565 380,875 376,178 360,012 337,950
Non-interest income:
Consumer banking fees 74,992 73,063 66,555 67,759 62,771
Commercial banking fees 42,745 35,531 33,008 32,843 31,757
Mortgage banking
revenue (1) 28,967 21,547 11,932 4,726 (4,080)
Capital markets revenue 5,382 3,700 4,686 6,548 3,409
Bank owned life
insurance income 12,066 12,918 10,903 10,136 9,922
Other 6,856 12,092 6,351 4,480 4,498
Total fees and other
income before
security gains 171,008 158,851 133,435 126,492 108,277
Net gain/(loss) on
securities 1,675 3,355 7,979 (24,728) 20,247
Total non-
interest income 172,683 162,206 141,414 101,764 128,524
Non-interest expense:
General and
administrative
Compensation and
benefits 140,532 135,803 125,125 123,967 114,871
Occupancy and
equipment 61,096 61,348 62,870 59,221 54,976
Technology expense 21,349 21,606 18,668 21,486 18,935
Outside services 15,362 13,805 14,648 13,901 14,332
Marketing expense 14,455 11,757 11,047 13,089 11,983
Other administrative
expenses 24,107 29,072 24,756 25,587 22,583
Total general and
administrative 276,901 273,391 257,114 257,251 237,680
Other expenses:
Amortization of core
deposit intangibles 18,284 18,815 18,956 17,670 19,836
Other minority interest
expense 5,837 5,752 5,668 5,630 5,502
Equity method
investments 11,656 10,966 10,770 11,875 10,257
Loss on debt
extinguishment - - - 500 65,546
Restructuring charges (1,222) - 5,204 - -
Merger-related and
integration charges (2,000) (8,447) 23,191 (5,169) 27,941
Total other
expenses 32,555 27,086 63,789 30,506 129,082
Total non-
interest expense 309,456 300,477 320,903 287,757 366,762
Income before
income taxes 238,792 242,604 196,689 174,019 99,712
Income tax expense 57,749 59,133 50,538 36,590 17,170
Net income $181,043 $183,471 $146,151 $137,429 $82,542
(1) Mortgage banking
activity is summarized
below:
Gains on sale of mortgage
loans, mortgage backed
securities, and home
equity loans (2) $21,274 $28,371 $6,377 $2,438 $4,090
Net gains/(loss) recorded
under SFAS 133 717 314 653 (111) (112)
Mortgage servicing fees,
net of mortgage
servicing rights
amortization 139 1,627 948 664 1,343
Mortgage servicing right
(impairments)/recoveries 6,837 (8,765) 3,954 1,735 (9,401)
Total mortgage
banking revenues $28,967 $21,547 $11,932 $4,726 $(4,080)
(2) Third quarter 2005 results include a gain of $13.1 million related to
the sale of $503 million of home equity loans.
Year to Date
Sept. 30 Sept. 30
2005 2004
(dollars in thousands, except per
share data)
Interest and dividend income:
Interest on interest-earning deposits $6,151 $3,013
Interest on investment securities
Available for sale 281,616 398,526
Held to maturity 137,834 107,168
Interest on loans 1,693,722 1,091,249
Total interest and dividend income 2,119,323 1,599,956
Interest expense:
Deposits and related customer accounts 423,141 211,314
Borrowings 499,564 370,837
Total interest expense 922,705 582,151
Net interest income 1,196,618 1,017,805
Provision for loan losses 64,000 100,000
Net interest income after
provision for loan losses 1,132,618 917,805
Non-interest income:
Consumer banking fees 214,610 174,828
Commercial banking fees 111,284 90,994
Mortgage banking revenue (1) 62,446 17,783
Capital markets revenue 13,768 13,395
Bank owned life insurance income 35,887 29,136
Other 25,299 15,441
Total fees and other income before
security gains 463,294 341,577
Net gain/(loss) on securities 13,009 38,957
Total non-interest income 476,303 380,534
Non-interest expense:
General and administrative
Compensation and benefits 401,460 324,175
Occupancy and equipment 185,314 161,452
Technology expense 61,623 55,873
Outside services 43,815 39,414
Marketing expense 37,259 33,434
Other administrative expenses 77,935 71,062
Total general and administrative 807,406 685,410
Other expenses:
Amortization of core deposit intangibles 56,055 54,965
Other minority interest expense 17,257 16,376
Equity method investments 33,392 19,596
Loss on debt extinguishment - 63,261
Restructuring charges 3,982 -
Merger-related and integration charges 12,744 51,528
Total other expenses 123,430 205,726
Total non-interest expense 930,836 891,136
Income before income taxes 678,085 407,203
Income tax expense 167,420 91,080
Net income $510,665 $316,123
(1) Mortgage banking activity is
summarized below:
Gains on sale of mortgage loans,
mortgage backed securities, and home
equity loans (2) $56,022 $23,367
Net gains/(loss) recorded under SFAS 133 1,684 (1,909)
Mortgage servicing fees, net of
mortgage servicing rights amortization 2,714 (148)
Mortgage servicing right
(impairments)/recoveries 2,026 (3,527)
Total mortgage banking revenues $62,446 $17,783
(2) Third quarter 2005 results include a gain of $13.1 million related to
the sale of $503 million of home equity loans.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
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 16,440,068 259,500 6.27%
Consumer:
Residential mortgages 10,663,656 142,308 5.34%
Home equity loans and lines of
credit 10,321,853 139,150 5.36%
Total consumer loans secured by
real estate 20,985,509 281,458 5.35%
Auto Loans 4,400,376 58,359 5.26%
Other 515,522 10,147 7.81%
Total Consumer 25,901,407 349,964 5.38%
Total loans 42,341,475 609,464 5.73%
Allowance for loan losses (441,930)
Total earning assets 53,873,588 $763,266 5.64%
Other assets 7,709,266
Total assets $61,582,854
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:
Federal Home Loan Bank advances 12,581,448 130,270 4.11%
Fed funds and repurchase
agreements 1,096,237 10,214 3.72%
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 (2) 5,393,736
Other liabilities 813,383
Total liabilities 55,887,958
Stockholders' equity 5,694,895
Total liabilities and
stockholders' equity $61,582,853
Net interest income $410,365
Interest rate spread 2.82%
Contribution from interest free funds 0.22
Net interest margin 3.04%
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:
Residential mortgages 10,634,549 138,329 5.20%
Home equity loans and lines of
credit 10,127,012 132,418 5.24%
Total consumer loans secured by
real estate 20,761,561 270,747 5.22%
Auto Loans 4,262,377 53,717 5.05%
Other 559,544 10,680 7.66%
Total Consumer 25,583,482 335,144 5.25%
Total loans 41,351,732 568,063 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:
NOW accounts $8,425,311 $31,835 1.52%
Customer repurchase agreements 795,418 4,790 2.42%
Savings accounts 3,864,148 6,243 0.65%
Money market accounts 8,417,965 31,034 1.48%
Core and other customer related
accounts 21,502,842 73,902 1.38%
Time deposits 9,458,184 65,977 2.80%
Total 30,961,026 139,879 1.81%
Borrowings:
Federal Home Loan Bank advances 11,775,740 116,767 3.98%
Fed funds and repurchase
agreements 1,614,427 12,167 3.02%
Other borrowings 4,164,200 38,113 3.67%
Total borrowings 17,554,367 167,047 3.81%
Total funding liabilities 48,515,393 306,926 2.54%
Non-interest bearing DDA (2) 5,276,428
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 2.91%
Contribution from interest free funds 0.22
Net interest margin 3.13%
Quarter Ended
September 30, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $15,045,842 $183,007 4.86%
Loans:
Commercial 13,006,393 162,723 4.91%
Consumer:
Residential mortgages 6,675,476 86,906 5.21%
Home equity loans and lines of
credit 8,177,146 101,600 4.95%
Total consumer loans secured by
real estate 14,852,622 188,506 5.06%
Auto Loans 4,198,175 53,553 5.07%
Other 544,404 10,349 7.52%
Total Consumer 19,595,201 252,408 5.14%
Total loans 32,601,594 415,131 5.05%
Allowance for loan losses (395,427)
Total earning assets 47,252,009 $598,138 5.03%
Other assets 6,223,444
Total assets $53,475,453
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $7,117,978 $16,366 0.91%
Customer repurchase agreements 821,182 1,977 0.96%
Savings accounts 3,621,567 4,966 0.55%
Money market accounts 8,256,017 24,040 1.16%
Core and other customer related
accounts 19,816,744 47,349 0.95%
Time deposits 6,985,446 35,811 2.04%
Total 26,802,190 83,160 1.23%
Borrowings:
Federal Home Loan Bank advances 9,759,462 87,986 3.54%
Fed funds and repurchase
agreements 2,797,876 16,206 2.31%
Other borrowings 3,921,692 35,247 3.56%
Total borrowings 16,479,030 139,439 3.34%
Total funding liabilities 43,281,220 222,599 2.05%
Non-interest bearing DDA (2) 4,936,996
Other liabilities 713,062
Total liabilities 48,931,278
Stockholders' equity 4,544,175
Total liabilities and
stockholders' equity $53,475,453
Net interest income $375,539
Interest rate spread 2.98%
Contribution from interest free funds 0.19
Net interest margin 3.17%
(1) Tax equivalent basis
(2) In the third quarter of 2005, Sovereign reclassified its non-interest
earning deposits to be shown as a separate component of other
liabilities to be consistent with industry practice. This change had
no impact to Sovereign's historically reported net interest margin.
Sovereign Bancorp, Inc. and Subsidiaries
AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS
(unaudited)
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 15,698,330 696,827 5.93%
Consumer:
Residential mortgages 10,160,711 403,313 5.29%
Home equity loans and lines of
credit 10,151,595 402,393 5.30%
Total consumer loans secured by
real estate 20,312,306 805,706 5.29%
Auto loans 4,322,967 164,936 5.10%
Other 550,965 31,073 7.54%
Total Consumer 25,186,238 1,001,715 5.31%
Total loans 40,884,568 1,698,542 5.55%
Allowance for loan losses (439,881)
Total earning assets 52,537,887 $2,159,579 5.49%
Other assets 7,247,966
Total assets $59,785,853
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:
Federal Home Loan Bank advances 11,761,895 351,972 4.00%
Fed funds and repurchase
agreements 1,382,706 31,918 3.08%
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%
Demand deposit accounts (2) 5,278,467
Other liabilities 723,684
Total liabilities 54,125,031
Stockholders' equity 5,660,822
Total liabilities and
stockholders' equity $59,785,853
Net interest income $1,236,874
Interest rate spread 2.93%
Contribution from interest free funds 0.21
Net interest margin 3.14%
Year to Date
September 30, 2004
Average Yield/
(dollars in thousands) Balance Interest (1) Rate
Earning assets:
Investment securities $14,645,912 $538,827 4.90%
Loans:
Commercial 12,171,171 433,788 4.69%
Consumer:
Residential mortgages 5,549,520 221,298 5.32%
Home equity loans and lines of
credit 7,352,876 267,437 4.86%
Total consumer loans secured by
real estate 12,902,396 488,735 5.05%
Auto loans 3,765,366 149,463 5.30%
Other 451,538 24,822 7.32%
Total Consumer 17,119,300 663,020 5.16%
Total loans 29,290,471 1,096,808 4.97%
Allowance for loan losses (364,857)
Total earning assets 43,571,526 $1,635,635 4.99%
Other assets 5,558,865
Total assets $49,130,391
Funding liabilities:
Deposits and other customer related
accounts:
NOW accounts $6,476,239 $35,968 0.74%
Customer repurchase agreements 828,830 4,417 0.71%
Savings accounts 3,390,266 13,615 0.54%
Money market accounts 7,483,336 57,393 1.02%
Core and other customer related
accounts 18,178,671 111,393 0.82%
Time deposits 6,390,430 99,921 2.09%
Total 24,569,101 211,314 1.15%
Borrowings:
Federal Home Loan Bank advances 8,701,974 245,027 3.72%
Fed funds and repurchase
agreements 2,833,640 31,153 1.46%
Other borrowings 3,785,105 94,657 3.31%
Total borrowings 15,320,719 370,837 3.20%
Total funding liabilities 39,889,820 582,151 1.95%
Demand deposit accounts (2) 4,562,465
Other liabilities 681,635
Total liabilities 45,133,920
Stockholders' equity 3,996,471
Total liabilities and
stockholders' equity $49,130,391
Net interest income $1,053,484
Interest rate spread 3.04%
Contribution from interest free funds 0.19
Net interest margin 3.23%
(1) Tax equivalent basis
(2) In the third quarter of 2005, Sovereign reclassified its non-interest
earning deposits to be shown as a separate component of other
liabilities to be consistent with industry practice. This change had
no impact to Sovereign's historically reported net interest margin.
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
NON-PERFORMING ASSETS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
(dollars in thousands) 2005 2005 2005 2004 2004
Non-accrual loans:
Consumer:
Residential mortgages $33,427 $31,717 $37,669 $33,656 $32,858
Home equity loans and
lines of credit 37,051 35,007 33,383 26,801 23,217
Auto loans 462 365 539 632 649
Other consumer loans 2,873 3,013 3,715 588 551
Total consumer loans 73,813 70,102 75,306 61,677 57,275
Commercial 95,303 91,358 95,528 80,799 89,061
Total non-accrual loans 169,116 161,460 170,834 142,476 146,336
Restructured loans 822 939 1,026 1,097 1,205
Total non-performing
loans 169,938 162,399 171,860 143,573 147,541
Real estate owned, net 6,107 8,494 11,286 12,276 16,397
Other repossessed assets 5,083 2,302 3,709 4,247 4,824
Total non-performing
assets 181,128 173,195 186,855 160,096 168,762
Non-performing loans as a
percentage of total loans 0.40% 0.39% 0.43% 0.39% 0.42%
Non-performing assets as a
percentage of total assets 0.29% 0.29% 0.32% 0.29% 0.30%
Non-performing assets as a
percentage of total loans,
real estate owned and
repossessed assets 0.42% 0.42% 0.46% 0.44% 0.48%
Allowance for loan losses as
a percentage of non-
performing loans 257% 272% 255% 285% 276%
NET LOAN CHARGE-OFFS
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Quarters ended (in thousands) 2005 2005 2005 2004 2004
Commercial real estate $219 $294 $(492) $614 $(1,064)
Commercial and industrial
and other 6,209 8,964 7,200 10,357 10,823
Total Commercial 6,428 9,258 6,708 10,971 9,759
Residential mortgages 109 72 43 444 326
Home equity loans and lines
of credit 4,319 3,115 1,831 1,268 1,630
Total consumer loans secured
by real estate 4,428 3,187 1,874 1,712 1,956
Auto loans 7,539 5,851 9,557 10,769 7,619
Other consumer loans 1,059 1,126 1,449 1,444 1,136
Total Consumer 13,026 10,164 12,880 13,925 10,711
Total $19,454 $19,422 $19,588 $24,896 $20,470
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2005 2005 2005
Demand deposit accounts $5,414,212 $5,378,465 $5,377,378
NOW accounts 9,170,052 8,269,183 8,422,725
Customer repurchase agreements 959,024 875,203 828,388
Savings accounts 3,684,423 3,807,967 3,922,642
Money market accounts 8,167,546 8,352,055 8,673,744
Certificates of deposits 9,937,334 9,418,691 9,460,879
Total $37,332,591 $36,101,564 $36,685,756
Dec. 31 Sept. 30
Quarters ended (in thousands) 2004 2004
Demand deposit accounts $5,087,531 $5,072,090
NOW accounts 7,838,584 7,748,012
Customer repurchase agreements 837,643 848,890
Savings accounts 3,807,099 3,667,116
Money market accounts 7,870,288 8,407,688
Certificates of deposits 7,114,373 7,357,882
Total $32,555,518 $33,101,678
LOAN COMPOSITION - End of period
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2005 2005 2005
Commercial real estate $7,151,189 $6,946,477 $6,837,814
Commercial industrial loans 9,071,731 9,205,540 8,525,778
Total commercial loans 16,222,920 16,152,017 15,363,592
Residential mortgages 11,198,366 9,997,066 9,782,953
Home equity loans and lines of
credit 10,301,161 10,300,629 10,280,735
Total consumer loans secured by
real estate 21,499,527 20,297,695 20,063,688
Auto loans 4,463,931 4,285,537 4,296,296
Other consumer loans 505,261 532,230 596,428
Total consumer loans 26,468,719 25,115,462 24,956,412
Total loans $42,691,639 $41,267,479 $40,320,004
Dec. 31 Sept. 30
Quarters ended (in thousands) 2004 2004
Commercial real estate $5,824,133 $5,800,536
Commercial industrial loans 8,040,107 7,645,199
Total commercial loans 13,864,240 13,445,735
Residential mortgages 8,497,496 7,958,974
Home equity loans and lines of
credit 9,577,656 8,988,139
Total consumer loans secured by real
estate 18,075,152 16,947,113
Auto loans 4,205,547 4,340,487
Other consumer loans 486,140 528,366
Total consumer loans 22,766,839 21,815,966
Total loans $36,631,079 $35,261,701
Sovereign Bancorp, Inc. and Subsidiaries
SUPPLEMENTAL INFORMATION
(unaudited)
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2005 2005 2005
Demand deposit accounts $5,393,736 $5,276,428 $5,162,704
NOW accounts 8,991,339 8,425,311 8,041,978
Customer repurchase agreements 903,053 795,418 842,657
Savings accounts 3,753,311 3,864,148 3,930,308
Money market accounts 8,294,441 8,417,965 8,152,525
Certificates of deposits 9,810,041 9,458,184 8,659,080
Total $37,145,921 $36,237,454 $34,789,252
LOAN COMPOSITION - Average
Sept. 30 June 30 Mar. 31
Quarters ended (in thousands) 2005 2005 2005
Commercial real estate $7,019,781 $6,909,795 $6,494,572
Commercial industrial loans 8,499,513 8,008,968 7,522,968
Other 920,774 849,487 852,977
Total commercial loans 16,440,068 15,768,250 14,870,517
Residential mortgages 10,663,656 10,634,549 9,167,485
Home equity loans and lines of
credit 10,321,853 10,127,012 10,002,411
Total consumer loans secured by
real estate 20,985,509 20,761,561 19,169,896
Auto loans 4,400,376 4,262,377 4,305,100
Other consumer loans 515,522 559,544 578,520
Total consumer loans 25,901,407 25,583,482 24,053,516
Total loans $42,341,475 $41,351,732 $38,924,033
DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average
Dec. 31 Sept. 30
Quarters ended (in thousands) 2004 2004
Demand deposit accounts $5,103,981 $4,936,996
NOW accounts 7,544,694 7,117,978
Customer repurchase agreements 851,928 821,182
Savings accounts 3,821,004 3,621,567
Money market accounts 8,082,448 8,256,017
Certificates of deposits 7,221,061 6,985,446
Total $32,625,116 $31,739,186
LOAN COMPOSITION - Average
Dec. 31 Sept. 30
Quarters ended (in thousands) 2004 2004
Commercial real estate $5,788,936 $5,621,144
Commercial industrial loans 6,953,564 6,534,378
Other 857,351 850,871
Total commercial loans 13,599,851 13,006,393
Residential mortgages 8,199,190 6,675,476
Home equity loans and lines of credit 9,245,711 8,177,146
Total consumer loans secured by real
estate 17,444,901 14,852,622
Auto loans 4,266,466 4,198,175
Other consumer loans 508,705 544,404
Total consumer loans 22,220,072 19,595,201
Total loans $35,819,923 $32,601,594
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
Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30
2005 2005 2005 2004 2004
Net income as reported $181,043 $183,471 $183,471 $137,429 $82,542
Contingently convertible
trust preferred
interest expense, net
of tax (1) 6,344 6,335 6,394 6,318 6,310
Net income/(loss) for
EPS purposes $187,387 $189,806 $189,865 $143,747 $88,852
Weighted average diluted
shares for GAAP EPS 393,110 400,371 401,339 377,625 367,782
Reconciliation to
operating/cash earnings
Weighted average diluted
shares for GAAP EPS 393,110 400,371 401,339 377,625 367,782
Exclude dilutive effect
of EITF 04-8 on
contingently
convertible debt (1) - - - (26,082) (26,082)
Adjusted weighted
average diluted shares
for Operating/cash EPS 393,110 400,371 401,339 351,543 341,700
Net income and EPS as
reported based on
adjusted share count
(1) $187,387 $189,806 $152,545 $137,429 $82,542
Business acquisitions:
Merger related and
integration costs (1,300) (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 (794) - 3,382 - -
Amortization of
intangibles 11,885 12,229 12,322 12,562 14,578
Operating/cash earnings $197,178 $196,545 $183,323 $167,522 $157,887
Per share
Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30
2005 2005 2005 2004 2004
Net income as reported
Contingently convertible trust
preferred interest expense,
net of tax (1)
Net income/(loss) for
EPS purposes $0.48 $0.47 $0.47 $0.47 $0.24
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) $0.48 $0.47 $0.38 $0.39 $0.24
Business acquisitions:
Merger related and
integration costs (0.00) (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 (0.00) - 0.01 - -
Amortization of intangibles 0.03 0.03 0.03 0.04 0.04
Operating/cash earnings $0.50 $0.49 $0.46 $0.48 $0.46
Year to Date Forward-
Looking
Total dollars Per Share Per
Sep. 30 Sep. 30 Sep. 30 Sep. 30 Share
2005 2004 2005 2004 2005
Net income as reported $510,665 $316,123
Contingently convertible
trust preferred interest
expense, net of tax (1) 19,074 14,895
Net income/(loss) for EPS
purposes $529,739 $331,018 $1.33 $0.97 $1.84
Weighted average diluted
shares for GAAP EPS 398,223 341,078
Reconciliation to
operating/cash
earnings
Weighted average
diluted shares
for GAAP EPS 398,223 341,078
Exclude dilutive effect
of EITF 04-8 on
contingently convertible
debt (1) - (20,827)
Adjusted weighted average
diluted shares for
Operating/cash EPS 398,223 320,251
Net income and EPS
as reported based on
adjusted share count (1) $529,739 $316,123 $1.33 $0.99
Business acquisitions:
Merger related and
integration costs 8,284 33,493 0.02 0.10 0.03
Provision for loan loss - 3,900 - 0.01 -
Loss on debt extinguishment - 42,605 - 0.13 -
Impairment charges on FNMA and
FHLMC Preferred Stock - - - - -
Restructuring charges 2,589 - 0.01 - 0.01
Amortization of intangibles 36,436 38,624 0.09 0.12 0.12
Operating/cash earnings $577,048 $434,745 $1.45 $1.36 $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. 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
2005 2005 2005
Average Equity $5,694,895 $5,697,656 $5,588,703
Average Goodwill 2,714,148 2,725,526 2,507,849
Average CDI 243,149 261,854 270,193
Average Tangible Equity 2,737,599 2,710,276 2,810,661
Operating Return on Average Equity 13.74% 13.84% 13.30%
Effect of Goodwill 13.62% 13.91% 11.87%
Effect of CDI 1.22% 1.34% 1.28%
Tangible Return on Average Equity 28.58% 29.09% 26.45%
Dec. 31 Sept. 30
2004 2004
Average Equity $4,898,154 $4,544,175
Average Goodwill 2,118,673 1,908,030
Average CDI 278,319 298,094
Average Tangible Equity 2,501,162 2,338,051
Operating Return on Average Equity 13.61% 13.82%
Effect of Goodwill 11.53% 11.36%
Effect of CDI 1.51% 1.78%
Tangible Return on Average Equity 26.65% 26.96%
Year-to-Date
Sept. 30 Sept. 30
2005 2004
Average Equity 5,660,822 3,996,471
Average Goodwill 2,649,925 1,459,983
Average CDI 258,320 275,445
Average Tangible Equity 2,752,577 2,261,043
Operating Return on Average Equity 13.63% 14.53%
Effect of Goodwill 13.12% 9.38%
Effect of CDI 1.28% 1.77%
Tangible Return on Average Equity 28.03% 25.68%
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). Website: http://www.sovereignbank.com/ |
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