PHILADELPHIA, Oct. 13 /PRNewswire-FirstCall/ -- Sovereign Bancorp, Inc.
('Sovereign' or 'the Company') (NYSE: SOV), parent company of Sovereign Bank
('Bank'), today pre-announced its financial results for the third quarter of
2008. For the quarter ended September 30, 2008, Sovereign recorded a net loss
of $982 million or a loss of $1.48 per share. Included in this loss was the
previously announced impairment charge on Sovereign's Fannie Mae and Freddie
Mac perpetual preferred stock of $575 million and a loss of $602 million
related to the sale of its entire portfolio of collateralized debt obligations
(CDO's). Excluding the after-tax impact of the aforementioned investment
losses, Sovereign still generated net income of $41.3 million even after
recording a provision for credit losses of $304 million, an increase of $141.5
million from the same period a year ago. This compares to net income of $58.2
million or $.11 per diluted share in the third quarter of 2007.
Highlights for the third quarter of 2008 were as follows:
-- Sovereign Bank remains well capitalized by all regulatory measures.
Sovereign Bank's Tier 1 leverage ratio was 6.77% compared to 6.63% at
September 30, 2007. The Bank's total risk-based capital ratio was 10.87% at
September 30, 2008 compared to 10.37% a year ago.
-- Sovereign has $11.8 billion of unused borrowing capacity at the Federal
Reserve and FHLB.
-- Stable net interest margin of 3.02%, an increase of 28 basis points
from the similar quarter in 2007 and a slight decrease of 4 basis points from
the second quarter of 2008.
-- Loan balances at September 30, 2008 declined by 1% on a linked-quarter
basis primarily due to a 7.2% decline in higher risk auto loans.
-- Deposit mix continued to shift away from higher cost wholesale sources
as retail and commercial deposits now comprise 83.4% of total deposits up from
75.5% a year ago.
-- Sovereign's period end deposit balances have declined $4.2 billion or
8.8% from June 30, 2008, primarily in money market and government accounts.
The majority of the decline in deposits occurred early in the quarter driven
by intense deposit competition as well as general safety and soundness
concerns following the failure of IndyMac. With the recent passage of the
Rescue Plan and the increase in FDIC deposit insurance limits, October deposit
trends have stabilized.
-- Sovereign increased its allowance for credit losses to $1.0 billion, a
$175 million increase from June 30, 2008, primarily as a result of
deterioration in the commercial loan portfolio as well as increases in
Sovereign's reserve levels to reflect the higher risk from the current
economic environment. Sovereign's allowance for credit losses to total loans
at September 30, 2008 was 1.79% up from 1.47% at June 30, 2008 and 1.14% at
September 30, 2007.
Sovereign Bancorp, Inc., ('Sovereign') (NYSE: SOV), is the parent company
of Sovereign Bank, a financial institution with principal markets in the
Northeastern United States. Sovereign Bank has 750 community banking offices,
over 2,300 ATMs and approximately 12,000 team members. Sovereign offers a
broad array of financial services and products including retail banking,
business and corporate banking, cash management, capital markets, wealth
management and insurance. For more information on Sovereign Bank, visit
http://www.sovereignbank.com or call 1-877-SOV-BANK.
Note:
This press release contains statements with respect to Sovereign's vision,
mission, strategies, goals, beliefs, plans, objectives, expectations,
anticipations, estimates, intentions, financial condition, results of
operations, future performance and business of Sovereign. These statements
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Although Sovereign believes that
the expectations reflected in these forward-looking statements are reasonable,
these statements are not guarantees of future performance and involve risks
and uncertainties which are subject to change based on various important
factors (some of which are beyond Sovereign's control). Among the factors
which would cause Sovereign's financial performance to differ materially from
that expressed in the forward-looking statements are: the strength of the
United States economy in general and the strength of the regional and local
economies in which Sovereign conducts operations; the effects of, and changes
in, trade, monetary and fiscal policies and laws, including interest rate
policies of the Board of Governors of the Federal Reserve System; inflation,
interest rate, market and monetary fluctuations; adverse changes in the
securities markets, including those related to the financial condition of
significant issuers in our investment portfolio; the impact of changes in
financial services policies, laws and regulations, including laws, regulations
and policies concerning taxes, banking, capital, liquidity, proper accounting
treatment, securities and insurance, and the application thereof by regulatory
bodies and the impact of changes in and interpretation of generally accepted
accounting principles in the United States; changes in asset quality; and
Sovereign's success in managing the risks involved in the foregoing. If one
or more of the factors affecting Sovereign's forward-looking information and
statements proves incorrect, then Sovereign's actual results, performance or
achievements could differ materially from those expressed in, or implied by,
forward-looking information and statements. Any forward-looking statements
only speak as of the date hereof. Sovereign does not intend to update any
forward-looking information and statements, whether written or oral, to
reflect any change.
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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter Ended
(dollars in thousands, Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
except per share data) 2008 2008 2008 2007 2007
Interest and dividend
income:
Interest on interest-
earning deposits $561 $997 $2,964 $1,615 $7,117
Interest on investment
securities
Available for
sale 134,108 156,164 168,109 173,803 177,125
Other 8,407 6,671 9,820 14,279 11,886
Interest on loans 816,746 837,988 895,276 949,643 954,014
Total interest
and dividend
income 959,822 1,001,820 1,076,169 1,139,340 1,150,142
Interest expense:
Deposits and
related customer
accounts 196,887 228,546 315,103 395,768 408,680
Borrowings 271,781 267,144 278,886 277,548 284,701
Total interest
expense 468,668 495,690 593,989 673,316 693,381
Net interest
income 491,154 506,130 482,180 466,024 456,761
Provision for credit
losses 304,000 132,000 135,000 148,192 162,500
Net interest
income after
provision for
credit losses 187,154 374,130 347,180 317,832 294,261
Non-interest income:
Consumer banking
fees 81,149 80,969 73,191 77,420 73,113
Commercial banking
fees (2) 52,589 53,747 54,453 56,695 44,155
Mortgage banking
revenue (1) 1,520 37,897 (5,133) 9,161 3,752
Capital markets
revenue 4,695 7,209 10,393 (18,310) (12,627)
Bank owned life
insurance income 18,175 19,065 19,424 20,633 24,439
Other 4,714 6,322 5,297 7,584 8,557
Total fees and
other income
before investment
gains/(losses) 162,842 205,209 157,625 153,183 141,389
Net gain/(loss) on
investments (3) (1,158,578) 1,908 14,135 (179,209) 1,884
Total
non-interest
income (995,736) 207,117 171,760 (26,026) 143,273
Non-interest expense:
General and administrative
Compensation and
benefits (4) 196,611 192,760 185,112 155,856 172,319
Occupancy and
equipment 76,724 74,868 78,013 77,325 75,217
Technology expense 25,632 25,728 24,498 25,177 23,940
Outside services 15,608 15,542 15,630 18,828 16,434
Marketing expense 19,771 19,699 16,246 13,881 16,296
Other administrative
expenses (5) 53,155 53,266 39,765 46,537 37,440
Total general and
administrative 387,501 381,863 359,264 337,604 341,646
Other expenses:
Core deposit & other
intangibles 25,373 28,106 29,122 30,141 31,066
Goodwill impairment - - - 1,576,776 -
Other minority interest
expense and equity
method expense (6) 20,075 14,719 8,339 27,448 6,913
Proxy and related
professional fees - - - - -
Restructuring, other
employee severance and
debt repurchase charges - - - - 6,029
ESOP expense related to
freezing of plan - - - - -
Merger-related and
integration charges - - - - -
Total other
expenses 45,448 42,825 37,461 1,634,365 44,008
Total non-
interest
expense 432,949 424,688 396,725 1,971,969 385,654
Income/(loss)
before income
taxes (1,241,531) 156,559 122,215 (1,680,163) 51,880
Income tax
expense/(benefit) (259,940) 29,120 22,080 (77,180) (6,330)
Net income/
(loss) $(981,591) $127,439 $100,135 $(1,602,983) $58,210
(1) Mortgage banking activity is summarized below:
Gains/(losses) on sale
of mortgage loans and
related securities and
home equity loans (7) $5,997 $4,999 $3,977 $4,560 $3,971
Net gains/(losses)
recorded under SFAS 133 (2,289) 1,602 1,370 (2,125) 1,781
Mortgage servicing fees,
net of mortgage servicing
rights amortization 4,462 1,148 3,848 1,948 972
Mortgage servicing right
recoveries/(impairments) 14 19,837 (18,703) (2,071) -
Net gains/(losses) on
sale of multifamily
loans (8) (8,197) 9,676 9,231 7,515 2,383
Net gains/(losses)
recorded on commercial
mortgage backed
securitization - - - (666) (5,355)
Multifamily servicing
right recoveries/
(impairments) 1,533 635 (4,856) - -
Total mortgage
banking revenues $1,520 $37,897 $(5,133) $9,161 $3,752
(2) The third quarter of 2007 includes a LOCOM adjustment of $6.2 million
on our loan syndication trading portfolio.
(3) The third quarter of 2008 includes a $602 million loss on the sale of
our CDO portfolio and a $575 million other-than-temporary impairment charge on
FNMA & FHLMC preferred stock. The first quarter of 2008 includes a $14.1
million gain on our membership share allocation of VISA's IPO shares. Results
for the fourth quarter of 2007 include a $180.5 million other-than-temporary
impairment charge on FNMA & FHLMC preferred stock.
(4) Third quarter results include a $4.7 million severance charge for our
Chief Executive Officer. Second quarter of 2008 results include severance
charges of $5.3 million for recently terminated executives. Fourth quarter of
2007 results include $18.7 million of incentive compensation accrual reversals
due to corporate objectives not being achieved in 2007.
(5) Other administrative expenses increased from first quarter 2008 levels
due to the $6.4 million legal contingency reversal associated with the VISA
IPO recorded in the first quarter as well as increased REO expense and loan
expenses in the second and third quarter of 2008.
(6) Third quarter 2008 results included lower earnings of $11.4 million
associated with certain equity method investments. Second quarter 2008
results included a fair value adjustment of $6.4 million on one of our equity
method investments.
(7) First quarter of 2007 results include a LOCOM adjustment of $119.9
million on correspondent home equity loans that were not sold as of March 31,
2007.
(8) The third quarter of 2008 includes a $12.5 million charge to increase
our recourse reserves associated with the sales of our multi-family loans to
Fannie Mae.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Year to Date
(dollars in thousands, except per Sept. 30 Sept. 30
share data) 2008 2007
Interest and dividend income:
Interest on interest-earning deposits $4,522 $17,497
Interest on investment securities
Available for sale 458,381 547,212
Other 24,898 37,366
Interest on loans 2,550,010 2,914,841
Total interest and dividend income 3,037,811 3,516,916
Interest expense:
Deposits and related customer accounts 740,536 1,231,547
Borrowings 817,811 887,371
Total interest expense 1,558,347 2,118,918
Net interest income 1,479,464 1,397,998
Provision for credit losses 571,000 259,500
Net interest income after
provision for credit losses 908,464 1,138,498
Non-interest income:
Consumer banking fees 235,309 218,395
Commercial banking fees (2) 160,789 145,609
Mortgage banking revenue (1) 34,284 (76,953)
Capital markets revenue 22,297 (956)
Bank owned life insurance income 56,664 65,222
Other 16,333 26,251
Total fees and other income before
investment gains/(losses) 525,676 377,568
Net gain/(loss) on investments (3) (1,142,535) 2,854
Total non-interest income (616,859) 380,422
Non-interest expense:
General and administrative
Compensation and benefits (4) 574,483 517,672
Occupancy and equipment 229,605 231,373
Technology expense 75,858 71,088
Outside services 46,780 48,681
Marketing expense 55,716 42,220
Other administrative expenses (5) 146,186 97,200
Total general and administrative 1,128,628 1,008,234
Other expenses:
Core deposit & other intangibles 82,601 96,576
Goodwill impairment - -
Other minority interest expense and
equity method expense (6) 43,133 39,815
Proxy and related professional fees - (516)
Restructuring, other employee
severance and debt repurchase charges - 61,999
ESOP expense related to freezing of plan - 40,119
Merger-related and integration charges - 2,242
Total other expenses 125,734 240,235
Total non-interest expense 1,254,362 1,248,469
Income/(loss) before income taxes (962,757) 270,451
Income tax expense/(benefit) (208,740) 16,730
Net income/(loss) $(754,017) $253,721
(1) Mortgage banking activity is summarized below:
Gains/(losses) on sale of mortgage loans and
related securities and home equity loans (7) $14,974 $(107,057)
Net gains/(losses) recorded under SFAS 133 683 2,176
Mortgage servicing fees, net of mortgage
servicing rights amortization 9,456 3,443
Mortgage servicing right
recoveries/(impairments) 1,148 656
Net gains/(losses) on sale of
multifamily loans (8) 10,710 18,688
Net gains/(losses) recorded on commercial
mortgage backed securitization - 5,141
Multifamily servicing right
recoveries/(impairments) (2,687) -
Total mortgage banking revenues $34,284 $(76,953)
(2) The third quarter of 2007 includes a LOCOM adjustment of $6.2 million
on our loan syndication trading portfolio.
(3) The third quarter of 2008 includes a $602 million loss on the sale of
our CDO portfolio and a $575 million other-than-temporary impairment charge on
FNMA & FHLMC preferred stock. The first quarter of 2008 includes a $14.1
million gain on our membership share allocation of VISA's IPO shares. Results
for the fourth quarter of 2007 include a $180.5 million other-than-temporary
impairment charge on FNMA & FHLMC preferred stock.
(4) Third quarter results include a $4.7 million severance charge for our
Chief Executive Officer. Second quarter of 2008 results include severance
charges of $5.3 million for recently terminated executives. Fourth quarter of
2007 results include $18.7 million of incentive compensation accrual reversals
due to corporate objectives not being achieved in 2007.
(5) Other administrative expenses increased from first quarter 2008 levels
due to the $6.4 million legal contingency reversal associated with the VISA
IPO recorded in the first quarter as well as increased REO expense and loan
expenses in the second and third quarter of 2008.
(6) Third quarter 2008 results included lower earnings of $11.4 million
associated with certain equity method investments. Second quarter 2008
results included a fair value adjustment of $6.4 million on one of our equity
method investments.
(7) First quarter of 2007 results include a LOCOM adjustment of $119.9
million on correspondent home equity loans that were not sold as of March 31,
2007.
(8) The third quarter of 2008 includes a $12.5 million charge to increase
our recourse reserves associated with the sales of our multi-family loans to
Fannie Mae.
Sovereign Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
Sept. 30 June 30 Mar. 31
(dollars in thousands) 2008 2008 2008
Assets
Cash and amounts due
from depository institutions (1) $2,525,696 $1,140,965 $1,957,403
Investments:
Available-for-sale 8,604,927 11,118,184 10,958,419
Other investments 949,075 944,606 1,134,805
Total investments 9,554,002 12,062,790 12,093,224
Loans:
Commercial 32,517,171 32,435,333 32,181,592
Consumer 24,396,717 24,970,453 26,690,190
Total loans 56,913,888 57,405,786 58,871,782
Less allowance for loan losses (957,864) (808,748) (775,441)
Total loans, net 55,956,024 56,597,038 58,096,341
Premises and equipment, net 555,093 559,986 555,773
Accrued interest receivable 269,258 298,741 322,760
Goodwill 3,430,965 3,430,653 3,430,290
Core deposit and other intangibles 289,514 314,888 342,994
Bank owned life insurance 1,835,178 1,820,403 1,806,631
Other assets 2,905,676 2,971,985 3,307,303
Total assets $77,321,406 $79,197,449 $81,912,719
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Retail and commercial deposits $35,985,656 $38,405,724 $39,292,245
Wholesale deposits 3,130,820 3,177,527 3,756,952
Government deposits 2,080,716 3,190,784 3,314,420
Customer repurchase agreements 1,925,982 2,520,073 2,633,112
Total deposits 43,123,174 47,294,108 48,996,729
Borrowings and other debt
obligations (1) 25,213,772 22,050,359 24,348,829
Other liabilities 1,498,016 1,471,894 1,743,380
Total liabilities 69,834,962 70,816,361 75,088,938
Minority interests 147,603 147,139 146,784
Stockholders' equity:
Preferred Stock 195,445 195,445 195,445
Common Stock (2) 7,713,181 7,701,024 6,298,254
Warrants and employee stock options
issued 349,666 348,844 348,878
Treasury stock (9,661) (10,531) (11,438)
Accumulated other comprehensive loss (643,752) (720,036) (749,556)
Retained earnings (266,038) 719,203 595,414
Total stockholders' equity 7,338,841 8,233,949 6,676,997
Total liabilities and
stockholders' equity $77,321,406 $79,197,449 $81,912,719
Dec. 31 Sept. 30
(dollars in thousands) 2007 2007
Assets
Cash and amounts due
from depository institutions (1) $3,130,770 $3,992,731
Investments:
Available-for-sale 13,941,847 14,307,929
Other investments 1,200,545 981,921
Total investments 15,142,392 15,289,850
Loans:
Commercial 30,912,972 29,912,883
Consumer 26,866,807 27,235,481
Total loans 57,779,779 57,148,364
Less allowance for loan losses (709,444) (629,747)
Total loans, net 57,070,335 56,518,617
Premises and equipment, net 562,332 559,040
Accrued interest receivable 350,534 384,812
Goodwill 3,426,246 5,003,022
Core deposit and other intangibles 372,116 402,257
Bank owned life insurance 1,794,099 1,773,829
Other assets 2,897,572 2,683,170
Total assets $84,746,396 $86,607,328
Liabilities and Stockholders' Equity
Liabilities:
Deposits and other customer related
accounts:
Retail and commercial deposits $38,350,632 $37,838,296
Wholesale deposits 4,807,369 5,605,720
Government deposits 4,003,224 3,927,346
Customer repurchase agreements 2,754,680 2,726,686
Total deposits 49,915,905 50,098,048
Borrowings and other debt obligations (1) 26,126,082 26,161,337
Other liabilities 1,565,654 1,475,954
Total liabilities 77,607,641 77,735,339
Minority interests 146,430 146,075
Stockholders' equity:
Preferred Stock 195,445 195,445
Common Stock (2) 6,295,572 6,277,292
Warrants and employee stock options issued 348,365 347,630
Treasury stock (19,853) (20,359)
Accumulated other comprehensive loss (326,133) (218,155)
Retained earnings 498,929 2,144,061
Total stockholders' equity 6,992,325 8,725,914
Total liabilities and stockholders'
equity $84,746,396 $86,607,328
(1) Sovereign held cash deposits of $1.5 billion at September 30, 2008 in
order to comply with a loan limitation test required by the Home Owners Loan
Act (HOLA). Sovereign was required to increase the amount of assets that were
not considered large commercial loans in order to comply with the regulation
at September 30, 2008 and funded this increase through an increase in short-
term borrowings. The borrowings were repaid on October 1, 2008
(2) June 30, 2008 balance reflects proceeds of $1.39 billion from the
issuance of 179.7 million shares of common stock on May 16, 2008.
Sovereign Bancorp, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
(unaudited)
Quarter Ended
Sept. 30 June 30 Mar. 31 Dec. 31 Sept.
