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Slide 1: DATE: July 18, 2007 FINANCIAL CONTACTS: Mark McCollom 610-208-6426 Stacey Weikel 610-208-6112 MEDIA CONTACT Ed Shultz mmccollo@sovereignbank.com sweikel@sovereignbank.com 610-378-6159 eshultz1@sovereignbank.com Sovereign Bancorp, Inc. Announces Second Quarter 2007 Earnings PHILADELPHIA, PA…Sovereign Bancorp, Inc. ("Sovereign") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today reported net income for the second quarter of 2007 of $148 million, or $.29 per diluted share as compared to a net loss of $59.1 million, or ($.15) per diluted share, for the second quarter of 2006. Net income in the second quarter of 2007 included aggregate charges of $20.1 million after-tax, or $.04 per share, related to the previously announced expense reduction initiative. The net loss in the second quarter of 2006 included restructuring charges of $155 million after-tax, or $.34 per share, a non-cash, non-operating impairment charge related to certain Fannie Mae and Freddie Mac preferred stock of $43.9 million after-tax, or $.10 per share, additional provision for credit losses related to the acquisition of Independence of $8.1 million after-tax, or $.02 per share, merger and integration charges of $4.1 million after-tax, or $.01 per share, and a loss on economic hedges of $7.4 million, or $.02 per share. Sovereign’s operating earnings for EPS purposes were $170 million, or $.33 per diluted share, for the quarter ended June 30, 2007, as compared to $163 million, or $.37 per diluted share a year ago, both of which excluded the above-mentioned charges. 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. Commenting on results for the second quarter of 2007, Joseph P. Campanelli, Sovereign’s President and CEO, stated, “As planned, we have essentially completed the balance sheet restructuring and have put the programs in place to realize expense efficiencies we initiated in the fourth quarter of 2006. With these critical initiatives largely completed we can now fully focus on the third prong of our strategy. Our focus will center on improving the customer experience as well as optimizing our overall deposit and loan profile, both of which may increase Sovereign’s net interest margin and earnings.” Net Interest Income and Margin For the second quarter of 2007, Sovereign reported net interest income of $453 million as compared to $439 million in the second quarter of 2006. Sovereign’s average loan balances, including acquisitions, increased by $6.2 billion over last year. Reflecting the loan sales that settled at the end of the first quarter of 2007 as part of Sovereign’s previously announced balance sheet restructuring, average loan balances decreased about $4.4 billion on a linked quarter basis to $56.8 billion. The period-end loan portfolio
Slide 2: increased by approximately $400 million from balances at March 31, 2007, reflecting strong growth in certain commercial loan categories and in the auto loan portfolio. Loan growth was partially offset by a $1 billion securitization consisting of $675 million of multi-family loans and $325 million of commercial real estate loans, which closed in early June. Sovereign’s average core deposits, including acquisitions, increased $4.9 billion over last year. Average core deposits decreased $490 million linked quarter to $35.6 billion; however, this decrease was driven by reductions in higher-cost deposits as government and wholesale core deposit categories declined $1.0 billion during the quarter. Net interest margin was 2.71% for the second quarter of 2007 as compared to 2.70% in the prior quarter and 2.86% a year ago. Consistent with its recent balance sheet strategy to reduce wholesale transactions, Sovereign elected to unwind a $1.2 billion financing transaction that has been in place with an international bank, which has historically reduced funding costs. As a result of unwinding this transaction, Sovereign’s net interest margin was reduced by approximately six basis points this quarter, compared to the prior quarter. Non-Interest Income Total fees and other income before security gains totaled $190 million for the second quarter of 2007 compared to $142 million a year ago and $45.9 million last quarter. Consumer and commercial banking fees increased 16% from a year ago, primarily a result of the Independence acquisition and were up 10% linked quarter, rebounding from seasonal lows typically present in the first quarter of each year. Mortgage banking revenues for the quarter were $26.5 million, compared to a loss of $107 million last quarter and revenues of $4.5 million in the same quarter a year ago. Included in mortgage banking revenues this quarter was a gain of $13.8 million related to the commercial loan securitization that took place during the quarter. Last quarter, the company recorded hedge losses on this transaction of $3.3 million which was included in operating earnings. Also included in mortgage banking revenues last quarter was a special charge of $120 million related to the sale of correspondent home equity loans, partially offset by a $6.1 million net gain related to the sale of multi-family loans. Non-Interest Expense G&A expenses were $336 million for the second quarter of 2007, up $6.6 million or 2.0% from the first quarter as a result of an anticipated increase of $8.0 million in marketing expense. G&A expenses to average assets were 1.65% for the quarter, compared to 1.53% in the first quarter and 1.66% a year ago. Asset Quality Annualized net charge-offs were .18% of average loans for the second quarter, compared to .16% linked quarter and .23% a year ago. In dollars, net charge-offs were $25.6 million this quarter versus $24.1 million in the prior quarter and $29.4 million a year ago. Non-performing loans to total loans held for investment decreased one basis point from first quarter levels to .42%. Non-performing loans decreased by $2.1 million from last quarter to $240 million. The allowance for credit losses to non-performing loans was 217% at June 30, 2007, as compared to 208% at March 31 and 251% at June 30, 2006. Sovereign's provision for credit losses was $51.0 million this quarter, compared to $46.0 million in the first quarter and $44.5 million in the second quarter of 2006. Provision for credit losses exceed net charge-offs this quarter by $25.3 million to reserve for the strong loan growth experienced in the commercial and auto
Slide 3: loan portfolios in addition to mildly weakening credit quality that resulted in migration of credit risk ratings. Capital Sovereign’s Tier 1 leverage ratio was 6.40% at June 30, 2007, as compared to 6.29% last quarter. Tangible equity to tangible assets, which includes preferred stock, was 4.33%. Tangible common equity to tangible assets was 4.07%. The equity to assets ratio was 10.61% at June 30, 2007. Sovereign Bank’s Tier 1 leverage ratio was 6.92% and the Bank’s total risk-based capital ratio was 10.46% at June 30, 2007. About Sovereign Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company of Sovereign Bank, a financial institution with $82 billion in assets as of June 30, 2007 with principal markets in the Northeast United States. Sovereign Bank has nearly 750 community banking offices, over 2,250 ATMs and approximately 12,000 team members. Sovereign offers a broad array of financial services and products including retail banking, business and corporate banking, cash management, capital markets, wealth management and insurance. Sovereign is the 18th largest banking institution in the United States. For more information on Sovereign Bank, or call 1-877-SOV-BANK Investors, analysts and other interested parties will have the opportunity to listen to a live web-cast of Sovereign's Second Quarter 2007 earnings call on Thursday, July 19 beginning at 9:00 a.m. ET at http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=67999&eventID=1582796 . International parties are invited to dial into the conference call at 706-679-7706. The webcast and replay can be accessed anytime from 9:00 a.m. ET on Thursday, July 19, 2007 through 12:00 a.m. ET on October 18, 2007. 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 11:00 a.m. ET on Thursday, July 19, 2007 through 12:00 a.m. ET (midnight) on Thursday, July 26, 2007 by dialing 1-800-642-1687, confirmation id #4490624. --END-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 2006 and 2007 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.
Slide 4: Sovereign Bank - Investor Relations - Press Releases Sovereign Bancorp, Inc. and Subsidiaries FINANCIAL HIGHLIGHTS (unaudited) Quarter Ended Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 2007 2007 2007 2006 2006 (dollars in millions, except per share data) Operating Data Net income (loss) Net income (loss) for EPS purposes Operating earnings for EPS purposes (1) Net interest income Provision for credit losses (5) Total fees and other income before security gains (6) Net gain (loss) on investment securities (7) G&A expense Other expenses (8) Performance Statistics Bancorp Net interest margin 2.74% Return on average assets 0.28% Operating return on average assets (1) 0.46% Return on average equity 2.63% Operating return on average equity (1) 4.32% Return on average tangible equity 6.90% Operating return on average tangible equity (1) 11.31% Annualized net loan charge-offs to average loans (9) 0.24% G & A expense to average assets 1.66% Efficiency ratio (2) 57.12% Per Share Data Basic earnings (loss) per share $0.11 Diluted earnings (loss) per share 0.11 Operating earnings per share (1) 0.19 Dividend declared per share 0.080 Common book value (3) 17.76 Common stock price: High $21.94 Low 16.58 Close 17.04 Weighted average common shares: $0.30 0.29 0.33 0.080 17.92 $25.16 21.14 21.14 $0.09 0.09 0.35 0.080 17.87 $26.42 24.07 25.44 $(0.28) (0.28) 0.33 0.080 17.83 $25.90 21.27 25.39 $0.39 0.37 0.41 0.080 18.07 $21.60 20.07 21.51 2.71% 0.72% 0.83% 6.71% 7.75% 17.62% 20.35% 0.18% 1.65% 52.29% 2.70% 0.22% 0.83% 2.23% 8.34% 6.01% 22.46% 0.16% 1.53% 61.83% 2.60% -0.57% 0.73% -5.82% 7.49% -15.54% 20.00% 2.75% 1.56% 55.77% 2.64% 0.81% 0.91% 8.47% 9.52% 23.72% 26.68% 0.23% 1.55% 53.01% $58.2 54.6 95.5 456.8 162.5 141.4 1.9 341.7 44.0 $147.5 150.2 170.3 453.4 51.0 190.3 336.6 79.5 $48.1 44.4 179.6 487.9 46.0 45.9 1.0 330.0 116.8 $(129.4) $184.0 (133.1) 166.6 487.0 366.0 149.4 (36.1) 354.9 134.5 188.5 207.0 491.8 45.0 171.9 29.2 351.8 75.3 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (1 of 26)12/18/2007 2:37:11 PM
Slide 5: Sovereign Bank - Investor Relations - Press Releases Basic Diluted (4) End-of-period common shares: Basic Diluted 480.2 480.2 480.4 512.4 478.3 512.6 479.1 512.3 475.1 475.1 475.7 509.8 473.4 473.4 473.8 508.7 472.4 506.1 472.6 506.5 Year to Date Sept. 30 Sept. 30 2007 2006 (dollars in millions, except per share data) Operating Data Net income (loss) Net income (loss) for EPS purposes Operating earnings for EPS purposes (1) Net interest income Provision for credit losses (5) Total fees and other income before security gains (6) Net gain (loss) on investment securities (7) G&A expense Other expenses (8) Performance Statistics Bancorp Net interest margin Return on average assets Operating return on average assets (1) Return on average equity Operating return on average equity (1) Return on average tangible equity Operating return on average tangible equity (1) Annualized net loan charge-offs to average loans (9) G & A expense to average assets Efficiency ratio (2) Per Share Data Basic earnings (loss) per share Diluted earnings (loss) per share Operating earnings per share (1) Dividend declared per share Common book value (3) Common stock price: High Low Close Weighted average common shares: $0.51 0.51 0.87 0.240 17.76 $26.42 16.58 17.04 $0.62 0.62 1.16 0.220 18.07 $21.76 19.57 21.51 2.72% 0.41% 0.71% 3.87% 6.79% 10.23% 17.95% 0.19% 1.61% 56.78% 2.81% 0.47% 0.93% 5.03% 9.92% 11.92% 23.51% 0.24% 1.65% 52.45% $253.7 242.8 445.4 1,398.0 259.5 377.6 2.9 1,008.2 240.2 $266.4 281.1 525.4 1,334.5 118.5 448.2 (275.9) 935.1 179.0 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (2 of 26)12/18/2007 2:37:11 PM
Slide 6: Sovereign Bank - Investor Relations - Press Releases Basic Diluted (4) End-of-period common shares: Basic Diluted 477.9 477.9 480.4 512.4 420.7 454.3 472.6 506.5 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, and certain other charges. See page H and I for a reconciliation of GAAP and Non-GAAP measures. (2) 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 security gains. (3) Common book value equals common stockholders' equity at period-end divided by common shares outstanding. (4) The conversion 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 first and third quarters of 2007, the nine months ended September 30, 2007 and the fourth quarter of 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. (5) The third quarter of 2007 includes an additional provision of $47 million on our retained correspondent home equity portfolio as well as $37 million of additional reserves allocated to our indirect auto portfolio due to increased losses experienced in the third quarter and higher projected losses in future periods. The fourth quarter of 2006 includes a lower of cost or market adjustment on the correspondent home equity portfolio held for sale of $296 million. (6) The third quarter of 2007 includes lower of cost or market adjustments of $11.7 million on certain loan portfolios that were classified as held for sale. Additionally, the third quarter of 2007 includes a charge of $19.4 million on certain financing transactions with mortgage related entities. The second quarter of 2007 includes a gain of $13.8 million on a commercial mortgage backed securitization. The first quarter of 2007 includes a lower of cost or market adjustment of $119.9 million on correspondent home equity loans that were not sold as of March 31, 2007. The fourth quarter of 2006 includes a net lower of cost or market adjustment associated with the residential loan portfolio held for sale of $28.2 million. (7) The fourth quarter of 2006 includes a loss of $43 million associated with the sale of $1.5 billion of CMO investments. (8) The second quarter of 2007 includes net restructuring and debt extinguishment charges of $32.7 million. The first quarter of 2007 includes $43.4 million of ESOP expense related to freezing of the plan and $20 million of charges related to employee severance and charges associated with closing certain branch locations. The fourth quarter of 2006 includes $78.7 million of severance and restructuring charges. (9) Charge-offs for the fourth quarter of 2006 include $389.5 million of charge-offs related to the lower of cost or market valuation adjustments recorded for correspondent home equity and residential loan portfolios that are held for sale as well as a $14 million charge-off on a large http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (3 of 26)12/18/2007 2:37:11 PM
Slide 7: Sovereign Bank - Investor Relations - Press Releases commercial loan. Sovereign Bancorp, Inc. and Subsidiaries FINANCIAL HIGHLIGHTS (unaudited) Sept. 30 2007 (dollars in millions) Financial Condition Data: General Total assets $86,607 Loans (1) 57,148 Total deposits and customer related accounts: 50,098 Core deposits and other customer related accounts 34,472 Time deposits 15,626 Borrowings 26,161 Minority interests 146 Stockholders' equity 8,726 Goodwill 5,003 Core deposit and other intangibles 402 Asset Quality Non-performing assets (2) $336.7 Non-performing loans (2) 282.4 Non-performing assets to total assets (2) (3) 0.39% Non-performing loans to loans (2) (3) 0.49% Allowance for credit losses $650.0 Allowance for credit losses to total loans (3) 1.14% Allowance for credit losses to non-performing loans (2) 230% Capitalization - Bancorp (4) Stockholders' equity to total assets Tier 1 leverage capital ratio Tangible equity to tangible assets Tangible common equity to tangible assets Capitalization - Bank (4) Stockholders' equity to total assets Quarter Ended June 30 Mar. 31 Dec. 31 Sept. 30 2007 2007 2006 2006 $82,737 56,527 49,845 $82,194 56,125 52,563 $89,642 62,589 52,385 $90,410 63,178 52,784 34,722 15,123 22,462 146 8,780 5,003 433 37,001 15,562 19,162 157 8,695 5,006 465 36,321 16,064 26,850 156 8,644 5,005 498 36,031 16,753 27,101 210 8,734 4,990 533 $282.4 239.9 0.34% 0.42% $521.1 0.92% 217% $278.4 242.0 0.34% 0.43% $503.3 0.90% 208% $235.6 207.9 0.29% 0.38% $486.3 0.88% 234% $273.1 232.8 0.30% 0.37% $558.1 0.88% 240% 10.08% 6.03% 4.09% 3.85% 10.61% 6.40% 4.33% 4.07% 10.58% 6.29% 4.20% 3.95% 9.64% 5.73% 3.73% 3.50% 9.66% 5.82% 3.78% 3.55% 12.05% 12.71% 12.80% 11.76% 11.65% http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (4 of 26)12/18/2007 2:37:11 PM
Slide 8: Sovereign Bank - Investor Relations - Press Releases Tier 1 leverage capital ratio Tier 1 risk-based capital ratio Total risk-based capital ratio 6.63% 7.63% 10.35% 6.93% 7.83% 10.45% 6.80% 7.77% 10.48% 6.22% 7.52% 10.07% 6.21% 7.67% 10.34% (1) Loans at December 31, 2006 include $7.6 billion of loans held for sale. (2) Non performing loans and non performing assets include $41.5 million of loans related to our correspondent home equity portfolio due to the additional provision for credit losses that was recorded in the third quarter of 2007. Non performing loans and assets at June 30, 2007 and March 31, 2007 exclude $51.6 million and $22.4 million, respectively, of correspondent home equity loans that were written down to fair value at March 31, 2007 since credit losses related to these loans were considered in our lower of cost or market adjustment at March 31, 2007. Sovereign reclassified these loans back into our loan portfolio at March 31, 2007. Non-performing loans and assets at December 31, 2006 exclude $21.5 million of residential non-accrual loans and $66.0 million of home equity non-accrual loans that are classified as held for sale. (3) The calculation of these ratios at June 30, 2007 and March 31, 2007 exclude approximately $491 million and $574 million, respectively, of loans that were marked down to fair value as of March 31, 2007. The calculation of these ratios at December 31, 2006 excludes $7.6 billion of loans held for sale. (4) 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 (dollars in thousands) 2007 Assets Cash and amounts due from depository institutions $3,992,731 Investments: Available-for-sale 14,307,929 Other investments 981,921 Total investments 15,289,850 Loans: Commercial 29,912,883 Consumer 27,235,481 Total loans (1) 57,148,364 Less allowance for loan losses (629,747) Total loans, net 56,518,617 Premises and equipment, net 559,040 Accrued interest receivable 384,812 Goodwill 5,003,022 Core deposit and other intangibles 402,257 Bank owned life insurance 1,773,829 June 30 2007 Mar. 31 2007 $1,867,294 13,303,432 798,452 14,101,884 29,547,839 26,979,279 56,527,118 (503,685) 56,023,433 570,074 368,849 5,003,195 433,164 1,764,137 $1,669,623 13,640,209 703,738 14,343,947 29,852,212 26,273,285 56,125,497 (487,286) 55,638,211 588,695 363,013 5,006,290 465,421 1,745,145 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (5 of 26)12/18/2007 2:37:11 PM
Slide 9: Sovereign Bank - Investor Relations - Press Releases Other assets Total assets 2,683,170 $86,607,328 2,605,061 $82,737,091 2,373,220 $82,193,565 Liabilities and Stockholders' Equity Liabilities: Deposits and other customer related accounts: Core and other customer related accounts $34,471,615 $34,721,501 $37,001,193 Time deposits 15,626,433 15,123,134 15,561,764 Total 50,098,048 49,844,635 52,562,957 Borrowings and other debt obligations 26,161,337 22,461,638 19,162,252 Other liabilities 1,475,954 1,504,788 1,616,574 Total liabilities 77,735,339 73,811,061 73,341,783 Minority interests 146,075 145,742 156,896 Stockholders' equity: Preferred Stock 195,445 195,445 195,445 Common Stock 6,277,292 6,253,146 6,186,470 Warrants and stock options 347,630 346,278 344,979 Unallocated ESOP shares (19,019) Treasury stock (20,359) (21,303) (22,257) Accumulated other comprehensive loss (218,155) (121,184) (13,177) Retained earnings 2,144,061 2,127,906 2,022,445 Total stockholders' equity 8,725,914 8,780,288 8,694,886 Total liabilities and stockholders' equity $86,607,328 $82,737,091 $82,193,565 (dollars in thousands) Assets Cash and amounts due from depository institutions Investments: Available-for-sale Other investments Total investments Loans: Commercial Consumer Total loans (1) Less allowance for loan losses Total loans, net Premises and equipment, net Accrued interest receivable Goodwill Core deposit and other intangibles Bank owned life insurance Other assets Total assets Liabilities and Stockholders' Equity Liabilities: Dec. 31 2006 Sept. 30 2006 $1,804,117 13,874,628 1,003,012 14,877,640 30,472,343 32,116,253 62,588,596 (471,030) 62,117,566 605,707 422,901 5,005,185 498,420 1,725,222 2,585,091 $89,641,849 $1,932,603 12,821,075 1,020,723 13,841,798 29,984,325 33,193,395 63,177,720 (544,482) 62,633,238 591,601 413,018 4,989,539 532,626 1,704,955 3,770,681 $90,410,059 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (6 of 26)12/18/2007 2:37:11 PM
Slide 10: Sovereign Bank - Investor Relations - Press Releases Deposits and other customer related accounts: Core and other customer related accounts Time deposits Total Borrowings and other debt obligations Other liabilities Total liabilities Minority interests Stockholders' equity: Preferred Stock Common Stock Warrants and stock options Unallocated ESOP shares Treasury stock Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $36,320,674 16,063,880 52,384,554 26,849,717 1,606,794 80,841,065 156,385 195,445 6,183,281 343,391 (19,019) (49,028) (24,746) 2,015,075 8,644,399 $89,641,849 $36,030,850 16,752,764 52,783,614 27,100,522 1,582,174 81,466,310 209,972 195,445 6,166,992 338,867 (21,396) (57,646) (74,543) 2,186,058 8,733,777 $90,410,059 (1) Loans at December 31, 2006 include $7.6 billion of loans held for sale. Sovereign Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Quarter Ended Mar. 31 Dec. 31 2007 2006 (dollars in thousands, Sept. 30 except per share data) 2007 Interest and dividend income: Interest on interest-earning deposits $7,117 Interest on investment securities Available for sale 177,125 Held to maturity Other 11,886 Interest on loans 954,014 Total interest and dividend income 1,150,142 Interest expense: Deposits and related customer accounts 408,680 Borrowings 284,701 Total interest expense 693,381 June 30 2007 Sept. 30 2006 $4,144 $6,236 $6,274 $5,408 180,252 11,179 943,860 1,139,435 189,835 14,301 1,016,967 1,227,339 192,996 202,831 19,508 13,287 1,035,224 1,019,325 1,254,002 1,240,851 409,616 276,435 686,051 413,251 326,235 739,486 421,472 345,498 766,970 412,858 336,206 749,064 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (7 of 26)12/18/2007 2:37:11 PM
Slide 11: Sovereign Bank - Investor Relations - Press Releases Net interest income 456,761 Provision for credit losses (3) 162,500 Net interest income after provision for credit losses 294,261 Non-interest income: Consumer banking fees 73,113 Commercial banking fees (5) 44,155 Mortgage banking revenue (1) 3,752 Capital markets revenue (12,627) Bank owned life insurance income 24,439 Other 8,557 Total fees and other income before security gains 141,389 Net gain/(loss) on securities (4) 1,884 Total non-interest income 143,273 Non-interest expense: General and administrative Compensation and benefits 172,319 Occupancy and equipment 75,217 Technology expense 23,940 Outside services 16,434 Marketing expense 16,296 Other administrative expenses 37,440 Total general and administrative 341,646 Other expenses: Amortization of intangibles 31,066 Other minority interest expense and equity method expense 6,913 Loss on economic hedges 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 - 453,384 51,000 487,853 46,000 487,032 365,961 491,787 45,000 402,384 77,268 52,046 26,500 5,982 20,274 8,227 441,853 68,014 49,408 (107,205) 5,689 20,509 9,467 121,071 73,389 48,405 (7,606) 7,358 20,237 7,586 446,787 74,298 47,690 14,329 4,009 20,116 11,409 190,297 190,297 45,882 970 46,852 149,369 (36,089) 113,280 171,851 29,154 201,005 171,557 75,637 23,812 16,969 17,092 31,525 336,592 173,796 80,519 23,336 15,278 8,832 28,235 329,996 176,851 79,221 25,680 19,920 15,731 37,496 354,899 182,607 78,594 25,128 17,928 14,552 33,009 351,818 32,257 33,253 34,302 34,092 14,487 (125) 18,415 (391) 10,974 - 12,850 - 35,938 (3,266) 166 20,032 43,385 2,076 78,668 10,558 28,403 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (8 of 26)12/18/2007 2:37:11 PM
Slide 12: Sovereign Bank - Investor Relations - Press Releases Total other expenses 44,008 Total non-interest expense 385,654 Income/ (loss) before income taxes 51,880 Income tax expense/ (benefit) (6,330) Net income/ (loss) $ 58,210 79,457 416,049 116,770 446,766 134,502 489,401 75,345 427,163 176,632 29,180 $147,452 41,939 (6,120) $ 48,059 (255,050) (125,610) 220,629 36,620 $(129,440) $184,009 (1) Mortgage banking activity is summarized below: (Losses)/gains on sale of mortgage loans and related securities, multifamily loans, and home equity loans (2) $6,354 Net gains/(loss) recorded on commercial mortgage backed securitization (5,355) Net gains/(loss) recorded under SFAS 133 1,781 Mortgage servicing fees, net of mortgage servicing rights amortization 972 Mortgage servicing right recoveries/(impairments) Total mortgage banking revenues $3,752 $9,065 $(103,788) $ (7,838) $14,665 13,772 783 (3,276) (388) 821 (423) 2,224 656 $ 26,500 247 $(107,205) 2,863 (3,452) $ (7,606) 3,758 (3,671) $14,329 (dollars in thousands, except per share data) Interest and dividend income: Interest on interest-earning deposits Interest on investment securities Available for sale Held to maturity Other Interest on loans Total interest and dividend income Interest expense: Deposits and related customer accounts Borrowings Total interest expense Net interest income Provision for credit losses (3) Net interest income after provision for credit losses Non-interest income: Year to Date Sept. 30 Sept. 30 2007 2006 $ 17,497 547,212 37,366 2,914,841 3,516,916 1,231,547 887,371 2,118,918 1,397,998 259,500 1,138,498 $10,478 409,579 104,026 31,906 2,516,413 3,072,402 950,725 787,161 1,737,886 1,334,516 118,500 1,216,016 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (9 of 26)12/18/2007 2:37:11 PM
Slide 13: Sovereign Bank - Investor Relations - Press Releases Consumer banking fees Commercial banking fees (5) Mortgage banking revenue (1) Capital markets revenue Bank owned life insurance income Other Total fees and other income before security gains Net gain/(loss) on securities (4) Total non-interest income Non-interest expense: General and administrative Compensation and benefits Occupancy and equipment Technology expense Outside services Marketing expense Other administrative expenses Total general and administrative Other expenses: Amortization of intangibles Other minority interest expense and equity method expense Loss on economic hedges Proxy and related professional fees Restructuring, other employee severance and debt repurchase charges ESOP expense related to freezing of plan Merger-related and integration charges Total other expenses Total non-interest expense Income/ (loss) before income taxes Income tax expense/ (benefit) Net income/ (loss) 218,395 145,609 (76,953) (956) 65,222 26,251 377,568 2,854 380,422 202,563 130,655 31,845 10,211 46,802 26,091 448,167 (275,873) 172,294 517,672 231,373 71,088 48,681 42,220 97,200 1,008,234 96,576 39,815 (516) 61,999 40,119 2,242 240,235 1,248,469 270,451 16,730 $253,721 475,852 210,942 69,808 49,275 39,322 89,891 935,090 75,536 45,917 11,387 14,337 31,862 179,039 1,114,129 274,181 7,830 $266,351 (1) Mortgage banking activity is summarized below: (Losses)/gains on sale of mortgage loans and related securities, multifamily loans, and home equity loans (2) $(88,369) Net gains/(loss) recorded on commercial mortgage backed securitization 5,141 Net gains/(loss) recorded under SFAS 133 2,176 Mortgage servicing fees, net of mortgage servicing rights amortization 3,443 Mortgage servicing right recoveries/(impairments) 656 Total mortgage banking revenues $(76,953) $27,563 4 7,949 (3,671) $31,845 (2) First quarter of 2007 results include a lower of cost or market adjustment of $119.9 million on correspondent home equity loans that were not sold as of March 31, 2007. Fourth quarter of 2006 includes a $28.2 million lower of cost or market adjustment on the residential loans held for sale, as well as a $5.2 million gain on sale of $455 million of multihttp://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (10 of 26)12/18/2007 2:37:11 PM
Slide 14: Sovereign Bank - Investor Relations - Press Releases family loans. (3) The third quarter of 2007 includes an additional provision of $47 million on our retained correspondent home equity portfolio as well as $37 million of additional reserves allocated to our indirect auto portfolio due to increased losses experienced in the third quarter and higher projected losses in future periods. The fourth quarter of 2006 includes a lower of cost or market adjustment on the correspondent home equity portfolio held for sale of $296 million as well a $14 million commercial loan charge-off. (4) The fourth quarter of 2006 includes a loss of $43 million associated with the sale of $1.5 billion of CMO investments. (5) The third quarter of 2007 includes a lower of cost or market adjustment of $6.2 million on our loan syndication trading portfolio. This portfolio of $151 million was reclassified back into our loan held for investment portfolio. Sovereign Bancorp, Inc. and Subsidiaries AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS (unaudited) Quarter Ended September 30, 2007 Average Yield/ Balance Interest (1) Rate $13,850,369 25,429,487 3,975,580 14,357,561 5,974,643 20,332,204 6,616,774 320,848 27,269,826 56,674,893 (522,102) 70,003,160 11,594,008 $81,597,168 $216,252 464,984 61,708 203,676 102,033 305,709 118,324 7,042 431,075 957,767 $1,174,019 6.24% 7.26% 6.20% 5.67% 6.78% 6.00% 7.09% 8.71% 6.30% 6.72% 6.68% (dollars in thousands) Earning assets: Investment securities Loans: Commercial Multi-Family Consumer: Residential mortgages Home equity loans and lines of credit Total consumer loans secured by real estate Auto Loans Other Total Consumer Total loans Allowance for loan losses Total earning assets Other assets Total assets Funding liabilities: Deposits and other customer related accounts: NOW accounts NOW accounts - government & wholesale Customer repurchase agreements Savings accounts Money market accounts Money market accounts- wholesale Core and other customer related $5,497,403 3,825,292 2,643,836 4,144,517 10,224,580 1,862,865 $15,225 49,944 28,869 6,914 93,751 25,211 1.10% 5.18% 4.33% 0.66% 3.64% 5.37% http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (11 of 26)12/18/2007 2:37:11 PM
Slide 15: Sovereign Bank - Investor Relations - Press Releases accounts Time deposits Time deposits - wholesale Total deposits and other customer related accounts Borrowings: Wholesale borrowings Other borrowings Total borrowings Total funding liabilities Non-interest bearing DDA Other liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity Net interest income Interest rate spread Contribution from interest free funds Net interest margin 28,198,493 11,323,566 4,068,060 43,590,119 17,654,582 3,736,339 21,390,921 64,981,040 6,403,572 1,439,105 72,823,717 8,773,451 $81,597,168 219,914 134,570 54,196 408,680 225,169 59,532 284,701 693,381 3.09% 4.71% 5.29% 3.72% 5.08% 6.06% 5.30% 4.24% $480,638 2.44% 0.30% 2.74% Quarter Ended June 30, 2007 (dollars in thousands) Earning assets: Investment securities Loans: Commercial Multi-Family Consumer: Residential mortgages Home equity loans and lines of credit Total consumer loans secured by real estate Auto Loans Other Total Consumer Total loans Allowance for loan losses Total earning assets Other assets Total assets Funding liabilities: Deposits and other customer related accounts: NOW accounts NOW accounts - government & wholesale Customer repurchase agreements Savings accounts Money market accounts Money market accounts - wholesale Average Balance $14,041,230 25,470,400 4,637,577 14,429,334 5,933,285 20,362,619 5,926,390 388,325 26,677,334 56,785,311 (493,621) 70,332,920 11,608,001 $81,940,921 Interest (1) $215,663 458,763 72,186 203,581 101,804 305,385 102,865 8,293 416,543 947,492 $1,163,155 Yield/ Rate 6.15% 7.22% 6.23% 5.64% 6.88% 6.00% 6.96% 8.57% 6.25% 6.69% 6.63% $5,935,760 4,170,249 2,389,302 4,437,785 9,687,237 2,525,720 $15,791 53,420 26,594 7,184 84,086 34,668 1.07% 5.14% 4.46% 0.65% 3.48% 5.51% http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (12 of 26)12/18/2007 2:37:11 PM
Slide 16: Sovereign Bank - Investor Relations - Press Releases Core and other customer related accounts Time deposits Time deposits - wholesale Total deposits and other customer related accounts Borrowings: Wholesale borrowings Other borrowings Total borrowings Total funding liabilities Non-interest bearing DDA Other liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity Net interest income Interest rate spread Contribution from interest free funds Net interest margin 29,146,053 11,004,592 4,425,195 44,575,840 15,396,099 5,227,113 20,623,212 65,199,052 6,421,910 1,503,851 73,124,813 8,816,108 $81,940,921 221,743 128,170 59,703 409,616 194,074 82,361 276,435 686,051 3.05% 4.67% 5.41% 3.69% 5.05% 6.20% 5.37% 4.22% $477,104 2.41% 0.31% 2.71% Quarter Ended September 30, 2006 (dollars in thousands) Earning assets: Investment securities Loans: Commercial Multi-Family Consumer: Residential mortgages Home equity loans and lines of credit Total consumer loans secured by real estate Auto Loans Other Total Consumer Total loans Allowance for loan losses Total earning assets Other assets Total assets Funding liabilities: Deposits and other customer related accounts: NOW accounts NOW accounts - government & wholesale Customer repurchase agreements Savings accounts Money market accounts Average Balance $15,886,584 23,034,009 6,184,739 17,860,553 10,519,717 28,380,270 4,394,903 451,333 33,226,506 62,445,254 (537,690) 77,794,148 12,160,105 $89,954,253 Interest (1) $241,045 419,552 95,298 256,417 173,914 430,331 66,220 10,296 506,847 1,021,697 $1,262,742 Yield/ Rate 6.06% 7.24% 6.16% 5.74% 6.59% 6.05% 5.98% 9.05% 6.08% 6.52% 6.47% $6,085,520 4,328,149 1,714,351 5,013,163 9,050,048 $16,810 58,034 20,638 8,409 65,548 1.07% 5.32% 4.78% 0.67% 2.87% http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (13 of 26)12/18/2007 2:37:11 PM
Slide 17: Sovereign Bank - Investor Relations - Press Releases Money market accounts - wholesale Core and other customer related accounts Time deposits Time deposits - wholesale Total deposits and other customer related accounts Borrowings: Wholesale borrowings Other borrowings Total borrowings Total funding liabilities Non-interest bearing DDA Other liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity Net interest income Interest rate spread Contribution from interest free funds Net interest margin 4,017,420 30,208,651 11,541,567 4,963,227 46,713,445 20,847,228 5,606,261 26,453,489 73,166,934 6,707,400 1,458,009 81,332,343 8,621,910 $89,954,253 55,514 224,953 125,039 62,866 412,858 254,407 81,799 336,206 749,064 5.48% 2.95% 4.30% 5.03% 3.51% 4.86% 5.82% 5.06% 4.07% $513,678 2.40% 0.24% 2.64% (1) Tax equivalent basis Sovereign Bancorp, Inc. and Subsidiaries AVERAGE BALANCE, INTEREST AND YIELD/RATE ANALYSIS (unaudited) Year to Date September 30, 2007 Average (dollars in thousands) Balance Interest (1) Earning assets: Investment securities $14,359,545 $662,500 Loans: Commercial 25,169,599 1,361,906 Multi-Family 4,827,663 232,677 Consumer: Residential mortgages 14,788,758 630,279 Home equity loans and lines of credit 7,122,383 369,186 Total consumer loans secured by real estate 21,911,141 999,465 Auto Loans 5,915,010 307,332 Other 376,740 24,156 Total Consumer 28,202,891 1,330,953 Total loans 58,200,153 2,925,536 Allowance for loan losses (496,921) Total earning assets 72,062,777 $3,588,036 Other assets 11,632,426 Total assets $83,695,203 Funding liabilities: http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (14 of 26)12/18/2007 2:37:11 PM Yield/ Rate 6.15% 7.23% 6.43% 5.68% 6.93% 6.09% 6.95% 8.57% 6.30% 6.71% 6.65%
Slide 18: Sovereign Bank - Investor Relations - Press Releases Deposits and other customer related accounts: NOW accounts NOW accounts- government & wholesale Customer repurchase agreements Savings accounts Money market accounts Money market accounts - wholesale Core and other customer related accounts Time deposits Time deposits - wholesale Total deposits and other customer related accounts Borrowings: Wholesale borrowings Other borrowings Total borrowings Total funding liabilities Non-interest bearing DDA Other liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity Net interest income Interest rate spread Contribution from interest free funds Net interest margin $5,812,672 4,030,753 2,433,331 4,383,303 9,691,344 2,670,593 29,021,996 11,190,921 4,330,871 44,543,788 17,623,077 4,785,627 22,408,704 66,952,492 6,381,978 1,585,747 74,920,217 8,774,986 $83,695,203 $47,456 155,436 81,358 21,277 252,097 109,535 667,159 390,246 174,142 1,231,547 668,508 218,863 887,371 2,118,918 1.09% 5.16% 4.47% 0.65% 3.48% 5.48% 3.07% 4.66% 5.38% 3.70% 5.07% 6.10% 5.29% 4.23% $1,469,118 2.42% 0.30% 2.72% (1) Tax equivalent basis (dollars in thousands) Earning assets: Investment securities Loans: Commercial Multi-Family Consumer: Residential mortgages Home equity loans and lines of credit Total consumer loans secured by real estate Auto Loans Other Total Consumer Total loans Allowance for loan losses Total earning assets Year to Date September 30, 2006 Average Balance Interest (1) $14,281,351 19,699,524 2,748,477 15,053,802 10,110,555 25,164,357 4,400,416 460,455 30,025,228 52,473,229 (471,358) 66,283,222 $610,934 1,051,982 126,583 636,131 488,104 1,124,235 192,228 27,826 1,344,289 2,522,854 $3,133,788 Yield/ Rate 5.71% 7.14% 6.14% 5.63% 6.45% 5.96% 5.84% 8.08% 5.98% 6.42% 6.31% http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (15 of 26)12/18/2007 2:37:11 PM
Slide 19: Sovereign Bank - Investor Relations - Press Releases Other assets Total assets Funding liabilities: Deposits and other customer related accounts: NOW accounts NOW accounts - government & wholesale Customer repurchase agreements Savings accounts Money market accounts Money market accounts - wholesale Core and other customer related accounts Time deposits Time deposits - wholesale Total deposits and other customer related accounts Borrowings: Wholesale borrowings Other borrowings Total borrowings Total funding liabilities Non-interest bearing DDA Other liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity Net interest income Interest rate spread Contribution from interest free funds Net interest margin 9,623,451 $75,906,673 $5,396,984 4,399,421 1,456,466 4,128,312 8,230,487 2,073,058 25,684,728 9,309,728 4,475,117 39,469,573 17,244,235 4,942,265 22,186,500 61,656,073 5,826,134 1,342,011 68,824,218 7,082,455 $75,906,673 $33,287 163,942 48,060 21,938 158,350 82,255 507,832 275,475 167,418 950,725 586,685 200,476 787,161 1,737,886 0.81% 4.98% 4.41% 0.71% 2.57% 5.30% 2.64% 3.96% 5.00% 3.22% 4.54% 5.41% 4.74% 3.77% $1,395,902 2.54% 0.27% 2.81% (1) Tax equivalent basis Sovereign Bancorp, Inc. and Subsidiaries SUPPLEMENTAL INFORMATION (unaudited) NON-PERFORMING ASSETS Sept. 30 (dollars in thousands) 2007 Non-accrual loans: Consumer: Residential mortgages $79,909 Home equity loans and lines of credit 53,974 Auto loans 730 Other consumer loans 2,076 Total consumer loans 136,689 Commercial real estate 66,977 Commercial and June 30 2007 Mar. 31 2007 Dec. 31 2006 Sept. 30 2006 $69,392 12,875 620 1,714 84,601 74,077 $62,864 12,131 416 1,504 76,915 87,896 $47,687 10,312 191 2,764 60,954 77,196 $35,365 62,002 327 1,384 99,078 64,138 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (16 of 26)12/18/2007 2:37:11 PM
Slide 20: Sovereign Bank - Investor Relations - Press Releases industrial and other 78,251 Total non-accrual loans 281,917 Restructured loans 443 Total non-performing loans (1) 282,360 Real estate owned, net 43,517 Other repossessed assets 10,861 Total non-performing assets (1) $336,738 Non-performing loans as a percentage of loans (1) (2) Non-performing assets as a percentage of total assets (1) (2) Non-performing assets as a percentage of total loans, real estate owned and repossessed assets (1) (2) Allowance for credit losses as a percentage of non-performing loans (1) 80,706 239,384 503 239,887 34,724 7,755 $282,366 76,668 241,479 552 242,031 29,655 6,722 $278,408 69,207 207,357 557 207,914 22,562 5,126 $235,602 68,995 232,211 570 232,781 34,775 5,500 $273,056 0.49% 0.42% 0.43% 0.38% 0.37% 0.39% 0.34% 0.34% 0.29% 0.30% 0.59% 0.50% 0.50% 0.43% 0.43% 230% 217% 208% 234% 240% NET LOAN CHARGE-OFFS Quarters ended (in Sept. 30 thousands) 2007 Commercial real estate $2,401 Commercial and industrial and other (3) 8,387 Total commercial 10,788 Residential mortgages (4) 1,715 Home equity loans and lines of credit (5) 883 Total consumer loans secured by real estate 2,598 Auto loans 19,448 Other consumer loans 734 Total consumer 22,780 Total loan charge-offs $33,568 June 30 2007 $2,766 Mar. 31 2007 $5,782 Dec. 31 Sept. 30 2006 2006 $(282) $1,188 6,820 9,586 1,558 1,934 3,492 12,305 291 16,088 $25,674 6,089 11,871 564 1,523 2,087 10,115 17 12,219 $24,090 18,651 18,369 8,028 399,609 407,637 9,574 453 417,664 $436,033 6,402 7,590 422 19,909 20,331 7,271 135 27,737 $35,327 COMPONENTS OF THE PROVISION OF CREDIT LOSSES AND ALLOWANCE FOR CREDIT LOSSES Quarters ended (in thousands) Provision for loan losses (6) Sept. 30 2007 $159,630 June 30 2007 $49,589 Mar. 31 2007 $45,239 Dec. 31 2006 $364,309 Sept. 30 2006 $45,437 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (17 of 26)12/18/2007 2:37:11 PM
Slide 21: Sovereign Bank - Investor Relations - Press Releases Provision/(recoveries) for unfunded commitments 2,870 Total provision for credit losses $162,500 Allowance for loan losses Reserve for unfunded commitments Total allowance for credit losses 1,411 $51,000 761 $46,000 1,652 $365,961 (437) $45,000 $629,747 20,297 $650,044 $503,685 17,427 $521,112 $487,286 16,016 $503,302 $471,030 15,255 $486,285 $544,482 13,603 $558,085 (1) Non-performing loans and non-performing assets at September 30, 2007 include $41.5 million of loans related to our correspondent home equity loan portfolio due to the additional provision for credit losses that was recorded in the third quarter of 2007. Non-performing loans and non-performing assets exclude $51.6 million and $22.4 million of non-accrual loans at June 30, 2007 and March 31, 2007 related to correspondent home equity loans that had been previously classified as held for sale since credit losses related to these loans were considered in our lower of cost or market adjustment at March 31, 2007. Non-performing loans and non-performing assets at December 31, 2006 exclude $21.5 million of residential non-accrual loans and $66.0 million of home equity non-accrual loans that are classified as held for sale. (2) The calculation of this ratio at September 30, 2007 includes $41.5 million of non performing loans related to our correspondent home equity portfolio. The calculation of these ratios at June 30, 2007 and March 31, 2007 exclude approximately $491 million and $574 million of loans that were marked down to fair value as of March 31, 2007. The calculation of these ratios at December 31, 2006 excludes $7.6 billion of loans held for sale. (3) The fourth quarter of 2006 includes a $14 million commercial loan charge-off. (4) Fourth quarter of 2006 includes a $7 million charge-off related to the lower of cost or market adjustment on the residential loans held for sale. (5) The fourth quarter of 2006 includes $382.5 million of charge-offs related to the lower of cost or market adjustment on the correspondent home equity portfolio held for sale. (6) The fourth quarter of 2006 includes a lower of cost or market adjustment on the correspondent home equity portfolio held for sale of $296 million. Sovereign Bancorp, Inc. and Subsidiaries SUPPLEMENTAL INFORMATION (unaudited) DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - End of period Quarters ended Sept. 30 (in thousands) 2007 Demand deposit accounts $6,272,412 June 30 2007 $6,313,408 Mar. 31 2007 $6,420,046 Dec. 31 2006 $6,577,585 Sept. 30 2006 $6,687,150 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (18 of 26)12/18/2007 2:37:11 PM
Slide 22: Sovereign Bank - Investor Relations - Press Releases NOW accounts 5,352,228 5,950,960 6,159,701 6,333,667 6,347,484 NOW accounts government & wholesale 4,319,805 3,661,659 5,008,897 3,573,861 3,600,363 Customer repurchase agreements 2,726,686 2,525,932 2,310,290 2,206,445 2,027,100 Savings accounts 3,984,551 4,312,492 4,558,367 4,637,346 4,919,190 Money market accounts 10,258,960 10,005,554 9,452,904 8,875,353 8,380,908 Money market accounts government & wholesale 1,556,973 1,951,496 3,090,988 4,116,417 4,068,655 Time deposits 11,970,145 10,996,111 11,144,281 11,336,147 11,684,137 Time deposits wholesale 3,656,288 4,127,023 4,417,483 4,727,733 5,068,627 Total deposits and other customer related accounts $50,098,048 $49,844,635 $52,562,957 $52,384,554 $52,783,614 LOAN COMPOSITION - End of period Quarters ended Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 (in thousands) 2007 2007 2007 2006 2006 Commercial real estate $11,821,651 $11,741,479 $11,584,728 $11,514,983 $11,401,902 Commercial industrial loans 13,807,542 13,417,347 12,908,765 12,654,746 11,212,315 Multi-family 4,038,333 4,000,527 4,806,028 5,768,451 5,970,795 Other 245,357 388,486 552,691 534,164 1,399,313 Total commercial loans 29,912,883 29,547,839 29,852,212 30,472,344 29,984,325 Residential mortgages 14,009,891 14,387,342 14,403,371 17,404,730 17,817,283 Home equity loans and lines of credit 6,058,143 5,954,925 5,932,136 9,443,560 10,506,607 Total consumer loans secured by real estate 20,068,034 20,342,267 20,335,507 26,848,290 28,323,890 Auto loans 6,853,381 6,320,010 5,526,953 4,848,204 4,431,891 Other consumer loans 314,066 317,002 410,825 419,758 437,614 Total consumer loans 27,235,481 26,979,279 26,273,285 32,116,252 33,193,395 Total loans $57,148,364 $56,527,118 $56,125,497 $62,588,596 $63,177,720 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (19 of 26)12/18/2007 2:37:11 PM
Slide 23: Sovereign Bank - Investor Relations - Press Releases DEPOSIT AND OTHER CUSTOMER RELATED ACCOUNT COMPOSITION - Average Quarters ended Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 (in thousands) 2007 2007 2007 2006 2006 Demand deposit accounts $6,403,572 $6,421,910 $6,335,301 $6,596,008 $6,707,400 NOW accounts 5,497,403 5,935,760 5,994,720 6,125,347 6,085,520 NOW accounts government & wholesale 3,825,292 4,170,249 4,099,733 3,977,652 4,328,149 Customer repurchase agreements 2,643,836 2,389,302 2,262,732 2,182,446 1,714,351 Savings accounts 4,144,517 4,437,785 4,572,309 4,755,332 5,013,163 Money market accounts 10,224,580 9,687,237 9,150,410 8,688,901 9,050,048 Money market accounts government & wholesale 1,862,865 2,525,720 3,642,754 3,999,190 4,017,420 Time deposits 11,323,566 11,004,592 11,243,730 11,535,214 11,541,567 Time deposits - wholesale 4,068,060 4,425,195 4,504,148 4,933,950 4,963,227 Total deposits and other customer related accounts $49,993,691 $50,997,750 $51,805,837 $52,794,040 $53,420,845 LOAN COMPOSITION - Average Quarters ended Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 (in thousands) 2007 2007 2007 2006 2006 Commercial real estate $11,746,854 $11,737,900 $11,513,005 $11,421,431 $10,869,370 Commercial industrial loans 12,049,755 12,146,382 11,566,055 11,347,975 10,805,007 Multi-family 3,975,580 4,637,577 5,890,879 6,103,412 6,184,739 Other 1,632,878 1,586,118 1,520,732 1,427,147 1,359,632 Total commercial loans 29,405,067 30,107,977 30,490,671 30,299,965 29,218,748 Residential mortgages 14,357,561 14,429,334 15,592,954 17,897,922 17,860,553 Home equity loans and lines of credit 5,974,643 5,933,285 9,497,940 10,145,548 10,519,717 Total consumer loans secured by real http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (20 of 26)12/18/2007 2:37:11 PM
Slide 24: Sovereign Bank - Investor Relations - Press Releases estate 20,332,204 Auto loans 6,616,774 Other consumer loans 320,848 Total consumer loans 27,269,826 Total loans 20,362,619 5,926,390 388,325 26,677,334 25,090,894 5,186,143 422,161 30,699,198 28,043,470 4,628,603 427,026 33,099,099 28,380,270 4,394,903 451,333 33,226,506 $56,674,893 $56,785,311 $61,189,869 $63,399,064 $62,445,254 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, 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 Mar. 31 Dec. 31 2007 2006 Sept. 30 2007 June 30 2007 Sept. 30 2006 Net income/ (loss) as reported $58,210 $147,452 Dividends on preferred stock (3,650) (3,650) Net income available to common shareholders 54,560 143,802 Contingently convertible trust preferred interest expense, net of tax 6,413 Net income/ (loss) for EPS purposes $54,560 $150,215 Non GAAP adjustments to adjust antidilutive EPS Net income available to common shareholders $54,560 Trust IV expense, net of tax 6,423 Antidilutive net income/ (loss) for operating EPS calculation $60,983 Reconciliation to Operating earnings EPS Net income/ (loss) for $48,059 (3,650) 44,409 $(129,440) $184,009 (3,650) (133,090) (1,825) 182,184 $44,409 - 6,344 $(133,090) $188,528 $44,409 6,412 $(133,090) 6,354 $50,821 $(126,736) http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (21 of 26)12/18/2007 2:37:11 PM
Slide 25: Sovereign Bank - Investor Relations - Press Releases Operating earnings EPS purposes $60,983 Merger related and integration costs Provision for credit losses 30,550 Loss on economic hedges Loss on investment restructuring Loss on mortgage banking loan sale restructuring Loss on restructuring, other employee severance and debt repurchase charges 3,919 ESOP expense related to freezing of plan Hedge loss on sale of multifamily loans Impairment on FNMA and FHLMC preferred stock Gain on redemption of FNMA and FHLMC preferred stock Writedown on correspondent home equity loans Proxy and related professional fees Operating earnings for EPS purposes $95,452 $150,215 108 - $50,821 1,323 - $(126,736) $188,528 6,863 192,374 27,961 14,954 18,463 - 23,360 (3,266) - 12,771 43,385 (3,860) - 51,134 - - - (953) - - (82) $170,335 76,394 (249) $179,632 $166,550 $206,991 Weighted average diluted shares for GAAP EPS 480,171 Add back of diluted shares for operating EPS not factored into GAAP diluted shares due to antidilution (1) 32,480 Adjusted weighted average diluted shares for Operating EPS 512,651 512,641 475,115 473,404 506,135 - 34,353 34,583 - 512,641 509,468 507,987 506,135 (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 2007 2007 2007 2006 2006 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (22 of 26)12/18/2007 2:37:11 PM
Slide 26: Sovereign Bank - Investor Relations - Press Releases 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 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 $0.11 $0.29 $0.09 $(0.28) $0.37 Reconciliation to Operating earnings EPS Net income/ (loss) for Operating earnings EPS purposes $0.12 Merger related and integration costs Provision for credit losses 0.06 Loss on economic hedges Loss on investment restructuring Loss on mortgage banking loan sale restructuring Loss on restructuring, other employee severance and debt repurchase charges 0.01 ESOP expense related to freezing of plan Hedge loss on sale of multifamily loans Impairment on FNMA and FHLMC preferred stock Gain on redemption of FNMA and FHLMC preferred stock Writedown on correspondent home equity loans Proxy and related professional fees Operating earnings for EPS purposes $0.19 $0.29 0.00 - $0.10 0.00 - $(0.25) 0.01 0.38 0.06 0.03 $0.37 0.04 - 0.05 (0.01) (0.00) $0.33 0.02 0.09 (0.01) (0.00) 0.15 (0.00) $0.35 0.10 $0.33 $0.41 (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 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (23 of 26)12/18/2007 2:37:11 PM
Slide 27: Sovereign Bank - Investor Relations - Press Releases 2007 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 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 2006 2007 2006 $253,721 $266,351 (10,950) (4,258) 242,771 262,093 $242,771 19,006 $281,099 $0.51 $0.62 $242,771 19,249 $262,020 Reconciliation to Operating earnings EPS Net income/ (loss) for Operating earnings EPS purposes $262,020 $281,099 Merger related and integration costs 1,432 20,711 Provision for credit losses 30,550 8,125 Loss on economic hedges 7,402 Loss on investment restructuring 154,884 Loss on mortgage banking loan sale restructuring Loss on restructuring, other employee severance and debt repurchase charges 40,049 ESOP expense related to freezing of plan 40,119 Hedge loss on sale of multifamily loans (3,860) Impairment on FNMA and FHLMC preferred stock 43,875 Gain on redemption of FNMA and FHLMC preferred stock (953) Writedown on correspondent home equity loans 76,394 Proxy and related professional fees (331) 9,319 Operating earnings for EPS purposes $445,420 $525,415 $0.51 0.00 0.06 - $0.62 0.05 0.02 0.02 0.34 - 0.08 0.08 (0.01) (0.00) 0.15 (0.00) $0.87 0.10 0.02 $1.16 Weighted average diluted shares for GAAP EPS Add back of diluted shares for operating EPS not factored into GAAP diluted shares due to 477,884 454,265 http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (24 of 26)12/18/2007 2:37:11 PM
Slide 28: Sovereign Bank - Investor Relations - Press Releases antidilution (1) Adjusted weighted average diluted shares for Operating EPS 33,732 511,616 454,265 (1) The conversion 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 first and third quarters of 2007, the nine months ended September 30, 2007 and the fourth quarter of 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 June 30 2007 (dollars in thousands) Average Average Average Average Equity Goodwill CDI and other intangibles Tangible Equity Sept. 30 2007 Mar. 31 2007 $8,773,451 $8,816,108 $8,734,981 (5,003,137) (5,005,116) (5,005,119) (421,895) (453,528) (486,214) $3,348,419 $3,357,464 $3,243,648 4.32% 6.45% 0.54% 11.31% 7.75% 11.55% 1.05% 20.35% 8.34% 12.87% 1.25% 22.46% Operating Return on Average Equity Effect of Goodwill Effect of CDI and other intangibles Tangible Return on Average Equity (dollars in thousands) Average Average Average Average Equity Goodwill CDI and other intangibles Tangible Equity Quarter Ended Dec. 31 Sept. 30 2006 2006 $8,816,938 (4,992,610) (519,891) $3,304,437 7.49% 11.32% 1.18% 20.00% $8,621,910 (4,932,536) (611,329) $3,078,045 9.52% 15.26% 1.89% 26.68% Operating Return on Average Equity Effect of Goodwill Effect of CDI and other intangibles Tangible Return on Average Equity Year-to-Date http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (25 of 26)12/18/2007 2:37:11 PM
Slide 29: Sovereign Bank - Investor Relations - Press Releases (dollars in thousands) Average Equity Average Goodwill Average CDI and other intangibles Average Tangible Equity Operating Return on Average Equity Effect of Goodwill Effect of CDI and other intangibles Tangible Return on Average Equity Sept. 30 2007 $8,774,986 (5,004,450) (453,644) $3,316,892 6.79% 10.24% 0.93% 17.95% Sept. 30 2006 $7,082,455 (3,705,413) (388,650) $2,988,392 9.92% 12.30% 1.29% 23.51% http://phx.corporate-ir.net/phoenix.zhtml?c=67999&p=irol-newsArticle&ID=1064259&highlight= (26 of 26)12/18/2007 2:37:11 PM