Earnings Press Release Archive

April 23, 2008

 
Download the 2008 Q1 Financial Data

Sovereign Bancorp, Inc. ("Sovereign or the Company") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today reported net income for the quarter ended March 31, 2008 of $100.1 million or $.20 per share as compared to $48.1 million or $.09 per share a year earlier. Net income in the first quarter of 2007 included charges related to an expense reduction initiative and balance sheet restructuring of $128.7 million (after-tax) or $.25 per share.

Highlights of the first quarter of 2008 results were as follows:

• Net interest margin increased to 2.88% in the first quarter, an increase of 11 basis points from the fourth quarter of 2007 and 18 basis points from the similar quarter in 2007.
• The Company experienced loan growth of 1.9% from December 31, 2007, which was driven by solid growth in commercial loans partially offset by a 3% linked-quarter decline in auto loans.
• Deposit growth and deposit mix continued to improve driven by retail and commercial deposit growth of $942 million offset by seasonal declines in government deposits and planned runoff in wholesale deposits in the first quarter of 2008.
• Sovereign’s allowance for credit losses as a percentage of total loans increased to 1.36% at March 31, 2008, compared to 1.28% at December 31, 2007 and .90% at March 31, 2007.
• The Company’s tangible equity to tangible assets excluding other comprehensive income expanded 38 basis points to 4.97% at March 31, 2008 compared to 4.59% for the similar period in 2007.

Commenting on the results for the first quarter of 2008, Joseph P. Campanelli, Sovereign’s President and CEO, stated, "Sovereign’s results for the first quarter demonstrate that we are continuing to make progress on our goals to reduce risk and improve the quality of our earnings stream. The current turbulent financial markets provide a challenging credit environment which has resulted in elevated levels of non-performing assets and provisions for credit losses."

Net Interest Income and Margin
For the first quarter of 2008, Sovereign reported net interest income of $482 million as compared to $466 million last quarter and $488 million in the first quarter of 2007. The Company’s net interest margin expanded 18 basis points during the first quarter of 2008 to 2.88% from the similar quarter a year ago. The steepening of the yield curve in recent quarters coupled with solid retail deposit growth in the first quarter of 2008 and the impact of balance sheet restructurings in 2007 have been the main drivers of this expansion.

Sovereign’s average loan balances decreased $3.0 billion from the first quarter of 2007 primarily as a result of the prior years’ balance sheet restructurings and a focused discipline in 2008 on originating loans within the Company’s footprint. Average loan balances increased $700 million on a linked quarter basis to $58.2 billion, reflecting growth in commercial loans and direct home equity loans partially offset by runoff in residential mortgage and auto loans.

Sovereign’s average deposits decreased $3.0 billion from the first quarter of 2007 as the Bank continued to focus on retail and commercial deposit growth and reduced its reliance on wholesale deposit sources by $4.3 billion. On a linked quarter basis, average deposits decreased $1.4 billion primarily due to reductions in wholesale deposits of $1.5 billion. The Company experienced growth in retail deposits of $459 million with seasonal declines in government and commercial deposits.

Non-Interest Income
Consumer and commercial banking fees increased $10.2 million or 8.7% from a year ago and decreased $6.5 million on a linked quarter basis. The variance from the fourth quarter of 2007 primarily related to a securitization loss of $2.7 million in the first quarter of 2008 and a $2.6 million loan syndication gain in the fourth quarter of 2007. In relation to the variance from the first quarter of 2007, the Company incurred the aforementioned securitization loss of $2.7 million which was offset by increases in consumer and commercial deposit fees.

Mortgage banking revenues for the quarter were a loss of $5.1 million, compared to a gain of $9.2 million on a linked quarter basis and a loss of $107.2 million in the same quarter a year ago. The first quarter loss was attributed to mortgage and multi-family servicing right impairments of $23.6 million which were driven primarily by lower interest rates and higher market prepayment speed assumptions. Excluding the aforementioned impairments, the Company’s mortgage banking revenues were relatively robust in the first quarter primarily due to higher spreads on secondary sales. The loss in the first quarter of 2007 included the lower of cost or market adjustment of $120 million related to the portion of correspondent home equity loans not sold as part of the balance sheet restructuring.

Capital markets revenues for the first quarter of 2008 were $10.4 million compared to a loss of $18.3 million in the fourth quarter of 2007 and revenues of $5.7 million in the first quarter of 2007. The fourth quarter of 2007 included $27.4 million of losses on repurchase agreements provided to mortgage companies.

Net investment gains of $14.1 million in the first quarter of 2008 were due to the mandatory partial redemption of the VISA IPO shares. The net securities loss of $179.2 million in the fourth quarter of 2007 related to the other-than-temporary impairment charge on FNMA and FHLMC preferred stock.

Non-Interest Expense
General and administrative expenses were $359 million for the first quarter of 2008, as compared to $337 million in the fourth quarter of 2007 and $329 million in the similar quarter a year ago. The fourth quarter of 2007 included an $18.7 million reversal of incentive compensation accruals as a result of corporate objectives not being achieved. In addition, the first quarter of 2008 included the normal seasonal increase in payroll taxes of $6.5 million, higher deposit insurance premiums of $4.7 million, and increased marketing expense of $2.4 million which was partially offset by a reduction in legal expense of $6.4 million related to the release of reserves established in the fourth quarter of 2007 for the Visa litigation.

The increase in general and administrative expenses from the first quarter of 2007 of $29 million was primarily due to increased compensation expense of $13.7 million, which included $5 million of reversals of incentive accruals in the first quarter of 2007, higher deposit insurance premiums of $7.6 million, and increased marketing expense of $7.4 million offset by the above mentioned reduction in legal expense of $6.4 million in the first quarter of 2008.


Asset Quality
Sovereign's provision for credit losses was $135 million in the first quarter of 2008, compared to $148 million in the fourth quarter of 2007 and $46.0 million in the first quarter of 2007. Sovereign increased its allowance for credit losses to $798 million, a $60.7 million increase from December 31, 2007, primarily due to growth in commercial loans and continued deterioration in the Bank’s commercial construction portfolio. This raises Sovereign’s allowance for credit losses to total loans at March 31, 2008 to 1.36% up from 1.28% at December 31, 2007 and .90% at March 31, 2007.

Net charge-offs were $74.3 million this quarter versus $60.5 million in the prior quarter and $24.1 million a year ago. Annualized net charge-offs were .51% of average loans for the current quarter, compared to .42% linked quarter and .16% a year ago. Sovereign ceased originating correspondent home equity loans in the first quarter of 2006 and auto loans in the Southeast and Southwest in the first quarter of 2008. Approximately 43% of net charge-offs this quarter related to losses on the indirect auto portfolio outside the Company’s footprint of $28.3 million and correspondent home equity loans of $4.0 million.

Non-performing loans increased to $417.8 million at March 31, 2008 compared to $304.3 million at December 31, 2008 and $242.0 million at March 31, 2007. This increase is driven primarily by higher non-performing commercial loans, a significant portion of which related to the housing market. Non-performing loans to total loans increased 18 basis points to .71% at March 31, 2008 compared to .53% at December 31, 2007 and .43% at March 31, 2007.

Capital
Sovereign’s tangible equity to tangible assets excluding other comprehensive income (“OCI”) was 4.97% at March 31, 2008 compared to 4.67% at December 31, 2007 and 4.59% a year ago. Tangible common equity to tangible assets excluding OCI was 4.72% at the end of the first quarter of 2008 compared to 4.43% on a linked quarter basis and 4.34% a year ago. Sovereign’s Tier 1 leverage ratio was 6.21% at March 31, 2008, as compared to 5.89% at December 31, 2007. The increase in the aforementioned capital ratios were primarily due to higher earnings and the suspension of the common stock dividend.

Sovereign Bank’s Tier 1 leverage ratio was 6.85% compared to 6.80% at March 31, 2007. The Bank’s total risk-based capital ratio was 10.24% at March 31, 2008 down slightly from 10.48% a year ago primarily due to the mix of risk weighted assets.

Download the 2008 Q1 Financial Data

About Sovereign
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, call 1-877-SOV-BANK.

Investors, analysts and other interested parties will have the opportunity to listen to a live Webcast of Sovereign's First Quarter 2008 earnings call on Wednesday, April 23, 2008 beginning at 10:30 a.m. ET at Events and Webcasts. International parties are invited to dial into the conference call at 706-679-7706. The Webcast can be accessed at 10:30 a.m. ET on Wednesday, April 23, 2008. Questions may be submitted during the call via email accessible from Sovereign Bancorp’s broadcast and Investor Relations sites. A Webcast replay will remain available via Sovereign’s Investor Relations site. A telephone replay will be accessible from 12:30 p.m. ET on Wednesday, April 23, 2008 through 12:00 a.m. ET (midnight) on Wednesday, April 30, 2008 by dialing 1-800-642-1687 in the U.S., international 706-645-9291, confirmation id # 42743102.

Note:
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 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.

Financial Contacts
Kirk Walters
Office: 617-346-7346
kwalter1@sovereignbank.com

Stacey Weikel
Office: 610-320-8428
sweikel@sovereignbank.com

Media Contact
Ed Shultz
Office: 610-378-6159
eshultz1@sovereignbank.com