1. First Quarter 2004 Investor Report
sovereignbank.com
NYSE: SOV
Quarter Ended March 31, 2004
Net income included an after-tax merger and integration charge of $15.3 million and incremental
Highlights loan loss provision of $3.9 million ($6.0 million pre-tax) associated with the acquisition of First
Essex Bancorp in the first quarter of 2004 and an after-tax charge of $18.8 million on the early
■ Net income of $102 million, up extinguishment of $302 million of Sovereign debt in 2003. Excluding these charges, operating
earnings were $122 million, or $.40 per diluted share, up 28% compared to $94.7 million, or $.34
35% from $76 million in 1Q ’03
per diluted share, for the first quarter of 2003. Cash earnings increased to $137 million, up 24%,
compared to $110 million for the first quarter of 2003.
■ Earnings per share, including a
Commenting on results for the first quarter of to $45.4 million. Commercial banking fees increased
one-time merger-related charge,
2004, Jay S. Sidhu, Sovereign’s Chairman and Chief $3.5 million, or 13.7%, over the same period a year ago,
were $.33 for 1Q ’04, up 23% Executive Officer, said, “This has been a very busy driven by growth in loan fees.
and exciting quarter for Sovereign. We have exceeded
from $.27 in 1Q ’03 Mortgage banking revenues were $5.4 million in the
the analysts’ mean earnings estimate for the quarter,
first quarter of 2004, compared to $15.7 million in
expanded our capital ratios as a result of capital raising
the fourth quarter and $8.0 million in the first quarter
■ Cash earnings of $137 million, initiatives, closed and integrated our acquisition
of 2003. Due to changes in prepayment speeds, a
of First Essex Bancorp, Inc., and announced the
up 24% from $110 million in 1Q servicing rights impairment charge of $11.3 million
pending acquisitions of Seacoast Financial Services
was recorded in the first quarter. Offsetting this charge
’03. Cash earnings per share were Corporation and Waypoint Financial Corp. which
were gains from sales of mortgage loans of $16.5
dramatically improve our franchise, as both become
$.45, up from $.39 in 1Q ’03 million. As of March 31, 2004, mortgage servicing
accretive to earnings per share within the first year. In
rights, net of reserves of $23.7 million, were $66.4
addition, we announced a 20% increase in our cash
million, and our servicing portfolio was $6.6 billion,
dividend. Despite persistently low interest rates, we
a capitalized cost of 101 basis points. “If rates remain
were able to produce solid results in our core banking
Other News where they are or move higher, we should recover most
fundamentals. Commercial and consumer loans were
(for complete articles, go to
of the impairment charge taken in the first quarter,”
up 7% and 19%, respectively, from the first quarter
sovereignbank.com, Investor
stated James D. Hogan, CPA, Chief Financial Officer,
of 2003, excluding the impact of acquisitions. Fee
Relations, News & Press)
Sovereign Bancorp.
revenue continued to be strong, and we experienced
■ Sovereign and solid improvement in our credit quality.” Expenses
Seacoast approve G&A expenses were essentially flat for the first quarter,
Net Interest Income
after giving effect to the acquisition of First Essex during
amended terms of and Margin
the quarter. Excluding operating expenses during the
agreement; deal Sovereign reported net interest income of $323 million
quarter of approximately $3.5 million related to First
for the first quarter of 2004, an increase of $20 million,
becomes more Essex, expenses increased by only $0.2 million from
or 6.5%, compared to the first quarter of 2003. On a
the fourth quarter and increased about 5% from $211
accretive to earnings linked-quarter basis, net interest income increased by
million a year ago. All-in, operating expenses for the
$14.3 million, or 4.6%.
quarter were $226 million, up from $222 million in the
■ Sovereign to acquire Net interest margin was 3.28% for the first quarter fourth quarter. Sovereign’s effective tax rate declined in
of 2004, compared to 3.39% in the fourth quarter the first quarter to 24.3% due, in part, to recording the
Waypoint Financial
and 3.50% in the first quarter of 2003. About half benefit on merger-related charges at 35%. We expect
Corp., enhancing
of the decline on a linked quarter basis was due to our tax rate in future quarters to increase closer to our
the franchise in the completion of our $800 million convertible trust 2003 effective rate.
preferred offering in February 2004 and effect of
southcentral PA Franchise Growth
purchase accounting adjustments from our First Essex
and northern MD — Sovereign’s total loan portfolio increased during
acquisition. The remainder of the decline was due
the first quarter to $27.7 billion due to increases
accretive to earnings to a continued decline in interest rates and resultant
in the commercial and consumer loan portfolios,
margin pressure due to our desire to maintain an asset
in first year principally resulting from the First Essex acquisition.
sensitive interest rate risk position.
Commercial and consumer loans now make up 43%
Non-Interest Income and 40%, respectively, of the total loan portfolio.
■ Dennis Marlo retires
and Expense
after six years at Excluding $777 million in acquired core deposits from
Sovereign continued to generate strong consumer
the First Essex acquisition, core deposits declined
Sovereign; Bob and commercial banking fees in the first quarter
slightly. Sovereign’s cost of deposits declined by 5
of 2004. Consumer banking fees increased by $5.8
Rose becomes new basis points to .95% in the first quarter of 2004 due
million, or 12%, compared to the same period in
Chief Credit Risk to a decline in the cost of time deposits. Certificates
2003. The increase was driven principally by deposit
of deposit account for only 22% of total deposits. The
Management Officer fees, which increased by $5.3 million
continued on page 3

2. First Quarter 2004 Investor Report
Quarterly Financial Highlights
Quarter Ended (unaudited) Quarter Ended (unaudited)
Mar. 31 Mar. 31 Mar. 31 Mar. 31
(dollars in millions, except per share data) 2004 2003 (dollars in millions) 2004 2003
Operating Data Financial Condition Data:
Net income $102.2 $75.9 General
Operating earnings (1) 121.5 94.7
Total assets $47,043 $40,934
Cash earnings (2) 136.9 110.4
Loans 27,739 24,054
Net interest income 322.8 303.0
Total deposits and customer related accounts: 28,118 26,746
Provision for loan losses 43.0 43.4
Core deposits and other customer related accounts 21,939 20,015
Total fees and other income before securities transactions 109.9 103.1
Time deposits 6,179 6,731
Net gain on investments and related derivatives transactions 17.9 17.5
Borrowings (5) 14,262 10,111
G&A expense 226.0 211.1
Redeemable capital securities and
Other expenses (5) 46.6 64.1
other minority interests (5) 203 597
Performance Statistics Stockholders’ equity 3,916 2,856
Bancorp Goodwill 1,293 1,025
Core deposit intangible 262 324
Net interest margin 3.28% 3.50%
Asset Quality
Cash return on average assets (2) 1.20% 1.11%
Operating return on average assets (1) 1.07% 0.95% Non-performing assets $212.0 $249.9
Cash return on average equity (2) 15.47% 15.91% Non-performing loans $188.6 $221.6
Operating return on average equity (1) 13.72% 13.64% Non-performing assets to total assets 0.45% 0.61%
Annualized net loan charge-offs to average loans 0.51% 0.56% Non-performing loans to total loans 0.68% 0.92%
Efficiency ratio (3)(5) 52.23% 51.98% Allowance for loan losses $351.0 $309.4
Allowance for loan losses
Per Share Data to total loans 1.27% 1.29%
Basic earnings per share $0.34 $0.29 Allowance for loan losses
Diluted earnings per share 0.33 0.27 to non-performing loans 186% 140%
Operating earnings per share (1) 0.40 0.34 Capitalization - Bancorp (6)
Cash earnings per share (2) 0.45 0.39
Stockholders’ equity to total assets 8.32% 6.98%
Dividend declared per share .030 .025
Tier 1 leverage capital ratio 7.09% 5.02%
Book value (4) 12.80 10.95
Tangible equity to tangible assets, excluding OCI 5.17% 3.66%
Common stock price:
Tangible equity to tangible assets, including OCI 5.19% 3.81%
High 24.51 14.49
Capitalization - Bank (6)
Low 20.37 12.72
Close $21.42 $13.85 Stockholders’ equity to total assets 9.60% 9.43%
Weighted average common shares: Tier 1 leverage capital ratio 6.82% 6.59%
Basic 300.7 261.3 Tier 1 risk-based capital ratio 8.82% 8.50%
Diluted 306.7 281.4 Total risk-based capital ratio 12.13% 11.21%
End-of-period common shares:
Basic 306.4 261.0
Diluted 311.7 281.3
NOTES: (1) Operating earning represent net income excluding the after-tax effects of merger and integration costs of $15.3 million or $.05 per share and additional provision for loan loss of $3.9 million or $.01 per share in March 2004
and loss on debt extinguishment of $18.8 million or $.07 per share in March 2003. (2) Cash earning represents operating earnings excluding the after-tax effects of non-cash charges for the amortization of intangible assets and stock based
compensation. Stock based compensation encompasses arrangements with employees under which the Company’s obligation will be settled by using stock rather than cash and includes expense related to stock options, restricted stock, bonus
deferral plans, and ESOP expense. Cash earnings for the three months ended March 31, 2004, and March 31, 2003, represent operating earnings excluding the after-tax effects of non-cash charges of $15.5 million or $.05 per share, and
$15.7 million or $.06 per share respectively. (3) Efficiency ratio equals general and administrative expense excluding merger-related and other integration charges as a percentage of total revenue, defined as the sum of net interest income and
total fees and other income before securities transactions. (4) Book value equals stockholders’ equity at period-end divided by common shares outstanding. (5) Effective July 1, 2003, Sovereign elected to change the Company’s accounting policy
to treat trust preferred securities as liabilities and Sovereign reclassified these obligations from “redeemable capital securities and other minority interests” to “borrowings and other debt obligations.” Restatement of prior periods is not permitted.
(6) All capital ratios are calculated based upon adjusted end of period assets consistent with OTS guidelines.
This Investor Report contains statements of Sovereign’s strategies, plans, and objectives; estimates of future operating results for 2004 and beyond for Sovereign Bancorp, Inc.; as well as estimates of financial condition, operating 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; inflation; deposit flows; loan demand; real estate values; competition;
changes in accounting principles, policies, or guidelines; integration of acquired assets, liabilities, customers, systems and management personnel into Sovereign’s operations and the ability to realize the related revenue synergies and cost savings within
expected time frames; possibility that expected merger-related charges are materially greater than forecasted or that final purchase price allocations based on fair value of the acquired assets and liabilities at acquisition date and related adjustments to
yield and/or amortization of the acquired assets and liabilities are materially different from those forecasted; deposit attrition, customer loss, revenue loss and business disruption following Sovereign’s acquisitions, including adverse effects on relationships
with employees may be greater than expected; anticipated acquisitions may not close on the expected closing date or it may not close; the conditions to closing anticipated acquisitions, including stockholder and regulatory approvals, may not be satisfied;
Sovereign’s timely development of competitive new products and services in a changing environment and the acceptance of such products and services by customers; the willingness of customers to substitute competitors’ products and services and vice versa;
the ability of Sovereign and its third party processing and related systems on a timely and acceptable basis and within projected cost estimates; the impact of changes in financial services policies, laws and regulations, including laws, regulations, policies
and practices 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:
technological changes; changes in consumer spending and saving habits; unanticipated regulatory or judicial proceedings; changes in asset quality; employee retention; reserve adequacy; changes in legislation or regulation or policy or the application thereof;
and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services..
Sovereign in the Community
■ For the third consecutive year, Sovereign Bancorp, Inc. has been named
■ The Federal Home Loan Bank of Pittsburgh (FHL Bank) has selected
one of the most admired financial industry companies in the nation by
Sovereign Bank as a “Pillars of the Community Award” recipient for 2004.
Fortune magazine. Sovereign ranked 10th on the Fortune magazine list
The Pillars of the Community Awards are presented to member financial
under the category of Mortgage Services. The survey’s ranking criteria
institutions that have demonstrated outstanding commitment in the area
were innovation, financial soundness, employee talent, use of corporate
of community development.
assets, long-term investment value, social responsibility, quality of
Institutions are recognized for their use of the FHL Bank’s community management and quality of products and services.
investment programs in projects that provide safe, decent housing for low-
income families and promote community stability or revitalization through
economic development.
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3. First Quarter 2004 Investor Report
Sovereign and Waypoint will be filing documents concerning the merger with the Securities and Exchange
Sovereign Bank Footprint for pro forma
Commission, including a registration statement on Form S-4 containing a prospectus/proxy statement which will
locations including Seacost in Massachusetts be distributed to shareholders of Waypoint. Investors are urged to read the registration statement and the proxy
and Waypoint in southcentral Pennsylvania statement/prospectus regarding the proposed transaction when it becomes available and any other relevant
documents filed with the SEC, as well as any amendments or supplements to those documents, because they will
and northern Maryland areas. contain important information. Investors will be able to obtain a free copy of the proxy statement/prospectus, as
well as other filings containing information about Sovereign and Waypoint, free of charge on the SEC’s Internet
site (http://www.sec.gov). In addition, documents filed by Sovereign with the SEC, including filings that will be
incorporated by reference in the prospectus/proxy statement, can be obtained, without charge, by directing a request
to Sovereign Bancorp, Inc., Investor Relations, 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Tel:
610-988-0300). In addition, documents filed by Waypoint with the SEC, including filings that will be incorporated
by reference in the prospectus/proxy statement, can be obtained, without charge, by directing a request to Waypoint
Financial Corp., 235 North Second Street, Harrisburg, Pennsylvania 17101, Attn: Richard C. Ruben, Executive
Vice President and Corporate Secretary (Tel: 717-236-4041). Directors and executive officers of Waypoint may be
deemed to be participants in the solicitation of proxies from the shareholders of Waypoint in connection with the
merger. Information about the directors and executive officers of Waypoint and their ownership of Waypoint common
stock is set forth in Waypoint’s proxy statement for its 2003 annual meeting of shareholders, as filed with the SEC on
April 21, 2003. Additional information regarding the interests of those participants may be obtained by reading the
prospectus/proxy statement regarding the proposed merger transaction when it becomes available.
INVESTORS SHOULD READ THE PROSPECTUS/PROXY STATEMENT AND OTHER DOCUMENTS TO BE FILED WITH THE
SEC CAREFULLY BEFORE MAKING A DECISION CONCERNING THE MERGER.
Common Stock Dividend Reinvestment and Stock Purchase Plan
Sovereign Bancorp, Inc. offers a Dividend Reinvestment and Stock Purchase Plan to its common stock shareholders of record. This plan
provides a convenient method of investing cash payments for shareholders of record in additional shares of Sovereign’s common stock without
payment of brokerage commissions or service charges.
Next investment date for optional cash payments: Optional cash purchases may be made in any amount from a minimum of
■ ■
July 18 – August 1, 2004 $50 to a maximum of $5,000 per quarter
Make checks payable to: Sovereign Bancorp, Inc. All optional cash payments received before July 18, 2004, or after
■ ■
August 1, 2004, will be returned
Mail cash payments to:
■
Mellon Investor Services Dividend Reinvestment—Sovereign Bank Enrollment card, prospectus requests and account questions:
■
PO Box 3340, South Hackensack, NJ 07606-1940 1-800-685-4524
continued from page 1
decline in core deposits was principally a result of some seasonal declines in Well Positioned for Higher Rates
commercial deposits and moving some commercial repurchase agreements Sovereign has taken many steps in recent years to reposition its balance
off-balance sheet. “We hope to show an increase in core deposits over the sheet so that it would benefit from rising rates. “By focusing our business
coming few months,” stated Hogan. strategy on core deposit growth and commercial and consumer loan
growth, our asset/liability profile is much more akin to a commercial
Asset Quality
bank than a traditional thrift, which focuses on residential mortgages and
Non-performing assets (“NPAs”) were $212 million at March 31, 2004,
certificates of deposit. We remain positioned to benefit from rising rates,
compared to $220 million at December 31, 2003. NPAs to total assets
as $11.9 billion of our loans are tied to short-term indices, and only $9.6
decreased to .45% during the first quarter of 2004, compared to .51% at
billion of our liabilities will re-price with any short-term rate movements,”
December 31, 2003. Sovereign’s provision for loan losses was $37.0 million
stated Hogan.
this quarter (excluding a $6 million provision related to the First Essex loan
portfolio) compared to $40.0 million in the fourth quarter and $43.4 million Looking Ahead
in the first quarter of 2003. The allowance for loan losses to total loans was “We remain comfortable with mean analyst estimates of $1.63 in operating
1.27% at March 31, 2004, as compared to 1.25% at December 31, 2003, and earnings and approximately $1.80 in cash earnings for 2004, excluding
1.29% at March 31, 2003. after-tax merger related charges for our completed acquisition of First
Essex and our pending acquisitions of Seacoast and Waypoint,” Sidhu
Capital
concluded. “For 2005, the current range of thirteen analyst estimates for
“During the quarter, we were able to accelerate the achievement of our
our company is between $1.75 and $1.95 operating earnings per share, with
2005 capital goals through the issuance of $800 million of convertible trust
a mean estimate of $1.88, implying a mean cash estimate of about $2.00
preferred securities,” commented Hogan. “As Sovereign’s capital continues
per share. We are comfortable with the analysts’ mean estimate, which
to build into 2005 and beyond, we will consider various capital strategies,
implies 2005 operating earnings growth of 15%. While we are uncertain
including continued increases to our cash dividend.” Boosted in part by the
if the current economic environment will allow a higher level of growth,
aforementioned trust preferred offering, the Tier 1 leverage ratio grew by
management’s goal remains to strive for $1.90 to $2.00 operating earnings
151 basis points during the quarter to 7.09% at March 31, 2004, and tangible
in 2005. Based upon our April 19 stock price of $19.91, Sovereign is trading
common equity to tangible assets increased 53 basis points to 5.19% from
at a P/E of 12.2x for estimated 2004 operating earnings per share, a P/E of
4.66% at December 31, 2003. The equity to assets ratio increased to 8.32%
11.1x for cash earnings per share and only 155% of book value. The book
at March 31, 2004. At March 31, 2004, Sovereign Bank’s Tier 1 leverage
value per share at March 31, 2004, was $12.78.”
was 6.82% and the bank’s risk-based capital ratio was 12.13%
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4. Sovereign Bancorp, Inc., (“Sovereign”) (NYSE: SOV), headquartered in Philadelphia, Pennsylvania, is the parent company of Sovereign
Bank, a $47 billion financial institution with 535 community banking offices, nearly 1,000 ATMs and about 8,300 team members in Connecticut,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania and Rhode Island. In addition to full-service retail banking, Sovereign
offers a broad array of financial services and products including business and corporate banking, cash management, capital markets,
trust and wealth management and insurance. Sovereign is one of the top 20 largest banking institutions in the United States, pro forma for
pending acquisitions.
Corporate Information
Sovereign Trust Preferred Capital Securities James D. Hogan, CPA John P Hamill
.
CONTACT INFORMATION
dividends are customarily paid on a quarterly Chief Financial Officer, Bancorp Chairman and Chief Executive
Bancorp Headquarters
basis on or about March 31, June 30, 610-320-8496 Officer of Sovereign Bank New England
1500 Market Street
September 30, and December 31. Jhogan@sovereignbank.com Division
Philadelphia, PA 19102
617-757-5420
Mark R. McCollom, CPA
Bank Headquarters REGISTRAR AND Jhamill@sovereignbank.com
Chief Financial Officer, Bank
1130 Berkshire Boulevard TRANSFER AGENT
610-208-6426 James D. Hogan, CPA
Wyomissing, PA 19610 Shareholders who wish to change Mmccollo@sovereignbank.com Chief Financial Officer, Bancorp
Mailing Address the name, address, or ownership of stock, 610-320-8496
Stacey V. Weikel
P.O. Box 12646 report lost stock certificates, Jhogan@sovereignbank.com
Senior Vice President,
Reading, PA 19612 or consolidate stock accounts
Investor Relations and James J. Lynch
should contact:
Operator Strategic Planning Chairman and Chief Executive
610-320-8400 Common Stock – NYSE: SOV 610-208-6112 Officer of Sovereign Bank
Mellon Investor Services Sweikel@sovereignbank.com Mid Atlantic Division
Internet
One Mellon Bank Center 267-675-0636
sovereignbank.com EXECUTIVE MANAGEMENT
500 Grant Street, Room 2122 Jlynch1@sovereignbank.com
OFFICE OF THE CHAIRMAN
INVESTOR INFORMATION Pittsburgh, PA 15258
Lawrence M. Thompson, Jr., Esq.
1-800-685-4524
Copies of the Annual Report, 10K, Jay S. Sidhu
Chief Operating Officer
interim reports, press releases, and other Chairman of the Board,
Trust Preferred Securities – and President of Consumer
communications sent to shareholders are President, and CEO
NYSE: SOVPRA Banking Division
available at no charge on Sovereign’s web 610-320-8415
The Bank of New York 610-320-8459
site, or via: Jsidhu@sovereignbank.com
2 North LaSalle Street Lthompso@sovereignbank.com
e-mail: investor@sovereignbank.com 10th Floor Joseph P Campanelli
.
Investor Relations voice mail: Chicago, IL 60602 President and Chief Operating Officer
1-800-628-2673 312-827-8547 Sovereign Bank
New England Division; President of
DIVIDENDS FINANCIAL INFORMATION
Commercial Markets Group,
Cash dividends on common stock are Investors, brokers, security analysts, and
Sovereign Bank
customarily paid on a quarterly basis on or others desiring financial information should
617-757-3444
about the 15th of February, May, August, and contact:
Jcampane@sovereignbank.com
November.
P.O. Box 12646
Reading, PA 19612