1. Third Quarter 2004 Investor Report
sovereignbank.com
NYSE: SOV
Quarter Ended September 30, 2004
Sovereign Bancorp, Inc. reported third quarter 2004 net income after non-recurring charges of
$60.8 million, or $.18 per share, of $82.5 million, or $.24 per diluted share, as compared to $109
million, or $.37 per diluted share, for the third quarter of 2003. Net income in the third quarter of
Highlights 2004 included the previously announced after-tax merger and integration charge of $18.2 million,
or $.05 per share, associated with the acquisition of Seacoast Financial Services Corporation
(“Seacoast”) and an after-tax charge of $42.6 million, or $.13 per share, in connection with the
■ Net operating earnings in the early redemption of $500 million of high-cost debt.
Excluding these charges, operating earnings were up levels have improved substantially. Equity to assets has
third quarter of 2004 were
31% to $143 million as compared to $109 million expanded 315 basis points to 8.64% at September 30,
$143 million, up 31% from for the third quarter of 2003. Operating earnings per 2004. Tier 1 Leverage has expanded 356 basis points
share were up 14% to $.42 per share from $.37 per to 6.56% at September 30, 2004. Tangible common
$109 million a year ago.
share during the third quarter of 2003. Cash earnings equity has expanded 315 basis points to 4.51% at
increased to $162 million, or $.47 per diluted share, as September 30, 2004. In addition to dramatically
■ Operating earnings per share compared to $124 million, or $.42 per diluted share, improved capital levels, the quality of Sovereign’s
for the third quarter of 2003. A reconciliation of net balance sheet has improved as Sovereign has removed
were $.42 per share, up 14% income, operating earnings and cash earnings, as well most of the high-cost debt financing incurred in this
as the related earnings per share amounts, is included transaction. “This acquisition transformed Sovereign
from $.37 per share in the
in a later section of this report. into a high growth community-oriented commercial
same quarter of 2003. bank with a diversified loan portfolio, a low-cost
Commenting on results for the third quarter of
deposit base and a very strong market position. It
2004, Jay S. Sidhu, Sovereign’s Chairman and Chief
has substantially enhanced franchise and shareholder
■ Cash earnings of $162 million, Executive Officer, said, “The third quarter was another
value. This is evidenced by a 145% appreciation in our
strong quarter for Sovereign. We are pleased that the
up 30% from $124 million in 3Q stock price since October of 1999, outperforming a
Federal Reserve has begun to increase short-term
number of market indices including the DJIA, S&P
’03. Cash earnings per share were interest rates, as this immediately benefited our net
500, Bank Super regional, Bank NYSE and Thrift
interest income and should also drive net interest
NYSE during that time period,” commented Sidhu.
$.47, up from $.42 in 3Q ’03 margin expansion in the fourth quarter. Commercial
and consumer loans were up 9% and 28%, respectively, Net Interest Income and Margin
from the third quarter of 2003, excluding the impact Sovereign reported net interest income of $363
of acquisitions; while core deposits were up 6%. million for the third quarter of 2004, an increase of
Our credit quality again showed improvement during $75.7 million, or 26% compared to the third quarter
the quarter. Operating expenses are being held in of 2003. On a linked-quarter basis, net interest income
check, as the only increases in expenses for the quarter increased by $30.9 million, or 9.3%, in spite of the fact
Other News were related to our acquisition of Seacoast. Lastly, that the company de-levered the investment portfolio
we are pleased to welcome Seacoast’s customers, by $1.1 billion. As a result of higher short-term interest
(for complete articles, go to shareholders and team members to Sovereign, as we rates, commercial loan yields increased by 36 basis
sovereignbank.com, Investor successfully closed and converted this acquisition points and consumer loan yields increased by 10 basis
Relations, News & Press) during the quarter.” points during the quarter. Most of Sovereign’s variable
rate consumer loans have repricing periods that lag rate
September of this year marked the five-year anniversary
changes by up to one quarter. Deposit costs increased
of Sovereign’s announcement of the Fleet/BankBoston
■ Jim Hogan Retiring by only 14 basis points in the third quarter.
branch acquisition, the largest banking divestiture
in April 2005; Mark
in U.S. history. It consisted of approximately 285 Non-Interest Income
McCollom Appointed branches, $12 billion in deposits and $9 billion in Sovereign’s consumer and commercial banking fees
loans. This acquisition enabled Sovereign to enter the
CFO Upon Hogan’s generated record levels once again in the third quarter
New England market with a very significant market of 2004. Consumer banking fees increased by $9.2
Retirement
share, ranking third in the region. Since Sovereign’s million, or 17%, compared to the same period in
■ Kevin Champagne, successful integration in the third quarter of 2000, the 2003. The increase was driven principally by deposit
annual growth rate in operating earnings per share fees, which increased by $7.0 million to $51.3 million.
Former Seacoast
has been 10%, and since 2001, Sovereign’s operating Commercial banking fees increased $4.6 million
CEO, and Robert earnings annual growth rate has been 25%. Since the to $31.8 million, or 17%, over the same period a
Gilbane, CEO third quarter of 2000, Sovereign’s commercial and year ago driven by growth in loan fees. Consumer
consumer loans have grown 14% and 20%, respectively, and commercial banking fees increased 8% and 4%,
Gilbane Properties,
on average per year. Core deposits have grown 15% on respectively, in the third quarter of 2004 as compared to
Named to Sovereign average per year. Banking fees have increased 30% on second quarter 2004 levels. Excluding approximately
Bank Board of average per year. Operating expenses have increased $3.7 million in revenue related to Seacoast, consumer
only 1.5% on average per year. Sovereign’s efficiency and commercial banking fees increased 11.0% and
Directors
ratio has decreased more than 500 basis points. Capital 15.4%, respectively, over last year.
continued on page 3

2. Third Quarter 2004 Investor Report
Quarterly Financial Highlights
Quarter Ended (unaudited) Quarter Ended (unaudited)
Sept. 30 Sept. 30 Sept. 30 Sept. 30
(dollars in millions, except per share data) 2004 2003 (dollars in millions) 2004 2003
Financial Condition Data:
Operating Data:
General
Net income $82.5 $109.2
Operating earnings (1) 143.3 109.2 Total assets $55,755 $41,055
Cash earnings (2) 161.6 124.4 Loans 35,262 24,550
Net interest income 363.0 287.3 Total deposits and customer related accounts: 33,102 27,515
Provision for loan losses 25.0 36.6 Core deposits and other customer related accounts 25,744 21,233
Total fees and other income before securities transactions 108.3 119.5 Time deposits 7,358 6,283
Net gain on investment securities 20.2 18.8 Borrowings 16,919 9,570
G&A expense 237.7 210.8 Minority interests 203 202
Other expenses 129.1 27.5 Stockholders’ equity 4,815 3,169
Goodwill 2,103 1,027
Performance Statistics Core deposit intangible 305 287
Bancorp
Asset Quality
Net interest margin 3.17% 3.32%
Non-performing assets $168.8 $257.7
Cash return on average assets (2) 1.20% 1.20%
Non-performing loans $147.5 $236.1
Operating return on average assets (1) 1.07% 1.05%
Non-performing assets to total assets 0.30% 0.63%
Cash return on average equity (2) 14.14% 15.97%
Non-performing loans to total loans 0.42% 0.96%
Operating return on average equity (1) 12.55% 14.03%
Allowance for loan losses $406.6 $322.7
Annualized net loan charge-offs to average loans 0.25% 0.55%
Allowance for loan losses to total loans 1.15% 1.31%
Efficiency ratio (3) 50.44% 51.82%
Allowance for loan losses to non-performing loans 276% 137%
Per Share Data
Capitalization - Bancorp (5)
Basic earnings per share $0.25 $0.37
Diluted earnings per share 0.24 0.37 Stockholders’ equity to total assets 8.64% 7.72%
Operating earnings per share (1) 0.42 0.37 Tier 1 leverage capital ratio 6.56% 5.60%
Cash earnings per share (2) 0.47 0.42 Tangible equity to tangible assets, excluding OCI 4.77% 4.73%
Dividend declared per share .030 .025 Tangible equity to tangible assets, including OCI 4.51% 4.67%
Book value (4) 13.95 10.84
Capitalization - Bank (5)
Common stock price:
High 22.48 19.68 Stockholders’ equity to total assets 10.20% 9.49%
Low 20.48 15.74 Tier 1 leverage capital ratio 6.62% 6.96%
Close $21.82 $18.55 Tier 1 risk-based capital ratio 8.42% 8.65%
Weighted average common shares: Total risk-based capital ratio 11.34% 12.20%
Basic 335.6 292.2
Diluted 341.7 297.2
End-of-period common shares:
Basic 345.3 292.3
Diluted 351.2 297.4
NOTES: (1) Operating earnings represent net income excluding the after-tax effects of special items, including significant gains or losses that are unusual in nature or are associated with acquiring or integrating businesses. In September 2004,
operating earnings represent net income excluding the after-tax effects of merger and integration costs of $18.2 million or $.05 per share and an after-tax debt redemption charge of $42.6 million or $.13 per share. Operating earnings are
equal to net income in September of 2003. (2) Cash earnings represent operating earnings excluding the after-tax effects of non-cash charges for the amortization of intangible assets and stock based compensation of $18.2 million of $.05
per share in September 2004 and $15.2 million or $.05 per share in September 2003. 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. (3) Efficiency ratio equals general and administrative expense as a percentage of total revenue, defined as the sum of net interest
income and total fees and other income before securities transactions. (4) Book value equals stockholders’ equity at period end divided by common shares outstanding. (5) 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
■ Sovereign Bank has committed to donating 15,000 books to the Good ■ Sovereign contributed $10,000 each to the community of Yardley, Pa.
Morning America Book Drive America effort. First Book-Philadelphia, and the American Red Cross of Burlington County, New Jersey to
in conjunction with Philadelphia Reads, will collect books during the support residents impacted by severe flooding. Sovereign also created a
drive and distribute them throughout the Philadelphia school district. $5 million loan fund to provide assistance to residents of Birdsboro, Pa.,
who sustained property losses due to flooding.
■ Sovereign Bank entered into a Community Investment Agreement of
$3.6 billion for the years 2004-2008 with the Community Advisory ■ The Sovereign Bank Foundation provided $110,000 in funding to five
Committee in Massachusetts. The agreement provides financing for non-profit organizations in the Asian community located in Chinatown
small businesses, affordable housing, affordable homeownership, equity in Boston. The agencies are responsible for providing a range of services
investments and economic development projects to benefit low- and to the community such as affordable housing, job training and after-
moderate-income residents and communities in Massachusetts. school programs.
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3. Third Quarter 2004 Investor Report
Sovereign and Waypoint filed documents concerning the merger with the Securities and Exchange Commission
Sovereign Bank Footprint for pro forma on July 27, 2004, including a registration statement on Form S-4 containing a prospectus/proxy statement which
locations of Waypoint in southcentral was distributed to shareholders of Waypoint. Investors are urged to read the registration statement and the proxy
statement/prospectus regarding the proposed transaction and any other relevant documents filed with the SEC,
Pennsylvania and northern Maryland areas. as well as any amendments or supplements to those documents, because they will contain important information.
Investors can 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 2004
annual meeting of shareholders, as filed with the SEC on May 20, 2004. Additional information regarding the
interests of those participants may be obtained by reading the prospectus/proxy statement regarding the proposed
merger transaction.
INVESTORS SHOULD READ THE PROSPECTUS/PROXY STATEMENT AND OTHER DOCUMENTS TO BE FILED WITH THE
SEC CAREFULLY BEFORE MAKING A DECISION CONCERNING THE MERGER.
Mellon Investor Services Telephonic System Tips ■ To enroll in Dividend Reinvestment, say “Dividend Reinvestment” or “enroll in
Dividend Reinvestment”
In June of 2004, Mellon Investor Services upgraded its IVR to a more
■ To change the address of record, say “change address”
sophisticated speech recognition system called the “Tell Me” system.
■ To report lost stock certificates and receive replacement paperwork, say “replace certificate”
The new system recognizes speech patterns and is thus able to handle
many calls that previously were routed to a Customer Service ■ To transfer ownership of a certificate or book shares, say “transfer ownership of stock”
representative, which sometimes resulted in extended waiting periods. ■ To request replacement of a lost dividend check, say “replace dividend check”
■ At any time, shareholders may interrupt the system (after the introduction) to make
The new system is easy to use. After the system introduction, their request. To speak with a Customer Service Representative, shareholders can say
registered shareholders can simply say what they need. “customer service” or “operator” at any time.
Some examples of how to request assistance: Mellon Investor Services can only assist registered shareholders; beneficial
holders should contact their brokers for assistance.
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
January 17 – January 31, 2005 $50 to a maximum of $5,000 per quarter
■ Make checks payable to: Sovereign Bancorp, Inc. ■ All optional cash payments received before January 17, 2005, or after
January 31, 2005, 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
the quarter to $33.1 billion; $3.6 billion of the increase was a result of the
Non-Interest Expense
Seacoast acquisition. Time deposits account for only 22% of total deposits at
G&A expenses for the quarter were $238 million, up 5.8% from $225 million
September 30, 2004.
in the second quarter and up 13% from $211 million a year ago. Excluding
operating expenses during the quarter of approximately $18.0 million related
Looking Ahead
to Seacoast, G&A expenses decreased $5.0 million from the second quarter
“We continue to be comfortable with management’s guidance of $1.65 to
of 2004.
$1.70 in operating earnings per share and approximately $1.85 to $1.90
in cash earnings per share for 2004, excluding the $.03 to $.04 anticipated
Franchise Growth
accounting changes, after-tax merger related charges of $.12 for our
Sovereign’s total loan portfolio increased during the third quarter by $6.1
completed acquisitions of First Essex and Seacoast and $.13 in connection
billion to $35.3 billion, $4.1 billion of which was a result of the Seacoast
with the debt redemption,” Sidhu commented. “We are also comfortable
acquisition. Organic loan growth was $2.0 billion during the quarter.
with the analysts’ mean estimate of $1.91 per share for 2005, which implies
Consumer loans have increased 28% over the third quarter of last year, while
an operating earnings growth of 14%. In spite of recent accounting changes,
commercial loans have increased 9%, excluding the impact of acquisitions.
which will impact 2005 earnings per share $.05 to $.06, management’s goal
Commercial and consumer loans now make up 38% and 39%, respectively,
remains to strive for $1.90 to $2.00 in operating earnings per share, excluding
of the total loan portfolio.
after-tax merger related charges of $.04 to $.06 for our pending acquisition
Core deposits increased $2.9 billion during the quarter to $25.7 billion; of Waypoint, which is expected to close in January 2005.” A reconcilement
excluding the Seacoast acquisition, core deposits grew $468 million, or 8.2% of GAAP, operating, and cash earnings per share is included in the financial
annualized, during the quarter. Total deposits increased $4.1 billion during tables of this report.
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4. Sovereign Bancorp, Inc., (“Sovereign”) (NYSE: SOV), headquartered in Philadelphia, Pennsylvania, is the parent company of Sovereign Bank,
a pro forma $60 billion financial institution with more than 650 Community Banking Offices, over 1,000 ATMs and approximately 9,500 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. Pro forma for pending acquisitions, Sovereign is the 18th largest banking
institution in the United States. For more information on Sovereign Bank, visit sovereignbank.com or call 1-877-SOV-BANK (1-877-768-2265).
Corporate Information
James D. Hogan, CPA John P Hamill
.
Sovereign Trust Preferred Capital Securities
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
James D. Hogan, CPA
610-208-6426
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
James J. Lynch
Investor Relations and
should contact:
Operator Strategic Planning Chairman and Chief Executive
Common Stock – NYSE: SOV
610-320-8400 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.
Reading, PA 19612
P.O. Box 12646