Post on 18-Jan-2016
description
transcript
Sovereign Bancorp, Inc.
Lehman BrothersFourth Annual Conference
New York CitySeptember 14, 2006
2
Forward-Looking Statements
This presentation contains statements of Sovereign Bancorp, Inc.’s (the “Company”) strategies, plans and objectives, estimates of future operating results for Sovereign Bancorp, Inc. as well as estimates of financial condition, operating efficiencies, revenue creation and shareholder value
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; and other economic, competitive, governmental, regulatory, and other technological factors affecting the Company’s operations, pricing, products and services
3
Forward-Looking StatementsIn addition, this presentation and filing contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, results of operations and business of Sovereign Bancorp, Inc. and the merger of Independence Community Bank Corp. with and into Sovereign that are subject to various factors which could cause actual results to differ materially from such projections or estimates. Such factors include, but are not limited to, the following: (1) the businesses of Independence Community Bank Corp. may not be combined successfully with Sovereign’s businesses, or such combinations may take longer to accomplish than expected; (2) expected cost savings from the merger cannot be fully realized or realized within the expected timeframes; (3) operating costs, customer loss and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected; (4) governmental approvals of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with government approvals of the merger; (5) adverse governmental or regulatory policies may be enacted; (6) the interest rate environment may adversely impact the expected financial benefits of the merger, and compress margins and adversely affect net interest income; (7) the risks associated with continued diversification of assets and adverse changes to credit quality; (8) competitive pressures from other financial service companies in Independence Community Bank Corp.’s and Sovereign’s markets may increase significantly; (9) the risk of an economic slowdown that would adversely affect credit quality and loan originations; (10) other economic, competitive, governmental, regulatory, and technological factors affecting Sovereign's operations, integrations, pricing, products and services; and (11) acts of terrorism or domestic or foreign military conflicts; and acts of God, including natural disasters. Other factors that may cause actual results to differ from forward-looking statements are described in Sovereign’s filings with the Securities and Exchange Commission.
Overview of Sovereign
5
An Exceptional Franchise Serving the Northeastern United States
17th largest bank in U.S. with $89 billion in
assets
785 branches& over
2,000 ATM’s
Approx. 12,000 team members
Source: SNL DataSource
5 Largest MSA’s in Northeast U.S.No. of SOV Mkt SOVCBO's Share Rank
New York 222 2.10% 9
Philadelphia 84 3.05% 7
Boston 175 6.58% 3
Providence 56 6.03% 3
Hartford 29 4.58% 6
6
Sovereign’s DemographicsMedian
Household Income1 ($)
Hispanic Population2
(%)Number of
Universities3
Number of Students4
Connecticut $63,462 10.0% 45 170,616
Maryland 61,384 4.7 62 300,269
Massachusetts 63,171 8.3 122 431,224
New Hampshire 59,545 1.6 25 68,523
New Jersey 63,135 14.3 58 361,733
New York 51,187 16.8 307 1,107,270
Pennsylvania 48,534 3.2 262 654,826
Rhode Island 49,924 9.1 13 77,417
Sovereign’s Footprint 59,010 16.05
United States 49,747 14.11 Median Household Income as of 20052 Hispanic Population as of 20043 Number of degree-granting institutions as of 20044 Number of students enrolled in degree-granting institutions as of 20025 Excluding CA, TX and FL 41% of Hispanic population is in Sovereign’s footprint
7
Combined ATM Branding Opportunities
Sovereign ATM sites - 905
CVS Locations - 879
ICBC ATMs sites - 237
NY/NJ CVS - 484
8
Sovereign Has Significantly Transformed Its Business Model Over The Past Decade…
Sovereign 1995Sovereign 1995
Sovereign 1995Sovereign 1995
Peers 2005Peers 2005
Peers 2005Peers 2005
Sovereign 2005Sovereign 2005
Sovereign 2005Sovereign 2005
Residential RE85.5%
Consumer0.9%
C&I0.3%
Commercial RE3.5% HE
9.8%Residential RE
28.4%
Consumer11.2%
C&I21.5%
Commercial RE16.5%
HE22.4%
Residential RE16.7%
Consumer8.2%
C&I32.0%
Commercial RE23.9%
HE18.1%
Other1.1%
Deposit Composition (%)Deposit Composition (%)
Loan Composition (%)Loan Composition (%)
Transaction10.9%
Savings & MMDA32.7%Retail CD
54.2%
Jumbo CD2.2%
Transaction40.0%
Savings & MMDA30.2%
Retail CD14.9%
Jumbo CD14.9%
Transaction 28.5%
Savings & MMDA39.0%
Retail CD16.1%
Jumbo CD11.0%
Foreign5.4%
Loan yield: 7.29%Peer loan yield: 8.89%Spread to peers: (1.60%)
Loan yield: 5.72%Peer loan yield: 5.95%Spread to peers: (0.23%)
Cost of deposits: 4.25%Peer cost of deposits: 3.56%Spread to peers: 0.69%
Cost of deposits: 2.00%Peer cost of deposits: 1.69%Spread to peers: 0.31%
Source: Wall Street Research. Bank peers includes ASO, BBT, CMA, FITB, KEY, MI, MTB, NCC, PNC, RF, STI and UB
9
$4.1$8.6 $7.3 $8.5 $11.5 $12.9
$23.7 $25.6$27.4 $28.4
$35.1
$0.9$0.1 $2.2 $3.9
$0.5$11.6
($0.3) $1.3 ($0.0)$4.2
$2.9
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Organic deposits Net change in deposits from acquisitions/ (sales)Deposits ($ billion)Deposits ($ billion)
…through a Combination of Organic Growth and Acquisitions…
$58.3$48.3$43.5$38.1$35.8
$23.3$25.1$16.7$12.6$15.2$7.2
$5.4$6.2
($0.0)$1.5($0.3)
$10.2$1.5$5.3
$5.1$0.1$0.9
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Organic assets Net change in assets from acquisitions/ (sales)Assets ($ billion)Assets ($ billion)
Organic growth (15.7%) (11.0%) (6.5%) 7.4% (3.4%) 9.6% 1.9% 3.7% 7.8%
Organic growth (17.8%) (5.7%) 14.7% (12.5%) 6.9% 7.2% 10.0% 11.0% 7.0%
Organic CAGR 8.8%CAGR 22.4%
Organic CAGR 13.6%CAGR 22.9%
Source: Wall Street Research.Note: Data as of December 31, 2005; organic asset and deposit data is adjusted for whole company and branch acquisitions and divestitures. 2005YE data not pro forma for pending acquisition of ICBC
$5.0$8.7
$9.5$12.3 $12.0
$24.5 $23.3$26.9 $27.3
$32.6
$38.0
$8.1$15.3
$17.7$21.9
$26.6$33.5
$35.5$39.6
$43.5
$54.5
$63.7
10
Key Operating RatiosKey Operating Ratios
… While Continuing to Improve in Key Operating Ratios
Source: Wall Street Research. Note: Financial data as reported, not pro forma for pending acquisitions. Bank peers includes ASO, BBT, CMA, FITB, KEY, MI, MTB, NCC, PNC, RF, STI and UB; thrift peers include AF, GDW, NYB and WM¹ Interest spread defined as yield on interest-earning assets less cost of interest bearing liabilities² Operating leverage defined as ratio of YOY revenue growth over YOY core cash operating expense growth
Continued improvement in profitability ratios driven by• Greater consumer and commercial loans; conservative asset quality• Non-CD deposit growth• Expense control
High quality earnings; prudent risk management Improving capital ratios
11
Positive Operating Leverage
53.49%52.90%
51.31%
49.00%50.33%
2001 2002 2003 2004 2005
Results in Continued Improvement in Efficiency Ratio
2005 2004 % Change
Total Revenue $2.2bn $1.9bn 18.7%
G&A Expenses $1.1bn $ .9bn 15.5%
Operating Leverage 1.2x
Efficiency ratio equals G&A expenses as a percentage of total revenue, defined as the sum of net interest income and total fees and other income before securities transactions
12
Improving Credit Quality
1.03% 1.00%0.76%
0.43%0.39%
2001 2002 2003 2004 2005
Non-Performing Loans toTotal Loans
0.42%
0.58% 0.55%
0.20%
0.36%
2001 2002 2003 2004 2005
Net Charge-offsto Average Loans
116.0% 116.0%149.0%
231.0%285.0%
2001 2002 2003 2004 2005
Allowance toNon-Performing Assets
13
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2001 2002 2003 2004 2005
Net
Incom
e
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
Earn
ings p
er
Share
Net Income Operating/Cash Net IncomeGAAP EPS Operating/Cash EPS
Consistent Growth in Operating/Cash Earnings4-year CAGR $ Per ShareGAAP Net Income – 55% 41%Operating/Cash Earnings – 19% 7%
Operating/cash earnings excludes most non-cash, non-operating charges. Please see appendix for reconciliation of net income to operating/cash earnings, as well as related per share amounts.Source: 2005 annual report
14
Improving Operating Metrics
1.09% 1.09%1.14%
1.26%
1.19%
2001 2002 2003 2004 2005
Improved Operating Returnon Average Assets
52.31%
35.62%27.87% 27.71%25.94%
2001 2002 2003 2004 2005
Operating/Cash Return onAverage Tangible Equity
$720$1,141
$1,662
$2,758$2,321
2001 2002 2003 2004 2005
Average Tangible Equity($ in millions)
1509/01/06 closing price of $20.72
Percent Appreciation
3-Year Stock Price Performance
10.5%
25.6%30.1%
21.8%
31.7%
75.0%
100.0%
125.0%
150.0%
Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06
Rel
ativ
e In
dex
ed P
rice
s
Sovereign S&P 500 Banks Index S&P 500 Dow Jones LB Mid-Cap Banks
Above Average Shareholder Value Creation
16
Above Average Shareholder Value Creation
09/01/06 closing price of $20.72
5-Year Stock Price PerformancePercent
Appreciation
50.0%
75.0%
100.0%
125.0%
150.0%
175.0%
200.0%
225.0%
250.0%
Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06
Rel
ativ
e In
dex
ed P
rice
s
Sovereign S&P 500 Banks Index S&P 500 Dow Jones LB Mid-Cap Banks
96.4%
15.7%15.2%
40.4%
27.9%
17
Above Average Shareholder Value Creation
09/01/06 closing price of $20.72
10-Year Stock Price PerformancePercent
Appreciation
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
350.0%
400.0%
Sep-96 Dec-97 Mar-99 Jun-00 Sep-01 Dec-02 Mar-04 Jun-05 Sep-06
Rel
ativ
e In
dex
ed P
rice
s
Sovereign S&P 500 Banks Index S&P 500 Dow Jones LB Mid-Cap Banks
193.1%
101.1%
104.1%
178.7%
116.6%
The Santander Partnership - Building a Better Bank for
Shareholders, Customers and Community
19
Global Footprint of Santander
20
Benefits of the Santander Transaction
24% shareholder
Access to capital
Santander partnership provides sharing of best practices and operational know-how
Positioned for “full” price possible sale to Santander or another party over 2-5 year period after closing
21
Opportunities to Share Best Practices
Hispanic Market 40% of Hispanics in Sovereign and Independence footprint are Puerto
Ricans, Santander has the second largest bank in Puerto Rico
Auto Finance Santander is the largest non-captive auto finance player in Europe,
financing 1 million cars; Sovereign is a leading auto finance player in the northeastern U.S.
Cash Management Sovereign and Santander are discussing the outsourcing of all Santander’s
U.S. dollar cash management business to Sovereign
Funding/Access to Capital S&P upgraded Sovereign and subsidiaries one notch following closing
Moody’s upgraded Sovereign and subsidiaries two notches following closing
Operational Enhancements and Technology Sharing Santander has world-class banking related technology systems which they
intend to share with Sovereign
Emerging Markets in the Northeast United States
23
Demographic Explosion From Emerging Markets
The Hispanic and Asian-American population growth has significantly outpaced the General Market over the past 3 decades
Compounded Annual Growth Rate in U.S. Population, Hispanic and Asian Americans between Decades
1.1% 0.9%1.2%
0.9%
4.9%4.3%
4.7%
3.1%
8.6%
7.6%
6.0%
2.6%
0%
2%
4%
6%
8%
10%
1980 1990 2000 2010
U.S.
Hispanic
Asian Americans
24
Bankable Hispanics by Top 5 Geographic Segments
1.721.971.98
4.28
6.92
-
1
2
3
4
5
6
7
8
California Texas Florida New York Sov States
Hispanic Bankable Pop: Density per Sq Mi
23
42
44
37
16
18
- 10 20 30 40 50
Texas
Illinois
Sov States
Florida
New York
California
155,519 261,797 53,927 47,214 75,738Sq Mi (Land)
In Millions
Our Footprint is a “Hidden Gem” for Hispanics…
25
Bankable Asians by Top 5 Geographic Segments
0.420.420.81
0.95
2.82
0.0
0.5
1.0
1.5
2.0
2.5
3.0
California Sov States New York Texas Hawaii
155,519 75,738 47,214 261,797 6,423Sq Mi (Land)
Asian Bankable Population Density per Sq Mi
2
15
24
42
78
- 20 40 60 80 100
Texas
Sov States
California
New York
Haw aii
In Millions
…and for Asians as well
26
Pilot Program in Rhode Island is Underway
27
Some Local Efforts Emphasize Our Service Culture
Current Situation and Potential Shareholder
Value Creation
29
Highlights and Challenges in This Environment 19% annualized linked quarter organic deposit growth
18% annualized linked quarter organic loan growth
Only 2.5% annualized linked quarter expense growth
Stable asset quality
Margin compression continues
Restructured balance sheet following Independence acquisition
Independence fully integrated by end of third quarter
30
Major Goals for 2006 – 2007
Positive operating/cash earnings growth in this flat to inverted yield curve environment
Achieve or exceed financial assumptions of Independence acquisition with flawless integration
Embark on strategy for capturing larger share of the Hispanic market
Maintain expense control discipline
Stable asset quality
31
Sovereign is committed to building
above-average short-term and long-term
shareholder value while building a better
bank for our customers, communities
and team members
Appendix
33
Operating and Cash Earnings Per Share
This presentation 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 measures of Operating Earnings and Cash Earnings in its analysis of the company’s performance. These measures typically adjust 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, and certain non-cash charges
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, which may be presented by other companies
34
One Non-GAAP Financial Measure
Effective in the fourth quarter of 2004, Sovereign moved to one non-GAAP financial measure – Operating/Cash Earnings Provides greater financial transparency
Provides useful supplemental information when evaluating Sovereign’s core businesses
Consistent with SEC’s publicly stated desire for fewer non-GAAP disclosures
Operating/Cash Earnings represent net income adjusted for after-tax effects of merger-related and integration charges, any other non-recurring charges and the amortization of intangible assets
35
Reconciliation of Operating/Cash Earnings to GAAP Earnings - Actual
Year Ended December 31,
2005 2004 2003 2002 2001
Net Income/(loss) as reported 701,587$ 453,552$ 401,851$ 341,985$ 116,821$
Merger-related and integration costs 8,284 30,134 10,316
Provision for Loan Loss 3,900 3,900
Restructuring of Balance Sheet 42,605 18,838 6,549
Restructuring Charges 2,589 5,525
Impairment Charge for FNMA and FHLMC Preferred Stock
20,891
Financing-Related Adjustments
Non-solicitation Expense 158,106
Proxy and related professional fees 3,788
Amoritzation of Intangibles 47,984 51,186 50,100 54,121 89,408
Operating/Cash Earnings for EPS purposes 764,232$ 602,268$ 470,789$ 410,322$ 376,409$
Note: Further details are available on our web site at www.sovereignbank.com and in our Annual Reports to Shareholders
($ in thousands, all numbers shown net of tax)
(1) Net Income for EPS purposes
(1)
36
Reconciliation of Operating/Cash EPS to GAAP EPS - Actual
Year Ended December 31,
2005 2004 2003 2002 2001
Diluted Earnings per Share 1.68$ 1.31$ 1.31$ 1.17$ 0.43$
Merger-related and integration costs 0.02$ 0.09$ 0.04$
Provision for Loan Loss 0.01$ 0.01$
Loss on debt extinguishment 0.12$ 0.07$ 0.03$
Restructuring Charges 0.01$ 0.02$
Impairment Charge for FNMA and FHLMC Preferred Stock
0.06$
Financing-Related Adjustments
Non-solicitation Expense 0.59$
Proxy and related professional fees 0.01$
Amoritzation of Intangibles 0.11$ 0.15$ 0.16$ 0.18$ 0.33$
Operating/Cash Earnings per Share 1.83$ 1.74$ 1.54$ 1.40$ 1.40$
Note: Further details are available on our web site at www.sovereignbank.com and in our Annual Reports to Shareholders
Sovereign Bancorp, Inc.