1. Second Quarter 2004 Investor Report
sovereignbank.com
NYSE: SOV
Quarter Ended June 30, 2004
Sovereign Bancorp, Inc. reported second quarter 2004 net income and earnings per share of $131
million or $.42 per diluted share, up 26% and 14%, respectively, compared to $104 million or $.37
per diluted share for the second quarter of 2003. Cash earnings increased to $147 million, up 23%,
Highlights compared to $120 million for the second quarter of 2003.
Commenting on results for the second quarter of Mortgage banking revenues were $16.4 million in
■ Net income of $131 million, up 2004, Jay S. Sidhu, Sovereign’s Chairman and Chief the second quarter of 2004, including a reversal of the
Executive Officer, said, “This was another successful valuation reserve related to mortgage servicing rights,
26% from $104 million in 2Q ’03
quarter for Sovereign. Earnings per share for the as compared to $5.4 million in the first quarter of
quarter exceeded the analysts’ mean earnings estimate 2004 and $8.8 million in the second quarter of 2003.
■ Earnings per share were by $.02. Commercial and consumer loans, excluding As of June 30, 2004, mortgage servicing rights, net of
the impact of the First Essex Bancorp Inc. acquisition, reserves of $2.0 million, were $83.4 million and our
$.42 for 2Q ’04, up 14% from
increased 7% and 25%, respectively, from the second servicing portfolio was $6.5 billion, a capitalized cost
quarter of last year. Fee revenue was very strong, of 129 basis points.
$.37 in 2Q ’03
commercial and consumer banking fees reached
Expenses
all-time highs of $30.6 million and $58.1 million,
■ Cash earnings of $147 million, G&A expenses increased by $1.4 million or .6% from
respectively. Our asset quality improved substantially
the first quarter of 2004 and increased about 4% from
resulting in non-performing assets and net charge-off
up 23% from $120 million in 2Q $215 million a year ago. G&A expenses for the quarter
levels being the lowest levels in more than four years.
were $225 million, up from $223 million in the first
’03. Cash earnings per share were We are also very excited to have had our stock added
quarter. James D. Hogan, Sovereign’s Chief Financial
to the S&P 500 index.”
$.47, up from $.42 in 2Q ’03 Officer stated, “After normalizing for the effect of our
Net Interest Income first quarter acquisition, operating expenses actually
and Margin decreased approximately $350 thousand during the
Sovereign reported net interest income of $332 million second quarter as compared to the first quarter of 2004
for the second quarter of 2004, an increase of $25 and increased only 1.8% from the first quarter of 2003.
million, or 8.2%, compared to the second quarter of Our efficiency ratio decreased to 49.2% from 51.7% in
2003. On a linked-quarter basis, net interest income the first quarter of 2004.”
Other News increased by $9.2 million, or 2.9%.
Sovereign’s effective tax rate declined in the second
Net interest margin was 3.22% for the second quarter quarter to 23.8% due, in part, to the timing of
(for complete articles, go to
of 2004 compared to 3.28% in the first quarter of 2004 acquisitions and an investment in a synthetic fuel
sovereignbank.com, Investor
and 3.47% in the second quarter of 2003. The majority facility in Pennsylvania. After giving effect to an
Relations, News & Press)
of the net interest margin compression was a result of acquisition expected to close in the second half of
the full quarter effect of an $800 million convertible 2004, Sovereign’s effective tax rate is expected to rise to
trust preferred offering in February of 2004 as well as approximately 28%.
■ Sovereign completed
Sovereign’s desire to maintain an asset sensitive interest
Franchise Growth
its aquisition of rate risk position.
Seacoast Financial Sovereign’s total loan portfolio increased during the
Sovereign remains positioned to benefit from rising
second quarter by $1.4 billion to $29.1 billion, the
Services Corporation rates, as $13.9 billion of our loans are tied to short-term
majority of the increase was in the consumer loan
indices, and only $10.6 billion of our liabilities will
on July 23, 2004. portfolio, principally home equity loans. Commercial
re-price with any short-term rate movements.
Seacoast was the loans increased 14% over the second quarter of
Non-Interest Income last year. “As can be expected in this environment,
largest remaining
and Expense commercial loans are our lowest yielding portfolio;
financial institution however, this portfolio will benefit the most from
Sovereign generated record level consumer and
headquartered in rising rates,” stated Hogan. Commercial and consumer
commercial banking fees in the second quarter of
loans now make up 42% and 41%, respectively, of the
2004. Consumer banking fees increased by $4.8
Massachusetts with
total loan portfolio.
million, or 9%, compared to the same period in 2003.
approximately $5
The increase was driven principally by deposit fees,
Core deposits increased $885 million during the
billion in assets which increased by $3.3 million to $47.9 million.
quarter to $22.8 billion, or 16% annualized growth.
Commercial banking fees increased $3.8 million to
and $3.6 billion Sovereign’s cost of deposits declined by 5 basis points
$30.6 million, or 14.1%, over the same period a year
in deposits. to .90% in the second quarter of 2004 due to a decline
ago driven by growth in loan fees. Consumer and
in the cost of time deposits. Time or certificates of
commercial banking fees increased 9% and 14%,
deposit account for only 21% of total deposits at June
respectively, in the second quarter of 2004 as compared
30, 2004.
to first quarter 2004 levels, in part due to banking fees
continued on page 3
generated from the acquisition of First Essex.

2. Second Quarter 2004 Investor Report
Quarterly Financial Highlights
Quarter Ended (unaudited) Quarter Ended (unaudited)
June 30 June 30 June 30 June 30
(dollars in millions, except per share data) 2004 2003 (dollars in millions) 2004 2003
Financial Condition Data:
Operating Data:
General
Net income $131.4 $104.2
Operating earnings (1) 131.4 104.2 Total assets $48,687 $41,343
Cash earnings (2) 147.2 119.4 Loans 29,130 24,329
Net interest income 332.0 306.8 Total deposits and customer related accounts: 29,001 27,617
Provision for loan losses 32.0 42.0 Core deposits and other customer related accounts 22,824 21,065
Total fees and other income before securities transactions 124.2 111.9 Time deposits 6,176 6,552
Net gain on investments and related derivatives transactions 0.8 19.4 Borrowings (3) 15,157 9,507
G&A expense 224.6 215.3 Redeemable capital securities and
Other expenses (3) 28.1 36.6 other minority interests (3) 203 409
Stockholders’ equity 3,815 3,131
Performance Statistics Goodwill 1,289 1,025
Bancorp Core deposit intangible 249 306
Net interest margin (3) 3.22% 3.47%
Asset Quality
Cash return on average assets (2) 1.23% 1.16%
Non-performing assets $176.1 $253.4
Operating return on average assets (1) 1.10% 1.01%
Non-performing loans $152.2 $229.2
Cash return on average equity (2) 15.26% 16.50%
Non-performing assets to total assets 0.36% 0.61%
Operating return on average equity (1) 13.62% 14.38%
Non-performing loans to total loans 0.52% 0.94%
Annualized net loan charge-offs to average loans 0.43% 0.53%
Allowance for loan losses $352.6 $319.5
Efficiency ratio (3)(4) 49.22% 51.41%
Allowance for loan losses
Per Share Data to total loans 1.21% 1.31%
Allowance for loan losses
Basic earnings per share $0.43 $0.40
to non-performing loans 232% 139%
Diluted earnings per share 0.42 0.37
Operating earnings per share (1) 0.42 0.37
Capitalization - Bancorp (6)
Cash earnings per share (2) 0.47 0.42
Dividend declared per share .030 .025 Stockholders’ equity to total assets 7.84% 7.57%
Book value (5) 12.46 10.72 Tier 1 leverage capital ratio 7.13% 5.27%
Common stock price: Tangible equity to tangible assets, excluding OCI 5.28% 4.40%
High $22.10 $16.55 Tangible equity to tangible assets, including OCI 4.83% 4.50%
Low 19.51 14.07
Capitalization - Bank (6)
Close $22.10 $15.65
Weighted average common shares: Stockholders’ equity to total assets 9.12% 9.34%
Basic 306.1 262.2 Tier 1 leverage capital ratio 6.84% 6.62%
Diluted 311.7 283.9 Tier 1 risk-based capital ratio 8.86% 8.40%
End-of-period common shares: Total risk-based capital ratio 12.07% 11.05%
Basic 306.2 292.0
Diluted 312.1 295.9
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. Operating earnings are
equal to net income for quarters ended June 2004 and June 2003. (2) Cash earnings represents operating earnings excluding the after-tax effects of non-cash charges for the amortization of intangible assets and stock based compensation of
$15.8 million or $.05 per share in June of 2004 and $15.3 million or $.05 per share in June 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) Effective July 1, 2003, Sovereign elected to change the Company’s accounting policy to treat trust preferred securities
as liabilities and the associated dividends on the trust preferred securities as interest expense. Previously, this cost was classified within other expenses. This change in accounting policy did not have any impact on consolidated shareholders’
equity or net income; however, it did result in an increase in borrowings and other debt obligations of $207.6 million at July 1, 2003 and an increase in net interest expense, with a corresponding decrease in other expense. Prior periods have
not been adjusted to conform with this change in accounting policy. (4) 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. (5) Book value equals stockholders’ equity at period-end divided by common shares outstanding. (6) 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 report.
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
■ The United Way of Berks County, PA recognized Sovereign Bank with
■ Sovereign has provided a $4.9 million revolving line of credit to the
a special award “...that exemplifies the corporate commitment to a better
Jefferson Square Community Development Corporation ( JSCDC) in
community through support of the United Way’s annual campaign.”
South Philadelphia, PA. JSCDC is revitalizing a section of the city, known
According to the United Way, Sovereign’s rate of participation in Berks
as Jefferson Square, by making infrastructure improvements, constructing
County increased over the last five years, gaining 270 new givers and more
87 new mixed income properties and rehabilitating six existing homes.
than doubling campaign dollars.
-2-

3. Second Quarter 2004 Investor Report
Sovereign and Waypoint filed documents concerning the merger with the Securities and Exchange Commission on
Sovereign Bank Footprint for pro forma July 27, 2004, including a registration statement on Form S-4 containing a prospectus/proxy statement which will
locations of Waypoint in southcentral be 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 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.
Mellon Investor Services Redesigned Web Site Mellon Introduces the “Tell Me” Telephonic System
On June 11, our shareholder services partner, Mellon Investor Services, Mellon Investor Services upgraded its IVR at the end of June 2004 to a
launched its enhanced web site at www.melloninvestor.com. The more sophisticated speech recognition system called the “Tell Me” system.
enhancements are based on feedback Mellon received from clients The new “Tell Me” system features Advanced Voice Recognition, one
and shareholders for more comprehensive information, easier navigation of the best speech recognition technologies available today; Touchtone
and more user-friendly graphics and search protocols. The site enables Recognition; Text-to-Speech, natural sounding text-to-speech using
shareholders to review account information, change their address of record, AT&T’s NaturalVoices speech engine; and Barge-In, allowing callers
download pre-filled forms, enroll in stock plans, and sign up for electronic to interrupt audio prompts and speak with a CSR immediately. Dial
delivery options through MLink. Check out the redesigned site today! 1-800-685-4524—you’ll be able to “tell” the difference.
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
October 17 – October 31, 2004 $50 to a maximum of $5,000 per quarter
■ Make checks payable to: Sovereign Bancorp, Inc. ■ All optional cash payments received before October 17, 2004, or after
October 31, 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
risk-based capital ratio was 12.07%. “After paying dividends and allocating
Asset Quality
tangible capital to anticipated growth, we still expect to add about $500
Sovereign’s credit quality improved significantly in the second quarter of
million to tangible common equity from organic earnings growth next
2004. Non-performing assets (“NPAs”) were $176 million at June 30, 2004,
year,” stated Hogan.
compared to $212 million at March 31, 2004. NPAs to total assets decreased
to .36% during the second quarter of 2004, compared to .45% at March 31, Looking Ahead
2004. Sovereign’s provision for loan losses was $32.0 million this quarter
“We continue to be comfortable with management’s guidance of $1.65 to
compared to $43.0 million in the first quarter, which included a $6 million
$1.70 in operating earnings per share1 excluding after-tax merger related
provision related to the First Essex loan portfolio, and $42.0 million in the
charges of approximately $.14 for our completed acquisitions of First Essex
second quarter of 2003. The allowance for loan losses to total loans decreased
and Seacoast Financial,” Jay Sidhu commented. “We are also comfortable
to 1.21% at June 30, 2004, as compared to 1.27% at March 31, 2004 and
with the analysts’ mean estimate of $1.88 per share for 2005, which implies
1.31% at June 30, 2003, due to improved credit quality and a slight shift
an operating earnings growth of 15%. However, management’s goal remains
towards a lower risk loan portfolio.
to strive for $1.90 to $2.00 in operating earnings per share1, excluding
after-tax merger related charges of $.04 to $.06 for our pending acquisition
Capital
of Waypoint, which is expected to close in January 2005.”
“During the quarter, the Tier 1 leverage ratio was 7.13% at June 30, 2004.
Tangible common equity to tangible assets was 4.83%. Tangible common Based upon our July 19 stock price of $21.82, Sovereign is trading at a P/E
equity to tangible assets, excluding other comprehensive income (“OCI”), of 11.6x for estimated 2005 operating earnings per share, a P/E of only
expanded 9 basis points during the quarter to 5.28%. The equity to 10.7x for implied 2005 cash earnings per share and only 175% of current
assets ratio was 7.84% at June 30, 2004. Sovereign remains committed to book value. The book value per share at June 30, 2004 was $12.49.
achieving a Tier 1 leverage ratio of 6.50% to 7.00% and a tangible common
equity to tangible assets ratio of 5.00% to 5.50% by the end of 2005. At 1. GAAP EPS of $1.51 to $1.56 in 2004 and $1.84 to $1.94 in 2005.
June 30, 2004, Sovereign Bank’s Tier 1 Leverage was 6.84% and the bank’s
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4. Sovereign Bancorp, Inc., (“Sovereign”) (NYSE: SOV), headquartered in Philadelphia, Pennsylvania, is the parent company of Sovereign
Bank, a $55 billion financial institution with nearly 600 community banking offices and 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 one of the top 20 largest U.S. financial
institutions. 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