Transcript media.corporate

Acquisition of
Waypoint Financial Corp.
March 9, 2004
Forward-Looking Statements
 This presentation contains statements of Sovereign’s 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 forwardlooking 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
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Forward-Looking Statements
33
In 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. pending consummation of the merger of Seacoast Financial Services
Corporation with and into Sovereign and the merger of Waypoint Financial 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
respective businesses of Seacoast and Waypoint may not be combined successfully with Sovereign’s
businesses, or such combinations may take longer to accomplish than expected; (2) expected cost
savings from each of the mergers cannot be fully realized or realized within the expected timeframes;
(3) operating costs, customer loss and business disruption following the mergers, including adverse
effects on relationships with employees, may be greater than expected; (4) governmental approvals of
each of the mergers may not be obtained, or adverse regulatory conditions may be imposed in
connection with government approvals of the mergers, (5) the stockholders of Seacoast may fail to
approve the merger of Seacoast with and into Sovereign and the shareholders of Waypoint may fail to
approve the merger of Waypoint with and into Sovereign; (6) adverse governmental or regulatory
policies may be enacted; (7) the interest rate environment may adversely impact the expected financial
benefits of the mergers, and compress margins and adversely affect net interest income; (8) the risks
associated with continued diversification of assets and adverse changes to credit quality; (9)
competitive pressures from other financial service companies in Seacoast’s, Waypoint’s and
Sovereign’s markets may increase significantly; and (10) the risk of an economic slowdown that would
adversely affect credit quality and loan originations. 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.
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 Operation Earnings and
Cash Earnings in their 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.
 Operating Earnings in 2004 represents net income adjusted for the after-tax effects of
merger-related charges of $0.05 to $0.06 for the First Essex Bancorp Inc. and $.07 for
the Seacoast Financial Services acquisitions
 Cash earnings in 2004 represents operating earnings adjusted to remove the after-tax
effect of amortization of intangible assets and stock-based compensation expense
associated with stock options, restricted stock, bonus deferral plans and ESOP
awards of $.10 to $.15
 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
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 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
Additional Information About the Merger
Sovereign and Waypoint will be filing documents concerning the merger with the
Securities and Exchange Commission, including a registration statement on Form S-4
containing a prospectus/proxy statement which will be distributed to shareholders of
Waypoint. Investors are urged to read the registration statement and the proxy
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 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.
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Transaction Overview
 Sovereign to acquire Waypoint Financial in a 70% stock, 30%
cash exchange, valued at approximately $980 million
 Transaction is strategically compelling
– Introduction to new, contiguous markets (Harrisburg, York,
Hagerstown, MD and I-81 Corridor)
– Waypoint has strong “8-S” compatibility with Sovereign
– Strong pro forma market share:
– #1 in Dauphin County
– #3 in Cumberland County
– #2 in York County
– #6 in Lancaster County
 Acquisition is consistent with management’s acquisition
criteria:
– Accretive to EPS – $.04 - $.05 in 2005
– SOV remains on track for its 2005 capital goals
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– Low-risk integration model
Transaction Summary
 Transaction value: ~$980 million
 Form of consideration: 70% common stock; 30% cash
 Price per share: Fixed exchange ratio of 1.262 shares of SOV for
each WYPT share, or $28.00 in cash for each outstanding share of
WYPT, or a combination thereof
 Pre-tax cost synergies assumed: 30% of WYPT expense base, 80%
realized in first year (2005); 100% realized in second year (2006)
 Merger-related charges: $20.4 million ($.04 per share after-tax)
 Anticipated closing: 4Q04; Drop dead date 1Q05
 Core Deposit Intangible: 2.00% of WYPT core deposits, amortized
over 7 years on a straight-line basis
 Due diligence: Completed
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Transaction Multiples at Announcement
 Multiple to Book Value of 2.4x
 Multiple to Tangible Book of 2.5x
 Multiple to ‘04 Earnings of 21.9x
 Multiple to ‘05 Earnings with synergies of 11.3x
 Premium to Total Deposits of 22.0%
 Operating EPS Accretion of:
– mildly accretive in 2004; less than $.01 per share
– $0.04 - $0.05 accretive in 2005
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Overview of Waypoint Financial
 $5.3 billion asset institution headquartered in
Harrisburg, PA
 Created in October 2000 through merger of Harris
Savings Bank and York Federal Savings & Loan
Association
 65 branch offices serving 10 counties in South-Central
Pennsylvania and Northern Maryland
 $2.7 billion in deposits
 $2.4 billion in net loans
– $ 1.1 billion in commercial
– $ 937 million in consumer
– $ 373 million in residential
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Pro Forma Branch Map
Sovereign Bancorp
10
10
Waypoint Financial
Pro Forma Market Share
Dauphin, PA
Rank Holding Company Name
1
Pro Forma
2
3
4
5
6
7
8
9
10
M&T Bank Corporation
Wachovia Corporation
Citizens Financial Group, Inc.
Fulton Financial Corporation
PNC Financial Services
Community Banks, Inc.
Pennsylvania Commerce Bancorp
Mid Penn Bancorp, Inc.
Legacy Bank (The)
Total Branches / Deposits
Cumberland, PA
Rank Holding Company Name
1
2
3
M&T Bank Corporation
PNC Financial Services
Pro Forma
Deposits
(2003)
Market Share
(2003 %)
$723,763
17.95%
1
$654,328
$516,613
$386,570
$322,267
$286,653
$237,308
$215,087
$198,968
$105,721
16.23%
12.81%
9.59%
7.99%
7.11%
5.89%
5.34%
4.94%
2.62%
2
100
$4,031,321
No. of
Branches
Deposits
(2003)
Market Share
(2003 %)
21
16
$700,007
$639,572
22.38%
20.45%
$446,973
14.29%
9
6
6
4
3
1
3
$336,769
$292,348
$177,009
$97,331
$95,319
$80,745
$71,363
10.77%
9.35%
5.66%
3.11%
3.05%
2.58%
2.28%
Total Branches / Deposits
96
$3,127,517
Franklin, PA
No. of
Branches
Deposits
(2003)
Market Share
(2003 %)
16
10
7
7
7
5
2
1
1
$430,103
$328,639
$196,014
$177,063
$167,509
$92,431
$43,734
$12,510
$11,762
29.46%
22.51%
13.43%
12.13%
11.48%
6.33%
3.00%
0.86%
0.81%
56
$1,459,765
M&T Bank Corporation
Franklin Financial Services Corp.
Tow er Bancorp Incorporated
Susquehanna Bancshares, Inc.
Orrstow n Financial Services, Inc.
Mercersburg Financial Corporation
Pro Form a
FNB Financial Corporation
Fulton Bancshares Corporation
Total Branches / Deposits
Rank Holding Company Name
9
12
1
2
3
4
5
6
7
8
9
York, PA
21
7
7
10
11
10
5
7
1
4 Pennsylvania Commerce Bancorp
5 Citizens Financial Group, Inc.
6 Orrstow n Financial Services
7 Pennsylvania State Bank
8 Wachovia Corporation
9 Atlantic Central Bankers Bank
10 Fulton Financial Corporation
Rank Holding Company Name
11
11
No. of
Branches
Source: SNL Datasource
M&T Bank Corporation
No. of
Branches
Deposits
(2003)
Market Share
(2003 %)
33
$1,375,429
26.13%
19
$874,914
16.62%
3 Fulton Financial Corporation
4 Community Banks, Inc.
5 Sterling Financial Corporation
6 Wachovia Corporation
7 Codorus Valley Bancorp, Inc.
8 Citizens Financial Group, Inc.
9 Northw est Bancorp, Inc. (MHC)
10 Pennsylvania Commerce Bancorp
14
15
9
11
11
7
6
5
$500,483
$457,430
$382,865
$358,701
$308,968
$266,420
$214,666
$191,009
9.51%
8.69%
7.27%
6.81%
5.87%
5.06%
4.08%
3.63%
Total Branches / Deposits
145
$5,263,816
Lancaster, PA
No. of
Branches
Deposits
(2003)
Market Share
(2003 %)
1 Fulton Financial Corporation
2 Sterling Financial Corporation
3 Wachovia Corporation
4 Susquehanna Bancshares, Inc.
5 PennRock Financial Services Corp.
6 Pro Form a
7 Ephrata National Bank (The)
8 Citizens Financial Group, Inc.
9 M&T Bank Corporation
10 Union National Financial Corporation
27
31
18
29
10
17
6
7
12
6
$1,463,437
$1,112,699
$887,114
$868,636
$469,049
$431,315
$391,039
$366,813
$264,037
$224,963
20.75%
15.78%
12.58%
12.32%
6.65%
6.11%
5.54%
5.20%
3.74%
3.19%
Total Branches / Deposits
185
$7,052,324
Pro Forma
Rank Holding Company Name
Washington, MD
No. of
Branches
Deposits
(2003)
Market Share
(2003 %)
1 Susquehanna Bancshares, Inc.
2 M&T Bank Corporation
3 Fulton Financial Corporation
4 Mercantile Bankshares Corporation
5 Pro Form a
6 First United Corporation
7 Chevy Chase Bank, FSB
8 CNB Financial Services, Inc.
9 FNB Financial Corporation
10 Tow er Bancorp Incorporated
14
15
14
7
4
2
1
1
1
1
$379,930
$373,663
$365,688
$185,716
$160,223
$47,207
$22,584
$18,595
$9,970
$3,091
24.25%
23.85%
23.34%
11.85%
10.23%
3.01%
1.44%
1.19%
0.64%
0.20%
Total Branches / Deposits
60
$1,566,667
Rank Holding Company Name
Pennsylvania Acquisitions Since 2001
Announcement
Date
Assets
($mm)
Deposits
($mm)
P/E
Price/
Book
28.2
32.5
299%
269%
332%
27.4
26.9
-
178%
315%
-
24.3
41.7
184%
125%
National Penn
Peoples First
HomeTowne Heritage
FirstService
Dec-03
Apr-03
Sep-02
$456
124
400
$362
107
271
Total
$980
$740
Sep-03
Sep-02
Jul-01
$914
1,764
11,256
$550
1,469
13,400
Total
$13,933
$15,419
Dec-03
Aug-02
$883
376
$545
182
Total
$1,259
$727
Royal Bank of Scotland
Thistle Group
Commonwealth Bancorp
Mellon Branches
First Commonwealth
GA Financial
Pittsburgh Financial
Susquehanna Bancshares
Patriot Bank
Dec-03
$1,011
$624
23.4
290%
Aug-03
$1,110
$741
32.6
295%
Mar-04
Jul-01
$5,330
1,522
$2,721
1,328
22.0
14.8
239%
188%
Total
$6,852
$4,049
FleetBoston
Progress
Sovereign
Waypoint Financial
Main Street
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12
Comparison with all Acquisitions Since 2001
All US Banking Acquisitions with a total deal value over $200m
SOV-Waypoint Deals in 2004
# of Deals
Price/Book
Price/Tangible Book
Price/LTM Earnings
Price/Deposits
1
Median
Mean
Median
Mean
Median
Mean
Median
Mean
Source: SNL Datasource
13
13
238.5
251.8
22.0
32.1
Deals since 2003 Deals since 2002
Deals since 2001
7
16
20
28
238.5
256.1
238.7
238.7
241.0
249.6
240.8
244.6
304.7
299.2
290.4
299.2
319.3
309.6
301.4
307.3
20.7
20.4
20.3
20.3
20.9
20.3
19.9
20.2
29.9
30.4
30.1
30.2
31.4
32.8
32.1
31.4
Consistent With Our Stated Acquisition Criteria
 Accretive to Operating EPS:
– $.04 - $.05 accretion in 2005
– Assumes 70%/30% stock/cash mix
 Consistent with Capital Goals:
– Including this transaction TCE/TA will be approximately
5.00% at year-end 2004
– We continue to be comfortable with our year-end 2005
capital goals of approximately 5.50+% TCE/TA and 6.50%7.00% Tier 1 Leverage
– SOV maintains its capital flexibility for 2005
 Enhances and Expands the Sovereign Franchise
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Consistent With Our Vision and Mission
 Waypoint has a low-risk business model emphasizing
retail and commercial banking
 Transaction opens up new markets to deliver
Sovereign’s broader array of products and services
(e.g. cash management, capital markets, commercial
lending and government banking)
 Fill-in acquisition of a manageable size to facilitate
integration
 Creates leading market share positions in many
desired micro-markets
 Sovereign has substantial experience in integrating
acquisitions
15
15
Low-Risk Integration Model
 SOV has the necessary operational readiness to
convert Waypoint on a timely basis
– First Essex (acquired February 6, 2004) has been
completely integrated – no residual issues remain
– Seacoast will be converted during 3Q and 4Q of 2004
– Waypoint will be converted during 1Q05
 Waypoint business model is very similar to
Sovereign’s – no new businesses to understand, no
new risks to quantify
 Waypoint uses a Fiserv operating platform
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16
Consistent with Our Critical Success Factors
 Superior Asset Quality – low risk business model has produced
exceptional credit quality by all measures:
As of 12/31/03
SCFS
WYPT
SOV
Pro Forma
NPAs/Assets
0.31%
0.18%
0.51%
0.46%
NPLs/Loans
0.40%
0.36%
0.76%
0.69%
NCOs/Avg Loans
0.13%
0.31%
0.55%
0.48%
Reserves/Loans
1.20%
1.17%
1.25%
1.24%
Reserves/NPLs
298%
327%
164%
180%
 Superior Risk Management – low risk business model provides balance
and diversity to Sovereign’s model. Acquiring $1.3 billion of core
deposits. Wholesale balance sheet exposure to be reduced.
 Superior Productivity – greater efficiencies through economies of scale
 Sales and Service – strong workforce inherited; market share potential
is increased through broader product offerings and acquisition of more
than 120,000 households
17
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Summary
 This acquisition is very strategically compelling, and
creates exciting opportunities within Sovereign’s franchise
 This acquisition continues to differentiate Sovereign as a
leading financial institution in the Northeast
 We remain comfortable with the mean street estimate of
$1.63 in Operating Earnings for 2004
 We remain committed to striving for operating earnings of
$1.65 to $1.70 per share in 2004, and cash earnings per
share of $1.80 to $1.85
 We remain committed to our 2004 and 2005 capital goals
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Appendix
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19
Pro Forma Loans and Deposits at 12/31/03
20
20
(Dollars in millions)
SOV1
SCFS2
WYPT
Loans:
Commercial Real Estate
Commercial Industrial
Other Commercial
Total Commercial
Home Equity
Auto
Other Consumer
Total Consumer
Total Residential
$4,913
5,466
1,603
11,982
6,477
3,640
336
10,453
5,126
$618
163
0
781
165
833
24
1,022
2,130
$651
343
104
1,098
562
174
200
937
373
Pro Forma
$6,182
5,972
1,707
13,861
7,204
4,647
560
12,412
7,629
Mix
18%
18%
5%
41%
21%
14%
2%
37%
23%
TOTAL LOANS
$27,561
$3,933
$2,408
$33,902
100%
Deposits:
Demand/NOW
Savings
Money Market
Time
TOTAL DEPOSITS
$11,628
3,399
7,087
6,504
$28,618
$794
590
938
1,251
$3,573
$561
252
499
1,409
$2,721
$12,983
$4,241
$8,524
9,164
$34,912
37%
12%
24%
26%
100%
Notes:
1 Pro Forma for First Essex
2 Pro Forma for Abington Bancorp
Pro Forma Capital Ratios
(Dollars in millions)
1,2
12/03
3/04
3,260
$ 3,920
Intangibles
1,296
1,530
Tier 1 Capital
2,353
$ 43,505
Equity
Assets
Pro forma Sovereign:
TCE / TA
Tier 1 Leverage
$
4.7%
5.6%
3
4
9/04
12/04
5,190
$ 6,015
1,515
2,375
3,110
3,185
3,325
3,705
3,725
$ 47,700
$ 48,300
$ 55,300
$ 61,300
5.3%
7.0%
5.0%
6.4%
5.2%
6.9%
6/04
$
4,040
5.4%
7.1%
$
Notes:
1 Pro Forma for First Essex acquisition – increases equity ~$270 million, intangibles ~$255 million, Tier 1 Capital ~$40 million and assets
~$1.8 billion
2 Pro Forma for $800 million Trust PIERS Issuance – increases equity ~$280 million, Tier 1 Capital ~$500 million, and assets ~$800 million
3 Pro Forma for Seacoast Financial acquisition – increases equity ~$1.03 billion, intangibles ~$875 million, Tier 1 Capital ~$240 million, and
assets ~$6.3 billion
4 Pro Forma for Waypoint Financial acquisition – increases equity ~$680 million, intangibles ~$750 million, and assets ~$5.4billion
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Additional Transaction Details
 Implied exchange ratio: Stock - 1.262x (based on SOV 10-day average
prior to announcement); Cash - $28.00 fixed
 Price protection: fixed exchange ratio; no collars
 Walk-away provision: Double-trigger, SOV declines 15% relative to an
index and 15% absolute, with SOV ability to fill up hole
 Deal lock-up termination fee: 4% plus 19.9% lock up option (Sovereign
can elect one but not both)
 Necessary Approvals: WYPT – OTS, PA, and shareholders; SOV – OTS
 Due Diligence: Completed
 Transaction Timeline: Closing anticipated to be 4Q04; transaction may be
terminated if not completed by January 31, 2005
 Advisors:
– WYPT: Ryan Beck & Co. (Investment Banking); Rhoads & Sinon LLP (Legal)
– SOV: Citigroup (Investment Banking); Stevens & Lee (Legal)
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