The Philadelphia-based thrift is increasing its provision for credit losses to between $155 million and $165 million, from $51 million in the second quarter.

Sovereign said it stopped making these correspondent home equity loans in early 2006 and sold $3.3 billion in loans in the first quarter.

But it still retained some of the nonprime loans. As of June 30, these loans had a net total of $491 million. Sovereign said loan details will be disclosed on Oct. 17, when it releases third-quarter earnings.

Nonprime loans include subprime and alt-A loans. Subprime loans are those given to borrowers with the lowest credit scores while alt-A loans tend to have higher credit quality. Alt-A loans also don't require full documentation to verify income or other information.

Sovereign also said higher-than-expected credit losses in indirect auto lending and growth of the business prompted an increase in the provision for these losses.

The company also expects to take a $20 million pretax charge because of losses on financing provided to subprime mortgage companies that went bankrupt or defaulted on debt payments.

Sovereign will take another pretax charge of $15 million to adjust the value of certain loan portfolios to reflect increasing tightness in the credit markets, which has spread beyond residential lending to all types of loans.

Analysts surveyed by Thomson Financial are expecting a profit of 33 cents per share.

Shares of Sovereign rose 33 cents to $17.73 on Friday.