Fourth-quarter profits rose 20% at

Sovereign Bancorp

(SOV)

, fueled mainly by higher fee income.

In the quarter, the Pennsylvania-based regional bank earned $165 million, compared with $134 million in the year-ago period. The bank earned 44 cents a share in the quarter, compared with 38 cents a share.

On an operating basis, which excluded about $16 million in charges, Sovereign said it earned 48 cents a share. Using that earnings metric, Sovereign beat the Thomson Financial consensus estimate of 46 cents a share.

One expense Sovereign is excluding from its operating earnings is the cost of fending off a legal challenge and proxy contest waged by one of its biggest shareholders, Relational Investors. The San Diego-based asset management firm is seeking to block Sovereign's planned sale of a just under 20% equity stake to Spain's

Santander Group

.

In its fourth-quarter earnings release, Sovereign said it took a $3.8 million after-tax charge to cover costs "related to proxy and related professional fees." The bank, however, made no direct mention of Relational or the opposition to the Santander deal in the earnings announcement.

In the quarter, net interest income, the difference between what a bank makes on its loans and the money it pays out to depositors, rose a modest 1% to $391 million. The net interest margin, a measure of the profitability of a bank's deposit and lending operation, declined to 2.93% from 3.3%.

Fees and other income rose 35% to $171 million.