Sovereign Announces 2nd Quarter Net Income Up 14
PHILADELPHIA--(BUSINESS WIRE)--July 26, 1999--
-- Net income of $48.8 million, up 14% from the prior year
-- Diluted EPS of $0.30, exceeding consensus analyst estimates by
$0.02, or 7%
-- Annualized revenue growth of 20% compared to the first quarter
of 1999
-- Commercial loan originations of $682 million
-- Significant asset quality enhancement - NPA/total assets
improved to 0.36% from 0.56% the prior year
-- Capital ratios improve - tangible equity to tangible assets at
Sovereign Bank increased to 5.71%
-- Completed two acquisitions, The Network Companies and Peoples
Bancorp, Inc.
Sovereign Bancorp, Inc. ("Sovereign") (NASDAQ/NMS:SVRN), parent
company of Sovereign Bank, announced net income for the second quarter
of 1999 of $48.8 million, an increase of 13.8% from second quarter
1998 net income of $42.9 million.
Diluted earnings per share ("EPS") was $0.30, exceeding the
consensus of analyst estimates and an increase of 11% compared to
$0.27 reported for the second quarter of 1998. On a cash basis,
earnings per share totaled $0.35 for the second quarter of 1999 versus
$0.29 for the second quarter of 1998, an increase of 20.7%.
Sovereign's year-to-date net income increased to $94.1 million
from $58.0 million for the same period last year including
merger-related charges in the first quarter of 1998 of $25.5 million
after-tax or $0.16 per share. For the six months ended June 30, 1999,
EPS was $0.58, up from EPS of $0.36 for the same period last year.
"We are continuing our earnings momentum into the second quarter
as we execute on our business strategy," commented Jay S. Sidhu,
Sovereign's President and Chief Executive Officer. "Commercial loan
growth remained strong during the quarter, revenue continued to grow,
asset quality was improved and capital levels significantly
increased," continued Sidhu.
Financial Results
For the second quarter of 1999, return on average tangible equity
was 29.1% and return on average equity was 16.8% compared to 19.4% and
16.2%, respectively, for the second quarter of 1998.
Total revenue for the quarter increased 20% on an annualized
basis compared to the first quarter and 25% compared to last year,
fueled by strong loan originations and continued success in attracting
lower cost deposits. Net interest income for the second quarter of
1999 was $147.4 million compared to $119.0 million for the second
quarter of 1998, an increase of 24%.
Sovereign produced linked quarter net interest income growth of
$7.6 million or 22% annualized, and year-to-date net interest income
growth of 20%, to $287.2 million year-to-date from $239.6 million for
the same period last year. The net interest margin was 2.92% for the
second quarter of 1999 compared to 2.80% for the first quarter of
1999.
Other income was $33.3 million for the second quarter of 1999, a
32% increase from $25.2 million for the second quarter of 1998.
Sovereign produced linked quarter other income growth of $1.0 million,
or 14% annualized, excluding securities gains. Loan fees were up $0.7
million on a linked quarter basis, largely due to strong commercial
loan production.
General and administrative expense for the second quarter of 1999
was $86.2 million, compared to $83.5 million for the first quarter of
1999, or a linked quarter increase of approximately 3%. Sovereign's
efficiency ratio was 47.7% for the second quarter of 1999, an
improvement from 48.5% for the first quarter of 1999.
"As seen from the favorable trends in our efficiency ratio, we
are reaping the reward of revenue growth from our infrastructure
"investments" made in prior quarters. We will continue to make
additions of this nature throughout 1999 as long as they continue to
produce revenue growth for the company," stated Dennis S. Marlo,
Sovereign's Chief Financial Officer.
Continued Strong Loan Growth
Commercial originations for the second quarter of 1999 were $682
million compared to $198 million in the second quarter of 1998. The
total commercial loan pipeline currently exceeds $850 million at June
30, 1999.
"Second quarter corporate banking originations were the highest
in Sovereign's history and are indicative of the market's increased
awareness of Sovereign as a leading commercial banking company. With
this solid performance, Sovereign is ahead of schedule for our goal of
33% commercial loans by 2003," commented Sidhu.
At June 30, 1999, Sovereign's commercial loan portfolio was $3.2
billion, compared to $1.5 billion at June 30, 1998. At June 30, 1999,
commercial loans totaled 26% of Sovereign's loan portfolio, compared
to 14% at June 30, 1998.
Consumer loans originated during the second quarter totaled $503
million compared to $576 million in the second quarter of 1998. At
June 30, 1999, Sovereign's consumer loan portfolio was $4.2 billion,
up from $3.2 billion at June 30, 1998. At June 30, 1999, consumer
loans comprised 34% of Sovereign's loan portfolio compared to 30% at
June 30, 1998.
Retail Banking Results
Sovereign continues to make meaningful progress in lowering its
cost of deposits, from 3.81% at year-end 1998 and 3.66% for the first
quarter of 1999 to below 3.50% currently. This improvement is the
outcome of internal core deposit growth with major emphasis on
attracting lower-cost deposits from corporations, governmental units
and consumers.
The deposit sales effort coupled with strong loan production
across the company have produced a core net interest margin (total
loan yield less cost of deposits) in excess of 4.00%. On a linked
quarter basis, total deposits were up $130 million at June 30, 1999 as
a result of the acquisition of People's Bancorp, Inc., partially
offset by a planned temporary reduction of wholesale deposits.
Asset Quality
Consistent with Sovereign's critical success factor of high asset
quality, Sovereign determined during the quarter that an accelerated
disposition of approximately $37 million of non-performing residential
loans would be the most cost-effective strategy to reduce
non-performing assets while significantly increasing key asset quality
coverage ratios.
Sovereign's ratio of non-performing assets to total assets
improved to 0.36% at June 30, 1999 from 0.56% at June 30, 1998.
Excluding government-guaranteed student loans for which Sovereign
retains minimal credit risk, Sovereign's total 90-day delinquencies to
total loans at June 30, 1999 were 0.65%, improving from 0.94% at March
31, 1999.
Net loan charge-offs for the quarter excluding the non-performing
loan sale discussed above were approximately $7.1 million, down from
$7.5 million in the first quarter and $9.1 million in the fourth
quarter of 1998. The loan loss allowance at June 30, 1999 was $134
million or 162% of non-performing loans, up from 121% of
non-performing loans at March 31, 1999 and 106% at June 30, 1998.
Acquisitions
During the second quarter of 1999, Sovereign completed two
acquisitions which increased the company's loans, deposits, and equity
by $553 million, $515 million, and $313 million, respectively, at June
30, 1999. On June 15, 1999, Sovereign acquired The Network Companies
("Network"), a specialty leasing company headquartered in Commack, New
York.
Network's unique products provide funding for the purchase or
lease of equipment and specialty vehicles plus other specialty
products for other businesses. Network currently has an alliance with
the National American Automobile Association ("AAA") in which Network
is the endorsed lender to assist local AAA affiliated businesses in
financing the acquisition of tow trucks.
This transaction is immediately accretive to Sovereign's 1999
earnings and is expected to add approximately $0.01 per share to 2000
earnings.
On June 30, 1999 Sovereign completed its previously announced
acquisition of People's Bancorp, Inc, ("Peoples"), a $1.4 billion
financial institution headquartered in Lawrenceville, New Jersey.
Peoples' 14 branch offices are a strong strategic fit with Sovereign's
existing franchise in central New Jersey, and also brings solid trust
and money management capabilities to Sovereign.
This acquisition also provided Sovereign with substantial equity
capital, which enhanced book value and capital ratios. The transaction
was accounted for as a purchase, and was consummated at 103% of
Peoples' book value. Subsequent to June 30, 1999, all pending system
conversions related to the acquisition have been completed.
"Over the past thirteen months, we have successfully grown the
franchise while completing six systems conversions which affected our
entire 300 branch network," commented Sidhu.
"Very few, if any, institutions have completely transformed their
entire operating platform while doubling their franchise through
acquisitions in little over a one year period, as we attained record
earnings. We are very proud of all of our team members for their
efforts," added Sidhu.
Technology
Sovereign continues to execute its comprehensive Year 2000
("Y2K") readiness plan, and has completed testing of its
mission-critical computer systems. Sovereign will continue testing and
monitoring systems throughout the remainder of 1999.
As announced on July 15, 1999, Sovereign continues to move
forward with confidence regarding Y2K readiness and will offer
extended branch hours during the New Year 2000 holiday weekend in an
effort to boost customer confidence in its Y2K preparations.
Sovereign's previously announced plan to develop a separate
Internet Bank is progressing as expected. The Internet Bank initiative
remains on target to be fully operational during the fourth quarter of
1999, with test sites commencing operations September 1, 1999.
As announced on July 21, 1999, Sovereign has named Cliff Lavin as
President and Managing Director of the new Internet Bank. Lavin is a
start-up specialist and a marketing executive with a background in
building companies and new ventures from concept to profitable
operation.
Capital Planning
The Peoples' acquisition significantly enhanced Sovereign's
capital ratios as of June 30, 1999. Total equity to assets at
Sovereign Bank increased to 7.39% and tangible equity to tangible
assets also increased significantly, reaching 5.71% at June 30, 1999.
On April 7, 1999, Sovereign announced a stock repurchase program
to purchase up to 10% of Sovereign's outstanding shares. As of June
30, 1999, Sovereign had purchased over 4 million shares in the open
market and will continue this program as market conditions dictate.
These shares were subsequently reissued in connection with the
acquisitions of Peoples and Network.
"We believe that Sovereign is currently an undervalued stock, and
that this is an important capital planning strategy. As a result of
the significant capital appreciation that the Peoples acquisition
produced, we are able to execute this repurchase program without
impacting capital ratios. Sovereign remains committed to increasing
its capital ratios over time," commented Sidhu.
Conclusion
"Sovereign's earnings momentum is the result of Sovereign's focus
and execution of its super community banking strategy. The
transformation of Sovereign to become a strong regional bank through
the delivery of superior products and services has resulted in
enhanced profitability and earnings. Sovereign's consistent commitment
to this philosophy has produced strong results that we believe will
continue," stated Richard E. Mohn, Sovereign's Chairman of the Board.
Investors will have the opportunity to listen to a broadcast
detailing second quarter earnings on the Internet via VCALL. The
message can be accessed anytime from 11:00 a.m. Tuesday, July 27, 1999
through 5:00 p.m. Tuesday, August 10, 1999.
To access the broadcast, please connect to VCALL via the Internet
at sovereignbank.com through the Investor Relations page.
Questions will be answered via email accessible from the Internet
broadcast site. |
