Sovereign Announces 3rd Quarter Operating EPS Up 15%, Operating Earnings Up 31
PHILADELPHIA--(BUSINESS WIRE)--Oct. 18, 1999--
-- Net income of $56.0 million, up 31% from the prior year
(adjusted for merger related charges taken during the period) and up
15% from the second quarter
-- Diluted EPS of $0.31, exceeding the consensus analyst estimate
by about 3% and up 15% on an operating basis from the third quarter of
1998
-- Commercial loans outstanding increased $259 million during the
quarter; strong commercial banking presence continues
-- Significant asset quality enhancement - NPA/assets improved to
0.38% from 0.55% the prior year
-- Integrated two acquisitions which closed late in the second
quarter (Peoples Bancorp, Inc. ("Peoples") and The Network Companies
("Network" )) - earnings results ahead of plan
-- Merger integration plans for acquisition of assets and
liabilities from FleetBoston are on schedule
-- Internet Banking initiatives progressing as expected - 1st
webbankdirect.com in process of negotiating definitive agreements with
significant affinity partners
Sovereign Bancorp, Inc. ("Sovereign") (NASDAQ/NMS: SVRN), parent
company of Sovereign Bank, announced net income for the third quarter
of 1999 of $56.0 million, an increase of 31% from third quarter 1998
net income of $42.8 million excluding certain merger-related charges.
Diluted earnings per share ("EPS") were $0.31, exceeding the
consensus of analyst estimates and an increase of 41% compared to
$0.22 reported for the third quarter of 1998. On a cash basis,
earnings per share totaled $0.35 for the third quarter of 1999 versus
$0.29 for the third quarter of 1998, an increase of 21%.
Sovereign's year-to-date net income increased to $150 million
from $92.8 million for the same period last year, including
merger-related charges through the third quarter of 1998 of $33.3
million after-tax or $0.21 per share. For the nine months ended
September 30, 1999, EPS was $0.89, up from EPS of $0.58 for the same
period last year.
"We are pleased with the continued core earnings momentum into
the third quarter," commented Jay S. Sidhu, Sovereign's President and
Chief Executive Officer. "Commercial and consumer loan growth remained
strong during the quarter along with solid core non-interest income
growth," continued Sidhu.
Financial Results
For the third quarter of 1999, return on average tangible equity
was 25.7% and return on average equity was 15.7% compared to 19.2% and
15.7%, respectively, for the third quarter of 1998.
Total revenue for the quarter increased 34% compared to last
year, fueled by strong loan originations, continued core deposit
growth and recurring non-interest income growth. Net interest income
for the third quarter of 1999 was $162 million compared to $121
million for the third quarter of 1998, an increase of 34%. Sovereign
produced linked quarter net interest income growth of $14.5 million
and year-to-date net interest income growth of 24%, to $449 million
year-to-date from $361 million for the same period last year. The net
interest margin was 2.95% for the third quarter of 1999 compared to
2.73% for the third quarter 1998 and 2.88% for the first nine months
of 1999.
Other income was $35.0 million for the third quarter of 1999, a
36% increase from $25.7 million for the third quarter of 1998.
Sovereign produced linked quarter other income growth of $2.9 million,
or 36% annualized, excluding securities gains and other non-recurring
items. Retail banking fees were up $3.0 million on a linked quarter
basis, due to favorable product shifts, active fee collection efforts
and the Peoples acquisition.
General and administrative expense for the third quarter of 1999
was $90.8 million, compared to $86.2 million for the second quarter of
1999, or a linked quarter increase of approximately 5%. Sovereign's
efficiency ratio was 46.3% for the third quarter of 1999, an
improvement from 47.7% for the second quarter of 1999. "Excluding
additions from the Peoples and Network acquisitions, operating
expenses were virtually unchanged with the prior quarter. Except for
certain FleetBoston acquisition-related costs which will start to be
incurred during the fourth quarter, we expect operating expenses to
show only modest increases during the remainder of the year," stated
Dennis S. Marlo, Sovereign's Chief Financial Officer.
Continued Strong Loan Growth
Commercial loans outstanding for the third quarter of 1999
increased $259 million as the result of continued strong small
business and middle market selling efforts. The total commercial loan
pipeline currently approaches $900 million at September 30, 1999.
"This significant increase in commercial banking loans during 1999 is
a result of Sovereign's emphasis on growing revenue-generating
business loans and the market's acknowledgement of Sovereign as a
significant commercial banking company," commented Sidhu. At September
30, 1999, Sovereign's commercial loan portfolio was $3.5 billion,
compared to $3.2 billion at June 30, 1999. At September 30, 1999,
commercial loans totaled 26% of Sovereign's loan portfolio, compared
to 17% at September 30, 1998.
Consumer loans originated during the third quarter totaled $523
million compared to $503 million during the second quarter and $616
million in the third quarter of 1998. At September 30, 1999,
Sovereign's consumer loan portfolio was $4.3 billion, up from $3.7
billion at September 30, 1998. At September 30, 1999, consumer loans
comprised 32% of Sovereign's loan portfolio compared to 33% at
September 30, 1998.
Retail Banking Results
Average deposits for the quarter were up approximately $200
million from the prior quarter and $1.3 billion from the same period
last year. Core deposits accounted for almost all of this growth,
which allowed the cost of deposits to stay consistent with the prior
quarter at 3.50%. Retail banking revenues also benefited from strong
non-interest income as retail banking fees approached $13.8 million
for the quarter. Due to the favorable shift into core deposit products
over the last year, retail banking fees increased 74% from the same
period last year while average deposits grew 12%. The deposit sales
and retention efforts coupled with strong loan production across the
company have resulted in a core net interest margin (total loan yield
less cost of deposits) in excess of 4.15% at September 30.1999.
Asset Quality
Sovereign's ratio of non-performing assets to total assets
improved to 0.38% at September 30, 1999 from 0.55% at September 30,
1998. Excluding government-guaranteed student loans for which
Sovereign retains minimal credit risk, Sovereign's total 90-day
delinquencies to total loans at September 30, 1999 were 0.65%,
consistent with the second quarter and improving from 0.88 % at
September 30, 1998. Net loan charge-offs for the quarter were
approximately $7.1 million, down from $11.9 million in the second
quarter and $7.5 million in the first quarter of 1999. The loan loss
allowance at September 30, 1999 was $135 million or 154% of
non-performing loans, up from 127% of non-performing loans at
September 30, 1998.
Acquisitions
During the third quarter, the smooth cultural transitions and
systems conversions of Network and Peoples have accelerated the
expected financial results of these acquisitions. Network brings to
Sovereign a specialty leasing company that provides funding for the
purchase or lease of equipment and specialty vehicles plus other
specialty products for other businesses. The Peoples acquisition
expands Sovereign's central New Jersey presence through the addition
of 14 branch offices, and brings solid trust and money management
capabilities to Sovereign.
On September 7, 1999 Sovereign announced its pending acquisition
of $11.9 billion in deposits and 268 branches from FleetBoston. Also
included in the transaction are $8.0 billion of loans, the lending and
operating personnel to run the branches and loan businesses as well as
the operating infrastructure necessary to maintain the business base.
Pro forma including this acquisition Sovereign will have the third
largest market share in New England and be among the largest small
business lenders in the region. Sovereign is acquiring virtually all
of the FleetBank offices in the eastern half of Massachusetts and
southern New Hampshire (189 offices), the community banking network of
the former Rhode Island Hospital Trust in Rhode Island (47 offices)
and 32 offices of FleetBoston in the Hartford, New Haven and Waterbury
communities of Connecticut.
"This transaction establishes Sovereign as a 'super regional'
bank with assets in excess of $30+ billion, positions us as one of the
strongest lenders to small and mid-sized businesses and consumers in
the region, and provides compelling value enhancement for
shareholders," said Jay S. Sidhu, Sovereigns Chief Executive Officer
and President. "The businesses we are acquiring meet or enhance all of
our critical success factors: superior asset quality, low interest
rate risk, high productivity, and a commitment to a strong sales and
service culture, delivered through dedicated team members. We look
forward to being a formidable competitor in New England," said Sidhu.
Internet Banking, Technology and Y2K
Sovereign's previously announced plan to develop a separate
Internet Bank is progressing as expected. Sovereign launched the test
sites in September and the Internet Bank initiative remains on target
to be fully operational during the fourth quarter of 1999. As the
affinity marketing oriented Internet Bank approaches its launch date,
Sovereign's Internet Banking team has been introducing this unique
delivery system to corporations, schools and other affinity groups and
expects to enter into definitive agreements with two significant
affinity relationships within the next 30 days.
Sovereign has fully executed its comprehensive Year 2000 ("Y2K")
readiness plan, and has completed testing of its mission-critical
computer systems. Sovereign will continue testing and monitoring
certain other 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.
Conclusion
"We are very encouraged that core earnings growth remains on
track in addition to the commitment that many of our team members are
making to assure that our FleetBoston acquisition is successful. It is
a true testament to the strength of our management team that we are
able to deliver strong earnings growth through this challenging time,"
stated Richard E. Mohn, Sovereign's Chairman of the Board.
Investors will have the opportunity to listen to a broadcast
detailing third quarter earnings on the Internet via VCALL. The
message can be accessed anytime from 2:00 p.m. Tuesday, October 19,
1999 through 5:00 p.m. Tuesday, November 2, 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.
Including the anticipated branch acquisition from FleetBoston,
Sovereign is a pro forma $30+ billion financial institution with
approximately 600 community banking offices and 1,000 ATM's in eastern
Pennsylvania, north Delaware, New Jersey, Connecticut, New Hampshire,
Rhode Island and Massachusetts. Currently the third largest bank
headquartered in Pennsylvania, the closing price of Sovereign's common
stock on Monday, October 18, 1999 was $8.3125 per share. |
