(610) 478-2099
February 19, 1998
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Sovereign Bancorp, Inc.
Current Report on Form 8-K
Ladies and Gentlemen:
We are counsel to Sovereign Bancorp, Inc. (the "Company").
On behalf of the Company, we transmit herewith for filing the
Company's Current Report on Form 8-K dated February 18, 1998.
If you have any questions or comments, please contact the
undersigned at (610) 478-2099.
Very truly yours,
STEVENS & LEE
/s/ William J. Reynolds
William J. Reynolds
WJR/nb
Enclosures
cc: Mr. Mark R. McCollom (w/enc.)
Exhibit 99.1
Sovereign Bancorp News Release
FOR IMMEDIATE RELEASE CONTACT:
January 20, 1998 Karl D. Gerhart (610) 320-8437
Mark R. McCollom (610) 208-6426
Linda Hagginbothom (610) 320-8498
_________________________________________________________________
_________________________________________________________________
Corporate Headquarters: 1130 Berkshire Blvd., Wyomissing, PA
SOVEREIGN ANNOUNCES
1997 NET OPERATING INCOME UP 26%
WYOMISSING, PA...Sovereign Bancorp, Inc. ("Sovereign")
(NASDAQ/NMS:SVRN), parent company of Sovereign Bank, announced
1997 net operating income of $114.4 million excluding
merger-related charges, an increase of 26% from 1996 net
operating income of $91.0 million excluding a non-recurring
charge for the recapitalization of the SAIF insurance fund.
Diluted earnings per share ("EPS") excluding one-time merger-
related charges for the year ended 1997 was $1.12, an increase of
23% compared to $0.91 reported for the year ended 1996 excluding
the one-time SAIF assessment. On a fully diluted basis (which
utilizes accounting rules that are no longer in effect at
December 31, 1997), excluding one-time charges, earnings per
share for 1997 was $1.11 compared to $0.91 for 1996.
For 1997, excluding the one-time charges, return on average
equity was 15.59% and return on average assets was 0.85%,
compared to 13.36% and 0.78%, respectively, for 1996.
Sovereign's fourth quarter 1997 net operating income
increased 31% to $30.1 million from $23.0 million for the fourth
quarter of 1996. Fourth quarter EPS exclusive of one-time
charges, was $0.29, an increase of 26% compared to $0.23 for
fourth quarter 1996.
"We are pleased with Sovereign's 1997 earnings growth and
the significant contributions made by Sovereign in executing its
Super Community Bank strategy. Sovereign's 1997 results reflect
the Company's continued commitment to building shareholder value
by consistently increasing earnings, continuing strategic
acquisitions, and executing strategic initiatives," commented
Jay S. Sidhu, Sovereign's President and Chief Executive Officer.
Sovereign's year-to-date net income, including one-time
charges noted above, increased 11% to $77.6 million from
$70.1 million for the same period last year. For the year ended
December 31, 1997, EPS including one-time charges were $0.76, an
increase of 9% from earnings per share for the year ended
December 31, 1996 of $0.70 including one-time charges.
Consumer loans originated during the fourth quarter of 1997
totaled $380.8 million compared to $286.6 million in the fourth
quarter of 1996. During the fourth quarter of 1997, Sovereign's
newly acquired Automobile Finance Division originated
$171.3 million in loans. At December 31, 1997, Sovereign's
consumer loan portfolio was $2.9 billion, compared to
$1.0 billion at December 31, 1996. At December 31, 1997,
consumer loans comprised 29.1% of Sovereign's loan portfolio
compared to 12.0% at December 31, 1996.
Commercial originations were also strong during the quarter,
totaling $48.3 million, with the total commercial loan pipeline
currently exceeding $178 million. At December 31, 1997,
Sovereign's commercial loan portfolio was $836.5 million,
compared to $389.4 million at December 31, 1996. At December 31,
1997, commercial loans totaled 8.4% of Sovereign's loan
portfolio, compared to 4.7% at December 31, 1996.
First mortgage originations during the fourth quarter of
1997 were $211.7 million, compared to $324.7 million originated
during the fourth quarter of 1996. Approximately 64% of the
first mortgage loans originated in the fourth quarter of 1997
were variable rate loans. At December 31, 1997, Sovereign's
mortgage loan portfolio was $6.2 billion, 62.5% of its loan
portfolio, compared to $6.9 billion and 83.3% of the loan
portfolio at December 31, 1996.
Net interest income for the fourth quarter of 1997 was
$95.4 million compared to $78.3 million for the fourth quarter of
1996 an increase of 22%. Year-to-date net interest income
increased to $340.8 million compared to $304.1 million for the
same period last year. The net interest margin was 2.80% for the
fourth quarter of 1997, compared to 2.67% in the third quarter of
1997. The net interest margin for 1997 was 2.68%.
Other income was $11.2 million for the fourth quarter of
1997, down from $15.2 million for the fourth quarter of 1996.
Other income for the year ended December 31, 1997 was
$38.5 million, as compared to $46.3 million for the year ended
December 31, 1996. These declines were due primarily to credit
card fees recorded by an acquired company in 1996. This company
sold its credit card operations prior to its merger with
Sovereign in 1997; however, pooling-of-interests accounting
requires that all prior periods be reflected on Sovereign's
records. Excluding these credit card fees, other income
increased 14% during 1997. Deposit fees increased by 8% to
$16.5 million during 1997, as compared to $15.3 million for the
year ended December 31, 1996. Mortgage banking gains were very
strong at $6.4 million for 1997, compared to $1.4 million for
1996, due primarily to internal restructuring and management
enhancements made to this business unit during 1997.
Sovereign's ratio of general and administrative expenses to
average assets was 1.29% for the fourth quarter of 1997, an
improvement from 1.45% for the fourth quarter of 1996. Year-to-
date general and administrative expense, excluding the one-time
merger-related charges for acquisitions, decreased to
$163.3 million from $170.5 million for the same period last year.
The ratio of non-performing assets to total assets improved
to 0.63% on December 31, 1997 from 0.80% on December 31, 1996.
Excluding government-guaranteed student loans for which Sovereign
retains minimal credit risk and the newly acquired auto loans,
Sovereign's total 30 day+ delinquencies to total loans at
December 31, 1997 were 1.81% compared to 1.83% at December 31,
1996. Including the Auto Finance Division, Sovereign's total 30
day+ delinquencies to total loans were 2.62%. The ratio of loan
loss reserves to non-performing loans was 108% at December 31,
1997 as compared to 56% at December 31, 1996. During the fourth
quarter of 1997 Sovereign added a total of $6.0 million to its
loan loss reserves as a result of increased commercial and
consumer lending emphasis, due largely to the acquisition of the
Auto Finance Division.
As a result of Sovereign's continued emphasis on
relationship selling, total deposits grew by $139.1 million
during the fourth quarter of 1997, bringing the year-to-date
increase to $654.5 million, exclusive of all acquisitions. Core
deposits (non-certificates of deposit) grew to $3.3 billion at
December 31, 1997.
At December 31, 1997, Sovereign's Tier 1 capital totaled
approximately $750 million, compared to approximately
$595 million at December 31, 1996. Sovereign's Tier 1 capital
ratio is approximately 5.25% at December 31, 1997.
Total assets at December 31, 1997 were $14.3 billion, as
compared to total assets at December 31, 1996 of $12.5 billion.
Total deposits and shareholders' equity were $7.9 billion and
$778.2 million, respectively, at December 31, 1997, compared to
$7.2 billion and $701.7 million, respectively, at December 31,
1996. Total assets proforma for all pending acquisitions are
$17.9 billion.
"Sovereign remains committed to building shareholder value
by continuing to focus on its critical success factors of high
asset quality, low interest rate risk and low overhead, while
delivering innovative products through a well-trained team of
professionals," stated Richard E. Mohn, Sovereign's Chairman of
the Board.
Sovereign currently has pending the acquisition of ML
Bancorp, Inc. ("ML Bancorp") a $2.4 billion financial institution
headquartered in Villanova, Pennsylvania. This acquisition is
expected to close late in the first quarter of 1998, and will add
29 community banking offices plus significant business, consumer,
and mortgage banking capabilities to Sovereign's Pennsylvania
franchise.
On December 15, 1997, Sovereign announced the pending
acquisition of Carnegie Bancorp, Inc. ("Carnegie"). Carnegie is
a $432 million commercial bank holding company headquartered in
Princeton, New Jersey whose principal operating subsidiary
operates seven branches throughout central New Jersey and one
branch in Pennsylvania. On December 19, 1997, Sovereign
announced the pending acquisition of First Home Savings Bank,
F.S.B., ("First Home"). First Home is a $531 million bank
holding company headquartered in Pennsville, New Jersey whose
principal operating subsidiary operates ten branches in Salem,
Gloucester, and Camden counties, New Jersey and New Castle
county, Delaware. Both of these acquisitions are expected to
close during the second quarter of 1998.
Sovereign is a proforma $17.9 billion bank holding Company
with approximately 190 Community Banking Offices operating in
eastern Pennsylvania, northern Delaware, and New Jersey. The
third largest bank headquartered in Pennsylvania, the closing
price of Sovereign's Common Stock on Tuesday, January 20, 1998
was $19.56 per share and its Preferred Stock closed at $119.25
per share.
- THE END -
<PAGE>
CONDENSED FINANCIAL INFORMATION
(In Thousands)
BALANCE SHEET At Dec. 31, 1997 At Dec. 31, 1996
Total Assets $14,336,283 $12,500,852
Loans 9,923,510 8,321,771
Loans held for Resale 22,826 32,955
Investments & MBSs 3,913,950 3,730,254
Total Liabilities 13,460,564 11,799,427
Deposits 7,889,921 7,235,395
Stockholders' Equity 778,247 701,425
<TABLE>
<CAPTION>
3 Months Ended Year Ended
Dec. 31 Dec. 31
INCOME STATEMENT
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Interest Income $95,392 $78,289 $340,849 $304,121
Provision for Loan Losses 6,000 5,200 37,199 15,366
Other Income 11,150 15,214 38,480 46,304
General & Administrative Expenses 46,559 45,249 163,338 170,459
Other Expenses 5,491 4,901 19,518 17,272
Income Before Taxes and One-Time 48,492 38,153 159,274 147,328
Income Tax Provision 18,427 15,136 52,376 56,344
One-Time Charges(1) -0- 1,753 29,258 20,845
Net Income $30,065 $21,264 $ 77,640 $ 70,139
Earnings Per Share $ 0.29 $ 0.21 $ 0.76 $ 0.70
Net Income before One-Time
Charges(1) $30,065 $23,017 $114,37 $90,984
EPS before One-Time Charges(1) $ 0.29 $ 0.23 $ 1.12 $ 0.91
</TABLE>
(1) For 1997, one-time charges include $24.9 million (pre-tax)
of merger related charges classified as provision for loan
losses for the twelve months ended December 31, 1997. Total
merger related charges were $54.2 million ($36.6 million net
of tax) for the year ended December 31, 1997. For 1996,
one-time charges include $1.8 million (after-tax) for three
months ended December 31, 1996 and $20.8 million (after-tax)
for the year ended December 31, 1996 for a one-time
assessment charged for the recapitalization of the SAIF
insurance fund.
<PAGE>
KEY STATISTICS
<TABLE>
<CAPTION>
PERFORMANCE STATISTICS 3 MONTHS YEAR
1997 1996 1997 1996
<S> <C> <C> <C>
Return on Average Assets(1) 0.83% 0.80% 0.85% 0.78%
Return on Average Equity(1) 15.63% 14.35% 15.59% 13.36%
G & A Exp on Average Assets 1.29% 1.45% 1.22% 1.47%
Efficiency Ratio(2) 43.33% 49.96% 43.09% 49.28%
<CAPTION>
CONTROL STATISTICS AT DEC 31, 1997 AT DEC 31, 1996
<S> <C> <C>
Stockholders' Equity to Total Assets 5.43% 5.61%
Allowance for Loan Losses to Total Loans 0.92% 0.63%
Non-Performing Assets to Total Assets 0.63% 0.80%
General Reserves for Loan Losses to Non-Performing Loans 108% 56%
Non-Performing Loans to Total Loans 0.81% 1.01%
FTE Employees 2,170 1,856
<CAPTION>
STOCK STATISTICS(3) AT DEC 31, 1997 AT DEC 31, 1996
<S> <C> <C>
Preferred Shares Outstanding 1,996,467 2,000,000
Common Shares Outstanding 89,601,502 88,092,704
Diluted Shares Outstanding 103,231,761 101,996,838
Book Value Per Share(4) $7.66 $7.02
Tangible Book Value Per Share Net of Tax Benefit(5) $6.75 $6.10
</TABLE>
NOTES: (1) Excludes merger related charges for 1997 and SAIF
assessment charge for 1996.
(2) Efficiency Ratio equals all general and
administrative expenses as a percentage of net
interest income and recurring non-interest income.
(3) Restated for all stock splits/dividends payable to
date.
(4) Book value equals equity divided by common shares
and if-converted preferred shares.
(5) Computed net of tax benefit on certain intangible
assets.
