Sovereign Profits Surge, But Not Shares
Sovereign Bancorp
( SOV) shares were flat Wednesday after the consumer and commercial-led bank posted a quarterly profit that more than doubled from the year-ago quarter but missed estimates.
In the first three months of the year, the Philadelphia-based bank reported net income of $100.1 million, or 20 cents a share, compared to $48.1 million, or 9 cents a share, in the first quarter of last year. Sovereign said the year-earlier quarter included after-tax charges of $128.7 million, or 25 cents a share, related to a balance sheet restructuring and expense initiative.
Still Sovereign missed analysts' estimates by a penny, according to Thomson Financial.
"Sovereign's results for the first quarter demonstrate that we are continuing to make progress on our goals to reduce risk and improve the quality of our earnings stream," CEO Joseph Campanelli said in a release. "The current turbulent financial markets provide a challenging credit environment which has resulted in elevated levels of non-performing assets and provisions for credit losses."
Sovereign took a provision for loan losses of $135 million in the first quarter, slightly less than the extra amount it set aside in the fourth quarter, but nearly triple the provision from a year earlier. The bank's total allowance for credit losses rose slightly to $798 million, or 1.36% of total loans, primarily due to growth in commercial loans and "continued deterioration" in its commercial construction portfolio.
Nonperforming loans rose 37% to $417.8 million, or 0.71% of total loans, driven by higher nonperforming commercial loans, "a significant portion of which related to the housing market," Sovereign said. Actual loans that were charged off totaled $74.3 million, up 23% from the fourth quarter, mostly related to auto loans originated outside the company's main footprint.
The results came as somewhat of a relief to investors, particularly as Sovereign has been on a campaign to shore up its once-expanded lending capabilities as the credit crisis lingers. Earnings at other regional banks including
Fifth Third Bancorp
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,
SunTrust Banks
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,
Regions Financial
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,
National City
( NCC),
KeyCorp
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and
M&T Bank
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were also hurt by the downturn in the residential housing market.
Sovereign said it ceased originating correspondent home equity loans in the first quarter of 2006. This year, it stopped making auto loans in the Southeast and Southwest, which is outside of its direct footprint, as losses spiked.
The company reported a fourth-quarter loss of $1.6 billion, or $3.34 a share, attributed to a $1.4 billion goodwill impairment of $1.4 billion on its consumer lending business and the decision to cease originating auto loans outside of its branch footprint. Additionally, revenue and deposit growth from the company's 2006 acquisition of Independence Community Bank was disappointing the bank had said at the time, further cutting into profits.
Shares of Sovereign were most recently up 1.2% to $8.45.