Sovereign Bancorp's Acquisition of Peoples Bancorp to Materially Improve Capital Ratios

Strategic Insights -

Sovereign Bancorp, Inc. has signed a definitive agreement to acquire Peoples Bancorp, Inc., significantly enhancing its capital ratios and positioning the company for future growth. The acquisition is expected to materially improve Sovereign's capital ratios, with the tangible capital ratio expected to rise above 5.25 percent and the GAAP equity-to-assets ratio above 7.00 percent by the transaction's closing. The acquisition will also bring increased commercial and asset-based lending portfolios with strong asset quality, low interest rate risk, good earnings, and a low efficiency ratio.

Key Takeaways:

  • The acquisition of Peoples Bancorp, Inc. is expected to increase Sovereign Bancorp's tangible capital ratio above 5.25 percent and the GAAP equity-to-assets ratio above 7.00 percent.
  • Peoples Bancorp brings $200 million in assets under management and is expected to provide expense savings of $6.1 million, or 40 percent of Peoples' noninterest expense base.
  • The acquisition complements Sovereign's First Union/CoreStates branch acquisition, which added 93 branches, $2.1 billion in deposits, and $800 million in consumer and commercial loans.
  • Successful completion of the acquisition will depend on full integration of the 93 First Union/CoreState branches, extraction of potential synergies, and continued conversion to a more commercial bank-like organization.
  • Duff & Phelps Credit Rating Co. will continue to evaluate Sovereign's credit risk management practices to ensure proper credit risk measuring, monitoring, and control.
  • Future rating upgrades will depend on the completion of the Peoples transaction, increased capital ratios, full integration of the First Union/CoreState branches, and continued conversion to a more commercial bank-like organization.

Statistics:

  • The Peoples acquisition is expected to bring $200 million in assets under management.
  • Expense savings of $6.1 million are expected to be realized through the acquisition.
  • The First Union/CoreStates acquisition added 93 branches, $2.1 billion in deposits, and $800 million in consumer and commercial loans.
  • The tangible capital ratio is expected to rise above 5.25 percent.
  • The GAAP equity-to-assets ratio is expected to rise above 7.00 percent.
  • The acquisition charge will be $18 million pretax.

Sources:

  • Duff & Phelps Credit Rating Co., Sovereign Bancorp, Inc. DCM 1998-09-10-05