<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 21, 1997
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(Date of earliest event reported)
Commonwealth Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 0-27942 23-2828883
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
<TABLE>
<S> <C>
2 West Lafayette Street, Norristown, Pennsylvania 19401
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(Address of principal executive offices) (Zip Code)
</TABLE>
(610) 251-1600
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Page 1 of 10 Pages.
Exhibit Index appears on page 2.
<PAGE> 2
ITEM 5. OTHER EVENTS
On October 21, 1997, Commonwealth Bancorp. Inc. (the "Company")
reported net income of $4.0 million for the third quarter of 1997 compared to a
net loss of $0.7 million for the third quarter of 1996. For the nine months
ended September 30, 1997, net income was $12.4 million compared to $5.1 million
for the nine months ended September 30, 1996. Results for the 1996 periods were
affected by a $4.5 million after-tax charge relating to the recapitalization of
the Savings Association Insurance Fund (SAIF) in the third quarter of 1996.
Exclusive of this charge, net income would have been $3.8 million for the third
quarter of 1996 and $9.6 million for the nine months ended September 30, 1996.
For additional information, reference is made to the Press Release, dated
October 21, 1997, which is attached hereto as Exhibit 99 and is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements.
Not Applicable.
(b) Pro Forma Financial Information.
Not Applicable
(c) Exhibits:
99 Press Release dated October 21, 1997
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMONWEALTH BANCORP, INC.
Date: October 22, 1997 By: /s/Charles M. Johnston
-----------------------
Charles M. Johnston
Chief Financial Officer
3
<PAGE> 1
EXHIBIT 99
For release: IMMEDIATELY
Contact: Charles M. Johnston, Chief Financial Officer (610) 313-2189
COMMONWEALTH BANCORP, INC. REPORTS EARNINGS FOR THIRD QUARTER 1997
NORRISTOWN, PA, OCTOBER 21, 1997 - COMMONWEALTH BANCORP, INC. (NASDAQ: CMSB),
today reported net income of $4.0 million for the third quarter of 1997
compared to a net loss of ($0.7) million for the third quarter of 1996. For the
nine months ended September 30, 1997, net income was $12.4 million compared to
$5.1 million for the nine months ended September 30, 1996. Results for the 1996
periods were affected by a $4.5 million after-tax charge relating to the
recapitalization of the Savings Association Insurance Fund (SAIF). Exclusive of
this one-time charge, net income would have been $3.8 million for the third
quarter of 1996 and $9.6 million for the nine months ended September 30, 1996.
Earnings per share of common stock were $0.25 in the third quarter of 1997,
compared to a net loss of ($0.04) per share in the third quarter of 1996.
Earnings per share of common stock were $0.76 for the nine months ended
September 30, 1997, compared to $0.44 per share for the nine months ended
September 30, 1996. Exclusive of the SAIF special assessment, earnings per
share of common stock would have been $0.22 for the third quarter of 1996 and
$0.83 for the nine months ended September 30, 1996. The decrease in earnings
per share for the nine months ended September 30, 1997 compared to the nine
months ended September 30, 1996, as adjusted, was primarily attributable to an
increase in the number of common shares outstanding after the completion of the
Company's second-step conversion in June 1996, as well as the time required to
deploy the related capital into investments with acceptable long-term
profitability characteristics.
"Commonwealth achieved excellent progress during the quarter in a number of key
strategic areas," stated Charles H. Meacham, Chairman and Chief Executive
Officer. He added, "During the past three months, business banking deposits
increased by 30% to $83.4 million. The Company's supermarket branches, which
achieved 15% growth in deposits during the quarter to $98.1 million,
contributed to that increase." Mr. Meacham also noted, "Commonwealth achieved
good loan growth during the quarter, particularly in the consumer area, where
loans increased to $184.4 million, or 4% over the mid-year level."
Commonwealth's earnings for the three months and nine months ended September
30, 1997 reflected $1.4 million and $4.6 million, respectively, of non-cash
expenses relating to the amortization of goodwill and core deposit intangibles
acquired in various acquisitions and accounted for under the purchase method of
accounting. On a pre-tax basis, these non-cash charges represented $0.09 and
$0.28 per share, respectively, in the third quarter and first nine months of
1997. On a comparable basis in 1996, amortization of goodwill and core deposit
intangibles were $1.7 million and $2.9 million, respectively, or $0.10 and
$0.25 per share.
<PAGE> 2
Net interest income was $17.6 million in the third quarter of 1997, an increase
of 5% compared to $16.8 million in the third quarter of 1996. For the nine
months ended September 30, 1997, net interest income increased by 23%, to $53.4
million, versus $43.3 million for the same period in 1996. The increases were
primarily attributable to higher interest-earning asset levels, offset, in
part, by a lower net interest margin.
Average interest-earning assets totaled $2.1 billion for both the third quarter
and nine months ended September 30, 1997. This compared to $1.9 billion and
$1.6 billion for the third quarter and nine months ended September 30, 1996,
respectively. The increases in the third quarter and nine months average
interest-earning assets were due primarily to an increase in the Company's loan
portfolio. Compared to the third quarter of 1996, average mortgage loans
increased 21% to $912.5 million, average consumer loans increased 7% to $178.0
million, and average commercial loans increased 21% to $106.8 million in the
third quarter of 1997. Compared to the first nine months of 1996, average
mortgage loans increased 25% to $867.7 million, average consumer loans
increased 31% to $172.9 million, and average commercial loans increased 74% to
$102.9 million in the first nine months of 1997. The increases in average loans
in the third quarter of 1997, relative to the third quarter of 1996, were
primarily attributable to growth in the Company's core businesses of mortgage
banking, retail banking, and business banking. In addition to growth in the
Company's core businesses, the increases in average loans for the first nine
months of 1997, relative to the first nine months of 1996, were also partially
attributable to the June 1996 acquisition of 12 branch offices located in Berks
and Lebanon Counties, PA ("Berks Acquisition").
The net interest margin was 3.29% in the third quarter of 1997, down from 3.53%
in the third quarter of 1996. The decrease was primarily attributable to a
0.22% reduction in the spread between the yield on interest-earning assets and
the cost of interest-bearing liabilities (net interest spread). The reduction
in the third quarter net interest spread was primarily due to an increase in
the average cost of the Bank's certificates of deposit, which, in turn, was
primarily attributable to the maturity of favorably priced certificates of
deposit.
For the nine months ended September 30, 1997, the net interest margin was
3.42%, versus 3.53% in the comparable 1996 period. The decrease was primarily
attributable to a 0.14% decrease in the net interest spread. The reduction in
the net interest spread for the first nine months of 1997 was attributable to
the same factors responsible for the third quarter decrease.
Noninterest income totaled $5.7 million in the third quarter of 1997 compared
to $4.7 million in the third quarter of 1996. The increase reflected a $1.2
million increase in the net gain on sale of mortgage loans, which was primarily
attributable to an increase in servicing released premiums on loans originated
through mortgage production offices acquired from Homestead Mortgage, Inc.
("Homestead") in the first quarter of 1997. Also contributing to the increase
in noninterest income in the third quarter of 1997 was a $0.6 million increase
in deposit fees, which was primarily attributable to growth in supermarket
banking, expansion of Commonwealth's business banking activities, and increased
ATM fees. Servicing fee income increased primarily as a result of a $0.2
million gain on the sale of mortgage servicing rights. These favorable effects
were offset, in part, by a $1.0 million decrease in other noninterest income,
primarily due to a favorable litigation settlement in the third quarter of
1996.
<PAGE> 3
Noninterest income was $15.0 million for the nine months ended September 30,
1997 compared to $11.1 million for the same 1996 period. The increase reflected
a $1.8 million increase in the net gain on sale of mortgage loans and a $1.7
million increase in deposit fees. These increases were primarily attributable
to the same factors responsible for the increases in the third quarter of 1997,
as well as to deposit fees related to the Berks Acquisition. Also contributing
to the increase in noninterest income for the nine months ended September 30,
1997 was a $1.5 million net gain on the sale of the Company's previous
headquarters building and the sale of a branch property. These increases were
partially offset by the effect of the favorable litigation settlement in the
third quarter of 1996, a $0.2 million decrease in mortgage servicing fees, and
a $0.2 million net loss on the sale of mortgage-backed securities in the second
quarter of 1997.
Noninterest expense was $17.0 million in the third quarter of 1997 compared to
$22.4 million in the third quarter of 1996. The decrease was due to a $7.3
million decrease in FDIC premiums, $6.8 million of which represented a one-time
charge in the third quarter of 1996 to recapitalize the SAIF and $0.5 million
of which primarily represented a reduction in deposit insurance premiums from
$0.23 to approximately $0.06 per $100 of deposits. During the third quarter of
1996, Commonwealth also recorded approximately $0.8 million in one-time
expenses associated with the Berks Acquisition. Also contributing to the
decrease was a $0.3 million decrease in amortization of intangibles in the
third quarter of 1997, versus the third quarter of 1996. Partially offsetting
these favorable effects were higher expenses relating to the acquisition of the
Homestead mortgage production offices, as well as higher expenses relating to
certain benefit plans and growth in supermarket banking and business banking
activities.
Noninterest expense was $48.9 million for the nine months ended September 30,
1997 compared to $46.3 million for the same period in 1996. In addition to the
factors identified for the third quarter of 1997, the increase was primarily
attributable to higher expenses relating to the Berks Acquisition. The increase
in noninterest expense was offset, in part, by a $0.2 million refund of prior
year FDIC premiums received in the first quarter of 1997. Also partially
offsetting the increase in noninterest expense was a $0.4 million reversal of a
liability relating to a contract with the Company's data processing provider,
and a $0.4 million reversal of the Bank's pension liability. During 1997, the
Bank terminated its defined benefit pension plan, and replaced it with a target
benefit plan.
Provision for credit losses totaled $0.3 million and $0.9 million in the third
quarter and nine months ended September 30, 1997, respectively. The provision
for credit losses totaled $0.2 million and $0.3 million in the third quarter
and nine months ended September 30, 1996, respectively. At September 30, 1997,
the allowance for credit losses totaled $9.1 million, or 0.74% of loans,
compared to $10.1 million, or 0.96%, at September 30, 1996 and $10.0 million,
or 0.89%, at December 31, 1996. The decrease in the allowance for loan losses
was primarily attributable to net credit losses on loans acquired in the Berks
Acquisition. The Company acquired a $2.4 million allowance for credit losses as
part of the Berks Acquisition. Through September 30, 1997, approximately $1.5
million of that reserve had been utilized through net credit losses.
<PAGE> 4
Net credit losses totaled $1.0 million, or 0.32% (annualized) of average loans
in the third quarter of 1997. This compared to $0.1 million, or 0.03%
(annualized) of average loans in the third quarter of 1996. For the nine months
ended September 30, 1997, net credit losses totaled $1.7 million, or 0.20%
(annualized) of average loans, compared to $0.1 million, or 0.01% (annualized),
in the same 1996 period. The increase in net credit losses was primarily
related to loans acquired in the Berks Acquisition. Net credit losses on these
loans totaled $0.7 million and $1.3 million in the third quarter and first nine
months of 1997, respectively, compared to no net credit losses in the
comparable periods in 1996.
Nonperforming assets totaled $10.7 million, or 0.47% of assets at September 30,
1997, compared to $8.6 million, or 0.41%, at September 30, 1996 and $9.1
million, or 0.43%, at December 31, 1996. The increase in nonperforming assets
was primarily related to loans acquired in the Berks Acquisition.
Provision for income taxes was $2.0 million, or 33% of income before income
taxes in the third quarter of 1997, compared to a ($0.4) million benefit, or
38%, in the third quarter of 1996. For the first nine months of 1997, provision
for income taxes was $6.3 million, or 34% of income before income taxes,
compared to $2.7 million, or 35%, in the first nine months of 1996. The
decrease in the income tax rate in the third quarter and first nine months of
1997 was primarily attributable to low income housing tax credits in 1997.
The Bank's core capital ratio was 6.3% at September 30, 1997. This compared to
6.5% at September 30, 1996 and 6.6% at December 31, 1996. In 1996, the Board of
Directors authorized the repurchase of 0.4 million shares to fund the 1996
Recognition and Retention Plan. Of that amount, 0.1 million shares were
repurchased in December 1996 and 0.3 million shares were repurchased in January
1997. During both the first and third quarters of 1997, Commonwealth purchased
0.9 million shares of the Company's common stock which is currently held as
treasury stock.
Commonwealth Bancorp, Inc., with consolidated assets of $2.3 billion, is the
holding company for Commonwealth Bank, which has 56 branches throughout
southeast Pennsylvania. ComNet Mortgage Services and Homestead Mortgage are
divisions of Commonwealth Bank. ComNet Mortgage Services has offices in
Pennsylvania, Connecticut, New Jersey, and Rhode Island. Homestead Mortgage has
offices in Maryland.
Detailed supplemental information follows.
<PAGE> 5
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share amounts)
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
----------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $24,274 $20,208 $69,378 $53,903
Interest and dividends on deposits and money
market investments 436 870 1,590 2,258
Interest on investment securities 966 991 3,214 2,494
Interest on mortgage-backed securities 13,861 12,707 41,928 32,078
----------- ------------ ------------ ------------
Total interest income 39,537 34,776 116,110 90,733
Interest expense:
Interest on deposits 14,942 13,759 43,368 35,264
Interest on notes payable and other borrowings 6,971 4,225 19,356 12,150
----------- ------------ ------------ ------------
Total interest expense 21,913 17,984 62,724 47,414
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Net interest income 17,624 16,792 53,386 43,319
Provision for loan losses 300 201 900 301
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Net interest income after provision for loan losses 17,324 16,591 52,486 43,018
Noninterest income:
Deposit fees and related income 2,076 1,461 5,373 3,667
Servicing fees 1,468 1,323 3,794 3,950
Net gain on sales of mortgage loans 1,666 487 3,298 1,485
Net loss on sales of securities - - (175) -
Net loss on sales of foreclosed real estate (29) (78) (130) (204)
Other 512 1,519 2,862 2,234
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Total noninterest income 5,693 4,712 15,022 11,132
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Noninterest expense:
Compensation and employee benefits 8,679 6,952 24,500 18,618
Occupancy and office operations 2,613 2,348 7,634 6,279
FDIC premium 191 7,455 357 8,716
Advertising and promotion 501 560 1,383 1,296
Amortization of intangible assets 1,417 1,723 4,573 2,860
Other 3,631 3,367 10,427 8,518
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Total noninterest expense 17,032 22,405 48,874 46,287
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Income (loss) before income taxes 5,985 (1,102) 18,634 7,863
Income tax provision (benefit) 1,984 (423) 6,283 2,735
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Net income (loss) $4,001 ($679) $12,351 $5,128
=========== ============ ============ ============
Weighted-average number of shares outstanding 15,968,267 17,124,366 16,195,633 11,603,803
=========== ============ ============ ============
Earnings per share $0.25 ($0.04) $0.76 $0.44
=========== ============ ============ ============
</TABLE>
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Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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Assets: (Unaudited)
<S> <C> <C>
Cash and due from banks $50,036 $39,268
Interest-bearing deposits - 15,111
Short-term investments available for sale 1,074 5,723
Mortgage loans held for sale 45,086 17,335
Investment securities
Securities available for sale (cost of $55,373
and $53,815, respectively), at market value 56,402 53,935
Mortgage-backed securities
Securities held to maturity (market value of $209,715
and $239,447, respectively), at cost 206,559 237,743
Securities available for sale (cost of $561,614
and $511,833, respectively), at market value 566,337 514,964
Loans receivable, net 1,233,319 1,113,114
Accrued interest receivable, net 14,261 13,339
FHLB stock, at cost 14,175 11,159
Premises and equipment, net 18,887 25,369
Intangible assets 46,661 51,220
Mortgage servicing rights 7,810 7,677
Other assets, including net deferred taxes of $364 and
$1,144, respectively 17,492 14,004
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Total assets $2,278,099 $2,119,961
========== ==========
Liabilities:
Deposits $1,528,514 $1,491,450
Notes payable and other borrowings:
Secured notes due to Federal Home Loan Bank of Pittsburgh 213,000 175,000
Securities sold under agreements to repurchase 264,677 176,674
Advances from borrowers for taxes and insurance 16,844 23,883
Accrued interest payable, accrued expenses and other liabilities 43,581 21,030
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Total liabilities 2,066,616 1,888,037
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.10 par value; 5,000,000 shares
authorized; none issued - -
Common stock, $0.10 par value; 30,000,000 shares authorized;
17,994,291 shares issued and 16,242,691 outstanding at September 30, 1997;
17,953,613 shares issued and outstanding at December 31, 1996 1,800 1,795
Additional paid-in capital 133,236 132,931
Retained earnings 114,652 105,577
Unearned stock benefit plan compensation (13,319) (10,510)
Unrealized gain on marketable securities, net 3,797 2,131
Treasury stock, at cost; 1,751,600 shares at September 30, 1997 (28,683) -
---------- ----------
Total shareholders' equity 211,483 231,924
---------- ----------
Total liabilities and shareholders' equity $2,278,099 $2,119,961
========== ==========
</TABLE>
<PAGE> 7
Commonwealth Bancorp, Inc.
Selected Financial Highlights
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended
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BALANCE SHEET DATA: September 30, 1997 September 30, 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Average Loans $1,197,384 $1,007,799
Average Interest-Earning Assets 2,126,312 1,894,603
Average Assets 2,273,933 2,050,265
Average Deposits 1,537,823 1,494,926
Average Interest-Bearing Liabilities 2,015,083 1,785,435
Average Shareholders' Equity 217,637 227,976
<CAPTION>
For the Nine Months Ended
----------------------------------------------
September 30, 1997 September 30, 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Average Loans $1,143,565 $885,041
Average Interest-Earning Assets 2,085,488 1,640,286
Average Assets 2,229,067 1,758,535
Average Deposits 1,517,313 1,274,529
Average Interest-Bearing Liabilities 1,964,875 1,551,728
Average Shareholders' Equity 218,371 173,910
<CAPTION>
As of
----------------------------------------------
September 30, 1997 December 31, 1996
(Unaudited)
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<S> <C> <C>
Book Value Per Share $13.02 $12.92
Tangible Book Value Per Share 10.15 10.07
Non-performing Loans 9,891 8,058
Non-performing Assets 10,705 9,148
<CAPTION>
For the Quarter Ended
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OPERATING DATA: September 30, 1997 September 30, 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Annualized Return on Assets 0.70% -0.13% *
Annualized Return on Equity 7.29% -1.19% *
ComNet Mortgage Originations $151,720 $114,034
Net Income (Loss) Per Share 0.25 -0.04 *
<CAPTION>
For the Nine Months Ended
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September 30, 1997 September 30, 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Annualized Return on Assets 0.74% 0.39% *
Annualized Return on Equity 7.56% 3.93% *
ComNet Mortgage Originations $421,949 $371,308
Net Income Per Share 0.76 0.44 *
<CAPTION>
As of
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CAPITAL RATIOS: ** September 30, 1997 December 31, 1996
(Unaudited)
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<S> <C> <C>
Core Capital 6.3% 6.6%
Risk Based Capital 13.0% 14.2%
</TABLE>
* Includes $4.5 million after-tax one-time SAIF recapitalization assessment.
** Represent ratios of Commonwealth Bank.
