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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
July 21, 1998
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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)
Pennsylvania 0-27942 23-2828883
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2 West Lafayette Street, Norristown, Pennsylvania 19401
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(Address of principal executive offices) (Zip Code)
(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)
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Item 5. Other Events
On July 21, 1998, Commonwealth Bancorp. Inc. (the "Company") reported net
income of $1.5 million, or $0.10 per common share on a diluted basis, in the
second quarter of 1998, compared to $3.7 million, or $0.23 per common share, in
the second quarter of 1997. For additional information, reference is made to
the Press Release, dated July 21, 1998, 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 July 21, 1998
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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: July 22, 1998 By: /s/Charles M. Johnston
----------------------
Charles M. Johnston
Chief Financial Officer
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For release: IMMEDIATELY
Contact: Charles M. Johnston, Chief Financial Officer (610) 313-2189
COMMONWEALTH BANCORP, INC. REPORTS SECOND QUARTER 1998 FINANCIAL RESULTS
NORRISTOWN, PA, JULY 21, 1998 - Commonwealth Bancorp, Inc. (NASDAQ: CMSB),
today reported net income of $1.5 million, or $0.10 per common share on a
diluted basis, in the second quarter of 1998, compared to $3.7 million, or
$0.23 per common share, in the second quarter of 1997.
A number of items, several of which were nonrecurring in nature, affected the
second quarter of 1998 financial results and/or the comparability of such
results with the second quarter of 1997, including:
- A $1.9 million (after-tax) downward valuation adjustment in the second
quarter of 1998 relating to an equity investment in a mortgage servicing
partnership;
- A $0.5 million (after-tax) one-time charge in the second quarter of
1998 relating to a policy change in accounting for compensation
expense, including commissions on mortgage originations;
- A $0.5 million (after-tax) net gain on sale of securities in the
second quarter of 1998, compared to a $0.1 million (after-tax) net
loss in the second quarter of 1997;
- A $0.3 million (after-tax) reversal of the Bank's pension liability
during the second quarter of 1997; and
- A $0.3 million (after-tax) reversal of a liability relating to a
contract with the Company's data processing provider during the second
quarter of 1997.
For the six months ended June 30, 1998, net income was $5.3 million, or $0.34
per common share on a diluted basis, compared to $8.4 million, or $0.51 per
common share, for the six months ended June 30, 1997. In addition to the
factors affecting the comparison of second quarter results, the decrease in
net income for the six months of 1998, compared to the first six months of
1997, was also attributable to a $1.0 million (after-tax) nonrecurring net
gain in the first quarter of 1997 relating to the sale of the Company's
previous headquarters building and a branch property; a $0.4 million (after-
tax) reversal of a deferred tax liability in the first quarter of 1998; and a
$0.1 million (after-tax) refund of prior year FDIC premiums received in the
first quarter of 1997.
"Although there were a number of unusual items which affected the Company's
financial results in the second quarter, Commonwealth's underlying core
businesses of retail, commercial, and mortgage banking continued to achieve
positive trends," stated Charles H. Meacham, Chairman and Chief Executive
Officer. He added, "Compared to last year's second quarter, average loans
increased by 17% to $1.3 billion, average deposits increased by 4% to $1.6
billion, and mortgage originations grew by 57% to $270.5 million. The
Company's confidence in its fundamental business strategy was demonstrated in
a tangible way during the quarter, with the completion of a program to
repurchase 0.8 million shares, and the subsequent announcement of a new
program to repurchase an additional 0.8 million shares."
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Net interest income was $17.7 million in the second quarter of 1998, a
decrease of 1% compared to $17.9 million in the second quarter of 1997. For
the first six months of 1998, net interest income decreased by 2%, to $35.2
million, versus $35.8 million for the comparable period in 1997. The
decreases were primarily attributable to a lower net interest margin, offset,
in part, by an increase in average interest-earning assets.
Average interest-earning assets totaled $2.2 billion for both the second
quarter and six months ended June 30, 1998. This compared to $2.1 billion for
both the second quarter and six months ended June 30, 1997. The increases in
interest-earning assets were due primarily to increases in the Company's loan
portfolio. Compared to the second quarter of 1997, average mortgage loans
increased 16% to $984.5 million, average consumer loans increased 23% to
$213.7 million, and average commercial loans increased 18% to $121.3 million
in the second quarter of 1998. Average loans represented 84% of average
deposits in the second quarter of 1998, compared to 74% in the second quarter
of 1997. Relative to the first six months of 1997, average mortgage loans
increased 14% to $965.3 million, average consumer loans increased 20% to
$206.1 million, and average commercial loans increased 18% to $118.9 million
for the six months of 1998. Average loans represented 82% of average deposits
for the first six months of 1998, compared to 74% for the first six months of
1997.
The net interest margin was 3.15% in the second quarter of 1998, compared to
3.41% in the second quarter of 1997. The decrease was primarily attributable
to a 0.19% reduction in the yield on interest-earning assets and a 0.04%
increase in the cost of interest-bearing liabilities. For the six months
ended June 30, 1998, the net interest margin was 3.24%, versus 3.49% in the
comparable 1997 period. The decrease was primarily attributable to a 0.14%
reduction in the yield on interest-earning assets and a 0.08% increase in the
cost of interest-bearing liabilities. The decrease in the yield on interest-
earning assets for the second quarter and first six months of 1998, relative
to the comparable periods in 1997, was primarily attributable to lower market
interest rates. The increase in the cost of interest-bearing liabilities for
the second quarter and first six months of 1998, relative to the comparable
periods in 1997, was primarily attributable to competitive pressures on the
cost of certificates of deposit.
Noninterest income totaled $7.4 million in the second quarter of 1998,
compared to $4.0 million in the second quarter of 1997. The increase
reflected a $1.8 million increase in the net gain on sale of mortgage loans
and a $0.9 million increase in the net gain on the sale of securities. The
increase in the net gain on sale of mortgage loans was attributable to sharply
higher mortgage origination volume, which totaled $270.5 million in the second
quarter of 1998, versus $172.0 million in the second quarter of 1997. Also
contributing to the increase in noninterest income in the second quarter of
1998 was a $0.5 million increase in deposit fees and a $0.3 million increase
in other noninterest income. The increase in deposit fees was primarily
attributable to growth in supermarket banking, expansion of Commonwealth's
commercial banking activities, and increased ATM fees. The increase in other
noninterest income was primarily attributable to earnings from an investment
in an insurance product.
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Noninterest income was $13.4 million for the first six months of 1998,
compared to $9.3 million for the same 1997 period. The increase reflected a
$3.2 million increase in the net gain on sale of mortgage loans and a $1.0
million increase in deposit fees. The increase in the net gain on sale of
mortgage loans was attributable to sharply higher mortgage origination volume,
which totaled $564.7 million for the first six months of 1998, versus $270.2
million for the first six months of 1997. The increase in deposit fees was
primarily attributable to the same factors responsible for the increase in the
second quarter of 1998. Also contributing to the increase in noninterest
income for the first six months of 1998 was a $0.9 million increase in the net
gain on the sale of securities, earnings of $0.4 million from an investment in
an insurance product, and a $0.4 million reversal of a deferred tax liability.
These increases were partially offset by the effect of a $1.5 million net
gain on the sale of the Company's previous headquarters building and the sale
of a branch property in the first half of 1997, and a $0.3 million decrease in
servicing fees in the first half of 1998.
Noninterest expense was $21.8 million in the second quarter of 1998, compared
to $16.1 million in the second quarter of 1997. The increase was primarily
attributable to a $2.7 million valuation adjustment in the second quarter of
1998 relating to an equity investment in a mortgage servicing partnership
which is experiencing significant prepayments in its mortgage servicing
portfolio. Also reflected in the increase in noninterest expense in the
second quarter of 1998 was a $0.8 million one-time charge related to a policy
change in accounting for compensation expense, including commissions on
mortgage originations given the substantial increase in volumes. The increase
in noninterest expense was also due to the $0.4 million reversal of the Bank's
pension liability, and the $0.4 million reversal of a liability relating to a
contract with the Company's data processing provider during the second quarter
of 1997. In addition to the above items, the increase was attributable to
higher commission expenses relating to growth in mortgage originations, as
well as an increase in expenses relating to supermarket banking, commercial
banking, and certain benefit plans.
Noninterest expense was $39.2 million for the six months ended June 30, 1998,
compared to $31.8 million for the same period in 1997. The increase was
primarily attributable to the same factors responsible for the increase in the
second quarter of 1998, as well as a $0.2 million refund of prior year FDIC
premiums received in the first quarter of 1997. Partially offsetting these
increases was a $0.3 million decrease in the amortization of intangible
assets.
Provision for loan losses totaled $1.0 million and $1.5 million in the second
quarter and six months ended June 30, 1998, respectively. The provision for
loan losses totaled $0.3 million and $0.6 million in the second quarter and
six months ended June 30, 1997, respectively. At June 30, 1998, the allowance
for credit losses totaled $9.5 million, or 0.70% of loans, compared to $9.8
million, or 0.82%, at June 30, 1997, and $9.0 million, or 0.71%, at December
31, 1997.
Net credit losses totaled $0.5 million, or 0.16% of average loans in the
second quarter of 1998. This compared to $0.5 million, or 0.19% of average
loans in the second quarter of 1997. For the six months ended June 30, 1998,
net credit losses totaled $1.0 million, or 0.16% of average loans, compared to
$0.8 million, or 0.14%, in the same 1997 period.
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Nonperforming assets totaled $9.7 million, or 0.41% of assets at June 30,
1998, compared to $11.3 million, or 0.50%, at June 30, 1997 and $9.6 million,
or 0.42%, at December 31, 1997.
Provision for income taxes was $0.8 million, or 34% of income before income
taxes in the second quarter of 1998, compared to $1.8 million, or 33%, in the
second quarter of 1997. For the first six months of 1998, provision for
income taxes was $2.6 million, or 32% of income before income taxes, compared
to $4.3 million, or 34%, in the first six months of 1997. The decrease in the
income tax rate for the first six months of 1998 was primarily attributable to
low income housing tax credits and the reversal of a deferred tax valuation
allowance.
The Bank's core and risk-based capital ratios were 6.0% and 12.1%,
respectively, at June 30, 1998. This compared to 6.7% and 14.1% at June 30,
and 6.6% and 13.4% at December 31, 1997.
Commonwealth Bancorp, Inc., with consolidated assets of $2.4 billion, is the
holding company for Commonwealth Bank, which has 58 branches throughout
southeast Pennsylvania. ComNet Mortgage Services, a division of Commonwealth
Bank, has offices in Pennsylvania, Connecticut, New Jersey, Rhode Island, and
Virginia. ComNet operates under the trade name of Homestead Mortgage in
Maryland.
Certain statements contained herein may not be based on historical facts and
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. Actual results could differ materially from those indicated
in such statements due to risks, uncertainties and changes with respect to a
variety of market and other factors.
Detailed supplemental information follows.
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<TABLE>
<CAPTION>
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share amounts)
For the Quarter For the Six Months
Ended June 30, Ended June 30
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1998 1997 1998 1997
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $26,527 $23,049 $51,910 $45,104
Interest and dividends on deposits
and money market investments 775 589 1,458 1,154
Interest on investment securities 609 1,234 1,352 2,248
Interest on mortgage-backed securities 12,750 14,246 25,020 28,067
------ ---- ------ -------
Total interest income 40,661 39,118 79,740 76,573
Interest expense:
Interest on deposits 14,949 14,511 29,893 28,426
Interest on notes payable and
other borrowings 8,017 6,693 14,637 12,385
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Total interest expense 22,966 21,204 44,530 40,811
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Net interest income 17,695 17,914 35,210 35,762
Provision for loan losses 1,000 300 1,500 600
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Net interest income after
provision for loan losses 16,695 17,614 33,710 35,162
Noninterest income:
Deposit fees and related income 2,275 1,763 4,326 3,297
Servicing fees 1,027 1,124 2,074 2,326
Net gain on sale of mortgage loans 2,745 913 4,837 1,632
Net gain (loss) on sale of securities 687 (175) 687 (175)
Net loss on sale of foreclosed real
estate (59) (32) (91) (101)
Other 704 368 1,552 2,350
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Total noninterest income 7,379 3,961 13,385 9,329
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Noninterest expense:
Compensation and employee benefits 10,130 7,883 19,119 15,821
Occupancy and office operations 2,569 2,594 5,169 5,021
FDIC premium 195 197 388 166
Advertising and promotion 542 464 979 882
Amortization of intangible assets 1,417 1,578 2,834 3,156
Other 6,995 3,399 10,730 6,796
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Total noninterest expense 21,848 16,115 39,219 31,842
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Income before income taxes 2,226 5,460 7,876 12,649
Income tax provision 757 1,780 2,555 4,299
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Net income $1,469 $3,680 $5,321 $8,350
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Basic weighted average number of
shares outstanding 14,661,101 15,631,154 14,821,577 15,873,064
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Basic earnings per share $0.10 $0.24 $0.36 $0.53
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Diluted weighted average number
of shares outstanding 15,427,517 16,068,527 15,533,608 16,311,200
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Diluted earnings per share $0.10 $0.23 $0.34 $0.51
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<TABLE>
<CAPTION>
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
June 30, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $49,959 $43,251
Interest-bearing deposits 3,398 4,391
Short-term investments available for sale 6,853 6,296
Mortgage loans held for sale 73,958 37,574
Investment securities
Securities available for sale (cost of $37,441
and $50,428, respectively), at market value 37,893 51,326
Mortgage-backed securities
Securities held to maturity (market value
of $167,049 and $199,048, respectively),
at cost 164,170 196,213
Securities available for sale (cost of
$541,669 and $534,573, respectively),
at market value 544,832 539,078
Loans receivable, net 1,352,888 1,261,287
Accrued interest receivable, net 12,617 13,271
FHLB stock, at cost 18,400 14,175
Premises and equipment, net 17,641 18,590
Intangible assets 42,409 45,244
Mortgage servicing rights 9,837 8,039
Other assets, including net deferred
taxes of $1,689 and $482, respectively 33,392 29,860
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Total assets $2,368,247 $2,268,595
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Liabilities:
Deposits $1,579,067 $1,552,824
Notes payable and other borrowings:
Secured notes due to Federal Home Loan
Bank of Pittsburgh 308,000 213,000
Securities sold under agreements to
repurchase 212,683 246,099
Advances from borrowers for taxes and
insurance 37,078 24,071
Accrued interest payable, accrued
expenses and other liabilities 31,658 17,749
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Total liabilities 2,168,486 2,053,743
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;
18,037,183 shares issued and 15,473,583
outstanding at June 30, 1998;
17,998,736 shares issued and 16,247,136
outstanding at December 31, 1997 1,804 1,800
Additional paid-in capital 134,766 133,541
Retained earnings 120,482 117,582
Unearned stock benefit plan compensation (11,706) (12,900)
Unrealized gain on marketable securities, net 2,350 3,512
Treasury stock, at cost; 2,563,600 and
1,751,600 shares respectively (47,935) (28,683)
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Total shareholders' equity 199,761 214,852
Total liabilities and ----------- ------------
shareholders' equity $2,368,247 $2,268,595
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<CAPTION>
Commonwealth Bancorp, Inc. and Subsidiaries
Selected Financial Data
(dollars in thousands, except per share data)
For the Quarter Ended
-----------------------------------
June 30, 1998 June 30, 1997
BALANCE SHEET DATA: (Unaudited) (Unaudited)
-----------------------------------
<S> <C> <C>
Average Loans $1,319,503 $1,128,103
Average Interest-Earning Assets 2,249,766 2,107,979
Average Assets 2,405,360 2,256,548
Average Deposits 1,577,233 1,523,656
Average Interest-Bearing Liabilities 2,133,442 1,986,756
Average Shareholders' Equity 210,614 213,849
OPERATING DATA:
Annualized Return on Assets 0.24% 0.65%
Annualized Return on Equity 2.80% 6.90%
Mortgage Originations $270,543 $172,030
Average Yield on Loans 7.57% 7.83%
Average Yield on Interest-Earning Assets 7.25% 7.44%
Average Cost of Interest-Bearing Liabilities 4.32% 4.28%
Net Interest Margin 3.15% 3.41%
</TABLE>
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<CAPTION>
For the Six Months Ended
-----------------------------------
June 30, 1998 June 30, 1997
BALANCE SHEET DATA: (Unaudited) (Unaudited)
-----------------------------------
<S> <C> <C>
Average Loans $1,290,279 $1,117,027
Average Interest-Earning Assets 2,192,088 2,065,528
Average Assets 2,348,286 2,209,960
Average Deposits 1,572,886 1,510,614
Average Interest-Bearing Liabilities 2,080,963 1,943,080
Average Shareholders' Equity 213,509 218,724
OPERATING DATA:
Annualized Return on Assets 0.46% 0.76%
Annualized Return on Equity 5.03% 7.70%
Mortgage Originations $564,717 $270,229
Average Yield on Loans 7.64% 7.87%
Average Yield on Interest-Earning Assets 7.34% 7.48%
Average Cost of Interest-Bearing Liabilities 4.32% 4.24%
Net Interest Margin 3.24% 3.49%
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<CAPTION>
As of
--------------------------------
June 30, 1998 December 31, 1997
(Unaudited)
--------------------------------
<S> <C> <C>
Book Value Per Share $12.91 $13.22
Tangible Book Value Per Share 10.17 10.44
Nonperforming Loans 8,634 8,938
Nonperforming Assets 9,712 9,564
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