<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
January 20, 1998
- --------------------------------------------------------------------------------
(Date of earliest event reported)
Commonwealth Bancorp, Inc.
- --------------------------------------------------------------------------------
(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 January 20, 1998, Commonwealth Bancorp. Inc. (the "Company")
reported net income of $4.0 million for the fourth quarter of 1997 compared to
$4.2 million for the fourth quarter of 1996. For the full year 1997, net income
was a record $16.4 million compared to $9.3 million for the full year 1996.
Results for the full year 1996 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 $13.9
million in 1996. For additional information, reference is made to the Press
Release, dated January 20, 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 January 20, 1998
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: January 23, 1998 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 RECORD NET INCOME FOR 1997
NORRISTOWN, PA, JANUARY 20, 1998 - COMMONWEALTH BANCORP, INC. (NASDAQ: CMSB),
today reported net income of $4.0 million for the fourth quarter of 1997,
compared to $4.2 million for the fourth quarter of 1996. For the full year 1997,
net income was a record $16.4 million, compared to $9.3 million for the full
year 1996. Results for the full year 1996 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 $13.9 million in 1996.
Diluted earnings per share of common stock were $0.26 for the fourth quarter of
1997, compared to $0.25 per share for the fourth quarter of 1996. Diluted
earnings per share of common stock were $1.02 for the full year 1997, compared
to $0.72 per share for the full year 1996. Exclusive of the one-time SAIF
assessment, diluted earnings per share of common stock would have been $1.06 for
the full year 1996. The decrease in diluted earnings per share for 1997 compared
to 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.
Charles H. Meacham, Chairman and Chief Executive Officer of the Company, stated,
"The past year was one of outstanding progress for Commonwealth. The Company
achieved record net income in its fourth year of public ownership and
experienced significant growth in a number of key areas." Mr. Meacham added,
"During the year, commercial loans grew 21% to $116.0 million, consumer loans
increased 15% to $194.8 million, and supermarket branch deposits increased 67%
to $108.9 million at December 31, 1997. Complementing the growth in these key
loan and deposit areas was a 38% increase in noninterest revenue in 1997,
compared to 1996."
Commonwealth's earnings for the fourth quarter and full year 1997 reflected $1.4
million and $6.0 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 $0.37 per share,
respectively, in the fourth quarter and full year 1997. On a comparable basis in
1996, amortization of goodwill and core deposit intangibles were $1.7 million
and $4.5 million, respectively, or $0.10 and $0.35 per share.
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Commonwealth Bancorp, Inc.
page 2
Net interest income was $17.0 million in the fourth quarter of 1997, a decrease
of 4% compared to $17.6 million in the fourth quarter of 1996. For the full year
1997, net interest income increased by 15%, to $70.4 million, versus $61.0
million in 1996. The decrease in the fourth quarter was primarily attributable
to a lower net interest margin. The increase for the full year was 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 fourth quarter
and full year 1997. This compared to $2.0 billion and $1.7 billion in the fourth
quarter and full year 1996, respectively. The increases in the fourth quarter
and full year average interest-earning assets were due primarily to increases in
the Company's loan portfolio. Compared to the fourth quarter of 1996, average
mortgage loans increased 15% to $936.5 million, average consumer loans increased
12% to $188.7 million, and average commercial loans increased 23% to $109.3
million in the fourth quarter of 1997. Compared to the full year 1996, average
mortgage loans increased 22% to $885.1 million, average consumer loans increased
26% to $176.9 million, and average commercial loans increased 57% to $104.5
million in 1997. The increases in average loans in the fourth quarter of 1997
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 full year
1997, relative to the full year 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 3.17% in the fourth quarter of 1997, down from 3.59%
in the fourth quarter of 1996. The decrease was primarily attributable to a
0.13% reduction in the yield on interest-earning assets and a 0.25% increase in
the cost of interest-bearing liabilities. The decrease in the yield on
interest-earning assets was, in large part, due to generally lower market
interest rates. The increase in the cost of interest-bearing liabilities in the
fourth quarter was primarily due to a 0.24% increase in the average cost of the
Company's certificates of deposit, reflecting the continued competitive
environment for this product.
For the full year 1997, the net interest margin was 3.36%, versus 3.54% in 1996.
The decrease was primarily attributable to a 0.20% increase in the cost of
interest-bearing liabilities in 1997, compared to 1996. The increase in the cost
of interest-bearing liabilities was due principally to a 0.19% increase in the
average cost of the Company's certificates of deposit.
Noninterest income totaled $6.6 million in the fourth quarter of 1997, compared
to $4.5 million in the fourth quarter of 1996. The increase reflected a $1.1
million increase in the net gain on sale of mortgage loans, which was primarily
attributable to an increase in servicing released premiums relating to loans
originated through mortgage production offices of Homestead Mortgage, Inc.
("Homestead") which was acquired in the first quarter of 1997. In addition,
during the fourth quarter of 1997, the Company recorded a $0.5 million gain on
the sale of a security, and recognized a $0.2 million gain on the sale of
mortgage servicing rights.
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Commonwealth Bancorp, Inc.
page 3
Noninterest income was $21.6 million for the full year 1997, compared to $15.7
million in 1996. The increase reflected a $2.9 million increase in the net gain
on sale of mortgage loans, relating primarily to servicing released premiums on
Homestead originations, a $0.5 million gain on the sale of a security, and a
$0.2 million gain on the sale of mortgage servicing rights. In addition, deposit
fees increased by $1.8 million in 1997, compared to 1996. The increase in
deposit fees was primarily attributable to growth in supermarket banking,
expansion of Commonwealth's business banking activities, and increased ATM fees,
as well as to deposit fees related to the Berks Acquisition. Also contributing
to the increase in noninterest income for the full year 1997 was a $1.6 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 a favorable litigation settlement in the third quarter of 1996, a $0.2
million favorable effect relating to the sale of a branch property in the fourth
quarter of 1996, and a $0.2 million net loss on the sale of mortgage-backed
securities in the second quarter of 1997.
Noninterest expense was $17.2 million in the fourth quarter of 1997, compared to
$15.6 million in the fourth quarter of 1996. The increase was primarily
attributable to higher expenses relating to the acquisition of Homestead
mortgage production offices, as well as higher expenses relating to certain
benefit plans and growth in supermarket banking and business banking activities.
The increase in noninterest expense was offset, in part, by a $0.3 million
decrease in FDIC premiums primarily a result of a reduction in deposit insurance
premiums from $0.23 to approximately $0.06 per $100 of deposits. Also offsetting
the increase was a $0.3 million decrease in amortization of intangibles in the
fourth quarter of 1997, versus the fourth quarter of 1996. In addition,
Commonwealth recorded a one-time nonrecurring charge of $0.3 million in the
fourth quarter of 1996, relating to a management reorganization.
Noninterest expense was $66.0 million for the full year 1997, compared to $61.9
million for 1996. In addition to the factors identified for the fourth 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 $8.7 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 by a
$0.2 million refund of prior year FDIC premiums received in the first quarter of
1997. In addition, during the third quarter of 1996, Commonwealth recorded
approximately $0.8 million in one-time expenses associated with the Berks
Acquisition. 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, both of which were recorded in the second quarter of 1997. During
1997, the Bank terminated its defined benefit pension plan, and replaced it with
a target benefit plan.
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Commonwealth Bancorp, Inc.
page 4
Provision for credit losses totaled $0.7 million and $1.6 million in the fourth
quarter and full year 1997, respectively, compared to $0.3 million and $0.6
million in the fourth quarter and full year 1996, respectively. At December 31,
1997, the allowance for credit losses totaled $9.0 million, or 0.71% of loans,
compared to $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 December
31, 1997, significantly all of that reserve had been utilized through net credit
losses.
Net credit losses totaled $0.8 million, or 0.27% of average loans in the fourth
quarter of 1997. This compared to $0.4 million, or 0.13% of average loans in the
fourth quarter of 1996. For the full year 1997, net credit losses totaled $2.5
million, or 0.22% of average loans, compared to $0.5 million, or 0.05%, in 1996.
Nonperforming assets totaled $9.6 million, or 0.42% of assets at December 31,
1997, compared to $9.1 million, or 0.43%, at December 31, 1996. The increase in
nonperforming assets was primarily related to commercial loans acquired in the
Berks Acquisition.
Provision for income taxes was $1.7 million, or 29% of income before income
taxes in the fourth quarter of 1997, compared to $2.0 million, or 33%, in the
fourth quarter of 1996. For the full year 1997, provision for income taxes was
$7.9 million, or 33% of income before income taxes, compared to $4.8 million, or
34%, in the full year 1996. The decrease in the income tax rate in the fourth
quarter and full year 1997 was primarily attributable to low income housing tax
credits in 1997.
The Bank's core capital ratio was 6.6% at both December 31, 1997 and 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. In addition, 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.
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Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share amounts)
<TABLE>
<CAPTION>
For the Quarter For the Year
Ended December 31, Ended December 31,
----------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $24,807 $21,699 $94,185 $75,602
Interest and dividends on deposits and money
market investments 550 589 2,140 2,847
Interest on investment securities 817 892 4,031 3,386
Interest on mortgage-backed securities 12,959 13,393 54,887 45,471
------------ ------------ ------------ ------------
Total interest income 39,133 36,573 155,243 127,306
Interest expense:
Interest on deposits 15,192 14,094 58,560 49,358
Interest on notes payable and other borrowings 6,939 4,844 26,295 16,994
------------ ------------ ------------ ------------
Total interest expense 22,131 18,938 84,855 66,352
------------ ------------ ------------ ------------
Net interest income 17,002 17,635 70,388 60,954
Provision for loan losses 700 300 1,600 601
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 16,302 17,335 68,788 60,353
Noninterest income:
Deposit fees and related income 1,888 1,747 7,261 5,414
Servicing fees 1,391 1,205 5,185 5,155
Net gain on sales of mortgage loans 1,695 571 4,993 2,056
Net gain on sales of securities 520 - 345 -
Net loss on sales of foreclosed real estate (30) (41) (160) (245)
Other 1,089 1,059 3,951 3,293
------------ ------------ ------------ ------------
Total noninterest income 6,553 4,541 21,575 15,673
------------ ------------ ------------ ------------
Noninterest expense:
Compensation and employee benefits 8,469 6,966 32,969 25,584
Occupancy and office operations 2,649 2,612 10,283 8,891
FDIC premium 195 523 552 9,239
Advertising and promotion 431 520 1,814 1,816
Amortization of intangible assets 1,417 1,682 5,990 4,542
Other 4,013 3,317 14,440 11,835
------------ ------------ ------------ ------------
Total noninterest expense 17,174 15,620 66,048 61,907
------------ ------------ ------------ ------------
Income before income taxes 5,681 6,256 24,315 14,119
Income tax provision 1,663 2,046 7,946 4,781
------------ ------------ ------------ ------------
Net income $4,018 $4,210 $16,369 $9,338
============ ============ ============ ============
Basic weighted average number of shares outstanding 14,900,827 16,669,277 15,501,202 12,613,572
============ ============ ============ ============
Basic earnings per share $0.27 $0.25 $1.06 $0.74
============ ============ ============ ============
Diluted weighted average number of shares outstanding 15,560,185 17,149,120 16,035,806 13,033,566
============ ============ ============ ============
Diluted earnings per share $0.26 $0.25 $1.02 $0.72
============ ============ ============ ============
</TABLE>
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Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Assets: (Unaudited)
Cash and due from banks $43,251 $39,268
Interest-bearing deposits 4,391 15,111
Short-term investments available for sale 6,296 5,723
Mortgage loans held for sale 37,574 17,335
Investment securities
Securities available for sale (cost of $50,428
and $53,815, respectively), at market value 51,326 53,935
Mortgage-backed securities
Securities held to maturity (market value of $199,048
and $239,447, respectively), at cost 196,213 237,743
Securities available for sale (cost of $534,573
and $511,833, respectively), at market value 539,078 514,964
Loans receivable, net 1,259,596 1,113,114
Accrued interest receivable, net 13,271 13,339
FHLB stock, at cost 14,175 11,159
Premises and equipment, net 18,590 25,369
Intangible assets 45,244 51,220
Mortgage servicing rights 8,039 7,677
Other assets, including net deferred taxes of $482
and $1,144, respectively 31,551 14,004
----------- -----------
Total assets $2,268,595 $2,119,961
=========== ===========
Liabilities:
Deposits $1,552,824 $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 246,099 176,674
Advances from borrowers for taxes and insurance 24,071 23,883
Accrued interest payable, accrued expenses and other liabilities 17,749 21,030
----------- -----------
Total liabilities 2,053,743 1,888,037
----------- -----------
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;
17,998,736 shares issued and 16,247,136 outstanding at December 31, 1997;
17,953,613 shares issued and outstanding at December 31, 1996 1,800 1,795
Additional paid-in capital 133,541 132,931
Retained earnings 117,582 105,577
Unearned stock benefit plan compensation (12,900) (10,510)
Unrealized gain on marketable securities, net 3,512 2,131
Treasury stock, at cost; 1,751,600 shares at December 31, 1997 (28,683) -
----------- -----------
Total shareholders' equity 214,852 231,924
----------- -----------
Total liabilities and shareholders' equity $2,268,595 $2,119,961
=========== ===========
</TABLE>
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Commonwealth Bancorp, Inc.
Selected Financial Highlights
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended
----------------------------------------
BALANCE SHEET DATA: December 31, 1997 December 31, 1996
(Unaudited)
----------------------------------------
<S> <C> <C>
Average Loans $1,234,534 $1,071,231
Average Interest-Earning Assets 2,124,797 1,956,646
Average Assets 2,278,938 2,108,576
Average Deposits 1,542,678 1,491,894
Average Interest-Bearing Liabilities 2,015,389 1,835,001
Average Shareholders' Equity 211,520 228,717
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------
December 31, 1997 December 31, 1996
(Unaudited)
----------------------------------------
<S> <C> <C>
Average Loans $1,166,493 $932,200
Average Interest-Earning Assets 2,095,478 1,720,635
Average Assets 2,241,663 1,847,445
Average Deposits 1,518,327 1,322,844
Average Interest-Bearing Liabilities 1,972,228 1,616,942
Average Shareholders' Equity 216,643 187,838
</TABLE>
<TABLE>
<CAPTION>
As of
----------------------------------------
December 31, 1997 December 31, 1996
(Unaudited)
----------------------------------------
<S> <C> <C>
Book Value Per Share $13.22 $12.92
Tangible Book Value Per Share 10.44 10.07
Non-performing Loans 8,938 8,058
Non-performing Assets 9,564 9,148
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended
----------------------------------------
OPERATING DATA: December 31, 1997 December 31, 1996
(Unaudited)
----------------------------------------
<S> <C> <C>
Annualized Return on Assets 0.70% 0.79%
Annualized Return on Equity 7.54% 7.32%
ComNet - Homestead Mortgage Originations $163,197 $90,765
Diluted Earnings Per Share 0.26 0.25
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------
December 31, 1997 December 31, 1996
(Unaudited)
----------------------------------------
<S> <C> <C>
Annualized Return on Assets 0.73% 0.51% (a)
Annualized Return on Equity 7.56% 4.97% (a)
ComNet - Homestead Mortgage Originations $585,146 $462,073
Diluted Earnings Per Share 1.02 0.72 (a)
</TABLE>
<TABLE>
<CAPTION>
As of
----------------------------------------
CAPITAL RATIOS: (b) December 31, 1997 December 31, 1996
(Unaudited)
----------------------------------------
<S> <C> <C>
Core Capital 6.6% 6.6%
Risk Based Capital 13.4% 14.2%
</TABLE>
(a) Includes $4.5 million after-tax one-time SAIF recapitalization assessment.
(b) Represent ratios of Commonwealth Bank.
