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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
October 20, 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 October 20, 1998, Commonwealth Bancorp. Inc. (the "Company") reported net
income of $2.7 million, or $0.19 per common share on a diluted basis, for the
third quarter of 1998, compared to $4.0 million, or $0.25 per common share, for
the third quarter of 1997. For additional information, reference is made to
the Press Release, dated October 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 October 20, 1998
2
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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: October 23, 1998 By: /s/Charles M. Johnston
------------------------------------
Charles M. Johnston
Chief Financial Officer
3
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For release: IMMEDIATELY
Contact: Charles M. Johnston, Chief Financial Officer (610) 313-2189
COMMONWEALTH BANCORP, INC. REPORTS THIRD QUARTER 1998 FINANCIAL
RESULTS
NORRISTOWN, PA, OCTOBER 20, 1998 - Commonwealth Bancorp, Inc. (NASDAQ:
CMSB),
today reported net income of $2.7 million, or $0.19 per common share on a
diluted basis, for the third quarter of 1998, compared to $4.0 million, or $0.25
per common share, for the third quarter of 1997. For the nine months ended
September 30, 1998, net income was $8.0 million, or $0.53 per common share on a
diluted basis, compared to $12.4 million, or $0.76 per common share, for the
nine months ended September 30, 1997.
The decrease in net income for the third quarter and first nine months of 1998,
relative to the comparable periods in 1997, was primarily due to increases in
operating expenses and provision for loan losses, offset, in part, by higher
noninterest income and net interest income. The financial results for the third
quarter and first nine months of 1997 and 1998 included a number of items which
affected the comparability of reported results between periods. Among the
larger items were:
- Downward valuation adjustments of $0.5 million (after-tax) and $2.4
million (after-tax) in the third quarter and first nine months of 1998,
respectively, relating to an equity investment in a mortgage servicing
partnership; and
- 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.
"Despite the decrease in reported net income, Commonwealth's core businesses of
retail banking, commercial banking, and mortgage banking continued to
demonstrate positive trends in the third quarter of 1998," stated Charles H.
Meacham, Chairman and Chief Executive Officer. He added, "Compared to last
year's third quarter, average loans increased by 14% to $1.4 billion, average
demand and money market deposits increased by 11% to $635.2 million, and
mortgage originations grew by 53% to $232.4 million."
Net interest income was $17.8 million in the third quarter of 1998, compared to
$17.6 million in the third quarter of 1997. For the first nine months of 1998,
net interest income was $53.0 million, versus $53.4 million for the comparable
period in 1997.
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Average interest-earning assets totaled $2.2 billion for both the third quarter
and nine months ended September 30, 1998. This compared to $2.1 billion for
both the third quarter and nine months ended September 30, 1997. The slight
increases in interest-earning assets were due primarily to increases in the
Company's loan portfolio. Compared to the third quarter of 1997, average
mortgage loans increased 12% to $1,078.9 million, average consumer loans
increased 27% to $226.6 million, and average commercial loans increased 14% to
$122.2 million in the third quarter of 1998. Average loans represented 91% of
average deposits in the third quarter of 1998, compared to 82% in the third
quarter of 1997. Relative to the first nine months of 1997, average mortgage
loans increased 16% to $1,058.2 million, average consumer loans increased 23%
to $213.0 million, and average commercial loans increased 17% to $120.0 million
for the first nine months of 1998. Average loans represented 89% of average
deposits for the first nine months of 1998, compared to 78% for the first nine
months of 1997.
The net interest margin was 3.27% in the third quarter of 1998, generally in
line with 3.29% in the third quarter of 1997. For the nine months ended
September 30, 1998, the net interest margin was 3.25%, down somewhat from 3.42%
in the comparable 1997 period. The decrease was primarily attributable to a
0.11% reduction in the yield on interest-earning assets for the first nine
months of 1998, relative to the comparable period in 1997, which, in turn,
was primarily attributable to lower market interest rates.
Noninterest income totaled $6.5 million in the third quarter of 1998, compared
to $5.7 million in the third quarter of 1997. The increase reflected a $1.0
million increase in the net gain on sale of mortgage loans and a $0.3 million
increase in the net gain on sale of securities. The increase in the net gain
on sale of mortgage loans was attributable to sharply higher mortgage
origination volume, which totaled $232.4 million in the third quarter of 1998,
versus $151.7 million in the third quarter of 1997. These increases were
partially offset by a $0.8 million decrease in servicing fees, which was
primarily attributable to an increase in the amortization of mortgage servicing
rights due to prepayments in the mortgage servicing portfolio and a $0.2 million
gain on the sale of mortgage servicing rights in the third quarter of 1997.
Noninterest income was $19.9 million for the first nine months of 1998,
compared to $15.0 million for the same 1997 period. The increase reflected
a $4.2 million increase in the net gain on sale of mortgage loans and a $1.2
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 $797.1 million for the first nine months of 1998, versus $421.9
million for the first nine months of 1997. The increase in deposit fees was
primarily attributable to growth in supermarket banking, expansion of
Commonwealth's commercial banking activities, and increased ATM fees. Also
contributing to the increase in noninterest income for the first nine months
of 1998 was a $1.2 million increase in the net gain on the sale of securities,
a $0.6 million increase in the cash surrender value of 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 quarter of 1997, and a $1.1 million decrease in
servicing fees in the first nine months of 1998. The decrease in servicing fees
was primarily attributable to the same factors responsible for the decrease in
the third quarter of 1998.
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Noninterest expense was $19.2 million in the third quarter of 1998, compared to
$17.0 million in the third quarter of 1997. The increase was primarily
attributable to a $0.8 million valuation adjustment in the third quarter of
1998 relating to an equity investment in a mortgage servicing partnership which
is experiencing significant prepayments in its mortgage servicing portfolio.
The increase was also attributable to higher commission expenses relating to
growth in mortgage originations, as well as an increase in expenses relating
to supermarket banking and commercial banking.
Noninterest expense was $58.4 million for the nine months ended September 30,
1998, compared to $48.9 million for the same period in 1997. In addition to
the above factors for the third quarter, 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.
Also reflected in the increase is a $0.8 million one-time charge in the second
quarter of 1998 related to a policy change in accounting for compensation
expense. 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, as well as a $0.2 million refund of prior
year FDIC premiums received in the first quarter of 1997. In addition to the
above items for the third quarter, the increase was attributable to increased
expenses relating to certain employee benefit plans. Partially offsetting these
increases was a $0.4 million decrease in the amortization of intangible assets.
Provision for loan losses totaled $1.0 million and $2.5 million in the third
quarter and nine months ended September 30, 1998, respectively. The provision
for loan losses totaled $0.3 million and $0.9 million in the third quarter
and nine months ended September 30, 1997, respectively. At September 30, 1998,
the allowance for credit losses totaled $9.5 million, or 0.69% of loans,
compared to $9.1 million, or 0.74%, at September 30, 1997, and $9.0 million,
or 0.71%, at December 31, 1997.
Net credit losses totaled $0.9 million, or 0.26% of average loans in the third
quarter of 1998. This compared to $1.0 million, or 0.31% of average loans in
the third quarter of 1997. For the nine months ended September 30, 1998, net
credit losses totaled $2.0 million, or 0.19% of average loans, compared to $1.7
million, or 0.19%, in the same 1997 period.
Nonperforming assets totaled $10.5 million, or 0.46% of assets at September 30,
1998, compared to $10.7 million, or 0.47%, at September 30, 1997 and $9.6
million, or 0.42%, at December 31, 1997.
Provision for income taxes was $1.4 million, or 34% of income before income
taxes in the third quarter of 1998, compared to $2.0 million, or 33%, in the
third quarter of 1997. For the first nine months of 1998, provision for income
taxes was $3.9 million, or 33% of income before income taxes, compared to $6.4
million, or 34%, in the first nine months of 1997.
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During the third quarter and first nine months of 1998, the Company purchased
0.7 million and 1.5 million shares of its common stock, representing purchases
of $12.3 million and $31.6 million, respectively. This compared to purchases
of 0.9 million and 1.8 million shares, representing purchases of $14.9 million
and $28.7 million, respectively, in the third quarter and first nine months of
1997. The repurchased shares were held as treasury stock at September 30, 1998
and are reserved for general corporate purposes and/or issuance pursuant to the
Company's stock option plans. At September 30, 1998, shareholders' equity
represented 8.4% of assets, compared to 9.3% at September 30, 1997 and 9.5%
at December 31, 1997.
The Bank's core and risk-based capital ratios were 6.0% and 11.9%, respectively,
at September 30, 1998. This compared to 6.3% and 13.0% at September 30, 1997
and 6.6% and 13.4% at December 31, 1997.
Commonwealth Bancorp, Inc., with consolidated assets of $2.3 billion, is the
holding company for Commonwealth Bank, which has 58 branches throughout south-
east 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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<CAPTION>
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share amounts)
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
-------- -------- --------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $27,346 $24,274 $79,256 $69,378
Interest and dividends on deposits
and money market investments 511 436 1,969 1,590
Interest on investment securities 497 966 1,849 3,214
Interest on mortgage-backed
securities 11,517 13,861 36,537 41,928
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Total interest income 38,871 39,537 119,611 116,110
Interest expense:
Interest on deposits 14,827 14,942 44,720 43,368
Interest on notes payable and
other borrowings 7,242 6,971 21,879 19,356
Total interest expense 22,069 21,913 66,599 62,724
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Net interest income 17,802 17,624 53,012 53,386
Provision for loan losses 1,000 300 2,500 900
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Net interest income after
provision for loan losses 16,802 17,324 50,512 52,486
Noninterest income:
Deposit fees and related income 2,232 2,076 6,558 5,373
Servicing fees 629 1,468 2,703 3,794
Net gain on sale of mortgage loans 2,709 1,666 7,546 3,298
Net gain (loss) on sale of
securities 298 -- 985 (175)
Other 603 483 2,064 2,732
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Total noninterest income 6,471 5,693 19,856 15,022
Noninterest expense:
Compensation and employee benefits 9,230 8,679 28,349 24,500
Occupancy and office operations 2,701 2,613 7,870 7,634
FDIC premium 196 191 584 357
Advertising and promotion 694 501 1,673 1,383
Amortization of intangible assets 1,290 1,417 4,124 4,573
Valuation adjustment relating to an
equity investment in a mortgage
servicing partnership 750 -- 3,483 --
Other 4,318 3,631 12,315 10,427
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Total noninterest expense 19,179 17,032 58,398 48,874
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Income before income taxes 4,094 5,985 11,970 18,634
Income tax provision 1,392 1,984 3,947 6,283
Net income $2,702 $4,001 $8,023 $12,351
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Basic weighted average number
of shares outstanding 13,981,578 15,369,978 14,538,500 15,703,526
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Basic earnings per share $0.19 $0.26 $0.55 $0.79
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Diluted weighted average
number of shares outstanding 14,561,792 15,968,267 15,206,110 16,195,633
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Diluted earnings per share $0.19 $0.25 $0.53 $0.76
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<CAPTION>
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
September 30, December 31,
1998 1997
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Assets (Unaudited)
<S> <C> <C>
Cash and due from banks $44,687 $43,251
Interest-bearing deposits
Short-term investments available for sale 5,174 6,296
Mortgage loans held for sale 69,202 37,574
Investment securities
Securities available for sale (cost of $32,348
and $50,428, respectively), at market value 32,564 51,326
Mortgage-backed securities
Securities held to maturity (market value of
$149,856 and $199,048, respectively), at cost 147,841 196,213
Securities available for sale (cost of $473,652
and $534,573, respectively), at market value 477,514 539,078
Loans receivable, net 1,370,419 1,260,841
Accrued interest receivable, net 12,511 13,271
FHLB stock, at cost 18,400 14,175
Premises and equipment, net 16,984 18,590
Intangible assets 41,120 45,244
Mortgage servicing rights 9,217 8,039
Other assets, including net deferred taxes of
$1,277 and $482, respectively 32,092 30,306
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Total assets $2,277,725 $2,268,595
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Liabilities:
Deposits $1,529,391 $1,552,824
Notes payable and other borrowings:
Secured notes due to Federal Home Loan
Bank of Pittsburgh 323,000 213,000
Securities sold under agreements to repurchase 176,133 246,099
Advances from borrowers for taxes and insurance 17,583 24,071
Accrued interest payable, accrued expenses and
other liabilities 40,735 17,749
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Total liabilities 2,086,842 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;
18,046,412 shares issued and 14,763,505 outstanding
at September 30,1998; 17,998,736 shares issued and
16,247,136 outstanding at December 31, 1997 1,805 1,800
Additional paid-in capital 135,063 133,541
Retained earnings 122,100 117,582
Unearned stock benefit plan compensation (11,151) (12,900)
Unrealized gain on marketable securities, net 3,300 3,512
Treasury stock, at cost; 3,282,907 and 1,751,600
shares respectively (60,234) (28,683)
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Total shareholders' equity 190,883 214,852
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Total liabilities and shareholders' equity $2,277,725 $2,268,595
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Commonwealth Bancorp, Inc. and Subsidiaries
Selected Financial Data
(dollars in thousands, except per share data)
For the Quarter Ended
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September 30, 1998 September 30, 1997
BALANCE SHEET DATA (Unaudited) (Unaudited)
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<S> <C> <C>
Average Loans $1,427,720 $1,253,506
Average Interest-Earnings Assets 2,160,109 2,127,349
Average Assets 2,315,620 2,273,933
Average Deposits 1,565,346 1,537,823
Average Interest-Bearing Liabilities 2,062,068 2,015,083
Average Shareholders' Equity 195,561 217,637
Operating Data:
Annualized Return on Assets 0.46% 0.70%
Annualized Return on Equity 5.48% 7.29%
Mortgage Originations $232,431 $151,720
Average Yield on Loans 7.60% 7.68%
Average Yield on Interest-Earning
Assets 7.32% 7.37%
Average Cost of Interest-Bearing
Liabilities 4.25% 4.31%
Net Interest Margin 3.27% 3.29%
For the Nine Months Ended
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September 30, 1998 September 30, 1997
BALANCE SHEET DATA: (Unaudited) (Unaudited)
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Average Loans $1,391,177 $1,190,993
Average Interest-Earning Assets 2,181,654 2,086,377
Average Assets 2,337,279 2,229,067
Average Deposits 1,570,332 1,517,313
Average Interest-Bearing Liabilties 2,074,582 1,964,875
Average Shareholders' Equity 207,462 218,371
Operating Data:
Annualized Return on Assets 0.46% 0.74%
Annualized Return on Equity 5.17% 7.56%
Mortgage Originations $797,148 $421,949
Average Yield on Loans 7.62% 7.79%
Average Yield on Interest-Earning Assets 7.33% 7.44%
Average Cost of Interest-Bearing
Liabilities 4.29% 4.27%
Net Interest Margin 3.25% 3.42%
As of
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September 30, 1998 December 31, 1997
(Unaudited)
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Book Value Per Share $12.93 $13.22
Tangible Book Value Per Share 10.14 10.44
Nonperforming Loans 9,662 8,938
Nonperforming Assets 10,450 9,564
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