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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
January 19, 1999
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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
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On January 19, 1999, Commonwealth Bancorp. Inc. (the "Company") reported net
income of $2.9 million, or $0.21 per common share on a diluted basis, for the
fourth quarter of 1998, compared to $4.0 million, or $0.26 per common share, for
the fourth quarter of 1997. For the full year 1998, net income was $10.9
million, or $0.73 per common share on a diluted basis, compared to $16.4
million, or $1.02 per common share, for the full year 1997. For additional
information, reference is made to the Press Release, dated January 19, 1999,
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 19, 1999
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: January 22, 1999 By: /s/Charles M. Johnston
-------------------------------
Charles M. Johnston
Chief Financial Officer
3
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[LETTERHEAD OF COMMONWEALTH BANCORP, INC.]
For release: IMMEDIATELY
Contact: Charles M. Johnston
Chief Financial Officer (610) 313-2189
COMMONWEALTH BANCORP, INC. REPORTS FOURTH QUARTER 1998 FINANCIAL RESULTS
NORRISTOWN, PA, January 19, 1999 - Commonwealth Bancorp, Inc. (NASDAQ: CMSB),
today reported net income of $2.9 million, or $0.21 per common share on a
diluted basis, for the fourth quarter of 1998, compared to $4.0 million, or
$0.26 per common share, for the fourth quarter of 1997. For the full year 1998,
net income was $10.9 million, or $0.73 per common share on a diluted basis,
compared to $16.4 million, or $1.02 per common share, for the full year 1997.
The decrease in net income for the fourth quarter and full year 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 full years 1997
and 1998 included a number of items which affected the comparability of reported
results between periods. Among the larger items were:
- A $2.4 million (after-tax) downward valuation adjustment in 1998 relating
to an equity investment in a mortgage servicing partnership; and
- A $1.0 million (after-tax) nonrecurring net gain in 1997 relating to the
sale of the Company's previous headquarters building and a branch
property.
"Commonwealth's core businesses of retail banking, commercial banking, and
mortgage banking continued to demonstrate positive trends in the fourth quarter
of 1998," stated Charles H. Meacham, Chairman and Chief Executive Officer. He
added, "Compared to last year's fourth quarter, average loans increased by 13%
to $1.5 billion, average demand and money market deposits increased by 15% to
$667 million, and mortgage originations grew by 93% to $314 million. In
addition, Commonwealth continued to implement its supermarket banking strategy
during the quarter, increasing the number of supermarket branches from 18 to
20."
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Net interest income was $17.6 million in the fourth quarter of 1998, compared to
$17.0 million in the fourth quarter of 1997. For the full year 1998, net
interest income was $70.7 million, versus $70.4 million in 1997.
Average interest-earning assets totaled $2.1 billion for the fourth quarter of
1998 and $2.2 billion for the full year 1998. This compared to $2.1 billion for
both the fourth quarter and full year 1997. Compared to the fourth quarter of
1997, average mortgage loans increased 10% to $1,093 million, average consumer
loans increased 25% to $237 million, and average commercial loans increased 16%
to $127 million in the fourth quarter of 1998. Average loans represented 94%
of average deposits in the fourth quarter of 1998, compared to 84% in the fourth
quarter of 1997. Relative to the full year 1997, average mortgage loans
increased 14% to $1,067 million, average consumer loans increased 23% to $219
million, and average commercial loans increased 16% to $122 million for the full
year 1998. Average loans represented 90% of average deposits for the full year
1998, compared to 80% for the full year 1997.
The net interest margin was 3.34% in the fourth quarter of 1998, compared to
3.17% in the fourth quarter of 1997. The increase was primarily attributable to
a 0.23% reduction in the cost of interest-bearing liabilities, which was
primarily related to a reduction in the average cost of certificates of deposit.
For the full year 1998, the net interest margin was 3.27%, down somewhat from
3.36% in 1997. The decrease was primarily attributable to a 0.09% reduction in
the yield on interest-earning assets for the full year 1998, relative to the
comparable period in 1997, which was primarily related to lower market interest
rates.
Noninterest income totaled $7.1 million in the fourth quarter of 1998, compared
to $6.6 million in the fourth quarter of 1997. The increase reflected a $1.6
million increase in the net gain on sale of mortgage loans and a $0.4 million
increase in deposit fees and related income. The increase in the net gain on
sale of mortgage loans was attributable to sharply higher mortgage origination
volume, which totaled $314 million in the fourth quarter of 1998, versus $163
million in the fourth quarter of 1997. The increase in deposit fees was
primarily attributable to growth in retail banking, expansion of Commonwealth's
commercial banking activities, and increased ATM fees. These increases were
partially offset by a $0.5 million decrease in the net gain on sale of
securities, a $0.5 million decrease in mortgage servicing fees, and a $0.4
million decrease in other noninterest income. The decrease in servicing fees
was primarily attributable to an increase in the amortization of mortgage
servicing rights due to prepayments in the mortgage servicing portfolio.
Noninterest income was $26.9 million for the full year 1998, compared to $21.6
million in 1997. The increase reflected a $5.8 million increase in the net gain
on sale of mortgage loans and a $1.6 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 $1,111 million for the full
year 1998, versus $585 million for the full year 1997. The increase in deposit
fees was primarily attributable to the same factors responsible for the increase
in the fourth quarter of 1998. Also contributing to the increase in noninterest
income for the full year 1998 was a $0.6 million increase in the net gain on the
sale of securities and a $0.7 million increase in the cash surrender value of an
investment in an insurance product. These increases were partially offset by
the effect of a $1.6 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 $1.6 million decrease in servicing fees for the full year 1998. The
decrease in servicing fees was primarily attributable to the same factors
responsible for the decrease in the fourth quarter of 1998.
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Noninterest expense was $19.5 million in the fourth quarter of 1998, compared to
$17.2 million in the fourth quarter of 1997. The increase was primarily
attributable to higher commission expenses relating to growth in mortgage
originations, as well as an increase in legal expense and an increase in
expenses relating to supermarket banking and commercial banking.
Noninterest expense was $77.9 million for the full year 1998, compared to $66.0
million in 1997. In addition to the above factors for the fourth quarter, the
increase in 1998 was primarily attributable to a $3.5 million valuation
adjustment relating to an equity investment in a mortgage servicing partnership
which is experiencing significant prepayments in its mortgage servicing
portfolio. 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. Partially offsetting
these increases was a $0.6 million decrease in the amortization of intangible
assets.
Provision for loan losses totaled $1.0 million and $3.5 million in the fourth
quarter and full year 1998, respectively. The provision for loan losses totaled
$0.7 million and $1.6 million in the fourth quarter and full year 1997,
respectively. At December 31, 1998, the allowance for loan losses totaled $9.6
million, or 0.71% of loans, compared to $9.0 million, or 0.71%, at December 31,
1997.
Net credit losses totaled $1.0 million, or 0.26% of average loans in the fourth
quarter of 1998. This compared to $0.8 million, or 0.27% of average loans in
the fourth quarter of 1997. For the full year 1998, net credit losses totaled
$2.9 million, or 0.21% of average loans, compared to
$2.5 million, or 0.22%, in 1997.
Nonperforming assets totaled $11.1 million, or 0.49% of assets at December 31,
1998, compared to $9.6 million, or 0.42%, at December 31, 1997.
Provision for income taxes was $1.3 million, or 32% of income before income
taxes in the fourth quarter of 1998, compared to $1.7 million, or 29%, in the
fourth quarter of 1997. For the full year 1998, provision for income taxes was
$5.3 million, or 33% of income before income taxes, compared to $7.9 million, or
33%, in the full year 1997. The increase in the tax rate in the fourth quarter
was primarily attributable to an increase in low income housing tax credits
received in the fourth quarter of 1997.
During the fourth quarter and full year 1998, the Company purchased 0.1 million
and 1.6 million shares of its common stock, representing purchases of $0.7
million and $32.3 million, respectively. This compared to purchases totaling
1.8 million shares, or $28.7 million, for 1997. There were no purchases during
the fourth quarter of 1997. The repurchased shares were held as treasury stock
at December 31, 1998 and are reserved for general corporate purposes and/or
issuance pursuant to the Company's stock option plans. At December 31, 1998,
shareholders' equity represented 8.5% of assets, compared to 9.5% at December
31, 1997.
The Bank's core and risk-based capital ratios were 5.9% and 11.6%, respectively,
at December 31, 1998. This compared to 6.6% and 13.4% at December 31, 1997.
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Commonwealth Bancorp, Inc., with consolidated assets of $2.3 billion, is the
holding company for Commonwealth Bank, which has 60 branches throughout
southeast Pennsylvania. ComNet Mortgage Services, a division of Commonwealth
Bank, has offices in Pennsylvania, 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.
<TABLE>
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share amounts)
<CAPTION>
For the Quarter For the Year
Ended December 31, Ended December 31,
---------------------- ----------------------
1998 1997 1998 1997
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $27,571 $24,807 $106,827 $94,185
Interest and dividends on
deposits and money market
investments 635 550 2,604 2,140
Interest on investment
securities 464 817 2,313 4,031
Interest on mortgage-backed
securities 9,823 12,959 46,360 54,887
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Total interest income 38,493 39,133 158,104 155,243
Interest expense:
Interest on deposits 14,226 15,192 58,946 58,560
Interest on notes payable
and other borrowings 6,629 6,939 28,508 26,295
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Total interest expense 20,855 22,131 87,454 84,855
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Net interest income 17,638 17,002 70,650 70,388
Provision for loan losses 1,000 700 3,500 1,600
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Net interest income after
provision for loan losses 16,638 16,302 67,150 68,788
Noninterest income:
Deposit fees and related
income 2,264 1,888 8,822 7,261
Servicing fees 891 1,391 3,594 5,185
Net gain on sale of mortgage
loans 3,296 1,695 10,842 4,993
Net gain on sale of
securities -- 520 985 345
Other 639 1,059 2,703 3,791
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Total noninterest income 7,090 6,553 26,946 21,575
Noninterest expense:
Compensation and employee
benefits 9,517 8,469 37,866 32,969
Occupancy and office
operations 3,037 2,649 10,907 10,283
FDIC premium 187 195 771 552
Advertising and promotion 464 431 2,137 1,814
Amortization of intangible
assets 1,289 1,417 5,413 5,990
Valuation adjustment relating
to an equity investment in a
mortgage servicing partnership 50 -- 3,533 --
Other 4,928 4,013 17,243 14,440
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Total noninterest expense 19,472 17,174 77,870 66,048
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Income before income taxes 4,256 5,681 16,226 24,315
Income tax provision 1,347 1,663 5,294 7,946
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Net income $2,909 $4,018 $10,932 $16,369
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Basic weighted average number
of shares outstanding 13,620,571 14,900,827 14,307,132 15,501,202
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Basic earnings per share $0.21 $0.27 $0.76 $1.06
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Diluted weighted average
number of shares outstanding 13,958,109 15,560,185 14,891,545 16,035,806
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Diluted earnings per share $0.21 $0.26 $0.73 $1.02
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</TABLE>
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<TABLE>
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
<CAPTION>
December 31, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $58,028 $43,251
Interest-bearing deposits 43,829 4,391
Short-term investments available
for sale 4,820 6,296
Mortgage loans held for sale 120,642 37,574
Investment securities
Securities available for sale (cost
of $34,407 and $50,428, respectively),
at market value 34,515 51,326
Mortgage-backed securities
Securities held to maturity (market value
$133,735 and $199,048, respectively), at
cost 132,105 196,213
Securities available for sale (cost of
$388,349 and $534,573, respectively),
at market value 392,036 539,078
Loans receivable, net 1,338,177 1,260,841
Accrued interest receivable, net 11,260 13,271
FHLB stock, at cost 18,400 14,175
Premises and equipment, net 16,887 18,590
Intangible assets 39,830 45,244
Other assets, including net deferred taxes
of $2,508 and $482, respectively 46,970 38,345
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Total assets $2,257,499 $2,268,595
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Liabilities:
Deposits $1,605,299 $1,552,824
Notes payable and other borrowings:
Secured notes due to Federal Home Loan
Bank of Pittsburgh 240,500 213,000
Securities sold under agreements to
repurchase 166,000 246,099
Advances from borrowers for taxes and
insurance 28,960 24,071
Accrued interest payable, accrued
expenses and other liabilities 24,562 17,749
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Total liabilities 2,065,321 2,053,743
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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;
18,054,315 shares issued and 14,721,408
outstanding at December 31, 1998;
17,998,736 shares issued and 16,247,136
outstanding at December 31, 1997 1,806 1,800
Additional paid-in capital 135,588 133,541
Retained earnings 123,917 117,582
Unearned stock benefit plan compensation (10,666) (12,900)
Unrealized gain on marketable securities,
net 2,467 3,512
Treasury stock, at cost; 3,332,907 and
1,751,600 shares respectively (60,934) (28,683)
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Total shareholders' equity 192,178 214,852
Total liabilities and shareholders'
equity $2,257,499 $2,268,595
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</TABLE>
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<TABLE>
Commonwealth Bancorp, Inc. and Subsidiaries
Selected Financial Data
(in thousands, except per share data)
<CAPTION>
For the Quarter Ended
---------------------------------------------------
December 31, 1998 December 31, 1997
(Unaudited)
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<S> <C> <C>
BALANCE SHEET DATA:
Average Loans $1,457,009 $1,293,918
Average Interest-Earning Assets 2,095,113 2,125,985
Average Assets 2,255,577 2,278,938
Average Deposits 1,555,421 1,542,678
Average Interest-Bearing Liabilities 2,005,647 2,015,389
Average Shareholders' Equity 188,679 211,520
OPERATING DATA:
Annualized Return on Assets 0.51% 0.70%
Annualized Return on Equity 6.12% 7.54%
Mortgage Originations $314,248 $163,197
Average Yield on Loans 7.51% 7.61%
Average Yield on Interest-Earning
Assets 7.29% 7.30%
Average Cost of Interest-Bearing
Liabilities 4.13% 4.36%
Net Interest Margin 3.34% 3.17%
For the Year Ended
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December 31, 1998 December 31, 1997
(Unaudited)
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BALANCE SHEET DATA:
Average Loans $1,407,771 $1,216,933
Average Interest-Earning Assets 2,159,841 2,096,441
Average Assets 2,316,686 2,241,663
Average Deposits 1,566,564 1,518,327
Average Interest-Bearing Liabilities 2,057,197 1,972,228
Average Shareholders' Equity 202,727 216,643
OPERATING DATA:
Annualized Return on Assets 0.47% 0.73%
Annualized Return on Equity 5.39% 7.56%
Mortgage Originations $1,111,396 $585,146
Average Yield on Loans 7.59% 7.74%
Average Yield on Interest-Earning
Assets 7.32% 7.41%
Average Cost of Interest-Bearing
Liabilities 4.25% 4.30%
Net Interest Margin 3.27% 3.36%
As of
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December 31, 1998 December 31, 1997
(Unaudited)
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Book Value Per Share $13.05 $13.22
Tangible Book Value Per Share 10.35 10.44
Nonperforming Loans 10,012 8,938
Nonperforming Assets 11,061 9,564
</TABLE>
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