<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended.......................................June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from................. to ......................
Commission File No................................................0-27942
Commonwealth Bancorp, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2828883
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Commonwealth Bank Plaza
2 West Lafayette Street
Norristown, Pennsylvania 19401-4758
------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(610) 313-1600
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of August 2,
1999, there were 18,068,127 issued and 13,043,022 outstanding shares of the
Registrant's Common Stock.
1
<PAGE> 2
Commonwealth Bancorp, Inc. and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
No. No.
- --- ---
<S> <C> <C>
PART I - CONSOLIDATED FINANCIAL INFORMATION
1 Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the Quarter and Six Month
Periods Ended June 30, 1999 and 1998 4
Consolidated Statements of Changes in Shareholders' Equity for the Six Month
Periods Ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 8
2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 14
3 Quantitative and Qualitative Disclosures about Market Risk 28
PART II - OTHER INFORMATION
1 Legal Proceedings 29
2 Changes in Securities 29
3 Default Upon Senior Securities 29
4 Submission of Matters to a Vote of Security Holders 29
5 Other Information 29
6 Exhibits and Reports on Form 8-K 29
Signatures 30
</TABLE>
2
<PAGE> 3
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
Assets:
<S> <C> <C>
Cash and due from banks $51,652 $58,028
Interest-bearing deposits 29,904 43,829
Short-term investments available for sale 676 4,820
Mortgage loans held for sale 54,723 120,642
Investment securities
Securities available for sale (cost of $140,252
and $34,407, respectively), at market value 139,925 34,515
Mortgage-backed securities
Securities held to maturity (market value of $107,077
and $133,735, respectively), at cost 106,354 132,105
Securities available for sale (cost of $253,360
and $388,349, respectively), at market value 252,855 392,036
Loans receivable, net 1,310,435 1,338,177
Accrued interest receivable, net 10,216 11,260
FHLB stock, at cost 18,400 18,400
Premises and equipment, net 16,676 16,887
Intangible assets 35,362 39,830
Mortgage servicing rights 8,934 9,969
Other assets, including net deferred taxes of $4,465
and $2,508, respectively 40,952 37,001
------------------- -------------------
Total assets $2,077,064 $2,257,499
=================== ===================
Liabilities:
Deposits $1,556,409 $1,605,299
Notes payable and other borrowings:
Secured notes due to Federal Home Loan Bank of Pittsburgh 128,000 240,500
Securities sold under agreements to repurchase 140,000 166,000
Other borrowings 14,363 0
Advances from borrowers for taxes and insurance 32,368 28,960
Accrued interest payable, accrued expenses and other liabilities 31,624 24,562
------------------- -------------------
Total liabilities 1,902,764 2,065,321
------------------- -------------------
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;
18,068,127 shares issued and 13,363,582 outstanding at June 30, 1999
18,054,315 shares issued and 14,721,408 outstanding at December 31, 1998 1,807 1,806
Additional paid-in capital 135,965 135,588
Retained earnings 130,055 123,917
Unearned stock benefit plan compensation (9,395) (10,666)
Unrealized (loss) gain on marketable securities, net (541) 2,467
Treasury stock, at cost; 4,704,545 and 3,332,907 shares, respectively (83,591) (60,934)
------------------- -------------------
Total shareholders' equity 174,300 192,178
------------------- -------------------
Total liabilities and shareholders' equity $2,077,064 $2,257,499
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------- ------------ ------------- -------------
Interest income:
<S> <C> <C> <C> <C>
Interest on loans $26,184 $26,527 $52,443 $51,910
Interest and dividends on deposits
and money market investments 855 775 1,896 1,458
Interest on investment securities 2,485 609 3,862 1,352
Interest on mortgage-backed securities 6,559 12,750 14,489 25,020
----------- ----------- ----------- -----------
Total interest income 36,083 40,661 72,690 79,740
Interest expense:
Interest on deposits 13,552 14,949 27,336 29,893
Interest on notes payable and other borrowings 4,744 8,017 10,030 14,637
----------- ----------- ----------- -----------
Total interest expense 18,296 22,966 37,366 44,530
----------- ----------- ----------- -----------
Net interest income 17,787 17,695 35,324 35,210
Provision for loan losses 1,000 1,000 2,000 1,500
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 16,787 16,695 33,324 33,710
Noninterest income:
Deposit fees and related income 2,493 2,275 4,680 4,326
Servicing fees 1,051 1,027 1,945 2,074
Net gain on sale of mortgage loans 2,606 2,745 6,767 4,837
Net gain on sale of securities - 687 - 687
Other 1,572 645 2,222 1,461
----------- ----------- ----------- -----------
Total noninterest income 7,722 7,379 15,614 13,385
----------- ----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 9,198 10,130 18,816 19,119
Occupancy and office operations 2,688 2,569 5,505 5,169
FDIC premium 190 195 380 388
Advertising and promotion 490 542 904 979
Amortization of intangible assets 1,221 1,417 2,510 2,834
Valuation adjustment relating to an equity
investment in a mortgage servicing partnership - 2,733 - 2,733
Other 4,521 4,262 8,899 7,997
----------- ----------- ----------- -----------
Total noninterest expense 18,308 21,848 37,014 39,219
----------- ----------- ----------- -----------
Income before income taxes 6,201 2,226 11,924 7,876
Income tax provision 1,798 757 3,458 2,555
----------- ----------- ----------- -----------
Net income $4,403 $1,469 $8,466 $5,321
=========== =========== =========== ===========
Basic weighted average number of shares outstanding 12,933,582 14,661,101 13,144,806 14,821,577
=========== =========== =========== ===========
Basic earnings per share $0.34 $0.10 $0.64 $0.36
=========== =========== =========== ===========
Diluted weighted average number of shares outstanding 13,342,552 15,427,517 13,516,984 15,533,608
=========== =========== =========== ===========
Diluted earnings per share $0.33 $0.10 $0.63 $0.34
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Additional Stock
Shares Common Paid-In Retained Benefit Plan
Outstanding Stock Capital Earnings Compensation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 16,247 $1,800 $133,541 $117,582 ($12,900)
Comprehensive Income:
Net income 5,321
Other-unrealized loss on marketable
securities, net of $626 tax benefit
Total comprehensive Income
Dividends (2,421)
Release of ESOP shares 678 460
Amortization of unearned compensation 734
Exercise of stock options 39 4 218
Purchase of Treasury stock (812)
Tax benefit on employee stock plans 329
------------------------------------------------------------------------------------
Balance at June 30, 1998 15,474 $1,804 $134,766 $120,482 ($11,706)
====================================================================================
Balance at December 31, 1998 14,721 $1,806 $135,588 $123,917 ($10,666)
Comprehensive Income:
Net income 8,466
Other-unrealized loss on marketable
securities, net of $1,620 tax benefit
Total comprehensive Income
Dividends (2,328)
Release of ESOP shares 362 460
Amortization of unearned compensation 811
Stock issued pursuant to benefit plans 43 1 (40)
Purchase of Treasury stock (1,400)
Tax benefit on employee stock plans 55
------------------------------------------------------------------------------------
Balance at June 30, 1999 13,364 $1,807 $135,965 $130,055 ($9,395)
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Treasury
Income Stock Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 $3,512 ($28,683) $214,852
Comprehensive Income:
Net income 5,321
Other-unrealized loss on marketable
securities, net of $626 tax benefit (1,162) (1,162)
-----------------
Total comprehensive Income 4,159
-----------------
Dividends (2,421)
Release of ESOP shares 1,138
Amortization of unearned compensation 734
Exercise of stock options 222
Purchase of Treasury stock (19,252) (19,252)
Tax benefit on employee stock plans 329
--------------------------------------------------
Balance at June 30, 1998 $2,350 ($47,935) $199,761
==================================================
Balance at December 31, 1998 $2,467 ($60,934) $192,178
Comprehensive Income:
Net income 8,466
Other-unrealized loss on marketable
securities, net of $1,620 tax benefit (3,008) (3,008)
-----------------
Total comprehensive Income 5,458
-----------------
Dividends (2,328)
Release of ESOP shares 822
Amortization of unearned compensation 811
Stock issued pursuant to benefit plans 428 389
Purchase of Treasury stock (23,085) (23,085)
Tax benefit on employee stock plans 55
--------------------------------------------------
Balance at June 30, 1999 ($541) ($83,591) $174,300
==================================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Operating activities:
Net income $8,466 $5,321
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Proceeds from loans sold to others 404,033 316,560
Loans originated for sale (243,103) (248,673)
Purchases of loans held for sale (88,062) (101,942)
Principal collection on mortgage loans held for sale 425 439
Net gain on sale of mortgage loans (6,767) (4,837)
(Decrease) increase in net deferred loan fees (378) 471
Provision for loan losses and foreclosed real estate 2,068 1,537
Gain on sale of investment securities - (687)
Valuation adjustment on an equity investment - 2,818
Gain on sale of branches (1,027) -
Depreciation and amortization 1,770 1,709
Net amortization of other assets and liabilities 3,807 4,973
Interest reinvested on repurchase agreements (5,205) (5,571)
Changes in assets and liabilities-
Decrease (increase) in-
Accrued interest receivable, net 1,044 654
Deferred income taxes (339) (1,207)
Other assets (3,982) (2,701)
Increase in-
Advances from borrowers for taxes and insurance 3,408 13,007
Accrued interest payable, accrued expenses and other liabilities 6,962 13,909
---------------------- ----------------------
Net cash provided by (used in) operating activities $83,120 ($4,220)
---------------------- ----------------------
(continued)
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
--------------------- ----------------------
Investing activities:
<S> <C> <C>
Proceeds from sale of investment securities $94,456 $1,442
Proceeds from maturities of investment securities 5,000 30,000
Purchases of investment securities (204,534) (20,000)
Proceeds from sale of mortgage-backed securities 5,470 -
Proceeds from call of mortgage-backed securities - 30,000
Purchases of mortgage-backed securities - (156,958)
Principal collected on mortgage-backed securities 155,270 151,905
Principal collected on loans 198,216 228,090
Loans originated (151,243) (221,821)
Loans purchased (31,210) (99,542)
Sales of real estate acquired through foreclosure 827 645
Purchase of FHLB Stock - (4,225)
Purchases of premises and equipment (2,120) (1,035)
Sale of branches (22,134) -
Proceeds from sales of assets 10 44
--------------------- ----------------------
Net cash provided by (used in) investing activities 48,008 (61,455)
--------------------- ----------------------
Financing activities:
Net (decrease) increase in deposits (11,617) 26,243
Proceeds from notes payable and other borrowings 14,363 315,000
Repayment of notes payable and other borrowings (133,295) (247,845)
Net purchase of common stock (22,696) (19,030)
Cash dividends paid (2,328) (2,421)
--------------------- ----------------------
Net cash (used in) provided by financing activities (155,573) 71,947
--------------------- ----------------------
(24,445) 6,272
Cash and cash equivalents at beginning of period 106,677 53,938
--------------------- ----------------------
Cash and cash equivalents at end of period $82,232 $60,210
===================== ======================
Supplemental disclosures of cash flow information:
Cash paid during the quarter for-
Interest $30,529 $33,828
===================== ======================
Income taxes $4,600 $2,800
===================== ======================
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation of Commonwealth
Bancorp, Inc.'s ("Commonwealth" or the "Company") financial condition as of June
30, 1999 and the results of operations, changes in shareholders' equity, and
cash flows for the periods presented.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-Q. For further information, refer
to the Company's consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998. Certain items in the 1998 financial statements and footnotes have been
reclassified in order to conform with the 1999 financial statement and footnote
presentation.
The Company is a Pennsylvania corporation which is the holding
company for Commonwealth Bank ("Bank"). Headquartered in Norristown,
Pennsylvania, Commonwealth Bank has offices located in Berks, Bucks, Chester,
Delaware, Lehigh, Montgomery, and Philadelphia Counties, Pennsylvania. ComNet
Mortgage Services ("ComNet"), a division of the Bank, has offices in
Pennsylvania, Maryland, New Jersey, and Virginia. ComNet also operates under the
trade name of Homestead Mortgage in Maryland.
2. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Commonwealth; Commonwealth Bank; CFSL Investment Corporation;
Commonwealth Investment Corporation of Delaware, Inc.; ComLife, Inc.; CS
Corporation; Firstcor, Ltd.; and QME, Inc. All material intercompany accounts
and transactions have been eliminated in consolidation.
3. Shareholders' Equity
On June 15, 1999, the Board of Directors declared a $0.09 per share
cash dividend for the quarter ended June 30, 1999, which was made payable to
shareholders of record at the close of business on June 25, 1999. This dividend
was paid on July 9, 1999.
During the second quarter of 1999, the Company purchased 0.7
million shares of its common stock at a purchase price of $12.5 million. During
the second quarter of 1998, the Company purchased 0.8 million shares of its
common stock at a purchase price of $19.3 million. The repurchased shares were
held as treasury stock at June 30, 1999 and are reserved for general corporate
purposes and/or issuance pursuant to the Company's stock option plans. At June
30, 1999, shareholders' equity represented 8.4% of assets, compared to 8.5% at
December 31, 1998.
4. Future Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally
8
<PAGE> 9
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. A company may also implement the statement as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS No. 133 cannot be applied retroactively and must be
applied to derivative instruments and certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).
Commonwealth has not yet determined the timing of the adoption of SFAS No. 133.
The adoption of SFAS No. 133 as of June 30, 1999 would not have had a material
impact on the consolidated statements of income or comprehensive income.
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133," which delayed the effective date of SFAS No. 133 for one year.
5. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net
income available to common shareholders by the weighted average number of common
shares outstanding during the period, adjusted for Employee Stock Ownership Plan
("ESOP") shares that have not been committed to be released, and the effects of
shares held by the Recognition Plans. Options, warrants, and other potentially
dilutive securities and treasury shares are excluded from the basic calculation,
as follows:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Basic weighted average number of common shares outstanding 12,933,582 14,661,101
Effect of dilutive securities:
Stock options 351,377 622,891
Recognition Plan stock 57,593 143,525
---------- ----------
Diluted weighted average number of common shares outstanding 13,342,552 15,427,517
========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1999 1998
---- -----
<S> <C> <C>
Basic weighted average number of common shares outstanding 13,144,806 14,821,577
Effect of dilutive securities:
Stock options 330,057 585,778
Recognition Plan stock 42,121 126,253
---------- ----------
Diluted weighted average number of common shares outstanding 13,516,984 15,533,608
========== ==========
</TABLE>
9
<PAGE> 10
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Diluted EPS is computed by dividing net income available to common
shareholders by the weighted average number of shares of common stock
outstanding during the period, adjusted for ESOP shares that have not been
committed to be released, and the effects of shares held by the Recognition
Plans. The effect of dilutive securities, such as stock options and Recognition
Plan stock, are considered common stock equivalents and are included in the
computation of the number of outstanding shares using the treasury stock method.
Common shares outstanding exclude treasury shares.
Basic EPS was $0.34 per share for the quarter ended June 30, 1999,
compared to $0.10 per share for the quarter ended June 30, 1998. Diluted EPS was
$0.33 per share for the quarter ended June 30, 1999, compared to $0.10 per share
for the quarter ended June 30, 1998.
Basic EPS was $0.64 per share for the six months ended June 30,
1999, compared to $0.36 per share for the six months ended June 30, 1998.
Diluted EPS was $0.63 per share for the six months ended June 30, 1999, compared
to $0.34 per share for the six months ended June 30, 1998.
6. Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
on January 1, 1998, as required. SFAS No. 130 established standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The main objective of the statement is
to report a measure of all changes in equity that result from transactions and
other economic events of the period other than transactions with owners.
Currently, such non-owner changes in equity include only unrealized gains or
losses on marketable securities, net of tax. A summary of the reclassification
adjustment for realized gains or losses on marketable securities, net of tax,
follows:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1999 1998
------- -----
(in thousands)
<S> <C> <C>
Unrealized loss on marketable securities,
net of tax, arising during period $(3,008) $ (715)
Less: reclassification adjustment for gains
included in net income - 447
------- -------
Net unrealized loss on marketable securities,
net of tax $(3,008) $(1,162)
======= =======
</TABLE>
10
<PAGE> 11
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," introduces a new model for segment reporting, called the
"management approach." The management approach is based on the way the chief
operating decision maker organizes segments within a company for making
operating decisions and assessing performance. Reportable segments are based on
product and services, geography, legal structure, management structure - any
manner in which management disaggregates a company. The Company's segment
reports follow:
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
-----------------------------------------------------
1999
-----------------------------------------------------
Banking Mortgage
Operations Operations Consolidated
---------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net interest income after
provision for loan losses $ 15,728 $ 1,059 $ 16,787
Noninterest income:
Servicing fees (629) 1,680 1,051
Net gain on sale of mortgage loans (101) 2,707 2,606
Other 4,075 (10) 4,065
----------- ----------- -----------
Total noninterest income 3,345 4,377 7,722
----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 6,535 2,663 9,198
Other 7,692 1,418 9,110
----------- ----------- -----------
Total noninterest expense 14,227 4,081 18,308
----------- ----------- -----------
Income before income taxes 4,846 1,355 6,201
Income tax provision 1,323 475 1,798
----------- ----------- -----------
Net income $ 3,523 $ 880 $ 4,403
=========== =========== ===========
Total assets (period end) $ 1,984,302 $ 92,762 $ 2,077,064
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
---------------------------------------------------
1998
---------------------------------------------------
Banking Mortgage
Operations Operations Consolidated
---------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net interest income after
provision for loan losses $ 15,441 $ 1,254 $ 16,695
Noninterest income:
Servicing fees (690) 1,717 1,027
Net gain on sale of mortgage loans (421) 3,166 2,745
Other 3,620 (13) 3,607
----------- ----------- -----------
Total noninterest income 2,509 4,870 7,379
----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 6,419 3,711 10,130
Other 10,029 1,689 11,718
----------- ----------- -----------
Total noninterest expense 16,448 5,400 21,848
----------- ----------- -----------
Income before income taxes 1,502 724 2,226
Income tax provision 504 253 757
----------- ----------- -----------
Net income $ 998 $ 471 $ 1,469
=========== =========== ===========
Total assets (period end) $ 2,106,127 $ 151,372 $ 2,257,499
=========== =========== ===========
</TABLE>
11
<PAGE> 12
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------------------------
1999
---------------------------------------------------
Banking Mortgage
Operations Operations Consolidated
---------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net interest income after
provision for loan losses $ 31,092 $ 2,232 $ 33,324
Noninterest income:
Servicing fees (1,284) 3,229 1,945
Net gain on sale of mortgage loans (233) 7,000 6,767
Other 6,949 (47) 6,902
----------- ----------- -----------
Total noninterest income 5,432 10,182 15,614
----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 13,404 5,412 18,816
Other 15,104 3,094 18,198
----------- ----------- -----------
Total noninterest expense 28,508 8,506 37,014
----------- ----------- -----------
Income before income taxes 8,016 3,908 11,924
Income tax provision 2,090 1,368 3,458
----------- ----------- -----------
Net income $ 5,926 $ 2,540 $ 8,466
=========== =========== ===========
Total assets (period end) $ 1,984,302 $ 92,762 $ 2,077,064
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------------------------
1998
---------------------------------------------------
Banking Mortgage
Operations Operations Consolidated
---------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net interest income after
provision for loan losses $ 31,144 $ 2,566 $ 33,710
Noninterest income:
Servicing fees (1,392) 3,466 2,074
Net gain on sale of mortgage loans (724) 5,561 4,837
Other 6,517 (43) 6,474
----------- ----------- -----------
Total noninterest income 4,401 8,984 13,385
----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 12,906 6,213 19,119
Other 16,968 3,132 20,100
----------- ----------- -----------
Total noninterest expense 29,874 9,345 39,219
----------- ----------- -----------
Income before income taxes 5,671 2,205 7,876
Income tax provision 1,783 772 2,555
----------- ----------- -----------
Net income $ 3,888 $ 1,433 $ 5,321
=========== =========== ===========
Total assets (period end) $ 2,106,127 $ 151,372 $ 2,257,499
=========== =========== ===========
</TABLE>
12
<PAGE> 13
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Acquisitions and Divestitures
On March 31, 1998, Commonwealth Bank acquired certain assets
and the Annandale, Virginia office of Edmunds Financial Corporation d/b/a
Service First Mortgage. Under the terms of the transaction, this operation
conducts business under the ComNet Mortgage Services name.
On June 28, 1999, Commonwealth Bank completed the sale of
two branches in Lebanon County, Pennsylvania to Harris Savings Bank, resulting
in a pre-tax gain of $1.0 million in the second quarter of 1999. As of June 28,
1999, the two branches had $37 million of combined deposits and $11 million of
consumer and commercial loans.
On July 7, 1999, Commonwealth announced that its
wholly-owned subsidiary, Commonwealth Bank, will exit
substantially all of its third party mortgage servicing business, and has
reached a definitive agreement with National City Mortgage Co. regarding the
sale of Commonwealth's existing $1.0 billion Fannie Mae and Freddie Mac mortgage
servicing portfolio. The Company expects to realize a pre-tax gain of between
$3.5 million and $4.0 million upon completion of the transaction, which is
anticipated to occur in the third quarter of 1999.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this Form 10-Q, in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
subject to certain risks and uncertainties including changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made to
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
GENERAL. The Company is a Pennsylvania corporation which is the holding
company for the Bank. Commonwealth Bank is a federally chartered stock savings
bank, primarily regulated by the Office of Thrift Supervision ("OTS"). The Bank
conducts business from its executive offices in Norristown, Pennsylvania and, as
of June 30, 1999, 59 full-service branches located in southeast Pennsylvania.
ComNet Mortgage Services, a division of the Bank, also located in Norristown,
conducts business through loan origination offices located in Pennsylvania,
Maryland, New Jersey, and Virginia, and also operates under the trade name of
Homestead Mortgage in Maryland. In addition, ComNet conducts business through
its wholesale network, which includes correspondents in 18 states.
YEAR 2000. As the year 2000 approaches, a critical business issue has
emerged regarding how existing application software programs and operating
systems can accommodate this date value. Many existing application software
products in the marketplace were designed to accommodate only two digit date
entries. Beginning in the year 2000, these systems and products will need to be
able to accept four digit entries to distinguish years beginning with 2000 from
prior years. As a result, computer systems and software used by many companies
may need to be upgraded to comply with such Year 2000 requirements.
In 1997, Commonwealth initiated an extensive review of operations that
could be impacted by Year 2000 non-compliant computer systems and
microprocessors. An inventory of over 175 computer systems, outside service
providers, security systems, HVAC systems and power systems was compiled and
reviewed for risk of non-compliance. The Company's core processing systems are
outsourced with outside service providers. Throughout 1998, Commonwealth worked
with these service providers to confirm that action plans are in place to ensure
Year 2000 compliance. Testing efforts were organized and completed to validate
compliance of core systems and the related key interfaces. Currently, management
believes all of Commonwealth's core systems being used to support daily business
operations are fully compliant.
Commonwealth continues to work with its technology partners and
secondary service providers to ensure that low impact business components are
also fully compliant. Action plans are in place to upgrade equipment and
software systems where necessary. Total expenditures for Year 2000 compliance
are estimated to be less than $0.3 million and are charged to expense as
incurred.
Additionally, Commonwealth has been proactive in assessing the Year 2000
readiness of our larger deposit and loan customers. An initial assessment has
been made of existing customers and ongoing monitoring processes are in place to
assess Commonwealth's exposure to customer non-compliance with Year 2000 in
order to minimize its impact. Presently, management is not aware of potential
non-compliance conditions which represent material exposure to the Company.
Processes are also in place to evaluate the Year 2000 readiness of new
customers.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
Although Commonwealth believes its Year 2000 program is adequate to
address the Year 2000 issue, there can be no assurance to that effect. The
Company will implement its existing Business Resumption Plan in the event of
non-compliance with Year 2000. Commonwealth is primarily dependent on its
suppliers of computer services to become Year 2000 compliant. Commonwealth is
monitoring its computer services provider, as well as its third party system
vendors, to ensure that the Company's systems continue to meet its internal
needs and those of its customers. As a result of Commonwealth's arrangement with
these vendors, the Company does not expect material expenditures to be incurred
to address the Year 2000 issue.
FINANCIAL CONDITION
GENERAL. Total assets were $2.1 billion at June 30, 1999, compared to
$2.3 billion at December 31, 1998. During the first six months of 1999,
decreases in the Company's mortgage-backed securities, mortgage loans held for
sale and loans receivable were offset, in part, by an increase in investment
securities. Total liabilities were $1.9 billion at June 30, 1999, compared to
$2.1 billion at December 31, 1998. The decrease during the first six months of
1999, was primarily attributable to a decrease in notes payable and other
borrowings and deposits. Shareholders' equity as of June 30, 1999, equaled $174
million, compared to $192 million at December 31, 1998. This $18 million, or 9%,
decrease was primarily the result of the $23.1 million purchase of 1.4 million
shares of treasury stock, offset, in part, by a $6 million, or 5%, increase in
retained earnings, primarily related to earnings during the first six months of
1999.
CASH, INTEREST-BEARING DEPOSITS, AND SHORT-TERM INVESTMENTS ("CASH AND
CASH EQUIVALENTS"). Cash and cash equivalents decreased by $24 million, or 23%,
from $107 million at December 31, 1998, to $82 million at June 30, 1999.
MORTGAGE LOANS HELD FOR SALE. Mortgage loans held for sale decreased by
$66 million, or 55%, from $121 million at December 31, 1998, to $55 million at
June 30, 1999. The decrease was attributable to a decrease in loans originated
during the second quarter of 1999, primarily as a result of a reduction in loan
refinancing.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
INVESTMENT SECURITIES. Investment securities increased by $105 million,
or 305%, from $35 million at December 31, 1998, to $140 million at June 30,
1999. The increase was primarily attributable to the purchase of highly rated
short-term corporate bonds and mortgage related mutual funds. These increases
were offset, in part, by the maturity of U.S. Treasury and U.S. Government
agency securities.
The increase in investment securities between December 31, 1998 and June
30, 1999, coupled with a decrease in mortgage-backed securities during the same
time period, was part of a strategy to increase the liquidity and shorten the
average life of the Company's combined investment and mortgage-backed securities
portfolios.
Investments in debt and equity securities at June 30, 1999 and December
31, 1998 were as follows:
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Available for sale:
Corporate Bonds $ 79,990 $ 29 $ 74 $ 79,945
Mortgage Security Mutual Funds 57,852 - 268 57,584
Equity Servicing Partnership 1,700 - - 1,700
Other Equity Investments 710 - 14 696
---------------------------------------------------------
Total $140,252 $ 29 $ 356 $139,925
=========================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Available for sale:
Corporate Bonds $19,997 $ 143 $ - $20,140
U.S. Treasury and U.S.
Government agency securities 12,000 1 2 11,999
Equity Servicing Partnership 1,700 - - 1,700
Other Equity Investments 710 - 34 676
-------------------------------------------------------
Total $34,407 $ 144 $ 36 $34,515
=======================================================
</TABLE>
All investment securities are classified as available for sale and are
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of shareholders' equity.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities decreased by $165
million, or 31%, from $524 million at December 31, 1998, to $359 million at June
30, 1999. The decrease in mortgage-backed securities during the first six months
of 1999 was primarily related to repayments and prepayments.
The decrease in mortgage-backed securities between December 31, 1998 and
June 30, 1999, coupled with an increase in investment securities during the same
time period, was part of a strategy to increase the liquidity and shorten the
average life of the Company's combined investment and mortgage-backed securities
portfolios.
Mortgage-backed securities generally increase the quality of the
Company's assets by virtue of the insurance or guarantees related to the
securities, are more liquid than individual mortgage loans, and may be used to
collateralize borrowings or other obligations of the Company. At June 30, 1999
and December 31, 1998, $238 million, or 66%, and $310 million, or 59%,
respectively, of the Company's mortgage-backed securities were insured or
guaranteed by the Government National Mortgage Association ("GNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC"), or the Federal National Mortgage
Association ("FNMA"). As part of its investment policy, the Company also has the
ability to invest in private mortgage-backed securities. These non-federally
insured mortgage-backed securities, which are generally rated AA or better,
yield a higher rate of return and involve a higher risk of loss than comparable
mortgage-backed securities issued by the GNMA, FHLMC, or the FNMA, and serve to
further diversity the Company's mortgage-backed securities portfolio. At June
30, 1999 and December 31, 1998, $122 million, or 34%, and $215 million, or 41%,
respectively, of the Company's mortgage-backed securities were private
mortgage-backed securities. The following table sets forth the Company's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------------------------------
(in thousands)
Held to maturity:
<S> <C> <C> <C> <C>
GNMA $ 41,101 $ 852 $ 84 $ 41,869
FHLMC 21,470 231 - 21,701
FNMA 40,273 248 524 39,997
Private 3,510 - - 3,510
---------------------------------------------------------------------------------------------
Total $106,354 $1,331 $ 608 $107,077
=============================================================================================
Available for sale:
GNMA $ 10,934 $ 264 $ 147 $ 11,051
FHLMC 51,307 953 64 52,196
FNMA 54,910 210 206 54,914
CMO and REMIC 136,209 223 1,738 134,694
---------------------------------------------------------------------------------------------
Total $253,360 $1,650 $2,155 $252,855
=============================================================================================
</TABLE>
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-CONTINUED
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------------------------------
(in thousands)
Held to maturity:
<S> <C> <C> <C> <C>
GNMA $ 50,856 $1,284 $108 $ 52,032
FHLMC 28,871 193 151 28,913
FNMA 48,345 443 31 48,757
Private 4,033 - - 4,033
---------------------------------------------------------------------------------------------
Total $132,105 $1,920 $290 $133,735
=============================================================================================
Available for sale:
GNMA $ 13,049 $ 475 $ - $ 13,524
FHLMC 65,987 1,927 17 67,897
FNMA 67,773 718 177 68,314
CMO and REMIC 241,540 972 211 242,301
---------------------------------------------------------------------------------------------
Total $388,349 $4,092 $405 $392,036
=============================================================================================
</TABLE>
Mortgage-backed securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security pursuant to the level-yield
method. Mortgage-backed securities classified as available for sale are reported
at fair value, with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of shareholders' equity.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
LOANS RECEIVABLE. Loans receivable, net of reserves,
deferred loan fees, and unamortized premiums and unaccreted discounts,
decreased by $28 million, or 2%, during the first six months of 1999, to
$1.3 billion at June 30, 1999. The decrease was primarily attributable
to a decrease in residential mortgage loans, offset, in part, by growth
in consumer and commercial loans. The consumer and commercial loan
growth was impacted by the sale of two branches, with loans totaling $11
million, to Harris Savings Bank on June 28, 1999. The following table
depicts the composition of the Company's loan portfolio at the dates
indicated.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------------------- --------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans - Residential (1) $ 878,160 66.46% $ 969,617 71.90%
Consumer loans:
Equity lines of credit 31,130 2.36 34,845 2.58
Second mortgages 147,777 11.18 126,360 9.37
Recreational vehicles 57,890 4.38 39,920 2.96
Other 41,839 3.17 38,781 2.88
--------- ------ --------- ------
Total consumer loans 278,636 21.09 239,906 17.79
Commercial loans:
Small Business
Administration Loans (2) 12,828 0.97 14,491 1.07
Commercial real estate 56,212 4.26 45,021 3.34
Business loans (3) 95,424 7.22 79,490 5.90
--------- ------ --------- ------
Total commercial loans 164,464 12.45 139,002 10.31
--------- ------ --------- ------
Total loans receivable 1,321,260 100.00% 1,348,525 100.00%
--------- ====== --------- ======
Less:
Net premium on loans purchased (2,598) (2,880)
Allowance for loan losses 9,964 9,589
Deferred loan fees 3,459 3,639
---------- ----------
Loans receivable, net $1,310,435 $1,338,177
========== ==========
</TABLE>
- ---------------------
(1) At June 30, 1999 and December 31, 1998, $328 million, or 37%, and $404
million, or 42%, respectively, of the Company's residential mortgage loans
had adjustable interest rates.
(2) Consists entirely of loans (or securities backed by loans) which are
guaranteed by the U.S. Government, with the majority adjusting monthly or
quarterly. All such loans or securities were purchased by the Company.
(3) Includes owner occupied real estate.
Total mortgage loans originated and purchased for the six months ended
June 30, 1999, decreased by $196 million, or 35%, from $565 million for the six
months ended June 30, 1998, to $369 million for the six months ended June 30,
1999. The $196 million decrease in mortgage originations was primarily as a
result of a reduction in loan refinancing. Closed loans relating to
Commonwealth's retail network totaled $272 million during the six months ended
June 30, 1999, a decrease of 25% compared to $363 million for six months ended
June 30, 1998. Commonwealth's Wholesale Lending Department originates loans
through
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
a network of correspondent brokers in 18 states. All loans are underwritten
using the same criteria as those used for retail originations. Closed loans
relating to Commonwealth's wholesale network totaled $97 million during the six
months ended June 30, 1999, a decrease of 52% compared to $201 million for the
six months ended June 30, 1998.
Consumer loans increased by $39 million, or 16%, from $240 million at
December 31, 1998, to $279 million at June 30, 1999. At June 30, 1999, consumer
loans represented 21% of the Company's loan portfolio and were comprised of $31
million of equity lines of credit, $148 million of second mortgage loans, $58
million of recreational vehicle loans, and $42 million of other consumer loans.
At December 31, 1998, consumer loans represented 18% of total loans and were
comprised of $35 million of equity lines of credit, $126 million of second
mortgage loans, $40 million of recreational vehicle loans, and $39 million of
other consumer loans.
As of June 30, 1999, commercial loans totaled $164 million, or 12%, of
the Company's total loan portfolio, as compared to $139 million, or 10%, at
December 31, 1998. At June 30, 1999, commercial loans were comprised of $56
million of commercial real estate loans, $95 million of business loans, and $13
million of loans guaranteed by the Small Business Administration ("SBA"). At
December 31, 1998, commercial loans were comprised of $45 million of commercial
real estate loans, $79 million of business loans, and $14 million of SBA loans.
Commercial loans are generally considered to have a greater risk than
residential mortgage loans because the risk of borrower default is greater, and
the collateral is more likely to decline in value and may be more difficult to
liquidate than single-family residences.
The increases in consumer and commercial loans and the decrease in
mortgage loans during the first six months of 1999 were in line with the
Company's strategy to shift its business mix from that of a traditional thrift
institution to one more representative of a community bank.
NONPERFORMING ASSETS. The Company's nonperforming assets, which
primarily consist of nonaccrual loans and real estate acquired through
foreclosure, decreased by $3.1 million, or 28%, from $11.1 million at December
31, 1998, to $8.0 million at June 30, 1999. At June 30, 1999, the Company's $8.0
million of nonperforming assets amounted to 0.38% of total assets. At December
31, 1998, the Company's $11.1 million of nonperforming assets amounted to 0.49%
of total assets. The following table sets forth information relating to the
Company's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(dollars in thousands)
<S> <C> <C>
Mortgage loans - Residential $3,672 $ 5,119
Consumer loans 1,413 1,598
Commercial loans 1,788 3,295
----- -----
Total nonperforming loans 6,873 10,012
Real estate owned, net 1,101 1,049
----- -----
Total nonperforming assets $7,974 $11,061
===== ======
Nonperforming loans to total loans held
for investment 0.52% 0.74%
==== ====
Total nonperforming assets to total assets 0.38% 0.49%
==== ====
</TABLE>
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
ALLOWANCE FOR LOAN LOSSES. The Company's allowance for loan losses
amounted to $10.0 million at June 30, 1999, compared to $9.6 million at December
31, 1998. It is management's policy to maintain an allowance for estimated loan
losses based upon an assessment of prior loss experience, the volume and type of
lending conducted by the Company, industry standards, past due loans, general
economic conditions, and other factors related to the collectability of the loan
portfolio. At June 30, 1999, the Company's allowance for loan losses amounted to
145% of total nonperforming loans and 0.75% of total loans held for investment,
as compared to 96% of total nonperforming loans and 0.71% of total loans held
for investment at December 31, 1998. The Company utilizes these percentages as
only one of the factors in assessing the adequacy of the allowance for loan
losses at various points in time.
Over the past several years, Commonwealth has diversified its lending
efforts and increased its emphasis on providing its customers with consumer and
commercial loans. As a result of the increased risk inherent in these loan
products, management will continually evaluate its loan portfolio and record
additional loan loss reserves as deemed necessary.
The following table sets forth the activity in the Company's allowance
for loan losses during the periods indicated.
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1999 1998
----- ----
(dollars in thousands)
<S> <C> <C>
Allowance at beginning of period $9,589 $9,024
Provision for loan losses 2,000 1,500
Charge-offs:
Mortgage loans (175) (177)
Consumer loans (933) (772)
Commercial loans (745) (158)
----- ------
Total charge-offs (1,853) (1,107)
Recoveries:
Mortgage loans 26 -
Consumer loans 103 36
Commercial loans 99 31
------ ------
Total recoveries 228 67
------ ------
Allowance at end of period $9,964 $9,484
===== =====
Allowance for loan losses to
total nonperforming loans
at end of period 144.97% 109.84%
====== ======
Allowance for loan losses to
total loans held for
investment at end of period 0.75% 0.70%
==== ====
</TABLE>
- ----------------
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
INTANGIBLE ASSETS. Intangible assets, which are comprised of the
excess of cost over net assets acquired ("Goodwill") and core deposit
intangibles ("CDI"), were recorded in connection with the acquisition of
twelve former Meridian branches in 1996 (the "Berks Acquisition") and
the acquisition of four former Fidelity Federal branches in 1995 (the
"Fidelity Federal Acquisition"). On June 28,1999, Commonwealth sold two
of the former Meridian branches, which resulted in a $1.4 million and
$0.6 million reduction in Goodwill (Berks Acquisition) and CDI (Berks
Acquisition), respectively. The following table details the components
of intangible assets at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1999 December 31,1998
------------- ----------------
(in thousands)
<S> <C> <C>
Goodwill (Berks Acquisition) $16,856 $19,141
CDI (Berks Acquisition) 6,777 8,260
Goodwill (Fidelity Federal) 9,722 10,257
CDI (Fidelity Federal) 2,007 2,172
------- -------
Total $35,362 $39,830
======= =======
</TABLE>
MORTGAGE SERVICING RIGHTS. At June 30, 1999, Commonwealth's
mortgage servicing portfolio was $2.2 billion, a decrease of 9% compared
to $2.4 billion at December 31, 1998. At June 30, 1999 and December 31,
1998, Commonwealth was servicing $1.3 billion and $1.4 billion of third
party loans, as well as $0.9 billion and $1.0 billion, respectively, of
loans held by Commonwealth for investment and sale. At June 30, 1999,
capitalized mortgage servicing rights relating to loans originated by
Commonwealth totaled $7.9 million, compared to $8.9 million at December
31, 1998. Purchased mortgage servicing rights totaled $1.0 million at
June 30, 1999, compared to $1.1 million at December 31, 1998.
On July 7, 1999, Commonwealth announced that its wholly-owned
subsidiary, Commonwealth Bank, will exit substantially all of its third
party mortgage servicing business, and has reached a definitive
agreement with National City Mortgage Co. regarding the sale of
Commonwealth's existing $1.0 billion Fannie Mae and Freddie Mac mortgage
servicing portfolio. The Company expects to realize a pre-tax gain of
between $3.5 million and $4.0 million upon completion of the
transaction, which is anticipated to occur in the third quarter of 1999.
DEPOSITS. Deposits decreased by $49 million, or 3%, to $1.6
billion at June 30, 1999, primarily related to the sale of two branches,
with combined deposits of $37 million, to Harris Savings Bank on June
28, 1999.
BORROWINGS. The Company's borrowings consist primarily of
advances from the FHLB and securities sold under agreements to
repurchase. FHLB advances decreased by $113 million, or 47%, to $128
million at June 30, 1999, from $241 million at December 31, 1998.
Repurchase agreements decreased by $26 million, or 16%, to $140 million
at June 30, 1999, from $166 million at December 31, 1998. These
decreases were offset, in part, by an $14 million increase in the
Company's commercial
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
repurchase product, which was introduced during the first quarter of
1999. The Company's borrowings are used to fund lending and investment
activities, withdrawals from deposit accounts, and other disbursements
which occur in the normal course of business. Dependent upon funding
requirements and interest rate risk considerations, certain of these
borrowings are hedged with off-balance-sheet financial instruments.
ACCRUED INTEREST PAYABLE, ACCRUED EXPENSES AND OTHER
LIABILITIES ("OTHER LIABILITIES"). Other liabilities increased by $7
million, or 29%, to $32 million at June 30, 1999, from $25 million at
December 31, 1998, primarily related to an increase in accrued interest
payable.
SHAREHOLDERS' EQUITY. At June 30, 1999, shareholders' equity
equaled $174 million, compared to $192 million at December 31, 1998.
This $18 million, or 9%, decrease was primarily the result of the $23.1
million purchase of 1.4 million shares of treasury stock, offset, in
part, by a $6 million, or 5%, increase in retained earnings during the
first six months of 1999. The $6 million increase in retained earnings
was the result of earnings of $8.5 million, offset, in part, by cash
dividends of $2.3 million during the first six months of 1999. The
repurchased shares were held as treasury stock as of June 30, 1999, and
are reserved for general corporate purposes and/or issuance pursuant to
the Company's stock option plans. At June 30, 1999, shareholders' equity
represented 8.4% of assets, compared to 8.5% at December 31, 1998. The
Bank's core and risk-based capital ratios were 6.5% and 12.2%,
respectively, at June 30, 1999, compared to 5.9% and 11.6%,
respectively, at December 31, 1998.
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
REGULATORY CAPITAL REQUIREMENTS.
The following table sets forth the Bank's compliance with applicable regulatory
capital requirements at June 30, 1999:
<TABLE>
<CAPTION>
Minimum
For Capital
Adequacy
Actual Purposes
--------------------------------------------------------------------------------------
Ratio Amount Ratio Amount
--------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Shareholders' equity,
and ratio to OTS
total assets 8.1% $ 167,113
------------
Intangible assets (35,362)
Unrealized gain on
marketable
securities, net of tax 532
------------
Tangible capital,
and ratio to OTS
adjusted total assets 6.5% $ 132,283 1.5% $30,510
------------ ============ --------- =======
Core capital,
and ratio to OTS
adjusted total assets 6.5% $ 132,283 3.0% $61,019
------------ ============ --------- =======
Core capital,
and ratio to OTS
risk-weighted assets 11.3% $ 132,283
------------ ------------
Allowance for loan losses 9,964
------------
Supplementary capital 9,964
------------
Total risk-based capital,
and ratio to OTS
risk-weighted assets (1) 12.2% $ 142,247 8.0% $93,254
------------ ============ --------- =======
OTS total assets $2,068,797
==========
OTS adjusted total assets $2,033,967
==========
OTS risk-weighted assets $1,165,676
==========
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized
For Prompt
Corrective Action
Provisions
--------------------------------------
Ratio Amount
--------------------------------------
(dollars in thousands)
<S> <C> <C>
Shareholders' equity,
and ratio to OTS
total assets
Intangible assets
Unrealized gain on
marketable
securities, net of tax
Tangible capital,
and ratio to OTS
adjusted total assets
Core capital,
and ratio to OTS
adjusted total assets 5.0% $ 101,698
---- ==========
Core capital,
and ratio to OTS
risk-weighted assets 6.0% $ 69,941
---- ==========
Allowance for loan losses
Supplementary capital
Total risk-based capital,
and ratio to OTS
risk-weighted assets (1) 10.0% $ 116,568
----- ==========
OTS total assets
OTS adjusted total assets
OTS risk-weighted assets
</TABLE>
- -----------------------
(1) Does not reflect the interest rate risk component to the risk-based capital
requirement, which is not yet effective.
24
<PAGE> 25
Commonwealth Bancorp, Inc. and Subsidiaries
Average Balance Sheet
<TABLE>
<CAPTION>
Quarter Ended June 30,
--------------------------------------------- -------------------------------------------------
1999 1998
--------------------------------------------- -------------------------------------------------
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Loans receivable:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $945,495 $17,026 7.22% $1,080,741 $19,518 7.24%
Consumer loans 269,979 6,005 8.92% 213,658 4,549 8.54%
Commercial loans 148,777 3,192 8.61% 121,329 2,460 8.13%
-------------- -------------- ----------- ---------------- -------------- ------------
Total loans receivable 1,364,251 26,223 7.71% 1,415,728 26,527 7.52%
-------------- -------------- ------------ ---------------- -------------- ------------
Mortgage-backed securities 397,050 6,559 6.63% 748,221 12,750 6.83%
Investment securities 198,395 2,485 5.02% 47,164 609 5.18%
Other earning assets 50,956 855 6.73% 38,653 775 8.04%
-------------- -------------- ----------- ---------------- -------------- ------------
Total interest-earning assets 2,010,652 36,122 7.21% 2,249,766 40,661 7.25%
-------------- ----------- -------------- ------------
Non-interest-earning assets 150,588 155,594
-------------- ----------------
Total assets $2,161,240 $2,405,360
============== ================
Deposits:
Demand and Money market $742,316 4,251 2.30% $621,500 3,717 2.40%
Savings deposits 232,759 1,284 2.21% 230,850 1,282 2.23%
Certificates of deposit 631,912 8,017 5.09% 724,883 9,950 5.51%
-------------- -------------- ----------- ---------------- -------------- ------------
Total deposits 1,606,987 13,552 3.38% 1,577,233 14,949 3.80%
-------------- -------------- ----------- ---------------- -------------- ------------
Notes payable and other borrowings
FHLB Advances 179,648 2,338 5.22% 340,835 4,791 5.64%
Repurchase agreements 140,000 2,322 6.65% 215,374 3,226 6.01%
Other borrowings 8,070 84 4.18% 0 0 0.00%
-------------- -------------- ----------- ---------------- -------------- ------------
Total borrowings 327,718 4,744 5.81% 556,209 8,017 5.78%
-------------- -------------- ----------- ---------------- -------------- ------------
Total interest-bearing liabilities 1,934,705 18,296 3.79% 2,133,442 22,966 4.32%
-------------- ----------- -------------- ------------
Non-interest-bearing liabilities 42,765 61,304
-------------- ----------------
Total liabilities 1,977,470 2,194,746
Shareholders' equity 183,770 210,614
-------------- ----------------
Total liabilities and equity $2,161,240 $2,405,360
============== ================
Yield on interest earning assets 7.21% 7.25%
Cost of supporting funds 3.65% 4.09%
Net interest margin:
Taxable equivalent basis $17,826 3.56% $17,695 3.15%
Without taxable equivalent adjs. $17,787 3.55% $17,695 3.15%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------- ----------------------------------------------
1999 1998
----------------------------------------------- ----------------------------------------------
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
Loans receivable:
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $981,001 $35,058 7.21% $1,047,614 $37,972 7.31%
Consumer loans 257,104 11,376 8.92% 206,055 9,027 8.83%
Commercial loans 142,857 6,054 8.55% 118,932 4,911 8.33%
------------- -------------- -------------- --------------- -------------- ------------
Total loans receivable 1,380,962 52,488 7.66% 1,372,601 51,910 7.63%
------------- -------------- -------------- --------------- -------------- ------------
Mortgage-backed securities 439,641 14,489 6.65% 736,765 25,020 6.85%
Investment securities 153,124 3,862 5.09% 49,299 1,352 5.53%
Other earning assets 60,032 1,896 6.37% 33,423 1,458 8.80%
------------- -------------- -------------- --------------- -------------- ------------
Total interest-earning assets 2,033,759 72,735 7.21% 2,192,088 79,740 7.34%
-------------- -------------- -------------- ------------
Non-interest-earning assets 153,565 156,198
------------- ---------------
Total assets $2,187,324 $2,348,286
============= ===============
Deposits:
Demand and Money market $725,767 8,408 2.34% $610,639 7,342 2.42%
Savings deposits 230,177 2,534 2.22% 230,154 2,543 2.23%
Certificates of deposit 645,669 16,394 5.12% 732,093 20,008 5.51%
------------- -------------- -------------- --------------- -------------- ------------
Total deposits 1,601,613 27,336 3.44% 1,572,886 29,893 3.83%
------------- -------------- -------------- --------------- -------------- ------------
Notes payable and other borrowings
FHLB Advances 200,776 5,208 5.23% 282,420 7,906 5.65%
Repurchase agreements 145,105 4,707 6.54% 225,657 6,731 6.02%
Other borrowings 5,245 115 4.42% 0 0 0.00%
------------- -------------- -------------- --------------- -------------- ------------
Total borrowings 351,126 10,030 5.76% 508,077 14,637 5.81%
------------- -------------- -------------- --------------- -------------- ------------
Total interest-bearing liabilities 1,952,739 37,366 3.86% 2,080,963 44,530 4.32%
-------------- -------------- -------------- ------------
Non-interest-bearing liabilities 47,935 53,814
------------- ---------------
Total liabilities 2,000,674 2,134,777
Shareholders' equity 186,650 213,509
------------- ---------------
Total liabilities and equity $2,187,324 $2,348,286
============= ===============
Yield on interest earning assets 7.21% 7.34%
Cost of supporting funds 3.70% 4.10%
Net interest margin:
Taxable equivalent basis $35,369 3.51% $35,210 3.24%
Without taxable equivalent adjs $35,324 3.50% $35,210 3.24%
</TABLE>
Note: Interest and yields were calculated on a taxable equivalent basis,
using a 35% tax rate and the actual number of days in the periods. Loan
fees, as well as nonaccrual loans and their related income effect, have
been included in the calculation of average interest yields/rates.
25
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND SIX MONTHS ENDED JUNE
30, 1999 AND 1998.
GENERAL. Net income was $4.4 million, or $0.33 per common share on a
diluted basis, for the second quarter of 1999. The second quarter 1999 financial
results reflected a $0.7 million (after-tax) gain on the sale of two branches in
Lebanon County, Pennsylvania. This gain was offset, in part, by a $0.3 million
(after-tax) charge relating to certain assets acquired in the 1996 acquisition
of 12 branches in Lebanon and Berks Counties, Pennsylvania. Exclusive of these
items, net income would have been $4.0 million, or $0.30 per share on a diluted
basis, for the three months ended June 30, 1999.
For the six months ended June 30, 1999, net income was $8.5 million,
or $0.63 per common share on a diluted basis. Exclusive of the above items which
affected the second quarter 1999 financial results, net income would have been
$8.1 million, or $0.60 per share on a diluted basis, for the six months ended
June 30, 1999.
Net income was $1.5 million, or $0.10 per common share on a diluted
basis, in the second quarter of 1998. The second quarter 1998 financial results
were affected by a $1.9 million (after-tax) valuation adjustment relating to an
equity investment in a mortgage servicing partnership; a $0.5 million
(after-tax) charge relating to a policy change in accounting for compensation
expense; and a $0.5 million (after-tax) net gain on sale of securities.
Exclusive of these items, net income would have been $3.4 million, or $0.22 per
share on a diluted basis, for the second quarter of 1998.
For the six months ended June 30, 1998, net income was $5.3 million,
or $0.34 per common share on a diluted basis. In addition to the above factors
affecting the second quarter 1998 results, net income for the six months of 1998
included a $0.4 million (after-tax) reversal of a deferred tax liability in the
first quarter of 1998. Exclusive of these items, net income would have been $6.9
million, or $0.45 per share on a diluted basis, for the six months ended June
30, 1998.
NET INTEREST INCOME. Net interest income was $17.8 million in the
second quarter of 1999, compared to $17.7 million in the second quarter of 1998.
For the first six months of 1999, net interest income was $35.3 million, versus
$35.2 million for the comparable period in 1998. The increases were primarily
attributable to a higher net interest margin, offset, in part, by a decrease in
average interest-earning assets.
Average interest-earning assets totaled $2.0 billion for both the
second quarter and six months ended June 30, 1999. This compared to $2.2 billion
for both the second quarter and six months ended June 30, 1998. The decreases in
interest-earning assets were due primarily to decreases in the Company's
mortgage-backed securities portfolio.
The net interest margin on a fully taxable equivalent basis was
3.56% in the second quarter of 1999, compared to 3.15% in the second quarter of
1998. The increase was primarily attributable to a 0.53% decrease in the cost of
interest-bearing liabilities, offset, in part, by a 0.04% reduction in the fully
taxable equivalent yield on interest-earning assets. The decrease in the cost of
interest-bearing liabilities was primarily related to a reduction in the average
cost of certificates of deposit, which decreased from 5.51% in the second
quarter of 1998 to 5.09% in the second quarter of 1999. Also contributing to the
decrease in the cost of interest-bearing liabilities was a favorable change in
funding mix, involving an increase in lower costing demand and money market
deposits, and a decrease in higher costing certificates and wholesale
borrowings. The reduction in the yield on interest-earning assets was primarily
due to lower yields on the Company's mortgage-backed and investment securities
portfolios.
For the six months ended June 30, 1999, the net interest margin on a
fully taxable equivalent basis was 3.51%, versus 3.24% in the comparable 1998
period. The increase was primarily attributable to 0.46% decrease in the cost of
interest-bearing liabilities, offset, in part, by a 0.13% reduction in the yield
on interest-earning assets. The decrease in the cost of interest-bearing
liabilities and the yield on interest-earning assets, relative to the
26
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
comparable periods in 1998, was primarily attributable to the same factors
responsible for the decrease in the second quarter of 1999.
PROVISION FOR LOAN LOSSES. Provision for loan losses totaled $1.0
million and $2.0 million in the second quarter and six months ended June 30,
1999, respectively. The provision for loan losses totaled $1.0 million and $1.5
million in the second quarter and six months ended June 30, 1998, respectively.
At June 30, 1999, the allowance for loan losses totaled $10.0 million, or 0.75%
of loans, compared to $9.6 million, or 0.71%, at December 31, 1998.
NONINTEREST INCOME. Noninterest income totaled $7.7 million in the
second quarter of 1999, compared to $7.4 million in the second quarter of 1998.
The increase primarily reflected a $1.0 million gain on the sale of two branches
in Lebanon County, Pennsylvania. This increase was partially offset by the
effect of a $0.7 million net gain on the sale of securities during the second
quarter of 1998.
Noninterest income was $15.6 million for the first six months of
1999, compared to $13.4 million for the same 1998 period. In addition to the
factors relating to the second quarter, the increase was also attributable to a
$1.9 million increase in the net gain on sale of mortgage loans, relating to an
increase in loans sold on a servicing released basis. Also impacting the
comparison was a $0.4 million reversal of a deferred tax liability in the first
quarter of 1998.
NONINTEREST EXPENSE. Noninterest expense was $18.3 million in the
second quarter of 1999, compared to $21.8 million in the second quarter of 1998.
The decrease 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 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. These decreases were partially offset by a $0.5 million
nonrecurring charge in the second quarter of 1999 relating to certain assets
acquired in the 1996 acquisition of 12 branches in Lebanon and Berks Counties,
Pennsylvania.
Noninterest expense was $37.0 million for the six months ended June
30, 1999, compared to $39.2 million for the same period in 1998. The decrease
was primarily attributable to the same factors responsible for the decrease in
the second quarter of 1999, as well as a $0.3 million decrease in the
amortization of intangible assets. Partially offsetting these decreases was an
increase in mortgage banking expenses and higher expenses relating to the
accelerated vesting of certain stock benefit plans due to retirements, as well
as the opening of supermarket and traditional branch offices.
PROVISION FOR INCOME TAXES. Provision for income taxes was $1.8
million, or 29% of income before income taxes in the second quarter of 1999,
compared to $0.8 million, or 34%, in the second quarter of 1998. For the first
six months of 1999, provision for income taxes was $3.5 million, or 29% of
income before income taxes, compared to $2.6 million, or 32%, in the first six
months of 1998. The decrease in the tax rate in the second quarter and first six
months of 1999, relative to the comparable periods in 1998, was primarily
attributable to historic and low income housing tax credits.
27
<PAGE> 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Commonwealth utilizes simulation models to analyze the estimated
effects on net interest income under multiple interest rate scenarios, including
increases and decreases in interest rates amounting to 100, 200, and 300 basis
points. Each scenario is modeled for a change in net interest income over a two
year period. Similar simulation models are prepared to analyze the Company's net
asset value, which is the present value of the cash flows generated by the
Company's assets minus the present value of the cash flows generated by the
Company's liabilities, plus or minus the net cash flows produced by off-balance
sheet contracts. At June 30, 1999, the Company's income simulation model
indicates net interest income would decrease by 4.66% over a two year period if
interest rates increased by 200 basis points. The model projects that net
interest income would decrease by 2.45% over a two year period if rates
decreased by 200 basis points. The anticipated changes in the level of net
interest income and net asset value over the various scenarios were within
limits approved by the Company's Board of Directors.
Management believes that the assumptions utilized to evaluate the
vulnerability of the Company's operations to changes in interest rates
approximate actual experience and considers them to be reasonable. However, the
interest rate sensitivity of the Company's assets and liabilities could vary
substantially if different assumptions were used or actual experience differs
from the historical experience on which they are based.
Since there are limitations inherent in any methodology used to
estimate the exposure to changes in market interest rates, this analysis is not
intended to be a forecast of the actual effect of a change in market interest
rates on the Company. The net interest income variability reflects the Company's
interest rate sensitivity position and does not include the change in earnings
related to an increase or decrease in amortization of servicing intangible
assets that may be caused by different levels of prepayments when rates rise or
fall. The market value of portfolio equity is significantly impacted by the
estimated effect of prepayments on the value of single family loans,
mortgage-backed securities and servicing as rates change. Further, this analysis
is based on the Company's assets, liabilities, mortgage servicing rights, and
off-balance-sheet instruments at June 30, 1999, and does not contemplate any
actions the Company might undertake in response to changes in market interest
rates.
28
<PAGE> 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or any
of its subsidiaries is a party, or to which any of their property is subject,
other than proceedings routine to the business of the Company and its
subsidiaries.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on April 20,
1999. The results of the vote on matters submitted to stockholders at the
meeting were previously reported in the Company's 10-Q for the quarter ended
March 31, 1999.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Not applicable
b) On April 8, 1999, the Company filed a Current Report on Form 8-K
to report under Item 5, that its wholly-owned subsidiary, Commonwealth Bank, has
reached a definitive agreement with Harris Savings Bank regarding the sale of
Commonwealth's two branches in Lebanon County, Pennsylvania. On April 22, 1999,
the Company filed a Current Report on Form 8-K to report under Item 5, its
earnings for the first quarter of 1999. On June 16, 1999, the Company filed a
Current Report on Form 8-K to report under Item 5, its commencement of the stock
repurchase program and its declared cash dividend. On June 18, 1999, the Company
filed a Current Report on Form 8-K to report under Item 5, the completion of its
previously announced stock repurchase program. On June 29, 1999, the Company
filed a Current Report on Form 8-K to report under Item 5, the commencement of
the stock repurchase program and that its wholly-owned subsidiary, Commonwealth
Bank, has completion the sale of two branches to Harris Savings Bank. On July 8,
1999, the Company filed a Current Report on Form 8-K to report under Item 5,
that its wholly-owned subsidiary, Commonwealth Bank, will exit substantially all
of its third party mortgage servicing business, and the sale of its existing
Fannie Mae and Freddie Mac mortgage servicing portfolio. On July 15, 1999, the
Company filed a Current Report on Form 8-K to report under Item 5, its earnings
for the second quarter of 1999.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COMMONWEALTH BANCORP, INC.
DATE: August 6, 1999 /s/ Charles H. Meacham
----------------------
Charles H. Meacham
Chairman and Chief Executive Officer
(Principal Executive Officer)
DATE: August 6, 1999 /s/ Charles M. Johnston
-----------------------
Charles M. Johnston
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
30
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 51,652
<INT-BEARING-DEPOSITS> 29,904
<FED-FUNDS-SOLD> 676
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 447,503
<INVESTMENTS-CARRYING> 106,354
<INVESTMENTS-MARKET> 107,077
<LOANS> 1,320,399
<ALLOWANCE> 9,964
<TOTAL-ASSETS> 2,077,064
<DEPOSITS> 1,588,777
<SHORT-TERM> 135,363
<LIABILITIES-OTHER> 31,624
<LONG-TERM> 147,000
0
0
<COMMON> 44,786
<OTHER-SE> 129,514
<TOTAL-LIABILITIES-AND-EQUITY> 2,077,064
<INTEREST-LOAN> 52,443
<INTEREST-INVEST> 5,758
<INTEREST-OTHER> 14,489
<INTEREST-TOTAL> 72,690
<INTEREST-DEPOSIT> 27,336
<INTEREST-EXPENSE> 37,366
<INTEREST-INCOME-NET> 35,324
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 37,014
<INCOME-PRETAX> 11,924
<INCOME-PRE-EXTRAORDINARY> 11,924
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,466
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.63
<YIELD-ACTUAL> 721
<LOANS-NON> 6,873
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,101
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,589
<CHARGE-OFFS> 1,853
<RECOVERIES> 228
<ALLOWANCE-CLOSE> 9,964
<ALLOWANCE-DOMESTIC> 9,964
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
