<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...........................September 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)
<TABLE>
<S> <C>
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)
</TABLE>
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 November 2,
1999, there were 18,068,543 issued and 11,946,440 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 September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the Quarter and Nine Month
Periods Ended September 30, 1999 and 1998 4
Consolidated Statements of Changes in Shareholders' Equity for the Nine Month
Periods Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 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 29
PART II - OTHER INFORMATION
1 Legal Proceedings 30
2 Changes in Securities 30
3 Default Upon Senior Securities 30
4 Submission of Matters to a Vote of Security Holders 30
5 Other Information 30
6 Exhibits and Reports on Form 8-K 30
Signatures 31
</TABLE>
2
<PAGE> 3
Commonwealth Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------- -------------------
Assets:
<S> <C> <C>
Cash and due from banks $43,440 $58,028
Interest-bearing deposits 35,445 43,829
Short-term investments available for sale 6,755 4,820
Mortgage loans held for sale 26,484 120,642
Investment securities
Securities available for sale (cost of $63,089
and $34,407, respectively), at market value 62,748 34,515
Mortgage-backed securities
Securities held to maturity (market value of $98,272
and $133,735, respectively), at cost 98,376 132,105
Securities available for sale (cost of $221,869
and $388,349, respectively), at market value 219,492 392,036
Loans receivable, net 1,329,305 1,338,177
Accrued interest receivable, net 10,166 11,260
FHLB stock, at cost 18,400 18,400
Premises and equipment, net 15,574 16,887
Intangible assets 34,205 39,830
Mortgage servicing rights - 9,969
Other assets, including net deferred taxes of $5,126
and $2,508, respectively 42,262 37,001
------------------- -------------------
Total assets $1,942,652 $2,257,499
=================== ===================
Liabilities:
Deposits $1,512,878 $1,605,299
Notes payable and other borrowings:
Secured notes due to Federal Home Loan Bank of Pittsburgh 97,000 240,500
Securities sold under agreements to repurchase 130,000 166,000
Other borrowings 11,492 -
Advances from borrowers for taxes and insurance 8,856 28,960
Accrued interest payable, accrued expenses and other liabilities 32,133 24,562
------------------- -------------------
Total liabilities 1,792,359 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 11,946,024 outstanding at September 30, 1999
18,054,315 shares issued and 14,721,408 outstanding at December 31, 1998 1,807 1,806
Additional paid-in capital 136,124 135,588
Retained earnings 133,397 123,917
Unearned stock benefit plan compensation (8,886) (10,666)
Unrealized (loss) gain on marketable securities, net (1,767) 2,467
Treasury stock, at cost; 6,122,103 and 3,332,907 shares, respectively (110,382) (60,934)
------------------- -------------------
Total shareholders' equity 150,293 192,178
------------------- -------------------
Total liabilities and shareholders' equity $1,942,652 $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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $26,270 $27,346 $78,713 $79,256
Interest and dividends on deposits and money
market investments 1,025 511 2,921 1,969
Interest on investment securities 1,616 497 5,478 1,849
Interest on mortgage-backed securities 5,719 11,517 20,208 36,537
------------- ------------ ----------- ------------
Total interest income 34,630 39,871 107,320 119,611
Interest expense:
Interest on deposits 12,911 14,827 40,247 44,720
Interest on notes payable and other borrowings 4,079 7,242 14,109 21,879
------------- ------------ ----------- ------------
Total interest expense 16,990 22,069 54,356 66,599
------------- ------------ ----------- ------------
Net interest income 17,640 17,802 52,964 53,012
Provision for loan losses 1,000 1,000 3,000 2,500
------------- ------------ ----------- ------------
Net interest income after provision for loan losses 16,640 16,802 49,964 50,512
Noninterest income:
Deposit fees and related income 2,557 2,232 7,237 6,558
Servicing fees 873 629 2,818 2,703
Net gain on sale of mortgage loans 2,276 2,709 9,043 7,546
Net (loss) gain on sale of securities (250) 298 (250) 985
Other 2,379 603 4,601 2,064
------------- ------------ ----------- ------------
Total noninterest income 7,835 6,471 23,449 19,856
------------- ------------ ----------- ------------
Noninterest expense:
Compensation and employee benefits 9,212 9,230 28,028 28,349
Occupancy and office operations 3,170 2,701 8,675 7,870
Amortization of intangible assets 1,156 1,290 3,666 4,124
Valuation adjustment relating to an equity investment
in a mortgage servicing partnership - 750 - 3,483
Other 4,799 5,208 14,982 14,572
------------- ------------ ----------- ------------
Total noninterest expense 18,337 19,179 55,351 58,398
------------- ------------ ----------- ------------
Income before income taxes 6,138 4,094 18,062 11,970
Income tax provision 1,780 1,392 5,238 3,947
------------- ------------ ----------- ------------
Net income $4,358 $2,702 $12,824 $8,023
============= ============ =========== ============
Basic weighted average number of shares outstanding 11,485,514 13,981,578 12,585,631 14,538,500
============= ============ =========== ============
Basic earnings per share $0.38 $0.19 $1.02 $0.55
============= ============ =========== ============
Diluted weighted average number of shares outstanding 11,983,616 14,561,792 13,000,245 15,206,110
============= ============ =========== ============
Diluted earnings per share $0.36 $0.19 $0.99 $0.53
============= ============ =========== ============
</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
Shares Common Paid-In Retained
Outstanding Stock Capital Earnings
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 16,247 $1,800 $133,541 $117,582
Comprehensive Income:
Net income 8,023
Other-unrealized loss on marketable
securities, net of $114 tax benefit
Total Comprehensive Income
Dividends (3,505)
Release of ESOP shares 930
Amortization of unearned compensation
Exercise of stock options 48 5 263
Purchase of Treasury stock (1,531)
Tax benefit on employee stock plans 329
-----------------------------------------------------------------------
Balance at September 30, 1998 14,764 $1,805 $135,063 $122,100
=======================================================================
Balance at December 31, 1998 14,721 $1,806 $135,588 $123,917
Comprehensive Income:
Net income 12,824
Other-unrealized loss on marketable
securities, net of $2,280 tax benefit
Total Comprehensive Income
Dividends (3,344)
Release of ESOP shares 611
Amortization of unearned compensation
Stock issued pursuant to benefit plans 55 1 (130)
Purchase of Treasury stock (2,830)
Tax benefit on employee stock plans 55
-----------------------------------------------------------------------
Balance at September 30, 1999 11,946 $1,807 $136,124 $133,397
=======================================================================
<CAPTION>
Accumulated
Stock Other
Benefit Plan Comprehensive Treasury
Compensation Income Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ($12,900) $3,512 ($28,683) $214,852
Comprehensive Income:
Net income 8,023
Other-unrealized loss on marketable
securities, net of $114 tax benefit (212) (212)
----------------
Total Comprehensive Income 7,811
----------------
Dividends (3,505)
Release of ESOP shares 690 1,620
Amortization of unearned compensation 1,059 1,059
Exercise of stock options 268
Purchase of Treasury stock (31,551) (31,551)
Tax benefit on employee stock plans 329
----------------------------------------------------------------------------
Balance at September 30, 1998 ($11,151) $3,300 ($60,234) $190,883
============================================================================
Balance at December 31, 1998 ($10,666) $2,467 ($60,934) $192,178
Comprehensive Income:
Net income 12,824
Other-unrealized loss on marketable
securities, net of $2,280 tax benefit (4,234) (4,234)
----------------
Total Comprehensive Income 8,590
----------------
Dividends (3,344)
Release of ESOP shares 690 1,301
Amortization of unearned compensation 1,090 1,090
Stock issued pursuant to benefit plans 655 526
Purchase of Treasury stock (50,103) (50,103)
Tax benefit on employee stock plans 55
----------------------------------------------------------------------------
Balance at September 30, 1999 ($8,886) ($1,767) ($110,382) $150,293
============================================================================
</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 Nine Months
Ended September 30,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Operating activities:
Net income $12,824 $8,023
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Proceeds from loans sold to others 545,972 474,776
Loans originated for sale (322,813) (362,032)
Purchases of loans held for sale (121,975) (140,602)
Principal collection on mortgage loans held for sale 598 652
Net gain on sale of mortgage loans (9,043) (7,546)
(Decrease) increase in net deferred loan fees (393) 484
Provision for loan losses and foreclosed real estate 3,110 2,573
Loss (gain) on sale of investment securities 250 (985)
Valuation adjustment on an equity investment - 3,540
Gain on sale of branches (1,027) -
Depreciation and amortization 2,570 2,605
Net amortization of other assets and liabilities 5,034 7,810
Gain on sale of mortgage servicing rights (1,646) -
Interest reinvested on repurchase agreements (4,903) (9,337)
Changes in assets and liabilities-
Decrease (increase) in-
Accrued interest receivable, net 1,094 760
Deferred income taxes (339) (795)
Other assets (3,633) (3,062)
Increase in-
Advances from borrowers for taxes and insurance (13,508) (6,488)
Accrued interest payable, accrued expenses and other liabilities 7,471 22,986
---------------------- ----------------------
Net cash provided by (used in) operating activities $99,643 ($6,638)
---------------------- ----------------------
</TABLE>
(continued)
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 Nine Months
Ended September 30,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Investing activities:
Proceeds from sale of investment securities $187,062 $6,704
Proceeds from maturities of investment securities 5,000 30,000
Purchases of investment securities (219,588) (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 194,740 237,251
Principal collected on loans 273,417 332,079
Loans originated (228,771) (299,033)
Loans purchased (47,868) (144,216)
Sales of real estate acquired through foreclosure 1,444 956
Purchase of FHLB Stock - (4,225)
Purchases of premises and equipment (2,262) (1,147)
Sale of branches (22,134) -
Net proceeds from sale of mortgage servicing rights 3,984 -
---------------------- ----------------------
Net cash provided by investing activities 150,494 11,411
---------------------- ----------------------
Financing activities:
Net decrease in deposits (55,148) (23,433)
Proceeds from notes payable and other borrowings 321,492 722,372
Repayment of notes payable and other borrowings (484,597) (673,001)
Net purchase of common stock (49,577) (31,283)
Cash dividends paid (3,344) (3,505)
---------------------- ----------------------
Net cash used in financing activities (271,174) (8,850)
---------------------- ----------------------
Net decrease in cash and cash equivalents (21,037) (4,077)
Cash and cash equivalents at beginning of period 106,677 53,938
---------------------- ----------------------
Cash and cash equivalents at end of period $85,640 $49,861
====================== ======================
Supplemental disclosures of cash flow information:
Cash paid during the quarter for-
Interest $45,210 $53,649
====================== ======================
Income taxes $1,750 $3,050
====================== ======================
</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 September
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
At September 30, 1999, shareholders' equity totaled $150 million, or
7.7% of assets, compared to $192 million, or 8.5%, at December 31, 1998. The
decrease in shareholders' equity during the first nine months of 1999 was
primarily due to the repurchase of common stock offset, in part, by retained
earnings.
During the third quarter and first nine months of 1999, the Company
purchased 1.4 million and 2.8 million shares of its common stock, representing
purchases of $27 million and $50 million, respectively. During the third
quarter and first nine months of 1998, the Company purchased 0.7 million and
1.5 million shares of its common stock, representing purchases of $12 million
and $32 million, respectively. The repurchased shares were held as treasury
stock at September 30, 1999 and are reserved for general corporate purposes
and/or issuance pursuant to the Company's stock option plans.
On September 8, 1999, the Board of Directors declared a $0.09 per
share cash dividend for the quarter ended September 30, 1999, which was made
payable to shareholders of record at the close of business on September 24,
1999. This dividend was paid on October 8, 1999.
8
<PAGE> 9
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
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 until fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 as of September
30, 1999 would not have had a material impact on the consolidated statements of
income or comprehensive income.
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.
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.
<TABLE>
<CAPTION>
For the Quarter Ended September 30,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Basic weighted average number of common shares outstanding 11,485,514 13,981,578
Effect of dilutive securities:
Stock options 410,858 452,602
Recognition Plan stock 87,244 127,612
-------- -------
Diluted weighted average number of common shares outstanding 11,983,616 14,561,792
========== ==========
</TABLE>
9
<PAGE> 10
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1999 1998
---- -----
<S> <C> <C>
Basic weighted average number of common shares outstanding 12,585,631 14,538,500
Effect of dilutive securities:
Stock options 357,286 540,899
Recognition Plan stock 57,328 126,711
--------- -------
Diluted weighted average number of common shares outstanding 13,000,245 15,206,110
========== ==========
</TABLE>
Basic EPS was $0.38 per common share for the quarter ended September
30, 1999, compared to $0.19 per common share for the quarter ended September
30, 1998. Diluted EPS was $0.36 per common share for the quarter ended
September 30, 1999, compared to $0.19 per common share for the quarter ended
September 30, 1998.
Basic EPS was $1.02 per common share for the nine months ended
September 30, 1999, compared to $0.55 per common share for the nine months
ended September 30, 1998. Diluted EPS was $0.99 per common share for the nine
months ended September 30, 1999, compared to $0.53 per common share for the
nine months ended September 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 Nine Months Ended September 30,
---------------------------------------
1999 1998
------- ------
(in thousands)
<S> <C> <C>
Unrealized (loss) gain on marketable securities,
net of tax, arising during period $(4,396) $ 428
Less: reclassification adjustment for (losses)
gains included in net income (162) 640
--------- ------
Net unrealized loss on marketable securities,
net of tax $(4,234) $ ( 212)
======== =======
</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 with in 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 acompany. The Company's segment
results follow:
<TABLE>
<CAPTION>
For the Quarter Ended September 30,
------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------------
Banking Mortgage Banking Mortgage
Operations Operations Consolidated Operations Operations Consolidated
------------------------------------ ---------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 15,595 $ 1,045 $ 16,640 $ 15,539 $ 1,263 $ 16,802
Noninterest income:
Servicing fees (607) 1,480 873 (805) 1,434 629
Net gain on sale of mortgage loans (168) 2,444 2,276 (224) 2,933 2,709
Other 2,993 1,693 4,686 3,163 (30) 3,133
---------- ------- ---------- ---------- -------- ----------
Total noninterest income 2,218 5,617 7,835 2,134 4,337 6,471
---------- ------- ---------- ---------- -------- ----------
Noninterest expense:
Compensation and employee benefits 6,744 2,468 9,212 6,187 3,043 9,230
Other 7,509 1,616 9,125 8,308 1,641 9,949
---------- ------- ---------- ---------- -------- ----------
Total noninterest expense 14,253 4,084 18,337 14,495 4,684 19,179
---------- ------- ---------- ---------- -------- ----------
Income before income taxes 3,560 2,578 6,138 3,178 916 4,094
Income tax provision 878 902 1,780 1,071 321 1,392
---------- ------- ---------- ---------- -------- ----------
Net income $ 2,682 $ 1,676 $ 4,358 $ 2,107 $ 595 $ 2,702
========== ======= ========== ========== ======== ==========
Total assets (period end) $1,891,743 $50,909 $1,942,652 $2,171,376 $106,349 $2,277,725
========== ======= ========== ========== ======== ==========
</TABLE>
11
<PAGE> 12
Commonwealth Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------------------------------------------
1999 1998
---------------------------------- ------------------------------------
Banking Mortgage Banking Mortgage
Operations Operations Consolidated Operations Operations Consolidated
---------------------------------- -----------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 46,687 $ 3,277 $ 49,964 $ 46,683 $ 3,829 $ 50,512
Noninterest income:
Servicing fees (1,891) 4,709 2,818 (2,197) 4,900 2,703
Net gain on sale of mortgage loans (401) 9,444 9,043 (948) 8,494 7,546
Other 9,942 1,646 11,588 9,680 (73) 9,607
---------- ------- ---------- ---------- -------- ----------
Total noninterest income 7,650 15,799 23,449 6,535 13,321 19,856
---------- ------- ---------- ---------- -------- ----------
Noninterest expense:
Compensation and employee benefits 20,148 7,880 28,028 19,093 9,256 28,349
Other 22,613 4,710 27,323 25,276 4,773 30,049
---------- ------- ---------- ---------- -------- ----------
Total noninterest expense 42,761 12,590 55,351 44,369 14,029 58,398
---------- ------- ---------- ---------- -------- ----------
Income before income taxes 11,576 6,486 18,062 8,849 3,121 11,970
Income tax provision 2,968 2,270 5,238 2,854 1,093 3,947
---------- ------- ---------- ---------- -------- ----------
Net income $ 8,608 $ 4,216 $ 12,824 $ 5,995 $ 2,028 $ 8,023
========== ======= ========== ========== ======== ==========
Total assets (period end) $1,891,743 $50,909 $1,942,652 $2,171,376 $106,349 $2,277,725
========== ======= ========== ========== ======== ==========
</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.
During the third quarter of 1999, Commonwealth Bank exited
substantially all of its third party mortgage servicing business, and sold its
existing $1.0 billion Federal Home Loan Mortgage Corporation ("FHLMC") and
Federal National Mortgage Association ("FNMA") mortgage servicing portfolio to
National City Mortgage Co. The pre-tax gain resulting from the sale totaled
$1.6 million 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 financial products 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 September 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. Since 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 has upgraded substantially all of its equipment and software
systems where necessary. In addition, Commonwealth will continue its ongoing
analysis of its technology partners and secondary service providers to ensure
that low impact business components are also fully compliant. Total
expenditures for Year 2000 compliance are estimated to be less than $0.4
million and are charged to expense as incurred.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
Additionally, Commonwealth has been proactive in assessing the Year 2000
readiness of our larger deposit and loan customers. An 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. Processes are also in place to evaluate the Year
2000 readiness of new customers. Cash management and liquidity management
plans have been established, as well as detailed plans to extend our customer
service capabilities to address special customer service needs around the
century change-over. Presently, management is not aware of potential
non-compliance conditions which represent material exposure to the Company.
Audits by our primary external auditors and regulators have determined that we
meet and in certain cases exceed industry compliance requirements for Year
2000.
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 $1.9 billion at September 30, 1999, compared
to $2.3 billion at December 31, 1998. During the first nine months of 1999,
decreases in the Company's mortgage-backed securities, mortgage loans held for
sale, cash, interest-bearing deposits, and short-term investments ("cash and
cash equivalents"), mortgage servicing rights and loans receivable were offset,
in part, by an increase in investment securities. Total liabilities were $1.8
billion at September 30, 1999, compared to $2.1 billion at December 31, 1998.
The decrease during the first nine months of 1999, was primarily attributable
to a decrease in notes payable and other borrowings, deposits and advances from
borrowers for taxes and insurance. Shareholders' equity as of September 30,
1999, equaled $150 million, compared to $192 million at December 31, 1998.
This $42 million, or 22%, decrease was primarily the result of the $50 million
purchase of 2.8 million shares of treasury stock offset, in part, by a $9
million, or 8%, increase in retained earnings, primarily related to earnings
during the first nine months of 1999.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased by $21
million, or 20%, from $107 million at December 31, 1998, to $86 million at
September 30, 1999.
MORTGAGE LOANS HELD FOR SALE. Mortgage loans held for sale decreased by
$94 million, or 78%, from $121 million at December 31, 1998, to $26 million at
September 30, 1999. The decrease was attributable to a decrease in loans
originated during the third quarter of 1999, primarily as a result of increased
interest rates and 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 $28 million, or
82%, from $35 million at December 31, 1998, to $63 million at September 30,
1999. The increase was primarily attributable to the purchase of highly rated
short-term corporate bonds, mortgage related mutual funds, and an equity
investment. These increases were offset, in part, by the sale of highly rated
short-term corporate bonds and mortgage related mutual funds, and the maturity
of U.S. Treasury and U.S. Government agency securities.
The increase in investment securities between December 31, 1998 and
September 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. The proceeds from Commonwealth's recent
sale of corporate bonds and mortgage related mutual funds were used to
repurchase treasury stock and repay notes payable and other borrowings.
Investments in debt and equity securities at September 30, 1999 and
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Available for sale:
Corporate Bonds $34,993 $ - $ 75 $34,918
Mortgage Security Mutual Funds 20,485 - 251 20,234
Equity Servicing Partnership 1,700 - - 1,700
Other Equity Investments 5,911 - 15 5,896
-----------------------------------------------------------------
Total $63,089 $ - $341 $62,748
=================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Available for sale:
$19,997 $143 $ - $20,140
Corporate Bonds
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 $206
million, or 39%, from $524 million at December 31, 1998, to $318 million at
September 30, 1999. The decrease in mortgage-backed securities during the
first nine months of 1999 was primarily related to repayments and prepayments.
The decrease in mortgage-backed securities between December 31, 1998 and
September 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.
At September 30, 1999 and December 31, 1998, $215 million, or 68%, 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 FHLMC, or the 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 September 30, 1999 and December 31, 1998, $103
million, or 32%, 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>
September 30, 1999
---------------------------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Held to maturity:
GNMA $ 38,038 $ 582 $ 100 $ 38,520
FHLMC 18,897 97 58 18,936
FNMA 38,265 188 813 37,640
Private 3,176 - - 3,176
---------------------------------------------------------------------
Total $ 98,376 $ 867 $ 971 $ 98,272
=====================================================================
Available for sale:
GNMA $ 10,184 $ 174 $ 208 $ 10,150
FHLMC 45,636 739 173 46,202
FNMA 50,107 15 785 49,337
CMO and REMIC 115,942 173 2,312 113,803
---------------------------------------------------------------------
Total $221,869 $1,101 $3,478 $219,492
=====================================================================
</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)
<S> <C> <C> <C> <C>
Held to maturity:
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
$9 million, or 1%, during the first nine months of 1999, to $1.3 billion
at September 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>
September 30, December 31,
1999 1998
----------------------------------- -----------------------------------
% of % of
Amount Total Amount Total
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans - Residential (1) $ 861,990 64.32% $ 969,617 71.90%
Consumer loans:
Equity lines of credit 30,979 2.31 34,845 2.58
Second mortgages 163,403 12.19 126,360 9.37
Recreational vehicles 61,593 4.59 39,920 2.96
Other 43,238 3.23 38,781 2.88
---------- ------ ---------- ------
Total consumer loans 299,213 22.32 239,906 17.79
Commercial loans:
Small Business
Administration Loans (2) 12,275 0.92 14,491 1.07
Commercial real estate 61,250 4.57 45,021 3.34
Business loans (3) 105,517 7.87 79,490 5.90
---------- ------ ---------- ------
Total commercial loans 179,042 13.36 139,002 10.31
---------- ------ ---------- ------
Total loans receivable 1,340,245 100.00% 1,348,525 100.00%
---------- ====== ---------- ======
Less:
Net premium on loans purchased (2,621) (2,880)
Allowance for loan losses 10,150 9,589
Deferred loan fees 3,411 3,639
---------- ----------
Loans receivable, net $1,329,305 $1,338,177
========== ==========
</TABLE>
- ------------------------
(1) At September 30, 1999 and December 31, 1998, $327 million, or 38%, 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.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
Total mortgage loans originated and purchased for the nine months ended
September 30, 1999, decreased by $284 million, or 36%, from $797 million for
the nine months ended September 30, 1998, to $513 million for the nine months
ended September 30, 1999. The $284 million decrease in mortgage originations
was primarily the result of a reduction in loan refinancing. Closed loans
relating to Commonwealth's retail network totaled $374 million during the nine
months ended September 30, 1999, a decrease of 30% compared to $532 million for
the nine months ended September 30, 1998. Commonwealth's Wholesale Lending
Department originates loans through 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 $139 million during the nine months ended September 30, 1999, a
decrease of 48% compared to $265 million for the nine months ended September
30, 1998.
Consumer loans increased by $59 million, or 25%, from $240 million at
December 31, 1998, to $299 million at September 30, 1999. At September 30,
1999, consumer loans represented 22% of the Company's loan portfolio and were
comprised of $31 million of equity lines of credit, $163 million of second
mortgage loans, $62 million of recreational vehicle loans, and $43 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 September 30, 1999, commercial loans totaled $179 million, or 13%,
of the Company's total loan portfolio, as compared to $139 million, or 10%, at
December 31, 1998. At September 30, 1999, commercial loans were comprised of
$61 million of commercial real estate loans, $106 million of business loans,
and $12 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 nine 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.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
NONPERFORMING ASSETS. The Company's nonperforming assets, which primarily
consist of nonaccrual loans and real estate acquired through foreclosure,
decreased by $2.9 million, or 26%, from $11.1 million at December 31, 1998, to
$8.2 million at September 30, 1999. At September 30, 1999, the Company's $8.2
million of nonperforming assets amounted to 0.42% 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>
September 30, 1999 December 31, 1998
------------------ -----------------
(dollars in thousands)
<S> <C> <C>
Mortgage loans - Residential $4,379 $ 5,119
Consumer loans 1,649 1,598
Commercial loans 1,442 3,295
----- -------
Total nonperforming loans 7,470 10,012
Real estate owned, net 720 1,049
------ -------
Total nonperforming assets $8,190 $11,061
====== ======
Nonperforming loans to total loans held
for investment 0.56% 0.74%
==== ====
Total nonperforming assets to total assets 0.42% 0.49%
==== ====
</TABLE>
- ----------------
ALLOWANCE FOR LOAN LOSSES. The Company's allowance for loan losses
amounted to $10.2 million at September 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 September 30, 1999, the Company's
allowance for loan losses amounted to 136% of total nonperforming loans and
0.76% 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.
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
The following table sets forth the activity in the Company's allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1999 1998
------ ------
(dollars in thousands)
<S> <C> <C>
Allowance at beginning of period $9,589 $9,024
Provision for loan losses 3,000 2,500
Charge-offs:
Mortgage loans (302) (371)
Consumer loans (1,475) (1,189)
Commercial loans (945) (540)
-------- -------
Total charge-offs (2,722) (2,100)
Recoveries:
Mortgage loans 26 31
Consumer loans 136 53
Commercial loans 121 35
-------- -------
Total recoveries 283 119
--------- --------
Allowance at end of period $10,150 $9,543
====== =====
Allowance for loan losses to
total nonperforming loans
at end of period 135.89% 98.77%
====== =====
Allowance for loan losses to
total loans held for
investment at end of period 0.76% 0.69%
==== ====
</TABLE>
- ----------------
22
<PAGE> 23
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>
September 30, 1999 December 31,1998
------------------- -----------------
(in thousands)
<S> <C> <C>
Goodwill (Berks Acquisition) $16,433 $19,141
CDI (Berks Acquisition) 6,393 8,260
Goodwill (Fidelity Federal) 9,454 10,257
CDI (Fidelity Federal) 1,925 2,172
------- --------
Total $34,205 $39,830
======= =======
</TABLE>
MORTGAGE SERVICING RIGHTS. During the third quarter of 1999, Commonwealth
Bank exited substantially all of its third party mortgage servicing business,
and sold its existing $1.0 billion FHLMC and FNMA mortgage servicing portfolio
to National City Mortgage Co. The pre-tax gain resulting from the sale totaled
$1.6 million in the third quarter of 1999.
At September 30, 1999, Commonwealth's mortgage servicing portfolio was
$1.3 billion, a decrease of 46% compared to $2.4 billion at December 31, 1998.
The $1.1 billion reduction in the mortgage servicing portfolio and the $10
million reduction in mortgage servicing rights was primarily related to the
sold portfolios.
At September 30, 1999 Commonwealth was servicing $0.4 billion of third
party loans, as well as $0.8 billion of loans held by Commonwealth for
investment and sale. This compared to servicing $1.4 billion of third party
loans, as well as $1.0 billion of loans held by Commonwealth for investment and
sale at December 31, 1998.
DEPOSITS. Deposits decreased by $92 million, or 6%, to $1.5 billion at
September 30, 1999, primarily related to a decrease in certificates of deposit;
the sale of two branches, with combined deposits of $37 million, to Harris
Savings Bank on June 28, 1999; a reduction in principal and interest escrows
established pursuant to loan servicing agreements and outstanding mortgage
settlement checks. The principal and interest escrow decrease was primarily
related to the sale of the $1.0 billion FHLMC and FNMA mortgage servicing
portfolio in the third quarter of 1999. These decreases were offset, in part,
by an increase in demand and money market deposits.
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
BORROWINGS. The Company's borrowings consist primarily of advances
from the FHLB and securities sold under agreements to repurchase. FHLB advances
decreased by $144 million, or 60%, to $97 million at September 30, 1999, from
$241 million at December 31, 1998. Repurchase agreements decreased by $36
million, or 22%, to $130 million at September 30, 1999, from $166 million at
December 31, 1998. These decreases were offset, in part, by an $11 million
increase in the Company's commercial 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.
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE. Advances from
borrowers for taxes and insurance decreased by $20 million, or 69%, to $9
million at September 30, 1999, from $29 million at December 31, 1998, primarily
related to the sale of the $1.0 billion FHLMC and FNMA mortgage servicing
portfolio in the third quarter of 1999.
ACCRUED INTEREST PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
("OTHER LIABILITIES"). Other liabilities increased by $8 million, or 31%, to
$32 million at September 30, 1999, from $25 million at December 31, 1998,
primarily related to an increase in accrued interest payable.
SHAREHOLDERS' EQUITY. At September 30, 1999, shareholders' equity
equaled $150 million, compared to $192 million at December 31, 1998. This $42
million, or 22%, decrease was primarily the result of the $50 million purchase
of 2.8 million shares of treasury stock offset, in part, by a $9 million, or
8%, increase in retained earnings during the first nine months of 1999. The $9
million increase in retained earnings was the result of earnings of $13 million
offset, in part, by cash dividends of $3 million during the first nine months
of 1999. The repurchased shares were held as treasury stock as of September
30, 1999, and are reserved for general corporate purposes and/or issuance
pursuant to the Company's stock option plans. At September 30, 1999,
shareholders' equity represented 7.7% of assets, compared to 8.5% at December
31, 1998. The Bank's core and risk-based capital ratios were 6.1% and 11.0%,
respectively, at September 30, 1999, compared to 5.9% and 11.6%, respectively,
at December 31, 1998.
24
<PAGE> 25
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 September 30, 1999:
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized
For Capital For Prompt
Adequacy Corrective Action
Actual Purposes Provisions
-------------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
-------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity,
and ratio to OTS
total assets 7.6% $ 147,961
--------
Intangible assets (34,205)
Unrealized loss on
marketable
securities, net of tax 1,757
----------
Tangible capital,
and ratio to OTS
adjusted total assets 6.1% $ 115,513 1.5% $28,613
-------- ========== ---- =======
Core capital,
and ratio to OTS
adjusted total assets 6.1% $ 115,513 3.0% $57,226 5.0% $95,376
-------- ========== ---- ======= ---- ========
Core capital,
and ratio to OTS
risk-weighted assets 10.1% $ 115,513 6.0% $ 68,732
-------- ---------- ---- ========
Allowance for loan losses 10,150
----------
Supplementary capital 10,150
----------
Total risk-based capital,
and ratio to OTS
risk-weighted assets (1) 11.0% $ 125,663 8.0% $91,643 10.0% $114,554
-------- =========== ---- ======= ----- ========
OTS total assets $1,939,968
==========
OTS adjusted total assets $1,907,520
==========
OTS risk-weighted assets $1,145,538
==========
</TABLE>
- -------------------------------------
(1) Does not reflect the interest rate risk component to the risk-based capital
requirement, which is not yet effective.
25
<PAGE> 26
Commonwealth Bancorp, Inc. and Subsidiaries
Average Balance Sheet
<TABLE>
<CAPTION>
Quarter Ended September 30,
-------------------------------------------------
1999
-------------------------------------------------
Average
Average Yield /
Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Loans receivable:
Mortgage loans $907,437 $16,350 7.15%
Consumer loans 287,957 6,376 8.78%
Commercial loans 166,830 3,623 8.62%
----------- --------- -------
Total loans receivable 1,362,224 26,349 7.67%
----------- --------- -------
Mortgage-backed securities 341,917 5,719 6.64%
Investment securities 125,004 1,638 5.20%
Other earning assets 56,352 1,025 7.22%
----------- --------- -------
Total interest-earning assets 1,885,497 34,731 7.31%
--------- -------
Non-interest-earning assets 158,417
Total assets $2,043,914
===========
Deposits:
Demand and Money market $739,211 4,316 2.32%
Savings deposits 226,939 1,266 2.21%
Certificates of deposit 580,739 7,329 5.01%
----------- --------- -------
Total deposits 1,546,889 12,911 3.31%
----------- --------- -------
Notes payable and other borrowings
FHLB Advances 137,870 1,880 5.41%
Repurchase agreements 136,087 2,103 6.13%
Other borrowings 8,910 96 4.27%
----------- --------- -------
Total borrowings 282,867 4,079 5.72%
----------- --------- -------
Total interest-bearing liabilities 1,829,756 16,990 3.68%
--------- -------
Non-interest-bearing liabilities 54,724
-----------
Total liabilities 1,884,480
Shareholders' equity 159,434
-----------
Total liabilities and equity $2,043,914
===========
Yield on interest earning assets 7.31%
Cost of supporting funds 3.57%
Net interest margin:
Taxable equivalent basis $17,741 3.73%
Without taxable equivalent adjs. $17,640 3.71%
<CAPTION>
Quarter Ended September 30,
--------------------------------------------------
1998
--------------------------------------------------
Average
Average Yield /
Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Loans receivable:
Mortgage loans $1,078,937 $19,400 7.13%
Consumer loans 226,593 5,246 9.19%
Commercial loans 122,190 2,700 8.77%
----------- --------- -------
Total loans receivable 1,427,720 27,346 7.60%
----------- --------- -------
Mortgage-backed securities 675,567 11,517 6.76%
Investment securities 36,904 497 5.34%
Other earning assets 19,918 511 10.18%
----------- --------- -------
Total interest-earning assets 2,160,109 39,871 7.32%
--------- -------
Non-interest-earning assets 155,511
-----------
Total assets $2,315,620
===========
Deposits:
Demand and Money market $635,151 3,879 2.42%
Savings deposits 226,937 1,273 2.23%
Certificates of deposit 703,258 9,675 5.46%
----------- --------- -------
Total deposits 1,565,346 14,827 3.76%
----------- --------- -------
Notes payable and other borrowings
FHLB Advances 301,489 4,321 5.69%
Repurchase agreements 195,233 2,921 5.94%
Other borrowings 0 0 0.00%
----------- --------- -------
Total borrowings 496,722 7,242 5.78%
----------- --------- -------
Total interest-bearing liabilities 2,062,068 22,069 4.25%
--------- -------
Non-interest-bearing liabilities 57,991
-----------
Total liabilities 2,120,059
Shareholders' equity 195,561
-----------
Total liabilities and equity $2,315,620
===========
Yield on interest earning assets 7.32%
Cost of supporting funds 4.05%
Net interest margin:
Taxable equivalent basis $17,802 3.27%
Without taxable equivalent adjs. $17,802 3.27%
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1999
--------------------------------------------------
Average
Average Yield /
Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Loans receivable:
Mortgage loans $956,210 $51,408 7.19%
Consumer loans 267,501 17,752 8.87%
Commercial loans 150,937 9,680 8.57%
---------- ---------- --------
Total loans receivable 1,374,648 78,840 7.67%
---------- ---------- --------
Mortgage-backed securities 408,242 20,208 6.62%
Investment securities 143,648 5,500 5.12%
Other earning assets 58,792 2,921 6.64%
---------- ---------- --------
Total interest-earning assets 1,985,330 107,469 7.24%
---------- --------
Non-interest-earning assets 154,725
----------
Total assets $2,140,055
==========
Deposits:
Demand and Money market $730,267 12,724 2.33%
Savings deposits 229,086 3,800 2.22%
Certificates of deposit 623,788 23,723 5.08%
---------- ---------- --------
Total deposits 1,583,141 40,247 3.40%
---------- ---------- --------
Notes payable and other borrowings
FHLB Advances 179,577 7,088 5.28%
Repurchase agreements 142,066 6,810 6.41%
Other borrowings 6,480 211 4.35%
---------- ---------- --------
Total borrowings 328,123 14,109 5.75%
---------- ---------- --------
Total interest-bearing liabilities 1,911,264 54,356 3.80%
---------- --------
Non-interest-bearing liabilities 51,312
----------
Total liabilities 1,962,576
Shareholders' equity 177,479
----------
Total liabilities and equity $2,140,055
==========
Yield on interest earning assets 7.24%
Cost of supporting funds 3.66%
Net interest margin:
Taxable equivalent basis $53,113 3.58%
Without taxable equivalent adjs. $52,964 3.57%
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1998
--------------------------------------------------
Average
Average Yield /
Balance Interest Cost
------- -------- ----
<S> <C> <C> <C>
Loans receivable:
Mortgage loans $1,058,170 $57,372 7.25%
Consumer loans 212,977 14,273 8.96%
Commercial loans 120,030 7,611 8.48%
----------- ---------- -------
Total loans receivable 1,391,177 79,256 7.62%
----------- ---------- -------
Mortgage-backed securities 716,142 36,537 6.82%
Investment securities 45,464 1,849 5.44%
Other earning assets 28,871 1,969 9.12%
----------- ---------- -------
Total interest-earning assets 2,181,654 119,611 7.33%
---------- -------
Non-interest-earning assets 155,625
-----------
Total assets $2,337,279
===========
Deposits:
Demand and Money market $618,886 11,221 2.42%
Savings deposits 229,070 3,816 2.23%
Certificates of deposit 722,376 29,683 5.49%
----------- ---------- -------
Total deposits 1,570,332 44,720 3.81%
----------- ---------- -------
Notes payable and other borrowings
FHLB Advances 288,846 12,227 5.66%
Repurchase agreements 215,404 9,652 5.99%
Other borrowings 0 0 0.00%
----------- ---------- -------
Total borrowings 504,250 21,879 5.80%
----------- ---------- -------
Total interest-bearing liabilities 2,074,582 66,599 4.29%
---------- -------
Non-interest-bearing liabilities 55,235
-----------
Total liabilities 2,129,817
Shareholders' equity 207,462
-----------
Total liabilities and equity $2,337,279
===========
Yield on interest earning assets 7.33%
Cost of supporting funds 4.08%
Net interest margin:
Taxable equivalent basis $53,012 3.25%
Without taxable equivalent adjs. $53,012 3.25%
</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.
26
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998.
GENERAL. Net income was $4.4 million, or $0.36 per common share on a
diluted basis, for the third quarter of 1999. This compared to net income of
$2.7 million, or $0.19 per common share on a diluted basis, for the third
quarter of 1998. For the nine months ended September 30, 1999, net income was
$12.8 million, or $0.99 per common share on a diluted basis. This compared to
net income of $8.0 million, or $0.53 per common share on a diluted basis, for
the comparable period last year.
The results for the third quarter and first nine months of 1999 and
1998 included a number of significant factors which affected the comparability
of the reported results, including the following:
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
------------------------ -------------------------
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
------------ ---------- ----------- -----------
(in millions)
- -------------------------------------------------------------------------------------------------------------------------
After-Tax After-Tax After-Tax After-Tax
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reported net income $ 4.4 $ 2.7 $12.8 $ 8.0
- -------------------------------------------------------------------------------------------------------------------------
Net gain on sale of mortgage servicing rights 1.2 1.2
- -------------------------------------------------------------------------------------------------------------------------
Charge primarily relating to computer hardware/software upgrades (0.4) (0.4)
- -------------------------------------------------------------------------------------------------------------------------
(Loss)/gain on sale of securities (0.2) 0.2 (0.2) 0.6
- -------------------------------------------------------------------------------------------------------------------------
Gain on sale of two branches 0.7
- -------------------------------------------------------------------------------------------------------------------------
Charge involving assets acquired in a 1996 branch acquisition (0.3)
- -------------------------------------------------------------------------------------------------------------------------
Charge relating to an equity investment (0.5) (2.4)
- -------------------------------------------------------------------------------------------------------------------------
Other (0.1) (0.1)
- -------------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 3.8 $ 3.0 $11.9 $ 9.9
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exclusive of the above items, net income in the third quarter of 1999
would have been $3.8 million, or $0.32 per common share on a diluted basis,
compared to $3.0 million, or $0.21 per common share on a diluted basis, in the
third quarter of 1998. For the nine months ended September 30, 1999, net
income would have been $11.9 million, or $0.91 per common share on a diluted
basis, compared to $9.9 million, or $0.65 per common share on a diluted basis,
for the comparable period last year.
NET INTEREST INCOME. Net interest income was $17.6 million in the
third quarter of 1999, compared to $17.8 million in the third quarter of 1998.
The decrease was primarily attributable to a decrease in average
interest-earning assets offset, in part, by a higher net interest margin. Net
interest income was $53.0 million for both the first nine months of 1999 and
1998.
Average interest-earning assets totaled $1.9 billion and $2.0 billion
for the third quarter and nine months ended September 30, 1999, respectively.
This compared to $2.2 billion for both the third quarter and nine months ended
September 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 3.73%
in the third quarter of 1999, compared to 3.27% in the third quarter of 1998.
The increase was primarily attributable to a 0.57% decrease in the cost of
interest-bearing liabilities. 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 5.46% in the third quarter of
1998 to 5.01% in the third 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.
27
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
For the nine months ended September 30, 1999, the net interest margin
on a fully taxable equivalent basis was 3.58%, versus 3.25% in the comparable
1998 period. The increase was primarily attributable to 0.49% decrease in the
cost of interest-bearing liabilities offset, in part, by a 0.09% reduction in
the yield on interest-earning assets. The decrease in the cost of
interest-bearing liabilities, relative to the comparable period in 1998, was
primarily attributable to the same factors responsible for the decrease in the
third quarter of 1999. The reduction in the yield on interest-earning assets,
relative to the comparable period in 1998, was primarily due to lower yields on
the Company's mortgage-backed and investment securities portfolios.
PROVISION FOR LOAN LOSSES. Provision for loan losses totaled $1.0
million and $3.0 million in the third quarter and nine months ended September
30, 1999, respectively. The provision for loan losses totaled $1.0 million and
$2.5 million in the third quarter and nine months ended September 30, 1998,
respectively. At September 30, 1999, the allowance for loan losses totaled
$10.2 million, or 0.76% of loans, compared to $9.5 million, or 0.69%, at
September 30, 1998, and $9.6 million, or 0.71%, at December 31, 1998.
NONINTEREST INCOME. Noninterest income totaled $7.8 million in the
third quarter of 1999, compared to $6.5 million in the third quarter of 1998.
The increase primarily reflected a $1.6 million net gain on sale on mortgage
servicing rights. This gain was lower than previously estimated because of
higher than expected portfolio payments in 1999, higher than anticipated costs
of transfer, and other adjustments. During the third quarter of 1999, deposit
fees and related income increased $0.3 million, primarily relating to an
increase in transaction accounts. The above increases were partially offset by
a $0.5 million decrease in both the net gain on sale of securities and the net
gain on sale of mortgage loans.
Noninterest income was $23.4 million for the first nine months of
1999, compared to $19.9 million for the comparable 1998 period. The increase
primarily reflected a $1.6 million net gain on sale on mortgage servicing
rights during the third quarter of 1999, and a $1.5 million increase in the net
gain on sale of mortgage loans. The latter was primarily attributable to
favorable pricing on forward delivery contracts with the ultimate servicer.
Also impacting the comparison was a $1.0 million gain on the sale of two
branches in Lebanon County, Pennsylvania during the second quarter of 1999 and
a $0.7 million increase in deposit fees and related income. The increase in
deposit fees was primarily attributable to an increase in transaction accounts.
These increases were offset, in part, by a $1.2 million decrease in the net
gain on sale of securities and 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
third quarter of 1999, compared to $19.2 million in the third quarter of 1998.
The decrease was primarily attributable to a $0.8 million charge in the third
quarter of 1998 relating to an equity investment in a mortgage servicing
partnership and a $0.3 million decrease in advertising and promotion expense.
These decreases were partially offset by a $0.6 million charge during the third
quarter of 1999, primarily relating to computer hardware and software upgrades.
Noninterest expense was $55.4 million for the nine months ended
September 30, 1999, compared to $58.4 million for the comparable period in
1998. In addition to the factors relating to the third quarter, the decrease
was also attributable to a $2.7 million charge relating to an equity investment
in a mortgage servicing partnership and a $0.8 million one-time charge related
to a policy change in accounting for compensation expense in the second quarter
of 1998. Also contributing to the decrease was a $0.5 million reduction in the
amortization of intangible assets and a $0.3 million reduction in the
amortization of purchased mortgage servicing rights. 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 and higher expenses relating to an
increase in transaction accounts.
28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
PROVISION FOR INCOME TAXES. Provision for income taxes was $1.8
million, or 29% of income before income taxes in the third quarter of 1999,
compared to $1.4 million, or 34%, in the third quarter of 1998. For the first
nine months of 1999, provision for income taxes was $5.2 million, or 29% of
income before income taxes, compared to $3.9 million, or 33%, in the first nine
months of 1998. The decrease in the tax rate in the third quarter and first
nine months of 1999, relative to the comparable periods in 1998, was primarily
attributable to historic and low income housing tax credits.
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 September 30, 1999, the Company's
income simulation model indicates net interest income would decrease by 5.54%
over a two year period if interest rates increased by 200 basis points. The
model projects that net interest income would decrease by 0.69% 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 market value of portfolio equity is significantly
impacted by the estimated effect of prepayments on the value of single family
loans and mortgage-backed securities. Further, this analysis is based on the
Company's assets, liabilities, and off-balance-sheet instruments at September
30, 1999, and does not contemplate any actions the Company might undertake in
response to changes in market interest rates.
29
<PAGE> 30
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
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Not applicable
b) 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 will
sell its existing FHLMC and FNMA 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. On August 11, 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 September 9, 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.
30
<PAGE> 31
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.
<TABLE>
<S> <C>
COMMONWEALTH BANCORP, INC.
DATE: November 5, 1999 /s/ Charles H. Meacham
-------------------------------------------------
Charles H. Meacham
Chairman and Chief Executive Officer
(Principal Executive Officer)
DATE: November 5, 1999 /s/ Charles M. Johnston
-------------------------------------------------
Charles M. Johnston
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
31
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 43,440
<INT-BEARING-DEPOSITS> 35,445
<FED-FUNDS-SOLD> 6,755
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 308,724
<INVESTMENTS-CARRYING> 98,376
<INVESTMENTS-MARKET> 98,272
<LOANS> 1,339,455
<ALLOWANCE> 10,150
<TOTAL-ASSETS> 1,942,652
<DEPOSITS> 1,521,734
<SHORT-TERM> 127,492
<LIABILITIES-OTHER> 32,133
<LONG-TERM> 111,000
0
0
<COMMON> 18,663
<OTHER-SE> 131,630
<TOTAL-LIABILITIES-AND-EQUITY> 1,942,652
<INTEREST-LOAN> 78,713
<INTEREST-INVEST> 8,399
<INTEREST-OTHER> 20,208
<INTEREST-TOTAL> 107,320
<INTEREST-DEPOSIT> 40,247
<INTEREST-EXPENSE> 54,356
<INTEREST-INCOME-NET> 52,964
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> (250)
<EXPENSE-OTHER> 55,351
<INCOME-PRETAX> 18,062
<INCOME-PRE-EXTRAORDINARY> 18,062
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,824
<EPS-BASIC> 1.02
<EPS-DILUTED> 0.99
<YIELD-ACTUAL> 7.24
<LOANS-NON> 7,470
<LOANS-PAST> 0
<LOANS-TROUBLED> 720
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,859
<CHARGE-OFFS> 2,722
<RECOVERIES> 283
<ALLOWANCE-CLOSE> 10,150
<ALLOWANCE-DOMESTIC> 10,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
