10-Q 1 w62734e10vq.txt QUARTERLY REPORT 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, 2002 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 July 29, 2002, there were 18,068,127 issued and 9,732,922 outstanding shares of the Registrant's Common Stock. 1 Commonwealth Bancorp, Inc. and Subsidiaries TABLE OF CONTENTS

Item Page No. No. --- --- PART I - CONSOLIDATED FINANCIAL INFORMATION 1 Consolidated Financial Statements Consolidated Balance Sheets at ~~September~~June 30, ~~2001~~2002 and December 31, ~~2000~~2001 3 Consolidated Statements of Income for the ~~Quarter~~Quarters and ~~Nine~~Six Month Periods Ended ~~September~~June 30, ~~2001~~2002 and ~~2000~~2001 4 Consolidated Statements of Changes in Shareholders' Equity for the ~~Nine~~Six Month Periods Ended ~~September~~June 30, ~~2001~~2002 and ~~2000~~2001 5 Consolidated Statements of Cash Flows for the ~~Nine~~Six Month Periods Ended ~~September~~June 30, ~~2001~~2002 and ~~2000~~2001 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 2628 PART II - OTHER INFORMATION 1 Legal Proceedings 2729 2 Changes in Securities 2729 3 Default Upon Senior Securities 2729 4 Submission of Matters to a Vote of Security Holders 2729 5 Other Information 2729 6 Exhibits and Reports on Form 8-K 2729 Signatures 2830

2 Commonwealth Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share amounts)

~~September~~June 30, December 31, 2002 2001 ~~2000~~ --------------- --------------- Assets: (Unaudited) ~~Assets:~~(Note 1) Cash and due from banks $5965,~~074~~835 $6672,~~329~~127 Interest-bearing deposits 6711,~~473~~210 ~~371 Mortgage loans held for sale 1~~45,~~062~~761 ~~43,007~~ Investment securities Securities available for sale (cost of $1317,~~312~~017 and $1377,~~350~~042, respectively), at market value 1317,~~760~~342 1477,~~051~~136 Mortgage-backed securities Securities available for sale (cost of $~~148~~344,~~647~~424 and $~~201~~168,~~448~~388, respectively), at market value ~~152~~350,~~660~~593 ~~202~~170,~~700~~860 Loans receivable, net 1,~~358~~207,~~464~~033 1,~~416~~302,~~110~~468 ~~Accrued interest receivable, net 7,981 9,435~~ FHLB stock, at cost 9,870 12,565 ~~18,400~~ Premises and equipment, net 13,~~642~~330 1513,~~349~~555 Intangible assets, 26net 22,~~097~~599 3024,~~450~~912 ~~Other~~Accrued interest receivable and other assets, including net deferred taxes of $56,~~377~~931 and $68,~~255~~227, respectively 5466,~~067~~008 5364,~~308~~888 --------------- --------------- Total assets $1,~~766~~763,~~845~~820 $1,~~869~~784,~~510~~272 =============== =============== Liabilities: Deposits $1,~~451~~468,~~016~~664 $1,~~454~~494,~~592~~407 Notes payable and other borrowings: Secured notes due to Federal Home Loan Bank of Pittsburgh 9469,~~005~~362 ~~171~~74,~~666~~123 Securities sold under agreements to repurchase 10,000 3510,000 ~~Other~~Commercial ~~borrowings~~repurchase ~~25,810~~agreements 1745,~~830~~719 ~~Advances from borrowers for taxes and insurance 4~~39,~~293~~027 ~~7,851~~ Accrued interest payable, accrued expenses and other liabilities 2225,~~888~~774 2217,~~118~~088 --------------- --------------- Total liabilities 1,~~608~~619,~~012~~519 1,~~709~~634,~~057~~645 --------------- --------------- 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 109,~~904~~764,~~003~~127 outstanding at ~~September~~June 30, ~~2001~~2002 18,068,127 shares issued and 1110,~~309~~350,~~487~~814 outstanding at December 31, ~~2000~~2001 1,807 1,807 Additional paid-in capital ~~139~~140,~~038~~848 ~~138~~139,~~166~~981 Retained earnings ~~148~~156,~~190~~320 ~~145~~150,~~869~~743 Unearned stock benefit plan compensation (54,~~237~~276) (64,~~596~~799) Accumulated other comprehensive income 24,~~916~~232 1,~~286~~681 Treasury stock, at cost; 78,~~164~~304,~~124~~000 and 67,~~758~~717,~~640~~313 shares at ~~September~~June 30, ~~2001~~2002 and December 31, ~~2000~~2001, respectively (~~127~~154,~~881~~630) (~~120~~139,~~079~~786) --------------- --------------- Total shareholders' equity ~~158~~144,~~833~~301 ~~160~~149,~~453~~627 --------------- --------------- Total liabilities and shareholders' equity $1,~~766~~763,~~845~~820 $1,~~869~~784,~~510~~272 =============== ===============

The accompanying notes are an integral part of these statements. 3 Commonwealth Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (in thousands, except share and per share amounts)

For the Quarter ~~For the Nine Months~~ Ended ~~September~~June 30, ~~Ended~~2002 ~~September 30,~~ 2001 ~~2000 2001 2000~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ (Unaudited) ~~(Unaudited)~~ Interest income: Interest on loans $2722,~~639~~879 $2928,~~149~~501 ~~$85,174 $84,871~~ Interest and dividends on deposits and money market investments ~~672~~183 ~~506~~588 ~~1,696 1,477~~ Interest on investment securities 237 149 ~~262 447 1,757~~ Interest on mortgage-backed securities ~~2,695~~ 4,~~191~~352 93,~~170~~084 ~~13,518~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Total interest income 3127,~~155~~651 3432,~~108~~322 ~~96,487 101,623~~ Interest expense: Interest on deposits 106,~~222~~625 1211,~~206~~555 ~~33,860 36,781~~ Interest on notes payable and other borrowings 1,~~983~~212 32,~~486~~480 ~~7,666 9,894~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Total interest expense 127,~~205~~837 1514,~~692~~035 ~~41,526 46,675~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Net interest income 1819,~~950~~814 18,~~416~~287 ~~54,961 54,948~~ Provision for loan losses 21,500 12,~~300 6,~~250 ~~3,625~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Net interest income after provision for loan losses 1618,~~450~~314 1716,~~116~~037 ~~48,711 51,323~~ Noninterest income: Deposit fees and related income 3,~~424~~986 3,~~040~~490 ~~9,891~~Financial ~~8,700~~services ~~Servicing~~ fees 42586 ~~181~~450 ~~438~~Miscellaneous ~~601~~income ~~Net~~898 ~~(loss)~~791 Net gain on sale of mortgage loans ~~(19)~~- ~~1,565~~371 ~~1,593 3,661 Other 1,165 1,231 3,323 3,410~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Total noninterest income 45,~~612~~470 65,~~017~~102 ~~15,245 16,372~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Noninterest expense: Compensation and employee benefits 7,~~779~~939 87,~~960~~467 ~~24,844 26,401~~ Occupancy and office operations 2,~~478~~391 2,~~747~~318 ~~7,320 8,158~~ Amortization of intangible assets 1,~~184~~156 1,~~239~~135 ~~3,553 3,689~~ Other 45,~~092~~196 4,~~704~~801 ~~15,446 14,144~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Total noninterest expense 1516,~~533~~682 1715,~~650~~721 ~~51,163 52,392~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Income before income taxes 57,~~529~~102 5,~~483~~418 ~~12,793 15,303~~ Income tax provision 12,~~382~~048 1,~~453~~354 ~~3,198 4,055~~ ---------------- ---------------- -~~---------------~~ ~~----------------~~ Net income $45,~~147~~054 $4,~~030~~064 ~~$9,595 $11,248~~ ================ ================ =~~===============~~ ~~================~~ Basic weighted average number of shares outstanding 109,~~344~~438,~~813~~741 10,~~739~~487,~~425~~756 ~~10,469,343 10,782,377~~ ================ ================ =~~===============~~ ~~================~~ Basic earnings per share $0.4054 $0.3839 ~~$0.92 $1.04~~ ================ ================ =~~===============~~ ~~================~~ Diluted weighted average number of shares outstanding 109,~~741~~966,~~217~~972 ~~11,009,790~~ 10,~~829~~812,~~034~~469 ~~11,041,710~~ ================ ================ =~~===============~~ ~~================~~ Diluted earnings per share $0.3951 $0.3738 ~~$0.89 $1.02~~ ================ ================= Dividends declared per share $0.17 $0.14 ================ =================

~~Common~~For ~~Additional~~the ~~Shares~~Six ~~Common~~Months ~~Paid~~Ended June 30, 2002 2001 -In--------------- ~~Retained~~----------------- ~~Outstanding~~(Unaudited) ~~Stock~~Interest ~~Capital~~income: ~~Earnings~~Interest on loans $46,853 $57,535 Interest and dividends on deposits and money market investments 487 1,024 Interest on investment securities 698 298 Interest on mortgage-backed securities 7,437 6,475 ---------------- ----------------- Total interest income 55,475 65,332 Interest expense: Interest on deposits 13,923 23,638 Interest on notes payable and other borrowings 2,590 5,683 ---------------- ----------------- Total interest expense 16,513 29,321 ---------------- ----------------- ~~Balance~~Net atinterest ~~December~~income 3138,962 ~~1999~~36,011 11Provision for loan losses 3,~~935~~700 $13,~~807~~750 ~~$136~~---------------- ----------------- Net interest income after provision for loan losses 35,~~966~~262 ~~$135~~32,~~780~~261 ~~Comprehensive~~Noninterest income: ~~Net~~Deposit fees and related income 117,~~248~~557 ~~Other-unrealized~~6,467 ~~gain~~Financial onservices ~~marketable~~fees ~~securities~~1,206 ~~net~~843 Miscellaneous income 1,762 1,711 Net gain on sale of $mortgage loans - 1,~~213~~612 ~~tax~~---------------- ~~expense~~----------------- Total ~~comprehensive~~noninterest income ~~Dividends~~10,525 (310,~~592)~~633 ~~Release~~---------------- of----------------- ~~ESOP~~Noninterest ~~shares~~expense: ~~387~~Compensation ~~Amortization~~and ofemployee ~~unearned~~benefits ~~compensation~~15,499 ~~Stock~~17,065 ~~issued~~Occupancy ~~pursuant~~and tooffice ~~benefit~~operations ~~plans~~4,914 314,842 49Amortization ~~(178)~~of ~~Purchase~~intangible ofassets ~~treasury~~2,313 ~~stock~~2,369 ~~(470)~~Other 10,055 11,354 ---------------- ----------------- Total noninterest expense 32,781 35,630 ---------------- ~~Balance~~----------------- atIncome ~~September~~before 30income taxes 13,006 ~~2000~~7,264 11Income tax provision 3,~~496~~642 $1,~~807~~816 ---------------- ----------------- Net income $~~137~~9,~~402~~364 $~~143~~5,~~258~~448 ================ ================= Basic weighted average number of shares outstanding 9,559,432 10,532,642 ================ ~~Balance~~================= atBasic ~~December~~earnings ~~31,~~per ~~2000~~share ~~11,309~~ $~~1,807~~0.98 $~~138,166~~0.52 ~~$145,869~~================ ~~Comprehensive~~================= ~~income:~~Diluted ~~Net~~weighted ~~income~~average ~~9,595~~number ~~Other-unrealized gain on marketable securities, net~~ of ~~$878~~shares ~~tax~~outstanding ~~expense Total comprehensive income Dividends (4~~10,~~426)~~033,619 ~~Release of ESOP shares 810 Amortization of unearned compensation Stock issued pursuant to benefit plans 308 62 (2~~10,~~848)~~873,670 ~~Purchase~~================ of================= ~~treasury~~Diluted ~~stock~~earnings ~~(713)~~per ~~---------------------------------------------~~share ~~Balance at September 30, 2001 10,904~~ $~~1,807~~0.93 $~~139,038~~0.50 ~~$148,190~~================ ================= Dividends declared per share $0.34 $0.28 ================ =================

The accompanying notes are an integral part of these statements. 4 Commonwealth Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (in thousands)

~~Accumulated~~Unearned ~~Stock~~Common ~~Other~~Additional ~~Benefit~~Stock ~~Plan~~Shares ~~Comprehensive~~Common ~~Treasury~~Paid-In ~~Compensation~~Retained ~~Income~~Benefit ~~(Loss)~~Plan Outstanding Stock ~~Total~~Capital Earnings Compensation ----------------------------------------------------------------------------------------------------------------- Balance at December 31, ~~1999~~2000 (11,309 $81,~~504)~~807 ($3138,~~171)~~166 ($~~110~~145,~~513)~~869 ($~~152~~6,~~365~~596) Comprehensive income: Net income 115,~~248~~448 Other-unrealized gain on marketable securities, net of $~~1,213~~410 tax expense ~~2,253 2,253 ----------~~ Total comprehensive income ~~13,501 ----------~~ Dividends (32,~~592~~977) Release of ESOP shares ~~690~~488 ~~1,077~~460 Amortization of unearned compensation ~~741~~445 ~~741~~ Stock issued pursuant to benefit plans ~~482~~282 ~~353~~44 (2,508) Purchase of treasury stock (~~7,275~~521) ~~(7,275)~~ ---------------------------------------------------------------- Balance at ~~September~~June 30, ~~2000~~2001 (11,070 $71,~~073)~~807 ($~~918)~~138,698 ($~~117~~145,~~306)~~832 ($~~157~~5,~~170~~691) ================================================================ Balance at December 31, ~~2000~~2001 ~~($6~~10,~~596)~~351 $1,~~286~~807 ($~~120~~139,~~079)~~981 $~~160~~150,~~453~~743 ($4,799) Comprehensive income: Net income 9,~~595~~364 Other-unrealized gain on marketable securities, net of $~~878~~1,374 tax expense ~~1,630 1,630 ----------~~ Total comprehensive income ~~11,225 ----------~~ Dividends (43,~~426~~149) Release of ESOP shares ~~690~~856 ~~1,500~~460 Amortization of unearned compensation ~~669~~63 ~~669~~ Stock issued pursuant to benefit plans ~~5,353~~40 ~~2,567~~11 (638) Purchase of treasury stock (~~13,155~~627) ~~(13,155)~~ ---------------------------------------------------------------- Balance at ~~September~~June 30, ~~2001~~2002 (9,764 $51,~~237)~~807 $2140,~~916~~848 ($~~127~~156,~~881)~~320 ($~~158~~4,~~833~~276) ================================================================

~~For~~Accumulated ~~the~~Other ~~Nine~~Comprehensive ~~Months~~Treasury ~~Ended~~Income ~~September~~Stock ~~30,~~Total -------------------------- ~~2001 2000~~ ------------ ---------------------------------------------------- ~~Operating~~Balance ~~activities:~~at ~~Net~~December ~~income~~31, 2000 $91,~~595~~286 ($11120,~~248~~079) ~~Adjustments~~$160,453 toComprehensive ~~reconcile~~income: ~~net~~Net income to5,448 ~~net~~Other-unrealized ~~cash~~gain ~~provided~~on bymarketable ~~(used~~securities, ~~in)~~net ~~operating~~of ~~activities-~~$410 ~~Proceeds~~tax ~~from~~expense ~~loans~~761 ~~sold~~761 to------------- ~~others~~Total ~~200,131~~comprehensive ~~227~~income 6,~~213~~209 ~~Loans~~------------- ~~originated~~Dividends ~~for sale~~ (852,~~012~~977) ~~(157,603)~~Release ~~Purchases~~ of ~~loans~~ESOP ~~held~~shares ~~for~~948 ~~sale~~Amortization ~~(70,620)~~of ~~(77,805)~~unearned ~~Principal~~compensation ~~collection~~445 onStock ~~mortgage~~issued ~~loans~~pursuant ~~held~~to ~~for~~benefit ~~sale~~plans ~~247~~4,849 ~~220~~2,385 ~~Net~~Purchase ~~gain on sale~~ of ~~mortgage~~treasury ~~loans~~stock (19,~~593~~276) (39,~~661~~276) ~~Decrease~~----------------------------------------- inBalance ~~net~~at ~~deferred~~June ~~loan~~30, ~~fees~~2001 ~~(586)~~$2,047 (~~247~~$124,506) ~~Provision~~$158,187 ~~for~~========================================= ~~loan~~Balance ~~losses~~at ~~and~~December ~~foreclosed~~31, ~~real~~2001 ~~estate~~$1,681 6($139,~~250~~786) 3$149,~~567~~627 ~~Gain~~Comprehensive onincome: ~~sale~~Net ofincome ~~securities~~9,364 Other-unrealized ~~(45)~~gain ~~Depreciation~~on ~~and~~marketable ~~amortization 2~~securities,~~014~~ ~~2,456~~net ~~Net amortization~~ of ~~other~~$1,374 ~~assets~~tax ~~and~~expense ~~liabilities 5~~2,~~872~~551 42,~~521~~551 ~~Interest~~------------- ~~reinvested~~Total oncomprehensive ~~repurchase~~income ~~agreements~~11,915 ~~(847)~~------------- Dividends (3,~~440~~149) ~~Changes~~Release inof ~~assets~~ESOP ~~and~~shares ~~liabilities-~~1,316 ~~Decrease~~Amortization ~~(increase)~~of ~~in-~~unearned ~~Accrued~~compensation ~~interest~~63 ~~receivable,~~Stock ~~net~~issued ~~1,454~~pursuant ~~349~~to ~~Other~~benefit ~~assets~~plans ~~(6,823) (~~1,~~700)~~016 ~~(Decrease)~~389 ~~increase~~Purchase ~~in-~~of ~~Advances~~treasury ~~from~~stock ~~borrowers for taxes and insurance~~ (315,~~558~~860) (315,~~076~~860) ~~Accrued interest payable, accrued expenses and other liabilities 1,570 8,974~~ ------------ ------------ ~~Net cash provided by operating activities $58,094 $10,971~~ ------------ -----~~-------~~ Balance at June 30, 2002 $4,232 ($154,630) $144,301 =========================================

The accompanying notes are an integral part of these statements. 5 Commonwealth Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands)

For the ~~Nine~~Six Months Ended ~~September~~June 30, ---------------------------------~~---~~ 2002 2001 ~~2000~~ ----------------- ----------------- ~~Investing~~(Unaudited) Operating activities: ~~Purchases~~Net ofincome ~~investment securities (~~$~~111)~~9,364 $5,448 -Adjustments ~~Proceeds~~to ~~from~~reconcile ~~sale~~net ofincome ~~investment~~to ~~securities~~net -cash ~~21,114~~provided ~~Proceeds~~by ~~from~~(used ~~maturities~~in) ofoperating ~~investment securities~~ activities- ~~35,000~~ Proceeds from ~~sale~~loans ofsold ~~mortgage-backed~~to ~~securities~~others -5,030 21193,~~883~~480 ~~Principal~~Loans ~~collected~~originated onfor ~~mortgage-backed~~sale ~~securities 52~~(4,~~804~~373) 60(84,~~462~~492) ~~Principal~~Purchases ~~collected~~of on loans ~~259,557~~held ~~206,661~~for ~~Loans~~sale ~~originated~~- (~~195~~70,~~486~~620) ~~(235,066)~~Principal ~~Loans~~collection ~~purchased~~on ~~(8,823)~~mortgage ~~(25,633)~~loans ~~Sales~~held offor ~~real~~sale ~~estate~~- ~~acquired~~235 ~~through~~Net ~~foreclosure~~gain ~~1,219~~on ~~1,309~~sale ~~Sale~~ of ~~FHLB~~mortgage ~~stock~~loans 5- (1,~~835~~612) -Decrease ~~Purchases~~in ofnet ~~premises~~deferred ~~and~~loan ~~equipment~~fees (~~818~~203) (~~2,253~~456) ~~Purchase~~Provision offor ~~business~~loan -losses ~~(1,498)~~and ~~-----------------~~foreclosed ~~-----------------~~real ~~Net~~estate ~~cash~~3,700 ~~provided~~3,750 byDepreciation ~~investing~~and ~~activities~~amortization ~~114~~1,~~177~~336 811,~~979~~349 ~~-----------------~~Net ~~-----------------~~amortization ~~Financing~~of ~~activities:~~other ~~Net~~assets ~~decrease~~and inliabilities ~~deposits (~~3,~~576)~~480 ~~(71~~3,~~095)~~912 ~~Repayment~~Interest ofreinvested ~~notes~~on ~~payable~~repurchase ~~and~~agreements ~~other borrowings, net of proceeds~~ (~~93,834~~384) (~~15,406~~847) ~~Net~~Changes ~~purchase~~in ofassets ~~common~~and ~~stock~~liabilities- ~~(10,588)~~Increase ~~(6,922)~~in ~~Cash~~accrued ~~dividends~~interest ~~paid~~receivable and other assets (43,~~426~~583) (~~3,592~~321) ~~-----------------~~Increase ~~-----------------~~in ~~Net~~accrued ~~cash~~interest ~~used~~payable, inaccrued ~~financing~~expenses ~~activities~~and ~~(112~~other liabilities 8,~~424)~~686 ~~(97~~1,~~015)~~427 ----------------- ----------------- Net ~~increase (decrease) in~~ cash ~~and~~provided ~~cash~~by ~~equivalents~~operating ~~59,847~~activities (4$23,~~065)~~053 ~~Cash and cash equivalents at beginning of period 66~~$51,~~700~~253 ~~61,751~~ ----------------- ----------------- Cash and cash equivalents at end of period $126,547 $57,686 ================= ================= Supplemental disclosures of cash flow information: Interest $33,204 $38,896 ================= ================= Income taxes $3,000 $4,500 ================= =================

The accompanying notes are an integral part of these statements. 6 Commonwealth Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands)

For the ~~Quarter~~Six Months Ended ~~September~~June 30, --------------------------------- 2002 2001 --------------- ~~2001~~--------------- ~~2000~~(Unaudited) Investing activities: Purchases of investment securities ($53,097) ($79) Proceeds from sale or call of investment securities 110,418 - Purchases of mortgage-backed securities (220,421) - Principal collected on mortgage-backed securities 44,386 31,578 Principal collected on loans 354,994 160,741 Loans originated (254,254) (132,112) Loans purchased (6,782) (6,723) Sales of real estate acquired through foreclosure 1,324 838 Sale of FHLB stock 2,695 5,835 Purchases of premises and equipment (1,111) (674) --------------- --------------- ~~Basic~~Net ~~weighted~~cash ~~average~~(used ~~number~~in) ofprovided ~~common~~by ~~shares~~investing ~~outstanding~~activities 10(21,~~344~~848) 59,~~813~~404 10--------------- --------------- Financing activities: Net (decrease) increase in deposits (25,~~739~~743) 9,~~425~~476 ~~Effect~~Repayment of ~~dilutive~~notes ~~securities:~~payable ~~Stock~~and ~~options~~other ~~342~~borrowings,~~882~~ ~~225~~net of proceeds 2,~~715~~315 ~~Recognition~~(65,038) ~~Plan~~Net purchase of common stock 53(15,~~522~~471) 44(6,~~650~~891) Cash dividends paid (3,149) (2,977) --------------- --------------- ~~Diluted~~Net ~~weighted~~cash ~~average~~used ~~number~~in financing activities (42,048) (65,430) --------------- --------------- Net (decrease) increase in cash and cash equivalents (40,843) 45,227 Cash and cash equivalents at beginning of ~~common~~period ~~shares~~117,888 ~~outstanding~~66,700 10--------------- --------------- Cash and cash equivalents at end of period $77,~~741~~045 $111,~~217~~927 11=============== =============== Supplemental disclosures of cash flow information: Cash paid during the year for - Interest $12,~~009~~924 $23,~~790~~187 =============== =============== Income taxes $4,200 $3,000 =============== ===============

The accompanying notes are an integral part of these statements. 7 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 the financial condition of Commonwealth Bancorp, Inc. ("Commonwealth" or the "Company") as of June 30, 2002, and the results of operations, changes in shareholders' equity, and cash flows for the periods presented. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, 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. A significant estimate includes the allowance for loan losses. Actual results could differ from those estimates. The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States for interim financial information, Article 10 of Regulation S-X, and the instructions for Form 10-Q. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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, 2001. Certain items in the 2001 financial statements have been reclassified in order to conform with the 2002 financial statement presentation. The Company is a Pennsylvania corporation which is the holding company for Commonwealth Bank (the "Bank"). Headquartered in Norristown, Pennsylvania, Commonwealth Bank conducts business through 60 full-service offices located in Berks, Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties, Pennsylvania. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Commonwealth; CFSL Investment Corporation; ComLife, Inc.; Commonwealth Bank; Commonwealth Investment Corporation of Delaware, Inc.; CS Corporation; Firstcor, Ltd.; QME, Inc.; and Tyler Wealth Counselors, Inc. All material intercompany accounts and transactions have been eliminated in consolidation. 3. Shareholders' Equity At June 30, 2002, shareholders' equity totaled $144 million, or 8.2% of assets, compared to $150 million, or 8.4%, at December 31, 2001. The decrease was primarily the result of common stock repurchases offset, in part, by an increase in retained earnings and accumulated other comprehensive income. During the first six months of 2002, the Company purchased 0.6 million shares of its common stock, representing purchases of $16 million. During the first six months of 2001, the Company purchased 0.5 million shares of its common stock, representing purchases of $9 million. The repurchased shares were held as treasury stock at June 30, 2002, and are reserved for general corporate purposes. On June 18, 2002, the Board of Directors declared a $0.17 per share cash dividend for the quarter ended June 30, 2002, which was made payable to shareholders of record at the close of business on June 28, 2002. This dividend was paid on July 12, 2002. 8 Commonwealth Bancorp, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supercedes SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions of Accounting Principles Board Opinion ("APB") No. 30 related to the accounting and reporting for the disposal of a segment of a business. This Statement establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 retains most of the requirements in SFAS No. 121 related to the recognition of impairment of long-lived assets to be held and used. The Company adopted SFAS No. 144 on January 1, 2002, as required. There was no impact on the consolidated financial statements as a result of the adoption of this Statement. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to assessing impairment on a fair-value-based test approach. The Company adopted SFAS No. 142 on January 1, 2002, as required. There was no material impact on the consolidated financial statements as a result of the adoption of SFAS No. 142. 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 the Company's Employee Stock Ownership Plan ("ESOP") shares that have not been committed to be released, and the effects of unissued shares held by the Company's Management Recognition Plans ("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. 9 Commonwealth Bancorp, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basic weighted average number of common shares outstanding and diluted weighted average number of common shares outstanding for the periods indicated were as follows:

For the ~~Nine~~Quarter ~~Months~~ Ended ~~September~~June 30, ----------------------------------~~------~~ 2002 2001 ~~2000~~ ---------~~----~~ ----------~~---~~ Basic weighted average number of common shares outstanding 109,~~469~~438,~~343~~741 10,~~782~~487,~~377~~756 Effect of dilutive securities: Stock options ~~321~~505,~~303~~271 ~~232~~285,~~006~~583 Recognition Plan stock 3822,~~388~~960 2739,~~327~~130 ---------~~----~~ ----------~~---~~ Diluted weighted average number of common shares outstanding 109,~~829~~966,~~034~~972 1110,~~041~~812,~~710~~469 =========~~====~~ ==========~~===~~

Basic EPS was $0.54 per common share for the quarter ended June 30, 2002, compared to $0.39 per common share for the quarter ended June 30, 2001. Diluted EPS was $0.51 per common share for the quarter ended June 30, 2002, compared to $0.38 per common share for the quarter ended June 30, 2001.

For the ~~Quarter~~Six Months Ended ~~September~~June 30, ----------------------------------~~----------------------------------------------~~ 2002 2001 ~~2000~~ ---------~~--------------------------------~~ ----------~~--------------------------~~ ~~Community~~Basic ~~Mortgage~~weighted ~~Community~~average ~~Mortgage~~number ~~Banking~~of ~~Banking~~common ~~Total~~shares ~~Banking~~outstanding ~~Banking Total ----------------------------------------- ------------------------------------ (in thousands) Net interest income after provision for loan losses $16~~9,~~450 $ - $16~~559,~~450~~432 ~~$16~~10,~~581 535 $17~~532,~~116~~642 ~~Noninterest~~Effect ~~income: Servicing fees 42 - 42 (491) 672 181 Net (loss) gain on sale~~ of ~~mortgage~~dilutive loans (19) - (19) (82) 1,647 1,565 Other 4,589 - 4,589 3,973 298 4,271 ----------- ------- ----------- ------------ --------- ----------- Total noninterest income 4,612 - 4,612 3,400 2,617 6,017 ----------- ------- ----------- ------------ --------- ----------- Noninterest expensesecurities: ~~Compensation~~Stock ~~and~~options ~~employee benefits 7~~453,~~779~~699 ~~- 7~~310,~~779~~333 ~~7,080~~Recognition ~~1,880~~Plan ~~8,960~~stock ~~Other 7~~20,~~754~~488 ~~- 7~~30,~~754~~695 ~~7,423 1,267 8,690~~ ----------- ------- ---~~--------~~ ~~------------~~Diluted ~~---------~~weighted ~~-----------~~average ~~Total~~number ~~noninterest~~of ~~expense~~common ~~15,533~~shares -outstanding 1510,~~533 14~~033,~~503~~619 310,~~147 17~~873,~~650~~670 ----------- ------- ----------- ------------ --------- ----------- Income before income taxes 5,529 - 5,529 5,478 5 5,483 Income tax provision 1,382 - 1,382 1,451 2 1,453 ----------- ------- ----------- ------------ --------- ----------- Net income $ 4,147 $ - $ 4,147 $ 4,027 $ 3 $ 4,030 =========== ======= =========== ============ ========= =========== Assets (period end) $1,766,845 $ - $1,766,845 $1,802,351 $ 41,807 $1,844,158 Liabilities (period end) $1,608,012 $ - $1,608,012 $1,648,488 $ 38,500 $1,686,988 Shareholders' equity (period end) $ 158,833 $ - $ 158,833 $ 153,863 $ 3,307 $ 157,170

Basic EPS was $0.98 per common share for the six months ended June 30, 2002, compared to $0.52 per common share for the six months ended June 30, 2001. Diluted EPS was $0.93 per common share for the six months ended June 30, 2002, compared to $0.50 per common share for the six months ended June 30, 2001. 10 Commonwealth Bancorp, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Segment Reporting The Company historically presented segment information for its community banking and mortgage banking operations. As a result of a restructuring of its mortgage banking business in the first and second quarters of 2001, Commonwealth no longer organizes its mortgage banking operations into a separate business segment. As such, no mortgage banking segment information is available subsequent to June 30, 2001. The segment results follow:

For the ~~Nine~~Quarter ~~Months~~ Ended ~~September~~June 30, ---------------------------------------------------------------------------------- 2002 2001 ~~2000~~ --------------------------------------- ---------------------------------------- Community Mortgage Community Mortgage Banking Banking Total Banking Banking Total --------------------------------------- ---------------------------------------- (in thousands) Net interest income after ~~provision~~Provision for loan losses $48 18,~~514~~314 $ ~~197~~- $48 18,~~711~~314 $49 16,~~720~~064 $~~1,603~~ (27) $51 16,~~323~~037 Noninterest income: Servicing fees ~~(265)~~- ~~703~~- ~~438~~- (~~1,709~~76) ~~2,310~~236 ~~601~~160 Net ~~(loss)~~ gain on sale of mortgage loans ~~(185)~~- ~~1,778~~- ~~1,593~~- (~~317~~51) ~~3,978~~422 ~~3,661~~371 Other 135,~~214~~470 - 135,~~214~~470 114,~~509~~571 ~~601~~- 124,~~110~~571 ------------ ---------- ------------ ------------ --------- ----------- Total noninterest income 125,~~764~~470 ~~2,481~~- 155,~~245~~470 94,~~483~~444 ~~6,889~~658 165,~~372~~102 ------------ ---------- ------------ ------------ --------- ----------- Noninterest expense: Compensation and employee benefits 237,~~240~~939 ~~1,604~~- 247,~~844~~939 207,~~775~~287 ~~5,626~~180 267,~~401~~467 Other 228,~~817~~743 ~~3,502~~- 268,~~319~~743 227,~~463~~692 ~~3,528~~562 258,~~991~~254 ------------ ---------- ------------ ------------ --------- ----------- Total noninterest expense 4616,~~057~~682 ~~5,106~~- 5116,~~163~~682 4314,~~238~~979 ~~9,154~~742 5215,~~392~~721 ------------ ---------- ------------ ------------ --------- ----------- Income (loss) before income taxes 157,~~221~~102 ~~(2,428)~~- 127,~~793~~102 155,~~965~~529 (~~662~~111) 155,~~303~~418 Income tax provision 4(benefit) 2,048 ~~(850)~~- 32,~~198~~048 41,~~286~~393 (~~231~~39) 41,~~055~~354 ------------ ---------- ------------ ------------ --------- ----------- Net income (loss) $11 5,~~173~~054 $~~(1,578)~~ - $ 95,~~595~~054 $11 4,~~679~~136 $ (~~431~~72) $11 4,~~248~~064 ============ ========== ============ ============ ========= =========== Assets ~~(period end)~~ $ 1,~~766~~763,~~845~~820 $ - $ 1,~~766~~763,~~845~~820 $ 1,~~802~~801,~~351~~345 $ 4110,~~807~~117 $ 1,~~844~~811,~~158~~462 Liabilities ~~(period end)~~ $ 1,~~608~~619,~~012~~519 $ - $ 1,~~608~~619,~~012~~519 $ 1,~~648~~644,~~488~~904 $ 388,~~500~~371 $ 1,~~686~~653,~~988~~275 Shareholders' equity ~~(period end)~~ $ ~~158~~144,~~833~~301 $ - $ ~~158~~144,~~833~~301 $ ~~153~~156,~~863~~441 $ 31,~~307~~746 $ ~~157~~158,~~170~~187

11 Commonwealth Bancorp, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~For the Six Months Ended June 30, ---------------------------------------------------------------------------------- 2002 2001 --------------------------------------- ---------------------------------------- ~~Amortized~~Community ~~Unrealized~~Mortgage ~~Unrealized~~Community ~~Market~~Mortgage ~~Cost~~Banking ~~Gains~~Banking ~~Losses~~Total ~~Value~~Banking Banking Total --------------------------------------- ---------------------------------------- (in thousands) ~~Available~~Net interest income after provision for ~~sale:~~loan ~~Equity~~losses ~~Investments~~$ 35,262 $13 - $ 35,~~312~~262 $~~473~~ 32,064 $25 197 $13 32,~~760~~261 Noninterest income: Servicing fees - - - (307) 703 396 Net gain on sale of mortgage loans - - - (166) 1,778 1,612 Other 10,525 - 10,525 8,625 - 8,625 ------------ -------- ------------ ------------ --------- ----------- Total noninterest income 10,525 - 10,525 8,152 2,481 10,633 ------------ -------- ------------ ------------ --------- ----------- Noninterest expense: Compensation and employee benefits 15,499 - 15,499 15,461 1,604 17,065 Other 17,282 - 17,282 15,063 3,502 18,565 ------------ -------- ------------ ------------ --------- ----------- Total $noninterest expense 32,781 - 32,781 30,524 5,106 35,630 ------------ -------- ------------ ------------ --------- ----------- Income (loss) before income taxes 13,~~312~~006 - 13,006 9,692 (2,428) 7,264 Income tax provision (benefit) 3,642 - 3,642 2,666 (850) 1,816 ------------ -------- ------------ ------------ --------- ----------- Net income (loss) $~~473~~ 9,364 $25 - $13 9,~~760~~364 $ 7,026 $ (1,578) $ 5,448 ============ ======== ============ ============ ========= ===========~~============~~ Assets $ 1,763,820 $ - $ 1,763,820 $ 1,801,345 $ 10,117 $ 1,811,462 Liabilities $ 1,619,519 $ - $ 1,619,519 $ 1,644,904 $ 8,371 $ 1,653,275 Shareholders' equity $ 144,301 $ - $ 144,301 $ 156,441 $ 1,746 $ 158,187

Community Banking results for the first six months of 2001 reflected a $0.7 million pre-tax charge relating to the retirement of Commonwealth's former Chief Executive Officer, and a $0.5 million pre-tax charge relating to the resolution of legal proceedings concerning a loan acquired in the 1970's. Exclusive of these items, net income from Community Banking would have been $8.1 million for the first six months of 2001. Mortgage Banking results for the first six months of 2001 reflected a $2.3 million pre-tax charge associated with the restructuring of Commonwealth's mortgage banking business. Exclusive of this item, the net loss from Mortgage Banking would have been $0.1 million for the first six months of 2001. 12 Commonwealth Bancorp, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Divestiture On March 30, 2001, Commonwealth restructured its residential mortgage banking division, ComNet Mortgage Services ("ComNet"), and ComNet's Pennsylvania and Maryland loan production offices were sold to American Home Mortgage Holdings, Inc. As an additional part of this restructuring, Commonwealth outsourced the servicing function relating to its portfolio of residential mortgage loans during the second quarter of 2001. Commonwealth continues to provide residential mortgage loans and services to its customers through agreements with American Home Mortgage Holdings, Inc. and a third party servicer. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS. 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 also 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. During January 2001, the Bank converted from a federally chartered savings bank to a Pennsylvania chartered savings bank, primarily regulated by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation ("FDIC"). The Bank conducts business from its executive offices in Norristown, Pennsylvania and 60 full-service branches located in Southeast Pennsylvania. On March 30, 2001, Commonwealth restructured its residential mortgage banking division, ComNet Mortgage Services, and ComNet's Pennsylvania and Maryland loan production offices were sold to American Home Mortgage Holdings, Inc. As an additional part of this restructuring, Commonwealth outsourced the servicing function relating to its portfolio of residential mortgage loans during the second quarter of 2001. Commonwealth continues to provide residential mortgage loans and services to its customers through agreements with American Home Mortgage Holdings, Inc. and a third party servicer. FINANCIAL CONDITION GENERAL. Total assets were $1.8 billion at both June 30, 2002 and December 31, 2001. During the first six months of 2002, decreases in the Company's loans receivable, investment securities, and cash and due from banks and interest-bearing deposits ("cash and cash equivalents") were offset, in part, by an increase in mortgage-backed securities. Total liabilities were $1.6 billion at both June 30, 2002 and December 31, 2001. During the first six months of 2002, a decrease in deposits was offset, in part, by an increase in accrued interest payable, accrued expenses and other liabilities. Shareholders' equity was $144 million as of June 30, 2002, compared to $150 million at December 31, 2001. This decrease was primarily the result of common stock repurchases offset, in part, by an increase in retained earnings and accumulated comprehensive income. During the first six months of 2002, the Company purchased 0.6 million shares of its common stock, representing an investment of $16 million. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased by $41 million, or 35%, from $118 million at December 31, 2001, to $77 million at June 30, 2002, primarily as a result of the purchase of mortgage-backed securities. INVESTMENT SECURITIES. Investment securities decreased by $60 million, or 78%, from $77 million at December 31, 2001, to $17 million at June 30, 2002. The decrease was primarily attributable to the sale of fixed income mutual funds and corporate bonds. Investments in debt and equity securities at June 30, 2002 and December 31, 2001 were as follows:

~~December~~June 3130, ~~2000~~2002 ---------------------------------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------------------------------------------------------------------------- (in thousands) Available for sale: ~~Equity~~Fixed ~~Investments~~Income Mutual Funds $13 5,~~350~~019 $~~801~~ - $~~100~~ - $14 5,~~051~~019 U.S. Treasury Security 950 33 - 983 Other Equity Investments 11,048 325 33 11,340 ---------------------------------------------------------------------------- Total $1317,~~350~~017 $~~801~~358 $~~100~~33 $1417,~~051~~342 ============================================================================

~~September~~December 3031, 2001 ---------------------------------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------------------------------------------------------------------------- (in thousands) Available for sale: ~~GNMA~~Corporate $Bonds ~~25,873~~ $110,~~171~~505 $ - $ 2786 $10,~~044~~419 ~~FHLMC~~Fixed ~~21,100~~Income ~~962~~Mutual -Funds 2250,~~062~~211 ~~FNMA~~- - 50,~~649~~211 Equity Investment - Mortgage Servicing Partnership 1,~~382~~000 ~~189~~47 51- 1,~~842~~047 ~~Private~~Other 51Equity Investments 15,~~025~~326 ~~731~~156 4423 5115,~~712~~459 ---------------------------------------------------------------------------- Total $~~148~~77,~~647~~042 $~~4,246~~203 $~~233~~109 $~~152~~77,~~660~~136 ============================================================================

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. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities increased by $180 million, or 105%, from $171 million at December 31, 2001, to $351 million at June 30, 2002. The increase was primarily related to the purchase of $220 million of mortgage-backed securities during the first six months of 2002 offset, in part, by repayments. At June 30, 2002 and December 31, 2001, $336 million, or 96%, and $136 million, or 79%, respectively, of the Company's mortgage-backed securities were insured or guaranteed by the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), or the Government National Mortgage Association ("GNMA"). 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 FNMA, FHLMC, or the GNMA. Mortgage-backed securities at June 30, 2002 and December 31, 2001 were as follows:

~~December~~June 3130, ~~2000~~2002 ---------------------------------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------------------------------------------------------------------------- (in thousands) Available for sale: ~~GNMA~~FNMA $ 33158,~~293~~944 $2,677 ~~642~~ $118 - $ 33161,~~935~~503 FHLMC 30130,~~374~~668 ~~639~~1,991 92 31132,~~004~~657 ~~FNMA~~GNMA 6640,~~493~~563 ~~518~~1,417 ~~258~~28 6641,~~753~~952 Private 7114,~~288~~249 64232 ~~344~~- 7114,~~008~~481 ---------------------------------------------------------------------------- Total $~~201~~344,~~448~~424 $16,~~863~~317 $~~611~~148 $~~202~~350,~~700~~593 ============================================================================

~~September 30,~~ December 31, 2001 ~~2000~~ ---------------------- ----------------------- ~~% of % of Amount Total Amount Total~~ ------ ----- ------ ----- ~~(dollars in thousands) Mortgage loans~~ --------- ~~residential:~~Amortized ~~Fixed~~Unrealized ~~rate~~Unrealized $Market ~~458,321~~Cost ~~33.38%~~Gains $Losses ~~495,384~~Value ~~34.68% Adjustable rate 211,203 15.38 304,498 21.32~~ ---------- ----- ---------- ------ Total mortgage loans 669,524 48.76 799,882 56.00 Consumer loans: Second mortgages 275,850 20.09 257,971 18.06 Equity lines of credit 31,380 2.28 26,667 1.87 Recreational vehicles 41,219 3.00 51,194 3.58 Other 42,373 3.09 48,619 3.40 ---------- ------- ---------- ------------------ ~~Total~~(in ~~consumer~~thousands) ~~loans~~Available ~~390,822~~for ~~28.46~~sale: ~~384~~FNMA $67,~~451~~449 ~~26.91~~$1,039 ~~Commercial~~$573 ~~loans:~~$ ~~Business loans 192~~67,~~860~~915 ~~14.04~~FHLMC ~~157~~37,~~643~~501 ~~11.04~~870 ~~Commercial~~245 ~~real~~38,126 ~~estate~~GNMA ~~113~~28,~~015~~545 1,112 8~~.23~~ 7829,~~435~~649 ~~5.49~~Private ~~Small~~34,893 ~~Business~~295 ~~Administration~~18 735,~~024~~170 ~~0.51 8,087 0.56~~ ---------- ------- ---------- ------ ~~Total commercial loans 312,899 22.78 244,165 17.09~~ ---------- ------- ---------- ------ ~~Total loans receivable 1,373,245 100.00% 1,428,498 100.00%~~ ---------- Total $168,388 $3,316 $844 $170,860 ======= ~~----------~~ ======= ~~Less: Net premium on loans purchased (1,380) (1,849) Allowance for loan losses 13,588 11,078 Deferred loan fees 2,573 3,159 ---------- ---------- Loans receivable, net $1,358,464 $1,416,110~~ ========== ====================================================

All mortgage-backed 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 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, were $1.2 billion at June 30, 2002, compared to $1.3 billion at December 31, 2001. The decreases in residential mortgage loans and consumer loans were offset, in part, by an increase in commercial loans. The following table depicts the composition of the Company's loan portfolio at the dates indicated.

~~September~~June 30, ~~2001~~ December 31, ~~2000~~2002 2001 ---------------------- ------------------- % of % of Amount Total Amount Total ------ ----- ------ ----- (dollars in thousands) ~~Mortgage~~Residential mortgage loans: Fixed rate $357,590 29.23% $417,402 31.68% Adjustable rate 133,649 10.93 176,572 13.40 -------- ----- -------- ----- Total residential $mortgage 4loans 491,~~050~~239 $440.16 593,~~193~~974 45.08 Consumer loans: Second mortgages 271,190 22.17 269,672 20.46 Equity lines of credit 44,483 3.64 36,672 2.78 Recreational vehicles 32,~~899~~686 2.67 38,~~782~~879 ~~Commercial~~2.95 ~~loans~~Other ~~462~~34,191 12.79 39,~~020~~805 3.02 -------- ----- -------- ----- Total ~~nonperforming~~consumer loans 7382,~~411~~550 731.27 385,~~995~~028 ~~Investment~~29.21 ~~securities~~Commercial 1loans: Business loans 210,~~500~~633 117.22 217,~~700~~968 ~~Real~~16.54 ~~estate~~Commercial ~~owned~~real ~~and~~estate ~~Other~~138,804 ~~acquired~~11.35 ~~assets~~120,877 ~~net~~9.17 2-------- ----- -------- ----- Total commercial loans 349,~~181~~437 128.57 338,~~003~~845 25.71 -------- ----- -------- ----- Total ~~nonperforming~~loans ~~assets~~receivable ~~$11~~1,~~092~~223,226 ~~$10~~100.00% 1,~~698~~317,847 100.00% --------- ======= --------- ======= ~~Nonperforming~~Less: ~~loans~~Allowance tofor ~~total~~loan ~~loans~~losses ~~held~~15,017 ~~for~~14,227 ~~investment~~Deferred ~~0.54%~~loan ~~0.56%~~fees ~~====~~2,266 ~~====~~2,469 ~~Total~~Premium ~~nonperforming~~on ~~assets~~loans topurchased ~~total~~(1,090) ~~assets~~(1,317) ~~0.63%~~------- ~~0.57%~~------- Loans receivable, net $1,207,033 $1,302,468 ========= =========

17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED Residential mortgage loans totaled $491 million at June 30, 2002, a decrease of $103 million, or 17%, compared to $594 million at December 31, 2001. At June 30, 2002, residential mortgage loans represented 40% of the Company's loan portfolio, compared to 45% at December 31, 2001. The decrease in residential mortgage loans, which was consistent with the Company's strategy to reduce the relative proportion of residential mortgage loans on its balance sheet, reflected high repayments during the first six months of 2002 as a result of the lower interest rate environment. Consumer loans decreased by $2 million, or 1%, from $385 million at December 31, 2001, to $383 million at June 30, 2002. At June 30, 2002, consumer loans represented 31% of the Company's loan portfolio and were comprised of $271 million of second mortgage loans, $44 million of equity lines of credit, $33 million of recreational vehicle loans, and $34 million of other consumer loans. At December 31, 2001, consumer loans represented 29% of total loans and were comprised of $270 million of second mortgage loans, $37 million of equity lines of credit, $39 million of recreational vehicle loans, and $40 million of other consumer loans. Consumer loans are generally considered to have greater risk than residential mortgage loans because the risk of borrower default is greater. In addition, certain consumer loans are unsecured or involve collateral which is more likely to decline in value than single-family residences. Commercial loans increased by $11 million, or 3%, from $339 million at December 31, 2001, to $349 million at June 30, 2002. At June 30, 2002, commercial loans represented 29% of the Company's loan portfolio and were comprised of $211 million of business loans and $139 million of commercial real estate loans. At December 31, 2001, commercial loans represented 26% of total loans and were comprised of $218 million of business loans and $121 million of commercial real estate loans. Commercial loans are generally considered to have greater risk than residential mortgage loans because the risk of borrower default is greater. In addition, certain commercial loans are unsecured or involve collateral which may be more likely to decline in value and may be more difficult to liquidate than single-family residences. The increase in the commercial loan portfolio and the decrease in the residential mortgage loan portfolio during the first six months of 2002 was in line with the Company's multi-year strategy to shift its business mix from that of a traditional thrift institution to one more reflective of a community bank. A key aspect of this strategy involves a reduction in the relative proportion of residential mortgage loans on the balance sheet. 18 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, real estate and other assets acquired through foreclosure, and an equity investment in a mortgage servicing partnership, totaled $11.1 million, or 0.63% of assets, at June 30, 2002, compared to $11.9 million, or 0.66% of assets, at December 31, 2001. The decrease was primarily attributable to a decrease in mortgage-related nonperforming assets. The following table sets forth information relating to the Company's nonperforming assets at the dates indicated.

~~For~~June ~~the~~30, ~~Nine~~2002 ~~Months~~December ~~Ended September 30~~31, 2001 ------------- -----------------~~---------~~ ~~2001 2000 ----- -----~~ (dollars in thousands) ~~Allowance~~Residential atmortgage ~~beginning~~loans ~~of period~~ $11 4,~~078~~021 $~~10,478~~ ~~Provision for loan losses 6,250~~ 3,~~625~~553 ~~Charge-offs: Mortgage loans (22) (99)~~ Consumer loans (3,~~875)~~480 (3,~~104)~~588 Commercial loans ~~(126)~~1,130 (1,330 ~~194)~~ ------- ------- Total ~~charge-offs~~nonperforming (4loans 8,~~023)~~631 (38,~~397)~~471 ~~Recoveries:~~Equity ~~Mortgage~~investment ~~loans~~1,000 2 1,000 ~~Consumer~~Real ~~loans~~estate ~~146~~owned ~~125~~and ~~Commercial~~other ~~loans~~acquired ~~135~~assets, 53net ~~-------~~1,448 ~~-------~~2,379 ~~Total recoveries 283 179~~ ------- ------- ~~Allowance~~Total atnonperforming ~~end~~assets ~~of period~~ $1311,~~588~~079 $1011,~~885~~850 ======= ======= ~~Allowance~~Nonperforming ~~for~~loans ~~loan losses~~ to total ~~nonperforming~~ loans atheld ~~end~~for ofinvestment ~~period 183~~0.3471% ~~135~~0.3864% ====== ====== ~~Allowance~~Total ~~for~~nonperforming ~~loan~~assets ~~losses~~ to total ~~loans~~assets ~~held for investment at end of period~~ 0.9963% 0.7666% ==== ====

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses totaled $15.0 million at June 30, 2002, compared to $14.2 million at December 31, 2001. It is management's policy to maintain an allowance for estimated loan losses based upon the probable losses inherent in the loan portfolio that have occurred as of the date of the financial statements. In determining the allowance for loan losses, Commonwealth assesses 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, 2002, the allowance for loan losses represented 1.23% of total loans held for investment, compared to 1.08% at December 31, 2001. The increase in the allowance for loan losses reflected Commonwealth's strategy to increase consumer and commercial lending, while de-emphasizing residential mortgage lending. Consumer and commercial loans generally involve greater credit risk than residential mortgage loans because the risk of borrower default is greater. In addition, certain consumer and commercial loans are unsecured or involve collateral that may be more likely to decline in value and/or may be more difficult to liquidate than single-family residences. At June 30, 2002, consumer and commercial loans represented 60% of total loans, compared to 55% at December 31, 2001. Management will continue to evaluate the allowance for loan losses relative to the level of credit risk in the loan portfolio and make adjustments as appropriate. 19 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.

~~September~~For ~~30,~~the ~~2001~~Six ~~December~~Months ~~31,~~Ended ~~2000~~June 30, ------------------- -------------- 2002 2001 ------ ------ (dollars in thousands) ~~Goodwill~~Allowance ~~(Berks)~~at beginning of period $1314,~~050~~227 $1411,~~319~~078 ~~Goodwill~~Provision ~~(Philadelphia)~~for 7loan losses 3,~~314~~700 83,~~116~~750 ~~Goodwill~~Charge-offs: Residential mortgage loans (~~Tyler~~94) 1- Consumer loans (2,~~144~~433) (2,~~028~~694) Commercial loans (571) (101) -------- --------- Total ~~Goodwill~~charge-offs 21(3,~~508~~098) ~~24,463 CDI~~ (~~Berks~~2,795) ~~3,324~~Recoveries: ~~4,475~~Residential ~~CDI~~mortgage ~~(Philadelphia)~~loans 1~~,265~~ ~~1,512~~2 Consumer loans 97 82 Commercial loans 90 130 -------- --------- Total recoveries 188 214 -------- --------- Allowance at end of period $2615,~~097~~017 $3012,~~450~~247 ====== ====== Allowance for loan losses to total nonperforming loans at end of period 174.00% 162.26% ====== ====== Allowance for loan losses to total loans held for investment at end of period 1.23% 0.87% ==== ====

20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED FEDERAL HOME LOAN BANK STOCK. Federal Home Loan Bank ("FHLB") stock decreased from $13 million at December 31, 2001 to $10 million at June 30, 2002. The decrease was a result of the required sale of FHLB stock which was primarily attributable to the decrease in the Company's residential mortgage-related assets. INTANGIBLE ASSETS. Intangible assets are comprised of the excess of cost over net assets acquired ("Goodwill") and core deposit intangibles ("CDI"). The Company's intangible assets were recorded in connection with the acquisition of certain business interests of the Tyler Group during the first quarter of 2000, the acquisition of twelve branches in Berks and Lebanon Counties in 1996, and the acquisition of four branches in Philadelphia County in 1995. During the second quarter of 2001, Commonwealth reduced the Tyler Acquisition Goodwill by $0.8 million to reflect the reduced likelihood that the portion of the Tyler purchase price which is dependent on future earnings performance will be paid. Intangible assets are generally amortized over periods not to exceed 13 years. The following table details the components of intangible assets at the dates indicated.

ToJune Be30, ~~Well~~2002 ~~Minimum~~December ~~Capitalized~~31, ~~For~~2001 ~~Capital For Prompt Adequacy Corrective Action Actual Purposes Provisions~~ -------------~~-----------------------------------------------------------~~ ~~Ratio Amount Ratio Ratio~~ -----------------~~-------------------------------------------------------~~ (~~dollars~~ in thousands) ~~Shareholders'~~Goodwill ~~equity,~~(Berks) ~~and ratio to the Bank's total assets 8.7%~~ $11,781 ~~154~~$12,~~434~~626 ~~------~~Goodwill ~~Intangible assets~~ (~~26,097~~Philadelphia) ~~Unrealized~~6,511 ~~gain on available for sale securities~~7,046 ~~net~~Goodwill ~~of tax~~ (~~2,879~~Tyler) ~~------------ Tangible capital~~1,117 ~~and ratio to the Bank's adjusted average total assets 7.2% $ 125~~1,~~458~~117 ~~1.5%~~ ------ ~~===========~~ ------- ~~Core~~Total ~~capital~~Goodwill 19,409 ~~and~~20,789 ~~ratio~~CDI to(Berks) ~~the Bank's adjusted average total assets 7.~~2~~% $ 125~~,~~458~~173 ~~4.0% 5.0% ------ =========== ------- ----- Core capital~~2,941 ~~and~~CDI ~~ratio~~(Philadelphia) ~~to the Bank's risk-weighted assets 10.~~1~~% $ 125~~,~~458~~017 ~~6.0% ------ ----------- ----- Allowance for loan losses 13~~1,~~588~~182 ------~~-----~~ ~~Other supplementary capital 186~~ ------~~-----~~ Total ~~risk-based capital, and ratio to the Bank's risk-weighted assets 11.2%~~ $ ~~139~~22,~~232~~599 ~~8.0% 10.0% ------ =========== ------- ----- Bank total assets~~ $ 124,~~766,818~~912 ======~~=====~~ ~~Bank adjusted average total assets $ 1,743,325~~ ======~~===== Bank risk-weighted assets $ 1,246,073 ===========~~

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to assessing impairment on a fair-value-based test approach. Noninterest expense in the second quarter of 2002 and 2001 included the amortization of $1.2 million and $1.1 million, respectively, of intangible assets. Noninterest expense for the first six months of 2002 and 2001 included the amortization of $2.3 million and $2.4 million, respectively, of intangible assets. The amortization was primarily related to goodwill and core deposit intangibles recorded in connection with the acquisition of deposits and branch office facilities in 1995 and 1996. The recent implementation of SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," did not materially impact Commonwealth's amortization of intangible assets. DEPOSITS. With respect to deposits, the Company's strategy is to emphasize growth in relatively low-cost core deposits (demand, money market, and savings deposits) through its retail and commercial banking activities, while deemphasizing growth of relatively high-cost certificates of deposit relative to December 31, 2001. Deposits decreased by $26 million to $1.5 billion at June 30, 2002. The decrease was primarily due to a decrease in certificates of deposit offset, in part, by an increase in money market, savings and demand deposits. NOTES PAYABLE AND OTHER BORROWINGS. Notes payable and other borrowings consist of advances from the Federal Home Loan Bank, securities sold under agreements to repurchase, and commercial repurchase agreements. Notes payable and other borrowings increased by $2 million, or 2%, from $123 million at December 31, 2001 to $125 million at June 30, 2002. 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. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED SHAREHOLDERS' EQUITY. Shareholders' equity was $144 million, or 8.2% of assets, as of June 30, 2002, compared to $150 million, or 8.4% of assets, at December 31, 2001. The decrease was primarily the result of common stock repurchases offset, in part, by an increase in retained earnings and accumulated other comprehensive income. During the first six months of 2002, the Company purchased 0.6 million shares of its common stock, representing an investment of $16 million. During the first six months of 2001, the Company purchased 0.5 million shares of its common stock, representing an investment of $9 million. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED REGULATORY CAPITAL REQUIREMENTS. The Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, tier 1 risk-based, and total risk-based capital ratios of 4%, 4%, and 8%, respectively. The capital guidelines require the Bank to risk-weigh its assets and exposure to certain off-balance-sheet items to reflect the different risks associated with various types of assets and certain off-balance-sheet items. Failure to meet the minimum capital requirements could result in certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. As of June 30, 2002, the Bank was in full compliance with all regulatory capital requirements and maintained capital ratios which were generally in line with internal targeted levels. However, events beyond the control of the Bank, such as a downturn in the economy in areas where the Bank has most of its loans, could adversely affect future earnings and, consequently, the ability of the Bank to meet its future minimum capital requirements. As of June 30, 2002, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum tier 1 leverage, tier 1 risk-based, and total risk-based capital ratios of 5%, 6%, and 10%, respectively. There have been no conditions or events since that notification which, in management's opinion, would have changed the Bank's well capitalized status. A summary of the Bank's capital amounts and ratios as of June 30, 2002 and December 31, 2001 follows:

~~Quarter~~June ~~Ended September~~ 30, ~~-------------------------------------~~2002 ~~----------------------------------------~~December 31, 2001 ~~2000~~ -------------~~------------------------~~ -----------------~~-----------------------~~ ~~Average Average~~ (dollars in thousands) ~~Average~~Shareholders' ~~Yield/~~equity ~~Average Yield/ Balance Interest Cost Balance Interest Cost ------- -------- ---- ------- -------- ---- Loans receivable: Mortgage loans~~ $~~694~~142,~~117~~552 $12143,~~674~~170 ~~7.24%~~Intangible ~~$867,018~~assets ~~$15~~(22,~~908~~599) ~~7.30% Consumer loans 386,991 8,853 9.08% 361,219 8,393 9.24% Commercial loans~~ (124,912) ~~300,002~~Unrealized ~~6,253~~gain ~~8.27%~~on ~~217,800 4,976 9.09%~~ available-for-~~----------~~sale ~~---------~~securities, ~~--------~~net ~~------------~~of ~~----------~~tax ~~-------- Total loans receivable 1~~(4,~~381,110~~232) ~~27,780 7.98%~~ (1,~~446,037~~663) ~~29,277 8.05%~~ ------~~------~~ ------~~---~~ ~~--------~~Tier ~~------------~~1 ~~----------~~capital ~~-------- Mortgage-backed securities 164~~115,~~676~~721 2116,~~695~~595 ~~6.49%~~======= ~~240,354~~======= ~~4,191~~Tier ~~6.94%~~2 ~~Investment~~capital ~~securities 13~~15,~~497~~082 ~~205 6.03% 19~~14,~~038~~273 ~~320 6.69% Other earning assets 53,334 672 5.00% 18,444 506 10.91%~~ ------~~------~~ ------~~---~~ ~~-------- ------------ ---------- --------~~ Total ~~interest~~risk-~~earning~~based ~~assets~~capital ~~(1) 1~~$130,~~612,617~~803 31$130,~~352~~868 ~~7.71%~~======= ~~1,723,873~~======= ~~34,294~~Average ~~7.91%~~adjusted ~~---------~~total ~~-------- ---------- -------- Noninterest-earning~~ assets ~~158,813 147,079 ------------ ------------ Total assets~~ $1,~~771~~724,~~430~~167 $1,~~870~~734,~~952~~654 =========~~===~~ =========~~===~~ ~~Deposits: Demand deposits $781,484 3,615 1.84% $730,607 4,339 2.36% Savings deposits 219,459 924 1.67% 221,308 1,229 2.21% Certificates of deposit 452,744 5,683 4.98% 504,436 6,638 5.24%~~ Risk-~~-----------~~weighted ~~---------~~assets -------- ------------ ---------- -------- Total deposits 1,453,687 10,222 2.79% 1,456,351 12,206 3.33% ------------ --------- -------- ------------ ---------- -------- Notes payable and other borrowings: FHLB Advances 100,206 1,628 6.45% 143,884 2,300 6.36% Repurchase agreements 10,000 177 7.02% 64,457 991 6.12% Other borrowings 22,199 178 3.18% 16,444 195 4.72% ------------ --------- -------- ------------ ---------- -------- Total borrowings 132,405 1,983 5.94% 224,785 3,486 6.17% ------------ --------- -------- ------------ ---------- -------- Total interest-bearing liabilities 1,586,092 $~~12,205 3.05%~~ 1,~~681~~196,~~136~~004 $~~15,692 3.71% --------- -------- ---------- -------- Noninterest-bearing liabilities 25,452 35,988 ------------ ------------ Total liabilities~~ 1,~~611~~230,~~544~~262 ~~1,717,124 Shareholders' equity 159,886 153,828 ------------ ------------ Total liabilities and equity $1,771,430 $1,870,952~~ =========~~===~~ =========~~===~~ ~~Yield~~Tier on1 ~~interest~~leverage ~~earning~~ratio ~~assets~~(1) 76.71% 76.9172% ~~Cost~~Tier of1 ~~supporting~~risk-based ~~funds~~ratio ~~3.00% 3.62% Net interest margin: Taxable equivalent basis~~ (12) ~~$19,147 4~~9.7168% ~~$18,602 4~~9.2948% ~~Without~~Total ~~taxable~~risk-based ~~equivalent~~ratio ~~adjustments~~(3) ~~$18,950 4~~10.6694% ~~$18,416 4~~10.2564%

---------------- (1) Tier 1 capital to adjusted average total assets. (2) Tier 1 capital to risk-weighted assets. (3) Total risk-based capital to risk-weighted assets. 23 Commonwealth Bancorp, Inc. and Subsidiaries Average Balance Sheets

~~Nine~~Quarter ~~Months~~ Ended ~~September~~June 30 , ------------------------------------- ------ ------------------------------------------- 2002 2001 ~~2000~~ ------------------------------------- ------ ------------------------------------------- Average Average (dollars in thousands) Average Yield / Average Yield / Balance Interest Cost Balance Interest Cost Interest-~~------~~earning ~~--------~~assets: ~~---- ------- -------- ----------~~ Loans receivable: ~~Mortgage~~Residential mortgage loans $~~760~~511,~~452~~135 $429,~~140~~010 7.4107% $~~872~~756,~~893~~633 $4713,~~853~~951 7.3240% Consumer loans ~~386~~372,~~441~~668 267,~~495~~890 98.1749% ~~344~~389,~~306~~211 238,~~540~~904 9.1318% Commercial loans ~~(1) 274~~350,~~663~~858 166,~~937~~185 87.2407% ~~204~~275,~~897~~991 135,~~724~~778 8.9540% -------------- ------------- ----------- ---------------- ----------- ---------- Total loans receivable 1,~~421~~234,~~556~~661 8523,~~572~~085 87.0550% 1,~~422~~421,~~096~~835 8528,~~117~~633 78.9908% -------------- ------------- ----------- ---------------- ----------- ---------- Mortgage-backed securities ~~182~~314,~~344~~215 94,~~170~~352 65.7256% ~~260~~184,~~254~~727 133,~~518~~084 6.9470% Investment securities 1321,~~869~~700 ~~615~~290 5.9336% 4114,~~804~~092 ~~1,950~~205 65.2383% Other earning assets 3619,~~463~~854 ~~1,696~~183 63.2270% 1837,~~859~~827 ~~1,477~~588 106.4623% -------------- ------------- ----------- ---------------- ----------- ---------- Total interest-earning assets (1~~) 1~~,~~654~~590,~~232~~430 9727,~~053~~910 7.8404% 1,~~743~~658,~~013~~481 ~~102~~32,~~062~~510 7.8286% ------------- ----------- ----------- ---------- Noninterest-earning assets ~~158~~157,~~750~~503 ~~147~~156,~~115~~569 -------------- ---------------- Total assets $1,~~812~~747,~~982~~933 $1,~~890~~815,~~128~~050 ============== ================ Interest-bearing liabilities: Deposits: ~~Demand~~Checking deposits $~~768~~447,~~207~~499 ~~12,067~~598 20.1054% $~~735~~388,~~383~~875 ~~13,038~~861 20.3789% ~~Savings~~Money market deposits ~~218~~423,~~713~~489 31,~~313~~788 21.0369% ~~222~~384,~~878~~580 3,~~692~~249 3.39% Savings deposits 236,691 736 1.25% 221,548 1,215 2.2120% Certificates of deposit ~~474~~372,~~294~~637 183,~~480~~503 53.2177% ~~526~~475,~~518~~760 206,~~051~~230 5.0925% -------------- ------------- ----------- ---------------- ----------- ---------- Total deposits 1,~~461~~480,~~214~~316 336,~~860~~625 31.1080% 1,~~484~~470,~~779~~763 3611,~~781~~555 3.3115% -------------- ------------- ----------- ---------------- ----------- ---------- Notes payable and other borrowings: FHLB ~~Advances~~advances ~~127~~54,~~947~~370 ~~6,064~~903 6.3466% ~~130~~124,~~221~~887 51,~~946~~974 6.1034% Repurchase agreements 2110,~~044~~000 ~~1,054~~174 6.7098% 7619,~~606~~231 ~~3,452~~321 6.0270% ~~Other~~Commercial ~~borrowings~~repurchase 18agreements 37,~~946~~280 ~~548~~135 31.8745% 1319,~~502~~268 ~~496~~185 43.9185% -------------- ------------- ----------- ---------------- ----------- ---------- Total borrowings ~~167~~101,~~937~~650 71,~~666~~212 64.1078% ~~220~~163,~~329~~386 92,~~894~~480 6.0009% -------------- ------------- ----------- ---------------- ----------- ---------- Total interest-bearing liabilities 1,~~629~~581,~~151~~966 $417,~~526~~837 31.4199% 1,~~705~~634,~~108~~149 $4614,~~675~~035 3.6644% ------------- ----------- ----------- ---------- Noninterest-bearing liabilities 2321,~~716~~433 3321,~~210~~069 -------------- ---------------- Total liabilities 1,~~652~~603,~~867~~399 1,~~738~~655,~~318~~218 Shareholders' equity ~~160~~144,~~115~~534 ~~151~~159,~~810~~832 -------------- ---------------- Total liabilities and equity $1,~~812~~747,~~982~~933 $1,~~890~~815,~~128~~050 ============== ================ Yield on interest -earning assets 7.8404% 7.8286% Cost of supporting funds 31.3598% 3.5839% Net interest margin: Taxable equivalent basis ~~(1)~~ $5520,~~527~~073 45.4906% $5518,~~387~~475 4.2447% Without taxable equivalent adjustments $5419,~~961~~814 45.4400% $5418,~~948~~287 4.2142%

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. 24 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, 2002 AND 2001. GENERAL. Net income was $5.1 million, or $0.51 per common share on a diluted basis, for the second quarter of 2002. This compared to net income of $4.1 million, or $0.38 per common share on a diluted basis, for the second quarter of 2001. For the six months ended June 30, 2002, net income was $9.4 million, or $0.93 per common share on a diluted basis. This compared to net income of $5.4 million, or $0.50 per common share on a diluted basis, for the six months ended June 30, 2001. The results for the first six months of 2001 were affected by: - A $2.3 million pre-tax charge associated with the restructuring of Commonwealth's mortgage banking business; - A $0.7 million pre-tax charge relating to the retirement of Commonwealth's former Chief Executive Officer; and - A $0.5 million pre-tax charge relating to the resolution of legal proceedings concerning a loan acquired in the 1970's. Exclusive of these three items, net income for the first six months of 2001 would have been $8.1 million, or $0.74 per share on a diluted basis. NET INTEREST INCOME. Net interest income was $19.8 million in the second quarter of 2002, compared to $18.3 million in the second quarter of 2001. For the six months ended June 30, 2002, net interest income was $39.0 million, versus $36.0 million for the comparable period in 2001. These increases were primarily attributable to a higher net interest margin, which were partially offset by a decrease in average interest-earning assets. Net interest income for the first six months of 2001 was also adversely affected by a $0.5 million charge relating to the resolution of legal proceedings concerning a loan acquired in the 1970's. Average interest-earning assets totaled $1.6 billion for both the second quarter and six months ended June 30, 2002. This compares to average interest-earning assets of $1.7 billion for second quarter and six months ended June 30, 2001. The decreases in average interest-earning assets were due primarily to decreases in loans receivable offset, in part, by increases in mortgage-backed securities. Average loans were $1.2 billion and $1.3 billion for the quarter and six months ended June 30, 2002, respectively. This compares to average loans of $1.4 billion for the quarter and six months ended June 30, 2001. Compared to the second quarter of 2001, average mortgage loans decreased 32% to $511 million, average consumer loans decreased 4% to $373 million and average commercial loans increased 27% to $351 million, in the second quarter of 2002. Compared to the first six months of 2001, average mortgage loans decreased 32% to $537 million, average consumer loans decreased 3% to $374 million and average commercial loans increased 32% to $346 million, for the first six months of 2002. The net interest margin on a fully taxable equivalent basis was 5.06% in the second quarter of 2002, compared to 4.47% in the second quarter of 2001. The increase was primarily attributable to a 1.45% decrease in the cost of interest-bearing liabilities, which was partially offset by an 0.82% decrease in the 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 various types of deposits relating to a decline in market interest rates, as well as a favorable change in funding mix. The decrease in the yield on interest-earning assets was primarily related to a reduction in market interest rates. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED For the six months ended June 30, 2002, the net interest margin on a fully taxable equivalent basis was 4.99%, versus 4.38% in the comparable 2001 period. The increase was primarily attributable to a 1.48% decrease in the cost of interest-bearing liabilities, which was partially offset by an 0.83% decrease in the yield on interest-earning assets. The decreases in the cost of interest-bearing liabilities and the yield on interest-earning assets were due primarily to the same factors responsible for the decreases in the second quarter of 2002. As previously noted, the net interest margin for the first six months of 2001 was impacted by the $0.5 million charge relating to the resolution of legal proceedings concerning a loan. Exclusive of this item, the net interest margin on a fully taxable equivalent basis would have been 4.44% for the first six months of 2001. PROVISION FOR LOAN LOSSES. Provision for loan losses totaled $1.5 million and $3.7 million in the second quarter and six months ended June 30, 2002, respectively. The provision for loan losses totaled $2.3 million and $3.8 million in the second quarter and six months ended June 30, 2001, respectively. Net credit losses totaled $1.4 million, or 0.46% of average loans, in the second quarter of 2002, compared to $1.2 million, or 0.34% of average loans, in the second quarter of 2001. For the six months ended June 30, 2002, net credit losses totaled $2.9 million, or 0.46% of average loans, compared to $2.6 million, or 0.36%, in the same 2001 period. At June 30, 2002, the allowance for loan losses totaled $15.0 million, or 1.23% of loans, compared to $14.2 million, or 1.08% of loans, at December 31, 2001. The increase in the allowance for loan losses reflected Commonwealth's strategy to increase consumer and commercial lending, while de-emphasizing residential mortgage lending. Consumer and commercial loans generally involve greater credit risk than residential mortgage loans because the risk of borrower default is greater. In addition, certain commercial and consumer loans are unsecured or involve collateral that may be more likely to decline in value and/or may be more difficult to liquidate than single-family residences. At June 30, 2002, consumer and commercial loans represented 60% of total loans, compared to 55% at December 31, 2001. Management will continue to evaluate the allowance for loan losses relative to the level of credit risk in the loan portfolio and make adjustments as appropriate. NONINTEREST INCOME. Noninterest income totaled $5.5 million in the second quarter of 2002, compared to $5.1 million in the second quarter of 2001. The increase was primarily a result of a $0.5 million increase in deposit fees. Noninterest income was $10.5 million for the first six months of 2002, compared to $10.6 million for the same 2001 period. The decrease reflected a $1.6 million decrease in the net gain on sale of mortgage loans, which was attributable to the restructuring of Commonwealth's mortgage banking business. This decrease was partially offset by a $1.1 million increase in deposit fees and a $0.4 million increase in financial services fees. NONINTEREST EXPENSE. Noninterest expense was $16.7 million in the second quarter of 2002, compared to $15.7 million in the second quarter of 2001. The increase was primarily attributable to higher expenses relating to certain employee benefit plans. Core noninterest expense, excluding amortization of intangible assets, totaled 60.8% of core noninterest income and net interest income on a fully taxable equivalent basis in the second quarter of 2002, compared to 61.9% in the second quarter of 2001. Noninterest expense was $32.8 million for the six months ended June 30, 2002, compared to $35.6 million for the same period in 2001. The results for the first six months of 2001 were adversely affected by the $2.3 million charge associated with the restructuring of Commonwealth's mortgage banking business, and the $0.7 million charge relating to the retirement of Commonwealth's former Chief Executive Officer. Exclusive of these items, noninterest expense would have been $32.6 million for the first six months of 2001. The increase in noninterest expense in the first six months of 2002, relative to the adjusted level for the first six months of 2001, was primarily related to higher compensation and employee benefit expenses, offset by a reduction in mortgage banking expenses. The latter was attributable to the restructuring of Commonwealth's mortgage banking business in 2001. Core noninterest expense, excluding amortization of intangible assets, totaled 60.9% of core noninterest income and net interest income on a fully taxable equivalent basis in the first six months of 2002, compared to 63.7% for the first six months of 2001. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED Noninterest expense in the second quarter of 2002 and 2001 included the amortization of $1.2 million and $1.1 million, respectively, of intangible assets. Noninterest expense for the first six months of 2002 and 2001 included the amortization of $2.3 million and $2.4 million, respectively, of intangible assets. The amortization was primarily related to goodwill and core deposit intangibles recorded in connection with the acquisition of deposits and branch office facilities in 1995 and 1996. The recent implementation of SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," did not materially impact Commonwealth's amortization of intangible assets. INCOME TAXES. Provision for income taxes was $2.0 million, or 28.8% of income before income taxes, in the second quarter of 2002, compared to $1.4 million, or 25.0%, in the second quarter of 2001. For the first six months of 2002, provision for income taxes was $3.6 million, or 28.0% of income before income taxes, compared to $1.8 million, or 25.0%, for the six months ended June 30, 2001. The increase in the effective tax rate in the second quarter and first six months of 2002, relative to the comparable periods in 2001, was primarily attributable to higher pre-tax income in the second quarter and first six months of 2002, which resulted in a lower relative percentage of tax-exempt income to total income. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Commonwealth uses 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, 2002, the Company's income simulation model indicates net interest income would decrease by 1.37% over a two year period if interest rates increased by 200 basis points. The model projects that net interest income would decrease by 8.29% 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 established by the Asset/Liability Committee. Because 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 asset value is significantly impacted by the estimated effect of repayments on the value of loans and mortgage-backed securities. Further, this analysis is based on the Company's assets, liabilities, and off-balance-sheet instruments at June 30, 2002 and does not contemplate any actions the Company might undertake in response to changes in market interest rates. 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 experiences were to differ from historical experience. 28 PART II - OTHER INFORMATION Item 1. Legal Proceedings Other than a complaint filed against CoreStates Financial Corporation and others, as previously reported in the Company's 2001 Annual Report on Form 10-K, 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. The Company withdrew its claim against the United States seeking to recover damages or other monetary relief for the loss of its supervisory goodwill during April 2002 and the case was dismissed. Also, the arbitration action brought by Fiserv Solutions, Inc. against the Company was settled during May 2002. The resolution of these proceedings were previously reported in the Company's Form 10-Q for the quarter ended March 31, 2002. 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 16, 2002. The results of the vote on matters submitted to stockholders at the meeting were previously reported in the Company's Form 10-Q for the quarter ended March 31, 2002. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K. a) Exhibits Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K On April 16, 2002, the Company filed a Current Report on Form 8-K to report under Item 5, its earnings for the first quarter of 2002 and a presentation used in connection with its Annual Meeting of Stockholders on April 16, 2002. On June 5, 2002, the Company filed a Current Report on Form 8-K to report under Item 5, the completion of its previously announced stock repurchase program and the commencement of a new stock repurchase program. On June 19, 2002, the Company filed a Current Report on Form 8-K to report under Item 5, its declared cash dividend. 29 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 12, 2002 /s/ Patrick J. Ward ---------------------------------------------------- Patrick J. Ward President and Chief Executive Officer (Principal Executive Officer) DATE: August 12, 2002 /s/ Charles M. Johnston ---------------------------------------------------- Charles M. Johnston Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 30

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