<PAGE>   1

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


  [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       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                                 (I.R.S. Employer
  of incorporation or organization)                            Identification Number)

      COMMONWEALTH BANK PLAZA
      2 WEST LAFAYETTE STREET
      NORRISTOWN, PENNSYLVANIA                                          19401
 -----------------------------------                            --------------------
            (Address)                                                 (Zip Code)
</TABLE>


        Registrant's telephone number, including area code: (610)313-1600
           Securities registered pursuant to Section 12(b) of the Act:
                                 NOT APPLICABLE

           Securities registered pursuant to Section 12(g) of the Act


                     COMMON STOCK (PAR VALUE $.10 PER SHARE)
                     ---------------------------------------
                                (Title of Class)

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 for 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
    ---     ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
                            ---

As of March 7, 2001, the aggregate value of the 10,530,854 shares of Common
Stock of the Registrant outstanding on such date, which excludes 707,652 shares
held by all directors and officers of the Registrant as a group, was
approximately $180 million. This figure is based on the closing sales price of
$17.125 per share of the Registrant's Common Stock on March 7, 2001 as reported
by the Nasdaq Stock Market.

Number of shares of Common Stock outstanding as of March 7, 2001: 11,238,506


                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated.

(1) Portions of the Annual Report to Stockholders for the year ended December
    31, 2000 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the Annual Meeting of
    Stockholders to be filed within 120 days of December 31, 2000 are
    incorporated into Part III, Items 10 through 13 of this Form 10-K.

================================================================================


<PAGE>   2


PART I

ITEM 1. BUSINESS

GENERAL

       Commonwealth Bancorp, Inc. ("Commonwealth" or the "Company"), a
Pennsylvania corporation, is the holding company for Commonwealth Bank (the
"Bank"). During January 2001, the Bank converted to a Pennsylvania chartered
savings bank, primarily regulated by the Pennsylvania Department of Banking (the
"Department") and the Federal Deposit Insurance Corporation ("FDIC") from a
federally chartered savings bank, primarily regulated by the Office of Thrift
Supervision ("OTS"). The Bank conducts business from its executive offices in
Norristown, Pennsylvania and 60 full-service branches located in southeast
Pennsylvania.

       ComNet Mortgage Services ("ComNet"), a division of the Bank, conducted
business, as of December 31, 2000, through loan origination offices located in
Pennsylvania, Maryland, and New Jersey. ComNet also originated loans through a
network of correspondents, primarily in the eastern United States.

       Shortly after year-end 2000, Commonwealth announced the restructuring of
its mortgage banking business. Under the restructuring, Commonwealth entered
into an agreement with American Home Mortgage Holdings, Inc. to sell its
mortgage loan production offices in Norristown, Pennsylvania; Horsham,
Pennsylvania; Millersville, Maryland; Bethesda, Maryland and Baltimore,
Maryland. The sale is expected to close in the first quarter of 2001. As part of
this agreement, American Home Mortgage Holdings, Inc. will process future
mortgage loan referrals relating to Commonwealth customers. In addition,
Commonwealth entered into a sub-servicing arrangement with a third party through
which that entity will service mortgage loans for Commonwealth. The transfer of
servicing activities is expected to occur in the first half of 2001.

       The Bank first issued stock on January 21, 1994, as a result of the
conversion of Commonwealth Federal Savings Bank from a federally chartered
mutual savings bank to a federally chartered stock savings bank. The Bank was a
subsidiary of Commonwealth Mutual Holding Company, a federally chartered mutual
holding company, which owned approximately 55% of the outstanding common stock
of the Bank. On June 14, 1996, the Company completed an offering of common stock
in connection with the second-step conversion and reorganization from the mutual
holding company form of ownership to the stock holding company form.



                                      -1-
<PAGE>   3

       The Bank is subject to examination and comprehensive regulation by the
Pennsylvania Department of Banking and the FDIC. The Pennsylvania Department of
Banking is the Bank's primary state authority and the FDIC is the Bank's primary
federal regulator. Also, the FDIC, which as administrator of the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF"), insures
the Bank's deposits up to applicable limits. The Bank also is subject to certain
reserve requirements established by the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"), and is a member of the Federal Home
Loan Bank ("FHLB") of Pittsburgh, which is one of the 12 regional banks
comprising the FHLB System.

MARKET AREA

       At December 31, 2000, the Bank had 60 full-service branch offices located
throughout Berks, Bucks, Chester, Delaware, Montgomery, and Philadelphia
Counties, Pennsylvania. Of the 60 full-service branch offices, 19 were located
in supermarkets. The Bank's branch locations are concentrated in the Reading
area of Berks County; central and southern Montgomery County; and the northeast
Philadelphia community within Philadelphia County. The Company's strategy is
based on the expansion and strengthening of its banking franchise in southeast
Pennsylvania. In this regard, the Company's focus has been directed toward
building a full-service institution, emphasizing localized decision-making and
superior customer service. As part of this strategy, Commonwealth has developed
a wide variety of products and services which meet the needs of its retail and
commercial customer base. The Company generally has sought to achieve long-term
financial strength by increasing the amount and stability of its net interest
income and noninterest income, while limiting growth in operating expense. In
pursuit of these goals, Commonwealth has adopted a number of complementary
business strategies, including expansion of the retail branch network through
internal growth and acquisition; increased focus on consumer lending and
commercial banking; maintenance of sound asset quality and strong capital
levels; and prudent management of interest rate risk.

LENDING ACTIVITIES

       GENERAL. At December 31, 2000, loans held for investment totaled $1.4
billion, which represented 76% of total assets. The Company's loans consist
primarily of conventional loans which are secured by first liens on
single-family residences. Conventional residential real estate loans are loans
which are neither insured by the Federal Housing Administration ("FHA") nor
partially guaranteed by the Veterans Administration ("VA"). The Company's loan
portfolio also consists of consumer loans and commercial loans, including
commercial real estate loans and loans which are guaranteed by the Small
Business Administration ("SBA"). In addition, the Company's loan portfolio
includes a small amount of loans which are secured by multi-family residential
(five or more units) properties.


                                      -2-
<PAGE>   4



       LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Company's loans held for investment at the dates indicated.

<TABLE>
<CAPTION>
                                                              December 31,
                                   ---------------------------------------------------------------------
                                           2000                     1999                 1998
                                   ---------------------  ----------------------- --------------------

                                    Amount     Percent       Amount    Percent     Amount    Percent
                                    ------     -------       ------    -------     ------    -------

                                                           (dollars in thousands)
<S>                                <C>           <C>      <C>          <C>       <C>           <C>
Mortgage loans-residential:
   Fixed rate                      $  495,384    34.68 %  $  528,383    38.49 %  $  566,096     41.98 %
   Adjustable rate                    304,498    21.32       332,367    24.21       403,521     29.92
                                   ----------   ------    ----------   ------    ----------    ------
     Total mortgage loans             799,882    56.00       860,750    62.70       969,617     71.90

Consumer loans:
  Second mortgages                    257,971    18.06       184,844    13.47       126,360      9.37
  Equity lines of credit               26,667     1.87        30,496     2.22        34,845      2.58
  Recreational vehicles                51,194     3.58        60,998     4.44        39,920      2.96
  Other                                48,619     3.40        45,448     3.31        38,781      2.88
                                   ----------   ------    ----------   ------    ----------    ------
    Total consumer loans              384,451    26.91       321,786    23.44       239,906     17.79


Commercial loans:
  Business loans                      157,643    11.04       113,178     8.24        79,490      5.90
  Commercial real estate               78,435     5.49        66,158     4.82        45,021      3.34
  Small Business Administration         8,087     0.56        10,971     0.80        14,491      1.07
                                   ----------   ------    ----------   ------    ----------    ------
    Total commercial loans            244,165    17.09       190,307    13.86       139,002     10.31
                                   ----------   ------    ----------   ------    ----------    ------
    Total loans receivable          1,428,498   100.00 %   1,372,843   100.00 %   1,348,525    100.00 %
                                   ----------   ======    ----------   ======    ----------    ======

Less:
  Net premium on loans purchased       (1,849)                (2,443)                (2,880)
  Allowance for loan losses            11,078                 10,478                  9,589
  Deferred loan fees                    3,159                  3,378                  3,639
                                   ----------             ----------             ----------
Loans receivable, net              $1,416,110             $1,361,430             $1,338,177
                                   ==========             ==========             ==========

<CAPTION>

                                                    December 31,
                                   -----------------------------------------------
                                            1997                   1996
                                   --------------------- -------------------------

                                    Amount      Percent      Amount      Percent
                                    ------      -------      ------      -------
                                               (dollars in thousands)

Mortgage loans-residential:
<S>                                 <C>          <C>           <C>        <C>
   Fixed rate                       $  344,898    27.17 %      $334,096    29.77 %
   Adjustable rate                     613,644    48.34         522,957    46.60
                                    ----------   ------      ----------   ------
     Total mortgage loans              958,542    75.51         857,053    76.37

Consumer loans:
  Second mortgages                      98,934     7.79          77,304     6.89
  Equity lines of credit                41,592     3.28          49,136     4.38
  Recreational vehicles                 22,182     1.75          11,884     1.06
  Other                                 32,085     2.53          30,983     2.76
                                    ----------   ------      ----------   ------
    Total consumer loans               194,793    15.35         169,307    15.09


Commercial loans:
  Business loans                        37,207     2.93          35,380     3.15
  Commercial real estate                58,757     4.63          35,452     3.15
  Small Business Administration         20,016     1.58          25,104     2.24
                                    ----------   ------      ----------   ------
    Total commercial loans             115,980     9.14          95,936     8.54
                                    ----------   ------      ----------   ------
    Total loans receivable           1,269,315   100.00 %     1,122,296   100.00 %
                                    ----------   ======      ----------   ======

Less:
  Net premium on loans purchased        (3,559)                  (3,655)
  Allowance for loan losses              9,024                    9,971
  Deferred loan fees                     3,009                    2,866
                                    ----------               ----------
Loans receivable, net               $1,260,841               $1,113,114
                                    ==========               ==========
</TABLE>

----------------



                                      -3-
<PAGE>   5


       CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth the scheduled contractual amortization of the Company's loans held
for investment at December 31, 2000, as well as the dollar amount of such loans
which are scheduled to mature after one year which have fixed or adjustable
interest rates. Demand loans, loans having no schedule of repayments and no
stated maturity, and overdraft loans are reported as due in one year or less.


<TABLE>
<CAPTION>
                                     Principal Repayments Contractually Due
                                         in Year(s) Ended December 31,
                  ---------------------------------------------------------------------
                    Total at
                  December 31,                                                  2006
                      2000       2001     2002      2003    2004     2005   and Beyond
                  ------------  ------   ------    ------  ------   ------ ------------
                                                   (in thousands)

<S>                <C>          <C>      <C>      <C>      <C>      <C>      <C>
Mortgage loans:
    1-4 family
     residential   $  799,882   $25,981  $25,628  $26,259  $26,554  $26,799  $668,661
Consumer              384,451    50,597   32,670   31,981   29,224   25,151   214,828
Business loans        157,643    15,240   16,360   22,101   13,155   15,899    74,888
Commercial real
 estate                78,435     7,315    7,607    8,263    8,976   12,651    33,623
SBA                     8,087       579      605      641      633      671     4,958
                    ---------    ------   ------   ------   ------   ------   -------
     Total  (1)    $1,428,498   $99,712  $82,870  $89,245  $78,542  $81,171  $996,958
                    =========    ======   ======   ======   ======   ======   =======
</TABLE>

------------------
(1)    Of the $1.3 billion of loan principal repayments contractually due after
       December 31, 2001, $827 million have fixed rates of interest and $501
       million have adjustable rates of interest.

       Scheduled contractual amortization of loans does not reflect the expected
term of the Company's loan portfolio. The expected average life of the loan
portfolio is substantially less than its contractual term because of prepayments
and due-on-sale clauses, which give the Company the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase when current mortgage loan
rates are higher than rates on existing mortgage loans and, conversely, decrease
when rates on current mortgage loans are lower than existing mortgage loan rates
(due to refinancing of adjustable-rate and fixed-rate loans at lower rates).
Under the latter circumstance, the weighted average yield on loans decreases as
higher-yielding loans are repaid or refinanced at lower rates.



                                      -4-
<PAGE>   6





       ACTIVITY IN LOANS HELD FOR INVESTMENT. The following table sets forth the
activity in the Company's loans held for investment during the periods
indicated.



<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                              ------------------------------------------------
                                                  2000             1999             1998
                                              -------------    -------------    --------------
                                                              (in thousands)

<S>                                            <C>               <C>               <C>
Gross loans held for investment at
  beginning of period                          $1,372,843        $1,348,525        $1,269,315
Originations of loans held for
  investment:
    1-4 family residential                         59,073            74,970           196,783
    Consumer                                      156,372           159,330           101,878
    Commercial                                     84,564            78,114            73,318
                                                ---------         ---------         ---------
      Total originations                          300,009           312,414           371,979
Purchases of loans held for investment:
    1-4 family residential (1)                     15,287            24,999           140,567
    Consumer (2)                                   16,827            34,096            24,728
    Commercial                                         -                 -                 -
                                                ---------         ---------         ---------
      Total purchases                              32,114            59,095           165,295
      Total originations and purchases            332,123           371,509           537,274
Repayments                                       (276,468)         (347,191)         (458,064)
                                                ---------         ---------         ---------
Net activity in loans held for
  investment                                       55,655            24,318            79,210
                                                ---------         ---------         ---------
Gross loans held for investment at end
  of period                                    $1,428,498        $1,372,843        $1,348,525
                                                =========         =========         =========
</TABLE>

----------------
(1)    Represents loans generated through Commonwealth's wholesale correspondent
       network.

(2)    Represents purchases of recreational vehicle loans and home equity loans
       during 2000 and recreational vehicle loans during 1999 and 1998.



                                      -5-
<PAGE>   7

       RESIDENTIAL LOAN ORIGINATIONS AND SALES. A primary lending activity of
the Company has been the origination and sale, without recourse, of conventional
and insured/guaranteed real estate loans secured by first liens on 1-4 family
residences.

       Retail loans are originated by Commonwealth's sales force of commissioned
or salaried loan originators through referrals from the Company, real estate
brokers, builders of new homes and others, as well as through direct contact
with borrowers. In connection with the origination of each loan, Commonwealth
prepares mortgage documentation, conducts credit checks, has the subject
property appraised by independent appraisers, and closes the loan.

       The retail loan production office originating a loan is responsible for
taking the loan application and coordinating information flow between the
applicant and Commonwealth's processing center in Norristown, Pennsylvania.
Retail loan applications must be approved by Commonwealth's underwriting
department for compliance with underwriting criteria. Upon approval,
Commonwealth issues a formal commitment letter to the prospective borrower
specifying the amount of the loan, the prevailing interest rate or means for
determining the same, the fees to be paid to Commonwealth, and the date on which
the commitment expires.

       Wholesale loans are purchased from correspondents/brokers or funded by
Commonwealth on behalf of correspondents and brokers. The correspondent or
broker is responsible for the processing of the loan application. When a
wholesale loan enters the underwriting stage, for the majority of correspondents
and brokers, the underwriting is performed by Commonwealth similar to retail
loan originations above. In certain instances, Commonwealth delegates the
underwriting function to correspondents and brokers. Such delegated underwriting
meets Commonwealth's criteria of underwriting standards. Once the underwriting
approval is complete, the purchase or funding is initiated.

       Commonwealth originates conventional loans and, to a lesser extent,
FHA-insured and VA-guaranteed loans. The vast majority of conventional loans are
originated under terms and documentation which conform to the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA") guidelines and, as such, are eligible for sale in the secondary market.

       Mortgage loans originated and purchased totaled $415 million and $621
million during 2000 and 1999, respectively, which included $141 million and $174
million, respectively, of loans originated through the wholesale correspondent
lending network. The decrease in mortgage originations in 2000, relative to
1999, was primarily attributable to the generally unfavorable interest rate
environment for mortgage originations which existed throughout much of 2000.

       Commonwealth sells substantially all of the fixed-rate loans it
originates which conform to FHLMC/FNMA requirements to investors in the
secondary market on a servicing released basis. The Company retains the majority
of the adjustable rate loans, as well as certain loans which do not conform to
FHLMC and FNMA requirements, and loans to employees of the Company.



                                      -6-
<PAGE>   8

       The Company's mortgage loans sold to others generally are sold in groups
through mortgage-backed securities issued by the FHLMC or the FNMA, or on a
loan-by-loan basis to these agencies or other investors. In the case of the
loans sold through mortgage-backed securities, the loans are grouped in pools of
$1.0 million or more and certain documents are delivered to the FHLMC or the
FNMA, which issues a mortgage-backed security representing an undivided interest
in the loan pool. For issuing the security, the FHLMC or the FNMA receives an
annual guarantor fee of approximately 0.11% to 0.27% of the declining principal
amount of the loan pool. Commonwealth, through investment bankers, arranges to
sell mortgage-backed securities to investors.

       A period of 30 to 90 days generally lapses between Commonwealth's
commitment to make a mortgage loan and the ultimate sale of the loan to an
investor. During this period, Commonwealth employs various hedging techniques,
such as mandatory forward commitments and put and call options, to protect the
value of its mortgage production. Mortgage loans generally will decrease in
value during periods of increasing interest rates and increase in value during
periods of decreasing interest rates. The cost of the various hedging techniques
employed by the Company are deducted from the net gain or loss on the sale of
mortgage loans. Accordingly, fluctuations in prevailing interest rates may
result in a gain or loss to Commonwealth as a result of adjustments to the
carrying value of loans held for sale, or on the sale of loans to the extent
that Commonwealth has not obtained prior commitments by investors to purchase
such loans or otherwise hedged the value of the loans against changes in
interest rates. Moreover, the amount of unhedged loans can increase as a result
of increases in interest rates, which can result in greater than anticipated
closings of loans in process.

       The principal means by which Commonwealth hedges its mortgage production
are through the use of mandatory forward commitments and put and call options on
U.S. Treasury bond futures, which are legal agreements between two parties to
purchase and sell a specific quantity of a financial instrument, at a specified
price, with delivery and settlement at a specified future date. Commonwealth
adjusts the amount of its unhedged loans in process based on management's
assessment of market conditions and loan closing rates.



                                      -7-
<PAGE>   9


       The following table sets forth certain information relating to the volume
and type of loans originated and sold by Commonwealth during the periods
indicated.


<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                 ----------------------------------------------------------------
                                        2000                  1999                 1998
                                 ----------------------  -------------------  -------------------
                                                Number                Number              Number
                                 Principal        of      Principal     of    Principal     of
                                   Amount       Loans      Amount     Loans     Amount    Loans
                                   ------       -----      ------     -----     ------    -----
                                                         (dollars in thousands)

<S>                                  <C>            <C>     <C>          <C>   <C>           <C>
Originations for the Company:(1)
  Conventional                       $ 66,798       378     $ 96,568     549   $  337,350    1,562
  FHA/VA                                    -         -            -       -            -        -
                                      -------     -----      -------   -----    ---------    -----
    Total Company                      66,798       378       96,568     549      337,350    1,562
                                      -------     -----      -------   -----    ---------    -----
Originations for others: (1)
  Conventional                        287,122     2,068      448,616   3,513      667,129    5,351
  FHA/VA                               61,335       540       75,531     676      106,917    1,019
                                      -------     -----      -------   -----    ---------    -----
    Total other                       348,457     2,608      524,147   4,189      774,046    6,370
                                      -------     -----      -------   -----    ---------    -----
Total Company and others             $415,255     2,986     $620,715   4,738   $1,111,396    7,932
                                      =======     =====      =======   =====    =========    =====

Retained by the Company: (1)(2)
  Conventional                       $ 66,798       378     $ 96,568     549   $  337,350    1,562
  FHA/VA                                    -         -            -       -            -        -
                                      -------     -----      -------   -----    ---------    -----
    Total Company                      66,798       378       96,568     549      337,350    1,562
                                      -------     -----      -------   -----    ---------    -----
Sales to others: (1)(3)
  Conventional                        273,276     2,089      544,881   3,342      597,889    5,455
  FHA/VA                               57,081       519       88,588     847       97,475      915
                                      -------     -----      -------   -----    ---------    -----
    Total other                       330,357     2,608      633,469   4,189      695,364    6,370
                                      -------     -----      -------   -----    ---------    -----
Total Company and others             $397,155     2,986     $730,037   4,738   $1,032,714    7,932
                                      =======     =====      =======   =====    =========    =====
Other adjustments to
  loans held for sale (4)            $    902               $ 12,685           $    4,386
                                      =======                =======            =========
Increase/(decrease) in
  mortgage loans held for sale       $ 19,002               $(96,637)          $   83,068
                                      =======                =======            =========
</TABLE>

----------------
(1)    Consists entirely of 1-4 family residential loans.

(2)    Consists primarily of 1-4 family residential loans which have adjustable
       rates, are nonconforming due to the size of the loan, or are made to an
       employee of the Company.

(3)    Includes loans converted into mortgage-backed securities.

(4)    Consists of repayments of loans held for sale, net gain on sale of loans,
       and deferred loan fees.

       Shortly after year-end 2000, Commonwealth announced the restructuring of
its mortgage banking business. Under the restructuring, Commonwealth entered
into an agreement with American Home Mortgage Holdings, Inc. to sell its five
mortgage loan production offices in Pennsylvania and Maryland. The sale is
expected to close in the first quarter of 2001. As part of this agreement,
American Home Mortgage Holdings, Inc. will process future mortgage loan
referrals relating to Commonwealth customers. In addition, Commonwealth entered
into a sub-servicing arrangement with a third party through which that entity
will service mortgage loans for Commonwealth. The transfer of servicing
activities is expected to occur in the first half of 2001.


                                      -8-
<PAGE>   10


       CONSUMER LENDING ACTIVITIES. The Company originates consumer loans
directly through its network of 60 full-service branches. In addition,
recreational vehicle loans and certain home equity loans are purchased on an
indirect basis from a third party. At December 31, 2000, $384 million, or 27%,
of the Company's total loan portfolio was comprised of consumer loans.

       A significant portion of the Company's consumer loan portfolio is
comprised of second mortgage loans, which are generally secured by the
underlying equity in a borrower's home or second residence. These loans are for
a fixed amount, have fixed interest rates, terms of one to 15 years, and
loan-to-value ratios of 100% or less. At December 31, 2000, second mortgage
loans totaled $258 million, or 18%, of the Company's total loan portfolio.

       The Company's consumer loan portfolio is also comprised of a significant
amount of recreational vehicle loans. These loans were purchased from a third
party, are for a fixed amount, have fixed interest rates, terms of three to 20
years, and generally have loan-to-value ratios of 100% or less. At December 31,
2000, recreational vehicle loans totaled $51 million, or 4%, of the Company's
total loan portfolio. As a result of the unsatisfactory performance of this
portion of the portfolio, the Company discontinued purchases of recreational
vehicle loans in 2000.

       At December 31, 2000, home equity lines of credit amounted to $27
million, or 2%, of the Company's total loan portfolio. Home equity lines of
credit are a form of revolving credit and are generally secured by the
underlying equity in the borrower's home or second residence. These loans have
floating interest rates, and loan-to-value ratios of 100% or less. The Company
had $93 million of total commitments pursuant to such equity lines of credit
outstanding at year-end 2000.

       The remaining $49 million of the Company's consumer loan portfolio at
December 31, 2000 was comprised primarily of personal loans and lines of credit,
loans secured by new and used automobiles, and credit card loans. Such credit
card loans may be secured by the borrower's principal residence or unsecured,
and are serviced for the Company by a third-party servicer.

       Consumer loans generally have shorter terms and higher interest rates
than residential mortgage loans, and involve more credit risk than residential
mortgage loans because of the type and nature of the collateral and, in certain
cases, the absence of collateral. These risks are mitigated somewhat in the
Company's consumer loan portfolio, because of the high percentage of home equity
lines of credit and second mortgages, which are secured by real estate.



                                      -9-
<PAGE>   11



       COMMERCIAL LENDING ACTIVITIES. Commonwealth's target market is comprised
of small and lower middle market businesses in southeast Pennsylvania. The
Company generally provides loans for commercial purposes to borrowers only under
circumstances where the borrower also has, or establishes, a deposit
relationship with the Company. The loans typically are under $1.0 million.
Commercial real estate loans are generally made in the same amounts and may be
secured by office buildings, warehouses, and other special purpose properties.
Applications for commercial loans are obtained primarily through loan officer
solicitation, branch referrals, and direct inquiry. As of December 31, 2000,
commercial loans totaled $244 million, or 17%, of the Company's total loan
portfolio. At December 31, 2000, commercial loans were comprised of $158 million
of business loans, $78 million of commercial real estate loans, and $8 million
of loans guaranteed by the SBA.

       Commercial business loans originated by the Company generally have terms
of one to five years and interest rates which are fixed or float in accordance
with the Company's prime lending rate. Commercial real estate loans originated
by the Company generally have terms of five to 15 years, with fixed interest
rates. Commercial loans are generally secured and backed by the personal
guarantees of the principals of the borrower. Although commercial loans
generally involve greater credit risk than other types of loans, management
believes that the greater income potential and positive effects on interest rate
risk offset this increased credit risk. Also, income opportunities are enhanced
through the generation of commercial loan origination fees and business deposit
account fee income. The Company intends to continue to expand its commercial
lending program.

       LOAN ORIGINATION FEES. In addition to interest earned on loans, the
Company receives loan origination fees or "points" for originating loans. Loan
points are a percentage of the principal amount of the loan and are charged to
the borrower in connection with the origination of the loan.

       In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 91, which addresses the accounting for non-refundable fees and costs
associated with originating or acquiring loans, the Company's loan origination
fees and certain related direct loan origination costs have been offset, and the
resulting net amount has been deferred and amortized as interest income over the
contractual life of the related loans as an adjustment to the yield of such
loans. At December 31, 2000, the Company had $3.2 million of loan fees related
to loans receivable which had been deferred and are being recognized as income
over the estimated maturities of the related loans using the level-yield
method.



                                      -10-
<PAGE>   12


LOAN SERVICING ACTIVITIES

       During 1999, Commonwealth Bank exited substantially all of the third
party mortgage servicing business, and sold its $1.0 billion FHLMC and FNMA
mortgage servicing portfolio to National City Mortgage. Commonwealth, a
qualified seller/servicer for the FHLMC and the FNMA, continues to service
residential real estate loans for others, primarily related to current mortgage
production awaiting transfer to the ultimate servicer, as well as loans held by
Commonwealth for investment and sale. Servicing includes collecting and
remitting loan payments, accounting for principal and interest, holding escrow
funds for the payment of real estate taxes and insurance premiums, contacting
delinquent borrowers, supervising foreclosures in the event of unremedied
defaults, and generally administering the loans.

       When Commonwealth receives the gross loan payment from the individual
mortgagees of serviced loans, it remits to the owner of the loan a predetermined
net amount based on the yield on that loan. The difference between the coupon on
the underlying loan and the predetermined net amount paid to the owner of the
loan is the gross servicing fee. Commonwealth retains a net servicing fee which
currently ranges from 0.25% to 0.50% of the declining principal amount of the
loans, plus any late charges, on current mortgage production awaiting sale to
the ultimate servicer. Commonwealth retains a monthly sub-servicing fee of $6
per loan on current mortgage production which has been sold to the ultimate
servicer and is awaiting final transfer.

       At December 31, 2000, 1999, and 1998, Commonwealth was servicing $0.1
billion, $0.2 billion, and $1.4 billion of loans for others, respectively, as
well as $0.8 billion, $0.9 billion, and $1.0 billion of loans held by
Commonwealth for investment or sale, respectively. The servicing of $0.1 billion
of loans for others at December 31, 2000 was primarily current mortgage
production awaiting transfer to the ultimate servicer. The portfolio of loans
serviced by Commonwealth at December 31, 2000 consisted of approximately 7,536
loans with an average loan balance of approximately $126,839, a weighted average
service fee of approximately 0.31% per annum and a weighted average remaining
contractual term of approximately 23 years. The Company's loan servicing fees
totaled $0.8 million in 2000, $3.3 million in 1999, and $3.6 million in 1998.

       During the years ended December 31, 2000, 1999, and 1998, Commonwealth
sold $180 million, $419 million and, $444 million of loans originated on a
servicing retained basis, respectively, and $150 million, $214 million, and $251
million on a servicing released basis, respectively.



                                      -11-
<PAGE>   13


       As part of its responsibilities as a servicer of mortgage-backed
securities, Commonwealth is required to remit to mortgage-backed securities
investors the monthly principal collected and scheduled interest payments on
most mortgages, including those for which no interest payments have been
received due to delinquency. As of December 31, 2000, the principal amount of
mortgages outstanding that were subject to this condition aggregated
approximately $125 million, of which approximately $4 million were delinquent.
Substantially all of these loans were sold without recourse and are guaranteed
by the FHLMC or the FNMA.

       Shortly after year-end 2000, Commonwealth announced the restructuring of
its mortgage banking business. Under the restructuring, Commonwealth entered
into an agreement with American Home Mortgage Holdings, Inc. to sell its five
mortgage loan production offices in Pennsylvania and Maryland. The sale is
expected to close in the first quarter of 2001. As part of this agreement,
American Home Mortgage Holdings, Inc. will process future mortgage loan
referrals relating to Commonwealth customers. In addition, Commonwealth entered
into a sub-servicing arrangement with a third party through which that entity
will service mortgage loans for Commonwealth. The transfer of servicing
activities is expected to occur in the first half of 2001.

ASSET QUALITY

       Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full, timely collection of principal and
interest. When loans are placed on nonaccrual, interest previously accrued but
not collected is reversed against interest income in the current period. The
Company provides an allowance for accrued interest deemed to be uncollectible
when a loan is 90 days delinquent.

       Real estate acquired by the Company as a result of foreclosure or by deed
in lieu of foreclosure, under generally accepted accounting principles ("GAAP"),
is classified as real estate owned until sold. Pursuant to Statement of Position
92-3 ("SOP 92-3"), such assets are carried at the lower of fair value less
estimated costs to sell the property, or cost (generally the balance of the loan
on the property at the date of acquisition). After the date of acquisition, all
costs incurred in maintaining the property are expensed and costs incurred for
the improvement or development of such property are capitalized to the extent of
their net realizable value. The Company's accounting for its real estate owned
complies with the guidance set forth in SOP 92-3.



                                      -12-
<PAGE>   14


       DELINQUENT LOANS. The following table sets forth information relating to
the Company's delinquent loans held for investment, and the relation to the
Company's total loans held for investment at the dates indicated.


<TABLE>
<CAPTION>
                                                                     December 31,
                                            -----------------------------------------------------------
                                              2000        1999        1998          1997         1996
                                            --------    --------    --------      --------     --------
                                                                (dollars in thousands)

<S>                                         <C>           <C>      <C>             <C>        <C>
30 to 59 days                               $12,866       $8,867   $  9,788        $13,083    $12,854
60 to 89 days                                 2,611        3,163      2,418          2,503      7,980
90 days and over                              7,995        7,779     10,012          8,938      8,058
                                             ------       ------     ------         ------     ------
  Total                                     $23,472      $19,809    $22,218        $24,524    $28,892
                                             ======       ======     ======         ======     ======
Total delinquent loans to total loans
 held for investment                           1.64%        1.45%      1.65%          1.93%      2.58%
                                               ====         ====       ====           ====       ====
</TABLE>

       NONPERFORMING ASSETS. The following table sets forth information relating
to the Company's nonperforming assets at the dates indicated.

<TABLE>
<CAPTION>
                                                                 December 31,
                                            ------------------------------------------------------
                                              2000       1999       1998         1997       1996
                                            --------   -------    --------     --------   --------
                                                            (dollars in thousands)
<S>                                         <C>         <C>        <C>           <C>        <C>
Mortgage loans - residential                $ 4,193     $ 4,044    $ 5,119       $5,269     $5,240
Consumer loans                                2,782       2,355      1,598        1,324      1,335
Commercial loans (1)                          1,020       1,380      3,295        2,345      1,483
                                             ------      ------     ------        -----      -----
  Total nonperforming loans (1)               7,995       7,779     10,012        8,938      8,058
Real estate owned and other acquired
  assets, net                                 1,003         923      1,049          626      1,090
Investment securities (2)                     1,700       1,700          -          -          -
                                             ------      ------     ------        -----      -----
  Total nonperforming assets (1)            $10,698     $10,402    $11,061       $9,564     $9,148
                                             ======      ======     ======        =====      =====
Nonperforming loans to total loans
  held for investment (1)                      0.56%       0.57%      0.74%        0.70%      0.72%
                                             ======      ======     ======        =====      =====
Total nonperforming assets to total
  assets (1)                                   0.57%       0.54%     0.49%         0.42%     0.43%
                                             ======      ======     ======        =====      =====
</TABLE>

--------------------
(1)    Does not include nonperforming commercial loans which are fully
       guaranteed as to principal and interest by the SBA, which amounted to
       $1.1 million at both December 31, 1997 and 1996. There were no
       nonperforming SBA loans at December 31, 2000, 1999, and 1998.

(2)    Represents an equity investment in a mortgage servicing partnership.

       At December 31, 2000, the Company's $4.2 million of nonperforming
single-family residential loans consisted of 62 loans having an average balance
of $67,634.




                                      -13-
<PAGE>   15

       Forgone interest income on nonaccruing loans totaled $0.6 million at both
December 31, 2000 and 1999. The actual amount of interest recorded as income on
such loans amounted to $0.3 million for each of the years ended December 31,
2000, 1999, and 1998.

       At December 31, 2000, the Company's real estate owned and other assets
acquired totaled $1.0 million, primarily consisting of 12 single-family
residential properties acquired through foreclosure or by deed-in-lieu of
foreclosure and 29 recreational vehicle loans. At December 31, 1999, real estate
owned and other assets acquired totaled $0.9 million, primarily consisting of 15
single-family residential properties acquired through foreclosure or by
deed-in-lieu of foreclosure and 11 recreational vehicle loans. At year-end 1998,
real estate owned totaled $1.0 million, primarily consisting of 20 single-family
residential properties acquired through foreclosure or by deed-in-lieu of
foreclosure.

       During 2000, the Company sold 23 single-family residential properties
which were held as real estate owned for a nominal net loss and acquired an
additional 20 single-family residential properties through foreclosure or
deed-in-lieu of foreclosure. During 1999, the Company sold 28 single-family
residential properties which were held as real estate owned for a nominal net
gain and acquired an additional 23 single-family residential properties through
foreclosure or deed-in-lieu of foreclosure. During 1998, the Company sold 20
single-family residential properties which were held as real estate owned for a
nominal net gain and acquired an additional 27 single-family residential
properties through foreclosure or deed-in-lieu of foreclosure.

       CLASSIFIED ASSETS. Federal regulations require that each insured savings
association classify its assets on a regular basis. Furthermore, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful," and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full questionable on the basis of currently
existing facts, conditions and values, and there is a high possibility of loss.
Loss assets are considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Classified assets
of the Company were essentially comprised of its nonperforming assets, as
discussed above.

       A fourth category, designated "special mention", reflects those assets
which do not currently expose an insured institution to a sufficient degree of
risk to warrant classification as substandard, doubtful or loss, but which
represent potential future problem assets. At December 31, 2000, the Company had
$3.8 million of assets classified as special mention.



                                      -14-
<PAGE>   16



       ALLOWANCE FOR LOAN LOSSES. It is management's policy to maintain an
allowance for estimated loan losses based upon the probable losses inherent in
the loan portfolio which 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 collectibility of the loan portfolio. In management's
opinion, the allowance for loan losses is sufficient to absorb estimated losses
in the loan portfolio.

       The following table sets forth the activity in the Company's allowance
for loan losses during the periods indicated.

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                 ---------------------------------------------------

                                     2000        1999      1998      1997      1996
                                    ------     -------    ------    ------    ------
                                              (dollars in thousands)

<S>                                <C>         <C>       <C>       <C>        <C>
Allowance at beginning of year     $10,478     $ 9,589   $ 9,024   $ 9,971    $7,485
                                    ------      ------    ------    ------     -----

Provision                            5,250       4,000     3,500     1,600       601


Charge-offs:
  Mortgage                            (135)       (344)     (566)     (453)     (189)
  Consumer                          (4,456)     (2,138)   (1,857)   (1,383)     (478)
  Commercial                          (298)     (1,190)     (706)     (963)        -
                                    ------      ------    ------    ------     -----
    Total charge-offs               (4,889)     (3,672)   (3,129)   (2,799)     (667)
Recoveries:
  Mortgage                              14          27        32       147       133
  Consumer                             170         237        78        74        29
  Commercial                            55         297        84        31        18
                                    ------      ------    ------    ------     -----
    Total recoveries                   239         561       194       252       180
Allowance acquired in
  Berks Acquisition                     -           -         -         -      2,372
                                    ------      ------    ------    ------     -----
Allowance at end of year           $11,078     $10,478   $ 9,589   $ 9,024    $9,971
                                    ======      ======    ======    ======     =====


Allowance for loan losses to
   total loans held for
   investment at end of year         0.78%       0.76%     0.71%     0.71%      0.89%
                                     ====        ====      ====      ====       ====
</TABLE>



                                      -15-
<PAGE>   17


       The following table presents the Company's allowance for loan losses
allocated by categories of loans held for investment at the dates indicated.

<TABLE>
<CAPTION>
                                                                    December 31,
                         --------------------------------------------------------------------------------------------------
                              2000                1999                 1998                 1997                 1996
                         ----------------   -----------------   ------------------    -----------------   -----------------

                                 Percent             Percent             Percent               Percent             Percent
                                    of                  of                  of                    of                  of
                                 Loans by            Loans by            Loans by              Loans by            Loans by
                                 Category            Category            Category              Category            Category
                         Amount    (1)      Amount      (1)     Amount      (1)       Amount      (1)     Amount      (1)
                         ------  --------   ------   --------   ------   ---------    ------   --------   ------   --------
                                                              (dollars in thousands)
<S>                     <C>        <C>     <C>         <C>      <C>        <C>        <C>         <C>     <C>         <C>
Breakdown of
 allowance:
  Mortgage loans        $ 1,662    0.21%   $ 2,442     0.28%    $2,207     0.23%      $2,536      0.26%   $5,339      0.63%
  Consumer loans          6,323    1.64      4,966     1.54      3,412     1.42        2,916      1.50     2,505      1.48
  Commercial loans        3,093    1.27      3,070     1.61      3,970     2.86        3,572      3.72     2,127      3.00
                          -----              -----               -----                 -----               -----
  Total allowance for
   loan losses          $11,078    0.78%   $10,478     0.76%    $9,589     0.71%      $9,024      0.71%   $9,971      0.89%
                         ======             ======               =====                 =====               =====
</TABLE>

--------------------

(1)    Total loans exclude mortgage loans held for sale.



                                      -16-
<PAGE>   18


INVESTMENT ACTIVITIES

       MORTGAGE-BACKED SECURITIES. Mortgage-backed securities (which are also
known as mortgage participation certificates or pass-through certificates)
represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the
mortgage originators, through intermediaries (generally U.S. Government agencies
and U.S. Government sponsored enterprises) that pool and repackage the
participation interests in the form of securities, to investors such as the
Company. Such U.S. Government agencies and U.S. Government sponsored
enterprises, which guarantee the payment of principal and interest to investors,
primarily include the FHLMC, the FNMA, and the Government National Mortgage
Association ("GNMA").

       In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company segregated its mortgage-backed and
investment securities into two categories, those held to maturity and those
available for sale. During the third quarter of 2000, Commonwealth reclassified
certain mortgage-backed securities from the held to maturity category to the
available for sale category. This reclassification resulted in the entire
portfolio being classified as available for sale and a $0.2 million increase in
shareholders' equity. The categorization of Commonwealth's entire portfolio as
available for sale is in line with Commonwealth's strategy to continue to reduce
its mortgage related assets. 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. The net unrealized gain on available for sale
mortgage-backed securities was $1.3 million at year-end 2000, compared to a net
unrealized loss of $4.8 million at year-end 1999.

       At December 31, 2000, the Company's entire mortgage-backed securities
portfolio totaling $203 million was categorized as available-for-sale. At
December 31, 2000, $132 million, or 65%, of the Company's mortgage-backed
securities were insured or guaranteed by the FHLMC, the FNMA, or the 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 FHLMC, the FNMA, or the GNMA. At December 31, 2000, $71
million, or 35%, of the Company's mortgage-backed securities were private
mortgage-backed securities. At December 31, 2000, $161 million, or 80%, of the
Company's mortgage-backed securities portfolio had fixed rates of interest, and
$42 million, or 20%, had adjustable rates of interest.

       Mortgage-backed securities generally increase the quality of the
Company's assets by virtue of the insurance or guarantees related to the
securities, are more liquid than individual mortgage loans, and may be used to
collateralize borrowings or other obligations of the Company.



                                      -17-
<PAGE>   19

       At December 31, 2000 and 1999, mortgage-backed securities with an
amortized cost of $61 million and $116 million, respectively, and a market value
of $62 million and $114 million, respectively, collateralized certain repurchase
agreements. Mortgage-backed securities with an amortized cost at December 31,
2000 and 1999, of $41 million and $44 million, respectively, (market value of
$41 million and $42 million, respectively), were pledged as collateral for
depositors.

       The following table sets forth the activity in the Company's
mortgage-backed securities portfolio during the periods indicated.

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                       --------------------------------------

                                                          2000           1999          1998
                                                        --------       --------      --------
                                                                    (in thousands)


<S>                                                     <C>           <C>          <C>
Mortgage-backed securities at beginning of year         $290,954      $ 524,141     $ 735,291
Purchases                                                    -              -         156,958
Sales or call                                            (21,883)        (5,170)      (30,000)
Repayments and prepayments                               (72,823)      (219,534)     (337,291)
Unrealized gain (loss) on available-for-sale
  mortgage-backed securities                               6,452         (8,483)         (817)
                                                         -------        -------       -------
Mortgage-backed securities at end of year (1)           $202,700      $ 290,954     $ 524,141
                                                         =======        =======       =======
</TABLE>

--------------------
(1)    At December 31, 2000, the amortized cost and market value of the
       Company's total mortgage-backed securities amounted to $201 million and
       $203 million, respectively.

       At December 31, 2000, the contractual maturity of substantially all of
the Company's mortgage-backed securities was in excess of ten years. The actual
maturity of a mortgage-backed security is less than its stated maturity due to
prepayments of the underlying mortgages. Prepayments also affect the yield to
maturity. The yield on a security is based upon the interest income and the
amortization of any premium or accretion of any discount related to the
mortgage-backed security. In accordance with generally accepted accounting
principles, premiums and discounts are amortized or accreted over the estimated
lives of the loans, which decrease and increase interest income, respectively.
The prepayment assumptions used to determine the amortization period for
premiums and discounts can significantly affect the yield of a mortgage-backed
security, and these assumptions are reviewed periodically to reflect actual and
anticipated prepayments. Although prepayments of underlying mortgages depend on
many factors, including the type of mortgages, the coupon rate, the age of
mortgages, the geographical location of the underlying real estate
collateralizing the mortgages, and general levels of market interest rates, the
difference between the interest rates on the underlying mortgages and the
prevailing mortgage interest rates, generally, is the most significant
determinant of the rate of prepayments. During periods of falling mortgage
interest rates, if the coupon rate of the underlying mortgages exceeds the
prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates the prepayment of the underlying mortgages
and the related security. Under such circumstances, the Company may be subject
to



                                      -18-
<PAGE>   20

reinvestment risk because to the extent that the Company's mortgage-backed
securities amortize or prepay faster than anticipated, the Company may not be
able to reinvest the proceeds of such repayments and prepayments at a comparable
rate.

       INVESTMENT SECURITIES. The Company has the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies and state and municipal governments, certificates of
deposit at federally-insured banks and savings and loan associations, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Company may also invest a portion of its assets in commercial paper, corporate
debt securities, mutual funds, the assets of which conform to the investments
that Commonwealth is otherwise authorized to make directly, and certain equity
investments.

       The following table sets forth information regarding the amortized cost
and market value of the Company's investment securities at the dates indicated.
There were no held to maturity investment securities at the dates indicated.

<TABLE>
<CAPTION>
                                                 December 31,
                          ---------------------------------------------------------
                                2000                1999               1998
                          -----------------   -----------------   -----------------

                          Amortized  Market   Amortized  Market   Amortized  Market
                            Cost     Value      Cost     Value      Cost     Value
                          ---------  ------   ---------  ------   ---------  ------
                                               (in thousands)

<S>                        <C>       <C>       <C>      <C>       <C>      <C>
Available for sale:
  U.S. Treasury and U.S.
    Government agency
    securities             $   -     $   -     $   -    $   -     $12,000  $11,999
  Corporate Bonds              -         -      34,996   34,925    19,997   20,140
  Mortgage Related
    Mutual Fund                -         -      20,751   20,479         -        -
  Equity Investment -
    Mortgage Servicing
    Partnership              1,700     2,417     1,700    1,700     1,700    1,700
Other Equity Investments    11,650    11,634    10,854   11,115       710      676
                            ------    ------    ------   ------    ------   ------
  Total                    $13,350   $14,051   $68,301  $68,219   $34,407  $34,515
                            ======    ======    ======   ======    ======   ======
</TABLE>



                                      -19-
<PAGE>   21


SOURCES OF FUNDS

       GENERAL. Deposits are the primary source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from loan principal repayments and prepayments, advances from the
FHLB of Pittsburgh, securities sold under agreements to repurchase, and
commercial repurchase agreements. Loan repayments are a relatively stable source
of funds, while deposit inflows and outflows are influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources.
They may also be used on a longer term basis for general business purposes.

       DEPOSITS. The Company's deposit products include a broad selection of
deposit instruments, including NOW accounts, money market accounts,
noninterest-bearing checking accounts, savings accounts, and certificate of
deposit accounts. Deposit account terms vary, with the principal differences
being the minimum balance required, the length of time the funds must remain on
deposit, and the interest rate. In determining the characteristics of its
deposit accounts, consideration is given to the impact on the profitability of
the Company, matching terms of the deposits with loan products, the
attractiveness to customers, and the rates offered by the Company's competitors.

       The Company's deposits are obtained primarily from residents and
businesses located in southeast Pennsylvania. Management of the Company
estimates that a deminimus portion of the Company's deposits are obtained from
outside southeast Pennsylvania. The Company does not pay fees to brokers to
solicit funds for deposit with the Company, nor does it actively solicit
negotiable-rate certificates of deposit with balances of $100,000 or more.

       The Company attracts deposits through a network of convenient branch
office locations by offering a wide variety of accounts and services,
competitive interest rates, and extended customer hours. At December 31, 2000,
the branch offices of the Company consisted of 41 traditional full-service
offices and 19 full-service offices located in supermarkets.

       In addition to the Company's extensive branch network, the Company
currently maintains 57 automated teller machine ("ATM") locations. The Company
also maintains a 24 hour telephone banking service known as ComLine and an
internet banking service known as Commonwealth OnLine.

       The Company's focus on customer service and convenience has facilitated
its acquisition of lower-cost demand deposits and savings accounts, which
generally have rates which are substantially less than certificates of deposit.
At December 31, 2000, total demand deposits and savings deposits amounted to 51%
and 15% of the Company's total deposits, respectively. During 2000, the weighted
average rate paid on the Company's demand deposits and savings deposits amounted
to 2.37% and 2.21%, respectively, as compared to a weighted average rate paid of
5.17% on the Company's certificates of deposit during this same period.




                                      -20-
<PAGE>   22

       The following table sets forth certain information relating to the
Company's deposits at the dates indicated.

<TABLE>
<CAPTION>
                                                   December 31,
                        ------------------------------------------------------------------
                                2000                  1999                    1998
                        --------------------  ---------------------    -------------------
                                    Percent                Percent                Percent
                                    of Total               of Total               of Total
                          Amount    Deposits     Amount    Deposits      Amount   Deposits
                          ------    --------     ------    --------      ------   --------
                                               (dollars in thousands)

<S>                     <C>           <C>     <C>           <C>      <C>           <C>
NOW accounts            $  208,076    14.30%  $  188,003     12.50%   $  216,668    13.50%
Money market deposits      360,669    24.80      388,605     25.85       390,822    24.34
Noninterest-bearing
   deposits (1)            178,423    12.27      146,477      9.74       103,327     6.44
                         ---------   ------    ---------     -----      --------    -----
   Total demand
   deposits                747,168    51.37      723,085     48.09       710,817    44.28
                         ---------   ------    ---------     -----      --------    -----
Savings deposits           212,946    14.64      221,074     14.70       227,423    14.17
Certificate of deposit
   accounts:
   6 months or less        207,282    14.25      279,109     18.56       317,232    19.76
   7-12 months              69,768     4.79      157,895     10.50       151,258     9.42
   13-36 months            190,797    13.12       88,110      5.86       148,958     9.28
   More than 36 months      26,631     1.83       34,473      2.29        49,611     3.09
                         ---------   ------    ---------     -----      --------    -----
   Total certificates      494,478    33.99      559,587     37.21       667,059    41.55
                         ---------   ------    ---------     -----      --------    -----
   Total deposits       $1,454,592   100.00%  $1,503,746    100.00%   $1,605,299   100.00%
                         =========   ======    =========    ======     =========   ======
</TABLE>

--------------------

(1)    Includes business checking accounts totaling $108 million, $72 million,
       and $57 million at December 31, 2000, 1999, and 1998, respectively.



                                      -21-
<PAGE>   23


       The following table sets forth the activity in the Company's deposits
during the periods indicated.

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                   ------------------------------------------
                                      2000            1999            1998
                                   ----------      ----------      ----------
                                             (dollars in thousands)

<S>                               <C>             <C>             <C>
Beginning balance                 $ 1,503,746     $ 1,605,299     $ 1,552,824
Net decrease before interest          (98,168)       (153,462)         (2,595)
Interest credited                      49,014          51,909          55,070
                                   ----------      ----------      ----------
Net (decrease) increase
  in deposits                         (49,154)       (101,553)         52,475
                                   ----------      ----------      ----------
Ending balance                    $ 1,454,592     $ 1,503,746     $ 1,605,299
                                   ==========      ==========      ==========
</TABLE>

       The following table sets forth by various interest rate categories the
Company's certificates of deposit at the dates indicated.

<TABLE>
<CAPTION>
                                                    December 31,
                                       -------------------------------------
                                         2000          1999           1998
                                       --------      --------       --------
                                               (dollars in thousands)

<S>                                    <C>           <C>            <C>
0.00% to 2.99%                         $  1,364      $    979       $  1,295
3.00% to 3.99%                              122         1,541          1,776
4.00% to 4.99%                          234,341       321,421        224,329
5.00% to 6.99%                          255,058       234,091        436,614
7.00% to 8.99%                            3,503         1,473          2,965
9.00% and over                               90            82             80
                                        -------       -------        -------
Total                                  $494,478      $559,587       $667,059
                                        =======       =======        =======
</TABLE>



                                      -22-
<PAGE>   24

       The following table sets forth the amount and remaining maturities of the
Company's certificates of deposit at December 31, 2000.

<TABLE>
<CAPTION>
                                           Over Six                       Over Two
                                            Months         Over One        Years
                            Six Months    Through One    Year Through     Through     Over Three
                             or less         Year         Two Years     Three Years      Years
                            ----------    -----------    ------------   -----------   ----------
                                                 (dollars in thousands)

<S>                          <C>           <C>            <C>              <C>          <C>
0.00% to 2.99%               $  1,113      $    24        $    197         $    27      $     3
3.00% to 3.99%                    122            -               -               -            -
4.00% to 4.99%                126,227       55,155          33,897          12,397        6,665
5.00% to 6.99%                 76,675       14,395         130,007          14,118       19,863
7.00% to 8.99%                  3,145          104              88              66          100
9.00% and over                      -           90               -               -            -
                              -------       ------         -------          ------       ------
Total                        $207,282      $69,768        $164,189         $26,608      $26,631
                              =======       ======         =======          ======       ======
</TABLE>


       At December 31, 2000, the Company had $80 million of certificates of
deposit in amounts equal to or greater than $100,000, of which $54 million was
scheduled to mature within six months, $13 million was scheduled to mature in
over six months through 12 months, and $13 million was scheduled to mature in a
time period greater than 12 months.

       BORROWINGS. The Company may obtain secured advances from the FHLB of
Pittsburgh by pledging certain assets, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending. At December 31,
2000, the Company had $172 million of advances from the FHLB of Pittsburgh.

       From time to time the Company enters into agreements to sell securities
under terms which require it to repurchase the same securities by a specified
date. Repurchase agreements are considered borrowings which are secured by the
sold securities. At December 31, 2000, the Company had $35 million of repurchase
agreements outstanding.

       At December 31, 2000, the Company also had $18 million of repurchase
agreements outstanding with commercial customers.



                                      -23-
<PAGE>   25


       The following table sets forth the amount and weighted average rate of
the Company's borrowings at the dates indicated.

<TABLE>
<CAPTION>
                                            December 31,
                     ---------------------------------------------------------
                            2000                1999               1998
                     ----------------    -----------------   -----------------
                                       (dollars in thousands)

<S>                   <C>        <C>       <C>        <C>      <C>        <C>
FHLB advances         $171,666   6.36%     $127,000   5.49%    $240,500   5.32%
Repurchase
 agreements             35,000   6.19       100,000   5.81      166,000   6.21
Other borrowings        17,830   4.94         9,076   4.32          -       -
                       -------   ----       -------  -----      -------   ----
  Total borrowings(1) $224,496   6.22%     $236,076   5.58%    $406,500   5.68%
                       =======              =======             =======
</TABLE>

--------------------

(1)    Does not include interest expense associated with interest rate swaps and
       interest rate caps.


       The following table sets forth certain information relating to the
Company's borrowings at the dates and for the periods indicated.

<TABLE>
<CAPTION>
                                      At or For the Year Ended December 31,
                              -----------------------------------------------------
                                2000                  1999                    1998
                              --------              --------                -------

                                                (dollars in thousands)
<S>                           <C>                     <C>                   <C>
FHLB advances:
  Maximum balance             $180,100                $225,500              $368,000
  Average balance             $138,714                $159,929              $285,615
  Weighted average rate:
    At end of period              6.36%                   5.49%                 5.32%
    During the period             6.21%                   5.31%                 5.65%


Repurchase agreements:
  Maximum balance             $100,000                $154,000              $240,521
  Average balance              $65,646                $132,657              $205,018
  Weighted average rate:
    At end of period              6.19%                   5.81%                 6.21%
    During the period             6.04%                   5.92%                 6.04%


Other borrowings:
  Maximum balance              $22,590                 $14,363              $     -
  Average balance              $14,453                 $ 6,869              $     -
  Weighted average rate:
    At end of period              4.94%                   4.32%                   - %
    During the period             4.88%                   4.30%                   - %
</TABLE>



                                      -24-
<PAGE>   26


EMPLOYEES

       The Company had 605 full-time employees and 197 part-time employees at
December 31, 2000. None of these employees are represented by a collective
bargaining agent.

SUBSIDIARIES

       A brief description of the activities of the Company's active
subsidiaries is set forth below.

       CFSL INVESTMENT CORPORATION. CFSL Investment Corporation, a wholly-owned
subsidiary of the Bank incorporated in Delaware, invests primarily in
mortgage-backed securities. At December 31, 2000, CFSL Investment Corporation
held $42 million of mortgage-backed securities.

       COMLIFE, INC. ComLife, Inc., a wholly-owned subsidiary of the Company
incorporated in Pennsylvania, had no assets or liabilities at December 31, 2000.
In February 2001, ComLife, Inc. made an equity investment of $10,000 in an
Arizona-based insurance company.

       COMMONWEALTH BANK. During January 2001, the Bank converted to a
Pennsylvania chartered savings bank, primarily regulated by the Pennsylvania
Department of Banking and the FDIC from a federally chartered savings bank,
primarily regulated by the OTS. The Bank conducts business from its executive
offices in Norristown, Pennsylvania and 60 full-service branches, including 19
supermarket branch offices, located in southeast Pennsylvania. ComNet, a
division of the Bank, conducted business, as of December 31, 2000, through loan
origination offices located in Pennsylvania, Maryland, and New Jersey. ComNet
also originated loans through a network of correspondents, primarily in the
eastern United States.

       COMMONWEALTH INVESTMENT CORPORATION OF DELAWARE, INC. Commonwealth
Investment Corporation of Delaware, Inc., a wholly-owned subsidiary of the
Company incorporated in Delaware, held cash and investment securities totaling
$0.3 million at December 31, 2000.

       CS CORPORATION. CS Corporation, a wholly-owned subsidiary of the Company
incorporated in Pennsylvania, held a $1.7 million equity investment at December
31, 2000.

       FIRSTCOR, LTD. The activities of Firstcor, Ltd. ("Firstcor"), a
wholly-owned subsidiary of the Bank incorporated in Pennsylvania, consist
primarily of investing in limited partnerships which have been formed for the
purpose of investing in real estate for low income families, elderly housing
projects, and/or the preservation or restoration of historically or
architecturally significant buildings or structures. At December 31, 2000,
Firstcor had nine investments in such partnerships with an aggregate carrying
value of $5.0 million. The investments held by these partnerships are all
located in southeast Pennsylvania. In addition, Firstcor, through an independent
brokerage, makes available investments in annuities and mutual funds to
customers of the Company.



                                      -25-
<PAGE>   27

       TYLER WEALTH COUNSELORS, INC. Tyler Wealth Counselors, Inc., a
wholly-owned subsidiary of the Bank incorporated in Pennsylvania, offers
financial planning and investment advisory services to individuals and small
businesses in southeast Pennsylvania. Revenue relating to this business totaled
$1.1 million in 2000.

COMPETITION

       The Company faces strong competition in attracting deposits and making
loans. Its most direct competition for deposits has historically come from other
savings associations, credit unions and commercial banks located in eastern
Pennsylvania, including many large financial institutions which have greater
financial and marketing resources available to them. In addition, the Company
faces significant competition for investors' funds from short-term money market
securities, mutual funds, and other corporate and government securities. The
ability of the Company to attract and retain deposits depends on its ability to
generally provide a rate of return, liquidity, and risk comparable to that
offered by competing investment opportunities.

       The Company experiences strong competition for loans principally from
other savings associations, commercial banks, and mortgage banking companies.
The Company competes for loans principally through the interest rates and loan
fees it charges, and through the efficiency and quality of services it provides
borrowers.



                                      -26-
<PAGE>   28


TAXATION

       FEDERAL. The Company is subject to federal income taxation in the same
general manner as other corporations. The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to
the Company. The Company's federal income tax returns have been audited or
closed without audit by the Internal Revenue Service through 1996.

       METHOD OF ACCOUNTING. For federal income tax purposes, the Company
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its federal income tax
returns.

       DISTRIBUTIONS. If the Bank distributes cash or property to its
shareholders, and the distribution is treated as being from its accumulated bad
debt reserves, the distribution will cause the Company to have additional
taxable income. A distribution to shareholders is deemed to have been made from
accumulated bad debt reserves to the extent that the distribution is a
"non-dividend distribution." A distribution in respect of stock is a
non-dividend distribution to the extent that, for federal income tax purposes,
(i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the
institution, or (iii) in the case of a current distribution, together with all
other such distributions during the taxable year, it exceeds the Company's
current and post-1951 accumulated earnings and profits. The amount of additional
taxable income created by a non-dividend distribution is an amount that when
reduced by the tax attributable to it is equal to the amount of the
distribution.

       MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%
of regular taxable income plus certain tax preferences ("alternative minimum
taxable income" or "AMTI"). The alternative minimum tax is payable to the extent
such AMTI is in excess of an exemption amount. Items of tax preference that
constitute AMTI include (a) tax exempt interest on newly-issued (generally,
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) for taxable years beginning after 1989, 75% of the
excess (if any) of (i) adjusted current earnings as defined in the Code, over
(ii) AMTI (determined without regard to this preference and prior to reduction
by net operating losses). Net operating losses ("NOLs") can offset no more than
90% of AMTI. Certain payments of alternative minimum tax may be used as credits
against regular tax liabilities in future years. The Company has not been
subject to the alternative minimum tax and has no such amounts available as
credits for carryover.

       Legislation adopted in August 1996 (i) repealed the provision of the Code
which authorizes use of the percentage method by qualifying savings institutions
to determine deductions for bad debts, effective for taxable years beginning
after 1995, and (ii) required that a savings institution recapture for tax
purposes (i.e. take into income) over a six-year period its applicable excess
reserves, which for a thrift institution such as the Bank generally is the
excess of the balance of its bad debt reserves as of the close of its last
taxable year beginning before January 1,1996 over the balance of such reserves
as of the close of its last taxable year beginning before January 1, 1988. These
provisions did not have a material adverse effect on the Company's financial
condition or operations.


                                      -27-
<PAGE>   29


       NET OPERATING LOSS CARRYOVERS. For losses incurred in taxable years
beginning 1976 through August 6, 1997, a financial institution may carryback net
operating losses to the preceding three taxable years and forward to the
succeeding 15 taxable years. For taxable years beginning after August 6, 1997,
the carryback period is two years and the carryforward period is twenty years.
At December 31, 2000, the Company had no net operating loss carryforwards for
federal income tax purposes.

       CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The capital
gains income tax, which was previously imposed at a rate of 28% of net long-term
capital gains, was repealed effective December 31, 1986. From that time until
January 1, 1993, corporate net capital gains were taxed at a maximum rate of
34%. The Omnibus Budget Reconciliation Act of 1993 increased the maximum
corporate capital gains rate to 35% effective January 1, 1993. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return. Corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.

       STATE. The Company is subject to the Pennsylvania corporate net income
tax, which imposes a tax at the rate of 9.99% based on federal taxable income.
The Company is also subject to the Pennsylvania capital stock tax based on the
deemed value of its capital at the rate of 1.099%.

       The Bank is subject to tax under the Pennsylvania Mutual Thrift
Institutions Tax Act, which imposes a tax at the rate of 11.5% of the Bank's net
earnings, determined in accordance with GAAP, including certain statutory
adjustments. For fiscal years beginning in 1983, and thereafter, NOLs may be
carried forward and allowed as a deduction for three succeeding years. This Act
exempts the Bank from all other corporate taxes imposed by Pennsylvania for
state tax purposes, and from all local taxes imposed by political subdivisions
thereof, except taxes on real estate and real estate transfers. At December 31,
2000, the Company had net loss carryforwards for state tax purposes totaling
$10.4 million, which expire in 2001 and 2003.



                                      -28-
<PAGE>   30

                                   REGULATION

       Set forth below is a brief description of those laws and regulations
which are deemed material to an understanding of the extent to which the Company
and the Bank are regulated. The description of the laws and regulations
hereunder does not purport to be complete and is qualified in its entirety by
reference to applicable laws and regulations.

THE COMPANY

       GENERAL. The Company is a registered savings and loan holding company
under the Home Owners' Loan Act ("HOLA") and is subject to OTS regulations,
examinations, supervision, and reporting requirements. As a subsidiary of a
savings and loan holding company, the Bank is subject to certain restrictions in
its dealings with the Company and affiliates thereof.

       ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings institution. However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its affiliates; and (iii) any
activities of the savings institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the Qualified
Thrift Lender ("QTL") test, then such unitary holding company also shall become
subject to the activities restrictions applicable to multiple savings and loan
holding companies and, unless the savings institution requalifies as a QTL
within one year thereafter, shall register as, and become subject to the
restrictions applicable to, a bank holding company.

       If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, as set forth below, the activities of the Company and any of its
subsidiaries (other than the Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. Among other things, no
multiple savings and loan holding company or subsidiary thereof which is not a
savings institution shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary thereof
any business activity, upon prior notice to, and no objection by the regulatory
authorities, other than: (i) furnishing or performing management services for a
subsidiary savings institution; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
from


                                      -29-
<PAGE>   31


a subsidiary savings institution; (iv) holding or managing properties used or
occupied by a subsidiary savings institution; (v) acting as trustee under deeds
of trust; (vi) those activities authorized by regulation as of March 5, 1987 to
be engaged in by multiple savings and loan holding companies; or (vii) unless
the Director of the OTS by regulation prohibits or limits such activities for
savings and loan holding companies, those activities authorized by the Federal
Reserve Board as permissible for bank holding companies. Those activities
described in (vii) above also must be approved by the Director of the OTS prior
to being engaged in by a multiple savings and loan holding company.

       LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of
transactions. In addition to the restrictions imposed by Sections 23A and 23B,
no savings institution may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities which are permissible
for bank holding companies, or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings institution.

       In addition, Sections 22(h) and (g) of the Federal Reserve Act places
restrictions on loans to executive officers, directors, and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the institution's
loans to one borrower limit (generally equal to 15% of the institution's
unimpaired capital and surplus). Section 22(h) also requires that loans to
directors, executive officers and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
and also requires prior board approval for certain loans. In addition, the
aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 2000, the Bank was in compliance with the above
restrictions.



                                      -30-
<PAGE>   32


       RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings institution or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a subsidiary savings institution, or of any other savings and loan holding
company.

       The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).

       FEDERAL SECURITIES LAWS. The Company's common stock is registered with
the SEC under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions, and other requirements under the
Exchange Act.



                                      -31-
<PAGE>   33

THE BANK

       GENERAL. During January 2001, the Bank converted to a Pennsylvania
chartered savings bank, primarily regulated by the Pennsylvania Department of
Banking and the FDIC from a federally chartered savings bank, primarily
regulated by the OTS. The Pennsylvania Department of Banking and the FDIC have
extensive authority over the operations of state chartered savings institutions.
As part of this authority, savings institutions are required to file periodic
reports with the FDIC, and are subject to periodic examinations by the
Pennsylvania Department of Banking and the FDIC.

       The Bank is subject to extensive regulation and examination by the
Department and by the FDIC, which insures its deposits to the maximum extent
permitted by law. The federal and state laws and regulations which are
applicable to banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
certain loans. There are periodic examinations by the Department and the FDIC to
test the Bank's compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation, whether by
the Department, the FDIC or the Congress could have a material adverse impact on
the Bank and their operations.

       PENNSYLVANIA SAVINGS BANK LAW. The Pennsylvania Banking Code of 1965, as
amended (the "Banking Code") contains detailed provisions governing the
organization, location of offices, rights and responsibilities of directors,
officers, employees and members, as well as corporate powers, savings and
investment operations and other aspects of the Bank and its affairs. The Banking
Code delegates extensive rulemaking power and administrative discretion to the
Department so that the supervision and regulation of state-chartered savings
banks may be flexible and readily responsive to changes in economic conditions
and in savings and lending practices.

       One of the purposes of the Banking Code is to provide savings banks with
the opportunity to be competitive with each other and with other financial
institutions existing under other Pennsylvania laws and other state, federal and
foreign laws. A Pennsylvania savings bank may locate or change the location of
its principal place of business and establish an office anywhere in
Pennsylvania, with the prior approval of the Department.



                                      -32-
<PAGE>   34

       The Department generally examines each savings bank not less frequently
than once every two years. Although the Department may accept the examinations
and reports of the FDIC in lieu of the Department's examination, the present
practice is for the Department to conduct individual examinations. The
Department may order any savings bank to discontinue any violation of law or
unsafe or unsound business practice and may direct any trustee, officer,
attorney or employee of a savings bank engaged in an objectionable activity,
after the Department has ordered the activity to be terminated, to show cause at
a hearing before the Department why such person should not be removed.

       INTERSTATE ACQUISITIONS. The Interstate Banking Act allows federal
regulators to approve mergers between adequately capitalized banks from
different states regardless of whether the transaction is prohibited under any
state law, unless one of the banks' home states has enacted a law expressly
prohibiting out-of-state mergers before June 1997. This act also allows a state
to permit out-of-state banks to establish and operate new branches in this
state. The Commonwealth of Pennsylvania has "opted in" to this interstate merger
provision. Therefore, the prior requirement that interstate acquisitions would
only be permitted when another state had "reciprocal" legislation that allowed
acquisitions by Pennsylvania-based bank holding companies has been eliminated.
The new Pennsylvania legislation, however, retained the requirement that an
acquisition of a Pennsylvania institution by a Pennsylvania or a
non-Pennsylvania-based holding company must be approved by the Department.

       FDIC INSURANCE OF DEPOSITS. The deposits of the Bank are insured by the
SAIF, which is administered by the FDIC. The FDIC also administers the Bank
Insurance Fund ("BIF") which generally provides insurance for commercial bank
deposits.

       On September 30, 1996, legislation was enacted into law to recapitalize
the SAIF through a one-time special assessment on SAIF-insured deposits as of
March 31, 1995. The Bank's assessment amounted to $6.8 million ($4.5 million,
net of income tax benefit). As a result of the special assessment, the Bank's
deposit insurance premiums decreased from the previous rate of $0.23 per $100 of
deposits to approximately $0.02 per $100 of deposits.

       Beginning January 1, 1997, Financing Corporation ("FICO") assessments of
6.5 and 1.3 basis points were added to the regular assessment for the
SAIF-assessable and the BIF-assessable base. As of December 31, 2000, the FICO
assessment was 2.0 basis points for both the SAIF-assessable and the
BIF-assessable base. The FICO rate is not tied to the FDIC risk classification,
referred to below, and was the result of the Deposit Insurance Act of 1996. It
is anticipated that assessments for BIF and SAIF members will be the same after
2000.



                                      -33-
<PAGE>   35

       Under current FDIC regulations, institutions are assigned to one of three
capital groups based solely on the level of an institution's capital--"well
capitalized," "adequately capitalized," and "undercapitalized." These three
groups are then divided into three subgroups which reflect varying levels of
supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications, with deposit insurance
rates ranging from 0% for well capitalized, healthy institutions to 0.27% for
undercapitalized institutions with substantial supervisory concerns.

       The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. There are no pending proceedings to terminate the deposit insurance of
the Bank.

       CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like the Bank, are not members of the Federal Reserve System. The FDIC's
capital regulations establish a minimum 3.0% Tier I leverage capital requirement
for the most highly-rated state-chartered, non-member banks, with an additional
cushion of at least 100 to 200 basis points for all other state-chartered,
non-member banks, which effectively will increase the minimum Tier I leverage
ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's regulation,
highest-rated banks are those that the FDIC determines are not anticipating or
experiencing significant growth and have well diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general, which are considered a strong banking organization,
rated composite 1 under the Uniform Financial Institutions Rating System.
Leverage or core capital is defined as the sum of common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
related surplus, and minority interests in consolidated subsidiaries, minus all
intangible assets other than certain qualifying supervisory goodwill, and
certain purchased mortgage servicing rights and purchased credit and
relationships.

       The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital which is defined as Tier I capital and
supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, plus certain off-balance-sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.



                                      -34-
<PAGE>   36

       The components of Tier I capital are equivalent to those discussed above
under the 3% leverage standard. The components of supplementary (Tier 2) capital
include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital. At December 31, 2000,
the Bank met each of its capital requirements.

       A bank which has less than the minimum leverage capital requirement
shall, within 60 days of the date as of which it fails to comply with such
requirement, submit to its FDIC regional director for review and approval a
reasonable plan describing the means and timing by which the bank shall achieve
its minimum leverage capital requirement. A bank which fails to file such plan
with the FDIC is deemed to be operating in an unsafe and unsound manner, and
could subject the bank to a cease-and-desist order from the FDIC. The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total assets that is less than 2.0% is deemed to be operating
in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is
subject to potential termination of deposit insurance. However, such an
institution will not be subject to an enforcement proceeding thereunder solely
on account of its capital ratios if it has entered into and is in compliance
with a written agreement with the FDIC to increase its Tier I leverage capital
ratio to such level as the FDIC deems appropriate and to take such other action
as may be necessary for the institution to be operated in a safe and sound
manner. The FDIC capital regulation also provides, among other things, for the
issuance by the FDIC or its designee(s) of a capital directive, which is a final
order issued to a bank that fails to maintain minimum capital to restore its
capital to the minimum leverage capital requirement within a specified time
period. Such directive is enforceable in the same manner as a final
cease-and-desist order.

       The Bank is also subject to more stringent Department capital guidelines.
Although not adopted in regulation form, the Department utilizes capital
standards requiring a minimum of 6% leverage capital and 10% risk-based capital.
The components of leverage and risk-based capital are substantially the same as
those defined by the FDIC.

       LOANS-TO-ONE BORROWER LIMITATION. Under federal regulations, with certain
limited exceptions, a Pennsylvania chartered savings bank may lend to a single
or related group of borrowers on an "unsecured" basis an amount equal to 15% of
its unimpaired capital and surplus. An additional amount may be lent, equal to
10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain securities
and bullion, but generally does not include real estate.



                                      -35-
<PAGE>   37


       ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. Section 24
of the FDIA, as amended by the FDICIA, generally limits the activities and
equity investments of FDIC-insured, state-chartered banks to those that are
permissible for national banks. Under regulations dealing with equity
investments, an insured state bank generally may not directly or indirectly
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things, (i) acquiring or retaining a majority interest in a
subsidiary, (ii) investing as a limited partner in a partnership the sole
purpose of which is direct or indirect investment in the acquisition,
rehabilitation or new construction of a qualified housing project, provided that
such limited partnership investments may not exceed 2% of the bank's total
assets, (iii) acquiring up to 10% of the voting stock of a company that solely
provides or reinsures directors', trustees' and officers' liability insurance
coverage or bankers' blanket bond group insurance coverage for insured
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met.

       The FDIC has adopted final regulations pertaining to the other activity
restrictions imposed upon insured savings banks and their subsidiaries by
Section 24. Pursuant to such regulations, insured savings banks engaging in
impermissible activities may seek approval from the FDIC to continue such
activities. Savings banks not engaging in such activities but that desire to
engage in otherwise impermissible activities may apply for approval from the
FDIC to do so, however, if such bank fails to meet the minimum capital
requirements or the activities present a significant risk to the FDIC insurance
funds, such application will not be approved by the FDIC.

       REGULATORY ENFORCEMENT AUTHORITY. The Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") included substantial
enhancement to the enforcement powers available to federal banking regulators.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities. FIRREA significantly increased the amount of and grounds
for civil money penalties and requires, except under certain circumstances,
public disclosure of final enforcement actions by the federal banking agencies.



                                      -36-
<PAGE>   38


       FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.

       As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 2000, the Bank had $18 million in
FHLB stock, which was in compliance with this requirement.

       The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future. For the year ended December 31, 2000,
dividends paid by the FHLB of Pittsburgh to the Bank amounted to $1.3 million,
compared to $1.2 million for the year ended December 31, 1999.

       FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
interest-bearing checking accounts). As of December 31, 2000, no reserves were
required to be maintained on the first $5.5 million of transaction accounts,
reserves of 3% were required to be maintained against the next $37.3 million of
net transaction accounts (with such dollar amounts subject to adjustment by the
Federal Reserve Board), and a reserve of 10% (which is subject to adjustment by
the Federal Reserve Board to a level between 8% and 14%) against all remaining
net transaction accounts. Because required reserves must be maintained in the
form of vault cash or a noninterest-bearing account at a Federal Reserve Bank,
the effect of this reserve requirement is to reduce an institution's earning
assets.



                                      -37-
<PAGE>   39



ITEM 2. PROPERTIES

OFFICE AND PROPERTIES


       At December 31, 2000, the Bank conducted business from its corporate
offices in Norristown, Pennsylvania and 60 full-service offices, including 19
supermarket branches, located in southeast Pennsylvania.

       The following table sets forth certain information relating to the Bank's
offices at December 31, 2000.


<TABLE>
<CAPTION>
                                                                                 Net Book Value of
                                                                                   Property and
                                                                                     Leasehold
                                                               Lease              Improvements at
                                         Owned or            Expiration             December 31,                 Deposits at
             Location                     Leased                Date                 2000(1)                  December 31, 2000
----------------------------------  -------------------  -----------------  -------------------------  ----------------------------
                                                                                                       (in  thousands)
CORPORATE HEADQUARTERS:
-----------------------

<S>                                    <C>                  <C>                             <C>                         <C>
NORRISTOWN:                              Leased               02/12                           $1,300                      $ 13,348
2 West Lafayette Street
Norristown, PA 19401


TRADITIONAL FULL-SERVICE OFFICES:
---------------------------------

NORRISTOWN:                              Leased               02/12                              123                        35,881
2 West Lafayette Street
Norristown, PA 19401


TRAPPE:                                  Leased               10/10                              136                        32,326
Trappe Shopping Center
130 West Main Street, Suite 158
Trappe, PA 19426


KING OF PRUSSIA:                         Leased               09/03                               86                        36,904
DeKalb Plaza Shopping Center
338 West DeKalb Pike
King of Prussia, PA 19406


PARK RIDGE:                              Leased               01/02                               --                        72,277
Park Ridge Shopping Center
2701 West Main Street
Norristown, PA 19403


EAST NORRITON:                           Leased               05/19                              744                        69,098
East Norriton Crossing
5 West Germantown Pike
Norristown, PA 19401

AUDUBON:                                 Leased               08/03                               10                        42,081
Audubon Village Shopping Center
2806 Audubon Village Drive
Norristown, PA 19403
</TABLE>



                                      -38-
<PAGE>   40



<TABLE>
<CAPTION>
                                                                                  Net Book Value of
                                                                                    Property and
                                                                                      Leasehold
                                                                Lease              Improvements at
                                           Owned or           Expiration             December 31,              Deposits at
               Location                     Leased              Date                   2000(1)               December 31, 2000
--------------------------------------  --------------  ---------------------  ----------------------  ----------------------------
                                                                                                     (in  thousands)
<S>                                    <C>                  <C>                             <C>                         <C>
NEWTOWN SQUARE:                             Owned                --                             $320                       $36,843
3531 West Chester Pike
Newtown Square, PA 19073

FRANKFORD AVENUE:                           Owned                --                              318                        50,890
7149 Frankford Avenue
Philadelphia, PA 19135

CASTOR AVENUE:                              Owned                --                              184                        41,713
6537 Castor Avenue
Philadelphia, PA 19149

PENNDEL:                                    Owned                --                              149                        24,529
U.S. # 1 & Durham Road
Penndel, PA 19047

WELSH ROAD:                                 Owned                --                              121                        39,992
2501 Welsh Road
Philadelphia, PA 19114

GLENSIDE:                                   Owned                --                              282                        66,575
139 South Easton Road
Glenside, PA 19038

WESTTOWN:                                  Leased              08/04                              --                        31,060
Marketplace Shopping Center
1502 West Chester Pike
West Chester, PA 19382

KENNETT SQUARE:                            Leased              12/03                             102                        19,615
New Garden Center
345 Scarlett Road
Kennett Square, PA 19348

WEST GROVE:                                 Owned                --                              115                        17,568
106 West Evergreen Street
West Grove, PA 19390

WAYNE:                                     Leased              08/01                               9                        26,486
Chesterbrook Village Center
500 Chesterbrook Boulevard, Suite B-5
Wayne, PA 19087

PAUL'S RUN:                                Leased              12/01                              --                         6,191
9896 Bustleton Ave.
Philadelphia, PA 19115

LANSDALE:                                  Leased              06/04                              14                        43,260
521 West Main Street
Lansdale, PA 19446
</TABLE>



                                      -39-
<PAGE>   41



<TABLE>
<CAPTION>
                                                                           Net Book Value of
                                                                             Property and
                                                                               Leasehold
                                                       Lease                Improvements at
                                   Owned or          Expiration               December 31,               Deposits at
            Location                Leased              Date                    2000(1)                December 31, 2000
------------------------------- --------------  ---------------------  ------------------------ -----------------------------
                                                                                               (in  thousands)
<S>                             <C>                  <C>                             <C>                         <C>
HILLCREST:                          Leased             07/02                              $ --                       $26,211
Hillcrest Shopping Center
638 East Main Street
Lansdale, PA 19446

SUMNEY FORGE:                       Leased             07/04                                --                        31,132
Sumney Forge Square
1601 Valley Forge Road
Lansdale, PA 19446

SOUDERTON:                           Owned               --                                231                        16,228
705 Route 113
Souderton, PA 18964

CONSHOHOCKEN:                       Leased             10/09                               200                        74,769
Plymouth Square Shopping Center
200 West Ridge Pike, Suite 108
Conshohocken, PA 19428

CENTER CITY:                        Leased             09/08                               449                         7,068
One Penn Square West
30 South 15th Street, Suite 102
Philadelphia, PA 19103

PHOENIXVILLE:                       Leased             07/12                               361                        20,376
Maple Lawn Village Center
510 Kimberton Road
Phoenixville, PA 19460

ROYERSFORD:                         Leased             01/16                               272                         8,958
Limerick Square
70 Buckwalter Road, Suite 650
Royersford, PA 19468

PROTESTANT HOME:                    Leased             03/04                                 2                         7,398
6500 Tabor Road
Philadelphia, PA 19111

TACONY:                             Leased             02/02                                --                        46,384
6958 Torresdale Avenue
Philadelphia, PA 19135

HOLMESBURG:                         Leased             07/05                               196                        32,724
8423 Frankford Avenue
Philadelphia, PA 19136

ACADEMY:                            Leased             02/02                                 9                        27,888
3292 Red Lion Road
Philadelphia, PA 19114

MAYFAIR:                             Owned               --                                310                        19,349
7425 Frankford Avenue
Philadelphia, PA 19136
</TABLE>



                                      -40-
<PAGE>   42


<TABLE>
<CAPTION>
                                                                                  Net Book Value of
                                                                                     Property and
                                                                                      Leasehold
                                                               Lease               Improvements at
                                       Owned or              Expiration              December 31,              Deposits at
             Location                   Leased                  Date                   2000(1)              December 31, 2000
--------------------------------- --------------------  ---------------------  ---------------------- -----------------------------
                                                                                                     (in  thousands)
<S>                                    <C>                  <C>                             <C>                         <C>
5TH & PENN STREETS:                      Owned                   --                           $1,054                       $36,710
445 Penn Street
Reading, PA 19601

9TH & SPRING STREETS:                    Owned                   --                              376                        28,189
956 North Ninth Street
Reading, PA 19604

LANCASTER AVENUE:                       Leased                 12/04                              --                        38,162
830 Lancaster Avenue
Reading, PA 19607

MOHNTON:                                 Owned                   --                              429                        22,727
14 West Wyomissing Avenue
Mohnton, PA 19540

TEMPLE:                                  Owned                   --                              300                        41,231
4950 Kutztown Road
Temple, PA 19560

RIVERSIDE:                               Owned                 03/04                             307                        27,230
2040 Centre Avenue
Reading, PA 19605

HEIDELBERG:                             Leased                 06/07                              57                        25,090
4641 Penn Avenue
Sinking Spring, PA 19608

KUTZTOWN:                                Owned                   --                              302                        19,908
601 East Main Street
Kutztown, PA 19530

EXETER:                                 Leased                 03/05                               4                        36,087
4215 Perkiomen Avenue
Reading, PA 19606

BIRDSBORO:                              Leased                 09/01                              10                        16,394
350 West Main Street
Birdsboro, PA 19508

WYOMISSING:                             Leased                 03/01                               2                         1,851
320 Abington Drive
Wyomissing, PA 19610
</TABLE>



                                      -41-
<PAGE>   43


<TABLE>
<CAPTION>
                                                                                  Net Book Value of
                                                                                     Property and
                                                                                       Leasehold
                                                               Lease               Improvements at
                                       Owned or              Expiration              December 31,              Deposits at
           Location                     Leased                  Date                   2000(1)              December 31, 2000
---------------------------------  -------------------  ---------------------  ---------------------- -----------------------------
                                                                                                     (in  thousands)
<S>                                   <C>                  <C>                             <C>                         <C>
SUPERMARKET BRANCHES:
---------------------

GIANT-MONTGOMERYVILLE:                  Leased                 01/05                            $180                        $1,285
Giant Food Store
1201 Knapp Road
Montgomeryville, PA 19454

REDNER'S COLLEGEVILLE:                  Leased                 01/05                              --                         7,304
Redner's Warehouse Market
Marketplace at Collegeville
201 Second Avenue, Suite 100
Collegeville, PA 19426

GIANT-FAIRLESS HILLS:                   Leased                 01/05                              --                        10,634
Fairless Hills Shopping Center
473 Oxford Road South
Fairless Hills, PA 19030

GIANT-SINKING SPRING:                   Leased                 06/05                              --                         6,803
Spring Towne Center
2643 Shillington Road
Sinking Spring, PA 19608

GIANT-ALDEN:                            Leased                 12/01                              35                         8,554
Providence Village
543 North Oak Avenue
Alden, PA 19018

GIANT-BLUE BELL:                        Leased                 07/05                              --                        12,569
The Shoppes at Blue Bell
1760 DeKalb Pike
Blue Bell, PA 19422

GIANT-HORSHAM:                          Leased                 06/02                              24                         4,862
Horsham Point Shopping Center
314 Horsham Road, Unit A
Horsham, PA 19044

GIANT-SOUTHAMPTON:                      Leased                 02/02                              36                         6,965
Southampton Shopping Center
466 A Second Street Pike
Southampton, PA 18966

GIANT-TROOPER:                          Leased                 03/06                               9                         8,578
Audubon Square Shopping Center
2668 Egypt Road
Norristown, PA 19403

REDNER'S-DOYLESTOWN:                    Leased                 09/05                              --                         7,890
Doylestown Pointe
1661 Easton Road, Suite 2
Warrington, PA 18976
</TABLE>



                                      -42-
<PAGE>   44


<TABLE>
<CAPTION>
                                                                                 Net Book Value of
                                                                                    Property and
                                                                                     Leasehold
                                                                Lease             Improvements at
                                         Owned or             Expiration            December 31,              Deposits at
           Location                       Leased                 Date                 2000(1)              December 31, 2000
----------------------------------  -------------------  --------------------  ---------------------- -----------------------------
                                                                                                     (in  thousands)
<S>                                   <C>                  <C>                             <C>                         <C>
GUINTA'S THRIFTWAY:                      Leased                 02/05                           $ --                       $10,315
Bradford Plaza
700 Downingtown Pike, Suite 130
West Chester, PA 19380

CLEMENS-EXTON:                           Leased                 06/05                             --                         5,204
Lionville Shopping Center
170 Eagleview Boulevard
Exton, PA 19341

WEIS-POTTSTOWN:                          Leased                 08/05                             --                         4,775
The Pottstown Center
223 Shoemaker Road
Pottstown, PA 19464

THRIFTWAY-PORT RICHMOND:                 Leased                 09/05                             --                        13,611
Port Richmond Village
2497 Aramingo Avenue, Suite 2
Philadelphia, PA 19125

SHOPRITE-FAR NORTHEAST:                  Leased                 09/02                             62                        10,350
Boulevard Plaza
11000 Roosevelt Boulevard
Philadelphia, PA 19116

SUPERFRESH-COTTMAN :                     Leased                 04/02                             52                         7,183
Cottman & Bustleton Center
2151 Cottman Avenue
Philadelphia, PA 19149

GIANT-WARMINSTER:                        Leased                 06/03                            151                         3,191
Cedar Pointe Plaza
720-D West Street Road
Warminster, PA 18974

SPRING HOUSE CLEMENS:                    Leased                 11/03                            151                         2,541
Spring House Center/Clemens Market
563 Village Center, Suite - A
Spring House, PA 19477

SHOPRITE-OXFORD:                         Leased                 11/03                            154                         3,277
Lawndale Plaza
6301 Oxford Avenue
Philadelphia, PA 19111
</TABLE>


-------------------------------------------------------
(1) Does not include furniture, fixtures and equipment.



                                      -43-
<PAGE>   45

       The following table sets forth certain information relating to ComNet's
offices at December 31, 2000.


<TABLE>
<CAPTION>
               Location                          Year Opened               Owned or Leased              Lease Expiration Date
----------------------------------------   ----------------------  -------------------------------- -------------------------------

<S>                                               <C>                        <C>                              <C>
HORSHAM, PENNSYLVANIA: (2)                           1988                      Leased                           03/01
Horsham Business Center
300 Welsh Road, Building #4 Suite 150
Horsham, PA 19044

MOUNT LAUREL, NEW JERSEY:                            1988                      Leased                           03/01
533 Fellowship Road, Suite 250
Mount Laurel, NJ 08054

SKILLMAN, NEW JERSEY:                                1999                      Leased                           05/01
1330 Rt. 206
Skillman, NJ 08558

NEWTOWN SQUARE, PENNSYLVANIA:                        2000                      Leased                           03/01
3531 West Chester Pike
Newtown Square, PA 19073

PIKESVILLE, MARYLAND: (2)                            1999                      Leased                           05/03
25 Hooks Lane, Suite 200
Baltimore, MD 21208

NORRISTOWN, PENNSYLVANIA: (2)                        1999                      Leased                           10/01
2947 Swede Road
Norristown, PA 19401

BETHESDA, MARYLAND: (2)(3)                           1997                      Leased                           09/01
4915 St. Elmo Avenue, Suite 205
Bethesda, MD 21236

MILLERSVILLE, MARYLAND: (2)(3)                       1997                      Leased                           08/03
1120 Benfield Boulevard, Suite A
Millersville, MD 21108
</TABLE>


--------------------
(2) Office expected to be sold to American Home Mortgage Holdings, Inc. in the
    first quarter of 2001.
(3) Operate under the trade name of Homestead Mortgage.



                                      -44-
<PAGE>   46

ITEM 3. LEGAL PROCEEDINGS.

       There are no material legal proceedings, other than as described below,
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.

       In August 1995, the Bank commenced litigation against the United States
in the U.S. Court of Federal Claims (the "Claims Court") seeking to recover
damages or other monetary relief for the loss of its supervisory goodwill. The
suit alleges that the treatment of such goodwill mandated by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") constitutes
a breach of contract between the Bank and the United States and an unlawful
taking of property by the United States without just compensation or due process
in violation of the U.S. Constitution. The suit emanates from the Bank's
acquisition of First Family Federal Savings and Loan Association of Lansdale,
Pennsylvania in 1982, pursuant to which the government agreed to the use of the
purchase method of accounting under generally accepted accounting principles and
the recording of approximately $61 million of goodwill as an asset resulting
from the voluntary supervisory merger. (There was no financial assistance from
the Federal Savings and Loan Insurance Corporation.) Since the enactment of
FIRREA, numerous suits have been filed on behalf of thrift institutions and
their holding companies alleging similar theories for breach of contract. The
goodwill balance associated with the First Family acquisition at the point of
FIRREA enactment in 1989 was $48 million.

       In recent years, the Claims Court, the United States Court of Appeals for
the Federal Circuit, and the United States Supreme Court have handed down
decisions relating to the liability portion of the breach of contract claims
brought by other thrift institutions. On July 1, 1996, the United States Supreme
Court ruled in the consolidated cases (United States v. Winstar Corporation) and
determined that when Congress adopted the accounting changes to supervisory
goodwill specified in FIRREA, the government had breached contractual agreements
with these thrift institutions regarding the accounting rules. By year-end 2000,
the Claims Court had ruled in favor of thrift plaintiffs on liability for breach
of contract in a number of additional Winstar-related cases. The damages
decisions in certain of these cases have been appealed to the U.S. Court of
Appeals for the Federal Circuit.

       In 1999, the Bank filed a motion of summary judgment on liability for
breach of contract. However, the Courts may determine that the Bank's claims
involve materially different facts and/or legal issues as to render the Winstar
case inapplicable to the litigation and thereby result in a different conclusion
from that of the Winstar case. Moreover, the damages portion of the claims
presented by the Winstar-related plaintiff thrift institutions is currently
being litigated and could take several years to resolve. As a result, there can
be no assurance that the Bank will prevail in its action, and if it does
prevail, that the Courts will find that the Bank is entitled to any substantial
amount of damages.



                                      -45-
<PAGE>   47



       On October 31, 1996, the Bank filed a complaint against CoreStates
Financial Corporation and others in the Court of Common Pleas for Chester
County, Pennsylvania for damages related to Commonwealth's acquisition on June
28, 1996, of twelve former Meridian Bank branch offices from CoreStates. The
complaint alleges, among other things, that CoreStates breached the branch sales
agreement and that Commonwealth's relationships with its new customers were
damaged as a result of negligence and errors committed by CoreStates and its
affiliates in connection with the conversion of the former Meridian Bank
customers to Commonwealth's banking system and the reissuance of bank cards for
use at Commonwealth's automated teller machines. The litigation and related
activities are proceeding. Management believes the outcome of these proceedings
will not result in a material impact to the Company's financial position or
results of operations.

       During the first quarter of 2000, FiServ, the Company's previous item
processing provider, brought an arbitration action against the Company. This
arbitration action claimed that the Company is liable to FiServ for liquidated
damages related to the termination of an Item Processing and Asset Transfer
Agreement. Management believes that the outcome of this arbitration action will
not result in a material impact to the Company's financial position or results
of operations.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.

       Not Applicable



                                      -46-
<PAGE>   48


PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

       The information required herein is incorporated by reference from page 58
and 59 of the Company's 2000 Annual Report to Stockholders ("2000 Annual
Report").

ITEM 6. SELECTED FINANCIAL DATA.

       The information required herein is incorporated by reference from page 12
of the 2000 Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

       The information required herein is incorporated by reference from pages
13 to 28 of the 2000 Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       The information required herein is incorporated by reference from pages
23 to 25 of the 2000 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

       The information required herein is incorporated by reference from pages
32 to 58 of the 2000 Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

       Not Applicable.



                                      -47-
<PAGE>   49


PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       The information required herein is incorporated by reference from the
definitive proxy statement of the Company for the 2001 Annual Meeting of
Stockholders to be filed with the Commission ("Definitive Proxy Statement").


ITEM 11. EXECUTIVE COMPENSATION.

       The information required herein is incorporated by reference from the
Definitive Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

       The information required herein is incorporated by reference from the
Definitive Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       The information required herein is incorporated by reference from the
Definitive Proxy Statement.



                                      -48-
<PAGE>   50


PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

       (a)    DOCUMENTS FILED AS PART OF THIS REPORT.

(1)    The following financial statements are incorporated by reference from
       Item 8 hereof (see Exhibit 13):

              Report of Independent Public Accountants
              Consolidated Balance Sheets as of December 31, 2000 and 1999
              Consolidated Statements of Income for the years ended December 31,
               2000, 1999 and 1998
              Consolidated Statements of Shareholders' Equity for the years
               ended December 31, 2000, 1999 and 1998
              Consolidated Statements of Cash Flows for the years ended December
               31, 2000, 1999 and 1998
              Notes to Consolidated Financial Statements

(2)    All schedules for which provision is made in the applicable accounting
       regulation of the Commission are omitted because of the absence of
       conditions under which they are required or because the required
       information is included in the financial statements and related notes
       thereto.

(3)    The following exhibits are filed as part of this Form 10-K and this list
       includes the Exhibit Index.

<TABLE>
<CAPTION>
Exhibit Index
-------------
                                                                                       Location
                                                                                       --------
<S>                                                                                        <C>
3.1        Articles of Incorporation of Commonwealth Bancorp, Inc.                         (1)
3.2        Bylaws of Commonwealth Bancorp, Inc.                                            (1)
4.1        Form of Stock Certificate of Commonwealth Bancorp, Inc.                         (1)
10.1       1993 Amended Stock Incentive Plan**                                             (2)
10.2       1993 Amended Directors' Stock Option Plan**                                     (2)
10.3       1993 Amended Management Recognition Plan for Officers**                         (2)
10.4       1993 Amended Management Recognition Plan for Directors**                        (2)
</TABLE>



                                      -49-
<PAGE>   51



<TABLE>
<S>                                                                                        <C>
10.5       1996 Amended Stock Option Plan**                                                (2)
10.6       1996 Amended Recognition and Retention Plan**                                   (2)
10.7       Employee Stock Ownership Plan and Trust**                                       (1)
10.8       Employment Agreements between Commonwealth Bancorp
             and Commonwealth Bank and Charles H. Meacham**                                (4)
10.9       Employment Agreements between Commonwealth Bancorp
             and Commonwealth Bank and Patrick J. Ward**                                   (4)
10.10      Employment Agreements between Commonwealth Bancorp
             and Commonwealth Bank and Charles M. Johnston**                               (4)
10.11      Employment Agreement between Commonwealth Bank and William J. Monnich**         (4)
10.12      Employment Agreement between Commonwealth Bank and Peter A. Kehoe**             (4)
10.13      Employment Agreement between Commonwealth Bank and David K. Griest**            (4)
10.14      Employment Agreement between Commonwealth Bank and Brian C. Zwaan**             (4)
10.15      Excess Benefit Plan of Commonwealth Bank**                                      (3)
10.16      Supplemental Executive Retirement Plan of Commonwealth Bank**                   (3)
10.17      Directors' Stock Retainer Plan**                                                (5)
10.18      2000 Incentive Stock Option Plan**                                              (6)
13.0       2000 Annual Report to Stockholders                                                *
22.0       Subsidiaries of the Registrant - Reference is made to
             "Item 1.  Business - Subsidiaries" for the required information                 -
23.0       Consent of Independent Public Accountants                                         *
</TABLE>

--------------------

*   Filed hereto

**  Management contract or compensatory plan or arrangement.

(1) Incorporated herein by reference from the Company's Registration Statement
    on Form S-1 filed with the Commission on December 18, 1995, as amended.

(2) Incorporated herein by reference from the Company's Quarterly Report on Form
    10-Q for the three months ended March 31, 1998 filed with the Commission on
    May 14, 1998.

(3) Incorporated herein by reference from the Company's Annual Report on Form
    10-K for the year ended December 31, 1997 filed with the Commission on
    March 18, 1998.

(4) Incorporated herein by reference from the Company's Annual Report on Form
    10-K for the year ended December 31, 1998 filed with the Commission on
    March 17, 1999.

(5) Incorporated herein by reference from the Company's Registration Statement
    on Form S-8 filed with the Commission on April 22, 1999.

(6) Incorporated by reference from the Company's Definitive Proxy Statement
    dated March 17, 2000, filed with the commission.



                                      -50-
<PAGE>   52

       (b) REPORTS ON FORM 8-K.

       On October 18, 2000, the Company filed a Current Report on Form 8-K to
report under Item 5, its earnings for the third quarter of 2000. On December 20,
2000, the Company filed a Current Report on Form 8-K to report under Item 5, its
declared cash dividend.



                                      -51-
<PAGE>   53


                                   SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                    COMMONWEALTH BANCORP, INC.

                                    By: /s/ Charles H. Meacham
                                        ----------------------------------------
                                        Charles H. Meacham
                                        Chairman of the Board,
                                         Chief Executive Officer

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

 <TABLE>
<S>                                                           <C>
 /s/ Charles H. Meacham                                        March 15, 2001
 ------------------------------
 Charles H. Meacham
 Chairman of the Board,
  Chief Executive Officer
 (principal executive officer)



 /s/ Patrick J. Ward                                           March 15, 2001
 ------------------------------------
 Patrick J. Ward
 President, Chief
  Operating Officer



 /s/ Charles M. Johnston                                       March 15, 2001
 --------------------------------
 Charles M. Johnston
 Senior Vice President, Chief
  Financial Officer
 (principal financial and
  accounting officer)
</TABLE>



                                      -52-
<PAGE>   54




<TABLE>
<S>                                                           <C>
 /s/ George C. Beyer, Jr.                                      March 15, 2001
 --------------------------------
 George C. Beyer, Jr.
 Director



 /s/ Joseph E. Colen, Jr.                                      March 15, 2001
 --------------------------------
 Joseph E. Colen, Jr.
 Director



 /s/ Joanne Harmelin                                           March 15, 2001
 --------------------------------
 Joanne Harmelin
 Director


 /s/ Michael T. Kennedy                                        March 15, 2001
 -----------------------------
 Michael T. Kennedy
 Director


 /s/ Martin E. Kenney, Jr.                                     March 15, 2001
 ------------------------------
 Martin E. Kenney, Jr.
 Director


 /s/ Harry P. Mirabile                                         March 15, 2001
 --------------------------------
 Harry P. Mirabile
 Director
</TABLE>



                                      -53-