<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, 1999
                                       OR
            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ]                      SECURITIES EXCHANGE ACT OF 1934
          For the transition period from __________ to _______________

                          Commission File No.: 0-27942
                                               -----------


                           COMMONWEALTH BANCORP, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         PENNSYLVANIA                             23-2828883
 ----------------------------                  ----------------
 (State or other jurisdiction                  (I.R.S. Employer
of incorporation or organization)           Identification Number)

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

       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 8, 2000, the aggregate value of the 10,857,115 shares of Common
Stock of the Registrant outstanding on such date, which excludes 705,682 shares
held by all directors and officers of the Registrant as a group, was
approximately $168 million. This figure is based on the closing sales price of
$15.5 per share of the Registrant's Common Stock on March 8, 2000 as reported by
the Nasdaq Stock Market.

Number of shares of Common Stock outstanding as of March 8, 2000: 11,562,797


                       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, 1999 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, 1999 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 ("Bank").
The Bank is a federally chartered stock savings bank, primarily regulated by the
Office of Thrift Supervision ("OTS"). The Bank conducts business from its
executive offices in Norristown, Pennsylvania and, as of December 31, 1999, 60
full-service offices located in southeast Pennsylvania.

     ComNet Mortgage Services ("ComNet"), a division of the Bank, also located
in Norristown, conducts business through ten loan origination offices as of
December 31, 1999. In addition to ComNet's offices located in Pennsylvania,
Maryland, New Jersey, and Virginia, ComNet also operates under the trade name of
Homestead Mortgage in Maryland and conducts business through its wholesale
network, which includes correspondents in 18 states.

     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.

     The Bank is subject to examination and comprehensive regulation by the OTS,
which is the Bank's chartering authority and primary regulator, and by the
Federal Deposit Insurance Corporation ("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, 1999, the Bank had 60 full-service branch offices located
throughout Berks, Bucks, Chester, Delaware, Lehigh, Montgomery, and Philadelphia
Counties, Pennsylvania. Of the 60 full-service branch offices, 20 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,




                                      -1-
<PAGE>   3

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.


LENDING ACTIVITIES

     GENERAL. At December 31, 1999, loans held for investment totaled $1.4
billion, which represented 71% of total assets. The Company's loans consist
principally 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 other principal
categories of loans in the Company's portfolio are 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,
                                             ----------------------------------------------------------------------------
                                                   1999                       1998                       1997
                                             -----------------         ------------------        ---------------------

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

                                                                                                   (dollars in thousands)


<S>                                       <C>             <C>        <C>           <C>         <C>               <C>
Mortgage loans-Residential (1)            $  860,750      62.70 %    $  969,617    71.90 %     $ 958,542         75.51 %

Consumer loans:
  Second mortgages                           184,844      13.47         126,360     9.37          98,934          7.79
  Equity lines of credit                      30,496       2.22          34,845     2.58          41,592          3.28
  Recreational vehicles                       60,998       4.44          39,920     2.96          22,182          1.75
  Other                                       45,448       3.31          38,781     2.88          32,085          2.53
                                           ---------     ------       ---------   ------       ---------        ------
    Total consumer loans                     321,786      23.44         239,906    17.79         194,793         15.35

Commercial loans:
  Business loans                             113,178       8.24          79,490     5.90          37,207          2.93
  Commercial real estate                      66,158       4.82          45,021     3.34          58,757          4.63
  Small Business Administration(2)            10,971       0.80          14,491     1.07          20,016          1.58
                                           ---------     ------       ---------   ------       ---------        ------
    Total commercial loans                   190,307      13.86         139,002    10.31         115,980          9.14
                                           ---------     ------       ---------   ------       ---------        ------
    Total loans receivable                 1,372,843     100.00 %     1,348,525   100.00 %     1,269,315        100.00 %
                                           ---------     ======       ---------   ======       ---------        ======

Less:
  (Premium)/discount on
    loans purchased                          (2,443)                    (2,880)                  (3,559)
  Allowance for loan losses                   10,478                      9,589                    9,024
  Deferred loan fees                           3,378                      3,639                    3,009
                                          ----------                 ----------               ----------
                Loans receivable, net     $1,361,430                 $1,338,177               $1,260,841
                                          ==========                 ==========               ==========
</TABLE>


<TABLE>
<CAPTION>
                                                           December 31,
                                            -------------------------------------------
                                                   1996                    1995
                                            ------------------      -------------------

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

                                                      (dollars in thousands)


<S>                                       <C>            <C>         <C>          <C>
Mortgage loans-Residential (1)            $  857,053     76.37  %    $655,152     81.08  %

Consumer loans:
  Second mortgages                          77,304        6.89         48,653      6.03
  Equity lines of credit                      49,136      4.38         44,432      5.50
  Recreational vehicles                       11,884      1.06            791      0.10
  Other                                       30,983      2.76         17,218      2.13
                                           ---------    ------        -------    ------
    Total consumer loans                     169,307     15.09        111,094     13.76

Commercial loans:
  Business loans                              35,380      3.15          2,801      0.35
  Commercial real estate                      35,452      3.15          9,386      1.16
  Small Business Administration(2)            25,104      2.24         29,472      3.65
                                           ---------    ------        -------    ------
    Total commercial loans                    95,936      8.54         41,659      5.16
                                           ---------    ------        -------    ------
    Total loans receivable                 1,122,296    100.00  %     807,905    100.00  %
                                           ---------    ======        -------    ======

Less:
  (Premium)/discount on
    loans purchased                          (3,655)                   1,004
  Allowance for loan losses                    9,971                   7,485
  Deferred loan fees                           2,866                   2,681
                                          ----------                --------
                Loans receivable, net     $1,113,114                $796,735
                                          ==========                ========
</TABLE>


----------

(1)  At December 31, 1999, $332 million, or 39%, of the Company's 1-4 family
     residential loans had adjustable interest rates.

(2)  Consists entirely of loans (or securities backed by loans) which are
     guaranteed by the SBA, with the majority adjusting monthly or quarterly.
     All such loans or securities were purchased by the Company.







                                      -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, 1999, 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,                                        2003-      2005-      2011-       There-
                                   1999          2000      2001      2002           2004       2010       2016        after
                                ------------    ------    ------    ------         ------     ------     ------      -------

                                                                    (in thousands)


Mortgage loans:
<S>                            <C>             <C>        <C>       <C>            <C>       <C>         <C>        <C>
   1-4 family residential      $   860,750     $26,296    $26,086   $27,433        $56,604   $182,308    $168,564   $373,459
Consumer                           321,786      46,580     28,831    28,285         47,323    105,202      61,492      4,073
Business loans                     113,178      11,445     12,210    16,941         22,188     37,314      13,080          -
Commercial real estate              66,158       6,012      6,193     6,721         18,164     28,940         128          -
SBA                                 10,971         569        614       662          1,487      6,026       1,613          -
                                ----------     -------    -------   -------       --------   --------    --------   --------
   Total (1)                    $1,372,843     $90,902    $73,934   $80,042       $145,766   $359,790    $244,877   $377,532
                                ==========     =======    =======   =======       ========   ========    ========   ========

============================================================================================================================
</TABLE>

(1)  Of the $1.3 billion of loan principal repayments contractually due after
December 31, 2000, $798 million have fixed rates of interest and $484 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
conventional 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,
                                                     ----------------------------------------------------------

                                                            1999                   1998                1997
                                                     -------------------      ----------------    -------------

                                                                            (in thousands)

<S>                                                        <C>                 <C>                 <C>
Gross loans held for investment at
  beginning of period                                      $ 1,348,525         $ 1,269,315         $ 1,122,296
Originations of loans held for
  investment:
    1-4 family residential                                      74,970             196,783             107,628
    Consumer                                                   159,330             101,878              75,383
    Commercial                                                  78,114              73,318              47,329
                                                           -----------         -----------         -----------
      Total originations                                       312,414             371,979             230,340
Purchases of loans held for investment:
    1-4 family residential (1)                                  24,999             140,567             152,480
    Consumer (2)                                                34,096              24,728              13,426
    Commercial                                                       -                   -                   -
                                                           -----------         -----------         -----------
      Total purchases                                           59,095             165,295             165,906
      Total originations and purchases                         371,509             537,274             396,246
Repayments                                                   (347,191)           (458,064)           (249,227)
                                                           -----------         -----------         -----------
Net activity in loans held for
  investment                                                    24,318              79,210             147,019
                                                           -----------         -----------         -----------

Gross loans held for investment at end
  of period                                                $ 1,372,843         $ 1,348,525         $ 1,269,315
                                                           ===========         ===========         ===========
</TABLE>

(1)  The $25 million and $141 million of 1-4 family residential loans purchased
     during 1999 and 1998, respectively, consisted of loans generated through
     Commonwealth's wholesale correspondent network. The $152 million of 1-4
     family residential loans purchased during 1997 consisted of $21 million of
     adjustable rate loans purchased by the Company from third parties and $131
     million of loans generated through Commonwealth's wholesale correspondent
     network.

(2)  Represents purchases of recreational vehicle loans.





                                      -5-
<PAGE>   7






     RESIDENTIAL LOAN ORIGINATIONS AND SALES. A primary lending activity of the
Company involves 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. Commonwealth currently
employs three regional account executives to work with over 223 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 National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC") guidelines and, as such, are eligible for sale in the secondary
market.

     The results of the Company's mortgage banking operations are significantly
dependent upon its ability to originate loans. This, in turn, is substantially
dependent upon prevailing interest rate levels, which affect the degree to which
consumers obtain new loans and refinance existing loans. Economic conditions in
the Company's service areas also have a significant effect on the residential
housing market and, thus, could have a similar effect on Commonwealth's loan
origination activity.

     Mortgage loans originated and purchased totaled $621 million and $1,111
million during 1999 and 1998, respectively, which included $174 million and $376
million, respectively, of loans originated through the wholesale correspondent
lending network.




                                      -6-
<PAGE>   8

     Commonwealth sells substantially all of the fixed-rate loans it originates
which conform to FNMA/FHLMC 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 FNMA and FHLMC
requirements, and loans to employees of the Company.

     The Company's mortgage loans sold to others generally are sold in groups
through mortgage-backed securities issued by the FNMA or the FHLMC, 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 FNMA or the
FHLMC, which issues a mortgage-backed security representing an undivided
interest in the loan pool. For issuing the security, the FNMA or the FHLMC
receives an annual guarantor fee of approximately 0.17% to 0.29% 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 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 and option contracts, 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,
                                        ---------------------------------------------------------------------------------
                                                     1999                        1998                      1997
                                        ----------------------------   -----------------------     ----------------------
                                                          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                          $   96,568          549      $   337,350        1,562     $ 238,799         1,286

  FHA/VA                                         -            -                -            -         -                 -
                                           -------        -----        ---------       ------      --------        ------
    Total Company                           96,568          549          337,350        1,562       283,799         1,286
                                           -------        -----        ---------       ------      --------        ------
Originations for others (1):
  Conventional                             448,616        3,513          667,129        5,351       249,741         2,081
  FHA/VA                                    75,531          676          106,917        1,019        96,606         1,014
                                           -------        -----        ---------       ------      --------        ------
    Total Other                            524,147        4,189          774,046        6,370       346,347         3,095
                                           -------        -----        ---------       ------      --------        ------
Total Company and others                $  620,715        4,738      $ 1,111,396        7,932     $ 585,146         4,381
                                           =======        =====        =========       ======       =======        ======

Retained by the Company (1)(2):
  Conventional                          $   96,568          549      $   337,350        1,562     $ 238,799         1,286
  FHA/VA                                         -            -                -            -             -             -
                                           -------        -----        ---------       ------      --------        ------
    Total Company                           96,568          549          337,350        1,562       238,799         1,286
                                          --------       ------        ---------       ------      --------        ------
Sales to Others (1)(3):
  Conventional                             544,881        3,342          597,889        5,455       233,299         2,116
  FHA/VA                                    88,588          847           97,475          915        94,654           979
                                           -------        -----        ---------       ------      --------        ------
    Total Other                            633,469        4,189          695,364        6,370       327,953         3,095
                                           -------        -----        ---------       ------      --------        ------
Total Company and Other                 $  730,037        4,738      $ 1,032,714        7,932     $ 566,752         4,381
                                           =======        =====        =========       ======       =======        ======
Other adjustments to
  loans held for sale (4)               $   12,685                   $     4,386                  $   1,845
                                          ========                       =======                    =======
(Decrease)/increase in
 mortgage loans held for sale           $ (96,637)                   $    83,068                  $  20,239
                                          ========                        ======                     ======
</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.





                                      -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 are purchased on an indirect basis from a third party. At December
31, 1999, $322 million, or 23%, 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, 1999, second mortgage loans totaled $185 million,
or 13%, 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 are purchased from a third
party, are for a fixed amount, have fixed interest rates, terms of three to
twenty years, and generally have loan-to-value ratios of 100% or less. At
December 31, 1999, recreational vehicle loans totaled $61 million, or 4%, of the
Company's total loan portfolio.

     At December 31, 1999, home equity lines of credit amounted to $30 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 $92 million of
total commitments pursuant to such equity lines of credit outstanding at
year-end 1999.

     The remaining $45 million of the Company's consumer loan portfolio at
December 31, 1999 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
mortgage loans, and involve more credit risk than 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.

     COMMERCIAL LENDING ACTIVITIES. Commonwealth=s target market is comprised of
small and lower middle market businesses operating within the Company's seven
county region. 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, 1999, commercial loans totaled $190 million, or 14%, of the Company's total
loan portfolio. At December 31, 1999, commercial loans were comprised of $66
million of commercial real estate loans, $113 million of business loans, and $11
million of loans guaranteed by the SBA.



                                      -9-
<PAGE>   11

     Commercial real estate loans originated by the Company generally have terms
of five to fifteen years, with fixed interest rates. 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 loans are generally secured and backed by the personal
guarantees of the principals of the borrower. Although commercial loans 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, 1999, the Company had $3.4 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.

LOAN SERVICING ACTIVITIES

     During 1999, Commonwealth exited substantially all of the third party
mortgage servicing business, selling approximately $1.0 billion of its third
party servicing portfolio. Commonwealth, a qualified seller servicer for the
FNMA and the FHLMC, 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.



                                      -10-
<PAGE>   12




     At December 31, 1999, 1998, and 1997, Commonwealth was servicing $0.2
billion, $1.4 billion, and $1.3 billion of loans for others, respectively, as
well as $0.9 billion, $1.0 billion, and $0.9 billion of loans held by
Commonwealth for investment or sale, respectively. The servicing of $0.2 billion
of loans for others at December 31, 1999 was primarily related to current
mortgage production awaiting transfer to the ultimate servicer. The portfolio of
loans serviced by Commonwealth at December 31, 1999 consisted of approximately
8,671 loans with an average loan balance of approximately $123,662, 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 $3.3 million in 1999, $3.6 million in 1998, and $5.2
million in 1997.

     Prior to 1999, the Company acquired mortgage servicing rights through the
purchase and origination of mortgage loans which were sold or securitized, on
either a servicing retained or servicing released basis. SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," required the Company to allocate the total cost of the mortgage
loans between the mortgage servicing rights and the loans (exclusive of mortgage
servicing rights) based on their relative fair values. The Company was required
to periodically assess its capitalized mortgage servicing rights for impairment,
based upon the discounted cash flow of the rights disaggregated within their
predominant risk characteristics. Any impairment was recognized through a
valuation allowance.

     At December 31, 1999, capitalized mortgage servicing rights were zero,
compared to $10 million at December 31, 1998. The reduction in mortgage
servicing rights was primarily related to the sale of Commonwealth's $1.0
billion third party mortgage servicing portfolio.

     During the years ended December 31, 1999, 1998, and 1997, Commonwealth sold
$419 million, $444 million and, $191 million of loans originated on a servicing
retained basis, respectively, and $214 million, $251 million, and $137 million
on a servicing released basis, respectively.

     As part of its responsibilities as a servicer of mortgage-backed
securities, Commonwealth is required to remit to investors the monthly principal
collected and scheduled interest payments on most loans, including those for
which no interest payments have been received due to delinquency. At December
31, 1999 the principal amount of loans serviced by Commonwealth for others that
were subject to this condition aggregated $160 million, of which approximately
$6 million, or 4%, were more than 30 days delinquent. Substantially all of these
loans were sold without recourse and are guaranteed by the FNMA or the FHLMC.





                                      -11-
<PAGE>   13




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. As a
matter of policy, 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.

     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,
                            --------------------------------------------------------------------------------
                                    1999                           1998                         1997
                            ---------------------         --------------------          --------------------
                                                              (dollars in thousands)
<S>                         <C>            <C>            <C>            <C>            <C>            <C>
30 to 59 days               $ 8,867        0.65%          $ 9,788        0.73%          $13,083        1.03%
60 to 89 days                 3,163        0.23             2,418        0.18             2,503        0.20
90 days and over              7,779        0.57            10,012        0.74             8,938        0.70
                            -------        ----           -------        ----           -------        ----
      Total (1)             $19,809        1.45%          $22,218        1.65%          $24,524        1.93%
                            =======        ====           =======        ====           =======        ====
</TABLE>

----------

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





                                      -12-
<PAGE>   14



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



<TABLE>
<CAPTION>
                                                                                    December 31,
                                                       ---------------------------------------------------------------------
                                                         1999             1998         1997            1996           1995
                                                       -------          -------       ------          -------        -------
                                                                                  (dollars in thousands)
<S>                                                    <C>              <C>            <C>            <C>            <C>
Mortgage loans - Residential                           $ 4,044          $ 5,119        $ 5,269        $ 5,240        $ 5,605
Consumer loans                                           2,355            1,598          1,324          1,335            221
Commercial loans (1)                                     1,380            3,295          2,345          1,483            367
                                                       -------          -------        -------        -------        -------
  Total nonperforming loans                              7,779           10,012          8,938          8,058          6,193
Real estate owned and other acquired assets, net           923            1,049            626          1,090            752
Investment securities                                    1,700(2)             -              -              -            420(3)
                                                       -------          -------        -------        -------        -------
  Total nonperforming assets (1)                       $10,402          $11,061        $ 9,564        $ 9,148        $ 7,365
                                                       =======          =======        =======        =======        =======
Nonperforming loans to total loans held for
  investment (1)                                       0.57%            0.74%          0.70%          0.72%          0.77%
                                                       =======          =======        =======        =======        =======
Total nonperforming assets to total assets (1)         0.54%            0.49%          0.42%          0.43%          0.51%
                                                       =======          =======        =======        =======        =======
</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, 1999, 1998, and 1995.

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

(3)  Consisted of a deposit with a financial institution which was in bankruptcy
     liquidation. The deposit was recovered by the Company in 1996.






                                      -13-
<PAGE>   15





     At December 31, 1999, the Company's $4.0 million of nonperforming
single-family residential loans consisted of 73 loans having an average balance
of $55,400.

     Forgone interest income on nonaccruing loans totaled $0.6 million and $0.9
million at December 31, 1999 and 1998, respectively. The actual amount of
interest recorded as income on such loans amounted to $0.3 million for each of
the years ended December 31, 1999, 1998, and 1997.

     At December 31, 1999, the Company's 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 December 31, 1998, real estate
owned totaled $1.0 million, consisting of 20 single-family residential
properties acquired through foreclosure or by deed-in-lieu of foreclosure. At
year-end 1997, real estate owned totaled $0.6 million, consisting of 13
single-family residential properties acquired through foreclosure or by
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
thereof. 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 thereof. During 1997, the Company sold 27 single-family residential
properties which were held as real estate owned for a net loss of $0.1 million,
and acquired an additional 17 single-family residential properties through
foreclosure or deed-in-lieu thereof.

     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, 1999, the Company had
$8.0 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 probable inherent losses 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,
                                          -----------------------------------------------------------------------------

                                            1999             1998             1997             1996             1995
                                            ----             ----             ----             ----             ----
                                                                      (dollars in thousands)

<S>                                       <C>              <C>              <C>              <C>              <C>
Allowance at beginning of year            $  9,589         $  9,024         $  9,971         $  7,485         $  7,307
                                          --------         --------         --------         --------         --------

Provision                                    4,000            3,500            1,600              601              578

Charge-offs:
  Mortgage                                   (344)            (566)            (453)            (189)            (362)
  Consumer                                 (2,138)          (1,857)          (1,383)            (478)            (125)
  Commercial                               (1,190)            (706)            (963)                -                -
                                          --------         --------         --------         --------         --------
    Total charge-offs                      (3,672)          (3,129)          (2,799)            (667)            (487)
Recoveries:
  Mortgage                                      27               32              147              133               68
  Consumer                                     237               78               74               29               19
  Commercial                                   297               84               31               18                -
                                          --------         --------         --------         --------         --------
    Total recoveries                           561              194              252              180               87
Allowance Acquired in
  Berks Acquisition                              -                -                -            2,372                -
                                          --------         --------         --------         --------         --------
Allowance at end of year                  $ 10,478         $  9,589         $  9,024         $  9,971         $  7,485
                                          ========         ========         ========         ========         ========

Allowance for loan losses to total
   nonperforming loans at end of
   year                                     134.69%           95.78%          100.96%          123.74%          120.86%
                                          ========         ========         ========         ========         ========
Allowance for loan losses to total
   loans held for investment at end
   of year                                    0.76%            0.71%            0.71%            0.89%            0.93%
                                          ========         ========         ========         ========         ========
</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,
                            -------------------------------------------------------------------------------------------------------
                                      1999                       1998                      1997                      1996
                            ------------------------   -----------------------   ------------------------   -----------------------

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

<TABLE>
<CAPTION>
                                    December 31,
                               -------------------------
                                        1995
                               -------------------------

                                            Percent of
                                             Loans by
                                 Amount     Category (1)
                                 ------     ------------

Breakdown of
allowance:
<S>                            <C>              <C>
  Mortgage loans               $ 5,228          0.80%
  Consumer loans                 1,992          1.79
  Commercial loans                 265          2.18
                                   ---
  Total allowance for loan
    losses                     $ 7,485          0.93%
                               =======
</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 Government National Mortgage Association ("GNMA"), the
FHLMC, and the FNMA.

     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. Held-to-maturity securities are recorded at amortized cost.
Available-for sale securities are recorded at fair value, with unrealized gains
and losses, net of related tax effects, excluded from earnings and reported as a
separate component of shareholders' equity.

     At December 31, 1999, the Company's $291 million of mortgage-backed
securities were comprised of $94 million and $197 million of held-to-maturity
and available-for-sale mortgage-backed securities, respectively. At December 31,
1999, $199 million, or 68%, of the Company's mortgage-backed securities were
insured or guaranteed by the GNMA, the FHLMC, or the FNMA. As part of its
investment policy, the Company also has the ability to invest in private
mortgage-backed securities. These non-federally insured mortgage-backed
securities, which are generally rated AA or better, yield a higher rate of
return and involve a higher risk of loss than comparable mortgage-backed
securities issued by the GNMA, FHLMC, or the FNMA. At December 31, 1999, $92
million, or 32%, of the Company's mortgage-backed securities were private
mortgage-backed securities. At December 31, 1999, $241 million, or 83%, of the
Company's mortgage-backed securities portfolio had fixed rates of interest, and
$50 million, or 17%, 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.

     At December 31, 1999 and 1998, mortgage-backed securities with an amortized
cost of $116 million and $164 million, respectively, and a market value of $114
million and $165 million, respectively, collateralized certain securities sold
under agreements to repurchase (see Note 8). Mortgage-backed securities with an
amortized cost at December 31, 1999 and 1998, of $44 million and $33 million,
respectively, (market value of $42 million and $34 million, respectively), were




                                      -17-
<PAGE>   19


pledged as collateral for depositors. There were no mortgage-backed securities
pledged as collateral for interest rate swap agreements at December 31, 1999.
Mortgage-backed securities with both an amortized cost and market value of $0.2
million were pledged as collateral for interest rate swap agreements at December
31, 1998.

     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,
                                                       ---------------------------------------------------------

                                                          1999                   1998                    1997
                                                       ----------             ---------                ---------
                                                                           (in thousands)


<S>                                                    <C>                   <C>                      <C>
Mortgage-backed securities at beginning of year          $524,141              $735,291                 $752,707
Purchases                                                       -               156,958                  189,818
Sales or call                                             (5,170)              (30,000)                 (41,770)
Repayments and prepayments                              (219,534)             (337,291)                (166,838)
Unrealized (loss) gain on available-for-sale
  mortgage-backed securities                              (8,483)                 (817)                    1,374
                                                         --------              --------                 --------
Mortgage-backed securities at end of year (1)            $290,954              $524,141                 $735,291
                                                          =======               =======                  =======
</TABLE>

----------

(1)  At December 31, 1999, the amortized cost and market value of the Company's
     total mortgage-backed securities (including held-to-maturity and
     available-for-sale mortgage-backed securities) amounted to $296 million and
     $290 million, respectively.

     At December 31, 1999, 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



                                      -18-
<PAGE>   20

circumstances, the Company may be subject to 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,
federally chartered savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities, mutual funds, the assets
of which conform to the investments that federally chartered savings
institutions are 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,
                                      ------------------------------------------------------------------------------
                                                1999                       1998                         1997
                                      ------------------------   -------------------------   -----------------------

                                      Amortized       Market      Amortized       Market     Amortized       Market
                                        Cost          Value         Cost          Value        Cost          Value
                                      ---------      -------     -----------     --------    ---------      --------
                                                                       (in thousands)
<S>                                    <C>           <C>           <C>           <C>           <C>           <C>
Available for sale (at market):
  U.S. Treasury and U.S.
    Government agency securities       $     -       $     -       $12,000       $11,999       $39,980       $40,041

  Corporate Bonds                       34,996        34,925        19,997        20,140             -             -
  Mortgage Related Mutual
     Fund                               20,751        20,479             -             -         2,373         2,404

  Equity Investment - Mortgage
      Servicing Partnership              1,700         1,700         1,700         1,700         4,819         4,819

  Other Equity Investments              10,854        11,115           710           676         3,256         4,062
                                       -------       -------       -------       -------       -------       -------
       Total                           $68,301       $68,219       $34,407       $34,515       $50,428       $51,326
                                       =======       =======       =======       =======       =======       =======
</TABLE>







                                      -19-
<PAGE>   21


     The following table sets forth certain information regarding the maturities
of the Company's investment securities (all of which were classified as
available for sale) at December 31, 1999.

<TABLE>
<CAPTION>
                                                                          CONTRACTUALLY MATURING
                              -------------------------------------------------------------------------------------------

                                                       Weighted                                               Weighted
                                Under 1                Average                     1- 5                        Average
                                 Year                   Yield                     Years                         Yield
                                 ----                   -----                     -----                         -----

                                                           (dollars in thousands)

<S>                            <C>                       <C>                       <C>                        <C>
U.S. Treasury and U.S.
  Government agency
  securities                      $     -                      - %                    $     -                        - %
Corporate Bonds                    34,925                   5.29                            -                        -
Mortgage Related Mutual
  Fund                             20,479                   5.30                            -                        -
Equity Investment -
  Mortgage Servicing
  Partnership                           -                      -                        1,700                      N/A
Other Equity Investments                -                      -                       11,115                      N/A
                                  -------                 -------                     -------
    Total                         $55,404                   5.29%                     $12,815                      N/A
                                  =======                                             =======
</TABLE>

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, and securities sold under agreements to repurchase. 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.



                                      -20-
<PAGE>   22

     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, 1999, the branch
offices of the Company consisted of 40 traditional full-service offices and 20
full-service offices located in supermarkets. The Company opened its first
supermarket branch in 1994 and opened an additional nine, four, three, and three
in 1995, 1996, 1997, and 1998, respectively. Currently, the Company intends to
open an additional supermarket branch and one traditional branch in its market
area during 2000.

     In addition to the Company's extensive branch network, the Company
currently maintains 60 automated teller machine ("ATM") locations. The Company
also maintains a 24 hour telephone banking service known as COM-LINE.

     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, 1999, total demand deposits and savings deposits amounted to 48%
and 15% of the Company's total deposits, respectively. During 1999, the weighted
average rate paid on the Company's demand deposits and savings deposits amounted
to 2.34% and 2.22%, respectively, as compared to a weighted average rate paid of
5.06% on the Company's certificates of deposit during this same period.

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

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

                                         1999                               1998                            1997
                               ----------------------------        -------------------------      ------------------------

                                                   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                  $  188,003              12.50%    $  216,668           13.50%    $  172,442           11.11%
Money market deposits            388,605              25.85        390,822           24.34        324,959           20.93
Noninterest-bearing
  deposits                       146,477(1)            9.74        103,327            6.44         81,653            5.26
                              ----------             ------     ----------          ------     ----------          ------
  Total demand deposits          723,085              48.09        710,817           44.28        579,054           37.30
                              ----------             ------     ----------          ------     ----------          ------
Savings deposits                 221,074              14.70        227,423           14.17        229,290           14.77
Certificate of deposit
   accounts:
   6 months or less              279,109              18.56        317,232           19.76        259,519           16.71
   7-12 months                   157,895              10.50        151,258            9.42        220,341           14.19
  13-36 months                    88,110               5.86        148,958            9.28        216,011           13.91
   More than 36 months            34,473               2.29         49,611            3.09         48,609            3.12
                              ----------             ------     ----------          ------     ----------          ------
  Total certificates             559,587              37.21        667,059           41.55        744,480           47.93
                              ----------             ------     ----------          ------     ----------          ------
  Total deposits              $1,503,746             100.00%    $1,605,299          100.00%    $1,552,824          100.00%
                              ==========             ======     ==========          ======     ==========          ======
</TABLE>



==============================================================================
(1)  Includes $72 million of business checking accounts.


                                      -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,
                                   ---------------------------------------------------

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


<S>                              <C>                   <C>                 <C>
Beginning balance                $1,605,299            $1,552,824          $1,491,450
Net (decrease) increase
  before interest                  (153,462)               (2,595)              9,540
Interest credited                    51,909                55,070              51,834
                                 ----------            ----------          ----------
Net (decrease) increase
  in deposits                      (101,553)               52,475              61,374
                                 ----------            ----------          ----------
Ending balance                   $1,503,746            $1,605,299          $1,552,824
                                 ==========            ==========          ==========
</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,
                      ---------------------------------------------
                       1999              1998                 1997
                      ------            ------               ------
                                   (dollars in thousands)

<S>                  <C>               <C>                 <C>
0.00% to 2.99%       $    979          $  1,295            $  1,166
3.00% to 3.99%          1,541             1,776               6,051
4.00% to 4.99%        321,421           224,329             125,241
5.00% to 6.99%        234,091           436,614             608,379
7.00% to 8.99%          1,473             2,965               3,569
9.00% and over             82                80                  74
                     --------          --------            --------
Total                $559,587          $667,059            $744,480
                     ========          ========            ========
</TABLE>









                                      -22-
<PAGE>   24



     The following table sets forth the amount and remaining maturities of the
Company's certificates of deposit at December 31, 1999.



<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 1.99%       $    808          $      -            $      -            $      -            $      -
2.00% to 2.99%            171                 -                   -                   -                   -
3.00% to 3.99%          1,541                 -                   -                   -                   -
4.00% to 4.99%        182,217            77,990              44,983               7,607               8,624
5.00% to 6.99%         93,913            79,503              12,066              22,864              25,745
7.00% to 8.99%            459               402                 427                  81                 104
9.00% and over              -                 -                  82                   -                   -
                     --------          --------            --------            --------            --------
Total                $279,109          $157,895            $ 57,558            $ 30,552            $ 34,473
                     ========          ========            ========            ========            ========
</TABLE>


     At December 31, 1999, the Company had $84 million of certificates of
deposit in amounts equal to or greater than $100,000, of which $58 million was
scheduled to mature within six months, $16 million was scheduled to mature in
over six months through 12 months, and $10 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,
1999, the Company had $127 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, 1999, the Company had $100 million of
repurchase agreements outstanding.

     At December 31, 1999, the Company had $9 million of commercial repurchase
agreements outstanding. This product was introduced by Commonwealth during the
first quarter of 1999.





                                      -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,
                             ------------------------------------------------------------------------------
                                      1999                         1998                       1997
                             ------------------------   -----------------------    ------------------------

                                                         (dollars in thousands)

<S>                          <C>               <C>      <C>               <C>      <C>               <C>
FHLB advances                $127,000          5.49%    $240,500          5.32%    $213,000          5.83%
Repurchase
 Agreements                   100,000          5.81      166,000          6.21      246,099          5.73
Other borrowings                9,076          4.32            -            -          -               -
                             --------          ----     --------          ----     --------          ----
  Total Borrowings (1)       $236.076          5.58%    $406.500          5.68%    $459.099          5.78%
                             ========                   ========                   ========
</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,
                                 ---------------------------------------------------------------

                                       1999                   1998                      1997
                                    ---------              -----------               ------------

                                                  (dollars in thousands)
<S>                                <C>                       <C>                         <C>
FHLB advances:
  Maximum balance                  $225,500                  $368,000                    $238,000
  Average balance                  $159,929                  $285,615                    $211,107
  Weighted average rate:
    at end of period                  5.49%                     5.32%                       5.83%
    During the period                 5.31%                     5.65%                       5.67%

Repurchase agreements:
  Maximum balance                  $154,000                  $240,521                    $264,677
  Average balance                  $132,657                  $205,018                    $242,794
  Weighted average rate:
    at end of period                  5.81%                     6.21%                       5.73%
    During the period                 5.92%                     6.04%                       5.90%


Other borrowings:
  Maximum balance                  $ 14,363                  $  -                        $  -
  Average balance                  $  6,869                  $  -                        $  -
  Weighted average rate:
    at end of period                  4.32%                     -   %                       -   %

    During the period                 4.30%                     -   %                       -   %
</TABLE>





                                      -24-
<PAGE>   26




EMPLOYEES

     The Company had 658 full-time employees and 203 part-time employees at
December 31, 1999. 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.

     COMMONWEALTH BANK. The Bank is a federally chartered stock savings bank
which conducts business from its executive offices in Norristown, Pennsylvania
and, as of December 31, 1999, 60 full-service offices, including 20 supermarket
branch offices, located in southeast Pennsylvania. ComNet Mortgage Services
("ComNet"), a division of the Bank, also located in Norristown, conducts
business through ten loan origination offices as of December 31, 1999. In
addition to ComNet's offices located in Pennsylvania, Maryland, New Jersey, and
Virginia, ComNet also operates under the trade name of Homestead Mortgage in
Maryland and conducts business through its wholesale network, which includes
correspondents in 18 states.

     COMMONWEALTH INVESTMENT CORPORATION OF DELAWARE, INC. Commonwealth
Investment Corporation of Delaware, Inc. is a wholly-owned subsidiary of the
Company which was incorporated under the laws of Delaware in 1996. At December
31, 1999, Commonwealth Investment Corporation of Delaware, Inc. held cash, and
investment securities totaling $4 million.

     CFSL INVESTMENT CORPORATION. At December 31, 1999, $55 million, or 19%, of
the Company's mortgage-backed securities were held by CFSL Investment
Corporation, a wholly-owned subsidiary of the Bank which was incorporated under
the laws of Delaware in 1987.

     FIRSTCOR, LTD. The activities of Firstcor, Ltd. ("Firstcor") 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, 1999,
Firstcor had nine investments in such partnerships with an aggregate carrying
value of $4.1 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



     QME, INC. The activities of QME, Inc. ("QME") consisted of the ownership
and development of a 102 lot subdivision located in Bucks County, Pennsylvania,
which was acquired by the Bank in connection with the acquisition of another
savings association. As of December 31, 1997, all of the units had been sold and
closed. During 1999, QME sold its remaining interest in the development. As of
December 31, 1999, QME had no assets or liabilities.

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 additional 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 1995.

     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,



                                      -27-
<PAGE>   29

1988. These provisions did not have a material adverse effect on the Company's
financial condition or operations.

     NET OPERATING LOSS CARRYOVERS. For losses incurred in taxable years
beginning 1976 through August 6, 1997, a financial institution may carry back
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, 1999, 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. 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, 1999, the Company had a net loss carryforward for
state tax purposes totaling $2.9 million, which expires in 2001.





                                      -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 OTS, 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



                                      -29-
<PAGE>   31

from 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, 1999, 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).

     The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") amended provisions of the Bank Holding Company Act of 1956 to
specifically authorize the Federal Reserve Board to approve an application by a
bank holding company to acquire control of a savings institution. FIRREA also
authorized a bank holding company that controls a savings institution to merge
or consolidate the assets and liabilities of the savings institution with, or
transfer assets and liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate federal banking agency and the Federal
Reserve Board. As a result of these provisions, there have been a number of
acquisitions of savings institutions by bank holding companies in recent years.

     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.

THE BANK

     GENERAL. The OTS has extensive authority over the operations of federally
chartered savings institutions. As part of this authority, savings institutions
are required to file periodic reports with the OTS, and are subject to periodic
examinations by the OTS and the Federal Deposit Insurance Corporation ("FDIC").
The investment and lending authority of savings institutions are prescribed by
federal laws and regulations, and such institutions are prohibited from engaging
in any activities



                                      -31-
<PAGE>   33

not permitted by such laws and regulations. Those laws and regulations generally
are applicable to all federally chartered savings institutions and may also
apply to state chartered savings institutions. Such regulation and supervision
is primarily intended for the protection of depositors.

     INSURANCE OF ACCOUNTS. The deposits of the Bank are insured to the maximum
extent permitted by either the SAIF or the BIF, both of which are administered
by the FDIC, and are backed by the full faith and credit of the U.S. Government.
As insurer, the FDIC is authorized to conduct examinations of, and to require
reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious threat to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings institutions, after giving the OTS
an opportunity to take such action.

     The SAIF and BIF are required by law to attain and maintain a reserve ratio
of 1.25% of insured 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 $0.05 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, respectively. As of December 31,
1999, the FICO assessments were 5.8 and 1.2 basis points for the SAIF-assessable
and the BIF-assessable base, respectively. The FICO rate is not tied to the FDIC
risk classification, referred to above, 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 1999.







                                      -32-
<PAGE>   34


     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." The three groups
are defined in the same manner as per the regulations establishing the prompt
corrective action system under Section 38 of the FDIA, as discussed below. 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.

     REGULATORY CAPITAL REQUIREMENTS. Federally insured savings institutions are
required to maintain minimum levels of regulatory capital. Pursuant to FIRREA,
the OTS has established capital standards applicable to all savings
institutions. These standards generally must be as stringent as the comparable
capital requirements imposed on national banks. The OTS also is authorized to
impose capital requirements in excess of these standards on individual
institutions on a case-by-case basis.

     Current OTS capital standards require savings institutions to satisfy three
different capital requirements. Under these standards, savings institutions must
maintain "tangible" capital equal to at least 1.5% of adjusted total assets,
"core" capital equal to at least 3.0% of adjusted total assets and "total"
capital (a combination of core and "supplementary" capital) equal to at least
8.0% of "risk-weighted" assets. For purposes of the regulation, core capital
generally consists of common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits, and is reduced by intangible
assets, with a limited exception for purchased mortgage servicing rights and
originated mortgage servicing rights. Tangible capital is given the same
definition as core capital but does not include qualifying intangible assets.
The Bank had $33 million of goodwill and other intangible assets at December 31,
1999. Both core and tangible capital are further reduced by an amount equal to a
savings institution's debt and equity investments in subsidiaries engaged in
activities not permissible to national banks (other than subsidiaries engaged in
activities undertaken as agent for customers or in mortgage banking activities
and subsidiary depository institutions or their holding companies).



                                      -33-
<PAGE>   35

These adjustments do not affect the Bank's regulatory capital. Supplementary
capital generally consists of hybrid capital instruments; perpetual preferred
stock which is not eligible to be included as core capital; subordinated debt
and intermediate-term preferred stock; 45% of any pretax unrealized gains on
available for sale equity securities; and general allowances for loan losses up
to a maximum of 1.25% of risk-weighted assets.

     In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. In determining
the required amount of risk-based capital, total assets, including certain
off-balance sheet items, are multiplied by a risk weight based on the risks
inherent in the type of assets. The risk weights assigned by the OTS for
principal categories of assets are (i) 0% for cash and securities issued by the
U.S. Government or unconditionally backed by the full faith and credit of the
U.S. Government; (ii) 20% for securities (other than equity securities) issued
by U.S. Government-sponsored agencies and mortgage-backed securities issued by,
or fully guaranteed as to principal and interest by, the FNMA or the FHLMC,
except for those classes with residual characteristics or stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent one-
to four-family first lien mortgage loans not more than 90 days delinquent and
having a loan-to-value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by the FNMA or the FHLMC, qualifying
residential bridge loans made directly for the construction of one- to
four-family residences and qualifying multi-family residential loans; and (iv)
100% for all other loans and investments, including consumer loans, commercial
loans, and single-family residential real estate loans more than 90 days
delinquent, and for repossessed assets.

     At December 31, 1999, the Bank exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 6.4%, 6.4%
and 11.3%, respectively. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Regulatory Capital Requirements" in Item 7 hereto.

     A savings institution which is not in capital compliance or which is
otherwise deemed to require more than normal supervision is subject to
restrictions on its ability to grow pursuant to Regulatory Bulletin 3a-1. In
addition, a provision of HOLA generally provides that the Director of OTS must
restrict the asset growth of savings institutions not in regulatory capital
compliance, subject to a limited exception for growth not exceeding interest
credited.

     A savings institution which is not in capital compliance is also
automatically subject to the following: (i) new directors and senior executive
officers and employment contracts for senior executive officers must be approved
by the OTS in advance; (ii) the savings institution may not accept or renew any
brokered deposits; (iii) the savings institution is subject to higher OTS
assessments as a capital-deficient institution; and (iv) the savings institution
may not make any capital distributions without prior written approval.



                                      -34-
<PAGE>   36

     Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance, and the appointment of a conservator
or receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.

     In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest rate risk is subject
to a deduction of its interest rate risk component from total capital for
purposes of calculating its risk-based capital. As a result, such an institution
is required to maintain additional capital in order to comply with the
risk-based capital requirement. An institution with a greater than "normal"
interest rate risk is defined as an institution that would suffer a loss of net
portfolio value exceeding 2.0% of the estimated economic value of its assets in
the event of a 200 basis point increase or decrease (with certain minor
exceptions) in interest rates. The interest rate risk component is calculated,
on a quarterly basis, as one-half of the difference between an institution's
measured interest rate risk and 2.0%, multiplied by the economic value of its
assets. The rule also authorizes the Director of the OTS, or his designee, to
waive or defer an institution's interest rate risk component on a case-by-case
basis. The final rule was originally to be effective as of January 1, 1994,
subject however to a three quarter "lag" time between the reporting date of the
data used to calculate an institution's interest rate risk and the effective
date of each quarter's interest rate risk component. However, in October 1994,
the Director of the OTS indicated that it would waive the capital deduction for
institutions with greater than "normal" interest rate risk until the OTS
publishes an appeals process. In August 1995, the OTS issued Thrift Bulletin No.
67 which allows eligible institutions to request adjustment to their interest
rate risk component as calculated by the OTS, or to request to use their own
models to calculate their interest rate component. The OTS also indicated that
it will delay invoking its interest rate risk rule requiring institutions with
above normal interest rate risk exposure to adjust their regulatory capital
requirement until new procedures are implemented and evaluated. The OTS has not
yet established an effective date for the capital deduction. In any event,
management of the Bank does not believe that the OTS' adoption of an interest
rate risk component to the risk-based capital requirement will adversely affect
the Bank's regulatory capital position.

     PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as amended by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each
federal banking agency was required to implement a system of prompt corrective
action for institutions which it regulates. The federal banking agencies,
including the OTS, adopted substantially similar regulations to implement
Section 38 of the FDIA, effective as of December 19, 1992. Under the
regulations, an institution is deemed to be (i) "well capitalized" if it has
total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more, and
is not subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based
capital ratio of 4.0% or more, and a Tier 1 leverage capital ratio


                                      -35-
<PAGE>   37


of 4.0% or more (3.0% under certain circumstances), and does not meet the
definition of "well capitalized," (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital
ratio that is less than 4.0%, or a Tier 1 leverage capital ratio that is less
than 4.0% (3.0% under certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier 1 risk-based capital ratio that is less than 3.0%, or a Tier 1
leverage capital ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Section 38 of the FDIA and the regulations
promulgated thereunder also specify circumstances under which a federal banking
agency may reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).

     An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency within
45 days of the date that the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the agency.

     An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. Such guaranty shall be limited to the lesser of (i) an amount equal
to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary to restore the relevant capital measures of the institution to
the levels required for the institution to be classified as adequately
capitalized. Such a guarantee shall expire after the federal banking agency
notifies the institution that it has remained adequately capitalized for each of
four consecutive calendar quarters. An institution which fails to submit a
written capital restoration plan within the requisite period, including any
required performance guarantee(s), or fails in any material respect to implement
a capital restoration plan, shall be subject to the restrictions in Section 38
of the FDIA which are applicable to significantly undercapitalized institutions.

     Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA (i) restricting payment of
capital distributions and management fees, (ii) requiring that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital, (iii) requiring submission of a capital restoration
plan, (iv) restricting the growth of the institution's assets and (v) requiring
prior approval of certain expansion proposals. The appropriate federal banking
agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines that any of these
actions is necessary to resolve the problems of the institution at the least
possible long-term cost to the deposit insurance fund, subject in certain cases
to specified procedures. These discretionary supervisory actions include
requiring the institution to raise additional capital; restricting transactions
with affiliates; restricting interest rates paid by the institution on deposits;
requiring



                                      -36-
<PAGE>   38

replacement of senior executive officers and directors; restricting the
activities of the institution and its affiliates; requiring divestiture of the
institution or the sale of the institution to a willing purchaser; and any other
supervisory action that the agency deems appropriate. These and additional
mandatory and permissive supervisory actions may be taken with respect to
significantly undercapitalized and critically undercapitalized institutions.

     At December 31, 1999, the Bank was deemed a "well capitalized" institution
for purposes of the above regulations and as such was not subject to the above
mentioned restrictions.

     SAFETY AND SOUNDNESS. FDICIA requires each federal banking regulatory
agency to prescribe, by regulation or guideline, standards for all insured
depository institutions and depository institution holding companies relating to
(i) internal controls, information systems and audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; (vi) compensation, fees and benefits; and (vii) such other
operational and managerial standards as the agency determines to be appropriate.
The compensation standards would prohibit employment contracts or other
compensatory arrangements that provide excess compensation, fees or benefits or
could lead to material financial loss. In addition, each federal banking
regulatory agency must prescribe, by regulation or guideline, standards relating
to asset quality, earnings and stock valuation as the agency determines to be
appropriate. On July 10, 1995, the federal banking agencies, including the OTS,
adopted final rules and proposed guidelines concerning standards for safety and
soundness required to be prescribed by regulation pursuant to Section 39 of the
FDIA. In general, the standards relate to (1) operational and managerial
matters; (2) asset quality and earnings; and (3) compensation. The operational
and managerial standards cover (a) internal controls and information systems,
(b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e)
interest rate exposure, (f) asset growth, and (g) compensation, fees and
benefits. Under the proposed asset quality and earnings standards, the Bank
would be required to establish and maintain systems to (i) identify problem
assets and prevent deterioration in those assets, and (ii) evaluate and monitor
earnings and ensure that earnings are sufficient to maintain adequate capital
reserves. Finally, the proposed compensation standard states that compensation
will be considered excessive if it is unreasonable or disproportionate to the
services actually performed by the individual being compensated. If a savings
institution fails to meet any of the standards promulgated by regulation, then
such institution will be required to submit a plan within 30 days to the OTS
specifying the steps it will take to correct the deficiency. In the event that a
savings institution fails to submit or fails in any material respect to
implement a compliance plan within the time allowed by the federal banking
agency, Section 39 of the FDIA provides that the OTS must order the institution
to correct the deficiency and may (1) restrict asset growth; (2) require the
savings institution to increase its ratio of tangible equity to assets; (3)
restrict the rates of interest that the savings institution may pay; or (4) take
any other action that would better carry out the purpose of prompt corrective
action. The Bank believes that it has been and will continue to be in compliance
with each of the standards as they have been adopted by the OTS.




                                      -37-
<PAGE>   39


     LIQUIDITY REQUIREMENTS. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 4%. At December 31, 1999, the Company's liquid asset ratio
was 6.34%.

     CAPITAL DISTRIBUTIONS. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other transactions charged to the capital account of a savings institution to
make capital distributions. Generally, the regulations create a safe harbor for
specified levels of capital distributions from institutions meeting at least
their minimum capital requirements, so long as such institutions notify the OTS
and receive no objection to the distribution from the OTS. Savings institutions
and distributions that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.

     Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements may make
capital distributions equal to or less than the sum of retained net income for
the current and preceding two calendar years. To the extent that requested
capital distributions exceed the sum of retained net income for the current and
preceding two calendar years, specific OTS approval of the requested capital
distribution is required.

     The Bank's retained net income after dividends for the calendar years 1998
and 1999 totaled ($40.8) million. As a result, it is anticipated that any
proposed capital distributions from the Bank during 2000 would require specific
OTS approval prior to the proposed distributions.

     LOANS TO ONE BORROWER. FIRREA imposed limitations on the aggregate amount
of loans that a savings institution could make to any one borrower, including
related entities. Under FIRREA, the permissible amount of loans-to-one borrower
now follows the national bank standard for all loans made by savings
institutions, as compared to the pre-FIRREA rule that applied that standard only
to commercial loans made by federally chartered savings institutions. The
regulations promulgated pursuant to FIRREA generally do not permit loans-to-one
borrower to exceed the greater of $0.5 million, or 15% of unimpaired capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully secured by readily
marketable securities.

     BRANCHING BY FEDERAL SAVINGS INSTITUTIONS. Effective May 11, 1992, the OTS
amended its Policy Statement on Branching by Federal Savings Institutions to
permit interstate branching to the full extent permitted by statute (which is
essentially unlimited). Prior policy permitted interstate branching for federal
savings institutions only to the extent allowed for state-chartered institutions
in the states where the institution's home office is located and where the
branch is sought. Prior



                                      -38-
<PAGE>   40

policy also permitted healthy out-of-state federal institutions to branch into
another state, regardless of the law in that state, provided the branch office
was the result of a purchase of an institution that was in danger of default.

     Generally, federal law prohibits federal savings institutions from
establishing, retaining or operating a branch outside the state in which the
federal institution has its home office unless the institution meets the IRS's
domestic building and loan test (generally, 60% of a thrift's assets must be
housing-related) ("IRS Test"). The IRS Test requirement does not apply if: (i)
the branch(es) result(s) from an emergency acquisition of a troubled savings
institution (however, if the troubled savings institution is acquired by a bank
holding company, does not have its home office in the state of the bank holding
company bank subsidiary and does not qualify under the IRS Test, its branching
is limited to the branching laws for state-chartered banks in the state where
the savings institution is located); (ii) the law of the state where the branch
would be located would permit the branch to be established if the federal
savings institution were chartered by the state in which its home office is
located; or (iii) the branch was operated lawfully as a branch under state law
prior to the savings institution's conversion to a federal charter.

     Furthermore, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act of 1977 ("CRA"). An
unsatisfactory CRA record may be the basis for denial of a branching
application.

     QUALIFIED THRIFT LENDER TEST ("QTL"). All savings institutions are required
to meet the QTL test set forth in Section 10(m) of the HOLA and regulations of
the OTS thereunder to avoid certain restrictions on their operations. A savings
institution that does not meet the QTL test set forth in the HOLA and
implementing regulations must either convert to a bank charter or comply with
the following restrictions on its operations: (i) the institution may not engage
in any new activity or make any new investment, directly or indirectly, unless
such activity or investment is permissible for a national bank; (ii) the
branching powers of the institution shall be restricted to those of a national
bank; (iii) the institution shall not be eligible to obtain any advances from
its FHLB; and (iv) payment of dividends by the institution shall be subject to
the rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the savings institution ceases to be a QTL, it must
cease any activity and not retain any investment not permissible for a national
bank and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).

     A savings institution is a QTL if (i) it qualifies as a domestic building
and loan association under Section 7701(a)(19) of the Internal Revenue Code
(which generally requires that at least 60% of the institution's assets
constitute housing-related and other qualifying assets) or (ii) at least 65% of
the institution's "portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in at least nine out of every
12 months. At December 31, 1999, the qualified thrift investments of the Bank
were approximately 100% of its portfolio assets.



                                      -39-
<PAGE>   41

     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, 1999, 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, 1999,
dividends paid by the FHLB of Pittsburgh to the Bank amounted to $1.2 million,
compared to $1.1 million for the year ended December 31, 1998.

     FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts). As of December 31, 1999, no reserves were
required to be maintained on the first $5.0 million of transaction accounts,
reserves of 3% were required to be maintained against the next $44.3 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.





                                      -40-
<PAGE>   42


ITEM 2. PROPERTIES


OFFICE AND PROPERTIES


     At December 31, 1999, the Bank conducted business from its corporate
offices in Norristown, Pennsylvania and 60 full-service offices, including 20
supermarket branches, located in southeast Pennsylvania.



     The following table sets forth certain information relating to the Bank's
offices at December 31, 1999.



<TABLE>
<CAPTION>
                                                                                    Net Book Value of
                                                                                       Property and
(in  thousands)                                                                         Leasehold
                                                                 Lease               Improvements at
                                            Owned or           Expiration              December 31,                 Deposits at
                Location                    Leased                Date                   1999(1)                 December 31, 1999
-------------------------------------  ----------------   ------------------   ------------------------------   -------------------
<S>                                     <C>                 <C>                 <C>                                <C>

CORPORATE HEADQUARTERS:
-----------------------


NORRISTOWN:                                 Leased               02/12                                $1,647        $14,473
2 West Lafayette Street
Norristown, PA 19401


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


NORRISTOWN:                                 Leased               02/12                                   134         31,234
2 West Lafayette Street
Norristown, PA 19401


TRAPPE:                                     Leased               10/10                                   169         32,358
Trappe Shopping Center
130 West Main Street, Suite 158
Trappe, PA 19426


KING OF PRUSSIA:                            Leased               09/03                                   118         39,341
DeKalb Plaza Shopping Center
338 West DeKalb Pike
King of Prussia, PA 19406


PARK RIDGE:                                 Leased               01/03                                    --         73,960
Park Ridge Shopping Center
2701 West Main Street
Norristown, PA 19403


EAST NORRITON:                              Leased               05/19                                   851         71,494
East Norriton Crossing
5 West Germantown Pike
Norristown, PA 19401

AUDUBON:                                    Leased               08/03                                    20         39,903
Audubon Village Shopping Center
2806 Audubon Village Drive
Norristown, PA 19403
</TABLE>




                                      -41-
<PAGE>   43

<TABLE>
<CAPTION>
                                                                                    Net Book Value of
                                                                                       Property and
(in  thousands)                                                                         Leasehold
                                                                 Lease               Improvements at
                                           Owned or           Expiration               December 31,                 Deposits at
                Location                    Leased               Date                    1999(1)                 December 31, 1999
-------------------------------------  ----------------   ------------------   ------------------------------   -------------------

<S>                                     <C>                 <C>                 <C>                                <C>
NEWTOWN SQUARE:                             Owned                 --                                    $305        $40,140
3531 West Chester Pike
Newtown Square, PA 19073

FRANKFORD AVENUE:                           Owned                 --                                     328         52,931
7149 Frankford Avenue
Philadelphia, PA 19135

CASTOR AVENUE:                              Owned                 --                                     160         45,996
6537 Castor Avenue
Philadelphia, PA 19149

PENNDEL:                                    Owned                 --                                     119         25,358
U.S. # 1 & Durham Road
Penndel, PA 19047

WELSH ROAD:                                 Owned                 --                                     134         47,608
2501 Welsh Road
Philadelphia, PA 19114

GLENSIDE:                                   Owned                 --                                     299         71,495
139 South Easton Road
Glenside, PA 19038

WESTTOWN:                                   Leased               08/04                                    --         32,098
Marketplace Shopping Center
1502 West Chester Pike
West Chester, PA 19382

KENNETT SQUARE:                             Leased               12/03                                   131         25,541
New Garden Center
345 Scarlett Road
Kennett Square, PA 19348

WEST GROVE:                                 Owned                 --                                     123         17,888
106 West Evergreen Street
West Grove, PA 19390

WAYNE:                                      Leased               08/01                                    --         23,049
Chesterbrook Village Center
500 Chesterbrook Boulevard, Suite B-5
Wayne, PA 19087

PAUL'S RUN:                                 Leased               12/00                                    --          2,598
9896 Bustleton Ave.
Philadelphia, PA 19115

LANSDALE:                                   Leased               06/04                                    10         48,787
521 West Main Street
Lansdale, PA 19446
</TABLE>




                                      -42-
<PAGE>   44

<TABLE>
<CAPTION>
                                                                                     Net Book Value of
                                                                                        Property and
(in  thousands)                                                                          Leasehold
                                                                 Lease                Improvements at
                                           Owned or           Expiration                December 31,                Deposits at
                Location                    Leased               Date                     1999(1)                December 31, 1999
-------------------------------------  ----------------   ------------------   ------------------------------   -------------------
<S>                                     <C>                 <C>                 <C>                                <C>
HILLCREST:                                  Leased               07/02                                  $ --        $28,289
Hillcrest Shopping Center
638 East Main Street
Lansdale, PA 19446

SUMNEY FORGE:                               Leased               07/04                                    --         33,415
Sumney Forge Square
1601 Valley Forge Road
Lansdale, PA 19446

SOUDERTON:                                  Owned                 --                                     192         16,706
705 Route 113
Souderton, PA 18964

CONSHOHOCKEN:                               Leased               10/09                                   223         78,060
Plymouth Square Shopping Center
200 West Ridge Pike, Suite 108
Conshohocken, PA 19428

PHOENIXVILLE:                               Leased               07/11                                   394         18,718
Maple Lawn Village Center
510 Kimberton Road
Phoenixville, PA 19460

ROYERSFORD:                                 Leased               01/16                                   291          6,046
Limerick Square
70 Buckwalter Road, Suite 650
Royersford, PA 19468

PROTESTANT HOME:                            Leased               03/04                                     2          6,053
6500 Tabor Road
Philadelphia, PA 19135

TACONY:                                     Leased               02/02                                    --         52,776
6958 Torresdale Avenue
Philadelphia, PA 19135

HOLMESBURG:                                 Leased               07/00                                     6         35,163
8729 Frankford Avenue
Philadelphia, PA 19136

ACADEMY:                                    Leased               02/02                                     4         29,904
3292 Red Lion Road
Philadelphia, PA 19114

MAYFAIR:                                    Owned                 --                                     318         22,633
7425 Frankford Avenue
Philadelphia, PA 19136

5TH & PENN STREETS:                         Owned                 --                                   1,069         38,209
445 Penn Street
Reading, PA 19601
</TABLE>



                                      -43-
<PAGE>   45

<TABLE>
<CAPTION>
                                                                                     Net Book Value of
                                                                                        Property and
(in  thousands)                                                                          Leasehold
                                                                 Lease                Improvements at
                                           Owned or           Expiration                December 31,                Deposits at
                Location                    Leased               Date                     1999(1)                December 31, 1999
-------------------------------------  ----------------   ------------------   ------------------------------   -------------------
<S>                                     <C>                 <C>                 <C>                                <C>
9TH & SPRING STREETS:                       Owned                 --                                    $390        $27,821
956 North Ninth Street
Reading, PA 19604

LANCASTER AVENUE:                           Leased               12/04                                    --         39,500
830 Lancaster Avenue
Reading, PA 19607

MOHNTON:                                    Owned                 --                                     446         23,041
14 West Wyomissing Avenue
Mohnton, PA 19540

TEMPLE:                                     Owned                 --                                     311         42,991
4950 Kutztown Road
Temple, PA 19560

RIVERSIDE:                                  Owned                 --                                     319         30,226
2040 Centre Avenue
Reading, PA 19605

HEIDELBERG:                                 Leased               06/07                                    66         25,155
4641 Penn Avenue
Sinking Spring, PA 19608

KUTZTOWN:                                   Owned                 --                                     266         20,706
601 East Main Street
Kutztown, PA 19530

EXETER:                                     Leased               03/05                                    10         37,767
4215 Perkiomen Avenue
Reading, PA 19606

BIRDSBORO:                                  Leased               09/01                                    12         16,582
350 West Main Street
Birdsboro, PA 19508

WYOMISSING:                                 Leased               03/01                                     2          1,895
320 Abington Drive
Wyomissing, PA 19610
</TABLE>



                                      -44-
<PAGE>   46

<TABLE>
<CAPTION>
                                                                                     Net Book Value of
                                                                                        Property and
(in  thousands)                                                                          Leasehold
                                                                 Lease                Improvements at
                                           Owned or           Expiration                December 31,                Deposits at
                Location                    Leased               Date                     1999(1)                December 31, 1999
-------------------------------------  ----------------   ------------------   ------------------------------   -------------------

<S>                                     <C>                 <C>                 <C>                                <C>
SUPERMARKET BRANCHES:

REDNER'S COLLEGEVILLE:                      Leased               01/10                                  $ --         $7,524
Redner's Warehouse Market
Marketplace at Collegeville
201 Second Avenue, Suite 100
Collegeville, PA 19426

GIANT-WHITEHALL:                            Leased               11/04                                    --          6,557
MacArthur Towne Centre
2540 MacArthur Road, Suite 200
Whitehall, PA 18052

GIANT-FAIRLESS HILLS:                       Leased               01/05                                    --         11,289
Fairless Hills Shopping Center
473 Oxford Road South
Fairless Hills, PA 19030

GIANT-SINKING SPRING:                       Leased               06/00                                    18          6,957
Spring Towne Center
2643 Shillington Road
Sinking Spring, PA 19608

GIANT-ALDEN:                                Leased               12/01                                    69          6,708
Providence Village
543 North Oak Avenue
Alden, PA 19018

GIANT-BLUE BELL:                            Leased               07/05                                    17         12,219
The Shoppes at Blue Bell
1760 DeKalb Pike
Blue Bell, PA 19422

GIANT-TREXLERTOWN:                          Leased               03/01                                    --          6,566
Trexler Mall
6900 Hamilton Boulevard, PO Box 977
Trexlertown, PA 18087

GIANT-HORSHAM:                              Leased               06/02                                    66          3,890
Horsham Point Shopping Center
314 Horsham Road, Unit A
Horsham, PA 19044

GIANT-SOUTHAMPTON:                          Leased               02/02                                    70          6,132
Southampton Shopping Center
466 A Second Street Pike
Southampton, PA 18966

GIANT-TROOPER:                              Leased               03/01                                    45          7,533
Audubon Square Shopping Center
2668 Egypt Road
Norristown, PA 19403
</TABLE>



                                      -45-


<PAGE>   47

<TABLE>
<CAPTION>
                                                                                     Net Book Value of
                                                                                        Property and
(in  thousands)                                                                          Leasehold
                                                                 Lease                Improvements at
                                           Owned or           Expiration                December 31,                Deposits at
                Location                    Leased               Date                     1999(1)                December 31, 1999
-------------------------------------  ----------------   ------------------   ------------------------------   -------------------
<S>                                     <C>                 <C>                 <C>                                <C>
REDNER'S-DOYLESTOWN:                        Leased               09/10                                   $24         $6,089
Doylestown Pointe
1661 Easton Road, Suite 2
Warrington, PA 18976

GUINTA'S THRIFTWAY:                         Leased               02/10                                     7          9,295
Bradford Plaza
700 Downingtown Pike, Suite 130
West Chester, PA 19380

CLEMENS-EXTON:                              Leased               06/10                                    12          5,976
Lionville Shopping Center
170 Eagleview Boulevard
Exton, PA 19341

WEIS-POTTSTOWN:                             Leased               07/10                                    21          5,375
The Pottstown Center
223 Shoemaker Road
Pottstown, PA 19464

THRIFTWAY-PORT RICHMOND:                    Leased               09/10                                    29         10,703
Port Richmond Village
2497 Aramingo Avenue, Suite 2
Philadelphia, PA 19125

SHOPRITE-FAR NORTHEAST:                     Leased               09/11                                    71         11,328
Boulevard Plaza
11000 Roosevelt Boulevard
Philadelphia, PA 19116

SUPERFRESH-COTTMAN :                        Leased               04/02                                    89          5,973
Cottman & Bustleton Center
2151 Cottman Avenue
Philadelphia, PA 19149

GIANT-WARMINSTER:                           Leased               06/03                                   171          2,252
Cedar Pointe Plaza
720-D West Street Road
Warminster, PA 18974

SPRING HOUSE CLEMENS:                       Leased               11/03                                   168          1,374
Spring House Center/Clemens Market
563 Village Center, Suite - A
Spring House, PA 19477

SHOPRITE-OXFORD:                            Leased               11/03                                   173          2,098
Lawndale Plaza
6301 Oxford Avenue
Philadelphia, PA 19111
</TABLE>




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

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

                                      -46-



<PAGE>   48


The following table sets forth certain information relating to ComNet's offices
at December 31, 1999.





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

 HORSHAM, PENNSYLVANIA:                                   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                  08/00
 1330 Rt. 206
 Skillman, NJ 08558

 READING, PENNSYLVANIA:                                   1997                     Owned                    --
 Commonwealth Bank Center
 10 North Fifth Street
 Reading, PA 19601

 FAIRFAX, VIRGINIA:                                       1998                    Leased                  04/03
 10400 Easton Plaza, Suite 103
 Fairfax, VA 22030

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

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

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

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

 BALTIMORE, MARYLAND: (2)                                 1997                    Leased                  02/00
 7939 Honeygo Boulevard
 Building #3, Suite # 224
 Millersville, MD 21236
</TABLE>







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

(2) Operate under the trade name of Homestead Mortgage.


                                      -47-



<PAGE>   49



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. As of February
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. In 1999, the
United States appealed the Claims Court liability ruling in the CalFed case to
the U.S. Court of Appeals for the Federal Circuit. Also, 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. During 1999, the Claims Court issued decisions
relating to the amount of damages claimed by plaintiffs in three Winstar-related
cases. In these three cases, the Courts accepted and rejected various damages
claims by the respective thrift plaintiffs. The Claims Court damages awards
were: Glendale case, $909 million; CalFed case, $23 million; LaSalle Talman
case, $5 million. The damages decisions in these three cases have been appealed
to the U.S. Court of Appeals for the Federal Circuit. 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.




                                      -48-
<PAGE>   50

     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.


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

     Not Applicable








                                      -49-
<PAGE>   51




PART II.

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

     The information required herein is incorporated by reference from page 59
of the Company's 1999 Annual Report to Stockholders ("1999 Annual Report").

ITEM 6. SELECTED FINANCIAL DATA.

     The information required herein is incorporated by reference from page 12
of the 1999 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 1999 Annual Report.

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

     The information required herein is incorporated by reference from pages 22
to 25 of the 1999 Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information required herein is incorporated by reference from pages 32
to 58 of the 1999 Annual Report.

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

     Not Applicable.









                                      -50-
<PAGE>   52





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 2000 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.










                                      -51-
<PAGE>   53








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, 1999 and 1998
     Consolidated Statements of Income for the years ended December 31, 1999,
          1998 and 1997
     Consolidated Statements of Shareholders' Equity for the years ended
          December 31, 1999, 1998 and 1997
     Consolidated Statements of Cash Flows for the years ended December 31,
          1999, 1998 and 1997
     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.

Exhibit Index
-------------

<TABLE>
<CAPTION>
                                                                        Location
                                                                        --------
<S>        <C>                                                            <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)
  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)
</TABLE>






                                      -52-
<PAGE>   54



<TABLE>
<S>         <C>                                                                           <C>
   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     1999 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                                      *
   27.0     Financial Data Schedule                                                        *
</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.



                                      -53-
<PAGE>   55


     (b) REPORTS ON FORM 8-K.

     On October 21, 1999, the Company filed a Current Report on Form 8-K to
report under Item 5, its earnings for the third quarter of 1999. On December 23,
1999, the Company filed a Current Report on Form 8-K to report under Item 5, its
declared cash dividend. On January 20, 2000, the Company filed a Current Report
on Form 8-K to report under Item 5, its earnings for the fourth quarter of 1999.
On February 1, 2000, the Company filed a Current Report on Form 8-K to report
under Item 5, the acquisition of certain business interests of the Tyler Group.
On March 8, 2000, the Company filed a Current Report on Form 8-K to report under
Item 5, the completion of its previously announced stock repurchase program.












                                      -54-
<PAGE>   56



                                   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.


/s/ Charles H. Meacham                             March 14, 2000
-----------------------------
Charles H. Meacham
Chairman of the Board,
 Chief Executive Officer
(principal executive officer)


/s/ Patrick J. Ward                                March 14, 2000
-----------------------------
Patrick J. Ward
President, Chief
 Operating Officer


/s/ Charles M. Johnston                            March 14, 2000
-----------------------
Charles M. Johnston
Senior Vice President, Chief
 Financial Officer
(principal financial and
  accounting officer)




                                      -55-
<PAGE>   57





/s/ George C. Beyer, Jr.                            March 14, 2000
------------------------
George C. Beyer, Jr.
Director


/s/ Joseph E. Colen, Jr.                            March 14, 2000
-------------------------
Joseph E. Colen, Jr.
Director


/s/ Joanne Harmelin                                 March 14, 2000
-------------------
Joanne Harmelin
Director


/s/ Michael T. Kennedy                              March 14, 2000
-----------------------
Michael T. Kennedy
Director


/s/ Martin E. Kenney, Jr.                           March 14, 2000
--------------------------
Martin E. Kenney, Jr.
Director


/s/ Harry P. Mirabile                               March 14, 2000
----------------------
Harry P. Mirabile
Director










                                      -56-