<PAGE>   1
                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

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

           For the quarter ended..............................September 30, 1997

                                       OR

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

           For the transition period from................to.....................
           Commission File No............................................0-27942

                           Commonwealth Bancorp, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                                <C>
                     Pennsylvania                                  23-2828883
                     ------------                                  ----------------------
                     (State or other jurisdiction of               (I.R.S. Employer
                     incorporation or organization)                Identification Number)

                     Commonwealth Bank Plaza
                     2 West Lafayette Street
                     Norristown, Pennsylvania                      19401-4758
                     ------------------------                      ----------
                     (Address of principal executive offices)      (Zip Code)
</TABLE>

               Registrant's telephone number, including area code:
                                 (610) 251-1600
                                 --------------

           Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---   ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

           Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of November 6,
1997, there were 17,996,473 issued and 16,244,873 outstanding shares of the
Registrant's Common Stock.

                                        1

<PAGE>   2

                   Commonwealth Bancorp, Inc. and Subsidiaries

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item                                                                                            Page
No.                                                                                             No.
---                                                                                             ---
<S>        <C>                                                                                  <C>
           PART I - CONSOLIDATED FINANCIAL INFORMATION

 1         Consolidated Financial Statements

           Consolidated Balance Sheets at September 30, 1997 and December 31, 1996               3

           Consolidated Statements of Income for the Quarter and Nine Month                      4
            Periods Ended September 30, 1997 and 1996

           Consolidated Statements of Changes in Shareholders' Equity for the Nine Month
            Periods Ended September 30, 1997 and 1996                                            5

           Consolidated Statements of Cash Flows for the Nine Month
            Periods Ended September 30, 1997 and 1996                                            6

           Notes to Consolidated Financial Statements                                            8

 2         Management's Discussion and Analysis of Financial Condition and Results of
            Operations                                                                          11

           PART II - OTHER INFORMATION

 1         Legal Proceedings                                                                    24

 2         Changes in Securities                                                                24

 3         Default Upon Senior Securities                                                       24

 4         Submission of Matters to a Vote of  Security Holders                                 24

 5         Other Information                                                                    24

 6         Exhibits and Reports on Form 8-K                                                     24
</TABLE>


                                        2
<PAGE>   3

                   Commonwealth Bancorp, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                        September 30,       December 31,
                                                                                            1997                1996
                                                                                        -------------       ------------
                                                                                        (Unaudited)
<S>                                                                                     <C>                 <C>
Assets:
Cash and due from banks                                                                 $    50,036         $    39,268
Interest-bearing deposits                                                                       -                15,111
Short-term investments available for sale                                                     1,074               5,723
Mortgage loans held for sale                                                                 45,086              17,335
Investment securities
   Securities available for sale (cost of $55,373
     and $53,815, respectively), at market value                                             56,402              53,935
Mortgage-backed securities
   Securities held to maturity (market value of $209,715
     and $239,447, respectively), at cost                                                   206,559             237,743
   Securities available for sale (cost of $561,614
     and $511,833, respectively), at market value                                           566,337             514,964
Loans receivable, net                                                                     1,233,319           1,113,114
Accrued interest receivable, net                                                             14,261              13,339
FHLB stock, at cost                                                                          14,175              11,159
Premises and equipment, net                                                                  18,887              25,369
Intangible assets                                                                            46,661              51,220
Mortgage servicing rights                                                                     7,810               7,677
Other assets, including net deferred taxes of $364 and
   $1,144, respectively                                                                      17,492              14,004
                                                                                        -----------         -----------
                                         Total assets                                   $ 2,278,099         $ 2,119,961
                                                                                        ===========         ===========

Liabilities:
  Deposits                                                                              $ 1,528,514         $ 1,491,450
  Notes payable and other borrowings:
     Secured notes due to Federal Home Loan Bank of Pittsburgh                              213,000             175,000
     Securities sold under agreements to repurchase                                         264,677             176,674
  Advances from borrowers for taxes and insurance                                            16,844              23,883
  Accrued interest payable, accrued expenses and other liabilities                           43,581              21,030
                                                                                        -----------         -----------
                                         Total liabilities                                2,066,616           1,888,037
                                                                                        -----------         -----------

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $0.10 par value; 5,000,000 shares
     authorized; none issued                                                                    -                  -
  Common stock, $0.10 par value; 30,000,000 shares authorized;
      17,994,291 shares issued and 16,242,691 outstanding at September 30, 1997;
      17,953,613 shares issued and outstanding at December 31, 1996                           1,800               1,795
  Additional paid-in capital                                                                133,236             132,931
  Retained earnings                                                                         114,652             105,577
  Unearned stock benefit plan compensation                                                  (13,319)            (10,510)
  Unrealized gain on marketable securities, net                                               3,797               2,131
  Treasury stock, at cost; 1,751,600 shares at September 30, 1997                           (28,683)               -
                                                                                        -----------         -----------
                                         Total shareholders' equity                         211,483             231,924
                                                                                        -----------         -----------
Total liabilities and shareholders' equity                                              $ 2,278,099         $ 2,119,961
                                                                                        ===========         ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                        3

<PAGE>   4

                   Commonwealth Bancorp, Inc. and Subsidiaries
                        Consolidated Statements of Income
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                            For the Quarter                For the Nine Months
                                                                           Ended September 30,             Ended September 30,
                                                                           1997            1996            1997           1996
                                                                       ------------    ------------    ------------    ------------
                                                                              (Unaudited)                      (Unaudited)
<S>                                                                    <C>             <C>             <C>             <C>
Interest income:
  Interest on loans                                                         $24,274         $20,208         $69,378         $53,903
  Interest and dividends on deposits and money
     market investments                                                         436             870           1,590           2,258
  Interest on investment securities                                             966             991           3,214           2,494
  Interest on mortgage-backed securities                                     13,861          12,707          41,928          32,078
                                                                       ------------    ------------    ------------    ------------
                  Total interest income                                      39,537          34,776         116,110          90,733
Interest expense:
  Interest on deposits                                                       14,942          13,759          43,368          35,264
  Interest on notes payable and other borrowings                              6,971           4,225          19,356          12,150
                                                                       ------------    ------------    ------------    ------------
                  Total interest expense                                     21,913          17,984          62,724          47,414
                                                                       ------------    ------------    ------------    ------------
                  Net interest income                                        17,624          16,792          53,386          43,319
Provision for loan losses                                                       300             201             900             301
                                                                       ------------    ------------    ------------    ------------

                  Net interest income after provision for loan losses        17,324          16,591          52,486          43,018

Noninterest income:
  Deposit fees and related income                                             2,076           1,461           5,373           3,667
  Servicing fees                                                              1,468           1,323           3,794           3,950
  Net gain on sales of mortgage loans                                         1,666             487           3,298           1,485
  Net loss on sales of securities                                               -               -              (175)            -
  Net loss on sales of foreclosed real estate                                   (29)            (78)           (130)           (204)
  Other                                                                         512           1,519           2,862           2,234
                                                                       ------------    ------------    ------------    ------------
                  Total noninterest income                                    5,693           4,712          15,022          11,132
                                                                       ------------    ------------    ------------    ------------
Noninterest expense:
  Compensation and employee benefits                                          8,679           6,952          24,500          18,618
  Occupancy and office operations                                             2,613           2,348           7,634           6,279
  FDIC premium                                                                  191           7,455             357           8,716
  Advertising and promotion                                                     501             560           1,383           1,296
  Amortization of intangible assets                                           1,417           1,723           4,573           2,860
  Other                                                                       3,631           3,367          10,427           8,518
                                                                       ------------    ------------    ------------    ------------
                  Total noninterest expense                                  17,032          22,405          48,874          46,287
                                                                       ------------    ------------    ------------    ------------
                  Income (loss) before income taxes                           5,985          (1,102)         18,634           7,863
Income tax provision (benefit)                                                1,984            (423)          6,283           2,735
                                                                       ------------    ------------    ------------    ------------
Net income (loss)                                                            $4,001           ($679)        $12,351          $5,128
                                                                       ============    ============    ============    ============
Weighted-average number of shares outstanding                            15,968,267      17,124,366      16,195,633      11,603,803
                                                                       ============    ============    ============    ============
Earnings per share                                                            $0.25          ($0.04)          $0.76           $0.44
                                                                       ============    ============    ============    ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                        4

<PAGE>   5

                   Commonwealth Bancorp, Inc. and Subsidiaries
           Consolidated Statements of Changes in Shareholders' Equity
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  Unearned      Unrealized
                                          Common           Additional               Stock       Gain/(Loss)
                                          Shares   Common    Paid-in   Retained  Benefit Plan  On Marketable    Treasury
                                       Outstanding  Stock    Capital   Earnings  Compensation  Securities, net    Stock     Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>     <C>         <C>       <C>           <C>              <C>       <C>
Fiscal 1996
-----------
Balance at December 31, 1995              8,629     $863     $36,686    $99,165    ($2,337)     $2,659             -      $137,036

  Net income                                                              5,128                                              5,128
  Dividends                                                              (1,948)                                            (1,948)
  Release of ESOP shares (a)                                     239                   592                                     831
  Amortization of unearned
   compensation                                                                        189                                     189
  Exercise of stock options                  13        1         133                                                           134
  Decrease in unrealized gain on
   marketable securities, net of tax                                                            (2,854)                     (2,854)
  Issuance and exchange of common
   stock as a result of the
   conversion/reorganization (b)          9,311      931      95,791                (7,898)(c)                              88,824
  Assets consolidated from
   Commonwealth Mutual Holding
   Company                                                                  100                                                100

                                        -------------------------------------------------------------------------------------------
Balance at September 30, 1996            17,953   $1,795    $132,849   $102,445    ($9,454)      ($195)            -      $227,440
                                        ===========================================================================================

Fiscal 1997
-----------
Balance at December 31, 1996             17,954   $1,795    $132,931   $105,577   ($10,510)     $2,131             -      $231,924

  Net income                                                             12,351                                             12,351
  Dividends                                                              (3,276)                                            (3,276)
  Release of ESOP shares (d)                                     548                   691                                   1,239
  Amortization of unearned
   compensation                                                                        995                                     995
  Exercise of stock options                  83        9         391                                                           400
  Cash in lieu of fractional shares          (2)                 (21)                                                          (21)
  Stock retired                             (40)      (4)       (613)                                                         (617)
  Increase in unrealized gain on
   marketable securities, net of tax                                                             1,666                       1,666
  Common stock acquired by stock
   benefit plans                                                                    (4,495)                                 (4,495)
  Purchase of Treasury stock             (1,752)                                                                (28,683)   (28,683)

                                        -------------------------------------------------------------------------------------------
Balance at September 30, 1997            16,243   $1,800    $133,236   $114,652   ($13,319)     $3,797         ($28,683)  $211,483
                                        ===========================================================================================
</TABLE>

----------

  (a)  Pre-conversion shares totaling 12,485 were released during the
       quarter ended March 31, 1996; 52,468 post conversion shares were
       released during the six months ended September 30, 1996.

  (b)  Includes 3,889,598 shares of Commonwealth Bank outstanding at June
       14, 1996, converted into 8,080,538 shares of Commonwealth Bancorp,
       Inc. based on the 2.0775 exchange ratio; 9,872,155 shares of
       Commonwealth Bancorp, Inc. sold in the subscription and community
       offering; and the cancellation of 4,752,000 shares of Commonwealth
       Bank previously held by Commonwealth Mutual Holding Company.

  (c)  Of the 9,872,155 conversion shares, 8% were purchased by the ESOP.

  (d)  Post-conversion shares totaling 78,702 were released during the nine
       months ended September 30, 1997.

The accompanying notes are an integral part of the consolidated financial
statements.

                                       5

<PAGE>   6

                   Commonwealth Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                    For the Nine Months
                                                                                    Ended September 30,
                                                                                   1997             1996
                                                                                 ---------        ---------
                                                                                        (Unaudited)
<S>                                                                              <C>              <C>
Operating activities:
   Net income                                                                    $  12,351        $   5,128
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities-
      Proceeds from loans sold to others                                           218,294          217,864
      Loans originated for sale                                                   (207,390)        (138,804)
      Purchases of loans held for sale                                             (37,383)         (73,729)
      Principal collection on mortgage loans held for sale                             384            3,721
      Net gain on sales of mortgage loans                                           (3,298)          (1,485)
      Increase in net deferred loan fees                                               126              396
      Provision for loan losses and foreclosed real estate                             965              561
      Net (gain) loss on sales of assets                                            (1,531)             204
      Depreciation and amortization                                                  2,341            2,194
      Net amortization of other assets and liabilities                               7,604            4,855
      Interest reinvested on repurchase agreements                                  (9,932)          (5,318)
      Changes in assets and liabilities-
        (Increase) Decrease in-
          Accrued interest receivable, net                                            (922)          (2,708)
          Deferred income taxes                                                        780             (282)
          Other assets                                                              (6,918)          (7,587)
        (Decrease) Increase in-
          Advances from borrowers for taxes and insurance                           (7,039)         (10,547)
          Accrued interest payable, accrued expenses and other liabilities          22,549           21,130
                                                                                 ---------        ---------
            Net cash provided by (used in) operating activities                  ($  9,019)       $  15,593
                                                                                 ---------        ---------

                                                                                                 (continued)
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                        6

<PAGE>   7

                   Commonwealth Bancorp, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                       For the Nine Months
                                                                       Ended September 30,
                                                                       1997            1996
                                                                    ---------        ---------
                                                                           (Unaudited)
<S>                                                                 <C>              <C>
Investing activities:
   Proceeds from maturities of investment securities                  $38,000          $18,749
   Purchases of investment securities                                 (39,402)         (32,894)
   Proceeds from sale of mortgage-backed securities                    41,770             -
   Purchases of mortgage-backed securities                           (174,616)        (412,676)
   Principal collected on mortgage-backed securities                  114,249           95,632
   Principal collected on loans                                       169,153           89,296
   Loans originated                                                  (267,917)         (63,328)
   Loans purchased                                                    (21,309)        (152,440)
   Sales of real estate acquired through foreclosure                    1,134              433
   Purchase of FHLB Stock                                              (3,016)          (5,343)
   Sale of FHLB Stock                                                     -              3,096
   Purchases of premises and equipment                                 (5,473)          (3,718)
   Acquisition of Branch                                                  -            215,170
   Proceeds from sales of assets                                       11,145                5
                                                                    ---------        ---------
         Net cash used in investing activities                       (136,282)        (248,018)
                                                                    ---------        ---------

Financing activities:
   Net increase in deposits                                            37,064           12,213
   Proceeds from notes payable and other borrowings                   324,815          362,162
   Repayment of notes payable and other borrowings                   (188,880)        (220,923)
   Net (purchase) issuance of common stock                            (33,416)          88,958
   Cash dividends paid                                                 (3,274)          (1,948)
                                                                    ---------        ---------
         Net cash provided by financing activities                    136,309          240,462
                                                                    ---------        ---------
         Net (decrease) increase in cash and cash equivalents          (8,992)           8,037
Cash and cash equivalents at beginning of period                       60,102           50,177
                                                                    ---------        ---------
Cash and cash equivalents at end of period                            $51,110          $58,214
                                                                    =========        =========

Supplemental disclosures of cash flow information:
   Cash paid during the year for-
       Interest                                                       $49,088          $35,185
                                                                    =========        =========
       Income taxes                                                    $6,925           $4,266
                                                                    =========        =========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                        7

<PAGE>   8

                   Commonwealth Bancorp, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.         Basis of Presentation

           In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of Commonwealth Bancorp,
Inc.'s ("Commonwealth" or the "Company") financial condition as of September 30,
1997, and the results of operations, changes in shareholders' equity, and cash
flows for the periods presented. The financial data for periods prior to June
14, 1996 is for Commonwealth Bank ("Bank").

           The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-Q. For further information, refer
to the Company's consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996. Certain items in the 1996 financial statements have been reclassified
in order to conform with the 1997 financial statement presentation.

           The Company is a Pennsylvania corporation which is the holding
company for the Bank. On June 14, 1996, the Company completed an offering of
common stock in connection with the Conversion and Reorganization of
Commonwealth Mutual Holding Company, the former parent company of the Bank, from
the mutual holding company form of ownership to the stock holding company form
("the Conversion and Reorganization"). Headquartered in Norristown, PA,
Commonwealth Bank has offices located in Berks, Bucks, Chester, Delaware,
Lebanon, Lehigh, Montgomery, and Philadelphia Counties. ComNet Mortgage Services
("ComNet'), a division of the Bank, has offices in Pennsylvania, Connecticut,
Maryland, New Jersey, and Rhode Island.

2.         Principles of Consolidation

           The accompanying consolidated financial statements include the
accounts of Commonwealth; Commonwealth Bank; Commonwealth Investment Corporation
of Delaware, Inc.; CFSL Investment Corporation; QME, Inc.; and Firstcor, Ltd.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

3.         Shareholders' Equity

           On September 16, 1997, the Board of Directors declared a $0.07 per
share cash dividend for the three months ended September 30, 1997, which was
payable on October 10, 1997 to shareholders of record at the close of business
on September 26, 1997. During both the first and third quarters of 1997, the
Company purchased 0.9 million shares of treasury stock, at an average share
price of $15.34 and $17.47, respectively, for an aggregate purchase of $13.8
million and $14.9 million, respectively.

4.         New Accounting Pronouncements

           Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" was issued in 1996 and is effective for 1997. SFAS No. 125
establishes standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 127 was also issued in 1996, and
amended SFAS No. 125 by deferring for one year the effective date for certain
provisions of SFAS No. 125. The Company adopted SFAS No. 125, as amended, on
January 1, 1997, with no material impact to the financial statements. In
addition, the Company intends to adopt SFAS No. 127 on January 1, 1998, and does
not anticipate the impact on the financial statements to be material.

                                        8
<PAGE>   9

                   Commonwealth Bancorp, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           In February 1997, SFAS No. 128, "Earnings per share," was issued.
This statement specified the computation, presentation, and disclosure
requirements for earnings per share ("EPS"). The main objectives of the
statement were to simplify the EPS calculation and to make EPS comparable on an
international basis. Effective for both interim and annual periods ending after
December 15, 1997, primary and fully diluted EPS will be replaced by basic and
diluted EPS. Prior period results will be restated. The most significant
difference is that basic EPS no longer assumes potentially dilutive securities
in the computation. Calculating EPS under the new method has no material impact
on 1996 or nine months ended September 30, 1997 EPS figures.

           In 1997, Commonwealth will also adopt SFAS No. 129, "Disclosures of
Information about Capital Structure." This statement was issued in conjunction
with the earnings per share statement discussed above and is intended to
centralize capital structure disclosure requirements and to expand the number of
companies subject to the requirements. Since Commonwealth was in compliance with
the existing capital structure disclosure requirements, the impact on the
Company's financial statements is not expected to be material.

           SFAS No. 130, "Reporting Comprehensive Income" was issued in July
1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. The main objective of the statement is
to report a measure of all changes in equity that result from transactions and
other economic events of the period other than transactions with owners. The
Company intends to adopt SFAS No. 130 on January 1, 1998.

5.         Other Information

           The deposits of the Bank are insured by either the Savings
Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF"), both of
which are administered by the Federal Deposit Insurance Corporation ("FDIC").
The SAIF and BIF are required by law to attain and maintain a reserve ratio of
1.25% of insured deposits. As a result of the BIF achieving a fully funded
status, the FDIC promulgated a regulation in November 1995, which reduced
deposit premiums paid by BIF-insured banks in the lowest risk category from 27
basis points to zero (subject to an annual minimum of $2,000).

           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 special assessment amounted to approximately
$0.65 for every $100 of assessable deposits. 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 $0.06 per $100 of
deposits.

           The Company is a Pennsylvania corporation which is the holding
company for the Bank. On June 14, 1996, the Company completed an offering of
common stock in connection with the second step Conversion and Reorganization of
Commonwealth Mutual Holding Company, the former parent company of the Bank, from
the mutual holding company form of ownership to the stock holding company form.
In the offering, 9.9 million shares of common stock of the Company were sold in
a subscription and community offering at $10.00 per share. In addition, 8.1
million shares of common stock of the Company were issued in exchange for shares
of stock of the Bank previously held by public stockholders at an exchange ratio
of 2.0775 shares for each share of Bank common stock, resulting in 18.0 million
shares of common stock of the Company outstanding at the completion of the
Conversion and Reorganization and Stock Offering.

                                        9
<PAGE>   10

                   Commonwealth Bancorp, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.         Earnings Per Share

           Earnings per share of common stock were $0.25 in the third quarter of
1997, compared to a net loss of ($0.04) per share in the third quarter of 1996.
Earnings per share of common stock were $0.76 for the nine months ended
September 30, 1997, compared to $0.44 per share for the nine months ended
September 30, 1996. Exclusive of the SAIF special assessment, earnings per share
of common stock would have been $0.22 for the third quarter of 1996 and $0.83
for the nine months ended September 30, 1996. The decrease in earnings per share
for the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996, as adjusted, was primarily attributable to an increase in
the number of common shares outstanding after the completion of the Company's
second-step conversion in June 1996, as well as the time required to deploy the
related capital into investments with acceptable long-term profitability
characteristics.

           Earnings per share were computed by dividing net income for the
quarter and nine months ended September 30, 1997 and 1996 by the weighted
average number of shares of common stock outstanding during the period, adjusted
for Employee Stock Ownership Plan ("ESOP") shares that have not been committed
to be released, and the effects of shares held by the Recognition Plans. Stock
options are considered common stock equivalents and are included in the
computation of the number of outstanding shares using the treasury stock method,
unless such options are antidilutive. Such average shares outstanding were
15,968,267 and 17,124,366 for the quarter ended September 30, 1997 and 1996,
respectively. The average shares outstanding were 16,195,633 and 11,603,803 for
the nine months ended September 30, 1997 and 1996, respectively. Common shares
outstanding exclude treasury shares.

7.         Acquisitions

           On June 28, 1996, the Company completed the acquisition of twelve
former branch offices of Meridian Bank located in Berks County (ten offices) and
Lebanon County (two offices), Pennsylvania from CoreStates Bank, (the "Berks
Acquisition"). In connection with this transaction, the Company assumed
approximately $379.7 million of deposits and acquired approximately $122.4
million of single-family residential, commercial, and consumer loans. In
addition, Commonwealth received approximately $3.1 million of real property and
approximately $215.8 million of cash, net of a deposit premium of approximately
$38.4 million. The Company assigned $14.7 million of the cost of the acquisition
to the value of the core deposit intangible asset. The excess of the cost over
the identifiable assets acquired, less liabilities assumed of $23.7 million, was
recorded as goodwill.

           On January 31, 1997, Commonwealth Bank, through ComNet, acquired five
mortgage production offices of Homestead Mortgage, Inc. ("Homestead") located in
Maryland and Pennsylvania. These offices originate mortgages in Delaware, the
District of Columbia, Maryland, Pennsylvania, and Virginia. Under the terms of
the transaction, the group will continue to operate under the Homestead Mortgage
name in the District of Columbia, Maryland, and Virginia. During the first nine
months of 1997, the Homestead offices originated loans totaling $113.2 million.

8.         Sale of Headquarters Building

           On February 18, 1997, the Company completed the sale of its
headquarters building, resulting in an after-tax gain of $1.0 million. The Bank
has relocated its headquarters from Malvern, Pennsylvania to Norristown,
Pennsylvania, which is the county seat of Montgomery County. The move is
anticipated to result in annual cost savings to the Company and provide
increased business opportunities by centering its operations in the county seat
of an economically strong and diverse county.

                                       10
<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

           GENERAL. The Company is a Pennsylvania corporation which is the
holding company for the Bank. Commonwealth Bank is a Federally chartered stock
savings bank, primarily regulated by the Office of Thrift Supervision ("OTS").
The Bank conducts business from its executive offices in Norristown,
Pennsylvania and, as of September 30, 1997, 56 full-service offices located in
southeast Pennsylvania. ComNet Mortgage Services, a division of the Bank, also
located in Norristown, conducts business through loan origination offices
located in Pennsylvania, Connecticut, Maryland, New Jersey, and Rhode Island.
ComNet also conducts business through its wholesale network, which includes
correspondents in 25 states.

           On June 14, 1996, the Company completed an offering of common stock
in connection with the second step Conversion and Reorganization of Commonwealth
Mutual Holding Company, the former parent company of the Bank, from the mutual
holding company form of ownership to the stock holding company form. In the
offering, 9.9 million shares of common stock of the Company were sold in a
subscription and community offering at $10.00 per share. In addition, 8.1
million shares of common stock of the Company were issued in exchange for shares
of stock of the Bank previously held by public stockholders at an exchange ratio
of 2.0775 shares for each share of Bank common stock, resulting in 18.0 million
shares of common stock of the Company outstanding at the completion of the
Conversion and Reorganization and Stock Offering.

           On June 28, 1996, the Company completed the acquisition of twelve
former branch offices of Meridian Bank located in Berks County (ten offices) and
Lebanon County (two offices), Pennsylvania from CoreStates Bank (the "Berks
Acquisition"). In connection with this transaction, the Company assumed
approximately $379.7 million of deposits and acquired approximately $122.4
million of single-family residential, commercial, and consumer loans. In
addition, Commonwealth received approximately $3.1 million of real property and
approximately $215.8 million of cash, net of a deposit premium of approximately
$38.4 million. The Company assigned $14.7 million of the cost of the acquisition
to the value of the core deposit intangible asset. The excess of the cost over
the identifiable assets acquired, less liabilities assumed of $23.7 million, was
recorded as goodwill.

           The deposits of the Bank are insured by either the Savings
Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF"), both of
which are administered by the Federal Deposit Insurance Corporation ("FDIC").
The SAIF and BIF are required by law to attain and maintain a reserve ratio of
1.25% of insured deposits. As a result of the BIF achieving a fully funded
status, the FDIC promulgated a regulation in November 1995, which reduced
deposit premiums paid by BIF-insured banks in the lowest risk category from 27
basis points to zero (subject to an annual minimum of $2,000).

           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 special assessment amounted to approximately
$0.65 for every $100 of assessable deposits. 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 $0.06 per $100 of
deposits.

           On January 31, 1997, Commonwealth Bank, through ComNet, acquired five
mortgage production offices of Homestead Mortgage, Inc. located in Maryland and
Pennsylvania. Also during the first quarter of 1997, Commonwealth completed the
sale of its previous headquarters building in Malvern, Pennsylvania and
relocated to lower-cost facilities in Norristown, Pennsylvania.



                                       11

<PAGE>   12

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

FINANCIAL CONDITION

           GENERAL. Total assets increased by $158.1 million, or 7%, from $2.1
billion at December 31, 1996, to $2.3 billion at September 30, 1997. The
increase was primarily the result of a $120.2 million increase in loans
receivable. Increases in mortgage loans held for sale and mortgage-backed
securities also contributed to the increase in total assets. These increases
were offset, in part, by a decrease in cash, interest-bearing deposits, and
short-term investments ("cash and cash equivalents"), premises and equipment,
and intangible assets. Total liabilities increased by $178.6 million, or 9%,
from $1.9 billion at December 31, 1996, to $2.1 billion at September 30, 1997.
This increase was primarily the result of increases in securities sold under
agreements to repurchase, secured notes due to the Federal Home Loan Bank of
Pittsburgh ("FHLB"), and deposits. Shareholders' equity as of September 30,
1997, equaled $211.5 million, compared to $231.9 million at December 31, 1996.
This $20.4 million, or 9%, decrease was primarily the result of the $28.7
million purchase of 1.8 million shares of treasury stock, and to the $4.5
million purchase of 0.3 million shares of common stock for benefit plans,
offset, in part, by a $9.1 million, or 9%, increase in retained earnings.

           CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased by
$9.0 million, or 15%, from $60.1 million at December 31, 1996, to $51.1 million
at September 30, 1997. The decrease was primarily related to the investment of
excess liquidity in loans receivable.

           MORTGAGE LOANS HELD FOR SALE. Mortgage loans held for sale increased
by $27.8 million, or 160%, from $17.3 million at December 31, 1996, to $45.1
million at September 30, 1997. The increase was attributable to an increase in
loans originated during September 1997, primarily as a result of loans closed by
the Homestead mortgage production offices.

                                       12

<PAGE>   13

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           INVESTMENT SECURITIES. Investment securities increased by $2.5
million, or 5%, from $53.9 million at December 31, 1996, to $56.4 million at
September 30, 1997. The increase was primarily the result of purchases of U.S.
Treasury and U.S. Government agency securities and other equity securities,
which further diversify the Company's earning assets, offset, in part, by the
maturity or call of U.S. Treasury and U.S. Government agency securities.
Investments in debt and equity securities at September 30, 1997 and December 31,
1996, were as follows:

<TABLE>
<CAPTION>
                                                              September 30, 1997
                                   ---------------------------------------------------------------------
                                       Amortized         Unrealized        Unrealized       Market
                                         Cost               Gains            Losses         Value
                                   ---------------------------------------------------------------------
                                                                (In Thousands)
<S>                                <C>                   <C>               <C>              <C>
Available for sale:
  U.S. Treasury and U.S. 
    Government agency securities          $39,972          $    84           $    -          $40,056
  Mortgage Security Mutual Fund             2,326               26                -            2,352
  Equity Servicing Partnership              4,819                -                -            4,819
  Other Equity Investments                  8,256              919                -            9,175
                                   ---------------------------------------------------------------------
                   Total                  $55,373          $ 1,029           $    -          $56,402
                                   =====================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                              December 31, 1996
                                   ---------------------------------------------------------------------
                                       Amortized         Unrealized        Unrealized        Market
                                         Cost               Gains            Losses          Value
                                   ---------------------------------------------------------------------
                                                                (In Thousands)
<S>                                <C>                   <C>               <C>               <C>
Available for sale:
  U.S. Treasury and U.S. 
    Government agency securities          $47,963          $   126           $    -          $48,089
  Mortgage Security Mutual Fund             2,215                -                6            2,209
  Equity Servicing Partnership              2,880                -                -            2,880
  Other Equity Investments                    757                -                -              757
                                   ---------------------------------------------------------------------
                   Total                  $53,815          $   126          $     6          $53,935
                                   =====================================================================
</TABLE>

           Investment securities classified as held to maturity are carried at
amortized cost and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security pursuant to the level-yield
method. Investment securities classified as available for sale are reported at
fair value, with unrealized gains and losses, net of tax, excluded from earnings
and reported as a separate component of shareholders' equity. There were no
investment securities classified as held to maturity at September 30, 1997 and
December 31, 1996.

                                       13

<PAGE>   14

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           MORTGAGE-BACKED SECURITIES. Mortgage-backed securities increased by
$20.2 million, or 3%, from $752.7 million at December 31, 1996, to $772.9
million at September 30, 1997. The increase was attributable to a $18.6 million
net increase in the balance of mortgage-backed securities and a $1.6 million
increase in the unrealized gain on available for sale mortgage-backed
securities. The increase in mortgage-backed securities during the first nine
months of 1997 was related to a strategy to enhance the Company's net interest
income through the purchase of mortgage-backed securities funded through FHLB
advances and repurchase agreements. The increase was offset, in part, by the
maturity of $6.6 million of mortgage-backed securities during the third quarter
of 1997. During the second quarter of 1997, the Company sold mortgage-backed
securities, which were classified as available for sale, totaling $41.8 million
and purchased mortgage-backed securities, classified as available for sale,
totaling $41.9 million. These transactions resulted in a $0.2 million net loss
on the sale of mortgage-backed securities. The sale was related to a
restructuring of the Company's mortgage-backed securities portfolio, which was
undertaken to improve future earnings on the portfolio.

           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 September 30,
1997 and December 31, 1996, $494.7 million, or 64%, and $511.8 million, or 68%,
respectively, of the Company's mortgage-backed securities were insured or
guaranteed by the Government National Mortgage Association ("GNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC"), or the Federal National Mortgage
Association ("FNMA"). As part of its investment policy, the Company also has the
ability to invest in private mortgage-backed securities. These
non-federally-insured mortgage-backed securities, which are generally rated AA
or better, yield a higher rate of return and involve a higher risk of loss than
comparable mortgage-backed securities issued by the GNMA, FHLMC, or the FNMA,
and serve to further diversity the Company's mortgage-backed securities
portfolio. At September 30, 1997 and December 31, 1996, $278.2 million, or 36%,
and $240.9 million, or 32%, respectively, of the Company's mortgage-backed
securities were private mortgage-backed securities. The following table sets
forth the Company's mortgage-backed securities portfolio at the dates indicated.


<TABLE>
<CAPTION>
                                                              September 30, 1997
                                   ---------------------------------------------------------------------
                                       Amortized         Unrealized        Unrealized        Market
                                         Cost               Gains            Losses          Value
                                   ---------------------------------------------------------------------
                                                                (In Thousands)
<S>                                <C>                  <C>               <C>               <C>
Held to maturity:

  GNMA                                $ 79,010          $  2,416          $    199          $ 81,227

  FHLMC                                 45,390               692                 -            46,082

  FNMA                                  76,566               747               500            76,813

  Private                                5,593                 -                 -             5,593
                                   ---------------------------------------------------------------------
               Total                  $206,559          $  3,855          $    699          $209,715
                                   =====================================================================

Available for sale:

  GNMA                                $  7,092          $    572          $      -          $  7,664

  FHLMC                                103,421             2,882                17           106,286

  CMO and REMIC                        365,167             1,626             1,037           365,756

  FNMA                                  85,934               951               254            86,631
                                   ---------------------------------------------------------------------
            Total                     $561,614          $  6,031          $  1,308          $566,337
                                   =====================================================================
</TABLE>


                                       14
<PAGE>   15

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

<TABLE>
<CAPTION>
                                                              December 31, 1996
                                   ---------------------------------------------------------------------
                                       Amortized         Unrealized        Unrealized        Market
                                         Cost               Gains            Losses          Value
                                   ---------------------------------------------------------------------
                                                                (In Thousands)
<S>                                <C>                  <C>               <C>               <C>
Held to maturity:

  GNMA                                $ 89,715          $  1,900          $    254          $ 91,361

  FHLMC                                 54,162               514                34            54,642

  FNMA                                  87,484               392               814            87,062

  Private                                6,221                 -                 -             6,221

  Other                                    161                 -                 -               161
                                   ---------------------------------------------------------------------
               Total                  $237,743          $  2,806          $  1,102          $239,447
                                   =====================================================================

Available for sale:

  GNMA                                $ 20,343          $  1,656          $    312          $ 21,687

  FHLMC                                116,884             3,038               217           119,705

  CMO and REMIC                        289,718               858             2,244           288,332

  FNMA                                  84,888               732               380            85,240
                                   ---------------------------------------------------------------------
             Total                    $511,833          $  6,284          $  3,153          $514,964
                                   =====================================================================
</TABLE>

           Mortgage-backed securities classified as held to maturity are carried
at amortized cost and are adjusted for amortization of premiums and accretion of
discounts over the life of the related security pursuant to the level-yield
method. Mortgage-backed securities classified as available for sale are reported
at fair value, with unrealized gains and losses, net of tax, excluded from
earnings and reported as a separate component of shareholders' equity.

                                       15

<PAGE>   16

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           LOANS RECEIVABLE, NET. Loans receivable, net, increased by $120.2
million, or 11%, during the first nine months of 1997 to $1.2 billion at
September 30, 1997. The following table depicts the composition of the Company's
loan portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                             September 30,              December 31,
                                                1997                       1996
                                     ------------------------        ------------------
                                                        % of                      % of
                                        Amount          Total        Amount       Total
                                        ------          -----        ------       -----
                                                     (Dollars in Thousands)
<S>                                  <C>            <C>           <C>            <C>
Mortgage loans - Residential (1)     $  947,139         76.24%    $  857,053      76.37%
Consumer loans:
  Equity lines of credit                 43,784          3.52         49,136       4.38
  Second mortgage                        90,722          7.30         77,304       6.89
  Other                                  49,927          4.02         42,867       3.82
                                     ----------     ---------     ----------     ------
    Total consumer loans                184,433         14.84        169,307      15.09
Commercial loans:
  SBA variable rate loans (2)            20,630          1.66         25,104       2.24
  Commercial real estate                 53,067          4.27         35,452       3.15
  Business loans                         37,100          2.99         35,380       3.15
                                     ----------     ---------     ----------     ------
    Total commercial loans              110,797          8.92         95,936       8.54
                                     ----------     ---------     ----------     ------
    Total loans receivable            1,242,369        100.00%     1,122,296     100.00%
                                     ==========     =========     ==========     ======
Less:
  Premium on loans purchased             (2,846)                      (3,655)
  Allowance for loan losses               9,148                        9,971
  Deferred loan fees                      2,748                        2,866
                                     ----------                   ----------
Loans receivable, net                $1,233,319                   $1,113,114
                                     ==========                   ==========
</TABLE>

----------

(1)        At September 30, 1997 and December 31, 1996, $623.8 million, or 66%,
           and $533.9 million, or 62%, respectively, of the Company's
           residential mortgage loans had adjustable interest rates.

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

           Loans originated and purchased by ComNet totaled $421.9 million for
the nine months ended September 30, 1997, compared to $369.4 million for the
nine months ended September 30, 1996. The $52.5 million increase in ComNet's
production was primarily attributable to a $113.2 million increase in mortgage
loans originated through five Homestead mortgage production offices acquired in
the first quarter of 1997, offset, in part, by a decrease in originations
generated through ComNet's Wholesale Lending Department. This Department
originates loans through a network of correspondent brokers in 25 states. All
loans are underwritten using the same criteria as those used for retail
originations. Closed loans relating to ComNet's wholesale network totaled $139.5
million during the nine months ended September 30, 1997, compared to $194.0
million for the nine months ended September 30, 1996.

           ComNet's strategy has been to focus on retail originations in those
markets where the Company's local presence gives it a competitive advantage.
Closed loans relating to ComNet's retail network totaled $282.5 million during
the nine months ended September 30, 1997, compared to $175.4 million for the
nine months ended September 30, 1996.

                                       16

<PAGE>   17

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           As of September 30, 1997, commercial loans (other than loans
guaranteed by the Small Business Administration ("SBA")) totaled $90.2 million,
or 7%, of the Company's total loan portfolio, as compared to $70.8 million, or
6%, at December 31, 1996. At September 30, 1997, commercial loans (other than
SBA loans) were comprised of $53.1 million of commercial real estate loans and
$37.1 million of business loans. At December 31, 1996, commercial loans (other
than SBA loans) were comprised of $35.5 million of commercial real estate loans
and $35.4 million of business loans. Commercial loans are generally considered
to have a greater risk than residential mortgage loans because the risk of
borrower default is greater, and the collateral is more likely to decline in
value and may be more difficult to liquidate than single-family residences.

           NON-PERFORMING ASSETS. The Company's non-performing assets, which
primarily consist of non-accrual loans and real estate acquired through
foreclosure, increased by $1.6 million, or 17%, from $9.1 million at December
31, 1996, to $10.7 million at September 30, 1997. At September 30, 1997, the
Company's $10.7 million of non-performing assets amounted to 0.47% of total
assets. At December 31, 1996, the Company's $9.1 million of non-performing
assets amounted to 0.43% of total assets. The increase in non-performing assets
was primarily related to loans acquired in the Berks Acquisition. The following
table sets forth information relating to the Company's non-performing assets at
the dates indicated.

<TABLE>
<CAPTION>
                                                  September 30, 1997        December 31, 1996
                                                  ------------------        -----------------

                                                            (Dollars in Thousands)
<S>                                               <C>                       <C>
Mortgage loans - Residential                           $ 5,058                    $5,240
Consumer loans                                           1,208                     1,335
Commercial loans (1)                                     3,625                     1,483
                                                       -------                     -----
  Total non-performing loans                             9,891                     8,058
Real estate owned, net                                     814                     1,090
                                                       -------                     -----
  Total non-performing assets (1)                      $10,705                    $9,148
                                                       =======                     =====
Non-performing loans to total loans held for
  investment (1)                                          0.86%                    0.72%
                                                          ====                     =====
Total non-performing assets to total assets (1)           0.47%                    0.43%
                                                          ====                     =====
</TABLE>

----------

(1)        Does not include non-performing commercial loans which are fully
guaranteed as to principal and interest by the SBA, which amounted to $1.1 
million at both September 30, 1997 and December 31, 1996.

                                       17

<PAGE>   18

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           ALLOWANCE FOR LOAN LOSSES. The Company's allowance for loan losses
amounted to $9.1 million at September 30, 1997, compared to $10.0 million at
December 31, 1996. It is management's policy to maintain an allowance for
estimated losses on loans based upon an assessment of prior loss experience, the
volume and type of lending conducted by the Company, industry standards, past
due loans, general economic conditions, and other factors related to the
collectability of the loan portfolio. At September 30, 1997, the Company's
allowance for loan losses amounted to 92% of total non-performing loans and
0.74% of total loans held for investment, as compared to 124% of total
non-performing loans and 0.89% of total loans held for investment at December
31, 1996. The Company utilizes these percentages as only one of the factors in
assessing the adequacy of the allowance for loan losses at various points in
time. The decrease in the allowance for loan losses was primarily attributable
to net credit losses on loans acquired in the Berks Acquisition. The Company
acquired a $2.4 million allowance for credit losses as part of the Berks
Acquisition. Through September 30, 1997, approximately $1.5 million of that
reserve had been utilized through net credit losses. The following table sets
forth the activity in the Company's allowance for loan losses during the periods
indicated.

<TABLE>
<CAPTION>
                                        For the Nine Months Ended September 30,
                                        ---------------------------------------
                                              1997                1996
                                              ----                ----
                                               (Dollars in Thousands)
<S>                                     <C>                    <C>
Allowance at beginning of period           $  9,971            $  7,485
Provision for credit losses                     900                 300
Charge-offs:
  Mortgage loans - Residential                 (425)                (97)
  Consumer loans                             (1,102)                (75)
  Commercial loans                             (387)                  -
                                           --------            --------
    Total charge-offs                        (1,914)               (172)
Recoveries:
  Mortgage loans - Residential                  126                  74
  Consumer loans                                 42                  16
  Commercial loans                               23                   7
                                           --------            --------
    Total recoveries                            191                  97
Allowance acquired in Berks
  Acquisition                                     -               2,372
                                           --------            --------
Allowance at end of period                 $  9,148            $ 10,082
                                           ========            ========

Allowance for loan losses to
  total non-performing loans at
  end of period                               92.49%             143.39%
                                           ========            ========
Allowance for loan losses to
  total loans held for investment
  at end of period                             0.74%               0.96%
                                           ========            ========
</TABLE>


                                       18

<PAGE>   19

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           PREMISES AND EQUIPMENT. Premises and equipment decreased by $6.5
million, or 26%, from $25.4 million at December 31, 1996, to $18.9 million at
September 30, 1997. The decrease was primarily attributable to the sale of the
Company's previous headquarters building and a branch property, which had a
combined carrying value of $9.5 million. These transactions resulted in a $1.5
million nonrecurring net gain in the first quarter of 1997. This decrease was
offset, in part, by a $2.8 million increase related to capitalized costs of the
Norristown headquarters building.

           INTANGIBLE ASSETS. Intangible assets, which are comprised of the
excess of cost over net assets acquired ("Goodwill") and core deposit
intangibles ("CDI"), were recorded in connection with the acquisitions of the
Meridian branches in 1996 and the Fidelity Federal branches in 1995. The
following table details the components of intangible assets at the dates
indicated.

<TABLE>
<CAPTION>
                                 September 30, 1997       December 31, 1996
                                 ------------------       -----------------

                                               (In Thousands)
<S>                              <C>                      <C>
Goodwill (Meridian)                  $21,431                   $22,791

CDI (Meridian)                        11,051                    13,199

Goodwill (Fidelity Federal)           11,595                    12,398

CDI (Fidelity Federal)                 2,584                     2,832
                                     -------                   -------
Total                                $46,661                   $51,220
                                     =======                   =======
</TABLE>

           MORTGAGE SERVICING RIGHTS. At September 30, 1997, ComNet's total
servicing portfolio was $2.4 billion compared to $2.1 billion at December 31,
1996. During the nine months ended September 30, 1997, ComNet's servicing
portfolio increased by $296.7 million, or 14%. At September 30, 1997 and
December 31, 1996, ComNet was servicing $1.5 billion and $1.3 billion,
respectively, of third party loans, as well as $879.1 million and $747.8
million, respectively, of loans held by the Company for investment and sale. The
following table details the components of mortgage servicing rights, at the
dates indicated.


<TABLE>
<CAPTION>
                                          September 30, 1997       December 31, 1996
                                          ------------------       -----------------

                                                        (In Thousands)
<S>                                       <C>                      <C>
Purchased Mortgage Servicing Rights            $1,730                      $2,243

Capitalized Excess Servicing Fees               3,254                       3,573

Originated Mortgage Servicing Rights            2,826                       1,861
                                               ------                      ------
Total                                          $7,810                      $7,677
                                               ======                      ======
</TABLE>

           BORROWINGS. The Company's borrowings consist primarily of advances
from the FHLB and securities sold under agreements to repurchase. FHLB advances
increased by $38.0 million, or 22%, to $213.0 million at September 30, 1997,
from $175.0 million at December 31, 1996. Repurchase agreements increased by
$88.0 million, or 50%, to $264.7 million at September 30, 1997, from $176.7
million at December 31, 1996. The Company's borrowings are used to fund lending
and investment activities, withdrawals from deposit accounts, and other
disbursements which occur in the normal course of business. Dependent upon the
funding requirements and interest rate risk considerations, these borrowings are
hedged with off-balance-sheet financial instruments.

                                       19

<PAGE>   20

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

REGULATORY CAPITAL REQUIREMENTS.

The following table sets forth the Bank's compliance with applicable regulatory
capital requirements at September 30, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                                  To Be Well
                                                                                 Minimum                          Capitalized
                                                                                 For Capital                      For Prompt
                                                                                 Adequacy                         Corrective Action
                                               Actual                            Purposes                         Provisions
                                    -----------------------------------------------------------------------------------------------
                                    Ratio           Amount              Ratio           Amount              Ratio           Amount
                                    -----------------------------------------------------------------------------------------------
<S>                                 <C>             <C>                 <C>             <C>            <C>            <C>
Stockholders' equity,
   and ratio to OTS
   total assets                       8.4%          $  187,684
                                    -----
Intangible assets                                      (46,661)

Unrealized gains on
   available-for-sale
   securities, net of tax                               (3,131)
                                                    ----------
Tangible capital,
   and ratio to OTS
   adjusted total assets              6.3%          $  137,892             1.5%         $32,960
                                    =====           ==========           =====          =======
Core capital,
   and ratio to OTS
   adjusted total assets              6.3%          $  137,892             3.0%         $65,919          5.0%         $109,865
                                    =====           ==========           =====          =======        =====          ========
Core capital,
   and ratio to OTS
   risk-weighted assets              12.2%          $  137,892                                           6.0%         $ 67,978
                                    =====           ==========                                         =====          ========
Allowance for loan
   and lease losses                                      9,148
                                                    ==========
Supplementary capital                                    9,148
                                                    ==========
Total risk-based capital,
   and ratio to OTS
   risk-weighted assets (1)          13.0%          $  147,040             8.0%         $90,637         10.0%         $113,296
                                    =====           ==========           =====          =======        =====          ========

OTS total assets                                    $2,247,096
                                                    ==========
OTS adjusted total assets                           $2,197,304
                                                    ==========
OTS risk-weighted assets                            $1,132,959
                                                    ==========
</TABLE>

(1) Does not reflect the interest rate risk component to the risk-based capital
    requirement, the effective date of which has been postponed.

                                       20

<PAGE>   21
                   Commonwealth Bancorp, Inc. and Subsidiaries
                             Average Balance Report
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                   Quarter Ended September 30,
                                          ------------------------------------  ------------------------------------
                                                          1997                                   1996
                                          ------------------------------------  ------------------------------------
                                                                       Average                               Average
                                            Average                    Yield /    Average                    Yield /
                                            Balance      Interest      Cost(e)    Balance      Interest      Cost(e)
                                            -------      --------      -------    -------      --------      -------
<S>                                       <C>           <C>           <C>       <C>           <C>           <C>
Interest-earning assets:
Loans receivable(a):
Mortgage loans - residential                $912,516       $16,946        7.37%   $753,563       $14,262       7.53%
Consumer loans                               178,030         4,020        8.96%    165,670         3,569       8.57%
Commercial real estate loans                  51,305         1,188        9.19%     42,099           785       7.42%
Business loans                                55,533         1,115        7.97%     46,467           906       7.76%
                                          ----------    ----------    --------  ----------    ----------    -------
   Total loans receivable                  1,197,384        23,269        7.71%  1,007,799        19,522       7.71%
                                          ----------    ----------    --------  ----------    ----------    -------
Mortgage loans held for sale                  55,085         1,005        7.24%     36,062           686       7.57%
Mortgage-backed securities                   798,389        13,861        6.89%    739,056        12,707       6.84%
Investment securities                         62,068           966        6.17%     71,835           991       5.49%
Other earning assets(b)                       13,386           436       12.92%     39,851           870       8.69%
                                          ----------    ----------    --------  ----------    ----------    -------
Total interest-earning assets              2,126,312        39,537        7.38%  1,894,603        34,776       7.30%
Non- interest-earning assets                 147,621    ----------    --------     155,662    ----------    -------
                                          ----------                            ----------
  Total assets                            $2,273,933                            $2,050,265
                                          ==========                            ==========

Interest-bearing liabilities
 Deposits:
   Demand deposits(c)                       $571,529         3,502        2.43%   $522,157         3,138       2.39%
   Passbook savings deposits                 243,061         1,365        2.23%    290,101         1,593       2.18%
   Certificates of deposit                   723,233        10,076        5.53%    682,668         9,028       5.26%
                                          ----------    ----------     -------  ----------    ----------    -------
     Total deposits                        1,537,823        14,943        3.86%  1,494,926        13,759       3.66%
                                          ----------    ----------     -------  ----------    ----------    -------
 Notes payable and other borrowings
   Repurchase agreements                     247,923         3,660        5.86%    155,466         2,321       5.94%
   FHLB Advances                             229,337         3,310        5.73%    135,043         1,904       5.61%
   Other Borrowings                                0             0        0.00%          0             0       0.00%
                                          ----------    ----------     -------  ----------    ----------    -------
     Total borrowings                        477,260         6,970        5.79%    290,509         4,225       5.79%
                                          ----------    ----------     -------  ----------    ----------    -------
Total interest-bearing liabilities (d)     2,015,083        21,913        4.31%  1,785,435        17,984       4.01%
Non- interest-bearing liabilities             41,213    ----------     -------      36,854    ----------    -------
                                          ----------                            ----------
  Total liabilities                        2,056,296                             1,822,289
Shareholders' Equity                         217,637                               227,976
                                          ----------                            ----------
  Total liabilities and equity            $2,273,933                            $2,050,265
                                          ==========                            ==========
Net interest-earning assets                 $111,229                              $109,168
                                          ==========                            ==========
Net interest income/
 interest rate spread                                      $17,624        3.07%                  $16,792       3.29%
                                                        ==========     =======                ==========    =======
Net interest margin                                                       3.29%                                3.53%
                                                                       =======                              =======
Ratio of average interest-
 earning assets to average
 interest-bearing liabilities                                           105.52%                              106.11%
                                                                       =======                              =======
</TABLE>

                   Commonwealth Bancorp, Inc. and Subsidiaries
                             Average Balance Report
                                 (in thousands)
<TABLE>
<CAPTION>
                                                              Year To Date Ended September 30,
                                          ------------------------------------ ------------------------------------
                                                           1997                                1996
                                          ------------------------------------ ------------------------------------
                                                                       Average                              Average
                                            Average                    Yield /   Average                    Yield /
                                            Balance     Interest       Cost(e)   Balance      Interest      Cost(e)
                                            -------     --------       -------   -------      --------      -------
<S>                                       <C>           <C>           <C>      <C>           <C>           <C>
Interest-earning assets:
Loans receivable(a):
Mortgage loans - residential                $867,737       $48,851       7.53%   $694,396       $39,278       7.56%
Consumer loans                               172,931        11,615       8.98%    131,600         8,914       9.05%
Commercial real estate loans                  44,678         3,006       9.00%     22,974         1,339       7.79%
Business loans                                58,219         3,375       7.75%     36,071         2,059       7.62%
                                          ----------    ----------    -------  ----------    ----------    -------
   Total loans receivable                  1,143,565        66,847       7.82%    885,041        51,590       7.79%
                                          ----------    ----------    -------  ----------    ----------    -------
Mortgage loans held for sale                  46,539         2,531       7.27%     42,302         2,313       7.30%
Mortgage-backed securities                   803,065        41,928       6.98%    616,906        32,078       6.95%
Investment securities                         68,628         3,214       6.26%     61,679         2,494       5.40%
Other earning assets(b)                       23,691         1,590       8.97%     34,358         2,258       8.78%
                                          ----------    ----------    -------  ----------    ----------    -------
Total interest-earning assets              2,085,488       116,110       7.44%  1,640,286        90,733       7.39%
Non- interest-earning assets                 143,579    ----------    -------     118,249    ----------    -------
                                          ----------                           ----------
  Total assets                            $2,229,067                           $1,758,535
                                          ==========                           ==========

Interest-bearing liabilities
 Deposits:
   Demand deposits(c)                       $547,735        10,034       2.45%   $465,719         9,008       2.58%
   Passbook savings deposits                 250,355         4,181       2.23%    230,757         3,591       2.08%
   Certificates of deposit                   719,223        29,154       5.42%    578,053        22,665       5.24%
                                          ----------    ----------    -------  ----------    ----------    -------
     Total deposits                        1,517,313        43,369       3.82%  1,274,529        35,264       3.70%
                                          ----------    ----------    -------  ----------    ----------    -------
 Notes payable and other borrowings
   Repurchase agreements                     237,104        10,465       5.90%    153,940         6,899       5.99%
   FHLB Advances                             210,458         8,890       5.65%    122,360         5,194       5.67%
   Other Borrowings                                0             0       0.00%        899            57       8.47%
                                          ----------    ----------    -------  ----------    ----------    -------
     Total borrowings                        447,562        19,355       5.78%    277,199        12,150       5.85%
                                          ----------    ----------    -------  ----------    ----------    -------
Total interest-bearing liabilities (d)     1,964,875        62,724       4.27%  1,551,728        47,414       4.08%
Non- interest-bearing liabilities             45,821    ----------    -------      32,897    ----------    -------
                                          ----------                           ----------
  Total liabilities                        2,010,696                            1,584,625
Shareholders' Equity                         218,371                              173,910
                                          ----------                           ----------
  Total liabilities and equity            $2,229,067                           $1,758,535
                                          ==========                           ==========
Net interest-earning assets                 $120,613                              $88,558
                                          ==========                           ==========
Net interest income/
 interest rate spread                                      $53,386       3.17%                  $43,319       3.31%
                                                        ==========    =======                ==========    =======
Net interest margin                                                      3.42%                                3.53%
                                                                      =======                              =======
Ratio of average interest-
 earning assets to average
 interest-bearing liabilities                                          106.14%                              105.71%
                                                                      =======                              =======
</TABLE>

(a) The average balance of loans receivable includes non-performing loans,
    interest on which is recognized on a cash basis.

(b) Includes FHLB stock, money market accounts, FHLB deposits and
    interest-earning bank deposits.

(c) Includes checking and money market accounts.

(d) Includes interest expense associated with interest rate swaps and interest
    rate caps.

(e) Annualized

                                       21

<PAGE>   22

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

          COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER AND NINE
                   MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.

           GENERAL. Net income was $4.0 million for the third quarter of 1997
compared to a net loss of ($0.7) million for the third quarter of 1996. For the
nine months ended September 30, 1997, net income was $12.4 million compared to
$5.1 million for the nine months ended September 30, 1996. Results for the 1996
periods were affected by a $4.5 million after-tax charge relating to the
recapitalization of the Savings Association Insurance Fund (SAIF). Exclusive of
this one-time charge, net income would have been $3.8 million for the third
quarter of 1996 and $9.6 million for the nine months ended September 30, 1996.

           Earnings per share of common stock were $0.25 in the third quarter of
1997, compared to a net loss of ($0.04) per share in the third quarter of 1996.
Earnings per share of common stock were $0.76 for the nine months ended
September 30, 1997, compared to $0.44 per share for the nine months ended
September 30, 1996. Exclusive of the SAIF special assessment, earnings per share
of common stock would have been $0.22 for the third quarter of 1996 and $0.83
for the nine months ended September 30, 1996. The decrease in earnings per share
for the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996, as adjusted, was primarily attributable to an increase in
the number of common shares outstanding after the completion of the Company's
second-step conversion in June 1996, as well as the time required to deploy the
related capital into investments with acceptable long-term profitability
characteristics.

           NET INTEREST INCOME. Net interest income was $17.6 million in the
third quarter of 1997, an increase of 5% compared to $16.8 million in the third
quarter of 1996. For the nine months ended September 30, 1997, net interest
income increased by 23%, to $53.4 million, versus $43.3 million for the same
period in 1996. The increases were primarily attributable to higher
interest-earning asset levels, offset, in part, by a lower net interest margin.

           Average interest-earning assets totaled $2.1 billion for both the
third quarter and nine months ended September 30, 1997. This compared to $1.9
billion and $1.6 billion for the third quarter and nine months ended September
30, 1996, respectively. The increases in the third quarter and nine months
average interest-earning assets were due primarily to an increase in the
Company's loan portfolio. Compared to the third quarter of 1996, average
mortgage loans increased 21% to $912.5 million, average consumer loans increased
7% to $178.0 million, and average commercial loans increased 21% to $106.8
million in the third quarter of 1997. Compared to the first nine months of 1996,
average mortgage loans increased 25% to $867.7 million, average consumer loans
increased 31% to $172.9 million, and average commercial loans increased 74% to
$102.9 million in the first nine months of 1997. The increases in average loans
in the third quarter of 1997, relative to the third quarter of 1996, were
primarily attributable to growth in the Company's core businesses of mortgage
banking, retail banking, and business banking. In addition to growth in the
Company's core businesses, the increases in average loans for the first nine
months of 1997, relative to the first nine months of 1996, were also partially
attributable to the June 1996 acquisition of 12 branch offices located in Berks
and Lebanon Counties, PA ("Berks Acquisition").

           The net interest margin was 3.29% in the third quarter of 1997, down
from 3.53% in the third quarter of 1996. The decrease was primarily attributable
to a 0.22% reduction in the spread between the yield on interest-earning assets
and the cost of interest-bearing liabilities (net interest spread). The
reduction in the third quarter net interest spread was primarily due to an
increase in the average cost of the Bank's certificates of deposit, which, in
turn, was primarily attributable to the maturity of favorably priced
certificates of deposit.

           For the nine months ended September 30, 1997, the net interest margin
was 3.42%, versus 3.53% in the comparable 1996 period. The decrease was
primarily attributable to a 0.14% decrease in the net interest spread. The
reduction in the net interest spread for the first nine months of 1997 was
attributable to the same factors responsible for the third quarter decrease.

                                       22

<PAGE>   23

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS-CONTINUED

           NONINTEREST INCOME. Noninterest income totaled $5.7 million in the
third quarter of 1997 compared to $4.7 million in the third quarter of 1996. The
increase reflected a $1.2 million increase in the net gain on sale of mortgage
loans, which was primarily attributable to an increase in servicing released
premiums on loans originated through mortgage production offices acquired from
Homestead Mortgage, Inc. ("Homestead") in the first quarter of 1997. Also
contributing to the increase in noninterest income in the third quarter of 1997
was a $0.6 million increase in deposit fees, which was primarily attributable to
growth in supermarket banking, expansion of Commonwealth's business banking
activities, and increased ATM fees. Servicing fee income increased primarily as
a result of a $0.2 million gain on the sale of mortgage servicing rights. These
favorable effects were offset, in part, by a $1.0 million decrease in other
noninterest income, primarily due to a favorable litigation settlement in the
third quarter of 1996.

           Noninterest income was $15.0 million for the nine months ended
September 30, 1997 compared to $11.1 million for the same 1996 period. The
increase reflected a $1.8 million increase in the net gain on sale of mortgage
loans and a $1.7 million increase in deposit fees. These increases were
primarily attributable to the same factors responsible for the increases in the
third quarter of 1997, as well as to deposit fees related to the Berks
Acquisition. Also contributing to the increase in noninterest income for the
nine months ended September 30, 1997 was a $1.5 million net gain on the sale of
the Company's previous headquarters building and the sale of a branch property.
These increases were partially offset by the effect of the favorable litigation
settlement in the third quarter of 1996, a $0.2 million decrease in mortgage
servicing fees, and a $0.2 million net loss on the sale of mortgage-backed
securities in the second quarter of 1997.

           NONINTEREST EXPENSE. Noninterest expense was $17.0 million in the
third quarter of 1997 compared to $22.4 million in the third quarter of 1996.
The decrease was due to a $7.3 million decrease in FDIC premiums, $6.8 million
of which represented a one-time charge in the third quarter of 1996 to
recapitalize the SAIF and $0.5 million of which primarily represented a
reduction in deposit insurance premiums from $0.23 to approximately $0.06 per
$100 of deposits. During the third quarter of 1996, Commonwealth also recorded
approximately $0.8 million in one-time expenses associated with the Berks
Acquisition. Also contributing to the decrease was a $0.3 million decrease in
amortization of intangibles in the third quarter of 1997, versus the third
quarter of 1996. Partially offsetting these favorable effects were higher
expenses relating to the acquisition of the Homestead mortgage production
offices, as well as higher expenses relating to certain benefit plans and growth
in supermarket banking and business banking activities.

           Noninterest expense was $48.9 million for the nine months ended
September 30, 1997 compared to $46.3 million for the same period in 1996. In
addition to the factors identified for the third quarter of 1997, the increase
was primarily attributable to higher expenses relating to the Berks Acquisition.
The increase in noninterest expense was offset, in part, by a $0.2 million
refund of prior year FDIC premiums received in the first quarter of 1997. Also
partially offsetting the increase in noninterest expense was a $0.4 million
reversal of a liability relating to a contract with the Company's data
processing provider, and a $0.4 million reversal of the Bank's pension
liability. During 1997, the Bank terminated its defined benefit pension plan,
and replaced it with a target benefit plan.

           PROVISION FOR CREDIT LOSSES. Provision for credit losses totaled $0.3
million and $0.9 million in the third quarter and nine months ended September
30, 1997, respectively. The provision for credit losses totaled $0.2 million and
$0.3 million in the third quarter and nine months ended September 30, 1996,
respectively. At September 30, 1997, the allowance for credit losses totaled
$9.1 million, or 0.74% of loans, compared to $10.1 million, or 0.96%, at
September 30, 1996 and $10.0 million, or 0.89%, at December 31, 1996. The
decrease in the allowance for loan losses was primarily attributable to net
credit losses on loans acquired in the Berks Acquisition. The Company acquired a
$2.4 million allowance for credit losses as part of the Berks Acquisition.
Through September 30, 1997, approximately $1.5 million of that reserve had been
utilized through net credit losses.

           PROVISION FOR INCOME TAXES. Provision for income taxes was $2.0
million, or 33% of income before income taxes in the third quarter of 1997,
compared to a ($0.4) million benefit, or 38%, in the third quarter of 1996. For
the first nine months of 1997, provision for income taxes was $6.3 million, or
34% of income before income taxes, compared to $2.7 million, or 35%, in the
first nine months of 1996. The decrease in the income tax rate in the third
quarter and first nine months of 1997 was primarily attributable to low income
housing tax credits in 1997.

                                       23

<PAGE>   24

                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

           There are no material legal proceedings to which the Company or any
           of its subsidiaries is a party, or to which any of their property is
           subject, other than proceedings routine to the business of the
           Company and its subsidiaries.

Item 2.    Changes in Securities

           Not applicable.

Item 3.    Defaults Upon Senior Securities

           Not applicable.

Item 4.    Submission of Matters to a Vote of Security Holders

           Not applicable

Item 5.    Other Information

           Not applicable.

Item 6.    Exhibits and Reports on Form 8-K.

           a)  Not applicable.

           b)  On July 16, 1997, the Company filed a Current Report on Form 8-K
               to report under Item 5, its earnings for the second quarter of
               1997. On September 26, 1997, the Company filed a Current Report
               on Form 8-K to report under Item 5, its completion of the stock
               repurchase program and its declared cash dividend. On October
               22, 1997, the Company filed a Current Report on Form 8-K to
               report under Item 5, its earnings for the third quarter of 1997.

                                       24

<PAGE>   25

                                   SIGNATURES

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

                             COMMONWEALTH BANCORP, INC.

DATE: November 7, 1997       /s/ Charles H. Meacham
                             ----------------------
                             Charles H. Meacham
                             Chairman and Chief Executive Officer
                             (Principal Executive Officer)

DATE: November 7, 1997       /s/  Charles M. Johnston
                             ------------------------
                             Charles M. Johnston
                             Senior Vice President and Chief Financial Officer
                             (Principal Financial and Accounting Officer)

                                       25