##### 



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 1934For the quarter ended.............................................................................September 30, 2002
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OR



| | [   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from........................................ to ....................................................Commission File No.................................................................................................0-27942
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commonwealth Bancorp, Inc.

---

(Exact name of registrant as specified in its charter)


|                                         |  |                       
|---------------------------------------- |  | ----------------------
|Pennsylvania                             |  | 23-2828883            
|                                         |  |                       
|(State or other jurisdiction of          |  | (I.R.S. Employer      
|incorporation or organization)           |  | Identification Number)
|                                         |  |                       
|Commonwealth Bank Plaza                  |  |                       
|2 West Lafayette Street                  |  |                       
|Norristown, Pennsylvania                 |  | 19401-4758            
|                                         |  |                       
|(Address of principal executive offices) |  | (Zip Code)            

Registrants telephone number, including area code:
(610) 313-1600

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: As of October 31, 2002,
there were 18,068,127 issued and 9,674,693 outstanding shares of the
Registrants Common Stock.

1



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

TABLE OF CONTENTS

|     |  |                                                                                                                         |  |     
|---- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|Item |  |                                                                                                                         |  | Page
|No.  |  |                                                                                                                         |  | No. 
|     |  |                                                                                                                         |  |     
|     |  | PART I  CONSOLIDATED FINANCIAL INFORMATION                                                                             |  |     
|     |  |                                                                                                                         |  |     
|1    |  | Consolidated Financial Statements                                                                                       |  |     
|     |  |                                                                                                                         |  |     
|     |  | Consolidated Balance Sheets at September 30, 2002 and December 31, 2001                                                 |  | 3   
|     |  |                                                                                                                         |  |     
|     |  | Consolidated Statements of Income for the Quarters and Nine Month
Periods Ended September 30, 2002 and 2001             |  | 4   
|     |  |                                                                                                                         |  |     
|     |  | Consolidated Statements of Changes in Shareholders Equity for the Nine Month
Periods Ended September 30, 2002 and 2001 |  | 5   
|     |  |                                                                                                                         |  |     
|     |  | Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 30, 2002 and 2001                      |  | 6   
|     |  |                                                                                                                         |  |     
|     |  | Notes to Consolidated Financial Statements                                                                              |  | 8   
|     |  |                                                                                                                         |  |     
|2    |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                   |  | 14  
|     |  |                                                                                                                         |  |     
|3    |  | Quantitative and Qualitative Disclosures about Market Risk                                                              |  | 29  
|     |  |                                                                                                                         |  |     
|4    |  | Controls and Procedures                                                                                                 |  | 29  
|     |  |                                                                                                                         |  |     
|     |  | PART II  OTHER INFORMATION                                                                                             |  |     
|     |  |                                                                                                                         |  |     
|1    |  | Legal Proceedings                                                                                                       |  | 30  
|     |  |                                                                                                                         |  |     
|2    |  | Changes in Securities                                                                                                   |  | 30  
|     |  |                                                                                                                         |  |     
|3    |  | Default Upon Senior Securities                                                                                          |  | 30  
|     |  |                                                                                                                         |  |     
|4    |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 30  
|     |  |                                                                                                                         |  |     
|5    |  | Other Information                                                                                                       |  | 30  
|     |  |                                                                                                                         |  |     
|6    |  | Exhibits and Reports on Form 8-K                                                                                        |  | 30  
|     |  |                                                                                                                         |  |     
|     |  | Signatures                                                                                                              |  | 31  
|     |  |                                                                                                                         |  |     
|     |  | Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002                                              |  | 32  

2



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##### 



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

|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |         |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------- | --------- | ------------ | --------- | ------- | --------- | 
|                                                                                                                                                                                                               |                                                                                              |                                            |           | September 30, |           | December 31,
|                                                                                                                                                                                                               |                                                                                              |                                            |           | 2002          |           | 2001        
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |             
|Assets:                                                                                                                                                                                                        |                                                                                              | (Unaudited)                                |           | (Note 1)     
|Cash and due from banks                                                                                                                                                                                        |                                                                                              | $                                          | 61,977    |               |           | $            | 72,127    |        
|Interest-bearing deposits                                                                                                                                                                                      |                                                                                              |                                            | 26,585    |               |           |              | 45,761    |        
|Investment securities                                                                                                                                                                                          |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               | Securities available for sale (cost of $21,899
and $77,042, respectively), at market value   |                                            |           | 22,479        |           |              |           | 77,136  |          
|Mortgage-backed securities                                                                                                                                                                                     |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               | Securities available for sale (cost of $409,601
and $168,388, respectively), at market value |                                            |           | 420,614       |           |              |           | 170,860 |          
|Loans receivable, net                                                                                                                                                                                          |                                                                                              |                                            | 1,159,559 |               |           |              | 1,302,468 |        
|FHLB stock, at cost                                                                                                                                                                                            |                                                                                              |                                            | 9,870     |               |           |              | 12,565    |        
|Premises and equipment, net                                                                                                                                                                                    |                                                                                              |                                            | 12,771    |               |           |              | 13,555    |        
|Intangible assets, net                                                                                                                                                                                         |                                                                                              |                                            | 21,443    |               |           |              | 24,912    |        
|Accrued interest receivable and other assets, including net
deferred taxes of $5,140 and $8,227, respectively                                                                                                  |                                                                                              |                                            | 65,000    |               |           |              | 64,888    |        
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               |                                                                                              | Total assets                               |           | $             | 1,800,298 |              |           | $       | 1,784,272 | 
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |         |           | 
|Liabilities:                                                                                                                                                                                                   |                                                                                              |                                            |           |               |           |              |           |        
|Deposits                                                                                                                                                                                                       |                                                                                              | $                                          | 1,471,203 |               |           | $            | 1,494,407 |        
|Notes payable and other borrowings:                                                                                                                                                                            |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               | Secured notes due to Federal Home Loan Bank of Pittsburgh                                    |                                            |           | 84,486        |           |              |           | 74,123  |          
|                                                                                                                                                                                                               | Securities sold under agreements to repurchase                                               |                                            |           | 20,000        |           |              |           | 10,000  |          
|                                                                                                                                                                                                               | Commercial repurchase agreements                                                             |                                            |           | 51,171        |           |              |           | 39,027  |          
|Accrued interest payable, accrued expenses and other liabilities                                                                                                                                               |                                                                                              |                                            | 24,061    |               |           |              | 17,088    |        
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               |                                                                                              | Total liabilities                          |           |               | 1,650,921 |              |           |         | 1,634,645 | 
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |         |           | 
|Commitments and contingencies                                                                                                                                                                                  |                                                                                              |                                            |          |               |           |              |          |        
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |         |           | 
|Shareholders equity:                                                                                                                                                                                          |                                                                                              |                                            |           |               |           |              |           |        
|Preferred stock, $0.10 par value; 5,000,000 shares
authorized; none issued                                                                                                                                     |                                                                                              |                                            |          |               |           |              |          |        
|Common stock, $0.10 par value; 30,000,000 shares authorized;
18,068,127 shares issued and 9,665,846 outstanding at September 30, 2002
18,068,127 shares issued and 10,350,814 outstanding at December 31, 2001 |                                                                                              |                                            | 1,807     |               |           |              | 1,807     |        
|Additional paid-in capital                                                                                                                                                                                     |                                                                                              |                                            | 142,307   |               |           |              | 139,981   |        
|Retained earnings                                                                                                                                                                                              |                                                                                              |                                            | 160,180   |               |           |              | 150,743   |        
|Unearned stock benefit plan compensation                                                                                                                                                                       |                                                                                              |                                            | (4,912    | )             |           |              | (4,799    | )      
|Accumulated other comprehensive income                                                                                                                                                                         |                                                                                              |                                            | 7,559     |               |           |              | 1,681     |        
|Treasury stock, at cost; 8,402,281 and 7,717,313 shares at September 30, 2002
and December 31, 2001, respectively                                                                                              |                                                                                              |                                            | (157,564  | )             |           |              | (139,786  | )      
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               |                                                                                              | Total shareholders equity                 |           |               | 149,377   |              |           |         | 149,627   | 
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        
|                                                                                                                                                                                                               |                                                                                              | Total liabilities and shareholders equity |           | $             | 1,800,298 |              |           | $       | 1,784,272 | 
|                                                                                                                                                                                                               |                                                                                              |                                            |           |               |           |              |           |        

The accompanying notes are an integral part of these statements.

3



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##### 



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

|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |        |        | 
|----------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------- | --------- | ------------------- | ------ | ------------------- | ---------- | ------ | ------ | ---- | --------- | ------ | ------ | - | ---------- | ------ | ------ | 
|                                                      |                                                                 |                                                     |           | For the Quarter     |        | For the Nine Months
|                                                      |                                                                 |                                                     |           | Ended September, 30 |        | Ended September 30,
|                                                      |                                                                 |                                                     |           |                     |        |                    
|                                                      |                                                                 |                                                     |           | 2002                |        | 2001                |            | 2002   |        | 2001
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |     
|                                                      |                                                                 |                                                     |           | (Unaudited)         |        | (Unaudited)        
|Interest income:                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      | Interest on loans                                               |                                                     | $         | 22,824              |        |                     | $          | 27,639 |        |      | $         | 69,677 |        |   | $          | 85,174 |       
|                                                      | Interest and dividends on deposits and money
market investments |                                                     |           | 183                 |        |                     |            | 672    |        |      |           | 670    |        |   |            | 1,696  |       
|                                                      | Interest on investment securities                               |                                                     |           | 299                 |        |                     |            | 149    |        |      |           | 997    |        |   |            | 447    |       
|                                                      | Interest on mortgage-backed securities                          |                                                     |           | 5,033               |        |                     |            | 2,695  |        |      |           | 12,470 |        |   |            | 9,170  |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Total interest income                               |           |                     | 28,339 |                     |            |        | 31,155 |      |           |        | 83,814 |   |            |        | 96,487 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |        |        | 
|Interest expense:                                     |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      | Interest on deposits                                            |                                                     |           | 6,201               |        |                     |            | 10,222 |        |      |           | 20,124 |        |   |            | 33,860 |       
|                                                      | Interest on notes payable and other borrowings                  |                                                     |           | 1,518               |        |                     |            | 1,983  |        |      |           | 4,108  |        |   |            | 7,666  |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Total interest expense                              |           |                     | 7,719  |                     |            |        | 12,205 |      |           |        | 24,232 |   |            |        | 41,526 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Net interest income                                 |           |                     | 20,620 |                     |            |        | 18,950 |      |           |        | 59,582 |   |            |        | 54,961 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |        |        | 
|Provision for loan losses                             |                                                                 |                                                     | 1,200     |                     |        |                     | 2,500      |        |        |      | 4,900     |        |        |   | 6,250      |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Net interest income after provision for loan losses |           |                     | 19,420 |                     |            |        | 16,450 |      |           |        | 54,682 |   |            |        | 48,711 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |        |        | 
|Noninterest income:                                   |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      | Deposit fees and related income                                 |                                                     |           | 4,037               |        |                     |            | 3,424  |        |      |           | 11,594 |        |   |            | 9,891  |       
|                                                      | Financial services fees                                         |                                                     |           | 655                 |        |                     |            | 519    |        |      |           | 1,861  |        |   |            | 1,362  |       
|                                                      | Miscellaneous income                                            |                                                     |           | 877                 |        |                     |            | 688    |        |      |           | 2,639  |        |   |            | 2,399  |       
|                                                      | Net (loss) gain on sale of mortgage loans                       |                                                     |           |                    |        |                     |            | (19    | )      |      |           |       |        |   |            | 1,593  |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Total noninterest income                            |           |                     | 5,569  |                     |            |        | 4,612  |      |           |        | 16,094 |   |            |        | 15,245 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Noninterest expense:                                  |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      | Compensation and employee benefits                              |                                                     |           | 8,091               |        |                     |            | 7,779  |        |      |           | 23,590 |        |   |            | 24,844 |       
|                                                      | Occupancy and office operations                                 |                                                     |           | 2,654               |        |                     |            | 2,478  |        |      |           | 7,568  |        |   |            | 7,320  |       
|                                                      | Amortization of intangible assets                               |                                                     |           | 1,157               |        |                     |            | 1,184  |        |      |           | 3,470  |        |   |            | 3,553  |       
|                                                      | Other                                                           |                                                     |           | 5,227               |        |                     |            | 4,092  |        |      |           | 15,282 |        |   |            | 15,446 |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Total noninterest expense                           |           |                     | 17,129 |                     |            |        | 15,533 |      |           |        | 49,910 |   |            |        | 51,163 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|                                                      |                                                                 | Income before income taxes                          |           |                     | 7,860  |                     |            |        | 5,529  |      |           |        | 20,866 |   |            |        | 12,793 | 
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |        |        | 
|Income tax provision                                  |                                                                 |                                                     | 2,201     |                     |        |                     | 1,382      |        |        |      | 5,843     |        |        |   | 3,198      |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Net income                                            |                                                                 | $                                                   | 5,659     |                     |        | $                   | 4,147      |        |        | $    | 15,023    |        |        | $ | 9,595      |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Basic weighted average number of shares outstanding   |                                                                 |                                                     | 9,245,713 |                     |        |                     | 10,344,813 |        |        |      | 9,453,710 |        |        |   | 10,469,343 |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Basic earnings per share                              |                                                                 | $                                                   | 0.61      |                     |        | $                   | 0.40       |        |        | $    | 1.59      |        |        | $ | 0.92       |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Diluted weighted average number of shares outstanding |                                                                 |                                                     | 9,828,847 |                     |        |                     | 10,741,217 |        |        |      | 9,964,611 |        |        |   | 10,829,034 |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Diluted earnings per share                            |                                                                 | $                                                   | 0.58      |                     |        | $                   | 0.39       |        |        | $    | 1.51      |        |        | $ | 0.89       |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       
|Dividends declared per share                          |                                                                 | $                                                   | 0.17      |                     |        | $                   | 0.14       |        |        | $    | 0.51      |        |        | $ | 0.42       |       
|                                                      |                                                                 |                                                     |           |                     |        |                     |            |        |        |      |           |        |        |   |            |       

The accompanying notes are an integral part of these statements.

4



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##### 



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

|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         |        |       | 
|----------------------------- | -------------------------------------- | -------------------------- | ------------------------------------------------------------------------ | ---- | ----------- | - | ------ |  | ------- | - | ---------- | ----- | ------------ | ------------- | -------- | ------ | ------ |  | ------- | ---- | -------- | ----------- | ----- |  |  | ----- | --------- | ------- | - | - | ------- | ------- | ------ | ----- | 
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      | Unearned | Accumulated |       |  |  |       |           |         |  
|                              |                                        |                            |                                                                          |      | Common      |   |        |  |         |   | Additional |       |              |               |          |        | Stock  |  | Other   |      |          |             |       |  |  |       |          
|                              |                                        |                            |                                                                          |      | Shares      |   | Common |  | Paid-In |   | Retained   |       | Benefit Plan | Comprehensive | Treasury |        |        |  |        
|                              |                                        |                            |                                                                          |      | Outstanding |   | Stock  |  | Capital |   | Earnings   |       | Compensation |               | Income   |        | Stock  |  | Total  
|                             
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         |        |       | 
|Balance at December 31, 2000  |                                        |                            | 11,309                                                                   |      |             | $ | 1,807  |  |         | $ | 138,166    |       |              | $             | 145,869  |        |        |  | ($6,596 | )    |          | $           | 1,286 |  |  |       | ($120,079 | )       |   | $ | 160,453 |        
|                              | Comprehensive income:                  |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         |       
|                              |                                        | Net income                 |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        | 9,595  |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         | 9,595  |      
|                              |                                        |                            | Other-unrealized gain on marketablesecurities, net of $878 tax expense   |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  | 1,630 |           |         |   |   |         |         |        | 1,630 | 
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |        
|                              |                                        | Total comprehensive income |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         | 11,225 |      
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |        
|                              | Dividends                              |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          | (4,426 | )      |  |         |      |          |             |       |  |  |       |           |         |   |   |         | (4,426  | )     
|                              | Release of ESOP shares                 |                            |                                                                          |      |             |   |        |  |         |   |            | 810   |              |               |          |        |        |  |         | 690  |          |             |       |  |  |       |           |         |   |   |         | 1,500   |       
|                              | Amortization of unearned compensation  |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         | 669  |          |             |       |  |  |       |           |         |   |   |         | 669     |       
|                              | Stock issued pursuant to benefit plans |                            |                                                                          | 308  |             |   |        |  |         |   |            | 62    |              |               |          | (2,848 | )      |  |         |      |          |             |       |  |  |       |           | 5,353   |   |   |         | 2,567   |       
|                              | Purchase of treasury stock             |                            |                                                                          | (713 | )           |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           | (13,155 | ) |   |         | (13,155 | )     
|                              |                                        |                            |                                                                          |      |            
|Balance at September 30, 2001 |                                        |                            | 10,904                                                                   |      |             | $ | 1,807  |  |         | $ | 139,038    |       |              | $             | 148,190  |        |        |  | ($5,237 | )    |          | $           | 2,916 |  |  |       | ($127,881 | )       |   | $ | 158,833 |        
|                              |                                        |                            |                                                                          |      |            
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         |        |       | 
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         |        |       | 
|Balance at December 31, 2001  |                                        |                            | 10,351                                                                   |      |             | $ | 1,807  |  |         | $ | 139,981    |       |              | $             | 150,743  |        |        |  | ($4,799 | )    |          | $           | 1,681 |  |  |       | ($139,786 | )       |   | $ | 149,627 |        
|                              | Comprehensive income:                  |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         |       
|                              |                                        | Net income                 |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        | 15,023 |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         | 15,023 |      
|                              |                                        |                            | Other-unrealized gain on marketablesecurities, net of $3,165 tax expense |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  | 5,878 |           |         |   |   |         |         |        | 5,878 | 
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |        
|                              |                                        | Total comprehensive income |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |         | 20,901 |      
|                              |                                        |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           |         |   |   |         |        
|                              | Dividends                              |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          | (4,709 | )      |  |         |      |          |             |       |  |  |       |           |         |   |   |         | (4,709  | )     
|                              | Release of ESOP shares                 |                            |                                                                          |      |             |   |        |  |         |   |            | 2,309 |              |               |          |        |        |  |         | (208 | )        |             |       |  |  |       |           |         |   |   |         | 2,101   |       
|                              | Amortization of unearned compensation  |                            |                                                                          |      |             |   |        |  |         |   |            |       |              |               |          |        |        |  |         | 95   |          |             |       |  |  |       |           |         |   |   |         | 95      |       
|                              | Stock issued pursuant to benefit plans |                            |                                                                          | 57   |             |   |        |  |         |   |            | 17    |              |               |          | (877   | )      |  |         |      |          |             |       |  |  |       |           | 1,517   |   |   |         | 657     |       
|                              | Purchase of treasury stock             |                            |                                                                          | (742 | )           |   |        |  |         |   |            |       |              |               |          |        |        |  |         |      |          |             |       |  |  |       |           | (19,295 | ) |   |         | (19,295 | )     
|                              |                                        |                            |                                                                          |      |            
|Balance at September 30, 2002 |                                        |                            | 9,666                                                                    |      |             | $ | 1,807  |  |         | $ | 142,307    |       |              | $             | 160,180  |        |        |  | ($4,912 | )    |          | $           | 7,559 |  |  |       | ($157,564 | )       |   | $ | 149,377 |        
|                              |                                        |                            |                                                                          |      |            

The accompanying notes are an integral part of these statements.

5



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##### 



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

|                      |                                                                                             |                                                      |                                                                                         |                                           |        |                     |        |       |         |        |        | 
|--------------------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------- | ------ | ------------------- | ------ | ----- | ------- | ------ | ------ | 
|                      |                                                                                             |                                                      |                                                                                         |                                           |        | For the Nine Months
|                      |                                                                                             |                                                      |                                                                                         |                                           |        | Ended September 30,
|                      |                                                                                             |                                                      |                                                                                         |                                           |        |                    
|                      |                                                                                             |                                                      |                                                                                         |                                           |        | 2002                |        | 2001 
|                      |                                                                                             |                                                      |                                                                                         |                                           |        |                     |        |      
|                      |                                                                                             |                                                      |                                                                                         |                                           |        | (Unaudited)        
|Operating activities: |                                                                                             |                                                      |                                                                                         |                                           |        |                     |        |      
|                      | Net income                                                                                  |                                                      | $                                                                                       | 15,023                                    |        |                     | $      | 9,595 |        
|                      | Adjustments to reconcile net income to net cash
provided by (used in) operating activities- |                                                      |                                                                                         |                                           |        |                     |        |       |        
|                      |                                                                                             | Proceeds from loans sold to others                   |                                                                                         |                                           | 9,562  |                     |        |       | 200,131 |       
|                      |                                                                                             | Loans originated for sale                            |                                                                                         |                                           | (9,333 | )                   |        |       | (85,012 | )     
|                      |                                                                                             | Purchases of loans held for sale                     |                                                                                         |                                           |       |                     |        |       | (70,620 | )     
|                      |                                                                                             | Principal collection on mortgage loans held for sale |                                                                                         |                                           |       |                     |        |       | 247     |       
|                      |                                                                                             | Net gain on sale of mortgage loans                   |                                                                                         |                                           |       |                     |        |       | (1,593  | )     
|                      |                                                                                             | Decrease in net deferred loan fees                   |                                                                                         |                                           | (715   | )                   |        |       | (586    | )     
|                      |                                                                                             | Provision for loan losses and foreclosed real estate |                                                                                         |                                           | 4,900  |                     |        |       | 6,250   |       
|                      |                                                                                             | Depreciation and amortization                        |                                                                                         |                                           | 2,023  |                     |        |       | 2,014   |       
|                      |                                                                                             | Net amortization of other assets and liabilities     |                                                                                         |                                           | 5,245  |                     |        |       | 5,872   |       
|                      |                                                                                             | Interest reinvested on repurchase agreements         |                                                                                         |                                           | (497   | )                   |        |       | (847    | )     
|                      |                                                                                             | Changes in assets and liabilities-                   |                                                                                         |                                           |        |                     |        |       |         |       
|                      |                                                                                             |                                                      | Increase in accrued interest receivable and other assets                                |                                           |        | (4,807              | )      |       |         | (5,369 | )     
|                      |                                                                                             |                                                      | Increase (decrease) in accrued interest payable,
accrued expenses and other liabilities |                                           |        | 6,973               |        |       |         | (1,988 | )     
|                      |                                                                                             |                                                      |                                                                                         |                                           |        |                     |        |      
|                      |                                                                                             |                                                      |                                                                                         | Net cash provided by operating activities |        | $                   | 28,374 |       |         | $      | 58,094 | 
|                      |                                                                                             |                                                      |                                                                                         |                                           |        |                     |        |      

The accompanying notes are an integral part of these statements.

6



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##### 



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

|                                                   |                                 |                                                               |              |                                                      |          |                     |         |      |          |        |          |  
|-------------------------------------------------- | ------------------------------- | ------------------------------------------------------------- | ------------ | ---------------------------------------------------- | -------- | ------------------- | ------- | ---- | -------- | ------ | -------- | -
|                                                   |                                 |                                                               |              |                                                      |          | For the Nine Months
|                                                   |                                 |                                                               |              |                                                      |          | Ended September 30,
|                                                   |                                 |                                                               |              |                                                      |          |                    
|                                                   |                                 |                                                               |              |                                                      |          | 2002                |         | 2001
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 |                                                               |              |                                                      |          | (Unaudited)        
|Investing activities:                              |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 | Purchases of investment securities                            |              |                                                      | ($87,359 | )                   |         |      | ($111    | )     
|                                                   |                                 | Proceeds from sale or call of investment securities           |              |                                                      | 139,931  |                     |         |      |         |       
|                                                   |                                 | Purchases of mortgage-backed securities                       |              |                                                      | (309,579 | )                   |         |      |         |       
|                                                   |                                 | Principal collected on mortgage-backed securities             |              |                                                      | 68,367   |                     |         |      | 52,804   |       
|                                                   |                                 | Principal collected on loans                                  |              |                                                      | 537,650  |                     |         |      | 259,557  |       
|                                                   |                                 | Loans originated                                              |              |                                                      | (386,161 | )                   |         |      | (195,486 | )     
|                                                   |                                 | Loans purchased                                               |              |                                                      | (9,525   | )                   |         |      | (8,823   | )     
|                                                   |                                 | Sales of real estate acquired through foreclosure             |              |                                                      | 1,324    |                     |         |      | 1,219    |       
|                                                   |                                 | Sale of FHLB stock                                            |              |                                                      | 2,695    |                     |         |      | 5,835    |       
|                                                   |                                 | Purchases of premises and equipment                           |              |                                                      | (1,496   | )                   |         |      | (818     | )     
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 |                                                               |              | Net cash (used in) provided by investing activities  |          |                     | (44,153 | )    |          |        | 114,177  |  
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|Financing activities:                              |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 | Net decrease in deposits                                      |              |                                                      | (23,204  | )                   |         |      | (3,576   | )     
|                                                   |                                 | Net increase (decrease) in notes payable and other borrowings |              |                                                      | 33,004   |                     |         |      | (93,834  | )     
|                                                   |                                 | Net purchase of common stock                                  |              |                                                      | (18,638  | )                   |         |      | (10,588  | )     
|                                                   |                                 | Cash dividends paid                                           |              |                                                      | (4,709   | )                   |         |      | (4,426   | )     
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 |                                                               |              | Net cash used in financing activities                |          |                     | (13,547 | )    |          |        | (112,424 | )
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 |                                                               |              | Net (decrease) increase in cash and cash equivalents |          |                     | (29,326 | )    |          |        | 59,847   |  
|Cash and cash equivalents at beginning of period   |                                 |                                                               | 117,888      |                                                      |          |                     | 66,700  |     
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|Cash and cash equivalents at end of period         |                                 | $                                                             | 88,562       |                                                      |          | $                   | 126,547 |     
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|Supplemental disclosures of cash flow information: |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   | Cash paid during the year for - |                                                               |              |                                                      |          |                     |         |      |         
|                                                   |                                 |                                                               | Interest     |                                                      | $        | 20,201              |         |      | $        | 33,204 |         
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     
|                                                   |                                 |                                                               | Income taxes |                                                      | $        | 5,800               |         |      | $        | 3,000  |         
|                                                   |                                 |                                                               |              |                                                      |          |                     |         |     

The accompanying notes are an integral part of these statements.

7



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | Basis of Presentation
|-- |  | ---------------------

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
condition of Commonwealth Bancorp, Inc. (Commonwealth or the Company) as of
September 30, 2002, and the results of operations, changes in shareholders
equity, and cash flows for the periods presented.

The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. A significant estimate includes the allowance for loan
losses. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements were prepared
in accordance with accounting principles generally accepted in the United
States for interim financial information, Article 10 of Regulation S-X, and the
instructions for Form 10-Q. The balance sheet at December 31, 2001 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer
to the Companys consolidated financial statements and footnotes thereto
included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2001. Certain items in the 2001 financial statements have been
reclassified in order to conform with the 2002 financial statement
presentation.

The Company is a Pennsylvania corporation which is the holding company for
Commonwealth Bank (the Bank). Headquartered in Norristown, Pennsylvania,
Commonwealth Bank conducts business through 61 full-service offices located in
Berks, Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties,
Pennsylvania.



|2. |  | Principles of Consolidation
|-- |  | ---------------------------

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



|3. |  | Shareholders Equity
|-- |  | --------------------

At September 30, 2002, shareholders equity totaled $149 million, or 8.3%
of assets, compared to $150 million, or 8.4%, at December 31, 2001. The
decrease was primarily the result of common stock repurchases offset, in part,
by an increase in retained earnings and accumulated other comprehensive income.

During the first nine months of 2002, the Company purchased 0.7 million
shares of its common stock, representing purchases of $19 million. During the
first nine months of 2001, the Company purchased 0.7 million shares of its
common stock, representing purchases of $13 million. The repurchased shares
were held as treasury stock at September 30, 2002, and are reserved for general
corporate purposes.

8



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net income was $5.7 million for the third quarter of 2002, compared to
total comprehensive income of $9.0 million. Net income was $4.1 million for
the third quarter of 2001, compared to total comprehensive income of $5.0
million. For the nine months ended September 30, 2002, net income was $15.0
million, compared to total comprehensive income of $20.9 million. For the nine
months ended September 30, 2001, net income was $9.6 million, compared to total
comprehensive income of $11.2 million. The increases in total comprehensive
income for the third quarter and nine months ended September 30, 2002, compared
to the same periods in 2001, were related to increases in net income and
unrealized gains on marketable securities, net of tax expense.

On September 10, 2002, the Board of Directors declared a $0.17 per share
cash dividend for the quarter ended September 30, 2002, which was made payable
to shareholders of record at the close of business on September 27, 2002. This
dividend was paid on October 11, 2002.



|4. |  | Recent Accounting Pronouncements
|-- |  | --------------------------------

In October 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 147, Acquisitions of
Certain Financial Institutions. This Statement provides guidance on
accounting for the acquisition of a financial institution, including the
acquisition of part of a financial institution. The Statement defines criteria
for determining whether the acquired financial institution meets the conditions
for a business combination. If the acquisition meets the conditions of a
business combination, the specialized accounting guidance under SFAS No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions will
not apply after September 30, 2002 and the amount of the unidentifiable
intangible asset will be reclassified to goodwill upon adoption of SFAS No.
147. Management has not determined whether SFAS No. 147 is applicable to the
unidentifiable intangible assets recorded by the Company in connection with the
acquisition of certain branch offices. Until the completion of this review, the
potential impact, if any, on Commonwealths financial statements cannot be
determined.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which nullifies Emerging Issues
Task Force Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and other Costs to Exit an Activity (including certain costs incurred
in a restructuring). This Statement delays recognition of these costs until
liabilities are incurred and requires fair value measurement. It does not
impact the recognition of liabilities incurred in connection with a business
combination or the disposal of long-lived assets. The provisions of this
Statement are effective for exit or disposal activities initiated after
December 31, 2002 and are not expected to have a significant impact on the
Companys financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supercedes SFAS No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of and the
accounting and reporting provisions of Accounting Principles Board Opinion
(APB) No. 30 related to the accounting and reporting for the disposal of a
segment of a business. This Statement establishes a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale. SFAS No. 144 retains most of the requirements in SFAS No.
121 related to the recognition of impairment of long-lived assets to be held
and used. The Company adopted SFAS No. 144 on January 1, 2002, as required.
There was no impact on the consolidated financial statements as a result of the
adoption of this Statement.

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS No. 142 changes the accounting for
goodwill from an amortization method to assessing impairment on a
fair-value-based test approach. The Company adopted SFAS No. 142 on January 1,
2002, as required. There was no material impact on the consolidated financial
statements as a result of the adoption of SFAS No. 142.

9



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|5. |  | Earnings Per Share
|-- |  | ------------------

Basic earnings per share (EPS) is calculated by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding during the period, adjusted for the Companys Employee Stock
Ownership Plan (ESOP) shares that have not been committed to be released, and
the effects of unissued shares held by the Companys Management Recognition
Plans (Recognition Plans). Options, warrants, and other potentially dilutive
securities and treasury shares are excluded from the basic calculation.

Diluted EPS is computed by dividing net income available to common
shareholders by the weighted average number of shares of common stock
outstanding during the period, adjusted for ESOP shares that have not been
committed to be released, and the effects of shares held by the Recognition
Plans. The effect of dilutive securities, such as stock options and
Recognition Plan stock, are considered common stock equivalents and are
included in the computation of the number of outstanding shares using the
treasury stock method. Common shares outstanding exclude treasury shares.

Basic weighted average number of common shares outstanding and diluted
weighted average number of common shares outstanding for the periods indicated
were as follows:

|                                                             |                        |  |                                     |         |      |  |            |         | 
|------------------------------------------------------------ | ---------------------- |  | ----------------------------------- | ------- | ---- |  | ---------- | ------- | 
|                                                             |                        |  | For the Quarter Ended September 30,
|                                                             |                        |  |                                    
|                                                             |                        |  | 2002                                |         | 2001
|                                                             |                        |  |                                     |         |     
|Basic weighted average number of common shares outstanding   |                        |  | 9,245,713                           |         |      |  | 10,344,813 |        
|                                                             |                        |  |                                     |         |      |  |            |         | 
|Effect of dilutive securities:                               |                        |  |                                     |         |      |  |            |        
|                                                             | Stock options          |  |                                     | 558,164 |      |  |            | 342,882 | 
|                                                             | Recognition Plan stock |  |                                     | 24,970  |      |  |            | 53,522  | 
|                                                             |                        |  |                                     |         |      |  |            |        
|                                                             |                        |  |                                     |         |      |  |            |         | 
|Diluted weighted average number of common shares outstanding |                        |  | 9,828,847                           |         |      |  | 10,741,217 |        
|                                                             |                        |  |                                     |         |      |  |            |        

Basic EPS was $0.61 per common share for the quarter ended September 30,
2002, compared to $0.40 per common share for the quarter ended September 30,
2001. Diluted EPS was $0.58 per common share for the quarter ended September
30, 2002, compared to $0.39 per common share for the quarter ended September
30, 2001.

|                                                             |                        |  |                                         |         |      |  |            |         | 
|------------------------------------------------------------ | ---------------------- |  | --------------------------------------- | ------- | ---- |  | ---------- | ------- | 
|                                                             |                        |  | For the Nine Months Ended September 30,
|                                                             |                        |  |                                        
|                                                             |                        |  | 2002                                    |         | 2001
|                                                             |                        |  |                                         |         |     
|Basic weighted average number of common shares outstanding   |                        |  | 9,453,710                               |         |      |  | 10,469,343 |        
|                                                             |                        |  |                                         |         |      |  |            |         | 
|Effect of dilutive securities:                               |                        |  |                                         |         |      |  |            |        
|                                                             | Stock options          |  |                                         | 488,903 |      |  |            | 321,303 | 
|                                                             | Recognition Plan stock |  |                                         | 21,998  |      |  |            | 38,388  | 
|                                                             |                        |  |                                         |         |      |  |            |        
|                                                             |                        |  |                                         |         |      |  |            |         | 
|Diluted weighted average number of common shares outstanding |                        |  | 9,964,611                               |         |      |  | 10,829,034 |        
|                                                             |                        |  |                                         |         |      |  |            |        

Basic EPS was $1.59 per common share for the nine months ended September
30, 2002, compared to $0.92 per common share for the nine months ended
September 30, 2001. Diluted EPS was $1.51 per common share for the nine months
ended September 30, 2002, compared to $0.89 per common share for the nine
months ended September 30, 2001.

10



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|6. |  | Segment Reporting
|-- |  | -----------------

The Company historically presented segment information for its community
banking and mortgage banking operations. As a result of a restructuring of its
mortgage banking business in the first and second quarters of 2001,
Commonwealth no longer organizes its mortgage banking operations into a
separate business segment. As such, no mortgage banking segment information is
available subsequent to June 30, 2001. The segment results follow:

|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|-------------------------- | ---------------------------------- | ------------------------- | --------- | --------- | ------ | -------- | - | ----- | - | ------- | --------- | ----------------------------------- | ------ | -------- | --------- | ------ | ------ | - | - | - | - | - | --------- | ------ | ------ | 
|                           |                                    |                           |           |           |        |          |   |       |   |         |           | For the Quarter Ended September 30, |        |          |           |        |        |   |   |  
|                           |                                    |                           |           |          
|                           |                                    |                           |           | 2002      |        | 2001    
|                           |                                    |                           |           |           |        |         
|                           |                                    |                           |           | Community |        | Mortgage |   |       |   |         |           | Community                           |        | Mortgage |           |        |        |  
|                           |                                    |                           |           | Banking   |        | Banking  |   | Total |   | Banking |           | Banking                             |        | Total   
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |         
|                           |                                    |                           |           |           |        |          |   |       |   |         |           | (in thousands)                      |        |          |           |        |        |   |   |  
|Net interest income after  |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           | Provision for loan losses          |                           | $         | 19,420    |        |          | $ |      |   |         | $         | 19,420                              |        |          | $         | 16,450 |        |   | $ |  |   |   | $         | 16,450 |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|Noninterest income:        |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           | Servicing fees                     |                           |           |          |        |          |   |      |   |         |           |                                    |        |          |           | 42     |        |   |   |  |   |   |           | 42     |       
|                           | Net loss on sale of mortgage loans |                           |           |          |        |          |   |      |   |         |           |                                    |        |          |           | (19    | )      |   |   |  |   |   |           | (19    | )     
|                           | Other                              |                           |           | 5,569     |        |          |   |      |   |         |           | 5,569                               |        |          |           | 4,589  |        |   |   |  |   |   |           | 4,589  |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           | Total noninterest income           |                           |           | 5,569     |        |          |   |      |   |         |           | 5,569                               |        |          |           | 4,612  |        |   |   |  |   |   |           | 4,612  |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|Noninterest expense:       |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           | Compensation and employee benefits |                           |           | 8,091     |        |          |   |      |   |         |           | 8,091                               |        |          |           | 7,779  |        |   |   |  |   |   |           | 7,779  |       
|                           | Other                              |                           |           | 9,038     |        |          |   |      |   |         |           | 9,038                               |        |          |           | 7,754  |        |   |   |  |   |   |           | 7,754  |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           |                                    | Total noninterest expense |           |           | 17,129 |          |   |       |  |         |           |                                     | 17,129 |          |           |        | 15,533 |   |   |   |  |   |           |        | 15,533 | 
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|Income before income taxes |                                    |                           | 7,860     |           |        |          |  |       |   |         | 7,860     |                                     |        |          | 5,529     |        |        |   |  |   |   |   | 5,529     |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|Income tax provision       |                                    |                           | 2,201     |           |        |          |  |       |   |         | 2,201     |                                     |        |          | 1,382     |        |        |   |  |   |   |   | 1,382     |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|Net income                 |                                    | $                         | 5,659     |           |        | $        |  |       |   | $       | 5,659     |                                     |        | $        | 4,147     |        |        | $ |  |   |   | $ | 4,147     |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |       
|                           |                                    |                           |           |           |        |          |   |       |   |         |           |                                     |        |          |           |        |        |   |   |   |   |   |           |        |        | 
|Assets                     |                                    | $                         | 1,800,298 |           |        | $        |  |       |   | $       | 1,800,298 |                                     |        | $        | 1,766,845 |        |        | $ |  |   |   | $ | 1,766,845 |       
|Liabilities                |                                    | $                         | 1,650,921 |           |        | $        |  |       |   | $       | 1,650,921 |                                     |        | $        | 1,608,012 |        |        | $ |  |   |   | $ | 1,608,012 |       
|Shareholders equity       |                                    | $                         | 149,377   |           |        | $        |  |       |   | $       | 149,377   |                                     |        | $        | 158,833   |        |        | $ |  |   |   | $ | 158,833   |       

11



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|--------------------------------- | ---------------------------------- | ------------------------- | --------- | --------- | ------ | -------- | - | ----- | - | ------- | --------- | --------------------------------------- | ------ | -------- | --------- | ------ | ------ | ---- | ------ | ----- | ----- | - | --------- | ------ | ------ | 
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           | For the Nine Months Ended September 30, |        |          |           |       
|                                  |                                    |                           |           |          
|                                  |                                    |                           |           |           |        |          |   | 2002  |   |         |           |                                         |        |          |           |        |        | 2001 |        |       |       |  
|                                  |                                    |                           |           |           |        |         
|                                  |                                    |                           |           | Community |        | Mortgage |   |       |   |         |           | Community                               |        | Mortgage |           |        |        |     
|                                  |                                    |                           |           | Banking   |        | Banking  |   | Total |   | Banking |           | Banking                                 |        | Total   
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |         
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           | (in thousands)                          |        |          |           |        |        |      |        |      
|Net interest income after         |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  | Provision for loan losses          |                           | $         | 54,682    |        |          | $ |      |   |         | $         | 54,682                                  |        |          | $         | 48,514 |        |      | $      | 197   |       |   | $         | 48,711 |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|Noninterest income:               |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  | Servicing fees                     |                           |           |          |        |          |   |      |   |         |           |                                        |        |          |           | (265   | )      |      |        | 703   |       |   |           | 438    |       
|                                  | Net gain on sale of mortgage loans |                           |           |          |        |          |   |      |   |         |           |                                        |        |          |           | (185   | )      |      |        | 1,778 |       |   |           | 1,593  |       
|                                  | Other                              |                           |           | 16,094    |        |          |   |      |   |         |           | 16,094                                  |        |          |           | 13,214 |        |      |        |      |       |   |           | 13,214 |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  | Total noninterest income           |                           |           | 16,094    |        |          |   |      |   |         |           | 16,094                                  |        |          |           | 12,764 |        |      |        | 2,481 |       |   |           | 15,245 |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|Noninterest expense:              |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  | Compensation and employee benefits |                           |           | 23,590    |        |          |   |      |   |         |           | 23,590                                  |        |          |           | 23,240 |        |      |        | 1,604 |       |   |           | 24,844 |       
|                                  | Other                              |                           |           | 26,320    |        |          |   |      |   |         |           | 26,320                                  |        |          |           | 22,817 |        |      |        | 3,502 |       |   |           | 26,319 |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  |                                    | Total noninterest expense |           |           | 49,910 |          |   |       |  |         |           |                                         | 49,910 |          |           |        | 46,057 |      |        |       | 5,106 |   |           |        | 51,163 | 
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|Income (loss) before income taxes |                                    |                           | 20,866    |           |        |          |  |       |   |         | 20,866    |                                         |        |          | 15,221    |        |        |      | (2,428 | )     |       |   | 12,793    |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|Income tax provision (benefit)    |                                    |                           | 5,843     |           |        |          |  |       |   |         | 5,843     |                                         |        |          | 4,048     |        |        |      | (850   | )     |       |   | 3,198     |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|Net income (loss)                 |                                    | $                         | 15,023    |           |        | $        |  |       |   | $       | 15,023    |                                         |        | $        | 11,173    |        |        | $    | (1,578 | )     |       | $ | 9,595     |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |       
|                                  |                                    |                           |           |           |        |          |   |       |   |         |           |                                         |        |          |           |        |        |      |        |       |       |   |           |        |        | 
|Assets                            |                                    | $                         | 1,800,298 |           |        | $        |  |       |   | $       | 1,800,298 |                                         |        | $        | 1,766,845 |        |        | $    |       |       |       | $ | 1,766,845 |       
|Liabilities                       |                                    | $                         | 1,650,921 |           |        | $        |  |       |   | $       | 1,650,921 |                                         |        | $        | 1,608,012 |        |        | $    |       |       |       | $ | 1,608,012 |       
|Shareholders equity              |                                    | $                         | 149,377   |           |        | $        |  |       |   | $       | 149,377   |                                         |        | $        | 158,833   |        |        | $    |       |       |       | $ | 158,833   |       

Community Banking results for the first nine months of 2001 reflected a
$0.7 million pre-tax charge relating to the retirement of Commonwealths former
Chief Executive Officer, and a $0.5 million pre-tax charge relating to the
resolution of legal proceedings concerning a loan acquired in the 1970s.
Exclusive of these items, net income from Community Banking would have been
$12.3 million for the first nine months of 2001.

Mortgage Banking results for the first nine months of 2001 reflected a
$2.3 million pre-tax charge associated with the restructuring of Commonwealths
mortgage banking business. Exclusive of this item, the net loss from Mortgage
Banking would have been $0.1 million for the first nine months of 2001.

12



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##### 



Commonwealth Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|7. |  | Pending Merger Agreement
|-- |  | ------------------------

On September 30, 2002, Commonwealth Bancorp, Inc., Citizens Financial
Group, Inc. and Citizens Bank of Pennsylvania entered into an agreement and
plan of merger pursuant to which a to-be-formed nonbank subsidiary of Citizens
Bank of Pennsylvania will be merged with and into Commonwealth. The agreement
provides that as a result of the merger each outstanding share of common stock
of Commonwealth (subject to certain exceptions) will be automatically converted
into the right to receive $46.50 per share in cash, without interest. The
transaction, which is subject to customary conditions, including shareholder
and regulatory approval, is expected to be completed in early 2003.



|8. |  | Divestitures
|-- |  | ------------

On March 30, 2001, Commonwealth restructured its residential mortgage
banking division, ComNet Mortgage Services (ComNet), and ComNets
Pennsylvania and Maryland loan production offices were sold to American Home
Mortgage Holdings, Inc. As an additional part of this restructuring,
Commonwealth outsourced the servicing function relating to its portfolio of
residential mortgage loans during the second quarter of 2001. Commonwealth
continues to provide residential mortgage loans and services to its customers
through agreements with American Home Mortgage Holdings, Inc. and a third party
servicer.

13



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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations

Forward Looking Statements.When used in this Form 10-Q, in future
filings by the Company with the Securities and Exchange Commission, in the
Companys press releases or other public or shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
words or phases will likely result, are expected to, will continue, is
anticipated, estimate, project, or similar expressions are intended to
identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
certain risks and uncertainties including changes in economic conditions in the
Companys market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Companys market area and
competition that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
also wishes to advise readers that the factors listed above could affect the
Companys financial performance and could cause the Companys actual results
for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

General.The Company is a Pennsylvania corporation which is the holding
company for the Bank. During January 2001, the Bank converted from a federally
chartered savings bank to a Pennsylvania chartered savings bank, primarily
regulated by the Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation (FDIC). The Bank conducts business from its executive
offices in Norristown, Pennsylvania and 61 full-service branches located in
Southeast Pennsylvania.

On September 30, 2002, Commonwealth Bancorp, Inc., Citizens Financial
Group, Inc. and Citizens Bank of Pennsylvania entered into an agreement and
plan of merger pursuant to which a to-be-formed nonbank subsidiary of Citizens
Bank of Pennsylvania will be merged with and into Commonwealth. The agreement
provides that as a result of the merger each outstanding share of common stock
of Commonwealth (subject to certain exceptions) will be automatically converted
into the right to receive $46.50 per share in cash, without interest. The
transaction, which is subject to customary conditions, including shareholder
and regulatory approval, is expected to be completed in early 2003.

On March 30, 2001, Commonwealth restructured its residential mortgage
banking division, ComNet Mortgage Services, and ComNets Pennsylvania and
Maryland loan production offices were sold to American Home Mortgage Holdings,
Inc. As an additional part of this restructuring, Commonwealth outsourced the
servicing function relating to its portfolio of residential mortgage loans
during the second quarter of 2001. Commonwealth continues to provide
residential mortgage loans and services to its customers through agreements
with American Home Mortgage Holdings, Inc. and a third party servicer.

14



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##### 



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

Financial Condition

General.Total assets were $1.8 billion at both September 30, 2002 and
December 31, 2001. During the first nine months of 2002, decreases in the
Companys loans receivable, investment securities, and cash and due from banks
and interest-bearing deposits (cash and cash equivalents) were offset, in
part, by an increase in mortgage-backed securities.

Total liabilities were $1.7 billion at September 30, 2002, compared to
$1.6 billion at December 31, 2001. During the first nine months of 2002,
increases in notes payable and other borrowings, accrued interest payable,
accrued expenses and other liabilities were offset, in part, by a decrease in
deposits.

Shareholders equity was $149 million as of September 30, 2002, compared
to $150 million at December 31, 2001. This decrease was primarily the result of
common stock repurchases offset, in part, by an increase in retained earnings
and accumulated comprehensive income. During the first nine months of 2002,
the Company purchased 0.7 million shares of its common stock, representing an
investment of $19 million.

Cash and Cash Equivalents.Cash and cash equivalents decreased by $29
million, or 25%, from $118 million at December 31, 2001, to $89 million at
September 30, 2002, primarily as a result of the purchase of mortgage-backed
securities.

15



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##### 



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

Investment Securities.Investment securities decreased by $55 million, or
71%, from $77 million at December 31, 2001, to $22 million at September 30,
2002. The decrease was primarily attributable to the sale of fixed income
mutual funds and corporate bonds.

Investments in debt and equity securities at September 30, 2002 and
December 31, 2001 were as follows:

|                    |                           |       |   |                    |        |            |   |                |     |        |   |   |   |  |   |        |        | 
|------------------- | ------------------------- | ----- | - | ------------------ | ------ | ---------- | - | -------------- | --- | ------ | - | - | - |  | - | ------ | ------ | 
|                    |                           |       |   | September 30, 2002
|                    |                           |       |   |                   
|                    |                           |       |   | Amortized          |        | Unrealized |   | Unrealized     |     | Market
|                    |                           |       |   | Cost               |        | Gains      |   | Losses         |     | Value 
|                    |                           |       |   |                   
|                    |                           |       |   |                    |        |            |   | (in thousands) |     |        |   |  
|                    |                           |       |   |                    |        |            |   |                |     |        |   |   |   |  |   |        |        | 
|Available for sale: |                           |       |   |                    |        |            |   |                |     |        |   |   |   |  |   |       
|                    | Fixed Income Mutual Funds |       | $ | 9,899              |        |            | $ |               |     |        | $ |  |   |  | $ | 9,899  |       
|                    | U.S. Treasury Security    |       |   | 1,000              |        |            |   | 38             |     |        |   |  |   |  |   | 1,038  |       
|                    | Other Equity Investments  |       |   | 11,000             |        |            |   | 542            |     |        |   |  |   |  |   | 11,542 |       
|                    |                           |       |   |                   
|                    |                           | Total |   | $                  | 21,899 |            |   | $              | 580 |        |   | $ |  |  |   | $      | 22,479 | 
|                    |                           |       |   |                   

|                    |                              |                       |   |        |           |        |            |     |                   |     |        |    |   |     |   |        |       |        | 
|------------------- | ---------------------------- | --------------------- | - | ------ | --------- | ------ | ---------- | --- | ----------------- | --- | ------ | -- | - | --- | - | ------ | ----- | ------ | 
|                    |                              |                       |   |        |           |        |            |     | December 31, 2001 |     |        |    |  
|                    |                              |                       |   |        |          
|                    |                              |                       |   |        | Amortized |        | Unrealized |     | Unrealized        |     | Market
|                    |                              |                       |   |        | Cost      |        | Gains      |     | Losses            |     | Value 
|                    |                              |                       |   |        |          
|                    |                              |                       |   |        |           |        |            |     | (in thousands)    |     |        |    |  
|                    |                              |                       |   |        |           |        |            |     |                   |     |        |    |   |     |   |        |       |        | 
|Available for sale: |                              |                       |   |        |           |        |            |     |                   |     |        |    |   |     |   |       
|                    | Corporate Bonds              |                       | $ | 10,505 |           |        | $          |    |                   |     | $      | 86 |   |     | $ | 10,419 |      
|                    | Fixed Income Mutual Funds    |                       |   | 50,211 |           |        |            |    |                   |     |        |   |   |     |   | 50,211 |      
|                    | Equity Investment  Mortgage |                       |   |        |           |        |            |     |                   |     |        |    |   |     |   |        |      
|                    |                              | Servicing Partnership |   |        | 1,000     |        |            |     | 47                |     |        |    |  |     |   |        | 1,047 |       
|                    | Other Equity Investments     |                       |   | 15,326 |           |        |            | 156 |                   |     |        | 23 |   |     |   | 15,459 |      
|                    |                              |                       |   |        |          
|                    |                              | Total                 |   |        | $         | 77,042 |            |     | $                 | 203 |        |    | $ | 109 |   |        | $     | 77,136 | 
|                    |                              |                       |   |        |          

All investment securities are classified as available for sale and are
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of shareholders equity.

16



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##### 



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

Mortgage-Backed Securities.Mortgage-backed securities increased by $250
million, or 146%, from $171 million at December 31, 2001, to $421 million at
September 30, 2002. The increase was primarily related to the purchase of $310
million of mortgage-backed securities during the first nine months of 2002
offset, in part, by repayments.

At September 30, 2002 and December 31, 2001, $411 million, or 98%, and
$136 million, or 79%, respectively, of the Companys mortgage-backed securities
were insured or guaranteed by the Federal National Mortgage Association
(FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the
Government National Mortgage Association (GNMA). As part of its investment
policy, the Company also has the ability to invest in private mortgage-backed securities. These non-federally insured mortgage-backed
securities, which are generally rated AA or better, yield a higher rate of
return and involve a higher risk of loss than comparable mortgage-backed
securities issued by the FNMA, FHLMC, or the GNMA. Mortgage-backed securities
at September 30, 2002 and December 31, 2001 were as follows:

|                    |         |       |   |           |         |            |   |                    |        |        |   |    |     |  |   |         |         | 
|------------------- | ------- | ----- | - | --------- | ------- | ---------- | - | ------------------ | ------ | ------ | - | -- | --- |  | - | ------- | ------- | 
|                    |         |       |   |           |         |            |   | September 30, 2002 |        |        |   |   
|                    |         |       |   |          
|                    |         |       |   | Amortized |         | Unrealized |   | Unrealized         |        | Market
|                    |         |       |   | Cost      |         | Gains      |   | Losses             |        | Value 
|                    |         |       |   |          
|                    |         |       |   |           |         |            |   | (in thousands)     |        |        |   |   
|                    |         |       |   |           |         |            |   |                    |        |        |   |    |     |  |   |         |         | 
|Available for sale: |         |       |   |           |         |            |   |                    |        |        |   |    |     |  |   |        
|                    | FNMA    |       | $ | 187,654   |         |            | $ | 4,613              |        |        | $ | 32 |     |  | $ | 192,235 |        
|                    | FHLMC   |       |   | 164,665   |         |            |   | 4,370              |        |        |   | 94 |     |  |   | 168,941 |        
|                    | GNMA    |       |   | 47,510    |         |            |   | 1,952              |        |        |   |   |     |  |   | 49,462  |        
|                    | Private |       |   | 9,772     |         |            |   | 204                |        |        |   |   |     |  |   | 9,976   |        
|                    |         |       |   |          
|                    |         | Total |   | $         | 409,601 |            |   | $                  | 11,139 |        |   | $  | 126 |  |   | $       | 420,614 | 
|                    |         |       |   |          

|                    |         |       |   |           |         |            |   |                   |       |        |   |     |     |  |   |        |         | 
|------------------- | ------- | ----- | - | --------- | ------- | ---------- | - | ----------------- | ----- | ------ | - | --- | --- |  | - | ------ | ------- | 
|                    |         |       |   |           |         |            |   | December 31, 2001 |       |        |   |    
|                    |         |       |   |          
|                    |         |       |   | Amortized |         | Unrealized |   | Unrealized        |       | Market
|                    |         |       |   | Cost      |         | Gains      |   | Losses            |       | Value 
|                    |         |       |   |          
|                    |         |       |   |           |         |            |   | (in thousands)    |       |        |   |    
|                    |         |       |   |           |         |            |   |                   |       |        |   |     |     |  |   |        |         | 
|Available for sale: |         |       |   |           |         |            |   |                   |       |        |   |     |     |  |   |       
|                    | FNMA    |       | $ | 67,449    |         |            | $ | 1,039             |       |        | $ | 573 |     |  | $ | 67,915 |        
|                    | FHLMC   |       |   | 37,501    |         |            |   | 870               |       |        |   | 245 |     |  |   | 38,126 |        
|                    | GNMA    |       |   | 28,545    |         |            |   | 1,112             |       |        |   | 8   |     |  |   | 29,649 |        
|                    | Private |       |   | 34,893    |         |            |   | 295               |       |        |   | 18  |     |  |   | 35,170 |        
|                    |         |       |   |          
|                    |         | Total |   | $         | 168,388 |            |   | $                 | 3,316 |        |   | $   | 844 |  |   | $      | 170,860 | 
|                    |         |       |   |          

All mortgage-backed securities are classified as available for sale and
are reported at fair value, with unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of shareholders
equity.

17



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##### 



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

Loans Receivable.Loans receivable, net of reserves, deferred loan
fees, and unamortized premiums, were $1.2 billion at September 30, 2002,
compared to $1.3 billion at December 31, 2001. The decrease was the
result of a decrease in residential mortgage loans offset, in part, by
an increase in commercial loans. The following table depicts the
composition of the Companys loan portfolio at the dates indicated.

|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |       |       | 
|--------------------------- | -------------------------- | -------------------------------- | --------- | ------------- | ------- | ------------ | ------ | ---------------------- | ----- | ----- | --------- | ------- | ------- | ---- | ------ | ----- | ----- | 
|                            |                            |                                  |           | September 30, |         | December 31,
|                            |                            |                                  |           | 2002          |         | 2001        
|                            |                            |                                  |           |               |         |             
|                            |                            |                                  |           |               |         |              |        | % of                   |       |       |           |         |         | % of
|                            |                            |                                  |           | Amount        |         | Total        |        | Amount                 |       | Total
|                            |                            |                                  |           |               |         |              |        |                        |       |      
|                            |                            |                                  |           |               |         |              |        | (dollars in thousands) |       |       |           |        
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |       |       | 
|Residential mortgage loans: |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            | Fixed rate                 |                                  | $         | 319,418       |         |              |        | 27.16                  | %     |       | $         | 417,402 |         |      |        | 31.68 | %    
|                            | Adjustable rate            |                                  |           | 117,519       |         |              |        | 10.00                  |       |       |           | 176,572 |         |      |        | 13.40 |      
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            |                            | Total residential mortgage loans |           |               | 436,937 |              |        |                        | 37.16 |       |           |         | 593,974 |      |        |       | 45.08 | 
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |       |       | 
|Consumer loans:             |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            | Second mortgages           |                                  |           | 272,588       |         |              |        | 23.19                  |       |       |           | 269,672 |         |      |        | 20.46 |      
|                            | Equity lines of credit     |                                  |           | 49,965        |         |              |        | 4.25                   |       |       |           | 36,672  |         |      |        | 2.78  |      
|                            | Recreational vehicles      |                                  |           | 30,368        |         |              |        | 2.58                   |       |       |           | 38,879  |         |      |        | 2.95  |      
|                            | Other                      |                                  |           | 32,213        |         |              |        | 2.74                   |       |       |           | 39,805  |         |      |        | 3.02  |      
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            |                            | Total consumer loans             |           |               | 385,134 |              |        |                        | 32.76 |       |           |         | 385,028 |      |        |       | 29.21 | 
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |       |       | 
|Commercial loans:           |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            | Business loans             |                                  |           | 201,375       |         |              |        | 17.13                  |       |       |           | 217,968 |         |      |        | 16.54 |      
|                            | Commercial real estate     |                                  |           | 152,223       |         |              |        | 12.95                  |       |       |           | 120,877 |         |      |        | 9.17  |      
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            |                            | Total commercial loans           |           |               | 353,598 |              |        |                        | 30.08 |       |           |         | 338,845 |      |        |       | 25.71 | 
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |       |       | 
|Total loans receivable      |                            |                                  | 1,175,669 |               |         |              | 100.00 | %                      |       |       | 1,317,847 |         |         |      | 100.00 | %    
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|Less:                       |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|                            | Allowance for loan losses  |                                  |           | 15,313        |         |              |        |                        |       |       |           | 14,227  |         |      |        |       |      
|                            | Deferred loan fees         |                                  |           | 1,754         |         |              |        |                        |       |       |           | 2,469   |         |      |        |       |      
|                            | Premium on loans purchased |                                  |           | (957          | )       |              |        |                        |       |       |           | (1,317  | )       |      |        |       |      
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      
|Loans receivable, net       |                            | $                                | 1,159,559 |               |         |              |        |                        |       | $     | 1,302,468 |         |         |      |        |      
|                            |                            |                                  |           |               |         |              |        |                        |       |       |           |         |         |      |        |      

18



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##### 



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

Residential mortgage loans totaled $437 million at September 30, 2002,
a decrease of $157 million, or 26%, compared to $594 million at December 31,
2001. At September 30, 2002, residential mortgage loans represented 37% of
the Companys loan portfolio, compared to 45% at December 31, 2001. The
decrease in residential mortgage loans, which was consistent with the
Companys strategy to reduce the relative proportion of residential mortgage
loans on its balance sheet, reflected higher repayments during the first
nine months of 2002 as a result of the lower interest rate environment.

Consumer loans were $385 million at both September 30, 2002 and December
31, 2001. At September 30, 2002, consumer loans represented 33% of the
Companys loan portfolio and were comprised of $273 million of second mortgage
loans, $50 million of equity lines of credit, $30 million of recreational
vehicle loans, and $32 million of other consumer loans. At December 31, 2001,
consumer loans represented 29% of total loans and were comprised of $270
million of second mortgage loans, $37 million of equity lines of credit, $39
million of recreational vehicle loans, and $40 million of other consumer loans.
Consumer loans are generally considered to have greater risk than residential
mortgage loans because the risk of borrower default is greater. In addition,
certain consumer loans are unsecured or involve collateral which is more likely
to decline in value than single-family residences.

Commercial loans increased by $15 million, or 4%, from $339 million at
December 31, 2001, to $354 million at September 30, 2002. At September 30,
2002, commercial loans represented 30% of the Companys loan portfolio and were
comprised of $201 million of business loans and $152 million of commercial real
estate loans. At December 31, 2001, commercial loans represented 26% of total
loans and were comprised of $218 million of business loans and $121 million of
commercial real estate loans. Commercial loans are generally considered to
have greater risk than residential mortgage loans because the risk of borrower
default is greater. In addition, certain commercial loans are unsecured or
involve collateral which may be more likely to decline in value and may be more
difficult to liquidate than single-family residences.

The increase in the commercial loan portfolio and the decrease in the
residential mortgage loan portfolio during the first nine months of 2002 was in
line with the Companys multi-year strategy to shift its business mix from that
of a traditional thrift institution to one more reflective of a community bank.
A key aspect of this strategy involves a reduction in the relative proportion
of residential mortgage loans on the balance sheet.

19



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##### 



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

Nonperforming Assets.The Companys nonperforming assets, which primarily
consist of nonaccrual loans, real estate and other assets acquired through
foreclosure, and an equity investment in a mortgage servicing partnership,
totaled $10.9 million, or 0.60% of assets, at September 30, 2002, compared to
$11.9 million, or 0.66% of assets, at December 31, 2001. The decrease was
primarily attributable to a $0.8 million decrease in the carrying value of an
equity investment in a mortgage servicing partnership. The following table
sets forth information relating to the Companys nonperforming assets at the
dates indicated.

|                                                       |                            |   |                        |        |                   |   |       |        | 
|------------------------------------------------------ | -------------------------- | - | ---------------------- | ------ | ----------------- | - | ----- | ------ | 
|                                                       |                            |   | September 30, 2002     |        | December 31, 2001
|                                                       |                            |   |                        |        |                  
|                                                       |                            |   |                        |        |                   |   |       |        | 
|                                                       |                            |   | (dollars in thousands)
|                                                       |                            |   |                        |        |                   |   |       |        | 
|Residential mortgage loans                             |                            | $ | 4,457                  |        |                   | $ | 3,553 |       
|Consumer loans                                         |                            |   | 3,269                  |        |                   |   | 3,588 |       
|Commercial loans                                       |                            |   | 1,520                  |        |                   |   | 1,330 |       
|                                                       |                            |   |                        |        |                   |   |       |       
|                                                       | Total nonperforming loans  |   |                        | 9,246  |                   |   |       | 8,471  | 
|Equity investment                                      |                            |   | 250                    |        |                   |   | 1,000 |       
|Real estate owned and
other acquired assets, net       |                            |   | 1,374                  |        |                   |   | 2,379 |       
|                                                       |                            |   |                        |        |                   |   |       |       
|                                                       | Total nonperforming assets |   | $                      | 10,870 |                   |   | $     | 11,850 | 
|                                                       |                            |   |                        |        |                   |   |       |       
|Nonperforming loans to total
loans held for investment |                            |   | 0.79                   | %      |                   |   | 0.64  | %     
|                                                       |                            |   |                        |        |                   |   |       |       
|Total nonperforming assets to
total assets             |                            |   | 0.60                   | %      |                   |   | 0.66  | %     
|                                                       |                            |   |                        |        |                   |   |       |       

Allowance for Loan Losses.The allowance for loan losses totaled $15.3
million at September 30, 2002, compared to $14.2 million at December 31, 2001.

It is managements policy to maintain an allowance for estimated loan
losses based upon the probable losses inherent in the loan portfolio that have
occurred as of the date of the financial statements. In determining the
allowance for loan losses, Commonwealth assesses prior loss experience, the
volume and type of lending conducted by the Company, industry standards, past
due loans, general economic conditions, and other factors related to the
collectability of the loan portfolio. At September 30, 2002, the allowance for
loan losses represented 1.30% of total loans held for investment, compared to
1.08% at December 31, 2001.

The increase in the allowance for loan losses reflected Commonwealths
strategy to increase consumer and commercial lending, while de-emphasizing
residential mortgage lending. Consumer and commercial loans generally involve
greater credit risk than residential mortgage loans because the risk of
borrower default is greater. In addition, certain consumer and commercial
loans are unsecured or involve collateral that may be more likely to decline in
value and/or may be more difficult to liquidate than single-family residences.
At September 30, 2002, consumer and commercial loans represented 63% of total
loans, compared to 55% at December 31, 2001. Management will continue to
evaluate the allowance for loan losses relative to the level of credit risk in
the loan portfolio and make adjustments as appropriate.

20



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##### 



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

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

|                                                                              |                            |                   |        |                                         |        |      |        |        |        |  
|----------------------------------------------------------------------------- | -------------------------- | ----------------- | ------ | --------------------------------------- | ------ | ---- | ------ | ------ | ------ | -
|                                                                              |                            |                   |        | For the Nine Months Ended September 30,
|                                                                              |                            |                   |        |                                        
|                                                                              |                            |                   |        |                                         |        |      |        |        |        |  
|                                                                              |                            |                   |        | 2002                                    |        | 2001
|                                                                              |                            |                   |        |                                         |        |     
|                                                                              |                            |                   |        | (dollars in thousands)                 
|                                                                              |                            |                   |        |                                         |        |      |        |        |        |  
|Allowance at beginning of period                                              |                            | $                 | 14,227 |                                         |        | $    | 11,078 |       
|Provision for loan losses                                                     |                            |                   | 4,900  |                                         |        |      | 6,250  |       
|Charge-offs:                                                                  |                            |                   |        |                                         |        |      |        |       
|                                                                              | Residential mortgage loans |                   |        | (193                                    | )      |      |        | (22    | )     
|                                                                              | Consumer loans             |                   |        | (3,317                                  | )      |      |        | (3,875 | )     
|                                                                              | Commercial loans           |                   |        | (651                                    | )      |      |        | (126   | )     
|                                                                              |                            |                   |        |                                         |        |      |        |       
|                                                                              |                            | Total charge-offs |        |                                         | (4,161 | )    |        |        | (4,023 | )
|Recoveries:                                                                   |                            |                   |        |                                         |        |      |        |       
|                                                                              | Residential mortgage loans |                   |        | 2                                       |        |      |        | 2      |       
|                                                                              | Consumer loans             |                   |        | 232                                     |        |      |        | 146    |       
|                                                                              | Commercial loans           |                   |        | 113                                     |        |      |        | 135    |       
|                                                                              |                            |                   |        |                                         |        |      |        |       
|                                                                              |                            | Total recoveries  |        |                                         | 347    |      |        |        | 283    |  
|                                                                              |                            |                   |        |                                         |        |      |        |       
|Allowance at end of period                                                    |                            | $                 | 15,313 |                                         |        | $    | 13,588 |       
|                                                                              |                            |                   |        |                                         |        |      |        |       
|                                                                              |                            |                   |        |                                         |        |      |        |        |        |  
|Allowance for loan losses
to total nonperforming
loans at end of
period       |                            |                   | 165.62 | %                                       |        |      | 183.34 | %     
|                                                                              |                            |                   |        |                                         |        |      |        |       
|Allowance for loan losses
to total loans held for
investment at end of
period |                            |                   | 1.30   | %                                       |        |      | 0.99   | %     
|                                                                              |                            |                   |        |                                         |        |      |        |       

21



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##### 



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

Federal Home Loan Bank Stock.Federal Home Loan Bank (FHLB) stock
decreased from $13 million at December 31, 2001 to $10 million at September 30, 2002. The decrease was
a result of the required sale of FHLB stock which was primarily attributable
to the decrease in the Companys residential mortgage-related assets.

Intangible Assets.Intangible assets are comprised of the excess of
cost over net assets acquired (Goodwill) and core deposit intangibles
(CDI). The Companys intangible assets were recorded in connection with
the acquisition of certain business interests of the Tyler Group during the
first quarter of 2000, the acquisition of twelve branches in Berks and
Lebanon Counties in 1996, and the acquisition of four branches in
Philadelphia County in 1995. During the second quarter of 2001, Commonwealth
reduced the Tyler acquisition Goodwill by $0.8 million to reflect the
reduced likelihood that the portion of the Tyler purchase price which is
dependent on future earnings performance will be paid. Intangible assets
are generally amortized over periods not to exceed 13 years. The following
table details the components of intangible assets at the dates indicated.

|                        |                |       |        |                    |        |                   |        |        |        | 
|----------------------- | -------------- | ----- | ------ | ------------------ | ------ | ----------------- | ------ | ------ | ------ | 
|                        |                |       |        | September 30, 2002 |        | December 31, 2001
|                        |                |       |        |                    |        |                  
|                        |                |       |        |                    |        |                   |        |        |        | 
|                        |                |       |        | (in thousands)    
|                        |                |       |        |                    |        |                   |        |        |        | 
|Goodwill (Berks)        |                | $     | 11,358 |                    |        | $                 | 12,626 |       
|Goodwill (Philadelphia) |                |       | 6,243  |                    |        |                   | 7,046  |       
|Goodwill (Tyler)        |                |       | 1,117  |                    |        |                   | 1,117  |       
|                        |                |       |        |                    |        |                   |        |       
|                        | Total Goodwill |       |        | 18,718             |        |                   |        | 20,789 |       
|CDI (Berks)             |                |       | 1,790  |                    |        |                   | 2,941  |       
|CDI (Philadelphia)      |                |       | 935    |                    |        |                   | 1,182  |       
|                        |                |       |        |                    |        |                   |        |       
|                        |                | Total |        | $                  | 21,443 |                   |        | $      | 24,912 | 
|                        |                |       |        |                    |        |                   |        |       

In July 2001, the FASB issued SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 142 changes the
accounting for goodwill from an amortization method to assessing impairment
on a fair-value-based test approach.

Noninterest expense in both the third quarter of 2002 and 2001 included
the amortization of $1.2 million of intangible assets. Noninterest expense
for the first nine months of 2002 and 2001 included the amortization of $3.5
million and $3.6 million, respectively, of intangible assets. The
amortization was primarily related to goodwill and core deposit intangibles
recorded in connection with the acquisition of deposits and branch office
facilities in 1995 and 1996. The recent implementation of SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets, did not materially impact Commonwealths amortization of intangible
assets.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions. This Statement provides guidance on accounting for
the acquisition of a financial institution, including the acquisition of
part of a financial institution. The Statement defines criteria for
determining whether the acquired financial institution meets the conditions
for a business combination. If the acquisition meets the conditions of a
business combination, the specialized accounting guidance under SFAS No.
72, Accounting for Certain Acquisitions of Banking or Thrift Institutions
will not apply after September 30, 2002 and the amount of the unidentifiable
intangible asset will be reclassified to goodwill upon adoption of SFAS No.
147. Management has not determined whether SFAS No. 147 is applicable to
the unidentifiable intangible assets recorded by the Company in connection
with the acquisition of certain branch offices. Until the completion of
this review, the potential impact, if any, on Commonwealths financial
statements cannot be determined.

22



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##### 



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

Deposits.With respect to deposits, the Companys strategy is to
emphasize growth in relatively low-cost core deposits (demand, money market,
and savings deposits) through its retail and commercial banking activities, while deemphasizing growth of relatively high-cost certificates of deposit
relative to December 31, 2001. Deposits decreased by $23 million to $1.5
billion at September 30, 2002. The decrease was primarily due to a decrease
in certificates of deposit offset, in part, by an increase in demand, money
market and savings deposits.

Notes Payable and Other Borrowings.Notes payable and other borrowings
consist of advances from the Federal Home Loan Bank, securities sold under
agreements to repurchase, and commercial repurchase agreements. Notes
payable and other borrowings increased by $33 million, or 26%, from $123
million at December 31, 2001 to $156 million at September 30, 2002. The
Companys borrowings are used to fund lending and investment activities,
withdrawals from deposit accounts, and other disbursements which occur in
the normal course of business.

Shareholders Equity.Shareholders equity was $149 million, or 8.3%
of assets, as of September 30, 2002, compared to $150 million, or 8.4% of
assets, at December 31, 2001. The decrease was primarily the result of
common stock repurchases offset, in part, by an increase in retained
earnings and accumulated other comprehensive income.

During the first nine months of 2002, the Company purchased 0.7 million shares of its common stock, representing an investment of $19 million.
During the first nine months of 2001, the Company purchased 0.7 million shares of its common stock, representing an investment of $13 million.

23



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##### 



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

Regulatory Capital Requirements.

The Bank is required to maintain regulatory capital sufficient to meet
tier 1 leverage, tier 1 risk-based, and total risk-based capital ratios of 4%,
4%, and 8%, respectively. The capital guidelines require the Bank to
risk-weigh its assets and exposure to certain off-balance-sheet items to
reflect the different risks associated with various types of assets and certain
off-balance-sheet items. Failure to meet the minimum capital requirements
could result in certain mandatory and discretionary actions by regulators that,
if undertaken, could have a direct material effect on the Banks financial
statements. As of September 30, 2002, the Bank was in full compliance with all
regulatory capital requirements and maintained capital ratios which were
generally in line with internal targeted levels. However, events beyond the
control of the Bank, such as a downturn in the economy in areas where the Bank
has most of its loans, could adversely affect future earnings and,
consequently, the ability of the Bank to meet its future minimum capital
requirements.

As of September 30, 2002, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum tier 1 leverage, tier 1 risk-based, and total risk-based
capital ratios of 5%, 6%, and 10%, respectively. There have been no conditions
or events since that notification which, in managements opinion, would have
changed the Banks well capitalized status.

A summary of the Banks capital amounts and ratios as of September 30,
2002 and December 31, 2001 follows:

|                                                             |  |                        |           |                   |  |   |           |  
|------------------------------------------------------------ |  | ---------------------- | --------- | ----------------- |  | - | --------- | -
|                                                             |  | September 30, 2002     |           | December 31, 2001
|                                                             |  |                        |           |                  
|                                                             |  |                        |           |                   |  |   |           |  
|                                                             |  | (dollars in thousands)
|                                                             |  |                        |           |                   |  |   |           |  
|Shareholders equity                                         |  | $                      | 142,380   |                   |  | $ | 143,170   |  
|Intangible assets                                            |  |                        | (21,443   | )                 |  |   | (24,912   | )
|Unrealized gain on available-for-sale
securities, net of tax |  |                        | (7,559    | )                 |  |   | (1,663    | )
|                                                             |  |                        |           |                   |  |   |           |  
|Tier 1 capital                                               |  |                        | 113,378   |                   |  |   | 116,595   |  
|                                                             |  |                        |           |                   |  |   |           |  
|Tier 2 capital                                               |  |                        | 15,211    |                   |  |   | 14,273    |  
|                                                             |  |                        |           |                   |  |   |           |  
|Total risk-based capital                                     |  | $                      | 128,589   |                   |  | $ | 130,868   |  
|                                                             |  |                        |           |                   |  |   |           |  
|                                                             |  |                        |           |                   |  |   |           |  
|Average adjusted total assets                                |  | $                      | 1,755,203 |                   |  | $ | 1,734,654 |  
|                                                             |  |                        |           |                   |  |   |           |  
|Risk-weighted assets                                         |  | $                      | 1,197,030 |                   |  | $ | 1,230,262 |  
|                                                             |  |                        |           |                   |  |   |           |  
|                                                             |  |                        |           |                   |  |   |           |  
|Tier 1 leverage ratio (1)                                    |  |                        | 6.46      | %                 |  |   | 6.72      | %
|Tier 1 risk-based ratio (2)                                  |  |                        | 9.47      | %                 |  |   | 9.48      | %
|Total risk-based ratio (3)                                   |  |                        | 10.74     | %                 |  |   | 10.64     | %



---

|   
|---
|(1)
|(2)
|(3)

24



---



##### 



Commonwealth Bancorp, Inc. and Subsidiaries
Average Balance Sheets

|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |      |      |      |  
|---------------------------------- | ----------------------------------- | ---------------------------- | -------------------------------- | -------------------------------------- | --------- | --------------------------- | --------- | -------- | ----- | ------- | ------ | ------- | ---- | -------- | --------- | ------- | --------- | ------- | --------- | - | ------ | ----- | ------ | ------- | ---- | ---- | ---- | -
|                                   |                                     |                              |                                  |                                        |           | Quarter Ended September 30,
|                                   |                                     |                              |                                  |                                        |           |                            
|                                   |                                     |                              |                                  |                                        |           | 2002                        |           | 2001    
|                                   |                                     |                              |                                  |                                        |           |                             |           |         
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      | Average  |           |         |           |         |           |   |        |       |        | Average
|(dollars in thousands)             |                                     | Average                      |                                  |                                        |           |                             |           | Yield /  |       | Average |        |         |      |          |           | Yield /
|                                   |                                     |                              |                                  |                                        |           | Balance                     |           | Interest |       | Cost    |        | Balance |      | Interest |           | Cost   
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |        
|Interest-earning assets:           |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|Loans receivable:                  |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     | Residential mortgage loans   |                                  | $                                      | 462,751   |                             |           | $        | 8,481 |         |        |         | 7.27 | %        |           | $       | 694,117   |         |           | $ | 12,674 |       |        |         | 7.24 | %   
|                                   |                                     | Consumer loans               |                                  |                                        | 375,595   |                             |           |          | 8,053 |         |        |         | 8.51 | %        |           |         | 386,991   |         |           |   | 8,853  |       |        |         | 9.08 | %   
|                                   |                                     | Commercial loans             |                                  |                                        | 344,066   |                             |           |          | 6,518 |         |        |         | 7.52 | %        |           |         | 300,002   |         |           |   | 6,253  |       |        |         | 8.27 | %   
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  | Total loans receivable                 |           |                             | 1,182,412 |          |       |         | 23,052 |         |      |          | 7.73      | %       |           |         | 1,381,110 |   |        |       | 27,780 |         |      |      | 7.98 | %
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|Mortgage-backed securities         |                                     |                              | 389,482                          |                                        |           |                             | 5,033     |          |       |         | 5.13   | %       |      |          | 164,676   |         |           |         | 2,695     |   |        |       | 6.49   | %      
|Investment securities              |                                     |                              | 36,172                           |                                        |           |                             | 341       |          |       |         | 3.74   | %       |      |          | 13,497    |         |           |         | 205       |   |        |       | 6.03   | %      
|Other earning assets               |                                     |                              | 20,899                           |                                        |           |                             | 183       |          |       |         | 3.47   | %       |      |          | 53,334    |         |           |         | 672       |   |        |       | 5.00   | %      
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|Total interest-earning assets      |                                     |                              | 1,628,965                        |                                        |           |                             | 28,609    |          |       |         | 6.97   | %       |      |          | 1,612,617 |         |           |         | 31,352    |   |        |       | 7.71   | %      
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|Noninterest-earning assets         |                                     |                              | 152,566                          |                                        |           |                             |           |          |       |         |        |         |      |          | 158,813   |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     | Total assets                 |                                  | $                                      | 1,781,531 |                             |           |          |       |         |        |         |      |          |           | $       | 1,771,430 |         |           |   |        |       |        |         |      |     
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |      |      |      |  
|Interest-bearing liabilities:      |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   | Deposits:                           |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |     
|                                   |                                     |                              | Checking deposits                |                                        | $         | 449,452                     |           |          |       | 656     |        |         |      | 0.58     | %         |         | $         | 390,683 |           |   |        | 780   |        |         |      | 0.79 | %   
|                                   |                                     |                              | Money market deposits            |                                        |           | 436,029                     |           |          |       | 1,895   |        |         |      | 1.72     | %         |         |           | 390,801 |           |   |        | 2,835 |        |         |      | 2.88 | %   
|                                   |                                     |                              | Savings deposits                 |                                        |           | 238,093                     |           |          |       | 750     |        |         |      | 1.25     | %         |         |           | 219,459 |           |   |        | 924   |        |         |      | 1.67 | %   
|                                   |                                     |                              | Certificates of deposit          |                                        |           | 336,546                     |           |          |       | 2,900   |        |         |      | 3.42     | %         |         |           | 452,744 |           |   |        | 5,683 |        |         |      | 4.98 | %   
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  | Total deposits                         |           |                             | 1,460,120 |          |       |         | 6,201  |         |      |          | 1.68      | %       |           |         | 1,453,687 |   |        |       | 10,222 |         |      |      | 2.79 | %
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   | Notes payable and other borrowings: |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |     
|                                   |                                     |                              | FHLB advances                    |                                        |           | 93,662                      |           |          |       | 1,205   |        |         |      | 5.10     | %         |         |           | 100,206 |           |   |        | 1,628 |        |         |      | 6.45 | %   
|                                   |                                     |                              | Repurchase agreements            |                                        |           | 16,848                      |           |          |       | 151     |        |         |      | 3.56     | %         |         |           | 10,000  |           |   |        | 177   |        |         |      | 7.02 | %   
|                                   |                                     |                              | Commercial repurchase agreements |                                        |           | 43,663                      |           |          |       | 162     |        |         |      | 1.47     | %         |         |           | 22,199  |           |   |        | 178   |        |         |      | 3.18 | %   
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  | Total borrowings                       |           |                             | 154,173   |          |       |         | 1,518  |         |      |          | 3.91      | %       |           |         | 132,405   |   |        |       | 1,983  |         |      |      | 5.94 | %
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|Total interest-bearing liabilities |                                     |                              | 1,614,293                        |                                        |           | $                           | 7,719     |          |       |         | 1.90   | %       |      |          | 1,586,092 |         |           | $       | 12,205    |   |        |       | 3.05   | %      
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|Noninterest-bearing liabilities    |                                     |                              | 21,023                           |                                        |           |                             |           |          |       |         |        |         |      |          | 25,452    |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     | Total liabilities            |                                  |                                        | 1,635,316 |                             |           |          |       |         |        |         |      |          |           |         | 1,611,544 |         |           |   |        |       |        |         |      |     
|Shareholders equity               |                                     |                              | 146,215                          |                                        |           |                             |           |          |       |         |        |         |      |          | 159,886   |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     | Total liabilities and equity |                                  | $                                      | 1,781,531 |                             |           |          |       |         |        |         |      |          |           | $       | 1,771,430 |         |           |   |        |       |        |         |      |     
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |      |      |      |  
|Yield on interest-earning assets   |                                     |                              |                                  |                                        |           |                             |           |          |       |         | 6.97   | %       |      |          |           |         |           |         |           |   |        |       | 7.71   | %      
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |      |      |      |  
|Cost of supporting funds           |                                     |                              |                                  |                                        |           |                             |           |          |       |         | 1.88   | %       |      |          |           |         |           |         |           |   |        |       | 3.00   | %      
|                                   |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |         |      |      |      |  
|Net interest margin:               |                                     |                              |                                  |                                        |           |                             |           |          |       |         |        |         |      |          |           |         |           |         |           |   |        |       |        |        
|                                   |                                     |                              |                                  | Taxable equivalent basis               |           |                             |           |          |       | $       | 20,890 |         |      |          | 5.09      | %       |           |         |           |   |        | $     | 19,147 |         |      |      | 4.71 | %
|                                   |                                     |                              |                                  | Without taxable equivalent adjustments |           |                             |           |          |       | $       | 20,620 |         |      |          | 5.02      | %       |           |         |           |   |        | $     | 18,950 |         |      |      | 4.66 | %

|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |      |      |      |  
|---------------------------------- | ----------------------------------- | ---------------------------- | -------------------------------- | -------------------------------------- | --------- | ------- | --------- | -------- | ------ | -------------------------------- | ------ | ------- | ---- | -------- | --------- | ------- | --------- | ------- | --------- | - | ------ | ------ | ------ | ------- | ---- | ---- | ---- | -
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        | Nine Months Ended September 30 , |        |         |      |          |           |         |           |        
|                                   |                                     |                              |                                  |                                        |           |        
|                                   |                                     |                              |                                  |                                        |           | 2002    |           | 2001    
|                                   |                                     |                              |                                  |                                        |           |         |           |         
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      | Average  |           |         |           |         |           |   |        |        |        | Average
|(dollars in thousands)             |                                     | Average                      |                                  |                                        |           |         |           | Yield /  |        | Average                          |        |         |      |          |           | Yield /
|                                   |                                     |                              |                                  |                                        |           | Balance |           | Interest |        | Cost                             |        | Balance |      | Interest |           | Cost   
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |        
|Interest-earning assets:           |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|Loans receivable:                  |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     | Residential mortgage loans   |                                  | $                                      | 512,100   |         |           | $        | 27,547 |                                  |        |         | 7.19 | %        |           | $       | 760,452   |         |           | $ | 42,140 |        |        |         | 7.41 | %   
|                                   |                                     | Consumer loans               |                                  |                                        | 374,222   |         |           |          | 24,031 |                                  |        |         | 8.59 | %        |           |         | 386,441   |         |           |   | 26,495 |        |        |         | 9.17 | %   
|                                   |                                     | Commercial loans             |                                  |                                        | 345,157   |         |           |          | 18,730 |                                  |        |         | 7.26 | %        |           |         | 274,663   |         |           |   | 16,937 |        |        |         | 8.24 | %   
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  | Total loans receivable                 |           |         | 1,231,479 |          |        |                                  | 70,308 |         |      |          | 7.63      | %       |           |         | 1,421,556 |   |        |        | 85,572 |         |      |      | 8.05 | %
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|Mortgage-backed securities         |                                     |                              | 309,184                          |                                        |           |         | 12,470    |          |        |                                  | 5.39   | %       |      |          | 182,344   |         |           |         | 9,170     |   |        |        | 6.72   | %      
|Investment securities              |                                     |                              | 39,903                           |                                        |           |         | 1,157     |          |        |                                  | 3.88   | %       |      |          | 13,869    |         |           |         | 615       |   |        |        | 5.93   | %      
|Other earning assets               |                                     |                              | 26,209                           |                                        |           |         | 670       |          |        |                                  | 3.42   | %       |      |          | 36,463    |         |           |         | 1,696     |   |        |        | 6.22   | %      
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|Total interest-earning assets      |                                     |                              | 1,606,775                        |                                        |           |         | 84,605    |          |        |                                  | 7.04   | %       |      |          | 1,654,232 |         |           |         | 97,053    |   |        |        | 7.84   | %      
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|Noninterest-earning assets         |                                     |                              | 156,250                          |                                        |           |         |           |          |        |                                  |        |         |      |          | 158,750   |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     | Total assets                 |                                  | $                                      | 1,763,025 |         |           |          |        |                                  |        |         |      |          |           | $       | 1,812,982 |         |           |   |        |        |        |         |      |     
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |      |      |      |  
|Interest-bearing liabilities:      |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   | Deposits:                           |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |     
|                                   |                                     |                              | Checking deposits                |                                        | $         | 443,516 |           |          |        | 1,843                            |        |         |      | 0.56     | %         |         | $         | 385,178 |           |   | $      | 2,491  |        |         |      | 0.86 | %   
|                                   |                                     |                              | Money market deposits            |                                        |           | 423,861 |           |          |        | 5,412                            |        |         |      | 1.71     | %         |         |           | 383,029 |           |   |        | 9,576  |        |         |      | 3.34 | %   
|                                   |                                     |                              | Savings deposits                 |                                        |           | 232,981 |           |          |        | 2,178                            |        |         |      | 1.25     | %         |         |           | 218,713 |           |   |        | 3,313  |        |         |      | 2.03 | %   
|                                   |                                     |                              | Certificates of deposit          |                                        |           | 374,118 |           |          |        | 10,691                           |        |         |      | 3.82     | %         |         |           | 474,294 |           |   |        | 18,480 |        |         |      | 5.21 | %   
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  | Total deposits                         |           |         | 1,474,476 |          |        |                                  | 20,124 |         |      |          | 1.82      | %       |           |         | 1,461,214 |   |        |        | 33,860 |         |      |      | 3.10 | %
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   | Notes payable and other borrowings: |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |     
|                                   |                                     |                              | FHLB advances                    |                                        |           | 70,398  |           |          |        | 3,185                            |        |         |      | 6.05     | %         |         |           | 127,947 |           |   |        | 6,064  |        |         |      | 6.34 | %   
|                                   |                                     |                              | Repurchase agreements            |                                        |           | 12,308  |           |          |        | 497                              |        |         |      | 5.40     | %         |         |           | 21,044  |           |   |        | 1,054  |        |         |      | 6.70 | %   
|                                   |                                     |                              | Commercial repurchase agreements |                                        |           | 38,877  |           |          |        | 426                              |        |         |      | 1.47     | %         |         |           | 18,946  |           |   |        | 548    |        |         |      | 3.87 | %   
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  | Total borrowings                       |           |         | 121,583   |          |        |                                  | 4,108  |         |      |          | 4.52      | %       |           |         | 167,937   |   |        |        | 7,666  |         |      |      | 6.10 | %
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|Total interest-bearing liabilities |                                     |                              | 1,596,059                        |                                        |           | $       | 24,232    |          |        |                                  | 2.03   | %       |      |          | 1,629,151 |         |           | $       | 41,526    |   |        |        | 3.41   | %      
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|Noninterest-bearing liabilities    |                                     |                              | 20,033                           |                                        |           |         |           |          |        |                                  |        |         |      |          | 23,716    |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     | Total liabilities            |                                  |                                        | 1,616,092 |         |           |          |        |                                  |        |         |      |          |           |         | 1,652,867 |         |           |   |        |        |        |         |      |     
|Shareholders equity               |                                     |                              | 146,933                          |                                        |           |         |           |          |        |                                  |        |         |      |          | 160,115   |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     | Total liabilities and equity |                                  | $                                      | 1,763,025 |         |           |          |        |                                  |        |         |      |          |           | $       | 1,812,982 |         |           |   |        |        |        |         |      |     
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |      |      |      |  
|Yield on interest-earning assets   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  | 7.04   | %       |      |          |           |         |           |         |           |   |        |        | 7.84   | %      
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |      |      |      |  
|Cost of supporting funds           |                                     |                              |                                  |                                        |           |         |           |          |        |                                  | 2.02   | %       |      |          |           |         |           |         |           |   |        |        | 3.35   | %      
|                                   |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |         |      |      |      |  
|Net interest margin:               |                                     |                              |                                  |                                        |           |         |           |          |        |                                  |        |         |      |          |           |         |           |         |           |   |        |        |        |        
|                                   |                                     |                              |                                  | Taxable equivalent basis               |           |         |           |          |        | $                                | 60,373 |         |      |          | 5.02      | %       |           |         |           |   |        | $      | 55,527 |         |      |      | 4.49 | %
|                                   |                                     |                              |                                  | Without taxable equivalent adjustments |           |         |           |          |        | $                                | 59,582 |         |      |          | 4.96      | %       |           |         |           |   |        | $      | 54,961 |         |      |      | 4.44 | %

Note: Interest and yields were calculated on a taxable equivalent basis, using a 35% tax rate and the actual number of days in the periods. Loan fees, as well as nonaccrual loans and their
related income effect, have been included in the calculation of average interest yields/rates.

25



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##### 



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, 2002 and 2001.

General.Net income was $5.7 million, or $0.58 per common share on a
diluted basis, for the third quarter of 2002. This compared to net income of
$4.1 million, or $0.39 per common share on a diluted basis, for the third
quarter of 2001.

For the nine months ended September 30, 2002, net income was $15.0
million, or $1.51 per common share on a diluted basis. This compared to net
income of $9.6 million, or $0.89 per common share on a diluted basis, for the
nine months ended September 30, 2001.

The results for the first nine months of 2001 were affected by:



| |  |  | A $2.3 million pre-tax charge associated with the
restructuring of Commonwealths mortgage banking business;           
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | A $0.7 million pre-tax charge relating to the retirement of
Commonwealths former Chief Executive Officer; and         
|
| |  |  | A $0.5 million pre-tax charge relating to the resolution of
legal proceedings concerning a loan acquired in the 1970s.

Exclusive of these three items, net income for the first nine months of
2001 would have been $12.2 million, or $1.13 per share on a diluted basis.

Net interest income.Net interest income was $20.6 million in the third
quarter of 2002, compared to $19.0 million in the third quarter of 2001. For
the nine months ended September 30, 2002, net interest income was $59.6
million, versus $55.0 million for the comparable period in 2001. These
increases were primarily attributable to a higher net interest margin. Net
interest income for the first nine months of 2001 was also adversely affected
by a $0.5 million charge relating to the resolution of legal proceedings
concerning a loan acquired in the 1970s.

Average interest-earning assets totaled $1.6 billion for both the quarter
and nine months ended September 30, 2002. This compares to average
interest-earning assets of $1.6 billion and $1.7 billion for the quarter and
nine months ended September 30, 2001, respectively. The increase in average
interest-earning assets for the quarter ended September 30, 2002, compared to
the comparable period in 2001, was due primarily to an increase in
mortgage-backed securities offset, in part, by a decrease in loans receivable.
The decrease in average interest-earning assets for the nine months ended
September 30, 2002, compared to the comparable period in 2001, was due
primarily to a decrease in loans receivable offset, in part, by an increase in
mortgage-backed securities.

Average loans were $1.2 billion for both the quarter and nine months ended
September 30, 2002. This compares to average loans of $1.4 billion for the
quarter and nine months ended September 30, 2001. Compared to the third
quarter of 2001, average mortgage loans decreased 33% to $463 million, average
consumer loans decreased 3% to $376 million and average commercial loans
increased 15% to $344 million, in the third quarter of 2002. Compared to the
first nine months of 2001, average mortgage loans decreased 33% to $512
million, average consumer loans decreased 3% to $374 million and average
commercial loans increased 26% to $345 million, for the first nine months of
2002.

The net interest margin on a fully taxable equivalent basis was 5.09% in
the third quarter of 2002, compared to 4.71% in the third quarter of 2001. The
increase was primarily attributable to a 1.15% decrease in the cost of
interest-bearing liabilities, which was partially offset by a 0.74% decrease in
the yield on interest-earning assets. The decrease in the cost of
interest-bearing liabilities was primarily related to a reduction in the
average cost of various types of deposits due to a decline in market interest
rates, as well as a favorable change in funding mix. The decrease in the yield
on interest-earning assets also was primarily related to a decline in market
interest rates.

26



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##### 



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

For the nine months ended September 30, 2002, the net interest margin on a
fully taxable equivalent basis was 5.02%, versus 4.49% in the comparable 2001
period. The increase was primarily attributable to a 1.38% decrease in the cost
of interest-bearing liabilities, which was partially offset by an 0.80%
decrease in the yield on interest-earning assets. The decreases in the cost of
interest-bearing liabilities and the yield on interest-earning assets were due
primarily to the same factors responsible for the decreases in the third
quarter of 2002 discussed above. As previously noted, the net interest margin
for the first nine months of 2001 was impacted by the $0.5 million charge
relating to the resolution of legal proceedings concerning a loan. Exclusive
of this item, the net interest margin on a fully taxable equivalent basis would
have been 4.53% for the first nine months of 2001.

Provision for loan losses.Provision for loan losses totaled $1.2 million
and $4.9 million in the three and nine months ended September 30, 2002,
respectively. The provision for loan losses totaled $2.5 million and $6.3
million in the three and nine months ended September 30, 2001, respectively.
Net credit losses totaled $0.9 million, or 0.31% of average loans, in the third
quarter of 2002, compared to $1.2 million, or 0.34% of average loans, in the
third quarter of 2001. For the nine months ended September 30, 2002, net
credit losses totaled $3.8 million, or 0.41% of average loans, compared to $3.7
million, or 0.35%, in the same 2001 period. At September 30, 2002, the
allowance for loan losses totaled $15.3 million, or 1.30% of loans, compared to
$14.2 million, or 1.08% of loans, at December 31, 2001. The increase in the
allowance for loan losses reflected Commonwealths strategy to increase
consumer and commercial lending, while de-emphasizing residential mortgage
lending. Consumer and commercial loans generally involve greater credit risk
than residential mortgage loans because the risk of borrower default is
greater. In addition, certain commercial and consumer loans are unsecured or
involve collateral that may be more likely to decline in value and/or may be
more difficult to liquidate than single-family residences. At September 30,
2002, consumer and commercial loans represented 63% of total loans, compared to
55% at December 31, 2001. Management will continue to evaluate the allowance
for loan losses relative to the level of credit risk in the loan portfolio and
make adjustments as appropriate.

Noninterest income.Noninterest income totaled $5.6 million in the third
quarter of 2002, compared to $4.6 million in the third quarter of 2001. The
increase was primarily a result of an $0.6 million increase in deposit fees.

Noninterest income was $16.1 million for the first nine months of 2002,
compared to $15.2 million for the same 2001 period. The increase reflected a
$1.7 million increase in deposit fees and a $0.5 million increase in financial
services fees. These increases were partially offset by a $1.6 million decrease
in net gain on sale of mortgage loans, which was attributable to the
restructuring of Commonwealths mortgage banking business.

Noninterest expense.Noninterest expense was $17.1 million in the third
quarter of 2002, compared to $15.5 million in the third quarter of 2001. The
increase was primarily attributable to a $0.8 million charge relating to an
equity investment in a mortgage servicing partnership. Core noninterest
expense, excluding amortization of intangible assets, totaled 60.4% of core
noninterest income and net interest income on a fully taxable equivalent basis
in both the third quarter of 2002 and 2001.

Noninterest expense was $49.9 million for the nine months ended September
30, 2002, compared to $51.2 million for the same period in 2001. The results
for the first nine months of 2001 were adversely affected by the $2.3 million
charge associated with the restructuring of Commonwealths mortgage banking
business and the $0.7 million charge relating to the retirement of
Commonwealths former Chief Executive Officer. Exclusive of these items,
noninterest expense would have been $48.2 million for the first nine months of
2001. The increase in noninterest expense in the first nine months of 2002,
relative to the adjusted level for the first nine months of 2001, was primarily
related to higher compensation and employee benefit expenses and a charge
relating to an equity investment in a mortgage servicing partnership, partially
offset by a reduction in mortgage banking expenses. The latter was
attributable to the restructuring of Commonwealths mortgage banking business
in 2001. Core noninterest expense, excluding amortization of intangible
assets, totaled 60.7% of core noninterest income and net interest income on a
fully taxable equivalent basis in the first nine months of 2002, compared to
62.6% for the first nine months of 2001.

27



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##### 



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

Noninterest expense in both the third quarter of 2002 and 2001 included
the amortization of $1.2 million of intangible assets. Noninterest expense for the first nine months of 2002 and
2001 included the amortization of $3.5 million and $3.6 million, respectively,
of intangible assets. The amortization was primarily related to goodwill and
core deposit intangibles recorded in connection with the acquisition of
deposits and branch office facilities in 1995 and 1996. The recent
implementation of Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets, did not materially impact Commonwealths amortization of intangible
assets.

Income taxes.Provision for income taxes was $2.2 million, or 28% of
income before income taxes, in the third quarter of 2002, compared to $1.4
million, or 25%, in the third quarter of 2001. For the first nine months of
2002, provision for income taxes was $5.8 million, or 28% of income before
income taxes, compared to $3.2 million, or 25%, for the nine months ended
September 30, 2001. The increase in the effective tax rate in the third
quarter and first nine months of 2002, relative to the comparable periods in
2001, was primarily attributable to higher pre-tax income in the third quarter
and first nine months of 2002, which resulted in a lower relative percentage of
tax-exempt income to total income.

28



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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Commonwealth uses simulation models to analyze the estimated effects on
net interest income under multiple interest rate scenarios, including increases
and decreases in interest rates amounting to 100, 200, and 300 basis points.
Each scenario is modeled for a change in net interest income over a two year
period. Similar simulation models are prepared to analyze the Companys net asset value, which is the present
value of the cash flows generated by the Companys assets minus the present
value of the cash flows generated by the Companys liabilities, plus or minus
the net cash flows produced by off-balance sheet contracts. At September 30,
2002, the Companys income simulation model indicates net interest income would
increase by 0.23% over a two year period if interest rates increased by 200
basis points. The model projects that net interest income would decrease by
9.12% over a two year period if rates decreased by 200 basis points. The
anticipated changes in the level of net interest income and net asset value
over the various scenarios were within limits established by the
Asset/Liability Committee.

Because there are limitations inherent in any methodology used to estimate
the exposure to changes in market interest rates, this analysis is not intended
to be a forecast of the actual effect of a change in market interest rates on
the Company. The net asset value is significantly impacted by the estimated
effect of repayments on the value of loans and mortgage-backed securities.
Further, this analysis is based on the Companys assets, liabilities, and
off-balance-sheet instruments at September 30, 2002 and does not contemplate
any actions the Company might undertake in response to changes in market
interest rates.

Management believes that the assumptions utilized to evaluate the
vulnerability of the Companys operations to changes in interest rates
approximate actual experience and considers them to be reasonable. However,
the interest rate sensitivity of the Companys assets and liabilities could
vary substantially if different assumptions were used or actual experiences
were to differ from historical experience.

Item 4. Controls and Procedures.

Within 90 days prior to the date of this Quarterly Report, the Company
carried out an evaluation, under the supervision and with the participation of
the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective. There were no
significant changes in the Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.

Disclosure controls and procedures are the controls and other procedures
of the Company that are designed to ensure that the information required to be
disclosed by the Company in its reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commissions rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in its reports filed under the Exchange Act is accumulated and
communicated to the Companys management, including the principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.

29



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##### 



PART II  OTHER INFORMATION

Item 1. Legal Proceedings

Other than a complaint filed against CoreStates Financial Corporation and
others, as previously reported in the Companys 2001 Annual Report on Form
10-K, there are no material legal proceedings to which the Company or any of
its subsidiaries is a party, or to which any of their property is subject,
other than proceedings routine to the business of the Company and its subsidiaries.

The Company withdrew its claim against the United States seeking to
recover damages or other monetary relief for the loss of its supervisory
goodwill during April 2002 and the case was dismissed. Also, the arbitration
action brought by Fiserv Solutions, Inc. against the Company was settled during
May 2002. The resolution of these proceedings were previously reported in the
Companys Form 10-Q for the quarter ended March 31, 2002.

Item 2. Changes in Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K



| | a) |  | Exhibits
| | -- |  | --------



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
| | Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



| | b) |  | Reports on Form 8-K
| | -- |  | -------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On July 17, 2002, the Company filed a Current Report on Form 8-K to
report under Item 5, its earnings for the second quarter of 2002. On
July 22, 2002, the Company filed a Current Report on Form 8-K to report
under Item 5, a presentation to analysts. On September 10, 2002, the
Company filed a Current Report on Form 8-K to report under Item 5, its
declared cash dividend. On October 1, 2002, the Company filed a Current
Report on Form 8-K to report under Item 5, an Agreement and Plan of
Merger with Citizens Financial Group and Citizens Bank of Pennsylvania.

30



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##### 



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 6, 2002
        
        /s/ Patrick J. WardPatrick J. WardPresident and Chief Executive Officer(Principal Executive Officer)DATE: November 6, 2002
        
        /s/ Charles M. JohnstonCharles M. JohnstonExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)


31



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##### 



EXHIBIT A

SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Patrick J. Ward, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Commonwealth
Bancorp, Inc. (the Registrant);                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The Registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  |                                      
|---------------------- |  | -------------------------------------
|                       |  | /s/ Patrick J. Ward                  
|                       |  |                                      
|Date: November 6, 2002 |  | Patrick J. Ward                      
|                       |  | President and Chief Executive Officer

32



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##### 



EXHIBIT B

SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Charles M. Johnston, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Commonwealth
Bancorp, Inc. (the Registrant);                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
annual report;                      
|  
|4. |  | The Registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  |                        
|---------------------- |  | -----------------------
|                       |  | /s/ Charles M. Johnston
|                       |  |                        
|Date: November 6, 2002 |  | Charles M. Johnston    
|                       |  | Chief Financial Officer

33