<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

  X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
-----   SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1997

                                       OR

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
-----   SECURITIES EXCHANGE ACT OF 1934

                          Commission File No.: 0-27522

                         PITTSBURGH HOME FINANCIAL CORP.
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Pennsylvania                                  25-1772349
-------------------------------------        ---------------------------------
     (State or other jurisdiction                     (I.R.S. Employer
   of incorporation or organization)               Identification Number)



             438 Wood Street
       Pittsburgh, Pennsylvania                            15222
-------------------------------------        ---------------------------------
        (Address of Principal                            (Zip Code)
         Executive Offices)


       Registrant's telephone number, including area code: (412) 281-0780
           Securities registered pursuant to Section 12(b) of the Act:
                                 NOT APPLICABLE
               Securities registered pursuant to Section 12(g) of
                                    the Act:

                    COMMON STOCK (PAR VALUE $0.01 PER SHARE)
------------------------------------------------------------------------------
                                (Title of Class)

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

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

As of December 18, 1997, the aggregate value of the 1,802,509 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
166,860 shares held by all directors and executive officers of the Registrant as
a group, was approximately $33.3 million. This figure is based on the last known
trade price of $18.50 per share of the Registrant's Common Stock on December 18,
1997.

Number of shares of Common Stock outstanding as of December 18, 1997: 1,969,369

                       DOCUMENTS INCORPORATED BY REFERENCE

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

(1) Portions of the Annual Report to Stockholders for the fiscal year ended
September 30, 1997 are incorporated into Parts II and IV.

(2) Portions of the definitive proxy statement for the Annual Meeting of
Stockholders are incorporated into Part III.


<PAGE>   2
 


PART I.

ITEM 1. BUSINESS

GENERAL

     Pittsburgh Home Financial Corp. (the "Company") is a Pennsylvania
corporation and the sole stockholder of Pittsburgh Home Savings Bank (the
"Savings Bank"), which converted to the stock form of organization in April
1996. The only significant assets of the Company are the capital stock of the
Savings Bank and assets purchased with the balance of the net conversion
proceeds retained by the Company. The business of the Company consists primarily
of the business of the Savings Bank. At September 30, 1997, the Company had
total consolidated assets of $273.3 million, total consolidated deposits of
$138.7 million, and total consolidated stockholders' equity of $28.8 million.

     The Savings Bank is a Pennsylvania-chartered stock savings bank which was
founded in 1942 and has expanded its operations over the years through the
acquisition of three savings institutions. The Savings Bank conducts business
from its main office in Pittsburgh, Pennsylvania and eight branch offices
located in Allegheny and Butler Counties, Pennsylvania. The Savings Bank's
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC") to the maximum extent permitted
by law. References herein to the Company refer to the consolidated operations of
the Company and the Savings Bank unless otherwise noted.

     The Company is a community oriented financial institution which has
traditionally offered a variety of savings products to its retail customers. The
Company has concentrated its lending activities on real estate loans secured by
single family residential properties and construction loans on primarily
residential properties. To a significantly lesser extent, in recent years, the
Company has also engaged in commercial lease financing. At September 30, 1997
the total loan portfolio amounted to $192.7 million or 70.5% of total
consolidated assets. The Company during the fiscal year ended September 30, 1997
continued to increase its originations of residential mortgage loans and
residential construction loans, as it has continued its relationships with local
mortgage brokers and building contractors. When compared to September 30, 1996,
residential mortgages increased $37.8 million or 33.1%; residential construction
loans increased by $5.8 million or 30.3%; and other loans, comprised of home
equity loans and lines, consumer loans and commercial leases increased by $4.7
million or 56.6%. Primarily as a result of the foregoing, loans receivable, net,
increased by $45.8 million or 33.8% between September 30, 1996 and September 30,
1997.

     The Company also invests its funds in U.S. Government and agency
securities, as well as mortgage-backed, municipal, equity securities and short
term investments. At September 30, 1997, mortgage-backed securities were $38.2
million or 14.0% of total consolidated assets and other investment securities
were $37.2 million or 13.6% of total assets, as compared to $23.8 million or
12.2% and $22.5 million or 11.5%, respectively, at September 30, 1996. During
the quarter ended June 30, 1997, the Company established a trading account, with
a Board approved limit at any one time of $2.5 million in the aggregate and $1.0
million per


<PAGE>   3



investment. The Company recognized a pre-tax net gain of $310,000 for the year
ended September 30, 1997. At September 30, 1997, the Company had an aggregate of
$956,000 invested in seven securities. The investments purchased were primarily
equity securities of financial institutions.

         During fiscal 1997, the Company also implemented a wholesale leveraging
strategy designed to take advantage of its excess capital. The Company
determined to invest in mortgage-backed securities and U.S. government and
agency obligations, at a positive interest rate spread over the funding
obligation, which has been Federal Home Loan Bank ("FHLB") advances.

     The Company derives its income principally from interest earned on loans,
securities and its other investments and, to a lesser extent, from fees received
in connection with the origination of loans and for other services. The
Company's primary expenses are interest expense on deposits, borrowings, and
other operating expenses.

     The Savings Bank currently exceeds all applicable minimum regulatory
capital requirements. At September 30, 1997, the Savings Bank had Tier 1
risk-based, total risk-based and Tier 1 leverage capital levels of 18.91%,
20.04% and 8.80%, respectively, as compared to the minimum requirements of 4.0%,
8.0% and 4.0%, respectively.

     The Company, as a registered bank holding company, is subject to
examination and regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") and the Pennsylvania Department of Banking (the
"Department"), and is subject to various reporting and other requirements of the
Securities and Exchange Commission ("Commission"). The Savings Bank is also
subject to examination and comprehensive regulation by the Department, which is
the Savings Bank's chartering authority, and by the FDIC, as the administrator
of the SAIF. The Savings Bank is subject to certain reserve requirements
established by the Federal Reserve Board and is a member of the FHLB of
Pittsburgh, which is one of the 12 regional banks comprising the FHLB System.

LENDING ACTIVITIES

     GENERAL. At September 30, 1997, the Company's total loans receivable
portfolio ("total loan portfolio") amounted to $192.7 million, or 70.5% of total
assets at that date. The Company has traditionally concentrated its lending
activities on conventional first mortgage loans secured by single-family
residential properties. Consistent with its lending orientation, during the
fiscal year ended September 30, 1997, residential mortgages increased $37.8
million or 33.1% to $152.1 million or 78.9% of the Company's total loan
portfolio. During fiscal 1997, residential construction loans increased by $5.8
million or 30.3% to $25.1 million; multi-family residential and commercial real
estate loans remained substantially the same at $2.6 million; home equity loans
and lines, consumer loans and commercial leases increased by $4.7 million or
56.6% to $12.9 million.


                                        2

<PAGE>   4



     Historically, the Company's lending activities have been concentrated in
its primary market area of Allegheny County and Butler County, Pennsylvania and
portions of the surrounding counties. The Company estimates that a substantial
majority of its mortgage loans are secured by properties located in primary
market area, and that substantially all of its non-mortgage loan portfolio
consists of loans made to residents and businesses located in such primary
market area.

     LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Company's loan portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                             September 30,    
                                   ---------------------------------------------------------------------------------------------
                                         1997                 1996               1995              1994              1993
                                   ----------------    ---------------     -----------------  ---------------  -----------------
                                    Amount      %       Amount      %       Amount      %      Amount     %       Amount     %
                                   --------   -----    --------   ----     --------   ----    --------  -----  ----------  -----
                                                                       (Dollars in Thousands)
<S>                                <C>         <C>     <C>        <C>      <C>        <C>     <C>        <C>     <C>        <C>  
First mortgage loans:
  One-to-four family residential   $152,113    78.9%   $114,311   79.2%    $ 85,109   76.9%   $55,119    77.5%   $59,150    84.4%
  Construction                       25,102    13.0      19,265   13.3       16,586   15.0      8,740    12.3      4,198     6.0
  Multi-family residential and
   commercial                         2,596     1.4       2,592    1.8        1,527    1.3      1,485     2.1      1,820     2.6
                                   --------   -----    --------  -----     --------  -----    -------   -----    -------   ----- 
                                    179,811    93.3     136,168   94.3      103,222   93.2     65,344    91.9     65,168    93.0
                                   --------   -----    --------  -----     --------  -----    -------   -----    -------   ----- 
Other loans:
  Commercial leases                   2,539     1.3       1,974    1.4        2,491    2.2      1,835     2.6      1,237     1.8
  Home equity loans and lines         8,821     4.6       5,312    3.7        4,312    3.9      2,979     4.2      2,530     3.6
  Consumer loans                      1,547     0.8         957    0.6          782    0.7        951     1.3      1,133     1.6
                                   --------   -----    --------  -----     --------  -----    -------   -----    -------   ----- 
       Total loans receivable       192,718   100.0%    144,411  100.0%     110,807  100.0%    71,109   100.0%    70,068   100.0%
                                   --------   =====    --------  =====     --------  =====    -------   =====    =======   =====
                                                                          
Less:
  Allowance for loan losses          (1,419)             (1,128)               (921)              711                599
  Loans in process                  (10,003)             (7,745)             (6,926)            4,821              1,811
  Deferred loan fees                     43                  14                  22               236                226 
                                   --------            --------            --------           -------            ------- 
       Loans receivable, net       $181,339            $135,552            $102,982           $65,341            $67,432 
                                   ========            ========            ========           =======            ======= 
</TABLE>


                                        3

<PAGE>   5



     CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth certain information at September 30, 1997 regarding the dollar amount
of loans maturing in the Company's total loan portfolio, based on the
contractual terms to maturity. Loans having no stated schedule of repayments and
no stated maturity are reported as due in one year or less.

<TABLE>
<CAPTION>
                                                       Due 1-5 years         Due more than 5
                                         Due 1 year        after                years after
                                           or less    September 30, 1997     September 30, 1997         Total
                                         ----------   ------------------     ------------------      -----------
                                                                    (In Thousands)
<S>                                         <C>                <C>                 <C>                 <C>     
First mortgage loans:
  One-to-four-family residential            $ 1,787            $ 25,513            $124,813            $152,113
  Construction                               25,102                  --                  --              25,102
  Multi-family residential and
    commercial                                  179                 485               1,932               2,596
                                            -------            --------            --------            --------
                                             27,068              25,998             126,745             179,811
                                            -------            --------            --------            --------
Other loans:
  Commercial leases                             432               2,107                  --               2,539
  Home equity loans and lines                 1,933               1,898               4,990               8,821
  Consumer loans                                554                 988                   5               1,547
                                                                                                       --------
    Total                                   $29,987            $ 30,991            $131,740            $192,718
                                            =======            ========            ========            ========
</TABLE>


     The following table sets forth the dollar amount of total loans due after
one year from September 30, 1997, as shown in the preceding table, which have
fixed interest rates or which have floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                     Floating or
                                                   Fixed rate       adjustable-rate       Total
                                                   ----------       ---------------      --------
                                                                     (In Thousands)
<S>                                                  <C>                 <C>             <C>     
First mortgage loans:
  One-to-four-family residential                     $104,538            $45,788         $150,326
  Construction                                             --                 --               --
  Multi-family residential and commercial               2,417                 --            2,417
Other loans                                             9,988                 --            9,988
                                                     --------            -------         --------
    Total                                            $116,943            $45,788         $162,731
                                                     ========            =======         ========
</TABLE>

     Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less than
their average contractual terms because of prepayments and, in the case of
conventional mortgage loans, due-on-sale clauses, which generally give the
Company the right to declare a loan immediately due and payable in the event,
among other things, that the borrower sells the real property subject to the
mortgage and the loan is not repaid. The average life of mortgage loans tends to




                                        4

<PAGE>   6



increase when current mortgage loan rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgages are substantially lower than current mortgage loan rates (due to
refinancings of adjustable-rate and fixed-rate loans at lower rates).

     ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of the
Company are subject to the written, non-discriminatory, underwriting standards
and loan origination procedures established by the Company's Board of Directors
and management. Loan originations are obtained from a variety of sources,
including existing customers, builders, realtors, walk-in customers, loan
officers and advertising. The Company also has developed a network of mortgage
bankers who underwrite mortgage loans in accordance with the Company's loan
underwriting procedures.

     Loan applications originated by the Savings Bank are generally processed at
the Company's main office in Pittsburgh. The loan applications are initially
processed by loan officers and, once completed, are submitted to the Savings
Bank's Loan Committee, which is comprised of the senior management of the
Savings Bank. The Loan Committee may approve loans up to $300,000. Loans in
excess of $300,000 are submitted for approval to the Savings Bank's Board of
Directors with a report and recommendation from the Loan Committee. The Loan
Committee has delegated to the Assistant Vice President/Consumer Lending
authority to approve unsecured loans of up to $10,000, automobile loans up to
$20,000 and home equity loans and lines of credit up to $50,000.

     Property appraisals on the real estate and improvements securing the
Company's single-family residential loans are made by independent appraisers.
Appraisals are performed in accordance with federal regulations and policies.
The Company obtains title insurance policies on first mortgage real estate loans
originated by it. Borrowers also must obtain hazard insurance prior to closing
and, when required, flood insurance. Borrowers may be required to advance funds,
with each monthly payment of principal and interest, to a loan escrow account
from which the Company makes disbursements for items such as real estate taxes
and mortgage insurance premiums as they become due.

     Historically, the Company has not been an active purchaser of whole loans
or participation interests in loans or an active seller of participation
interests in loans. During fiscal 1997 and 1996, the Company did not purchase or
sell any whole loans or participation interests in loans. However, during fiscal
1995, the Company sold a $400,000 participation interest in a $1.2 million
construction loan originated to construct a six unit condominium.


                                        5

<PAGE>   7



     The following table shows total loan activity during the periods indicated.

<TABLE>
<CAPTION>
                                                             Year Ended
                                                            September 30,
                                                ------------------------------------
                                                  1997           1996         1995
                                                --------       --------     --------
                                                           (In Thousands)
<S>                                             <C>           <C>           <C>     
Loan originations:
  First mortgage loans:
    One-to-four-family residential              $ 53,150      $ 40,740      $ 38,314
    Construction                                  19,391        19,034        17,205
    Multi-family residential and commercial          688         1,189           105
                                                --------      --------      --------

       Total mortgage originations                73,229        60,963        55,624
                                                --------      --------      --------
  Other loans:
    Commercial leases                                412         1,059         2,003
    Home equity loans and lines                    5,727         2,269         2,843
    Consumer loans                                 1,250           866           327
                                                --------      --------      --------
    Total loans originated                        80,618        65,157        60,797
                                                --------      --------      --------
Loans and loan participations sold                  (618)       (1,935)       (3,009)
Loan principal reductions                        (31,693)      (29,618)      (18,090)
                                                --------      --------      --------
Net increase in loan portfolio                  $ 48,307      $ 33,604      $ 39,698
                                                ========      ========      ========
</TABLE>

     A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully secured by
readily marketable securities. At September 30, 1997, the Savings Bank's limit
on loans-to-one borrower was approximately $3.6 million as compared to $3.3
million at September 30, 1996. At September 30, 1997, the Company's five largest
loans or groups of loans-to-one borrower, including persons or entities related
to the borrower, ranged from an aggregate of $1.2 million to $1.7 million and
are secured primarily by real estate located in the Company's primary market
area, each of which involves relationships with building contractors. While all
of such loans were performing in accordance with their original terms at
September 30, 1997, subsequent to September 30, 1997, two of the loans which are
part of the Company's largest loan concentration became non-performing. The
Company's largest loan concentration at September 30, 1997 amounted to $1.7
million ($855,000 net of loans in process) and consisted of six loans to a local
contractor which were made without pre-sold commitments. In November 1997, two
of such loans, with an aggregate balance of $640,000 ($619,000 net of loans in
process), became 90 days or more delinquent and the Company ceased accruing
interest. However, the Company does not anticipate that it will recognize any
material losses with respect to such loans. See "Asset Quality - Non-Performing
Assets."


                                        6

<PAGE>   8



     ONE-TO-FOUR FAMILY RESIDENTIAL REAL ESTATE LOANS. The Company had an
aggregate of $152.1 million of one- to four-family residential loans in its loan
portfolio at September 30, 1997. The Company's fixed-rate loans generally have
maturities ranging from 15 to 30 years and are fully amortizing with monthly
payments sufficient to repay the total amount of the loan with interest by the
end of the loan term. Such loans are typically originated under terms,
conditions and documentation which permit them to be sold to U.S. Government
sponsored agencies such as the Federal Home Loan Mortgage Corporation ("FHLMC")
and the Federal National Mortgage Association ("FNMA"). The Company's fixed-rate
loans customarily include "due on sale" clauses, which give the Company the
right to declare a loan immediately due and payable in the event the borrower
sells or otherwise disposes of the real property subject to the mortgage or the
loan is not repaid.

     The Company also currently holds a limited amount of loans insured by the
Federal Housing Administration ("FHA") or partially guaranteed by the Department
of Veterans Affairs ("VA"). The Company no longer originates FHA/VA loans and
has not originated these types of loans for over ten years. At September 30,
1997, the Company held an aggregate of $7.0 million of FHA and VA loans in its
loan portfolio.

     In addition to conventional fixed-rate loans, the Company offers
residential loans which reprice once during the loan term at the end of the
seventh or fifteenth year, respectively. At such time, the loan's interest rate
is adjusted based on the index value of the FHLMC net yield on 30-year
fixed-rate mortgage loans plus a margin. These loans are typically based on a
30-year amortization schedule. The amount of any interest rate increase during
the repricing period is limited to 5%.

     The Company also originates for its portfolio one-to-four family
residential real estate loans which provide for an interest rate which adjusts
every year or which are fixed for a three and five year period and adjust every
three and five years, respectively, after the initial period (such
adjustable-rate loans are referred to as "ARMs"). The Company's one-year ARM
adjusts every year in accordance with the one year U.S. Treasury securities with
a constant maturity ("CMT") index. The interest rate adjustment for the
Company's three and five year ARMs after the initial fixed period is based on
the three and five year CMT index, respectively. The Company's ARMs are
typically based on a 30-year amortization schedule. The amount of any increase
or decrease after the initial term is limited to 2% per year, with a limit of 6%
increase and 2% decrease over the life of the loan. The Company qualifies the
borrowers on its loans which are fixed for three or five years based on the
initial rate and qualifies its borrowers for its one-year ARM based on the fully
indexed rate. The adjustable rate loans offered by the Company may generally be
converted to a fixed-rate loan within five years from the start of the initial
adjustment period. The Company had $45.8 million and $31.0 million of ARMs in
its loan portfolio as of September 30, 1997 and 1996, respectively, which
represented 23.8% and 21.5% of the Company's total loan portfolio, respectively.


                                        7

<PAGE>   9



     Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. The Company believes that these risks, which have not had a
material adverse effect on the Company to date, generally are less than the
risks associated with holding fixed-rate loans in an increasing interest rate
environment.

     The Company's residential mortgage loans typically do not exceed 80% of the
appraised value of the security property. Pursuant to underwriting guidelines
adopted by the Board of Directors, the Company can lend up to 95% of the
appraised value of the property securing a one-to-four family residential loan;
however, the Company generally requires private mortgage insurance on the
portion of the principal amount that exceeds 80% of the appraised value of the
security property. At September 30, 1997, the Company had an aggregate of $152.1
million of one-to four family residential loans in its portfolio.

     CONSTRUCTION LOANS. The Company originates primarily residential
construction loans to local contractors, generally with whom it has an
established relationship. To a significantly lesser extent, the Company
originates such loans to individuals who have a contract with a contractor for
the construction of their residence. The Company's construction loans are
secured by property located primarily in the Company's primary market area. At
September 30, 1997, the Company had an aggregate of $25.1 million of such loans
in its portfolio.

     The Company's construction loans to individuals generally have fixed
interest rates during the construction period. Construction loans to individuals
are typically made in connection with the granting of the permanent loan on the
property. Such loans convert to a fully amortizing adjustable or fixed-rate loan
at the end of the construction term. The Company requires that permanent
financing with the Company be in place prior to closing any construction loan to
an individual.

     The Company's construction loans to local contractors are made on either a
pre-sold or speculative (unsold) basis. However, the Company generally limits
the number of unsold homes under construction by its contractors, with the
amount dependent on the reputation of the contractor, the present exposure of
the contractor, the location of the property and prior sales of homes in the
development. Construction loans to contractors are typically made with a maximum
loan to value ratio of 80%. The Company estimates that approximately 95% of its
construction loans to contractors are on a speculative basis.

     Prior to making a commitment to fund a construction loan, the Company
requires an appraisal of the property by an independent state-licensed and
qualified appraiser. The Savings Bank's Senior Vice President of Lending also
generally reviews and inspects each project at the commencement of construction
and throughout the term of the construction loan. Loan proceeds are disbursed
after inspections of the project by the appraiser or the



                                        8

<PAGE>   10



Senior Vice President of Lending based on a percentage of completion. The
Company requires monthly interest payments during the construction term. The
amount of funds available for advance under the Company's construction loans
usually do not include any amount from which the borrower can pay the stated
interest due thereon until completion of the loan term.

     Construction lending is generally considered to involve a higher level of
risk as compared to permanent one-to-four family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on developers and contractors. Moreover,
a construction loan can involve additional risks because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost (including interest) of the project. The nature of these
loans is such that they are generally more difficult to evaluate and monitor. In
addition, speculative construction loans to a contractor are not pre-sold and
thus pose a greater potential risk to the Company than construction loans to
individuals on their personal residences. Non-accruing construction loans
amounted to $449,000, or 9.7% of total non-performing assets at September 30,
1997. However, at November 30, 1997, total non-accruing construction loans
increased by an additional $1.5 million, or 327.2%. See "Asset Quality -
Non-Performing Assets."

     The Company has attempted to minimize the foregoing risks by, among other
things, limiting the extent of its construction lending as a proportion of the
total loan portfolio and by limiting its construction lending to primarily
residential properties. In addition, the Company has adopted underwriting
guidelines which impose stringent loan-to-value, debt service and other
requirements for loans which are believed to involve higher elements of credit
risk, by limiting the geographic area in which the Company will do business to
its existing market and by generally working with contractors with whom it has
established relationships. It is also the Company's general policy to obtain
personal guarantees from the principals of its corporate borrowers on its
construction loans.

     MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE LOANS. The Company
originates mortgage loans for the acquisition and refinancing of multi-family
residential properties and properties secured by commercial real estate. The
Company does not solicit such loans, which do not constitute an active part of
its business, and generally offers such loans to accommodate its present
customers. The majority of the Company's commercial real estate loans are
secured by office buildings and warehouses, most of which are secured by
property located in the Company's market area. The Company has engaged an
officer with commercial real estate experience and expects to be more active in
its origination of commercial real estate lending. At September 30, 1997, the
Company had an aggregate of $2.6 million of such loans in its portfolio.

     The Company requires appraisals of all properties securing multi-family
residential and commercial real estate loans. Appraisals are performed by an
independent appraiser designated by the Company, all of which are reviewed by
management. The Company



                                        9

<PAGE>   11



considers the quality and location of the real estate, the credit of the
borrower, the cash flow of the project and the quality of management involved
with the property.

     The Company originates multi-family residential and commercial real estate
loans with both fixed and adjustable interest rates which vary as to maturity.
Loan to value ratios on the Company's multi-family residential and commercial
real estate loans are generally limited to 80%. As part of the criteria for
underwriting these loans, the Company's general policy is to obtain personal
guarantees from the principals of its corporate borrowers.

     Multi-family residential and commercial real estate lending entails
significant additional risks as compared with single-family residential property
lending. The payment experience on such loans is typically dependent on the
successful operation of the real estate project. The success of such projects is
sensitive to changes in supply and demand conditions in the market for and
commercial real estate as well as regional and economic conditions generally.

     COMMERCIAL LEASE RECEIVABLES. The Company in recent years has become
involved in originating office equipment and other commercial leases, primarily
through two leasing companies. The leasing companies underwrite the leases under
the Company's underwriting standards and procedures. The Company then generally
reviews the documents and makes a determination whether to originate such lease.
The Loan Committee may approve leases of up to $100,000 and leases over $100,000
must be approved by the Savings Bank's Board of Directors. Generally, the
leasing companies do not fund a lease unless the Company has approved the lease
and has made a commitment to fund. At September 30, 1997, the Company had an
aggregate of $2.5 million of such loans in its portfolio.

     The Company files the necessary documentation to perfect its security
interest in both the equipment and the payment of the lease obligations.
Commercial lease receivables generally have shorter terms than mortgage loans
but generally involve more credit risk since payment may be dependent on
successful operation of the business. As of September 30, 1997 and 1996,
respectively, the Company had $339,000 and $440,000 of non-performing commercial
lease receivables, which constituted 7.4% and 18.5% of total non-performing
assets at such date. All of the 1996 and $265,000 of the 1997 non-performing
commercial lease receivables were attributable to one of the two leasing
companies. As of September 30, 1995, the Company discontinued consideration of
any additional leases from this company. As of September 30, 1997, in addition
to the above-referenced non-performing loans, the Company had an aggregate of
$269,000 of performing commercial leases attributable to such firm, which
constitutes 10.6% of all commercial leases, as compared to $437,000 or 22.1%, on
September 30, 1996. See "- Asset Quality - Non-Performing Assets."

     OTHER LOANS. The Company also offers home equity loans and lines of credit,
deposit account secured loans, auto loans and unsecured consumer loans.




                                       10

<PAGE>   12



The Company's home equity loans and lines of credit are secured by the
underlying equity in the borrower's home. Home equity loans generally have fixed
interest rates and terms of five to 15 years. The Company's home equity loans
generally require loan-to-value ratios of 80% or less after taking into
consideration the first mortgage loan; however, the Company in 1995 began
extending fixed rate, fixed term home equity loans up to 100% of loan-to-value.
The Company prices these loans at a higher rate than those loans originated with
a lower loan-to-value ratio. Home equity lines of credit generally have variable
interest rates based on the prime rate plus a 2% margin and terms of 5 to 15
years. Home equity lines of credit generally require loan-to-value ratios of 80%
or less after taking into consideration the first mortgage loan; however, the
Company since 1995 has also been extending home equity lines of credit up to
100% of loan-to-value. At September 30, 1997, the Company had $8.8 million of
aggregate home equity loans and lines of credit in its portfolio.

     Consumer loans generally have shorter terms and higher interest rates than
mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. These risks are not as prevalent in the case of the
Company's consumer and other loans portfolio, however, because a high percentage
of the portfolio is comprised of home equity loans and lines of credit, which
are secured by real estate and underwritten in a manner such that they result in
a lending risk which is substantially similar to single-family residential
loans, as well as deposit account secured loans which are secured by the
deposits of the borrower.

     LOAN FEE INCOME. In addition to interest earned on loans, the Company
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.

     The Company charges loan origination fees which are calculated as a
percentage of the amount borrowed. Loan origination and commitment fees in
excess of loan origination costs are deferred and recognized over the
contractual remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are credited and amortized in the same
manner. The Savings Bank recognized $49,000, $88,000 and $123,000 of deferred
loan fees during fiscal 1997, 1996 and 1995, respectively, in connection with
loan refinancing, payoffs and ongoing amortization of outstanding loans.

ASSET QUALITY

     When a borrower fails to make a required payment on a loan, the Company
attempts to cure the deficiency by contacting the borrower and seeking the
payment. Contacts are generally made 15 days after a payment is due. In most
cases, deficiencies are cured promptly. If a delinquency continues, the loan and
payment history are reviewed and efforts are made to collect the loan. While the
Company generally prefers to work with borrowers



                                       11

<PAGE>   13



to resolve such problems, the Company will institute foreclosure or other
proceedings, as necessary, to minimize any potential loss. The Company generally
initiates such proceedings when a loan becomes 90 days delinquent.

     Loans are placed on non-accrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. The Company will
continue to accrue interest on delinquent conventional real estate loans if the
loan has a loan-to-value ratio of less than 90%, active collection efforts are
underway and, in the opinion of management, there is a reasonable expectation of
collection of the delinquent interest. Loans may be reinstated to accrual status
when, in the opinion of management, collection of the remaining balance can be
reasonably expected.

     Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as other real estate owned until sold.
Pursuant to a statement of position ("SOP 92-3") issued by the American
Institute of Certified Public Accountants in April 1992, which provides guidance
on determining the balance sheet treatment of foreclosed assets in annual
financial statements for periods ending on or after December 15, 1992, there is
a rebuttable presumption that foreclosed assets are held for sale and such
assets are recommended to be carried at the lower of fair value minus estimated
costs to sell the property, or cost (generally the balance of the loan on the
property at the date of acquisition). After the date of acquisition, all costs
incurred in maintaining the property are expensed and costs incurred for the
improvement or development of such property are capitalized up to the extent of
their net realizable value. The Company's accounting for its real estate
acquired by foreclosure complies with the guidance set forth in SOP 92-3.




                                       12

<PAGE>   14



     NON-PERFORMING ASSETS. The following table sets forth the amounts and
categories of the Company's non-performing assets at the dates indicated.

<TABLE>
<CAPTION>
                                                            September 30,
                                        -------------------------------------------------------
                                          1997        1996        1995        1994        1993
                                         ------      ------      ------      ------      ------
                                                         (Dollars in Thousands)
<S>                                      <C>         <C>         <C>         <C>         <C>   
Non-accruing loans:
  First mortgage loans:
    One-to-four family residential       $2,914      $1,447      $1,011      $1,220      $1,190
    Construction                            449         349          --          --          --
  Other loans:
    Commercial leases                       339         440         394          77          --
                                         ------      ------      ------      ------      ------
      Total non-accruing loans            3,702       2,236       1,405       1,297       1,190
                                         ------      ------      ------      ------      ------

Accruing loans greater
  than 90 days delinquent:
First mortgage loans:
    One-to-four family residential           --          --         886         860         517
  Other loans:
    Consumer and other loans                  3           8          29          15          89
                                         ------      ------      ------      ------      ------
    Total accruing loans greater
      than 90 days delinquent                 3           8         915         875         606
                                         ------      ------      ------      ------      ------
    Total non-performing loans            3,705       2,244       2,320       2,172       1,796
                                                                 ------      ------      ------

Real estate owned                           907         133          --          --          26
                                         ------      ------      ------      ------      ------
    Total non-performing assets          $4,612      $2,377      $2,320      $2,172      $1,822
                                         ======      ======      ======      ======      ======

    Total non-performing loans as a
      percentage of total loans            1.92%       1.55%       2.09%       3.05%       2.56%
                                         ======      ======      ======      ======      ======

    Total non-performing assets as a
      percentage of total assets           1.69%       1.22%       1.47%       1.66%       1.35%
                                         ======      ======      ======      ======      ======
</TABLE>

     For the year ended September 30, 1997, approximately $127,000 in interest
income would have been recorded on loans accounted for on a non-accrual basis if
such loans had been current in accordance with their original terms and had been
outstanding throughout the year or since origination if held for part of the
year. For the year ended September 30, 1997, no amount was included in net
income for these same loans. Results of operations for the two months ended
November 30, 1997 have been negatively impacted in the amount of $62,000, which
relates to the increase in non-performing assets.

     Total non-performing assets increased by $2.2 million or 94.0% between
September 30, 1996 and September 30, 1997. The increase in total non-performing
assets is primarily



                                       13

<PAGE>   15



attributable to a $1.5 million or 101.4% increase in non-accruing single family
residential mortgage loans. Of this amount, 38 loans aggregating $697,000 were
FHA or VA insured which the Bank has had outstanding for a number of years with
an average balance of $18,000. A total of 32 loans aggregating $2.4 million had
an average balance of $74,000 and ranged from a low of $1,000 to a high of
$379,000. The Company has significantly increased its originations of
single-family loans during the past several years, which management attributes
to be the primary reason that non-performing residential loans have trended up.
At September 30, 1997, a few of the non-performing residential loans had larger
loan balances than the historical average loan balance for the portfolio.
Management does not attribute the increase to any specific weakness within the
Company or in the marketplace generally.

     Non-accruing delinquent construction loans increased $100,000 or 28.7%
between September 30, 1996 and September 30, 1997. There are three construction
loans by three contractors at September 30, 1997 which comprise the total
$449,000 non-accruing construction loan balance. Construction on each of these
properties has been completed and the properties are listed for sale. The
Company is not engaged in other projects with these contractors.

     Non-accruing commercial leases decreased $101,000 from September 30, 1996
to September 30, 1997. There are currently six non-accruing delinquent
commercial leases, five of which have balances ranging between $14,000 and
$52,000. In addition to being secured by the equipment in all instances and the
personal guarantee by a principal of one of the lessee companies, two of these
leases are additionally collateralized by real estate. There is one additional
delinquent non-accruing commercial lease totalling $201,000 for manufacturing
equipment which is secured by a first lien position on the leased equipment, a
second mortgage lien against the personal residence of the owner of the lessee,
and stock of the lessee held by the Savings Bank as collateral. The Savings Bank
also holds the first mortgage lien against the personal residence of the owner
of the lessee.

     The balance of the non-performing assets relates to real estate owned (REO)
properties, which increased $774,000 to $907,000. There are seven properties
included in REO which range from $19,000 to $232,000. Each of these properties
has been written down to its estimated net realizable value. Of the seven
properties included in REO at September 30, 1997, three loans aggregating
$158,000 were VA insured loans. The Company expects to recover through insurance
any difference between its carrying value and the proceeds to be received upon
future sales of these properties. Three properties represent $632,000 of
repossessed construction loans on substantially completed properties which were
being built by two contractors, one of whom died during construction. The
Company expects to complete these projects, which are in good developments where
the Bank has completed other projects, with developers with whom the Bank has
done previous business. The remaining property with an estimated value of
$117,000 at September 30, 1997, was acquired by the Bank in December 1997 and is
being marketed for sale.



                                       14

<PAGE>   16



     Subsequent to September 30, 1997, the Company's non-performing assets have
continued to increase. From September 30, 1997 to November 30, 1997, the
Company's non-performing assets increased from $4.6 million to $6.6 million.
This $2.0 million or 43.5% increase in non-performing assets was primarily
attributable to a $1.5 million or 327.2% increase in non-accruing construction
loans. In addition, non-accruing single-family residential loans increased by
$476,000 or 15.8%. The increase in non-performing residential loans during the
two months ended November 30, 1997 was primarily attributable to the factors
which contributed to the increase in non-performing residential loans during
fiscal 1997 which are discussed above. The increase in non-performing
construction loans during the two months ended November 30, 1997 was due to five
speculative construction loans (which had principal balances ranging from
$200,000 to $402,000) which became non-accruing during the period. Two of such
loans, with an aggregate outstanding balance of $640,000 as of November 30,
1997, were made to the building contractor with whom the Company had the largest
loan concentration at September 30, 1997. See "Origination, Purchase and Sale of
Loans." Management does not attribute the increase in non-performing
construction loans to any specific weakness within the Company or in the
marketplace generally.

     ALLOWANCE FOR LOAN LOSSES. It is management's policy to maintain an
allowance for estimated losses based on the perceived risk of loss in the loan
portfolio and the adequacy of the allowance. Management's periodic evaluation of
the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of the
underlying collateral and current economic conditions. The allowance is
increased by provisions for loan losses which are charged against income. During
the last half of fiscal 1997, management increased its provisions for loan
losses from $75,000 per quarter to $105,000 per quarter. As shown in the table
below, the Company provided an aggregate of $360,000 to the allowance for loan
losses during fiscal 1997. Effective with the first quarter of fiscal 1998, the
Company will be providing $120,000 per quarter. The increase in the amount of
the Company's provision for loan losses id due to both the increased levels of
loan originations as well as the increase in the Company's non-performing
assets.

     Although management uses the best information available to make
determinations with respect to the provisions for loan losses, additional
provisions for loan losses may be required to be established in the future
should economic or other conditions change substantially. In addition, the
Department and the FDIC, as an integral part of their examination process,
periodically review the Company's allowance for possible loan losses. Such
agencies may require the Company to recognize additions to such allowance based
on their judgments about information available to them at the time of their
examination.




                                       15

<PAGE>   17



     The following table sets forth an analysis of the Company's allowance for
loan losses during the periods indicated.


<TABLE>
<CAPTION>
                                                                 Year Ended
                                                                September 30,
                                            -------------------------------------------------
                                             1997        1996       1995       1994     1993
                                            ------      ------     ------     ------   ------
                                                           (Dollars in Thousands)
<S>                                         <C>         <C>         <C>       <C>       <C> 
Balance at beginning of period              $1,128      $  921      $711      $598      $360
                                            ------      ------     -----     -----     -----
Charge-offs:
  First mortgage loans:
    One-to-four family residential              28           9       100        19        10
  Other loans:
    Commercial leases                           30          93         2        --        --
    Consumer and other loans                    18          12         1        10        11
                                            ------      ------     -----     -----     -----
                                                76         114       103        29        21
                                            ------      ------     -----     -----     -----
Recoveries:
  First mortgage loans
    One-to-four family residential               3          20         7         5         2
  Other loans:
    Consumer and other loans                     4           1         2         2         8
                                            ------      ------     -----     -----     -----
Net charge-offs                                 69          93        94        22        11
                                            ------      ------     -----     -----     -----

Provision for losses on loans                  360         300       304       135       249
                                            ------      ------     -----     -----     -----

Balance at end of period                    $1,419      $1,128      $921      $711      $598
                                            ======      ======     =====     =====     =====

Allowance for loan losses as a percent
 of total loans outstanding                   0.74%       0.78%     0.83%     1.00%      .85%
                                            ======      ======     =====     =====     =====

Allowance for loan losses to total non-
 performing loans                            38.30%      50.27%    39.70%    32.73%    32.82%
                                            ======      ======     =====     =====     =====

Ratio of net charge-offs to average
 loans outstanding                            0.04%       0.08%     0.12%      .03%      .02%
                                            ======      ======     =====     =====     =====
</TABLE>


     The following table sets forth information concerning the allocation of the
Company's allowance for loan losses by loan category at the dates indicated.

<TABLE>
<CAPTION>
                                                                  September 30,
                ---------------------------------------------------------------------------------------------------------------
                        1997                  1996                   1995                   1994                  1993
                -------------------     ------------------    --------------------   -------------------    -------------------
                         Percent of             Percent of             Percent of            Percent of              Percent of
                         Allowance              Allowance               Allowance             Allowance              Allowance
                          to Loan                to Loan                 to Loan               to Loan                to Loan
                Amount    Category      Amount   Category      Amount    Category     Amount   Category     Amount    Category
                -------  ----------    -------- -----------   --------  ----------   -------- ----------   --------  ----------
                                                             (Dollars in Thousands)
<S>            <C>          <C>        <C>          <C>        <C>          <C>       <C>        <C>        <C>        <C>  
First mortgage  
  loans         $1,129       79.6%      $  891       79.0%      $662         71.8%     $586       82.4%      $538       90.0%
Other loans        290       20.4          237       21.0        259         28.2       125       17.6         60       10.0
                ------      -----       ------      -----       ----        -----      ----      -----       ----      ----- 
    Total       $1,419      100.0%      $1,128      100.0%      $921        100.0%     $711      100.0%      $598      100.0%
                ======      =====       ======      =====       ====        =====      ====      =====       ====      ===== 
</TABLE>



                                       16

<PAGE>   18



INVESTMENT ACTIVITIES

     MORTGAGE-BACKED SECURITIES. The Company invests in a portfolio of
mortgage-backed securities which are insured or guaranteed by the FHLMC, the
FNMA and the Government National Mortgage Association ("GNMA"). Mortgage-backed
securities increase the quality of the Savings Bank's assets by virtue of the
guarantees that back them, are more liquid than individual mortgage loans and
may be used to collateralize borrowings or other obligations of the Company. At
September 30, 1997, the Company's mortgage-backed securities portfolio had a
book value and fair market value of $37.7 million and $38.2 million,
respectively. During the year ended September 30, 1997, the Company purchased an
aggregate of $18.8 million of mortgage-backed securities, which was the primary
reason for the $14.4 million or 60.4% increase in the portfolio between
September 30, 1996 and September 30, 1997. The increase in the mortgage-backed
securities portfolio was attributable primarily to the Company's wholesale
leveraging strategy.

     The following table sets forth the composition of the Company's
mortgage-backed securities at the dates indicated.

<TABLE>
<CAPTION>
                                                       September 30,
                                     ---------------------------------------------
                                        1997              1996             1995
                                      --------          --------          --------
                                                (Dollars in Thousands)
<S>                                   <C>               <C>               <C>     
GNMA certificates                     $ 19,334          $ 11,824          $ 12,830
FNMA certificates                        8,432             4,752             5,693
FHLMC certificates                       9,559             7,069             8,698
                                      --------          --------          --------
                                        37,325            23,645            27,221

Unamortized premiums                       401               188               281
Unearned discounts                         (25)              (33)              (44)
                                      --------          --------          --------
                                        37,701            23,800            27,458
FASB 115 adjustment                        515                25                --
                                      --------          --------          --------
                                      $ 38,216          $ 23,825          $ 27,458
                                      ========          ========          ========
Weighted average interest rate            6.70%             6.33%             6.78%
                                      ========          ========          ========
</TABLE>




                                       17

<PAGE>   19



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

<TABLE>
<CAPTION>
                                                         At or For the Year Ended
                                                              September 30,
                                                         -------------------------
                                                           1997             1996
                                                         --------         --------
                                                              (In Thousands)
<S>                                                      <C>              <C>     
Mortgage-backed securities at beginning of period        $ 23,825         $ 27,458
Purchases                                                  18,760            2,531
Sales                                                        (149)              --
Repayments                                                 (4,931)          (6,058)
Accretion and amortization, net                               221              (81)
Gain (loss) on mortgage-backed securities                     490              (25)
                                                         --------         --------
Mortgage-backed securities at end of period              $ 38,216         $ 23,825
                                                         ========         ========
</TABLE>



     In recent years, the Company's investment decisions have been directed, in
part, at increasing the interest-rate sensitivity of its assets. Accordingly,
the Company has emphasized investing in adjustable-rate mortgage-backed
securities and short-term, fixed-rate investments. Previously, the Company had
invested significantly in fixed-rate mortgage-backed securities. At September
30, 1997, $18.5 million or 49.6% of the Company's portfolio of mortgage-backed
securities were secured by ARMs.

     In connection with the Company's wholesale leveraging strategy, the Company
purchased $15.0 million of mortgage-backed securities during fiscal 1997,
approximately $12.0 million of which were fixed-rate. These purchases were
undertaken on a matched fund basis to yield a positive spread.

     The following table sets forth the amount of the Company's mortgage-backed
securities which mature during each of the periods indicated and the weighted
average yields for each range of maturities at September 30, 1997.



<TABLE>
<CAPTION>
                                                                Contractually Maturing
                              ---------------------------------------------------------------------------------------
                                           Weighted             Weighted               Weighted              Weighted
                                 Under      Average     1-5      Average      5-10      Average    Over 10    Average
                                1 Year       Yield     Years      Yield       Years      Yield      Years      Yield
                              ---------  -----------  -------  ----------   --------   ---------  ---------  --------
                                                                (Dollars in Thousands)
<S>                             <C>         <C>        <C>        <C>        <C>        <C>       <C>          <C>  
GNMA certificates               $ --           --%     $  8       8.00%      $   859     8.07%     $ 18,976    7.22%
FNMA certificates                 --         0.00        14       8.00         9,754     7.08            --      --
FHLMC certificates              $503         5.44       206       7.25         7,896     4.93            --      --
                                ----         ----      ----       ----       -------     ----      --------    ---- 
                                $503         5.44%     $228       7.32%      $18,509     8.71%     $ 18,976    7.22%
                                ====         ====      ====       ====       =======     ====      ========    ==== 
</TABLE>
                                



                                       18

<PAGE>   20



Due to prepayments of the underlying loans, the actual maturities of the
securities are expected to be substantially less than the scheduled maturities.

     OTHER INVESTMENT SECURITIES. The investment policy of the Company, as
established by the Board of Directors, is designed primarily to provide and
maintain liquidity and to generate a favorable return on investments without
incurring undue interest rate risk, credit risk, and investment portfolio asset
concentrations. The Company's investment policy is currently implemented by the
Savings Bank's Senior Vice President and Chief Financial Officer and is overseen
by the Asset/Liability Management Committee of the Board of Directors. The
Savings Bank's Senior Vice President and Chief Financial Officer is authorized
to invest in various types of securities, and in recent years, the emphasis has
been on U.S. Treasury and agency obligations, municipal securities and corporate
debt securities. There are no aggregate limits on the investment portfolio,
however, there are certain limits on specific product types (e.g., no limit on
U.S. Government and agency obligations; municipal securities are limited to 10%
of the Savings Bank's capital). The Company's investment portfolio increased by
$14.7 million or 65.2% between September 30, 1996 and September 30, 1997,
primarily due to purchases of $15.0 million of U.S. Government and agency
obligations in connection with the Company's wholesale leveraging strategy.

     In April 1997, the Board authorized a trading account whereby up to $2.5
million could be invested in trading account securities, with not more than $1.0
million in any single issue, to be accounted for as trading securities in
accordance with SFAS No. 115. Pursuant to SFAS No. 115, unrealized gains and
losses are marked-to-market on a monthly basis and recognized on the income
statement. Under Board authorization, there is no limit on the types of
securities that the Company may invest in provided that the securities are
approved under the Company's investment policy, although to date the Company has
limited its investments to equity securities of financial institutions. The
Company implemented the trading account strategy in the quarter ended June 30,
1997 and recognized a pre-tax net gain of $310,000 for the year ended September
30, 1997.

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

<TABLE>
<CAPTION>
                                                           September 30,
                                              -------------------------------------
                                                1997          1996           1995
                                              -------        -------        -------
                                                          (In Thousands)
<S>                                           <C>            <C>            <C>    
U.S. Government and agency obligations        $34,894        $21,774        $17,057
Corporate obligations                             502            508          1,701
Marketable equity securities                    1,749            199             --
                                              -------        -------        -------
                                              $37,145        $22,481        $18,758
                                              =======        =======        =======
</TABLE>



                                       19

<PAGE>   21



     The following table sets forth the amount of the Company's investment
securities which mature during each of the periods indicated and the weighted
average yields for each range of maturities at September 30, 1997.

<TABLE>
<CAPTION>
                                                            Contractually Maturing
                              ------------------------------------------------------------------------------------
                                         Weighted            Weighted            Weighted                Weighted
                               Under 1    Average    1-5     Average      5-10    Average      Over 10    Average
                                 Year      Yield     Years     Yield      Years    Yield        years      Yield
                               -------   --------   -------  --------    ------- ---------     -------   ---------
                                                            (Dollars in Thousands)
<S>                             <C>       <C>       <C>         <C>       <C>        <C>       <C>          <C>  
U.S. Government and
agency obligations              $1,504    6.40%     $8,244      6.39%     $8,386     7.02%     $6,743       5.97%
Corporate obligations              502    8.19          --        --          --       --          --         --
                                ------    ----      ------      ----      ------     ----      ------       ---- 
                                $2,006    7.09%     $8,244      6.39%     $8,386     6.60%     $6,743       5.97%
                                ======    ====      ======      ====      ======     ====      ======       ==== 
</TABLE>
                                

The actual maturity of the Company's investment securities may differ from
contractual maturity since certain of the Company's investment securities are
subject to call provisions which allow the issuer to accelerate the maturity
date of the security.

SOURCES OF FUNDS

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

     DEPOSITS. The Company's deposit products include a broad selection of
deposit instruments, including checking accounts, money market accounts, regular
savings accounts and certificates of deposit. Deposit account terms vary, with
the principal differences being the minimum balance required, the time periods
the funds must remain on deposit and the interest rate.

     The Company's deposits are obtained primarily from residents of Allegheny
County and Butler County, Pennsylvania. The Company attracts deposit accounts by
offering a wide variety of accounts, competitive interest rates, and convenient
office locations and service hours. The Company utilizes traditional marketing
methods to attract new customers and savings deposits, including print media
advertising and direct mailings. The Company does not utilize the services of
deposit brokers, and management believes that an insignificant number of deposit
accounts were held by non-residents of Pennsylvania at September 30, 1997.

     In December 1996, the Company purchased a branch office in the Pittsburgh
area with deposits totalling $10.4 million at a purchase premium of 3.13%. The
branch had deposits of


                                       20

<PAGE>   22





$10.9 million at September 30, 1997. The deposit premium is being amortized
using the straight line method over a ten year period.

         In October 1997, the Company opened a branch in a supermarket located
in the Bethel Park area of Pittsburgh, Pennsylvania. The branch operates seven
days a week and offers customers a full range of services and expanded banking
hours. This is the Company's second supermarket branch and the Company will
continue to evaluate additional supermarket branch opportunities.

         The Company has been competitive in the types of accounts and in
interest rates it has offered on its deposit products. Deposits increased in
fiscal 1997 primarily as a result of the Company's branch acquisition and
competitive interest rates offered by the Company. As a result, the Company
experienced an increase in certificates of deposit during fiscal 1997. The
average rate paid on the Company's deposits increased to 4.87% for fiscal 1997
compared to 4.70% for fiscal 1996. Although market demand generally dictates
which deposit maturities and rates will be accepted by the public, the Company
intends to continue to promote longer term deposits to the extent possible and
consistent with its asset and liability management goals.

         The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by the Company at the dates indicated.

<TABLE>
<CAPTION>
                                                                  September 30,
                               -------------------------------------------------------------------------------------
                                        1997                          1996                         1995
                               -------------------------     --------------------------     ------------------------
                                Amount        Percentage       Amount        Percentage      Amount       Percentage
                               --------       ----------      --------       ----------     --------      ---------- 
                                                                (Dollars in Thousands)
<S>                            <C>                <C>        <C>                <C>        <C>                <C>  
Passbook accounts              $ 26,065           18.8%      $ 26,041           20.9%      $ 30,007           26.0%
Money market                      5,130            3.7          3,346            2.7          3,674            3.2
Interest checking                 7,234            5.2          6,795            5.5          5,469            4.7
Noninterest checking              2,372            1.7          2,808            2.3          2,062            1.8
Certificates of deposit          97,930           70.6         85,352           68.6         74,285           64.3
                               --------          -----       --------          -----       --------          ----- 
Total deposits                 $138,731          100.0%      $124,342          100.0%      $115,497          100.0%
                               ========          =====       ========          =====       ========          ===== 
</TABLE>




                                       21

<PAGE>   23



         The following table presents the average balance of each deposit type
and the average rate paid on each deposit type for the periods indicated.

<TABLE>
<CAPTION>
                                                                  September 30,
                             ---------------------------------------------------------------------------------
                                         1997                        1996                             1995
                             ----------------------------   -----------------------      ------------------------
                                                Average                     Average                       Average
                               Average            Rate       Average          Rate        Average          Rate
                               Balance            Paid       Balance          Paid        Balance          Paid
                              ---------         --------    ---------       --------     ----------      -------- 
                                                             (Dollars in Thousands)

<S>                            <C>                <C>       <C>                <C>       <C>                <C>  
Passbook accounts              $ 26,558           2.81%     $ 36,656           2.90%     $ 34,090           2.90%
Money market                      4,332           2.45         3,504           2.45         4,242           2.45
Interest checking                 7,457           2.02         5,772           2.26         5,096           2.28
Noninterest checking              2,756             --         2,507             --         2,260             --
Certificates of deposit          93,638           5.74        77,180           5.30        65,781           5.46
                               --------           ----      --------           ----      --------           ---- 
  Total deposits               $134,741           4.75%     $125,619           4.28%     $111,469           4.31%
                               ========           ====      ========           ====      ========           ==== 
</TABLE>


     The following table sets forth the savings activities of the Company during
the periods indicated.


<TABLE>
<CAPTION>
                                              Year Ended September 30,
                                         -----------------------------------
                                           1997          1996          1995
                                         -------        ------        ------
                                                    (In Thousands)
<S>                                      <C>            <C>           <C>   
Increase before interest credited        $ 8,609        $3,899        $1,551
Interest credited                          5,780         5,006         3,552
                                         -------        ------        ------
Net increase in deposits                 $14,389        $8,905        $5,103
                                         =======        ======        ======
</TABLE>



     The following table shows the interest rate and maturity information for
the Company's certificates of deposit at September 30, 1997.


<TABLE>
<CAPTION>
                                                                      Maturity Date
                           --------------------------------------------------------------------------------------------
                             One Year              Over                 Over               Over
                             or Less             1-2 Years           2-3 Years            3 Years              Total
                            ----------          -----------         ------------        -----------          ----------
                                                                   (In Thousands)
<S>                           <C>                 <C>                  <C>                <C>               <C>       
 2.00  -  4.00%                    --                  --                   --                  --                   --
 4.01  -  6.00%               $41,999             $11,524               $3,136             $ 1,577              $58,236
 6.01  -  8.00%                22,522               4,343                1,307              10,753               38,925
 8.01  -  10.00%                  160                 200                  110                 299                  769
                              -------             -------               ------             -------              -------
  Total                       $64,681             $16,067               $4,553             $12,629              $97,930
                              =======             =======               ======             =======              =======
</TABLE>




                                       22

<PAGE>   24



     The following table sets forth the maturities of Company's certificates of
deposit having principal amounts of $100,000 or more at September 30, 1997.

<TABLE>
<CAPTION>
       Certificates of deposit maturing
              in quarter ending:
-------------------------------------------     ---------------------------------
                                                          (In Thousands)
<S>                                                       <C>    
         December 31, 1997                                   $ 5,185
         March 31, 1998                                        1,015
         June 30, 1998                                         1,574
         September 30, 1998                                    1,081
         After September 30, 1998                              3,620
                                                             -------
         Total certificates of deposit with
           balances of $100,000 or more                      $12,475
                                                             =======
</TABLE>


     BORROWINGS. The Company may obtain advances from the FHLB of Pittsburgh
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending. At September
30, 1997, the Company had $101.7 million of advances from the FHLB of
Pittsburgh. The Company used FHLB advances to fund assets purchased in
connection with its wholesale leveraging strategy.

     The following table sets forth information with respect to the Company's
FHLB advances during the periods indicated.


<TABLE>
<CAPTION>
                                        At or For the Year Ended September 30,
                                     --------------------------------------------
                                          1997            1996            1995
                                     ------------     ------------     ----------
                                                 (Dollars in Thousands)
<S>                                    <C>              <C>             <C>    
Maximum balance                        $101,700         $36,500         $29,000
Average balance                          69,268          30,092          14,130
Year end balance                        101,700          36,500          29,000
Weighted average interest rate:
  At end of year                           6.12%           6.40%           6.66%
  During the year                          6.03%           6.69%           6.94%
</TABLE>


COMPETITION

     The Company faces significant competition for real estate loans,
principally from mortgage banking companies, other savings institutions,
commercial banks and credit unions. Factors which affect competition generally
include the general and local economic conditions, current interest rate levels
and volatility in the mortgage markets. The Company also faces significant
competition in attracting deposits. Its most direct competition for


                                       23

<PAGE>   25



deposits has historically come from commercial banks and other savings
institutions located in its market area. The Company faces additional
significant competition for investors' funds from other financial
intermediaries. The Company competes for deposits principally by offering
depositors a variety of deposit programs, convenient branch locations, hours and
other services. The Company does not rely upon any individual group or entity
for a material portion of its deposits.

     Federal legislation in recent years has eliminated many of the distinctions
between commercial banks and savings institutions and holding companies and
allowed bank holding companies to acquire savings institutions. Such legislation
has generally resulted in an increase in the competition encountered by savings
institutions and has resulted in a decrease in both the number of savings
institutions and the aggregate size of the savings industry.

SUBSIDIARIES

     As of September 30, 1997, the Savings Bank was the Company's only
subsidiary.

REGULATION

     The Savings Bank is a Pennsylvania-chartered stock savings bank subject to
extensive regulation and supervision by the Department and by the FDIC, as the
administrator of the SAIF.

     The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings institutions and bank holding
companies. The following description of statutory and regulatory provisions and
proposals, which is not intended to be a complete description of these
provisions or their effects on the Company or the Savings Bank, is qualified in
its entirety by reference to the particular statutory or regulatory provisions
or proposals.

THE COMPANY

     GENERAL. The Company is a registered bank holding company pursuant to the
Bank Holding Company Act of 1956, as amended (the "BHCA") and is subject to
regulation and supervision by the Federal Reserve Board and the Department. The
Company is required to file annually a report of its operations with, and is
subject to examination by, the Federal Reserve Board and the Department.

     BHCA ACTIVITIES AND OTHER LIMITATIONS. The BHCA prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any bank, or increasing such ownership or control of any
bank, without prior approval of the Federal Reserve Board. The BHCA also
generally prohibits a bank holding company from acquiring any bank located
outside of the state in which the existing bank

                                       24

<PAGE>   26



subsidiaries of the bank holding company are located unless specifically
authorized by applicable state law. No approval under the BHCA is required,
however, for a bank holding company already owning or controlling 50% of the
voting shares of a bank to acquire additional shares of such bank.

     The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefit to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.

     The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include operating a mortgage company, finance company, credit card
company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full-payout, non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal Reserve Board also has determined that certain other activities,
including real estate brokerage and syndication, land development, property
management and underwriting of life insurance not related to credit
transactions, are not closely related to banking and a proper incident thereto.

     LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions. In
addition to the restrictions imposed by Sections



                                       25

<PAGE>   27



23A and 23B, no savings institution may (i) loan or otherwise extend credit to
an affiliate, except for any affiliate which engages only in activities which
are permissible for bank holding companies, or (ii) purchase or invest in any
stocks, bonds, debentures, notes or similar obligations of any affiliate, except
for affiliates which are subsidiaries of the savings institution.

     In addition, Sections 22(h) and (g) of the Federal Reserve Act places
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons unless the loans are made pursuant to a benefit or compensation program
that (i) is widely available to employees of the institution and (ii) does not
give preference to any director, executive officer or principal stockholder, or
certain affiliated interests of either, over other employees of the savings
institution. Section 22(h) also requires prior board approval for certain loans.
In addition, the aggregate amount of extensions of credit by a savings
institution to all insiders cannot exceed the institution's unimpaired capital
and surplus. Furthermore, Section 22(g) places additional restrictions on loans
to executive officers.

     CAPITAL REQUIREMENTS. The Federal Reserve Board has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of capital in
examining and supervising a bank holding company and in analyzing applications
to it under the BHCA. The Federal Reserve Board capital adequacy guidelines
generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount consisting of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for the bulk of assets which are
typically held by a bank holding company, including multi-family residential and
commercial real estate loans, commercial business loans and consumer loans.
Single-family residential first mortgage loans which are not past-due (90 days
or more) or non-performing and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighing system, as
are certain



                                       26

<PAGE>   28



privately-issued mortgage-backed securities representing indirect ownership of
such loans. Off-balance sheet items also are adjusted to take into account
certain risk characteristics.

     In addition to the risk-based capital requirements, the Federal Reserve
Board requires bank holding companies to maintain a minimum leverage capital
ratio of Tier I capital to total assets of 3.0%. Total assets for this purpose
does not include goodwill and any other intangible assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies will be expected to maintain Tier I leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition.

     At September 30, 1997, the Company was in compliance with the
above-described Federal Reserve Board regulatory capital requirements.

     FINANCIAL SUPPORT OF AFFILIATED INSTITUTIONS. Under Federal Reserve Board
policy, the Company will be expected to act as a source of financial strength to
the Savings Bank and to commit resources to support the Savings Bank in
circumstances when it might not do so absent such policy. The legality and
precise scope of this policy is unclear, however, in light of recent judicial
precedent.

THE SAVINGS BANK

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

     FDIC ASSESSMENTS. The deposits of the Savings Bank are insured by the SAIF
of the FDIC, up to applicable limits, and are subject to deposit premium
assessments by the SAIF.



                                       27

<PAGE>   29



Under the FDIC's risk-based insurance system, SAIF-assessed deposits have been
subject to premiums of between 23 and 31 basis points, depending upon the
institution's capital position and other supervisory factors.

     Under legislation enacted in 1996, SAIF-assessable deposits held as of
March 31, 1995 were subject to a tax-deductible one-time special assessment at a
rate sufficient to achieve the 1.25% designated reserve ratio of the SAIF as of
October 1, 1996. This special SAIF assessment generally was payable no later
than November 29, 1996. The special assessment amounted to 65.7 cents per $100
of SAIF-assessable deposits and was collected on November 27, 1996. The Savings
Bank's one-time special assessment amounted to $739,000 pre-tax. The payment of
such special assessment had the effect of immediately reducing the Savings
Bank's capital by $473,000 after tax.

     Under the new legislation, institutions with Bank Insurance Fund ("BIF")
deposits are required to share the cost of funding debt obligations issued by
the Financing Corporation ("FICO"), a corporation established by the federal
government in 1987 to finance the recapitalization of FSLIC. However, until the
earlier of December 31, 1999 or the date of elimination of the thrift charter,
the FICO assessment rate for BIF deposits is only 1/5 of the rate applicable to
SAIF deposits. Consequently, the annual FICO assessments to be added to deposit
insurance premiums are expected to equal approximately 6.4 basis points for SAIF
deposits and 1.3 basis points for BIF deposits from January 1, 1997 through
December 31, 1999, and approximately 2.4 basis points for both BIF and SAIF
deposits thereafter. From January 1, 1997, FICO payments will be paid directly
by SAIF and BIF institutions in addition to deposit insurance assessments.

     On October 16, 1996, the FDIC lowered the rates on SAIF-assessable
deposits. The rule established SAIF rates ranging from 0 to 27 basis points as
of October 1, 1996.

     The Savings Bank's deposit insurance premiums, which had amounted to 23
basis points were thus reduced to 6.4 basis points effective January 1, 1997.
Based upon the $126.5 million of assessable deposits at September 30, 1996, the
Savings Bank would expect to pay $52,000 less in insurance premiums per quarter
during 1997, or $.03 per share.

     Following the special assessment and the new FICO funding mechanism
effective January 1, 1997, future SAIF assessment rates are expected to depend
primarily on the rate of any new losses from the SAIF insurance fund. Under the
recent legislation, however, the FDIC is not permitted to establish SAIF
assessment rates that are lower than comparable BIF assessment rates.

     The FDIC may terminate the deposit insurance of any insured depository
institution, including the Savings Bank, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily



                                       28

<PAGE>   30



during the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If insurance of accounts is terminated, the
accounts at the institution at the time of the termination, less subsequent
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances which would result in termination of the Savings Bank's deposit
insurance.

     CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like the Savings Bank, will not be members of the Federal Reserve System.
These requirements are substantially similar to those adopted by the Federal
Reserve Board regarding bank holding companies, as described above.

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

     The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier I capital and
supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item. The components of Tier
I capital are equivalent to those discussed above under the 3% leverage capital
standard. The components of supplementary capital include certain perpetual
preferred stock, certain mandatory convertible securities, certain subordinated
debt and intermediate preferred stock and general allowances for loan and lease
losses. Allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core capital.
At September 30, 1997, the Savings Bank met each of its capital requirements.

     In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital



                                       29

<PAGE>   31



and economic value to changes in interest rate risk in assessing a bank's
capital adequacy. According to the agencies, applicable considerations include
the quality of the bank's interest rate risk management process, the overall
financial condition of the bank and the level of other risks at the bank for
which capital is needed. Institutions with significant interest rate risk may be
required to hold additional capital. The agencies also have issued a joint
policy statement providing guidance on interest rate risk management, including
a discussion of the critical factors affecting the agencies' evaluation of
interest rate risk in connection with capital adequacy. The agencies have
determined not to proceed with a previously issued proposal to develop a
supervisory framework for measuring interest rate risk and an explicit capital
component for interest rate risk.

     The Savings Bank is also subject to more stringent Department capital
guidelines. Although not adopted in regulation form, the Department utilizes
capital standards requiring a minimum of 6% leverage capital and 10% risk-based
capital. The components of leverage and risk-based capital are substantially the
same as those defined by the FDIC. At September 30, 1997, the Savings Bank
exceeded the Department's capital guidelines.

     ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS. The activities
and equity investments of FDIC-insured, state-chartered banks are generally
limited to those that are permissible for national banks. Under regulations
dealing with equity investments, an insured state bank generally may not
directly or indirectly acquire or retain any equity investment of a type, or in
an amount, that is not permissible for a national bank. An insured state bank is
not prohibited from, among other things, (i) acquiring or retaining a majority
interest in a subsidiary, (ii) investing as a limited partner in a partnership
the sole purpose of which is direct or indirect investment in the acquisition,
rehabilitation or new construction of a qualified housing project, provided that
such limited partnership investments may not exceed 2% of the bank's total
assets, (iii) acquiring up to 10% of the voting stock of a company that solely
provides or reinsures directors', trustees' and officers' liability insurance
coverage or bankers' blanket bond group insurance coverage for insured
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met. In addition, an insured
state-chartered bank may not, directly, or indirectly through a subsidiary,
engage as "principal" in any activity that is not permissible for a national
bank unless the FDIC has determined that such activities would pose no risk to
the insurance fund of which it is a member and the bank is in compliance with
applicable regulatory capital requirements. Any insured state-chartered bank
directly or indirectly engaged in any activity that is not permitted for a
national bank must cease the impermissible activity.

     PENNSYLVANIA SAVINGS BANK LAW. The Banking Code contains detailed
provisions governing the organization, location of offices, rights and
responsibilities of directors, officers, employees and members, as well as
corporate powers, savings and investment operations and other aspects of the
Savings Bank and its affairs. The Banking Code delegates extensive rulemaking
power and administrative discretion to the Department so



                                       30

<PAGE>   32



that the supervision and regulation of state-chartered savings banks may be
flexible and readily responsive to changes in economic conditions and in savings
and lending practices.

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

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

     REGULATORY ENFORCEMENT AUTHORITY. Applicable banking laws include
substantial enforcement powers available to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.

FEDERAL AND STATE TAXATION

     GENERAL. The Company and the Savings Bank are subject to the corporate tax
provisions of the Code, as well as certain additional provisions of the Code
which apply to thrift and other types of financial institutions. The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Company and
the Savings Bank.

     METHOD OF ACCOUNTING. The Savings Bank maintains its books and records for
federal income tax purposes using the accrual method of accounting. The accrual
method of accounting generally requires that items of income be recognized when
all events have occurred that establish the right to receive the income and the
amount of income can be determined with reasonable accuracy, and that items of
expense be deducted at the later of (i) the time when all events have occurred
that establish the liability to pay the expense and the amount of such liability
can be determined with reasonable accuracy or (ii) the time when economic
performance with respect to the item of expense has occurred.



                                       31

<PAGE>   33




     BAD DEBT RESERVES. Prior to the enactment, on August 20, 1996, of the Small
Business Job Protection Act of 1996 (the "Small Business Act"), for federal
income tax purposes, thrift institutions such as the Savings Bank, which met
certain definitional tests primarily relating to their assets and the nature of
their business, were permitted to establish tax reserves for bad debts and to
make annual additions thereto, which additions could, within specified
limitations, be deducted in arriving at their taxable income. The Savings Bank's
deduction with respect to "qualifying loans," which are generally loans secured
by certain interests in real property, could be computed using an amount based
on a six-year moving average of the Savings Bank's actual loss experience (the
"Experience Method"), or a percentage equal to 8.0% of the Savings Bank's
taxable income (the "PTI Method"), computed without regard to this deduction and
with additional modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve.

     Under the Small Business Act, the PTI Method was repealed and the Savings
Bank will be required to use the Experience Method of computing additions to its
bad debt reserve for taxable years beginning with the Savings Bank's taxable
year beginning October 1, 1996. In addition, the Savings Bank will be required
to recapture (i.e., take into taxable income) over a six-year period, beginning
with the Savings Bank's taxable year beginning October 1, 1996, the excess of
the balance of its bad debt reserves (other than the supplemental reserve) as of
September 30, 1996 over (a) the greater of the balance of such reserves as of
September 30, 1987 or (b) an amount that would have been the balance of such
reserves as of September 30, 1996 had the Savings Bank always computed the
additions to its reserves using the Experience Method. However, under the Small
Business Act such recapture requirements will be suspended for each of the two
successive taxable years beginning October 1, 1996 in which the Savings Bank
originates a minimum amount of certain residential loans during such years that
is not less than the average of the principal amounts of such loans made by the
Savings Bank during its six taxable years preceding October 1, 1996.

     At September 30, 1997, the federal income tax reserves of the Savings Bank
included $3.4 million for which no federal income tax has been provided, of this
amount, $2.9 million and $500,000 are attributable to pre-1987 and post-1987 bad
debt reserves, respectively. The Savings Bank will recapture into income
approximately $24,000 per year over the six year period which was set to begin
October 1, 1996, however, the Savings Bank is eligible to suspend until 1998 the
recapture as the residential loan exemption is met as discussed above.

     DISTRIBUTIONS. If the Savings Bank were to distribute cash or property to
its sole stockholder, and the distribution was treated as being from its
pre-1987 bad debt reserves, the distribution would cause the Savings Bank to
have additional taxable income. A distribution is deemed to have been made from
pre-1987 bad debt reserves to the extent that (a) the reserves exceed the amount
that would have been accumulated on the basis of actual loss experience, and (b)
the distribution is a "non-qualified distribution." A distribution with respect
to stock is a non-qualified distribution to the extent that, for federal



                                       32

<PAGE>   34



income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, it exceeds
the institution's current and post-1951 accumulated earnings and profits. The
amount of additional taxable income created by a non-qualified distribution is
an amount that when reduced by the tax attributable to it is equal to the amount
of the distribution.

     MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method.
Other items of tax preference that constitute AMTI include (a) tax-exempt
interest on newly issued (generally, issued on or after August 8, 1986) private
activity bonds other than certain qualified bonds and (b) 75% of the excess (if
any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI
(determined without regard to this preference and prior to reduction by net
operating losses).

     NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses ("NOLs") to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 5, 1997. At September 30, 1997, the Savings
Bank had no NOL carryforwards for federal income tax purposes.

     AUDIT BY IRS. The Savings Bank's federal income tax returns for taxable
years through September 30, 1993 have been closed for the purpose of examination
by the Internal Revenue Service.

     STATE TAXATION. The Company and its non-thrift Pennsylvania subsidiaries
are subject to the Pennsylvania Corporate Net Income Tax and Capital Stock and
Franchise Tax. The Corporation Net Income Tax rate for 1997 is 9.99% and is
imposed on the Company's unconsolidated taxable income for federal purposes with
certain adjustments. In general, the Capital Stock Tax is a property tax imposed
at the rate of approximately 1.3% of a corporation's capital stock value, which
is determined in accordance with a fixed formula based upon average net income
and net worth.

     The Savings Bank is taxed under the Pennsylvania Mutual Thrift Institutions
Tax Act (the "MTIT"), as amended to include thrift institutions having capital
gain stock, pursuant to the MTIT, the Savings Bank's tax rate is 11.5%. The MTIT
exempts the Savings Bank from all other taxes imposed by the Commonwealth of
Pennsylvania for state income tax purposes and from all local taxation imposed
by political subdivisions, except taxes on real estate and real estate
transfers. The MTIT is a tax upon net earnings, determined in accordance with
GAAP with certain adjustments. The MTIT, in computing GAAP income,




                                       33

<PAGE>   35



allows for the deduction of interest earned on state and federal securities,
while disallowing a percentage of a thrift's interest expense deduction in the
proportion of interest income on those securities to the overall interest income
of the Savings Bank. Net operating losses, if any, thereafter can be carried
forward three years for MTIT purposes.

ITEM 2.  PROPERTIES

     The following table sets forth certain information with respect to the
Savings Bank's branch offices and operations center at September 30, 1997.

<TABLE>
<CAPTION>
                                                                               Net Book                 Amount of
                                                                               Value of                Deposits at
         Description/Address                           Leased/Owned            Property             September 30, 1997
---------------------------------------------      --------------------   -----------------       ----------------------
                                                                                          (In Thousands)
<S>                                                    <C>                         <C>                       <C>
Main Office:
------------

438 Wood Street                                          Owned                   $892                     $27,078
Pittsburgh, Pennsylvania 15222

Branch Offices:
---------------

125 Brownsville Road                                     Owned                     27                      11,562
Pittsburgh, Pennsylvania  15210

274 North Craig Street                                   Owned                     31                      11,588
Pittsburgh, Pennsylvania 15213

4800 Liberty Avenue                                     Leased(1)                  11                      12,682
Pittsburgh, Pennsylvania  15224                          Owned(1)                 461

100 North Main Street                                    Owned                    488                      58,165
Butler, Pennsylvania  16001

799 Castle Shannon Boulevard                            Leased(2)(3)               40                       6,712
Pittsburgh, Pennsylvania  15234

2905 West Liberty Avenue                                 Owned                     88                      10,944
Pittsburgh, Pennsylvania  15216                                                ------                    --------
                                                                               $2,038                    $138,731
                                                                               ======                    ========
</TABLE>



                                       34

<PAGE>   36


------------
(1)  This property is subject to a lease which expires on May 1, 2005. In
     addition, during fiscal 1997, the Company purchased property which has a
     net book value of $461,000 at September 30, 1997 upon which a new branch
     will be built to relocate this office.

(2)  This branch office opened on October 16, 1995.

(3)  This property is subject to a lease which expires on October 16, 2000 and
     has a five year renewal option.

     In October 1997, the Company opened a branch in a supermarket located in
the Bethel Park area of Pittsburgh, Pennsylvania. The branch operates seven days
a week and offers customers a full range of services and expanded banking hours.
This is the Company's second supermarket branch and the Company will continue to
evaluate additional supermarket branch opportunities.

ITEM 3. LEGAL PROCEEDINGS.

     There are no material legal proceedings to which the Company is a party or
to which any of their property is subject.

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

     Not applicable.

PART II

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

     The information required herein is incorporated by reference from page 38
of the Registrant's 1997 Annual Report.

ITEM 6. SELECTED FINANCIAL DATA.

     The information required herein is incorporated by reference from pages six
and seven of the Registrant's 1997 Annual Report.

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

     The information required herein is incorporated by reference from pages
eight to 14 of the Registrant's 1997 Annual Report.


                                       35

<PAGE>   37



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required herein is incorporated by reference from pages 12
to 14 of the Registrant's 1997 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information required herein is incorporated by reference from pages
one, six and seven, 15 to 36 of the Registrant's 1997 Annual Report.

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

     Not applicable.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required herein is incorporated by reference from pages two
to seven, ten and 18 of the Registrant's Proxy Statement dated December 19, 1997
("Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

     The information required herein is incorporated by reference from pages ten
to 21 of the Registrant's Proxy Statement.

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

     The information required herein is incorporated by reference from pages
seven to ten of the Registrant's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required herein is incorporated by reference from pages 17
and 18 of the Registrant's Proxy Statement.

PART IV

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

     (a) Document filed as part of this Report.




                                       36

<PAGE>   38


     (1) The following documents are filed as part of this report and are
incorporated herein by reference from the Registrant's 1997 Annual Report.

     Independent Auditors' Report.

     Consolidated Statements of Financial Condition as of September 30, 1997 and
     1996.

     Consolidated Statements of Income for the Years Ended September 30, 1997,
     1996 and 1995.

     Consolidated Statements of Changes in Shareholders' Equity for the Years
     Ended September 30, 1997, 1996 and 1995.

     Consolidated Statements of Cash Flows for the Years Ended September 30,
     1997, 1996 and 1995.

     Notes to Consolidated Financial Statements.

     (2) All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because they
are not applicable or the required information is included in the Consolidated
Financial Statements or notes thereto.



                                       37

<PAGE>   39



     (3)(a) The following exhibits are filed as part of this Form 10-K, and this
list includes the Exhibit Index.
<TABLE>
<CAPTION>
No.                                      Description
--------      ----------------------------------------------------------------------
<S>          <C>                                                                       
3.1           Amended and Restated Articles of Incorporation of Pittsburgh
              Home Financial Corp.1/
3.2           Bylaws of Pittsburgh Home Financial Corp.1/

4             Stock Certificate of Pittsburgh Home Financial Corp.1/

10.1          Employment Agreement between Pittsburgh Home Financial Corp.,
              Pittsburgh Home Savings Bank and J. Ardie Dillen*/2/

10.2          Employment Agreement between Pittsburgh Home Financial Corp.,
              Pittsburgh Home Savings Bank and Michael J. Kirk*/2/

10.3          Employment Agreement between Pittsburgh Home Savings Bank
              and Joseph E. Archer*/2/

10.4          Employment Agreement between Pittsburgh Home Savings Bank
              and Albert L. Winters*/2/

10.4.1        Employment Agreement between Pittsburgh Home Financial Corp.,
              Pittsburgh Home Savings Bank and Gregory G. Maxcy*/*/

10.5          Stock Option Plan*/2/

10.6          Recognition and Retention Plan and Trust*/2/

13            1997 Annual Report to Stockholders specified portion (p. two, six to
              35, and 37) of the Registrant's Annual Report to Stockholders for
              the year ended September 30, 1997.

21            Subsidiaries of the Registrant - Reference is made to Item 1.
              "Business" for the Required information

27            Financial Data Schedule
</TABLE>


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

1/      Incorporated by reference from the Registration Statement on Form S-1
        (Registration No. 33-99658) filed by the Registrant with the Commission
        on November 21, 1995, as amended.

2/      Incorporated by reference from the Form 10-K for the fiscal year ended
        September 30, 1996 filed by the Registrant with the Commission on
        December 27, 1996.

*/      Management contract or compensatory plan or arrangement.

*/*/    Management contract is substantially the same as those set forth 
        in Exhibit 10.2


        (3)(b)  Reports filed on Form 8-K.

        None.



                                       38

<PAGE>   40



                                   SIGNATURES

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


                                         PITTSBURGH HOME FINANCIAL CORP.


                                         By:  /s/ J. Ardie Dillen
                                            ------------------------------------
                                              J. Ardie Dillen
                                              Chairman of the Board, President 
                                                and Chief Executive Officer


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


<TABLE>
<CAPTION>
<S>                                                              <C>
/s/ J. Ardie Dillen                                               December 18, 1997
-------------------------------------------------
J. Ardie Dillen
Chairman of the Board,
  President and Chief Executive Officer
  (Principal Executive Officer)



/s/ Michael J. Kirk                                               December 18, 1997
-------------------------------------------------
Michael J. Kirk
Senior Vice President and Chief
  Financial Officer (Principal Financial
  and Accounting Officer)


/s/ Gregory G. Maxcy
-------------------------------------------------
Gregory G. Maxcy                                                  December 18, 1997
Director and Corporate Secretary
</TABLE>



<PAGE>   41






<TABLE>
<CAPTION>
<S>                                                              <C>
/s/ Jess B. Mellor                                                 December 18, 1997
-------------------------------------------------                                   
Jess B. Mellor                                                                      
Director                                                                            
                                                                                    
                                                                                    
                                                                                    
/s/ Joseph G. Lang                                                                  
-------------------------------------------------                  December 18, 1997
Joseph G. Lang                                                                      
Director                                                                            
                                                                                    
                                                                                    
                                                                                    
/s/ Richard F. Lerach                                                               
-------------------------------------------------                  December 18, 1997
Richard F. Lerach                                                                   
Director                                                                            
                                                                                    
                                                                                    
                                                                                    
/s/ Kenneth F. Maxcy, Jr.                                                           
-------------------------------------------------                  December 18, 1997
Kenneth F. Maxcy, Jr.                                                               
Director                                                                            
                                                                                    
                                                                                    
                                                                                    
/s/ Stephen Spolar                                                 December 18, 1997
-------------------------------------------------                                   
Stephen Spolar                                                                      
Director                                                                            
                                                                                    
                                                                                    
                                                                                    
/s/ Charles A. Topnick                                                              
-------------------------------------------------                  December 18, 1997
Charles A. Topnick                                                                  
Director                                                                            
                                                                                    
                                                                                    
                                                                                    
/s/ Kenneth R. Rieger                                                               
-------------------------------------------------                  December 18, 1997
Kenneth R. Rieger                                                                   
Director                                                                            
</TABLE>