<PAGE>   1
                                                                      Exhibit 13

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
As of the year ended September 30,                                                      1999             1998              1997
-------------------------------------------------------------------------------------------------------------------------------

   (Dollar amounts in thousands, except per share data)
<S>                                                                                 <C>              <C>               <C>
Total assets                                                                        $415,742         $374,279          $273,174
Loans receivable, net                                                                278,085          211,981           181,339
Deposits                                                                             169,463          153,983           138,731
FHLB advances                                                                        184,067          155,267           101,700
Reverse repurchase agreements                                                         25,000           25,000                --
Stockholders' equity                                                                  22,026           24,799            28,814
Book value per share                                                                   12.33            13.25             14.63

For the year ended September 30,
--------------------------------------------------------------------------------------------------------------------------------

Net interest income                                                                 $  8,642         $  7,901          $  7,156
Net income                                                                             2,290            1,902             1,983
Net income(1)                                                                          2,296            1,916             1,781
Basic earnings per share                                                                1.43             1.10              1.11
Basic earnings per share(1)                                                             1.44             1.11              1.00
Diluted earnings per share                                                              1.39             1.05              1.08
Diluted earnings per share(1)                                                           1.40             1.06              0.97
Dividends per share                                                                     0.28             0.31              0.29
Return of capital distribution                                                            --             2.43                --

Selected ratios
--------------------------------------------------------------------------------------------------------------------------------

Return on average equity                                                                9.74%            7.33%             6.95%
Return on average equity(1)                                                             9.76%            7.38%             6.26%
Return on average assets                                                                0.59%            0.56%             0.84%
Return on average assets(1)                                                             0.59%            0.57%             0.75%
Interest rate spread                                                                    2.04%            2.10%             2.49%
Net interest margin                                                                     2.28%            2.43%             3.10%
Operating expenses as a percent of average assets                                       1.46%            1.50%             1.88%
Efficiency ratio                                                                       59.14%           59.59%            58.93%
Nonperforming assets as a percent of total assets                                       1.21%            1.20%             1.69%
Allowance for loan losses as a percent of nonperforming loans                          63.68%           54.08%            38.30%
</TABLE>


(1) -Ratio or calculation for 1999 and 1998 excludes trading account losses and
realized gains and losses on available for sale securities of $10,000 or $6,500
after tax ($.01 per share), and a $22,000 or $14,000 after tax ($.01 per share),
respectively, and for 1997 excludes trading account gains of $310,000 or
$201,000 after tax ($.11).



                                       2
<PAGE>   2

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The selected consolidated financial and other data of the Company set forth
below does not purport to be complete and should be read in conjunction with,
and is qualified in its entirety by, the more detailed information, including
the Consolidated Financial Statements and related Notes, appearing elsewhere
herein.

<TABLE>
<CAPTION>
                                                                             AS OF OR FOR THE
                                                                         YEAR ENDED SEPTEMBER 30,
                                                ------------------------------------------------------------------------
                                                   1999             1998            1997           1996           1995
                                                ------------------------------------------------------------------------
                                                                          (Dollars in Thousands)
SELECTED FINANCIAL AND OTHER DATA:
<S>                                             <C>              <C>              <C>            <C>            <C>
Total assets                                    $ 415,742        $ 374,279        $273,174       $195,330       $157,570
Investment securities                              33,832           57,109          37,145         22,481         18,758
Mortgage-backed securities                         75,913           84,515          38,216         23,825         27,458
Loans receivable, net                             278,085          211,981         181,339        135,552        102,938
Cash and cash equivalents                           5,319            4,476           5,224          7,562          3,545
Deposits                                          169,463          153,983         138,731        124,342        115,497
FHLB advances                                     184,067          155,267         101,700         36,500         29,000
Reverse repurchase agreements                      25,000           25,000              --             --             --
Stockholders' equity                               22,026           24,799          28,814         30,372         10,610
Non-performing assets(1)                            5,029            4,488           4,612          2,377          2,320
Full-service offices at end of period                   9                8               7              6              5
------------------------------------------------------------------------------------------------------------------------

SELECTED OPERATING DATA:
Interest income                                 $  27,659        $  24,414        $ 17,964       $ 12,933       $  9,998
Interest expense                                   19,017           16,513          10,808          7,492          5,836
                                                ---------        ---------        --------       --------       --------
Net interest income                                 8,642            7,901           7,156          5,441          4,162
Provision for losses on loans                         600              610             360            300            304
                                                ---------        ---------        --------       --------       --------
Net interest income after
   provision for losses on loans                    8,042            7,291           6,796          5,141          3,858
Gain (loss) on trading/sale of securities             (10)            (208)            310             --             --
Other noninterest income                            1,015              817             431            369            333
Other noninterest expenses                          5,727            5,114           4,476          3,557          2,932
Special SAIF assessment(2)                             --               --              --            739             --
                                                ---------        ---------        --------       --------       --------
Income before income taxes                          3,320            2,786           3,061          1,214          1,259
Income taxes                                        1,031              884           1,078            442            554
                                                ---------        ---------        --------       --------       --------
Net income                                      $   2,289        $   1,902        $  1,983       $    772       $    705
------------------------------------------------------------------------------------------------------------------------

PER COMMON SHARE:
Basic earnings per share                        $    1.43        $    1.10        $   1.11        $   .15(2)         N/A
Basic earnings per share(3)                          1.44             1.11            1.00            .15            N/A
Diluted earnings per  share                          1.39             1.05            1.08            .15            N/A
Diluted earnings per share(3)                        1.40             1.06             .97            .15            N/A
Cash dividends                                        .28              .31             .29            .05            N/A
Return of Capital Distribution                                        2.43
</TABLE>


                                       6


<PAGE>   3

<TABLE>
<CAPTION>
                                                                   AS OF OR FOR THE
                                                                YEAR ENDED SEPTEMBER 30,
                                            ---------------------------------------------------------------
                                              1999          1998         1997          1996          1995
                                            ---------------------------------------------------------------
                                                               (Dollars in Thousands)
SELECTED OPERATING RATIOS:
<S>                                         <C>          <C>          <C>            <C>            <C>
Average yield earned on
   interest-earning assets                    7.31%         7.51%         7.78%         7.66%         7.42%
Average rate paid on interest-
   bearing liabilities                        5.27          5.41          5.29          5.02          4.64
Average interest rate spread(4)               2.04          2.10          2.49          2.64          2.78
Net interest margin(4)                        2.28          2.43          3.10          3.22          3.09
Ratio of interest-earning assets
   to interest-bearing liabilities          104.91        106.45        113.05        113.19        107.12
Net interest income to
   operating expenses                         1.51          1.55          1.60          1.27          1.40
Operating expenses as a
   percent of average assets                  1.46          1.50          1.88          2.47          2.14
Return on average assets                       .59           .56           .84           .44           .51
Return on average equity                      9.74          7.33          6.95          3.80          6.83
Ratio of average equity to
   average assets                             6.01          7.66         12.02         11.68          7.43

ASSET QUALITY RATIOS(5):
Non-performing loans as a percent
   of total loans                             1.03%         1.42%         1.92%         1.55%         2.09%
Non-performing assets as a percent
   of total assets                            1.21          1.20          1.69          1.22          1.47
Allowance for loan losses as a
   percent of net loans                        .70           .82           .78           .78           .83
Allowance for loan losses as a
   percent of non-performing loans           63.68         54.08         38.30         50.27         39.70

BANK CAPITAL RATIOS(5):
Tier 1 risk-based capital ratio              16.16%        18.37%        18.91%        24.33%        14.87%
Total risk-based capital ratio               17.11         19.40         20.04         25.58         16.12
Tier 1 leverage capital ratio                 7.87          8.29          8.80         11.55          6.73
</TABLE>



(1) -- Non-performing assets consist of non-performing loans and real estate
       owned ("REO"). Non-performing loans consist of non-accrual loans and
       accruing loans 90 days or more overdue, while REO consists of real estate
       acquired through foreclosure and real estate acquired by acceptance of a
       deed-in-lieu of foreclosure.

(2) -- Per common share data have been stated only for a partial period because
       of the Company's conversion to stock form on April 1, 1996. Without
       giving effect to the one-time special Savings Association Insurance Fund
       ("SAIF") assessment of $739,000 or $473,000 after tax ($.23 per share)
       incurred in the September 1996 quarter to recapitalize the SAIF of the
       Federal Deposit Insurance Corporation ("FDIC"), net income and net income
       per share would have been $1.25 million and $.38, respectively, and
       operating expenses as a percent of average assets, return on average
       assets and return on average equity would have been 2.05%, .71% and
       6.14%, respectively.

(3) -- Excludes impact of trading activities and sales of available for sale
       securities.

(4) -- Interest rate spread represents the difference between the weighted
       average yield on average interest-earning assets and the weighted average
       cost of average interest-bearing liabilities, and net interest margin
       represents net interest income as a percent of average interest-earning
       assets.

(5) -- Asset Quality Ratios and Bank Capital Ratios are end of period ratios.
       With the exception of end of period ratios, all ratios are based on
       average daily balances during the indicated periods.



                                       7
<PAGE>   4



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION



GENERAL

The Company is a Pennsylvania corporation organized in September 1995 by the
Bank for the purpose of acquiring all of the capital stock of the Bank issued in
the conversion (the "Conversion") of the Bank from a Pennsylvania-chartered
mutual savings bank to a Pennsylvania-chartered stock savings bank. The
Conversion was completed on April 1, 1996. The only significant assets of the
Company are the capital stock of the 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 Bank.

The operating results of the Company depend primarily upon its net interest
income, which is determined by the difference between interest income on
interest-earning assets, which consist principally of loans, investment
securities and other investments, and interest expense on interest-bearing
liabilities, which consist principally of deposits and borrowings. The Bank's
net income also is affected by its provision for loan losses, as well as the
level of its other operating income, including loan fees and service charges and
its other operating expenses, including salaries and employee benefits,
occupancy expense, federal deposit insurance premiums and miscellaneous other
expenses, and income taxes.


"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

In addition to historical information, forward-looking statements are contained
herein that are subject to risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which the Company
operates), the impact of competition for the Company's customers from other
providers of financial services, the impact of government legislation and
regulation (which changes from time to time and over which the Company has no
control), and other risks detailed in this Annual Report and in the Company's
other Securities and Exchange Commission ("SEC") filings. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the SEC, including the Quarterly Reports on Form 10-Q to
be filed by the Company in 2000 and any Current Reports on Form 8-K filed by the
Company.


CHANGES IN FINANCIAL CONDITION

The Company's assets increased by $41.4 million or 11.1% from $374.3 million at
September 30, 1998 to $415.7 million at September 30, 1999. Cash and
interest-bearing deposits increased $800,000 or 17.8%, to $5.3 million at
September 30, 1999 compared to $4.5 million at September 30, 1998. Investment
securities trading decreased $1.4 million, as the Company discontinued its
trading securities strategy. Investments and mortgage-backed securities (held to
maturity and available for sale) decreased $30.5 million or 21.8% from $140.2
million at September 30, 1998 to $109.7 million at September 30, 1999. The
Company's net loans receivable increased $66.1 million or 31.2% from $212.0
million at September 30, 1998 to $278.1 million at September 30, 1999. The
growth is primarily attributable to increases in residential mortgage loans and
to a lesser extent, commercial real estate and home equity loans. The Company
has continued to develop its commercial lending expertise, and has completed the
establishment of its commercial lending department. For the year ended September
30, 1999, non residential real estate loans increased from $8.1 million to $15.7
million. Commercial loans increased from $1.6 million to $3.5 million. The
Company's centralized consumer loan department grew the home equity loan
portfolio from $13.4 million to $18.6 million. The Company is continuing its
efforts to diversify its loans receivable portfolio from its previous emphasis
on 1-4 family residential lending to a more broad based, full service commercial
bank-like portfolio. The largest individual dollar component of its loans
receivable portfolio will continue to be its residential lending, as this has
been a Company strength, ongoing high level of service and commitment in this
area.

Total liabilities increased by $44.2 million or 12.6% to $393.7 million at
September 30, 1999 compared to $349.5 million at September 30, 1998. The
increase of $15.5 million or 10.1% in deposits is primarily the result of the
continued competitive deposit pricing throughout the Company's branch network,
the introduction of a new money market deposit account product, and the
maturation and/or establishment of the Company's newer branches. The Company has
established de novo offices or purchased a new branch in each of the past four
fiscal years. The Company's newest de novo branch facility was opened in March,
1999 and finished the fiscal year with total deposits of $2.8 million which was
greater than the Company's internal pro forma deposit projections. The Company's
two de novo supermarket branches, opened in fiscal 1996 and 1998, have grown
deposits to $12.0 million and $5.3 million, which represent 17.1% and 55.3%
increases, respectively, in comparison to their deposit balances as of September
30, 1998. The Company's branch office that was purchased in fiscal 1997 grew
deposits $1.8 million or 14.6% from $12.5 million at September 30, 1998 to $14.3
million at September 30, 1999. Lastly, the Company procured a $5.0 million
certificate of deposit from the Commonwealth of Pennsylvania in a competitive
bidding process which settled in September 1999.

The Company has continued to increase its Federal Home Loan Bank ("FHLB")
advances and other sources of borrowings to increase liquidity, fund loans
receivable, and to reinvest in assets at higher yields. Advances from the FHLB
increased by $28.8 million or 18.5% to $184.1 million at September 30, 1999,
compared to $155.3 million at September 30, 1998.

Total stockholders' equity decreased $2.8 million or 11.3% to $22.0 million at
September 30, 1999, compared to $24.8 million at September 30, 1998. The
decrease is primarily attributable to a decrease in the accumulated other
comprehensive income equity account, of $3.7 million, treasury stock repurchases
totaling $1.4 million, and dividends paid of $500,000, partially offset by net
income of $2.3 million.



                                       8
<PAGE>   5

AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.

The following table sets forth, for the periods and at the date indicated,
information regarding the Company's average balance sheet. Information is based
on average daily balances during the periods presented.


<TABLE>
<CAPTION>
                                                                            As of or For the
                                                                        Year Ended September 30,
                   At September 30,   ---------------------------------------------------------------------------------------------
                               1999               1999                             1998                             1997
                           --------   ----------------------------    ------------------------------   ----------------------------
                           AVERAGE                         AVERAGE                           Average                        Average
                            YIELD/    AVERAGE               YIELD/    Average                 Yield/   Average               Yield/
                            RATE(1)   BALANCE   INTEREST     RATE     Balance   Interest       Rate    Balance   Interest     Rate
                           --------   ----------------------------    ------------------------------   ----------------------------
<S>                        <C>       <C>        <C>        <C>       <C>        <C>          <C>      <C>        <C>       <C>
                                                                       (Dollars in Thousands)
INTEREST-EARNING ASSETS:
  Investment securities       6.95%  $ 48,194    $ 3,351      6.95%  $ 58,848    $ 3,826       6.50%  $ 31,942   $ 1,991     6.23%
  Mortgage-backed
   securities                 6.59     85,548      5,504      6.43     54,200      3,702       6.83     31,449     2,194     6.98
  Loans receivable(1):
   First mortgage loans       7.58    220,897     16,840      7.62    184,110     14,930       8.11    150,099    12,351     8.23
   Other loans                8.76     18,643      1,777      9.53     14,500      1,098       7.57      9,461       826     8.73
                                     --------    -------             --------    -------              --------   -------
   Total loans receivable     7.68    239,540     18,617      7.77    198,610     16,028       8.07    159,560    13,177     8.26
  Other interest-earning
   assets                     3.30      5,095        187      3.67     13,358        858       6.42      7,987       603     7.55
                                     --------    -------             --------    -------              --------   -------
   Total interest-earning
    assets                    7.32%   378,377    $27,659      7.31%   325,016    $24,414       7.51%   230,938   $17,965     7.78%
                              ====               =======      ====               =======       ====              =======     ====
Noninterest-earning assets             12,685                          13,497                            6,348
                                     --------                        --------                         --------
   Total assets                      $391,062                        $338,513                         $237,286
                                     ========                        ========                         ========

INTEREST-BEARING
 LIABILITIES:
  Deposits                    4.44%  $154,741    $ 7,012      4.53%  $144,866    $ 6,946       4.79%  $132,280   $6,437      4.87%
  FHLB advances and other     5.77    191,145     10,985      5.75    149,759      8,831       5.90     69,268    4,312      6.23
  Guaranteed preferred
   beneficial interests in
   subordinated debt          8.80     11,500      1,012      8.80      7,667        675       8.80         --       --        --
  Escrows                     0.00      3,293          8      0.24      3,023         62       2.05      2,734       59      2.16
                                     --------    -------             --------    -------              --------   -------
Total interest-bearing
 liabilities                  5.25%  $360,679    $19,017      5.27%  $305,315    $16,514       5.41%  $204,282   $10,808     5.29%
                              ====               =======      ====               =======       ====              =======     ====
Noninterest-bearing
 liabilities                            6,863                           7,253                            4,489
                                     --------                        --------                         --------
   Total liabilities                  367,542                         312,568                          208,771
Stockholders' equity                   23,520                          25,945                           28,515
                                     --------                        --------                         --------
  Total liabilities and
    stockholder's equity             $391,062                        $338,513                         $237,286
                                     ========                        ========                         ========
Net interest-earning assets          $ 17,698                        $ 19,701                         $ 26,656
                                     ========                        ========                         ========
Net interest income/interest
  rate spread                 2.07%             $  8,642      2.04%             $  7,900       2.10%             $ 7,157     2.49%
                              ====              ========      ====              ========       ====              =======     ====
Net interest margin(2)                                        2.28%                            2.43%                         3.10%
                                                              ====                             ====                          ====
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                              104.91%                          106.45%                       113.05%
                                                            ======                           ======                        ======
</TABLE>


(1) Includes non-accrual loans.
(2) Net interest income divided by interest-earning assets.



                                       9
<PAGE>   6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION



RATE/VOLUME ANALYSIS.

The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected the
Company's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume), and (iii) total change in rate and volume.

<TABLE>
<CAPTION>
                                                                    Year Ended September 30,
                                             --------------------------------------------------------------------------------------
                                                       1999 vs. 1998                                 1998 vs. 1997
                                             ----------------------------------          ------------------------------------------
                                              Increase (Decrease) Due to                    Increase (Decrease) Due to
                                             ----------------------------                --------------------------------
                                                                               Total                                         Total
                                                                            Increase                                      Increase
                                              Rate   Volume  Rate/Volume   (Decrease)     Rate      Volume  Rate/Volume  (Decrease)
                                              ----   ------  -----------   ----------     ----      ------  -----------  ----------
<S>                                          <C>    <C>      <C>           <C>          <C>       <C>       <C>          <C>
INTEREST-EARNINGS ASSETS:
  Investment securities                      $ 266   $ (693)       $ (48)      $ (475)   $  86     $ 1,677      $  72       $1,835
  Mortgage-backed securities                  (215)   2,141         (124)       1,802      (46)      1,587        (33)       1,508
  Loans receivable, net                       (610)   3,297          (98)       2,589     (289)      3,239        (99)       2,851
  Other interest-earning assets               (368)    (530)         227         (671)     (90)        405        (60)         255
                                             -----   ------        -----       ------    -----     -------      -----       ------
    Total interest-earning assets             (927)   4,215          (43)       3,245     (339)      6,908       (120)       6,449
                                             -----   ------        -----       ------    -----     -------      -----       ------

INTEREST-BEARING LIABILITIES:
  Deposits                                    (381)     473          (26)          66      (95)        612         (8)         509
  FHLB advances                               (224)   2,440          (62)       2,154     (227)      5,011       (265)       4,519
  Guaranteed preferred beneficial
    interests in subordinated debt              --      337           --          337       --          --        675          675
  Escrows                                      (56)       7           (5)         (54)      (3)          6         --            3
                                             -----   ------        -----       ------    -----     -------      -----       ------
    Total interest-bearing liabilities        (661)   3,257          (93)       2,503     (325)      5,629        402        5,706
                                             -----   ------        -----       ------    -----     -------      -----       ------
Increase (decrease) in net interest income   $(266)  $  958        $  50       $  742    $ (14)    $ 1,279      $(522)      $  743
                                             =====   ======        =====       ======    =====     =======      =====       ======
</TABLE>


RESULTS OF OPERATIONS

NET INCOME. The Company reported net income of $2.29 million, $1.90 million, and
$1.98 million for the fiscal years ended September 30, 1999, 1998, and 1997,
respectively. Basic and diluted earnings per share were $1.43 and $1.39,
respectively, for the year ended September 30, 1999, compared to $1.10 and
$1.05, respectively, for the year ended September 30, 1998. The years ended
September 30, 1999 and 1998 earnings per share amounts each include $.01 per
share of losses related to the net losses on trading activities and investment
sales. Excluding the results of the trading activities and investment sales, net
income for the year ended September 30, 1999, was $2.30 million as compared to
$1.92 million for the year ended September 30, 1998, an increase of 19.8%.

For fiscal 1999, the $390,000 or 20.5% increase in net income was primarily
attributable to an increase in net interest income before provision for loan
losses of $742,000 or 9.4%, an increase in noninterest income of $396,000 or
65.0%, and a decrease in the provision for loan losses of $10,000 or 1.6%,
partially offset by an increase in noninterest expense of $613,000 or 12.0% and
an increase in income tax expense of $147,000 or 16.6%. The Company recognized
pre-tax net losses on trading account and available for sale securities of
$10,000 for the fiscal year ended September 30, 1999, compared to a pre-tax net
loss of $22,000 for the fiscal year ended September 30, 1998. Noninterest income
(excluding trading activities and investment sales) increased $384,000 or 60.9%
during fiscal 1999.

For fiscal 1998, the $81,000 or 4.1% decrease in net income was primarily
attributable to an increase in the provision for loan losses of $250,000 or
69.4%, a decrease in noninterest income of $132,000 or 17.8%, and an increase in
noninterest expense of $638,000 or 14.3%, which was partially offset by an
increase in net interest income before provision for loan losses of $745,000 or
10.4% and a decrease in income tax expense of $194,000 or 18.0%. The Company
recognized pre-tax net losses on trading account and available for sale
securities of $22,000 for the fiscal year ended September 30, 1998 compared to a
pre-tax net gain of $310,000 for the fiscal year ended September 30, 1997.
Noninterest income (excluding trading activities and investment sales) increased
$200,000 or 46.4% during fiscal 1998.

For fiscal 1999, the Company's net interest margin decreased to 2.28% from 2.43%
in fiscal 1998 and the Company's interest rate spread decreased by 6 basis
points to 2.04% from 2.10% for fiscal 1998. The yield earned on the Company's
interest-earning assets decreased by 20 basis points from 7.51% to 7.31%, while
the Company's average cost of interest-bearing liabilities decreased 14 basis
points to 5.27% in 1999 from 5.41% in 1998. The decrease in the Company's yield
on interest-earning assets is due to the Company having a greater portion of its
interest-earning assets in loans receivable which is reflective of lower
interest rates sustained throughout fiscal 1999.

                                       10
<PAGE>   7

For fiscal 1998, the Company's net interest margin decreased to 2.43% from 3.10%
in fiscal 1997 and the Company's interest rate spread decreased by 39 basis
points to 2.10% from 2.49% for fiscal 1997. The yield earned on the Company's
interest-earning assets decreased by 27 basis points to 7.51% from 7.78%, while
the Company's average cost of interest-bearing liabilities increased 12 basis
points to 5.41% in 1998 from 5.29% in 1997. The decrease in the Company's yield
on interest-earning assets is due to the Company having a greater portion of its
interest-earning assets in loans receivable which is reflective of lower
interest rates sustained throughout the majority of fiscal 1998. The increase in
the average cost of liabilities reflects the guaranteed preferred beneficial
interests in subordinated debt, as well as, increased borrowings.

NET INTEREST INCOME. Net interest income before the provision for losses on
loans increased $742,000 or 9.4% compared to the prior fiscal year. The increase
was due to the increase in loan origination activity and investment purchases.
The average balance of interest-earning assets increased $53.4 million or 16.4%.
The increase is primarily attributable to a $40.9 million or 20.6% increase in
the average balance of loans receivable and a $20.7 million or 18.3% increase in
the average balance of investments and mortgage-backed securities, when compared
to the same periods in 1998. The average balance of interest-bearing liabilities
increased $55.4 million or 18.1%. The increase is primarily attributable to
increases in deposits and FHLB advances with average balances of $154.7 million,
with a weighted average yield of 4.53%, and $191.1 million with a weighted
average yield of 5.75%, respectively, for the year ended September 30, 1999.

During fiscal 1999, total interest income increased $3.3 million or 13.5%
compared to fiscal 1998, primarily due to a $2.6 million or 16.3% increase in
interest earned on loans, and a $1.8 million or 48.6% increase in interest
earned on mortgage-backed securities. One-to-four family residential and
residential construction loans increased by $59.3 million or 33.3% when compared
to fiscal 1998. Other construction loans and nonresidential loans increased $6.6
million or 22.1%, and home equity loans and lines increased by $5.2 million or
38.8%. During fiscal 1999, the Company continued to grow its commercial and
consumer lending departments and continued to utilize local mortgage brokers in
the acquisition of new loan customers in addition to its emphasis on internally
generated products.

During fiscal 1999, interest expense increased $2.5 million or 15.2% over the
prior comparable year, due to a $2.1 million or 23.6% increase in interest
expense on FHLB advances and other borrowings. The increase in interest expense
on FHLB advances and other borrowings was primarily attributable to an increase
in average borrowings of $41.3 or 27.6%, which was partially offset by a
decrease in the related borrowing cost of 15 basis points from 5.90% to 5.75%.
The increased borrowings were used to fund new loans. The Company also had
interest expense of $1.0 million due to the guaranteed preferred beneficial
interests in subordinated debt for the period ending September 30, 1999, as
compared to $675,000, for the period ending September 30, 1998. The $325,000
increase is due to interest expense for a full twelve months as compared to nine
months for the period ended September 30, 1998. Interest expense on deposits
increased $66,000 or 1.0% over the prior comparable year, due to an increase in
average deposits of $9.8 million or 6.8%, which was partially offset by a
decrease in the related cost of 26 basis points from 4.79% to 4.53%.

During fiscal 1998, net interest income before the provision for losses on loans
increased $745,000 or 10.4% compared to the prior fiscal year. The increase was
due to the increase in investment purchases and loan origination activity. The
average balance of interest-earning assets increased $94.1 million or 40.7%. The
increase is primarily attributable to a $49.7 million or 78.3% increase in
average investments and mortgage-backed securities and a $39.0 million or 24.4%
increase in the average balance of loans receivable, when compared to the same
periods in 1997. The average balance of interest-bearing liabilities increased
$101.0 million or 49.4%. The increase is primarily attributable to the
guaranteed preferred beneficial interests in subordinated debt with an average
balance of $7.7 million and a weighted average yield of 8.8% for the year ended
September 30, 1998.

During fiscal 1998, total interest income increased $6.4 million or 35.9%
compared to fiscal 1997, primarily due to a $2.9 million or 21.6% increase in
interest earned on loans, a $1.8 million or 92.2% increase in interest earned on
investments, a $1.5 million or 68.7% increase in interest earned on
mortgage-backed securities, and a $111,000 or 38.6% increase in interest earned
on interest-bearing deposits. The increase in interest on loans receivable was
due to an increase in the average balance of loans receivable outstanding which
increased $39.0 million or 24.4% during fiscal 1998. One-to-four family
residential loans increased by $18.0 million or 11.8% when compared to fiscal
1997.

During fiscal 1998, interest expense increased $5.7 million or 52.8% over the
prior comparable year, due to a $4.5 million increase in interest on FHLB
advances and other borrowings. The increase in interest expense on advances and
other borrowings was primarily attributable to an increase in average borrowings
of $80.5 million or 116.2%, which was partially offset by a decrease in the
related borrowing cost of 33 basis points from 6.23% to 5.90%. The increased
borrowings were used to fund the purchase of mortgage-backed and investment
securities as part of the Company's leveraged asset strategy. The Company had
interest expense of $675,000 due to the guaranteed preferred beneficial
interests in subordinated debt. Interest expense on deposits increased $509,000
or 7.9% over the prior comparable year, due to an increase in average deposits
of $12.6 million or 9.5% from 1997 to 1998.

PROVISION 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 for loan losses is
evaluated based on an assessment of the losses inherent in the loan portfolio.
Management classifies all delinquent assets as Special Mention, Substandard,
Doubtful or Loss. The evaluation of the adequacy of the allowance incorporates
an estimated range of required allowance based on the items noted above. A
reserve level is estimated by management for each category of classified loans,
with an estimated percentage applied to the delinquent loan category balance. In
addition, management notes that there is an inherent risk of potential loan loss
in the Company's overall, nonclassified loan portfolio. This inherent risk is
addressed by applying an estimated low and high percentage of potential loss to
the remaining unclassified loan portfolio. Management extends out the various
line item balances and estimated percentages in order to arrive at an estimated
required loan loss allowance reserve. Activity for the period under analysis is
taken into account (charge offs, recoveries, provision) in order to challenge
the Company's overall process, as well as its previous loss history. The
estimated range of required reserve balance is then compared to the current
allowance for loan loss balance, and any required adjustments are made
accordingly.


                                       11
<PAGE>   8

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION



Assets classified as a Loss are considered uncollectible and of such little
value that continuance, as an asset is not warranted. A Loss classification does
not mean that an asset has no recovery or salvage value, but that it is not
practical or desirable to defer writing off all or a portion of the asset, even
though partial recovery may be affected in the future. All loans classified as
Loss have been written off directly or through provision in specific allowance
reserve. The allowance is increased by provisions for loan losses which are
charged against income. For fiscal years ended September 30, 1999, 1998, and
1997, the Company recorded provisions for losses on loans of $600,000, $610,000
and $360,000.

The Company designates all loans that are 90 or more days past due as
non-performing. Generally, when loans are classified as non-performing, unpaid
accrued interest is a reduction of interest income on loans receivable and is
only recognized when cash payments are received. For the year ended September
30, 1999, the Company's non-performing assets increased $500,000 to $5.0 million
from $4.5 million at September 30, 1998.

Management does not attribute the increase in non-performing assets to any
specific weakness within the Company or in the marketplace generally. Although
management utilizes its best judgment in providing for losses with respect to
its non-performing assets, there can be no assurance that the Company will be
able to dispose of such non-performing assets without establishing additional
provisions for losses on loans or further reductions in the carrying value of
its real estate owned.

NONINTEREST INCOME. Total noninterest income increased $396,000 or 65.0% during
fiscal 1999 over the prior fiscal year. The Company recognized a pre-tax loss of
$182,000 on trading securities primarily due to a decline in market conditions,
which was partially offset by a pre-tax net gain on available for sale
securities of $172,000. Noninterest income (excluding trading activities and
investment sales) increased $384,000 or 60.9% for the year. The pre-tax net loss
on trading and available for sale securities were offset by a $307,000 or 53.4%
increase in service charges and other fees, and a $77,000 or 138.7% increase in
other income. The increase in service charges and other fees was primarily due
to the increased volume of loans and deposits over fiscal 1998. The Company is a
leader in the residential construction lending business in the Pittsburgh area,
and the continued development of the niche has contributed to the increase in
service related fees. As noted previously, the Company has implemented a
fully-functional commercial lending department which has shown significant
growth over the past year, which also contributed to an improvement in
noninterest income. In addition, the Company joined the Freedom ATM Alliance in
the second quarter of fiscal 1999 and implemented an ATM surcharge on
non-alliance transactions.

Total noninterest income decreased $132,000 or 17.8% during fiscal 1998 over the
prior fiscal year. The Company recognized a pre-tax net loss of $208,000 on
trading securities primarily due to a decline in market conditions, which was
partially offset by a pre-tax net gain on available for sale securities of
$186,000. The pre-tax net loss on trading activities and investment sales were
offset by a $187,000 or 48.0% increase in service charges and other fees, and a
$13,500 or 32.1% increase in other income. 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. Under Board
authorization, there was no limit on the types of securities that the Company
could invest in provided that the securities were approved under the Company's
investment policy, although the Company limited its investments to equity
securities of financial institutions. At September 30, 1998, the Company had an
aggregate of $1.4 million invested in nine securities. Noninterest income
(excluding trading activities and investment sales) increased $200,000 or 46.4%
from $431,000 for the year ended September 30, 1997 to $631,000 for the year
ended September 30, 1998. As noted previously, during the first quarter of
fiscal 1999, the Company discontinued its trading securities strategy.

NONINTEREST EXPENSE. Total noninterest expense increased $613,000 or 12.0%
during fiscal 1999 when compared to the prior fiscal year. Compensation and
employee benefits increased $321,000 or 10.7%, which was attributable to the
establishment of a de novo full service branch, the hiring and establishment of
the aforementioned commercial lending department, and additional lending
personnel. Premises and occupancy costs increased $144,000 or 26.0% which was
the result of the related costs of building a new branch and leasing space for
the Company's administrative offices. Data processing costs increased $64.2
million or 26.4% which was primarily the result of an increase in service bureau
expense due to a larger number of deposit and loan customers, as well as,
increased usage of other service bureau functionalities. In addition, the
Company upgraded and expanded its technology capabilities and its wide area
network ("WAN"). Lastly, there was an increase in internal hardware and software
costs, as well as, a service bureau assessment related to year 2000 updates and
reconfigurations. Other expenses increased $116,000 or 12.4% which was due to
increased general operating costs.

Total noninterest expense increased $638,000 or 14.3% during fiscal 1998 when
compared to the prior fiscal year. Compensation and employee benefits increased
$448,000 or 17.6%, which was attributable to the opening of a new supermarket
branch, along with the expenses related to the Recognition and Retention Plan
and the Employee Stock Ownership Plan. Premises and occupancy costs increased
$89,000 or 19.1% and marketing expenses increased $50,000 or 27.9%. Both
increases were due primarily to the opening of a new supermarket branch.

PROVISION FOR INCOME TAXES. The Company incurred a provision for income taxes of
$1.0 million, $884,000, and $1.1 million for the fiscal years ended September
30, 1999, 1998, and 1997, respectively. The effective tax rate during each of
the foregoing respective fiscal years was 31.0%, 31.7%, and 35.5%.



                                       12
<PAGE>   9

ASSET AND LIABILITY MANAGEMENT

The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets during a given time period. Generally, during a period of
rising interest rates, a negative gap within shorter maturities would adversely
affect net interest income, while a positive gap within shorter maturities would
result in an increase in net interest income, and during a period of falling
interest rates, a negative gap within shorter maturities would result in an
increase in net interest income while a positive gap within shorter maturities
would have the opposite effect. As of September 30, 1999, the amount of the
Company's interest-bearing liabilities which were estimated to mature or reprice
within one year exceeded the Company's interest-earning assets with the same
characteristics by $117.9 million or 28.4% of the Company's total assets.

The Company's actions with respect to interest rate risk and its asset/liability
gap management are taken under the guidance of the Asset/Liability Management
Committee of the Board of Directors. This Committee meets quarterly to, among
other things, set interest rate risk targets and review the Company's current
composition of assets and liabilities in light of the prevailing interest rate
environment. The Committee assesses its interest rate risk strategy quarterly,
which is reviewed by the full Board of Directors.

The Company has historically emphasized the origination of long-term, fixed-rate
residential real estate loans for retention in its portfolio. At September 30,
1999, $91.3 million or 30.6% of the Company's total loan portfolio consisted of
fixed-rate residential mortgage loans. However, as of such date, the Company
also held in its loan portfolio $38.7 million of construction loans which
reprice annually and $73.1 million of long-term residential mortgage loans which
have interest rate adjustment features at seven years and fifteen years.
Although the Company anticipates that a majority of its loan portfolio will
continue to consist of fixed-rate loans, the Company has attempted to mitigate
the interest rate risk of holding a significant portion of fixed-rate loans in
its portfolio through the origination of ARMs and short-term construction and
consumer loans. At September 30, 1999, ARMs comprised $55.4 million or 18.5% of
the total loan portfolio and construction, commercial and consumer loans
aggregated $59.7 million or 20.0% of the total loan portfolio. At September 30,
1999, $33.8 million or 8.1% of the Company's total assets consisted of
investment securities, 7.4% of which have terms to maturity of less than five
years. In addition, the Company has invested in adjustable rate mortgage-backed
securities. At September 30, 1999, $16.0 million or 21.1% of the Company's
mortgage-backed securities portfolio was comprised of ARMs. At September 30,
1999, the Company classified its investment and mortgage-backed securities
portfolios as available for sale, which permits the Company to sell such
securities if deemed appropriate in response to, among other things, changes in
interest rates.

Management presently monitors and evaluates the potential impact of interest
rate changes upon the level of net interest income and the market value of the
Company's portfolio equity ("MVPE") on a quarterly basis. MVPE is the difference
between incoming and outgoing discounted cash flows from assets, liabilities,
and off-balance sheet contracts. The Company focuses on the impact of a "rate
shock" on the Company's net interest income in an up 200 and down 200 basis
points environment. The Company did purchase the Sendero computer simulation
model to assist in its in-house modeling efforts. Outside experts were engaged
during fiscal 1999 to assist in the installation and development of this
project. The Company is still in the implementation phase, and is currently
running parallel simulations with an outside banking consultant in modeling its
interest rate risk position.

The following table presents the Company's MVPE as of September 30, 1999 and
1998:

MARKET VALUE OF PORTFOLIO EQUITY

<TABLE>
<CAPTION>
                         Change in                     Estimated MPVE
                    Interest Rates        Estimated   as a Percentage        Amount of
                    (basis points)             MPVE         of Assets           Change             Percent
             ----------------------------------------------------------------------------------------------
           1999                                    (Dollars in Thousands)
<S>                 <C>                   <C>         <C>                    <C>                  <C>
                              +400          $(9,611)             (2.3)%       $(34,506)             (138.6)%
                              +300             (563)             (0.1)         (25,458)             (102.3)
                              +200            8,182               2.0          (16,713)              (67.1)
                              +100           16,700               4.0           (8,195)              (32.9)
                                --           24,895               6.0               --
                              -100           30,942               7.4            6,047                19.5
                              -200           27,390               6.6            2,495                10.0
                              -300           21,765               5.2           (3,130)              (12.6)
                              -400           16,760               4.0           (8,135)              (32.7)
</TABLE>



                                       13
<PAGE>   10



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION



MARKET VALUE OF PORTFOLIO EQUITY (CONTINUED)

<TABLE>
<CAPTION>
                               Change in                       Estimated MPVE
                           Interest Rates        Estimated     as a Percentage      Amount of
                           (basis points)             MPVE           of Assets         Change             Percent
                   ----------------------------------------------------------------------------------------------
                 1998                                     (Dollars in Thousands)

<S>                        <C>                   <C>           <C>                  <C>                   <C>
                                     +400            2,675                 0.7%       (25,290)              (90.4)%
                                     +300            9,005                 2.4        (18,960)              (68.8)
                                     +200           15,780                 4.2        (12,185)              (43.6)
                                     +100           22,310                 6.0         (5,655)              (20.2)
                                       --           27,965                 7.5             --                  --
                                     -100           23,474                 6.3         (4,491)              (16.1)
                                     -200           17,829                 4.8        (10,136)              (36.2)
                                     -300           12,336                 3.3        (15,629)              (55.9)
                                     -400            6,611                 1.8        (21,354)              (76.4)
</TABLE>


As noted on the previous tables, significant increases or decreases in interest
rates may adversely affect the Company's net interest income and/or MVPE because
of the excess of interest-bearing liabilities over interest-earning assets
repricing within shorter periods and because the Company's adjustable-rate,
interest-earning assets generally are not as responsive to changes in interest
rates as its interest-bearing liabilities due to terms which generally permit
only annual adjustments to the interest rate and which generally limit the
amount which interest rates can adjust at such time and over the life of the
related asset. In addition, the proportion of adjustable-rate loans and assets
in the Company's loan and investment portfolio could decrease in future periods
if market rates of interest remain at or decrease below current levels.


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds are deposits, advances from the FHLB,
repayments, prepayments and maturities of outstanding loans, maturities of
investment securities and other short-term investments, and funds provided from
operations. While scheduled loan repayments and maturing investment securities
and short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by the movement of interest
rates in general, economic conditions and competition. The Company manages the
pricing of its deposits to maintain a deposit balance deemed appropriate and
desirable. In addition, the Company invests in short-term investment securities
and interest-earning assets which provide liquidity to meet lending
requirements. Although the Company's deposits have historically represented the
majority of its total liabilities, the Company also utilizes other borrowing
sources, primarily advances from the FHLB.

Liquidity management is both a daily and long-term function. Excess liquidity is
generally invested in short-term investments such as cash and cash equivalents,
and U.S. Government agency securities. On a longer-term basis, the Company
invests in various loans, mortgage-backed securities, and investment securities.
The Company uses its sources of funds primarily to meet its ongoing commitments
to pay maturing savings certificates and savings withdrawals, fund loan
commitments and maintain an investment securities portfolio. At September 30,
1999, the total approved loan commitments outstanding (excluding undisbursed
portions of loans in process) amounted to $30.3 million. At the same date, the
unadvanced portion of loans in process approximated $19.0 million. Certificates
of deposit scheduled to mature in one year or less at September 30, 1999 totaled
$84.9 million. Management of the Company believes that the Company has adequate
resources, including principal prepayments and repayments of loans and maturing
investments, to fund all of its commitments to the extent required. Based upon
its historical run-off experience, management believes that a significant
portion of maturing deposits will remain with the Company.

As of September 30, 1999, the Company had regulatory capital which was in excess
of applicable limits.


IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels.


                                       14
<PAGE>   11


YEAR 2000

The year 2000 ("Y2K") problem started decades ago when early computers had very
limited memory and storage space. The Y2K issue is primarily a result of
computer software programs recognizing a two = digit date field rather than the
full four digits which identify the appropriate year. Any computer program or
hardware that is date sensitive may recognize "00" as year 1900 as opposed to
the intended year 2000.

The objective of managing the year 2000 process is for the institution to
determine the scope of the problem and to focus its efforts and attention on
solving it. The Federal Financial Institution's Examination Council ("FFIEC")
outlined the year 2000 management process as a five phase procedure [(1)
Awareness, (2) Assessment, (3) Renovation, (4) Validation, (5) Implementation]
that each financial institution would have to navigate in identifying and fixing
its year 2000 exposures. The Company has developed a detailed timetable which
identifies various milestones and deadlines to aid in managing the year 2000
process.

The Company outsources substantially all of its data processing functions, and
it is working very closely with its third party provider and other vendors
within the Bank's project plan to ensure that its operational and financial
systems will not be adversely affected by the Y2K problem.

The Awareness and Assessment phases of the Company's plan are completed and as
related to the understanding and educating of the Board and appropriate
management personnel as to the issues related to the Y2K problem. The Company is
continuously upgrading its comprehensive project plan (year 2000 binder), and
has completed its inventory of equipment, hardware, and software; updated its
Disaster Recovery Plan ("DRP"); and reported the project status to its Board,
its regulators, and its customer base. The Awareness phase, including the
comprehensive inventory of all hardware and software systems (including systems
purchased from software vendors) was completed March 31, 1998. The Assessment of
all hardware and software systems was completed June 30, 1998.

The Renovation phase of the Bank's project plan centered around the initial
contact and response evaluation of year 2000 letters and worksheets which were
sent to vendors and suppliers; the focus was on entities which have been
classified as fatal or critical to the ongoing operations of the Company. The
Company has coordinated with its third party vendors and suppliers and has
completed all of its Y2K testing.

The Validation and Implementation phases revolved around the resolution of all
vendor's and supplier's compliance status. All critical equipment or services
that were non-compliant were replaced. The testing of vendor provided
mission-critical systems, including the Company's third party service provider
was completed.

The Company has contacted its loan and deposit customers that may present some
exposure to Y2K compliance. Commercial loan customers that are not Y2K compliant
may present some risk of default. The Company's initial assessment of its
commercial loan and other customer accounts present an immaterial impact on the
Company's statement of operations. Continued monitoring and evaluation of this
risk is incorporated into the Company's Y2K project plan.

The Company's costs associated with year 2000 include an additional assessment
from its third party provider, consultant fees associated with its DRP and the
ongoing Y2K project plan, various hard costs for the replacement of
non-compliant computer, telephone, and related equipment. Excluding the "soft"
costs of Company management and personnel time, the Company estimates that the
total year 2000 project costs have not exceeded $200,000 (pre-tax).

In the event that the Company and its service providers face a "worst case" year
2K scenario and its systems would not handle the date changeover, the impact on
the Company is at this point uncertain. Clearly, the Company's Y2K contingency
plan would be enacted, which would include off-line, manual postings of all
transactions, as well as addressing any required Company service provider
changes or outsourcing to Y2K compliant entities.

The Company's plans in regard to Y2K compliance are based on management's and
the Board's best estimates. There can be no guarantee that these estimates will
be achieved, and ending results could be significantly different due to
unforeseen circumstances




                                       15
<PAGE>   12



























(This page has been intentionally left blank.)



                                       16
<PAGE>   13

                         REPORT OF INDEPENDENT AUDITORS



                                                                    [LOGO]


Stockholders and Board of Directors
Pittsburgh Home Financial Corp.


We have audited the accompanying consolidated statements of financial condition
of Pittsburgh Home Financial Corp. and subsidiaries as of September 30, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1999. These financial statements are the responsibility of
Pittsburgh Home Financial Corp.'s management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the consolidated financial condition of
Pittsburgh Home Financial Corp. and subsidiaries at September 30, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.



/s/ Ernst & Young LLP



October 29, 1999




                                       17
<PAGE>   14


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


<TABLE>
<CAPTION>
                                                                                            September 30
                                                                                 ----------------------------------
                                                                                       1999                 1998
                                                                                 ----------------------------------

ASSETS
<S>                                                                              <C>                  <C>
Cash                                                                             $   1,589,834        $   1,959,659
Interest-bearing deposits                                                            3,729,265            2,516,522
                                                                                 ----------------------------------
                                                                                     5,319,099            4,476,181
Investment securities trading
   (cost of $1,727,163 in 1998)                                                             --            1,415,291
Investment securities available for sale
   (cost of $113,557,150 in 1999 and $128,405,910 in 1998)                         109,745,150          130,208,910
Investment securities held to maturity
   (fair value of $10,033,700 in 1998)                                                      --           10,000,000
Loans receivable, net of allowance of
   $1,956,744 in 1999 and $1,737,973 in 1998                                       278,085,048          211,980,925
Accrued interest receivable                                                          2,635,063            2,797,759
Premises and equipment, net                                                          4,586,498            3,315,565
Goodwill                                                                               236,602              269,618
Federal Home Loan Bank stock--at cost                                                9,715,900            7,863,400
Deferred income taxes                                                                1,682,812              221,718
Foreclosed real estate                                                               1,956,740            1,273,928
Prepaid income taxes                                                                 1,242,673                   --
Other assets                                                                           536,279              455,429
                                                                                 ----------------------------------
Total assets                                                                     $ 415,741,864        $ 374,278,724
                                                                                 ==================================

LIABILITIES
Deposits                                                                         $ 169,462,592        $ 153,982,999
Advances from Federal Home Loan Bank                                               184,066,730          155,266,730
Reverse repurchase agreements                                                       25,000,000           25,000,000
Guaranteed preferred beneficial interests in subordinated debt                      10,805,672           10,781,166
Advances by borrowers for taxes and insurance                                        1,975,086            1,618,579
Accrued income taxes payable                                                                --              543,130
Other liabilities                                                                    2,405,650            2,286,655
                                                                                 ----------------------------------
Total liabilities                                                                  393,715,730          349,479,259

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
   5,000,000 shares authorized, none issued                                                 --                   --
Common stock $.01 par value,
   10,000,000 shares authorized
   (2,182,125 shares issued in 1999 and 1998)                                           21,821               21,821
Additional paid-in capital                                                          16,311,188           16,308,564
Treasury stock--at cost, 395,277 in 1999 and 310,424 shares in 1998                 (5,755,444)          (4,511,868)
Unearned shares of ESOP                                                             (1,340,100)          (1,514,220)
Unearned shares of Recognition and Retention Plan                                     (442,970)            (655,610)
Accumulated other comprehensive (loss) income                                       (2,516,000)           1,190,000
Retained earnings (substantially restricted)                                        15,747,639           13,960,778
                                                                                 ----------------------------------
Total stockholders' equity                                                          22,026,134           24,799,465
                                                                                 ----------------------------------
Total liabilities and stockholders' equity                                       $ 415,741,864        $ 374,278,724
                                                                                 ==================================
</TABLE>


See notes to consolidated financial statements.



                                       18
<PAGE>   15

CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                        Year ended September 30
                                                                        ---------------------------------------------------
                                                                            1999                1998               1997
                                                                        ---------------------------------------------------
<S>                                                                     <C>                 <C>                 <C>
Interest income:
   Loans                                                                $ 18,616,189        $ 16,028,442        $13,176,737
   Investment securities:
     Taxable                                                               8,444,150           7,585,237          4,180,561
     Tax-exempt                                                              412,100             401,040            318,919
Interest-bearing deposits                                                    186,730             399,666            288,290
                                                                        ---------------------------------------------------
Total interest income                                                     27,659,169          24,414,385         17,964,507

Interest expense:
   Deposits                                                                7,011,778           6,945,652          6,436,932
   Advances from Federal Home Loan Bank
     and other borrowings                                                 10,992,672           8,893,371          4,371,324
   Guaranteed preferred beneficial interests in subordinated debt          1,012,264             674,518                 --
                                                                        ---------------------------------------------------
Total interest expense                                                    19,016,714          16,513,541         10,808,256
                                                                        ---------------------------------------------------
Net interest income                                                        8,642,455           7,900,844          7,156,251

Provision for loan losses                                                    600,000             610,000            360,000
                                                                        ---------------------------------------------------
Net interest income after provision for loan losses                        8,042,455           7,290,844          6,796,251

Noninterest income:
Service charges and other fees                                               882,795             575,602            388,892
Net (loss) gain on trading securities                                       (181,856)           (208,084)           310,071
Net gain on available for sale securities                                    171,906             186,211                 --
Other income                                                                 132,417              55,469             41,966
                                                                        ---------------------------------------------------
Total noninterest income                                                   1,005,262             609,198            740,929

Noninterest expense:
   Compensation and employee benefits                                      3,319,882           2,999,230          2,550,712
   Premises and occupancy costs                                              699,506             555,102            466,119
   Amortization of goodwill                                                   33,014              33,014             27,512
   Federal insurance premium                                                  92,798              89,513             66,143
   Loss on sale of foreclosed real estate                                     16,238              30,258             11,222
   Marketing                                                                 207,051             228,800            178,943
   Data processing costs                                                     307,693             243,483            287,761
   Other expenses                                                          1,051,247             934,638            887,172
                                                                        ---------------------------------------------------
Total noninterest expense                                                  5,727,429           5,114,038          4,475,584
                                                                        ---------------------------------------------------
Income before income taxes                                                 3,320,288           2,786,004          3,061,596
Income taxes                                                               1,030,500             884,486          1,078,300
                                                                        ---------------------------------------------------
Net income                                                              $  2,289,788        $  1,901,518        $ 1,983,296
                                                                        ===================================================


Diluted earnings per share                                              $       1.39        $       1.05        $      1.08
Dividends per share                                                     $        .28        $        .31        $       .29
Return of capital distribution (see Note 9)                                       --        $       2.43                 --
                                                                        ---------------------------------------------------
Dilutive average shares outstanding                                     $  1,644,699        $  1,813,475        $ 1,842,011
                                                                        ===================================================
</TABLE>


See notes to consolidated financial statements.



                                       19
<PAGE>   16

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                      Comprehensive                         Additional                    Unearned Shares
                                             Income  Common Stock      Paid-in Capital   Treasury Stock           of ESOP
                                      ------------------------------------------------------------------------------------
<S>                                   <C>            <C>              <C>                <C>             <C>
September 30, 1996                                        $21,821          $20,958,806      $        --       $(1,831,720)
Treasury stock purchased                                       --                   --       (2,948,004)               --
Stock acquired for the RRP                                     --                   --               --                --
ESOP shares released                                           --               58,605               --           162,222
RRP amortization                                               --                   --               --                --
Cash dividends declared on common
  stock of $.29 per share                                      --                   --               --                --
Change in unrealized gain
  on investment securities
  available for sale, net
  of taxes                              $   647,000            --                   --               --                --
Net income                                1,983,296            --                   --               --                --
                                        -----------
Comprehensive income                    $ 2,630,296
                                        ===========
                                                          ----------------------------------------------------------------

September 30, 1997                                         21,821           21,017,411       (2,948,004)       (1,669,498)
Treasury stock purchased                                       --                   --       (1,575,488)               --
ESOP shares released                                           --               80,044               --           155,278
Exercise of stock options                                      --               (3,324)          11,624                --
RRP amortization                                               --                   --               --                --
Return of capital                                              --           (4,785,567)              --                --
Cash dividends declared
  on common stock
  of $.31 per share                                            --                   --               --                --
Change in unrealized gain (loss)
  on investment securities
  available for sale, net
  of taxes                              $   715,900            --                   --               --                --
Less reclassification
  adjustment for gains
  included in net income                   (122,900)           --                   --               --                --
                                        -----------
Other comprehensive income                  593,000            --                   --               --                --
Net income                                1,901,518            --                   --               --                --
                                        -----------
Comprehensive income                    $ 2,494,518
                                        ===========


                                                          ----------------------------------------------------------------
September 30, 1998                                        $21,821          $16,308,564      $(4,511,868)      $(1,514,220)
Treasury stock purchased                                       --                   --       (1,370,714)               --
ESOP shares released                                           --               37,311               --           174,120
Exercise of stock options                                      --              (34,687)         127,138                --
RRP amortization                                               --                   --               --                --
Cash dividends declared
  on common stock of
  $.28 per share                                               --                   --               --                --
Change in unrealized gain (loss)
  on investment securities
  available for sale, net
  of taxes                              $(3,534,094)           --                                    --                --

Less reclassification
  adjustment for gains
  included in net income                   (171,906)           --                                    --                --
                                        -----------
Other comprehensive income               (3,706,000)           --                                    --                --
Net income                                2,289,788            --                                    --                --
                                        -----------
Comprehensive loss                      $(1,416,212)
                                        ===========
                                                          ----------------------------------------------------------------
September 30, 1999                                        $21,821          $16,311,188      $(5,755,444)      $(1,340,100)
                                                          ================================================================
</TABLE>



<TABLE>
<CAPTION>
                                                          Accumulated
                                                                Other                                 Total
                                      Unearned Shares   Comprehensive          Retained        Stockholders'
                                              of RRP           Income          Earnings              Equity
                                      ---------------------------------------------------------------------
<S>                                   <C>               <C>                 <C>                <C>
September 30, 1996                        $        --      $ (50,000)       $11,273,109         $30,372,016
Treasury stock purchased                           --             --                 --          (2,948,004)
Stock acquired for the RRP                 (1,063,170)            --                 --          (1,063,170)
ESOP shares released                               --             --                 --             220,827
RRP amortization                              194,920             --                 --             194,920
Cash dividends declared on common
  stock of $.29 per share                          --             --           (592,500)           (592,500)
Change in unrealized gain
  on investment securities
  available for sale, net
  of taxes                                         --        647,000                 --             647,000
Net income                                         --             --          1,983,296           1,983,296

Comprehensive income
                                          -----------------------------------------------------------------

September 30, 1997                          (868,250)        597,000        12,663,905           28,814,385
Treasury stock purchased                           --             --                --           (1,575,488)
ESOP shares released                               --             --                --              235,322
Exercise of stock options                          --             --                --                8,300
RRP amortization                              212,640             --                --              212,640
Return of capital                                  --             --                --           (4,785,567)
Cash dividends declared
  on common stock
  of $.31 per share                                --             --          (604,645)            (604,645)
Change in unrealized gain (loss)
  on investment securities
  available for sale, net
  of taxes                                         --             --                --                   --
Less reclassification
  adjustment for gains
  included in net income                           --             --                --                   --

Other comprehensive income                         --        593,000                --              593,000
Net income                                         --             --         1,901,518            1,901,518

Comprehensive income
                                          -----------------------------------------------------------------

September 30, 1998                        $  (655,610)    $1,190,000      $ 13,960,778          $24,799,465
Treasury stock purchased                           --             --                --           (1,370,714)
ESOP shares released                               --             --                --              211,431
Exercise of stock options                          --             --                --               92,451
RRP amortization                              212,640             --                --              212,640
Cash dividends declared
  on common stock of
  $.28 per share                                   --             --          (502,927)            (502,927)
Change in unrealized gain (loss)
  on investment securities
  available for sale, net
  of taxes                                         --             --                --                   --
                                                                                                         --
Less reclassification
  adjustment for gains
  included in net income                           --             --                --                   --

Other comprehensive income                         --     (3,706,000)               --           (3,706,000)
Net income                                         --             --         2,289,788            2,289,788
Comprehensive loss
                                          -----------------------------------------------------------------
September 30, 1999                        $  (442,970)  $ (2,516,000)     $ 15,747,639         $ 22,026,134
                                          =================================================================
</TABLE>


See notes to consolidated financial statements.



                                       20
<PAGE>   17

CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                           Year ended September 30
                                                                         ----------------------------------------------------------
                                                                               1999                  1998                 1997
                                                                         ----------------------------------------------------------
<S>                                                                       <C>                   <C>                   <C>
Cash flows from operating activities
Net income                                                                $   2,289,788         $   1,901,518         $  1,983,296
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and goodwill amortization                                     354,339               263,001              205,664
     Amortization and accretion of premiums
       and discounts on assets and deferred loan fees                           196,021            (1,759,096)           1,250,836
   Amortization of RRP and release of ESOP shares                               424,071               447,962              415,747
   Provision for loan losses                                                    600,000               610,000              360,000
   Purchase of equity securities, trading                                            --            (9,541,568)          (4,327,987)
   Sale of equity securities, trading                                         1,233,435             8,873,780            3,423,112
   Deferred tax provision (benefit)                                             447,907              (515,155)              40,514
   Other, net                                                                (2,931,093)             (173,371)            (507,965)
                                                                         ----------------------------------------------------------
Net cash provided by operating activities                                     2,614,468               107,071            2,843,217

Cash flows from investing activities
Loan originations                                                          (117,917,426)          (80,980,474)         (81,963,200)
Loan principal repayments                                                    69,428,681            49,638,160           40,085,559
Net REO activity                                                               (682,812)             (366,530)
Proceeds from loan sales                                                             --                    --              617,700
Purchases of:
   Available-for-sale securities                                            (31,274,425)         (110,933,742)         (36,627,877)
   Held-to-maturity securities                                                       --                    --          (10,000,000)
Proceeds from sales, maturities and principal repayments of:
   Available-for-sale securities                                             27,711,786            48,046,845            9,802,735
   Held-to-maturity securities                                               10,000,000                    --                   --
Purchases of land, premises and equipment                                    (1,592,257)             (846,156)            (825,980)
Proceeds from branch deposit acquisition                                             --                    --           10,547,750
Other, net                                                                       56,500            (3,059,399)          (1,255,705)
                                                                         ----------------------------------------------------------
Net cash used in investing activities                                       (44,269,953)          (98,501,296)         (69,619,018)

Cash flows from financing activities
Net increase (decrease) in checking, passbook and
   money market deposit accounts                                              9,160,261             1,812,185
                                                                                                                         2,867,790
Net increase in certificates of deposit                                       6,319,332            13,440,627            6,709,329
Increase in advances from the Federal Home Loan Bank                         28,800,000            53,566,730           65,200,000
Increase in reverse repurchase agreements                                            --            25,000,000                   --
Net proceeds from issuance of guaranteed
   preferred beneficial interest in subordinated debt                                --            10,781,166                   --
Cash dividends paid to stockholders                                            (502,927)             (604,645)            (592,500)
Return of capital dividends paid to stockholders                                     --            (4,785,567)                  --
Purchase of RRP shares                                                               --                    --           (1,063,170)
Purchase of treasury stock                                                   (1,278,263)           (1,563,864)          (2,948,004)
                                                                         ----------------------------------------------------------
Net cash provided by financing activities                                    42,498,403            97,646,632           64,437,865
                                                                         ----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                            842,918              (747,593)          (2,337,936)
                                                                         ----------------------------------------------------------
Cash and cash equivalents at beginning of year                                4,476,181             5,223,774            7,561,710
Cash and cash equivalents at end of year                                  $   5,319,099         $   4,476,181         $  5,223,774
                                                                         ==========================================================


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
   Interest (includes interest credited on deposits of
   $7,039,388, $7,231,999 and $5,780,308 in 1999,
   1998 and 1997, respectively)                                           $  18,874,889         $  16,272,020         $ 10,129,159
Income taxes                                                                  2,220,000             1,231,000            1,237,534

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed mortgage loans transferred
   to real estate owned                                                   $   1,732,496         $   1,538,881         $    911,072
</TABLE>



See notes to consolidated financial statements.


                                       21
<PAGE>   18

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. BASIS OF PRESENTATION AND ORGANIZATION

The consolidated financial statements include the accounts of Pittsburgh Home
Financial Corp. ("the Company") and its wholly owned subsidiaries, Pittsburgh
Home Savings Bank ("the Bank") and Pittsburgh Home Capital Trust I ("the
Trust"). All significant intercompany balances and transactions have been
eliminated in consolidation.

The Bank is a state-chartered stock savings bank headquartered in Pittsburgh,
Pennsylvania, and conducts business from nine offices in Allegheny and Butler
counties. The Bank is primarily engaged in attracting retail deposits from the
general public and using such deposits to originate loans. The Company and Bank
are subject to the regulations of certain federal and state agencies and
periodic examinations by certain regulatory authorities.

In September 1995, the Bank formed Pittsburgh Home Financial Corp. to acquire
100% of the capital stock of the Bank upon its conversion from the mutual to
stock form of ownership. The Bank's conversion and the Company's common stock
offering were completed on April 1, 1996, with the sale of 2,182,125 shares of
$.01 par value common stock at $10 per share. The Company received proceeds of
$20,981,250 (net of $840,000 of organization and stock offering costs). In
conjunction with the conversion and offering, the Company established an
Employee Stock Ownership Plan (ESOP) (see Note 11) which acquired 8% of the
shares issued, or 174,570 shares for $1,928,082.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reported period. Actual
results could differ from those estimates.


CASH AND NONINTEREST-EARNING DEPOSITS

The Bank is required by the Federal Reserve Bank to maintain cash and reserve
balances. The reserve calculation is 0% of the first $4.9 million of checking
deposits, 3% of the next $41.6 million of checking deposits and 10% of total
checking deposits over $46.5 million. These required reserves, net of allowable
credits, amounted to $629,000 at
September 30, 1999.


INVESTMENT SECURITIES TRADING

Trading securities, comprised primarily of bank and thrift equities held
principally for resale in the near term, are classified as trading account
securities and recorded at their fair values based on quoted market prices.
Unrealized gains and losses on trading account securities are included in
earnings during the period.


INVESTMENT SECURITIES AVAILABLE FOR SALE

Investment securities available for sale are carried at fair value based upon
quoted market prices. Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a component of other comprehensive
income until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Declines in
the fair value of individual available-for-sale securities below their cost that
are other than temporary will result in write-downs of the individual securities
to their fair value. Any related write-downs will be included in earnings as
realized losses.


INVESTMENT SECURITIES HELD TO MATURITY

Securities for which the Company has the positive intent and ability to hold to
maturity are reported at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over the period to
maturity. Declines in the fair value of individual held-to-maturity securities
below their amortized cost that are other than temporary will result in
write-downs of the individual securities to their fair value. Any related
write-downs will be included in earnings as realized losses.


LOANS RECEIVABLE, NET

Loans are reported at their outstanding principal adjusted for any chargeoffs,
the allowance for loan losses, and any deferred fees or costs on originated
loans. Loan origination and commitment fees and certain direct origination costs
have been deferred and recognized as an adjustment of the yield of the related
loan, adjusted for anticipated loan prepayments.

The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due or when
the loan becomes more than 90 days past due. A reserve for the loss of accrued
but uncollected interest is established at the time the interest accrual is
discontinued. Interest ultimately collected is credited to income in the period
of recovery.

Impaired loans consist of nonhomogeneous loans in which management has
determined, based on the evaluation of current information and events, that it
is probable that the Bank will not be able to collect all of the amounts due on
these loans in accordance with the contractual terms of the loan agreements.
Nonaccrual, substandard and doubtful commercial and other real estate loans are
evaluated for impairment and have been included in management's assessment of
the adequacy of the allowance. At September 30, 1999, the Company had no
impaired loans.




                                       22
<PAGE>   19

The allowance for loan losses is increased by charges to income and decreased by
chargeoffs (net of recoveries). Management's periodic evaluation of the adequacy
of the allowance is based on the Bank'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 any underlying collateral,
and current economic conditions.


FORECLOSED REAL ESTATE

Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are recorded at the lower of the carrying amount of the loan or fair
value of the property less cost to sell. After foreclosure, valuations are
periodically performed by management and a valuation allowance is established
for any declines in the fair value less cost to sell below the property's
carrying amount. Revenues and expenses and changes in the valuation allowance
are included in the statement of operations. Gains and losses upon disposition
are reflected in earnings as realized.


PREMISES AND EQUIPMENT

Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method, with asset lives ranging
from three to thirty years. Maintenance and repairs are charged to expense as
incurred.


STATEMENTS OF CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash and
interest-bearing deposits.


EARNINGS PER SHARE

In accordance with FAS No. 128, basic EPS is calculated by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Options, warrants, and other potentially dilutive
securities are excluded from the basic calculation but are included in diluted
EPS. As discussed in Note 11, the Company accounts for shares acquired by its
ESOP in accordance with Statement of Position 93-6; shares controlled by the
ESOP are not considered in the weighted average shares outstanding until the
shares are committed for allocation to an employee's individual account.




                                       23
<PAGE>   20
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:


<TABLE>
<CAPTION>
                                                                            1999              1998              1997
                                                                         ----------------------------------------------
<S>                                                                      <C>               <C>               <C>
Numerator for basic and diluted earnings per share--net income           $2,289,788        $1,901,518        $1,983,296
Denominator:
Denominator for basic earnings per share--weighted average shares         1,602,554         1,725,921         1,792,430
Effect of dilutive securities:
   Employee stock options                                                    22,975            55,007            30,845
   Unvested Management Recognition Plan Stock                                19,170            32,547            18,736
                                                                         ----------------------------------------------
Dilutive potential common shares                                             42,145            87,554            49,581
                                                                         ----------------------------------------------

Denominator for diluted earnings per share--adjusted weighted
   average shares and assumed conversions                                 1,644,699         1,813,475         1,842,011
                                                                         ==============================================
Basic earnings per share                                                     $1.43            $1.10             $1.11
                                                                         ==============================================
Diluted earnings per share                                                   $1.39            $1.05             $1.08
                                                                         ==============================================
</TABLE>


TREASURY STOCK

The acquisition of treasury stock is recorded under the cost method. At the date
of subsequent reissue, the treasury stock account is reduced by the cost of such
stock on the average cost basis, with any excess proceeds being credited to
additional paid-in capital.


STOCK OPTIONS

FAS No. 123 defines a fair value-based method of accounting for stock-based
employee compensation plans. Under the fair value-based method, compensation
cost is measured at the grant date based upon the value of the award and is
recognized over the service period. The standard encourages all entities to
adopt this method of accounting for all employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
its plans as prescribed in Accounting Principles Board Opinion (Opinion No.
25)"Accounting for Stock Issued to Employees." Since the Company has elected to
use the accounting in Opinion No. 25, pro forma disclosures of net income and
earnings per share are made as if the fair value method of accounting, as
defined by FAS No. 123 had been applied (see Note 11).


GOODWILL AMORTIZATION

Amortization of goodwill related to a branch acquisition is computed using the
straight-line method over ten years.


INTEREST RATE CAP AGREEMENT

The Company enters into interest rate caps as a means of hedging interest rate
risk on floating rate liabilities. The costs of cap transactions are deferred
and amortized over the contract period. The amortized costs of cap transactions
are included in interest expense on advances and other borrowings.


COMPREHENSIVE INCOME

Effective October 1, 1997, the Company adopted FASB Statement 130, "Reporting
Comprehensive Income" Statement 130, which establishes standards for reporting
and display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
securities, which are reported separately in stockholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130. For the year
ended September 30, 1999, comprehensive loss was $1,416,212 and for the same
periods in 1998 and 1997, comprehensive income was $2,494,518 and $2,630,296,
respectively.


BUSINESS SEGMENTS

Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131") establishes standards for the way
public business enterprises report information about operating segments in
annual financial statements and requires those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The Company views itself as one segment of business which is
community banking. As such, financial information for this segment does not
differ materially from the information provided in the consolidated financial
statements.



                                       24
<PAGE>   21

NEW ACCOUNTING STANDARDS

The FASB has issued FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. As amended by FAS 137 the standard is
effective for fiscal years beginning after June 15, 2000, and will be adopted by
the Company for the year ended September 30, 2001. The impact of adoption is not
expected to materially affect the Company's financial condition or results of
operations.


RECLASSIFICATIONS

Certain reclassifications have been made in prior year financial statements to
conform to current presentation.

3. INVESTMENT SECURITIES

Securities classified by type at September 30, 1999 and 1998, are summarized
below by scheduled maturity.

<TABLE>
<CAPTION>
                                                                            Available for Sale
                                                                            September 30, 1999
                                                   ---------------------------------------------------------------------
                                                      Amortized       Unrealized          Unrealized              Market
                                                           Cost             Gain                Loss               Value
                                                   ---------------------------------------------------------------------
<S>                                                <C>                <C>                <C>                <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS DUE:
   Beyond 12 months but within 5 years             $  2,494,390          $  7,000         $    9,000        $  2,492,390
   Beyond 5 years but within 10 years                 4,064,414            41,000             71,000           4,034,414
   Beyond 10 years                                   13,452,272           107,000            306,000          13,253,272
                                                   ---------------------------------------------------------------------
                                                     20,011,076           155,000            386,000          19,780,076
MORTGAGE-BACKED SECURITIES:
Government National Mortgage Association:
   Beyond 12 months but within 5 years                       --                --                 --                  --
   Beyond 5 years but within 10 years                   406,272            15,500                 --             421,772
   Beyond 10 years                                   49,956,589            72,200          1,597,700          48,431,089
Federal National Mortgage Association:
   Beyond 12 months but within 5 years                       --                --                 --                  --
   Beyond 10 years                                   14,205,953            46,900            282,200          13,970,653
Federal Home Loan Mortgage Corporation:
   Within 12 months                                          --                --                 --                  --
   Beyond 12 months but within 5 years                  153,738                --              7,900             145,838
   Beyond 5 years but within 10 years                        --                --                 --                  --
   Beyond 10 years                                    7,636,049             5,200            328,000           7,313,249
Collateralized Mortgage Obligations:
   Beyond 10 years                                    5,754,183             6,471            130,471           5,630,183
                                                   ---------------------------------------------------------------------
                                                     78,112,784           146,271          2,346,271          75,912,784
TRUST PREFERRED SECURITIES
   Beyond 10 years                                   15,433,290             1,100          1,382,100          14,052,290
                                                   ---------------------------------------------------------------------
Total available-for-sale securities                $113,557,150          $302,371         $4,114,371        $109,745,150
                                                   =====================================================================
</TABLE>



                                       25
<PAGE>   22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                             Available for Sale
                                                                             September 30, 1998
                                                   ---------------------------------------------------------------------
                                                      Amortized        Unrealized         Unrealized              Market
                                                           Cost              Gain               Loss               Value
                                                   ---------------------------------------------------------------------

<S>                                                <C>                 <C>               <C>                <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS DUE:
   Within 12 months                                $  1,198,046        $    5,000           $     --        $  1,203,046
   Beyond 12 months but within 5 years                1,996,234            42,000                 --           2,038,234
   Beyond 5 years but within 10 years                13,100,139           186,000              1,000          13,285,139
   Beyond 10 years                                   14,366,100           411,000                 --          14,777,100
                                                   ---------------------------------------------------------------------
                                                     30,660,519           644,000              1,000          31,303,519
MORTGAGE-BACKED SECURITIES:
Government National Mortgage Association:
   Beyond 12 months but within 5 years                    4,209               113                 --               4,322
   Beyond 5 years but within 10 years                   689,230            36,349                 --             725,579
   Beyond 10 years                                   51,919,479           613,093                 --          52,532,572
Federal National Mortgage Association:
   Beyond 12 months but within 5 years                   10,648               251                 --              10,899
   Beyond 10 years                                   21,530,468           376,195                 --          21,906,663
Federal Home Loan Mortgage Corporation:
   Within 12 months                                     111,633               391                 --             112,024
   Beyond 12 months but within 5 years                  277,175                --              8,159             269,016
   Beyond 5 years but within 10 years                    48,126               210                332              48,004
   Beyond 10 years                                    3,305,132            84,184              2,295           3,387,021
Collateralized Mortgage Obligations:
   Beyond 10 years                                    5,513,067            37,704             31,704           5,519,067
                                                   ---------------------------------------------------------------------
                                                     83,409,167         1,148,490             42,490          84,515,167
TRUST PREFERRED SECURITIES
   Beyond 10 years                                   14,336,224           206,814            152,814          14,390,224
                                                   ---------------------------------------------------------------------
Total available for sale securities                $128,405,910        $1,999,304           $196,304        $130,208,910
                                                   =====================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                             Held to Maturity
                                                                            September 30, 1998
                                                   ---------------------------------------------------------------------
                                                      Amortized        Unrealized        Unrealized               Market
AGENCY OBLIGATIONS:                                        Cost              Gain              Loss                Value
                                                   ---------------------------------------------------------------------
<S>                                                <C>                 <C>                <C>               <C>
Federal National Mortgage Association:
   Beyond 5 years but within 10 years              $ 10,000,000        $   33,700         $      --         $ 10,033,700
</TABLE>


U.S. Government obligations carried at approximately $7.5 million at September
30, 1999, were pledged to secure deposits and for other purposes required or
permitted by law.

Gross realized gains and gross realized losses on sales of available for sale
securities were $209,019 and $37,113, respectively, in 1999, $305,458 and
$119,247, respectively, in 1998, and $2,184 and $1,328, respectively, in 1997.

Trading securities realized losses of $181,856 and $208,084 and realized gains
of $310,071 were included in earnings for the years ended September 30, 1999,
1998 and 1997, respectively.




                                       26
<PAGE>   23


4. LOANS RECEIVABLE, NET

Loans receivable, net at September 30, 1999 and 1998 are summarized below:

<TABLE>
<CAPTION>
                                                    -----------------------------------
                                                         1999                  1998
                                                    -----------------------------------
<S>                                                 <C>                   <C>
First mortgage loans:
Secured by 1-4 family residence                     $ 219,675,811         $ 170,100,323
 1-4 family residential construction                   17,896,602             8,179,435
 1-4 family residential construction-builder           20,827,475            21,769,842
 Non-residential                                       15,678,557             8,140,381
Less loans in process                                 (18,997,323)          (12,227,046)
Deferred loan costs                                       521,928                90,338
                                                    -----------------------------------
Total first mortgage loans                            255,603,050           196,053,273
                                                    ===================================

Home equity loans and lines                            18,556,225            13,371,773
Other loans                                             5,882,517             4,293,852
Less allowance for loan losses                         (1,956,744)           (1,737,973)
                                                    -----------------------------------
                                                    $ 278,085,048         $ 211,980,925
                                                    ===================================
</TABLE>


Activity in the allowance for loan losses is summarized as follows for the years
ended September 30:


<TABLE>
<CAPTION>
                                    ---------------------------------------------------
                                        1999                1998               1997
                                    ---------------------------------------------------

<S>                                 <C>                 <C>                 <C>
Balance at beginning of year        $ 1,737,973         $ 1,419,196         $ 1,128,279
Provision charged to income             600,000             610,000             360,000
Chargeoffs                             (399,036)           (324,223)            (76,317)
Recoveries                               17,807              33,000               7,234
                                    ---------------------------------------------------
Net chargeoffs                         (381,229)           (291,223)            (69,083)
                                    ---------------------------------------------------
Balance at end of year              $ 1,956,744         $ 1,737,973         $ 1,419,196
                                    ===================================================
</TABLE>


Real estate loans in arrears three months or more or in process of foreclosure
at September 30, 1999 and 1998, were as follows:

                    Number                            % of Real
                  of Loans               Amount    Estate Loans
                  ---------------------------------------------
1999                   34            $2,857,313           1.25%
1998                   45            $2,810,242           1.58%

The Bank had outstanding loan origination commitments of $33,141,743 and
$17,740,720 including $5,647,881 and $3,202,776 available on lines of credit, at
September 30, 1999 and 1998, respectively. There were no loans committed to be
sold at September 30, 1999 and 1998.

The Bank utilizes established loan underwriting procedures which generally
require the taking of collateral to secure loans and does not believe it has a
significant concentration of credit risk to any one borrower but does estimate
that essentially all of its loans are located within and around Allegheny and
Butler counties and surrounding counties in Pennsylvania.

5. PREMISES AND EQUIPMENT

Premises and equipment and the related accumulated depreciation at September 30,
1999 and 1998, consist of the following:


<TABLE>
<CAPTION>
                                               ------------------------------------------
                                                      1999                           1998
                                               ------------------------------------------
<S>                                            <C>                            <C>
Land                                           $ 1,149,808                    $ 1,149,808
Buildings and improvements                       2,867,894                      2,230,557
Furniture and equipment                          2,037,685                      1,608,180
Construction in progress                           608,387                         82,971
                                               ------------------------------------------
                                                 6,663,774                      5,071,516
Less accumulated depreciation                   (2,077,276)                    (1,755,951)
                                               ------------------------------------------
                                               $ 4,586,498                    $ 3,315,565
                                               ==========================================
</TABLE>


Depreciation expense was $321,325, $229,987 and $180,904 for the years ended
September 30, 1999, 1998 and 1997, respectively.



                                       27
<PAGE>   24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Bank leases office space under noncancelable operating leases. Future
minimum lease commitments under these operating lease agreements are as follows:

Year ending September 30

2000                        $134,236
2001                          84,868
2002                          75,416
2003                          53,987
2004                          56,686
2005 and thereafter          165,140
                            --------
Total minimum payments      $570,333
                            ========


Total rental expense for these leases charged to earnings was $122,115, $88,300
and $64,286, for the years ended September 30, 1999, 1998 and 1997,
respectively. On August 25, 1999, the Company entered into a lease agreement for
a new office complex. Management anticipates completion and occupancy of the
premises in August 2000, at which time lease payments would commence. The lease
is for a fifteen-year term, and the aggregate amount of the future lease
payments are $5,291,000.

6. DEPOSITS

Deposits at September 30, 1999 and 1998, are summarized as follows:


<TABLE>
<CAPTION>
                                        ------------------------------------------------------------------
                                                       1999                                1998
                                        ------------------------------------------------------------------
Balances by Interest Rate                   Amount             Percent         Amount              Percent
                                        ------------------------------------------------------------------

<S>                                      <C>                  <C>           <C>                    <C>
Savings accounts:
   Regular checking                      $  4,853,568               2.9%    $  1,624,085               1.1%
   Interest checking                       12,178,471               7.2       11,126,464               7.2
   Passbook                                27,998,549              16.5       26,266,587              17.1
   Variable money market                    6,742,544               4.0        3,595,736               2.3
                                        ------------------------------------------------------------------
                                           51,773,132              30.6%      42,612,872              27.7
Certificate accounts:
3.50%--4.49%                                9,026,266               5.3               --                --
4.50%--5.49%                               69,141,837              40.8       26,078,956              16.9
5.50%--6.49%                               29,289,209              17.3       74,170,480              48.2
6.50%--7.49%                                9,784,294               5.8       10,505,657               6.8
7.50%--8.49%                                  423,854               0.2          507,834               0.3
8.50%--9.49%                                   24,000               0.0          107,200               0.1
                                        ------------------------------------------------------------------
                                          117,689,460              69.4%     111,370,127              72.3
                                        ------------------------------------------------------------------
                                         $169,462,592             100.0%    $153,982,999             100.0%
                                        ==================================================================
</TABLE>


Individual retirement accounts totaled $14,630,466 and $14,604,241 at September
30, 1999 and 1998, respectively.

Accrued interest payable on deposits included in other liabilities was $279,072
and $306,682 at September 30, 1999 and 1998, respectively.

The contractual maturities of certificate accounts are as follows:


                                                   September 30
                                        --------------------------------
                                                1999                1998
                                        --------------------------------
Less than one year                      $ 84,852,001        $ 68,175,211
One to two years                          11,126,729          18,948,064
Two to three years                         6,089,922           8,528,455
Three to four years                        8,000,530           3,155,582
Thereafter                                 7,620,278          12,562,815
                                        --------------------------------
                                        $117,689,460        $111,370,127
                                        ================================


Certificate accounts of $100,000 or more at September 30, 1999 and 1998 were
$22,878,327 and $18,573,341, respectively.

The weighted average interest rates for all deposits at September 30, 1999 and
1998 were 4.29% and 4.60%, respectively.



                                       28
<PAGE>   25


The following schedule sets forth interest expense by fiscal year by type of
deposit:


<TABLE>
<CAPTION>
                                                1999              1998              1997
                                          ----------------------------------------------
<S>                                       <C>               <C>               <C>
Checking and money market accounts        $  317,751        $  271,747        $  225,973
Passbook accounts                            657,330           686,904           873,895
Certificates                               6,036,697         5,987,001         5,337,064
                                          ----------        ----------        ----------
                                          $7,011,778        $6,945,652        $6,436,932
                                          ==========        ==========        ==========
</TABLE>


7. NOTES PAYABLE AND OTHER BORROWINGS

FHLB ADVANCES

The Bank is a member of the Federal Home Loan Bank (FHLB) System. As a member,
the Bank has the ability to borrow "advances" which are collateralized by
certain mortgages and investment securities. The Bank is also required to
maintain an investment in the capital stock of the Federal Home Loan Bank of
Pittsburgh in an amount not less than 1% of its outstanding residential loans or
5% of its outstanding advances (whichever is greater), as calculated at December
31 of each year.

Advances from the FHLB consist of the following:


STATED MATURITY

<TABLE>
<CAPTION>
                            SEPTEMBER 30, 1999                   September 30, 1998
                     --------------------------------------------------------------
                         Weighted                        Weighted
                     Average Rate           Amount   Average Rate            Amount
                     --------------------------------------------------------------
<S>                  <C>              <C>            <C>              <C>
Less than 12 months          5.85%    $ 49,000,000           6.42%    $ 12,700,000
One to two years             6.23        9,500,000           6.18       20,000,000
Two to three years           5.82       45,250,000           6.23        9,500,000
Three to four years          5.71       28,500,000           5.89       45,250,000
Thereafter                   5.38       51,816,730           5.53       67,816,730
                     --------------------------------------------------------------
                             5.71%    $184,066,730           5.84%    $155,266,730
                     ==============================================================
</TABLE>


Approximately $125,000,000 of the outstanding FHLB advances are adjustable rate
notes with a weighted average yield of 5.53% at September 30, 1999. Advances
from the Federal Home Loan Bank of Pittsburgh are secured by the Bank's stock in
the Federal Home Loan Bank of Pittsburgh, qualifying residential mortgage loans,
U.S. Government securities, U.S. agency securities, and mortgage-backed
securities issued or guaranteed by GNMA, FHLMC, and FNMA to the extent that the
defined statutory value must be at least equal to the advances outstanding. The
maximum remaining borrowing capacity at September 30, 1999, is $59,406,000. The
advances are subject to restrictions or penalties in the event of prepayment.


REVERSE REPURCHASE AGREEMENTS

The Bank enters into sales of securities under agreements to repurchase. These
transactions are reflected as a liability on the accompanying Consolidated
Statements of Financial Condition. The dollar amount of securities underlying
the agreements remains in the asset account, although the securities underlying
the agreements are delivered to primary dealers who manage the transactions. All
of the agreements were to repurchase identical securities.

At September 30, 1999, reverse repurchase agreements outstanding amounted to $25
million with a weighted average rate of 5.46% and a maturity date of May 8,
2008. Within one year, $5 million of reverse repurchase agreements may be called
with the remaining amount of $20 million callable after two years. Securities
underlying these reverse repurchase agreements consisted of mortgage-backed
securities with carrying values of $31.3 million (market value of $30.3 million)
at September 30, 1999. The maximum amount of outstanding reverse repurchase
agreements during the year ended September 30, 1999, was $25 million.



                                       29
<PAGE>   26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. TRUST PREFERRED SECURITIES

On January 30, 1998, the Company issued, through a wholly owned subsidiary,
Pittsburgh Home Capital Trust I (the Trust) 8.56% Cumulative Trust Preferred
Securities (Preferred Securities) and received proceeds of $10,764,829 (net of
$735,171 of offering costs). The Preferred Securities have an aggregate
liquidation amount of $11,500,000, which are redeemable at the option of the
Company on or after January 30, 2028, or upon occurrence of certain regulatory
events. Holders of Preferred Securities are entitled to receive cumulative cash
distributions, at the annual rate of 8.56% of the liquidation amount of $10 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears. The Company has guaranteed the payment of distributions
and payments on liquidation of redemption of the Preferred Securities, but only
in each case to the extent of funds held by the Trust.

The Preferred Securities represent preferred undivided beneficial interests in
the assets of the Trust, which consist solely of 8.56% Subordinated Debentures
(the Subordinated Debentures) issued by the Company to the Trust. The
Subordinated Debentures bear interest at 8.56%, payable quarterly. The
Subordinated Debentures are unsecured and are effectively subordinated to all
existing and future liabilities of the Company. The Company has the right, at
any time, so long as no event of default has occurred, to defer payments of
interest on the Subordinated Debentures for a period not to exceed 20
consecutive quarters. Exercise of this right by the Company will result in the
deferral of quarterly payments on the Preferred Securities; however, interest
will continue to accrue on the Subordinated Debentures and unpaid dividends
accumulate on the Preferred Securities. The proceeds from the Preferred
Securities qualify as Tier I capital with respect to the Company under
risk-based capital guidelines established by the Federal Reserve. Federal
Reserve guidelines for calculation of Tier I capital limit the amount of
cumulative preferred stock which can be included in Tier I capital to 25% of
total Tier I capital.


9. RETURN OF CAPITAL DISTRIBUTION

On December 19, 1997, the Company paid a one-time cash distribution of $2.50 per
share. The Company obtained a private letter ruling from the Internal Revenue
Service which allowed stockholders to treat $2.43 per share of this distribution
as a return of capital. The return of capital was reflected as a reduction to
additional paid-in capital in the Company's financial statements. For the
stockholders, the return of capital is treated as a reduction in the cost basis
of the shares and is not subject to income taxes until the shares are sold. The
remaining $.07 per share was treated as an ordinary dividend. The total
distribution paid was $4,923,423 on 1,969,369 shares of stock.


10. INCOME TAXES

Income tax expense in the consolidated statements of income for the years ended
September 30, 1999, 1998 and 1997, respectively, includes the following
components:


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

Federal:
   Current        $  236,965       $ 1,190,420        $  847,556
   Deferred          447,907          (515,155)           40,514
State:
   Current           345,628           209,221           190,230
                  ----------       -----------        ----------
                  $1,030,500       $   884,486        $1,078,300
                  ==========       ===========        ==========


A reconciliation from the expected federal statutory income tax provision to the
effective tax provision expressed as a percentage of pretax income is as
follows:


<TABLE>
<CAPTION>
                                                             Percentage of Pretax Income
                                                                Year ended September 30
                                                            ---------------------------------
                                                             1999         1998         1997
                                                            ---------------------------------

<S>                                                         <C>          <C>          <C>
Expected federal tax rate                                    34.0%        34.0%        34.0%
State income taxes, net of federal income tax effect          6.9          5.0          4.1
Tax-exempt interest income                                   (3.5)        (4.0)        (2.9)
Other, net                                                   (6.4)        (3.3)          --
                                                             ----         ----         ----
Actual effective tax rate                                    31.0%        31.7%        35.2%
                                                             ====         ====         ====
</TABLE>



                                       30
<PAGE>   27
Deferred federal income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes. Significant
components of deferred federal income tax assets and liabilities as of September
30, 1999 and 1998, are as follows:


<TABLE>
<CAPTION>
                                                           -------------------------
                                                                 1999           1998
                                                           -------------------------
<S>                                                        <C>              <C>
Deferred federal income tax assets:
   Allowance for loan losses                               $  665,293       $590,911
   Unrealized loss on securities available for sale         1,296,000             --
   Parent NOL carryforward                                         --        399,338
   Other                                                       52,850             --
                                                           -------------------------
Total deferred federal income tax assets                    2,014,143        990,249

Deferred federal income tax liabilities:
   Tax-based bad debt reserve in excess of base year          115,626        115,626
   Unrealized gain on securities available for sale                --        613,000
   Deferred loan fees                                         177,456             --
   Other                                                       38,249         39,905
                                                           -------------------------
Total deferred federal income tax liabilities                 331,331        768,531
                                                           -------------------------
Net deferred federal income tax assets                     $1,682,812       $221,718
                                                           =========================
</TABLE>


The Company and the Bank will file a consolidated return and utilize the
Company's (parent) loss carryforward to offset 1999 taxes.

Retained earnings at September 30, 1999, include financial statement tax bad
debt reserves of $3,235,000. The Small Business Job Protection Act of 1996
passed on August 20, 1996, eliminated the special bad debt deduction previously
granted solely to thrifts. This results in the recapture of past taxes for
permanent deductions arising from the "applicable excess reserve," which is the
total amount of the Bank's reserve over its base year reserve as of September
30, 1987. The recapture tax is to be paid in six equal annual installments
beginning after September 30, 1996. However, deferral of these payments is
permitted for up to two years, as a result of the Bank satisfying a specified
mortgage origination test for 1997 and 1998. At September 30, 1999, the Bank had
$341,000 in excess of the base year reserves, and subject to prevailing
corporate tax rates, the Bank will owe $115,626 in federal taxes, which is
reflected as a deferred tax liability. No provision is required to be made for
the $2,894,000 of base year reserves.

The Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax which is
calculated at 11.5% of earnings based on generally accepted accounting
principles with certain adjustments.


11. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

The Company has an Employee Stock Ownership Plan for the benefit of employees
who meet eligibility requirements which include having completed one year of
service with the Bank and having attained age 21. The ESOP Trust purchased
174,570 shares of common stock in connection with the Company's initial public
offering with the proceeds from a loan from the Company. The Company makes cash
contributions to the ESOP on an annual basis sufficient to enable the ESOP to
make required loan payments to the Company.

The ESOP note bears a fixed-rate of interest equal to 8.5%, with equal payments
of interest and principal payable quarterly over ten years. The loan is secured
by the shares of stock purchased.

The Company accounts for its ESOP in accordance with Statement of Position 93-6.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of debt service paid in the year.
Accordingly, the shares pledged as collateral are reported as deferred ESOP
shares in the statement of financial condition. As shares are released from
collateral, the Company reports compensation expense equal to the current market
price of the shares, and the shares become outstanding for earnings per share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of debt.

In connection with the Company's return of capital (see Note 9), the Company
petitioned the Internal Revenue Service in a private letter ruling request to
treat the return of capital distribution to the ESOP's unallocated shares as
being attributable to the proceeds of the original loan from the Company to the
ESOP since it represents the diminution in value of those shares. As such, the
Company used the return of capital distribution on the unallocated shares held
by the ESOP to acquire 20,848 shares of the Company's stock on the open market.

                                       31
<PAGE>   28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Compensation expense for the ESOP was $211,431, $235,322, and $220,827 for the
years ended September 30, 1999, 1998 and 1997, respectively. The total shares
allocated to participants in the ESOP were 53,244 and 37,480 at September 30,
1999 and 1998, respectively.

The following summarizes the status of the ESOP shares at September 30:


<TABLE>
<CAPTION>
                                                      --------------------------------------------
                                                            1999             1998             1997
                                                      --------------------------------------------
<S>                                                   <C>              <C>              <C>
Beginning balance of unreleased ESOP shares              157,938          151,149          165,842
Additional shares purchased                                   --           20,848               --
Shares released for allocation                           (15,764)         (14,059)         (14,693)
                                                      --------------------------------------------
Ending balance of unreleased ESOP shares                 142,174          157,938          151,149
                                                      ============================================
Fair value of unreleased shares at September 30       $1,723,860       $2,132,163       $2,890,725
                                                      ============================================
</TABLE>



STOCK OPTION PLAN

At a special meeting of the stockholders held on October 15, 1996, the Company's
stockholders adopted a Stock Option Plan which is designed to provide directors,
officers, and key employees with a proprietary interest in the Company as an
incentive to contribute to its success. A total of 218,212 shares of common
stock has been reserved for issuance pursuant to the plan, which represents 10%
of the common stock issued in connection with the Company's public offering. All
options granted to participants under the plan shall become vested and
exercisable at the rate of 20% per year on each annual anniversary date.

In connection with the Company's return of capital dividend (see Note 9), the
Company petitioned the Internal Revenue Service in a private letter ruling
request to treat the return of capital dividend impact on the Company's stock
option plan as a "corporate transaction" as opposed to a modification since the
related dividend did not cause a reduction in the market value of the Company's
stock price. The Company did receive a favorable ruling to this petition, and
the adjustment of the stock option strike price of $1.25 was reviewed and did
meet the "spread" and "ratio" tests; thus, the reduced strike price is presented
as such in the table below.

The grant price of all options is equal to the fair market value of the
Company's common stock at the grant date. The following table summarizes the
changes in stock options outstanding at, and during, the two year period ended
September 30, 1999:


<TABLE>
<CAPTION>
                                                                                                                         Weighted
                                                                                                                          Average
                                                                                                                         Exercise
Exercise price per share                $ 10.375     $11.75     $13.625      $13.75    $14.625   $18.50          Total      Price
=================================================================================================================================
<S>                                    <C>          <C>        <C>           <C>       <C>      <C>           <C>        <C>
Outstanding at October 1, 1996                --         --         --           --        --        --             --    $    --
  Granted                                152,737      9,000     17,456        5,500        --        --        184,693     10.850
  Exercised                                   --         --         --           --        --        --             --         --
  Forfeited                               (8,182)        --         --           --        --        --         (8,182)    10.375

---------------------------------------------------------------------------------------------------------------------------------
Outstanding at October 1, 1997           144,555      9,000     17,456        5,500        --        --        176,511    $10.872
  Granted                                     --         --         --           --        --    19,000         19,000     18.500
  Exercised                                 (800)        --         --           --        --        --           (800)    10.375
  Forfeited                                   --     (2,000)        --           --        --        --         (2,000)    11.750

---------------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1998        143,755      7,000     17,456        5,500        --    19,000        192,711     11.617
  Granted                                     --         --         --           --    24,701        --         24,701     14.625
  Exercised                               (8,182)        --         --         (550)       --        --         (8,732)    10.588
  Forfeited                                   --         --         --           --        --        --             --         --

---------------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1999        135,573      7,000     17,456        4,950    24,701    19,000        208,680    $12.016
=================================================================================================================================
Exercisable at September 30, 1999         54,229      2,800      6,982        1,980        --     3,800         69,791    $11.383
=================================================================================================================================
</TABLE>


The Company accounts for stock options in accordance with Opinion No. 25. The
following pro forma information regarding net income and earnings per share
assumes the adoption of Statement No. 123 for stock options granted during the
year ended September 30, 1999. The estimated fair value of the options is
amortized to expense over the option and vesting period. The fair value was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest rates of 6.0% and
a dividend yield of 1.3%; volatility factors of the expected market price of the
Company's common stock of 0.203 and a weighted average expected life of seven
years.



                                       32
<PAGE>   29


<TABLE>
<CAPTION>
                                                             --------------------------------------------
                                                                   1999             1998             1997
                                                             --------------------------------------------
<S>                                                          <C>              <C>              <C>
Net income before stock options                              $2,289,788       $1,901,518       $1,983,296
Compensation expense (tax effected) from stock options          114,893          101,271           76,929
                                                             --------------------------------------------
Pro forma net income                                         $2,174,895       $1,800,247       $1,906,367
                                                             ============================================
Pro forma dilutive earnings per share                        $     1.32       $     0.99       $     1.03
                                                             ============================================
</TABLE>


RECOGNITION AND RETENTION PLAN AND TRUST

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

At a special meeting of the stockholders held on October 15, 1996, the
stockholders of the Company approved and established a Recognition and Retention
Plan and Trust, the objective of which is to retain qualified personnel in key
positions of the Company. Directors, officers, and key employees will be
eligible to receive benefits under the plan. During the year ended September 30,
1997, the Company contributed $1,063,170 to the trust to purchase 87,285 shares
of common stock in connection with the Company's public offering necessary to
establish the plan. Shares awarded under the Recognition and Retention Plan
(RRP) shall become vested and exercisable at the rate of 20% per year over five
years on each annual anniversary date. The Company is amortizing the prepaid
compensation and recording additions to stockholders' equity as the shares vest.
Compensation expense attributable to the plan amounted to $212,640 in 1999 and
1998.

The Company's return of capital distribution, (see Note 9), paid on shares in
the Recognition and Retention Plan and Trust was treated as a special credit to
participant's accounts and will be released in the same manner and term as the
original award. As original shares are released, the related special
distribution on shares will also be released.


THRIFT PLAN

Effective October 1, 1995, the Bank provided eligible employees participation in
a 401(k) contributory defined contribution plan. The Bank matches 50% of an
employee's contribution up to 6% of an employee's compensation. The Bank
contributed $38,741, $35,923, and $31,922 to the 401(k) for the years ended
September 30, 1999, 1998 and 1997, respectively.


PENSION PLAN

The Bank participates in a retirement plan which covers all eligible employees
through the Financial Institution Retirement Fund, a member of the Pentegra
Group, which is a multiemployer defined benefit plan. The fund does not compute
and provide separate actuarial valuations or segregation of plan assets by
employer. The actuarial cost method used for funding the plan is the projected
benefit method. The plan was fully funded at June 30, 1999, which is the plan
year-end. Pension expense was approximately $15,000, and $60,000 for the periods
ended September 30, 1998 and 1997, respectively.


12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

Interest rate cap agreements are instruments used by the Company in hedging
certain short-term liabilities. An interest rate cap is an agreement whereby the
seller of the cap contractually agrees to pay the buyer the difference between
the actual interest rate and the strike rate per the cap contract (if the actual
rate is higher than the strike rate). At September 30, 1999, the Company had
notional balances of interest rate cap agreements totaling $25 million. The Bank
would receive variable interest payments based on the spread between the
variable three-month LIBOR rate and the strike price of the caps if the variable
three-month LIBOR rate is higher than the strike rate. The strike price of the
agreement held by the Bank at September 30, 1999, was 7%. Unamortized costs at
September 30, 1999, were $170,834 and were included in other assets. The
agreement has an expiration date of March 6, 2003.




                                       33
<PAGE>   30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13. STOCKHOLDERS' EQUITY--BANK

Under federal regulations, the Bank is required to maintain specific amounts of
capital. The following table sets forth certain information concerning the
Bank's regulatory capital:

<TABLE>
<CAPTION>
                                           --------------------------------------------------------------------------------------
                                                    September 30, 1999                           September 30, 1998
                                           --------------------------------------------------------------------------------------
                                             TIER I        TIER I           TOTAL          Tier I          Tier I           Total
                                           LEVERAGE    RISK-BASED      RISK-BASED        Leverage      Risk-Based      Risk-Based
                                            CAPITAL       CAPITAL         CAPITAL         Capital         Capital         Capital
                                           --------------------------------------------------------------------------------------
                                                                          (Dollars in thousands)
<S>                                        <C>         <C>             <C>               <C>          <C>             <C>
Equity capital(1)                          $ 33,158      $ 33,158        $ 33,158        $ 31,049        $ 31,049        $ 31,049
Plus general valuation allowances(2)             --            --           1,957              --              --           1,738
                                           --------------------------------------------------------------------------------------
Total regulatory capital                     33,158        33,158          35,115          31,049          31,049          32,787
Minimum required capital                     16,863         8,208          16,417          14,993           6,761          13,522
                                           --------------------------------------------------------------------------------------
Excess regulatory capital                    16,295        24,950          18,698          16,056          24,288          19,265
                                           ======================================================================================
Adjusted total assets                      $421,565      $205,212        $205,212        $374,565        $169,022        $169,022
                                           ======================================================================================

Regulatory capital as a percentage             7.87%        16.16%          17.11%           8.29%          18.37%          19.40%
Minimum capital required as a percentage       4.00          4.00            8.00            4.00            4.00            8.00
                                           ======================================================================================
Excess regulatory capital as a percentage      3.87%        12.16%           9.11%           4.29%          14.37%          11.40%
                                           ======================================================================================
Well-capitalized requirement                   5.00%         6.00%          10.00%           5.00%           6.00%          10.00%
                                           ======================================================================================
</TABLE>


(1) Represents equity capital of the Bank as reported to the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation.

(2) Limited to 1.25% of risk-adjusted total assets.

The Bank is also subject to more stringent Pennsylvania Department of Banking
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.

In connection with the Bank's stock conversion, the Bank segregated and
restricted $11,167,000 of retained earnings, the amount of its regulatory
capital at that date, in a liquidation account for the benefit of eligible
savings account holders who continue to maintain their accounts at the Bank
after conversion. In the event of a complete liquidation of the Bank subsequent
to conversion, each eligible account holder will be entitled to receive a
distribution from the liquidation account in the amount proportionate to the
current adjusted balances of all qualifying deposits then held before any
liquidation distribution may be made with respect to the stockholders. Except
for the repurchase of stock and payment of dividends, the existence of the
liquidation account will not restrict the use or application of such capital.

Subsequent to the conversion, neither the Bank nor the Company may declare or
pay cash dividends on any of their shares of common stock if the effect would be
to reduce stockholders' equity below applicable regulatory capital requirements
or if such declaration and payment would otherwise violate regulatory
requirements.


14. LOANS TO RELATED PARTIES

The Bank has granted loans to certain directors and officers of the Bank and to
their affiliates. Such loans are made in the ordinary course of business at the
Bank's normal credit terms and do not represent more than normal risk of
collection. These loans aggregated approximately $67,227, $24,253 and $48,480 at
September 30, 1999, 1998 and 1997, respectively. There was $69,000 in new loans
granted, and repayments approximated $26,026 in fiscal 1999.


15. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of FAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires that the Company disclose estimated fair values for its
financial instruments. The market value of investments and mortgage-backed
securities, as presented in Note 3, are based primarily upon quoted market
prices. For substantially all other financial instruments, the fair values are
management's estimates of the values at which the instruments could be exchanged
in a transaction between willing parties. In accordance with FAS No. 107, fair
values are based on estimates using present value and other valuation techniques
in instances where quoted prices are not available. These techniques are
significantly affected by the assumptions used, including discount rates and
estimates of future cash flows. As such, the derived fair value estimates cannot
be substantiated by comparison to independent markets and further, may not be
realizable in an immediate settlement of the instruments. FAS No. 107 also
excludes certain items from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent, and should not be
construed to represent, the underlying value of the Company.

                                       34
<PAGE>   31


Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments:

Cash and interest-bearing deposits in financial institutions: The carrying
amounts reported in the balance sheet for cash and interest-bearing deposits
approximate those assets' fair value.

Investment securities, including mortgage-backed securities and equity
securities: Fair values are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted prices
of comparable instruments (see Note 3).

Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for all other loans are estimated using discounted cash flow
analysis, using comparable interest rates offered for loans with similar terms
to borrowers of similar credit quality.

Deposit liabilities: The fair values disclosed for interest checking, money
market, and savings deposits are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair values for
certificates of deposit are estimated using a discounted cash flow analysis,
applying a comparable Federal Home Loan Bank advance rate to the aggregated
weighted average maturity on time deposits.

Borrowings: Fair values for the Company's variable-rate FHLB advances and other
borrowings are deemed to equal carrying value. Fair values for fixed-rate
borrowings are estimated using a discounted cash flow analysis similar to that
used in valuing fixed-rate deposit liabilities.

Interest rate cap: The fair value of interest rate swaps, caps and floors which
represent the estimated amount the Company would receive or pay to terminate the
contracts or agreements, taking into account current interest rates and when
appropriate, the current creditworthiness of the counterparties are obtained
from dealer quotes.

Off-balance sheet instruments: Fair values for the Company's commitments to
extend credit are based on their carrying value, taking into account the
remaining terms and conditions of the agreements.


<TABLE>
<CAPTION>
                                                               -----------------------------------------------------------------
                                                                    SEPTEMBER 30, 1999                    SEPTEMBER 30, 1998
                                                               -----------------------------------------------------------------
                                                                   CARRYING              FAIR         CARRYING              FAIR
                                                                      VALUE             VALUE            VALUE             VALUE
                                                               -----------------------------------------------------------------
<S>                                                            <C>               <C>              <C>               <C>
ASSETS
Cash and interest-bearing deposits                             $  5,319,099      $  5,319,099     $  4,476,181      $  4,476,181
Investment securities available for sale                        109,745,150       109,745,150      130,208,910       130,208,910
Investments securities held to maturity                                   -                 -       10,000,000        10,033,700
Trading securities                                                        -                 -        1,415,291         1,415,291
Loans receivable, net                                           278,085,048       277,806,000      211,980,925       218,439,925
Federal Home Loan Bank stock                                      9,715,900         9,715,900        7,863,400         7,863,400
Interest rate market cap                                            170,834           270,760          221,000            59,682

LIABILITIES
Deposits                                                        169,462,592       168,599,000      153,982,999       155,176,999
Advances from Federal Home Loan Bank                            184,066,730       183,782,000      155,266,730       161,425,000
Advance payments by borrowers                                     1,975,086         1,975,086        1,618,579         1,618,579
Reverse repurchase agreements                                    25,000,000        24,942,000       25,000,000        26,567,000
Guaranteed preferred beneficial interests insubordinated debt    10,805,672        10,175,000       10,781,166        10,746,556
</TABLE>



                                       35
<PAGE>   32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly consolidated statements of income are as follows (dollar amounts in
thousands, except per-share data):


<TABLE>
<CAPTION>
                                         Three Months Ended           YEAR ENDED           Three Months Ended           YEAR ENDED
                                ------------------------------------             ------------------------------------
                                DECEMBER   MARCH     JUNE  SEPTEMBER   SEPTEMBER  December    March    June  September   September
                                    1998    1999     1999       1999        1999      1997     1998    1998       1998        1998
                                --------------------------------------------------------------------------------------------------

<S>                              <C>      <C>      <C>     <C>        <C>         <C>        <C>     <C>     <C>         <C>
Total interest income             $6,746  $6,868   $6,847     $7,198     $27,659    $5,319   $5,990  $6,372    $ 6,733     $24,414
Total interest expense             4,743   4,619    4,702      4,953      19,017     3,470    3,909   4,390      4,744      16,513
                                 -------------------------------------------------------------------------------------------------
Net interest income                2,003   2,249    2,145      2,245       8,642     1,849    2,081   1,982      1,989       7,901
Provision for
  loan losses                        150     150      150        150         600       120      120     120        250         610
                                 -------------------------------------------------------------------------------------------------
Net interest income after
  provision for loan
  losses                           1,853   2,099    1,995      2,095       8,042     1,729    1,961   1,862      1,739
                                                                                                                             7,291

Total noninterest income             139     286      279        302       1,006       327      179     165        (92)        579
Total noninterest expense          1,270   1,491    1,425      1,541       5,727     1,193    1,352   1,267      1,272       5,084
                                 -------------------------------------------------------------------------------------------------
Income before
  income taxes                       722     894      849        856       3,321       863      788     760        375       2,786
Income taxes                         224     278      263        266       1,031       292      278     264         50         884
                                 -------------------------------------------------------------------------------------------------
Net income                        $  498  $  616   $  586     $  590     $ 2,290    $  571   $  510  $  496    $   325     $ 1,902
                                 =================================================================================================

Basic earnings
  per share(1)                    $  .30  $  .38   $  .37     $  .36     $  1.40    $  .33   $  .30  $  .29    $   .19     $  1.10
                                 =================================================================================================
Diluted earnings per share(1)     $  .30  $  .37   $  .36     $  .36     $  1.39    $  .31   $  .28  $  .27    $   .18     $  1.05
                                 =================================================================================================
</TABLE>


(1) Quarterly per-share amounts do not add to total for the years ended
September 1999 and 1998, due to rounding.


                                       36
<PAGE>   33


17. CONSOLIDATED FINANCIAL INFORMATION OF PITTSBURGH HOME FINANCIAL CORP.
(PARENT ONLY)

Pittsburgh Home Financial Corp. was organized in September 1995 and began
operations on April 1, 1996. The Company's statement of financial condition as
of September 30, 1999 and 1998, and related statements of income and cash flows
are as follows:


STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                              Year ended
                                                                                 ----------------------------------
                                                                                         1999                 1998
                                                                                 ----------------------------------
<S>                                                                              <C>                  <C>
ASSETS
Cash and cash equivalents                                                        $    852,917         $  2,711,341
Investment in Pittsburgh Home Savings Bank                                         30,879,126           32,509,194
Prepaid income taxes                                                                  951,462                   --
Other assets                                                                          371,179              511,640
                                                                                 ---------------------------------
Total assets                                                                     $ 33,054,684         $ 35,732,175
                                                                                 =================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Guaranteed preferred benefit interest in subsidiary debt                         $ 10,805,672         $ 10,781,166
Other liabilities                                                                     222,878              151,544
                                                                                 ---------------------------------
Total liabilities                                                                  11,028,550           10,932,710
Total stockholders' equity                                                         22,026,134           24,799,465
                                                                                 ---------------------------------
Total liabilities and stockholders' equity                                       $ 33,054,684         $ 35,732,175
                                                                                 =================================

                                                                                              Year ended
                                                                                 ----------------------------------
                                                                                         1999                 1998
                                                                                 ----------------------------------

STATEMENTS OF INCOME
Interest and dividend income                                                     $      4,420         $     56,709
Interest expense                                                                   (1,012,264)            (674,518)
Noninterest income                                                                   (251,856)              69,206
Noninterest expense                                                                  (553,772)            (583,425)
                                                                                 ---------------------------------
(Loss) before income taxes and equity in earnings of subsidiary                    (1,813,472)          (1,132,028)
Income tax credit (expense)                                                           540,000              375,314
                                                                                 ---------------------------------
(Loss) before equity in earnings of subsidiary                                     (1,273,472)            (756,714)
Equity in earnings of Pittsburgh Home Savings Bank                                  3,563,260            2,658,232
                                                                                 ---------------------------------
Net income                                                                       $  2,289,788         $  1,901,518
                                                                                 =================================
</TABLE>



                                       37
<PAGE>   34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Year ended
                                                            ---------------------------------
                                                                   1999                 1998
                                                            ---------------------------------

<S>                                                         <C>                 <C>
OPERATING ACTIVITIES
Net income                                                  $ 2,289,788         $  1,901,518
Adjustments to reconcile net income
   to net cash used in operating activities:
Equity in earnings of Pittsburgh Home Savings Bank           (3,563,260)          (2,658,232)
Amortization of ESOP and RRP shares                             424,071              447,962
Net trading securities purchases and sales                           --              904,875
Change in other assets and liabilities                          772,167              900,074
                                                            --------------------------------
Net cash used in operating activities                           (77,234)           1,496,197

INVESTING ACTIVITIES
Purchases of available-for-sale securities                           --           (1,040,000)
Proceeds from sales of available-for-sale securities                 --            3,719,062
                                                            --------------------------------
Net cash provided by investing activities                            --            2,679,062

FINANCING ACTIVITIES
Proceeds from issuance of guaranteed preferred
   beneficial interest in subordinated debt                          --           10,781,166
Capital contribution to bank subsidiary                              --           (6,000,000)
Return of capital distribution                                       --           (4,785,567)
Cash dividend on common stock                                  (502,927)            (604,645)
Purchase of stock for Treasury and RRP                       (1,278,263)          (1,563,864)
                                                            --------------------------------
Net cash provided by (used in) financing activities          (1,781,190)          (2,172,910)
                                                            --------------------------------

Increase (decrease) in cash                                  (1,858,424)
                                                                                   2,002,349
Cash at beginning of year                                     2,711,341              708,992
                                                            --------------------------------
Ending cash and cash equivalents                            $   852,917         $  2,711,341
                                                            ================================
</TABLE>




                                       38
<PAGE>   35

                                                           CORPORATE INFORMATION


CORPORATE HEADQUARTERS

Pittsburgh Home Financial Corp.
225 Ross Street, Suite 600, Pittsburgh, Pennsylvania 15219
(412) 227-1945 FAX: (412) 227-1910


ANNUAL MEETING

The Annual Stockholders' Meeting will be held at 11:00 a.m. on January 27,
2000, at The Library Center, GRW Theater, Second Level, 414 Wood Street,
Pittsburgh, Pennsylvania 15222. Stockholders are encouraged to attend.


TRANSFER AGENT

Chase Mellon Shareholder Services L.L.C.
Attention: Investment Services
P.O. Box 750, Pittsburgh, PA 15230
(800) 756-3353

GENERAL INQUIRIES AND REPORTS

Pittsburgh Home Financial Corp. is required to file an annual report on Form
10-K for its fiscal year ended September 30, 1999, with the Securities and
Exchange Commission. Copies of this annual report and quarterly reports may be
obtained without charge by contacting Michael J. Kirk, Executive Vice President
and Chief Financial Officer.

DIVIDEND REINVESTMENT PLAN

Pittsburgh Home Financial Corp. maintains a Dividend Reinvestment/Cash Purchase
Plan for registered holders of its common stock. A brochure describing the Plan
and an application to participate may be obtained by contacting Michael J. Kirk,
Executive Vice President and Chief Financial Officer.

STOCK INFORMATION

Pittsburgh Home Financial Corp. is traded on the NASDAQ Stock Market under the
symbol "PHFC." As of September 30, 1999, Pittsburgh Home Financial Corp. had
1,786,848 shares of common stock outstanding and approximately 1,300
stockholders of record.

STOCK PRICE

The following table illustrates Pittsburgh Home Financial Corp.'s high and low
quarterly closing stock price on the NASDAQ Stock Exchange and the cash
dividends per share paid during the year.


QUARTER ENDED                         HIGH          LOW        DIVIDENDS

September 1999                       $13.38       $12.13        $ .07
June 1999                             13.88        13.13          .07
March 1999                            15.13        13.63          .07
December 1998                         15.50        12.13          .07

September 1998                       $17.75       $13.00        $ .06
June 1998                             18.75        16.75          .06
March 1998                            18.63        17.00          .06
December 1997                         21.50        17.75          .13
Return of Capital Distribution                                  $2.43


                                       41